The Warburgs

by Ron Chernow

  Thirteen years younger than Aby, Fritz didn’t feel so keenly the Warburg imperative to have a spectacular career. In this extravagantly overachieving family, he could shelter behind his brothers’s exploits and enjoy a benign neglect. Even during student days in Munich, Berlin, and Rostock, he showed modest ambition and snored his way through many classes. He associated with Jewish students, shunning those who chose baptism just to further their careers. Magnetically drawn to life’s back alleys, lower depths, and illicit passageways, Fritz often seemed more preoccupied by the demimonde than the beau monde. He liked to regale companions with humorous anecdotes from Low German authors. In Berlin, he patronized a restaurant that used several back chambers to satisfy needs beyond the strictly culinary and he loved to joke about the versatile kitchen and waitress staff. In another marked departure from Warburg custom, Fritz enjoyed chatting in Yiddish and adored the shtetl lore of Eastern European Jews. Later, not surprisingly, he assumed many of Moritz’s functions in the Hamburg Jewish community.

  Fritz’s life was often predetermined by events in his older brothers’ lives. After completing legal studies in Berlin in 1902, he planned to practice law. Then Paul and Nina moved to New York, and Moritz had to recruit a second son for the bank. On the spot, Fritz had to renounce his legal career, doubtless an agonizing step for him, since he never had any special interest in banking. He trained in Frankfurt with the Disconto-Gesellschaft, then spent a year at M. M. Warburg. An apprenticeship in Paris was cut short by Olga’s suicide. To help care for her three orphaned children, he moved into Paul Kohn-Speyer’s house and worked at the metal firm of Brandeis, Goldschmidt. This proved invaluable, for Fritz afterward cofounded the Hamburg Metal Exchange and started a metals department at the Warburg bank.

  By 1907, as the Warburg partner in charge of credit and personnel, Fritz was installed in a first-floor office next to Max, where he shuffled in late each morning and stayed late. He enjoyed being closeted with employees, hearing their stories and acquiring a comprehensive knowledge of the bank. He was intensely curious about people. Fond of graphology, he studied the handwriting of the M. M. Warburg employees and his daughters’ friends. Fritz would never focus narrowly on money or power and regularly attended theater, cinema, and ballet.

  The ugly Fritz married an extremely pretty distant relative. Blond and blue-eyed, Anna Beata Warburg stood a full head taller than Fritz. In yet another intermarriage, Anna was his second cousin, her father having left Hamburg decades earlier to escape the rigid orthodoxy of the Jewish community. He had married Ellen Josephson, who was descended from another Jewish banking family imported into Sweden by a seventeenth-century finance minister. (The Swedish actor, Erland Josephson, comes from the same family.) After reading an American book called Patsy about a crippled child, Anna Beata, fourteen, decided to devote herself to improving kindergartens, which were then little more than day-care centers with uneducated staffs. Like other Warburg women, she saw charitable work as a welcome escape from the drudgery of domestic life.

  In 1896, Aby S. Warburg (Siegmund’s son) visited Sweden and brought home the fifteen-year-old Anna to educate his children. She thus arrived in Hamburg as the poor relation, living as a governess at the luxurious Alsterufer residence and attending the progressive Fröbelseminar for kindergarten teachers. Fritz got to know her at the Alsterufer. As she prepared to return to Sweden in May 1908, he decided he had better propose quickly. Anna, more serious than the fun-loving Fritz, was taken aback and had to overcome worries about his profligacy. That year, they got married in Stockholm, with Paul coming from America for the wedding. On their honeymoon in Florence, Aby M. again played the voluble cicerone, as he escorted them through the galleries.

  Anna never entirely shed a faint sense of shame and inferiority about having entered the family in the guise of a lowly governess. This gave her a detached, often critical, perspective on family matters. Her activist ideology clashed with her sudden wealth. As her daughter said, “My mother felt that wealth was a humiliating burden.”28 She felt self-conscious about being a rich woman who had to run a large house full of servants. As an educator and social worker, she knew nothing about managing a household or handling cooks. Family traditions that seemed sacrosanct or self-evident to others were persistently questioned by the iconoclastic Anna. Why was Aby exempt from earning money? Why did Max get a larger cut at the bank?

  Anna Beata felt that Max’s wife always studied her with a haughty, condescending eye. As the poor relations married to the two banking brothers, Anna and Alice were constantly compared—to Anna’s detriment. As a hostess, who could compete with the overweening perfectionist Alice? It was a losing battle. So Anna and Fritz opted out of the whole family competition and cultivated a separate set of friends and interests. Yet they could never entirely shed a nagging feeling that they should keep up with Malice and their regal relatives.

  A year after their marriage, Anna Beata joined the Fröbelseminar board and became involved in training people to run professional kindergartens. She and Fritz lived at Gross Fontenay 5, with an Alster Lake view, next door to where Paul and Nina had lived. Reacting against the massive, ornate, overstuffed furniture then voguish among Hamburg’s prosperous burghers, Anna decorated the house with blue walls and light birch furniture.

  It was a lively but troubled house: Fritz had a roving eye and often escaped to Berlin for assignations, and it was never a happy marriage. Contrary to what one might expect, Fritz and Anna weren’t terrific parents. They traveled often, leaving the children with governesses. Fritz didn’t know what to do with their three daughters—Ingrid, Eva, and Charlotte Esther—until the girls could sit and converse with him like little adults.

  Fritz’s twin sister, Louise, married Dr. Julius Derenberg, an ear, nose, and throat specialist. Louise was a warm, cheerful, and unaffected woman, who feared her mother but in many ways patterned herself after Charlotte. She read widely, kept a diary, and wrote poetry. Imbued with Charlotte’s sense of duty, Louise threw herself into charitable work and helped to support seven or eight families. She would receive them in the dining room, tell them they had far too many children, and then give them money. Louise and Julius had four smart, sociable children—Carl, Walter, Ruth, and Gabriele—who grew up in an assimilated atmosphere with hardly any Jewish friends.

  Raised in a protected home where money was a taboo subject, Louise was innocent of life’s practicalities. When Dr. Derenberg courted her and she admired some beautiful furniture, Charlotte lectured her, “If you marry your little physician, you won’t have that.”29 Nonetheless, Louise persisted. In another family, the bearded, intellectual Dr. Derenberg would have been regarded as a social ornament. A handsome bon vivant and music lover, he collected Japanese woodcuts and took an interest in Hinduism and Buddhism. As a serious botanist, he collected cacti and other desert plants in his greenhouse and even had a plant named for him in botany texts. Yet in the strict Warburg hierarchy of status, he wasn’t a banker so he was demoted to a secondary position.

  No less than Fritz and Anna Beata, Louise and Julius were made to feel the splendor and infinite superiority of the Malice household. The Warburgs measured themselves not only against the larger society but against each other. Having finally gained an opening in German high society, they were anxious to retain it, and this uncertain success intensified a status consciousness endemic among the German Jews. The snobbery was less a reflection of having arrived than a telltale index of some ultimate, underlying insecurity, a tacit fear that this newfound paradise might prove evanescent after all.

  CHAPTER 7

  ––

  A Small Duchy in Westchester

  Nina Loeb only agreed to live in Hamburg on a temporary basis, and Betty and Solomon Loeb continually clamored for her return. Nina’s letters home bemoaned the cold, damp weather and the German pessimism, and she begged Paul to follow Felix’s example and accept a Kuhn, Loeb partnership. A self-sacrificing spirit, Paul was caught between his loving, persi
stent wife and that master of persuasion, brother Max.

  When news came that Betty Loeb was seriously ill in 1902, Paul agreed to move to New York. As he and Nina sailed west that summer, the plump, diabetic Betty struggled with gluttonous urges at the Loebs’ Fishrock Camp in the Adirondacks. One day, as she reached for a forbidden wedge of pie, Solomon exclaimed, “Betty, don’t!” She couldn’t stop herself. “If it costs me ten years of my life,” she declared, “I’ll take a second helping of this excellent desert.”1 True to her prophecy, the rich food triggered an attack and she lay dead within twenty-four hours.2 A year later Solomon died in bed from a heart attack.

  Paul only moved to America under duress, having just become one of the first Jews elected to the Hamburg city-state council or Bürgerschaft. (Assigned to a low-prestige committee on chimney sweeps, he was kidded mercilessly about it by Max.) Max always said no brother had ever been a closer friend, and he and Moritz were despondent over Paul’s departure. Max still exerted a magical and pervasive influence over his bashful younger brother. That Paul could resist Max’s pressure to stay in Hamburg speaks eloquently of Nina’s tenacity. In the end, Max conceded that Hamburg was too small a kingdom for the brothers’ joint ambitions and felt it best that Paul had left. For all his idolatry of Max, Paul felt overworked and overshadowed by his brother.

  Max and Moritz released Paul on the condition that he retain his Hamburg partnership, spending six months in New York and six months in Hamburg each year. In the end, they settled for his staying at Kösterberg in the summertime. For Paul, it was an emotionally charged departure. As his son said, before World War I Paul resided emotionally on both sides of the Atlantic.3 Whereas Felix became a naturalized U.S. citizen by 1900, Paul waited until 1911, when his German citizenship became a political liability in his controversial crusade for a central bank.

  Two things reconciled Max to Paul’s loss. First, with the growing complexity of tax law and contracts, he thought it wise to hire a Syndikus or legal adviser for the firm, and chose an elegant, meticulous young Hamburg judge named Dr. Carl Melchior. For a private bank, this was a revolutionary act, and Moritz couldn’t see how the man could possibly earn his keep. Yet Melchior, a humble man, deeply impressed Moritz and exhibited Paul’s sterling qualities. Extremely lucid, precise, and of unquestioned integrity, he would play a role in German finance no less distinguished and unimpeachable than Paul’s in America. By a nice symmetry, they would work together on German reparations.

  Also sweetening the pill for Max was that Paul’s joint Kuhn, Loeb–M. M. Warburg partnership magnified his firm’s global power. The Kuhn, Loeb connection would elevate M. M. Warburg into being the foremost private bank in Hamburg, possibly in Germany. The two firms were now bolted together irrevocably by the telephone and teletype messages that passed daily between Paul and Max, making them privy to every notable development in American-European finance. “Even a house like Morgan was poorly informed about Europe in comparison to us,” Max boasted.4 By 1898, the fancy House of Bleichröder itself was grumbling that Max neglected them on Illinois Central bonds issued by Kuhn, Loeb and distributed by Warburgs.5 After scoring a spectacular success in 1900 by placing German treasury bonds in America through Kuhn, Loeb—the money to go for Germany’s expedition against the Boxer Rebellion—the Warburg bank participated in numberless government and railroad issues with Kuhn, Loeb. To crown its new eminence, M. M. Warburg was invited in 1905 to join the most august German financial committee, the Reich Loan Consortium.

  ——

  Paul M. Warburg.

  (Courtesy of Katharine Weber)

  In New York, Nina and Paul rented a house at 3 East 82nd Street. Each morning, Paul walked downtown with Jacob Schiff, exchanging views all the while. Since he hated attracting attention, Paul felt uncomfortable with Schiff’s grand, imposing manner and self-important airs. Paul’s daughter said of these morning walks, “He hated the whole performance.”6 Paul hid his feelings, however, and Schiff would always prefer him to the glad-handing, outgoing Felix, who wasn’t always as deferential.

  Paul arrived at Kuhn, Loeb right before the firm moved to a palatial twenty-two-story building at William and Pine streets. Wall Street was then rigidly split between “Yankee” banks tied to England and “Jewish” banks tied to Germany. For Kuhn, Loeb, the barrier was more porous. Among Jewish firms, it most nearly aped the style, manners, and success of the elite gentile firms, notably J. P. Morgan & Co. Its clients now included Royal Dutch Petroleum and Shell Transport and Trading as well as the Swedish, German, and Japanese governments. Through Sir Ernest Cassel, Schiff met British king Edward VII. In 1906, Paul and Max placed an issue of Pennsylvania Railroad notes in Paris, a coup for both firms, and Schiff fulsomely praised Paul: “… it will give you the feeling that you are really one of the four wheels which make the wagon go.”7

  Piloted by the imperial Schiff and assisted by the flamboyant Otto Kahn, Kuhn, Loeb didn’t provide Paul with the same room for advancement as M. M. Warburg. He was a junior partner—talented, upcoming, but still junior. Speaking English with a British accent, he betrayed a double foreignness. (His children had to edit his essays for errors.) Unlike Felix or Max, Paul was introverted, with few intimate friends, and hardly anybody dared to call him by his first name. If warm and jovial at a family gathering, he could seem austere and cynically aloof in business circles. Peering over his glasses and studying the world skeptically, he didn’t suffer fools gladly. In America, he was surrounded by an impenetrably lonely aura.

  Paul was never at home in the Wall Street rough-and-tumble. Schiff had formed an alliance with railroad baron Edward H. Harriman, an unkempt little man of exceptional shrewdness and sizable ambition. In 1901, Schiff and Harriman teamed up with William Rockefeller and National City Bank in a boisterous battle to wrest control of the Northern Pacific railroad from Pierpont Morgan. Their titanic stock market duel for the road ultimately produced a truce between Morgan and Schiff, but at the price of a full-blown stock market crash caused by frantic, competitive bidding for the railroad’s shares. Though Paul enjoyed working with Harriman, he didn’t go for the gladiator tactics and generally didn’t care for his work at Kuhn, Loeb.

  It was a matter of happenstance that Paul became a great theoretician of central banking; he could have excelled at many things. Taking a scholarly approach to finance, he frowned upon the single-minded pursuit of money as crass and vulgar. As a resident insider equipped with an outsider’s vision—a classic Warburg strength—he saw Wall Street’s defects in a vivid, heightened way. He brought to America an encyclopedic knowledge of European central banks. By an uncanny coincidence, he arrived in America on the eve of a historic debate over whether the United States needed a central bank. The nation hadn’t had one since Andrew Jackson spiked the charter for the Second Bank of the United States in 1836, and Paul’s detailed knowledge would be a rare resource in the emerging, often ill-informed, debate.

  From the time he started at Kuhn, Loeb, he was flabbergasted by the wild boom-and-bust swings on Wall Street, the weak, fragmented banking system, the giddy stock market gyrations. Soon after his arrival, panic convulsed the stock exchange, with interest rates on broker loans from banks soaring to a stratospheric 100 percent. “To a person trained under the central banking system of European countries,” he confessed, “such conditions seemed bewildering and strange.”8 As a foreigner, he didn’t accept such lunacy as inevitable. “I was not here for 3 weeks before I was trying to explain to myself the roots of the evil.”9 He thought it presumptuous, however, for a newcomer to lecture the natives and graciously remained silent.

  In 1902, Schiff dined with President Theodore Roosevelt to discuss monetary reform. Schiff deplored the lack of an elastic currency, which meant that money became too tight in boom periods and too slack in bust. When Paul showed his senior partner an essay he had written advocating an American central bank, Schiff applauded the ideas, but was skeptical about their prospects in a country ferociously hostil
e to such schemes. The notion of a central bank was still highly controversial, and Schiff feared that if he wasn’t discreet, Paul might get a reputation as a wild-eyed maverick. Although Schiff and others speculated vaguely about a central bank, only Paul, with his European training, had a clear grasp of the mechanics involved. Schiff advised him to show his essay, quite confidentially, to James A. Stillman, president of National City Bank.

  After sending the memo, Paul looked up one day to see the president of Wall Street’s largest bank looming above his desk. “How is the great international financier?” Stillman asked sarcastically, adding, “Warburg, don’t you think the City Bank has done pretty well?” “Yes, Mr. Stillman, extraordinarily well,” Paul replied. “Why not leave things alone?” Though shy, Paul wasn’t meek and he bridled at this condescension. “Your bank is so big and powerful, Mr. Stillman, that when the next panic comes, you will wish your responsibilities were smaller.” Suddenly defensive, Stillman snapped that American banking was more advanced than Europe’s and didn’t need to copy foreign models.10 The exchange convinced Paul how premature it was to publicize his ideas, and he buried his essay in the drawer for four years. It is astonishing to think that Paul’s seminal thoughts on the Federal Reserve System were jotted down within months of his arrival in America. Four years later, the essay so gleefully mocked by Stillman would be dusted off and published to famous effect.