The Warburgs
Page 22
When war broke out, Paul was widely regarded as having America’s most fertile financial mind. He and Henry Davison of the Morgan bank had induced their friend Ben Strong of Bankers Trust to take the pivotal post of head of the New York Federal Reserve Bank. Strong and Paul were the only recruits to the brand-new system tutored in foreign banking methods. “Frankly stated, we were a lot of ‘greenhorns’ with no guide or compass,” observed Strong.5 This placed Paul in a critical position in August 1914. As European stock markets and banks shut down, he faced the giant task of modernizing American finance to cope with its sudden emergence as global banker.
One side of Paul brimmed with hope and delight about America’s new prowess as the foremost creditor nation. Despite his brief citizenship, he gave speeches flavored with a robust Yankee optimism, proclaiming, “The American colossus is moving.” At a 1916 speech in Buenos Aires, this German-born banker, speaking in Spanish, declared it doesn’t “take any degree of bold prophecy to foretell what the outcome must be. The United States now is and from now on will be one of the world bankers.”6 Paul’s work with the Fed ripened his patriotism, making him an eloquent booster of American economic potential. “It staggers the imagination to think what the future may have in store for the development of American banking,” he told Minnesota bankers in 1915.7
——
Official photo of Felix Warburg as chairman of the Joint Distribution Committee.
(American Jewish Archives)
At times, his adopted American identity only thinly covered his German sentimentality. The European war made him heartsick. Even as he suffered malicious accusations of disloyalty, he was shaping the Fed into a potent instrument that might someday be used to prosecute war against his native country. He was a gentle man, totally unsuited for war. As his son said, “[The war’s] savage brutality—quite apart from anxiety for his relatives in Germany—filled him with sadness and dismay.”8 He tried to resolve his conflicted feelings by taking a pacifist approach, favoring American neutrality and a negotiated peace. He wanted a world without victors and believed that a vengeful, jingoistic attitude by the Entente powers would only harden the attitudes of German militarists. Yet he couldn’t entirely suppress a pro-German bias either, which colored his views and weakened his influence. He was increasingly at odds with the Wilson administration, which maintained official neutrality while tilting toward the Allies. As Paul’s son noted, “When Wilson was a neutralist my father thought he was wonderful; when he began to be an interventionist he didn’t think he was so wonderful.”9
The war years were a time of profound social discomfort for Paul and Nina. Shy and withdrawn, they didn’t relish the nonstop entertaining and social rounds required by official Washington. Yet they faithfully performed their social duties and threw large dinner parties, creating a glittering Washington salon visited by Agriculture Secretary David Houston, Interior Secretary Franklin Lane, Justice Oliver Wendell Holmes, and Benjamin Cardozo. They felt most relaxed with other young couples, including Assistant Navy Secretary Franklin D. Roosevelt and Eleanor. However fond of Franklin, Nina would sigh regretfully, “He’s really a beautiful looking man, but he’s so dumb.”10
With anti-German sentiment everywhere in Washington, Paul and Nina introduced a protective distance from German-Jewish friends and relatives. “In New York, my mother spent time with all these relatives, stout women with too much jewelry and pearls,” said her daughter. “In Washington, they had to get rid of a lot of their Jewish friends. My mother got a book about palmistry. To make new friends she read everybody’s palm.”11 Nina suddenly showed a poorly timed loyalty to Germany. One New Jersey friend told her that the Hoboken ferries were crawling with German spies and that she should get rid of their loyal German servants. Instead, Nina took some old Kösterberg retainers down to Washington and openly entertained the German ambassador, Johann von Bernstorff. Otherwise, Nina was a good political wife and proved adept at tipping off Paul to hostile characters.
With Germany at war, Paul worried about Max with a pure, selfless love not shared by his family, who thought Max exploited his younger brother’s idolatry. “During the war, father kept saying that we can’t do this and that because we have to save money for Max,” said Paul’s daughter. “Then, when we went to Europe after the war, Max was building hothouses.”12 Paul later confided to Max that for all his putative neutrality, he had never really severed his emotional attachment to the old firm. “I myself have never lost the feeling of belonging to the firm, even when the partnership ended in 1914 and temporarily so many ramparts were erected between us, as only a wayward world can erect.”13
Paul’s agile mind devised reasons why the United States shouldn’t go to war against Germany. By going to war, America would surrender its position as a “balance wheel” in world politics, able to mediate among nations. If war came, he warned Colonel House, Americans might briefly be buoyed by patriotic fervor. “But the longer the war lasts the clearer will it become that the suffering and the burdens of the war will be out of proportion to its causes, and the feeling will gradually gain the upper hand that, after all, we should have kept out of it.”14 Paul fancifully wanted Wilson to summon a conference with the Allies and demand that they spell out their peace demands. If these were punitive, he thought, the United States could then refrain from entering the war. It was a logician’s impractical response to an irrational world.
At least publicly, Paul maintained that he endured no personal abuse as the highest German-born official in wartime Washington. “At no time have I had a single unpleasant or annoying remark passed in my presence.”15 Yet a nonstop whispering campaign was spreading innuendoes about him. The British ambassador in Washington, Sir Cecil Spring-Rice, told Sir Edward Grey that a Jewish conspiracy, masterminded by Kuhn, Loeb, had infiltrated the American government, and he gleefully cited Paul as the cat’s-paw. “Since Morgan’s death, the Jewish banks are supreme and they have captured the Treasury Department by the small expedient of financing the bills of the Secretary of the Treasury … and forcing upon him the appointment of the German, Warburg, and the Federal Reserve Board which he dominates.”16
In Spring-Rice’s superheated imagination, Jacob Schiff controlled The New York Times and was manipulating it to destroy Britain. When the British Treasury sent Messrs. Paish and Blackett to negotiate a Washington loan, Spring-Rice’s inventive prose soared. Of Paul, he said, “He practically controls the financial policy of the Administration and Paish and Blackett had mainly to negotiate with him. Of course it was exactly like negotiating with Germany. Everything that was said was German property.”17
Such smears circulated on the American side as well. Treasury Secretary McAdoo harbored a terrible antipathy toward Paul, who wanted the Fed to be independent of the Treasury Department’s meddling. In retaliation, McAdoo exploited the xenophobic mudslinging and tried to poison Woodrow Wilson’s mind against Paul. In August 1915, McAdoo told Wilson that Paul “doesn’t offer to inform the board of the conversations with Bernstorff and Albert … with each of whom he is very intimate—especially with Albert.”18 (Dr. Albert was the German financial attaché.) These accusations about Paul’s loyalty really served as a proxy for a power struggle over leadership of the Fed.
Paul was undoubtedly in a position to affect policy toward Germany, especially after Wilson designated him vice-governor of the Federal Reserve Board in August 1916. That November, Paul helped to draft a Fed statement cautioning American investors against accumulating too many securities issued by warring nations. This effectively penalized France and England, since Germany hadn’t issued Wall Street loans. Some contemporaries spied a subtle plot to undercut the Allies. Edward C. Grenfell, the senior Morgan partner in London, warned the British Treasury that the Fed maneuver was the work of “Warburg and other German sympathisers.…”19 Paul cited a patriotic American concern for excessive exposure to risky securities, a view certainly consistent with his habitual financial conservatism and fears of wartim
e inflation. But what motives lay at the bottom of his mind remain a mystery.
—
Like Paul, Felix sympathized with Germany and championed American neutrality. When Paul joined the Fed in 1914, Felix took over his M. M. Warburg partnership, which he kept until the United States declared war in 1917. Handicapped with this political liability, he “leaned over backward in his American neutrality,” said Frieda, to avoid even the appearance of favoring Germany.20 Felix was less complicated than Paul, a lighter, more extroverted personality, who didn’t brood about politics. He was full of New World optimism, while Paul seemed freighted with Old World Weltschmerz. Yet Felix was deeply saddened by the war and the bloodlust it aroused in America. As he wrote to Schiff one day, “As you have no doubt seen in the papers, yesterday afternoon the Stock Exchange became weak on rumors of approaching peace, such is the brutality of humanity nowadays.”21
The war dislocation sped Felix’s rise as the crown prince of Jewish philanthropy. As the financial center of gravity shifted to Wall Street, the war transformed New York into the hub of world Jewish charity. Aristocratic European Jews who had hitherto supervised Jewish philanthropy could no longer discharge that duty. From his solemn house on Fifth Avenue, implausibly adorned with Italian saints and Madonnas, Felix would be the last great benefactor of the Jewish masses, sustaining scores of charities. The Lower East Side tenements were now bursting with more than half a million Jews from Eastern Europe, many of whom required relief. Felix knew such dependency bred hostility and wished to see philanthropy democratized. He told Schiff, “There is no doubt about it that there is a tremendously strong feeling against the leaders who, on account of their prominence in Jewish affairs, took it upon themselves to speak for the people at large without consulting them.”22 Yet he happily enjoyed the prerogatives of wealth. And if Felix had an easy, sympathetic way with the Ostjuden—not true of many German Jews—he didn’t hesitate to flaunt his power in charitable affairs to dominate organizations. One shouldn’t picture Felix, for all his good nature, as a shrinking violet.
Felix once said that he devoted 75 percent of his day to charity and 25 percent to banking—surely overstating the banking portion. Aside from partners’ meetings, he had little direct involvement in Kuhn, Loeb transactions, even as a senior partner. (He did have a shrewd eye for spotting talent, enlisting from a local Savarin restaurant a boy named George Bovenizer, who later made partner.) He probably turned to charity both to please Schiff and to compensate for his own boredom with banking. He was an inimitable mixture of pure hedonist and dedicated philanthropist. Right before the war, his charity work switched into a higher gear. As president of the Young Men’s Hebrew Association from 1908 to 1916, he led the drive to create a national organization in 1913 and as an American Museum of Natural History trustee after 1910, he helped to set up its pension fund.
The need for overseas aid grew pressing during World War I as hundreds of thousands of terror-stricken Jews fled before advancing czarist troops in the Austro-Hungarian Empire. The seven million Jews stranded in the Russian-Polish Pale of Settlement desperately needed help as they were hounded from their homes, a calamity for Jews already imperiled by grinding poverty and persecution. Also in need of emergency aid were the nearly one hundred thousand Jews living in Palestine under Ottoman rule, a vulnerable group consisting mostly of elderly people, who had gone to die in the Holy Land, and idealistic young settlers working for a new agricultural society. When Turkey entered the war on Germany’s side in October 1914, Allied ships cordoned off the Palestine coast, blocking fruit and vegetable exports from Jewish farmers. In Constantinople, American ambassador Henry Morgenthau appealed to American Jewry to relieve Jewish suffering in Palestine.
To ponder solutions to these multiple crises, Jacob Schiff, Felix Warburg, and other prominent German Jews met at Temple Emanu-El in October 1914. The Yiddish-speaking Orthodox Jews of Eastern Europe had already set up a war-relief committee. The German-Jewish leadership now created an umbrella group to coordinate all relief efforts. Acting on a suggestion from Felix’s secretary, Harriet B. Lowenstein, they called it the American Jewish Joint Distribution Committee. Lawyer Louis Marshall would be president, and Schiff, declining to become treasurer, gave the fateful nod to Felix. Some delegates feared that Felix’s allegedly pro-German sentiments would displease Allied opinion. Nevertheless, he soon graduated to chairman of the Joint Distribution Committee, a position he would retain until 1932, followed by five years as honorary chairman. The Orthodox Jews eventually dropped out, and the following spring the fiery rhetoricians and trade unionists of the Jewish Socialists entered the committee’s capacious tent.
The Joint Distribution Committee was a momentous, unprecedented step for American Jews, who were contentiously divided between rich and poof, German and Russian, starchy Republicans and rabble-rousing Democrats. Historian Allan Nevins has summarized its significance: “A truly heroic effort! This Joint Distribution Committee represented much the largest cooperative enterprise and the most unselfish suppression of old animosities and jealousies in the history of New World Jews.”23 Uniting several strands of American Jewry, the Joint—as it was affectionately and lastingly dubbed—required consummate diplomatic skills. Intuitive, quick-witted, honest, and with a debonair diplomatic touch, Felix was tailor-made for such mediation. Hating political infighting, he knew how to create harmony, avert factional squabbles, and massage the tender egos of rich donors. In 1916, Schiff praised Felix’s feat in raising millions of dollars for the eastern Jews, telling Max it was the more remarkable “especially because, as you know from experience, our varied co-religionists are always ready to attach the most varied conditions to their gifts and are quick to criticize.”24
The Joint’s leadership had a conspicuous overlap with that of the American Jewish Committee, which represented the rich, acculturated merchant families of German ancestry. Yet the Joint provided common ground for Jews who had formerly enjoyed little contact with the wealthy segment; the groups tended to circle each other warily. The immense psychological distance between downtown ghetto dwellers and uptown bankers was exposed when Felix held a dinner at 1109 Fifth Avenue to merge the various factions into the Joint. Unlike the seventy-five guests who arrived in dinner jackets, two Russian Jews wore business suits and telltale red ties. Felix decided to eavesdrop on these two, who stood admiring his Italian art. He heard one say, “When Communism comes and there’s a division of property, I hope I draw this house.” Felix chimed in: “When Communism does come, and there is a redistribution of goods, I hope that if you do get my house, you will also invite me to be your guest, because I have always enjoyed it.”25 He strode off in a huff.
For the most part, the Joint tried to channel money to local groups, rather than to operate its own programs. It steadfastly remained nonpolitical. It raised money at large fund-raisers, often in a highly emotional atmosphere. As one participant recalled after Rabbi Judah Magnes spoke at one rally, “A million dollars were contributed; and women tore their jewels from their hair and threw them to the speaker.”26 Despite its federation structure, the Joint still relied upon the largesse of a small circle of extremely rich men, including Felix and Julius Rosenwald of Sears, Roebuck.
The Joint got immediate results. By March 1915, it had loaded a coal ship, the Vulcan, with nine hundred tons of food and medicine bound for Palestine. Despite wartime danger in the Mediterranean, the ship received a special dispensation from England, Turkey, and Germany allowing it safe passage, and Woodrow Wilson pled for its safety. The Joint frequently operated under hazardous conditions. In 1915, it sent two workers to Poland in the Joint’s khaki uniforms. Apparently mistaken for Polish soldiers, they were killed by the Russian Army.
The Joint became Felix Warburg’s all-consuming passion, turning him into the most powerful man in the most powerful Jewish charity in the world. Herbert Agar left this tribute: “If one man can be given the chief credit for building a strong and lasting machine out of such unl
ikely material, it is Felix M. Warburg of New York.… Among his many gifts, of kindness and tact and charm, Felix Warburg had supremely the gift of persuading people to work together. He made his neighbors ashamed to be quarrelsome, ashamed to be jealous while there was great work to be done. Perhaps no one else could have welded harmoniously the Joint Distribution Committee.”27
Felix knew that charities had to contend with two everlasting enemies: the pomposity and vanity of large donors and the inefficiency of their bureaucracies. It dismayed him that fund-raising siphoned off up to 60 percent of funds collected. To counter this, he created in 1917 the Federation of Jewish Philanthropies to solicit money for seventy-five Jewish charities in New York’s five boroughs. With Felix serving as its first president until 1920, the Federation turned into the “Our Crowd” charity par excellence. By pooling their fund-raising resources, individual groups saved money and avoided divisive competition, a successful pattern copied by Jewish communities across America.
—
Throughout the war, a cloud hung over Kuhn, Loeb, dimming its Wall Street standing and clearing the way for financial domination by J. P. Morgan & Co. From the outset, the firm refrained from financial operations with Germany, but doubts about its patriotism lingered. Schiff would issue carefully hedged statements, deploring bloodshed and predicting an early end to the war. Like Paul and Felix, he favored a negotiated settlement, exhorting Wilson to offer his good services as a mediator. The New York Times published an exchange between Schiff and former President Charles Eliot of Harvard in which Schiff advocated a negotiated peace.
Yet his early actions spurred rumors of secret German sympathies. Amid August 1914 reports that Japan planned to enter the war against Germany, Schiff cabled his friend, Baron Takahashi, that such a move could damage Japan’s financial standing on Wall Street. When Russia sent a financial agent to New York to explore a war loan, Schiff, bane of the czarist regime, campaigned to thwart him. He personally subscribed to a German war loan through M. M. Warburg, eliciting personal thanks from German under secretary Zimmermann. Again in early 1915, “out of devotion to the old Fatherland,” he secretly lent one million dollars to Germany from his own account, a move Max reported in high German government circles.28 As Schiff wrote a friend in 1914, “My sympathies are naturally altogether with Germany, as I would think as little to side against my own country as I would against my own parents.”29