The House of Morgan

by Ron Chernow

  Lamont’s Italian adventure exposed other problems. The highly intimate style of “relationship banking” meant that bankers came to share their clients’ interests and identify with them. They felt almost too responsible for the success of their issues. As Lamont once said, when the House of Morgan undertook to market a block of common shares, it assumed responsibility, not simply for the solvency of the corporation involved but for its brilliant, successful management. This was the old London tradition upheld by Pierpont in dealing with bankrupt, profligate railroads. Now that tradition was being transposed into a policy of backing dictators whose bonds were floated by the House of Morgan. Although lending to sovereign states had political overtones and moral imperatives quite absent from conventional business banking, the style of “relationship banking” was transferred intact.

  There was another factor of paramount importance in Morgan’s growing involvement in Italy—the Vatican. Earlier, Pope Pius X had grown wistful and regretted not having requested investment tips from Pierpont. This papal prayer was belatedly answered in the late 1920s, during the reign of Pius XI. The new relationship owed something to the friendship between Jack Morgan and the pope. In his earlier incarnation as Monsignor Ratti, prefect of the Vatican Library, the pope had restored the Morgan collection of sixty Coptic texts dug up from an old stone well in an Egyptian monastery. As an expert on early Christian documents, he had hardened the parchments until they became legible. The task consumed twelve years before the texts were finally returned to the Pierpont Morgan Library.

  Even more important to the future Morgan relationship with the Vatican was the 1929 Lateran Treaty, which resolved a fifty-eight-year dispute between Italy and the papacy. Back in 1871, Italy had taken control of the Papal States, which included much of southern Italy and had provided the Vatican with enormous revenues. In 1929, Mussolini not only recognized the Vatican’s sovereignty but paid almost $90 million in compensation for the seized lands. This vast sum was paid in the form of Italian treasury bonds worth 1.5 billion lira.

  Before this, the Vatican had managed money in a conservative and rather primitive way. At the turn of the century, Pope Leo XIII had simply filled a trunk with gold coins and stored it under his bed. But with his good Milanese business head, Pius XI wanted to manage the Vatican’s assets in a modern, secular manner. On June 2, 1929, he met with Bernardino Nogara of the Banca Commerciale Italiana, one of the rare meetings in papal history not recorded on the Vatican calendar. Nogara was not only a highly experienced banker but had so many priests and nuns among his siblings as to make him an acceptable layman for confidential Vatican work.

  The Pope asked Nogara to create the Special Administration of the Holy See and convert the Italian treasury bonds into a diversified stock portfolio. The operation was so secret that only one report was produced each year. Nogara would hand-deliver it to the pope, who would inspect it and then place it in his personal safe. Pius XI put no restrictions on Nogara’s investments, and the banker was given full power to invest in stocks, gold, and real estate and even take equity stakes in different companies. Nogara decided to select the best investment advisers in a number of foreign financial centers and was perhaps swayed by his friendship with Giovanni Fummi. In New York, he chose J. P. Morgan and Company; in London, Morgan Grenfell; in Paris, Morgan et Compagnie (the new name given to the Paris house in the late 1920s); in Holland, Mees and Hope; in Sweden, the Wallenbergs’ Enskilda Bank of Stockholm; and the Union Bank of Switzerland.

  The Vatican would be very grateful for the investment advice provided by the House of Morgan. Jack Morgan, who had once lobbied to keep a Catholic off the Harvard board, would become a favorite in Vatican City. For investment advice, Pope Pius XI would confer upon both Jack and Tom Lamont the Grand Cross of Saint Gregory the Great. As an account of both Morgan Grenfell’s and J. P. Morgan’s, the Vatican is an important explanation of some of the alacrity with which Lamont performed services for Mussolini. After all, the devil’s work was now sprinkled with holy water.

  CHAPTER FIFTEEN

  SAINT

  DWIGHT Whitney Morrow vied with Tom Lamont for honors as the chief Morgan statesman and theoretician. His twenties celebrity owed much to his friendship with the president. When Coolidge took office, reporters flocked to Morrow for comments and speculated on which high post he would occupy. The two had been close friends in Amherst’s class of 1895, boarding together for a year. They both remembered the day when they sat on a hilltop and fantasized about their future. According to legend, in their senior class everybody voted Morrow the Most Likely to Succeed—except Morrow, who voted for Coolidge. “Coolidge in college was a quiet, unassuming man,” Morrow later said, and he was one of the few to penetrate the president’s reserve.1

  As a student of ancient civilizations, Morrow wanted to clothe the mundane, often sordid world of the twenties in some larger classical dimension. Spearheading the Amherst College Coolidge-for-President Committee in 1920, Morrow viewed his old friend in grandiose terms: “Coolidge is a very unusual man and a strange combination of a transcendental philosopher and a practical politician.”2 With similar hyperbole, Morrow confided to Lamont, “I think it is a miracle that a man of Coolidge’s type has been produced for this emergency.”3 Coolidge talked of Morrow no less reverently. Morrow had been a brilliant student, Coolidge said, but without the usual bookworm qualities. “While he was . . . friendly and sympathetic, he was always dignified. . . . He had no element of selfishness. He never strove to excel anyone or defeat anyone.”4

  One suspects that Coolidge cleverly presented Morrow with the scholarly image the latter wanted to see. During the 1920 presidential race, Morrow sent four volumes by the Yale economist William Graham Sumner to Coolidge, who replied, implausibly, from the campaign trail that he had almost finished all four! “I regard his arguments on the whole as sound,” Coolidge said, but added, “I do not think that human existence is quite so much on the basis of dollars and cents as he puts it.”5 Coolidge, as they say, had Morrow’s number. While Morrow addressed him as “Dear Calvin,” Coolidge usually responded with “Mr. Morrow,” as if he were writing not to an old school pal but to an elderly sage.

  Along with Lamont and Russell Leffingwell, Morrow gave the House of Morgan its patina of culture, its reputation as a home to bankers who wrote essays, gave speeches, joined foreign policy councils, and served on foundation boards. He belonged to a 1920s cult that believed in the wisdom of businessmen as managers of America’s political affairs. Witty, bristling with ideas, the pint-sized Morrow had a professorial air. With penetrating blue eyes and a faraway look, he wore pince-nez and baggy trousers and never fit into the foppish Morgan world. The bank used to post a page at the men’s room door just to remind him to pull up his suspenders when he left. Attending the wedding of Harry Davison’s daughter, he smelled so badly of mothballs that the other partners made him don a fur coat to mask the odor. His sartorial deficiencies, it seems, symbolized a deeper unease in the posh Morgan world of tall, rich, self-confident men.

  Like many bright, obsessive people, Morrow was notoriously absent-minded. He once spent a dinner at the Lamonts gesturing with a partially eaten olive until Metcalf, the Lamont butler, offered a plate for the well-chewed pit. Everybody at J. P. Morgan told the story about Morrow’s riding the train. When the conductor asked for his ticket, Dwight couldn’t find it and with his hands restlessly searched every pocket. The ticket, it seems, was clenched between his teeth. “I bet you thought I didn’t know it was there,” Morrow said to the conductor. “Actually, I was just chewing off the date.” Once, while taking a bath, he called out to his valet for soap that lathered better; the problem turned out to be not the soap but that he was still wearing his pajamas.

  Like Lamont, Morrow craved something finer than mere banking. He professed ignorance of the business’s technical side and styled himself “a lawyer in a banking firm.”6 A banker of the Diplomatic Age, he was as much at home in Washington as on Wall Stree
t. He clung to his intellectual ambitions, reading Bryce and Thucydides and writing essays, studded with recondite references, in favor of the League of Nations. He plied Coolidge with books such as Hallam’s Constitutional History of England. What makes Morrow’s story unique in Morgan annals is that he never entirely renounced his youthful goals or political ambitions and saw his partnership as a springboard.

  There is pathos in Dwight Morrow’s journey from a poor Pittsburgh home to the summit of world finance, and the story of his boyhood makes for uncomfortable reading. His father was a high-school principal and supported the family with difficulty. Pale and sickly, Dwight inherited both his father’s reverence for education and his fear of poverty. After he graduated from high school, at fourteen, he worked as an errand boy for four years until he was old enough to go to college. He attended Amherst with the aid of a student loan and wore hand-me-down shirts given him by Jacob Schiff’s son Mortimer. To make ends meet, he tutored other students. He practiced such austerity that he shared a pipe with a roommate to save money. After graduating from Columbia Law School, he landed a job at the Wall Street firm of Reed, Simpson, Thacher, and Barnum, which specialized in utility law. Within seven years he was a partner in the firm, now called Simpson, Thacher, and Bartlett. Living in Englewood, New Jersey, he locked umbrellas with Harry Davison in the rain one day and befriended Tom Lamont along the way. The two Morgan partners recruited him in 1914.

  To become a Morgan partner was then a national event, and Morrow’s mother was mobbed by well-wishers in the Pittsburgh streets. But after his first day, Dwight admitted to his wife, Betty, that he felt “pretty lonely and blue all day.” To a friend he confessed that he felt “like a cat in a strange garret.”7 This was partly beginner’s jitters, but the uneasiness never entirely deserted him.

  Morrow performed spectacularly at 23 Wall and mastered every subject through sheer diligence. He mutualized the Equitable Life Assurance Society and oversaw Morgan lending to Cuba. He also masterminded Kennecott Copper, a public company formed around the Morgan-Guggenheim syndicate in Alaska and other properties. Daniel Guggenheim was awed by Morrow’s retentive brain and said that “six months after Morrow had started upon his investigation, he knew more about copper than I or any of my six brothers.”8 In his absentminded way, however, Dwight neglected one detail of the Kennecott operation: “You have forgotten to provide for our commission,” Davison gently chided him.9

  Morrow was always torn between idealism and materialism. One life couldn’t encompass his dreams, and he was tormented and made extremely nervous by the choices he faced. He and his wife traveled in monied circles and were frequent guests of Pierre du Pont at Longwood in Pennsylvania, with its fountains, conservatories, and ten-thousand-pipe organ. Yet they felt misplaced in this rich world. While still at Simpson, Thacher, Dwight would have pangs of Puritan guilt and say, “This, Betsey, is not the life for you or me.”10 Together they daydreamed of how they would save up $100,000, and Dwight would then teach history and Betty write poetry—Betty Morrow was a Smith graduate and a poet whose work appeared in Harper’s and Scribner’s Magazine. They could never acknowledge their overpowering ambition.

  Morrow’s conflicts gnawed at him even in his sleep. One night, he bolted up in terror from a nightmare. “I dreamt, Betsey, that we had become rich,” he explained. “But enormously rich.”11 Offered a Morgan partnership, he went through “weeks of acute spiritual crisis,” according to his biographer, Sir Harold Nicolson. While pondering his choice in Bermuda, Morrow saw a malicious cartoon that showed a vulturelike Jack Morgan feasting upon the innards of New Haven shareholders. This libel persuaded him to take the Morgan job, he said, and the bank’s defense of its New Haven financing was his first assignment. Morrow used lofty rhetoric to justify actions prompted by lesser motives. After accepting the Morgan partnership, he told an old Amherst professor that service—not the prospect of a $ 1-million-a-year income—drew him to the House of Morgan.

  Morrow always flirted with the idea of retreating to the cloistered university world. He spent so much time on Amherst matters that Jack Morgan reportedly said one day, “Dwight, if you will get off that Amherst Board of Trustees I’ll make a present of a hundred thousand dollars.”12 In 1921, his bluff was called: he was approached with a tentative offer to become president of Yale. He turned it down, saying he wasn’t a Yale alumnus and lacked special training. The excuse was flimsy, and for months afterward Dwight was depressed. Amherst and the University of Chicago also pursued him in vain.

  Morrow’s real passion was politics. He balked at the Morgan partnership lest it prove a political handicap—an accurate fear, as it turned out. The British press baron Lord Beaverbrook once told him that if he were an Englishman, he would already be a cabinet minister. The remark haunted and distressed him.13 At first, Calvin Coolidge’s election seemed a godsend, and Morrow was touted for Treasury secretary and other positions that never materialized. “My mother was upset and felt rather bitterly about it,” said his daughter. “She felt that my father didn’t ask for things.”14 Morrow used to tell his children to obey “Rule 6—Don’t take yourself too seriously!”15 Yet the Morrows took every setback in earnest.

  One suspects that Coolidge kept a self-protective distance from Morrow. “Ever since Mr. Coolidge became President Mr. Morrow has, of course, been a frequent guest at the White House,” wrote Ivy Lee, who was a publicity consultant for the Morgan bank as well as for the Rockefellers. “It is an open secret that the President has consulted with him on numerous occasions.”16 Harold Nicolson, by contrast, claimed that Coolidge telephoned Morrow only once between 1923 and 1929. Morrow’s files suggest that the truth lay in between, with Nicolson’s comment nearer the mark. Coolidge had wanted to make Morrow, not Parker Gilbert, agent general for Germany and only capitulated after warnings from the U.S. ambassador to Germany. Clearly, some Coolidge advisers feared the stigma of associating with a Morgan partner.

  Perhaps to soften up public opinion for an appointment, Coolidge assigned Morrow in 1925 to chair a board studying the application of airplanes to national defense. Coolidge first mentioned it in a letter to Morrow a few days after his 1925 inauguration, but Morrow learned about it officially from the Sunday papers that September. The Morrow board drew up plans for army and navy use of airplanes. In 1925, Daniel and Harry Guggenheim—old friends of Dwight’s from his Kennecott Copper days—set up a special $3-million fund to advance aviation. Through Morrow, they got Coolidge to accept the money on behalf of the government to speed up airplane development.

  Through his stint on the Aviation Board, Dwight Morrow became friends with the young Charles Lindbergh. In fact, Morrow’s files show that the Morgan partners ended up paying for Lindbergh’s historic flight to Paris aboard The Spirit of St. Louis. Under the original scheme, Lindbergh had planned to compete for the $25,000 Orteig Prize, set up to reward the first nonstop flight between New York and Paris. The trip was thus supposed to be self-financing. Lindbergh contributed $2,000, and a number of other Saint Louis sponsors added $1,000 or $500 apiece. Altogether, they raised $8,500 in subscriptions against a loan of $15,000 from a Saint Louis bank. Then, in his rush to be first across the Atlantic, Lindbergh decided that he couldn’t afford certain delays demanded by the Orteig Prize and so forfeited his chance. In June 1927, one St. Louis sponsor, broker Harry F. Knight, told Morrow that the historic flight had actually cost between $16,000 and $17,000. The Morgan partners pitched in $10,500, not only repaying the bank loan, but permitting Lindbergh to retrieve his own $2,000 investment.

  When Lindbergh made a triumphant trip to Washington, Coolidge invited him to stay as his guest at the temporary White House on Du Pont Circle. The president saw that Lindbergh’s celebrity would make him a major force in the budding airline industry and so he invited the Morrows as guests as well. Morrow and Lindbergh liked each other immediately. As a trustee of the Daniel Guggenheim Foundation for the Promotion of Aeronautics, Morrow steered Lindbergh to Harry Guggen
heim, who sponsored Lindbergh’s three-month tour in The Spirit of St. Louis. And Morrow became Lindbergh’s personal financial adviser.

  While the Morrows were staying at the temporary White House, Coolidge sounded out Dwight about becoming ambassador to Mexico. Dwight had been restless at 23 Wall and apparently told Coolidge of his willingness to leave. The offer of the ambassadorship was formalized a month later. This position wasn’t just a bone tossed belatedly to an old friend, but an extremely sensitive appointment. As Coolidge later said, “It would be difficult to imagine a harder assignment. But Mr. Morrow never had any taste for sham battle.”17

  American Catholics and oilmen were agitating to break diplomatic relations with Mexico, and some called for a military invasion. Secretary of State Kellogg had already condemned the regime of President Plutarco Elias Calles as a “Bolshevik threat.”18 In American eyes, Mexico had committed multiple sins. It had nationalized church property and closed Catholic schools, defaulted on foreign debt, insisted that oil companies trade in property titles for government concessions, and confiscated American-owned land without compensation. Newspapers were calling Mexico America’s foremost foreign-policy problem.

  The Morrow appointment was an inspired choice. Coolidge was under pressure to do something dramatic, and he did it. Walter Lippmann hailed it as the “most extraordinary appointment made in recent years” and helped to shepherd it through the Senate Foreign Relations Committee.19 As a specialist in Latin American loans and an opponent of dollar diplomacy, Morrow had moderated Wall Street’s often truculent attitude toward Latin American debtors. When Cuba threatened to default on foreign bonds during the 1921 sugar debacle that nearly collapsed Guaranty Trust, Morrow was credited with keeping out the marines. “Is there any one who thinks that if a man owes him money and cannot pay it, there is profit in going out and killing him?” he wrote.20 Morrow favored diplomacy over armed intervention, an enlightened attitude for the time.