The House of Morgan

by Ron Chernow

  In the long run, the scandal’s real beneficiary may have been George Whitney. For years, he profited from comparison with Richard and became the Nice Honest Whitney Brother, softening his image as a defender of privilege. His loyalty to Richard stirred even the New Dealers. Over the years, Gerhard Gesell would be touched by news photographs of George taking a glove or a bat to Richard so he could play on the prison baseball team. (Richard was also visited by his old Groton headmaster, the Reverend Endicott Peabody.) By August 1941, Richard was eligible for parole, and George drove up to meet him at the prison gate. Richard then served as superintendent of a dairy farm in Barnstable, Massachusetts. He never again entered the world of finance or public life.

  CHAPTER TWENTY-TWO

  APPEASEMENT

  FROM its inception, the House of Morgan had been Anglo-American in spirit and character. The Great War, in particular, fused the London and New York banks in a belief in Anglo-American responsibility for world peace and prosperity. Morgan partners subscribed to an idea expressed by Walter Lippmann in 1915 that U.S. foreign policy would experience a “crowning disaster” if uninformed by “a vision of the Anglo-American future.”1 That vision was Morgan dogma, the bedrock of partners’ political beliefs. Yet the Second World War—both its prelude and the early stages, before Pearl Harbor—would prove a divisive experience, exposing tensions between New York and London that had been unacknowledged or long suppressed.

  The Anglo-American comradeship had always been a bit one-sided. The Wall Street partners were ardent Anglophiles who celebrated British culture and made annual trips to London. Whether renting a Scottish castle or buying Sir Joshua Reynolds paintings, they identified with the British and affected their manners. This pro-British sentiment owed much to the fact that during most partners’ early adulthood, London stood supreme in world banking. The partners at 23 Wall belonged to a generation that had eagerly boarded transatlantic luxury liners in the early 1900s to partake of British sophistication. Of his first visit to London, Lamont recalled, “For me London was the most thrilling spot that I had ever known or could imagine existed.”2 The test of a true J. P. Morgan partner was whether he saw the City as his ancestral home.

  Jack Morgan preferred to be in England, where he wasn’t caricatured as an uncaring plutocrat. He enjoyed the secluded privacy of Wall Hall outside London and had a wood-paneled office at 23 Great Winchester Street. England respected his privacy and was an ideal sanctuary from the strident New Deal denunciations. While Franklin Roosevelt hounded him, British royalty lionized him. George V said he felt comfortable with only two Americans—Jack Morgan and Ambassador Walter Hines Page. (Jack’s granddaughter Jane married Walter Page’s grandson, who bore the ambassador’s name and became a postwar Morgan Guaranty chairman.) After shooting at Gannochy as Jack’s guest, George VI told Sir Gerald Campbell, “I consider Mr. Morgan the world’s greatest gentleman. Whenever he comes into the room, I instinctively feel that I must arise.”3 When Lamont reported this, Jack blushingly said it made him feel “a little shy; but it is naturally very pleasant to me to hear of such nice things being said by a man whom I have known for a considerable number of years.”4 Jack bounced the king’s daughter, the future Queen Elizabeth, on his knee, and his friendship with the royal family was a factor in Morgan Grenfell’s later handling of a significant share of Elizabeth II’s personal wealth.

  Morgan Grenfell partners never fully reciprocated this admiration. Despite their real affection for the New York partners, they weren’t enthralled by American history and probably found the country charming but provincial. By the late 1930s, several of the London partners were exalted personages, peers of the realm—Grenfell (Lord Saint Just), Smith (Lord Bicester), and Tom Catto (Lord Catto). Their institutional ties bound them as strongly to the British power structure as to their New York brethren. Smith was governor of the Royal Exchange Assurance Company and chaired the City of London Conservative and Unionist Association. Grenfell—now suffering from heart and lung problems and laid up with a patch on his lung—was a member of Parliament and a Bank of England director and had worked a Bank of England symbol into his coat of arms.

  J. P. Morgan and Company had always hired gifted outsiders—Perkins, Davison, Morrow, Lamont, and Leffingwell—who rose on the strength of their intelligence. Morgan Grenfell recruited from a smaller circle of family members and friends. This would give the firm an inbred feeling, a genteel hothouse atmosphere, and a stuffy complacency that would make it dangerously ossified by the 1950s. Lord Bicester’s son Rufus became a partner, and Francis Rodd, the son of a former British ambassador to Rome, was married to Rufus’s sister. Morgan Grenfell partners displayed an upper-crust insularity. The first Lord Bicester, Vivian Hugh Smith, is the best example. As squire of Tusmore Park in Oxfordshire, he indulged a mad passion for steeplechase horses. Every year he went to Ireland to buy them and was frustrated in his great ambition of winning the Grand National. In a remark that some might have deemed insulting—but Bicester doubtless treasured—Lamont told him, “It is a great life you lead. You are my ideal of the English gentleman of the Victorian Age.”5 These weren’t the sort of people to be enamored of American culture.

  After Glass-Steagall, J. P. Morgan and Company not only became a minority shareholder in Morgan Grenfell but became more distanced from its affairs. As Lamont explained, “Morgan Grenfell & Co. considers that business done through them is their business.”6 After J. P. Morgan chose commercial banking, New York and London couldn’t issue securities together, as they had in the 1920s. And foreign lending was down throughout the Depression. Hobbled by a weak pound and government restrictions on overseas lending, the City’s merchant banks, tired and unimaginative, entered a deep sleep from which they wouldn’t awaken until the aluminium war of the late 1950s.

  The most serious threat to J. P. Morgan-Morgan Grenfell unity was over foreign debt, which, like a bad hangover, remained from the 1920s lending binge. The first split had occurred with German debt. The Nazi policy of selective defaults generated ill will between the Morgan houses in London and New York. Then in March 1938, it looked as if history would repeat itself. Hitler ordered his troops into Austria and made a triumphant entry into Vienna, cheered by ecstatic crowds. Fulfilling his Mein Kampf prophecy, he reduced Austria to a German province while the Gestapo unleashed a wave of violence against Jews and other undesirables.

  The J. P. Morgan and Company partners immediately feared default on a huge 1930 Austrian reconstruction loan. No less than in Pierpont’s day, the bank had a fanatic sense of responsibility toward bonds it had issued. The British portion of the loan had been managed by several London banks, including Morgan Grenfell. Would the Nazis honor Austrian debt? Or would they classify it with German reparations loans and claim it was foisted upon Austria by the Allies? Most important, would Germany again cut a separate deal with England?

  Hjalmar Schacht’s power had continued to wane. Increasingly disgruntled with the Nazis, he feared the inflationary consequences of Germany’s military buildup: he had defiantly told his arch rival, Göring, “Your foreign-exchange policy, your policy regarding production, and your financial policy [are] unsound.”7

  After the Austrian Anschluss, Schacht said, he secretly lost all sympathy with Hitler and began to contemplate his overthrow. But his apostasy was carefully disguised. Schacht was charged with running Austria’s National Bank and subordinating its financial system to German monetary policy. Two weeks after the bloodless invasion, he assembled the staff of the central bank and delivered a terrifying speech: “Not a single person will find a future with us who is not wholeheartedly for Adolph Hitler. . . . The Reichsbank will always be nothing but National Socialist or I shall cease to be its manager.” After administering a loyalty oath to the Fiihrer, he led the bank staff in a brisk chanting of “Sieg Heil!”8 Schacht fired Dr. Kienbock, the Austrian banker who had offered Gobelin tapestries to Morgans as loan collateral in the early 1920s. With his usual self-congratulatory bent, Sc
hacht later explained, “I saw to it that he was able to retire on a full pension and with flying colors though he was known to be of partly Jewish extraction.”9 The old Jewish Viennese banks were torn asunder. Baron Louis von Rothschild was arrested, jailed, and released only after signing over all Rothschild assets in Austria to the state.

  The House of Morgan closely monitored German speeches about Austrian debt. Before long, Walther Funk, who had replaced Göring as economics minister just before the Anschluss, was making statements that equated Austrian loans with German loans and claiming that they, too, were made by the Allies merely to ensure reparations. He ranted about scheming bankers and craven politicians who had conspired to draw Germany into “debt and interest slavery.” In New York, Lamont watched nervously for signs of a deal between England and the Nazis. On April 25, 1938, his son, Tommy, spotted an item in the London financial press that alerted them to an impending settlement. “In other words,” Tommy said, “. . . our good friends in the Bank of England and the City are contemplating pulling a fast one to the disadvantage of the American holders of Austrian bonds.”10

  Lamont was furious: the man who never got angry flew into a rage. To Sir Frederick Leith-Ross, the reparations expert at the British Treasury, he wrote a letter in stiletto-sharp prose. Recalling the 1934 British deal with Germany, he said:

  I am recalling all this not in a spirit, my dear Leith, of anything except good will in pointing out to you the advantage of considering American interests in connection with the 1930 Austrian loan. The new fashion in the world is that every country should develop its own nationalism to the nth degree. But over here when our people listen to polite inquiries from our British friends as to what America’s attitude might be in the case of Britain’s becoming involved in a general war, the inclination is to wonder a little why the British sometimes overlook these matters (like the Dawes and Young loan matter) which are small in themselves, but which constitute an unceasing cause of irritation.

  Lamont ended by alluding to the State Department’s “deep interest” in the Austrian loan.11

  While Lamont’s exquisite courtesy toward the British now turned into elegant taunts and insults, his warnings proved fruitless. Schacht and Monty Norman kept up their mysterious dialogue, meeting monthly at the Bank for International Settlements in Basel. In June, an Anglo-German debt settlement was announced in Parliament, and professions of British-American financial solidarity yielded to brazen opportunism. It is interesting to note that Neville Chamberlain, in his desire to appease Germany, was indifferent to reports of Schacht’s secret defection from Hitler. That summer in Basel, Schacht told Norman of his decision to abandon Hitler and work for his overthrow. When Norman repeated this to Chamberlain, the prime minister retorted, “Who is Schacht? I have to deal with Hitler.”12

  How did Britain justify its deal? Norman told Lamont that Britain tried to settle Austrian debt on a nonpartisan international basis but that the Nazis insisted on discriminatory treatment. At the same time, the British—echoing Schacht’s viewpoint—said they were running a trade deficit with Germany and that Austrian debt repayments would recycle to Britain some of the money they were paying for German goods. It was a depressing reversal from the Diplomatic Age of the 1920s. Monty Norman—the man who wanted to lift finance above the muddy realm of politics and into the clear air—now submitted to nationalistic pressures. With his usual theatrics, he wrote Lamont a lachrymose explanation: “For few debtor countries nowadays are willing to treat debts from the standpoint of ethics and equity and not from the standpoint of politics and convenience. . . . You cannot answer this because I am going away for a long time to heal my wound and I only write to clear your views and my conscience!”13

  The feud between J. P. Morgan and Morgan Grenfell lingered; that the latter had placed British interests ahead of joint Morgan interests could not be lightly dismissed. In a tone he usually reserved for the browbeating of debtors, Lamont warned the London partners not to take Anglo-American cooperation for granted in the event of war—a shockingly grave threat. He wrote, “Must we accept that the high sanction of Great Britain is to be given to the growing habit of ignoring international connections and the rights of property?”14 This sort of reprimand would have surprised isolationists, who saw only collusion between the House of Morgan and England.

  Apparently fearing the Austrian feud would imperil Anglo-American financial relations, Francis Rodd circulated Lamont’s letter at the British Treasury—without consulting New York. When Lamont learned of this, he exploded, believing his letter had been sent in strict confidence and could damage Morgan relations with the Treasury and the Bank of England. He sent a stinging rebuke to 23 Great Winchester Street:

  You are aware that for generations past the partners of our house have always felt it to the great advantage of both our countries that the friendliest possible relations should exist between them. . . . As you know now we never meant our letter to be filed with the British Treasury. . . . There are lots of things one can say to a man that he cannot write to him, and that is a thousand times more true with regard to governments. The priceless value of Morgan Grenfell & Co. to us . . . has been precisely in the ability of the partners of Morgan Grenfell & Co. to interpret us to the British Treasury and the British Treasury to us. We have never thought of Morgan Grenfell & Co. as a post office for the transmission of our letters to the British Government.15

  The pitfalls of the Anglo-American Morgan relationship were here apparent: did Morgan Grenfell represent the British government to J. P. Morgan or J. P. Morgan to the British government? How could New York partners expect Morgan Grenfell to be so intimate with Whitehall yet detached at the same time? These question had never been adequately posed, much less answered, because no serious conflict had arisen during the 1920s, the heyday of financial internationalism. Now the nationalistic squabbling of the 1930s destroyed many illusions about the supposed allegiance of the London partners to J. P. Morgan and Company. The “Trojan horse” strategy followed since the early 1900s—of giving the London house a British complexion and character—had, in the last analysis, backfired on the New York house.

  THE New York partners traveled in aristocratic British circles and were frequent visitors at the Astor estate at Cliveden. No less than the House of Morgan itself, Nancy Astor represented a marriage of American capital and British aristocracy. Born Nancy Langhorne in Virginia, she ended up as the first woman to hold a seat in the House of Commons (having campaigned for office in pearls and accompanied by a liveried coachman). A stylish, pretty woman with a sharp tongue and a zest for political rows, she liked to heckle, tease, and argue. Once, while visiting her adversary Winston Churchill at Blenheim, Astor said, “If I were married to you, I would put poison in your coffee.” Churchill replied, “And if I were married to you, I would drink it.”16

  Nancy was married to the rich but feckless Waldorf Astor, second viscount and the grandson of John Jacob Astor III. Waldorf drew the bulk of his income from rentals of his Manhattan real estate holdings, so the transatlantic structure of the House of Morgan perfectly suited his business needs. Waldorf also consulted Tom Lamont about his personal finances, and Lamont had switched him out of American securities and into Canadian municipal bonds after the 1929 crash. The Lamonts and the Astors socialized and even vacationed together.

  Lady Astor bewitched Tom Lamont, and for twenty years they kept up an abundant correspondence. There was a likeness between them. Both were romantics with a taste for noblesse oblige, self-invented aristocrats who had acted out extravagant dreams and confidently inhabited their stations. From government offices, Cunard staterooms, hotel rooms—even once while Astor set her hair—the two exchanged long, often effusive letters. They traded gossip, personal confessions, and political intelligence. After the Richard Whitney scandal, Lamont sent her clippings to establish his innocence and Astor replied, “Dearest Tom, I don’t have to read your cuttings, or anything else for that matter, to know that you would nev
er do wrong. Such is my affection for you!”17

  Their correspondence had a vaguely romantic cast. Lamont termed Lady Astor “the kindest-hearted and best friend in the world” and called her “the girl I love most.”18 In his inimitable fashion, he showered her with gifts and favors. He could break down anybody’s resistance, conquer anyone with charm, such was his genius for cultivating friends. Golfing with him at Cliveden in 1930, she had admired a set of clubs owned by another guest, Frank Kellogg, until recently the U.S. secretary of state. Back on Wall Street, Lamont tracked down the original manufacturer and had identical clubs made for her. “I am really ridiculously excited and grateful,” she wrote back.19 Another time, Lamont slipped away from 23 Wall, went uptown, and bought her two frocks at Saks Fifth Avenue. It was a warm friendship, indeed.

  On the eve of World War II, Lamont’s friendship with the Astors took on important political dimensions. Cliveden, the Astor estate on the Thames, had become a gathering place for politicians and intellectuals who favored appeasement of the Nazis. They thought England could coexist with Hitler, feared a war would shatter the British Empire, and supported the appeasement policies of Stanley Baldwin and Neville Chamberlain. In time, the name Cliveden became synonymous with a phobic hatred of Russia, a benign or even admiring view of Fascist intentions, and a rejection of Churchill’s warnings about German rearmament.