The House of Morgan

by Ron Chernow

  Throughout the war, Russell Leffingwell sent food packages to Monty Norman. A rattled man wanting reassurance, Norman asked Leffingwell whether he was wrong about the gold standard and his attempts to refurbish the old imperial pound. Any other course of action, Norman pleaded, would “have shaken the confidence in Europe, and have produced a feeling of uncertainty, which seemed the one thing to be avoided.”11 Leffingwell agreed that only gold formed a bulwark against the modern plagues of managed currencies, budget deficits, and bloated welfare states. He, too, recognized the futility of their labors: “How we labored together, you and Ben, my partners and I, to rebuild the world after the last war—and look at the d——thing now!”12 Monty was equally despondent: “As I look back, it now seems that, with all the thought and work and good intentions which we provided, we achieved absolutely nothing. . . . I think we should have done just as much good if we had been able to collect the money and pour it down the drain.”13

  There would be a day of reckoning for Monty Norman no less than there had been for Ben Strong. The Labour party had never forgiven him for his tough attitude toward the first Labour government in the 1920s, nor for the austerity imposed in 1925 on behalf of the gold standard. When the government abandoned gold in 1931, it only reinforced suspicions that financial “rules” were ruses to intimidate recalcitrant left-wing governments. The bitter 1931 gibe of Labour party veteran Beatrice Webb—“Nobody told us we could do it”—still reverberated. Now Norman’s autocratic twenty-four year reign at the Bank of England would belatedly produce new government controls over British finance.

  Norman’s health declined in 1943 and 1944 and he was diagnosed as having pneumonia and then meningitis. Fragile and broken in his seventies, he heeded doctors’ advice that he resign. For several years, Tom Catto had been mentioned as a successor, and his conscientious work at the wartime Treasury impressed Norman. Although Catto had been the sole liberal at the solidly Tory Morgan Grenfell, the Labour party feared he would perpetuate City rule at the Bank of England. As early as 1940, Hugh Dalton, minister of economic warfare, warned Chancellor of the Exchequer Kingsley Wood that “there will be much feeling against Catto as successor. He comes from the most reactionary firm in the City, Morgan Grenfell, who, I say, have a notorious record as partisan Tories.”14

  Chosen governor in 1944, Catto made a wistful pilgrimage to Norman’s country house to receive the older man’s blessing. “My dear, Catto,” Norman said, “I had been my own first choice for re-election as Governor of the Bank of England, but the doctors say ’No.’ You are my second choice. God bless you.”15 Touched by this gesture, Catto broke down and paced the garden with Norman’s wife before he could regain his composure. Catto’s appointment was interpreted as underscoring the need for close postwar cooperation with the United States.

  After the surprise defeat of Churchill’s government in the 1945 elections, Clement Attlee’s Labour government put nationalization of the bank at the top of its parliamentary agenda. Although the bank had long handled national debt, currency issues, and foreign exchange, it was privately owned by seventeen thousand stockholders. Now the central bankers were to be driven from the shadows in which they had operated. For Labour partisans, it was a long overdue act of revenge against Norman.

  Die-hards in the City thought Catto should resign as a matter of honor rather than supervise a bank under government control. Monty Norman never quite overcame the feeling that Catto should have been wily enough to defeat nationalization. Catto, in fact, proved a perfect transitional figure and probably secured a better deal for the bank than Norman could have. He wasn’t regarded as a City figure hostile to Whitehall and was a shrewd, conciliatory man. He recognized that Norman’s dictum, “Never excuse, never explain,” wouldn’t suffice in the new age. Central banks could no longer be priestly or hermetic, and Catto thought it best for a sound banker to manage the transition. To preserve the bank’s independence, he won agreement that the governor be appointed for five-year renewable terms and dismissed only by act of Parliament.

  In March 1946, after more than 250 years of independence, the Bank of England became a public institution. It would now be less influenced by merchant bankers, and more industrialists and union leaders would be appointed as its postwar directors. Catto told Lamont with relief, “The ship had to be steered between Scylla and Charybdis but we managed somehow!”16 After serving as governor until his seventieth birthday, Catto in 1949 took a desk again at Morgan Grenfell but didn’t resume formal duties at the firm. His son Stephen, however, would be a postwar Morgan Grenfell chairman.

  For Monty Norman, the new world embodied everything he despised. Lamenting the “socialisation at a gallop” overtaking England, he told Leffingwell that he seldom went into the City anymore and found it a sad place, reduced to refunding bonds at lower interest rates. The man who had devoted his life to maintaining London as a world financial center now saw it as a place of faded glory: “I fear that the various ancient businesses of London have practically come to an end, or continue perhaps as shadows.”17 As foreign business shifted more decisively to New York than it had after World War I, leaving little room for London leadership, Norman seemed lost, unhinged, distraught. “I wonder what old Ben would think of all this,” he said.18 On February 4, 1950, Montagu Norman died, having suffered a stroke the year before.

  AFTER the war, a hearty survivor, Dr. Hjalmar Horace Greeley Schacht, had resumed his correspondence with Monty Norman. Arrested by the Gestapo in July 1944 after participating in another plot against Hitler, he was sent to the Ravensbrueck concentration camp and ultimately passed through thirty-two prisons, including the death camp at Dachau. He formed part of a distinguished group of prisoners that included the former Austrian chancellor Kurt von Schuschnigg and Leon Blum. In the last stages of war, their captors hurried them southeast to escape the advancing American troops. On May 4, 1945, Schacht and the others were about to be executed by the Gestapo, under express orders from Hitler, when they were liberated by Allied troops in the south Tirol.

  Schacht tried to visit the ailing Norman, but he hadn’t been officially de-Nazified and was denied an English visa. He was a shameless, bull-headed man whose sheer arrogance seemed to preserve him in adversity. After being indicted as a war criminal by the Nuremberg tribunal, he was placed under arrest by General Lucius Clay, commander of the U.S. Army of Occupation in Germany. When Clay went to Schacht’s chalet outside Berlin to take him into custody, Schacht resisted the notion that he was anti-American. As proof, he told Clay, “Look at the picture on the wall.” It was a signed photograph that David Sarnoff had given him at the Young Plan conference in Paris in 1929.19

  Awaiting the Nuremberg war trials at a prison camp, Schacht continued to behave in a bizarrely unpredictable manner. Albert Speer, Hitler’s architect and minister of armaments, recalled how Schacht delivered dramatic poetry readings to pass the time. When American military psychologists delivered IQ tests to the war criminals, Schacht scored first in the group. There were many strange reunions at Nuremberg. Schacht hadn’t seen Hermann Göring since losing out in the power struggle to him in 1937. “Our next meeting was in prison at Nuremberg when we were taken to a cell with 2 bathtubs where—I in one and Goering in the other—we each proceeded to soap ourselves all over,” Schacht wrote. “Sic transit gloria mundi!”20

  At Nuremberg, Schacht refused to admit responsibility for Hitler’s success and denied he had made a unique contribution to the Nazi cause. He said of Hitler, “He would have found other methods and other assistance; he was not the man to give up.”21 Schacht could document enough resistance in the late 1930s to offset the impression of collaboration with the Nazis. He cast himself as a solitary critic of the regime who was appalled by the cowardice of workers, liberals, churchmen, and scientists. So the man who rallied Krupp, Thyssen, and other German industrialists around Adolf Hitler and helped mold the robust German war economy was one of only three Nazis acquitted at Nuremberg. A German de-Nazifica
tion court afterward convicted him as a major Nazi offender, and he was sentenced to eight years in a labor camp, although he appealed and was released after a year. In the 1950s, he wrote a long-winded, self-adoring autobiography that was conspicuously short on contrition for his role in Nazi finance. He died unrepentant in 1970, at the age of ninety-three, of complications resulting from a fall.

  STARTING in 1943, Tom Lamont had heart trouble and no longer reported regularly to the bank. Toward the end of the war, his handsome grandson Thomas W. Lamont II, died aboard the submarine Snook in the Pacific. Now in his seventies and nostalgic with age, Lamont composed a charming volume of memoirs about his boyhood in a country parsonage. His romantic nature never flagged. Throughout the war, he had sent food parcels to Nancy Astor, who even in her sixties was energetic enough to perform cartwheels in the air-raid shelters. In 1945, after she had retired from twenty-five years in Parliament, Lamont paid $3,000 in expenses for her to visit the United States. On the eve of her visit, he wrote her, “And meantime with your war cares largely removed I shall find you I know looking younger and lovelier than ever before.” Then he added, forgetfully, “How proud you must be that it was Britain who in 1940 stood all alone against the entire world of barbarism and saved civilization.”22

  Unpleasant reminders of the past would intrude. In 1944, the Italian government dispatched a financial mission to Lamont. Some of the old gang wanted to crank up the Italy-America Society, but Lamont suggested that maybe they should wait awhile. When news came of Mussolini’s death in 1945, Lamont said its “indecent” manner upset him but that otherwise nobody regretted it. With a new anti-Fascist mood in postwar Italy, Lamont took pains to rewrite history. In 1946, he told Count Giuseppe Volpi, the former finance minister, that the $100-million loan to Italy in 1926 was made under duress. He implied that he had frowned upon it: “I hardly have to say that the loan was not one that we were eager to arrange, nor was it sought by us. On the contrary, it was a part of the series of post-war reconstruction operations encouraged by our own Government.”23

  By war’s end, Lamont came to the bank only for short periods each week. He continued to make the grandly liberal gestures that had marked his extraordinary tenure at 23 Wall. For $2 million, he endowed an undergraduate library at Harvard—appropriately, it would be for government documents—and sent what Norman called a “whomping” check for restoring Canterbury Cathedral. He ended his banking career with a Pierpontian act of munificence: in the lean year of 1947, the firm had skipped bonus payments; Lamont decided to compensate by giving every staff member a Christmas gift equal to 5 percent of his or her salary.

  Lamont had time to wonder about the hopefulness that had buoyed him between the wars, making him susceptible to the false allure of appeasement. He now saw Americans as too self-absorbed by materialism and too coddled by peace to brace for violence. In a 1945 essay, “Germany’s Heartbreak House,” he tried to figure out why the Allies were deaf to Churchill’s pleas regarding Hitler. He wrote:

  The truth is that the British and French, like us Americans, are so peace-loving that it has always been hard for them to realize that there are gangster peoples going about the world seeking whom they may devour. We have all refused to believe until the last moment that there were Dillinger nations prowling about with completely laid plans of evil portent. . . . For in the makeup of the Anglo-Saxon peoples there is . . . that extreme of humaneness that abhors cruelty and will have naught of it.24

  The explanation omits the large measure of self-interest that had led Lamont to cling first to Japan, then to Italy.

  On February 3, 1948, Tom Lamont died at his home in Boca Grande, Florida, at age seventy-seven, and Russell Leffingwell became chairman of the House of Morgan. So many friends flocked to Lamont’s funeral at the Brick Presbyterian Church on Park Avenue that folding chairs were hastily arranged in the side aisles and balcony. Two veterans of Black Thursday—William Potter of Guaranty Trust and Albert Wiggin of Chase—were in evidence. Whereas at Jack’s funeral the mourners sang “Onward Christian Soldiers,” at Tom’s passages from Milton’s Samson Agonistes were read against a brilliant backdrop of white flowers.

  Lamont’s estate was so enormous that the charitable and educational bequests came to $9.5 million, including $5 million to Harvard and $2 million to Phillips Exeter Academy. Through a syndicate managed by Morgan Stanley, his estate sold off his twenty-five-thousand-share block of J. P. Morgan stock. It was the largest block in existence, with an estimated market value of nearly $6 million.

  Lamont was a man of prodigious gifts, the real J. P. Morgan behind J. P. Morgan and Company. Had he lived in Pierpont’s day, he might have summoned steel mills or transcontinental railroads into being. Instead, as a man of the Diplomatic Age, he was the architect of huge state loans in the 1920s. As they defaulted in the 1930s, he had to devote his time to fruitless salvage operations, and his gifts were squandered in the general wreckage. For all his power, he seems in retrospect a tiny figure bobbing atop a gigantic tidal wave. His story is a sobering tale of human limitations.

  In its front-page obituary, the Times said that the driving force of Lamont’s life “was an unremitting search for the good, the full and the gracious life.”25 Indeed, one admires his ambition to lead a beautiful, rounded life and bring poetry into the straitlaced world of banking. He gave a literary gloss and an intellectual richness to the House of Morgan, stretching the sense of what it means to be a banker. He was a man who dealt with the large issues of the day, saw the strategic significance of his actions, and transcended a provincial concern with profit. His vision of banking was remarkably spacious.

  Yet he resorted to moral shortcuts and political compromises. He was too quick to paper over conflicts with rhetoric and to settle arguments with smiles. The optimism that made him an inspiring leader also contained an element of pure opportunism. He refused to terminate business relationships until force majeure supervened, and his complicity with Japanese militarists and Mussolini are black marks on his record. By the end, he could no longer distinguish policy from public relations or separate means from ends. In trying to please too many people, he lost the habit of truth—a habit, once lost, that can never be regained. Perhaps the most extraordinary figure in Morgan history, Lamont was a dreamer whose reach exceeded his grasp. He fell short of the ideals that he himself articulated. After his death, Wall Street would seem grayer and more bureaucratic. As a confidant of presidents, prime ministers, and kings, he was the last great banker of the Diplomatic Age.

  PART THREE

  The Casino Age

  1948–1989

  CHAPTER TWENTY-FIVE

  METHUSELAH

  AFTER Tom Lamont’s death, Russell Leffingwell served as chairman of J. P. Morgan from 1948 to 1950. Sucking on a long, straight pipe, he had an air of Methuselah-like wisdom, with his large pointed nose and white hair. As chairman of the Council on Foreign Relations from 1946 to 1953, he would stop by its offices on his way home to East Sixty-Ninth Street. Bookish and witty, a masterly rhetorician, he could write a trenchant essay or speak extemporaneously on any subject. His mind was promiscuously rich. Once, after delivering a fiery opinion at a board meeting, he asked, “Does anyone disagree?” Tom Lamont replied softly, “Would anyone dare, Russell?” He had a gift for comebacks. When his daughter went on her first cruise, she asked how many people she could tip. “Well,” he said dryly, “if you have enough money, you can go right up to the captain.”1 The writer Edna Ferber left this impression of Leffingwell at a dinner party: “He seemed to me to be wise, tolerant, sound, liberal; and, combined with these qualities, he has, astoundingly enough, humor.”2 She couldn’t imagine a Scrooge behind his “florid rather Puckish face.”3

  Leffingwell was the last of the handpicked thinkers that Morgans bred prolifically between the wars, when Wall Street still produced Renaissance men. As members of small partnerships, the elite financiers straddled all aspects of business. They had time to read, to ponder, to enter
politics: the gray era of specialization hadn’t dawned. Leffingwell thought that Glass-Steagall, by segmenting banking, had destroyed the most interesting jobs on the Street.

  After World War II, the Morgan bank was upstaged by a new set of multilateral institutions. Between the wars, the mysterious troika of the Bank of England, the New York Fed, and Morgans had largely governed the international monetary order. At Bretton Woods, New Hampshire, in 1944, they were superseded by a proposed World Bank and International Monetary Fund. These twin bodies would try to lift currency stabilization and European reconstruction to a supranational plane. In the postwar era, there would also be greater collaboration among central banks and finance ministries of the major industrial countries. The upshot was that financial tasks entrusted to private bankers in the 1920s were placed irretrievably in public hands. Bankers were distanced from politicians by a new sense of public propriety, with secret collaboration regarded as corrupting by government. The Diplomatic Age was dead.

  In the new Casino Age, as we shall call it, banks would operate in a broader competitive sphere. The banker had grown powerful when capital markets were limited, with few financial intermediaries to tap them. In the post-World War II period, however, capital markets would burgeon and become globally integrated. At the same time, the financial field would grow crowded with commercial banks, investment banks, insurance companies, brokerage houses, foreign banks, government lending programs, multilateral organizations, and myriad other lenders. Gradually Wall Street bankers would lose their unique place in world finance. Never again would a private bank such as J. P. Morgan be the most powerful financial agency on earth. Far from standing guard over scarce resources, bankers would evolve into glad-handing salesmen, almost pushing the bountiful stuff on customers.