by Kai Bird
The story he told upon his return was, according to Douglas, an example of “Jack McCloy’s amazing imagination.” Claiming that he alone now “knew the secrets of the Upper Jupiter,” McCloy said he had discovered a bend in the river where he had caught thirty-four salmon, one right after another. Unfortunately, he couldn’t back up this fish story, since there had been no room in his saddle bags to bring all those fish home. His campmates were skeptical. For years afterward, Douglas loved to tell the story—at his brother-in-law’s expense—of how Jack McCloy claimed to have ridden horseback seventeen miles up the river and back, and then “raised, hooked, played and beached (he had no net) thirty-four salmon and had hooked a beaver which, fortunately, had disengaged itself from Jack’s fly. All of this within the short span of nine hours . . . I do not question Jack’s veracity, but I admire his bountiful imagination. It is this which makes him what he is, including a skillful fisherman.”20
On these fishing expeditions, both Douglas and Dean Acheson, who had become undersecretary of the Treasury in 1933, complained bitterly to McCloy about their boss in the White House. In October 1933, Acheson was finally fired by Roosevelt, and everyone thought Douglas would be next. He had, after all, been far more outspoken in his criticisms than Acheson. Douglas and McCloy were incensed by Acheson’s firing. Douglas wrote his father, “The Administration has lost real ability in Acheson . . . and has acquired stupidity and Hebraic arrogance and conceit in [Henry] Morgenthau.” In December, he wrote a friend that he was “heartbroken” over the drift in the administration. He knew he was being used for political purposes: “The high command is using me now for only two purposes: first to complete the 1935 budget, and secondly, as a decoy to . . . conservative elements.”21
At Cravath, McCloy was surrounded by men who thought Douglas should have resigned with Acheson. The ambivalence the senior Cravath partners felt toward FDR during the first one hundred days had turned to bewilderment by the end of the year, and then outright hostility. By January 1934, Paul Cravath was writing a friend, “Roosevelt is adopting very radical measures under the influence of his Brain Trust advisors and is causing great alarm among the New York standpatters with whom I associate.” Swaine complained bitterly that the administration’s financial policy had become “Tax and tax, spend and spend, elect and elect.”22
Swaine was now encouraging the firm to participate in a number of the legal challenges mounted by the business community against the New Deal. One such instance was the “Chicken Case.” In the first hundred days of the Roosevelt administration, Congress had passed the National Industrial Recovery Act (NIRA). Under the act, “codes of fair competition” were issued, designed to prevent the growth of monopolies. Swaine believed that, with the act, “America adopted the planned economy of authoritarian government.” So, when the Supreme Court agreed to review the constitutionality of the NIRA in U.S. v. Schechter Poultry Corporation, Cravath eagerly agreed to assist Schechter’s counsel. It did so, said Swaine, in the interest of its major steel client, Bethlehem Steel, which had a large stake in seeing NIRA overturned.23
Cravath entered the Chicken Case only two weeks before it was argued in the Supreme Court. As managing partner, McCloy had to marshal the firm’s resources in a rushed attempt to meet the court’s deadline. The brief they produced argued that Congress lacked the power to regulate intrastate businesses, even though the eventual product might be sold across state lines. The court agreed, and in a unanimous decision it declared the NIRA unconstitutional. McCloy and his Cravath colleagues had dealt Franklin Roosevelt his first decisive defeat.
Meanwhile, Lew Douglas was increasingly disaffected and shocked by the unprecedented measures taken by the White House to deal with the depression. Speaking of the New Dealers, he told one friend, “They want to destroy every ideal we have. . . .” He singled out brain trusters Louis Howe, Rex Tugwell, and Attorney General Homer Cummings as “three really bad men among the crowd, because they were sly and always dangerous.” Despite such strong language, Douglas said in March 1934 that he wouldn’t leave until he was fired, because in the meantime he could at least save the country a little money.
But later that year, it became too much for him. While visiting his in-laws at the Zinssers’ Locust Wood estate, Douglas suddenly asked McCloy whether he should resign. His old friend encouraged him to make the break. “He was making up his mind,” says McCloy, “and talked to me a great deal. I was sympathetic to his problem. Lew was a budget balancer and FDR pretended he was, but had another account going at the same time. Lew thought this fraudulent. . . . He thought he had been betrayed.”24 Douglas also now thought Roosevelt’s “brain trust” had been infiltrated by communists. Tugwell, he said, was “a Communist at heart. . . . He is surrounded with the young Harvard Law School group, all of whom are Communists.” Jews too were part of the conspiracy to destroy the capitalist system. More than once, Douglas spoke to his friends about “Hebraic influence” and blamed the New Deal’s faults on the Jewish race: “Most of the bad things which it [the administration] has done can be traced to it. As a race they seem to lack the quality of facing an issue squarely.”25
McCloy never put such anti-Semitic thoughts to paper. His opinions were never so extreme nor so forcefully articulated as his voluble brother-in-law’s. He was a more tolerant and liberal man than Douglas, but he was also a man of his times and class. And in Wall Street during the 1930s, few men challenged the notion that, as a rule, Jews were socially pushy and arrogant, particularly when placed in positions of power and influence. The “best” Jews, of course, behaved differently. The Warburgs, the Buttenwiesers, the Strausses—the kind of assimilated “Our Crowd” German Jews whom McCloy counted as his friends—did not ask to be seated in public positions of power. Nor did they expect to make careers for themselves in places like Cravath or to be admitted to the elite private clubs that were a daily part of McCloy’s life. McCloy did not question such social segregation, nor did he seem to insist on it. Such as they were, his prejudices regarding Jews were passive.
Douglas’s visceral anti-Semitism, however, was provoked by Morgenthau. A few days after his chat with McCloy, he flew into a rage while listening to a speech by the Treasury secretary on the radio. He angrily called it the “most dishonest utterance coming from a Secretary of the Treasury I ever heard.”26 By the time he handed in his resignation a few days later, the federal deficit was running at more than $6 billion.27 Given his obsession with balancing the budget, it was surprising he had remained even eighteen months in the New Deal. After spending a few weeks in retreat at the Zinsser home with his in-laws and the McCloys, Douglas went abroad for a while and then decided to take a job with the American Cyanamid & Chemical Corporation in New York.28
Douglas’s departure from the administration was a turning point in Wall Street’s relations with Roosevelt. Thereafter, the tenor of the country’s political discourse became increasingly bitter and partisan. At a Harvard annual Crimson dinner in 1935 where Lew Douglas gave a speech blasting the New Deal, Felix Frankfurter responded by reading a fictitious telegram addressed to the Crimson editors from the president, himself a former Crimson editor: “I once heard Uncle Theodore say, ‘I love Harvard men as individuals, but I always feel more comfortable when most of them are against me, because then I am quite sure that most of the country is for me.’ ”29
Many of those Harvard friends of McCloy’s who had voted for Roosevelt in 1932, like James Warburg, had come around 180 degrees. Warburg wrote a best-selling book in 1935 in which he suggested that the 1936 election would come down to a choice between dictatorship or democracy. Though conservative Democrats like Dean Acheson and Lew Douglas were publicly committed to Roosevelt’s defeat in 1936, the Republicans were not offering much by way of an alternative. As Paul Cravath wrote a friend, “The party lacks intelligent and liberal leadership, and no strong Presidential candidate seems to be in sight.”30
The Republicans nominated Kansas Governor Alfred Landon. Lon
don’s first choice as a running mate, Lew Douglas, was vetoed by party leaders who wanted a Republican.31 Douglas instead became an informal adviser to Landon, frequently commenting on the candidate’s speeches. James Warburg advised Landon on foreign policy, and other disaffected Democrats lent their support. A weak candidate to begin with, Landon managed to alienate even the anti-New Deal business community in September 1936 when he attacked the reciprocal tariff treaties negotiated by Secretary of State Cordell Hull. The internationalist, corporate wing of the business community feared another wave of protectionism more than they did Roosevelt. On October 18, Warburg, who could always be relied on for drama, suddenly announced his switch back to Roosevelt. A few days later, Dean Acheson followed suit. Douglas issued a statement saying he would vote for Landon as a protest vote against Roosevelt.
Like his good friend Jeremiah Milbank, the treasurer of the Republican Party, McCloy had preferred Hoover over Landon for the Republican nomination.32 Like Acheson and Douglas, he was distressed by Landon’s protectionist leanings. So was that grand old Republican Henry Stimson, who decided to back out of the Landon campaign. But McCloy, who valued consistency in everything, including his politics, remained a loyal party man and reluctantly voted for Landon. Others in the Wall Street community swallowed their pride and turned back to Roosevelt. Sidney Weinberg, of Goldman, Sachs, returned to the Roosevelt campaign and raised more money for it than any other individual. James Forrestal of Dillon Reed, Averell Harriman of Brown Brothers, and even such conservative Texas oil men as Sid Richardson, Clint Murchison, and W. Alton Jones came aboard. Chase National Bank lent the Democratic Party $100,000.33 Roosevelt won in an even bigger landslide, with Landon carrying only Maine and Vermont. The debacle represented a watershed for the Republican Party. The nationalist, high-tariff wing of the party had been soundly trounced, in part because McCloy and other like-minded internationalists had basically sat out the campaign. The party had learned a lesson it would apply four years later.
Before and after the election, it sometimes seemed as if Roosevelt’s New Dealers viewed the New York bar as members of a criminal class. The depression had not abated, and in the minds of many Americans, Wall Street lawyers were to blame. Cravath lawyers in particular became a symbol of Wall Street’s exploitation of the workingman. Hardly a year went by in the 1930s when some Cravath partner was not hauled before a congressional committee and asked to defend the firm’s clients and practices. Armed with subpoena powers, these investigations gave the American public an unprecedented view of the internal workings of New York’s financial and legal community. Swaine later grudgingly admitted that such investigations were probably “a necessary prophylactic in a democratic system of private enterprise. . . .” But he complained that some were conducted with “brawling that would shame a police court. During the New Deal years they implemented the President’s determination to drive the ‘money changers’ from the ‘temple’ and often were reckless in unjustifiable innuendo against responsible heads of life insurance, banking, and industrial corporations.”34 Swaine wrote from personal experience.
In the autumn of 1937, a number of McCloy’s colleagues, including Benny Buttenwieser and Bob Swaine, spent weeks testifying before the Senate Committee on Interstate Commerce. McCloy himself escaped questioning, but his name repeatedly cropped up in the testimony. The Committee was chaired by the populist senator from Montana, Burton K. Wheeler, but Senator Harry Truman of Missouri presided over most of the hearings. Armed with a congressional subpoena, the Committee counsel, Max Lowenthal, rummaged through the files of both Kuhn, Loeb and Cravath, and discovered not a few documents embarrassing to both firms.
Lowenthal, who had been one of Frankfurter’s “front-row” protégés at Harvard Law School, concentrated his investigations on Kuhn, Loeb’s near monopoly of the business of railroad reorganization. From 1924 to 1937, Kuhn, Loeb had made profits of more than $11 million on railroad bankruptcies. And yet many of these “reorganized” railroads floundered after only a few years and had to go through yet another reorganization. Questioning Buttenwieser, Truman caustically observed that some of these reorganizations “did not last much longer than a baby carriage.”35
Inevitably, the investigation focused on the 1925–28 reorganization of the Chicago, Milwaukee & St. Paul Railroad, one of the first cases McCloy had worked on when he arrived at Cravath. The Committee had obtained Cravath’s log sheets, which showed that McCloy had begun preparing the receivership papers for the St. Paul a full two months before there was any public hint of default. Swaine was grilled repeatedly as to why McCloy was assigned such work without any client. He lamely explained that he had ordered McCloy to do the work “on my own. . . . I was trying to keep myself informed, and to be prepared with [receivership] papers that I thought might be needed on any turn in the situation.”36
Truman was unconvinced. It seemed to him that Kuhn, Loeb had decided from the beginning that a receivership was inevitable. Cravath lawyers had consequently conspired with the St. Paul directors to preserve the assets of the troubled railroad for the exclusive benefit of the bankers.
If Cravath’s reputation was muddied in the hearings, Kuhn, Loeb’s was blackened. One of its partners, George W. Bovenizer, described how the firm had set up a scheme to provide some of its most valued clients with a virtually riskless investment. Ten presidents of major railroads and banking clients, including two of McCloy’s best friends, Robert Lovett and Jean Monnet, had been invited to participate in a Kuhn, Loeb syndicate of securities without having to make any personal investment. Furthermore, they were guaranteed that, if the syndicate sustained any losses, these would be covered by Kuhn, Loeb. As Senator Wheeler observed, “It appears that the ‘participation’ was really a free ride with no risk of loss to these gentlemen, does it not?”37
There was worse to come. McCloy’s oldest friend at Kuhn, Loeb, Benjamin Buttenwieser, was forced to confess to insider trading. Internal Kuhn, Loeb documents obtained by Senator Wheeler revealed that in 1927–28 Buttenwieser had bought and sold some $125,000 worth of Wabash Railroad stock, transactions based on inside knowledge of an impending sale of a large block of Wabash stock. Senator Wheeler asked Buttenwieser if it were true that he had made a profit of $5,042.21 on the transaction. Buttenwieser replied, “That is correct, sir. At the time, I was a clerk at Kuhn, Loeb & Co. It was not done through Kuhn, Loeb & Co.’s office. They would certainly not have permitted it. I was a 26-year-old clerk at the time, and I have since learned better habits. . . . I think I have learned my lesson, and I never did it again.”38 What Buttenwieser did was not against the law in 1928. But it was when he testified in 1937.
The Wheeler-Truman hearings reinforced the image of Wall Street investment bankers and their counsel as men whose shrewdness warranted the public’s distrust. The bankers had labored to present themselves, in the words of Otto Kahn, as men who “could afford to be disinterested.” Kahn had likened the relationship between investment bankers and their clients to that of a doctor with his patient. During the 1933 Senate investigations into the causes of the crash, conducted by Frederick Pecora, he had argued that, if only a few of these men, like himself, had been accorded the “moral influence” possessed by the governor of the Bank of England, the Crash of 1929 might have been prevented.39
Four years later, Senator Wheeler sarcastically asked Buttenwieser, “How many of these patients of yours are sick at the present time?” And Wheeler concluded: “This notion that investment banking is a profession is continually used to protect the monopoly which these bankers have built up. . . . On the most charitable basis, they failed to live up to the ordinary standards of prudence and care, to say nothing of the high degree of skill they always claim.”40
This indictment of investment banking, a profession that McCloy had spent the better part of his legal career serving, was given wide currency. In the atmosphere of the New Deal in 1937, when millions of American workers were still standing on bread lines, Lowenthal’s Sen
ate investigation made many of McCloy’s friends and closest colleagues public targets of class hatred. These were bitter, partisan times, and men like McCloy, Lew Douglas, Robert Lovett, and Robert Swaine believed themselves to be unjustly and irresponsibly libeled by Roosevelt and his ideologically motivated minions.
McCloy resented being pilloried for conduct that he believed to be sound legal practice, carried out in the best interests of his private clients. If he and his colleagues at Cravath had not acted in the way they did, he felt, many more large corporations would have been completely destroyed by small creditors. What he had done was not only good for the investment bankers who controlled the largest blocs of assets in these corporations, but it was also good for the country as a whole. Lawyers, he believed, could discern this larger public interest precisely because only men imbued with the law truly had the capacity for objectivity and disinterestedness. To McCloy’s mind, the general public interest was defined as a collection of competing private interests. Only lawyers learned to discern the public interest, because only lawyers went through the daily process of representing the interests of private clients. This attitude colored McCloy’s view of politicians, particularly politicians such as Franklin Roosevelt or Harry Truman, who seemed all too willing to fan the fires of class resentment. The New Deal investigations of Wall Street reminded him how easily the politicians capitulated to what Alexis de Tocqueville had called the “ill-considered passions of democracy.”
By the late 1930s, McCloy was a prominent member of the New York bar, a scene far removed from the political controversies of Washington. In those years, Wall Street was still a fairly small and self-contained society. That autumn, Felix Warburg, whom McCloy had known since his summers in Maine, died. The funeral would become the occasion for a major gathering of New York’s legal and financial establishment. Lewis Strauss sent out a cable the day after Warburg’s death to McCloy and three dozen other old friends, requesting their presence as ushers. McCloy accepted, as did Sidney Weinberg (Goldman, Sachs & Co.), Julius Adler (New York Times), Pierpont Davis (Brown Brothers Harriman & Co.), Morris Waldman (American Jewish Committee), George Brownell (Davis Polk), and other New York lawyers and financial leaders.41
