The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance

by Ron Chernow

  In Belle Greene, Pierpont’s infatuation with women and art converged. There was some sexual element to the relationship. When she had a four-year affair with connoisseur Bernard Berenson, she insisted that he keep it secret, so as not to awaken Pierpont’s jealousy. She flowered in her role as doyenne of the library, presiding in Renaissance gowns, gesturing with a green silk handkerchief, and personally representing Pierpont at art auctions. The forty-six-year age difference between tycoon and librarian didn’t seem to matter. “He was almost a father to me,” she said after Pierpont died. “His never-failing sympathy, his understanding, and his great confidence and trust in me bridged all the difference in age, wealth, and position.”66 She would be an important figure for many members of the Morgan family and would later appeal to Jack no less than to his father.

  Eventually Pierpont put together the largest art collection of any private individual of his day, perhaps of any day. It had Napoleon’s watch, Leonardo da Vinci’s notebooks, Catherine the Great’s snuff box, jewelry of the Medici family, Shakespeare first folios, a five-page letter of George Washington’s, Roman coins showing the heads of all twelve Caesars save one. Oblivious to Impressionists and modern American artists, he favored objects with long, romantic histories, European art sanctified by age. The banker of old money did prefer old masters, and valued exquisite craftsmanship and costly materials. Yet paintings accounted for a scant 5 percent of his collection. He preferred tapestries, jewel-encrusted books, gilded altarpieces, illuminated manuscripts, gold and silver cups, porcelains, and ivory. In stressing decorative arts, he followed in the footsteps of the Rothschilds, the Medicis, and other merchant princes. He was proud of his holdings and printed up private catalogues of his collection, which he distributed to the royal households of Europe.

  Morgan the collector was recognizably the same man as Morgan the banker. He hated to haggle. He would come to terms by asking a dealer what he had paid and then tacking on 10 or 15 percent; one recalls Pierpont barking bids for foreign exchange on a take-it-or-leave-it basis. In art and finance, he relied on the deal maker as much as the deal. Francis Henry Taylor, who studied Morgan’s habits as a collector, wrote, “He was accused of not looking at the objects when in reality he was looking into the eye of the man who was trying to sell it to him. It was, after all, how he had reached the summit in finance and it had paid off well.”67 To protect himself, he would buy a picture conditionally and leave it on a chair, gathering the free comments of other dealers before completing the purchase. Once, to test art dealer Joseph Duveen’s knowledge of Chinese ceramics, he set out five on display. “Only three of them are genuine,” he said. “Now tell me which they are.” Duveen smashed the two fakes with his cane.68

  The godfather of U.S. Steel knew that to create a big collection he had to buy art in huge batches and purchase entire collections. He roared tenaciously through art history like a freight train shunting from one track to the next. “I have done with the Greek antiquities,” he wrote his sister Mary Burns. “I am at the Egyptian.”69 His determination was awesome. Wanting manuscripts owned by one of Lord Byron’s relatives in Greece, he stationed an agent there, armed with a letter of credit. For several years, this lonely sentinel bought Byron manuscripts as they came on the market until the collection was complete.

  Pierpont could also be childishly impulsive. He loved to hear the stories behind works of art, which he would commit to memory. This genuine interest served him better than the feigned sophistication of insecure millionaires who bought “fine art” and ended up with high-priced junk. When one art dealer appeared with a Vermeer, Pierpont asked, “Who is Vermeer?” After being told, he peered at the $100,000 painting again. “I’ll take it,” he said. The story may be apocryphal—Morgan had visited European museums for decades and would have seen Vermeers—yet it captures his enthusiasm. In the last analysis, Pierpont relied on his own fallible judgment. In 1911, Jack excitedly reported that a dealer had offered $176,000 for an original 1530 Copernicus manuscript, the basis of modern astronomy. In a huff, Pierpont cabled back: “Do not care for Copernicus, certainly not at such absurd price.”70

  And Pierpont could be disarmed by sentiment. One dealer tried to sell him a manuscript collection that included Poe’s Tamerlane and Hawthorne’s Blithedale Romance. When Morgan wouldn’t budge, the dealer played his trump card. He noted a Longfellow poem about his grandchildren that, the dealer said, reminded him of Pierpont and his grandchildren. “Let me see it,” replied Morgan. He put on his spectacles, read the poem, then pounded the table. “I’ll take the collection.”71

  The scale of Pierpont’s collection was so outsize—it included 225 works of ivory, 140 pieces of majolica, 150 works of Continental silver, and so on—that vanity alone cannot explain it. Rather, it was founded in an impulse that paralleled his banking ambition—to put America on a par with the European civilization he so admired. As in banking, he honored Old World traditions even as he ransacked them. It was said he wished to acquire a collection so huge that Americans wouldn’t have to travel to Europe for culture. After 1897, he gave steadily to the Metropolitan Museum of Art and became its board president in 1904. The board of trustees often met in his house. To mount a patriotic assault on European masterpieces, he packed the board with millionaire friends—Frick, Harkness, Rogers, and other industrial captains. In 1905, he brought Sir Purdon Clarke from the South Kensington Museum to direct the museum and then Bloomsbury art critic, Roger Fry, as its curator of paintings. Fry would later taunt Pierpont for his “perfect insensibility” and “crude historical imagination.”72 But the high quality of the Morgan collection would be proof against Fry’s petty gibes.

  In 1904, after acquiring the townhouse next-door to 13 Princes Gate, he considered converting the two buildings into a museum as a memorial to his father. He also hoped to create memorials to Junius in the four cities in which he had lived—Holyoke, Massachusetts, Hartford, Boston, and London. After deciding that the enlarged London house still couldn’t encompass his collection, he commemorated Junius by building the $1.4-million Morgan Memorial in Hartford, doubling the size of that city’s art museum, the Wadsworth Atheneum. This single bequest, Pierpont’s largest, surpassed the $1 million he had given to the Harvard Medical School in 1901 to honor his father.

  A final note on Pierpont’s collection concerns the rashness with which he financed it. Usually buying art during the summer, he would postpone payment until early the next year—extraordinary to think of the world’s foremost banker buying art on credit! As early as 1902, Teddy Grenfell noted in his journal “vague and disquieting rumors” in the City about the Morgan banks’ financial soundness as a result of the whirlwind art collecting.73 He also noted the tension when the time came to settle these purchases at the London or Paris offices. The sums weren’t trivial. At Pierpont’s death, the collection was valued at an estimated $50 million, or nearly half his entire fortune.

  This nonstop buying posed a potential threat to Pierpont’s banking capital. This was especially serious because he chose partners for their talent, not to inject fresh capital into the business. It was one of the House of Morgan’s glories that poor boys could join its exclusive club. Yet Pierpont didn’t always husband his capital. Years later, Morgan partner Russell C. Leffingwell passed along the insider stories about the problems created by the art sprees. “The notion that the elder Morgan bought pictures and tapestries partly to make money is certainly contrary to the fact,” he told a colleague. “It was a self-indulgence on a magnificent scale, and a source of great anxiety and at times weakness to his firm, which could well have used the money as capital in the business if he had not spent it so lavishly.”74 In the last analysis, the collector’s impulse to spend won out over the banker’s impulse to save.

  CHAPTER SEVEN

  PANIC

  THE folk wisdom of Wall Street says that if a crash is widely expected, it won’t occur, for a saving fear will filter through the marketplace. This was refuted in 1907, wh
en Wall Street spent a cliff-hanging year awaiting the crash that came. On March 25, panic selling roiled the Stock Exchange. The financial powers—Henry Clay Frick, Edward H. Harriman, William Rockefeller, and Jacob Schiff—assembled at the Corner for a secret meeting. They wanted a $25-million pool to steady prices. Jack cabled Pierpont in London, saying Schiff “thought amount of money really needed would be very small, as moral effect of concerted action on part of large interests heretofore antagonistic would be sufficient without actual purchases.”1 While Jack favored cooperation, Pierpont fired back a hostile cable, saying such an action “would be unwise, entirely at variance with all the policies we have ever adopted being at the head of a declared Stock Exchange manipulation.”2 The next day, the market rallied—partly on the basis of incorrect reports that Pierpont had joined relief efforts—and the plan was scrapped. All spring, as Pierpont cruised around Europe, his partners wired him that a serious autumn drop appeared likely.

  At age seventy, Pierpont was often in low spirits. In photographs, his eyes look slightly unfocused, as if telling of inner turmoil. The October 1907 panic found him at the Episcopal Convention in Richmond, Virginia. As a lay delegate from New York, he would attend these conventions in opulent style, bringing bishops down by private railroad car and throwing parties catered by Louis Sherry. Nothing pleased him more than recondite controversies over prayer-book revisions and other matters remote from the material world. At the same time, the contradictory Pierpont brought with him a lady friend, Mrs. John Markoe of Philadelphia, a relative of his personal physician, Dr. James Markoe, and often mentioned as a possible mistress.

  As the Richmond convention progressed, emergency telegrams came in thick and fast from 23 Wall Street. Morgan’s friend Bishop William Lawrence noted in his diary how Morgan would study the telegrams, place his palms on the table, then stare fixedly ahead. Though Pierpont was needed on Wall Street, his partners feared a premature return might itself touch off a panic. By Saturday, October 19, he decided to rush back by private railroad car to deal with a spreading bank crisis. “They are in trouble in New York,” he told Bishop Lawrence. “They do not know what to do, and I don’t know what to do, but I am going back.”3

  The 1907 panic was Pierpont’s last hurrah. Although semiretired, reporting to work periodically for only an hour or two, he suddenly functioned as America’s central bank. Within two week’s time, he saved several trust companies and a leading brokerage house, bailed out New York City, and rescued the Stock Exchange. His victory was Pyrrhic, however, as America decided that never again would one man wield such power. The 1907 panic would be the last time that bankers loomed so much larger than regulators in a crisis. Afterward, the pendulum would swing decidedly toward government financial management.

  The panic was blamed on many factors—tight money, Roosevelt’s Gridiron Club speech attacking the “malefactors of great wealth,” and excessive speculation in copper, mining, and railroad stocks. The immediate weakness arose from the recklessness of the trust companies. In the early 1900s, national and most state-chartered banks couldn’t take trust accounts (wills, estates, and so on) but directed customers to trusts. Traditionally, these had been synonymous with safe investment. By 1907, however, they had exploited enough legal loopholes to become highly speculative. To draw money for risky ventures, they paid exorbitant interest rates, and trust executives operated like stock market plungers. They loaned out so much against stocks and bonds that by October 1907 as much as half the bank loans in New York were backed by securities as collateral—an extremely shaky base for the system. The trusts also didn’t keep the high cash reserves of commercial banks and were vulnerable to sudden runs.

  That Pierpont rescued the trusts was ironic, for they were anathema to the Wall Street establishment. As George Perkins said, “Indeed, we hadn’t any use for their management and knew that they ought to be closed, but we fought to keep them open in order not to have runs on other concerns.”4 When J. P. Morgan and other prestigious houses referred clients to them for trust work, the unscrupulous trusts tried to steal the nontrust business of these clients. Two young bankers, Henry Pomeroy Davison of the First National Bank and Thomas W. Lamont of Liberty Bank, were among those who in 1903 set up a “captive” trust called Bankers Trust. Although commercial banks couldn’t do trust business, they could own trusts, and they pooled their money to set up the new bank. The idea was that the House of Morgan and its allies would refer trust business to Bankers Trust, which would politely return the customers once their trust business was complete. By no accident, the Morgan bank would stare vigilantly at Bankers Trust across the Corner of Broad and Wall.

  On Monday, October 21, the day after Pierpont returned from Richmond, a collapse in copper shares undermined the trusts. There were fears of a copper glut, spurred partly by news that the Morgans would join the Guggenheims in developing new Alaskan copper mines. When an attempt to corner United Copper burst, its stock skidded 35 points in just two hours, spreading ruin and dragging stocks to levels unseen since the 1893 depression. Charles T. Barney, president of Knickerbocker Trust, was associated with F. Augustus Heinze and other speculators who had cornered United Copper. So the stock’s fall alarmed the Knickerbocker’s eighteen thousand depositors. At its new main office at Thirty-fourth Street and Fifth Avenue, customers lined up on Tuesday morning to empty their accounts.

  As panic spread to other trusts around town, Pierpont took charge of the rescue operation. Emergencies seemed to fortify his confidence even as they introduced doubt or terror in others. He formed a committee of young bankers, including Henry Pomeroy Davison of the First National Bank and Benjamin Strong of Bankers Trust. He sent them to audit the Knickerbocker’s books. Later, as all-powerful governor of the New York Federal Reserve Bank, Strong would recall peering out at grim depositors from the bank’s back room. “The consternation of the faces of the people in the line, many of them I knew, I shall never forget. I know that Harry left the building with a sense of dejection and defeat which it is quite impossible for me to describe.” Pierpont wrote off the Knickerbocker as hopeless and it failed on Tuesday afternoon, October 22.5 “I can’t go on being everybody’s goat,” he said. “I’ve got to stop somewhere.”6 A few weeks later, refused admission to see Pierpont, Charles Barney of the Knickerbocker shot himself, an act that produced a wave of suicides among the bank’s depositors.

  On Tuesday night, Pierpont and other bankers met at a Manhattan hotel with Treasury Secretary George B. Cortelyou, who pledged cooperation. The next day, Cortelyou put $25 million in government funds at Pierpont’s disposal. It was an extraordinary transference of power to a private banker and further proof of Teddy Roosevelt’s high regard for Morgan.

  The Knickerbocker’s failure triggered runs on other trusts, especially the Trust Company of America, which was just down Wall Street from the Morgan bank. On Wednesday, October 23, Pierpont summoned the trust presidents and tried to prod them into a rescue pool. It turned out they didn’t know one another, making it difficult for them to band together in a crisis. The situation illustrated why bankers believed implicitly in their old-boy networks. After Ben Strong delivered a favorable report on the Trust Company of America, Pierpont made his ex cathedra pronouncement: “This is the place to stop the trouble, then.”7 Morgan, George F. Baker of First National Bank, and James Stillman of National City Bank provided $3 million to save the Trust Company of America.

  For two weeks, Morgan and his associates stood fast against a spreading typhoon. As panic increased, depositors thronged banks across the city. People sat overnight in camp chairs, bringing food and waiting for the banks to open in the morning. New York police distributed numbers to people to save their places; in other cases, exhausted depositors paid enterprising standees to wait for them. (A later Wall Street eminence, Sidney Weinberg of Goldman, Sachs, earned $10 a day holding down places in line.) To reduce withdrawals and avert the need for shutdowns, trust tellers counted out the money in slow motion, like peop
le in a trance.

  Strapped for cash, the trusts called in margin loans from stock market speculators. The price of call money—that is, the interest rate on margin loans to buy stocks—zoomed to 150 percent. Nevertheless, there remained a shortage of ready funds. Perkins cabled Jack, who was in London: “At all times during the day there were frantic men and women in our offices, in every way giving evidence of the tremendous strain they were under.”8 Pierpont was accosted by hundreds of distraught brokers who faced ruin and pleaded for help. Photographs of the Corner show dense throngs of men in derbies and dark coats, solidly massed along Wall Street in somber ranks. For these terrified men, Morgan emerged as the Redeemer, the one man who could save them. In a human wave, they surged right to the door of 23 Wall, where “the struggling mob fought their way on, all looking up at the windows of J. P. Morgan & Co.”9

  On Thursday, October 24, with stock trading virtually halted, New York Stock Exchange president Ransom H. Thomas crossed Broad Street and told Morgan that unless $25 million were raised immediately, at least fifty brokerage firms might fail. Thomas wanted to shut the Exchange. “At what time do you usually close it?” Morgan asked—though the Stock Exchange was twenty paces from his office, Pierpont didn’t know its hours: stock trading was vulgar. “Why, at three o’clock,” said Thomas. Pierpont wagged an admonitory finger. “It must not close one minute before that hour today.”10 At two o’clock, Morgan summoned the bank presidents and warned that dozens of brokerage houses might fail unless they mustered $25 million within ten or twelve minutes. By 2:16, the money was pledged. Morgan then dispatched a team to the Stock Exchange floor to announce that call money would be available at as low as 10 percent. One team member, Amory Hodges, had his waistcoat torn off in the violent tumult. Then a blessed moment occurred in Morgan annals: as news of the rescue circulated through the Exchange, Pierpont heard a mighty roar across the street. Looking up, he asked the cause: he was being given an ovation by the jubilant floor traders.