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

by Ron Chernow

  I have come to the conclusion that the chief reason of the dislike that exists in Washington for J.P. Morgan & Co. . . . originates in the fact that we ask for no favors, that the Democratic party has tried its best to cripple us in every way it could, that they had Steel investigations, Pujo investigations and Clayton bills and all that sort of thing, devised and directed with the intention of making life impossible for us—and still we have gone ahead and got along pretty well . . . the whole feeling against us is really a political grudge, and they cannot change our feeling, nor can we change theirs.50

  Another perspective on Morgan power came later from Sir Harold Nicolson in his biography of Dwight Morrow. Nicolson had written that at the outbreak of the war, the House of Morgan “ceased to be a private firm and became almost a Department of government”—which he meant as a mighty compliment.51 Yet Jack thought it insulting to liken his bank to the government. “I have no right to ask you to alter this,” Jack wrote to Nicolson upon reading it in draft form, “but it would be interpreted as if we were reduced to the status of a department subordinate to the Government.”52 The House of Morgan no longer thought itself subordinate to anyone, not even Washington.

  1. The inimitable 1903 photo of J. Pierpont Morgan by Edward Steichen. Morgan hated the photo and tore up the first print.

  2. George Peabody, the miser-turned-philanthropist who founded the House of Morgan

  3. Junius Spencer Morgan, patriarch of the clan, in 1881, at age sixty-eight.

  4. 13 Princes Gate, the Morgans’ London townhouse and later residence of Ambassador Joseph P. Kennedy and his family

  5. Corsair II. Pierpont’s sumptuous pleasure craft was later conscripted for use as a gunboat in the Spanish-American War.

  6. The Morgan family at the Karnak temple, Egypt, 1877. The touring party included a physician, a maid, a nurse, an interpreter, and a French waiter.

  Four women in Pierpont Morgan’s life

  7. Pierpont’s frail estranged wife, Frances Tracy Morgan, Known as Fanny, in 1902

  8. Pierpont’s mistress, actress Maxine Elliott, as Portia in The Merchant of Venice in 1901

  9. Pierpont’s daughter, Anne, in 1915. Her ménage à trois at Versailles with two other women scandalized her father.

  10. Pierpont’s saucy librarian, Belle da Costa Greene, at a Republican party meeting in 1916

  11. Pierpont (second from right on the stairs) at a house party at the Harcourts’ Nuneham Park estate. King Edward VII is seated in the center.

  12. Pierpont’s brownstone at 219 Madison Avenue, later razed to build an annex to the Pierpont Morgan Library

  Rare photographs of Pierpont Morgan from the Library of Congress

  13. Pierpont gazing ferociously at bystanders at the funeral of Senator John Fairfield Dryden, 1911

  14. Pierpont chatting with a friend in October 1907, just before the panic. This unusual photograph shows how his nose really looked. Most pictures are touched up.

  15. Pierpont meting out rough justice to a photographer, 1910

  Four warriors in the Northern Pacific corner, 1901.

  16. George W. Perkins, who had just been made a Morgan partner

  17. Robert Bacon, the Greek Godof Wall Street, whose nerves gave way under the strain

  18. Edward H. Harriman, whom Pierpont sneered at as a “two-dollar broker”

  19. facob Schiff of Kuhn, Loeb, Pierpon’s formidable Jewish rival on Wall Street

  20. Run on the Trust Company of America during the Panic of 1907. The old Drexel building, pre-1913 home of the Morgan bank, is at the right. The successor building dropped the name out front.

  21. A grim Pierpont arriving at the Pujo hearings accompanied by daughter Louisa Satterlee and son, Jack, December 1912

  The instigators of the Money Trust investigation

  22. Louis D. Brandeis, who won national attention with his attacks on Morgan control of the New Haven Railroad

  23. Muckraker Lincoln Steffens, who dubbed Pierpont “the boss of the United States”

  24. Charles A. Lindbergh, Sr., father of the aviator, who introduced a congressional resolution calling for a Wall Street probe

  25. Samuel Untermyer, counsel to the Pujo committee and bogeyman of the Morgan family

  The age of dollar diplomacy

  26. Willard Straight, Morgan agent in China, with his heiress wife, the former Dorothy Whitney

  27. Straight, in spats, conferring with the American minister to China, William J. Calhoun, and Colonel Tsat Ting-Kan

  28. Official portrait of J. P. (“Jack”) Morgan, Jr.

  29. lack’s wife, Jane Grew Morgan, known as Jessie, as presented to ’ Queen Victoria in 1898

  30. Jack’s estate, Matinicock Point, on East Island, off Long Island’s North Shore

  World War I

  31. Morgan lieutenant Henry P. Davison, who negotiated the deal by which the bank bought $3 billion in supplies for the Allies

  32. Russell C. Leffingwell. As assistant Treasury secretary in 1918, Leffingwell presided over the sale of Liberty bonds.

  33. The Paris Peace Conference, 1919. Thomas W. Lamont, standing at the far left, poses with the Reparations Commission. Herbert Hoover sits at the far left, and Bernard Baruch sits second from the right.

  34. September 1920 bomb blast outside the House of Morgan. The explosion killed two employees and damaged the building’s northern facade.

  35. View of 23 Wall Street, right, in the Jazz Age

  36. Thomas W. Lamont striking a debonair pose aboard the S.S. Europa in 1932

  37. Giovanni Fummi, the Morgan agent in Rome, whose arrest Mussolini ordered in September 1940.

  38. Benito Mussolini perusing a newspaper. Lamont created a New York publicity bureau to help bolster il Duce’s overseas image.

  39. Dwight W. Morrow returning from the 1930 London Naval Conference with his wife, Betty

  40. Walter Lippmann, lower left, at a Mexican reception with the Morrows (at head of table) in 1928. Lippmann was on a secret mission to arbitrate a dispute between Mexico and the Catholic church.

  41. Charles A. Lindbergh, Jr., in Mexico in December 1927. The aviator flew there at Morrow’s invitation. A Mexican official sits between Lindbergh and Morrow.

  42. Charles and Anne Morrow Lindbergh in flying togs, 1931

  43. Lindbergh in Nazi Germany in 1937. His admiration for German air power estranged him from the Anglophile Morgan bank.

  CHAPTER ELEVEN

  EXPLOSION

  THE United States emerged from the First World War with thriving industries and a record trade surplus, while much of Europe lay in ruins, urgently in need of reconstruction loans. Sovereign states, city governments, and corporations flocked to Wall Street, as they had once courted London’s merchant princes. Because of sterling’s postwar weakness, the British Treasury had to impose an informal embargo on all foreign loans in the City, leaving wide open the door to traditional British clients. London had surrendered its historic role of financing world trade.

  Sunning in postwar glory, the House of Morgan was the world’s most influential private bank, able to select the most creditworthy customers and alone capable of handling many huge state loans. Its seal of approval guaranteed a warm reception for bond issues at a time when foreign issues were still new and unfamiliar to American investors. The House of Morgan spoke to foreign governments as the official voice of the American capital markets. Its influence didn’t simply stem from money but from intangibles—cachet, political connections, and banking alliances.

  With the Jewish banks weakened, the Yankee axis of J. P. Morgan-National City Bank-First National Bank held the keys to the kingdom. For any credit-hungry finance minister, it was a formidable machinery to defy. In October 1919, Baron Emile du Marais, a member of a French financial mission, reported on Morgan power to French president Raymond Poincare: “I have the impression that Morgan’s has put together here a group which includes all the necessary elements for the placement of securities, and that
one can in no way manage without their support. It is a fact about which we can do absolutely nothing. In these conditions, wisdom seems to dictate that we accept the fait accompli; and try to give Morgan’s the impression that we have full confidence in them.”1 This analysis is reminiscent of Asquith’s fatalistic, wartime lament that Britain, willy-nilly, had to reckon with the bank.

  Nobody was more emboldened by the new financial power than President Wilson, who was eager to underwrite liberal dreams with Wall Street money. This was the same Woodrow Wilson who had made caustic comments about the Money Trust and snubbed Jack’s offer of the Export Department. In December 1918, he set sail for Europe and received a euphoric welcome. He was the man of the hour, and it was thought he could mediate among European powers while rehabilitating Belgium and northern France. At this critical juncture, a metamorphosis took place in the role of the banker. In Pierpont’s day, captains of finance had indulged an honest hatred of government. But after World War I, financial diplomacy shifted into a gray area between business and politics, with bankers often functioning as their governments’ ambassadors. The advent of the Diplomatic Age was most striking at the House of Morgan, which would evolve into a shadow government and move in tandem with official policy. There would be moments when it acted as a rogue ministry, pursuing its own secret agenda, but for the most part it faithfully followed Washington. As Jack later said, “We were always most scrupulous in our relations with our Government.”2

  During this period, Tom Lamont acquired his keen interest in foreign affairs. In 1917, he was already traveling with Colonel House to Europe to study the European situation. Then Treasury Secretary Carter Glass appointed him as a financial adviser to the U.S. delegation at the Paris Peace Conference. Lamont was horrified by a wartime visit to Flanders and remembered the battlefield as a “Dantaesque inferno,” with fires erupting from smoking artillery.3 The experience made him a convinced advocate of world peace organizations. He developed an ardent faith in Wilson’s vision of a League of Nations and funneled large amounts of money into organizations supporting American entry into the League.

  Lamont’s political beliefs dovetailed with the Morgan bank’s financial requirements, for as it expanded its foreign lending, it looked for stable governments, global security, and free trade. The late 1910s would be the heyday of Morgan idealism. In those years, Dwight Morrow penned a brief study, entitled The Society of Free States, that examined how nations had negotiated their conflicts in the past. His daughter Anne later recalled, “The talk I heard around the family table in my school years was full of enthusiasm for Woodrow Wilson’s Fourteen Points: ’The right of self-determination’ for nations and ’a new order of world peace.’ ”4

  Against all expectations, the insouciant Lamont dazzled Wilson in Paris. Wilson told him, “I have more and more admired the liberal and public-spirited stand you have taken in all our counsels.”5 A new Morgan partner, George Whitney, said that Wilson seemed to place more trust in Lamont’s financial judgment than in that of anybody else.6 Indeed, Morgan men were so ubiquitous at the Paris Peace Conference in 1919 that Bernard Baruch grumbled that J. P. Morgan and Company was running the show.7 It is worth stressing that it was a progressive Democratic president who first mobilized the new Wall Street power for political ends (although the exploitation would become more blatant under Wilson’s Republican successors). A decade of attacks on the Money Trust seemed to melt into a rapturous embrace.

  Tom Lamont found his métier in Paris and helped to write the financial clauses of the peace treaty. He developed a vast circle of new friends, including Philip Kerr, later Lord Lothian and then secretary to Lloyd George and a close friend of Nancy Astor, and Jan Smuts of South Africa. Lamont would be the ace financial diplomat of the era. Where Jack Morgan was incapable of guile, Lamont was fast on his feet and ideologically flexible, able to hint to politicians of both parties that he sided with them. He was a man of many masks who played his parts so masterfully that he sometimes fooled himself. He had a gift for straddling political fences. To Wilson, in a typically artful formulation, he labeled himself “a poor Republican . . . who has faith in our present Democratic administration.”8 His tolerance was sometimes indistinguishable from a lack of conviction and his open-mindedness sometimes had a dash of opportunism. On domestic economic issues, he was a conventional Republican. But he espoused enough liberal views on international organizations and civil liberties to make himself uniquely palatable to the Democratic intelligentsia, who marveled at this rara avis of Wall Street. By the end of his career, Lamont would count Herbert Hoover and Franklin Roosevelt among his close friends.

  For a generation, Lamont and the House of Morgan were entangled by the Treaty of Versailles and the problem of German reparations. It was a quagmire from which they could never escape. At the peace conference, Lamont joined a subcommittee studying Germany’s capacity to pay war reparations to the Allies. Since much of the war was fought on French soil—northern France was left a lunar landscape of bomb craters—the French were implacable about receiving massive compensation. They had paid reparations to Germany in 1819 and 1871 and wanted their pound of flesh. Compared with the vengeful Allies, Lamont was less hawkish and recommended that Germany pay $40 billion—only one-fifth the French request and one-third the British, but still quite substantial and the highest among the American advisers.

  When the Reparations Commission set the burden at S32 billion, its magnitude shocked Ben Strong, who foresaw—prophetically—a weaker German mark and subsequent inflation. Yet Lamont would never renounce his belief that the reparations burden was quite tolerable and that John Maynard Keynes, in his famous polemic The Economic Consequences of the Peace, gave the Germans the impression that they had been penalized and thus only fostered their resentment and weakened their resolve to pay. This, he thought, paved the way for Hitler’s rise. Lamont belonged to the school of thought that saw the Germans manipulating world opinion into a better postwar financial deal than they deserved. Right through the Second World War, he clung to the belief that the Treaty of Versailles “was more than just to Germany and less than just to the allies.”9

  Whatever the truth of this complex historic debate, Lamont proved prescient in his forecast of lukewarm American support for the League. Sensing mounting isolationism at home, he asked Dwight Morrow to report to him from New York on sentiment toward the League. When he relayed Morrow’s pessimistic appraisals, Wilson either pooh-poohed them or seemed puzzled by American doubts. Lamont plied Wilson with memos advocating tactical alterations in the treaty, more consultation with Republican opponents, and even a Washington lobbying effort to pinpoint the position of the dissenting senators and build bipartisan support. Always sensitive to style, Lamont suggested more humor in Wilson’s speeches and recommended an “almost childlike language” in explaining the League covenant.10 Wilson reacted to Morrow’s reports in a high-minded but myopic way. “The key to the whole matter is the truth,” he told Lamont, “and if we can only get the people at home to see the picture as we see it, I think the difficulties will melt away.”11 By nature a creature of compromise, Lamont watched in horror as Wilson stuck rigidly to his beliefs. They had a last wistful trip across the Atlantic together. By November 1919, the Treaty of Versailles was dead in the Senate, and Wilson was a shattered man. The United States never joined the League of Nations.

  Versailles was a formative event for Tom Lamont, his debut on the world stage, from which he took away contradictory lessons. On the one hand, the peace conference left a residual strain of idealism, and Wilson would remain a sacred figure in his memory. He lauded Wilson’s “delightful personality” and “ready wit” and his “Scotch mixture of wonderful idealism and stubbornness.”12 Yet he saw that politics was the art of the possible, that Wilson had suffered from excessive purity, and that the world wasn’t prepared for Utopia. Of Wilson, he said, “He was a curious character—a great man in so many ways, yet so apt to stand firm at the wrong moments and give in a
t the right ones. ”13 In time, Lamont’s own talent for compromise would become pronounced, so that his own political tragedy would be the reverse of Wilson’s.

  After returning to America, Lamont, imbued with the Wilsonian spirit, proudly hung pictures of the president and Colonel House over his desk at 23 Wall. He had recently become publisher of the New York Evening Post, and he departed from a policy of noninterference to insist that the paper adopt a pro-League of Nations stand. As America’s premier foreign lender, the House of Morgan also had a certain natural affinity with Wilson’s brand of liberal Democratic internationalism. While American industrialists often remained protectionist and provincial in their views, bankers became more cosmopolitan in the 1920s. Only through free trade could countries export and earn foreign exchange to retire their debts. As had happened in the City in the nineteenth century, Wall Street became far more outward-looking than the commercial deposit banks. As exponents of global cooperation, the House of Morgan would often feel uncomfortable with the isolationist Republicans.