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

by Ron Chernow

  At first, Davis was deterred from seeking the Democratic nomination because of the Morgan handicap. Then he published a cogent letter stating that a lawyer could have rich clients and maintain the public trust. His cause was taken up by Walter Lippmann of the New York World, who praised his talent and integrity. Davis’s Democratic opponent, William McAdoo, drew support from the South and West, always aflame with anti-Morgan sentiment. At the June 1924 national convention, William Jennings Bryan, mustering the strength for one last vendetta against the bank, said, “This convention must not nominate a Wall Street man. Mr. Davis is the lawyer of J.P. Morgan.”5 In fact, the convention was so bitterly and hopelessly divided that Davis received the nomination after a record 103 ballots—by which point the prize was worthless. The Republicans retained power.

  One industrialist called Coolidge’s 1924 victory a cocktail for financial markets, and the decade now began to bubble and fizz. It was the Gatsby era on Wall Street, with money-making newly glorified. Young Ivy Leaguers turned away from the social protest of the late teens and flocked to Wall Street. In Pierpont’s day, the Street had been raw and brawling, no place for the squeamish. Now it became smart and tony, and “many of the old-line brokerage firms were staffed by the sons of the rich—to give them something to do during the mornings.”6 Stockbrokers fancied themselves squires, bred polo ponies, and hunted foxes. Charles E. Mitchell, chairman of National City Bank, traveled about in a special railroad car, complete with kitchen and chef, making business tours as if he were a whistle-stopping president. Corporate directors went to board meetings by private railroad car, the status symbol of the day.

  For the House of Morgan, it was a time of unmatched supremacy. The firm attained a pinnacle of success no other American bank would ever match. It stood at the gateway to American capital markets just as the whole world clamored to gain entry. To those who penetrated its tall glass doors, it offered a world of fireplaces and leather armchairs, as sedate and intimate as a British gentleman’s club. All the secretaries were male, although their assistants might be female. As one reporter said, “Entering there was like stepping into a page of Dickens.”7 The partners’ rolltop desks were apt symbols for the bank. They were made of mahogany or walnut, honeycombed with compartments and closed by sliding down the tambour top; they expressed the private, discreet Morgan style. The employees were as seduced by this atmosphere as the clients. As publicity man Martin Egan once said, “If the firm ever fired me I was lost, having been spoiled for service with any other outfit in the world.”8

  The vast majority of people walking by 23 Wall couldn’t bank there. As a wholesale bank, J. P. Morgan and Company would take deposits only from important clients—large corporations, other banks, foreign governments. Like other private New York banks, it rejected deposits from the general public and accepted money only from wealthy people with proper introductions. It paid no interest on deposits of less than $7,500 and held no deposit of less than $1,000.

  The bank’s power was more than monetary. No other firm had its political links or spoke with its authority. At a time when the Anglo-American axis reigned supreme, it was embedded in the power structure of both Washington and Whitehall. Reporters tried to isolate its essence. “It is not a large bank, as Wall Street banks go,” said the New York Times. “A dozen other institutions have much larger resources. . . . What really counts is not so much its money as its reputation and brains. . . . It is not a mere bank; it is an institution.”9 Trust, goodwill, integrity—these were the strengths always cited by business clients. This was only part of the story, but it mattered a great deal that the bank always paid its bills promptly, honored its commitments, and stood by its clients during emergencies.

  As in Pierpont’s day, the bank seemed remarkably small beside the scope of its work. The Morgan houses preferred smallness, which ensured intimate contact among the partners. Harry Davison used to say $400 million was all they could handle without diluting Morgan style. By the end of the 1920s, there would be fourteen partners at 23 Wall, eight at Drexel in Philadelphia, and seven each at the Morgan houses in London and Paris. At these firms, the partners all sat in one big room in the venerable City tradition. Each offered a different secret for the firm’s success. George Whitney saw conservative financial management as the critical factor: partners never fooled themselves about the quality of their loans and stayed 80 percent liquid at all times. Lamont had a flywheel theory—the bank thrived because it was cautious in boom times and aggressive in bad times. Jack would later state memorably that the bank did “first-class business in a first-class way.”

  Wall Street legend accurately claimed that Morgan partners made $1 million a year; with Jack Morgan and Tom Lamont, this figure rose to as much as $5 million by decade’s end. A Morgan partnership was the plum of American banking. Many firms chose partners who brought in new capital or new clients, but J. P. Morgan stuck to Pierpont’s meritocratic approach; any white, Christian male might qualify. Many partners had family ties, and new Morgans, Lamonts, and Davisons would join the bank in the 1920s; 23 Wall never had rules against nepotism. But the outstanding partners, those who created the Morgan mystique—Harry Davison, Tom Lamont, Dwight Morrow, and Russell Leffing-well—were chosen strictly on their merits. As much as any other factor, the caliber of the men recruited would explain the extraordinary staying power of the House of Morgan.

  The activities of these Jazz Age celebrities were avidly followed in the press. Those partners involved in international finance and diplomacy traveled constantly and spent several months abroad each year. When transatlantic liners left New York, reporters would scan the passenger lists for Morgan partners, hoping to land a shipboard interview. Partners were so prominent that B. C. Forbes even reviewed their golf games, which he found disappointing, as if some chance for perfection had been missed.

  From the marble Morgan halls emerged $6 billion in securities under-writings between 1919 and 1933—far more than from any other bank. A third were railroad bonds, another third foreign bonds, and the last third corporate bonds. Like the growing government accounts, the domestic roster was matchless—U.S. Steel, General Electric, General Motors, Du Pont, AT&T, IT&T, Montgomery Ward, Kennecott Copper, American Can, Con Edison, and the New York Central. By managing securities issues for these companies and assigning syndicate places to other banks, the House of Morgan defined the pyramid of Wall Street power. It also performed humdrum services—foreign exchange, banker’s acceptances, and commercial credits—that were the bread-and-butter of merchant banking. Not every partner enjoyed the fantasy life of a Tom Lamont or a Dwight Morrow.

  The Gentleman Banker’s Code was alive and well on Wall Street in the 1920s. The House of Morgan didn’t advertise or post a nameplate. It didn’t chase customers or open branches; clients still paid Morgan partners the ancient tribute of traveling to see them. Competition was elegant and masked behind elaborate courtesies. Clients were mortgaged to one bank and needed permission to switch to another. As Otto Kahn explained, “Kuhn, Loeb & Co. and firms of similar standing would not even touch any new business, on any terms, if the corporation concerned was already a regular client of another banker, and had not definitely broken off relations.”10 From the outside, it resembled polite collusion; underneath, it could be vicious. Far from objecting to exclusive relations, businessmen boasted about their bankers and considered a Morgan account a hallmark of success.

  Morgan partners still sat on boards of favored companies but were more selective than in the days when Charles Coster kept abreast of fifty-nine companies. Partners didn’t descend lightly from Olympus. Martin Egan remarked that “there is a constant plea to get Morgan partners on all manner of committees and into all sorts of organizations. The process is diffusive and cheapening.”11 Although the Morgan bank took stakes in its companies, partners agreed in the 1920s not to get involved in outside enterprises. Gradually, if imperceptibly, the banker was becoming less a corporate partner and more a professional, a disinte
rested intermediary. This was the transition favored by Louis Brandeis, and it would be markedly speeded up by New Deal reformers. In Pier-pont’s day, weak companies needed to lean on strong bankers. But by the 1920s, a Standard Oil of New Jersey or a U.S. Steel had a stability comparable to that of the House of Morgan itself.

  Who were the other Morgan partners? They fit a rough profile—white, male, Republican, Episcopalian, and Anglophile, with an Ivy League education and eastern seaboard antecedents. Harvard was the alma mater of Jack Morgan and his sons and was clearly the preferred school. The bank was perhaps most selective about religion—race wasn’t even an issue then, so remote were blacks from the world of banking. Jews were definitely forbidden but had opportunities elsewhere on Wall Street. Private Jewish banks continued to win business, such as retail underwriting, thought vulgar by the blue-blooded Yankee banks. Lehman Brothers had both R. H. Macy and Gimbel Brothers among its clients. Some Jewish bankers lived in an opulent style surpassed only by the Morgans. Otto Kahn of Kuhn, Loeb built a Norman castle on Long Island’s North Shore that had 170 rooms, 11 reflecting pools, a zoo complete with lions, an 18-hole golf course with a resident pro, a Georgian dining room that seated 200, and a staff of 125 servants. It would later be the set for Citizen Kane. But until after the Second World War, no Jew would penetrate the House of Morgan.

  On the Wall Street of the 1920s, Catholics were borderline cases and often found it harder than Jews to enter high finance. Snubbed by Protestants, they turned to stock market speculation by default, and Jazz Age plungers were disproportionately Irish. Armed with ticker tape and telephones at the Waldorf-Astoria Hotel, Joe Kennedy made a fortune in stock pools but still found Morgan acceptance elusive. One day, he decided to break the ice with the bank. He marched into 23 Wall and asked for Jack Morgan. He was curtly told Mr. Morgan was too busy to see him. Before the Morgan gates, he bore the double stigma of being a Catholic and a stock market operator.

  The best-known Morgan Catholic was certainly Edward Stettinius, yet even he switched to his wife’s more acceptable Episcopalianism and became a vestryman of Saint James Episcopal Church. Settling his spiritual accounts in 1921, Stettinius reverted to Catholicism and wrote Saint James a guilt-ridden letter of resignation: “I have come to feel strongly that a Vestryman should not only be a regular attendant at your services, but also a communicant and an ardent and consistent supporter of the Episcopal faith. Unfortunately, however, I find myself steadily drawing away from, rather than toward, the Episcopal Church.”12

  A compulsive record keeper, Stettinius has left us a detailed inventory of a partner’s life in the twenties. He entertained magnificently at his Park Avenue mansion. For the debutante ball of their daughter Betty, the Stettiniuses invited three hundred guests, including dancers and musicians from Tokyo’s Royal Theater. (Betty later married Juan Trippe, founder of Pan American Airways.) In the cellar of Stettinius’s mansion was enough liquor to float a battleship: 336 bottles of gin, 196 of sauterne, 79 of sherry, 60 of champagne, 114 of vermouth, 40 of Haig and Haig Scotch, 88 of claret, 32 of port, 53 of amontillado, 26 of Park and Tilford Topaz—over a thousand bottles of fine liquor.13 From a Broad Street tobacconist, he would order six thousand Havana cigars at a time and then draw down his “balance.” With six cars and several houses to maintain, it cost Stettinius $250,000 a year just to cover basic living expenses—perhaps the reason why he approached his work with such famous thoroughness.

  In 1922, he bought a thirty-four-acre estate overlooking Long Island Sound and was among those partners who lived close to Jack’s Glen Cove mansion, like medieval vassals biding near their lord. A meticulous man who left nothing to chance, Stettinius decided to create a Morgan cemetery at Locust Valley. The local church, Saint John’s of Lattingtown, provided spiritual solace to many tycoons and was called the millionaire’s church. On Sunday mornings, the collection plate was passed around by Jack Morgan himself—surely a heavenly treat. Jack was so fond of the church that he redecorated its interior in carved oak brought over from a small Scottish church. Stettinius’s plan was to buy up property beside the church burial ground on which to create a cemetery.

  The one obstacle was a New York State law forbidding cemetery expansion. So in April 1923, Stettinius lobbied state lawmakers for special legislation. Then he plotted a takeover of the Locust Valley Cemetery. On June 1, 1925, the cemetery’s annual board meeting was packed with Morgan luminaries, including Jack’s son-in-law Paul G. Pennoyer, Harry Davison’s son, Trubee, and Stettinius. It was perhaps the greatest show of financial strength in cemetery history. After winning control, they hired architects and landscape gardeners to spruce up the shrubbery and install fancy wrought-iron gates. What resulted was a double cemetery: “The older, open section of small plots continued very much as it had been, while the new sections of woods and spacious glades became a Valhalla for Morgan partners and their friends.”14 Having made these arrangements, Stettinius took a well-earned rest in plot number 7. Many blamed his wartime labors for his death. In any case, he perpetuated the Morgan tradition, started by Charles Coster, of heroic exertion and premature death.

  The partner who most typified the Jazz Age was that small miracle of sophistication, Tom Lamont. Socialite and sportsman, he loved to camp in the High Sierras or fish for Canadian salmon. To the bank’s image he added an urbane 1920s gloss, a shade literary. If a Morgan partner suggested a stylish, well-rounded Anglophile, a Republican who could travel in Democratic circles, a liberal internationalist orthodox in domestic affairs, then Lamont was surely his prototype. Yet this figure who symbolized the 1920s on Wall Street harbored a secret ambivalence toward it. “That decade, with its exotic exuberance of prosperity and its speculative excesses in almost every phase of economic life . . . was for America a decadent one,” he later wrote.15

  Lamont became the richest Morgan partner, his wealth matched by a progression of stately homes. First he and his wife, Florence, lived in Englewood, New Jersey—so thickly populated with Morgan partners it was called the bank’s branch office. They joined the Dwight Morrows in the local Shakespeare club, where they all took parts and read plays aloud. From 1915 to 1921, the Lamonts rented Franklin Roosevelt’s house on East Sixty-fifth Street while its owner served as assistant secretary of the navy. Then, in 1921, Lamont bought the townhouse at 107 East Seventieth Street that would become a stopping place for visiting politicians, writers, and socialites, it featured everything from a British butler to a solarium. The Lamonts were terribly ambitious, determined to know everybody of importance in New York and to snare every celebrity who passed through town. To a remarkable extent, they succeeded.

  For recreation, they bought Sky Farm, an island retreat off the Maine coast with a panoramic view of Penobscot Bay. In 1928, they purchased Torrey Cliff, a hundred-acre estate on the Palisades that formerly was owned by a well-known botanist, John Torrey, and later would be donated to Columbia University for its geological observatory. The property encompassed cliffs and woodlands, brooks, flowers, and spectacular vistas of the Hudson River. Finally, Lamont and John Davis regularly stayed at Yeamans Hall in South Carolina, a millionaires’ development with over a thousand acres of golf courses, forest paths, and giant moss-covered oaks.

  Florence Lamont was a short, bright, pleasant-looking woman with a thoughtful stare. She took herself seriously, both as a hostess determined to snare celebrities and as an intellectual. A graduate of Smith with a master’s degree in philosophy from Columbia, she supported numerous causes, including birth control and women’s trade unions. Earnest, a trifle tedious, always craving intellectual companionship and stimulating company, she sometimes had a bluestocking intensity. Anne Morrow Lindbergh, after hearing Florence make grandiloquent speeches about pacifism at a social gathering, noted in her diary: “Mrs. Lamont distrusts all informal, feminine discussion, thinking it gossip. Is it because she can’t do it very well?”16

  High-spirited and sociable, the Lamonts were on everybody’s party list in
the Jazz Age, and they knew dozens of celebrities. When their son Corliss went to Oxford in 1924, he lived with the Julian Huxleys, lunched with Lord and Lady Astor at Cliveden, and took a weekend with H. G. Wells—such was the range of his parents’ friends. The Lamonts’ East Seventieth Street townhouse echoed with laughter and ideas, as their children Corliss, Tommy (later a Morgan partner), and Margaret turned it into an exuberant debating society. Again, Anne Morrow Lindbergh has left a vivid impression of this animated household: “To the Lamonts’ for dinner. . . . We had decided before we got there that we would not argue. Instead we let the Lamonts argue among themselves. Tommy and Corliss, Mrs. Lamont and Mr. Lamont, Margaret and Tommy, Margaret and Mrs. Lamont, back and forth across the table. Tommy, loudly and platformly; Corliss, lightly, nervously, and humorously. Margaret, of course, dead serious. Mr. Lamont suavely and Mrs. Lamont petulantly. We all sat back quite happily . . . and listened. It was great fun.”17

  If Florence sometimes took herself too seriously, Tom, with his genial energy, roused her from it. He could never have enough friends, enough dinners, or enough lively chatter. He had a marvelous sense of humor, which surprised many people who imagined that Morgan bankers must be dour and self-important. He once said of an enemy that if he had ordered a trainload of sons of bitches and received only that man, he would consider the order amply filled. Once, Tom Lamont and Betty Morrow wanted the two couples to throw a party together—they were the good dancers—but Florence and Dwight balked. So guests received the following invitation: