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

by Ron Chernow

  It is true that each of the great nations of the world must have adequate defences. But preparation to that end is approaching completion on every side, including Italy’s own defences; so that now the primary end today and tomorrow must be the maintenance of world peace. . . . Italy was immeasurably the leader of the Renaissance, that great revival of the arts and learning that set the whole world upon a new path of enlightenment and progress. It is that same eager vitality that marks the Italian race today. . . . Italy welcomes the study of its past and is aware what attractions its galleries, its monuments, its cities, have for friends from abroad. They should study also the modern Italy, the material development of the past fifteen years, the public works, the reclamation projects, the industrial and agricultural policies, and perhaps above all the social and welfare system with its wonderful work as shown in hospitals, sanatoria, etc. Then indeed would Italy’s friends be impressed with what has been accomplished here.36

  Lamont’s last fling with Mussolini again reveals his willingness to renounce principle for convenience. The most polished man on Wall Street, known for his thoughtful gifts and exquisite courtesies, was now a victim of his own disguises. Nothing mattered any longer but surfaces; his moral center had eroded and slipped away over the years. The bullying dictator and the eloquent banker no longer seemed as antithetical a pair as they had at the start of their friendship, when Lamont was fresh from his tutelage under Woodrow Wilson. The New York Times once said that Lamont “was a man who hated to see a friendship come to an end.”37 His relationship with Mussolini perversely confirmed that insight.

  There was, however, yet another ongoing aspect of Morgan involvement in Italy—the Vatican account, which prospered even as government business stagnated. Lamont and other Morgan partners fed portfolio advice to Fummi, who in turn advised the Vatican on American securities holdings. The bank held papal securities in custody. (Fummi occasionally bungled the signals from Wall Street, advising the Vatican in 1938 to sell American stocks just as Lamont sent an updated report urging purchases. The Vatican then loaded up on American stocks, expecting that the Neutrality Act would be repealed, triggering a bull market on Wall Street.) Morgan judgments were always respectfully considered. As Fummi once told Lamont, “I hope you will approve of my above line of reasoning for there is no doubt that it has influenced the decision taken by the Amministrazione Speciale della Santa Sede a good deal.”38

  Lamont conducted his own personal diplomacy to restore traditional Anglo-Italian amity. Through his friend Lady Astor, he lobbied Lord Halifax, the foreign secretary, in April 1938 and argued the need to recognize the Ethiopian conquest as a fait accompli.39 He apparently didn’t worry that tossing Ethiopia to Mussolini might embolden him. Meanwhile, Neville Chamberlain dispatched his sister-in-law Ivy—the widow of Sir Austen Chamberlain—to Rome to speak with her friend Mussolini in the hopes of drawing him away from Hitler. In early 1938, the British recognized Italy’s Ethiopian conquest in exchange for Italian troop withdrawals from the Spanish Civil War. Russell Leffingwell, who had denounced the Ethiopian invasion as a “predatory war,” told Lamont he thought Britain was “throwing Ethiopia to the wolves.”40 The British diplomatic triumph was fleeting: in 1939, Mussolini would seize Albania and sign a “pact of steel” with the Nazis.

  CHAPTER TWENTY-ONE

  EMBEZZLER

  EMBITTERED by the New Deal, Jack Morgan didn’t age gracefully or happily and divided his time between apathy and rage. He was a lonely man who had never recuperated from his wife’s death. He didn’t remarry and continued to tend Jessie’s gardens. At his Gannochy Lodge shooting parties, he would invite the Queen Mother’s sister or some comparable dowager to serve as hostess. Whether attending Yale-Harvard regattas in his boater or browsing in the Morgan Library, he gave off a solitary air. This sense of loneliness was accentuated by the grandeur of his surroundings. At Matinicock Point, he lived alone in a forty-five room house. Although a widower for nearly ten years, he refused to shut his English or American estates or vary the annual ritual that called for Camp Uncas in the Adirondacks in the spring or Gannochy Lodge in August. At exorbitant expense, he maintained butlers, housekeepers, and gardeners, as well as the fifty-man crew of Corsair IV. This unchanging structure provided emotional solace and support but also frittered away much of the fortune that would have gone to his heirs.

  Jack took inordinate pride in his grandchildren, sixteen strong by 1935. When a four-year-old grandson asked why locomotive engineers blew whistles at grade crossings, Jack assigned high-priced Davis, Polk lawyers to find the answer. Yet he often seemed closed and aloof to his grandchildren. Once a week, he hosted a black-tie dinner for the entire family at Matinicock Point. Extremely punctual, he would stand at the door checking his watch and start exactly on time. Everybody lived in fear of being late. When he took five of his grandchildren across the Atlantic on the Corsair, he allowed them to read or play solitaire but not to enjoy deck games. If sensitive within, he seemed cold and distant without.

  Jack still reported regularly to the Corner, taking his spot at the far end of the double row of rolltop desks, beneath Pierpont’s portrait. He was an archaic figure in a world mad with reform. Change and experimentation were so alien to his nature that the crash and Depression produced no evolution in his philosophy. In 1936, he enunciated his business creed this way: “Do your work; be honest; keep your word; help when you can; be fair.”1 Another favorite saying was “Keep your mouth shut and your eyes and ears open.”2 His philosophy showed no scuff marks of the time, only a somber faith that with sufficient patience and fortitude traditional values would prevail.

  Jack didn’t travel in circles likely to challenge his views. He told U.S. Steel chairman Myron Taylor that he knew nobody in favor of the 1935 Wagner Act, which sanctioned collective bargaining; and he probably didn’t. Never attempting to broaden his outlook, he came to typify the New Deal stereotype of the “economic royalist.” In 1935, for the first time, he instituted personal economies. He trimmed living expenses to $60,000 annually and halved his contributions to Saint John’s of Lattingtown, the millionaire’s church whose burial ground was so liberally graced with Morgan partners. Such economies, if arduous for Jack, still left him with a life style inconceivably majestic to ordinary citizens.

  The Nye “merchants of death” hearings in early 1936 confirmed Jack’s suspicion that he was the eternal target of demagogues and left him feeling depressed. During the hearings, his friend King George V died. He wrote a British friend: “the death of the King has caused a great feeling of sadness in this country as well as in yours.”3 As if they were the unconquerable curses of his house, the combined strain and fatigue of Pecora and Nye had the same effect on Jack as the Pujo hearings had on Pierpont. In mid-June 1936, while visiting Jessie’s sister, Mrs. Stephen Crosby, in Massachusetts, he had his first heart attack, complicated by a severe neuritis attack, which made it difficult for him to walk.

  The Morgan family wanted to transport him back to Glen Cove with minimal publicity, and he was moved by stretcher to a private railroad car. His sons, Junius and Harry, waited for him at the Mill Neck Station on Long Island. They paced the platform anxiously, smoking pipes, their hats pulled low, trying to dissuade photographers from taking pictures. As the train pulled in, Jack, in blue silk robe and white scarf, saw the photographers and lowered his window shade, his old disgust for the press welling up. An ambulance hidden in the bushes moved toward the train, and four men lifted Jack in a chair to the ground. A photographer rushed to the ambulance window for a last shot of Jack inside and Harry went white with fury. A less inhibited Morgan guard smashed the photographer in the jaw.

  That winter, Jack spent two weeks cruising the South Seas, convalescing with a heart specialist on board. By now, his views of the world were etched with a corrosive anger. In late 1936, King Edward VIII abdicated, and Jack saw nothing romantic or pitiable in his plight, merely a betrayal of trust. He told Lord Linlithgow: “What a pity that the
little king had not the guts enough to do his job.”4 The gutless action would prove highly advantageous for the House of Morgan. Only a year earlier, Jack had entertained the duke and duchess of York—now to be King George VI and Queen Elizabeth—at Gannochy for the Glorious Twelfth. They would continue to be guests at Gannochy and aboard the Corsair. In late April 1937, Jack sailed for Plymouth en route to the coronation, bearing a special invitation to sit in the royal family’s box. As the squire of Wall Hall, he invited two thousand guests, mostly local farmers, to celebrate the occasion at his estate. But he suffered a second heart attack and missed the Westminster Abbey coronation. He had to listen to the ceremonies over the radio.

  When he returned to America aboard the Queen Mary, his physician advised him not to talk to reporters, lest his blood pressure rise again. (Trying to be more affable, Jack had taken to granting shipboard interviews.) As the ship docked in a thick Manhattan fog, reporters dashed all over the ship trying to find Jack. They finally tracked him down in a stuffy little room and got him talking on the subject that was his invariable downfall during the New Deal—taxes. He had already inflamed public opinion in 1935 by saying that “everybody who makes any money in the United States actually is working eight months of the year for the government.”5 When he said this, a fifth of the work force was idle and many people relied on relief or public works programs for survival. Now Jack put his foot in his mouth once again. While he was in England, Roosevelt and Treasury Secretary Morgenthau had started a campaign against tax evasion by the rich to reverse declining federal revenues. Jack didn’t know how incendiary the topic had become. He told reporters: “Congress should know how to levy taxes, and if it doesn’t know how to collect them, then a man is a fool to pay the taxes. If stupid mistakes are made, it is up to Congress to rectify them and not for us taxpayers to do so.”6

  Once again, Jack was flabbergasted by the public outrage that ensued; he never ceased to be a political naif. Lamont had to explain to him patiently how inflammatory such remarks might sound in the current political atmosphere. Lamont said of Jack to Walter Lippmann’s wife, Faye, “You see, as a matter of fact, he is as simple as a child, and when he once gets started with newspaper men he talks with them just as carelessly as he would with his own partners.”7. Even though Jack rushed to retract his statement, stressing that he had no sympathy for tax dodgers, the damage was already done. Two weeks later, the Treasury released the names of sixty-seven wealthy taxpayers who had used legal schemes to avoid taxes. Jack’s name didn’t appear on this list, but Lamont’s did.

  For New Dealers, Jack Morgan symbolized the self-destructive complacency of America’s rich, those unable to adjust to changing times. Reading Jack’s shipboard comments, Felix Frankfurter seized on them as proof of the decadence of business leaders who couldn’t see that their real self-interest lay in New Deal reform. “What a temper of mind J.P. Morgan revealed in this morning’s press,” Frankfurter wrote to President Roosevelt. “I nearly exploded. . . . When the most esteemed of financiers discloses such a morally obtuse, anti-social attitude, one realizes anew that the real enemy of capital is not Communism but capitalists and their retinue of scribes and lawyers.”8

  Jack was far more affected by criticism than politicians realized. The public assumed that all tycoons were crusty, unemotional, and immune to public wrath. J. P. Morgan had become less a person than a political symbol for the rich and reactionary who opposed social justice. Yet Jack had been emotionally unhinged since Jessie’s death, and he remained terribly shy and unsure of himself. This tended to make him gruff, aloof, and elusive. Unsophisticated, he could be easily baited by clever reporters. A lonely widower in retirement, he poured out his grief to assorted duchesses, old college chums, and selected archbishops. He still found it hard to cope without Jessie’s emotional support.

  Over time, Jack had come to see the Roosevelt administration as one giant conspiracy out to hound him. Gnashing his teeth, he told Monty Norman, “The state of affairs might be so satisfactory and helpful so easily if we did not have a crazy man in charge and my chief feeling is one of resentment at what he is putting us through.”9 To Owen Young of General Electric, we owe a startling vignette that shows how dangerously frayed Jack’s nerves were in early 1938. The two men were chatting at 23 Wall when Jack erupted into a tirade. He lost all control of his emotions. Young was so thunderstruck that he recorded his impressions immediately afterward, together with strict instructions not to publish them until both were dead. Young recalled Jack saying:

  “I just want you to know, Owen Young, that I don’t care a damn what happens to you or anybody else. I don’t care what happens to the country. All I care about”—and he became vehement, almost passionate—“all I care about is this business! If I could help it by going out of this country and establishing myself somewhere else I’d do it—I’d do anything. In all honesty I want you to know exactly how I feel. And if things go on this way much longer I won’t put up with ’em. I’ll take the business and get out.” His hand trembling—under great emotional strain.

  Attempting to calm him, Young put his arm around Jack and reminded him gently of Pierpont’s faith in America, the talents the Morgans had contributed to their bank. Then he tried to rouse his spirits: “You’ll stay right here and outface these passing discouragements, because if you ran away you wouldn’t be Jack Morgan. You owe it to the future and you owe it to yourself.’ When I was finished,” Young wrote, “he was silent, and I was startled to find that his eyes had filled. ’Well, Owen,’ he said, ’I guess I needed some one to talk to me like that. And I guess you’re the only one who could have done it.’ ”10

  Jack never found peace under Franklin Roosevelt, at least not until the Second World War dissolved the feuds of the 1930s in a warm bath of patriotic fervor. Only when the focus of national attention switched from the Depression and domestic economic inequities to foreign menace did the Morgan bank and the New Deal again find any common ground.

  EVEN as the House of Morgan fended off assaults from Franklin Roosevelt, it experienced the ire of his successor, Senator Harry S. Truman of Missouri. In his first Senate term, Truman later said, he spent more time on railroad finance than any other single subject. This led to a collision with the House of Morgan, which, with Kuhn, Loeb, still dominated railroad issues in the 1930s. Struggling to compete with new truck and air traffic, the railroads were an intractable Depression problem, with bankers blamed for their mismanagement. In 1935, Truman joined a subcommittee chaired by Burton K. Wheeler, a progressive Montana Democrat, investigating banker influence over railroads. The Wheeler hearings studied the manacles that bound railroads to exclusive relations with traditional bankers. From the time of Louis Brandeis’s campaign against Morgan domination of the New Haven Railroad, reformers had urged an arm’s-length distance between bankers and clients. Now they again espoused competitive bidding to allow all bankers to compete for a given issue.

  By a curious historical freak, Max Lowenthal, counsel to the Wheeler subcommittee, introduced Truman to that ubiquitous Morgan demon, Louis Brandeis, who was now a Supreme Court justice. In the late 1930s, justices still received visitors for tea one afternoon a week. At teas held at his California Street home, Brandeis would leave other visitors and buttonhole Truman for hours, quizzing him on the hearings and arguing for stricter regulation of railroads and a severing of their Wall Street links. Truman was converted to Brandeis’s gospel of a competitive economy based on small business and zealous antitrust regulation. This philosophy exerted a powerful hold during Roosevelt’s second term and naturally exacerbated the clash with that apostle of big-business planning and economic concentration, the House of Morgan.

  Anticipating the onslaught of Senator Wheeler and his committee, the Morgan partners in 1935 acted to jettison that great embarrassment from the Jazz Age—the bankrupt Van Sweringen brothers. For five years, Morgans had secretly propped them up with a $40-million “rescue” loan, even though they owed $8 million in ba
ck interest charges. When the brothers again defaulted in May 1935, the bank decided it would be political suicide to take control of their collateral—the vast Alleghany railroad and their real estate empire. Political expediency demanded they cut their losses and sell off Alleghany stock. This need to propitiate Washington was a striking sign of diminished Morgan power and prestige. The bank placed a small newspaper ad announcing plans to sell off the collateral at an auction. It was a shabby anticlimax to the bank’s once-glamorous relationship with the Van Sweringens.

  On September 30, 1935, the remnants of the Van Sweringen empire went under the gavel at the securities auction room of Adrian H. Muller and Sons. Mullers was known as the securities graveyard, and its offices had an appropriate view of the cemetery of Saint Paul’s churchyard. Beneath bare electric bulbs, in a drab room strewn with dusty paintings and worthless junk, George Whitney sat with legs crossed on a cheap folding chair. Smart and well tailored, he smiled blandly and tried to look blase at this moment of Morgan disgrace. The House of Morgan’s handsome, blond attorney, Frederick A.O. Schwarz of Davis, Polk, and Wardwell, brought along the Alleghany securities in two rich-looking leather portfolios. It was a packed house. In the rear, like a resurrected ghost of the 1929 crash, a tense, pale Oris Van Sweringen flitted about. With twenty-eight thousand miles of track, or a tenth of the entire American railroad system, Alleghany fetched only $3 million, exposing a loss of $9 million apiece for both Morgans and Guaranty Trust. And it turned out that the indestructible Van Sweringens had repurchased the railroads by creating one last holding company and getting two associates to advance the cash.

  Afterward, George Whitney—with a tight-lipped smile—shook hands with a happy, flushed Oris Van Sweringen. “I would rather have paid the bill,” Oris whispered to Whitney. The funereal auction room provided a fitting end to the fiasco. But following the strange copycat pattern of their lives, the Van Sweringens died in quick succession. Mantis died that December. Eleven months later, Oris arrived in Hoboken for a meeting at Morgans and died of a coronary thrombosis while still in his private sleeping car. He left an estate consisting of hardly much more than Mantis’s life insurance. The Van Sweringen railroads, meanwhile, remained heavily in hock to the banks.