by Ron Chernow
Besides Schacht, several businessmen tried to guide Hitler toward economic sanity, and he was only too pleased to exploit their naïveté. In early 1932, Hitler dispatched Wilhelm Keppler, the owner of a small chemical factory, to court Hamburg business chieftains. He recruited Emil Helfferich, Carl Vincent Krogmann, and others into a select group of economic advisers to Hitler.
For a time, this Keppler Circle provided a bridge between the business world and the Nazis, and Hitler responded enthusiastically when the group accepted Dr. Schacht. Hitler assured them that he was the soul of moderation on economic matters. “I’m no doctrinaire,” he told them. “I’m a politician and no economist. I rely upon your better judgment and wide experience.”48 Drawn heavily from the Hamburg trading world, the group endorsed lower tariffs and an end to exchange controls. Hitler let them frolic in this fool’s paradise as long as it suited his purpose.
Few Jewish businessmen had better access to the Keppler Circle than the Warburgs. Emil Helfferich, a silver-haired man with round spectacles and a white, Old Testament beard, worked around the corner from the Warburg bank, doing business with the Dutch West Indies. The Warburgs had financed and even invested in some of his colonial enterprises. Eric later described Helfferich as a cunning, insincere opportunist, but no Nazi.49
When Hitler took power, the Warburg partners held 108 seats on corporate boards, reflecting the close ties between German banks and industry. As they were expelled from boards and lost customers through subtle Nazi pressures, the Warburgs turned to the Keppler Circle. In May 1933, Max and Eric met with the group at the Berlin branch of the Kommerzbank. Infuriated by all the snubs and rebuffs, Max asked, point-blank, which board seats should be abandoned and which kept. Discomfited by this bluntness, Helfferich said the matter should be decided on a case-by-case basis and vaguely told Max to yield seats where the pressure was most intense. Eric never forgot the pained expression of his father, who craved clarity in this wilderness of fear and innuendo. That July, Hitler appointed Keppler as his personal economic adviser. The following year, in a telltale shift, the Keppler Circle was supplanted by the Himmler Circle.
Some Warburgs, notably Jimmy, thought Max should resign from boards instead of waiting to be booted out, but he refused to go quietly or surrender his economic power. In his 1933 annual report, he told colleagues that they should defend the bank as a fortress and that “no Board seat that is taken from us should be regarded as definitely lost and every opportunity should be seized to regain these positions, even if success may yet be far off.”50 This combative attitude coincided with his belief in the transitory nature of the Nazis.
The manner in which Max was hounded from corporate boards ranged from the absurdly correct to the wantonly cruel. At a May 1933 board meeting of the German Atlantic Telegraph Company, the commissar of the ministry of the post, Herr Kunert, explained that the ministry wanted Jewish board members to resign. With a nod to Max and others, Kunert insisted no offense was meant. “There was no objection personally to the Jewish gentlemen in question. On the contrary, their services in the rebuilding of the company were highly esteemed. But these were new times, against which no one could prevail.”51 Max expressed astonishment that the ministry of the post could propose something of such dubious legality. Even a forceful protest from Averell Harriman—who had, at Max’s behest, financed a transatlantic cable for the company in 1921—couldn’t save his seat.
With the telegraph company, Max at least had a high-level executioner. Not so with the Hamburg Economic Service. Though a founder of this institute, Max learned of his dismissal from a junior employee, a total stranger, who stopped by to tell him that he had to resign. A few years earlier, Max had received the gold medal from the Hamburg Chamber of Commerce. Now he learned in a tritely polite, hypocritical letter that he had just been expelled. The Philharmonic Society, the Board of Higher Education, and other organizations shunted him aside. To justify these decisions, these groups hid behind the all-purpose euphemism that retaining Max was “untragbar” or “insupportable.” During 1933, Warburg partners experienced only one act of heroism. When Max was evicted from the Kiel Institute for Seafaring and World Economics, two board members resigned in protest. Such courage was generally conspicuous by its absence.
For sheer pathos, nothing approached Max’s departure from the Hamburg-American Line. In the world slump, the company relied upon government subsidies to survive, making it especially susceptible to pressure. The Nazis wasted no time in putting out revisionist histories that denigrated the Jewish Albert Ballin. Apparently the decision to banish Max from its board came straight from Mayor Krogmann.52 The farewell scene would become the stuff of legend. To camouflage his expulsion, the board retired two non-Jewish members, Max von Schinckel and banker Rudolph von Schröder, at the same time. Their departure was “celebrated” at a breakfast meeting on a gray, drizzling Thursday morning in spring 1933. In a second-floor conference room, overlooking the Inner Alster Lake, the HAPAG board sat at a large, oval table spruced up with flowers. White-jacketed stewards lined the wall and attended to guests. The elegant setting clashed with the vicious nature of the occasion. Beneath the fake festive touches, the atmosphere was somber, the clatter of spoons magnified by the silence. Once the stewards cleared the table, they left the room.
The Nazi party monitored the meeting through the presence of Count Rödern, the commissar for shipping. It fell to Max von Schinckel to speak first and he delivered a poignant if halting speech about his years with the company. Overcome with emotion, wiping tears from his eyes, the stooped, despondent figure suddenly broke off and walked out of the room. An awkward silence ensued. The quick-witted Max Warburg sprang to his feet and added what he thought von Schinckel would have said. At the same time, he broadened it into a valedictory for himself and Rudolph von Schröder.
When Max resumed his seat between Count Rödern and another board member, he heard them whispering behind his back as to who should reply. To spare them this decision, Max stood, tapped his glass, and delivered a farewell address to himself that began, “My dear gentlemen, dear Mr. Warburg!”53 The speech that followed was laced with suppressed anger and delivered in lightly mocking style. Addressing an imaginary Max Warburg, he said, “To our great regret, we have learned that you have decided to leave the board of the company and consider this decision irrevocable.”54 Max proceeded to catalogue his long service to the company. He told how he had smoothed over rough times between Ballin and the board. He told of his wartime service and how he helped to rescue HAPAG from its postwar crisis. Twice the Warburg bank had provided critical financing when less loyal banks refused. “We have never forgotten you for this,” Max concluded. “And now I would like to wish you, dear Mr. Warburg, a calm old age, good luck and many blessings to your family. We know that you, as you have already explained, will always place your advice at our disposal, whenever we shall request it.”55 Max sat down in dead silence at last broken by irrelevant bluster from Count Rödern about buying an estate and becoming a farmer. Emil Helfferich would head the new, nazified board.
Several versions of Max’s speech appeared in the European press and his grace under pressure cheered Jews everywhere. When the story popped up in America, Felix, to protect Max, denied that such an event had ever occurred, while acknowledging the bitter irony that HAPAG had been “Aryanized.”56 “The steamship line which a brave Jew, Albert Ballin, built up with all his patriotism and energy, now flies the Nazis’ swastika on the yardarm. And what irony of fate that the ship called after Albert Ballin should be so decorated.”57
In later years, Max hesitated to repeat these tales of rude dismissals, because they paled to petty slights after the Holocaust. Yet they hurt deeply enough. Also, things would get much worse. In 1933, the Nazis didn’t sweep Warburg partners wholesale from company boards. By year’s end, the bank had lost only 18 of 108 board seats—making dismissals the exception, not the rule. The willingness of German companies to retain Warburg partners was,
in many ways, more remarkable than the minority that capitulated to pressure. It suggests that German big business didn’t gleefully join in the witch-hunt against Jews, or at least valued Jewish banking connections.
Wherever possible, the Warburgs tried to insert a non-Jewish Warburg employee when they vacated a seat in order to retain the business connection. The usual substitute was Dr. Rudolf Brinckmann, who was then an office manager with full power of attorney. With mirthless humor, the Warburgs called the faithful Brinckmann “their Aryan” and he evidently replaced Max on HAPAG and many other boards.58 Despite their strident megaphone denunciations of Jewish bankers, the Nazis again proved unexpectedly accommodating. If hypocrisy is the tribute that vice pays to virtue, then the Nazis certainly had their own left-handed way of showing respect for the sinister Jewish moneymen.
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James M. Cox and Jimmy Warburg sail for the ill-fated World Economic Conference in London, June 1933. (Wide World)
CHAPTER 27
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New Deal Noodles
Despite his father’s death and his frayed marriage to Kay Swift, Jimmy Warburg retained a golden boy’s luster in 1933. This young mandarin of high finance boasted an array of impressive titles. As president of the International Acceptance Bank and the International Manhattan Company and vice-chairman of the Bank of the Manhattan, Jimmy was, at thirty-six, probably the youngest chief executive on Wall Street. His good looks and brains had produced supreme self-confidence. As Herbert Feis recalled, “Warburg was experienced in the banking world and shimmering bright, but almost too quick and self-assured.”1 A close observer might have speculated that this smart, polished young man was poised for great deeds—or else headed for a great fall. The one impossible thing was for Jimmy Warburg to stroll quietly down the byways of life.
After Paul’s death, Jimmy had to rebuild the fortune frittered away in the 1931 rescue. Luckily, he had an amazing knack for making money. Managing his father’s estate, he shifted funds from municipal bonds into common stocks right at the 1932 market bottom, a well-timed move which guaranteed a comfortable future for his family, Bettina, and Nina. By this point, Jimmy wanted to renounce banking and escape the velvet trap of the Warburg family. His description of Woodlands life sums up his feelings about the whole clan: “a rather dull though luxurious life on a family anthill.”2 But he couldn’t escape the Warburgs yet. M. M. Warburg still owed the American Warburgs and the Bank of the Manhattan considerable money from 1931, and Jimmy felt obligated to see the drearily interminable matter through.
In late 1932, the Bank of the Manhattan decided to drop its securities affiliate, the International Manhattan Company. As president of the subsidiary, Jimmy cast about for opportunities beyond finance. The cascading bank failures didn’t augur well for a career on the Street. In early 1932, Jimmy wrote Siegmund a highly prophetic letter that foresaw the shutdown of America’s banks, concluding that “until that happens and people realize that when it has happened they are still not dead, the tide of fear cannot be turned.”3 He was still a fairly conservative young man—if already possessing a broad streak of iconoclasm—and condemned the 1932 Republican platform for abandoning individualism, which he thought would pave the way for paternalism, even dictatorship.
After Franklin D. Roosevelt was elected, Jimmy, as a precocious young banker, was consulted about the banking crisis by a Roosevelt Brain Trust short on Wall Street friends. Numerous ties knitted the Warburgs and Roosevelts. The president-elect and Eleanor had socialized with Panina during the war and FDR had admired Paul’s work at the Fed. “I always felt that his work of absolute impartiality was largely instrumental in making the success of the Board in the war years,” Roosevelt said.4 FDR’s son, Jimmy, Jr., had roomed with Eddie Warburg at Harvard freshman year, while Freddy had befriended Curtis Dall, who married FDR’s daughter Anna. The Dalls lived in a Woodlands cottage while Curtis and Freddy worked together at Lehman Brothers. So if the Warburgs remained rock-ribbed Republicans—and if Frieda’s vote for FDR scandalized Felix—they weren’t exiled to the political wilderness in 1933.
Early in the year, Jimmy Roosevelt and Professor Raymond Moley lunched at Jimmy Warburg’s bank to discuss economic policy. Finding Moley evasive on major issues, Warburg saw that the Brain Trust remained fuzzy on financial strategy. A few days later, Moley informed Jimmy that FDR had picked him as one of three experts to sketch an agenda for the upcoming World Economic Conference. In a meeting with economic advisers Rex Tug well and Charles Taussig, Jimmy tried to figure out whether the inscrutable Roosevelt would abide by his campaign pledge of a sound dollar and balanced budget or try to cure the Depression through inflationary nostrums.
In February 1933, Jimmy joined a dozen other prospective advisers for a meeting with the president-elect at his Sixty-Fifth Street home. When FDR was wheeled into the drawing room, he shone with a sun-god radiance for Jimmy: “I vividly remember my first impression of F.D.R.’s massive shoulders surmounted by his remarkably fine head, the gay smile with which he greeted his guests, and the somewhat incongruous, old-fashioned pince-nez eyeglasses that seemed to sit a little uncertainly on his nose.”5 As he flipped through the guest list, FDR’s face lit up when he ran across Jimmy’s name. He saluted Paul’s fine work at the Fed and stunning 1929 prediction. “Ray Moley tells me that you are the white sheep of Wall Street,” Roosevelt said. Jimmy retorted that the title belonged to his father and that white sheep didn’t necessarily beget white lambs. Roosevelt laughed, saying, “Anyway, I want you to work with Ray Moley on the banking and currency situations.”6
In his inaugural speech, FDR signaled that bankers no longer stood on the sacred pedestal they had occupied in the 1920s. “The money changers have fled from their high seats in the temple of our civilization,” he said.7 The bankers of the Jazz Age would become “banksters” in the New Deal, and before long it was regarded as apostasy on Wall Street to have any association with FDR. After Roosevelt declared a holiday that shuttered America’s eighteen thousand banks, Moley brought Jimmy down to Washington to shape policy and restore confidence before banks reopened. Evidently, Jimmy made an excellent impression on Roosevelt, who even queried his advisers about naming him to the Federal Reserve Board. Then, on Friday morning, March 17, Jimmy awoke to a bushel of congratulatory telegrams. To his amazement, The New York Times headline said, “James P. Warburg To Be Woodin’s Aide,” followed by the subhead, “He Is Reported Choice of Treasury Head to Fill Position of Under-Secretary.”8 This was all news to Jimmy.
An adoring fan of her brilliant son, Nina appeared at his apartment and urged him to take the post. Such a step posed financial obstacles for Jimmy. Paul had left much of his estate in Bank of the Manhattan shares. If Jimmy took a government post, he would have to unload this bank stock when no real buyers existed, and the resulting loss would thin an already reduced inheritance. With two homes, three daughters, a wife, and a mother to support, Jimmy also didn’t know whether he could afford the steep salary cut that accompanied public service. Finally, as the sole Wall Street renegade in Washington, he might have to defend unpalatable policies. Regarding Wall Street as enemy territory, the Brain Trust refused to consult its gray eminences.
The upshot was that this wayward son of Wall Street decided to work for the New Deal for six months in an unofficial, unsalaried capacity. A few days later, he explained the bank stock pickle to Roosevelt, who suggested that Jimmy serve without a title. As The New Yorker later said, Jimmy was “virtually the sole link between the old Wall Street tradition and the federal government.”9 Jimmy tried to insert his friend Averell Harriman of Brown Brothers into the New Deal, telling Roosevelt that he should name him U.S. ambassador to Germany, to no avail.
Jimmy would cherish his Washington foray as the most stimulating adventure of his career. As with Paul, it left him with a lasting if unrequited love of public service. In a difficult transition, Jimmy went from blistering family battles to punishing political squabbles. At first, he
marveled at the “creative chaos” in Washington that had wiped away national gloom.10 Spending the business week at the Carlton Hotel, then returning to New York on weekends, he suffered another forced separation from Kay. Jimmy was put into the position of being a certified class traitor, as the sensational Pecora hearings in the Senate probed Wall Street activities of the 1920s and held bankers up to public obloquy. In late March, Roosevelt mentioned to Jimmy that counsel Ferdinand Pecora was turning his guns against private banks, including Kuhn, Loeb, and he said “this with a wicked twinkle at me,” Jimmy noted.11
Jimmy was no hidebound conservative. He advised FDR to cheapen the dollar to stimulate exports and wasn’t averse to the deficit spending championed by Keynes. Yet as the son of Mister Sound Money, he felt uneasy in an administration marked by sometimes amateur experimentation in the monetary sphere. He winced at this slapstick side of the New Deal, with its arcane disputes and skirmishing factions. FDR wanted to honor Paul Warburg’s memory but not his policies. Jimmy thought the president and Moley had only a primitive grasp of money issues and certainly lacked the expertise to manage a currency. “The really frightening thing about this was that none of these fellows knew anything about it and were just gaily tinkering with this whole mechanism.” Jimmy confessed, “My sacred cows were being slaughtered.”12 Before long, he defined his task as simply one of spiking the most harmful experiments.
By April, Roosevelt felt himself under extreme pressure to take radical measures to end misery among the farmers. Slumping commodity prices and rampant foreclosures had produced a quasi-revolutionary ferment in the farm belt. To prop up prices, Jimmy advocated devaluing the dollar in relation to gold and other currencies, while maintaining a link between gold and the dollar. For Jimmy, the gold standard was the only solid base upon which to anchor the financial edifice.