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

by Ron Chernow

  Returning home for the Republican National Convention of 1920, Lamont was shocked by its smoke-filled rooms, its arrogant isolationism, and its mean-spirited xenophobia. He saw America suddenly retreating from the world and refusing to take responsibility for postwar European reconstruction. In the election that year, Lamont cast his lone Democratic presidential vote, favoring Governor James M. Cox of Ohio over Warren G. Harding because Cox endorsed the League. Even Jack Morgan supported the League, although with even-handed disgust he boycotted America on Election Day, reviling both the “jellyfish Republican” and the “pro-German Ohio editor.”14 While the bank would have intimate relations with the three Republican administrations of the 1920s, there would always be a tension between its sense of global responsibility and the blinkered vision of the provincial Republicans. Increasingly multinational in scope, the House of Morgan would fit uneasily into an America that was tired of European entanglements.

  WHILE Lamont was negotiating peace at Versailles, Jack was wrestling with his own private demons. He didn’t want to negotiate with the Germans but only to see them punished for their “barbarous” misdeeds. In 1917, he wrote a friend that “after the conduct of the Germans during this war, it would be impossible for any civilized nation . . . to have anything to do commercially or financially with people who have shown themselves of such evil character.”15 He said he would rather have General Pershing march on Berlin with half a million men than a merciful peace treaty.16 Pierpont Morgan could have acted on such spite, but postwar Morgan lending would increasingly reflect U.S. interests rather than partners’ whims. Despite Jack’s bluster, his bank would sponsor the vast loans that made reparations possible, linking his bank more closely to Germany than he would have ever dreamed possible.

  Outwardly, Jack remained the sedate banker, but inside he was fearful and haunted. His insecurity didn’t end with the armistice. Even in the postwar atmosphere, it was easy for a prominent banker to feel as if he were a sitting target for terrorists. The rich grew alarmed by events in Russia—the seizure of power by Trotsky and Lenin, the assassination of Czar Nicholas II, and the Bolshevik repudiation of foreign debt. (Barings froze its large Russian deposits after the Bolsheviks tried to transfer them to Guaranty Trust in New York.) During the Mexican Revolution, the Mexican government also defaulted on its foreign debt, and in 1917 it passed a radical constitution that threatened to nationalize American oil interests.

  There were predictions that revolution would spread to the shores of North America, and the political air grew thick with talk of class warfare and strikes. During 1919, four million Americans went on strike, with the city of Seattle the scene of a major general strike. Attorney General A. Mitchell Palmer rooted out “Reds” and other foreign agitators in the raids that came to bear his name. The unrest strengthened Jack’s suspicion that “destructive elements” wanted to smash the industrial machinery. He applauded Massachusetts governor Calvin Coolidge for suppressing the Boston police strike and Judge Gary for supporting an open shop during a strike at U.S. Steel.

  On May Day of 1919, Jack was one of twenty eminent Americans who received identical letter bombs. The intended victims were spared when the packages were intercepted at a New York City post office on account of insufficient postage. Jack and his daughter Jane were also blackmailed by a Michigan janitor named Thorn, who claimed he had poisoned them with slow-acting, secret microbes; he would hand over the antidote for $22,000. Ordinarily, Jack might have shrugged this off, but in the tense atmosphere he thought it advisable to make an example of the blackmailer. Thorn was eventually arrested, convicted, and spent fifteen months in Leavenworth. By 1921, the bank felt so menaced by saboteurs that publicity chief Martin Egan suggested that the bank’s private railway car, the Peacock Point, be given a nondescript name, lest the association with Morgan partner Harry Davison’s North Shore estate invite trouble.

  The incidents that did occur help to explain the factual basis of Jack Morgan’s fears, which now drove him to obsessive lengths. Crazy things were happening around him. In addition, there was the 1920-21 recession, which was perhaps closer to a depression in its severity. To curb the inflation that followed the war, Ben Strong of the New York Fed raised interest rates sharply. It was the first recession deliberately engineered by the Fed to moderate a boom. As unemployment quintupled to 12 percent, four million people were thrown out of work, and over five hundred banks failed in 1921 alone.

  By early 1920, Jack Morgan had an almost inverted worldview: the rich struck him as impotent, the masses as all-powerful in the hands of demagogues. In this frightened state of mind, he hired a private detective, William Donovan, a lawyer and a highly decorated officer in World War I. (Later known as Wild Bill Donovan, he would head the Office of Strategic Services, the forerunner of the CIA.) Intelligence work burgeoned with the spread of radicalism around the world. Jack asked Donovan to investigate the Communist International (Comintern), formed in 1919, which had singled out bankers as archenemies of the working class. As a former banker to Czar Nicholas II, Jack was watching the Bolsheviks with extra apprehension. He also asked Donovan to dig up information about the new nations emerging from the old Austro-Hungarian Empire, for it was thought that political chaos in Central Europe could be a breeding ground for communism. Donovan’s investigation was fairly prosaic—he uncovered only dusty papers and speeches—but the job launched him in high finance and accustomed Jack to a new manner of dealing with his enemies.

  Two other events in 1920 contributed to Jack’s sense of omnipresent danger. On Sunday morning, April 18, an anarchist and escaped mental patient named Thomas W. Simpkin wandered into Saint George’s Church on Stuyvesant Square. The London-born Simpkin had been obsessed with death since the sinking of the Titanic. He later said he had come to America to kill Pierpont Morgan, only to discover he was already dead. On this Sunday morning, he was drawn to Saint George’s by its beautiful chimes. “The chimes were playing and I was soothed,” he said. “Then I went into the church.”17 He knew that it was the church of the Morgan family.

  Jack’s brother-in-law Herbert Satterlee was there, as was Dr. James Markoe, friend and physician to the Morgans. As Markoe was passing the collection plate, the dingy little Simpkin pulled out a gun and shot him point-blank in the forehead. The collection plate fell to the floor with a noise “like crashing glass.”18 The rector, Karl Reiland, flung his Bible to the pulpit and leapt over the chancel rail. Although the organist stopped playing, the church choir continued to sing angelically as vestrymen in cutaways pursued Simpkin; they caught him in Stuyvesant Square. By coincidence, Dr. Markoe was rushed to the Lying-in Hospital, the hospital he had persuaded Pierpont to endow, and died there a few minutes later. As it turned out, Simpkin had mistaken Dr. Markoe for Jack Morgan. When interrogators asked him why he thought of killing J. P. Morgan, Jr., Simpkin replied that he had heard that Morgan and a Congressman Miller had said that the International Workers of the World ought to be killed.19

  Then came the blast of September 16, 1920. Shortly after noon, a horse-drawn wagon carrying five hundred pounds of iron sash weights pulled up on Wall Street between Morgans and the U.S. Assay Office across the street. Suddenly it exploded, blowing holes in the pavement, bursting like shrapnel through a terrified lunchtime crowd, killing thirty-eight people and injuring three hundred. Walking by 23 Wall, the young Joseph P. Kennedy was hurled to the ground. Throughout a half-mile radius, the blast punched out windows, including those on the Wall Street side of Morgans. Fire and a weird greenish smoke belched upward, igniting awnings as high as twelve stories above the street. Inside the New York Stock Exchange, panicked traders fled the imploding windows as shattered glass burst through the heavy silk curtains.

  In Once in Golconda, John Brooks describes the chaos inside the House of Morgan:

  The cavernous interior of J.P. Morgan & Company, the office most seriously affected, was a shambles of broken glass, knocked-over desks, scattered papers, and the twisted remains of s
ome steel-wire screens that the firm had providentially installed over its windows not long before, and that undoubtedly prevented far worse carnage than actually took place. One Morgan employee was dead, another would die of his wounds the next day, and dozens more were seriously injured. Junius Morgan [Jack’s older son], sitting at his desk near the north windows on the ground floor, had been pitched forward by the blast and then nicked by falling glass. . . . Another young Morgan man, William Ewing, was knocked unconscious, and awoke a few minutes later to find his head wedged in a wastebasket.20

  The blast left glass strewn thick as sugar across the main banking floor. Bill Joyce, seated on a high stool, was killed by an iron sash lodged in his body; John Donahue died of burn wounds. A row of pockmarks was engraved deep in the Tennessee marble on the Wall Street side of the building. Whether as a badge of pride or a memorial to its two dead employees, the Morgan bank has never repaired the marble blocks, and they are still clearly visible to pedestrians on Wall Street. One partner later cited the inordinate expense of repairing them but then conceded, “It is right and proper that they should stay there.”21 For a generation, bankers asked, Where were you when the blast occurred?

  Because the blast occurred in September, Jack was at his Scottish shooting lodge. But other partners were gathered in his office at the time, which, luckily, faced Broad Street. A visiting Frenchman, laughing nervously, said he felt as if he were back in the war. To inspect the carnage, George Whitney went into the street. On the bank’s scarred north wall, he saw a macabre sight: “One of those scars had a woman’s head and hat plastered up against it. I’ll always remember that. It hit her so hard that it just took her head off and it stuck right on the wall.”22

  In another memory from that dreamlike day with its montage of slow-motion horrors, Whitney recalled that Dwight Morrow, a man of legendary absentmindedness, had a noon luncheon appointment with a government official. As the smoke cleared, Whitney saw Morrow trotting punctually downstairs and greeting the official as if it were an ordinary business day. The two strolled off for lunch at the Bankers Club, threading their way among dead bodies, firemen, overturned cars, and craters gouged in the street. “They didn’t pay any attention to it, not knowing what they were doing 1 suppose,” said Whitney.23

  In the weeks ahead, J. P. Morgan and Company muddled through, with canvas sheets draped over its windows and a shaky dome, propped up by scaffolding, above the central banking floor. For this most foppish bank, it was a strange interlude, with many employees wearing slings and bandages to work. Whether Morgans or the Assay Office was the real target of the blast was never known; it went down as a great unsolved crime. It may have been a spontaneous chemical accident, although it coincided with a rash of anarchist acts and has always been attributed to anarchists. The new Stock Exchange building at 11 Wall Street was under construction at the time, which may have accounted for there being explosives in the area. The bank hired the Burns International Detective Agency, which offered a $50,000 reward for information about the incident; nobody ever collected the money.

  As soon as the explosion occurred, thirty private detectives took up positions around Jack’s brownstone on Madison Avenue. Jack construed the explosion as an attack against Wall Street rather than an attack against the bank. Yet along with the 1915 shooting, the Thorn case, the Markoe shooting, and the million and one crank letters, it must have fed his sense of vulnerability and his growing apprehension of conspiracies.

  This period of turbulence provides the backdrop for Jack’s deepening anti-Semitism, which played an important part in his outlook and became his shorthand explanation of many incidents, particularly attacks against his family and firm. His anti-Semitism was of a familiar variety. He saw Jews as a global fifth column feigning loyalty to host governments while furtively advancing foreign plots. He generalized the presence of the German-Jewish banks on Wall Street into a broader phenomenon. Like his father, Jack was extremely warm and affectionate toward those within his own circle of intimates, but, again like Pierpont, he often showed coldness and suspicion toward outsiders. In his anti-Semitism, Jack never saw himself as lashing out at the weak; instead, his enemies were more powerful than he, a mere Morgan, and deserved what they got.

  In May 1920, serving as an overseer of Harvard University, he rushed to alert President A. Lawrence Lowell of the grave danger posed by a board vacancy:

  I think I ought to say that I believe there is a strong feeling among the Overseers that the nominee should by no means be a Jew or a Roman Catholic, although, naturally, the feeling in regard to the latter is less than in regard to the former. I am afraid you will think we are a narrow-minded lot, but I would base my personal objection to each of these two for that position on the fact that in both cases there is acknowledgement of interests or political control beyond and, in the minds of these people, superior to the Government of this country—the Jew is always a Jew first and an American second, and the Roman Catholic, 1 fear, too often a Papist first and an American second.24

  From this letter, one may discern that Jack had in mind his wartime feud with Kuhn, Loeb, now blown up into a universal theory. It’s ironic that he would soon float the biggest German loan in American history and later be decorated by the Vatican for his investment advice.

  In 1920, convinced of an anti-Morgan cabal among the German-Jewish bankers, Jack recruited a man named Charles Blumenthal to infiltrate their activities. For two years, Blumenthal reported to Jack periodically. His methods have not been documented, but one target was clearly Samuel Untermyer, whom Jack still planned to punish for his role in the Pujo hearings. Another was the German-born Otto Kahn, the Kuhn, Loeb partner and financial angel behind the Metropolitan Opera. Far more than Jacob Schiff, the ostentatious Kahn mingled with tony society, earning the nickname of the Flyleaf between the Old and the New Testaments.25 Kahn had subscribed generously to the 1915 Anglo-French loan, and Jack had even praised his patriotic wartime speeches, which were widely circulated by the Allies. Kahn had even been reviled by the kaiser as a traitor to his native country. Then, in 1919, Jack learned about a small loan to several German cities made by Kahn and Kuhn, Loeb early in the war. Kahn was still a naturalized British citizen, and Jack thought the loan prima facie evidence of treason. Hopping mad, he wrote Grenfell, “Great Britain cannot shut him in gaol, he now being an American citizen, but it does not strike me as being high-class conduct, and I think it should be known.”26 Kahn’s wartime patriotism was forgotten.

  Pursuing his quarry, Jack sought proof linking Kahn with the German loan. He apparently got it from Blumenthal in 1920. He wrote Grenfell, “Enclosed is a photographic copy of a letter from Lindheim, who is a Jewish lawyer here in New York with 50 connections with the Untermyer tribe, to Dr. Albert, which, I think, quite sufficiently identifies Mr. Otto Kahn with the proposed German cities loan.”27 It seems both Jack and Teddy Grenfell were swapping intelligence with British authorities, because Grenfell already knew Dr. Albert had spent a lot of German money during the early stages of the war.28 A couple of years later, the bank got a London source to consult Admiralty records on Samuel Untermyer.

  Another possible source of Jack’s information was Henry Ford’s Dearborn Independent, which served as mouthpiece for Ford’s bizarre anti-Semitic views and was distributed through Ford dealerships around the country. In 1921, the paper conducted a campaign against “hyphenated Americans”—immigrants of allegedly dubious loyalty to the country. In a warmly fraternal note to the editor, Jack endorsed the campaign: “Owing to the war, I became fully aware of the danger, to the community, of hyphenated Americans; and it seemed to me that the Jews were the only lot of that class of people who had been able to do their work quietly and were steadily working to maintain their hyphenated attitude of mind without calling public attention to it.”29 Jack said he would make information available to the Independent. When Charles Blumenthal traveled to Detroit to consult with Henry Ford on the Jewish menace, Jack followed up with a note inv
iting Ford to visit him in New York.

  Jack’s confused anti-Semitism was intermingled with business rivalries. The Yankee and Jewish banks still formed warring groups on Wall Street. In 1921, a former Justice Department agent tipped off the bank to a plan by Jewish bankers and German industrialists to restore German fortunes. He told how a Mr. Lehman and a Mr. Rothschild met with Kuhn, Loeb partners in New York to perfect this plot and how they hoped the new combine would drive J. P. Morgan and Company out of business. This may well have happened and been dressed up in alarming, conspiratorial language. Jack had a way of looking at the Yankee-Jewish rivalry on Wall Street and seeing it in conspiratorial and religious terms rather than in the more mundane terms of business.

  Relations between Jack and Blumenthal soon deteriorated. Jack advanced him money for a home mortgage, and he failed to make a timely payment. For a banker such as Jack, deadbeats occupied a lower rung in hell than Jews. Relations grew frosty. In 1922, Blumenthal’s payments were phased out. Later, when Blumenthal tried to use Morgan’s name to raise cash, Jack denied he had ever employed the man. Was this pique—or Jack covering his tracks?