The Jews in America Trilogy

by Birmingham, Stephen;

  20

  “YOUR LOVING KUHN, LOEB & COMPANY”

  In a photograph taken years later, after the great J. P. Morgan had admitted him as his only equal, Jacob Schiff stands squarely, solidly, addressing the world; his frock coat is smoothly buttoned across his comfortable middle; not a trace of humor lights his calm, impassive face. From his almost total lack of expression, one’s eyes are drawn, instead, to the plump competence of his small hands. Yet in another portrait, a painting done at nearly the same time, we see a different Jacob Schiff. He is seated in a club chair, unbuttoned, relaxed, one hand draped carelessly across the arm of the chair, the other cradling his chin. His lips form the barest trace of a sardonic smile, and his blue eyes shine with a kind of wry amusement. He seems to be waiting for some pleasant event, which he has already predicted, to happen. Here is a man of wit, urbanity, and wisdom.

  Somewhere between these two aspects of him lay the mysterious clue to his character, for Jacob Schiff could be exquisitely poised and logical and patient, and he could also be irrational and arbitrary and petty and demanding.

  He liked large things—large cities, large houses, and large sums of money, such as those represented on two canceled checks which he eventually framed and hung on the wall of his office: one for $49,098,000 and another for $62,075,000, both written over his signature within a six months’ period for loans he had floated for the Pennsylvania Railroad. He also liked to wield large authority. The very name Schiff rings with command. Historians have often speculated about the influence of names on personalities. Adolf Hitler might never have attained such heights of power and brutality if he had retained the name Schicklgruber. Could August Belmont have achieved the grandeur and social position he wanted as August Schönberg? The name Schiff has another connotation—the ship that would one day sail forth as one of the flagships of American finance. Could Schiff have reached his goals if he had worn the name of one of his ancestors, Zunz?

  One thing was certain from the start: he could never be a good employee. He could not even be a good partner. He had to dominate. His partnership with Budge and Lehmann did not work out well, and Schiff began looking elsewhere. He was offered the managership of the Deutsche Bank in Hamburg and, in one of his rare steps backward, accepted the post and returned to Germany. But he was still restless, dissatisfied. Commercial banking bored him. Its business—taking deposit accounts, making cautious loans—was too cut and dried.

  There was another problem. By 1870 the first openly anti-Semitic parties had been formed in Germany, and politicians were vying for the votes of anti-Semites. As the power of these corrosive elements grew, even Bismarck, who had ignored them in the beginning, then scorned them, now had to cater to them in order to have their votes and remain in power. This development gave anti-Semitism its first patina of respectability, and made the future for young Jews in Germany seem more uncertain. The most promising development during his Hamburg sojourn was Jacob Schiff’s meeting the Warburg family, very much of the Jewish “social layer cake” in that city. Two of the sons of Moritz and Charlotte Warburg—Paul and Felix, who later became so important in Schiff’s life—always remembered the elaborate toy fort the young banker presented to the Warburg children on one of his visits.

  In Germany, one of the men Jacob Schiff met was Abraham Kuhn, the homesick founding partner of Kuhn, Loeb, who had returned to Frankfurt. Impressed with the energetic young man, Kuhn suggested he write to Solomon Loeb in New York and offer his services. In addition to supplying his name to the firm’s letterhead, it was perhaps Abraham Kuhn’s most significant achievement. Schiff did as Kuhn advised. Loeb accepted. When Schiff got to New York in 1873, he was twenty-six, Solomon Loeb was forty-four, and Kuhn, Loeb & Company was a babe of six.

  In one of his earliest letters to his mother during his first stay in New York, Schiff had spoken of “the enormous opportunities in railroading and all that” in the new country. Now, in New York again, he began to concentrate on railroads in earnest. Here was the first indication that he would become a very different sort of financier from Joseph Seligman. Schiff had been watching the Seligmans’ railroad activities carefully, and he was soon certain that he knew what it was the Seligmans were doing wrong. Joe Seligman had had no interest whatever in how railroads were run or why, and looked at them only as a means for taking profits. Schiff decided to make himself an expert on railroad management, on the reasons for railroads’ existence, the needs they filled, their potentialities, and the role they could eventually play in relation to other industries and the American economy. With the somewhat edgy blessings of his senior partner, Mr. Loeb, Jacob began using the considerable resources of Kuhn, Loeb & Company to buy into—and befriend—railroads.

  Soon Schiff, too, was on the board of directors of the Erie, which had caused the Seligmans so much woe. A railroad directorship, the details of which had been not much more than a nuisance to Joe Seligman, fascinated Schiff. He could now study a line from the inside as well as from without. Before long, his mind had achieved such a grasp of American railroading that a friend was able to say of him, “He carries every railroad in the country, every bit of rolling stock, every foot of track, and every man connected with each line—from the president down to the last brakeman—inside his head.”

  The kind of services Schiff began to perform for railroads were later described by one of his junior partners, Otto Kahn. “A railroad, or some particular officer of a railroad,” Kahn said, “would come to us and would say, ‘We have such and such a problem to solve. We would like to get your advice as to the best kind of security to issue for that purpose—a security which gives to the railroad the most powerful instrument, not only for immediate but also for long-term purposes, and gives the public the greatest possible protection without tying up the railroad unduly and beyond what is safe for it.’ So, he says, ‘Will you tell us what is the best kind of instrument to use for that purpose? Should it be a mortgage bond, a debenture, a convertible bond, preferred stock, an equity? We would like you to look into it and tell us. Here are a few facts and figures. Go through them.’”

  Schiff and Kuhn, Loeb, Kahn admitted, “have sometimes been stuck by not knowing what kind of securities would be most advantageous from all standpoints to issue. We would know that in a short while from now other large security issues are likely to come upon the market. We would know what is the general disposition of the security market—favorable or unfavorable. Is there an investment demand, or isn’t there an investment demand? And that situation varies. Sometimes we can sell nothing but equities. Sometimes equities are thrown into the discard and people want safety. Again, that is our job to know.” Finally, Kahn repeated the motto that had been drummed into him by his mentor, Jacob Schiff: “Our only attractiveness is our good name and our reputation for sound advice and integrity. If that is gone our business is gone, however attractive our show window might be.”

  Jacob Schiff’s approach to railroad financing was, in other words, very like that of J. P. Morgan. Schiff set himself up from the beginning as a friend of railroad management, as a champion of those whose money was actually invested in the stocks and bonds of the carriers. He stood opposed to the speculators and entrepreneurs and promoters, and to the deliberate wreckers of railroads such as the Seligmans’ old client, Jay Gould. Schiff, furthermore, who was ten years younger than Morgan, was also able to get a significant head start on Morgan when it came to railroads. Morgan’s first railroad achievement of any size was his ability, in 1879, to dispose of 250,000 shares of William H. Vanderbilt’s New York Central, quietly, in London, so that the stock’s price would not plummet on the New York market. For this sale, which totaled $36.5 million, Morgan received a fee of $3 million along with an elaborate tea service from a grateful Mr. Vanderbilt. But Jacob Schiff, two years before this, in 1877, had achieved a notable, if somewhat less profitable, feat of his own for the Chicago & Northwestern Railroad. His fee: $500,000.

  Schiff was a young man in a position
to move with the tide. For the next thirty years railroads would completely dominate the American financial scene, and Schiff from the beginning was determined that Kuhn, Loeb & Company should dominate the field of railroad financing. Morgan, lulled, no doubt, by his three-million fee from Vanderbilt, and by his belief that he had been “chosen by circumstance and inheritance as the heir of North America,” joined the Union League and the New York Yacht Club. He bought a town house—the square brown mansion that still stands at 219 Madison Avenue—and a two-thousand-acre estate on the Hudson, called “Cragston.” The sleek black hull of his Corsair I slid from its ways and into yachting history.

  Jacob Schiff, meanwhile, was collecting railroad clients. Within a few years, these included the Pennsylvania; the Chicago, Milwaukee & St. Paul; the Baltimore & Ohio; the Chesapeake & Ohio; the Denver & Rio Grande; the Great Northern; the Gulf, Mobile & Northern; the Illinois Central; the Kansas City Southern; the Norfolk & Western; the Missouri Pacific; the Southern Pacific; the Texas & Pacific; and the Union Pacific. He may have “sometimes been stuck,” but apparently was not stuck often. Schiff, according to his biographer, Cyrus Adler, “rarely made a mistake in business judgment.” As his handling of railroad finances grew more agile and adroit, so did Kuhn, Loeb’s profits increase. Solomon Loeb, who at first had distrusted railroads—they seemed too risky—looked at the firm’s balance sheet and was pleased. Schiff was never a man who willingly released figures, but Otto Kahn once said that for floating and selling a modest little ten-million-dollar railroad bond issue Kuhn, Loeb was compensated with “around or about a million dollars.”

  And there were other compensations, several of which Schiff considered more important than silver tea services. One was the permission he received from Solomon Loeb to “deal direct” with European bankers on money matters that concerned railroads. Schiff pointed out that he was “more up-to-date” on foreign banking methods than Loeb, and, besides, the older man should be relieved of some of his “heavy responsibilities.” Loeb seems to have agreed to this without considering the consequences—which were, of course, that European bankers were suddenly corresponding with Jacob H. Schiff, the junior partner, instead of with the older members of the firm.

  Another was the railroad education he was receiving from a doughty little Minnesotan—who everybody said was half Indian—named James Jerome Hill. Hill was being called Vanderbilt’s chief rival for the title of America’s most powerful railroad owner. Hill, like Vanderbilt, was a banking client of J. P. Morgan. “But I,” Jacob Schiff said significantly, “am his friend.”

  Solomon and Betty Loeb had a large, comfortable town house at 37 East Thirty-eighth Street between Madison and Park, one of the prettiest residential streets in Murray Hill. The Victorian era is not celebrated for beauty of interior decor, and the Loeb house was no exception to other rich men’s houses of the period. It was filled with large, ugly, and expensive objects; one had to thread one’s way across the rooms through statuary, potted palms, pedestal tables with marble tops, and ottomans. The windows and doorways were heavy with hangings of pigeon’s-blood velvet, and there were quantities of plush and long gold fringe everywhere. Solomon Loeb had collected a few good period paintings, mostly of the Barbizon School and works by Bouguereau and Meissonier, but his walls were also hung with huge, stilted family portraits, plus a number of Solomon’s own pencil sketches which he copied laboriously from prints as a form of weekend recreation. Also prominently displayed was a tinted photograph of baby James Loeb, naked on a red velvet cushion. (Even when he became a young man and protested, Betty Loeb would not take it down.) The house smelled cozily of wax and varnish, of Solomon’s cigars and Betty’s dinners.

  Betty Loeb had little interest in clothes, favoring sprawly prints and large collars which did little to flatter her expanding figure. She loved to serve good food and she loved to eat, and her Sunday dinners had become famous in the little crowd—nearly as much an institution as the Seligmans’ Saturdays. Her food was famous for its quality and its quantity. Guests, leaving her groaning boards, often had to lie down for several hours. She always explained that she served “a little extra” on Sunday so there would be enough left over for her to serve at her ladies luncheon on Monday, but there was usually a great deal left over after the Monday lunches, too.

  Betty Loeb was as overpowering a mother as she was a hostess. Therese, who knew that Betty was not her real mother, always treated her as though she were. Among Therese’s possessions was a small and faded tintype of Fanny Kuhn Loeb, the only record of her mother’s existence in the Loeb house. It stood on a candlestand beside Therese’s bed, and whenever her young friends asked her who the woman in the picture was, she shyly replied, “A relative.” (Her half-sisters and -brothers were grown before they learned that their father had had another wife.)

  Betty presented Solomon with four more children of her own—Morris, Guta, James, and Nina—and she tended to all five with an almost consuming passion. Betty was so fierce about educating them that every minute of their waking lives was organized into lessons. There were music lessons, dancing lessons, riding lessons, tennis lessons, singing lessons, sewing lessons, German, French, Italian, Hebrew, and Spanish lessons. The children were so hovered over by tutors, governesses, nurses, and household servants that they could do almost nothing for themselves. Morris, who had always been dressed by nurses, was twelve years old before he learned that there was a difference between his left shoe and his right. Therese, at eighteen, could do exquisite needlepoint, but was unable to button her own dress.

  Betty organized the four younger children into a piano and string quartet—Guta at the piano, Morris at the viola, James at the cello, and Nina at the violin—and there were Sunday morning concerts in the Loebs’ Pompeiian music room. If Betty liked what the children played, she would say, with deep satisfaction, “Das war Musik!” If displeased with a performance, she would mutter, “Hmph! Musik?” and there would be extra hours of practice in the afternoon. To stimulate her children’s talents, she populated her Sunday dinner tables with visiting conductors, singers, composers, dancers, and musicians. She even hired musical servants. Apologizing for a particularly inept young butler, she said, “He’s very musical. I promised to give him violin lessons in the front basement.”

  Her youngest daughter, Nina, had once told Betty that she wanted to be a ballet dancer. The ballet lessons were intensified accordingly. But Nina fell from a goat-drawn cart one summer at the family’s country place on the Hudson, seriously crippling one leg. For several years the little girl wore a heavy weight on her injured leg which was intended to stretch it to the length of the other, but which did no good. Betty took her daughter to bone specialists all over the United States and Europe—and to a few quacks as well—trying to find someone who would help Nina walk normally again. One of the many doctors had said to Betty, “Don’t worry. Your daughter will dance when she’s eighteen.” On the morning of her eighteenth birthday, Betty said to Nina, “You’re eighteen. Now you must dance.” And Nina rose from her wheelchair and, in terrible pain, with tears streaming down her face, danced, to please her mother.

  Business consumed Solomon Loeb’s life to the extent that the children consumed Betty’s. Business absorbed him so much that, writing to one of his sons at school, he absent-mindedly signed the letter, “Your loving Kuhn, Loeb & Company.”

  When Kuhn, Loeb first opened its Nassau Street doors, the president of the National Bank of Commerce had come to Solomon and told him that he was sure the new firm would be a success. Solomon asked him why, and the president replied, “Because you know how to say no.” This blossomed into a business rule of Solomon’s: “Always say no, first. You can always change your mind and say yes. But once you have said yes you are committed.” He used to tell his sons, “I have become a millionaire by saying no.” But he found it hard to say no to Betty. Whenever she wanted something, she approached him briskly and said, “Now, Solomon, first of all say no. Then let me tell you
what I have in mind.”

  One of the things she had in mind in 1873, when Jacob Schiff joined the firm, was the immediate future of Therese, who had just turned twenty. Jacob found himself a frequent guest at Betty’s Sunday dinners and, more frequently than he may have realized, under the scrutinous gaze of the lady of the house. Jacob and Betty Loeb hit it off well; they discussed music, art, politics, but most particularly Jacob Schiff’s future plans. Jacob’s brief return to Germany worried Betty. Did that indicate a rootlessness on his part, an unwillingness to settle down? Betty had said her final farewells to the old country. She was committed to America now, and had no intention of seeing any of her children carried off to any other part of the world. But Jacob assured her that he would never move back to Germany. He did as she suggested, took out his American citizenship papers, and this convinced her.

  In Jacob Schiff, Betty began to sense a kindred spirit, a will as strong as her own, and an ambition as huge as hers. Now that he was a citizen, Betty seated Jacob next to Therese, with the other young people “below the salt.” From her end of the polished table, above the salt, Betty watched as Jacob and Therese conversed. Therese was cameo-faced, blue-eyed, small, and dainty, and she blushed prettily when Jacob spoke to her. Whenever Betty saw Jacob speak to the lady on his left, Betty would exercise the hostess’ prerogative and “turn the conversation,” so that Jacob was confronted with Therese again.

  By some mysterious process, the more the two young people saw of each other, the greater were the responsibilities given to Jacob Schiff at the Kuhn, Loeb office. When Solomon Loeb came home at night and mentioned a problem at the office, Betty would inquire, “What does Mr. Schiff think? Have you asked Mr. Schiff? Why don’t you let Mr. Schiff handle that?” To Therese, Betty said, “Mr. Schiff is very handsome, isn’t he? And your father says he is a brilliant businessman. The girl who marries him will be very lucky.”