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

by Ron Chernow

They practice a brand of banking that has little resemblance to standard retail banking. These banks have no teller cages, issue no consumer loans, and grant no mortgages. Rather, they perpetuate an ancient European tradition of wholesale banking, serving governments, large corporations, and rich individuals. As practitioners of high finance, they cultivate a discreet style. They avoid branches, seldom hang out signposts, and (until recently) wouldn’t advertise. Their strategy was to make clients feel accepted into a private club, as if a Morgan account were a membership card to the aristocracy.

Although the bank is bashful about revealing precise figures, it prefers personal accounts of at least $5 million and will occasionally stoop as low as $2 million—as a favor. The Morgan bank is the foremost repository of old American money.

The bank concentrates on blue-chip corporations and governments, organizing large credits and securities issues and trading foreign exchange and other instruments. The Morgan bank used to boast that ninety-six of America’s one hundred largest corporations were clients and hinted that in two of the remaining cases, it had blackballed the companies as unfit. As with personal accounts, it never wanted to appear too eager for business. Instead of setting up offices hither and yon, it preferred to have clients make pilgrimages to it. This rule applied to its outposts abroad as well: a Lyons businessman would travel to Paris, a Midlands businessman to London, to see his Morgan banker. Even in today’s far more competitive world, there is seldom more than one J. P. Morgan office in a country.

Once nicknamed the house of Blood, Brains, and Money, Morgan Stanley fussily demanded exclusive relations with companies. If clients dared to consult another house, they were advised to look elsewhere for a banker. Wall Street grumbled about these “golden handcuffs,” but neither it nor the Justice Department could ever break the shackles; far from feeling imprisoned, companies craved this association with the Morgan mystique and gloried in their servitude. In

Peabody was constantly exposed to the fierce snobbery of British aristocrats toward the American commercial class. This condescension was particularly flagrant during Commodore Vanderbilt’s trip to London in 1853. The Commodore—vulgar, profane, and lecherous—wanted to show London society the full splendor of America’s richest man. With his wife and twelve children, he had sailed to England aboard his ornate, two-thousand-ton North Star, equipped with caterer, doctor, and chaplain. Peabody squired the Vanderbilts about Hyde Park and installed them in his box at Covent Garden; meanwhile, the court ostracized the ostentatious Commodore.

“Mr. Peabody, with that cold you ought not to stick here,” Morgan said. Taking hat and umbrella, Peabody agreed to go home. Twenty minutes later, on his way to the Royal Exchange, Morgan found Peabody standing in the rain. “Mr. Peabody, I thought you were going home,” the younger man said. “Well, I am, Morgan,” Peabody replied, “but there’s only been a twopenny bus come along as yet and I am waiting for a penny one.”16 By this time, Peabody’s bank account bulged with over £1 million.

Gooch was a sad-faced Bob Cratchit who addressed Peabody like a trembling clerk; in fact, he had started as head clerk. He started one letter to his boss by writing, “Dear Sir, I do not often trouble you with letters, for I know you do not like the trouble of reading them, & mine are on subjects not over agreeable.”19 Gooch was being groomed for a career of permanent subordination and forelock tugging.

the Rothschild insignia of five arrows commemorated five sons dispatched to five European capitals.

The Rothschilds had a celebrated covey of carrier pigeons and courier boats at Folkestone. In a famous lament, Talleyrand sighed, “The English ministry is always informed of everything by Rothschilds ten to twelve hours before Lord Stuart’s dispatches arrive.”

The bankers acquired such power because many governments in wartime lacked the sophisticated tax machinery to sustain the fighting. Merchant banks functioned as their ersatz treasury departments or central banks before economic management was established as a government responsibility.

Soon after completion of the first transcontinental railroad, in May 1869, Pierpont and Fanny Morgan made an extended rail journey across the country, stopping to see Mormon leader Brigham Young in Utah. A competition was already underway on Wall Street between Jewish bankers, such as Joseph Seligman, who wooed German investors with railroad shares, and Yankee bankers, such as Pierpont Morgan, who drew on London money.

In the Battle of the Susquehanna, Jim Fisk, a former circus roustabout and Gould’s chief lieutenant, and his Bowery boys—thugs scraped off New York’s streets and operating as Gould’s stooges—piled onto a train heading east from Binghamton, their army numbering about 800 men. The Ramsey forces loaded about 450 fighters onto a train heading west from Albany. In a cinematic finale, the two trains crashed head-on at the Long Tunnel near Binghamton. Their headlights were smashed, one locomotive was partly derailed, and eight or ten people were shot before the Gould forces fled. Governor Toots Hoffman summoned the state militia to stop the bloodshed.

Stung by all the railroad bankruptcies, Pierpont decided to limit his future dealings to elite companies. He became the sort of tycoon who hated risk and wanted only sure things. “I have come to the conclusion that neither my firm nor myself will have anything to do, hereafter, directly or indirectly, with the negotiation of securities of any undertaking not entirely completed; and whose status, by experience, would not prove it entitled to a credit in every respect unassailable.”

The story of Pierpont Morgan is that of a young moralist turned despot, one who believed implicitly in the correctness of his views. Strong-willed and opinionated, he had an unshakable faith in his own impulses—a quality that later made him appear as a force of nature, a child of the Zeitgeist, making snap decisions that were often eerily right. He differed from most of the Gilded Age robber barons in that their rapacity stemmed from pure greed or lust for power while his included some strange admixture of idealism.

Perhaps never in financial history has anybody else amassed so much power so reluctantly. J. Pierpont Morgan was more exhausted than exhilarated by success. He didn’t enjoy responsibility and never learned to cope with it.

In 1909, the State Department prodded a reluctant Wall Street to undertake Chinese business. A consortium of British, French, and German banks had nearly completed negotiations for a $25-million loan for the Hukuang Railway, which ran from Shanghai to Canton. Much to the European’s dismay, the State Department demanded an equal share for U.S. bankers. As Herbert Croly wrote, “The majority of these bankers had gone into the Group not because they were seeking Chinese investments but in order to oblige the administration.”

In May 1911, Pierpont attended the Belfast christening of the Titanic and studied the spot on B deck where his personal suite would be. It would contain a parlor and promenade deck, with timbered walls in Tudor style, and there would be special cigar holders in the bathroom. Though Pierpont and Vivian Smith of Morgan Grenfell both booked spots for the April 1912 maiden voyage, both had to cancel.

Indeed, the Morgans saw themselves not as financial pirates but as public benefactors. When Harry Morgan was born in 1900, Jack noted a resemblance to Pierpont and said he only hoped his son would help as many people in his lifetime as Pierpont had in his. This sense of virtue contrasted with the reality of their being the target of public calumny, leaving the Morgan family angry and bewildered.

When Pierpont’s will was disclosed, it contained many surprises. Overflowing with religious fervor, it had a florid opening, in which he committed his soul into the hands of Jesus Christ. He distributed money with great liberality. Besides the Morgan bank capital, Jack was bequeathed $3 million outright, the Corsair, the property at Princes Gate and Dover House, and that inestimable jewel, the Morgan collection. Daughters Louisa Satterlee and Juliet Hamilton received $1 million apiece, with an extra million thrown in for their husbands. The long-suffering Fanny received Cragston, the Madison Avenue house, a $100,-000 guaranteed annuity, and a $l-million trust fund. She survived until 1924, faithfully attended by Jack. There was friction in the family regarding Anne Morgan’s award of $3 million. Since she would have no children and planned to donate the money to philanthropic activities, some thought she should have received much less.

In the most astounding act of paternalism, every J. P. Morgan and Company and Morgan Grenfell employee received a free year’s salary.

The House of Morgan had closely followed European events. Although later accused of World War I profiteering, it nearly engaged in clandestine diplomacy to stop fighting between the Balkan states and Turkey in 1912. The plan was to have the House of Morgan provide loans to both sides on condition that they submit to American mediation, and President Taft was to have acted as mediator. The scheme was apparently hatched by Herman Harjes, senior partner of Morgan, Harjes in Paris, and U.S. ambassador to France Myron Herrick. Jack Morgan finally vetoed the idea, fearing that the loan money would be used to further the war effort, which the House of Morgan wished to stop.1 He also refused to proceed without the full cooperation of the European powers.

at the Battle of the Marne alone, two hundred thousand shells were exploded in a day.

The House of Morgan and Great Britain made loans to Winchester Repeating Arms for new gun capacity and advanced money to many other firms to fulfill their contracts. By war’s end, the United States had an arms-making capacity that eclipsed that of England and France combined. For his efforts, Stettinius would bear the unlovely tag of father of the military industrial complex. Even General Erich von Ludendorff was heard to say that Stettinius was worth an army corps to the Allies.18 He became a czar of American industry. Boris Bakhmeteff, head of a Russian Industrial Mission to the United States, recalled a meeting at which Stettinius assembled the heads of some of America’s largest companies and “gave them hell in words that I was ashamed of.”19

When the Morgan partners learned of a plan by German investors to buy up Bethlehem Steel, they met with company officials and had them put their shares in a voting trust, making the defense contractor impregnable to an unwanted takeover. In an extraordinary act of faith, the British exempted the House of Morgan from mail censorship in and out of Britain, allowing it to retain an in-house code developed by Stettinius and his British contact, Charles F. Whigham of Morgan Grenfell. Hence, in wartime cables, Jack retained his code name Chargeless and Lamont, Chalado. Sticking to tradition, the bank wouldn’t let any outsider have access to its code book.

In 1914, the House of Morgan helped them to organize Kennecott Copper, America’s biggest copper producer, as a public company;

Physick was a British butler of the old school. He usually wore a dark coat and gray striped trousers and was precise in his manners. Tactful but scenting danger, Physick refused to let the insistent stranger pass. He quickly raced to the library, found Jack and Jessie, and shouted “Upstairs!” Following these cryptic instructions, the Morgans went upstairs and searched the bedrooms, trying to figure out the problem. Then, at the top of the staircase, they saw the gunman, brandishing two pistols and leading the two Morgan daughters up the steps. (Later the gunman confessed that his major mistake was walking in front of the Morgan children, not behind them, thus reducing their value as hostages.) Trying to remain calm, the gunman told the Morgans not to be frightened, that he wanted to talk with them. If the later police depositions are accurate, everyone showed phenomenal courage. A woman of steely self-control, Jessie Morgan threw herself at the gunman. Her courage gave the big, burly Jack time enough to wade in and tackle the man; he took two bullets in the groin as he subdued him. While servants pinioned his arms, Jessie and Jack pried loose his two pistols. Then, with timing so exact it resembles Hollywood stagecraft, Physick rushed in and smashed a chunk of coal over the man’s head, rendering him unfit for further mischief. (This splendid touch, alas, isn’t mentioned in the police depositions.) Only after subduing the man did the Morgans see a large stick of dynamite p...

Miraculously, the bullets missed all vital organs, and his wounds healed quickly as he recuperated aboard the Corsair III. “It was a most disagreeable experience, though it is not as painful as I imagined it would be to be shot as I was,” he said.

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.

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.

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.

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.”

He was a manly type who refused to become an invalid. One day at Peacock Point—his sixty-acre Greek-columned estate on Long Island’s North Shore that nearly formed a continuous line of property with Jack Morgan’s and George Baker’s estates—he and Dr. Frederick Tilney were watching a school of porpoises in Oyster Bay. Tilney remarked that he had always wanted a porpoise brain for his research. “Bring me the elephant rifle and tell them to have the motor boat ready for us at once,” Davison ordered a servant.35 Davison went out and shot his porpoise.

What about William Crapo Durant? An unreconstructed plunger, he lost half his net worth in the 1929 crash. In later years, he ran a bowling alley in Flint, Michigan. Poor and almost forgotten, he died in New York in 1947.

On September 1, 1923, an earthquake erupted in the Tokyo-Yokohama vicinity. It was a hot, windy day, and fires fanned over both cities, causing unspeakable damage. It was the century’s worst earthquake, and over a hundred thousand people died. More than half of Tokyo and Yokohama was reduced to ashes. The property damage alone wiped out 2 percent of Japan’s wealth.

Preserved in Lamont’s files, the memo is shocking, nothing less than a blueprint for bribing the entire Mexican government. It starts out with a nasty portrayal of the Mexican national character: “The Mexican, and particularly the traditional professional politician of Mexico, after four hundred years of training, is actuated by two dominant motives; one, the fear of force—physical force; the other is the incentive of personal gain. . . . An appeal to patriotism or to idealism is not understood.”

As Lamont later wrote, “The British and ourselves regarded Germany as the economic hub of the European universe. We feared that unless Germany were rebuilt and prospered all the surrounding countries of the Continent would likewise languish.”29 Bankers of an earlier generation would probably never have fretted in this way about the fate of the Western world or thought in such explicitly political terms.

German inflation worsened. The government was printing so much money that newspaper presses were commandeered. Thirty paper mills worked around the clock to satisfy the need for bank notes. Prices soared so fast that wives would meet their husbands at factory gates, collect their wages, and then rush off to shop before the next round of price increases. In January 1922, about two hundred marks equaled one dollar. By November 1923, it took over four billion marks to buy a dollar. A stamp on a letter to America cost a billion marks. At the end, in a final absurdity, prices doubled hourly.

Like many bright, obsessive people, Morrow was notoriously absent-minded. He once spent a dinner at the Lamonts gesturing with a partially eaten olive until Metcalf, the Lamont butler, offered a plate for the well-chewed pit. Everybody at J. P. Morgan told the story about Morrow’s riding the train. When the conductor asked for his ticket, Dwight couldn’t find it and with his hands restlessly searched every pocket. The ticket, it seems, was clenched between his teeth. “I bet you thought I didn’t know it was there,” Morrow said to the conductor. “Actually, I was just chewing off the date.” Once, while taking a bath, he called out to his valet for soap that lathered better; the problem turned out to be not the soap but that he was still wearing his pajamas.

Perhaps to soften up public opinion for an appointment, Coolidge assigned Morrow in 1925 to chair a board studying the application of airplanes to national defense. Coolidge first mentioned it in a letter to Morrow a few days after his 1925 inauguration, but Morrow learned about it officially from the Sunday papers that September. The Morrow board drew up plans for army and navy use of airplanes. In 1925, Daniel and Harry Guggenheim—old friends of Dwight’s from his Kennecott Copper days—set up a special $3-million fund to advance aviation. Through Morrow, they got Coolidge to accept the money on behalf of the government to speed up airplane development.

Morrow’s files show that the Morgan partners ended up paying for Lindbergh’s historic flight to Paris aboard The Spirit of St. Louis. Under the original scheme, Lindbergh had planned to compete for the $25,000 Orteig Prize, set up to reward the first nonstop flight between New York and Paris. The trip was thus supposed to be self-financing. Lindbergh contributed $2,000, and a number of other Saint Louis sponsors added $1,000 or $500 apiece. Altogether, they raised $8,500 in subscriptions against a loan of $15,000 from a Saint Louis bank. Then, in his rush to be first across the Atlantic, Lindbergh decided that he couldn’t afford certain delays demanded by the Orteig Prize and so forfeited his chance. In June 1927, one St. Louis sponsor, broker Harry F. Knight, told Morrow that the historic flight had actually cost between $16,000 and $17,000. The Morgan partners pitched in $10,500, not only repaying the bank loan, but permitting Lindbergh to retrieve his own $2,000 investment.

As Bernard Baruch later said, “The stereotype of bankers as conservative, careful, prudent individuals was shattered in 1929.”

On June 17, 1930, ignoring the pleas of over a thousand American economists, President Hoover took up six gold pens and signed the Hawley-Smoot Tariff Act. Its heavy tariffs would account for more than half the price of some imports. The day before Hoover signed the bill, the stock market, in nervous anticipation, suffered its worst day since Tragic Tuesday.

THE mid-1930s resounded with charges that to protect Allied loans the House of Morgan had led America into the First World War. Isolationists exploited this canard to try to ensure American neutrality in any future European war. They rallied the country against Wall Street, propounding a simplistic view of history that equated big business with bloodlust for war profits.

Thomas O’Malley, introduced a bill requiring the richest Americans to be drafted first—a foolproof way, he thought, to end wars. “It will be Privates Ford, Rockefeller, and Morgan in the next war,” he said.

In early 1936, the ghost of World War I was revived by a Senate munitions investigation chaired by Senator Gerald P. Nye, a North Dakota Republican and adherent of Father Coughlin. With his pugnacious face and thrusting chin, Nye, like Pecora, formed a picturesque contrast to the stately Morgan partners he subpoenaed. He set out to prove that J. P. Morgan and other banks had dragooned America into war to safeguard loans and perpetuate a booming munitions business. Once again, the timid Jack Morgan was transmogrified into a venal, snarling monster. As Time magazine said, “Before the Committee for settlement was a scandalous question: should J. P. Morgan be hated as a war-monger second only to Kaiser Wilhelm?”19 For Jack, who so earnestly hated the Germans, it was a mortifying comparison.

Some five hundred thousand Ethiopians were sacrificed in a campaign infamous for its savage use of mustard gas. Like the Japanese in Manchuria, Mussolini’s army pretended to act in self-defense and had the effrontery to denounce Ethiopian aggression. Fifty League of Nations states condemned the violation of Ethiopian sovereignty and voted economic sanctions. Relying on voluntary compliance by American business, Secretary of State Cordell Hull asked for a “moral” embargo on sales of war materiel to Italy—shipments of oil, metal, and machinery. These exhortations were often ignored by American industry. Although Britain went along with the League’s economic sanctions, it stopped short of more extreme measures, such as cutting off all supplies of oil. Prime Minister Stanley Baldwin instructed his foreign secretary, Sir Samuel Hoare, “Keep us out of the war, Sam. We are not ready for it.”

in 1940, Tom Lamont made a last-ditch effort to steer Benito Mussolini away from Adolf Hitler. His faith in Mussolini had survived many atrocities. In January 1939, after Mussolini gassed villages in Libya and Ethiopia, Lamont was still reassuring the Morgan agent in Rome, Giovanni Fummi, of his “genuine admiration for the Duce’s extraordinary domestic achievements in behalf of his people.”5 He clung to the fiction prevalent on Wall Street in the 1920s that there were two Mussolinis—the good domestic manager and the bad foreign adventurer—who somehow coinhabited the same stocky body.

In the past, British authorities had taken a relaxed attitude toward insider trading, which wasn’t even a criminal offense until 1980. This laissez-faire attitude was incompatible with the new conglomerates encouraged by Big Bang. There were now fears that traders would abuse information from their mergers departments. In global financial markets, there was also a need for higher universal standards—a particular concern of the Thatcher government in its quest to insure the City’s worldwide standing. Right before Big Bang, Morgan Grenfell distributed a little in-house manual in which it stated that any staff purchases of shares had to be channeled through Morgan Grenfell’s own brokers. The penalty for violating the rule was summary dismissal.