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

by Ron Chernow

The financial massacre was complete: of twenty-five thousand banks in 1929, some seven thousand had now failed. Amid this atmosphere of financial ruin, a grim Roosevelt delivered a stinging indictment of the bankers: “The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths.”31

If Jack entered the hearings with serene confidence, he was soon engulfed in an issue that would shadow him throughout the New Deal—income taxes. Pecora revealed that Jack had paid no income tax for 1930, 1931, and 1932, and all twenty Morgan partners paid nothing for 1931 and 1932. (Jack had paid taxes in England for these years.)

ROOSEVELT was as perplexed and annoyed with the Wall Street bankers as they were with him. He saw himself as saving the patient with radical surgery, not killing him.

IN May of 1940, Neville Chamberlain resigned in favor of Winston Churchill, a man with whom the House of Morgan had always had a peevish, family quarrel.

Through his America First speeches, Lindbergh destroyed the last remnants of the hero worship he once aroused. Stumping the country, he would claim that “the three most important groups which have been pressing this country toward war are the British, the Jewish and the Roosevelt administration.”19 He talked of insidious Jewish influence in the American government and media.

Hall had emerged from an F. Scott Fitzgerald world where Princeton eating clubs and Yale secret societies were the passports to Wall Street success. A 1917 Princeton graduate, he had sat next to Fitzgerald in many classes, due to the alphabetical proximity of their names. (Hall was unimpressed by Fitzgerald’s prose and insisted that several forgotten classmates were superior stylists.)

glory. England had lost a quarter of its national wealth in defeating Germany and couldn’t function as a world banker.

“The world is divided into people who do things and people who get the credit. Try if you can to belong to the first class, there is far less competition.”

There were also new fears about insider trading of a sort that took the banks by surprise. In the twenties, fortunes had been made through whispered tips and sly winks. The public tolerated this because only a tiny percentage of them owned stock. As personal investing grew in the 1950s and early 1960s, the public didn’t wish to take part in a rigged game. It took time for the banks to perceive the danger, or at least the new public apprehension.

Gradually Wall Street divided into two camps—the offensive (Morgan Stanley, First Boston, Drexel Burnham, Merrill Lynch, and Lazard Frères) and the defensive (Goldman, Sachs; Kidder, Peabody; Salomon Brothers; Dillon, Read; and Smith, Barney).

This was Morgan Stanley gospel in the 1970s—that the firm was a passive instrument of its clients, even a somewhat unwilling party. Greenhill insisted, “Wall Street had not created the merger trend. . . . We get the transactions done.”38 If this deterministic view spared the firm responsibility, it also betrayed some unspoken uneasiness.

In the 1950s, the Eurocentric Morgans largely limited foreign lending to England and France. But with its core lending business eroded in the Casino Age, it suddenly emerged in the 1970s and 1980s as an “MBA bank”—so-called after the first initials of the three largest Latin American debtors: it made $1.2 billion in loans to Mexico, $1.8 billion to Brazil, and $750 million to Argentina. For Wall Street’s most conservative bank to have its largest foreign stake in Brazil showed its reliance on progressively riskier loans for profitability.

When Mexico startled the world in August 1982 by announcing that it could no longer service its $87-billion foreign debt, it blackened the image of all Latin American debtors. They were being drowned in a common economic deluge of rising interest rates, global recession, and steeply falling commodity prices.

A company in need of capital can turn to investment banks, commercial banks, or insurance companies; it can raise it through bank loans, bond issues, private placements, or commercial paper; it can draw upon many currencies, many countries, many markets. Money has lost its mystique, and banking, therefore, has lost a bit of its magic.

A Pierpont Morgan exercised powers that today are dispersed among vast global banking conglomerates. The activities once performed by a knot of side-whiskered men in mahogany parlors are now spread across trading rooms around the world. We live in a larger, faster, more anonymous age. There will be more deals done and more fortunes made, but there will never be another barony like the House of Morgan.