THE LAST PARTNERSHIPS Inside the Great Wall Street Money Dynasties phần 1 pps

ACKNOWLEDGMENTS ix1 The Yankee Banking Houses: Clark Dodge 2 “Our Crowd”: The Seligmans, Lehman Brothers, and Kuhn Loeb 40 3 White Shoes and Racehorses: Brown Brothers Harriman and Augus

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INFORMA-or otherwise.

DOI: 10.1036/0071382615

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For Margaret & Meg

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ACKNOWLEDGMENTS ix

1 The Yankee Banking Houses: Clark Dodge

2 “Our Crowd”: The Seligmans, Lehman

Brothers, and Kuhn Loeb 40

3 White Shoes and Racehorses: Brown Brothers

Harriman and August Belmont 81

4 Crashed and Absorbed: Kidder Peabody and

5 Corner of Broad and Wall: J P Morgan

and Morgan Stanley 157

6 Corner of Wall and Main: Merrill Lynch and

7 Unraveled by Greed: Salomon Brothers

and Drexel Burnham 240

8 The Last Holdouts: Goldman Sachs and

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I would like to thank the following, all of whom helped contributeinformation not found in the usual sources: Victor Grey of the Rothschild Archive in London; Meg Ventrudo of the Museum ofAmerican Financial History in New York; Steve Wheeler, archivist atthe New York Stock Exchange; and the staff of the Georgetown University Library special collections department

Kelli Christiansen of McGraw-Hill was instrumental in helpingkeep the narrative on track and helped oversee the book process frombeginning to end

My wife, Margaret, deserves special thanks for her extraordinarypatience while the book was being written

ACKNOWLEDGMENTS

ix

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1818 John A Brown & Co founded

1832 Vermilye & Co founded

1836 S & M Allen & Co (founded 1808) fails

1836 Enoch Clark founds Clark Dodge & Co

1837 August Belmont & Co founded (dissolved in 1924)

1838 Drexel & Co founded

1848 Lazard Freres founded (continues today)

1858 Lehman Brothers founded

1861 Jay Cooke leaves Clark Dodge & Co to found Jay Cooke

& Co

1864 J & W Seligman founded

1864 George Peabody & Co becomes J S Morgan & Co

1867 Kuhn Loeb founded

1869 Goldman Sachs & Co founded

1871 Drexel & Co merges with J S Morgan & Co to become

Drexel, Morgan & Co

1873 Jay Cooke & Co fails

1873 Jay Cooke’s son-in-law reestablishes firm as Charles D

Barney & Co

1894 J S Morgan & Co becomes J P Morgan & Co

1903 E F Hutton founded

1905 Vermilye & Co becomes William Read & Co

1910 Salomon Brothers founded

1914 Merrill Lynch founded

1920 William Read & Co becomes Dillon Read

1930 Brown Brothers merges with Harriman family interests to

become Brown Brothers Harriman (continues today)

TIMELINE

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1934 Drexel, Morgan & Co reverts to its original name, Drexel

& Co

1934 J P Morgan & Co spins off Morgan Stanley (J P Morgan

continues today)

1937 Charles D Barney acquires Edward B Smith & Co to form

Smith Barney & Co

1966 Drexel & Co acquires Harriman Ripley & Co to become

Drexel Harriman Ripley

1970 Drexel Harriman Ripley becomes Drexel Firestone

1971 Drexel Firestone merges with Burnham & Co to become

Drexel Burnham

1974 Kidder Peabody acquires Clark Dodge & Co

1976 Drexel Burnham merges with William D Witter and

acquires the name of a major investor in Witter to becomeDrexel Burnham Lambert

1981 Salomon Brothers merges with Phibro to become

Phibro-Salomon (becomes Salomon Brothers again

in 1985)

1984 Shearson American Express acquires Lehman Brothers

1987 E F Hutton bought by Shearson

1990 Drexel Burnham Lambert files for bankruptcy

1994 Shearson American Express divests Lehman Brothers,

which continues today as Lehman Brothers

1997 Smith Barney merges with Salomon Brothers to become

Salomon Smith Barney, today a unit of Citigroup

1997 Bankers Trust & Co acquires Alex Brown & Co

1997 Dillon Read acquired by Swiss Bank Corp

1997 Morgan Stanley merges with Dean Witter to become

Morgan Stanley Dean Witter

1997 Alex Brown acquired by Bankers Trust Continues today as

unit of Deutsche Bank

1999 Goldman Sachs sells initial public offering

Timeline

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FOR MORE THAN 150 years, theirnames were synonymous with Wall Street The most successful be-came the subjects of folklore, envy, and political vilification, and noto-rious symbols of wealth and power No longer household names today,

in the nineteenth century many had barroom songs and jingles ten about them Before there were sports stars and pop musiciansdominating the news, they were among the first true celebrities in the country

writ-They were, of course, the famous names behind the great WallStreet partnerships Some became extremely well known, while otherspreferred to remain behind the scenes and tend to business withoutattracting much attention Their heyday was from the War of 1812 tothe end of World War II, when most Wall Street securities firms werestill organized as partnerships A roll call sounds much like the socialregister of New York, where most made their livings Without theirbusiness success, many of the country’s cultural institutions wouldprobably not have developed as significantly as they did The Metro-politan Opera, Metropolitan Museum of Art, and many of the othersignificant cultural and educational institutions benefited from theirpartners’ largesse over the years The names on the buildings of manycollege campuses read like a Who’s Who of banking, especially thosenames famous before World War II

The rise of the famous Wall Street banking dynasties is a testimony

to the rags-to-riches stories of the nineteenth century A young grant came to the United States from Northern Europe and set up hisown humble business, usually peddling sundries door-to-door around

immi-INTRODUCTION

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the South or Midwest Within several years, he graduated to the drygoods business and was quickly opening stores in different statesbefore gravitating to New York In another few years, he and mem-bers of his family were in the banking business, financing bills ofexchange and trading stocks and bonds In twenty to thirty years, hisfirm was one of Wall Street’s elite Within a generation, family mem-bers were in the Social Register, members of New York’s elite clubs,and contributors to the arts They supplied capital to a country hun-gry for it and also supplied millions of dollars to nonprofit institutionsequally hungry for the money necessary to grow.

This celebrity status often obscured the role of Wall Street firms inAmerican society before the Second World War The banking dynas-ties were not only the subject of much folklore, they were often itssource American banking grew up along with the United States in thenineteenth century, and its central figures became American heroes.The name “Jay” was a favorite to give a newborn son because of JayCooke’s success at selling Union war bonds to finance the Civil War Somany people invested in them that Cooke became a household nameand an overnight success as America’s best-known banker Without thegenerosity of the Seligmans, Mary Todd Lincoln would not have beenable to live in a decent style in Germany, which was where she even-tually she fled to after her husband’s assassination They provided herwith a stipend when Congress was slow in granting pensions for presi-dential widows And Clarence Dillon became so well known that one

of his nicknames, the Wolf of Wall Street, became the title of a movie

in the late 1920s A French vineyard continues to bear his name.Stories like this are not simply the plots of a Horatio Alger chil-dren’s novel but are true of many of Wall Street’s best-known invest-ment banks In fact, Alger himself was the tutor to Joseph Seligman’schildren after the Civil War and learned part of that partnership’sgrowth firsthand from the patriarch of J & W Seligman & Co., one ofNew York’s most respected banking houses in the nineteenth century.Alger’s rags-to-riches stories owe much to his experiences as theSeligmans’ tutor, listening to the family stories of how the brotherscame to America and got their start But the Seligman example wasnot an isolated one He could easily have used Alexander Brown,founder of Brown Brothers Harriman, or Marcus Goldman, founder of

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Goldman Sachs, or Henry Lehman, founder of Lehman Brothers, ashis examples The firms profiled in the first several chapters of thisbook all have remarkably similar beginnings How could so manyfirms have had similar origins? The fact that they did illustrates some

of the basics for success in banking in nineteenth-century America.The story became so well known that many other immigrants contin-ued to follow the dream well into the twentieth century

Occasionally, the Wall Street partners even proved inspirational.Thorstein Veblen, the turn-of-the-century economist who coined the

phrase “conspicuous consumption” in his widely read Theory of the

Leisure Class in 1899, used August Belmont Sr and Jr as his models

since both were known to be lavish spenders Not only did the Wall Street partners help create the modern economy, they alsobecame its individual well-oiled engines of growth—consumerswhose demand helped propel the country into the twentieth century.During the bull market of the 1990s, Wall Streeters were known tospend lavishly, and more than one popular magazine was publishedcatering to their own peculiar form of conspicuous consumption Acentury earlier one of their most avid readers undoubtedly wouldhave been Belmont, whose wine bill before the Civil War was morethan $20,000 annually Despite his success, his estate still had to besold upon the death of August Jr to pay off debts

More important, the Wall Street partnerships were an integralpart of the development of the country Brown Brothers financed the first transatlantic steamship service between the United States

and Britain When one of its flagships, the Arctic, sank, it became the greatest shipping disaster until the Titanic sixty years later The

Brown family also suffered heavily, losing several family members in

the Arctic catastrophe The partnerships helped finance every war

the country became involved in Without Jay Cooke, the state of theUnion may have turned out much differently save for his expert sales-manship in the mass marketing of Civil War bonds, a new phenome-non in American finance The Allies relied heavily on Wall Street’sability to raise funds during World War I But the reparationsimposed on Germany after the war, guided by J P Morgan & Co.,were so severe that German economic and political instabilityresulted The lessons were well remembered During the Second

Introduction

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World War, Franklin D Roosevelt and his treasury secretary kept theStreet at arm’s length when raising funds to fight the Axis

The partnerships often were shrouded in intrigue August Belmont,the immigrant banker who became the Rothschilds’ agent in New York,was involved in several incidents over the years that cast a long shadowover his business practices, especially when taking deposits from for-eign investors, several of whom never saw their money again Many ofthe best-known, and foreign-born, New York bankers gathered secretlybefore the Federal Reserve was created by Congress to discuss theadvantages and disadvantages of creating a new central bank The ori-gins of the Fed from those meetings at Jekyll Island, Georgia, havenever been forgotten and are often raised by conspiracy theorists whobelieve that the Fed should be reformed, abolished, or purged of its

“clandestine” elements Wall Street notables have continued to play amajor role in popular discussions of economic policy long after theiractual importance has faded

A history of the partnerships also helps clear the smoke from some

of their reputations, which have become the subject of some intenselypopulist, and wrongheaded, accounts of their influence and place inhistory Almost half of the partnerships discussed here were Jewish byorigin J & W Seligman, Goldman Sachs, Lehman Brothers, AugustBelmont, Kuhn Loeb, Lazard Freres, Salomon Brothers, and evenDillon Read all had Jewish origins and exercised the influence of theirsuccess the way the Yankee bankers of the same period did Unfortu-nately, they have been the subjects of conspiracy theories over theyears, ranging from that clandestine control of the Federal Reserve tobeing the invisible power behind many a political throne A clear view

of their history shows how many of the theories got started in the firstplace, especially in the case of Belmont, but their outright fantasyswamps the facts In the nineteenth century, all bankers exercisedauthority that would be incongruous in the contemporary world, but the Jewish bankers did not exercise any unusual power In fact,they exercised less than their well-connected Yankee banker counter-parts such as Brown Brothers, J P Morgan, Kidder Peabody, andClark Dodge

The conspiracy theories do not stop with the Jewish banking houses,but extend to the best known of all the Yankee bankers, J P Morgan

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