All The Presidents' Bankers: The Mid-1910s: Bankers Go To War

Tyler Durden's picture

The following is an excerpt from ALL THE PRESIDENTS’ BANKERS: The Hidden Alliances that Drive American Power by Nomi Prins (on sale April 8, 2014).  Reprinted with permission from Nation Books. Nomi Prins is a former managing director at Goldman Sachs.

This excerpt from Nomi Prins’s recent book, ALL THE PRESIDENTS’ BANKERS, which discusses Woodrow Wilson and Jack Morgan’s collaboration to finance the Allies in the early days of the war.  Aside from its timeliness, it provides one of the strongest examples of the intimate cooperation between the presidency and the highest levels of banking to drive American interests


The Mid-1910s: Bankers Go to War

“The war should be a tremendous opportunity for America.”

—Jack Morgan, personal letter to President Woodrow Wilson, September 4, 1914

On June 28, 1914, a Slavic nationalist in Sarajevo murdered Archduke Franz Ferdinand, heir to the Austrian throne. The battle lines were drawn. Austria positioned itself against Serbia. Russia announced support of Serbia against Austria, Germany backed Austria, and France backed Russia. Military mobilization orders traversed Europe. The national and private finances that had helped build up shipping and weapons arsenals in the last years of the nineteenth century and the early years of the twentieth would spill into deadly battle.

Wilson knew exactly whose help he needed. He invited Jack Morgan to a luncheon at the White House. The media erupted with rumors about the encounter. Was this a sign of tighter ties to the money trust titans? Was Wilson closer to the bankers than he had appeared? With whispers of such queries hanging in the hot summer air, at 12:30 in the afternoon of July 2, 1914, Morgan emerged from the meeting to face a flock of buzzing reporters. Genetically predisposed to shun attention, he merely explained that the meeting was “cordial” and suggested that further questions be directed to the president.

At the follow-up press conference, Wilson was equally coy. “I have known Mr. Morgan for a good many years; and his visit was lengthened out chiefly by my provocation, I imagine. Just a general talk about things that were transpiring.” Though Wilson explained this did not signify the start of a series of talks with “men high in the world of finance,” rumors of a closer alliance between the president and Wall Street financiers persisted.

Wilson’s needs and Morgan’s intentions would soon become clear. For on July 28, Austria formally declared war against Serbia. The Central Powers (Germany, the Austro-Hungarian Empire, the Ottoman Empire, and Bulgaria) were at war with the Triple Entente (France, Britain, and Russia). While Wilson tried to juggle conveying America’s position of neutrality with the tragic death of his wife, domestic and foreign exchange markets were gripped by fear and paralysis. Another panic seemed a distinct possibility so soon after the Federal Reserve was established to prevent such outcomes in the midst of Wilson’s first term. The president had to assuage the markets and prepare the country’s finances for any outcome of the European battles.

Not wanting to leave war financing to chance, Wilson and Morgan kicked their power alliance into gear. At the request of high-ranking State Department officials, Morgan immediately immersed himself in war financing issues. On August 10, 1914, Secretary of State William Jennings Bryan wrote Wilson that Morgan had asked whether there would be any objection if his bank made loans to the French government and the Rothschilds’ Bank (also intended for the French government). Bryan was concerned that approving such an extension of capital might detract from the neutrality position that Wilson had adopted and, worse, invite other requests for loans from nations less allied with the United States than France, such as Germany or Austria. The Morgan Bank was only interested in assisting the Allies.

Bryan was due to speak with Morgan senior partner Henry Davison later that day. Though Morgan had made it clear that any money his firm lent would be spent in the United States, Bryan worried that “if foreign loans absorb our loanable money it might affect our getting government loans if we need.” Thus, private banks’ lending decisions could affect not just the course of international governments’ participation in the war but also that of the US government’s financial health during the war. Not much had changed since the turn of the century, when government functions depended on the availability of private bank loans.

Wilson wasn’t going to deny Morgan’s request. He approved the $100 million loan to finance the French Republic’s war needs. The decision reflected the past, but it also had implications for the future of political-financial alliances and their applications to wars. During the Franco-German war of 1870, Jack’s grandfather, J. S. Morgan, had raised $50 million of French bonds through his London office after the French government failed to sell its securities to London bankers to raise funds. Not only was the transaction profitable; it also endeared Morgan and his firm to the French government.

Private banking notwithstanding, on August 19, 1914, President Wilson urged Americans to remain neutral regarding the combat. But Morgan and his partners never embraced the policy of impartiality. As Morgan partner Thomas Lamont wrote later, “From the very start, we did everything we could to contribute to the cause of the Allies.”

Aside from Jack Morgan’s personal views against Germany and the legacy of his grandfather’s decisions, the Morgan Bank enjoyed close relations with the British and French governments by virtue of its sister firms—Morgan, Grenfell & Company, the prestigious merchant bank in London; and Morgan, Harjes & Company in Paris. The bank, like a country, followed the war along the lines of its past financial alliances, even to the point of antagonizing firms that desired to participate in French loans during periods of bitter fighting.

Two weeks after Wilson’s August 19 speech, armed with more leverage because of the war, Jack Morgan took it upon himself to approach Wilson about his domestic concerns. “This war . . . has thrown a tremendous and sudden strain on American money markets,” Morgan wrote. “It has increased the already pronounced tendency of European holders of American securities to sell them for whatever prices they could obtain for them, and the American investor has got to relieve the European investors of these securities by degrees and as he can.” Market tensions were exacerbated by the fact that European investors were selling securities to raise money. That was a problem whose only solution required the provision of more loans. But there was something else, with more lasting domestic repercussions echoing the trustbusting of the Morgan interest in US Steel.

Morgan argued that rather than encouraging investors to feel safe, the government’s Interstate Commerce Commission, formed to regulate national industry in 1887, was doing the opposite by restricting eastern railroad freight rates and investigating railroad companies. In Morgan’s mind, war was definitely not a time for enhanced regulations against business. And if railroad securities fell in value relative to the loans secured by them, banks would not be able to lend enough to make up the difference. The whole credit system could freeze.

As Morgan further warned, “Great depreciation in the value of these securities” would “throw back to the bank loans secured by them” and lead to a “great tieing up of bank funds, which will interfere with the starting of the new Federal Reserve System, and produce panic conditions.” He concluded that the war “should be a tremendous opportunity for America,” but not “as long as the business of the country is under the impression of fear in which it now labors.” Levying such serious threats, Morgan became the first banker to reveal that credit, the Federal Reserve, the big banks, the US economy, and the war were inextricably linked. Wilson knew this too.

Morgan was especially concerned about the Clayton Antitrust Act, which Congress was considering to strengthen the restrictions against monopolies and anticompetitive practices laid out in the 1890 Sherman Antitrust Act. Having passed the Senate, the bill was headed to a conference committee. Should it pass in its current form, libertarian Morgan believed, it would demonstrate that “the United States Government does not propose to allow enterprises to conduct normal business without interference.”

Wilson took Morgan’s concerns seriously. He knew the last thing the United States needed was a credit meltdown. To avoid such a crisis and placate the bankers, he was already rewriting the Clayton Antitrust Act, but he didn’t admit it to Morgan. Wilson calculated that there had to remain some areas of negotiation to better one’s hand. Though the two argued over interpretation of the bill, a white flag flew between Wall Street and Washington for the time being. Such periods of strife called for allied, not adversarial, relationships between the president and the bankers, and friendly relations would also promote the global power positioning of both parties.

In general, the war meant that the goodwill extended to bankers and business from the president continued, lending protocols included. An October 15, 1914, news report proclaimed, “American Bankers May Make Loans to War Nations.” It was a government decision pushed by the banking contingent that would reverberate throughout the war and afterward, drawing clearer lines of competition among the various Wall Street powerhouses. Though the pro-Allies Morgan Bank sought cooperation with the British, for instance, National City Bank set up international branches around Europe and Russia to compete for future financial power, causing a rift between two of the three biggest New York banks that financed the war. Partly, that rift had to do with the change of leadership at these firms.

Jack Morgan’s friend James Stillman, head of National City Bank, had ideas about the war that closely reflected Morgan’s own: though the war presented numerous expansion opportunities, old ties to the British and French banks had to be respected in the process, their countries supported unequivocally. Stillman’s number-two man—midwestern-born Frank Vanderlip, who harbored a grudge against the eastern banking establishment and Wilson for cold-shouldering him during his presidential campaign—didn’t share the same loyalties. He was less concerned than his upper-crust boss and the Morgan partners about the war’s outcome and openly opposed American intervention until 1916, by which point German-American relations were more obviously battered. Nor did he support British demands that National City Bank terminate dealings with German banks, to which Stillman had responded that in victory the British would remember the banks that helped them.

Thus, at the end of 1914, it was National City Bank that opened a $5 million credit line for Russia in return for the designation of Russian purchasing agent for war supplies in the United States. The Morgan Bank remained true to its pro-Allies position and chose not to be involved in such dealings, while Vanderlip was more detached and sought to strengthen National City’s position for whatever the postwar world would bring.

Stillman was less interested in war-related financing than Vanderlip, who believed it would augment the bank’s position as well as America’s global status. To him, it was important to forge ahead in Latin America and other underdeveloped countries while the European financial powers were busy with their war. That Stillman took some of this advice to heart enabled National City Bank to cover much ground postwar, not just relative to the European banks but also to the Morgan Bank. As Vanderlip wrote Stillman in December 1915, “We are really becoming a world bank in a very broad sense, and I am perfectly confident that the way is open to us to become the most powerful, the most far-reaching world financial institution that there has ever been.” Vanderlip’s views ruffled Stillman’s feathers because of Stillman’s past collaboration agreements with the Morgan Bank. But they also ruffled the feathers of Morgan and Lamont in a way that would have huge repercussion for postwar peace.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
ebworthen's picture

" provides one of the strongest examples of the intimate cooperation between the presidency and the highest levels of banking to drive American interests."

You mean to drive bankster interests, no Americans below the 1% involved in that relationship.

svayambhu108's picture

I think a few fanatics are the last ones in the world to be so stupid to harm themselves ala Ukraine, Syria. The major players will not play the bankers game. Shit happens. Arrivederci.

Soul Glow's picture

Please don't post drunk anymore.  Leave that to those who can fight with a hand tied behind their back.

Banks move investment and war moves investments the quickest.

Hashtag WWIII

hobopants's picture

Gives a whole new meaning to "The Last Supper".

Againstthelie's picture

USA is not a country. It's a business. And it has been spreading it's cancer all over the world.

fallout11's picture

Banksters and robber barons (i.e. the 0.1%) already ruled America in 1914.

papaclop's picture

They should have given Morgan a rifle and gas mask and stuck him in a trench. The world is sick and tired of the chicken hawk banksters promoting war, death, and suffering just to fatten their smelly wallets. Banksters truly are the scum of the earth. Hear that you pussies Dimon and Blankmind?

JuliaS's picture

10 years after its release, Robert Newman's History Of Oil is still #1 on my list of recommendations. Covers war, banking and geopolitics in just 45 minutes.

NOTaREALmerican's picture

Anybody read this yet: 

The Alchemists: Three Central Bankers and a World on Fire


TheSecondLaw's picture

It's a great book. Highly recommended.

optimator's picture

I agree, but it just doesn't dig deep enough.

NOTaREALmerican's picture

Good post.    Golly,  you mean we had the top 1% running the USA back then?   How far back do we have to go in US History to get to that magic time when we had Capitalism and Free Markets?

tonyw's picture

probably before independence.

Stoploss's picture

After 100 years, one would think the central bankers, with all their money, power, and wisdom, would have figured out long ago, that the only way they're able to acheive their so sought after "panacea", requires one thing, and one thing only to succeed.

They must posses the ability to:




Stop time.

Good luck.

world_debt_slave's picture

yep, this is old hat to the banksters.

deflator's picture

Morgan was especially concerned about the Clayton Antitrust Act, which Congress was considering to strengthen the restrictions against monopolies and anticompetitive practices laid out in the 1890 Sherman Antitrust Act. Having passed the Senate, the bill was headed to a conference committee. Should it pass in its current form, libertarian Morgan believed, it would demonstrate that “the United States Government does not propose to allow enterprises to conduct normal business without interference.”


 Libertarian? monopolies and anticompetitive practices is "normal business"?

NOTaREALmerican's picture

Golly, if ONLY those libertarians had disliked the centralized power of corporations as much as the centralized power of the state.    I'm sure when we "go back" to "capitalism" tho, the new libertarians will dislike both equally. 

Flakmeister's picture

Yep, funny how the libertarians have hard time figuring out what to do with those pesky corporations....

RaceToTheBottom's picture

Interesting that there was non WS banksters back then.  Now most of those have given up their roots and have run to the WS/Washington tit.

Silicon Valley used to be different, but the last few years have shown that they have learned the government tit as good as the WS vermin have...

NYPoke's picture

1914, the year after the Federal Reserve Act.  One has to wonder if Lee Harvey Oswell had company, just decades earlier.  Probably not, as war was kind of destined.  Still...

22winmag's picture

At least Wilson realized his mistakes and repented before his death.


An oldie but a goodie regarding the Great War...


"The war began for corporate America long before it started for the common man. Within two months of the conflict's August 1914 beginning, Charles Schwab, president of Bethlehem Steel, one of the world's largest arms merchants, took a profitable trip to London. There, he secured orders from the British government for millions of artillery shells, as well as ten 500-ton submarines. Though the construction of such foreign vessels broke the law, Bethlehem proceeded with it and the Wilson administration did not stop them. ** The company earned $61 million in 1916, more than its combined gross revenues for the previous eight years. **

Paracelsus's picture

The Americans were pissed off about the confiscation of cargos by the Brits under their embargo of the continent.The Brits promised to adhere to the Freedom of Navigation but continued to impound cargo based on vague end user-type restrictions.They basically admitted they were breaking the law,but said they would continue anyway.The sinking of the Lusitania was a very sensitive issue between the US and the UK for many years..

1) Credible reports of "masked" batteries of guns,hydraulically raised to firing positions.This would detract from the unarmed status,and would put her firmly in the "armed merchant cruiser" category,making her a legitimate target for the German Navy.

2) Huge amounts of artillerary shells,fuses,small arms ammo,tons of guncotton (nitrocellulose) stowed in the forward hold area.There was a supplementary cargo manifest handed over by the port authorites as it departed the harbor.

The torpedo would have left the ship sinking,but with time to lower the boats.

When the cargo detonated the bottom was blown out of the forward hold area,causing the rapid sinking and large loss of life.

It is yet to be determined if this were a deliberate (political) act,but it does raise eyebrows among maritime lawyers to this day.

pachanguero's picture

In Thailand where I live the oil workers come from all over Asia to party.  Man those dudes throw money away at the strip clubs.....worse than Marc Faber!  (just joking)

Brutlstrudl's picture

The Archduke was Just

 a trigger. The battle lines had been developing since Charlemagne broke the law of primigeniture by dividing Gaul into 3 parts and giving it to his sons.