Daniel Schulman - The Money Kings

28:41and this railroad very soon goes bankrupt. And it causes a substantial controversy that affected Schiff's reputation. I mean, you could certainly see, and this was one great resource for me, the R.G. Dunning Company credit reports from that era where credit reporters would just jot down notes about all of these businesses. And that's how I was able to - Which, by the way, was the predecessor, I assume, to Dunning-Bradstreet. Is that fair? Yeah. Yeah, because I was wondering where you got these. I mean, I was sitting there thinking, wow, this is like a treasure trove of information. And that's how credit was passed then.

29:19It was. And I mean, it's amazing to see the sort of things that are jotted down there. I'll come back to Schiff in a second, but in terms of the Lehmans, just in Alabama, you can see the way that people viewed Jews at that time and how their reputation changed. You know, there went from being notations about how they were members of the tribe and you could not trust them to, you know, to transact business with to later on, you know, a decade down the road being, you know, like, you know, they're trustworthy, almost as good as white men, which was – so it's just absolutely fascinating. In Schiff's case, from the credit report volumes, you can see that the business definitely tarnished his reputation to some degree and certainly the company.

30:13And what happens after this controversy is that he and other members of the firm end up going back to Germany. It's not totally clear that the dissolution of the business was the cause of that, but it seems quite possible. And my theory is that this is one of the reasons why Schiff became quite private later on in his life and very guarded about his exposure to the press, which is not to say he didn't give interviews. He did. But he, like any person of that type of stature, was very careful about managing his reputation. so the goldmans were originally a commercial paper operation and you you talk about that in your book i've also read before um dan i've read uh the partnership the making of goldman sachs which is another great book that kind of touches on that um you might have used that for some background but so what did a commercial paper transaction look like back then to the goldmans I mean, it was so primitive.

31:21He was basically making short-term loans to merchants in New York City at that time. And he had just come from Philadelphia where he had been in the clothing business. And all the people I write about sort of make this big transition from being merchants to bankers in this very defined post-Civil War era where there was just a lot of opportunities to be had. But he would go down to the financial district and make loans to the local merchants at a discount. And then he would sell them later on in tranches to a variety of banks. where he would replenish his capital for the next day's transactions.

32:09So Jay Cook failed, I think, in the panic of 1873, if I remember correctly. And they were really one of the white-shoed firms in the securities business at the time. That was a highbrow name to be using for underwriting. And they were big in railroads. They were big with the government. I know no panic is good, but didn't this open the door wide open for really these Jewish firms in general to go out and do new underwriting? Well, I mean, I think it did to some extent. I mean, it's sort of like, it definitely opened new opportunities in the railroad business. But it also, it very easily could have wiped some of these firms out at the same time because it just so happened that Bud Schiff and Company, the predecessor of Kuhn Loeb that Schiff was working for, was doing business with Jay Cook and Company at that time.

33:02Yeah, they were selling securities for them. They were selling securities in what I think, I believe, the Northern Pacific Railroad at that point, which Jay Cook had become highly involved in. So it was – but certainly Jay Cook was a huge name at that point and a lot of doors, I'm assuming, would have opened at that point. It was sort of many years later that Goldman Sachs and Lehman Brothers would get involved in bonds and securities. But certainly for Kuhn Loeb, which Schiff would join in the 1870s, and the Seligmans, who were getting more and more involved in bond selling, it was – there were new opportunities for them there.

33:52Well, because I think another thing that we'll – and we'll touch on this later as we think about the trust busting era. But really the board roles, like getting onto those boards with these firms, that was really kind of the keys to the kingdom, wasn't it? It gave you quite a bit of control over a variety of things. And in many cases, it's not unusual if you're a major investor to want a seat at the table. But in some cases, Jay Gould is a good example. He often had a disproportionate role with certain railroads that he was part of. And he and his partners did sometimes shady stuff in terms of watering the stock, just basically getting a printing press and just printing new shares of stock.

34:45I mean, printing money, basically. But yes, it did give them quite a bit of control And you alluded to the trust busting error But this would later become quite controversial When it became clear that A fairly small group of investment bankers Held board seats We'll come back to that Because I have the number I wrote the number down I thought it was incredible I think you might have finally given me the number to say this is the trust era. But we'll come back to that. So a couple other things. Let's see. The next two questions will also be kind of foreshadowing of the future. Jacob Schiff marries into the Kuhn-Lobb partnership through his wife, Therese.

35:31Okay. But wasn't this wedding really like the ultimate foreshadowing of the relationships that these banking families would have to follow? Absolutely. I mean, what's so interesting about the, you know, Jewish banking sector at that time is that so many of the relationships were through family. And within this group of dynasties that I read about, there was a lot of, there was intermarriage, but there were also, you know, friendships that formed between, you know, Philip Lehman and Henry Goldman, for instance. So there was just a lot of their lives were intertwined, not just in business, but their personal lives as well.

36:18And, you know, this was both sort of a good thing and a bad thing. Because then the best man and the maid of honor, they were out of the, if I remember correctly, was it out of the Goldman part of the family? Samuel Sachs is one of his daughters. I'm sorry. It was either his daughter or hers. No, it was his wife. His wife was the maid of honor at that wedding, which sort of shows you how closely interwoven these families had become. And part of this was because, you know, there weren't that many Jews living in the United States at that time. All of these people came from a similar culture. there you know there was there certainly was interaction between Christian and Jewish society but it was it could be a little bit insular and I mean these people were part of the same temple they you know sat on the same boards and from really the very first moments that they were in New York they were they were doing they were doing business together as well well yeah because I think if you watch the HBO TV show, The Gilded Age.

37:32And I think you did a good job of kind of building this up in my mind in a way that I didn't have present before. But you kind of have the, I'll call it the Morgan slash Astor Christian part of the business community, right? And then you had, you know, the Kuhn Loeb, the Seligman, the Goldman part of the business community. And where they interacted was in business. It was on the companies like Gould with these firms, obviously, where that was a huge interaction. And a lot of your book talks about how JP Morgan interacted with these firms. And it was like, they did business with each other. They respected each other, but they were still divided in many cases.

38:07Absolutely. You know, Morgan and Schiff were really the, you know, most important bankers of that era. And as such, they would often do, they would often do business together. I mean, technically they were competitors, They were rivals. But at that time, you know, previously, in terms of the railroads, there had been a lot of competition in the industry. And it had gotten to the point where, you know, people were building tracks within like 100 yards, you know, within yards of each other. And they were, you know, there was violence that was erupting between rival railroad companies. And I think Morgan and Schiff saw themselves as being a little bit more civilized.

38:53And because of that, they worked to build what they called the Interdiction of Interest, which were basically monopolistic arrangements where competitors would sort of buy into each other's businesses so they would have an incentive to cooperate. But when it came to sort of major transactions, I think as a matter of courtesy, Kuhn Loeb would often offer Morgan participation in these deals and vice versa. So in another foreshadowing of events to come later in your story, can you explain how the Seligman family and the Kuhn Loeb organization assisted Sherman to get America back to the gold standard and really solve the Civil War debts?

39:39I thought this was interesting. I'd never heard this story before. Well, it's interesting because in the post-Civil – I didn't mention this earlier, but the Seligman family ended up becoming good friends with Grant. And this came through Jesse's shop that he owned in New York State, which just so happened that Grant was posted there and would often play checkers with the Seligman's brothers in his off time. So they befriended him. And, you know, the story goes that Grant even ends up offering Seligman the Treasury secretary position, but he turned it down because his brothers didn't want him to – he was such a factor in the business and his brothers didn't want him to get involved in politics.

40:31So, yeah, Schiff, but also Seligman, mainly Seligman, were sort of among the bankers that ended up advising the administration on how to deal with the Civil War debt. And they played a major role in that. Yeah, I think you said they raised something like$140 million from primarily European investors. And that was more than obviously the debts were. But they took a portion of the excess and bought gold, which obviously gave a lot more confidence to anybody that wanted to turn their paper in for gold, which I thought was. And we'll come back to that because when we talk about Paul Warburg later, we're going to take that.

41:14That was just a foreshadowing event in my mind. So let's talk a couple of questions on the principled nature of Schiff. because he was private, but yet he was a very principled person. Grant had a lot of friends that were Jewish, like you mentioned with the Seligman family. And Grant had to deal with some issues that were very sticky with Russia. What was Jacob Schiff's issue with Grant's decision-making with Russia? I mean, I think what ends up happening is that the conditions in the Pale of Settlement, which was this area that I described earlier, on the fringe of the empire where much of the Jewish population of the world at that time lived in that area.

41:55And conditions were getting quite desperate for the Jews there. Again, in this area, like Germany, they were barred from holding many jobs. They were forced into living in these shtetls, which were little villages where they were just basically subsisting. And increasingly, in places like the Pale of Settlement and in what is today Romania, they were facing growing anti-Semitism and instances of mob violence where their towns would be ransacked, people would be injured and murdered, what we call – what you've heard of as the series of pogroms. and Schiff and other leaders in the Jewish community were really pushing for Grant and eventually other presidents to sharply rebuke the Russian czar to end the persecution of the Jews and allow them to live freely.

42:59And part of this was over just passports too. In other words, if they went with an American passport, they were not considered a person like other Americans. Exactly. Exactly. And this ends up becoming a major issue for Jews and particularly for Schiff. But it was, as you said, it was sort of a matter of principle. Because Jews were treated as a second class citizens in the Russian Empire, if you traveled there as a U.S. citizen of Jewish descent, you did not have the same privileges as other American citizens. At that time, we had a treaty with Russia allowing reciprocal rights of travel and commerce.

43:40But this was not extended to Jews. Now, there were very few Jews that really wanted to go to Russia at that time, travel there. But to shift, this wasn't the issue. He just felt as if we allow this to take place, then we're showing the Russian Empire that it's okay that they treat Jews unequally. But if we force them to the standard that the treaty set, they would not be able to uphold this two-tiered system anymore. So what ends up being called the passport issue was really something that was pushed pretty heavily, especially in the early hundreds by Schiff and others. when obviously this didn't that you know the idea of the pale settlement and the issue with russia that continued on for decades to follow all the way up you know through the bolshevik revolution and then obviously you know once once the i'll call it kaiser wilhelm's kingdom ends obviously poland becomes its own country and the pale settlement is still you know tied up in the negotiations of the post-world war one era so it's it's interesting that like these i'll call them demons, these demons don't go away.

44:54They're not going to go away on their own. And I think Schiff was really thoughtful about, you know, what's the long run consequences of what we're debating here. But also while he's that principled, he also was very graceful. And the story you told of him on the Mount Sinai board, I think also teaches people that he was human. He was a pragmatist as a principled person. Yeah. I mean, I think Schiff, if I'm remembering this story correctly. I think, you know, he was serving on the board of the Mount Sinai Hospital in New York, and I think Meyer Lehman, one of the Lehman brothers, was also involved with the Mount Sinai at that time.

45:32And, you know, Schiff had a reputation for being generous, for being principled. He could also be extremely rigid and see the world in very black and white terms. And when he learned that one of his fellow board members had gone bankrupt due to some unwise financial speculation, he basically said, you know, I don't want to serve on the board with someone like this. How can they manage the finances of this nonprofit organization if they can't manage their own finances? And it turned out that this guy would later go commit suicide. Was it Hanauer? I think Hanauer was his name. Yeah, his name was Moses Hanauer.

46:16He committed suicide, leaving behind a wife and children. And after Hanauer's suicide, Schiff seeks out Hanauer's son and ends up giving him a job at Kuhn Loeb. And Hanauer ended up becoming the first partner that was not related to the family in that firm. And I would love to know, but I was never able to discover whether Hanauer was aware of this whole backstory with Schiff. Schiff's granddaughter only learned this decades later when she was approached to become a member of the Mount Sinai board. and she inquired of someone who had worked there for many years, like, you know, why hasn't anybody in my family been serving on the board all this time?

47:10And she learned the story of what had transpired with Schiff and Moses Hanauer. Well, since we're on a Schiff role, I think, you know, to go back to another Schiff thinking and the way he lived his life, Schiff looked at leadership among the Jewish people very interestingly. I'm going to quote your book. You quote him saying, quote, Jews do not elect their leaders. One becomes a leader among them, end quote. Based on your writing, he looked at his role in a manifest way as though God had put him there at that moment. Is that fair? Oh, yeah. I mean, I think he, yes, I think he did. I mean, there's also, he could be humble, but he also could see himself in sort of grandiose terms as if he was almost a Moses figure.

47:58leading the Jews out of, parting the waters to lead the Jews out of Egypt. But it was interesting at that time, you know, again, the Jewish population was small. Its leadership was really dominated by these tycoons, mainly German Jews, who composed a lot of the leadership of these various Jewish organizations. But due to his role in finance as really – he was really becoming one of the nations and the world's most famous investment bankers. Due to his role in finance and due to his philanthropy, his interest in it, his leadership, as well as his donations, he ends up really assuming this role of leadership within the Jewish community that, very true, it was not elected.

48:59And this would later become controversial as the Jewish community expands, it fragments, there are many competing factions and people start to wonder, why do you get to make the rules? Yeah. You mentioned the crime of 73 as a term. And when you mentioned that, it kind of just snapped into my head that like the all these like just crazy conspiracy theories of like a cabal and everything like that. It seems in my mind to emanate from the crime of 73 and really what became the future popularity of the Silver Cross and Williams Jennings Bryant. Can you explain what happened in the crime of 73 according to people at the time?

49:44That's interesting. I mean so what had happened is that initially the United States was on the bi-metallic system. It was not on the gold standard. It was both gold and silver were redeemable for cash. The crime of 73 was when the government sort of low-key places the United States back on the gold standard, but silver is no longer redeemable. Now, at the time, there were huge silver deposits being discovered out west, allowing you to basically mint money yourself. And so mining interests, but also Midwestern farmers and populists were really opposed to this idea. And they blamed the eastern bankers, the quote unquote sound money crowd for this development.

50:37So like using as an example, like the Comstock load had just been found by folks like George Hurst, which we did a book with on George Hurst by Matthew Bernstein. and those big deposits are being found while this took place. And I think of, I mean, I know this sounds overly simplistic, Daniel, but I mean, this is how my head works. I like to boil things down to simple pictures. You could just see like these redneck farmers or people out in the sticks going, see, it's these Jewish firms that prefer gold that have talked the government into this, which is not true. But that's the kind of conspiracy theories that I would almost point and say, here's where American conspiracy theorists started when economics changed because of these government decisions.

51:21I mean, there were certainly a lot of conspiracy theories. What's very interesting, though, is that in terms of anti-Semitism in the United States, it certainly was not as prevalent as it was in Germany. And it's sort of, you know, I mean, the one thing Schiff and others viewed the United States as a promised land because Jews were able to live, work, and worship freely. There was no bar on what they could do with their lives. And I mean, I think in terms of the gold-silver issue, again, it comes back to this, our economy was, the United States was an emerging market at that point where Europe was operating like many European nations were operating on the gold standard, the fact that we would have a bimetallic standard caused issues because European nations could dump their silver in the United States for gold.

52:30And gold would flee across the ocean. And that would end up causing financial problems. So that's why the Eastern bankers were, and of course it was, you know, Not just the Jewish firms, but the Eastern Bankers are pretty united in their belief that the U.S. should be on the gold standard. So one really telling story you had of Jesse Seligman was when Jay Gould died. And I found this really interesting because we did, like I said earlier, American Rascal with Greg Steinmetz. And I found a whole new appreciation for Gould. you know most people paint him as a huckster and i i learned a lot more about him as a railroad owner and an investor and when you quoted jesse in your book he said quote i can't say that mr gold was in his moral nature more better much worse or much different than any other shrewd player of his generation i've known them all i've known jay gould better than most and i can tell you he deserves no more notoriety than those against which and with which he played end quote just such pragmatism that I don't think you read in a lot of even modern literature about Jay Gould.

53:43Is that how you read Jesse's statement on that? Or was he just have a lot of respect for a competition? Because ultimately that's what these gentlemen played in was a competition for money. I think that quote was – when I found that quote, I thought that was just extremely revealing about the waters that they swam in at that time. Jay Gould was an extremely complicated figure, And I think you're right that he is painted pretty one dimensionally. There's no question that he did things that were questionable at the time. Or are what we'd consider unethical nowadays. But at that time, we're part of the game.

54:19Right. I mean, there was not there really were not many rules. I mean, this is this is part of the issue. You know, he was playing in a system where there were not any rules. So, you know, he would – he and his allies would try to corner the gold market at a time when doing so, he could force short sellers to settle on his terms. And the economy was just a lot smaller and you were able to sort of pull off these shenanigans. I mean he dueled with Cornelius Vanderbilt and ends up escaping across the Hudson River in a rowboat. So he was, you know, to an extent, he was a bit of a scoundrel, but he was also operating in this system where there were not many rules.

55:05And I think that's why you see Jesse Seligman say, you know, this was just the name of the game at that point. And as Jesse said, he was, you know, he rubbed shoulders with all of those fellows during that time. And Gould was a client of J.N.W. Seligman and company. And I think in this huge unpublished manuscript that was written as a corporate history, they note in a very understated way that, you know, whenever Jay Gould made an investment, like, you know, Seligman would make one for their own account because they knew they were going to – they sort of turned a blind eye to whether it was fully an ethical thing that he was up to.

55:52So that's – I think it's a funny quote. Yeah, another telling story of Jesse that we won't go into, but I just want to mention for readers that they should really, you know, get into against in this idea of like Jewish prejudice. He was a member at the union club and he goes to get his son in and they don't take him, even though he's been like a club vice president. And I think that was a really interesting story to understand. You know, there was bias against people that were successful even in their own institutions. But I want to pivot actually because much of the latter part of your book is – it has touched as a shift, but it's really about the Warburgs.

56:26So I just want to kind of pivot just quickly. They are a German family. What were their roots? Because it seemed like it had a little more money trappings than a lot of these other families did from their origin. Yeah, the Warburgs ended up establishing a bank that went back to, you know, I think the late 1700s in Hamburg, which was the free state of Hamburg. So it was like, you know, it was a place where Jews were able to have a bit more freedom. And the bank was called MM Warburg. It was steadily successful. Remarkably, it exists today. And Schiff had actually gotten, after the dissolution of Bud Schiff and company, Moritz Warburg, the patriarch of the family, offers him a job.

57:17And he very briefly moved there to take it and then had to go back home to Frankfurt when his father died. But later on, his daughter and Moritz's son, Felix, would marry. And that was sort of the beginning of a family connection. Later on, Felix's brother, Paul, would marry Teresa's sister through – it's a little bit complicated, but ends up becoming his brother-in-law. It's kind of a mess of all these family relationships. Correct. So in the Goldman Sachs story you tell, Sam Sachs had his brother Harry join him at Goldman Sachs. And it's kind of like the beginning of the Sachs family. Obviously, if you're Henry Goldman, you're watching all these Sachs people show up and you're thinking like, what are we, chopped liver?

58:10Explain how deep that grudge was. I mean, that's another interesting story about how blood and money doesn't always mix that well. Um, so Marcus Goldman ends up making Sam, uh, Sachs, a partner who had married his daughter, Louisa, a partner in the firm. And at the time, uh, Henry, uh, had wanted nothing more to join his father in business, but this very much showed him, uh, you know, where he stood. I think Marcus did not feel that Henry was ready for, ready to be a partner in the firm. Um, he had dropped, Henry had dropped out of Harvard and, you know, I think he felt had a bit of an inferiority complex.

58:55When he eventually joins the firm of Goldman Sachs, Sam has established himself, his brother Harry is part of the firm, and Sam then sort of starts admitting his sons to the firm to the point where the Sachses are very much outnumbering the Goldman faction. And I think Henry really resented that. And I think he also resented the fact that by this time, Sam Sachs was pretty wealthy. He had just sort of built a major estate in the Jersey Shore. They had bad blood for that reason and many others, including the fact that they were really quite different people. And they seem to have, you know, the opposite point of view on basically everything.

59:41So Schiff's history with the Union Pacific blew my mind, you know, because obviously I know that I knew Gould's, you know, experience with the Union Pacific and a lot of the railroads from the past. But this is a part of the history that I'd never heard. So are you telling me one of the most valuable companies in America sold at an auction in Omaha, Nebraska with a single bidder? That's what happened. It's funny because at that time, the railroads were going through these boom and bust cycles. Even the government subsidized Union Pacific, Northern Pacific, Southern Pacific, they were going through these boom and bust cycles.

1:00:24And there were railroads that would go through multiple periods of bankruptcy. And at the time Schiff had entered the picture, There had been yet another financial panic that this one had sent a number of railroads into receivership. So there were great opportunities to be found in the railroads for people who could raise enough capital to obtain these railroads. In the case of the Union Pacific, it was complicated because of the government funding that had been used to subsidize this road basically during the Civil War when Lincoln was trying to knit together the republic through transcontinental railroad lines.

1:01:13So he ends up being approached by a representative of the Goulds who – Jay Gould had been running the line before his death and his family were still major investors and asked to consider reorganizing the railroad. And at that time, he thought J.P. Morgan was the one that was heading that up and J.P. Morgan had been involved. But this was sort of an example of the courtesy that – the deference that Schiff would have shown Morgan at that time that he went to go see Morgan and ask him before he entered this business. And Morgan basically said, you know, I've washed my hands of this. This is too politically intractable.

1:01:59It's all yours if you want it. And over the next, you know, couple years, Schiff ends up creating the conditions where it could be sold at auction. And then he and Edward Harriman, who sort of enters the picture serendipitously, I suppose, end up rebuilding the Union Pacific, which at that point had been sort of dismembered of a lot of its most important lines at that point. Yeah, because then later following that, you kind of talk about the Burlington saga. I grew up in Seattle, which is very near Burlington, Washington, obviously the namesake of the railroad itself. But the whole idea was, you know, how do I get goods or really, you know, I'll call it natural resources in most cases out of the Pacific Northwest, out into the rest of America via either the northern Pacific or what we now know also as the Great Northern was the other railroad line there.

1:02:59And to your point, I mean, those games were all won and lost nowhere near the railroads. They were all won and lost in New York via these banks and, you know, I'll call it industrialists. Oh, you know, absolutely. And what's interesting is that at this point, you know, the railroad lines, 180 ,000 miles of track of what was basically 200 or 220 ,000 miles of track were controlled by pretty much six factions. So things are consolidating very rapidly. And where there had been these monopolistic communities of interest in the past, it becomes very hard to maintain order when each of these groups is gobbling up more and more real estate and coming into conflict with one another.

1:03:50so let's go back to the Pujo committee real quick because we talked about this earlier but I just gotta I just gotta get this number out because obviously you know Sherman as a political person also you know this is really what his career ended up becoming about but so and I'm gonna I'm gonna pull these numbers from your book the vast combination of power is so great that the banking organizations that we're talking about had 746 combined directorships in 134 corporations that collectively had resources or capitalization of more than$25 billion. I think Sherman called it concentrated power in vast combinations.

1:04:27Isn't this exactly what he was referring to when he called it this? Yeah, and it's interesting because the Sherman Antitrust Act does not end up being used for, you know, very frequently for a decade, and it's never wielded against a corporate combination. But the test case for this ends up being a company called Northern Securities, which J.P. Morgan, Schiff, Edward Harriman, and J.J. Hill ended up forming. It was a massive holding company that included the Northern Pacific, the Great Northern, and also controlled the Burlington. And it ended up giving both the Union Pacific and their investors a seat at the table there too.

1:05:15So this was sort of like a community of interest on a vast new scale. And Roosevelt ends up using the northern securities as a test case for his trust-busting crusade that follows. And the Pujol Committee probe, what they called the money trust probe, because members of Congress believed that the most pernicious monopoly of all was bankers that held control over money and credit. You know, the breakup of northern securities ends up sort of indirectly leading to this major investigation into the control of money and credit in this country. And what ends up coming out of this is if there wasn't a money trust in a literal sense, it was absolutely clear that firms such as J.P.

1:06:10Morgan, Kuhnlob, and a very small group of investment banks held a great amount of control over not just railroads but utilities, trust companies, insurers, a huge amount of businesses. And I think I did the math recently, and I think they sort of controlled, you know, probably 13 % of the nation's wealth at that point, including land. Wow, that's crazy. So Paul Warburg, I kind of touched on this earlier with some of the fixing of the capital system for the government post the Civil War. But Paul Warburg walks right into that kind of foreshadowing of building the monetary system that we see today.

1:06:52And I love how you tell it through, you know, he's walking to work with Jacob Schiff and Jacob's like, hey, I like your ideas. So I just say that because like here again, here's Jacob being pretty pragmatic where he's like, yeah, I'm a bank. You know, I'm pretty good at banking, obviously. But he's like, I can see framework that's missing because we don't want to have panics all the time. And so can you kind of tell the story a little bit behind where Paul got those ideas and then how pivotal he was with Rhode Island Senator Nelson Aldrich as well? So when Paul Warburg ends up coming over to the United States and he enters the partnership of Kuhn Loeb, he had been a partner in M.M.

1:07:33Warburg, and he actually would remain one. That was the deal for him coming to the United States. He had married Nina Loeb. And he comes out of the German banking tradition. They have a central bank. The system is just much more advanced. And then he comes to the United States, and there's no central bank. The currency is inelastic, meaning it does not contract or expand based on demand. And you have these conditions where any small shock can really send the economy into a tailspin. So I think from the outset, he is saying he's saying to himself like this is I mean, this is a crazy way to operate.

1:08:19And, you know, he comes to the United States. He can't really you know, he's learning English. He feels a little bit self-conscious. So he sort of keeps his ideas about banking to himself for a while. Um, and eventually through these daily walks that he takes with Schiff, um, you know, starts sort of, uh, elaborating on this. And I think, you know, Schiff at the time, you know, it's like, well, you know, Schiff is, comes out of the German banking tradition as well. Um, and he said, well, you know, this is, these are, these are great ideas, but you might want to keep them to yourself because I don't think it's going to go over well, uh, in the United States at this time.

1:08:57But he ends up slowly sort of like articulating this and eventually writes a very big New York Times piece basically detailing his ideas about modern banking. And eventually he becomes involved with this effort to overhaul the banking system that Senator Nelson Aldrich, who was a very powerful lawmaker at that time, ends up playing a vital role in. So, you know, when the Federal Reserve, as we know it, was sort of sketched out at a private club in Jekyll Island with a handful of bankers and Nelson Aldrich, Paul Warbrick was actually there. And he would play a really vital role in refining the concept of the Federal Reserve and then would go on to serve as one of the first members of the board.

1:09:56And I think a really nice asterisk on that was the idea of regionalism. Like I always wondered myself, why in the heck is there a Federal Reserve Bank in Richmond, Virginia? I mean, is Richmond, Virginia that important in the modern economy? And the answer was, well, it actually, we wanted people to understand that it wasn't a federal system solely, that it was made up of regional components. That way they felt they had a role and a voice, which I thought was a really interesting way of thinking about the Federal Reserve. It's interesting because it kind of comes back to this idea of the money trust too.

1:10:32There was so much suspicion about bankers. And part of the reason for the decentralized central bank with what Woodrow Wilson would call the capstone, which is the Federal Reserve Board in Washington, was in order to sell this to sort of populists who did not want the eastern bankers to be able – or the money trust, as they called them, to control the Federal Reserve. So then Paul goes on after being that brilliant. Obviously, that ends up getting passed. He becomes good friends over time with Carter Glass, which of the Glass-Steagall fame, Carter did a really good job of kind of teaching Paul about DC.

1:11:14And there was a lot of kind of mentoring that I think Carter actually did that I picked up through your book. He goes on to then interact with Keynes post-World War I as they get together in Amsterdam and crack up ideas, drink drinks together and go out and kind of try to proselytize people on the idea that reparations are going to cause a lot of future danger, which they prophesied World War II in effect. I mean, World War I was just tragic on many levels for the Warburg family, for German Jews in America, for Germans, you know, and many like people around the, you know, obviously throughout Europe as well.

1:11:57But it was just, it had just been such a reckoning. You know, they were unable to communicate with their family in Germany for, you know, a couple of years. And Paul, his brother Max ends up representing the German government at the Paris Peace Conference. And, you know, the demand for reparations went far beyond what even the Germans thought was within the realm of possibility. And it just ends up being so much more than they can withstand. So, yeah, as you mentioned, after the – and Keynes was negotiating on behalf. He was a representative of the British Treasury and ends up actually quitting the role because he believed that he could just see the disaster on the horizon and just thought the demands that were being placed on Germany at that time were just unreasonable.

1:13:00So as Germany starts to – conditions in Germany deteriorate, Warburg, Keynes and some others meet in Amsterdam where they begin sort of like talking about some ideas about how –

1:13:29And potentially cause, you know, nationalistic uprisings. They needed to heal Germany. And they could only do so by, you know, reducing the amount that was being – by – he wanted to basically wipe out the war debts. And of course the United States, which during World War I had really ascended to superpower status, did not want to do this because they held a lot of – they were owed a lot of money from the Allies. So when while this is going on abroad, obviously, you know, there's this kind of personal anguish that you just touched on a second ago going, you know, for Jewish people in the United States.

1:14:19You gave the example of Henry Goldman obviously was not well liked by some of his family and colleagues because of his very strong German feelings. and then even Schiff commented on it. I think it was with, he was in front of a Jewish communal workers group and he had a kind of a famous line, I thought from your book that I didn't know if you had offhand to comment on and what his response he got back from the workers group. Well, it was interesting because German Jews had existed very harmoniously in the United States and Schiff often used to talk about the Trinity of his background as both a German, a Jew, and as an American.

1:15:06And he made this comment at one point. And, you know, the other piece of this is that this is at the time when the Zionist movement is really whipping up in New York. But he makes this comment and a Zionist activist stands up and say, you know, well, you say you divide yourself three ways. Is it horizontal or vertically? And if horizontally, which piece do the Jews get? And it's a funny quote, but it was prophetic because in the World War I period, Schiff would be virtually drawn and quartered because he felt a kinship to the country of his birth, Germany, and initially supported the German side in the war.

1:15:57But it became – these pieces of identity came into conflict. Now, while Schiff really becomes disillusioned by Germany eventually, Henry Goldman was staunchly pro-German. And this became controversial within his firm because the Saxes were pro-ally. And this was often what would happen. And it's sort of, you know, people who had immigrated from the old country typically still had some allegiances. But the newer generation who were born in the United States did not. The United States did not. In Henry's case, he was born in the United States, but they used to go back to Germany every year. And he was just very, very pro-German.

1:16:44And increasingly, this became problematic, especially with one of their business connections in the UK. And eventually, he leaves the firm in a very dramatic fashion during World War I. And that was the end of Goldman working at Goldman Sachs. So also to fight back on the conspiracy theories, you pointed out just a second ago that Jacob Schiff was not a Zionist, and he did not agree with the Zionists, like Louis Brandeis, who obviously was on the court, for example, was a massive Zionist that you pointed out in your book. And obviously this is going to come to the point of the Balfour Declaration, and I did not know that my birthday, December 11th, is actually the anniversary of the British showing up at the Jaffa Gate in Jerusalem and entering the city, which is really interesting.

1:17:36I thought, wow, I feel that there's something more important about that. But I mean, just think of how important that discussion is where here's this Jewish business person who has a lot of control over what happens, what decisions are made based on his, I'll call it his financial power and his cultural sway. And yet at the same time, he was really an anti-Zionist where he did not consider that to be the end goal for the Jewish people. And I mean, I just think right now, Daniel, while we sit in the middle of what is a war on Jerusalem, those questions are still being asked right now among Jewish people.

1:18:11It's very interesting that you mentioned that because I sort of just wrote a piece that's based on this, about the long history of the debate over Zionism within the Jewish community, which dates back to the inception of Zionism. And basically, Basically, Zionism was in part a reaction to rising anti-Semitism in Europe and also this flood of immigration from the Russian Empire. Schiff and his fellow philanthropic stewards end up making it possible for millions of Jews to immigrate to the United States. And they very much saw America as their promised land. And they thought that Zionism, which started as kind of a wild-eyed movement, they thought it was risky because it could both inflame anti-Semitism and it would validate this longstanding trope that Jews were loyal only to themselves and would never be true or trustworthy.

1:19:22To another country, yeah. And that's why he thought this – that's why he opposed Zionism. Gradually, he started to warm to the movement to some degree. And this was based on the fact that during World War I, you know, the bulk of the Jewish population lived within the conflict zone. Um, there was eventually a backlash to mass immigration in the United States and, uh, there were constantly laws being floated to restrict immigration. So I think, you know, Schiff could see the writing on the wall there. Um, but, you know, Schiff ends up saying, you know, like, well, I could support a, um, a religious, uh, and cultural homeland in Palestine, but he never was able to get on board with the idea of, um, of a Jewish state.

1:20:17And I think obviously he dies in 1920 well ahead of the events that would pave the way for Israel to become a nation. But I think the debate is quite interesting. And there's really always been a debate within Judaism about Israel and Zionism and a Jewish state. Well, I think the other thing you pointed out, I did not know that part of the agreement with the Nazis was that if Jewish people wanted to get their money out, effectively the Nazis would collect a fee if they went to Israel. They were like money changing in a way where they could do it profitably if they ended up in Israel, which was just the strangest incentive structure I've ever seen.

1:21:02The other thing you said when you touched on America was really kind of like the dream of the Zionists. Well, if someone says to me, what do I find, like just as a non-Jew looking at Israel, what do I find so peculiar about Israel? It's the most entrepreneurial place plausibly in the world outside of America. Yeah, I mean, there's definitely a lot of, I mean, you know, the whole history of Israel and like the kibbutzes and settlers sort of making nothing from, making something from little, that's sort of ingrained in that history. And it's sort of, I mean, it gets back to the same, I think, entrepreneurial spark that you saw with Schiff and some of his contemporaries as well, who were also fleeing something.

1:21:57Yeah. So, Dan, there's a lot we didn't go into. I'm even looking here at my notes. I mean, like, just the Warburgs and where they got to intern, I was like, oh my gosh, I would have died to be a Warburg, just so we're on the same page. You know, we didn't talk about Ernest Castle and his relationship with King Edward VII. You know, we didn't talk about things like the vast philanthropy. We didn't go into all that, which is just incredible for Jacob Schiff's life. Some of the inequities that came, there was even some, you know, problems that just came in the family, whether it would be personal problems or health problems.

1:22:29The Kuhn Loeb's relationship with Japan, Henry Ford's anti-Semitism. I mean, and on and on and on. So I kind of want to throw it out to you. Is there one last thing that we didn't touch that you do think needs to be mentioned and highlighted for your story? Yeah. I mean, we talked a lot about the financial component. And while Schiff is not well-known today and J.P. Morgan is often seen as the pivotal figure in American financial history, I would actually argue that Schiff's legacy is more consequential because his legacy went far beyond finance. He was – as I mentioned, he and a small group made it possible.

1:23:17If you come from a Jewish family with a Russian or Eastern European background as I do, your American story would not have been possible without Schiff. He made it possible for millions of Jews to come to the United States. But it wasn't just that he was politically connected and he was helping to pave the way on the political front. They also built a huge network of philanthropic organization that was dedicated to taking care of the immediate needs of the immigrants. So, you know, English lessons, hospitals, those sorts of things, but also anticipated what it would take for them to thrive and quickly assimilate to American culture.

1:24:01And so, I mean, that part of his legacy and the legacy of the tycoons I call the money kings is just, once you know where to look, you start to see it all around you in present day life, whether it's the Federal Reserve Bank, whether it's the company Goldman Sachs, whether it's all of these iconic Western Union, Westinghouse, these types of companies that were capitalized by these firms. or whether it's these philanthropic organizations, including the Henry Street Settlement or the American Jewish Committee or the Joint Distribution Committee that exist today. It's remarkable how the degree to which we are living in this world that they helped to build.

1:24:48I love it. I totally love it. This has been just so much fun for me, Daniel. So I really appreciate you. Thank you again for joining me. To our listeners, I see this book, as I said earlier, as a story of legacy building and multiple steps in the right direction over decades in these people's lives, in these people's families, through pragmatism and opportunity and ultimately trumping the idea that we should want to foreknow the future. They didn't. And yet they created a massive legacy like Daniel just mentioned. If you enjoyed this podcast, go to Apple, Spotify, YouTube, wherever you listen to a book with legs.

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