Understanding Kuhn, Loeb & Co.
In my experience, one of the more fruitful lines of historical research is to “follow the money”. It’s not always easy to follow the money, however. This is especially true in environments like that of fin-de-siècle Austro-Hungary, where financial transparency was not the government’s strong point. Historians have to get the most out of the information they do have. In that spirit, here is an excerpt from one of Austro-Hungary’s leading financial personalities, Alexander Spitzmueller, who served both publicly as a minister responsible for monetary policy and privately as leader of one of Austro-Hungary’s two major banks, the Bodencreditanstalt:
In the course of 1912 international political tension increased considerably, so that the Austrian financial administration was not in a position to cover its money needs with a public loan. It therefore turned to the Austrian banking consortium under the leadership of the Post Office Savings Bank for a current account advance in the amount of 100 million kroner. This would have meant that the banks would have had to make this sum available from their own resources, without being able to have it refunded by placing state funds on the market. The failure of the newly-established banking organizations in 1911 was already evident here. The Post Office Savings Bank was unable to raise this current account advance. Most of the banks, including the Bodencreditanstalt, wanted to approve it only in return for the promise that bills of exchange up to the amount of the current account advance could be submitted to the Austro-Hungarian Bank, a promise that the bank had to refuse, since it is would have dealt with financial (fundraising) bills. Only the Creditanstalt and the Eskomptegesellschaft, under the leadership of the director Maxim von Krassny, wanted to accept the quota of the current account advance without restriction. The transaction therefore failed, and the Ministry of Finance, headed by the excellent Polish Minister von Zalesiki, was in no small part embarrassed.
In this critical situation, with the support of my colleague Dr. Hammerschlag, and through the intermediary of the sympathetic Hamburg-based Warburg Bank, the American bank Kuhn-Loeb became interested in granting a US-dollar loan to Austria. The loan came about after difficult but at least rapid negotiations. An amount of 25 million dollars (125 million kroner) was made available to the tax authorities under reasonable amortization terms, but at the relatively high rate of 6.75% interest.
With this placement of Austrian treasury bills in America, I [Spitzmueller] came a significant step closer to attracting big banking capital in the interests of the state. For the Post Office Savings Bank, the whole transaction meant a defeat of the lending policy inaugurated under Mr. von Bilinski. It was of the utmost importance to keep in touch with the American market in the future, but the Post Office Savings Bank tried to prevent this by all possible means. The successful American transaction could easily have been viewed by the public as an increase in the prestige of the Creditanstalt [Rothschild Bank]. I had prepared an article signed by myself for the "Neue Freie Presse" of December 10, 1912, but Governor Karl von Leth from the Post Office Savings Bank, who had behaved rather unhappily in the whole matter, moved to withdraw consent for its publication, as Leth described the transaction by the Creditanstalt as a Faustian-move against the Post Office Savings Bank. Governor Sieghart of the Bodencreditanstalt had also tried to torpedo the negotiation for reasons of prestige through the deliberate indiscretion of one of his co-directors named Herzfeld.
Florence or Vienna? The neo-renaissance facade of the Bodencreditanstalt’s headquarters in Vienna’s tony ‘Ringstrasse’ section— the section of Franz Joseph’s favored subjects and a projection of his imperial power. Architects at the time of the Ringstrasse’s development favored styles which drew inspiration from Renaissance Hermeticism.
The Bodencreditanstalt was the bank which served Hapsburg family finances as well as state finances in ways that weren’t always above board. It’s main competitor, the Creditanstalt, was controlled by Rothschild interests and for most of the 19th century had a monopoly on lending to the Hapsburg Empire. Neue Freie Presse, the leading paper of the Liberal Party at this time, served as a kind of semi-offical vehicle for financial announcements. Our movie-industry financial heavyweight, Kuhn, Loeb & Co., clearly enjoyed a close relationship with Vienna’s Liberal Party interests on the eve of WWI. Kuhn, Loeb & Co. enjoyed this privilege through the intermediary work of the Warburg Bank out of Hamburg— ‘Warburg’ as in Aby Warburg.
There are at least two points of interest to the above information. First of all, the Creditanstalt was willing to let Kuhn, Loeb & Co. sail in to be a ‘lender of last resort’ to the Austrian government, which was already heavily indebted to the Rothschilds. This gave Kuhn, Loeb & Co. power over the Hapsburgs, and therefore signals that the Rothschilds were willing to share power with Kuhn, Loeb & Co. That’s not an arrangement which any power-broker financial institution enters into lightly.
The Creditanstalt’s 1912 Vienna headquarters in neo-classical style. Courtesy Wikipedia.
Secondly, the loan Kuhn, Loeb & Co. was allowed to make was priced in US dollars— not French francs, and certainly not Austrian crowns— meaning US monetary policy dictated how much Austria would eventually pay. This gave the administration of incoming president Woodrow Wilson an enormous amount of power over the Hapsburgs on the eve of a war which the US financial industry was eager to enter. The plot thickens…
Wilson’s Secretary of the Treasury, William Gibbs McAdoo Jr., married Wilson’s daughter while the president was in office and oversaw the creation of the Federal Reserve System, wherein private banks would take over practical responsibility for US Monetary policy— ie. how much the Hapsburgs would actually pay. Historically, Congress set monetary policy, but thanks to Wilson this responsibility was delegated to a group of favored private banks, which profited (and still do!) from selling securities backed by government loans. (That represents a conflict of interest, i.e. they profit from systems they are supposed to husband in the interests of the state.) Prior to seeking political office Wilson was an academic with little practical experience in the banking world.
William Gibbs McAdoo, courtesy of POTUS-Geeks.
The Federal Reserve scheme was hatched by a number of private bankers in 1910 while on vacation at Georgia’s Jekyll Island, and yes, Paul Warburg was among them. By brokering the deal between Kuhn, Loeb and the Hapsburgs, Warburg gave his firm astounding influence over the political course of the Hapsburg monarchy. This is the sort of information which should have been of paramount interest to the Imperial German government, because US involvement in the war was still contested, and Austro-Hungary’s financial situation spoke against it being able to effectively wage war. While the Warburgs and Otto Kahn were promoting Imperial Germany’s cause through their media investment in early film, they were also setting themselves up to profit from a German/Austrian defeat via the safety of American dollars.
The Jekyll Island resort where the Federal Reserve System was born.
This duplicitousness may also explain why Kuhn, Loeb & Co. were allowed to take over the film industry after the war, while less Machiavellian actors like Col. Selig lost everything. Warburg’s henchman in this undertaking, McAdoo, saw dividends in 1919 when his law firm was chosen to serve as general counsel for the founders of United Artists. McAdoo took a robust minority stake in United Artists common shares and a hefty yearly retainer for his company of US $50,000. Hiram Abrams, the man who delivered Zukor into a “badger trap” with underage prostitutes on behalf of Franklin Delano Roosevelt interests, was recruited to lead United Artists— which says something about the money behind McAdoo and Wilson. Readers will note that Kuhn, Loeb & Co. is on both sides of this squabble.
The fine houses of Frankfurt am Main’s Judengasse, where the Rothschild and Schiffs were leading families.
But how did Kuhn, Loeb & Co. get to be the ‘kingmaker’ institution in early film? The answer lies in its good fortune to become connected with the Schiff and Warburg families and their ties to the German and Austro-Hungarian Empires through London.
The Schiff (“Ship” in English) family were a rabbinical family from Frankfurt am Main, stomping ground of the Rothschild family, for whom Jacob Schiff’s father was a broker. Like the Rothschilds, the Schiffs had stretched their wings to London, where ancestor David Tevele Schiff was head rabbi during the later half of the 18th century.
Paul Warburg’s family were established Hamburg merchant bankers with extensive business connections in London through the German-speaking banking community there. (Particularly London-based Prussian banker Ernst Cassel.) In addition to their London ties, they served Berlin as well, with young brother Aby heading up the Kaiser’s soft-power operation in Florence.
Jacob Schiff and Paul Warburg each married one of Loeb’s daughters and hence brought the family firm of Kuhn, Loeb into the Frankfurt-Hamburg-Berlin-London axis.
The 19th century saw high finance focus on railway development, usually through arrangements subsidized by taxpayers. The Rothschild family were masters at such arrangements, and railroads were the spring-board from which Otto Kahn sprung:
Otto Kahn at this time was only thirty years of age, but he took an almost equal part with Harriman in the gigantic task of reorganizing the Union Pacific Railroad, a work which in its early stages had been handled by that master of finance and railroad management, Jacob H. Schiff, the head of the firm of Kuhn, Loeb and Company.
Otto Kahn’s Union Pacific Railroad: Note how this railway is particularly developed down the Eastern Midwest, including the territory of the Shallenberger Brothers and the Chicago-Milwaukee axis which was so important to the Kahn’s investments in the early film industry.
London-based German financiers were the true controllers of the British Empire by the 1800s, so Kuhn, Loeb & Co.’s success must be seen in light of resources available to these international merchants, rather than just domestic US investors.
There was a dark underbelly to all this railway development in that it served as the backbone for organized international prostitution; human trafficking; and other concomitant crime. As regular readers know, international prostitution at this time was dominated by organized crime families out of Galicia in Austro-Hungary, who operated with the support of the Hapsburgs. Indeed, the Hapsburgs needed these criminals as political informants and enforcers in an empire that was pulling itself apart because of conflicting national interests. Unfortunately for the Hapsburgs, as time went on the criminals needed them less and less. Thanks to the efforts of politically active bankers like Jacob Schiff and Baron Maurice de Hirsch, Jewish immigrants from Russia and Austro-Hungary were finding friendly ports in Argentina and the United States.
B’nai B’rith headquaters in NYC.
One of the most powerful Jewish service organizations in the United States dates from the time of the Rothschild’s efforts to combat bad press for their Central European peers regarding the White Slave Trade (organized international prostitution): B’nai B’rith’s Anti-Defamation League. B’nai B’rith worked hard throughout Europe and North America to influence legislation regarding immigration, human trafficking and prostitution. Although none of these organizations made a dent in human trafficking, they were strong voices supporting Jewish interests in the New World.
Argentina had similar experiences as the United States. Baron Hirsch, along with Edmond Rothschild and Ernst Cassel, set up the “Jewish Colonization Assoication” [ICA] to help relocate Jewish immigrants to the South American country and counter public relations problems for Argentina’s Jewish community regarding horrific conditions for women in the traffickers’ bordellos. Unfortunately, rather than improve immigrants’ reputations, Hirsch’s resettlement program entrenched the traffickers by building a ready-made service community around the bordellos. In Galicia fighting the pimps/slavers was impossible because of the economic dependence of surrounding communities (hundreds of thousands of people) on the slave trade. A similar dynamic was fostered around Buenos Aires because of Hirsch’s well-meaning efforts. There was a political element to this too: suddenly the pimps became sponsors of a voting-block.
A memorial to Raquel Liberman, one of the slaves victimized by Zwi Migdal in Buenos Aires. 35 years old was typically the end of a prostitute’s marketable life.
The reality is that both the Rothschilds and Hirsch were major developers of the railways on which the human traffickers and pimps depended— indeed few Galicians could afford to use the railways these investors built. It is remarkable that none of these financiers’ efforts to fight the pimps amounted to much as Jacob Schiff was central to a number of the efforts.
Schiff was president of the “Baron de Hirsch Fund” in New York City to help Russian Jews immigrate to the USA. This was a cause close to Schiff’s heart, as American Jewish businessmen of Russian descent were being hindered in their return travel to Russia by the Tsarist government, allegedly because of their participation in anti-Tsar provokatsiya. Schiff made himself famous via his work supporting the Japanese government during the Russo-Japanese war; our NSA friend Colonel Fabyan was an consultant to the Japanese government during the conclusion of this war.
Jacob Schiff
Schiff was also active in B’nai B’rith:
B’nai B’rith’s initial $2,000 expense for the lease and renovation of its 106 Forsyth Street site was augmented by donations from prominent Jewish philanthropists, including Jacob Schiff and Felix Warburg. Opening in 1902, the facility became a hub of activity. Four lodges and a women’s auxiliary occupied the meeting rooms, while its Maimonides Library was open to the public. An employment bureau was also in operation. One of the first cultural events to take place was a talk by Isidore Singer, B’nai B’rith leader and managing editor of the 12-volume Jewish Encyclopedia— the first of its kind, published between 1901 and 1906.
(Isidore Singer was also co-founder of the hugely influential Vienna newspaper Die Zeit, a favorite among the Austrian military officers. Singer worked closely on propaganda campaigns with Archduke Franz Ferdinand.)
In addition to his work with Hirsch, Schiff participated on the Committee of Fifteen, an anti-prostitution and anti-gambling initiative undertaken by influential NYC citizens, which also had little effect.
Of course, Goetz history fans will know of Schiff through his role steering the socialist movement in NYC via the Humanitarian Cult and Jacob Appelbaum. Many of the immigrants Hirsch and the Rothschilds paid to settle in this New World city were attracted to socialist politics and Schiff was able to exploit them as a voting-block for this reason. Our Monroe, WI hometown native William Wesley Young edited the English-language magazine for this ‘astroturf’ undertaking.
The opening of the Friars’ Club location from 1915-1948, on New York City’s 48th street. William Wesley Young had his office in the club, from where he shepherded the socialist movement on behalf of Jacob Schiff.
Understanding the finance behind the movies, understanding Kuhn, Loeb & Co., means understanding the political development of the Hapsburg Empire and the economic development of the British Empire. It means coming to grips with the diplomacy of international finance and government lending. It means acknowledging the intersection between banking and espionage. It was not a quick process to come to what level of understanding I have (15 odd years), but “following the money” will continue to be my plan going forward.
