Free Money and Power by William D. Cohan

before about the message that tapping a reserve bank for that liquidity would send to the market. “I do believe that in business there are psychic factors which are so old and so ingrained in the human mind that no system can set them aside, and one is [the] capital strength of an institution,” he said.
    ——
    N OTWITHSTANDING THESE CLEVER insights into the verities of a banking system built upon the confidence placed in it—is there any other kind?—by August 1914 and the outbreak ofWorld War I, Henry Goldman’s views in support ofGermany’s increasingly aggressive behavior were quickly becoming a problem for Goldman, Sachs & Co. For instance, when he had been vacationing in England before the start of the war, Sam Sachs—Henry’s brother-in-law—had reassured Goldman Sachs’s underwriter partners at Kleinwort that the firm “stood firmly behindGreat Britain,” only to discover, upon his return to New York, that Henry had become increasingly outspoken in his pro-German commentary. “He quoted Nietzsche to anyone who would listen,” Birmingham wrote of Henry Goldman.
    The long-simmering tensions between Sachs and Goldman—once limited to their differences about business strategy and risk—now burst onto the public stage. The catalyst for the rupture between the two Goldman partners was a $500 million bond issue that Wall Street’s bankers had pledged to raise for the Allied war effort (the United States, of course, did not enter the war until 1917). The original plan called for the Wall Street firmKuhn, Loeb to head up the effort to underwrite the war bonds. But when its pro-German leaderJacob Schiff said the Allies would have their money only if the finance ministers inFrance and England gave him their personal assurance that “not one cent of the proceeds of the loan would be given to Russia,” all hell broke loose. Of course, neither France nor England could offer Schiff this guarantee in the time of war—especially since Russia was part of the Allied effort—and a Kuhn,Loeb partners’ meeting was quickly held to decide how to proceed. “I cannot stultify myself by aiding those who in bitter enmity have tortured my people and will continue to do so, whatever fine professions they may make in their hour of need,” Schiff said. “I cannot sacrifice my profoundest convictions. This is a matter between me and my conscience.”
    While Schiff’s partners were sympathetic to his strongly held views about the Russian leadership that had persecuted so many Jews for so long, the American press was outraged. “Kuhn Loeb, German Bankers, Refuse to Aid Allies,” the headlines screamed. With Schiff’s decision, the responsibility for raising the $500 million fell to J. P. Morgan, and soon one Wall Street firm after another lined up to take part of the debt offering. At Goldman, Sachs, the partners had a rule that no underwriting could be undertaken or any amount of capital committed unless the partners were unanimous in their agreement that the deal should proceed. Given his outspoken views, it was no surprise that Henry Goldman nixed his firm’s participation in the bond deal. “An intense, high-strung and didactic man, when Henry’s partners and sisters begged him to modify, or at least conceal, his feelings, he refused,” Birmingham wrote, “and his public utterances became more frequent and startling.” Goldman, Sachs became lumped into the same category as Kuhn, Loeb—an advocate for an anti-Allied, pro-German stance on the growing conflict. “But my father walked over to J. P. Morgan and Company and put in a personal subscription for himself and personal subscription for my uncleHarry Sachs, so as to go on the record as to where we stood,”Walter Sachs observed. Nevertheless, the firm’s decision not to participate in the bond offering would not be good for business.
    As the United States’ effort to aid the Allies ratcheted up in the ensuing years, the Goldman partners stepped up their