A Kinder, Gentler, More Conservative Way to Bank?

High Financier: The Life and Times of Siegmund Warburg
by Niall Ferguson

Reviewed by Adam Fleisher

High Financier by Niall FergusonFollowing in the footsteps of Ron Chernow’s massive study of the entire Warburg clan, and benefiting from newly available documents, Niall Ferguson tells the story of how Siegmund fled Nazi Germany and established himself – and the City of London – at the apex of post World War II high finance.

If this biography has a theme, it is the foresight of its hero. Warburg, born and raised in a small town in the German south, got his start when his uncle Max hired him to work at the family firm. From the first, Siegmund saw a centralizing tendency in the banking industry – in Berlin, London, and New York – and was disappointed that his uncle did not.

But Warburg’s concerns were overtaken by the collapse of the global economy. As Ferguson puts it, he thought the German economic crisis was a “consequence of the self-indulgence of the older generation.”  The German banks were not simply victims of external pressures such as the Great Depression, but had recklessly over-leveraged in the mistaken belief that they were “too big to fail” and would be bailed out by the Reichsbank in the event of a crisis. Parallels to recent events are not accidental; Ferguson clearly laments the demise of the personal, conservative banking style that Warburg once exemplified.

As the Nazis rose to power, the Warburgs emigrated. Ferguson credits Siegmund with foreseeing in 1934 that the Nazi regime would probably initiate war to extricate itself from the economic crisis its own policies had exacerbated. Warburg was not, however, part of the earlier “prescient anti-Nazi minority” that found ominous the revolution of 1933 and the appointment of Hitler as Chancellor. Ferguson suggests that he never forgave himself this “self-deception about Hitler.”

But evidently Warburg  made up for it. Ferguson lavishes praise: he was a “prophet of globalization” who argued in 1969 that modern industry required “the free flow of goods and services without any artificial barriers.”  He had “grasped sooner than most that the revival of the City of London was not likely to be based . . . on the export of British capital.”  And so Warburg played an integral role in getting financial globalization off the ground.  He helped create the Eurobond market by seeing that the first step to closer union was integrating capital markets, not currencies.

He supported NATO, envisioned what would later become détente, and was even “quick to grasp how easily the apparently monolithic Communist bloc might fracture.” And, since Warburg had seen “with remarkable prescience” that the collapse of France could enable the extension of Russian power, he was a proponent of both a tight relationship between the U.S. and the U.K. and of European integration. He felt the Eurobond market facilitated this integration by using private sector initiative to avoid the inevitable problems of political union.

Ferguson sees Warburg as a different kind of banker who ran a different kind of bank.  But it was a struggle to endure.  The rampant inflation of the 1970s hit the bank hard, and by the end of the decade Warburg admonished his bank for growing for the sake of growth.  He was also hostile to bureaucracy and wanted the firm to be lean.  He envisioned it functioning from London – as the node of global business partnerships.  That vision failed.  Banking houses were becoming bigger so as to take advantage of the economies of scale that could be exploited in the wide-open American economy.  Ferguson concludes that Warburg and his colleagues did not understand that American financial markets were different from Europe’s. The firm could not be a boutique in a land of giants; by trying to grow and yet maintain its original culture, it became large and unwieldy. Ultimately Warburg’s ventures failed, and the bank disappeared into Swiss Bank Corporation for a meager sum.

Warburg’s method of banking was antithetical to the type of over-leveraging that precipitated our current crisis. Warburg was “wary of any strategy, no matter how lucrative, that exposed the firm to liquidity risk.” The mooting of his conceptualization of banking was bad news for him personally, but also for the global economy.  And so High Financier ends with a lament that Warburg’s emphasis on personalized banking and actual relationships was subsumed by the pursuit of leverage and risk-taking. These “innovations” brought about a financial crisis the effects of which are still being felt.

Buy the Book: Skylight, Powell’s, Amazon, Borders.

Further Reading: The Warburgs: The Twentieth-Century Odyssey of a Remarkable Jewish Family by Ron Chernow and The Ascent of Money: A Financial History of the World by Niall Ferguson

Adam Fleisher is a law student at the University of Virginia.

*Photo of a bank vault courtesy JasonBechtel.


×

Send A Letter To the Editors

    Please tell us your thoughts. Include your name and daytime phone number, and a link to the article you’re responding to. We may edit your letter for length and clarity and publish it on our site.

    (Optional) Attach an image to your letter. Jpeg, PNG or GIF accepted, 1MB maximum.