risks. The bankers were thereby in a position to mobilize huge sums for the
railroads and industrial corporations and to reap great profits for them-
selves. In the course of testimony before the Pujo congressional committee
in 1913, Schiff explained Kuhn, Loeb’s methods of underwriting securities.
With regard to syndicates he stated: “The way we do our business is, we al-
ways first contract with a railroad company, or a corporation if it is not a
railroad company, that has securities to sell. When we have contracted with
them and have obligated ourselves to purchase a certain amount of secur-
ities or issue of securities, we form an underwriting syndicate which shares
the risk of the business with us. We take the risk first and the underwriter
afterwards shares it with us.” If the arrangement fell through, “the risk is
ours,” and Kuhn, Loeb alone carried the burden of selling the securities.
The banker discussed some distinctive features of the firm’s syndicates.
They were composed almost exclusively of firms and corporations rather
than individuals, and they relied heavily on foreign capital: “Our syndicates
are very largely made up from our foreign correspondents. We always only
place a part, sometimes an inconsiderable part, in the United States. We
very largely place our syndicates abroad.” At times only foreign houses par-
ticipated; in cases where both foreign and domestic firms cooperated,
about two-thirds of the specific issue went to American participants and
one-third to foreigners. Kuhn, Loeb had a list of around 75 to 125 compa-
nies that were generally invited to participate, but the firm had no “stand-
ing alliances.”
Schiff also mentioned the code of business ethics that regulated the be-
havior of major firms. For example, it was considered inappropriate for of-
ficers of the underwriting firm to participate in syndicates, a practice,
Schiff claimed, that was “hardly ever” resorted to by Kuhn, Loeb. Nor was
it ethical for a firm to compete with other firms for control of a transaction
or to muscle in on another’s clients. As he said, “It is not good form to
create unreasonable interference or competition.”^28
From 1875 on, Schiff assiduously cultivated his foreign contacts, bank-
ers through whom Kuhn, Loeb was able to sell American securities abroad
and to channel European money into America’s transportation and indus-
trial systems. Later, when the flow of capital reversed direction, Kuhn,
Loeb and other Jewish banks were instrumental in underwriting and dis-
tributing securities of foreign corporations and governments in the United
States.^29 Frequent vacations in Europe, long walks (one of Schiff’s favorite
pastimes) with associates, and hospitality to foreign bankers who visited
America afforded many opportunities for informal but productive business
meetings.
The use of foreign connections, which in some cases ripened into warm
friendships, was not specifically Jewish; other American firms had ties with
European houses if not branches in Europe. But Schiff, it was said, enjoyed
10 Jacob H. Schiff