Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
28275811
label
Volume 31, September 1 – September 8, 1936
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
28275811
sourceUrl
contentType
document
title
Volume 31, September 1 – September 8, 1936
citationUrl
collections
Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
28275811
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
f075af5ada2f5290
ocrText
DIARY
Book 31
September 1 - - September 8, 1936
- A -
Book
Page
American Red Cross
Gaston and Bell confer with Early about HMJr's
May 29th letter (Gaston memorandum) 9/1/36
XXXI
4
Associated Gas and Electric Company
HMJr discusses case with Wideman - 9/2/36
47 A-C
- B -
Bernays, Edward L.
See Philco Radio Corporation
56-69
Bowman, Wirt (National Committeeman - Arizona)
Tax case discussed by HMJr, Helvering, and Oliphant
($150,000 gift from President Calles of Mexico) 9/2/36.
46
Budget
See Financing, Government: summation released - 9/2/36
26-40
- C -
Callaghan, Thomas (In charge of Chicago office, Secret Service)
See Investigations, Treasury Personnel
171-216
China See HMJr-Chinese delegation conversations, Book LXXVIII, page 190
Chen (K. P.), Chairman of Chinese Monetary Committee, thanks
Treasury for courtesy - 9/5/36
101 J-K
Coast Guard
Return of radio stations at winthrop, Massachusetts; New
London, Connecticut; and Rockaway, New York; after two-year
trial period under Navy, requested by Treasury - - 9/3/36
70
Conference: HMJr, Admiral Waesche, Captain Chalker,
concerning purchase of new planes - 9/3/36
76-78
Colorado
HMJr discusses candidacy of Governor Johnson for Senate,
with Miss Roche - 9/2/36
47
a) Knows of suit which may be brought by Bureau of
Internal Revenue
Coolidge, Thomas Jefferson
Will join Republicans in coming election - 8/31/36
6
Coughlin, Father
FDR tells HMJr not to answer radio attack; he (FDR) will
handle through Father Burke - 9/8/36
158
Customs, Bureau of
See also Narcotics
Because of Labor Day rush of returning passengers in New York,
Ballinger ordered to New York by HMJr to supervise work -
108
9/5/36
109-112
a) Bellinger report - 9/8/36
Regraded
- F -
Book Page
Financing, Government
Resume' for September 15, 1936
XXXI 20 A-E
9/5/36 - Offering of approximately $50 million
273-day Treasury bills dated 9/9/36 and maturing
6/9/37
107-N, 127-A
a) Closing of books
144
b) Final subscription and allotment figures -
9/15/36
XXXII 225
France
See Stabilization
XXXI 74
- G -
Gold
See Stabilization
74
- H - -
Harney, Malachi L.
See Narcotics - 9/2/36
41-45
Home Owners' Loan Corporation
HMJr recommends to Fahey and Loomis on Government debt
Viner, Burgess, and Williams (Harvard and Federal
Reserve, New York) 9/4/36
91
- K - -
Krock, Arthur
See New York Times
5,7-13,14-20
128-129,130-131,
132-136
- L -
Landis, James M.
See Tax Revision: Joint meeting of Securities and Exchange
Commission and Treasury - 9/1/36
1-3
Louisiana Tax Cases
FDR and HMr discuss handling by Jackson; Jackson, at first,
said he would; now says he will resign first - 9/8/36
158
a) Letter from Cummings concerning
159
161-164
b) History of cases
c) Jackson's statement of personal attitude
165
Regraded Unclassified
- N -
Book Page
Narcotics
Conference: HMJr, Graves, Anslinger, Gaston, and
W. N. Thomoson - 9/2/36
XXXI 41-45
a) Harney (Malachi L.), now Special Agent of
Intelligence Unit, made Assistant to
Commissioner of Narcotics - to be in charge
of "police end"
b) Wait (Bernard) to come to Washington with
reference to possibility of taking over
supervision of all Treasury activities in
Europe, including Narcotics
c) Customs Agency Service "to be charged with
full responsibility for conduct of all
narcotics smuggling investigations abroad"-
Bulkley to be in charge
Editorial in Washington Post praising new set-up
48
First issue of confidential weekly bulletin on
smugglingto be issued to Treasury law enforcement
agencies on Pacific Coast, including Alaska and
Hawaii
166-169
New York Times
Krock article indicating Jones or Kennedy as Secretary
of the Treasury would strengthen Democratic ticket
in some circles 9/1/36
a) Article itself
5
b) HMJr's telephone conversation with Krock
7-13
c) If
"
It
If Sulzberger
14-20
d) "
If
If
If Burgess
48 A-D
Letter from Sulzberger - 9/1/36
130-131
Letter to Sulzberger - - 9/8/36
128-129
Various drafts of letter to Sulzberger
132-136
- o -
Open Market Committee
See Financing, Government - - 9/3/36
49
- P -
Philco Radio Corporation
Oliphant memorandum giving background: "Edward L. Bernays
has requested appointment to discuss activity of
Treasury investigators among retail outlets" - 9/3/36.
56-69
Irey memorandum on conference with officials in HMJr's
office 9/3/36
101 L-N
- R -
Resettlement Administration
August 1936 progress report
88-90
Regraded Unclassified
- 6 -
Book
Page
Secret Service
Graves told to move desk down to Secret Service for
two or three months - Moran ill - 9/5/36
XXXI
101-0
HMJr tells Graves, McIntyre does not want Starling made
Chief
101-0
HMJr informs Moran "after further consideration,
Wilson will be detailed as Assistant Chief" 9/15/36
102
HMJr's telephone conversation with Attorney General
Cummings, explaining new set-up and why Murphy must
be brought back - - 9/8/36
145-151
Wilson's history of Government service
152
Press conference on Wilson's appointment - 9/8/36
153-154
Release on Wilson's appointment - 9/8/36
155-156
FDR tells HMJr, McIntyre and Early are upset that
Wilson (a Hoover man) is to be Chief; HMJr thinks
they have Wilson confused with Graves - - 9/8/36
157
McReynolds memorandum to HMJr: Moran requested to stay
away from Treasury for month of September - - 9/8/36
170
For Callaghan (Thomas), in charge of Chicago office, see
Investigations, Treasury Personnel
Securities and Exchange Commission
Joint meeting with Treasury on tax revision (capital gains
study) - 9/1/36
1-3
Sexauer, Fred
Phones HMJr about an appropriation to "clean up" mastitis
in New York State - 9/4/36
71-73
South America
FDR tells HMJr of trip planned after election - 9/8/36
157
Stabilization (arranged chronologically)
(See resume 8/16/36 to 9/22/36 - Book XXX, pages 1-1-F)
(See also Cochran resume September-December, 1936, in
Book XLIII)
HMJr asks Lochhead why he had not been informed of cable
that France wants to send over $100 million in gold -
9/4/36
74
HMJr, Viner, Lochhead, Haas, White, and Oliphant discuss
French shipment - 9/4/36
75-A
a) Lochhead memorandum of meeting
101- 101-J
HMJr-Cochran phone conversation and cable. 9/4/36
75 B-H
a) HMJr, for Cochran's guidance, adds that if Bank of
France and Swedish Central Bank wish Federal Reserve
Bank to earmark gold, requests will be received
sympathetically
75-I
Cochran cable concerning personal letter from Governor Rooth
of Central Bank of Sweden 9/4/36
75 J-L
Tripartite Agreement
Text of draft document to be handed Cochran Tuesday;
copy to Monick to be delivered in London Wednesday;
both copies, therefore, being delivered simulteneously -
see cable from Cochran - 9/4/36
103
a) FDR 80 informed by letter 9/5/36
104
- 8 - (Continued)
Book Page
Stabilization (Continued)
Tripartite Agreement (Continued)
HMJr informs Cochran Monday, September 7, 1936, 18
Labor Day and on Tuesday Treasury is offering a
$900 million bond issue
XXXI
104-C
HMJr, Lochhead, and Mallet confer; Mallet advised of
Auriol's inquiry about delivery of draft document-
9/5/36
105
Cochran cables that he has received French text -
is making translation; Monick leaves tonight for
London with text for British - 9/8/36
137
a) FDR so informed
138
Mallet informs HMJr that message delivered to him
personally has been communicated to Chancellor of
the Exchequer; British Treasury has not yet received
French note - 9/8/36
139
Sulzberger, Arthur (Publisher, New York Times)
See New York Times
5,7-13,14-20,
128-129,130-131,
132-136
- T -
Tax Revision
Capital gains study: Joint meeting of Securities and
Exchange Commission and Treasury - - 9/1/36
1-3
Treasury, Secretary of the
Krock article indicating Jones or Kennedy would strengthen
Democratic ticket in some circles
5,7-13,14-20,
128-136
Tripartite Agreement
See Stabilization
- - I 1
Unemployment Relief
Lonigan memorandum that Hopkins is "planning to sidetrack
Works Progress Administration before February before
criticism reaches crest; plans to control United States
Employment Service, unemployment insurance, direct relief,
control of wages, hours, and child labor" - 9/4/36
92-100
United States Employment Service
FDR's speech on Labor Day
119-127
Upham memorandum following FDR's speech
113-118
- W -
Wait, Bernard (Treasury Attache, Paris)
See Narcotics - 9/2/36
41-45
Prepared by
01
Mr. Zucker
RTMENT
Division of
Research and Statistics
ICATION
DATE September 1, 1936
TO
Secretary Morgenthau
FROM
Mr. haas 90A
Joint meeting of the Securities Exchange
Commission and Treasury Department Staffs
held September 1, 1936.
Subject: Capital gains study.
Present: Chairman James M. Landis of the Securities Exchange Commission,
Herman Oliphant, George C. Haas, 4. S. McLeod, L. H. Seltzer,
and J. S. Zucker, of the Treasury Department.
This meeting was held for the purpose of surveying the separate
fields of study which the Securities Exchange Commission and the Treasury
Department can profitably undertake in furthering an analysis of the prob-
lem of the treatment of capital gains and losses under the revemie laws.
The study is to be approached from the standpoints of (a) effects on the
security markots, (b) protecting the revenue, (c) eliminating tax avoid-
ances, (d) removal of pressure now said to be retarding capital trans-
actions, and (e) accomplishing equality of treatment among all types of
texpayers.
Mr. Landis presented, in summary form, the fields of analysis, some
of which are to be covered by the Treasury Department and the balance by
the S. E. C. These are:
(1) Statistical analysis to ascertain whether it is the large capital
transaction or a series of small transactions which have the greater influ-
ence on market conditions. In this connection a comparison of the deals
of the professional trader with that of the investor is to be made. The
data should also show whether there is a tendency to prolong unduly the
ownership of securities in order to take advantage of the graduated scale
now part of the capital gains tax provisions.
(2) Utilizing the findings from the W. P. 4. study of tax returns
under $5,000, to throw light on the incidence of capital gains. This
should show how many people under $5,000 engage in capital transactions,
the size and volume of the transactions, the duration of the period of
ownership, and the benefits, if any, from the present provisions of tax-
ing only a portion of the capital gains and allowing a portion of the
capital losses.
Regraded Unclassified
2
Secretary Morgenthau - 2
(3) An analysis of security sales made in December of several prior
years in order to ascertain whether there is increased activity by virtue
of "selling off" before the close of the year so as to have a beneficial
effect in the tax returns for the respective years.
(4) Comprehensive analysis of investment trusts activities, by
questionnaire method, now being undertaken by the S. 1. C. for other pur-
poses, may yield data which will serve in analyzing the capital gains
problem from the standpoint of the investment fields open for new invest-
ment, continuing investments, etc., both for corporationsand individuals.
(5) A proposed study to be undertaken by the S. 1. C - through the
questionnaire method, asking appropriate questions which will bring out
the alleged economic evils of the capital gaine tax, its effect on the
security market, its severity of tax load, etc. This study would be on
the basis of a friendly attitude by the S. E. 0. to obtain material from
such people as will supply same BO as to put it in a position of render-
ing some official opposition to the tax if the findings so warrant.
(6) A method of study to be devised which will develop conclusions
on the general subject of what uses do investors put the realized gains
from capital asset transactions; are these reinvested in similar securi-
ties, do they move from stabilized industries to relatively new ones,
speculative to safe, etc.?
A seventh point was commented on by Mr. Landis, which relates to
the present study being undertaken by Professor Haig of Columbia, involving
a digest of answers to fifty questionnaires on capital gains. Mr. Landis
stated that & member of his research staff, having gone over the material
on a trip to New York, advised that such study will not add anything sub-
stantial to the analyses to be underteken either by the Treasury Depart-
ment or the S. E. C.
It wes pointed out by Mr. Haas that not merely the tax law provisions
but also regulations by other Departments and Commissions, the S. B. C. in
particular, have affected capital gains transactions. Requirements for
reporting security transactions, particularly by officers, margin require-
ments, etc., are two instances which were considered. The effects of the
capital gaine provisions in cases involving reorganizations and mergers
were also discussed. Further preliminary study on this is to be made,
principally by contacting the Section in the Assistant General Counsel's
Office, Bureau of Internal Revenue, where such cases are handled.
At the suggestion of Mr. Oliphant, it was agreed that the Treasury
Department and the S. E. C. consider the separate studies on the above-
outlined subjects that can be most advantageously made by each, and that
Regraded Unclassified
3
Secretary Morgenthau - 3
a second meeting within two or three weeks be called in order to outline
finally the branches of study to be undertaken. It was stressed that the
Treasury Department is not merely interested in obtaining as high a tax
from capital gains sources as possible but rather to attribute to this
category of income its just burden and to eliminate such inequities and
administrative difficulties as are at present inherent in the tax provi-
sions pertaining thereto.
3A
Tuesday
September 1, 1936
3:18 p. m.
HMjr:
- Fahey?
John H.
Fahey:
Yes
HMjr:
Henry Morgenthau -
F:
Oh, hello Henry, how are you?
HMjr:
oh, I'm fine.
F:
Good, I'm glad to hear it.
HMjr:
I've missed you - I haven't seen you in a long
time.
F:
Well, I've been up here for the last couple of
weeks trying to get a little rest -
HMjr:
Good
F:
- at home. And also I haven't been feeling very
well -
HMjr:
Oh, I'm --
F:
But I'm feeling much better now.
HMjr:
Good
F:
I've been having some trouble with indigestion
and it bothered me a good deal.
HMjr:
Well -
F:
I think I'm getting out of it all right now.
HMjr:
Good for you.
F:
Say, what I called you about is this. Now, I
happen to be one of the trustees for the Twentieth
Century Fund.
HMjr:
Yes
F:
You may remember that the Twentieth Century Fund
a year and a half ago made a study - had a special
study made of debts of all kinds in the country.
They're continuing that with a study of the problem
of Government debts.
Regraded
Unclassifie
3B
-2-
HMjr:
Yes
F:
And appointing a committee to supervise the work -
it'll probably be finished the last of the year or
the first of next year. And they asked me the other
day about some suggestions for members of that
committee.
HMjr:
Yes
F:
I think it's enormously important that a thing of
that kind shall not take any chance of going hay-
wire or getting out anything that might be em-
barassing.
HMjr:
Yes
F:
Although, obviously, none of us are interested in
anything except a scientific analysis of the subjects
if they want to make it.
HMjr:
Yes
F:
Now, I've sent down to the office the names of some
of those who have been selected already.
-
HMjr:
Yes
F:
- and asked Loomis to get them over to you.
HMjr:
Which he did.
F:
They include Emile and Kaulk
-
HMjr:
Right
F:
And some of the rest of them.
HMjr:
I got -
F:
I said, with reference to it however, that I thought
it was very important that that committee should
also include one or two men who knew something about
the problem of government debt as a whole.
HMjr:
Yes
F:
And that I didn't think that any of those people
on there knew very much about that sub ject.
HMjr:
Yes
Regraded Unclassified
3C
-3-
F:
And they've asked me if I could suggest some names.
And I thought I'd like to talk with you about it.
HMjr:
I see.
F:
And see if you would think it over and if you
might give me a name or two and I'd hand it along
to them, see?
HMjr:
I see. Now, the people who are familiar with
Government debts?
F:
Well, of course the problem of Government debt as
it stands today is something that's breaking new
ground.
HMjr:
Well, I tell you -
F:
The old-fashioned economist wouldn't do at all.
HMjr:
Yes - well, this is for the Twentieth Century
Fund?
F:
That's right.
HMjr:
- Well -
F:
What would you say about Earle Bailie?
HMjr:
Fine
F:
What about Leonard Ayers?
HMjr:
I don't know Leonard Ayers.
F:
Well, he's a pretty good man.
HMjr:
Well, I don't happen to know him, I mean, - that
doesn't mean - I just don't have any opinion.
F:
You know George Auld - who was the expert of
the Dawes and the
Commission?
HMjr:
No, I don't.
F:
He's with Haskins and Sells in New York.
HMjr:
Yes
F:
And he's been quite a good
of the whole
subject of Government debt, not only - everywhere
Regraded Unclassified
3D
-4-
throughout the World for a good many years.
HMjr:
No, I just don't happen to know him.
F:
And an open minded fellow.
HMjr:
Yes
F:
Oh, by the way, they probably - I understand they
are asking Watson to serve on that committee too,-
HMjr:
Oh yes
F:
And of course he's friendly.
HMjr;
Yes
F:
And
- - - - - -my thought was whether
you might think of somebody besides Earle Bailie -
HMjr:
Well, I'll ask some of the people around when I
see them in the Treasury and see if they have any
suggestions.
F:
Will you?
HMjr:
And then I'll - I'll call up your man Loomis
and tell him to get them to you.
F:
All right.
HMjr:
How's that?
F:
Could you do it within a couple of days?
HMjr:
I can do it between now and tomorrow noon.
F:
That's fine. - that's fine.
HMjr:
O. K.
F:
And - of course keep it confidential between
you and me.
HMjr:
Correct -
F:
That is - I think it's very important that there
should be some people on there -
HMjr:
Right
F:
- who are broad-minded and fair -
Regraded Unclassified
3E
-5-
HMjr:
Right
F:
- and so forth. I think that that will work out
in a constructive way. That's my impression
about it.
HMjr:
That's right.
F:
And while it's important to have
because it might cause embarass-
ment.
HMjr:
Yes - well, give me a chance and I'll go at it
tomorrow.
F:
All right, if that - a day or two doesn't matter.
HMjr:
All right
F:
And if you'll just give it to - call Loomis and
tell him to get it to me and I'll appreciate it.
HMjr:
Right - I hope to see you soon.
F:
I'll be down sometime after Labor Day.
HMjr:
Good for you.
F:
Good luck
HMjr:
Goodbye
F:
Thank you.
Regraded Unclassifie
4
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE September 1, 1936.
To
Mrs. Klots
Mr. Gaston 1188
FROM
Mr. Bell and I conferred with Mr. Early on the afternoon of
August 25th on the subject of the Secretary's letter of May 29th,
disapproving the purchase of certain utility bonds for the Endowment
Fund of the Red Cross. There was no one else present, but during the
conference Mr. Early talked to Mr. McClintock of the Red Cross over
the telephone. Early said that Admiral Grayson was greatly wrought
up and fearful that circulation of the Secretary's letter would create
an unfavorable effect in that it would be interpreted as a statement
that the principal of an investment in these particular utility bonds,
or any utility bonds, would not be safe in the opinion of the Secretary
of the Treasury.
Admiral Grayson, who is at George Harrison's summer home in
New England, had given McClintock instructions to circulate the letter
to the trustees of the fund, but hoped that the Secretary would with-
draw the letter so that would not be necessary. Early suggested that
the letter be withdrawn and that 8. substitute be written which made no
reference to these particular securities but would be merely B. general
statement that the Secretary believed that Red Cross funds, because of
their public nature, should be invested only in United States Government
direct or guaranteed securities. He said the letter withdrawing the
substitute letter, dated May 29th, could be a personal letter addressed
to Admiral Grayson and it would not be necessary to circulate that letter.
Both Mr. Bell and I pointed out to Mr. Early that any substitute
letter referring to the original letter and withirawing it would simply
stimulate curiosity and rumors as to the contents of the orginal letter
and we were fearful that this would be the 08.88 even if the substitute
letter made no reference to the original.
I discussed the matter verbally with the Secretary that same
evening and he thought there would be no harm whatever in circulating
the letter of May 29th, and that it would be & stupid thing for him to
withdraw it. The next day, the 26th, Mr. McClintook called on the
Secretary in company with Mr. Bell, and I was also called in. The
same view as above was expressed to Mr. McClintook and the Secretary
gave his decision that he would not withdraw the letter. He also told
Mr. McClintock that it was his intention to resign from any official
connection with the Red Cross for the reason that the Secretary of the
Treasury ought not to be put into the position of having to make decisions
as to investment of funds in securities other than Government obligations.
This responsibility puts the Secretary of the Treasury in the position of
having to say which corporate securities are good investments and which
are not, B. position which he has no right to occupy.
5
YEW YORK TIMES
September 1, 1986
In The Nation
These are some of the reasons why
the floancial and business communities
rank Mr. Jones with Joseph F. Res.
nedy, retired chairman of the SEC, as
New Deal's Ace Among
the best administrators the New Deal
Business Men
has produced. If either was placed in
charge of the government's fiscal
By ARTHUR KROCK
policy, the President would immedi-
The announcement by the American
atery 405 praise from citizens who
Bankers Association that Jesse, H.
haven't had any to give him for three
Jones, chairman of the RFC, in to
years. Yet Mr. Kennedy has just
make his fourth successive appearance
written a book endorsing Use President
at the annual convention of that body
and the New Deal ("T'm for Roose-
in September calle to mind the master-
vell") and asserting statistically that
ly service Mr. Jones has readered both
the government is "10 the black." And
to the administration and to business,
Mr. Jones is a right-wing New Dealer,
operation with government efforts to
and the prospect that, New Dealer
devoted to the cause of the President's
promote recovery. Tale time there
though he is, he will have a. most flat-
re-election. yases Illustrations sup-
was DO visible resentment. But when
tering reception from the hankers. For
port the argument that it in not 30
the A. B. A. met at New Orleans to
be is in a. position to say to them, "I
much the measures of Washington, all
1935, utilities holding companies had
told you 20," and to show them a bal-
the mén enforcing them, which consti-
generally decided not to register under
ance sheet of the largest bank in the
tute the chief objection of business.
the new act, the tax-the-prosperous
world that would receive the admiring
Mr. Junes, like Mr. Kennedy and nu-
bill was at fresh grievance, and the as
okay of any examiner.
merous business men, would do some
sociation voted in M Its head 6 man
Mr. Jones is a. business man. He
official decapitating if be could, Also,
who advocated the "boycott" of gon
gave Houston, Texas, a skyline, among
there are emergency statutes which he
ernment securities. Mr. Jones repeated
his other achievements. He La a living
would have drastically altered before
his advice and appeal. but in the most
witness to the claim that the RFC,
presentation, If the composition bad
hostile atmosphere be-in his official
most successful of all emergency bu-
been entrunted to aim; and adminis-
capacity-had ever experienced.
resus, was started by President Hoover
trative policies of which be has wholly
What Will He Say This Time?
and is bipartisan in its make-up. His
disapproved. But be Le firm in the
Now it is 1936, and the chairman of
three previous addresses to the associa-
position that, bad laws, inefficient ad-
the RFC in to meet his banking no-
tion provide accurate charts to the rise
ministratore, policy arrore and all, the
quaintances for the fourth lime. The
of the country out ot the depression,
New Deal has produced recovery and
government, through him, has impor-
and advice which many who neard him
it would be & perilous mistaks for the
tanily helped many of them and their
and not take but which has proved wise
country to supplant the government at
clients. The loans have been made on
as well as prophetic.
this time. This, In all probability, he
the best possible bases. All in 1934,
will tell the bankers BA be appears be-
when the dove of pesice was admitted,
Mr. Jones's Qualities
The chairman of the RFC has demon-
fore them for the fourth time, fortified
political indications are for the Presi-
by the roalest statistics be has ever
dent's triumph at the polla. In the
strated that he is at once of daring and
been able to produce.
Bight of this It will be unusually in-
prudent banker on the greatest scale
ever known in the world; that lie in
The NRA had caused uneasizess
teresting to note what Mr. Jones has
ecunomical by preference but doesn't
among members of the association
to MAY, how it is received, and what
is the tenor of the resolutions.
practice frugality as 4d, fellsh; that he
when, to the Spring of 1933, Mr. Jones
made his first appearánce. He ap-
To explain Mr. Jones's standing
CAR see ahead: and that be has the
peaied for a broader attitude toward
among business men and bankers, here
ability to put enough conservative drag
NRA credits. "Be amart-for once,"
is the broad record on July 21, 1934,
on New Deal impulatveness to provide
be said, and his auditors resented IL
of the RFC, which nearly all the TXC
4. safeguard for business in general.
At the famous "ollva-branch" conven-
bes been under nie domination: Total
Although be bes always been inter-
time of 1934, when Jackson Reyuolds
loans and disbureements excluding
ested In politics, and by politicians le
presented his old law student, the Pres-
government advances and relief-
rated as one of them, he has also shown
Ident, and the criticisms in the 1023
$6,184,973,525; repaid, $4,126,440,058
that be can say "No" to influential end
Leans on collm, $454.4)4,344; repaid
resolutions were blanketed by more
persiatent members of Congress as well
conciliatory language, Mr. Jones spoke
5375,286.667. to banks and trust
- to the finance committees of yall-
panies, $1,947,260,695; repaid, $1.700,
again on the point of the nacessity and
THE To lamirance companies
made.
wisdom of Instruct and financial -
553,519,434. repaid, $84,047,183,
NEW YORK TIMES
Aug.31, 1936
10. COOLIDGE CAN HELP
The Republican campaign managers
have every reason to present with deep
satisfaction the formal announcement
of T. J. Cootanue of Boston that be
will vote for Mr. LANDON this year
because he " Iikes " him and likes
his ideas of economy. Mr. COOLIDGE
was one of the ablest of the conserva-
tives whom the President, from time
to time, has Induced to assist. in the
conduct of the Government, and the
surprising length of his Washington
tenure, under the circumstances of
policy, was an asset for the New Deal.
There are many influential people in
business and finance who were dis-
turbed over his departure, fearing that
it meant a burst of fiscal radicalism
which, though it did not come, still
seems to these uneasy persons to re-
main A greater possibility with men
like Mr. COOLIDGE leaving the fight
against it.
His proclaimed intention to support
Mr. LANDON is not in the least sur-
prising, having been fully indicated by
his resignation. It was then well un-
derstood in Washington that Mr. COOL-
IDGE resigned because he had deter-
mined he could not vote for his chief
for re-election and would return to his
normal political alliance this year. But
the actual announcement of his de-
cision should not be his final contribu-
tion to the campaign for two reasons:
It will not have any particular effect
on the nation's decision, standing alone.
they propose to bring revenues and
He is in a position to offer a public
expenditures into liqe, contenting them-
program looking to economy and the
selves thus far with accusations and
balancing of the budget. While Mr.
implications. If the former Under-
COOLIDGE has now ranged himself with
Secretary of the Treasury would out-
the Republican candidate, he is an In-
line specific methods, he could be sure
dependent man, and spécific recom-
of making & real contribution to the
mendations he might chopse to make
campaign. Would he broaden the base
would have great weight and value in
of the income tax? What would he
forming public opinion behind economy
do about outstanding commitments in
moves, whichever cahdidate is elected.
public expenditure, and how would he
Mr. COOLIDGE should give to the pub-
being them clearly into the open It
lie the benefit of his experience and
would be immensely valuable for him
observation. The Republican platform
to go into such details.
and candidate are vague as to how
Tuesday
7
September 1, 1936
2:20 p. m.
HMjr:
Hello
Operator:
Mr. Krock
HMjr:
Thank you.
Operator:
Go ahead.
HMjr:
Hello
Arthur
Krock:
Hello
HMjr:
Henry Morgenthau, Junior
K:
Yes, Mr. Secretary
HMjr:
Can you hear me?
K:
Yes, sir
HMjr:
Arthur, I'm calling up about the editorial in
yesterday's 'Times', - 'Mr. Coolidge Can Help'.
K:
Yes
HMjr:
- and your article today.
K:
Yes
HMjr:
I take it, I don't know whether you wrote the one
yesterday or not but I imagine you did.
K:
That's a pretty good guess.
HMjr:
And the thing that I can't understand in the
editorial yesterday is the sentence which reads
as follows: 'There are many influential people
in business and finance who are disturbed over his
departure.. - -referring to Coolidge- .fearing
that it meant a burst of fiscal radicallsm, which
though it did not come, still seems to these un-
easy persons to remain a great possibility'.
K:
Well, that - that is a statement of fact.
HMjr:
Yes - that's
K:
I don't say that there is any sense in it.
Regraded Unclassified
-2-
8
HMjr:
No, but -
K:
- that it's justified.
HMjr:
No, but -
K:
Because, as you know I have on several times
written that you have been a definitely conserva-
tive influence down there, which you have.
HMjr:
Pardon me?
K:
I say, as you know, I have several times written
that you have been a definite conservative in-
fluence there, which you have. But that doesn't
mean that everybody believes it or understands it.
I mean -
HMjr:
Well -
K:
It is a fact, that's all.
HMjr:
Well, of course there's also a way of planting the
idea in somebody's mind.
K:
Well, after all, this was a reflection of something
that had taken place, not - not a thought of
planting it in anybody's mind.
HMjr:
Well, then let's refer to today's article, -
K:
Yes
HMjr:
- in which you say in let's see, one, two, three -
the fourth paragraph. 'If either. '-referring to
Mr. Jones or Mr. Kennedy- 'was placed in charge of
the Government's fiscal policy,J
K:
Yes
HMjr:
-'.. the President would immediately get praise from
citizens who haven't had any to give him for three
years'.
K:
That's true. I don't say it's just and I don't say
that it's well based. It's - it's a mere fact.
HMjr:
Well, of course I consider that one of the dirtiest
pieces of writing which has been written since I've
been in Washington.
-3-
9
K:
Well, now I've talked to Arthur about it -
HMjr:
Yes
K:
And I said, 'Now, this probably will hurt Henry's
feelings and I'm sorry, but it is a fact', be-
cause when I sat down town, oh, say a week ago, and
there were four or five bank presidents there, and
the argument was over you. And I told them that
you had been to my mind a very great conservative
influence in Washington, that you had stopped many
a bad thing, and that you had been, I thought, the
best administrator the department's had. They don't
think so. I do. It isn't my fault that they don't
think so, is it?
HMjr:
That they don't think what?
K:
What I just said.
HMjr:
I couldn't understand.
K:
I said I told them that you had stopped many a
radical thing, that you were definitely a conserva-
tive influence, that I thought you had been the
best administrator the Treasury had ever had.
HMjr:
Yes, but you don't - but you don't say it in here.
K:
Oh, I have said that - I wrote that about you some
time ago.
good
HMjr:
No, but the inference is only two/administrators
down here and that -
K:
I didn't say that I thought so, I said that there
were people who hadn't praised Roosevelt for three
years --
HMjr:
Oh, well -
K:
- who would praise him if he did this, but I -
that I thought so.
HMjr:
No, the point - the point is that it appears -
that they don't stop to analyze - the point -
the seed that you're planting in the peoples' mind
is one that there are just two people who admin-
istrated their department well. One is Jones and
the other is Kennedy.
K:
I said these were the fellows that down town had
-4-
10
the rating, which is quite true, Henry.
HMjr:
Yes, well --
K:
That doesn't mean that I believe 1t.
HMjr:
Well, I don't - I read the thing three times and
I don't get -
K:
Well now, your friend Sulzberger, who is a friend
of yours, doesn't agree with you about that at all.
I was merely presenting the situation as it exists.
And that is not my opinion.
HMjr:
Well, of course there isn't any nicer way, if some-
body wants to dig a grave for me than to do it that
way.
K:
But I don't want to and I haven't. On the contrary,
I have written about you several times, as you know.
HMjr:
Yes
K:
And it brought out those other points and will un-
doubtedly do it again.
HMjr:
Well, as I say, it's a very clever ingenious way to
start a toboggan for me.
K:
You mean that I wanted to?
HMjr:
Do I think so?
K:
Yes
HMjr:
After reading that article!?
K:
Yes
HMjr:
Yes
K:
Oh, for God's sake!
HMjr:
Yes, I do!
K:
Well, then you're wrong.
HMjr:
And I think - and I think it's the policy of the
New York Times.
K:
No, sir!
Regraded Unclassified
-5-
11
HMjr:
Well, I certainly do!
K:
Well, it isn't now, and you'll find it out. But
as long as you feel that way today I don't suppose
I can convince you. But it is not!
HMjr:
And, as I say, it's a beautiful piece of this
inuendo which - which when I was here three or
four years ago I didn't recognize, but I do now!
K:
Well, you're mistaken, because inuendo means the
person who did it had that in mind.
HMjr:
Yes
K:
And that is not so, as I said.
HMjr:
Yes. And, as I say, there's nothing that's been
written in months which I consider as much below
the belt as that piece of writing!
K:
Well, it wasn't so intended and a belt blow isn't
below the belt if it isn't aimed for that position.
HMjr:
Yes, Well, when are writing all this stuff, this
whole column, I mean, and you have to pick out the
fiscal agency, and the thought is - well now, get
rid of Morgenthau, put in Jones or Kennedy and -
this is a swell time, the election is on, get rid
of him or it will help elect Roosevelt.
K:
Oh, that isn't what I say, that's what they say.
HMjr:
Yes, but -
K:
I don't think 30.
HMjr:
Well - then why not say so?
K:
What?
HMjr:
Then why not say so?
K:
Well, I have said so in the past.
HMjr:
When?
K:
I was writing about something el.se this time.
HMjr:
When? - Have you said so in the last six months?
Regraded Unclassified
-6-
12
K:
Oh yes, I bet I have.
HMjr:
Well, I'd like to ask -
K:
All right, all right, now that's a challenge. I'll
find something I've written within six months ago.
HMjr:
Well, anybody - I mean, certainly nobody in the
Treasury here that I have talked to can remember it.
K:
All right, then I'll undertake to find it.
HMjr:
Yes
K:
But that's beside the point about inuendo, because
I can only assure you that that was not --
HMjr:
And, as far as I am concerned, as far as my admin-
istrating this thing I'm willing to leave it to the
presidents of the four biggest banks in New York
who have foreign offices and know how we conduct our
business, whether the Treasury is well run now.
K:
Henry, the Treasury is very well run.
HMjr:
Yes, and I'll leave it to the presidents of the four
biggest banks in New York who have offices abroad
who are not friends of mine and not friends of the
President.
K:
They're talking about fis- - not the administra-
tion of the Treasury Department. They're talking
about fiscal policy in which they include this last
tax bill.
HMjr:
Yes
K:
And since you didn't, so far as they know, oppose
it, --
HMjr:
I - I know what this thing is. I mean, the only
way you can get the tax bill changed -this is the
way this thing leads- is get rid of Morgenthau.
Because both Kennedy and Jones are on record not
favoring the tax bill.
K:
Well, they may think that - they may think that,
but I don't --
HMjr:
But that's the whole - that's the whole thing.
Now it's gotten to a point that the New York Times
Regraded
-7-
13
wants to dig & grave for me because they know as
long as I'm here they can't change me on the tax
bill.
K:
Well, I didn't know that, that's news to me.
HMjr:
Well that - that - I mean, it's very - it's a
very clever piece of - thing. And when I get
through - I called you first because I didn't
want you to say that I called Arthur Sulzberger
because I happened to know him personally. But
God knows he's never done me anything for me in
the New York Times! I mean, so - but when I get
through I'm going to tell him what I told you,
but I didn't want you to -
K:
That's very fine of you.
HMjr:
Yes
K:
Go ahead and tell him anything you think but you
won't get him to agree that -
HMjr:
Well, I don't care! - I don't care. But, of course
it's a great advantage having a newspaper and being
able to do those sort of things.
K:
Well, if you think that was the intention I can't
convince you otherwise. You'll just have to wait.
I think you won't think so in the long run.
HMjr:
Well, it's - that's the way I feel and I've had
a half a day to think it over.
K:
Well, I think it's very very frank of you to say
so, but you're wrong. I mean there's no such pur-
pose attached to it
HMjr:
Yes
K:
But if you won't think so today, perhaps you will
later on.
HMjr:
All right.
K:
All right, thank you.
HMjr:
Goodbye.
Regraded Unclassified
14
Tuesday
September 1, 1936
2:30 P. m.
HMjr:
-
of the New York Times
Operator:
All right
HMjr:
Outside - official
Operator:
All right - here you are.
HMjr:
Hello
Arthur
Sulzberger: Hello, Henry
HMjr:
Hello, Arthur
S:
I thought I'd hear from you today.
HMjr:
Well, I just got through talking to Arthur Krock.
S:
Yes
HMjr:
And I'll tell you just what I told him.
S:
Yes
HMjr:
First, there was the Coolidge editorial yesterday,
in which, I said to Arthur Krock, 'I take it that
you wrote it', and he said he did.
S:
Yes
HMjr:
And he said, 1 fearing that it, on the departure,' -
I mean infers, there are many influential people
in business and finance who are disturbed over his -
Coolidge's- departure
S:
Yes
HMjr:
I fearing that it meant a burst of fiscal radicalism,
which, though it did not come still seems to those
uneasy persons to remain a great possibility'.
S:
Yes
HMjr:
Well, that's a new one to me.
::
Yes
HMjr:
And I didn't know that they feared a burst of radicalism'
while I was here.
Regraded Unclassifie
15
-2-
S
Yes
HMjr:
And the other thing is Krock's editorial today
which - the sentence which I drew his attention
to is this, in which he says, referring to Kennedy
and Jones, 'If either were placed in charge of
the Government's fiscal policy the President would
immediately get praise from citizens who haven't
had any to give him for three years'.
S:
Yes
HMjr:
And then he goes, down in the next paragraph,
'Mr. Jones, like Mr. Kennedy and numerous business
men would do some official decapitating if he
could'.
22
Yes
HMjr:
Well, as I said to Arthur Krock, if the New York
Times wants to dig a grave for me they've done -
they've started a beautiful job.
::
Yes, I don't see - I don't agree with you at all.
The last thing in the World the New York Times
wants to do is to dig a grave for Henry Morgenthau,
Junior.
HMjr:
Well, I consider it one of the dirtiest pieces of
writing that I have read in any newspaper since
I've been in the Treasury. - And also the most
below the belt.
is
Well, I'm sorry you feel that way. But I don't
agree with you in the least. I don't see where it
reflects on you in the least.
HMjr:
Well, it just - all it's suggesting - that during
the campaign that if Mr. Roosevelt wants to get a
certain group which Mr. Krock says exists - that
the thing to do is to decapitate me, - and then
put in either Mr. Kennedy or Mr. Jones as Secretary
of the Treasury. It's just as plain as the nose.
And then Arthur Krock let the cat out of the bag,
he referred to the tax bill. And, as I said to
Arthur Krock, 'And I suppose you feel that as long
as I'm here you can't get the tax bill changed'.
S:
Well, that remains to be seen. Well, you - I
don't agree with you about the tax bill.
HMjr:
Yes
Regraded Unclassified
-3-
16
Si
I'd be very sorry to see you leave the Treasury,
except -
HMjr:
Well -
5:
Except when you wanted to -
HMjr:
Well, I've been around this town now for three
and a half years and I've seen these things
started and, as I told Arthur Krock, if he wants
to start me on the toboggan he's done it in 8
very clever, under the belt manner. And -
is
Well, I don't agree with you one - one
Henry.
HMjr:
Yes, well you wait until you see other newspapers
take it up. And his - his saying, well this isn't
what he thinks, this is what bankers think -
is
Well, of course it is.
HMjr:
Well, I - I know what bankers think and I - I
happen to -
S:
I'm not saying what bankers think, I'm saying what
a certain group of men up here in New York City -
HMjr:
Well he said he was down town with some bankers.
Now I have referred him to the presidents of the
four biggest banks in New York City who have
foreign offices, which is the Chase, the National
City, the Guaranty, and the Bankers Trust.
is
Yes
HMjr:
And I'm perfectly willing to let them say whether
I've run the Treasury well or not.
B:
Yes, well nobody's questioning that!
HMjr:
Oh, of course they are. I mean -
S
No, they're not, Henry!
HMjr:
The only people that have run their offices well
are Mr. Jones and Mr. Kennedy.
S:
Oh, that isn't truel
HMjr:
Well, it's right here in the editorial!
Regraded Unclassified
-4-
17
That isn't true at all!
Mjr:
Well, it says so,
No, it doesn't!
HMjr:
Well, I beg your pardon -
You'd better reread it, man.
Mjr:
Well, of course it said this is what somebody else
said, but anybody --
No, no, no! You're getting completely a wrong
point.
Mjr:
Well, nobody around the Treasury who has read it
feels but what it's one of the dirtiest pieces of
writing they've seen.
Well, I don't - I don't agree with you in the
least.
Mjr:
And, as I say - I know how these things are started
and I know that Krock is very close to both Kennedy
and Jones and I know how he works. And I know he's
got his favorites. And - I've seen those things
happen again and again. But I just wanted to let you
know, as Arthur Krock started to say about the Times
being friendly, I mean - I've never seen any evi-
dence of it. And - that's the way I feel, and you -
you watch and see other papers pick it up. I went
all through this thing when I went to Europe when
they started a rumor about my succeeding Straus.
Yes
Mjr:
And I - it came from exactly the same source as
this information that Krock has. And if Krock says
that the down town people feel that way he doesn't
know what he's talking about, because I know how they
feel and they've demonstrated it. And I'm perfectly
willing to stack up with anybody as an administrator,
certainly with Jones and Kennedy.
Well, there's no question about that in my mind.
Mjr:
Yes
The only question that I would raise with you is
Regraded Unclassified
-5-
18
that they've never said anything about comparing
you with them.
HMjr:
Well, after all, in one sentence they talk about -
'if either were placed in charge of the Government's
fiscal policy the President - 1
in
to a certain group
of people, I agree with that.
HMjr:
Well, if they -
5"
I don't say that there is any reason to it.
HMjr:
If they were going to be placed it means that Henry
Morgenthau, Junior has to be decapitated.
S:
But, it's a silly thought, there's no question about
that -
HMjr;
No, but -
It merely means that these two men hold a certain
position --
Mjr:
Yes
:
- among people who are Anti-Administration,- which
other persons, no matter whether they are good or
bad, don't happen to hold.
Mjr:
Well -
:
That's the
article.
Mjr:
It's a clever way to plart a seed to get rid of -
:
No, I think you're entirely -
Mjr:
Oh, no - well you - oh, well you -
Mjr:
Well, you just watch the thing grow, you just watch
it. I mean, I - my job doesn't make a - I can
take care of myself, and I will and have, but
that thing there, I'll never forget that.
Well, I think you're - I think you're very thin-
skinned on the thing and --
Regraded Unclassified
-6-
19
Oh no! It isn't a question -
-
I think you're - think-skinned
is wrong because that would mean that it had some-
thing to do with you. I don't agree that it did.
Mjr:
Well, who did it refer to!?
Not to you!
Mjr:
Well, who did it refer to!? - when he said, 'If
either were placed in charge of the Government's
fiscal policy'? Well, who is in charge of the
Government's fiscal policy?
But that doesn't mean that the Government's fiscal
policy isn't being run well now!
Mjr:
No, but -
they say, 'If either were placed in
charge of the Government's fiscal
It means that these two men, Henry, have a particular
hold on a certain group -
a certain group of
men who find nothing good in the Administration ex-
cept these two men. That's all that article meant.
Mjr:
But it says, point blank, 'If either was placed
I know that!
Mjr:
Well! And that means in my place! - in my place -
that's what it - that's what - and the way, the
thing to do isn't for the New York Times to come
out and say, 'Let's get rid of Morgenthau so we can
get rid of the tax bill...'
:
Oh Henry, you're talking through your hat!
Mjr:
Well - but this is the way to do it.
:
I'm ashamed of you.
Mjr:
This is the way to do it.
Well, you'd better sleep on it.
Mjr:
Oh no, I have - I've had a half a day.
Well, you haven't been sleeping, have you? (Laughs)
Mjr:
No, but I - I've had a half a day and I've had a
chance to talk it over and I've talked just as
-
Regraded Unclassified
-7-
20
I've talked stronger to Arthur Krock and --
is
:
Well, I think you're - I think you're completely
cockeyed on it.
Mjr:
Well -
is
Aside from that I find you all right.
Mjr:
Well, I'm sorry I can't say as much for the New York
Times.
::
:
(Laughs)
[Mjr:
Yes - all right, Arthur.
:
:
All right, Henry.
IMjr:
Goodbye
20A
QUARTERLY FINANCING, SEPTEMBER 15, 1936
Aug. 31
Memo to Secretary from Dr. Haas, subject, "Federal Reserve
Bank and Member Bank Holdings of Government Securities
1933-1936", summarizing changes between June 30, 1933 and
June 30, 1936.
(See pages20 F-J)
Sept. 1
Memo from Dr. Haas, entitled "Basic Data Concerning Possible
Offerings of Government Securities To Be Dated September 15,
1936".
(See pages 21 A-B)
Sept. 1
Meeting at Secretary's home in the evening. Bell reported
cash position. Burgess' opinion was because of present
cheap bond market, Treasury could sell longest maturity at
cheapest rate. Viner could see no excuse for purchase of
maturity in excess of 10 years. Burgess thought 400 million
dollars new cash in September would be about right. Burgess
also thought short bond not as sound finance as a longer one.
He pointed out that Metropolitan and Prudential Insurance
Companies have 150 million dollars to invest. Taylor liked
a 10 year 23% bond. (See pages 22 A-H)
Sept. 2
Memo from Haas to Secretary, "Conservative Estimates of
Premiums On Possible Offerings of Bonds in September
Financing".
(See page 23)
Sept. 2
Memo on various notes and bonds and closing prices and yields.
(See page 24)
Sept. 2
Estimate of Cash Position for September - December 1936 on
which financing was based.
(See pages 25-25 B)
Sept. 3
Meeting of Executive Committee of Federal Reserve Open Market
Committee in Secretary's office. Bell explained fiscal
position of Treasury. General comment on Budget.
(See pages 25 C-M)
Regraded Unclassified
20B 20
-2-
Sept. 3 (Continued)
Summation made public yesterday. Mr. Fleming, Pres. Federal
Reserve Bank of Cleveland, thought now was good time to get
new money; suggested 750 million dollars in September; sug-
gested 20-25 year 24% bond. (See pages 26-40, 49)
Mr. Broderick, Federal Reserve Bank, thought it desirable to
ask for no new money and suggested possibility of refunding
both September and December maturities.
Mr. Ransom, Federal Reserve Bank, thought 400 million dollars
cash about limit of what could be done now.
Mr, McKinney, Federal Reserve Bank Dallas, thought well of
500 million dollars new money.
Mr. Szymczak preferred no new money and if any, not more than
400 million dollars. Suggested 1956-1961 24% bond.
Mr. Thomas liked 500 million dollars new money. Preferred
long term 24% bond.
Haas thinks for safety 22% bond with 1947-1950 maturity.
Viner wanted no political dressing; favored 2% with as long
maturity as is saleable.
Upham's preference was for 22% 20-25 year maturity.
HMJr. said he would tomorrow announce amount of September issue
but not maturity or rate. Burgess agreed. He is not yet sold
on long term bond.
Treasury group remained after others departed. After taking
a vote, HMJr., Taylor and Haas voted for 500 million dollars.
Bell, Viner and Upham voted for 400 million dollars. HMJr.
decided to ask for 400 million dollars.
Sept. 3
HMJr. 's own memo for use at Press Conference. (See page 50)
Sept. 3
Press Conference (See pages 51-51 B)
Sept. 3
Ticker comment on announcement.
(See pages 52-52 I)
Regraded Unclassified
20C
-3-
Sept. 3
dr. Levy of Solomon Brothers and Hutzler gave his opinion
Treasury could sell a 58-61. Very bullish. (See page 53)
Sept. 3
HMJr's telephone conversation with Dr. Burgess, HMJr. told
him Mr. Levy's opinion. (See pages 54-54 D)
Sept. 3
Meeting at Secretary's home in evening with Mr. Mills and
Mr. Tripp of Discount Corporation. In their opinion 23%
47-50 bond would be great success. Favored 24% bond with
maturity as long as market would permit. Delighted Treasury
was asking for new money. (See page 55)
Sept. 4
Meeting in Secretary's office of Treasury group to discuss
kind of bond to be issued. Telephone conversation with
Burgess while group was present. Seltzer does not like
2-7/8 long term bond; prefers 2%. Murphy and Haas agreed
with Seltzer. Harris liked 24% 14 year. Lochhead's opinion
was if we were going to have bond issue he favored long term
24%. (See pages 80-80 I)
Meeting adjourned; nothing definite decided.
Sept. 4
Meeting in Secretary's office with Mr. Davidson, Pres. Central
Hanover, accompanied by Mr. Hollingsworth, in charge of their
bond department. (See pages 81-81 A)
Mr. Davidson praised HMJr's asking for additional cash.
Recommended 20-25 year 24% bond. Made good impression on
HMJr.
Sept. 4
Treasury group met with Secretary. He talked to Burgess on
phone. No one likes 2-7/8. Rentschler likes 11 year 2½%.
Bennett, of Immigrant Industrial, wouldn't take any bonds.
Discount Corporation thinks 24 is right. Market unanimous
for 24%, with range from 54-57 to 60-65. His opinion was
20-23 year; keep maturity date under 60. (See pages 82-82 K)
Regraded Unclassified
20 P
-4-
Sept. 4
ell's memo on his suggestions and preference for September 15
inancing. (See pages 83-83 A)
Sept. 4
elephone conversation with Burgess. Burgess not worried about
the market's reaction to the financing. (See pages 84-84 0)
Sept. 4
HMJr's memo of telegram to President suggesting better he not
go to Dern funeral because of financing and other important
matters, (See page 85)
Sept. 4
Bell's memo on meeting at Secretary's home with Gordon Rentschler
and his bond man Mr. Kane and Mr. Bell. Rentschler and Kane
both agreed 23% 11-14 year bond or a 22% 20-23 year bond would
be received well by the market, Rentschler favored 2½ shorter
term bond; 23% would sell at premium as high as 1½. Kane
thought 2% more desirable from Treasury standpoint.
(See pages 86-86 B)
Sept. 4
HMJr's own memo on meeting at his home with Mr. Rentschler and
Mr. Kane and general reaction of persons whom he has consulted.
(See page 87)
Sept. 5
HMJr's phone conversation with Burgess. Burgess' advice still
56-59.
(See pages 106-106 G)
Sept. 5
Just before Press Conference HMJr. thought of successive
lengthening of Government bonds, since a year ago. (See page 107)
Transcript of Press Conference. (See pages 107 A-D)
Press announcement of terms of financing 9:07 a.m.
(See pages 107 N, 127 A)
Sept. 8
Telephone conversation with Burgess. New issue priced at
1011. Burgess says new issue bound to be a success.
(See pages 107 F-M)
Regraded Unclassified
20E
-5-
Sept. 8
elephone conversation 10:55 a.m. with Burgess. First in-
formation: no question about success of offering. (See pages 127 E-F)
Sept. 8
"elephone conversation with Burgess - 332 million dollars sub->
scribed. (See pages 127 G-I)
Sept. 8
p.m. telephone conversation with Burgess; subscriptions
over the top". Oversubscribed 842 million dollars at 2
'clock. (See pages 127 J-K)
Sept. 8
ress Release books closed at close of business for offering
f 24% 1956-1959 bonds. (See page 144)
looks will close Thursday for receipt of subscriptions to
Treasury notes Series D-1936 maturing September 15, 1936. (See page 144
Sept. 10
ress Releases (Press Conference) issue oversubscribed 13 times.
Sept. 10
elephone conversation with Burgess - HMJr. inquired why
uaranty Trust took only 10 million dollars and Irving Trust
one. (See Book XXXII, pages 129-132)
Sept. 11
elephone conversation with Burgess; on allotment of sub-
criptions. (See Book XXXII, pages 137-140)
ress Release - cash subscriptions totaled $5,134,000,000.
llotments 7%. (See Book XXXII, page 141)
Sept. 15
ress Release - final subscription and allotment figures.
(See Book XXXII, page 225)
Regraded Unclassified
Prepared by Lawrence 8. Seltser,
no F
Division of Research & Statistics
DATE August 31, 1936
Secretary Morgenthau
Mr. Haas BR
Subject: Federal Reserve Bank and Member Bank Holdings of Government
Securities, 1933-1936
The attached tables summarize the changes in the holdings of
Government securities by Federal reserve and member banks at six-month
intervals between June 30, 1933 and June 30. 1936. The figures for
the latter date have not yet been released to the public by the Federal
Reserve Board. The more significant features revealed by the tables
may be summarized as follows:
1. In the three years ended June 30, 1936, the member banks of
the Federal Reserve System increased their holdings of Government 86-
curities by $4,835 millions. The increase in note holdings amounted
to $3,112 millions; the increase in bond holdings to $1,570 millions;
and the increase in holdings of certificates and bills to $153 mil-
lions.
The preponderant increase in short-term securities 1e in part
superficial because the Liberty bonds subsequently called bulked large
in bank portfolios and were regarded as short-term investments by the
banks, though classified, of course, as bonds. A further factor in
restricting the apparent increase in the bond holdings of member banks
was the retirement last July and August of the Consols and Panama
Canal bonds which, by itself, reduced the bond holdings of banks by
approximately $675 millions.
2. The largest part of the net increase in member bank holdings
of bonds during the three-year period took place during the six months
ended June 30. 1936, an increase of $1,390 millions, or more than the
aggregate net increase in their total holdings of Government securi-
ties. Note holdings declined by $242 millions and bill holdings
increased by $74 millions during these six months.
The fact that the increase in bond holdings accounted for more
than the entire increase in the banks' holdings of Government obliga-
tions does not represent as sharp & change in the investment policies
of the banks as the figures themselves might indicate, because the
last six months constituted the first period in which the popularity
of bonds as contrasted with bills and notes was not obscured by the
refunding and redemption operations cited above. Nevertheless, the
figures for the last six months do indicate an accentuation of the
preference for bonds.
Regraded Unclassified
ZOG
Secretary Morgenthau - - 8/31/36 - 2
3. During the three-year period, the percentage of the total
direct public debt, exclusive of special issues to Government trust
funds and corporations and of adjusted service bonds, held by nem-
ber banks increased from 31.5 percent to 37.3 percent. The combined
Federal reserve bank and member bank holdings increased from 40.7
percent to 45.0 percent. Comparable figures for nonmember banks are
not yet available, but Government security holdings of insured non-
member commercial banks aggregated about one-tenth the amount of
member bank holdings on December 31, 1935.
4. Of the aggregate principal amount of $14,152 millions of
direct Government securities held in the Federal Reserve System,
$8,541 millions, or about 60.4 percent, consists of notes and bills.
Of the holdings of member banks alone, $6,427 millions, or 54.8 per-
cent, consists of notes and bills.
5. The increasing importance of Government obligations in the
earning assets of the banking system is indicated by the fact that
direct and guaranteed Government securities have increased from 27.8
percent to 42.4 percent of the total loans and investments of all
member banks between June 30, 1933 and June 30, 1936. They consti-
tuted 29.4 percent of total member bank assets on June 30, 1936 as
compared with 20.8 percent on June 30. 1933.
Attachments
Regraded Unclassified
20 H
Table I
Outstanding Interest-Bearing Public Debt and Amounts Held by
Federal Reserve Banks and by Member Banks, 1933-1936*
:
:
:
:
:
:
:
ty
:
6/30/33
#
12/30/33
1
6/30/34
I
12/31/34
I
6/30/35
:
12/31/35
I
6/30/36
:
:
:
:
A.
Total Amount Outstanding
(in millions of dollars)
14,223
15,569
16,510
16,245
14,936
14,672
17,684
4,548
4,880
6,653
9,187
10,023
11,792
11,381
cates
2,108
1,628
1,517
-
I
-
I
954
1,003
1,404
1,954
2,053
2,404
2,354
21,833
23,080
26,084
27,386
27,012
28,868
31,419
B. Held by Federal Reserve Banks
(in millions of dollars)
442
443
468
396
317
216
316
709
1,053
1,222
1,507
1,511
1,642
1,494
cates
622
425
265
-
I
1
I
225
516
477
527
605
573
620
1,998
2,437
2,432
2,430
2,433
2,431
2,430
0.
Held by Member Banks
(in millions of dollars)
3,725
4,411
4,838
4,659
4,458
3,905
5,295
2,049
1,916
2,871
4,217
4,314
5,403
5,161
cates
559
485
637
I
--
I
1
554
442
791
1,030
1,099
1,192
1,266
6,887
7,254
9,137
9,906
9,871
10,500
11,722
D. Held in Federal Reserve System
(in millions of dollars)
4,167
4,854
5.306
5,055
4,775
4,121
5,611
2,758
2,969
4,093
5,724
5,825
7,045
6,655
cates
1,181
910
902
-
I
-
1
779
958
1,268
1,557
1,704
1,765
1,886
8,885
9,691
11,569
12,336
12,304
12,931
14,152
y Department, Division of Research and Statistics.
sive of special issues to governmental trust funds and corporations and of
ted Service Bonds.
,000 of certificates included with Treasury notes.
Regraded Unclassified
zu D
Table II
Percentage of Interest-Bearing Public Debt held by
Federal Reserve Banks and by Member Banks*
:
:
:
:
:
I
:
ty
:
6/30/33
:
12/30/33
I
6/30/34
I
12/31/34
I
6/30/35
I
12/31/35
:
6/3036
:
2
2
1
A.
Percentage held by Federal Reserve Banks
3.1
2.8
2.8
2.4
2.1
1.5
1.8
15.6
21.6
18.4
16.4
15.1
13.9
13.1
cates
29.5
26.1
17.5
-
-
-
-
23.6
51.4
34.0
27.0
29.5
23.8
26.3
9.2
10.6
9.3
8.9
9.0
8.4
7.7
B. Percentage held by Member Banks
26.2
28.3
29.3
28.7
29.9
26.6
29.9
45.0
39.3
43.1
45.9
43.0
45.8
45.4
cates
26.5
29.8
42.0
-
-
-
-
58.1
44.1
56.3
52.7
53.5
49.6
53.8
31.5
31.8
35.0
36.2
36.5
36.4
37.3
C.
Percentage held in Federal Reserve System
29.3
31.2
32.1
31.1
32.0
28.1
31.7
60.6
60.8
61.5
62.3
58.1
59.7
58.5
cates
56.0
55.9
59.5
-
-
-
-
81.7
95.5
90.3
79.7
83.0
73.4
80.1
40.7
42.0
44.3
45.0
45.5
44.8
45.0
y Department, Division of Research and Statistics.
usive of special issues to governmental trust funds and corporations and of
sted Service Bonds.
Regraded
Relation between Member Bank Holdings of Direct and Guaranteed Government Securities
and their Total Assets and Total Loans and Investments
(in millions of dollars)
:
:
:
:
:
:
:
:
6/30/33
:
12/30/33
:
6/30/34
:
12/31/34
:
6/30/35
:
12/31/35
:
6/30/36
:
:
:
:
:
:
:
Total assets
33,047
33,876
37,385
40,077
40,725
44,122
46,534
Total loans and investments
24,786
25,220
27,175
28,150
28,785
29,985
32,259
U.S. direct obligations
6,887
7,254
9,137
9,906
9,871
10,500
11,722
Securities fully or partially
guaranteed by the U.S.
I
150*
508
1,100
1,565
1,768
1,950
Total U.S. securities
6,887
7,404
9,645
11,006
11,436
12,268
13,672
Percentage total U.S. securities
of total assets
20.8
21.9
25.8
27.5
28.1
27.8
29.4
Percentage total U.S. securities
of loans and investments
27.8
29.4
35.5
39.1
39.7
40.9
42.4
Treasury Department, Division of Research and Statistics.
. Notimated.
Regraded Unclassifi
21 A
Basic Data Concerning Possible Offerings of Government Securities
To Be Dated September 15, 1936
1. Five-year 1-3/8% note, due September 15, 1941
Comparable issues
Yield
1-1/2's
3/15/41
1.15%
1-3/8's
6/15/41
1.15
Extrapolated yield for an issue due 9/15/41 - 1.15%
A 1-3/8% ncte due 9/15/41 would sell;
at 101-3/32 to yield
1.15%
100-27/32 If If
1.20 (conservative expectation)
100-19/32 II BI
1.25
2. Ten-thirteen year 2-1/2% bond, due September 15, 1949, optional
after September 15, 1946
Comparable issues
Yield
2-3/4's
9/15/45-47
2.23%
3-1/8"s
6/15/46-49
2.33
2-3/4's
3/15/48-51
2.47
A 2-1/2% bond due September 15, 1949, optional after September 15,
1946, would sell;
at 101-11/32 to yield
2.35%
100-28/32 If If
2.40 (conservative expects-
100-14/32 If #
2.45
tion)
21B
- 2 -
3. Twelve-fifteen year 2-5/8% bond, due September 15, 1951, optional
after September 15, 1948
Comparable issues
Yield
3-1/8's
6/15/46-49
2.33%
2-3/4's
3/15/48-51
2.47
3-1/8's
12/15/49-52
2.53
2-3/4's
6/15/51-54
2.58
A 2-5/8% bond due September 15, 1951, optional after September 15,
1948, would sell:
at 101-9/32
to yield
2.50%
100-25/32
If
If
2.55
(conservative expectation)
100-8/32
If If
2.60
Note: All prices and yields quoted above are as of the close of
the market on August 31.
The present premium on the maturing issue of Treasury notes exceeds
the remaining amount of interest to accrue on such notes by about
26/32 points.
Treasury Department, Division of Research and Statistics.
September 1, 1936.
Regraded Unclassified
22 A
September 1, 1936.
A group met at supper at Secretary Morgenthau's home at
7:30 and following supper there was a discussion of September
financing. Those present were:
Henry Morgenthau, Jr., Secretary of the Treasury,
Mr. W. Randolph Burgess, Vice President of the Federal
Reserve of New York,
Wayne C. Taylor, Assistant Secretary of the Treasury,
D. W. Bell, Assistant to the Secretary,
George C. Haas, Director of the Division of Research
and Statistics,
Jacob Viner,
C. B. Upham, Assistant to the Secretary.
Mr. Bell reported on the cash position of the Treasury.
He stated that we would go into September with a cash balance
of $1 billion 310 million. Without any new cash we would go
into October with a balance of $1 billion 129 million. If we
had an increase of $100 million bills in October, we would go
into November with a balance of $874 million. And if during
November we added $200 million bills, we would go into December
with a balance of $780 million. A plan for December then would
be $800 million financing, $400 million of which would pay off
bill
Treasury/accumulations, leaving $400 million net cash and a
balance going into January of $1 billion 40 million.
Mr. Burgess and Mr. Viner both expressed opposition to
reduction of the cash balance to too low a figure. Mr. Burgess
was against an increase in the short dated debt, particularly
of maturity within a year.
Mr. Bell said that he would like to 800 a maturity in June
Regraded Unclassified
. 2 -
22B
when we have revenues of $900 million, and thought there might
be some June bills floated in December.
Mr. Burgess asked what assumption about business recovery
was the basis for the revenue figures.
Mr. Haas replied that the estimate was a conservative
figure based on 1936 estimates, under which it was assumed that
the FRB index would be under 100, whereas as a matter of fact
it will probably be 102 or better. The revenue in June 1936
was just under $500 million.
Mr. Morgenthau asked if a request for $500 million new
money in September, following so closely upon the announcement
that we would seek only $750 million during the entire fiscal
year, would not sound "phoney".
Mr. Bell was of the opinion that it could be explained.
Mr. Morgenthau was afraid people would not believe the
explanation. It was pointed out that the bulk of the fiscal
year revenue comes in in the second half thereof.
In response to Mr. Morgenthau's inquiry, Mr. Bell stated
that without October and November bills we would have about
$400 million cash on December 15.
Mr. Morgenthau referred to $140 million additional which
Mr. Bell has "in his back pocket". This $140 million is in
gold appropriated for national bank note retirement, but
probably not more than $40 million of it will be needed for
that purpose during the rest of the calendar year.
Mr. Burgess pointed out that there are maturities in
February, April and September, 1937, and that it would be
normal to refund the February maturities in December, which
would give a refunding operation of $1 billion.
Regraded Unclassifie
22C
- 3 -
Mr. Viner expressed the view that there should be & bond
issue in December.
Mr. Burgess replied that when there 1s a big financing
it must be partly in notes, but that the September refunding
with $400 million new money can be taken care of by 8. bond only.
It gets the short dated note out of the way, whereas if we wait
until December for new money a part of it will have to be
raised by a short note. Moreover, there is no good open space
now for a five year note.
Mr. Morgenthau asked what a five year note would sell for
now, and Mr. Burgess replied 11. He agreed that that might
be a little tight. He added that he would certainly not sell
a note in September.
Mr. Morgenthau said that he had his mouth set for a note.
Mr. Burgess pointed out that we now have a cheap bond
market and that we could sell the longest maturity at the
cheapest rate. He suggested a 2-3/4 per cent bond with a
maturity of 56-61. This, he said, would go a long way to meet
the criticism of H. Parker Willis and others about the size of
the short dated debt. Such a bond should appeal to investors.
It would be sound financing.
Mr. Viner said that investors would buy that bond but he
is unable to see why they should. There is no excuse in his
opinion for purchase of a maturity in excess of ten years.
Mr. Haas expressed the opinion that the maturities beyond
1955 are likely to have a pretty dead market.
Mr. Morgenthau suggested the possibility of merely rolling
over the September maturity and Mr. Burgess commented that in
Regraded Unclassified
4
22D
that event the obvious thing would be to offer the market $500
million of the most recent bond issue and offer it at a premium.
He thought it would sell at about 1011.
Mr. Morgenthau stressed the necessity for keeping in
mind at this time the viewpoint of Congressman Lemke and Father
Coughlin, and not to be too generous to the bankers and bond
dealers.
Mr. Burgess was of the opinion that not to take cash now
would be obviously artificial and would look like a political
gesture. He urged that the only consideration should be sound
financing, and stated that up to now no one could accuse the
Treasury of politics.
Mr. Viner said that it was logical to refund B. substantial
part of the short term debt either in September or December.
He would do a minimum for clean financing in September, having
in mind not to let the cash balance get too low.
Mr. Burgess thought $400 million new cash in September
would be about right. He thought $250 million would be too
small and cause allotment difficulties. At present market
rates he thought it desirable to get some of the short term
debt into bonds.
Mr. Morgenthau was of the opinion that we cannot lose
aight of the whole political arena. He stated that whatever
we do we will be accused of politics. In the face of the
Lemke-Coughlin school of thought he thinks it bad to give the
market more than half & point.
Mr. Viner suggested that a wholly new issue would avoid
that difficulty.
Mr. Burgess was for a new issue.
Regraded
- 5 -
22E
Mr. Morgenthau said he thought it would be a mistake to
take an existing bond with a visible point profit, and sug-
gested that the profit on a new issue would not be visible.
Mr. Taylor said that he thought we could eliminate a
cash pay-off in September as a possibility.
Mr. Burgess and Mr. Viner agreed that cash pay-off was
absurd and too obvious.
Mr. Taylor said then the alternatives were a straight
refunding or some new cash. The test is, do we want new money?
and that should be decided first.
Mr. Morgenthau said that his mind had been pretty well
made up the night before that he would ask for no new money,
but that it had just come to his attention - and Mr. Bell's -
that the windfall tax had been shifted 90 days to December,
which, together with some changes in HOLC finances, reduced
cash between now and December.
Mr. Taylor explained that the windfall tax shift had
resulted from the fact that the Bureau of Internal Revenue
is not yet ready to handle those transactions.
Mr. Morgenthau and Mr. Burgess thought that by using the
$100 million gold allocated for national bank note redemption
and by selling November bills for June maturity, we could
scrape through without new money in September.
Mr. Burgess pointed out that this would leave a big
problem for December.
Mr. Bell indicated that he had hoped to take care of part
of the February maturity and part of the April maturity with
cash.
Mr. Morgenthau returned to his suggested possibility of
Regraded Unclassified
- 6 -
22 F
a simple refund in September.
In that event, Mr. Burgess said, it should be & bond.
Notes are already piled up and a note would increase the
short term debt. He would prefer a long 2-3/4 or an addition-
al amount of 51-54s. It was pointed out that 1941 maturities
are already $2 billion 100 million. This was in connection
with Mr. Morgenthau's remark that a 5 year 11 note looked
pretty nice to him.
Mr. Burgess was afraid of note declines on market breaks.
Mr. Bell said that a simple refunding in September did
not worry him. Fie was of the opinion that a bond issue might
do the market some good.
Mr. Burgess expressed the opinion that we may be reach=
ing a high artificial level that will crack if we get no bonds
now. He urged that the market be not starved, and said he
would rather have the market go down now than in December.
Mr. Morgenthau asked what Lemke would say if we go after
new money.
Mr. Burgess thought that he and everyone else would say
that we are smart to take advantage of a market when we have
a good one.
Mr. Taylor said he would suggest "a funny one," and ad-
vanced the 1dea of a 101/2 year 21 per cent bond.
Mr. Burgess said that a. 47-50 bond could be floated at
21, which is the lowest rate since the war, but that he would
not recommend it.
Mr. Morgenthau said he was a. little bit afraid of the
2-3/4 and referred to the fact that the Treasury has been
nursing the 2-7/8 for two years and has accumulated 10 per
cent of the issue.
Regraded Unclassified
- 7 -
22G
Mr. Burgess stated again that he was in favor of the
56-61.
Mr. Taylor and Mr. Haas said they were afraid of 80 long
a maturity.
Mr. Bell and Mr. Burgess said it was always a sign of
weakness to lower a maturity at the same rate.
It was pointed out that Postal Savings has $75 million
cash to invest, and the FDIC $20 million,
Mr. Burgess said that two insurance companies in New
York have $150 million to invest - the Metropolitan and the
New York -.
The Discount Corporation favors a long 2-3/4. The
insurance companies will like it. The Prudential bought
100 million of the last issue.
Mr. Taylor renewed his idea of an 11 year bond as worth
thinking about.
Mr. Burgess said no chance would be taken on either but
that he thinks the shorter bond not such sound finance. He
stated that the Treasury must spread its debt out.
Mr. Morgenthau asked what the market will think.
And Mr. Burgess replied that they want a bond, not 8.
note and that if there is new money the market is unanimous
for 8. 2-3/4 of long maturity.
Mr. Morgenthau said that he was impressed with one con-
sideration - that when the market looks too good it may get
hollow.
Mr. Burgess said that if the market 18 not fed now it
may rush up artificially and become vulnerable. Dealers have
on their shelves about $190 million, which includes B. good
Regraded Unclassified
- 8 -
22H
many of the September maturities.
Mr. Burgess said that Childs favor a 2-3/4 with a 60-65
maturity.
Mr. Morgenthau referred to the fact that the last time
there was sentiment for a 3 per cent 20 year bond.
Mr. Haas commented that the banks and brokers want coupon
more than maturity.
Mr. Burgess said that $900 million financing in Sep-
tember would be a cinch.
Mr. Bell said that a 56-61 bond ought to s9ll at 101,
which would provide plenty of gravy.
Mr. Morgenthau asked which sounds better, a 21% rate or
a 56 maturity?
Mr. Haas was of the opinion that the student of finance
would favor a 56 maturity but that the mass of the people
would likely favor the 21 rate.
Mr. Burgess was of the opinion that if no cash is asked
in September the operation would be branded as political in
color.
There was some discussion of the mechanics of the Sep-
tember financing and Mr. Bell felt that by working Saturday,
Sunday and Labor Day, Monday, it could be taken care of.
Mr. Burgess arranged by telephone for officials of the
Discount Corporation to come down for supper with Mr. Morgen-
thau tomorrow night and plans were made for certain other
New York bankers to come down for discussions on Thursday
and Friday.
Regraded Unclassified
23
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE September 2, 1936
Secretary Morgenthau
ROM
Mr. Haas 9011
ubject: Conservative estimates of premiums on possible offerings
of bonds in September finanoing.
1. Ten-thirteen year 2-1/2 percent bond due September 15, 1949,
callable after September 15, 1946. Estimated market price
100-28/32 to yield 2.40 percent.
2.
Twenty-twenty-five year 2-3/4 percent bond due September 15,
1961, callable after September 15, 1956. Estimated market
price 100-25/32 to yield 2.70 percent.
Note: Estimated price and yield of this issue subject
to considerably more error than on No. 1 because
of length of maturity and existence of only one
outstanding comparable issue on which to base
judgment.
Regraded Unclassifi
Harces ma. 24
youghina 1936
Listed below are various maturities of notes and bonds, also their
current estimated market basis and the premium they show above this
market basis.
Suggested
Estimated
Probable
Coupon
Maturity
Market Basis*
Premium
NOTES
1003/8% (5 yrs.)
9/15/41
1.19
7/8 point 4
BONDS
2-1/2% (10 1/2 yrs.)
3/15/47
2.38
1 pt. 3/32nds
2-1/2% (11 yrs.)
9/15/47
2.41
27/32nds
2-5/8% (14 yrs.)
9/15/50
2.55
7/8 point
2-3/4% (20 yrs.)
9/15/56
2.68
1 pt. 2/32ads
2-3/4% (21 yrs.)
9/15/57
2.70
25/32nds
. Market basis outimated from yields on bid price of outstanding issues
close of business September 2, 1936.
24A
Closing Bid Prices and Yields September 2, 1936
Treasury Notes
Bid Price
Yield
2-5/8a 2/ 1/38
103.14
.18
3a
3/15/38
104.7
.34
2-7/85
6/15/38
104.18
.30
2-1/2s
9/15/38
104.4
.46
1-1/2a
3/15/39
101.24
.80
2-1/88
6/15/39
103.14
.87
1=3/8s 12/15/39
101.14
.93
1-5/8s 3/15/40
102.3
1.02
1-1/28 6/15/40
101.20
1.06
1-1/28 12/15/40
101.17
1.13
1-1/2a 3/15/41
101.16
1.16
1-3/88 6/15/41
101.3
1.14
Treasury Bonds
3-3/88
6/15/40-43
108.12
1.11
3-3/80
3/15/41-43
109.7
1.28
3-1/48
8/1/41
109.6
1.31
3-3/8s
6/15/43-47
109.9
1.91
3-1/4s
10/15/43-45
108.21
1.94
3-1/45
4/15/44-46
108.12
2.06
4s
12/15/44-54
114.10
2.11
2-3/4s
9/15/45-47
104.14
2.21
303/40
3/15/46-56
112.16
2.28
3a
6/15/46-48
106.3
2.30
3-1/85
6/15/46-49
107.2
2.32
4-1/48
10/15/47-52
119.9
2.28
2-3/40
3/15/48-51
102.28
2.46
3-1/8s 12/15/49-52
106.22
2.53
2-3/48
6/15/51=54
102.3
2.58
3s
9/15/51-55
105.14
2.56
2-7/82 3/15/55-60
103.15
2.64
Regraded Unclassified
+)
September 8, 1936
We based our financing on this statement.
3
65
25A
mM
ESTIMATE OF CASH POSITION
September- December, 1936
(In millions of dollars)
1936
Sept.
Oct.
Nov.
Dec.
Total
Balances at beginning of periods
1,310
1,529
1,174
880
1,310
Receipts:
General revenues
470
225
225
500
1,420
Social Security taxes
14
15
16
17
62
Sales of Treasury notes & bonds
400
-
-
800
1,200
Sales of Treasury bills (new)
-
-
-
-
-
Sales of U. S. Savings bonds
25
25
25
25
100
Total receipts
2,219
1,794
1,440
2,222
4,092
Expenditures:
General
250
260
260
250
1,020
230
240
250
250
970
Emergency
Interest on public debt
150
80
10
130
370
Redemption of Veterans' bonds
35
20
15
25
95
Redemption of old debt
15
10
10
415
450
10
10
15
10
45
Special transactions
690
620
560
1,080
2,950
Total expenditures
880
1,142
1,142
Balances at end of periods
1,529
1,174
Refunding operations:
Treasury bills:
Regular
250
200
200
250
900
400
400
-
-
Special
-
358
872
514
-
-
Treasury notes
764
200
200
1,008
2,172
Total refunding
5WB
ACCOUNTS AND DEPOSITS
September 2, 1936
Regraded Unclassified
25C
September 2, 1936.
The Executive Committee of the Federal Reserve Open
Market Committee met with the Secretary of the Treasury at
11 A. M. to discuss September financing.
Those present were:
Henry Morgenthau, Jr., Secretary of the Treasury,
Wayne C. Taylor, Assistant Secretary of the Treasury,
D. W. Bell, Assistant to the Secretary.
George C. Haas, Director of Research and Statistics,
Treasury Department,
Ronald Ransom, Vice Chairman, Federal Reserve Board,
Joseph A. Broderick, Member of the Federal Reserve
Board,
M. S. Szymczak, Member of the Federal Reserve Board,
Woodlief Thomas, Assistant Director Research and
Statistics, Federal Reserve Board,
M. J. Fleming, President, Federal Reserve Bank of
Cleveland,
B. A. McKinney, President, Federal Reserve Bank of
Dallas,
W. Randolph Burgess, Vice President, Federal Reserve
Bank of New York.
Jacob Viner, Consultant to the Secretary,
C. B. Upham, Assistant to the Secretary.
Mr. Bell explained the fiscal position of the Treasury
by stating that we will have a working balance on the first of
September of about $1,300,000,000. Without any new financing
we will go into October with a balance of $1,129,000,000;
into November with $774,000,000; into December with $580,000,000;
Regraded ified
25D
-8-
and have $480,000,000 on December 15th. We will need $300 to
$400 million new money through to December 15th to keep 8. steady
balance of around $600 million.
At Mr. Morgenthau's suggestion Mr. Bell summarized the
Revised Budget Summation, which was given out yesterday. It
was released, Mr. Morgenthau said, in advance of the September
financing so that the public would know what they are buying
if there is a September offering. Following Mr. Bell's brief
digest of the budget picture, Mr. Burgess remarked that the
Government bond market is up a little this morning and that
the premium on the September maturities is also steady to up,
being 26/32 to 28/32.
Mr. Bell stated that he had received two calls this
morning which might be of interest. One of them was from
Moody's who regarded the Budget Summation as an excellent
statement, who informed him that in their next bulletin they
would stress the fact that the Treasury would ask for little
money from the market during the current fixcal year. The
other call was from Ogden Mills who directed attention to an
error in the Herald Tribune table. Mr. Mills said he thought
it was a good statement but that he would attack the relief
expenditure expectations and the recoverable asset position.
Mr. Morgenthau said that he regarded it as important
that this Budget Summation was gotten out in advance of the
September Offering.
Mr. Burgess regarded it 8.8 fortunate that the papers
played it down pretty much--because otherwise it would have
Regraded Unclassified
25E
-3-
been regarded as a political document.
Mr. Broderick said that it was well timed and Mr. Viner
said that the timing was altogether too good--it should have
been gotten out last week.
Mr. Morgenthau commented that there are two possibilities
in September: (1) A simple refunding with November bills to
raise needed cash, or, (2) Refunding plus perhaps $400 million
cash now.
Mr. Fleming was of the opinion that the cash balance
between now and December and in December would be pretty low
if there were no new cash. He felt that now is a good time to
get money and suggested $750 cash in September.
Mr. Broderick referred to the fact that the market is
now strong and suggested the possibility of refunding not only
the September maturities but that of December as well--but
asking for no cash. He thought it desirable to take advantage
of the present market and ask for no new money. He would like
to see the shorter maturities pushed as far ahead as possible.
Mr. Ransom thought $400 million cash about as much as
could be done now. He regarded the Broderick suggestion as
interesting but costly. There would be no trouble with $400
or $500 million new money now but perhaps some difficulties
later.
Mr. McKinney thought the present market should be taken
advantage of to the extent perhaps of $500 million new money.
If refunding only is resorted to the market will be tremendously
Regraded Unclassified
stimulated and there may result considerable relization by
banks for the benefit of the year's earning position.
Mr. Morgenthau asked if the Broderick suggestion was
mechanically feasible. Mr. Bell replied that it was but that
it was unusual to step ahead three months in maturity antici-
pation. That the most we had ever done was a month and a half.
Mr. McKinney asked if the public expected new money to
be asked in September and Mr. Morgenthau replied that there was
very little positive opinion. He referred to 8 Herald Tribune
statement this morning that no one in Wall Street knows.
Mr. Ransom was of the opinion that the market is not
strong because of beliefs that there will be no new money
asked.
Mr. Burgess added that there might be some little senti-
ment of that character.
Mr. Szymeczak said that he would prefer to ask no new
money now and certainly not more than $400 million.
Mr. Morgenthau commented that if we asked $400 million
cash now we would have a balance of around $700 million on
December 14th. On the assumption that we do ask for cash he
asked what kind of security should be offered.
Mr. Szymczak suggested a 2-3/4% bond with 1956-61
maturity.
Mr. Fleming thought a 20-25 year 2-3/4% bond the proper
offering.
25 G
-5-
Mr. Broderick wanted as long 6. maturity as the market
will take at 2-3/4% (Mr. Morgenthau suggested that Mr. Burgess
must have been doing some "horse-shedding". He replied that
they had talked together a little bit but that the rest of
the group started out with the idea now being expressed.
Mr. Ransom said he thought it the obvious procedure).
Mr. Burgess commented that there had been a suggestion
of a 2-1/2% bond which would be the lowest since the war, and
with maturity of say, 1947-50. The obvious difficulty to
that suggestion is that there are a good many maturities
around those years.
Mr. Ransom thought the longer maturity offered the
better.
Mr. Burgess thought the open spaces within the years
closer at hand ought to be left for use when it is necessary
to issue short term securities. He added that the longer
the bond the more appeal it would have for investors.
Mr. Thomas thought a half-billion new money now better
than bills later for March or June maturity. He thought it
difficult to figure what the market would be then. The money
should be gotten now while there is a good opportunity. He
preferred a long term 2-3/4% bond.
Mr. Taylor said he had difficulty in getting the 2-1/2%
bond out of his head. He regards eleven years as a long time.
Mr. Haas referred to the recent sharp rise in long term
bonds--thinks the market expects no new cash and eays that if
Regraded Unclassified
25 H
-6-
we want to be absolutely safe we should lean toward a 2-1/2%
bond with 1947-50 maturity.
Mr. Burgess said he thought Mr. Thomas' point a good
one that if we issue a 2-1/2% bond now and then have to give
2-3/4% in December it will not look so good to the public.
Mr. Thomas added that there is considerable demand
now by insurance companies and other institutional investors
and that they would like a 2-3/4% loan bond. Mr. Burgess
thought that the banks would scramble madly for 2-1/2%.
Mr. Broderick thought that we should appeal to the
individual investor.
Mr. Burgess said there would be a more enthusiastic
response to a 2-1/2%--almost too enthusiastic. There will be
plenty response to 2-3/4% but not so much of a scramble.
Mr. Morgenthau asked about the effect on dealers and
Mr. Burgess said there would not be much effect. The bond
market might slip off just a little but the reflection would
be very small--say 2/32 or 3/32. There would be small loss
to those with bonds in portfolio but on the other hand they
would make a little on their rates.
Mr. Viner said he feared that a 2-1/2% bond would be
regarded as dressing the market. He would do sound financing
to take care of Treasury needs and would pay no attention to
the political campaign, doing whatever is technically invulner-
able. He favored a 2-3/4% bond with as long maturity as is
saleable for just enough to give the Treasury a comfortable.
Regraded
250
-7-
cash bonus.
Mr. Upham stated his preference for the 2-3/4% bond of
20-25 years maturity.
Mr. Morgenthau asked if it would be considered unorthodox
to issue a 2-1/2% bond and Mr. Burgess replied that it would.
The market has constantly said that there should be no more
maturities in the forties. To issue such a bond would not be
considered prudent financing.
Mr. Morgenthau asked if banks would buy the 2-3/4%
loan bond and Mr. Burgess replied that lots of them would,
some to distribute slowly.
Mr. Morgenthau asked about shifting of bond portfolio
by banks in New York recently and Mr. Burgess said there had
been some selling by banks to insurance companies.
Mr. Morgenthau asked if the dealers had been so heavily
loaded the previous financing and Mr. Burgess replied in the
affirmative saying that they had upon occasions held as high
as $250 million whereas now the figure is $190 million and
some of those are September maturities.
Mr. Morgenthau told the group that at 8:45 tomorrow
morning he would announce the amount of the September issue
but not the maturity or the rate.
Mr. Burgess thought that good practice and sensible
procedure and stated that the market liked it.
Mr. Morgenthau and Mr. Bell stated that the Treasury
stays out of the market prior to financing and that we have
Regraded Unclassified
255
-8-
been out of the market almost entirely since the middle of
July.
Mr. Burgess stated that the Reserve System also stays
out of the market at such periods.
Mr. Morgenthau suggested that it is customary for the
Treasury to accept subscriptions of 5% to 10% in excess of the
offering which would make a $400 million offering bring in
440 million. That practice will be followed this time.
Mr. Morgenthau said that he wasn't yet sold on the
long term bond. He said he had not the same confidence in
the market as Burgess. He remembers the 2-7/8% and the
necessity to nurse them. He referred to the suggestion three
months ago, for a 3% long bond. Mr. Burgess said the market
had changed a good deal since three months ago. Mr. Morgenthau
said that he was much gratified at finding himself more conserva-
tive than Mr. Burgess.
Mr. Burgess informed Mr. Morgenthau that the Executive
Committee of the Open Market Committee had voted to replace
with the new bond offer the $53 million of September maturities
which they hold for system account.
Mr. Vine suggested that that might explain their interest
in a 2-3/4% bond. But Mr. Burgess was of the opinion that
perhaps from their standpoint 2-1/2% would be better than 2-3/4%.
Mr. Morgenthau recurred to Mr. Burgess' comment that the
2-1/2% would be more sought after than the 2-3/4%.
Mr. Burgess said that that was true of banks. He added
25K
-9-
that the Treasury should do what is sound not what is most
wanted.
Mr. Burgess said that the Open Market Committee can
always support the market if necessary by letting bills run
off and using the proceeds to buy bonds.
Mr. Bell raised the point of what would happen if the
Federal Reserve did not replace their $50 million on maturities
and Mr. Burgess said that such a procedure would "raise hell".
It was agreet that from today the Reserve System would
find itself under the necessity of altering their practice of
three years standing of maintaining a constant and unchanged
portfolio of governments.
Mr. Burgess said that he thought the point made by
Mr. Thomas deserved emphasis. Business recovery has been
repid. There is a real chance of a boom developing. The
Federal Reserve System may have to put on brakes. A rise in
short money rates is 8. real possibility.
Mr. Broderick said that is a reason for not getting
Government rates too low. Depreciation of bonds may be a
trouble for banks. He would stick to the 2-3/4%. It looks
normal. If we go down to 2-1/2% now and up to 2-3/4% later
it will look bad.
Mr. Viner thought 2-3/4% low enough for Government
bonds and regarded it as undesirable to go lower. The interest
burden will go up on short terms quicker than on long terms.
Mr. Morgenthau referred to the Treasury record of the
last two years including the conversion of liberty bonds end
25L
-10-
the floatation of billions in new securities as almost un-
believable.
Mr. Taylor, Mr. Bell, Mr. Viner, Mr. Haas and
Mr. Upham remained with the Secretary for a few minutes
after the others had gone and discussed how much new money
should be asked in September.
Arguments on both sides were presented.
Mr. Morgenthau indicated his desire to maintain the
cash balance at not much below $1 billion dollars for the
near future. At the current rate for Treasury bills, the
carrying charge for a balance of that size, he pointed out,
is only $2 million & year.
It was suggested that $500 million could be asked
without pushing the public debt above $34 billion until
after the election. It was suggested, however, that to
ask for $500 million now when it is expected to ask only
$750 million during the entire fiscel year, might cast
some doubt in the public mind on the validity of the $750
million figure.
It was replied that it should be remembered that more
revenue comes in during the second half of the fixcal year
than during the first, and that moreover, social security
taxes will begin to accrue in January. It was pointed out
that if only $400 million were asked the total of the September
financing would be less than $1 billion, whereas $500 million
new money would carry the total over that figure.
Regraded Unclassified
2.5M
-11-
Each person present wrote on & slip of paper the
amount of new money that he favored asking in September.
Mr. Morgenthau, Mr. Taylor, and Mr. Haas voted for
$500 million. Mr. Bell, Mr.Viner, and Mr. Upham voted for
$400 million.
After two or three moments of cogitation, Mr. Morgenthau
said, "well it is settled, we will ask for $400 million".
Regraded Unclassified
26
CONFIDENTIAL
To be held in STRICT CONFIDENCE and no
porsion, synopsis, or intimation to be published or
printed until the morning papers WEDNESDAY, SEPTEMBER
2, 1936.
D. W. BELL
Acting Director of the Bureau of
the Budget.
STATEMENT BY THE PRESIDENT
ON THE
SUMMATION OF THE 1937 BUDGET
Regraded Unclassified
27
STATEMENT BY THE PRESIDENT ON THE SUMMATION OF THE 1937 BUDGET
Continuing the practice inaugurated last year, the at-
tached summation revises the Budget for the fiscal year 1937
by reflecting the changes affecting the estimates of revenues
and expenditures which have occurred since the 1937 Budget
was transmitted to Congress in January 1936. Two
outstand-
ing events have taken place since that time which have mater-
ially affected the receipts and expenditures of the Government.
The first of these was the decision of the Supreme Court declar-
ing the Agricultural Adjustment act unconstitutional, as a
result of which the Government lost substantial revenue from
processing taxes. The second was the passage by the Congress
of the Adjusted Compensation Payment Act providing for the
immediate payment at their face value of the Veterans' adjusted
service certificates, which by their terms were not due until
1945.
is a result of the Supreme Court decision the estimated
revenue from processing taxes for the fiscal year 1936 was
reduced by $452,000,000. Up to the time of that decision
the Agricultural Adjustment Administration had expended in
accordance with law the sum of $325,000,000 and had made
substantial commitments for additional expenditures in antic-
ipation of revenue from this source. To provide for carrying
Regraded
Inclassified
28
- 2 - 185
out the moral obligation of the Government with respect to
the commitments already entered into with farmers and which
on their part had been at least partially performed, Congress
appropriated $296,000,000. How much shout ?
By the enactment of the Soil Conservation and Domestic
10
Allotment Act, which included authority for an annual appro-
priation of not to exceed $500,000,000, Congress provided
a new farm program to preserve to the farmers the benefits
of fair and adequate prices for the product of their labors.
The passage of the Adjusted Compensation Payment Act
caused an increase in payments to veterans for the past year
of $1,674,000,000 and will result in further payments
estimated at $560,000,000 on this account during the present
fiscal year.
To meet the additional requirements of the Treasury on
account of these expenditures the Congress was requested to
provide sufficient additional revenue, (1) to make good the
loss of processing taxes in the fiscal year 1936, (2) to
defray the annual cost of operation of the new farm program, an
(3) to amortize over a period of nine years the cost of payment
of the adjusted service certificates.
The Revenue Act of 1936, enacted by the Congress in
response to this request, will produce, on the basis of
Regraded Unclassifie
29
- 3 -
estimated business conditions for the calendar year 1936, annual
revenue in the amount of $652,000,000. For the fiscal year 1937
the amount of this revenue will be only $328,000,000, since only
the first and second of the quarterly payments of income taxes
under this Act will be made to the Treasury within that year.
For the same year, however, there will be & non-recurring rev-
enue of $82,000,000 from the so-called windfall taxes.
Review of the Fiscal Year 1936
The total receipts amounted to $4,115,956,615 against
the estimate in the 1937 Budget of $4,410,793,946, a net de-
crease of $294,837,331. After taking into consideration the
loss in processing taxes of $452,000,000. receipts from other
sources amounted to $157,000,000 more than was estimated.
Total receipts showed a net increase of $316,000,000 over those
for 1935, and receipts from sources other than processing taxes
showed an increase over 1935 of $760,000,000.
The total expenditures of the Government for the fiscal
year ended June 30, 1936, amounted to $8,879,798,258. The
estimated expenditure shown in the Budget of last January of
$7,645,301,338 did not, of course, include $1,674,000,000
for adjusted compensation payments. Except for these payments
the expenditures would have been about $439,000.000 less than
the January estimate.
- 4 -
The deficit for the year amounted to $4,763,841,642,
which included $403,240,150 for statutory debt retirement.
Deducting this amount leaves a net deficit of $4,360,601,492.
The estimated net deficit as shown in the Budget of last Jan-
uary was $2,682,482.392. Had it not been for the invalidation
of processing taxes and the passage of the Adjusted Compensation
Payment Act, the net deficit would have been less than the Jan-
uary estimate by more than $400,000,000.
The public debt increased during the year $5,077,650,869,
but in that time the balance of cash in the general fund of the
Treasury likewise showed an increase of $840,164,664.
Forecast for the Fiscal Year 1937
Total receipts in the fiscal year 1937 are now estimated
at $5,665,839,000, a net increase of $12,000,000 over the amount
of the 1937 Budget estimate. The estimated increases in general
revenue more than offset the revenue losses, due in part to the
invalidation of the special taxes levied under the provisions of
the Agricultural Adjustment and Bituminous Goal Conservation Acts,
and in part to the method finally adopted for collecting taxes under
the Social Security Act which will defer to the fiscal year 1938 the
collection of a portion of these taxes. The losses from these
causes amount to $668,000,000, which are elightly more than off-
set by the following estimated increases in revenue: $410,000,000
Regraded Unclas
30
- 5 -
Regraded Unclass
(including $82,000,000 from the windfall taxes) resulting from
the Revenue hot of 1936; $33,000,000 from delayed collections
of taxes on carriers and their employees; and $237,000,000 con-
stituting an upward revision of revenue estimates due chiefly
to improvement in business conditions.
The expenditure requirements for the fiscal year 1937
are now estimated at $7,762,835,300, which includes $560,000,000
to complete the payments or adjusted compensation to veterans
and $580,000,000 for statutory debt retirement.
Some of the principal items included in the expenditure
requirements are as follows: The Agricultural Adjustment Ad-
ministration will require $585,000,000 and the Civilian Con-
servation Corps $300,000,000. The requirements of the Agricul-
tural Adjustment Administration will be greater for 1937 than
for 1936 due to the interruption of that program in the past
year by the Supreme Court decision and the consequent postpone-
ment of expenditures. The expenditures for the Civilian Con-
servation Corps for 1937 will be less than those for 1936 due
to the reduction made in the number of enrollees as compared
with the number for 1936.
The operations of the Social Security Board and the estab-
lishment of the Old Age Reserve Account will require an addition-
al $405,000,000. The Board commenced operations late in the
31
- 6 -
Regraded Unclassifie
fiscal year 1936 and its expenditures, therefore, were not large
during that year. The 01d Age Reserve Account will require an
initial contribution in 1937 of $265,000,000.
For interest on the public debt $825,000,000 will be re-
quired. In view of the general improvement in business condi-
tions, it is estimated that there will be required a net amount
of $1,835,000,000 for recovery and relief, an amount materially
less than that for the fiscal year 1936.
The estimated expenditures for the other establishments
are $448,986,000 greater than the expenditures for 1936, due
principally to the development of the regular annual public
works program and to increased expenditures for national de-
fense.
The estimated deficit for 1937 is $2,096,996,300. which
includes $580,000,000 for statutory debt retirement and
$560,000,000 for further payments under the Adjusted Compensa-
tion Payment Act. Deducting the amount of the statutory debt
retirement leaves a net deficit of $1,516,996,300. This does
not mean that there will be an increase in the public debt
of this amount for the reason that it is contemplated during
the year to reduce the working balance of the general fund by
approximately $1,100,000,000. The following statements show
the contemplated changes during the year in the working balance
of the general fund and in the gross public debt.
- 7 -
32
GENERAL FUND
ting balance June 30, 1936
$2,225,112,350
sipts from taxes and miscellaneous sources
5,665,839,000
bipts from sale of new public debt obligations (net after
eduction of refunding issues and of statutory debt re-
irements)
750,000,000
Funds available fiscal year 1937
$8,640,951,350
enditures
$7,762,835,300
ass:
Statutory debt retirements ..$580,000,000
Veterans' bonds to be issued. 560,000,000 1,140,000,000
Cash required to meet
ordinary expenditures
$6,622,835,300
Cash required to meet
redemption of veterans'
bonds
800,000,000
Cash required to zeet
redemption of national
bank notes
100,000,000
Total cash required during fiscal year 1937
7,522,835,300
imated working balance June 30, 1937
$1,118,116,050
PUBLIC DEBT
DES public debt June 30, 1936
$33,778,543.494
public debt obligations:
(a) To be sold to the public (net as above)
$750,000,000
(b) To be issued to veterans
560,000,000
Total new public debt obligations
$1,310,000,000
86 redemptions:
Veterans' bonds
$800,000,000
National bank notes
100,000,000
900,000,000
Net increase in debt
410,000.000
Estimated gross public debt June 30, 1937
$34,188,543,494
Regraded
33
- 8 -
The following table shows total receipts and expend-
itures for each of the fiscal years 1934, 1935. 1936 and 10-
vised estimates for 1937. It will be noted that there is a
substantial reduction in the deficit (excluding debt retire-
ment and veterans' bonds) for each of the years following the
peak of 1934.
(In millions of dollars)
1934
1935
1936
1937(est.)
Receipts
3116
3800
4116
5666
Expenditures
7105
7375
8880
7763
Gross deficit
3989
3575
4764
2097
Deduct-
Debt retirement 360
573
403
580
Veterans' bonds -
-
1674
560
Deficit (excluding
debt retirement
and veterans'
bonds)
3629
3002
2687
957
In my message to Congress on March 18, 1936, requesting
an appropriation of $1,500,000,000 for relief of unemployment,
I stated that that request, together with those previously sub-
mitted to the Congress to provide for the Civilian Conservation
Corps and certain public works would, if acted upon favorably
Regraded Unc
34
- 9 -
by the Congress, give security during the next fiscal year to
those most in need, on condition, however, that private -
ployers hire many of those now on relief rolls. I further
stated that should industry cooperatively achieve the goal of
reemployment, the appropriation of $1,500,000,000, together
with the unexpended balances of previous appropriations, would
suffice to carry the Federal works program through the fiscal
year 1937, and that only if industry failed to reduce rub-
stantially the number of those now out of work would another
apprepriation and further plans and policies be necessary.
The unsuployed are continuing to be absorbed in industry, and
I believe that there will be a further substantial increase of
such employment during the coming months. Whether it will be
sufficient to permit such a reduction in work relief rolls all
will bring them within the amount appropriated by Congress is
a matter that cannot be determined for several months.
In estimating, moreover, the amount that would be nec-
essary to care for e. reduced number of unemployed during the
current fiscal year, no account could be taken of the serious
drought which has affected large sections of our country. To
relieve this serious situation in the drought areas will require
the expenditure of substantial amounts from the emergency relief
appropriation, although the total amount that will be needed for
Regraded Unclassified
35
- 10 -
this purpose cannot be determined at this time.
Another survey of the unemployment problem and the amount
required for drought relief will be made early in the coming cal-
endar year, and if additional appropriations for these purposes
are found necessary, the amounts expended therefrom will, of
course, increase the estimated expenditures shown in this summa-
tion. It is confidently expected that any such requests for ad-
ditional funds will amount to less than $500,000,000.
September 2, 1936.
C
Regraded Unclassified
36
- REDUBT SUBMARY
BALANCES STATEMENT as RÉQUIRED If - BUDGET AND ACCOUNTING ADT, 1921 (U.S.C., TIME 31. anc. 1: (r)
Revised estimate,
Actual, fiscal
Actual, fiscal
ame MD SPECIAL ACCOUNTS
flocal year 1937
year 1936
year 1935
1.
L. Invenues (Supporting Schedule No. 1);
Internal
5,074,651,000
3,512,851,608.15
3,277,690,027.82
Customs.
402,000,000
386,811,593.09
343,353,033.56
Miscellanerus revenues.
166,069,000
216,293,413.29
169,002,670.68
Total revenues.
5,642,760,000
4,115,956,615.13
3,790,045,732.86
2. Realization upon sesets.
23,075,000
E
10,421,469.70
Total receipts.
5,665,639,000
4,115,956,615.13
3,800,467,201.96
II. EXPENDITURES (Rupporting Schedule Ir. 2):
L. Legislative and executive.
28,100,000
21,941,636.11
20,041,480.72
2. civil departments and agencies, and the juliciary
991,735,300
717,300,755.69
529,501,937.22
3. National defense.
920,000,000
764,439,126.94
533,597,243.04
4, Teterans' pessions and benefits:
Tetermas' Administration
600,000,000
675,982,094.01
605,573,274.31
Adjusted Compensation hyant
560,000,000
1,673,892,531.72
-
5. Agricultural Adjustment Administration
585,000,000
592,605,751.95
743,027,311.27
6. Civilian Conservation Corpo.
300,000,000
486,281,193.58
435,508,643.05
T. Social Security.
405,000,000
24,136,121.64
-
6. Debt charges:
Interest
$25,000,000
749,396,801.68
820,926,353.45
Natirements
580,000,000
403,240,150.00
573,558,250.00
9. Refunds.
47,000,000
44,105,625.78
25,207,679.31
10. Recovery and relief.
1,835,000,000
2,176,796,264.51
3,068,803,053.20
11. Pupplemental Items (for above groups 1 to 7, inclusive)
90,000,000
-
-
Total expenditures
7,762,635,300
6,679,794,257.14
7,375,425,169.57
111. DEFICIT
2,096,996,300
3,575,357,963.61
IF. WEARS or FINANCING
1. Decrease is working balance (2)
1,006,996,300
1
1,262,632,853.56
B. Borrowings (Supporting Schedule No. 3)1.
(a) Replacing statubery retirements.
580,000,000
403,240,150.00
573,554,250.00
(b) Increasing public debt (2)
000°000"0"
4,360,601,492.48
1,739,166,860.05
Total - of financing.
2,096,996,300
4,763,841,642.44
3,575,357,963.04
(1) Included in receipts.
(2) There will be a further reduction is the general fund balance of $100,000,000
for the phrpose of retiring asilemal basit actos, the affecting . reduction
is the public debt of this amount.
Regraded Unclassified
37
SUPPORTING m. 1
RECEPTS
(Gettomery revolus and other receipts belonging to general sell special assomite excluding postal reverse)
Beried extimate,
Artual, Classi
Actual, fismal
fism) year 1997
year 1936
year 1935
1.
1. Internal revenues
2,303,569,000
1,425,575,433.04
1,099,118,637.90
(1) Income tax
(e) Missellaneous internal-revente tases
268,000,000
210.700.753.53
140,160,602.34
Estate tax
an tax
110,000,000
160.058.761.47
71.671.276.69
Capital stude end excess-profite taxes
121,000,000
109.152.062.21
96,068,603.93
Alsoholic benefage taxes
589,200,000
505,464,037.10
411,021,772.35
531,650,000
501.105.728.39
159,178,625.46
Tabanco bases
80,900,000
68,989,885.60
43.133.373.45
Stamp taxes
382,652,152.90
$1,999,395.97
undre taxes
408,820,000
Bandry taxas
94,600,000
68,292,012.88
106.049.100.05
Total (undjusted)
2,204,170,000
2,034,855,374.08
1,673,982,831.24
Adjustment to daily Treasury statement
+ 26,006,000
- 26,006,079.60
- 16,791,312.54
Total taxes
2,230,176,000
2,008,846,294.48
1,657,191,518.70
(3) Prosessing taxas (Agricultural Adjustment Administration)
-
76,660,383.41
521,379,871.22
(14) Other taxes:
82,000,000
I
Tax FE unjust
Taxes - parriers and their employees
134,952,000
49,278.74
1
I
729,217.60
I
Ritominous coal tax
324,600,000
:
1
Social security tasse
Total mher internal-revente taxes
541,152,000
777,490.42
1
3,277,690,087.82
Total Internal-rement
5,074,691,000
3,512,851,608.15
402,000,000
386,811,993.69
1. Customs
" revenues
(1) Miscellaneous tures
2,585,000
6.667.934.90
57,515,100
32.797.013.42
(2) Interest, exchange, and dividends
($) Times end penalties
1,823,300
6,658,214.55
(4) Fees
14.693.200
12.354.050.03
(6) Forfeitures
1,491,100
1.947.074.64
2,214,900
1.435.694.05
(6)
(7) Relabersemente
14,258,900
(i) 216.293.413.29
5,620,509.79
(6) Gifta sof sostributions
5,100
113,302.27
(9) Sales of products
3,022.300
2,392,756.70
(10) Sales of services
25,619,200
(11) Resta and royalties
8,054,300
5,159,631.59
1,826,536.54
(12) Femile, privileges. and licenses
2,054,700
(19) Sundry reseigte
29,371,200
65,877,806.26
Total (unadjusted)
166,069,000
216,293,413.29
170.316.167.42
-
1,313,736.54
-
Adjustment to daily Treasury statement
Total missallaneous revenues
166,069,000
216,291,113.27
169,002,570.88
5,642,750,000
4,119,956,615.13
3,790,016,732.26
Total revenues
IT, REALIZATION OPO# ASSETS:
7,320,465.67
1. Depayanta of Investments
21,200,300
(2)
66.757.46
-
2. Jules of public lands, Department of the Interior
3,014,300.57
3. Sales of Government property
1,978,700
23,079,000
(2)
10,1,21,469.70
Total realization upon assets
5,665,839,000
4,115,956,615.13
5,800,467,201.96
Total receipts, general and special assounts
as imporation not pet evailable
(R) Invister onler recenues. separation net yes evailable.
Unclassified
38
REPROXTING care NO. 2
SIGNATURE
(Bottained - and from general and epental
Invised
Actual, fisal
smil, fineal
fineal par 1937
year 1936
yes 1935
1. LEGELATIVE AST EXECUTIVE:
1. Legislative motabilshment
23,600,000
13,603,786.95
2. Insentive office.
500,000
457,693.77
Total, legislative, and executive
24,100,000
11, CIVIL DEPARTMENTS LED AND - JUNICIARY:
1. Department of Agriculture.
185,000,000
105,944,626.11
68,036,511.90
E. Department of
33,000,000
23,070,519.09
10,967,463.76
3. Department of the Interier.
95,000,000
Benlder Cargre project
13,000,000
13,003,113.53
N. Department of Justice (including the juliciary)
38,000,000
32,278,677.52
17,13,185.78
13,012,157.69
5. Department of Labor
21,000,000
5, Department of State.
18,500,000
15,860,779.68
T. treasury Department date retirement, interest, ald - reserve
soment, and refunds, VII, VIII - IX below)
195,000,000
199,720,398.58
147,138,381.62
8. far Separtant (monilisary)
130,000,000
72,595,030.80
57,196,069.33
Paname Casel
11,500,000
3. Independent Offices and
$5,000,000
52,016,467.19
$1,31,775.57
10. Valley intherity.
$5,000,000
21,016,755.44
1
n. Retirement funds, sivil, Danal Seas, and Persign Service (Governint share)
46,735,300
40,662,400.00
21,005,100.00
12. Past Office Department, deficiency.
70,000,000
05,060,511.32
63,356,146.68
5,000,000
5,707,500.00
4,539,195.00
13. Metries of Columbia,
2,067,785.47
$ 40,365.20
Unclassified Items.
I
Adjustment disbursing officer's desks outstanding.
-
-1,463,163.07
-6,416,302.83
Total, civil departments and agencies, and the juliciary
551,735,300
un. NATIONAL
550,000,000
321,410,530.43
1. Bary Department.
1. far Department,
370,000,000
373,014,977.64
82,186,712.61
Total, national defense.
$85,000,000
17. PERSIDES AND
1. Administration
600,000,000
675,962,094.01
605,573,274.32
F. Missted Compansation Payment
560,000,000
1,674,492,551.72
I
1,160,000,000
2,389,474,605.73
605,573,772.32
Total, persions und benefits
1. ANWER CERTIFICATION
550,000,000
532,524,007.92
711,89,102.95
of provided taxes.
35,000,000
10,001,784.03
Total, spinitual Administration
585,000,000
542,605,751.35
743,087,311.07
n. CIVILLAN -
300,000,000
466,201,193.56
n. SOCIAL SIGNATT)
I
1. Social Security Board
140,000,001
1
$17,000,000
-
7. 018 le Bearers Account
I
Total. medal security
105,000,000
IIII, MB?
1. Intervet
$25,000,000
749,396,801.62
2. Setirements
580,000,000
Total, diskt durges.
1,405,000,000
II.
17,000,000
14,085,195.44
1.
2. Internal Times
30,000,000
30,100,1330.98
Total, refunds.
$7,000,000
Issuess of wredite, above.
Regraded Unclassified
39
SUPPORTING SCHEDULE no. 2 - CONTINUED
- CONTINUED
Irrjael vetimite,
total, fismi
Astual, final
fissal year 1997
year 1936
year 1935
1, RECOVENT ARE BELIEF:
1, agricultural ald
(L) Community Credit Corporation.
$179,000,000
189,715,002.53
560,144,064.46
(2) Farm Crwdit Administration (including Federal Para Martgage
Corporation)
! 20,000,000
333,203,852.37
141,500,814.96
($) Federal land banks
64,000,000
60,486,790.65
16,107,860.51
Total, agricultural side
131,000,000
156,976,980.79
127,166,610.64
2. maisef.
(1) Federal Beorgency Relief Administration (including Federal Surplie
Relief Corporation)
7,500,000
405,591,986.97
1,814,342,306.87
500,000
676,195.79
11,327,265.67
(2) civil Works Aministration
(9) Drought-atrishem areas (Department of Agriculture)
1,000,000
2,882,668.90
80,561,219.99
Total, relief
9,000,000
409,150,631.66
1,906,250,880.53
5. Public works,
(1) Administrative expenses, Public Works Additionation
20,000,000
25,255,169.16
14,561,008.60
9,000,000
10,025,710.53
25,500,507.04
(2) Soulder Cargress project....
(3) Louse - grants to States, mulcipalities, etc.
250,000,000
172,116,011.89-
137.707.417.46
I
127,801,597.33
66,230,752.95
(4) Losse to railroads.
(5) Publia Signeys
220,000,000
215,095,581.31
317.350.960.05
85,000,000
152,318,737.09
117,986,751.64
(6) Siver - barber werks.
1,350,000,000
1,263,661,400.21
---
(7) Vario Progress Administration.
(6) Other public works (mitional defense, public buildings, etc.)
250,000,000
581,480,613.64
312,810,460.76
2,184,000,000
2,092,069,806.50
1,080,411,860.50
Total, public works
has Alée to has -
(1) Same lass system.
3,000,000
37,395,358.26
75,686,784.00
40,000,000
24,906,423.14
6,479,635.47
(2) housing
15,000,000
14,504,600.14
15,963,873.02
(9) Federal Bouring Administration
(4) Resettlement Adainistration
130,000,000
137,907,725.28
1,761,663.06
108,264.37
3,661,957.71
-
(5) Subsistence knowledge
185,000,000
214,812,369.47
103,554,093.34
Total, side to - -
5.
10,000,000
19,581,457.76
(1) Export-Import Bunke of Washington
---
187,850.35
-
(2) Federal Deposit Insurance Corporation.
-
5,111,371.02
12,166,730.81
(3) Administration for industrial reservery
10,000,000
$1,692,000.70
10,378,084.53
Total,
4. Reseastruction Finance Corporation
125,000,000
258,722,416.70
135,384,933.60
---
27,814,668.09
36,148,537.34
7. Tennessee Valley Anthority
1,885,000,000
4,776,796,164.51
3,068,803,053.80
Total, recomery and retief
-
90,000,000
-
n. ITEMS
7,762,835,500
6,879,798,257.61
7,375,885,165.57
Tetal, expenditions
: Excess of credite, deduct.
40
INVOICATION - No. 3
- OF - PUBLIC - OF FOURDS THE servicir
Revised
intent, fluest
flood
fisal year 1937
por 1936
par 1935
mails debt all beginning of year
Increase sa public debt during years
to meet deficient is revenues and receipts, general mil special accounts.
2,096,996,300.00
1,763,000,000.00
Less della retirements included La deficit
580,000,000.00
403,090,150.00
573,996,150.00
1,515,995,300.00
Increase is working belance (+) decrease (-) general and special accounts.
-1,000,996,300.00
+
-1,866,632,853.56
520,000,000.00
1,735,166,860.05
fotal lacrease to public debt during year.
Decrease is públic delhi during year - to retirent of assional - notes:
(a) Chargeshle to working belance.
- 100,000,000.00
-
-
-
-
-
(W Chargeship to Increasent - geld.
Bet Lacresse la pakite debti during year.
$10,000,000.00
3,077,050,00
1,047,751,80.05
Public debt at and of year
39,188,593,293-73
-
Regraded Inclassified
41
September 2, 1936
Graves, German, Anslinger, Gaston and W. N. Thompson
Tere present at the meeting in the Secretary's office today.
Mr. Graves handed the Secretary an order which would
temporarily promote Malachi L. Harney, now a Special Agent
of the Intelligence Unit, as Assistant to the Commissioner
of Marcotics, HM,Jr. asked Anslinger if it would be agree-
able to him to have Harney as his Assistant and Anslinger
repliel, "You could not make a better selection." Harney
110 then asked to join the group. The Secretary said to
his, "You have been recommended to BO in as Assistant to
D. Analinger." To Mr. Graves, the Secretary said, "Is
this permanent or temporary appointment?" Graves answered
that It was a temporery assignment. HM, Jr. asked Mr. Harney
energ he had been working and he replied, "I have been work-
INE in the Intelligence Unit in Chicago, under Mr. Madden.
90 Anslinger the Secretary said, "I understand you will put
the police end under Harney, and Anslinger answered, "Yes."
Harvey then told the Secretary: "I have always been on the
Investigating end. I worked in the Prohibition Unit under
the Department of Justice." Graves said, "I think Harney's
appointment is excellent." Anslinger said, "I am very, very
satisfied with Harney's appointment."
The Secretary then spoke directly to Mr. Harney, saying:
"I consider this a great responsibility. Anslinger 18 your
Chief and he will give you all the freedom you want. After
you DRVE been at it for a couple of weeks, I want the two of
you to come in to see me. If anybody is inefficient and
crocked, let him go no matter whose friend he 1s. I am not
#: Juch interested in the poor addicts as I am in the fellow
es is selling the stuff or the fellow behind the fellow who
in selling it,"
Mr. Graves said, "May I say that Harney ought to go
back to Chicago and finish up some work under Madden."
The Secretary liked Harney very much.
000-000
Mr. Gorman joined the group at this point.
Mr. Graves handed Mr. Morgenthau a memorandum (attached)
instructing Mr. Bernard Wait to proceed to Washington for a
Regraded
42
-2-
conference with reference to the possibility of assigning
him to the supervision of all Treasury activities in Europe,
including Narcotics.
The Secretary signed this memorandum.
000-000
Graves next handed the Secretary a memorandum ad-
dressed to the Commissioner of Narcotics, informing him
that hereafter the Customs Agency Service will be charged
with full responsibility for the conduct of all narcotic
smuggling investigations abroad. In this memorandum is
mentioned the fact that Mr. Bulkley, now in the Narcotics
Bureau, will be transferred to the office of the Deputy
Commissioner of Customs in charge of the Customs Agency
Service, who will be the contact person here for narcotics
smuggling investigations abroad.
Mr. Bulkley was brought in and the Secretary told
him that he was going to be transferred and that immed1-
ately after the meeting Mr. Graves would give him all the
details.
The Secretary liked Mr. Bulkley.
Mr. Gaston will prepare 8 story on the various
transfers to be given out at one of the Secretary's press
conferences in the near future.
Regraded Unclassified
43
Mr. Malashi L. Harney,
Special Agent,
Intelligence Unit,
Bureau of Internal Revenue,
Chicago, Illinois.
Sirt
Subject to elassification and Givil Service approval,
you are hereby temperarily transferred, promoted and upo
pointed as Assistant so the Commissioner of Marcetics,
CAP-14, with compensation at the rate of sixty-five handred
dollars per annual, effective on date of onth.
Yery truly yours,
Secretary of the Treasury.
Caths
2
44
September 2, 1936.
The Commissioner of Customer
will you please instruct Mr. Wait, at Paris, by cable,
to report to Washington at the earliest practicable date
for conference and instruction with reference to the possi-
bility of assigning tdm to the supervision of
activities in Europe, including narootic-smuggling investi-
gations heretofore handled by representatives of the Commis-
sioner of Narcotics.
Preliminary to Mr. Nait's reporting to Washington for
this purpose, please instruct his to visit the Customs offi-
ces at London, Berlin, and Vienna, and to confer fully with
the Narcotics representative at Paris, no as to familiarize
himself thoroughly with the problems which confront all
Treasury officers an Europe.
The Transfer of Customs Agent Moore of Laredo, Texas,
to Shanghai, is approved.
Secretary.
HNG/mff
Unclassified
3
45
Regraded Unclassified
September 2, 1936.
The Commissioner of Mareotics:
Hereafter, the Customs Agency Service will be charged with fully
responsibility for the conduct of all narcotic-smiggling investign-
tions abroad.
In this connection, I have asked Mr. Wait, Treasury Attache at
Paris, to report at Washington as 8000 as possible for conference
and instructions. In the course of Mr. Wait's visit here, steps
should be taken to transfer to the Customs Agency Service all agents
of the Bureau of Narcotics now on duty in Europe.
All contacts with the Department of State with reference to the
international aspects of narcotic traffic (whether with relation to
smuggling matters originating in the Customs Service or to matters
of foreign control of the legitimate traffic originating in the Bureau
of Nercotics), will be handled by, or under the supervision of, 18-
sistant Secretary Taylor.
All reports of seizures, having an international aspect, of
narcotic drugs, by officers of the Federal, State, or municipal 60%
ernsents will hereafter be transmitted to the League of Nations
(Opium Convention) by the Customs Agency Service.
Will you please prepare an appropriate letter to the Secretary
of State for my signature, requesting his to advise the represents-
tives of all foreign administrations that, in lieu of existing 17-
rangesents, the Customs Agency Service has been clothed with full
authority to receive end impart information, by direct communication
or otherwise, reciprocally, with relation to any and all phases of
the illicit traffic in nercotic drugs.
In connection with this transfer of functions from the Bureau of
Narcotics to the Customs Agency Service, will you please arrange for
the transfer to the Office of the Deputy Commissioner of Customs in
Charge of the Customs Agency Service, of Mr. Bulkley of your office,
together with his secretary, his files, all foreign-investigation data,
and all data relating to League of Nations (Opium Convention) reports
concerning aarcotic smuggling.
HNG/mff
Secretary.
46
September 2, 1936
Helvering and Oliphant discussed with the Secretary
the tax case of Wirt Bowman, of Arizona. In 1926 he had
an income of $232,000, which he did not report. Investi-
gation disclosed that he received $150,000 as a gift from
President Calles of the Republic of Mexico. Bowman's ex-
planation 1s that during the revolution he gave money and
ammunition to President Calles and this was just a reimburse-
ment. President Calles sent in a sworn affidavit confirming
Bowman's statement.
Bowman filed an appeal with the Board of Tax Appeals
in which he pled the Statute of Limitations. Oliphant
claims that in order to raise the Statute of Limitations
they would have to charge fraud and the chances of proving
fraud were not positive and Bowman being a National Commit-
teeman in Arizona this charge naturally would smear him.
HM Jr. was quite annoyed and said he did not under-
stand why'this should be treated any differently from any
other case, even though the President of the Republic of
Mexico was involved and Bowman was a National Committeeman.
Oliphant said he was just warning the Secretary and felt he
ought to know that there would be back-fire on this case.
HM, Jr. told him to go through with it.
Regraded
Unclassified
47
September 2, 1936
I asked Mise Roche if anything was to be done about
Governor Johnson of Colorado, running for the Senate, when
she thought the time would be ripe to act. She said that
he 16 going to run in the Primaries on Tuesday against
Sweet and that Johnson was very anti-Roosevelt.
I said if anything broke about Johnson after Tuesday
then it would be a reflection on the party, and she said
yes. I did not tell her what I had in mind, but I have
Irey's report showing that Johnson 18 a crook and what I
will try to do 1s to get them to break this story between
now and Saturday.
I called in Helvering and Irey and said to him: I
want to know this. On the information that we have on
Governor Johnson, 1s there any reason why, in the interest
of the public, we should not file a suit between now and
Saturday. We are going to do it anyway. It is Just a
question of timing it. Talk it over and come back and
see me again.
...
I called Helvering a day or two later and said, I
do not see any basis on which we can bring a suit in oon-
nection with Governor Johnson. We can immediately start
investigation, which will give it publicity immediately.
Helvering answered, I doubt the wisdom of the Treasury
jumping into this thing Just at this time, and I said, I
accept your suggestion. Let it take its natural course.
Regraded Unclassified
A7A
Wednesday
September 2, 1936
2:55 p. m.
Frank J.
Wideman:
-
Mr. Secretary
HMjr:
Yes
W:
How are you, sir?
HMjr:
I'm very well, thank you.
W:
You asked me to keep you advised on this Associated
Gas Case -
HMjr:
Right
W:
And we have been plugging along, as you probably
know, during the summer -
HMjr:
True
W:
And I've kept in rather close touch with Mr. Oliphant
on it.
HMjr:
Fine
W:
And we've I think held things in pretty good shape
so far.
HMjr:
Fine
W:
I had a conference, though, Mr. Morgenthau, with
Mr. Kraus last week -
HMjr:
Yes
W:
I went over to New York just for the purpose of
getting set with him and a million things up to
date. I have not conferred with him much heretofore.
HMjr:
Yes
W:
But there are developments recently in it that I
thought I'd better talk to him and I did and had
quite a long conference with him.
HMjr:
With whom?
W:
Kraus - he's the attorney for the petitioning
creditors -
HMjr:
Oh -
Unclassified
47B
-2-
- in the Seventy-seven B Proceedings.
HMjr:
Oh yes
W:
You see, he's the man that filed the petition in
the Seventy-seven B Bankruptcy Proceeding.
HMjr:
Oh
W:
And we've been - we have been in that as 7 friend
of the court, you see, and not as a party.
HMjr:
Oh yes
W:
But, at the same time, we have had occasion to work
rather closely with Kraus because his interest and
our interest are pretty much the same.
HMjr:
I see.
W:
Now, I thought it would be well and that you would
be interested to have me go over the thing briefly
with you, say some time tomorrow, if it's convenient
with you?
HMjr:
No, I tell you what I'd like to do. I'm just in the
midst of preparing for my financing.
W:
Yes
HMjr:
And by Tuesday it'll be out of the way, see?
W:
I see.
HMjr:
And you call up Tuesday, my secretary, I'd like to
make an appointment and I would like to see you very
much.
W:
All right, fine.
HMjr:
I'd like to see you next Tuesday or Wednesday.
W:
I will -
HMjr:
But until this financing is over - I'm just concen-
trating on that.
W:
Well, of course, that's the most important thing.
HMjr:
But I'd like very much to see you next Tuesday or
Wednesday.
Regraded Unclassified
-3-
W:
Well, that's fine, and I'll call your secretary for
an appointment at that time.
HMjr:
Thank you.
Goodbye
Regraded Unclassified
47D
Wednesday
September 2, 1936
3:00 p. m.
HMjr:
Burgess?
W. R.
Burgess:
Yes, sir
HMjr:
I hear one of our banker friends can't come down?
B:
Well, Bud is away -
HMjr:
Yes
B:
And his - his first understudy, Conway, who is
the president, is also to be away tomorrow in
Boston -
HMjr:
Right
B:
So it's a little difficult to get the top fellows
there.
HMjr:
Well, that's too bad.
B:
Yes
HMjr:
Now - who - I tell you who we might think of.
What about the fellow who is the head of the manu-
facturers?
B:
Gibson?
HMjr:
Yes
B:
- or Vonnel
HMjr:
No, Gibson
B:
Yes - I don't know whether he's in town or not. Well,
I'll be glad to try him. It's - it's four o'clock
now, it's a little late notice, but I'll be very glad
to try.
HMjr:
Well, I could see him Friday you know?
B:
I see, Friday afternoon -
HMjr:
Yes
B:
Or Friday after Davidson?
HMjr:
Yes
47E
-2-
B:
Say -
HMjr:
After all, Gibson was the first fellow that would
go out for long bonds, wasn't he?
B:
Yes - yes - he's a good man. See if you can't
get Gibson.
HMjr:
Now, the only appointments I have, let's see, you've
made one tonight, I have one tomorrow night and
Davidson Friday morning -
B:
At ten fifteen - yes
HMjr:
What about Levy?
B:
Well, Levy I've got, standing by so you can see him
any time tomorrow that you
I
HMjr:
Well, run him in tomorrow afternoon if you can, at
three o'clock.
B:
All right - I'll get him. And I'll try Gibson for
Friday.
HMjr:
Yes
B:
Either, say eleven thirty or -
HMjr:
Eleven thirty or three
B:
Or three
I
HMjr:
Yes
B:
All right. All right, I'll try that.
HMjr:
And will you let me know?
B:
Yes
HMjr:
Righto
B:
Now, did - did Wayne talk to you about Arthur
Young?
HMjr:
Talk to me about that tonight, will you?
B:
Yes, all right.
HMjr:
Talk to me about that tonight.
47F
-3-
B:
Yes, yes - all right, well, I'll see who I can
get of these fellows.
HMjr:
Right, thank you.
B:
First rate.
Regraded Inclassified
WASHINGTON POST
September 3, 1936
Drug Vigilance.
Readers of The Post who have been fol-
lowing the thought-provoking series of
articles by Gerald Gross, on the Illicit nar-
cotics traffle, will appreciate the deeper
significance of a Treasury order which
quietly became effective this week. Hence-
forth the Customs Border Patrol officers
will be directly responsible to the chief oz
the Customs Agency Service.
Heretofore the efficiency of this service
has been impeded by a tortuous differentia-
tion between the procedure of its plain-
clothes investigators and the uniformed
patrol corps. The former reported to the
agency chief in Washington; the latter were
under the Immediate control of the customs
collectors of their several districts.
Secretary Morgenthau's order takes up
the slack in this red tape and makes the
Capital the focal point of the entire service.
The result promises to be beneficial to all
governmental anti-smuggling activities. But
its particular value lies In the foreshadowed
irtenalication of the Federal war upon nar-
cotics smuggling.
Under Commissioner Analinger, the Treas-
ury's Narcotic Bureau has attained a high
degree of efficiency. It has served as a
model at Geneva conferences on drug
control for recommendations to other gov-
ernments in the setting up and conduct of
such bureaus. But It has never been al-
lowed a staff of field workers in excess of
about 250 men, who must cover all the
United States, Alaska and Hawail. Now,
without suffering any trespasa upon its spe-
cial Identity, It will have the close co-opera-
tion of the 570 members of the Border
Patrol.
There is no great secret about the fact
that this was the major purpose of Recre-
tary Morgenthau in drafting his new order.
All who approciate the magnitude of the
dops traffic will approve this further step
in curbing its drila.
Thursday
September 3, 1936
9:45 a. n.
HMjr:
-Discount was so enthusiastic about how I've
handled things, see?
W. R.
Burgess:
Yes
HMjr:
And, frankly that article of Krock's last week -
this week bothered me considerably, see?
B:
Well, I don't think you ought to let it bother you,
you've got to be tough skinned on those things.
HMjr:
I know, but I know how Krock works.
B:
Yes
HMjr:
And I was just wondering - and I think I know you
well enough that I can say this and you'll tell me.
B:
Yes
HMjr:
- Whether in talking to - what's his name? - oh, the
head of the Discount- ?
B:
Mills
HMjr:
Yes - that if he feels so enthusiastic would he
like to pass it on to Krock.
B:
Yes, yes
HMjr:
See? - What do you think? You see, Krock, when I
called him said, 'Well, this is what the people in
the Street think about you', see?
B:
I see. Well, let me - let me turn that over.
HMjr:
Turn it over - if you're not sure, I'd rather not
do it, see?
B:
Yes
HMjr:
But I was thinking if I could get two or three people
who really thought well, I mean I don't want to ask
them but - would be cheerful - do it cheerfully, you
see?
B:
Yes
HMjr:
I'd like them to send for Krock and have a talk with
him.
48B
-2-
B:
Of course once a fellow like that has taken his
position he's awfully hard to deal with.
HMjr:
Oh no, Krock is very susceptible.
B:
Is he?
EMjr:
Oh, very - he's very susceptible.
B:
Yes
HMjr:
But, I don't want you to do it - you can - if
you decide after thinking it over it's a mistake
I don't mind at all your saying so, in fact I'd
like you to tell me, see?
B:
Yes - well, I don't - I don't see any reason
why - why sometime if Krock's in New York he can't -
HMjr:
He is in New York now, you see, -
B:
He is?
HMjr:
Oh yes, he's right up there.
B:
Yes - well I don't see any reason why he couldn't
talk to Mills.
HMjr:
You see, Mills, I mean I didn't ask him, but he was -
Krock thinks the sun rises and sets - he wrote another
editorial about Coolidge who I don't want to say any-
thing against because I consider Coolidge one of my
good friends.
B:
Yes
HMjr:
And - but when he begins to compare me with some
other people like Jesse and say thatthe thing to do
is to decapitate me and put in either Jones or Kennedy,
see?
B:
Yes
HMjr:
- the way he did in that article -
B:
Yes, yes
HMjr:
Nobody is more susceptible to flattery or - than
Krock is, you see?
B:
I see, yes.
48L
-3-
HMjr:
Now, if he got it from a man like Mills the head
of the Discount, see?
B:
Yes
HMjr:
He'd just sit up and take notice.
B:
Yes, yes, yes - Of course if Krock's going to
write on the subject he ought to talk to a number
of people around the Street.
HMjr:
Pardon me?
B:
If he's going to write on the subject he ought to
talk to a number of people on the Street, -
HMjr:
Right
B:
- and not get all his stuff from one or two sources.
HMjr:
Yes - and what I'd like to do, perfectly frankly,
if there are a couple of people up there who you
think do think I'm doing a good job. I mean, I'd
like to bring it to Krock's attention.
B:
Yes
HMjr:
See?
B:
Yes, yes - well, let me - let me -
HMjr:
You think it over, and Burgess, you can be perfectly
frank, if you don't think well of it -
B:
Yes
HMjr:
- you can tell me so and I'll understand it.
B:
Yes
HMjr:
See?
B:
All right, fine, fine - I'll turn it over.
HMjr:
I mean I figure I'm - that you're a good enough
friend of mind that I can ask you this and talk to
you about it.
B:
Well, I can talk it over, - I can mention it very
frankly to Mills without any embarrassment.
Unclessified
48D
-4-
HMjr:
Yes
B:
And I imagine he'd be willing to see Krock or chat
with him any time.
HMjr:
Yes, well and 1f he sends for him, well, I know
just how it would be done, but -
B:
Yes
HMjr:
I called Krock and Krock's worried about it because
he sent a message down, - would I read what he wrote
about me last January which evidently was complimentary.
B:
(Laughs)
HMjr:
I haven't seen it, but he's worried about it and
Sulzberger's worried because I got a letter yesterday
from Sulzberger telling me not to be so thin-skinned.
B:
Yes -
HMjr:
So they're both worried about it.
B:
Yes, yes - yes - Well, I - let me think it over -
what would be the way -
HMjr:
You think it over.
B:
What would be the way to do it.
HMjr:
You think it over.
B:
Yes, I think something could be done there.
HMjr:
Well, just think it OV over.
B:
Yes, yes, yes
HMjr:
0. K.
B:
First rate
HMjr:
Goodbye.
Regraded Inclassified
49
Sept. 3, 1936
Meeting of Executive Committee of Federal Reserve Open
Market Committee in Secretary's office. Bell explained
fiscal position of Treasury. General comment on Budget.
Summation made public yesterday. Mr. Fleming, Pres.
Federal Reserve Bank of Cleveland, thought now was good
time to get new money; suggested 750 million dollars in
September; suggested 20-25 year 24% bond.
Mr. Broderick, Federal Reserve Bank, thought it desirable
to ask for no new money and suggested possibility of
refunding both September and December maturities.
Mr. Ransom, Federal Reserve Bank, thought 400 million dollars
cash about limit of what could be done now.
Mr. McKinney, Federal Reserve Bank, Dallas, thought well
of 500 million dollars new money.
Mr. Szymczak preferred no new money and if any, not more
than 400 million dollars. Suggested 1956-1961 2% bond.
Mr. Thomas liked 500 million dollars new money. Preferred
long term 24% bond.
Haas thinks for safety 21% bond with 1947-1950 maturity.
Viner wanted no political dressing; favored 23% with as
long maturity as is saleable.
Upham's preference was for 2% 20-25 year maturity.
HMJr. said he would tomorrow announce amount of September
issue but not maturity or rate. Burgess agreed. He is
not yet sold on long term bond.
Treasury group remained after others departed. After
taking a vote, HMJr., Taylor and Haas voted for 500 million
dollars. Bell, Viner and Upham voted for 400 million
dollars. HMJr. decided to ask for 400 million dollars.
SEE: DIARY FINANCING FILE under date of
Sept. 3, 1936.
Unclassifie
50
incuse fin ancing
by 400 00 00
2. Reasons
winfall tax hut off 90 days,
Have to GAH.O.T.C. 50,ml
3. England Has moved
1/2 of gold out of France
51
REPORT OF SECRETARY MORGENTHAU'S
PRESS CONFERENCE - SEPTEMBER 3, 1936.
AT 8:45 A. M.
H.M., Jr.
I just want to tell you fellows breakfast is on
me this morning. Everybody is shaved - it's
wonderful, had a bath and everything. I just
want to tell you that in addition to the refund-
ing, we are going to ask for $400,000,000 in cash.
G.
This is your smallest cash offering since when?
Bell.
I don't know. I will have to check it up. I
guess it is the smallest for sometime.
;
It is almost the smallest since you came?
H.M., Jr.
I think it is the smallest since I came here.
&
Is that $514,000,000 of refinancing?
A.
Yes. We refund $514,000,000 and then in addition
ask for $400,000,000 in cash.
:
Will this mean, Mr. Secretary, that according to
the budget estimate the other day, you will only
borrow about $350,000,000 between now and the end
of the fiscal year.
A.
The net borrowing will not exceed $750,000,000
for the rest of the fiscal year.
That is for the whole fiscal year?
A.
Yes. From now to June 30th.
Only notes.
Now?
Yes.
I did not say.
Mr. Secretary, you have idle funds, it said in
that statement the other day of $1,600,000,000
or $1,700,000,000, all told.
- 1 -
Regraded
51A
Our working balance - we never give out the
exact figures, but it is around $1,000,000,000
and I want to keep the working balance at
approximately $1,000,000,000 because I feel
that in these times with conditions as they are
abroad it is a very desirable thing to do and
furthermore if you figure out using our bills,
because that is what we do use, this billion
dollar balance costs us about $2,000,000 a year
and I think that it is the safest and cheapest
insurance fund that we could have for the
American people against any unforeseen happen-
ing which may occur. It costs us about
$2,000,000 a year to carry this.
That was not exactly what I had in mind.
A.
No. But I wanted to put it over.
Q.
Well, we will probably try to put it over but
I am trying to reconcile this borrowing against
utilization of idle funds in the Treasury in cut-
ting down the deficit. Are you going to use
$1,100,000,000 of idle funds in the Treasury
against the so-called $2,000,000,000 or is it
really a $1,500,000,000 deficit?
A.
I don't quite get the question. I don't want
to shut you off.
Bell.
What you are trying to say is, when is this
reduction
...
C.
No. Why the reduction of a million dollars?
Why get new money?
Bell.
That is over the entire fiscal year and you
can't relate that to any particular quarter.
We have already reduced the working balance
by $800,000,000 the first three months of this
year.
H.M., Jr.
That are two factors which have come up recently.
One we have postponed for ninety days the so-called
wind-fall taxes and two we are taking care of the
current needs of HOTC instead of their going into
- 2 -
Unclassified
51B
the market to borrow for their current needs.
We are going to take care of their current needs
and those are the factors calling on us for
additional funds.
Q.
If we want to get this on the ticker before the
market opens I think we had better go. Can you
say anything about any other cash borrowing
between now and December 15th?
A.
1 can't, but I want to say one thing, -- this
offering will be on the same rules and regulations
as three months ago. No change from three months
ago. And if you want to see me at 10:30 I am
available. Get in touch with Mr. Gaston.
- 3 -
Regraded Unclassified
N518
IN A SURPRISE MOVE, SECRETARY OF TREASURY MORGENTHAU ANNOUNCED
DAY THAT THE TREASURY WILL BORROW $400,000,000 IN NEW CASH IN
M
OUTION TO REFUNDING $514,000,000 IN NOTES FALLING DUE SEPT. 15.
9/3--JE902A
Regrade
52A
DOW JONES - September 3, 1936.
SEP 8 1936
ADD TREASURY 9.11
WASHN - IN VIEW OF CONDITIONS AT HOME
AND ABROAD THE TREASURY DESIRES TO KEEP A
CASH BALANCE OF AT LEAST A BILLION DOLLARS
SECY MORGENTHAU ANNOUNCED - INTEREST CHARGES ON
THIS BALANCE ARE ABOUT 2 000 000 DLS A YEAR
ACCORDING TO THE SECY WHO CHARACTERIZED IT AS
-THE CHEAPEST KINE OF AN INSURANCE FUND FOR
THE AMERICAN PEOPLE-
THE CASH AND REFUNDING OPERATIONS TO BE
ANNOUNCED TUESDAY WILL BE CONDUCTED UNDER THE
SAME RULES AND REGULATIONS AS APPLIED TO THE
JUNE FINANCING THE SECY SAID
-0-
óz
C
DOW JONES - September 3, 1936.
8.56
TREASURY TO BORROW 400 000 000 DLS IN
CASHH
WASHN - SECY MORGENTHAU ANNOUNCED THIS
MORNING THAT IN ADDITION TO REFUNDING ITS
30 15--
SEP 15 -574856 9 514 000 000 DLS THE
TREASURY WILL ALSO BORROW 400 000 000
DLS IN CASH IN ITS SEP FINANCING
--
SEP 15 MATURITY OF 514 000 000 DLS THE
TREASURY WILL ALSO BORROW 400 000 000
DLS IN CASH IN ITS SEP FINANCING
THE TOTAL OF NEW CASH AND REFUNDING
WILL BE APPROXIMATELY 914 000 000 DLS
TWO FACTORS INFUENCED THE
TREASURY IN ITS DECISION TO BORROW CASH
AT THIS TIME THE SECRETARY SAID - FIRST
THE TREASURY WILL TAKE CARE OF THE CURRENT
CASH NEEDS OF THE H 0 L C THUS FORESTALLING
Regraded Unclass
5
INDEPENDENT BORROWING BY THAT AGENCY - SECOND
COLLECTIONS OF THE -WINDFALL TAX- HAVE BEEN
POSTPONED 90 DAYS THUS SLIGHTLY REDUCING
PROSPECTIVE REVENUES IN THE IMMEDIATE FUTURE
THE SECY DECLINED TO INDICATE WHETHER THERE
WOULD BE ANY FURTHER CASH BORROWING THIS
QUARTER OR TO INDICATE THE TYPE OF SECURITY
OR INTEREST RATE WHICH WILL BE OFFERED IN
THE CURRENT FINANCING - FINAL DETAILS ON THE
FINANCING WILL BE ANNOUNCED TUESDAY MORNING
THE SECY SAID THAT HE BELIEVED THE PRESENT
CASH BORROWING WILL BE THE SMALLEST SINCE HE
CAME TO THE TREASURY - THE 400 000 000 DLS
BEING BORROWED IS A PART OF THE 750 000 000
DLS IN NET BORROWING OF CASH FOR THIS FISCAL
YEEAR WHICH PRESIDENT ROOSEVELT FORECAST IN
HIS BUDGET SUMMARY LAST WEDNESDAY SECY
MORGENTHAU EXPLAINED
-0-
UNITED PRESS - September 3, 1936.
52D
CNS26
ADD FINANCING (WCNS22)
TREASURY OFFICIALS EXPLAINED THAT THERE WAS NO CONFLICT BETWEEN THE
PRESIDENT'S BUDGET STATEMENT THAT ABOUT $1,100,000,000 WOULD BE
SEU DURING THE FISCAL YEAR TO MEET THE NEEDS OF THE GOVERNMENT AND
ORGENTHAU'S STATEMENT TODAY THAT HE DID NOT INTEND TO TAP INTO THE
ALANCE HEAVILY.
OFFICIALS SAID THAT OF THE $1,100,000,000 ALLUDED TO BY THE
RESIDENT, $800,000,000 HAS BEEN USED ALREADY.
THE PRESENT BALANCE IS SLIGHTLY MORE THAN $1,000,000,000 BUT WILL BE
COSTED BY THE $400,000,000 IN NEW MONEY. THUS THE $300,000,000
EMAINING DRAW-DOWN MAY BE TAKEN FROM THE BALANCE WITHOUT BRINGING IT
ELOW THE $1,000,000,000 FIGURE WHICH MORGENTHAU WISHES TO MAINTAIN.
9/3--JE921A
52E
UNITED PRESS - September 3, 1936.
WCNS31
CORRECTION:--
IN (WCNS21), MORGENTHAU FINANCING STORY, MAKE 5TH PARAGRAPH READ X X
BEARING LOWER INTEREST RATES, POSSIBLY OF 1-3/8 PER CENT. HOWEVER, THE
TREASURY GAVE NO INDICATION WHAT THE DETAILS OF THE FINANCING WOULD
ACTUALLY BE.
9/3--JE934A
52F
UNITED PRESS - September 3, 1936.
WCNS32
ADD FINANCING(WCNS26)
EXPLAINING WHY IT COST ONLY $2,000,000 TO MAINTAIN THE $1,000,000,000
CASH BALANCE ANNUALLY, MORGENTHAU SAID THAT A LARGE PART OF THE SUM
REPRESENTED BORROWING ON TREASURY BILLS. THESE BILLS COST ONLY A
FRACTION OF ONE PER CENT INTEREST TO THE TREASURY.
9/3--JE941A
52G
UNITED PRESS - September 3, 1936.
WCNS45
ADD FINANCING
TREASURY OFFICIALS SAID THAT THE HOME OWNERS LOAN CORPORATION WAS
NOT MAKING ANY NEW LOANS BUT THAT IT NEEDED FUNDS TO MEET MATURING
OBLIGATIONS AND. TO SUBSCRIBE TO STOCK IN NEW FEDERAL SAVINGS AND LOANS
ASSOCIATIONS.
THEY SAID THE HOLC WOULD NEED ABOUT $100,000,000 DURING THE NEXT 12
MONTHS FOR THE STOCK SUBSCRIPTIONS.
9/3--JE1031A
52H
UNITED PRESS - September 3, 1936.
NS22
ADD FINANCING (WCNS21)
ACTING BUDGET DIRECTOR BELL, WHO ATTENDED THE MORGENTHAU CONFERENCE,
100 REPORTERS THAT THE TREASURY'S WORKING BALANCE HAD BEEN REDUCED
IT $800,000,000 SINCE THE FISCAL YEAR BEGAN JULY 1.
W
ADDITION, AN EXPECTED $82,000,000 FROM THE WINDFALL TAX, WHICH
HAVE BEEN PAYABLE SEPT. 15, WAS POSTPONED UNTIL DEC. 75, HE
CENTHAU POINTED OUT THAT THE TREASURY IS TAKING CARE ALSO OF
NANCIAL NEEDS OF THE HOME OWNERS LOAN CORPORATION so THAT IT DOES
XII HAVE TO CO INTO THE MARKET FOR MONEY,
THESE FACTORS, MORGENTHAU EXPLAINED, LED TO THE DECISION TO SEEK THE
YEW MONEY AT THIS TIME.
MORGENTHAU'S DECISION FOLLOWED HIS CONFERENCE YESTERDAY WITH MEMBERS
07 THE FEDERAL RESERVE SYSTEM'S OPEN MARKET COMMITTEE, WHICH GUIDES THE
YEMAXX BANKS INVESTMENT POLICIES. DEFINITE DETAILS OF THE REFUNDING OF
EYE $314,000,000 WILL BE ANNOUNCED SEPT. 8, MORGENTHAU SAID.
9/3--JE909A
Regraded Inclassified
UNITED PRESS - September 3, 1936.
52d
ADD FINANCING (WCNS18)
SECRETARY MORGENTHAU SAID THE NEW BORROWING WAS THE SMALLEST CASH
OFFERING SINCE HE CAME INTO OFFICE. HE PROMISED THAT THE TREASURY'S
AT BORROWINGS WOULD NOT EXCEED $750,000,000 FOR THE ENTIRE FISCAL
YEAR AS OUTLINED BY PRESIDENT ROOSEVELT IN HIS REVISED BUDGET ESTIMATE
OF YESTERDAY,
MINGENTHAU SAID THAT BECAUSE OF UNSETTLED EUROPEAN CONDITIONS, HE
INVIENT THAT IT WOULD BE UNWISE TO DIP INTO THE TREASURY'S WORKING
OF AROUND $1,000,000,000 TO MEET PRESENT FINANCING NEEDS,
"WE VANT TO KEEP OUR BALANCE AT ABOUT ITS PRESENT LEVEL IN THESE
THES WITH CONDITIONS AS THEY ARE ABROAD," MORGENTHAU SAID. "IT IS
VERY DESIRABLE THING TO DC. THIS BALANCE COSTS US ONLY ABOUT
2,000,000 A YEAR TO MAINTAIN AND IS THE CHEAPEST AND SAFEST INSURANCE
DE AMERICAN PEOPLE CAN HAVE."
IT WAS INDICATED THAT THE $514,000,000 OF 1-1/2 PER CENT NOTES
STORING SEPT. 15 WILL BE EXCHANGED FOR NEW NOTES, BEARING MORE
TEREST RATES, POSSIBLY OF 1-3/8 PER CENT.
9/3--JF906A
Regraded Inclassified
53
September 3, 1936
Mr. Levy, of Salamon Bros. & Hutzler, came in at 3:30.
He said he thought we could sell a 58-61. He was very
bullish. Said we had nothing to worry about. Thought
the move we made an excellent one.
Levy was extremely nervous. I asked Burgess whether
he was usually nervous and Burgess replied, "Only when he
sees the Secretary of the Treasury."
Regraded Unclassified
54
Thursday
September 3, 1936
4:00 p.m.
H.M.Jr: Hello.
Operator: Dr. Burgess.
Burgess: Oh, hello, sir - how did you make out with Ben Levy?
H.M.Jr' Well, what happened today?
B:
Oh, we had a good day. Prices were a little un-
certain right at the opening.
H.M.Jr: Yes.
B:
- and then they steadied out but they have been
very good all day and some of them reached new
high levels.
H.M.Jr:
I've just had Levy here.
B:
How do you like him?
H.M.Jr:
All right -
B:
A nice fellow, isn't he?
H.M.Jr:
Is he always so nervous?
B:
Was he nervous?
H.M.Jr:
Awfully nervous -
B:
(Laughs) No, he isn't usually nervous.
H.M.Jr: Yes.
B:
Well, it's a big occasion - arybody who comes to
see you ought to be nervous.
H.M.Jr:
Now, now, now, now, now -
B:
(Laughs)
H.M.Jr:
I can't have my leg pulled more than once a week.
B:
(Laughs) - he's a good fellow though, and he's
got an awfully good nosę for the market.
H.M.Jr: Well, do you know what he said?
Unclassifie
64A
- 2 -
B:
No, what did he say?
H.M.Jr:
Fifty-eight sixty-one -
B:
Well, that's a pretty good bond.
H.M.Jr:
What?
B:
That's a pretty good bond.
H.M.Jr:
I told him - I said that the fellows in Wall Street
were just too bullish for me.
B:
(Laughs)
H.M.Jr:
I said, 'I can't keep up with them'.
B:
(Laughs)
H.M.Jr: - I can't keep up with them.
B:
Well, I - I'm just as bullish as I was last night.
H.M.Jr: You are?
B:
Yes - well, here are these corporate bonds coming
out, twenty-five and thirty years - twenty years -
and selling on a basis that you make allowance for
a reasonable tax exemption - just as low basis as
your Governments -
H.M.Jr: Yes.
B:
And the maturity there doesn't seem to make any
difference, whether it was twenty-five or thirty
years and so forth. The peoples' minds are changing
a little bit about this maturity business.
H.M.Jr: Yes.
B:
They don't care so much -
H.M.Jr:
Any criticisms you've picked up?
B:
No, no - no, we had a little discussion about -
about the budget informally here.
H.M.Jr: Yes.
B:
And I think people recognize that that's a fair
statement.
B
- 3 -
H.M.Jr: Yes.
B:
I think most of them do.
H.M.Jr:
Of course Levy says they realize now they're not
going to be many more bonds.
B:
Yes, this is the first time they've got that - that
idea really.
H.M.Jr:
Yes - what do the - what do the bond dealers
hear from out of town?
B:
Everything all right.
H.M.Jr: Yes.
B:
Everything favorable -
H.M.Jr:
Have you seen the press today?
B:
No, I didn't see them; Straus saw them today.
H.M.Jr:
Oh - but - have you seen the evening New York
papers?
B:
Yes, I've seen one of them.
H.M.Jr:
Do they say anything about this?
B:
No, no - I didn't see anything - I haven't
examined it carefully yet.
H.M.Jr:
Yes - The Washington Star carried a big headline:-
'Morgenthau needs a billion dollars on account of
European situation'.
B:
No?
H.M.Jr: Yes.
B:
(Laughs)
H.M.Jr:
Well, that's all right.
B:
Yes.
H.M.Jr:
That's all right.
B:
Why, sure, yes - it must have been what kept the bad
news out.
54C
- 4 -
H.M.Jr: Yes.
B:
- If there is any.
H.M.Jr:
Well, what we try to do is to give them everything
we ve got.
B:
The - the franc was a little weaker towards the
end of the day.
H.M.Jr:
Was it?
B:
But the Governments were stronger toward the
end of the day.
H.M.Jr:
Yes - well, personally I was simply astonished the
way the market behaved.
B:
Yes.
H.M.Jr: Yes.
B:
Yes - I was too. I thought it would have some re-
action -
that much.
H.M.Jr:
Yes - it must be terrifically strong.
B:
Yes. Yes.
H.M.Jr:
Levy said he bought five million from some insurance
company today and before the day was over he had
sold out four of them at a profit.
B:
Is that so?
H.M.Jr: Yes.
B:
Well, that's a good sample.
H.M.Jr:
Yes - well, we'll see what tomorrow has for us.
B:
All right. - Say, that matter you discussed with me.
I think that something can be worked out on that.
Let me work on it a little and -
H.M.Jr:
All right.
B:
We'll see what we can do.
H.M.Jr: All right.
Regraded Unclassifie
- 5 -
B:
I think it can be done.
H.M.Jr:
Thank you very much.
B:
First rate.
H.M.Jr: Goodbye.
B:
Goodbye.
Regraded Unclassified
55
September 3, 1936
The Secretary met with Mr. Mills and Mr. Tripp
of the two Discount Corporations at his home last night.
They said that a 21 percent 47-50 bond would be
a tremendous success, The banks would gobble it up,
but they have two objections to it. (1) that it would
come due at 8 time when we have & lot of other securities
coming due and (2) if I got out an ll-year security at
21 per cent I would be accused of doing it for political
motives. They favored a 2-3/4 per cent bond making it
as long 26 the market would permit. Mr. Mills, Presi-
dent of the Discount Corporation, felt that he would like
to see it less than 20 years. He told me that one of
the biggest insurance companies, which had recently been
a big buer of Governments, had decided to stay out of
the market entirely until after election. I asked him
if he thought many other institutions would do the same
thing and he said, 'Positively no. You will meet the
heads of these institutions at lunch and they will damn
the Administration up and down hill and then a bond issue
comes out and their pocketbooks will come first and their
only kick will be that they will not get a large enough
allotment. He repeated, 'Don't worry; the pocketbook
influences these men first. And then he said, 'If you
met them at dinner after they have invested their
$10,000,000 in Governments, they will start all over again
damning the Administration'. The man who 18 talking 18
a Republican, I take it for granted.
To sum up, the two men felt that a 2-3/4 per cent,
somewhere between 18 and 20 years, would go well. They
both were delighted that we were going to ask for new
money. They said they thought it took real political
courage to do so at this time and that it was good poli-
tics to do it.
TREASURY DEPARTMENT
56
INTER OFFICE COMMUNICATION
TO
Secretary Morgenthau
DATE September M 3, 1936
FROM Herman Oliphant
When Edward L. Bernays telephoned me for an appointment for the
Philco people, he said they wanted to talk about the activity of Treasury
investigators among their retail outlets which was injuring their business.
Irey's report to you on the Philco companies boils down to this:
What they pay to R. C. A. on licenses to manufacture radios depends upon
the price at which they sell radios, and the Federal excise tax on radios
is 5 per cent of the selling price. There is, therefore, the problem of
preventing the Treasury from being R.C.A.'s catspaw.
Prior to July 1934 the Philco Radio Corporation and the Phila-
delphia Storage Battery Company had practically the same officers, common
records, etc. A reorganization was effected disassociating the two compan-
ies 80 far as officers and records were concerned but otherwise leaving
them for all business purposes apparently one concern. They maintain that
they should pay taxes and pay royalties on the price at which the Phila-
delphia Storage Battery Company sells radio sets to the Philco Radio Corpora-
tion rather than on the price at which such sets are resold by Philco Radio
Corporation.
Investigations by two Revenue agents of the Miscellaneous Tax Unit
end by Special Agent Wrigley resulted in a recommendation of an assessment
of additional taxes of over $1,000,000. These investigations did not ob-
tain all the records necessary to arrive at an absolute figure. The officers
57
- 2 -
of the Philadelphia Storage Battery Company were evasive in their state-
ments, at times gave incorrect information, and failed to make available
records permitting a full comparison of their record of sales and their
excise tax returns.
An investigation of their income tax returns for the same period
has now been ordered.
Olahouts
58
September 1, 1936.
SI-12852-F
GB:MEW
Memorandum for Mr. Irey:
In re: Philadelphia Storage Battery Company,
Philco Radio and Television Corporation,
Philadelphia, Pennsylvania.
The attached memorandum of Special Agent Wrigley dated
August 28 sets forth very clearly the situation concerning the
investigation which has been made with respect to excise tax
liability of the Philadelphia Storage Battery Company. The
memorandum comprises eight pages and it would be difficult to
set forth the facts in the case in anything briefer. However,
it may be stated that the main point in the case concerns the
basis on which P. S. B. proposes to pay excise taxes and royalties
to R. C. A. The original license agreement between R. C. A. and
P. S. B. provide for the payment of royalties on the P. S. B.
invoice price. In order to insure full royalty payments the
agreement provided that in the event radios or other apparatus
should be sold to corporations in which P. S. B. or its stock-
holders held a controlling interest deductions or adjustments
made by P. S. B. in fixing invoice prices should be disregarded
in determining the amount of royalties to be paid.
There was no trouble with respect to royalty and excise tax
payments prior to the "reorganization" of July, 1934, although
some of the transactions of P. S. B. which occurred just prior
to and subsequent to the passage of the 1932 tax law are con-
sidered questionable. This statement refers to the practice of
P. S. B. and other manufacturers who, in anticipation of the excise
tax law of 1932, entered into contracts under which their entire
stocks of merchandise were sold to selling agencies for the sole
purpose of avoiding excise taxes on the stock on hand when the
excise tax law took effect. The practice was followed by the
large tire dealers and others.
Prior to the reorganization of July, 1934 the Philco Radio
and Television Corporation herefter referred to as P. R. T.,
had practically the same officers and directors as did P. S. B.
Unclassified
- 2 -
59
SI-12852-F
GB:MHW
However, after July, 1934 the officers of P. R. T. disassociated
themselves from P. S. B. but it should be kept in mind that the
P. R. T. officers were the same ones who were formerly officers
of P. S. B. An 8 result of the reorganization P. S. B. maintained
that their selling price upon which royalties and excise taxes
should be besed is the price at which they sell radios to P. R. T,,
which price is very low 65 compared with the price at which radios
are sold to the trade.
P. S. B. and P. R. T. for all business purposes appear to be
one concern. Their offices and manufacturing plant have never been
changed and the business 1a conducted as it always has been with
the exception of segregation of records. Furthermore, Mr. Skinner
president of P. S. B. appears to have complete control of the
directing of policies of the Philco organization and during a
hearing before the N. R. A. in 1935 made the claim that the
affiliates were subsidiaries operating as wholesalers and not as
separate corporations.
The entrance of this Unit into the case resulted from a con-
ference had in the Miscellaneous Tax Unit on October 29, 1935.
At that conference Mr. Robert D. O'Callaghan, Assistant General
Counsel of R. C. 1. presented 8. statement concerning 8. suit brought
by R. C. A. for revocation or cancellation of the license given
to P. S. B. The point involved was that heretofore mentioned,
1. 0. that because of the reorganimation of July 1934 R. C. A.
was being paid royalties on the comparatively small price of radios
furnished P. R. T. by P. S. B. R. C. A. apparently had in mind
that if the investigation being conducted by R. C. 1. should
disclose that the reorganization of Philco in 1934 was for the
purpose of illegally avoiding royalties it would necessarily show
that excise taxes were being avoided also. Furthermore, it may
be inferred that any action by the Government looking to the
establishment of an excise tax basis which would be the same as
the basis which R. c. 1. was claiming would be helpful to R. c. 1.
Summing up the whole matter the inference is that the 1934 re-
organization of Philco was merely for the purpose of affording 4
means for avoiding the payment of royalties and all excise taxes
by P. 8. B.
Special Agent Wrigley refers to the excise tax investigation
which has resulted in a recommendation for assessment of additional
texes of over $1,000,000. The examination vas made by two revenue
- S -
60
SI-12852-F
GB:MHW
agents connected with the Miscellaneous Tax Unit on the one hand
and by Special Agent Wrigley on the other. The examinations were
made from different angles but it is the concensus of opinion that
the figure arrived at is approximately correct. It may be stated,
however, that the excise tax investigations did not result in ob-
taining all the records necessary to arrive at an absolute figure.
The officers of P. 8. B. were evasive in their statements and at
times gave incorrect information and they also failed to make
available records which would permit the reconciliation of sales
as reported on their income tax returns. An investigation of the
income tax returns covering the period involved in the propozed
assessment of over $1,000,000 is now under way, or will be begun
within a short time, and it is expected that that investigation
will disclose attempts to avoid if not evade payment of proper
taxes.
EB
TREASURY DEPARTMENT
REVENUE - INTELIGENCE
INTERNAL REVENUE SERVICE
AUG 29 1936
UNIT
INTELLIGENCE UNIT
SPECIAL AGENT IN CHARGE
Philadelphia
Philadelphia, Pa., August 29, 1936.
(Name of Division)
3I-12852-F
INTERNAL REVENUE
Report Examined, Approved and
Forwarded to Chief, Intelligence Unit
EJW-G
AUG 21-1936
INTELLIGENCE UNIT
AUG 2 91936
Special Agent in Charge
Chief, Intelligence Unit,
Puttadelphia Division
Bureau of Internal Revenue,
Washington, D. c.
In re: Philadelphia Storage
Battery Company,
Philadelphia, Pa.
In accordance with telephonic request made under date of
August 27, 1936, there is forwarded herewith a memorandum re-
lating to the investigation of the excise tax liabilities of
the taxpayer above named.
Edmind Edmund J. Wrigley
Special wrigley Agent
62
August 28, 1936.
INTERNAL AEVENUE
3I-19852-F
AUG 37-1936
INTELLIGENCE UNIT
Memorandum re:
Excise Taxes under Title IV, Revenue Act of 1932.
on sales by
Philadelphia Storage Battery Company
See: Sec. 606(c) ,R.A.1932
of Parts and Accessories for Automobiles
(Batteries and Radios)
0 xx
See: Sec. 607
R.A.1932
and (Home) Radio Receiving Sets,etc.,O 5%
During two periods:
First Period: June, 1932 to July, 1934
Second Period: August,1934 to December,1935
See: Sec. 19(b),R.A.1932, as to the basis of tax (fair market price)
on sales not at arm's length and at less
than fair market price.
See: Sec. 3176, R.S., as amended, for ad valorem penalty of 50% applica-
ble in case a false or fraudulent return is
wilfully made.
The taxpayer is Philadelphia Storage Battery Company, (referred
to hereafter as P.S.B.) a corporation of Pennsylvania, organized in
1892, with a capital of $100,000. By April, 1932, increases in
capital stock had brought the authorised capital to $9,000,000.00.
Those increases were due for the most part to stock dividends and
bonus stock issued. The stock is closely held, control of the com-
non stock being exercised through "pooling agreements", required of
shareholders, by which the stock is to be repurchased by the cor-
porate interests at a fixed price of $110.00 and sale to other per-
sons is not permitted.
63
SI-12852-F
In November, 1930, before the establishment of excise taxes
on radio receiving note as under discussion, P.S.B. acquired
control of Transitone Automobile Radio Corporation, (referred to
hereafter as TARCO), a Delaware corporation. It has been explained
that production of home radios is seasonal and production of auto-
mobile radios would occur during the alack season in home radio
production and in this my year round activity might be promoted.
At that time, in November, 1930, 8 contract was entered into
between P.S.B. and TARCO providing for manufacture of automobile
radio sets by P.S.B.; sale of those sets to TARCO at cost (with-
out profit); promotion by P.S.B. of ultimate sale of those nots
for TARCO; advertising by P.S.B. of TARCO sets in regular P.S.B.
advertising and in P.S.B. national radio broadcasting, etc. That
contract was for a term until September 30, 1934, and thereafter
from year to year. That agreement could not be amended on the
part of TARCO except upon the vote of all the directors of TARCO
except one.
That agreement of November, 1930, provided that P.S.B. cost
of TARCO seta, to be borne by TARCO, was to be computed as fol-
lowa:
(a) direct cost of material and labor;
(b) that portion of overhead expense that
is fairly attributable to the manu-
facture of TARCO. sets including the
fairly applicable portion of general
office expense;
(o) The amount of all royalties which shall
be payable with respect to the manufac-
ture of sale of TARCO sets.
P.S.B. originally obtained the right to manufacture and sell
radios by a license from Radio Corporation of America which with
its supplaments defines licensed apparatus as that which shall ecm-
prise at least a chassis and loud speaker advertised as a complete
apparatus and salable to the using public " much. Under this
license P.S.B. agreed to pay royalties to R.C.A. on the licensee's
invoice price.
This "licensee's invoice price" would be comparable with the
"price for which sold" on which excise tax is imposed under
the several sections, 606(c) and 607 of the Revenue Act of 1932.
The license went further and provided that ...
-2-
SI-12852-F
64
"In order to insure ... the full royalty payments
contemplated hersunder, the Licensee covenants that,
in the event that any apparatus licensed hereunder
shall be sold to & corporation,
in
which
the
Licensee or its stockholders shall own a controlling
interest by stock ownership, or otherwise, any de-
duction or adjustment made by the Licensee in fixing
the invoice price in respect of such apparatus, by
reason of such control, shall be disregarded in deter-
mining the royalties to be paid hereunder in respect
of such apparatus."
This clause is referred to as & "wash sales provision" of the
license and would be comparable with the provisions of Sec. 619(b),
R. 1. 1932, when an article is sold at less than arm's length and
less than fair market value. Under these provisions P.S.B. re-
ported and paid royalties on the final sales prices to the trade
and this continued until the "reorganization" of July, 1934.
The business transactions of P.S.B., prior to the time that the
Revenue Act of 1952, as it related to excise tax on P.S.B. products,
was under consideration, are not now questioned but the transactions
of P.S.B. which occurred just prior to and subsequent to the passage
of the Revenue Act of 1932 are considered to be highly questionable
in respect to tax liabilities under that Act.
Prior to the time that consideration was being given to the
Revenue Act of 1932, PLS.B., in addition to owning control of TARCO,
owned the stock of J. 8. Timmons, Inc., 8 corporation that had man-
ufactured radio speakers and cabinets. P.S.B. also owned several
subsidiaries that acted 0.8 sales outlets in New York, Texas, Canada
and Great Britain.
In anticipation of the passage of the Revenue Act of 1932,
P.S.B. on April 28, 1932, caused Phileo Radio and Television Cor-
poration, (referred to hereafter as P.R.T.) to be incorporated in
Delaware as a wholly owned subsidiary. The purpose for which
P.R.T. was created was to not as & sales corporation of the tax-
payer.
On April 29, 1932, P.S.B. entered into separate agreements with
P.R.T. for:
Transfer to P.R.T. of selling business
Sale to P.R.T. of Storage Batteries and
Parts end Accessories therefor.
-5-
65
SI-12852-F
Sale to P.R.T. of Chassis
Sale to P.R.T. of Tubes, Cabinets and Speakers
Sale to P.R.T. of Cabinet Parts
Assembly by P.S.B. of Radio Receiving Sete
The separate contracts provided for salesof radio parts (chassis,
alone) such as were not permitted under the terms of the R.C.A.
license. The sale price fixed by the contracts covering batteries
and radio parts was "the total manufacturing cost ... plus five
percentum."
Cost of products manufactured by P.S.B. under these agreements
was to be computed as follows:
The direct cost of labor
The cost of material
The handling, inspection and
storage of the same
That portion of the factory overhead
that is fairly attributable to
the manufacture of the products
sold to P.R.T.
All excise taxes assessed with respect
to the products sold to P.R.T.
Cost of products (cabinets, tubes and cabinet parts) purchased
by P.S.B. and sold to P.R.T. was to be computed as follows:
Total cost to P.S.B., plus five
percentum thereof, such cost to be
computed from the actual purchase
price paid by P.S.B., plus the
cost of handling, inspection and
storage, etc.
The products on hand and in process as of May 1, 1932, were
invoiced to P.R.T. by P.S.B. in a volume out of proportion to usual
and ordinary business requirements, this having been done as of
June 20, 1932, the day before the effective date of the Revenue Act
of 1932, according to Mr. William R. Wilson, representative of P.S.B.,
in anticipation of the excise tax provisions contained in the not.
Similar contracts had been entered into between P.S.B. and its
wholly owned subsidiary, J. 8. Timmons, Inc., for the purchase by
P.S.B. of speakers and cabinets from J.S.T., Inc., at the total
66
SI-12852-F
manufacturing cost to J.S.T. Inc., plus of percentum on speakers
and 5 percentum on cabinets. The contracts with Timmons, however,
were mere pieces of paper by which an artificial sales value for
excise tax purposes as created. Actually, during the period that
the J.S.T. Inc., contracts were effective, P.S.B. manufactured the
speakers and cabinets alleged to have been manufactured by J.S.T.
Inc., then P.S.B. invoiced the cost of such manufacture to J.S.T.
Inc., 86 material, labor and expense and J.S.T. Inc., in turn, in-
voiced the finished products back to P.S.B.
J.S.T. Inc. filed excise tax returns on the basis of the arti-
ficial sales values created by P.S.B. Proof of the fact that P.S.B.
manufactured the speakers and cabinets 082 be shown from the cost
accounts of P.S.B. maintained for operation of Department 76 and
Department 92. Tirmons used no raw materials, maintained no in-
vantories thereof end had no residue of any kind from manufacture.
During the whole period from June, 1932 to July 1934, the pro-
visions of the license " to royalties being payable on "wash sales"
were recognized and P.S.B. reported to R.C.A. the sales values of
P.R.T. However, during the same period, for excise tax purposes,
P.S.B. used the tentative sales values which were billed to P.R.T.
monthly on the basis of artificial cost.
The system used by P.S.B. does not permit the determination of
the actual monthly costs such as should be used if the contracts
with P.R.T. and other affiliated companies were at arm's length.
Under the system used actual monthly costs are not shown and can
not readily be determined. Actual costs for any one of the compo-
nent parts contracted to be sold to P.R.T. have not been determined
by P.S.B. for any month or for any other period.
The contract of P.S.B. with TARCO is believed to have an in-
portant bearing on the excise tax questions relating to P.S.B. when
comparison of that contract is made with the contracts of P.S.B.,
with J.S.T. Inc., and P.R.T.
In using costs as the base for sales values to both TARCO and
P.R.T., after April 29, 1932, P.S.B. disregarded the TARCO contract
of November, 1930, which provides that royalties are to be included
in cost and provides also that general office overhead is to be in-
cluded in costs and uses for excise tax purposes not the true and
complete costs of production but estimated or standard costs that
did not include royalties or certain administrative expenses. These
-5-
67
SI=12852-F
and similar items were invoiced to P.R.T. as independent transac-
tions the values of which were not included in the excise tax
base.
The secretary of P.S.B., ltr. Peyton, when interviewed in re-
spect to royalties having been by-passed around costs used in OX-
cise tax computations, contended that royalties were included in
such computations and that it was wholly inaccurate to my that
royalties had been eliminated therefrom. Mr. Peyton was positive
in his declaration of the principle and practice involved but upon
inquiry made by him he found that royalties had not been treated
" he, himself, inisted they should be handled.
If royalties are properly to be included in costs under the
TARCO contract, and it is 80 provided therein, their elimination
from the sales price appears to have been & fraudulent reduction
by P.S.B. of even the limited or restricted artificial sales value
that P.S.B. attempted to establish by the contracts of April 89,
1932.
As stated heretofore, P.S.B. reported, as its own, the P.R.T.
sales prices for royalties while it was using the artificial val-
use for excise taxes. The artificial sales values used for 02-
cise taxes have not been reconciled with sales per income tax re-
turns due to the resistance of P.S.B. and its failure to produce
records which should make such a reconciliation possible. Due to
the inaccurate information which was offered by representatives of
P.S.B. as to records, transactions, etc., a communication in writ-
ing was addressed to P.S.B. in which it was requested that records
and data provided for under the TARCO contract be made available
for the purpose of ascertaining the correctness of the excise tax
returns. The evasive attitude of the taxpayer is demonstrated by
their reply and their failure to make available records which would
permit the reconciliation of gross sales, per income tax returns,
with gross sales, per excise tax returns and, also the reconcilia-
tion of cost of goods sold, per income tax return, with cost of
goods sold, per excise tax returns.
As to the second period, from August 1934 to December 1935,
P.S.B. approached their licensor, R.C.A., and suggested that
R.C.A. approve a revised corporate set-up which would permit
P.S.B. to reduce excise taxes and royalties and would serve also
to make unassailable by the government, the position of P.S.B. in
relation to the base for excise tax computations.
-6-
68
3I-12852-F
-7-
R.C.A. declined to give approvel to the proposed revision and
during July, 1934, P.S.B. brought about & revision in the corporate
structure by which P.S.B. no divested of stock ownership in P.R.T.
and subsequent to the effective date of the so-called reorganization,
July 29, 1934, P.S.B. reported and paid royalties to R.C.A. on the
artificial sales values represented by "manufacturing costs" as a
base. The contracts of April 29, 1932, were superseded by a sales
and assembling agreement between P.S.B. and P.R.T. through which
control of P.R.T. is exercised.
The work of assembly of the radio sets had been transferred to
P.R.T. and the cost of such work was eliminated from the royalty
and excise tax bases. The license agreement with R.C.A. was non-
transferable and could not be divided and shared. R.C.A., during
April 1935, forwarded & notice to P.S.B. which represented the
initial step in sancellation by R.C.A. of the license and P.S.B.
commenced suit in the State of Delaware to restrain R.C.A., by in-
junction, from cancelling the license agreement. P.S.B. recognized
the possibility of the assembling work by P.R.T. being not in 6.0-
cordance with the license agreement and commenced assembling the
radios and making delivery of the complete sets to P.R.T.
The claims of the Licensor, R.C.A., as to royalties and the
base to be used for their computation are comparable with the
claims of the government for excise taxes on the basis of fair
market price but no decimion in that case of P.S.B.-R.C.A. has
been had as yet, the trial date being set at this time for Septem-
ber 15, 1936.
It is believed that the corporate structure of P.S.B. and its
affiliates has chameleon like qualities that are maintained for
the benefit of P.S.E. and the small group in control thereof as
opposed to government, rights under contracts and other interests.
In respect to the government as 8. whole, Mr. Skinner, President of
P.S.B., claimed in NRA proceedings that the affiliates were sub-
sidiaries, operating as wholesalers not separate corporations.
During 1932 and 1933 consolidated income tax returns were filed
but as to excise taxes it is contended that separate corporations
exist at arm's length and sales values which do not include the
actual or economic cost of menufacture are proper values on which
excise taxes should be computed.
The deficiency in excise taxes shown by the examining officers
for the whole period June, 1932 to December, 1935, THE $1,075,516.12
and it has been recommended that those deficiencies be assessed.
-7-
69
SI-12852-F
+
In addition, recommendation has been made that the advalorem
penalty of fifty per cent. be assessed on the full amount of tax
for each of the months for which 8. deficiency in excise taxes is
now determined to be due. Such a penalty would apply to the
total tax for each of those months and would, in itself, amount
to more than the deficiency above mentioned. It is believed that
the application of such a penalty could be sustained by the govern-
ment.
Successful prosecution of the group involved herein would be
dependent on the statements of the officers and representatives
together with the records of the several related corporations and
it is believed that before prosecution is attempted the various
officers and representatives should be examined before a Grand
Jury and their statements as to the double positions assumed by
the corporations should be recorded.
Edmind J. Edmund Jugley J.
Special Agent
Unclassified
70
( ca )
00- 68
800
815
s September 1936.
the Henorable,
The Secretary of the Navy,
Washington, D.C.
My dear Mr. Secretary:
With reference to the temporary transfer to the Havy
of the Coast Guard radio stations at winthrop, Massachusetts;
New London, Connecticut; and Reekaway, New York, with their
apparatus and equipment complete, the trial period of two
years having expired, it is requested that these stations,
with their apparatus and equipment, be returned to the Coast Ouard
on or before 15 September 1936.
I have given careful thought and study to the plan
of operation of these stations and, as a matter of policy, I
an convinced that these stations should be returned to their
former status under the jurisdiction of the Coast Guard.
Very sinserely yours,
Secretary of the Treasury.
I / gmb
new
71
Friday
September 4, 1936
9:15 a. m.
Fred
Sexauer:
- just when I want something, you know.
HMjr:
I know that.
B:
(Laughs) Well, I've tried to reach you several
times, Henry, but you've been awfully busy of late.
HMjr:
Yes
S:
And I haven't been down in Washington very much.
Say, Henry, the thing that I wanted to talk to you
about, I won't take but a moment of your time, is
a situation down there that affects New York State.
HMjr:
Yes
S:
It's on disease control.
HMjr:
On the which?
S:
On disease control -
HMjr:
Disease control?
S:
-
Bovine disease control.
HMjr:
Yes
S:
You remember the program that you and Bill Myers
were so much interested in several years ago.
HMjr:
T. B. or
S:
Well, this is - this is mastitis.
HMjr:
Oh yes -
S:
Now, the
of the situation seems to be pretty
well 0. K. and of course T. B. is pretty well cleared
up.
HMjr:
Yes
8:
But we have in this territory, as you know, quite a
problem with mastitis. The Boards of Health are
extraneously condemning their cows for mastitis.
And it's about - one of the most serious situations
that we have here in the Northeast.
HMjr:
Yes
Regraded Unclassified
72
-2-
B:
A year or two ago we got B. Federal appropriation
of a million dollars and that created a lot of
favorable comment up here and was very helpful.
Now, my understanding is that the situation at
present is that the Dairy section of the Triple A
is favorable to a mastitis appropriation. But
the Bureau of Animal Industry is opposed to it
and it's up to Wallace for 0. K. and Wallace has
not taken any position but to appear somewhat
opposed to it. Now this is pretty important to
the Dairy industry in the Northeast because here
is where most of the cattle are condemned for
mastitis. And we wondered if something - if
there wasn't something you could do on this to
help us get this thing pushed through.
HMjr:
Well, I mean, where are they going to get the money
from?
S:
They have an appropriation - it's included in
their appropriation - that is it should be
included in the appropriation.
HMjr:
Yes
S:
It's in the recommendation.
HMjr:
Well, you mean for the next year's budget?
S:
Yes
HMjr:
Oh, my heavens!
S:
(Laughs) Well, it's a million dollars, Henry,
They've got eighteen million in there for bangs
HMjr:
Yes
S:
And the way the thing has always been set up, we
haven't been able to utilize the bank money to
any set degree as the - as the fellows in
Washington have been able to. I think that we've
got about five per cent here in this place as
against twenty per cent in the West. We just
simply haven't been able to put the program across
here because cattle are so much more valuable here.
HMjr:
Well, have you been down to see the people?
8:
No, but one of our men has, yes. Leon Shaeffer
is on the Dairy Committee on Disease Control.
73
-3-
HMjr:
Yes
S:
And he has worked on this thing consistently and
he says that it simply can't be moved until some
other pressure than that which has already been
put on is put on the Bureau of Animal Industry.
HMjr:
Well, the next time I see Wallace I'll mention it
to him.
S:
How's that?
HMjr:
I'll mention it to Henry Wallace the next time I
see him.
S:
I wish you'd do that, Henry, because it's very
important all through this section. There is a
great deal of resentment over the mastitis situa-
tion.
HMjr:
Yes
S:
And I think a lot of credit could be obtained by
putting through this three million dollar appro-
priation.
HMjr:
Clean up the mastitis and vote for Roosevelt, huh?
S:
That's the stuff.
HMjr:
All right.
S:
(Laughs) - I want to see you the next time I get
down, Henry.
HMjr:
All right, we'll see what we can do. (Laughs)
S:
(Laughs) It means that that/part is of the program -
HMjr:
(Laughs) All right
S:
All right, Henry, thanks a lot.
HMjr:
Goodbye.
Unclassified
74
September 4, 1936
Called Lochhead last night. I could not understand
why he had not brought to my attention the cable that
France wants to send over $100,000,000 gold. The cable
had come after Lochhead had left. I told him to get busy
at once.
Regraded Unclassified
75
Friday
September 4, 1936
12:24 p. n.
HMjr:
Mr. Cochran, Paris, Diplomatic channel. I either
want him in the next twenty minutes or - then I'll
let -
or else after half past two, see?
Operator: All right
HMjr:
Either in the next twenty minutes or -
Operator: All right, I'll call him right away.
HMjr:
Yes
Regraded Unclassified
75A
September 4, 1936
Viner, Lochnead, Haas, White and Oliphent came in
to discuss the cable received from the American Embassy
transmitting an inquiry from Cariguel whether the Bank of
France could ship $100,000,000 of gold to the Federal
Reserve Bank of New York to be ear-marked for their account.
(Copy of this cable, marked No. 1, is attached.) They
also wished to know whether it would be necessary to have
a separate license for each shipment of gold into the
country and whether there would be any delays in obtain-
1ng licenses for the re-export of this gold if they 60
desired. They also asked if we would give them assurances
that if the franc should be devalued or should leave the
gold standard, would there be any differences in procedure.
It was pointed out at this meeting that the Federal
Reserve Bank have been granted 8. general license to hold
gold under ear-mark for foreign central banks and, there-
fore, this could be treated as a routine transaction, the
details to be discussed between the Bank of France and the
Federal Reserve Bank of New York. As far as the Treasury
giving assurance that there would be no change in this
procedure at any future date under varied circumstances,
Hr. Oliphant stated that there W&E no law covering the
ear-marking of gold and that we must treat it as a sacred
thing. It was decided to send the following cable:
"For Cochran from Secretary of the Treasury. No,335.
With regard to the transactions involved in the
inquiry of September 3 from Cariguel, and the inquiry of
September 4 from Governor Rooth, earmarking 18 covered by
the general license issued to the Federal Reserve Bank of
New York, under date of March 93, 1934. It is suggested
that the Bank of France and Bank of Sweden discuss details
with the Federal Reserve Bank of New York directly."
In the meantime, a second cable had been received
from Cochran, in which he advised receipt of a letter
from the Governor of the Central Bank of Sweden asking
practically the same questions as had been brought up by
the Bank of France regarding the ear-marking of gold.
(Copy marked No. 2 attached.)
Secretary Morgenthau then called Cochran and the
following 18 a transcript of their conversation:
want original758 #1.
PARAPHRASE OF TELEGRAM RECEIVED
1
FROM: American Embassy, Paris
DATE: September 3, 1936
NO.: 826.
I was called to the Bank of France this evening
by Cariguel, who informed me that it was the opinion
of Governor Labeyre and some of the new regents that in
case of necessity the Bank of France itself should be in
8. position to operate in dollars. Cariguel informed them
that in case this is desired, the Bank of France should
at once begin to build up & gold supply in New York by
shipping metal to the Federal Reserve Bank from Paris to
be held under earmark in New York, $100,000,000 should
be the minimum amount, Cariguel suggested.
I was told by Cariguel that a few months ago when
the $15,000,000 of gold now held under earmark with
the Federal Reserve Bank was shipped to New York by the
Bank of France, no inquiries had been made as to whether
or not it would be possible to withdraw such gold to
Paris or with regard to other formalities concerning its
disposition. However, the bank wishes to be definitely
informed in the premises before deciding on the question
of building up & considerably more important stock. In
case
75C
case the Bank of France should wish to withdraw from
the United States gold which had been shipped there
and placed under earmark with the Federal Reserve Bank
in New York, what formalities would be involved? Would
it be necessary to secure a license for every shipment
from New York. Would it be possible for the Treasury to
assure the Bank of France that there would be no delay
or license fee in issuing any licenses that may be
required? If the frano should be devalued or should
leave the gold standard, would there be any differences
in procedure? Such information as the Treasury may per-
mit me to pass on to the bank would be appreciated, since
the Bank of France desires to reach an early decision
with regard to this matter. It is my understanding, of
course, that this is strictly confidential.
It is my personal opinion that it is advisable to
encourage and to help France in (7) a reserve of this
kind in the United States. Such & reserve would be very
important if a crisis in the franc arises and private
banks cannot cope with the situation; it might obviate,
at least temporarily, the need for appealing directly to
us for help. The point involved was not discussed at
the bank and this is merely a personal opinion.
Cariguel
75D
Cariguel said, in reply to an inquiry from me, that
the British had now withdrawn from the Bank of France
approximately two thirds of the gold held under earmark
there.
The exchange market, he said, had not been good today.
He also said that some gold had been lost to England, which
is the first gold that has been BO lost for some time. It
amounted to something over 20,000,000 francs. It was
thought by some observers that the circular of the
Minister of Finance, quoted in my 824, September 3, 5 p.m.,
was the cause of the slight upset in exchange today.
That is, French holders have been disposing of American
and other securities which are not quoted on the Paris
bourse and have been acquiring either securities quoted
on the Paris bourse or securities quoted on London which
could quickly be repatriated.
WILSON
EA:EB
75
Friday
-2-
September 4, 1936
2:55 p. m.
HMjr:
Hello
Operator: All right
HMjr:
Yes
Operator: Go ahead
HMjr:
Hello
H. M.
Cochran:
Hello, Mr. Morgenthau
HMjr:
Hello, how are you?
C:
Fine, thank you
HMjr:
Now, we have from you a couple of cables in regard
to two countries -
C:
Yes, yes
HMjr:
And I just wanted to say that we're sending a formal
answer referring their inquiries to the Federal
Reserve Bank, see?
C:
I see,
HMjr:
Hello?
C:
Yes
HMjr:
But I wanted to let you know that when they do refer
their inquiries as far as earmarking goes - hello?
C:
Yes
HMjr:
- it'll be all right.
C:
I see.
HMjr:
But I didn't want to put that in the cable.
You'll get a cable any - it may come in there
any time. Hello? - hello?
C:
Hello
HMjr:
Did you get it?
C:
No - I didn't get that point.
15F
-3-
HMjr:
Well - a cable has been sent to you -
C:
Yes
HMjr:
- which you'll get, referring these two inquiries
to the Federal Reserve of New York.
C:
Yes
HMjr:
But I wanted to tell you that if they do refer
them it'll be all right.
C:
I see. These people should apply directly there?
HMjr:
That's the idea.
C:
I see.
HMjr:
See?
C:
Yes
HMjr:
But - they'll get a favorable reply as long as
it's limited to the one thing.
C:
As long as it's limited to the earmarked gold?
HMjr:
That's right.
C:
HMjr:
Now, don't ask anything more, just - I mean I want
to be careful on this phone.
C:
I see - I see.
HMjr:
But I wanted to tell you that you can tell them it'll
be all right.
C:
I see.
HMjr:
See?
C:
If they do make application there?
HMjr:
That's the question.
C:
Fine, fine
HMjr:
See?
C:
Yes
75G
-4-
HMjr:
And I didn't want - but they should go through
the regular channels.
C:
They didn't know - I mean they've had things up
before and they didn't know whether they could
come through us or go direct -
HMjr:
Well, they had asked something else before, you
know?
C:
Oh yes, yes
HMjr:
You know what I mean?
C:
Yes
HMjr:
I mean --
C:
Yes, this is the first time they've had up just this
question -
HMjr:
That's right, but Sweden has had other things and
so has Norway.
C:
Yes, yes
HMjr:
See?
C:
It's different.
HMjr:
What?
C:
It's different.
HMjr:
It's very different.
C:
Yes -
Are you going to be there yet a while
today?
HMjr:
Yes
C:
Because I sent you a most important message today -
HMjr:
You did?
C:
Yes
HMjr:
How long ago?
C:
Two o'clock here. I gave it to my code room at
half past five.
75H
-5-
HMjr:
I see.
C:
This man called me to
this afternoon.
HMjr:
What's that?
C:
The man who is -
corresponds with
George -
HMjr:
Yes
C:
- had me over this afternoon.
HMjr:
Yes
C:
And has a very direct question to place to you.
HMjr:
All right
C:
And so it's in the pouch - it's on the way over
now. The Department should have it by this time.
HMjr:
All right, thank you.
C:
You'll be there tomorrow, will you?
HMjr!
Yes, I will.
C:
Fine
HMjr:
All right.
C:
Because they're anxious to get some action.
HMjr:
All right.
C:
Thanks a lot for this and I'll pass the word on
to them.
HMjr:
0. K.
Regraded Unclassified
-8-
As will be noted from the above conversation, the
Secretary advised Cochran of the cable that was being
despatched, but for Cochran's guidance he added that if
the Bank of France or the Swedish Central Bank wished to
make applications for the earmarking of gold with the
Federal Reserve Bank, their requests would be sympathetically
received. He emphasized to Cochran that this referred to
the earmarking of gold only and not to the acquisition of
gold from the United States Treasury which was a point
that was not being taken at this time.
155
#2
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: September 4, 1936, 11 a.m.
NO.: 827
FOR THE SECRETARY OF THE TREASURY,
FROM COCHRAN.
This morning I received B personal letter from
Governor Rooth of the Central Bank of Sweden - the
Sverigesrike Bank at Stockholm. He made reference to
an idea which he advanced to me some time ago, the
idea of his opening with the New York Federal Reserve
Bank of B. gold deposit.
Governor Rooth has asked my advice about the prac-
ticability of now taking the step above-mentioned.
I cable to ask whether the Treasury would provide ae
with any information to pass on to Governor Rooth with
regard to the formalities that would be involved in
making such 8 gold deposit, and with regard to with-
drawal of it. In particular would each shipment from
New York Require B license? The Bank of Sweden would
like to know whether the Treasury could give assurance
that there would be no question or delay in issuing any
licenses that may be necessary.
I refer to my telegram No. 826 of September 3, 7 p.m.,
in which a similar question in behalf of the Bank of France
is raised. The question arises whether there would be
any
Regraded Unclassified
75K
- a -
any difference in the conditions applicable to these two
central banks, considering that one is in the sterling
area and one is on the gold standard.
WILSON.
EA:LWW
Regraded Unclassified
75L
12
PARAPHRASE OF TELEGRAV SENT
TO: American Embassy, Paris
DATE: September 4, 1936, 2 p.m.
NO.: 335
FOR COCHRAN FROM SECRETARY OF THE TREASURY.
with regard to the transactions involved in the
inquiry of September 3 from Carigual, and the inquiry of
September 4 from Governor Rooth, earmarking is covered by
the general license issued to the Federal Reserve Bank
of New York, under date of March 23, 1934. It is suggested
that the Bank of France and Bank of Sweden discuss details
with the Federal Reserve Bank of New York directly.
HULL
EA:LWW
Regraded Unclassified
76
September 3, 1938
Admiral Weesche and Captain Chalker met with the
Submity today to discuss the purchase of new planes
THE she Cosst Guard. It WRS decided to set up & Board
:- Impect certain Navy planes and to decide on the
type Lest suited for the Coast Guard's needs. This
STATE will consist of Captain Chalker, Commander von
colven, Lieut. Olsen, Lieut. Burton and Hr. Cocklin.
(201 visited Waesche's memorandum attached.)
The Comet Guard officers also discussed with the
Summary the matter of the Coast Guard radio stations
at winters?, MRSS., New London, Conn., and Rockaway,
4552, which were transferred two years ago on a
basis to the Navy Department. As a result
or :_/: discussion, HM,Jr. directed Admiral Waesche
to provide a letter in which the Secretary of the Navy
mas be informed that after careful study and AS a
of policy he, the Secretary, was convinced that
Circo Stations should be returned to their former status
00+2 Lic jurisdiction of the Coast Guard. (Attached
0. RW if letter signed by the Secretary addressed to
tm Decustary of the Navy.)
Regraded Unclassified
77
TREASURY DEPARTMENT
UNITED STATES COAST GUARD
OFFICE OF COMMANDANT
WASHINGTON
$ September 1936.
My dear Mrs. Klotz:
The board to inspect and test the plane
constructed for the Navy by the Consolidated Air-
craft Company, and the type PH-2 plane, built by
the Hall Aluminum Company, and now in service in
the Navy, will consist of the following officers:
Captain L. T. Chalker,
Commander C. C. von Paulsen,
Lieutenant C. B. Olsen,
Lieutenant W. he Burton, and
Mr. H. S. Cooklin.
As soon as Captain Chalker completes
his arrangements in the Navy Department for the
inspection and test of these planes, the board
will immediately proceed with the work.
Very sincerely yours,
R. R. WARSCHE
Rear Admiral, U.S. Coast Guard,
Commandant.
Mrs. H. S. Klotz,
Secretary to the
Secretary of the Treasury,
Washington, D.C.
78
( 00 )
or $
890
815
8 September 1956.
The Monorable,
The Secretary of the Havy,
Washington, D.C.
My dear Mr. Secretary:
with reference to the temporary transfer to the Mavy
of the Coast Guard radio stations at Vinthrop, Massachusetts;
New Leadon, Commentions; and Reckewey, New York, with their
apparatus and equipment complete, the trial period of two
years having expired, it is requested that these stations,
with their apporatus and equipment, be returned to the Coast Geard
on or before 15 September 1996.
I have given careful thought and study to the plan
of operation of these stations and, as a matter of policy, I
- convinced that these stations should be returned to their
former status under the jurisdiction of the Ceast deard.
Very sincerely yours,
Secretary of the Treasury.
RRW/- -
Regraded Unclassified
September 4, 1936
At 9:15, HM,Jr. discussed with Bell, Seltzer, Murphy,
Haas, Viner, Lochhead and Harris, the kind of bond to issue
at this time. While they were present he talked to Dr.
Burgess, with the loud speaker on 80 all could hear, and
the following is a record of their conversation:
HM,Jr:
Hello, Burgess.
Burgess:
Yes.
HM,Jr:
How did the market open this morning?
B:
Just a shade off.
HM,Jr:
A shade off?
B:
A shade off, yes.
HM,Jr:
Now, look, Burgess, I've been doing a lot
of thinking and this is where I stand this morning. I'm
still a little fearful of a 2-3/4 20-23, see?
B:
Yes.
HM,Jr:
Hello?
B:
I thought you were talking about 25?
HM,Jr:
Well - I don't want to --
B:
(Laughs.)
HM,Jr:
I - well, I'm - if I did it, I don't want
to go beyond '60. I'd rather make it 20-23.
B:
I see, yes.
HM,Jr:
Hello?
D:
Yes.
HM,Jr:
I mean some of these people, you know, they
say, don't go beyond '80.
TRA
-2-
B:
Yes.
HM,Jr:
But that's for the moment. I don't think
that's important, I mean I think if we decided it was a
20-year we could very quickly make up our mind whether it
was 20-23 or 20-25, see?
B:
Oh, yes, yes.
HM,Jr:
But the crowd I had down last night, they
say quite frankly that they'd subscribe but they wouldn't
keep it.
B:
Yes.
HM,Jr:
But they wouldn't keep it.
B:
Yes.
HM,Jr:
See?
B:
Yes.
HM,Jr:
Which is what they've all more or less said.
B:
Well, that's what they did a good deal last
time, isn't it?
HM,Jr:
What's that?
B:
That's a good deal what they did last time,
isn't it?
They've got some of them, but not BO very many.
HM,Jr:
Well, they said they'd keep about a quarter,
but it keeps the market in a turmoil, that's -
B:
Well, I don't know, it's distributing to the
investors.
HM,Jr:
All true - but if something came from the
outside as a shock, that would be the first bond to get it.
B:
That's right.
HM,Jr:
Wouldn't it?
80B
-3-
B:
That's right, yes.
HM,Jr:
Now, they all told -- everybody tells me an
11-year 22 would go -- they'd keep it and forget about it.
B:
Yes.
HM,Jr:
My mind 18 still open, mind you, I haven't
decided anything.
mi
Yes, yes.
HM,Jr:
We've got now three issues of 2-3/4's. We've
stepped them up each time.
B:
Yes.
HM,Jr:
What?
B:
That's right, yes.
HM,Jr:
Now, towards the public, what are we doing?
We're dropping an eighth --
B:
Yes.
HM,Jr:
And we're starting with 2-5/8s and we're go-
ing to exhaust that field, see?
B:
Yes.
HM,Jr:
Now that's the way I'm arguing with myself.
B:
Well, I don't like it very well I confess.
HM,Jr:
I know you don't because we mentioned it when
you were down here.
B:
Yes - and I don't know of anybody who does
like it.
I've mentioned it to a number of people.
HM,Jr:
Well, will you do this for me?
B:
Yes.
Unclassified
TOC
-4-
HM,Jr:
Will you get hold of two or three people
right away that you have confidence in and talk it over
with them?
B:
Well - yes, I can do that I guess - with a
few. I don't -- I don't want to stir it up too much or
you'll get them all --
HM,Jr:
Well -
B:
- on that stand.
HM,Jr:
Well -
B:
You've got - let's see, you have Davidson
in a few minutes, haven't you?
HM,Jr:
He's coming in a - three quarters of an hour.
B:
I've got Dudley Mills here, I'll tackle him.
He's just outside the door waiting.
HM,Jr:
You might want to call Rentschler if you have to.
B:
Yes - or
HM,Jr:
Because Rentschler 1s a little fearful on this
long one.
B:
He 18?
HM,Jr:
Yes.
B:
What, on the 20-23?
HM,Jr:
Yes.- - oh, he says it'll go --
B:
Yes.
HM,Jr:
But he wishes that the market were 80 that
we could get an 18-20 - See, if we only could have done this
a month ago then it would have been perfect.
B:
Yes, yes - well, if you have any doubt about
the 20-23 why not do a 19-23 or a 19- ---
Regraded Unclassified
-5-
HM,Jr: Well, there's too much profit in that, that's
the trouble.
B:
Well - I don't think you can follow the figures
altogether on that.
HM,Jr:
Well, but if it goes up the 19 would give what,
a point and a half, wouldn't it?
B:
Of course the - the way it goes up 18 partly a
question of - of the number of fellows that want it. I'd
be afraid that - that even though the 2-5/8s didn't show --
didn't show profit on paper it might show too much when you
got it out -- because of the scramble for --
HM,Jr: Well, why don't you ask Dudley Mills and why
don't you ask Rentschler, Bee?
BI
All right, I'll talk to them.
HM,Jr: And then will you - after Davidson goes I'll
call you.
B:
Very good.
HM,Jr:
See?
B:
Very good.
I'll have -- have something from
both of them on that.
HM,Jr:
But what - what are your own objections to a
2-5/88?
B:
I think it's - in the first place those eighth
bonds are kind of miserable.
HM,Jr:
Well, we had 2-7/8s.
B:
I know we did.
HM,Jr:
You've heard of those.
B:
They're never as good as the quarter bonds.
HM,Jr:
No, but - we did -
Regraded Unclassified
-6-
B:
That's not a very strong objection, but it's
sound. But the main point is you've got a chance to step
out here in new areas where you haven't got a lot of bonds
and to really lengthen out your - your debt structure. You
haven't often had chances as good as this. You may not have
as good a chance again. And I think you ought to improve
the chance.
HM,Jr:
Well, why -
B:
Besides, the third point 16 that I hate to
see you break that rate. I think that rate is low enough
really, and it's better to put out & longer bond at that rate
than at a lower rate, because some day you may have to - that
was broken - the 2-3/4s at that rate once. - If you put it
this way.
HM,Jr:
What's that?
B:
If you break the 2-3/48 at that rate once, then
you have to put out a 2-3/4s. It'll just be a little embar-
rassing position because it would look 80 though you are slip-
ping backwards. I think you make it harder to do the next
step.
HM,Jr:
Well, that's why the 2-5/88 - that would be the
next logical step.
B:
No, no - but the - my point is this. You have
been putting out 2-3/48 - you may have to again. Now if
you've got the rate at 5-8s it's going to make it more diffi-
cult for you in the future to put on a 2-3/4s when the situa-
tion calls for it.
HM,Jr:
Well -
BI
It looks like it's set backwards.
HM,Jr:
What - a 2-5/8s looks like it's set backwards?
when you B: can't sell a 2-5/8e and have to sell a 2-3/48 it looks
Not just at the moment, but later on some time
like it's set backwards.
HM,Jr:
Yes, well let's say we take the 2-3/4s and 20-25
and it's a flop. I mean, not now but six weeks from now.
Regraded Unclassified
-7-
B.:
Well, I'm perfectly confident it wouldn't be
8 flop.
HM,Jr: No, but six weeks from now.
B:
Yes.
HM,Jr: And then, let's say it sells off and let's eay
it goes par or below, then we come into December, then what?
B:
Well, you'd put out a little shorter two and three
quarters then if you wanted to.
HM,Jr: Well, then it's just as much a weakness then 8.8
it -
B:
Well, I don't - I don't think 80 much.
HM,Jr: Well - I think I got you there.
B:
No, I don't think BO. I -
HM,Jr: I think I got you there. (Laughs) You just want
me to be weak -
B:
The general public watches these rates.
HM,Jr: You want me to be weak in your way.
B:
(Laughs) No, I don't - I don't think that.
HM,Jr: No, I know you fellows - I mean, I mean - it's
Just talk - you don't want this rate broken.
B:
No, I think it's a bad thing to break the rate.
I think it's a bad thing for the long term lookout and I think
it's a bad thing for the banks. I think they run a risk of
taking a licking later on a lower rate and -
HM,Jr: Well - this is what -
B:
Mainly, I'm looking at it from the point of view
of the Treasury. I -
HM,Jr; Oh -
mi
If you can sell a long bond you ought to do it.
-8-
HM,Jr: Yes, now Burgess - what I'd like to know from
the banks 1s this.
B:
Yes
HM,Jr: If we get out a two and five eighths, let's Billy
fourteen seventeen, would they hold that, will they keep it?
See? - Will that go into their boxes permanently, or is that
something that they would want to get rid of?
B:
Oh, well. I can answer you that right now.
They'll keep a lot of it.
HM,Jr: They'll keep a lot more than they would of the
2-3/4 twenty twenty-
B:
That's right - that's why I don't like it.
HM,Jr:
Why don't you like it?
B:
You ought to be appealing to the investor.
HM,Jr:
What?
B:
You ought to be appealing to --
HM,Jr:
Well, we are - we got a thing called a Baby Bond.
B:
Yes, but - but - a two and three quarters, a
long one would in effect be selling your bonds something the
way most people sell their bonds. That is, which, if you
were an underwriter, would take the bonds and distribute them.
Now, to some extent you'd be doing that. And to some extent
the Government's always done that on a long bond. The banks
take them and gradually over & period a good many of those go
to investors. And that in normal times 18 the way it should
be. This business of the banks taking all the Government
bonds has - has been abnormal and we ought to put out bonds
which the banks would not hold permanently but investors would
take over some. And you've got a chance to do it now - one
of the best chances you've had. See, the dangerous thing 18
to have the whole business concentrated in these banks.
HM,Jr: Well, will you sound the thing out for me?
B:
Yes.
Regraded
Unclassified
80H
-9-
HM,Jr:
What?
B:
Yes.
HM,Jr:
And I'll leave it to you to do it discreetly.
B:
I'll - we'll take care of that.
HM,Jr:
But sound it out, see?
B:
Yes - all right.
HM,Jr:
Will you?
B:
Yes.
HM,Jr:
After Davidson leaves I'll call you.
B:
Yes.
HM,Jr:
Thank you very much.
B:
Very good.
HM,Jr:
Thank you.
At the conclusion of this telephone conversation,
Seltzer said he does not like a 2-7/8s long term bond. He
doesn't like a 2-3/4s. He does not agree with Dr. Burgess
and says that as far as the banks go he does not think that
this 18 the time to discourage bank purchases. They have
plenty of money, he said.
Murphy agreed with what Seltzer said,
He said they
had talked this thing over before they came in and that they
had agreed that they did not think well of a long-term bond
at this time.
Haas agreed with Seltzer and added the fact that Burgess
is having difficulty in pricing this issue indicates that he
is uncertain about the longer term issue.
Seltzer then added the following: Disregarding the eleo-
tion, I think it 18 too early to start long-term bonds at
Regraded Unclassified
-10-
this time. If
Harris said, "If it were a larger 1ssue I would lean
to a 2-3/48. Since 1t 18 not so large I would lean to a
2-5/8 - 14 year."
Lochhead thought we should not go into an intermediate
bond; that if we wanted cheap money we should stick to
the 5-year note, but if we were going to have a bond issue
he thought a long term 2-3/4s was best.
The meeting adjourned without anything definite having
been decided.
Regraded Unclassified
September 4, 1936
At 10:15 o'clock, Mr. Davidson, President of the
Central Hanover came in to see me. He had with him
Mr. J. E. Hollingsworth, who 18 in charge of their bond
department.
Davidson said that my asking for additional cash
has had an extremely good effect in the financial center
because they realize that I did not have to ask for any
new money and that I am trying to conduct the Treasury
as though it was a business.
He unhesitatingly recommended a 20-25 year 2-3/4s.
He said that the insurance companies alone will take
$500,000,000; that it will be ten times oversubscribed;
that there will be great kudos in it for me; that if I
did anything else it would be considered a political
trick; that if I am thinking of going to 8. 21, why
not go the whole way and go to 2%? He said I have
nothing to worry about. The troubles in Europe would
not even affect this; by all means to go the full 25
years; that I should not consider & 20-23.
They were very positive in their advice. They
say they have 150 banks as correspondents and they are
going to advise them all to ouy and hold this security.
We got on to England. Davidson said that he 18
in close touch and that there are three things which
are holding England back from entering into a stabiliza-
tion agreement with us. First and foremost, silver;
second, our unbalanced budget, and, third, the British
war debt. He said it goes without saying that they
will do nothing until after our election and with our
budget picture improving he would think it would be
good to do something with England right after election.
I said that I thought to date the American business men
had not suffered through lack of world stabilization as
the United States competitive position in the world had
been constantly improving. He agreed to this. He
said he recently had advised & man who held gold in
England to sell it and bring it here.
He said, "I appreciate the chance of a frank talk.
You need not worry that we will repeat any. We would
Regraded Unclassified
-2-
like to be able to come down here and exchange confi-
dences. # He made an excellent impression on me -- one
of the best of any New York banker who has been down.
Hollingsworth, whom he brought with him as his bond ex-
pert, did not have a chance to open his mouth, but
Davidson certainly knows his business and had the bond
figures at his finger tips and he diá not need Hollings-
worth to prompt him.
Regraded
Inclassified
September 4, 1936
The Treasury group, consisting of Bell, Seltzer,
Murphy, Haas, Viner, Lochhead and Harris, came in again
at 11:15 and HM, Jr. again called Dr. Burgess. He
talked to him with the loud speaker on so that the
whole group could hear the conversation.
The following 18 a record of the Secretary's con-
versation with Dr. Burgess:
Regraded
Friday
September 4, 1936
11:34 a. m.
HMjr:
Hello
Operator: Dr. Burgess
W.R.
Burgess:
Hello, sir
HMjr:
Hello, Burgess?
B:
Yes, sir
HMjr:
Well, now what do you know?
B:
Well, I can't find anybody that likes it.
HMjr:
You can't?
B:
They say it's a go but they - they don't think it
would be good financing - they think the banks would
take it but probably wouldn't keep it very much
more than they would a two and three quarters.
HMjr:
Yes
B:
One of them calls it a 'bastard bond' -
HMjr:
One of them calls it a what?
B:
A 'bastard bond' -
HMjr:
Oh, they're getting nasty -
B:
And another calls it a 'hat size bond'.
HMjr:
I see - head size?
B:
Hat - h-a-t
HMjr:
I see.
B:
Hat size.
HMjr:
What does that mean?
B:
Well, it's an eighth, you see?
HMjr:
Oh -
B:
It's -
an eighth -
HMjr:
I see, it has eight sides, I see.
Regraded Unclassified
-2-
B:
They - they think it would go, but they think
that the market would - would think you weren't
doing the job that you could do. Rentschler re-
ported about his fellows there - you haven't
talked to him this morning, have you?
HMjr:
No
B:
Leo Kane - after a long discussion then we had
breakfast together and had more discussions - Leo
Kane thinks the twenty twenty-two is the thing to
do - twenty twenty-two two and three quarters.
He finds that Simonson -you know Simonson who is
the old vice president there and the operating vice
president?
HMjr:
No
B:
- who is an old boy and has been down the Street a
long time - He says that he likes the two and three
quarters, that he thinks that people are not as
choosy on maturities as they used to be and they're
more interested in the rates. On the other hand,
Rentschler himself I think leans a little towards
the - towards the eleven year two and a half.
HMjr:
Yes
B:
But he's a little 'on the fence'.
HMjr:
Yes
B:
He checked up with the - with the Farmers Loan and
Trust Company -- you know, they have that
-
HMjr:
-
the farmers? - yes -
B:
That's right, the farmers -
HMjr:
I mean that's their trust department.
B:
Yes - well really, it's a separate institution -
HMjr:
Yes
B:
But it's the same thing. He talked with Lindy
Bradford who said they wouldn't take a twenty
twenty-three.
HMjr:
They would not?
Regraded Unclassified
82C
-3-
B:
- except - except to buy it and then to sell it
again, they would do that.
HMjr:
Yes
B:
And sell it over a period.
HMjr:
Yes
B:
They wouldn't take it for their trust funds.
They're going carefully in all bonds, as a matter
of fact.
HMjr:
Yes
B:
He called up Bennett of the Immigrants Industrial -
he says he wouldn't take any of them any way.
(Laughs)
HMjr:
He wouldn't take any bonds?
B:
Well, practically none. He didn't like those two
and a half much better than he did a two and three
quarters - longer one.
HMjr:
Yes
B:
He might take a few of the shorter maturity, but
not many. Well, he's no guide to the market. I
talked to the Discount Corporation -
HMjr:
Yes
B:
And they don't like the shorter bond. They think
the two and three quarters is the right thing to
do.
HMjr:
Yes
B:
Both Repp and Mills -
HMjr:
Yes
B:
Mills thought the drift of the two and three quarters
is pretty close to shore.
HMjr:
He talks about what?
B:
- about one that is pretty close to shore, that is,
a relatively short maturity - the two and three
quarters. That is, fifty-four fifty-seven or fifty-
five fifty-eight, something like that.
Regraded Unclassified
12.0
-4-
HMjr:
The twenty twenty-three?
B:
But Repp says the twenty twenty-three will be fine.
HMjr:
Twenty twenty-three?
B:
Yes - or even a little longer than that.
Repp has better judgment than those two fellows
incidentally and I -
HMjr:
Well, what does Repp say?
B:
Repp likes the long two and three quarters.
HMjr:
Yes
B:
Twenty twenty-three or twenty twenty-five - along
in there.
HMjr:
Yes
B:
Now, I'll just try to summarize the considerations
here - I've talked to an awful lot of people here,
I haven't told about all of them, I mean, over the
past ten days.
HMjr:
Yes
B:
And I've seldom seen the market so unanimous on
taking it up say, at two and three quarters.
HMjr:
Yes
B:
Now they give different maturities.
HMjr:
Yes
B:
There's quite a range there. Anywhere from fifty-
four fifty-seven to sixty sixty-five.
HMjr:
Yes
B:
That wide range. But they all seem to think a two
and three quarters is the right thing to do.
HMjr:
Yes
B:
And they think there's & fine market for it.
And, as I've talked with them from time to time I've
tried out the shorter - two and half and two and
five-eighths and they say, 'No, that isn't good
financing, that isn't the thing that would be best'.
Unclassifi
82F
-5-
Now, what consideration then, as far as to do 10h
the Treasury is your present range of maturities?
I was just checking it up. While there isn't any
actual maturity in the fifty or fifty-three or any
actual call day, the number of bonds that might
have to be redeemed in either of those years is
considerable. That is, from forty-five to fifty-
three you've got a lot of bonds.
HMjr:
Yes
B:
I just counted it up, there are nearly eleven billion
in bonds to be taken care of in those eight years.
HMjr:
Yes
B:
Which isn't too many, but it's enough, considering
the fact that you may have a floating debt to run
along over.
HMjr:
Yes
B:
Now, it seems to me that the Secretary of the Treasury
has always got to leave himself some elbow room.
That is, you've always got to save for the contingency
that the Nation might get into an international diffi-
culty of some sort, and there ought always to be
available years for putting in financing that aren't
all filled up.
HMjr:
Yes
B:
So it's good finance to push your borrowing off and
to leave gaps in it and not fill them all up because
if you plan war you might have to raise five billion
in six months - then you need lots of elbow room.
HMjr:
Yes
B:
I think that's - that's an important consideration.
And now the second important point, it seems to me,
is that we ought to put the bond out that is going
to appeal most -
HMjr:
- going to do what?
B:
Appeal most to investors.
HMjr:
Yes
B:
We've got it all stacked up in the banks, we've got
them all loaded and the higher the coupon the longer
Regraded Unclassified
82F
-6-
the maturity, the more it will appeal to investors
and the less to banks. And I think if you had a
reasonably long two and three quarters that you can
reach that particular market. I think those are
the big considerations.
HMjr:
Yes - well now, summing it all up, what is your
concrete suggestion at this moment?
B:
Well I think I would write about a twenty twenty-
three.
HMjr:
A twenty twenty-three?
B:
It gives you three call years that gets out nicely
there.
HMjr:
Twenty twenty-three?
B:
Now that's being a little more conservative than -
than if I would if I didn't know that you had gotten
a little that way.
HMjr:
Yes - I mean, when you first came down you were
talking twenty twenty-five.
B:
Yes - that wouldn't worry me any but - but to be
on the safe side I'd keep it under - I'd keep the
maturity date under sixty.
HMjr:
Yes - are there - have there been some other people
who have raised that point of keeping the maturity
under sixty?
B:
Yes, one or two have.
HMjr:
Yes
B:
Yes
HMjr:
Well, now, you'll be interested in what Davidson
said.
B:
Yes
HMjr:
Very enthusiastic for a twenty twency-five.
B:
Is that so?
HMjr:
He's got a hundred and fifty correspondents, he's
going to tell all of them to take it.
B:
Yes
Unclassified
92G
-7-
HMjr:
And his man, Hollingsworth, says it's an advantage
to go beyond sixty. He says, 'You ought to have
something beyond sixty'.
B:
Well, there is an advantage.
HMjr:
He says, 'You ought to go beyond sixty, you ought
to attempt that field'.
B:
Yes
HMjr:
And Davidson, unhesitating - said five hundred million
of it will go to the insurance companies and they'll
put it away.
B:
Yes, yes
HMjr:
Ah -
B:
Well, he's in close touch with some of them.
HMjr:
Yes - and he said that it'll just go, he said it'll
be ten times over subscribed. And he said the fact
that we asked for the new money has made an excellent
impression and he said they didn't expect it, they
thought I'd play politics -
B:
Yes
HMjr:
That it's made an excellent impression. And he said,
'Don't do a two and five eighths or two and a half'.
He said, 'If you want to do that', he said, 'why
everybody is going to accuse you of being smart'.
He said, 'Be real smart and get out a two per cent'.
B:
Yes
HMjr:
He said, 'If you - 1
B:
(Laughs)
HMjr:
He said, 'No, if you really want to beat that, if
you want to be smart, take a two per cent eight
years'.
B:
Yes, yes
HMjr:
-'if you're really going to be smart'. But he said,
'If you get out a twenty twenty-five it'll
for you'.
Regraded Unclassified
82
-8-
B:
Yes
HMjr:
I - it'll - it'll - I He said, 'You'd be - I
He said, 'I want to tell you we'll be surprised
you have the nerve and the courage to do this at
this time'.
B:
Yes
HMjr:
And he said, 'If you say that you want to run the
Treasury like a business man, then I say to you,
do what a business man would do', and he said,
'that's the two and three quarters twenty twenty-
five'.
B:
Yes, yes
HMjr:
He said, 'That - I He said, 'If you want to run it
like a business man do it that way', and he said,
'I'm telling you it'll be ten times over subscribed
and we're going to tell our correspondents to do it'.
B:
Yes
HMjr:
And he said, "We bought bonds yesterday'.
B:
Yes, I know he did.
HMjr:
'And we bought bonds yesterday'. And then he said,
'That's the way we feel'.
B:
Yes, yes
HMjr:
Now, Davidson is a pretty conservative fellow, isn't
he?
B:
Yes, he is - he is.
HMjr:
He got some of my breath away.
B:
(Laughs)
HMjr:
So, that's the way he feels.
B:
Yes, yes - well, I would agree ith him, but with
your feeling as you do on the matter I'd be a little
bit conservative and -
HMjr:
Well, the way the thing is now, I mean,A/twenty year
bond though, - how much ought it sell at?
Unclassified
-9-
B:
Well, I just got some new figures computed this
morning.
HMjr:
Yes
B:
A twenty year bond at about a point and a third.
HMjr:
About a point and a third? - well, that's about
what we figure here.
B:
Yes
HMjr:
Well now, if you think it makes it a little bit more
attractive to make it twenty twenty-three as against
twenty-five - ?
B:
Yes, I think it makes it a little more attractive.
HMjr:
A little more attractive?
B:
Yes
HMjr:
There is one fellow, I forget who it was, I think it
was Repp, who said, 'Don't get beyond sixty'.
B:
Yes, Repp has that feeling.
HMjr:
Yes - and then of course Rentschler has that.
B:
Yes, very decidedly -
HMjr:
What?
B:
Yes, he has that quite decidedly.
HMjr:
It'd make it a little bit more attractive, wouldn't
it?
B:
That's right, yes, - that's right.
HMjr:
Yes - well, I'll do some more talking - if I want
to get you I can get - you eat in your building
there, don't you?
B:
I'll be right here, yes, I'll be in the building.
HMjr:
And - has - the market is practically frozen right
now, isn't it?
B:
Yes, it was off a little bit this morning and I
think it has come back just a shade.
HMjr:
Yes
Regraded Unclassifie
-10-
But it's - it's all right. It's just -
B:
HMjr:
Well, are they - are they - would you say -
the fellows you talked to - have they sort of
quieted down or are they still pretty much up in
the air? .. The bond dealers?
B:
Oh, they're - they're quiet.
HMjr:
They're quiet?
B:
Oh yes, they're not excited.
HMjr:
I mean, they were milling around at the beginning
of the week, weren't they?
B:
Oh, a little bit, yes.
HMjr:
Yes
B:
A little bit -
HMjr:
Yes -
well, Davidson put up quite a story.
B:
Well, he's a good man.
HMjr:
Yes- yes - I was very glad, because we went
into a lot of other things and I was very glad
I had him down here.
B:
Oh yes, well I was glad you did too, because he's
one of our directors -
HMjr:
Yes
B:
And he - I think he's pretty sensitive too, and
he likes to be consulted.
HMjr:
Right, well, I'll be calling you.
B:
All right.
HMjr:
Thank you.
Regraded Unclassified
-11-
When this conversation was concluded the operator
told the Secretary that Earle Bailie was calling and
HM, Jr. went into Mrs. Klotz' office to talk to him.
Mr. Bailie said he would like to see the Secretary
put out a 2-3/4 bond, either 19-year, 20-year or 21-year,
and see to it that it had enough margin to have at least
1÷ points. Bailie said he had no objection to going be-
yond 1960, thus making it a 20-25 year bond.
The Secretary returned to his office and resumed
his discussion with the Treasury group.
Apparently after thinking it over, each man agreed
that he would like to see the Treasury get out a 2-3/4s
20-23 or 20-25 year bond. Opinions varied as to the
length of the term, but all agreed with a 2-3/4 bond.
Mr. Bell handed in his recommendation in the form of a
memorandum, which is attached.
Regraded Unclassified
83
TREASURY DEPARTMENT
OFFICE OF THE SECRETARY
COMMISSIONER OF
WASHINGTON
COUNTS AND DEPOSITS
September 4, 1936
SEPTROR 15 FINANCING
I like the 2-3/4% 20-23 year (1956-59) term bond because
it follows the trend of the last year and from all indications
will sppeal not only to the real investor but to the banks, and
because of the general feeling that eventually a substantial
part of such bonds which are acquired by the banks will be die-
tributed to the investors.
I must confess that I an impressed with the 2-1/2% 11-14
year (1947-50) bond because it starts a new level of rates at &
conservative term of years in the same manner as we started the
2-3/4% issues last year. It would be hoped that this would give
the impression to the market that this new rate would, over the
next for months, be extended in term of years. This rate and
term would, no doubt, be preferred by the banks. Probably the
real investors would not seek such an issue.
This raises the query as to whether the Treasury wants at
this time to start a new level of rates; whether it wight not re-
act politically; and whether we want to put out an issue which
will have more sppeal to the banks than to the real investor. It
would seen that any permanent upward trend which we might expect
Regraded Unclassified
83A
- 2 -
in money rates in the near future would be aided certainly by
the banks selling their holdings of Government securities. It
is to our advantage, them, for more of our bonds to be in the
hands of investors who will hold them regardless of money market
conditions.
The ideal time to lower rates, extend the term and more
closely adhere to market yields, is on a refunding issue without
any new cash. If our Budget estimates are correct we will have
a number of opportunities within the next year to have our financ-
ing operations consist only of exchange issues, at which time we
can lower rates and probably get a longer term than now.
Dwff
Regraded Unclassified
Friday
September 4, 1936
9:16 a.m.
HMjr:
Hello
Operator: Doctor Burgess -
W. R.
Burgess:
Hello, sir
HMjr:
Hello, Burgess
B:
Yes
HMjr:
How did the market open this morning?
B:
Just a shade off -
HMjr:
A shade off?
B:
A shade off, yes.
HMjr:
Now, look, Burgess, I've been doing a lot of thinking
and this is where I stand this morning. I'm still
a little fearful of a two and three-quarters twenty-
twenty-three, see?
B:
Yes
HMjr:
Hello?
B:
I thought you were talking about twenty-five?
HMjr:
Well - I don't want to -
B:
(Laughs)
HMjr:
I - well, I'm - if I did it, I don't want to go
beyond sixty. I'd rather make it twenty twenty-three.
B:
I see, yes.
HMjr:
Hello?
B:
Yes
HMjr:
I mean some of these people, you know, they say, 'don't
go beyond sixty'.
B:
Yes
HMjr:
But that's for the moment. I don't think that's
important, I mean I think if we decided it was a
twenty year we could very quickly make up our mind
Regraded
T4A
-2-
whether it was twenty twenty-three or twenty twenty-
five, see?
B:
Oh yes, yes
HMjr:
But the crowd I had down last night, they say quite
frankly that they'd subscribe but they wouldn't keep
it.
B:
Yes
HMjr:
See?
B:
Yes
HMjr:
Which is what they've all more or less said.
B:
Well, that's what they did a good deal last time,
isn't it?
HMjr:
What's that?
B:
That's a good deal what they did last time, isn't it?
They've got some of those, but not so very many.
HMjr:
Well, they said they'd keep about a quarter, but
it keeps the market in a turmoil, that's -
B:
Well, I don't know, it's distributing to the inves-
tors.
HMjr:
All true - but if something came from the outside
as a shock that would be the first bond to get it.
B:
That's right.
HMjr:
Wouldn't it?
B:
That's right, yes.
HMjr:
Now, they all told - everybody tells me an eleven
year two and a half would go
-
and they'd keep
it, forget about it.
B:
Yes
(Short pause)
840
-3-
HMjr:
Hello
B:
Yes
HMjr:
Now, I've got a new one which I want you to think
over and I want you to test out on some of your
friends there.
B:
Yes
HMjr:
The two and five eignths on last night's market
would be a fourteen year which would come in nineteen
fifty, see?
B:
Yes
HMjr:
Now, we - mathematically two and five eighths would
be nineteen fifty fifty-three.
B:
Yes
HMjr:
And fifty and fifty-three are both blank.
B:
Yes
HMjr:
See?
B:
Yes
HMjr:
Now, what - and that hasn't got the disadvantages
of a long one and it hasn't got the disadvantages of
the two and a half because the two and a half falls
in too congested an area, see?
B:
Well, this isn't quite as congested but there are a
good many bonds in this area.
HMjr:
Oh - oh, no - you've got a blank in fifty and
fifty-three.
B:
Yes, but you've got a fifty-one fifty-five and you've
got a forty, Something fifty
:
HMjr:
No, but it's - it's getting out.
B:
Well, a little, but I don't think - I don't think
it really gets out of your congested area.
HMjr:
Well, let me tell you how I argue with myself.
B:
Yes
Unclassified
84C
-4-
HMjr:
My mind is still open, mind you, I haven't decided
anything.
B:
Yes, yes
HMjr:
We've got now three issues of two and three-quarters.
We've stepped them up each time.
B:
Yes
HMjr:
What?
B:
That's right, yes.
HMjr:
Now, towards the public, what are we doing? -
We're dropping an eighth -
B:
Yes
HMjr:
- and we're starting with two and five eighths and
we're going to exhaust that field, see?
B:
Yes
HMjr:
Now that's the way I'm arguing with myself.
B:
Well, I don't like it very well I confess.
HMjr:
I know you don't because we mentioned it when you
were down here.
B:
Yes - and I don't know of anybody who does like
it. I've mentioned it to a number of people.
HMjr:
Well, will you do this for me?
B:
Yes
HMjr:
Will you get hold of two or three people right away
that you have confidence in and talk it over with
them?
B:
Well - yes, I can do that I guess - with a few.
I don't - I don't want to stir it up too much or
you'll get them all
-
HMjr:
Well -
B:
-
on that stand.
HMjr:
Well -
Regraded Unclassified
-5-
B:
You've got - let's see, you have Davidson in a
few minutes haven't you?
HMjr:
He's coming in a - three quarters of an hour.
B:
I've got Dudley Mills here, I'll tackle him. He's
just outside the door waiting.
HMjr:
What's that?
B:
I've got Dudley Mills just outside the door here
waiting
HMjr:
You might want to call Rentschler again.
B:
Yes - or
HMjr:
Because Rentschler is a little fearful on this long
one.
B:
He is?
HMjr:
Yes
B:
What, on the twenty twenty-three?
HMjr:
Yes- oh, he says it'll go --
B:
Yes
HMjr:
But he wishes that the market were so that we could
get an eighteen twenty. He said, 'If we only could
have done this a month ago then it would have been
perfect'.
B:
Yes yes - well, if you do have any doubt about the
twenty twenty-three why then do a nineteen twenty-
three or a nineteen --
HMjr:
Well, there's too much profit in that, that's the
trouble.
B:
Well - I don't think you can follow the figures
altogether on that.
HMjr:
Well, but if it goes up the nineteen would give what,
a point and a half, wouldn't it?
B:
Of course the - the way it goes up is partly 8
question of - of the number of fellows that want
it. I'd be afraid that - that even though the
Regraded
84E
-6-
two and a half and two and five eighths didn't show -
didn't-show profit on paper it might show too much
when you got it out - because of the scramble for --
HMjr:
Well, why don't you ask Dudley Mills and why don't
you ask Rentschler, see?
B:
All right, I'll talk to them.
HMjr:
And then will you - after Davidson goes I'll call
you.
B:
Very good
HMjr:
See?
B:
Very good. I'll have - have something from both
of them on that.
HMjr:
But what - what are your own objections to a two
and five eighths?
B:
I think it's - in the first place those 'eighth'
bonds are kind of miserable.
HMjr:
Well, we had two and seven eighths.
B:
I know we did.
HMjr:
You've heard of those.
B:
They're never as good as the quarter bonds.
HMjr:
No, but - we did -
B:
That's not a very strong objection, but it's sound.
But the main point is you've got a chance to step
out here in new areas where you haven't got a lot
of bonds and to really lengthen out your - your
debt structure. You haven't often had chances as
good as this. You may not have as good a chance
again. And I think you ought to improve the chance.
HMjr:
Well, why -
B:
Besides, the third point is that I hate to see
you break that rate. I think that rate is low
enough really, and it's better to put out a longer
bond at that rate than at a lower rate, because
some day you may have to - that was broken - the
Regraded
Unclassified
84F
-7-
two and three quarters -
at that rate once -
If you put it this way.
HMjr:
What's that?
B:
If you break the two and three quarters at that
rate once then you have to put out a two and three
quarters. It'll just be a little embarassing
position because it would look as though you are
slipping backwards. I think you make it harder to
do the next step.
HMjr:
Well, that's why the two and five eighths - that
would be the next logical step.
B:
No, no - but the - my point is this. You have
been putting out two and three quarters - you may
have to again. Now if you've got the rate at five
eighths it's going to make it more difficult for
you in the future to put out a two and three quarters
when the situation calls for it.
HMjr:
Well -
B:
It looks like it's set backwards.
HMjr:
What - a two and five eighths looks like it's set
backwards?
B:
Not just at the moment, but later on some time when
you can't sell a two and five eighths and have to sell
a two and three quarters it looks like it's set
backwards.
HMjr:
Yes, well let's say we take the two and three quarters
and twenty twenty-five and it's a flop. I mean, not
now but six weeks from now.
B:
Well, I'm perfectly confident that it wouldn't be a
flop.
HMjr:
No, but six weeks from now.
B:
Yes
HMjr:
And then, let's say it sells off and let's say it
goes par or below, and then we come into December,
then what?
B:
Well, you'd put out a little shorter two and three
quarters then if you wanted to.
-8-
HMjr:
Well, then it's just as much a weakness then as
it -
B:
Well, I don't - I don't think so much.
HMjr:
Well, - I think I got you there.
B:
No, I don't think so. I -
HMjr:
I think I got you there. (Laughs) You just want
me to be weak -
B:
The general public watches these rates.
HMjr:
You want me to be weak in your way.
B:
(Laughs) No, I don't - I don't think that.
HMjr:
No, I know you fellows - I mean, I mean - it's just talk -
you don't want this rate broken.
B:
No, I think it's a bad thing to break the rate,
I think it's a bad thing for the long term lookout
and I think it's a bad thing for the banks. I
think they run a risk of taking a licking later
on a lower rate and -
HMjr:
Well - this is what -
B:
Mainly, I'm looking at it from the point of view of
the Treasury. I -
HMjr:
Oh -
B:
If you can sell a long bond you ought to do it.
HMjr:
Yes, now Burgess,- what I'd like to know from the
banks is this.
B:
Yes
HMjr:
If we get out a two and five eighths, let's say
fourteen seventeen, would they hold that, will they
keep it? See? - Will that go into their boxes
permanently, or is that something that they would
want to get rid of?
B:
Oh well, I can answer you that right now. They'll
keep a lot of it.
HMjr:
They'll keep a lot more than they would of the two
84
-9-
and three quarters twenty twenty-five?
B:
That's right - that's why I don't like it.
HMjr:
Why don't you like it?
B:
You ought to be appealing to the investor.
HMjr:
What?
B:
You ought to be appealing to --
HMjr:
Well, we are - we got a thing called a Baby Bond.
B:
Yes, but - but -
a two and three quarters,
a long one would in effect be selling your bonds
something the way most people sell their bonds.
That is what you'd do as an underwriter, take the
bonds and distribute them. Now, to some extent you'd
be doing that. And to some extent the Government's
always done that on a long bond. The banks take
them and gradually over a period a good many of those
go over to investors. And that, in normal times, is
the way it should be. This business of the banks
taking all the Government bonds is - has been ab-
normal and we ought to put out bonds which the banks
would not hold permanently but investors would take over
some. And you've got a chance to do it now, - one
of the best chances you've had. See, the dangerous
thing is to have the whole business concentrated in
these banks.
HMjr:
Well, will you sound the thing out for me?
B:
Yes
HMjr:
What?
B:
Yes
HMjr:
And I'll leave it to you to do it discreetly.
B:
I'll - we'll take care of that.
HMjr:
But sound it out, see?
B:
All right, yes -
HMjr:
Will you?
Regraded
84D
-10-
B:
Yes
HMjr:
And after Davidson leaves I'll call you.
B:
Yes
HMjr:
Thank you very much.
B:
Very good.
HMjr:
Thank you.
Regraded Unclassified
Friday
September 4,-1936
2:25 p. m.
Operator: Dr. Burgess
W.R.
Burgess:
Hello, sir
HMjr:
Well, how are things now?
B:
They're just about the same.
HMjr:
About the same?
B:
No change especially -
HMjr:
Well, the two and seven eighths - are -
B:
They were -
HMjr:
- up a thirty second - huh? Very little business,
huh?
B:
Very little, everything's quiet here.
HMjr:
Yes - any new -
B:
- quiet -
HMjr:
Any new thoughts?
B:
Not a bit, I still feel just as I did.
HMjr:
How was that?
B:
Oh, a fifty-six fifty-nine -
HMjr:
I see.
B:
About that
HMjr:
Yes
B:
I'd take it lightly.
HMjr:
Well, I - we'll figure. I mean I'm trying to
get the President this afternoon and have a talk
with him.
B:
Yes
HMjr:
And we'll see how it opens in the morning.
Regraded Unclassified
84.
-2-
B:
Yes, yes
HMjr:
-
I don't like this French situation -
B:
Yes, but they've - they've had these recurrent
semi-crises repeatedly. I don't think it's really
coming to a head this time.
HMjr:
We're figuring here- this - if we do a fifty-five
fifty-six on a yield basis that's a little bit better
than the two and seven eighths, isn't it?
B:
The fifty-five fifty-six?
HMjr:
No, I mean - if we do a fifty-six fifty-nine?
B:
No
HMjr:
- two and three quarters - that'll look a little
bit sweeter than the fifty-five sixty. - on a
yield basis they tell me.
B:
Yes
HMjr:
What?
B:
I don't get just what you mean?
HMjr:
Well, I mean it'll - it'll yield a little bit
more. It'll be a little bit more attractive.
B:
Oh yes, oh yes
HMjr:
The yield will be slightly higher.
B:
Oh, that's right, yes.
HMjr:
What?
B:
That's right, yes. A fifty-five sixty of course
yields two sixty-three.
HMjr:
Yes, this would be -
B:
You see, two and three quarters
HMjr:
Yes
B:
So it's a little better yield.
HMjr:
Yes
Unclassified
-3-
B:
And it's really a little - a little shorter on the
maturity date of course.
HMjr:
Yes - well, that's all to the advantage, isn't it?
B:
Absolutely, yes, yes -
HMjr:
Well, I don't think I'll call again unless the
President should say something which is contrary
to what I am thinking now.
B:
Yes, yes
HMjr:
And, if you don't hear from me again I'll call you
in the morning after the market opens.
B:
All right, fine, - fine
HMjr:
Goodnight
B:
Well, I - I have great confidence in this thing,
as much as I ever have in any financing. And I
think it is right and it's what the market expects
right along in there -
HMjr:
Yes
B:
I think there is no occasion for concern about it.
HMjr:
Well, thank you.
B:
All right
HMjr:
Goodbye
B:
Goodbye
Regraded
Unclassified
84
m
Friday
September 4, 1936
2:25 p.m.
Operator:
Mr. Burgess.
W.R.
Burgess:
Hello, sir.
H.M.Jr:
Well, how are things now?
B:
They're just about the same.
H.M.Jr:
About the same?
B:
No change especially -
H.M.Jr:
Well, the two and seven eighths - are -
B:
They were -
H.M.Jr:
- huh? up & thirty second, huh? Very little business,
B:
Very little, everything's quiet here.
H.M.Jr:
Yes - any new -
B:
- quiet -
H.M.Jr:
Any new thoughts?
B:
Not a bit, I still feel just as I did.
H.M.Jr:
How was that?
B:
Oh, a fifty-six fifty-nine -
H.M.Jr:
I see.
B:
About that
H.M.Jr:
Yes.
B:
I'd take it lightly.
H.M.Jr:
Well, I - we'll figure. I mean I'm trying to
get the President this afternoon and have a talk
with him.
B:
Yes.
H.M.Jr:
And we'll see how it opens in the morning.
8471
- 2 -
B:
Yes, yes.
H.M.Jr:
- I don't like this French situation -
B:
Yes, but they've - they've had these recurrent
semi-crises repeatedly. I don't think it's really
coming to a head this time.
H.M.Jr:
We're figuring here - this - if we do a fifty-five
fifty-six on a yield basis that's a little bit better
than the two and seven eighths, isn't it?
B:
The fifty-five fifty-six?
H.M.Jr:
No, I mean - if we do a fifty-six fifty-nine?
B:
No.
H.M.Jr:
- two and three quarters - that'll look a little
bit sweeter than the fifty-five sixty. - on a
yield basis they tell me.
B:
Yes.
H.M.Jr:
What?
B:
I don't get just what you mean?
H.M.Jr:
Well, I mean it'll - it'll yield a little bit
more. It'll be a little bit more attractive.
B:
Oh yes, oh yes.
H.M.Jr:
The yield will be slightly higher.
B:
Oh, that's right, yes.
H.M.Jr:
What?
B:
That's right, yes. A fifty-five sixty of course
yields two sixty-three.
H.M.Jr:
Yes, this would be -
B:
You sea, two and three quarters -
H.M.Jr:
Yes.
B:
So it's a little better yield.
H.M.Jr:
Yes.
540
-3 -
B:
And it's really a little - a little shorter on
the maturity date of course.
H.M.Jr:
Yes - well, that's all to the advantage, isn't it?
B:
Absolutely, yes, yes -
H.M.Jr:
Well, I don't think I'll call again unless the
President should say something which is contrary
to what I am thinking now.
B:
Yes, yes.
H.M.Jr:
And, if you don't hear from me again I'll call you
in the morning after the market opens.
B:
All right, fine - fine.
H.M.Jr:
Good night.
B:
Well, I - I have great confidence in this thing,
as much as I ever have in any financing. And I
think it is right and it's what the market expects
right along in there -
H.M.Jr:
Yes.
B:
I think there is no occasion for concern about it.
H.M.Jr:
Well, thank you.
B:
All right.
H.M.Jr:
Goodbye.
B:
Goodbye.
Pres. - - Rooserilt
In view of prefantions
for September financing
comma European monstary
stituation and number
of very impertant Lending
my Leismal attention
matters all of which need
my An aking this
I strongly question advisable to
falt Lake Period I will
of cruse attend funeral
services Saturday ofternoon
in Washington Period
your me you wishes
Would greatly affreicate
WCNS127
ADD DERN
Secy Dem's Funeral
THE WAR DEPARTMENT ANNOUNCED SERVICES WILL BE HELD AT 4 P. M.,
EST., SATURDAY, AT THE MOUNT PLEASANT CONGREGATIONAL CHURCH IN THE
CAPITAL WITH REV. DR, RUSSELL J. CLINCHY OFFICIATING.
AFTER THESE SERVICES, THE SECOND SQUADRON, THIRD CAVALRY AND THE
FIRST BATTALION, 16TH FIELD ARTILLERY, WILL ACCOMPANY THE FUNERAL PAR
TO THE RAILROAD STATION WHERE IT WILL BE RECEIVED BY A GUARD OF HONOR
CONSISTING OF A BATTALION OF INFANTRY AND ANOTHER OF ENGINEERS.
THE FUNERAL PARTY WILL TRAVEL BY SPECIAL TRAIN TO SALT LAKE CITY
WHERE IT IS DUE TO ARRIVE AT 8 A. M., TUESDAY.
THE BODY WILL LIE IN STATE AT THE STATE CAPITOL UNTIL 3 P. M.,
WHEN THE FUNERAL WILL BE HELD FROM THE CAPITAL.
THE RIV. DR. ELMER I. GOSHEN AND THE REV. DR. JACOB TRABB WILL
OFFICIATE. BURIAL IS TO BE AT MOUNT OLIVET CEMETERY WITH FULL MILI-
TARY AND MASONIC HONORS.
8/27--E
45P1
Regraded U
86
TREASURY DEPARTMENT
OFFICE OF THE SECRETARY
COMMISSIONER OF
WASHINGTON
CCOUNTS AND DEPOSITS
September 4. 1936
FINANCE CONFERENCE AT THE SECRETARY'S HOUSE
ON THURSDAY EVENING, SEPTEMBER 3.
-000->
Those present besides the Secretary were Gordon Rentschler,
President of the National City Bank of New York, and his bond
man, Mr. Leo A. Kane, and Mr. Bell.
The Secretary started the conversation by asking these
gentlemen what they had in mind for the September 15 financing.
Mr. Rentschler stated that he and Mr. Kane had discussed the matter
quite fully coming down on the train, and while they were both in
accord that a 2-1/2% eleven-fourteen year bond (1947-50) or a 2-3/4%
twenty-twenty-three year bond (1956-59) would be received well by
the market, there was a slight difference between them as to the
preference for the two issues. Mr. Rentschler said he favored the
2-1/2% shorter term bond because it was ideally suited for the banks'
portfolio. No doubt many of the banks would subscribe to or buy
these bonds and put them away and keep them. If they had more
governments than were desirable they no doubt would sell their longer
tera and higher coupon bonds to investors such as insurance companies,
etc.
86
- 2 -
Regraded Unclassifie
Mr. Rentschler said that the 2-3/4% bond would sell on
the basis of the present market well over one, and possibly as
high as 13% premium. He said that they had talked about a
shorter term obligation of 18 or 19 years, but they considered
that the premium which this bond would demand was too mach for
the Treasury to pay. He said further that if this issue had been
offered & month or six weeks ago on the basis of 18-21 years, at
the 2-3/4% rate, it would have been ideal.
Mr. Rentschler pointed out that the Secretary would have
to take into consideration the fact that the present bond market
had gone up quite rapidly - as & matter of fact, too rapidly -
and that there might be a break in it somewhere along the line in
the next few weeks. He saw nothing politically or from a foreign
standpoint to disturb it, but said it might be the natural con-
sequences of & readjustment in & rapidly increasing market.
Mr. Kane on the other hand felt that while what Mr. Rentschler
said was true -- that is, that certainly the shorter term bond was
ideally ruited to the needs of the National City and no doubt many
other banks -- yet he felt that from the standpoint of the Treasury's
interest the 2.3/4% was a much more desirable bond. He said the
banks would subscribe to them, but would probably keep & percentage
of their allotment. He thought the National City might keep as much
as 25% of its allotment, distributing the balance to its investors.
It vas Mr. Isne's opinion that the Treasury would have & larger
subscription from real investors for the higher coupon, and that
86
- 3 -
Regraded Unclassifie
the insurance companies in You York, which have between 100 and
160 million dollars of idle cash, would be well satisfied with
the 2-3/4% coupon whereas they would not be so much interested
in a 2-1/2% coupon.
The discussion then turned on what effect the distribution
of the higher coupon would have on the market. Both of these
gentlemen agreed that in view of the fact that there would be &
period of three months for this distribution, and the further fact
that it was not a large issue, the market would not suffer, but it
was agreed that this was & factor which the Secretary must take
into consideration in making his decision. H. The Secretary later
called attention to the fact that if the Treasury decided upon a
2-1/2% rate, it would give an impression to the public that here
was a new level of rates starting on the basis of a conservative
term of years somewhat along the line that it started the 2-3/4%
rate, and that gradually, in the next year or so, we might be able
to extend that 2-1/2% rate over a longer period of years.
Mr. Kane said he had not thought of that end in his preference
for the 2-3/4% bond, but it certainly appealed to him.
The conference broke up about ten o'clock. On leaving, both
Mr. Rentschler and Mr. Xane assured the Secretary that either the
2-1/2% or the 2-3/4% rate, with the terms mentioned, would go, and
go well,
DWB
87
September 4, 1936
For supper last night had Rentschler and Kane, his
bond man, and Bell.
Rentschler 18 a little bit afraid of a 20-year bond.
Kane seemed to think it would be all right. Before
they left they both said that we could sell a 20-25 year
bond, but if we did, the banks would subscribe to them
but would sell most of them off for a profit. If, how-
ever, we should get out a 2-1/2 per cent ll-year bond,
they would put them away and keep them for good.
During supper I felt 80 uncertain that I had Bell
get Parker Gilbert on the wire. I asked him whether he
could not have one of his partners, who knows Government
bonds, come down here. He said that he himself was re-
covering from tonsilitie, but that he would have Mr. Bartow,
a Morgan partner, call me this morning. Bartow is an ex-
pert on Government bonds, although Gilbert pointed out that
Morgan's no longer deal in Governments.
I read a memorandum from Haas who points out that we
have had 80 much trouble with the 2-7/8's and he believes
that I should not take any risk at this time, He favors
a 2-1/2 or 2-5/8.
Still worrying, I called up Earle Bailie at 6:45 this
morning. He said he felt that I had been very wise in
taking additional money as everybody had been fearful that
for political reasons I would not do BO. He really was
not ready to talk, but he seemed to favor & 2-5/8, He
said, "Have you not got B. blank spot in 1950?" and I said,
"Yes." And he replied, "It would seem logical for you
to go from a 2-7/8 to a 2-3/4 and now drop to a 2-5/8. I
asked him to call me at 12:45 New York time.
I decided that inasmuch as the President had asked
Tom Corcoran to help on this radio speech that it would
be sensible for me to give him the background on it and
let him know that it was my idea and why I wanted the
President to make this kind of a speech at this time. He
asked me whether he could come over and work with Gaston
today and I said, of course he could. He is very enthu-
siastic about the idea of the speech, but he says it must
be handled carefully 30 that the enemy will not say, Why
87A
-2-
didn't you put the Employment Service in shape long ago?
He said he asked Gaston this question and Gaston gave
him a very satisfactory answer, viz: that the Jobs in
private industry were not available and now that they
are, we are entering into a new phase of the Employment
Service and the United States Government is going to help
the unemployed get permanent Jobs with private industry.
(This 1s the best explanation that one can give to a bad
situation.)
Every single person from New York has recommended a
long 2-3/4 bond. Bell wants a long 2-3/4. I am the
only person who is holding out against it. I cannot get
the 2-7/8 out of my mind as they have been a headache
ever since we issued them and whenever anything goes wrong
in the bond market 1t has always been the weakest bond.
I do not want to bring out a bond at this time that I will
have to sit up nights with and nurse from now until Novem-
ber. The reason that I did not want to take any new
money was to keep the bond market "sweet". I must not
get out the kind of & bond which will keep the bond market.
in a turmoil for the next two months.
****
Regrade Unclassified
Frapared by. Lawrence 8. deliger. and
Wesley Lindow,
Division of Research & Statistics
88
INTER OFFICE COMMUNICATION
DATE Beptember 4. 2936
TO
Secretary Morgenthau Please Send copy of this once
Mr. Haas
to Bell
FROM
Subject: August Progress Report of the Resettlement Administration
The August Progress Report of the Resettlement Administration con-
tains a considerable amount of interesting information about each of
the programs. It also contains a fair amount of financial data, but
this phase of the report was apparently of secondary significance to
the editors, for the financial data are not complete. The following is
a brief survey of such financial data as are given:
1. Lend Acquisition: The purpose of this program 1s to purchase
land, the use of which is now uneconomic, and retire it or convert it
to another type of utilization. Funds available for this purpose amount
to $49.0 millions, of which $39.2 millions had been obligated on July 31,
1936. No figures on the amount of expenditures are given.
2. Land Development; The land development program provides neces-
sary development work on the land purchased under the land acquisition
program. The estimated total cost of this program 1s $41.7 millions,
although only $22.2 millions has been made available. The total amount
of encumbrances to July 15 was $19.0 millions, of which $12.5 millions
had been liquidated through disbursements.
3. Rural Resettlements This program includes the completion of
certain rural communities initiated by agencies transferred to the Re-
Contact
settlement Administration, 8.6 well as the initiation of new projects.
As of July 31, there were 134 "active" projects of which 18 were com-¹
pleted, 42 were under construction, and the remaining 74 had been
finally approved. The total estimated cost of these projects if $114.5
millions; the total amount of funds available is not given. Allotments
to projects aggregated $24.9 millions on July 15. No data are given on
obligations and expenditures.
4. Suburban Resettlement: This program consists of the construc-
tion of three demonstration projects to provide homes for low-income
industrial and farm families. The projects are financed from a fund of
$26.5 millions under the Emergency Relief Appropriation Act of 1935.
Allotments as of July 15 amounted to $18.6 millions. No figures are
given for commitments or expenditures.
89
Secretary Morgenthau - 9/ 4/36 - 2
5. Rural Rehabilitation: This program is designed to assist
needy farm families, which do not require resettlement but whose income
is insufficient to provide a satisfactory standard of living. From
organization to July 31, the Resettlement Administration has supervised
the extending of $116.1 millions in rehabilitation advances; of this
amount, certified vouchers for loans aggregated $94.1 millions; certi-
fied vouchers for grants, $15.9 millions; and unpaid loan commitments,
$6.1 millions. Up to August 14, allotments for emergency drought loans
and grants amounted to $7.7 millions. It is estimated that aggregate
payments as a direct result of the drought will exceed $40 millions by
January 31, 1937.
6. Farm Debt Adjustment: This program assists debt-burdened
farmers by adjusting their financial obligations through agreement of
creditors and debtors. Two million dollars has been allocated to the
Resettlement Administration for administrative expenses. Through
June 30, 33,906 cases had been adjusted, resulting in a scaling-down
of indebtedness from $102.2 millions to $76.3 millions. These adjust-
ments were responsible for the payment of $1.9 millions in taxes.
Summary of Financial Data
:
: Funds :Funds al-:
:
Estimated
Funds
Funds
Program
:
:
avail-;lotted to:
:
cost
:
able projects
obligated
expended
:
(In millions of dollars)
Land Acquisition
49.0
39.2
Land Development
41.7
22.2
19.0
12.5
Rural Resettlement
114.5
24.9
Suburban Resettlement
18.6
Rural Rehabilitation
116.1
Farm Debt Adjustment
2.0
Attachment
90
Now
Program
Program
Authorized
$600 M
Appropriated
296 M
440 M
To be transferred
....
=50
+ 30
-
266 M
470 M
Expended
185
10
-
-
Unexpended
81 M
460 M
Future expenditures (est.)
52
Goo
Surplus (est.)
29 M
-
( Dee September Budget 4, 1936. message of Rept. 2.)
Regraded Unclassified
91
Sept. 4, 1936
I called up Loomis and gave him the following
names on Government debt, for Mr. Fahey:
Dr. Viner
Dr. Burgess
Prof. Williams, of Harvard University
and the Federal Reserve of New York.
Regraded
TREASURY DEPARTMENT
92
INTER OFFICE COMMUNICATION
DATE September 4. 1936
To
The Secretary
FROM
Miss Lonigan
Attached is a memorandum on Employment and Relief Policy.
It is Mr. Hopkins' present plan to sidetrack WPA before February.
This is in line with his usual policy to sidetrack all programs before
the criticism of them reaches its crest (CWA, FERA Works Program,
drought relief, self-help, production-for-use).
In place of work relief, he is planning a program which will give
him control of all unemployment policy. This will include the
U. S. Employment Service, unemployment insurance, direct relief, and
control of wages, hours, and child labor, in some kind of reconstituted
NRA.
This new plan is in line with his quick shifts to new and larger
programs, with a radical change in the type of program, 80 that it takes
his opponents about a year to get the new plan clear enough in their
minds to oppose him.
93
EMPLOYMENT AND RELIEF POLICY
For 1936 - 1937
The business cycle has entered the rapidly-rising phase. This
necessitates a reorganization of employment and relief policies to
new bases, different from those required for the low phase of 1933
and the initial recovery phase of 1933 - 1936.
There is danger that the government, having put forth strenuous
efforts to bring about recovery, may prolong depression psychology
long after the depression itself is over. This tendency to "overstay
the market," to operate as bears in a bull market, does not mirt the
market. It only affects the "bears." Sometimes curing depression
psychology is more difficult than curing depression, since powerful
vested interests and strong emotional commitments work against change.
The main aspects of employment policy are discussed below.
Recovery in private industry,
Development of new industries,
Reserve employment where the labor market is
out of balance,
Division of available employment,
Social insurance for regularly recurring hazards
of the workers (in process),
Relief for the most needy (in process).
Both the psychology and the economics of the rapid-recovery phase
differ fundamentally from those of depression or early revival.
Employment policy cannot be based on employment statistics. After
a serious depression it is not possible to use employment statistics
without serious qualifications. Industries are changing too rapidly.
The relation of large firms to small firms, industry to industry, and
section to section, change 80 much that the meaning of the figures is
not clear. In the lumber industry, large firms are barely holding their
own but a multitude of small firms have grown up, with family labor,
or a few workers. These are located chiefly in the South. They are
reflected only slightly in employment reports, they provide & great
deal of unreported employment, and they are providing it in new sections
of the country. Meanwhile, large lumber companies are going into the
pulp and paper industry to avoid competition.
94
EMPLOYMENT RECOVERY IN PRIVATE INDUSTRY
Recovery in private industry is no longer an acute problem, and
will not be again for a period varying from two to six years. A long
period of prosperity is a reasonable hope, if hidden inflation can
be controlled.
Reemployment in old firms is about completed. There remains only
the need to encourage the reemployment that comes with the starting
of new ventures.
The business cycle is usually thought of as V shaped, falling to
2. "low point, and rising steadily upward. It is rather U shaped,
riding along at low levels for a considerable time after the turn, and
then turning sharply upward at mounting rates.
Industrial recovery is now at the same point as at the end of
1922 and early 1923. starting on the steep upward slope of the U.
Recovery will take place at a constantly increasing rate. Occasional
setbacks will be for consolidation only, and will serve actually to
prolong the upward movement, if not tampered with.
What workers need most, in the rapid recovery stage, is an effi-
cient placement agency, to aid them in adjusting quickly to the
inevitable shifts in industry, and to reduce the cost of transferring
themselves from job to job.
The flux of industry is constant, and must remain so, but there in
no reason why workers should bear the full cost of the change in lost
time and lost money. An efficient employment service is perhaps the
best single way to increase workers' total income.
This period of business prosperity will be marked by increased
labor-saving, because labor-saving is a sign of prosperity. Workers
displaced by improved techniques do not become unemployed. They drop
down one or more steps in the employment system. Want displaced
workers most need is an efficient placement agency, to make this transi-
tion quick and easy, and, if possible, to find them jobs where they do
not need to drop down in employment rank.
Labor-saving in no way adds to relief rolls, because it always
goes along with increasing demand for labor. It never takes place until
the demand for labor is high.
Actually, high relief rolls or work-relief rolls encourage labor-
saving. Whenever labor becomes scarce, dear, or inefficient, employers
increase labor-saving, and labor pays the full cost in lost total income.
During years of prosperity, the correctives for labor-saving are:
Encouragement of new business ventures,
Distribution of corporate' savings.
These are accomplished far more effectively by public financial policy
(texation, interest) than by emergency employment programs.
Regraded Unclassified
95
NEW INDUSTRIES
The two essentiale for development of new firms and industries are:
Incentives to risk-taking,
Higher real income in mass-consumption areas.
The growth of new firms and new industries must equal or exceed
the annual increase in working population if unemployment is to recede.
Incentives for risk-taking will increase as the supply of shel-
tered investment declines. Just 80 long as capital can get security
of principal and a fixed return in government employment, it will not
ongage in risk-taking. It much prefers to get its secure return, and
let the government take the losses in providing employment. As rapidly
88 the government withdraws from the investment field, capital will have
to turn to industry, or foreign investment, or foreign trade. All these
will create employment.
Higher real income in the mass-consumption areas depends first on
low-priced food, then on low-priced housing. Workers create new indus-
tries with their surplus over bare necessities.
Purchasing power in the mass-consumption areas effects unemployment
and industry much more than purchasing power in farm areas. All farm
areas are partially self-sustaining. In the cities practically every
necessity effects the cash system, and employment swings up or down
with cash purchasing power.
Also, the cities buy practically all the service workers that are
employed. Farmers do not support street cars, restaurants, or dry-
cleaning establishments. Employment in the non-mamufacturing industries
responds to urban, not rural, purchasing power.
Urban mass consumption is really lower than consumption in rural
areas. The extreme decline in urban purchasing power due to protracted
anemployment and the high cost of living, is hidden in the "fallacy of
the averages." The elaborate statistics proving that farmers are worse
off than city workers do not bear examination. They measure only the
high money-turnover in cities, which is not wealth. They ignore the
violent inequalities of distribution, which leave city people who are
below the "average" much worse off than people below average in the
country.
The effect of work relief is to retard new industries, by increas-
ing the dangers of risk-taking, and providing sheltered employment for
capital through large bond issues.
Regraded Unclassified
RESERVE EMPLOYMENT
96
It is not sound governmental policy to tighten the labor market
at a. time when industry is choosing between reemployment and labor-
saving.
The total amount of reserve employment during the rapid-recovery
phase of the business cycle should be very slight. Every encourage-
ment should be given to employers to use workers instead of machines.
The Federal Government is at present providing employment for
over 1,000,000 workers outside of the work-rellef agencies. It is
extremely doubtful if all reserve employment should go much higher.
From 1,000,000 to 1,500,000 workers will provide all the reserve
employment needed to take care of the labor surplus, if it is located
in the right sections of the country. It may provide too much in the
skilled trades.
It is not possible for all the Federal and local governments
together to provide & good reserve employment program for 2,000,000
workers. There is not enough good engineering design. Volume employ-
ment of labor follows, at best, a year or two years after good engi-
neering design. The PWA began too late to provide engineering design
for its workers. The FERA-WPA hardly began at all. Some good engi-
neoring design was projected in the 1934 Works Program but it was
never permitted to influence employment or work-relief policy. Even
this work was not on a sound social-economic foundation.
Reserve employment should have the following characteristics:
It should be term employment only, like CCC, with the worker
given no vested rights in permanent employment on a tax basis.
It should be for a shifting population, not & protected one.
Reserve employment should be open to all the unemployed, not to
a fixed class. With the use of term employment, all the un-
employed should benefit within a limited time.
It should be provided on B. strictly local basis, in terms of
the economic situation in each locality. Labor surplus, like
a housing surplus, is almost purely local. There may be & grave
labor surplus in Manchester, New Hampshire, while there is a
labor shortage in Schenectady. (At present government employment
is provided most fully where the need is smallest.)
It should be completely divorced from all relief and welfare
agencies. It should be related to the total employable popula-
tion, never to relief rolls. The only effect of putting employ-
ment under relief agencies is to increase relief rolls.
The whole philosophy of reserve employment is in conflict with
the philosophy of relief employment or welfare employment and must
always remain 80. Reserve employment as described here can be carried
out only by agencies completely divorced from all connections with
relief or "welfare."
Regraded Unclassified
- 2 .
Welfare employment seeks (unconsciously) to create a protected 97
class, which shall be given protected employment out of tax funds.
The effect is constantly to increase the drain on the productive system,
to reduce the supply of self-supporting employment, and to increase
the population demanding sheltered employment. There is no end to
this process until the public finances break down.
The objective of reserve employment, on the other hand, is to
place as many workers as possible in self-supporting industry, to
maintain only a marginal group in reserve employment, to tighten the
market ever 80 slightly, in order to encourage industry to hire more
men, on a self-mupporting basis. Ite objective is a constantly dimin-
ishing supply of public employment, and a slowly rising wage level.
Its wage philosophy is to start at the actual local rate (not the
union rate), gradually blot up the supply, and slowly force rates up-
ward, with a sound economic foundation to support them.
The reserve employment philosophy never forces rates above the
existing market level, until after the total supply is absorbed. Even
then it operates carefully to avoid encouraging labor-saving.
Reserve employment uses the principle of leverage to supply
employment at key points, rather than the principle of high expendi-
tures, to take care of & large mumber of workers (many of them never
dependent on industry before) because high expenditures ultimately reduce
the supply of self-sustaining employment.
Any attempts by the government to equalize the supply of labor
must be done with the utmost delicacy, slow withdrawal of small amounts
of surplus labor, just lightly enough to stimulate employers to offer
more work. It 18 as delicate as trout fishing. Whenever the with-
drawal of labor is overdone, the employer always take refuge in labor-
seving. The fundamental difficulty in the workers' situation is that
the employer no longer really needs labor. The big corporations know
that already. The government must never do anything to help the other
employers to find it out.
The purpose of reserve employment is to provide employment that
is self-sustaining, that tends to perpetuate itself from its own
earnings. The effect of welfare employment is to provide work that
comes to a dead end, and must constantly be replaced by more government
funds.
Reserve employment is always planned in relation to the total
productive system, never in relation to the relief population.
In organization, reserve employment should include the present CCC,
and a new agency, an urban CCC, which would hire men for a limited term.
and put them to work on projects planned by their own division of
engineering design, or good projects proposed by the city or State
governments that do not replace normal services. It should operate
only in those sections of the country where wage work is insufficient
for the normal wage-earning population.
All the present apparatus of Federal projects and WPA employment
could be discontinued, and employment from earlier PEA and HFC programs
be allowed to and, as existing cummitments are liquidated.
Unclassified
DIVISION OF AVAILABLE EMPLOYMENT
98
It is important that the available supply of employment should be
fairly distributed. The remedies usually suggested for this are:
Abolition of child labor,
Shorter hours,
Removal of aged from the labor market.
Although these policies are sound, false hopes have been aroused
about them. They will not relieve present unemployment.
Shorter work week
Every effort put into shorter hours improves the national economy.
Shorter hours are so valuable to the worker that they are worthwhile,
even without immediate pay increases. But the benefits will include
little or no reemployment.
If working hours are shortened by legislation, the law will have
the following specific results:
Hours will be shorter in less efficient menufacturing industries,
where hours are now abnormally long. This will provide some more employ-
ment for share-croppers and hill-folk in the Southern States. It will
provide virtually no more employment in New England.
The law will have little effect in those mass-production industries
where hours are now well below the legal minimum. It will have little
effect on workers not working directly at machines. It will have little
effect in sections of the country where labor-legislation has long been
in force. In New York State, the bulk of workers are employed at
shorter hours than the law requires.
Where the law has effect in efficient industries, it will tend to
increase labor-saving, rather than reemployment.
The law will have no effect on retail stores, which will merely
hire more part-time workers for busy hours. The law cannot be enforced
against barber shops, theaters, and small firms.
Anyone who knows the cost of enforcement of factory laws in
New York State knows that it is impossible to police an entire indus-
trial system. The costs of law enforcement are far higher in non-
factory industries or in rural areas.
Because benefits are slow and indirect, it is desirable to start
n. short-hours program as early as possible. It is also highly desirable
to do it with the cooperation and consent of employers, to prevent
labor-saving.
Child labor
The benefits of child-labor laws also are great, but new laws will
not increase the supply of employment for present wage-workers. Aboli-
tion of child lator will draw workers from rural areas into the wage-
earning class. It will have little or no effect on those sections of
the country where unemployment is greatest.
Regraded Unclassified
- 2 -
There is no economic or social basis for the talk of keeping all 99
workers under 18 out of industry.
1. The school system (the only other occupation) does not know
how to give them useful employment for the middle years
of schooling. High school education in notoriously
unprofitable.
2. There are too many people educated now for professional and
white-collar jobs.
3. The cost of supporting teachers and pupils in unproductive
work will fall on the lower middle classes. They can
barely carry their present load. There can be no social
advantage in raising the school-leaving age of 18.
11, The middle-aged are carrying an unjust load in the present
economic system. Benefits should first be provided for them.
Old-age pensions
Old-age pensions benefit the entire economic system at points where
it most needs strengthening.
Fair distribution of labor
Fair distribution of employment, like all other phases of employment
is a regional, State, or local problem, as specifically regional as farming.
The area where fair distribution of jobs 18 important 18 in the large
metropolitan cities where the labor market is most crowded.
Fair distribution here means discouragement of all forces drawing
new workers to the cities before local labor is absorbed. The most power-
ful forces drawing excess labor to the cities are:
Abolition of direct relief,
WPA wage levels,
Corporation hiring and firing policies.
Abolition of direct relief in Southern States and rural areas set
up a population movement of destitute families from rtral areas into the
largest cities where they could get relief without attracting attention.
NPA (and FERA) work and wage policies also encourage this movement
of population from rural to urban areas, and from self-sufficient employ-
ment to wage employment. The whole effect of FERA WPA has been greatly
to decrease the mumber of families which could maintain themselves with-
out cash. It has greatly increased the supply of workers dependent on
cash wages, potential competitors in the overcrowded labor markets for
the cities.
Corporate unemployment
tions which hire new men from Tennessee and Alabama, and leave their old
The remedy for corporate employment policies is terntion. Corpora-
workers on the relief rolls in Buffalo or Pittsburgh must be made to pay
for those workers. Federal texation of corporations and Federal contri-
butions to direct relief will complete the balance sheet on these
transactions.
mm have
100
WABASH 4400
THE
MANAGER
STEVENS
WORLD'S LARGEIT HOTEL
CHICAGO
MICHIGAN BOULEVARD
SEVENTH TO EIGHTH STREET
my dear Ins Haes
Miss Eppr will pend to you a
memorandum on uneuplogment and
relef which has Ishould been proof read and have
get to Scretary as soon as you
released by me like to if
Can commently release it. I thuek this
Sunday might Goadcast may have
important implications for next you's
unemplogment- uluf policies, about which
he Secretary ought to be airply for
rewarned. H is risky putting tuch
inclusions into a memoran dum, but mat
D the only choice now.
here her been Hey decead
the Russian part Bluble the Pour hasn't vacations been in
ordence. The cheef 10
Sincerely yours
Edua
Surpan Regraded Unclassified
101
September 4, 1936
Feis, Lochhead and Viner met with the Secretary
to discuss Cable 831 received from Cochran, as follows:
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: September 4, 1936, 5 p.m.
NO.:
831
FOR SECRETARY OF THE TREASURY.
FROM COCHRAN.
ULTRA CONFIDENTIAL.
I called upon Minister of Finance Auriol this afternoon,
at his request. Rueff and Baumgartner were present also.
Auriol said that the United States had been the first to
offer cooperation to him; but that "the way was barred" at
the time we had our conversations - shortly after he had be-
come Minister of Finance.
Minister Auriol said that now, through the conversations
which Monick had in Washington and London, it had been ascer-
tained that there seemed a good chance for agreement of a
type that could be found acceptable to his country. There-
fore his Ministry had drawn up a provisional draft of a pre-
stabilization agreement for submission to us and to the
British. Should the United States, Great Britain and France
agree, then France would try to procure the adherence of the
Netherlands and Switzerland, the other two gold-bloc countries.
The Minister of Finance said the immediate question is
to know whether Secretary Morgenthau would prefer that the
draft text be submitted to him through me secretly and un-
officially in advance of a copy thereof being submitted
through Monick secretly and unofficially to the British
Government, or whether Secretary Morgenthau may prefer
simultaneous submission of the two copies.
Unclassified
101A
-2-
The Minister told me that he would be glad to tell the
British that before submitting the proposal to them he
had obtained the approval of the United States. However,
on the other hand he does not want to give the British any
cause for criticism of the approach he makes.
The Minister is anxious that the whole matter be ex-
pedited so that if the agreement is consummated a decision
may be reached with regard to drafting the French monetary
law that would be required. On Monday September 7 a
meeting of the Council of Ministers is to be held, and
Auriol would be very appreciative if before then he could
have an indication of the wishes of Secretary Morgenthau
on this one point. Official submission of the propositions
would be taken up only if and after unofficial approval of
them.
Baumgartner and Rueff talked more freely with me in
regard to the nature of the so-called agreement after we
left the Minister's office. It appears that it is what
might be called an "agreement of intention", and would in-
volve a declaration by the governments of the United States,
Great Britain and France. I would be expected that approxi-
mately the present rates would be maintained for the
currencies of the British and the Americans. There would
be envisaged a lowering of the French franc. In the agree-
ment the second point calls for cooperation between the
three banks of issue of the contracting countries. Each
central bank would assume the task of holding its respective
currency within certain limits subject to certain conditions.
The third point in the agreement would be something in
the way of declaration that this step having been taken
toward monetary stability, the way would be open to a lower-
ing of the barriers to trade.
I have not seen the text of the agreement, so please do
not accept the above as an entirely accurate description of
the component parts. I asked the two permanent members of
the Ministry for this information so that I might give
Secretary Morgenthau enough of a description of the document
to enable him to determine what his attitude should be in
regard to the immediate question put to him.
In answer to my query Baumgartner informed me that the
part of the agreement with regard to commercial policy matters
is not interdependent with the points of fixing rates and
Unclassified
101B
-3-
supporting the currencies of the respective countries.
The French have drafted something which they think would
meet the approval of the Secretary of State whose interest
in lowering trade barriers has of course been well known
to them, and which was conveyed fairly recently by the
French Ambassador in Washington. Auriol's idea, as I have
indicated in previous telegrams, is to have a scheme of
"world monetary peace which would lead to world economic
peace" include French devaluation.
END MESSAGE.
WILSON.
EA:LWW
The following reply was agreed upon:
September 4, 1936
TO:
COCHRAN
FROM: SECRETARY OF TREASURY
IN REPLY TO YOUR CABLE EIGHT THREE ONE PLEASE INFORM
MINISTER OF FINANCE AURIOL THAT YOU HAVE BEEN INSTRUCTED
BY YOUR GOVERNMENT TO INFORM HIM THAT WE WOULD PREFER THAT
DRAFT DOCUMENT MENTIONED IN CABLE EIGHT THREE ONE BE PRF-
SENTED SIMULTANEOUSLY TO BOTH TREASURIERS AND IN THE CASE
OF THE UNITED STATES BE TRANSMITTED THROUGH YOU PERIOD
FOR YOUR INFORMATION AND GUIDANCE PLEASE BEAR IN MIND THAT
MONDAY SEPTEMBER SEVEN IS LABOR DAY AND ON TUESDAY SEPTEMBER
EIGHT UNITED STATES TREASURY IS OFFERING TO THE PUBLIC A
NINE HUNDRED MILLION DOLLAR BOND ISSUE PERIOD KEEP ME
INFORMED BY CABLE OR TELEPHONE IF NECESSARY ON ANY DEVELOP-
MENTS
HENRY MORGENTHAU JR
Inclassified:
101C
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: September 4, 1936, 5 p.m.
NO.: 831
FOR SECRETARY OF THE TREASURY.
FROM COCHRAN.
ULTRA CONFIDENTIAL.
I called upon Minister of Finance Auriol this after-
noon, at his request. Rueff and Baumgartner were present
also. Auriol said that the United States had been the
first to offer cooperation to him; but that "the way was
barred" at the time we had our conversations - shortly
after he had become Minister of Finance.
Minister Auriol said that now, through the conversa-
tions which Monick haú in Washington and London, it had
been ascertained that there seemed a good chance for
agreement of & type that could be found acceptable to his
country. Therefore his Ministry had drawn up a provisional
draft of a pre-stabilisation agreement for submission to
us and to the British. Should the United States, Great
Britain and France agree, then France would try to procure
the adherence of the Netherlands and Switzerland, the other
two gold-bloc countries.
The Minister of Finance said the immediate question is
to know whether Secretary Morgenthau would prefer that the
draft text be submitted to him through me secretly and un-
officially in advance of a copy thereof being submitted
10ID
- a -
through Monick secretly and unofficially to the British
Government, or whether Secretary Morgenthau may prefor
simultaneous submission of the two copies.
The Minister told me that he would be glad to tell
the British that before submitting the proposal to them
he had obtained the approval of the United States. However,
on the other hand he does not want to give the British
any cause for criticism of the approach he makes.
The Minister is anxious that the whole matter be ex-
pedited so that if the agreement is consummated a decision
may be reached with regard to drafting the French monetary
law that would be required. On Monday September 9 a
meeting of the Council of Ministers is to be held, and
Auriol would be very appreciative if before then he could
have an indication of the wishes of Secretary Morgenthau
on this one point. Official submission of the proposi-
tions would be taken up only if and after unofficial
approval of them.
Baumgartner and Rueff talked more freely with me
in regard to the nature of the so-called agreement after
we left the Minister's office. It appears that it is what
might be called an "agreement of intention", and would
involve a deplaration by the governments of the United
States, Great Britain and France. It would be expected
that
Regraded
101E
- 3 -
that approximately the present rates would be maintained
for the ourrencies of the British and the Americans.
There would be envisaged a lowering of the French franc.
In the agreement the second point calls for cooperation
between the three banks of issue of the contracting coun-
tries. Each central bank would assume the task of holding
its respective currency within certain limits subject
to certain conditions.
The third point in the agreement would be something
in the way of declaration that this step having bsen taken
toward monetary stability, the way would be open to a
lowering of the barriers to trade.
I have not seen the text of the agreement, go please
do not accept the above as an entirely accurate description
of the component parts. I asked the two permanent members
of the Ministry for this information so that I might
give Secretary Morgenthau enough of & description of the
document to enable him to determine what his attitude should
be in regard to the immediate question put to him.
In answer to my query Baumgartner informed me that
the part of the agreement with regard to commercial policy
matters is not interdependent with the poinst of fixing
rates and supporting the currencies of the respective
countries. The French have drafted something which they
Regraded Unclassified
101F
- 4 -
think would meet the approval of the Secretary of State
whose interest in lowering trade barriers has of course
been well known to them, and which was conveyed fairly
recently by the French Ambassador in Washington. Auriol's
idea, as I have indicated in previous telegrams, is to
have a scheme of "world monetary peace which would lead to
world economic peace" include French devaluation.
END MESSAGE.
WILSON.
EA:LWW
101G
September 4, 1938
TO:
COCHRAN
FROM:
SECRETARY OF TREASURY
IN REPLY TO YOUR CABLE EIGHT THREE ONE PLEASE INFORM
MINISTER OF FINANCE AURIOL THAT YOU HAVE BEEN INSTRUCTED
BY YOUR GOVERNMENT TO INFORM HKM THAT WE WOULD PREFER THAT
DRAFT DOCUMENT MENTIONED IN CABLE EIGHT THREE ONE BE
PRESENTED steultaneously TO BOTH TREASURIERS AND IN THE
CASE OF THE UNITED STATES BE TRANSMITTED THROUGH YOU PERIOD
FOR YOUR INFORMATION AND GUIDANCE PLEASE BEAR IN MIND THAT
MONDAY SEPTEMBER SEVEN IS LABOR DAY AND ON TUESDAY SEPTEMBER
EIGHT UNITED STATES TREASURY IS OFFERING TO THE PUBLIC A
NINE HUNDRED MILLION DOLLAR BOND ISSUE PERIOD KEEP ME
INFORMED BY CABLE OR TELEPHONE IF NECESSARY ON ANY DEVELOPMENTS
HENRY MORGENTHAU JR
Regraded Unclassified
101
Regraded Unclassified
MIMORANDER
Friday, September 4, 1936
The Secretary called in Professor Viner and Mr. Lechhead to discuss
Cable No. 831, dated September 4, received from Cochran in Paris. In view
of the importance of this Cable he called Secretary Bull on the telephone
to request that he take part in the discussion or designate someone to do so.
As Mr. Hull was out at the time, Dr. Feis of the State Department was re-
quested to come to the Secretary's Office to assist in preparing the form of
the reply. Dr. Viner suggested the desirability of inviting Governor Eccles
of the Federal Reserve Board to the discussion, but the Secretary pointed
out that Governor Eccles was in Salt Lake City, Utah, and that on the occasion
of Norman's recent visit to the United States, Ecoles had stated to Norman
that the question of stabilization was entirely in Secretary Morgenthau's
hands and that he, Ecoles, had nothing to do with this international phase
of the situation.
The Secretary decided that in answering the specific question asked in
the Cable that the French Minister of Finance be advised that the draft docu-
ments be submitted simultaneously to both the British and the American Treasury.
This was thought to be the proper procedure, as if the draft was submitted to
us before being submitted to the British there might be a feeling on the part
of the British that the French and the Americans were working together against
the British. The form of the answer to Cochran's Cable was agreed upon by
all present. The Secretary mentioned that he did not care very much for Monisk
and did not have much faith in him, and thought that this would be a good
101 a
Memorandum
-2-
Sept. 4, 1936
opportunity to arrange that any further negotiations be carried on without
using Monick as an intermediary. In Cable 831 it was apparent any approaches
would be made by the French Treasury to the United States Treasury through
Cochran, so that in this manner Monick would be eliminated. Dr. Feis felt
that Monick had served a useful purpose by keeping the door open for dis-
cussion of devaluation at & time when the French Government was not in a
position to do so. However, now that the French Government had apparently
swing over to the idea of devaluation as a means of correcting France's
exchange position instead of pursuing the idea of controlling exchanges,
that the French Government itself would now be in a position to communicate
directly with the Treasury through Mr. Cochran without employing the services
of Monick.
The Secretary brought out the fact that the Treasury financing, which
would be announced on Tuesday, September 8, was an extremely important affair,
and he did not like to feel that some action taken by France over the week-
end would in any way interfere or hinder the success of this financing.
For this reason he decided to draw Cochran's attention to the fact that
Monday, February 7, was & holiday in New York, and would be followed on
Tuesday by Government financing of over $900,000,000.
ek
Regraded
Unclassified
amius COMMUNICATIONS TO
THE SECRETARY OF STATE
WASHINGTON, D.C.
101J
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
September 5, 1936
PC 893.515/1185
The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury and
encloses a copy of a letter dated August 3, 1936, from
Mr. K. P. Chen, Chairman of the Chinese Monetary Mission,
expressing his appreciation for the courtesies and
facilities extended to him by officials of the Treasury
Department during the visit of the Chinese Monetary
Mission to this country.
Enclosure:
From Mr. Chen,
August 3, 1936.
m
Regraded Unclassified
Department of State
UREAU
PC
$
ENCLOSURE
TO
Letter drafted
ADDRESSED TO
TREASURY
U.S. GOVERNMENT PRINTING OFFICE
1-1083
COPY: LDA:PC
THE SHANGHAI COMMERCIAL AND SAVINGS
BANK, LTD.
102 K
50, Ningpo Road
Shanghai, China
August 3, 1936.
My dear Mr. President:
On behalf of the Chinese Monetary Mission to the
United States, I wish to express to you our sincere
thanks for all the courtesies and facilities extended
to us by your Government during our stay in your
country. We would mention especially Secretary Morgenthau
and other Treasury officials for their helpful coopera-
tion throughout the course of our discussions.
Immediately upon our arrival at Shanghai on July 11,
we proceeded to Nanking and reported to our Government
the results of our conversations in Washington. I am
glad to say that both President Chiang Kai-shek and
Minister H. H. Kung are very much pleased with the
arrangement, which 1s already producing desired effects
and which they believe will continue to work out to the
benefit of both countries.
It is also gratifying to note that the general
public is favorably impressed with the statement
released simultaneously by the two Governments, and I
am sure that such constructive cooperation will cement
more closely our traditional friendly relationship.
Dr. P. W. Kuo and Mr. Y. C. Koo join me in sending
you our highest esteem.
With kindest regards, I am
Respectfully yours,
K. P. CHEN
Chairman
The Chinese Monetary Mission
President Franklin D. Roosevelt
The White House
Washington, D. C.
U.S.A.
Unclassified
101L
BUREAU OF INTERNAL REVENUE
73
OFFICE OF
CHIEF. INTELLIGENCE UNIT
September 8, 1936.
MEMORANDUM FOR MISS CHAUNCEY:
There is attached a copy of a memorandum
which I wrote on the Philco Radio Company
hearing immediately after the conference
ended on September 3, 1936.
P
Enc.
Regraded Unclassified
0
101 m
BUREAU OF INTERNAL REVENUE
0
P
OFFICE OF
#
I
CHIEF, INTELLIGENCE UNIT
KLI-DW
September 3, 1936.
Memorandum in re: Philco Radio Company
and related companies.
A conference was held in the office of the
Secretary at 3:00 o'clock today, at which were
present besides the Secretary, General Counsel
Oliphant and myself, the following individuals:
Sayre M. Ransdell, Vice-President of the
Philco Radio Company
C. Russell Foldmann, President of the
Transitone Radio Company
John Ballantyne, Treasurer of the Philoo
Radio and Television Corporation
Edward L. Bernays, Public Relations Counsel
These gentlemen discussed the excise tax case
which has been under investigation with respect to
these companies and particularly detailed complaints
which they had to make concerning the manner of in-
vestigation. They had with them the copy of the
report of the revenue agents which had been sent
to them by the office of Captain Bliss, Deputy Com-
missioner of Internal Revenue, indicating a tax
liability of approximately $1,200,000. They pointed
out that there was attached to the report which they
had received from the Bureau a copy of a paper which
obviously had been secured by Bureau officers from
the Radio Corporation of America files, and com-
plained particularly about the close association
between agents of the Bureau and representatives of
that corporation who are their competitors and
against whom they now have suits pending. They
complained further about an investigation which was
made in California by an agent of the Intolligence
Unit with a view to locating a particular letter
written by the President of the Philco Redio Cor-
poration and about an investigation made in Detroit,
Regraded Unclassified
10171
Are
-2-
Michigan, at the Ford Plant by an agent of the
Intelligence Unit with respect to the manufacture
of their radios. They stated that these tactics
tended to embarrass them in the transaction of
their business and they were fearful lest it
might lose for them certain customers. They
stated that the Ford Company handles about 25%
of their output and they seemed much concerned
over the possibility of losing this account.
It was explained to them that in the course
of investigations such as this it 1a necessary to
contact customers and perhaps competitors; that
they might rest assured that information is not
given such persons concerning the business of the
taxpayer; and that any information which the
Radio Corporation of America might have was not
received through any officer of the Internal Reve-
nue Bureau. They specifically requested that if
any further inquiries are to be made of customers
or competitors, they be given an opportunity to
furnish the information or to contact the persons
to be interviewed, 80 that they might lessen the
blow 60 far 6.5 they are concerned. They were
told that the investigation probably is completed
by this time and that there probably will be no
further occasion for contacting such persons or
corporations. They were assured that if 00-
casion arises when it is felt that this should be
done, consideration would be given their request.
However, they were specifically told that no
promise would be made and that it would be left
entirely to our judgment as to whether we would
consult them or make the contacts direct. They
expressed themselves as satisfied with this as-
surance and the conference ended.
Regraded Unclassified
101 0
September 5, 1936
HM,Jr. called in Mr. Graves and said to him, "Chief
Moran is sick and going away on a vacation. I think you
had better move your desk down there for two or three
months. The President's life has to be watched and if
anything happens and the Chief goes against me, I want
this protection. Get Wilson started."
He also said to Mr. Graves, "McIntyre said to me,
I hope you will not make Col. Starling Chief of Secret
Service.' Tuesday or Wednesday I will take you and Wilson
over and introduce you to McIntyre."
Regraded Unclassified
102
September 5, 1986.
Mr. 1. H. Moran,
Chief, Secret Service Division,
Treasury Department.
My dear Chief Morent
After giving further careful consideration to the
question of filling the position of Assistant Chief of
the Secret Service Division following our conversation
last week, I have concluded to proceed with the detail
of Special Agent Frank s. Wilson, of the Intelligence
Unit, to serve as Assistant Chief for the time being.
I shall expect to have your full cooperation in this
matter.
Mr. Wilson will repat to you on Tuesday, September 8.
Sincerely,
(Signed) H. Morgenthan, Jr.
Secretary
103
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: September 5, 1936, noon
NO.: 833
RUSH.
FROM COCHRAN.
FOR THE SECRETARY OF THE TREASURY.
Reference is made to telegram No. 337 of September 4,
7 p.m., from the Department.
On Tuesday, September 8, at 10:30 a.m., the French
Ministry of Finance will hand to me the English text of
draft document for cabling to you. Therefore you should
have it at the latest on Wednesday morning. A copy of
the text will be given to Monick in France, to take to
London for delivery there to the British Treasury not
earlier than September 9, next Wednesday.
WILSON.
EA:LWW
Regraded Unclassified
103A
Paraphrase of Cable telephoned from Dr. Feis' Office 9:20 A.M.
Sept. 5, 1936
No. 833. Rush.
From Cochran.
Sept. 5, 1936, noon.
FOR THE SECRETARY OF THE TREASURY.
Reference is made to Telegrams No. 337 of September 4, 7
P. M. from the Department.
On Tuesday, September 8, at 10:30 A. M., the French Minister
of Finance will hand to no the English text of draft document for
cabling to you. Therefore you should have it at the latest on
Wednesday morning. A copy of the text will be given to Monick
in France, to take to London for delivery there to the British
Treasury not earlier than September 9, next Wednesday.
11-
WILSON
ek
104
September 5, 1936
My dear Mr. President:
Friday, September 4, we received through the
State Department an inquiry from Paris in which
Cochran, after seeing Auriol, put up the following
proposal to me: that Auriol wished to know whether
they should present a note on stabilization first
to the United States Government or simultaneously
to the United States Government and England. I all
inclosing herewith copy of Cochran's cable to me and
my answer to the same.
This morning, Saturday, September 5, I re-
ceived the following cable:
"On Tuesday, September 8, at
10:30 A. M., the French Minister
of Finance will hand to me the
English text of draft document
for cabling to you. Therefore
you should have it at the latest
on Wednesday morning. A copy
of the text will be given to
Monick in France, to take to
London for delivery there to
the British Treasury not earlier
than September 9, next Wednesday."
I an looking forward to my visit with you at
9:15 Tuesday morning, September 8.
Respectfully,
The President,
The White House.
104
September 5, 1936
My dear Mr. President:
Friday, September 4, we received through the
State Department an inquiry from Paris in which
Cochran, after seeing Auriol, put up the following
proposal to me: that Auriol wished to know whether
they should present a note on stabilization first
to the United States Government or simultaneously
to the United States Government and England. I all
inclosing herewith copy of Cochran's cable to me and
my answer to the same.
This morning, Saturday, September 5, I re-
oeived the following cable:
"On Tuesday, September 8, at
10:30 A. M., the French Minister
of Finance will hand to me the
English text of draft document
for cabling to you. Therefore
you should have it at the latest
on Wednesday morning. A copy
of the text will be given to
Monick in France, to take to
London for delivery there to
the British Treasury not earlier
than September 0, next Wednesday."
I an looking forward to my visit with you at
9:15 Tuesday morning, September 8.
Respectfully,
The President,
The White House.
104A
September 5, 1936
My dear Mr. President:
Friday, September 4, we received through the
State Department an inquiry from Paris in which
Cochran, after seeing Auriol, put up the following
proposal to no: that Auriol wished to know whether
they should present a. note on stabilization first
to the United States Government or simultaneously
to the United States Government and England. I an
inclosing herewith copy of Cochran's cable to me and
my answer to the same.
This morning, Saturday, September 5, I re-
ceived the following cable:
"On Tuesday, September 8, at
10:30 A. N., the French Minister
of Finance will hand to me the
English text of draft document
for cabling to you. Therefore
you should have it at the latest
on Wednesday morning. A copy
of the text will be given to
Monick in France, to take to
London for delivery there to
the British Treasury not earlier
than September 9, next Wednesday."
I am looking forward to my visit with you at
9:15 Tuesday morning, September B.
Respectfully,
The President,
The White House.
10AB
September 5, 1936
My dear itr. President:
Friday, September 4, we received through the
State Department an inquiry from Paris in which
Cochran, after seeing Auriol, put up the following
proposal to me: that Auriol wished to know whether
they should present a note on stabilization first
to the United States Government or simultaneously
to the United States Government and England. I an
inclosing herewith copy of Cochran's cable to me and
my answer to the same.
This morning, Saturday, September 5, I re-
oeived the following cable:
"On Tuesday, September 8, at
10:30 A. li., the French Minister
of Finance will hand to me the
English text of draft document
for cabling to you. Therefore
you should have 1t at the latest
on Wednesday morning. A copy
of the text will be given to
Monick in France, to take to
London for delivery there to
the British Treasury not earlier
than September 9, next Wednesday."
I an looking forward to my visit with you at
9:15 Tuesday morning, September 8.
Respectfully,
The President,
The White House.
104C
September 4, 1936
TO:
COCHRAN
FROM:
SECRETARY OF TREASURY
IN REPLY TO YOUR CABLE EIGHT THREE ONE PLEASE INFORM
MINISTER OF FINANCE AURIOL THAT YOU HAVE BEEN INSTRUCTED
BY YOUR GOVERNMENT TO INFORM HIM THAT WE WOULD PREFER THAT
DRAFT DOCUMENT MENTIONED IN CABLE EIGHT THREE ONE BE
PRESENTED SIMULTANEOUSLY TO BOTH TREASURIERS AND IN THE
CASE OF THE UNITED STATES BE TRANSMITTED THROUGH YOU PERIOD
FOR YOUR INFORMATION AND GUIDANCE PLEASE BEAR IN MIND THAT
MONDAY SEPTEMBER SEVEN IS LABOR DAY AND ON TUESDAY SEPTEMBER
EIGHT UNITED STATES TREASURY IS OFFERING TO THE PUBLIC A
NINE HUNDRED MILLION DOLLAR BOND ISSUE PERIOD KEEP ME
INFORMED BY CABLE OR TELEPHONE IF NECESSARY ON ANY DEVELOPMENTS
HENRY MORGENTHAU JR
Regraded
104D
September 4, 1936
TO:
COCHRAN
FROM:
SECRETARY OF TREASURY
IN REPLY TO YOUR CABLE EIGHT THREE ONE PLEASE INFORM
MINISTER OF FINANCE AURIOL THAT YOU HAVE BEEN INSTRUCTED
BY YOUR GOVERNMENT TO INFORM HIM THAT WE WOULD PREFER THAT
DRAFT DOCUMENT MENTIONED IN CABLE EIGHT THREE ONE BE
PRESENTED SIMULTANEOUSLY TO BOTH TREASURIERS AND IN THE
CASE OF THE UNITED STATES BE TRANSMITTED THROUGH YOU PERIOD
FOR YOUR INFORMATION AND GUIDANCE PLEASE BEAR IN MIND THAT
MONDAY SEPTEMBER SEVEN IS LABOR DAY AND ON TUESDAY SEPTEMBER
EIGHT UNITED STATES TREASURY IS OFFERING TO THE PUBLIC A
NINE HUNDRED MILLION DOLLAR BOND ISSUE PERIOD KEEP ME
INFORMED BY CABLE OR TELEPHONE IF NECESSARY ON ANY DEVELOPMENTS
HENRY MORGENTHAU JR
Regraded Unclassified
104E
September 4, 1936
TO:
COCHRAN
FROM:
SECRETARY OF TREASURY
IN REPLY TO YOUR CABLE EIGHT THREE ONE PLEASE INFORM
MINISTER OF FINANCE AURIOL THAT YOU HAVE BEEN INSTRUCTED
BY YOUR GOVERNMENT TO INFORM HXM THAT WE WOULD PREFER THAT
DRAFT DOCUMENT MENTIONED IN CABLE EIGHT THREE ONE BE
PRESENTED SIMULTANEOUSLY TO BOTH TREASURIERS AND IN THE
CASE OF THE UNITED STATES BE TRANSMITTED THROUGH YOU PERIOD
FOR YOUR INFORMATION AND GUIDANCE PLEASE BEAR IN MIND THAT
MONDAY SEPTEMBER SEVEN IS LABOR DAY AND ON TUESDAY SEPTEMBER
EIGHT UNITED STATES TREASURY IS OFFERING TO THE PUBLIC A
NINE HUNDRED MILLION DOLLAR BOND ISSUE PERIOD KEEP ME
INFORMED BY CABLE OR TELEPHONE IF NECESSARY ON ANY DEVELOPMENTS
HENRY MORGENTHAU JR
104 F
PARAPHRASE OF TELEGRAM SENT
TO: American Embassy, Paris, France
DATE: September 4, 1936, 11 a.m.
NO.: 334
FROM THE SECRETARY OF THE TREASURY.
FOR COCHRAN.
You are requested to inform Cariguel that the
inquiries regarding gold which you transmitted in your
telegram No. 826 are receiving immediate attention.
A prompt answer will. be despatched.
RULL
(HF)
EA:LWW
104G
Paraphrase of telegram sent
To: American Embassy, Paris
DATE: September 4, 7 p.m.
NO: 337.
Your 831 of September 4.
FOR COCHRAN FROM SECRETARY OF THE TREASURY.
You are requested to inform Auriol, the Minister of
Finance, that your Government has instructed you to inform
him that we would prefer that the draft document mentioned
in cable 831 be presented simultaneously to both treasurers
and be transmitted through you in the case of the United
States. For your guidance and information please bear in
mind that the seventh of September is Labor Day and that
on Tuesday, September 8, the Treasury of the United States
is offering a. nine hundred million dollar bond issue to
the public. Please keep me in informed on any developments,
either by cable or by telephone if necessary.
EA:DJW
105
September 5, 1936
Mr. Mallet, Counselor of the British Embassy, called
on the Secretary today. Lochhead was also present.
HM,Jr. said to Mr. Mallet: "We received a cable
from Cochran and Secretary Hull thought it would be a nice
thing for me to tell you about 1t. It is on the financial
end. We got word yesterday that Auriol was thinking of
presenting a note on stabilization to your Government and
ours and the question was raised, Who should come first?
We just want to let you know that we have kept the position
that if anything should be done, it should be done simultan-
eously. That was just what I told Bewley. We got this
message this morning that they are going to give our repre-
sentative a note on Tuesday and Monick will hand your Govern-
ment a note on Tuesday. Secretary Hull suggested that we
send for you and inform you,"
Mr. Mallet then inquired: "It is a proposal to our
Government on stabilization and they will present it to you
on Tuesday also?" HM,Jr. replied, "Do you know Monick?"
Mallet answered, "I do not know him. This is very inter-
esting.
11
HM,Jr. then said, "After months and months something
is actually going to happen. The French Cabinet meets on
Monday to take this up. I gather it will be entirely on
stabilization and nothing else."
Mallet asked, "Would you like me to send a telegram
to my Government," and HM, Jr. replied, "Yes. I am giving
you this information so that you can pass it along to the
British Treasury. It is confidential, but we feel we have
gotten to a point where Bewley and I have confidence in each
other and speak very frankly and since we have this informa-
tion we want to pass it on to the British Treasury. It is
our insistence that the thing be done with both countries
and not first to us. The French sounded us out as to
whether we wanted them to present the thing to us first and
we said no.
If anything happens, Bewley may want to come back.
My understanding with him was that if something really did
happen he would come back. After all, they have to put it
up to the French Cabinet and perhaps nothing really will
happen."
105A
-2-
The rest of the conversation was purely personal.
HM, Jr. asked Mr. Mallet if he was any relation to the
British Ambassador who was Ambassador at the time that
Mr. Morgenthau's father was Ambassador to Turkey. Mr.
Mallet replied that the man Mr. Morgenthau referred to
was his uncle. They had a very pleasant chat.
Regraded Unclassified
106
Saturday
September 5, 1936
10:03 a.m.
H.M.Jr:
Hello.
Operator:
Dr. Burgess -
H.M.Jr:
Hello, Burgess.
W.R.
Burgess:
How are you this morning?
H.M.Jr:
Oh, I'm fine.
B:
Well, I see the President's all cleared up.
H.M.Jr:
What?
B:
I see the President is all cleared up with what
you told him.
H.M.Jr:
Isn't he a darling?
B:
(Laughs)
H.M.Jr:
What?
B:
That's very nice.
H.M.Jr:
Yes, I - you know, (Laughs) He's - he couldn't
keep a thing like that. (Laughs) And listen, I
never said what he said I said. (Laughs).
B:
(Laughs)
H.M.Jr:
Well, that's all right.
B:
That's the conclusion he drew.
H.M.Jr:
What?
B:
That's the conclusion he drew.
H.M.Jr:
That's the conclusion he drew from my voice.
B:
Yes, that's right.
H.M.Jr:
Yes.
B:
Yes, your sweet voice, he said, gave him that feel-
ing, that's all.
H.M.Jr:
Yes, well, he's feeling fine.
B:
Yes.
H.M.Jr:
Well, there don't seem to be any change this morning -
Regraded Unclassified
106A
- 2 -
B:
No, everything's fine.
H.M.Jr:
Have you got any bright bond dealers around there?
B:
Not right at the moment. I - Dudley Mills has
been in -
H.M.Jr:
Yes.
B:
But his opinion hasn't changed any. They're just
the same.
H.M.Jr:
Well, what was his this morning?
B:
Well, he thinks still a fifty-four fifty-seven.
H.M.Jr:
Fifty-four fifty-seven?
B:
Yes - he's - he's got a blue fox.
H.M.Jr:
He has?
B:
Yes, he's got rather a blue fox.
H.M.Jr:
Fifty -
B:
But his associate, Repp -
H.M.Jr:
Yes.
B:
Says fifty-six sixty-one.
H.M.Jr:
And Repp says fifty-six sixty-one?
B:
Yes, yes.
H.M.Jr:
But Mills - what's the matter with Mills?
B:
Oh, I don't know, he didn't sleep very well.
H.M.Jr:
He didn't sleep very well?
B:
Well, of course, you know, they've got a heavy
commitment in these. You have to remember that
about all these fellows you talk to - they -
H.M.Jr:
Yes.
B:
About half of them have got & heavy commitment of
the rights.
Regraded
106 B
- 3 -
H.M.Jr:
I remember that - everybody except for the
Federal Reserve, huh?
B:
Well, Y - we've got a commitment in them too
and our -
H.M.Jr:
Sure, fifty-two million, haven't you?
B:
And our tendency of course would be to - would be -
H.M.Jr:
Oh, give me a little laugh, Burgess, for God's
sake, don't -
B:
(Laughs).
H.M.Jr:
That's better, that's better.
B:
Yes, we tend to be conservative on it.
H.M.Jr:
Yes.
B:
But it's awfully hard to get an objective view.
They used to say on this thing, you know, you ask
the market what to do and then you write a rate
one eighth lower and you're all right.
H.M.Jr:
One eighth lower?
B:
One eighth lower than the market.
H.M.Jr:
Yes.
B:
Yes.
H.M.Jr:
Well, boiling down everything that you've talked to
and listed to, what's your advice.
B:
I'd do just the same as I suggested yesterday.
H.M.Jr:
Fifty-six - ?
B:
Fifty-six fifty-nine -
H.M.Jr:
Yes, well that's the way I feel.
B:
I think that's conservative, very careful and it's
sure-fire.
H.M.Jr:
Well, that takes care of Mills.
Regraded Unclassified
106C
- 4
B:
Yes.
H.M.Jr:
And that takes care of Rentschler -
B:
Pretty much, yes.
H.M.Jr:
You see, neither of those fellows liked this idea
of going out beyond sixty-one.
B:
That's right, yes.
H.M.Jr:
Doesn't it?
B:
Thats right.
H.M.Jr:
I mean, it really takes care of both of them.
B:
Well, it takes care as much as you want to of
them, anyway.
H.M.Jr:
Yes.
B:
Now, you'll always get on a thing like this -
you'll get some way over to the right and some
way over to the left and some in the center.
H.M.Jr:
Yes.
B:
Now, this is the center.
H.M.Jr:
What are you talking about, the Spanish Revolution
or the bond market?
B:
(Laughs) Well, there's a right and left and center
in everything.
H.M.Jr:
I see.
B:
But this - this is a 'happy medium'.
H.M.Jr:
Yes - now, in talk - I see the Press this
morning, of course, they write it for Tuesday
morning.
B:
Yes.
H.M.Jr:
Now, is it - is it good or bad for me to say
that these rights are selling at a one point
profit? Now, would you say it would show the
confidence that the bondholders - the rights have
in this thing or wouldn't you say that?
106D
- 5 -
B:
No, I wouldn't - I would - I just wouldn't say
anything this morning, I think.
H.M.Jr:
You wouldn't say anything?
B:
Because 1f you say that they'll think you were
playing to keep up your courage or something.
They'll think it's salesmen's talk. The less -
the less you talk about it now the better.
H.M.Jr:
Well, as a matter of fact when these rights sell
at one point profit that's about as big as they've
ever sold, isn't it?
B:
Well, that's just about as big, yes, yes.
H.M.Jr:
What?
B:
But I certainly wouldn't say anything about it,
because the market might be expecting something
different, you know?
H.M.Jr:
Yes.
B:
I think it is expecting a long bond.
H.M.Jr:
Yes.
B:
But I wouldn't mention it, I think. I think it
makes a bad impression.
H.M.Jr:
Well, I tell you - the way - the last day or two,
I mean my confidence in the market has steadily
grown from the way the market has acted.
B:
Yes.
H.M.Jr:
I have never seen anything like it.
B:
Yes.
H.M.Jr:
And somebody drew my attention to what Moody said
here recently. I mean they said Moody had some
article about - that we're not going to sell many
more bonds.
B:
Yes.
H.M.Jr:
I didn't see it but somebody talked about it.
B:
Yes, yes.
106E
- 6 -
H.M.Jr:
Well, I think we're all set.
B:
I talked to - oh, Morris Tremaine called me up
this morning.
H.M.Jr:
How is my old friend Morris, the old lumber dealer?
B:
Oh, Morris is swell. Did you see the piece about
him in the New Yorker?
H.M.Jr:
Oh, I loved it.
B:
Wasn't that a swell piece? (Laughs)
H.M.Jr:
Oh, I loved it. You know I know Morris, I've
campaigned with him, you know, two campaigns?
B:
Yes - he says - he says the New York State
budget is going to balance by next June or at
least the next calendar year.
H.M.Jr:
There's nobody I'd rather tease than Morris Tre-
maine, he has absolutely no sense of humor.
B:
He is great, isn't he? (Laughs)
H.M.Jr:
Yes.
B:
(Laughs) Yes.
H.M.Jr:
Did he have anything to say on the Federal thing?
B:
Oh he - yes, he -
H.M.Jr:
Yes, yes.
B:
- that the budget would probably balance in thirty
eight.
H.M.Jr:
Now the - the French thing - the French thing is
better today Lochhead tells me.
B:
They're simmering along.
H.M.Jr:
Yes.
B:
A million - two million.
H.M.Jr:
Yes - thank you.
B:
But -
Regraded
Unclassified
106F
- 7 -
H.M.Jr:
Well, I think we'll put the mimeograph to work,
and we'll get the thing started.
B:
I think that's right.
H.M.Jr:
Yes.
B:
Yes. -
H.M.Jr:
So, well - we'll all hold our breath.
B:
Well, we don't need to. I think we'll have a
splendid weekend and perfect confidence.
H.M.Jr:
You feel very confident about this, don't you?
B:
Oh very, yes.
H.M.Jr:
What?
B:
Very.
H.M.Jr:
Very?
B:
Yes.
H.M.Jr:
The President is very much pleased with it. I mean -
B:
I think it's just right.
H.M.Jr:
He likes it.
B:
Yes, that's fine. I'm glad -
H.M.Jf:
And he liked the reaction to the announcement
of four hundred million.
B:
That's fine.
H.M.Jr:
Yes, he was very much pleased.
B:
Good.
H.M.Jr:
And - he's - you could tell from his announce-
ment, I mean he's -
B:
Sure.
H.M.Jr:
He's feeling very cocky.
B:
Yes, yes,
Regraded Unclassified
106G
- 8 -
H.M.Jr:
All right.
B:
Fine.
H.M.Jr:
Thank you.
B:
Goodbye.
H.M.Jr:
Goodbye - hello?
B:
Yes.
H.M.Jr:
I'm very, very much obliged for all the help you
have given me.
B:
Oh, you're entirely welcome. It's been lots of
fun, hasn't it?
H.M.Jr:
Yes, it has. But I appreciate all the time and
thought and energy.
B:
Well, thank you so much.
H.M.Jr:
Well, thank you so much.
H.M.Jr:
Goodbye.
Lol
September 5, 1936
Just before the press conference the idea occurred
to Mr. Morgenthau to point out to the newspaper men that
a year ago the Treasury offered a 2-3/4 10-12 year bond;
in March, a 2-3/4 12-15; in June 2 3-/4 15-18 and now,
one year later, he is offering a 2-3/4 20-23. 20-23. He wrote
these offers out in his own handwriting and his memorandum
is attached. Copy of the press conference is also attached,
in which he said, in connection with his memorandum, that
he knew of no better way to measure the constantly growing
confidence in the Government's credit than the successive
lengthening of the bond with the same coupon.
123/4 of 1945/47 - -10-12ge Bnd Bd.
3/4 of 1948/51 - 12-15 gr. Bd.
r3/x of 1951/54 - 15-18gr.
101. - 101.2 101. -101.2
107A
REPORT ON SECRETARY MORGENTHAU'S PRESS
CONFERENCE OF SEPTEMBER 5, 1936.
Secretary gave the newspapermen copy of press service
#830, announcing the terms of September 15th financing.
&
Will you explain this first paragraph "with the
right reserved to the Secretary of the Treasury
to increase the offering by an amount sufficient
to accept all subscriptions for which 16% Treasury
notes of Series D, 1936, maturing September 15, 1936,
are tendered in payment and accepted".
A.
Well, what we have done in the past has been the
practice of the Treasury of long standing on over-
subscriptions. In order to make them an even per-
centage we increase them up to but not to exceed
10%. The maximum we might take would be four million
dollars extra but in order to give it an ever amount
it's understood that we may take up to 10% in excess
of the amount.
Bell:
I did not quite understand his question.
Gaston:
I think he is talking about the exchange privilege.
Bell:
That gives the Secretary the right to accept all
exchange subscriptions up to the 914 million dollars
of maturing notes; in other words, the issue is 914
million dollars potentially.
&
That is the maximum?
Bell:
Yes; the 10% cumes in on the 400 million dollars.
H.M.Jr.:
I would like to point out to you gentlemen this, that
just a year ago we offered a 10-year bond, 2-3/4.
Just a year ago this September we offered a 2-3/45
10-12-year bond. Then we came along in March and
offered a 2-3/48 12-15 and then in June of this year
we offered a 2-3/4% 15-18 and now in September, just
twelve months later we are offering a 2-3/45-20-23
and I don't know of any better way to measure the
107 B
- 2 -
constantly growing confidence in the Government's
credit than the successive lengthening of the bond
with the same coupon. After all in one year we
have just doubled the length of the bond. A year
ago last September we got out a 10-12 and now we
come along, a year later, and get out another 2-3/4%
and get out a 20-year bond of just twice as long in
12 months and I have every reason to think it will
be successful.
Q.
Your 2-3/4--12-15 is selling about 102 or 102
selling at a premium.
A.
Oh, yes.
Q.
So on the basis of present bond market it just
about fits into it.
A.
That's what we figure; we figure it is reasonably
priced, but I again want to repeat that we have
gone from September 1935 with a 10-year bond to
September 1936 with a 20-year bond with the same
coupon. We have doubled the call-date of the bond
in 12 months and I say I don't know of a better way
to measure the confidence of the investing public
in the Government's credit than that particular
yardstick.
Q.
You can call it increasing confidence?
A.
Yes, I say this strongly proves it.
Q.
As a matter of fact people either have confidence in
Government bonds or they don't. Isn't that true?
A.
True.
Q.
So it isn't a question of sound or greater confidence.
A.
I say it's increasing.
Q.
Do you think the money market has anything to do with
it at all?
107C
- 3 -
A.
I think there are a lot of things, but I think
the answer is there is constantly increasing
confidence in the Government's credit. I say
that this demonstrates it and proves it.
Q-
I don't agree but I guess it's all right because
I believe you either have confidence in & government
bond or you don't and the money market is what reflects
the confidence.
A.
This is off the record. If they had confidence in
September of last year why couldn't we have sold a
20-year bond last year?
Q.
Because they could lend their money at lower rates.
A.
If you don't mind, I prefer my interpretation.
Q.
Is this an announced policy; is this the Treasury
policy as carried out last year?
A.
Yes, this is what we have done and if we have done
it I suppose it's policy.
Q.
Everything you say today is for Tuesday morning's
release?
A.
Strictly, please.
Q.
What are the HOLC requirements?
A.
I don't know, do you, Dan?
Bell:
Probably between five and ten million dollars a month.
Q.
Running over & year?
Bell:
Yes, but running over a year there will be repayments
which will largely take up those, so at the end of
twelve months we will probably not have any holdings
of HOLC bonds.
Q.
Is the purpose of that to get a lower interest rate
than they could sell their own bonds?
107D
- 4 -
H.M.Jr.:
No, they have not been equipped themselves-- for
background, I don't want to be quoted-they are
not equipped particularly to go into the money
market and we can do it for them better and can
get money for them cheaper and it is more economical
for the taxpayer to have us do it in 8. wholesale way
and take care of their needs than have them go into
the market and get five million dollars a month. It
saves them money; saves the taxpayer, and everybody
else, and it is a much more efficient way of handling
it than having them go in and try to get that amount
of money each month.
Q.
Have you anything to say for use before Tuesday on
the story that the Federal Reserve banks are not
earning enough money to pay their dividends?
A.
That's the story. You know I am no longer connected
with the Federal Reserve Board.
&
They more or less attribute it to low interest rate
on Government securities.
A.
No. You let somebody over there, whoever is acting
chairman, talk.
Gaston:
Father Coughlin will probably talk.
H.M.Jr.:
Can we quote that, Mr. Gaston? Everybody all right.
I hope you have a good Labor Day without any labor.
A.
You certainly did your best to spoil it!
107E
THE SECRETARY OF THE TREASURY
WASHINGTON
September s, 1956.
CONFIDENTIAL
Doar Mr. President:
In order to place the Treasury in funds to meet the
September 15 maturity of about $514,000,000 of Treasury notes,
and to provide for other expenditures authorized by law, I
propose, subject to your approval, under authority of the
Second Liberty Bond Act, approved September 24, 1917, as
amended, to offer for subscription a series of 20-23-year
2-3/4 percent Treasury bonds.
The bonds will be offered for cash to the amount of
$400,000,000, or thereabouts, and the issue will also be open
for the exchange of the maturing notes. The bonds will be
dated September 15, 1936, and will mature September 15, 1959.
The authorizing act provides that bonds may be issued
only with the approval of the President. Accordingly, I trust
that the proposed issue will meet with your approval. It is
my intention to make public announcement of the offering on
Tuesday, September 8.
Maynethan Faithfully yours,
Secretary of the Treasury.
The President,
The White House.
APPROVED:
107F
Saturday
September 5, 1936
10:03 a. m.
HMjr:
Hello
Operator:
Dr. Burgess -
HMjr:
Hello, Burgess
W.R.
Burgess:
How are you this morning?
HMjr:
Oh, I'm fine.
B:
Well, I see the President's all cleared up.
HMjr:
What?
B:
I see the President is all cleared up with what
you told him.
HMjr:
Isn't he a darling?
B:
(Laughs)
HMjr:
What?
B:
That's very nice.
HMjr:
Yes, I - you know, (Laughs) He's - he couldn't
keep a thing like that. (Laughs) And listen, I
never said what he said I said. (Laughs)
B:
(Laughs)
HMjr:
Well, that's all right.
B:
That's the conclusion he drew.
HMjr:
What?
B:
That's the conclusion he drew.
HMjr:
That's the conclusion he drew from my voice.
B:
Yes, that's right.
HMjr:
Yes
B:
Yes, your sweet voice, he said, gave him that feeling,
that's all.
HMjr:
Yes, well he's feeling fine.
B:
Yes
HMjr:
Well, there don't seem to be any change this morning -
107G
-2-
B:
No, everything's fine.
HMjr:
Have you got any bond dealers around there?
B:
Not right at the moment. I - Dudley Mills has
been in -
HMjr:
Yes
B:
But his opinion hasn't changed any. They're just
the same.
HMjr:
Well, what was his this morning?
B:
Well, he thinks still a fifty-four fifty-seven.
HMjr:
Fifty-four fifty-seven?
B:
Yes - he's - he's got a blue fox.
HMjr:
He has?
B:
Yes, he's got rather a blue fox.
HMjr:
Fifty -
B:
But his associate, Repp -
HMjr:
Yes
B:
Says fifty-six sixty-one.
HMjr:
And Repp says fifty-six sixty-one?
B:
Yes, yes
HMjr:
But Mills -
what's the matter with Mills?
B:
Oh, I don't know, he didn't sleep very well.
HMjr:
He didn't sleep very well?
B:
Well, of course, you know, they've got a heavy commit-
ment in these. You have to remember that about all
these fellows you talk to - they -
HMjr:
Yes
B:
About half of them have got a heavy commitment of
the rights.
aded Unclassified
10TH H
-3-
HMjr:
I remember that - everybody except for the
Federal Reserve, huh?
B:
Well, I - we've got a commitment in them too
and our -
HMjr:
Sure, fifty-two million, haven't you?
B:
And our tendency of course would be to - would
be -
HMjr:
Oh, give me a little laugh, Burgess, for God's sake,
don't
I
B:
(Laughs)
HMjr:
That's better, that's better.
B:
Yes, we tend to be conservative on it.
HMjr:
Yes
B:
But, it's awfully hard to get an objective view.
They used to say on this thing, you know, you ask
the market what to do and then you write a rate
one eighth lower and you're all right.
HMjr:
One eighth lower?
B:
One eighth lower than the market.
HMjr:
Yes
B:
Yes
HMjr:
Well, boiling down everything that you've talked to
and listened to, what's your advice?
B:
I'd do just the same as I suggested yesterday.
HMjr:
Fifty-six - ?
B:
Fifty-six fifty-nine -
HMjr:
Yes, well that's the way I feel.
B:
I think that's conservative, very careful and it's
sure-fire.
HMjr:
Well, that takes care of Mills -
107 D
-4-
B:
Yes
HMjr:
And that takes care of Rentschler -
B:
Pretty much, yes.
HMjr:
You see, neither of those fellows liked this idea
of going out beyond sixty-one.
B:
That's right, yes.
HMjr:
Doesn't it?
B:
That's right.
HMjr:
I mean, it really takes care of both of them.
B:
Well, it takes care as much as you want to of
them, anyway.
HMjr:
Yes
B:
Now, you'll always get on a thing like this -
you'll get some way over to the right and some
way over to the left and some in the center.
HMir:
Yes
B:
Now, this is the center.
HMjr:
What are you talking about, the Spanish Revolution
or the bond market?
B:
(Laughs) Well, there's a right and left and center
in everything.
HMjr:
I see.
B:
But this - this is a 'happy medium'.
HMjr:
Yes - now, in talk - I see the Press this
morning, of course they write it for Tuesday
morning.
B:
Yes
HMjr:
Now, is it - is it good or bad for me to say
that these rights are selling at a one point
profit? Now, would you say it would show the confi-
dence that the bondholders - the rights have
in this thing or wouldn't you say that?
Regraded Unclassified
1075
-5-
B:
No, I wouldn't - I would - I just wouldn't say
anything this morning, I think.
HMjr:
You wouldn't say anything?
B:
Because if you say that they'll think you were
playing to keep up your courage or something.
They'll think it's salesmen's talk. The less -
the less you talk about it now the better.
HMjr:
Well, as a matter of fact when these rights sell
at one point profit that's about as big as they've
ever sold, isn't 1t?
B:
Well, that's just about as big, yes, yes.
HMjr:
What?
B:
But I certainly wouldn't say anything about it,
because the market might be expecting something
different, you know?
HMjr:
Yes
B:
I think it is expecting a long bond.
HMjr:
Yes
B:
But I wouldn't mention it, I think. I think it
makes a bad impression.
HMjr:
Well, I tell you, the way - the last day or two,
I mean my confidence in the market has steadily
grown from the way the market has acted.
B:
Yes
HMjr:
I have never seen anything like it.
B:
Yes
HMjr:
And somebody drew my attention to what Moody said
here recently. I mean they said Moody had some
article about - that we're not going to sell many
more bonds.
B:
Yes
HMjr:
I didn't see it but somebody talked about it.
B:
Yes, yes
Regraded Unclassified
107 K
-6-
HMjr:
Well, I think we're all set.
B:
I talked to - oh, Morris Tremaine called me up
this morning.
HMjr:
How is my old friend Morris, the old lumber dealer?
B:
Oh, Morris is swell. Did you see the piece about
him in the New Yorker?
HMjr:
Oh, I loved it.
B:
Wasn't that a swell piece? (Laughs)
HMjr:
Oh, I loved it. You know I know Morris, I've
campaigned with him, you know, two campaigns?
B:
Yes
- he says - he says the New York State
budget is going to balance by next June or at
least the next calendar year.
HMjr:
There's nobody I'd rather tease than Morris Tremaine,
he has absolutely no sense of humor.
B:
He is great, isn't he? (Laughs)
HMjr:
Yes
B:
(Laughs) Yes
HMjr:
Did he have anything to say on the Federal thing?
B:
Oh he - yes, he
HMjr:
Yes, yes
B:
- that the budget would probably balance in thirty
eight.
HMjr:
Now the - the French thing - the French thing is
better today Lochhead tells me.
B:
They're simmering along.
HMjr:
Yes
B:
A million - two million
HMjr:
Yes - thank you.
B:
But -
1072
-7-
HMjr:
Well, I think we'll put the memeograph to work,
and we'll get the thing started.
B:
I think that's right.
HMjr:
Yes
B:
Yes
HMjr:
So, well - we'll all hold our breath.
B:
Well, we don't need to. I think we'll have a
splendid weekend and perfect confidence.
HMjr:
You feel very confident about this, don't you?
B:
Oh very, yes.
HMjr:
What?
B:
Very
HMjr:
Very?
B:
Yes
HMjr:
The President is very much pleased with it. I mean -
B:
I think it's just right.
HMjr:
He likes it.
B:
Yes, that's fine. I'm glad -
HMjr:
And he liked the reaction to the announcement of
four hundred million.
B:
That's fine.
HMjr:
Yes, he was very much pleased.
B:
Good
HMjr:
And - he's - you could tell from his announce-
ment, I mean he's -
B:
Sure
HMjr:
He's feeling very cocky.
B:
Yes, yes
107m
-8-
HMjr:
All right.
B:
Fine
HMjr:
Thank you.
B:
Goodbye
HMjr:
Goodbye - hello?
B:
Yes
HMjr:
I'm very very much obliged for all the help you
have given me.
B:
Oh, you're entirely welcome. It's been lots of
fun, hasn't it?
HMjr:
Yes, it has. But I appreciate all the time and
thought and energy.
B:
Well, thank you so much.
HMjr:
Goodbye
Regraded Unclassified
107 n
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Press Service
Saturday, September 5, 1936.
No. 8-29
9/4/36.
Secretary of the Treasury Morgenthau announced last evening that
the tenders for $50,000,000, or thereabouts, of 273-day Treasury bills,
dated September 9, 1936, and naturing June 9, 1937, which were offered
on September 2, were opened at the Federal Reserve banks on Septomber 4.
The total amount applied for was $140,137,000, of which $50,147,000
was accepted. The accepted bids ranged in price from 99.906, equivalent to
a rate of about 0.124 percent per annun, to 99.897, equivalent to a rate
of about 0.136 percent per annun, on a bank discount basis. Only part of
the amount bid for at the latter price was accepted. The average price of
Treasury bills to be issued is 99.901 and the average rate is about 0.130
percent per annun on a bank discount basis.
--000--
Regraded Unclassified
108
September 5, 1936
The Secretary having heard of the great number
of passengers who would be landing at the docks in New
York over the Labor Day holiday instructed Ballinger
to go to New York to represent him and see that the
people were treated courteously while the Labor Day rush
was on. He suggested that if necessary additional in-
spectors should be brought from Boston and Philadelphia.
Regraded
Unclassifi
109
HOTEL NEW YORKER
THIRTY FOURTH STREET AT EIGHTH AVENUE. NEW YORK
9/5/36
Dr. Mr. Graves:
I took the 11:00 a,m, a, m, plane
for New York; reached the Custom
House at 2:05 pm., and at 3:30
we had our program worked
out for Sunday, Monday and
Tuesday. I had called Mr.
street before baving Washington
and he had all necessary data
an ships and passengses
3.
For Twoday we have
agreed to assign all hispecta
to baggage duty except the
minimum required to make
necessary merchandize deliver
at the freight pier and to
supervise the work very closely,
making frequentshipts from
pies to pier as necessary. hear
as Tuesday is the big day I expect
toremain here until than and
it through I believe we CAM mi
the situation satisfactory without
active help, and would appreciate
if you could advise the Secretary to
that effect. Suncerely,
Regraded Unclassified
2,
ready for me when I arrived.
Summarized, the situation is
as follows:
Day
Sunday
ships Passengers
4
2919
Monday
7
2739
Tuesday
21
9156
Sunday and Monday offer
no serious difficulties. The
Queen Mary is the only big
shippin Monday) with 1925
nassengers,
TREASURY DEPARTMENT
110
INTER OFFICE COMMUNICATION
New York, New York,
WN
DATE September 8, 1936.
To Mr. Morgenthau, through Mr. McReynolds
FROM Mr. Ballinger
In line with our conversation on Saturday morning, September 5th,
I took the plane at eleven o'clock for New York, reached the Custom
House at five minutes past two where, through telephonic arrangements
made before leaving Washington, I met the Assistant Collector, the
Assistant Surveyor, and the heads of divisions in the Collector's and
Surveyor's offices who are responsible for the baggage work on the
piers.
There was also ready for me a list of the vessels due to arrive
on Sunday, Monday and Tuesday, the scheduled hours of arrival, and
the number of passengers they were carrying. With these data at hand,
we planned our program which has worked out very satisfactorily, as
will be indicated hereafter.
The work to be performed on Sunday and Monday offered no serious
problems. The steamer Statendam, which arrived at Hoboken Sunday
morning, carrying 1471 passengers, and the Queen Mary, which docked at
9:05 A. M. on Monday, were the only large vessels involved. The work
of inspecting and passing baggage moved smoothly and quickly, so that
with the exception of the Queen Mary, the piers were cleared and all
essential work completed within an hour and a half after the arrival
of each vessel and, in several cases, within one hour of the actual
docking time. In the case of the Queen Mary, she docked at 9:05 and,
with the exception of a few stragglers, all passengers and baggage
had been passed by 11:45. There were no calls for inspectors after
11:30. It can not be concluded from this that any passenger was
occasioned a wait of two hours and forty minutes, for all the baggage
was not discharged from the vessel until about 10:45, and at no time
did I see the passengers, whose baggage had been discharged, have to
wait more than a few minutes for an inspector.
Tuesday, of course, was the big day, with a total of something
over 9100 passengers disembarking at the Port of New York. The first
ship to discharge passengers was the Scythia which docked at 7:10.
Work was not started on this vessel by customs employees before eight
o'clock because the steamship company did not wish to pay extra for
overtime. By this time, however, all the baggage had been discharged
from the vessel and was placed on the dock ready for identification by
the passengers and inspection by the customs officers, with the result
that the work was virtually completed at 9,30. This was about the
average time required to complete the inspection of passengers' baggage
on all vessels docking during the day, except the Swediah-American line
111
- 2 -
ship, Kungsholm. The Kungsholm docked at 9,20 and all work vas
entirsly completed at 12:50, a. total elapeed time of three hours
and thirty minutes. There were 1220 passengers on the Kungsholm
and I particularly noted that baggage was still being discharged
from the hold of the vessel as late as 11:15.
By twelve o'clock I had personally visited seven piere and had
been currently advised by telephone of the progress made on all the
other piers, twenty in all, which were involved. In no case did I
observe a passenger who had to wait more than forty-five minutes for
a customs inspector after he got in line, that is to say, that 80
far as I was able to observe no passenger was delayed on account of
customs requirements longer than one hour from the time he had
located his baggage until the baggage had actually been cleared and
delivered. This maximum was only reached on the Kungsholm.
Most of the passengers seemed to accept the meeting of customs
requirements with very good grace. In the case of one man who was
particularly vehement in his protests that be had been required to
wait "hours" for customs inspection, I got him off to one side and
asked him to be perfectly frank and tell me just exactly how long
he had had to wait. After figuring it out very carefully, he found
that he had actually waited twenty-five minutes, whereupon he quieted
down and, inasmuch as the inspector had by that time passed his bag-
gage, left the pier with a smile. This was more or less typical.
There is the other side, however, where 8. passenger, 6.8 in the
case of one of the DuPonts who arrived this morning, disputed the
decision of an appraiser with respect to some silver he was import-
ing into this country, and thereby kept the appraiser and one inspec=
tor away from their normal duties for nearly three quarters of an
hour. This, of course, was 6. friendly dispute, no improper feeling
being displayed at all, but Mr. Dupont could not be satisfied until
he had consulted his attorney and had talked with the Deputy Surveyor
in Charge at the pier.
Considering the fact that approximately 9100 passengers were
involved, and that there were available at any one time not more than
270 inspectors for actual baggage examination work, or an average of
one inspector to every thirty-four passengers and that, 80 far M I
was able to observe, there vas no cause for complaint on any of the
piers, I feel that the customs employees are to be commended for the
manner in which they bandled a really difficult job. All the respon-
eible officers on the Surveyor's force, from the Surveyor on down,
except those whose duties required that they be elsewhere, were on
the piere doing overything they could to facilitate the movement of
the baggage. In its final analysis, the problem resolved itself
112
- 3 -
into one of careful planning and real supervision; rather than a
need for additional employees.
I do not wish to burden you with a detailed report, but I
have some ideas which, if they could be adopted, would, I believe,
permanently improve the existing conditions in New York, and which
I hope to present to you within the next few weeks.
OFFICE OF
THE SECRETARY OF THE TREASURY
113
Labor Day
Random and miscellaneous observations
suggested in connection with the
Reemployment program.
Perhaps further investigation will call
for revision of some of my first
ideas.
Upnt
1
Xreb in cus
golder +file
in Emp Relief S
September 7, 1936 114
For the Secretary:
The United States Employment Service followed up the
President's speech of yesterday with a telegram to their state
directors announcing the allocation of $2,500,000 forthe
intensification of employer-contacts and urging prompte action
in submitting estimates of funds needed for doing the Job.
Emphasis was principally on increased personnel and the
maintainence of high professional standards in the prosecution
of the task.
Following the allocation of $1,500,000 for reinterviewing,
the Employment Service sent out rather elaborate and detailed
suggestions for the conduct of the reinterviewing program, a
summary of interviewing procedure, a summary of reporting
procedure, and of procedures under the new WPA program. It is
to be "a professional job of high order". The bulk of the work
18 to be done by December 1 and the complete record must be
available by December 31.
(Curiously enough, at the very time that state directors
are being asked to submit estimates for additional
personnel to handle this program, the New York papers
complain of dismissal on four day notice of large
numbers of the staffs of the National "eemploysment
Service and State Employmemt Service in that state).
The WPA Bureau of Induatrial Relations in New York seems
to be going direct to industry in an effort to get business to
Regraded Unclassified
115
employ WPA workers. Whether there 18 any coordination between
its efforts and those of the Employment Service I do not know.
I shall want to talk to Colonel Somervell about that when I Am
in New York.
The United States Employment Service looks upon itself as
& long-time permanent agency to be developed slowly and soundly--
with the maintainence of professional standards as a major
consideration. Their emergency activities seem to be two ---
classification and clearance for PWA and WPA projects; and
furnishing workers to private industry. The matter with which
I am principally concerned, as I understand it, 1s the latter.
There are notable instances of contributions by the
Service to increases in private employment, or at least its
regularization. They have done well in instances of providing
strawberry pickers in North Carolina, waiters here and there
for hotel banquests, Saturday and holiday department store
help, and some more important enterprises, such as collecting
skilled workers for the Sun Shipbuilding outfit who are making
Coast Guard crusiers. With more time and money to devote to
visits to business men, the service of the USES can be improved.
They look on this mored as fitting men into proper jobs than as
astually increasing the number on payrolls. An increase in
placements by USES does not mean that employers have been
induced to add employees but merely that they have made use of
the Employment Service in 8 ecuring them. Better professional
practice, but no very substantial gain in terms of relief load.
116
Any gain is a gain, however, and there is something to
be said for intensifying the effort. There will not be very
much of anything growing out of the expenditure of $4,000,000
by the USES which will sink in on the public consciousness or
that of employers before the election. The intensified effort
will probably not be translated into increased visits to
employers for some weeks. First there must be job analysis,
labor reinterview (in the case of WPA workers) training of
new Employment Service personnel (which personnel will either
have to be dropped when the $4,000,000 is gone, or new money
will have to be secured to keep them at work), researches and
surveys, and professional standardization. In these things
there is more interest than in a quick mergency job of getting
men back to work.
(To redefine the operations and jobs in industry and trade,
to develop an accurate terminology, and B. reclassification
of occupations for statistical use, to construct from
existing materials a workable occupational index for use
in employment office placement work and in the compilation
of statistics for the labor market, to improve the
methods by which the presence of significant occupational
characteristics can be determined, -te-demonstrate under
Public Employment Service conditions the practical
usefulness of the techniques, classifications, standards,
and procedures developed by research --- these are the
sort of things which mean something to the professionals
in the Employment Service.)
Regraded Unclassified
117
(As an example -- one of the profound suggestions for
interviewing applicants 18 this: "It is usually recommended
that interviews be held at whatever time is convenient for the
applicant")
The New York Sun survey of employment reaches the same
conclusion which business organization has reached -- that
there is not nearly as much unemployment 88 generally supposed.
"Business", they say, If has been putting men back to work by
the millions". The two chedf reasons more have not been
put back to work are "ecessive taxation" and "the use of the
taxpayer's money to set up shop against the taxpayer".
Organized business will be busy the next month pounding those
two things Home, and are not likely to be much interested
in cooperating in a drive to reduce the load of unemployment and
relief.
The Rochester, New York Chamber of Commerce has probably
had as good experience as any in the matter of getting the
man who wants a job together with the employer. Their
experience should be valuable to us. I plan to go there.
Professor Schlicter writes with some force and illumination
in the September Atlantic on "how to encourage industry to
buy more labor". He says that the following policies are
needed:
1. To avoid for the time being general increases in
the price of labor. (You can't seil more labor by
raising its price o)
2. To reduce the fear of drastic deflation on the 118
part of business managers by making moderate cuts
in government expenditures and permitting the
increase in revenues still further to reduce the
deficit. The government is here confronted with a
delicate and important problem -- of reducing its
deficit so gradually B.B not to sacrifice gains in
production and employment which have thus far been
achieved. In order to accomplish this, the
curtailment in government expenditures must be
accompanied by policies designed to encourage
enterprise.
3. To abandon the policy of attempting to make
bauiness spend by the use of fear and compulsion
and adopt as an objective of public policy the
fostering of confidenee and the creation of B.
willingness among business men to take chances.
4. In order to make a given increase in the demand
for labor yield in the main new jobs rather than
longer working hours, to seek the cooperation of
industry in avoiding increases in the normal
working week above forty hours until unemployment
has been substantially reduced.
"There must be a substantial increase in the demand
for labor", he says, "and this increase can be
fostered only by policies which encourage business men
to take chances and to increase production rather
Upm
than to hold cash",
Regraded Unclassified
Dropt of the
tres speech
In the past it has been regarded as appropriate
on Labor Day to speak words of tribute to the accom-
plishments of the working man in making America great.
While giving new force to these tributes, let us regard
Labor Day as meaning more to us than that. It is more
appropriate, I think, to review the progress that has
been made toward reaching the goal that all of us ought
to seek - the goal of justice and fair opportunity for
the working man - and I think we should mean by fair op-
portunity that all who are able to work should find the
opportunity always available to engage in productive
labor for a recompense that will insure to them a decent
standard of living.
It is a goal that we have never reached. It is
particularly important that we should not lose sight of
it as we emerge from the depression. We seek not merely
the restoration of opportunities for a livelihood to
those who were forced out of work by business disruption,
but we are seeking to enlarge the opportunities of all
who labor in the more prosperous times that are ahead of
us. We believe that prosperity must be shared so that it
may be an enduring prosperity.
In the emergency with which we have had to doal
120
- 2 -
the Federal Government has accepted. - and willingly ac-
cepted - new responsibilities. It has found work on
great public projects of real worth to the nation, to the
states and to localities, for millions of men. Through
co-operation with states and localities we are still em-
ploying on these emergency public works more than three
million workers.
But industrial activity is reviving rapidly.
Employment in private industry too is reviving. Industry
in the last year has shown B. gain of approximately a
million workers and an increase of almost forty-two mil-
lion in the amount paid out in weekly wages.
We can not and will not surrender our responsi-
bility for providing useful work through governmental action
for those who seek it and are in urgent need of it. We
have had ample proof that this is the will of the Ameri-
can people; that those who represent them in national,
state and local governments should continue to discharge
their responsibility to the unemployed. But at the same
time we have another responsibility and it is one that
we are well prepared to assume. We must facilitate, so
far as we can, the return of workers to private industry
and safeguard them in their employment when it is obtained.
121
- 3 -
The opportunity and the responsibility of
government in this direction was recognized from the
very first by this administration. Early in the summer
of 1933, Congress enacted a law, sponsored by Senator
Robert F. Wagner, of New York, and by Representative
Theodore A. Peyser of that state, establishing the United
States Employment Service. This measure, for the bene-
fit of labor, was among the first of the constructive
achievements of the present Administration designed to
advance the general social welfare. It is a permanent
agency, useful not only during the emergency period, but
for the years ahead.
In our endeavor to meet this problem, we have pro-
ceeded in the traditional way which is suitable to a
democracy and to America. It is a cooperative enterprise.
It seeks the active support of the States and the local
governments; it asks for and has a right to expect the
cooperation of the laboring man and the employer. For
the problem of placing workers in occupations for which
they are suited 1s not one for the Federal Government
alone, but is the common problem of us all.
In this work the Federal Government matches,
dollar for dollar, the funds provided by States and local
subdivisions. Already there are thirty-six State Em-
ployment Services in operation. The areas not covered
Regraded Unclassified
122
- 4 -
by the state services are served by the Federal Govern-
ment through the National Reemployment Service, which
will gradually retire from the field as the state services
are developed to meet the needs of the working men of the
country.
At present we have a nation-wide reemployment
service with some seven hundred district offices, and
with a thousand additional branch offices. In every com-
munity there are facilities through which labor has an
opportunity to learn of jobs available and employers can
have access to labor supply.
The need for a free employment service has long
been felt in the United States. With such a service in
efficient operation the workingman need no longer be
exploited in his search for employment. No longer need
he travel the country over in illusory wandering after
jobs which always seem to travel just a little faster than
he does. The wasteful methods heretofore followed con-
stitute an interference to the smooth operation of in-
dustry and work an unnecessary hardship on the workers.
Victimization of the laborer through fraudulent practices
with which workers are familiar can be ended.
We can not ask that the workers of America be
Regraded Unclassified
123
- 5 -
confined for their lifetimes to one place. They must move
as industry moves. From that necessity arises the respon-
sibility of the Federal Government and the States to assist
them in an orderly employment shift so that neither they
nor the industrial communities will experience the chaotic
conditions of the past. Thus will the welfare of labor and
of the country as a whole be promoted.
The Federal Government can not create jobs in
private industry. That is the task of business itself.
In my relief message of March 18, 1936, I expressed dis-
satisfaction with the rate of progress of reemployment.
I invited private business to cooperate in extending its
operations and absorbing an increasing number of the un-
employed. Only in that way can we expect to reduce the
relief burden on the Government.
We have made outstanding progress since then. We
must make more. I renew my suggestion of last March to
the managers of private business that they accept respon-
sibility of further efforts toward increased employment.
I renew my pledge of the cooperation of all the ap-
propriate agencies and departments of the Federal Govern-
ment. And specifically I propose to strengthen, intensify,
and broaden the services of the United States Employment
Service in making that cooperation effective. It is the
Regraded Unclassified
124
- 6 -
bridge between the millions of unemployed workers on the
one side and the waiting work opportunities on the other,
the connecting link to a real job with real wages.
This bridge has been much used during the past
three years. For the three years ended June 30, 1936,
the United States Employment Service has in three and a half
million instances found either temporary or regular jobs
in private industry for workers registered with it. In
addition, this agency made placements in twelve and a.
half million instances on relief work and public works
projects.
What is the work of the United States Employment
Service, and how can it be strengthened to help the
laboring man get a job for which he is fitted and the
employer to get satisfactory workers? The service of
this agency is two-fold. On the one hand it serves the
working man. The unemployed are registered with the United
States Employment Service. A complete record of the
experience and aptitude of each man is maintained and
kept as nearly as can be up to date. We know that men
are available for every line of work and where they
can be located. Naturally it is a tremendous task to keep
these records current and accurate. The men who are seek-
ing jobs can be of great help in this if they will co-
Regraded Unclassified
- 7 -
125
operate with us, Men who get jobs can help by re-
porting their changed status.
On August 25th I announced that I had allocated
an additional $1,500,000 to the United States Employment
Service for the purpose of getting better and more recent
information from those now actively at work on WPA projects.
Their records will then be brought up to date and kept
in a condition for maximum use and serviceability in
making these as well as all other applicants available
to industry.
I am now announcing the allocation of $2,500,000
to enable the Employment Service to make a more intensive
search for opportunities for work.
Here is the place for cooperation by industry.
We know that the Employment Service can be of practical
benefit in providing labor when and where needed. The
records of the office show that the curve of placements
in private industry rises and falls with increases and
decreases in the number of field visits made by the
staff of the Employment Service. The more frequent the
contact with private business, the higher the rate of
placements by the Service with industry.
Through the allocation of an additional two and
half million dollars for the intensification of this
contact work, we are carrying out our part of the respon-
sibility. We are offering to business an enlarged op-
Regraded
126
- 8 -
portunity in the absorption of the unemployed, and a
specific method of cooperation. We shall expect to be
met half way in this endeavor by both the employer and
the worker.
One other word about the United States Employ-
ment Service. It will have an important responsibility
in connection with the Social Security program which is
just getting under way for the permanent benefit of the
laboring man and the economic benefit of the country as
B. whole. And just as in the case of its emergency ac-
tivity, the set-up 1a that traditional in the American scheme
of government. Here too the effort is cooperative. The
State is the unit of administration. As unemployment
compensation laws are enacted by the States, and bene-
fits are paid to workers unwillingly out of work, em-
ployees covered by this legislation must be registered
with the United States Employment Service. The record
of their periods of unemployment will be maintained by
this agency for the use of the administrators of the Social
Security program.
Already in one State - Wisconsin . - payments have
begun to unemployed under the state compensation act.
The Federal Government has provided relief for
the unemployed laborer, and it is right that we should
127
- 9 -
have done so. You and I know that the burden of re-
lief must be lightened. You and I know that the un-
employed worker prefers private employment to public
relief. The Federal Government proposes to do its ut-
most in making for all possible speed in providing re-
employment by being of maximum assistance to the worker
in placing his abilities at the service of industry,
and in being of like assistance to the employer in his
search for labor as he meets his responsibility to the
country for increased private employment.
--000--
127A
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS, -
Press Service
Tuesday, September 8, 1936,
No. 8-30
9-5-36
Secretary of the Treasury Morgenthau is today offering for subscription,
at par and accrued interest, through the Federal Reserve banks $400,000,000, or
thereabouts, of 20-23 year 2-3/4 percent Treasury bonds of 1956-59, with the
right resorved to the Secretary of the Treasury to increase the offering by an
amount sufficient to accept all subscriptions for which 1-1/2 percent Treasury
notes of Series D-1936, maturing September 15, 1936, are tendered in payment and
accepted.
The Treasury bonds of 1956-59 now offered for cash, and in exchange for
Treasury notes maturing September 15, 1936, will be dated September 15, 1936, and
will bear interest from that date at the rate of 2-3/4 percent per annum payable
semiannually. They will mature September 15, 1959, but may be redeemed at the
option of the United States on and after September 15, 1956.
The Treasury bonds will be accorded the same exemptions from taxation as
are accorded other issues of Treasury bords now outstanding. These provisions
are specifically set forth in the official circular issued today.
The bonds will be issued in two forms, bearer bonds with interest coupons
attached, and bonds registered as to both principal and interest: both forms will
be issued in the denominations of $50, $100, $500, $1,000, $5,000. $10,000 and
$100,000.
Applications will be received nt the Federal Reserve banks and branches,
and at the Treasury Department, Washington. Banking institutions generally may
submit subscriptions for account of customers, but only the Federal Reserve banks
and the Treasury Department are authorized to act as official agencies. With
respect to cash subscriptions, applications from banks and trust companies for
Regraded Unclassified
M 2 -
their own account will be received without deposit but will be restricted in each
case to an amount not exceeding one-half of the conbined capital and surplus
of the subscribing bank or trust company. Cash subscriptions from all others
must be accompanied, if for $5,000 or less by payment in full; and, if for more
than $5,000, by payment of 10 percent of the amount applied for, but not less than
$5,000. With respect to exchange subscriptions, such subscriptions should be
accompanied by a like face amount of 1-1/2 percent Treasury notes of Series
D-1936 tendered in payment.
Subject to the reservations set forth in the official circular, cash sub-
scriptions for amounts up to and including $5,000 will be given preferred allot-
nent, cash subscriptions for amounts over $5,000 will be allotted on an equal
percentage basis, but not loss than the maximun preferred allotment, and exchange
subscriptions will be allotted in full. Payment for any bonds allotted must be
made or completed on or before September 15, 1936. The right is reserved to
close the books as to any or all subscriptions or classes of subscriptions at
any time without notice.
In order to provide an equitable allotment and distribution of the bonds
among all classes of subscribers, all banking institutions and others concerned
are again urged to cooperate in the manner outlined in Department letter of
May 27, 1936, addressed to the President of each Federal Reserve bank and made
public at that time.
Inverest on the public debt to the amount of about $155,000,000 is payable
on September 15, 1936. The amount of Treasury notes of Series D-1936 maturing
on September 15, 1936, which may be exchanged for the Treasury bonds now offered,
is $514,066,000.
The text of the official circular follows:
Regraded
UNITED STATES OF AMERICA
2-3/4 PERCENT TREASURY BONDS OF 1956-59
Dated and bearing interest from September 15, 1936
Due September 15, 1959
AT THE OPTION OF THE UNITED STATES AT PAR AND ACCRUED INTEREST ON AND AFTER
SEPTEMBER 15, 1956
Interest payable March 15 and September 15
1936
TREASURY DEPARTMENT,
Department Circular No. 567
Office of the Secretary,
Washington, September 8, 1936.
ablic Debt Service
I. OFFERING OF BONDS
1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, approved September 24, 1917, as amended, invites subscriptions, at
par and accrued interest, from the people of the United States for 2-3/4 percent
bonds of the United States, designated Treasury Bonds of 1956-59. The amount of
the offering is $400,000,000, or thereabouts, with the right reserved to the
Secretary of the Treasury to increase the offering by an amount sufficient to
accept all subscriptions for which Treasury Notes of Series D-1936, maturing
September 15, 1936, are tendered in payment and accepted.
II. DESCRIPTION OF BONDS
1. The bonds will be dated September 15, 1936, and will bear interest from that
date at the rate of 2-3/4 percent per annum, payable semiannually on March 15 and
September 15 in each year until the principal amount becomes payable. They will
zature September 15, 1959, but may be redeemed at the option of the United States
on and after September 15, 1956, in whole or in part, at par and accrued interest, on
any interest day or days, on 4 months' notice of redemption given in such manner as
the Secretary of the Treasury shall prescribe. In case of partial redemption the
bonds to be redeemed will be determined by such method as may be
- 2 -
prescribed by tho Socretary of the Treasury. From the dato of redemption dosig-
anted in any such notice, interest on the bonds callod for redomption shall conso.
2. The bonds shall be exempt, both as to principal and interest, from all
terntion now or hereafter imposed by the United States, any State, or any of the
possessions of tho United States, or by any local taxing authority, except (a)
estate or inhoritance taxos, or gift taxos, and (b) graduated additional income
taxos, commonly known as surtaxos, and excess-profits and war-profits taxes, now
or hereafter imposed by the United States, upon the income or profits of individuals,
partnerships, associations, or corporations. The intorest on an amount of bonds
authorized by the Second Liborty Bond Act, approved September 24, 1917, as amended,
the principal of which does not exceed in the aggrogato $5,000, owned by any
individual, partnership, association, or corporation, shall be exempt from the
taxes provided for in clause (b) above.
3. The bonds will be acceptable to socuro deposits of public moneys, but will
not boar the circulation privilogo and will not be entitled to any privilogo of
conversion.
4. Bearer bonds with interost coupons attached, and bonds registered as to
principal and intorest, will be issued in donominations of $50, $100, $500. $1,000,
$5,000, $10,000 and $100,000. Provision will be mado for the interchango of bonds
of different donominations and of counon and registered bonds, and for the transfor
of registered bonds, under rules and regulations prescribed by tho Secretary of the
Treasury.
5. The bonds will be subject to the general regulations of the Treasury
Department, now or horcafter proscribed, governing United Statos bonds.
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Fodoral Reservo banks and branches
and at the Treasury Department, Washington. Banking institutions generally may
Regraded Unclassified
- 3 -
submit subscriptions for account of custorers, but only the Federal Reserve banks
and the Treasury Department are authorized ti act 08 official agencies. Others
than banking institutions will not be por. itted to ontor subscriptions except for
their own account. Cash subscriptions from banks end trust corpanios for thoir own
recount will be received without doposit but will be restricted in each case to en
want not excooding ono-half of the combined capital and surplus of the subscrib-
ing bank or trust company. Cash subscriptions from all others must be accompanied,
If for $5,000 or loss by payment in full; and, if for more then $5,000, by payment
of 10 percent of the amount of bonds applied for, but not loss then $5,000. The
Secretary of the Treasury reserves the right to close the books as tc any :r all
subscriptions or classes of subscriptions at any time without notice.
2. The Secretary of the Treasury reserves the right to reject any subscrip-
tion, in whole or in part, to allot loss than the amount of bonds applici for, to
take allotmonts in full upon applications for smaller amounts and to nake reduced
allotments upon, or to reject, applicati ns for largor amounts, or to adopt any or
011 of said mothods or such other mothods of allotment and classification of allot-
cents as shall be doccod by his to be in the onblic interest; and his action in any
Dr all of these respects shall be final. Subject to those reservations, cash sub-
scriptions for amounts up to and including $5,000 will be given proferred allot-
pent; cash subscriptions for amounts over $5,000 will be allotted on an equal por-
contago basis, but not loss than the axim proforred allotiont; and subscriptions
E payment of which Troasury Notes of Sories D-1936 nro tendored will be cllottod
n full. Allotment noticos will bo sont out promptly uron allotmont, and the
asis of the allotmont will be publicly announced.
IV. PAYMENT
1, Payment at par and accrued interost, if cry, for bonds cllotted on cash
mbscriptions must be tade or completed on or before September 15, 1936, or on later
- 4 -
allotment. In every case where payment 18 not so completed, the payment with
application up to 10 percent of the amount of bonds applied for shall, upon doclara-
tion cade by the Secretary of the Treasury in his discretion, be forfeited to the
United States. Any qualified depositary will be permitted to make payment by
crodit for bonds allotted to it for itself and its customers un to any amount for
which it shall be qualified in excess of existing deposits, when 80 notified by
the Federal Reserve bank of its district. Treasury Notes of Serios D-1936,
naturing September 15, 1936, will be accepted at par in payment for any bonds
subscribed for and allotted, and such payment should be cade when the subscription
is tendered.
V. GENERAL PROVISIONS
1. As fiscal agents of the United States, Foderal Reserve banks are authorized
and requested to receive subscriptions, to nake allotments on the basis and up to
the anounts indicated by the Secretary of the Treasury to the Federal Reserve banks
if the respective districts, to issue allotment notices, to receive payment for
bonds allotted, to malce dolivery of bonds on full-paid subscriptions allottod, and
they may issue interin receipts pending delivery of the definitive bonds.
2. The Secretary of the Treasury may at any time, or from timo to time, pro-
scribe supplemental or amendatory rules and regulations governing the offering,
which will be comminicated promptly to the Federal Reserve banks.
HENRY MORGENTHAU, JR.,
Secretary of the Treasury.
Regraded
Unclassified
127B
Tuesday
September 8, 1936
9:07 a. m.
W.R.
Burgess:
The maturing issue - the rights are selling at
a hundred one eight to welve.
HMjr:
A hundred and one eight to twelve?
B:
Eight to twelve thirty seconds -
HMjr:
Well, that's way up, isn't it?
B:
Yes
HMjr:
What?
B:
That's up about - it was a hundred - about a hundred
and one at the close, you know?
HMjr:
Well, is that - that's the best indicator, isn't
it?
B:
That's the best indicator. It means they've priced
the new issue over a hundred and one, in fact a
hundred and one and a quarter.
HMjr:
They've priced it at a hundred and one and a quarter?
B:
Yes
HMjr:
Well, that's just what we priced it at.
B:
That's right - just exactly.
HMjr:
You saw the -
B:
The rest of the bonds are just the same as they were.
There was a report that some of those other bonds
might come into the market a little bit.
HMjr:
Which other ones?
B:
Oh, the two and seven eighths and the old two and
three quarters, that would be natural - in
switching from the old to the new.
HMjr:
Yes - well, I would just as leave pick up a few.
B:
Well, C don't think there is any occasion to. I
think that we'd better settle down
-
127C
-2-
HMjr:
What?
B:
I don't think there is any need to at all.
HMjr:
All right
B:
Now the notes look strong.
HMjr:
The notes?
B:
They would, yes.
HMjr:
What notes ?
B:
The thirty-eight and thirty-nine and forty
HMjr:
Oh, the ones that - ?
B:
Yes
HMjr:
The old ones, you mean?
B:
That's right, yes
HMjr:
Yes
B:
Yes, yes, yes
HMjr:
Oh, this morning - I mean I'm as sure of that as
of anything I've done this morning.
B:
Oh, this is bound to be a success.
HMjr:
And I think it was smart to make it just the twenty-
three years instead of the twenty-five.
B:
I think it's just right.
HMjr:
What?
B:
I think it's just right.
HMjr:
Fine- how's your golf?
B:
Oh, just fair -
HMjr:
Just fair?
B:
Fair -
HMjr:
All right, I'll talk to you when I ccme back from the
White House.
Regraded
127
-3-
B:
Very good
HMjr:
Thank you.
Tuesday
September 8, 1936
10:20 a. m.
HMjr:
-
on the conversions, should I - do you want
them to close Thursday night or Friday night?
Burgess:
Well, I hadn't thought much about that.
HMjr:
We're announcing them tonight.
B:
Yes
HMjr:
That would give them Wednesday and Thursday.
B:
We close the cash tonight, presumably.
HMjr:
Presumably -
B:
I think - I think Thursday night is going to be
time enough.
HMjr:
You people don't like to run over the Friday, do you?
B:
No, I'd rather not.
HMjr:
I did it last time. I think - I think Thursday
is -
B:
Of course last time it was Thursday but we opened
Monda y, so we gave them four days. Let me turn
that over a bit, may I?
HMjr:
Please - please - all right.
B:
Very good.
HMjr:
Thank you.
127E
Tuesday
September 8, 1936
10:55 a.m.
HMjr:
Do you want a little gossip?
W.R.
Burgess:
Yes
HMjr:
Why, one of the bright newspaper men around town
said I didn't take the recommendation of the
Open Market Committee, they r ecommended a thirty
year two and a half per cent bond.
B:
(Laughs)
HMjr:
I thought you'd like that.
B:
That's swell.
HMjr:
What?
B:
Thet's swell.
HMjr:
Yes
B:
No other committee can say you didn't take their
recommendations.
HMjr:
When will you have - when will you have your first
information?
B:
Oh, I've got some right now, but it's nothing -
there's nothing in practically -
HMjr:
All right.
B:
- Up until eleven fifteen -
HMjr:
Yes
B:
Forty-five million -
HMjr:
Yes
B:
That includes thirty-eight million in the Manu-
facturers' Trust.
HMjr:
You mean these are new orders?
B:
Yes - then the Chase has come in for their full -
their full allotment.
127
F
-2-
HMjr:
They have?
B:
Yes
HMjr:
Well, that's good.
B:
-
take up the surplus.
HMjr:
How much can they take?
B:
They can take -
HMjr:
A hundred million?
B:
- pretty close to a hundred million, yes.
HMjr:
That's all right.
B:
Yes, yes
HMjr:
All right
B:
There's no question about it of course.
HMjr:
0. K.
B:
Right
HMjr:
Goodbye.
Regraded Unclassified
127G
127
Tuesday
September 8, 1936
11:38 a. n.
1. R.
Burgess:
Hello - I thought you'd be amused by the sub-
scriptions we've received so far.
HMjr:
What's that?
B:
I thought you'd be amused by the subscriptions
we've received so far.
HMjr:
Please-
B:
Three hundred and thirty-two million -
HMjr:
Yes
B:
Let me read you the items on that.
HMjr:
B:
Central Savings Bank ten million -
HMjr:
Who are they?
B:
Oh, one of the savings banks here.
HMjr:
Savings bank?
B:
Up in town I think it is.
HMjr:
Yes
B:
Chase a hundred million
HMjr:
Just a minute - a hundred?
B:
Corn Ex - fifteen million -
HMjr:
Corn Ex - how much?
B:
Fifteen
HMjr:
Yes
B:
Immigrants' Industrial Savings Bank - twenty
HMjr:
Immigrants' - ?
B:
Now that amuses me
-
127 H
-2-
HMjr:
Yes
B:
- because that's the bank that told Gordon
Rentschler on Saturday or Friday they wouldn't
take any, you know, they weren't interested?
HMjr:
Yes
B:
(Laughs)
HMjr:
Yes
B:
Then the American Banking Corporation three
million -
HMjr:
Yes
B:
National City Bank eighty-four million -
HMjr:
Weren't they cutting corners - National City?
B:
No, I don't think so.
HMjr:
Yes
B:
I think they just decided they hadn't had enough.
HMjr:
Yes
B:
The Oklahoma
eight -
The
Manufacturers' Trust Company thirty two thirty
eight.
HMjr:
Is that their limit? - Manufacturers' -?
B:
Yes, I think SO. Yes, their capital is about -
HMjr:
Thirty-four -
The Oklahoma took how much?
B:
Light
HMjr:
Eight?
B:
Eight million - Those are just the large sub-
scriptions I read.
HMjr:
Well now, you haven't got the Bankers yet, - Trust -
B:
No, we haven't heard from half of them yet.
HMjr:
Yes.
127 D
-3-
B:
This is just the first flash, you know.
HMjr:
And you haven't heard from the Treasury yet either.
B:
(Laughs)
HMjr:
How about the Federal Reserve
-
how much did
they take?
B:
Well, we're going to exchange all of ours.
HMjr:
Oh, I see, that's right.
B:
Yes
HMjr:
That's right, - that's right.
B:
Yes, yes
HMjr:
That's right
-
Is George back?
B:
Well, we expect him some time today. I haven't -
HMjr:
Well, tell him -
B:
- heard from him yet, though.
HMjr:
- when he gets back to give me a ring.
B:
Right
HMjr:
Now, you see you go to lunch now, don't you?
B:
Yes, I'm going up to lunch, I'll be in the building.
HMjr:
0. K.
B:
As soon as he comes up I'll hear from him.
HMjr:
Thank you.
B:
First rate.
1275
Tuesday
September 8, 1936
2:13 p. m.
N.R.
Burgess:
Well, she's over the top.
HMjr:
I've got this sheet in front of me that Harris is
running for me, showing what the Banks - the first
hundred banks are taking.
B:
Oh yes
HMjr:
And I don't see any yet that haven't taken their
full amount.
B:
No, I haven't (Laughs) I haven't seen any yet.
HMjr:
I haven't got - I haven't got - where is the
big fellow here, the Guaranty?
B:
No, I haven't seen that yet.
HMjr:
Yes
B:
We haven't got that yet.
HMjr:
No, but everybody else up to now has got his full
amount.
B:
Yes, I think they're taking it. Have you got
reports from the country yet?
HMjr:
No, at two thirty when I get them I'll call you.
We get a two-thirty, a three-thirty and four-thirty.
B:
Yes, I see, yes - yes
HMjr:
And as I get them I'll pass it along.
B:
We've oversold the issue right here, you know.
HMjr:
Oh, have you?
B:
Oh yes
HMjr:
How much?
B:
Eight hundred and forty-two at two o'clock.
HMjr:
How much?
B:
Eight hundred and forty-two
127K
-2-
HMjr:
Yes - well, that's nice.
B:
That's very pretty.
6Mjr:
Yes
B:
Almost too nice.
HMjr:
Well, you saw what the Wall Street Journal said,
eight per cent?
B:
Yes, that's right. That may be about right,
I don't know.
HMjr:
Yes
B:
I think that's a little bit low.
HMjr:
Well, I just want to se the first bank that doesn't
take its full amount.
B:
(Laughs) No, they're all coming in.
HMjr:
Well, - is anybody down there worrying about the
pound and the franc?
B:
Well, they say they're a little jittery today, but
I haven't heard very much about it today.
HMjr:
I see. You know - did you know the pound is over
505?
B:
Yes, yes -
just a sixteenth.
HMjr:
Well, when I hear Burgess, I'll give you a ring.
B:
Thanks a lot.
HMjr:
Right
B:
Goodbye.
Regraded Unclassified
128
September 8, 1936
Dear Arthur:
Thanks for your letter of September 1. I appre-
ciate the friendly spirit in which it was written and
an amswering in the same mood.
I am more than glad to take your word as publisher
of the New York Times and as my friend of many, many
years standing that no thought of unfairness or unkind-
ness toward me could emanate from you. Because you
are 80 completely straightforward I felt I could dis-
cuse this matter with you and was sure that you would
understand my position.
Strangely enough, I am not particularly sensitive
to newspaper attacks and this was the first one that
really got under my skin in a long time. I expect
attacks from anti-Administration papers and some from
friendly papers who disagree with certain Treasury
policies, but an attack by innuendo from & paper which
I had thought of as not hostile to me came as & great
shock. I quote Just one sentence which I think tells
the whole story: "If either was placed in charge of
the Government's fiscal policy, the President would
immediately get praise from citizens who haven't had
any to give him for three years."
I an glad that Arthur Krock saw fit to praise
Jesse Jones and Joe Kennedy for both have done a good
job and it is certainly helpful to the President to
have his able administrators receive recognition. If
that had been the one main motive behind the article,
I think the people about me and the newspaper boys
would not have inquired, "Why is Krook trying to get
the Secretary?" and, "Is this another boom for Kennedy
or Jones?"
When it comes to attacking the tax bill or any
other policy with which the New York Times disagrees,
129
+
that is of course an entirely different matter. It
doesn't seem to no that it would have been wise for
the Times to have urged my removal or to have conducted
a campaign against no personally on that soore, but at
least if they had done 60 it would have been a definite,
open attack. Many anti-Administration papers, and
papers such as the Wall Street Journal and the New York
Tribune, which have attacked certain of our fiscal pol-
101es, have not attacked no personally; in fact, have
had occasion to praise my conduct of Treasury affairs.
In a job as grueling and difficult as mine, it is rather
comforting sometimes to feel that an appraising critic
thinks you are doing your work well.
Let me say again that if nothing vas meant by that
article I am more than glad to take your word for it.
As over yours,
Mr. Arthur H. Sulzberger,
Publisher, The New York Times,
239 west 45rd Street,
New York, New York.
attach reply
The Hew York Times
700 130
Times Square
file
HAYE SULZBERGER
MASHER
September 1, 1936
Dear Henry:
I always thought that I was fairly touchy but,
with your permission, will hand over the laurels to
you -- that by way of introduction instead of calling
you all the endearing names which I am thinking of
but which, in view of your cockeyed outlook (if one
may use that Republican word to you without offense)
you might be inclined to take seriously.
You object, I understand, to Monday's editorial
"Mr. Coolidge Can Help" in which The New York Times -
not Mr. Krock - said: "There are many influential
people in business and finance who were disturbed
over his departure, fearing that it meant B. burst of
fiscal radicalism which, though it did not come, still
seems to these uneasy persons to remain 8. greater
possibility with men like Mr. Coolidge leaving the
fight against 1t." It seems almost inconceivable
to me that anyone should question the correctness of
this statement. Such people do exist. In case you
don't know 1t, I will be glad to introduce you to
any number of them, although they are not partiou-
larly my friends, and they represent an important
part of the New York community. Personally, I fail
to see that this is a reflection of any kind upon the
Treasury, or upon the Secretary of the Treasury. It
is a calm statement that during 8. time when feeling
ran high there were certain groups who regretted the
passing of one who was regarded as a conservative.
It is as close to a factual statement 8.3 any that
could be made unless it were to say "Mr. X., Mr. Y.
and Mr. z. were disturbed over Mr. Coolidge's de-
parture".
Let's turn for a moment to Mr. Krock's September
and Mr. Kennedy are the special pets of the Repub-
1st article. Don't you really know that Mr. Jones
licans? Don't you realize that the administration's
- 2 -
131
fiscal policy is the subject of criticism both by
conservative Democrate and Republicans? And can't
you see that what Mr. Krock was trying to show was
that despite this criticism these men would be strong
enough to overcome it with the particular groups
that he was discussing?
I am willing to concede that there might have
been B sentence or a word included which would indi-
cate that the Treasury in our judgment was being
well administered now, but, frankly, that did not
seem to me to be necessary when I read the article
before it was published, since its subject was Mr.
Kennedy and Mr. Jones and not Mr. Morgenthau.
You made some reference to me about the tax bill
which I did not quite understand. I don't know why
it comes up for discussion here. The Times certainly
indicated that it did not like it. It thinks it
the most un-American, destructive piece of legislation
which it has witnessed in many 8. long day and because
of it, came extraordinarily close to the determination
to support anyone who was put up by the Republicans
this year in preference to Mr. Roosevelt. If we had
wanted to urge the removal of the Secretary of the
Treasury, there could not have been a more opportune
time for it than when this particular tax bill was
under consideration.
Yourstatement that The Times has never been
friendly to you leaves me nonplussed. You seem to
overlook the fact that you are an important part of
an administration which has done some things that
both affronted and horrified us. You know that very
well from the conversations that I have had with you.
You, on the other hand, by the way in which you have
conducted your department and not because I regarded
and still regard you as my friend, have not only been
free from criticism, but have on plenty of occasions
been applauded. I again direct your attention to
the fact that in the more than customarily active
campaign that we conducted against the tax bill there
never was an unfriendly word written against you.
As I said at the beginning, I hand the laurel
wreath to you.
As always,
anim
Hon. Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
g not mare.
132
Dear Arthur;
Thanks for your letter of September 1. I appreciate
the friendly spirit in which it was written and will reply
in the same vein.
In regard to Arthur Krock's column of September 1 --
after three and one-half years in Washington I think I can
recognize the Washington method of getting one's man.
Krock's sudden burst of enthusiasm for Mr. Jones was
motivated by what? The whole tone of the column reeks
with innuendo and insincerity.
I am more than glad to take your word, as publisher
of the New York Times and as my friend of many, many years
standing, that no thought of unfairness or unkindness would
or could emanate from you in regard to myself. You, how-
ever, have not lived in Washington in the same atmosphere
as I have and if you don't mind my saying so, I wonder if
you really realize what was in the back of Krock's mind
when he wrote his column.
I accept the wreath which you 60 generously offer me,
but may I suggest that you look into the "Greeks who write
columns.
Yours sincerely,
Draft of proposed letter for Secretary's signature.
133
Dear Arthur:
Thanks for your letter of September 1. I appreciate the friendly
spirit in which it was written and I am replying in the same mood.
I can not accept the laurel wreath. Not only will it be against
my touchy rules, but I don't feel it to be deserved.
Quite seriously and after most sober reflection, I an still con-
vinced that I WELS right and you were wrong about the motive behind both
the editorial and the column. I am further convinced by the reaction of
others here in Washington, reported to me since I talked to you. It is
probably because of your own straightforward nature that you do not realize
or recognize the methods that are sometimes used
in Washington to
reach a desired objective. I should like to have the opportunity to talk
this over with you some time. I might even discuss with you the meaning
of the word "cookeyed", which, as I take it, has the implication of appear-
ing to look in one direction while actually looking and moving in another.
Believe me, Arthur, that I am not motivated only by the desire to
protect my own name and place; I also want to see you do a good job.
Sincerely yours,
at 1 rust if 30 Than had done so
134
it would how man a definits
open attack. they ant. st adminitration
suchas newall
pepers, and attached papms, which have
not agreed with cartain m act of one
have not attached are personally
fiscal policias lieus had occasion
to proure my conduct of Trzasay
attains, 9th a job as grualling and
difficult as nine it is Rathur
compating sometimes to faul that
an approus us cuitic Thanks you
are doing your work wall
Lat the say agam Thutil
ho They was meant by
lan moisther glad to take you word Washmoton fur
but of you hat lund As w you yours
OFFICE
OF
TREASURY DEPARTMENT
WASHINGTON
THE SECRETARY
when it coms to a Hacky
the tay bill or anything 9/24/7
any other policy with which the
n.y. Tums disaphes that is of
Comm an autires different matter.
twould hever a ypact The no
Ruson a pownful organ 07 pathe
that it has It doesn't 82am to
oprion togree with you
mr that it would have been
Wese for the Times to have
unserd my Ramooal or to have
her parsonally ou that SCOLE, but
conducted a call paiqu agreement
Regraded Unclassified
1.
135
OFFICE
OF
TREASURY DEPARTMENT
WASHINGTON
THE SECRETARY
The
Dd after was plaird in change of government
preuments fiscal policy the Presedent would
immediately gat poants now cite gams
/
who haven't had any to gur lum for Three yours
I
Dam Cuthur
Thunks for your latter 7 Sap 1. /
appre cak the friendly spirit in which it
has written and am awarming us The same
mood.
1 are unre Than glad to
take word as of the 4.4 Tuns news
and your hind of many way informance -
standing as me that no that of
or euk Induess toward Bruwn we could you
are
9 movath housen your nature uso
so comptate, straight forward that
you world never uve that
( falt 1 could abscurs This matter with
buid astand my position STRawal
you and wassure That you would
anough law not particulars
Sausature about to hewspaper attacks
and This was the first one that
eventure we skin m there
yours. laxpact ottacks now anti
administration pupan, , or or 900m
pow hiands papare who disaphee
with caNam treasure policies,
but tdo not an Halk by
from a paper which
that that of as not host to
mz, came as a gRant shock - /
Regraded Unclassified
OFFICE
OF
TREASURY DEPARTMENT
136
THE THE SECRETARY
WASHINGTON
quote just the square Which
(Hink talls the which store "(quote
law glad A.R. saw Pit to prown
J.J. t J. R. for both have done a
to have Phe adu. the PRESIDENT to
Good Jot and it is cattainly helpful
hour his able odur instructions brew Becar
Ricog nigation. It that had
the mam moture bahand the
artick thank the people
about me and the newspaper
" IS Krock they my taur.
bags would not hour to required
Secritary and for boom? whom 2 11
the this another
137
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: September 8, 1936, 8 p.m.
NO.: 843 FROM COCHRAN.
I refer to my telegram No. 833 of September 5, noon.
At six o'clock o' this evening the French Minister of
Finance handed to me the French text of the document in
question; I am making an English translation of the
document and tonight Rueff will check it with me. There-
fore I may not be able to telegraph the text until
tomorrow morning.
This evening Monick was at the Ministry of Finance.
Tomorrow he leaves for London with the text for the British.
He will not be able to deliver the text before late Wed-
nesday evening or the morning of the tenth.
WILSON.
EA:LWW
Regraded Unclassified
September s, 1936.
My dear Mr. Presidents
I am enclosing herewith a
very important cable from Cochran which
just came in.
Respectfully yours,
Henry Morgunthan, Jr.
The President
The White House.
Regraded Unclassified
139
BRITISH EMBASSY,
WASHINGTON, D.C.
8th September, 1936
My dear Mr. Secretary,
Late last night I received a
telegram from London containing the following
message for you from Sir Warren Fisher.
Sir Warren asks me to inform you
that the message from yourself and the
Secretary of State which you were so good as
to give to me on Saturday has been forwarded
to the Chancellor of the Exchequer who will,
Sir Warren feels sure, much appreciate your
kindness in communicating this information.
The British Treasury had not up till
yesterday received any note from the French
Government. They trust that it will be found
to/
The Honourable
Henry Morgenthau, Jr.,
Secretary of the United States Treasury,
Washington, D.C.
to contain serious proposals for the
readjustment of the French currency.
Believe me,
My dear Mr. Secretary,
Yours very sincerely,
Vallualler
140
Tuesday
September 8, 1936
9:07 a. m.
W. R.
Burgess:
The maturing issue - the
a hundred one eight to twelve.
are selling at
HMjr:
A hundred and one eight to twelve?
B:
Eight to twelve thirty seconds -
HMjr:
Well, that's way up, isn't it?
B:
Yes
HMjr:
What?
B:
That's up about - it was a hundred - about a hundred
and one at the close, you know?
HMjr:
Well, it? is that - that's the best indicator, isn't
B:
That's the best indicator. It means they've priced
the new issue over a hundred and one, in fact a
hundred and one and a quarter.
HMjr:
They've priced it at a hundred and one and a quarter?
B:
Yes
HMjr:
Well, that's just what we priced it at.
B:
That's right - just exactly.
HMjr:
You saw the -
B:
The rest of the bonds are just the same as they were.
There was a report that some of those other bonds
might come into the market a little bit.
HMjr:
Which other ones?
B:
Oh, the two and seven eighths and the old two and
three quarters, that would be natural - in
switching from the old to the new,
HMjr:
Yes
- well, I would just as leave pick up a few.
B:
Well, I don't think there is any occasion to, I
think that we'd better settle down
-
140 140A A
-2-
HMjr:
What?
B:
I don't think there is any need to at all.
HMjr:
All right
B:
Now the notes look strong.
HMjr:
The notes?
B:
They would, yes.
HMjr:
What notes?
B:
The thirty-eight and thirty-nine and forty
HMjr:
Oh, the ones that - ?
B:
Yes
HMjr:
The old ones, you mean?
B:
That's right, yes
HMjr:
Yes
B:
Yes, yes, yes
HMjr:
Oh, this morning - I mean I'm as sure of that as
of anything I've done this morning.
B:
Oh, this is bound to be a success.
HMjr:
And I think it was smart to make it just the twenty-
three years instead of the twenty-five.
B:
I think it's just right.
HMjr:
What?
B:
I think it's just right.
HMjr:
Fine- how's your golf?
B:
Oh, just fair -
HMjr:
Just fair?
B:
Fair -
HMjr:
All right, I'll talk to you when I come back from the
White House.
1A0 B
-3-
B:
Very good
HMjr:
Thank you.
Tuesday
September 8, 1936
10:20 a. m.
HMjr:
-
on the conversions, should I - do you want
them to close Thursday night or Friday night?
Burgess:
Well, I hadn't thought much about that.
HMjr:
We're announcing them tonight.
B:
Yes
HMjr:
That would give them Wednesday and Thursday.
B:
We close the cash tonight, presumably.
HMjr:
Presumably -
B:
I think - I think Thursday night is going to be
time enough.
HMjr:
You people don't like to run over the Friday, do you?
B:
No, I'd rather not.
HMjr:
I did it last time. I think - I think Thursday
is -
B:
of course last time it was Thursday but we opened
Monday, so we gave them four days. Let me turn
that over a bit, may I?
HMjr:
Please - please - all right.
B:
Very good.
HMjr:
Thank you.
141
Tuesday
September 8, 1936
10:55 a. m.
HMjr:
Do you want a little gossip?
W. R.
Burgess:
Yes
HMjr:
Why, one of the bright newspaper men around town
said I didn't take the recommendation of the
Open Market Committee, they recommended a thirty
year two and a half per cent bond.
B:
(Laughs)
HMjr:
I thought you'd like that.
B:
That's swell.
HMjr:
What?
B:
That's swell.
HMjr:
Yes
B:
No other committee can say you didn't take their
recommendations.
HMjr:
When will you have - when will you have your first
information?
B:
Oh, I've got some right now, but it's nothing -
there's nothing in practically -
HMjr:
All right.
B:
- Up until eleven fifteen -
HMjr:
Yes
B:
Forty-five million -
HMjr:
Yes
B:
That includes thirty-eight million inthe Manu-
facturers' Trust.
HMjr:
You mean these are new orders?
B:
Yes
- then the Chase has come in for their full-
their full allotment.
141A
-2-
HMjr:
They have?
B:
Yes
HMjr:
Well, that's good.
B:
-
take up the surplus.
HMjr:
How much can they take?
B:
They can take
-
HMjr:
A hundred million?
B:
- pretty close to a hundred million, yes.
HMjr:
That's all right.
B:
Yes, yes
HMjr:
All right
B:
There's no question about it of course.
HMjr:
0. K.
B:
Right
HMjr:
Goodbye.
142
Tuesday
September 8, 1936
11:38 a. m.
W. R.
Burgess:
Hello - I thought you'd be amused by the sub-
scriptions we've received so far.
HMjr:
What's that?
B:
I thought you'd be amused by the subscriptions
we've received so far.
HMjr:
Please
B:
Three hundred and thirty-two million -
HMjr:
Yes
B:
Let me read you the items on that.
HMjr:
B:
Central Savings Bank ten million -
HMjr:
Who are they?
B:
Oh, one of the savings banks here.
HMjr:
Savings bank?
B:
Up in town I think it is.
HMjr:
Yes
B:
Chase a hundred million -
HMjr:
Just a minute - a hundred?
B:
Corn Ex - fifteen million -
HMjr:
Corn Ex - how much?
B:
Fifteen
HMjr:
Yes
B:
Immigrants' Industrial Savings Bank - twenty
HMjr:
Immigrants' - ?
B:
Now that amuses me -
1424
-2-
HMjr:
Yes
B:
- because that's the bank that told Gordon
Rentschler on Saturday or Friday they wouldn't
take any, you know, they weren't interested?
HMjr:
Yes
B:
(Laughs)
HMjr:
Yes
B:
Then the American Banking Corporation three
million -
HMjr:
Yes
B:
National City Bank eighty-four million -
HMjr:
Weren't they cutting corners - National City?
B:
No, I don't think so.
HMjr:
Yes
B:
I think they just decided they hadn't had enough.
HMjr:
Yes
B:
The Oklahoma
eight - The
Manufacturers' Trust Company thirty two thirty
eight.
HMjr:
Is that their limit? - Manufacturers' -?
B:
Yes, I think SO. Yes, their capital is about -
HMjr:
Thirty-four -
The Oklahoma took how much?
B:
Eight
HMjr:
Eight?
B:
Eight million - Those are just the large sub-
scriptions I read.
HMjr:
Well now, you haven't got the Bankers yet, - Trust -
B:
No, we haven't heard from half of them yet.
HMjr:
Yes
142B
-3-
B:
This is just the first flash, you know.
HMjr:
And you haven't heard from the Treasury yet either.
B:
(Laughs)
HMjr:
How about the Federal Reserve
-
how much did
they take?
B:
Well, we're going to exchange all of ours.
HMjr:
Oh, I see, that's right.
B:
Yes
HMjr:
That's right, - that's right.
B:
Yes, yes
HMjr:
That's right -
Is George back?
B:
Well, we expect him some time today. I haven't -
HMjr:
Well, tell him -
B:
- heard from him yet, though.
HMjr:
- when he gets back to give me a ring.
B:
Right
HMjr:
Now, you see you go to lunch now, don't you?
B:
Yes, I'm going up to lunch, I'll be in the building.
HMjr:
0. K.
B:
As soon as he comes up I'll here from him.
HMjr:
Thank you.
B:
First rate.
143
Tuesday
September 8, 1936
2:13 p. n.
W. R.
Burgess:
Well, she's over the top.
HMjr:
I've got this sheet in front of me that Harris is
running for me, showing what the banks - the first
hundred banks are taking.
B:
Oh yes
HMjr:
And I don't see any yet that haven't taken their
full amount.
B:
No, I haven't (Laughs) I haven't seen any yet.
HMjr:
I haven't got - I haven't got - where is the
big fellow here, the Guaranty?
B:
No, I haven't seen that yet.
HMjr:
Yes
B:
We haven't got that yet.
HMjr:
No, but everybody else up to now has got his full
amount.
B:
Yes, I think they're taking it. Have you got
reports from the country yet?
HMjr:
No, at two thirty when I get them I'll call you.
We get a two-thirty, a three-thirty and four-thirty.
B:
Yes, I see, yes - yes
HMjr:
And as I get them I'll pass it along.
B:
We've oversold the issue right here, you know.
HMjr:
Oh, have you?
B:
Oh yes
HMjr:
How much?
B:
Eight hundred and forty-two at two o'clock.
HMjr:
How much?
B:
Eight hundred and forty-two
1434
-2-
HMjr:
Yes - well, that's nice.
B:
That's very pretty.
HMjr:
Yes
B:
Almost too nice.
HMjr:
Well, you saw what the Wall Street Journal said,
eight per cent?
B:
Yes, that's right. - That may be about right,
I don't know.
HMjr:
Yes
B:
I think that's a little bit low.
HMjr:
Well, I just want to see the first bank that doesn't
take its full amount.
B:
(Laughs) No, they're all coming in.
HMjr:
Well, - is anybody down there worrying about the
pound and the franc?
B:
Well, they say they're a little jittery today, but.
I haven't heard very much about it today.
HMjr:
I 505? see. You know - did you know the pound is over
B:
Yes, yes -
just a sixteenth.
HMjr:
Well, when I hear Burgess, I'll give you a ring.
B:
Thanks a lot.
HMjr:
Right
B:
Goodbye.
144
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Press Service
Wednesday, September 9, 1936.
No. 8-31
9/8/36.
Secretary of the Treasury Morgenthau announced last night that the
subscription books for the current offering of 2-3/4 percent Treasury Bonds
of 1956-59 closed at the close of business Tuesday, September 8, for the
receipt of cash subscriptions.
The subscription books will close at the close of business Thursday,
September 10, for the receipt of subscriptions in payment of which Treasury
Notes of Series D-1936, naturing September 15, 1936, are tendered.
Cash subscriptions placed in the mail before 12 o'clock midnight,
Tuesday, September 8, and exchange subscriptions placed in the nail before
12 o'clock midnight, Thursday, September 10, will be considered as having
been entered before the close of the subscription books.
Announcement of the amount of cash subscriptions and the basis of
allotment will probably be made on Friday, September 11.
---000--
September 8, 1936
145
After learning from the White House that they
were worried about Wilson's appointment, HM,Jr. called
up the Attorney General and told him that he was call-
ing in Murphy.
Record of their telephone conversation follows:
HM,Jr:
Hello
Operator: Attorney General
HM,Jr:
Hello
Homer
Cummings: Hello, Henry
HM,Jr:
How are you?
C:
Fine
HM,Jr:
Homer, I want to tell you exactly what happened
here Saturday, see?
C:
Yes
HM,Jr:
I had been waiting for a week or ten days to
put in a man as Assistant Chief - hello?
C:
Yes, I hear you.
HM,Jr:
And the Chief tried to produce somebody and
he couldn't to my satisfaction so I detailed
Frank Wilson from Elmer Irey's organization
as Assistant Chief of Secret Service on
Saturday. Hello?
C:
Yes
HM,Jr:
As a result of which the Chief walked in here
and told me he was going to take an indefinite
vacation.
C:
You mean, Moran?
EM,Jr:
Yes -
So, I don't know what he was trying
to do. I guess he was trying to put me in
the hole. I'm talking very confidentially -
146
-2-
C:
Yes
HM,Jr:
- and very personally to you. So, I've
thought the thing over and I've found that
Murphy has not yet gone to the Coast. So
I want to bring Murphy in here quietly to
assist Wilson from now until after election,
see? I went over - I mean, publicly Wilson
is Acting Assistant Chief, see? I signed
the document and it stays put. I went over
to the White House this morning and it seems
they're terribly excited about the whole thing.
I saw the President and then McIntyre and Early,
see?
C:
What are they excited about?
HM,Jr:
About our bringing Wilson in and then the Chief
going out, you see? So I told them that I was
going to have Murphy here in the background
helping Wilson.
C:
Oh, you mean they didn't want to lose - ?
HM,Jr:
Well, they didn't like the whole thing. They
didn't like losing the Chief and bringing
Wilson in, you see?
C:
They didn't like losing Moran?
HM,Jr:
Yes
C:
And -
HM,Jr:
Well, they're worried, I mean, about - re-
I'd have Murphy here in the background helping
them that from now until after the election
garding the President, you see? So I told
Wilson. I don't know whether you know Frank
Wilson, he's a grand fellow.
C:
Yes, I don't -
well, I probably know him, -
HM,Jr:
Well, I tell you, he's the fellow who did the
work on Al Capone.
C:
Yes
-3-
147
HM,Jr:
And he's one of Elmer Irey's principal men
and he's a grand fellow - and I signed it
and it stays and of course what they don't
want is they don't want anybody from outside
coming in, see?
C:
Yes - why was Moran upset, why didn't he
take it gently?
HM,Jr:
I don't know. And so I just wanted to tell
you what I am doing and, I mean, because I
don't --
C:
You saw an article, perhaps, in the paper a
couple of days or three ago, -
HM,Jr:
Yes
C:
- in which it was said that Murphy was going
to be brought back to Washington -
HM,Jr:
Well -
C:
And that it was all hoey that he had been
demoted.
HM,Jr:
No, no - well, he goes - this is fixed, I
mean, this decision was made - and you know
I am a truthful person - at twelve o'clock
Saturday and I didn't know the Chief was
going to walk in and do this to me and I
couldn't know it, see?
C:
Yes
HM,Jr:
Now, I mean there is nothing but what I tell
you - there is nothing below and above it -
C:
Oh, I understand - I was just thinking of
the public effect.
HM,Jr:
They won't know that Wilson - they won't know
that Murphy's here.
C:
They wouldn't?
HM,Jr:
No - but - and you wouldn't either most
likely, but 1 am telling you because I like
to play that way.
-4-
148
C:
Oh yes, that's fine.
HM,Jr:
I mean publicly Wilson -
C:
It would be all right with me if it doesn't
get known. But if it gets known there'll
be -
HM,Jr:
I don't think anybody will know it.
C:
- I think it will tear loose again, Henry.
HM,Jr:
I don't think anybody will know it.
C:
You don't?
HM,Jr:
No, and when I told it to the White House
everybody - there was tremendous relief
that from now until election Murphy will be
there.
C:
Yes
HM,Jr:
Because, I mean they said, 'Who will we
contact - who is going to do this, - who
is going to do that?' And I said, 'Well,
Murphy will be here from now until election'.
C:
If you think that that isn't going to be in
the newspapers, Henry, I guess you've got
another think coming.
HM,Jr:
Well -
C:
I'll bet on it.
HM,Jr:
What's that?
C:
I'll bet it gets know in - within twenty-
four hours after he's back here.
HM,Jr:
I don't think - well, he's - he's out on
the golf links today, he hasn't come in yet
and I don't want him to come in until the
Chief goes.
C:
I see.
HM,Jr:
See?
-5-
149
C:
Well look, isn't that funny that Moran should
do that?
HM,Jr:
Well, I wouldn't tell anybody but a Cabinet
member this thing. But it certainly has put
me in a hole and that's what he wanted to do.
C:
Well, well, well -
HM,Jr:
See?
C:
I'm surprised.
HM,Jr:
What?
C:
I really am kind of surprised.
HM,Jr:
Well, I tell you what he wanted to do here a
couple of weeks ago.
C:
Yes
HM,Jr:
He, he offered - he said he was going to re-
sign, he was going to go out and attack you
and J. Edgar Hoover. That's what he said he
was going to do a couple of weeks ago.
C:
You don't mean it?
HM,Jr:
Oh yes -
C:
(Laughs)
HM,Jr:
We - and we talked him out of that. He was
going to resign and tell the story as he
thought it should be told.
C:
I see.
HM,Jr:
So, if you think I've had a bed of roses here
you're mistaken.
C:
Yes - well -
HM,Jr:
So he was going to resign and talk.
C:
You don't mean it?
-6-
150
HM,Jr:
Yes
C:
I know what to think about these people
who resign and talk.
HM,Jr:
Well, that's what he was going to do. Well,
instead of -
C:
You know, I think there is no creature lower
than a man who is in the inner council and
then resigns and then goes out and talks.
HM,Jr:
Right - well, now he's going to take at
his own volition an indefinite vacation.
C:
Yes
HM,Jr:
See?
C:
All right
HM,Jr:
And mind you, I gave him this extension of a
year because he said he wanted to guard the
President's life from now until election time.
Now, that's why he got the extension. And so
on the first of September he walks out on me.
C:
Yes
HM,Jr:
See? Now, of course Murphy knows the White
House details and he knows all about handling
the President and all that stuff and I can't
afford to take a chance and frankly they were
all up at arms this morning.
C:
Yes, very -
HM,Jr:
What?
C:
Very distressing -
HM,Jr:
Yes - see?
C:
All right, Henry.
HM,Jr:
So, if you will bear with me and if there the is
change I'll tell you exactly - and
any story is just word for word as I gave it to you.
-7-
151
C:
Yes, I get you.
HM,Jr:
See?
C:
All right, Henry.
HM,Jr:
Thank you.
C:
Goodbye.
HM,Jr. checked up on Wilson's background and
a copy of the report is attached.
HM,Jr. called McIntyre and told him that he
was sending Murphy in to see him at 3 o'clock and
that Murphy would be on hand to do anything that the
White House wanted. HM,Jr. also told McIntyre about
his conversation with Homer Cummings. Later McIntyre
phoned and said that he talked with Homer Cummings
and explained the whole thing to him. He told him
that as between the White House and the Treasury, that
this was what they wanted; that the White House wanted
Joe Murphy back and that they worked this thing out
with me. After explaining this whole thing to Homer
Cummings, he said it was 0. K.
Regraded
152
RE. FRANK J, WILSON.
Mr. Wilson was in the real estate business in Buffalo, N. I., from
1907 to 1917.
He entered the U. S. Army on August 27, 1917, and was sent to the
Officers Training Camp at Fort Niagara. He received an honorable dis-
charge from the Army on September 29, 1917.
As a result of a civil-service examination, he was appointed a claim
examiner for the New York State Industrial Commission on October 15, 1917,
which position he held until December 31, 1917. As a result of a civil
service examination, he was appointed an investigator for the New York
State Food Commission on January 2, 1918, and held that position until
June 30, 1919. These two appointments in New York State were made during
the period Hon. Alfred Smith W&B Governor of the State.
The New York State Food Commission operated jointly with the United
States Food Administration, and Mr. Wilson was loaned to the United States
Food Administration, his salary being paid by the State.
Upon the close of the activities of the New York State Food Commission
and the United States Food Administration, after the war, the enforcement
of the Lever Act and certain regulations relating to foods was transferred
to the United States Fair Price Commission, a part of the Department of
Justice. Attorney General Palmer then appointed Mr. Wilson Deputy Fair
Price Commissioner for New York State, which position he held until June
30, 1920.
On August 3, 1920, as a result of a civil service examination, Mr.
Wilson was appointed a Special Agent in the Internal Revenue Bureau by
D. F. Houston, Secretary of the Treasury. He was promoted to the
position of Special Agent in Charge, Intelligence Unit, on June 1, 1934.
Regraded Unclassified
153
EXCERPTS FROM REPORT ON SECRETARY MORGENTHAU'S
PRESS CONFERENCE, SEPTEMBER 8, 1936.
H.M.Jr.:
I'm going to tell you fellows something and I'm going to
ask you -- is Line here? -- I'm going to put myself in
your hands and I know I'm going to be all right. Chief
Moran came in and he's not well; Saturday he came in and
asked if he could go out -- he wants to take a vacation.
He doesn't know when he's going to come back. The old
man hasn't slept and he is not well. And I said all
right. He's not well. And at twelve o'clock Saturday
I called Murphy back because, after all, I'm responsible
for the President's life in the final analysis. I'm
going to ask you boys for once not to write anything.
So I called Murphy back and will keep him here until
after election to contact the White House, and then he
will go out to his assignment on the West Coast; that's
the whole story and I would appreciate it if you would
lay off it.
&
Does Mr. Cummings agree to that?
A.
I called Mr. Cummings up this morning and told him the
whole story, and, as far 8.6 I know, he's satisfied.
Q.
Mr. Secretary, that story will get out any way. Could
we write it and not pin it on you? Nothing the matter
with that story, Mr. Secretary. I think if we wrote it
the way you told it it would make a good impression.
A.
Herbert?
Gaston:
I don't think it would do any harm; the story here is
about Wilson.
&
I understand Wilson is taking Moran's place.
H.M.Jr.:
Moran is gone temporarily; he's sick; the only thing I
could do was call back Murphy.
Q.
I can't see the slightest harm in that: he's the only
man for the job; you can't jeopardize the President's
life.
A.
I wouldn't bring that in. I would skip the part about
the President's life.
- 2 -
154
Gaston:
I think it's all right. Frank Wilson, 6. man from out-
side the service, is coming in here to be acting chief
and in view of Mr. Murphy's experience he's been called
baok temporarily to work with Wilson.
H.M.Jr.:
Due to the fact that Chief Moran is sick. But I'd leave
out about the President's life. Have you gotten it the
way Herbert said it. Say it again, Herbert, the same as
before.
Gaston:
Frank Wilson has been transferred from the Intelligence
Unit to the Secret Service, and on account of the fact
that Chief Moran finds it necessary to go away on ac-
count of his health, it's necessary to bring someone in
who's thoroughly familiar with the routine to work with
Mr. Wilson, and Joe Murphy has been brought back for
that purpose.
Q.
The fact is I was going to ask you about it; I got a tip
on it.
E.M.Jr.:
That's the whole story.
&
Will Wilson be in charge or Murphy during the temporary
period?
A.
Chief Moran is in charge.
Q.
You were going to bring Murphy back anyway, weren't you,
Mr. Secretary, just 8.8 soon as things cleared up? I
didn't mean this week.
A.
Listen, it's getting awfully late and you fellows have a
big financing story. Bell says the financing story is
for tomorrow morning's papers.
Regraded Unclassified
TREASURY DEPART ENT
155
Washington
FOR IMEDIATE RELEASE
Tunsday, September 8, 1936.
Press Service
No. 8-32
Secretary of the Trensury Morgenthau today announced the appointment of
Frank J. Wilson, to be Acting Assistant Chief of the Secrot Service, effective
innediately. Wilson comes to Secret Service from the Intelligence Unit of the
Burcau of Internal Revenue, with which organization he has been identified since
August 3, 1920, with the exception of six months in 1926 when he 7AB engaged In
private business in Florida.
Since June 1, 1934 Wilson has beon Special Agent in Charge of the
Cloveland Division, comprising Ohio, Indiana and Kentucky.
In 1330 and 1931 Wilson F28 detniled to Chicago to take charge of the
Government's incone tax drive involving Al Capone and his Associates. Wilson's
deciphering of impounded Capone bookkeeping records enabled the Government to
connect Al Capone with various underworld activities, proving incone tax
evasions and rosulting in an eleven year prison sentence; ten years in federal
prisons and one year in the Cook County (I11.) jail.
few days after the kidnaping of the Lindborgh baby in March, 1932,
Wilson and other Intelligence Unit agonts were sont to aid in tho case. Bo has
among his prized possessions personal lettors from Colonel Lindbergh, expressing
appreciation for his assistance.
Wilson was born at Buffalo, N.Y., Mry 19, 1886. He graduated from Buffalo
high school and spent one year at the University of Buffalo. For ten years he
was engaged in the real estate business in Buffalo.
He onlisted in the any in 1917, but was discharged after a nonth be-
cause of defective cyesight. From January 2, 1918 to September 1, 1919 ho
served As investigator for the joint comission of the New York Fair Price Con=
nission and the United Statos Food Administration. Cn September 1, 1919 he
becane vice-chairnan of the corrission named by the Mayor of Buffalo to dispose
Regraded Unclassified
156
- 2 -
of surplus army foods, solling more than 300 carloads of foodstuffs.
From January 1, 1920 to August 3, 1920 he served with the Department of
Justice as A deputy of the Fair Price Commission for New York State.
From 1922 to 1925 he was Special Agert in Charge of the Intelligence
Unit at St. Louis.
o0o--
Regraded Unclassified
157
September B, 1936
The President said that McIntyre and Early were
upset because I was putting Wilson in to succeed Murphy;
that Wilson was a strong Hoover man; that he had been
with Hoover in the Department of Commerce; then in the
Post Office as an efficiency man, and when he left there
they had lots of Groubles straightening out what he had
done. I personally think that they have Vilson mixed
up with Harold Graves.
I asked the President what his plans were after
Election? Wab he going to take a vacation? He said
if I would not breathe it to & soul, he would tell me.
He was thinking of leaving here on November 15th on a
fast cruiser and 80 down to Buenoe Aires for the North
and South American peace conference; stay there three
days and get back here about the 15th of December.
I
told him I thought it was & grand idea, He said the
alternative plan was to go down to WARE Springs and do
the usual. His reasons for going down to Warm Springs
would be that he has to get his Budget ready and many
other things.
to
I strongly urged him to go/South America, first
because he needed it on account of his health, He said,
"My health 18 fine,' but I replied, You have got Just
eight weeks to go until Election and then I think you
should really take & month off. I said, If you will
see Bell and me 48 hours before you leave and tell us
what you want on the Budget, we can get it ready for you.
He said, I will need at least two cruisers and B.
destroyer and don't you think I ought to announce it be-
fore Election that I an going? I said, No, absolutely
not. In the first place, it will not get you any votes
inside of the United States and, in the second place, it
will only stir up discussion and certainly the Navy can
get these ships ready without anybody knowing that you
are going on this trip. I said, I suppose you will want
me to stay nere in Washington during that period because
I will be the ranking Cabinet member and he said, Abso-
lutely.
I asked him whether he wanted me to answer Father
Coughlin's attack on me Sunday, in Chicago. He said,
Regraded Unclassified
158
-2-
Absolutely no. Bend it over to me. I have not seen
it. He said, I am handling that direct, myself, with
Father Burke.
I asked him if he wanted Frances Perkins and me
to go with him to the State Convention at Syracuse.
He hesitated a moment and said, I have not thought of
it. I think it 18 a good idea. Inasmuch as he heai-
tated, I told him to give it additional thought.
He is going to the dedication of the Taconic
Highway on September 19th.
He handed me & letter from the Attorney General
about the Louisiana tax case; also, in reference to Bob
Jackson's handling the same, I said that Bob Jackson
nad told be that he would resign before he would handle
it. The President said, quick as a flash, I thought you
told me that Bob Jackson would handle 1t. I said, That
18 correct, but since then he has evidently changed hie
mind. The President handed me the memorandum of August
23rd from Homer Cummings and said, I have had this for &
long time and should have given it to you before,
I gave the President Report No. 1, which he read
with great interest and seemed very much pleased. (In-
telligence Bulletin No. 1, Relative to Narcotic Smuggling
on the Pacific Coast including Alaska and Hawaii. Copy
attached.)
He seemed in B. fine humor and extremely friendly
He said he most likely will have a Cabinet meeting this
Friday,
Regraded Unclassified
Misklotz
she seing asked
me to get this
for him. (I think
to take to white House)
C
159
8 JUSTICE THE
Office of the Attorney General
Washington,D.
1
Aughor 23, 1936.
My dear Mr. President:
I talked with Mr. Jackson about taking over the trial
of the Louisiana civil tax cases, as suggested by the Treasury,
within whose jurisdiction these cases now rest. Mr. Jackson
is exceedingly averse to undertaking this assignment. He
feels that the situation should be reviewed before he is
definitely asked to do 80.
In view of this situation and in view of the fact that
there has apparently been some misunderstanding as to the
status of these matters, and perhaps even of the course pur-
sued by the Department of Justice with reference to the
criminal cases, I asked Mr. Jackson to prepare a brief
memorandum, which I inclose herewith. It is in three parts,
as follows: (1) History of the Louisiana Criminal Cases;
(2) Louisiana Civil Cases Pending; (3) Personal Attitude.
This memorandum sets forth the situation succinctly. I
hope you will find time to read it.
Respectfully yours,
Home Thromp
Attorney General.
The President,
The White House.
160
August 23, 1936.
My dear Mr. President:
I talked with Mr. Jackson about taking over the trial
of the Louisians civil tax cases, as suggested by the Treasury,
within whose jurisdiction these cases now rest. Mr. Jackson
is exceedingly averse to undertaking this assignment. He
feels that the situation should be reviewed before be is
definitely asked to do so.
In view of this situation and in view of the fact that
there has apparently been some misunderstanding as to the
status of these matters, and perhaps even of the course pur-
sued by the Department of Justice with reference to the
criminal cases, I asked Mr. Jackson to prepare 8. brief
memorandum, which I inclose herewith. It is in three parts,
as follows: (1) History of the Louisiana Criminal Cases;
(2) Louisiana Civil Cases Pending; (3) Personal Attitude.
This memorandum sets forth the situation succinetly. I
hope you will find time to read it.
Respectfully yours,
Attorney General.
The President,
The White House.
Regraded Unclassified
161
HISTORY OF LOUISIANA CRIMINAL CASES
Indictments were found against twenty-four defendants on
tax evasion charges. In some cases, if one defendant were guilty,
another could not be, but all against whom probable cause existed
were indicted to avoid any claim of partiality and to prevent
indicted defendants from throwing blame to unindicted persons.
The strongest case was selected as that against Joseph
Fisher. The Government was represented by Ex-Governor Dan F. Moody
of Texas. The case was won and a sentence imposed of eighteen months
and costs. The second strongest case was next selected as that against
Abe Shushan. Governor Moody was requested to try the case, but did
not participate for reasons which we have never known, The case was
tried by Colonel Amos W. 1. Woodcock, chosen for the purpose by the
Treasury. It resulted in an acquittal.
Six pleas of guilty were then entered which disposed of the
next strongest group of Government cases, and resulted in aggregate
fines, penalties and tax collections of $117,900. In imposing the
fines Judge Foster of the Circuit Court of Appeals, who was sitting
as 8, District Judge, announced from the bench, so it is reported to
us, that no jail sentences would be imposed in any of the income
tax cases.
to to dismiss. Those left were all weaker than the defendants one which
This left the Department of Justice with a group of cases
had try already or been lost. They were also cases in which the indicated
were too confident to plead guilty, even though the Court
that nothing but fines would be imposed.
States Attorney, Viosca, not an appointee States of
The United but appointed by Judge Borah, United of Justice
District Judge could not be won. Colonel Woodcock, chosen
this administration, of that District, advised the Department by
that these cases represent it in the prosecution of the could cases, not has be
the advised Treasury this Department to that in his opinion the cases
won.
Regraded Unclassified
162
- 2 -
A conference was asked with the Secretary of the Treasury as
to further procedure and was declined by the Treasury.
Under these circumstances the Department of Justice left to
the regularly constituted United States Attorney authority to dispose
of the remaining cases according to his best judgment, advising him,
however, that the Treasury felt that the cases should be tried and won.
We were advised that that was the attitude of the Treasury's investi-
gation staff, although the Treasury had declined a conference on the
subject, which, of course, left its attitude open to different
inferences.
Regraded Unclassified
163
LOUISIANA CIVIL CASES PENDING
These cases will be tried in New Orleans on the field
calendar of the Board of Tax Appeals at the option of the tax-
payer. The Government can not insist on trials in Washington.
Some 15 or 20 cases are already pending before the
Board, and some 60 or 70 are in process of asserting deficiency,
to come before the Board.
All of these cases total less than $1,000,000 of claimed
taxes and penalties, although some claim two penalties, one for
fraud and one for negligence. No case amounts to over $60,000.
Their average is very small, and some are petty. Many of the
taxpayers are without assets and the tax assessment, if won, not
collectible. For this reason there may be a number of defaults.
Each of these cases involves three or four years of tax.
The Government's evidence to prove unreported income consists of
unexplained bank balances or increases in net worth, plus living
expenses, from which the inference is to be drawn that income TES
received in excess of that reported. This is a most unsatisfactory
basis for proof, and each case involves a long investigation of
detailed items of property and income. In those cases where we
contend that there was graft or gambling income the Government
testimony in the main is that of accomplices or otherwise unreliable
persons.
Many are against both husbands and wives, or in
of these cases, because of the Louisiana community several
property lew, estates and widows. Fraud penalties are asserted and
instances against or widows, although it is likely to be asserted, little about
against will be wives hard to disprove that the wives or widows knew
the husbands' transactions.
If a no-compromise of fifty to one hundred cases, involving not less than
policy is to prevail as to these from cases,
It means the trial hundred tax years and certainly and negligence
two five hundred thousand to disputed four income items, as well as fraud
issues to sustain the penalties sought.
Regraded Unclassified
164
à 2 -
If a policy of compromising cases, or of compromising
doubtful issues in contested cases is to prevail, such compromises
can only be made after detailed investigation of each item.
It is my judgment that there are from two to three years
of steady work for whoever is to supervise the trying of these cases
in the filing of answers, preparation and trial, and briefing. They
involve no question of law, and no one case will settle any group of
cases, since each presents only a question of fact to be decided by
the evidence available as to the particular taxpayer.
Regraded Unclassified
165
PERSONAL ATTITUDE
I am confident that the President would not ask me to try
these civil cases if he were fully informed about them.
I advised you that I would not care to try the criminal
cases for this Department, and I have no different feeling for the
civil cases pending in the Treasury Department.
To spend from two to three years on cases of this kind,
which can only be regarded as comparable to police court practice,
is not consistent with the duties which I have assumed in other
litigations of importance, or to my duties as head of this Division.
Wholly apart from the inconsistency of such en assignment
with my Government work, I am personally unwilling to spend the
months in Louisiana which would be necessary to the trial of these
cases, or to be committed to a task of such indefinite duration in
the Government service.
As you know, I am ready to go the limit for the President.
I am confident that on examination of these cases he will agree
that they should not be given an exaggerated position in public attention,
but should be handled as regular routine matters by Treasury attorneys
who are fully competent, and that no necessity of the Administration
calls for such sacrifice on my part.
If there are reasons for it that have not been disclosed
to me I would, of course, consider them.
Room H. JACKSON Jacker
ROBERT
ASSISTANT ATTORNEY GENERAL
Regraded Unclassified
166
SECRET
No. 1
August 1, 1936.
INTELLIGENCE BULLETIN
RELATIVE TO NARCOTIC SMUCGLING
ON THE PACIFIC COAST INCLUDING
ALASKA AND HAIWAII
- o0o -
1. This is the initial issue of a weekly Intelligence Bulletin
which will be distributed from the office of the Agent in Charge
of Narcotic dmuggling intelligence with headquarters at the Cus-
tom House at San Francisci, California. Thisset up was recently
authorized by the Secretary of the Treasury asastop towards
broadening the facilities of the present Treasury Enforcement
Coordination System now in effect.
2. At the present time this Intelligence Bulletin is being dis-
tributed to the following law enforcement agonciesof the Treasury
Department on the Pacific Coast including Alaska and Haiwaii.
Treasury Department Coordinators at
Seattle, Washington,
San Francisco, California,
Los Angeles, California.
Collector of Customs at
Juneau, Alaska,
Seattle, Washington,
Portland, Oregon,
San Francisco, California,
Los Angeles, California,
San Diego, California,
Honolulu, T.H.
Supervising Customs Agents at
Seattle, Washington,
San Francisco, California,
Los ?Angoles, California.
Customs Agonts in Charge at
Portland, Oregon,
San Diego, California,
Honolulu, T.H.
U.S. Treasury Attaches and Representatives at
Shanghai, China,
CONFIDENTIAL
PLEASE DESTROY
Hong Kong, China.
U.S. Consuls at
Ensenada, Moxico,
Mazatlan, Moxico,
Mexicali, Mexico.
Page 2
167
Intellengonce Bullotin.
District Supervisor, Burcau of Nercotics
Seattle, Washington,
San Francisco, California.
Agent in Charge, Bureau of Narcotics
Los Angeles, California.
3. Each of you will approciate the value of secrecy in con-
nection with the information contained in the Bulletins and
it is expected that you will koep it strictly confidential.
4. While this set up has boen in operation loss than ono WCC
yet information gathored would indicate that there is a well
organized ring on the Pacific Coast engaged in smuggling Japan-
056 morphino. Tho representativos of this organization are
lieved to be Y. Yamamoto, 1303 Judkins Street, Seattle, Washing
ton, N. Ishibashi, 633 N.E. Wasco, Portland, Oregon. Those
PLEASE DESTROY
representatives are intimately associated with one Yoshihara
and Martin Kamouchi. The latter living in the 900,block on
ON
Irolo Street, Los Angeles, California. Information is to the
effect that Kamouchi frequently poses as C. diamond broker and
frequently visits San Diogo, California and Tia Juana, Mexico
where ho has conforences with certain Japaneso and Mexicans in
Pauls Cafe.
5. Some of the automobiles used by the Yumamoto organization
are as follows:
A-6358
1935
Ford Sodan
C.T. Takahashi,212 5th Ave.S.
A-6359
1934
Studebaker Sedan
a
Seattle
A-6360 1936 Ford Sodan
"
A-31-234 1934 Chevrolot Sednn S.Fujii, 655 Wellor Seattle St.,
A-52703
1934
Ford Sedan
Goo.Roynolds, 3915 40th Ave,S.W.
Seattle
A-56101
Studobaker Sedan C.T. Takahashi
111-209 1936 Plymouth Sodan K.Okamura, 3227 19th Scattle Ave,S.
113-001
Stutz Sodan
K.
Yamamoto,
1303
Judkins
St.
Scattle
B-25660 1935 Chevrolot Sodan,Honry Omi, 1333 Fawcett Tacoma. Ave.
6. Information overboard from the "Genoral Vosscls" of the It
has boen received to tho effect that narcotics States are
boing thrown near the mouth of the Columbia River. much would
Stoamship these Company vossels are hot and should be given this as aron. supor-
vision seem that as possible when they call at any port in
Regraded
Unclassified
CONFIDENTIAL
Page 3,
168
Intellongonce Bulletin.
PLEASE DESTROY
7. Information has been received that large quantity of opium
is conconled on the S.S. President Pierco in San Francisco on
July 24, 1936. This opium said to be hiddon in Number 10 hold
and destined for Los Angolos where it is to be dropped into the
water as ship is sailing. In caso no landing is effected it in
to bo carried on to Now York and unladon on the vessels return
to Los Angelos. One Teng Dong Number one saloon waiter on the
vessel ia said to be financially interested, Vessel heavily
guarded and searched but nothing contacted. Heavy surveillance
should bo kept on this vessol at all ports where it touches on
its retrun from Now York. Supervising Customs Agent at New York
notified.
8. Ono McHonry convicted of smuggling thirty (30) time bons of opium
from the Navy Transport Chaumont about four years ago is now um-
ployed aboard the Standerd 011 Tanker S.S. District of Columbia.
Me Honry was a witnoss for the Government in the said caso and
it is thought by those familiar with the case that McHenry learned
his lesson and will not again engage in smuggling narcotic drugs.
Having been formerly convicted for smuggling opium and now aboard
ship it might bo well to contact him where over possible with a
view to socuring information from him.
9. One Dr. Crow and one Billings, formor inmato of San Quontin
Penitentary, reported to be making counterfeit five dollar bills
Widbur Church of Long Boach, California, son-in-law of Billings,
is being used to pass these counterfeit bills. Secret Service
at Los Angelos notified.
10. One Heshimoto of the Hordware Merchants Company, 757 Tune
Street, Torminal Island, Culifornia is receiverfor supposed
militury films received from the Japanese Tune boats. This inform.
ation conveyed to Naval Intelligence at Los Angelos.
soldiers landing in the war game at San Simoon, California on
11. Japanese Tanker Tatekawa Maru used C. soarch light to observe
Judy 20, 1936. This information convoyed to Naval Intelligence
at Los Angeles, California.
12. Officors that junior dock officers were stationed making at stromotic Fogu
supervising the Asama Maru in San Podro on July 29,
1936 report below docks and that members of the crew were The open
lar points patrol in all open staterooms and passageways. doors.
cargo hatches also had mon stationed at oscape
Mewcomb, 44th and Vicstorn Avonue, Los Celifornia Angeles, end to-
gether with two Winterhavon, mon, Celifornia have boon for the
13. Onc Fred John Gibson, Winterhaven, reported as
Nick Honderson, trips to Yuma, and Nogelos, those Arizona occasions they have pur-
making frequent smuggling narcotic drugs. On automobiles:
pose been observed of driving the following described
Auburn Sedan, 1936 California 1936 license No. Los Angelos.
modol, black body, fonder 5-U-1258. wells, built-in- Rogis-
tored trunk on owner back. Frod Newoomb, 1717 W. 45th Stroet,
Regraded Unclassified
169
CONFIDENTIAL
Page 4.
Intelligence Bullotin.
PLEASE DESTROY
Chovrolet sedan, Engine 5984639. California 1936 license
No. 5-U-3456. Registered ownder Joan Harrison, Indio,
California.
Ford sodan, Engine A-1132919. Registered and legal owner
M.L. Floming, 626 "G" Stroet, Brawley, California.
It is our information that Frod Nowoomb now operates an
auto wash rack at the intersection of 8th and Vormont Streets,
Los Angeles, California.
14. Information is received from the Coast Guard Commonder of
the Boring Sea Patrol in the case that recently & transaction
occurred whereby the Amorican Stoamship Elwyn C. Hale, the
American Gas Scrww Golden State and the Japanose Steamship Tai-
hoku Meru made contact somewhere in the Bering See as a result
of which one hundred soventy five thousand cod fish were trans-
ferrod from the Japanoso vessol Taihoku Maru to the Goldon Stato.
The S.S. Elwyn C. Hale is owned by the Bristol Bay Packing Co.
of San Francisco and has not been sighted by any of the vessels
of the Bering Sea Patrol Forco. A lator radio intorcept
indicates that the master of the Japaneso vessel was
endoavoring to arrango a contact with the American vessel. The
purpose the contact is not known but there may be & possibility
of e transfor of narcotics for ill legal entry into the United
States.
Daniel PBailey
Daniel P. Builoy,
Customs Agent in Charge,
Narcotic Smuggling Intelligenco.
Regraded Unclassified
170
MEMORANDUM
September 9, 1936.
To:
The Secretary
From: Mr. McReynolds
I have just completed at 3:40 P. M. a telephone
conversation with Chief Moran. I requested the Chief
to remain away from the Treasury for the rest of the
month of September and he promised to comply with this
request.
Mr.
3 D.
my