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Volume 107, January 26 – January 31, 1938
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Volume 107, January 26 – January 31, 1938
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 107
January 26 - January 31, 1938
Regraded Unclassified
- B -
Book
Page
Bank of America
See Transamerica
Banking Legislation
See also Holding Companies
Seligman (Eustace), of Sullivan and Cromwell, representing
Marine Midland Bank, confers with HMJr - 1/26/38
CVII
59
a) Anxious that legislation may not affect bank
holding companies operating solely within
state limits
HMJr's letter to FDR - 1/27/38
132
a) Suggested that FDR see Glass - HMJr to be present
Upham memorandum to HMJr in connection with Eccles visit
to FDR suggesting that HMJr make no counter proposal -
1/27/38
150
Upham reports on visit from Reichert (former Bank
Commissioner of Michigan) - 1/28/38
188
a) Welcomes legislation at this time breaking up
holding companies
Proposed FDR message to Congress
193
Bids, Collusive or Tie
See Purchasing, Government
Business Conditions
Loans to industry:
For Douglas memorandum to FDR 1/29/38, Bee Book CXIII, page 7
Conference with Haas group - 1/26/38
1
a) Discussion of basis of production and demand, industry
by industry, to check disequilibrium situations
3
1) For chart, see page 135
b) Governmentally instruments which have
inflationary or deflationary effect on the economy
to be studied
7
c) International situation providing "cushion" -
White reports
7
d) Building situation memorandum to be requested from
Fisher of Federal Housing Administration
9
e) Russian situation discussed by White
13
f) Employment situation, New York State, discussed by
Miss Lonigan; Illinois to be studied next
17
1) February and March the indicative months in
New York - "industrial pulse of country"
g) Standard 011 of New Jersey, Texas Corporation, Cannon
Mills, and a woolen company to be studied
24
Wage statement by FDR explained to HMJr: statement to oppose
reduction in view of renewal of steel agreements with
labor unions - 1/27/38
133
Haas memorandum - 1/31/38
260
a) Charts on steel ingot production and department store sales
"Latin American trade with United States and other countries
compared" - Heas memorandum - 1/31/38
267
Regraded Unclassified
- C -
Book Page
China
Chinese Ambassador, HMJr, and Taylor confer - 1/26/38
CVII
60
a) Ambassador asks HMJr for cooperation
Current United States trade with Japan and China during
first three weeks of January 1938
152
Cochran, H. Merle
Bullitt assures HMJr he will approach French shortly
with view to having Cochran listed as Financial Counselor
in diplomatic list - 1/29/38
218
- E - -
Enforcement Agencies, Treasury
Resume report by Irey - 1/26/38
52
- F -
Farm Security Administration
See Financing, Government
Federal Alcohol Administration
Regulations with reference to manufacture of whiskey
discussed by Senator Barkley (Kentucky) and HMJr -
1/29/38
225
Financing, Government
See also Great Britain
Farm Security Administration: Conference concerning
finances; present: HMJr, Bell, Alexander, and Baldwin -
1/31/38
297
France
See Stabilization
- G -
Giannini, Amadeo P.
See Transamerica
Great Britain
"British Government borrowing in 1937" - Haas memorandum -
1/28/38
191
Regraded Unclassified
- H -
Book Page
Holding Companies
See also Banking Legislation
Reorganization:
Conference on public utilities; present: HMJr, Taylor,
Oliphant, Opper, Douglas, Frank, and Gaston -
1/27/38
CVII
92
a) Douglas-HMJr telephone conversation
89
FDR and HMJr discuss plans; FDR quotes himself as
telling Brandeis ambition of his life is to reorganize
a railroad either on a constitutional or unconstitutional
basis, after he leaves White House - 1/27/38
134
Oliphant memorandum on conference at Securities and
Exchange Commission; present: Opper, Foley, Hill,
and Crossley for Treasury; and Frank, Guthrie, Smith,
Spencer, and Foster for Securities and Exchange
Commission - 1/27/38
136
a) Standard Gas and Electric seems best company
to study
Conference; present: HMJr, Taylor, Oliphant, Opper, Foley,
of Treasury; and Frank, Smith, Guthrie, and Martin, of
Securities and Exchange Commission - 1/29/38
229
a) Standard Gas and Electric situation described
HMJr discusses with Jones United Press story "which has
all the earmarks as coming from Eccles" - 1/29/38
247
Oliphant memorandum on "present authority for Federal
Government to provide financing in connection with
reorganization utilities in the Southeast" - 1/31/38
294
a) Federal Reserve Bank of Atlanta
b) Reconstruction Finance Corporation
Holland
See Stabilization: France
- I -
Internal Revenue, Bureau of
Reorganization:
Conference; present: Magill, McReynolds, Helvering,
Graves, and Gaston - 1/26/38
27
a) Los Angeles to be used as "laboratory"
b) Graves memorandum for Helvering
42
Helvering-Graves memorandum to HMJr concerning proposed
arrangements and procedure at Los Angeles - 1/28/38
195
- J -
Japan
Current United States trade with Japan and China during
first three weeks of January 1938
152
Japan contacts Swise National Bank with regard to large
loan - 1/28/38
189
Regraded Unclassified
- I -
Book Page
Kennedy, Joseph P.
HMJr 'phones Kennedy about St. Louis Star Times article
stating that HMJr, instead of Kennedy, is to go to
London - 1/28/38
CVII 184
a) HMJr discusses with FDR, 2/2/38: Book CVIII,
pages 187, 208
- L - -
Latin America
Haas memorandum on trade with United States and other
countries compared - 1/31/38
267
Loans to Industry
See Business Conditions
- M -
Mexico
See Silver
- N -
Netherlands
See Stabilization: France
- P -
Public Health
Hot Springs Transient Medical Center: McReynolds vetos;
Treasury is not in favor of having Public Health Service
assume permanent responsibility for any of the functions
of a relief agency - 1/28/38
159
Public Utilities
See Holding Companies
Purchasing, Government
McReynolds recommends to HMJr granting some leeway to
Procurement in connection with - 1/28/38
159
a) HMJr opposed to having "one rule for the Treasury
and another rule for the other departments"
- R -
Railroads
See Holding Companies
Revenue Revision
Memorandum to FDR concerning three types of corporation
taxation proposed by Ways and Means Subcommittee . -
1/29/38
256
Regraded Unclassified
- 8 -
Book
Page
Silver
Mexico:
Welles reports Treasury's withholding plans of future
purchases during February until last moment has had
most beneficial effect - 1/29/38
CVII
255
Spain:
Feis asks HMJr to talk to Spanish Ambassador concerning
possibility of selling silver to United States -
1/26/38
47
Smith Company, E. M.
Oliphant memorandum concerning amended offer in compromise
raising original offer of $1,100,000 to $1,500,000:
$600,000 in cash and balance in three equal annual
installments - 1/28/38
190
Spain
See also Silver
Spanish Ambassador confers with HMJr, Taylor, White, and
Feis - 1/27/38
139
Stabilization
France:
Exchange market movements resume - 1/26/38
66,76,87,
216,318
Butterworth to visit Paris - 1/26/38
71
a) Dutch financing to be discussed
Tripartite Agreement resume at press conference - 1/27/38
115
Bullitt cable giving resume of "long end intimate talk
with Chautemps concerning present situation" - 1/27/38
202
Butterworth report of Sir John Simon's message to
Marchandeau: Simon does not think it desirable at this
moment to press Marchandeau to name definite points
between which he will hold franc - 1/28/38
208
Cochran reports on conference with Marchandeau in which
Marchandeau expressed appreciation of HMJr's statement
to the press with regard to Tripartite Agreement and
France - 1/29/38
219,222
Hull memorandum to Cochran: "With regard to reference to
Tripartite Agreement and France, reported to Rueff by
French Financial Attache' to United States, this was
given to press only as background information; therefore
HMJr does not wish his name used" - 1/31/38
316
Standard Gas and Electric Company
See Holding Companies
Steel Industries
See also Business Conditions
FDR tells HMJr he is about to issue statement against wage
reductions in view of renewal of agreements with labor
unions 1/27/38
133
Switzerland
Japan contacts Swiss National Bank with regard to large loan -
1/28/38
189
a) HMJr conveys his compliments to United States Minister
Harrison at Bern in this connection - 1/31/38
259
Regraded Unclassified
- T -
Book Page
Taxation
See Revenue Revision
Transamerica
Douglas tells HMJr report Securities and Exchange
Commission has is only an oral report made by head
of its San Francisco office 1/29/38
CVII 251
a) Douglas will send his man to HMJr's house
for conference
254
Douglas also reports on visit made to him by Giannini
who is "very much upset because Securities and Exchange
Commission won't allow him to engage in market
transactions in Transamerica" - 1/29/38
252
Tripartite Agreement
Resume at press conference - 1/27/38
117
- U -
Unemployment Relief
See also Public Health
Employment on Works Progress Administration projects,
by state - United States and Territories weeks ending
January 15 and January 22, 1938
51
- V -
Van Zeeland (Paul) Report
(For report, see Book CVIII, pages 218, 224)
Press conference concerning possible release - 1/27/38
117
- W -
Wages
FDR tells HMJr he is about to issue statement against
wage reductions in view of renewal of steel agreements
with labor unions - 1/27/38
133
Works Progress Administration
See Unemployment Relief
Regraded Unclassified
1
MEETING WITH MR. HAAS' GROUP RE
January 26, 1938.
BUSINESS SITUATION
9:30 a.m.
Present:
Mr. Taylor
Mr. Haas
Mr. White
Mr. Murphy
Miss Michener
Miss Lonigan
Mr. O'Donnell
Mr. Daggit
H.M.Jr:
All right, go ahead. How you going to handle this?
Haas:
That's that thing we called the Chronology.
H.M.Jr:
Yes. You don't want me to read that now, do you?
Haas:
Not necessary, no.
H.M.Jr:
What I want, George, is this. I want a review of
the business situation as of date.
Haas:
Fine, fine.
H.M.Jr:
Discussion.
Haas:
Might as well let Mr. Daggit start that, and the rest
can come in.
(Daggit brings various charts to
Secretary's desk)
H.M.Jr:
That's what I want.
Daggit:
Since our last meeting the business situation has
developed about as expected, and some of it has been
rather slow in recovering because of continued low
levels in freight car loadings and automobile pro-
duction and lumber production. There's been a
strong recovery in steel and textiles.
H.M.Jr:
The President asked me, "Do they include freight car
loadings in the Federal Reserve?"
Haas:
No.
H.M.Jr:
Production.
Regraded Unclassified
2
-2-
Daggit:
No, they don't.
H.M.Jr:
They do not.
Daggit:
Their Index is just on physical production.
H.M.Jr:
I see.
Daggit:
+he New York Times index includes it.
That drop in the end of December has been recovered
to this extent, which puts it about up to here.
H.M.Jr:
Yes.
Daggit:
The activity in the steel industry has recovered to
32.7 percent this current week, which is the highest
since November 15.
Cotton - I don't believe they have it dated in here,
but cotton mill activity has increased also very
strongly. Commodity prices have had a reaction which
is probably no more than a normal reaction after the
sharp rise during the first ten days of January.
Spot prices in Great Britain got down nearly to the
low reached at the end of December, but in the United
States they have held up better than that. Futures
prices have declined about to the average of
December, but not nearly as low as the low reached
early in January.
This reaction in spot prices seems a little more than
what one could normally expect.
H.M.Jr:
Hides and copper
Daggit:
Hides and copper have been weaker than other commod-
ities. Sharp decline in hides, and a decline in
copper to about the previous low. The others have
held fairly well. This is due partly to a reduction
finally in the asking price of copper producers.
They had been holding their quotations above the
general market. 4 reduction in hides probably is
a reaction from this very sharp rise you had during
December, which may have brought in more buying than
could currently be sustained.
Regraded Unclassified
3
-3-
H.M.Jr:
Got another one there? Let's see it.
Daggit:
These give some other prices of individual commod-
ities, which, as you can see, have held very well,
with the exception of those two.
H.M.Jr:
All right.
Daggit:
That just about covers it. And it seems to be
developing as one could normally expect at this
time.
Haas:
I don't know, while Daggit has the floor, whether
or not you want him to go over - I discussed with
you some time ago the question of working out a basis,
industry by industry, of production and demand to
check disequilibrium situations.
H.M.Jr:
Yes.
Haas:
He has a tentative chart made up on that.
H.M.Jr:
Where is it?
Haas:
Here it is.
H.M.Jr:
All right.
Daggit:
Inis is it. I mentioned at the last meeting that
we were working on this and included in the last
report a chart on steel and textiles. We have
included the same two charts in this group, but
have added about six others, and have also added
a calculation of the deviations of production from
our curve of basic demand.
Taking steel - production of steel during December,
we got nearly 40 points lower than our estimate of
demand from the steel-consuming industries. That is
as low as it dropped in 134 and lower than it dropped
in '32; but in both 132 and '34 that low level was
followed by El sharp upturn in production. Production
in 133 again got far above the estimated level of
demand, and that was followed by a decline. It got
further above the estimated demand in 137 than it did
in '33.
Regraded Unclassified
4
-4-
We expect these to provide a pretty useful index
of the extent to which production is getting above
demand and the extent to which it is getting below
demand. The composite index is shown here, and
that is made up of a solid line representing the
Federal Reserve index and a dotted line represent-
ing our calculation of this demand index based on
80 percent of the total weight in Federal Reserve
index - based on industries representing 80 percent
of the total weight.
The significance seems to be that when production
gets about ten percent or ten points below the
demand level, it turns upward as it did in '32
and in '34; when it gets about ten percent above,
it turns downward as it did in '33 and in '37. We
are still working on this and are trying to learn
just how to interpret it accurately.
H.M.Jr:
Well now, let's see, in textiles the demand is above,
isn't it?
Daggit:
Yes, production is way below.
H.M.Jr:
Your demand is above. Is that right?
Daggit:
That's right. We consider that a bullish situation.
H.M.Jr:
Your coal is bad.
Daggit:
Yes.
H.M.Jr:
What?
Daggit:
Yes.
H.M.Jr:
Your coal is bad. Your automobiles
....
Daggit:
Automobiles - let's see, they're fairly good.
H.M.Jr:
I mean it ought to get better, oughtn't it?
Daggit:
It ought to get better.
I don't believe the December figure has been put in
here. These December figures are tentative.
Regraded Unclassified
:
5
-5-
H.M.Jr:
I see.
Daggit:
Leather is very good.
H.M.Jr:
Leather's all right, but you haven't got it far
enough.
Haas:
Petroleum is another one which is bad.
Daggit:
Petroleum is bad.
H.M.Jr:
Oh, these are other ones, huh?
Daggit:
Yes.
H.M.Jr:
Where is petroleum? Yes, I know petroleum's bad.
When the Standard Oil of New Jersey man was down here
a couple weeks ago - in charge of production - he
told us that thing was out of line, didn't he, Harry?
White:
Yes.
H.M.Jr:
Huh?
White:
He did.
H.M.Jr:
They were worried then.
White:
Expected that the price would be a little lower.
H.M.Jr:
He was worried about it.
Daggit:
This would seem to indicate something to be worried
about.
H.M.Jr:
What else?
Daggit:
Meat packing - that's about on the fence. It got
favorable some time back and is - has now recovered.
H.M.Jr:
Lumber ...
Daggit:
Lumber is rather bad. Now, this could change either ...
H.M.Jr:
... either way.
Daggit:
... either way. If we get an improvement in residential
Regraded Unclassified
6
-6-
construction, it could turn up again.
Steel is favorable.
H.M.Jr:
Well, this is interesting because it's so fresh -
I mean it's so close up. I think that's very well
done.
Haas:
I think it's tentative, but ...
H.M.Jr:
Has Mr. Taylor seen it?
Taylor:
No. It sounds like a grand chart.
HyMiJr:
It is.
Daggit:
It's a new approach. In the preliminary stages.
H.M.Jr:
Show that to Mr. Taylor. I tell you, if you don't
mind, would you let him go to your office when
convenient?
Taylor:
Oh yes.
H.M.Jr:
I mean just the same - I mean if you want it, huh?
Let me keep that one and give Mr. Taylor another one,
see? You have more than one?
Daggit:
Yes, we have more.
Haas:
It's a print.
H.M.Jr:
"hat?
Haas:
It's a print.
Just one thing to keep in mind: we're still working
on it, so we may change it in some way.
H.M.Jr:
I understand. What else you got, George?
Haas:
we're - I've picked - I think some figures just came
in on construction which Daggit hasn't seen yet.
They've just come in.
(Haas brings material to Secretary's desk)
Regraded Unclassified
7
-7-
For the first 15 days of January, the total is
up, you see.
H.M.Jr:
Pay it so they all
...
Haas:
The total for construction - contracts awarded -
for the first 15 days of January, 1938, as compared
with the first 15 days of January, 1937, is up from
$101,000,000 to $128,000,000. There's been a
decline in residential and decline in non-residential,
and an increase in public works and an increase in
utilities; a sharp increase in utilities from ten
million to 45 million, which is a result of utility
construction in New York metropolitan and northern
New Jersey districts, which rose to 34 million from
6 million.
Daggit:
May I mention there that Dr. Lubin says that the big
increase in the New York district was partly due to
a change in building codes which went into effect
on January 1.
H.M.Jr:
I see.
Haas:
These are just the figures put on the charts, just
the starting - the total is up in
....
H.M.Jr:
All right, what else you got?
Haas:
We're doing another experimental job. Probably have
it in in 8 couple days. Situation I spoke to you
about. Involves a question of all the governmentally-
controlled instruments which have inflationary or
deflationary effect on the economy. And we have done
quite a little work - different members of the staff.
Henry Murphy is doing most of it, and Deggit and Harry
White, and so on. We expect to have it in a couple
days. That might be interesting.
I suggest now you might go around the room, let Harry
talk about the international situation.
H.M.Jr:
All right.
White:
I should say on the whole the international situation
is tending to hold us up. It hasn't yet become a
Regraded Unclassified
8
-8-
depressive factor.
H.M.Jr:
What do you mean, to hold us up? To retard us?
White:
No, to prevent us from going down lower. But that
it's becoming a little weaker in that direction than
it has been.
The Latin American situation is bad; it's turned bad,
and for next year, irrespective almost of what happens
here, unless there is E very substantial improvement
the world over, it will be a force tending to drag us
down, on the whole. I could go through the various
countries, but that would take too long; that's the
general situation in Latin America.
The Scandinavian countries are holding up very well.
England, notwithstending some evidence which points
to a downturn, or to a probable downturn, in the
beginning is not sufficiently changed so that you
can say it is in any sense a depressive factor; still
remains one of the very strong points in Europe. Ger-
many has improved very substantially and is apparently
maintaining at a very high level,
The Orient you are familiar with.
South America and India - I mean South Africa and
India, and those countries, are holding up well, so
that on the whole they are adding an optimistic tone
to the world situation.
And that shows in our foreign trade, too. That is,
our exports are holding up remarkably well; in fact,
they have increased substantially from the first
indications. We know they increased in November,
and the first preliminary data show they are very
high in December.
The imports, of course, reflect our situation, and
our imports are dropping heavily; reached a much
lower level, partly due to the economic situation and
in part due to different agricultural drought situa-
tions.
So I think one can conclude, on the whole, that the
feeling which is held by foreign writers - that the
crucial situation is the United States; if the United
Regraded Unclassified
9
-9-
States turns upward, it will in the main postpone
any recession that may take place in Europe. If
on the other hand, we don't turn upward, some of
the countries that are just teetering - some of
the important countries will join us and be a
depressive factor in the next four, five, six
months.
H.M.Jr:
I'll come back to that.
"ould you (Haas) contact - I think his name is
Fisher, the statistician over at F.H.A. Ask him
if he'd write me a memorandum now he feels about
the building situation from now until the first of
July. If that isn't asking too much, how he looks
at it from now They say he's a very good man.
What do you think?
Haas:
I know him.
H.M.Jr:
What?
Haas:
I know him some.
H.M.Jr:
Ask him if he'd give you a memorandum for me, how
he feels about the building situation from now until
the first of July.
Haas:
Yes, sir.
H.M.Jr:
What?
Haas:
Yes, sir.
H.M.Jr:
What effect, if any, they think this new bill will
have when it passes, see?
Now, there's some misunderstanding as between White
and Haas.
White:
We cleared it up. We were talking about Latin
America. I thought that you had reference to some-
thing that you had asked him about recently.
H.M.Jr:
Well, when am I going to get my United States charts -
imports and exports - for the calendar year, or even
up to date?
Regraded Unclassified
10
-10-
White:
Well, again I misunderstand. I thought you were
talking about your trade with Latin America.
H.M.Jr:
What do you think I'm asking for?
White:
About trade with Latin America.
Haas:
And the other important countries.
H.M.Jr:
And I asked it for Germany, Italy, and Japan.
White:
In relation to Latin?
H.M.Jr:
No, the United States. I asked - what I asked for -
and check me - I said, "I want the import and export
position of the United States with Latin America,
and Germany, Italy, and Japen."
Haas:
You said "all the other important countries," which
includes those.
H.M.Jr:
I thought I specifically
.....
White:
I thought you meant their position in Latin America
compared with ours.
H.M.Jr:
No.
White:
You'll have that day after tomorrow. Give you
Latin America today. The other
....
H.M.Jr:
I won't get a chance to look at it until Monday.
White:
We'll surely have it then.
H.M.Jr:
I'll try to have another meeting like this Monday,
if possible.
Haas:
On that question, Harry and myself - about that -
I talked about it, but I made one mistake which would
check itself long before this. I think you probably
told me about it some time, or something, and I didn't
put in a card. If there was a job card put in our
record, the other people handling the routine would
have caught it, so I'm
Regraded Unclassified
11
-11-
H.M.Jr:
As long as they get it now.
Harry, as near as I can remember it, England hasn't
borrowed any money in a long time. The last money
they borrowed, if my memory is right, was just before
Chamberlain went out as Chancellor of the Exchequer.
White:
Meaning domestically, of course.
H.M.Jr:
Yes.
Taylor:
That was that loan that went so sour.
H.M.Jr:
Yes, and I wonder what's happened.
White:
They've been spending more money than they're getting,
and I think they've been selling some bills recently.
I'll look that up.
H.M.Jr:
Look it up. And give me a memo how they do their
sterilization.
White:
Yes.
H.M.Jr:
Will you? I want both of those. Will you?
White:
Give them to you today.
H.M.Jr:
See? But also on that - I mean I don't understand;
I mean either they must have increased the amount of
bills outstanding considerably, because they haven't
gone into the capital market now - must be a year.
I mean I may be wrong, but that's what I think.
White:
I think less than a year.
H.M.Jr:
Well, look it up.
White:
Yes, I'll do that.
H.M.Jr:
What I'm going to try to do - I'm going to have
these once a week. And if George has got something
special, we'll do it twice a week. But if we do it
once a week, it'll give you fellows a chance.
Murphy?
Regraded Unclassified
12
-12-
Murphy:
I hadn't contemplated being called upon to make a
talk. If you desire to have some account of the
Government bond market and bank holdings of
Government securities
H.M.Jr:
No, I just got a most complete memorandum, which
I never received before, from Dr. Burgess. Did I
send that back to you?
Haas:
I don't think you did.
H.M.Jr:
Well, I never got one of those before. I mean they
make a memorandum that goes into their whole opera-
tions and everything else, for themselves and for
us, and I asked him last night and he said, "Oh,
we do that once a month."
I said, "I never got that. 11
Haas:
Oh, I get that.
H.M.Jr:
Oh, do you? A complete analysis, a bulletin?
Haas:
No, I get something which comes - gets in daily.
H.M.Jr:
No, this is monthly. I've never seen it before.
And it just came in. Harris may have it.
And then, Harris just did me a very good job on
our own situation. Have you seen that?
Murphy:
No, I haven't.
H.M.Jr:
You fellows better all get together. Harris just
did me an excellent job from what they've been doing.
why don't you have a talk with him and then find out
what the Fed in New York does, and let's tie them
all in together, huh?
Murphy:
Yes.
H.M.Jr:
I just read Harris and I just read Burgess, and I'm
up to here on bonds.
Murphy:
The reason I said that - I didn't want to duplicate
anything you had just gotten otherwise.
Regraded Unclassified
13
-13-
H.M.Jr:
But I think that needs a little co-ordination.
Haas:
Yes. I'll take care of that.
H.M.Jr:
What?
Baas:
I'll see to it.
H.M.Jr:
Because this is the best job I've ever seen the
Fed turn out. I don't think - I asked Burgess;
ne said it's monthly. I don't know whether it's
new. It gives a very complete picture.
And incidentally, or confidentially, Burgess told
me that Saturday he told the bond fellows that he
thought that they were - their portfolios were a
little heavy; to ease them up a little bit. And
that's why the thing sluffed off. But he told me
he thought their portfolios were a little heavy.
AS a matter of fact, if Murphy is going to follow
this thing, he ought to go up and spend a day or
two with whoever the statistician is in New York
in the Fed - their statistician on bonds, etc., and
get familiar with it. I'd send him up there and let
him spend & couple days. I mean if they're doing a
good job and have & big staff, there's no use our
duplicating that, huh?
Taylor:
I think they do a very good job.
H.2.Jr:
What?
Taylor:
I think they do E very good job.
H.m.Jp:
An excellent job. Just a question of interpreting.
As a matter of fact, not much to interpret by the
time they get through. But I mean I'd go up there
and spend a couple days and see.
Murphy:
be glad to do that.
H.M.Jr:
Want to say anything, Wayne?
Taylor:
I just wondered, have you got anything on Russia at
all that shows up anything?
Regraded Unclassified
14
-14-
White:
I think I can give you & very good description of
events there. Any specific aspects of it?
Taylor:
No, just thinking about the figures - if they showed
anything.
White:
They showed - as far as their industrial production
is concerned, they showed a much lower increase in
production than was both spoken of and anticipated.
Figures vary, but somewhere between - instead of the
29 percent, 27 percent increase which they talked
about for industrial production, it apparently is
closer to 10, between 10 and 15. And the production
which they are setting for the next year, which was
supposed to have been 30 percent, is 10.
Want me to go on with that particularly - more than
that?
H.M.Jr:
It's all right, go ahead.
White:
So that this is the first time in their series of
plans that they have set for their program of the
next year as low a rate as this 10 to 12 percent in
increase. Which indicates two factors. One, that
increases are becoming more difficult because they
are going to higher levels. Two, they are more
realistic and are not going to accept the kind of
figures which they accepted before, and which involved
a great deal of manipulation, and almost false report-
ing.
Thirdly, their exports and imports are in what we
would call - what they would call good shape. Their
foreign credits are very excellent. They can borrow
pretty near as much as they want on short-term credits
if they want to pay the four or five or six percent;
but they are trying to reduce the cost of their borrow-
ing. But their foreign credit situation is not an
important consideration with them at all.
What dominates them even more than ever is the - I
won't say almost certainly, I'll put it further -
I'll say the certainty that war will break out, they
think, this year, in their opinion; and every effort
is being bent to that. That is one of the explana-
tions that has been offered recently for the purge,
Regraded Unclassified
15
-15-
which went to very great lengths, and then the
withdrawal from the purge now to restimulate a
certain amount of confidence, hoping to get
industry started again, because they had everybody
scared to death among the leaders so that nobody
dared make a decision for fear it might result in
his being arrested. And they are preparing to help
Japan a very great deal with arms and so on.
Taylor:
You mean China.
White:
China, I mean. They are already reported to have
one hundred aviators and planes in one spot; they're
building an important highway and a railroad which
will provide a route through Russian Turkestan.
So their whole psychology is more than ever a war
one and geared to expectation and conduct of a war
in the near future.
Business on the whole is good in Russia - I mean
better than it has been.
H.M.Jr:
Miss Michener?
Michener:
I have nothing.
H.M.Jr:
I'm going to come to you (Lonigan). I'll come to
you last, if you don't mind.
How's your (0'Donnell) revenue?
O'Donnell:
I think revenues are meeting our expectations. We
had one situation, with which you may be familiar,
in the daily Treasury statement last month. Because
of the particular interest In Social Security, it
concerned us a little bit. We had anticipated
collections of about 50 million dollars from Social
Security
H.M.Jr:
What month?
O'Donnell:
in the month of December. And the daily Treasury
statement showed in excess of 70 million dollars. On
the other hand, we had anticipated the accumulated
collections from Railroad Retirement Act in respect
to the first nine months, which was due at the end of
Regraded Unclassified
:
16
-16-
November, to amount to 92 million dollars, and
that fell substantially short, according to the
daily Treasury statement, by about the amount that
the Social Security was over. I called that to the
attention of the Accounts and Deposits Unit and the
Internal Revenue people, and we reached the conclu-
sion that the people in the field had been incorrectly
designating the warrants in allocating the funds to
Pocial Security and they really belonged to Railroad
Retirement.
Just yesterday I received the collection sheet from
the Bureau of Internal Revenue, where the Collectors
have actually allocated from the assessment lists,
so that we have the correct designation. And I was
pleased to learn that the collections from November
and December came out to about 91.8 millions against
our estimate of 92, and correspondingly the Social
Security was within two millions of our estimate.
So that the daily Treasury will have to make an
adjustment, and I believe that that is now in process
of investigation. But that has come to the attention
of some people who watched Social Security very
closely, and I bring it up only that
H.M.Jr:
Well, somebody was awfully dumb on that.
Haas:
Vandenberg wrote in on that.
0'Donnell:
I merely bring it up because it may be brought to
your attention, and that is the explanation. It will
be corrected on the daily Treasury.
H.M.Jr:
And the rest - everything else is all right?
O'Donnell:
everything's all right thus far. In fact, very good.
H.M.Jr:
I mean so - let's see, the last figure we gave the
President
O'Donnell: Those figures seem to be borne out. Of course, our
next big test will come on the March 15 collections,
because it is there that we get into a new situation
on the base for the income tax collections.
H.M.Jr:
But I mean it's no worse than what we gave.
Regraded Unclassified
17
-17-
O'Donnell: No worse at all. And the business picture which Mr.
Daggit has so adequately given is just about what
we expected. It hasn't turned up as fast, but it's
not going down.
H.M.Jr:
I forget what you did figure.
O'Donnell:
In fact, it is just about what we figured for the
month of January, but it went lower in December.
H.M.Jr:
Yes, lower in December.
O'Donnell:
That's right.
H.M.Jr:
All right.
Now Miss Lonigan. You say you got back Sunday?
Lonigan:
Yes, sir.
H.M.Jr:
When would I get your report on New York State?
Lonigan:
Mr. Haas had it yesterday, Mr. Secretary.
Haas:
I think it's in there.
Michener:
It went in yesterday.
H.M.Jr:
Where?
Michener:
To Miss Chauncey.
H.M.Jr:
Miss Chauncey is due here at ten, so she'll bring it
in here.
Could you be as concentrated as some of these people
on what the employment situation looks like in New
York?
Lonigan:
The striking situation - I was in Texas the first week
in January, in New York the third week in January, and
the most striking thing was the remarkable improvement
in sentiment.
H.M.Jr:
Where?
Lonigan:
In New York. I mean separating the geographical
differences, from the first to the third week there
Regraded Unclassified
18
-18-
has been a remarkable improvement in sentiment.
There's been a definite turn in placements.
Placements have begun. Returns of Social Security
applications for compensation have begun. They are
being withdrawn - back to work before the four weeks
were up. There is a turn in the Social Security.
You will begin to have voluntary withdrawals of
applications because the men have gone back to work.
H.M.Jr:
May I interrupt you? The estimate that they gave us
was 800,000 people in New York would get unemployment
insurance, and the last figures I saw in the paper
were 480,000.
Lonigan:
Well, the 480 is much nearer right. I didn't submit
an estimate because I got so many variants and I
thought they didn't include the variants. But the
800,000 is out. That's what they originally said.
H.M.Jr:
Did you see Mrs. Rosenberg up there?
Lonigan:
No.
H.M.Jr:
If you ever go to New York again, see her, She's
the head of the Social Security in the state.
Lonigan:
I saw the state - no Federal.
H.M.Jr:
Yes.
Lonigan:
That is very marked, and it is reported that it
is showing up in the reports of salesmen, that they
are finding empty shelves - this general feeling
that the turn has come. On unemployment the lay-offs
apparently have greatly receded, 1f not stopped, and
at the present time we are not in a period of mass
lay-offs, and we are hardly in the period of small
lay-offs.
H.M.Jr:
My God, this is the first time I've even heard you
a tiny bit enthusiastic.
Lonigan:
I'm talking about flickers, I'm not talking about
mass. The mass is still there, with heavy weight
on the unemployment compensation people. They're
working seven days a week - Saturdays, Sundays.
Regraded Unclassified
19
-19-
They worked New Years, Christmas - the unemployment
compensation people - to get this mass of applica-
tions out. But there are not mass additions to
those applications; they are very few. And there
are withdrawals.
On relief I have no clear picture.
Oh, I might add in connection with that figure that
New York is usually flat in January. New York's
Christmas trade and everything is sort of closed out
in January - retail trade, manufacturing, everything -
so that a turn-up in January in New York City is very
remarkable. If you want my guesses as to why it is
....
H.M.Jr:
Just a minute.
(On phone) Get Colonel Harrington on the phone,
please.
Lonigan:
I do think it must be largely ascribed to those
meetings in Washington. They seem to have reduced
people's fear. It's amazing. That's my guess, my
hunch - that people are less jittery.
H.M.Jr:
Really?
Lonigan:
Yes, sir. It's very encouraging. So that sentiment
is better. Employment - mass lay-offs have ceased;
and small lay-offs - small returns.
On the relief picture, there isn't anything clear
and simple to be said. There is need. There is a
rising jitteriness on the part of relief officials
which I think is very unhealthy. And there is the
good old group of people who say, "Now there is a
lot of money for relief, we might just as well ask
all over again."
On the technical side, relief administrations are
still unable to cope with their problem. On the
administration, they can't cope. with it, don't know
the game. And on W.P.A., the increases in quota which
you arranged for W.P.A. have been sent out to the
states, but when the states try to pull the people
off the state relief lists, the so-called mass of
Regraded Unclassified
20
-20-
employables on the state relief lists being
supported by the city and county and state, are
not existent.
H.M.Jr:
(On phone) Hello. - well, tell his office that
if it is convenient I'd like him to come over and
see me at 11 o'clock on Thursday - on Friday. -
Yes. And what I want - I'd like him to give me a
picture of the relief situation 88 it is at present.
I'd like to get a picture of the relief situation
from him, and if he'd come over at 11 o'clock Friday,
and if he can, tell Mr. Bell I want him here at that
time - 11 o'clock Friday.
What were you saying, Miss Lonigan?
Lonigan:
You raised the quotas for N.P.A. They got additional
quotes. They wired out to their states immediately
to draw all the employables off the relief rolls,
and they couldn't draw them off, you see - the cities
and the mayors.
H.M.Jr:
Why should they draw them off the relief rolls? You
mean to add them.
Lonigan:
No, sir. I'm distinguishing - W.P.A. isn't relief
rolls.
H.M.Jr:
What?
Lonigan:
W.P.A. isn't relief rolls.
H.M.Jr:
Oh, I see,
Lonigan:
They wired the W.P.A. state administrations to take
this group of employables off the relief rolls that
the Mayors Conference did so much talking about - that
they're supporting this mass of employables. They
tried to take them off and couldn't take them off,
for two reasons. One was they mostly weren't there;
the second one is, W.P.A. can only take off a group
of people that can work on plant maintenance plus a
few sewing rooms. I mean W.P.A. doesn't have the
type of projects which can take off all the unemployed.
But this mass of employables that are supposed to be
on the city government relief rolls - as soon as you
try to take them off, they aren't there. I don't think
Regraded Unclassified
21
-21-
it is dishonesty - I'm not implying that at all.
It's just that the relief
.....
H.M.Jr:
Well, you're getting in now, if you don't mind
....
I'll read this stuff. Just one thing while you're
here: I'd like you to leave next Sunday night. I'll
give you a week here.
Lonigan:
I need it.
H.M.Jr:
Well, I'll give you a week.
Lonigan:
My clothes need it.
H.M.Jr:
What?
Lonigan:
My clothes need it, if I don't.
H.M.Jr:
I'm going to send you out to Illinois next.
Lonigan:
Illinois?
H.M.Jr:
Yes. And I want you also to do downstate just as
you did upstate New York. And I think you better
take plenty of time. I should think it would be
worth at least a week - Chicago and downstate.
Lonigan:
It takes 8 great deal more time to do the rural
areas.
H.M.Jr:
I mean I want you to go downstate to the capital,
Springfield; then get down into some of the badlands
of Illinois on the border there, as the soil peters
out as you go south.
And I'm sending for - who's the fellow in Farm
Credit?
Haas:
Oh, Garwood.
H.M.Jr:
I'm going to speak to Garwood - Steve Garwood and
find out what he knows about how Resettlement handles
their loans; he'd know, because their people would be
rubbing elbows.
Lonigan:
In Illinois?
Regraded Unclassified
22
-22-
H.M.Jr:
Everywhere.
Lonigan:
Well, you got that memorandum.
H.M.Jr:
Yes. I'm going to look into that. Terrible.
Lonigan:
The sentiment was terrible.
H.M.Jr:
What?
Lonigan:
The feeling against Resettlement.
H.M.Jr:
Yes.
Lonigan:
And I was thinking there was a possibility the
Budget Bureau might be blamed for it, wrongly.
H.M.Jr:
And you'll be amused at this. The President sent
back a memorandum to me on the Texas thing. He
said, "Show this to the Vice President. I haven't
got enough nerve to show it to him." So I just
buried it. If the President thinks - the Vice
President doesn't check with what you said about
Texas - "I don't have courage enough, so somebody
else will have to tell him about his dear Texas
and his people."
Lonigan:
Well, that Texas report was not an argument for big
spending. It could be interpreted ...
H.M.Jr:
No, no, it's the conditions. The President has been
talking about wages and hours and roads, and the
Vice President maintains that everything in Texas
is lovely, see? And he says the wages are the
highest, the schools are the best, roads are the
best.
Lonigan:
On, that's inadequate,
H.M.Jr:
And this memorandum of yours sort of changed it.
But I'm perfectly frank; I don't mind sending anything
to the President, but I wouldn't have the nerve to
send it to the Vice President.
Lonigan:
On the New York situation, may I add a sentence
before I finish. I know from my New York experience
that the New York situation, which is the biggest
Regraded Unclassified
23
-23-
industrial pulse in the country, swings absolutely
on February and March; in other words, if it is on
an upgrade through February and March, if that is
maintained through March, it will run through
August. It swings - it's a pivot in there - February
and March are a pivot. If it keeps up, if it is
nursed through February and March, it can swing
right through August, we can be pretty sure that
this whole thing will swing right along.
H.J.Jr:
Well, isn't Chicago, Illinois, pretty important
too?
Lonigan:
Oh yes. I just wanted to emphasize that right at
this moment, this end of January - February and
March will carry us for six months if we can go
H.M.Jr:
Do you really think so?
"onigan:
Yes, I'm sure of it.
H.M.Jr:
Well, I was going to say this when I started the
meeting - that I feel less happy about the situation
today than I did two weeks ago; but what you people
say doesn't necessarily bear it out. But my elbow
doesn't feel as good as it did two weeks ago.
Haas:
You probably feel
...
H.M.Jr:
What?
haas:
I mean you've been watching the market so long that
when everybody gets a little happy, it's a good idea
to cross your fingers; and that's all to the good.
H.M.Jr:
If you thought what I thought - I'm telling you I
don't feel as - I mean that spurt we got there right
after the first of the year, the retail thing, the
fact they seemed to clean up - the thing between
Christmas and New Years was awfully good - I mean the
way those people cleaned up their shelves and every-
thing else. out then, right after that there seemed
to be kind of a letdown again.
Hass:
A complete letdown right after.
Regraded Unclassified
24
-24-
H.M.Jr:
And then the figures that you sent me in on these
businesses, with the exception of a few chain retail
stores, are - they're all doing very badly.
Haas:
That's right. The only thing is steel and textiles.
And we don't have the textile companies' report.
Steel is better.
H.M.Jr:
What's a good textile company that does big
business?
Haas:
Oh, Cannon.
Daggit:
Cannon Mills.
H.M.Jr:
Ask Mr. Cannon if he'll send you the sales from
now on.
Haas:
Yes.
H.M.Jr:
Ask Cannon. Why don't you g et a big gasoline company
too? I tell you, if you ask
....
Haas:
New Jersey.
H.M.Jr:
They'll give it to us.
O'Donnell:
Teagle?
H.M.Jr:
What?
O'Donnell:
Teagle?
H.M.Jr:
No, Jay Crane. He's the Treasurer now.
Haas:
He's a banker too.
White:
Isn't Cannon a little too good to be representative
of the whole industry? They're a pretty good - they
may not be typical. Maybe Cannon and somebody else
would be better. They do well when others frequently
don't.
D'Donnell:
Because of their international business.
H.M.Jr:
Well, think about it. But get Standard 011 of New
Jersey, see?
Regraded Unclassified
25
-25-
Murphy:
Jersey is rather regional. That is, you haven't
got the complete
H.M.Jr:
No, they've spread out, you know.
O'Donnell:
The local company that is most diversified is
Texas. It is an independent, but it has retail
outlets in every state.
H.M.Jr:
All right, take
....
O'Donnell:
Also production and refining unit.
H.M.Jr:
"ny not take two? Take Texas. Texas has a national
distribution. What?
Haas:
Yes.
O'Donnell:
every state.
H.M.Jr:
Well, leave out Standard of New Jersey. Let's take
Texas.
Haas:
Standard of New Jersey has got other products which
correlate business conditions.
H.M.Jr:
All right, let's get Standard of New Jersey and
Texas, and then get & couple of - a textile and a
woolen.
Haas:
Uh-huh.
H.M.Jr:
Take Cannon and take a woolen.
Haas:
All right.
Daggit:
I might try some large cotton merchants' organizations.
H.m.Jr:
"ell, think about it. Think about it.
Haas:
All right.
H.M.Jr:
That isn't crowding you too much, if you (Lonigan)
leave Sunday night for Illinois? Gives you a week
off.
Lonigan:
Monday night would be better for me. Monday night
would be better for me personally.
Regraded Unclassified
26
-26-
H.M.Jr:
Monday night.
Lonigan:
I must get some winter clothes. I don't have any
clothes.
H.M.Jr:
I thought you had overalls on when you went out on
this job.
Regraded Unclassified
27
RE PROPOSED INCOME TAX settlement
January 26, 1938.
GROUP
10:30 a.m.
Present:
Mr. Magill
Mr. McReynolds
Mr. Helvering
Mr. Graves
Ar. Gaston
Graves:
I submitted to Mr. Helvering a suggestion along the
lines of our previous conferences for an experiment
in the Los Angeles division, in which we would set
up for that division a group to be under the tech-
nical staff. That was my proposition. That group
would exercise for the Commissioner complete juris-
diction over the settlement of all cases originating
in that division.
The proposition as I made 1t was that the present
jurisdiction of the Revenue Agent in Charge in that
division would be left unimpaired, but that at the
stage where he decides that there is no hope of his
reaching an agreement with the taxpayer - at the
point, in other words, where he now would send the
case to Washington for consideration by the Bureau,
he would send the case to this division of the tech-
nical staff, will would have all of the authority which
is now exercised by the Bureau with r eference to the
settlement of that case; and that would mean that the
authority of the settlement group would be applied in
cases prior to the issuance of the statutory notice
of deficiency, as well as after.
Mr. Helvering has some objections to the application
of that plan with reference to cases before they reach
the statutory notice of deficiency, and he has stated
them in a memorandum to me. Since that memorandum
was given me by Mr. Helvering, I have had further
conferences with Mr. Marrs, of the technical staff,
and Mr. Sherwood of the Income Tax Unit; and I under-
stood them to say that, while they had misgivings as
to the ultimate success of the plan as I proposed it,
yet they feel there would be no material objection
to its being tried as I proposed it. And I think that
we have come into substantial accord, as far as Mr.
Marrs and Mr. Sherwood and myself are concerned, as
to the proposal to make the trial.
Regraded Unclassified
28
-2-
H.M.Jr:
Well now, let me just get this thing. You're
talking a little bit too technical for me, see?
What I have been hoping that some day we'd be
able to do, and that's what I thought we were
going to do and still hope we're going to do in
Los Angeles, is, if my income tax has been
examined and I am in disagreement with the agent,
then I can go to some place in the city of Los
Angeles and come to a definite understanding with
every representative of the Treasury as to what my
tax is. If I can't come to an understanding, then
the only - the next jump from the group that I meet
with would be the Board of Tax Appeals. There would
be no in-between. Either I'm in agreement with the
representatives of Internal Revenue or if I'm not -
if I can't come to an agreement with them, then my
only appeal would be the Board of Tax Appeals.
Now, that's the way - the way I was talking with
you people the other day.
Magill:
Well, that is essentially this idea.
H.M.Jr:
Well, you say "essentially," which is a qualifica-
tion. He (Graves) used a qualifying word.
Graves:
Well, I'd like to strike out the "essentially."
Magill:
I think you could.
H.m.Jr:
The reason I make this little statement - you both
used some qualifying adjective. I mean is there
anything
Graves:
There is no other recourse.
Magill:
I'm trying to be cautious. I think you can strike
"essentially" and say "exactly."
H.M.Jr:
All right.
Magill:
Now, let's see
....
McR:
That's what Harold is trying to do. He's trying
to set up a settlement group that would do specifically
that thing.
Regraded Unclassified
29
-3-
H.M.Jr:
I mean have I - as I understand, from a layman's
viewpoint, is that what you fellows are going to do?
And no "essentially" or "maybe" or "almost" in
between.
Magill:
No, that's what it is. Let me
Helvering:
Go ahead.
Magill:
what will happen is this. Let's trace through your
return; that's the easiest way to see it. You make
your return. A revenue agent goes over it and com-
pares it with your books, etc., and he says, "We have
come to the conclusion you owe an additional thousand
dollars of income taxes for 1936." You have a confer-
ence with him, protest that determination, and you can
come to no agreement. He insists that you owe the
thousand; you insist you don't.
No.: the next step, under this plan, is that you may
then 80 to this settlement group in Los Angeles and
discuss the matter with them. If after E. discussion
you come to the conclusion that it is five hundred
dollars instead of a thousand, and you're willing to
settle on that basis, all right, she's settled then
and there. If you still insist that you don't owe
anything more and the settlement group concludes
that you owe B thousand or seven fifty or some other
amount in addition, then the proposal is that
immediately a deficiency letter should issue, which
gives you then E right of appeal to the Board of Tax
Appeels.
M.M.Jr:
Well, haven't I - isn't that saying what I said?
You're saying it technically ano I said it in my
particular - peculiar way.
Magill:
I think that's true.
H.M.Jr:
Now, are you (Heivering) willing to have us try this?
Helvering:
On yes. Yes, AID for the experiment, with very neavy
underscoring of "experiment," for this reason, and I
thought you ought to know and think about it. I can't
nelp but think - when I studied chemistry, they told
me, "Don't mix acacia and sugar together and try to
compound them in a morter, because you'd have an
Regraded Unclassified
30
-4-
explosion. Now, I want to visualize this in just
a little different way - not, as you (Graves) said,
by objections. Those were just suggestions; I didn't
mean them as objections.
Now, we'll take the same illustration, Mr. Magill
used. You're the taxpayer and the agent has said
to you that you owe a thousand dollars more. You're
not in agreement with that at all. The taxpayer
goes over to this settlement group. The settlement
group either agrees or doesn't agree with the agent.
If it agrees with him, after this hearing is had a
90-day letter is issued. Now, after the 90-day
letter is issued there is only one thing for him to
do, try to settle it with the settlement group or,
finally, try it before the Board.
Now, you're the taxpayer and Mac's the Agent in
Charge and we're the settlement group. Now, you've
gone to the extent you can with the Agent in Charge.
The settlement group - you've talked to them; and
the 90-day letter is issued on what you know is the
concensus of the settlement board and the agent; and
it takes away from you & new hearing before a strictly
settlement group before you finally go to trial,
because you would say, naturally, "Well, I've been
before those fellows; they've objected and sent me
this 90-day. No use my going back to them.
H.R.Jr:
Well, that's just what We want.
Helvering:
If that's what you want
H.M.Jr:
We don't want these fellows coming back to Washington.
We don't want them hiring Washington lawyers. This is
just exactly what I want. This fellow knows he can
either settle with the settlement group or go to the
Board of Tax Appeals. This group is there. That's
his last resort, as far as the Treasury is concerned.
That's exactly what I want.
Helvering: Well, of course, we'd have to change that procedure
a little on that.
H.M.Jr:
I mean either - this is & little court that we set up
Regraded Unclassified
31
-5-
representing everybody. They sit down with the
taxpayer. And we're putting it in his backyard
so that he doesn't have to go to 11 the expense
and inconvenience
Helvering: Have you (Graves) your memorandum there?
Jr:
and all the business back and forth. And he knows
that when he gets his 90-day letter that is the final
expression of opinion of the complete Treasury - Chief
Counsel, General Counsel, Under Secretary, Secretary,
Commissioner of Internal Revenue, and every other
goû-damn so-and-so.
Gaston:
Guy, would it improve the set-up from your standpoint
if ne 61d not have access to the settlement group
until after the 90-day letter had issued; in other
words, to preserve the authority of the agent up to
that point?
Helvering: Well, that's what I was thinking about under this
particular procedure. Now, the Secretary has put
& little different slant on that.
H.M.Jr:
No, I - look here; now, look. This thing isn't
rigid in the sense
Herold wanted to try it
in New York, I said, "No, It's too important. Let's
get the bugs out of it. Let's try it this way and
let's run it along for B while." I mean this fellow
goes in and he sees this group and he knows if ne
can't - the shole pressure - the whole idea, as I
get it, is that he's got to settle it with this group
or he gets 8 90-day. And there is no other place,
but this is the one and only group. What's the sense
of having two boards - I mean twice. He gets in there;
these fellows should be patient, they should be fair,
they should be just. They should listen to him and
try to meet nim, try to settle it. Now, if they
can't settle it - "All right, Mr. Jones, there's no
other place, as far as the Treasury is concerned, for
you to go, and if you don't agree you get your 90-day
letter."
Now, to give them another thing and another loophole -
it just spoils the whole thing.
Helvering: Now, will you read this paragraph?
Regraded Unclassified
32
-6-
H.M.Jr:
And you and I and everybody here have got the
right to pick flaws in it after she's going for
a while.
Which? "Functions of Settlement Group"?
Helvering: Yes. You read that. If that's your idea, why then,
I'm perfectly in agreement.
H.M.Jr:
"Functions of Settlement Group.-- The proposed
settlement group - let me read back ahead
of that. Shall I?
"The settlement group should be composed of the
best settlement men available (probably not fewer
than ten at the beginning), chosen from the Technical
Staff, the Conference Division, and the Engineering
and Valuation Division. It should have an ample
corps of auditors and clerks. It should be headed
by a member of the Technical Staff or a conferee who
has shown outstanding ability in the direction of
settlement work. It is my opinion that for the
duration of the experimental period this officer
should report to, and be subject to the direction
of, the head of the Technical Staff in Washington.
"Functions of Settlement Group.-- The proposed
settlement group should (a) grant a hearing to every
taxpayer who after full discussion of his case in the
office of the revenue agent in charge, still protests
the agent's findings; (b) make on behalf of the
Commissioner a final administrative determination
of the deficiency or overassessment, and endeavor to
secure the taxpayer's agreement thereto; (c) send the
case back to the revenue agent in charge for such
action BS may be required to carry out the determina-
tion, including the issurance of a statutory notice
of deficiency when necessary; and (d) negotiate
settlement after the issuance of the statutory notice
whenever it seems advisable."
Now, I don't understand
Graves:
Well, after the taxpayer has received his notice of
deficiency and if he wants to come in
Regraded Unclassified
33
-7-
H.M.Jr:
Oh, he still has a chance?
Graves:
with the same body.
H.M.Jr:
Oh, you mean after he gets the 90-day letter he
can still come back.
Graves:
Yes.
H.M.Jr:
Would they change their opinion?
Magill:
They might.
Graves:
He has the opportunity to dis-- come in and discuss
the case, but with the same body.
Magill:
That's a very important thing.
H.M.Jr:
That's a new wrinkle to it.
At the present time they appeal to the Board of Tax
Appeals each year somewhere around 4500 cases - isn't
it?
Helvering:
Where?
H.M.Jr:
The Board of Tax Appeals - about 4500 appeals filed
per annum?
Helvering:
Little more than that.
Magill:
The Board actually hears and determines, of those,
only somewhere around a thousand. The other 3500,
and in fact more than that, are settled by this
Technical Staff down here or by the General Counsel's
office.
H.M.Jr:
Well, I think this is even still fairer. This gives
the fellow - after he gets a 90-day letter he can
still come back to this group. He gets the 90-day
letter and after sleeping over it he says, "Maybe I
do want to settle." He can still come back to this
same group. Sounds all right to me. But this is
in addition.
Graves:
No, that was in the original plan.
Regraded Unclassified
34
-8-
McR:
Just throws everything that now exists any place
else into that group.
H.M.Jr:
That's what I'm trying to do. Maybe it's all wrong.
I think it's worth trying.
"Legal Staff.--A picked group of attorneys from the
Chief Counsel's office should be assigned to duty
with the proposed settlement group, to (a) advise
the settlement group on request with respect to legal
questions arising in the consideration of taxpayers'
protests; (b) examine cases in which statutory notices
of deficiency are to be issued and advise whether the
proposed determination can be successfully defended on
appeal; and (c) represent the Commissioner in the trial
of appealed cases before the Board of Tax Appeals.
The legal staff should have no authority to settle
cases independently of the administrative settlement
group."
Check on that.
"Board of Tax Appeals.- cooperation of the Board
of Tax Appeals should be obtained in arranging for
early hearings in Los Angeles on appeals growing out
of the determinations made by the proposed settlement
group. The cooperation of the Board should be sought
also with E view to insuring that all such appeals
should be set for trial on the Board's field calendar,
except in instances where assignment to the Washington
calendar is agreed to by the Government.
"Revenue Agent's Office, The present authority and
responsibility of the agent in charge at Los Angeles
for the examination and settlement of income-tax cases
should be continued without curtailment."
The only thing is this legal staff. Is this another
staff in addition to the Technical Staff?
Graves:
It would be part of this same settlement group.
Magill:
Again your idea of trying to get one body to do all
the settling.
H.M.Jr:
But the authority flows through the Revenue Agent's
office to the Commissioner. Is that right?
35
-9-
Magill:
That's right.
H.M.Jr:
And it doesn't - it really flows through - this
whole group is responsible through the Revenue Agent
to the Commissioner and there is no divided authority
where some of these lawyers go to Oliphant and some of
them go to the Commissioner; but the whole thing -
this group is responsible through the Revenue Agent's
office to the Commissioner.
Graves:
Well, not through the Revenue Agent. Responsible
directly to the Commissioner.
H.M.Jr:
I mean the responsibility is to him?
Graves:
Yes.
H.M.Jr:
So there is no
....
Graves:
mr. Helvering himself made this suggestion, and I
certainly concur in it: that after - that is, it bears
on - that after the petition is filed with the
Board of Tax Appeals, if the representative of Chief
Counsel who is attached to this group feels that the
case should be tried and the head of this settlement
group feels it should not be tried - in such a case
he feels, and I feel too, that it should be tried.
In other words, after the petition is filed the con-
currence of both the chief settlement man and the
Chief Counsel's representative would be necessary if
there is to be any settlement.
Gaston:
Necessary for a settlement. If they don't agree, it's
to be tried.
McR:
I think that's basic. I don't think you can duck
that. If either one of them feel that the thing
ought to be tried before the Board of Tax Appeals
rather than a compromise settlement made, I think
it ougnt to go to trial. That's the only safe way
to handle it.
Helvering: Many times the equity of the case would appeal to a
person in settlement when the legal phases of the
case could absolutely be defended.
H.M.Jr:
Has Oliphant seen this?
Regraded Unclassified
36
-10-
Magill:
Not that I know of.
H.M.Jr:
You ought to see him.
Magill:
I should think SO, It's essentially a matter
within the
H.M.Jr:
Well, you're going to draw on him for lawyers,
aren't you? Take this very thing you're discussing
now.
Magill:
Have you (Graves) got lawyers in Los Angeles now?
Graves:
Yes, but I doubt that we'll use them on this. I
think the settlement group - these lawyers would
come from the Appeals Division of the Chief Counsel's
office.
Magill:
Well then, we certainly ought to discuss it with him.
H.M.Jr:
What?
Magill:
We ought to discuss it with him.
H.M.Jr:
Now just one thing I want done. Could it be
possible for the Treasury to supply the taxpayer
with counsel?
McR:
No! Absolutely not. I've seen that tried - veteran's
counsel and things of that sort. You can t be on two
sides. Your settlement man is interested, the Com-
missioner of Internal Revenue is interested, in giving
him what ne's entitled to. You're not trying to
collect something that isn't due under the law. You
make the determination that it is due under the law.
And 1f you try to assign Government employees to
represent the texpayer's interest as against the
Government's interest, I think you just get your
issues all mixed, and you'd find those fellows as
you did - see, the veteran's counsel was furnished
by Veterans Bureau ...
H.M.Jr:
All right, forget it. All right. O.K., you've
said enough.
Gaston:
Just one thought. I'd like to say in that connection
it seems to me that this settlement board ought to
be so operated that a man will get as good or better
37
-11-
results without counsel before that board than
he would with counsel.
McR:
Not necessarily better. I don't see how it
could be better. Ought not to be a particle of
difference.
H.M.Jr:
I brought out the point I wanted to make.
Now, when you going to start this?
Graves:
Well, I've talked that over with the people in -
Mr. Helvering's associates in the Bureau, and I
feel that if we get right at this thing and make
our plans and pick our personnel and rent our
space, which we'd have to do out there because
there's no Federal building available - that we
could get going on this thing first of March.
H.M.Jr:
Well, not later. Not later; that's the deadline.
Graves:
All right. Does that strike you
Helvering:
Yes, I think we can get it done.
H.M.Jr:
Well, that's the deadline.
Now, do we want to announce anything about this in
advance or do we just want to go ahead and try to
do it?
Graves:
I would prefer not to have any announcement, at
least until we have crystallized our set-up much
Magill:
Oh, I think that's true. When you have actually
got your personnel together and they are going to
do it, I think then an announcement would be
desirable.
Graves:
After we do it.
McR:
Wouldn't it be better to have your announcement a
local announcement covering the territory - parti-
cularly heading into the territory where you're
going to operate?
Regraded Unclassified
38
-12-
Gaston:
I think for two reasons - one is that when this group
get out there started to going, why, somebody will
learn, there will be some stories about it there,
somebody will learn you are out there - then there
ought to be a frank statement about what you are doing
locally.
B.M.Jr:
well, I'll tell you what I had in mind; you people
can think about it. I thought that just before Harold
started out we might get the people together who are
interested in writing this thing and explain to them
just what our objective is, so we can get a decent
story.
Helvering: You mean the local - the. Treasury man just before he
starts out there.
Magili:
I think that's fair enough, because they're going
H.M.Jr:
And sit down and take an hour - special meeting - and
go into greatest detail and explain this thing to
them.
Helvering:
The experience when we established these others -
now, this is very much better, and when we set up
these others, I think - well, it goes farther, in
the first place.
McR:
Well, it's a development. You're learning, you're
getting something from experience.
Helvering: I have in my files a great many clippings from the
Ohio - the Cleveland and Toledo papers - a great
deal, and
n.M.Jr:
Well, this is so much further, it's so close to my
heart - I'm not saying this is the way it should be
done, but I'd like Gaston to think about it, and the
rest of us. I think just before we open up on the
first of March - I think on the first of March the
thing should be explained here, I think this is of
national importance.
Magill:
I think so too. Furthermore, if you don't do that,
rumors are going to seep out and the thing gets out
in twisted form.
Regraded Unclassified
39
-13-
McR:
You can't avoid it. I think the boss is probably
right on that. If you don't give them & correct
story, you'll get an incorrect story.
Magill:
I think you'll have to do it before the first of
March, as a matter of fact, because you'll be talking
to some of these fellows down in the Unit about going
out there and so on, and the thing will gradually get
out.
H.M.Jr:
Now, you (Helvering) are willing to try it?
Helvering:
(Nods yes)
H.M.Jr:
The great trouble is, everybody around here wants
to be detailed for the month of March to Los
Angeles, so they can watch this thing. I think
I'll have to go out myself.
McR:
(Laughs)
H.M.Jr:
All right.
Helvering: Of course, I don't want to be accused of being
Scotch on this.
H.M.Jr:
But
....
Helvering: But it's going to be a very expensive operation.
When it is all set, if this is a success and we
take it over the United States, it is going to be
a much more expensive operation than we have now.
1.1.Jr:
I don't think so, after you get it started, because
I think the three hundred men that you've got doing
this thing - I think you'll find you'll be able to
cut them down to two hundred.
McR:
Guy, you're
H.M.Jr:
I think you're going to save money.
McR:
Of course, your second step on this, if it goes and
you approve it, will be to extend this settlement
group's jurisdiction over all your West Corst 110-
tricts, so that you won't be creating more outlement
Regraded Unclassifi
40
-14-
groups, but you'll be merely expanding this
settlement group.
delvering: Have 11 in the United States, I understand.
n.W.Jr:
But you've got how many men doing this reviewing,
about three hundred?
Graves:
About three hundred, including the Appeals Division
of the Chief Counsel's office, doing settlement work.
H.M.Jr:
I think you're going to cut down that staff by a
third - where you're going to save money.
'll be
disappointed if you don't.
Helvering:
well, of course
MoR:
Guy still says It's an experiment and we'll find
H.M.Jr:
I'd say it's an experiment.
ZeR:
The boss is the one that insists it be an experiment.
0.5.Jp:
Well, if I ned followed this fellow (Graves) - he
was going to shoot the whole works in five counties
In the great city of New York. But I said - they said
they've got 1300 cases in Los Angeles - "Let's try
It there; at least I want to watch it."
,Holvering:
The reason I said it will be more expensive, Mr.
Secretary, is that you are providing a medium whereby
every little taxpayer will come in, which is all
right; he's entitled to it just the same as anybody
else. But of the 16,000 deficiency letters we now
Issue N year, there's only 5,000 ever come to any
....
Well, you don't know. Now, I broadcast after
Professor A111 Starr Myers said that Mr. Herbert
Goover RBS being persecuted that I would see anybody
and near anybody that was being persecuted; and I
sidn't Have to see a fellow. One fellow was going to
show up from Boston, and somebody tipped him off not
to come, because he realized he was E bad boy. And
I never did have to see anybody.
McR:
Well, of course, Guy's signing B memorandum with
41
-15-
respect to all of those cases that come in,
and of course there isn't a single one of them that
isn't lousy.
H.M.Jr:
Well, let's try this thing, and we all have our
fingers crossed.
Helvering: Don't get the idea that I'm opposing this.
Remember, I was quite energetic in proposing
the Cleveland thing. Now, that didn't work out
as good as this will.
H.M.Jr:
Well, let's try it. We're hoping. But this is
something I'm very much interested in.
Magill:
Well, we better see Mr. Oliphant at once.
H.M.Jr:
Yes. But now, listen, gentlemen. This starts to
roll the first of March. No excuses accepted.
Regraded Unclassified
42
Jamary 12, 1938.
m.
I have discussed with Mr. Russell and Mr. Shareood, and with It.
Marro, a plan, alternative to the Cleveland plan, for the final settle-
next of income-tax cases in the field. Under this alternative plan,
regional divisions of the Bureeu's settlement staff would be established
in the various sections of the country, with final and exclusive authority,
for the Commissioner, to consider and settle tex deficiencies and one-
assessments, whether before or after the issuance of statutory notices,
in instances in which the revenue agents in charge have been unable to
obtain agreements. Under such a plan, the regional settlement divisions
would be directly responsible to a chief settlement officer in the Bureau,
appointed or designated for the purpose by the Commissioner.
I believe that such a plan would have & under of advantages over
the Cleveland plan, assuming the application of one or the other to the
whole service. It would be easier to manage and supervise. It would
insure a higher degree of uniformity in settlements. It would afford
less opportunity for the exercise of improper local influences upon
settlements. In fact, if the personnel of the field settlement divisions
ware members of the staff of 4 chief settlement officer in the Bureau,
not only subject to bis technical direction but also subject to his
authority with respect to assignments, salaries, and like matters, there
Regraded Unclassified
43
Regraded Unclassifie
is no reason to suppose that the Bureau's control over settlement work
should be say less effective than under the present centralized system
of management.
The proposed plan would seem to be superior to the Cloveland plan
from the point of view of the taxpayer also. It would afford him the
opportunity to have his case reviewed by an administrative agency in-
dependent of and superior to that which made the investigation and
asserted the tax liability in the first instance. Under the Cleveland
plan be has no such recourse; if not satisfied with the administrative
finding, be can only carry his case to the Board of Tax Appeals. ob-
viously, some method must be available for disposing of the bulk of
tax controversies administratively. It is believed that the proposed
plan would provide the best possible machinery to this end, without
of course depriving the taxpayer of the privilege of & final review
by 48 agency independent of the administrative authorities.
By comparison with the settlement system now generally in effect,
the proposed plan would have the distinct advantage of eliminating all
stages in the administrative settlement of tax disputes, except one
(leaving out of consideration the settlement work done by revenue
agents, which would remain undisturbed). It would consolidate all
groups now participating in settlement work, and leave only a single
authority to deal edministratively with tax controversies, in whatever
stage. I believe that it would expedite the closing of cases and
would tend to out does the number of appeals to the Board.
The extent to which these results could be realised would of course
44
-3-
Regraded Unclassifie
depend in large upon the personnel essigned to the respective
settlement divisions. I believe, however, that settlement officers of
ample ability to insure the successful functioning of the plan can be
found without great difficulty in the personnel of the agencies now engaged
in settlement work, including the Technical Staff, the Conference Division
of the Income Tax Unit, the Engineering and Valuation Division, and, of
course, the Appeals Division of the Chief Counsel's office.
I feel strongly that the proposed plan offers enough promise of
solving some of the major problems involved in the settlament of
income-tax cases, at least to warrant its trial on an experimental basis.
Such 4. trial might best be made in a single division of average sise.
Preferably, the selected division should be at some distance from Weshing-
ton so that the benefits to taxpayers resulting from reduced delays and
costs would be fully realized. It would probably be desirable also to
select a division that would be roughly comparable with the divisions
involved in the Cleveland experiment. In my judgment, the Los Angeles
division best meets these requirements. This division has the further
advantage that four representatives of the Technical Staff and four
engineer revenue agents are DOW assigned to duty there. These nes, or
some of them, might serve as & nucleus for the special settlement group
which the proposed plan would require. If the experiment should be
tried in the Los Angeles division, it would probably be advisable at
the outset to confine the work of the now settlement organization to
cases originating in that division. After the experimental organization
has been functioning for & reasonable period, if the plan seems, as the
45
whole, to be successful, the jurisdiction of the now settlement group
eight woll be extended to cover also the unagreed Cases originating in
the San Francisco and Seattle divisions.
I submit below an outline of the proposed plan be It would be apr
>lied experimentally to the Las Angeles division:
Settlement Groun-The settlement group should be
composed of the best settlement sen available (probably
not fever than ten at the beginning), chosen from the
Technical Staff, the Conference Division, and the In-
gineering and Valuation Division. It should have 48
emplo corps of auditors and clerks. It should be beaded
by 4 member of the Technical Staff or a conferee who has
shown outstanding ability in the direction of settlement
work. It 18 my opinion that for the duration of the 63-
perimental period this officer should report to, and be
subject to the direction of, the head of the Technical
Staff in Washington.
Functions of Settlament Group.-The proposed settle-
ment group should (a) grant & hearing to every taxpayer
who after full discussion of his case in the office of
the revenue agent in charge, still protests the agent's
findings; (b) maise on behalf of the Commissioner a final
administrative determination of the deficiency of own-
assessment, and endeavor to secure the taxpayer's agree-
ment thereto; (c) send the case back to the revenue agent
in charge for such action as my be required to carry out
the determination, including the issuance of & statutory
notice of deficiency when necessary; and (d) negotiste
settlement after the issuance of the statutory notice
whenever it seems advisable.
Logal Steff.-4 picked group of attorneys from the
Chief Counsel's office should be assigned to outy with the
proposed settlement group, to (a) sávise the settlement
group on request with respect to legal questions arising
in the consideration of taxpayers' protests; (b) examine
CASES in which statutory notices of deficiency are to be
issued and advise whether the proposed determination 048
be successfully defended on appeal; and (c) represent the
Commissioner in the trial of appealed cases before the
Board of Tax Appeals. The legal staff should have m
authority to settle cases independently of the adminis-
trative settlement group.
Regraded Unclassified
46
Board of Tax Anneals.-The cooperation of the Board
of Tax Appeals should be obtained in arranging for early
hearings in Los Angeles on appeals growing out of the de-
terminations made by the proposed settlement group. The
cooperation of the Board should be sought also with a
view to insuring that all such appeals should be set for
trial on the Board's field calendar, except in instances
where assignment to the Washington calender is agreed to
by the Government.
Revenue Agent's Office.-The present authority and
responsibility of the agent in charge at Los Angeles for
the examination and settlement of income-tax cases should
be continued without curtailment.
I believe that this describes the proposed experiment sufficiently
is enable you to give the matter consideration. For obvious reasons,
I have made no effort to present the proposal in any finality with
respect to details. It does occur to ne to say, however, that the
Bureau would probably wish, at least for the time being, to have a
review by the Technical Staff in Washington of the cases disposed
of under the proposed arrangement.
I believe that Mr. Russell and Mr. Marrs are both favorably dis-
posed toward making the experiment, although they may differ from ay
suggestion for the selection of the Los Angeles Division.
I an furnishing a copy of this memorandum to Mr. Magill.
(Signed) Harold N. Graves
Harold N. Graves
HNG/mff
Assistent to the Secretary.
Regraded Unclassified
47
January 26, 1938.
11:28 a.m.
H.M.Jr:
Hello.
Operator:
Dr. Feis. Go ahead.
H.M.Jr:
Hello.
Dr.
Feis:
Good morning.
H.M.Jr:
Hello Herbert.
F:
Did you have a good time?
H.M.Jr:
Oh we had a swell rest.
F:
Good for you. Did you go to Sea Island again?
H.M.Jr:
Yes.
Γ:
Stay in the hotel, or did you have a house?
H.M.Jr:
Had 8. cottage.
F:
Oh, that sounds grand. Henry -
H.M.Jr:
F:
The Spanish Ambassador has been in to talk about
the possibility of selling silver to this Govern-
ment.
H.M.Jr:
Yes.
F:
We stated that we believed you'd be willing to
discuss it with him.
H.M.Jr:
Sure.
F:
Could you do that?
H.M.Jr:
Sure.
F:
He suggested that - he suggested quite politely,
I mean, just saying that if by any chance tomorrow
morning was convenient for you, it would be a very
good time for him.
H.M.Jr:
Well, let me just see, I'm seeing the Chinese in
a moment. Tomorrow is not a very good time, but
tomorrow afternoon would be.
Regraded Unclassified
48
- 2 -
F:
In the afternoon?
H.M.Jr:
Yes.
F:
All right. What time?
H.M.Jr:
Supposing we say three o'clock.
F:
All right.
H.M.Jr:
Do you want to come over?
F:
Right. Suppose I do.
H.M.Jr:
I think it would be very nice.
F:
All right. Now, we asked him just one question.
H.M.Jr:
Yes.
F:
Thinking that that's something you'd probably
would want to ask him.
H.M.Jr:
Yes.
F:
Was that silver in Spain or outside of Spain.
H.M.Jr:
Yes.
F:
And he's finding out.
H.M.Jr:
I see.
F:
And I expect he'll have that information by tomorrow.
H.M.Jr:
All right.
F:
Now on the Hungarian thing.
H.M.Jr:
Oh, yes.
F:
Hearing yesterday afternoon that you were back.
That's the first time I had heard it.
H.M.Jr;
Yes.
F:
I sent a note of reminder down to the Secretary.
Regraded Unclassified
49
- 3 -
H.M.Jr:
O.K.
F:
All right. I may have some word on that by
tomorrow.
H.M.Jr:
All right. Be good.
F:
I'll try.
H.M.Jr:
What?
F:
I'll try. And listen, we've got our troubles over
here.
H.M.Jr:
I don't know whether you
saw Cochran's cable that came in late last night.
F:
I think it was an extremely interesting cable.
H.M.Jr:
Very good cable.
F:
Yes.
H.M.Jr:
Please, as soon as you know when Japan's going to
declare war let me know.
F:
All right. I haven't gone through the Far Eastern
yet -
H.M.Jr:
Well, I mean if there's anything on that -
F:
This morning - if there's anything in this morning's
cable, I'll let you know. I haven't started -
H.M.Jr:
I mean - because that's terribly important from our
standpoint.
F:
Right. Have you by the way, we haven't heard
anything more of any new recent gold movements -
H.M.Jr:
There aren't any.
F:
There have not been any.
H.M.Jr:
There haven't been any.
F:
No.
H.M.Jr:
There haven't been any this year.
Regraded Unclassified
50
- 4 -
F:
That's what I thought.
H.M.Jr:
And no notices. And incidentally -
F:
Have you got them tied down with a promise that
they'll give you advance notice?
H.M.Jr:
Oh, yes.
F:
You have.
H.M.Jr:
Oh, they made them promise to Harrison of the
Federal Reserve, the Bank of Japan would notify
them in advance.
F:
I Bee.
H.M.Jr:
Would notify the Federal Reserve of New York.
F:
I see.
H.M.Jr:
And incidentally their balances have been standing
and they stick right around forty two million
dollars, in New York.
F:
I know. Damn.
H.M.Jr:
What?
F:
Sure, these fellows had tremendous stock, see? Then
furthermore, as the military reports bring out
Henry, they're not using much ammunition in this
campaign.
H.M Jr:
That's right.
F:
They're using a hell of a lot of oil.
H.M.Jr:
I see.
F:
But I heard one military man say that probably more
ammunition was used up in a single day in the battle
of Verdunne than the Japs had used ever since going
into China.
H.M.Jr:
Well, I'll be glad to see you tomorrow.
F:
All right.
H.M.Jr:
Goodbye.
F:
Goodbye.
Regraded Unclassified
Confidential
Weekly WPA Employment
Series - Table 1
Not for Publication
12651
EXPLOYMENT ON nPA PROJECTS, BY STATE
UNITED STATES AND TERRITORIES
reeke Ending January 22 and January 15, 1933
(Fartly Estimated - Subject to Revision)
Number of Persons Employed
Increase
State
look Ending
Week Ending
or
January 22
January 15
Decrease- (-)
an 29
1,898 151
+ 68.479
GRAND TOTAL
1,831,961
1,707,637
A
- 64.324
CONTINE Tab UNITED STATES
1,829,492
1,765,170
+ 64,322
(Istoma
28,690
27,243
+ 1,442
Arizona
7,642
7.542
-
100
Irkansas
26,423
24,924
+ 1,499
California - Total
78,430
76,022
- 1,808
Northern
37,134
+ 2,140
Southern
39,156
39,488
-
332
Colorado
22,170
21,352
- 1,118
Connecticut
19,586
18,920
-
666
Deloware
2,431
2,349
+
82
District of Columbia
6,016
6,689
+
127
Florida
27,714
26,875
*
839
"oorgia
32,248
30,347
+ 1,901
Idaho
9,775
8,948
+
827
Illinois
125,408
117,307
. 8,101
Indiana
5,088
52,393
+ 2,695
Towa
20,926
20,469
+
457
Konsna
29,824
28,019
+ 1,805
Kentucky
41,332
40,631
.
701
Louisiana
£7,233
26,260
+
973
Vaino
7,288
6,535
+
753
Maryland
10,901
10,754
+
147
' assachusetts
73,720
78,099
.
621
Michigan
8,045
55,328
- 5,317
Minnosots
11,920
10,364
+ 1,556
Mississingi
2.945
21,360
- 1,085
Missouri
7,264
55,522
+ 1,742
l'ontaine
15,570
12,194
+
376
Rebrosko
22,134
21,744
+
390
Meyada
2,074
1,975
+
99
New Heapshire
6,787
6,744
+
43
How Jorsey
64,990
61,469
+ 3,521
New Mexico
7.071
6,852
+
219
Bow York city
138,457
138,392
-
105
New York (Excl. N.Y.C.)
31,474
50.756
-
718
North Carolina
25,516
24,529
-
987
North Dakota
13,766
13,669
+
97
Ohio
110,837
106,378
. 4,159
Oklahoma:
51,888
50,942
-
946
Orogon
14,454
14,111
-
343
Pennsylvania
174,037
167,877
+ 6,160
Rhode Island
13,087
13,054
-
33
South Carolina
24,856
21,860
+ 2,996
South Dakota
15,200
14,973
+
227
Termussee
25,353
23,567
+ 1,786
Texas
62,810
60,843
+ 1,967
Utah
7,848
7,644
+
204
Vormont
4,469
4,226
+
243
Virginio
19,824
19,382
+
We
Thahington
37,859
35,214
- 2,645
Yest Virginia
32,339
31,722
-
617
(isconsin
43.744
13,463
+
281
(yomine
3,329
3,273
+
56
Hawn11
2,469
2,467
+
2
Revised.
WORKS PROGRESS ADMINISTRATION
Regraded inclassified
Rosoarch, Statistics, und Accords
January 26, 1938
gaston please to spee me. 52
DEPARTMENT
WASHINGTON
M
January 26, 1938,
MEMORANDUM FOR THE SECRETARY:
On September 15, 1937, you directed me to assume the duty
of coordinating the activities of the Enforcement Agencies of
the Treasury Department.
Your coordination program was put into effect during August,
1934, by Mr. Harold N. Graves and under his supervision con-
structive progress and major changes in enforcement sotivities
were accomplished. At the outset, a Coordinating Committee was
formed consisting of the heads of the enforcement agencies at
Washington and their assistants, and the periodical meetings with
Mr. Graves served as the means of establishing a close relation-
ship between these activities which theretofore had to a very
large extent functioned independently. The meetings have furthered
the development of coordination by the process of determining the
problems of each enforcement agency and dealing with them from
the viewpoint of a coordinated group.
When this plan was commenced, the primary thought was to
suppress the tremendous smuggling of alcohol into and between the
ports of entry of this country. An information exchange was in-
augurated between the Alcohol Tax Unit, Customs Service and Coast
Guard whereby intelligence concerning the activities of smugglers
WHS promptly and forcefully acted upon by the consolidated force.
The most effective immediate results were obtained on the Gulf
and the West Coast. Forty-six defendants were indicted at New
Orleans and on the Pacific Coest another group of forty-six
violators were indicted, convictions being obtained in most cases.
The problem on the Atlantic Coast was more complicated, as
the alcohol smuggling operations were on a much larger scale. This
was met by the creation in November, 1935, of a special smuggling
committee consisting of representatives of the Alcohol Tax Unit.
Bureau of Customs and Coast Guard, with headquarters st New York
City. This committee supervised the investigations of all officers
of the three services engaged in the enforcement and prevention of
smuggling from Maine to Virginia.
The concentrated effort at New York City resulted in the
development of cases involving four ships and eighty-four
Regraded Unclassified
53
defendents. Another case related to the seizure of 50,000 gallons
of alcohol and a boat when the smugglers attempted unloading at
New Jersey. This seizure caused the return of the mother ship
"HILLFERN" to Antwerp with the remaining 150,000 gallons of alcohol
which they were unable to land.
The coordinated drive against smuggling was most effective and
reduced to a minimum alcohol smuggling on all coasts and borders of
this country. It is becoming more evident that there 18 no extensive
smuggling of alcohol into this country. However, it is essential
that close end constant supervision be maintained in order to avoid
B resumption of liquor smuggling, and we are zealously following out
every lead along this line. Our program is to make certain that
liquor smuggling is kept at an absolute minimum. For example, recent
activity indicated attempts of smugglers to bring in alcohol from
Europe. Cereful investigation developed that the shipments were
directed toward Canada. Such work is constantly being done.
Within the past eighteen months you directed that forceful
action be taken against the smuggling of narcotics into this
country. The Treasury enforcement services have taken hold vigor-
ously and the problem is of such major importance as to require the
concentrated efforts of all agencies to accomplish effective results.
You will recall that United States Attorney Hardy of New York City
and his assistant, Mr. Martin, called at your office during May of
1936 and complained of the personnel of the Narcotic Service et New
York City. Special Agent in Charge Palmer of the Intelligence Unit
was assigned to make an investigation of that organization and as a
consequence there were eleven removals end transfers, including the
Agent in Charge. Picked men from other sections of the country
were assigned to New York as replacements and to supply additional
personnel, so that there are at this time fifty Narcotic Agents
working in Hew York City. Garland Williams, an experienced and
intelligent officer of the Customs Agency employed in Texas, was
transferred to the Narcotics Bureau and placed in charge of the
New York Division, and ten Border Patrolmen from the Customs Service
were essigned to supplement his force. This entire Narcotics personnel
18 now employed under the direct supervision of Mr. Williams and they
are eccomplishing excellent results. The narcotic situation at New
York City has been acute for several years and the favorable publicity
following the enforcement results is most commendable.
On the Pacific Coast there was set up B supervisory narcotic
enforcement program during October of 1936, covering the entire
West Coast section from the Mexican to the Canadian borders. This
- 2 -
Regraded Unclassified
5
activity is under the immediate supervision of Customs Agent
Welvin L. Hanks.
This past summer I visited each of the important points
on the Pecific Coast and numerous agents engaged upon this
activity were interviewed. Equipment was inspected and a
program outlined. Some arrests and seizures have been made
by this organization and they are continuing their work zealously.
It is my opinion that the smuggling of narcotics into the Pacific
Cosst ports is not a serious problem. Various seizures have been
made in that area which have been traced back to New York and
there is reason to believe that most of the supply of narcotica
in the western area does not come in through those coastel ports
but 1s smuggled into the port of New York and shipped or carried
to the west coast.
Mr. Burford of the Intelligence Unit and Mr. Shanhert of
the Customs Enforcement Unit, were recently directed to make 8.
survey of the nercotic situation on the Pacific Coast to deter-
mine whether the continuence of this activity under Customs
Agent Hanks was justified. They concluded that the organization
should continue its work, end made recommendations for changes
which would effect 6 saving in expense, and, at the same time,
not jeopardize the activities of this group. They pointed out
in their report that the work had developed into a preventive
rether than en enforcement program, undoubtedly due to the very
close supervision of all persons suspected of handling nercotics.
My personal observations of the situstion, guined from the trip
last summer, together with information as to the activities and
results of this group, indicated to me that the recommendations
of these officers were proper, and I concurred in their findings,
which have been approved by you and put into effect.
There 1s no doubt that narcotics are being smuggled into this
country, but there is no authentic information as to the amount
being brought in. It has been B. long time since an intelligent
survey of narcotic addiction in the United States was made. If
this were known, we could determine the amount of illicit nareotics
smugled into the country. Recently, Mr. Anslinger had his New York
agents make 8 survey of narcotic addiction in fifty-one counties of
New York State, outside of New York City, with the following results:
Addicts per 10,000
Number of Addicts
Population
Population Medical Criminal Total
Medical
Criminal
Total
5,290,683
778
566
1,344
1.471
1,070
2,540
- 3 -
Regraded Unclassified
5
Although interesting, these figures cennot be applied 88 EX
measurement for the entire country, and they are not particularly
helpful in determining to what extent non-medical addiction does
exist throughout the United States. However, Mr. Anslinger is
now causing a survey of non-medical addiction to be made in one
State in each of the fifteen Treasury Districts and he is compiling
information obtained from State and Municipal authorities with data
secured by the Narcotics Bureau. It is our belief that this survey
will give a fairly accurate conclusion as to the extent of non-
medical addiction.
A recent survey wes made of enforcement measures in effect in
Puerto Rico, the Dominican Republic, the Virgin Islands, and at the
same time inquiry was made in the British, French and Netherlands
West Indies, with particular reference to the possibility of
smuggling narcotics and alcohol into the mainland of the United
States.
The committee was composed of Mr. Thompson, of the Secretary's
office, Mr. Gorman, of the Customs Bureau, and Lieutenant Pollio,
of the Coast Guard. Their report contains many constructive sug-
gestions and their recommendations with respect to personnel changes
and proposed procedure with the objective of maintaining good will
with the officials of the West Indies are now being considered.
The foregoing matters are commented upon 88 they provide an
outline of the major accomplishments of the coordination program;
however, an important phase of this activity 1a the maintenance
of proper intelligence concerning violators of all laws enforced
by the Treasury Department, together with prompt and effective use
of such information. A constant liaison and control has been
established whereby information is promptly transmitted to the
agencies for immediate action. A system of files has been installed
to correlate information obtained from all sources, Charts have
been prepared for the purpose of visualizing progress in enforcement
work, the result of special drives and the proper allocation of
personnel. Studies are also being made with a view to the proposed
consolidation.
There are numerous other changes which are the result of
coordination that will be commented upon briefly, all of which have
for their purpose improved methods of investigation and B develop-
ment of the personnel through instruction.
4
Regraded Unclassified
56
Treasury training schools have been held throughout the
country and have been attended for periods of two weeks by a
total of 2,792 persons. Practically the entire personnel of
the enforcement units has had this course of training and
there is reason to believe that it has assisted materially in
improving the efficiency and intelligence of these officers.
The Intelligence Unit held schools for a period of two weeks
for each of the agents of its organization. The courses in
this school related particularly to the work of the Intelligence
Unit, such as tax fraud investigations, personnel inquiries,
etc., and it is believed that the same good results were
obtained from these schools as from the Treasury agency schools.
Markmanship contests have been inaugurated and have been par-
ticipated in by agents from all over the United States. It 1a
the purpose to continue these contests in this coming year.
Revised end up-to-date manuals of instructions have been issued
to certain of the agencies and are being prepared for the other
agencies, to enable the personnel to have the most up-to-date
instruction with respect to their duties.
The supervision of the Customs Border Petrol Service has
been transferred from the Collectors of Customs to the Customs
Agenta with good results; the activities of the patrolmen ere
more closely allied to those of the Customs Agenta than to the
administrative work of the personnel under the direction of the
Collector of Customs. It will be of interest to note that,
prior to coordination, but 25% of the Customs investigative
units' activities were devoted to criminal investigations,
whereas at the present time approximately 50% of that personnel
is so employed.
On December 1, 1936, there was a realignment of the enforce-
ment divisions throughout the country to correspond with the
territorial alignments of the Alcohol Tex Unit so that there are
now fifteen Treasury Districts. The purpose of this change was
to have uniformity in area supervision and to have the headquarters
of each agency for the respective districts in the same city to
provide closer contact between the supervisory officers. The
procedure has been established as B. matter of routine whereby the
personnel and equipment of one agency is used by another agency,
depending upon the immediate need.
The arrungaments necessitated by the concentrated drives
against smuggling of liquor and narcotics required an analysis
and selection of personnel which has provided the coordinated
agencies with a mobile and specialized force. They are working
together splendidly and there is on esprit de corps that is most
encouraging. The periodical meetings at my office of the heads
- 5 -
Regraded Unclassified
57
of the agencies and their assistants are of considerable
value in maintaining and developing the entire program and
such meetings are being held frequently at division head-
quarters cities throughout the country.
It is my firm conviction that your action in directing
the coordination of these agencies and the whole-hearted
support and backing you have given, both to Mr. Graves and
myself, in our endeavors to carry out your program, have been
responsible for the good results which obviously have been
secured--improvement in morale, added efficiency of the
personnel, increased production and willing cooperation, all
of which have brought the organizations, individually and
collectively, to the highest degree of efficiency in their
history.
JAP
- 6 -
Regraded Unclassified
58
MEMORANDUM OF THE DAY'S ACTIVITIES
January 26, 1938
To:
Secretary Morgenthau
From:
Mr. Magill
1.
Tex Bill
Mr. Doughton has asked me to confer with him and
the other Democratic members of the Ways and Means Committee tomorrow
morning at 9:15; presumably they want to discuss the Controversial
features of the Subcommittee's recommendations, particularly the pro-
posed tax on closely held corporations.
The draftsmen are making satisfactory progress with
the bill. They have reported to Messrs. Doughton and Vinson that the
bill will probably be ready within two weeks. It might be delayed
after that time if the full Committee wished to insert provisions be-
yond those agreed to by the Subcommittee.
2.
Information from taxpayers with over
$100,000 net income
The Commissioner, Mr. Oliphant, Mr. Wenchel and I
discussed the form which the Commissioner sent to the field two months
ago, with instructions that taxpayers with over $100,000 net income
should swear to the statement thereon of their assets and liabilities.
Mr. Oliphant felt that the necessary information could probably be
obtained by the revenue agents in the course of their investigations of
income tax returns and that the taxpayer should not be asked to fill out
the form unless his accounting records are inadequate. I asked Mr.
Helvering to review the proposed form to see whether all the information
asked for was essential for our purposes and also whether the information
could be secured by the revenue agents without requiring a special state-
ment from the taxpayer.
Rm
Regraded Unclassified
59
January 26, 1938
Mr. Eustace Seligman, of Sullivan and Cromwell,
called on me representing the Marine Midland Bank and
said that he hoped that whatever move we made on bank
holding companies would not be of such a nature that
it would affect bank holding companies operating solely
within State limits and that they were particularly
worried about what effect it would have on their stock-
holders. I asked him could he operate under the laws
of the State of New York as a branch bank outfit and he
said no; that the State limited them to operating with-
in 100 miles.
I asked him whether he cared to comment on why
the Listing Committee of the New York Stock Exchange
did not take action against certain bank holding com-
panies which seemed to be conducting their affairs
unwisely and he said that the Listing Committee was
human, like everybody else, and that what they had to
think of was their commissions and if they excepted a
company whose stock was active it would be apt to go
to the Curb Exchange and they would lose their business.
I said that was the trouble and if the Listing Committee
had been more strict in the beginning I questioned
whether we would ever have had to have the Security
Exchange Commission, but the very fact that the Listing
Committee was human threw the burden on the Federal
Government and that it was up to us to see that the
various companies did not operate 80 that it would be
against the best interests of the public.
Regraded Unclassified
60
January 26, 1938
11:30 a. m.
Present:
Chinese Ambassador
Mr. Taylor
Ambassador: I received word from Dr. Kung since
assuming President of the Executive Yuan telling me to
come and thank you and your Government for the way you
have been helping us in accommodating our silver and that way,
he is happy to ask me to talk to you, up to the end of De-
cember, last year, we have been able to meet all our obliga-
tions, domestic as well as foreign, and of course he wishes
me to say that your help has been very substantial in enabling
us to close the accounts of the year satisfactorily.
Now of course with the General Chiang giving his
whole attention to the fighting side of the Government, I
think things are getting much more encouraging than they
were a couple of months ago. I thought I would come here;
make this report to you and convey his thanks to you and to
see if you have anything to ask about.
HM,Jr: That's very nice. No. I don't know of
anything. I haven't got anything. Anything, Wayne, you
want to ask.
Mr. Taylor: No, I don't think BO.
HM,Jr: We follow the information in the newspapers
very carefully.
Ambassador: Yes.
HM,Jr: And it's very conflicting.
Ambassador: Sometimes very conflicting.
HM,Jr: And it's very difficult to follow. Often
the reports are so in conflict.
Mr. Taylor: Getting any customs revenue at all now?
Regraded Unclassified
61
-2-
Ambassador: I think that is one point I have to
take up with Mr. Hull, also about Japanese threat or ac-
tual attempt to increase or decrease the tariff in the
occupied areas. Of course we made very strong protest
to Japan on that score because that will mean the breaking
up of the customs service which is very important for the
credit of the Chinese Government as several foreign loans
are being serviced by the customs service which have here-
tofore always been very satisfactorily met.
The attempt -- I understand; I don't know the
details because I have not got it in writing; so far I
have got it by wire -- the Popular regime of China have
made an attempt to lower the tariff of certain articles
imported into China and we can easily surmise what those
articles are. They must be articles that come from
Japan and of course it's a principle which we cannot admit.
Once they can lower those tariffs or raise tariffs of other
articles which might have come from this country or Great
Britain -- in other words, that will be breaking up of our
tariff autonomy.
HM,Jr: Let me ask you this. You may not want
to answer it. What would go through the brains of a
Japanese which might make him decide that they wanted to
declare war on China? How is he thinking, the Japanese?
What would make him decide that?
Ambassador: of course my answer will also be con-
Jecture on my part because I don't think I know the Japan-
ese mind, especially the Japanese military mind which, in
my opinion, is not a sane mind. It's easy to conjecture
what a sane man is going to do and to know reasons why he
does it. It's very difficult to conjecture what an insane
man 1s going to do and my belief is Japanese military is
not quite sane.
However, what 1s holding Japan back, in my private
opinion, personal opinion, is fear of complications with
Western countries. Now, if they should declare war it
would mean that thetplocknde would follow the international
policy of searching/ships and of pre-empting the goods if
they are found to be contrband. By the present arrange-
ment, without declaring war on China, they can only ask
whether those ships are foreign or Chinese and if satisfied
that they are foreign, look over manifest of goods and let
Regraded Unclassified
62
-3-
ships go. So far even they know that there are certain
goods on ships that might be easily construed as contraband
goods, they have not done anything, up to this moment. Now,
if they should declare war actually on China, that would
mean all countries that are not warring with Japan would be
considered as neutrals and as neutrals they would treat
them as such, according to international law. That, I
imagine, 1s what 1a holding back the Japanese Government.
HM,Jr: I try to put myself in their place. It's
very difficult to do that, but putting myself in their place
I can't see what they have to gain.
Ambassador: I don't see.
HM,Jr: And they have considerable to lose.
Ambassador: Much! Much!
HM,Jr: You agree with me?
Ambassador: Yes.
HM,Jr: That they have considerable to lose if they
should declare war?
Ambassador: Yes. The whole point 1s this: their
Government is not thinking same as their military leaders.
HM,Jr: Are your people getting enough supplies that
that might be bothering them?
Ambassador: I suppose, reading between the lines
in the statement made by their Government leaders in the
Diet recently, I think it was Hiroto who said Japan must
now consider carefully about munitions that are coming in
and so far, up to this moment, no interference, delay some-
what by their bombing of the Panay, etc., but no interfer-
ence.
Of course, their greatest problem will be two-fold.
One, how to continue getting supplies from foreign countries
and, second, how to get them into China. So far both of
these problems are not quite acute. They buy, delivery -
the forwarding - 1s delayed, but never interfered with ac-
tually. Of course, in course of time we may find it neces-
sary to get other help from your Government and other Gov-
Regraded Inclassified
63
-4-
ernments, but if they should declare war I am afraid they
will have to run blockade, but at the same time I wish to
impress upon your Government here and my colleagues in the
other Capitals, impress upon the British and French Govern-
ments, how could they sit down and let Japan run wild in
China. That is to say, the Nine-Power Treaty, although
they haven't accomplished much in Brussels they certainly
laid down principles, and how to uphold those principles
will be up to those Governments.
HM,Jr: You tell Dr. Kung I was very pleased to
receive his message. I send him my very best wishes.
Ambassador: I will certainly be glad to.
HM,Jr: And I am always glad to see you.
Ambassador: Thank you very much indeed.
o0o-o0o
Regraded Unclassified
64
January 26, 1938.
5:48 p.m.
H.M.Jr:
Hello.
Operator:
Mr. Jones.
H.M.Jr:
Oh, all right. Go ahead.
O:
Secretary Morgenthau.
H.M.Jr:
Go ahead.
Jesse
Jones:
Hello.
:
H.M.Jr:
Hello, Jesse?
J:
Yes, how are you?
7.
H.M.Jr:
Oh I'm still going all right. They said you
wanted to talk to me.
J:
I did. Well, I got waylaid and I just wanted to
check on -
H.M.Jr:
Oh!
J:
Things went a little bad today, didn't they?
H.M.Jr:
You're telling me. Sure, couldn't have gone any
worse.
J:
Well, I - it's too bad.
H.M.Jr:
Yes. The floor dropped out.
J:
The floor dropped out.
H.M.Jr:
I say the floor dropped out.
J:
Yes.
H.M.Jr:
Yes.
J:
Well, now I've been - I picked up a mean cold
last night, I don't know whether I'll be ready
for that thing tomorrow at eleven o'clock or not.
H.M.Jr:
Well.
J:
I talked to Leo separately and I talked to Marriner
65
- 2 -
separately, or rather I listened to Marriner.
H.M.Jr:
You did.
J:
Talking. I've got all the information and I'll
try to be there.
H.M.Jr:
Well, if you can't. If you're not feeling well,
I can postpone it twenty four hours.
J:
All right. Well - well, I'll try to make it, but
I'll call you in the morning.
H.M.Jr:
Let me know and the world will still go on.
J:
All right. Fine.
H.M.Jr:
O.K.
J:
Thanks.
Regraded Unclassified
66
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: January 26, 1938, noon
NO.: 143
RUSH
FROM COCHRAN.
This morning when the banks opened sterling was
strongly bid. At eleven o'clook I called at the Bank of
France. The control had yielded 300,000 pounds by that
time. A considerable part of the demand was speculative,
although a part of it had been bona fide commercial.
At 11 o'clock the Bank of England reported to the
Bank of France that franc-sterling operations were commer-
cial rather than professional in London.
This morning the French control was following the
policy of permitting the rate to fluctuate between 153 and
153.80. Three alternatives had been open to it: (1)
not to enter the market at all, which would have resulted
in a precipitate drop in the franc; (2) to put up a barrier
at a firm rate, as has been rather consistently done in
the past; (3) to permit a wider fluctuation, and then enter
the market rather brutally. The Bank of France's technical
staff strongly advised against letting the rate drop pre-
cipitately. They felt that the present rate could be de-
fended as well as any rate and that France should avoid
a large drop with speculation and possible recovery through
a squeeze operation. In view of the fact that the political
and
Regraded Unclassifie
67
- 2 -
and social situation is Bo uncertain, yesterday and today
the control has preferred to follow the practice of fairly
wide fluctuations in the franc rate rather than adhere to
the rigid barrier system previously used.
END SECTION ONE.
BULLITT.
DECEIVED
0891 as HAL
TRIMTRATED VEHICLET
N -
Na a - Mill the
EA: LWW
Regraded Unclassifie
68
PARAPHRASE OF SECTION TWO OF NO. 143 of January 26,
1938, from Paris.
On Tuesday morning when business opened the control
had 43,000,000 france gold and foreign exchange on hand.
The operations for Tuesday exceeded that amount by about
100,000,000 francs. The fund had 343,000,000 francs
sterling in another account Tuesday morning, which within
the next few days will have to be delivered on account of
forward dealings. Therefore this amount should not be
counted as assets of the fund to cover daily operations.
Last night the fund was therefore 100,000,000 francs short
on balance. It will have to draw gold from the Bank of
France to cover this deficit, and presumably also for
operating expenses until there 18 a turn in the market or
until they can make some new arrangement, In my telegram
No. 140 of January 25 I indicated that no new operation
was planned by the Ministry of Finance. My contacts at
the Bank of France are not aware of any new plans or
arrangements.
In the present circumstances, technicians of the Bank
of France are strongly against any revalorization of gold
holdings since if basic problems are not solved the increment
would only be spent in vain.
In the opinion of my contacts, nothing new should be
69
- 2 -
attempted in the monetary field until the immediate labor
situation is cleared up. These contacts believe that if
Parliament rejects the labor code which is now being sub-
mitted to it, the Government would fall; or if the code is
passed in its original form, employers may be 80 strongly
opposed to it that a general lockout might result which
in turn would bring about a crisis ta the Government.
END MESSAGE
BULLITT.
- - . - -
Address DESVRINTRY
will so 1939
RECEIVED
EA:LWW
Regraded Unclassified
70
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: January 26, 1938, 6 p.m.
NO.: 146
FROM COCHRAN.
At half past five I had a talk with Rueff. The ex-
change market had relaxed somewhat today, he said, and
there was nothing new as regards monetary affairs.
I had a talk with the Bank of France at six o'clock.
Today there was not as much buying as yesterday, but there
was a constant demand for sterling, which was provided
by the control. At the close of the day the control was
still giving sterling at 153.30 to 153.50, but there were
no large deals.
After the hand grenade explosion in the municipal
laboratory of a Paris suburb the atmosphere remained dis-
turbed. The details of the labor code which the Cabinet
is to work on at a Thursday morning meeting are awaited.
At present there is an active demand for gold coin
for hoarding purposes. Reports from French and Paris-
American banks indicate lower balances of francs.
BULLITT.
RECEIVED
on is 1172
- -
EA:LWW
- -
Regraded Unclassified
71
TELEGRAM SENT
LMS
GRAY
January 26, 1938
7 p. m.
AMEMBASSY
LONDON (ENGLAND)
31.
Secretary of the Treasury suggests that it would
bE most useful if Butterworth could go to Paris, say
Friday Evening, to Exchange views and information with
the Embassy at Paris in regard to the French monetary
situation, particularly with regard to prospects of
Dutch financing. This is agreeable to the Department
if satisfactory to the Charge. Treasury will pay EX-
penses.
The American Embassy at Paris is being advised.
HULL
(HF)
EA:HF:DJW EU
Regraded Unclassified
72
TELEGRAM SENT
LMS
GRAY
January 26, 1938
7 p. m.
AMEMBASSY
PARIS (FRANCE)
41.
FOR COCHRAN FROM SECRETARY OF THE TREASURY.
At my suggestion the State Department is
authorizing Butterworth to COME to Paris Friday
Evening to consult with you in regard to the French
monetary situation, particularly regarding prospects
of Dutch financing.
Please make all information that you have on
the subject available to Butterworth who is being
similarly counseled.
HULL
(HF)
EA:HF:DJW EU
Regraded Unclassified
73
JR
GRAY
London
Dated January 26, 1938
Rec'd 2:19 p.m.
Secretary of State,
Washington.
RUSH.
61, January 26, 6 p.m.
FOR SECRETARY MORGENTHAU FROM BUTTERWORTH.
I passed on to Waley last Evening the message which
you gave me but hE was unable to make a reply in the
absence of Phillips and the Chancellor who had already
left the Treasury.
HE has just informed me that a reply will bE
forthcoming Either late tonight or early tomorrow
morning.
As to the status of the Dutch credit to France
inquiries in the city indicate that the MENdElssohn
(1s?)
group in now placing the third SET of 50,000,000 florins
of bills. It will bE recalled that the original
arrangement was for 50,000,000 florins with the
MENdElssohn group having an option to take up two further
sets of bills amounting to 50,000,000 florins each.
The first option was immediately Exercised and the
French
Regraded Unclassified
74
-2- #61, January 26, 6 p.m., from London,
French Government therefore initially obtained
100,000,000 florins. The final 50,000,000 florins is
now being placed (and the city is receiving offers of
such bills with maturity dates different from the
original set) and presumably the French Government has
or is now getting that additional amount.
The control has had to give a fair amount of
sterling today and has operated sporadically keeping
the rate around 1411. The undertone continues nervous
and the continental demand for gold coin is significantly
strong.
JOHNSON
RR:KLP
Regraded Unclassif
me. Jochheed
3.2 60M 6-37
FEDERAL RESERVE BANK
OF NEW YORK
FICE CORRESPONDENCE
DATEÑANUARY 27, 1958.
CONFIDENTIAL FILES
SUBJECT:
TELEPHONE CONVERSATION
M
L. 1. Knice
WITH BANK OF FRANCE
I called Mr. Cariguel at 10:05 this morning. They were
not doing so well today, he said; francs were under pressure and
up to that hour he had spent about £700,000. All of which indi-
cated that there was no change in the situation.
I inquired as to the reason for the weaker dollar in
the London market and Cariguel replied that the President's state-
ment at his press conference had not made a good impression in
London.
03V13038
LWK:KMC
тидиталяза VRIDATOR
- - Tax a/ - the EXID -
Regraded Unclassified
DOW JONES TICKER January 27, 1938
76
FRANCE ABLE TO SUPPORT FRANC IN U S MARKET -
U S SEEKING TO FORESTALL EXCHANGE CONTROL
IN FOREIGN COUNTRIES
11.17
WASHN - FRANCE HAS AMPLE GOLD AND DOLLAR
BALANCES IN THIS COUNTRY TO CONTINUE SUPPORT
OF THE FRANC IN THE NEW YORK MARKET FOR SOME
TIME IT WAS STATED TODAY ON BEHALF OF
AMERICAN GOVERNMENT
THE TRI-PARTITE MONETARY AGREEMENT STILL
IS IN-FULL OPERATION WITH THE FRENCH STABILIZA-
TION FUND SENDING TO THE U S TREASURY
EACH DAY A RATE AT WHICH THE U S STABILIZATION
FUND ACTING AS AGENT FOR THE FRENCH AUTHORI-
TIES IT TO -TAKE CARE OF THE FRANC- IN
THE AMERICAN MARKET IT WAS SAID OFFICIALLY
TODAY
DEPRECIATION OF THE FRANC TO DATE HAS NOT
BEEN WILFUL NOR FOR THE PURPOSE OF OBTAINING A
COMPETITIVE TRADE ADVANTAGE AND THEREFORE
DOES NOT VIOLATE THE TRI-PARTITE MONETARY
AGREEMENT ACCORDING TO THE OFFICIAL AMERICAN
VIEW - BECAUSE FRENCH BALANCES IN THIS COUNTRY
ARE AMPLE TO TAKE CARE OF THE LIMITED FRANC
TRANSACTIONS IN THIS MARKET AMERICAN OFFICIALS
ARE UNDISTURBED ABOUT THE TECHNICAL ABILITY
OF FRANCE TO CONTINUE FOREIGN EXCHANGE OPERA-
TIONS HERE - THE IMPORTANCE OF THE TRI-
PARTITE MONETARY AGREEMENT IN THE FRANC
SITUATION AND IN THE WORLD GENERALLY IS
FIRST THAT IT HAS DISCOURAGED FOREIGN
77
EXCHANGE -SHARPSHOOTERS- FROM CONDUCTING
RAIDS ON A COUNTRY LIKE FRANCE WHILE IT IS TRY-
ING TO STRAIGHTEN OUT INTERNAL MATTERS AND
SECOND THAT IT HAS HELPED FRANCE AND OTHER
COUNTRIES IN THEIR FIGHT TO KEEP FROM SLIDING
INTO FOREIGN EXCHANGE RESTRICTIONS OR CONTROL
ACCORDING TO THE WASHINGTON VIEW
FREEDOM OF OTHER NATIONS FROM EXCHANGE
CONTROL IS TREMENDOUSLY IMPORTANT TO THE
AMERICAN ECONOMY AND THEREFORE TO THE AMERICAN
MONETARY POLICY IT WAS ASSERTED - WHEN
FOREIGN NATIONS RESORT TO EXCHANGE RESTRIC-
TIONS IT BECOMES THAT MUCH MORE DIFFICULT FOR
AMERICANS TO DO BUSINESS IN THOSE COUNTRIES
OFFICIALS POINTED OUT- ONE REASON THAT
BUSINESS HAS KEPT UP AS WELL AS IT HAS IS
THE ENORMOUS VOLUME AND GROWTH OF AMERICAN
EXPORTS AND THE BASIS FOR MUCH OF THIS
FOREIGN TRADE HAS BEEN THE ASSURANCE WHICH
THE TRI-PARTITE AGREEMENT HAS GIVEN AMERICAN
BUSINESSMEN THAT IF THEY SELL A MILLION DLS
WORTH OF MERCHANDISE IN NATIONS WITHIN THE
AGREEMENT THEY CAN TAKE THEIR DRAFTS TO BANKS
AND CASH THEM WITHOUT THE ANNOYANCES AND LOSSES
ACCOMPANYING FOREIGN EXCHANGE CONTROLS
78
PARAPHRASE OF TELEGRAM RECEIVED
NO. 148
FROM: American Embassy, Paris.
DATE: January 27, 1938, 4 p.m.
I had a conversation after luncheon today with
Chautemps and the British Ambassador, Sir Eric Phipps.
Chautemps said that the present flight of the franc was
regarded most seriously by him. He said it was all very
well for the British and the Americans to speak of the
tripartite monetary agreement and about the desirability
of continuing it; however, it was clear that in the face
of sales from the United States and Great Britain, espe-
cially from Great Britain, ttxwx France could not con-
tinue to maintain the position of the franc.
He informed Sir Eric that he had his agents listen-
ing on the telephone to conversations between London and
Paris. The conversations which took place yesterday be-
tween Sir Robert Kindersley and distinguished British
representatives in Paris had shocked him. In those con-
versations it had been predicted that early in March a
tremendous financial crash was inevitable. Moreover,
articles appearing in the British press during the last
few days had been calculated to bring about the greatest
possible sale of francs. He felt that while it would be
possible
Regraded Unclassified
79
-2-
possible for the French Government to continue to defend
the franc for a brief period, any prolonged defense would
be impossible in the face of this sort of cooperation
from Great Britain. He was being compelled, however much
he might be opposed to exchange control, to look upon it
as the undesirable but the only way out of an impossible
situation.
I pointed out to him that selling of francs from the
United States had been very small. I also said that I
thought Bonnet must have told him of his satisfaction with
the cooperation which the American Government had consis-
tently given him, and especially the cooperation of Mr.
Morgenthau, the Secretary of the Treasury. He agreed
and said that his complaints were indeed directed against
London activities.
Sir Eric Phipps promised Chautemps that he would do
what he could to influence articles in the newspapers at
once; at the same time, however, he pointed out that it
was almost impossible for the British Government to pre-
vent British individuals and banks from making sales of
francs.
It was added by Chautemps that he felt that at the
present moment he had the internal situation well in hand.
He believed, moreover, that in the international situation
no immediate explosion was to be expected. By continued
sales
Regraded Unclassified
80
-3-
sales of francs, however, the position of the Government
might be made impossible within & brief (*), even a few
days.
From this conversation I received the impression
that Chautemps is gradually becoming convinced that the
pressure of events will force establishment of exchange
control.
(END OF MESSAGE)
BULLITT
(*) Apparent omission.
EA:EB
Regraded Unclassified
81
January 27, 1938.
3:23 p.m.
H.M.Jr:
Hello.
Operator:
Mr. Butterworth.
H.M.Jr:
Right.
0:
Go ahead.
H.M.Jr:
Hello.
Butterworth:
Hello, sir.
H.M.Jr:
Hello, Butterworth.
B:
I thought I should telephone you.
H.M.Jr:
Yes.
B:
Hello.
H.M.Jr:
Go ahead.
B:
I thought I should telephone you, to tell you that
I've been to the Treasury.
H.M.Jr:
Yes.
B:
Since I talked to you this afternoon.
H.M.Jr:
Yes.
B:
And they tell me that the matter which you had me
put up to them.
H.M.Jr:
Yes.
B:
Have involved important issues which have required
and are still requiring careful deliberation.
H.M.Jr:
Say that again, please.
B:
They say - they tell me that the matter that you
had me put up to them.
H.M.Jr:
Yes.
B:
Involves important issues.
H.M.Jr:
I see.
Regraded Unclassified
8z
- 2 -
B:
Which have required and are still requiring careful
deliberation.
H.M.Jr:
I wonder if I understand, you mean
you mean the French loan in Holland?
B:
I beg your pardon, I can't hear you.
H.M.Jr:
Are you talking about the loan in Holland?
B:
No, I'm talking about that question that you asked
me to pass on to them, about whether they wanted
to get in touch with the French too.
H.M.Jr:
I get you. Now I understand. I understand now.
B:
And the British Treasury say that they haven't
formulated any answer.
H.M.Jr:
I see.
B:
And when I asked about the timing of a reply.
H.M.Jr:
Yes.
B:
They said it might not even be possible to give
me one before the weekend.
H.M.Jr:
I see.
B:
Now, naturally I don't know what they have in their
mind, exactly, or what the reply will be.
H.M.Jr:
Yes.
B:
But I wondered whether in the circumstances you
thought it wise for me to go to Paris before I
got that reply.
H.M.Jr:
Yes, I'd - I'd rather get this question of a loan
straightened out.
B:
Quite.
H.M.Jr:
And I think that after all the British weekend,
nothing much is apt to happen.
B:
That's right.
Regraded Unclassified
83
- 3 -
H.M.Jr:
And just think how people would give their left
finger here to have a weekend in Paris.
B:
I shall go on anyway.
H.M.Jr:
What's that?
B:
I shall go to Paris then, regardless of that reply.
H.M.Jr:
I'm sorry to force a Paris weekend on you, but I'm
afraid I'll have to.
B:
Oh, that's perfectly all right.
H.M.Jr:
All right.
B:
You'll make me feel no pain at all.
H.M.Jr:
All right. Just a minute, Herbert Feis happens to
be here, and he wants to talk to you.
B:
All right.
H.M.Jr:
Just a minute.
Feis:
Wlaton?
B:
Hello.
F:
Walton?
B:
Hello Herbert.
F:
How are you?
B:
I'm fine, thank you, how are you?
F:
Good. Walton, would you tell Mr. Hirschel Johnson
about the Van Zeeland, the inquiry from them.
B:
I can't hear you.
F:
Would you pass this on to Hirschel Johnson?
B:
Yes.
F:
Their inquiry about what we might have to say or
suggest regard to the Van Zeeland report.
Regraded Unclassified
84
- 4 -
B:
Yes.
F:
We have a note here, from Lindsey.
B:
Yes.
F:
Putting up the same question.
B:
Yes.
F:
And in it saying that they realize that we may want
a few days to turn it over in our minds.
B:
Yes.
F:
Well, we do.
B:
Yes.
F:
So it'll be B. few days before anything comes along
on that.
B:
Well I'll tell you Herbert, I've been carrying out
these Van Zeeland
discussions with Leith Ross
F:
Have you?
B:
Yes.
F:
All right.
B:
And that inquiry was addressed to me in a letter
from Leith Ross.
F:
Well, you tell him then that it might be a few
days, by which I think it'd be about next Monday
or Tuesday.
B:
Right.
F:
Before that would come along.
B:
He's right.
F:
All right.
B:
I'll be sending those telegrams in in the pro-
formal way. But, I mean, virtually I've been doing
that.
F:
All right.
Regraded Unclassified
85
- 5 -
B:
I'll pass that word on to Leith Ross
and let
Hirschel know too.
F:
Would you please let Hirschel know.
B:
I will, without failure.
F:
Thank you.
B:
Right Herbert, it's nice to hear your voice.
F:
Grand Walton. I'm passing you back to the
Secretary.
B:
Right.
H:M.Jr:
I have nothing more.
B:
I beg your -
H.M.Jr:
And you see by going over to Paris, you can get
the latest word, what they've told us.
B:
Right, sir.
H.M.Jr:
And I made quite a long discussion with the
newspaper men today on the French, I mean what they
call background to what we were trying to do, and
it seemed to be well received in New York.
B:
Quite.
H.M.Jr:
And I - I - we - you see it's so important if they
don't get that loan, I really think they're going
to be in a bad way.
B:
Yes.
H.M.Jr:
And if you two men could put your heads together,
why maybe we could find out.
B:
Quite.
H.M.Jr:
And then be ready by Monday to know how to act, but
if they don't get that loan I don't see what they
can do, and I imagine the English are trying to
find out also.
B:
I should think 80 too.
Regraded Unclassified
86
- 6 -
H.M.Jr:
And after they know then they'll give us an answer.
B:
Right.
H.M.Jr:
All right.
B:
Well thank you, Mr. Secretary.
H.M.Jr:
Goodbye.
B:
Goodbye.
Regraded Unclassified
87
PARAPHRASE OF TELEGRAM RECEIVED
NO.
151
DATE: January 27, 1938, 6 p.m.
FROM: American Embassy, Paris
FROM COCHRAN
When the banks opened this morning, exchange trading
began at 153.50. Sterling was in demand immediately.
Partial requirements were met by the French control; for
example, if a customer asked 10,000, he was given 3,000
pounds and the rate was allowed to slide twenty centimes
at a step until it reached 154.90. Then the control began
to meet full demands and has continued thus throughout
the day. Market observers say that the turnover is
that
heavier than it was on Wednesday and/the principal tran-
sactions represent flight of capital.
Market sentiment continues gloomy. It is reported
this afternoon but not yet confirmed that Algerian Gov-
ernment loan is to be closed and new loan floated shortly
for 1,000,000,000 france, % issued at around 89.30.
This is expected to be issued in behalf of "Credit
National" rather than "City of Paris" as originally
planned, since it is felt that funds can be obtained more
quickly for the first named government body.
AGENCE ECONOMIQUE today attributed to London a rumor
that depreciation of dollar to its lower legal limit and
analogous depreciation of pound are beind discussed in
Anglo-American
88
-2e
Anglo-American conversations on trade agreement. This
report has disturbed Paris market.
At 12 noon I talked with Rueff. I mentioned the
further decline that had taken place in the franc today.
He informed me that no new decisions on monetary policy
had been taken and that there were no new developments
on Dutch banking credit.
At 5:45 I talked with the Bank of France. Today
had been worse than yesterday, my friend said. He has
absolutely no knowledge that any change in policy is
contemplated.
Stockholm Enskilda Bank was big seller of dollars
against sterling this morning.
BULLITT
EA:EB
. 89
January 27, 1938.
9:55 a.m.
H.M.Jr:
Hello.
Operator:
Chairman Douglas.
Go ahead.
H.M.Jr:
Hello.
Chairman
Douglas:
Good morning, Mr. Secretary.
H.M.Jr:
How are you?
D:
Fine.
H.M.Jr:
Douglas, this meeting which we were going to have
at eleven on this bank holding thing has been put
off twenty four hours, see?
D:
Yes.
H.M.Jr:
And I - I want to see you anyway, and I don't -
after seeing you, I don't know whether you'd
care to sit in on that thing or not.
D:
Yes.
H.M.Jr:
But I've got something else that's just come from
the White House.
D:
Yes.
H.M.Jr:
And I've been - are you free to talk?
D:
Sure.
H.M.Jr:
I've been working on this for a long time, and the
President is crazy about the idea.
D:
Yes.
H.M.Jr:
You know we have, I suppose, the biggest receivership
department in the Government over in Internal
Revenue.
D:
Yes.
H.M.Jr:
I have dug out & public utility which we more or less
control, through receivership, you see?
D:
Yes.
H.M.Jr:
And the thought that I put up to the President, why
90
- 2 -
don't I get together with you people and see if
we can't set up a model reorganization, and then
if necessary go to public and get the money and
do it on the Roosevelt plan.
D:
That's swell.
H.M.Jr:
And he's crazy about it.
D:
Yes.
H.M.Jr:
See.
D:
Good idea.
H.M.Jr:
I said we've also dug up a couple of railroads.
D:
Yes.
H.M.Jr:
Now if these fellows don't want to do it, let's
us do it and show him how to do it.
D:
That's right.
H.M.Jr:
See?
D:
Yes.
H.M.Jr:
Now. I want to get together with you people;
show us what we've got, and see if we can't
work out something. I want to do it just as
quickly as possible.
D:
Fine.
H.M.Jr:
Are you people, by any chance, free for lunch
today?
D:
I'm not. I'm sorry, I'm tied up with an appoint-
ment with a person on from Chicago.
H.M.Jr:
Well, are you still free at eleven?
D:
I'm free at eleven.
H.M.Jr:
Well, why not let's do it at eleven.
D:
Yes.
H.M.Jr:
If you want to bring anybody with you from your
office.
91
- 3 -
D:
All right, I'll look over and see. I'll - I'll
bring one person along with me.
H.M.Jr:
Uh-huh.
D:
Maybe - well, let me look over -
H.M.Jr:
You think it over and you bring along whoever you
want and I'll have the stuff ready, see?
D:
Swell.
H.M.Jr:
And then - don't you think it's a very interesting
idea?
D:
Oh, swell, it's a -
H.M.Jr:
What?
D:
It'd be very fine and a pace setter for everything.
H.M.Jr:
Yes. And I - I think we've got it, but you may
find bugs in it, see?
D:
Yes, yes.
H.M.Jr:
Well then, I'll see you at eleven.
D:
O.K.
H.M.Jr:
Right.
D:
Thanks very much.
92
REORGANIZATION OF PUBLIC UTILITIES
January 27, 1938.
HOLDING COMPANIES
11:00 a.m.
Present:
Mr. Taylor
Mr. Oliphant
Mr. Opper
Mrs Klotz
Mr. Douglas
Mr. Frank
Mr. Gaston
H.M.Jr:
Wayne, you'll pick up the threads as we go along.
Oliphant:
I'd like to say this. The thing I suggested in the
first memorandum - the picture changes very rapidly,
and since we had this up the latter part of November,
a couple of the utility companies have paid their
tax claims. Second point: the organization of the
companies, natures of their liabilities are so com-
plicated that the first stages of the job are that of
a group sitting down and very carefully studying to
pick out a particular company. We can't pick a
company ...
H.M.Jr:
You mean we can't just here.
Oliphant:
I mean we can't this morning.
H.M.Jr:
Oh no, no. What I'd like to do - glad to have a
couple minutes - I want to first place
After
all, I got this idea, didn't I?
Oliphant:
That's right, it was your idea.
H.M.Jr:
I got the idea. Then I asked you people, "Here we've
got this big receivership department. What have we
got in there which is worth saving, see?" Then this
thought of developing the idea of taking - possibly
picking up a company, using S.E.C. as the power to take
a piece of a tail and a leg and swap it for a head and
put it all together, which they have never used. Then,
putting together a nice little company - then we'll
reorganize it and go to private banking interests and
get them to offer its securities to the public, just
like the syndicate in Farm Credit.
Oliphant:
With the water all squeezed out.
93
-2-
H.M.Jr:
"ith the water all squeezed out. See?
Oliphant:
That's right.
H.M.Jr:
That's the thought. In other words, instead of
sitting around, Wayne, and waiting for these fellows
to do it - now, I don't - I mean they don't seem to
want to play; all right, let's see if we can't do it,
set up a model in a district just the way the Presi-
dent says, make it contiguous, integral, serving an
area, and with S.E.C. having the authority to take
this and that and the other, putting together a nice
little company; and get an agreement with TVA that
they'll keep out of there - no municipal plants,
anything else; get the rates down at & reasonable
rate, squeeze the water out, get a reorgenization,
offer it to the public and put her on the way.
Taylor:
This is the utility.
H.M.Jr:
Utility first. If it works, then we'll do the
railroad.
Oliphant:
Now, the picture on the
....
H.M.Jr:
See? Now, I think it can be done. Now, the
President is so crazy about it, he says, "Bring
it right in to me." But I'm not going to. I'm
not going to bring it into him until we are
satisfied, plus S.E.C., that all the bugs are out.
See?
Taylor:
(Nods yes)
H.M.Jr:
Now, I say if we can do it, my God, it would be
wonderful, wouldn't it?
Taylor:
(Nods yes)
H.M.Jr:
Yes. And he's given me carte blanche to go ahead.
I could talk an hour and I couldn't tell you anything
more.
Taylor:
Don't need to tell me any more.
H.M.Jr:
Yes. See? And when I get ready to do it, I want to
form a syndicate just like the Farm Credit - land
94
-3-
banks. That's all. I mean to set the pattern -
"This is the way we get the money." See? But make
it so attractive and so sweet that they'll fall all
over themselves to subscribe.
(Messrs. Douglas and Frank, of S.E.C.,
come in and are introduced)
H.M.Jr:
Move closer, won't you? I say come a little closer.
You have no objection to my doing the way I always
do. There's only one copy of this, and it's only
for me.
Douglas:
No.
H.M.Jr:
What?
Douglas:
Perfectly all right.
H.M.Jr:
All right.
This is the idea that I have had, which we've been
working on off and on for a couple months. I don't
know whether I talked to you about it before or not.
And that is this. As you may or may not know, we
have a big receivership department over in Internal
Revenue - I don't know how many companies that we
have that are either busted or will go busted,
depending on what we do about their taxes. And as
the President and you people have been working along
trying to get the public utilities to drink after you
get them to the trough, we have been sort of sitting
by and waiting, plus also the same thing on the rail-
roads. Well, reading in the paper what happened today,
I made up my mind they're not going to drink.
So I went to the President and said to him this
morning, "What would you think if we had in our
shop, first, a utility which through defaulted
taxes, and so forth and so on, we more or less
could control. We're the receivers, more or less,
or could make ourselves the receivers. We'd force
them into receivership. And if we went to Douglas
and said, *Now look, here's a territory, or here's a
group of utilities. Now, you take your pick. And
using the authority that you have to cut off a tail
here and a limb here and so forth, let's see if we
95
-4-
can't put together a public utility along the
lines that the President has in mind, which would
serve a territory, come to an agreement with TVA
and municipal plants and authorities and everything
else, squeeze the water out of it, get a decent
financial set-up, and then offer, if we have to get
new junior capital, a security through a syndicate
organized just the way we did Farm Credit and our
land banks. In other words, set an example and do
it ourselves and demonstrate that the thing can be
done.'"
Now, he's just crazy about it. He's just crazy
about it. And he said - and I said, "After we do
that, let's do 8 railroad.' So he said, "My God,
Henry, all my life I've wanted to do a railroad,'
and he says, "but I didn't think I could do it until
I got out of the "hite House because I've got to be
a little unconstitutional to do one."
He said, "I only was talking to Justice Brandeis
last night about how I want to do a railroad." So
ne says, "Bring me the public utility and I can do
it in ten minutes."
Well, what I'd like to do, if you people like this
idea, is to try to get all of the bugs out of it
that we can see, After all, we know what the Presi-
dent wants, what he's talking about, and I don't
think anybody, with all due respect, can do it in
ten minutes.
Douglas:
No, it's going to be a time job.
H.V.Jr:
But if it could be done, Douglas, and we can demon-
strate how it can be done and put the thing across,
then we can say, "You fellows can't say any more that
it can't be done. We've done it."
Douglas:
That's a good idea.
H.M.Jr:
And everybody's talking about a billion dollars should
go to work and so forth. Well, let's see - I don't
know anything that I'd rather put my time on than to
do this and get this thing started, and get an answer
to these people that the thing can be done. See?
Now, having laid down my ideas, see, let Oliphant
96
-5-
tell you what we've got, and you may know - but
let him tell you what we have here, what we can
turn up for you fellows to look at, see? And
then let's see - I don't know whether Federal
Power should have somebody sitting in on this and
whether TVA should have somebody. But let's get
everybody in the Administration who could block us -
I mean getting them on the inside, working with us
from the beginning, so they can't say, "Well, I
wasn't called in; It's no good," then begin to knife
us in the back right from the beginning. I'm more
worried about people on the Government's payroll than
I am about fellows on the outside,
Douglas:
Has Treasury any claim in the Genesee case?
Oliphant:
Is Genesee on that list, Opper? The long list. We
started out here, Bill, and took 8 rather long list
and went through and picked out what looked like the
most promising things. Now, I can say to you that
all of the situations are so complicated that it is
not possible to sit here and pick out one, so that
what we need to do would be to get around a table
and go over these things very carefully.
Opper:
Genesee Valley, is that it?
Frank:
It's very small, Bill. It isn't
...
Opper:
I haven't got the details on it, but it's listed
Genesee Valley Company in New York.
Pouglas:
We could crack that one off very fast. We've turned
down one plan on that - on a simplification program,
not the integration. Simplification program with a
whole tier of holding companies.
H.M.Jr:
In just the Genesee Valley one?
Douglas:
Yes, and we turned down a plan we had before us for
approval before it went to the Court, before Judge
Caffey, I think, and it's coming up before him
tomorrow, I believe. That's a little ministure
situation.
Frank:
Nice one to do E job on.
97
-6-
Oliphant:
It might very well be when we looked at that
from our standpoint, that from our standpoint
we might not agree that was the best.
Now, the statement I am about to make won't mean
much for the reasons I have stated. That is, as we
go all over these, having only our material to look
at, the thing that looks the best from our standpoint
is Standard Gas and Electric. Now, from your
standpoint that might be all sour.
Douglas:
Well, it is sour in a certain sense.
H.M.Jr:
Well, that's the one you (011phant) gave me all the
maps on.
Oliphant:
Yes.
H.M.Jr:
Because there's a question - you've got to go in and
use your authority, which I don't think you have used
to date, of giving them certain pieces in their
territory which they haven't got. That's the one
that centers around Indianapolis, isn't it?
Oliphant:
No, that's the Pacific Coast one; supplies electric
light. Since I gave you that memorandum in November,
that one has paid its taxes; but it may still be
available, you see, from his standpoint.
H.M.Jr:
Because that one, the one that centered around
Indianapolis
....
Douglas:
Have you got Utilities Power and Light?
H.M.Jr:
You kind of like this idea?
Douglas:
on, swell.
H.M.Jr:
What?
Douglas:
I think it's a grand idea.
Frank:
Marvelous idea.
Taylor:
I wouldn't take one that's too small, for one reason,
which is that your second step in this is to have a
98
-7-
following for the market of that particular
security, and if you take too small a one, why,
they can say, "Oh well, that's just - anybody
could have done that.'
Douglas:
Yes.
Well, there are two types of problems as I see it.
One is a simplification program for capital
structures. The second is the geographical
integration of the utility properties under the
so-called death sentence section of the Utility
Act. The Genesee is just a little ministure
laboratory one that could be tossed up quickly,
say, perhaps as a test of the technique that we
might use.
Frank:
Got a whole tier of holding companies built entirely
on the operation of one little operating company,
and that operating company could pay out very nicely
and could sell bonds.
Oliphant:
Now, to answer your (Douglas) question, that Chicago
outfit, we thought, was a very good one.
Frank:
Utility Power and Light.
Oliphant:
Yes. But since we had this thing up, they've paid
their tax. But it still may be available from your
standpoint.
Midland Utility Company was another good one, and
since we had this up last time they've paid their
tax.
H.M.Jr:
See, I've only given Herman an hour's notice on that.
Frank:
You were on a ten-minute schedule.
Douglas:
The first problem is to keep them from paying their
tax, if this thing is to work.
Opper:
Which isn't what we've been doing up to now.
H.M.Jr:
We're going to get somewhere. You've got the idea.
99
-8-
Frank:
What about Associated Gas?
Oliphant:
There's a whole string of those Associated Gas
companies we had on our first list, and we
decided to eliminate them because of the general
complication of that whole picture.
Douglas:
That's a holy terror.
Oliphant:
I think you're right.
Douglas:
That's a holy terror.
Frank:
Take you a
....
Douglas:
You'll have those fellows tied to the whipping post
for ten or twenty years.
H.M.Jr:
Douglas, if we could get something we could do within
a month or so, it would be awfully good.
Douglas:
Well now, this Standard Gas and Electric - they've
been nursing along a phony plan with the idea that
after they perfected their plan, which was merely a
moratorium, not a reorganization - and the company
would come out in as bad a shape as it went in - then
they would come in and register and submit themselves
to the operating table at the S.E.C. That might be ....
Frank:
Associated?
Douglas:
No, Standard. That might be a good one.
Oliphant:
We have a claim of about eight million tax against
them. Now, what that would simmer down to, if nothing
is done and we go ahead - may simmer down to about
three million dollars. But as it stands at the moment,
it is an eight million dollar tax claim.
Opper:
Out of probably around 72 million dollars total
liabilities of that particular company.
Frank:
That's against the top holding company?
Opper:
The top company.
Oliphant:
Against the top.
100
-9-
Opper:
We've got claims down the line, but as I recall it
they were consolidated statements, so, as I recall
it, the claim was against the top one. So we've got
eight out of 72.
Taylor:
Is this Standard?
Opper:
Standard.
H.M.Jr:
Douglas, who do you think ought to - do you think
that at this stage we need anybody to sit in from
any other agency?
Douglas:
I don't think at this stage, because on this
problem - we would at a little later stage, but
on this holding company aspect I don't think we
would.
(Messenger brings in maps on Standard
Gas and Electric)
Klotz:
That's it.
H.M.Jr:
God, I hope it was in your (Oliphant) office.
Oliphant:
I hope it wasn't.
H.M.Jr:
This is a little - just a battle as to where - as
between ....
Oliphant:
or infellibility.
H.M.Jr:
... Mrs. Klotz's office and Mr. Oliphant's. It goes
on about once a month, as to where the papers are.
Oliphant:
Clerical infallibility, - the issue.
H.M.Jr:
We laid it on his doorstep. God, I hope it was there.
Anyway, go ahead.
Douglas:
You haven't - have you sat in on any of the discussions
with the committees in that Standard Gas? Have you
been consulted on the plan?
H.M.Jr:
Have we?
Opper:
Well, we so far, as I recall it, have concentrated on
the amount of tax. That's where the conferences are,
101
-10-
as far as we're concerned; because theoretically
they say they're going to pay whatever tax is
finally determined. The result is, as far as the
plan is concerned, it won't affect them, because
whatever the taxes are they'll pay in cash, as they
say now.
Frank:
What is your leverage on them?
Opper:
The leverage is to keep the tax so high - our deter-
mination of the tax so high, that they just won't
pay it anyhow. They'll refuse to pay it and litigate
the tax, which will mean they can't put their plan
through.
H.M.Jr:
Well, following up with Mr. Frank, let me ask this
question. Take Genesee or any company. Suppose we
say, "All right, we pick that company." How can we -
how could we force them to time? That's the question.
I mean how can we bring this thing to a head?
Opper:
I think we ought to consider
....
Oliphant:
Of course, it varies so much.
H.M.Jr:
Would we put them through 77-B?
Douglas:
Genesee is in 77-B.
Oliphant:
These cases we're talking about - we typically find
them in 77-B, except Standard.
Douglas:
Yes, Standard.
Oliphant:
Now, we haven't done the other thing you may be
suggesting, that we go over tax claims and see if
there's somebody we could force into 77-B by means
of a jeopardy assessment. That's another possibility
that might be canvassed.
Douglas:
I think that ought to be canvassed because there are
quite a few rocking around that are pretty close to
it.
Oliphant:
We could start with your list - & list you might give
us, you see, and just go down it from this standpoint.
102
-11-
H.M.Jr:
Well now, look, would you - I'm so intensely
interested, I want to sit in on as much of this
as I can myself, because I'm interested in putting
people to work. I'm so sick and tired of sitting
here and signing papers and saying "No." I'd like
to get in on the productive side. I mean I get
awfully tired of my job. And this looks to me as
though it would put both capital and people to work,
and that's what I'm interested in.
Frank:
Of course, on the railroad end you have to work with
R.F.C. Now, between you, you could - 1f those two
agencies would get to work - I'm interested in
railroads because I've been in a lot of them, and
it's just shameful that they have not been put through
reorganization in these last four years. And you could
force a real reorganization. Because the plans that
they've been presenting, if accepted, would put them
back in reorganization in a few years.
H.M.Jr:
Well, I think ....
Frank:
That's not our scope.
H.M.Jr:
Offhand, I'd like to see this thing through so we
can either say, "Well, we can do it," or "We're licked,
we can't." Now, if you people are ready and would be
ready tomorrow evening, I'm free - Mrs. Morgenthau is
away - I'm free to devote tomorrow evening, if that
isn't pushing you too far.
Frank:
You (Douglas) going to be here?
Douglas:
I'm not sure that I'm going to be here. Let's see,
tomorrow evening's Friday.
H.M.Jr:
You're going to be away?
Douglas:
Yes, tomorrow evening.
H.M.Jr:
Tomorrow afternoon is Cabinet. When would you be
ready? Be ready Monday morning?
Douglas:
Oh, I could be ready tomorrow morning or Saturday
morning.
H.M.Jr:
Oh, you're just away
....
103
-12-
Frank:
When you going to Chicago?
Douglas:
I'm going to Chicago on Sunday night - Sunday
afternoon. Be gone until Thursday.
H.M.Jr:
Would you be ready Saturday morning?
Douglas:
Yes, Saturday.
H.M.Jr:
Do you want to come over? Mind coming over here?
Douglas:
No, no.
H.M.Jr:
Would you be willing to meet, say, ten of clock
Saturday morning?
Douglas:
That would be all right.
H.M.Jr:
And then that gives everybody a chance, and if somebody
wants to meet in between
....
Oliphant:
Isn't it your thought that we better get together in
the meantime? It will be necessary, if we're going
to be any further along than we are now, that - it
will be necessary to get together and look over these
companies.
H.M.Jr:
Why don't some of you people go over to Douglas's
shop? Tomorrow I've got this bank holding thing -
I'll meet 11 o'clock.
Douglas:
We can do it this afternoon over at our shop; sit
down with one or two of our men, go over everything
we have, sort them out, take a look at it.
H.M.Jr:
And have our people come over
.....
Douglas:
... this afternoon.
H.M.Jr:
To you this afternoon?
Douglas:
Sure.
Oliphant:
About what time?
Douglas:
Half past two.
Regraded Unclassified
104
-13-
Oliphant:
All right.
Frank:
I was wondering whether we'll be far enough along to
have anything for you by Saturday.
Douglas:
I think we can sort them out and have a general
size-up and reduce the choice down to three or four,
and get into a consideration by Saturday morning of
the various aspects of those three or four, which
would be relevant to the decision on this.
H.M.Jr:
You see, our fellows here work on a 20-hour basis when
they have to, and Oliphant hasn't worked - I mean on a
thing like this - it challenges him - now for what, a
couple weeks?
Oliphant:
I've been down to Key West.
H.M.Jr:
So he's all primed to go and he's full of sunshine
and fish. And, as I say - so we're all - we're in
good shape physically here.
Douglas:
Well, we are.
H.M.Jr:
I mean physically, individually.
Douglas:
We can get together if two or three can come over
this afternoon, sit down with our staff, and start
this.
Oliphant:
2:30.
Douglas:
And start this selective process.
Oliphant:
Now, I'd like
....
Douglas:
We can confer with our staff tomorrow morning and
then we can have something here for recommendation
on Saturday morning.
H.M.Jr:
And if you don't mind, if it isn't crowding you, if
you can put the thing down so I can see the territory
Douglas:
Sure.
H.M.Jr:
I can get it better visually.
Regraded Unclassified
105
-14-
Douglas:
We'll have a picture of capital structures of the
three or four companies that we reduce it down to,
with perhaps a colored map showing the spread
throughout the country, what kind of a job it is,
and to what extent it touches us, to what extent
it touches Federal Power. We can do that on three
or four.
H.M.Jr:
And personally - I know this'll make it a little more
difficult, but if it could be in the territory where
TVA is - I mean I think it would be very interesting.
I don't say that it has to be,
Frank:
Conwell says it is in pretty good shape as far as
taxes.
H.M.Jr:
I mean they control the whole section.
Dougles:
No, there's some Associated Gas around there. Those
are minor. There's some Electric Bond end Share
around the TVA; that's somewhat minor.
H.M.Jr:
I mean just throwing - I don't say you have to do it,
and I don't want to make it too hard for us.
Douglas:
Yes.
Taylor:
I think selecting the territory is almost the most
important step, because there are all sorts of factors
that come into that. You have to have the local people
who would be sympathetic in the first place, and see
that you don't get mixed up with these local commissions.
And my hunch would be to start with 8 territory where
you can get out and concentrate on that and build
from there on up.
Douglas:
Yes.
H.M.Jr:
Well, as I say, we want to get all the breaks, and as
I say, if we do have to make an offering to the public,
I'd want it to be so attractive that it would go - the
people would be falling all over each other to sub-
scribe to it.
Douglas:
Think the Secretary might be interested, Jerry, in
the possibilities in Alabama, Mississippi, and Georgia?
106
-15-
Frank:
That's what I thought.
Douglas:
That TVA area hasn't as yet been, as you know,
delimited. Of necessity some delimitation at some
time will be necessary, because obviously TVA only
has X kilowatts on its present basis and on the
basis of what has been authorized and planned.
We can start off with the assumption that it is
not going to be the entire United States, it is
not going to be the entire Southeast. Quite
confident of that, in terms of just plain kilowatts.
Those are facts.
Oliphant:
Kilowatt lines.
Douglas:
The line, I think - I talked to Lillienthal a week
or SO ago, and I think the line is beginning to be
drawn - a little indistinctly, but it's beginning to
be drawn. That would leave substantial areas - Miss-
issippi, Georgia, Alabama, particularly - that
wouldn't be embraced, in all probability.
There has been at suggested proposal that we have
discussed at the Commission and that I reviewed with
the President the other day, whereby the stock of
Georgia Power, Alabama Power - belong to Commonwealth -
and the Mississippi Company would be acquired from
Commonwealth and Southern and distributed locally
in Georgia - Georgia Power stock distributed in
Georgia, Alabama Power stock distributed in Alabama,
and the Mississippi in Mississippi. In Alabama they
would - there are some little isolated properties
belonging to other systems that could be picked up
and merged so that we'd have an integrated intrastate
Alabama system locally owned. The same thing in
Mississippi - a few more mergers in Mississippi than
in Alabama; we'd have an integrated intrastate
Mississippi Company. And the same in Georgia. Get
away from this absentee ownership thing, satisfy the
requirements of the statute on integration, because
it would be purely intrastate; and, looking forward
a year or five years or ten years, put that Southern
utilities situation in a position where it could be
dealt with locally. It would be then not a question
of an absentee landlord, not a question of a trade
Regraded
107
-16-
across the table with a fellow who had every
conceivable thing to throw into the jackpot,
who had Michigan to trade against Georgia and
Connecticut to trade against Alabama, and all
that; but you have a local situation.
Now, Lillienthal dropped a remark to me the other
day that was very interesting. He said that he
felt that if that Tennessee Electric presently
owned by Commonwealth and Southern had been owned
locally, they would have arrived long before now
to an amicable settlement of the Tennessee problem,
because the Tennessee municipalities would be
talking to the Tennessee investors and they would
decide amicably within the state what the destiny
of the state was going to be, and they could do it
much better.
An operation like that, very confidentially, just
within this room, has been proposed by Harrison
Williams, of North American. Now, Harrison Williams
doesn't want to do it, believe it or not, at a
profit to Harrison Williams. He wants to do it
"ex" profit. As a matter of fact, he would prefer,
I believe, to have the Government do it rather than
to have him do it. He has the formula and he has
made a study over the period of the last nine months
of how to do it. But savings in fixed interest charges
on those properties could be made by a refinancing,
with a settlement of the TVA boundaries, and so on,
with the sale of the securities locally, whereby a
refunding operation of the bonds could be conducted,
reducing interest from six percent, say, to four and
a half percent.
Our staff is working on that problem at the present
time informally. No application has been filed. It
is distinctly within the realm of possibility. Whether
or not it would be possible of attainment would depend,
of course, upon Willkie, what he would be willing to
do. But it is moving pretty fast; it has great
possibilities of just settling the whole utility
problem in the southern part of the country, by doing
two things: breaking up those companies and having
them wholly intrastate, with the securities held
108
-17-
locally; secondly, a line around TVA, that line
to be determined by the hard facts of kilowatts.
And with that Chinese dragon then out of the way,
I think it would be a settling influence over the
whole utility situation in the entire country.
H.M.Jr:
Well now, who's driving - the driving force on the
Government side?
Douglas:
On the Government? That just came into our shop
the other day. Harrison Williams presented it, we
discussed it with the Commission, I talked it over
with the President, and I was about to approach
Jesse Jones to see if he'd be interested.
H.M.Jr:
Where would he come in?
Douglas:
On the possibility of R.F.C. financing it.
H.M.Jr:
Has he got the money, Wayne?
Douglas:
I don't know.
Taylor:
He hasn't got the authority.
Oliphant:
Let's see, Bill, if you got the securities and sold
them locally, you'd have to squeeze the water out
of them before you sold them.
Douglas:
That's right.
Oliphant:
Who would take that slack up? Where would the money
come from to take up that slack?
Douglas:
what we'd have to do - S.E.C. would be passing upon
the consideration to be received by Commonwealth
and Southern. And we are well into our analysis
of those companies, showing the amount of write-ups
and what not that are in there, and what the fair
value of those securities, based upon a prudent
investment theory, would amount to.
Oliphant:
The idea would be that Commonwealth and Southern
would take the loss through the squeezing out of
the water.
Douglas:
Yes.
109
-18-
Frank:
Yes. That is, to ....
Oliphant:
... merely reflect the market realities of the stock.
Douglas:
Reflect the market realities of the stock. How much
it would be, I don't know. By the cry of "Wolf, wolf"
these big absentee landlords, so to speak, in the
utility field have been very successful in scaring
a hell of a lot of investors.
H.M.Jr:
Well, it's an interesting idea. It would help a lot.
Douglas:
Well, I just throw that out as another angle on this
thing that doesn't - it's a variation from the thing
we started talking about. Whether or not
H.M.Jr:
But it's on the fire, so to speak.
Douglas:
It's on the fire. Now, whether or not - I mentioned
it just apropos of your
H.M.Jr:
I'm glad to get it, because I get - in other words,
I want to be up-to-date on this thing, what it 1s,
what's going on.
Douglas:
That's a distinct possibility, and I think that - I
think it's worth exploring.
H.M.Jr:
Yes.
Douglas:
And I think that if it could be handled by the
Government, there is a possibility of a very profit-
able operation at present.
Frank:
Wayne, do you think the Federal Reserve under its
statute could do the job?
Taylor:
I don't think it could do it the way it should be
done, Jerry. You see, it all has to be in the form
of loans - I mean under either of them. That's the
thing; that's the trouble. I'd say in Jesse's Act,
why, there are certain types of operations which -
this would certainly be one of them - that unless
you can get a definition of a loan which isn't the
definition that he has now, I don't think you could
do it.
Douglas:
Couldn't you do it - make a loan with the stock as
collateral?
110
-19-
Taylor:
Well, it's
Douglas:
To a syndicate that would distribute.
Taylor:
It was in another connection that I talked to him
last week about underwriting and one thing or
another; this would come in that general field.
And I think he's pretty satisfied that he hasn't
got the authority at the present time to be able
to do this type of thing.
Now, you could - I mean the way you would get that
amendment if you wanted to have it, why - I don't
think it would be too difficult; but in order to
do this kind of a job, you'd have to have a rela-
tionship to the junior capital which would permit a
carrying while you were doing your placing locally,
and that's always been the bug in those things, that
you couldn't get a carry for your junior capital.
And somebody has to do it; otherwise it won't go,
H.M.Jr:
Well, I think if you people would start now - and
they're coming over to you; then we'll meet again,
and just push as hard as we can. Meet here at ten.
I just want to say - I can't help it, these news-
papermen are around our halls all the time, and if
they ask us what you're doing here, we simply say
that we have no comment to make.
Douglas:
Sure.
H.M.Jr:
I mean if they should see you coming in and out, I
can't help it; they patrol my door. But there are
never any leaks out of this office. I mean there
are never any leaks out of here.
Frank:
There is one word of caution, Mr. Secretary. As far
as I think we're concerned, it would be unwise to
indicate we're going to do any kind of such job under
the Holding Company Act until the Supreme Court has
decided the Electric Bond and Share case.
Douglas:
Well, our role in it is obviously this, I think. We
have a job to do under the statute - two main jobs.
Our biggest job is simplification; second, integration.
H.M.Jr:
Second, what?
111
-20-
Douglas:
Integration - geographical integration of these
companies.
H.M.Jr:
Yes.
Douglas:
And the people who are working on those plans for
Utility Power and Light are in our office every
day. We are consulting with them and advising and
steering them this way and that way, saying "Yes"
and saying No" in an informal way. It's the only
way. We can't run it on a formal, legalistic
procedure basis. 80 in this connection, if the
Treasury is the moving party either extensively
or in an undisclosed way in a plan, our function
doesn't change at alr. I we sit there advising
and consulting and helping the moving parties satisfy
the requirements of the statute.
Oliphant:
Well, your power would have to be used in a pretty
decisive way, because it would always be possible
to oust us by coming in and paying the taxes we
claim. So you'd have to be able to take hold of
it.
Douglas:
The thing Jerry mentions is, suppose under the motive
power ES supplied by Treasury E particular plan is
produced, and in order to get rid of that motive power
the Treasury's claim is paid, so Treasury is out. Then
the problem is left for us to deal with not in a
voluntary way, in cooperation with the parties, but
involuntarily. Now, we are committed by the Attorney
General
H.M.Jr:
I see,
Douglas:
and by ourselves to a policy of not forcing things.
H.M.Jr:
I see.
Douglas:
Until the Supreme Court decides the Electric Bond and
Share case.
Frank:
Which will be argued the 7th of February; that'll be
out of the way in a month.
H.M.Jr:
Well, this idea I have is that we can force them
through the unpaid taxes. Now, if we can't force
112
-21-
them and they pay their taxes, well then, the
thought that I had - we just drop out of the
picture anyway. So the thing that you raised
doesn t really come up.
Douglas:
This is a voluntary procedure from the point of
view of the company.
H.M.Jr:
Yes, and either this thing - the unpaid taxes is
8 big enough stick to whip them into line - and
if it isn't, then we have no usefulness in this
picture and we drop by the wayside. So that thing
you raised - I'm not going to say, "Well, if we
can't do it, you force them." I'm only interested
as long as we with our unpaid taxes are useful agents.
So I don't think that that will come up. Huh?
Frank:
No, I don't think so, except what Herman mentions,
that 1f they in order to pay the tax had to put
through a plan or dispose of property, they'd have
to come to us. That's what you have in mind. And
then if they were doing it on
Oliphant:
Something else. When we sit around 8 table and try
to pick a company, one of the things we have to keep
in mind is, do we between us have enough hold on them
that we can take them and hold them long enough to
operate on them, or will they climb off the table?
Frank:
Well, I think we do where they have to do some
financing and keep - pay their taxes; between those,
we
Opper:
I'd like to mention one other thing, get the reaction
on it. I can understand that you want to wait until
after the Electric Bond and Share case is decided to
do anything.
Frank:
To announce it publicly.
Douglas:
No, not to do anything. To force companies by an
action of the Commission, such as application to a
court for an order to do something.
Opper:
Well then, whether or not this runs across that, I
don't know; but as I recall the Public Utility Holding
Company Act, you also have the power in a receivership
113
-22-
to negative any plan.
Frank:
That's right.
Douglas:
And we're doing that right along.
Opper:
Now, our only power is the same thing. We can
negative the plan. They can get us out from
under by paying the tax. But if it was agreed
that if we negatived the plan and they paid the
tax, and then you'd come along and negative the
plan on the same basis, then I don't think they
could get away, and if they knew that ....
Frank:
And when in court they can't pay their tax in any
manner which would hurt other security holders,
and that's where we can negative it.
Douglas:
And that's the technique in the Genesee case. They
came to us with their plan and said, "Please approve
it." We said, "Nothing doing. Ne can do that -
that is, only consistent with the Electric Bond and
Share."
Oliphant:
While we're here now all together, there is one thing
I'd like to mention, to be sure we're not overlooking
anything. I wish you (Opper) would read off that thin
list, that list of companies that we marked out.
There is El class that we just marked out. I.R.T. is
the type. Just read that list.
Opper:
Atlas Pipe Line; Hudson River Navigation Company;
Interborough Rapid Transit Company; Manhattan Railway
Company; Postal Telegraph and Cable Corporation;
Tallulah Falls Railway Company.
Douglas:
Those are all out as far as we're concerned.
Oliphant:
I just wanted to be sure that we weren't interested
in that field.
Frank:
Well, Postal - I happen to know a little about the
Communications Commission; might work with them on
it. They have - they're in 77-B.
H.M.Jr:
Well, I don't want to say we're not interested in
railroads, but this - this is so important, I just
want to concentrate on this. Now, if we're
114
-23-
successful, and I sincerely hope so, then we can
sit down with the other boys on the railroad thing,
if this device, using the Treasury, works. I mean
don't - I mentioned railroads to the President, but
I just want to do the one thing at a time, because
it's so big. If this pattern works, swell; then we'll
take one railroad.
Oliphant:
You see, at one extreme you have the electric company;
at the other extreme, you have the railroad. Then in
between we have these middle companies that we just
dropped out, assuming what you wanted was a typical
electric company.
H.M.Jr:
I think this'll be fun.
Douglas:
Swell fun.
115
REPORT OF SECRETARY MORGENTHAU'S
PRESS CONFERENCE, JANUARY 27, 1938:
H.M.Jr.: Well, I'm at your service.
Q.
Can you tell us something about today's meeting
of the Interdepartmental Subcommittee?
A.
There isn't going to be any.
Q.
Today?
A.
No, it was put off until tomorrow.
Q.
Tomorrow morning?
A.
They need a little more time. Yes, eleven o'clock
tomorrow.
Q.
What was the reason?
A.
They needed a little more time--some of the people
did--to do their homework.
Q.
Will Senator Glass be in this meeting?
A.
No, no. I mean - -
Q.
Have you decided on your suggestions, Mr. Secretary?
A.
No, I'm going to listen.
Q.
Is it fair to assume that out of this meeting
there will come some sort of a legislative
proposal?
A.
Well, not necessarily, but I don't know what they
are going to propose. I don't know how - when
you appoint a committee to make this study it's up
to me, as chairman, to listen, and I don't want to
116
-2-
guess at what will come out of it -- this
isn't a rubber-stamp committee. I mean, these
fellows are all - - .
Q.
Will you discuss any of the bills already proposed?
A.
Well, they will go over the whole thing. They
have had plenty of time. I mean, these are
intelligent people and there will be a full
discussion of the whole subject.
:
Mr. Secretary, around the first of the year you
said you were keeping in constant touch with
Mr. Hopkins regarding the relief situation; has
that changed any?
A.
You mean my keeping in touch with them?
Q.
No, at that time you said as a result of these
contacts - -
A.
No.
a.
There was no change in the picture at the moment.
A.
That's still true. 1 have here their release as of
the week ending January 15th and I get the advance
figures for the week of January 22nd and there still
isn't anything in the picture but what can be taken
care of by the money provided for in the Budget.
S.
Money provided by what?
A.
By the Budget.
-3-
117
Q.
Anything new on this French situation,
Mr. Morgenthau? I see the franc almost touched
an eleven-year low the other day.
A.
Nothing new that I can say about it except that
we are watching it very closely, but there's
nothing I can say.
Q.
Is the Tripartite monetary understanding still
in effect?
A.
Still in effect.
C.
Mr. Secretary, Reuters had some report that the
Van Zeeland report is going to be made public in
Washington at the Treasury or White House tomorrow
morning.
A.
All 1 know is we won't release it. My guess is it
would come from the State Department.
Q.
Is this the Van Zeeland report from all those
trips around that he made?
A.
Well, strictly in the family, it came here late
last night and it's about that thick, and I have
asked somebody to read it, now, and that somebody
hasn't because I gave it to him late last night
and I don't think they have waded through it yet.
But I greatly question that I will make any comment
on it. I imagine it will all be State Department
and I would be surprised if the White House did
118
-4-
anything about it. But this is just amongst
us, but my guess would be--a diplomatic document--
it would come out of the State Department.
Q.
There are going to be some things on money in it.
Will you comment on them? At least, according to
what Mr. Van Zeeland said.
A.
I've got to wait until this fellow reads it. But
you remember, here a month ago, there was a dispatch
coming over what they are talking about doing with
gold and if that is in the report I think I laid
that one to rest, but as long as it's so big
I suppose the whole report will be released.
Q.
Mr. Secretary, isn't is rather unusual in this
current French franc crisis that there have been
no actual physical shipmentsof gold from Paris?
A.
No.
&
Has it been confined to earmarking?
A.
No. Use this for background. The dealings in
francs in this country are not very heavy, see--
this is for background. And the big play on that
is between London and Paris, and when a time like
this comes, what they do is more or less just make,
more or less-this is for background--just make
official transactions in francs the way it is now.
I mean, there isn't a free play in the franc right
119
-5-
now, you see, but the shock of it is mostly
on London and again and again when the franc
gets these sinking spells, which they have had
three or four times, we don't get the full brunt
of it and then they have always taken extra good
care to treat the United States well and we are
fully protected.
Q.
But still it doesn't account, though, why there
have been no gold shipments; I still think some
metal should have been shipped.
A.
The answer is they've got enough here to take
care of the present situation-you can use this
for background--but they've got enough gold and
dollars to amply take care of the very limited
transactions which are taking place, but the
big brunt of this thing comes either in London
or on the Continent and we don't get it--we never
get it; I mean, there's just as little mystery
about it as possible and I'm telling you the
whole story; there's nothing else to it.
Q.
Has the French Stabilization Fund exhausted its
resources? You see constant reports that the
Stabilization Fund is not supporting the franc
or to a limited extent.
A.
Well, that I can't answer because it's their
operation, but I'm simply telling you, as far
Regraded Unclassified
120
-6-
as we are concerned, they are very small
operations. They have ample funds on deposit
for them. Do you think I'm talking too much,
Herbert?
Caston:
Not for background; it's all right for background
purposes.
Q.
Mr. Secretary, if it's true that the French
Stabilization Fund isn't supporting the franc,
then the Tripartite monetary agreement isn't
working.
A.
The answer is we do get a rate every day. It's
working every single day.
Q.
What do you mean by rate?
A.
Didn't I explain that the other day? They give
us a buying rate for the franc and they give us
that every day, after their market closes, they
instruct us please to take care of the franc--
buy at such and such a price and sell at such
a price, and when the day is over they have
enough money in gold or dollars here that they
take whatever francs we bought or sold off our
hands. In other words, we simply operate for
them and we never get stuck. We take darn
good care of that. Every single day we get
a rate for buying--this is all for background
purposes.
Regraded Unclassified
121
-7-
Q.
Mr. Secretary, what happens when their balances
here become exhausted?
A.
That is, again, their worry. In other words, as
far as the United States Treasury is concerned,
we don't take any risk at all, you see. I mean,
just as long as we have gold or cash we are more
than willing to operate for them at their risk
and expense.
Q.
Do you check the amount of gold they have here
before you start buying or selling?
A.
I am a very careful fellow. And it goes for all
of these people. When I'm operating for the
United States Treasury or the United States
Government I don't take any chances at all.
Q.
No rubber checks.
A.
No, I'm not taking any chances, whether it's
France, or Mexico, or Canada or any other
country. When the day is through the United States
Treasury is amply protected. This is all back-
ground. And at the same time, doing this, why do
we do it? Well, we are operating for them--it
eliminates the sharpshooter in the foreign
exchange market and he can't depreciate or in-
flate this thing and start a run on the Bank
of France. It has always heretofore been handled
by these sharpshooters and no flag means anything
Regraded Unclassified
122
-8-
to them and if they can make a profit and in that
way start a run-they have always done it. That,
really when you get down, is what the Trinartite
has done; it keeps this thing regular in times
like this. When a country like France is trying
to straighten out its internal difficulties and
they know they don't have to worry and the
American businessman --if he has francs due him--
he knows that he can get francs at a reasonable
rate and that's what it does for the importer
or exporter. Now you go to any other country
outside of, I mean, where they've got this
thing shut down-the American businessman can't
get his money and that's the great difficulty
and that's why-they know what they can continue
to buy and sell and import and export--he's taken
care of and that's the service we are rendering him.
is
Has the Treasury issued any sort of de facto orders
asking American banks not to engage gold in France
for psychological reasons?
A.
No. They might have on their side, but we
haven't.
Q.
Do you know if they have asked?
A.
I don't know; that's their business. As far as
I know, anybody can buy or sell--our market is open.
Regraded Unclassified
-9-
123
I mean, if any government wants to sell, we
will buy. They can take it out or buy it;
there's no restriction whatsoever, as far as
the United States Government is concerned.
It's absolutely free-that is again for back-
ground. Now if the French want to do it that
is their business and I don't want to talk
about it. When you get all through there's
no mystery about it, as far as what we are
doing other than I don't want to say what I am
doing for another client-that's his business.
If he says to me "I don't want you to say how
much I'm doing" and he has to keep the secret.
And if he's my client I should, as a matter
of ethics, live up to his request and as long
as I do that he trusts us and I think they
trust us as much as anybody else in the world,
because we keep their confidence; it's no
secret as far as what I am doing, but just as
far as I am operating for another government.
Q.
Purely off the record, don't you think the
Tripartite Agreement stays alive on a pretty
slim balance, if it depends on French balances
in this country?
Regraded Unclassified
124
-10-
A.
Well, yes and no. The fact that they have this
agreement has enabled them to keep going and to
keep from slipping into exchange control-that's
what they don't want and that's why we don't
want. If this thing fails, as far as France
goes, what happens? They go into exchange
control and this present government has again
and again--this group starting with Blum--has
again and again said they don't want exchange
control.
Q.
Can we use this for background?
A.
Sure, and that's one of the economic foundations
they stand for; and there's this other party who
want exchange control; it's of tremendous interest
to this government to keep as many countries from
going on exchange control. Why? As soon as they
do it makes it that much more difficult for our
business men to do business in that country, and
just as long as we can keep France open and
free it means the chance for world trade is that
much better. There's the whole story and if we
can keep that it makes it that much easier for
Mr. Hull to keep his trade treaties going and
keep the world trade going. Every time
a country slips back into exchange control it's
that much more difficult to do business. This
Regraded Unclassified
125
-11-
thing, when you get me going! There's an awful
good reason for all of it.
Q.
Can we say free exchange control in your policy
in the Treasury is essential for American trade
instead of for background?
A.
I wouldn't say it was essential, but it's the
basis. Herbert, is that too strong? I think
it's the basis for trade. What?
Gaston:
Yes.
G.
The absence of exchange control is the basis of
American trade policy?
H.M.Jr.:
Yes.
Q.
We can quote you on that?
A.
Why not?
Gaston:
I think that's all right.
H.M.Jr.:
If you want something, let me have a minute.
Q.
The absence of exchange control is the basis of
the American trade policy?
A.
That's a kind of a double negative, isn't it?
If you want something--let me just think a minute.
I put it something like this: That the Treasury
is constantly working--I can't give it to you
offhand. It's too important. Let me think
about it. I don't mind you using it for
background, but just to give you something
Regraded Unclassified
126
-12-
which would stand up around the world-it's
too important--I can't do it. You get what
our policy and our program is--it's tremendously
important that we keep as many countries open,
tremendously important, not only for ourselves
but for the whole world, and I may point out
that one of the reasons that business kept up as
well as it had is on account of the very remarkable
volume of our import and export trade at the end
of '37. I don't think people yet appreciate the
tremendous increase in volume of our export and
import business for the last quarter of '37 and
the basis of that whole thing is that a man, if
he sells a million dollars worth of merchandise,
knows that he can go to his bank and cash that
thing--on the other hand, if he goes up against
a country that has exchange control he's got to
worry and has to take harmonicas in exchange for
oil which they do, and has to send his boat into
a country to get it painted in order to get money
for his bananas which they do. That's the fight
I have made here. I trust you fellows to use it
for background.
Gaston:
Itwas very carefully stated in the Tripartite
understanding itself, in the last paragraph of
the Tripartite understanding; it said these
Regraded Unclassified
127
-13-
nations (I don't remember just the words used)
expressed the hope for relaxation of exchange
control and other restrictions on trade.
H.M.Jr.:
Would you get that for the boys and send it down?
Gaston:
Yes.
H.M.Jr.:
And that's why we burn the midnight oil time and
time again when something is happening in another
country, to strain every point and still stay
within the spirit of the law-which we do very
carefully--to helping a country from slipping
into exchange control.
Q.
What other countries, Mr. Secretary, have you
prevented, besides France, from slipping into
exchange control?
A.
The most recent one is Mexico; that's the most
recent one.
Q.
How about Japan?
A.
Well, they have a semi-formal exchange control
now; there isn't a free flow.
Q.
Any other countries besides Mexico?
A.
That's the most recent one.
is
Was your policy towards China with the same
view in mind?
A.
Partly, yes.
Q.
How about Brazil?
Regraded Unclassified
128
-14-
A.
Well, we gave them an agreement last Summer
and they never took advantage of it and since
December 10th--I think the date is something
like that-they have had more or less exchange
control. This is all for background.
Q.
Is there any likelihood that France may slip
into exchange control?
A.
Well, that's the fight that's going on right
now and I hope that they can pull themselves
through again. I mean, I sincerely hope that
they can, but that's the big fight which is
going on there now. All this is for background,
but I sincerely hope, and it's a matter which
only the Frenchmen can decide.
Q.
Mr. Secretary, would it be accurate to explain,
for background, that this country is doing
whatever it can to help France avoid exchange
control?
A.
Well, that's the whole Tripartite agreement, which
is, as long as they are in it, just as long as they
can live up to the Tripartite agreement, there
won't be exchange control.
Q.
The thing that has troubled all of us is just
what are the qualifications for living up to
it; just when do they and when don't they?
Regraded Unclassified
129
-15-
A.
Well, they live up to it just as long as-say
you sell France $5,000 worth of dollars and you
send it over there and you can get paid that
minute, and just as long as there isn't any
exchange and as long as they don't depreciate
their currency in order to get advantages through
that depreciation, that is one thing. Because it
drops, and we are convinced it drops on account
of French capital moving out, that's one thing
but just as soon as they decide to depreciate
for their advantage, then they wouldn't be
living up to that thing. Through that Tripartite
agreement we have set this principle--here are
three countries who say we won't take competitive
advantage by depreciating currencies. We hope the
other countries won't either. Since that agreement,
no country has done that in order to get trade
advantages.
Q.
Does that apply to countries outside of the
agreement?
A.
Here are six countries who have laid down these
principles including Holland, Switzerland. Since
that agreement, no country has depreciated its
currencies in order to get trading advantages;
Regraded Unclassified
130
-16-
they have all had their difficulties but no
country has depreciated in order to get trade
advantages. We have accomplished that, you see.
Again, all this for you fellows, but for background.
Q..
In the event that the French Stabilization Fund
metal reserves were exhausted and its metal
resources of earmarked metal, and again the
Tripartite agreement hangs in the balance, what
would happen to the efforts to continue that
Tripartite agreement? You said it was pretty
slim.
A.
No, I didn't say it was pretty slim. I said
they still had plenty of funds available with
us here. They can go quite a long time as far
as our markets are concerned.
Q.
In other words, you are not concerned about the
situation, Mr. Secretary?
A.
No, I didn't say that. I'm not concerned as far
as their operations in our market are concerned,
but I also pointed out that their operations
in our market are very limited. That's one
thing, but what is going on in France is
entirely different. But I hope you don't write
anything about how concerned I am with how long
Regraded Unclassified
131
-17-
they can go. That would not be fair and would
not express what I have said, but I have talked
very frankly in order to give this to you people
and just let you really know what we are trying
to do.
Q.
Did you say, Mr. Secretary, that the Tripartite
agreement was an essential preliminary to trade
negotiations, as with Great Britain--it stated
a policy.
A.
Well, I think this, and I think that the State
Department will agree with me, that having con-
cluded the Tripartite agreement and having handled
the work so well and having brought the three
countries that much closer together, it makes
a trade agreement that much easier-it makes it
much easier, very much easier.
Q.
Paved the way?
A.
I don't think there's any question about it.
Q.
Mr. Secretary, back on the record a minute, do
you know of any plans being developed to have
a Federal agency that would expend small industrial
loans or help the market for bond issues of small
businessmen?
A.
Yes, but I don't want to talk about that. I mean,
unfortunately, I always am truthful and it is
embarrassing at times. I do, but I can't discuss it.
is
Thank you, Mr. Secretary.
132
January 27, 1938
My dear Mr. President:
On Friday, at eleven o'clook,
your Interdepartmental Committee on
Banking will meet to consider legis-
lation in connection with bank holding
companies.
It has been intimated to me that
Senator Glass would like to see you and
se in connection with his introducing a
bill to eliminate bank holding companies.
I further understand that he feels it
would be helpful to have you send a mes-
sage to Congress covering this subject.
We have ready a draft of a message for
you.
I am taking the liberty of sug-
given s HSK by 12:05 me
gesting that you invite Senator Glass
to come and see you after Cabinet to-
1-28-35
morrow and I would appreciate an oppor-
tunity to be present.
Faithfully yours,
(Signed) E. Morgenthan, Jr.
The President,
The White House.
cc to Mr. McHugh for FDR folder in
folder in safe.
1/28/37 - mas
Regraded Unclassified
133
January 27, 1938
Saw the President this morning and asked him to
explain to me what he meant about his statement that wages
mustn't be lowered. He said it was very important that he
make this statement at this time because the steel industries
are about to renew their agreement with the labor unions and
that Tom Lamont, Edward R. Stettinius, Jr., and Myron C.
Taylor are in favor of renewing the present agreement but that
Mr. Benjamin F. Fairless, President of the Steel Corporation,
wants to reduce wages; that this is a big fight which is going
on inside the steel corporation and that if they can renew
the present agreement that that will set the pattern for other
companies to follow and that he considers it of terrific im-
portance that the steel corporation renew their present agreement
and evidently he wanted to throw his weight with the Lamont-Stettin-
ius ex-chairman group.
He says that from 129 to '33 the steel companies and
others constantly dropped their wages and maintained their
prices with the result of the tremendous depression. He
doesn't want a repetition of that at this time and he feels
that the steel companies earned enough money last year and
were able to put aside enough money that they can continue
to pay the present wage scale.
I said, "Mr. President, I am entirely familiar with the
economic theory that industries like steel when business becomes
too slack they should drop the price in order to get increased
business. I am in entire sympathy with that theory by starting
with the speech that Robert Jackson made up to and including
the statement that you made two days ago, nobody has properly
explained this idea.".
I said, "Furthermore, in the case of building industries
where they pay $15.00 and $16.00 to bricklayers a day, if
those scales continue you can't expect your new housing bill
to be a success". He said, "I explained that I did not
include those". I said, #I know you did but that expenditure
in regard to this was completely drowned by the newspapers
and I can say to you, Mr. President, that nobody understands
what you are trying to get at". He said"the people in the industries
understand." I said, "Maybe they do and maybe they don't but
certainly the man on the street doesn't". He listened very
carefully and, much to my surprise, didn't resent in the least
my saying this to him but I will say for myself that I said it
very quietly and showed no excitement when I said it to him.
Regraded Unclassified
- 2 -
134
I then said, "Mr. President, we have been studying
the possibilities of taking a busted utility company and
and a railroad, which are in the hands of the Receivership
Department of Internal Revenue, and reorganizing them along
the lines that you have laid down working with SEC. What
do you think about it?" He was tremendously enthusiastic.
He said, "Can you do that? Have you the power to do that?"
He said, ""Bring the public utility to me, I have lived
and worked with this all of my life. In ten minutes I will
show you how to reorganize it". I said, "Mr. President,
let us explore the thing and after we have thoroughly ex-
plored it I would like to bring it to you".
He said, "Justice and Mrs. Brandeis visited me
yesterday and I told him the ambition of my life when I
get out of the White House is to reorganize a railroad
either on constitutional or unconstitutional laws. He
said, "The great trouble is when you start to reorganize
a railroad you land into the Inter-state Commerce Commission
and the Governor of a State will tell you that you can't
drop this railroad station or that station. Under the law,
you have to give the money to the first bondholder and by
the time you get through there is nothing left for the
common stockholder." He said, "I have always wanted to
reorganize a railroad". So I said, "Let me develop it for
you". I have seldom seen him so enthusiastic about an idea.
If I could prepare and develop, in all its details,
the reorganizing and refinancing of public utilities and
demonstrate that it could be done, I don't know of anything
that would be more helpful at this time and then if we could
also do a railroad I think it would be a real help towards
putting the country back on its feet because there are
three things the public is talking about - Public Utilities,
Railroads and Housing and, if we can get this started, it
will go a long way toward putting the recovery machinery
into gear.
I showed this chart to the President, explained it to
him and he was tremendously interested.
I checked with the President about purchasing
the silver from Spain and he approved.
Regraded Unclassified
ESTIMATED BASIC DEMAND
COMPARED WITH PRODUCTION. BY INDUSTRIES
11)
1923-25-100
1932
1935
1934
1935
1936
1987
1938
PER
FER
CENT
CENT
120
Combined Index
120
110
110
100
100
reduction
90
dama Demand
90
DO
60
70
70
AO
60
10
Devidion
10
o
o
-10
-10
-20
-20
1932
1933
1934
1935
1936
1937
1936
SELECTED INDUSTRIAL GROUPS
1934 1985 the HI H38
(VM)
in
1136
1986
1447
1936
2
PER
PER
PER
CENT
CENT
CENT
Textiles
CENT
Iran and Staki
140
weight nost
140
180
Weight 118 %1
jed
(70
180
120
120
Boxic Demand
100
100
100
100
Show Demand
"
80
BY
60
Production
"
60
A/U
40
Production
a
40
an
45
Denotion
Minny
Devisition*
If
20
vn
10
20
20
c
#
0
a
è
of
-20
-20
F
-40
(vat
in
1994
1988
1936
1937
1938
120
100
-40
40
Dicuminade Coal
1100
1983
1004
1925
7926
no
m
Weight ses
no
65
100
100
Lumber
se
Reight 17% N°
40
a
40
AC
40
so
so
20
ze
se
20
0
minimum
:
#
innumu
o
42
-#0
-10
-15
ITSE
1933
1934
1935
1936
1937
1938
I&E
100
-
:
Automobiles
1982
1133
1934
1435
1936
1887
1928
IM
160
100
wigh SAN
140
Mast Recking
140
Weight 36%
145
in
110
Production
130
120
-
100
100
190
%
:
40
ao
"
are
"Basic Deminit
Production
45
4d
se
so
20
15
23.
zu
e
my
mmh
0
40
40
-20
-00
20
10
-40
ini
IM
1134
OF
o
nmN
e
1935
1934
1987
100
1926
200
Crude Patrolaym
à
-2%
180
Avgm MM
180
%
F
140
TRAE
1939
1634
1933
1934
1937
ITM
140
146
(All
Leather and Products
140
Weight 14%
(40
⑉
THE
120
140
198
100
100
190
#:
42
-
as
la
10
M
B
a
e
:
40
#
1
INSIA
----
-
1985
1966
1937
i
#
---
:
THE
1930
Regraded Unclassified
-
J
of
1
Besir
- -
I
I
E-IM
136
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE JAN 2 7 1938
TO
Secretary Morgenthau
FROM
Herman Oliphant
Impuration
The conference at the Securities and Exchange Commission this
afternoon was attended by Opper, Foley, Hill, and Crossley for the Treasury
and Jerome Frank, C. S. Guthrie, Roy Smith, George Spencer, and Roger Foster
for the S.E.C.
The conferees went over a complete list of all utilities that
are in reorganization, bankruptcy, or receivership in the Treasury. Of the
entire list there was but one company that seemed to answer the requirements—
namely, the one mentioned in your office this morning, Standard Gas and Elec-
tric, which has operating properties scattered all over the United States
except in the Southeast, which means that this company would not draw in the
T.V.A. but might the Bonneville project in Oregon.
By noon tomorrow we will have S.E.C.'s list of registered hold-
ing and subholding utility companies that are financially shaky which we
will check against our list of tax claims. This should give us by Saturday
morning any registered holding or subholding utility company which could be
used.
It will take a week or more to make a similar check for pos-
sibilities among nonregistered holding companies and all operating companies.
Kervan Olindand
Regraded Unclassified
137
January 27, 1938.
2:24 p.m.
Operator:
Go ahead.
H.M.Jr:
Hello.
Admiral
Leahy:
Mr. Morgenthau.
H.M.Jr:
Talking.
L:
Admiral Leahy, sir.
H.M.Jr:
Go ahead.
L:
I had sent over to the President, this morning,
some information that I got, and it came back to
me, with a note on it, "Please inform the
Secretary of the Treasury of this at once.
H.H.Jr:
Yes.
L:
I'm sending it over to you, with one of my agents -
on his way over now - should be there in five
minutes.
H.M.Jr:
Right.
L:
And I'd like to have it back, if I may, because
it's a source of information and ought not to be
compromised in any way.
H.M.Jr:
I understand.
L:
Yes, sir.
H.M.Jr:
will he - I'll leave word when he comes that I'll
receive him.
L:
Just so that you see it, Mr. Secretary, that's all.
H.M.Jr:
What's that?
L:
Just if you'll see it, that's all.
H.M.Jr:
I'll do that.
L:
I mean, we already had the information, but it
looked very realistic to me, and it's correct.
The source is perfectly reliable.
L. 138
- 2 -
H.M.Jr:
Thank you.
L:
Goodbye.
1
139
January 27, 1938
3 p. m.
Present:
Ambassador Fernando de los Rios, of Spain
Dr. Feis
Mr. Taylor
Dr. White
Mr. Rios: I wish to present to you the possibility
on behalf of my Government to sell certain quanity, which
at this moment we cannot fix in ounces, of silver and to
know in principle if you are ready to acquire that. We
have the silver in Cartegena.
HM,Jr: Where 1s that in relation to Barcelona?
Mr. Rios: It 18 south. If you have here a map
I can indicate to you the location.
HM,Jr: Cartegena?
Mr. Rios: Yes. It is the most important fortress
we have had for several centuries. When I spoke to Mr.
Welles yesterday I said that the silver was in Cartagena,
but of course it would be important to know if that is for
you enough title, if that can be considered a difficulty
for you.
HM,Jr: What we do is this, Mr. Ambassador. If
a country wants to sell us silver or gold, the normal way
would be that after they indicate they accept our bid for
a specified amount of gold or silver, your National Bank
would send word to the Federal Reserve Bank of New York,
who are our agents, that they are shipping 80 much silver
or gold, delivered New York.
Mr. Rios: Don't do it for anybody?
HM,Jr; Nobody.
Mr. Rios: Even in another part of Europe you can-
not take it?
Regraded Unclassified
140
-2-
HM,Jr: No. We have been all through that with
other countries who are at peace -- if you want to call
it that -- shifting from one country to another. We have
established the practice here that we only will accept the
silver and pay for it after it has arrived at New York
because naturally it would be New York, and then we pay
98% or 99% subject to test. Isn't that it, Harry?
Dr. White: It's over 95%.
HM Jr: We pay the same -- I can get you the formula
and give you blank documents similar to what we do for other
countries to show you how we handle it for other countries.
Mr. Rios: Yes, it would be very interesting for
me to know how.
HM,Jr: How we handle for Mexico, for instance, is
on arrival at the Federal Reserve in New York, and we pay
on arrival, and depending upon how much, etc. We make a
price every day.
Mr. Rios: You make a price?
HM,Jr: Each day, at noon, we make a price.
Mr. Rios: Which is, today?
HM,Jr: Today's price, 45 cents delivered New York;
45 cents.
Ambassador: That is, the principle, interesting
for me and my Government to know. The condition and all
that can be arranged with our representative here, our
Commercial representative here, Mr. Echevarria.
HM,Jr: The details are very simple and we fix the
price each day and the price is 45 cents today, New York.
Mr. Rios: Yes, but to put silver in New York it
must be, it will be necessary to have it fixed price;
otherwise, nobody is sure.
HM,Jr: When you are ready, you say: Mr. Morgenthau,
I want to offer you today BO much silver, and I will say yes
or no and give you a price. As simple as that! You just
Regraded Unclassified
141
-3-
say to me now -- are you prepared to say now?
Mr. Rios: No. No. I am not prepared. But it
1s absolutely necessary to know if you, in principle, if
you are ready to buy.
HM,Jr: Yes!
Mr. Rios: This is what my Government 1s anxious
to know.
HM,Jr: The answer is yes.
Mr. Rios: All right. That is enough at the moment.
Dr. Feis: May I say, if you agree -- you may tell
me I am wrong in throwing out this suggestion -- that the
transactions can probably be better handled through the Em-
bassy here than by Mr. Echevarria as most of those discus-
sions on silver purchases have been carried on through the
diplomatic missions, have they not?
HM,Jr: That's right.
Dr. White: Through the Treasury.
Dr. Feis: Oh, yes, through the Treasury. We don't
come in at all.
HM,Jr: For instance, if Mexico has something the
Mexican Ambassador comes to see me or if the Chinese have
something the Chinese Ambassador comes to see me.
Mr. Rios: All right. It's much pleasure for me.
It would be always better for me.
HM,Jr: For me also.
Mr. Taylor: There is the other thing which I know
is in the Ambassador's mind. Very often it is simpler to
make your sales or cheaper, or rather it makes out better,
to make sales in the London market. Get rid of the ship-
ping charges back and forth. I think you ought to have
that in your mind 80 it isn't a question of feeding out a
certain amount. You might do better in the London market
than if you came direct here.
142
-4-
HM,Jr: But don't let him understand -- we don't
buy in the London market. The only place he wants to
sell to us is New York.
Mr. Rios: Oh, yes, I understand; of course.
Mr. Taylor: He must know the London market exists.
Mr. Rios: Never I have thought it would be pos-
sible to buy that through the London market. No. No. No.
No. That's perfectly clear and it 18 clear for my Govern-
ment, but it is a direct request?
HM,Jr: No. We worked out over several years,
under the Silver Purchase Act, a regular procedure and if
you care to have us, we will prepare a set of documents,
blank, the way that works and we will send it up to the
Embassy tomorrow -- just, for instance, the way we handle
the Mexican, so you will know what the forms are and how
it is done, and if it isn't clear Dr. White will be glad to
come up to the Embassy and explain it to you.
Mr. Rios: All right. Thank you very much.
o0o-o0o
Regraded Unclassified
143
January 27, 1938.
3:33 p.m.
H.B.Jr:
Hello.
Operator:
Mr. Butterworth.
S.M.Jr:
Right.
7;
Go shead.
Hello.
Putterworth:
Hallo, sir,
Hello, Butterworth.
%
: thought I should telephone you.
Yes.
9:
Hello,
H.M.Jr:
Go chead.
a:
I thought I should telephone you, to tell you that
I've been to the Treasury.
R.M.Jr:
Yes.
B:
Gince I talked to you this afternoon.
Yes.
3:
And they tell me that the matter which you had me
put up to them.
P.P.Jr:
Yes.
D:
Have involved importent issues which have required
and are still requiring careful deliberation.
H.M.Jr:
day that again, please.
B:
They say - they tell me that the matter that you
had me put up to them.
H.H.Jr:
Yes,
B;
Involves important issues.
E.N.Jr:
I see.
Regraded Unclassifie
144
- 2 -
3:
which have required and are still requiring careful
deliberation,
R.M.Jr:
I wonder if I understand, you mean
you mean the French loan in Holland?
3:
I beg your pardon, I can't hear you.
M...Jr:
Are you talking about the loan in Holland?
::
No, I'm talking about that question that you asked
me to pass on to them, about whether they wanted
to get in touch with the French too.
R.M.Jr:
: get you. Now I understand, I understand now.
3:
And the British Treasury BBY that they haven't
formulated any answer.
H.M.Jr:
! cee.
m.
And when I asked about the timing of a reply.
R.M.Jr:
Yea.
3:
They said it might not even be possible to give
me one before the weekend.
H.M.Jr:
I nee.
at
Now, naturally I don't know what they have in their
mind, exactly, or what the reply will be.
B.B.Jr:
Yes.
B:
But I wondered whether in the circumstances you
thought it wise for me to go to Paris before I
got that reply.
Yes, I'd - I'd rather get this question of A loan
straightened out.
B:
Quite.
M.K.Jr:
And I think that after all the British weekend,
nothing much 18 apt to happen.
B:
That's right.
Regraded Unclassifie
145
- 3 -
H.M.Jr:
And Just think how people would give their left
finger here to have a weekend in Paris.
B:
I shall go on anyway.
R.M.Jr:
What's that?
5:
I shall go to Paris then, regardless of that reply.
H.W.Jr:
I'm sorry to force a Paris weekend on you, but I'm
afraid I'll have to.
3t
24, that's perfectly all right.
R.A.Jr:
All right.
a:
You'll make me feel no pain at all.
R.M.Jr:
All right. Just a minute, Herbert Feis happens to
be here, and he wants to talk to you.
3;
All right.
H...Jr:
Just a minute.
Feis:
Platon?
B:
Hello.
F:
Ralton?
Hello Herbert.
F:
How are you?
B:
I'm fine, thank you, how are you?
F:
Good. Walton, would you tell Dr. Hirschel Johnson
about the Van Zeeland, the inquiry from them.
BI
I can't hear you.
F;
Would you pass this on to Hirschel Johnson?
3:
Yes.
F:
Their inquiry about what we might have to say or
suggest regard to the Van Zeeland report.
Regraded Unclassified
146
- 4 -
B:
Yes.
"@ have & note here, from Lindsey.
31
Yes.
Putting up the same question.
Yea.
And in it saying that they realize that we may want
E. few days to turn it over in our minds.
yes.
well WA do.
Yes,
80 it'll be R few days before enything comes along
on that.
rell I'll tell you Herbert, I've been cerrying out
these Ven Zeeland
discussions with Leith Roes.
Have you?
Yes,
All right.
And that inquiry was addressed to me in a letter
from Leith Ross.
well, you tell him then that it might be a few
days, by which I think it'd be about next Monday
or Tuesday,
Might.
Before that would come along.
He's right,
All right.
B:
I'll be sending those telegrame in in the pro-
formal way. But, I mean, virtually I've been doing
that.
P:
All right.
247
- 5 -
B:
I'll pase that word on to Leith Ross
and let
Mirschel know too.
Would you please let Hirschel know.
I will, without failure.
Thank you.
Right Herbert, it's nice to hear your voice.
Chend Walton. I'm passing you back to the
Secretary.
Right.
P.M.Jr:
I have nothing more.
I beg your -
H...Jr:
And you nee by going over to Paris, you can get
the latest word, what they've teld us.
2:
Right, sir.
Hundri
And I made quite a long discussion with the
newspaper nen today on the French, I mean what they
call background to what we were trying to do, and
10 secued to be well received in New York.
2:
Quite.
R.
And I - I - we - you cee it's 60 important if they
don't get that loan, I really think they're going
to be in & bad way.
B;
Yes.
And 1f you tro men coul put your heads together,
why maybe we could find out.
B:
Quite.
H.M.Jr:
And then be ready by Monday to know how to act, but
If they don't get that loan I don't see what they
can do, and I inagine the English are trying to
find out also.
B:
I should think BO too.
Regraded Unclassifie
148
- 6 -
H.M.Jr:
And after they know then they'll give us en answer,
9:
Right.
K.M.Jr:
All right.
B:
well thank you, Mr. Secretary.
R.M.Jr:
Coodbye.
3:
Goodbye.
Regraded Unclassified
149
MEMORANDUM OF THE DAY'S ACTIVITIES
January 27, 1938
To:
Secretary Morgenthau
From:
Mr. Magill
1.
Tax Bill
I spent about four hours this morning in conference,
first with Messrs. Doughton, Vinson and Cooper and then with all the
Democrats on the Ways and Means Committee, The subject of the entire
discussion was the subcommittee's recommendations for the special
tax on closely held corporations. The fight on the provision is be-
ing led by McCormack of Massachusetts, who apparently has lined up
four or five other Democratic members of the Committee in support of
his views. These are Messrs. Lamneck (Ohio), Thompson (Illinois),
Robertson (Virginia), and one or two of the following three members:
Boehne (Indiana), Fuller (Arkansas) and Dingell (Michigan). The group
adjourned to meet again tomorrow morning at ten o'clock end asked me
to join them then.
Mr. Doughton is rather lukewarm on the Committee's
recommendation.. Mr. Vinson and Mr. Cooper are leading the fight for
it, in the conviction that the President wants it and will probably
veto a tax bill which does not contain such a provision. Mr. Doughton
is particularly anxious that the Democratic members of the Committee
should present B. united front on the floor of the House and hence is
talking compromise. Messrs. Vinson and Cooper are opposed to any
compromise, at least at this time. They discussed seeing the
President again with the view to taking & message from him to the
Democratic members and I imagine they will seek a conference within a
day or two.
Rm
150
January 27, 1938
For the Secretary:
Perhaps it would avoid strife and conflict if the
Secretary were to listen only at tomorrow's meeting and make
no mounter proposal, as he has suggested
After all, Mr. Eccles has taken his case to the
President, and apparently without success. Whymot follow the
course of letting Senator Glass introduce his bill, be sent
a letter of endorsement by the President (or introduce it
following a message by the President) and then have the President
ask the "ecretary to call the banking agency heads together to
inform them that the Glass bill is approved as an Administration
measure and that they will be expected to help it along.
If there are some amendments thought necessary to the
Glass bill, they can be worked out after the bill has been
referred to us for consideration.
Steagall ought to be brought into the picture at some
point, perhaps encouraged to introduce the Glass bill the day
after Glass introduces it in the Senate. A word from the
President that while he does not want to send down a bill for
introduction, he has seen the Glass bill and approves it, would
get action from Steagall.
Indeed, since Mr. Eccles has carried his case to the
White House, there might not be any necessity for a meeting
tomorrow at all.
Upm
Regraded Unclassified
151
OFFICE OF
THE SECRETARY OF THE TREASURY
1/29/38
Ribbon copies of the attached memo dated
1/27/38 were mailed to the following,
with letters of transmittal signed by
the Secretary, today:
The President
The Secretary of State
The Secretary of War - Attention:
Col. Strong (G-2)
152
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 27, 1938
Secretary Morgenthau
TO
FROM
Mr. Haas MA
Subject:
Current United States trade with Japan and China
(preliminary data)
(1) United States exports to Japan during the first three
weeks of January 1938 show a 13 percent increase over the first
three weeks of December 1937, and are only slightly lower than
during the first three weeks of November 1937.
United States Exports to Japan
1st week
2nd week
3rd week
Total 3 weeks
Jan. 1938
$2,726,000
$3,759,000
$4,013,000
$10,498,000
Dec. 1937
1,694,000
5,217,000
2,394,000
9,305,000
Nov. 1937
1,180,000
4,813,000
4,745,000
10,738,000
Oct. 1937
1,727,000
5,746,000
4,492,000
11,965,000
(2) United States imports from Japan during the first three
weeks of January 1938 are almost exactly the same as during the
first three weeks of December 1937, and are about 27 percent less
than the imports from Japan during the first three weeks of
November 1937.
United States Imports from Japan
1st week
2nd week
3rd week
Total 3 weeks
Jan. 1938
$2,033,000
$4,185,000
$2,020,000
$ 8,238,000
Dec. 1937
2,159,000
3,406,000
2,672,000
8,237,000
Nov. 1937
3,245,000
3,654,000
4,356,000
11,255,000
Oct. 1937
3,328,000
3,984,000
3,419,000
10,731,000
Regraded Unclassified
153
Secretary Morgenthau - 2
(3) The following items show large increases in our exports
to Japan during the first three weeks of January 1938 as compared
with the first three weeks of December 1937:
First three weeks of
January 1938 December 1937 November 1937
Petroleum products
$2,925,000
$2,186,000
$3,262,000
Raw cotton
2,603,000
854,000
512,000
Industrial machinery
1,229,000
862,000
745,000
Copper
845,000
417,000
1,091,000
Pig iron
242,000
nil
56,000
Ferro-alloys
182,000
51,000
342,000
Pig lead
116,000
75,000
41,000
The following items show sharp decreases in our exports to
Japan during the first three weeks of January 1938 as compared
with our exports of these items during the first three weeks of
December 1937:
First three weeks of
January 1938 December 1937 November 1937
Paper base stocks
$382,000
$1,389,000
$841,000
Scrap iron & steel
277,000
448,000
488,000
Chemicals & related
products
207,000
326,000
557,000
Brass, including scrap
1,000
304,000
440,000
Tobacco & manufactures
nil
257,000
nil
(4) Our imports from Japan during the first three weeks of
January 1938 remained at the same level as during the first three
weeks of December 1937 which was sharply below the level of imports
during preceding months. There was no significant shift in the
composition of our imports.
First 3
Imports of
Imports other
Total
weeks of
raw silk
than raw silk
Jan. 1938
$4,586,000
$3,652,000
$ 8,238,000
Dec. 1937
4,487,000
3,750,000
8,237,000
Nov. 1937
6,169,000
5,086,000
11,255,000
Oct. 1937
6,223,000
4,508,000
10,731,000
Regraded Unclassified
154
Secretary Morgenthau - 3
(5) Of the total of $10,498,000 of our exports to Japan
during the first three weeks of January 1938, the following items
account for almost all:
Petroleum products
$ 2,925,000
Raw cotton
2,603,000
Industrial machinery
1,229,000
Copper
845,000
Vehicles, parts and accessories
673,000
Iron and steel semi-manufactures
397.,000
Paper base stocks
382,000
Scrap iron and steel
277,000
Pig iron
242,000
Chemicals and related products
207,000
Ferro-alloys
182,000
Pig lead
116,000
Other
420,000
Total
$10,498,000
155
Secretary Morgenthau - 4
(6) Of the total of $8,238,000 of our imports from Japan
during the first three weeks of January 1938, the following
items account for almost all:
Raw silk
$4,586,000
Cotton manufactures
494,000
Pyrethrum flowers
255,000
Silk manufactures
248,000
China and porcelain ware
177,000
Tea
145,000
Flax, hemp, ramie and manufactures
133,000
Vegetable food products, except tea
130,000
Fish and fish products
128,000
Dead or creosote oil
114,000
Perilla oil
104,000
Hats and hat materials
99,000
Metals and manufactures
97,000
Wood and manufactures
89,000
Menthol
89,000
Fish meal and scrap
80,000
Toys and parts
76,000
Paper and manufactures
72,000
Earthenware and stoneware
65,000
Rayon and manufactures
65,000
Bristles
63,000
Camphor
51,000
Glass and glass products
45,000
Other
833,000
Total
$8,238,000
Regraded Unclassified
156
Secretary Morgenthau - 5
United States trade with China during the first
three weeks of January 1938
(1) United States exports to China and Manchuria during the
first three weeks of January 1938 declined sharply from the first
three weeks of December 1937, and were only slightly lower than
during the first three weeks of November 1937.
First three weeks of
January 1938 December 1937 November 1937
United States exports to:
North China &
Manchuria
$1,378,000
$2,003,000
$2,083,000
Shanghai, South China
and Hong Kong
3,001,000
4,023,000
2,451,000
Total
$4,379,000
$6,026,000
$4,534,000
Whole month of January 1937
$6,623,000
(2) United States imports from China and Manchuria during
the first three weeks of January 1938 were well under the totals
for the first three weeks of December and November 1937.
First three weeks of
January 1938 December 1937 November 1937
United States imports from:
North China &
Manchuria
$ 782,000
$ 864,000
$1,193,000
Shanghai, South China
and Hong Kong
2,139,000
2,926,000
2,619,000
Total
$2,921,000
$3,790,000
$3,812,000
Whole month of January 1937
$6,882,000
157
Secretary Morgenthau - 6
(3) Leading export items to China:
(a) To North China and Manchuria:
First three weeks of
January 1938
December 1937
Iron & steel semi-manufactures
$ 800,000
$1,158,000
Vehicles, parts & accessories
165,000
439,000
Petroleum products
122,000
174,000
Industrial machinery
98,000
83,000
Raw cotton
72,000
nil
Copper
62,000
nil
Inedible animal products
16,000
26,000
Paper & manufactures
11,000
2,000
All other
32,000
121,000
Total
$1,378,000
$2,003,000
(b) To Shanghai, South China ports and Hong Kong:
First three weeks of
January 1938
December 1937
Vehicles, parts & accessories
$1,207,000
$ 848,000
Firearms & ammunition
420,000
99,000
Petroleum products
142,000
1,055,000
Iron & steel semi-manufactures
175,000
461,000
Inedible vegetable products
166,000
574,000
Dynamite and T. N. T.
150,000
nil
Edible vegetable products
148,000
247,000
Paper & manufactures
105,000
95,000
Industrial machinery
92,000
72,000
All other
396,000
572,000
Total
$3,001,000
$4,023,000
Regraded Unclassified
158
Secretary Morgenthau - 7
(4) Leading import items during the first three weeks of
January 1938:
(a) From North China and Manchuria:
First three weeks of
January 1938
December 1937
Bristles
$203,000
$342,000
Nonmetallic minerals
& products
93,000
7,000
Wool & manufactures
49,000
137,000
Chemicals & related
products
48,000
3,000
Tungsten ore &
concentrates
45,000
nil
Perilla oil
41,000
57,000
Other
303,000
318,000
Total
$782,000
$864,000
(b) From Shanghai, South China ports and Hong Kong:
First three weeks of
January 1938
December 1937
Tung (wood) oil
$ 515,000
$ 372,000
Flax, hemp, ramie
& manufactures
308,000
455,000
Tungsten ore &
concentrates
245,000
60,000
Vegetable products,
edible
186,000
221,000
Bristles
165,000
251,000
Tin
123,000
528,000
Cotton manufactures
88,000
102,000
Animal products, edible
65,000
136,000
Wool & manufactures
45,000
141,000
Chemicals & related
products
43,000
40,000
Other
356,000
620,000
Total
$2,139,000
$2,926,000
Regraded Unclassified
159
GROUP MEETING
January 28, 1938.
9:30 a.m.
Present:
Mr. Magill
Mr. Oliphant
Mr. Taylor
Mrs Klotz
Mr. McReynolds
Mr. Upham
Mr. Lochhead
Mr. Gaston
Mr. Haas
Mr. Gibbons
Dr. Viner
Dr. Riefler
H.M.Jr:
Mac?
McR:
There's been a bill sent to the Treasury for a report
that would authorize setting up that Hot Springs
Transient Medical Center as a part of Public Health
activity. The Public Health people - the Surgeon
General has proposed a report as favorable on it.
I'm sending it back to him with the statement that
the Treasury cannot give its support to this bill;
it is not in favor of having Public Health Service
assume a permanent responsibility for any of the
functions as a relief agency.
H.M.Jr:
(Nods agreement)
McR:
I just wanted you to know what I was telling him.
H.M.Jr:
Yes.
McR:
There's no question in my mind
....
H.M.Jr:
You signing it?
McR:
I'm signing it.
H.M.Jr:
O.K. What else you got?
McR:
I've got this letter of Peoples that he wants to use
some leeway in granting - in giving awards on tie bids
in the smaller cases and urgent cases. Peoples
personally is very sympathetic with the program of
working out these things - going back on the tie bids,
but there's a lot of purchasing, a lot of stuff that
Regraded Unclassified
160
-2-
has to be purchased, and it is my opinion that he
ought to be given some leeway where obviously the
bidders are not in collusion and where there is an
emergency for getting the material.
There are two angles on it. One is the operating
necessity of getting material - mostly in small
lots; no major orders. And the other factor is that
many of these things are bought for different depart-
ments who can themselves go ahead and purchase. See,
we never got through the order generally from the
President to all departments, as you know.
H.M.Jr:
Whose initials are on that?
Me4:
Peoples' and mine and Harry Collins'.
H.M.Jr:
Well, seeing that Oliphant takes such an interest
in this, why doesn't it go through his shop?
McR:
Well
H.M.Jr:
I won't sign it. I'm not going to have one rule
for the Treasury and another rule for another agency,
and then maybe have Mr. Jackson come out and attack
me. I'm not going to have one rule for the Treasury
and another rule for another department. I'm not
going to sign it. Let us stop buying for other
departments; let us stop buying for other depart-
ments. I mean if we've got one rule for the
Treasury, another rule for the rest of the
Government - let's just buy for the Treasury. I
won't sign it. Let Peoples stop buying for other
departments, and let him tell the President.
McR:
O.K.
H.M.Jr:
I won't sign it, Mac. And I wish you'd look into
it, - how much we buy for other departments. And
if he can't operate under the rules that we've got,
let him stop buying for other departments.
McR:
O.K.
H.M.Jr:
What?
McR:
All right.
Regraded
161
-3-
H.M.Jr:
And I don't see why that didn't go through the
General Counsel's office. He's got a man that's
supposed to just look after it in Procurement.
Oliphant:
That's Mr. Lawes - and Mr. Foley; they're both
working on it all the time.
McR:
That's all I have.
H.M.Jr:
Well, it wouldn't have been all right if I had
signed it, but
....
McR:
Well, of course, that's a matter for you to decide,
whether it's all right or not.
H.M.Jr:
Yes, but, Mac - I don't want to stress it, but
here - you of all people ought to have the routine
by now, and this whole thing is up, this whole
question of prices; then I go sign the thing that
we don't accept tie bids in the Treasury but we will
buy for the Army, or whoever we are buying for -
Interior - we will accept tie bids. Where does
that leave me?
McR:
Well, of course, what
.....
H.M.Jr:
What I want is an Executive Order from the President
establishing the same buying rules for the whole
United States Government, and until I get that I'm
not going to operate differently than I am now.
McR:
O.K.
H.M.Jr:
Thank you.
McR:
That's clear.
H.M.Jr:
Will you (Upham) have that stuff that I asked you
for special, those - question of how securities are
handled?
Upham:
I expect to get it some time during the day.
H.M.Jr:
You think you could have it quarter of 11?
Upham:
I doubt it. You see, it has to come from three
sources.
162
-4-
H.M.Jr:
Isn't there somebody you know well enough to call
up at each place on the telephone?
Upham:
Yes, they're working on it.
H.M.Jr:
I mean it seems perfectly silly that
....
Upham:
I think I can.
H.M.Jr:
What?
Upham:
I think probably ...
H.M.Jr:
See if you can.
Upham:
Surely.
H.M.Jp:
What?
Upham:
Yes.
H.M.Jr:
Because again last night - here are two banking
experts (Viner, Riefler) ; both said that the thing
is handled different ways.
Upham:
I think it is. There have been some differences of
opinion between agencies.
H.M.Jr:
Also statistical experts.
Viner:
Also moral experts.
H.M.Jr:
Also what?
Viner:
Moral and legal.
H.M.Jr:
More than legal?
Viner:
Moral and legal.
Taylor:
Synonomous, Jake.
Viner:
I haven't been here steadily enough to find that out.
H.M.Jr:
I meant to bring it down - I didn't - about a
Regraded Unclassified
163
-5-
Congressman who attacked me in Congress - you'll
(Gibbons) get it from the Congressional Record -
because I'm permitting lumber to come in which
is not marked legally as to the origin of the
country from which it comes; needs a special bill
to make me live up to the law. Would you have
somebody read the Record and see what it is and
go into it? Will you?
Gibbons:
Yes. The law states that if it can't be done -
briefly, you bring in a great big log or a tree
that is cut down; then that is cut up into
scantlings, and they're supposed to put a mark
on there. Well, of course, how you put a mark
on - it isn't feasible, don't you know.
H.M.Jr:
Well, supposing you find out, then maybe see this
Congressman and explain it to him.
Gibbons:
Yes.
H.M.Jr:
I mean he blames me for not having the logs marked.
Gibbons:
This new administration bill we've got up there will
take care of it.
H.M.Jr:
Will you handle it?
Gibbons:
Yes.
Incidentally, Senator Walsh - talking to him day
before yesterday, and he said a compromise on that
administration bill - said we're getting a lot of
very favorable comment in their hearings; and that's
just to iron out these silly things that were in the
law.
H.M.Jr:
All right.
Bibbons:
No you know a man named Shulman, or Shuman? Jim
Farley called me up night before last and said
that he called him up and got through to him rather
late - called him Jim - and he wanted to be appointed
in place of Jefty 0'Connor. Said he was a personal
friend of yours. Jim said he doesn't know him, and
it sounded phony, and to ask you. S-h-u-l-m-a-n or
S-h-u-m-a-n.
Regraded
164
-6-
H.M.Jr:
No. It's a common name. I imagine there's about
150 of them in the New York telephone book.
Gibbons:
Well, Just one of those things. He got through -
telephone rang and Jim was there alone and he
picked up the phone, and - "Hello, Jim. I'm a
personal friend of Henry Morgenthau's."
Gaston:
I think you'll find in the files that a W. P.
Shulman writes frequently to the Secretary of the
Treasury, giving him advice on national affairs,
and gets an acknowledgment.
Gibbons rell, that's it. And he said he's "playing Jim's
game."
Bell:
"Dear Jim."
H.M.Jr:
Anything else?
Gibbons:
No.
H.M.Jr:
Dan?
Bell:
The Post Office calls up and invites our attention
to their large cash balance of 17 million. They'd
like to have ten of it begin to earn a little
interest.
H.M.Jr:
Well, I'm calling up Mr. Burgess, and if I can find
out what that fellow's doing in NewYork with the
Government bond market, I'm going to know more. I
can't make out - I wonder if they know themselves
what they're doing.
Lochhead:
I had a little talk with Burgess when I was up
there. One of the main points in the Government
bond market is that the dealers, with the rising
market, stacked up on bonds, and they've been riding
in trying to unload bonds, and they hardly feel as
if they want to just take the dealers out of the
market at that time.
H.M.Jr:
Well, in the meantime what Burgess did yesterday
is just upsetting the market, and if they keep it
up long enough we really will have a bum bond market.
165
-7-
Just doesn't make any sense, what he did yesterday.
Looks as though he was selling his longs and going
to shorts, selling medium bonds and buying long ones,
then buying long ones and selling medium bonds. And
the volume is terrific. Let me find out; meantime ....
Bell:
Wood, of Childs, told me that there was quite a dis-
turbing influence in the market now.
H.M.Jr:
Well, it's the Federal Reserve.
Bell:
Both by the Treasury - Treasury selling had them all
guessing too.
H.M.Jr:
I haven't got the thing here - this list; it's a
list of what they did, and it's the most - if you
can make head or tails out of what they did yesterday -
terrific amount. I mean I could follow it if they
were selling longs and buying shorts, but when they
buy and sell longs both, and buy - I mean it just
didn't make heads or tails.
Bring it up again Monday.
Viner:
Maybe Purgess is doing some shaving.
H.M.Jr:
I don't know what he's doing. Maybe he wants to
make some profit.
Viner:
Yes, that's what I meant.
Lochhead:
Well, they always use their excuse of a better.
distribution of maturities - swapping them around.
H.M.Jr:
"ould you bring it up again Monday?
Bell:
Uh-huh.
H.M.Jr:
And would you remember that on February 2, Wednesday,
we're having a meeting with the Open Market Committee,
and have a statement.
Bell:
Yes, sir.
H.M.Jr:
You (Taylor) haven't talked to Burgess - he hasn't
explained?
Regraded
166
-8-
Inylor:
(Nods no)
I'll see you (Lochhead) later.
Locamead:
Francs still continue to strengthen 8 shade.
B.-.Jr:
Good.
Bell:
There was one other thing I wanted to talk to you
about some time within the next few weeks, to find
out whether you want legislation on the public
debt. Now we have authority to issue 45 billion
dollars in public debt, but it's divided: 25
billion In bonds and 20 billion in notes, certifi-
cates, and bills. Now, when we get down to B point
that we get within seven or eight billion of that,
we begin to think of legislation. And there's
about three billion dollars in bonds that you could
still issue and about five billion in notes and
certificates. It's a. uestion whether we want to
consider switching that sum or increasing it before
this Congress gets away.
d. . Jr:
Let me taink about it. But we might begin
Sell:
I'll get some current figures on it and talk to
you before
I...Jr:
If I could get away this year without sking for
any legislation, I'd like to.
Dell:
Well, I think ne can, unless there's some large
spending program that comes along.
....Jr:
40 you know of any?
hell:
No, I don't anow of any, but all I know is what I
reau in the papers.
All right. Well, you're going to remind me again?
hell:
Yes, I'm going to keep st you.
daas:
I've nothing this morning.
H.J.Jr:
You have nothing more ready, have you? Did anybody
tell you that this question of these new sets of
Regraded Unclassified
167
-9-
statistics that you have - that I showed them to
the President? I mean the ones snowing by indus-
tries what their inventory
meas:
On, you did? No.
H.S.Jr:
Very much interested. Had never seenanything like it.
I tolo him it was purely experimental.
Has either Viner or Riefler seen them?
deas:
No, I just saw them now.
..iefler:
I'd like to.
3.1.Jr:
They're very interesting. They're still in an
experimental stage.
George?
loos:
That's all. I talked to Dr. Fisher. He'll send
it over in D. day or two.
no.dr:
Mac, could you or Bell or somebody have Bartelt
contact our 22 men in the states that are doing
Docial Security, and I wonder if we could get 8
weekly figure from them showing how many cancella-
tions they have of people who had applied for
unemployment Insurance. Miss Lonigan WDS in New
York; she had It by cities, and it was quite
impressive. The number of cancellations.
Dell:
of applications, you mean?
People who have applied since the first of January.
Ball:
And been turned down?
U.S.Jr:
No, who have gotten jobs.
Ced:
Cancelled their applications.
M...Jr:
Cancelled their applications. Now, Ithink 1f we
could get that figure weekly
Alefler:
Turn-over figure.
Regraded Unclassified
168
-10-
H.m.Jr:
"hat?
Riefler:
Turn-over figure.
H.d.Jr:
No, they get 8 job and they withdraw their applice-
tion.
who's going to do that? Bell or Mc^eynolds?
hell:
I can. We're getting weekly reports from these
boys. I don't know whether we'd want to do this
through these representatives or whether we'd
want to do that through Altmeyer.
H...Jr:
Oh, I'd do it through Altmeyer. But I'd very much
like to have it.
Dell:
A weekly figure.
H.M.Jr:
Yes. what I mean - I don't want it to be something
that drags along and we get it some time in February -
I mean telling what happened. I want it - wonder if,
say, by the middle of next week we couldn't have the
total of cancellations. And if they couldn't do it
for the whole country, if they take
...
Bell:
Few cities.
H.J.Jr:
Few cities.
Bell:
I think we can.
H.M.Jr:
What?
Bell:
I think we can get it.
H.M.Jr:
Because if that goes on, I think it will be a very
important straw in the wind. Huh?
Bell:
Uh-huh.
H.m.Jr:
See?
bell:
Surely.
MCR:
I had E tentative memorandum from Eddie with respect
to what those men were doing. He said, incidentally,
Regraded Unclassified
169
-11-
he expected to have within & few days, probably
by the end of this week, 8 pretty good report for
you as to the status, as he got it from that. He's
kept in very close touch with them over the telephone.
diss.Jr:
well, I sent nim a message two or three days ago
that if everything wesn't all right, to let me know,
sna I didn't hear.
bell:
That's right. The reports were coming in piecemeal
and nadn't been completed.
dec.dr:
But this has nothing to ao with that.
3011:
That's right.
H.m.Jr:
Mayne?
Taylor:
I heard last night from Secretary Wallace that
crop insurance was going to be in this bill if - that
Budget and President had told Senator Pope that it
would be in if the Budget could find six million
dollars for the sdministrative expenses; but they
didn't mention apparently In this conversation E
hundred million of the capital.
H.W.Jr:
Now, just 8 minute. "ould you (Bell) mind just
walking around the cheir 30 that you change
Bell:
and come back.
H.M.Jr:
and go into the capacity of Director of the
Budget.
48y10r;
and I just wondered if that had gotten to you (Bell)
yet.
Feil:
No, I haven't seen It.
Inyior:
This was supposedly yesterday some time.
H. . Jr:
Don't look at me. I have nothing to do with the
Budget. I'm just like any other department.
Anylor:
Yes, sir.
Regraded Unclassified
170
-12-
des.dr:
I dean are you trying to pollute our Treasury
staff meetings?
Taylor:
No, sir.
Bell:
Well, I suppose the six million would be rather
simple. They don't seem to look at anything less
than 8. hundred.
The House left off of the Tressury-Post Office bill
the provision pronibiting the use of appropriations
during 1939 to pay enlistment gratuities - re-enlistment
gratuities to the Army, lievy, Marine Corps, and Coast
Guard; and I tried to 00 E little spade work to get
tnst put back in the Senate. Fellow said, "What do
you mean, talking about six million collars, when the
President is going to send up a message to spend 200
million on the army and Navy." Be said, "You haven't
got 8 chance of getting that six million restored."
So it's going to cost us six million next year to pay
the re-enlistment gratuities.
a.m.Jr:
Is that what the army and Havy get?
Bell:
That's the total cost - approximate total cost for
the Army, Navy, Marine Corps, and Coast Quard -
Goast Cuaru very small.
Sex:
That's E permanent law; always applies unless there
is & provision that eliminates it.
Bell:
So we have nad to put it in the budget snnually.
Gotten way with it for five years, but this year
I figure we're going to lose it.
d...Jr:
DO far HOW is our slate, pretty good?
Bell:
Yes, pretty good.
H.m.Jp:
Huh?
Bell:
Little below, because they took off about 11 million
from the Navy.
Inglor:
(Nods nothing)
Regraded Unclassified
171
-13-
H.s.Jr:
Any other messages?
Jake?
Vinor:
(Nods nothing)
H.m.Jr:
Want to talk about statistics?
Viner:
No.
H.D.Jr:
Tell them the story. Go on, you tell it.
Viner:
Oh, you mean the story on Heas?
a.d.Jr:
Yes, 20 ahead, tell it.
Viner:
Well, It neeas lots of documentary evidence.
d.M.Jr:
Go on, tell it to them. Tell it just the way it
happened.
Viner:
subin of Labor asked me to use my supposed good
influence with the Secretary to get the Secretary
to use pressure on Roper to collect good inventory
date, and ne also asked that the Treasury itself
cooperate in the statistical field by inserting
an additional question on the Social Security
reports, which will give Labor better employment
date tuan It could otherwise get. He said ne failed
to set cooperation over here from the person in charge
here and пореа the Secretary would be willing to
intervene.
well, yesterday Lubin said that he nadn't gotten
anywhere and that Miss Perkins was going to ask at
8 Cabinet meeting to have the data collected; and
I got the Secretary scared by picturing to him the
reversal of role - last time he 18$ exercising
pressure on Roper and now they were going to spring
something on him in the some way. And ne excused
nimself and said he nad to go upstairs for a moment;
and down ne came with all the files complete - and
this is at nis house - all the files complete there.
I don't know why ne doesn't do nis nome work at his
office.
Unston:
You mean his office work at his office.
Regraded Unclassified
172
-14-
Vinor:
+es. And he had 8 reply - E defense by Haas of
the Treasury record. And the Treasury in fact
ned apparently acted on it even before Lubin had
spoken to me the first time, and the thing had
already been cleared through Central Statistical
Board and everybody was nappy except Lubin, the
reason being that apparently somebody at Labor
naan't told Lubin that the thing had gone through.
But what was most disgraceful about it W&S that
all the records should be at the house.
lick:
That isn't good suministration, is it?
H.M.Jr:
Jake had the most wonderful time teasing me for
half en nour. I couldn't wait until I got upstairs
and saw where we stood; and we cleared this on
December 27. If it had been anybody's fault, it
would have been mine, because I had Viner's memorandum
lying sround for two or three meeks and I think it
W&S very important, and suddenly, knowing he was
coming, I shoot it over to Haos to get en answer.
Then I took it home to read. and he almost had me
worried. But it M&S very nice. Two things, I mean,
dappened yesterday - that plus the public utilities
plans; I mean just too much to happen in one day.
But it was good fun anyway.
Jer:
Jake, ne then if ne nad them home he could find them.
Viner:
There's something In that.
(Hearty laughter)
Slots:
A11 right. All right. I'll get you yet,
MeR:
Applies just as much to me as to you.
Alote:
On, he's directing that at himself.
H.S.Jr:
I wasn't sure.
Viner:
Mac, there will be ground glass in your soup at
Lunch today.
Olionant:
Did Lubin get his figure on the Social Security?
Viner:
He's getting it, yes.
173
-15-
H.W.Jr:
He's getting it as of December 27.
Oliphant:
That's fine.
Viner:
I don't think he knows it yet. I'm going to give
nim EL ring after this meeting.
MeR:
I wouldn't tell him too soon.
Viner:
Well, the point is this. If the Secretary wanted
to be mean, ne ought to take all this stuff in
his pocket and go to the Cabinet meeting and have
Miss Perkins spring it, and look blank for a minute
and then say, "Oh, I think I have something in my
pocket that bears on it."
McR:
I don't think you ought to tell him until she
raises it.
Viner:
No, Lubin is too good E man.
H.M.Jr:
Lubin to Viner
Viner:
..to joy.
H.M.Jr:
... Joy to
...
Viner:
...unconfined.
Riefler:
I haven't anything.
H.M.Jp:
All rignt, it was good fun.
Taylor:
Did you see the cable that came in last night which
I got by mistake?
H.M.Jr:
From Bullitt to the Secretary?
Taylor:
That was the one about his personal opinion.
H.M.Jr:
No, his conversation with Chautemps.
Taylor:
No.
H.Z.Jr:
Oh, there's so many funny things happened. A cable
comes in and I got - Dietrich after the first night
174
-16-
tried to be as good as you (Lochhead) were -
trying terribly hard; did awfully well. Just
waiting around - got them all excited - in case
anything comes in after 6:30. So in the Code
Room a girl reads him the cable, which he takes it
for granted, being on the French situation, is for
me. He says, "I'll go over there and get it." By
the time he goes over there, tney tell him, "Oh,
this isn't for the Secretary. This is a confidential
cable for Mr. Hull."
So he says, "I'm going to sit here until I get this
cable." 80 what's-nis-name - they put it up to
....
Lochnead:
Feis's assistant.
Feis's assistant. "Well, as long as you read it
over the Jhone, might ¿S well give it to Mr.
Morgentnau."
But Dietrich said, "I'm going to sit here until I
get it." And ne did; lie brought it.
You fellows (Viner and niefler) be in at 11, won't
you?
Riote:
"nen, today?
H.m.Jr:
11 o'clock.
Klotz:
I thought you saiu, "Be on the level."
Viner:
100 much to ask.
A. . Jr:
Herbert? After you've read that article I want to
talk to you about it.
Gaston:
Yes, there are several points in it. It says that
a close business associate of Mr. Kennedy gave them
this information; says later that the Star-Times*
informant, 2 close friend of Kennedy - so on and so
on - very obviously labelled ES having come from
Aennedy.
H.V.Jr:
How would you nanále it? Kennedy is in town.
+ neferring to article in St. Louis Star-limes of Jan. 22.
Regraded Unclassified
175
-17-
Viner:
Be is in town?
H.A.Jr:
Yes.
Viner:
Oh yes, he is in town.
H.W.Jr:
Yes, I saw him. How would you handle it?
Did you (Viner) see him?
Viner:
I saw him in the lobby, next to the bier.
Riefler:
You were next to the bier?
Viner:
I saw him next to the bier.
I didn't say where I
was.
H./.Jr:
These Chicago fellows are breezy, aren't they?
Gaston:
1 don't suppose there's any particular use in talking
to Kennedy about it. He's going to keep on doing that
sort of thing; if the thing comes up to us, why, we
simply tell the people that it's absurd.
H.J.Jr:
How about sending for the man that wrote it?
Gaston:
He wouldn't tell you any more. I tried to get hold
of this man. I don't know him. You know him, Cy?
Uphom:
No, I don't.
H.S.Jr:
Would you send it to Mr. Kennedy? "Enclosed you
will
Gaston:
I doubt it.
H.M.Jr:
well, how would you handle it, Herbert? I'm asking
you.
Gaston:
I wouldn't do a thing with it, except just trying to
bunk. Unless you felt you wanted to talk to Kennedy
spread the word among the newspapermen that it's the
about it
....
Olipnant:
Refer it to Johnson.
Regraded Inclassified
176
-18-
H.S.Jr:
Johnson?
Gesten:
who?
Klotz:
Hugh.
Gaston:
Oh.
H.B.Jr:
what else you got?
Gaston:
Something I wrote you 8 note about - not worth
speaking about. A man named Maury said he knows
you, that he participated in a camptign for a man
named Lynch up in Weschester County - Dutchess
County, some years ago - Democratic candidate.
Well, he's the public relations man for the
Economists National Committee on Monetary Policy;
that's Kemmerer and Sprague and B long list of them
that have been very critical of our monetary policy.
He now says that some of that group, feeling that
they are pretty much in tune with you nos, would
like to have 8. talk with you sbout monetary policy;
perhaps they could be helpful in enlightening the
public on what you are doing and what you propose to
do. So ne suggests that Mr. Kemmerer und Mr. Sprague,
maybe one or two others, come down and have E talk
with you. He's going to submit to me & memorandum
of met they'd like to talk about.
Jr:
wait until the memorandum comes in, one who actually
is coming.
Guston:
Yes, yes.
n.w.dr:
Do you people know :nything about this?
diefler:
I know bout the committee, but
Geston:
lie named Kemmerer and Sprague and E man from Chicago -
Gideon.
Viner:
Gideons.
Taylor:
Gideons.
Regraded Unclassified
177
-19-
Gaston:
And Walter Sparr of
Viner:
Well, I'd say
Juston:
of New York University.
diefler:
Sparr is the Committee, more or less.
Guston:
de is the Committee. He's very - he's poison.
Dut I'll get 8 further note from this fellow
about the things they're interested in.
H.A.Jr:
O.K., anything else?
Gaston:
That's all.
S.a.Jr:
Herman?
Olignant:
(Noûs nothing)
Dagill:
I gave you the note on the situation on the Hill.
The Democratic members of Hays and Means are going
anead this morning. I talked to Mr. Doughton over
the phone. He at first asked me to come up, but
I told nlm this morning I thought it was undesirable
1 should do so, since they 're having a kind of an
oretorical contest among themselves, particularly
relating to this tax on closely held corporations.
I don't think it particularly desirable for me to
participate in their family fights. Heybe I'm wrong.
I notice by the poper, where I learn things as Danny
Bell does, that Charley West is now taking care of
the tax bill for us. That's a new hand in the game.
I hadn't known we ned nim sitting around the table.
H.M.Jr:
Who said that?
"here did we see that?
Uphan:
was in the Herald-Tribune yesterday morning. Rather
doubt it was true.
agill:
General story Was that Charley - this closely neld
corporation business was in dire straits and est
was talking to the me jority. leader, etc., in the
douse to make sure that all was well.
Regraded Inclassified
178
-20-
Upham:
See, the Democrats met as a Committee on Committees,
and he was there for that. Then they got into it -
because it's the Ways and Means Democrats, they got
into the other. I doubt that that was it.
Magill:
Well, it's a nice fight anyhow.
H.M.Jr:
Very nice picture of you on Time.
Magill:
Beautiful.
Gaston:
On Time?
Magill:
I see the distant landscape is there.
H.M.Jr:
He's on Time.
Oliphant:
"On time, eh?
Magill:
I've had this emotional reaction: that this happens
to be the first anniversary of my appearance in the
Treasury in my present capacity.
H.M.Jr:
Congratulate the Treasury.
Magill:
It's a good day for Time to come out.
Oliphant:
It's "on time.'
Magill:
"On time.
Viner:
Is it B black and blue color picture?
Gaston:
No, very red.
Magill:
Took it in colors, but it came out in black and white.
Gibbons:
Well, it wasn't groundhog day, anyhow, you appeared.
H.M.Jr:
It's all right.
Magill:
But I really like better the big eagle on being a
Left Winger - that's the thing that gives me satis-
faction.
H.d.Jr:
I drew his attention to it.
Magill:
Took me a year to achieve it.
179
January 28, 1938,
10:20 a.m.
Rendolph
Burgess:
Hello, Henry?
H.M.Jr:
Good morning.
B:
Good morning to you, how are you?
H.M.Jr:
I'm pretty well.
in
Good.
H.M.Jr:
Randolph, I - they gave me a list of the twenty eight
million dollar swaps that you made yesterday.
B:
Yes, yes.
H.M.Jr:
And frankly they just don't make sense to me.
B:
Well I- I'm not surprised at that.
H.M.Jr:
Because it isn't 35 though you were swapping longe
for shorts. But = just don't - I can't make 1t cut.
B:
Yes. Well let me tell you sbout it.
H.H.Jr:
Yes.
P:
There has been 8 curious market here.
H.M.Jr:
Yes.
9:
There have been come things in supply, and there's
been some things where there was good buying.
H.H.Jr:
Yes.
!!!
There - 98 a matter of fact, this market has had
back of it e lot of pretty good buying.
9.M.Jr;
Yes,
B;
There's been some banks in the market and some
insurance companies, booked orparticular issues.
H.H.Jr:
Yes.
B:
Which didn't happen to be very much in supply.
H.W.JP:
Yes.
Regraded Unclassified
180
- 2 -
B;
And we found that by supplying some of those issues,
where there was & real demand.
H.M.Jr:
Yes,
B:
We could then use buying power on issues which
happen to be in supply.
H.M Jr:
Yes.
B:
Now it just happened in one or two cases that that
meant going from & longer bond to a shorter. For
example the long two and a halfs.
H.M.Jr:
Yes.
B;
Have been in demand.
H.11.Jr:
Yes.
B:
There were several buyers for those.
H.M.Jr:
Yes
9:
On the other hand some of the shorter bonds were
in supply and pressing the prices down.
H.M.Jr:
,
Yes.
H:
On the other hand there were B lot of these two and
seven eighths, the long two and seven eighths that
were kicking around.
H M.Jr:
Yes,
B:
And making trouble, and we bought fifteen million
of those.
Which what?
a.
The long two and seven eighths,
H.M.Jr:
I see.
a:
And we bought fifteen million of those, and were
able to sell against them fifteen million of the
forty eight fifty one.
Yes.
181
- 3 -
Which there happened to be an insurance company
e;
that want it.
H.M.Jr:
Yes.
3:
Part of this was relieving the dealers position
you know they got a little high.
H.M.Tr:
Yes,
B:
Last week, and we warned them that they were
getting a little high, and by doing some of these
switches we've been able to relieve their positions,
and get them down, 30 they 're now pretty reasonable.
P.M.Jr:
I see.
6:
They have R hundred and eight million against
a hundred end forty six.
H.M.Jr:
well the point is -
8:
On Saturday.
8.2.Jr:
I just didn't want to add to the upeet which the
market has. I mean, reading what you did without
any explenation, frankly upset me.
B;
Oh well, we were - we were doing it to take care
of the market Henry.
oh, you are.
Oh yes. That was wholly due to - taking care of
the market, and I'm cure that motve benefitted
market 2 good deal by It.
9.H.Jr:
Think BO.
07
The monket looks a little better this morning.
Better after the closing.
F.E.Jr:
Good.
in
But I think it's due largely - due partly to our
relieving this situation.
H.H.Jr:
But - I couldn't make out whether you wanted longs,
or mediums or shorts or what -
Regraded Inclassified
182
- 4 -
9:
Well, we didn't - ve didn't want anything
especially. We were simply playing in there
to relieve the situation where it was congested.
H.M.Jr:
Well I'm glad to get the explanation.
3:
Yes, we're doing - we did six million the day
before yesterday and twenty eight and a helf
yesterday and we're doing twelve million this
morning
H.W.Jr:
Yes.
B:
Now that puts the market, I think, in pretty
good shape - dealers position, and I think
there's a demand around.
H.H.Jr:
Right.
:
Of course the difficulty has been the general
market, Henry. This -
H.M.Jr:
Oh I appreciate that.
B:
This railroad bond market 12 simply lousy.
H.R.Jr:
Yee.
B:
It's the moet serious part of the whole cituation.
H.M.Jr:
I see. The reilroad
B;
Now, Henry. I haven't sent. you anything yet on
these two points you reised.
H.M.Jr:
Yes.
B:
I have been
embarrassed because the
Governor has been passing something on to Marriner.
H.M.Jr:
Oh!
B:
But I'll send you = little personal note about it.
H.M.Jr:
All right.
B:
About each one. Just my own personal views.
H.M.Jr:
Fine.
Regraded Unclassified
183
- 5 -
B:
Juet for your own consumption.
H.M.Jr:
Send it to the house.
B:
All right. I'll do that.
H.M.Jr:
2211 - 30th.
B:
Yes. I've got that.
H.M.Jr:
O.K.
B:
I've been a little handicapped because my wife has
been laid up. She's got pneumonia.
H.H.Jr:
Mrs. Klotz -
B:
I have had to spend 8 good deal of time up there.
H.M.Jr:
I'm sorry. How's she getting clong.
B:
Well, I think she's coming along all right, Henry.
They say she's & little better this morning.
H.M.Jr:
Good.
B:
But I've been a bit worried about it.
H.H.Jr:
Oh! All right.
B:
Well I'll drop you a line on it, very shortly.
H.R.Jr:
I thank you. Thank you.
B;
Very good.
H.M.Jr:
Thank you. Goodbye.
B;
Goodbye.
Regraded Inclassified
184
Friday
January 28, 1938
10:32 a.m.
Treas.
Operator: Mr. Kennedy.
HMJr:
Yes.
T.O.:
Go ahead.
HMJr:
Hello.
J. P.
Kennedy:
Hello, Henry.
HMJr:
How are you?
K:
I'm fine. And you?
HMJr:
Oh, pretty well.
K:
That's a boy.
HMJr:
Joe, I think I know you well enough to call you up ...
K:
Yeah.
HMJr:
... and suggest that you get a copy of the St. Louis
Star Times.
&:
Yes.
HMJr:
... of January twenty-second.
K:
Yes.
HMJr:
Which starts off, "A close business associate of
Kennedy's, If see?
K:
Yes.
HMJr:
And the rest - then goes on about - a deal has
been made that you're not to go to England and I am.
K:
Yeah.
HMJr:
And -
K:
All that'God-damned'thing, Henry. Well, have you -
give me that again.
Regraded
185
-2-
HVJr:
An -
M
Who is it by?
HW:
It's by a fellow named, Sam O'Neil.
Et
Well, that's the same paper that had one when I was
out West, that said that - that Morgenthau had
got rid of Kennedy,
I
I
-
by sending him to England.
Is that the story?
the
-Wet
Well, that - no, no. No, this is / story that -
K:
January twenty-second?
HMJr:
January twenty-second.
It says that - -
R:
What paper is that, Henry?
HMJr:
The St. Louis Star Times. And, there's been so
much in it, you know?
X :
I know it.
HMJr:
And -
K:
It's 'God-damned' embarrassing and, of course, as you
realize, it's 'God-damned' embarrassing to me.
HMJr:
Yes.
K:
Because, of course - I mean, to have them - away
from the both of us, you'd think that, gee, that
we'd spent the night. I'm 'God-damned' happy!
I mean, I've got a 'God-damned' good job.
BWr:
Yes.
#:
Now, what can I do about it, Henry?
Halle:
I don't know, but, the thing - this thing, I mean,
it's written so - I mean, I've never seen it before
written this way and where it says, "A close business
associate of Kennedy's says as follows:" - you see?
&:
Yes. Well, I'll look at it, Henry, and
.....
HMJr:
I'll tell you what I'll do, in order to -
I'll have
it photostated and send it over to you.
Regraded Unclassified
186
-3-
K:
All right. All right, send it over to me and I'll
look and I'll see what
HMJr:
But I've never seen one so definitely accredited,
I might say, to you or to a friend of yours.
K:
Yes.
Well, of course, I can find out -- I
never heard of this fellow, I don't even know who
he is.
HMJr:
I don't know.
K:
Yes. And - but you see those things and of course
you get them and you burn up yourself, you sey,
'God-dammit'.
HMJr:
Well, it's just it makes, it's
K:
Well, Henry, if you can suggest a 'God-damned' thing
that I can do or that you can do that will make it
HMJr:
Well, I can't send for a fellow and say
K:
No, I can send for him.
HMJr:
No, I'm not -- I'm staying here, see?
K:
Yes.
HMJr:
You can send for him.
K:
Certainly.
Does he work out of Washington?
MJr:
Yes.
K:
He does?
HMJr:
Yes.
M
And his name is Mike O'Neil?
HW:
No, Sam O'Neil.
X:
Sam O'Neil,- - I never heard of him.
HMJr:
Yes. I'll have a photostat
&:
You send it over to me and I'll send for Sam.
(Spoken laughingly)
Regraded Unclassified
:- 187
-4-
HMJr:
O.K.
K:
All right. (Laughs)
HMJr:
All right. Goodbye.
Regraded Unclassifie
188
January 28, 1938
For the Secretary:
Mr. R. E. Reichert, former Bank Commissioner of
Michigan, was in for lunch.
He brought up the subject of the bank holding company
legislation and referred to the fact that when he was bank
commissioner and the Detroit groups were being formed, he
came to Washington and testified that he regarded group
banking 83 a sinister development, saying that we should
keep to either branch banking or independent unit banking.
He said he welcomed legislation at this time breaking
up the holding companies and that he was sure there would
be no major difficulties encountered. He said that 1f any
difficulties were in store for the banks on that account,
they were certainly in the best possible shape to meet them,
being in the most liquid position they have been in for
years. He said that if he were still Commissioner of
Banking in Michigan and the Detroit groups were still in
existence, he would be inclined to give his support to
legislation putting them out of existence, and would not
be alarmed about any 111 effects on the banks.
Upm
Regraded Unclassified
189
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Legation, Bern, Switzerland
DATE: January 28, 1938, 3 p.m.
NO.: 7
In strict confidence I learned this morning from
the Vice President of the Board of Managers of the Swiss
National Bank that Japan has been putting out feelers
regarding the possibility of getting a large loan from
the Swiss. My contact gave me to understand that the
Swiss National Bank is definitely unfavorable to such
a loan.
I was also informed that the Swice Federal Council
has about decided that they will call for redemption
of the 1911 and 1920 three and one half percent Federal
Railways Loans totalling four hundred million francs.
They will then offer for public subscription a. loan for
the same amount at three percent.
HARRISON.
this is good cable
Am3r 31 Handen themist 8.259
send werd to Hamsin 19mg
complements Hm2
EA:LWW
revel 1-31
then this
Regraded Unclassified
190
TREASURY DEPARTMENT
In
INTER OFFICE COMMUNICATION
DATE
January 28, 1938
TO
Secretary Morgenthau
FROM
Herman Oliphant
For your information
The attorney for E. M. Smith and brother wired Wenchel yesterday
that an amended offer in compromise raising the original offer of
$1,100,000 to $1,500,000 (the amount which we had indicated was the
lowest we would consider) would be filed with the collector yesterday,
and that the Bank had agreed, provided that liens which were placed against
the property of the Smiths as a result of jeopardy assessments made after
the original offer had been rejected were released immediately. The offer,
he stated, will be made on the terms of $600,000 in cash and the balance
in three equal annual installments.
The collector at Los Angeles has been instructed to forward the
offer to the Commissioner by air mail as soon as he receives it. We
have advised Smith's attorney of our instructions to the collector; that
the offer will be acted upon immediately upon reaching here, and that
the liens can not be released until the offer has been accepted.
Regraded Unclassified
Prepared by
S. Adler and
H. D. White
191
Division of Research and Statistics
INTER OFFICE COMMUNICATION
DATE January 28, 1938
Secretary Morgentheu
2
FROM
Mr. Haaa M
Subject: British Government Borrowing in 1937. (All figures
In dollars - $5 to the pound)
(2) The British national debt rose $1,210,000,000 in 1937.
National debt - December 31, 1936 $40,235,000,000
National debt - December 31, 1937 $41,445,000,000
As of December 31, 1937, the long-term debt was
36,250,000,000 and the floating debt, $4,925,000,000.
(2) Long-term borrowing in 1937
There were only two government issues in 1937.
The first was the $500,000,000 21 percent Defence Loan,
1944-1948, issued in April. (This Chamberlain issue was gen-
erally regarded as & contributory factor to the decline in
the British bond market during the spring of 1937.)
The second issue was the $232,000,000 3 percent Tithe
Redemption Stock ("stock" by name only; it differs in no
sense from & bond) issued in August to provide compensation
in respect of the extinction of tithe rent charges which
farmers formerly had to pay to the Church of England.
Month
Description
Nominal Amount Issue
Price
issued
of issue
(Millions)
price
12/21/37
(1) April
2% Defence Loan
$500
99-1/2
99-1/8
(2) August British Government
3% Tithe Redemption
6232
87-3/4
92
(3) Short-term borrowing
1936 to December 31, 1937. It was $4,255 million on December the 31,
Total floating debt rose by 8670 million from December 31,
1936 and $4,925 million on December 31, 1937. The table on
following page gives the breakdown of the increase.
Regraded Unclassified
192
Secretary Morgenthau - 2
December 31,
December 31,
Increase
1936
1937
1936-1937
Ways and Means
Advances outstanding:
Advences by Bank
of England
$285,000,000
$278,750,000
- $6,250,000
Advances by Pub-
lic Depts.
138,950,000
197,175,000
+ 58,225,000
Treasury Bills out-
standing
3,830,975,000
4,448,550,000
+617,575,000
Total Floating
Debt Outstand-
1ng
$4,254,925,000
$4,924,475,000
+ $669,550,000
The increase in the amount of Treasury bills outstanding
in 1937 was in part due to the Exchange Equalization Fund's
increased gold purchases.
(4) 1938 Prospects
The British Treasury will have to resort to the long-term
worket for at least two new issues in 1938.
(a) The 2% percent Defence bond issue. It 18 probable
that this will be another issue of 100 million pounds.
(b) 76,500,000 pounds issue of Stock for the purchase
of mining royalties to carry through the government's
nationalization of coal mining royalties.
Regraded Unclassified
the mismal
*
Sextas
Tot Cafinet Jan 28,1938
To the Congress:
A development has occurred in our banking
system within the last few years that seems to me
to hold elements of very serious danger to our
economic life. This development 18 the extension
of bank holding companies.
It 18 hardly necessary, I think, to point out
to you the great economic power that might be wielded
by a group which may succeed in acquiring domination
over banking resources in any considerable area of
the country. That power becomes particularly danger-
ous when it is exercised from a distance and notably
80 when effective control is maintained without the
responsibilities of complete ownership.
We have seen the multiplied evils which have
arisen from the holding company system in the case
of public utilities, where a small minority ownership
has been able to dominate 8 far-flung system.
We don't want those evils repeated in the
banking field, and we should take steps now to see
that they are not. I am not thinking BO much of the
Regraded Unclassified
194
- 2 -
present situation as of what the result may be If we
permit the trend to continue. It is not a sufficient
assurance against the future to say that no great evil
has yet resulted from holding company operations in
the banking field. The possibilities and even the
probabilities of great harm are inherent in the situ-
ation.
Both the Congress and the legislatures of a
number of the states have deemed it wise to place
limits on branch banking, but no limits have been
placed on the holding company system, which accomplishes
a similar result without 8. similar measure of responsi-
bility, and permits, with equivalent capital investment,
domination of a much broader field.
I therefore recommend that the Congress enact
at this session legislation which will effectively
regulate the control of banks by holding companies.
195
January 28, 1938.
MEMORANDUM FOR THE SECRETARY,
Subject to your approval, the arrangements and procedure below
described will govern the disposition of tax cases at Los Angeles
under the experimental plan which has been decided upon, to be
effective March 1, 1938.
TECHNICAL STAFF, LAS ANGELES DIVISION.
1. A branch of the Technical Staff of the Commissioner's Office
will be established at Los Angeles. It will be known as the Los Angeles
Division of the Technical Staff (hereinafter referred to as the Staff
Division). It will consist of B. chief, to be designated by the Commin-
sioner, and such technical assistants, auditors, and clerks as may be
necessary. It will perform its duties under the Commissioner's super-
vision, through the Head of the Technical Staff.
2. The Chief of the Staff Division will exclusively represent the
Commissioner in the determination of Federal Income and profits tax liabil-
ity (whether before or after the issuance of a statutory notice of defi-
ciency) in all cases originating in the office of the revenue agent in
charge at Los Angeles in which the taxpayers have finally protested the
preliminary determination of liability made by that officer, excepting
fraud cases. Be will also have exclusive authority to settle by stipula-
tion cases docketed by the United States Board of Tax Appeals and set
for trial at any place within the territorial jurisdiction of the said
agent in charge: Provided, That he shall not male or approve a stipula-
tion for settlement in any docketed case except with the concurrence of
the Counsel for the Staff Division referred to below.
3. A representative of the Chief Counsel of the Bureau of Internal
Revenue will be assigned as Counsel to the Staff Division, with such
teclmical and clerical assistants as be may require. His duties will
be performed under the general supervision of the Chief Counsel. Be
will advise the Chief of the Staff Division, upon request, upon legal
questions arising in the determination of income and profits tax lie-
bility. He will advise the Chief of the Staff Division also with respect
to any proposed settlement of B. docketed case. Be will prepare answers
to petitions filed with the Board of Tax Appeals, copies of which will
be furnished him by the Chief Counsel of the Buresti, in Cases originating
196
-2-
in the office of the revenue agent in charge of the Los Angeles Division;
and he will represent the Comissioner in the defense before the Board
of cases set for hearing within the territorial jurisdiction of such agent
in charge, but be shall not stipulate before the Board for the settlement
of any case except with the approval of the Chief of the Staff Division.
The Counsel for the Staff Division will consider, upon reference, memo-
randa prepared in the Staff Division directing the issuance of statutory
notices of deficiency prior to their approval by the Chief of the Division,
and will advise him in any such case whether in counsel's judgment the
proposed deficiency or any larger or smaller deficiency could successfully
be defended upon appeal to the Board. He will also make such suggestions
23 he may deem advisable as to the form and content of the proposed statu-
tary notice in any such case, to insure that such notice will provide &
sound basis for defense should the case be appealed.
PRELIMINARY PROCEDURE BY REVENUE AGENT IN CHARGE.
4. Deficiency cases will be handled in the office of the revenue
agent in charge in accordance with the provisions of the Internal Revenue
Manual, except in the following particulars:
(a) In any case where the taxpayer does not respond to
the preliminary notice of deficiency and the usual follow-
up notices, a special notice will be sent him stating that
if he fails to acquiesce or protest within a specified time,
the statutory notice of deficiency will be mailed. If the
taxpayer fails to respond within the time allowed by the
special notice, the agent in charge will issue the statutory
notice of deficiency in the prescribed form.
(b) In any case where the taxpayer files 8. protest
after the preliminary or special notice but declines &
conference, the agent in charge will reconsider the case
in the light of the protest and notify the taxpayer of
his conclusions. If an agreement is not reached, be will
thereafter, depending upon the circumstances of the casa,
either (1) issue the statutory notice of deficiency, or
(2) advise the taxpayer that OD request the case will be
referred to the Staff Division for hearing, but that in
the absence of such a request the statutory notice of da-
ficiency will be mailed at the expiration of a specified
time. In this latter event, the revenue agent in charge
will issue the statetory notice upon the taxpayer's failure
to request E bearing before the Staff Division within the
time specified.
(c) In any case where the taxpayer film a protest
and AL conference is held, but without agreement, the agent
197
in charge will notify the taxpayer of his conclusions, 4d-
vising him that upon request the case will be referred to
the staff Division for hearing, but that in the absence of
such & request the statutory notice of deficiency will be
mailed st the expiration of a specified time. The revenue
agent in charge will issue the statutory notice upon the
taxpayer's failure to request a hearing before the Staff
Division within the time specified.
5. The procedure for handling overassessment cases will be the
aumo 8.0 that prescribed in the preceding paragraph with relation to
deficiency cases, except that the special notice will inform the tax-
payer that if be fails to acquiesce or protest within 6. specified time,
the agent in charge will recommend to the Commissioner the issuance of
n. certificate of overassessment in the amount stated in the notice.
If the taxpayer fails to respond to the special notice, the agent in
charge will send the case to the Bureau for issuance of the certificate
of overassessment, or other appropriate action.
PROCEDURE AFTER REFERENCE TO STAFF DIVISION.
6. The Staff Division will accord hearings upon protested cases
referred to it by the agent in charge in accordance with the procedure
outlined in the preceding paragraphs. It will not consider before the
issuance of the statutory notice of deficiency any case in which no
protest has been filed with the revenue agent in charge. In any case
in which protest bas been filed with the revenue agent in charge, it
will not consider prior to the issuance of the statutory notice new
contentions or new evidence that may be decisive with respect to any
major issue, but upon the presentation of such contentions or evidence,
will refer the issues involved to the agent in charge for further con-
sideration and for conference with the taxpayer if advisable.
7. When the Chief of the Staff Division has reached a final con-
clusion with respect to any case, he will prepare a memorandum thereof
setting forth the exact grounds upon which his conclusion rests. This
memorandum will be transmitted with all the papers in the case to the
revenue agent in charge, who will, according to the nature of the de-
cision of the Staff Division,
(a) Certify a deficiency to the Collector in
accordance with Mimeograph 3552,
(b) Issue a statutory notice of deficiency, or
(c) Transmit the case to the Bureau for the prepare-
tion of 8. certificate of overassessment, or
other appropriate action.
198
8. The Staff Division will have complete jurisdiction of all
cases after the issuance of the statutory notice. Upon the taxpayer's
request, the Staff Division my take up for settlement any case in
which & statutory notice has been issued, and my grant the taxpayer
& hearing thereon. Except in unusual circumstances, however, it will
not grant A. hearing in such a case prior to the filing of the petition
if a hearing has been had in the office of the revenue agent in charge,
or if the taxpayer has refused an opportunity to be heard there.
9. After the filing of the petition in any case, the Staff Division
will continue to have sole authority, subject to the provisions of para-
graph 2 above, for the settlement of the case, and will have the custody
of all files, papers, and documents relating to the case, which will,
however, at all times be available to the Counsel for the Division for
the preparation of the answer to the petition and for the defense before
the Board of the Commissioner's determination.
10. At any hearing granted by the Staff Division, the agent in
charge will be represented if be so desires, or if the Chief of the
Staff Division deems it advisable.
11. Except as may be otherwise directed by the Commissioner, through
the Head of the Technical Staff, the conduct of hearings and other pro-
ceedings by the Staff Division will be in accordance with the procedure
customarily followed by the Technical Staff.
(Signed) GUY T. HELVERING
Commissioner.
Approved: January 31, 1938.
(Signed) H. MORGENTHAU, JR.
Secretary of the Treasury.
HNG/mff
199
January 28, 1938.
4:24 p.s.
Roswell
Magill:
Hello.
R.M.Jr:
Ros.
M:
Yes, Henry
H.M.Jr:
At the Cabinet meeting the Vice President said
that he'd been talking to Vinson and Pat Harrison.
is:
Yes.
K.M.Jr:
One thing that they were worrying about was that
this thing would be retroactive, this tax bill.
W:
Yes.
H.M.Jr:
So I said, "Well I couldn't guarantee much about
the tax bill, but I thought I could guarantee that
there would not be anything in it which would be
retroactive.'
M:
Yes.
H.H.Jr:
Then I said, "Well, that the thing that was
worrying us particularly was that Congressman
McCormack was the spearhead on a fight against
this - any form of surplus tax, and that Robert
Doughton was sitting on the side lines."
II:
Yes.
H.M.Jr:
Bo the President said, "Well, I'll send for
McCormack and have a talk with him."
M:
Good.
H.M.Jr:
So then the President said, "Prepare a memorandum
giving me the background" - send it over to him and
he'd read it over the weekend and send for McCormack,
Monday. Now, I'll be in tomorrow and if you'd have
& memorandum for me, I'd go over it with you, and
we'd shoot it over to the President.
M:
I - I suppose it'd better not be more than B. page.
H.M.Jr:
Well, I'd give him whatever is necessary and I'd
give him the whole picture. Give him just as much
88 you think 18 necessary in order to give him a
picture.
200
- 2 -
M:
I'll be very glad to, and I'm glad he's getting
into it.
H.M.Jr:
All right.
M:
I think that's an awfully good way out.
H.M.Jr:
Right.
M:
All right. Thank you. I'll give it to you, what
time in the morning will suit you?
H.M.Jr:
oh, we'll see. We'll see.
M:
Yes. All right.
Regraded Inclassified
- OFFICIAL COMMUNICATIONS TO
201
THE SECRETARY OF STATE
WASHINGTON, D.C.
DEPARTMENT OF STATE
WASHINGTON
January 28, 1938.
My dear Mr. Secretary:
I enclose for your confidential information
a copy of paraphrase of telegram No. 152 just
received from Mr. Bullitt, reporting a conversa-
tion which he had with the Prime Minister.
Sincerely yours,
Herbert Feis
Enclosure:
No. 152 of January 27
from Paris.
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
Regraded
Unclassified
202
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: January 27, 1938, midnight.
No.: 152
STRICTLY CONFIDENTIAL FOR THE SECRETARY.
This evening I had 8 long and intimate talk with
Chautemps. He gave me his views regarding the situation
of the present French Government.
The Prime Minister first said that the franc had had
another bad day, and that he had ordered that the equaliza-
tion fund be given back a part of the gold which Bonnet
had taken out of it and put in the Bank of France. Ae
long as he possibly could, he said, he would defend the
franc without exchange control.
Chautemps was beginning to wonder, however, whether
it would not be possible to have some governmental combina-
tion which, without exchange control, could prevent capital
flight from France. The thought was growing in his mind
that the decisive factor in the situation was that the
essential expenditures by France for interest on the public
debt and rearmament were 80 great that taxation would not
cover them. Furthermore, it was likely his budget would
be blown to bits by further necessary expenditures for the
navy and for the air force - these expenditures could not
be reduced by any government. He said that the small events
of each delivery day were relatively unimportant; the French
203
a 1 1
Government could not reduce its expenditures or increase
its revenues, and this was the vital factor. Therefore
the Right capitalists would keep on sending their money
abroad no matter what Government might be in power in France.
The Prime Minister told me he was not yet convinced
that it was inevitable exchange control would have to be
established. However, every sign pointed to the conclusion
that they could not avoid it. Chautemps asked me what
would be the reaction of the United States to the imposi-
tion of exchange control, and I replied in the terms of
telegram No. 16 of January 13, 7 p.m., from you.
The Prime Minister continued by saying that if the
flight from the franc should continue it would be necessary
for the present Government to resign. As successors,
there were only two possible governments which he could
envisage: The first would be the dangerous experiment of
calling Herriot to head a National Government, which govern-
ment would include representatives of all parties from the
extreme Left to the extreme Right; from Thorez to Louis
Marin. This evening, he said, Lebrun had asked him and
Jean Neney, the President of the Senate, what they thought
of such action. The Prime Minister had told the President
that "a cabinet containing Thorez and Louis Marin would
be able to do nothing at cabinet meetings except play back-
gammon"; they would not be able to agree on any subject.
Chautemps thought it was preferable to have disputes in
Regraded
Unclassified
204
- 3 -
the Chamber of Deputies rather than to have anarchy in
the French Cabinet.
END SECTIONS ONE AND TWO.
BULLITT.
EA: LWW
Regraded Unclassified
FEDERAL RESERVE BANK
20,
OF NEW YORK
FFICE CORRESPONDENCE
DATE January £8, 1988.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION
L. W. Knoke
WITH BANK OF ENGLAND.
Mr. Bolton called at noontime today. They had actually
been trying to squeeze the shorts today in the franc market but the
experiment had not been very successful. They had brought the rate
down from 154 8/4 to about 153 1/4 but it was going to cost Cariguel
a great deal of money to keep it at-the higher level. The franc did
not look any too good at the moment and he was wondering exactly how
the French were going to make out. There had as yet been no evi-
dence of their coming into the London market to borrow money. Bolton
wondered whether they could do enything in New York; or would the
"famous Johnson Act" be a stumbling block; was there any way of
getting around that? I replied that, in my opinion, repeal of the
act was the only way to smooth the path for borrowing by nations
which had defaulted on their loans and that such repeal was not in
the cards. He wanted to know whether their default on the war debt
was the only French default. I replied that, as far as I knew, that
was so, A little later Bolton inquired whether we could use the
Stabilization Fund to help the French by buying francs. I replied
that theoretically we possibly could but, that politically it was
impossible if for no other reason, because of the howl the Hearst
press would make over such transactions. Under the circumstances,
then Bolton thought the French, if they wanted assistance, would
have to rely upon the British solely. I agreed that that was probably
no because countries like Switzerland and Holland were not likely now
to make further advances to France. Anyhow, I continued, further bor-
rowing did not seem to be the solution of the French problem. Bolton
Unclassified
cun
FEDERAL RESERVE BANK
OF NEW YORK
FFICE CORRESPONDENCE
DATE January as, 1938.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION
L. W. Knoke
WITH BANK OF ENGLAND.
OM
- 2 -
thought it might at least offer & temporary solution to tide the
French over pending the straightening out of the political problem.
I asked whether the French had recpened with British bankers the
question of raising & new loan in lieu of the £40,000,000 paid off
in December. Bolton replied that, rather surprisingly, nothing had
been said. Nevertheless, he felt that there must be a show-down very
soon as things could not go on like this much longer. There was
a very, very strong movement towards exchange control in France which
case from the left. That, he thought, was the real problem and the
cause for efforts to find a temporary solution of the French diffi-
culties.
The belga was - little better, Bolton continued. There was
nothing new in the situation, the recent selling having been of a
speculative nature; there was no evidence of flight of capital from
Belgium.
The dollar had again been under pressure in the London market,
with quite a number of central banks selling. He did not know the reason
unless central banks were following the lead taken by the market, I in-
quired whether the proceeds of dollar sales went into gold but Bolton
replied that most of it was against sterling. at the present levels
there was & fairly strong commercial demand for dollars by English com-
mercial houses which had recently absorbed large amounts; but for this
cushion the dollar would probably have weakened further.
Bolton had read about the latest claims raised by the
veterans and wondered whether this promised to be 8. live political
201
12 60M 6-37
FEDERAL RESERVE BANK
207
OF NEW YORK
FFICE CORRESPONDENCE
DATE January 28, 1958.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION
L. W. Knoke
WITH BANK OF ENGLAND.
OM
- 8 -
issue. I replied that it was probably too early to answer that
question but that I disliked the strength which was put behind the
proposal.
LWK:KMC
/ are
Regraded 1 Inclassified
208
JR
GRAY
M
London
Dated January 28, 1938
Rec'd 1:35 p.m.
Secretary of State,
Washington.
RUSH.
68, January 28, 5 p.m.
CONFIDENTIAL FOR THE SECRETARY OF THE TREASURY FROM
BUTTER ORTH.
OnE. The following is Sir John Simon's reply:
"The Chancellor is writing to M. Marchandeau, congrat-
ulsting him on his appointment and Expressing pleasure at
that part of the French Ninisterial declaration which
referred to defending the national currency within the
framework of monetary freedom and the tripartite agreement.
HE will take the opportunity of Expressing the desire for
Close cooperation.
The Chancellor does not think it desirable at this
moment to press the French llinister of Finance to name
definite points between which he will hold the franc as
(1) ha thinks it is hardly practicable for the Minister
nt this moement to reach any final decision on that point,
his real position being that hE must try to act for the
best
203
-2- #68, January 28, 5 p.m., from London.
best under constantly changing conditions; and (2) he
does not wish to invite a rejoinder to the Effect that
certain policies are practicable or not practicable
according as the British and American Governments are
willing to underwrite the franc.
The Chancellor will, of course, bE interested to
known what reply the French make to Mr. Cochran".
When this reply was given me I was told for my
"personal information only" that when this matter was
brought to Simon's attention his first reaction had been
to hark back to the occasion when 3 similar inquiry had been
put to K. Bonnet; hE had recalled that on that occasion
hE had idvocated the despatching of such an inquiry but had
consulted the American Treasury before taking any action.
with regard to the substance of the above reply I
venture to refer to Phillips' remarks reported in the
penultimate paragraph of my 31, January 14, 1 p.m., and to
the memoranda of his first two conversations in Washington
dated September 20 and September 21, 1937.
Two, The British Treasury's information regarding *the
Dutch short term credits to France differs in the way from
that given in the penultimate paragraph of my 61, January 26,
6 p.m. The British Treasury confirms that bills are now
appearing
210
-3- #68, January 28, 5 p.m., from London.
appearing in this market which were issued on January 14th
therefore indicating that the option on the final SET of
bills had been EXERCISED. The British Treasury concludes
that the French have or are now getting the resultant
foreign exchange but they have no way of knowing whether
the French authorities have been willing to modify their
original arrangement with the Mendelssohn group to the
end that instead of receiving the final 50,000,000 florins
they only receive florins as bills are absorbed on the
Dutch and other markets. Rowe-Dutton reports from Paris
An unconfirmed rumor that the French Treasury is attempting
to raise n further credit in Holland, this time on behalf
of the railways.
Three. As instructed I am leaving tonight for Paris.
JOHNSON
"WC:KLP
Regraded Unclassified
211
JR
PLAIN
London
Dated January 28, 1938
Rec'd 3:55 p.m.
Secretary of State,
Washington.
72, January 28, 8 p.m.
FOR TREASURY FROM BUTTERWORTH.
Today's London financial press carry summaries of the
background interview which was held in the Treasury
yesterday. No aditorials appear on this subject they being
entirely devoted to the Van Zeeland report.
I am confidentially informed by n Canadian official
that the underwriters were actually lEft with 49% of the
Conadian Government 10 million pound conversion loan
1though the terms of the loan were favorable (and those
recommended by the Bank of England) and the Government
bond market has been unusually strong. My informant
attributes this failure to the city's hostile attitude
engendered by the old grand trunk CASE which has recently
been increased by Albrecht of Alberta. My informant pointed
out that this was the first Canadian Government loan made
in London on market terms since the war; that the terms
of the previous loan (SEE my 274, January 25, 1 p.m., 1934)
were designed by BENNETT then Prime Minister to bE
attractive
Regraded Unclassified
212
-2- #72, January 28, 8 p.m., from London.
attractive and to reopen the British market to Canadian
borrowing. HE had bitter things to say about the prejudiced
attitude of the city "which would lend monty more Easily to
Balkan countries than to the Dominion of Canada" and gave
it 18 his opinion that no further efforts would bE made in
the near future to borrow in London rather than in NEW York.
The last of the "big six" bank chairmen has now made
his annual address. These addresses which are always looked
forward to with interest are usually notable for their
Emphasis on the more encouraging Elements in the Economic
situation. Last year the discussion centered around the
question B.S to whether recovery was gaining too great
momentum, whether speculation was developing, and whether
caution was becoming desirable. This year the general
Emphasis is on the "temporary", or on the "relatively
(dimensions?)
unimportant dementions", of the recent setback. Other
points touched upon by all the chairmen are the influence
of the American situation on the trend in great Britain;
the importance of further expanding British exports; and
the British balance of payments position. The speeches
are unanimous in approising the Evident check to recovery
of the latter part of 1937 as 8 temporary or relatively
unimportant setback which should give little if any anxisty.
Fisher (Barclays Bank) put it that "there is little
justification for undue concern". McKEnna (Midland) made
the
213
#72, January 28, 8 p.m., from London. -3-
the downright statement that "I SEE no ground for
pessimism". Colin CampbEll (National Provincial) said that
"The main sources of our weakness in the great depression
are (***) not one of them (***) in active operation today"
and "I believe in the present position's fundomental
strength and soundness and well know the mischief often
worked by fears which have no foundation in fact." BECKETT
(Westminater) put his view as follows: "That our recovery
could continue indefinitaly without intermission was not
to be Expected and the movement recently perceptible is
at present only a slowing-down of activity, liable to attract
exaggerated attention when it succeeds a long period of
unbroken progress." Holt (Martins) "depracates untimely
references to impending depression." Wardington (Lloyds)
said that when talk of a recession in trade was somewhat
loud and insistent hE 33W "no reason in the fundamentals
of our commercial position to apprehend any serious setback."
Mention W28 made (in all but Lloyds) of the situation in the
United States and its influence on British activity and
world trade generally. BECKETT remarked that "recent news
from the United States has been more Encouraging and the
view is gaining round that the next few months will SEE a
resumption there of the recovery movement." In McKenna's
view
214
1/72, January 28, 8 p.m., from London. -&-
vier there is not so much an Expectation of improvement
in America ns 2 diminution in the Effect of recession
there on British business activity. Fisher points out that
the CAUSES of the American recession are domestic, and
hopes "that private enterprise will soon bE encouraged to
exert its influence towards the betterment of trade in that
country". Campbell thinks that "the spirit of courage and
enterprise which has already done so much in the last few
years to lighten the burden of internal commercial
Indebtedness and stimulate recovery will surely soon be
successful In anabling C. resumption of progress in that
grent country." Holt pointed out that "conditions in
America have rencted upon this country, but as the United
States are going through a period of trial WE may SEE a
ner starting point there from which WE may witness a
recovery that will not only restors her own fortunes, but
bE felt internationally." The greatest degree of unanimity
reached in the six speeches was on the great importance of
the need for a further Expansion in British export trade.
The grentest emphasis on this point was loid by Fisher,
who said that "the need for exports has never been greater
than it is today, and of all the problems facing us it
ranks emongst the foremost in importance". The chairmen
of both Lloyds and the National Provincial Banks, mentioned
the
Regraded Unclassified
215
-5- #72, January 28, 8 p.m., from London.
the Anglo-American trade agreement negotiations with
favor. It is of interest that no mention was made in any
of the speeches of the r ECENT discussions of the
desirability of preparing plans for public works to take
up a possible forthcoming slack in general employment.
JOHNSON
HPD
i
9
/
216
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: January 28, 1938, 4 p.m.
NO.: 155
RUSH.
FROM COCHRAN.
At 11:30 this forenoon the Bank of France told me
that the control went into the market this morning on
the opening of the banks, and with an expenditure of
only 40,000 pounds brought the rate down from 155 to 153.90.
I had a talk with my contact again at half-past
three. He told me that since noon the market had become
more of B. drain of sterling and there had been a con-
siderable increase in his losses. Commercial and indus-
trial customers were the purchasers for the most part.
At that hour he had brought the rate to 153.20 and seemed
determined not to permit it to weaken before the trading
closes here this evening for the balance of the week.
Reference is made to my telegram No. 143 of January 26,
noon. In that telegram I reported that the control was
short 100,000,000 francs of foreign exchange with the lose
on Tuesday, January 25, of 143,000,000 francs. 115,000,000
francs were lost on Wednesday, and 167,000,000 france on
Thursday. It was possible to cover such sume by manipulat-
ing call gold from the Bank of France. The statement of
the Bank of France for yesterday showed no loss of gold
but for the statement to be issued next Thursday it seems
Regraded I Inclassified
217
- 2 -
this must inevitably happen.
I am informed by Guaranty and National City exchange
traders that most of the franc pressure during the past
few days has been due to simple export of capital from
France. They said that some commercial requirements have
been covered, but speculation has played only a minor part.
Part of improvement in market sentiment this forenoon
resulted from press account of statement by Secretary
Morgenthau as to resources of France with which to support
the franc. Chautemps' radio address of last night on labor
codes was well-received but since neither the employers
nor the labor organization has yet committed itself.def-
initely on the new proposals, outlook 1s still troubling.
Annual meeting of Bank of France being held this
afternoon. Governors' report to the shareholders
reveals nothing new.
Van Zeeland report widely copied or summarized.
Dutch Treasury conversion loan reported heavily
over subscribed.
END MESSAGE,
BULLITT.
EA: LWW
Regraded Unclassifi
Paris, January 29, 1938.
Personal and Confidential.
Dear Henry:
I an deeply grateful to you for your letter of
January 6th regarding Cochran. I disliked intensely
to bother you personally about such a matter but I
felt it obligatory. I shall approach the French
shortly with regard to having Cochran listed as
Financial Counselor in the diplomatic list.
I an looking forward eagerly to seeing you in
the first days of Earch.
All good wishes and kindest regards.
Yours very sincerely,
Villiam C. Bullitt
The Honorable
Henry A. Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D.C.
Regraded Unclassified
219
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: January 29, 1938, noon.
NO.: 158
RUSH
FROM COCHRAN.
This morning the Bank of France was closed, and I
found an opportunity for a quiet talk there with my contact.
My friend told me that the statement which Secretary
Morgenthau made regarding the franc and the tripartite
agreement had exercised a particularly good influence against
the professionals, who, after seeing the press report,
did not enter the market on Friday morning. Commercial
concerns, however, did particularly heavy buying of ster-
ling in the afternoon.
Because of the large trade deficit of the French,
and the fact that French importers of foreign goods must
purchase exchange forward, it is difficult to term as
"speculative" operations which are made BO that necessary
importe can be paid for.
I asked my contact whether the Bank of France had
noticed any important speculation against the franc from
New York or from London. He replied that there were come
transactions from London, but that those from New York were negligible.
EIND SECTION ONE.
BULLITT.
EA: LWW
Regraded Unclassified
220
PARAPHRASE OF SECTIONS TWO AND THREE OF NO. 158 of
JANUARY 29 from Paris.
My contact did not believe that any of the large London
banks were responsible for these transactions. He could
not, of course, tell on whose behalf they were made. The
two institutions with offices in London which were most
likely to engage in such business, he said, were the
Bankers Trust and the Swiss Bank Corporation.
The French control lost 193,000,000 francs as a result
of operations yesterday. No lose of gold by the stabiliza-
tion fund will be shown on the statement of the Bank of
France to be issued on February 3, Thursday. This was made
possible by using to offset spot losses foreign exchange
which had really been set aside for forward operations;
account was also taken of the fact that the operations of
Thursday were for budget purposes. If there is no important
turn of the market (omission - for the better?) it will be
necessary to show a significant gold loss to the fund on
the succeeding Thursday, although on the next statement,
February 3, no gold loss will be shown.
I asked my friend whether the Dutch banking syndicate
had paid across to France any instalment on their credit
since the 12 and a half million florins paid on January 15.
He said they had not. The French have not yet dropped
negotiations for the final 37 and a half million florins.
However,
Regraded Unclassified
221
- 2 -
However, the Bank of France believes that the Dutch are
trying to avoid making any further payments on this credit.
The head of Mendelssohn and Company, Mannheimer, some days
ago gave as an excuse that the change in the French Govern-
ment had made it difficult to carry out further credit
operations. The Netherlands bankers, in addition, had been
adequately impressed by the fact that there had developed
on the Paris market a dual exchange rate. As I dictate this
message Butterworth is with me and we shall keep in touch
with this matter of the Dutch credit.
This morning,at 11 a.m., I was at the Bank of France.
Up to that time it had cost 7,000,000 france net to defend
the franc through the London control. The Reichsbank had
had to purchase 10,000,000 francs which gave the franc a
little natural support. There had been fluctuation in the
rate between 153 one-eighth and one-fourth. London was
instructed to bring the rate down to 153.05 before the
market closed. The French had hoped to be able to bring
the rate below 153 but London expressed the opinion that
it would be quite costly to do this.
My Bank of France contact said he was entirely unaware
that any week-end change in French monetary policy was planned.
I had a telephone call from Rueff at 12:45 saying that
at five p.m. the Minister of Finance, Marchandeau, wanted to
see me.
EA:LWW
END MESSAGE.
BULLITT.
222
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: January 29, 1938, 6 p.m.
NO.: 160
RUSH
FROM COCHRAN.
I refer to the last paragraph of my telegram No. 158
of Saturday, January 29.
I called on Marchandeau, Minister of Finance, at
five o'clock this afternoon, by request. Rueff was also
at the meeting.
Minister Marchandeau expressed his genuine appreciation
of the statement which the United States Secretary of the
Treasury had made to the press with regard to the Tripartite
Agreement and France. Rueff had just received a cablegram
from the French Financial Attache in the United States, which
he showed to the Minister. The cablegram gave 8. very
favorable report of the interview at the Treasury. I was
asked by the Minister whether we would have any objection
to hie giving to the French press this account of the inter-
view. I told the Minister that 80 long as any public state-
ments were recorded accurately and attributed properly
there was certainly no objection to disseminating the
account.
The Minister asked that I try to obtain an official
text of the Treasury interview since I had no such text.
Should
Regraded Unclassified
223
Should the Treasury give me such text by cable, the
French would compare it with that which Beaulieu sent them
and then decide whether the Ministry should give the press
any communication thereon.
[Rueff told me confidentially, after we left the
Minister, that he doubted whether it would be advisable to
publish any new communique. He mentioned that the story
had already been carried with considerable benefit to the
franc and the good effect thereof might be lessened if any-
thing further is given out. Nevertheless if it is possible
he would like to have a copy of our text.]
Marchandeau told me that since he had talked with me
on Tuesday - reference: my telegram of January 25, No. 140 -
there had been no change in monetary policy. He expressed
the intention of continuing faithful to the Tripartite
Agreement. He said on Monday he will make a public state-
ment as President of the General Council of the Marne in
defense of the monetary policy he is following.
Some newspapers, the Minister said, had been inclined
to interpret the interview at the American Treasury 88
involving material assistance to the French. The Minister
then proceeded to sound me out as to the prospect of such
material assistance - for example, through a loan floated
in behalf of an "entirely independent body such as the
City of Paris" on the American market. My own personal
idea
Regraded Unclassified
224
- 3 -
idea was, I said, that it was entirely impossible to
put through any such operation because, aside from the
lack of appetite for foreign loans on the part of the
American market, the spirit of the Johnson Act would be
contravened if the City of Paris should try to borrow on
the American market in the present circumstances, since
that body is heavily indebted to the French Treasury.
Rueff thanked me for disillusioning the Minister when
we had left him. He, Rueff, had made an attempt to convince
Marchandeau that an American loan was impossible, but he
had wanted me to back him up as I had previously done when
talking to other Finance Ministers. I was specifically
asked by Rueff not to communicate this matter further and
that I do not ask for official instructions about it.
Therefore I just mention the incident as one of possible
interest to you.
I was assured by both Marchandeau and Rueff that
they are considering no change in French monetary policy.
When I was alone with Rueff I asked him whether he was
in agreement with me that if the present Government tried
the Senate
to put through/a law establishing exchange control, the
Government would fall. Rueff said he agreed with me.
END MESSAGE.
BULLITT.
EA:I.W
Regraded Unclassified
225
January 29, 1938.
9:45 a.m.
H.M.Jr:
Yes, sir,
Sen. Alben
Barkley:
How are you?
H.M.Jr:
Fine.
B:
Well, I'll tell you what I called you about,
and it's a matter I'm very much concerned over
for Kentucky.
H.H.Jr:
Yes.
B:
I don't know whether it's reached your desk or not
but the FAA has been - has had under consideration
some regulations.
H.V.Jr:
Yes.
B:
with reference to the manufacture of whiskey.
H.M.Jr:
Yes.
B:
You know for a generation and a century or more and
as long as anybody can remember 1t.
H.M.Jr:
Yes.
B;
A Kentucky type of whiskey has been made and under
the law it had to be stored for four years in freshly
charred barrels.
H.M.Jr:
Yes.
B:
Where it aged and colored.
H.M.Jr:
Yes.
B:
And the whole trade and the whole world understood
that type of liquor was thus stored and thus aged.
H.H.Jr:
Yes.
B:
Now, these Canadians have come down here and they've
got two or three distilleries down there and they're
trying to get the FAA to amend their regulations BO
ЕБ to let them, to store their whiskey in used
barrels that have already been used and where the
Regraded Unclassified
226
- 2 -
substance has already been evaporated and consumed
and the coloring effect has been absorbed and sell
it, and advertise it Just as if it were made under
that original process.
H.M.Jr:
I see.
B:
And it means that our Kentucky made whiskey 10 to
be put at a tremendous disadvantage which meene
8 reduction of at least ten dollars a barrel in
the value of it.
H.H.JP:
Yes.
B:
And it just seems to me to be a darned outrage.
H.M.Jr:
What -
B:
Now I don't know whether it's reached your desk or
not. Under the law you have to approve these
regulations.
H.K.Jr:
Yes,
B:
And I didn't want you to approve them until we
could - I could have a chance to talk with you at
length about it.
H.E.Jr:
What 1s a good brand?
B:
Well, Old Tavern, and Old Grand-dad, and there's
several good brands down there. I can't remember
them all from memory.
H.H.Jr:
I think Old Taylor. Anything wrong with that?
B:
Old Taylor is one of the kings of it.
H.M.Jr:
O.K.
B:
And it's made in that process, it's - you might
as well take coffeee grounds that had been used
yesterday and make coffee out of them today, and
say it's fresh coffee.
H.H.Jr:
How would -
B;
They put this whiskey in barrels that - that were
charred and whiskey stored in them for four years,
or one year or any other length of time, and say
that that's the same kind of whiskey that it would
227
- 3 -
be if it had been put in the original fresh
barrels. It cen't be.
H.M.Jr:
I'll be delighted to look into it.
B:
Well, may I come down and talk with you about it,
before you do anything and -
H.M.Jr:
Absolutely.
B:
What you ought to do 18 to do like an old Justice
of the Peace said about a trial of a case.
H.M.Jr:
Yes.
B:
And he turned to the lawyer on one side, and said,
"Well, Tom, If he said, "You're a pretty good lawyer,
and really now Just forget you're in this case,
and what would you do with it, if you were me.
H.M.Jr:
Right.
B:
Well he said, "I'd throw it out of the window", 80
he just picked up the papers and threw them out
of the window.
H.M.Jr:
well - I'll put a stop on that.
B:
This - this 1s a terrifically important thing -
to our people down there.
H.M.Jr:
I'll - I'll put somebody on it right away to 800
that nothing happens until I get a chance to look
at it.
B;
All right.
H.M.Jr:
And to taste it.
B:
All right.
H.M.Jr:
All right.
B:
Well I -
H.M.Jr:
All right.
B:
The tasting is the - I know how expert you are on
that.
Regraded
228
- 4 -
H.M.Jr:
All right.
B:
But if the samples that you have are not
satisfactory, I can give you an additional supply.
H.M.Jr:
All right.
B:
All right, Henry.
H.M.Jr:
Goodbye.
B:
Goodbye.
Regraded Unclassified
229
REURGANIZATION OF PUBLIC UTILITIES
January 29, 1938.
HOLDING COMPANIES
11:00 a.m.
Present:
Mr. Taylor
Mr. Oliphant
Mr. Opper
Mr. Foley
Mr. Jerome Frank
Mr. C. Roy Smith
Mr. Stuart Guthrie
Mr. Martin
Frank:
Mr. Secretary, this is Mr. Smith, who 1s the head
of our Utilities Division.
H.M.Jr:
How do you do.
Frank:
This is Mr. Guthrie and Mr. Martin.
Oliphant:
I'd like to say just one word st the beginning, that
we found it a larger job to check over the list of
companies that we got from S.L.C. than we thought,
and that will re. uire some more work.
But we do have this situation to discuss this
morning. One of the most promising situations
is the Standard Gas, and the reorganization
section over in our shop have to act within a
fairly short time, by February 10, I think, on
the question as to whether or not we'll approve
their plan of reorgenization. And the company is
also, I am told by Frank, acute from their stand-
point. So it would be desirable, if you were
agreeable, to have the Standard Gas and Electric
situation described to you and state our two
problems with reference to it.
H.M.Jr:
Fine.
Frank:
Stuart, do you want to try ....
Gutarie:
What?
Frank:
I can tell you briefly, then
Oliphant:
They have maps here.
Regraded Unclassified
230
-2-
have
Frank:
They/a 77-B proceeding which was done before the
Public Utility Holding Act was enacted. It was
really designed to procure a moratorium on &
default issue. That's about right, isn't it?
Outhrie:
Yes.
Frank:
Our General Counsel several years ago gave an
opinion that if E proceeding of that character
had been begun before our act was passed, that
then our act was inapplicable. The Commission
recently reversed that ruling.
B...Jr:
What Commission?
Frank:
Our Commission reversed the ruling or its own
General Counsel.
H.S.Jr:
Is that ever done?
Frank:
well, it's part of the fun of being over them -
arbitrarily overrule them.
011phant:
Hard thing for Frank, a lawyer, to admit it.
H.M.Jr:
I never knew that was done.
Frank:
I didn't participate in it. That's one of the
pleasures I'm looking forward to: overruling
lawyers.
Oliphant:
Wanted to all your life.
Taylor:
Learn something every day.
Opper:
I think you (Frank) are a wretch.
H.V.Jr:
All right. This is E big day for me.
Frank:
But as a consequence, if they ignore us and come in
later, we'll just ignore what that court does.
However, that would be awkward, and it might therefore
be desirable for Treasury to stall taem on soquiescing
in that plan until such time 85 the Supreme Court has
passed on the validity of the statute, of the Holding
Company Act, which it will do in about six weeks; and
Regraded Unclassified
231
-3-
then we would feel less timid about moving in on
them.
Now, Mr. Guthrie doesn't altogether agree that it
is necessary or desirable to avoid having approval
of that plan, but I don't see any har: in letting
it ride until the Supreme Court has passed on it.
H.S.Jr:
May I interrupt you? I personally think - and we
have some pretty good economists advising us here -
I mean on general affairs; they think the next six
weeks are terrifically critical, that whatever is
going to be - business conditions for the rest of
this year will be decided in the next six weeks. So
ir we could do something before six weeks for the
effect on general business conditions - I went you
to weight that as against the importance of this
matter you're talking about, before the case - I
mean these people like Riefler and Viner think that
the next six weeks will set the course for the
balance of the year. That's why I'm pushing so hard
on this thing.
Frank:
Well, bearing that in mind, I would say there is no
paramount reason why that reorganization - it won't
do business conditions any particular good to have
it go through, won't do any particular harm not to
have it.
Oliphant:
Your point was that you'd like to do something on
your general plan as early as possible.
Frank:
Afraid it won't be possible in Standard. About E
year's job.
Guthrie:
I should think two years.
H.M.Jr:
What I think - if the Administration could put
through a refinancing, a reorganization of a public
utility along the lines that Mr. Roosevelt wants
within the next month, I say that would be most
helpful.
Frank:
Well, the Standard doesn't lend itself to that.
That's a minor problem, and it wouldn't be an
important matter to us or business generally
whether that reorganization - it is & very simple
Regraded Unclassified
232
-4-
reorganization; just affects one of their holding
companies, just affects a slight gadget in that
structure. We can't do a major job in that struc-
ture in any reasonable time.
And the other instances that were presented by the
Treasury to us, I think we all agreed were of such
character that they wouldn't lend themselves to that.
00 we reversed it and gave Treasury the other day a
list of cases or corporations not yet in reorganiza-
tion proceedings, but which looked shaky, so that you
people could check as to whether you had large tax
claims and whether by using them we could effect some
squeeze which would bring about a prompt reorganiza-
tion. And I understand your people haven't had a
chance to check completely on that as yet.
H.M.Jr:
And Standard Gas does not lend itself to that?
Frank:
No.
Guthrie:
It might help to explain, Mr. Secretary, that the
underlying utility properties that are controlled
by this great holding company at the top are in
perfectly sound condition. They are able to
finance all their needs not only for refinancing
but for extensions - everything that is economically
necessary. We are dealing only with a very ephemeral
superstructure up here in Standard Gas and Electric.
It is terribly pyramided - probably no equity for the
common stock and not 8. great deal for the so-called
bonds that they have outstanding. But it is just
one of those 96-inch dogs, do you see; In fact it
is about & 99-inch dog and E 1-inch tail in this case.
But it is a long-time problem and their present
financing problem is merely an extension of $25,000,000
of notes.
H.l.Jr:
Then it won't lend itself to what I have in mind.
Outhrie:
No, it doesn't fit in with this program at all.
Olipnent:
I'd like to hear from Ed and Opper on that.
Opper:
Well, my own feeling, from the little we know over
here about the capital S tructure and operating
Regraded Unclassified
233
-5-
properties of Standard Gas - seems to indicate to
me, with deference to Mr. Guthrie, that if it wesn't
B question of six weeks or a couple months, it would
repay further study; but of course, if it is as question
of having something that you can do in six weeks or
not being worth while to do it at all, then I would
certainly agree.
H.W.Jr:
What I want to do, if I'm going to do anything - I
want to do it in the month of February, if I can.
Oliphant:
Well, maybe we could go for E relatively small
property.
Frank:
Well, Genesee - unfortunately, your tax claim is
very small.
Opper:
Can't come into the picture on it.
Frank:
However, this is true. We got in touch with their
lawyers yesterday, and we had turned down a plan that
they have, and they are apparently now ready to sit
down and work out & sensible plan which - it is a
very small property, but it would make possible
some financing. But we would be able to do it.
And while your claim isn't large, your presence in
the picture might be helpful in producing quick
results. There is a nice little gem that doesn't
amount to very much but shows what you can do.
B.D.Jr:
How much money do they need?
Frank:
They probably won't need E great deal of money
if they will do a proper reorganization. It can
all be done by distribution. But they could have
an open-end mortgage and they probably could - I
don't know enough about it; do they need any
extensions?
Smith:
It is my understanding that it isn't a case where
they need extensions. Just so loaded up now with
debts - a case of going to pare it down and put in
some new money in order to straighten it out. But
I think we estimated the other day that a quarter
of a million dollars would hendle it.
H.M.Jr:
How much?
234
-6-
Smith:
About a quarter of a million; it's small.
Olipnent:
I'd like to point out that one of the things
I think you're after here is a disclosure in a
concrete way to the public generally of what the
government attitude is going to be on numerous
phases of these situations. I suppose the other
thing you'd like to demonstrate is that you could
do b large plece of financing on this basis. But
certainly the Genesee thing would lend itself to
the first proposition, namely, to disclose what
the Government is willing to do and what it does
approve, just as well as a large property.
Smith:
wouldn't that be in keeping with the talk recently
going on around of siaing the financing programs
in
Jr:
I woulun't be bothered by how smell it was. Could
you take a minute or two to describe Genesee? Has
anybody got it?
Batth:
I know the Genesee picture pretty .ell. Genesee
Valley Gas Company is E small holding company above
which there are superimposed two nolding companies
which have no assets et all, except what they own
in Genesee Valley, which has no assets itself; it
is a holding company, and owns the stock and has
pledged the bonus of É small goz company' known as
the Pavilion Gas Company; tast is up in New York
State. The total assets
Illonent:
Does it own stock in any other corporations except
Pavilion?
cultar
I tains it has a nickel's worth of stock in
Vennar
I think about three other companies, but they're all
worthless.
Jllphont:
Three other operating companies?
France:
Yes. They're practically all out flat.
Slighant:
But they are serving communities?
Smith:
Well, they are, yes. You could call them communities -
really districts.
Regraded Inclassified
235
-7-
Frank:
You're thinking that we could pour some money into
them and rehabilitate them.
Smith:
So, you see, the Genesee Valley is nothing but a
holding company and its chief asset is stock in
Pavilion. Pavilion has outstanding something like
480 million in bonds.
E.V.Jr:
Thousand.
Smith:
Yes, thousand. I've been thinking about these other
cases where we do talk in millions. About $480,000
in bonds, and those bonds in turn are held by Genesee,
and Genesee has issued in turn bonds against those
bonds, as I understand it. Is that your recollection,
Mr. Frank?
Frank:
Yes.
Taylor:
Same amount?
Frank:
Sir?
mylor:
In the same amount?
Frank:
No, in larger amount. Always larger.
Smith:
Genesee issued about $773,000 worth of bonds against
the $480,000 that they held in Pavilion.
Taylor:
And the stock?
Smith:
And what?
Taylor:
And the stock?
Frenk:
And the stock.
Olipment:
Anybody else own bonds?
Smith:
I think the bonds are wholly owned by the Genesee.
Frank:
That's right.
Outhrie:
The underlying bonds.
Opper:
Mortgage bonds?
238
-8-
Frank:
Mortgage bonds on Pavilion.
Smith:
Pavilion in turn has some properties. Pevillon
got in - apparently wasn't doing any too well, and
they had on artifical gus plant and it seems ES
the tide turned, way, that became - they coulun't
use that to great advantage; so they really got in
bad, and they apparently, in order to keep up their
interest and dividends to the top company which
controlled them, ran in deeper and deeper all the
time, until they were not setting up E proper
depreciation reserve or maintenance reserve, and
finally ran into trouble with the New York State
Public Service Commission.
The situation is this now, that they are going to
nave to E pparently pare down these bonds, they are
going to have to get some new money, because if
the New York State Commission comes :long and says,
"Here, you took about 196,000 (I think it wss,
wasn't it? It's sround that figure) out of your
reserve for depreciation and waintenance, end threw
it back into your surplus so that you might work
out some dividends" - 1f the State of New York
comes slong end says, "Now, you're going to have
to inpound your earnings from time to time until
you can build up this reserve again," it simply
means that Pavilion will not be in E position to
pay any earnings to anybody, will not be a very
attractive investment to anybody on the outside;
whereas it could be made an attractive investment
for someone who was interested in it day by day,
week by week, month by month.
H.S.Jr:
I think this is & perfect little thing. All you'd
have to do is to add three zeros and it would be the
same picture of any big company. I think it is a
perfect picture. That is, it has every thing, except
it's in ministure.
Frank:
Just like looking at E diseased little body instead
of a big one.
N.M.Jr:
It's just the kind of set-up that I'm looking for.
How much do they owe us?
Opper:
Six thousand dollars.
237
-9-
Oliphant:
That doesn't matter - I mean if they're willing to
go along with you.
Smith:
Here's what happened
Have you (Frank) talked
to Roger Foster since he came back yesterday?
Frank:
I spoke to (name not understood). He told me what
had happened. Only motion they made in court
precipitated B conference with their sttorney and
the attorney for the trustee of the bond issue.
The attorney for the trustee of the bond issue is
eager to work out a kind of plan like We indicated
to them. Landis, tne attorney for the company, now
is apparently willing to, or at least thinking that
way, and he's stymied if ne doesn't; so I think WE
could very easily precipitate another conference,
and if the Treasury sat in and particularly if we
gave them some indication that we'd help them find
the money, I think we could work it out in a few
weeks.
Smith:
We have additional assistance in that the Judge
is insisting tast they move on the thing. He's
giving them thirty days' time to try to develop
something.
H.M.Jr:
This town must be swfully small, because I know
New York State. Have they got B decent business?
Smith:
Pavilion? Yes, they have a decent business. Our
engineers think very highly of it. .They went up
on the ground.
Frank:
What town is it?
Guthrie:
Little village named Churchville near it.
H.d.Jr:
It isn't
Guthrie:
Very tiny property. As a matter of fact, their
property values, as per books, are just under a
million dollars. Now, in that book value is $550,000
they spent within the last five years for a gas
manufacturing set-up that is no longer used. The
thing has been milked to death by the top holding
companies. There's 22 percent leakage in the gas
mains running through the streets of their principal
town. They need money to put the thing in decent
238
-10-
condition. Their financial structure is such
that today. nobody would lend them a time as they stand
To make this whole picture perfect, if we could 80
to Rochester and get the money there, it would be
very nice.
Guthrie:
Right et the belly.
d.2.Jr:
I mean if we could go to Rochester and satisfy
all the community itself, and raise the money,
showing that it could be done locally, that would
make N - be very nice.
Outhrie:
Particularly nice since the past bankers have been
a Philagelphis outfit, Battles and Company,
and they have just milked tals thing to death.
Sitat
Three molding companies that have Just lived 88
parasites off this one little company.
I think tais is - I'd like to nave about four or
five more zeros, but you haven't and whet's the
difference?
Olipment:
Little better from our stanopoint because it would
enable us to do El better job in the time limitation.
Sulth:
From the standpoint of publicity and effect Joon the
public - you see, that is about the first reorgenize-
tion of any kind that's been proposed to us that
we've turned down - thumbs doim on, and the whole
industry is looking et it - "Now, what's going to
happen to Genesee?"
Frenz:
Now, if we could announce that the Federal Government
1s enger to have them work out their problems and get
to work end turn it out in four weeks, and we could,
why, i taink it suld be just exactly west you
Suita:
We know exactly what there is to work with, and our
engineers say that there are possibilities there, if
e canget the right management in there; and we can
get that, because that MAS discussed even yesterday -
that probably the old management would have to go as
239
-11-
the top holding companies are just lopped off.
H.V.Jr:
Now, you don't mind my throwing out some more
suggestions. I would send 2 very able newspaper
man - I don't know - up there to see the editor and
proprietor of the local paper, and explain to them
in confidence what we're trying to do, what it will
mean to their community, so we'd begin to get the
build-up - I mean "This is something for the
community" and so forth and so on. And we might
get Frank Gannett interested, in Rochester, even
though he is very "anti." But this is something
we're doing and we should be there in advance.
I mean somebody - I don't know whether you have
anybody that could go up and spend two or three
days.
Frank:
Yes, we've got E couple men.
H.N.Jr:
I mean who could go see Gannett, the rest of them,
say, "This is something for the community." I mean
so that - you get the idea.
Franx:
Wonderful idea.
H.A.Jr:
I think if Gannett was properly approached and
realized that this means something for Rochester
and for his papers and the local - I'd say an
even chance he'd go along. Hun?
Guturie:
Help = great deal if we could get the local community
understanding.
A.A.Jr:
Well, Gannett controls, through nis papers, the
whole section there.
Oliphant:
Nice job of timing to be done on that too.
H.M.Jr:
Well, ne ought to go - ought to be up there right
away.
Frank:
Now, do
....
Oliphant:
That is, you mean as soon as we see the end of the
road.
H.M.Jr:
Yes, what we're going to do.
240
-12-
Frank:
We could work out a sensible plan in E couple
days, Perfectly obvious what needs to be done.
Olipnant:
Wait a minute. You also want to see that the
Rochester money is in sight and the thing is
going to be B success, before you
....
Frank:
Now, can the Treasury help us on stirring up the
local banks there?
S.A.Jr:
I'll tell you how much interested I em. If you
get this thing worked out, I'd be willing to go
to Rochester myself with people from the S.E.C.
I mean I'm willing
....
Smith:
That would be a beautiful set-up.
H.S.Jr:
I mean if somebody from S.E.C. would go with me,
I'll go up to Rochester myself.
Emith:
That would help considerably. I WBB just thinking
there that even with your newspapermen some of us
should so up there.
H.m.Jr:
I'm willing to go to Rochester myself with whoever
wants to go up from the Commission - S.E.C. I think
it's importent enough that maybe Douglas and you
(Frank) 50 also. we just go up there. We'll get
plenty of publicity.
Frank:
Supposing we get
....
H.s.Jr:
But I want all the bugs out first.
Frank:
We'll get to work on 8 plan and we could, I think,
by Monday or Tuesday have it alllaid out. Then we'd
want to get this fellow Lanois, talk to nim, and the
attorney for the trustee. And the court will be
cooperating - Judge Caffey.
011phant:
Judge Caffey?
Frank:
Judge Caffey.
H.W.Jr:
He's good.
Emith:
Very cooperative, very euger to have this thing closed.
241
-13-
H.M.Jr:
Because this would be - am I right? - the first
reorganization, and you do away with all holding
companies on top.
Frank:
That's the difficulty: boil it right down to that
operating company.
H.a.Jr:
That operating company. And what kind of a
financial structure would you give that company?
Frank:
Well, they could stand E small amount of bonds
and stock, and & bond issue that would be open
for extensions.
Swith:
And we might pare the existing bonds down and
issue a common stock out and then add a little bond.
Frank:
Now, there's snother public agency that we ought
to get in - the New York Public Service Commission,
which has got to make & ruling on whether their
past conduct was satisfactory.
H.M.Jr:
Old friend of mine, the Commissioner.
Frank:
Maltbie.
H.M.Jr:
Well, Maltbie can be awfully stubborn, but - I
mean 1f we get Maltbie in from the beginning, tell
him what we're doing, I don't think - I mean if he
thought it was fair. But I think we ought to have
him in from the beginning.
Frank:
If he did what we think ne ought to do, he'd rule
against their past conduct and make them reverse
their entries. That still further would cut down
their possibility of future depredations. In other
words, if he did the decent thing, which Ism sure
ne'd do,
H.d.Jr:
How long would it take him to rule?
Frank:
I think it's pending right now. We can throw our
data right to him; shouldn't take more than two or
three days.
011phant:
Frank, wouldn't you think the safe und sound thing to
do would be to lay all the cards on the table not only
242
-14-
so far 28 Maltbie is concerned but also so far as
Judge Caffey is concerned. Tell them what we're
trying to do. Then you've got everybody in whose
decision is vital to success.
Frank:
Unfortunately, I suppose to save expense, he didn't
appoint a trustee - Judge Caffey didn't; that would
have helped us, but he didn't. But I am sure he'll
go along. He wants to get it out of his court as
soon as possible.
Smith:
I think there's no question but what we'll have
cooperation from him.
H...Jr:
And you say the utility industry is looking toward
this thing to see now we're going to handle it?
Smith:
On, very definitely, because this is the first time
the Commission has gone down on any kind of
.....
Frank:
Just a little affair but it's got everything, all
the pathology that E large one could have. Everything
wrong with it.
H.M.Jr:
How many holding companies on top?
Smith:
Three.
Frank:
What's the total issue of securities based on this
little company? Do you know offhand? It goes on
and on.
H.1.Jr:
Could you give me 8 little history of this? Have
you got it?
Frank:
Send it over this afternoon. Send it over to you
within an hour.
H.M.Jr:
Could they send it to my house so I could read it?
Frank:
Yes.
H.M.Jr:
And I want something else sent to the house; I'll
tell you about it.
Frank:
We'll send it over this afternoon.
H.M.Jr:
So I could be reading it. I think this sounds
243
-15-
Olipnent:
I think it's better than something larger.
stank:
de just licked our chops when that plan came up,
because it gave us e chance to lay down reorganiza-
tion law on & very simple case.
H.M.Jr:
There's lots of money in Hochester.
Frank:
Now, Mr. Smith, you might look into the question of
whether those other operating companies, 1f they got
any money, could do a job.
Smith:
Yes.
Fronk:
We just abandoned them because we thought they were
hopeless, but maybe they need some money and could
be rensbilitated. Might look into that.
Vilonant:
I think me ought to, because that upper structure is
purporting to serve the various communities; if RC go
in and merely solve the essiest part of it, they've
got a comeback.
8.1.Jr:
Do they serve any useful purpose?
Butth:
These other companies have no grest amount of value,
but they do serve Just small communities, and I think
the reason that we paid no attention to them was they
didn't éarn anything and they weren't any reat
liability; just simply weren't creating E fuss one
way or 'the other.
Frank:
But in the public interest we ought to See what could
be done to
Shith:
They reach little communities outlying.
Taylor:
What they using - buying natural gas now?
Smith:
They're mixing it now, aren't they?
Outarie:
Straight natural.
Smith:
Oh, streight natural now.
Taylor:
what about their artificial gas plant?
244
-16-
Smith:
"ell, I understood that they were trying to keep
that in condition so they could use it.
H.M.Jr:
Wayne, will you find out who the investment - private
bankers, I mean, are up there - members of - what is
this
Frank:
Of the I.B.A.
Taylor:
I.B.A.
n.w.dr:
Yes, who they are. Do they have anybody that's good?
Taylor:
I can find out that for you. I just don't know.
Frank:
we've got E committee of those fellows working with
us right now. Might find out from them.
H.M.Jr:
Find out what his capital is and so forth.
Taylor:
As long as he's got a good name, that's all he
needs in this thing.
Olignant:
Now, there's B suggestion. He says that I.B.A. has
a committee working with them on the whole picture.
Frank:
On another bill that they're interested in.
Oliphant:
If wayne Taylor's approach to the local investment
banker WSS through the committee, that 8130 would
hearten & lot of people over the country.
Frank:
They're really cemping on our doorstep.
Taylor:
You apparently have got to get some management lineu
up too. That's going to be about ES hard as any
problem you'll have on it.
Smith: ;
Well, It's been suggested already - was talked
yesterday, I understand - they might possibly E et
Stone and Webster Service Company into managing the
property up there. That can be worked out.
H.M.Jr:
I don't think that fits in with Mr. Roosevelt.
Smith:
I mean by that - I say that, Mr. Secretary, to
indicate that they are agreeable to most anything.
H.S.Jr:
I was going to jump at you, because our statute more
or less indicates we are to watch those service
companies.
245
-17-
I've heard them describe the difference between
the kind of - well, the difference - what's the
one that you keep tolking about, waiting to come
up before the Court?
Oilphant:
Alectric Bond and Share.
E...Jr:
The difference between Electric Bond End Share
and the management company that does managing and
doesn't take stock for its fee. I don't know, it's
an awfully fine line, and there must be
....
Jliphont:
If there is local money, probably local brains.
Guturie:
Doesn't need any service. Simplest possible form
of enterprise.
S...Jr:
There must we some good young engineer that could go
right in there.
Cutorie:
All it needs is E pipe-fitter and somebody that
could see the rates are adequate.
-16100:
If you could find D local boy whio is willing to be
the Roadan secrifice, why,
.....
....Jr:
ie could go to Cornell Engineering the ESK who their
groduates are that come from tast territory, and
Cornell Ingineering sould tell us. What?
-1,Lor:
I think that's one of the most important things there.
Juley:
Dob Jackson probably KNOWS everybody there.
Jr:
Rochester DIG Jamestown are Quite for spart, but де
might; I mean it must be At least two hundred miles.
Faloy:
Yes.
Franc:
It has been suggested that the present operating
man may be all right. The fault of this situation
is not operation; just been fleecing this company.
The fellow there may be E perfectly good man.
Taylor:
Well, I think it's D very important part of the
picture to make It
246
-18-
Frank:
Make it good.
H.M.Jr:
May I just say - I want to hurry - you'll find me,
when I get into this, leaning over backwards to
make sure that this is just as near letter-perfect
as possible. I mean we're going to - we've all got
in this thing, this is the first one, we want to be
just as near sure 88 possible that all the bugs are
out of it.
Frank:
It's got to be a little Swiss watch.
Smith:
It's simple enough, and it can be made that.
H.M.Jr:
But everything would want to click - the Judge, and
"r. Maltbie, and the investment company in Rochester
that's going to step in, the newspapers, the manage-
ment, and everything - it ought to all be clicked;
I mean everything ought to be - everystep ought to
be perfect.
Smith:
"e can work that out all right, I think.
H.M.Jr:
All right.
Regraded Unclassified
247
January 29, 1938.
12:22) p.m.
H.M.Jr:
Hello.
Operator:
Mr. Jones.
H.M.Jr:
Hello.
Jesse
Jones:
Hello, Henry.
H.M.Jr:
Well, the things begin to kinda pop around here,
on that stuff.
J:
Is it?
H.M.Jr:
Well, you see, the story that came over the UP ticker
this morning, about somebody who's in this meeting,
who had interests in holding companies, said 60 and
80 and BO and 80, better go Blow and all that stuff.
J:
I did not,
H.M.Jr:
Well, you have one of those UP tickers, don't you?
J:
No, I don't have a ticker.
H.M.Jr:
Don't you.
J:
No. I'd like to see it. I'll get it.
H.M Jr:
I'll have a copy made and send it over to you.
J:
I would like to see it.
R M.Jr:
Yes. It's quite interesting and I've asked Taylor
to call up Marriner and ask him whether they gave
it out or not, because it had all the earmarks, and
practically as much describes Marriner Eccles, and
says it comes from him. Now I don't know, but I
asked Taylor to call him up and find out,
J:
Yes.
H.M.Jr:
And O'Connor has been asked, why didn't Crowley
tell him he had -
J:
Is he - 18 he
H.M.Jr:
No, he's written me B. three page letter, and says
he wants to leave it before he leaves town.
248
- e -
Yes.
H.M.Jr:
And 80 I told him that he was a member of the
Federal Deposits Insurance, and I have no - any
authority over them whatsoever.
Yes.
H.M.Jr:
And then if he wanted to take something up why
didn't he do it with the Board of FDIC.
J:
By the what?
H.M.J.:
Take it up at = regular meeting of the FDIC.
J;
Yes,
P.M.Jr:
And that my only legal and moral responsibility
was to act through the chairman of the RFC, which
I've done.
J:
Yes.
H.M.Jr:
See?
J:
Yes.
H.H.Jr:
But I'm going to call you, and I want to work very
closely on this.
J:
Well, we've got to,
Jr:
Because, and I mant to tell you that I told the
story at Cabinet, because I wanted the President,
anybody else to know who might hear about it.
J:
Know the facts, yes.
H.M.Jr:
Yes. And I told them that - just that I'd asked
you and that you were going to go shead.
J:
Yes.
H.M.Jr:
But, you know grammine
in town,
J:
Yes, I heard he was. I haven't seen him.
H.M.Jr:
I haven't seen him, and don't intend to see him,
but he's been over all morning, over at SEC.
249
- 3 -
J:
Where has he been?
H.M.Jr:
At SEC.
J:
SEC. Yes.
H.M.Jr:
Yes. But, it's going to. be a lot of fun, Jesse.
J:
Well, we're liable to have some fun.
H.M.Jr:
And - but - between the two of us, with the
President back of us, I said yesterday, we could
handle it.
J:
I feel perfectly confident. Now - it doesn't
worry me at all, and there's not any danger that
can't be met.
H.M.Jr:
No.
J:
And Ben Douglas' man, from out there, vas over
here yesterday afternoon, for a couple of hours.
H.M.Jr:
Oh, was he.
J:
With our boys. We got right at it.
H.M.Jr:
Fine.
J:
And this morning I called Marchall Digge and gave
him & list of information that we need here, and
we asked him for it, some of it by wire and some
by air mail.
H.M.Jr;
I see.
J:
So I'm going to have a report for you pretty soon.
H.M.Jr:
All right. Well - I - 0.8 I get these things where
people - you know -
J:
Yes.
H.M.Jr:
I want to tell you vice versa.
J:
Yes.
H.M.Jr:
Because -
J;
It's going to stir up.
250
- 4 -
H.M.Jr:
It 1s. And as I say, I didn't like that story
of United Press.
J:
Well, you know darned well were it came from, I do.
H.M.Jr:
Well, it -
J:
It couldn't come from but one place.
H.M.Jr:
Yes. I think it's stupid. I mean for them to
put it out.
J:
Why certainly.
H.M.Jr:
I'll tell Taylor to have a copy made and send it
over to you.
J:
I'd appreciate it very much.
H.M.Jr:
Thank you.
J:
Thank you for calling me.
January 29, 1938
251
12:28 p.m.
Douglas:
Yes.
H.M.Jr:
Hello, Douglas.
D:
Mr. Secretary.
H.M.Jr:
Talking.
D:
The report - the other report -
H.M.Jr:
Yes.
D:
Of Trans-America that Jerry Frank mentioned -
H.M.Jr:
Yes.
D:
That I mentioned, and that you inquired about this
morning.
H.M.Jr:
Yes.
D:
Was an oral report.
H.M.Jr:
Oh!
D:
Made by the head of our San Francisco office.
H.M.Jr:
Oh!
D:
Whom I sent over yesterday afternoon to talk with
Jesse Jones' staff.
H.M.Jr:
I see.
D:
So they have on Jesse's study all the dope that we
have.
H.M.Jr:
I see. Well.
D:
Now the second thing I want to mention to you -
Jerry Frank reported back to - you're interested
in the Genesee thing.
H.M.Jr:
Yes.
D:
I think it's swell, and I told Jerry to present it
to the Commission Monday. I'm going to Chicago
tomorrow.
H.M.Jr:
Right.
252
- 2 -
D:
I'll be back Thursday morning, and I would be
delighted to hop 8 train with you and go on up on
that thing if you still think well of it.
H.M.Jr:
Well, I think - I don't want to go up there until -
D:
I know.
B.M.Jr:
Unless everything was lined up.
D:
But surely.
H.M.Jr:
And ready, and then I want to talk it all over and
then before I go and all that, I'd speak to the
President.
D:
Right.
H.M.Jr:
But I'm tremendously enthusiastic over the
possibilities.
D:
I think they're great.
H.M.Jr:
And the fact that It's small, I don't think it
makes any difference because it has all the
diseases that we're trying to eliminate.
D:
Yes.
B.M.Jr:
Isn't that right?
D:
Yes. Indeed, absolutely.
B.M.Jr:
I think it's - it's a perfect miniature example
of what the Administration doesn't want.
D:
That's right. It's
It's swell.
H.M.Jr:
And I think - we ought to have something, I mean,
by the time you come back.
D:
Good. That'd be fine.
H.M.Jr:
But -
D:
I'll have our boys keep pounding away at It.
H.M.Jr:
But as long as Jesse has got that, I won't - it
doesn't have to be duplicated.
D:
Yes. Giannini was in this morning. I spent
a long time with him this morning.
Regraded Unclassified
253
- 3 -
H.M.Jr:
Yes.
D:
He's an extremely nervous upset man.
H.M.Jr:
Yes.
D:
He takes the position that it the SEC doesn't
allow him to engage in these market operations
in Trans-America.
E.M.Jr:
Yes.
D:
Stock. Stock of the Bank of America, that the
thing is very apt to have repercussions and collapse
,
and frightened. shake the whole country. He's really
H.M.Jr:
Yes. Do you think that somebody's told him a story
what we're doing.
D:
I don't think so.
H.M.Jr:
You don't think so.
D:
I don't think so.
H.M.Jr:
Uh-huh.
D:
Of course, he talks. He's a very loose talker
and loose thinker.
H.M.Jr:
Yes.
D:
He makes wide charges that the Fleisch backer
interest in Wall Street and so on are conspiring
to ruin him.
H.M.Jr:
Yes.
D:
That's his easy - easy out.
E.M.Jr:
Yes.
D:
I just want you to know that he was through here
and was waving the flag of terror at me, and -
d.M.Jr:
Well, I mean - what - where - where is the crash
going to come. Where does he say it's going to
come from?
254
- 4 -
D:
Well, he - what he feels is this that if he cannot
be allowed to run a market in the Trans-America
stock, that stock is going to drop pretty fast.
H.M.Jr:
I see.
D:
And the
action is going to resound
throughout the whole structure.
H.M.Jr:
Oh, I see.
D:
That is general talk.
H.M.Jr:
Well now this man that you sent out there -
Has he got this picture?
D:
Yes. Yes.
H.M.Jr:
Well I - would you - you wouldn't mind if he came
to see me personally at the house?
D:
Oh, I'd - I'd urge him to do it, if you wanted to
see him.
H.M.Jr:
I'll tell you what you do. Would you ask him to
come to the house at five o'clock to see me?
D:
Yes.
H.M.Jr:
It's 2211 - 30th.
D:
2211 -
H.M.Jr:
30th. Tell him it's off Massachusetts Avenue.
D:
I'll have him there, and I may send somebody else
along, who can cover angles of it that he doesn't
know about.
H.M.Jr:
I'd like to get it personally.
D:
Yes. I'll have him there this afternoon.
H.M.Jr:
Thanks. And I'll see you Thursday.
D:
Goodbye, Mr. Secretary.
B.M.Jr:
I enjoy working with you.
D:
It's been a real pleasure.
Goodbye.
255
January 29, 1938
Sumner Welles called up and said that the Mexican
Ambassador called yesterday and was very much worried and
concerned that they had not heard from me in regard to
whether we would or would not buy silver from them in Febru-
ary and Welles said that my withholding that until the last
minute had a most beneficial effect. Welles also said
that the Mexican Ambassador talked to President Cardenas
on the telephone andthey are going to call a Congress in
Nexico early in March to reconsider these increases in
tariffe.
by - it 1
256
January 29,1478
MEMORANDUM TO THE PRESIDENT:
The Ways and Means Subscrittee has proposed three types
of corporation termtion. (1) Corporations with net incomes of
less than $25,000 would pay normal taxes graduated from 123 to
16 persent but no undistributed profits tax. (2) Corporations
with at incomes exceeding $25,000 would pay taxes at rates rang-
ing from 16 to so percent, depending upon the proportion of their
adjusted net income which is distributed in dividends. (3) Close-
ly hold corporations with not incomes expeeding $50,000 would pay
taxes at rates approximating those of the existing law, if they
distributed less than 60 percent of their net incomes.
The has estimated that of the 8,500 corpora-
tions whose incomes exceed $50,000 not more then 1,500 would fail
to distribute in excess of 60 persent of their not income in a
normal year. The Treasury has not exast figures as to stockheldings
of this group of corporations, but 19 is estimated that armed 500
to 1,000 are possibly closely held within the definition proposed.
A corporation is clossly hold for this purpose if my than 50
percent in value of its stock Le owned by one individual and missive
of his femily; or if mare than 53 percent Le amot " two or loss
individuals, exclusive of their families; 56 persent by three or
Regraded Unclassified
257
- 2 -
less individuals and 00 at up to 75 persent by to or less in-
divideals.
Congressen of Massechusetts is leading 6
vigorous fight against the recommendation for the tentice of
closely hold corporations. Be is supported by Congression
Lamest of Ohio and possibly by libers. Bookse of Indians, Fuller
of Arkansas, Thompson of Illinois and Robertson of Virginia. The
seven Republican members of the Committee are apparently solidly
against the proposal for the taxation of closely held companies.
The Democratic members of the Committee have held several meet-
ingo with & view to resolving their differences. Congressman
Vinson believes that the proposal as to closely held companies is
absolutely mossery for the protection of the revenues against
surtex avoidance.
& under of witnesses appeared in the recent public hear-
ings in opposition to the Subscrittee's proposal but none of them
més a very convincing case. The principal argument advanced is
that the special treatment of alosely hold corporations places the
family business at a disciventage as compared with the larger at
more widely and corporation. Mr. also sites the fact
that may would fall within the proposal. The principal
LARRIS to Mr. arguments are that the ordinary American
*orporation over the past tea years has distributed as awayse
will is 020038 of 70 percent of its earnings. Consequently, no
surporation med pay the additional tax if it will nate the -
distribution that American corporations 40 mixe on the average.
258
- 3 -
Moreover, the Schoomittee has recommended that a closely hold
corporation be allowed to retain all or any part of its earnings
If the shareholders will consent to pay the taxes that would be
due if the earnings were distributed.
The Treasury has analysed each of the cases mentioned in
the public hearings and finds no basis in them for suggesting
modifications of the Subsomittee's proposal. Two of the principal
cases referred to by Mr. McCormack and his supporters are those of
R. R. Domelley & Sons Company of Chicago and the Lane Company,
Imcorporated of Virginia. Since both companies distributed an
average of over 65 percent for the three years 1934-1936, neither
of then would be subjected to the tax en closely held companies if
they continued their present dividend policy. Moreover,on the
face of the record neither of them makes any satisfactory showing
of the necessity for retaining large amounts for use in the busi-
mes. Mr. Domellay's company had adjusted not income in 1934-1936
of $519,000; $609,000; and $416,000. The Lane Company had adjusted
net income of $129,000; $137,000; and $148,000.
Regraded Unclassified
259
January 31, 1938
My dear Dr. Feis:
I would appreciate it if you
would convey my compliments to Minister
Harrison, at Bern, and my thanks to him
12.189
for his cable of January 28th.(no.7, (ples tholdate)
The information contained in his
message is extremely interesting to the
Treasury and it would be helpful to us if
he would transmit similar telegrams in the
future.
Sincerely,
(Signed) H. Morgonthau, 11
Hon. Herbert Feis,
Adviser on International
Economic Affairs,
State Department,
Washington, D. C.
Regraded Unclassified
TREASURY DEPARTMENT
260
INTER OFFICE COMMUNICATION
DATE January 31+ 1938.
TO
Secretary Morgenthau
TECH
Mr. Haas and
Subject: The business situation
Conclusions
Business activity continues to improve slowly, though sen-
timent in some quarters has become more depressed owing to the
failure of new industrial buying to develop in the volume many
had anticipated around the beginning of the year and to declines
in the commodity and security markets.
Encouragement to our belief that a gradual recovery from
present levels may be expected during 1938 16 provided by
(1) the very low levels to which activity in important indus-
tries has fallen, as compared with the apparent levels of con-
sumption; (2) a continued high volume of retail sales, with de-
partment store sales during January probably equalling in actual
volume the highest levels of the recovery movement; (3) an in-
crease in new orders for steel; (4) an encouraging volume of new
orders in a number of other industries; and (5) the prospect that
the currently increasing activity in the shipbuilding industry
will provide an aid to business.
The principal depressing factors continue to be (1) uncer-
tainty over the business and price outlook, which has led to a
widespread movement to liquidate inventories and to extremely
cautious buying policies; (2) the prospect of further reductions
in pay rolls unless business improves, with a consequent reduc-
tion in consumer purchasing power; (3) an expected decline in
agricultural incomes during 1938; and (4) over-large inventories
of manufacturers, which may take some time to reduce to normal
at current rates of buying.
The current situation
The New York Times business index (seasonally adjusted) In-
creased fractionally during the week ended January 22. (See
Chart 1.) Greater than seasonal improvement in automobile,
electric power, and lumber production, and in miscellaneous
261
Secretary Morgenthau - 2
carloadings, were partly offset by declines in the seasonally
edjusted indexes for other carloadings, cotton mill activity,
and steel ingot production.
Weekly data on department store sales indicate that sales
during January in dollar volume will be about the same AB in
Jenuary last year, when the FRB adjusted index of department
store sales stood at 93. (See Chart 2.) This will represent
en increase of 3 points over the seasonally-adjusted December
figure, and will compare with an index of 95 in February 1937,
the beak of the recovery period. Since retail prices are be-
lieved to be about 4 percent lower than last January, the ac-
tuel volume of goods sold may even have exceeded that of the
best month of 1937.
This contrasts somewhat with the trend of sales in the
1929-30 decline. At that time the adjusted index of depart-
ment store sales declined to 110 in December and to 107 in
January, as compared with 8. peak of 113 reached in June and in
September. The index of variety store sales in 1929-30, sea-
sonally adjusted, dropped even more sharply, from 111.3 in
December to 98.7 in January.
The high rate of consumer buying has aided in reducing in-
ventories of retail establishments. The FRB adjusted index of
department store stocks stood at 72 for the end of December,
compared with 76 at the end of November and a peak of 78 in
August. Current sales trends indicate a still lower figure for
January. In January of last year the index stood at 74.
We show also in Chart 2 the trend of department store sales
by Federal reserve districts, exoressed as B percentage of the
1936 annual index for each district. It will be noted that
sales have been very well maintained in the New York district,
and also in the Minneapolis and San Francisco districts. The
districts making the poorest showing are those related to the
steel and automobile industries. In the Chicago district, which
includes Detroit, sales remain depressed. The Cleveland and
Philadelphia districts, including the major steal-producing sec-
tions, also had relatively poor sales during December.
The steel situation
ended November 20. While no rapid recovery is expected from
sent of capacity, which is the highest rate since the
Steel ingot output increased 3 points this week to week 33 per-
262
Secretary Morgenthau - 3
this level, encouragement for a continued uotrend is provided
by e substantial upturn in new orders received last week by the
C. S. Steel Corporation, making the third highest weekly figure
NInce Beotember.
Steel output during January, at an average rate of about
29 percent of capacity, will represent slightly more then the
Truel seasonal gain over December. The present rate, if con-
tinued through February, would represent slightly more then tite
sensonal increase over January. A rate of 34 percent in March,
then tile seasonal peak in steel activity is usually reached,
coul? maintain the adjusted FRB steel index at its January
lavel. Thus it appears that so far as steel production is con-
revned, vary little would be required to register an unturn in
Disiness activity.
The textile situation
Following the exceptionally active business of the previous
met, mill soles of finished goods slackened somewhat last week
thile rew material prices showed a sagging tendency. Cotton
till activity showed a gradual improvement, though it is doubt-
fal that the increase in January S.S a whole will be as much 0.8
tap usual sessonal rise. Although actual Kooda sales were less,
interest in goods inproved during the week, leading to expecta-
Non of heavier sales later. Forwardings of cotton to domestic
showed some improvement. Advices from sbroad continued
to revort a low level of cloth sales, with lower levels of mill
than those prevailing last fall.
Commodity prices
Reactionary influences in the commodity narkets during the
not two weeks have carried prices of sensitive commodities back
= about the December levels, following D. share unturn during
the first ten days of the new year. Reuter's index of spot con-
voiity prices in Grest Britain has declined to below its December
107.
Chief factors in the recent decline have been the feilure
of industrial buying of raw materials to carry through the month
11 the rate many had expected earlier in the year, and a decline Com-
polity prices on the whole have shown no real indication of weak-
In the security markets resulting from several influences.
neas, but have responded in apparently a normal manner to the
influences mentioned. The decline in stock prices has been strongly
Garing the first quarter of the year, and by increased apprehension
influenced by the expectation of widespread dividend reductions
over the future of the railroads following the reorganization
263
Secretary Morgentheu - 4
lication of the Erie railroad. It appears likely that total
dividends paid by corporations during this quarter will show
one of the largest reductions on record as compared with divi-
dends of the previous quarter. Several factors will contribute
to this showing: (1) Reduced earnings; (2) heavy dividend dis-
bursements in the final quarter of 1937 due to the undistributed
profits tax; (3) the prospect of a modification of this tax as
annlied to 1938 earnings; (4) the desire to conserve cash because
of uncertainty over the business outlook.
Reductions made by brokers in recent months in margins
recuired on commodity futures transactions should prove a favor-
able price influence upon any revival in speculative interest.
Marying on wheat are reported to have been reduced to $300 a
contract as compared with $750 earlier in the year; on corn to
3 cents 8. bushel as compared with 8 previous 4-cent margin; on
rubber to $600 a contract as compared with a high of $1,000; on
cottonseed oil to $400 as compared with $800, and on other com-
modities proportionately.
264
PER
STEEL INGOT PRODUCTION
CENT
Per Cent of Capacity
100
37
80
36
60
40
38
Amer. Iron and Steel Inst.
20
JAN.
APR.
JULY
OCT.
BUSINESS ACTIVITY - N.Y. TIMES
PER
CENT
Seasonally Adjusted
Est. Normal=100 =
110
37.
100
36
90
38
80
JAN
APR.
JULY
OCT.
C-142
Office el (If Secretary of the Treasury
- - - and -
Regraded Unclassified
The I
263
DEPARTMENT STORE SALES
By Federal Reserve Districts
E
©
D
!
I
0
D
@
Charge
$
®
-
Man
-
@
D - City
-
i
I
-
Ballaar
0
o
PER
CENT
Dist. 2 New York
PER
-06
CENT
Diet. 7 Chisego
HE
00
110
46
MONTHLY INDEX OF SALES
1936-100, Adjusted
FOR
10
PER
di M M J . N + M M J 4. H
1937
CENT
100
1938
TOTAL
FR
105
PER
CENT
16
Diat 3 Philadelphia
HE
as
100
/ - - a a - 4 M M , - #
100
1987
1988
199
95
FER
11
CENT
Diet * Minnespolis
118
13
90
118
4
F
M
A
M
J
-
A
$
o
#
is
D
J
F
-
A
M
of
1937
A
.
0
M
D
4 M - , . N a - M - - e
1936
FOR
(95)
1938
PER
IBC
CENT
PER
PER
Dist. 6 Atianta
CENT
Diet 4 Clavelend
CENT
Dist. 6 St. Louis
195
116
15
na
(30
110
TO
J M M + . N a M M , . -
no
125
1937
1988
iss
as
120
130
PER
no
CENT
Dat. a Ban Francisco
118
(10
ve
11
J AA - à $ N - M M # 5. #
110
1937
1939
108
to
106
100
PER
"
CENT
Dist 0 Dellas
100
118
96
an
à
M
-
A
4
N
15
J
M
M
#
.
#
110
-
+
M
M
A.
#
"
*
$
M
,
-
a
1937
1938
1937
1938
#0
108
"
100
ao
15
al
-
-
,
.
N
of
$
M
a
$
M
4
M
M
di
$
N
1935
g.
M
$
a
5
#
1937
1937
1958
/ I . I I I
c-u
Chart 2
PER
STEEL INGOT PRODUCTION
266
CENT
Per Cent of Capacity
100
37
80
60
36
40
38
Amer. Iron and Steel Inst.
20
JAN.
APR.
JULY
OCT.
BUSINESS ACTIVITY - N.Y. TIMES
PER
CENT
Seasonally Adjusted
Est. Normal=100
110
'37.
100
36
90
38
80
JAN
APR.
JULY
OCT.
C-142
the in 4 The Secretary of the Treasury
Orders of - and -
Prepared by
H. D. White
267
H. Glasser
J. S. Hooker
D1- Lon of Research and Statistics
DATE January 31, 1938
P.
Secretary Morgenthau
FROM
Mr. Hass MA
Subject: Latin American trade with the United States and
other countries compared.
(Summary)
1. We are by far the most important supplier of Latin
American imports. Last year we sold more to Latin America
than did the United Kingdom, Germany, Italy and Japan com-
bined.
2. In 1936 we had roughly the same relative trade
dosition as in 1928 in all the more important countries
except three - Mexico, Brazil and Argentina. In two of these
countries - Mexico and Brazil - Germany improved its share
greatly. In the third, Argentina, Japen WEB the only one of
our leading competitors that improved its position.
3. During the first half of 1937 our exports to the
hole of Latin America increased greatly, and our trade
iosition improved relative to our chief competitors.
In some of the countries, however, - Mexico, Colombia and
several of the smaller countries - Japan greatly improved her
trade position. Her gains were very large in percentage terms
though relatively small in dollar velue.
and a few smaller countries, and lost in Argentins and several
United Kingdom improved her trade position only in Brazil
or the smaller countries.
Germany did not improve her position compared to 1936
except in 8. few small countries.
her chief competitors in many of the Latin American countries -
4. During the last half of 1937 Japan gained on
particularly Argentina, Brazil, Mexico, Chile, Ecuedor and
Colombia.
countries, the complete figures for the last in
Germany gained over her competitors in four of the quarter smaller
(which are not although yet available) will probably indicate gains
other countries B.B. well.
268
Secretary Morgenthau - 2 - (Summary)
5. Italy is the least important supplier to Latin
America of the five countries considered and is not in-
creasing her share.
In 1937 she sold Latin America about $30 million. Her
most important customer by far 18 Argentina. Though her
exports to that country increased somewhat in 1937, they
decreased more to Brazil, her second most important customer.
Altogether, her exports to Latin America, though increasing
along with total increase in Latin American imports, have
not been an important or increasing factor in that market.
6. The prospects for our trade in Latin America during
1938 are not good because:
(a) Latin America will ouy less from foreign countries
due to (1) the lower market prices for the chief exports of
Latin America, and (2) increasing exchange difficulties.
(b) We will have a difficult time maintaining our trade
osition in Latin America because:
(1) Increased intensity of competition with Japen
owing to her vital need for maintaining or increasing
lier exports will unquestionably cut into our trade in
some of the commodities we export.
(2) Faced with a declining market, Germany can
and probably will resort to competitive messures which
we cannot use and against which we do not seem to
have adequate defenses.
Regraded Unclassified
259
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 31, 1938
Secretary Morgenthau
TO
Mr. Haas
FROM
Subject:
Latin American trade with United States end other
countries compared
We are by far the most important exporter to Latin American
countries.
In 1937 we sold more to Latin America than did United
Kingdom, Germany, Italy and Japan combined. Our exports were
more than twice as great as those of Great Britain, two and a
half times those of Germany, fourteen times those of Japan,
and seventeen times those of Italy.
Our exports to the whole of Latin America combined are
increasing both in dollars and in the share of our total
exports,
From 1932 to 1937 our exports to Latin America have increased
procortionally more than our exports to the rest of the world.
Percent of total of
Our total
Our exports to
our exports going
Year
Latin America
to Latin America
exports
(In millions of dollars)
1928
5,128
878
17
1932
1,611
216
13
1935
2,283
376
17
1936
2,453
430
18
3,027
577
19
1937 (11 months)
For the first eleven months of 1937 our exports to Latin in
American countries amounted to $577 million, an increase
value of 49 percent over the same period of 1936.
in Our exports To most of them the increase was over
to every Latin American country were higher 35
percent. 1937 than 1936. to Venezuela increased 95 percent, to Argentina
64 percent, Exports to Uruguay 55 percent, and to Chile 53 percent.
270
Secretary Morgenthau - 2
The increase in trade to Latin America during the past
few years has not yet brought the level of our trade up to
what it was before the depression. Venezuela is the only
exception. We now export one-fourth more to Venezuela than
we did in 1925. Argentina used to be our best customer, pur-
chesing $178 million of our goods in 1928. In 1937 she ranked
third, behind Mexico and Cuba, purchasing only 883 million.
Te sell less to Latin America now than we did in the pre-de-
pression period not because we are losing out but because
Latin America buys less, in terms of value, than she used to.
Our purchases from the whole of Latin America combined
are increasing in dollars but constitute a smaller percentage
of our total imports.
Approximately one-fourth of our imports come from Latin
America. (This does not include our silver purchases from
Intin America. If silver were included the share would, of
course, DE greater.) Imports have increased steadily since
1932 and show B. 39 percent rise in the first eleven months of
1937 compared with same period in 1936.
Percent of our
total imports
Our total
Importe from
coming from
Year
imports
Latin America
Latin America
(In millione of dollars)
1928
4,091
1,030
25
1932
1,323
356
27
1935
2,047
483
24
1936
2,419
529
22
1937 (11 mos) 2,875
664
23
Our imports from Latin America exceed our exports by
about $100 million.
If we include purchases of silver from Mexico and Peru
that belance would be increased to about 3140 million.
(All detailed tables pertinent to this report are in the Appendix)
271
Secretary Morgenthau - 3
We have a "favorable" balance of trade with the following
countries:
(First eleven months of 1937)
Our
Our
exports
imports
Balance
to
from
of trade
(In millions of dollars)
Bolivia
5.2
1.3
3.9
Ecuador
4.6
3.7
.9
Haiti
3.8
2.6
1.2
Mexico
99.9
56.2
43.7
Netherland West Indies
31.5
18.0
13.5
Panama
23.4
4.3
19.1
Peru
17.1
14.9
2.2
Venezuela
41.7
20.9
20.8
We have an "unfavorable" balance with the following
countries:
(First eleven months of 1937)
Our
Our
exports
imports
Balance
to
from
of trade
(In millions of dollars)
Argentina
83.2
135.0
51.8
Brazil
60.8
111.5
50.7
Chile
21.6
43.6
22.0
Colombia
35.8
48.4
12.6
Cuba
$3.9
140.6
56.7
Guatemala
6.9
8.8
1.9
Honduras
5.0
5.3
.3
Salvador
3.2
8.4
5.2
272
Secratary Morgenthau - 4
1928 to 1936
Up to a year 820 our share of sales to leading Latin American
countries has been either maintained or increased with the
in ortant exceptions of Brazil, Argentina, and Mexico.
In Brazil and Mexico we lost in favor of Germany. In
1928 we supplied Mexico with 68 percent of her imoorts while
Germany suoplied 9 percent. In 1936, however, our share
dropped to 59 percent while Germany's increased to 15 percent.
In the case of Brazil, our share was 27 percent in 1928 and
22 percent in 1936, while Germany increased her share from
12 percent to 23 percent.
In Argentina our share W.S.B reduced from 25 percent in
1925 to 15 percent in 1936. In this instance Germany lost
likewise, though less then we did, and United Kingdom only
wintained her nosition. Japan's share, however, rose from
almost nothing to about 4 percent.
Germany gained in some countries, in addition to her spectacu-
IAP kein in brazil, and lost ground in others.
Germany also increased her share in the trede with Peru,
Venezuela, and Chile. In each case her 1936 share WAS approx-
1sstely double her share in 1928.
On the other hand, Germany lost little in her share of
the trade of Uruguay, Argentina, and Colombia. In Cuba, her
relative position has been maintained.
Japan's exports to Latin America in 1923 were negligible, but
she had made considerable percentage gains by 1935, and declined
somewhat in 1936.
Jagan's exports to all of Latin America in 1936 constituted only
Her exports to Latin America never amounted to large sums.
5 percent of her (Japan's) total exports, and constituted much
less than 5 percent of Latin America's total imports.
United had maintained her approximate trade position and
in some Kingdom countries, gained slightly in a few - Colombia and
Venezuela. - In no case has her gain or loss been striking been ex-
Truguay and lost in several - Brazil, Chile, Peru,
rept in Brazil where her share of Brazil's imports has
cut in half.
273
Secretary Morgenthau - 5
Italy sells little to Latin America.
Italy's exports to Latin American countries, which were
relatively small in 1928, were even smaller in 1936 and 1937.
Italy has lost her share in all the leading countries and 18
now an insignificant factor in South American trade.
1937
Last year the situation changed considerably.
During the first half of 1937 our exports to Latin
America increased more than did the exports of Germany, Japan,
or United Kingdom.
Compared with the first half of 1936:
U. S. exports to Latin America increased
46 percent
U. K. exports to Latin America increased
26
Il
Japan's exports to Latin America increased
30
If
Germany's exports to Latin America increased
20
H
We did not fare alike in all countries. In the more 1m-
portant Latin American countries, the United States increased
exports more than did United Kingdom, Germany, and Japan, with
the following exceptions:
Venezuela, where Germany's gain was slightly more than
ours. Mexico, Cuba, and Colombia, where Japan's gain was con-
siderably more than ours in percentage terms, but not of ab-
solute importance because Japan's trade was only B. small
portion of our trade in the first half of 1936.
In numerous of the smaller Latin America countries the
gain for the United States was much less than that of her
three competitors.
United
United
States
Kingdom
Germany
Japan
Dominican Republic
33%
114
12%
146%
Honduras
6
4
152
74
9
92
44
162
Haiti
58
-
5
- 19
163
Nicaragua
Salvador
14
86
1
75
Regraded
274
Secretary Morgenthau - 6
In the third quarter of 1937 Japan jumped into the lead in
percentage increase to most Latin American countries with
United States a good second.
Compared with third quarter of 1936:
Japan increased her exports to Latin America
67 percent
U. S. increased her exports to Latin America
53
"
Germany increased her exports to Latin America
34
If
U. K. increased her exports to Latin America
29
=
Japan made some startling increases in the third quarter of 1937.
Increase compared with 1936 exports
United
Japan
States
Argentina
160%
66%
Brazil
163
62
Mexico
133
50
Colombia
400
34
Ecuador
244
77
Salvador
100
26
Uruguay
98
78
Haiti
80
1
Panama
30
10
Costa Rica
62
62
Germany's gains were greater then the United States only
in Panama, Costa Rica, Salvador, and Haiti, and the United
Kingdom exceeded our gains in only Panama and Haiti.
During October and November Japan's increases to the whole of
Latin America were greater than ours. (Trade of United Kingdom
and Germany for those months are not yet available.)
In October and November our gains were 59 and 46 percent
of our exports in the same months of 1936, while Japan's gains
were 61 and 90 percent, respectively.
275
Secretary Morgenthau - 7
The countries to which Japanese trade increased much more
then ours were:
Argentina
Uruguay
Mexico
Ecuador
Chile
Cuba
Colombia
On the other hand, our gains were much greater than
Jroan's in:
Venezuela
Salvador
Peru
Gustemala
Nicaragua
Honduras
From the trade statistics available it appears that the
United States increased its share of trade with Latin America
to B greater extent than did the other three countries during
the first half of the year. In the third quarter, however,
Javan's share increased more than ours, and the rate of our
increase over Germany and the United Kingdom was less than
Auring the first half of the year. In the last quarter of
1937 Japan increased sharply its share relative to the United
States and from preliminary figures available Germany may
also have increased its share reater than the United States.
There are no figures available for the United Kingdom exports
to Latin America during the last quarter.
To conclude:
Towards the end of 1937 the United States began to lose
the nighly advantageous position in Latin America which it'
had held during the early part of the year. However, the loss
in dollar volume is not yet large.
Our prospects of trade with Latin America during 1938 are not
very good.
Latin America will import less, we believe, in 1938 than
she has in 1937, because:
1. The following commodities, together constituting B.
very important portion of Latin America's export trade the
to the world, have fallen sharply in price since
beef (from Uruguay and Argentina) are the only important
first half of 1937. Sodium nitrate (from Chile) and
commodities showing an increase.
Regraded
276
Secretary Morgenthau - 8
Decline in prices December compared with the average of the
first six months of 1937:
Cotton
38 percent
Coffee
24 percent
Rubber
31
If
Tin
23
II
Wool
28
a
Bananas
13
II
Wheat
27
Il
Sugar
11
"
Cooper
29
II
Virtually no change:
Petroleum
Tobacco
Silver
Gold
Increases:
Beef
34 percent
Sodium nitrate
6 percent
Unless the prices of these commodities show marked
improvement during the next year, Latin American exports
will be lower in value because of the importance the
above commodities play in their total exports. For
example:
Coffee constitutes more than helf of the total ex-
corts of the following countries:
Brazil
55 percent
Colombia
56
If
Costa Rica
66
11
Guatamala)
Salvador) over
75
"
Haiti
)
Bananas constitute 85 percent of the exports of
Honduras and 70 percent of Panama's; 6 percent of
Colombia's.
Sugar and tobacco make up 90 percent of Cuba's exports.
Meat products are four-fifthe of Uruguay's exports.
Grains and wool account for 48 percent of Argentina's
exports.
Wool accounts for 40 percent of Uruguayan exports,
6 percent of Argentine exports and 4 percent of Chilean
exports.
277
Secretary Morgenthau - 9
Raw cotton accounts for 27 percent of Peru's exports
and 16 percent of Brazil's.
Tin makes up over 70 percent of Bolivia's exports.
Petroleum and products make up 90 percent of
Venezuela's exports; 38 percent of Peru's exports, 20 per-
cent of Mexico's exports, 20 percent of Colombie's, and
12 percent of Ecuador's.
Sodium nitrate and copper, 65 percent of Chile's
exports.
Copper accounts for 15 percent of Peru's exports.
2. The prospects of increased investments in Latin
America are slimmer than ever.
Doubtless there will be some direct investments
made by foreigners to establish branch plants and further
develop some of the natural resources and build public
utilities but the present credit status, of most of the
Latin American countries, their long record of defaults,
the political instability and the potential exchange
difficulties will mitigate against any large annual sums
being invested there.
Recent events in Mexico will certainly not encourage
more foreign capital to go there; nor will political
developments in Brazil promote confidence abroad.
The one country that is in B position to attract
large amounts of capital is Argentina but the past year
Argentina has indicated that she prefers to rely upon
foreign funds for the exploitation of her resources 88
little as possible.
3. The prospects of increased production of gold and
silver are slight.
The total amount of gold produced in Latin America
1s about 70 million dollars, half of which 1s produced
in Mexico and Colombia. Gold production has increased
in recent years but not enough to make any substantial
difference.
278
Secretary Morgenthau - 10
4. Latin American exports meeting increasing competition.
The opportunity of Latin America to increase greatly
her exports is restricted by the fact that her agricul-
tural exports are meeting increasing competition from
each other and from other continents, while the demand
for her non-agricultural products is increasing only very
slowly because of technical developments and the develop-
ment of new sources of supply elsewhere. Only in her oil,
manganese, and possibly tin, is there any prospect of
rapidly increasing foreign demand.
(A war in Europe would, of course, create a great
demand for Latin American products by Europeen countries
and would result in increased buying power in Latin
American countries for our exports.
Altogether, therefore, it is probable that Latin America
will buy less foreign goods in 1938.
It is likely that our trade will suffer more than
will that of Japan and Germany because:
(a) Both those countries must maintain and
expand their export markets and will make every
effort to do 80.
(b) Both countries employ methods of getting
business that we do not -- barter arrangements,
clearing and compensation agreements, disguised
subsidies.
(c) In the past half year Japan especially has
been increasing her trade greatly, and she is bound
to redouble her efforts, and employ new devices.
The gain by Japan though great in terms of percentage,
will not be large in terms of dollars.
Value. As pointed out earlier, we export 17 times BE
much to Latin America B.8 does Japan.
for certain commodities and in certain fac-
countries Nevertheless, Japanese competition 1s becoming a serious
tor and will doubtless become more go next year.
Unclassified
279
forgenthau - 11
This 18 particularly true of rayon and cheaper gredes of cotton
cextiles. For example, Japan's export of rayon to Mexico in 1937
dore then doubled, while her exports of cotton tissues to Mexico was
Should 400 percent. Similarly, Japan's cotton textile exports to
sentine doubled in 1937.
RX The Jepen able to make its sharp gains in Latin American trade?
In the period between 1928 and 1936 Japan succeeded in entering
23 with American markets, which she had barely touched prior to that
The mejor reason for her ability to compete successfully in
Were workerse was because of the depreciation of her currency by
ercent during the depression.
In cive third quarter of 1937, which coincided with the outbreak
Jamese-Chinese hostilities, Japan again beron to increase
her share in the Latin American markets. We do not know what
devices she has been using, but we hazard the following:
(a) Intensive sales effort carried out by the official "missions"
of Government officials which visit Latin American countries to
develop trading possibilities; and
(b) Japan probably offered her domodities at lower prices than
she had been able to previously, probably because of special
ssistence given to Japanese exporters by Janen in the attempt
of the Jepenese Government to increase its foreign exchange re-
sounces.
30 lies Germany been able to gain in Latin American trade in 1935 and
1536 and not nearly as much in 1937 (Ist nine months)
1975-1936 and were concentrated in relatively few countries. During
Geruany's goins in Latin American trade were made in the ye rs
12:18 period Germany Web introducing and ushing her aski-mark compen-
Nacton trade. Those countries which accepted ements wherein
were used were soon placed in & position where it was
they to dispose of aski-marks acquired by the excort of raw materials
Moreshry for them to increase their purchases of German goods in
to
Persions.
releved. From then on additional gains became more difficult.
by 1937 most of the advantages from the above methods had been
Dir exports to Mexico will probably drop sharply during 1938.
present in recent exorbitantly will undoubtedly be effective in reducing vehicles end
Te sell more to high duties imposed on almost all our sales.
Mexico than to any other Latin American of country. our 1m-
00 exports to Mexico, for example, 1s duties
Parts, end second largest doubled and in some cases more roximately
largest single export is industrial machinery. Import than doubled. on
The Mage teriff items have recently almost been raised on 216 items, or
ne-third of nas the Mexican tariff list. From a preliminary
280
Secretary Morgenthau - 12
examination it appears that the duty increases have hit
our products more than those of other countries. Below
are listed reported increases on some of the more 1n-
portant items:
Tariffs raised January 19, 1938 (as reported by the press)
by percentages given below:
Calculating machines
200
Velvets
100
Motors of all kinds
75
Crafts paper
Autos - 4 cylinders
300-400
66-2/3
Felt hats
65
Autos above 4 and not
Textile machinery
150-200
more than 6 cylinders 150
Sewing machines
100-200
Autos above 6 and not
more than OS cylinders 133
Radio transmitters
150
Autos more than & oyl. 150
Radios with cabinets
192
Radios without cab-
Trucks
133
inets
400
Machetes
150
Typewriters
225
Capsules and pille
100
Cameras
200
Even without the tariff increases the political and
economic situation in Mexico is such E.8 to give little
promise of maintaining our last year's level of exports
to them during 1938. With the higher duties in effect
our exports will certainly be cut substantially.
Cuba, also, is likely to buy less from us in 1938.
The ability of Cuba -- our second largest Latin
American customer -- to purchase imports depends almost
entirely upon the value of her two export crops, super
and tobacco. Both these items are lower in price than
they were during most of 1937 end 8.8 yet there is no
reasonable prospect that they will rise again to 1937
levels. We may, therefore, expect that Cuba will buy
less in 1938. Since more then half of Cuba's imports
come from the United States it is likely that we shall
sell Cube less in 1937 than in 1938, even though our
share of Cuban business may increase.
Any improvement in our position in the Argentine
market -- which 18 as important as the Cuban market --
is dependent upon the negotiation of a trade agreement
which would put a stop to Argentina's discrimination
against American exporters in acquiring exchange permits.
This discrimination will not be removed unless a trade
agreement is negotiated. The position of the United
Kingdom in the Argentine market in 1937 was greatly
28%
Secretary Morgenthau - 13
improved by the Anglo-Argentine trade agreement of last
summer. Unless that agreement 18 offeet by a corres-
gonding American agreement the special advantages which
the United Kingdom obtained will permit her to make gains
in Argentina at our expense.
The total of Argentina's purchases from abroad will
30 dependent upon the prices of her major commodities
such 26 wheat, beef, flax, corn and wool. The prices of
commodities reached their high point early in 1937
and with the exce tion of beef, have fellen throughout
the year. As long as these prices stay at the present
low level, Argentina will not be 8.8 good E. customer in
1034 as she was in 1937. This 18 true in spite of the
fact that Argentina has added substantially to her gold
reserve during the past three years.
Coffee and cotton prices in 1938 will largely
determine how much Brazil will import.
Brazil is still basically dependent upon two oom-
modilies -- coffee and cotton -- as her source of foreign
exchange, in spite of the fact that Brazil has made con-
siderable progress in attempting to diversify her economy
The 1938 prospects of Brazil as a market is therefore
dependent upon the success of Brazil in her attempts to
establish 2. world agreement for the marketing of coffee,
thich would maintain the price at eatisfactory levels,
end the condition of the cotton market. The negotiations
for E coffee agreement are now taking place and the wel-
fare not only of Brazil but of many of the smaller
Central American countries is dependent upon the outcome
of these negotiations. If the world agreement on coffee
18 re ched 1t seems likely that Germany's position in
the Brazilian market will not be 8.5 strong as it has been
in the past two years. Germany succeeded in increasing
her trade in Brazil because of the barter errengement
mode with the use of aski-marks which Brazil accepted
Decause of her desire to dispose of coffee (and cotton)
without disturbing the price in free markets.
Bolivia, Chile and Peru are almost completely
dependent economically upon the world market for copper,
tin and potash.
the demand and the prices for their products reached half
In 1937 these three countries were prospercus because levels
higher than 1928. The subsequent fall in the latter
Regraded Unclassified
282
Secretary Morgenthau - 14
of 1937 which 1s continued and which shows every
indication of continuing well into 1938, means that
these countries will probably feel the business re-
pession deeply. They will not only be able to buy
less because they have less to spend, but increasing
exonange difficulties will induce lower imports.
Venezuela doubled her purchases from us in 1937,
compared with 1936, and this improvement in trade may
well continue during 1938. The major export commodity
of Venezuela 18 petroleum, and petroleum did not suffer
in the decline of raw material prices during 1937. In
addition, the United States 16 bout to negotiate a
trade agreement with Venesuela, which should enable us
to increase our share in the trade of Venezuela.
Colombia and Ecuador are mainly dependent upon
exports of coffee and petroleum, plus cocoa and minerals
for Ecuador and gold and bananas for Colombia. There
are optimistic as well as pessimistic factors in analys-
ine the prospects for trade with these countries. On
the whole, however, it is likely that our trade will be
somewhat lower during 1938, but that there will not be
E sharp decline. A clarification of the coffee situation
Vill be of considerable assistance.
Other countries in Central and South America are
dependent mainly upon the export markets for sugar,
ochanas and coffee, and are very sensitive to changes
in the prices of these commodities. Miceragua is
already experiencing a crisis in foreign exchange, end
has evidently decided to increase duties on imports
in contravention of our trade agreement with her.
Although our trade with Nicaragua 16 not very important
quantitatively, the action of Nicaragua will be serious
small Latin American countries whenever they run into
if it is a precedent which may be followed by other
exchange difficulties. If the business recession con-
tinues in the United States, these smaller countries
will be seriously affected, and we may anticipate shorp
reductions in our sales to them during the ensuing
Minths.
283
TRADE WITH TOTAL LATIN AMERICA
EXPORTS IMPORTS BALANCE
EXPORTS
IMPORTS
BALANCE
DOLLARS
R.M.
Millions
Billions
United States Trade with
Total Latin America
Germany's Trade with
800
1.0
Total Latin America
600
5
400
o
PER
CENT
As Percentage of Germany's Total
Exports and Imports
200
15
0
10
PER
Aa Percentage of
CENT
US Total Exports and imports
25
5
20
0
35 36 17
35 '36 37
35 36 "
15
YEN
Millions
Japan's Trade with
200
Total Latin America
10
100
5
o
PER
As Percentage of
CENT
Japan's Total Exports and Imports
o
5
35 36 37
35 36 37
35 36 37
POUNDS
0
Millions
35 36 37
38 36 37
as 36 37
United Kingdom's Trads with
Total Latin America
120
LIRA
Billions
Italy's Trade with
80
4
Total Latin America
40
0
PER
As Percentage of
CENT
Italy's Total Exports and Imports
D
15
PER
CENT
As Percentage of u K's Total
Exports and imports
10
10
5
5
a
o
35 36 37
35 36 37
'35 36 37
as 36 37
LC, 9C SE
35 36 37
Other linely of the Treasing
10-107
E I I !
284
PERCENTAGE DISTRIBUTION OF EXPORTS AND IMPORTS
OF LEADING LATIN AMERICAN COUNTRIES
EXPORTS
IMPORTS
PER
CENT
To
To
To
To
To
From
From
PER
US.
U.K.
40
Germany
From
Italy
Japan
From
From
CENT
U.S.
U.K.
Germany
Italy
Jepan
40
20
ARGENTINA
lane
20
o
lest
2000
0
40
BRAZIL
40
20
1000
Bana
20
e
0
60
MEXICO
60
40
40
20
20
o
Pleara
200
0
DO
CUBA
80
40
60
40
40
20
20
0
Dran
minim
o
=
#
:
5
"
"
3
17
74
"
If
4
PG
OF
VE.
"
EXTR
1111
" " n. N.
5213
=
NF.
PE
16
H.
or
R
40
CHILE
40
20
Inn
20
llan
0
Boo
0
80
80
COLOMBIA
60
60
40
40
20
to
0000
1000
0
o
URUGUAY
20
20
Ene
3000
non
002
o
o
PERU
40
40
20
11
non
0
(If
=
16.
3
#:
28
#
24
un
"
1113
FF
:
in
"
:
=
147
FC
N.
or
=
"
N
#
5
#
#
If
=
:
14
:
27
ye
36:
FC
an
24
"
#
it
10.00
- larrary - - -
j . 1 I
285
United States' Exports to Latin America
Percentage change during periods of 1937
over corresponding veriods in 1936
:
:
Percent change in exports in 1937
Total 1936:
over corresponding period in 1936
: exports in:
First
:
Third
:
:
: dollar
:
half
:
quarter
:
October
:
November
:equivalent:
so
:
we
:
%
:
%
(Millions)
Argentina
56.9
+ 60
+ 66
+ 96
+ 52
Brasil
49.0
+ 19
+ 62
+ 55
+ 40
Mexico
76.0
+ 52
+ 50
+ 27
+ 23
Venezuela
24.1
+ 97
+ 97
+102
+ 68
Cube
67.4
+ 36
+ 40
+ 46
+ 34
Chile
15.7
+ 32
+ 70
+ 99
+ 85
Colombia
27.9
+ 53
+ 34
+ 44
+ 29
Uruguay
8.5
+ 41
+ 78
+ 71
+ 43
Peru
13.4
+ 19
+ 33
+ 83
+117
Bolivia
3.6
+ 28
+ 44
+158
+217
Dominican Republic
4.6
+ 33
+ 75
+ 4
+ 35
Justemala
4.6
+ 76
+ 66
+ 88
+ 54
Equatior
3.3
+ 19
+ 77
+175
+ 31
Hondures
4.9
+ 6
+ C/2
+ 43
+ 04
Salvador
2.8
+ 14
+ 26
+ 59
+116
Coate Rice
3.0
+ 46
+ 62
+ 22
+ 38
Paraguay
.3
+103
+201
+ 80
+ 52
Heiti
3.9
+ 9
+ 1
+ 18
+ 10
Nicaragua
+ 58
- 15
+ 51
+ 97
2.4
Panama
22.7
+ 11
+ 10
+ 14
+ 36
All other
34.6
+ 96
+ 73
+ 72
+ 69
Total to Latin
America
429.6
+ 46
+ 53
+ 59
+ 46
286
United States imports from Latin American countries
Eleven months ending November 1928, 1936, 1937
(In millions of dollars)
:
:
:
Country
:
1928
:
1936
:
1937
:
:
:
Mexico
113
44
Cuba
56
191
120
Argentina
141
93
58
Brazil
135
202
91
111
Venezuela
35
23
21
Colombia
85
38
48
Netherland West Indies
50
13
18
Panama
6
4
Chile
4
67
23
Peru
44
19
8
15
Uruguay
11
11
14
Trinidad and Tobago
9
3
Quatemala
3
9
7
9
Dominican Republic
9
5
Bolivia
7
.2
1
1
Honduras
12
6
5
Ecuador
5
3
4
Jamaica
7
2
2
Costa Rica
5
3
4
Haiti
1
2
3
Bermuda
1
is
-4
Salvador
3
5
8
Nicaragua
5
2
3
French West Indies
.2
.2
.2
British Guiana
1
.1
1
British Honduras
3
2
2
Barbados
.4
.4
-4
Paraguay
1
1
1
Surinam
1
2
3
Total
947
478
665
Treasury Department, Division of Research and Statistics.
January 29. 1938.
287
United States exports to Latin American countries
Kleven months ending November 1928, 1936, 1937
(In millions of dollars)
:
:
:
Country
:
1928
:
1936
:
1937
:
:
:
Mexico
107
68
100
Cuba
117
61
84
Argentina
164
51
83
Brazil
91
45
61
Venezuela
34
21
42
Colombia
54
25
36
Netherlands West Indies
124
13
31
Panama
31
21
23
Chile
36
14
22
Peru
21
12
17
Uruguay
24
8
12
Trinidad and Tobago
4
4
7
Guatemala
12
4
7
Dominican Republic
15
4
6
Bolivia
4
3
5
Honduras
9
5
5
Equador
6
3
5
Jamaica
8
3
5
Costa Rice
8
3
4
Haiti
12
4
4
Bermuda
3
3
4
Salvador
7
3
3
Nicaragua
7
2
3
French West Indies
2
2
2
British Guiana
1
1
1
British Honduras
2
1
1
Berbados
1
1
1
Peraguay
1
3
1
Surinam
1
1
1
Total
799
387
577
Treasury Department, Division of Research and Statistics.
January 26, 1938.
288
United Kingdom's Exports to Latin America
Percentage change during periode of 1937
over corresponding periods in 1936
:
;Percent change in exports in 1937
: Total 1936
: over corresponding period in 1936
: exports in
:
:
: dollar
:
First half
:
Third quarter
: equivalent
:
%
:
%
(Millions)
Argentina
77.3
+ 21
+ 39
Brazil
24.2
+ 50
+ 50
Mexico
6.9
+ 42
+ 15
Venezuela
6.1
+ 93
+ 34
Cuba
5.1
+ 28
+ 18
Chile
8.8
- 4
+ 14
Colombia
12.1
+ 34
+ 18
Uruguay
9.7
+ 6
+ 37
Peru
5.8
+ 8
- 12
Bolivia
1.0
+ 22
0
Dominican Republic
.5
+114
+ 21
Guatemala
1.0
+ 41
+ 47
Ecuador
1.2
+ 5
+ 24
Honduras
.4
+ 4
- 22
Salvador
.8
+ 86
+ 25
Coste Rica
.6
+ 71
+ 23
Paraguay
-3
+ 72
+ 5
Haiti
1.2
+ 92
+ 29
Nicaragua
.6
- 5
- 54
Panama
1.9
+ 9
+ 32
All other
39.1
+ 20
+ 12
Total to Latin
America
204.6
+ 26
+ 29
289
United Kingdom's Trade with Latin America
(In millions of pounds)
;
Exports
:
Imports
:
:
To
: Percent of
:
: From : Percent of
:
Total : Latin : Total to
:
Total: Latin : Total from
:
: America:Latin America
:
:America:Latin America
1928
844
82
9.7
1,196
146
12.2
1932
416
32
7.7
702
93
13.2
1935
481
40
8.3
756
96
12.7
1936
501
41
8.2
848
107
12.6
1937 (9 mos.)
445
38
8.5
742
102
13.7
Japanese Trade with Latin America
(In million yen)
:
Exports
:
Imports
:
:
To
: Percent of
:
: From ; Percent of
: Total: Latin : Total to
: Total: Latin : Total from
:
:America:Letin America
:
:America:Latin America
1928
1,972
26
1.3
2,196
14
.6
1932
1,410
18
1.3
1,431
5
.3
1935
2,499
109
4.4
2,472
51
2.1
1936
2,693
110
4.1
2,764
134
4.8
1937 (11 mos)
2,903
147
5.1
3,525
172
4.9
Regraded Unclassified
280
Japan's Exports to Latin America
Percentage change during periods of 1937
over corresponding periods in 1936
Total 1936:
Percent change in exports in 1937
:exports in:
over corresponding period in 1936
: dollar
:
First : Third :
:
:equivalent:
half
: quarter
:
October
:
November
:
:
%
:
%
:
$
:
so
(Millions)
Aryentina
$6.8
+ 40
+160
+113
+140
Brazil
2.7
+ 58
+163
+ 35
+132
Mexico
2.1
+ 70
+133
+ 05
+131
Venezuels
2.3
+ 90
- 4
- 40
- 7
Cube
.4
+ 41
+ 28
+ 45
+ 66
Chile
2.2
- 19
+ 63
+160
+353
Colombia
.04
+307
+400
+412
+ 50
Uruguay
2.4
- 25
+ 98
+227
+119
Peru
1.8
- 12
- 14
+ 71
+ 40
Bolivis
Not listed separately
Doninicen Republic
.9
+146
+ 47
+ 50
+ 31
Sustemale
.1
- 441-
+ 38
+ 12
- 30
Soundor
in
- 86
+244
+705
+2,312
Hondures
1.1
+ 74
- 50
- 28
- 41
Salvador
.01
+ 75
+100
- 14
- 23
Costa Rice
.6
+ 62
+ 53
+ 50
+ 43
Peraguay
Not listed separately
H>1ti
.4
+162
+ 30
- 30
+ 30
Nicaragus
.2
+163
- 4
- 68
- 61
Bonama
3.0
+ 20
- 30
+ 32
+ 69
All other
5.1
+ 37
+ 62
+ 56
- 1
Total to Latin
America
33.0
+ 30
+ 67
+ 61
+ 90
291
Germany's Exports to Latin America
Percentage change during periods of 1937
over corresponding periods in 1936
:
:
Percent change in exports in 1937
Total 1936:
over corresponding period in 1936
exports in:
:
: dollar
:
First half
:
Third quarter
:equivalent:
%
:
%
(Millions)
Argentina
24.4
+ 35
+ 64
Brazil
33.4
+ 27
+ 32
Mexico
12.8
+ 37
+ 24
Venezuela
6.0
+104
+ 84
Cuba
2.8
+ 12
+ 30
Chile
12.4
+ 7
+ 19
Colombia
11.3
- 35
- 39
Uruguay
4.2
+ 23
+ 68
Peru
7.2
+ 10
+ 18
Bolivia
1.1
+ 5
+ 37
Dominican Republic
.4
+ 12
+ 40
Guatemala
2.5
+ 37
+ 54
Ecuador
1.7
+ 17
+ 13
Honduras
.4
+152
+ 54
Salvador
1.6
+ 1
+ 38
Costa Rica
1.6
+ OR
+ 93
Paraguay
.5
+ 94
+100
Haiti
.3
+ 44
+ 34
Nicaragua
.9
- 19
- 50
Panama
1.8
- 80
+371
All other
1.6
+ 58
+ 56
Total to Latin
America
128.9
+ 20
+ 34
Regraded Unclassified
292
United Kingdom's Trade with Latin America
(In millions of pounds)
:
Exports
:
Imports
:
:
To
: Percent of
:
: From : Percent of
:
Total : Latin : total to
:
Total: Latin : total from
:
:America:Latin America:
:America:Latin America
1928
844
81
9.6
1,196
141
11.8
1932
416
31
7.5
702
88
12.5
1935
481
39
8.1
756
86
11.4
1936
501
41
8.2
848
94
11.1
1937 (9 months)
445
38
8.5
742
90
12.1
Japanese Trade with Latin America
(In million yen)
:
Exports
:
Imports
:
:
To
: Percent of
:
: From : Percent of
:
Total : Latin : total to
:
Total: Latin : total from
:
:America:Latin America:
:America:Latin America
1928
1,972
26-
1.3
2,196
14
.6
1932
1,410
18
1.3
1,431
5
.3
1935
2,499
109
4.4
2,472
51
2.1
1936
2,693
110
4.1
2,764
134
4.8
1937 (11 months) 2,903
147
5.1
3,525
172
4.9
Regraded Unclassified
293
Germany's Trade with Latin America
(In million reichsmarks)
67
Exports
:
Imports
:
:
To
: Percent of
:
: From : Percent of
: Total : Latin : total to
: Total: Latin : total from
:
America:Latin America:
:America:LatinAmerica
1928
12,030
893
7.4
14,051
1,736
12.4
1932
5,739
241
4.2
4,667
521
11.2
1935
4,270
397
9.3
4,159
596
14.3
1936
4,768
515
10.8
4,218
588
13.9
1937 (11 months)
5,359
593
11.1
4,938
827
16.7
Italy's Trade with Latin America
(In millions of lire)
Exports
:
Imports
:
:
:
To
: Percent of
:
: From : Percent of
: Total : Latin : total to
:
Total: Latin : total from
:
:America:Latin America:
:America:Latin America
1928
14,556
1,687
11.6
21,920
2,763
12.6
1932
6,812
580
8.5
8,268
834
10.1
1935
5,238
359
6.9
7,790
674
8.7
5,547
325
5.9
6,039
563
9.3
1936
1937 (10 months) 8,550
564 1/
6.6
11,509
1,658 1/
14.4
1, with Argentina, Brazil, Chile and America Uruguay,
Estimate which represented based on 80 trade percent of Italy's trade with Latin in
1935 and 1936.
294
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 31, 1938
TO
Secretary Morgenthen
PROM
Herman Oliphant
In your first conference with Mr. Douglas on bank holding compan-
1e8, he suggested a plan S.E.C. had in mind for certain states in the South-
east for reorganizing utilities and spoke of the possible need of Government
financing to carry out that plan. Be was left with the impression that there
W&B no present authority for the Federal Government to provide such financing.
The Federal Reserve Bank of Atlante would have the powers conferred
by the following language:
"In exceptional circumstances, when it appears to the
satisfaction of a Federal Reserve bank that an estab-
lished industrial or commercial business located in its
district is unable to obtain requisite financial assis-
tance on a reasonable basis from the usual sources, ***
pursuant to authority granted by the Board of Governors
of the Federal Reserve System, may make loans to, or pur-
ments with respect thereto, on a reasonable and sound
chase obligations of, such business, or may make commit-
basis, for the purpose of providing it with working
capital *
The Reconstruction Finance Corporation can
"for purpose of labor, when credit at prevailing otherwise
the of maintaining and increasing bank the rates ear-
ployment character of loans applied for is not industrial
for available the at banks * make loans to any
or commercial business * * **.
Regraded Unclassified
295
January 31, 1938.
11:30 a.m.
H.M.Jr:
Hello.
Marriner
Eccles:
Good morning, Henry.
H.M.Jr:
Hello Marriner.
S.
You morning. wanted to meet with the Committee on Wednesday
H.M.Jr:
Yes.
is
I was wondering if Thursday would suit you 82 well.
The reason m35, I was planning on going up to New
York tomorrow - late tomorrow afternoon, and I
wouldn't be back for the meeting, However, I can
cancel that if you have some - some preference,
H.U.Jr;
No, Thursday st eleven o'clock is -
in
Now, Burgess - I believe Thursday would possibly
suit Burgett better because -
H.M.Jr:
Make it Thursday at eleven o'clock.
is
Well 1f that suits you Just as well, I'll do that
H.M.Tr:
Injot Ag well.
of
George won't be here.
H.M.Jr;
Yes.
6i
But =11 the rest will be.
H.M.Jr:
Yes.
is
Well all right then, we'll put it down for
Thursday.
H.C.Jr:
That's right.
is
Now, do you want to meet with me tomorrow.
H.M.Jr:
Yes.
E:
All right. And I'll -
4.2.Jr:
there 1= a chance that the President cay have
Now me because he couldn't have me today for lunch.
298
- 0 -
di
I cee,
H.M.Jr:
So tomorrow. he said that he'd try to arranze It for
55
I see.
H.M.Jr:
But lacking the President of the United States, I'M
be delighted to help you.
S:
Well, I'm not going to run Any - I'm not - I don't
expect to run competition with him.
H.E.Jr:
All right. well, now, are you coming slone, or 357
you going to bring Ransom?
is
Well, I'll - whatever you say, I'll bring Ransom
over.
H.I.Jr:
Well then if you have Ransom, I'll have Taylor.
in
How is that? Let's - unless there's something
that - last time, I - I felt that you and I
possibly ought to get together and discuss the
thing we did talk.
H.M.Jr:
Yes, we got that -
E:
Unless you have something else, why I have
nothing particularly confidential that I
wouldn't want Rensom and Taylor in on.
H.d.Jr:
Good.
is
Well, then I'll wait to hear from you tomorrow.
H.M.Jr:
That's right.
R
When are you going to come over here and set
lunch with us.
H...,Jr:
Well, I'll do that.
E:
Huh.
H.M Jr:
I'll do that soon.
E:
All right then.
H.M.Jr:
All right.
is
Goodbye.
297
FARM SECURITY ADMINISTRATION FINANCES
January 31, 1938.
Present:
Mr. Bell
3:10 p.m.
Mr. M. W. Alexender
Mr. C. B. Baldwin
Alexander: Well, Mr. Secretary, our boss man suggested that
there might be some profit in our talking with you,
and we are glad of the opportunity. If you will
intimate the lines elong which we
d.J.Jr:
It's just this. Mr. wellsce spoke some harsh words
at Cobinet about - well, I mean the Secretary of the
Treasury - how hard-hearted we were and all that
sort of thing. And I said that ES far as myself 688
concerned, that Mr. Bell and I SEW the Hopkins people
at least once 8 week and we have been t/ble to keep them
happy and supplied with sufficient funds to take care
of their work up to date; and, notwithstanding the
difficult times NE are going through, if you people
were running out of money and had people sterving on
your nands, that I coulun't - I couldn't aream of it
if no one tolu it to me. Tnat 1s, very briefly, the
story. And, as I said - that .e could keep the other
organization satisfied; I don't know whether we could
keep yours, unless - st least 18 can't
/lexander:
unless you know the facts.
unless I anow it. But 85 I SES, Bell AN I have
had tnis srrangement. Naturally I con't et into
budget heerings; that's Mr. Dell's responsibility.
out for the President he and I do 1/0 into the question
of policy. Once the policy is adopted - I mean, any,
Mr. Bell does take care of it. But ne and I, on
these things which affect the Treasury 20 vitally,
run Into big figures - WE bota went to get in on it.
Is that right, Dan?
Bell:
Uh-huh.
3-1dwin:
I think you might say, Mr. Secretary - of course, the
year - now, we certainly haven't any complaint about
program laid down for us at the beginning of the
Dan and the way his people have treated us; there
hasn't been any trouble. But the difficulty is that
the Secretary of Agriculture found himself under
298
-2-
terrific pressure coming from all sorts of directions
for things which can't be done.
well, & couple Congressmen. Let's be frank.
Those notes are only for myself. Only one copy.
They never circulate. I can't remember all these
things.
He comes in there and suddenly bleats, and throws
it in the President's 1sp and my lap. ano I just
con't know that there is anything new that's nap-
pened from the time the thing WES set up; that's
all.
But what I'm interested in is not who's right and
who's arong. I'd like you to give me, is you would -
I mean 30 we'll get something out of this, you see,
rether than - what is your Dicture? No., I - it's
been B long time. How are you set up by divisions?
I mean in just very simple vust are you
doing? I'm more interested - I don't know If ce
can do anything.
Less
nder: netve got two or three things. First place, is've
got these old projects that were started.
H.A.Jr:
Don, is that casir just B3 comfortables Then I can
see you in 0036 you sant to alax or ne.
Bell:
winker's not 30 ¿QUA today.
decodr:
What?
cell:
My winker is not very good today.
Alexinder:
various ne've bgencies - Subzistency
got the old projects which were SUITEV meet
Inst's B problem of
S. .Jr:
Now, say it - nust's tast?
that tere started under ind 100
Alexander:
Subsistence Old projects Homesterd that have been finished
people are in them.
Regraded Unclassified
299
-3-
H.J.Jr:
Now, those are houses?
Alexander:
Housing projects, yes.
H. .Jr:
Are they finished?
Plexander:
Well, practically so.
3.10win:
Those particular projects Dro.
Licxonder: Are that finished. The people are in thes, und SS
Beli:
You extended tost, did you?
Alexander: Beg pardon?
Bell:
You extended that?
Boldwin:
Some of them are extended. E doven't to date has
many extended.
a.a.Jr:
I'm going to interrupt you. 2. month BEU you 8610
you had $15,000,000 to run to July 1. No., what
....
Alexander: Oh, that's something else. I was sketching to you
what our activities were.
Then certain farm projects that we ourselves started,
in the process of being finished, Finished by July
1, or practically so; but the construction will be
all out of the way on July 1. Thet's provided for;
we have no problem for that.
Our problem is very large on the remililitation
program, on (hich ke spend 90 percent of our money,
which is the taking of these people MILO are either
on relief or slipping on relief - these form families,
and giving them small loans, giving them help to et
them on their feet, get them on their suy, Jelf-
supporting. Instead of the demand for that falling
off, as we ned every right to hope E year ago the t it
would, the thing is just increasing - increasing, the
number of these people that are cowing Into difficulty.
We have just had some sample studies made in eight
counties in South Carolina. We've got fifteen hundred
families that are there just stranded; children need
300
-4-
clothes - no clothes, no money, no any to go to
school. And in snother county in Arkansas - three
counties in Arkansas, E thousand families. There
seems to be - that's all new stuff. Weize spending -
we're syending in the Great Plains drought :rea;
35 percent of the money that we're spending for grants,
carrying E tremendous 1020 of drought cases out there,
where there's no use of making them loans now until
they get some rain. So we're just carrying those
people on a straight dole. Some of the counties,
60 percent of all the farmers in the county - I
think an average of those counties of 80 percent
of those families in the county - farm Comilies -
are on the dole. Just can't nelp it; no crops for
years.
The money that de have had for rehibilitation
loans - well, ne had anticipated that a large part
of that grant load this winter vula we confined to
the Great Plains aree, that drought-stricken ROBE -
Nebraska, the Denotes, and Nontane. Then the first
thing that came along was about 16 counties in
Wisconsin which ,E haan't - TE thought they'd make
it, but they haven't; taey've ned to have help. The
load in Nebrasks has picked U.S. - the grant load;
Governor's been putting L great detl of pressure
on us to do things in Nebraska that 18 just inven't
ned the money to do. Said people are leaving those
forms - many of the form families toing to town,
SO on; bad situation in that state. Down In Colorido
I suppose they still have some, and in Western Kensns.
H.m.Jr:
How about Texas?
Alexander: Well now, we naven't had SQ much grant 1000 in
Texas until recently there began this pressure to
come up from the South - south Arkansas (n) Texas.
First thing we found No.E 300 families strended in
one of the counties down there, Congressoon came
in and asked for help. Re were suspicious the (16
were being asked to carry people that the Innolord
ought to carry, but on investigation - and therefore
we wouldn't 60 into it except me could get i contract
with the lanalord that he would carry them when the
crop time came, and so on. And we're doing that with
loans. We haven't gone into the grant business in
301
-5-
this Cotton Belt srea.
Baldwin:
For instance, We only neve two - in the month of
Texas. December, we only made 195 grants in the state of
/ Lexander:
Yes, but the pressure 18 coming from the Cotton Belt.
There are E lot of stranded farm families down there;
something has just got to be done with them. Now,
we've gone theid with our loan program, end that's
the thing that we like to do; I mean that's the thing
that's getting as somewhere - getting people on their
feet by making them loans.
Now, we allocated the money voilable to the counties
on the basis of the need and the form population,
etc., which means that RE had in that particular
county enough money to cerry the people that WE had
already started up the ladder, plus 8 certain number
of new loans. We got that out just as early LS WE
could, so there wouldn't be any uncertainty and the
thing could get going. But the demand for new loans
nas just run anay with us, and we're maving to say to
them men we get to the end or our money that there
just Isn't any more money.
H.m.Jr:
How much money you got left in that :Ivision?
Beldwin:
We have a considerable amount - let's see, about
$40,000,000. See, our loan season is just beginning.
Bell:
Just for the loans.
n.a.Jr:
How much for grants?
Bridwin:
me have about $10,000,000 left for grants.
lexander:
But this loan money has been allocated by counties,
and although it hasn't actually been loaned, the man
in the county knows non many loans ne can make.
Baldwin:
He's turning down all
lexander: He's turning down all beyond shet he has.
H.W.Jr:
Well, did Congress do that? Mao made the allocation?
Regraded Unclassified
302
-6-
Bell:
President made the allocation.
n.d.Jr:
I mean aren't there some counties which maybe don't
need it as badly as others?
Balowin:
Well, we have taken that into consideration in
dividing our funds up - 8 very careful investigation
of the need in every county, and then divided. We
had a request, for instance, for about $90,000,00
and we and, all told, about $54,000,000. So We
have divided that up on the basis of need.
H.A.Jr:
well, where's the seed loan bill this year, Dan?
Bell:
That's through. It ...11 be at the President in #:
few days.
H.M.Jr:
How much money to that?
Bell:
They resppropriated the unexpended belance of the
old loan, plus certain receipts. be sbout 235,000, DJJ.
H.M.Jr:
DOES that go to Myers?
Beil:
Yes.
M.A.Jr:
That will nelp, I take it, in some of these sreas.
Bell:
While it is designated ES & crop loan, it is for 11
kinds of purposes, even for food.
Baldwin:
The difficulty there
.....
H.M.Jr:
Aven for food?
Bell:
Yes.
Beldwin:
The difficulty there, Dan - that losn is controlled
largely on an acreage basis, and particularly in
severe crought-stricken counties these people need
money for capital equipment, the type they can't
That's where we get our great pressure, particularly
get within the limits Form Credit has to establish.
in some sections of the Middle Rest and the northern
Great Plains.
Bell:
Well, are you hard up for money now?
303
-7-
Laldwin:
Here's the situation. For CBSA we are all right.
Dell:
You're just having E little pressure brought to
bear, aren't you, just like everybody else in
washington.
Boluwin:
But it's pretty intense.
cell:
Well, everybody in Washington is having the same
thing.
Eclowin:
Ine point is, though, our supervisor In & certain
county - his sllotment of funds for next year - for
this year is $50,000. When he gets applications in
that have been passed upon by his local county
committee - we have a county advisory committee
and we investigate their farms end See whether or
not we can make & loan with : reasonable chance
of having it paid back, reasonable chance for nis
rehabilitation. We stop when We get up to $50,000.
Now we are getting in many counties five end six
times the number of applications that AB can take
care of. And naturally our people - our supervisor
doesn't want to nold these people op, sty, "There
may be SODE money later." They tell they "Sorry,
we've nad to close our applications."
Bell:
Did you keep any reserve back, not &llocate any of
your money?
Balowin:
All but about a million dollars. Decrease it illocated
so much less than we - than NE S requested in each
region, each state.
H.M.Jr:
Who heads up this actual - this division? wast 30
you call it?
Mexander: Renabilitation.
H.s.Jr:
who neads that up?
Alexander: Mr. Perkins.
H.M.Jr:
Perkins. Anat's his first name?
Alexander: Milo.
H.d.Jr:
I don't know Al, 00 I?
Regraded Unclassified
304
-8-
Bell:
I don't think so.
Baldwin:
Been in the Secretary's office. Happens to be out
of town now.
H.M.Jr:
How many employees does ne have to do this work?
Baldwin:
I can give you the figures. About 75 percent of
our total employees are in connection with the work
on this rehabilitation program.
Bell:
Does he make the grants too?
Baldwin:
ies, All with the county office. Same man handles
both.
Bell:
They're all under Perkins, both loans and grants.
Alexander: Yes.
H.2.Jr:
We've gotten 8. couple complaints here of your
repossessing on loans.
Alexander:
Yes, I expect you got more.
1.2.Jr:
Yes.
Alexander:
Yes, I expect you have.
H.M.Jr:
The health people get some of those.
Alexander: Yes. Yes.
H.m.Jr:
United States Health.
Alexander:
We have done some repossessions, because if we make
a man 8 loan and ne apparently isn't going to ....
H.M.Jr:
But I got it that you take everything tway from
them.
Alexander:
No, leave them a cow.
H.M.Jr:
We got several complaints that you take everything
away.
Balowin:
In some cases they take their COW away from them.
We have a chattel mortgage on everything ne has. But
305
-9-
I'll tell you, generally those cases, Mr. Secretary,
are where these people have sold the crop, and we
have 6 chattel mortgage, and in some of the states,
in order to recover, we have to liquidate whatever
we have - wnatever is covered by the mortgage in
order to do it. But the first thing our people look
to see is whether or not it is possible for this nan
to do a rehabilitation. If he's made no effort and
we have advanced him money over 8 period of two or
three years and ne's squandered it, sold nis crop
without remitting - we have to keep some discipline
up.
H.M.Jr:
The complaint is that you people loaned them too much
in the beginning.
lexander
Loaned them too much?
H.N.Jr:
More than he could really carry. Too much machinery.
Lexander:
well, sbout 35 percent - 35 percent of them con't find
it SO.
Daldwin:
I think the - of course, those auvances vary tremen-
dously, but those loans run about 0350, *375; in
some cases, of course, WE mnde loans of twelve,
fifteen hundred, two thousand dollars, in the dairy
section.
lexander: Best collections we've mede are on our larger loons.
Baldwin:
Re've got 9,795 employees.
H.d.Jr:
Just under ten thousand.
Baldwin:
That compares with May, 1936, total of 19,500.
H.L.Jr:
How much?
Baldwin:
Nineteen thousand. be nave just cut our organization
in two.
R.M.Jr:
On this particular - you're talking now just on ....
Baldwin:
I'm telking of the whole organization. About 75
percent of the people
....
Regraded Unclassified
306
-10-
H.I.Jr:
Nineteen thousand to
....
Beldwin:
To ninety-seven - hundred, ninety-eight hundred.
Bell:
That's your total organization, not Just Perkins.
Alexander:
75 percent of those people are on this loan and
grant thing.
Baldwin:
Typical county unit is 2. rural supervisor, goid
sn average of about $1300 by year; D clerk, paid
an average of about $900 2) year; and E women, 0
nome supervisor who works with these people in
their homes, paid en average of about 1500 8 year,
and we have about one of those to two supervisors,
generally try to cover two counties with the one
women who works with these destitute families,
H.M.Jr:
Now, where does this snare-cropper bill - do you people
have that?
Alexander: Yes, We have tast.
H.M.Jr:
Now, what are you doing under
...
Alexander: Well, we're buying this year about 2,200 to 0,500
farms. Can't tell exactly has much there .111 be.
Ten million dollars swilable.
Baldwin:
We're making the loans.
viexander:
Making the loans. Tenants buy the forms.
Bell:
Changed it. They can't buy the farms; have to make
the loans.
Elexander: We make the loans.
Bell:
Bill WBS changed.
Alexander: The county committee recommends the individual no
the farms.
H.S.Jr:
Same committee or different committee?
Baldwin:
We only operated 300 counties on the tenant
bill. have The cost of suministration was just gone out
of sight. Try to operate in every country with only
ten million dollars.
Regraded Unclassified
307
-11-
H.M.Jr:
Well, your administration costs must be high.
Alexander:
Five percent.
Baldwin:
Five percent is all we're allowed, of course. Our
supervisors have to
....
H.M.Jr:
I don't know whether Mr. Wallace told you what the
President said. He said, "Can't Hopkins take care
of some of these people?"
Alexander:
well
....
Baldwin:
Now, here's our experience on that. WE worked very
carefully, very closely, with PA. They started
out in these drought sreas last year, mere most
of our grants are made, and made grants to about
three hundred thousand farm fumilies - three hundred
fifty thousand.
H.V.Jr:
In '37.
Baldwin:
I mean they gave them work.
H.d.Jr:
Gave them what?
Balúwin:
Gave them work in '37.
H.M.Jr:
Yes.
Baldwin:
well, as al matter of fact, in December, 1936, they
had to cut them off - didn't have money enough to
run them; so we were given money to run them ith
grants. We took those people; we had 2. grant lond
of about four hundred thousand families then.
H.M.Jr:
when was that?
Baldwin:
That peak was reached in March, 1937. And we brought
it down - I don't have the figures by months, but we
got down to 56,000 in July. And it's been going 47
since - oh, from 56 to 76, and then on up to 108 in
December. Now, Herry isn't attempting to reach that
group of people.
H.m.Jr:
How many have you got now?
Regraded Unclassified
308
-12-
Boldwin:
108,000 on grants.
H.M.Jr:
with Hopkins?
Alexander:
No, those are ours.
Bolowin:
No, these are ours. We are carrying these on grants.
H.M.Jr;
How many is he taking care of?
Boldwin:
Well, ne's taking care - 85 percent of these people
are in our Great Plains, and he doesn't have F rurel
program out there.
d.E.Jr:
I mean has Hopkins got any rural program?
Baldwin:
On, I think some, yes, I think some people, but very
small number. I haven't seen tue figures on it
recently, but he's carryIng very few farmers on his
rolls.
Alexander: We've sot taree thousand l'amilies here In three
counties, Arkanses and Texas. They'll get - 1550
of those 111 be tingen up first of February by -
given work on flood control project here and there.
There are projects tast are toking some of these
people over.
Bell:
He'll do it in those areas Alere the relief 1000 is
sufficient to make e project. In this Great Plains
area they are SQ widely scattered that they'd Dave
to bring them from miles to set them on a project.
Baldwin:
we've been carrying them. Me've ot counties in
North Dekota where we move LS much as - in Emmont
County, North Dakote - 70 percent of the farm
families In that county are on - 16 are giving them
grants,
Alexander: Average for those counties is 60 percent.
H.S.Jr:
Average 60 percent.
Balawin:
Yes. We're carrying 35,000 ferm families, which
represents a population, I'd SKY, of 130,000 people
on grants.
309
-13-
H.W.Jr:
Well, what you people are worrying about now is
about? some months hence; is that what you're worrying
Baldwin:
Well ....
Bell:
Worrying about pressure.
Alexander: We're worrying about the pressure that's coming on
us now from every Congressman in the country. We
just stay on the phone over there. "Why can't you
make these loans?" "We haven't got the money."
H.M.Jr:
I mean when are you beginning to run out of money?
Alexander:
We are out of money so far as these new loans are
concerned.
Bell:
They won't run out of actual money if the President's
program is laid down. He laid down a program with
respect to Resettlement the same as he did with
Hopkins.
H.M.Jr:
That will last to July 1.
Baldwin:
That will last to Jul. 1 1f we don't accept any
more loans now.
H.1.Jr:
Well, are people - do you know of cases in sural areas
where people are really starving now?
Alexander:
There is hunger.
H.M.Jr:
There is?
Alexander:
Oh yes. Here you are - 1,500 families in eight
counties in South Carolina; 90 percent of them live
in the open country; 90 percent of them are heads
....
H.M.Jr:
Living in open country? No roofs?
Alexander:
In scattered farms outside of the village.
H.M.Jr:
Oh. What a funny term.
Alexander: That's the technical term, sir.
H.d.Jr:
I've lived on a farm for 25 years, but I haven't said
Regraded Unclassified
310
-14-
I've lived in open country.
Alexander: Rural district.
H.M.Jr:
Is that what they say up in New Jersey where you
come from? Don't you come from Rew Jersey?
Mexander: No, sir, I come from Georgia,
Dell:
He doesn't like New Jersey.
H.m.Jr:
Must be 2 Southern term.
Alexander: No, it sea L term developed By the Country Life
Association,
Baldwin:
well, tell you THE RSE done. to istin sten between
people tast live in smull villages
H.M.Jr:
All right, it's : trivial
"Hure 10 you get
40wn to
Alexander:
Non, they're able to give them clothes, but they're
not able to give then any food.
H.M.Jr:
Yes, but that doesn't so, they're mingry.
Alexander:
well, it doesn't say
beldwin:
I think you might say this, Dr. Alexander. we
nave practically withdrawn from giving grants In
any place except the drought section, unléss they
двуе some catastrophe.
d.A.Jr:
I tell you nust you do - going to "1ve you B. naince -
give me 2) dozen countive 1n theive different states -
I mean
Alexender: where there Ls
H.M.Jr:
where there is distress.
Wexander:
we're getting that for you right now.
H.R.Jr:
I mere there is distress. And then I'LL pick
in send ma or der into the find, with your mayledge
nean investigator and vise you, ,ith your assistent -
Regraded Unclassified
311
-15-
and cooperation.
Alexander: All right.
H.M.Jr:
Hun?
Baldwin:
Mr. Secretary, I don't think that retches this
problem that these Congressmen talk about. They
aren't talking about people tast are hungry.
H.M.Jr:
well, I am.
Baldwin:
I anow that's want you're interested in.
H.W.Jr:
I deen I'll just turn myself inside out 11 you can
tell me where people are nungry. So will Mr. Bell.
We'll find you the money.
Baldwin:
Frankly, I don't think you'll find many hungry people.
Do you, Dr. Alexander?
Alexander:
Yes, I think you will.
Boldwin:
Because they are not the dn 01 compl inta we get.
Alexander:
No, our complaint is - there 1.2% snother class of
people tast are Quite above that. You see, hero relve
got $50,000. WE can take care of so many of these
rehebilitation loans; but there's El great number of
people out there in tnst some county that simply cen't
get money to GOVE their crops and 10 on with their
farm.
H.m.Jr:
That's something different. I'm usking you for 0
dozen cases in a dozen different states, is vary
es you've got, vithin reason, where people are
hungry.
Alexender:
are in need, in want.
H.M.Jr:
Yes.
Baldwin:
or course, our instructions to the field right nov
are to go thead and spend the money where we find
hungry people, regardless -nen we run cut. Inst's
on our grant people.
Unclassified
312
-16-
H.M.Jr:
I'm asking for cases where there are people who
are hungry or in
Alexander: without clothes or medical care.
H.M.Jr:
Medical care -'I can get that from Dr. Parren - I
mean discuss the medical care. Mrs. Roosevelt and
Mrs. Morgenthau vent to a county outside of
Lexington there - I mean, .ithout medical care is -
I anow here those are.
are we still carrying on a program in North and
South Dakota?
Baldwin:
Oh yes. That's one of the finest things we're doing.
There is, of course
H.M.Jr:
Now, there 1s a case, if you don't mind my saying -
it's only my constant working, working, working
personally by which we were ever able to get that
Morth and South Dakote thing through. That's right,
Jan?
Bell:
What's that?
H.N.Jr:
That joint thing with Dr. Perran. I never have said
it, but we Just worked and worked and worked, plugged
away at that thing, just to get tast thing for Dr.
Parren. You know, this joint thing.
But I'd like to know, $5 I say, miere the people are
in real need.
Alexander: All right, sir.
H.M.Jr:
and then 15 you'll tell us that, I'd like to send
somebody out.
Alexander: All right.
Baldwin:
I Was thinking about Rem Mexico, Dr. I ARE out there
not long ago, and those Spanish Americans - never
seen anything like the sitatuion in that state. Per-
haps they are no more nungry then they have been for
the last five or six years, but It's really strocious.
Bell:
This pressure you're getting from the Hill
313
-17-
Baldwin:
we're getting the pressure
Bell:
For grants or loans?
Baldwin:
for loans.
Alexander:
The pressure we are getting is for loans.
H.M.Jr:
Now, you work closely with Steve Garwood.
Baldwin:
On yes, very closely. A3 : matter of fect, we
executed on agreement with Farm Credit the letter
part of the week
lexander:
I signed it today.
Baldwin:
Did you sign it today?
Alexander: Yes.
Belowin:
I thought it was signed Seturday.
to prevent any Suplication between what they're
uoing and what we're doing. We ded the same agreement
last year, and WE nan no trouble at all.
d.M.Jr:
He's a gentleman.
Alexander: Yes.
well, the pressure that will continue to come is on
these loans. Now, in Nebraska, these fellows say
that unless those men can be assured that they can
get loans to move their crops, they're soing to nove
off one leave the farm. Considerable amount of
abendonment of forms now. These formers are Just
whipped, begging for more money to make them loans
for their crops.
H.V.Jr:
I tell you what you CO. I'm asking for this, see?
Sée what kind of report we get, and then in a week
or ten days "Id like to see you again. How's that?
Alexander:
All right, sir.
H.M.Jr:
I mean I can't - I'd be more than plersed, until we
can see where we are, to sit gown and - Shi, every
ten days, with you people.
Regraded Unclassified
314
-13-
Alexander: All right, that's fine.
Baldwin:
Mr. Secretary, we haven't mentioned this migratory
Labor situation in California, That's
...
Alexander:
That's another one.
Baldwin:
*nat's è very mean one. Out there we are making
some grants. Now, we are actually running into
trouble with the state of California because We
are making grants. They don't want us to make them.
H.M.Jr:
40 they want them to get out?
Baldwin:
want them to get out. A nundred thousand came out
last year.
Alexander:
There's nowhere for them to go.
Baluwin:
Me're doing everything we can for them. Astablished
& number of camps. But if that condition continues,
TE know vast it would cost; cost million, five
dunöreu thuusand dollars to look after those people
out there. They're camping by roadsiues, cren't
getting medical attention; caildren are suffering,
and many of them are very nungry. Colifornia will
not take care of them, although they have E lorge
relief program.
H.M.Jr:
Anything that you've got - I've done something lse
besides be Secretary of the Treasury in my life and -
I mean I Know what social wor's Ls. And I'm tsking
you - I mean give se the worst you've got,
Alexander:
All right.
H.M.Jr:
Now, Let's see now bod it is.
Alexander:
All right.
H.M.Jr:
what?
Alexander:
All right.
H.M.Jr:
Let me see the worst you've got, and then, if you
don't mind, we'll send somebody ourselves with you,
openly and sboveboard, the way we tways work.
Regraded Unclassified
315
-19-
Alexander: All right.
H.M.Jr:
See?
Alexander:
It's all right. Now, the pressure that you're getting
is, nowever, from this loan thing In Nebraska,
Baldwin:
We've got a joint memorandum, I understand.
Bell:
les, I got it here now,
H.M.Jr:
well, I want a chance to talk it over with Mr. Bell.
Ne didn't know just what this is.
Alexander:
All right, sir.
H.M.Jr:
You're Interested in tast thing that I sent over there?
Alexander: Yes, our boys are working on that.
H.M.Jr;
And they'll have within a reasonable time a report?
Alexander:
Yes, sir.
H.M.Jr:
They certainly make 2. little money 20 B long KE2,
don't they?
Alexander:
Yes. We've got one of our engineers out there
looking at it.
H.M.Jr:
I Saw the report - beautiful.
Thank you for coming over.
Regraded Unclassified
316
PARAPHRASE OF TELEGRAM SENT
TO: American Embassy, Paris, France
DATE: January 31, 1938, 10 a.m.
NO.: 52
FOR COCHRAN FROM THE SECRETARY OF THE TREASURY.
Reference is made to your telegram No. 160 of
January 29.
With regard to the reference to the Tripartite Agree-
ment and France which was reported to Rueff by the French
Financial Attache to the United States, this was given to
the press only as background information. No direct state-
ment or interview was given. In view of this Secretary
Morgenthau does not wish his name to be used in connection
with the report of the French Financial Attache.
HULL
EA: LWW
Regraded Unclassified
317
MBo
GRAY
London
Dated January 31, 1938
Rec'd 1:50 p.m.
Secretary of State,
Washington.
RUSH
78, January 31, 6 p.m.
FOR THE SECRETARY OF THE TREASURY FROM BUTTERWORTH.
Returned from Paris this Evening.
In the course of my talks with Cochran which WERE
very helpful and informative he told me of his inter-
view with Marchandeau reported in his telegram of January
26. Am I authorized to pass on the general substance of
this conversation to Phillips with whom I have an ap-
pointment, made by him last week, for noon tomorrow!
JOHNSON
HPD:
Unclassified
318
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: January 31, 1938, 4 p.m.
NO.: 163
FROM COCHRAN
Feature of European exchange trading today is weaken-
ing of dollar against sterling. Swiss are reported heavy
sellers of dollars and purchasers of gold on London market,
one customer alone selling today one and one half million
dollars. Belga weakening with dollar is at gold export
point with London.
French control began offering sterling at 152.87 when
banks opened this morning and brought rate down to 152.55.
By 3:30 p.m. rate had moved back to 152.95 where control
was giving some sterling on a quiet and steady market.
Forward franc somewhat strained and discounts lower.
Today's improvement has followed: (One) American
Treasury press conference on France and tripartite, which
continues to receive favorable comment from French editore.
(Two) Vigorous policy of French control on Friday evening
and Saturday morning. (Three) Chautemps statement denying
plan to seek plenary financial powers or to go against
tripartite underwriters. (See my 161, January 31, 11 a.m.)
(Four) Prospect of Minister of Finance Marchandeau giving
a statement along similar lines over radio at & 7:30 tonight.
Further exchange upset should be postponed by the fact
that parliamentary vote on the labor code the latter end
Regraded Unclassified
319
- 2 -
of this week and that the Bank of France statement this
Thursday will show no gold loss. Rentes on the other
hand are lower today. The Algerian loan which opened on
the eleventh of January with twenty francs commission per
thousand franc bond is today selling with a forty franc
commission with difficulty. Contacts of mine in the
Ministry of Finance expect that this loan will be closed
on Wednesday. They believe it will shortly be followed by
a Credit National operation.
BULLITT.
EA:LWW
Regraded Unclassified
320
TELEGRAM SENT
LMS
GRAY
January 31, 1938
4 p. m.
AMEMBASSY
LONDON (ENGLAND)
38.
FOR BUTTERWORTH FROM THE SECRETARY OF THE TREASURY.
Your No. 78, January 31, 6 p. m.
Yes.
HULL
(FL)
EA:FL:LVM
Regraded Unclassified