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Volume 127, June 1 – June 6, 1938
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Volume 127, June 1 – June 6, 1938
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 127
June 1 - June 6, 1938
Regraded Uclassified
- A -
Book Page
Agriculture Farm Parity: See Unemployment Relief (Recovery-Relief Bill)
See also War Conditions
- B -
Board of Tax Appeals
See Tax Appeals, Board of
Business Conditions
Montgomery Ward: Oliphant memorandum on uniform write-down
to 10% gross profit - 6/1/38
CXXVII
60
White memorandum on published statements made by well-
known persons in fall of 1937 as to business
prospects for 1938 - 6/2/38
149
Report of interdepartmental meeting - 6/3/38
201
Raindrop story:
a) Chart on which story was based
278
Haas memorandum: "Business and research program on
commodity prices" - 6/6/38
292
Haas memorandum on business situation during May -
6/6/38
350
- C - -
Cement
See Procurement Division
China
See War Conditions
Comptroller of Currency
Diggs, Marshall:
Recommendations from South again discussed at
9:30 meeting - 6/6/38
261
- D -
Diggs, Marshall
See Comptroller of Currency
- F -
Federal Farm Board
Memorandum on loss incurred by operation of $500 million
revolving fund - 6/4/38
225
Regraded
- F - (Continued)
Book Page
Financing, Government
6/15/38 - HMJr arranges for preliminary discussion
with Burgess, Devine, and "the Discount boys" -
6/1/38
CXXVII
2
Walter Cummings consulted by HMJr - 6/1/38
51
Harris memorandum on suggested issues - 6/1/38
59
Conference; present: HMJr, Taylor, Harris, Haas,
Seltzer, Lochhead, Upham, and Bell - 6/1/38
66
a) Burgess asked for "summary of what he's
learned today"
Conferences on 6/2/38 with:
Devine
142
Woods (C.F. Childs Company)
144
"'.lls and Repp (Discount Corporation)
146
Eccles
154
Bullitt
160
Conference; present: HMJr, Taylor, Lochhead, Haas,
Seltzer, Harris, Upham, and Bell - 6/3/38
178
Announcement - 6/6/38
246
a) HMJr asks Burgess about success of offer
242,276,357
Paris resume - Government security market - 6/6/38
347
France
See also Stabilization
Reynaud expresses to Cochran dissatisfaction with
economic and financial policies of present government -
6/1/38
114
- G -
General Counsel, Office of
HMJr instructs McReynolds not to permit Klaus detail
to Department of Justice - 6/3/38
208
- H -
Haiti
White memorandum on situation - 6/6/38
298
Loan discussed with State Department - 6/6/38
300,304
Hopkins, Harry
HMJr, Gaston, and Mellett discuss support of Wearin -
6/1/38
1,109
Hull, Cordell (Secretary of State)
Comments to HMJr on attitude of White House toward him -
6/1/38
110
Regraded Uclassified
- I - -
Book Page
Internal Revenue, Bureau of
Reorganization: Extension of Pacific Coast set-up
discussed by HMJr, Magill, and Helvering - 6/1/38
CXXVII
5
a) Memorandum on set-up in New York division
14
Helvering versus Gerhardt Supreme Court decision -
See Revenue Revision: Port of New York Authority
- M -
Mellon (Andrew W.) Case
Appeal to Circuit Court of Appeals discussed further
by HMJr, Magill, Oliphant, Helvering, Wenchel, and
Shearer - 6/1/38
20
Montgomery Ward
See Business Conditi the
- P - -
Port of New York Authority
See Revenue Revision
Procurement Division
Cement:
HMJr instructs Director of Procurement to authorize
all departments to proceed to make purchases
directly for month of July; similar action to be
taken on first of each subsequent month until FDR
reaches decision - 6/1/38
39
a) HMJr-McReynolds telephone conversation
49
Public Works Administration
See Unemployment Relief
- R -
Raindrop Story
See Business Conditions
Revenue Revision
Port of New York Authority:
Internal Revenue, Bureau of: Conference on tax problems
arising from Supreme Court decision in case of Helvering
versus Gerhardt; present: Magill, Oliphant, Gaston,
Wenchel, various Congressmen, state and municipal officials,
and newspaper reporters - 6/1/38
26
FDR and HMJr discuss Federal taxation on state salaries -
6/3/38
203
a) FDR's memorandum suggesting studies by Internal
Revenue and Department of Justice
205
1) Magill suggests that study be made by
General Counsel of Treasury
207
Revolving Fund
See Federal Farm Board
Regraded Uclassified
- S -
Book Page
Silver
See Spain
Spain
Ambassador confers with HMJr concerning purchase of
silver - 6/2/38
CXXVII 166,177
Resume of negotiations for purchase of five million
ounces of silver (011phant-Bernstein memorandum) -
6/6/38
312,314
Stabilization
Belgium:
British Treasury sends British Financial Attache'
at Paris to Brussels for examination of situation -
6/2/38
119
France:
Exchange market movements resume - 6/2/38
117
- T -
Tax Appeals, Board of
Reappointment of four members: James Roosevelt 'phones
FDR has not yet made up his mind - 6/1/38
19
Taxation
See Revenue Revision
Treasury Department
Resume of HMJr's program to date - 6/3/38
189
- U -
Unemployment Relief
Copies of Lonigan report on trips to Cleveland and
Chicago - 6/3/38
190
a) Parran reports to HMJr that Wallace admits
inaccuracy of his estimates - 6/3/38
213
Treasury personnel on relief rolls: justification therefor
89
Recovery-Relief Bill:
James Roosevelt tells HMJr FDR has signed letter to
Senator Adams; HMJr again states he will not go to
the Hill without personal instructions from FDR - 6/1/38
19
Williams suggests to HMJr that Byrnes be asked to
introduce amendment giving FDR right to transfer funds
from one agency to another - it to appear that idea
originated on the Hill - 6/1/38
40
a) HMJr and Bell confer e.s to what HMJr said to
Barkley a week ago about changing amount from
$50 million
44
Williams and HMJr discuss Barkley amendment permitting
President to transfer funds for the purpose of direct
relief from WPA moneys to any other agency - 6/1/38,
55
Ticker comment on HMJr's support for FDR's request for
freedom from restrictions in spending of relief funds -
6/2/38
140
Barkley amendment discussed at 9:30 meeting - 6/2/38
122
Regraded Uclassified
- U - (Continued)
Book Page
Unemployment Relief (Continued)
Recovery-Relief Bill (Continued):
Wallace and HMJr confer on "earmarking of $50 million
put over by dairy, fruit, and vegetable people" -
6/4/38
CXXVII 233
FDR consulted by HMJr about backing Woodrum in fight
to knock out $212 million appropriation for farm
parity - 6/6/38
343
a) FDR agrees
b) HMJr talks to Woodrum
- W -
War Conditions
HMJr and Wallace call on Hull concerning loan to China
so that flour and cotton grey goods may be purchased
from United States - 6/1/38
109
a) Hull suggests offering cotton and wheat to
Japan first
Oliphant memorandum on legality of interchange of
agricultural commodities for strategic ones through
Federal Surplus Commodities Corporation - 6/2/38
176
Chinese loan discussed with State Department - 6/6/38
300,304
Works Progress Administration
See Unemployment Relief
Regraded Uclassified
1
June 1, 1938
Dictated June 2, 1938
Lowell Mellett and Mr. Gaston were at my house
last night (June 1) and Mr. Mellett said to Mr. Gaston,
"Did I understand you to say that the President disap-
proved of what Hopkins did in coming out for Wearin?'
Gaston replied, "No, what I said was that the President
had not approved Hopkins' coming out for Wearin. # Then
Mr. Mellett said, "I just cannot understand it, because
for 24 hours there was all the maneuvering to get Hopkins
to come out for Wearin. #
Regraded Uclassified
2
Wednesday
June 1, 1938
9:16 a.m.
HMJr:
Well. Hello.
Operator:
Doctor Burgess.
HMJr:
Hello.
W. Randolph
Burgess:
Oh, Hello, Henry.
HMJr:
Randolph...
B:
Yes, sir.
HMJr:
Good morning.
As an afterthought...
B:
Yeah.
HMJr:
...I doubt whether I want to see anybody besides
yourself, Devine, and the Discount boys.
B:
I see.
HMJr:
And I wanted to get to you - I tell you - I -
for instance I'm called on the Hill every minute
or by the White House for this bill. I don't
want these people to come down here and not be
able to see them, do you see?
B:
Yes. Yes.
HMJr:
And I thought if I saw you fellows - ah - saw you
at one o'clock, you see?
B:
Yeah.
HMJr:
And then - ah - say Devine at three?
B:
Yeah.
HMJr:
And - ah - you wouldn't have to come down until
tomorrow morning, if you wanted to.
B:
Yeah. I could take a morning train.
HMJr:
Yeah. And Devine at three if he can get away.
And then we can use the phone a little bit.
B:
Yeah. I think that's all right.
Regraded Uclassified
3
N I I
HMJr:
But
B:
You're pretty well tied up and
....
HMJr:
Well, I - - ah - it's just I don't want them to
come here and now this - I'm waiting for a call
now; Byrnes asked me to go on the Hill on this
Recovery Bill.
B:
Yeah.
HMJr:
Well, I can't invite these people down and have
them sitting around for a couple of hours and not
see them.
B:
That's right. Yes.
HMJr:
See?
B:
Well, I've talked to all of them and I'll talk
with them again - I can give you their reactions.
HMJr:
Good. Well, later on I'll call you because the
thing is beginning to clear a little bit in my
mind.
B:
Well, I'll get these - the Discount boys for
one o'clock.
HMJr:
Yes.
B:
And Devine for three
HMJr:
That's right.
B:
And I'll come down and be there available when the
Discount boys are ready or a little beforehand.
HMJr:
That a boy. Tell them to bring their extra suit of -
pair of pants.
B:
(Laughs) All right.
HMJr:
O.K.
B:
I'll bring one too. (Laughingly)
HMJr:
All right.
3:
Thank you, Henry.
Regraded Uclassified
4
- 3 -
HMJr:
Goodbye.
B:
Good.
Goodbye.
Regraded Uclassified
5
RE EXTENSION OF PACIFIC COAST INTERNAL
June 1, 1938.
REVENUE SET-UP
10:30 a.m.
Present:
Mr. Magill
Mr. Helvering
H.M.Jr:
Now, what's this today?
Magill:
This is the New York office.
H.M.Jr:
Oh. Haven't you settled that?
Helvering:
Paid we were going to settle it this morning.
H.M.Jr:
Want to settle it for me, make life easy?
Helvering:
I've prepared & memorandum here; thought it would
save time if you'd read it. The meat of it is all
contained in the last paragraph. It's the write-up
of the regular set-up, same as we have in the
Pacific division.
Magill:
As I get it, this is precisely the same as the
Los Angeles
Helvering: No, the Pacific division.
Magill:
... as the Pacific division, with the geographical
changes; but you want the settlements as to Board
cases to go into effect on the first of August.
Helvering:
90-day letter.
Magill:
90-day letter and Board cases, And then as to the
settlement of other cases, go into effect on the
first of January - pre-90-day cases - is that it?
Helvering: Yes.
Magill:
Mr. Helvering spoke about it yesterday afternoon -
perhaps I might bring you up to date in that way - ...
H.M.Jr:
Fine.
Magill:
- and said, as to these pre-90-day settlements
which he was speaking about the other day, that he
felt that there was a good deal of danger of this
Regraded Uclassified
6
-2-
New York unit bogging down if they were given
complete authority, which the Pacific Coast unit
has, as of August 1 - a tremendous amount of Board
stuff up there, and they will have, he thinks, all
they can do to get that in hand between the first
of August and the first of the year. That's the
essence of it, isn't it?
Helvering:
Yes.
Magill:
I said to him yesterday I thought he was the best
judge of that type of situation.
H.M.Jr:
That's right.
Magill:
And that if that seemed to be the economical way to
do, why, I was - efficient way to do, I'm inclined
to go ahead, because we certainly - this New York
business is certainly one of the toughest nuts, and
we want to do it right.
H.M.Jr:
That's right, got to do it right. Now let me just take
a look at this thing.
(Reads portions of memorandum)
Well, what do you think?
Magill:
I'm inclined to think this is the best way to do it.
H.M.Jr:
Well, let me ask you this. By January first, what
will be the difference between this and Los Angeles?
Helvering:
After January first, there won't
....
Magill:
Be just the same after January first.
Helvering:
Well, Los Angeles, of course, is a part of the
Pacific division. This will be just exactly as
the Pacific division for the three offices in New
York and the office in Buffalo.
H.M.Jr:
Will it include Buffalo?
Helvering:
Yes, the whole state of New York.
H.M.Jr:
Let's put it this way. What will be the difference
between the New York division and the Pacific division
Regraded Uclassified
7
-3-
after January first?
Helvering:
Not a particle.
H.M.Jr:
You're going to handle both the estates and gift?
Helvering:
Yes. Everything will go the same.
H.M.Jr:
Put you've just spread it over nine months.
Magill:
Over a period from August 1 to January 1.
H.M.Jr:
You haven't initialed this?
Magill:
No, I haven't even seen it.
H.M.Jr:
I'll tell you, just to show you - even the Commissioner
hasn't signed it - I'll sign first and we'll do it
backwards, how's that?
Magill:
That's fair enough.
H.M.Jr:
I don't know - he comes over here ...
Magill:
I'm quite willing to take it on Guy's say-so that
it's the same as Pacific division.
Helvering:
Well, there's just one change, and that's that little
$500 item that we - in the Pacific division, on
account of the long distance between the Utah and
Seattle offices, we allowed the boys out there to
take the little $500 cases and settle them, and on
this we're holding them all in the central headquar-
ters. Thats the only change in the whole thing, which
is an immaterial change.
Magill:
Yes.
H.M.Jr:
Is that all?
Magill:
I think that's all.
I've got two or three questions I'd like to ask you
if you've got time.
H.M.Jr:
I got time.
Regraded Uclassified
8
-4-
Magill:
How about Chicago, Guy? We talked - spoke about
that once.
Helvering: Well, I think we can go ahead on this. I don't
see why we can't go ahead es far as these - the
Doard and these 90-day letters, just as fast as
we can. I don't think there is any question about
that part of it.
Magill:
You don't?
Helvering:
Oh no.
Magill:
That's the big batch of their work.
H.M.Jr:
Is it 90-day letters?
Magill:
The stuff after it gets into the 90-day tage.
H.M.Jr:
What do you suggest for Chicago?
Helvering:
Well, I think we can go ahead and get that set up
just as soon as we get this set up.
H.M.Jr:
Will you fix me up a letter, do Chicago on the same
basis? Instead of starting September 1
....
Helvering:
Well, I'd like to talk it over with Marrs and Graves
and see if it can be ready or not.
Magill:
We want to be very sure we've got the right personnel.
H.M.Jr:
"ill you do that next? And I appreciate the spirit
in which you have approached this, if I may say SO.
Helvering:
Well, I think this will work out.
H.M.Jr:
(Handing Helvering a letter) An anonymous letter.
Magill:
I think this is fine.
H.M.Jr:
I think it's fine. Guy ought to know this business,
1 mean - but I think if we could carry Chicago along
at the same time
...
Just stick it in your pocket. I mean - I mean if
they're dunning people who are on relief, it's kind
Regraded Uclassified
9
-5-
of adding insult to injury.
Helvering:
Yes.
H.M.Jr:
I mean it's a letter from somebody who is on relief -
being dunned for his income taxes.
Well, have you anything on your mind other than ...
Helvering:
Well, I want to mention this. This can't be a
success unless we make some arrangement with the
Board.
Magill:
Oh, I'm glad you mentioned that. I was going to
mention that too.
Helvering:
Because we've got to have in New York an understanding
with the Board of Tax Appeals that they re going to
set up at least two members there with a steady
attendance of their dockets, anyhow as early as
September first, for the end of the year - perhaps
"ugust 15.
Magill:
Guy tells me that they've got $250,000,000 in Board
of Tax Appeals cases right there in New York.
Helvering:
And we ought to have Board members sitting the year
round.
H.M.Jr:
How about writing them a letter? What? How about
having a meeting with them, or how about you two
fellows seeing them?
Magill:
I think that's what we ought to do, don't you? Of
course, we're in a little difficulty there on account
of the fact that we normally see the Chairman, and
that's Arundell, and you know that situation.
H.M.Jr:
When does his term expire?
Magill:
Tomorrow.
Helvering:
He goes off pay the end of the day.
Magill:
And he loses his chairmanship.
H.M.Jr:
(On White House phone) Is Mr. James Roosevelt back?
-
Please.
Regraded Uclassified
=0
-6-
Tonight is the deadline?
would
Magill:
Well, the nominations/have to be sent up today,
wouldn't they?
Helvering:
Have to be confirmed today, or else they go, under
the law, off the payroll.
H.M.Jr:
They have to be confirmed
Helvering:
Have to take their oath.
H.M.Jr:
(On White House phone) Hello, Jimmy, how are you? -
Jimmy, for the past month or six weeks, your father
and + have been corresponding about these four
members of the Board of Tax Appeals who go off the
payroll tonight. And unless there is some awfully
good reason, for his own sake, see, those boys ought
to be - he ought to take action today. And they've
got to be confirmed today or else they go off the
payroll. Now, I mean
(Aside to Helvering) They do go off the payroll?
Helvering: Yes, if they're not confirmed.
H.M.Jr:
(on W.H. phone) Guy Helvering is sitting in here
in my office.
Helvering:
They don't hold over.
H.M.Jr:
(On W.H. phone) They don't - they can hear because
this telephone is so loud; they both shake their heads
and say if they are not confirmed today, they go off
the payroll.
Helvering:
That's right.
H.M.Jr:
(on W.H. phone) If they are not confirmed. Both
Magill and Helvering are here, and they say if they
are not confirmed by today, they go off the payroll.
And there isn't - I mean if I may say so, there is
no reason that 1 know of
-
Well, there are
three which he is, see? So if he's going to reappoint
three, let's do it today, and it doesn't leave a bad
taste in everybody's mouth.
Roosevelt: All right, sir, I'll call him up right away.
Regraded Uclassified
11
-7-
H.M.Jr:
(On W.H. phone) Well, he may not - well, I doubt if
he knows that if he doesn't move this morning, that
they go off the payroll tonight.
Roosevelt: All right, Mr. Morgenthau, I'll check with him in
just a second and I'll call you back.
H.M.Jr:
(On W.H. phone) Thank you. I'd appreciate it.
(Conversation ended)
Helvering: That law specifically states that the term ends.
It isn't like most offices.
H.M.Jr:
Oh, I'm - well, I don't want to talk, but ....
Christ, I've had this letter to Senator Adams which
the President wanted to go on the Hill last night,
and at 9:15 Aubrey Williams calls up - "The President
can't find the letter. Why didn't you send it to
him?"
I talked to Miss LeHand, said we left it there 4:30.
So she said, "Well, it's in his basket" - she says
to me at 9:30.
Mac calls up this morning and asks Forster, "Has
the President signed it?
"Oh yes, he sent it up last night to Senator Adams."
Calls up Senator Adams, did he get it? "What letter
you talking about? I didn't get any letter."
So to save argument Mac had it written all over again
and he's over there now. And this is on the relief
bill, to give the President sufficient authority to
transfer funds so that he won't have to call Congress
back, and we have only - it's a matter of minutes,
because these fellows are going to leave. I'm
supposed to go up on the Hill with Wallace and Aubrey
Williams and Berlew and make a fight. I told Aubrey
Williams - he called me at 7:30 - "I'm not going up
there until the President signs the letter.'
He said, "Oh, that's all right, it's been signed."
So I said, "When I know Adams got it, then I'll
Regraded Jclassified
12
-8-
talk to you."
This is all in the family. But I mean I just want
to - I don't want you to think always it's so easy.
And for your own information, that speech which the
President gave down at Arthurdale on taxes - Magill
and I never saw it or had anything to do with it.
I just want you to know that.
I'm tickled to death with this. If you can do
Chicago - and this fellow's leaving town Friday for
a month?
Magill:
Well, I imagine leaving on Monday.
H.M.Jr:
Well, if it isn't rushing you too much, if you could
clean it up before you left - will you be here Monday?
Magill:
I can come down Monday.
H.M.Jr:
It's not necessary. I should think - is it rushing
you too much - will it?
Helvering:
Well, it's a pretty big unit.
H.M.Jr:
Well, I'm here. No, I'm here. Let's put it on the
calendar that you (Helvering) and I will clean it up
next week, between now and the 11th of June. Huh?
That's Saturday a week.
Helvering:
Oh well, we can do that.
H.M.Jr:
That doesn't rush you too much.
Helvering:
No.
H.M.Jr:
Because I appreciate that.
Did you (reporter) hear Jimmy Roosevelt say his
father's not going to appoint one of the four? He
said his father's not going to appoint one of the
four. So I said I didn't know about that.
Magill:
That would evidently be Tyson. Arundell, Tyson,
McKern, and Opper are the four.
Regraded Uclassified
13
-9-
Helvering: McKern, Opper, and Arundell - there wouldn't be
any question about McKern and Opper; just put them
over.
H.M.Jr:
No, it's Tyson.
Well, anyway, that's that.
Regraded Uclassified
14
May 31, 1938.
MEMORANISM FOR THE SECRETARY:
Subject to your approval, the arrangements at procedure
below described will govern the disposition of tax same arising
in the offices of all Internal Revenue Agents in Charge within
the State of New York.
TECHNICAL STAFF, DIVISION
1. Effective August 1, 1938, 8 division of the Technical
Staff of the Commissioner's Office will be established comprising
the state of New York. It will be known " the yes York Division
of the Technical Staff (hereinafter referred to as the Staff
Division). It will consist of a Read, to be designated by the
Commissioner, and mob tochnical assistants, anditors, and elerks
as my be necessary. It will perform its duties under the Com-
missioner's supervision through the Head of the Technical Staff,
Bureeu of Internal Revenue. The Staff Division will maintain
division hoadquarters at New York, New York, with branch offices
at much other places within the division - in the judgment
of the Commissioner may appear advisable.
8. (a) The Head of the Staff Division will exclusively rep-
resent the Commissioner in the determination of Federal income,
profits, estate and gift tax liability (whother before or after
the issuance of a statutory notice of deficiency) in all cases
originating is the office of my Internal Revenue Agent is Charge
hereinsbove mentioned, is which the texpayers have finally pro-
tested the prelimisary determination of liability made by that
officer, exsepting cassa is the pre-90-day status in which the
Special Agent in Charge or the Internal Revenue Agent in Charge
has recomended criminal prosecution: Provided, That the Staff
Division shall not eliminate the ad valorem fraud or negligence
pensity in any case in the so-called 90-day status, or the pre-90-day
status, except with the concurrence of the Special Agent is Charge.
Regraded Uclassified
15
(b) The Hoad of the Staff Division will also have ex-
elusive matherity to settle by stipulation all cases docketed
by the United States Board of Tax Appeals and set for trial
at any place within the territory comprising the jurisdiction
of the New York Division of the Technical Staff: Provided,
That he shell not make or approve 0 stipulation for settlement
in any docketed case except with the concurrence of the Counsel
for the Staff Division referred to below.
5, A representative of the Chief Counsel of the Bureen of
Internal Revenue will be assigned as Connsel for the Staff
Division, with such legal and elerical assistents as be may require.
His duties will be performed under the general supervision of
the Chief Counsel. He will advise the Head of the Staff Division,
upon request, upon legal questions arising is the determination
of income, profite, estate and gift tax liability. He will ad-
visa the Head of the Staff Division also with respect to any
proposed sottlement of e dooketed case. Be will prepare absure
to petitions filed with the Board of Tax Appeals, copies of which
will be furnished him by the Chief Counsel, in cases originating
in the offices of the Internal Revenue Agents in Charge hereinabove
mentioned; and he will have exclusive authority to represent the
Commissioner in the defense before the Board of cases set for
hearing within the territorial jurisdiction of the Staff Division,
but he shall not stipulate before the Board for the settlement of
any case except with the approval of the Head of the Staff Division.
The Counsel for the Staff Division will consider all memorenda
prepared in the Staff Division directing the issuance of statutory
notices of deficiency prior to their approval by the Head of the
Division, and will advise him in any such case whether in Counsel's
judgment the proposed deficiency or my larger or smaller deficiency
could successfully be defended upon appeal to the Board. He will
also make such suggestions as he any desa advisable as to the form
and content of the proposed statutory notice in may such case,
to insure that such notice will provide e sound basis for defense
should the case be appealed.
PRELIMINARY PROCEDURE BY THE INTERNAL REVENUE AGENTS IN CHARGE
4. Deficiency cance will be handled is the office of the
Internal Revenue Agent in Charge is secordance with the provisions
of the Internal Revenue Manual, and other general instructions,
except in the following particulars;
(a) Except in fraud cases in which procession is
comtemplated, the Internal Revenue Agent in Charge will
mb and send to the taxpayers by registered mail the
preliminary notice of deficiency in all income, profits
Regraded Uclassified
16
end estate tax 08888 arising within his territorial
jurisdiction, and is all gift tax cases in which his
office is directed by the Buren to make the major
field exemination. In say case where the taxpayer
does not respond to the proliminary notice of do-
ficiency within the time allowed by said preliminary
notice, the Internal Revenue Agent in Charge, without
follow-wp of the preliminary notice, will issue the
statutory notice of deficiency is the prescribed form.
(b) In my case where the taxpayer files a protect
after the preliminary notice of deficiency but declines
a conference, the Internal Servane Agent is Charge will
reconsider the case in the light of the protest and
notify the taxpayer of his conslusions. If at agreement
is not reached, he will thereafter, depending upon the
circumstances of the case, either (1) issue the statutory
notice of deficiency, or (2) advise the texpayer that on
request the case will be referred to the appropriate
office of the Staff Division for hearing, but that im the
absence of such a request the statutory motice of do-
ficiency will be mailed at the expiration of a specified
time. In this latter event, the Internal Revenue Agent
in Charge will issue the statutory notice upon the tax-
payer's failure to request a hearing before the Staff
Division within the time specified.
(a) In eay case there the texpayer files a protest
and 8 conference is held, but without agreement, the In-
termal Revenue Agent is Charge will notify the texpayer
of his comblusions, advising kim that upon request the
0000 will be referred to the appropriate office of the
Staff Division for hearing, but that in the absense of
such 1 request the statutory notice of deficiency will be
mailed at the expiration of a specified time. The Internal
Revenue Agent in Charge will issue the statutory motice
upon the texpayer's failure to request a hearing before
the Staff Division within the time specified.
5. The procedure for handling cases will be
the - u that prescribed in the preseding paragraph with relation
to deficiency taxes, except that the proliminary notice will inform
the texpayer that if be fails to mequiesce or protest within a
specified time the Internal Revenue Agent is Charge will recement
to the Commissioner the issumes of a certificate of overancement
is the amount stated in said prolimisary notice. If the taxpayer
fails to respond to the proliminary notice, the Internal Revenue
Regraded Uclassified
17
-4-
Agent is Charge will and the ⑉ to the Bureen for issumes
of the certificate of everyonement or other appropriate astion.
PROCEDURE APTER REFERENCE TO STATE DIVISION
6. The Staff Division will accord hearings upon protested
cases referred to it by the Internal Revenue Agent in Charge in
accordance with the procedure outlined in the preceding peragraphs.
It will not consider before the insurance of the statutory notice
of deficiency my case is which as protest has been filed with
the Internal Revenue Agent in charge. In my sase in which pro-
test has been filed with the Internal Revenue Agent in Charge,
it will not consider prior to the insures of the statutory
notice now contentions or are evidence that my be decisive with
respect to say major issue, but upon the presentation of make
contentions or oridease, will refer the issues involved to the
Internal Revenue Agent in Charge for further consideration and
for senference with the texpsyer if advisable.
7. When the Head of the Staff Division has reached a fimal
comelusion with respect to may case, he will prepare a amerenber
thereof setting forth the exast grounds upon which his oonslusion
rests. This amerember will be transmitted with all the papers
in the case to the Internal Revenue Agent in Charge, who will,
according to the nature of the decision of the Staff Division,
(a) Certify a deficiency to the Collector in
accordame with Minsograph 3552,
(b) Issue e statutory notice of deficiency, or
(e) Trensmit the case to the Bureen for propare-
tion of . certificate of overasseement, or
other appropriate action.
8. Except as provided is peragraph 3 above, the Staff
Division will have complete jurisdiction of all cases after the
issuance of the statutory notice. Upon the texpayer's request,
the Staff Division may take up for settlement my case is which
8 statutory notice has been issued, and may great the taxpayer
a hearing thereon. Except in unusual eircumstances, horever, 10
will not grant a hearing in né a case prior to the filing of
the potition if a hearing has been had in the office of the
Internal Revenue Agent in Charge, or If the terpayer has refered
an opportunity to be heard there.
Uclassified
18
9. After the filing of the petition in any case, the staff
Division will continue to have sole authority, subject to the
provisions of paragraph 2 above, for the settlement of the case,
and will have the eastody of all files, papers, and documents
relating to the case, which will, however, at all times be evail-
able to the Counsel for the Staff Division for the proparation
of the answer to the petition and for the defense before the Board
of the Commissioner's determination.
10. AS any hearing granted by the Staff Division, whether
at an esteblished office or on circuit, the Internal Revenue
Agent in Charge will be represented if be so desires, or if the
Read of the Staff Division doems it advisable; and at city mush
hearing on a 08.00 involving the ed valorem fraud or negligence
penalty, the Special Agent in Charge will be represented if he
80 desires. Except as may be otherwise directed by the Comis-
sioner through the Head of the Technical Staff, the conduct of
hearings and other proceedings by the Staff Division will be in
mecordance with the procedure customarily followed by the Techni-
sal Staff.
11. The intent of the arrangements and procedure above pre-
seribed to to provide one, single, unified agency, with office
facilities at or near the texpoyers' residences or please of
business, to exercise on the ground, for the Commissioner, all the
authority which the Department, or may of its breaches, any have
under the Law, in the review of protested tax determinations made
by the Internal Revenue Agents in Charge, in the settlement of
contested cases, and in the defense of such cases, des necessary,
before the Board of Tax Appeals.
12. The procedure prescribed in this memorandum, is 80 far
se 19 relates to cases in which the statutory notice of deficiency
has been, or may hereafter be, issued, will became effective
August 1, 1938. The procedure which relates to the determination
of tax lisbility, and the settlement of cases, before the issuance
of a statutory notice of deficiency, will become effective January 1,
1930.
Comissione.
Approved:
Secretary of the Treasury.
Regraded Uclassified
19
MEMORANDUM
June 1, 1938.
10:53 a.m.
Mr. James Roosevelt calied me at ten minutes of
eleven and said he had talked to the President about
sending up the reappointment of the members of the Board
of Tax Appeals, and the President said he wasn't going to
do anything today; that these were his appointees and it
would be just too damn bad if they had to go without their
salary for five or six days, and that he hadn't made up his
mind about any of them.
And then I asked Mr. James Roosevelt if the President
had signed the letter to Senator Adams. He said he had
signed it at 9 o'clock this morning. I said that my under-
standing through Aubrey Williams was that the President
wanted Aubrey Williams, Berlew, Wallace, and myself to go
up on the Hill in connection with this letter, but that I
didn't propose to go up until the President saw us and told
us specifically what he wanted us to do on the Hill. Mr.
James Roosevelt said he'd see his father when he got an
opportunity and would telephone back what the answer was.
H.M.JR.
Regraded Uclassified
20
RE MELLON TAX CASE
June 1, 1938.
11:00 a.m.
Present:
Mr. Magill
Mr. Oliphant
Mr. Helvering
Mr. Wenchel
Mr. Shearer
H.M.Jr:
Well, who's teacher?
Oliphant:
Magill.
Magill:
why aren't you?
Oliphant:
Oh, I have other papers.
Vagill:
This is the legal department.
Well, the situation on this, as it was put up to
me, is this. The board, as you will recall, found
certain points in favor of the Government, some
points in favor of Mr. Mellon. The opinion of the
Board is quite confusing. On some of the ma jor
points the Board split 3 to 7; on other points I
believe they were unanimous. And the opinions,
both the ma jority and minority, are not very clear.
It's a difficult case for a lawyer to understand
really what the yourt was trying to do.
But anyway, the deficiency, as found by the Board,
is a little over $400,000. If we should win every-
thing that we thought we might, we would get about
a million dollars - little over a million.
Oliphant:
This is Andrew Mellon's case alone.
Magill:
This is Andrew's case alone.
H.M.Jr:
You'd collect now much?
Magill:
If we won everything, we'd collect a million. The
Board has found in our favor for four hundred thou-
sand. Now, we have
H.M.Jr:
-hen there's a difference - we think we're entitled
to six hundred thousand more.
Magill:
It's better than six hundred thousand.
Uclassified
21
-2-
Now, as I understand it, some of the points that
were asserted and that I believe were involved in
the million, are points that we think are not very
good - isn't that true - and that we have not got
very much hope of winning them at any time; but there
is a reasonable possibility of winning considerably
more than what we did before the Board.
So that, looking at it from a lawyer's point of
view, there would be two reasons for an appeal
in the case, First, that we've got a series of
complicated legal questions which are involved
in other cases of other stockholders that were
involved in these same transactions and stockholders
in other cases completely distinct; and these legal
questions we would like to have settled. And then,
secondly, there is so much money involved here that
normally either the Government or a private client
would appeal, because we don't want to have it rest
merely with the Board.
Now, I inquired from Mr. Shearer along these lines
as to what the chances are of losing some of this
four hundred thousand if we take it up on an appeal,
and Shearer says that this four hundred thousand
might be chiseled down to about three hundred fifty
thousand.
Shearer:
Not on our appeal, Mr. Magill. The taxpayer has
said that if we appeal he's going to appeal too.
Magill:
Dut I wasn't thinking of that technical point, but
that, as I understood you, weighing the probabilities
as the trial lawyer, your view is that this four
hundred thousand might be knocked down to three
hundred fifty thousand but there is very little
chance of its being knocked below that.
Shearer:
That's right.
Magill:
In other words, the risk that we run on appeal is
comparatively slight, in view of the size of the
case. On the other hand, we have a good chance of
getting considerably more than the four hundred
thousand.
Now, the case then is one which in the ordinary
Uclassified
22
-3-
course we would appeal if it were John Henry
Smith and otherwise the same facts and questions
of law were involved.
Now, Mr. Frank Hogan, who represents Mr. Mellon,
comes around and says that he will pay the $400,000
which the Board has found and he will pay what 13
due in the other cases involving R. B. Mellon and
McClintock and some of the other stockholders of
the company that were in the same transactions.
He will pay those amounts too if the thing can be
settled at this point. The total payment would be
something in excess of two million dollars, as I
understand It.
dence, the question at the moment is whether we
will proceed with the appeal or whether we will
take the two million dollars and quit.
Oliphant:
quit on all four cases.
Magill:
Yes.
H.M.Jr:
But if we won, now much could we win on all four
cases?
Wenchel:
Six million.
Shearer:
Not that much. Be about three and a half million
on the four cases.
"enchel:
that's right. McClintock and Marshall don't
....
Shearer:
About three and a half million on the four cases,
if we won all points.
H.M.Jr:
What do you think the chances of winning are?
Shearer:
The principal point, Mr. Secretary, is a law
point that we urged before the Board and the Board
itself split 8 to 7 on it, so that, while I think
it is perfectly sound, we perhaps have only about
a 50-50 chance of getting the Court to reverse on
it.
H.M.Jr:
But on that one point, if we got a favorable one,
could we get three and a half million?
Jclassified
23
-4-
Shearer:
There is a subsidiary point to that which has to
do with the question of the rate of tax, whether
the surtax rate of 20 percent of 121 percent.
That point was not discussed in the Board's
opinion. Our office rulings are to the effect
that it should be the 20 percent. The 20 percent
would build it up to the three and a half million,
but the 12g percent would leave it very much lower
than that.
H.M.Jr:
Unless my memory is weakening, which it may be,
I thought you fellows had this question up once
before, whether we should appeal; I thought it
was settled.
Oliphant:
We have never finally checked it with you.
Magill:
We have spoken about it from time to time.
H.M.Jr:
Better look up the record.
Oliphant:
At one time you said you wanted to discuss it with
me before any action was taken.
H.M.Jr:
Is that it?
Oliphant:
Yes, you told me that.
Helvering:
Definite offer - paying up that two million two.
Magill:
Yes. That's new as far as I'm concerned.
Wenchel:
That came in March 28.
Oliphant:
March 28.
Magill:
Well, I didn't know about it.
Oliphant:
It came by way of Jackson within the week. Hogan
called up Jackson and within a week ....
H.M.Jr:
Have you (Helvering) studied this?
Helvering:
Yes.
H.M.Jr:
Have you got an opinion?
Helvering: I think my opinion would be just like that expressed
Regraded Jclassified
24
-5-
here. If this was just an isolated case S tanding
by itself, I think we'd go ahead and appeal it.
That was my first reaction - thought - to accept
it, close this thing up and - well, I'm afraid of
what the newspapers are going to say. See, three
of these defendants are dead. One of them is alive.
H.M.Jr:
which one is alive?
Shearer:
McClintock. Marshall is dead. R. B. Mellon is.
A. W. is dead.
H.M.Jr:
I still - have you had time enough to give me a
yes or no, you would or would not appeal?
Helvering:
Well, I'm inclined to think that the unsettled
condition of these law points and the other cases
that may come up - it ought to be appealed.
H.M.Jr:
How about you?
Shearer:
I'd recommend an appeal.
H.M.Jr:
Wenchel?
Wenchel:
I recommend an appeal.
H.M.Jr:
Oliphant?
Oliphant:
Just feel like John Jones of Keokuk, Iowa - appeal it.
H.M.Jr:
You?
Magill:
Yes, I think that's the answer; that is, assuming
that this is as stated here by these gentlemen, that
if in the ordinary case it didn't involve a man of
this prominence we would appeal, which I think we
would. Then it seems to me we ought to appeal it
in this case. It may lead to some adverse criticism.
H.M.Jr:
Well, we get fat on it.
Magill:
Put that isn't the first time.
Oliphant:
Fat or calloused?
H.M.Jr:
Both. O.K., we appeal.
Regraded Uclassified
25
-6-
Oliphant: Assuming the Attorney General agrees. That is,
we now take it up with the Attorney General.
H.M.Jr:
Well, I don't have to ...
Oliphant:
... worry about it.
Magill:
That's your (011phant) problem.
26
OPEN CONFERENCE ON TAXATION PROBLEMS
June 1, 1938.
ARISING FROM SUPREME COURT DECISION
11:30 a.m.
IN HELVERING VS. GERHARDT
Present:
Mr. Magill
Mr. Oliphant
Mr. Gaston
Mr. Wenchel
Various Congressmen, state officials and
municipal officials, shown on attached list.
Several newspaper reporters.
*****
Magill:
*his meeting was requested by representatives of
some of the states for the purpose of discussing
some of the implications of the recent decision
of the Supreme Court in Helvering against Gerhardt,
involving the taxation of salaries received by
certain employees of the Port of New York Authority.
It is my understanding that you have designated
Solicitor General Epstein to act as chairman of the
gathering on your behalf, and that he and some other
of the gentlemen here present wish to give us informa-
tion and some assistance with respect to working out
these problems which we will have as a result of this
case.
I suppose I need hardly say that, speaking on behalf
of my associates in the Treasury, we shall be very
glad to get all the information we can on this sub-
ject, because it is obviously a problem which must
be solved. hope that after the session which we
are to have this morning it will be possible for
some of us to get together privately and for you
to cooperate with us in working out the best method
of handling the situation with which we are confronted.
I may say that representatives of the Treasury have
been working on this problem ever since we received
the decision a little more than a week ago.
Mr. Apstein, if you will proceed from here, I'd
appreciate it.
Regraded Uclassified
27
-2-
Apstein:
Mr. Secretary, we are fully appreciative of the
headaches that naturally come with the drafting of
fiscal legislation and with the work that you
yourself and your staff have had. We also have
our headaches, and in this case we seem to have a
joint one, and our aim is to accept the generous
offer of cooperation in order to attempt to find
some palliative for the time being, at least, for
this mutual headache.
I want to leave with you a list of the representatives
of the several states and of their public instrumen-
talities that came here end are represented here,
without the necessity of calling them individually
by name or of introducing them to you personally.
Magill:
I hope I will have the opportunity of meeting them
personally, as well.
Epstein:
They'll all be here.
But the situation, as you are well aware of, is one,
as the result of the decision in the Gerhardt case,,
which has created nothing less than consternation
among the hundreds of thousands of municipal and
state employees and the employees of public agencies
throughout the country. The representatives of the
states have come here in conference and they have
quite thoroughly canvassed the situation and dis-
cussed the possible methods of approach to reaching
a solution. We understand and appreciate the coopera-
tion and the sympathetic attitude of the Treasury
Department.
After canvassing the situation thoroughly, the group
of the representatives of the states have agreed upon
a steering committee, some of whom will be able to
remain here in constant attendance and to work with
whomever you shall designate as your representatives
in an endeavor to reach some solution to this problem.
We trust that in cooperation with your representatives
they will be able to reach a definite and reassuring
conclusion to the hundreds of thousands of employees
and officials of the states and their municipal
governments.
The chairman of that steering committee is Attorney
General McLaughlin of Connecticut, and I would
Regraded Uclassified
28
-3-
appreciate it if in addition to the few remarks
that I have made you would hear from Attorney
General McLaughlin.
McLaughlin: Mr. Secretary.
Magill: Mr. Attorney General.
McLaughlin: Personally I have not had the opportunity to give
the study, thought and serious deliberation to the
import of the decision in the Gerhardt case that some
of the gentlemen present have; but by happenstance
I have been selected by the Attorneys General and
their personal representatives of some twenty states
in the Union.
We are seriously disturbed at the import or the
potentiality of retroactive implication that 1s
contained in Justice Stone's memorandum - opinion.
You personally appreciate that problem without my
extending my remarks in that respect. The employees
of the various state and municipal departments through
out the eastern part of the United States are fearful
of the fact that, as innocent victims, they may now be
called upon to pay a tax that would date back to 1926,
which would be an unconscionable hardship and would
result in financial ruin.
It is our desire to cooperate to the fullest degree
with the Treasury Department, to place ourselves at
the Treasury - at your service as well as of your
associates, to attempt if possible to draft, if it
meets with your approval, some type of legislation
that will set a clear mark of demarcation with
relation to the possibilities or the possible poten-
tialities of collecting back taxes with this retro-
active effect.
Other than that, at this particular time I am not
prepared to say that we have any suggestions that
we could offer to you. It is a serious problem. I
take it from what I have read informally in the
press that it is the attitude of the Treasury that
it is not to be harsh in its application of any
regulations promulgated or any suggestion of
legislation predicated on the exigencies of the
situation, so as to clear up this misunderstanding.
But I can assure you that it has a damaging effect
Regraded Uclassified
23
on tue morale and personnel of the employees in
state and municipal government, because with this
hanging over their head it affects their efficiency;
they won't be satisfied, naturally, until it is
determined one way or the other what they're supposed
to do and now they're supposed to meet the issue when
it presents itself to them individually.
so, as I say, the problem itself I am quite certain
that you are acquainted with probably much more than
I Em. We want to join with you - we'd like, if
possible, to have the Administration indicate this
attitude of elimination from the thought of any
individual in tate or municipal employment the
possibilities of the retroactive application of
texation among those who are engaged in more or
less of an essential governmental function. Now,
our various courts have determined at different
times what constitutes essential governmental
function. There is, no doubt, a variance of opinion
expressed by the courts in various jurisdictions,
but 1 believe B broad basis upon which the equity
would be available to all would be something that,
in my humble judgment, the Treasury would be pleased
with, and I am certain that the representatives of
the state governments here and back home - the
verious employees would be delighted to have some
pronuncio come from the Treasury Department with
relation to that, either in the nature of a recom-
sended bill to the Congress or an indication that
within reasonable time such a bill would be presented
to Congress. Of course, time is of the essence,
there's probably only about 11 more days to this
session, as I understand it, and I can appreciate
that toward the end of the term it is pretty diffi-
cult to draw & bill that would meet with the approval
of ell. But I am certain that you, Mr. Secretary,
and your associates will give this matter your
serious consideration and extend within reason the
relief that the employees of state and municipal
governments under the circumstances are ressonably
entitled to.
Magill:
Thank you, sir.
Genator Green, ald you wish to
Regraded Uclassified
30
-5-
Green:
Well, I didn't come here to address the gathering,
but I might add a word. Yesterday I introduced B
bill to the Senate, the purpose of which was to
meet this situation. There is no pride of author-
ship in it, but it simply will serve to get things
started in the Congress. When I read the opinion
originally, I concluded that some law was necessary
in order to avoid the injustice done by the implica-
tions of the decision. Now, I don't know whether the
officials of the Treasury Department or the Department
of Justice are of that same opinion or not. I should
think they would be. It would relieve them of the
responsibility of making decisionswhich they will be
very loath to make. Even should they make decisions,
they are not binding either on themselves or on their
successors in office. And there would still remain
uncertainty as to the application of the principles
in the Court's decision. So I can see no way out
except to have some legislation passed, and I hope
that it may be passed, and I introduced the bill
yesterday.
Senator Barkley said to me, "You don't expect you're
going to get any new piece of legislation through
at this session, do you?"
I said, "Oh yes, I am a born optimist, and I do."
Now if as 8. result of your deliberations here a
better bill can be devised, it can be substituted
for the one I introduced. It is quite possible to
do that in committee. But I think it ought to be
done promptly; otherwise, nothing can be done this
session, as he (McLaughlin) said before.
And no matter what decisionsyou might reach with a
generous heart, or even using the intelligence besides,
I don't see that it's going to satisfy those who are
anxious about the uncertainty of the legal points
involved. And it has been said in another connection
that "the only thing we have to fear is fear." Well,
uncertainty is certainly akin to fear, and so I hope
that you may come to a prompt decision, and I shall
be glad to cooperate in any way I can.
Magill:
well, I appreciate your offer and I know we are all
glad to have your bill to use as a basis. I think
Regraded Uclassified
31
-6-
I have not yet personally seen it, but I of course
shall went to get at it at once.
Senator Milton is here too, is he not?
Wilton:
That's correct. Senator Green and Attorney General
McLaughlin have fully covered it, Mr. Secretary.
Magill:
Congressman Brewster, did you have any
Prosster:
Well, I want it to be clear that the State of Maine -
the Attorney General wanted - asked me to come here -
Maine is absolutely in accord with all of its sister
states in this matter. And I'm not sure whether the
House Is going to find its prerogatives encroached
upon by the Senate in the matter of revenue legisla-
tion. I'm sure Senator Green and Senator Milton and
the others will be able to accommodate that viewpoint.
I think all of the Attorney Generals, if they share
the emotions of our Attorney General, feel US though
"fools rush in where angels fear to tread" when We
trespass upon this tax legislation. It is my under-
standing that this is chiefly designed to affect the
question of retroactive application, and whether
there are other considerations that enter into the
picture from your standpoint of taxation, I don't
know. But I think it would be helpful 1f in this
general gethering those broad issues could be dis-
cussed. The detailed application of them in legis-
lation, and the working out of a measure, would
necessarily have to be & matter of a small sub-
committee in conference with your group.
But I think that the large group would be glad to
know whether or not the Treasury feel anything along
this line may be feasible at this time.
ingill:
Well, 1 suspect that you three members of Congress
are better fitted to judge that than we are. of
course, we've got this date of adjournment immediately
nhead of us - projected adjournment. I think our -
the point of view of the Treasury is similar to that
of the states in this respect, that we have to admin-
ister this law, have to administer this exemption,
and consequently we like it 85 clear as possible,
because insofar as we can avoid future litigation upon
Regraded Uclassified
32
-7-
the subject, it is all to our advantage, and we
further would like it clarified for the ordinary
day-by-day administration of the law. I presume
that, ideally at least, we would like to see it
clarified not only with respect to these retro-
active features to which you refer, but clarified
as to future as well. That 1s, we've got the
future years ahead of us as well as the past
situation.
I don't know how much advantage there is in dis-
cussing the various detailed aspects of possible
legislation at this time. Any of you that have
thought about it are aware, of course, of the
fact that there are a large number of quite diffi-
cult problems to settle, either 28 to the past or
as to the future.
What was your thought on that, to handle it
through your
Epstein:
We felt, Mr. Secretary, that if the steering committee
or the steering and drafting committee that we had
agreed upon would be able to go into an immediate
conference and work with your designees, that they
could at least make headway as quickly as possible
in arriving at some conclusion. We have tentatively
agreed upon a suggested basis for discussion of the
draft, but that would be purely for your designees
and this committee to take up.
Magill:
Do you have some draft legislation in addition to
Senator Green's bill?
Epstein:
Yes, we agreed working last night, and met this
morning and agreed upon a proposed draft as a basis
for discussion with your designees. We realize, of
course, that there are obvious difficulties in
attempting to delineate any categories or any
groups, and we also r ealize that there are special
cases and exceptions, and that makes it the more
difficult task. We have attempted, however, to
draft what we thought was a fairly comprehensive
draft of a suggested measure, purely as a basis for
discussion, because in that way we feel that you can
facilitate and expedite the arriving at a conclusion.
We would suggest that if your designees would be
Regraded Uclassified
33
-8-
willing and available, that the members of this
committee who are able to remain and who will be
able to work continuously would be given the
opportunity of working with your men in cooperation
as quickly as possible.
Magill:
That will be entirely satisfactory to me, if that
is your pleasure. Have you discussed it at all
with the members of the Committee on Ways and
Means or the Committee on Finance?
Epstein:
We have not, because we thought it would be much
more important to have the Administration's
viewpoint through the Treasury before we did that.
Brewster:
I would suggest that - why I think it's important
is that most of the men here, I presume, will go
back to the states, and I think before they went,
which will probably be today, they should contact
their representatives on the Hill, particularly the
Ways and Means and Finance members from those states.
And I think when you see them, if you can give them
& definite idea of possibly what is contemplated if
it is to stey in effect retroactively, if you are able
to say that subject to formulation, it will help them
a good deal more.
Epstein:
Well, the sole purpose and the sole point covered by
the draft that we have considered is purely the retro-
active effect of the statutes on the personal income
of the officers and employees of the states, their
sub-divisions, or their public instrumentalities,
and none other. We do not go into the periphera of
the opinion, because that leads to too many possible
speculations.
Green:
May I say, Mr. Under Secretary, I think it would be a
great mistake to go beyond that. Be very difficult
to get any legislation passed. Find a much greater
divergence of view as to the other matters than with
the retroactive.
Cohen:
Mr. Under Secretary, as the defeated counsel in the
case, we have been thoroughly subdued.
Magill:
As lawyers you are still intact, however.
Regraded Uclassified
34
-9-
Cohen:
We congratulate the Treasury Department upon the
victory that it has looked forward to for so many
years, been so assiduous in striving for.
I see immediately not alone the Port Authority
problem, which is a problem by itself, but the
information that has come to us because we happen
to be in the case leads us to appreciate the
magnitude and the extent of the demoralization
that has taken place throughout the country in
the working forces of the various departments.
we are aware of that situation in our own organi-
zation, and we have an administrative problem such
that all the headaches you have had to carry, Mr.
Under Secretary, are not comparable to ours. We've
got a real headache there.
Now you have, it seems to me, if you will permit me
to suggest it to you, two problems. You have the
problem of working out with us, as has been suggested,
the form of legislation which, with the assistance of
those in Congress who already appreciate the difficulty
may still be gotten through before Congress adjourns.
But you have 8 still larger problem, and that is the
problem of sending word through the gentlemen of the
press who are now here to the employees of the country.
There have been various stories about the Treasury
Department, the construction of the decision. It
is perfectly obvious to me as a lawyer that you are
going to construe that decision as broadly as you
possibly can and litigate on the broad interpretation.
That would be your duty. But nevertheless, upon this
point of retroactivity, there ought to be easily
arrived at a concurrence of view, and if the Treasury
and this conference of Attorneys General and represents-
tives of the Senate can agree upon the principle of
retroactivity, the sooner you announce that, sir,
and the sooner you make it clear, the easier you
will make the problem of all of the public officials
of the country who have to meet their staffs and
explain to them what is going on, because there is
a lot of worry at the present time, tremendous amount
of anxiety. And I think you must appreciate that
those who have the responsibility of administering
the law have got to meet those problems, and they are
real headaches for every one of us.
Regraded Uclassified
35
-10-
So that, as soon as you can, if the Department
can issue some statement which indicates that it
is in sympathy with Mr. Green's legislation, even
though we may improve upon it as to form and even
though it may have to be introduced in the House
and the Senator may have to retire to meet the
parliamentary problem, we can overcome all those
difficulties. But the growing fear that has been
going like wildfire through this country is something
that must be met and met promptly, or else you'll
have a demoralized public service throughout the
country. People won't rest easy. When these
Attorneys General go back they're going to have to
meet inquiries from all the officers in their
communities.
Mr. McLaughlin referred to the East. Los Angeles
is here; not Los Angeles - Washington is here. The
Attorney General flew from Washington to be here.
New Orleans is here. North Carolina is here. It
isn't merely the New England states and the immediate
vicinity of New York. You've got the whole country
sroused about this thing. I've got a morale to meet.
You've got a situation that is very precarious not
only for us but for you, sir, for the Treasury
Department. I mean by that that you make for
difficulties for yourself if you don't take hold of
the situation now and meet it in a practical, con-
structive way.
So that I should urge upon you not that we discuss
the details of legislation here, or even discuss the
matters of policy nere, but that you announce - that
the Treasury announce in some way that it isn't cold
and unreceptive to the problems of these administrative
instrumentalities throughout the country.
Magill:
Well, if I have appeared cold and unreceptive to you,
it's certainly been due to the austerity of my New
England sncestry and not to my actual feelings in the
matter.
Cohen:
Well, I didn't say that.
Magill:
As I understand it, you gentlemen have here more than
one legislative proposal for handling these problems,
and consequently I would be inclined, so fer as the
Regraded Uclassified
36
-11-
Treasury is concerned, to accept your suggestion
that we resolve ourselves into a small group and
see what can be done about it.
Of course, I needn't say, but I shall, that the
ultimate solution of the matter, as I gather, may
very well be in the hands of the Congress, and
of course what the Congress will desire to do
about it is entirely for them to decide. But for
our part we are entirely - we are certainly sympa-
thetic with your problems. We have no more desire than
you have to see the state employees demoralized by this
decision, and we shall be very glad to give the most
careful consideration, immediate consideration, to
whatever suggestions you have as to the best solution.
I can readily see there are several possible solutions,
and I should think it might be best to consider those
in probably a small group around the table.
brewster:
"I think you will all recognize that unless there is
some substantial agreement, no action will be
possible. Unless the Treasury not only approves but
enthusiastically approves what you work out, it will
be impossible to do anything on the Hill. If you do
have complete agreement and cooperation, it might be
possible. It would be almost miraculous, but it might
be possible to then get action up there, and pretty
promptly.
Cohen:
Mr. Brewster, I am of the same temperament as the
Senator from Rhode Island. I am an optimist. I
believe that where there is the will to do a thing,
it will be achieved; and if the will exists in the
Treasury Department, I know it exists with us and
we can find al way to achieve a result.
Green:
It is true, too, that no action on the part of the
Treasury Department, or non-sction, would act as a
damper on the proposed legislation.
Cohen:
I understand that.
Epstein:
Mr. Secretary, we are appreciative of the courtesies
that have been extended here, and we believe that out
of the conference between your designees and our
committee there will come an agreement so that
Regraded Uclassified
37
-12-
possibly what may be regarded externally as
insuperable obstacles may be overcome. And
I would suggest that the members of the com-
mittee that have been agreed upon to work with
the designees of the Treasury remain and that
we thank you for your courtesy and ask you to
convey to the Secretary of the Treasury our
appreciation of his designation of the people
who are going to meet us here today.
Magill:
I appreciate very much your courtesy and the
interest in coming here, all of you.
I take it that this group which will now meet with
our men is a group to whom you have delegated the
job of going forward with this technical problem,
and no doubt they will be glad to receive from you,
as the Treasury would be glad to receive from you
directly, any information and suggestions, and so
forth, which you may wish to make.
I presume you will give to the gentlemen of the
press
Apstein:
They have the names, a list of these various state
representatives that are here.
Magill:
Well, thank you very much indeed.
Brewster:
No I understand that. those who are not to confer will
get in touch with their representatives on the Hill?
For instance, Mr. Doughton, I think, should be
immediately contacted, and Senator Harrison.
Magill:
Well, Mr. Doughton, I believe, is in the hospital,
so I expect
Brewster:
Well, whoever is taking his place.
Regraded Uclassified
3:
Regraded Uclassified
List of representatives present at the shorehan Rotal,
May n, 1959
Jenstor Theodore Francis Green, Rhode Island
Senator John Milton, How Jersey
Representative Ralph Bronster, Maine
Greek L. Rios, Attorney General, Mississippi
Clarence V. Back, Attorney General, Issues
Percy Warren Green, Attorney General, Delaware
John P. Hartigan, Attorney General, Hhode Island
C. J. Molaughlin, Attorney General, Connections
James 0'Comar, Assistant Attorney Ceneral, Louisiana
Ira J. Partlow, Assistant Attorney General, West Virginia
Heary Rystein, Solicitor General, State of New York
Harry L. Pary, Assistant Attorney General, State of Washington
Trank C. Ferguson, Chairman, Part of New York Authority
John E. Runsey, General Manager, Part of New York Author it
Julius Henry Cohen, Osmaral Counsel, Port of New York Authority
Anstin J. Tobin, Assistant General Counsel, Port of New York Authority
8. Granville Curry, Albeny Port District Commission
Frederick W. Dolam, Albany Port District Commission
Rene Clare, New Orleans Part Commission
Philip 8. Pugh, Jr., Counsel, Board of Commissioners, Port of New Orleans
Adrian Bonnelly, Counsel, Delaware River Joint Commission (Fa.)
T. Harry Reland, Counsel, Delaware River Joint Commission (N.J.)
Joseph Costello, General lianager, Delaware River Joint Commission
Lewis L. Delafield, Jr., Triborough Bridge Author ity, Henry Hadson
Partmay Authority, New York City Parkway Authority, Bethpage Partnery
Author ity and James Beach Parkway Authority
Paul V. Betters, Executive Director, U. 8. Conference d Mayors,
representing Mayor 7. H. LaGeardia, How York City
John R. MoIntire, Consulting Counsel and Executive Director of
the Institute of Municipal Law Officers
Charles 5. Phyne, Attorney, Institute of Municipal Law Officers
W. y. Barry, Jr., Assistant Attorney General, Teansases
Frenk E. Patton, Attorney General, New Mexico
Herbert S. Duffy, Attorney General, Ohio
Harry Meliallan, Attorney General, North Carolina
Frank R. Kenison, Assistant Attorney General, New
39
MEMORANDUM
June let, 1938.
Today, at 12 o'clock, the Secretary directed me over the
telephone to instruct the Director of Procurement to
authorize the Departments requiring cement for use during
the month of July to proceed to make their purchases
directly. The Secretary also directed that similar action
was to be taken on the 1st of each subsequent month until
instructions have been received by him from the President
as to what policy he decides to follow for the entire
Government establishment with respect to the purchase of
cement.
I have today transmitted appropriate instructions to
Admiral Peoples conforming with the Secretary's orders.
/h./McREYNCLDS
Regraded Uclassified
40
Relief Bill
June 1,1938
Today, June 1, Jimmie Roosevelt called the
Secretary at 2:45 'olock and said that the Presi-
dent was too busy to call him and asked Jimmie to
do 80.
Jimmie said the President would like the
Secretary to get in touch with Aubrey Williams in
regard to the above bill and decide on a 'common
cause'. HM, Jr told Jimmie that he was more than
glad to talk to Aubrey Williams, but if it meant
going up on the Hill he would not go unless he had
& chance to talk to the President directly.
Mr. Morgenthau immediately called Aubrey
Williams and said "Jimmie Just called me and said
that the President wanted the two of us to get to-
gether and try to arrive at a common cause. I
gather he talked to you." Mr. Williams replied,
in substance, 'Would it be all right if he called
up Jimmie Byrnes and told him that we wanted Jimmie
Byrnes to introduce the amendment which would give
the President the right to transfer funds from one
agency to another under this bill, but to make
Jimmie Byrnes understand that the idea should
originate on the Hill and not from the President?'
The Secretary replied, "Fine."
Then Mr. Williams said, "Jimmie Byrnes 1s
calling me now, 80 I had better hang up.
A few minutes later, Aubrey Williams called
back and the following 18 a record of their conver-
sation:
(See page following this)
Regraded Uclassified
41
Wednesday
June 1, 1938
11:35 a.m.
HMJr:
Hello.
Operator:
Mr. Williams.
HMJr:
Hello.
Aubrey
Williams:
Yes, Mr. Secretary.
HMJr:
How are you?
W:
Fine, sir.
HMJr:
Well I just heard five minutes ago that the letter
did go.
W:
Grand.
HMJr:
And Senator Adams has it in his pocket.
W:
Grand.
HMJr:
Well, I called up James Roosevelt, oh - fully an
hour ago, and said then that if he would talk to
his father and if his father would send for the
four of us and tell us - and instruct us what he
wanted why we were ready to march on the Hill.
W:
Yes, sir.
HMJr:
But, talking for myself I was not willing to march
until the President gave me face-to-face verbal
instructions.
W:
Yeah.
HMJr:
So Jimmy said he would - he'd see his father as
soon as he could.
W:
I see.
HMJr:
So - I just wanted to let you know that....
W:
All right. Well, I'll stand by you right here.
HMJr:
Well, it's - right now Jimmy is carrying the ball.
W:
Good.
Regraded Uclassified
- 2 -
42
HMJr:
That's where it is.
W:
All right.
Thanks.
HMJr:
Thank you.
W:
Goodbye.
Regraded Uclassified
43
Mr. Morgenthau then called Bell, and the follow
ing is a record of their conversation:
Regraded Uclassified
Wednesday
June 1, 1938
44
3:09 p.m.
HMJr:
Hello.
Daniel
Bell:
Yes.
HMJr:
Dan
R:
Yes, sir.
HMJr:
Great excitement has burst loose because Barkley
introduced a bill - let me have it - it says right
here - but, anyway, before I get to what he said
because he's quoting me - do you remember what I
said about the relief thing when I was up there with
you a week or so ago - about changing it from the
fifty million? Did you hear what I said to Barkley?
B:
Yes.
HMJr:
Did you?
B:
Well, I - I think have a....
HMJr:
Well, I don't want to put any 1dea in your head -
I'd like to know what you think.
B:
Well, I think - as I recall you said that the fifty
million dollars might not be enough
RWr:
Yeah.
B:
...and that heretofore the President had had no
restriction placed on that and that you thought
that it might be advisable to again give him that
authority.
HMJr:
Yeah.
B:
Because of the situations in these three cities you
mentioned.
HMJr:
Yeah.
B:
Somebody said, "Well, how about making it a hundred
million?" And you said well that certainly would be
better than what it is although it might not be
enough.
Regraded Uclassified
- 2 -
45
HMJr:
Yeah.
B:
Does that accord?
HMJr:
Yes. But I - I thought what I said was - this
is what I think the President's position has been
right along - that they should make relief - direct
relief available out of the whole amount.
B:
Yes. I think that's probably true. I don't know
whether you said it at that conference but you
have said that there ought to be transfer provision
from one to the other - one title to the other.
HMJr:
Yes.
B:
But I don't recall you said it that day, but you
may have.
HMJr:
Well, isn't - isn't that what we - the very first
time we went up to see Jimmy Byrnes - isn't that
what we said?
B:
Well, that's - yes, that's what you said to Jimmy
but I don't know that you said that the other day's
conference.
HMJr:
Well, that's the thought I've had in mind that
B:
Yeah.
HMJr:
should make direct relief available the way
it's been out of these funds.
B:
Yeah. That's right.
HMJr:
Well now, out of these funds - do they only come out
of work relief?
B:
Well, it only comes out of the work relief money.
HMJr:
Uh huh.
B:
In order to get it - of course it can't come out
of the other by transferring it into this. In
other words you can't make a direct allotment out
of Ickes' money for relief of any kind. It has
to be transferred to the Emergency Appropriation
Act of 1937 and then made available.
Regraded Uclassified
46
- 3
HMJr:
Well, let me see what Barkley's done now, I didn't
want to plant any seeds in your mind.
B:
Yes.
HAJr:
"Barkley offered an amendment to the relief section
of the bill leaving to the President's discression
what amount of the WPA one billion four twenty-five
should be used for direct relief in emergencies.
He said he acted after consultation with the Treasury
officials." -- Well that's aboslutely right. Further -
"Under questioning by Borah Barkley explained the
emergency conditions existing in some localities; he
specified Kentucky and Michigan that cannot be provided
for by WPA or the PWA. The bill contained the fund of
fifty million earmarked out of the WPA total to care
for an emergency with direct relief. Vandenberg
tried unsuccessfully yesterday to increase it to a
hundred and fifty million when Barkley got the unani-
mous consent to reconsider their action so as to
permit consideration of an amendment to remove the
limit entirely. Vandenberg gave his hearty removal
-
hearty approval."
B:
Uh huh,
HMJr:
"Barkley said that when direct relief was suffering
it was necessary for the WPA to have money for the
purchase of food, clothing and supplies for the
Commodity Credit Corporation. He said that in
Kentucky there had been actual suffering amongst
the miners thrown out of work in connection with the
circuit court ruling affecting coal and that there
were thousands out of work in Michigan for whom
neither the WPA nor the PWA had projects at present
on which they could be employed." What's the matter
with that?
B:
Nothing.
HMJr:
What?
B:
Nothing.
HMJr:
I'll stand for that and be proud I had something to
do with it.
B:
Ah - the objection will probably come from WPA
that they're setting up an earmark of all their
funds
Regraded Uclassified
- 4 -
47
HMJr:
Well
B:
But I'd say if the situation gets so serious that
they have to use much of the hundred and fifty
million dollars that we're going to have Congress
back here before January 1.
HMJr:
Well no - this doesn't set any amount; this
leaves it up the President.
B:
Well, I say, if you're going to use a lot of WPA
money - ah - and then - that means that the
situation is going to be serious and WPA won't run
out of money because Congress will be back here
before January 1.
HMJr:
Yes. Well this is just what the President agreed
to and what we wrote that letter on, namely that
B:
No, that doesn't hurt anything except that it
doesn't - doesn't use other funds
HMJr:
Oh. Oh,
B:
It just uses WPA funds.
HMJr:
Well, that's just too bad.
B:
See? That's where they'll kick.
HMJr:
Sure.
B:
They'll say, "You're cutting our program short and
we can't carry on until February 1."
HMJr:
Well
B:
Your answer ought to be to that - if the situation
gets serious
HMJr:
Yeah.
B:
...and then they won't have to worry because Congress
will be on the job.
HMJr:
That's right.
B:
Right after election I should think.
HMJr:
That's right.
Regraded Uclassified
48
- 5 -
B:
Yeah, I think that's all right.
HMJr:
O. K.
B:
All right, Mr. Secretary.
Regraded Uclassified
Wednesday
49
June 1, 1938
12:02 p.m.
HMJr:
Ah - the July orders that the various departments
need for cement
Hello.
W. H.
McReynolds: Yes.
HMJr:
-Their July requirements.
McR:
Uh huh.
HMJr:
Let them handle that them- - each department
handle their own.
McR:
All right. We'll give them credit for it.
HMJr:
For July.
McR:
Yes, sir.
HMJr:
Now, what I want to do until further notice - on
the first of each month I want
- until the
President decides what he wants to do about this
matter - I want to give these people thirty days
notice to turn it back
do you see?
McR:
0. K.
Be glad to.
HMJr:
On one hand we're pushing this forward buying and
the next thing we hold them up the last minute; it
doesn't make sense.
McR:
Yes. It doesn't make sense.
HMJr:
So on the first
McR:
Now, I -
we'll give them credit the first of
every month until it's decided.
HMJr:
Until the President decides what policy he wants
to pursue for the Government as a whole.
McR:
Yes, sir.
HMJr:
See?
McR:
I get it.
HMJr:
Will you make a memorandum on that?
Regraded Uclassified
50
- 2 -
McR:
I will.
HMJr:
Thank you.
McR:
Yes, sir.
Regraded Uclassified
51
Wednesday
June 1, 1938
2:09 p.m.
HMJr:
Hello.
Operator:
Walter Cummings.
Go ahead.
HMJr:
How are you?
Walter
Cummings:
Hello, Henry.
HMJr:
Hello, Walter. How are you?
C:
I'm just fine.
HMJr:
Good.
Walter, we're going to have a little
financing next week.
C:
Yeah, we've been watching it pretty close, Henry.
HMJr:
And I've been kind of wondering how you fellows
feel out there.
C:
Well, I've been giving it a good deal of thought.
HMJr:
Uh huh.
C:
And - ah - what I had in mind is about a 1952 or 4
about 2½.
HMJr:
Uh huh.
C:
I - ah - on the Street they're about - that the
Treasury might have in mind a 2 and 3/4 for a long
time but I was just checking up on how much the
insurance companies held of it and how much the banks
held of it
HMJr:
Yeah.
C:
...the banks are our best customers you know for the
Government Bond.
HMJr:
Yeah.
C:
That's what I - that's about what I had in mind, Henry.
By the way, I am going to be in Washington tomorrow.
Suppose I drop in and have a little visit with you.
HMJr:
Do that.
Regraded Uclassified
- 2 -
52
C:
I wonder if you happen to have these figures in
front of you - ah - the Commercial banks now have
thirty nine and a half per cent.
HMJr:
They have?
C:
The insurance companies only thirteen per cent.
HMJr:
Yeah.
C:
Federal Reserve . - six; do you happen to have those?
HMJr:
No.
C:
The Government Trust Funds Agency ten; the general
public - thirty.
HMJr:
I see.
C:
Yeah. I don't know how you feel about a shorter
time. Of course, you've got a vacant space there
about 1944 to forty - even up to ten years.
HMJr:
Yeah.
C:
Close to ten years; a dandy spot if you want to fill
it in.
HMJr:
Well, I'm frankly thinking in terms of a really long
bond.
C:
Uh huh. Well, of course, that makes you go out way
beyond in the sixties you know like....
HMJr:
Yes.
C:
...sbout 2 3/4.
HMJr:
Yeah.
C:
I didn't think you'd want to do that - want to get
away from that 21 rate of yours.
HMJr:
Well, I'm - ah - I'm - I'm playing with this
idea of two and three quarters.
C:
Uh huh. Well, it wouldn't - ah - - the reason
I'm - ah - the reason I'm saying this - it
wouldn't fit the banks so well...
HMJr:
No.
Regraded Uclassified
53
- 3 -
C:
On account of going out so far and they have in
round figures, 39½ per cent.
HMJr:
Well, the point is I hope the banks wouldn't take
this.
C:
Yes.
HMJr:
I hope they wouldn't take it.
C:
Unless - they'd take it but they'd rather have the
other at a lower rate.
HMJr:
Well, I - - ah - I - ah -
C:
Or the public
well, what have you in the mind,
the insurance companies?
HMJr:
Yes. And the public.
C:
Uh huh.
HMJr:
And trust funds.
C:
Uh huh.
Well, of course, we've always used the
bank there to - they're holding so many of them
now
HMJr:
Yeah.
C:
...and a good many of them trickle through the
banks into the public's hands and then we replace
them, you know.
HMJr:
Yeah.
C:
Yeah. Well, Henry, if it's agreeable to you I'll
drop in tomorrow
HMJr:
Well, let me give you a definite time, see.
C:
Yeah. All right.
HMJr:
How about four o'clock?
C:
Four o'clock?
HMJr:
Yes.
c:
Fine. I'll be there.
Regraded Uclassified
54
- 4 -
HMJr:
Will you do that?
C:
Yeah. All right.
HMJr:
That's Thursday.
C:
Yeah, tomorrow. All right. I'll be there.at four
o'clock.
HMJr:
Good.
C:
Fine. All right, we'll talk about it then.
HMJr:
Thank you.
Regraded Uclassified
55
Wednesday
June 1, 1938
3:03 p.m.
Operator:
Go ahead,
HMJri
Hello.
Aubrey
Williams:
Hello, Mr. Secretary.
HMJr:
(Laughingly) Yes.
TV:
Well. Now, I talked with Jimmy and he told me
a thing that's got them all upset up there is -
that is that Barkley has just introduced an
amendment permitting the President to transfer
funds for the purpose of direct relief out of
WPA monies to any other agency and Vanden
was just trying to get me to find out what was
behind that. And he says that's going to make it
very difficult for him to get anything like this
through because this is going in the other direction.
HMJr:
Well, the on -
all I know is when I was up there
last week on this bond amendment we were sitting
around talking about it afterwards and I said what
I've said right along - that I think they ought to
be able to transfer as much money as necessary to
direct relief out of the whole bill.
W:
Well, I think that's where Barkley must have gotten
his idea
HMJr:
Well
W:
because - see, they defeated the Vandenberg
amendment yesterday
||MJr:
Yeah.
W:
and then when he introduced that today the boys
don't - say they don't know where in the devil they
are.
Well,
HMJr:
Oh huh. /That's where we started originally - was
that they
W:
Yeah.
HMJr:
that there never was to be any definite amount
but they were to be able to make available enough
out of the whole business.
Regraded Uclassified
56
- 2 -
W:
Yeah.
HMJr:
And I forget when we were up there but it was
some time last week on the - it may have been
ten days ago. Anyway, it was a week or ten days ago
and
W:
Well - all right
HMJr:
I'll ask - I'll refresh my memory on just what I
did say because Bell was with me.
W:
This - I told Jimmy that as far as we were con-
cerned this - the other one was the one we really
wanted.
HMJr:
Yeah.
W:
And, so I don't know - I don't know what they're
going to do now. But anyway I told Jimmy that he
could call the President if and when he did anything
and my understanding was the President would say to
him that it was all right but he didn't want it
understood that he started it.
HMJr:
Yeah.
W:
Yeah.
HMJr:
Well I'm going to refresh my memory as to what I
did. say when I was up there because
W:
The thing - the only thing I think we've - you've
got to worry about in this is that Barkley quoted
you.
HMJr:
Uh huh.
W:
He said, "I am doing this with the full knowledge
and approval of the Secretary of the Treasury."
HMJr:
Uh huh.
W:
And that's what got the boys upset up there.
HMJr:
Well, as far as that goes, the very first time
we went up there the thought was to make available
to the President -anextra amount for direct relief -
that was the original thing - and - but we never
mentioned any amount; fifty million never was
mentioned
Regraded Uclassified
57
- 3 -
W:
Yeah.
HMJr:
or any amount was never mentioned.
W:
Of course I don't - I don't think Barkley
should have put you in the picture that way.
I think
HMJr:
Well, that's just the whole trouble and that's
why I didn't want to go up today unless I got
explicit instructions,
W:
Yeah, that's right.
HMJrz
And we were sitting around there - oh, there was
Sam Rayburn, and - ah -
W:
Yeah.
HMJr:
fellows from this -
Pat Harrison - I was on
this bond thing
W:
Yeah.
HMJr:
and we were talking
T:
Well, I don't think - I don't think the thing's
important except that it might present
HMJr:
Well that's where he got it from.
W:
Yeah.
HMJr:
That I have said and said it from the time we
went un there with Hopkins - that we should make an
extra amount available
W:
Yeah.
HMJr:
out of the whole thing and that's where I under-
stand the President stands, don't you?
W:
Well, I didn't understand that yesterday. As a
matter of fact you know there's been that difference
of basic approach to this thing all along; I've never
known frankly just exactly where the President did
really stand on it. I thought he was clearer yester-
day than he had been before.
HMJr:
Well, if he'd have done what he did yesterday it
would have lastAfive minutes - and that is we should
only give food to those people who are already on
work relief.
Regraded Uclassified
58
- 4 -
W:
Yeah. We couldn't do that though.
HMJr:
Well, you told him that.
W:
That's right.
HMJr:
You told him that.
W:
That's right.
HMJr:
What?
W:
You couldn't do that.
HMJr:
No.
W:
That's right. That you couldn't hold a line like
that.
HMJr:
No. Well, then I gather we just sit and wait,
is that it?
W:
Well, all we can do now is to see what comes out
of a conference between Byrnes and Barkley.
HMJr:
I see.
W:
Yes.
HMJr:
Thank you.
W:
I'll keep in touch with you.
HMJr:
Thank you.
W:
All right.
Regraded Uclassified
59
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 1, 1938
To
Secretary Morgenthau
FROM M. A. Harris
Suggested
Market
Estimated
Issues
Basis
Premium
NOTES
1
40 due 3/15/43 (4 yr. 9 mos.)
.85 - .87
22/32 - 19/32nds
1 1/8% Il
If
( Il
If
)
.85 - .87
1 pt. 11/32 - 1 1/4 pts.
1 1/8% II 6/15/43 (5 yrs.)
.87 - .90
1 1/4 pts. - 1 pt. 3/32nds
BONDS
2 1/2% 9/15/48 (10 yrs. 3 mos.)
(outstanding)
2.09 .
103.22/32nds
2 1/4% 6/15/47 (11 yrs.)
2.15
31/32nds
2 3/4% 1953/63 (15-25 yrs.)
2.53 - 2.60
2 3/4 pts. - 1 7/8 pts.
2 3/4% 1958/63 (20-25 yrs.)
2.62 - 2.65
2 pts. - 1 1/2 pts.
Note: The first premium is probably about the maximum that may be expected
but probably nearer correct than the latter which is the minimum premium
that may be expected.
. Current bid price and yield.
RIGHTS
Bid Price
Premium
2 7/8s 6/15/38
101.16
1 3/8 pts.
2 1/2s 9/15/38
101.24
1 point
Regraded Uclassified
60
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE JUN 1 1938
TO
Secretary Morgenthau
FROM
Herman Oliphant
For your information -
The man in charge of the heating and plumbing department of
Montgomery Ward & Company, in the Eastern part of the United States,
are
told me Friday their sales in his department this month greater
than they had ever been since they built their Eastern branch in
Baltimore. I asked him why this was. He said it was because Mr.
Avery was insisting on the out of all prices to B. 10% gross profit.
Re mentioned one article which he said would readily sell for $36.50
but which they had out to $26.50. He said Mr. Avery had come to
Baltimore and had gone through the entire plant Thursday to make
certain that a uniform write-down to 8. 10% gross profit had been
made.
do
Regraded Uclassified
Wednesday
62
June 1, 1938
3:09 p.m.
HMJrt
Hello.
Daniel
Bell:
Yes.
HMJrt
Dan
BI
Yes, sir.
HMJr:
Great excitement has burst loose because Barkley
introduced & bill - let me have 1t - it says right
here - but, anyway, before I get to what he said
because he's quoting me - do you remember what I
said about the relief thing when I was up there with
you a week or so ago - about changing it from the
fifty million? Did you hear what I said to Barkley?
B:
Yes.
HMJri
Did you?
B:
Well, I - I think have 8....
HMJr:
Well, I don't want to put any idea in your head -
I'd like to know what you think.
B:
Well, I think - as I recall you said that the fifty
million dollars might not be enough....
HMJr:
Yeah.
B:
...and that heretofore the President had had no
restriction placed on that and that you thought
that it might be advisable to again give him that
authority.
HMr:
Yeah.
B:
Because of the situations in these three cities you
mentioned.
HMJr:
Yeah.
Bi
Somebody said, "Well, how about making it a hundred
million?" And you said well that certainly would be
better than what it is although it might not be
enough.
Regraded Uclassified
- 2 -
62
HMJrt
Yeah.
B:
Does that accord?
HMJr:
Yes, But I - I thought what I said was - this
is what I think the President's position has been
right along - that they should make relief - direct
relief available out of the whole amount.
B:
Yes, I think that's probably true. I don't know
whether you seid it at that conference but you
have said that there ought to be/transfer provision
from one to the other - one title to the other.
HMJrt
Yes.
B:
But I don't recall you said it that day, but you
may have.
HMJr:
Well, 1sn't - 1sn't that what we - the very first
time we went up to see Jimmy Byrnes - isn't that
what we said?
Bi
Well, that's - yes, that's what you said to Jimmy
but I don't know that you said that the other day's
conference.
HMJr:
Well, that's the thought I've had in mind that...
Bi
Yeah.
HMJri
... should make direct relief available the way
it's been out of these funds.
B:
Yeah. That's right.
HMJr:
Well now, out of these funds - do they only come out
of work relief?
Bt
Well, it only comes out of the work relief money.
HMJr1
Uh huh.
Bi
In order to get it - of course it can't come out
of the other by transferring it into this. In
other words you can't make a direct allotment out
of Ickes' money for relief of any kind. It has
to be transferred to the Emergency Appropriation
Act of 1937 and then made available.
Regraded Uclassified
63
3 -
HAIr:
Well, let no sne what Barkley's done now. I didn't
want to plant any seeds in your mind.
51
Yes.
HMJri
"Barkley offered an mendment to the relief section
of the bill leaving to the President's discression
what amount of the WPA one billion four twenty-five
should be used for direct relief in emergencies.
He said he acted after consultation with the Treasury
officials." -- Well that's aboslutely right. Further -
"Under questioning by Borah, Barkley explained the
emergency conditions existing in some localities; he
specified Kentucky and Michigan that cannot be provided
for by WPA or the PWA. The bill contained the fund of
fifty million earmarked out of the WPA total to care
for an emergency with direct relief. Vandenberg
tried unsuccessfully yesterday to increase 1t to &
hundred and fifty million when Barkley got the unan 1-
mous consent to reconsider their action BO as to
permit consideration of an amendment to remove the
limit entirely. Vandenberg gave his hearty removal -
hearty approval."
Ba
Un hugh.
HMJrt
"Barkley said that when direct relief was suffering
it was necessary for the WPA to have money for the
purchase of food, elothing and supplies for the
Commodity Credit Corporation. He said that in
Kentucky there had been actual suffering amongst
the miners thrown out of work in connection with the
circuit court ruling affecting coal and that there
were thousands out of work in Michigan for whom
neither the WPA nor the PWA had projects at present
on which they could be employed." What's the matter
with that?
B:
Nothing.
HMJr1
What?
B,
Nothing.
HMrt
I'll stand for that and be proud I had something to
do with it.
B,
Ah - the objection will probably come from WPA
that they're setting up an earmark of all their
funds...
Regraded Uclassified
64
- 4 -
HIJPI
Well...
Bi
But I'd say if the situation gets so serious that
they have to use much of the hundred and fifty
million dollars that we're going to have Congress
back here before January 1.
HMJra
Well no - this doesn't set any amount; this
leaves it up the President.
Bt
Well, I say, if you're going to use a lot of WPA
money - ah - and then - that means that the
situation is going to be serious and WPA won't run
out of money because Congress will be back here
before January 1.
HMJr:
Yes. Well this'is just what the President agreed
to and what we wrote that letter on, namely that....
B:
No, that doesn't hurt anything except that it
doesn't - doesn't use other funds..
HMJr:
Oh. Oh.
B:
It Just uses WPA funds.
HMJr:
Well, that's just too bad.
B:
See? That's where they'll kick.
HMJr:
Sure.
B:
They'll say, "You're cutting our program short and
we can't carry on until February 1."
HMJr:
Well
Bt
Your answer bught to be to that - if the situation
gets serious.
HMJr:
Yeah.
B:
...and then they won't have to worry because Congress
will be on the job.
HMJr1
That's right.
Bs
Right after election I should think.
HMJr:
That's right.
Regraded Uclassified
65
in 4 -
B:
Yeah, I think that's all right.
EMJri
O.K.
B:
All right, Mr. Secretary.
Regraded Uclassified
66
RE: FINANCING
June 1, 1938.
3:35 P. M.
Present:
Mr. Taylor
Mr. Harris
Mr. Haas
Mr. Seltzer
Mr. Lochhead
Mr. Upham
Mr. Bell
H.M.Jr:
The thing I am talking about was last week, when
we went up and saw Pat Harrison.
Bell:
That was on the two twelve.
H.M.Jr:
Yes, in regard to the two twelve.
Bell:
That's right - on the two twelve, and then we got
into the other thing.
H.M.Jr:
What I said was I was afraid that the fifty
might not be enough.
Upham:
You said here that you said a hundred was suggested.
Bell:
As I recall this, somebody asked in the conference
whether or not a hundred would help out. The
Secretary replied, "Well, that would be certainly
better than the fifty," but his first statement
was that the President ought to have discretion
in making the funds available for direct relief.
This is all right, I think.
H.M.Jr:
Barkley gets up on the floor of the Senate and
introduces this resolution at my request.
Taylor:
Atta boy!
H.M.Jr:
(Over telephone:) Dr. Burgess, at New York,
please.
and Works fund for a hundred twenty-five
million dollars, and right now Aubrey Williams
doesn't love me; he doesn't love me. It isn't
the worst thing that could happen to the country.
(Telephone conversation with Dr. Randolph Burgess
at 3:37 p. m. attached.)
Regraded Uclassified
67
June 1, 1938.
3:37 p.m.
H.M.Jr:
Hello.
Operator:
Dr. Burgess.
H.M.Jr:
Hello.
lurgess:
Hello, Henry.
U.S.Jr:
I thought you might give me a summary of what
you've learned today.
a
Well, I've talked to - I've talked to Gordon
Rentschler, I've just now - just sent Chris Devine
out of the room, right now, and we picked up a lot
of stuff around. On this question of Decembers,
we find quite e number of fellows that don't like
the idea of calling the Decembers, but they are
all right on Septembers - there's a little reluctance
but they're all right. There's more opinion
accumulating that the long bond is a good and
attractive bond and it will 60 very nicely.
H.M.Jr:
The long one.
B:
Yes. I - for example, I talked to Ecker
the younger man, you know.
H.M.Jr:
Yes.
R:
Last week, and he didn't have a chance to answer
me. Manted to call back, but he just called back
a few minutes ago saying they would be interested
in the long two and three quarters.
E.C.Jr:
Yes.
B=
We've canvassed most of the insurance companies,
either I have or the dealer fellows have, and
most of them are going to be interested in it, so
that you will have a big market there for it.
R.2.Jr:
In the insurance companies.
B:
Yes. And quite a number of the banks will want it
too, in some amounts.
H.M.Jr:
Huhhuh.
Regraded Uclassified
68
- 2 -
B:
There are quite a number of the banks who take it
and put it away.
H.M.Jr:
Huhhuh.
B:
While most of them still talk in terms of not going
over fifteen years. When it comes down to it, you
have a great many of them will do it, so that I feel
pretty sure that's all right. Now it ought to be
twenty - twenty five - don't get any
about the fifteen - fifteen twenty five, they don't
like that. They think it's - they think it's foul -
not the expression of foul, you know, just foul.
H.M.Jr:
Foul. How do you spell it? How do you spell "foul"?
B:
Well, "foul".
H.M.Jr:
All right.
B:
They think the price is too uncertain, that it
would look too generous at first and then would go
down too easily if the market went sour.
B.N.Jr:
I see.
R:
You wouldn't know just what you had and the twenty
twenty five is better. The twenty twenty five is
going to be generous, but it needs to be generous
because it's walking out into a new field.
H.M.Jr:
Uhhuh.
E:
Now, quite a number of fellows think you ought to
take some cash in June.
H.M.Jr:
Uhhuh.
B:
Rentschler feels that quite strongly. He says, "Now
is the time to take some cash and the market needs
it and it ought to be done."
H.M.Jr:
Uhhuh.
E:
Well, I explained the difficulties. He says there's
a second best thing, why deal with the Junes in
September. Now as to the other issue besides the
two and three quarters, I think the majority of
the fellows we talked to would prefer short bonds.
H.M.Jr:
Uhhuh.
Regraded Uclassified
69
- 3 -
D:
And quite & number of them would like to open up
those old two and a halfs.
F.M.Jr:
Yes.
3:
Now, it's fair to say that Rentschler is against
that. He thinks that's that the people wouldn't
like it buying at a premium.
9.M.Jr:
Uhhuh.
3:
But I think more of them would like it than not.
E.M.Jr:
Uhhuh.
in
But what Hentschler suggested is a seven year too-
H.d.Jr:
Yes.
B:
Which would be all right, except that you've already
got a mess of stuff in there. So, the note of
course would go all right, but there wouldn't be
very many people who would subscribe to it. They'd
60 for the long bond, and they'd have a lot of
churning in the market.
H.1.Jr:
Well, that's the trouble. I think you might find
that you wouldn't sell out fifty to a hundred
million of those notes.
B:
Yes. At a very small issue I'm afraid.
H.H.Jr:
So I raise the question, why not put all your faith
in the bonds.
=:
Well, I think that's a possibility, Henry.
H.M.Jr:
I thou, ht just let's shoot the works on the twenty
twenty five year bond.
B:
I'm a little afraid some of the banks would say
"Well the Treasury just forces us into these long
issues."
H.M.Jr:
Well.
B:
I'm a little afraid of that.
F.M.Jr:
Well, they don't have to buy them. Somebody told me
that - I don't know where they got the figures -
Regraded Uclassified
70
- 4 -
the banks now own thirty nine per cent of all
the oustanding Governments / they do thatstoo much.
and if
B:
Yes. Well, I'm - I'm inclined to think you could
do that. I'm a little bit afraid of it - from
the reaction to it.
H.M.Jr:
Well I think, - have you talked to the fellow
at the Equitable?
B:
Parkinson?
H.M.Jr:
Yes.
B:
I haven't talked direct with him. The discounts
talked with them.
H.M.Jr:
Have you talked to old man Ecker?
B:
No, I talked to his son.
H.M.Jr:
I see.
B:
But he didn't give me an answer right off, he went
back and conferred you know.
H.M.Jr:
He talked to Papa.
B:
He talked to Papa, I'm sure, yes.
H.M.Jr:
Well, the way I feel tonight, it doesn't make sense
a twenty twenty five year two and three quarters
which would most likely go to a two point premium,
then come along with a five year one and an eighth.
No one is going to convert it to that.
B:
Yes.
H.M.Jr:
And if I only sell fifty million of them.
B:
That's right. I think that's the difficulty. If
you have an alternative issue it ought to be something
a little more attractive.
H.M.Jr:
Yes. Yes.
B:
And that could be ten years. I like opening up
the old one.
Regraded Uclassified
- 5 -
71
H.M.Jr:
Yes.
B:
I looked over the records, you've done that a good
many times in the past you know.
9.M.Jr:
What's that?
B:
Opening up an old issue.
S.M.Jr:
Yes.
B:
We've done it seven or eight times in the past, so
that -
H.M.Jr:
I don't see much reason for it.
R:
Much reason for it.
H.N.Jr:
Well, I mean from our standpoint. It just comes -
the forty eight comes in the most crowded period.
B:
Well, that particular day it isn't terribly crowded.
You take that -
four or
H.M.Jr:
No, but supposing you take/five hundred more, that's -
I'd say it might be nine hundred million coming due
in one day.
B:
There's nothing from - there's nothing between -
till March '48 and September - December 149, on your
chart, so that there's -
H.J.Jr:
Well, will you think some more about just one
issue.
B:
Yes. All right, I think that's worth turning over.
I think that could be done
R.W.Jr:
I talked to Walter Cummings, out in Chicago, -
B:
Yes.
B.M.Jr:
And - oh, he don't want a long bond at all.
is
No, the Chicago crowd doesn't.
H.M.Jr:
No, they just don't want it.
as
The whole areas of these banks that have got the
rights - they don't want the long bonds.
Regraded Uclassified
- 6 -
72
H.M.Jr:
Yes.
B:
And it - I think there's a good deal of goodwill
from the point of view of the Treasury in giving
them something that
H.M.Jr:
Well, we can't do it and get out a two and three
quarters. He'd - he wanted a two and a half to
go as long as possible.
B:
I see, yes.
H.M.Jr:
We could do that.
E:
Well, that would be a possibility - do a twelve
- a fourteen year two and a half plus the long one -
H.M.Jr:
Oh, no.
B:
Oh, you mean just do that.
H.M.Jr:
Oh, yes.
B:
Do that with the whole thing.
H.M.Jr:
Yes.
B:
Well, of course, that's what the banks would like
best.
H.M.Jr:
Yes.
B:
But I don't think it's so good for you.
E.M.Jr:
No, I don't either.
B:
Well.
H.M.Jr:
We'll see them tomorrow. I'll see you tomorrow.
B:
I'll be there. We were taking the early train so
we'll get into Washington tomorrow around - a
little after eleven, so we'll be available.
H.M.Jr:
All right.
B:
Very good, Henry.
H.M.Jr:
Thank you.
Goodbye.
B:
Goodbye.
Regraded Uclassified
- 2 -
73
H.M.Jr:
(Over telephone.) See whether Mr. Parkinson
is in - the President of the Equitable. Outside
official.
Bell:
It wouldn't hurt to get a small amount of notes.
We already have four hundred fifty million in
bonds - June 15, 143, on top of that.
H.M.Jr:
We've got a June 15, 143. What is that?
Harris:
Three and three-eights of '43 - '47.
H.M.Jr:
What's that selling at? How much is it selling
at?
Harris:
Oh, it's 110 5/32.
Haas:
Am I wrong on this: If you have a note, doesn't
it give you some insurance in case something
broke out in Europe, or something like that?
H.M.Jr:
Oh, you pessimist.
Haas:
But times change so quickly.
Lochhead:
That's the way I feel about offering a note.
The first thing, from the Treasury's standpoint,
it's an insurance premium.
Seltzer:
Darn cheap.
Lochhead:
Secondly, to answer this criticism, you are not
forcing the banks in. You will give them a choice;
if they hold off from the note, because they get
a bigger premium on the bonds, at least you did
give them a choice.
Seltzer:
I agree.
Lochhead:
I'd like to know what the Federals do with
their notes. How much do they hold of those
two issues.
Harris:
About a hundred seventy-four million of the two
issues.
H.M.Jr:
Not if the others go to a premium.
Regraded Uclassified
- 3 -
74
Seltzer:
Of course, you know your notes are going to go
to a very handsome premium.
H.M.Jr:
What do you figure it? A point?
Seltzer:
I figure they are likely to do better than a
point right now.
Harris:
That is about as sweet as a ten year bond would
be. Just about as sweet.
Seltzer:
Very cheap financing from the Treasury's stand-
point.
Harris:
Much cheaper than a ten year bond.
Seltzer:
1 1/8.
Lochhead:
A ten year bond - I thought that was what we
were going to get away from.
H.M.Jr:
I wouldn't fight with anybody between a five
year bond, 1 1/8 or a ten year bond, 2 3/4= We
could talk to the Fed about it and ask them
how they'd do it. How many have they got of
these two things?
Harris:
A hundred seventy-four million. Of course,
they've got awfully sweet premiums on it right
now. They may be selling some of them on the
market and replacing them.
H.M.Jr:
(Telephone conversation with Mr. Parkinson of
New York, at 3:48 P. m., attached.)
Regraded Uclassified
75
June 1, 1938.
3:48 p.m.
H.M.Jr:
Hello.
Operator:
Mr. Parkinson, New York.
H.M.Jr:
Thank you. Hello.
Parkinson:
Hello, Mr- Secretary.
H.K.Jr:
How are you?
P:
Fine thanks, and you?
H.M.Jr:
Oh, I've been better and worse.
P:
That good.
H.M.Jr:
Mr. Parkinson, we're going to have a financing
next week.
P:
Yes.
H.M.Jr:
And I wondered if you'd been thinking anything
about it.
P:
Yes.
H.M.Jr:
How do you people feel up there? What kind of a
suit would you like? Two buttons or three buttons -
P:
Well, if I understand what button means, of course
we'd say three. We've got some money that we'd
like to invest, if that's what you mean?
H.M.Jr:
Yes.
P:
Would there be any chance? Of course we don't
hold any of the notes that are maturing.
H.M.Jr:
Yes. Well I tell you what I'm thinking about.
I'm thinking something about two and three quarters
going out as long as is reasonable.
P:
Yes.
H.M.Jr:
It should be about a twenty twenty five year bond.
P:
I see.
Regraded Uclassified
- 2 -
78
H.M.Jr:
The two and three quarters.
P:
Yes. Well, I think that would be interesting.
H.M.Jr:
You think so,
p:
Yes.
H.M.Jr:
Uhhuh.
P:
Now, twenty would take you up to 158, wouldn't it?
H.M.Jr:
Yes.
P:
I should think that ought to go pretty well.
H.M.Jr:
Well, I mean -
P:
Now wait a minute - before I say that - did you
mean just to refinance or would there be some
for some of the outsiders to get in on?
H.M.Jr:
No, we're thinking in terms now of just re-
financing.
P:
Just refinancing.
H.M.Jr:
Yes.
P:
Yes. Well, two and three quarters to about '58.
H.M.Jr:
No, it would be a fifty eight sixty three.
P:
I see, yes.
H.M.Jr:
Fifty eight sixty three.
P:
Well it would go better a straight fifty eight, but -
H.M.Jr:
Well, that would be giving you too much for your
money.
P:
Really.
H.M.Jr:
Oh, yes.
P:
Well, we wouldn't get any of it anyhow. I'm retired
now to the position of an expert.
H.M.Jr:
I see.
Regraded Uclassified
77
- 3 -
P:
Because we wouldn't have any interest unless the
folks didn't take it.
H.M.Jr:
Oh. You mean because you don't own any of the
maturing notes.
P:
Here's what is in my mind Mr. Secretary. We'd
be more interested probably in 163 than a lot of
the folks would have it. See what I mean?
H.M.Jr:
Yes.
P:
You're interested in making this succeed, aren't
you?
H.M.Jr:
Right.
P:
Yes.
H.M.Jr:
Always.
P:
Now, that's all that's in my mind that if we had
them, I wouldn't hesitate on 163, but I was
thinking of the folks who have them.
H.M.Jr:
You mean have the rights?
P:
Yes. And I am inclined to think that you'd be
pretty sure to get a good result with a straight '58.
H.M.Jr:
Well, that is too sweet.
P:
It is.
H.M.Jr:
Oh, yes.
P:
Why, I don't know just how it figures on return,
I haven't that in mind.
H.M.Jr:
Well, it would be too good.
P:
Yes. I see, Well, I wish you were taking advantage
of this good market to put out some extras.
H.M.Jr:
Well, I wish somebody would borrow some and then
we could. But the trouble is that we just can't
use the money,now, we're like everybody else.
P:
I see. Well I should think you wouldn't have any
trouble on that basis.
Regraded Uclassified
78
- 4 -
H.M.Jr:
But - you wouldn't. No, I mean, we - there's
no sense in our taking new money at this time.
P:
I've seen enough of your figures to say that you
have quite a lot.
H'M.Jr:
Got a lot of money.
P:
Yes. Yes, I agree.
H.M.Jr:
Well, I didn't know, and I wanted to check with
you because you have always been very frank and
very helpful in the past.
P:
Well, I think folks will take that and personally
I congratulate you on trying to get some of this
money into a longer term.
H.M.Jr:
Well, I -
P:
Very good thing to do.
H.M.Jr:
I think this is the time to do it.
P:
So do I.
H.M.Jr:
And that time only seems to come every once -
every three years, so -
P:
Well, I appreciate it takes a little courage on
your part to do it and to raise the fiscal rate a
little bit, but I do think it's a very wise thing
to do, from the point of view of the general public
welfare.
H.M.Jr:
Well, thank you so much.
P:
Not a bit.
H.M.Jr:
Goodbye.
Regraded Uclassified
- 4 -
79
H.M.Jr:
He is, I think, one of the smartest fellows in
New York. He's always been.
Bell:
He's pretty cagy on these investments.
H.M.Jr:
He handles important
Seltzer:
Have you considered whether you want to give
any different treatment to the September and
the June noteholders in view of the fact that
the September noteholders would have to give
up their two and a half per cent interest?
H.M.Jr:
Well, yes. If the September, let's say - well,
I took it that the boys would work out the
technical interest adjustment, whatever that is.
Seltzer:
It doesn't have to be a full adjustment, by
any means.
H.M.Jr:
I was going to wait - I thought that could be
settled very easily. There will be some technical
adjustments if the September subscribers are
two and three-quarters.
Harris:
It amounts to about 11/32 in the price of every
hundred dollar bond. They lose that much, unless
they get it.
H.M.Jr:
How about it if they take the two and three
quarters?
Harris:
Well, they make interest.
Seltzer:
I think the premium will cover it; in any
case, it's only a question of whether you should
treat one noteholder better than the other.
H.M.Jr:
What do you mean? September?
Seltzer:
You're going to treat the September worse than
the June.
Taylor:
If you offer notes you've got to take into
consideration that September
H.M.Jr:
Work on that over night, will you, boys? Work
on that over night - whether we should make some
adjustment.
Regraded Uclassified
80
- 5 -
Bell:
What do you figure your premium on two and
three quarter per cent bonds?
Harris:
Well, if I had to put my finger on one price,
I'd probably say around two point.
Bell:
Well, that's a lot of gravy, even for the
September holders.
Seltzer:
Yeah.
H.M.Jr:
Well, just work on that end of it, will you?
Bell:
Very difficult to adjust that.
Seltzer:
You couldn't make a perfect adjustment. You'a
just give them a partial adjustment, as we have
in the past.
Bell:
Well, in the past we have given them interest
up to the maturity date.
Seltzer:
You've done all sorts of things.
Bell:
Sometimes we've given them a month's interest.
Seltzer:
I don't think, with a juicy premium like this
that they need anything to refund; it's only
the question of unequal treatment.
Bell:
What you are doing is offering a refinancing
to the maturing noteholders. Then, you're say-
ing to the September boys, "If you want to get
in on this it's O. K.; it's up to you; you
have the openings." Aren't you offering them
a pretty good inducement? You're giving them
two and three-quarters per cent bonds for
their two and a half per cent maturing notes,
and a bond which will sell at a premium a good
deal more than what their September note is
selling for.
Seltzer:
That's right.
Bell:
Well, we'll work on it. I'd like to get by
without any adjustment.
H.M.Jr:
Well, let's just say - what I am taking - the
thing we are leaning toward tonight is a
Regraded Uclassified
- 6 -
81
twenty-twenty-five, two and three-quarters;
for a five year, one and an eighth. Who's
leaning in an opposite direction?
Taylor:
I still want to do it at one and a quarter.
H.M.Jr:
You just put that up to have it knocked down.
Taylor:
No, I don't think so. If you want to get any
conversion into your notes, and are willing to
pay a premium for something you don't want
...
H.M.Jr:
The long one.
Taylor:
The bank stuff, and if you want the banks in
the short ones at all, why
Seltzer:
You've got to have a good premium on the long.
It's a very shak market up there.
Taylor:
You know that with the one and an eighth you're
not going to get very much in that.
Haas:
It's better tonight, Wayne.
Bell:
If you put one and a quarter on that, you're
going to get another half of a premium - a
half of 5/8 premium added to that already, and
you get more in the notes than you will in the
bonds.
H.M.Jr:
Have you sold your bank stock? He (Bell) says
he's sorry, he sold his bank stock.
Taylor:
I mean, it's so damned ridiculous talking
about a two point premium on a five year market,
and if the market wants to put that on it - I
mean, that is something
Lochhead:
My point is they ought to be penalized if they
want a short note.
Taylor:
They are being penalized, Archie. One and a
quarter for five years.
Lochhead:
Oh, no. You're judging by the market, but the
market doesn't figure that way.
Regraded Uclassified
- 7 -
82
Seltzer:
It will take a twenty-five year bond to earn
their premium; they earn their premium when
they buy a twenty-five year bond.
H.M.Jr:
(Telephone conversation with Marriner S. Eccles
at 3:58 p. m., attached.)
Regraded Uclassified
June 1, 1938.
3:58 p.m.
83
H.M.Jr:
Hello.
Operator:
Chairman Eccles.
H.M.Jr:
Hello.
Chairman
Eccles:
Hello.
H.M.Jr:
Marriner?
E:
Yes, Henry.
H.M.Jr:
Good evening. We are just having a little meeting
here, on this financing, see?
M
Yes.
H.M.Jr:
And I wondered if you could help me this way. You
people owe, due in September, something over a
hundred and seventy million of the two, you see?
is
That's right.
H.d.Jr:
And supposing we got out, say, a twenty twenty five
two and three quarters, and a five year one and an
eighth, I wondered on what basis the system would
be apt to subscribe, see? I mean that would help me,
in making up my mind, if that's a fair question?
E:
Yes. Well no, as a matter of fact I couldn't -
we didn't discuss it at all because of course
there was no indication as to what might be offered
and therefore we didn't - the question as to what
we would likely take is a matter that hasn't been
discussed at all.
R.W.Jr:
Well, could you let me know?
B:
I think you'd get a difference of opinions, some of
them would feel they wanted to keep in the short
range stuff and others would prefer to take the long.
The way I - the way it would seem to me, I wouldn't
object to taking the long.
H.M.Jr:
Well, could you kind of test your group and let
me know by - before one o'clock tomorrow?
E:
Let's see.
Regraded Uclassified
84
- 2 -
H.M.Jr:
Just try it out.
E:
Yes, I can - I would have to talk - get Harrison
on the telephone.
H.d.Jr:
Yes. But you could let me know before one o'clock.
is
That - that's a twenty twenty five.
H.N.Jr:
Two and three quarters.
E:
Two and three quarters.
M.M.Jr:
And a five year one and an eighth.
E:
And a five year one and an eighth. Have you given
up the idea of the ten yet?
T.N.Jr:
Well, there's nobody around the Treasury likes it
much.
E:
Don't like the ten.
H.J.Jr:
No, we're not set on this either.
E:
Yes.
H.M.Jr:
But the point is with you fellows owning so much,
see?
::
Yes.
H.M.Jr:
It makes quite a lot of difference.
E:
Yes.
H.M.Jr:
And -
E:
It would make a difference as to which one we would
take.
H.M.Jr:
Yes. Well, in this way. I mean I'm leaning a little
bit tonight, to just a twenty twenty five two and
three quarters, never bother - don't bother about
the five year at all.
E:
I see.
H.H.Jr:
Just put it all into one, see?
Regraded Uclassified
- 3 -
85
E:
Yes.
F.M.Jr:
But the boys say that they think we'd be criticized
by the banks, because the banks own most of these,
and if we get out a five year, why we say "Well,
hell we're offering you that, that's what you
should take if you want it.
E:
Yes, the difficulty with the long one means that the
banks that do own almost all of these notes would
either have to take the long bond or they would let
it run off which would mean deflation in deposits.
4.1.Jr:
Yes.
E:
Which wouldn't - it would look bad on the statements
because it would show that the total investment
and loans of banks was continuing to decline.
H.N.Jr:
That's right.
E:
It would immediately show that up on the weekly
statements, see?
H.d.Jr:
That's right.
E:
Which I think is bad if it can be avoided. If
the banks would replace the present holdings, it
would suit me - be much more favorable - and I
know they wouldn't, at least some of them would
take the long bonds but some of them possibly would
take them and immediately sell them.
H.N.Jr:
Yes.
3:
Which would mean a deflation in their deposits.
H.1.Jr:
That's right.
E:
That's the only thing I know of -
B.l.Jr:
Well, then there's -
E:
It seems to me you've almost - almost cot to give
an option on the thing 50 that to avoid that very
point.
H.d.Tr:
Well, I hate like hell to do a ten year.
Regraded Uclassified
86
- 4 -
E:
Well -
H.M.Jr:
I mean - if they say ten year, then I'd much rather
get out a new two and a half.
E:
A new one than to -
H.M.Jr:
Get out a fifty fifty four or fifty one, fifty, or
whatever -
B:
Yes, whatever the two and a half would go, you'd
sooner do that than put out some of the ten years
that
H.M.J.
That "forty seven, forty eight and forty nine are
awTul crowded periods.
E:
Of course, it's a big premium bond too.
H.H.Jr:
Yes.
E:
Well the only thing, of course, on the bond that
it - that's about as long as the banks would like
to LO, a lot of them at least, they would stick to
that. It would seem from the survey we made that
they would take it and -
H.M.Jr:
They'd take the ten year and like it.
E:
That's what I mean, they'd take that.
E.M.Jr:
Well then, they'd take a two and a half fifty
fifty four -
B:
Well, I think they might take that, I think some of
them might go that far too, but they would take it
and hold it, and that - to avoid the note and
just put bonds that would help to keep the bond
market - keep it stable, that was the other factor.
Of course -
H.M.Jr:
As a kind of a test and to help me make up my
mind, I would appreciate it if you will -
E:
All right, I'll check it and by one o'clock
tomorrow I'll let you know just what the sentiment
is.
H.M.Jr:
Thank you so much.
Regraded Uclassified
87
- 5 -
E:
All right.
H.M.Jr:
Goodbye.
E:
Yes.
Regraded Uclassified
88
- 8 -
H.M.Jr:
I mean, that would help us.
Bell:
They take a hundred seventy-five million in
notes and reduce the rate to one.
H.M.Jr:
He's a business man.
Bell:
What's the matter with that?
H.M.Jr:
That's all right. All right. I think
that's enough for tonight, don't you think so?
I want to talk to Dan, will you stay behind a
minute?
Regraded Uclassified
89
JUSTIFICATION
MA
6-1-38
FOR PROPOSED EXPENDITURE IN FISCAL YEAR 1939
OF EMERGENCY RELIEF FUNDS BY THE TREASURY
DEPARTMENT FOR THE PERFORMANCE OF CER-
TAIN ADMINISTRATIVE FUNCTIONS NOT
SPECIFICALLY PROVIDED FOR IN
THE PENDING RELIEF BILL.
GENERAL
The Emergency Rolief Appropriation Bill, now pending
before the Senate, provides in Section 5 for the appro-
priation of funds to the Treasury Department as follows:
Procurement Division, Branch of Supply ($5,500,000); Divi-
sion of Disbursement ($3,500,000); Office of the Treasurer
of the United States ($750,000); Secret Service Division
($300,000); and Office of the Commissioner of Accounts and
Deposits and Division of Bookkeeping and Warrants, for ad-
ministrative accounting ($8,000,000).
In its present form the bill makes no specific pro-
vision for the appropriation of funds to certain other
branches of the Treasury Department which are now perform-
ing and will, it is expected, continue to perform adminis-
trative work related to the Emergency Relief program.
The offices affected, the number of employees involved,
and the approximate total of Emergency Relief funds which
will be expended by each office during the fiscal year 1939
are as follows:
Number of
Aggregate
Employees.
Salaries.
Office of the Secretary
43
$ 75,620
Division of Research & Statistics
2
6,800
Office of the General Counsel
26
51,960
Office of Chief Clerk
44
61,980
Supt. of Treasury Buildings
25
32,540
Division of Appointments
17
23,880
Division of Printing
4
6,240
161
$ 259,020
Regraded Uclassified
90
The justification for each of the above items is set
forth in detail in the following statement:
OFFICE OF THE SECRETARY
(43 employees, $75,620.)
To meet the general expansion in Treasury Department
responsibility relating primarily to purchasing, accounting
and disbursing activities arising directly from the enact-
ment of emergency relief measures, there are now employed
in several branches of the Department an aggregate of ap-
proximately 11,000 persons. This enormous increase in per-
sonnel has brought to the Secretary's Office many problems
of general administrative supervision and overhead, to take
care of which there are now 34 employees whose salaries are
paid from emergency relief funds. The appointment, promotion,
demotion, separation, discipline and transfer of these 11,000
employees must pass through the Office of the Administrative
Assistant to the Secretary. Travel authorizations, and print-
ing, equipment and supply requisitions for this personnel
likewise must clear through the Administrative Assistant's
Office.
Much of the time of the officials of the Secretary's
Office is devoted to emergency relief problems. Policies
must be determined and decisions rendered in such cases.
Major problems may relate to the awarding of contracts for
supplies running into millions of dollars. Determination
must be made of localities for office headquarters in the
field.
The time devoted to these relief activities by Adminis-
trative officials of the Office of the Secretary properly
therefore may be offset against the additional emergency
personnel of the office.
Detailed justification for the 34 emergency employees in
question is as follows:
1 Public Relations Assistant at $3,900
1 Editorial Assistant at $3,000
1 Research Assistant at $3,000
These 3 employees are in the Office of the
Public Relations Assistant. Hundreds of letters
Regraded Uclassified
91
and other inquiries are received at the Department
seeking information with respect to relief problems,
as for instance the amounts spent on certain projects
in particular localities. Contacts are made with
spending agencies and informational memoranda and re-
ports are prepared covering such inquiries.
1 Confidential Investigator at $3,200
This employee is a chemist by profession engaged
on laboratory work under the Consulting Chemist in the
Office of the Secretary and cooperates with the Secret
Service in connection with its investigations concern-
ing forgeries of relief checks, whereby better methods
are available for fingerprinting.
1 Sr. Stenographer at $1,800
3 Sr. Stenographers at 31,620
1 Stenographer at $1,560
7 Jr. Stenographers at $1,440
2 File Clerks at $1,440
1 File Clerk Typist at $1,320
1 Under Clerk at 320
1 Messenger at $1,260
The White House refers to the Treasury hundreds
of letters addressed to the President touching on the
recovery and relief programs. These are received at
the Secretary's Correspondence Division and appropriate
replies given to them. The force of stenographers and
clerks in that Division also is used as a pool from
which stenographic and clerical help may be drawn in
handling the overhead growing out of relief problems.
This makes a flexible staff of stenographers and clerks
and is a more economical arrangement than would be the
direct appointment of additional stenographers and
clerks in each of the various branches of the Secretary's
Office.
1 Clerk at $1,560
4 File Clerks at $1,440
These five employees are assigned to work relating
to the voluminous general and permanent files growing
out of the emergency measures of the past few years.
Regraded Uclassified
92
1 Messenger at $1,560
7 Messengers at $1,200
These messengers constitute a pool for assign-
ment to augment the regular messengers and are neces-
sary to take care of the additional messenger require-
ments resulting from the increased volume of mail
growing out of the Administration's recovery and re-
lief programs. The mail relating to the 11,000 emer-
gency relief employees in particular is very voluminous.
There are also carried on the emergency relief roll of
the Secretary's office 9 employees who are detailed outside
of the Department.
Details to the White House
1 Clerk at $ 2,500
6 Clerks at $2,340
1 Sr. Clerk at $2,000
1 Telephone Secretary at $1,620
These 9 employees were appointed for detail to
the White House on emergency work.
Regraded Uclassified
93
EMERGENCY RELIEF PERSONNEL
Office of the Secretary
Schwarz, Charles
Public Relations Assistant
$ 3,900
Thornburgh, Robert S.
Editorial Assistant
3,000
Friend, Harry M.
Research Assistant
3,000
Benjamin, Louis
Confidential Investigator
3,200
George, Miss Florence P.
Senior Stenographer
1,800
Barker,Mrs. Helen Jean
Senior Stenographer
1,620
Furr, Miss Dixie
Senior Stenographer
1,620
Zirkin, Mrs. Frances S.
Senior Stenographer
1,620
Hardester, Mrs. Charlotte E.
Stenographer
1,560
Alexander, Miss Flora S.
Junior Stenographer
1,440
Friedman, Miss Erma
Junior Stenographer
1,440
Gold, Miss Leah
Junior Stenographer
1,440
Hearn, Mrs. Josephine C.
Junior Stenographer
1,440
Hynes, Miss Evelyn
Junior Stenographer
1,440
Pope, Miss Helen
Junior Stenographer
1,440
Russell, Miss Anne O'D.
Junior Stenographer
1,440
Ayers, Miss Kathryn
File Clerk
1,440
Macdonald, Miss Isabel
File Clerk
1440
Marks, Miss Helen
File Clerk-Typist
1,320
Snipes, Mrs. Vivian M.
Under Clerk
1,320
Walker, James B. Jr.
Messenger
1,260
Niswanner, Mrs. Addie K.
Clerk
1,560
Evans, Mrs. Alice G.
File Clerk
1,440
Barker, Mrs. Jennie D.
File Clerk
1,440
Rowe, Miss Selma
File Clerk
1,440
Giberman, Mrs. Marcella
File Clerk
1,440
Hoffman, Alex
Messenger
1,560
Martin, Chester R.
Messenger
1,200
Conrad, Noble G.
Messenger
1,200
Glaude, Elbert A.
Messenger
1,200
Hale, Richard M.
Messenger
1,200
Henry, James C., Jr.
Messenger
1,200
Harvey, John R.
Messenger
1,200
Moore, Alexander
Messenger
1,200
Gilligan, Miss Katherine
Clerk
2,500
Eben, Mrs. Mary A.
Clerk
2,340
Lewis, Mrs. Lucile S.
Clerk
2,340
Lund, Mrs. Muriel
Clerk
2,340
Stiles, Miss Lela Mae
Clerk
2,340
Tully, Miss Paula
Clerk
2,340
Bachelder, Miss Toinette M.
Clerk
2,340
Doyle, Thomas J.
Senior Clerk
2,000
Lamback, Miss Mary E.
Telephone Secretary
1,620
43 employees
$ 75,620
Regraded Uclassified
94
DIVISION OF RESEARCH AND STATISTICS
(2 employees, $6,800)
Special relief and unemployment problems handled by
Miss Lonigan:
Regular Personnel
Edna Lonigan
Senior Economic Analyst
$ 5,000
Mildred Latimer
Clerk-Stenographer
1,800
Total
$ 6,800
Regraded Uclassified
95
-6-
OFFICE OF THE GENERAL COUNSEL
Estimate of Personnel Required to Handle Legal Work
Incident to the Emergency Relief Program During 1939.
2 Attorneys
© $4,000
(S. A. McCaskey &
$8,000
R. R. Reaper)
2 Attorneys
0 $3,200
(Evelyn E. West &
6,400
Teresa Campise)
1 Attorney
e $2,600
(G. F. Reeves)
2,600
3 Attorneys
e $2,000
(J. 0. Hally,
6,000
Vm. Helvestine &
W. H. Snyder)
1 Secretary
e $2,300
(Laura S. Walker)
2,300
1 Secretary
@ $2,000
(Eleanor H. Haley)
2,000
1 Clerk-Stenographer
@ $1,860
(Virginia M. O'Neale)
1,860
4 Clerk-Stenographers
è $1,800
(Lorraine D. Hughes,
7,200
Agnes Johnson,
Velma L. Shelly &
Mildred B. Vettori)
2 Stenographers
e 31,680
(Gertrude 0. O'Hare &
3,360
Marian J. Vouk)
1 Stenographer
@ $1,620
(Blythe A. Vrooman)
1,620
1 Clerk
© $1,620
(Barbara E. Brown)
1,620
I Stenographer
@ $1,560
(Lillian L. Lockhart)
1,560
1 Clerk
C $1,440
(Sara H. Grant)
1,440
1 Clerk
@ $1,200
(Anna A. Somers)
1,200
4 llessengers
0 $1,200
(E. E. Lee, H. I.
4,800
Wiggins, J. W. Porter
& W. B. Mitchell)
-
26 Employees
$51,960
Regraded Uclassified
-7-
96
OFFICE OF THE GENERAL COUNSEL
JUSTIFICATION FOR FUNDS REQUIRED TO HANDLE WORK INCIDENT
TO EMERGENCY RELIEF ACTIVITIES DURING 1939
(26 positions; aggregate salaries, $51,960)
To provide for the handling of legal work incident to
the relief program in B unit devoted solely to that work
would require personnel in excess of that covered by these
estimates, in addition to which there would result duplica-
tion of effort and increased overhead expense with no re-
sulting advantage. The practice has, therefore, been not
to attempt to segregate relief work in a single unit but 38
occasion required to call on legal personnel carried on
other rolls to handle relief work, to offset which person-
nel carried on the relief roll have been required to per-
form work not pertaining to the relief program. Às a prac-
tical matter employees throughout the office, from the
General Counsel down, regardless of the roll upon which
carried, devote varying portions of their time to the handling
of work emanating from the relief program. This estimate,
it is believed, reflects the minimum amount which will be
required if we continue thus to handle work growing out of
the administration of the relief program.
WORK INVOLVED
Disbursements:
The office handles problems growing out of
the issuance and negotiation of checks (81,000,000
last year) in connection with emergency relief
activities. Questions involving forgery, improper
indorsement, liability of presenting or cashing
bank, criminal and reclamation proceedings, claims
for duplicates, etc., are considered and the Treas-
urer of the United States, Commissioner of Accounts
and Deposits, the Chief Disbursing Officer, and
other administrative officers of the Department
advised as to their course of action. Bonds of
indemnity in duplicate check cases are examined
for form, execution, and legal sufficiency. Mary
of these questions result in litigation which
imposes an additional burden upon the Office of
the General Counsel.
Secret Service:
In addition to legal services rendered to the
above-referred-to administrative officers, exten-
sive legal assistance is also given the Secret
Service in connection with its activities in inves-
tigating frauds arising out of the disbursement of
Regraded Uclassified
+
97
relief funds, including the apprehension and prosecu-
tion of persons perpetrating such frauds.
Purchases:
Contracts for the purchase of materials, supplies,
and equipment for relief activities 8.5 are procured
through the Procurement Division are passed upon by
the Legal Division. During the last fiscal year the
Branch of Supply, Procurement Division, entered into
contracts for and purchased materials and supplies
in connection with relief projects in the amount of
approximately $247,000,000. The more important of
such contracts and purchases, and questions arising
in connection with the performance and settlement
thereof have to be reviewed in this office, particu-
larly where major questions of policy are concerned.
General Accounting
Numerous legal problems arise involving the avail-
ability of relief funds for particular purposes which
require the attention of the General Counsel's Office.
Such problems require, in addition to research in the
office, extensive correspondence and contact with the
Office of the Comptroller General. Many questions of
suspension and disallowance raised by the General Ac-
counting Office are also referred to and handled by
the Office of the General Counsel.
Central Accounts Office:
Legal assistance is rendered the Central Accounts
Office with respect to legal problems arising in con-
nection with the pre-audit of emergency relief expendi-
tures. Legal work is also done in drafting memoranda
of accounting procedure to be followed. Representatives
of this office confer with administrative and legal
officers of other Government agencies concerned with
relief expenditures relative to procedures to be fol-
lowed in handling payments in their behalf.
Compromise:
We have numerous legal questions in connection with
offers to compromise disputed claims arising out of re-
lief disbursements and purchases and all such offers
must by statute be passed upon by the General Counsel.
General:
As an incident to the handling of legal work in
connection with the relief program there is of course
the usual. administrative work, in addition to which
formal and informal opinions are rendered for the in-
formation and guidance of the administrative officers
concerned.
Regraded Uclassified
98
CHIEF CLERK'S OFFICE
(44 employees, $61,980)
1 Clerk
@
$ 1,260
$ 1,260
1 Under Clerk
@
1,260
1,260
1 Asst. Clerk-Typist
1,620
1,620
2 Clerk-Stenogs.
@
1,620
3,240
2 Jr. Clerk-Stenogs.
1,440
2,880
4 Telegraph Operators
1,800
7,200
7 Opr. Off. Dev.
1,440
10,080
2 Mimsograph Opr.
1,320
2,640
2 Mineograph Opr.
1,260
2,520
6 Telephone Opr.
1,320
7,920
5 Telephone Opr.
1,260
6,300
1 Chauffeur
2,100
2,100
1 Chauffeur
1,800
1,800
1 Chauffeur
©
1,680
1,680
2 Chauffeurs
1,260
2,520
2 Chauffeurs
@
1,200
2,400
2 Messengers
@
1,200
2,400
2 Asst. Messengers
@
1,080
2,160
44
$ 61,980
The Chief Clerk's Office is handling considerable work
relating to communication service (telegraphing and tele-
phoning); duplicating of every description, such as photo-
stating, mimeographing, multilithing and multigraphing; and
special messenger service, all related to the Emergency Re-
lief program.
To a great extent the employees carried on the Emergency
Relief Roll spend their entire time on work connected with
emergency relief. On the other hand, the emergency relief
work naturally has been handled in part by regular or perma-
nent employees and certain of the emergency relief employees
have been used in connection with the regular work, this
condition being in the nature of a necessary offset.
The general business of the Department unquestionably
has been increased as a result of the Emergency program.
Regraded Uclassified
-10-
89
There is a definite justification for the employment
of the 44 persons carried on the Emergency Relief Roll, who
are additional to the permanent force and are distributed
as follows:
For Work in the Duplicating Sections:
2 employees at $1,620 per annum
7 employees at $1,440 per annum
2 employees at $1,320 per annum
2 employees at $1,260 per annum, a total of 13
On Telegraph Accounting:
1 employee at $1,620 per annum
1 employee at $1,260 per annum,
a total of 2
On Classification and Filing:
2 employees at $1,440 per annum,
a total of 2
Telephone Operators:
6 employees at $1,320 per annum
6 employees at $1,260 per annum, a total of 12
Telegraphers:
4 employees at $1,800 per annum, a total of 4
Special Messengers, Chauffeurs:
1 employee at $2,100 per annum
1 employee at $1,800 per annum
1 employee at $1,680 per annum
2 employees at $1,260 per annum
2 employees at $1,200 per annum,
a total of 7
Messengers:
2 employees at $1,200 per annum, a total of 2
Assistant Messengers:
2 employees at $1,080 per annum,
a total of 2
44
The work being performed by the foregoing classes of
employees can be briefly stated as follows:
Regraded Uclassified.
100
-11-
1. Duplicating
Concerning the force employed in the Duplicating
Sections, the record shows that this force turned out
during the last 12 months 32,819 mimeograph copies,
nearly 5,000,000 sheets on the multilith and multigraph,
and approximately 150,000 feet of photostatic work. 2
splendid record for the groups. The above work was
solely Emergency Relief.
2. Telegraph Accounting
These two employees are definitely required to
handle the additional work in the Telegraph Accounts
Section in order to cope with the extra work brought
about by the Emergency Relief program.
3. Classification and Filing
Considerable work has been performed in connection
with classification incident to jobs held by Emergency
Relief employees. As a small contribution, one person
has been employed to assist in this work, and on account
of miscellaneous filing and clerical work as related
the Emergency Relief program, a second person has been
employed.
4-
Telephone
The Treasury Department operates a central telephone
switchboard in the main Treasury Building and an auxiliary
board in the Procurement Division. The Treasury Board has
11 positions and the Procurement Board has 3 positions.
To operate these Boards, the services of 28 employees are
required, 16 on the regular roll and 12 on Emergency Relief.
Due to the increase in telephone service under the
Emergency Relief program, it was necessary to definitely
increase the force of operators. A 24-hour service is
maintained on the main Treasury board, with one operator
on duty from 11 p.m. to 7 a.m. One operator goes on duty
at 7 a.m. to relieve the midnight operator and works to
2:30 p.m. A second operator reports at 7:30 a.m. and works
to 3 p.m.; a third operator reports at 8 a.m. and works to
3:30 p.m.; a fourth operator reports at 8:30 a.m. and works
to 4 p.m.; 5 operators report at 9 a.m. and work to 4:30 p.m.;
4 operators report at 9:30 a.m. and work to 5 p.m.; 2 report
at 10 a.m. and work to 5:30 p.m.; 2 report at 2:30 p.m. and
Regraded Uclassified
101
work to 11 pem. In addition to the foregoing, there
is a supervisor and two assistant supervisors, one
assistant supervisor generally reporting at 8 a.m.
and the second assistant supervisor reporting at 9:30
S. Supplementing the above, there are one super-
visor and three operators engaged on the Procurement
Board, and three for relief.
In addition to taking care of the work assign=
ments, the force of operators must be maintained at
a sufficient level in order to grant rest periods
and annual leave, as well as sick leave.
5. Telegraph Operators (5 regular, 5 details, 4 emergency)
The telegraph business of the Department has been
very definitely increased during the past three or four
years, and the four operators paid on the Emergency
Relief Roll have been found essential to properly handle
the business. Somewhat like the telephone switchboard,
the telegraph office is open for the transaction of of-
ficial business from 7:30 o'clock in the morning until
at least 8:00 o'clock in the evening, thus requiring a
[reater number of employees than if the office were open
for merely a single trick of duty.
6. Special Messengers and Chauffeurs
The Treasury Department is housed in 38 different
locations in the city, and those activities of the
Department engaged either directly or indirectly in
Emergency Relief work are quartered in 14 separate
locations. This has very definitely increased the
special messenger and chauffeur work and has made it
necessary to employ the personnel of these classes
now carried on the Emergency Relief Roll. Again this
work cannot be confined to an ordinary work day, out
begins early in the morning and frequently runs late
into the night. This service is available from 8:00
o'clock in the morning until 10:00 o'clock at night,
and later if the emergency demands.
7.
llessengers and Assistant Messengers
The two messengers and assistant messengers are
a normal increase over the regular force to take care
of work ordinarily assigned to this group.
Regraded Uclassified
-13-
102
SUPERINTENDENT OF TREASURY BUILDINGS
(25 employees, $32,540)
Joe S. Haight
Purchasing Clerk
$ 1,800
Margaret I. Kerr
Clerk
1,800
Agnes E. Henesey
Assistant Clerk
1,620
Jennie C. Peluso
Stenographer
1,680
Lorraine J. Thompson
Clerk-Stenographer
1,440
Rosalie M. Sherrill
Junior Clerk-Typist
1,440
Robert M. Wert
Engineman
1,860
James B. Davis
Engineman
1,680
Harvey N. Fitton
Painter
1,800
Leo Francy
Painter
1,800
Charles Friedman
Painter
1,680
Edmind V. Jones
Painter
1,680
Charles L. Braund
Electrician
1,680
John G. Quinn.
Storekeeper's Assistant
1,400
Thomas J. Branch
Chauffeur
1,440
Anthony Perry
Messenger
1,200
Frank L. Greene
Messenger
1,200
Aloysius T. Mills
Laborer
1,260
James V. Gray
Elevator Conductor
540
(until 12-30-38)
Thomas B. Page
Elevator Conductor
540
(until 12-30-38)
Edna E. Thompson
Charwoman (4 hr. day @ 50¢ p.h.)
600
Cordelia Parker
Charwoman
a
If
If
"
11
" #
600
Nina Vick
Charwoman
Il
"
=
II
=
n
"
600
Clara Wheeler
Charwoman
If
"
D
II
If
If
=
600
Betty E. Jones
Charwoman
If
11
11
"
"
"
"
600
$32,540
The mechanical, operating and maintenance forces available un-
der regular annual appropriations for the Treasury Buildings in the,
District of Columbia under the supervision of the Superintendent
have for the last five years been seriously inadequate for the proper
maintenance and management of such buildings. This has been especially
true with regard to the main Treasury Building and the Treasury Annex.
Under normal conditions this situation, which has repeatedly
been brought to the attention of Congress, would have been remedied by
an adequate increase in the amount of the regular annual appropriations.
During the last three years, however, the Emergency Relief appropriation
has been employed to bear its proportionate share of operating and
maintenance expenses. In this connection, attention is directed to the
fact that during the last three years the personnel occupying the main
Treasury Building and the Treasury Annex have not been engaged entirely
in the normal work of the Department.
Regraded Uclassified
103
For example:
In the main Treasury Building, with a total
occupancy of over 2,300 persons, there are 327
persons (or over 14 per cent of the total occupancy)
engaged in work directly related to the emergency
relief program.
In the Treasury Annex, which is occupied by the
Division of Disbursement, out of a total personnel
of 780, there are 120 employees (or about 15 per cent
of the total occupancy) engaged in disbursing work
directly related to the emergency relief program.
For the fiscal year 1939, to provide mechanical, operating,
and custodial employees for the maintenance not only of the
Treasury Building and the Treasury Annex, but also of the
Liberty Loan Building and the Auditors' Building, the regular
annual appropriation is $327,800. As shown by the above
statement, the Superintendent's office employs, in addition
to the force provided by the regular appropriation, a force
of 25 employees whose salaries, paid from Emergency Relief
funds, aggregate $32,540.
By a comparison between this figure and the amount of
the regular annual appropriation ($327,800) it will lae seen
that it represents an augmentation of less than 10 per cent,
or less than the ratio as is borne by the number of emergency
relief employees in the Treasury Building and the Treasury
Anner to the total number of employees in those two buildings.
In the last "Hearings Before the Subcommittee of the
Committee on Appropriations" it is shown that the inadequacy
of the Superintendent's forces was disclosed to the sub-
committee, and that, at the request of the subcommittee, a
table was submitted (and printed) showing positions on the
Emergency Relief roll which the Superintendent requested be
included in the regular appropriation for 1939, in order that
they might be diverted from the emergency roll to the regular
roll after July 1, 1938.
The positions listed on the above statement areessential
to the proper conduct of the work of the Department and none
of those positions could be eliminated without impairing the
efficiency of the work assigned to the Superintendent of
Treasury Buildings.
Regraded Uclassified
-15-
104
DIVISION OF APPOINTMENTS
(17 employees, $23,880)
1 Assistant Clerk
$ 1,620
$ 1,620
2 Clerks
1,440
2,880
1 Jr. Clerk
1,440
1,440
1 File Clerk
1,440
1,440
2 File Clerks
1,260
2,520
1 Under Clerk
1,260
1,260
4 Sr. Typists
1,440
5,760
2 Jr. Clerk Typists
1,440
2,880
1 Stenographer Typist
1,440
1,440
1 Jr. Opr. Off. Dev.
1,440
1,440
1 Nessenger
1,200
1,200
17
$ 23,880
An estimate for 17 employees, with total salaries of
$23,880,is submitted. These employees are now on duty in
the Division of Appointments and are paid from Emergency
Relief funds at the salaries indicated.
The number of employees of the Treasury, departmental
and field, paid from Emergency Relief funds varies. It has
been as high as 16,422, and at the present time is in excess
of 10,000. This Division is required to prepare all letters
making appointments, transfers, promotions, demotions, changes
of designation, etc. among this personnel, and to keep records
and files of same. The Civil Service Commission requires all
the appointments and all changes in this force to be reported
to it. In the interest of economy, the work is handled along
with the work connected with changes in the regular force of
the Treasury. For instance, in the File Section we do not
undertake to keep all papers relating to the emergency em-
ployees separate from those of the regular roll employees of
the Treasury, and the same procedure is followed in other
sections of the Division. A few of the emergency employees
do some regular roll work in connection with the emergency
work. This, however, is offset by regular roll employees
doing not only their regular work, but also work connected
with the Emergency Relief employees, particularly the admin-
istrative staff and heads of the various sections.
Regraded Uclassified
-16-
105
The turnover among Emergency Relief employees is at
least 50 per cent greater than among the regular roll em-
ployees, thus necessitating a larger per cent of changes in
appointments, transfers, designations, etc. Furthermore,
the appointments of Emergency Relief employees are limited
to the fiscal year, necessitating new appointments for those
whose appointments are extended from one fiscal year to
another.
It is believed that the estimate of 17 employees, with
total salaries of $23,880, for the Division of Appointments,
is a very modest one and should be granted.
Regraded Uclassified
106
-17-
DIVISION OF PRINTING
(4 Emergency Employees $6,240)
1 Editorial Clerk
$ 1,800
$ 1,800
1 Bookkeeper
@
1,800
1,800
1 Stenographer
@
1,440
1,440
1 Chauffeur
1,200
1,200
4
$ 6,240
The Division of Printing transacts all of the Treasury
Department's printing and binding business with the Govern-
ment Printing Office and outside contractors.
An estimate of the cost of the printing and binding
ordered is furnished by the Public Printer for entry in the
records of the Division as an encumbrance against the appro-
priation involved. If the job is printed from original copy
and proof is required, an accurate record of the time the proof
is received and returned to the Public Printer is maintained.
The proof is examined to see that the corrections to be made
are indicated in such a way as will be understood by the
printer. The Government Printing Office is contacted daily
regarding the progress of the work, that activities interested
may be kept informed as to the delivery date. After delivery
a bill is presented by the Government Printing Office which is
audited and recorded in the division and forwarded through the
proper channels for payment. In other words, a complete his-
tory of the work is maintained in the Division of Printing from
the time of its inception to its completion.
The Emergency Relief work of the Department has caused a
tremendous increase in the use of continuous folded forms. As
this style of printing can not be produced in the Government
Printing Office, additional time and labor is necessary to fill
requisitions therefor. In procuring continuous folded forms
the routine procedure outlined above is followed and a waiver
is granted by the Government Printing Office authorizing pur-
chase of the forms from outside publishing firms.
Regraded Uclassified
18
107
Such purchases require the preparation of specifica-
tions; the preparation of advertisements; the solicitation
of bids for furnishing the forms desired; the examination
of all proposals received; the making of an award to the
lowest bidder complying with the specifications, the
execution of a contract and the placing of orders therefor.
Vouchers for continuous folded forms are given a preliminary
audit and recorded in the records of the Division.
It is also frequently necessary to conduct corres-
pondence in connection with delivery and the auditing of
vouchers.
The urgent nature of much of the printing required
by the various agencies of the Department in the per-
formance of Emergency Relief work requires numerous special
trips to the Government Printing Office by representatives
of the Division to insure prompt delivery.
The following table shows the number of blank forms
ordered by the Division for the Department agencies handling
Emergency Relief work and the sums expended therefor during
the past 3 fiscal years:
Fiscal Year
No. of Blank Forms
Amount Expended
1935
14,083,620
$28,038.27
1936
354,503,825
630,368.00
1937
256,783,494
688,201.00
Number of Emergency Relief Checks ordered
by the Division during the past three
fiscal years:
Fiscal Year
No. of Checks
1935
17,695,300
1936
88,678,800
1937
61,017,500
The following table shows the amounts expended by the
Division during the past three fiscal years for the agencies
handling the major part of the Department's Emergency Relief
activities:
Regraded Uclassified
-19->
108
1935
1936
1937
Accounts and Deposits
$28,038.27
$ 278,076
$ 399,516
Disbursement
118,810
100,047
Procurement, Supply
179,120
142,417
Miscellaneous activities
54,362
46,221
Total for Department
$ 28,038.27
$ 630,368
$ 688,201
All employees of the Division of Printing participate
in the work connected with the handling of Printing and
Binding requisities, the cost of which is chargeable to
Emergency Relief, and to offset the time devoted by the
regular employees of the Division to the performance of
emergency work, it is necessary to have the service of four
employees.
Regraded Uclassified
109
June 1, 1938
I called on Cordell Hull with Wallace to
talk about making a loan to China BO that they could
buy flour and cotton gray goods. I let Hull know
in advance what we were going to discuss, at his re-
quest.
Wallace presented the case on the basis that
it would he helpful domestically and inasmuch AB he,
Wallace, thought China was going to win the war, in
the future they would feel kindly disposed towards
us on account of this loan.
Hull said that when we made a similar loan
to China, in either 1933 or 1934, the Japanese pro-
tested. Hull seemed to have the Japanese very much
on his mind and said, What would we think if he asked
the Japanese whether they cared to buy any cotton or
wheat, and then If they turned us down it would leave
us more or less free with China.
Hull twitted Wallace about having 80 much
cotton and wheat. He said, I thought you had all
of these things under control. Wallace said that
they had not attempted to curtail either wheat or
cotton, which of course is wrong in the case of cot-
ton, but I did not want to contradict him at that time.
Wallace then changed the subject and said that
yesterday in his discussion with the President that he,
the President, had told Wallace that he had not approved
of Ickes coming out for Martin or Hopkins coming out
for Wearin in Iowa. (I had seen the President a day
or two after Governor Martin had been defeated in
Oregon and he told me at that time that Ickes had come
to see him and asked him how ne would feel about his
coming out for Martin and the President told me he
replied by saying to Ickes, 'Harold, if you do I will
not ask for your resignation.')
The President yesterday at his press confer-
ence, off the record, said the following in regard to
Hopkins coming out for Wearin:
(Note: this distated by Gaston) The Presi-
dent was asked whether he had authorized Hopkins to
make the statement endorsing Representative Otha Wearin
Regraded Uclassified
110
-2-
for the Senate against Senator Gilletts. The Pres-
ident said, 'That's Just another of those things.
When some candidate announces that he has WhiteHouse
endorsement, if I say he has not that gives support
to his opposition. If I say he has, of course the
opposition won't like it, and 80 I can't say anything,
but in this case I will tell you off the record, and
I want you to make it absolutely off the record, no;
I did not approve this statement."
Personally, I believe that he approved of both
the moves in Oregon and Iowa.
Before Wallace came in, Hull talked very pes-
simistically about everything and said that the Presi-
dent seems to be more interested in reform than he
does in recovery and blamed most of it on Jimmie
Hoosevelt. I found Hull extremely sarcastic and
bitter in nig attitude towards the White House.
Hull said he WAB leaving this Thursday night
to make a speech in Tennessee and will give us an
answer on the loan to China before leaving.
He told me when I was with him alone, he said,
'To show you how the White House treats me, he sald,
I have asked for one measly diplomatic post for a man
from Tennessee. He said, I got the approval of both
senators. He said, This is the only post I have
asked for out of all the positions and, he said,
Before the President would approve it he sent for
Senator Berry, of Tennessee, and asked him how he
felt about it.' Hull seemed to think that this was
terrible.
Regraded Uclassified
FHN Form No- 1.26
lat
111
FEDERAL HOUSING ADMINISTRATION
MEMORANDUM
DATE June 1, 1938
TO
Mr. Morgentheu
FROM
FIGURES FOR WEEK ENDING MAY 28, 1938
Week Ending
Corresponding Week
May 28,
Last Year
1938
1937
FOR THE WEEK:
Number
Amount
Number
Amount
Mortgages Selected
5,186
8 24,054,163
3,437
$15,118,575
Mortgages Accepted
3,482
15,218,200
2,704
11,125,010
Promium Paying Martgages
1,706
7,402,500
2,077
8,639,383
Property Improvement Loans
8,419
4,013,939
(Amended February, 1938)
CUMULATIVE:
Mortgages Selected
416,394
$1,752,492,703
Mortgages Accepted
307,039
1,258,500,808
Premium Paying Mortgages
233,071
957,827,567
Property Improvement Loans
70,110
33,238,176
(Amended February, 1938)
llote:
Under original Title I (expired April 1, 1937) 1,450,860
modernization notes wore insured amounting to $560,603,240.
300
Division of Economics and Statistics
Operating Statistics Section
Regraded Uclassified
Confidectial
Weekly WPA Employment
Not for Publication
Series - Table 1
EMPLOYMENT ON WPA PROJECTS, BY STATE
112
13117
UNITED STATES AND TERRITORIES
Weeks Ending May 28 and May 21, 1938
(Partially Estimated - Subject to Revision)
Number of Persons Employed
Increase (+)
State
Week Ending
Week Ending
or
May 26
May 21
Decrease (-)
GRAND TOTAL
2,679,656
2,652,215
+ 27,441
CONTINENTAL UNITED STATES
2,677,970
2,650,475
+ 27,495
Alabama
43,169
41,288
+ 1,881
Arizona
9,661
9,715
-
54
Arkansas
36,042
36,086
-
44
California - Total
94,999
95,239
-
240
Northern
50,478
50,517
-
39
Southern
44,521
44,722
-
201
Colorado
28,083
28,168
-
85
Connecticut
23,551
22,930
-
621
Delaware
3,312
3,265
-
47
District of Volumbia
8,215
8,192
-
23
Florida
35,303
34,517
-
786
Georgia
45.359
44,818
-
541
9,600
9,768
-
168
Illinois
217,367
213,603
+ 3.764
Indiana
92,669
92,393
+
476
TOWL
33,522
33.534
e
12
Kenson
35,918
35,945
-
27
Xentucky
60,389
60,445
-
56
Louisianc
31,682
31,816
-
134
Meine
8,008
7,948
+
60
Maryland
12,629
12,501
+
128
Mananchusetts
105,433
105,838
-
405
Michigan
175,790
169,304
- 6,486
Minnesote
62,104
62,205
-
101
Mississippi
33,425
33,566
I
un
Missouri
97,159
95,959
+ 1,200
Montino
19,572
19,375
+
197
Nebraska
29,055
29,370
-
323
Novada
2,195
2,239
-
4/2
New Hampshire
8,366
8,288
.
78
New Jersey
90,499
90,402
-
97
New Mexico
10,043
9,955
-
88
New York City
164,727
162,695
- 2,032
New York (Excl.
56,588
56,054
+
534
North Carolina
35,330
54,724
+
506
North Dekota
13,124
13,040
+
B4
Ohio
258,609
235,593
+ 3,016
Oklahoma
65,603
65,338
-
205
Oregon
16,764
16,978
-
214
Pennsylvania
244,836
239,376
- 5,400
Rhode Island
1/,283
14,217
4.
66
South Carolina
34,044
33,658
+
386
South Dakota
15,374
15,482
-
108
Tennessee
32,735
32,428
+
307
Texas
80,355
80,810
-
455
Utah
10,347
10,107
+
180
Vermont
4,983
4,950
+
33
Virginia
23,309
23,121
.
268
Washington
44,401
124,126
.
275
West Virginia
43,134
42,906
,
148
Wisconsin
71,755
71,672
-
83
Myoning
1,270
4,380
,
110
Name()
1,686
1,740
-
54
TORTS PROGRESS ADMINISTRATION
"Regraded Uclassified
Insuranch, Statistico, and Records
June 2, 1938
113
REB
GRAY
London
Dated June 1, 1938
Rec'd 3 P. m.
Secretary of State,
Washington.
470, June 1, 6 P. m.
FOR TREASURY FROM BUTTERNORTH.
All morkets in the city continue relatively
inactive. The report of a Sudeten incident caused a
strengthening in the dollar and a weakening of the
franc in the afternoon but the volume of trading was
small.
Rumors persist in not well-informed quarters
of a forthcoming dollar devaluation. American
banks thus quaried denied the likelihood of any
such development.
KENNEDY
hth
HPD
Regraded Uclassified
114
PARAPHRASE OF TELEGRAM RECEIVED
"All
FROM: American Embassy, Paris, France
DATE: June 1, 1938, 5 p.m.
NO.: 860 FROM COCHRAN.
Paris exchange market was quiet until report came
via Stockholm and Amsterdam of a new incident on Sudeten
boundary. Franc then weakened from 178.11 to .40 and control
evidently lost some sterling through operations by Morgane
and Societe Generale. Rentes weaker and market nervous,
but recovered from worst.
THE FOLLOWING IS STRICTLY CONFIDENTIAL.
Today I had a talk with the Minister of Justice, Paul
Reynaud. In strict confidence he expressed certain opinions
to me. Reynaud is not satisfied with the economic and
financial policies of the Government he is in now. In
his opinion the steps necessary to recovery oan be taken
only by a Government which is assured of a large majority.
During the present parliamentary session - which should
end about the twentieth of June - he does not expect
any important debates. He does not expect a crisis in
the present Government until possibly November, barring
international upsets. In November, he said, it may be
wrecked through the futility of the policies it has
adopted.
END SECTION ONE.
BULLITT.
EA:LWW
Regraded Uclassifie
115
SECTION 2, Telegram No. 860, June 1, 5 p.m., from Paris.
A new French tariff policy which will lower duties on
raw materials and reduce the cost of living and of indus-
trial production is favored by Reynaud. Reynaud recommends
more hard work for six days a week at least. Reynaud
expects the present Government to do little more toward
remedying the situation. He does not wish a forced con-
version of rentes and he believes the recent depreciation
of the franc to such a small extent and taken without
constituting one part of a comprehensive constructive
illusory.
program will prove to be an illusion. Reflux of capital
to France has practically ceased already.
for France
Reynaud urges/a currency sufficiently depreciated to
afford an interesting margin of profit to business. He
believes Great Britain and France will be obliged to lower
their currencies further, in view of the heavy armament
charges. Reynaud is amazed that there should develop in
the United States where courage and initiative have always
been outstanding such a status of stagnation, timidity,
and degeneration as exist at present. He believes that
the United States will need further depreciation of its
currency to pull itself out of the present slough of
despondency and to raise raw material prices. He says
that we have & solid base for a good deal of monetary
expansion.
Regraded Uclassified
116
SECTION THREE.
Reynaud is still blocked to & great extent by the
international political situation in what he calls & "sick
world" and he stresses the importance of the democracies
standing together during these perilous times when the
fanatic leaders of Italy and Germany and any day a world
war might be precipitated by the militarists of Japan.
In case of such a war, Reynaud wondered whether the
Johnson law might be abrogated. When the next French
crisis comes, Reynaud's concrete idea is that the solution
thereof should involve a strong French Government partici-
pating in a revision of the present Tripartite Agreement or
in the negotiation with Great Britain and the United States
of a new Tripartite Agreement which would envisage the
concerted depreciation of the three currencies to achieve
the aims herein above suggested. He believes that for
France there will be no alternative other than exchange
control which he opposes and as unworkable and undesirable
for France as well 88 distasteful to the other members of
the Tripartite Agreement.
(END OF MESSAGE)
BULLITT
HIYS
Decum
EA:DJW
Regraded Uclassified
117
AM
REB
GRAY
Paris
Dated June 2, 1938
REC'd 2:15 P. me
Secretary of State,
Washington.
869, June 2, 4 p. m.
FROM COCHRAN.
Paris Exchange market inactive and still slightly
nervous, Franc weakened from 178.18 to .35 by 4 p. m.
and intervention by control was anticipated around
latter lEVEL. Little activity in Paris stock market.
Bank of France statement as of May 26 showed no
important changes. Day to day money slightly tighter
since subscriptions to national defense loan must bE paid
June 3. Market is gossiping of early issue of a loan
for City of Paris, perhaps for 500,000,000 francs at
6%. French revenue from indirect taxes in April was
146,000,000 francs below Estimates. Direct taxes for
first four months 145,000,000 francs above same period
last year due to higher taxation and advance in prices
following franc depreciation.
Belga
Regraded Uclassified
118
REB
2 -#869, From Paris, June 2, 4 p.m.
Belga stronger against sterling and National
Bank of BElgium may bE able to draw gold from London.
Paris bankers report that during recent WEEKS
and particularly since Czechoslovakia developments,
American banks have drawn back from London and
continental centers important part of funds which
they had here on "swap" operations made possible
through selling spot and buying forward dollars at a
premium lower than the interest such funds brought on
the fortign center. On the other hand certain European
clients are inclined now to borrow rather than buy
dollars for normal needs since they feel current dollar
rate too high.
BULLITT
KLP
Regraded Uclassifie
119
REB
GRAY
London
Dated June 2, 1938
Rec'd 2:36 p. m.
Secretary of State,
Washington.
474, June 2, 6 P. in.
FOR TREASURY FROM BUTTERWORTH.
In a conversation at the British Treasury Sir
Frederick Phillips said that hE had instructed ROE
Dutton, British Financial Attache at Paris, to proceed
to Brussels shortly and look into Belgium situation.
HE says that hE had been given to understand that the
Belgian authorities would like to find a means of
severing the belgas direct connection with gold and
adhering to sterling without changing the current rate
because under present circumstances whenever the dollar
moved out Belgium tended to lose funds. Phillips said
that ROE Dutton had been instructed not to give the
Belgian authorities any Encouragement to take this
step. HE added somewhat ironically that Great Britain
did not wish to urge any country to leave the gold
standard.
Phillips
Regraded Uclassified
120
REB
2-#474, From London, June 2, 6 p.m.
Phillips said that what hE got mainly from Paris WERE
two rumors, one to the Effect that the dollar would bE
devalued to the Equivalent of dollars 4.50 by the autumn;
and two, that Montagu Norman had been invited by the
President to visit the United States. (Incidentally the
latter has been and is still 111 with shingles). These
rumors, Phillips maintained, were being put about by
B. As regards the French position Phillips said that
it was at least marking time and that although on some
days recently there had been an outflow of funds from
France, the amounts were negligible and that the
Deladier Government's political position seemed assured
for the time being. Phillips added that Fournier was
saving in private that things were not going well but
that activity was at such a low Ebb when Daladier had
taken over that no quick improvement was to bE Expected
particularly as the decree measures had not Effected
any fundamental changes. Phillips said that hE hoped
to stop off in Paris on his way to the meeting of the
League Finance Committee meeting at the End of the
month and SEE for himself how bad things are.
HE
Regraded Uclassifie
121
REB
3-#474, From London, June 2,6p.m.
HE asked somewhat despondently about conditions in
the United States and dolefully described the trend here
by saying that whereas the United Kingdom indices had
declined less than anywhere Else hE could derive little
comfort from that fact.
KENNEDY
KLP
00111238
MLL
Regraded Uclassified
122
GROUP MEETING
June 2, 1938.
9:30 A. M.
Present:
Mr. Magill
Mr. Oliphant
Mr. Gaston
Mr. Haas
Mr. Lochhead
Mr. White
Mr. Upham
Mr. Bell
Mr. McReynolds
Mrs. Klotz
H.M.Jr:
Have you read this Barkley thing, on direct
relief?
Bell:
No, I haven't.
H.M.Jr:
Let me read it out loud:
(Congressional Record
Senate - June 1, 1938.)
"Mr. Barkley. The amendment agreed to yesterday
was an amendment providing for the earmarking
of $50,000,000 of the funds for direct relief.
The Senator from Michigan tried to increase
the amount to $150,000,000, without success.
After conferring with the Treasury Department,
the Secretary of the Treasury,"
and
Mr. Bell
Bell:
No, I think that must be inserted.
H.M.Jr:
"....and others interested in this problem, it
has been suggested that the $50,000,000 may not
be sufficient to take care of direct relief from
now until next January, when Congress will have
an opportunity to increase the appropriation for
direct relief.
"It is necessary, and so long as the present
situation continues, even perhaps after some
improvement in it, it will be necessary for the
Relief Administration or the W. P. A. to purchase..."
Relief Administration or the W. P. A. - it's the
same, isn't it?
123
- 2 -
Bell:
The Relief Administration is out of existence.
H.M.Jr:
"....to purchase considerable quantities of food
and clothing and other supplies from the Surplus
Commodities Corporation, the surplus supply which
is being utilized to feedand clothe and take
care of people who are in distress, but for whom
employment is not available. Therefore I am
constrained to propose that the committee amend-
ment be eliminated, and that in lieu of it there
be provided the amendment I am sending to the
desk, concerning which I have conferred with
the Senator from Colorado, and with a slight
modification I think he has indicated he will
accept the amendment.
"PROVIDED further, That notwithstanding the
foregoing provisions of this section, the Works
Progress Administrator is authorized to set aside
in a separate fund not to exceed $50,000,000
of the funds herein appropriated, to be used in
emergencies for the purpose of providing relief
to needy persons.
And to insert:
"PROVIDED further, That notwithstanding any other
provision of this title, the Works Progress
Administrator is authorized, from time to
time, out of funds herein appropriated, to use
such amount or amounts as shall be determined
by the President to be necessary for the purpose
of providing relief to needy persons. Such
amounts shall be used in the discretion and
under the direction of the President, and through
such agencies as he may designate."
Bell:
Hereinafter appropriated. That is different from
the previous.
H.M.Jr:
"Mr. Barkley. Mr. President, this does not
increase at all the total amount carried in the
joint resolution, but it does give flexibility
to the authority of the President in case of
emergency, and unforeseeable need on the part of
the peoplè, to use a larger sum than $50,000,000,
if he should find it necessary, through the
W. P. A. or any other agency.
Regraded Uclassified
124
- 3 -
"Mr. Borah. Mr. President, will the Senator
explain just what kind of relief would be included
and be taken care of by this special discretionary
power?
"Mr. Barkley. I might give the Senator an
example of the sort of relief contemplated."
I want to get it down.
Bell:
I am not so sure that that isn't exactly what
you wanted.
H.M.Jr:
What?
Bell:
I'm not so sure that that isn't exactly what
you wanted.
McReynolds: It's a limit of a hundred twenty-five million.
H.M.Jr:
Here is Mr. McKellar: "Mr. President, why can-
not a limitation be put on this amount? Yesterday
the Senate voted down a proposal made by the
Senator from Michigan to increase the limitation
from $50,000,000 to $150,000,000. It seems to
me that there ought to be a limitation placed
on it of, say, $125,000,000, otherwise we
simply turn the whole matter over and it might
cause complications. Of course, I am willing
to trust the President and, indeed, would be
willing to turn the whole sum over to him as we
have done before, but this substitute, as
offered, would destroy the theory of the bill
as drafted.
"Mr. Borah. Mr. President, do I understand
that the Senator from Michigan is satisfied
with the proposed substitute?
"Mr. Vandenberg. I am satisfied with the sub-
stitute
....
"Mr. Borah. In other words, it seems to be neces-
sary to have no limit as to the amount?
"Mr. Vandenberg. Yesterday I suggested the
limitation of $150,000,000. The amount is limited
solely by the necessity which will ultimately
arise, and which cannot be assessed in advance."
Regraded Uclassified
125
- 4 -
Mr. Borah, Mr. Vandenberg, Mr. Johnson.
McReynolds: The final analysis was $125,000,000.
H.M.Jr:
"Mr. Barkley: I cannot, of course, assume what
may have actuated Senators in voting against
the proposal to place a limitation of $150,000,000.
They may have thought that was too much. I hope
it will be too much, I hope it will not be
necessary to spend $150,000,000, or $100,000,000.
I do not believe anyone on this floor or anywhere
else in this country is sufficiently prophetic
to know how much will be required to feed and
to care -for those people who cannot obtain
employment."
Well, then they must have come to - but he did -
I don't have to apologize to anybody for this
thing. His original resolution was:
"Provided further, That notwithstanding any
other provision of this title, the Works Progress
Administrator is authorized, from time to time,
out of funds herein appropriated, to use such
amount or amounts as shall be determined by the
President to be necessary for the purpose of
providing relief to needy persons."
In other words, of the "herein appropriated
amount."
Bell:
It means in this title.
H.M.Jr:
That means just out of the billion - one fifty.
Bell:
Well now, the other one is different. I think
the other one might come out of the billion
for W. P. A.
H.M.Jr:
Just read it. (Hands Mr. Bell Congressional Record.)
Take a look at it; I'll go around the room.
(Nods to Mr. Magill.)
Magill:
Senator Harrison called this morning to say that
various people had been up to see him - representa-
tives of the states - in respect to this proposed
Regraded Uclassified
126
- 5 -
legislation to eliminate the taxes on state
employees for past years. He said he - after
discussing it a while, he said that he thought
what ought to be done was for the Secretary
of the Treasury to issue a reassuring statement,
but he didn't think there should be any legisla-
tion until the next session of Congress. I
told him I thought that in line with the
President's message, legislation, if it were
adopted, we ought to cover the whole thing at
once, and he didn't know quite what the legisla-
tion was, but he was clear that the situation
ought to be handled by means of a reassuring
statement rather than by legislation.
H.M.Jr:
We don't give those every day. All right.
What else?
Magill:
I think that's all. We - our people sat
up with these state representatives all yester-
day and last night. They apparently got on
all right.
H.M.Jr:
Did they get on all right?
Vagill:
I want to commend Mr. Gaston for his unique
method of handling the publicity on this thing.
I think it was excellent. Instead of having
Sandy Klein and the others standing outside the
hall, Herbert invited them all in. They saw it
was deathly dull and didn't write up much of
anything.
Gaston:
Too much material - no story.
Bell:
Well, I misunderstood the word, "hereinafter."
I thought you were reading "herein," so it's
the same as the other amendment - increasing
it to one fifty.
H.M.Jr:
Not the way he had it - not the way he introduced
it first.
Bell:
No; that's right. He put a limit on it.
H.M.Jr:
What I am getting at, Barkley said he talked
to me. What he did was perfectly right. He
Regraded Uclassified
- 6 -
127
wanted to leave it to the President to decide -
no limitation, and they wouldn't take that.
Senator McKellar said, "Why not put a limitation
on it." Right?
Bell:
That's right.
H.M.Jr:
It's a question of the President - how much he
needs for direct relief. The only kick they
got is they will, most likely, say that money
for direct relief will come out of the new
funds and not out - but Barkley - the way he
introduced it was all right. I mean, he just
said, "Leave it X dollars for the President."
Bell:
It's all right, except the money came out of
W. P. A. - limitation comes out of the whole
fund.
H.M.Jr:
But he didn't come out for a hundred or a
hundred twenty-five; he just said, "without
limit." (Nods to Mr. Magill.)
Magill:
That's all.
H.M.Jr:
Two Commissioners wanted to come over yesterday -
they had to see me before three o'clock because
petitions were coming down for some building,
and I didn't have the slightest notion what it.
was about.
McReynolds: They've been talking to me the last ten days.
I told them when they got in to see me that they
shouldn't bother the Secretary of the Treasury
for space allottment, and they finally apologized
and said they knew they shouldn't try to get
to you. They didn't get what they wanted. They
admitted that they were trying to uphold their
dignity.
Oliphant:
Hear! Hear!
(Laughter)
McReynolds: After all, those fellows in the Federal Trade
have been pretty damned well treated by the
Treasury.
H.M.Jr:
Honestly, I am surprised - I am just amazed at
all these cuss words.
128
- 7 -
McReynolds: I've got a sore throat this morning, and can't
talk.
H.M.Jr:
You've what! A sort throat?
McReynolds: I've got a sore throat and can't talk.
H.M.Jr:
All I can say is, I wish you had one all the
time. (Laughter.)
McReynolds: You don't need to worry.
H.M.Jr:
A couple more mornings like this and you will
shift a couple more of these personnel fellows
around.
McReynolds: I've got to get some changes in the log before
I can do that.
Klotz:
(Inaudible.)
H.M.Jr:
Did you get that one?
McReynolds: No, I didn't.
Klotz:
I've got a sore throat this morning.
H.M.Jr:
All right.
(Telephone.) Hello. Well, I may try it after
lunch then - we'll try it later.
You (Magill) all right?
Magill:
(Nods "Yes.")
H.M.Jr:
(Points to Mr. Oliphant.)
Oliphant:
Hester made inquiry of the Committee considering
the Bailey resolution to stop the purchase of
foreign silver, referring to any likelihood of
anything happening; he said there wasn't.
H.M.Jr:
You haven't got throat trouble, have you?
Oliphant:
No, mine is all right.
Regraded Uclassified
- 8 -
129
H.M.Jr:
I shouldn't try to make poor Herman laugh;
it hurts too much. (Hearty laughter.)
This is the meanest crowd.
Oliphant:
And Hester suggests that we do what we frequently
do in such cases - let the question of the
report on the bill lie until we hear from
them again, which we probably won't until the
next Congress.
The check has not been delivered. It will -
I have here our letter of instructions to the
Federal Reserve Bank under which they have
acted
H.M.Jr:
Yes.
Oliphant:
......
which ought to be signed. That check
will, presumably, come down this afternoon by
air mail.
H.M.Jr:
(Signs letter.) How many ounces of silver was
it, roughly?
Lochhead:
Five million.
Oliphant:
And the money is down stairs in case the
Ambassedor wants to cash it.
H.M.Jr:
What?
Oliphant:
The money is down stairs in case he wants to
cash it.
H.M.Jr:
Will we give it to him in silver dollars?
Oliphant:
I hope it occurs to him not to cash it in an
ordinary bank and let it go around through a
series of banks.
Bell:
What will he do with the money, carry it around
in his pocket?
H.M.Jr:
Can he really get cash?
Oliphant:
That's what Bernie told me.
Regraded Uclassified
- 9 -
130
Lochhead:
What's the objection to cashing it in a
commercial bank?
Oliphant:
The possibility of a lien being slapped on it -
trying to avoid litigation.
H.M.Jr:
Supposing he takes two and a half million
dollars in cash and opens a deposit. Can't they
slap a lien on that?
Oliphant:
Well, we're out of it.
H.M.Jr:
I still think I pulled - I am very proud of my
wrinkle - that was to put the silver directly
in our assay office are not send it over to
American Smelter and let it lie in the New
England swamps.
Lochhead:
Have to leave that in the assay office some
time. We can possibly have it smelted down
there, but I don't know whether - does this
action prejudice any subsequent transactions
that may be considered for the same purpose?
Oliphant:
(Nods "No.")
H.M.Jr:
Now, you all right?
Oliphant:
Yes, that's all.
H.M.Jr:
Herbert, your friend wrote an editorial -
make a note of it - in the Washington Herald,
about the stabilization fund. "Nobody knows
nothing about the stabilization fund." You might
draw his attention to the fact that every year
I go before the Appropriations Committee of the
House, and I answer any question they want to
ask me about the stabilization fund, and every-
body is entirely satisfied. What's the name
of this fellow over at the Washington Herald?
Gaston:
Whigham.
H.M.Jr:
There's never been any question. Will you get
hold of Whigham?
Klotz:
(Inaudible.)
Regraded Uclassified
131
- 10 -
H.S.Jrt
Oh, what they are doing, they are taking
every single thing which they think 1s close
to the President - any money close - any
money close to the President, see? If they
can find a weak link they attack this and
see if somebody knows something, and they
call them up and if it's popular they will
go on it. There's a whole group - they try one
thing after another. They've got a fellow down
here, a very smart newspaper man who plans
these things; they try one thing, one thing
after another.
Olighant:
Is that Waltman?
H.W.Jr:
No, it's not Waltman. They just keep poking.
Some day they will get something - for instance,
Hopkins. Normally nobody pays any attention
to it; they are riding that for all it's
worth. They tried this thing on the stabiliza-
tion fund; it's popular - people get a response
and then - "Secretary of the Treasury
"
Klotz:
I know it.
H.M.Jr:
When it catches on they will ride it hard.
Well, the Hopkins thing is popular, and they
will ride that until they find something else,
I understand this fellow just sits there; he's
like a Louis Howe - he just plans this stuff,
and keeps making these suggestions to the
other papers and they shoot it off. My
authority is the highest on it.
(Nods to Mr. Gaston.)
Gaston:
I can find out who he is.
H.M.Jr:
He's a garnet man - no number, no telephone -
office unlisted. He's a very brilliant fellow.
(Nods to Mr. Haas.)
Haasi
(Hands I.M.Jr. memorandum.)
H.M.Jrt
Oh yes - thanks.
Maas:
I wonder if Dr. Parran should have a copy of
Tapp's
Regraded Uclassified
- 11 -
132
H.M.Jr:
Oh yes. And I just called Dr. Parran and
told him to get ahold of Wallace and say he
was available.
Haas:
Fine.
H.M.Jr:
And I asked him, after he saw Wallace to let
me know.
Anything else, George?
Haas:
Your book is there, and has several new figures
in it. It's in that envelope.
H.M.Jr:
Harry, while I think of it, Mr. Moodey's
coming in at eleven, and will you be here to
meet me. Eleven - will you?
White:
(Nods "Yes.")
H.M.Jr:
Let me see this (black book). What! Are you
going in for pictures? Huh?
Haas:
Thought you could see them better.
H.M.Jr:
..... seconds - days in May. How do you explain
that?
Haas:
I don't know; it's just the reverse.
H.M.Jr:
It's up, isn't it?
White:
There are statements running around - rumored,
that the automobile companies may increase their
output inventory for the next month so they can
shut down during the two months preceding
October.
H.M.Jr:
I see. Well, I read that - Kintner and Alsop.
White:
I think Kintner made it orally.
McReynolds: Yes sir - day before yesterday.
Haas:
Yeah. That's tough.
Oliphant:
That's a new wrinkle - their running up the
inventory.
Regraded Uclassified
- 12 -
133
Hass:
From the figures we have, Harry, they don't
have to run anything up.
H.M.Jr:
It's also interesting - the people like
Woolsworth and Coca Cola - those people
continue to do very well. You haven't got
Coca Cola, but Coca Cola is running forty
per cent ahead of last year.
Hows:
The whole field, like department stores, is
about forty-four per cent. The retail
business is redeclining, and close. Those
are the ones where there's been increasing -
are the ones where they have reduced prices and
moved the goods out; where the prices have been
maintained rigidly there hasn't been anything
on that.
1.H.Jr:
On the general situation, we've got the President
and Wallace to agree on going ahead on a nutrition
program of between seventy to a hundred million
dollars, to bring up the standard nutrition to
about a million three hundred families through
the Surplus Commodity Corporation, and Wallace
and I saw Hull on the idea that we loan up to
a hundred million dollars to China to buy cotton
goods and flour, and Hull is to give us an
answer today or tonight whether he wants to
veto it tonight. I have Jesse Jones for lunch,
and he's enthusiastic about it.
Haas:
Hull wasn't?
H.M.Jr:
Pardon me.
Baas:
Hull wasn't interested?
B.M.Jr:
Oh, he doesn't want to do it without offering
it to Japan - call up the Japanese Ambassador -
"Hello Ambassador, would you like to buy some
wheat and cotton today?" "I don't want to
buy any." "All right. Goodbye." "So," he
said, "offer it to them." - "Well, you had
the first chance; you didn't want any."
Gaston:
I am just a little bit afraid that the Jap
wouldn't say just that.
Regraded Uclassified
13 1 I
134
Lochhead:
I'm afraid the Jap will take him up.
H.M.Jr:
No, he will take
Gaston:
Wouldn't he say, "What are the terms, Mr.
Secretary?"
H.M.Jr:
But he thought he'd make that gesture.
White:
Do you understand that if he said yes, they
are going to extend them credit.
H.M.Jr:
If we do it with the Chinese.
White:
Good night! That changes it.
H.M.Jr:
Mr. Hull, I think, is in our corner; I think
he is. We'll know before tonight, for he's
leaving tonight.
0. K. (Nods to Mr. Lochhead.)
Lochhead:
That new steel issue came out this morning,
selling at two and a half point premium. I
think they priced it down pretty low, but it
shows the market is moving under the new issue.
White:
That silver from Bankok - we are preparing a
memorandum on the conditions in Siam, and some
recommendations before you consider it.
H.M.Jr:
Doesn't that mean a personal inspection?
White:
Siam?
Oliphant:
That's what I understand.
Haas:
That isn't a good location.
White:
I know a better place.
H.M.Jr:
Did I tell you my story about Bryan and Siam;
and this American Minister came to Constantinople
when my father was on his way out to Persia.
When he got there he was completely broke; he
had a family - a large family, etc., and so on,
and was a great personal friend of Bryan's, who
was Secretary of State. And so - whatever his
name is - we'll call him Jones - said, "How'd
Regraded Uclassifie
135
- 14 -
you happen to pick Persia?" He said, "Well,
you know, Bill and I grew up together and, he
said, "he sent for me one morning and said,
'Ed, I want to do something for you, being
school boys together, and I've got only two
posts left. One is Siam and the other is
Persia.' I kind of thought a minute and I
said, Well, Bill, I don't think I exactly know
where Siam is, so I guess I'll take Persia. IN
And then the after thing there is, this fellow
told my father, "I am broke." "Well, why don't
you go in the rug business?" Well, this fellow -
rugs were worth ten cents on a dollar; you could-
n't get them out. This fellow bought fifty
thousand dollars worth of rugs and he came in
here and claimed, as an Ambassador, he didn't
have to pay any duty and there was the darndest
scandal you ever saw. He arrived here with
fifty thousand dollars worth of rugs and said
they were part of his effects.
White:
When you get ready to consider that you might
think of talking with Mr. Stevens, Chairman of
the Tariff Commission. He returned only last
year, so that if - only last year, so if
anything comes up you might wish to talk to
him.
H.M.Jr:
Well, you talk to him.
White:
Here is something; it probably has a few smiles
in it. You asked for it some time ago.
H.M.Jr:
Yeah.
(Nods to Mr. Upham.)
Upham:
Nothing.
H.V.Jr:
(Points to Mr. Bell.)
Bell:
I have nothing.
H.M.Jr:
You'd better stay a couple minutes.
Mac?
McReynolds: Still have a sore throat.
Regraded Uclassified
- 15 -
136
H.M.Jr:
All right, let's see if we can't get something
that is hard for Mac to do, and see if he
can't.
Klotz:
It's a good day to try it out.
McReynolds: Go out and walk around in the sunshine.
H.M.Jr:
All right, suppose we do that.
Regraded Uclassifie
Thursday
137
June 2, 1938
11:51 a.m.
HMJr:
I thought you might be interested in what the
United Press ticker carried this morning - what
I said - Have you seen it?
Aubrey
Williams:
No.
HMJr:
Well, I'd like to read it to you.
W:
Yeah.
HMJr:
"Support for President Roosevelt's request for
freedom from restrictions in spending the Relief
Fund was voiced by Secretary Morgenthau this
morning. Morgenthau urged that the President be
given the power to transfer spending from one
category to another in the Recovery Bill."
W:
Good!
HMJr:
"Quote, We don't expect Congress to meet again until
January', said Morgenthau, 'And not knowing whether
the economic situation is going to get better or
worse,
%:
Uh huh.
HVJr:
me I think it would be wise to give the President
the right to transfer funds from one title to
another in order to take care of the emergency
situation adequately.'"
%:
Fine, Henry! That's wonderful!
HMJr:
And then it ended up, "Morgenthau said he had dis-
cussed the situation with the President and was
opposed to the Senate earmarking proposals."
T:
Good results! Well, that's grand. I - I talked
with Jimmy and Jimmy's canvassing everybody up
there and he's going to make a fight to get it in
there today.
HMJr:
Well
E:
Yeah.
"MJr:
That was this morning and I - I couldn't put it any
stronger than that.
Regraded Uclassified
138
- 2 -
W:
That's - that's wonderful! That's wonderfull
Thank you for calling me.
HMJr:
All right.
W:
Fine.
Regraded Uclassified
139
June 2, 1938
Today at 11:15 a.m., Hull called in regard to
making a loan to China to buy wheat and cotton gray
goods. He said that he 1s more worried about the cotton
than he is about the flour and he wants more time to think
it over. He is leaving town tonight.
Regraded Uclassifie
140
SUPPORT FOR PRESIDENT ROOSEVELT'S REQUEST FOR FREEDOM FROM RESTRIC-
710NS IN SPENDING THE RELIEF FUND WAS VOICED BY SECRETARY MORGENTHAU
THIS MORNING. MORGENTHAU URGED THAT THE PRESIDENT BE GIVEN POWER TO
TRANSFER SPENDING FROM ONE CATEGORY TO ANOTHER IN THE RECOVERY BILL.
"WE DON'T EXPECT CONGRESS TO MEET AGAIN UNTIL JANUARY," SAID
MORGENTHAU, "AND NOT KNOWING WHETHER THE ECONOMIC SITUATION IS GOING
TO GET BETTER OR WORSE, I THINK IT WOULD BE WISE TO GIVE THE PRESIDENT
THE RIGHT TO TRANSFER FUNDS FROM ONE TITLE TO ANOTHER IN ORDER
TO TAKE CARE OF EMERGENCY SITUATIONS ADEQUATELY."
MORGENTHAU SAID HE HAD DISCUSSED THE SITUATION WITH THE PRESIDENT
AND WAS OPPOSED TO SENATE EARMARKING PROPOSALS.
6/2--R1145A
Regraded Uclassifi
141
MEMORANDUM OF THE DAY'S ACTIVITIES
June 2, 1938
To:
The Secretary
From:
Mr. Magill
As I informed you this morning at 9:30, Senator Harrison called
to suggest that it would probably be impossible to obtain any new
legislation at this session of Congress. He thought that the Treasury
should issue a statement indicating what procedure it is going to
follow with respect to the collection of taxes from state and local
employees, and he urged that the Treasury ought not to collect for
back years from individuals who had reason to believe that they were
exempt.
My own view is that, in the light of the President's message, we
ought not to approve 8. bill which deals only with the collection of
back taxes from these employees and does not clarify the situation for
the future. For this reason Senator Lonergan's bill, which was re-
ported on the news ticker, appears to be unsatisfactory. Have you had
any further indication from the President as to whether he plans to
send on to Congress the draft letter on the subject which you sent over
to him more than a week ago?
RM
Regraded Uclassified
142
CONFERENCE BETWEEN THE SECRETARY AND
MR. DEVINE OF NEW YORK REGARDING
THE JUNE FINANCING.
June 2,1938
Others present were Dr. Burgess, Assistant Secretary Taylor,
and myself.
The Secretary asked Mr. Devine what his best view is on the
June financing. Devine answered that he would certainly issue a long-
term bond of 2-3/4% 20-25-years. The Treasury could sell a longer bond
but he did not think day was advisable. This 1s the first time that any-
one has seen & Treasury bond maturing beyond 1960 and he thought that
1963 would be far enough to go at this time. He would also have &
aborter security, say B 2-1/2% 51-53 or 51-54. Be said the Secretary
could sell a security to mature somewhere in the 40's such as a 7-year
2 or an 8-year 2 which would sell better than 101-3/4, and these would
be very attractive to the banks but he did not feel that this would be
8. good thing for the Treasury to do. He feels that there is now too
much matimg in the period in between 46 and 50. He thought also
that a 10-year 2-1/4% would be very attractive for the banks but then
again you run into that crowded period.
The Secretary then asked him how be thought the banks would
take a 2-3/4% 20-25 and & 1-1/8% 5-year note. He said that his opinion
was that they would take 2 of the bonds for one of the notes. In other
words. about $800,000,000 in bonds and $400,000,000 in notes. He
thought there was a. possibility that the banks would first convert into
the bonds because of the possible premium. Then they would sell the
bonds and buy the short terms in the market. He said we had to keep
Regraded Uclassified
143
- 2 -
in mind the pressure of uninvested funds in the market. Be said it
is apparent that, barring all unforeseen troubles such as war and the
llke, there 1e for some months to come an excellent outlook for the
Government bond market.
The Secretary then asked him what he thought would be the
result if he should issue the long bond suggested by him and & 10-year
2-1/4% bond. Devine answered that there wasn't any doubt in his mind
but that the banks would go into the shorter bond and the subscriptions
would be probably 2 to 1 in favor of the shorter bond.
Dr. Burgess then asked him what he would think of an additional
issue of an outstanding bond, say of the 2-1/2% 1948 which are now
selling at approximately 104 and which would no doubt have to be offered
at a premium of 102-1/2. Devine said he thought this might be a very
good thing to do and the fact that it would have a premium to be
paid by the banks would dampen their ardor for this security and would
have a tendency to throw the subscriptions to the longer bond on which
there would be no premium to be paid.
The Secretary asked him if he would offer the bonds what would
they well for, He said the low would be 101-1/4 under almost all con-
ditions and that they would range up to 102 and with a good market they
would go even higher than 102.
Upon leaving the Secretary asked him for his preference. "My
preference is for all bonde 20-25-years 2-3/4%.' but If he were in the
Secretary's place he would play safe and also issue along with that bond
a 5-year 1-1/8% note.
DWB
Regraded Uclassified
144
TREASURY DEPARTMENT
WASHINGTON
June 2, 1938
TELEPHONE CONVERSATION WITH MR. WOODS,
VICE PRESIDENT OF C. F. CHILDS COMPANY
OF NEW YORK
-000-
Mr. Woods said there is some rumour in the Street that
a seven-year 2% bond and a 20-25-year 2-3/4% bond would be
preferable from the standpoint of the bank? After listening to
all of them talk, he feels there is a very definite stand for
the 12 or 123-year 21% bond. The banks, he is sure, will take a
2-3/4% 20-25-year bond but the Treasury will run the chance of
having the banks sell those bonds on the market within the next
few weeks. They might not hold them. He feels insurance companies
will take the bonds and hold them.
There has been some talk about a note, but no one seems
to want this security because it would yield too small & return.
The banks now have B. great deal of money and their main object is
to get higher earnings. Yet they do not want to go as far into
the future as twenty years. He feels that if the Treasury offers
the holders of the June notes an option of a bond or & note, most
of them will take the bond.
I asked him what be would think of one issue. He thought
Regraded Uclassified
145
- 2 -
that would be an excellent thing for the Treasury to put out.
I then asked him what he would think about offering the
holders of the September maturing notes the right to convert into
this new offering. He said there had been some discussion of
that in the Street but he had not found any one who was much
interested in those rights, but he has no doubt but that, if the
Treasury offers them that right, they will take advantage of the
offer and most of them will convert. He feela, however, that if
the Treasury does bring in the September maturity it would be better
to have the long-term bond and a 5-year note. Even in this case he
feels that the majority will go into the bonds, but on the other
hand it has the advantage from the standpoint of the Treasury of
avoiding criticism for not giving the holders a choice of a short
or long-term security.
Mr. Woods said that since the announcement of the Secretary
this morning that no new cash would be required in the forthcoming
financing, there might be a change in sentiment among the bankers.
He said that he would scout around and if he got anything new he
would telephone me, either this evening or tomorrow.
DWB
Regraded Uclassified
146
LUNCHEON CONFERENCE WITH THE SECRETARY ON
JUNE 2, 1938, REGARDING TREASURY FI-
NANCING FOR JUNE 15.
Those present besides the Secretary were Dudley Mills, Herbert
Repp of the Discount Corporation, Dr. Burgess of the Federal Reserve Bank
of New York, Assistant Secretary Taylor, and myself.
Dudley Mills started the discussion by giving an outline of what
he would advise the Secretary to do in the June financing. Said he was a
little disappointed the Secretary had announced earlier in the day that
there would be no cash offering as this market would take a large offer-
ing of bonds and it seemed to him that it would be sound fiscal policy to
raise additional cash at this time in spite of the large Treasury cash
balance. He realized, however, that the Secretary had his problem and
that there would no doubt be political criticiem of a cash offering at
this time.
The Secretary told him that in order to make his discussion
simpler the June financing would consist of an offering of securities to
the holders of both the June and September notes. Mr. Mille said he was
glad to hear that because the morning announcement did not 80 indicate
and when he found out that there would be no cash offering be did not
see how the Treasury could avoid bringing in the September notes. He
thought that the fact that the market had misinterpreted the Secretary's
earlier statement that only the June notes would be refunded was one
reason for the sudden upturn in the Government security market.
Mr. Mills said that there wasn't any doubt in his mind that
this was the time to lengthen the Treasury maturity. He strongly recom-
Regraded Uclassified
- 8 -
147
mended as one of the securities a 2-3/4% 30-25-year bond. He realized
that this was an attractive issue and would sell at a premium of 1-3/4
to 2-1/4 and if this market maintains its present level it might even
go to a 2-1/2 premium. As for the second issue, he was thinking in
terms of 2-1/4% 10 or ll-year bond or reopening of the 2-1/26 1948 bond
which, of course, would have to be offered at a premium of possibly
102-1/2.
The Secretary then asked him what he thought of a 5-year
1-1/8% note in place of the short term bond suggested by him. Mr.
Milla and Mr. Repp both argued at some length against the note claiming
that the banks are more interested in earnings at the present time than
they have been any time in the past, and they are looking for a 10 to
12-year 2-1/2% bond. There 1a not much interest in the low yields on
the present outstanding notes. He said that the monetary policies
adopted within the last 60 days had increased the excess reserves by
more than a million dollars and they probably would continue to increase
b
until they reached an amount between 3 and 3-1/2 million dollars. To
Dush
adopt A B policy at this time and then to starve the banks in the in-
vestments they desire would be unfortunate from the standpoint of the
Treasury. They both felt very strongly that the note would not go but
that the long and the intermediate bonds would be ideal. The Secretary
asked how much they thought might go into the notes. Mr. Mille replied
that he didn't think we would get more than $300,000,000, while Mr.
Repp thought we might get as much as $450,000,000 to $500,000,000. This
would leave anywhere from $750,000.000 to $900,000,000 to go into the
Regraded Uclassified
- 3 -
148
long bonds, a large part of which would be held by the banks and that
they would make them available for a subsequent distribution, having an
adverse effect on the money market.
The Secretary told him that with all the discussion going on
he was at first inclined to agree with them about the intermediate bond
but as the discussion progressed he was now more convinced that the 5-
year note would be preferable from the standpoint of the Treasury. He
first thought that one issue of long term bonds would be his decision
but he realized that there would be that possible criticism from the
banks that the Treasury had forced them into long-term bonds at & time
when they did not want to and should not for good banking reasons go
into a bond longer than 10 or 12 years.
The discussion was continued in Assistant Secretary Taylor's
office for another 30 minutes largely going over the same ground. These
two gentlemen continued to maintain their strong position first taken
that the Treasury could not afford at this time to put out a 5-year
note.
DWB
Regraded Uclassif
TREASURY DEPARTMENT
AAK
149
INTER OFFICE COMMUNICATION
DATE June 2, 1938.
Secretary Morgenthau
TO
Mr. White
FROM
Subject: Some published statements as to business prospects
for 1938 made in fall of 1937 by some well-known
persons.
Appended 18 a list of published statements made by
some well known persons in the fall of 1937 regarding
business prospects for 1938. The statements are arranged
chronologically and were selected from press and periodical
reporte over the period September 1 to December 31, 1937.
Only two or three definitely bearish statements were
found during that period but a more extensive search might
reveal more.
Regraded Uclassifi
150
SOME PUBLISHED STATEMENTS AS TO BUSINESS
PROSPECTS FOR 1938 MADE IN FALL OF 1937 BY WELL-KNOWN
PERSONS. THE STATEMENTS ARE ARRANGED CHRONOLOGICALLY.
(Statements not optimistic are checked in red crayon.)
Charles G. Dawes
September 8, 1937
"I see a continuance of good trade this year and next.
I see no indications in business of 8. lack of confidence and
expect to see business conditions continue satisfactory."
Roger W. Babsón
September 14, 1937
Addressing the Boston Chamber of Commerce:
"General business 1s bound to be better this fall than
last fall. With our tremendous crops nothing can stop it.
Farmers, wage-workers and stockholders will all have more
money to spend. I am forecasting no boom but I do promise
business improvement."
Jesse H. Jones
October 8, 1937
Address before the National Association of Supervisors of
State Banks in New York:
"Our country has seldom been more prosperous Yet
during the last few weeks we have been witnessing 8 continually
falling securities market. There are, of course, many contri-
outing reasons but are they sufficient to warrant 80 much
beseimism? I do not believe 80."
Statements compiled by: J. S. Hooker and H. E. Hess.
Regraded
151
Secretary Morgenthau - 2
Leonard P. Ayres
October 16, 1937
Quotation from Cleveland Trust Company Bulletin:
"It 1a improbable that the current decline in business
will develop into a real depression. The chief reason why the
fears business men have of a new depression are probably un-
founded 1s that we have not yet made a full recovery from the
previous one."
I. S. Hirschfield
October 17, 1937
Vice President of Saks 5th Avenue stated to press:
"Cycle of business is still headed forward, with current
recession merely a detour."
Lionel Edie
October 19, 1937
Addressing the annual fall banquet of New Hampshire Bankers
Association:
"This is a temporary interruption, but the recovery will
resume without the recession going to the levels of 1932."
R. E. Cabell
October 20, 1937
President, Armour and Company, in address at Rochester, New York:
"Trade conditions are excellent and I think as soon as in-
Vestors get over their jitters the stock market situation will
adjust itself satisfactorily."
David Lawrence
October 20, 1937
Article in New York Sun:
"'Roosevelt panio' may be short-lived or the forerunner of
& fundamental business depression, depending on how one man
feels about it. For if Mr. Roosevelt 18 responsible for the
panic, he alone can end it and bring about a change for the bet-
ter."
152
Secretary Morgenthau - 3
Dr. Benjamin H. Beekhart
November 7, 1937
Associate Professor of Banking at Columbia School of Business
in statement to press:
"The present recession in business will be short, and, like
that of 1924, will be followed by a sharp recovery."
Lionel D. Edie
November 10, 1937
Addressing National Federation of Sales Executives:
"Business 1s in 8 downward spiral that will probably last
another 60 or 90 days, and there 1s nothing we can do about it."
A. W. Zelomek
November 12, 1937
Economist of International Statistical Bureau addressing
Philadelphia Purchasing Agents:
"There will be extension of the present recession during
& large part of the first half of next year (1938) and a sub-
stantial unturn in the last half of 1938."
Karl T. Compton
November 16, 1937
President of Massachusetts Institute of Technology statement
to press:
"Business will begin its recovery before middle of January,
although present slump may last until next spring.'
Virgil Jordan
November 17, 1937
President of National Industrial Conference Board in address
before Chicago Association of Commerce:
"The present decline will run its course, probably reach-
ing an upturn by next March, but the current slump is only a
minor phase of a much broader and more serious recession in
business that will continue to grow worse, until basic condi-
tions are corrected."
Regraded Uclassified
153
Secretary Morgenthau - 4
Henry Ford
November 25, 1937
Statement to Press:
"Present business recession temporary and artificial. No
one need look at next year with any uncertainty."
Marriner S. Eccles
December 16, 1937
Soeech before American Farm Bureau Federation:
"Extent of present recession will depend upon how rapidly
the more serious maladjustments between prices and buying power
are corrected and increased national income 1s greated by the
activity of private business."
Glenn Griswold
December 16, 1937
Publisher of Business Week addressing conference of American
Management Association:
"Bottom of present recession has been reached and business
will show upturn this week, such as was shown last week for the
first time in three months. By the end of the first quarter of
1938 there will be & more definite rise in business which will
continue steadily during the year.
Regraded Uclassifi
Thursday
June 2, 1938
12:55 p.m.
154
HMJr:
Hello.
Operator:
Chairman Eccles.
HMJr:
Thank you.
0:
Go ahead.
HMJr:
Hello.
Marriner
Eccles:
Hello, Henry.
HMJr:
Hello, Marriner.
E:
I - ah - discussed the Treasury prospecting situation
with the Committee.
HMJr:
Did you strike gold?
E:
Huh?
HMJr:
Did you strike gold?
E:
(Laughs) Oh, I wouldn't say that.
HMJr:
Yeah.
E:
They - ah - the consensus of opinion is that you
should offer...
HMJr:
Yeah.
X
...the - ah - five year one and an eighth...
HMJr:
Yeah.
E:
...note and a twenty twenty-five year three - two
and 3/8ths bond.
HMJr:
Yeah.
Two and 3/8ths?
E:
Two and a -
HMJr:
Three quarters.
E:
Two and three quarters.
HMJr:
Yeah.
Regraded Uclassif
- 2 -
155
E:
That - ah - we would take half of each.
HMJr:
Half of each?
E:
Yeah.
HMJr:
I see. Well, that's just what I wanted to know.
E:
Yes. Well, ah - we've discussed it from - from
every - from every angle and - ah - there will
be some differential between the note and the bond
in the premium likely.
HMJr:
Well, what we're thinking of is the possibility of -
ah - if a fellow takes a note
E:
Yes.
HMJr:
...that is, if the September fellow takes in a note
You see?
E:
Yes.
HMJr:
It'll give him a little advantage on the interest.
In other words let him have his 23 per cent interest
on his note until September.
8:
Oh yeah.
HMJr:
See?
E:
Uh huh.
DWr:
If he takes the note.
B:
Yeah.
HM:
Let him - we'll pay him 21 until September.
:
Uh huh.
SMJr:
Now that would be an inducement to the September
boys to take the note.
E:
Uh huh.
GMJr:
And it
B:
It is.
AMJr:
And it would be fairer.
Regraded Uclassifie
156
- 3 -
E:
Yes. Yes. It would - ah - the bottom and now
you're giving them because of the call - because
of the premium why they've got to exercise the right
now, although they still have the premium in
September
HMJr:
Yeah.
E:
..if you didn't - if you didn't call it now.
HMJr:
I mean, if we call it now and don't give them a
little something
E:
They'll - they'll holler a little all right.
HMJr:
Yeah. But if we let them - if We let them keep
their interest of 23% until September they've got
no holler coming.
E:
Of course the premium on that bond is likely to
be around 2 per cent, with no new - with no new
financing
HMJr:
You mean 2 points.
E:
I mean around 2 points.
HMJr:
Well, that isn't too much for
....
E:
No. But I meant is the note is going to be less
than that.
HMJr:
Yeah. But my thought is to give them their interest
until September on the - the September boys-if they
take a note, you see?
E:
Itwould be my guess that you're going to have three
fourths of - at least three-fourths to five eighths
taken in bonds.
HMJr:
I think you're right.
E:
Without - with - ah - with the 1dea of selling
them after.
HMJr:
I know.
E:
Now of course our thought was that - looking at it
if we were just a bank that's what we'd do.
Regraded Uclassifie
157
- 4 -
HMJr:
Yes,
3:
Because if we were looking at it purely from a
profit standpoint it would likely be to our interest
to take all bonds
HMJr:
Yeah.
it
because of a higher premium with he idea of
converting them and buying notes later.
HMJr:
Yeah.
R:
But - and of course that - all that would do is -
would tend to demoralize the market, so we thought
we'd better take half of each with the 1dea
HNJr:
Yeah.
E:
...if the bond market is - ah - is too weak
HMJr:
Yeah.
E:
that we - we'd possibly - we'd then consider
selling some of the notes and buying bonds.
HMr:
Or vice versa.
E:
Or vice versa.
HMJr:
I think it's all right.
E:
But it leaves us out in a little better position to
move
HMJr:
Yeah.
C
...then if we took all of either of them.
HMJr:
You've got over a hundred and seventy, haven't you?
E:
A hundred and seventy - well, a hundred and seventy-
four - a hundred and seventy-something; I think it's
a hundred and seventy-four.
EMJ-:
Yeah. And we have over twenty.
(if
Well, you see, there's two hundred - there's practically
two hundred million of them
AMJr:
Yeah.
Regraded
158
- 5 -
E:
...or - ah - there's close to between 15 and 20
per cent.
HMJr:
Yeah.
E:
Which is a big factor.
HMJr:
Yeah.
E:
Of course - have you given up the idea of a ten
year bond?
HMJr:
Well, I haven't S een anybody since then. We're
seeing the Discount boys at lunch.
E:
Yeah.
HMJr:
And Devine atthree.
E:
Uh huh.
HMJr:
And then after I've seen them if there's any great
disagreement then I'm going to ask to meet with you
tomorrow. See?
E:
Yes. Uh huh.
HMJr:
But I haven't really seen anybody this morning.
E:
Uh huh.
HMJr:
After I see them I'll give you a ring.
E:
Yeah.
HMJr:
How's that?
E:
O. K.
HMJr:
All right. Thank you very much.
E:
Listen - ah - what time would that be? - This afternoon?
HMJr:
Well, it would be along between 4 and 5.
B:
What you want to do - - you'd want to meet - would you
want to meet with the Committee in the morning?
Would you want Harrison to come down?
HMJr:
Yeah. Whoever you want.
Regraded
159
- 6 -
E:
Yes.
HMJr:
Yeah. But it would be between 4 and 5 - as soon
as - if I find I can't make up my mind I'll call
you at once.
F:
O.K.
HMJr:
See?
E:
All right.
HMJr:
Goodbye.
E:
Goodbye. 3 -
Regraded Uclassified
160
June 2, 1938.
2:29 p.m.
H.M.Jr:
Hello. Hello.
William C.
Bullitt:
Hello Henry.
H.M.Jr:
How are you?
B:
How are you my boy?
H.M.Jr:
I'm fine, how's grandpa?
B:
I'm getting along very well.
H.d.Jr:
Listen.
H.M.Jr:
I've got a big financing over the weekend.
B:
Yes,
E.M.Jr:
And if I had to take an insurance policy out, which
I do for the Government, because I have to commit
myself on Saturday, you see?
B:
Yes.
H.M.Jr:
Hello.
B:
Yes.
H.M.Jr:
I say, I have to commit myself, Saturday, over the
weekend, and - Hello. And I wondered if you care
to -
B:
I can't hear you.
H.M.Jr:
What are the chances, do you think, of having a
quiet weekend, if that's a fair question?
B:
Well, I don't think - I think
the chances are
that you - you can always have some people shot.
H.M.Jr:
Yes.
B:
And the moment you have some people shot
you may have a nice rise in temperature.
H.M.Jr:
I see.
161
- 2 -
B:
Nevertheless my guess is that next weekend will
be fine.
H.M.Tr:
Well, I just want your best guess, that's all.
B:
My best guess is this. If you've got to pick -
some weekend in the next few weeks -
R.M.Tr:
Yes,
B:
The best
is a good one to pick.
H.M.Jr:
Well, I have no choice. I have to do it over this
week end.
B:
Yes. Well, that's all right Henry, I don't think
we're going to have any explosion, because if anything
is going to happen, it would come because of
during the election of Sunday.
R.M.Jr:
On Tuesday.
B:
On Sunday.
H.H.Jr:
Of when? Hello.
B:
Hello.
H.M.Jr:
They would come when.
B:
I say there are elections, as you know.
H.M.Jr:
Yes, on the 12th.
B:
Yes, on Sunday.
9.H.Jr:
Yes.
B:
There might be considerable disturbances in connection
with those elections.
U.M.Jr:
I see.
B:
I do not expect there to be but there might be.
H.M.Jr:
Uhhuh.
B:
If those disturbances were just right and a number
of people were shot.
H.M.Jr:
Yes.
Regraded Uclassifi
- 3 -
162
B:
Then you might have a bad circulation in stability
Monday and Tuesday or Sunday and Wednesday.
H.M.Jr:
Oh, I see.
B:
You see?
H.M.Jr:
Well, my financing is announced Monday and I have to
keep it open until Wednesday dight.
B:
Yes. Well Henry.
H.M.Jr:
Yes.
B:
In any case I don't think any phase of financing
that you did would be hindered because the only
result of such a thing would be that every
that is in Europe
today would try to get into
America.
H.M.Jr:
Well then, would you mind starting a little trouble
for me about Monday or Tuesday.
B:
Not bad.
H.M.Jr:
Yes.
B:
Henry, what the devil are you doing about the
railroads?
H.V.Jr:
You mean here, in America?
B:
Yes, are you going to
H.M.Jr:
I'm afraid they not going to do anything, Bill.
B:
Oh, hell.
H.M.Jr:
Jesse Jones had lunch with me yesterday.
B:
Yes.
H.M.Jr:
And he's very much discouraged, and I think he knows
more about it than anybody else in Washington.
B:
Yes.
H.M.Jr:
And he's - as near as I can make it, he's - there's
nothing hopeful on the horizon.
Regraded
163
- 4 -
B:
I am really very sorry, because I think that's
extremely important.
H.M.Jr:
Well, that - that was the latest, as of yesterday.
B:
Yes. Well now Henry.
H.M.Jr:
Yes.
B:
If I were you I'd go ahead and let that go.
H.K.Jr:
Well I have to do it, but I just wanted to check and
get your best guess, that was all.
B:
Well now Henry.
H.M.Jr:
Yes.
B:
I have just been, today, I flew to London, this
morning, at noon and I just got back this minute.
H.M.Jr:
Oh.
B:
So that I had a talk in London, today, with Joe
Kennedy.
H.M.Jr:
I see.
B:
And certainly he expects no conceivable trouble of
any kind.
H.d.Jr:
Good.
B:
And I stopped three or fours in London.
U.N.Jr:
You stopped four hours.
B:
Yes. Flew over and back.
H.M.Jr:
Good for you.
B:
Well it's very simple you know, it only takes a little
over an hour to fly there and a little over an hour to fly
back.
R.H.Jr:
Oh for heavens sakes.
B:
And it's an easy way to have a conversation.
B.M.Jr:
Now one other thing did you get my message about the
Regraded Uclassi
164
- 5 -
possibility of my family coming over in July?
B:
Yes, I did.
H.M.Jr:
All right.
B:
Now, and I'll attend to that in the best possible
order.
H.M.Jr:
I mean, you got -:
B:
Are you coming soon?
H.M.Jr:
What's that?
B:
Are you coming soon yourself?
H.M.Jr:
Well, if we came we would leave here on the 16th
of July.
B:
16th of July, that's fine. I talked to our friend
Ickes /on the telephone.
today
H.M.Jr:
Yes.
B:
He's coming to Paris tomorrow with his bride.
H.M.Jr:
Fine.
B:
tremendously with the young lady.
H.M.Jr:
Good.
B:
Henry?
H.M.Jr:
Yes.
B:
Did you see what he was quoted as saying in all
the English papers?
H.M.Jr:
No.
B:
I'm tired but happy.
H.M.Jr:
He's what?
B:
I am tired, but happy.
H.M.Jr:
Well, I can't tell you, over the telephone, some of
the stories they tell here.
Regraded Uclassifie
165
- 6 -
B:
Give my love to the President.
H.M.Jr:
I'll do that.
B:
All right.
H.M.Jr:
Thank you.
B:
Goodnight.
H.M.Jr:
Goodnight.
Regraded Uclassifi
168
June 2, 1938
4:35 pm
Present:
Spanish Ambassador
Mr. Oliphant
Mr. Lochhead
Mr. Bernstein
HM,Jr: How do you do, Mr. Ambassador. Glad
to see you back again.
Mr. Ambassador, I wanted to do this myself 80
I knew that everything was all right. Here 18 the
letter, you see.
(Ambassador read letter dated June 2, addressed
to the Ambassador, copy of which 18 attached marked
Exhibit "A".)
Now, this explains how we arrived at $2,007,500.
Ambassador: It was 2,334 cases, because we had
thought it was 1,334 cases, but it was perhaps a mistake.
Mr. Lochhead: It was 2,334.
(The Secretary then handed the check in payment
to the Ambassador and the Ambassador examined the check.)
Ambassador: All right. All right.
May I ask you, it would be possible for me to
change that here in the Treasury for bonds of the
Treasury or 18 it necessary to go to the American a look
exchange?
HM,Jr: We can give you the cash. We have the
cash.
Ambassador: You have the cash?
HM,Jr: Yes. We can give you cash.
Mr. Oliphant: If that would be most convenient.
HM,Jr: And you could do whatever you wanted with
the cash.
167
-2-
Ambassador: And I cannot, in the Treasury De-
partment, buy bonds of the Department? It 18 neces-
sary to go to the market?
HM,Jr: Let's Just find out.
Mr. Oliphant: I should think, Mr. Secretary,
if he found it convenient to take the cash, he could
Just 60 across the street to the bank and proceed to
buy bonds or whatever he wanted to.
HM.Jr: We don't have any bonds for sale. You
would have to go to the market.
Ambassador: Yes. That was my question, if it
vas necessary to go to the market.
HM.Jr: You would have to go to the market and
bay bonds in the market, but we can give you cash for
the check.
Ambassador: All right.
HM,Jr: Would you -- we didn't know how you wanted
it -- we don't usually have that much money, but we have
that cash and the money is there if you want the cash.
Ambassador: All right, please. Perhaps I W&B
late this afternoon.
Mr. Oliphant: It's there now.
HM.Jr: It's there now, but you can have it to-
currow. And I could give you a Secret Service man back
to your Embassy if you wanted to com in tomorrow.
Mr. Oliphant: Give him a Secret Service man back
to the Embassy or to his bank.
HM.Jr: I would give you a Secret Service man.
Ambassador: Well, tomorrow morning, ten o'clock,
approximately.
Mr. Loonhead: The cash is there; we have kept
the vaults open.
HM,Jr: Don't rush yourself, Mr. Ambassador. I
want to do it at your pleasure. You would like to come
Regraded Uclassi
168
-3-
tomorrow at ten?
Ambassador: Yes, sir.
I have proposed you to buy approximately
30 million ounces.
HM,Jr: Yes.
Ambassador: You have taken only 5 million.
HM,Jr: That's right.
Ambassador: May we -- it would be possible to
make an offer?
HM,Jr: If you want to. Your Government.
Ambassador: On behalf of my Government.
HM,Jr: We are prepared to take another 5 million.
Ambassador: Another 5 million? Not 10 or 15?
HM,Jr: No.
Ambassador: All right.
HM,Jr: We are prepared, the same way, to take
another 5 million.
Ambassador: All right. When would it be possible
for you to prepare to make the same terms that we have.
HM,Jr: How long would it take to prepare the
papers?
Mr. Oliphant: Oh, they could be prepared tomorrow.
HM,Jr: Could we have them ready tomorrow morning?
Mr. Oliphant: Yes, tomorrow morning.
HM,Jr: Now I was Just thinking, if you would
come to -- what office? where does he go to get the
cash?
Mr. Lochhead: Down to the Treasurer's office.
Regraded Uclassified
169
-4-
HM,Jr: well, if he came here at ten you (Lochhead)
could meet the Ambassador and escort him down there and
see that he geta the cash.
Mr. Lochhead: Yes, sir; I will go down with
nim.
HM,Jr: He will come to my office and you go
down with him and see that everything 18 ready and ar-
range with Chief Wilson to have two Secret Service men
to escort him back to where he goes, and then prepare
the papers for another 5 million ounces.
Mr. Lochhead: All right.
Mr. Oliphant: Mr. Ambassador, if I may suggest,
you will not want to endorse the check tonight 80 that
when you come with the check tomorrow then the exact
form of the endorsement, what it will be, exactly as
it is on the face of the check without any addition or
subtraction, that can be taken care of in the morning.
Mr. Ambassador: Mr. Secretary, if you are clear
tomorrow morning
HM,Jr: Mr. Lochhead and Mr. Bernstein, you both
be outside my office at sharp ten tomorrow.
Mr. Cliphant: I won't be here.
HM,Jr: And you see Chief Wilson and have two
Secret Service men to escort the Ambassador wherever
he wants to go.
Mr. Oliphant: We will give you the exact form
of endorsement tomorrow morning.
HM,Jr: Mr. Ambassador, come to my office. Mr.
Lochhead will be waiting for you. His office 18 Just
across the hall from me. He will be waiting for you.
But I wanted to make sure that everything went all right.
Ambassador: Thank you, Mr. Secretary. Good-bye.
000-000
After the Ambassador had departed, the following
170
-5-
conversation took place in the Secretary's office:
Mr. Berkshire: In connection with the document,
do you think it would be in order, this time, to tie it
down to make a straight deal with the Government?
Mr. Oliphant: This time put the documents in
proper order.
Mr. Lochhead: Have you discussed that with the
Rederal!
Mr. Olipment: You have time to call.
HM,Jr: I thought we'd keep it on a 5,000,000
basis.
Mr. Lochhead: Yes, because we had trouble with
this shipment. They had to take it upstairs. It is
better to have it in small lots.
o0o-o0o
Uclassifi
EXHIBIT "A"
171
Copy
June 2, 1938.
My dear Mr. Ambassador:
There is delivered to you herewith a check
for $2,007,500 drawn by the Federal Reserve Bank of
New York RS fiscal agent of the United States on the
Treasurer of the United States to your order, as an
advance payment for the approximately five million
ounces of silver .999 fine, purchased for the account
of the United States, and which arrived in New York
on May 30, 1938, on the SS NORMANDIE.
Very truly yours,
(Sgd.) H. Morgenthau, Jr.
Secretary of the Treasury.
His Excellency,
The Ambassador Extraordinary and Plenipotentiary
of Spain to the United States,
Embassy of Spain,
Washington, D. C.
BB:meu
6/2/38
Initialled: BB FD AL HO WCT
Regraded Uclassifie
EXHIBIT "B"
172
Copy
June 2, 1938.
Advance payment for silver ex S/S "Normandie" received
on May 31, 1938:
2,334 cases said to contain Spanish silver coins
purporting to contain approximately 5,000,000
ounces of silver .999 fine.
5,000,000 ounces of silver .999 fine at 43 cents
U. S. currency per ounce .999 fine - - -$2,150,000.00
Less:
5% withheld
$107,500.00
Estimated cost of
refining coins
35,000.00
142,500.00
$2,007,500.00
Regraded Uclassifie
TREASURY department
INTER OFFICE COMMUNICATION
1T3
DATE June 2, 1938
TO
Secretary Morgenthau
FROM
Mr. Haas M
MA
Attached is a memorandum which Miss Lonigan sent
in from the field.
174
June 2, 1938
To:
The Secretary
From:
Miss Lonigan ER
There was one point of confusion on the potential
use of surplus commodities, in the conference with
Mr. Hopkins and Mr. Wallace last week.
There seemed to be an implied assumption that
the number of families on relief represents the total
number in need, That of course 1s not a fact.
Administrative mechanisms and financial mechanisms
of relief have broken down all over the country. Needy
people in those areas cannot register for relief nor
apply for surplus commodities. Surplus commodities
are not reaching the very neediest at all. For example,
they do not reach many needy families in Washington
because the relief agency has not enough staff. They
do not reach needy families in Chicago because relief
stations are closed. They do not reach relief families
in rural Texas, because there are not enough local funds
for staff.
Also, surplus commodities are always distributed
strictly on A surplus basis. They are never permitted
to equal the normal relief budget, only a small part of
it. Families are given only the flour they need above
relief standards, whether the relief orders are issued
Regraded Uclass
- 2 -
175
or not.
There is room for expansion in the consumption
of flour and cotton by relief families in at least two
ways:
1. Extension in the number of families
receiving commodities by improvements
in relief machinery.
2. Possible extension of amounts of food
permitted to be given to each family.
Regraded Uclas
010127
TREASURY DEPARTMENT
Hm 176
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
June 2, 1938
FROM
Herman Oliphant
As you requested, we have conferred with Secretary Wallace's
man, Mr. Blandi, who thought the Federal Surplus Commodities Corpora-
tion could handle the interchange of agricultural commodities for
strategic commodities. My conclusion is that if this corporation can
do this at all, which is not free from doubt, it can not, in my judgment,
do it a.3 an agency of the United States, but would be doing it as a.
Delaware corporation. The latter would raise a whole series of questions,
including liability for Delaware taxes. It would be like having any
private corporation, such as Anderson Clayton & Company, do it, which,
I understand, is not at all the sort of thing this plan envisages.
Finally, there is a doubt as to RFC power to make a loan for
this purpose since it is subject to the limitation that any loan to a
private corporation must be for a "business enterprise."
10
Regraded Uclassified
177
Friday, June 3, 1938
At 10 A. M. this morning, as arranged by the Secretary of the Treasury,
Senor Dr. Don Fernando de los Riov, Ambassador of Spain, called to cash the
check given him on June a, representing the advance payment on shipment of
Spenish silver coins. the money was paid to the Ambassador in the Secretary's
private office on the first floor, after he had endorsed the check in the
form designated by the Treasury Legal Staff.
From the Secretary's Office there were present Mr. Bernstein, Mr. Lochhead,
and the Treasurer of the United States, Mr. Julian, who brought two of his
staff to make the actual cash payment.
The Ambassador was provided with a Secret Service man to accompany be
and his Secretary in their car, and two of the Secret Service men were
detailed to follow his car to its destination is one of the Secret Service
arment cars.
During the course of the conversation Lochhead mentioned to the
Ambessador (as previously arranged with the Secretary) that in making shipment
of silver coins the Treasury would naturally like to see United States
shipping companies gain some of the benefit from the shipping expenses, and
therefore, when shipmente are made, if American vessels are available at
times not inconvenient to the Spanish Government, we hoped they would see
their way clear to make use of such vessels.
aL
AL
Regraded
Uclassifi
178
RE JUNE 15 FINANCING
June 3, 1938.
11:30 a.m.
Present:
Mr. Taylor
Mr. Lochhead
Mr. Haas
Mr. Seltzer
Mr. Harris
Mr. Upham
Mr. Bell
H.M.Jr:
(On phone) Dr. Burgess, please.
Anybody missing?
Taylor:
Dan.
Harris:
Market's improved a little since I talked to you.
H.M.Jr:
Where?
Harris:
Except in the two longer bonds. They moved - the
June rights are up now to 3/32 - a point and three-
fourths premium.
H.M.Jr:
Any other ones?
Harris:
And the Septembers were off five; they're only off
two now. Selling on the same price as the June..
H.M.Jr:
(On phone) Hello. (Conversation with Burgess
follows:)
(Bell comes in during conversation)
Regraded Uclassified
179
Friday
June 3, 1938
3:35 p.m.
HMJr:
Hello.
Operator:
Dr. Burgess.
Go ahead.
HMJr:
Hello.
Burgess:
Oh hello, Henry.
HMJ::
Well, how does she look now?
B:
Well, ah - the market behaved pretty well; the
rights are up a little further. The long bonds
are off about as much as they rose yesterday.
HMJ:
Uh huh.
B:
The - ah - the shorter bonds are up.
HMJr:
Yeah.
B:
Whichis rather natural.
HMr:
Yeah.
S:
It shows the Street's had a rumor of a longer
term bond.
HMJr:
Yeah.
B:
That they've been talking about it. Now, ah -
just one or two specific reactions I can give you: -
I talked with Garner at some length.
HMJr:
Yeah.
B:
You mentioned him yesterday. He's opposed to the
idea of a note; he thinks a ten year bond would be
very much better.
HMr:
Yeah.
B:
And likes the idea of opening up the - the forty-
eights.
HMJr:
Yeah.
B:
He says if you don't, the tendency will be for a
great many people to speculate in the - in the
new issue and
Regraded
Uclassi
- 2 -
180
HMJr:
Yeah.
2:
raise prices of the an - of the shorter stuff.
The Discount boys feel just as they did yesterday.
MJr:
I see.
S:
They think the action of the market today indicates
the need for an intermediate bond.
HMJ:
Uh huh.
B:
They say people don't like the note but they're
crying for an intermediate bond.
HMJr:
Well
B:
Ah - he reported one insurance company fellow who
was right sore about a twenty twenty-five year
two and three quarter bond - thought it was -
thought it was too long - that it shouldn't go
over twenty years at 2 and three quarters. But
that fellow has indigestion so I wouldn't take
that very seriously.
HMJr:
I see.
B:
Then Levy, on the other hand, thinks if you do a
twenty twenty-five bond you could do the whole
thing in that one bond.
HMJ
Uh huh.
B:
He doesn't like the idea of a note very well,
HMr:
Levy thinks we can do the whole thing in a bond,
huh?
B:
That's right. Yes. He's the second fellow I've
found who's said that; one's Devine and one's Levy.
SMJr:
Well.
B:
So, there's - they've - ah - they've talked for it
and think that a lot of people will buy it if you
it out
BMJ:
Yeah.
3:
And they all say that - that if you have B - the bond
alone or a bond and a note
Regraded Uclassified
- 3 -
181
HMJr:
Yes.
B:
there'll be a lot of fellows who will ride the
bond, that is they'll buy it with the hope of
selling it out during the summer.
HMJr:
Yeah.
B:
Or else they'll sell rights so that
HMJr:
Well, of course, if enough people feel that way
(laughs) ah - they'll get out pretty fast.
B:
Yes, there'll be a good sale of rights at first.
HMJr:
Yeah. Well, let me put it this way - well, I mean,
are you through on your comments?
B:
Yeah.
HMJr:
Well - ah - as she's closing tonight - ah - couldn't
we pretty well say, unless something tomorrow comes
up that we don't know about, we'll go ahead with the
twenty twenty-five and a five year note?
D:
Ah - I think that would work all right, Henry. I
prefer, as I said last night
HMJr:
Yeah. I know.
for you
B:
...to do the other, but - ah
....
HMJr:
Well, I mean have you any doubts at to the success of
the
3:
Not the slightest.
HMJr:
No doubts?
B:
No doubts at all.
HMJy:
Neither have I.
B:
The success, I think, is guaranteed - as long as you
offer a second obligation the success is assured.
HMJr:
Yeah. Yeah.
B:
So
Regraded
182
- 4 -
HMJr:
Well, I'll be in touch with you again in the
morning; as I say, unless something turns up that
I don't know about, I think we'll go ahead on that
basis.
B:
All right, sir.
HMJr:
Thank you so much.
B:
Very good.
Regraded
Iclassifi
183
-2-
H.M.Jr:
Do you (Taylor) feel any different today?
Taylor:
(Nods no)
Bell:
Market went off a little bit.
H.M.Jr:
But she's coming back, I think. How much off is the
2 7/8 right now?
Harris:
5/32. The '56-'59s are off 5.
H.M.Jr:
How much were the 2 7/8s off yesterday?
Harris:
They were off 10/32.
Bell:
That's a good adjustment.
H.M.Jr:
What I'm thinking of doing - I've pretty well made
up my mind - is to give them a choice of a 20-25 and
a 5-year note.
Seltzer:
(Nods approval) My only question there would be
about raising the maturity by two years, say, on the
25-year bond in order not to make it quite as sweet
as it is; raise 1t, say, to a 22-27-year bond. That
is, the market is up about - as of last night's close,
it was up better than half a point on our two longest
bonds over the 28th of May, when we were figuring on
this stuff.
H.M.Jr:
Well, how much do you - what do you think that the
20-25 will sell at?
Seltzer:
I think it will sell at better than two points.
H.M.Jr:
Well, I think we need that on as long a bond as that,
Seltzer:
On the other hand, I don't think that a 22-27 will
sell much below that.
H.M.Jr:
Well, the trouble is, I haven't talked it, I don't
....
The 20-25 will go out now - that will be '63.
Seltzer:
That will be three years out beyond our last.
H.M.Jr:
We have nothing - what - 160, is that the furthest?
Harris:
2 7/8 '60.
Regraded Uclassified
184
-3-
H.M.Jr:
Did you (Bell) look up whether a 25-year bond
would be the longest bond the Government ever
sold?
Bell:
No, but they're looking it up.
Harris:
The '55-'60s were 25 years; they were put out in
March, 1935.
Bell:
You meant all time, didn't you?
H.M.Jr:
I think you're right.
But I've been all through it, and 20-25 - I tell you,
I don't think a 2-point cushion in this market -
European conditions, long market - I don't think it's
too much.
Taylor:
It's a long summer.
H.M.Jr:
It's a long summer. It may even go higher.
Bell:
It's ten cents à year.
H.M.Jr:
I think it may even go higher.
Seltzer:
The chances are it will go above two points.
Bell:
Oh yes.
Upnam:
I just had a pretty good bond man from a country
bank in. You might be interested. He has a good
many of the maturing notes. He says he wouldn't
take longer then a 10-year bond to keep, but that
1f he's offered a long bond and a short note, he
would take the long bond to sell, because he thinks
the bond market will go up and the note market will
not. He would prefer to have a 10-year bond. And
he didn't like opening up the '48s. He has too many
of them; that's probably the reason he wouldn't want
any more.
Bell:
He's a country bank and he doesn't like the premium
on the '48.
Taylor:
Well, that's a perfect museum piece. I mean e very
fellow you talk to will give you that same answer.
Regraded Uclassified
185
-4-
Upham:
He nas sold all of his notes except the maturities
and HOLC '42-'44s.
Seltzer:
There aren't enough like them, because these notes
have just been shooting right on up.
Bell:
There's somebody buying them, that's a cinch.
Seltzer:
Absolutely, that's just the point.
H.V.Jr:
Somebody. Well, there's no one talks - don't come
in and say, "You mustn't let the note market get
too high.' Don't say anything about that.
Taylor:
Old man Taylor does, but
...
H.M.Jr:
This will take care of that a little bit.
Seltzer:
That's where your real shortage is, in short-term
stuff - the notes.
Upham:
He said he'd take 8 30-year bond in preference to
a 5-year note.
Taylor:
But not to keep.
Upham:
Not to keep.
Harris:
The thing about a 10-year bond - if the banks would do
what everybody tells us they would do, take that, we'd
probably end up with a very small issue of 20-25-years,
which is not very desirable.
H.M.Jr:
Well, the 10-year - I'm convinced the 10- or 12-year
bond would be a very strong deterrent on the long bond.
I mean they'd all go into the 10 or 12, because that's
what they want.
Heas:
And if something happened, Mr. Secretary, you wouldn't
have the protection.
Bell:
The premium would take some of that off, if you added
a premium.
H.M.Jr:
And if we do this, the September fellows that take
the long - we'll give them two and a half months'
interest on their note until September.
Regraded Uclassified
186
-5-
Bell:
That makes it a little richer.
H.M.Jr:
It's only fair. I think that's only fair.
Seltzer:
Inst's only those who take the notes.
H.M.Jr:
Only those who take the notes. No, only those who
take the notes.
Taylor:
Got an interest adjustment in the other fellow's
favor if he turns it in for the 2 3/4.
H.V.Jr:
That's only on the fellows who take the notes.
Bell:
Couple of ways we can do that. One is that we will
pay them the interest on the 2% up to - the difference
between the 1 1/8 and the 25 on the September in cash
when the exchange is made.
H.M.Jr:
What's that?
Bell:
From June 15. One way is to pay the holder of the
September 15 note when he turns it in the difference
between the 1 1/8 and the 22, see, on June 15.
H.M.Jr:
well, which is the
...
Bell:
And the other way is to say to the holder, "We're
going to give you If - let's see, how is that now?
"We're going to give you a note of 1 1/8 percent,
and you clip the coupon at 22 off the September note
and keep it, but you pay us the interest of 1 1/8
from June until September." In other words, in
one case we get in cash and the other what we
H.M.Jr:
"ell, are they Quarterly coupons?
Bell:
No, but you see, they keep the coupons. The coupon
would be good on September 15.
H.M.Jr:
Well, if he keeps the September coupon, then he has to
pay us.
Bell:
If he keeps his September coupon, that's right, he has
to pay us.
8.M.Jr:
Which is the easiest?
187
-6-
Bell:
There isn't much difference in it.
H.M.Jr:
Which do you recommend?
Lochhead:
wouldn't it be pretty hard on the fellow holding
a coupon which calls for a certain amount and then
he presents that coupon and you say he has to give
it up? I mean how do your coupons read?
Bell:
Oh no, when he exchanges the note on June 15, he
pays us the 1 1/8 percent from June 15 to September
15 in order to get the new note.
Lochhead:
Oh, I see.
Bell:
Then he keeps the September 15 coupon.
H.M.Jr:
He pays us 1 1/8 in cash for three months.
Bell:
For three months. That's more advantageous to the
Treasury, for him to pay us the cash on June 15.
H.M.Jr:
I'd do it that way unless there's somebody
I'd
let him pay us the cash; it's easier.
Taylor:
You interest chiseler, Bell.
H.M.Jr:
Then we get the interest on the 1 1/8. Yes, I'd
do it that way, let him pay us. Then we don't - he
can come in with his pennies and all that. We don't
have to.
Well, I think what we'll do is this. The President
may be going down the river. Suppose you could
have that thing for me to take to Cabinet, have him
sign it?
Bell:
Yes, sir.
H.M.Jr:
If - when you don't do it - at least we don't have to
be fussing about getting it signed. Have it in here
five minutes of two?
Bell:
Yes, sir. Have it in here five minutes of one.
H.M.Jr:
Then I'll call up - when Iget back from Cabinet I'll
send for you fellows and we can talk through this thing
Regraded Uclassified
188
-7-
once more. By that time the market will be closed.
All right?
Taylor:
(Nods yes)
H.M.Jr:
Don't you (Taylor) say one and a quarter.
Bell:
Just waiting for it.
Regraded Uclassified
189
June 3, 1938
Tripartite Arrangement with England, France, Belgium, Switzerland, and
The Netherlende.
Stabilization Fund.
Foreign Monetery Agreements: Mexíco and Canada - silver.
China and Brazil (involving gold also).
Mexico and China - Foreign Exchange.
Devaluation of the Dollar and Maintenance of its Stability.
Coordination of Treasury Law Enforcement Activities.
Service Schools for Enforcement Agents, Including Arms Practice.
Efficiency Studies of Various Buresus by Treasury Administrative Staff.
Coordination of Public Relations Policies.
Division of Laboratories for Entire Treasury.
Special Physical Laboratory for Currency Studies.
Furnishing of Psychiatric Diagnostic Services to Federal Courts.
Entrance of Vessels by Radio if no Disease is Aboard.
Internal Revenue Decentralization Plan.
Procurement Made General Purchasing Center for Government.
Creation of Architectural Advisory Committee, Coordination and Control
of Building Design.
Treasury Art Project.
Identical Bids, Monopolies (tires, cement, etc.).
Reorganization of Research and Statistics.
Establishment of General Counsel's Office and Abolition of Solicitor.
New Section in Revenue - Recrganization, Receivership and Bankruptcy.
Richmond Self-Help Plan.
Statement on Prices.
United States Savings (Baby) Bonds.
TREASURY DEPARTMENT
m 190
INTER OFFICE COMMUNICATION
DATE June 3, 1938
Secretary Morgenthau
TO
FROM
Mr. Haas M
Attached are two copies of Miss Lonigan's report covering
her recent field trip to Cleveland and Chicago.
Attachments
June 3, 1938
191
To:
The Secretary
From:
Miss Lonigan
In Cleveland I saw secretaries of two district offices
of the Cleveland Relief Administration, the general secretary
of the private Family Welfare Society, and the man in charge
of distribution of surplus commodities.
Food Orders
The last grocery orders sent to relief families had run
out on Wednesday. A few thousand dollars had been found by
laying off some more garbage collectors. The relief adminis-
tration decided to issue four day food orders for families
with emergency needs only, chiefly illness.
Families were not coming in to the relief offices. They
read in the papers that there are no funds. A curious solid-
arity is growing up between relief families and relief staff
since salaries were cut off. The families do not pester the
staff any more. They are going to the Councilmen. The
Councilmen are leaving town. They can't stand it. One visitor
told her supervisor she couldn't go into her district; she
wasn't afraid, but she couldn't stand the cry for food any more.
One man sold his canary for $5 to buy food but bought a gun
instead. He was quieted in time.
The prevailing reaction is still apathy. "Something is
going to happen. It's too brooding". One day there were 1100
clients in one room. "You could feel a pin drop". The
District Secretary insisted on help from headquarters. The
Regraded Uclassified
- 2 -
192
Mayor himself came out. He gave them larger quarters.
The Mayor has achieved virtually universal respect for
his honesty and intelligence. His Commissioner of Health and
Welfare, & wealthy retired business man, is also very well
liked. At first it seemed possible that Mayor Burton was
pinying subtle politics to attract personal attention to
himself. That interpretation seems entirely unwarranted.
Surplus Commodities
I visited the headquarters of surplus commodities dis-
tribution and also the warehouse where commodities are stored.
When commodities are in transit they are under the
jurisdiction of the Federal Government. Once they reach the
railroad siding, they are the responsibility of the local
relief administration. WPA of course has no connection with
surplus commodities at any stage.
The Cleveland relief office unloads the cars, repacks
the food in smaller containers, and distributes the commo-
lities to local stations where the families come and present
their card from the relief office.
In a warchouse belonging to one of the utility companies,
boxes of potatoes, bags of flour and barrels of dry skim milk
core piled high. Everything WSS in spotless order. Women were
dividing sacks of flour in half for smaller families. Butter
is out into one pound blocks. The dry skim milk is hardest
to handle. It comes in 100 pound barrels and must be re-
packed in one pound packages.
Even the storage and repacking of these commodities in
- 3 -
a serious 1tem in relief expenditures. Butter storage for 1S3
six carloads or 120,000 pounds (one month's supply) cost
about $1000 a month. Cartons and bags for flour and milk
cost about $250. Labor is supplied by a work relief project
under the city itself. Even the sacks and barrels in which
the commodities come are saved and used again.
As a result of the crisis families are now getting a
double ration of rice and dried beans. Flour 16 also being
issued mediately, although it. was not scheduled for release
for two or three weke There are the usual prunes, celery,
oranges, cabbage, and green beans. Dry skim milk is not
being distributed because they have not finished packing it.
Canned peas are in storage but have not yet been released for
issue by Federal Surplus.
Food Rations
There has been no increase in the ration of commodities
per family since relief stopped. Food cards allot to families
only the scheduled amount above their normal needs. Even if the
normal needs are not supplies, rules of the Department of Agri-
culture absolutely prohibit increasing the quantities allowed
per family.
Mr. Rowley, the very able supervisor of commodity distri-
bution, estimates that commodities in Cleveland constitute about
5 percent of the standard budget. Less than this 18 distributed,
if fewer commodities have been purchased by the Corporation.
Cleveland food budgets have been twice reduced so that they
are now 28 percent below Department of Agriculture standards.
Surplus commodities make up less than one-fifth of this loss.
- 4 -
195
The supply of commodities could be multiplied five times
without giving families too much, when they are getting their
regular grocery orders. They could be multiplied twenty times
(with more variety needed) where families cannot get relief.
After this week is over, there will be practically no
surplus commodities in storage in Cleveland. The thirty-day
supply was used up long ago. Warehouses are empty. Food moves
from the cars onto the trucks, merely passing through the ware-
houses. Spring and summer surpluses are exhausted.
This week the car load of flour arrived on Wednesday.
Families who got their supplies early in the week got only
butter, rice, and green beans. They will have to come in a
second time for flour. That meant that 13,000 post cards had
to be mailed out to Monday and Tuesday families, before midnight
of the day the flour W&S ready. About 25,000 families in all
receive commodities. Furnished room families get them too
if they can cook.
Bread lines
Distribution is still made from a few stations, since the
local grocery store distribution was discontinued for lack of
funds for transportation. "Its back to the bread line".
Complaints are coming from schools that "the kids are
out all day. They stand in line with their wagons". Friends
or neighbors who have care help the families get their supplies.
That is the origin of the story of relief families driving up
in cars. Of 1000 license numbers checked, 90 percent belonged
to friends who were helping and 8 percent belonged to men who
Regraded Uclassified
- 5 -
196
were allowed to keep their cars because of their occupations.
Private charities
When relief stopped altogether, the private charities
took the most terrible cases, "So terrible you couldn't do
anything for them. One woman had pneumonia three days in B.
furnished room without food or heat. She was too sick to
move. The Associated Charities provided milk and fuel. If
she had had help a week earlier it might not have happened".
The Community Fund has less money for relief than it had
a year ago. The needs of the hospitals are greater, and take
all available funds.
Families have fewer resources than they had before 1932.
There are fewer relatives with incomes. They have less credit,
Grocers have already given too much. Foreclosure is much
quicker now. As soon as families in public housing go on
relief they are dispossessed by the courts. Relief visitors
are putting families into furnished rooms, two rooms for &
family of ten. Public housing tore down the better housing
and left the worst.
Clothing
Distribution of clothing was never adequate. Now there
is none. Children are out of school for lack of clothing.
Food money goes into school shoes. Forty families in one
neighborhood were found to have children out of school on
account of shoes. In 1929 the Cleveland Community would have
been shocked if five children in the entire city were out
because of shoes. Families sell groceries to get shoes. One
woman sold her wedding ring. One man sold his work jacket.
Regraded Uclassified
- 6 -
197
One woman whose husband had been a good workman came to the
private charities and begged for days' work 80 she could buy
nipples for the baby's bottle. She hadn't five cents.
An informal clothing exchange is growing up emong relief
families. Whatever they get as gifts or Christmas presents
or from casual employment are exchanged with the other needy.
Families that fAll between relief and WPA are the hardest
hit. The man works one or two days a week, gets enough to
ouy food and nothing else. He gets no help with clothing,
surolus commodities, dispossess notices, gas out-offe, or
anything else. Their numbers are getting large as relief funds
TQ down.
Outlook
The rural investigating committee of the Ohio Legislature
did report back that there was real suffering in the cities,
and that chiseling was very slight. They agreed that state
funds must be appropriated, and that the legislature must make
it easier for cities to raise money.
They mnde no report (Wednesday) on how the money was to
be raised. It is expected that in B. week or two the Governor
"111 "come riding up on a white horse", but there seems no
chance for new funds for another month.
The legislators' principal objection 1s to "overhead
expenditures". They want the most mechanical forms of relief
payment. With the present low overhead, relief workers see
dozens of things they could do to restore family independence
which must be left undone. "I haven't read B single record in
Regraded Uclassifie
7 I I
198
the last six months in which the family could not have been
restored to partial independence if we had had more time".
(The urban social workers' belief, developed in the 20's,
of unlimited coddling of relief families, 1s now giving way
to realism. The rural legislator's hatred of overhead is
now preventing social workers from using their skill to help
get families off relief.)
Cleveland has one family which has been on relief fifty
years. It has many families in which the children never know
a time in which there was no welfare visitor in the home. Young
people think of only two things when they marry, getting relief
or getting on WPA.
Chicago
I spent the entire day in Chicago visiting local relief
stations where applicants were being certified for WPA.
Applicants were being given a preliminary interview. If they
were apparently eligible, they were given appointments for a
full interview. At the first station interviews were scheduled
for July 8th. In other stations the shortage of relief staff
was not quite so great, Men applying that day were being given
appointments for June 27th. When the visitors tell them, they
say, "What shall I do till then?"
All relief stations are closed. The staff 18 furloughed.
Visitors and clerical staff are working one or two days a month.
One man whose salary had been $85 a month was reduced to $20.
Many of the visitors had come from relief.
The appropriation passed by the legislature is Just
Iclassif
- OF -
199
sufficient to continue to give food orders to families already
known to relief. No new families are taken on. There is no one
to interview them and find out that there is an emergency. The
worst difficulty is money for relief salaries.
Families with illness, sudden emergency, and all the men
who have applied for WPA and cannot get interviews for a month,
have had no recourse except private charity, since May 14th.
They cannot get commodities because there is no one to certify
them.
Surplus commodities in Chicago now constitute about 13 percent
of the family budget, or about $4.39 & month for a family of five.
The families are quiet. "Why not? They're mostly unemploy-
obles, old, sick, aliens, widows. They don't make trouble. The
uegnle that might have made trouble in 1932 are now on WPA."
One man came into a relief office and asked for help. He was
told they had nothing. He sat very quietly all day, because he
said he had no place to go. When regular relief families came in
to get commodities he asked them if they would share with him be-
cause he had had nothing to eat. I asked where he went when the
day WAR over. Nobody knew.
No improvement is possible in Chicago until the legislature
Dasses enabling legislation, the city council passes new taxes,
and the tax anticipation warrants are sold. That looks like July.
WPA has more people on relief in Chicago than at any period
in the last five years. They have about 3,000 people certified
but not yet put to work. Projects are hard to get. The backlog
of applicants for WPA, who cannot be interviewed by the small
be
relief staff, will/thousands more.
Regraded Uclassified
TREASURY DEPARTMENT
201
INTER OFFICE COMMUNICATION
DATE June 3, 1938
TO
Secretary Morgenthau
FROM
Mr. Hans
Subject: Renort of inter-departmental meeting to discuss
business conditions.
At the conthly meeting of representatives from various
Sovernment agencies interested in the business situation,
1133 on June 1 in the offices of the Board of Governors of
the Pederal Reserve System, the following points were brought
not that have 8. bearing on the business outlook:
(1) Dr. Goldenweiser of the Federal Reserve Board esti-
was the 7.1.8. index tentatively at 75 for May. He says
there is considerable question whether there will be more
100 8 sessonal decline (5 or 6 percent) from May to July.
70 loubts that a decline in automobile production during the
next few months will have any significant effect on the steel
industry, because for some time cars have been largely pro-
loged from stocks of steel on hand.
The consensus of opinion was that industrial production
mine be maintained near the present level during the next
-00 lonths.
(2) Several factors were mentioned 8.8 likely to con-
write to a rise in the F.R.B. index during the latter half
If the year, though counteracting influences would tend to
the rise within moderate bounds. (a) Since consumption
18 running at 8. higher level than industrial production, the
Revietion of inventories will force production higher even
Emily consumption does not improve. (b) Residential con-
struction may be well maintained in the latter half of the
me, and Government construction programs may contribute to
improvement in the last few. months. (c) P.W.A. ex-
initures are likely to become a business factor late in
: 8 juar.
Probable restraints on business during the second half
of the year will be: (a) An expected decline in agricul-
Two) incomes (including Government payments) from 8.5 bil-
110m dollare in 1937 to 7.3 billions or possibly lower
Regraded
202
Secretary Morgenthau - 2
(tentative estimate) in 1938; (b) the possibility that Dri-
vote spending may be reduced during the second half of the
year, after current projects are completed; (c) a probable
decline in export demand.
(3) "Mr. Bean called attention to the fact that the
national income during May will be only about 10 percent
lower than last year, which tends to explain the relatively
lovel of retail sales. He estimates that at the first-
rates of consumption and production, inventories of
findebed goods will have been reduced by July to the equiva-
Zent of those at the end of 1935.
(4) Conditions seem to be shaping un for a substantial
expansion in 1939, particularly 1f private enter-
should come forward with construction programs to sup-
Accient Government programs. The latter, which are likely
to be slow in getting under way, may make material contribu-
time to employment and business activity in 1939. The
troluce of deficit spending will reach a high level in 1939.
(5) Expenditures through W.P.A. channels offer the
'est 2: ortinity for ranid Government spending, but under
WEBERT policies these will not increase substantially until
Tate in the year. An expected spending rate of 180 million
151° CE per month at the end of the year will compare with
*/- current rate of 155 millions ner month,
Regraded Uclassified
203
June 3, 1938
I saw the President of the United States today
and he brought up the question of taxing State employees.
He said that he had dictated B. memorandum to me in answer
to our letter to him and he said he wanted me to discuss
with Mr. Magill the following suggestion: the possibility
of immediately starting 8. friendly suit against some
State employee on this year's salary to try to establish
the fact of whether or not we can collect the Federal
Income tax from State employees. At the time we initiate
such B. suit we should make it plain that we had no inten-
tion of trying to collect taxes retroactively.
The President asked If we had not withheld at-
tempting to collect taxes from State employees based
entirely on a previous Supreme Court decision and he
said 18 there no reason why we really could not go ahead
and collect taxes from State employees. I said I did
not know; it was too technical B. situation, but that I
would immediately discuss it with Magill.
Bo the President said, Well, if it is as important
as Magill said it was, I would like to clean it up in this
way. I maid'I ought to take it up with the leaders.'
He said, You have seen that I have had to let my reorgan-
ization bill go over because they said they could not
handle it. I brought up the question of introducing
legislation to straighten out this tax question on State
employees and he said, Don't think of trying to get it
through this session 80, therefore, I would like to try
it this way.'
I told the President about my financing plans --
2-3/4, 20-25 year and 5-year 1-1/8. He seemed per-
fectly satisfied.
I told him what we had done about Spanish silver
and that by taking it into the Assay Office we discouraged
Bullivan & Cromwell from attaching it in the name of
Franco. He seemed very much pleased.
I asked him if he had noticed the change of heart
in Chamberlain towards the Spanish situation and told him
it was Just a possibility that the fact that the papers
in the United States carried the story that the Spanish
over here were sending back $25,000,000 (although it was
only a little over $2,000,000) might have had something
204
-2-
to do with Chamberlain's seemingly change of attitude
towards the Loyalist Government.
I told the President we were going to buy
another 5,000,000 ounces.
The President asked me whether St. James Church,
at Hyde Park, could subscribe to the new issue and I
said not unless they bought the rights; that we were
very exclusive.
000-000
Regraded Uclassified
THE WHITE HOUSE
WASHINGTON
June 3, 1938.
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY
I have carefully considered
your recent letter suggesting letters
to be sent hy me to the Vice President
and the Speaker making for legislation
at this session to clarify the tax
exemption interpretations under
existing law.
I have conforred with a number
of Representatives and Senators and
it is the unanimous opinion that it
is too late in this seasion to obtain
the desired legislation.
It occurs to me that there
should be on immediate study by the
Internal Revenue Buresu and the Office
of the Attorney General to determine
whether it would be possible to 888688
taxes against private income from
non-federal government salaries,
making it clear that the Treasury
Department has no intention of making
retroactive claims. Would it be
possible to do this in such a way
that a decision of the Supreme Court
Regraded Uclassified
THE WHITE HOUSE
WASHINGTON
⑉2⑉
could be promptly obtained?
If the tax were upheld, legis-
lation would not be necessary, eB-
pecially because a favorable opinion
would almost automatically nllow
States to levy income taxes against
federal salaries. I know of no legal
prohibition against collecting taxes
on State salaries. Such failure to
collect has always been based on the
former Supreme Court decision.
This matter is, I think, of
sufficient importance to warrant 8.
conference between the General Counsel
for the Treasury and the Attorney
General and the Solicitor General.
F. D. R.
Regraded Uclassified
207
June 3, 1938
To:
The Secretary
From:
Mr. Magill
Commissioner Helvering 1s going to ask the General Counsel
for a legal opinion as to the scope and application of the Port
Authority case, in the taxation of the salaries of atate and municipal
employees of various kinds. The Commissioner proposes also to issue
$ mimeograph to the Collectors advising them to take no further action
toward the collection of additional taxes on account of the decision,
until they receive a statement of the Treasury policy in the matter.
This statement would be sent them in the usual course following the
issuance of the General Counsel's opinion. Commissioner Helvering
further points out that the Statute of Limitations will run in
prectically no cases until March 15th of next year; and, therefore,
collection of these taxes may be made in January-March 15th next year,
if no legislation is adopted at the next session of Congress to clarify
the entire situation.
I shall think over the question of e. Treasury statement on
the subject and speak to you again tomorrow or Monday. My present
inclination is not to issue any statement but to dispose of the various
questions in the manner which 1s outlined above.
In the attached memorandum the President suggests an inquiry
83 to the legal scope of the Port Authority decision by the General
Counsel of the Treasury and the Attorney General. As I have indicated
the legal inquiry will be and ought to be made but I think it ought to
be made by this Department and not by the Department of Justice. The
present question is one for the Treasury to decide: namely, how far
the Commissioner is to go in the collection of taxes, 8.8 the result of
the Port Authority decision.
Rm
Regraded Uclassified
208
June 3, 1938.
11:12 a.m.
Operator:
Coming on.
H.M.Jr:
All right.
0:
Go ahead,
H.M.Jr:
Mac?
,
McReynolds: Yes, sir.
H.M.Jr:
Tell Oliphant's office not to let Klaus go with
the Department of Justice until they get a clearance
from me.
V:
O.K.
H.M.Jr:
And I'm not going to clear it.
N:
O.K.
H.M.Jr:
I'm writing a note - if they're so short of lawyers,
as they tell me they are, how can we afford to lend
one of our lawyers to the Department of Justice.
M:
Very pertinent.
H.M.Jr:
What?
A:
Very pertinent note.
H.M.Jr:
I mean if they're so short, and I dictated a note to
Mrs. Klotz, but I just want to make sure that
doesn't go over there.
M:
O.K. I'll see that he doesn't go.
H.M.Jr:
Here Herman says he needs so many lawyers, he's
lending one of our very best attorneys.
=
Yes, sir.
H.M.Jr:
What?
M:
Yes, sir. Iget it.
H.M.Jr:
All right.
M:
Yes, sir. I'll see that he doesn't go.
G.M.Jr:
Keep after that sore throat.
II:
All right.
Regraded Uclassified
209
June 3, 1938.
11:30 a.m.
H.N.Jr:
Hello.
Operator:
Burgess.
Go ahead.
H.M.Jr:
Hello.
Burgess:
Hello, Henry.
H.M.Jr:
How are you?
B:
I'm fine.
H.M.Jr:
Well, what's new today?
B:
Well, when the market realized that the Septembers
were coming in also it was somewhat weak this
morning, but it's been picking up again.
H.M.Jr:
Yes.
B:
The September rights were weak, but they are almost
up to last nights closing now.
H.M.Jr:
Yes.
B:
And the June rights are ahead of it.
H.d.Jr:
Yes.
B:
The long bonds are a little off.
H.M.Jr:
Yes.
B:
The intermediates took the touch off. There's some
buying in intermediates.
H.M.Jr:
Uhhuh.
B:
Come in. So that the picture isn't very greatly
changed..
H.M.Jr:
No.
B:
We expected some reaction on the September announce-
ment - we got a little but basically there's no
particular change in the picture.
H.M.Jr:
Uhhuh. Well, it's just as well that the bond market
- it did level off a little bit.
Regraded Uclassified
- 2 -
210
B:
That's right. Yes.
H.M.Jr:
Is it very difficult - kept on the price of things.
D:
Very hard, yes. Yes, it's made it too rich.
3.1.Jr:
Now, how do you feel about the thing today?
8:
Well, I don't feel greatly different. If I was
doing it myself I'd do - I'd open up the forty
eights.
H.S.Jr:
Uhhuh.
9;
But I'm not prepared to argue very vigorously
against the - against the notes.
T.1.Jr:
Uhhuh.
B:
I just talked to George and he thought the same
way.
5.1.Jr:
Unhuh.
0:
That he would do it in forty eights, but wouldn't
argue very vigorously against the other. You can't
predict these things in advance. I think there
would be less churning if you did forty eights.
But on the other hand you'd convert into fever
of your long bonds, You wouldn't sell quite so
many long bonds.
R.M.Jr:
The forty eights would be apt to dampen the
long bonds.
::
Yes, well more people would take the forty eights
than would take the note.
3.1.Tr:
Yes.
3:
So you'd have more an even weight on both issues.
1.1.Jr:
Yes.
3:
For example some of these banks will take any bond
that you put out as underwriters, with the plan of
distributing it during the summer.
1.1.Jr:
The banks?
Regraded Uclassified
211
- 3 -
B:
Yes.
H.M.Jr:
Yes.
5"
Now that's all right, if nothing happens and they'd
go along all right. If something happens why they might
dump it.
H.M.Jr:
Uhhuh.
B:
But I don't think that's a very serious risk.
There's something to be said for having that weight
on the market. It will keep it from going too high
possibly. On the other hand it will lead to higher
prices in your immediate bonds.
R.d.Jr:
Uhhuh.
D:
That's already begun - - some are buying their
intermediate bonds.
8.1.Jr:
Well, I'm going to Cabinet. We usually get back
at four, our time. Will you still be there by
five?
3:
Yes.
H.d.Jr:
Your time?
:
Yes.
H.M.Jr:
Well, I'll 6ive you another ring along then.
B:
All right, sir.
H.M.Jr:
You're talking to people all day, aren't you.
B:
Yes, I'm talking to some. I don't want to talk to
too many because It shows your hand too much, but
I've got an appointment with Gardner. I've talked
to three or four dealers this morning.
H.M.Jr:
Well I don't feel any different than I did yesterday.
B:
Yes. Well, I'm -
H.M.Jr:
But I'll talk to you again tonight.
Regraded Uclassified
212
- 4 -
B:
Very good Henry.
H.M.Jr:
Thank you.
B:
Fine.
Regraded Uclassified
213
June 3, 1938.
11:49 8. m.
I...Jr:
Hello.
Dr. Thomas
Parran:
Hello, Mr. Secretary.
R.4.Jr:
How are you?
I'm very well, thank you sir. I had a talk with
Wallace
yesterday.
H.I.Jr:
Yes.
P:
I don't know whether deCarthy told you what trans-
pired.
H.S.Jri
No, I've been up to my neck on this financing.
P:
I'm sure you have been. In effect Wallace receded
his statement that he did not believe these figures
were accurate.
9.1.Tr:
I'm sorry, I didn't get that.
Pt.
Wallace said he did not believe that these estimates
made in his department were accurate.
B..(.Tr:
Yes, that's what he -
P:
That they had magnified the deficiencies.
Telep:
Right.
P:
And, whether they have or not, there is & series of
these things and it seems to be desirable for the plan
to be started.
Yes.
P:
And in the meanwhile we can make some checks on the
actual status of relief diets.
H.L.Jr:
Right
El
Your Miss Lonigan called me this morning.
5.4.Jr:
Yes.
e:
She is just back from Cleveland and says that there
the relief plans got only butter and rice and green
beans last week. That's all they had to eat.
Regraded Uclassifie
- 2 -
214
H.M.Jr:
Well, I - -
P:
No flour, no dry milk because they hadn't gotten
it out.
H.M.Jr:
2 see.
P:
There's one suggestion I should like to make and that
is that the surplus commodities people have not up
to now, considered the health or relief needs or
really the distribution mechanisms.
H.M.Jr:
Yes.
P:
And that if an effective job is going to be done.
H.M.Jr:
Yes.
P:
I would think of getting - of asking the President
to appoint an inter-departmental committee.
H.M.Jr:
Yes.
P:
WPA - Agriculture and Treasury representives
H.M.Jr:
Yes.
P:
To work on the mechanism and see that the distribution
is in accordance with the needs and not in accordance
with the agricultural markets.
R.M.Jr:
Right. Well, now when could you have B memo like
that, so that I could show him?
P:
I could send it up to you immediately.
R.I.Jr:
Well, I mon't be able to give it to him until Monday.
P:
All right, I - -
3.M.Jr:
Why don't you come in ten-thirty Monday morning.
Are you going to be here Monday?
è:
I had planned to be away. In fact I'm scheduled
to give a commencement talk. In New York.
H.V.Jr:
Oh. Well then, get it over to Mrs. Klotz so that
she can give it to me Monday.
Regraded Uclassifie
215
- 3 -
hands
P:
I shall have it in her h by tomorrow morning.
H.M.Jr:
And then I'll follow through on it.
P:
All right, sir.
H.M.Jr:
And any suggestions, I mean that you have, put in
the memo for me.
P:
I shall be very glad to.
H.M.Jr:
Thank you.
P:
Goodbye.
Regraded Iclassifie
216
REB
GRAY
London
Dated June 3, 1938
Rec'd 3:05 P. m.
Secretary of State,
Washington.
483, June 3, 6 P. m.
FOR TREASURY FROM BUTTERWORTH.
This WEEK'S Bank of England return still bears
traces of the operations incident to the recent repat-
riation of French funds and the June 1st war loan
dividends payment of 35,000,000 pounds discussed in
my 431, May 21, 1 P. m.
The return shows an increase in bankers' deposits
of nounds 11.6 million bringing the total to pounds
102.8 million which is the highest level since May 4.
The war loan dividend payment accounts for this
increase but it is worthy of note that public deposits
were down on the WEEK by only pounds 1.6 million at
pounds 24.9 million, an unusually high level for this
time of year. It is customary for public deposits to
accumulate before the dividend payment and thereafter
to drop sharply.
The
Regraded Uclassifie
217
REB
2-#483, From London, June 3, 6 p. m.
The financial press is somewhat mystified by an
increase this WEEK of pounds 14,000,000 of Government
securities. The market had been surprised at the contrac-
tion in the credit base reflected in the two successive
declines in Government securities in the two previous
weeks and is now much interested in the apparent
reversal of what seemed on the surface to bE & slightly
deflationary policy.
The explanation of the still high figure for
public deposits may lie in the fact that the return
was made on June lst this year, the very day of the
dividend payment, whereas last year and in previous
years the return fEll on a day or two after the
payment. This year, probably all applications had
not been received and the whole operation had not been
completed by the time the return was struck.
An Explanation for the pound 14,000,000 increase
in Government securities is more difficult to find
and none of the financial papers has suggested one.
It may l1E in a new technique of open market opera-
tions which has been used since the French repatriations
and which was mentioned in the ECONOMIST and STATIST of
9. WEEK
Regraded Uclassifie
218
REB
3-#483, From London, June 3, 6 p.m.
a WEEK ago. These journals rightly stated that it
became known in the discount market that firms finding
difficulty in financing their bill positions could
obtain the necessary facilities from the Bank of
England's brokers. This assistance was sought and pro-
vided to a considerable extent and was carried out by
the purchase of maturities up to the full three months
bills at one-half per cent. This procedure may be
described as a combination of open market operations
and allowing the market to bE "in the bank". The
discount market instead of being driven to borrow
from the Bank of England direct at two percent or more
was able to find its necessary funds at the market
rate, while unlike the usual open market operations
the method left the initiative with the market so that
the exact amount of accommodation required was available.
This new technique provides the authorities with an
additional degree of slasticity in the machinery which
can bE used for the maintenance of a cheap money policy.
If the Bank of England took over the Treasury bills
purchased
Regraded Iclassific
219
REB
4-#483, From London, June 3, € p.m.
purchased by its brokers from the market the increase
in Government securities may possibly bE accounted for
in this way.
KENNEDY
GW
WWC
Regraded 1 Jclassifi
220
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
MAA
DATE: June 3, 1938, 4 p.m.
NO.: 875
FROM CCCHRAN.
Today was practically holiday market in anticipation
of closing until Tuesday. French control yielded some
sterling around 178.30 and forward franc more offered.
Rentes down on publication of details of city of Paris
loan which opens June 7 for one billion francs through
6 per cent bonde issued at 90 with lottery features and
amortizable within 30 years through drawings. Banker's
commission is 25 franos per thousand franc bond.
Spot belga continues to strengthen but forward dis-
count widens a.a speculative contracts are renewed.
Secretary Morgenthau's statement on American policy
well received. Pennachio of Bank of Italy said his people
with whom he had talked by telephone were particularly
happy to have this reassurance against dollar devaluation
because of lira's connection with our currency.
It is the opinion of & high official of Credit
Lyonnais, formerly the Under-Governor of the Bank of France,
that Daladier made a big mistake on entering office when
he did not at once hold the franc firm. He contends that
the exchange of notes could have been done as easily at
158 as at 179. This banker believes that if Daladier had
done this, the Government W uld have inspired a much
greater and more lasting confidence in the currency.
In
Regraded Uclassifi
221
- 2 -
In the circumstances, repatriation has ceased, business
declines, and the man in the street is sickened by stories
of profits through speculation on the decline of the franc.
They are increasingly skeptical about the determination to
make the present level of the frano permanent.
BULLITT.
4141037
EA:LWW
000
YOUR
use
Regraded Uclassifie d
222
1w
TELEGRAM SENT
PLAIN
June 5, 1938
AMENBASSY
PARIS (PRANCE)
344, fifth.
FOR COCHRAN,
FOR RELEASE ONDAY MORNING, JUNE 6, 1938:
Secretary of the Treasury Morgenthau announced
today the offering, through the Federal RESERVE Banks,
of 20-25 year 2-3/4 per cent Treasury bonds of 1958-63,
and of 5 year 1-1/8 per cent Treasury notes of Series
A-1943, both in Exchange for 2-7/8 per cent Treasury
notea of Series B-1938, maturing June 15, 1938 or
2-1/2 per cent Treasury notes of Serits D-1938, maturing
September 15, 1938. Exchanges will bE made par for par,
and the offering of the new bonds and of the new notes
will bE limited to the amount of maturing notes of
Elther series tendered and accepted in Exchange therefor,
Cash subscriptions will not be received.
WELLES
(Acting)
(HF)
SAME TO: ANEMBASSY, LONDON, AS NO. 353 FOR BUTTERWORTH.
[A:HF:INW
Regraded Uclassifie
224
TELEGRAM SENT
JR
GRAY
June 4, 1938
5 pam.
MEMBASSY
PARIS (FRANCE)
342,
Your 867, June 2, 2 p.m.
Cochran directed proceed Bivil for purpose indicane"
and is outborized make trip: mon^hly during 1939 fiscal
year. Transportation EXPENSES red $6.00 per diem while
absent from Poris in pursuance these instructions
authorized for himself only, subject Travel Regulations,
chargeable quote Transportation Foreign Service Officer
unquote. Inform DADO. Cochran should report dates
trovel.
WELLES, ..cting.
(GSM)
F..:Hrs FP EU A-M/F
Regraded Uclassified
225
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 4, 1938
TO
Secretary Morgenthau
FROM Mr. Haar MA
The attached memorandum has been prepared in response to
your question as to the loss incurred by the operations of the
$500 millions revolving fund of the Federal Farm Board.
My
Regraded Uclassified
Prepared by: Wesley Lindow,
226
Division of Research and Statistics.
227
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 4, 1938
TO
Secretary Morgenthau
FROM
Mr. Hang MAR
Cost of Federal Farm Board Operations
T::e A riculturel Marketing Act (suproved June 15, 1929)
intervized the establishment of 8 revolving Pund of $500 mil-
:1000 to ne administered by e newly crested Federal Form Board
1th the brond objective of dacing agriculture "on a basis
of economic equality with other industries. II From this fund
the Federal Parm Board mode loans to cooperative associations
me to two stabilization corvorations. When the banks for co-
merstives were chartered Inte in 1933, the subscription to
their capital stock was paid for by the Governor of the Farm
Cradit Administration from this revolving fund. Since that
time lending operations from the fund lisve been curtailed and
offstanding loans have Deen liouidated BE racidly as possible
-ithout creating adverse repercussions. The stabilization
Ourgorations ceased operations in 1933, and at the present time
their only assets consist of claims and receivables.
Atthoned hereto is S summary belance shoet of the fund 05
19 December 31, 1937. The figures SLOW that the fund had been
Ae leted by $340.2 millions, B.B. follows:
(Zillions of dollars)
Loons canceled in connection with
donations to the Red Cross
197.4
Loss on cotton sold to
Secretary of Agriculture
46.3
Losses sustained on loans
17.0
Valuation reserves for logges
79.5
Total
340.2
The loans canceled in connection with donations to the
308 Cross prose through transfers of wheat and cotton from the
otsoilization corporations in return for which loans from the
revolving fund were canceled. Authorization for these trans-
actions was provided by statute. The cancellation of these
228
Secretary Morgenthau - 2
loans cannot be viewed in full as a loss from operations, for
no account is taken of the realizable market value thereby re-
linquished, which really constituted a reduction in the
appropriations.
The loss on cotton sold to the Secretary of Agriculture
arose under the provisions of the Agricultural Adjustment Act
directing the Federal Farm Board to acquire cotton on which
it had made loans and to sell it to the Secretary.
Regraded Uclassified
229
Summary Balance Sheet
of the Agricultural Marketing Act Revolving Fund
8.6 of December 31, 1937
(Millions of dollars)
Assets
Loans:
Loans for operating capital
24.6
Facility loans
6.4
Loans to stabilization corporations
68.0
Total
99.0
Less: Reserve for losses
73.0
Net balance
26.0
Investments in capital stock of banks
for cooperatives
144.5
Crsh on deposit with Treasurer of
United States
5.2
Assets acquired in liquidation of loans
8.9
Less reserve
4.4
4.5
Notes end accounts reported to
Comptroller General for collection
2.3
Other assets - net
.3
Total assets
182.8
Liabilities
Reserve for notes and accounts reported
to Comptroller General for collection
2.3
Other liabilities
.6
Copital:
Appropriations by Congress
500.0
Interest revenue
20.1
Total
520.1
Less:
Loans canceled in connection
with donations to the
Red Cross
197.4
Loss on cotton sold to
Secretary of Agriculture
46.3
Losses sustained on loans
...
17.0
Valuation reserves for losses
79.5
340.2
Net balance
179.9
Total liabilities
182.8
Regraded Uclassified
A
230
June 4, 1938
For the Secretary:
I am leaving this afternoon for Sioux City, to be back
next Wednesday morning.
I think by Friday of next week we shall be able to send
out to the banking group which you consulted the proposals for
changes in bank examination forms and practices, and a revision
of the Comptroller's regulation on securities which banks van
purchase. The latter decision is for Mr. Diggs, of course, but
I think by then he will have reached one.
The executive committee of the state bank commissioners
association met here yesterday with Crowley, and are agreed
on the items in the majority report, and will be promptly ready
to respond to your letter when it goes to Commissioner White
of New York, the president of the association.
We will have an agreement which covers all banks, national
and state, which are supervised by the Comptroller of the
Currency and by the state bank commissioners and which are
insured by the FDIC. Members of the Federal Reserve system will
be included, whether or not the Federal Reserve system conforms to
the majority position. They will then have to decide whether to
be conspicuous by holding out as to their members. When it comes
to a show down I think they may 80 along, hoping for more later.
Tuesday in Chicago I want to talk to Ned Brown about
marketability and the Chacago reserve bank about examinations.
Upm
Regraded Uclassified
231
June 4, 1938.
10: 21a.m.
H.M.Jr:
Hello.
Operator:
Mr. Gibbons and Mr. Gaston stepped out of the office
for a minute.
H.M.Jr:
Where's Burgess?
0:
I have him right here.
H.M.Jr:
Right.
0:
Go ahead.
H.A.Tr:
Hello.
Surgess:
Hello Henry.
H.V.Jr:
Well, what's the gossip?
B:
Well, more of the same thing.
T.M.Ir:
Uhhuh.
B:
For example I've just talked to three of the banks
- I talked to the Chase., They would take some of
the long bonds.
M.M.Jr:
I see.
B:
They think the note issue might be very small. They
think a ten year would be better.
H.M.Jr:
Yes.
B:
Opening up the old ten year would be better.
S.1.Jr:
My god, are you still telling me that?
3:
I'm going to tell you that right to the last minute.
H.M.Jr:
All right.
3:
You and I have reversed our roles, you see?
R.K.Jr:
How?
D:
Usually you're more conservative than I am. This
time I'm more conservative than you are.
C.1.Jr:
I see. All right.
Regraded Uclassifie
- 2 -
232
Just wanted to point that out you know.
H.H.Jr:
0. K.
3:
But there's no ,uestion out what the long bond will
go. Some fellows think it would go without helpmate.
I see.
But on the other hand there's some feeling that with
a long bond the banks are being sold down the river.
Yes.
Even with a note some of them think that.
I see. Well the two and seven eighths are behaving
pretty well though aren't they?
They're behaving very well. They are just a thirty-
second off this morning.
Yes.
The longer bonds continue to be a little weak, you
notice.
Yes,
But that's natural. Because there are more of them
expecting this tio and three Quarter now.
R.I.Jr:
No doubt about the success of it though.
The
No, I haven't the slightest doubt about it, I -
whether it's an all summer bond is enother question.
Uhhuh.
The first reception will be very good. We may have
to sit up with it once in a while, but it's going to
go all right, and be well absorbed, I think.
Well, I'll call you again in Just about an hour.
By that time the market will be closed, won't it?
3:
All right, sir.
All right.
Very good.
Thank you.
Regraded Uclassifi
233
June 4, 1938.
10:35 a. m.
H.M.Jr:
Hello.
Operator:
Secretary Wallace.
H.M.Jr:
Hello.
Secy.
Wallace:
Hello.
R.W.Jr:
Good morning, Henry.
V:
Henry Morgenthau?
H.M.Jr:
Talking.
W:
Henry?
H.M.Jr:
Yes.
W:
I was very much amazed to read this morning about
the earmarking of the fifty million.
H.M.Jr:
Yes.
And called up Tapp to find out what had happened.
H.M.Jr:
Yes.
R:
I don't know whether you know the story or not.
H.M.Jr:
No, I don't. I just - all I know was Will Rogers says
is what I see in the papers. I know less than any-
body in Washington.
Well, I think we're all in the same boat.
H.M.Jr:
I'm just - I don't know a thing about it.
This is what Tapp tells me. He said he didn't know
a thing about it until last night. Charlie Holman
called him up.
H.M.Jr:
Charlie Holman.
The
And - you know Charlie Holman?
H.M.Jr:
I did when I was in Farm Credit.
Yes. Well - then he checked around this morning.
Regraded
- 2 -
234
(T.M.Jr:
Yes.
W:
Charlie told him roughly what was up. And Tapp
checked this morning and said it just appears
that the Grange - the Co-op Council and Charlie
Holman's dairy group.
F.I.Jr:
Yes.
ent to McAdoo to put over this proposal feeling
that the dairy and fruit and vegetable people were
not getting a sufficiently fair deal out of the
farm program and they want to be sure that they got
a cut and they thought this was the best way to get
a cut for them.
IL.M.Jr:
I see. Well that's an amazing thing isn't it?
So this was put over by - essentially by the -
shall we say by the Republican groups?
B.C.Jr:
Or the vegetable group.
No, that's right.
The spineless cactus group.
How's that?
The spineless cactus group,
The spineless cactus group.
Yes.
Fine circle of people.
M.9.Jr:
Yes. Well, what's going to happen?
I haven't noticed the absence of Charlie's spine,
as yet.
No. What will they do - - be knocked out in conference?
I don't know what they'll do. But I just thought
you ought to know the background.
Yes. You see - whoever handles it, if you don't
Uclassifie
235
- 3 -
mind my saying it, publicity yesterday, I mean
it came out on the ticker that you were taking a
hundred million dollars relief funds for surplus
commodities. See? That's what I meant on that
little note I sent you.
I can't imagine how a thing like that could have
originated unless some of these dairy folks were -
H.V.Jr:
Well, it came over - we have a U.P. ticker service here,
and that's where it came over. That's when I saw
it first, and I think it was a hundred million.
But of course we can't -that is no doubt this thing
has been brewing among the lobbyists and we haven't
known about it.
I.M.Jr:
Yes.
First we knew about it was Tapps - when Holman
called Tapps last night. First time Tapps knew
about it.
H.M.Jr:
I suppose that Aubrey Williams went through the
ceiling.
I haven't heard a word from him.
H.M.Jr:
You haven't. All right. Now -
No, Myers is - the release WE put out yesterday
has -
E.S.Jr:
Well the one that you handled evidently yourself
what the morning papers carried - that made sense.
No.
H. .Jr:
But the one that the evening papers carried didn't.
Well, I think probably just reporters.
S.H.Jr:
I gathered - I mean read as though you had had a
press conference yourself and then handled it.
No, it was a release which I approved yesterday
afternoon.
H.S.Jr:
Oh, because this morning's papers were all right,
but as I say the other ones -
Regraded Uclassifie
236
- 4 -
Well, I approved one about noon, just before
Cabinet.
Now Henry, what's his name, Summer Welles just
called me before you did.
Yes.
And he wanted to know whether he could come over
at eleven on Monday to meet with you and me.
Well, let's see.
B.V.Jr:
Is that a good -
I can't make it on Monday - I can't make eleven on
Monday.
R.C.Jr:
What time can you make it?
Yes, perhaps I could by transferring an appointment.
well, I can shift this if you want me to. What time
would you like to have it?
My hunch would be to make it at nine-thirty, if that
would be O.K.
F.A.Jr:
No, I can't do that Monday. I've got - I want to
watch my market on account of my refunding, you see?
I wonder how - I wonder how ten o'clock Monday
would do?
B.R.Jr:
It's - it's a little bit early, you see. The first
two hours I like to watch. After all I'm refunding
a billion tow, and I really.- I can make it eleven-
thirty if that would help you any.
I rather think - if make it eleven-forty, I think it
would be all right. I'd have to leave at twelve-
twenty.
Eleven -
Eleven-forty.
3.8.Jr:
I'll split the difference with you, make it eleven-
thirty.
Regraded
237
- 5 -
All right.
H.M.Jr:
What?
All right. Eleven-thirty.
H.M.Jr:
Is that all right?
All right. I may be five minutes late.
H.M.Jr:
You couldn't - well then you couldn't switch your
eleven o'clock appointment - would that be too
difficult?
Well, Bishink there's a good chance that I can,
as a matter of fact.
H.M.Jr:
Well I just want to let Wal - Welles know, but if
it's going to make it difficult I don't want to do
that.
14
Oh, I think - I think there's a chance - I think
there's a good chance I can shift that.
H.M.Jr:
Well, then -
we'll make it eleven.
H.1.Jr:
Well, if I don't hear from you it will be eleven.
%:
That's right.
H.M.Jr:
Now I told Welles not to come over here until he had
seen Mr. Hull because we were going to talk about our
own domestic economy before we were going to talk
about Haiti. Right?
the
T:
You and Wells and I are going to talk about/domestic
economy?
H.M.Jr:
Well, I mean if I want to get this cotton and -
W:
Oh, yes, yes.
H.M.Jr:
And wheat thing for China.
%:
Oh, yes, yes, yes.
H.M.Jr:
That's what I mean.
Regraded
Uclassifie
- 6 -
238
M:
Yes.
H.M.Jr:
See what I mean.
W:
0. K.
U.M.Jr:
And before we were going -'at least I said before I
was going to bother about Haiti, I wanted to get this
thing straightened out about flour and cotton grade
goods for China.
W:
Fine.
H.M.Jr:
What?
::
Fine.
H.M.Jr:
And -
Vi:
I think that's just fine.
H.M.Jr:
See what I mean?
e
Fine.
H.M.Jr:
So that's what I meant.
n:
I love the way youwent to bat.
H.A.Jr:
Well, Henry, we've got to take a few chances the
next couple of months.
9:
I think
H.M.Jr:
I mean we just can't sit here and philosophy and let
this thing just keep sliding out from under our feet.
I agree with you.
H.M.Jr:
And God, the chances we took in '33, we got away with
it.
Yes.
H.M.Jr:
And I told Wells, I said, "For heaven's sake, let's
make one shipment of flour and one shipment of grade
goods, and if the hue and cry is too bad, we'll stop
it, but let's try and make one shipment."
- 7 -
239
W:
Yes.
H.M.Jr:
Right.
W:
All right.
H.M.Jr:
0. K.
W:
Eleven o'clock.
H.M.Jr:
Thank you.
aded Uclassifie
240
June 4, 1938.
11:41 a. m.
Operator:
Burgess.
H.M.Jr:
Hello.
0:
Go ahead.
Burgess:
Hello, Henry.
H.M.Jr:
Hello.
B:
The story is just the same, there's no change.
H.M.Jr:
Now listen if you tell me you still want a two and
a half or reopen that old one, the wire will burn.
B:
I - I thought you'd say that.
H.M.Jr:
What?
B:
I thought you'd say that, and I decided not to
mention it.
H.M.Jr:
Well - I'm doing it for you.
B:
That's the stuff.
H.M.Jr:
Well, I think it's going to be a great success.
B:
So do I.
H.M.Jr:
And you know how they worked out this interest
business?
B:
No.
H.M.Jr:
Well -
B:
Oh I think so, Dan talked to me yesterday.
H.M.Jr:
We give them $3.42 cash on every thousand dollar
bond.
B:
Yes. Yes. That is if they convert into the note.
H.M.Jr:
That's right.
B:
Yes.
Uclassifie
241
- 2 -
H.M.Jr:
And I'll say again, I'll mention again because this
is the only chance that the September fellow has to
convert it.
B:
Yes, that's right. Yes. Well, God bless you, I
think it's all right.
H.M.Jr:
Well, I think so, and it was very difficult this
time.
B:
Yes, it was.
H.M.Jr:
I mean I don't know why, but the thing didn't seem
to clear up -
in
Well, we jumped out of the ordinary track, you see?
B.W.Jr:
Yes. I think it's all right.
3:
And I think we're right to do it.
9.1.Jr:
Righto. Thank you very much for all the help.
D:
All right, Henry.
T.M.Jr:
Goodbye.
B:
Goodbye.
Regraded Uclassifie
242
June 6, 1938.
9:16 a. m.
H.M.Jr:
Hello.
Operator:
It will take a few minutes to get Dr. Burgess to
the telephone.
H.M.Jr:
All right.
H.M.Jr:
Hello.
Operator:
Burgess.
Go ahead.
H.M.Jr:
Hello.
Burgess:
Hello, sir.
H.M.Jr:
Good morning.
B:
Well they quoted a hundred and two six eighths.
H.M.Jr:
Which?
B:
The rights.
H.M.Jr:
I see.
B:
That means the bonds rose over a hundred and two at
the first shot.
H.M.Jr:
Well that's pretty good, isn't it?
B:
That's pretty good, yes. It's almost too good.
H.M.Jr:
Well, we've got a couple of days to go.
B:
Yes. Yes, I don't think it will stay there.
H.M.Jr:
How about the notes?
B:
Oh well, they wouldn't get any conversion of the notes
at that rate.
H.M.Jr:
You wouldn't.
B:
No, all bonds.
H.M.Jr:
Uhhuh.
B:
All bonds.
H.M.Jr:
Uhhuh.
243
- 2 -
B:
Except I've got a little contribution, you know?
H.M.Jr:
Yes.
B:
Oh, that isn't quite true, of course there would be
some who would convert at those rates, but I think
that - I think that'll change somewhat.
H.M.Jr:
I was just thinking about those rights that the
Federal Deposit Insurance have.
B:
Yes.
11.4.Jr:
I think that they really ought to go into the five
year rather than the long. I mean - don't you
think so?
B:
Well, I don't know what they've got - they
B.V.Jr:
Well, they don't have much short stuff.
B:
Yes. They ought to have liquid stuff - a reasonable
amount of liquid stuff.
H.M.Jr:
Yes.
B:
I'll look over their list, I've got it somewhere.
B.M.Jr:
Well, you might - just like to get your reaction.
6:
I don't think this is a very good bond for them,
they ought to - they've got to be in a position
to cough up money at any time.
R.D.Jr:
That's the point.
B:
Yes.
P.N.Jr:
My inclination was to put it all into the five year.
8:
Yes, I would think that was wise.
H.J.Jr:
Yes. I don't know how they -
F:
Sell their rights and buy something else, but I
don't think they ought to do that.
H.M.Jr:
oh, no.
B:
Beeause -
Regraded Uclassifie
244
- 3 -
H.M.Jr:
Oh, no.
B:
Our problem is going to be that the other stuff
that these people would normally convert into is
all going up.
R.Y.Jr:
I see.
B:
The intermediate bonds, the notes and so on.
H.M.Jr:
Well, of course, I don't feel so badly about that
because they've been our trouble.
B:
Yes, yes.
H.M.Jr:
I mean they've been more - they've been the weak
ones when we've had any trouble.
in
Yes. Yes.
S.M.Jr:
But we'll se it go now.
B:
Yes. Oh, I think this picture will change several
times in the course of the next couple of days.
H.M.Jr:
Well normally we'd close Wednesday night, wouldn't
we?
B:
I think that's the time to do it.
H.M.Jr:
Yes.
is
Give them three days
H.M.Jr:
Right.
in
You want the little banks to have
plenty of time.
H.M.Jr:
That's Right.
B:
Yes.
H.M.Jr:
Thank you Randolph.
B:
I think that you might announce tomorrow that you
were closing on - tomorrow morning - closing Wednesday
night.
245
- 4 -
H.M.Jr:
Well, whatever I do, I'll do it at my press
conference this afternoon.
B:
Yes, well that would be the time to do it.
H.M.Jr:
Or tomorrow morning.
in
Yes.
H.M.Jr:
All right.
B:
Very good.
H.M.Jr:
Thank you.
246
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Press Service
Monday, June 6, 1938.
No. 13-51
6/4/38.
Socretary of the Treasury Morgenthau announced today the offering,
through the Foderal Reservo Banks, of 20-25 year 2-3/4 percent Treasury
bonds of 1958-63, and of 5 year 1-1/8 percent Treasury notes of Series
A-1943, both in exchange for 2-7/8 percent Treasury notes of Series B-1938,
caturing June 15, 1938, or 2-1/2 percent Treasury notes of Series D-1938,
caturing September 15, 1938. Exchanges will be nade par for par, and the
offering of the new bonds and of the new notes will be limited to the amount
of caturing notos of either series tondored and accepted in exchange therefor.
Onsh subscriptions will not be received.
The Treasury bonds of 1958-63 now offered only in exchange for Treasury
notes caturing June 15 and Septomber 15, 1938, will be dated June 15, 1938, and
will bear interest from that date at the rate of 2-3/4 percent per annum pay-
able seniannually. They will naturo June 15, 1963, but may be redocued at the
option of the United States on and after Juno 15, 1958. The bonds will be
issued in two forms: bearer bonds with intorost coupons attached, and bonds
registered as to both principal and interost: both forms will be issued in
the denoninations of $50, $100, $500, $1,000, $5,000. $10,000 and $100,000.
The Troasury notes of Sorios A-1943, also now offered only in exchange
for Treasury notes naturing June 15 and Septomber 15, 1938, will be dated June
15, 1938, and will bear interest from that date at the rate of 1-1/8 percent
Dor annun payable seniannually. They will nature June 15, 1943, and will not
Regraded Uclassit
- 2 -
247
be subject to call for redemption before that date. The notes will be issued
only in bearer foun with coupons attached, in the donominations of $100. $500,
$1,000, $5,000. $10,000 and $100,000.
The Treasury bonds and the Treasury notes will be accorded the SPDB
exemptions from taxation as are accorded other issues of Treasury bonds and
Treasury notes, respectively, now outstanding. These provisions are moci-
fically set forth in the official circulars issued today.
Subscriptions will be roceived at the Federal Reserve Banks and branches,
and at the Treasury Department, Washington, and should be accompanied by a like
face anount of eithor 2-7/8 percent Treasury notes of Series B-1938, naturing
June 15, 1938, with final coupon due on June 15 detached, or 2-1/2 percent
Treasury notes of Serios D-1938, naturing September 15, 1938, with final coupon
due Soptember 15 attached. The notes of both series will be accepted at par.
If notos of Series D-1938 are tendered for Treasury bonds, accrued interest
OR such notes from March 15 to June 15, 1938 will be paid following their
acceptance; if such notes are tenderod for Treasury notes interest on the
surrendored notes will bo credited from March 15 to September 15, 1938, and
interest will be charged on the new notes from June 15. to September 15, 1938,
end the difference, about $9.67 por $1,000 will be paid following acceptance
of the notes.
The right is reserved to close the books as to any or all subscriptions
at any time without notice, and, subject to the reservations set forth in the
official circulars, all subscriptions will be allotted in full.
The amount of Treasury notes of Sories B-1938 caturing on June 15, 1938,
is $618,056,800. and of Scries D-1938 naturing on September 15, 1938, 18
$596,416,100. Any of those notes may be exchanged for the Treasury bonds or
the Treasury notes, and any maturing notos not 80 exchanged at this time will
be paid in cash whon they caturo.
248
- 3 -
Special Treasury bills aggregating $250,306,000, which nature innedi-
ately after June 15, and about $190,000,000 interost on tho public debt,
which becones due on Juno 15, will be paid from the Treasury's cash balance.
The texts of the official circulars follow:
249
UNITED STATES OF AMERICA
2-3/4 PERCENT TREASURY BONDS OF 1958-63
Dated and bearing interest from June 15, 1938
Due June 15, 1963
REDEEMABLE AT THE OPTION OF THE UNITED STATES AT PAR AND ACCRUED INTEREST ON AND
AFTER JUNE 15, 1958
Interest payable June 15 and December 15
1938
TREASURY DEPARTMENT,
Department Circular No. 584
Office of the Secretary,
Washington, June 6, 1938.
Public Debt Service
I. OFFERING OF BONDS
1, The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, approved September 24, 1917, as amonded, invitos subscriptions,
at par, from the people of the United States for 2-3/4 percent bonds of the
United States, dosignated Treasury Bonds of 1958-63, in payment of which only
Treasury Notos of Sories B-1938, maturing Juno 15, 1938, or Treasury Notos of
Sorios D-1938, naturing Soptember 15, 1938, may be tendered. The emount of the
offoring under this circular will be limited to the amount of Treasury Notes of
Serios B-1938 and of Sories D-1938 tendored and accepted.
II. DESCRIPTION OF BONDS
1. The bonds will be dated June 15, 1938, and will bear interest from
that date at the rate of 2-3/4 percent por annum, payable semiannually on December
15, 1938, and theroafter on June 15 and Docember 15 in each year until the prin-
cipal amount becomes payable. They will mature June 15, 1963, but may be redoemed
at the option of the United States on and after June 15, 1958, in whole or in
part, at par and accrued interost, on any interest day or days, on 4 months'
notice of redemption given in such manner as the Secrotary of the Treasury shall
proscribe. In CLSO of partial redemption the bonds to be rodecmed will be
Regraded Uclassified
250
- 2
determined by such method as nay be prescribed by the Secretary of the Treasury.
From the date of redemption designated in any such notice, interest on the
bonds called for redemption shall ceaso.
2. The bonds shall be exempt, both as to principal and interest, from
all taxation now or hereafter imposed by the United States, any State, or any
of the possessions of the United States, or by any local taxing authority,
except (n) estato or inheritance taxes, or gift taxes, and (b) graduated addi-
tional income taxos, commonly known as surtaxes, and excess-profite and war-
profits taxos, now or herenfter imposed by the United States, upon the income
or profits of individuals, partnerships, associations, or corporations. The
interest on an anount of bonds authorized by the Second Liberty Bond Act, ap-
proved September 24, 1917, as amended, the principal of which doos not exceed
in the aggregate $5,000, owned by any individual, partnership, association, or
corporation, shall be exempt from the taxes provided for in clause (b) above.
3. The bonds will be acceptable to secure doposits of public moneys,
but will not bear the circulation privilege and will not be entitled to any
privilego of conversion.
4. Boaror bonds with interest coupons attached. and bonds registered as
to principal and interest, will be issued in denoninations of $50, $100. $500,
$1,000, $5,000, $10,000 and $100,000. Provision will be nade for the interchange
of bonds of different denominations and of coupon and registered bonds, and for
the transfer of registered bonds, under rules and regulations prescribed by the
Secretary of the Treasury.
5. The bonds will be subject to the general regulations of the Treasury
Department. now or hereafter prescribed, governing Unitod States bonds.
Regraded Uclassifi
- 3 -
251
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Rescrve banks and
tranches and at the Treasury Department, Washington. Banking institutions
renerally my submit subscriptions for account of customers, but only the
Federal Reservo banks and the Treasury Department are authorized to net as
official agoncies. The Secretary of the Treasury resorves the right to close
the bocks AS to any or all subscriptions or classos of subscriptions at any
time without notice.
2. The Secretary of the Treasury reserves the right to reject any sub-
scription, in whole or in part, to allot loss than the amount of bonds applied
for, to nake allotments in full upon applications for snaller amounts and to
riake reduced allotments upon, or to reject, applications for larger amounts,
or to adopt any or all of anid nethods or such other methods of allotment and
classification of allotments as shall be deened by his to be in the public
interest; and his action in any or all of these respects shall be final.
Subject to those reservations, all subscriptions will be allotted in full.
Allotment notices will be sont out promptly upon allotment.
IV. PAYMENT
1. Payment at par for bonds allotted hereunder must be made or completed
on or before June 15, 1938, or on later allotment, and may be made only in
Treasury Notes of Series B-1938, maturing June 15, 1938, or in Treasury Notes
of Series D-1938, maturing September 15, 1938, which will be accepted at par,
and should accoupany the subscription. In the case of Treasury Notes of Sories
D-1938 tonderod in payment, coupons dated Septombor 15, 1938, must be attached
to the notos when surrenderod, and accrued interest from March 15, 1938, to
June 15, 1938, ($6.25 per $1,000), will be paid following acceptance of the
notos.
Regraded Uclassified
252
- 4 -
V. GENERAL PROVISIONS
1. As fiscal agents of the Unitod States, Foderal Reserve banks are
authorized and requested to receive subscriptions, to make allotments on the
basis and up to the amounts indicated by the Secretary of the Treasury to the
Fodoral Reserve banks of the respective districts, to issue allotmont notices,
to receive payment for bonds allotted, to make delivery of bonds on full-paid
subscriptions allottod, and they may issuo interin receipts pending delivery
of the definitivo bonds.
2. The Secretary of the Treasury may at any time, or from timo to time,
prescribe supplemental or amendatory rules and regulations governing the offor-
ing. which will be communicated promptly to the Federal Reserve banks.
HENRY MORGENTHAU, JR.
Socretary of the Treasury.
Regraded Uclassifie
252-A
UNITED STATES OF AMERICA
1-1/8 PERCENT TREASURY NOTES OF SERIES A-1943
Dated and bearing interest from June 15, 1938
Due June 15, 1943
Interest payable June 15 and December 15
1938
TREASURY DEPARTMENT,
Department Circular No. 585
Office of the Secretary,
Washington, June 6, 1938.
-
Public Dobt Service
I. OFFERING OF NOTES
1. The Secretary of the Treasury, pursuant to the authority of the
Second Liberty Bond Act, approved September 24, 1917, as amended, invites sub-
scriptions, at par, from the people of the United States for 1-1/8 percent notes
of the United States, designated Treasury Notes of Series A-1943, in payment of
which only Treasury Notes of Series P-1938, maturing June 15, 1938, or Treasury
Notes of Series D-1938, maturing September 15, 1938, may be tendered. The
amount of the offering under this circular will be limited to the amount of
Treasury Notes of Series 3-1938 and of Series D-1938 tendered and accepted.
II. DESCRIPTION OF NOTES
1. The notes will be dated June 15, 1938, and will bear interest from
that date at the rate of 1-1/8 porcent per annum, payable semiannually on
December 15, 1938, and thoreafter on June 15 and December 15 in each year until
the principal amount becomes payable. They will mature June 15, 1943, and will
not be subject to call for redemption prior to maturity.
2. The notos shall be exempt, both AB to principal and interest, from
all taxation (except estate or inhoritance taxes, or gift taxes) now or here-
after imposed by the United States, any State, or any of the possessions of the
United States, or by any local taxing authority.
Regraded Uclassified
- 2 -
253
3. The notes will be accepted at par during such time and under such
rules and regulations as shall be prescribed or approved by the Secretary of the
Treasury in payment of income and profits taxes payable at the maturity of the
notos.
4. The notes will be acceptable to secure deposits of public moneys,
but will not bear the circulation privilege.
5. Bearer notes with intorest coupons attached will be issued in denomin-
ations of $100, $500, $1,000. $5,000, $10,000 and $100,000. The notes will not
be issued in registered form.
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve banks and
branches and at the Treasury Department, Washington. Banking institutions
generally may submit subscriptions for account of customers, but only the
Federal Reserve banks and the Treasury Department are authorized to act as
official agencies. The Secretary of the Treasury reserves the right to close
the books as to any or all subscriptions or classes of subscriptions at any time
without notice,
2. The Secretary of the Treasury reserves the right to reject any sub-
scription, in whole or in part, to allot less than the amount of notes applied
for, to make allotments in full upon applications for smaller amounts and to
make reduced allotments upon, or to reject, applications for larger amounts, or
to adopt any or all of said methods or such other methods of allotment and
classification of allotments as shall be deemed by him to be in the public
interest; and his action in any or all of these respects shall be final. Sub-
ject to these reservations, all subscriptions will be allotted in full. Allot-
most notices will be gont out promptly upon allotment.
Regraded
254
- 3 -
IV, PAYMENT
1. Payment at par for notos allotted herounder must be nade or cor-
pletod on or before June 15, 1938, or on later allotment, and may be cade
only in Treasury Notes of Serios B-1938, naturing Juno 15, 1938, or in
Trensury Notos of Sorios D-1938, naturing Soptember 15, 1938, which will to
accepted at par. end should accompany the subscription. In the caso of
Trensury Notos of Sories D-1938 tendered in payment, coupons dated September
15, 1938, cust be attached to the notes when surrendored. Interest from
March 15, 1938. to September 15, 1938, on the naturing notes will be credited
to subscribers, and interest from June 15, 1938 to September 15, 1938 on the
new notos will be charged to subscribers. The difference( $9,672131 per $1,000)
will be paid following acceptance of the notes.
V. GENERAL PROVISIONS
1. As fiscal agonts of the United States, Federal Reserve banks are
authorized and requested to receive subscriptions, to nako allotments on the
bosis and up to the amounts indicated by the Secretary of the Treasury to the
Federal Reserve banks of the respective districts, to issue allotmont notices,
to receive payment for notos allotted, to make delivery of notes on full-paid
subscriptions allotted, and they tay iseuo interin receipts pending delivery
of the definitive notes.
2. The Secretary of the Trensury nay at any tine, or from time to tino,
proscribe supplemental or amendatory rules and regulations governing the offor-
ing, which will ba communicated promptly to the Federal Reserve banks.
HENRY MORGENTHAU. JR.,
Socretary of the Treasury.
Regraded Uclassified
255
GROUP MEETING
June 6, 1938.
9:30 a.m.
Present:
Mr. Magill
Mr. Taylor
Mr. Oliphant
Mr. Gaston
Mr. daas
Ar. Lochhead
Mr. Bell
Tr. White
Ar. McReynolds
Mrs Klotz
H.d.Jr:
Well now, in that memorandum which I sent in to
you (Magill), the President definitely said we
should get in touch with Justice, so as long as
you're here I wish you and Herman Oliphant would
put your heads together and carry that ball for me
today. Will you please?
Oliphant:
What's that?
Magill:
On this Port Authority.
S.M.Jr:
But the President definitely says we should get in
touch. I don't want anybody subsequently to say,
"Well, if the Department of Justice had only known,
so-and-so il
Vagill:
"It is a matter, I think, of sufficient importance
to warrant a conference between the General Counsel
of the Treasury and the Attorney General and the
Solicitor General." Doesn't say anything about me.
H.W.Jr:
Well, will you - will the two of you handle it?
Ingill:
AS + said to you in the memorandum, the immediate
problem is purely our own, as to what the Commissioner
of Internal Revenue wants to do. But I presume we can
talk to the Attorney General about it.
8.2.Jr:
Anything else?
Logill:
No, I - the only other thing is what I have already
said nere. I think after talking to Herman about it
E good deal, probably it is undesirable to issue
any statement on the situation at all. I think the
situation is quieting down and that newspaper comment
is of such a character ES to reassure these state
employees, if they need any reassurance. Hence, I'd
Regraded
258
-2-
be in favor of saying nothing, following our usual
custom.
H.2.Jr:
Well - and inasmuch as you're here, will you let
Hanes know you're here and have another meeting with
him before you go?
Magill:
Very glad to.
H.M.Jr:
Herman?
Oliphant:
Nothing. I want B little time this morning to go
over tnat suggestion of yours - Bernie told me
about it - on silver.
H.M.Jr:
Yes, I'm very enthusiastic about that suggestion.
Oliphant:
Are you?
H.d.Jr:
on yes. I had the Spanish Ambassador at the house
last night, and Mr. Stimson is most friendly and
mas been head of the thing, and I think that it
would be a grand thing, and it would be good for
so many reasons. The thought - we can suggest
attorneys to the Federal Reserve who they should
have to defend us in this matter, and Oliphant and
I were bota thinking - I making the suggestion we
take Mr. Stimson, former Secretary of State.
And dià you know that Judge Pecora was the head of
the delegation of the Lawyers Guild that came down
here to see the President to get him to lift the
embargo on Spain?
Oliphant:
No. I knew he was head of the Guild.
H.V.Jr:
That he headed the delegation to come down. And
this case is coming before him.
But I'm very much for it, and if you (0liphant)
would - and the possibility of getting Mr. Stimson
to handle it himself.
Uliphant:
Well, if it checks out after I talk it over with
Bernie, I have your consent to Just call Logan and
tell him.
H.M.Jr:
Yes.
Regraded
257
-3-
Oliphant:
Yes, because they're kind of pressing us.
H.M.Jr:
I think you should. If I don't hear from you
between now and one o'clock, I'll take it for
granted that you're going to.
Oliphant:
And I think I'll let Logan contact him.
H.M.Jr:
Excuse me?
Oliphant:
I think I'll let Logan contact him.
H.M.Jr:
Yes. They pay him, don't they?
Oliphant:
Yes, but we reversed it.
H.M.Jr:
Don't you like it yourself?
Oliphant:
Yes, I do.
H.M.Jr:
I think it's a natural.
Anything else?
Oliphant:
No.
H.M.Jr:
I'd like you to sit in on this meeting at 11.
Oliphant:
what's that?
H.M.Jr:
Welles is going to talk about these Export-Import
loans to China, how we're going to save Haiti, so
forth and so on. Herman?
Oliphant:
All right, be glad to.
H.M.Jr:
Herbert?
Gaston:
I haven't anything. I suppose we'll have the usual
press conference.
H.M.Jr:
Can't hear you.
Gaston:
Have the press conference at three?
H.M.Jr:
Please.
Gaston:
I don't know of anything else.
258
-4-
H.M.Jr:
George?
(Haas brings up black book)
George, do you read the New York Times - the telegraph
reports from the Federal Reserve districts on Sunday?
Haas:
Uh-huh.
H.M.Jr:
Vid you read them Sunday?
Haas:
Yes, sir.
H.M.Jr:
Well, the headlines and what's in the body of the
thing are quite different, particularly the
Minnesota district.
Haas:
Uh-huh. I didn't ...
H.M.Jr:
And there are several districts there which for the
first time, you see, would be slightly encouraging.
Haas:
Uh-huh.
H.M.Jr:
Take a look, for instance, at the Minnesota district,
and then - I think it's the Kansas City. In other
words, it's the rural districts.
Haas:
Showing a little improvement.
I've got a few other minor things.
H.M.Jr:
And Herman - what time is that, Mrs. Klotz, Wednesday,
they're coming in - Commodity Credit?
Klotz:
10:30.
H.M.Jr:
Commodity Credit is coming in at 10:30, and would
you take that and let me know before then what my
legal responsibilities are. That's Wallace. They're
all fussing about who's to be directors and all that
sort of thing. And will you be here (to Bell)?
Bell:
When is that?
H.M.Jr:
10:30 Wednesday. Wallace and Jesse Jones and Farm
Credit. I don't quite get what the political
Regraded
259
-5-
maneuvering is about. But my legal responsibility,
Herman.
(To Mrs. Klotz) Take that/to lunch with the
President.
And Bell, you've written something to the President
turning something down. You say, 114 strongly recom-
mend that the Secretary's proposal with respect to
this commodity not be approved." Turned me down?
Bell:
Turned you down.
B.M.Jr:
I gathered SO.
Bell:
George told me about it Saturday.
Haas:
Tapp called me about that.
Bell:
Didn't know anything about what had gone on before.
Question of using Section 32 money to buy cotton.
I took the stand that cotton's had enough subsidy.
H.M.Jr:
Well ...
Bell:
It's a matter that I understand from George you've
been working on with Tapp and George's crowd. I
knew nothing about it, and George told me Saturday.
Heas:
This is for mattresses, you know.
S.M.Jr:
Yes, making mattresses. Well, you've - have you (Haas)
told Bell what we're doing or trying to do?
Hass:
Uh-huh, very briefly I told him in the hall.
Bell:
I wonder if this shouldn't go to George. It says
on here, "For recommendation. For you and the
Secretary of Agriculture."
H.M.Jr:
Well, after you know what we're trying to do - well,
why don't you and George work it out together?
Haas:
Puts & little different aspect on it. I think
that ....
H.M.Jr:
Please.
280
-6-
Mac, see if you can handle this in & very diplo-
matic way for me.
And here's a Deputy Collector in Delaware who seems
to have all sorts of - been fussing. I don't know
anything about it.
Here is this Szymezak report. Have you (Taylor)
ever read that?
Taylor:
Certainly.
B.B.Jr:
What?
Isylor:
Certainly.
H.M.Jr:
What snall I do about it?
Taylor:
I think you ought to read it.
H.M.Jr:
I mean after I read it, what shall I do with it?
Taylor:
Decide what action you want to take.
H.M.Jr:
Do you still think it holds true, the recommendation?
Taylor:
Sure.
H.M.Jr:
Philippine gold - is this still pertinent, this
thing? I worked on it Saturday and Sunday.
Oliphant:
I suppose there is nothing more to be done about
it than just - let me see how this paragraph
He asked you to speak to him about it.
H.M.Jr:
Yes.
Olighant:
This merely tells where the matter stands.
You don't know what's on the President's mind about
it.
H.M.Jr:
No. Could you fix it up in a letter for me? I don't
get a chance to talk about these things. Say, "This
is - you wrote me 8 memorandum and this is the status."
Could I have 24-hour service on it?
Oliphant:
You can have it this afternoon.
Regraded Uclassified
261
-7-
H.M.Jr:
That's too soon.
Jliphant:
I'll put it in such form that if he has any further
instructions you'll hear from him, and if he doesn't
you will not hear from him.
H.M.Jr:
Where was I? George?
Haus:
Yes, sir. In the book, on the Federal Reserve
retail figures, the first sheet, you know, is the
total; then there is a breakdown of these districts
which show that.
The only other thing I have - I have three memoranda
that you have a notation on you'd like to talk to me
about some time.
H.A.Jr:
Yes. Well, I'm 85 bad as the rest of the people.
You'll have to keep after me,
Ha(s:
O.K.
I'll have E business statement before lunch.
H.1.Jr:
Wayne?
Taylor:
I've got about - you once told me to wait until I had
& hundred letters on the Comptroller's office, and so
on. I've got about five or six hundred, and I don't
know what to do with them. They're cluttering up the
room.
H.V.Jr:
I'd send for Marshall Diggs and ask him, what does
the campaign mean, what does he suggest you do with
them? That's what I'd do. I'd send
McR:
They've all been acknowledged.
H.M.Jr:
I'd call up and say, "What's this all about?"
Taylor:
"Well, it's spontaneous effort which has arisen."
I mean that's - what's he going to say? "Well,
apparently a lot of friends
"
8.4.Jr:
Well, look now, Wayne, don't make me handle every
single thing. I mean I'd send for him.
Regraded Uclassified
262
-3-
Taylor:
1 don't see any occasion for sending for him.
H.M.Jr:
Then what you bringing it up for?
Taylor:
You told me to wait until I had a hundred
....
H.M.Jr:
Give it to me, and I'll handle it. Bring it
over, and I'll send for Marshall.
Taylor:
I don't think there is any necessity for Marshall
H.N.Jr:
Will you (Klotz) see that I see Marshall Diggs, please.
I mean anything that has a little difficulty, why -
so I might as well handle it.
Taylor:
I don't think there is any difficulty about it.
H.A.Jr:
Why don't you see him?
Taylor;
I'm simply reporting to you, as you suggested.
H.4.Jr;
I knew there was 150, but the thing is, here's this
fellow; he works on this thing, and he's supposed to
be part of O'Monnor's outfit. I'll see him and I'll
ask him what he means by it. I'm willing to see him.
mylor:
I'm perfectly willing to see him.
B.N.Jr:
No, I'll see him. I'll see him.
Anything else?
and
No.
Lochnead:
Just before I came in, the second secretary of the
Spanish Embassy called up and said he has a letter
from the Spanish Ambassador to deliver this morning,
presumably an acceptance of the second sale. He's
coming down at helf-past ten. And I've asked
Bernstein to be there.
B.l.Jr:
Let Mr. Taylor see it, too.
Lochhead:
All right, we'll meet in your (Taylor) office.
Phylor:
"het is it?
Regraded
263
-9-
Lochhead:
A letter from the Spanish. Meet in your office at
10:30.
Oliphant:
I might report to you on this second sale. As it
would be set up, be in very good shape. Supreme
Court case squarely in point. In this other case
we had a little difficulty, but in the second case
it will be a very clear sale.
H.M.Jr:
You might ask him when he comes down when he thinks
that that would leave, and when we'd get it.
White:
Did you notice this morning's editorial in the Times
about the financing?
H.M.Jr:
Yes.
White:
An error?
H.M.Jr:
An error?
White:
Well, I thought it was. Take up the September
financing with cash? Well, if you saw it ...
H.M.Jr:
No - well, I didn't read it - I didn't read it
carefully.
Bell:
It didn't say - take up in cash those that are not
turned in.
White:
No, maybe I misunderstood it.
Oliphant:
That's the way I read it.
White:
Did you notice the statement about thirty-one -
forty-one dollars in gold yesterday or the day
before, I've forgotten which, in the Times?
Lochhead:
You mean Bell's article on
....
H.M.Jr:
Bell.
White:
Yes.
H.M.Jr:
Well, Herbert, you check it, will you?
Gaston:
Yes, I'll check it.
Regraded Uclassified
264
-10-
united
That's all. Here's a brief memo on Haiti. You
probably have more information than 1 have. That's
all we have.
Well, you and Taylor and Haas will be here at 11.
Bell:
I haven't anything.
della
No, nothing.
This memorandum from the President on this Deputy
Collector - of course, that's just a - they changed
the Collector there recently.
E.H.Jrs
Give me D little memo on it, explain it.
4th:
That would be the occasion for changing it.
You want a memorandum?
H.D.Jr:
Yes.
You people might be interested to know that the issue
opened up extremely well. It's selling at - rights
at 1024 - bonds - new bonds - 1021.
I'd just like to say this, that there's been an swful
lot of gossip in the papers about the Treasury last
week, and - well, if that sort of thing continues,
we'd all be sort of looking at each other queerly
and looking under the desk and all that sort of
thing, and we've never had it here, and I can't
work in that kind of an atmosphere. I don't want
to, and I won't work in that kind of an atmosphere -
and all that silly business about left-wingers and
right-wingers and conservatives and all that sort
of stuff. And I've had 8 talk with Herbert; I've
done all I could to - I think, to see that it
doesn't happen again. But I think we've all got
to be terribly careful when we do see newspapermen
to confine our conversation to facts and not gossip.
And those men couldn't get that stuff unless some of
us were a little careless. And I think it hurts and,
as I say, it makes everybody suspicious of everybody
else. I think if everybody would be a little bit
more careful in the future, why, it's apt not to
happen again.
That's all, I guess.
Regraded Uclassified
265
June 6, 1938.
10:30 A. M.
Present:
Mr. Burlew
Mr. Bell
Mr. McReynolds
I asked Burlew whether I could be of any help
in getting his projects started and he said
his main trouble is he has been unable, for
a week or ten days, to get the President to
approve any of their two thousand projects,
which. they have. ready, so I asked him to come
over to see me, $ see what I could do to help.
I moved a little faster, Burlew, on the strength
of what you told me. I told McIntyre the
President ought to see you, Bell, and myself.
Burlee:
Yes sir. I just got a call outside.
And then he said he had an appointment with
Aubrey Williams and somebody else at two, and
so I said, "I don't know what the President is
doing at two, but I think this is more important."
Barlow:
Williams is coming in on it because the President's
idea is we go to W. P. A. and take over some of
their projects.
Now I asked Mr. Burlew to list me some of his
troubles, as far as getting started is concerned.
Inlin
First, here is this book. It is now up to 2,160
projects, and amounts to a total of two hundred
sixty-nine million dollars ($269,000,000) in
grants, but we have to take out of that about
fifty-six power companies, which we know are
definitely competing, or which we suspect are,
and we are rerunning the book for that reason.
Keene, by the way, one of Mr. Bell's assistants,
thinks this book ought to be gone over and broken
down and certain projects taken out for W. P. A.
We oppose that very strongly because this is a
list the Congressmen have been fighting over for
two and one half years, and the municipalities
don't went W. P. A., and it will delay the whole
Regraded Uclassified
- 2 -
266
prodedure, and we are quite willing, and anxious,
to give W. P. A. a share in the new projects
which they could do to better advantage, but
this list, we think, ought to go through with
our eyes closed because it has been reported
to Congress at two sessions, and the basis of
this legislation is mainly on these projects,
because they are things the Congressmen wanted,
and the President wouldn't give them to them
before. And the President is pretty well con-
vinced to that too, because when I told him
two weeks ago that the Budget wanted to break
these down into classes, he said, "I don't
want that; this is all we need right here -
the type of projects."
May I just see what it looks like.
3810:
Yes.
Too bad this could not be ready when we go over
there, with the power projects out, so if he
decides "All right with me," we can say, "Mr.
President, will you sign it."
Hirles:
All right, let's do it this way: Let's get him
to leave it up to us, after inquiry, to eliminate
such power projects as are competing. He could
trust us to do that. That was one thought I
had on running the book over, but he could
approve this with the understanding that we
would eliminate any questionable power projects.
Then, if he decides it, he does it on our
information, so it's the same thing in the end.
Could you do it this way? Supposing he signed
this - couldn't you substitute the other book
on Wednesday, but get this one signed today.
We wouldn't have to substitute the other book;
we would not announce these allotments, for
example, where there was any question of power
projects in competition.
Sort of puts him in/false a light, that he did
approve it.
Yell;
Could he write "Approved, except power projects.
Submit those back on Wednesday?"
Regraded Uclassified
- 3 -
267
H.W.Jr:
Why not put a place for him to sign?
Burlew:
Here it is, on the back page. He just says,
"0. K., F. D. R."
H.M.Jr:
Type it there in writing, something like this:
"For your information power projects will be
submitted later." I would put it something like
this: "For your approval, but wish to note that
we will not go ahead on the power projects."
Burlew:
We'll, eliminate power projects and submit a new
list which are not competing.
Bell:
May I make a suggestion?
H.M.Jr:
That's what you're here for.
Bell:
I would say, "Approved except all power projects
which will be submitted at a later date."
Burlew:
All right. We can do that very quickly.
H.M.Jr:
And I would put it in there and I would say the
chances of getting it signed are ninety-nine
per cent.
Burlew:
I do too. After Cabinet was over I was leaving
the room and he called me back, and said, "Now
how about this list?" "Well,' I said, "we're
trying to get this information from Williams,
and, I said, "we have not gotten it yet."
There is another thing we will have to talk
him out of. He set up a formula with me, after
Cabinet meeting two weeks ago that we should
take the percentage of unemployed and percentage
of population and then strike a mean figure
between the two to determine how much a state
should have on, say a billion dollar program.
Now that is a very complicated thing. Williams
has not been able to give us any figures; we
have tried, repeatedly, and that is all right
if it is workable, for the new program, but
this stuff here is signed, sealed, and delivered,
it seems to us.
H.M.Jr:
Never mind how I felt about this thing before It
went up on the Hill. It's law now, or will be,
and I want to do what I can to help.
Regraded Uclassified
4 -
268
Burlow:
You certainly were grand at Cabinet meeting.
You made more progress, as far as I was concerned,
than anything that has happened.
You know what Bob Moses used to do in New York; he
knew a thing like this was coming through and he
would have those projects, before the bill was
signed, and the day the bill was signed he had
the contract ready for signature, and he would
let the bids for roads and public parks the
day that the Governor would sign it. Now I
don't see why you fellows couldn't do a little
fudging, if necessary, and tell the city of New
York, for example, "Now 60 ahead and get these
bids out."
Date:
That's right.
EAR:
And the city of Philadelphia, and the city of
Chicago, "I'll tell you verbally that we've
got this approval, and now get your contracts
out." I don't know that it's going to go through
this week, but if the President signs this I
would get on the telephone and tell these cities
to 20 shead.
We will. We will.
M.M.Jr:
But I would tell LaGuardia, "These things are
approved; now go ahead and get out your bids."
That's right, and that could be done. We
don't have any more bond contracts; we now
have offer and acceptance, and as soon as this
list is approved we can make offers and accept-
ances.
1.1.10:
Yes, but if you fellows had people telephoning
all afternoon after this meeting you would gain
at least a week.
Subton:
Yes. We have the country divided up with
'expediters' and each fellow would take his
state.
Tr:
Let me get these figures in my mind. How much
is there, less power projects?
Regraded Uclassified
269
- 5 -
Burlew:
One hundred twenty-five million dollars ($125,000,000)
power projects, and the other is two hundred
sixty-nine million ($269,000,000).
Bell:
Leaves a hundred forty-four million ($144,000,000)
projects.
H.M.Jr:
This is the forty-five per cent?
Burlew:
Yes.
Bell:
Some of the hundred twenty-five million ($125,000,000)
would go back because they are not competing.
H.M.Jr:
Yes, but just for this afternoon, how much is
that?
McReynolds:
Over three hundred million dollars.
Burlew:
We are putting it at three hundred fourteen
million five hundred nineteen thousand dollars
($314,519,000). That's loan and grant.
Bell:
Two hundred sixty-nine millions ($269,000,000)
you want; it's almost six hundred million dollars
in projects.
H.M.Jr:
What I want to get is this: Here's six hundred
million dollars.
Bell:
That's the total. Now you're going to leave a
hundred twenty-five million of projects out,
so you get four hundred seventy-five million
($475,000,000).
Burlew:
I think it will be about that.
Bell:
And three hundred twenty million dollars
($320,000,000) in projects that will be approved
if he eliminates power.
H.M.Jr:
Is that one hundred per cent?
Burlew:
Yes.
Bell:
Yes.
Burlew:
But the power projects will run it way up.
- 6 -
270
T.M.Jr:
But you are taking over there, exclusive of any
power projects. How much will that be?
Dell:
Three hundred twenty million dollars, of which
we will put up a hundred forty-four million
dollars and they will borrow the rest.
What I want to get over to the President,
if you people give this out, and these people
begin to send out inquiries to steel mills and
other concerns, we are just a little bit better
off, and if he can follow this up with
something definite, I want just a little bit
better publicity, and the fact that you have
never done it before - and what I want to get
to the President - "here's this stuff; let's
get this thing out." You see any objection, Dan?
Bell:
No, I don't.
11.1.Jr:
These fellows, you get on the phone; and this
other thing, what I want you to do is this
Are you sure Hopkins has not completed some of
these projects?
Delen:
He may have, but that's taken care of.
1/. .7r:
Here is the front page of the Wall Street
Journal, just a little thing - a hundred twenty-
four thousand barrels of flour - another
project I have been working on. Isn't there
some way, when this stuff begins to go, that
we could say, "This is so much steel," and
begin to put a very good publicity man, that
will keep feeding these stories out?
Amter:
Oh yes, we do that.
But I mean - and then if we could start to
correlate this, maybe with Procurement, or if
we could designate one fellow as a clearing
house, just to handle this kind of stuff. The
best nan in the country wouldn't be any too good.
And get the stuff that Peoples is doing, plus
what you're doing.
Dell:
How about Mellett?
Regraded Uclassified
- 7 -
271
H.M.Jr:
Mellett is good, but Mellett is doing all this
Administration stuff over there. If Mellett is
the fellow, let him know what's happening, what
this means to steel, and so on, and let's play
up some of this news instead of taking a beating
every day. See?
Burlow:
Yes.
H. I.Jp:
Now you will have that ready at a quarter of
two. What are some of your other troubles?
You understand the spirit in which I am approach-
ing this?
suplent
I do. and I certainly appreciate it.
Mind you, this book has been to the President
three times; twice before he went away. Mind
you, the last time I took It over, the
President said, "We'll work this up on this
basis of employment and population."
H.V.Jr:
I are for it, but we haven't got the time.
Durlew:
Not with this book.
M.I.Jr:
Do it with the next one. But I am going to beg
him to 0. K. this, this afternoon, so tonight
or tomorrow your people will be on the telephone.
Deriew:
That's right. I want to say this, that we can
follow this with books repeatedly. We have
three hundred applications already in the office
being examined, new applications, so we can fol-
low this up every few days with an announcement
of new projects if he will approve them.
You asked about some of our short-cut methods.
We are getting regional directors in Thursday
of this week and we are going to speed them up.
One proposal is that we appoint inspectors for
projects when they are approved. Heretofore
we have appointed an inspector when the project
is starting to be built, but if we appoint him
immediately and put him on the job we will be
able to expedite the thing by weeks.
H.M.Jr:
Who pays for that?
Regraded Uclassified
- 8 -
272
Bulew:
P. W. A. It doesn't mean any more men; we
have to appoint the men anyway; just means they
will be on the rolls a few weeks more.
1.1.Jr:
That's fine.
Tharlew:
Here's one application. Jesse Jones has
started to try to make loans out of his
one billion and a half dollars for these
projects and we handle the grants. One spe-
cific case came up at Akron and he said definitely
he would not agree to it, but nevertheless the
applicant was all pepped up and tried to force
us to let Jesse Jones do it. I took it up with
the President and he approved it, and I let him
understand what was involved - competition
between Jesse Jones and us, but he approved
our making the loan, but the noint is if Jesse
makes the loans and we make the grant, we are
backing and filling. If it is feasible, and
all that
Now, you are going to do both loan and grants?
The Leve
Unless the applicant makes a loan privately -
only a small percentage.
But Jesse is competing with you on municipalities?
Prier:
Yes, he tries to. In this particular Akron case
he wanted to make the loan and we make the grant.
U.I.Jr:
Did you get it settled?
THE
Yes, the President understood it thoroughly.
Well, I wouldn't bring that up, because Jones
is out of town. If you have that again, let's
go on that application again.
Wil:
Is that the only case?
The
Yes, but we were afraid it would be a precedent,
but it's Federal. We think the lump sum warrant
ought to go directly to W. P. A. We work through
the Treasury just the same, but it cuts out a lot
of complication with the Comptroller if we have a
regular sum.
Regraded Uclassified
- 9 -
273
Bell;
That's the way the others were.
Burlew:
They were, but I don't think all of them.
Bell:
The only thing the President does in the Act
is approve projects, 50 the money is made to
you. I don't believe it could be any different.
Burlen:
All right. We have had conditions put on us.
For instance, we go over to the White House
with a book and the President would have some-
thing he would require, and now in the last
program that held us up very materially, and
it held us up in this book, because he hed me
take it back and have me add the time it would
take to start and complete, and all that means
delay.
Oh, that particular thing, I think, is very
important, because you fellows have a bad reputa-
tion - "Honest horse but always last."
Furlew:
Another thing we want to do is have the President
give us authority to encourage the applicant to
go ahead on his preliminary estimates and then
if bids come in and they are a little higher,
we approve if our engineering department says
it's a fair bid.
1.1.7r:
Does the President get in on this?
Burles:
He won't let us make additional allotments.
We have projects held up as much as four to six
months because the bids are four thousand
dollars over the estimate.
Up to now, one thing I would bring to his
attention that you have mentioned, is to get
this first thing signed.
Bublew:
I agree with you.
W.Tr:
I am more than willing to go back with you again
but if you don't mind, he's only allotted us
fifteen minutes.
Dell:
That's right.
T.A.Tr:
And Aubrey Williams is going to be there. I would
concentrate on getting this thing cleared.
Regraded Uclassified
- 10 -
274
Burlew:
That's right.
7.M.Jr:
Now, what I would like to do is stop here now,
because I've got this group at eleven, and I
would like, unless there is something else,
I would like to just go over and help you get
that book signed, and that stuff on Jones, I
would like to do that another day.
Burlen:
We can take it up later. I don't have to do
it now.
S.A.Jr:
But, after all, if we can get that book signed
today then I think if you have the power plants
ready Wednesday, and then have some other stuff,
I could see you again, and might ask the President
if he would let me come along the next time
and we could have another meeting in advance.
Burlew:
Following this periodically with the announcement
would have a wonderful effect.
I know you have troubles, and I also know the
President. I would just concentrate to get
this three hundred twenty-four million dollars
0. K'd.; then get your fellows started and
then if you people are coming down Thursday
we will tell the President, "Now you want to be
ready so you can tell these fellows Thursday," and
we'll try to see him Wednesday afternoon to get
another clearance. Check, Mac?
Welleyholds:
Yes, by all means.
Disley:
That's good.
One thing, in hurrying up projects, I believe
you have some Federal projects that might be
started as soon as these, and they are just as
important, and I think what the President could
do would be to give us authority to immediately
start those.
Voglan:
Those Veterans' hospitals and prisons; are they
ready?
Uell:
No, but in a day or so, because I have to work
out with Burlew, some kind of procedure.
Regraded Uclassified
275
- 11 -
H.M.Jr:
Why don't you take Burlew and go upstairs for
a couple of minutes?
Burlew:
I want you to know we appreciate this at W. P. A.,
and I'm going to cable the Secretary.
H.M.Jr:
When he comes back tell him I helped a little.
Regraded Uclassified
June 6, 1938. 276
11:32 a. m.
Randolph
Burgess:
I tell you this market changed a little bit.
We thought it would and they settled down a little
more rational basis.
H.N.Jr:
Good.
B:
The bonds are now quoted a hundred and one
twenty nine thirty one.
B. .Jr:
Yes.
B:
Thet's on a two sixty two basis.
N..Jr:
I see.
3:
There's been some selling of rights by some of the
banks who've been buying intermediates or some of
the notes - even some bids of some of the new notes,
S.d.Jr:
Yes.
B:
Now the notes are quoted nineteen twenty one -
a hundred and one nineteen twenty one.
V.I.Jr:
A hundred and one nineteen twenty one.
2:
Yes. Which is a seventy nine basis - for the
September notes that brings their basis about the
same as the bonds with the interest added. So I
think you get a little more conversion to the notes
than looked like on the first crack off this morning.
T.S.Jr:
That's all right. But -
And it looks more rational - looks as though it is
behaving better - you are much more apt to get good
buying at decent prices - the rights - than you
would at those high prices.
H.M.Jr:
You're pleased the way it's going.
Yes, I like this change a lot better than I did
the first thing this morning.
E.1.Jr:
Good.
B:
Metropolitan Life, I understand, is putting in a
Regraded Uclassified
277
- 2 -
big block for exchange.
H.M.Jr:
Good.
B:
And the Mutual Life. Some of the other Life companies
are nibbling around a bit. One saving bank bought
some of the notes.
H.M.Jr:
I see. All right.
B:
There was lots of very active trading.
H.M.Jr:
Thank you.
B:
All-right.
H.M.Jr:
Thank you.
B:
Goodbye.
Regraded Iclassifie
278
Approximately June 6, 1938
It was on this chart that the Secretary based his
rain drop story of recovery which he related to the President
about this date. (See 9:30 group meeting of June 13th when
he told the group the story. See also diary entry of June 22nd
showing where the President used the story at a press conference.)
Regraded Uclassified
INDICES OF FOREIGN AND DOMESTIC SECURITY PRICES
August 1936 = 100
Weekly
Daily
1937
(AVERAGE or and
1930
1939
1910
MARCH
SOIL
WILT
AUTY,
SEPT.
will
NOV.
DEC.
JAM.
zur
MARIT
APR.
MAY
JUNE
JULY
MAY
sus.
SEPT
IM
PER
PER
5
13
20
27
ja
17
2
0
15
R
o
F
VER
(ist
CENT
SENT
GENT
114
112
80
U.S.
U.S.
N.Y. 30 INSUSTRIAL
8
100
4.Y. 30 INDUSTRIAL
108
STOCKS
STOCKS
78
E
IDA
100
100
76
n
96
96
74
74
will
92
279
72
72
en
X
04
64
R
2
a
85
58
68
76
76
8
72
72
66
on
3
U.K.
of
60
LANDON 56 INDUSTRIAL
STOCKS
64
a
54
62
100
100
R
8
U.K.
LIONDON 56 INDUSTRIAL
96
96
R
STOCAS
78
92
92
TO
75
as
*
N
74
34
54
72
72
DD
ed
R
R
76
76
e
72
58
72
60
144
Prance
144
68
PARIS BOURSE
156
140
156
France
140
PARIS BOURSE
148
(40
136
135
140
140
(M
132
132
132
128
128
(24
124
124
124
116
116
.
116
116
Germany
100
100
QTHCR INDUSTRIAL
114
BEHLIN SORSE
(14
(WEERLY)
114
Germany
116
112
112
MA is acese
112
(WEEKLY)
112
110
(10
OTHER INDUSTRIAL
400
HEAVY INDUSTRIAL AND MINISM
100
[De
100
10%
HEAVY INDUSTRIAL AND MINING
IDA
105
106
100
I
(00
IBA
104
WAY
AUG.
SEPT.
GCTL
NOV.
use.
JAN,
i
APR.
MAY
JUNE
JULY
AUG.
REPT.
6
13
20
0
A
10
17
24
-
e
is
22
%
1937
APRIL
MAY
1938
MARCH
1933
Diffee of the Sectory of the Insury
to D
Date a - - -
COMMODITY PRICE INDEIRS IN U.S. AND U.K.
lookly
Daily
1937
CAMERAGE or user)
MAY
1938
1938
1938
VMP
-
DAY
SEPT.
NOT.
APRIL
JAN.
MAR,
MY
MAY
our
JAY
3
JUNE
FEB
PER
ID
17
24
6
B
и
R
,
12
19
26
FIR
more MODDY
CENT
CENT
DOW-JONES
CENT
REUTER, MOODY
DOW-JONES
240
50
189
a
234
78
166
-
un
76
193
51
222
74
120
60
216
72
177
59
210
70.
174
se
204
50
171
57
MODDY IDD IN U.S.
see. 31, 1931 . 100
/
10H
R
55
168
se
IN
-
165
55
(65
62
152
34
100
60
159
33
174
50
(%)
a
COMME TY FUTURES (DON-JONES)
COMMIDITY FUTURES
1924 *26 . 100
158
1924 126 - 100
56
153
51
162
54
1.50
50
EDITER'S INDICA 19 U.K.
156
SEPT. ie, 1931 - 100
52
147
49
144
MODDY'S INDEX IN V.S.
150
50
DEC. 31, 1531 . 100
48
144
40
141
47
1.38
46
138
N
46
132
44
155
45
REUTCA'S INDICA in V.S.
SEPT. 18. 1931 - 190
126
42
132
3
120
40
129
AS
114
38
126
42
108
%
123
44
192
34
120
AO
%
MAR.
MAY
JULY
y
117
M
SEPT,
NEV.
MAN
1937
MAR.
MAY
WAY
3
10
17
24
1
B
15
22
29
5
12
19
26
1938
APRIC
MAY
and
1938
the Secretary of the Transary
- of - - -
Regraded Uclassified
281 6-6-38
0 S GOVERNMENTS STRONG
nin
FOLLOWING SECRETARY MORGENTHAU-S ANNOUNCE-
MENT THAT NO NEW MONEY WOULD BE SOUGHT BY THE
U S TREASURY IN JUNE QUARTER FINANCING
OPERATION U S GOVERNMENT ISSUES PUSHED FORWARD
ON A WIDE FRONT - - OUT OF 24 ISSUES TRADED ON THE
BIG BOARD 22 MADE NEW HIGHS FOR YEAR TO DATE -
OF THESE EIGHT REPRESENT NEW ALL-TIME HIGHS AND
ONE A NEW HIGH SINCE 1930
THIS STRENGTH REFLECTS OPINION OF BUYERS
THAT WITH JUNE FINANCING HELD DOWN TO A RATHER
LIMITED AMOUNT THERE WILL BE CONTINUED DEMAND
FOR OUTSTANDING ISSUES & OPINION HAD BEEN ABOUT
EVENLY DIVIDED THAT THE TREASURY WOULD OFFER
ADDITIONAL SECURITIES FOR NEW MONEY IN THE JUNE
OPERATION AND SOME WHO WOULD OTHERWISE HAVE
BEEN BUYING TREASURIES THESE PAST FEW WEEKS HAD
BEEN HOLDING OFF
ADD U S G
0
V
ERNMENTS STRONG
IN PREVIOUS ITEM IST GRAH LAST LINE YEAR
SHOULD READ 1936
Regraded Uclassified
TREASURY DEPARTMENT
282
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Press Service
Monday, June 6, 1938.
No. 13-51
6/4/38.
Secretary of the Treasury Morgenthau announced today the offering,
through the Foderal Reserve Banks, of 20#25 year 2-3/4 percent Treasury
bonds of 1958-63, and of 5 year 1-1/8 percent Treasury notes of Serios
A-1943, both in exchange for 2-7/8 percent Treasury notes of Series B-1938,
caturing June 15, 1938, or 2-1/2 percent Treasury notes of Series D-1938,
caturing September 15, 1938. Exchanges will be made par for par, and the
offering of the now bonds and of the new notes will be limited to the amount
of caturing notos of either series tendored and accepted in exchange therefor.
Cash subscriptions will not be received.
The Trensury bonds of 1958-63 now offered only in exchange for Treasury
notes naturing June 15 and September 15, 1938, will be dated June 15, 1938, and
will bear interest from that date at the rate of 2-3/4 percent per annun pay-
able semiannually. They will naturo June 15. 1963, but may be redeemed at the
option of the United States on and after Juno 15, 1958. The bonds will be
issued in two forms: bearer bonds with interest coupons attached, and bonds
registered as to both principal and interest: both forms will be issued in
the denoninations of $50, $100, $500, $1,000. $5,000, $10,000 and $100,000.
The Troasury notes of Sorios A-1943, also now offered only in exchange
for Treasury notos naturing June 15 and Septomber 15, 1938, will be dated June
15, 1938, and will bear interest from that date at the rate of 1-1/8 percent
por annum payable seniannually. They will nature June 15, 1943, and will not
Regraded Uclassified
- 2 -
283
28.
be subject to call for redemption bofore that date. The notes will be issued
only in bearer form with coupons attached, in the donominations of $100, $500,
$1,000. $5,000, $10,000 and $100,000.
The Treasury bonds and the Treasury notes will be accorded the BADS
exemptions from taxation as are accorded other issues of Treasury bonds and
Treasury notes, respectively, now outstanding. Theso provisions are speci-
fically sot forth in the official circulars issued today.
Subscriptions will be received at the Federal Reserve Banks and branches,
and at the Treasury Department, Washington, and should be accompanied by a liko
face amount of either 2-7/8 percent Treasury notos of Series B-1938, naturing
-
June 15, 1938, with final coupon due on June 15 detached, or 2-1/2 percent
Treasury notos of Sories D-1938, naturing September 15, 1938, with final coupon
due September 15 attached. The notes of both series will be accepted at par.
If notos of Series D-1938 are tendered for Treasury bonds, accrued interest
on such notes from March 15 to June 15, 1938 will be paid following their
acceptance: if such notes are tendored for Treasury notes interest on the
surrendorod notes will be crodited from March 15 to September 15, 1938, and
interest will be charged on the new notos from June 15. to September 15, 1938,
end the difference, about $9.67 por $1,000 will be paid following accoptance
of the notes.
The right is reserved to close the books as to any or all subscriptions
at any time without notice, and, subject to the reservations set forth in the
official circulars, all subscriptions will be allotted in full.
The anount of Treasury notes of Series B-1938 naturing on June 15, 1938,
is $618,056,800. and of Sories D-1938 naturing on September 15, 1938, is
$596,416,100. Any of those notes pay be exchanged for the Treasury bonds or
the Treasury notes, and any naturing notes not 80 exchanged at this time will
be paid in cash whon they caturo.
284
- 3 -
Special Treasury bills aggregating $250,306,000. which nature innedi-
ately after June 15, and about $190,000,000 interost on the public debt,
which becones due on Juno 15, will be paid from the Treasury's cash balance.
The texts of the official circulars follow:
Regraded Uclassified
285
UNITED STATES OF AMERICA
2-3/4 PERCENT TREASURY BONDS OF 1958-63
Dated and bearing interest from June 15, 1938
Due June 15, 1963
RETEEMABLE AT THE OPTION OF THE UNITED STATES AT PAR AND ACCRUED INTEREST ON AND
AFTER JUNE 15, 1958
Interest payable June 15 and December 15
1938
treasury DEPARTMENT,
Department Circular No. 584
Office of the Secretary,
Washington, June 6, 1938.
Public Debt Service
I. OFFERING OF BONDS
1. The Secretary of the Treasury, pursuant to the authority of the Second
Liborty Bond Act, approved September 24, 1917, as amended, invitos subscriptions,
et par, from the people of the United States for 2-3/4 percent bonds of the
United States, dosignated Treasury Bonda of 1958-63, in payment of which only
Treasury Notes of Scries B-1938, maturing June 15. 1938. or Treasury Notes of
Serios D-1938, maturing Soptember 15, 1938. may be tendered. The amount of the
offoring under this circular will be limited to the amount of Treasury Notes of
Sorice B-1938 and of Scries D-1938 tendored and accepted.
II. DESCRIPTION OF BONDS
1. The bonds will be dated Juno 15, 1938, end will boar interost from
that date nt the rate of 2-3/4 percent per annum, payable semiennually on December
15, 1938, and thereafter on June 15 and December 15 in each yoar until the prin-
cipni amount bocomes payable. They will mature Juno 15, 1963, but may be redoemod
at the option of the United Statos on end after June 15, 1958, in whole or in
part, nt par and accrued intorost, on any interost day or days, on 4 months'
notice of redemption given in such manner as the Socretary of the Treasury shall
proscribo, In case of partial redomption the bonds to be rodeomed will be
Regraded Uclassified
285
- 2
determined by such nethod as may be prescribed by the Secretary of the Treasury.
From the date of redemption designated in any such notice, interest on the
bonds called for redemption shall ceaso,
2. The bonds shall be exempt, both 88 to principal and interest, from
all taxation now or hereafter imposed by the United States, any State, or any
of the possessions of the United States, or by any local taxing authority,
except (A) estato or inheritance taxes, or gift taxos, and (b) graduated addi-
tional income taxes, commonly known as surtaxes, and excess-profits and war-
profite taxes, now or herenfter imposed by the United States, upon the income
or profits of individuals, partnerships, associations, or corporations. The
interest on an amount of bonds authorized by the Second Liberty Bond Act, am
proved September 24, 1917, as amended, the principal of which does not exceed
in the aggregate $5,000, owned by any individual, partnership, association, or
corporation, shall be exempt from the taxes provided for in clause (b) above.
3. The bonds will be acceptable to secure deposits of public moneys,
but will not bear the circulation privilege end will not be entitled to any
privilege of conversion.
4. Bearer bonds with interest coupons attached, and bonds registered as
to principal and interest, will be issued in denominations of $50. $100, $500.
$1,000, $5,000, $10,000 and $100,000. Provision will be nade for the interchange
of bonds of different denoninations and of coupon and registered bonds, and for
the transfer of registered bonds, under rules and regulations proscribed by the
Secretary of the Treasury.
5. The bonds will be subject to the general regulations of the Treasury
Department, now or hereafter prescribed, governing Unitod States bonds.
Regraded Uclassified
- 287
- 3 -
III. SUBSCRIPTION AND ATTOMENT
1. Subscriptions will be received at the Federal Reserve banks and
branches and at the Treasury Department. Washington. Banking institutions
generally may submit subscriptions for account. of customers, but only the
Federal Roserve banks and the Treasury Department are authorized to act as
official agencies. The Secretary of the Treasury reserves the right to closo
the bocks ne to any or all subscriptions or classes of subscriptions at any
time without notice.
2. The Secretary of the Treasury reserves the right to reject any sub-
scription, in whole or in part, to allot loss than the amount of bonds applied
for, to make allotments in full upon applications for analler amounts and to
nake reduced allotments upon, or to reject, applications for larger amounts,
or to adopt any or all of said nethods or such other methods of allotment and
classification of allotments as shall be deened by hin to be in the public
interest: and his action in any or all of these respects shall be final.
Subject to those reservations, all subscriptions will be allotted in full.
Allotment notices will be sont out prouptly upon allotment.
IV. PAYMENT
1. Payment at par for bonds allotted hereunder must be made or completed
on or before June 15, 1938, or on later allotment. and may be made only in
Treasury Notes of Series B-1938, meturing June 15, 1938, or in Treasury Notes
of Series D-1938, maturing September 15, 1938, which will be accepted at per,
and should accoupany the subscription. In the caso of Treasury Notes of Sories
D-1939 tonderod in payment, coupons dated Soptembor 15, 1938, must bo attached
to the notes when surrendered, and accrued interest from March 15, 1938. to
June 15, 1938. ($6.25 per $1,000), will be paid following acceptance of the
notos.
Regraded Uclassified
288
- 4 -
V. GENERAL PROVISIONS
1. As fiscal agents of the United States, Foderal Reserve banks are
authorized and requested to receive subscriptions, to nake allotments on the
basis and up to the amounts indicated by the Secretary of the Treasury to the
Fodoral Reserve banks of the respective districts, to issue allotment notices,
to receive payment for bonds allotted, to nake delivery of bonds on full-paid
subscriptions allottod, and they may issuo interim receipts pending dolivery
of the definitivo bonds.
2. The Secretary of the Treasury may at any time, or from time to time,
prescribo supplemental or amendatory rules and regulations governing the offor-
ing. which will be communicated prouptly to the Fedoral Reserve banks.
HENRY MORGENTHAU, JR.
Socretary of the Treasury.
Regraded Uclassified
289
UNITED STATES OF AMERICA
1-1/8 PERCENT TREASURY NOTES OF SERIES A-1943
Dated and bearing interest from June 15, 1938
Due June 15, 1943
Interest payable June 15 and December 15
1938
TREASURY DEPARTMENT,
Department Circular No. 585
Office of the Secretary,
Washington, June 6, 1938.
Public Debt Service
I. OFFERING OF NOTES
1. The Secretary of the Treasury. pursuant to the authority of the
Second Liberty Bond Act, approved September 24. 1917, as amended, invites sub-
scriptions, at par, from the people of the United States for 1-1/8 percent notes
of the United States, designated Treasury Notes of Series A-1943, in payment of
which only Treasury Notes of Series B-1938, maturing June 15, 1938, or Treasury
Dotes of Series D-1938, maturing September 15, 1938, may be tendered. The
amount of the offering under this circular will be limited to the amount of
Treasury Notes of Series B-1938 and of Series D-1938 tendered and accepted.
II. DESCRIPTION OF NOTES
1. The notes will be dated June 15, 1938, and will bear interest from
that date at the rate of 1-1/8 percent per annum, payable semiannually on
December 15, 1938, and thereafter on June 15 and December 15 in each year until
the principal amount becomes payable. They will mature June 15, 1943, and will
not be subject to call for redemption prior to maturity.
2. The notos shall be exempt, both as to principal and interest, from
all taxation (except estate or inhoritance taxes, or gift taxes) now or here-
after imposed by the United States, any State, or any of the possessions of the
United States, or by any local taxing authority.
Regraded Uclassified
- 2 -
290
3. The notes will be accepted at par during such time and under such
rules and regulations as shall be prescribed or approved by the Secretary of the
Treasury in payment of income and profits taxes payable at the maturity of the
notos.
4. The notes will be ncceptable to secure deposits of public moneys,
but will not bear the circulation privilege.
5. Bearer notes with interest coupons attached will be issued in denomin-
otions of $100, $500, $1,000. $5,000, $10,000 and $100,000. The notes will not
be issued in registered form.
III, SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve banks and
branches and at the Treasury Department, Washington. Banking institutions
generally may submit subscriptions for account of customers, but only the
Federal Reserve banks and the Treasury Department are authorized to act as
official agencies. The Secretary of the Treasury reserves the right to close
the books as to any or all subscriptions or classes of subscriptions at any time
without notice.
2. The Secretary of the Treasury reserves the right to reject any sub-
scription, in whole or in part, to allot less than the amount of notes applied
for, to make allotments in full upon applications for smaller amounts and to
make reduced allotments upon, or to reject, applications for larger amounts, or
to Adopt any or all of said methods or such other methods of allotment and
classification of allotments as shall be deemed by him to be in the public
interest; and his action in any or all of these respects shall be final. Sub=
jeot to these reservations, all subscriptions will be allotted in full. Allot-
mont notices will be sent out promptly upon allotment.
Regraded Uclassified
291
- 3 -
IV. PAYMENT
1. Payment at par for notos allotted herounder must be rade or cot-
pletod on or before June 15, 1938, or on later allotment, and may be nade
only in Treasury Notos of Series B-1938, caturing Juno 15, 1938, or in
Treasury Notes of Sorios D-1938, naturing September 15, 1938, which will to
accepted at par, and should accorpany the subscription. In the case of
Treasury Notos of Series D-1938 tendered in payment, coupons dated September
15, 1938, must be attached to the notes when surrendored. Interest from
March 15, 1938, to September 15, 1938, on the naturing notes will be creditod
to subscribors, and interest from June 15, 1938 to September 15, 1938 on the
now notes will be charged to subscribors. The difference( $9.672131 por $1,000)
will be paid following acceptance of the notes.
V. GENERAL PROVISIONS
1. As fiscal agonts of the United States, Federal Reserve banks are
authorized and requested to receive subscriptions, to mako allotments on the
basis and up to the amounts indicated by the Secretary of the Treasury to the
Federal Reserve banks of the respective districts, to issue allothont notices,
to receive payment for notes allotted, to maleo delivery of notes on full-paid
subscriptions allotted, and they pay issue interio receipts pending delivery
of the definitivo notes.
2. The Secretary of the Trensury may at any time. or from tine to time,
prescribe supplemental or apendatory rules and regulations governing the offor-
ing. which will bo communicated promptly to the Federal Reserve banks.
HENRY MORGENTHAU, JR..
Socretary of the Treasury.
Regraded Uclassified
292
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 6, 1938
TO
Secretary Morgenthau
FROM
Mr. Haas M
MA
subject: Business and price research program
I om submitting herewith a summary of our research pro-
T/We on commodity prices and business. As you know, this 1s
70 T" n which will require some time to work out, since it
y21r for Pm Treat deal of original research, and since exten-
dre calculations are involved in carrying the studies back
// months and by individuel industries over R 10- to 15-year
***101. It 18 possible that quick studies could be worked
crs lost yould be of some value, but to get et the fundamentals
of Juginess and prices, which we conceive to be the object of
48 rogrem, deeper and more careful research is necessary.
AS each section of the crogram becomes for enough ad-
Winced to show significant results we will present the results
in chert form for your evaluation. You have already seen the
completion of one section of the program in our calculation
of en index of basic demand, which promises to be of consider-
cole velue in measuring the extent to which production at &
iven time 1s out of line with demand. The partial completion
of nother section is represented in our weighted index of new
orders in dollar values, which we have shown in chart form by
industry groups and in total. We are now working on a further
Revelopment of this index to express it in terms of physical
volume, which would relate it more directly to the level of
industrial production.
Our research program is divided into two parts: (1) That
concerned with business activity, and (2) that concerned with
condodity prices.
(1) Business research program
(n) Ensic demand index
Our research program on business activity was laid out
after deciding what were the critical noints in the business the
system on which information was needed for determining
Regraded
Uclassified
293
Secretary Morgenthau - 2
current state of business and predicting its future trend.
Since business activity in the long run depends upon the level
of consumer demand, our first task was to develop & method of
measuring this demand. This would enable us to know at any
Given time whether, and to what extent, business activity wes
running above or below the level of demand, No such index
being available, it was necessary to develop original studies
by industries to provide the basis for such an index.
Work on this section has been completed, except for pos-
sible revisions. Indexes of "basic demand" have been compiled
for each of 13 leading industries, and these have been com-
bined into a weighted general index. This is expected to
-rovide B practical method of determining where business
standa in relation to demand, and to serve as a warning when
it is getting out of line in either direction. It 1s not
intended to indicate the time of a turn.
(b) New orders index
Before consumer demand can affect business it must be
reflected in new orders on the books of industrial conserns.
Dev orders data have been available in confidential reports
ind in published form, but no means was available for com-
bining them to show their actual relationship to business
notivity. The second section of our research program was
therefore to work out a weighted index of new orders. This
has been partially completed. We have worked out indexes,
on 4 dollar value basis, for eight industrial groups and com-
tined. We are now working to develop such an index in terms
of chysical quantities, which would be more closely related
to business activity.
Since working out our index of new orders, we have noted
that others engaged in developing methods of business fore-
casting have been impressed with the need for such an index.
Wesley C. Mitchell, in the May 25 Bulletin of the National
Street of Economic Research, makes the following comment:
"Perhaps the most promising thing that might
be done along these lines is to start with the hy-
nothesis that the new orders placed today will be
the output of tomorrow, and that a forecasting in-
dex might therefore be made by combining reports
on orders in many lines of business, including
also contracts for construction. In analyzing time
series we have found the rough rule to hold, that
orders for commodities and construction contracts
make cyclical upturns and downturns before corre-
sponding reference dates for revivals and reces-
sions,
Regraded Uclassified
294
Secretary Morgenthau - 3
A writer on business and stock market forecasting on the
staff of Barron's Weekly has the following to say on the
desirability of such an index in the May 30 issue of this
publication:
"An ideal business index for speculative
guidance would be one that registered the volume
of forward buying. Such a type of statistical
record would portray with what rapidity the tide
of business was flowing, B.S measured by manufac-
turing needs for actual sales requirements, and it
would at the same time tell whether inventories
were inadequate or excessive. If a comprehensive
index of forward buying were obtainable, and this
is not yet evolved because of the reluctance of
individual businesses to disclose trade secrets,
then the world at large could have prompt knowledge
of the effect of sales volume on inventories, the
fluctuations of which play so big & part in earning
nower.
(c) Indexes of unfilled orders and inventories.
In addition to new orders, two other immortant factors
effect the trend of industrial production: (1) The amount
of unfilled orders on manufacturers' books, and (2) the
stocks of finished goods in the hands of manufacturers.
Statistical data on these subjects are very imperfect. We
-re working, however, on the development of an index of un-
filled orders, and we think it may also be possible to work
- some measure of manufacturers' stocks.
It will next be necessary to determine the relative
influence of new orders, unfilled orders, and inventories
on industrial production, in order to use the indexes most
effectively in predicting business trends. We have done
come preliminary work in measuring their relative influence
on production in the steel industry.
(a) Separate industry studies.
The studies previously mentioned have been designed
for anticipating trends in business activity as a whole,
though they supply a considerable amount of information for
(rem is directed toward studying trends in individual
analyzing individual industries. A further part of our pro-
industries, since these may at times give a more important
Regraded Uclassified
295
Secretary Morgenthau - 4
clue than the aggregate figures as to the outlook for busi-
ness. We have been particularly impressed with the individual
importance of such industries B.S. those represented by steel,
automobiles, construction, textiles, and the railroads, and
have given these considerable attention in our research program.
(e) Regional business studies.
A turn in the business trend frequently becomes apparent
in one section of the country before it appears in the com-
posite data. In the 1933 recovery, for example, business in
the South began to improve while other districts were still
depressed. We have therefore taken as part of our program
the study of regional business trends. Charts have been pre-
paree showing weekly trends in steel activity by steel dis-
tricts; monthly trends by census districts for such data 8.8
automobile registrations, farm incomes, and construction
awards; and department store sales by Federal Reserve dis-
tricts.
When these various projects have been completed, our
covinment for forecasting business should be vastly improved.
Cur weak point will probably lie in predicting the trend of
new orders, especially at times when unfilled orders are low,
and new orders are consequently & more important business
factor. For this purpose our research program on commodity
prices may be useful, since price trends for sensitive com-
odities are & strong influence in stimulating industrial
buying.
(2) Commodity price program
The objects of our research on commodity prices are:
(1) To determine the relative importance of supplies, con-
sumer demand, and monetary factors on commodity prices, in
order that the effect of changes in any one of the factors
may be estimated; (2) to detect indications of infla-
tionery or deflationary influences in the commodity price
structure; (3) to estimate the probable effectiveness of
control measures against either inflation or deflation;
(4) to messure the effect of foreign influences on the
notice structure.
In the field of commodity prices, very little informa-
tion has been available that would enable one to forecast
trends in the general price level over short periods of
follow trends in business activity. Practically all price
several years or less, except 8.8 they may be expected to
research work of economists to date has been directed either
Regraded Uclassified
296
Secretary Morgenthau - 5
explaining the broad awings of prices resulting from
010 supplies or other monetery factors, which is of little
for our immediate purposes, or toward explaining move-
in prices of individual commodities, assuming certain
in the general price level. These again are of little
to us, since the general price level 1s the thing we
- to forecast.
% were thus confronted with the task of working out
1001 methods for forecasting orice trends over rela-
Vively short periods, such 2.8 would serve our major nurnoses
01 importing business trende, estimating revenues, and
effects of monetary policies.
To have taken 08 our first task that of isolating the
of the monetary factor on prices from the influ-
of survely and deman . !'ost of our research work on
THE orices has been concentrated on this project.
200 : * task 18 admittedly & difficult one, our results so
: Vive been encouraging. If we can construct an "index of
influence" 1t will provide a besic series of funda-
importance in forecasting price trends, and which will
serve /5 a measure of inflationary or deflationary influences
to the price systes.
The development of such an index requires working out
expense price studies for a considerable number of individ-
commodities, determining for each commodity the influence
st survey factors, demand factors, and monetary factors, and
thing the individual price fluctuations indicated as due
constary factors into a composite index. llle have taken
Toun of 30 sensitive commodities included in the B.L.S.
musitive price index as the basis for this project, end have
out studies for the majority of these commodities with
32F or less success. In a number of cases we have been
ed by inadequate statistics.
The effects of the usual sungly and demand factors on
rices, including such factors 8.8 stocks of commodities,
demand, export demand, etc., will have been de-
carrined in working un the individual commodity studies.
become theee will help one to avoid the mistake of attributing
to inflation influences B. rise in prices due to heavy Indus-
All demand and small subplies, as that in the winter and
twing of 1936-37.
The index of the effect of monetary influences, when
is worked up, will be used as the basis for an analysis
Uclassified
297
Secretary Morgenthau - 6
of how such factors as monetary policies, volume of credit,
foreign influences, etc., affect the general price level.
Such an analysis is greatly needed as & guide in formulat-
ing business and price control policies. It should be of
assistance when the time comes to make the shift from
Government spending to private spending, and at such times
as monetary and credit restriction may be needed to prevent
undue price rises.
Regraded Uclassified
298
TREASURY DEPARTMENT
MA
INTER OFFICE COMMUNICATION
DATE June 6, 1938
TO
Secretary Morgenthau
Mr. White
FROM
Subject: The Haitian situation
1. Halti is in E serious economic depression now:
(a) The prices of its export products -- perticularly
coffeet have fallen severely. Persents have been re-
fusing to sell coffee st the low prices prevailing.
(b) Revenue receipts have fallen by 19 percent in the
six months ending March 1938 compared with the same
period of the previous year.
(c) Haiti has been losing foreign exchange. The balance
of trade, which is nominally favorable, has turned sharply
unfavorable. For the six months ending March 1938 Haiti
had an unfavorable balance of trade of 3.2 million gourdes
(1 gourde - 20 cents) compared with 8 favorable balance
of 4.7 million gourdes in the same period of the previous
year. Treasury deposits in the United States fell from
1.2 million gourdes to .7 million gourdes.
(6) While her foreign exchange reserves have declined,
the Government has sharply increased loans. Extension
of Government credits increased from 100,000 to 1,250,000
ourdes in the six months ending March 1938.
2.
Feitian foreign bonds which were selling above per in 1937
now sell for 72.
She has not yet defaulted or her foreign debt service
20 far BS we know, but she probably will be soon forced to
do 80 unless the situation changes.
₹. Unless Haiti gets 8 substantial foreign loan she will have
to:
(a) Depreciate her exchange
or
(b) Sharply restrict her imports and increase her exports.
Regraded
Uclassified
299
lecretory Morgenthau - 2
Over half Heitian imports come from the United States.
In 1937 we sold her about $5 million, and bought only
12% million from her. Depreciation of the gourde, or fur-
ther restrictions on her imports will curtail our exports
to Halti.
Heitian chances of increasing her coffee exports quickly
enough to correct the situation without assistance are
slight.
She lost her chief market for her principal export
when France renounced its agreement with her. France
formerly bought 65 to 70 percent of Haitian coffee ex-
corts, but in 1936 France renounced its agreement with
alt1, and now buys less than 10 percent of the exports.
Though the United States has substantially increased her
purchases of coffee from Heiti, during the past two years
Ele has far made up to Haiti for the loss of the French
arzet.
10
Cen Haiti greatly increase her sales of coffee to the
United States?
There is no import duty on her coffee. Furthermore
price factor 1s already in her favor, but has not yet
resulted in sufficiently increased urchases by Americans.
Therefore increased purchases by the United States must
ne obtained through improvement in quality, and sales
promotion. The ee are slow processes.
36551 may be able to improve her position in the years to
come by greater diversification of her export crops --
particularly bananas, O&CBO, sisal, sugar an cotton.
She already has had some success in this diversifi-
valion program.
Regraded Jclassified
June 6, 1938,
300
41st
Ret This morning's conference on Chinese and Haitian loans.
(It was my impression that the State Department was con-
serned solely with finding arguments against the Chinese loan
proposal. Were they as eager to find arguments in favor of &
solution of the difficulties they could, I suspect, have reached
a position of approval without exerting themselves over much.)
1. with respect to the possible violation of the Hague
Convention:
(The following are questions of international law on which
expert opinion 18 necessary. They occur to me as questions
that merit independent consideration before accepting the
State Department's views.)
(a) Can the Hague Convention apply unless EL state of war is
recognized by the President? Can Japan object that it 18 &
violation of the Hague treaty since she has not declared war?
(b) Japan has violated the Hague Convention (as well as other
treaties). The State Department publicly 80 stated. Is
Japan, therefore, entitled to the protection which the Con-
vention presumably 1e supposed to yield?
(c) The Export-Import Bank extended a loan to Italy on
January 20, 1937; Italian troops were then and still are
engaged in pacification of a foreign nation (Abyssinia)
which we still recognize 6.6 an independent power. Italy
was engaged in war with Abyesinia in the same sense in
which Japan 18 engaged in war with China (neither Italy
nor Japan have declared war) yet the loan WAB made. Is
this an adequate precedent?
(d) The League of Nations on May 14, 1938, passed a resolu-
tion which "earnestly urges the League members to do their
utmost to give effect to the recommendations contained in
the previous Assembly /recommendations to assist China7 and
to take into serious, sympathetic consideration the requests
they may receive from the Chinese Government in conformity
with the said resolution". Does the League of Nations'
action have any bearing on the present status of the Hague
Convention as it applies to Japan?
(e) If an Export-Import Bank loan to China (for relief pur-
poses) 1s regarded by the State Department as a possible
violation of the Hague Convention on the grounds that it
1e an unneutral act, could not the same be said of a
$50 or $100 million Government gift vis the Red Cross to
Chinat
Regraded Uclassified
301
- 2 -
2. Should the same loan privilege be extended to Japan?
(a) The chief economic objective of the loan 18 to
sell some of our surplus raw materials and to raise
the price of those materials. Sale of flour, cotton
goods, etc. to China would represent a net increase in
world sales. The Chinese people would be able to buy
goods which they otherwise could not.
In the case of Japan the situation 18 different.
There it might well mean merely replacing other imports
or making it possible for Japan to increase her exports
in order to get the greatly needed exchange. If A sale
to Japan of flour, rice, and cotton goods, etc. on
credit 18 contemplated, it would seem that a prior
lengthy and careful investigation, possibly by a com-
mission, will be necessary to determine the ultimate
destination of the goods or of goods which they may
replace. In the case of China no such doubt exists
and the loan could go forward at once.
One of the conditions of the loan could easily be
that an American commission would supervise the distri-
bution and use of those products 60 as to make sure
they were consumed by the Chinese people who are in
need of further food and clothing, etc.
(b) How would the American public react to a loan to
Japan, in view of the fact that such B loan would be:
(I') An indication of our lack of disapproval of
Japan's actions;
(2') A definite contribution to Japan's ability
to conduct 8 more effective war against China.
Just where do our long run international political and
economic interests lie -- with 8 victorious and strength-
ened China, or with A victorious and strengthened Japant
Just where do the sympathies of the bulk of American
people rest -- with the Japanese invaders or the innocent
Chinese populace?
3. Resentment of Japan.
(a) The suggestion that B Red Cross gift be substituted
for the proposed loan has much the appearance of an excuse
for doing nothing or doing extremely little. Were Congress
Regraded Uclassified
- 302
- 3 -
to consider an appropriation for relief to China, it is
extremely doubtful whether the amount they would contribute
would be more than $5 or $10 million. Certainly it would
be far from the amount contemplated by the loan. There-
fore, even were the attempt successful, the smount given
would be of insignificant assistance to the surplus crop
problem.
(b) If the proposed loan to China would be resented by
the Japenese Government, to the extent that the latter
would declare war on Chine, may the same not be true of
n relief gift to Chine via the Red Cross if the gift in-
volves any large sum? Could 8 loan to China such BE is
contemplated be the decisive factor in shaping Japan's
policy with respect to declaration of wer on China?
E. Oan the Export-Import Bank make the loan?
This 18, of course, E. legal question. If the Export-
Import Bank can legally extend a loan only if it regards
such a loan 88 bearing "E ress nable risk", does that rule
not 2 loan to China?
Then "e mede the grant of & 450 million loan to China
in 1931, China:
(a) was engaged in & widespread civil var;
(b) The control of the Central Government over the re-
meinder of China was confined to E few provinces;
(c) Japan had just started to take over Manchuria, and
(d) China was on the verge of & severe depression.
The situation now 18 that China today has B better oppor-
Junity to emerge as & people with international independence,
tree from Japanese domination end free from civil war than 8p-
Debred at any time in the last fifteen years.
Nonetheless it 18 obvicus that the risk is great -- but
B/J 18 tre prize.
5. Would the loan be 8 sound investment for the United States
to DEKE?
(2) It 1e not unreasonable to expect China to pey back the
Regraded
303
loan -- or at least a substantial part of it -- during the
next ten years.
(1') There 18 reasonable expectation that Japan will
sooner or later have to come to terms with China,
leaving an independent China highly centralized with
at least a large part of ite present resources and
population. It 16 not at all impossible that Japan
may be forced to leave China in a stronger position
than she was in 1936.
(2') China's gratitude for aid in her present struggle
would insure sincere attempts at repayments when her
situation permits.
(31) After the war China will be greatly in need of
additional loans and will attempt to preserve her
credit.
(b) There are eoonomic advantages that must be weighed
against the possible loss if the loan ie not repaid. The
value of our wheat and cotton crop will rise as 6. conse-
quence of the sale. The increased value may amount to 88
much as the total loan. But the increased value of the
various crops 18 only a small part of the benefite to
recovery likely as a consequence of a rise In the price of
those crops.
(c) Even if China defaults completely on the loan, the loss
18 far less than the money value of the loan. The most
we could lose 1s wheat and cotton which, in effect, we do not
and will not have. Paradoxical as this may sound, it 18
nevertheless true because unless our surplus is reduced
the restrictions imposed on next year's plants will be
greater because of this year's surplus crop. The alterna-
tive to the export of the crop is lower crop prices this
year and more idle hands and idle lands next year.
6. Does China want the loan?
Even if China doesn't wish to borrow the whole amount, she
could make the same arrangements 8.8 she made in 1932.
It may be that transportation may constitute an insuperable
barrier to the purchase of American flour and cotton, but it
would seem that 16 8. question which China alone can answer.
Regraded Uclassified
304
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 6, 1938
Secretary Morgenthau
TO
Mr. Hass
FROM
Subject: Proposals (1) to make a loan to Ohina for the
purpose of purchasing agricultural surplus com-
modities, and (2) to improve the economic situation
in Haiti
Present: Secretary Morgenthau; Secretary Wallace; Sumner
Welles, Under Secretary of State; Dr. Feis, Economic
Adviser, State Department; Mr. Taylor; Mr. Oliphant;
Mr. White; and Mr. Haas
Secretary Morgenthau opened the meeting by saying the
purpose of the conference was to trade Haiti for Ohina.
Mr. Welles stated that Secretary Hull discussed with him
the proposition of a loan being made to China for the purpose
of exporting agricultural surplus commodities, and that the
Secretary of State had arrived at no final opinion with regard
to the matter 88 yet. He said that technically it was true
no state of wer existed between Ohine and Japan, but neverthe-
less there were many complicating factors and points which
needed further investigation. The Hague Convention, for
example, of which the United States is a party, defines es
en unneutral act the making of 8. loan by one Government to
another Government which 1s engaged in war.
Secretary Wallace pointed out that 8.8 the Hague Convention
18 of long standing we must have violated it in the last great
War.
Mr. Welles stated that the United States Government didn't
loan money to the belligerents in the World Wer until it was
a participant in the War.
Secretary Morgenthau asked how, if there WEB not
technically a state of war, would it be possible to make
the Hague Treaty apply in the present situation.
Mr. Welles replied that whether or not technically China
and Japan are at war, practically 8 state of war exists. Japan
Regraded Uclassified
305
Secretary Morgenthau - 2 -
without question would make vigorous proteste to this Gov-
ernment if a loan were made to China for the purpose of
purchasing agricultural surpluses. He went on to say that
although Japan has not formally declared war, this move
might be sufficient to make her do 80. Among other
complications which have come up in discussion in the
State Department, he said, was the fact that the only way
the commodities could be taken by China was via the Hong
Kong route, and if this were used Japanese might block the
Hong Kong entrance. In that case, the only other available
trade route into China would be through French Indo-China,
an overland route. The cost of transportation over this
route would be very high. He continued by saying that
consideration had been given to the suggestion of offering
the same proposition to China and to Japan. In that case,
if the Japanese accepted the proposal and bought cotton
gray goods, for example, at reduced prices, it would
adversely affect the United States, as the Japanese might
utilize the low priced gray goods for domestic consumption
and sell their own cotton goods in the world markets in
competition with products of American cotton manufacturers.
Mr. Welles stated that the State Department group was
Also considering & suggestion that the Red Cross, through
Congressional authorization, be permitted to buy the
American agricultural surplus commodities and distribute
them in the distressed Orient. This authority, he
pointed out, might be included in the present Recovery
Bill.
Secretary Morgenthau said he didn't think that kind
of proposal would be acceptable to Congress, in view of
the needs of the people in the United States; that he
wouldn't recommend $1 of the $31 billion Recovery Bill be
used to give wheat to China.
Secretary Wallace added that he didn't think such a
proposal would be passed by Congress in any case.
Mr. Welles suggested that the processing of the
surplus commodities, by giving some employment, would
remove a certain amount of objection.
Hull would have to make the decision B.B. to what to do.
Secretary Morgenthau said the President and Becretary
Regraded Uclassified
305
Secretary Morgenthau - 3 -
Mr. Welles then went on to point out some additional
difficulties which may arise. Japan would probably
maintain that China was using the material to support the
military operations.
Secretary Wallace pointed out that a stipulation
could be made requiring that the products were to be used
for that part of the population not involved in military
operations.
Mr. Taylor said he thought the only solution of the
problem was to go to Congress and get authorization to make
this loan. If action were taken through the Export-Import
Bank, it would be subject to criticism in this country as
well as in other countries. That procedure would mean
doing by indirection something for which direct authority
was lacking, since it 1s obvious that China's credit 18
no good, and on that basis specific Congressional authority
would be necessary.
Secretary Wallace expressed the opinion that in the
long run China 1188 an admirable credit risk.
Mr. Welles stated the credit aspect of the problem was
a distinct worry to him. If the same proposition was of-
fered to Japan, we would be confronted with this problem:
After having discouraged private capital from going into
Japan, the Government would then be extending a credit
to Japan.
Secretary Morgenthau suggested the important thing
to keep in mind 1s the motivation - what we are trying to
do, that 18, to get rid of surplus wheat and other
agricultural surplus products. He pointed out that one
of the things which has already been done to relieve this
situation WELB a loan by the Government on 7 billion bales
of cotton. The object 18 to get some of the agricultural
surpluses consumed.
Secretary Morgenthau said Secretary Hull had mentioned
to him that the same offer might be made to Japan, but
if this were done the commodities involved must be confined
Secretary Morgenthau had pointed out to Secretary Hull that
then went on to give as an illustration of benefits to
to agricultural surplus products. Becretary Morgenthau
this country that disposing of 100 million bushels of
wheat might reasonably result in an increase of 10 centa
per bushel In the remaining wheat supply,
Regraded Uclassified
30.7
Secretary Morgenthau - 4 -
Secretary Wallace, in response to Secretary Morgenthau's
question, said he thought that an increase of 10 cents per
bushel was a reasonable expectation.
Secretary Morgenthau went on to say that it must be
the President's decision whether or not daring moves are
now necessary to stop the downward spiral in prices. One
hundred million bushels of wheat taken off this market
would be a great help in the price situation. The President
must decide whether the risk involved, moving the wheat
to China, 1a large enough to overbalance the benefit to
commodity prices.
Mr. Welles suggested that it 1s not known whether or
not China would want the wheat.
Secretary Morgenthau said he didn't know whether or
not China would be interested; that the first move was to
take the matter up at the State Department; that in any
case he would never, as a matter of policy, make any
preliminary sounding out of China.
Secretary Wallace added that this was about as far
A8 this Conference could go.
Secretary Morgenthau stated he would like to explore
the matter further and thought it was important enough
to devote an hour to discussion.
Secretary Wallace pointed out he had an appointment
at the White House in about fifteen minutes and wondered
if the group could take up the discussion of the Haltian
problem.
Dr. Feis suggested it should be ascertained what
kind of legislation was necessary to place surplus com-
modities in the hands of the Red Cross.
resolution for the distribution of surplus commodities to
Secretary Morgenthau suggested getting a Red Cross
our own people in need.
Secretary Wallace pointed out that the resolution of
might be broad enough to include the distribution com-
modities to the whole world where needed.
Uclassified
308
Secretary Morgenthau - 5 -
Secretary Wallace said with regard to the Chinese
proposal he would be willing to give his proxy to
Secretary Morgenthau.
Mr. Welles then went on to discuss the situation
in Haiti, pointing out that the drop in the price of
coffee and other international factors had brought about
S. somewhat desperate economic situation, and added that
what was needed was a loan of $5 millions - $3 millions
in cash for the payment of labor, and $2 millions for
the purchase of materials. He suggested that the Haitians
would set up any kind of machinery desired by this country
to effect the payment of service charges on the loan.
Mr. Welles pointed out there were two alternatives
other than a Government loan to Haiti:
(1) A United States financial house might make a
loan to the Haitian Government
(2) A large construction company, for example,
J. G. White, might make a loan to the Haitian
Government
Along with such B. loan, the Export-Import Bank might provide
a trade loan, the Agriculture Department might assist in
the agricultural program, and the Bureau of Public Roads
might assist on the road projects.
Secretary Wallace mentioned that funds available
under Section 32 could be used to finance the sale of rice
and flour to Haiti.
Mr. Welles pointed out that B. loan like the one
being considered for China would do Haiti no good. He
said further that the United States Government itself
might make the loan to Haiti, on the theory of keeping
Germany out of the situation, but thought probably Congress
would not provide the authorization.
Secretary Morgenthau said he had no information on
Continental Europe were out of the question, but that
any of the members of Congress. He felt sure that loans
this point, as he had never discussed that type of loan with to
Latin American loans might be different.
Regraded Uclassified
309
Secretary Morgenthau - 6 -
Secretary Wallace suggested that regardless of who
made the loan the fundamental problem of repayment would
have to be resolved into the form of international trade.
Secretary Morgenthau suggested that Mr. de la Rue
might be asked to come up.
Mr. Welles said that he was already here.
Secretary Wallace stated the most realistic way of
improving the situation for Haiti would be to exchange
United States surplus food products for their export
products of coffee and 00008.
Secretary Morgenthau inquired if anyone had talked
with the A. and P. that they were the largest buyers of
coffee in the World.
Dr. Feis said Standard Brands who manufacture Chase
and Sanborn coffee were buying Haitian coffee.
Mr. Welles, commenting on Secretary Wallace's suggestion,
mentioned that other coffee countries would complain and
questioned whether it could be done under existing legisla-
tion. He added further that in any case Haiti doesn't need
the surplus food products.
Dr. Feie suggested there were three alternatives
which might be used to improve the situation in Haiti:
(1) The Export-Import Bank might make a loan of
#3 millions to the Haitian Government
(2) A private firm might make a $3 million loan
to the Haitian Government
(3) Congressional authorization might be secured
to permit taking over Haitian export products
Morgenthau, referring to financial assistance
which Secretary night be given to Haiti, said that legislation the might
be which would permit the making of loans by
United States American continents, and that while he
sought Government to governments on the North didn't American
know what would have, he was certain any loans in
and Bouth chance prospective legislation for this connection particular
purpose with Continental Europe would be out of the question.
Regraded Uclassified
310
Secretary Morgenthau - 7 -
Mr. Welles expressed the opinion that such procedure
would set a very bad precedent, beset with many dif-
ficulties. He pointed out the State Department has been
for some time combating propaganda which 18 being spread
to convince people that the United States Government
has imperialistic ideas with regard to Latin America.
He thought that asking Congress for loans which would be
confined to North American and South American countries
would provide these propagandists with new material.
The more specific proposal that the State Department had
in mind with regard to Haiti, he didn't think would be
subject to the same interpretation, that 18, 8. public
works program and a widening and expanding of the lending
powers of the Export-Import Bank.
Secretary Morgenthau asked if Mr. Berle had been
in touch with this problem, as he thought Mr. Berle was
an expert in working out financing arrangements of this
sort.
Dr. Feis said Mr. Berle knew about the problem, but
what was needed here was B. source of funds.
Secretary Morgenthau stated he was very apprehensive
of approaching private firms with regard to extending
help because he felt it might place the Government in an
embarrassing situation later on; and that he had always
steered away from such 8. policy.
Mr. Welles explained he had in mind merely making
rrangements for the Haitian representative to contact
private firms, but making it very clear that the Govern-
ment took no responsibility whatsoever.
Secretary Morgenthau suggested that what is needed
18 for the President to decide whether or not the Haitian
situation 18 critical or serious enough in view of the
interests of the United States involved for him to
designate someone to work out a solution and carry it
through even if some risks were entailed. He recalled
that in 1933 the President felt the continued decline
on commodity prices was 80 serious that we should take
some chances and assume risks, and on that basis asked
the Secretary to carry through a program which would
meet the situation; this W&B done. The Secretary
pointed out that there are times when a situation wat-
rants taking considerable risks.
311
Secretary Morgenthau - 8 -
Mr. Welles said that we would like to take care of
this situation which was really 8. small situation in itself,
but felt he didn't want its solution to jeopardize any
large policy which was fundamentally more important to
the United States.
Secretary Morgenthau suggested that this small situa-
tion if let go may later on force 8. change in the so-called
large policy and necessitate the making of loans to Latin
America.
Mr. Welles said he hoped this would not come true,
for he felt that extension of credit rarely made friends
because it placed the loaning country in a creditor
position and developed all the friction usually existing
between creditor and debtor.
Dr. Feis suggested that one of the best ways to
handle the Haitian situation would be to buy their products.
Secretary Morgenthau indicated it would be out of the
question to use the relief money to buy Haitian coffee. He
added, however, that he would be delighted to listen to
Rr. de la Rue along with Dr. Feis.
Mr. Taylor said he thought the underlying legislation
was broad enough to accomplish what was wanted, and all
that was necessary was to show that the loan would assist
in the export of American products.
Mr. Welles, coming back to the Chinese situation,
expressed the opinion that the proposal got down to about
two alternatives - that of making the same proposition to
both China and Japan, or legislation providing for purchases
of agricultural surplus commodities by the Red Cross, which,
Hull would get in touch with Secretary Morgenthau as
in turn, might distribute them in China. He said Secretary soon
AB he arrives at 8. final opinion with regard to the matter,
end added that that would be tomorrow.
Regraded Uclassified
312
June 6, 1938.
MEMORANDUM FOR THE SECRETARY'S FILES:
At the end of March and the beginning of April, 1938, the Secre-
tary of the Treasury arranged through the Spanish Ambassador for the
purchase of five million ounces of Spanish silver.
On May 26 the Legal Division was advised for the first time of
MASE arrangements and was asked to paso upon the instructions that the
Veryrsity should receive from the Spanish Ambansador relative to the
payment for the silver. It was then for the first time that the Legal
livision was enabled to examine the file in this case.
It hecame apparent that certain difficulties might arise by reason
BY the minner in which the papers had been drafted, and on May 27,
Scars. Taylor, Dietrich and Bernstein drafted some instructions relating
to vayment for the silver. Mr. Bernstein cleared these instructions
over the telephone with Mr. Hackworth of the State Department. Pursuant
to the suggestion of Mr. Taylor, Mr. Bernstein submitted such instructions
to the Spanish Embassy and the Ambassador ecuodied these instructions
in the form of a letter dated May 27, 1938, addressed to the Federal
Bank of New York as fiscal agent of the United States and signed
by the Spanish Ambassador. The original of this letter Wall forwarded
to the Vederal Reserve Bank by the Treasury in a letter lated May 27,
IV) 1, together with certain instructions for payment.
On Monday, May 30, the Lew ers for the Federal Reserve Bank com-
minicated with Mr. Oliphant and advised him of the arrival of the silver
and the receipt of cables indicating an adverse claim in the silver. It
OR decided that for the time seing the Federal Reserve Bank should not
Envoye the silver from the boat.
On May 31 Messrs. Oliphant and Bernstein continued their consi-
deration of the case and discussed the matter further with the people
et the Federal Reserve Bank and with Mr. Taylor. On that morning n.
con'erence was held in the Secretary' of ice attended by the Secretary
and Messrs. Taylor, Oliphant and Bernstein. Mr. Oliphant stated the
Lasues involved and pointed out the alternative ways 01 proceeding. One
alternative was to proceed with the contract that had been entered into.
This ould involve the Government in possible liabilities since there
mere adverse claims to the silver. The other alternative WELLS to refuse
to My for the silver until Spain had cleared up its title to 1t. To
Pollow the latter course would lensen the possibility of any douile
Liability on the part of the Government, but would prevent us from giving
the desired aid in the atter, The Secretary recognised the existence
n° possible liabilities if the Treasury went through with the arrangement,
"Ut emphasized the fact that the President of the United States and the
Secretary of the Treasury had the right to rely upon the representations
Regraded Uclassified
- 2
313
of the Spanish Ambassador, The Secretary decided that the Department
would go through with the arrangement and accept the silver and make pay-
ent therefor as requested by the Spanish Ambassador. Messrs. Taylor
and Oliphant concurred in this conclusion. However, MI. Oliphant pointed
out to the Secretary that the Legal Division had been given no opportunity
to pase on the papers constituting the contract, and that such papers
contained defects which weakened the Government's position. The Secretary
recognized this situation and waid that hereafter the papers would clear
through the Legal Division. It was Also decided at this conference that
the silver would be noved directly from the docks to the Assay Office and
ni-1d there and not be moved at this time to any refining company. After
the conference instructions were issued to the Federal Reserve Bank and
the Assay Office in New York to move the silver as quickly as possible to
the Assay Office. The Pederal Reserve Dank WaB reluctent to act in this
mitter until it received specific instructions from the Treasury Department,
together with a letter agreeing to indemnify them from loss. A letter
dated June 2, 1938, confirmed the instructions given to the Federal Reserve
Ewnk and indemnified them in the manner agreed upon. The Federal Reserve
Dank WAB also instructed to forward to the Treasury for delivery to the
Spenish Ambessador the check for $2,007,500.
At a conference in the Secretary's office on June 2, the Secretary
delivered to the Spanish Ambassador the check for 22,007,500, together
0116 E. letter dated that day, and also a statement dated June 2, 1938,
working how the amount was arrived at. On June 3, 1938, the Ambassador
care to the Treasury and endorsed the check and received cash for the same.
At a conference on June 2 the Spanish Ambassador indicated that his
covernment would like to sell an additional 5,000,000 ounces of silver to
Mine Treasury, and the Secretary indicated his acceptance and said that the
roper papers should be prepared. On June 3 the Spanish Ambassador deliv-
ared to the Treasury a request that the United States purchase 5,000,000
онлоев of the Spanish Government's silver. On the same date the Secretary
|slivered to the Spanish Ambassador c letter signed by him stating the
terma and conditions upon which he would purchase 5,000,000 ourioes of silver.
That letter WAS prepared by the Legal Division with the cooperation of
Membra. Lochhead and Dietrich. The possibility of clearing the letter with
the State Department was raised, but it WAB finally concluded that such
would not be necessary.
In the late afternoon of June 3 the Treasury was advised by the Federal
l'esérve Bank of the demands and inquiries made upon them by Sulliven &
Spein. ile advised the Federal Reserve Bank to in turn advise Sullivan
Coodwell, representing some person claiming to be representing the Bank & of
Cromwell that such inquiries were being referred to the Treasury Department.
On June 4 the ederal Rese ve Bank was served with e. summons and
complaint [ederal Bank of New York. On Saturday end Sunday, June 4 5,
and order to show cause in an action entitled Banco de Espana and V.
conversation with the attorneye for the Federal Reserve Bank working
the Treasury Reserve Legal Division studied this matter and was in constant telephone out a
procedure to be followed in the Court on June 6.
Korman
Am.
Regraded Uclassified
314
BAJADA DE ESPAÑA
WASHINGTON
June 6, 1988
Secretary of the Treasury
of the United States.
Dear Bir:
I have been instructed by my government to deliver
the following message to your
"Secretary of the Treasury of the United States.
The Government of Spain agrees to sell to the United States
approximately 5,000,000 fine troy ounces of silver owned by
it, on the terms and conditions stated in your letter of
June 3, 1938, which was transmitted through the Spanish Embassy
at Washington. Payment for such silver should be made by
check drawn to the order of the Spanish Ambassador in Washington"
Fernando de los Rioe
Spanish Ambassador.
315
Secretary of the Treasury
of the United States.
Dear Siri
I have been instructed by Qty gover of to deliver
the following newsage to your
"Secretary of the Treasury of the United States.
The Government of Spain agrees to sell to the United
States approximately 5,000,000 Sins troy ounces of
silver owned by it, on the terms and conditions stated
in your letter of June 3, 1938, which was transmitted
through the Spanish Embassy at Washington. Payment
for such silver should be hade by check drawn to the
order of the Spanish Ambasondor in Washington."
Ambassador of Spain
Initialled: JWP BB AL FD WCT
Regraded Uclassified
316
(COPY)
June 5, 1938,
Dear Sire:
You have brought to my attention the order dated June 3, 1938,
of Mr. Justice Pecora of the Supreme Court of the State of New York in
the case entitled Banco de Espana V. Federal Reserve Bank of New York,
serged on you on Saturiay, June 4, 1938, directing you by George L.
Harrison, Walter S. Logan or Herbert H. Kimball to appear in the
Supreme Court of the State of New York at 10 A.M. on Monday, June 6,
1938, for the purpose of taking their depositions by the plaintiff with
reference to the location of the chattels referred to in the complaint
in said action and, upon such examination, to produce all instruments
of title, bills of lading, documents, records, correspondence, memoranda
or papers relating to such chattels and referring to or bearing upon
their location. The complaint describes the chattels in the following
languager
"2,334 boxes or flat cases containing silver and/or securities
consigned by E. Aget to Reserve Federal Bank (said 'Reserve
Federal Bank' being defendant, the consignee of said boxes
or flat cases) and shipped by SS NORMANDIE which arrived in
New York on or about May 30, 1938, said boxes or flat cases
bearing the marks 'F.R.B.' end 'B.B.5' and numbers 1 to
2,334, inclusive."
You have asked for my instructions as to your authority to
furnish the information requested and to produce the documents, etc.,
referred to in such order. The Department has given this matter as
careful consideration and study as was possible in the short time that
has been made available.
Regraded Uclassified
317
- 2 -
The Federal Reserve Bank of New York was by my direction acting
as fiscal agent of the United States pursuant to law (e.g., Section 15
of the Federal Reserve Act) in regard to such chattels, and since all
documents, etc., relating to such chattels were involved in official
transactions of the Government of the United States and of the Treasury
Department thereof, any such documents, etc., are official records of
this Department and subject to ita jurisdiction and control. I an not
satisfied that it would be in the public interest to produce for the
purposes stated in said order, and I am therefore unable to consent to
the production of, in connection with such order, by you or any of your
officers, agents, or employees, any instruments of title, bills of lading,
documents, records, correspondence, memoranda or papers relating to said
chattels.
However, you are authorised to state that the chattels apparently
intended to be referred to in the above quotation are in the possession
of the United States and are located at the United States Assay Office
at New York, 32 Wall Street and 32 Old Slip, New York City, New York.
Very truly yours,
(Sgd.) H. Morgenthau, Jr.
Secretary of the Treasury.
Federal Reserve Bank of New York,
New York, New York.
BBtmeu
6/5/38
Initialled: JWP BB
Regraded Uclassified
318
ISH EMBASSY
ASHINGTON
June 3rde, 1938
Secretary of the Treasury
of the United States.
Dear Sir:
I have been instructed by my government
to submit to you a request that you purchase from
my government approximately 5,000,000 fine troy
ounces of its silver. I would appreciate your
advising me of the terms and conditions on which
you would buy such silver.
Fernando de los Rios
Spanish Ambassador
Regraded
319
Secretary of the Treasury
of the United States.
Dear Sirt
I have been instructed by my government to
submit to you a request that you purchase from as
government approximately 5,000,000 fine troy ounces
of its silver. I would appreciate your advising
no of the terms and conditions on which you would
buy such silver.
Ambassador of Spain.
Initialled: JWP BB AL FD WCT
Regraded Uclassified
320
(COPY)
June 3, 1938.
The Government of Spain,
Barcelona, Spain.
(To be transmitted through the
Spanish Ambassador to the United
States in Washington, D. C.)
CONFIDENTIAL
Pursuant to your request contained in the letter from the Ambassador
of Spain dated June 3, 1938, the United States will purchase from you
approximately 5,000,000 fine troy ounces of silver owned by you, at the
rate of 43 cents United States currency per ounce .999 fine, shipped in
time to arrive in the normal course in New York City on or before July 15,
1938, on the following terms and conditions:
(a) 95% of the purchase price 0° the silver shall be paid to
you by the United States upon delivery of the silver to
the Superintendent of the United States Assay Office at
New York or any other consignee designated by ne.
(b) Final settlement shall be made on the basis of figures as
to weight and degrees of fineness of the silver established
by a United States Assay Office or Mint or any recognized
American refinery designated by me, which figures shall be
accepted by you as final.
(c) You shall arrange for the shipment and insurance of the
silver and shall consign it to the Superintendent of the
United States Assay Office st New York, 32 Old Slip,
New York, New York, or to any other consignee designated
by me. All documents shall be forwarded directly to the
Regraded Uclassified
320-A
- 2 -
designated consignee. You shall pay all costs and expenses
incurred in effecting the delivery of the silver to the
designated consignee, including, without limitation of the
foregoing, all costs and expenses of shipment, transportation
end insurance. In addition thereto, any reasonable and
necessary costs and expenses incurred by the United States
in connection with such silver shall be for your account.
(d) If you deliver silver eo n or silver barg other then hars
which are good delivery in the London or New York markets, the
cost, or the estimated cost as determined by me, of melting
and refining such silver into such good delivery bars shall
be borne by you, and such melting and refining shall he at
your risk.
(e) Title to the silver shall vest in the United States upon being
delivered on board a steamship bound for New York City, You
shall assume the risk of loss of the silver during transit,
i.e., you agree to hold the United States, its officers, agents
and employees harmless from any loss or damage to the silver
while the silver is in transit, from the time it is delivered
on board such steamship until it is received by the designated
consignee, and from any costs and expenses arising from any
such loss or damage.
(f) Your acceptance must reach me not later than June 7, 1938.
(Sgd.) H. Morgenthau, Jr.
Secretary of the Treasury
of the United States.
Initialed: JWP BB AL OR FD WCT
Regraded Uclassified
XXOW ALL VXN BY ness PRESENTS that I AURELIO VALLS of Hount
Royal Hotel, London, Manager of the Branch in London, England, of
the Banoo de España, acting in the pase and on behalf of said Bank ID
and by express authorization of Its duly constituted Officers and
Board of Directors, do HEREBY APPOINT JOAQUIN SUNYE of New York
City, the true and lawful Attorney-in-fact of said Bank and HEREST
AUTHORIZE AND EMPOWER his on behalf of said Banco de España to make
deseand upon the Federal Reserve Bank of Sew York and upon any
others for the immediate delivery to his or upon bis order of the
property of said Banco 4a España, contained in Two thousand three
hundred and thirty-four (2,334), more or Less, boxes or flat casse
consigned by Etablissements AGET, or others, to the Federal Reserve
Bank of New York and shipped by the 35. "NORMANDIE" which arrived
in Sew York on May 30th and to accept delivery of said property and
give receipt therefor in name of said Banco de España, or otherwise
amelio Valls
Loudon, England,
June 3, 1938.
For and on avais. behalf of Banoo de Sepaña.
Before 30, the undersigned, Com-Consul of the United
States of America, appeared Aunelio VALLS
who declared
and said that be was the person who signed the foregoing Power of
Attorney for and on behalf of the Banco de Zapaña and be did
asknowledge it as and for the not and deed of the said Bank.
Franklin C. Gowen
Regra ded Uclas sified
322
New York, N. I.
June 3, 1938.
Federal Reserve Bank of New York,
Sew York, N. T.
Dear Sirst
Under authority from Banco de Espana, conferred by
instrument, a copy of which is hereto annexed, and a radio
photograph of the original of which has been exhi ited to
you, I hereby denand the immediate delivery to be of the
following described property:
2,334 boxes or flat cases and their contents
consigned by E. Aget to Federal Reserve Bank
of New York, shipped from Havre, France, ty
SS NORMANDIE which arrived in New York on or
about May 30, 1938, said Loxes or flat cases
bearing the name "F.R.B." AND "B.B.5" and the
numbers 1 to 2,334, inclusive.
Very truly yours,
(Sgd.) Joaquin Sunye
Regraded Uclassified
323
June 3, 1938.
RENORANDUM FOR THE FILES:
Mr. Legan phoned 18 and advised no of the conference which he
and Knoke had had that afternoon with Sharp and Wyatt of Sullivan
and Cromell and & Mr. Surye, claiming to represent the Bank of Spain.
Logan and I discussed possible courses of action.
I phoned Mr. Oliphant and discussed this matter with his. Be
felt that I should tell Logan to orally advise Suilivan and Cromsell
that their inquiries were being referred to the Treasury Department
in Washington. I phoned Logan and advised him accordingly. Logan
will send to me a nemorandus of the conference and the documents
left with him by Sunye.
(Sgd. B.
BBsmeu
6/3/38
Regraded Uclassified
325 Regraded Uclassified
June 3, 1938.
12 ORANDUR FOR THE FILES:
Walter Logan of the New York Federal Reserve called Mr. Bernstein
at 3:12 P.M. and in his absence spoke to me. Logan stated that be had
just received a call from Sharp of Sullivan and Cromwell; that Sharp
had with him a man from the Bank of Spain and that they wanted to come
over to see Logan and present a formal demand for "the cases". Logan
stated that he advised Sharp that he would get in touch with his as
soon as possible with regard to the matter.
I told Mr. Logan that as soon as Mr. Bernstein returned we would
call him. I then telephoned Mr. Dietrich and advised him of the atove.
Mr. Dietrich suggested that we get in touch with Mr. Bernstein at the
Embasay and be put through a call to Itr. Bernstein. I advised
Mr. Bernstein as to the above.
(Sgd.) J.W.P.
B
JUPEROE
6/3/38
- 325
MISIORANION FOR FILE
June 3, 1938
A conference was held in Mr. Bernstein's office at 12:30 noon
on Friday, June 3, 1938, relative to the proposed second shipment
of Spenish silver. The conference was attended by Becars. Districk,
Barnes, Weber, 0'Demiel, Frants, Bernstein, and Puble.
It was determined that there would be no objection to the la
York Assay Office receiving the second shipment of silver and upon
receiving proper instructions, insuing e bullion fund check there-
for on the Treasurer to be sent to Washington for delivery. It THE
tentatively decided that the Aeney Office would show the amount of
such advance payment as 6 special silver asset and report it to
the Treasurer as such and that such acount would be taken into the
Treasurer's books ME on unclessified item until final settlement,
when the total amount would be transforred to the regular silver
bullion assets.
JHP:WJW
g.m.o. - -w.g.n. - Q.D. - S.B.N. - S.O.N. - r.R. OB
Regraded Uclassified
- 326
(COPY)
FEDERAL RESERVE BANK
OF NEW YORK
June 3, 1938.
Attention: Mr. Bernstein
Sirl
There is enclosed herenith photostatic copy of a
cable in Spanish dated June 2, 1938, addressed to the President
of the Federal Reserve Bank of New York and signed by the Bank
of Spain and three Spanish commercial banks in San Sebastian,
together with a copy of our translation.
The text of this CA Le was read to Mr. Bernatein to
Mr. Logan late last night.
With reference to my letter of June 2, 1 an now en-
closing photostatic copy of the nessage dated May 29, 1938
received by Mr. Harrison in Spanish and signed by Mr. Ramon
Artigas, First Deputy Governor Bank of Spain, San Sebastian.
The copy of this nessage forwarded to you with our letter of
June 2 16 a copy of our translation of the Spanish text.
Respectfully,
(Sgd.] L. 5. Knoke
Vice President.
The Honorable,
The Secretary of the Treasury,
Washington, D. C.
Enc.
Regraded Uclassified
327
TRANSLATION OF CABLE
FROM
(see signatures)
DATE San Sebastian, June 2, 1938.
TO
Director or President Federal Reserve Bank of New York, New York
REF. NO.
Confirming cable Bank of Spain, Burgos, the remainder of the official banking
community and adherent private banking are interested retention of the cases
shipped by Government Barcelona or Bank of Spain in Barcelona until authorities
decide who can withdraw them in name and representation of official banking
and of private banking adherent to National Spain
Bank of Spain - Banco Hispano-Americano -
Banco Commercial de Barcelona - and Banco Soler
Y Torra
GL
Checked EFL
Regraded Uclassified
328
(COPY)
FEDERAL RESERVE BANK
OF NEW YORK
June 2, 1938.
Attention: Mr. Bernstein
SIR:
I enclose copies of three cables as follows:
One dated May 29, 1938 received by
Mr. Harrison signed Ramon Artigas, First Deputy
Governor Bank of Spain, San Sebastian, and
Two dated May 30, 1938 received by
Mr. Harrison signed A Valls of 1 Brick Court Temple
London EC 4,
which were dictated over the telephone to the Treasury Depart-
ment on May ?1, 1938.
There 1a also enclosed a copy or e. letter dated
May 31, 1938 received by us from the Acting Consul General of
Spain in New York.
Respectfully,
(Sgd.) L. W. Knoke
L. W. Knoke,
-
Vice President.
The Honorable,
The Secretary of the Treasury,
Washington, D. C.
Encs.
Regraded Uclassified
329
COPY
CONSULADO GENERAL DE ESPAÑA
515 MADISON AVENUE
New York, May 31st, 1938.
NEUVA YORK
Federal Reserve Bank of New York,
33 Liberty Street,
New York, N. Y.
Centlement
With reference to the shipment of 2,334 cases
containing pesetas 35,000,000, per Steawship "NORMANDIE",
to be delivered to Federal Reserve Bank of New-York or its
order, I deer it convenient to state that although the
receipt given by the Manager 0° your Foreign Department
to me, (through Mr. Francisco Borrell of the staff of this
Consulate General of Spain,-corresponding to the two tilla
of lading of the shipment in question,) indicates that you
received said two bills of lading at 3 p.m. to-day, the fact
is that Mr. Borreal arrived at the Federal Reserve :an4 of
New-York this morning at 10.45 and informed the attendant
that he wished to see Mr. L. Werner Knoke, Vice-President,
to deliver to him, by order of the Spanish Consul, the
referred shipping documents.
Word W&B passed to Mr. Knoke, and Mr. Borrell
wes asked to wait, which he did until 1 P.M. when Mr.
Knoke received him and told his that he could not receive
the shipping documents until he had instructions from the
Treasury Department for which the Federal Resorve Bank or
New-York acts " its fiscal agent.
Regraded Uclassified
330
Thereupon Mr. Knoke said that as soon as said
instructions would be received that he would call the Span-
ish Consulate General, which he did, at approximately 2'30
P.M. to-day.
The undersigned had the pleasure of calling
on Mr. Knoke last Saturday morning and it was agreed at that
time that as soon as the shipping documents would be received
they would be delivered to the Federal Reserve Bank of New-
York without delay. This morning you called this Office twice
between 9'30 and 10'00 a.m. to inquire if the papers had been
received and you were informed that they had not. Shortly
after the registered letter containing them was received and
Mr. Borrell was dispatched to your Office immediately with
the results set forth.
Yours very truly,
(signed) Luis Careaga
Acting Consul General of Spain
Regraded Uclassified
331
60PI
INCOMING CABLEGRAM - SERIAL NO. 1853
Received on May 31, 1938
London, May 30, 1938.
President
Federal Reserve Bank of New York
New York
Have been informed that 2334 boxes containing
gold silver securities and other valuables belonging to
the Bank of Spain and other private banks also to private
individuals are on the Normandie arriving New York today
consigned to you.
As representative of the legitimate Board of
Directors of the Bank of Spain operating at Burgos I
formally request you to hold such consignment in safe
custody until legal decision as to proper ownership is
secured. For preliminary confirmation of my authority
please apply to Mister McComas of Bankers Trust and Mister
Crane of Standard 011.
A Valls of 1 Brick Court Temple London EC 4
MY RCA 111 Eng.
Regraded Uclassified
332
COPY
INCOMING CABLEGRAM - SERIAL NO. 1854
Received on May 31, 1938
London, May 30, 1938.
President
Federal Reserve Bank of New York
New York
As continuation today's cable note that our lawyers
are Messieurs Sullivan and Cromwell 48 Wall Street.
A. Valls of 1 Brick Court
Temple EC 4
my RCA 31 Eng.
Regraded Uclassified
333 2. 1
COPY
INCOMING CABLEGRAM - SERIAL NO. 1960
Received on May 31, 1938
San Sebastian, May 29, 1938.
Urgent
Director or President of
Federal Reserve Bank of New York,
New York
General Council Bank of Spain Governor and Deputy
Governors only and legitimate representation threof with
eventual domicile in Burgos
It is in the interest of the Federal Reserve Bank of New
York that it retain the 2334 cases sent from Barcelona
shipped per steamer Normandie from Le Havre for arrival in
New York on 30 or 31 inst. containing deposits metallic
values belonging to Bank of Spain and other banks in
Barcelona until competent authorities determine who may
dispose of them
Ramon Artigas
First Deputy Governor
Bank of Spain.
MY CC 81 Spanish
Regraded Uclassified
334
(COPY)
FEDERAL RESERVE BANK
OF NEW YORK
AIR MAIL
June 2, 1938.
Sir:
In accordance with telephone instructions confirmed
by your letter dated June 2, 1938, we enclose herewith check
for $2,007,500 drawn by this bank as fiscal agent of the United
States on the Treasurer of the United States, over symbol
No. 17686, to the order of "The Ambassador Extraordinary and
Plenipotentiary of Spain to the United States" for delivery
to such Ambassador at Washington, D. C., as an advance payment
for the approximately five million ounces of silver .999 fine,
referred to in said letter, purchased for the account of the
United States.
Respectfully,
(Sgd.) L. W. Knoke
L. W. Knoke,
Vice President.
The Honorable,
The Secretary of the Treasury,
Washington, D. C.
Enc.
Regraded Uclassified
335
June 2, 1938.
By dear Mr. Ambassador:
There 1a delivered to you herewith A check
for $2,007,500 drawn by the Federal Reserve Bank of
New York as fiscal agent of the United States on the
Treasurer of the United States to your order, as an
advance payment for the approximately five million
ounces of silver .999 fine, purchased for the account
of the United States, and which arrived in New York
on May 30, 1938, OB the SS NORMANDIE.
Very truly yours,
(Sgd.) H. Morgenthau, Jr.
Secretary of the Treasury.
His Excellency,
The Ambassador Extraordinary and Plemipotentiary
of Spain to the United States,
Embassy of Spain,
Fashington, D. C.
33:00
6/2/30
Initialled: BB FD AL HO WCT
Regraded Uclassified
June 2, 1938.
Advance payment for silver 00 S/S "Normandie" NEW
on May 31, 1938:
2,334 08868 said to contain Spenish silver
purporting to contain approximately 5,000,000
ounoes of silver .000 fine.
5,000,000 ounces of silver .000 fine at 43 cente
U. 3. currency per ounce .999 fine - -15-$2,150,000.00
Less:
5% withheld
$107,500.00
Estimated cost of
refining coins
35,000.00
148,500.00
12.007.500.00
Regraded Uclassified
337
(COPY)
June 2, 1938.
Dear Sirs:
This will confirm the specific instructions telephoned to you
AS fiscal agent of the United States on May 31, 1938, to receive and
endorse the shipping documents in connection with the shipment of
approximately five million otinces of silver purchased for the account
of the United States and consigned to you on the SS NORMANDIE, which
arrived in New York on May 30, 1938, and to assist in the prompt
transportation of such silver to the United States Assay Office in
New York City. You are also instructed, as fiscal agent of the United
States, to draw a check in the amount of $2,007,500 on the Treasurer
of the United States over symbol No. 17686 to the order of "The
Ambassador Extraordinary and Plenipotentiary of Spain to the United
States" and to forward such check to this Department for delivery to
the Spanish Ambassador at Washington, D. C., as an advance payment for
such silver. You are also instructed to debit the General Account of
the Treasurer of the United States on your books with the amount of
said check, as a transfer of funds to the United States Assay Office at
New York, and to credit said account with said amount, as B check issued.
The instructions contained in this Department's letter of May 27, 1938,
relative to payment for such silver are modified accordingly.
It is understood that the terms of the Department's letter to
you of June 19, 1934, regarding the purchase for the account of the
United States of silver, at home or abroad, are applicable to the
Regraded Uclassified
337-A
8
- 2 -
aforementioned silver and to the action taken by you relative thereto.
Without limitation of the terms of that letter, it is understood that
the Treasury Department will reimburse the Federal Reserve Bank of
New York for, and save it harmless from, any liability or expense
incurred by the Bank by reason of or in connection with any acts,
arrangements, or agreements entered into or performed in accordance
with 00 authorization or instruction from the Treasury Department
reative or applicable to the aforementioned silver or to the action
taken by you relative thereto, except for the negligence of the
Vederal Reserve Bank.
Very truly yours,
(Sgd.) H. Morgenthau, Jr.
Secretary of the Treasury.
Federal Reserve Bank of New York,
New York, New York.
Initialled: BB HO FD AL WCT
WJW GOB O'D DWB SBF SMCC LCA EHF
BB:meu
6/1/38
Regraded Uclassified
338
ADA DE ESPANA
ASHINGTON
May 27,1938
Federal Reserve Bank of New 10rk
AS Fiscal A ent of the United States,
New Yerk, New York.
Dears . .rs :
I am - A rece.pt of the following called instructions
B) Government and the Lank of Spare:
"Advise the Federal meserve tank or New :6rk as Fiscil
A. nt of the United States as follows:.n accordance with tn CC:,
tract for the purchase of (5,000,000) five millions ounces
of silver .333 fine,arranged by cable of Barch 31,1238,59
order and for account C1 the reasury of the Spanish State.
we are advising you that the SS NORNANDIE,wich sailed on
day 26,1938,carries on board (170) one hundred ani seventy-
five teas of said merchandise picked in 1.350 cases marked:
F.R. The 3 lver is sent in Spanish coins of five P detas denon.
nation. The Spanish Consul in New York City will deliver to
you the documents covering this shipment.In accordance with
the agreement you can wake payment for this shipment by
check drawn to the order of the Spanish Ambassador in
Washington"
Fernando de los Rios
Ambassador of Spain.
Uclassified
339
Federal Reserve Bank of New York,
As Fiscal Agent of the United States,
New York, New York.
Dear Sirs:
I all in receipt of the following cabled instructions from
my government and the Bank of Spains
"Advise the Federal Reserve bank of Sex York as fiscal agent
of the United States 18 follows: In accordance with the contract
for the purchase of (5,000,000) five millions ounces of silver .999
fine, arranged by cable of March 31, 1938, by order and for account
of the Treasury of the Spanish State, we are advising you that the
88 NORMANDIE, which sailed on May 26, 1938, carries on board (175)
one hundred and seventy-five tons of said merchandise packed
in
cases marked: 7. H. The silver is sent in Spanish
coins of five posetas denomination. The Spanish Consul in New York
City will deliver to you the documents covering this shipment. In
accordance with the agreement you can make payment for this shipment
by check drawn to the order of the Spanish Antesandor in Washington."
Ambassador of Spain
I cleared this over the hone with
Recemorth of State Department - 6B
Initialed: BE FD WCT
340
May 27, 1938.
MEMORANDUM FOR THE FILES:
While at a conference between Yesors. Taylor, Dietrich
and myself in Mr. Taylor'- office, Kr. Taylor called Hackworth
of the State Department and advised him of the situation with
respect to the purchase of silver from Spain. At Mr. Taylor's
request I then spoke to Mr. Hackworth, and Mr. Hackworth sold
that in the situation described, the Department would be justified
and protected in relying on a cable delivered to the Department
by the Spanish Ambassador containing instructions stated to be
from the Bank of Spain and the Spanish Government, to the effect
that payment fat the silver should be made into "X" account.
Er. Huckworth also stated that in the absence of any evidence that
payment of the money into the "X" account would result in the
misappropristion of the funds, the Treasury and not under any duty
to investigate and determine whether the moneys when placed in such
account would be used unlowfully and without the consent of the
Bank of Spain and the Spanish Government.
After the conference with the Spanish Ambassador, I read to
Mr. Hackmorth the draft of the letter which the Spanish Anbassador
was going to send. Mr. Hackworth stated that such letter would be
satisfactory.
5/27/38
Regraded Uclassified
341
(COPY)
May 27, 1938.
Federal Reserve Bank of New York,
33 Liberty Street,
New York, N. Y.
Attention: Mr. L. W. Knoke
Vice President.
Dear Sirs:
I am enclosing a letter dated today addressed to the Federal
Reserve Bank of New York, as fiscal agent of the United States,
received from the Spanish Ambassador, relative to payment for the
five million ounces of silver .999 fine, purchased in accordance
with your cable to the Bank of Spain, Barcelona, dated March 29,
1938.
You are hereby authorized, as fiscal agent of the United States,
to effect the payment in the manner indicated in the Ambassador's
letter, that is, by check to the order of "The Ambassador Extraordinary
and Plenipotentiary of Spain to the United States", forwarding such
check to such Ambassador at Washington, D. C., and to charge the amount
of such check to the General Account of the Treasurer of the United
States on the books of your bank.
Very truly ours,
(Sgd.) Wayne C. Taylor
Wayne C. Taylor,
Acting Secretary of the Treasury.
Enclosure
FD:ek
5/27/38
Regraded Uclassified
342
June 6, 1938
With the President at lunch, also Eccles.
Eccles tried to sell the President, first, that
we should subsidize private housing -- houses that cost
$3500 or under through letting them have WPA labor. The
President was not favorably inclined as he felt that
this would not help immediately.
Eccles wanted to do something for the railroads,
principally through giving them a 100% loan to buy rail-
road equipment. Then the President and Eccles got on
to talking about the situation and Eccles, as usual, was
very vague and when Ecoles left the President he said,
Ecoles certainly has not got anything which would put
anybody to work at this time.
Bell, Aubrey Williams, and Berlew came in. I
prepared the President for Berlew's report of 2100
projects which both Ickes and Berlew have been trying
to get the President to o.k. for several weeks unsuccess-
fully. After some argument the President finally signed
it, only when I definitely asked him to do 80,
The nigger in the wood pile, I learn, was the
following: Colonel Harrington W89 waiting outside and
I said to him, The President has Just O. k'd 8 lot of
projects for Public Works, but I don't suppose you have
any objection because there are enough projects to go
around for everybody. And he said, Well, we are be-
ginning to scrape bottom. I seld, What do you mean?
He said, Well, take for instance in Cleveland, where
we have 70,000 people at work. He said, We are running
out of projects. This explains, evidently, that Hopkins'
organization has been holding up the approval of Ickes'
projects because they wanted some of those projects for
themselves, again proving that Hopkins' first thought
1s always his own organization and not what 18 best for
the country.
Berlew was tremendously appreciative and sald
he would immediately cable Mr. Ickes because he knew
how pleased he would be to get the good news.
Berlew said he could get out 300 projects a
day, starting this afternoon. I said, Can't you get
them all out by Saturday night? He said he would.
343
61665
June 7, 1938
Last night, on reading in the papers that
Congressman Woodrum was putting up a fight to knock
I decided that it was worth while to make an effort
out the $212,000,000 appropriation for farm parity,
to help him.
Bell to find out how the matter Blood. I then called
Before calling up the President I called up
the President and in a rather hesitating manner said
that I would like to discuss the $212,000,000 appro-
priation with him. He said, "What about it?" I
said, Well, I think it 18 unnecessary. The advocates
of this appropriation admit that they won't spend it
until December or January and why have a large amount
of money hanging over our head? If necessary, we can
take the question up in January when Congress meets
again.' I told the President that Woodrum was doing
his best to have it eliminated. The President seemed
to be unaware of this. I said, Inasmuch 88 you are
seeing him at 9:30 Tuesday morning, don't you want to
tell him that you are not interested in this appropri-
ation, I said, because with the processing tax with
the same amount hanging over the market, I just don't
think it's wise.'
Much to my surprise, the President said, 'Well,
youdon't have to argue with me about it. I don't want
it. I never asked for it.' He said, How does
Henry Wallace feel about 1t?' I said, "Well, naturally,
he wants it.' So the President said, 'Well, I guess
ne only wants it because he 1s Secretary of Agriculture.'
He said, 'It's okie-doke with me to have it go out.'
I tried my best to get Woodrum last night, but
could not, because I wanted to stiffen his back bone
when he B&W the President this morning. I got him at
7:30 this morning and told him that I knew he was going
to see the President at 9:30 and that I had arranged
with Bell, who was writing a memorandum opposing the
$212,000,000, as Director of the Budget, to get that
memorandum over to the President by 9 clock this morn-
ing.
I said, 'AB Secretary of the Treasury, I am ab=
solutely opposed to this and I thought you would like
to know it.' He was, of course, pleased. He said,
'I am afraid, though, that the House will pass it anyway.
but I think it 18 very good ball for the President If he
344
-2-
would come out against it. I said, 'Well, confi-
dentially, for your own information, when you see
the President this morning I think you will receive
a very favorable reception if you ask him how he
feels about the $212,000,000.'
I realize I was taking some chance by telling
this to Woodrum, but after all the President did tell
me, last night, that he didn't want it, 80 knowing
how he feels I wanted to do everything I can to save
at least $212,000,000 out of the wreckage.
Regraded Uclassified
June 6, 1938. 345
CONFERENCE WITH THE PRESIDENT REGARDING APPROVAL OF EWA PROJECTS.
Present besides the President were Secretary of the Treasury Morgenthau,
Assistant Secretary Burlew of the Interior Department, Aubrey Williams, and
myself.
The President said that what he wanted was for the PWA to show soma speed
in approving projects under the program to be inaugurated under the provisions
of the Relief Bill now pending in Congress. Mr. Burlew said that he had with
him the list of projects which the President had seen on previous occasions,
involving approximately $600,000,000 in amount. Mr. Burlew said that there
were approximately 120 power projects which might or might not be found to be
of such E character that they would involve competition with private interests
and therefore would have to be eliminated from the list. He had, therefore,
provided an approval of the entire list except the power projects, which would
be subsequently submitted to the President after it had been determined whether
or not they were competitive projects with private interests.
There was sôme discussion as to the publicity on the approval of these
projects and it was decided that the President would approve the projects sub-
ject to the approval of the Relief Bill, and that Mr. Burlew should announce
publicly that he had been to the President and discussed with him 8. number of
projects for which old applications had been previously received and approved
which would involve approximately $144,000,000 in grants from the Federal Govern-
ment and that the President was prepared to approve these projects immediately
upon the signing of the Relief Bill.
It was agreed that the President would see us again Wednesday afternoon
to go over any other projects such as the power projects eliminated from this
Regraded
Uclassified
-2-
346
list which would be eligible for grants or loans under the PWA section of the
Relief Bill, together with any Federal projects that might be submitted at
that time for approval. I told the President that we would have several
million dollars worth of projects available for approval at that time.
DwB
W347
347
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 6, 1938
To
Secretary Morgenthau
FROM
M. A. Harris
& short review of the U. S, Government
security market during the past week
Prices of Treasury bonds moved to new highs since March, 1937 in
fairly active trading last week. The average price for all issues
advanced about 10/32nds, with individual gaine ranging from 8/32nde
to 15/32nds, with the exception of the 2 7/8E of 1955/60 and the
2 3/46 of 1956/59 which were up 7/32nds and 5/32nds respectively.
On Tuesday and Wednesday there was a good demand but turnover
was relatively light and gaine were held to small fractions, but on
Thursday, following the ennouncement of tentative plans for June
Treasury financing, the market became strong and active. On Friday
mixed changes resulted. This was due to the disclosure that the
holders of the September notes would be given the same privilege of
exchange AB the June holders and to some speculation as to the type
of security that would be offered. Believing that a long bond would
be offered, the 2 7/88 of 1955/60 and the 2 3/40 of 1956/59 lost
8/32nds while changes for other issues ranged from small gains for
the short issues to mall losses for the longer issues. On Saturday
prices were unchanged to 2/32nds lower.
Treasury notes continued in good demand, with prices firm to
smell fractions higher each day. However, melde from the "right"
Regraded Uclassified
348
issues, activity vos limited. The June issue advanced 12/32nde and
at the close Saturday was quoted 101.27 bid. The September issue lost
about 6/32nde on Thursday when it was learned this issue was to be
refunded. This drop brought it to the seme price as the June issue
and it also closed the week at 101.27 bid, up 6/32ndo for the week,
Other notes advanced 3 to 8/32nds with the 1 1/28 due 12/15/40 ad-
vancing 10/32nds.
Corporate Bonds
Corporate bonds did not move far in either direction lest week
and interest in all classes of issues remained at a low ebb. Daily
volume was light. High grado rails drifted to fractionally lower
levels while second grade rails and low-priced rails continued to be
the worst performers. High grade utility bonds were firm with some
issues advancing fractionally. Lower grade utilities recovered rather
well and in B. number of instances with pronounced gains. Industrials
displayed mixed movements, with Saturday's closing level about un-
changed from the previous week,
New Issue Market
Capital financing was the largest last week for several months,
totaling almost 250 millions. This figure WES largely made up of
the Commonwealth Edison issue of $33 million 3 1/28 of 1968, $100
million of U. S. Steel 10-year 3 1/4% debentures and the $60 million
State of Pennsylvania issue. These issues were quickly absorbed by
the market with banks, insurance companies and other institutions
large buyers.
Dealers' Portfolios
Dealers increased their holdings of U. S. Government securities
Regraded Uclassified
-3-
349
and guaranteed obligations by $54.9 millions last week, which is the
largest increase since the week ended March 7, 1938. Changes by
groups are given below:
(in millions of dollars)
Holdings
Holdings
May 28
June 4
Change
Treasury bonds
42.3
52.5
+ 10.2
if
notes (1 year)
46,8
58.3
+ 11.5
H
#
(1-5 yrs.)
35.5
62.5
+ 27.0
a
bills
2.8
0.3
- 2.5
H. 0. L. C. bonds
- 0.5
9.7
+ 10,2
7. F. M. C. bonds
6.2
4,7
- 1,5
133.1
188,0
+ 54.9
Investment Accounts
There were no transactions executed in the New York market for
the investment accounts during the past week,
System Account
The only transaction by the Federal Reserve System was the rew
placement of the weekly bill maturity amounting to $58,294,000 by
the purchase of $46,100,000 of the new bill issue and $12,194,000 of
the issue due June 16, 1938.
Regraded Uclassified
350
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 6, 1938
TO
Secretary Morgenthau
FROM
Mr. Haad
Subject: The Business Situation
Conclusions
(1) Business activity during May Ragged slightly further,
tentative estimates placing the F.R.B. adjusted index for the
sonth at 75, which compares with 77 for April. A renewed de-
cline in basic commonity prices during the month, resulting
cartly from deflationary influences arising from the
Czechoslovakian crisis and other causes, and partly from in-
preasing supplies of commodities, has had on unfavorable re-
action on business sentiment. New orders, particularly for
steel, have consequently shown A declining tendency. (Chart 1)
(2) While underlying conditions. with the exception of the
commodity price trend, angear feverable for n turn in business,
the recovery may be delayed somewhat longer awaiting n change
in public psychology, which will probably be conditioned unon
2P upturn in sensitive commodity prices. The generally held
orinion 1s that no upturn in business is likely before fall,
owing to the prospect of A summer shutdown of the automobile
industry and other adverse factors, chiefly of F seasonal
nature. This is not necessarily true. Industrial production
the been running below consumption for so long R period, and
inventories have apparently been so for reduced, that an up-
turn in business could take place at any time if psychological
conditions became favorable.
We estimate that a rise of 10 points in the F.R.B. index
yould be required to adjust industrial production to current
demand. While the deficit thus far has been made up out of
inventories, these appear in some cases to have alrendy been
reduced to abnormally low levels. It seems entirely possible
that the present inventory situation may prove to be A bullish
rather than 8 bearish factor.
(3) The way 1s being paved for An upturn in business later
in the year by an approaching stimulus to business in the form
of Government spending, an encouraging situation in the con-
struction industry, and an expansion of the capital markets.
Experience suggeste that such an upturn would likely be fore-
sladowed by an improvement in stock prices and sensitive com-
modity prices somewhat earlier.
Regraded Uclassified
351
Secretary Morgenthau - 2
(4) A solution of the price dilemma may now be in the
anking. Price disparities may possibly be corrected by a rise
in prices of raw materials due to increased demand and ex-
anded credit, accompanied by a competitive downward adjustment
of prices of finished products such ns steel and outomobiles,
18 soon as business improves sufficiently to increase the pros-
nective demand for such products, Steel prices, in several
-ant instances, have been reduced shortly after business had
begun to improve. (Chart 2)
The general situation
With further declines in automobile and steel production
generally expected, and no important stimulus in sight to
improve business during the immedinte future, the generally
held opinion is that business activity will be maintained for
peveral months longer at current levels or moderately lower,
Inc that an unturn of moderate proportions will occur during
the fall. Tentative estimates place the F.R.B. index for May
at 75. a 2-point decline from the April figure.
This discouraged sentiment has shown itself in a decline
10 new orders during May. It will be noted in Shart 1, how-
ever, that orders for products other than steel have held un
such better. The decline in steel orders doubtless reflects
in some degree the increasing disparity between steel prices
PAC the level of prices for other commodities. Any improve-
ent in sentiment, such as might be brought about by n rine
in stock prices or commodity prices, would probably be reflected
immediately in new orders, and new orders would probably be
translated almost immediately into production.
Sentiment recently has been unsettled by reports that
the automobile companies are contemplating P. complete shut-
down for two months, beginning around July 1, while a change-
over to new models is made. We estimate that a complete
abutdown for this length of time would reduce the F.R.B.
index by 2.5 points, ir it affected automobile production
alone, and by a possible maximum of 5.0 points if it caused
11. decline in the output of steel, textiles, glass, and rubber
products entering into automobile manufacture, The latter
possibility does not necessarily arise, since (1) the current
buying of these products by automobile companies has appar-
ently been light: (2) materials for new models are likely to
be bought during the shutdown period; (3) previous shutdowns
of automobile plants have usually not been accon anied by
any material reduction in the output of related industries.
Secretary Morgenthau - 3
352
Telephone conversations with statisticians and economists
of the leading automobile companies, however, have brought
statements that no departure from usual changeover practices
are contemplated. Onerations are expected to be gradually re-
luced during the summer, to allow dealers to work off stocks
of old models, and assembly lines will as usual be stooped for
a number of weeks while the shift to new-model production 18
being made. The stoppage will be staggered as between differ-
ght models; hence there will probably be no couplete halt in
insemblies by either General Motors or Chrysler. Other factory
operations will be continued while the assembly lines are
storped. The consensus of opinion of those interviewed 1s that
150,000 to 160,000 cars will be produced in June, n.s. compared
"1th a figure of approximately 200,000 for May; A production of
00,000 to 95,000 18 expected in July; A total somewhere below
30,000 in August; and in September n. total chove July.
Pointing toward a business improvement during the fall are
the following factors:
(1) A continued reduction in inventories.
According to trade reports and actual statistics, in-
ventories have been substantially reduced in recent
months, particularly in merchandising channels. The
Federal Reserve index of department store stocks at
the end of April, seasonally adjusted, was reduced
to 68, 2.8 compared with 76 at the same time last year.
Wholesalers' inventories at the end of April, accord-
inc to Department of Commerce reports, were 12 percent
lower than in April last year. Price reductions have
to some extent been a factor. Manufacturers' Inven-
tories are apparently being reduced at TX slower rate,
notably mill stocks of cotton goods, though recent
production curtailment will hasten the process.
(2) Production has for six months been running
substantially below the estimated level of demand,
confirming the fact that inventories have been greatly
reduced. An unturn of approximately 10 points in the
F.R.B. index will be necessary merely to adjust uro-
duction to the present level of requirements, when
Inventories can no longer be drawn unon, according to
our study of basic demand. It seems entirely nossible
that inventories have become overemphasized E.B a boar-
1sh factor, and that the inventory situation may, in
fact, have become bullish.
353
Secretary Morgenthau - 4
(3) The change in automobile models will
tend to increase business activity. Following a
year of very low demand, automobile production this
fall will be reinforced by the stimulation provided
by model changes. This was an important business
factor in 1935.
(4) Government spending through P.W.A. and
W.P.A., expected to get under way strongly by the
end of the year, may lead to anticipatory private
buying during the early fall.
(5) The well-maintained volume of construc-
tion should continue to be a supporting factor in
business activity.
Among the offsetting factors, on the other hand, are the
following:
(1) Acricultural incomes will be lower than
lest year. Present estimates place the total
income of inruers (including Government payments)
st 8 probable maximum of 7.3 billion collars in
1938, which coupares with a total of 8.5 billions
last year.
(2) Some decline may occur in the purchasing
power of other income groups, heretofore well wain-
tained, ench as those of service and professional
workers, and those in wholesale und retail trade,
(3) Export demand is likely to be lower, Juig-
ins from declining trends in industrial notivity
Abroad.
The price dilemma
à solution of the problem of price disparities may come
About through (1) a rise in basic commodity prices, resulting
1000 depleted inventories, increased Government spending and
increased industrial dewand, at 8 time when the reservoir of
credit has been creatly expanded; and (2) an increased rate
of activity in the rigid-price industries, which would pro-
virle E- setting in which a. reduction in prices would lead to
a broader demand and greater profite to manufacturers.
been reduced after an unturn in business was under my. (See
Steel prices, on several occasions in the rest, have
Chart 2.) This was especially noticeable in the latter ourt
Regraded Uclassified
354
Secretary Morgenthau - 5
of 1921 and the latter part of 1924, doubtless contributing
to the ranid improvement in business which took place in each
of those years. These price reductions were avearently brought
about by an increase in steel demand, at which time the steel
companies were able to profit by EL further stimulation of de-
mi resulting from reduced prices.
Current price developments
The decline in basic commodity prices, which has recently
been 8 weak feature in the business situation, has at least
termorarily been halted, and upturns have occurred in 0 number
of CO modities. More favorable foreign conner statistics than
the been excected, 8 sharp reduction in the export cuota on
moder, oversold conditions in such compodities as wheat and
problem, and, according to press reports, some psychological
effect of the prospective Government buying of surplus prod-
lets, were factors in the unturn.
The favorable reception of two large security issues
this week, which would have been worthy of note even in 1929,
wovides concrete evidence of the improved situation for new
security flotations. It has brought rellying tendencies in
the stock market and W&E doubtless a strent thening factor in
comodities.
In addition to the prospect of a record wheat cron, "1-
vately estimated at about 1,077,000,000 bushele, it propers
that the cotton crop this year any be considerably larger
win ins generally been looked for. An estimate of 12,927,000
Miles for this year's cron, based on June lst prospects, has
>een made by the Fairchild Bureau, an organization having EL
ood record for cron forecasting. Croo expectations emerally
live been around 11,000,000 bales.
Regraded Uclassified
-
399 Chart 1
INDICES OF NEW ORDERS
#
1936 = 100
1938
J
F
M
A
M
J
J
PER
A
S
o
N
D
CENT
PER
CENT
110
110
100
100
90
90
TOTAL (COMBINED INDEX)
80
80
70
70
60
60
50
50
40
40
TOTAL EXCLUDING STEEL
30
30
20
20
STEEL ORDERS
10
10
0
o
J
F
M
A
M
J
J
A
S
o
N
D
1938
Office of the Secretary of the Treasury
1 - 85
Givision of Research and Statistics
Chart 2
356
STEEL PRODUCTION AND PRICES
By Months
1920
1922
1924
1928
1928
1930
1932
1934
1930
1938
CROSS TONS
Millions
CENTS
Per Pound
7
4.5
6
4.0
5
3.0
Steel Ingot Output
(GROSS TONS)
4
3.0
3
2.5
2
Composite Price of Finished Steel/
2.0
(CENTS PER POUND), THON AGE
1.5
1.0
o
1924
1920
1020
1930
1932
1934
1936
1938
1020
1022
-
e 210
the et The Secretary of the Treasury
- of - - Time
357
June 6, 1938.
2:55 p. m.
H.M.Jr:
Hello.
Randolph
Burgess:
Hello Henry.
H.M.Jr:
Hello, Randolph.
B:
Well the situation is just about what it was when
I talked to you last.
H.M.Jr:
Uhhuh.
3.
That is the bonds are quoted a hundred and one
twenty nine to thirty one.
E.M.Jr:
Yes.
10
And the notes about eleven thirty seconds under
that.
H.M.Jr:
Uhhuh.
B:
The long bonds - the two longest issues show a drop
of seven and five thirty seconds. The intermediate
bonds are all up, the notes are up a little bit.
R.M.Jr:
Uhhuh.
B:
Now what we get is that the corporations which hold
these maturing notes and some of the commercial banks
are selling the rights.
H.M.Jr:
I see.
3:
That the insurance companies and savings banks and
some of the banks that are long term minded are buying
them.
H.M.Jr:
Well, that's fine.
B:
So it's just right.
H.M.Jr:
That's fine, it -
B:
I think it's all right.
H.M.Jr:
And
just yet as to the proportion of bonds
and notes.
Regraded Uclassified
- 2 -
358
B:
That's pretty hard to guess. I think there'll be
a few more notes than we first thought perhaps.
H.M.Tr:
Well, it will be fine if these banks will sell.
B:
I say I think it's all right, and I'd rather have
the distribution take place so you don't have a
lot of speculating in it.
H.M.Jr:
You have a good distribution now.
8:
Yes, We're getting it, yes.
R.J.Jr:
Fine.
0:
Yes.
N.W.Tr:
All right.
=
I just got to the point of your Treasury bills.
R.I.Tr:
Yes.
B:
They went at 042.
042.
3:
Which is up a little on the hundred million you
know.
1...Jr:
Yes. Well that's what we expected.
R:
There were more banks Lidding this time.
That's the New York?
4:
Yes.
H.1.Tr:
That isn't for the whole Treasury.
3:
That's just New York.
T.1.Jr:
Yes.
B:N.Jr:
Well that's all right.
B:
Maybe a little lower for the country. Oh yes, that's
all right.
Regraded Uclassified
- 3 -
359
H.M.Jr:
Well I'm going to announce, in a few minutes, that
we're going to close this as of Wednesday night.
B:
I think that's a good thing to do.
H.M.Jr:
Right.
B:
Yes.
H.M.Jr:
All right.
B:
Right, Henry.
Regraded Uclassified
360
June 6, 1938.
4:04 p.m.
H.M.Jr:
Hello, Lowell.
Lowell
Mellett:
Yes.
H.M.Jr:
Henry Morgenthau.
M:
Yes.
H.M.Jr:
How are you?
M:
Fine, thank you.
H.M.Jr:
I had a meeting, over at the White House, with the
President and Burlew and Aubrey Williams and Bell,
in which the President, on my recommendation,
provisionally approved, subject to passing the Bill,
some two thousand projects for Public Works.
M:
Well, Henry, I just came from Burlew's office.
H.M.Jr:
Oh you did.
M:
He got me and gave me a fill in on that. I have
been talking with him and Mike Straus and the others
about it.
H.M.Jr:
Oh. Well, I want you to know it was my suggestion.
M:
Yes, sir, that's the way it was put to me.
H.M.Jr:
And the point - I asked the President whether he
didn't want to channelize this spending through you,
you see? And - the publicity.
M:
Uh-huh.
H.M.Jr:
And he said he did.
M:
Yes.
H.M.Jr:
Now I just want to give you my thought. Now they
always give out this stuff. The suggestion I made
was that they hold back on the story until the
President signs the "ill, and then let the President
worth of stuff that will go to work right away, see?
announce he's got so many hundred million dollars
Regraded Uclassified
- 2 -
361
M:
Yes.
H.M.Jr:
Now that will be something in an entirely different
way they've ever done it before.
M:
I think they must have a very different idea because
their - - their notion was that you above all people
wanted to get the announcement out as quickly as
possible.
H.M.Jr:
What I want to do is -
M:
With a maximum
H.M.Jr:
Oh, no. No, no. What I want to do is to get them to
give word to the city that they're getting this money
subject to the passing of the Bill so the city can
begin to figure.
M:
Yes.
H.M.Jr:
And then when the President signs the Bill he will
announce that Public Works have so many hundred
million dollars worth of projects which will start
in so many weeks.
M:
Well now, the plan is more or less tentatively
agreed upon, what they can do, and I think they
may have some misunderstanding of your desire.
U.M.Jr:
Well -
-
Because all the conversation was predicated on what
they could do to meet your desire in the matter.
H.M.Jr:
Well -
M:
Was that they give a maximum effect and the quickest
possible effect.
H.M.Jr:
By doing what?
M
Well - by - to make an announcement that would have
the most immediate effect on business.
H.M.Jr:
Yes.
M:
And industry.
H.M.Jr:
They're going to give one out right away.
- 3 -
362
Y:
Well, now - so they contemplate getting out tomorrow
a general story of the - of the - of this March
amount to be available, the large amount of which
is going to be done, and then that's going to be
broken down into what that will mean in cement
and SQ forth and so on. In the cement business I
mean, and SO on. Then, that's the stand until the -
until they're ready to - until the Bill is to oe
signed - until the Bill is signed, then it will be
given out as fast as they can give these projects
and they can do about - they figure to five hundred
to six hundred a day, it will be over a period of
two or three days.
E.M.Jri
I see,
Which will be very 8000 in itself. Then - but in the
meantime notify the Congressmen -
I.A.Tr:
I see.
A couple of hours before they give this to press so
the Congressmen will be happy and he'll send out his
own story. Nov it is working to get the maximum
publicity and the maximum industrial effect to build
an effect out of it.
Well, I'm not going to try to dot the t's - I mean
dot the I's and cross the t's, but the main thin -
now if that's the way they want to do it, I didn't
understand it, but I thought they would hold back
until the President signed, out if they've orked
it out that way, if you and Straus are satisfied, viry
I'm not going to butt in.
Uhhuh. But this was all predicated on meeting your
desires as they expressed it to me.
R.A.Jr:
Well, I -
And so that was they had to meet certain conditions
and troubles and staff end what not alon
that line.
S.M.Jr:
Well, let's let it ride that way.
Now, when I went over this) by the way, and I
sat through this, I offered what opinions I had, but
had to explain that this office, especially ne,
could not be doing any of that.
Regraded Uclassified
363
- 4 -
H.M.Jr:
Yes,
at
At least.
H.M.Jr:
I see.
M:
You understand that we're going - maybe get appropriation
on the theory if we don't do any of that.
7.1.Jr:
Oh I see. I see. Well, I think that - just let us -
after what I'm after is if we can get out - the next
week or so, and really get the stuff out - five six
hundred million dollars in real orders is going to
help like hell.
Yes.
F.i.Tr:
And if they want to do it that way and then have the
President do some more when he signs it, that's
all right.
perhaps
Yes, I think that will/produce the maximum.
H.M.Jr:
All right. Well anything as long as - I mean the
main thing is this is real orders, not like Nothan
Straus stuff, hich is all earmarking.
Yes, I understand.
W.M.Ir:
Well I'll let it ride the way you fellows worked it
out.
Righto.
H.M.Jr:
But as I find that these different things huppen I'm
going to ask them to keep you posted.
All right, fine.
E.M.Jr:
Because - oh, I think you should have it anyway.
Yes. All right, fine.
H.M.Jr:
All right.
d:
Righto.
H.M.Jr:
Thank you.
- 364
MEMORANDUM OF THE DAY'S ACTIVITIES
June 6, 1938
To:
The Secretary
From:
Mr. Magill
Subject: Income taxation of stato officers and employees
Pursuant to the President's direction, Mr. Cliphant and I
discussed with the Solicitor General this afternoon, the legal
steps to be taken in the application of the Port Authority case.
The Attorney General was out of tom. Mr. Jackson felt very
strongly that no legislation should be recommended or adopted
regarding income taxes for past years, except as a cerollary to
legislation fixing income tax liability for future years. It
was agreed that Mr. Oliphant's office should propare an opinion
for the guidance of the Commissioner of Internal Revenue re-
garding the scope of the application of the Port Authority case;
and that legislation should be sought at the next session of
Congress.
Mr. Jackson also suggested that an interdepartmental com-
mittee should be formed to investigate and make recommendations
regarding the whole field of the liability of the Federal govern-
mont to various kinds of taxes imposed by the states and vice versa.
Mr. Oliphant is proparing a memorandum in response to the
President's note to you.
Rm
Regraded Uclassified