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Volume 281, July 9 – July 10, 1940
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Volume 281, July 9 – July 10, 1940
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 281
July 9 - 10, 1940
- B - -
Book Page
Belgium
See War Conditions
- C -
Canada
See War Conditions: Airplanes
China
See War Conditions
Coast Guard
Treasury memorandum to Bureau of Budget concerning
additional funds because of emergency - 7/9/40
281
147
a) Waesche memorandum to Budget based on
"Admiral Stark's strong approval" -
7/10/40
282,290
Treasury memoranda to Navy Department and Maritime
Commission concerning close coordination of
Maritime Commission, Bureau of Customs, Coast
Guard, and Navy Department - 7/9/40
157,159,209
Customs, Bureau of
See Coast Guard
- D - -
Denmark
See War Conditions: Foreign Funds Control
- E -
Export Control
See War Conditions
- F -
Federal Bureau of Investigation
Cooperation with Signal Corps discussed by Hoover
and HMJr - - 7/10/40
260
Foreign Funds Control
See War Conditions
France
See War Conditions
Freight Shipments
Haas memorandum - 7/10/40
299
- G -
Great Britain
See War Conditions: United Kingdom
Regraded Unclassified
- H - -
Book Page
Heath, Donald
Hull inquires as to arrangements for paying Treasury
allowance, $1200 yearly - 7/10/40
281 280
- I -
Italy
Trombetta, Vomenicio (publisher of Italian newspaper
"Grido Della Stirpe"); Pope, Generoso (publisher
of Italian newspaper in New York City:
Federal Bureau of Investigation report
269,270
- J -
Japan
See War Conditions
- K - -
Krock, Arthur
HMJr considers Krock his "weather barometer" -
7/10/40
188
- L - -
Latin America
Stabilization loans discussed by HMJr, Forrestal,
and White - 7/10/40
278
Lockheed Aircraft Corporation
See War Conditions: Airplanes
- M - -
Maritime Commission
See Coast Guard
Martinique
See War Conditions: France
Matthews, H. Freeman
Hull inquires as to arrangements for paying Treasury
allowance, $1200 yearly - 7/10/40
281
Merchant Shipping
See War Conditions
Mexico
Hochschild transmits report on elections - 7/9/40
100,125
- N -
Navy Department
See Coast Guard
- P -
Book Page
Pope, Generoso (Publisher of Italian newspaper in
New York City)
Federal Bureau of Investigation report
281
270
- R - -
Rovenue Revision
Excess Profits Tax:
Conference; present: HMJr, Sullivan, Foley, Paul,
and Schwarz - 7/9/40
1
Foley memorandum advocating repeal of limited
excess profits tax provision in Vinson-Trammell
Act if general excess profite tax is enacted,
sent to FDR - 7/9/40
17
a) Publicity displeasing to HMr; discussed
with Foley and Sullivan - 7/10/40
182
b) HMJr asks FDR for conference - 7/10/40
182,184
1) Copy of Foley statement which HMJr
gave to FDR - 7/10/40
210
- S -
Shipping, Merchant
See War Conditions: Merchant Shipping
Signal Corps
See Federal Bureau of Investigation
Sikorsky Airplane Factory
Employment of Russians formerly officers in Imperial
Army reported by Federal Bureau of Investigation
143
Sweden
See War Conditions: Export Control
- T -
Taxation
See Revenue Revision
Trombetta, Vomenicio (Publisher of Italian newspaper
"Grido Della Stirpe")
Federal Bureau of Investigation report
269
- U -
U.S.S.R.
See War Conditions
United Kingdom
See War Conditions: Bombs; United Kingdom
- V -
Vinson-Trammell Act
See Revenue Revision
Regraded Unclassified
- is -
Book
Page
War Conditions
Airplanes:
Canada inquires concerning release of certain
United States designs for production in Canada -
7/9/40
281
170,175
Engines: Packard: HMJr and Knudsen discuss promise
that Purchasing Mission would be taken in on same
basis as agreed upon with United States - 7/10/40,
190
a) HMJr talks to Purvis - 7/10/40
204
Lockheed Aircraft Corporation reveals contractual
obligations from whose secrecy clause they have
now been relieved - 7/9/40
58
American Securities Owned Abroad:
Procedure for destruction in presence of officials
applicable to foreigners and American citizens
equally - 7/10/40
292
Belgium:
Establishment of new Central Bank to replace former
Banque Nationale reported in German press -
7/10/40
279
Blast Furnaces:
Chart showing number in the United States and
distribution by districts
27
Bombs:
Bomb Sights (Norden preferably): United Kingdom
desirous of obtaining supply since their production
is disappointingly slow - 7/9/40
161
China:
FDR-Soong discussion reported to HMJr: (1) Three-way
loan - Russia, China, and United States; (2) financing
of corporation to build Burma Road; (3) Stabilization
Fund for Bank of China - 7/9/40
130
Exchange market resume - 7/9-10/40
111,294
Export Control: Sweden: HMJr and Colonel Maxwell discuss
revocation of licenses prior to FDR's proclamation;
23,100,000 rounds of ammunition for Sweden involved -
7/9/40
64,65,69
a) HMJr discusses matter with White House and
finds Order is still in War Department
71
1) FDR approves - 7/10/40
208,249
b) HAJr finds Maxwell will do nothing on prior orders
and discusses situation with Young, Foley, end
Cairns - 7/10/40
237,250
1) Lack of cooperation between War Department
and State Department (Maxwell and Green)
discussed
Regraded Unclassified
- W - (Continued)
Book
Page
War Conditions (Continued)
Foreign Funds Control:
Mailing of statements to depositors abroad discussed
by Loree and Cochran and then by HMJr, Bell,
Harrison (Federal Reserve Bank of New York), Foley,
Bernstein, Chamberlain, and Cochran - 7/9/40
281
30
a) Foley memorandum
37
b) Cochran memorandum: See Book 282, page 80
Denmark: Bank of Denmark's request that Federal Reserve
Bank of New York "purchase with its funds on deposit
$600,000 worth of dollar bonds of Denmark" discussed
in Cochran memorandum - 7/9/40
114
Transactions involving blocked and unblocked countries
(i.e., Denmark and Sweden) discussed by Cochran and
Pinsent - 7/9/40
128
Leffingwell memorandum on operation of control system -
7/9/40
115
France:
Martinique: Federal Bureau of Investigation report on
observations made at Fort-de-France
136,142
Japan:
Aviation gasoline purchases, allegedly for use of
Japanese Navy, reported by Federal Bureau of
Investigation
139
Merchant Shipping:
Greek ship carrying Canadian wheat and barley loaded
at New York and consigned to Andreas, Switzerland,
discussed by HMJr, Bell, Hull, and Harris - 7/9/40
21
a) Harris' conversation with Swiss Embassy
62
Purchasing Mission:
Vesting Order: Official sales of British-owned dollar
securities - 7/9/40
113
Sweden:
See War Conditions: Export Control
U.S.S.R.:
FDR-Soong discussion reported to HMJr: Three-way loan -
Russia, China, and United States - 7/9/40
130
United Kingdom:
Military Situation: Reports from London transmitted by
Lothian - 7/9/40, etc.
13,45,177
1
RE EXCESS PROFITS TAX
July 9, 1940
10:45 a.m.
Present:
Mr. Sullivan
Mr. Foley
Mr. Paul
Mr. Schwarz
Mrs Klotz
H.M.Jr:
Would you mind telling me for the benefit
of the Stenotype what happened last night?
Sullivan:
There were present at the conference Mr. Paul,
Mr. Foley, Mr. Kades and myself from Treasury.
Foley:
I have got a memo on this if you want it.
H.M.Jr:
No, it is all right, sit down.
Tell Schwarz to come in.
(Mr. Schwarz entered the conference)
Sullivan:
There were also Mr. Biggers, Mr. Henderson,
Mr. Forsythe, Mr. Nelson, Mr. Ginsberg --
H.M.Jr:
Well anyway, I don't care about that so much.
Sullivan:
And one other on the Advisory Committee.
There were several points discussed, first
the desire of the Commission to send this
bill up immediately, either today or tomorrow,
and by this bill I mean the special amortiza-
tion bill. They felt that it would be very
unwise to have this subject to the delays
which might occur in the excess-profits bill.
They weren't disposed to change their minds,
even though we pointed out to them that the
Congress might be reluctant to give special
amortization to corporations without knowing
what was to be recaptured in excess profits.
There was then a long discussion about the
rate of depreciation and it eventually
developed that no company had refused &
contract, that the contracts were now being
held up by the lack of appropriations and
that they anticipated that after the appro-
priations were granted, contracts might
2
- 2 -
then be held up because of lack of amortiza-
tion, because that is the way the business
men were speaking, but no contract had yet
been held up for lack of amortization.
Paul:
In fairness, I think you should add there
that they didn't claim the contracts would
necessarily be held up, but that an addi-
tional price would be put in any contracts
and that is the practical way it would work
out.
H.M.Jr:
They want the bill, do they?
Sullivan:
They want the amortization bill and there
was then a long discussion as to the period
of time over which it should run and they --
H.M.Jr:
May I excuse myself?
Sullivan:
Yes.
H.M.Jr:
What I would like to do is this: I would
like to call up Mr. McReynolds, if you
gentlemen agree, and tell him, "Now look,
Mac, these are the people who were here
and they said you can't have this thing
except as a piece of the bill. Now, you
tell that to the Commission and let me know
what their answer 1s."
Sullivan:
Right.
H.M.Jr:
0. K.?
Foley:
Right.
Paul:
That is all right, but there are a number of
other points. It has been a point of when.
Now, the point of what --
H.M.Jr:
The point 18, certainly, today being Tuesday,
the rest of the week the thing cannot go
up. That gives them - they are going to
meet on the 29th.
- 3 -
Foley:
If they adjourn on Tuesday, it is only two
days. When they come back on the 22nd
after the Convention - they won't get any
consideration of it in the meantime.
Paul:
They are not coming back until the 29th,
according to Senator George.
Foley:
The 29th then, what 1s the difference?
Paul:
I don't want to appear to be disagreeable,
but as I understand their point, it is not
that - they think the excess profits tax
bill will take some time to pass even after
it 18 first put in. Therefore, they want
this bill separated so it can go through
quickly, so we don't meet our problem that
way.
Foley:
I pointed that out last night, Randolph, and
I said that if it all 80es in on the 22nd or
the 29th, whenever they come back, it could
be separated if there is going to be a hold-up.
Paul:
That is all right.
Foley:
It can be separated by & Committee down on
the Hill.
Peul:
That would meet their point.
H.M.Jr:
And their answer was, they wanted it all one
bill, but the point I want to get over to
McReynolds now, these gentlemen who were here
this morning said certainly they don't want a
separate depreciation bill coming up on the
H111 in advance of an excess profits bill. Is
that right?
Sullivan:
That is right.
H.M.Jr:
They want to treat the whole thing as one.
Foley:
And they are troubled by Walsh's change of
the Vinson-Trammell Act.
Regraded Unclassified
4
- 4 -
H.M.Jr:
He can give that to them and call me back
and let me know what their reaction is.
Paul:
That is all right.
H.M.Jr:
That doesn't close the door on the point
you are talking about. That is subject to
more argument. Are you satisfied?
Paul:
Yes.
(Telephone conversation with Mr. McReynolds
follows:)
Regraded Inclassified
5
July 9, 1940
10:54 a.m.
H.M.Jr:
Hello.
Operator:
McReynolds.
H.M.Jr:
Hello.
Wm. S.
McReynolds:
Good morning, sir.
H.M.Jr:
Good morning, Mac. I don't know whether
you were at that meeting last night
......
McR:
I was, yes.
H.M.Jr:
All right. Well, I tell you. We've been
here since nine o'clock -- you're on the
loudspeaker and just my own people are in
the room though -- and Pat Harrison,
Senator King, Senator George and Jere Cooper
just left here.
McR:
Yeah.
H.M.Jr:
I told them as well as I could what the
wishes were of the Defense Council and
Senator Harrison 18 very sympathetic to
getting the Defense Council what it needs.
But when it came to the question of sending up
a request from the Administration for
special treatment in connection with
depreciation in advance of an all-inclusive
tax bill, they said that they would have
parliamentary trouble and that they just
couldn't handle it. Now yesterday when we
saw the President -- I don't know whether
Peoples told you this -- he was opposed to
sending up a special request to cancel
the Vinson-Trammell bill and he said that
the thing all has to be handled at the same
time.
McR:
Yeah.
Regraded Unclassified
6
- 2 -
H.M.Jr:
But they all agreed and in the meantime
Harrison repeated that he wanted this
Defense Council to have what they needed.
They all agreed that to set the thing up
separately -- in advance, rather, not
separately -- but in advance. The question
of separate wasn't discussed.
McR:
Yeah.
H.M.Jr:
I understand that that's a point, but we
didn't discuss that -- as to whether when
it goes up it would be treated 88 two
separate bills, but in advance. Is that
right?
McR:
Yeah.
H.M.Jr:
In advance as this group which -- you know
who they represent -- were unanimously
opposed to it.
McR:
Yeah. Well, I have no doubt that that --
why I had no doubt in my own mind that that
would be the reaction from the people on
the Hill and I'll communicate that of course
to the boys and they'll have to be satisfied
with it. After the talk last night, going
into this thing at some length in a more or
less desultory fashion, I admit, but I came
pretty much to the conclusion you'd reached
yesterday morning that that damn thing's not
going to amount to a hell of a lot anyhow.
H.M.Jr:
In other words, they were kidding themselves.
McR:
Yeah. I think a number of people had more
or less the same impression and I'll tell
these fellows what the answer is.
H.M.Jr:
And they can come back at me through you
if they want to. I'm available through you.
but I can't talk to five people but I'll be
glad to -- you tell them that if they want
to come back at me through you that I'm here.
McR:
0. K.
Regraded Unclassified
7
- 3 -
H.M.Jr:
But, Mac, there's one point that Sullivan
tells me that I'm vitally interested in --
up to now, nobody has refused a contract
on account of the taxes. It's a question --
they haven't got the money to place the
orders.
McR:
That's right.
H.M.Jr:
What?
McR:
That's correct.
H.M.Jr:
Well, I think that that's terribly important
and I just -- I want to give these fellows
all that they
......
McR:
I told them -- they realize that you do.
H.M.Jr:
What?
McR:
They realize that you do. I talked to
Bill Knudsen yesterday about this question
of cooperation from every point, including
cooperation with the Treasury particularly
and he has no criticism and no fault to
find.
H.M.Jr:
Well, I don't think he has any grounds for
it.
McR:
No, he hasn't, of course, but the President
raised the question -- not that he thought
there was any substance to it but he said
it was being circulated around and merely in
the
precaution to find out -- I
had a chance to sit down and talk to Bill
for a little while after lunch yesterday
and his -- mind 18 entirely clear on it.
He has no feeling at all that there is any
lack of all the help that could possibly be
given by Treasury.
H.M.Jr:
Now as to being practical on this thing,
they're only going to be here two days more
then everybody's leaving Thursday.
MoR:
Yes, of course.
8
- 4
H.M.Jr:
......
to Chicago and if they sent this thing
up they couldn't get it through in two days
anyway.
McR:
No.
H.M.Jr:
So, I mean, even if I said let 'er go,
nothing would happen and what they are
proposing to do 18 to adjourn until the
29th.
McR:
29th, huh.
H.M.Jr:
So I mean, even if they take the bit in the
teeth and say, O. K., we'll send it up,
nothing will happen and all they'll do is
to get everybody sore.
McR:
Yeah. 0. K. Well, of course, they won't
eend it up. The President won't send it up.
I told them that it was the silliest thing
they could possibly do. I said, dieregarding
the question of the courtesy due the Treasury
with respect to anything involving taxes, if
you should go to the President and get him
to send something up without -- himself,
instead of having the Treasury do it, which
is the regular course, that would merely
mean that you'd be setting yourself back 80
far as Congressional action is concerned
because they will not -- they'd feel perfectly
helpless in Ways and Means on the thing that
they hadn't had Treasury advice on and that's
the way they ought to feel.
H.M.Jr:
Well, I understand that. When they begin to
talk to the papers over there about this and
the columnists, please make it plain to them
that it's -- this is the legislative leaders
in Finance and Ways and Means and not the
Secretary of the Treasury. Never mind the
courtesy due me -- I haven't got any since
I've been here and I don't expect any while
I'm here, but when they begin to talk over
there to columnists, let them make it plain
it's the leaders. See?
9
- 5 -
McR:
Yes, sir.
H.M.Jr:
Mac, you and I understand ......
McR:
I'll see that -- that's true.
H.M.Jr:
What?
McR:
I'll see that that is
......
H.M.Jr:
See that the columnists get it straight,
Mac.
McR:
You bet.
H.M.Jr:
O. K.
McR:
O. K. Good-bye.
10
- 5 -
Paul:
That is a pretty tough assignment you gave
him, that last one. The columnists never
get anything straight.
H.M.Jr:
Did you see the thing in the Wall Street
Journal?
Schwarz:
Yes.
H.M.Jr:
Where does that thing go? Yesterday morning
I was awfully careful with that bunch not
to say anything. Did I say to them that I
was in favor of doing away with Vinson-Trammell?
Paul:
I think you --
Sullivan:
Yes, you did.
Paul:
I think you did, but that wouldn't explain --
Foley:
But you said you wanted to keep it within
the four walls of our offices and you said
you wanted to be fair with them and you would
tell them how your mind was running. You
were going to walk across the street and
these were the things you were going to talk
about, excess profits, doing away with the
Vinson-Trammell Act, and some special treat-
ment for plant installation for national
defense needs. Now, you said, "Is that fair?
Do you want any more?" And they said, "Well,
that is fair."
H.M.Jr:
Here they say at the same time Congressional
circles confirmed the fact that the Treasury
experts are considering the possibility of
asking the repeal of the special profits limi-
tation in the Vinson-Trammell Act. This is
Dow-Jones.
Sullivan:
Sandy Klein called me yesterday afternoon
about 6:00. He said, "Well, what are you
and your gang and that national defense group
going to talk about tonight?" And I said,
"Sandy, what in the world are you driving
at?" He said, "No, I know you are all working
Regraded Unclassified
11
- 6 -
on this thing down in your offices tonight,"
and I said, "I give you my word, Sandy, I
am leaving here in five minutes and I am
not coming back until five minutes of nine
tomorrow morning."
Schwarz:
It is the people on the staff that are
doing the talking to him, not the top
men.
H.M.Jr:
They have got some pretty good talkers over
there.
Foley:
That is the second story the Wall Street
Journal has had.
Paul:
This doesn't explain the great detail there
is in this story. The defense council wasn't
told any detail and there is almost as much
detail here as there is in your memorandum.
Sullivan:
There were two other matters that came up
last night that I think you should know
about. We got discussing the technique that
we used in Curtiss-Wright --
(Unrecorded telephone conversation)
H.M.Jr:
Well, let's get through here now.
Sullivan:
We were discussing the Curtiss-Wright technique.
H.M.Jr:
I am going to stop now, unless you think it
is important.
Sullivan:
Only that Jones had said they weren't going
to go through with the idea, that the obliga-
tion that we pay would cease with the emer-
gency.
Foley:
Well now, wait a minute.
H.M.Jr:
Do you mind letting me quit now, because I
really - I have got to clear a. Greek ship
with food on it for Genoa.
- 12
- 7 -
Sullivan:
Do you want me to prepare an answer to
Doughton?
H.M.Jr:
Yes, and I would like also if you would
dictate a little bit of what happened this
morning and then you can have this bill
ready day before yesterday.
Sullivan:
We had it ready before we got to your place
last Saturday afternoon.
H.M.Jr:
You never are going to let me forget that it
was two months off, are you?
13
BRITISH EMBASSY,
WASHINGTON, D.C.
July 9th, 1940.
ersonal and Secret
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a copy
of the latest report received from
London on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Lohnan
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.
14
Regraded Unclassified
Telegram despatched from London
on the evening of July 8th.
Following is summary of present
situation regarding main units of French fleet
3 battleships and 5 cruisers in British
hands in home ports and Alexandria.
2 battleships, 1 battle cruiser (at Oran)
and 1 six inch cruiser believed destroyed
or out of action.
1 battle cruiser (damaged) and 9 cruisers
in Western Mediterranean ports.
2 new battleships and 1 cruiser off Morocco
and West Africen coast.
1 aircraft carrier, 1 training cruiser and
1 cruiser in West Indies.
On July 6th British warships
attacked shipping in Bardia harbour (Libya).
2 supply ships heavily hit and probably sunk.
Our warships were subsequently unsuccessfully
attacked by enemy bombers. One British submarine
severely damaged in enemy air attack on Malta.
One mine sweeper and 1 M/S trawler elightly
damaged by enemy air attack in home waters.
One Mathonian ship sunk in western approaches.
One British ship and one Swedish ship and one
tanker also attacked in same area.
Enemy/
IS
Enemy aircraft operating against
United Kingdom displayed increased activity
yesterday directing their main effort against
South Coast porte and shipping in Straits of
Dover. No material demage to war industries but
27 persons killed and over 40 injured. Our
fighters shot down 3 besserschmitte 109e, 1
Dornier 17 and 1 Junker 88 (confirmed) and 1
Messerschmitt 110 (probable). One Hurricane shot
down and 3 missing. Anti-airoraft gune shot down
1 Messersclmitt 109. Enemy activity last night
below normal and mainly over East Coast. No
serious demage reported up to the present.
Blenheim aircraft yesterday attacked
oil targete, air frame works, airdromes and barges
in northwestern termany. One aircraft reported
concentration of barges and trawlers at Ostend.
Two Blenheims missing. One aircraft was attacked
by five Messerschmitt 109s of which one is reported
to have been shot down. Last night heavy bombers
attacked targets in northwestern Germany including
shipbuilding yards and dockyards. Two aircraft
missing. Medium bombers attacked Ostend report
direct hits on one large ship and on dockyard
gates. Mine laying operations continue. Reports
received of considerable railway disorganisation in
Rhineland and Westpholis. Traffic blocks in areas
such as Harm and Soest, Dusseldorf and Cologne, are
increasing.
MSYDW
Regraded Unclassified
16
Regraded Unclassified
Egypt. British cavalry destroyed
12 out of 20 enemy motor vehicles engaged in
western desert yesterday. July 5th Blenheims
successfully attacked enemy aireraft on airdrome
near Tobruk and mechanised transport and troop
concentrations near Bardia, All our aireraft
returned. on the same day enemy aircraft
attacked airdromes and armoured troops in western
desert. Damage and casualties not serious. Our
forees have out pipe line Bardia-Capusso.
Enemy aircreft attacked dook area
and airdrome at Malte yesterday and preceding
night, few neval and civilian casualties caused
but no serious material damage reported. One
enemy aircreft shot down by anti-aireraft fire
and one by fighters. Enemy aircraft recently
bombed repeatedly for three days British convoy
in Eastern Mediterranean but with no result,
although convey escort was weak in anti-aireraft
defence.
we have been foreed to withdres
temporarily from main positions in Gallabat area
but are sending reinforcements from Gedarer.
Italian casualties during occupation of Kassala
estimated at three hundred personnel and eight
light tanks and probably aireraft,
17
July s, 1940
My dear Mr. Presidents
Attached is a copy of Rd Foley's memorandum
giving his reasons why the limited excess profits
provision of the Vinson-Trammell Act should be repealed
when a general ****** profits tax is enseted by Congress.
This is the memerandum which I told you yesterday I
would send over for your information in support of 4
recommondation concerning the repeal of the Vinson-
Transell Act.
Faithfully yours,
(Signed) H. Morgeathau, Jr.
The President
The White House
Attachment
EHF16/mp
7-8-40
que.th
By Messenger 415 4
Regraded Unclassified
JUL 1 1940
Secretary
Mr. Feloy
AS . night session is 1934 the House of Represembatives adopted a rider 10
the Vincen-Promell Daval Construction Act affered by Senstor (them Gengresemen)
Toboy of New Hampshire which purported to limit profite as contracts for nevel
reaseds at navel at military aircraft.
In any communication the President sends 10 Congress recomending the 12-
position of - excess profits tax there enght to be a recomendation that the
Toboy rider to the Vinson-Tramell Act be repealed. The Toboy rider 10 . saare
and delusion. Net only does 10 deprive product of incentive to
participate is the actional defense program, but 19 affords no effective limite-
tion of profite and 18 proving a very serious hindresse to rapid production under
the actional defense program.
I
The Tobey rider impress a fist 100% profite 98% an 110
industries only.
This form of profit limitation discriminates unfairly among manufacture
empplying meterial to the Government.
For example, the manufacturer of as sugine (or part thereof) for a Bank is
sot cevered by the Toboy rider, but the manufacturer of as sagine for 48 sirplems
Le subjected to ire provisions; the maker of a machine gun for general purposes is
et covered, but if he manufactures one for an airplane the rider applies to him
and his subcombractors.
II
The Tobey rider pass a limit OR profits without regard to 8
fair return.
This form of profit limitation has as proper relation to the numerasturer's
actual investment or risk. the profit allowed is e percentage of the contract
price end of cost.
Regardless of the time in which capital is turned over at regardless of the
extent to which the Government supplies needed working capital, either by advances
- account of work and materials supplied or by lemo, the profit per unit of
production is the seas.
A percentage of emiract price, 07 of a cost which is practically guranted
through . five-year corryover not saly of losses but of deficiency of profit, al-
though mall is #self, my give - exerbited profit as applied to cash wait of
a large production.
Regraded Unclassified
CT
+
III
The Tobey rider mate and results in increased
Government amenditures.
This form of prefit limitation increases the prices which the Government
must pay for naval vessels and navel and military airdraft.
The higher the contract price the greater the allowable profit.
Moreover, contractors receive the same amount of profit, however vasteful
they may be, and have no incentive to avoid missessary costs.
In fact, the contractor derives an increased profit from uncommanical name-
sent thus breeding indifference to excessive cost.
IV
The Tobey rider disrupts usual channels of supply by burdening
contractors and subcontractors with couplex cest accounting
and federal policing.
This form of prefit limitation delays a contractor in securing his supplies.
It applies to all subcontracts exceeding $25,000 for all items which ultimately
become e component part of at neval vessel or naval or military airplane. It sp-
plice to spare parts, repair parts and fabricating supplies back to the THE
material.
Even though & subsontractor supplying, for emample, cotter pine has only a
small portion of his business devoted to the filling of an order for cotter pins
going into - carburetor for an aircraft engine, he must educate hisself " to what
costs are allowed and what items are not considered proper elements of cost before
he is in a position to miss a fire bid to the earbureter subsontractor or to ex-
pand his plant facilities to accelerate production.
It is necessary for every contractor and subcontractor down along the line
to the quarries and mines to establish a cost accounting system of a technical,
complex and intricate nature and to admit to his business establishment 8. force
of federal auditors and inspectors who will police his costs.
There is understandable hesitation and reluctance on the part of small con-
tractors to take work involving such necessary but wighty emoying red-tape.
The Tober rider is hardly self-supporting.
This form of profit limitation has not been productive of any substantial
revenue.
From the date of engetment of the Topey rider in Heroh, 1934 through May of
this year, the Treasury Department has collected about $3,700,000 in extress pre-
Regraded Unclassified
20
- 3 -
fire # 3,577 contracts est achoomizests completed during that period. or these
1,266 returns are still being audited.
buy elements of uncertainty require difficult judgements conserning the
proper allocation of costs in pleats having commercial did Government will not
covered by the Tobey rider, as will as Government contracts subject to its
restrictions.
VI
The Tober rider was heavy, ill-adriced legiclation
Neivithstanding that the Tobey rider levies e. 100 per sout 020000 profise
tax over at above the percentage limitation, It has never been studied by either
the House Ways and Home Committee 07 the Senate Finance Committee.
In these committees is vested the function of initisting tax legislation.
These condities are by experience best qualified to determine the occupate me
fiscal effects of prefit laws.
VII
The Eye Committee Gritteized the Tobor rider as institutive.
It is also noteworky that the Special Committee of the Senste as the
investigation of the multions industry (consisting of Senstors Eye, George,
Clark, Bame, Pope, Vendemberg and Barbour) is e report made on Time 19, 1956
concluded:
DO * . there is no effective profit-limitation law today ... the price
of real enforment of the attempts of Congress to limit profits/in/ a
cestly policing force of accountants and auditors ... end . series of
cestly lew suite after these andits have been completed ... the
attempts to enforce profit limitation are being thearted ....
[Senate Report No. 944, Pt. 9, pp. 12-13, 74th Come., 24
(Initialed) E. H. F., Jr.
7-1-40
Regraded Unclassified
July 9, 1940
11:15 a.m.
Present:
Mr. Bell
Mre. Klotz
Mr. Bell: This is a Greek ship. It's
5500 tons of wheat and barley and the origin 18 Canada.
It came through Buffalo to be exported from New York.
It's consigned to a man
HM.Jr: Excuse me. Exported from New York?
Mr. Bell: Exported from New York. Came by
train from Buffalo and loaded on to this ship at New York.
Consigned to a man by the name of Andreas in Switzerland,
clearing, of course, for Genoa, Italy, and handled by the
Granac Grain Company. Basil Harris 18 trying to find
out a little bit more about it, whether or not this ship
18 one of the twelve, but he had not been able, at ten
o'clock, to find out anything. I tried to get Berle and
he was out of the building. He will call me when he gets
back.
(At this point, HM, Jr spoke to Mr. Basil Harris
and transcript of their conversation 18 attached.)
Mr. Bell: Having originated in Canada, I should
say it 1s fairly safe
HM,Jr: Doesn't mean a thing these days. I will
try to get Berle.
Mr. Bell: Berle was out when I called him.
The State Department wants a conference, I think
on the searching of consular mail, and asked me if I would
Regraded Unclassified
22
-2-
come over and see George Moore.
HM,Jr: What's that?
Mr. Bell: On the Executive Order issued by
the President which permits Federal Reserve Banks to
have the man to whom the mail 1s addressed open the mail
in the Federal Reserve Banks. We have never been able
to get to consular mail which we think 1s quite an avenue
of escape and we sent a memorandum over there, about two
weeks ago, pointing out this was an avenue and we thought
something ought to be done about it and it has been shunted
back and forth in the Divisions over there and I think
there are a couple of schools of thought and they wanted
to know if we would have
(At this point, HM, Jr spoke to Mr. Hull and a
transcript of their conversation is attached.)
HM,Kr: I am not going to fool around with any
of these people any more and it's up to Hull.
(At this point, HM, Jr spoke to Mr. Hull over the
White House phone.)
HM,Jr: Mr. Hull said he can't see any objection
to letting this Greek vessel go. It's Canadian grain.
After all, Great Britain 1s in control of the sea and it's
up to Great Britain to do what it wishes.
(At this point, HM,Jr spoke to Mr. Basil Harris
and copy of their conversation is attached.)
23
July 9, 1940
11:14 a.m.
H.M.Jr:
Did you hear anything more about this
Greek ship?
Basil
Harris:
Well, I don't know how much you know.
H.M.Jr:
Well, I know that it's consigned to a man
by the name of Andreas in Switzerland.
H:
Yes.
H.M.Jr:
Well, do you know -- is it one of the twelve
ships?
H:
Well, that's what I'm waiting word on now.
I ought to have word any minute. The grain
actually 1s Canadian grain.
H.M.Jr:
Yeah, but have you heard -- have you talked
to the Swiss Legation?
H:
Well, no. I haven't talked to the Swiss
Legation. Would you suggest that?
H.M.Jr:
Sure.
H:
Yes.
H.M.Jr:
Supposing you call up the Swiss Legation
and ask them if they've got this
consigned to this fellow Andreas and do
they know about it and will they -- can
they give us any guarantee it is for con-
sumption within Switzerland.
H:
Yes. All right, I'll do that immediately.
H.M.Jr:
Will you do that right away?
H:
Yes, sir.
H.M.Jr:
Thank you.
24
July 9, 1940
11:16 a.m.
H.M.Jr:
Hello. (Pause) Hello.
Operator:
They said they were putting him right on.
H.M.Jr:
Will you call me when you get him.
Operator:
All right.
11:18 a.m.
H.M.Jr:
Hello.
Cordell
Hull:
Henry, I apologize. I couldn't get that
stuff -- they crowded in here yesterday and
ran me crazy and I couldn't get that stuff
ready until this morning.
H.M.Jr:
I see.
H:
And Admiral Richardson came in early --
he'd flown from Hawaii to have a talk with
me and I just had to talk with him.
H.M.Jr:
Uh-huh.
H:
Why on that oil business to the Canaries,
I had this idea in mind after talking around
that one thing you could do would be to ask
those fellows to come down here for & talk
about all angles of this and then you could
say things to them that you might not want
to put in writing in any way. Another thing
is that from our viewpoint it's dangerous
for American flagships to be carrying stuff
to the Canaries -- don't know when they'll
get bumped off and
......
H.M.Jr:
Well, these aren't American flagships --
they're South American. I think somebody
25
- 2 -
in the State Department better talk to
them. I think it's too much out of my line.
H:
Yes. Well
H.M.Jr:
Basil Harrie brought it to me but this
thing of whether they should take this
Venezuelan oil or Colombian oil and shoot
it over to the Canary Islands -- they
brought it to me and I only found out
afterward -- I don't think there are any
American flagships involved.
H:
I Bee.
H.M.Jr:
So I think I'm going to leave it with you
and whatever you decide -- it's your
business.
H:
Well, whatever you want to do.
H.M.Jr:
No, I don't think I'd better get in on it.
But I have got something which I've been
desperately trying to get an answer to. We
talked to Berle last night and we've had no
answer. We've been holding up a Greek flagship
loaded with Canadian grain. It wants to sail
for Genoa -- the grain to go to a man in
Switzerland.
H:
Yeah.
H.M.Jr:
And we've held this ship up and I've been
after Berle -- we've just got to get an
answer one way or the other.
H:
Yes. Well, I think we can answer you right
away. I'll go back in my other office and
check on that for about -- for just a few
minutes
......
H.M.Jr:
Would you?
H:
Yeah.
H.M.Jr:
Because I hate to
Regraded Unclassified
26
- 3 -
H:
Well, that's the way things will happen
under that blanket ruling, you know.
H.M.Jr:
I know, but this is the first case and
this 1s Canadian grain, came down through
Buffalo on board a Greek flagship, consigned
to a man by the name of Andreas in Switzerland.
H:
Yes. This is going from Canada.
H.M.Jr:
It's going to sail from New York.
H:
I know, but it's Canadian-owned stuff, presumably.
H.M.Jr:
It was Canadian grain.
H:
Yes, I see.
H.M.Jr:
And in a Greek flagship, going to Genoa,
consigned to a man by the name of Andreas
in Switzerland.
H:
Well, I'll get in touch with you
presently.
H.M.Jr:
And you'll let me know.
H:
Yeah.
H.M.Jr:
I'm ever 80 much obliged.
plays-
NUMBER OF BLAST FURNACES IN THE U.S
Distribution by Districts
***
all
-
E
-
S
WIN
y
N/L
Des
5
-
-
-
MAY
/
1
no
-
we
-
-
y
10PM
Mese
-
e
il
we
Own
il
il
-
14%
\\
Chicago
1
-
-
-
-
III
H.
11
y
/
FOCE
u.p.
Whesing
-
e
M/C
\
I
-
¿
guid
Applient 25+
F
I
--
N
in
Casa
1
ans
-
-
"
or
will
and
1
LA
M
LEGEND
Furnace - blost
Furnose cle
Furnace blown in since lost report
de of July 1 1940
Furnace blown out since loss repart
Tatal Furnaces - dinne
/MA
Cash were represente one furntice
Time/ Formaces idle
:
Total Furnoras blown
since (net report
⑇
fasar Purmoses blown -
last report
Differ of the Survery of we Transary
* Review
Including
-
-
Regraded Unclassified
28
July 9, 1940
2:15 p.m.
New York
Operator:
Hello, Mr. Morgenthau.
H.M.Jr:
Hello.
Operator:
Yes, Operator, he's on the line.
N.Y. Opr.:
All right, go ahead please.
Mr. Loree:
Hello.
H.M.Jr:
Yes.
L:
Mr. Morgenthau, this 1s Loree. Mr. Morgenthau,
I have been pretty much disturbed today over
an announcement that the post office is
going to take mail for Europe to Lisbon
tomorrow.
H.M.Jr:
You mean ......
L:
Now the difficulty I see there 1e that
we're -- our lawyers here are rather of the
opinion that we may have to send out statements
and advices of credite to individual and bank
accounte and it seems to me it would be
perfectly terrible for these Germans to get
advice of who's got money over here.
R.M.Jr:
Well, now, look, Mr. Loree. I don't quite
get this but could I get a stenographer
and have you
L:
Yes, eir.
H.M.Jr:
dictate -- I could switch it to
another room, you see what I mean.
L:
That's right.
H.K.Jr:
And you could dictate to somebody what you
have in mind. I tell you, the best way to
do it -- if Mr. Cochran 16 in, let me switch
you to him.
Regraded Unclassified
29
- 2 -
L:
All right, fine.
H.M.Jr:
Just a moment, then you tell him and he
can give it to me.
L:
All right, sir.
H.M.Jr:
Will you hold on?
L:
Absolutely.
Mr. Cochran's
Secretary:
Yes, sir.
H.M.Jr:
Is Mr. Merle Cochran in?
S:
I'll see. (Pause)
Operator:
Yes, sir.
H.M.Jr:
Is Mr. Merle Cochran in?
Operator:
They have an answer now -- just a second.
(Pause) Yes, sir he's here.
H.M.Jr:
Ask him to talk to Mr. Loree and after he's
talked to Mr. Loree I'd like to see him.
Operator:
All right.
H.M.Jr:
Are you still there?
Loree:
Yes, thank you, sir.
H.M.Jr:
O. K.
L:
All right, sir.
Regraded Unclassified
30
RE FREEZING ORDER
July 9, 1940
3:30 p.m.
Present:
Mr. Bell
Mr. Harrison
Mr. Foley
Mr. Bernatein
Mr. Chamberlain
Mrs Klotz
Mr. Cochran
H.M.Jr:
I am taking advantage of Governor Harrison
being here because I thought the New York
banks, Mr. Loree in particular, were trying
to put a little too much responsibility on
me, see. He called up - Loree 18 head of
& committee there which Mr. Harrison formed
in New York of all the banks that have to
do with foreign exchange. I think they have
got about 60 members, haven't they?
Harrison:
Well, there are nine members of the committee.
H.M.Jr:
But I mean institutions.
Harrison:
Well, exclusive of the stock market houses,
the stock exchange companies, I would think
there are between 50 and 60.
H.M.Jr:
Well, the point he was raising, it seems that
the first United States boat 1s sailing on
Thursday for Portugal, taking all mails and
he said he was very much disturbed that if
he had to send statements of the accounts to
their depositors, let's say to Holland, on this
boat, it would get in the hands of the Germans
and would give them a chance to find out what
some of these Netherlanders had, and he was
under the impression, without knowing any laws,
that when a U. S. boat sails, if you have any
mail, the law says it must go. There is no
law that says I have got to drop a letter
in the mailbox. Right?
Chamber'n:
No.
H.M.Jr:
Just common sense.
Chamber'n:
That is all.
Regraded Unclassified
- 2 -
H.M.Jr:
And he wanted us to do something about it
and I haven't had a chance, but it seems
to me if the Guaranty Trust or any other
bank has any statements which they are at
all worried about and feel that the requests
for them might not be legitimate or they
are the least bit worried about these getting
into hands that may injure their customers
that rather than we taking it up with the
Post Office - I haven't consulted anybody -
that all they have got to do is just use
their horse sense and say, "If this 18
going to injure our customers, we just won't
mail it." Does that make sense?
Chamber'n: I think further than that you have got this
Netherlands decree of the Government in
London, for whatever that is worth, which
you can't place any regulations on but which
the New York bankers must know of. I under-
stand they do. Under the Netherlands decree --
H.M.Jr:
This is George Harrison's pet committee.
Poley:
This is the Dutch decree which was published
and has been given official cognizance by
the State Department here and the decree ex-
pressly provides --
H.M.Jr:
According to Protocol, in order for Mr. Loree
to call me up, he should have done it through
George Harrison.
Foley:
If anybody here sees the request as to the
status of an account from somebody now in
Holland, that bank could properly say that
the request should be mailed by the person
in Holland to the Minister in this country,
who is trustee for the property, and let
him be responsible.
Chamber'n:
of course, the Secretary couldn't take any
such action.
Poley:
No, but the bank could do it.
Regraded Unclassified
32
- 3 -
H.M.Jr:
George Harrison can call up Loree if he
thinks this is wise - what is Loree's
first name?
Harrison:
Bob.
H.M.Jr:
He can say, "Look here, Bob, what the
devil do you call up Morgenthau for when
I am down in Washington?" That is number
one. Number two, we have had a meeting
down here and he does or doesn't think
this is wise and if Loree is worried about
his customers, tell the committee of 60
if they have got any doubts, just tell
them to do it.
Harrison:
I don't see yet why he asked you to do it
for.
H.M.Jr:
Merle Cochran was here. He was awfully
excited. Is he an excitable person?
Harrison:
Merle Cochran?
H.M.Jr:
No, Merle hasn't got any nerves. Loree.
Bell:
He wanted us to rule that these statements
or accounts were evidence of indebtedness
and therefore came within the order, the
freezing order.
(Mr. Cochran entered the conference)
H.M.Jr:
Merle, Governor Harrison questions what I
have been saying BO will you tell Mr. Harrison
just what Mr. Loree said to me? It seems un-
believable. I can't believe it.
Cochran:
These are the notes I made. He telephoned
that he read in the paper that this ship
was sailing Sunday and it gave a. list of
the countries for which mail WAS being
taken. It included a number of the occupied
countries and he said that the Post Office
people had given him to understand that
they were obliged to send mail when their
work was for dispatch in the mail and he
Regraded Unclassified
said that it might be detrimental to some
of these people who had accounts with the
banks in New York if the Germans - or he
said certain people - had the chance to 808
statements of the accounts which the Guaranty
would send out. He mentioned one particular
account in Rotterdam where that bank's account
had been debited for $50,000 in favor of B.
man and wife whose names were given. He
said if people got hold of this specific
piece of information it might be used to their
disadvantage. He asked if the Secretary would
care to take it up with the Post Office Depart-
ment with the view to having an order gotten
out saying that mail should not be accepted
for those countries, and I told him that we
had been considering whether or not our own
freezing regulations were applicable to state-
ments of brokerage concerns and banks and I
spoke to the Secretary about it.
H.M.Jr:
What do you mean, George?
Harrison:
I still don't understand Loree and I don't
understand the Postmaster. I just can't be-
lieve the Postmaster tells me I have got to
write to everybody in Europe that I know.
Bell:
He didn't say that. He said he had got to
send his mail, if any.
Foley:
I think he said that if you drop B. letter in
the box addressed to somebody in Holland,
the Postmaster has got to put it on 8. boat.
He can't hold it up, and I think that is
probably what he asked him and that is the
answer he got.
H.M.Jr:
But there is no law saying he has got to
80 to the post box.
Foley:
No, he hasn't got to put it in the box.
Harrison:
Probably what 18 bothering Loree is that he
has an arrangement with all of his customers
that he will send statements once B. month
or every two months, you know, and having
Regraded Unclassified
34
- 5 -
that arrangement, he feels that from his
standpoint he probably ought to put it in
the post box and in that event it will go,
unless you have the Postmaster say he won't
deliver it.
H.M.Jr:
But why call up the poor Secretary of the
Treasury and ask him?
Harrison:
I don't know.
H.M.Jr:
Would you do this for me? I am terribly
serious now. I think - - I heard you say
you were leaving at 5:00 o'clock. If you
could use our phone wherever you want to
use one and call up Loree and tell him to
get his group together and if there are
people like he mentions, unofficially I
am glad. It seema to me that the thing is
just humane, to delay sending those. I
mean, where it is a matter of life or death
to these people, it is just a matter of
decency on the part of the group not to send
them. I didn't say withheld them, just delay
sending them. Do you agree, George?
Foley:
And they have got to get protection.
Harrison:
Yes, I agree.
H.M.Jr:
Professor Chamberlain?
Chamber'n:
Yes, I certainly would do it.
H.M.Jr:
I would like to go that far in answer to
Loree, if you will transmit that to him.
Chamber'n:
Unofficially, of course, Mr. Secretary, yes,
just one human being to another.
Harrison:
Yes. Knoke is on his vacation.
H.M.Jr:
And what are you?
Harrison:
Well, it is more of a vacation than it is in
New York.
Regraded Unclassified
35
- 6 -
H.M.Jr:
George, would you get that message to Loree?
Harrison:
I will do it right away.
H.M.Jr:
Don't you think - if you were there wouldn't
you withhold it 1f you knew that this fellow
getting this thing --
Harrison:
I don't know what his contract 1a with these
people.
H.M.Jr:
But the boys say he has legal protection.
Harrison:
The thought in my mind is whether he couldn't,
if he feels he is under a great legal diffi-
culty, just mail it to the Minister in Wash-
ington under this decree.
Foley:
Sure.
Chamber'n:
There is no objection to his doing that and
telling the Minister that under the terms of
the decree he will send to him - understanding
that the Minister is acting --
Foley:
The Minister will know what to do with them.
Chamber'n:
He might go ahead and explain that under the
terms of the decree the Minister is acting
as sort of a custodian, because he says the
property will be retained and therefore he
1s sending it to him as custodian under the
terms of the decree.
Harrison:
I think I wouldn't do that unless he feels
impelled by circumstances.
Chamber'n:
No, and I wouldn't suggest it to him unless -
until he has made a good deal of study of
what the situation is. I don't think I would
go further than the Secretary suggested at
this time, and then later, if you want to -
when you see him, talk with him. You might
find out what the trouble is and suggest to
him that this decree exists.
Harrison:
Well, the first question, as I understand it,
Regraded Unclassified
36
- 7 -
put to the Secretary, Mr. Cochran, was
will the Secretary try to get the Postmaster
General to say he will not take mail for the
occupied countries. I think the Secretary
should say that is none of his business.
The second question he asked, the question
was what - is that the only question he asked
the Secretary?
Cochran:
That was the only question. I told him that
we had been going over the question, as we
had, but I didn't mention that I discussed
it with your bank, as to whether brokers and
bankers should under our regulations continue
to give payments to foreign clients in those
occupied countries.
Harrison:
I don't think the regulations help one way or
the other on that.
Cochran:
I didn't give him any decision.
H.M.Jr:
Are we all right, George?
Harrison:
Yes, I am all right.
H.M.Jr:
And would you mind leaving word with Bell
whether you want to talk to them?
Harrison:
Yes, I will do it now.
nut
MEMORANDUM
9/40
A number of New York brokers have recently received communi-
cations purportedly sent by their clients in the Netherlands requesting
such brokers to furnish to the Dutch cliente statements of account and
other records relating to the accounts of the Dutch clients. The com-
minications state that the reason for the request is the fact that the
records held by the Dutch clients have been destroyed during the war.
The New York brokers, in some instances at least, feel that the requesta
for the statements of account, etc., either were not sent by their clients
or were sent by such cliente under compulsion. Accordingly, such brokers
apparently do not wish to respond to the requests which they have received.
The brokers have inquired of the New York Federal Reserve Bank whether the
sending of such statements of account is prohibited by Executive Order No.
8389, as amended. In at leart two instances, applications for licenses
authorizing the sending of such documents have been filed.
There are several possible ways of dealing with the foregoing
matter:
(1) The Treasury Department might rule that the
sending of statements of account, etc., to countries
named in the Executive Order is prohibited by the Order.
It 16 possible to contend that statements of account are
evidences of indebtedness or evidences of ownership of
property within the meaning of the Executivo Order. It
is also possible to contend that the sending of such docu-
mente is prohibited as a transaction which will have the
effect of evading or avoiding the other prohibitions of
the Executive Order. An apparent advantage of making
such a ruling is that it possibly will prevent the Germans
from obtaining information with respect to holdings in this
country of nationals of the invaded countries.
(2) The Treasury might rule that the sending of
transcripts of account, etc., is not prohibited by the
Executive Order. Such & ruling would take account of the
fact that it is not clear that transcripte of account, etc.,
are evidences of indebtedness or evidences of ownership within
the meaning of the Executive Order. Such a ruling would also
take account of certain practical considerations involved,
namely, that we would be attempting to regulate practically
all communications between banks and brokers in this country
and banks and brokers in the invaded countries. Such attempted
regulation would obviously involve considerable interference
with business which has already been considerably restricted.
Moreover, it would seem to be somewhat inconsistent to permit,
as we do under certain general licenses, transactions to be
carried out in this country for the account of nationals of
the invaded countries, and at the same time, not to permit per-
sons in this country carrying out such transactions, to furnish
Regraded Unclassified
38
- 2 -
their clients with information as to such trans-
actions. It may be questionable whether the end
to be achieved by the proposed form of regulation
would justify the means. Even if the Germans dis-
cover the existence of property in this country,
such property will still be subject to the control
set up by the Executive Order.
(3) As an alternative procedure, the Treasury
Department might advise Federal Reserve banks to
advise brokers that for the time being, the Treasury
Department is not requiring licenses to be obtained
in order to permit the sending of statements of ac-
count, etc., to nationals of invaded countries. The
advantage of this procedure is that it saves the
question of whether the sending of such documents is
prohibited by the Executive Order, and thus enables
the Treasury to take the position at a later date,
that such transactions are prohibited under license.
At the same time, it avoids some of the disadvantages
referred to under (2) above. On balance, this seems
to be the most desirable procedure for the present.
39
July 9, 1940
My dear Mr. Secretary:
Thank you for your letter of July 3rd, with
respect to the meeting of the National Munitions
Control Heard to be held in your office at 3:30 P.M.,
Tuesday, July 9. 1940.
As it is doubtful that I shall be able to attend
this meeting, I have designated Mr. Philip Toung to
act as w alternate on the National Munitions Centrol
Heard.
Sincerely,
(Signed) H. Morganthau, Jr.
the Nemorable,
the Secretary of State.
First
ce to ms. Thompson
By Messenger 1205
(mailed in office) M. youngs
Regraded Unclassified
40
July 9, 1940
My dear Mr. Secretary:
Thank you for your letter of July 3rd, with
respect to the meeting of the National Munitions
Control Board to be held in your office at 3:30 P.M.,
Tuesday, July 9, 1940.
As it is doubtful that I shall be able to attend
this meeting, I have designated Mr. Philip Young to
act as my alternate on the National Munitions Control
Board.
Sincerely,
(Signed) H. Morgenthau, Jr
The Homorable,
The Secretary of State.
Fribj
By Messenger
Regraded Unclassified
- OFFICIAL COMMUNICATIONS TO
THE SECRITARY OF STATE
41
WASHINGTON, B. c.
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
July 3. 1940
Co
My dear Mr. Secretary:
Section 12 of the joint resolution of November 4,
1939, prescribes that the National Munitions Control
Board shall make a report to Congress on January 3 and
July 3 of each year. A report to be presented to the
Congress as of July 3, 1940 has been drafted by the
Executive Secretary of the Board and 18 being submitted
for consideration to the officers whom you and the other
members of the Board have designated to act in liaison
with him on questions pertaining to the activities of
the Board.
I suggest, therefore, that a meeting of the National
Munitions Control Board be held at 3:30 p.m. on Tuesday,
July 9, in my office for the purpose of considering the
draft which, if it is approved, should be signed jointly
by the members of the Board.
I
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
- 42
-2-
I hope that the members of the Board will find it
convenient to attend this meeting.
Sincerely yours,
THEM TA c X E JL04
RECEIVING n'. DALISE
40
Excerpt from Paris' telegram dated July 9, 1940
via Berlin
Banking transactions have been suspended since
June thirteenth. This situation was legalized by &
prefectoral arrete issued on the twenty-fifth. All
accounts existent on the former date are blocked. This
embargo will be lifted progressively as funds are received
from the Bank of France. No restrictions are placed on
deposite made subsequent to June thirteenth. No trans-
actions in foreign exchange are being effected. Efforts
are being made to have the head offices of the banks
return to Paris. A general moratorium on all notes, bills
of exchange, drafts, checks and debts contracted prior
to June thirteenth has been declared and will be effect-
tve until July twenty-fifth. All banks have been called
upon to furnish a comprehensive statement covering their
foreign exchange holdings, foreign securities, accounts
held abroad and safety deposit box holders. The latter
may not be opened except in the presence of a German
official. An acute currency shortage created by the
banks' compliance with the Bank of France's instruction
to destroy banknotes in their possession has been
partially alleviated by the issuance of five hundred
million france in notes by the Bank of France branch in
Paris on July second, and by the increased circulation
of
Regraded Unclassified
-2-
of kreditkassen marks paid out by the German troops.
Until further notice the exchange rate has been fixed at
twenty francs to the mark. Plans to issue a municipal
franc currency have been abandoned. French exchange con-
trol and import and export regulations will continue to
be in force for the time being.
Regraded Unclassified
45
July 9, 1940
My dear Mr. Ambassador:
This will acknowledge receipt
of your letter of July 8th inclosing
8. copy of the aide memoire which you
gave Mr. Hull.
I have read this material with
great interest and shall be pleased to
discuss it with you at dinner tomorrow
evening.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
His Excellency,
The British Ambassador,
British Embassy,
Washington, D.C.
By Messenger
Regraded Unclassified
and
46
as act noe
BRITISH EMBASSY,
WASHINGTON, D.C.
July 8th, 1940
rwB
SmH
Dear Mr. Morgenthau:
I enclose for your information
an aide memoir which I gave to Mr. Hull
at the end of last week. It represents the
considered views of the British Government
about the future of the war. The subject
matter, some of it, I think, would be relevant
to what, perhaps, we might talk about on
Wednesday evening.
I propose, also, to ask for dinner
Lord Melchett, who has been closely connected
with a lot of our war preparations, and has
some interesting side-lights upon their de-
ficiencies.
Yours sincerely,
Loluzan
he Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
COPY
AIDE MEMOIRE
His Majesty's Government in the United
Kingdom desire to invite the attention of the United
States Government to the grave consequences to the
Allies and to the cause of civilisation, of the
collapse of French resistance to totalitarian aggres-
sion. They feel that they are entitled to place the
results of their own review of the conditions thus
created before the United States Government, because
the United States Government have repeatedly stated
that they are deeply concerned with the preservation
wherever possible of free institutions, because
successive United States Administrations have declined
to recognise the validity of the forcible annexation
of territory by an aggressor, a.d because within the
limits imposed by their international obligations and
the Neutrality Act they have throughout rendered all
the assistance they could to the llies.
2.
His Majesty's Government do not wish to
discuss in this Aide Memoire the military consequences
of the collapse of France further than to say that the
economic and manufacturing resources of almost the
whole of Europe are now at the disposal of the Nazi
and Fascist Powers for the purposes of attack on Great
Britain, now almost the last free country left in
Europe. They would only repeat what they have suid
before, that the immediate sale of destroyers and power
boats, aeroplanes and semplanes, and guns, rifles and
ammunition of all kinds is of the utmost importance if
the impending attack on Great Britain is to be beate
Regraded Unclassified
-2-
off before winter sets in. His Majosty's Government
gratefully acknowledge the great value of the war
material that the United States Government have already
released to them, but feel constrained to emphasise
once more that further releases, if promptly made,
would be of immeasurable value.
3.
His Majesty's Government desire in this Aide
Memoire rather to call attention to the economic
situation which follows from the French collepse. In
this field they desire to impress upon the United States
Government the conviction to which they have been driven,
that if victory over Nazi aggression is to be achieved,
they must seek from the United States equipment, supplies
of aircraft and other munitions and essential raw
materials on an altogether larger scale than hitherto.
This is partly because the Nazi successes in Europe
have deprived the Allies of many sources of supply to
which they have hitherto had acess and partly because
incessant bombing is likely to reduce their own
manufacturing capacity, while intensive submarine and
air blockade is likely to reduce the quantity of food-
stuffs and materials they can import from abroad.
4.
In these altered circumstances, His
Majesty's Government believe that the United States
Government will not take it amise if they express the
conviction, founded upon their own experience, that the
United States Government will find that if they are to
complete their own rearmament programme in the shortest
possible time and at the same time provide the increas
supplies necessary to enable Great Britain and the
Dominions and their allies to meintain the struggle,
that/
Regraded Unclassified
-3-
that far-reaching changes in the industrial organisation
of this country are essential. His Majesty's Government
have found that their own programes have suffered
severely from slowness in realising this necessity and
they are anxious to place their own experience in this
matter at the disposal of the United States Government.
5.
The natural tendency of all democracies
engaged in rearmament is to believe that it is possible
to expand the production of guns and to enjoy 8. full
supply of butter at the same time. His Majeaty's
Government have found by bitter experience that this
is not true and that full production cannot be secured
solely by expansion and development of munitions and
auxiliary industries, other industries being left
unaffected. The establishment of requisite priority
for labour, materials, machine tools, etc., necessarily
involves the early curtailment of production for
domestic civil consumption. This reorganisation becomes
all the more necessary if more than one country is
engaged in expanding its production of armaments and
if raw material supplies are limited. Where total
available supplies are restricted (e.g. raw materials
such a aluminium and steel or machine tools) His
Majesty's Government hope that the Administration will
agree to open immediate discussions with them on
allocations as between themselves, Great Britain and
Canada to secure the maximum possible production with
the utmost promptitude. As regards raw materials they
hope also that it will be possible that those Central
and South American States who are important producers
should be included in the proposed arrangemento.
6./
Regraded Unclassified
-4-
6.
So long 0.8 gold and other foreign assets at
their disposal permit, His Majesty's Government will of
course continue to pay cash for essential armaments, PE#
materials and food stuffs. They feel however that they
should in all frankness inform the United States Government
that it will be utterly impossible for them to continue
to do this for any indefinite period in view of the scale
on which they will ne d to obtain such resources from
United States. Their immediate anxiety arises from the
necessity of entering into long term contracts.
7.
There 1s a considerable risk that, with the
development of total war and the consequent great increase
in the calls on the Royal Navy, the merchant marine serving
the Allies may for a time at least suffer from a much
higher rate of losses than hitherto. The temporary ex-
pansion of Allied shipping facilities due to the fact that
certain Norwegian, Danish and other merchant vessels are now
available would not offset the situation created by such
losses. His Majesty's Government therefore feel compelled
to ask whether the United States Government can take steps
by whatever procedure seoms most expeditious, to secure
the withdrawel of the present proh bition on ships flying
the United States flag entering the "combat areas" and
belligerent ports to the extent necessary to permit such
ships to bring imports to Great Britain. If they are
prepared to do this His Majesty's Government would urge
that the Administration jointly with themselves should
immediately examine the possibilities of taking measuros
to secure the most effective joint use of the merchantile
fleets of the United States, of the United Kingdom and
their Allies and those of the Central and South American
states.
8. His/
Regraded Unclassified
51
8.
His Majesty's Government regard it as a matter
of the utmost urgency, from the point of view of wartime
Regraded Unclassified
control as well as from that of post-war reconstruction,
that the plans of the British nations and their Allies
for dealing with their export surpluses should be con-
certed with those of the United States and of the other
American Republics for dealing with theirs, and this is
especially 80 as regards those products of which there
is likely to be a world surplus, 0.8. cotton, corn, wheat,
edible oils. A fuller statement of the views of His
Majesty's Government on this subject is given in the
British Ambassador's separate memorandum "A" of July
3rd, 1940.
There are B. number of ways in which Germany
and Italy might obtain resources from America, and Hie
Majesty's Government accordingly desire to urge strongly
that:-
(a) The United States Government should use any means
in their power to out off from Germany, Italy and the
territories occupied by those states, including France, all
direct end indirect exports from the United States of
America; and to limit exports to other destinations from
which they might subsequently reach German or Italian
controlled territory. The more detailed views of His
Majesty's Government on this vital subject are contained
in the British Ambassador's separate memorandum "B" of July
3rd, 1940.
(b) The United States Government should take measures
to blook financial balances belo-nging to Germany or Italy
as has been done in the case of occupied countries, and
obtain any supplementary powers needed for this purpose.
The previous exchange of views on this subject, ending
with/
with Mr. Sumner Wellee' letter to His Majecty's Ambasaador
of 20th June, 1940, has not been overlooked, but His
Majesty's Government would once more emphasise the great
importunce which they attach to action of this kind, and
would urge that the previous decision should be reconsidered
(a)
Steps should be taken to prevent the return from
the United States to Europe of German and Italian tech-
niciana either for military service or for employment
as skilled operatives in the war industries.
9.
In the event of His Majesty's Government in
the United Kingdom deciding to invite the Governments
of the Central and South American States to adopt measures
parallel with those referred to in paragraph 8 of this
Alde Memoire, His Majesty's Government wish to express the
earnest hope that the United States Government may 808
their way either to take the initiative in the matter or
to use their good offices with those Governments in sup
port of that spproach. These governments have an equal
interest with the United States in preventing the Nazi
and Pascist powers from obtaining the resources which may
enable them to adopt a policy of aggression in America.
Ae regards financial measures, His Majesty's
Ambassador had 8. preliminary discussion on the 26th June
with Mr. Summer Welles, who promised to look further into
the matter. Certain action has been taken by the
Governments of the Argentine Republic, Brazil, and Uruguay,
but it does not appear to go far enough, while in Chile
no action has been taken.
A note giving more detail of the direction
in which M ction is desired will shortly be submitted to
the United States Government.
10. Hia/
Regraded Unclassified
53
-7-
10.
His Majesty's Government in the United
Kingdom realise that in the above statement they are
making wide and even difficult requests to the United
States Government. It is only right therefore that
they should conclude by stating in the gravest possible
manner their considered opinion that the measures out-
lined are necessary if the civilisation which the
United States and the nations of the British Empire
share in common is to be successfully defended from
attempts to overthrow it.
BRITISH EMBASSY
WASHINGTON, D.C.
July 3rd, 1940
Regraded Unclassified
54
A.
LEMORANDUM
His Majesty's Government in the United Kingdom
are greatly interested in that part of the statement issued
to the press by the President on June 21st relating to
proposals which are being placed before other American
Goverments for cooperative economic action by the American
Republics and possibly by other countries, to include an
effective system of joint marketing of the important staple
exports of the American Republics.
His unjesty's Government have themselves been
making a survey of the problem of dealing with surplus
commodities produced in territories of the British Empire
and in such parts of the French, Dutch and Belgian Colonies
as can be controlled. This survey will include the
investigation of the possibility of dealing with surpluses
by regulated sales, storage, destruction where necessary,
and restriction of excess production,
His Majesty's Goverment will give full informa-
tion to the United States Government on the progress of
their survey. They hope that the United States Government
will do likewise and that any decisions taken on the United
States proposals at the forthcoming Pan-American Conference
st Havana will not preclude cooperation with them.
The United Kingdom and the British Empire
provide the principal foreign markets for a large range of
surplus commodities from North and South America. At the
BELOW time British Empire surpluses of commodities which the
American Republics also produce might, if unregulated,
impinge upon American interests. From the point of view
of wartime control and also from that of post-war
reconstruction it appears to His Wajesty's Government that
/American
Regraded Unclassified
- 2 -
Vuerican regulation and British Empire regulation should
be brought into line, and it is their desire to find
agreement with the United States as well as with other
American countries on this question.
Ao regards those products of which there is
likely to be a world surplus, (e.g. cotton, corn, whent,
edible oils) 1(1s injesty's Goverment feel that it is of
the utmost urgency that the plans of the British nations
and their Allies for dealing with their export surpluses
should be concerted with those of the limited States and
of other states in the Western Remisphere.
His lajesty's Government realise that in
origin the examination of the United states Government
was directed to an economic and political problem while
theirs is at least to an equal extent an urgent problem
of withholding supplies from Germany and countries under
her
control.
on this aspect of the question lie
polety's Anbassador is addressing a suparate memorandum
to the Secretary of State.
BRITISH EMBASSY,
WASHINGTON, D.C.
July 3, 1940.
Regraded Unclassified
56
B.
LIELIORANTXIM
In the altered situation following the capi-
tulation of France, His Majesty's Government regard it
08 vitally important for the success of their war effort
that supplies of all kinds should be denied to Germany and
Italy and to all territories, including France, now
occupied by them. A corollary to this is that all
supplies to "dangerous" noutral destinations, i.e. to
countries from which supplies could reach Germany and
Italy and occupied territories, should also be strictly
limited.
llitherto the Allied Governments have sought
to schieve this end by contraband control.
On account
of recent developments, however, the prevention of ship-
ments to Europe by naval action may become increasingly
difficult and incomplete. It is therefore extremely
desirable and it may soon become cesential to relieve as
far as possible the actual machinery of the blockade. The
only effective means of doing this is by the strictest
possible control at the source.
His Majesty's Government realise that the
immediate economic export problem confronting the United
States and other American Governments is different in
origin from their own, which 10 one of blockade. The two
do, however, overlap, The sole object of the blockade
is to embarrass totalitarian aggression and to bring the
war to the earliest possible successful conclusion. Ilis
Unjeety's Government, who have no intention of using the
blockade for their own commercial interests, believe that
the deterioration of economic conditions in Europe will
/be
Regraded Unclassified
57
( 2 )
be the most important influence in rendering German
successes illusory, and in lessening their capacity for
economic, political and military aggression on the
American continents or elsewhere.
This is the object
of their policy, and a review of the factors as they
exist to-day has convinced then that success can only
be attained with the active cooperation of the United
States Government. They therefore earnestly hope
that the United States Government will regard it as an
American interest to extend to the Allies full economic
support by denying all supplies, direct or indirect, to
Germany and Italy and to countries under German and
Italian control, and by endeavouring to induce other
American countries to take the same line.
BRITISH EMBASSY,
WASHINGTON, D.C.,
July 3rd, 1940.
Regraded Unclassified
53
LOCKHEED
BURBANK. CALIFORNIA
July 9, 1940
lbs Noncerble Fentry Morgenthau, Jr.,
Tax! ANY of the Treasury,
Department,
E, C.
Door Sir:
In the reports which we have submitted to date to Mr. George C. Haas,
Director of Research and Statistics of the Treasury Department, we have not in-
vivied certain projects which had been covered by contracts at hand, for the
NAME that the contracts included agreements between Lockheed and its CUS-
United got only that no publicity would be given the contracts but that the
existance of the models involved was to be kept strictly secret. It is
May realised that NC were under obligation to the Government to furntsh In-
Downtion desired, but until such time na we could be relieved of bur con-
tractual obligations, and in view of the fact that the load on our fatory in-
10206 27 there contracts Was peyoble with rezpect to the impodiate picture, It
- Past that we met adhern strictly to our contracted obligations.
Te are now permitted to INVEET the enistence of these obligations,
-- do not designate specifically the American customirs involved there-
15, nind provided 16 12 agreed that this entire matter be kept completely con-
Inseauch 0.8 any breach of this condition would undoubtedly result
in n Fult for danages being brought against us by our American customers.
The sirplaned involved and the contracted deliveries schoduled tre
follows:
FYCALINUR and EXCALIBUR "A":
Contracts with U. S. Commercial customers Bated November 14,
1939, May 17, 1940 and June 11, 1940 for eighty-seven (87) airplanes,
to be delivered two (2) In May 1941, 1 (one) in June, two (2) July,
the (2) August, two (2) September, one (1) October, two (2) November,
four (4) December, one (1) Jenuary 1942, two (2) March, three (3)
April, three (3) May, and four (4) per month thereafter, concluding
with two (2) in Sentember 1943.
Royal Dutch Airlines, Batevia C., Java, Dutch Cast Indiac, under con-
truct deted April 6, 1940, eight (8) airplanes to be delivered one (1)
Regraded Unclassified
59
The Honorable Henry Morgenthau, Jr.
July 9, 1940 - Page 2.
in February, 1941, one (1) in March, one (1) April, one (1)
May, one (1) January 1942, two (2) February and one (1) March.
South African Airways, Germiston, Union of South Africa,
under contract dated April 15, 1940, two (2) airplanes to be
delivered one (1) in October 1941 and one (1) in November.
Yours very truly,
LOCKHEED AIRCRAFT CORPORATION
G. V. Carr,
Production Control Manager
60
July 9, 1940
8:53 a.m.
B.M.Jr:
Hello.
Leon
Henderson:
Hello. This 16 Leon.
9.M.Jr;
Hello, Leon.
H:
Say, we had a very good meeting last night.
I don't know whether you've got any report
from it or not.
H.M.Jr:
No. The boye aren't in yet.
H:
Well, they certainly pierced, I mean, they
certainly went after very vigorously and
actively all the various pointe in the
proposal and while we didn't come to any
understanding -- naturally, we couldn't,
I think we canvaesed nearly all of them.
H.M.Jr:
Yes.
H:
And we canvassed the question 86 to whether
it ought to be dated in September, the time
of the emergency, or now. I'm not particularly
concerned on that one.
H:M.Jr:
Did somebody make a commitment to some tank
concern on that?
H:
I don't know. I hear that they did and I
have not been told. On this particular
matter I didn't get in until around last
Tuesday, I think it was.
H.M.Jr:
Well, why wouldn't you know if they had?
H:
Well, because of the way the Commission
was set up, Henry, it was -- we're practically
-- whoever get it up had in mind that we
would not have & lot of clearance through
the Commission 8.8 a Commission. The
individual Commissionere would go boldly
ahead. We are, however, making very satis-
factory progress in getting things on a
Regraded Unclassified
61
- 2 -
Commission clearance basis. It doesn't
suit me yet. There's too many things which
are done on the old basie of taking them
over to the Bose and getting an F.D.R. on
them, but I assume from talking with Mac
and from other things that that was the
way the Boss wanted it done. I have -- to
me it appalls me
and I've been reaching back into the --
these individual operations and trying to
drag some of them to the Commission table
and I've been successful in some but still
there 18 a lot goes on that I don't know
about.
H.M.Jr:
Well, I'm glad you had a good meeting
and I'll get the boys to tell me about it
a little later.
H:
I've just said what I wanted to say to you.
I think that this thing is a very important
one, but maybe I've got it over magnified.
If you people -- and I'm not anxious to do
it -- if you want me to go down to the Hill
when it goes down and undertake to defend
it, you know you can count on me.
H.M.Jr:
Well, I'm glad to know that and I'll see you
personally again. I want to talk to you
about this thing -- this whole thing bothers
me a lot and I'll see you privately, Leon,
before I go anywhere.
H:
All right.
H.M.Jr:
0. K., Leon.
H:
All right then.
H.M.Jr:
Good-bye.
Regraded Unclassified
BL
July 9, 1940
11:29 a.m.
Baeil
Harrie:
I talked with Dr. Bruggmann. He eays,
yes, that 1e one of the ships that they've
arranged through Andreas' company to send
that grain into Switzerland, end he said
Andreas' company are very reliable people
acting for account of the Swiss Government
and he said he could give me the utmost
reassurance
H.M.Jr:
Well, why doesn't the so-and-so tell the
State Department and the Treasury about
it. I mean, it's perfectly silly. Aek
him will he give us a list of any more
steamers that are going to go then there
won't be all this fuseing.
H:
Yes. Very good.
H.M.Jr:
Please to give us 8 list of what other
steamers are going to go as many days in
advance as possible.
H:
Very good.
H.M.Jr:
And I'd like a letter covering this from
him to you guaranteeing this, If this 18
for Switzerland.
H:
Yes. All right.
H.M.Jr:
And as much more -- ask him to cover this
in a letter, will you?
H:
Yes. I will.
H.M.Jr:
And how many more.
H:
All right.
H.M.Jr:
Mr. Hull and Mr. Berle personally knew nothing
about this.
Regraded Unclassified
63
- 2 -
H:
Yes.
H.M.Jr:
It's just the heighth of stupidity on the
part of this man.
H:
Very good. I'll get that cleared up.
H.M.Jr:
Thank you.
H:
All right.
...
01
July 9, 1940
4:32 p.m.
H.M.Jr:
Kannee?
Henry
Kannee:
Yes, sir.
H.M.Jr:
Who gives Colonel Maxwell his orders?
K:
Let me see -- what was that?
H.M.Jr:
He's the fellow on strategic shipments --
export control.
K:
I don't know, sir. I'll find out.
H.M.Jr:
Well.
K:
I'll find out and call you back. Shall I?
H.M.Jr:
Well, I'm going to give him some. I don't
know how it'll sit.
K:
You might try it, sir.
H.M.Jr:
All right.
K:
Right.
H.M.Jr:
Thank you.
K:
Thank you.
Regraded Unclassified
65
July 9, 1940
4:33 p.m.
H.M.Jr:
Hello.
Operator:
Colonel Maxwell.
H.M.Jr:
Hello.
Colonel
Maxwell:
Colonel Maxwell.
H.M.Jr:
Secretary of the Treasury speaking.
M:
Yes, sir.
H.M.Jr:
Colonel Maxwell, are you familiar with
this 3% million rounds of 9 millimeter cart-
ridges which are on board a Swedish ship?
M:
I had a message from Mr. Young about that
several days ago, sir, in which he said
that there was a case of that kind coming
up, but that's all the information that I
have.
H.M.Jr:
Well, they're now on the ship and this is
the point. Using this as an example, it
seems to me that all licenses should be
revoked prior to the President's proclamation
and then as these cases come up they can
be re-issued.
M:
Yes.
H.M.Jr:
But there's 23,100,000 rounds of this
ammunition on order for Sweden and 3% million
are already on this ship and I hate to go
with every little thing to the President
but I know that he doesn't want this stuff
to go to Sweden.
M:
Yes. Well, I have that matter up with the
President now and I'm waiting to hear any
minute for clearance on the question of
Sweden and the minute I get clearance on it
we'll be able to handle this in B lump.
H.M.Jr:
Well, now, how do you propose to handle it,
if I may ask?
Regraded Unclassified
- 2 -
M:
Well, we'll handle it by instructions to
the Division of Controls in the Department
of State.
H.M.Jr:
Telling them what?
M:
In which we'll require them to -- under
which they will revoke all the licenses
they had issued up to the time they received
these instructions and then they won't
issue any more.
H.M.Jr:
To all countries?
X:
No. To this particular country.
H.M.Jr:
I see.
M:
And that case 18 awaiting decision right
at the moment.
H.M.Jr:
You mean it's supposedly on the President's
desk?
M:
Yes, sir. And 88 soon as I get the check
on that, the matter will clear up immediately.
We'll be doing in effect just what you have
suggested should be done.
H.M.Jr:
But only in regard to Sweden.
M:
That's correct.
H.M.Jr:
Well, I'll take
......
M:
Now there are other cases that are being
developed by the State Department which
we'll take up in a similar manner as soon
88 they're clarified.
H.M.Jr:
Well, would it be helpful to you if I try
to get the President now and ask him to give
a decision now, because we're holding this
ship.
M:
Yeah. Well, General Watson 16 my point of
contact over there.
Regraded Unclassified
67
- 3 -
H.M.Jr:
Well, he's mine too and he'e gone home.
That's my trouble.
M:
Yes. Well, I sent these papers over there
earlier this afternoon and I've been hoping
to hear any minute that -- to get my go-
ahead from over there.
H.M.Jr:
Well, I think I'll -- I'll see if I can get
the President and I'll say that I spoke to
you and I don't know just what the status
would be with this stuff already on the ship.
M:
Well, this 18 my Directive No. 5, addressed
to the Division of Controls, the Department
of State in which I set up the prohibition of
exports of arms, ammunition and implements
of war as defined in the President's procla-
mation 2237 of May 1, 1937, and I'm awaiting
his action on that.
H.M.Jr:
Directive No. 5.
M:
That's right. A copy of that should be
over there -- he should have seen it before
this.
H.M.Jr:
And that would cancel all licenses issued
to Sweden.
M:
On arms and ammunition.
H.M.Jr;
How about airplanes?
M:
Well, if they're included in that proclamation
of May 31st -- May 1, 1937.
H.M.Jr:
Would this take care -- well, if he signs
this will this take care of those Vultees
and those other planes on order for Sweden?
M:
Well, there are some cases that are still--
that I -- some aspects of that airplane
situation that wouldn't -- might not be
covered and we'd put that in another
Directive. But I wanted to get his action
on this before we put anything else up
along the same lines.
68
- 4 -
H.M.Jr:
Well, we're awfully keen about this --
those airplanes, and I think they're going
to begin delivery now any day. I don't want
them to get -- be found with those airplanes
on a ship and then somebody asks me to take
them off the ship.
M:
Yeah. Well, if we can get action on this
one, we'll clear up the airplane questions
immediately after that.
H.M.Jr:
Thank you 80 much.
M:
Yes, sir.
H.M.Jr:
Good night.
M:
Would you let me know, sir, what results
you
H.M.Jr:
I certainly will.
M:
Thank you very much.
H.M.Jr:
I'll call you if I have any luck.
M:
Thank you.
03
July 9, 1940
4:40 P.M.
B.M.Jr
Hello.
Coerstor:
Forster.
P.R.Jr:
Hello.
Rudolbh
Forster:
Yes, sir!
H.M.Jr:
How's my life saver?
Pt
(Laughs) Thanks for the title.
H.W.Jr:
Listen, life saver, and I'm not telking
to Ed Noble either
F:
(Laughs)
B.M.Jrs
I got, at least I have it -- they've
loaded 3,250,000 cartridges on a Swedish
boat sailing for Sweden. Everybody wants
them not to go and I'm holding the boat.
E:
Uh-huh.
H.M.Jr:
I just talked to Colonel Maxwell and he
tells me Directive No. 5 1s waiting in the
White House for the President's signature.
F:
What?
E.M.Jr:
Directive No. 5, which would cancel all
outstanding licenses which have been issued
to the Swedish Government.
F:
I haven't seen it. I haven't seen it at all.
H.K.Jr:
Well, he sent it over there. Directive No. 5.
F:
Well, I'll see if I cen find it. I haven't
seen it. Maybe Pe Watson -- he's away.
H.H.Jr:
Well, that's the trouble. Pa Wateon's away
and I called him up.
Regraded Unclassified
70
- 2 -
F:
Uh-huh.
H.M.Jr:
And Maxwell says his only contact with the
White House is Pa Watson.
F:
Uh-huh. That's right.
H.M.Jr:
Would it be on his desk or anything?
F:
Well, I can find that out from Mrs. Dennison,
if she has ever seen it.
H.M.Jr:
But I'm really on the hot spot on this
thing. Would you look it up and call me
back?
F:
Yes, sir.
H.M.Jr:
Thank you 80 much.
F:
All rightie.
H.M.Jr:
Thank you so much.
F:
All right.
71
July 9, 1940
5:04 p.m.
H.M.Jr:
Hello.
Operator:
Colonel Maxwell. Go ahead.
H.K.Jr:
Hello.
Colonel
Maxwell:
Colonel Maxwell.
H.M.Jr:
Colonel, Secretary of the Treasury speaking.
M:
Yes, sir.
H.M.Jr:
Mr. Forster, chief clerk of the White House
after a great deal of trouble found that that
so-called Directive No. 5 is in the safe in
the War Department. It never came to the
White House. They located Major Smith.
M:
I see. He checked back with Major Smith.
H.M.Jr:
Yes, and the thing is lying in some safe
in the War Department now.
M:
I Bee.
H.M.Jr:
It never got to the President,
M:
Yes. Well, I certainly em sorry to have
put you to all that trouble.
R.M.Jr:
Yeah. I am too, because this 1e supposed
to be 8 national emergency and things are
supposed to move and here we are with & ship
with this ammunition on board and it's very
embarrassing to us.
M:
Well, I certainly am very sorry indeed end
I'll start in from this end and
......
H.M.Jr:
Yeah. Won't you please move in now on all
licenses to Finland so we don't catch ourselves --
I mean, Sweden
Regraded Unclassified
72
- 2 -
M:
Yes, sir. Well, I'll
......
H.M.Jr:
Can't you do the airplanes? I mean, we're
very anxious to have the airplanes done.
M:
Yes, sir.
H.M.Jr:
And it'll be helpful to us.
M:
Yes, sir. Well, I'll get right after this
and I'm sorry that
.......
H.M.Jr:
Do you have to fix up another Directive
on the airplanes?
M:
Yes, I think we will.
H.M.Jr:
Well, if you could do it -- if you could do
that tomorrow, I'd appreciate it.
M:
Yes. Very well, sir. I'll let you know
as soon as we get any action on it.
H.M.Jr:
Thank you very much,
73
RE OPEN MARKET
July 9, 1940
3:00 p.m.
Present:
Mr. Bell
Mr. Hase
Mr. Hadley
Mr. Murphy
Mr. Edmiston
Mr. Sinclair
Mr. Ecoles
Mr. Ransom
Mr. Harrison
Mr. Goldenweiser
Mr. Szymozak
H.M.Jr:
George, have you got it All doped out? I
don't want any arguments. Just each fellow
say, "I want this." You will each have one
choice.
Dan, what is yours?
Bell:
Did you all get together on your prices?
Haas:
Well, kind of wobbly on it.
H.M.Jr:
Well, the price will be different, 80 don't
worry.
Hass:
He is absent now.
H.M.Jr:
Good. Mr. Bell?
Bell:
On the basis of Hadley's figures here, I
would like a '54-'56, I think, which 18
selling at a minimum of 1.2 end a maximum
of 1.10, but I think before you --
Hadley:
I have one later than that.
H.M.Jr:
The one I got says '54 - from 6 to 14. Is
that all right?
Regraded Unclassified
- 2 -
T4
Hadley:
Well, yes.
H.M.Jr:
What happened to the bond market today, did it
go up or down?
Hadley:
In the morning it was off as much AB 6 and now
it 1s up as much as 6, 80 it has moved through
a range of 12/32nds during the day.
H.M.Jr:
Mr. Bell, which one do you eay?
Bell:
I WAB going on the basis of this. I think
possibly that 18 a little rich, that '54'56,
which makes that a little rich, you nee. The
top 1s all right there.
H.M.Jr:
When are you going to date this thing?
Bell:
July 22nd.
H.M.Jr:
On a coupon?
Bell:
December 15th and June 15th. Well, it all
depends. If you make a maturity of December
and June, then the coupon would be that. If
you make 8. maturity of March, then the coupon
would be March and September. The first one
would be short in any case.
H.M.Jr:
But if it is going to be March, it would be
March back of us?
Bell:
No, say you have a maturity in March '54,
callable date, then the first coupon would
run from July 22nd to September 15th.
H.M.Jr:
September 15th?
Bell:
Yes, you would have a six month's coupon.
H.M.Jr:
What are you picking, Hadley?
Hadley:
I like the '54-'56 or '57. '56 is a little
bit rich and the '57 is on the borderline.
H.M.Jr:
George?
Haas:
I like the '54-'56 and I would rather have a
Regraded Unclassified
- 3 -
three year call period, but we had some
disagreement on pricing the three year
call period, AO - with a short issue, two
years 18 enough. It doesn't make any
difference to me, Mr. Secretary.
Hell!
It really doesn't make any difference.
H.M.Jr:
Why not 700 million?
Sell:
It 18 only a question as to whether you --
H.M.Jr:
Why not 700?
Bell:
Well, if you have a 500 million and then take
10% you will have 550 and 50 million trust
funds would be 700 million. Before you go
on, I would like to tell you what the market
thinks. I think the market 18 going to be a
little surprised to get a'54-'56, according
to Rouse. They all wanted '50-'53 in that
area. They didn't do much talking about a
21 in the '54-'55-'56 area. "Salomon Brothers
and Hutzler - Mr. Levy. He expects the market
will sell off a little in View of the fact that
additional offering by the Treasury will be made
from time to time. The various possibilities
for a new issue of Treasury bonds are as follows:*
Then he gives a range of 1-3/8 to 1-1/2.
"Banks would want the shorter maturity, namely,
1946 and 1947, while the insurance companies
would prefer a 2-1/2% coupon provided it 1e
well priced. Hie first choice would be to
offer the shortest bond possible, that 1s, A
bond callable in 1946 or 1947. His second
choice would be to split the offering into
short and long bonds and the small amounts of
these issues could be added to in later
financing. His third choice, assuming the
Treasury decided to issue the longest possible
maturity, would be a 2% 1949-52.
"C. F. Childe - Mr. Wood. The Treasury could
sell any issue maturing between 8 and 15 years.
His first choice would be a 1-3/4% bonds of
June 15, 1949, which would sell at a 1.60 basie
Regraded Unclassified
equal to about 101-1/4. His second choice
would be & 2% bond of 1950-52, which would
be worth about 101. H1s third choice would
be a split offering of a longer bond and an
offering of notes. The foreign situation
1s still e threat and the offering should be
kent within a reasonable limit. Conver-
sations with their customers indicate A definite
desire to keep the maturity within ten years.
"Bankers Trust Company - Mr. Schlleting. Most
of the buying interest in Treasury bonda has
been for the short ones. Owing to the foreign
situation the maturity of the new issue should
be keot within ten years. Their first choice
would be a 1-3/4% bond due June 15, 1948-50
which would probably sell on A 1.60 basis
equivalent to & premium of 1.4. Their second
choice would be a 2% bond of March 15, 1950-52
which would orobably sell on a basis of 1.85
to 1.87% They believe a new issue of 2-1/4's
of 1953-55 would be heavily over-subsoribed but
would not be retained by the banks. He also
thought there was some question as to whether
the savings banks and insurance companies demande
were broad enough to absorb an offering of this
kind. This maturity would be stretching it
a bit and would cause & problem in the secondary
distribution. They BAW no necessity for two
issues if the amount was $700,000,000 or less.
"Travelers' Insurance Company - Messrs. Baker
and Duffield. They advise that in view of
conditions they are not interested in putting
out long-term money. They did not seem too
confident of that market. They would be
interested in 8 to 10 years. A call date of
10 years would be their outside limit.
"C. J. Devine and Company - Messrs. Kennedy and
Herman. The market for long bonds has been thin
and small. What the market wante 1A a 9 or 10
year bond and B. new issue in that area would be
subscribed for and kept. As a result of B new
offering the market for long bonds might need
some support which it probably would get from
the insurance companies since they would orefer
8. long to A. short bond. Their first choice would
Regraded Unclassified
1" , 1
be a 1-3/4% bond due June 15, 1949. However,
the Trensury might prefer a 1947-49 callable
bond. Their second choice would be A 2% of
1950-52 and the only objection to this issue
they had was the large amount of bonds already
outstanding in this category. They believe the
Treasury could sell a 2-1/4% bond of 1953-56 or
possibly 1954-56, but they would not recommend
it.
"National City Bank - Messrs. Burgess and
Townsend. The Treasury should stretch the
maturity of the new issue as far 98 it can
safely do it, which would be the longest point
at which the banks would take the bonds. Of
course, insurance companies would take longer
bonds than banks. The period of 1954-59 16 a
blank area And the Treasury might get away
with A 1954-56 bond, but it would be taking
R chance as this maturity ie somewhat long for
banks. The banks would take them and sell them
later. The longest bonds his bank holds are
1951-54, which policy he believes is general
with banks. The Treasury maturities un
through 1948-50 are rather stout and the
next vacant date would be 1950-52 or 1950-53.
He thought a new 2% bond of 1950-52 out to be
good for a premium of one point, assuming
the market keeps it about present levels.
Possibly the Treasury could do a 2,6 bond of
1950-53 but 1950-52 would be safer 88 these
are uncertain days and the banks are still
somewhat scary. His recommendation would be
a 2% bond of September 15, 1950-52. He WAB
glad the Treasury 18 offering a bond end
while he feels the Treasury should keen pushing
the maturity without and getting the bonds in
the hands of other than banks, he does not
feel that the situation 18 right to offer A
bond with a maturity bond 1952. Although
generally, he would like reopening some of
the old issues, he does not think the present
would be A good time to do it, although the
Treasury could sell an additional amount of
1948-50's at a price of about 1024 or 1 point
under the market."
Regraded Unclassified
78
- 6 -
That 18 just part of them. The rest of them
are coming in. Rouse said that while that 1e -
those are factors, he still ien't - he wouldn't
be 80 di sappointed with & 21% bond. He thinks
it will go well and he thinks we might have
some selling, but on the other hand, there
has been a fluctuation in the market lately
without any selling or buying.
(Unrecorded telephone conversation with
Mr. Rouse.)
(Mr. Murphy, Mr. Edmiston, Mr. Sinclair,
Mr. Eccles, Mr. Ransom, Mr. Harrison,
Mr. Goldenweiser, Mr. Szymozak entered the
conference.)
H.M.Jr:
Has the Board had a chance, or 10 I address
myself --
Ecoles:
The committee. We discussed this thing a
little yesterday. John and George and
Ronald and I checked and Dr. Goldenweiser.
H.M.Jr:
How are you all?
Ecoles:
How are we?
H.M.Jr:
Or where are you?
Sinclair:
Well, after a year's absence I am glad to
see our sense of humor 1s still with us.
H.M.Jr:
What do you mean? Have you been off the
Committee for a year?
Sinclair:
Yes. I have been resting.
Harrison:
You weren't missed, John.
H.M.Jr:
I thought you were saying I hadn't had a
Committee meeting in a year.
Sccles:
Hugh Leach was on last year, wasn't he?
Harrison:
Yes.
H.M.Jr:
What did the Committee think?
Regraded Unclassified
73
- 7
Ecoles:
Well, I reported to the Committee the con-
versation that I had with you yesterday on
the matter, and we discussed it pro and
con and also talked with Rouse in New York
and it was the unanimous view of the
Committee that a two and a quarter percent
bond would be preferable, even though,
according to the report from Mr. Rouse,
the dealers, some of the banks, seemed to
favor a shorter issue, that themarket was
such that there should be no problem, it
was our view, in spite of the fact that
some of the banks and the dealers wanted
a shorter issue, felt that it would be
more desirable. It was our view there
should be no problem in merketing a 500
or 700 million 21 1ssue. In spite of the
conditions abroad that developed with the
invasion into Holland, the market showed
such underlying strength that it declined
rather gradually, orderly, only around
three points, and the Federal purchased in
that period about ten millions as against
400 million here a year ago when the market
went off seven points last September. The
market then in the face of the French
capitulation and Italy declaring war, con-
tinued to go up until it got back almost to
the point that it was prior to the decline
and that in spite of the fact that the Treasury
sold about 20 million dollars worth of bonds
on the upswing and the Federal sold about
25 million dollars and the announcement
yesterday of this offering hasn't seemed in
any way to affect the market. The market 1#
up on long bonds, 80 that with all of the
factors, it certainly would indicate that
there should be no problem at all and that
there 1s a substantial underlying demand for
some long term-issues, or at least intermediate.
This is intermediate, I would say, and it would
look like'53-'56 or '53-'55 or possibly even
'54-'56, especially if you are only going to
put out 500 million, 8. '54-'56 would look
possibly - to me at least, it would look
better than 6. '53-'56 and there should be
no trouble. It it went un to 700 million,
200 more, it may be advisable to give a little
more favorable price.
Regraded Unclassified
80
- 8 -
H.M.Jr:
Well, on the thing on the money, in talking
with Dan, we were going to set aside 50
million for Treasury Trust Funds. They usually
run about 10% over, 80 if it is 500 million,
it would run 60, and if it were 600 million,
it would run a little over 70.
Fooles:
That 18, you would take the over-subsoription -
I mean, you would take the --
H.M.Jr:
Usually average about 10%. It runs 550 and
then the 50 million extra which we announced
we were going to take would bring it up to
about 600 million. If it is 600 million,
it runs about 710 million.
Eccles:
Well, we --
H.M.Jr:
May I interrupt you? I again thought, or at
least we will put it on the table for discussion,
let anybody take $5,000 worth if he will keep
it for 90 days.
Ecoles:
Would you require them to register?
Bell:
Yes, the same as we did last December.
Ransom:
What was your experience with that last
September?
H.M.Jr:
It was good, wasn't it?
Bell:
Yes. We had about 21 million out of that 570
million dollar issue, and at the end of the
60 days, we had a relatively small amount in
for exchanges in the coupons. I think out
of the 21 million it was something like 5 or 6
million.
Ransom:
Five thousand was your then figure.
Bell:
Yes.
Eccles:
But you thought or going higher than five
thousand.
Bell:
Well, the Secretary did, yes.
Regraded Unclassified
- 9 -
M.H.Jr:
I suggested ten, but Dan thought not. The
President still says could he get something
for the Hyde Park Church, but he never buys.
He always kids me about it, but I never get
him to out the money on the market.
Tooles:
Interest rates are too low to suit him.
F.M.Jr:
Yes. You have heard him, haven't you?
Ecoles:
Yes. He thinks for the Church funde, you
ought to have at least 3%. He 18 like these
Insurance companies. He never did subscribe,
did he?
Hell:
I don't think so. We thought this time we
would leave the $5,000 subscription onen
until Saturday night, three days, and that
we had better try it at the five instead
of going to the ten and see how that works.
Eccles:
It seems to me if you are going to do that
at all, why not go higher. What you are
interested in 16 getting a - the bonds to
stay. You want to get them in the hands
of the investors rather than in the hands
of dealers who are going to sell them or
in the hands of banks that might merely
buy them to get the profit, 80 whatever
you do, it seems to me whatever you can do
to get them placed where they are going to
stay 18 the thing you want to do. If you
are going to do that st all - I mean, it
would be a question in my mind whether to
do It at all. But if you are going to do
it, I would certainly go to A higher amount.
H.M.Jr:
Ten?
Ecoles:
Well, even more than that. If you are
going to get trustees, smaller institutions
that you want to take these bonds and hold
them, what difference does it make whether
you give them ten or fifteen or even 88
high as twenty or twenty-five. You are going
to have a lot of financing, possibly, to
do over the next year.
Regraded Unclassified
82
- 10 -
Sinclair:
If you get too high, it 18 much harder to out
it down later. I wouldn't object to going
to ten.
Harrison:
If you get too high, you might as well register
them for the period of the bond.
Bell:
If you go too high, you are going to get
subscriptions to 500 million in that class
and you are going to throw out all the others.
Ecoles:
You want a wide contribution. Of course, on an
issue of this size, maybe ten would be all right
to try. You could try ten and see what happens.
H.M.Jr:
Last time it was 60 days. This time I want to
make it 90.
Eccles:
Yes, at least 90.
Harrison:
I W&B wrong on both taxes. I thought it was
ten thousand for six months. We must have
discussed that and agreed on it and it was
changed after we left.
H.M.Jr:
Now, 18 that nice, George?
Sinclair:
I would have bet you on that this morning
but I lost every other bet and I lost my
chance.
Szymczak:
Well, 60 days, it was.
Harrison:
I think there is some merit in not changing
them till you are ready to consider whether
you want to do the thing for & big basis and
for & longer period of time.
Bell:
I think 80.
Harrison:
I think there 1s A. danger in going too high
unless your period of registration is longer,
because otherwise you might get three or four
hundred million all unloaded on an unwilling
market at the end of a short period of time
and --
Bell:
Let's 800 whether there is any padding in this,
first. There didn't appear to be very much
Regraded Unclassified
83
- 11 -
in the last one, but after all, it was new
and it took them more than a day to get onto
it.
Harrison:
I will admit, if I may, just a elight quali-
fication as far as I am personally concerned
to what the chairman stated at first.
H.M.Jr:
I would be disappointed if you didn't.
Eccles:
So would I.
Harrison:
He said that we were unanimously in agreement
that we preferred the 2%. Personally, I have
been for that, but I must say that I don't
want to put the thing 60 absolutely now in
view of the report that you get from the
market, which was pretty definitely for &
ten year or at most & 2% bond. Probably a 2%
bond, '50-'52. In the face of that, I would
say not necessarily that I prefer the 2 but
rather that I don't see enough advantage in
the 2% '50-'52 to justify recommending that
in view - if, as I think, there is some
advantage to the Treasury on account of
maturity and having a 2t, so I am with you
(Ecclee) in being for the 2.
Eccles:
I still don't see the distinction.
Szymozak:
You mean to scatter your --
Harrison:
I mean if the Treasury were for - for Treasury
reasons, the 2% bond at '50-'52 which the market
says would go better, I would have no objection
whatever to that, but I think on account of the
orowded maturities around '51, there 1s some
advantage from the Treasury standpoint in putting
maturity a little beyond that.
Eccles:
Well, under all of the circumstances, you prefer
the 2t. I mean, that 16, as I understood it.
Now --
H.M.Jr:
You both arrive at San Francisco. One goes via
New Orleans and one via Milwaukee, but you both
end up at San Francisco.
Regraded Unclassified
84
- 12 -
Ecoles:
That 16 right. I don't think anybody would
say that 21 18 more desirable than 2% if you
didn't have all of these other maturities.
I don't think it makes very much difference
whether it is two or three years longer one
way or the other, but in view of the fact that
you do have the maturities that you have, it
would certainly look like the preference for
2% is more than overcome by the congestion
in the maturities in the shorter range. There-
fore, you prefer 21, George?
Harrison:
Well, yes.
H.M.Jr:
Well, look --
Harrison:
I told you this morning if you said it that
way I was going to say it the other way.
H.M.Jr:
You are satisfied to go along with 219
Harrison:
Absolutely, yes.
H.M.Jr:
Okay.
Harrison:
All I meant was that I have no great preference
for it 80 that if Treasury 1e for 2%, I would
have no objection at all.
H.M.Jr:
I arrived at the 21 because I was trying to
get out of the crowded area. In order to get
out beyond'52, I had to go to 21 and I thought
this was a good time to get beyond '52 and that
1s the way I arrived at the thing.
Harrison:
And the market all agrees that 2t would go. The
only thing they have warned us about is the
possibility of a secondary market that might
not be 80 good if anything goes wrong in England
or somewhere else.
H.M.Jr:
This group will take care of that.
Harrison:
That also I prognosticated, as you would say.
H.M.Jr:
You fellows are just 80 hungry over there for
punishment.
Regraded Unclassified
65
- 13 -
Eccles:
We sold 25 million dollars worth of bonds, and
we have got to get them back here some way or
other.
Harrison:
I think that probably there will be more than
just one issue, 1s what I am getting at,
Mr. Secretary. It 1e a much broader question
than that.
H.M.Jr:
But selling this 1sn't going to crack the
market. It ought to be good for the market.
Harrison:
I should think 80.
H.M.Jr:
And I don't know when we will again have a
chance to get beyond the '52.
Eccles:
It will save us having to sell some to keep
it from showing too much strength, you see,
80 it 1s all right.
H.M.Jr:
How do you feel, Szymozak?
Szymozak:
About the same as Marriner. 2t, '53-'55.
Ransom:
No difference.
H.M.Jr:
Doctor?
Goldenweiser: I haven't anything to add. I haven't any
market sense, Mr. Secretary. My feeling 1s
that this 18 a good time for you to start on
longer time issues. I have always been in
favor of short issues, and I think the
situation has changed now and that the thing
to do 18 try to build up longer issues and
discourage bank purchases and encourage wide
distribution among permanent investore and
that means long issues.
H.M.Jr:
What does Philadelphia think?
Sinclair:
Mr. Secretary, I don't have, personally, any
question about the 2t. The conversations I
have had with two of our large insurance
companies, two trust companies, savings funds,
and all of our large banks, indicate they look
with favor upon a 21.
Regraded Unclassified
86
- 14 -
H.M.Jr:
How do you feel as between 5 and 700 million?
Sinclair:
I don't think it makes much difference. I
think they will take 700 as much as they will
take 500 quite frankly.
Harrison:
I would much rather have you go to 700 now
than 500 now and put out a new issue later.
H.M.Jr:
Dan, if we do 700 million now and leave it -
supposing we figure to let the bill market
run off, say 200 million, just for argument's
sake.
Eccles:
Why let any bills run off at this time? You
have to let some run off & little later on
unless you get this law changed covering this
defense issue. You get up to the 45 billion
toward the end of the year and you will have
your baby bond money come in and your social
security funds, and you will go over the 45
unless you pay something off at that time.
I mean, isn't there that prospect?
H.M.Jr:
Dan told me yesterday that we had a billion
and a half leeway, didn't we, on our debt
limit?
Szymczak:
A billion seven.
Bell:
A billion seven.
Eccles:
That is now or after this issue?
Bell:
That is June 30th. Now, if you have 500
million dollars issued at this time, taking
into consideration what you might get on
U. 8. Savings Bonds and trust funds, you
would be down to 400 million debt limit
on December 1st.
Ecoles:
So from then on you have to either get the
law changed or start retiring some of the
market. debt. You ought to get that law
changed. That is the senseless thing.
H.M.Jr:
I invited you fellows to go up on the Hill
Regraded Unclassified
- 15 -
with me once. Not on this, on another thing.
I got turned down.
Scoles:
What was that on?
E.GJr:
Oh, on this question of --
Socles:
You didn't advise, you asked us if we wanted
to go.
E.M.Jr:
Invited, I say, on this freezing of assets.
You couldn't, Marriner, take my word for it.
In the frame of mind in which we started,
even Mr. Roosevelt - I finally asked him,
"Well, you let me go up on the H111 and
make A survey." We had to wrap it up in
this package and we - I don't know what
your particular objections are, but I don't
know what you could get after they come back,
but certainly the time I appeared before
them they wanted to fool themselves.
Socles:
They were the only ones who were getting
fooled. They weren't fooling the public.
H.M.Jr:
I stood right up before them and said this
wasn't perfect but I said, "If I had appeared
before you three weeks ago And asked you to
increase the 45 million debt limit -" I sald
this right there before the people - I said,
"You would have laughed me out of court. I
AM up here now and everybody eays it 18 all
right."
Ecoles:
But in the course of another - a month or two
or three, you can't tell, Congress may be very -
E.M.Jr:
What don't you like about this?
Loclee:
Well, the earmarking of - the limitation.
First, I don't like the - I think the five
year, from 6 months to 5 year limitation,
doesn't make sense.
R.M.Jr:
Well, with this new thing - these men were
here today, Harrison and that crowd. With
that new 5 billion dollar request that I
read about in the papers, they are going to
Regraded Unclassified
88
- 16 -
ask for more taxes and at that time -
Eccles:
Yes, at that time they ought to increase the
debt limit to 50 or 55 billion and not put
any strings on it, leave it open to finance
it in whatever way seems to be advisable.
H.M.Jr:
Well, to tell you a little story, about 8.
month or six weeks ago the President agreed
and the Director of the Budget agreed to
earmark certain funds in the Virgin Islands
because they couldn't get enough money. I
wrote them a very strong letter opposing all
earmarking of Treasury revenue. I don't
believe in it. I got back & letter, "Dear
Henry, go along with me this time and I will
go along with you next time." He said,
"In principle you are right, I agree with
you, but go along with me this time because
Ickes can't get any more money out of Congress
and the only way we can get it 1s to earmark
the funds." But I wrote and the boys said,
"Well now, the President 1s on record and he
can do this thing," and I said, "I want to
go on record against earmarking the funds."
It was only 8. little thing, but I wrote &
very stiff letter with Dan's help, and that
was the answer, "In principle I agree with
you, but go along with me this time." Bo
I don't think we have any - no differences
as to underlying principle.
Ecoles:
If we have a chance, which we may have with
that additional 5 billion, I would like to
see the Federal Reserve join with the Treasury
in trying to knook that out if we get a chance,
because I think that it Just --
H.M.Jr:
I will be glad to.
Ecoles:
It is a handicap that 18 very undesirable.
In the first place, from six months to five
year defense notes would be taken almost
entirely by the banks. The short term stuff
of that sort would be taken. That, in itself,
of course, expands the volume of deposits.
Instead of getting some of the existing idle
Regraded Unclassified
63
- 17 -
funds into the - invested, and it is very much
more desirable from a credit and & monetary
standpoint to get idle investment funds into
your Government securities, put out Government
securities that will attract those funds and
prevent further bank expansion at this time.
Don't you agree with that, Dan?
H.M.Jr:
I will talk for him. He - no, I don't - well,
he 18 opposed to earmarking funds. I don't
want to talk for you.
Bell:
Go ahead, you were doing very well.
H.H.Jr:
You answer him. I didn't mean to interrupt.
Bell:
Well, I was opposed to it up to the time we
decided it was a matter of policy. I am
opposed to the marking of debts and also
opposed to the earmarking of any kind of
revenue, but the Secretary said we couldn't
get it in any other kind of package except
this and we had to accept it. Now we have
got it, and I think we have got to operate
under it. It 18 8 restriction.
Ecoles:
You have no choice if Congress doesn't
change it, but the question I asked you
W&B, don't you think that with the present
very large volume of deposits that the type
of financing that ought to be done ought
to be the type of financing that would
induce the use of existing deposite by
the investors, the owners of those deposits,
rather than the bank financing the creation
of new deposits?
Bell:
I have been in favor of that right along.
I have been in favor of these --
H.M.Jr:
You have got nothing but support around here.
Ecoles:
Well
H.M.Jr:
Let me put it this way. Everybody for one
reason or another seems to be in agreement
on 21%, irrespective of the yearage. We don't
Regraded Unclassified
90
- 18 -
have to decide the yearage today. I would
like to decide the amount.
Bell:
I thought you were going to telegraph the
banks tonight.
H.M.Jr:
Oh, do we do it that way? And tell the public
Thursday morning?
Bell:
Yes.
H.M.Jr:
Have I got to make up my mind tonight?
Bell:
That 1s what I understood that you were
going back to the old policy of giving them
& day to do their printing and getting it
into the mail tomorrow.
Szymozak:
Was that after the Dallas meeting?
Bell:
That was strongly recommended down there.
H.M.Jr:
You gave me those reports with the market
Bo disinterested - I mean - how should I
say - sort of leaning against it, I would
like to have a day - they announce the 21
tonight and then decide how much - watch
the market tomorrow and send out a telegram
tomorrow night giving what years.
Szymozak:
Today is Tuesday.
Eccles:
That would give them - you would announce it
to the market Thursday afternoon?
H.M.Jr:
Thursday morning.
Ecoles:
Thursday morning.
H.M.Jr:
I would like to do it on Friday.
Ecoles:
Advise the banks tomorrow after the market
closed?
H.M.Jr:
Yes.
Bell:
That will be a little late. Do it tomorrow
noon, because they have got to have it printed
Regraded Unclassified
91
- 19 -
and in the mails to catch their train
tomorrow night.
H.M.Jr:
We can do it Thursday morning.
Szymozak:
And the more time they have, the better
chances they have of distributing it.
Bell:
That was one trouble.
H.M.Jr:
We can do it by one o'clock here, get it
out by one o'clook here.
Bell:
If you make your decision by 12:30, we
will get it out by one,
Fooles:
The question of how much of a premium do
you figure you need to give them on 700
million. It figured today about 1t on a
'53-'55. of course, if the market 1s up,
you might - that ought to be enough, hadn't
it?
H.M.Jr:
For once in our life we were on the lean
side of you fellows. Everybody here said
'54-'56.
Eccles:
Certainly if you were only going 500 million,
I would go '54-'56 and the way that market
performed, we were talking about the '53-'55,
it was since that the market has shown
considerable strength. It has gone up with
5 or 6/32nds.
Szymczak:
Six thirty-seconds is the latest.
Hadley:
From & low this morning it has moved to
12/32nds.
H.M.Jr:
That is why I want to know --
Eccles:
So that it might well be the way that market
closed today that a '54'56 would look about
as well as a '53 did this morning.
H.M.Jr:
Well, what would you make it, 5, 6, or 72
Regraded Unclassified
- 20 -
92
Eccles:
You mean the 1ssue?
H.M.Jr:
Yes.
Ecoles:
Do whatever you want. I don't think it makes
any difference A8 far as the market is con-
cerned.
H.M.Jr:
Dan, I started to ask you, if you take 700
million, when do we have to go to the market
again?
Bell:
Well, we have got a Treasury bond in this
picture of 500 million, 250 million of CCC
at the end of this month, 300 million for
RFC in September, 200 million for U. S.
Housing Authority in October, and 500 million
again in December, Treasury financing at
some time or other, probably 8. defense note,
and that gives you balances at the end of
July of & billion, two, thirty; August, a
billion one fifty-seven; September, one,
four fifty; October, one, three; November,
one, one; and December, one, three. If you
add two hundred million, the highest point
would be one, six, and the lowest point would
be about one, three.
Eccles:
That 18 based on 700 million?
Bell:
Yes, for a six months period.
Eccles:
That would call for no new financing before
December and assuming that the RFC and the
Commodity Credit was done in the interim --
Bell:
That 18 right, it would be 500 million in
December.
H.M.Jr:
Split the difference and call it six?
Eccles:
Six would take care of you on that basis.
Harrison:
I think you might.
Szymozak:
Unless you have a lot of advances to make
on that defense program.
Regraded Unclassified
93
- 21 -
H.M.Jr:
On the what?
Szymozak:
On the defense purchases.
Harrison:
And make it a two year.
Szymczak:
Up to 30% advances, however, you are going
to go on those expenditures - how far you
are going on those isn't certain.
Bell:
Oh, I don't know. They may spend quite a bit
of money. They contemplated a hundred million
in July, but there 18 no evidence of it 80
far. I think they will be delayed until
August.
Eccles:
What will happen to this, it will be better
than you show, I bet.
H.M.Jr:
Oh, sure.
Eccles:
It always has been.
H.M.Jr:
Jones has no use for any money. He hasn't
done any business to speak of. He doesn't
want any money.
Edmiston:
This 300 million 1s to repay the Treasury?
Eccles:
It 18 300 or 350?
H.M.Jr:
Three, RFC.
Bell:
350 million, including 50 million of PWA
securities.
H.M.Jr:
I think 600 1s enough.
Eccles:
Six 18 plenty.
Harrison:
I think 600 and B. two year call date rather
than three.
H.M.Jr:
We don't have to say that today.
Harrison:
But I was Just saying I hope you do that.
H.M.Jr:
If I let the market know, it is 2t and
Regraded Unclassified
94
- 22 -
600 million and see what that does to the
market, and then tomorrow I can give you
all a ring on the telephone and we will
decide the yearage.
Harrison:
Yes.
H.M.Jr:
What do you think, Dan?
Bell:
That is okay. The only question I had was
the debt limit. It is getting awfully close
to December 31st and I think we have got to
sit down and go over that and see what we
are going to do.
H.M.Jr:
You mean as between 600 and 500?
Bell:
Well, that only takes off a hundred. It
will be down to 300 million on December 31st.
Sinclair:
You mean the whole problem of -
Bell:
Yes. I think we have got a problem here.
Eccles:
Why don't you go five and you pay off less
notes. I mean, you get a little cheaper
money in a way. That 18 what you are going
to be up against, according to your point
of view. If you borrow seven now, you may
have to start paying off bills that much
sooner.
Bell:
You see, we have only got, according to the
latest. figures, and what we will have after
this 5 billion dollar program goes up, we
have only got about 8. billion debt on regular
account. That means we raise 3 billion dollars
for national defense notes. We make this
entire billion dollars through U. S. Savings
Bonds, old age reserve, and unemployment and
other trust funds, and still have probably
8 or 9 hundred million dollars left over,
which means that you are going to have an
excess of funds on your regular account.
You have got to use that to retire a debt BO
as to get your debt limit down - keep it
under the 45 billion.
95
- 23 -
H.M.Jr:
In other words, the more --
Bell:
You could retire Treasury bills, but if you
are going to retire notes and callable bonds
next March, I think it ought to be announced
pretty soon that in refinancing these
maturities next year the Treasury will not
give the privilege of 100% exchange, that
there will be some percentage of that, 80
that the public will price them on that
basis and not have these great high right
values, and then come along and have to pay
off for them.
Edmiston:
This, of course, assumes no change in the
law that might be considered within the
next month or 80.
Bell:
That 1s right, but we are operating now under
8 law and we are not going to have much time
to change it after January lat.
H.M.Jr:
Dan --
Edmiston:
No, I mean after a month and 8. half maybe
you would want to make such an announcement
when you see that it wouldn't be changed,
for example.
Bell:
Yes, some time before this year 18 out.
H.M.Jr:
That wouldn't make any difference, whether
it 1A five or six.
Bell:
No.
H.M.Jr:
I kind of like six, gentlemen.
Saymerak:
It gives you A leeway there.
H.M.Jri
I don't want to see you scared. I said
between five or seven and I think six 1a
better.
Harrison:
I would prefer six to five.
H.M.Jr:
If nobody objects, it 18 six. Well, supposing
Regraded Unclassified
96
- 24 -
we figure, Marriner, I will be on the
telephone with you fellows tomorrow
around half past eleven.
Eccles:
Okay.
H.M.Jr:
Or let's say a quarter of twelve. I will
call you around a quarter of twelve. Where
will you be, George?
Harrison:
I will be in New York.
H.M.Jr:
I will call you at a quarter of twelve.
Harrison:
Okay.
Eccles:
I hope --
H.M.Jr:
Sold to American Tobacco.
Eccles:
I hope we can give some thought to this
means of trying to get bonds out in the
hands of investors instead of banks, the
question of registration, Dan, maybe for
the life of the bonds.
Regraded Unclassified
97
INFORMATION TELEPHONED BY MR. ROUSE, FEDERAL RESERVE
BANK OF NEW YORK, ON THE NEW ISSUE OF BONDS
July 9, 1940
Salomon Brothers and Hutzler - Mr. Levy. He expects the market
will sell off a little in view of the fact that additional
offering by the Treasury will be made from time to time. The
various possibilities for a new issue of Treasury bonds are as
follows:
Issue
Coupon
Possible Market Price
Sept. 15, 1946
1-3/8
100.16
Sept. 1947-49
1-1/2
100.20
Sept. 1949-52
2
100.28
Sept. 1953-56
2-1/4
100.28
Sept. 1955-58
2-3/8
100.28
Sept. 1963-66
2-1/2
100.25
Banks would want the shorter maturity, namely, 1946 and
1947, while the insurance companies would prefer a 2-1/2% coupon
provided it 1s well priced. His first choice would be to offer
the shortest bond possible, that 18, a bond callable in 1946 or
1947. His second choice would be to split the offering into short
and long bonds and the small amounts of these issues could be added
to in later financing. His third choice, assuming the Treasury
decided to issue the longest possible maturity, would be & 2%
1949-52.
C. F. Childs - Mr. Wood. The Treasury could sell any issue maturing
between 8 and 15 years. His first choice would be a 1-3/4% bonds
of June 15, 1949, which would sell at B. 1.60 basis equal to about
101-1/4. His second choice would be a 2% bond of 1950-52, which
would be worth about 101. His third choice would be a split offer-
ing of a longer bond and an offering of notes. The foreign situation
is still 8 threat and the offering should be kept within a reasonable
limit. Conversations with their customers indicate a definite desire
to keep the maturity within ten years.
Bankers Trust Company - Mr. Schlioting. Most of the buying interest
in Treasury bonds has been for the short ones. Owing to the foreign
situation the maturity of the new issue should be kept within ten
Regraded Unclassified
98
- 2 -
years. Their first choice would be A 1-3/4% bond due June 15,
1948-50 which would probably sell on a 1.60 basis equivalent to
8 premium of 1.4. Their second choice would be a 2% bond of
March 15, 1950-52 which would probably sell on a basis of 1.85
to 1.87%. They believe a new issue of 2-1/4'e of 1953-55 would
be heavily over-subsoribed but would not be retained by the banks.
He also thought there WaB some question R8 to whether the savings
banks and insurance companies demands were broad enough to absorb
an offering of this kind. This maturity would be stretching it
a bit and would cause & problem in the secondary distribution.
They BAW no necessity for two issues if the amount Was
$700,000,000 or less.
Travelers' Insurance Company - Messre. Baker and Duffield. They
advise that in view of conditions they are not interested in
nutting out long-term money. They did not seem too confident
of that market. They would be interested in 8 to 10 years. A
call date of 10 years would be their outside limit.
C. J. Devine and Company - Messrs. Kennedy and Herman. The
market for long bonds has been thin and small. What the market
vants is a 9 or 10 year bond and a new issue in that area would
be subscribed for and kept. Ae a result of 8. new offering the
market for long bonds might need some support which it probably
would get from the insurance companies since they would prefer
a long to a short bond. Their first choice would be a 1-3/4% bond
due June 15, 1949. However the Treasury might prefer a 1947-49
callable bond. Their second choice would be a 2% of 1950-52 and
the only objection to this issue they had was the large amount of
bonde already outstanding in this category. They believe the
Treasury could sell a 2-1/4% bond of 1953-56 or possibly 1954-56,
but they would not recommend it.
National City Bank - Messrs. Burgess and Townsend. The Treasury
should stretch the maturity of the new 1ssue A8 far AB it can
safely do it, which would be the longest point at which the banks
would take the bonds. of course, insurance companies would take
longer bonda than banks. The period of 1954-59 is & blank area
and the Treasury might get away with R 1954-56 bond, but it would
be taking & chance as this maturity 1s somewhat long for banks.
The banks would take them and sell them later. The longest bonds
his bank holds are 1951-54, which policy he believes 18 general
with banks. The Treasury maturities up through 1948-50 are rather
stout and the next vacant date would be 1950-52 or 1950-53.
Regraded Unclassified
99
- 3 -
He thought & new 2% bond of 1950-52 ought to be good for a premium
of one point, assuming the market keeps it about present levels.
Possibly the Treasury could do a 2% bond of 1950-53 but 1950-52
would be safer as these are uncertain days and the banks are still
somewhat scary. His recommendation would be a 2% bond of
September 15, 1950-52. He was glad the Treasury is offering a
bond and while he feels the Treasury should keep pushing the
maturity without and getting the bonds in the hands of other
than banks, he does not feel that the situation is right to
offer a bond with a maturity bond 1952. Although generally,
he would like reopening some of the old issues, he does not
think the present would be a good time to do it, although the
Treasury could sell an additional amount of 1948-50's at a price
of about 1021 or 1 point under the market.
Extract of letter from Mexico City, July 9. 1940
The elections have taken place rather peacefully. A fee
nundred men killed I wounded is very few considering that this is
the first time that there has been any show of election as far as
my recollection goes back. I want to give you my personal opinion
about it.
Early in the morning the people, who are not as I said in
former letters 75%, but practically 90% for Almazan, slowly and
carefully went out to the street and they found that there was nobody
to stop them. They started to gather enough courage to voice their
opinion and we see now for the first time in history or perhaps since
1910, that the public dared to give voice to their opinion, or what
is the same, that for once we have a puolic opinion. The elections
for Avila Camacho were badly organized and the terror by which they
wanted to win was not effective. In fact, while public employees
and laborers and all organized unions were led to the polls in com-
plete formation, in many cares all these people risking their daily
bread, revolted against the strict orders of the syndicate. This is
very important for Mexico as it means a complete collapse of the
tyrannic powers as held by the syndicates over their own people.
lie do not know so far how matters stood in the interior.
18 know only that in some states the governors gave guarantees for
expression of public opinion, while in others they suppressed com-
pletely every Almazan activity, including voting.
Who will be the next President is not decided; all depends
on the decision which Cardenas will take. No doubt he is somewhat
in a fix. If he declares himself pro-Almazan he will go down into
history as a b1g man for respecting public opinion, but he will be
antagonized by all his own followers. If he chooses Avila Camacho
he does so against the expressed wish and will of the whole population.
Whoever will come out one thing is sure: we shall have
e government very much directed to the right and who will do away -
at least somewhat - with those tremendous abuses of the leaders of the
syndicates and stop, to 8 certain degree anyhow, the tyrannical move
of the leaders. In my opinion it is doubtful who will take a stronger
hand against the labor leaders, Almazan or Avila Camacho.
Às always in Mexican politics the decision rests with
Washington.
The feeling here runs very high and apparently the people
are resolved to do something to get their vote through. What they can
do remains a mystery to me. The army is with Cardenas so far, but
his hold will gradually weaken whatever decision he takes. Whomever
he decides for, no revolution is possible without the benevolent
attitude of Washington. All parties know that and will act accordingly.
Regraded Unclassified
101
-2-
However, should Cardenas decide for Almazan, there is no fear of
& revolution either, as success creates success, and there is no
country where it becomes truer than in Mexico, and probably in such
a case we will see the Avila Camachistas run as fast as they can
into the Almazan camp with the idea of saving their political reputation
and their jobs. I also want to mention at this point that it was a
remarkable fact that the army and the military forces, anyhow in
Mexico City, kept order in a perfectly impartial way. Something
never seen before in Mexico.
Whatever the outcome may be it will make no difference:
We will see a strong turning to the right, removal of the union
leaders and their powers and probably a derogation of the "ejido"
system, which system will be turned from communal property into
small private holdings.
How strong the resentment against the abuses of labor syndicates
are being felt even by Cardenas at this moment is shown in the way
in which he treated the Railroad workers by enforcing a 20% wage
reduction, and his stand towards his "beloved" oil workers. In fact,
there are people who predict here that if Cardenas would stay on for
another six months he would be obliged to liquidate the labor leaders
and labor rackets.
I still believe the next president will be Avila Camacho.
Anyhow, it is a strong case of quien sabe.
Morgenthau's Surprise Bond Offering
ID
TORX POS:
July 9, 1940
To Set a Treasury Low Cost Record
By 5. Porter
Sect
IV Morgenthau will on
will break a Aveyear precedent
and world-wide economic UD-
or he wouldn't schedule a major
tablish
new law record for the
of the Treasury To Onance only
neaval.
borrowing now.
cost of Treasury borrowing on his
on the quarterly Inx dates.
That's an achievement that
sale of $500,000,000 to $700,000,-
It will be a success. It will be
needa no word Lembroldering to
As for the political aspects,
000 new government honds this
heavily oversobscribed by banks,
be Impressive.
Wall St. figures a government
week, experts prodicted today.
Insurance companies, wealthy in-
hond sale at the lowest Interest
The bond of
dividuals, It's likely that Imme-
Balance and Dehi
rate in Ristory will make good
Financial
fering which
diately after the formal offering
If the Treasury raises 5700
reading in Chicago next week,
probably will
of the bonds at 100, profession-
000,000 this week. the public debt
Post
Unquestionably, that's so, The
appear tome-
als will be bidding for the Recu-
will be pushed up to about $43.-
Treasury Dept's record under
Marks
row - is entire-
rittes at 100% or et 101.
667,000,000. That's an all-time
Morgenthau la A story of con-
ly for DPW cash
And it win left the country In
peak delit, of course, but It's
stantly decreasing borrowing
4d represents the first new
the most graphic way possible
will $1,400,000,000 below the old
conts, unparalleled successes in
money financing by the Treas-
that the credit of the U. S. gov.
limit of $45,000,000,000.
flotations.
ury since Dec. B:
ernment Is the best in the world.
That old debt limit will not
Even the most bitter anti-New
Morgenthau's night an-
Terms
be exceeded during 1940. judging
Dealers in the financial district
nouncement of his plans took
from this Anancing deal and
admit he has done a remarkable
Wall St. unawares, for this deal
Treasury officials are meeting
from the current rate of spend-
Job
with inembers of the executive
Ing. These bonds will come
committee of the Federal Re
under the old limit, will not be
Philco Issue
serve Open Market Committee
a part of the defense debt of
Shifts in Bonds
this affernoon to decide the
Thursday probably will be
$4,000,000,000 authorized under
Bo far this year. the coun-
terms of the new financing. An
the offering date for The Phil-
the revenue net of 1940.
Invitation to investors to buy the
try's big life insurance com-
DO Carp's first public sale of
As for the Treasury's work-
securities, therefore, is expected
825,000 shares of common
ing cash balance, this deal will
panier have bought about
within 24 to 48 hours.
stock-to be brought fato the
bring IL to around $1,700,000,000
500,000,000 of assurities and
A dozen alternatives are open
comfortable level The bal-
mortgages, approximately the
market by A Smith, Barney
to Morgenthau. He might sell
ance currently in below the
same amount of investments
di Cn. syndicate of as invest-
2 per cent bonds due in the early
hilliondoller mark, for years
made VAL the identical 1959
move houses. Bhares priced
"50s and Improve on his Decem-
at 815 each suitt he distrib-
considered # minimum in times
period. But important changes
her offering of $571,000,000 2a of
of possible emergency.
Name been managed in the
eted to individual interators
1950/4R. But the Secretary re-
mul institutions /hroughout
This deal will straighten out
Types of securities and mort-
marked that he "could get my
the Treasury's position nicely.
pager bought. de analysis of
the enuntry by a Targe selling
money cheaper than I did in De-
And when the $45,000,000,000
recent statements revealed in-
group.
cember."
The
pring will he a mile
limit has been reached, the
day.
So, traders today forecart an
atome
Treasury may start its national
The companies have m
he 15-wer Austory of
offering of bonds due within 10
that major radio manufactur-
defense financing program.
dueed their purchases of
concern. For the name
years and carrying A coupon of
Under The law, Issues sold for
D. 8. government bonds, for
jess than 2 per cent-say % or
time can mothe mill lurre no
national defense may not bear
instance, have ml substan-
1% per cent.
appartunity to from Philen, is
maturities beyond five years.
tially their buying of utility,
The objective would be the
state, county and municipal
regular, active market for the
lowering of the coupon rate
Impliestions .
bonds, But in comparizos
stock will be established; and
rather than lengthening of the
Perhaps the most Intriguing
with 1959 totals, they have
the shares should DE listed on
maturity on the securities
point about this government
increased their investions
the N. Y. Stock Rechahunge
floated, for America's bankers
financing la Its timing-the Inct.
in city property loans, indus-
soon. of the total to be sold,
have clearly Indicated their pre-
that It's coming this week of all
trial bonds, railroad obliga
150,000 shares are coming
ference for bonds with com-
weeks, that It's appearing Im-
tions.
from the company's treas-
paratively short maturities.
medialely before a political con-
in the first air months, in-
way and will raise junde for
They'll accept the lower interest
vention and perhaps Immedi-
surance companies bought
the retirement of Philoi's #5
coupon without argument.
ately before the feared bills
$1.17.000,000 in U. 5. insure,
preference stock. leaving only
The lowest coupon on any
kring on Britain.
against $524,000,000 in the
pommon outstanding. The re-
outstanding government bond
One thing the timing of the
same period last year; 8257,
paining 175,000 shares are
nng sold by stockholders.
Le 2 per cent.
deal does Indicate is Morgen-
000,000 in industrial corpora-
In other words, the Treasury
thau's conviction that the mar
lion honds, against $133,000/-
Incidentally, Philco's direc-
will be establishing an all-time
keta won't be upset by bad news
0001 $188,000,000 - nairoad
YR have established 6 25-cent
low government borrowing cost
during the next 4R hours. Ap
securities, against $113,000,-
carterly dividend rate on the
parently, he expects a few days
000; in stility
common and they may declare
-In the face of Intense warfare
estras at the year-end
of quiet on The Western front-
bonds, against 1797,000,000,
abroad, political uncertainlies
Regraded Unclassified
103
16103
JT
PLAIN
OTTAWA
Dated July 9, 1940
Rec'd 4:37 p.m.
Secretary of State,
Washington.
171, ninth.
Following Cabinet changes announced by Prime
Minister in House session yesterday afternoon:
Ilsley, formerly Minister of National Revenue,
now Minister of Finance; Cardin, now Minister of Public
Works, now glso Minister of Transport, relieving HOWE
of latter portfolio; Gardiner, now Minister of
Agriculture, now also Minister of National War Services;
Angus Mac Donald, formerly Premier of Nova Scotia, now
Minister of National DEfense for Naval Affairs; Colonel
William P. Murlock of Toronto appointed Postmaster
General; Colonel Colin Gibson of Hamilton, appointed
Minister of National Revenue. Previously announced
transfer Colonel J. L. Ralston from Minister of Finance
to Minister of National DEfense now confirmed.
MOFFAT
WSB
Regraded Unclassified
104
July 9, 1940
MEMORANDUM FOR THE SECRETARY:
Re Pecific Coest Shipping Situation.
The Pacific Coast freight and charter market continued to
soften last week, as the decline in buying interest in foreign
countries gave operators a smaller volume of cargo to handle. In
addition, the market was also being influenced adversely by the
surplus of tonnage available for world trading, which has been
blocked out of the European route.
The Pacific Coast-Orient trade was the only remaining major
trading area still at peace, and, as such, was about the only place
that was open for analysis. Business was generally quiet and rates
were seeking lower levels. The volume of offering was scant and time
charter rates were quoted at between $3 and $3.50 with about $3.25
reported as being done. Some scrap fixtures for Japan were reported
at $13.50 f.1.0., this rate being approximately the same for berth
lines. Negotiations for movement of salt to Japan were dropped and
instead, it was understood the salt would be shipped to the West
Indies. The f.i.o. rates on salt last week were quoted nominally
at between $11.50 and $12.50, although no business was reported closed.
Lumber from the Pacific Northwest was slack. Some wheat was reported
to have been offering on the berth at about $12.25 but as far as could
be learned the business had not been closed late last week.
The intercoastal trade managed to hold fairly well despite
the fact that this is the usual off-season. The reduced number of
vessels on berth because of charters and war sales was in a large
measure responsible for the condition. Perhaps the biggest feature
in the intercosstal trade last week was the announcement by the United
States Lines that its trans-Atlantic liners Washington and Manhattan
would enter intercoastal operations.
Banil Hamis
COPY
105
Rio de Janeiro, Brasil, July 9. 1940.
No. 3252
Subject: The Bank Of Brasil Requests Assistance of The Embassy In
Obtaining Payment or A Check Drawn On The Bank of Manhatten
Company of New York.
The Honorable
The Secretary of State,
Washington.
Sirt
I have the honor to quote below the text of a letter from the Director of
Exchange of the Bank of Brasil requesting the assistance of the Embassy in
obtaining payment of 8 check in the amount of $12,500.00 drawn by Kreditbank
voor Handel en Nijverhaid N.V. Antwerp on the Bank of Manhattan Company, and
later forwarded to the Benkers Trust Company of New York, which acts as the
Benk's correspondents in New York City.
#
We wish to bring to your attention the following occurrence
regarding settlement of a cheque for which payment had been
guaranteed to the Banco do Brasil by a New York bank on April 15th.
W
Mesers. Kreditbank voor Handel en Nijverheid N.V. of Antwerp,
on April 11, issued cheque n° 132.383 to the amount of $12,500.00,
drawn on the Bank of the Manhattan Company. How York, in favour
of Mar Grossmann, which was paid by our Sao Paulo Agency.
"
The above cheque was honoured by this bank in view of the
following letter received from the Bank of Manhattan Co.,
dated April 15. 1940:
- "We have today received the following cable from the
Kreditbank voor Handel on Nijferheid N.V.Antwerp:
'Please confirm by letter Banco do Brasil S.Paulo
that cheque 132.383 - $12,500.00 drawn on you
11/4/1940 by our Polican Agency order Banco do
Brasil S.Peulo and sent to latter for account of
MAI Grossmann 1a good for payment. E -
'As requested by our correspondant, we confirm here-
with that the above mentioned cheque is good for pay-
ment, and ve shall be pleased to honour name upon #
presentation provided it is otherwise in order.
Notwithstanding this guarantee, the Bankers Trust Company of
Regraded Unclassified
- 2 -
106
New York, our correspondents, to whom the cheque was duly form
warded, telegraphed us as follows, on June 27:
- Protesting and holding remittance 2.739 your
Central Branch. Reason President's executive
order. #
If In view of the above, we request your kind attention to
the matter, in order that payment of the said amount of
$12,500.00 may be duly authorized. M
The Department's cooperation in arranging for payment of the
check will be appreciated.
Respectfully yours,
For the Ambassador:
Walter J. Donnelly,
Commercial Attachs.
File 851.6
WJD:KF.
Regraded Unclassified
107
July 9, 1940
2:56 p.m.
H.M.Jr:
Hello.
Operator:
Mr. Rouse.
H.M.Jr:
Hello, Rouse?
Robert
Rouse:
Yes.
H.M.Jr:
Morgenthau.
R:
Good afternoon, sir.
H.M.Jr:
How are you?
R:
First rate.
H.M.Jr:
Have you talked to the Metropolitan Life?
R:
Yes I have.
H.M.Jr:
What have they got to say?
R:
The Metropolitan said that if a long-term
bond were offered that they would subscribe
for it.
H.M.Jr:
They would or would not?
R:
They would.
H.M.Jr:
They would.
R:
But if a 10-year obligation were offered
they'd subscribe in a larger way......
H.M.Jr:
I see.
R:
..... that they think it's a particularly
good time for the financing to be done,
there have been very few offerings in the
past two or three months, and that the
insurance companies and the savings banks
are quite long on funds.
755
- 2 -
H.M.Jr:
Are you at all worried about B 2:7
R:
I believe it can be done. I think your
secondary market may not prove to be
satisfactory.
H.M.Jr:
Well, you fellows have got to earn your
salaries down there.
R:
(Laughs) And the judgment of the market
which we consulted today was very strongly
to -- not over the 10-year option date.
H.M.Jr:
Yeah. But they'd like a 10-year bond with
2% coupon, huh?
R:
Oh, sure. They prefer a 1-year, 4.
H.M.Jr:
You're right. You've got it.
R:
But the other side of it -- I think they're
perfectly honest in their opinion because
the 21% bonds from the standpoint of the
dealers would be more profitable because
there'd be much more trading, they're bound
to sell them at home. But they think from
the standpoint of retention that the 2%
bond with the 10-year call date or 102-year
call date would be much preferable. They
sense in the investore a feeling that there
will be a good deal of borrowing of one kind
or another both Treasury and corporate, that
the future 18 rather obscure and they'd rather
confine their commitments to this 10-year
and shorter. They're all quite conscious
of an impending of impending European develop-
ments and the whole judgment tende to the
10-year call date.
H.M.Jr:
0. K., Rouse. Thank you.
a:
Thank you, sir.
Regraded Unclassified
109
July 9, 1940
3:38 p.m.
H.M.Jr:
Hello.
Operator:
Schwarz.
H.M.Jr:
Yes.
Operator:
Go ahead.
H.M.Jr:
Hello.
Charles
Schwarz:
Yes, sir.
H.M.Jr:
You can tell the boys for immediate
release that the issue will be offered
(1) on Thursday. (2) It will be $600
million dollars.
S:
$600.
H.M.Jr:
We're taking -- and on top of that take
$50 million on top of that for
......
S:
Investment account?
H.M.Jr:
Government investment account.
S:
Yes, sir.
H.M.Jr:
That's above the $600.
S:
A total of 650.
H.M.Jr:
And that the coupon will be 21.
S:
H.M.Jr:
We'll know that -- that we'll hold for
Thursday morning announcement.
S:
All right, sir. Thank you very much.
H.M.Jr:
The maturities.
S:
Yeah. That's right. Thank you.
110
KA
PLAIN
Berlin
Dated July 9, 1940
Rec'd 6:30 p.m.
Secretary of State
Washington
2644, July 9, 5 p.m.
My 2165, June 28, 9 a.m.
FOR TREASURY FROM HEATH AND ALSO FOR THE INFORMATION
OF THE DEPARTMENT.
The Reich's short term debt (including tax
certificates outstanding) increased during April by
513,000,000 marks to e total of 22,674,000,000 marks.
In March the short term debt had increased by only
102,000,000 marks but in the six months prior therato
the average monthly increase had been 1,623,000,000
marks, of the total increase during April 503,000,000
marks was in the form of treasury bills and certificates
and 193,000,000 marks increased use of the government's
operating credit at the REichabank offset a decrease
of 183,000,000 marks in tax certificates outstanding.
No Estimate concerning the total debt increase during
April is possible. Undoubtedly, however, the bulk of
the Reich's borrowing as in March was on long term.
KIRE
NPL
Regraded Unclassified
TREASURY DEPARTMENT
111
INTER-OFFICE COMMUNICATION
DATE July 9. 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
confidential
In a quiet foreign exchange market, sterling advanced from an opening of
3.75 to a high of 3.78-1/4 late in the day. It closed at 3.77-3/4, & gain of
1-1/44 over yesterday's final rate.
Sales of spot sterling by the six reporting banks and the Federal Reserve
Bank of New York totaled £162,000, from the following sources:
By commercial concerns
£ 42,000
By foreign banks (Europe, Far East and South America)
E 100,000
By the Federal Reserve Bank of New York (for Tugoslavia)
E 20,000
Total
£ 162,000
Purchases of spot sterling amounted to £140,000. as indicated below:
By commercial concerns
£ 103,000
By foreign banks (Far East, Europe and South America)
£ 37,000
Total
£ 140,000
Sterling in the amount of 240,000 yes purchased from the British Control
at the official rate of 4.03-1/2 by the following banks:
£35,000 by the Chase National Bank (for whisky)
4,000 by the Irving Trust Company (for paddles)
1,000 by the Guaranty Trust Company (for leather)
£40,000 Total
It will be observed that official sterling vas purchased to be used to
pay for shipmente of leather and paddles, two commodities which hitherto have
not appeared under this category. Their inclusion today reflects the reported
tightening. by the British Control. of regulations on the use of free sterling
to pay for exports. According to a cable received from London by the New York
Foreign Exchange Committee which appeared in the press today, exporte from the
United Kingdom contracted for prior to June 8 must now be paid for in official
sterling, except for those commodities (whisky, rubber, tin, jute and a few
others) specified in the British regulations of March 9. Free sterling can
still be utilized with respect to the latter, if contracted for prior to March 8,
but importers are warned, according to the cable. that "further measures may be
taken at any time, having the effect of limiting the volume of sterling obtainable
otherwise than from the control."
- 2 -
With the exception of a further widening of the Canadian dollar discount.
the other currencies showed little movement and closed as followe:
Swise frans
.2267
Canadian dollar
14-1/2% discount
Lira
.0505
Reichemark
4004
Cuban peso
9-15/16% discount
Mexican peso
.1990 bid, .2020 offered
There vere no gold transactions consumnated by us today.
The Federal Reserve Bank of New York reported that the Bank of Portugal
shipped $1,329,000 in gold from Portugal to the Federal, to be earmarked for
114 account.
The Bontry gold price was equivalent to $33.79. off 34.
Scot ailver in Bombay ves unchanged at the equivalent of 44.16#.
In London, spot silver was unchanged at 21-11/16d, end the forward
quotation was 1/16a lower at 21-9/16d. The U. S. equivalente were 39.434
and 39.20# respectively.
Handy and Harman's settlement price for foreign silver was unchanged at
34-3/44- The Treasury's purchase price for foreign ailver WBG also unchanged
at 354.
Ye made three purchases of silver totaling 325.000 ounces under the Silver
Purchase Act. Of this amount, 125,000 ounces represented a sale from inventory.
and the remaining 200,000 ounces consisted of new production from foreign
countries, for forward delivery.
H.M.S.
Regraded Unclassified
223
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
July 9. 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
Official sales of British owned dollar securities under the vesting order
effective February 19:
No. of Shares
$ Proceeds of
Nominal Value
$ Proceeds of
Sold
Shares Sold
of Bonds Sold
Bonds Sold
July 1
100
346
Nil
Nil
2
200
691
5,000
5.346
3
11,985
116,860
16,000
10,399
4
Nil
Nil
Nil
Nil
inio
5,000
18,740
42,000
27,874
3,000
11,145
341,000*
351,352*
20,285
147.782
404,000
394,971
ales from
february 22 to
June 29
1,351,5633
47,902,571
1,891,000
1,669,689
TOTAL FEBRUARY
22 TO JULY 6
1,371,848
48,050,353
2,295,000
2,064,660
Mr. Gifford reported that sales of non-vested securities for the work ended
June 29 totaled $1,000,000.
B.M.S.
The bond sales of July 6 included a total of 301,000 bonds, nominal, which
were wold for $328,677 in the following circumstances. A Mr. John A. Fielden
had presented to the British Treasury the following securities:
$45,000 Pennsylvania R. R. Gen. 5'a 1968
$87,000 U. S. Treasury 2 7/8's 1955/60
$87,000 U. S. Treasury 2 3/4's 1951/54
$82,000 Union Pacific 4's 1947
While these did not arise out of British vesting orders, they were actually
disposed of by Mr. Gifford, and are consequently counted in the above table.
Regraded Unclassified
TREASURY DEPARTMENT
114
INTER OFFICE COMMUNICATION
DATE July 9, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
In accordance with the understanding reached at the Saturday meeting of our
Exchange Control group, I telephoned today and discussed with Mr. Atherton, American
Minister to Denmark now on detail in the Department of State, the desire of the Bank
of Dennark to have the Federal Reserve Bank of New York purchase with its funds on
deposit with the Federal $600,000 worth of dollar bonds of Dennark.
In answer to my inquiry, Mr. Atherton stated that there had been no evidence of
looting of securities by the Germans when they entered. Mr. Atherton confirmed my
understanding that the Bank of Denmark had followed for 8 considerable time, much in
advance of German invasion of Danish territory. the practice of purchasing through
their Central Bank Danish dollar bonde on the American market. This the Danes con-
sidered 8. good investment policy. When I asked Atherton whether be thought the
Germans had any ulterior motive in permitting the Bank of Denmark now to purchase
dollar bonds in excess of sinking fund requirements, he replied that he had the very
definite impression that Germany was dealing with Denmark in such a manner as to con-
vince the small country that it enjoys a special status, perhaps different from that
of other countries into which Germany has marched.
I asked whether Governor Bransnaes of the Central Bank had freedom of action,
and Atherton replied that he was sure this was enjoyed, and added that Bransnnes
reesed to be getting on very well when he, Atherton, left Demark and might possibly
be considered for a post in the Cabinet. Atherton thought Germany would be interested
in seeing Denmark improve its credit status on the American market. Ho failed to see
anything exceptional in the above-described transaction.
After this conversation with Mr. Atherton, I renewed my recommendation that the
transaction be permitted. It will be recalled that when I visited Denmark in
February, 1939, I reported to the Department then that the Central Bank of Denmark was
actively purchasi ng Danish bonds on this market. I think it 10 much to the interest
of our own market and to American investors that this be permitted to continue.
p.m.s.
Regraded Unclassified
115
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 9. 1940
TO Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
Reference is made to my memorandum dated July 3 reporting 8. conversation by
telephone with Mr. Russell Leffingwell of J. P. Morgan and Company.
On the evening of July 5 Mr. Henry Alexander of Morgan and Company dropped by
to see me after spending a day with the S. E. C. He referred to Mr. Leffingwell's
offer made by telephone to give us a memorandum setting forth some observations on
our freezing system. Mr. Alexander sketched the general idea of the proposed memo-
randum and said he would try to have it in my hands by Tuesday, July 9. There is
attached a copy of a note from Mr. Alexander together with a copy of its enclosure
which constitutes the memorandum in question.
B.M.P.
116
23 Wall Street
New York
July 8, 1940.
Dear Mr. Cochran:
I enclose the memorandum which we talked
about last Friday and which you said you would.like
to have me send down to you.
Yours very truly,
(Signed) Henry Alexander
Merle Cochran, Esq.,
Treasury Department,
Washington, D. C.
Enclosure
117
Memorandum Re Executive Orders Issued in 1940 With the Object
of Preventing a Conquering Invader from being able to misuse the
Banking and Security Assets of Governments and Nationals of the
Invaded Country when such are located in the United States.
The conception behind the Executive Orders was unques-
tionably laudable and it is undeniable that the actual and pay-
chological effect has been to preserve from immediate seirure the
Resete of nationals and governments of the invaded countries
located in the United States. The language of the Orders is
necessarily restrictive and the penalties for infractions are
sufficiently severe 00 that American banking institutions feel
cuite properly that the responsibility for decisions in connection
with doubtful cases should rest with the Treasury Department.
From our observations the decisions by the Treasury Department
have been reasonably prompt and have been made with the applica-
tion of n. good deal of comon sense.
Whatever the beneficial effects, it is undoubtedly true
that the freezing of the assets concerned is a neat and tidy way
of keeping the assets intact against the time when, perhaps In-
duced by threats of cruel and horrible consequences to the nation-
als in Europe of the invaded countries, it may be necessary for
our government to recognize the right of local European govern-
mente dominated by the German Reich to assume control over these
American assets.
If we realistically arrive at even the possibility
of the foregoing conclusion becoming A. fact, we must then believe
118
that it is in the interests of justice that the owners of such
American assets should have the right to the free disposition thereof
provided the United States is convinced that they are not subject
to coercion at the time their instructions are given to the
American bank.
Decision regarding possible coercion is a difficult
one, particularly if the owner of the funds or securities is a
resident in the invaded country, but when he, or if a corporation
its autorized representative, has arrived in the United States
or has been a resident here for some time it seems to be an un-
necessary hardship to have the use of his funds restricted and
to be put on B. dole when free use of his funds might prevent an
eventual confiscation by 8. German dominated government.
If the above assumptions are accepted, it might not
be necessary to make any change in the existing Executive Orders,
but instead of having the licenses granted on the basis of &
policy of tight freezing, if the point of view of those responsible
is being guided by a more liberal policy it might be feasible to
issue a general license for such nationals located in the United
States, and following the above philosophy to make very liberal
interpretations in other cases as they come up.
Às an illustration of the possibility of future in-
justices because of current decisions, may we give & few cases
which have come to our attention -
1. A. member of an old and reputable American family, now
- 2 -
119
located in the United States, but a French citizen by
marriage, has very substantial holdings of securities and
cash and it is necessary to make application for any with-
drawals, such applications being granted only in very limited
manner.
2.
A Danish citizen, who was in France at the time of the invasion of
Denmark but who we understand is now in Spain, has upwards of
$1,000,000. in cash and securities on deposit. but before any
payments other than very meager sums are made to him it is
necessary for him to explain the purpose of the payment and obtain
a license.
3.
On April 24th instructions were given us by mail by a Dutch
firm to deliver a number of securities from their account to
a Swiss institution. The letter was not received by us until
May 11th when an application for a license was made. No
license was granted.
4.
On May 11th we received a cable from a banking firm in
Amsterdam, no doubt despatched before the invasion, request-
ing us to transfer from their sub-account a substantial block
of securities and an amount of cash to an account in the name
of a Swiss bank in favor of a Spanish company. It seems to
us that the transfer was requested because of the fear of
invasion before it actually occurred. Application for a license
was immediately made but has not yet been granted. The real
owner of the Spanish company is we believe a citizen of
Lichtenstein.
-3-
120
5.
1 Roumanian citizen. married to a French lady, has a bankers'
Travelers Letter of Credit for a substantial sum, made out
in the joint names of both. They arrived in America about
a week ago and wished to withdraw money under their Travelers
Letter of Credit. Application was made but the resulting
license permitted them only to have the funds deposited in a
frozen bank account. Application has been made for necessary
living expenses and is pending.
6. There have been a number of cases of holding companies
established originally for the express purpose of avoiding
the hardships of an invasion situation; one of these we shall
discuss as an example. A Panama corporation, predominantly
of Swies ownership has had a representative domiciled first
in Canada and then since last September in Havana, whose
duty it was to avoid the affects of an invasion of Switzerland,
Holland or France. Upon the invasion of Holland he wished
to make certain transactions and we, thinking that it was 8.
Dutch controlled company. made an application for a license.
In the meantime be furnished evidence to us that the company
was principally Swiss owned and controlled, although the
individual residing in Havana was a French citizen (at this
time France had not been invaded). We submitted this further
information to the Treasury Department but to date the license
has not been granted.
7-
Prior to the issuance of the Executive Orders. we, as un-
doubtedly 18 the case with many other institutions, issued
for account of foreign corremondents our irrevocable com-
Regrad Unclassified
121
mercial Letters of Credit. We are obligated to make payment
under these irrevocable Letters of Credit at the time drafts
are tendered, if in accordance with the terms of the credit.
It is necessary under the Order for us to apply for permis-
sion to charge the account on our books of our foreign corres-
pondent. In the meantime we run the risk of having the funds
of our correspondent attached before we are reimbursed our-
selves for our payment. (This has actually occurred.) It
would seem highly desirable that & general license should be
issued permitting banks which have issued irrevocable Letters
of Credit prior to the date of the Executive Order to charge
the account for the payments without the necessity of incur-
ring the delay involved by application for a specific license.
July 3. 1940.
Regraded Unclassified
122
July 9, 1940
Dear Harold:
Thank you for the extract of
the letter which you received from
Mexico City on July 5th.
I would appreciate your for-
warding on to no any material of a
similar nature which you may receive
in the future.
Best regards.
Yours sincerely,
Henry
Mr. Harold K. Hochschild,
The American Metal Company, Ltd.,
61 Broadway,
New York, New York.
Regraded Unclassified
123
July 9, 1940
Dear Harold:
Thank you for the extract of
the letter which you received from
Mexico City on July 5th.
I would appreciate your for-
warding on to me any material of a
similar nature which you may receive
in the future.
Best regards.
Yours sincerely,
Henry
Mr. Harold K. Hochschild,
The American Metal Company, Ltd.,
61 Broadway,
New York, New York.
Regraded Unclassified
724
July 9, 1940
Dear Harold:
Thank you for the extract of
the letter which you received from
Mexico City on July 5th.
I would appreciate your for-
warding on to no any material of &
similar nature which you may receive
in the future.
Best regards.
Yours sincerely,
Henry
Mr. Harold K. Hochsohild,
The American Metal Company, Ltd.,
61 Broadway,
New York, New York.
Regraded Unclassified
Extract of letter from Mexico City,
July 5, 1940.
Just before the elections I beg to repeat that
there is not the slightest question that Avila Camacho will
get by far the biggest majority of votes, as Government
employees and all organized labor are practically carried
to the urns, while the other side is much more reluctant to
vote. That, of course, settles the matter.
The fact that the Government's income is decreasing,
for which the exchange at five is greatly responsible, is
being felt and you hear in Government circles less talk about
3.80 than before. My private opinion is that unless a b1g
influx of dollars come to this country, which may of course
come through extraordinarily large tourist trade, or Americans
settling here, or through frightened capital returning or
looking for a port in this country, the Gov rnment can possibly
hold the exchange for some time at 5, but will ave much
difficulty to hold it afterwards at that rate.
Business is fairly bad and it remains to be seen
if such fact is due to people being unwilling to engage in
new business on account of the election or due to the economic
situation.
Considering the enormous vitality of this country
E am inclined to believe that such fall off in business is
due to political fears and that after the election or hen
the new President is in, business will pick up considerably.
Regraded Unclassified
128
July 9. 1940
Under Secretary Bell
Mr. dochran
STRICTLY CONFIDENTIAL
In accordance with the decision reached at our Emchange Control meeting
on Saturday, I telephened Mr. Degges of the State Department yesterday in
regard to the letter addressed to his w Ambresador Bradon at Begeta, under
date of June 28, 1940. I have asked Mr. Deggna whether he could tell - the
bank in the United States is which the French citizen, Mr. Louis Dies has his
account, which is reported to be fresen. Mr. Duggan stated that he did not
have this information, but would seek 10 w cablegram from Ambacander Braden.
I told his that ve were also interested is knowing how long Mr. Dieu had been
a resident of the United States and whether he intends to remin here. Mr.
Duggea premised to call as back as sees as he my have an answer from his
cablegram to Dogeta.
H.MT
Regraded Unclassified
127
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 9, 1940
Secretary Morgenthau
TO
FROM W. H. Hadley
2-1/4% TREASURY BONDS
Estimated
Offering
Market
Term
Tield
Price
Price
Premium
13 yr. 2 mo. - 16 yr. 2 me.
2.11
100
101.20
1 pt. 20/32
(9/15/53-56)
2.13
100
101.13
1 pt. 13/32
13 yr. 5 no. - 15 yr. 5 mo.
2.11
100
101.20
1 pt. 20/32
(12/15/53-55)
2.13
100
101.13
1 pt. 13/32
13 yr. 5 mo. - 16 yr. 5 mo.
2.13
100
101.13
1 pt. 13/32
(12/15/53-56)
2.15
100
101.6
1 pt. 6/32
13 yr. 8 me. - 15 yr. 8 mo,
2.13
100
101.14
1 pt. 14/32
(3/15/54-56)
2.15
100
101.6
1 pt. 6/32
13 yr. 8 mo. - 16 yr. 8 mo.
2.15
100
101.6
1 pt. 6/32
(3/15/54-57)
2.17
100
100.30
30/32nds
13 yr. 11 mo. - 15 yr. 11 no.
2.15
100
101.6
1 pt. 6/32
(6/15/54-56)
2.17
100
100.30
30/32nds
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 9. 1440
TO
3ecretary Morgenthau
FROM Pr. Cockran
STRICTLY CONFIDENTI.
In enewer to Mr. Pinsent's renewed inquiries this morning, 1 told him that the
had granted e license for the For Eastern branches of the Bank of Indo-Chinn
1/4 denv un to twenty-five percent of their deposits with American banks as of a
HTTAIN date, plue deposits made subsequently. I let him know, in sddition, that
the insuired through Shanghei BE to whether any real difficulties were being
reserved there by the branch of the Bank of Indo-Chine, but I had not yet received
pay. WITE respect to the Credit Lyonnais, I confirmed that we had made a twenty-
five rercent arrangement for two of its brenches in Sprin, of which the deposits on
the american market were insignificant. Consequently I told him that he should be
she to report to his Government that our action with respect to these Soanish
of R French bank constituted no devistion from or loosening of our control
it, Finsent referred to the cablegram of which he had giver BE e copy in regard
: oltaining the release of funds blocked in New York with the view to paying
street OR loans from Sweden. I told Pinsent that I had not yet accertained whether
120 tresesctions of the tyne indicated had been the basis of anolications to up for
I had, however, circulated e memorandum to my collesgues indiceting the
Tritist veition, Finsent esked very definitely if he could report to bls Government
that we would disapprove any arrangement: in the sense indicated. If not this, could
24 report that the Treasury Department would consult the British Embessy before
creting "ay licenses of the character under reference. I told Pinsent that my Imme-
line resetion ves that the Treasury could not undertake to consult the British
responsating an unblocked country. in regard to trensactions involving
Medical countries. I would, however, look into the facts as to annlications of the
1100 stationed, rnd also consult my colleaguer on the general matter of policy.
BM.R
Regraded Unclassified
123
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 9. 1940
Secretary Morgenthau
TO
FROM Mr. Cochran
STRICTLY CONFIDENTIA!
In B. conversation by telephone this morning. Mr. Pinsent asked me whether he
could give a reply to his Government expressing Secretary Morgenthau's position as
to whether the British should enter into negotiations with Mr. Charles McDeniels
with the view to considering the latter's proposal involving the barter of securities
and colonial products for other raw materials or manufactured goods amounting to
perhaps L150,000,000 sterling.
I told Mr. Pinsent that I had obtained a little more information regarding
Mr. McDaniels since speaking with him last. This was to the effect that
Mr. McDaniels had reportedly made a good impression upon Senator Barkley and perhaps
some other members of the Senate. Pinsent did not feel that friendship with members
of the Senate could constitute the "official blessing" which McDaniels is alleged to
have for proposal. I reiterated that the Treasury's "blessing" on McDaniels' pro-
osal had not been solicited and that we knew nothing of it except from the informa-
ion which Pinsent had given. Furthermore, my inquiries in the Department of State
had failed to reveal any knowledge there of the proposal. I told Pinsent that I was
confident Secretary Morgenthau knew nothing of this matter and I did not feel that
he should be pressed for an expression of opinion. I have given Pinsent ample infor-
mation on which his Embasay should be in a position to make B. recommendation to their
Government as to whether this man may be in a position to carry out a transaction of
the magnitude indicated. I assumed that the British would desire to make the usual
banking and credit inquiries before entering such negotiations. As far as this
Government is concerned, I pointed out that the State Department, rather than the
Treasury, has negotiated on barters. As far as disposal of British securities is
concerned, we made our only suggestion in the premises and the British acted on it,
through selling their securities for cash on this market. Pinsent agreed to accept
the above remarks as sufficient basis for his cablegram to London, and to consider
the matter closed.
70m.8
Regraded Unclassified
July 9, 1940
Three things Soong asked me about at lunch.
First, time President talked to him about the three-way
Toom Russia, China and ourselves. (The President
vid I discussed this before we had seen Soong.) Second,
to help finance a corporation to build the Burma road.
?lird, a stabilization to the Bank of China.
He said the President said that they should
keep on fighting -- I can't remember the exact words he
usec. but that something might happen which would bring
in Descoracies a break. (This 1g paraphrasing 1t.)
lise nupreated that we make them a loan against wolfram and
The they would use that money to buy from Russia. I said
time that was too simple to suit the President. I said
to- about busing manganese from Russia on condition that
Ruesta helo China.
300ng seld that the President said that he told
French to keep on fighting and Soons could not under-
way the French did not withdraw to Africa and keeo
DC finditing, as the President said, "If you fight until
- lAst non 1s alive, you will cet Just as good mence
from the Japanese as though you made peace terms
5,298. And the same holds true with the French," the
President said.
I tried to find out what ne and in mind in the
10 of a. three-way loan and he had nothing. Soong then
old Test the last loan we made at the time of the fall
of Cabion was very timely and helpful.
I asked him how they felt about Russia in China
ne enid that they were very, very appreciative bécause
21 of their airplanes and runs today came from Russia.
Regraded Unclassified
July 9, 1940
My dear Mr. Hoover:
This will acknowledge receipt of the following
communications which you have been good enough to send
me:
July 1 - Excerpts from 6. communication
prepared by Justice Department
official at San Juan regarding
his observations made at
Fort-de-France;
July 3 - Further information on purchase
of aviation gasoline, allegedly
for use of the Japanese Navy;
July 5 - Additional memorandum relative
to Dr. Herbert Hoehne and Dr.
Emil Wolff;
July 5 - Further information on conditions
at Martinique;
July 6 - Employment of Russians who were
formerly officers in Russian
Imperial Army at Sikorsky Air-
plane Factory in Connecticut.
Yours sincerely,
(Stgned) E. Magnathan, Jr.
Mr. J. Edgar Hoover, Director,
Federal Bureau of Investigation,
Washington, D.C.
Regraded Unclassified
132
July 9, 1940
My dear Mr. Hoover:
This will acknowledge receipt of the following
communications which you have been good enough to send
me:
July 1 - Excerpts from a communication
prepared by Justice Department
official at San Juan regarding
his observations made at
Fort-de-France;
July 3 - Further information on purchase
of aviation gasoline, allegedly
for use of the Japanese Navy;
July 5 - Additional memorandum relative
to Dr. Herbert Hoehne and Dr.
Emil Wolff;
July 5 - Further information on conditions
at Martinique;
July 6 - Employment of Russians who were
formerly officers in Russian
Imperial Army at Sikorsky Air-
plane Factory in Connecticut.
Yours sincerely,
(Signed) H. Morgesthau, Jr.
Mr. J. Edgar Hoover, Director,
Federal Bureau of Investigation,
Washington, D.C.
Regraded Unclassified
"GS
July 9, 1940
My dear Mr. Hoover:
This will acknowledge receipt of the following
communications which you have been good enough to send
me:
July 1 - Excerpts from a communication
prepared by Justice Department
official at San Juan regarding
his observations made at
Fort-de-France;
July 3 - Further information on purchase
of aviation gasoline, allegedly
for use of the Japanese Navy;
July 5 - Additional memorandum relative
to Dr. Herbert Hoehne and Dr.
Emil Wolff;
July 5 - Further information on conditions
at Martinique;
July 6 - Employment of Russians who were
formerly officers in Russian
Imperial Army at Sikorsky Air-
plane Factory in Connecticut.
Yours sincerely,
(Signed) H. Morgenthau, dr
Mr. J. Edgar Hoover, Director,
Washington, D.C.
Federal Bureau of Investigation,
Regraded Unclassified
TO:
Mrs. Klotz or Miss Chauncey -
Mr. Gaston directed me to give
the attached to either of you and
say he has reported the substance of
it to the Secretary.
mel-R
7/2/40
From: Mr. GASTON
Regraded Unclassified
JOHN EDGAR HOOVER
DIRECTOR
Federal Bureau of Importigation
United States Department of Justice
Washington, D. C.
secing. r
July 1, 1940
PERSONAL AND CONFIDENTIAL
The Honorable
The Secretary of.the Treasury
Washington, D. C.
My dear Mr. Secretary:
There are attached hereto pertinent
excerpts of a communication prepared by an
official of the Department of Justice at San
Juan, Puerto Rico, recording his observations
made at Fort-de-France on June 26, 1940.
It was believed that you would find
the contents of the enclosure to be of interest.
Sincerely yours,
J Edgan Hoover
Enclosure
BY SPECIAL MESSENGER
Y
The
"The French airplane carrier BARAN, with la reputed cargo of
Curtis fighting planes, WAS whekered in the harbor. I actually
svurted 44 planes on the deek as I flow over in a PAA plane. I NUM
1036 that the balance were in the below dooks. I WOM further in-
by most reliable authorities that the DA. had sailed from
- for the capitulation of the French and upon receipt of the
COMP. For course wes changed to Fort-do-Prence, Martinique, They
and 24 Candition fliers abourd who are on route to france.
The French training ship JEANS DE ARC PRO enchored In the
were My arrival but later noved into the dooks. The Froneh
me, cruiser EMILIO BUTAIN in at the docks,
from unimpeachable sources, such La Mons. Andre Gerein,
irector or the Credit Martiniquais, Mone, Aubery, leading Indue-
brialist of Martinique; lions. Rense Cottrell, one of the leading
mon of Fort-de-France, French officers, etc., 1 learned
Live there is 22,000,000,000 gold france aboard this cruiser. This
Jonay was shipped from the Bank of France when the fall of Paris WILLS
luminent. I aus told that the EMILIO BETWIN'S first destination was
a Censilian port and that upon arrival in Canada she was instructed
- the Janadian or English Governments to remain at a Canadian port
subject to their disposition. This she refused to de and propeeded
to aartinique under forsed draft, The English cruiser @UNDETO is
in the harbor, ne well as the English cruiser F101, which arrived
Juring the later afternoon of June 28th. It is significant that
cotto of the English cruisers are anchored in euch a way as to
bottle the departure of any ship from the port of Fort-
There are also five French fruit ships at dock, all of
are Leavily armed, There are also three French tenk ships
one visall petrol bont."
Friday, June 28th, the following British officials served
by special PAN plane at 10:43
41- Hubert Young, Covernor of Trinided.
oir %dward Cunard, traveling LE aid to the Governor NO
apparently D. high renking British naval officer.
Colonel Bannington of the Dritish Army.
.r. C. C. George, e. civilian.
Dr. Errol dos Santos, Treasurer of Trinidad.
Xevier de Pospigna, stementp director and agent at We
French steamship line le Trinidad.
Vr. S. R. Barelay, Manager of Barelay's Overseas Bank
in Trinidad.
Regraded Unclassified
This party immediately went into conferences with the Governer of
Mertinique, Admirel Rebort, of the French Mary, Vons. Garein, Director
of the Credit Martiniquale and others, Meliable sources told - that
the Trinidad delegation arrived in Martinique with the offer to take
ever the Island and pointed out that the economic situation (they have
no pounds sterling or dollars to buy food commedities and it 1s said
that the supply of food commodities is only for approximately two
months and the supply of gasoline is limited to one month) was naaring
c. crieis and that the English Government would provide all necessary
funds, etc.
"The report is that the Martinique officials indignantly replied
to the English offer that they could not be bought and accused the
Trinidad delegationar making the effer purely to obtain possession
of the gold aboard the cruiser. The Trinidad delegation left by PAA
plans at 2:30 p.m. The Governor of Martinique and the Vise-Admiral
accompanied the Trinidad party to the P&A pier and the departure vas
amidat almost total silence,"
"Later on in the a/ternoon I had en appointment with Mons. Garein,
the Director of the Credit Martiniquais. he was in a very excitable
frame of mind and proceeded to speak freely of the result of the Trini-
dad mission. He said that they were convinced that the purpose of the
visit of the English delegation primarily was to take over the gold
and planes abound of the airplane carrier BERAN, and that the officers
and pen of the NMILIO BETAIN would fight to prevent such as act. He
also told DE (and this was confirmed by returning fisherman and French
patrol planes) that three or four English cruisers were to the loevard
of Fort-de-France. Vone. Oarein went on to say that most anything
could happen and that within the next 48 hours they propose to hold .
council and it was not improbable that the results of this mesting
would be to ank the U. 3. Government to take over Wartinique."
"Sailors from the British cruiser DUNDS IN and the cruiser FIGI,
" voll au sailors from the French navel unite circulated in the town
of Fort-de-France during the night and it VOP obvious that tension vas
and acute, This perning I was told that the gold wge taken from
The French drüfse? SHILIO SETAIN and transferred 18 the fort southeast
of the town of Fort-de-France.
On leaving by P&A plane this seraing I requested the PAA pilot
to fly some distance off his course in the hopes of seeing the English
figet that THE reported off Martinique, No flue northwest to Latitude
15 20% Longitude 62° 20', then north to Lattitude 15° 50% Longibuie
Regraded Unclassified
-}-
62° 20'. After completing this circle, we then proceeded north ⑉
to Sundeloups. Visibility was poor and nothing was sighted except
two french patrol planes flying from Guadeloupe to Marhinique. (--
learned later that they were carrying the Governor of Guadeloupe).
*On arriving at Guadeloups, 1 learned that the Governor had
leuged his allegiance to the Petain Government and that the people
used for the Government being formed 16 England and would revolt if
the Guadeloupe authorities attempted to recognize Petain. A converted
French cruiser is standing by and reports are freely circulating
that real rioting may De expected, The Governor of Gundeloups flow
to Lurtinique this morning ostensibly to 1sk aid,"
CONCLUSIONS:-
"There is a marked feeling of unfriendliness of the people of
Vartinique toward the English. They primarily wish to remain French
but they do not wish to Join the Patain Government and prefer that the
Dovernment be formed in North Africa, If this sannot be done, they
must to be taken over by the U. S. Government."
"The economic situation DAY develop into a critis, The canks
are full of French frans out there are practically no dollars en the
Island and four is entertained for food commodities. Apparently
|elleve that the English propose to take the cold by force and also
the planes, and it is not beyond the reale of possibility that such
-- Lot,on MAY bring on IL real encounter. Apparantly the situat is
THE 9f dire possibilities and the least flare will bring on a seet
shootic condition."
Regraded Unclassified
00 EDGAR HOOVER
DISC TOM
139
Federal Nurrum of Investigation
Wutted States Department of Justice
Washington, B. C.
July 3, 1940
PERSONAL AND CONFIDENTIAL
The Honorable
The Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
Reference is made to previous correspondence
with you concerning the proposed purchase of aviation
gasoline by the Taiyo Sekiyu Kaisha, Limited, allegedly
for the use of the Japanese Navy.
I am now in receipt of information indicating
that Perry P. Schultz and Shoji Matsuzaki left New York,
New York, on June 27, 1940, en route to Los Angeles,
California. It is reported that Shoji Matsuzaki has been
negotiating with the General Petroleum Corporation of
California, at Los Angeles, California, and has entered
into an agreement for the shipment of gasoline beginning
in December, 1940. It is also reported that he has entered
into a contract with the Seaboard Oil Company of Delaware,
Los Angeles, California, the details of which are not
available at the present time.
Information was also obtained from & confidential
source to the effect that Milton M. Cohen, Fifth Avenue
Hotel, New York City, a Los Angeles attorney, has been
contacted by Shoji Matsuzaki and is apparently acting as
an agent for the Taiyo Sekiyu Kaisha, Limited. According
to confidential sources, a receipt in Cohen's name dated
April 19, 1940, was issued by the Seaboard Oil Company
in the amount of $7,500, which receipt was seen in the
possession of Shojji Matsusaki.
Sincerely yours,
edgan Hoover
BY SPECIAL MESSENGER
,OHN EDGAR HOOVER
DIRECTOR
140
Federal Bureau of Investigation
United States Department of Justice
Washington, B. C.
July 5, 1940
PERSONAL AND
BY SPECIAL
CONFIDENTIAL
MESSENGER
The Honorable
The Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
I am transmitting herewith as of possible
interest to you an additional memorandum relative to
Dr. Herbert Hoehne, with aliases; Dr. Emil Wolff;
Registration Act; Espionage, setting forth information
regarding developments in this case at San Francisco,
California.
You will be advised of further developments
as soon as information is received.
Sincerely yours,
2a. Hoover
Enclosure
July 3, 1940
KEMORANDUM
Information has been received to the effect that the trunk found
in the possession of Dr. Kail Wolff upon his arrival at Balboa, Canal
Zone, contained nine packages, all under seal and addressed to German
Ministers and Consuls at Bogota, Colombia: Caracas, Veneruela; Lima, Peru;
Quito, Ecuador: La Pas, Bolivia; Barranquilla, Colombia: Buenos Aires,
Argentina; Asuncion, Paraguay; Rio de Janeiro, Brazil: Santiago, Chile:
Montevideo, Uruguay. The total weight of the trunk was approximately
150 pounds, and numerous documents found in the trunk were apparently
duplicates.
These packages were opened and contained numerous official codes,
together with instructions for code keys to be used during the year 1941,
Intelligent translations of these documents could not be obtained, however,
due to the lack of a competent interpreter. These packages also contained
pada of paper, apparently chemically treated, with instructions for devel-
oping, which instructions were all serialized. The packages also contained
letters of instructions pertaining to the use of the codes and destruction
in the event of an emergency. The documents are now in the custody of
the Customs Inspector at Balboa.
Dr. Wolff is being held in default of & $10,000.00 bond on 3
Marcotic charge. Unless immediate steps are taken to initiate prosecu-
tlon on additional charges. Dr. Wolff will probably be discharged from
the Narcotic charge at the time of his hearing which is premently set
for Friday, July 5, 1940,
Information has been received to the effect that Captain
Frederick C. Mensing, head of the Hamburg-American Lines in San Francisco,
California, was departing from Ban Francisco on the night of July 3, 1940,
enroute to Washington via New York and Philadelphia. Prior to his depart-
ure in a conversation with Fritz Wiedemann, Wiedemann remarked that he
hoped he, Wiedemann, would not be punished for the time being in San
Francisco.
Mensing advised on July 3, 1940, that it has been customary for
the German Consul at San Francisco to make use of nen passing through to
South America B.B. couriers when a. man could not be spared from the Consu-
late; that Doctor Wolff had been picked up in Balboa, Canel Zone, in pos-
session of & number of code books of the German Consulate which 1a the
first occasion that anything has gone wrong in connection with the
movement of such couriers and that the loss of the code books on the part
of the German Consulate has resulted in embarrassment to the Consulate.
Loss of the code books is apparently the reason attributed by
Wiedemann to anticipating punishment inassuch as such loss will require
& change in the entire code.
Regraded Unclassified
JOHN EDGAR HOOVER
DIRECTOR
142
Federal Bureau of Investigation
United States Department of Justice
Washington, D. C.
Personal and
Confidential
July 5, 1940
The Honorable
The Secretary of the Treasury
Washington, D., C.
My dear Mr. Secretary:
With further reference to my letter of
July 1, 1940, pertaining to conditions in Martinique,
I wanted to advise you of developments subsequent to
my previous letter to you. Not having heard from the
State Department, to whom this information also was
furnished, I on the afternoon of July 2nd instructed
a member of my staff to contact Assistant Secretary
of State Berle and determine from him whether he did
not deem it desirable to have a Special Agent of the
Bureau proceed to Martinique at once in order that
we might be kept currently advised of developments
in this situation. After some consideration the
State Department instructed me not to take any further
action in this matter even in the designating of a
Special Agent to fly to Martinique, until I had been
instructed to do so by the State Department. Abiding
by the State Department's desires in the matter, I
refrained from sending a representative to Martinique
and up to the present time have heard no more from
the State Department about the matter.
You can understand, of course, why I did
not take further action in this situation but I did
want you to know of all of the circumstances surround-
ing the matter.
Sincerely yours,
1 edgan Hoover
,OHN EDGAR HOOVER
143
DIRECTOR
Federal Burren of Investigation
United States Department of Justice
Washington, D. C.
July 6, 1940
PERSONAL AND CONFIDENTIAL
SPECIAL MESSENGER
The Honorable
The Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
I am transmitting herewith a Memorandum
dated July 2, 1940, which contains information
obtained from a confidential source with regard
to the employment of Russians who were formerly
officers in the Russian Imperial Army at the
Sikorsky Airplane Factory in Connecticut.
Sincerely yours,
J Jedger Hower
Enclosure
July 2, 1940
121
Information has been received from a highly
confidential source that Mr. Sibersky, Manager of the
Sikarsky Airplane Factory in Connecticut and who is by
birth a Russian, has employed & mober of Russians at
the plant who were formerly officers in the Russian
Imperial Army.
It is reported that some of these Russian
officers have vary strong pro-Mani inclinations, and
at a dinner held during the month of May share some
of these officers were present they drank a teast to
the suscess of Hitler in Holland and Belgium,
It is also reported that the Atkorsky
factory is presently manufacturing airplanes for the
Allies.
Regraded Unclassified
145
JR
PLAIN
London
Dated July 9, 1940
Rec'd 1:55 D.m.
Secretary of State,
Washington.
2076, 9th.
FOR TRASURI FROM
In introducing today = bill in the House of Commons
for a further million jound vote of credit (my 1997 of
July 5) the Chancellor of the Exchequer indicated that the
pounds 700 million vote of credit made on March 13 was
fast approaching Exhaustion. HE pointed out that "the
present rate of war Expenditure vas in the neighborhood
of rather more than pounds 50 million d WEEK and that
actually for the last four weeks the avera E rate of
strenditure directly on the war had been pounds 54 million
which was Equivalent to D. daily rate of pounds 7,500,000,
The cost of the fighting services had rison from pounds
4 million in March lest to pounds 6,500,000 a day and that
accounted for the visols of the increase in total
Expenditure". Sir Kingsley lood also indicated that both
war and other supenditure wes now at C. rate of not 1000 than
pounds 9,500,000 = day; "the implications of these figures
WERE not always sufficiently realized; the gap between
revenue and Expenditure W.C.C widening and a further
contribution
Regraded Unclassified
146
2- #2075, July 9, from London.
contribution from taxation towards the cost of the war
must really bE the highest possible and must cover the
widest possible field. It must bE made soon."
KENNEDY
CSE
(COPT)
00-7-0161 (7/9/40)
The Director,
Bureau of the Budget.
Washington, D. C.
Sir:
Since the last Coast Guard emergency estimates were submitted to the
Bureau of the Budget, both the national and international situations have
changed 10 rapidly that it appears imperative to advise the Director of the
Bureau of the Budget now of the situation confronting the Coast Guard with
respect to national defense, and of the urgent need for additional national
defense appropriations at the carliest practicable date.
A joint Coast Ouard-Navy Board 1s sitting almost daily in Washington,
bringing up to date detailed plans for the close coordination of the Coast
Cuard and the Navy during the present emergency, and for the use of the
Const Ounrd as . part of the Navy in time of war. In the field, similar
boards. comisting of representatives of Coest Guard Districts and of Naval
Districts, are developing local plans.
The needs of the Const Guard to snable that Service to adequately meet
the requirements of national defense any be divided into the following seven
categories:
1. Conversion of Coast Guard vessels for Naval use.
2. Increased complement of officers and men to meet the
expension made necessary by national defense measures.
3. Facilities for the repair and construction of vessels.
4. Training of officers and men.
5. Additional vessels.
6. Additional shore facilities.
7. Funds for administrative expenses in connection with
the entire program.
Funds for part of this program have been appropriated.
Regraded Unclassified
CO-F-0161
Ro funds for the national defense program of the Coast Ovard 876 in-
cluded in the Havy budget--nor to the Mayy, due to its own comprehensive
preparedness program. able to perform for the Comes Guard the necessary
services such as: training, repair and constructions of vessels, etc. The
levy looks to the Coast Guard to obtain 19. own funds to carry out the
national defense program of the Coest Guard. There is no duplication of
effort, and DO duplication in the expenditure of funds.
In addition to the national defense needs of the Coast Guard to carry
out the DEOCTER prescribed by the Havy for the Coast Guard, there are certain
national defense duties carried out by the Coest Guard, in its own right,
whether under the Treasury Department or under the Navy Department. The
President, by proclamation, has placed the control, movements, and enchorage
of merchant vessels in territorial waters of the United States and the super-
vision and control of the loading and discharging of explosives or inflamable
material and other dangerous cargo in harbors of the United States and terri-
tories (except the Panama Canal) under the Secretary of the Treasury. who has,
by regulation, placed these duties under the Goast Guard. The Const Guard is
establishing Captains of the Port in approximately 17 additional ports. Ap-
proximately 2,500 ocean-going versele daily are affected by these regulations,
11 are aleo tene of thousands of tuge, lighters. barges, ferryboats and other
harbor craft, and fishing boats. This does not include the large number of
motorboats affected. within the last week 500 additional men, with facilities
to house them, are needed in New York Harbor to supervise the loading of ex-
plosives, and to police the harbor where dengerous cargo is being handled.
Similar requeste of similar importance, but not to the same extent, have been
received from Houston, Texas: New Orleans, Louisiana: San Francisco, Celifornia:
and other ports. Two cutters are in Greenland, and a third will shortly be
se route there. Six cutters are on weather observation patrol, with every
possibility that no relief from this duty will be fortheoming in the near
future. The Havy Department has requested that the Coret Guard overheal
destroyers and build motorboats at its Curtis Bay (Maryland) Depot to the
fullest extent of its capabilities, and have requisitioned Coest Guard comma-
nication trucks for e secret mission. Coast Guard mekeshift training facilt-
ties for enlisted wen are pitiful.
If funds cannot be made available to the Const Guard from approprialisas
already made, detailed entimates, in the usual form, will be submitted to the
bureau of the Budget, if the Bureau doess such 8 course the proper one to
pursus.
SUMMARY OF FUNDS REQUIRED AT THE EARLIEST
PRACTICABLE DATE BY THE COAST GUARD
1, Training of officers and ment
Training facilities for extisted me $1,000,000
Demos Guard Academy,
800,000
$1,800,000
a -
Regraded Unclassified
145
00-7-0161
2. Additional shore facilities:
Radio stations,
$1,835,410
Port Angeles Air Station, extension..
278,000
$2,113,410
3. Facilities for repair and construction of vessele:
Coast Guard Depot--
(a) Floating drydock.
730,000
(b) Two shipways.
910,000
(e) Buildings and facilities, ....
655,700
2,295,700
4. Additional vaccelar
Three outters, HAMILTON class,
WIIIII
10,500,000
Four harbor outters, for ioobreaking,
1,400,000
Cable bonts,
1,100,000
Cutter for duty in Greenland,
........
2,250,000
Sixty outters, 78-foot class,
4,500,000
19,750,000
5. Increase of 2,500 in the enlisted complament of the
Coast Guard,
3,040,660
6. Emergency fund for Secretary of the Treasury,
6,000,000
7. Funds for administrative expenses in connection with
the entire program.
1,600,000
TOTAL,
36,499.770
1, TRAINING OF OFFICERS AND MEN,
$1,800,000.
Training facilities for misted sen -- $1,000,000.
The Const Guard has only makeshift training stations at Ellie Island,
New York: Norfolk, Virginia: Port Trumbull, Connecticut: Curtis Bay, Maryland;
and Fort Lauderdale, Florida: all of which are totally inadecusts. The
buildings at Fort Trunbull are frame buildings, hastily constructed during
the first World War, These buildings are entirely inadequate, unsuited,
dilapidated, and a fire hasard. At Ellis Island, the Immigration Service
allotted 9. space to the Const Ourd--a makeshift arrangement--totally unsuited
for the purpose. Const Guard trainees are trained alongside of imaigrants
swaiting deportation, many of whom are diseased and income. This space could
more appropriately be used to quarter the enlisted set used in Sew York Harber
to supervise the loading of explosives, " there is no other space is New York
now available to house there nen. At Norfolk, the Const Guard is using shan-
- 3 -
Regraded Unclassified
doned Havy buildings, which are totally unsulted for the purpose and in
poor condition. At Fort Lauderdale, wooden buildings, hastily constructed
during the prohibition are to house non temporarily, are being used, At the
Coest Duart Depot, Curtis Bay, the Coast Ouard is using barracks constructed
to house enlisted men from its ships undergoing overhaul and repair, and
some dilapidated structures which should have been torn down long B/O. The
Conet Guard 10 training redicmen at Yort Trumbull, at the Coast Guard Depot,
and for the Merchant Marine at Gellups Island (noston) Massechusetts-therehy
increasing the overhead cost, as well as following 8 makeshift plan. Nowhere
BE the Kest Coast are there any adequate training facilities for enlisted min
of the Coest Guard, although this need has been urgent for many years past,
and has now reached the point where the Cosat Guard is seriously embarrassed
during the present emergency. This condition will increase during the years
to come, unless adequate training facilities are furnished. No other service
that trains men 10 in such deplorable condition for training as the Cosst
Ouard, and this et . time when the attention of the whole country 10 recused
on truining the youth of the country in all welks of life. The situation is
so urgent that funds should be made available immediately, sad not wait for
the regular apprepriation for 1942.
Coast Guard Academy, New London, Connectious - 800,000.
For extending facilities to accommodate 296 cadets, instead of the present
208 cadeta, 200,000 Le needed. When the new class of cadeta in appointed in
July, It will necessitate three cadets being quartered in n room designed for
only two. One hundred and twenty-five cadeta will be appointed. If facilities
were available, 150 would be appointed. The Comet Guard Aeademy Advisory
Committee strongly recomended against placing three cadets in a room, but as
other course is left open. The Coast Guard is woofully short of commissioned
officers. 1300,000 18 necessary for the construction of an infirmary. Part
of the administration building 1a now being used for this purpose. This upmos
1a urgently needed for other purposes. 3200,000 18 needed for A bosthouse and
wharf. At present, valumble boats are stowed in the open the year round, and
additional bonts will be needed with the increased number of cadeta, 1100,000
1a needed 10 provide better library facilities, which were strongly recommended
both by the Comet Guard Academy Advisory Committee and by the Congressional
Board of Visitors. Library books are DOW stored in the besement. & visit se
the Coast Duard Academy will show clearly the need for this addition.
1. ADDITIONAL SHORE FACILITIES,
$2,113,410.
Radio stations - $1,835,410.
One of the nost valumble and vital assets of the Coast heard in national
defense 1a its communication system, which makes possible, through its constal
telephone, cable and redio communications, instant communication to practically
every part of the Atlantic, Pacific, Gulf, and Grest Lakes comete of the
nited States. The primary radio traffic station in each Coast Cuard district
la the sala artery of this system, and for years the Service has been compelled
to cerry on with improvised radio stations. The emergent needs in this respect
in 18 follows:
Regraded Unclassified
01-7-0161
(a) Chicago - Funds were allotted for the construction of this station
under P.N.A., but these funds were rescinded. The Coast Guard owns the site,
and preliminary work has shoad on preparation of land for the station.
All work bee been suspended, due to the lack of funds.- $210,700.
(b) Seattle - Funds were allotted from P.W.A. for the construction or
this station, but were resoinded. The property proposed 10 under lease from
the city for 1 period of five years with a renewal prevision. Preliminary
work has been done. - 3220,150.
(o) Sea Francisco - The present station 1a located in the vioinity of
Fort Funston, and in now in a very precarious condition, as it is gradually
falling into the nea, due to erosion. It is proposed to construct the new
station south of Sen Francisco on McSweeney Ridge. Negotiations for this
property have been underway for some time. - $240,700.
(d) Cleveland - A study has been made of the environs of Cleveland for
the seteblishment of this station. It in necessary to acquire a site at a
considerable distance from Cleveland. However, e suitable alto 1e available
for this purpose. - 5230,650.
(0) New Orleans - The present main traffic station 10 located in Mobile,
Alabarin, and connected to the District office by taletype. The distance be-
tween Mobile and New Orleans being considerable, there 10 dunger of a break-
down in communications, due to the destruction of landwires by hurricanes, atc.
The station at Now Orleans has been surveyed, end a location selected on Lake
Pontchertrain. The City of Now Orleane has agreed to give this property to
the Government, without charge, but negotiations have been hold up, due to
lack of funds for the construction of a station, and the desire not to involve
the city until such time as funds were available for the completion of this
project. - $182,750.
(r) Now York - This includes the construction of a main traffic station,
complete with all facilities. The present location at Hockeway Point, the to
electrical interference, is entirely unsuitable for the location of a main
traffic station, and it will be necessary to aequire a suitable site for this
purpose. Funds were originally allotied for this purpose from P. V. ... but
were rescinded. - $240,000.
(g) Juneau - This includes the construction of E main traffic station,
complete with all facilities. The recent consolidation of the Coast Guard and
The Lighthouse Service necessitated the establishment of an additional district
of Junesu, in which communication facilities are lacking. The former Light-
house units in Alaske were administered from Estchikan, using the Any comuni-
cation system for part of their communications. These facilities are totally
inedequate to provide proper communications to administer the former Lighthouse
units plus the Cosst Guard vessels stationed in Alaska and the Bering Sea Patrol
Force in the far North. Except for the temporary portable equipment now in-
- 5 -
Regraded Unclassified
152
CO-J40161
stalled by the Goast Ouned at Ketchikan, there are no adequate Government
facilities for communicating from Juneau (or Ketchikan) to the northern and
vestern part of the District, except the circuisous Any radio route. The
Amy stations do not offer night service, therefore, the delays entailed in
this method make adequate control and administration of mobile units of as
emergency Service impossible. The proposed primary redio station for the
Juneau District will provide the accessary communications. - $250,000.
(à) Norfolk - This includes the construction of # main traffic station,
complete with =11 facilities, to be loonted in the vicinity of Norfolk,
Virginia. The present radio station to located in a discontinued lifebeet
station at Princess Anno, Virginis, the design of which connet be entisfactorily
adapted to a radio station. This station is on an expesed bench subject to
storm damage, end 10 entirely inadequate to hundle increased traffic due to
the limited lend available and poor design of the building. This station has
been rendered insporative in the past by high water during storms. It is 100
possible to misfactorily protect the present site. It will be necessary to
soquire a new site for this station. - $810,460.
(1) Jacksonville - This includes the mequisition of land, construction
of transmitter buildings, end improvements to present radio equipment, to
provide remote control. The scope of operations of this station has increased
and more channels are necessary. Those channels 526 not now available, as
the close proximity of transmitters and receivers block reception. - $50,000.
Coast Guard Air Station, Port Angeles, Washington, extension - $278,000.
For extension of facilities at this air station - construction of reads,
bulkheeding, officers' quarters, etc.
3. GOAST GUARD DEPOT,
$2,295,000.
The Ourtis Bay Depot is a large plant used for building. repairing, and
reconditioning Cosat Guard vessels. It was established in 1898, and has boss
expended from time to time under regular approprations and P.W.A. and W.P.A.
allotments, 60 that 11 now has a number of up-to-date shop buildings and
related fecilities, while at the - time there remain several antiquated
frans buildings for shop and storage purposes and for officers' quarters.
Under a recent P.W.A. allotment, shop facilities have been expanded to a con-
siderable degree, end at present the Depot 1st equipped to do almost any
character of ship repair work where drydeak facilities are net required. The
most pressing need of the Depot at the present time to round out e well-devel-
oped ship repair yard is the construction of fusilities for decking the largest
vensela of the Coast Guard. In addition to the drydook, with the provision
of building mays, the yard could proceed with the construction of vessels up
to 325 fees la length and approximately 2000 tons, without difficulty.
(a) The construction of one floating drydock to accountate cas ship with
4 length of 300 feet, a been of so feet, and . displacement of 3000 team,
1730,000.*
Regraded Unclassified
153
CG-V-0141
The comperison was más between a flooting dook, graving dook, and
marine reilway, end it is believed, for our purpose, that the floating doek
has many advantages over either of the other two. The adventages of .
floating dook are a lower initial cost as comparing to . groving dook, that
11 can be lengthened or noved to a new location at will, and the speed with
which ships, particularly those of 4 small displacement, 602 be raised or
lowered - and the bulk of the work at the Depot will be with small versals.
It has a longer life and lower mintenance cost than a marine reilway, and
it will not occupy any lend area.
*This price for the floating drydock is based on the con-
struction of two shipways horeinsfter mentioned, and in this con-
struction certain bulkheeding and dredging incidental so the dry-
doek 10 taken into consideration on the total project. If the
shipways are not constructed, it will be ancessary to complete
this bulkhesding to recommodate the flooting drydock, which will
add to the above figure $100,000, making a total cost for the
floeting drydock of $830,000.
(b) Two shipways, each to accommodate a vessel of approximately 360 feet
in length, a been of 42 feet, and a displacement of 3000 tone. These shipmays
will permit the simultaneous construction of two ships of approximately 195
feet on each way, $910,000.
In the construction of these shipways, either one or two, the cost of
dredging is the same. Therefore, in the construction of one say, the estimated
cost 1a $808,000. It is more aconomical and good business to nake preparations
for two ways than one my. These figures include the expension of the present
facilities to e reasonable extent to recomodate the construction of vessels
up to the prescribed limits.
(c) Rebuilding quarters for personnel, $650,700.
Due to the consolidation of industrial facilities, the old surn-out
quarters for personnel, and the administration buildings, have become untensble.
The old buildings are fire hazards. It has been planned for many years to
separate the housing recilities and the industrial facilities, end this 1s DOW
underway. With the development of shipmys and drydock facilities, 11 16 10-
perative that the personnel quarters be noved to the east side of Arundel Cove,
completely separating industrial and living facilities. This in a self-liquides-
ing project. It is proposed to construct quarters to accomodate eight funilies
of commissioned officers, four funilies of commissioned versant officers, and
twelve families of shief petty officers. This figure includes the construction
of an administration building, and providing the accessary equipment, utilities,
wharves, walks and surbs.
Under date of May 29, 1940, the Acting Secretary of the Havy advised the
Secretary of the Treasury that the Noval expansion program would tax the Nevy
Yards' fecilities to the utmost, end requested that repair and construction
÷
Regraded Unclassified
2
00-7-C152
work en Keval vessals be at the Oursis Day Depet. Under date of
June 20, 1960, Addral Rebinson, Coordinator of Shiphedlding, U.S.E., advised
the Chief of Reval Operations that - inspection of the Coast Deard Depot
showed that the plant familities are suitable for overhanl of 1200-tea
destroyers and maller Naval sudiary vessals. Accordingly, a778ngements
have been nade for resenditioning destroyers and constructing certain small
craft 1st the Xery at the Depos. The prevision of familities for desides
vessile and shipways for constructing vassels will not saly pendit the Coast
Guard to convert the Cases Ouard fleet for Neval use, as provided in the Am
Supplemental National Defense Ast. 1941, int so perform overheal and construs-
tion work for both the Deart Guard and the Havy, which cannot be undertaken
at Havy Tards or commercial shipbuilding ocepanies nev for a paried of years
to cose.
4. ADDITIONAL VESSELS
$19,750,000.
Three culters of the HAMILTON class - $10,600,000.
In Jumary, 1939, the President allotted money for these cutters in the
then pending National Defense Appropriation, but it was later withdrawn and
dven to the Any al the Mary. Manbling legislation vas later approved by
the Budget, and Congress ankhorized the construction of these vessels in the
Act of June 2, 1939 (53 Stat. TD7). Despite repeated efforts to have the
money supropria ed, no appropriation has been nade. These vessels will 24-
place three old outiers that have cullived their usefulness. The urgent need
of additional vessels vas described in the opening paragraph of this letter.
The Alaskan work of the Coust Guard 10 sev suffering w a leek of vessels -
at & time when the Coast Guard foree there should be insreased rether than
disinished. A careful scruting of the iselated valore of Alaska, particularly
the Aleutian chain of islands, stretching nearly a thousand miles to the west-
vard, and within a for hundred miles from the northern and of the Japanese
archipelago, and the sepervision of Impline fishereen is more urgent her than
it has ever been heretofore. It vas nationaly to take a matter from Golvesten,
Texas, for the Cadet Practice Cruise. leaving only one large oubter - built
in 1922 - along the whole Gulf Ceast, from Texas, to Lay vest,
Florida. DE a protection to shipping apaint hurricanes and to 09777 out the
other work of the Coast Guard in that territory. The shortage of vessals
along other sections of the coasts is almost as noute.
Pour herber outsers. for included - $1,400,000.
the seed for carrying out the replacement progres of old hartor cutters
with vessels suitable for the dual purpose of harber work and instructing, is
more urgent now than ever before. The Communication of the Vashington Xerry Tard
has made strong representations to the Communicant of the Coast Ouard, and to
the Chief of Navol Operations, Hary Department, for 100brenking equipment to
insure that the Potomac I'iver and the Chosepeaks Bay will be kept free of 100
in vater - 24, otherwise. the building program of the Navy will be seriously
haspered. The same situation exists in the vicinity of other Noval bases all
- storage depots.
.
Regraded Unclassified
153
07-7-0162
dable basts - $1,100,000.
(a) Oas sable boxt, of approximately 180 feet, to replace the PRQUOT.
is case of national energency, it is essential that constal communications
be maintained. - $900,000.
(b) the 80-fees cable beats. These are to assist as outlined above is
the naintenance of coastal communications. $100,000 cash.- $200,000.
Outser for daty in Oreanland $2,250,000.
The proposed vessel will be constructed is general accordance with
Coast Guard practice. She will be heavily reinfereed, of steel construction
to vithstand 100 presentes, and of with form as to emable her to susesssfully
yesh through ice floos. the ressel proposed will be approximately 300 feet
in length, 48- to 50-feet bean, and 18-feet draft. Is normal displacement
with feel, vater, stores, and other Coast Chard equipment on beard, will be
approximately 2500 team. the vessel will be DO designed as to earry from
1000 to 1800 tens of stores or carge in addition to the normal requirements
of the vessel. A vessel of this character is needed for duty in Greenland.
Sixty suiters. 78-fees class $4,800,000.
These 78-fect boats, which have a spood of 20 knote, are argently No
quired to earry out the treasmises insurance in the daties of the Captain of
the Part, or, in the about of a duly designated Captain of the Part, of the
senier Coast Oward officer present, at Immireds of parts on all coasts of the
United States, caused w the regulations issued w the Secretary of the
Treasury permant to the Proclemation of the Chief Instructive dated Jam 27,
1940, patting into effect Section 1 of Title 2 of the Ast of Congress approved
June 15, 1917, 40 Stat. 220 (U.S.C., Title 50, see. 191). This not places
upon the Secretary of the Theory respensibility for the enthorage, assest,
inspection, and supervision of all merchant vessels, foreign and domestic, is
all porte of the Unite States. The regulations issued w the Secretary of
the Treasury place upon the Coant and net only the respensibility for the
aschorage and movement of vensels in the territorial vaters of the United
States bei also responsibility within the ures of a part for the lading and
discharging of explesives or inflamable material or other dangerous carge.
to afford - Idea of the expension of Coast curd familities to earry out
these added duties, 11 is only necessary to state that orders have boom ismed
w Geast Guard Readquarters to the Omptains of the Part and responsibile offi-
ears in charge at the Immireds of parts on all consts of the United States
that under these regulations they will be hold responsible for any explosion
or other miskup to shipping of property whether through socident,
or design. % earry out this daty with even mederate afficiency will require
practically stripping the various stations of available and suitable small
boats for the guarding, surveillance and protection of merchant shipping in
the various harbers until such time as replacements can be effected. Plans
for these 78-fees Male are en hand and bids for their construction cas be
- 0
Regraded Unclassified
156
00-7-02.61
obtained imadiately. No difficulty is anticipated in obtaining imadiate
construction of this small type of oraft, and 11 10 estimated that by spreed-
Inc the construction over several plants deliveries will bagin within four
months.
5. INCREASE OF 2,000 IN THE ENLISTED COMPLEMENT or THE COAST
GUARD,
$$3,040,660.
These additional 2,500 - are needed imediately for day in commention
with the office of the Captain of the Part, or senior Coast Guard officer
present, is the enforcement of the rules and regulations regarding the nove-
mont, auchorage, and supervision of merchant vessels as described immediately
above and on page a of this letter.
6. BURGERINT FORD FOR SMIRKPART OF THE TREASURY,
$5,000,000.
This fund, to be expended in the discretion of the Secretary of the
Treasury, is to enable the Secretary of the Treasury, without reference to
section 3709 of the Revised Statutes, to increase the personnel and facilities
of the Const Guard as the demands for national defense and the increased
duties of the Coast Cuard my require.
7. FUNDS FOR ADMINISTRATIVE EXPRESES IN CONNECTION WITH THE
ENTIRE PROGRAM
$$1,500,000.
This contingency Item of $1,800,000 represents approximately « of the
total to provide for the employment of technical and clarical administrative
employees in the field and at the sect of government.
I shall be pleased to have the Commendant of the Coast Guard give you
full details concerning these several items, which total $35,499,770. as well
as more complete explanation of the urgenty which causes - to bring them to
your attention at this particular time.
Very truly yours.
Secretary of the Treasury.
- 10 -
File to Mr. Thompson
not mailed in Serio office
Regraded Unclassified
157
CO-F-010
7/8/40
JUL 9 1940
united Harold Re Stark,
Chief of llaval Operations,
Washington, D. C.
Kg loss Admirals
Under date of April 24, 1939 I recomended to the Director of the Puress
di we Judget a reorganisation plan abulishing the Bureau of Marine Inspection
und Navigation, of the Department of Commerce, and dividing its duties mong
L/W Maritism Commission, the Bureau of Customs (Treasury Department), and the
Coact Guard (Treasury Department). On Jamary 18, 1940, I again recommed
this reorgenization plan to the Director of the Bureau of the Budget stating
that "the informat of neutrality relating to merchant shipping has created
- name imperative need for much & reorganisation than when I nade my first
recommendation. Now that national defense are more urgent than at
any previous time in the history of our country, a need for this proposed
recrgenimation plan becomes even more imporative. The urgency of imediate
action results from the need to increase materially the national defense value
of the perchant marine and of the Coast Cuard.
It is as understanding that you are well sequed with this reorgani-
intion plan and that, therefore, I need only briefly review its provisions.
The Nan proposess
(a) The transfer to the United States Maritine Commission of
all functions now exercised by the Bureau of Marine Inspection and
Ravigation relating to the design, construction, and equipment of
vossels, or material alterations of vessels or their equipment.
(b) Transfer to the Bureau of Customs (Treasury Department)of
all functions now exercised by the Dureau of Customs for, and on
behalf of, the Bureau of Marine Inspection and Navigation, and the
functions now exercised by the offices of Shipping Commissioners.
This includes the documentation, entry, and clearance of vessele;
insuance of identifying official numbers and call latiers] verifi-
cation of possession of valid certificate of inspection of boilors
and bulley advessurements of voccels) collection of fines and
penalties for violations of law relating to maritine natters; 00/-
lection of tenniss taxes and other navigation [wee] and other No-
callaneous duties now performed by the Dureom of Customs.
Regraded Unclassified
CU-F-010
158
(e) Transfer to the Coast Guard (Treasury Department) of
the other duties of the Bureau of Marine Inspection and Raviga-
tion, which would include the examination and issuing of lisenses
to Merchant Marine officers and cang investigating marine essual-
ties and aste of incompatance or negligence on the part of
Merchant Marine officers and certificated many promulgation of
rulis and regulations requiring safe navigation and safety equip-
ments periodical inspection of Merchant vessels and motorboats;
and the enforcement of maritine Law generally.
In his nemorandum to you of 23 May, 1940, the Commendent of the Coast
Guard set forth in detail the may advantages that would accrue if this 100
organisation were put into effect, with particular reference to the beneficial
results in connection with the national defense policy through the elimination
of the duplication and overlapping of the functions recommended for transfer
to the Maritime Commission, to the Bureau of Customs, and to the Coast Guard.
It is My understanding that the Bureau of the Budget has already made 4
comprehensive study of the plan, and it is 4 intention to again recomend to
the Director of the Bureau of the Budget that this reorganisation plan be
adopted and it would be greatly appreciated if you would address a letter to
me giving your approval thereto.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
- 2 -
File to Mr. Thompson
Regraded Unclassified
00-F-010
153
7/8/40
JUL 9 1940
Rear idairal Enery s. Land,
Chairman, U. S. Maritine Comission,
Fashington, D. C.
by dear Admirals
Under date of April 24. 1939, I recommended to Lhe Director of the
wreat of the Budget 4 reorganisation plan abolishing the Burnets of Marine
Inspection and Navigation, of the Department of Commerce, and dividing its
duties alvang the Haritise Commission, the Bureau of Customs (Treasury
Department), and the Coast Cuard (Treasury Department). On January 18, 1940,
I again recommended this recrganization plan to the Director of the Suream
of the Budget stating that "the enforcement of neutrality relating to merchant
shipping has created a nore imporative need for such a reorganisation than
when I made my first recomendation". New that national defense INSURER are
more urgent than at any previous time in the history of our country, a need
for this proposed recrganization plan becomes oven more imperative. The
urgency of invediate action results from the need to increase eaterially the
national defense value of the merchant marine and of the Coast Quard.
It 10 Ry understanding that you are well asquainted with this reorgani-
sation plan and that, therefore, I need only briefly review its provisions.
De plan proposess
(a) The transfer to the United States Maritine Commission of
all functions now exercised by the Bureau of Marine Inspection and
Navigation relating to the design, construction, and equipment of
vesscle, or naterial alterations of vessels or their equipment.
(b) Transfer to the Bureau of Customs (Treasury Department) of
all functions new exercised by the Buress of Customs for, and on
behalf of, the Bureau of Marine Inspection and Navigation, and the
runctions now exercised by the offices of Shipping Commissioners.
This includes the documentation, entry, and clearance of vessels)
issuance of identifying official numbers and call letters; verifi-
cation of possession of valid certificate of inspection of boilers
and hulley of versels) collection of fines and
penalties for violations of 1am relating to maritine natters) 002-
lection of Loonage taxes and other navigation foods and other -
cellaneous daties now performed by the of Customs.
Regraded Unclassified
CO-F-010
160
(e) Transfer to the Coast Guard (Treasury Department) of
the other duties of the Bureau of Harins Impostion and Naviga-
tion, which would include the examination and Issuing of licenses
to Marchant Marine officers and nonj investigating marine casual-
ties and acts of incompetence or nagligence on the part of
Marchant Marine officers and certificated = promilgation of
rules and regulations requiring safe navigation and safety equip-
nenty periodical imspection of Merchant vessels and notorboates
and the enforcement of naritine Law generally.
I understand that the Comumdant of the Coast Guard has, in previous
correspondence, set forth in detail the many advantages that would socrue If
this reorganisation were put into effoot, with particular reference to the
beneficial results in connection with the national defense policy through the
eli-ination of the duplication and overlapping of the functions recomended
for transfer to the Maritine Commission, to the Bureau of Custom, and to the
Coast Guard.
It is ag understanding that the Bureen of the Budget has already made 4
comprehensive study of the plan, and it is a intention to again recomend to
the Director of the Bureau of the Budget that this reorganization plan be
adopted and it sould be greatly appreciated if you would address c. letter to
se giving your approval thereto.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
File to Mr. Thompson
- 2 -
Regraded Unclassified
MEMORANDUM FOR MR. MORGENTHAU
161
The United Kingdom Government is extremely anxious to
obtain a supply of the Norden bomb sights, and indeed of any
other bomb sights - however elementary - which are stabilised.
The United Kingdom is interested primarily in obtaining sights
from stock, though priorities in the next few months would also
be extremely valuable.
Brigadier General Lindemann, who is on this side,
advises that it is not a question of obtaining information as to
the American sight, the point being to obtain the sights themselves.
The United Kingdom is prepared to show, and they hope to convince,
the United States attaché or anyone that he cares to nominate,
that the British sight is the equal of the Norden, and therefore
that there will be no danger in giving us the release in question.
There may be a feeling of danger that the sight may fall
into German hands. Here the United Kingdom Government believe
the Germans also have a sight as good as the best U.S. or British
models. Every effort will be made to prevent the bomb sight
falling into German hands, however, because of the great loss which
might otherwise result to the Fleet. This anxiety is in itself
a guarantee that everything possible will be done to prevent the
sights falling into enemy hands. Naturally also, any suggestions as
to methods of destruction in the event of forced landings or
crashes over enemy territory would be welcomed, if the adoption of
these were important to the release of the sights.
The reason we are making this application is that our
production of new stabilised bomb sights in the United Kingdom is
disappointingly slow. The matter is very urgent, and your
assistance would be appreciated greatly by the United Kingdom
Government.
Rother Brimin
Regraded Unclassified
162
RE ALLIED PURCHASING PROGRAM
July 9, 1940
11:30 a.m.
Present:
Mr. Young
General Arnold
General Brett
Admiral Towers
H.K.Jr:
I wanted a little help from you people and
I thought in return I might be of a little
help to you. Have you (Young) got those
two cables? The one that we sent when we
asked for that particular information and
the one from Kennedy?
Ambassador Kennedy on July 4 sent this cable,
triple priority:
"Beaverbrook wants to know if you will ship
him one or two Wright Duplex Cyclone air-
craft engines, 16-cylinder, two-roll radial.
He wants to fit it into his Tornado airplane
and if it will work he would like to buy
some if he can. He has been most cooperative
on everything we want and I think definitely
we should do this for him at once 1f at all
possible."
Now, to save you time, I have been brought
up to date directly that this engine that
you have got, as I understand it, is 2,000
horsepower. The Army is getting ten and the
Navy 1s getting ten, but you are not going
to order any more. I am just repeating what
they told me. But in September there 1s B.
2200-horsepower engine coming off the line
for Lockheed and Lockheed won't be ready for
it for six months - it 1a Lockheed, isn't it?
Young:
Lockheed or Pan-American.
H.K.Jr:
And they won't be ready for it and they would
be willing to release it.
Arnold:
That engine has already been released for
negotiation and I don't see any reason why
it shouldn't go through, do you, Jacki
- 2 -
Towers:
No, our release is not an exception from
the policy, really. Aircraft engines will
be released when it 1a considered by the
War and Navy Departments to be of advantage
to the national defense. That is wide open,
Arnold:
It looks to me as if it is wide open.
H.M.Jr:
The 2200?
Towers:
Any engine.
Amold:
This particular engine you are talking about,
that is right, isn't it, George?
Brett:
Yes, I think it is the 3355-5. I don't know
if that is B. super-charged engine or not.
I don't think it is. It is the same engine
you and I were talking about the other day.
They anticipated boosting it. We were getting
them at 2,000, but they anticipated on further
production they would get 3,200. The Navy
has seven under order, we have seven under
order, and the Lockheed has thirty-six and
I suggested to bir. Young that he get in touch
with the Lockheed Company and then I saw the
Lockheed man and told him to get in touch
with Mr. Young.
Arnold:
The Army has no objection to it.
Towers:
The Navy has no objection.
H.K.JM
Well, I want to dictate E cable in your presence,
you see, and see 1f it is all right.
Young:
I talked with Wright this morning and they
say that the way they would like to do it
there, two of these engines will be out in
September. They would like to have them
ordered direct from their export company and
they will get those two engines and nothing
will be said to their commercial customers
on it.
H.M.Jr:
Well, let's put it this way. This goes to
Ambassador Kennedy:
Regraded Unclassified
561
- 3 -
"After conferring with General and Admiral
Towers, the so-called 2,000 horsepower --"
Arnold:
Why not give the type number?
H.K.Jr:
Kennedy wouldn't know.
Arnold:
We could say 3350-5, 2,200 horsepower.
Brett:
I would refer to it just as he has referred
to it there. I would describe it Just as
he has described it, because that 1s our
3350.
E.N.Jr:
Is that --
Amold:
That is the same thing.
H.W.Jr:
But what I wanted to explain to him was that
the one which you are getting now, we think
it 18 inadvisable for them to take them be-
cause they are not going to go into production
on those, but the ones that are coming in
September will be the first ones and they
are going into production on those and if
he wanted to place an order, he could get
them. That is what I wanted to say. Does
that sound all right?
Amold:
That is all right.
H.M.Jr:
I wanted to explain - he wanted one tomorrow
and I wanted to explain to them that this
engine is not going into production and we
are not satisfied with it, but we can recom-
mend and I will mention the number. Is that
all right?
Arnold:
I think that's all right.
H.P.Jr:
Let's start over again.
"Ambassador Kennedy: After conferring with
General Arnold and Admiral Towers, please
inform Lord Beaverbrook in strictest con-
fidence that the present Wright Duplex Cyclone
Regraded Unclassified
4 -
engine number 3350-5, developing approximately
2,000 horsepower is not considered entirely
satisfactory."
Is that right?
Arnold:
Why not say it has been improved?
H.M.Jr:
-
has been improved and there are only 20
of these engines which will be produced.
"The new improved Wright engine number 3350,
developing 2,200 horsepower 18 the best
engine of that type now being produced and
if Lord Beaverbrook wants to place an order
for two, the company is prepared to deliver
two of these now in production about the
first week in September. We consider this A
great concession and I hope Lord Beaverbrook
will appreciate it.
"On May 26, I cabled you asking for plans
for the Spitfire and Hurricane, also for
Frazier-Nash aircraft gun turret and also
for two Junkers engines. Both Army and Navy
are extremely anxious that they obtain at
once all of the materiel asked for in this
cable. Please advise me when we can expect
it."
Let's change that to "....all of the items
in my cable. We are very anxious for all
of the items asked for in my cable of May 26."
Is that Frazier turret gun the one which
has done the tremendous damage, which came
out late in May and surprised the Germans?
Towers:
You mean the Defiant? He 18 talking about
the Defiant two-seat fighter, combet.
Arnold:
They had that turret on the back.
Towers:
It is a control --
H.K.Jp:
It 18 power driven.
Regraded Unclassified
b
- 5 -
Arnold:
Yes.
H.K.Jr:
And is this the one that has done the trick?
Amold:
Yes.
H.M.Jr:
Have you got anything else you want to add
to that?
Young:
I have another memorandum.
R.M.Jrt
What is that?
Is this all right?
Arnold:
Yes.
!!.K.Jr:
Then I would just simply say all of the matorial
listed. I will go over the cable when you got
it.
Young:
I have already mentioned that to both General
Arnold and Admiral Towers this morning.
h.N.Jr:
Then you don't want to add anything to this
and we can release these two engines and I
will go over it. Write the cable and let
Mr. Young have it. I will tell you what you
might do. Just write the cable and possibly
General Brett could stay behind and go over
it with Mr. Young. Is that all right?
Erett:
Yes.
B.V.Jr:
I will read this from Young.
"Attached herewith is a request received
from Mr. C. D. Howe, through Mr. Purvis, con-
cerning a long range production program for
aircraft suitable for the defense of Canada
or for shipment to England.
"Canada wants to build sirplanes using
United States engines and propellers. The
Canadian Government is inquiring informally
as to whether the United States Government
Regraded Unclassified
167
- 6 -
is prepared to release the designs for the
following aircraft for production in Canada:
"1, PBY Flying Boat, designed and manufactured
by the Consolidated Aircraft Corporation,
San Diego, California.
"2. Douglas B-23 Bomber, designed and manu-
factured by Douglas Aircraft Corporation,
Limited, Santa Monica, California.
"3. Lockheed P-38, Twin Interceptor, designed
and manufactured by the Lockheed Aircraft
Corporation, Burbank, California.
"4. Cessna T-50 Trainer, designed and manu-
factured by Cessna Aircraft Company, Inc.,
Wichita, Kansas."
Arnold:
That P-50 is a Grumman. Oh, T-50. Well,
I am not so sure about that.
H.M.Jr:
It is the first time I have seen it. I don't
know how you men feel about this.
Towers:
Navy has no objection to the release of the
PBY-5, which is the only Naval type on that
list. That is approved by Mr. Compton, Acting
Secretary. I got his approval this morning,
The first item there is okay. That 18 the
only one that is of Naval type.
Arnold:
The Secretary of War objected to the release
of the other Army items on account of the
fact that he said it would detract from
production in the United States.
H.M.Jr:
Well, with all due respect to the Acting
Secretary of War, I don't mind his objecting,
that is his privilege, but I think it is a
rather weak excuse. I mean, if he wants to
turn it down, that is his responsibility.
Young:
General Brett has some very pertinent comments
on this.
168
- 7 -
H.M.Jr:
Don't get the idea I am trying to sell
this or boosting it.
Brett:
I don't know about the objection with
regard to actual release of the design,
but looking at it from a production stand-
point, Canada has no mechanics; Canada has
no machine tools; Canada has very little
raw materials. Therefore, in building up
a big productive center in Canada, I am
seriously afraid that our present production
schedule will be seriously interfered with.
H.M.Jr:
Well, that makes sense.
Brett:
I am very fearful of that. I was talking
last night on the subject of aluminum alone
and the problem of meeting our requirements
on aluminum is going to be very, very great.
It is going to be a very serious problem.
The machine and tool market, as you know, is
in very, very serious shape today. There is
a big bottleneck. Canada, I don't believe,
has any source of supply except the United
States. Therefore, not basing it on any idea
of the design or reproduction rights, I do
think from a standpoint of production that
this thing should be given very serious con-
sideration before it is approved in any shape
or form.
Towers:
As far as the PBY-5 is concerned, it is manu-
factured by Consolidated and they have a
Canadian subsidiary at the present time.
H.M.Jr:
On the West Coast?
Towers:
No, in Canada.
H.M.Jr:
Oh, they have one?
Towers:
Yes.
H.M.Jr:
So what you say would not apply then --
Towers:
I just presume that they would turn these
out in that same plant. They might have
Regraded Unclassified
169
- 8 -
to expand. But I felt if they didn't get
the right to build in Canada, that we would
be confronted with a request to be permitted
to place an order in the United States and
if anybody can place orders for more big
boats, we would be placing them.
H.M.Jr:
What I would suggest your doing, in view of
what you gentlemen said, ask them to give
us full detail of how they propose to produce
these things, where they are going to get the
machine tools, where they are going to get
the aluminum from, et cetera, et cetera, and
the skilled labor. The full detail on this
thing.
Brett:
That is exactly how they planned to carry
that thing out.
H.M.Jr:
Canada, you know, has been giving a lot of
hot air and they haven't done a damn thing
up there.
Arnold:
On their training program.
H.M.Jr:
It is a complete flop.
Amold:
Yes, sir.
H.M.Jr:
Did you ever get a report on that Spitfire?
Arnold:
We had our people go up there and fly it.
They flew it alongside of the P-40. Didn't
you hear that?
H.M.Jr:
Never got 8. word.
Arnold:
That is my fault, then.
Regraded Unclassified
170
CONFIDENTIAL
July 9, 1940
To:
The Secretary
From:
Mr. Young
Attached herewith is a request received from Mr. C. D.
Howe, through Mr. Purvis, concerning a long range production
program for aircraft suitable for the defense of Canada or
for shipment to England.
Canada wants to build air frames using United States engines
and propellers. The Canadian Government 1s inquiring informally
88 to whether the United States Government 18 prepared to release
the designs for the following aircraft for production in Canada:
1. PBY Flying Boat, designed and manufactured
by the Consolidated Aircraft Corporation,
San Diego, California.
2. Douglas B-23 Bomber, designed and manufactured
by Douglas Aircraft Corporation, Limited,
Santa Monica, California.
3. Lockheed P-38, Twin Interceptor, designed and
manufactured by the Lockheed Aircraft Corpora-
tion, Burbank, California.
4. Cessna T-50 Trainer, designed and manufactured
by Cessna Aircraft Company, Inc., Wichita,
Kaneas.
Regraded Unclassified
CONFIDENTIAL
July 9, 1940
My dear Admiral Boyes:
I will appreciate it If you will send the follow-
ing cablegram via Secret Naval Code to Ambassador Joe
Kennedy, London, England:
QUOTE - After conferring with General Arnold and
Admiral Towers, please inform Lord Beaverbrook in
strictest confidence that the present Wright Cyclone
engine Number 3350-5 developing approximately two
thousand horsepower has been improved. The new in-
proved Wright engine of same type developing two
thousand two hundred horsepower is the best engine
of that type now being produced and If Lord Beaverbrook
wants to place an order for two, the company is pre-
pared to deliver two of these now in production about
the first week of September. We consider this a great
concession and I hope Lord Beaverbrook will appreciate
it. On May 26, I cabled you asking for certain infor-
mation. Both Army and Navy are extremely anxious that
they obtain at once all of the Items asked for in that
cable - UNQUOTE
Yours sincerely,
'Mened' H Morgesthau. Jr
Rear Admiral Leigh Noyes, U.S.N.,
Director of Naval Communications,
Room 2622, Navy Building,
18th Street & Constitution Avenue,
Washington, D. C.
012 estiblish
By burt Service 2:23 man
Regraded Unclassified
110
CONFIDENTIAL
July 9, 1940
Hy dear Admiral Noyest
I will appreciate it if you will send the follow-
ing cablegram via Secret Navel Code to Ambassador Joe
Kennedy, London, Englands
QUOTE - After conferring with General Arnold and
Admiral Towers, please inform Lord Beaverbrook in
strictest confidence that the present Wright Cyclone
engine Number 3550-5 developing approximately two
thousand horsepower has been improved. The new 1m-
proved Wright engine of same type developing two
thousand two hundred horsepower is the best engine
of that type now being produced and if Lord Beaverbrook
wants to place an order for two, the company is pre-
pared to deliver two of these now in production about
the first week of September. We consider this 6. great
concession and I hope Lord Beaverbrook will approciate
it. On May 26, I cabled you asking for certain infor-
mation. Both Army and Havy are extremely anxious that
they obtain at once all of the items asked for in that
cable - UNQUOTE
Yours sincerely,
(Signed) H. Morgestion, Jr
Rear Admiral Leigh Noyes, U.S.N.,
Director of Naval Communications,
Room 2628, Navy Building,
18th Street & Constitution Avenue,
Washington, D₂ C.
Regraded Unclassified
173
CONFIDENTIAL
July 9, 1940
My dear Admirel Hoyees
I will appreciate it if you will send the follow-
ing cablegram via Secret Neval Code to Ambassador Jee
Kennedy, London, Englands
QUOTE - After conferring with General Arnold and
Admiral Towers, please inform Lord Beaverbrook in
strictest confidence that the present wright Cyclone
engine Number 3850-5 developing approximately two
thousand horsepower has been improved. The new 100
proved wright engine of name type developing two
thousand two hundred horsepower is the best engine
of that type now being produced and if Lord Beaverbrook
wants to place an order for two, the company is pre-
pared to deliver two of these now in production about
the first week of September. We consider this a great
concession and I hope Lord Beaverbrook will approciate
it. On May 26, I cabled you asking for certain infor-
mation. Both Army and Havy are extremely anxious that
they obtain at once all of the items asked for in that
cable - UNQUOTE
Yours sincerely,
Signed) H. Morgenthau, Jr.
Rear Admiral Leigh Hoyes, U.S.N.,
Director of Naval Communications,
Room 2692, Navy Building,
18th Street a Constitution Avenue,
Washington, Do C.
Regraded Unclassified
174
CONFIDENTIAL
July 9, 1940
To:
The Secretary
From:
Mr. Young
Attached herewith is a request received from Mr. C. D.
Howe, through Mr. Purvis, concerning a long range production
program for aircraft suitable for the defense of Canada or
for shipment to England.
Canada wants to build air frames using United States
engines and propellers. The Canadian Government is inquiring
informally as to whether the United States Government is
prepared to release the designs for the following aircraft
for production in Canada:
1. PBY Flying Boat, designed and manufactured
by the Consolidated Aircraft Corporation,
San Diego, California.
2. Douglas B-23 Bomber, designed and manufactured
by Douglas Aircraft Corporation, Limited,
Santa Monica, California.
3. Lockheed P-38, Twin Interceptor, designed and
manufactured by the Lockheed Aircraft Corpora-
tion, Burbank, California.
4. Cessna T-50 Trainer, designed and manufactured
by Cessna Aircraft Company, Inc., Wichita,
Kansas.
Dy.
MEMOBANDUM
PLI.
7/1/40
The Honourable C. D. Howe has advised ne that
the Canadian Government is attempting to work out a long
range production programme for aircraft suitable either
for the defence of Canada or for use overseas. The
desire is to build complete air frames in Canada using
engines and propellors from the United States to complete
the machines, thus abandoning the present policy of
building only air frames and shipping them to the United
Kingdom.
The following types are those in which the
Canadian Government is interested:
the
1.
PBY-5 Flying Boat, designed and manufactured by
the Consolidated Aircraft Corpn, San Diego, Calif.
2.
Douglas B-23 Bomber, designed and manufactured
by Douglas Aircraft Corpn, Ltd., Sants Monica,
Calif.
3.
Lockheed P-38, Twin Interceptor, designed and
manufactured by the Lockheed Aircraft Corpn,
Burbank, Calif.
A.
Cessna T-50 Trainer, designed and manufactured
by Cessna Aircraft Co., Inc., Michita, Kansas.
The Canadian Government has asked whether the
J. S. Government is prepared to release the designs of
these aircraft for production in Canada, always assuming
that suitable arrangements can be made by the Canadian
Oovernment with the manufacturer.
Mr. Howe is making this request of you through
ne, and will await your reactions before any official
request is made through other channels.
An early reply soule be very much appreciated,
Tot York
A.B.P.
July 6th, 1940
Regraded Unclassified
P4.
7/1/40
The Honourable C. D. Howe has advised me that
the Canadian Government is attempting to work out a long
range production programme for aircraft suitable either
for the defence of Canada or for use overseas. The
desire Is to build complete air frames in Canada using
enginos and propellors from the United States to complete
the machines, thus abandoning the present policy of
building only air frames and shipping them to the United
Kingdom.
The following types are those in which the
Canadian Government Is interested:
1.
PBY-5 Flying Bost, designed and manufactured by
the Consolidated Aircraft Corpn, San Diego, Calif.
2.
Dougles B-23 Fomber, designed and manufactured
by Douglas Aircraft Corpn, Ltd., Santa Monica,
Calif.
3.
Lockheed P-38, T.in Interceptor, designed and
manufactureu by the Lockheed Aircraft Corpn,
Burbank, Collr.
4.
Destric T-50 Trainer, designed and manufactured
by Cersus Aircraft Co., Inc., Wichita, Kansas.
The Canadian Government has asked whether the
U. S. Government is orewared to release the designs of
these aircraft |or roduction in Canada, alabys assuming
that suitable arrangements can be made by the Canadian
Government it: the manufacturer.
Mr. Home La having this request of you through
me, and v.ill anait your reactions before any official
request is --- through other channels.
An early realy would be very much appreciated.
New York
A.B.P.
July 6th, 1940
Regraded Unclassified
177
BRITISH EMBASSY,
WASHINGTON, D.C.
July 10th, 1940.
Personal and Secret.
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a copy
of the latest report received from
London on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.
secret.
Telegram despatched from London
on the evening of July 9th.
As e result of attack on French
battleship "Richelieu" et Baker by depth charges
laid by a naval motor bost, and subsequently
by naval aircraft yesterday, "Richelieu" was
reported to have settled by the stern and 000⑉
sidered to be disabled. Later reported that
"Richelieu" had been moved to shallower water
where ahe is immune from torpedo attack. Shortly
after above operation, Prench aircraft attacked
our ships, but no damage has been reported. Our
naval forces off Dakar have now dispersed.
2. Main enemy air sttacks yesterday were
directed on ports in southwest of England, that
Anglia and Humber. Shipping was attacked off
Sunderland and heavily attacked twice off Dungeness.
Bootbe dropped on Plymouth, Portland, Portsmouth,
Teignmouth, Falmouth, Ipswich, walton, North-
costes and Orinaby. Some damage caused to
Falmouth docks but no other damage to war industry
reported. Comunities reported up to the
present, six killed fifteen injured. Seven
enemy aircraft shot down. Three Spitfires
lost. Last night enemy aireraft bonbed various
places on the east and south coasts. Preliminary
reports one killed and case wounded and no serious
damage/ Regraded Unclassified
179
damage done. Usual minelaying and operational
training continues. Transport aircraft activity
from Cerumny to the west less numerous but traffic
to Demark and Norway was intensified.
3. Testorday Blenheims suscessfully
attacked German occupied serodromes in Northwestern
France. Large number of barges were observed
in cenels in northern Belgium. sinelaying also
continued. Last night Royal Air Foree attacked
shipbuilding yerds, marshelling yards and oil
targets.
4. One anti-submarine trawler end one
British ship ank in home waters yesterday. Two
British ships hit by enemy bombo in attacks in home
waters yesterday. Three attacks made on energy
submarines in western approaches yesterday.
Two
of these thought successful.
5. sediterranesn. Noval sivereft
successfully attacked Catania asrodrome on July
6th-7th. No fighter opposition meantered dee-
pite presence of large number of fighter aircraft
in Bioily.
Two energy aircraft (confirmed) and
one (unconfirmed) now reported destroyed in enemy
attacks on Malte dockyard on July 7th. Five
enemy sireraft dropped five boub a on Alexendrie
on July 7th. No damage and no casualties. Three
aircraft bombed Cibraltar yestorday. No damage
done. Case enemy submarine sunk by sir setion in
Eastern Mediterrenean.
6. Italian Sant Africa. Present bonber
dispositions indicate enemy intention of continuing
attacks/
Regraded Unclassified
180
-30
attacks along Budan border and not on Aden but
report reseived of movement of troops and enemy
tanks towards Port Sudan. Three enemy aircraft
bombed Atbare on July 7th.
Three minor
casualties.
British Moyale shelled heavily
on July 6th and indications point to enemy
infiltration into Mandera triangle.
Rein-
forcement of one Indian battalion has reached
British Somalilend.
Regraded Unclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 10, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
You will recall that we have agreed with the British that the following
comunique shall be made public by you at 12:00 noon, Washington time, Thursday,
July 11, and by the British at 6:00 p.m., London time:
"The Secretary of the Treasury has announced that, upon his invita-
tion, Sir Frederick Phillips, British Under Secretary of the Treasury,
will shortly arrive in Washington for a visit. This meeting will provide
the occasion for discussion of technical and other questions of the
American and British Treasuries. It will be recelled that Sir Frederick
Phillipe visited Secretary Morgenthau in Washington during the Autumn of
1937."
I AZ attaching an extra copy for Mr. Schwars.
B.M.R.
Regraded Unclassified
182
July 10, 1940
9:25 a. m.
Present:
Mr. Foley
Mr. Sullivan
Mrs. Klotz
HM,Jr: What I am going to do 1s see if I can
get the President, and you people get the story as I go
along.
(The Secretary placed a call for the President
and Miss Hackmeister said the President would speak to
him in five minutes.)
(At this point, HM,Jr spoke to Mr. Knudsen on
the phone while Sullivan and Foley were present. Copy
of their conversation is attached.)
HM,Jr: I believe him too.
I can't tell you the source, but I learned this
morning that the Krock stuff came from Jesse Jones. (NOTE:
After the meeting was over, HM, Jr said to Mrs. Klotz: "Leon
Henderson told me, last night, that Jesse Jones gave Arthur
Krock the whole story. In order to protect Leon Henderson,
I did not disclose this information to Foley and Sullivan.
Did you tell him that?
Mr. Sullivan: No, sir. I did not.
HM,Jr: And that stuff that the boy had, I told
him (Mr. Sullivan) this morning that I want to know which
of our group were in Washington Saturday.
Mr. Sullivan: Tommy Tarleau came back Sunday
night and did not see Stam. Blough came back Saturday
Regraded Unclassified
-2-
night. Did not see Stam. Carl Shoup came back - was
Mre Saturday afternoon and did not see Stam. The only
werson Bough saw was Gene Duffield and he said "We did not
talk shop at all."
Hu,Jr: When did he see Genel
Mr. Sullivan; Sunday afternoon.
HM,Jr: That's enough.
Mr. Foley: No, I don't think 80.
Mr. Sullivan: No, I don't think so.
Mr. Foley: No. Gene had a party Sunday after-
ndon for the Aarone who have come back here to help. They
were friends - both come from Wisconsin -- have always been
friends. There were a number of Treasury people there on
Sundes afternoon for that affair, but I don't think Gene
wrote the stories. The reason I know about it was because
I was invited and I wasn't in town. I went away Thursday
CA dtd not come back until Sunday night.
HN,Jr: He had & swell pipe line because that
story could not have been more accurate and that stuff --
darn it all! -- I have been trying to rack my brain. Satur-
day at the house up in the country was the first time I said
I was willing to waive Vinson-Trammell Saturday, at my house,
was the first time, because I only read Ed Foley's memo
Friday night. I only made un my mind after talking with
you follows Saturday.
Mr. Foley: I walked in here Monday morning and
1 did not know until the conversation that developed at
Last ten o'elock meeting that you saw eye to eye with me.
HM,Jr: I only crossed that bridge Saturday.
Mr. Sullivan: That's right. Because you talked
to ne at Rye -- you called me Wednesday afternoon and you
told ne about this memorandum and I told you I had talked
to Mr. Foley and he was sending me a copy to New York.
In that conversation that I had with you, you said, "Well,
I dan't know about this, but I think it would be well if
Regraded Unclassified
-3-
you would discuss this with Magill and Paul and we can
go into it," and I said to you, "Well, I am very much
opposed to some of Mr. Foley's reasonings and I am going
to be against it." You said, "I don't know anything
about it, but just be ready to discuss it."
So I know very well at that time you had not
made any decision and, as a matter of fact, Saturday
forenoon I was very much surprised that you had come to
a conclusion BO quickly on it.
HM,Jr: It wasn't BO quick. I have been living
with it & long time.
Mr. Sullivan: No, I mean as since Wednesday night
when you had no opinion on it; had reached not even a ten-
tative decision on it apparently.
Mr. Foley: I asked Chuck Kades if he could find
out from Duffield, if he would tell where the stories were
coming from.
(At this point, HM, Jr spoke to the President and
the following 1s HM,Jr's end of the conversation.)
"Hello.
Good morning.
Fine.
Just had my teeth cleaned 80 I feel wonderful.
Good! Both of us getting ready for Chicago.
The reason I am calling you is this. My favorite
storm signal barometer tells me I think it would be awfully
good ball, in view of the buck passing and why they don't
let contracts due to either depreciation or obsolescence,
etc., if you could get Knudsen and myself and Jesse Jones
together
No. But you see these leaders, Harrison and
Regraded Unclassified
185
-4-
others say they don't want the thing to come up alone.
What the Defense Council wanted, they wanted the question
of depreciation to come up immediately and not wait for
the bill and these fellows were in here yesterday. Harrison,
George, King, Jerry Cooper, all said it ought to come up at
the same time. My thought was if you had Knudsen, Jones
and myself and Harrison and Cooper in and had the Adminis-
tration policy and you announced it that
Well, I don't think it will take 15 minutes.
No, I don't, because we covered two hours here.
There 18 no trouble, but if it was understood that the
question of excess profits, Vinson-Trammell and deprecia-
tion where private funds were all going to be treated and
we had the Administration policy before Pat leaves tomorrow
for Chicago, I think it will Just nail to the mast the Krocks
and the rest of them who are trying to make trouble between
the Defense Council, Treasury and Jones, and it would not
take you 15 minutes and I think it would be a swell move and
I guarantee that 15 minutes will do it.
Twelve o'clock noon?
I? Or Pa?
Doughton is not here, 80 it would be Cooper.
Knudsen.
MacMorgenthau, and I would like to bring Sullivan
and Foley.
Right.
I have no Finkelstein in the law firm, but you
will have to make up for that.
He has not been in on it. B-b-b-1ggers has been
handling this for Knudsen.
Right.
Twelve o'clock. That would be wonderful. Thank
you, Sir. Thank you.
Regraded Unclassified
186
-5-
HM,Jr: He said how about St-st-st-stettinius
and I said it's B-b-b-biggers. So I said, Let me bring
Sullivan and Foley. He said, "We will have the famous
background of Foley and Sullivan." I said, "We have no
Finkelstein. You will have to take his place. He said,
"That's out of a story book."
What was that book, written 6, 8 or 10 years
ago about this Jewish lawyer that came up through the
tenement, the story of this man, who handled the racke-
teers and suddenly he went straight. This man's life.
Look it up. About a lawyer in New York who comes up
through the tenement and his fight and he tells the whole
inside story of New York. I think it was an anonymous
story. Can't be 80 many stories about New York lawyers
who tell the truth.
Isn't this good ball?
Mr. Foley: I think 80. Sure.
Mr. Sullivan: The thing you have to be careful
they will say, "Do you agree on the 25% a year?".
Mr. Foley: Agree in principal; will work out
details.
HM.Jr: Well, let me get Knudsen on the phone
and tell him what it is about.
Mr. Sullivan: I talked to Mr. Helvering (referring
to Arthur Krock's column of 7/10). No such thing ever.
The only thing any of us think of, neither Tarleau or Blough
ever worked on any depreciation increase for Mr. Hanes and
the only thing any of us can think of that during the time
of the fight of closing agreements, he produced one day &
memorandum initialed by the President.
HM,Jr: Who did?
Mr. Sullivan: John Hanes did. And Mr. Kades,
Mr. Foley and Phil Young were there and that's the memoran-
dum that he and Louis Johnson .....
HM,Jr: Oh, yes! I remember.
Regraded Unclassified
187
-6-
(At this point, HM,Jr spoke to Mr. Knudsen and
copy of their second conversation is attached.)
HM,Jr: I have done a day's work. I am very
happy now.
Mr. Sullivan: Did you want me to continue with
that other, on this Krock article?
HM,Jr: You might as well finish. I know that
the President never approved that, did he?
Mr. Sullivan: He initialed it.
HM,Jr: That was the meeting that took place at
Louie Johnson's office. He did initial it?
Mr. Foley: They wrote it together, Louie Johnson
and John Hanes and
Mr. Sullivan: The President got scared and put
Lauch Currie on it.
HM,Jr: That's right.
Mr. Foley: Then Lauch worked with us several
days and his suggestion was we were right but it would be
very helpful if we got up a memorandum that gave all the
background for tax purposes and Vinson-Trammell purposes,
of obsolescence and depreciation, and I got up a memorandum
and you gave it to Jake Viner. That's all that ever hap-
pened and it never went any further.
HM,Jr: But the President never ordered Commissioner
Helvering to do this?
Mr. Sullivan: No.
HM,Jr: If we said anything to Krock -- he knows
about this Hanes-Johnson memo, 80 better let it lay.
Mr. Sullivan: I would forget it.
HM,Jr: But, you see, Krock 1s my pal and I will
Regraded Unclassified
183
-7-
tell you why. I read his stuff. I am perfectly serious.
Because he's my weather barometer and when Krock points to
the storm, I get busy. Now, if I had not read this thing
out at 6:30 this morning I would not have been fussing with
this up to now. I would not have gotten the idea about
this meeting. I would not have woke you (Sullivan) up at
7 o'clock. But this 1s my storm signal and I go to work
and it's just like Mr. Arthur Krock who tipped us off on
Janes Hanes and Associated Gas and Electric, and if it wasn't
for Arthur Krock I would not have gone to work and had this
meeting with the President and by one o'clock it will be on
the ticker that here's what the Administration 1a willing
to do.
Mr. Foley: He's a barometer for a lot of people.
Bob Jackson said Arthur Krock reminds him of an old rooster
they had on the farm up in Jamestown and that rooster would
jump up on the manure pile and flap his wings and crow and
he said every time Arthur Krock flaps. his wings and crows
there 1s something wrong underneath.
HM,Jr: I am not smiling because you told me that
before.
Mr. Sullivan: Jackson told us at lunch on Wash-
ington's birthday.
Mr. Foley: Do you want us to get anything ready
for the meeting?
HM,Jr: Yes. One piece of paper to show to the
President. The Administration's three point program: ex-
cess profits
....
Mr. Sullivan: Amortization.
HM,Jr: Do you call it amortization or depredation?
Mr. Sullivan: Amortization.
HM,Jr: Amortization and Vinson-Trammell out.
Mr. Sullivan: Excess profits substitute for
Vinson-Trammell.
Regraded Unclassi
189
-8-
HM,Jr: One piece of paper, and make it perfectly
plain that this amortization is only for where private capital
comes in.
Did I tell him Jones? Oh, yes. I did because
he always says "Jesus H. Jones". That's what he always
calls him.
o0o-o0o
190
July 10, 1940
9:30 a.m.
H.M.Jr:
Hello.
Wm. S.
Knudson:
Good morning.
H.M.Jr:
How are you?
K:
This 18 Knudsen.
H.M.Jr:
Good morning.
K:
These Packard fellows are going to be in
here this morning and naturally they're
anxious to have somebody here from the British
Purchase Commission.
H.M.Jr:
Yes.
K:
Now, how do you want to handle that? Do
I deal in the main with them and then they
go from here to the British Commission?
H.M.Jr:
I think, Mr. Knudsen, if -- I was talking
last night to Mr. Purvis. See?
K:
Yeah.
H.M.Jr:
And he asked me how you were getting along
and I said I didn't know. I think if you
could make a deal which 18 satisfactory to
the Government and then if you'd let me know,
I think it would be good if you could explain
it yourself maybe to Mr. Purvis, you see?
K:
Yeah.
H.M.Jr:
And then let him see Packard. How does that
sound to you?
K:
Well, what I was wondering about, you know
when we were over in your office we sort of
agreed that we would take him in on our basis.
H.M.Jr:
That's right.
191
- 2 -
K:
See? Now what they are worrying about
of course 1s the responsibility of the British
in case of a cancellation. So that you and I
will have to settle.
H.M.Jr:
That's right.
K:
In other words, say that I'd go ahead as if
I was dealing for 9,000 engines for United
States. See?
H.M.Jr:
Yeah.
K:
And then you and I will have to get from
Mr. Purvis the proper protection.
H.M.Jr:
Well, how would this be as a suggestion?
You get the thing sewed up and then you and
I get together and Purvis wants to come down
tomorrow anyway.
K:
I see.
H.M.Jr:
Would that be time enough?
K:
Yes, that's all right.
H.M.Jr:
Or do you want him down this afternoon?
K:
No. No. There are two things. First is
how much money will be advanced. Will they
advance 30% like we will on the little job
for working capital?
H.M.Jr:
Will they? I think they'll do whatever you do.
K:
I see.
H.M.Jr:
They'll have to.
K:
Then I'll tell them that I'll make the deal
just as if the United States was handling the
whole thing.
H.M.Jr:
That's the only way you can.
K:
All right.
H.M.Jr:
And Purvis will have to go along.
192
- 3 -
K:
Yeah. All right, sir.
H.M.Jr:
Now, while I've got you on the wire -- Purvis
now has, I think, the whole plan 60 he tells
me 88 to the needs of the British Empire. When
I mean British Empire, I mean England, Canada,
South Africa, and Australia. I think he's
got that for the first time.
K:
Well, he's sort of kicking up a little fues
here because he's placing 8. lot of stuff
and I don't know anything about it and I just
told the men to come in here and talk about
it -- I said, let them make their own deal
with the British and we'll have to take it up
later on.
H.M.Jr:
Well, now here's the point. Would you sort
of save lunch time tomorrow if you're not
engaged?
K:
No, no. I'd be glad to.
H.M.Jr:
Because I think
K:
I'm going to see you tonight anyway am I not?
H.M.Jr:
Yes, but we wouldn't have 8 chance to talk
shop. But I think I'm going to have him
bring down Mr. Howe, Minister of National
Defense from Canada and let him put everything
he has on the table. So would you save lunch
time tomorrow?
K:
Sure. Here's what happened, Mr. Morgenthau,
in one case. I've got Colt in here for
machine gune, see, and I made a deal with him
for Morgan machine gune and I didn't want to
put any more in Hartford, see? I want to
put another plant somewhere else in the area
specified by the General Staff and then I
find out that he can make a deal with the
British for another bunch of guns in Hartford,
see?
H.M.Jr:
That's not right.
Unclassified
193
- 4 -
K:
That's not right, sir.
H.K.Jr:
No. Well, tomorrow I tell you what we'll do.
I'll have Purvis here for lunch definitely.
X:
I see.
H.M.Jr:
If he'll bring Mr. Howe along we can talk
with him, too.
K:
All right.
H.M.Jr:
And if not it'll be just you, Purvis and I.
How's that?
K:
Yeah. Fine.
H.M.Jr:
And we'll talk turkey.
4:
Ae long 8.8 we can get an agreement on how to
proceed on this thing it's all right, see?
H.M.Jr:
But I'll take the responsibility now, whatever
deal you make with Packard he'll have to take
his proportion.
K:
All right.
H.M.Jr:
Does that give you enough?
K:
That's swell.
H.K.Jr:
Now the other thing which bothers me -- all
this stuff in the paper. Good God! I can't
meet with those fellows over there but every-
thing is in the paper about all thie depreci-
ation and everything else.
K:
Of course, Mr. Morgenthau, you know I don't
telk to any papers.
H.M.Jr:
You're not in on this, but it's somebody in
your associates.
K:
I had a talk with them this morning about It
but I can't find anybody that has had any
contact and I don't talk to newspapers.
Regraded Unclassified
194
- 5 -
H.M.Jr:
But if you'll read the Wall Street Journal
the story on this depreciation -- they've
got office. every damn thing that's happened in my
K:
No. I haven't seen that. I saw the article
in the Times this morning riding down to work
and when I came in I asked about it and both
Stettinius and Biggers disclaim all knowledge
of it.
H.M.Jr:
Well, get somebody to get you the Wall Street
Journal, the front page, right-hand column.
X:
I see.
H.M.Jr:
But I read that Krock article too.
K:
No. I don't talk.
H.M.Jr:
No. Well, I don't -- and I don't snipe.
X:
Right.
H.M.Jr:
But what this thing does -- I've had it now
for over seven years. They try to make bad
blood between the Treasury and your group.
K:
Well, they aren't going to do that as far as
I'm concerned.
H.M.Jr:
Well, me neither.
K:
Now -- but we had these airplane fellows in
here yesterday and they've got a program that
I'm going to show you a little later when
it's in shape.
H.M.Jr:
I'd like to see it.
K:
All right.
H.M.Jr:
Well, you put down lunch tomorrow and I'll have
Purvis here.
K:
All right, sir.
H.M.Jr:
Thank you.
K:
Good-bye.
195
July 10, 1940
9:54 a.m.
H.M.Jr:
Hello.
Operator:
Mr. Knudsen. Go ahead.
H.M.Jr:
Hello.
Wm. S.
Knudsen:
Yes.
H.M.Jr:
Knudsen.
K:
Yes.
H.M.Jr:
Morgenthau. I juet got through talking with
the President and I suggested that he have a
meeting at his -- this morning on this question
of Vinson-Trammell depreciation and excess
profits, and he's going to have it at twelve
o'clock. You're to be there and I'm to be
there and Senator Harrison and Congressman
Cooper.
K:
All right, sir.
H.M.Jr:
Now I just wanted to say this 60 that -- he
said, would it take long. I said, not more
than fifteen minutes. Now he did not invite
Biggers although I suggested it, but he just
wanted you. You see?
K:
Right.
H.M.Jr:
Now just 80 that you and I don't get into an
argument, this is the position I took with
this Committee. I'm willing to recognize
that where private capital puts up the money
to finance a plant which is certified by the
Government as being necessary for munitions
or part of the rearmament program that we
give them special treatment on depreciation.
K:
Yes.
H.M.Jr:
I may have a little argument as to whether it
should be four years or five years or whether
198
- 2 -
they should be special carryover -- but that's
not important and I'd much rather not get into
an argument before the President, you see?
K:
Yeah.
H.M.Jr:
But I will recognize and have said 80 that
these people should get special treatment.
Now that's
Don't you think that's
far enough to go?
K:
That's all right.
H.M.Jr:
As far as the President goes and 88 to the
refinements of it we won't have any trouble.
X:
All right, sir.
H.M.Jr:
Now, what I'm going to say to him today --
that when they send up this bill, see, on
excess profits that we throw the Vinson-
Trammell thing out of the window and that's
number -- and that also where they put up
private capital and some agency of the
Government certified that this plant 18
necessary that they have special treatment
on depreciation. Now 18 that going far enough?
K:
Yes, but you're not going further than five
years, are you?
H.M.Jr:
Oh, I won't say -- I'm not -- I'll say special
treatment, whether it's four years or five
years or six years or whether it's a carryover,
we can work that out.
K:
I Bee.
H.M.Jr:
But I want the President to have announced
from the White House that this is an Adminis-
tration policy and that the Senate and the
House have agreed to this. Then you ought to
be able to go ahead and write your contracts.
K:
H.M.Jr:
Is that right?
Regraded Unclassified
197
- 3 -
K:
Yes, I think that's all right, sir.
H.M.Jr:
I mean, I want it to come out of the White
House that this is the President's policy,
that Senator Harrison and Congressmen Doughton
and Cooper have agreed to this, and the
Treasury and the Defense Council.
K:
Uh-huh. You see, Mr. Morgenthau, these
manufacturers, see, they have had special
treatment in the Treasury before and they
didn't
H.M.Jr:
How do you mean?
K:
I mean that they wanted to get special
treatment and they didn't get any 80 we've
got to sort of commit ourselves a little bit
H.M.Jr:
Well ......
K:
on the time factor, see?
H.M.Jr:
No. We couldn't give them any special treat-
ment and I said 80 right along.
K:
Yeah. Well, they'll be a little bit suspicious.
I had a whole bunch of them here yesterday --
about forty of them from the aviation industry
and they were suspicious as hell.
H.M.Jr:
Now let's get it straight that I'd promised
them something and hadn't lived up to it?
K:
Oh, no. Oh, no. But they went along hoping
that it'd be straightened out later on and
when they finally got to it there wasn't
anything to straighten out because you said
that, I suppose, rightly 80 that you didn't
have the authority to change it.
H.M.Jr:
That's right. But they didn't say that I'd made
them any promises.
K:
No, no, no. You didn't but somebody else did,
see?
193
- 4 -
H.M.Jr:
Oh.
K:
Over here on this side.
H.M.Jr:
Who?
K:
Well, I suppose the Army and Navy at the
time -- this goes back to oh quite a long
ways.
H.M.Jr:
oh, well.
K:
And they all got up that bee story to tell,
you know.
H.M.Jr:
Oh. Well, I can't
......
K:
But if you now have the authority end you'll
go along on it, I think that'll straighten
it out.
H.M.Jr:
Well, I told them right straight along we
had no authority.
K:
Yeah, that's right.
H.M.Jr:
But they didn't say that anybody in the
Treasury had made them any promises.
K:
No.
R.M.Jr:
What?
K:
No. That's where the promises went out the
window.
H.M.Jr:
Well, I've tried to tell them the truth.
K:
(Laughs)
H.M.Jr:
I try to tell them the truth.
K:
Well, all right. I'll be ready, sir.
H.M.Jr:
But I think this is a good move because this
is going to be a White House statement and the
Administration and everybody have agreed to it.
199
- 5 -
K:
Fine.
this
H.M.Jr:
And what I'm 80 afraid of was that/thing
was heading up 80 that they'd have each
other biting at each others heels.
K:
I see.
H.M.Jr:
And what I wanted to see is every -- I want
to see this country rearm.
K:
Yeah. Uh-huh. All right, sir.
H.M.Jr:
Thank you.
K:
That's twelve o'clock.
H.M.Jr:
Yeah. You'll hear direct from General Watson
but I wanted to let you know in advance.
K:
All right, sir. Good-bye.
H.M.Jr:
Thank you.
200
July 10, 1940
11:10 a.m.
General
Watson:
He came to the President.
H.M.Jr:
Well, how in the hell can the President
cancel it.
W:
Well that's what I mean, Jesus Christ!
H.M.Jr:
You and me both.
W:
All right. Well, we'll go -- you and I
don't have much trouble. Say, look here,
he isn't going to give you any money on
that Coast Guard he says. He said, no use
talking to him about it.
H.M.Jr:
He isn't.
W:
No.
H.M.Jr:
What a pal. Has he seen it?
W:
(Laughs) He said he wasn't going to give you
any.
H.M.Jr:
Well, I'm going to try to make him change
his mind.
W:
All right. He sald, just tell Henry -- don't
bother to take up my time about that here,
I'm not going to give him any money.
H.M.Jr:
Yeah. Well
......
W:
That's what he said. He might have been in a
bad humor I don't know. Dan Tobin is here
grinning and he's got a lot of papere too.
H.M.Jr:
Yeah. Now while we're on that, did you straighten
that thing out between F.B.I. and Signal Corpe?
W:
Yes, sir. They're working just like babies
and they've reported -- they all reported up
here and they've even apportioned certain
things that he thought was covered by the
Army that weren't, he's now covering -- J. Edgar
Hoover.
201
- 2 -
H.M.Jr:
Is it satisfactory with him?
W:
Absolutely! With all three of them. I've
got two reports from them. The three of them
meet now twice a week.
H.M.Jr:
I know that but I wonder .....
W:
They're all right as to that.
H.M.Jr:
They are?
W:
Hoover's taken over what you wanted.
H.M.Jr:
He is.
W:
He said there were certain things that
he thought were being covered by the Army
that weren't and now he was doing it.
H.M.Jr:
Good.
W:
In his last report. So I think that you can
let that -- and now if anything goes wrong
just tell Hoover because they've got instruc-
tions to go ahead and get everything they've
got but keep each other informed as to what
they have -- thoroughly informed.
H.M.Jr:
0. K.
W:
And that we've got -- between them I think
they ought to give us all, but we didn't
want to curtail anyone. Of course, the more
you get the better.
H.M.Jr:
Good. How many eggs did you have for breakfast?
W:
Huh?
H.M.Jr:
How many eggs did you have for breakfast?
W:
Why, I didn't eat anything at all, Henry, I
don't eat but practically every other day.
Just don't go -- I go without anything at all.
H.M.Jr:
(Laughs)
202
- 3 -
W:
Yes, sir!
H.M.Jr:
(Laughs)
W:
O. K.
H.M.Jr:
All right. Good-bye.
203
July 10, 1940
11:40 a.m.
H.M.Jr:
Yes.
Operator:
Go ahead.
H.M.Jr:
Hello.
George
Harrison:
Hello, Henry.
H:M.Jr:
Yes, George.
H:
I'm calling you because I was afraid I might
miss you. I have to go out in a few minutes
to lunch.
H.M.Jr:
Well, I told Bell to get in touch with you
in view of something that happened here. I'm
not going to be able to concentrate on this
thing until two o'clock Washington time.
H:
Oh, I see. Well, I'm sorry I bothered you.
H.M.Jr:
No bother. I told Bell to call you. Maybe
he hasn't got around to it.
H:
Well, I tried to get him first and he had
some people in there Bo that was the reason.
H.M.Jr:
Well, I'm always easy to get.
H:
All right.
H.M.Jr:
And I'll be ready at two o'clock standard.
H:
All right. Fine. Thank you.
Regraded Unclassified
204
July 10, 1940
11:45
H.M.Jr:
Hello.
Operator:
Mr. Purvis.
H.M.Jr:
Hello.
Arthur
Purvis:
Hello. Good morning.
H.M.Jr:
Arthur?
P:
Yes, sir.
H.MJr:
Good morning. I wanted to give you this
BO that -- I didn't think I was going too
far. Mr. Knudsen called me up this morning.
Hels squared with Packard and he wanted to
know how they should handle your end of the
interest, you see and I said that I felt
that whatever he did for the United States
Government would be acceptable to you.
P:
Yes. That would be my position.
H.M.Jr:
Now that's what I said. Well, he said, the
U. S. expects to put up 30% of the money in
advance and I said, well, whatever we did
I'm sure you'd be willing to do.
P:
Yes. Of course, there was -- oh, yes, I
see -- 30% of the value of the contract, yes.
H.MJr:
I believe that's right.
P:
Yes.
H.M.Jr:
But I said he should drive the bargain for
the
P:
I think that's right. We can't possibly ask
a man of that size not -- we've got to back
his judgment, I think.
H.M.Jr:
I think 80.
Regraded Unclassified
205
- 2 -
P:
And after all, at least, let's try it that
way and honor it that way and then if some-
thing went wrong, we'd have to be careful
after.
H.M.Jr:
Right. But I didn't feel I'd gone too far.
P:
Not a bit. Not a bit. That's quite in line
with what we talked in your office with him
before.
H.M.Jr:
Yeah. Now tomorrow you got word I'm expecting
you and Mr. Howe for lunch.
P:
Yes. I think that will be awfully nice.
H.M.Jr:
Now Secretary Stimson's going to be there.
P:
Oh, excellent.
H.M.Jr:
And Mr. Knudsen.
P:
Oh, good.
H.M.Jr:
And I've asked the Canadian Minister if he's
in town. I don't know whether he's in town.
P:
I don't know whether he's well enough yet.
H.M.Jr:
Well, I invited him.
P:
That's very nice.
H.M.Jr:
Now, Mr. Knudsen has this on his chest which
I told him to unload. He feels that you're
placing certain orders here which like with
Colt, he used that for example -- which they
don't know about and I told him I don't either
80 we'll have to work out some way on these
big orders that you'll let us know 80 that we
can let him know.
P:
I quite agree and I think what 1s happening
is that our people on the Colt end are assuming
that the old discussions when we first started
on Colt are all right provided they carry on
with Army people. I discovered the other day
203
- 3 -
there have been some contacts with our
people with Army people. I don't think
there's any intention of starting off wrongly
but I'll have to put a stop to that.
H.M.Jr:
Well, be prepared to meet that criticism
tomorrow.
P:
Thank you very much. I'm very glad you gave
me the warning.
H.M.Jr:
And the thought that I had tomorrow when you
come down, if you could give us a picture of
what your needs are going to be -- I don't
mean down to a thousand rifles, but in general
terms.
P:
I will be able to give you in most lines a
very fair preliminary picture.
H.M.Jr:
And that will go, I take it, for Canada,
Australia and South Africa as well.
P:
Well, I've got those people -- unfortunately,
South African people only arrived yesterday --
the commercial end. They're in an air meeting
now and I have warned them of this necessity
and in addition to that Australia -- they're
here with me now and I will put it up to them
that either they've got to do that by tomorrow
or they've got to add it. I warned them at
the meeting this morning -- all of them --
that they would not get anywhere by going
around placing orders indirectly because I
heard last night that some of the technical
people in the South African end had got in
touch with some rigid intermediary 80 that
I've given a warning to the members of Canada,
Australia, South Africa and India, who were
all in the room this morning -- it's the first
time I've been able to get them because the
Indian fellows just arrived -- that they must
bear in mind that we can only work in comple-
mentary terms with the U. S.
H.M.Jr:
Well, now for example. I last night had dinner
with Casey.
207
- 4 -
P:
Yes.
H.M.Jr:
He talked about 850 planes. Well, now
using that as an example, what I'd like 18
not 850 planes for Australia or 80 much for
each of the
but the Empire wants BO
many planes.
e:
The whole picture, yes.
H.M.Jr:
And this type.
P:
Well, this preliminary meeting that they're
doing on that 18 this. They're trying to get
out of Jaoquin some divvy up on what the U. K.
has done, you see?
H.M.Jr:
Well, you ought to be prepared tomorrow to
give a little talk and after all this will be
Mr. Stimson's first approach and we've got
to work out some way that you're going to
talk plain and that -- then Knudsen -- one
man can be delegated -- you know.
P:
Yes, I understand exactly.
H.M.Jr;
It's too much sixes and sevens.
P:
Yes, I agree.
H.M.Jr:
And you'll just have to tell these various
Governments that from now on boil a thing
down. If it's planes, it's for the British
Empire; if it's machine guns -- all together
but not broken up.
P:
Very good.
H.M.Jr:
And I'm doing this tomorrow to give you the
chance.
P:
Thank you very much, indeed.
H.M.Jr:
Right.
P:
That will be excellent.
H.M.Jr:
Thank you.
Regraded Unclassified
208
July 10, 1940
11:52 a.m.
H.M.Jr:
No. 1, you're expected for lunch tomorrow.
Maybe they've told you.
Philip
Young:
Yes, sir. I heard that.
H.M.Jr:
No. 2, Directive No. 5 has been signed.
Y:
Has been signed -- by the President?
H.M.Jr:
No. He's not going to sign it in the
future. He's delegated the authority to
Colonel Maxwell, but it's been approved by
the White House. Hello?
Y:
Yes, sir.
H.M.Jr:
Now I'm terrifically busy and it's up to you
to follow through and it's up to you to get
that stuff off that ship.
Y:
Joe Green Just told me on the telephone that
that Directive didn't cover this situation.
H.M.Jr:
Well, you've got to just carry the ball.
Y:
All right.
H.M.Jr:
I'll not be available until three o'clock.
Y:
Right.
H.M.Jr:
You've just got to carry it.
209
CG-F-0161 (7/10/40)
JUL 1 0 1940
The Director,
Bureau of the Budget,
Washington, D. c.
Sir:
Supplementing - letter of July 9, 1940, in which request - made
for immediate consideration of the national defense program for the
Coast Guard set forth therein, you are advised that on Tuesday, July 9th,
the Commendent of the Coast Guard conferred with Admiral Harold a. Stark,
U.S.N., Chief of Naval Operations, and discussed in detail every item
for which I requested that funds be sade available at the earliest
practicable date. Admirel Stark gave his unqualified approval to each
item and to the entire program us being imediately required in the in-
terest of national defense.
A photostatie copy of a sumary of all items contained in my letter
to you of July 9, 1940, with the funds required, showing the signature
of Admiral Stark approving the complete program, is inclosed herewith.
Very truly yours,
(Signed) H. Morgesthan, fr.
Secretary of the Treasury.
Inclosure.
File to Mr. Thompson
(not mailed in Sicya office
Regraded Unclassified
July 10, 1940
210
This is the statement HM Jr took to
e 12 o'clock meeting at the White
House. He gave a copy of it to the
President.
R THE
Preposed Tax Presses
1. institution. Special treatment fer income tax perposes shall
be given to privately finessed plant expension ups certification by 8
governmental agency that the plant is seeded for national defense perposes.
This would be accomplished by parmitting the espital cost of meh expea-
sion to be amortised over a reasonable period.
2. Excess Profits. A. steeply graduated non-diseriminatory excess
profits tax should be enacted. A combination of the wer prefits and excess
profits principles appears to be most equitable. The tax shall apply to
all profite in of the rate of return on invested capital which the
corporation has actually realised in the pre-emergency period, subject to
two qualifications. (1) The company shall be allowed an exemption of not
Less than 4 percent of invested capital, and (2) in any case, it shall be
subject to the tax OR what it makes above 10 percent of invested capital.
For example, (a) if the company made an average of 5 percent on invested
capital in 1935-1939, its profits above 5 percent in 1940 will be mbjest
to the tax. (b) If it unde an average of only 2 percent in 1935-1939, ay
profits in 1940 above 4 percent will be subject to the tax. (e) If it made
an average of 15 pareent in 1935-1939, the tax shall apply to any profite
in 1940 in excess of 10 percent.
3. Rental of the Act. The Vinson-Tramel) set
impress & flat 100 persent 630448 profits tax over and above 63 allowed
percentage of profit on two industries only on contracts and
in of $25,000. It is for every contractor and subcentractor
clear back to the quarries and vises to establish & cestly accounting system
of a complex and intrients sature. It is the experience of the Advisory
Commission that small manufacturers and suppliers healtate to take work
involving such but annoying red tape. 1 general 000000 profits
tax should be advitituted for the discrimisatory profits provisions
of the Act.
It is the spinion of the Legislative Landars and the Treasury that
them three matters be treated is & single will. This bill is being pre-
parel at will be ready for admission to Congress when it after
the Commition has recessed.
19710 7-10-40
Regraded Unclassified
212
RE FINANCING
July 10, 1940
2:15 p.m.
Present:
Mr. Bell
Mr. Hadley
Mr. Haas
Mr. Murphy
Mrs Klotz
Bell:
I think the next one from the bottom is it.
H.M.Jr:
Thirteen years, eleven months?
Bell:
June 15, '54-'56.
H.M.Jr:
Is that what they are talking about?
Hadley:
Yes.
H.M.Jr:
This extra year makes it & little sloppy,
doesn't it?
Hadley:
There is only three months difference between
those issues, but the extra year in the call
date is a little bit uncertain.
H.M.Jr:
Do you think that, too, George?
Haas:
Yes, sir.
H.M.Jr:
Are you together on this?
Haas:
We are together on just what he said, the
June 15, '54-'56.
H.M.Jr:
Where is the great Henry Murphy, sitting out-
side?
Haas:
No, he is in his office. Do you want him in?
H.M.Jr:
I haven't seen him in a long time. It seems
to be taking this okay, doesn't it?
Hadley:
Yes. There has been some insurance buying in
the long bonds today.
Bell:
This market has gone up on both sides of this
area, hasn't it, Hadley, and they are just
holding that area there, so after this is over
213
- 2 -
I take it is is going up, too.
Haas:
There is going to be a little wait in that.
Bell:
Yes.
H.M.Jr:
June 15. That means it would be dated this
June?
Bell:
It matures June 15, 1954. The first coupon
due would be December 15, 1940. That would
be a six months period.
H.M.Jr:
Gentlemen, you fellows have got this thing
down. Thirteen years, eight months; thirteen
years, eleven months.
Bell:
Let's see. There are three dates there, March
15 - you could put September 15 in there, too.
H.M.Jr:
I am pleased with the way the market took
this thing. I am sorry to hold you up, Dan,
but this is terribly important.
(Telephone conversation with Randolph Burgess
follows:)
214
July 10, 1940
2:16 p.m.
H.M.Jr:
Hello.
Randolph
Burgess:
Hello, Henry.
H.M.Jr:
How are you?
B:
Fine.
H.M.Jr:
Well, what do you think, Randolph, about
this bond on the market.
B:
Well, I'm very glad you're doing a bond in
the first place.
H.M.Jr:
You are.
B:
Because I think you've got a good market
to do it on and everytime you get a market
to stick something out further, it's a good
idea to do it.
H.M.Jr:
That's what I think as long as we're in the
borrowing business.
B:
Yes. I was a little surprised that you'd do
a 21 instead of a 2, but it's all right.
H.M.Jr:
Well, if you'll look at the area from '52
down, it's awful much. It looks like we need
a little slum clearance.
B:
That's right. That's right, and this will give
you.
H.M.Jr:
Yeah.
B:
It's just a question in my mind now between
a 53-5 and a 54-6.
H.M.Jr:
53-5 ......
B:
Or a 54-56.
H.M.Jr:
54-56, when? What date?
215
- 2 -
B:
Well, I don't think that matters 80 much.
I think this side of September -- June, say.
H.M.Jr:
What are you figuring? How much premium are
you figering.
B:
Well, it's very hard to figure that precisely.
I think it's about a point -- a generous
point.
H.M.Jr:
Well, our boys -- I've got here before me
March 15th, 54-56, they figure .10/32nds as
a low.
B:
I think the mathematics doesn't mean much
right now, Henry, because it's all in the news
of the day and I think either one will go.
We'll probably sell up to & point premium.
The problem is the after market and particularly
if your friend, Mr. Hitler, acts up badly.
H.M.Jr;
My friend!
B:
I think a great many banks will subscribe
to either one. I think that afterwards that
a few more of them would sell the 54-6 than
would sell the other BO that your after market
is apt to be not quite so good on the longer
issue.
H.M.Jr:
Well, the market today the boys point out is
good but in this immediate area they're holding
it down.
B:
Yes, I think that's true. Yes.
H.M.Jr:
Well, that's -- but you have no doubts as to
its success.
B:
No. That'll go all right. The 53-5 would be
just a little bit safer but I don't think
there's any real risk to the other. Of course,
if something very bad happens, why they'll both
look sour.
H.M.Jr:
Yeah.
B:
But I don't see how anything much can happen
before tomorrow morning. The main problem is
the after market.
216
- 3 -
H.M.Jr:
Right.
B:
If you're getting bad news from abroad or
are afraid of it, why the -- and want lots
of insurance, why the 53-5 is the one. If
you're feeling fairly courageous and your
lunch 54-6. is digesting pretty well, why do the
H.M.Jr:
O. K. Thank you.
B:
(Laughs)
H.M.Jr:
Hope to see you soon.
B:
All right. I'll be down some time.
H.M.Jr:
Good-bye.
B:
Good-bye.
217
- 3 -
Hadley:
'53-'55 would give you about a point and
three-quarters premium right now.
H.M.Jr:
Too much.
How are you?
Murphy:
Pretty well, Mr. Secretary.
H.M.Jr:
What have you got, your bible there?
Haas:
He has got a red bible.
H.M.Jr:
That is sort of a new one. I have seen slide
rules and everything else, but I never saw
a man bring a bible to a financing meeting.
Haas:
He will have to pray later on. That won't
be so easy.
Bell:
We haven't needed one yet, but we may.
H.M.Jr:
I will take that tonight and pray that nothing
happens tomorrow. What does the good book say?
Murphy:
The good book says approximately the same thing
that Mr. Hadley says. He said that if you make
it '53-'55, you will get about a point and three-
quarters premium and I just figured it out as
Mr. Burgess said it over the phone that I got
about one and 20/32nds premium.
(Telephone conversation with Mr. Devine follows:)
218
July 10, 1940
2:20 p.m.
H.M.Jr:
Hello.
Operator:
Mr. Devine.
H.M.Jr:
Hello.
Mr. C. J.
Devine:
Hello, Mr. Secretary.
H.M.Jr:
I'm sorry to have taken you off the golf links.
D:
I wasn't on the golf links; I was out working
my farm. I've lost about seven pounde out
there. I'm shoveling stone and rock and
gravel building a road.
H.M.Jr:
Is that what you call a farm?
D:
Sure.
H.M.Jr:
Well, it sounds more like a graveyard to me.
D:
Oh, no. I was 'way up in the wilderness
out in Jersey.
H.M.Jr'
Good. Well, how do you think a 21% bond 18
going to go?
D:
I think it's going to go wonderful.
H.M.Jr:
You do?
D:
I think you made a wonderful selection.
H.M.Jr:
You do?
D:
Yes, sir.
H.M.Jr:
Now what yearage would you put on it?
D:
I'd say -- I think a 54-57, September or
December and I think the price would be worth
a 1011 on September and a 101 on December.
H.M.Jr:
I see.
Regraded Unclassified
219
- 2 -
D:
If you wanted to increase the outstanding
issue, I think you could do it at 102-5/8the
to 102-3/4ths.
H.M.Jr:
The outstanding issue?
D:
If you wanted to.
H.M.Jr:
Yeah. Well, I don't.
D:
I say 54-57 -- someone has mentioned 54-56
to me since I came in and I say and I say
54-56 is quite attractive and it'll be worth
101-3/8ths, maybe 1011.
H.M.Jr:
54-56.
D:
Yeah. I think 54-57 with that kind of a
coupon gives you a grand option -- 3-year
option with that low coupon 18 all in your
favor. It's really selling a 57 bond at a
new all-time low.
H.M.Jr:
That's right. But anything in that area you
think it'll go nicely.
D:
Yes, sir.
H.M.Jr:
Got plenty of customers lined up?
D:
I think -- I'd like to underwrite the issue
at 101. (Laughe)
H.M.Jr:
Uh-huh.
D:
I think -- we had the New York Life in here
this morning and on your 60-65's we could have
sold them between 10 and 20 million 60-65' e
right on this market and maybe an eighth above
the market if we sold them that size of a
block.
H.M.Jr:
Is that right?
D:
Yes.
H.M.Jr:
But you couldn't get them?
Regraded Unclassified
220
- 3 -
D:
No, sir. We didn't sell them any. We
have their order at 106-3/8th and we weren't
able to confirm a bond.
H.M.Jr:
Well, that sounds pretty bullish.
D:
Well, the market acts very good.
H.M.Jr:
Well, I'm ever 80 much obliged and back to
the rock pile for you.
D:
Well, I'll hang around here for a few days
and see if I can't pay for that place out
there.
H.MJr:
(Laughs). O. K.
D:
0. K. Thank you.
H.M.Jr:
Good-bye.
D:
Good-bye, sir.
221
- 4 -
Bell:
He is a bird.
H.M.Jr:
He is smart.
Bell:
You're darn right.
Haas:
Who is that, Devine?
H.M.Jr:
Yes.
Klotz:
He is sensible. He takes exercise.
H.M.Jr:
But none of these dates they are giving are
here. You have got a set of dates all your
own.
Hadley:
I think he is over optimistic in reaching
past June and Mr. Burgess is pessimistic in
going back to March.
(Telephone conversation with Mr. Mills follows:)
222
July 10, 1940
2:24 p.m.
H.M.Jr:
Hello.
Operator:
Mr. Mills.
H.M.Jr:
Hello.
Dudley
Mills:
This is Dudley Mills, Mr. Secretary.
H.M.Jr:
How are you?
M:
Very well, thank you.
H.MJr:
You sound as though you're up in Maine.
M:
Well, I'm sorry. The market shows that the
financing can be done very successfully.
H.M.Jr:
It can.
M:
Oh, yes. It has advanced in the face of
an announcement of $600 million more bonds.
H.M.Jr:
What's that?
M:
It has advanced in the face of an announcement
of $600 million more bonds.
H.M.Jr:
Yeah. That makes me a pretty good guesser,
doesn't it?
M:
Yes, fine. (Laughs). We think that you're
faced with two alternatives. To reopen the
50-51, 3's at about 1021 -- that's a basis of
about 203.
H.M.Jr:
Yeah. Well, I don't like that.
M:
You don't like that.
H.M.Jr:
I don't like to reopen.
M:
Well, then, it comes down to putting out
--
we think, it would be a 54-56 at par.
Regraded Unclassified
228
- 2 -
H.M.Jr:
Yeah. What date?
M:
What date?
H.M.Jr:
Yeah.
%:
Well, I think put it out in June -- June 54.
H.M.Jr:
Uh-huh. I see.
V:
That bond will Aell about a 101, 6/10
depending on the over-night and over the
weekend news before the trading begins,
actually begins in the bonds.
H.".Jr:
How about e June 54-57?
V:
Well, that's all right -- put another year
on it.
H.V.Jr:
How much would that cost us? -- I mean, in the
way of a premium.
X:
In the way of premium? Only about 8 32nd
or 2.
H.M.Jr:
Te that all?
It wouldn't make much difference.
H.N.Jr:
Uh-huh.
X:
Now all investors prefer bonds at par.
H.M.Jr:
Excuse me.
:
I say, most of the investors prefer bonds at
par rather than to reopen the old 51, 3's.
H.M.Jr:
Yeah, but say A June 54-57.
is
Well, I think that would sell around 101 --
well, about the same price -- 101-4 to 101-10
-- in that range.
H.M.Jr:
I see. It wouldn't make much difference.
M:
No.
Regraded Unclassified
224
- 3 -
H.M.Jr:
Uh-huh.
M:
We think this bond is going to have a
special appeal to insurance companies and
savings banks.
H.M.Jr:
Good.
M:
And while attractive to commercial banks,
and they will subscribe freely to the issue,
nevertheless, I think the ultimate holders
will be moetly insurance companies and
savings banks.
H.M.Jr:
You got a few customers lined up?
M:
Oh, yes. And that'll leave the commercial
banks open to subscribe for the defense
obligation in the future.
H.M.Jr:
Yeah. Right.
M:
We think a 54-56 -- but if you want to take
a 54-57 that will be all right.
H.M.Jr:
Well, I'll stay in -- right in that area
they're holding it down today, aren't they?
Nobody is bidding in that area.
M:
Well, we are. (Laughs).
H.M.Jr:
Are you?
M:
We've got some orders.
H.M.Jr:
Are you?
M:
Yes, we've got some orders right -- a little
longer than that.
H.M.Jr:
But you fellows are perfectly happy with this
bond in that area.
M:
Perfectly happy, sir.
H.M.Jr:
Good for you.
M:
And we think it'll go over very nicely.
H.M.Jr:
Thank you.
M:
Thank you. Good-bye, sir.
H.M.Jr:
Good-bye.
Regra ded Unclassified
225
- 5 -
H.M.Jr:
He had somebody on the wire, that is what
cut down the power.
Bell:
That was Herb Rapp, probably.
H.M.Jr:
How they have changed since yesterday. It is
fun to pick it right. I never think in terms
of six or seven hundred million, but it is fun
to pick them right.
(Telephone conversation with George Harrison
follows:)
Regraded Unclassified
226
July 10, 1940
2:29 p.m.
H.M.Jr:
George?
George
Harrison:
Yes, Henry.
H.M.Jr:
Well, I've been talking to a couple of fellows
and they seem awful cheerful on the bond
market.
H:
Well, I think they should be.
H.M.Jr:
Uh-huh. Why, have you got Rouse there with
you?
H:
Right here with me.
H.M.Jr:
Uh-huh.
H:
The market is at the high of the day -- very
strong and considering the fact that this is
before an issue quite unusual. Usually you
have some preparation for a new issue, and
I think that going over all the facts and the
figures we would recommend June, 54-56.
H.M.Jr:
June, 54-56.
H:
Yes.
H.M.Jr:
How would you feel if we made it June, 54-57-
H:
I don't like it so well, . but it'll go.
H.M.Jr:
You don't like it so well.
H:
No.
H.M.Jr:
How important is it for my successor that
we make it three years?
H:
How important is it for your success?
H.M.Jr:
Yes.
H:
Well, it's -- (Laughs).
Regraded Unclassified
227
- 2 -
H.M.Jr:
I mean, who's going to be here in 54. (Pause)
Hello.
H:
I don't know that I get that, Henry.
H.M.Jr:
Well, I mean, eomebody's going to be
Secretary of the Treasury in 54 and it
"ain't gonna" be me.
H:
Well, I know, but I think a 2-year call
date on a small issue like this 16 a plenty.
Don't you? of course, you may fill it up
further later on but I think everything's
being equal I'd do the 54-56, if necessary
postponing the date, if you want to to
September or even December, though I think
June is a little better.
H.M.Jr:
How much do you figure the 54-56 June will
sell at?
H:
Well, about 101-6 to 101-16. That's the best
we can figure on that.
H.M.Jr:
And if it was the same date for 57 instead
of 54?
8:
Well, now, I'll get Rouse. I'll ask him on
that. (Talks aside) He says it'll knock
off probably about an eighth to a quarter,
which would bring it down pretty close to
101.
H.M.Jr:
I see.
di
The market 1e in a frame of mind, Mr. Secretary,
where it's a case of getting a dish of ice
cream -- they prefer chocolate, but they'll
take vanilla just about as readily.
H.M.Jr:
Uh-huh. Well, how about making it chocolate
and vanilla?
E:
(Laughe).
R.M.Jr:
With just 8 couple of little walnute on the top.
H:
Yeah. But just don't put a banana peel on it.
Regraded Uno assified
228
- 3 -
H.M.Jr:
(Laughs). Well, we'll leave that for
Jeff Coolidge.
H:
(Laughs). Well, Henry, you can do the
57.
H.M.Jr:
Well, I don't know. I've been talking and
I think it's in between there. I haven't
called up Marriner yet. I'll call him up
and then
H:
But I personally think that 98 long 6.8 the
market thought they wented this the other
day, I'm not so sure they were right -- the
shortest term and with the world ae it 1s,
I think I would do the 54-56 on the theory
that you -- that's pretty good spread. I
think it will be many times over subscribed
and I think that you'll probably find unless
something busts loose it'll sell up.
H.M.Jr:
Yeah.
H:
Frankly, above the figures we've just been
giving you.
H.M.Jr:
Well, aren't they holding that particular
area down today?
6:
Well, it's the one area that hasn't gone up
with the others.
H.M.Jr:
Yeah.
H:
The 21's have been in some supply both outright
and on trade but the rest of the market there's
been a demand for,
H.M.Jr:
O. K. Thank you gentlemen.
H:
Right.
Regraded Unclassified
229
- 6 -
H.M.Jr:
I don't know whether you people get the
social significance of my remark about
Jeff Coolidge, but he is Chairman of
United Fruit, who are in the banana busi-
ness.
Bell:
Oh, I thought it was the auction bonds.
Haas:
He always ate a banana here for lunch, too,
I noticed.
H.M.Jr:
He is full of bananas. What did he do
with the peels?
It is narrowing down, isn't it? I get quite
a kick out of this, because yesterday every-
body in the street advised against it. That
timing of that publicity gives them a day or
80.
Bell:
It 1s very good. That settles it down.
H.M.Jr:
I am sorry to hold you up, but that state-
ment that came over the ticker on taxes
was terribly important.
Bell:
It doesn't hurt us so much here as it does
the mailing in the banks. I am afraid they
don't have time enough to catch the trains
out in the country, but they have got this
thing all set up except the dates.
H.M.Jr:
They most likely have even got that put in.
Bell:
Don't fool us.
H.M.Jr:
What did you put in?
Bell:
I left that blank. We have got everything
else but that.
H.M.Jr:
I will call up Kilbee and ask him to check
up on you.
Bell:
Had it in yesterday, just taking 8. chance,
but today we cut it out.
Regraded Unclassified
230
- 7 -
Hadley:
We have gained about six months in the
last two days.
H.M.Jr:
Incidentally, for Chick Schwarz, the Tribune
was all mixed up on the story. I said I
was going to sell it for less money and they
couldn't figure it out. You can show Chick
how on a yield basis this is considerably
cheaper than it was on September 8. The
coupon is the same but the spread over the
period --
Haas:
The longer one.
H.M.Jr:
Will you point that out to Chick?
Hadley:
Yes, I will do that.
H.M.Jr:
You are getting three years for nothing. It
is two and 8. quarter, '51-'53.
(Telephone conversation with Marriner Eccles
follows:)
231
July 10, 1940
2:30 p.m.
H.M.Jr:
Hello.
Marriner
Ecoles:
Hello.
H.M.Jr:
Marriner.
E:
Yee, Henry.
H.M.Jr:
I was working on that tax thing this morning
80 I had to let the thing go until this
afternoon.
E:
Yeah. Dan called up.
H.M.Jr:
How does it look to you now?
E:
Well, this le the -- what I would recommend.
H.M.Jr:
Please.
to
June, 1954-56. The market of course as you
know has shown increasing strength today.
That would yield approximately 2.2 and it would
give a premium here of somewhere around 101-12
to 15/32nde -- 1011 to B. half, which -- there's
this thing that I've observed about this
offering, I never remember a bond offering
when the market haen't gone down where there
has been certain selling in an effort to be
prepared to subscribe. Here 1s a case where
since this announcement was made the market
has shown unusual strength two daye hand-
running, showing that the market 16 entirely
bare and hungry to get the issue.
H.M.Jr:
That's right.
E:
Now on a basis of that, I think that this 1s
plenty sweet.
H.M.Jr:
I agree but the only difference that we have
we're talking about possibly making it 54-57-
232
- 2 -
E:
That's all right. I wouldn't kick at all
about that. I think you can go 57 without
a bit of trouble, and the other is just a
little bit more favorable but I think the
market the way it closed today -- that you
can go 57 without a bit of trouble, and I
would agree with that.
H.M.Jr:
But either one will be agreeable to you.
E:
Yes.
H.M.Jr:
Well, we'll talk about it a few minutes.
It'll be one or the other, Marriner.
E:
Well, I don't -- I wouldn't say that I'm
necessarily recommending 56 -- 57 will be
just as satisfactory.
H.M.Jr:
Fine, and I think the market has behaved
beautifully.
is
Well, I've never seen it with such underlying
strength in the face of an announcement.
H.M.Jr:
Thank you, Marriner, very much.
E:
All right.
H.M.Jr:
Thank you.
E:
Good-bye.
236
- 8 -
(Mr. Schwarz entered the conference)
H.M.Jr:
Well, what do you say?
Bell:
Well, I think the '54-'57 would go. There
is a little difference of opinion here be-
tween Haas and Hadley on the pricing of that
extra year and I think on the curve, it will
show you that there ought to be a greater
difference than it shows on this sheet and
the market takes what Hadley has figured
out here but sometime they are going to take
it the other way and that spread is going
to be nearer half a point than it 18 the
3 or 4/32nds, I am afraid. I think '54-'56
would certainly go and probably sell on a
better basis than what Hadley has got. I
also think the 57 would go, but I do think
you have got that other difference, which
the market now doesn't recognize but which
it may.
H.M.Jr:
They are figuring it to the nearest date.
Let me see your curve, Murphy, will you?
Murphy:
This is last night's.
Bell:
Here are all of your bonds with your two-
year call, you see, and here are your bonds
with your three and here are your five. Do
you see that spread?
H.F.Jr:
Yes.
Bell:
It gets a little closer as they get farther
out, but nevertheless there is that difference.
That is about half 8. point there, about 12/32nds,
and Hadley only shows B. difference of about
five, but in theory that is right, but the
market, they don't pay much attention to 1t.
H.K.Jr:
You say '54-'56?
Bell:
To be sure, I would say that.
B.M.Jr:
Hadley?
Regraded Unclassified
234
- 9 -
Hadley:
That is my preference.
H.M.Jr:
George?
Haas:
That 1s mine.
Murphy:
Same.
H.M.Jr:
Chick?
Schwarz:
Whatever the experts say.
H.M.Jr:
I feel a little courageous. I don't know
whether to make it '54-'57 or not.
Bell:
Seven will go and I think it will probably
sell on a better basis than the show on this
sheet because this market in this area is
going up after this announcement, I feel.
Haas:
You have still got a World War, though.
Everything is beautiful, more than anybody
could anticipate or expect.
Murphy:
I figure it is, so to speak, "ex-whoopee."
Klotz:
I don't know what that means.
Murphy:
With the push the market has, it might put
it above the corresponding level with out-
standing issues.
H.M.Jr:
Marvelous, that is good. How do you spell
that?
Murphy:
There is a hyphen after the "ex."
H.M.Jr:
I hate to go against everybody's wishes. I
don't get thanked for making it '54-'57 and if
it should slip a little bit, I get damned.
Bell:
I think it is just being a little safer on
the '56.
Haas:
I would say if you feel safe on the '57, I
am willing to go along on your elbow.
235
- 10 -
H.M.Jr:
I feel a little whoopee.
Murphy:
So does the market. They might feel different,
of course, if there was a blitzkrieg tomorrow
morning.
Hadley:
If there was one, it wouldn't make much differ-
ence, but I think the way the market stands
now, this '56 is more conservative.
Bell:
Aubrey Lanston says this '54-'56 bond will
sell between 1 and 3/8ths and 1 and 3/4ths.
He says it will settle down within a week to
101 and 3/4ths in this market. Nobody has
said that.
H.M.Jr:
Oh, you fellows depress me. You take all the
whoopee out of life.
Klotz:
You won't live that down, Mr. Murphy.
Bell:
You can always hope that they will be out of
the way on June 15, 1954, and you don't have
to worry whether it is two or three years.
H.M.Jr:
Is there anything coming due on that date?
Hadley:
Yes.
H.M.Jr:
There is? What is it?
Hadley:
Two and three-quarters of 1951-'54.
Murphy:
A billion six hundred twenty-seven million,
2 and 3/4ths at '51-'54.
Bell:
Callable June, '51, and every six months
thereafter, so you really have six periods
in which to get rid of that.
H.M.Jr:
What is that date?
Hadley:
'51-'54.
H.M.Jr:
Oh well, it will come due in '51.
236
- 11 -
Bell:
No, callable in '51 and due in '54. If you
had a billion six there you wouldn't call
this one.
H.M.Jr:
I am deflated. We will make it '54-'56.
There is no use taking any chances. Every-
body says it.
Hadley:
Well, from that market report you got over
the phone, you have people pulling in both
directions, away from June toward December
and back.
H.M.Jr:
That comment doesn't help me much. I tell
you, I think if they were so scared yesterday
and they are so good today, I always say
when Wall Street is bullish I had better get
bearish. '54-'56. Do I have to sign any-
thing?
Bell:
Yes. It will be ready about 3:00 o'clock,
I think.
H.M.Jr:
If you could get in a minute or two ahead
of these Senators --
Bell:
What time is that?
H.M.Jr:
3:00 o'clock.
Bell:
I think I can beat them.
H.M.Jr:
Here, Murphy, take along your whoopee chart.
Regraded Unclassified
237
RE MUNITIONS EMBARGO
July 10, 1940
3:15 p.m.
Present:
Mr. Young
Mr. Foley
Mr. Cairns
H.M.Jr:
Here are two things. This has nothing to do
with what you (Cairns) were talking about.
There is a ship that is going up to Petsamo
that has got three and a quarter million
rounds. It is a Finnish ship. This stuff
is headed for Sweden. This fellow Maxwell
won't do anything about it and I just - this
is on the theory I am going to pick my fights.
Three and a quarter million rounds isn't such
a hell of an amount, is it?
Young:
No, it 1s a small amount.
Foley:
Is that about three and a half million dollars
worth?
Young:
I don't know.
Cairns:
The Vel-Ragner is the name of the vessel.
H.M.Jr:
Yes.
Foley:
Somebody told me it was very much in rounds
but not in dollars.
Young:
The first part of a 23 million round batch.
Foley:
I see.
Young:
Which was to be exported in March or June.
H.M.Jr:
Has this boat applied yet?
Foley:
Yes.
Cairns:
It applied for clearance and the clearance
was revoked yesterday.
H.M.Jr:
No, up to last night --
Foley:
It had never been granted.
Regraded Unclassified
78-
- 2 -
Cairns:
Basil told me -
S.M.Jr:
He doesn't know half the time what he is
talking about.
(To Lieutenant McKay) Mac, ask the man down-
stairs whether this boat has applied for
clearance. Last night they hadn't cleared.
Foley:
She is out in the middle of the channel so
she won't have to pay wharfage charges. She
hasn't been cleared and there has been no
revocation.
Chirus:
She has not applied for et departure and I
don't think she has yet applied, but she -
Basil said she has applied for clearance,
H.W.Jr:
Well, he said that yesterday and we checked
up and we found she hadn't and that was
yesterday afternoon. I checked it myself.
I have to spend all this time on this stuff
and I keep getting misinformation. I don't
think for three and a quarter million rounds
I am going to fight the State Department.
After all, it 18 their responsibility. We
will let the dam thing go.
McKay:
They say it hadn't applied for e license, as
far B 3 they are concerned.
H.M.Jr:
Do you think I ought to fight for this thing?
Young:
It 1s just the principle.
Poley:
I think there is B. principle involved hero,
Mr. Secretary.
H.M.Jr:
They are going to talk about principles. That
takes time, Mac.
Foley:
We ought to get the procedure straight. AS
I understand it, Green has taken the position,
and Maxwell agrees with him, that the export
license which Green has to grant under the
Neutrality Act 1f certain procedures in the
Neutrality Act, in so far 6.3 registration and
Regraded Unclassified
239
- 3 -
other things of that character are complied
with, makes it unnecessary for any other
application for a license to be made. In
other words, under the recent provision
whereby no arms can be exported, if there is
8. determination that they are needed for our
national defense purposes, Green takes the
position that that doesn't apply and I think
it does and I think that there should be at
formal certification by Maxwell that these
arms are not necessary for national defense
purposes before anybody goes to Mr. Green to
find out whether or not they may be exported.
H.M.Jr:
Well, who is going to fight this out?
Young:
Well, I think there ought to be some deter-
mination as to just what that Act and proclama-
tion means, don't you?
Foley:
Yes, I do.
Young:
Because I think both Maxwell and the State
Department are entirely off on the wrong foot.
H.M.Jr:
Supposing I do this: Supposing I call Mr. Hull
and ask whether he will see you gentlemen some-
time tomorrow. Will that give you time to pre-
pare a brief?
Foley:
Yes, sure. I have got a little memo on it on
my desk.
H.M.Jr:
In the meantime, don't you think we ought to
let this boat go?
Cairns:
Unless you want to hold the remainder of the
shipment.
H.M.Jr:
That has got nothing to do with it, just this
one.
Cairns:
The precedent - it will make it more difficult
for us.
Foley:
No, we are holding the boat, Huntington, on
the grounds that Maxwell and Green ought to
get together.
Regraded Unclassified
240
- 4 -
H.M.Jr:
Excuse me, we are not holding it. She
hasn't applied yet.
Foley:
Sorry.
H.M.Jr:
I mean, she has not yet applied.
Cairns:
You understand the difference in the clearance
and the departure?
H.M.Jr:
No.
Cairns:
That is a point I ought to make, then. The
Collector issues & clearance in addition to
the Secretary of the Treasury issuing a
departure permit. Basil told me the clearance
had been applied for and was revoked yesterday
by the Collector.
Foley:
But whether they have 8. clearance or not, you
can't go unless you get a departure permit and
the departure permits are what they deal with
downstairs.
H.M.Jr:
(To Lieutenant McKay) Mac, on this Finnish
boat, they say that they applied for a clear-
ance permit and it was given to them and then
revoked.
Cairns:
A clearance.
H.M.Jr:
And then it was revoked.
Cairns:
Yes.
H.M.Jr:
Ask the boys downstairs to check that on the
teletype with the Collector of Customs in
New York.
Cairns:
As distinguished from & departure permit.
H.M.Jr:
He knows. I don't, but he does.
Well, let's say the clearance - I still think
we ought to let the boat go. I am not going
to run this. I made & recommendation to the
Regraded Unclassified
241
- 5 -
President and he didn't do it. Why should
I take on all of his grief?
Young:
Well, I thought he approved the policy that
no exports should be made to Sweden.
H.M.Jr:
That is my understanding.
Young:
It is mine, too,
H.M.Jr:
And furthermore, it is my understanding that
I talked to Watson today and recommended to
him that all outstanding export licenses be
revoked. He said, "I agree with you and if
State agrees to it, I will tell Maxwell to
do it, but it has gotten now to where
General Watson won't bother the President.
He is making Maxwell sign the stuff if Hull
and I agree to anything. That settles it.
That is the way Watson is running it.
Young:
You and Hull?
H.M.Jr:
Yes,
Foley:
I think we ought to get it straightened out,
Mr. Secretary, so we won't get into another
situation with Green.
Young:
And we have something to say about it.
H.M.Jr:
I thought I did.
Foley:
....as we did in the Spanish situation.
H.M.Jr:
I thought you were going to say the Spanish-
American War.
Foley:
No. You remember that difficulty.
H.M.Jr:
Spanish-American War?
Foley:
No, about that Spanish Loyalist situation.
H.M.Jr:
I called up Mr. - the Secretary of War today
and he said, "I just wanted to let you know
Regraded Unclassified
1
242
- 6 -
the last thing that happened before I left
New York, the court confirmed the decision."
That is the case you were talking about?
Foley:
That is the Spanish silver case. I wasn't
talking about that case. I was talking
about the controversy that appeared in
Drew Pearson's column in regard to the atti-
tude in 80 far as arms exports to Spain and
Germany and Italy are concerned, to help
Franco.
H.M.Jr:
And Drew called Hull a liar, didn't he, or
vice versa?
Foley:
That 1a right.
H.M.Jr:
(To Lieutenant McKay) Mac, ask Mr. Hull's
office whether sometime tomorrow at his
convenience could he see Mr. Phillip Young
and Mr. Huntington Cairns and Mr. Edward H.
Foley of Syracuse, New York, on the question
of policy in regard to the export of arms
and ammunition in my behalf, if you please.
And you can tell Admiral Waesche that General
Watson told me that the President wouldn't
see me or Waesche because the President wasn't
going to give a penny to Coast Guard. That is
what he said. That is only the first round,
though.
McKay:
I have got a letter out here with B. photostat
of Admiral Stark's okay on all those items.
H.M.Jr:
Well, we will send it over to him.
Young:
There still are those two other angles to
that problem: One, the fact that the British
ships in which we are definitely interested
are waiting in New York because they can't
get export licenses due to the fact that
Green and Maxwell are not functioning pro-
perly; secondly, the fact that this particular
ammunition order is holding up all of the
British ammunition orders.
Regraded Unclassified
243
- 7 -
H.M.Jr:
Well, you mean that this is ahead of it?
Young:
Yes, and they can use it.
H.M.Jr:
Well, take up all three points with Mr. Hull
tomorrow, will you? Take up all three. I
think it 1s desirable, but - you can see
what the three of you can do. There is nobody
else interested, 1a there, in the Treasury?
Foley:
No.
H.M.Jr:
Okay? See what you can do. Put all the vim
and vigor in over there.
Young:
What will we do with the ship?
H.M.Jr:
Let her go, that is what I say.
Foley:
I think that is all right. Let her go if she
applies and then we will clarify the procedure
in 80 far as Maxwell and Green go.
H.M.Jr:
I tell you what we can do. Let's hold her
up and tell Mr. Hull we are holding her for
two days and you go over here tomorrow -
maybe it is a little bit more dramatic.
"Here is a ship waiting in New York harbor
with 34 million rounds of ammunition. The
President says no ammunition to Sweden. Do
you want to let her go?" Put him on record.
Let's hold it.
Cairns:
I think that is better to give him that con-
crete example. He will have something to
decide.
H.M.Jr:
Phil, put all your vim and vigor in over
there. You and Huntington Cairns can blaze
the way and Foley will smile and give you
his benediction.
Young:
I talked to Maxwell on the telephone.
Now, one other thing while - you might as
well listen. What is Basil Harris so
Regraded
Unclassification
244
- 8 -
interested in this American oil tanker for,
that is going to Spain? Why 1a he so in-
terested?
Cairns:
I don't know. We have had four applications
for clearance from Spain for this oil. I
might state at the beginning the policy I
am following 1s, first, no French vessels
leave; secondly, no supplies go to the Axis.
That is the general policy I have followed.
Herbert cleared two vessels, two tankers
for Spain, and they carried oil. Yesterday
I cleared an American tanker with oil,
thinking in terms of supplies only. Today
we have the fourth and Basil was in my office
when the Coast Guard called and I told him
about it. He said, "Well, it oughtn't to
go on the ground that the British might take
it into the combat zone." I said, "I hadn't
thought about that." I was thinking only
in terms of supplies.
Foley:
Is it an American oil tanker?
Cairns:
Yes. I mentioned one to you yesterday.
Foley:
Yes, I remember that.
H.M.Jr:
The one today that wants to sail with a --
Cairns:
That is American, owned by the Texas Company.
It 18 a small vessel, 400 feet long, carrying
to ports in Spain.
H.M.Jr:
From where?
Cairns:
Port Arthur.
H.M.Jr:
She hasn't sailed yet?
Cairns:
No, she has applied for a permit.
H.M.Jr:
Let me ask him. I have got to ask him some-
thing else, anyway.
Supposing we had all our stuff piled up down-
stairs.
(Telephone conversation with Cordell Hull
follows:)
245
July 10, 1940
3:35 p.m.
H.M.Jr:
I got your message -- Henry talking
Cordell
Hull:
Yeah.
H.M.Jr:
......
about this meeting in Cuba.
H:
Yes.
H.M.Jr:
Do you want somebody to do down?
H:
Well, I thought you people would.
H.M.Jr:
I see.
H:
Now, it's not that we don't expect to do
anything there on monetary and economic
matters except to talk and answer questions
and then come back and report to the Inter-
American Committee -- Economic Committee
here on all of those problems.
H.M.Jr:
Would Harry White be acceptable to you?
H:
Yes. He'd be a No. 1 man.
H.M.Jr:
Fine. Well, then, do you need more than one?
H:
No. No, it's just you will get in touch with --
familiar with the atmosphere down there and
H.M.Jr:
Fine. Well, I'd be glad to have him go if
that's agreeable to you.
H:
Yes, well, I was just as a matter of courtesy
I wanted to invite you to send a man, if you'd
like.
H.M.Jr:
Thank you. Now, I've got another problem.
H:
Yeah.
H.M.Jr:
I take it I'll tell him and he'll receive
official word from you?
Regraded Unclassified
246
- 2 -
H:
Yeah. We'll leave about the 18th, I think.
H.M.Jr:
The 18th.
H:
I think so. I'll have them to notify him.
H.M.Jr:
Right. Now, the other day I talked to you
about oil tankers going to the Canary
Islands but flying a foreign flag.
H:
Yes.
H.M.Jr:
Now, we've got a Texas oil company tanker
flying an American flag that wants clearance
to Spain.
H:
Well, of course, it's a little dangerous
for them to go in over there. We don't go
there ourselves -- the question of -- do you
know where the oil -- of course, the oil 1s
intended I guess for Germany.
H.M.Jr:
Well, I don't know. All I know it wante to
clear from Port Arthur, Texas for Spain. And
this is the second one. I find they did clear
one yesterday or the day before.
H:
I see.
H.M.Jr:
But we could -- if the one that cleared
yesterday -- we could catch it with Coast
Guard and bring it back.
H:
Was it under American flag?
H.M.Jr:
It was. I only heard about it a few minutes
ago.
H:
Yeah. Well, it's sort of a difficult propo-
sition really unless we knew more -- of course,
there's about three or four times as much oils
of different kinds -- lubricating and other
kinds going in there than is customary and
that means that it's going there for some
ulterior purpose. Suppose I talk with my folks
and get in touch with you a little later.
H.M.Jr:
Will you? Then we'll hold up this one at
Port Arthur.
247
- 3 -
H:
Yes. All right.
H.M.Jr:
Thank you.
H:
Right.
248
- 9 -
H.M.Jr:
will you take care of that?
Cairns:
It 1s held up. I have held it.
H.M.Jr:
Will you tell Basil?
Cairns:
Yes.
249
July 10, 1940
MEMORANDUM
TO:
Mrs. Klotz
FROM:
Mrs. McHugh
Major Smith telephoned and asked me to give
you the following message:
"Please tell the Secretary that Colonel
Maxwell's Export Directive No. 5 with respect
to Sweden has been okayed. I told General
Watson that Mr. Morgenthau approved this
action, but I would like to be sure that
I am right about this."
If the Secretary does not approve of this
action, Major Smith would like to have you let him
know.
Note:
Mrs. Klotz called Major Smith today and told him
that Mr. Morgenthau had talked to General Watson and
told him he was in favor of the above action; in fact,
he had been begging for it.
Regraded Unclassified
250
CONFIDENTIAL
ACTION REQUIRED
July 10, 1940
To:
The Secretary
Front
Mr. Young
Despite the fact that Colonel Maxwell's Directive
No. 5, which, as I understand it, restricts exports to
Sweden, has been approved and signed, Colonel Maxwell
advised me late this morning that no reconsideration would
be given to the licenses of March 21st and June 7th cover-
ing the Winchester 9 E ammunition on order for the Govern-
ment of Sweden. Colonel Maxwell did say, however, that
some reconsideration might be given to these licenses be-
fore any more of the ammunition in this order is ready
for shipment.
With respect to the 3,250,000 rounds now loaded on
the Finnish ship and held in New York, the Colonel definitely
said that neither he nor the State Department would consider
removing that ammunition, because the action would be too
drastic.
I might add that over 1 million rounde of this same
ammunition is already packed and awaiting shipment from the
Winchester warehouses. This Swedish order is definitely
holding back production on British orders placed with Win-
chester.
Only two courses of action are open: (1) to let the
ship 60, and, (2) have it made clear to Colonel Maxwell that
the restrictions on exports to Sweden given in Directive No. 5
are just as applicable to shipments for which licenses have
already been granted as to shipments for which license appli-
cations are pending.
P4.
251
MA
PLAIN
The Hague
Datsd July 10, 1940
Rec'd 7:44 p.m.
SECRETARY of State
Washington
363, July ten.
Department's 377, July six only received yesterday
morning.
I have had conferences yesterday and today with
Wohlthat, German Commissioner at the Netherlands Bank
from which the following Emerged. In reply to the
Department's questions under (A) and (B) Wohlthat
(of whom the Department of course knows and who is the
highest authority here on such matters) gave ME the
following replies. None of these assets may bE trans-
ferred to the United States. As regards their being EXPENDED
locally, bank deposits and inheritances may bE freely
used locally; cash values of insurance policies are
subject to the restrictions put on insurance companies
by Dutch law on or about May ten; accounts receivable
and debts due from Dutch subjects may bE freely used
locally subject only to restrictions of Dutch law (six
months grace for debtor under certain conditions, Et cetera);
real
252
MA -2- tel # 363 July 10 from the Hague.
real Estate may bE freely sold and the proceeds Expended
locally.
Wohlthat developed his personal opinion that
our government by its action in freezing credits
of countries occupied by Germany had gone much further
than the Germans had in action against the assets of
American citizens resident in such countries. In his
capacity of German Commissioner at the Netherlands Bank
hE proposed that with respect to individual Americans
who may in the immediate future be granted permission
to leave Holland they should be allowed to take with them
sufficient money to pay for the portions of their trip
which cannot bE paid for in The Hague (E.g. rail and bus
transportation between GENEVA and Lisbon) as WEll as
subsistance up to Lisbon. As to remaining currency and
credits which they may possess Wohlthat is prepared
to release these Americans from compliance with the
fortign currency regulations which became Effective here
on June twenty SEVEN compelling all inhabitants of the
Netherlands to offer their foreign currency checks drafts,
Et cetera to the Netherlands Bank at fixed rates of
Exchange (for the dollar one point Eighty Eight and three
sixteenths guilders) and to let them take these assets
out
Regraded Unclassified
253
MA -3- tel # 363, July 10 from The Hague.
out also, on condition that this bE compensated for
by an Exemption on our part from the operation of our
freezing regulations for an Equivalent amount of Dutch
blocked credits in the United States. The proposal SET
forth in the preceding sentence applies to all foreign
currency and credits of the remaining Americans in
Holland who may later bE EVACUATED in large groups or En
bloc.
Wohlthat called my attention to our Treasury order
og May thirty one granting Exemptions from the operation
of our freezing regulations to Dutch banks in the East and
WEST Indies. HE also read from a report just received
from the German Embassy in Washington stating that
on June Eighteen our Treasury granted Exemption
from freezing operations to all American citizens
resident in the Dutch East and WEST Indies as well
as to the Banco Hollandese Unido operating in various South
American countries.
In his capacity of German Commissioner at the
Netherlands Bank Wohlthat said hE would like to initiate
negotiations with a view to reaching an agreement between
the Netherlands Bank and the Federal RESERVE Bank permitting
the sale of Dutch-held securities in the United States
under adequate guarantees against disturbance of our stock
markets.
GORDON
NPL
Regraded Unclassified
254
CONFIDENTIAL
FOR YOUR INFORMATION
July 10, 1940
To :
The Secretary
From:
Mr. Young
Colonel MacMorland advised me late this evening that
the Finnish ship now being held in New York with the
3,250,000 rounds of 9 mm cartridges for Sweden also has
on board 2 million rounds .45 calibre ammunition from
Remington, and 33,000 gas masks, all destined for Sweden.
Py.
255
FEDERAL RESERVE BANK
OF NEW YORK
July 10, 1940.
Mr. H. Merle Cochran,
Technical Assistant to the Secretary,
Treasury Department,
Washington, D.C.
Dear Mr. Cochran:
Enclosed is copy of the cable from the Bank
of England (No.692/40, dated July 10, 1940), which I
read to you over the telephone this afternoon.
Yours faithfully,
Allan Sproul,
First Vice President.
Enc.
10 THE SECREIMBA
THA ЗАОИНОЭТ
are 10 3231770
82 SI M9 11 JUL one
IBEVENSA BECEMED
cre 108 a pay -
Mr. Cochran
EDERAL RESERVE BANK
INFORMATION COPY FOR
OF NEW YORK
25
INCOMING CABLEGRAM-SERIAL NO.
4547
RECEIVED july 10,1940
London, July 10, 1940.
Federal Reserve Bank of New York
New York
No. 692/40 CONFIDENTIAL POR SPROUL
Before we proceed with our arrangement for the
transfer into the name of His Britannic Majesty's Government
of British Government funds held by United tates Commercial
banks in the name of London banks, shall be glad to know
whether arrangements with yourselves as set out in my No. 586/40
have been completed.
Catterns
Senk of n/land. n
YR.
10 10.11
TOT
TO 9 M9 JUL ONE
E.,
NY Post 52 Test correct
JUL ONE
+
ABLE DIVISION
Regraded I Unclassified
257
July 10, 1940
Dr. Pois
Mr. declaran
A cablegrom along the following lines is suggested:
"American Inlustry,
Lendon.
For Ambassader Kennedy
Reference is más to your exblegrams No. 1914, July 1, 7:00 p.m. mi No. 2025,
July 6. 3:00 p.m. sad to Department's No. 1645. July 6. 4:00 p.m.
Considering regularity at volume in which sald is now being shipped from
England to this continent 68 other vessels, this Government does not feel unreanted
in endeavoring to arrange to soquire title to gold abread and inport to to this
ountry on United States we ships as was done very exceptionally in the Vincennes
case.
The Treasury Department has not been consulted by American banks on any question
of canceling credits to the Lendon market and hesitates to nake say inquiry is the
premises pending the arrival of Sir Frederick Phillips."
76.mg
7.10.40
258
TELEGRAM SENT
JI
PLAIN
July 10, 1049
AMERICAN EMBASSY
LA BOURBOULE
44, tenth.
The Department is receiving numerous inquiries from
American citizens in regard to the status and protection
of their interests in France. These interests consist of
bank deposits, real and personal property including mer-
chandise on consignment and clains for merchandise de-
livered, and inheritances, insurance policies, accounts re-
ceivable, Et cetera, Please telegraph any information now
available which would be helpful to the Department in re-
plying to these communications and keep the Department
currently informed by telegram of important developments in
this connection, In particular are there any conditions
under which bank deposits or other funds such as cash
values of insurance policies and securities, proceeds of
Estates, accounts receivable, Et cetera, may be realized
and (a) Expended locally, or (b) transferred to the
United States? If so please specify conditions and procedure.
The
Regraded Unclassified
-2- #44, tenth, to La Bourboulg
The Department proposes to inform the appropriate
consular officer from time to time of specific Cases
brought to its attention in which American citizens have
interests in France, and to request him to investigate
and report the status thereof, and should occasion arise
to extend such protection to the American interests in-
volved AS may bE appropriate and frasible. have you any
suggestions or comment to make?
HULL
(RWM)
EU:LC:AIR
LE
EA FA SD DOA
SAME TO:
American Embussy, Paris, via Berlin ns No. 720.
Regraded Unclassified
200
July 10, 1940
4:32 p.m.
H.M.Jr:
Hello.
I. Zigar
Hoover:
Hello. Hoover talking, Mr. Secretary,
H.R.Jr:
How-do-you-do.
Fine.
M.M.Jr:
Mr. Hoover, I was talking to General Watson
today and asked them what they did about this
thing between yourself and me -- Signal Corpe.
He said everything was lovely.
(Laughs) Well, this is what happened on
the thing. He apparently talked to the
Signal Corps and then talked to M.I.D. and
O.N.I. I was in New York last week. When
I got back here on Tuesday, they had the
Intelligence conference here Tuesday morning
and I asked General Miles and General --
Admiral Anderson about it. They said they had
talked with Watson about It and Miles stated
that the thing that they had beer. doing was
monitoringthe radio end messages going in and
out abroad that had been largely of military
value. Well, I said that's just the thing
that we want to get a pooling of. I said,
it can't all be of military value. And he
said, well, they were not doing the actual
telephones at the present time. I said, all
right. I said, I want to have that cleared.
If you're not doing it, we will do it.
H.M.Jr:
Good.
5:
I said, we must have a pooling of the infor-
mation and I said, in regard to these messages
that have gone back and forth, I eald, I would
like to have you check back and make certain
that there's nothing In those messages of a
commercial or a subversive character that we
should have.
R.X.Jr:
Right.
Regraded
Unclassified
261
- 2 -
H:
In other words, however, I can't believe that
all of it was military, you know. And I
think that was Just more or lees of & -- an
alibi after the story got going pretty hot.
So now they're checking back and have assured
me they will get to me this week any material
that 18 of the economic type or of a subversive
type that has gone through on those messages.
H.M.Jr:
Well, now, let me ask you two questions.
H:
Yes.
H.M.Jr:
You are now covering the telephones.
H:
Yes. Yes, we're going to do that.
H.M.Jr:
Oh, you're going to do that.
H:
It'll take us about a week to get that started
through the telephone company here.
H.M.Jr:
Well, I understand, because if you had had
that at the time you had this fellow -- that
man with those papers out in San Francisco
and others, you might have caught some good
telephone conversations.
H:
Well, as & matter of fact, we did catch
some calls.
H.M.Jr:
I know you did, but you caught them at the
San Francisco
H:
That's right and we don't know that they were
talking to New York or some other place
IIIII
H.M.Jr:
They might have called up New York on the
thing or anyplace.
H:
Right. Or they could have called New York
and asked them to send a message abroad by
short wave you know.
H.M.Jr:
Right.
H:
And we didn't have that. All we had was the
San Francisco angle.
262
- 3 -
H.M.Jr:
But you have got the telephone -- the
privilege now.
H:
Yes, we have and we'll have that done
within the course of this week.
H.M.Jr:
Well, I was just checking up because I
promised to get you that.
Hi
Yes, well, I certainly am happy, because
if it hadn't been for you there would have
been all of that needless red tape. Now
there's another matter that has just been
clarified and that's this
H.M.Jr:
Will you wait one second?
H:
Oh, yes, sure. Sure.
H.M.Jr:
I don't understand what you mean that they've
monitored the wireless. What wireless are they
monitoring?
H:
They're trying -- are monitoring the messages
that go out -- the Signal Corps have been
monitoring these messages that go out as to
the wireless radio messages that are sent
out from the stations at New York to these
foreign countries.
H.M.Jr:
Oh, you mean, all messages.
H:
All messages, yes.
H.M.Jr:
Not just particularly this
......
this
H:
No, no, not just/particular network. Well,
of course, they were more interested in anything
that was going to that particular country or
coming from this particular place here.
H.M.Jr:
I 800.
H:
Now, I'm checking into that also because the
President sent through a few days ago a request
to me to call a conference to find out exactly
and to get clarified if we can what's being
done relative to the checking of all of these
various radio communications.
Regraded Unclassified
4
H.M.Jr:
Right.
H:
That the Radio -- the F.C.C. have a fund of
a $1,300,000 for the purpose of doing some
of this stuff and apparently they are doing
it only on a very limited way and we are
getting no benefit of the information. Now
what I'm going to try to do 18 -- by Monday
or Tuesday and I was hoping that Mr. Gaston
would be back by that time, would be to have
him sit in and M.I.D., O.N.I. and State with
F.C.C. to, in order that we can be assured
that copies of all that material will be sent
to each one of the interested agencies, because
that's what's not being done.
H.K.Jr:
I see.
H:
And it's a thing that I think 1s B great
weakness in our whole procedure, 80 I'll have
that worked out in the course of this next
week and I will make 8 report to you about it
at that time.
H.M.Jrt
Well, I admired your nerve on the Panama
thing.
H:
How's that?
H.M.Jr:
I admired your nerve in connection with that
Panama incident.
H:
Well, we just had to act, you know. I got
tired of this procrestination and I finally
got action on Martinique, too.
H.M.Jr:
Did you?
H:
Yes, I sent a man out last night from Mient.
H.M.Jr:
Reslly.
H:
We were being delayed with the State Department
you know on that and they didn't know whether
they wanted it or whether they didn't went it
and finally I talked with Berle and I got him
to the point where he said that he'd have no
objection. So I decided that the thing to do
was to do it.
Regraded Unclassified
264
- 5 -
H.M.Jr:
Well, you know when I asked two weeks ago,
nobody knew about that.
H:
Exactly. Exactly.
H.M.Jr:
And we still don't know what's going on.
H:
No. We don't. In the first place there's
no consul down there, which is a bad set-up.
And another thing that I think is awfully
bad -- I was talking to a Consul General of
the State Department yesterday -- I imagine
he'd get into a hell of a Jam if they knew
it -- but they of course know the facts but
probably are not paying much attention to
it, and that is that in every one of our
Consulates abroad the clerk is a native of
the country in which the Consulate is located.
H.M.Jr:
That's right.
H:
And the reason for it 1s that you can get
in Germany a German clerk for $90 a month
whereas an American clerk would cost $2400
a year. But it seems to me we'd better be
spending some money along that line and get
real Americans in those places.
H.M.Jr:
I know and the other thing 18 -- the excuse
they give is on account of the languages.
H:
Yeah. Well, that's all poppycock.
H.M.Jr:
There oughtn't to be anybody in there but
101% U.S.
H:
Absolutely, because this Consul General said
to me, he said, I can't send any report over
here on any of these things because I have
nobody to dictate it to. And, he said, my
clerk happens to be a German and, he said,
this particular clerk said to him, please
don't ask me to do things because the day may
come when the Gestapo may summon me and demand
that I tell what I know and I want to be in a
position of not knowing anything. Well, that's
a hell of a situation, you know.
265
- 6 -
H.M.Jr:
Well, I was Just checking up because when
I start something, I usually
H:
Well, you certainly accomplished it.
H.M.Jr:
Right.
H:
Did you get that message I sent over that
came in from -- the instructions of the
Fuehrer, sent over to you yesterday -- a
very confidential one.
H.M.Jr:
Of the Fuehrer.
H:
Yes. The instructions he's issued to his
propaganda ministers.
H.M.Jr:
No. That hasn't come yet.
H:
I sent it over last night. It was an amazing
document.
H.M.Jr:
Well, a couple of envelopes came from you
which I was taking home tonight.
H:
Well, it probably will be in one of those.
H.M.Jr:
I read them at night.
H:
Yes. It's an amazing document, even more
startling than the so-called Zimmerman note
the last time, you know. And I will have
in the course of a week or ten days the
photostat of the original. I mean, he definitely
states what his intentions are here.
H.M.Jr:
Right.
H:
And I thought you'd be interested in it.
H.M.Jr:
Thank you 80 much.
H:
Good-bye. Thank you.
H.M.Jr:
Good-bye.
266
July 10, 1940
My dear Mr. Hoover:
This will acknowledge receipt
of your letter of July 2nd, contain-
ing further information concerning
Dr. Herbert Hoehne and Dr. Emil Wolff,
and your letter of July 3rd regarding
Vomenicio Trombetta and Generoso Pope.
Thank you for sending me this
material.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Mr. J. Edgar Hoover, Director,
Federal Bureau of Investigation,
Washington, D.C.
Regraded Unclassified
267
July 10, 1940
My dear Mr. Hoover:
This will acknowledge receipt
of your letter of July 2nd, contain-
ing further information concerning
Dr. Herbert Hoehne and Dr. Emil Wolff,
and your letter of July 3rd regarding
Vomenicio Trombetta and Generoso Pope.
Thank you for sending me this
material.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Mr. J. Edgar Hoover, Director,
Federal Bureau of Investigation,
Washington, D.C.
Regraded
268
July 10, 1940
My dear Mr. Hoover:
This will acknowledge receipt
of your letter of July 2nd, contain-
ing further information concerning
Dr. Herbert Hoehne and Dr. Emil Wolff,
and your letter of July 3rd regarding
Vomenicio Trombetta and Generoso Pope.
Thank you for sending no this
material.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Mr. J. Edgar Hoover, Director,
Federal Bureau of Investigation,
Washington, D.C.
Regraded
JOHN EDGAR HOOVER
DIRECTOR
H. gasten or Elines chey 260
Federal Bureau of Imentigation
Place speen
United States Department of Justice
Washington, B. C.
July 2, 1940
PERSONAL AND CONFIDENTIAL
12
SPECIAL MESSENGER
The Honorable
The Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
Mayor Fiorello LaGuardia has conferred with the
Special Agent in Charge of the New York City Office of
this Bureau with regard to Vomenicio Trombetta, who pub-
lishes the Italian newspaper Grido Della Stirpe. Accord-
ing to Mayor IsGuardia, Trombetta has exhibited a defi-
nitely pro-Fascist attitude in the editorial policies of
this newspaper and for this reason, the Mayor while in
Washington on June 24, 1940, spoke to the President con-
cerning Trombetta and proposed an appropriste investi-
gation be instituted of Trombetta's financial status and
activities, with a view to determining the source of the
funds used in operating the newspaper, it being Mayor
LaGuardie's opinion that a part of the finances of this
paper were contributed by the Italian Consulate in New
York City. Mayor LaGuardia expressed the belief that
Trombetta should be made to change his editorial policies,
since the newspaper mentioned, although a small one in New
York City, does tend to excite the Italian element in that
city to & rather dangerous extent.
Mayor LaGuerdia feels that an investigation in this
matter should be conducted for the purpose of determining
whether Trombetta has evaded payment of income taxes and
that depending upon the results of this investigation
appropriate efforts should be made to change the attitude
of Trombetta. According to Mayor LaGuardia, the President
gave his approval to this idea and suggested that the
matter be discussed with a representative of the New York
Office of this Bureau.
270
The Secretary of the
- 2 -
Treasury
Mayor LaGuardis has also called attention to a
similar pro-Fascist attitude exhibited by Generoso
Pope, the publisher of an Italian newspaper in New York
City. He is of the opinion that arrangements should be
made for an investigation based on the income tax re-
turns submitted by Pope beginning with those submitted
for 1937.
Mayor LeGuardia has expressed a desire to dis-
cuss these matters with the Agents assigned to the in-
vestigations prior to the time that they initiate
efforts along the lines suggested. I might state that
Mayor LaGuardia has exhibited considerable interest in
this matter and appears very anxious for investigation
to be initiated.
I am instructing the Special Agent in Charge of
our New York Office to advise Mayor LaGuardia that his
requests have been referred to you for consideration.
Sincerely yours,
I Edgar Hoover
Regraded Inclassified
271
JOHN EDGAR HOOVER
DIRECTOR
L Clince suy
Federal Bureau of Investigation
United States Department of Justice
Washington, D. C.
July 3, 1940
PERSONAL AND CONFIDENTIAL
BY SPECIAL MESSENGER
The Honorable
The Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
I am transmitting herewith for your
information a copy of a memorandum dated July
3, 1940, containing additional information
with regard to the matter entitled "Dr. Herbert
Hoehne; Dr. Emil Wolff; Registration Act;
Espionage."
Sincerely yours,
1. Le. Hower
Jine John Edgar Hoover
Director
Enclosure
July s, 1940
Res Dr. Karbert from
Dr. Mail Walfr
Registration set
Explonage
Information YOU received en the ovening of July 2, 1940, so
the effect that the Tambal Hare arrived at Balbon, Canal Seas, -
July 2, 1940. where 10 was promptly bearded by Customs officials,
Military Intelligence officials, Givil Intelligence officials, Incl-
gration officials, and in Agent of the Federal Burean of Investigation.
the statement of m. Welfr was entered, where the steams
trusk une located, Dr. Valiff and the trunk being taken ashoro. the
trank essisined a diplematic seal, although Dr. Velff we only 08.777-
ing & regular passport reflecting M diplematic status. The dipio-
natic coal vas broken and the trank epend by Quatems efficials is
connection with & sewrch for marcetion, and the material described
is the letters and documents taken from Dr. Sostme's personsion wire
found in the trusk appareably intest, - as the diplematic
onal had not is any way been tempored with. At the time the Tankuri
Mare use bearded, the reasel vas in American vaters, and Dr. Welff
VM monatered by the officers and identified while es the
the commins froms is the trust are very volumines and are being
repreduced photographically and photociatically, and will be forwarded
to Vanhington W air express.
Dr. Velff had is Ms presention A letter addressed *We
Vasa It May Concern", dated to 19, 1940, mL signed by limits
Leper, Cheaseller of the German Commulate General is San Francisco,
California, valid letter reflects that Dr. Welff has is Ms presso-
sion 6 12mk hearing the diplematic canl of the Derlin foreign Office
and that this trusk is in the enstedy of Dr. Welff as diplematic
courier from fall Francisco, California, to Valparaise, Chile. Dr.
Welff admitted that he is carrying the trank 60 instructions from the
Garman Concel at tab Francisco, California, to Valparates, chile.
Dr. Velff is presently wing temperarily hald by the Das-
temo officials is commention vith & respicted of having violated
marcette leve.
Regraded Unclassified
273
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 10, 1940
TO
Secretary Morgenthsu
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
At 10:30 this morning I spoke by telephone with Mr. Pinsent, Financial Counselor
at the British Embassy. I referred to the information which I had given him yesterday
concerning the license which had been issued covering branches in Spain of the Credit
Lyonnaie. end I supplemented this with further data which had been provided as by
Mr. Pehle. Mr. Pinsent thanked us for the information. He realized the insignificant
amounts involved and was making this point in hie cablegram to his Government.
With reference to Pinsent's representations in regard to Denmark obtaining the
release of funds blocked in New York with the view to paying interest on loans from
Sveden, I told him that I had discussed this question at our Exchange Control group
meeting last evening. No one of us recalled having seen applications for transac-
tions of the type under reference. We would, however, be on the lookout for such
applications and had noted carefully the interest of the British Government therein.
C i told him, however, that he should not press the point which he raised yesterday,
t told Pinsent that the foregoing should be the basis of his renly to his Government.
questioning whether we would follow the British suggestions entirely, or whether ve
would refer the applications to the British Embassy for advice in case they are re-
celved. I made it clear that we could not go on record as admitting the privilege of
a nonblocked country's representative being consulted with respect to the applications
concerning the assets of a blocked country.
B.M.P.
Regraded Unclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 10, 1940
TO
Secretary Morgenthau
FROM Xr. Dochran
STRICTLY CONFIDENTIAL
Late yesterday evening the Federal Reserve Bank of New York telephoned the text
of cablective No. 2 to Mr. Loree of the Guaranty Trust, and of his proposed answer to
London on the matter of Fritish exchange regulations designed to dry un the free
stirling merket in New York. Copies of these documents were distributed to the
interested officers, including Kr. Livesey in the Department of State. Similar din-
wibution had been mode of the memorandum handed to DE on July E by Mr. Pinsent,
quoting a coblegram from London on the subject of British exchange policy, particu-
larly with respect to "ragistered accounte". After conversations this forenoon by
telechone with Measrs. Pinsent, McKeon and Livesey. and after discussion in our
I telephoned Mr. McKeon at noon in regard to the Loree cablegrams. I
told Rr. McKeon that it WBE the feeling here that there WP.8 no objection to Loree's
realy going out are drafted. McKeon should, therefore. tell Mr. Loree that the
Trensury did not find any reason to question his message. Furthermore, Kr. Helcon
YES to let him know that the Treasury Department WBS in touch with the British
Saborey and WAB doing everything it could to are that our people obtain fair treat-
sent under the new exchange plan. I told McEeon that the copy of the Pinsent memo-
which I had sent hix was for the Federal's confidential information, and not
for the Loree Committee.
At 12:40 I spoke again with Mr. Pinsent by telephone and told him that the
following could be considered R9 the Treasury's reply to the mercage which he bed
delivered to us on July 8:
"The Secretary of the Treasury thanks the Chancellor of the Exchequer
for his DESSAGE of July 5 and for keeping him informed on the question of
exchange policy involved therein. The Secretary has no new comments to
maice on this policy.
"If WE should, however, have any complaints from American interests
resulting from the operation of this new plan, some agects of which are
not entirely clear from the message under reference, we naturally reserve
the right to present them."
While I told Pinsent that the first paragraph above quoted WES our offi cial
rever, I felt that he should have the observations made in the second paragraph
<1so, He indicated that he would like to cable the second paragraph also, to which
CE received from London was somewhat obscure and sharing our desire to settle
I agreed. Be seemed entirely satisfied with the reply. admitting that the message the
catter vithout further exchange of correspondence, since this question has already
Seen the subject of negotiation through so many different channels,
Regraded Unclassified
275
- 2 -
Mr. Pinsent asked in connection with the above matter as to whether there was
anything further to do on the complaint of our rubber importers in regard to British
application of recent exchange orders. I told Pinsent that it had been my under-
standing that the two messages which he had shown ne recently as coming to his from
London were for our information, and required no reply on his part. I told him that
ressages exchanged between the Loree group and London seen to indicate that his
Government had taken 8 definite position in the premises. I told him that ve would
not raise the question for the present, but that we might have some word from our
Embasay in London or from the interested importers in New York, directly or through
the Federal Reserve Bank or the State Department. which might cause us to bring the
subject to the Embassy's attention again.
When I had spoken with Mr. Livesey in regard to the Loree cables and the mos-
sage of July 5 from London, question of the rubber importers was also revived.
Kr. Livesey and I agreed that the question of treatment of the rubber people had
been very thoroughly and fairly talked out recently and that there seemed no justi-
fication for further representations on our part at this time. We have had certain
reservations in our minds for some time in regard to any losses which the rubber
people may suffer, and the State Department has not received very convincing proof
from the rubber people on this point. We have, however, both directly end through
the Embacay at London, made representations toward receiving fair treatment for
American interests.
Since we are sympathetic with the idea of the British eliminating the free
sterling rate as far as possible and holding a steady official rate, ve obvioualy
should not block such 8. policy except for very good reasons. Ve have had no objec-
tions to the present British policy from any importers other than the rubber group.
Those American interests fearing competition from imports in depreciated sterling
should naturally be quite pleased with the arrangement now being consumnated,
B.M.S.
Regraded Unclassified
276
No. 652
Santiago, July 10, 1940
Subject: Blocked funds of Belgian Minister to Chile.
The Honorable
The Secretary of State,
Washington, D. C.
Sir:
I have the honor to report that the Belgian Minister
to Chile. M. Maxime Gerard, has requested information or
assistance with regard to his funds on deposit with the
Banque Belgique pour l'Etranger (Overseas) Ltd., 67 Wall
Street, New York City. X. Gerard on June 27 issued his
check No. 14031 to the order of Steinsepir, a Santiago
broker; and the bank has stated that it cannot pay out
the funds which it is holding to X. Gerard's credit.
If the Department can furnish aid or suggestions I
should greatly appreciate & response by air mail at the
earliest possible moment. M. Gerard appears to be loyal
to the Belgian Government still allied with England,
assuming such a. Government to be in existence.
Respectfully yours,
CLAUDE G. BOWERS
WF:bkr
COPT
Regraded Unclassified
277
ATP
GRAY
ROME
Dated July 10, 1940
Rec'd 3:10 p.m.
Secretary of State,
Washington.
707 July 10, 5 p.m.
My telegram No. 693 July 6,8 p.m.
Today Senator Giannini handed me the following
memorandum. "The Italian Government has órdered the
payment in non transferable lire of the bonds placed abroad
as regards the maturities falling due beginning with
June 10 this being due to the material impossibility of
transfer of exchange. As soon as the difficulties which
have led to this measure are Eliminated regular transfer
of the lire will bE provided for,
It must be pointed out that Italy has always
regularly net its engagements. The present step has been
distated by the present exceptional situation of an
absolute lack of influx of foreign exchange."
PHILLIPS
CSB
Regraded Unclassified
July 11 1940
Conference Held in the Secretary's Office - Wednesday, 12 o'elock
Present: Secretary Morgenthau, Mr. Forestall, Mr. White
Mr. Forestall called to learn what the Secretary was willing to
do in the way of making stabilization loans to Latin American coun-
tries. The Secretary told him that he was prepared to make gold loans
to appropriate Latin American countries for the purpose of strengthen-
1ng their monetary system and to help stabilize their currencies. He
stated that he was also willing that the countries with which such
arrangements were made should be permitted to keep the gold or silver
used for stabilization purposes in their own central banks or treas-
uries if they so desired. An essential condition of such loans, the
Secretary added, was that the Secretary of the Treasury would have to
be in charge of all the arrangements made involving use of the stabi-
lization fund, in order to make certain of adequate protection to
the fund.
The Secretary also referred to the plan which had been proposed
with Brasil two years ago. He told Mr. Forestall that he would be
glad to make the material bearing on the proposal available to
Mr. Forestall for examination.
Mr. Forestall asked the Secretary whether, in his opinion, it.
were better for an American yeast company, which proposed to spend a
half million dollars for the construction of a plant in Brasil, to
utilize dollars obtained here or milreis obtained in Brazil. The
Secretary indicated that if there were a choice between using local
capital and foreign capital that it might be better to tap the dollar
market and leave the local capital market free for other uses. This
assumed, of course, that the question of ownership of the plan was not
at issue.
HPW
Regraded Unclassified
279
RDS
GRAY
Berlin
Dated July 10, 1940
Rec'd 6:30 p.m.
Secretary of State,
Washington.
2667, July 10, 3 p.m.
FOR TREASURY FROM HEATH AND ALSO FOR THE INFORMATION
OF THE DEPARTMENT.
The German press has announced the establishment of a
new central bank in Belgium to replace the former Banque
Nationale. The Societe Generale will assist in the Esta-
blishment of the new bank. The banks have published an
appear to the public to bring back hoarded notes which are
said to amount to many hundred millions into circulation
as otherwise, it will bE necessary to issue large amounts
of new notss. In one newspaper article it is claimed that
approximately five billion france of currency have been
taken out of Belgium by refugees. Negotiations are said to
bE under way for the establishment of a postal check clearing
system in which the newly established central bank will also
play a role.
KIRK
EMB
280
MA
TELEGRAM SENT
PLAIN
July 10, 1940
AMERICAN EMBASSY
BERLIN
1906, tenth.
Treasury states allowance at rate of $1200
per year is granted Heath for fiscal year beginning
July 1, payable quarterly in advance. Does Heath
prefer that a check be deposited quartarly with his
bank in the United States or that arrangement bE
made for payment through the Embassy? Please give
a reply indicating bank in United States if first
alternative is preferred. STCOR.
HULL
BL
EA:FL:MSG DA
(Text supplied by Treasury).
Regraded Unclassified
281
MA
TELEGRAM SENT
PLAIN
July 10, 1940
AMERICAN EMBASSY
LA BOURBOULE (FRANCE)
49, tenth.
Treasury states allowance at rate of $1200
per year is granted Matthews for fiscal year beginning
July 1, payable quartarly in advance. DOES Matthews
prefer that a check bE deposited quartarly with his
bank in the United States or that arrangement bE
made for payment through the Embassy? Please give
a reply indicating bank in United States if first
alternative is preferred. STCOR.
HULL
(BL)
EA:FL:MSG DA
(Text supplied by Treasury).
Regraded Unclassified
July 10, 1940.
28L
the Secretary of the Treasury:
On Tussday afternoon, July 9th, I conferred
at length with Admiral Stark, Chief of Naval Opera-
tiems, regarding the national defense program for
the Coast Guard outlined in your letter to the
Director of the Budget, forwarded this date, going
over item by item the entire program, and Admiral
Stark gave his unqualified approval to each item
and to the complete program, stating in effect that
there vas no question of the fact that the facili-
ties of the Coast Guard should be immediately
increased as set forth in your letter to the
Director of the Budget in the interest of national
deforms. A photostatic copy of a surary of the
national defense program of the Coast Guard, showing
the signature of Admiral Stark in approval of all
item, is attached hereto.
In view of Admiral Stark's strong approval I
have prepared & letter to the Director of the Budget
supplementing your letter of July 9, 1940, advising
the Director of the Budget of the approval given by
the Chief of Naval Operations to the request of the
Secretary of the Treasury for immediate expansion of
the facilities of the Coast Guard in the interest
of National defense. This letter 1s forwarded here-
with for your signature.
R. R. WASSCHE.
Regraded Unclassified
283
CO-F-0161 (7/10/40)
10 July 1940
The Director,
Bureau of the Budget,
Washington, D. C.
Sirt
Supplementing my letter of July 9, 1940, in which request was made
for imediate consideration of the national defense progrem for the
Coast Guard set forth therein, you are advised that on Tuesday, July 9th,
the Commandant of the Coast Guard conferred with Admiral Harold a. Stark,
U.S.N., Chief of Naval Operations, and discussed in detail every item
for which I requested that funds be made available at the earliest
practicable date. Admiral Stark gave his unqualified approval to each
item and to the entire program as being imediately required in the in-
terest of national defense.
A photostatic copy of a sussery of all items contained in my letter
to you of July 9, 1940, with the funds required, showing the signature
of Admiral Stark approving the complete program, is inclosed herewith.
Very truly yours,
H Morgenthan. Jr
Secretary of the Treasury.
Inclosure.
Regraded Unclassified
SUBARY OF FUMOS REQUIRED AT THE EARLIEST
PRACTICAL DATE BY THE COAST GUARD
1. Training of officers and :
Training facilities for enlisted usa, $1,000,000
Coast Guard Academy,
800,000
-1,800,000
2. Additional shore facilities:
itadio stations,
$1,835,410
Part Angales Air Station, extension, .
278,000
$2,113,410
J. Facilities for repair and construction of vessels:
Coast Guard Depot-
(a) Floating drydosk,
730,000
(b) Two shipmys,
910,000
(e) Buildings and familities
655.700
2,295,700
4. Additional remaine
Three outters, HAMILTON alass,
10,300,000
Four harbor culters, for inebreaking,
1,400,000
Cable bosts,
1,100,000
Custor for duty in Orwenland,
2,250,000
Sixty outtare, 78-foot class,
4,500,000
19,750,000
3. Impresse of 2,500 in the enlisted complement of the
Cosst Guard,
3,040,660
6. Margenzy fund for Secretary of the Treasury,
5,000,000
7. Punda for administrative expenses in consection with
the entire program,
1,500,000
TOTAL,
35,499,770
TRAINING DE OFFICERS AND -
$1,800,000.
Training familities for milleted - $1,000,000.
the Coast Guard has only askeshift training stations at fills Island,
New York) Korfelk, Virginia; Port Trunball, Connectients Curtis Day, Maryland;
and Port Landerdale, Floriday all of which are totally inadaquete. the
buildings at Port Trentfull are frame buildings, heatily constructed during
the first World Tar. These buildings are entiraly inadequate, medital,
dilapidated, and a fire lessed. At Tills Island, the Imigration Service
allosted & space to the Coast Quard-- askeshift arrangement-stally unsulted
smiting deportation, any of are diseased and This space smile
for the purpose. Coset Guard trainess are trained alongaide of indgrants
more to supervise the loading of explosives, as there is no other space in la about- Tork
appropriately De used to quarter the enlisted - used in See Tork Market
DOW available to house these san. AL Norfolk, the Coast Guard is using
285
JR
PLAIN
London
Dated July 10, 1940
Rec'd 1:13 pam.
Secretary of State,
Washington.
2094, July 10.
FOR TREASURY PROM buttenforth.
Further financial blackout is revealed today in the
publication of the Exchequer returns for the first six
days of the second quarter of the fiscal year. What looks
like = mechanicm for concerling inflation in evident
i.1 = new form which omits the figures showing the make-up
and volume of the floating debt 20 well as all details as
to how the deficit was financed by different borrowing
methods (auch as those quoted for the quarter ended
June 30 in the second part of ay No. 191,3 of July 1). Only
= blanket figure Equal to the deficit is given for net
issues of money reised by the orgation of debt. However,
SOITE indication of total savings will DE available in the
weekly figures for national savings certificate bales,
subscriptions to baby defence bonds and 2-1/2 per cent
"on tap" bonds and loans free of interest. The TIMES
city editor's Inconic comment is that the step "is scarcely
calculated to help investors to the fuller realization
which
286
-2- 72084, July 10, from London.
which Sir Kingsley Yood is apparently BC anxious they
should have." (SEE my No. 2076 of July 9). THE FINANCIAL
NEWS referring to its prediction that changes in the
form of returns TETE likely states "there is no doubt that
the measures 110W adopted go far beyond the city's
expectations and are greatly to be deplored. The city
must ramin to C large extent in the darit CD to the success
of official efforto to cover the gan between revenue and
expenditure by attracting savings. From this it follows
that it will no longer be possible for = close watch to
be unintained to DEE that inflationary tendencies are
kept within bounds. The DAILY TELEGRAPH financial Editor
contrants that "ths innovation leaved = blank in the accounts
which is a retrograde step". THE DAILY HAIL states,
"supprtasion of this vital information will not bE welcomed
by the city". The city editor of THE DAILY HERALD says,
"I thirk it 10 = pity that the Treasury should thus hide
its head in WIE cand'. THE NEWS CIRONICE city sditor
states, "the heavy hand of censorship no. fallen on the
weekly EXCHEQUER return. Will this obscurantim: hElp the
war effort? I CA confident it will not". Though Sir
Kingsley Mood 22 quoted in my No. 2076 of July 9 stated
that texation must be == high C.O. pessible and must cover
the widest pessible field, it SEEMS likely that labor's
atiff
Regraded Unclassified
287
-3- #2094, July 10, from London.
stiff opposition to the purchase tax is a strow in the
wind indicating that any substantial taxation of the
working man vill be as politically impossible as a
compulsory savings schene. The only alternatives are
(c) a cumbercome and costly extension of rationing to a
field comprthensive enough to push voluntary savings to
much higher figures, or (b) an inflationary price rise of
no maan proportions. If inflationary trends are to bE
concealed by suppression of published details the
presumption SEEMS justified that alternative (b) is
regarded as
inevitable-at least to 2 degree
which would DE unpalatable if evident weekly in the
EXCHEQUER returns. ThE setting in which the new budget
is now being fromed nay bE BEEN from the following: with
expenditure nov at the rate of pounds 3,500 million per
annum no compared with Simon's Sudget estimate of pounds
2,887 million only pounds 1,234 million of which was
provided for by texation, the SCP to be filled even if
Expenditure does not increase is well over pounda 2,000
million. The weekly average intoke from savings
certificates and baby bonds in the six WEEKS May 25 to
July 6 was about pounds 11 million--or at C. rate of
pounds 572 million per canus while subscriptions to 2-1/2
per cent on tap war bonds in the first WEEK of their sale
was
Regraded Unclassified
288
-4- #2094, July 10, from London.
WAS pounds 61 millioni Around what WEEKLY average the
from these bonds will gettle down to cannot bE
predicted--but if say a weekly average of pounds 10 million
is taken the total from these three sources in a year
would run to about pounds 1,100 million leaving a gap
of nearly pounds 1,200 million to be filled (a) by new
and increased taxes, (b) by further issues of war loans
and (c) behind the scenes through ways and means advances,
tap Treasury bills and the new deposit receipts.
KENNEDY
CHI
Regraded Unclassified
289
AS
GRAY
Zurich
Dated July 10, 1940
Rec'd 8:10 a.m.
Secretary of State,
Washington.
158, July 10, 10 a.m.
Referring to Department's telegram 190, eighth.
According to a gentlemen's agreement between Swiss National Bank
and banks in this country foreign exchange 1e being released since May 15
to individuals of firms domiciled in Switzerland for import payments only.
Funds of persons or firms domiciled in foreign countries deposited in
Swiss banks prior to May 10th are not (repeat not) subject to transfer
restrictions. Transfer of such funds deposited subsequently requires
authorization of Swiss National Bank. This restriction does not (repeat
not) apply to American or other foreign banks which may still transfer
funds freely. Transfer of interest on securities is not (repeat not)
restricted. Foreign exchange granted liberally to emigrants and for
remittances to relatives residing abroad.
The only legal restrictions concern transfer of funds to Belgium
and possessions, Denmark, France, (possessions, colonies, protectorates,
and mandates) Luxembourg, Netherlands exclusive possessions, and Norway.
Payments to the aforementioned must be made through the Swiss National
Bank. The right of disposal of property situated in Switzerland or
administered for the account or on behalf of persons or firms domiciled
in above countries is likewise restricted.
ALTAFFER
WSB
COPY
Regraded Unclassified
250
THE COMMANDANT OF THE UNITED STATES COAST GUARD
WASHINGTON
10 July 1940.
MEMORANIUM FOR - The Secretary of the Treasury
With reference to Cosat Guard matters recently discussed
with you, I have to advise as follows:
1. REGARDING COAST GUARD NATIONAL DEFENSE ESTIMATES - $35,499,770:
I discussed these estimates with Admiral Stark and he approved
all of them - in the insterest of national defense - and wrote his
name across the bottom of the estimates to indicate approval.
A.
photostat copy of the estimates, with his signature, will be trans-
mitted to the Bureau of the Budget through your office.
2. REGARDING TRANSFER OF THE BUREAU OF MARINE INSPECTION AND NAVIGATION:
Both Admiral Stark and Admiral Land have replied to your letters,
approving in toto the reorganization plan submitted as being "sound in
principle and that it is distinctly in the interest of national defense".
& letter is being prepared for your signature again trabsmitting the
reorganisation plan to the Bureau of the Budget, with photostat copies
of the letters from Admiral Stark and Admiral Land.
3. REGARDING EQUIPPING COAST GUARD STATIONS FOR DEFENSE AGAINST HOSTILE
AIRCRAFT AND SUBMARINES:
I have discussed this thoroughly with Admiral Stark. He suggested
that I write him a letter outlining the plan, which he would take up
with the Joint Army-Navy Board. This has been done.
4. REGARDING PROPOSED LEGISLATION TO SEVI-MILITARIZE THE COAST GUARD
RESERVE FOR USE IN CARRYING OUT NEUTRALITY DUTIES, PARTICULARLY CAPTAIN
OF THE PORT DUTIES RECENTLY ASSIGNED TO THE COAST GUARD AS A RESULT OF
THE PRESIDENT'S PROCLAMATION:
This was discussed with Admiral Stark, and he requested that -
submit to him a copy of the proposed bill for study. This will be done
within the next day or two,
prevanche
R. R. WAESCHE
Rear Admiral, U.S. Coast Guard,
Commandant.
Regraded Unclassified
292
Regraded Unclassified
CONFIDENTIAL
10 July 1940.
FOR - The Decretary of the Treasury
with reference to Coast Ouard matters recently discussed
with you, I have to advise as follows:
1. REGARDING COAST GUARD NATIONAL DEFENSE ESTIDATES - 035,497,770
I discussed these estimates with Admiral Stark and he approved
all of than - in the insterest of national defense - and wrote his
name across the bottom of the estimates to indicate approval. A
photostat copy of the estimates, with his signature, will be trans-
mitted to the Sureeu of the Budget through your office.
2. REGARDING TRANSFER or THE BUREAU OF MARINE DESPECTION AND INVIDATION
Both Admiral Stark and Admiral Land have replied to your letters,
approving in toto the reorganization plan submitted as being sound in
principle and that it is distinetly in the interest of national defense".
A letter is being prepared for your signature again trabsmitting the
reorganization plan to the Buresu of the Budget, with photostat copies
of the letters from Admiral Stark and Addral Land,
so REGARDING BQUIPPING COAST GUARD STATIONS FOR DEPENSE AGAINST HOSTILE
AIRCRAFT AND SUBMARINES:
I have discussed this thoroughly with Admiral Stark, He suggested
that I write him a letter outlining the plan, which he would take up
with the Jodnt Amy-May Board. This has been done.
be REGARDING PROPOSYD REGISLATION TO SEMI-MILITARIZE TIP COAST GUARD
USIRVE FOR USE IN CARRYING OUT NEUTRALITY DUTIES, PARTICULARLY CAPTAIN
OF THE PORT DUTIES RECENTLY ASSIGNED TO THE COAST GUARD AS A RESULT OF
THE PRESIDENT'S PROCLAMATIONs
This was discussed with Admiral Stark, and be requested that TO
mubedt to him a copy of the proposed bill for study. This will be done
within the next day or two,
R. R. WARSCHE
Rear Adairal, U.S. Coast Duard,
Commendant.
292
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 10, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
Mr. Lewis Clark, who handles the French and Belgian desks in the Department of
State, telephoned me this noon the substance of the attached cablegram sent from our
Ambassador Cudahy to Brussels, via the American Embassy in Berlin. After speaking
with Mr. Bernstein, I told Mr. Clark that the Treasury felt that the suggestion made
with respect to a procedure for foreigners to destroy their American securities in
the presence of officials who could testify thereto was certainly equally applicable
to American citizens if they desired to have recourse thereto. We entirely approved
of the idea that American consular officers should perform the notarial service,
without requesting local officials to act as intermedieries, when it is a question
of dealing with the property of American citizens.
B.M.P.
Regraded Unclassified
293
EH
PLAIN
Berlin
Dated July 9, 1940
Rec'd 3:11 p.m.
Secretary of State,
Washington.
2615, Ninth.
From Brussels.
187, Fourth.
With reference to the Department's telegram No. 64
May 13, 1 a.m. recommend that Treasury authorize a procedure
for American citizens similar to that proposed for the
Netherlands and Belgian nationals. Under existing circum-
stances it would probably be preferable to have American
consular officers act as witness. Matter pressing.
Immediate reply requested. In a few days I believe such
procedure will no longer bE practicable. Cudahy.
CSB
KIRK
Regraded Unclassified
294
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 10, 1940
TO
Secretary Morgenthau
CONFIDENTIAL
FROM Mr. Cochran
The foreign exchange market was dull today. Sterling opened at 3.77 and
remained near that level until mid-afternoon. It subsequently moved off and closed
at 3.74.
Sales of spot sterling by the six reporting banks totaled L172,000, from the
following sources:
By commercial concerns
1 29,000
By foreign banks (Europe, South America and Par East)
L143,000
Total
L172,000
Purchases of spot sterling amounted to L147,000, as indicated below:
By commercial concerns
L111,000
By foreign banks (Par East and Europe)
1 36,000
Total
L147,000
Sterling in the amount of 13,000 was purchased from the British Control at the
official rate of 4.03-1/2 by the following banks:
L2,000 by the Guaranty Trust Company (for whisky)
1,000 by the Irving Trust Company (for paddles)
13,000 Total
The other currencies closed as follows:
Swies franc
.2267
Canadian dollar
14-5/8% discount
Lira
.0505
Reichsmark
.4004
Cuban peso
9-15/16% discount
Mexican peso
.1990 bid, .2025 offered
We purchased $700,000 in gold from the earmarked account of the Central Bank of
the Colombian Republic.
The State Department forwarded to us a cable stating that the following shipments
of gold would be made from England, all of which are for sale to the U.S. Assay Office
at New York:
$1,210,000 shipped by Sharps and Wilkins, London, to the First of Boston International
835,000 representing sir shipments from London to various New York commercial banks.
Corporation, New York.
$2,045,000 Total
Regraded Unclassified
295
The Federal Reserve Bank of New York reported the following shipments of gold:
From England, shipped by the Bank of England
to the Federal Reserve Bank
$25,015,000 to be earmarked for account of the Bank of England.
3,149,000 to be earmarked for account of the National Bank of the Kingdom of
Tugoslavia.
1,046,000 for account of the Royal Norwegian Government, disposition unknown.
1,015,000 to be earmarked for account of the Swiss National Bank.
819,000 for account of the Bank of Finland, disposition unknown.
392,000 for account of the Bank of Portugal, disposition unknown.
Other shipments, for sale to the U. S. Assay Office
$14,580,000 from Canada, representing three shipments by the Bank of Canada for its
own account to the Federal Reserve Bank.
80,000 from England, shipped by the Guaranty Trust Company, London, to its
head office at New York.
18,000 from Ceylon, shipped by the Eastern Bank Ltd. to the Guaranty Trust
Company, New York.
$46,114,000 Total
The report of July 3 received from the Federal Reserve Bank of New York giving
the foreign exchange positions of banks and bankers in its district, revealed that
the total position of all currencies was short the equivalent of $14,349,000, & de-
crease of $4,012,000 in the short position. The net changes in the positions are
as follows:
Short Position
Short Position
Decrease in
Country
June 26
July 3
Short Position
England
$ 5,315,000
$ 2,276,000
$3,039,000
Europe
8,465,000
7,484,000
981,000
Canada
124,000 (Long)
39,000 (Long)
85,000
(Decrease in
Long Position)
Latin America
170,000
243,000
73,000 (Increase)
Japan
3,686,000
3,502,000
184,000
Other Asia
880,000
862,000
18,000
All others
31,000 (Long)
21,000
52,000 (Incresse)
$18,361,000
$14,349,000
$4,012,000
The reduction of $3,039,000 in the starling short position of New York institutions
was almost entirely the result of e decrease in the commitments of one leading New
York bank.
The report from the Federal Reserve Bank of New York listing deposits for the
account of Asia as reported by the New York agencies of Japanese banks on July 3,
showed that such deposits totaled $38,516,000, an increase of $1,293,000 since the
last report as of June 26. Included in this total were $29,243,000 in deposits with
CONFIDENTIAL
296
- 3 -
the Yokohama Specie Bank, New York, made by its branches in China. As in the case
of the June 26 report, no funds were held by this bank for its head office and
Japanese branches on July 3. The overdraft of the head office and Japanese branches
on the books of Yokohama's New York agency was $63,915,000, a reduction of $2,216,000
since June 26.
The Bombay gold price was slightly higher at the equivalent of $33.81.
Spot silver in Bombay was equivalent to 43.97#, off 3/16#.
In London, the price fixed for spot silver was 21-15/16d, up 1/4d. The forward
quotation was 21-3/4d, a gain of 3/16d. The U.S. equivalents were 39.884 and 39.54#,
respectively.
Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44.
The Treasury's purchase price for foreign silver was also unchanged at 35#.
We made one purchase of silver amounting to 75,000 ounces under the Silver
Purchase Act. This consisted of new production from foreign countries, for forward
delivery.
16.mR.
CONFIDENTIAL
297
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 10, 1940
TO
Secretary Morgenthau
3:00 P.M. (Market Close)
FROM W. H. Hadley
2-1/4% TREASURY BONDS
Estimated
Offering
Market
Term
Yield
Price
Price
Premium
13 yr. 8 mo. - 15 yr. 8 mo.
2.12
100
101.17
1 pt. 17/32
(Mar. 15, 1954-56)
2.14
100
101.10
1 pt. 10/32
13 yr. 8 mo. - 16 yr. 8 mo.
2.14
100
101.10
1 pt. 10/32
(Mar. 15, 1954-57)
2.16
100
101.2
1 pt. 2/32
13 yr. 11 mo. - 15 yr. 11 mo.
2.14
100
101.10
1 pt. 10/32
(June 15, 1954-56)
2.16
100
101.2
1 pt. 2/32
13 yr. 11 mo. - 16 yr. 11 mo.
2.16
100
101.2
1 pt. 2/32
(June 15, 1954-57)
2.18
100
100.27
27/32nds
Regraded Unclassified
298
TREASURY DEPARTMENT
WASHINGTON
July 10, 1940.
MEMORANDUM FOR THE SECRETARY:
For the period October 26, 1939, through June 30,
1940, the Maritime Commission has approved transfer to
alien ownership of 43 vessels whose average age is 21 years.
The amount of money realized was slightly under $21,000,000.
This money has been ear-marked for new construction.
Seventy-nine vessels, average age over 23 years, have
been disposed of for about $21,000,000. These latter ships
are mostly coastal and inter-coastel vessels. Most of this
money will find its way into new construction.
Banil Karin
293
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE July 10, 1940
TO
Secretary Morgenthau
FROM
Mr. Haas MA
Subject:
Railroad freight movement for export.
Receipts of freight for export at New York declined
sharply last week, which included the Fourth of July holiday.
With a elight decline at 9 other North Atlantic ports, the
export freight receipts in the North Atlantic area were re-
duced by 926 cars to a total of 6,419. (See Chart 1 and
table attached.)
The volume of freight exported from New York last week
likewise showed B. sharp reduction from the high figure of the
previous week. (See Chart 2.) The number of carloads ex-
ported, according to our compilations, again failed by a
elight margin to equal the amount received for export, hence
the volume of lighterage freight in storage and on hand for
unloading at that port shows 8 slight further gain. (See
Chart 3.)
308
RECEIPTS OF FREIGHT FOR EXPORT AT NEW YORK
AND AT 9 OTHER NORTH ATLANTIC PORTS
Week ended
9 other North
1940
New York 1/
Atlantic ports 2/
Total
(
In carloads
)
February 3
4,274
1,498
5,772
February 10
4,617
1,590
6,207
February 17
3,974
1,637
5,611
February 24
4,550
1,667
6,217
March 2
4,577
2,388
6,965
March 9
4,059
2,448
6,507
March 16
4,072
1,845
5,917
March 23
4,424
2,033
6,457
March 30
4,150
1,492
5,642
April 6
3,979
1,551
5,530
April 13
3,957
1,866
5,823
April 20
4,133
1,557
5,690
April 27
4,346
1,248
5,594
May 4
4,255
1,522
5.777
May 11
3,793
1,619
5,412
May 18
4,165
1,583
5,748
May 25
4.794
1,826
6,620
June 1
5,071
2,361
7,432
June 8
4,888
1,698
6,586
June 15
4,726
1,852
6,578
June 22
5,334
2,557
7,891
June 29
5,323
2,022
7.345
July 6
4,548
1,871
6,419
1/ Source: General Managers' Association of New York, Daily
Report of Operating Conditions in New York Harbor.
2/ Source:
Association of American Railroads, Car Service
Division, Report of Carload Freight for Export
and Coastal Vessel Movement. Includes Searsport,
Portland, Boston, Providence, Philadelphia,
Chester, Wilmington, Del., Baltimore, and Norfolk
(or Hampton Roads).
RECEIPTS OF FREIGHT FOR EXPORT AT NEW YORK
AND AT 0 OTHER NORTH ATLANTIC PORTS
1939
1940
NOV.
DEC.
JAN.
FEB,
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
ocT.
CARLOADS
CARLOADS
THOUSANDS
THOUSANDS
5.5
5.5
5.0
5.0
NEW YORK
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
9 OTHER PORTS
2.0
2.0
1.5
1.5
1.0
1.0
.5
.5
o
0
28
11
25
9
23
6
20
3
17
2
16
30
13
27
11
25
8
22
6
20
3
17
31
14
26
12
26
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
1939
1940
Chart 1
301
Office of the Secretary of the Treasury
Division of Remarch and Statetics
c . 304 - I
Regraded Unclassi
CARLOADS OF FREIGHT EXPORTED FROM NEW YORK
1939
1940
NOV.
DEC.
JAN.
FED.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT,
OCT.
CARLOADS
CARLOADS
THOUSANDS
THOUSANDS
5.5
5.5
5.0
5.0
4.5
www.w
4.5
4.0
4.0
3.5
3.5
3.0
3.0
2.5
2.5
28
11
25
9
23
6
20
3
17
2
16
30
13
27
=
25
8
22
6
20
3
17
31
14
28
12
26
NOV.
DEC.
JAM.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
1939
1940
.
AS ESTIMATED FROM DATA or GENERAL MANAGERS' ASSOCIATION OF NEW YORK.
Chart 2
Office of the Secretary of the Treasury
Division of Ramarch and States
C - 308 - I
302
Regraded Unclass
LIGHTERAGE FREIGHT IN STORAGE
AND ON HAND FOR UNLOADING IN NEW YORK HARBOR*
1939
1940
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
ocT.
CARLOADS
CARLOADS
THOUSANDS
THOUSANDS
10
10
9
9
8
8
7
7
6
6
5
5
303
4
4
28
11
25
9
23
6
20
3
17
2
16
30
13
27
11
25
8
22
6
20
3
17
31
14
28
12
26
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
1939
1940
. LARGELY EXPORT FREIGHT, BUT ABOUT 10% REPRESENTS FREIGHT FOR LOCAL
AND COASTAL SHIPMENT. FIGURES EXCLUDE GRAIN.
500 Chart
Office of the Secretary of the Treasury
Division of Romarch and Statistics
0- 303 - 1
Regraded Unclass