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Volume 90, September 26 – September 30, 1937
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Volume 90, September 26 – September 30, 1937
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 90
September 26 - September 30, 1937
Regraded Unclassifie
Book Page
Appointments and Resignations
Collector of Internal Revenue, Minneapolis:
H/Jr will not accept Arthur Reynolds, recommended by Farley -
9/28/37
XC
85
- B -
Bids, Collusive or Identical
See Purchasing, Government
Black, Hugo (Justice, Supreme Court)
H/Wr tells Gibbons of his pleasure in the way landing was
handled - 9/30/37
186
Budget
Plans for savings in departments discussed briefly by H/Jr
at 9:30 meeting - 9/27/37
6
"Economy Plans" conference; present: HMJr, Oliphant, Gaston,
Hass, Bartelt: Bailey and Lawton, of Budget - 9/27/87
33
a) Two problems to be discussed: (1) revolving fund; and
(2) stretching public works funds over eighteen months
b) Telephone conversation between Bartelt and Mulligan
(Treasurer, Reconstruction Finance Corporation)
attached
65
HWr considering recomendation that Works Progress Administration
be turned over to Reconstruction Finance Corporation for
liquidation - 9/28/37
109
Jones and HMJr confer concerning Reconstruction Finence
Corporation budget for 1938 - 9/28/37
111
Federal Highway Act of 1921, as amended: Oliphent opinion as to
whether Secretary of Agriculture must obligate Federal
Government to pay out future money which has not, at the time
action is taken, been appropriated by Congress - 9/28/37
120
Public Works Administration and Reconstruction Finance
Corporation accounting and the difficulties of making it
agree discussed by HWr at 9:50 meeting - 9/29/37
139
Farm Credit Administration: Bell nemorandum on proposed
financing for November lst - 9/29/37
172
a) HWr talks to Myers - 9/30/37
176
Ickes favorable to economy move - so HMJr tells 9:30 group -
9/30/37
180
- E -
Excess Reserves
HWr suggests getting in touch with Federal Reserve Board when
calls are made on Mondays and Thursdays of next few weeks -
9/28/37
110
Regraded Unclassifie
- F -
Book Page
Farm Credit Administration
See Budget
Federal Highway Act
See Budget
Financing, Government
"The short dated debt": Lochhead-Harris memorandum -
9/28/37
XC
127
Burgess-HMr conversation concerning retirement of $500 million
to $1 billion of Government debts during this fiscal year -
9/28/37
129
Open Market Committee meets with Treasury - 9/29/37
147
Gilbert (s. Parker) asked to advise with HMJr concerning next
financing - 9/30/37
195
Rentschler consulted by HMJr concerning future financing -
9/30/37
210
- G -
Gilbert, S. Parker
See Financing, Government
Gold
Japan has stopped selling gold; none received since
September 9th - 9/28/37
84
- J -
Japan
See Gold
- X -
Morgenthau, Henry, Senior
See "Whirligig"
- o -
Open Market Committee
- P -
Purchasing, Government
Tire bids discussed by H/Jr and Collins (Procurement Division) -
9/28/37
95
a) HMr thanks Leon Henderson for his assistance in
this matter - 9/28/37
97
Regraded Unclassified
- R -
Book Page
Reconstruction Finance Corporation
See Budget
Reynolds, Arthur
See Appointments and Resignations
- S -
Social Security
Reserves discussed by HMJr, Altmeyer, and Haas - 9/30/37
XC
199
a) Copy of Altmeyer's memorandum to FDR, asking for
conference to discuss proposed amendments to
Social Security Act, attached
205
Stabilization
France:
Cochran reports that "French control has had a bad day" -
9/27/37
70
HMJr discusses situation with Cochran - - 9/28/37
99
Bonnet letter to Bank of France, asking why his policies
have not caused immediate improvement in French monetary
situation, reported on by Cochran - 9/29/37
103
Cochran reports further on yield by French control of
approximately E4 million of foreign exchange - 9/30/37
221
E+ I I
Taxation
Magill memorandum concerning conference with Vinson in re
revenue program for 1938 - 9/28/37
107
a) HMJr discusses ideas with Magill - 9/30/37
180
Tax on capital gains and the undistributed profits tax
discussed by Magill, Congressman Celler (New York)
Morris Tremaine, and L. H. Parker (Joint Committee) -
9/30/37
208
- W -
"Whirligig"
HMJr consults Waldo about statements concerning him (HMJr)
written by James McMullen - 9/27/37
24
a) HMSr reported urging son to resign as Secretary
of the Treasury
Works Progress Administration
See Budget
Regraded Unclassifie
FEDERAL RESERVE BANK
OF NEW YORK
FICE CORRESPONDENCE
m, 1937.
Regraded classifie
To.
CONFIDENTIAL VILES
SUBJECT TELEPHONE CONVERSATION WITH
ROM
L. F. Knoke
BANK OF ENGLAND
I called Mr. Boltom et 9:58 today and asked him about the
London gold market for forward delivery, its sise and who was par-
ticularly interested in 12. It was very mall Belton replied and
bidding usually developed when conditions became more upset in
Europe. at the present time, there was some buying an the part of
commercial firms which had to furnish & gold clause in their con-
trasts and, as a result, wanted to hedge against such gold liability.
That type of business was likely to come from France, from Germany
or, for that matter, from anywhere in Europe. India, which in Bombay
had a very speculative gold market for forward delivery, was also
likely, from time to time, to come into the London market to offset
contracts closed in Bombay. The volume most of the time we unin-
portant: £50,000 for six months might for instance be a whole day's
turnover.
As regards spot delivery, Bolton continued, the demand had
been good recently with all the gold available at fixing being taken
by the market at a slight premium above New York shipping parity. Bvd-
continued
dence/of some gold again going into hearding.
I made reference to the recent shipment of gold valued st
about £800,000 made by Japan to London, which I stated had been freely
commented upon in our press. This shipment, Bolten explained, had been
purely experimental and had proved to be very expensive to the Japanese,
with the result that there would be no more such shipments, at least
according to the information which he had. Bolton had known of this
HL (to
FEDERAL RESERVE BANK
2
OF NEW YORK
FICE CORRESPONDENCE
DATE September 87, 1937.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
ROM
... ai
BANK OF ENGLAND.
- 2 -
shipment about three weeks ago, when the Japanese had come to him and
asked the Bank of England to help them to market it. I inquired
whether, in case there should be further shipments in the future, be
would be willing to exchange information with us on that point and
Bolton assured no that they nost certainly would. I mentioned that
there were no further gold shipments on the way from Japan to Ban
Francisco and wondered how the Japanese would finance their require-
ments in the future. Bolton thought that the Japanese might wall
have made their preparations for the rest of the year, having ap-
parently built up a fairly substantial balance in London. He added
that all this was greatly surmise on his part because, at the Bank
of England, they had no definite information. At any rate the
Japanese were not showing my signs of being short of money.
Conditions in Paris, Bolton thought, continued very unset-
isfactory. On the surface things were quiet but, nevertheless,
Cariguel was losing sterling every day, all day long. This sort of
thing went on from a quarter before ten until six every day, uncess-
ingly.
Belgas might have turned a bit, st least temporarily. The
British had given the Belgians dollars egainst gold in Brussels, where
it vas being held for the time being.
Stock markets had been better today in London, Paris and
Ansterdam; the faith of the British in the American market seemed to
continue without abatement. The London market was more cheerful after
Regraded
SC. 3.2 60M 137.
FEDERAL RESERVE BANK
3
OF NEW YORK
FICE CORRESPONDENCE
DATESeptember 27, 1937.
CONFIDENTIAL FILES
SUBJECTELEPHONE CONVERSATION WITH
ROM
L. 1. Knoke
BANK OF HUGLAND.
- 8 -
the account had been settled, with only two minor casualties. There
seemed to be a very big speculation going on in Ansterday, which was
not confined to American securities only but pounced on anything that
seemed to offer an opportunity for gambling.
LWK:KMC
G3,
RECEIVED ats so
Regraded Unclassified
4
September 27, 1937.
12:10 p.m.
11:13
Joe
Kennedy:
These go through my switchboard.
H.M.Jr:
Well mine is all right, I don't know how yours
is.
K:
(Laughs) Well I imagine it is but it's all right
then.
H.M.Jr:
Yes.
K:
Well supposing I call you back in ten minutes, huh?
H.M.Jr:
Well I'll have people here and then you've got some-
body with you.
K:
Yes.
H.M.Jr:
Oh.
K:
How would that be. Well you give me the time.
I have a message that I've got to deliver to you
and I want to deliver it very quietly.
H.M.Jr:
Well I'll tell you - I've got people coming in
here at 11:30.
K:
Yes, well I'll get it to you before then.
H.M.Jr:
O.K.
K:
Will that be all right?
H.M.Jr:
Sure.
K:
All right, Henry.
Regraded Unclassified
5
GROUP MEETING
September 27, 1937
11:30 a.m.
Present:
Mr. Magill
Mr. Oliphant
Mr. Gaston
Mr. Haas
Miss Roche
Mr. Lochhead
Mr. Thompson
Roche:
Good morning, Mr. Secretary.
:"f"W"H
How do you do.
Herbert, read this thing over about this fellow from
Minnesota. I don't know, they say he's been with
Regional Agricultural Credit Corporation for the past
two years. Before I appoint another Collector of
Internal Revenue from Minnesota, I'd like to get a
good one. I don't know - you see, they re in a great
hurry. You might ask Bill Myers about it. Two years
with the R.A.C.C. In that one they don't say - they
just give such cold facts - it doesn't look as if...
Anyway, Mr. Farley is in a great hurry; he says we ought
to appoint him before the President comes back through
Minnesota.
Gaston:
One of my friends from Minneapolis sent me a copy
of a letter that he wrote to Farley and a copy of a
letter from Farley in which Farley just thanked him
for making the suggestion for a man, but he already
had a good man picked out.
H.M.Jr:
Well, he says this is not a - what's the beer man?
Gaston:
Bremer.
H.M.Jr:
This is not a Bremer man. Anyway, if I could
have something on it this afternoon.
Gaston:
Yes.
H.M.Jr:
If not this afternoon - well, I told Jim I'd try to
clear it today.
Regraded Unclassified
6
-2-
Gaston:
Uh-huh.
H.M.Jr:
See? If you can't call up Floyd - what's his name? -
any more and ask him
Gaston:
Olson.
H.M.Jr:
Yes.
Magill:
I have nothing in particular. I'd like to go on
with our discussions whenever you're ready.
H.M.Jr:
Well
Magill:
Not today.
H.M.Jr:
No, I don't - I want to be very frank with you. I've
got to see Jesse Jones, Wallace, and Ickes this week
in regard to this year's budget. And then I've got
each time to prepare myself, because, with the excep-
tion of Danny Bell, who has it in his head, nobody can
give the stuff to me.
For instance, Jones just called me up and said, "What's
the method of getting the P.W.A. money back into the
Treasury?" He says, "Am I right that if I turn the
money over to you it stays there definitely?" He
says, "I think so." So I just had Eddie Bartelt in
and he said he never heard of it. I told him to give
me an answer by 2:30. Herman, I wish you'd look it
up - for instance, if Ickes has ten million dollars
worth of securities for a community, he turns those
over to Jones, Jones sells them and gives the money
back to Ickes; but if Jones should give me that money,
that sterilizes it forever. And that's what Jones
thinks and I think. But I want a definite clean-cut
opinion on that. Do I make myself clear? Now, Bartelt
had never heard of it. And we're meeting on it again
at 2:30, see?
Oliphant:
(Nods yes)
H.M.Jr:
So that's the situation. And it's - frankly, unless
I've got a chance of saving by approaching this thing
in a different way, I've got a chance of saving several
hundred million dollars on the revolving funds. And
I want it ready when the President comes back, and I
don't know anything more important than that. And
nobody's doing anything about it. I can't find, talk-
ing very confidentially, for instance, that anybody is
Regraded Unclassified
7
-3-
doing - for instance, Agriculture is given so
much money; are they spending per month one-
twelfth of the allotment, taking care of the
seasonal variation? I mean that they'd spend
more one time of year than another. Will they
use up all or won't they? I mean I can't get the
feeling that once the money is allotted there is
any control anywhere.
Now, do you (Thompson) for instance know, has
anybody ever checked up on the Treasury? Are you
spending all your money? Does anybody ever check
up on us?
Thompson:
Well, the Bureau of the Budget keeps a check.
H.M.Jr:
Each month?
Thompson:
Yes, they approve the apportionments and they get
the regular reports.
H.M.Jr:
Do they ever tell us we're spending too much?
Thompson:
No. If we spend over the allotment, over the
apportionment, we generally put in & request for a
waiver of the apportionment and a reallotment of
funds. It is usually granted; not much check-up.
H.M.Jr:
Well, it may be being done, but - I don't want to
criticize them - but I just can't find it: the
central nerve center that is watching this thing.
The particular thing that I am working on is now;
next year's thing will come in a couple weeks, but....
Thompson:
The really only effective control is the setting up
of reserves such as the recent 10% reserve applying
to this year's appropriations- - Budget control.
H.M.Jr:
I imagine it's all in Dan's hands. But I'll put it
this way: just as soon as I get a breathing spell,
but I - I really don't see that I can do much more
this week.
Magill:
Well, that's entirely satisfactory from my point of
view. I can go right ahead, of course, until such B
time as you're ready.
Regraded Unclassified
8
-4-
H.M.Jr:
I don't see why you can't.
Magill:
There are several major issues we ought to discuss,
but we don't have to discuss them this week.
H.M.Jr:
Well, if I get a chance, but - let's see - the secret
confidential figures for this year, I think, exclusive
of definite - we're in the hole 471 million dollars.
Now, I'm trying to pick up 400 million dollars. I'll
know more this afternoon. My God, if I could do that
this week and then have it ready for the President
next week, what can I do that is any more important?
And not a dollar out of relief, Miss Roche - not a
dollar out of relief. And I've got my own secret
figures for next year's budget too - I did that over
the week-end - on expenditures, not on receipts.
So I just wanted to tell you what I'm working on.
I don't know how I can spend my time any more
profitably. And Jones is in the most cooperative
mood. Most cooperative. Now, I may be kidding
myself on this other thing; maybe the money has all
been allocated; but I'll know within a day or two.
And it gets just down to the two places: P.W.A. and
R.F.C.
Magill:
That's all.
H.M.Jr:
Family all O.K.?
Magill:
Fine, yes.
H.M.Jr:
Good.
Oliphant:
Nothing from my shop to report. In going over those
mimeographed sheets you gave us the other day....
H.M.Jr:
What?
Oliphant:
I say, in going over those mimeographed sheets, or
photostated sheets, that last sheet contained the
list of the wholly-owned or partly-owned government
agencies
H.M.Jr:
Yes.
Oliphant:
And it looked to me, in discussing it with the two
Regraded Unclassified
9
-5-
men that worked with me
H.M.Jr:
Little louder.
Oliphant:
It looked to me, in discussing it with the two men
that worked with me on it, that almost any of those
were very promising 1f you were interested in reducing
the Government's participation, but each one of them
would be a study in itself. For instance, you men-
tioned Export-Import, I think, to Wayne Taylor.
H.M.Jr:
Yes.
Oliphant:
I'm not sure but what something could be done on
F.D.I.C. and others. But each one would be an inde-
pendent study.
H.M.Jr:
Well, what we need here very badly is somebody
having a real - I mean a really experienced business
man who will take - for instance, the one which has
been lying on our doorstep here for three months is
Home Owners Loan and Federal Housing; it would take
some very able business man a three months' study
just to study those two organizations. But we just
haven't got the manpower to do it. Wayne can't do it,
because he's got more than he can tend to now. And it
was suggested to me that I might - there's a chance of
getting General Woods down; I hear he's through. Now,
if a men like that would come down, I'd say, "All
right, now, you take these two organizations, take
three months; we'll give you what staff you need.
At the end of three months, tell me who's right,
who's wrong. Got to listen to Fahey and Stewart
McDonald. Buy yourselves six pairs of trousers and
a couple of chairs and go to it. And a sofa." But
I mean it's that kind of thing which none of us have
time to do and nobody in the Government is doing.
Oliphant:
I just wondered whether from that staff - whether the
request that is on its way through for more money from
Home Owners Loan has been canvassed.
H.M.Jr:
Well, on the next year's budget - nothing has jelled
on that yet. And the President told me that he per-
sonally expects to sit on next year's budget. Himself.
But what I am concentrating on right now is this fiscal
year.
Regraded Unclassified
10
-6-
Oliphant:
That's a request for the Treasury to allocate more
funds to Home Owners Loan.
H.M.Jr:
Oh. But I just think this legal end is coming up
at 2:30 - several legal points. I'd like to have
you here at 2:30, if you will.
Oliphant:
All right. Then, I'd like to just make that answer
on that. That is, a sort of separate study of each
one of those items - I think a separate study of each
one of those items would yield a great deal.
H.M.Jr:
Why don't you put that in the form of a memorandum:
that you think each one should be studied, and then
the question as to where we will get the man to S tudy
it. I wouldn't start your shop on that, but I don't
want
Oliphant:
You asked the other morning for a suggestion.
H.M.Jr:
But if you can - I don't know whether you can or
not - give me a legal explanation of just how this
revolving fund money of P.W.A. comes to us.
Oliphant:
Oh yes, I'll get that.
H.M.Jr:
I would like a legal explanation of that: how we
can sterilize P.W.A. fund money in the General
Fund. I think we can do it.
By the way, before I go by you (Magill), how did
you and Sir Frederick get along?
Magill:
Oh, very well. I've got a memorandum of the conference
that Butterworth prepared. Be in to you some time today.
But he wound up on this question of treaties between the
different countries for exchange of tax information
just where we all supposed he would, namely, that Great
Britain wasn't going to do any such thing; that wasn't
the practice. Their whole practice was to keep their
tax returns secret. They were not going to give informa-
tion to other countries no matter what the rest of the
world did. I think that was about the essence of it.
On the "hot" money, I told him the situation and he had
Regraded Unclassified
11
-7-
substantially no comments. Very friendly; asked
us what we wanted him to do. I said that wasn't
the purpose of the conference; the purpose of the
conference was to give him information as to what
steps we were taking. So he asked to see King when
King goes over to the Geneva conference; or, rather,
asked him to see - have King see revenue officials
over there.
H.M.Jr:
I might say, if you're going to talk about creating
a lot of excitement, it's created a lot of excitement.
It's all right.
Herbert?
-
Gaston:
I don't know of anything. They asked more questions
about our negotiations with Great Britain about
reciprocal taxation than anything else over the
week-end. I told them there weren't any negotiations,
just informal talks.
Magill:
If these reporters would use their heads instead of
their ears, they could probably write better stories.
H.M.Jr:
Is that all?
Gaston:
That's all.
H.M.Jr:
George...
Haas:
Yes, sir.
H.M.Jr:
Here's an article which I didn't know about. I'll
give it to you. Following the failure of the biggest
Indian conversion operation, amounting to 900,000
florins, Amsterdam and Rotterdam announced a 3-1/2
percent conversion loan at par. Now, I never heard
that 900,000 was a failure; that's a lot of money, and
I'd like to know more about it.
Haas:
Yes, sir.
H.M.Jr:
Did you send a boy up to Detroit?
Haas:
He got there Sunday night. Took a plane.
Regraded Unclassified
12
-8-
H.M.Jr:
Good.
Haas:
And I've got a little information already over the
telephone. Not from him, but some of the people
in the automobile business that we know.
H.M.Jr:
Yes.
Haas:
That Chevrolet - well, the whole General Motors
and Chrysler are sailing along very nicely, their
dies and everything all in shape, and they expect
to be in production in about a week or ten days.
Now we'll see how Murphy's stuff checks with that.
Ford, however, is still working on his old model.
And these men - well, one was a Chrysler man, the
other is a General Motors man - they didn't know -
just knew that Ford was working on the old model;
didn't know when he was going into production. Now,
maybe Henry can get some more information on that.
On the other matters, they are moving along. On
this general business situation, if I could have
till tomorrow noon I could really do a real good
job, I think.
H.M.Jr:
Well, I'm not available before then anyway.
Haas:
O.K.
H.M.Jr:
I am meeting at 2:30 on this
Haas:
I nad a meeting with my S taff this morning, and I
think I've got that lined up fairly well. It's a
question of getting the evidence accumulated, g etting
it written up, and so on.
H.M.Jr:
I want you here at 2:30.
Haas:
All right.
H.M.Jr:
(To Thompson) Tell Eddie Bartelt I want him at 2:30,
to make sure, and Mr. Bailey, Acting Director of the
Budget. 2:30, please.
All right, O.K.?
Regraded Unclassifie
13
-9-
Haas:
O.K.
Oliphant:
On this other thing, you want it at 2 o'clock,
don't you - on the revolving fund?
H.M.Jr:
2:30.
Oliphant:
2:30?
H.M.Jr:
2:30. I'd like you to be here if you could. A lot
of this stuff gets down to drawing up something for
the President to sign. I mean this saying so doesn't
seem to mean much, but if we actually get him to sign
something, it might mean something.
Oliphant:
Yes.
H.M.Jr:
Miss Roche?
Roche:
Nothing this morning.
H.M.Jr:
Could you stay a minute?
Roche:
Yes. I have something I'd like
Lochhead:
The market seemed to flatten out after the first hour.
I don't think they're going anywhere in particular.
H.M.Jr:
You're working on that Japanese loan?
Lochhead:
Put the call through. Haven't got a report yet.
H.M.Jr:
We ought to know that. I mean if they're shipping to
England, we ought to know that.
Lochhead:
Yes, we ought to. It seems to me anyway that 1f the
Japanese have been notifying us when they made the
shipments, they should do the same thing - they'd have
to know from a voluntary viewpoint. In other words,
I don't think the statistics will show up until it
arrives.
H.M.Jr:
You tell Knoke the next time the Japs come in and want
to notify us that they're going to send us some gold,
I think tell me and I want to see those babies.
Lochhead:
You mean you want them to come down?
Unclassif
14
-10-
H.M.Jr:
Well, I want to see - whether it's the Embassy
people or their Finance Commission - but the next
time they walk in and say they're shipping us five
million, I want to see them.
Lochhead:
They're simply sending a letter in.
H.M.Jr:
But I still go back to their statement when they
said they were only going to give us 150.
Lochhead:
Well, they revise upward every time.
H.M.Jr:
Well, I'd just like to - I've got a perfect right
to ask them - I'd like to know. Didn't they say 150?
Lochhead:
That was the total.
H.M.Jr:
Yes.
Lochhead:
At one time they said 150, and then when they brought
in a shipment they didn't say much of anything except
that they needed the balances.
H.M.Jr:
Well, I've got to adjust my borrowing, I've got to
know.
Chinese drawing out any more money?
Lochhead:
No. They took out that five million dollars they
notified they would, but nothing more.
Thompson:
Mr. McReynolds phoned from Jacksonville Saturday that
he was leaving last night.
H.M.Jr:
Did he go to Jacksonville?
Thompson:
He went to St. Petersburg.
H.M.Jr:
I hope he and Bell didn't go to the same place.
Thompson:
He said Bell was with him at Jacksonville; they met
there.
H.M.Jr:
I knew that would happen.
Gaston:
Should have been positive orders that they were not
to see each other.
Regraded Unclassified
15
-11-
H.M.Jr:
What?
Gaston:
You should have ordered them not to see each other.
Lochhead:
I got a note from Frank Dietrich; he said that at
Miami Beach he went to the Coast Guard station and
found them there one morning.
H.M.Jr:
Bell and Mac are taking sort of a "postman's holiday" -
they're spending their vacation together.
Regraded Unclassified
16
PARAPHRASE OF TELEGRAM SENT
TO: American Embassy, Paris, France
DATE: September 24, 1937, noon
NO.: 503
CONFIDENTIAL.
FOR COCHRAN FROM SECRETARY MORGENTHAU.
We have decided to omit from the message to Mr.
Bonnet the third sentence in the first paragraph, beginning
"I am also glad" and ending "to the pound sterling".
You are requested to modify the draft accordingly
and deliver to Mr. Bonnet immediately. It is understood
that the same reply is being made by the British Govern-
ment.
02710020
HULL
THE
-
I
EA: LWW
Regraded Unclassi
17
September 27, 1937.
10:10 p.m.
H10
1210
H.M.Jr:
Hello
Gibbons:
Hello
H.M.Jr:
Where are you, Steve?
G:
I'm in New York.
H.M.Jr:
Oh. Well I mean where am I talking to you?
G:
At the Hotel Astor.
H.M.Jr:
Where?
G:
At the Hotel Astor.
H.M.Jr:
Oh gosh, I can't talk to you there.
G:,
Hello
H.M.Jr:
Where can you go - are you talking through the
hotel switchboard?
G:
Yes.
H.M.Jr:
Well you better get to a pay station and call
me right away.
G:
All right.
A.M.Jr:
What are you doing at the Hotel Astor?
G:
I was just staying over the week-end. I came up -
I'll tell you about it when I see you. Ah - it's
pretty public here.
H.M.Jr:
For what?
G:
Ah - well there's a fellow coming in to-day on
this beer.thing
H.M.Jr:
On the what thing?
G:
On the teer tax that claim - these breweries claim
that Farley and Frank Walker promised that - ah -
there would be a refund on it, see?
H.M.Jr:
Oh well that's a
18
- 2 -
G:
I told them - I've got a copy of the law.
H.M.Jr:
That's an old story. - What?
G:
Ah - we can't give them any refund.
H.M.Jr:
Oh well my God - I've heard that thing - I've handled
that thing - I mean - right here's where I need you.
G:
What's that?
H.M.Jr:
I need you - I mean you're never here whenever I
want you. I mean - last week - I don't know where
you were last week.
G:
Last week?
H.M.Jr:
Well anyway, will you please get to a pay station
and call me.
G:
The only time I was away last week was at the Coast
Guard graduation.
H.M.Jr:
I know - I know.
G:
Huh?
H.M.Jr:
W111 you call me at District 2626.
G:
What's that?
H.M.Jr:
District 2626.
G:
2626.
H.M.Jr:
Collect.
G:
Yes sir.
H.M.Jr:
And get to a pay station because this is something
you've got to handle right away.
G:
O.K. goodbye.
Regraded Unclassi
19
September 27, 1937.
12:19 p.m.
H.M.Jr:
Hello
Gibbons:
Yes.
H.M.Jr:
Are you on a pay station there?
G:
Yep - yep.
H.M.Jr:
Well our friend Joe
G:
Who?
H.M.Jr:
Joe.
G:
Yes.
H.M.Jr:
called me
G:
Yep.
H.M.Jr:
and - it's about what Jimmy called him.
G:
Ah - Jimmy called Joe
H.M.Jr:
Yes.
G:
Yes.
H.M.Jr:
And they wanted to send a fellow by the name of
Tom Woodward down on a special boat.
G:
Yes, I know - I turned that down.
H.M.Jr:
Well -
G:
Ah - they want a special coast guard boat to get
out there and contact this fellow before the - ah -
it comes out
in the newspapers.
H.M.Jr:
Right. Now I'd told him that you'd spoken to me
about it and that there were two other people that
wanted to go down - I don't think that their name
was Woodward, see?
G:
Ah - his brother-in-law is one of them.
Regraded Unclassified
- 2 -
20
H.M.Jr:
Well any way I couldn't tell him and I told -
I told Kennedy why I thought it was a mistake,
especially in view of our public announcement
and I thought it would be harmful to the Presi-
dent.
G:
Well I think it would be a terrible thing.
H.M.Jr:
And when I got through - ah - Joe said he agreed
with me and he thought my judgment was right and
that the other people were wrong.
G:
Yes.
H.M.Jr:
Now he wanted to know who those other two people
were; I said I couldn't tell him but I'd call you
up and that you would call him directly.
G:
Yep - yep.
H.M.Jr:
Now if you'll wait a minute I'll try to get my
operator to put you through to Joe, see?
G:
Yes. I don't know the other fellow's name; one
is his brother-in-law and the other fell I think
was on the - ah
H.M.Jr:
Well now let's have a clear cut understanding that
unless I personally approve it there shant be
more than this one usual cutter and nothing extra -
taking the man off or anything else.
G:
If he wants to come back on the cutter that goes
down with the Health Officers and all that sort of
thing
H.M.Jr:
You'd better talk it over with me first.
G:
Yes, I don't even - ah - I talked to Harry Durning.
He would have done it and com in here
-
He's
coming here to New York, you know.
H.M.Jr:
Yes.
G:
And Harry said that he thought that he'd just let
the newspapermen go down there and - he doesn't have
to talk to them if he doesn't want to.
H.M.Jr:
No.
Regraded Unclassified
- 3 -
21
G:
If we're going to take him off one side of the
ship while they come in on the other you're going
to have yourself in a jam in my opinion.
H.M.Jr:
Well don't - please don't make any arrangements
G:
Yes.
H.M.Jr:
without discussing it with me.
G:
O.K.
H.M.Jr:
And when will you be back?
G:
Oh I'll be back tomorrow morning. This thing
doesn't happen until Wednesday.
H.M.Jr:
I know.
0:
Your three minutes are up.
G:
All right.
H.M.Jr:
Well didn't you reverse the charges?
G:
No I - ah - I thought it would take too long.
H.M.Jr:
Well now just a minute - don't you - do you want
call Joe up or go through my switchboard?
G:
I can call Joe - ah - direct from here.
H.M.Jr:
All right. On that other thing that you're talking -
Frank Walker was in here and talked to me about
that himself.
G:
9
I know and blaming you for it and I want to put
them - ah - right where they belong and I'll tell
you about it - I didn't want to annoy you with it
but I'm meeting with Dutchman up here to-day whose
head of a brewery in Milwaukee
H.M.Jr:
Yes.
G:
and he's a friend of - ah - Walter Cummings
too.
H.M.Jr:
Sure
Unclass
- 4 -
22
G:
But they think that you can do this without -
just by the scratch of a pen - why it's right
in the law that you couldn't do it if you did -
if you wanted to.
H.M.Jr:
I've been in to it twice; Walter Cummings has
talked to me about and Frank Walker has talked
G:
Well they seem to think it's a regulation and
that - stead of that apparently they never got
the idea that it's the law, see?
H.M.Jr:
Well -
G:
I've talked to Graves about it; I've talked to
Berkshire; I've talked to Guy Helvering - ah -
Jim Farley said, "Well for God's sake, won't you
please get somebody to straighten them out on
this". I said, "All right". I - ah - now when
did you look for me before - the only time I've
been away - ah -
H.M.Jr:
Well the other - last week something broke here
G:
Well I was up at the - ah - I know what it was -
the -
H.M.Jr:
It was on Monday.
G:
Yes, about that fellow Oliphant wanted to put on?
H.M.Jr;
That's right.
G:
Well I was up at the Coast Guard; I couldn't
avoid that.
H.M.Jr:
No, that's right - that's right.
G:
But I haven't been away -
H.M.Jr:
O.K., all right.
G:
And I thought I was doing you a service by
coming up here to-day.
H.M.Jr:
All right, well the pressure is pretty hard
down here.
Unclass
- 5 -
23
G:
All right, now I'll get ahold of Joe right away.
H.M.Jr:
All right.
G:
But I - I really - I think you'd be going overboard
if you - ah - I think you'd be putting the President
in a bad spot.
H.M.Jr:
Well I don't count - it's the President. I'd
certainly put him in a bad spot.
G:
Yes.
H.M.Jr:
All right, Steve.
G:
O.K. I'll talk to Joe and I won't do a thing
without consulting with you.
H.M.Jr:
Thank you.
G:
O.K.
24
(Mr. Waldo of Whirligig)
September 27, 1937.
12:25 p.m.
H.M.Jr:
Hello
0:
Mr. Waldo. Go ahead.
H.M.Jr:
Hello
Hello
H.M.Jr:
Mr. Waldo.
Waldo:
Yes.
H.M.Jr:
Henry Morgenthau, Jr.
W:
Yes, how do you do.
H.M.Jr:
All right, thank you. Mr. Waldo I'm calling you
up about statements on a pink sheet of September
27th and September 28th written by James McMullen
in regard to myself. I don't know whether you've
seen it or not.
W:
No, I've been away.
H.M.Jr:
Well may I read it to you?
W:
Yes, please.
H.M.Jr:
It says here - "New York Editorial Information -
Pressure". Then it starts, "Exceptionally informed
sources report that H. Morgenthau, Sr., has been
privately urging his son to resign as Secretary of
the Treasury. The elder Morgenthau is understood
to believe that there is serious economic trouble
brewing. Naturally he would not wish to have his
son in the position where he would have to take
the rap for it."
"Mr. Morgenthau, Sr., has a reputation in financial
quarters for shrewd judgment in sensing storms
ahead. He has weathered depressions a great deal
better than most men of wealth. He has not been
happy about certain of Mr. Roosevelt's policies for
some time past.
- 2 -
25
"The Black situation may also have a considerable
bearing on Mr. Morgenthau, Jr's., future relations
with the President. Intrusion of the Klan motives
won't help matters any. Jewish leaders generally
are taking it much more seriously than they are
letting on publicly. It is not far fetched to
anticipate that the Treasury Secretary may find
himself subjected to considerable back-stage
pressure to sever connections with the Administration".
R.M.Jr:
Now get this next thing and get the hook-up between
what went first and what comes now.
"Advice", at the heading.
"When H.M.Jr. was named to the Treasury post many
New Yorkers predicted that he would be a collosal
flop; his co-religionists in banking circles were
especially shocked that a man with such slight
financial back-ground should be given such vast
responsibility.
"They also realized that it would, to some extent ,
relect a
on them if he didn't make
good. Eager to prevent this unfortunate reaction
they determined to help him all they could. As a
result, few Secretaries of the Treasury have had
the benefit of SO much expert and genuinely dis-
interested advice. This is one of the main reasons
why he's handled his job so much better than was
generally expected".
H.M.Jr:
Now I ask you.
W:
Well - ah - what - ah - - ah - what would you like
to have us do on that?
H.M.Jr:
Well - what is your reaction to it? Now you you
go around - in the first place ah you meet a
lot of my Jewish acquaintances and have you ever
heard of one of them that's ever lifted his little
finger for me?
W:
Ah - well yes, I can say there - there's been the
most amazing change in the last three years - for
about several years that I've ever known in
connection with any public man.
26
- 3 -
H.M.Jr:
Well I
W:
You may not know that.
H.M.Jr:
Well I don't know it because I've scrupulously
kept away from them and none of them ever approached
me
W:
Ah - the - ah
H.M.Jr:
and I'm not in contact with any of them.
W:
The - ah - I think you - do you recall an incident
that I told you about in connection with the
announcement of - ah - the - ah - appointment that
took place at a private luncheon in New York?
H.M.Jr:
Yes - fairly vaguely, yes.
W:
Well you remember that
H.M.Jr:
I remember your talk
W:
Something of that kind to-day is even remotely
in the - ah - conversation or in any way
of anybody known to me.
H.M.Jr:
But Mr. Waldo, you're a smart fellow and this
thing - the only way I could interpret it - to
call a spade a spade - is pretty insidious
anti-semetic propaganda. I mean
W:
I can assure you that there is nothing of the kind
possible with that rancor.
H.M.Jr:
Well -
W:
Nothing possible or intended.
H.M.Jr:
Well I didn't interpret it that way but people
around me did - they were simply shocked.
W:
Well that - that's very amazing because it's not -
it did not, of course, strike me so when you read
it nor could it be possible from that source for
very personal reasons.
27
- 4 -
H.M.Jr:
Well, in the first place, the article isn't
based on facts and I take it you're interested
in giving your people facts.
WP
(Short laugh) Frankly.
H.M.Jr:
And I don't know anything which could be more
than 100% wrong and - ah - taking this particular
angle at this time I don't know any way that
somebody wanted to do me an injury could find a
more subtle way of doing it than doing it this way.
W:
Well that, of course, as you can imagine is
regrettable to me as anything in the world could
be.
H.M.Jr:
And -
W:
Suppose - ah - I can - ah - get - ah - we're
putting out another one tomorrow you know. We
can handle the thing then. Your idea is to
have it, as I get it, an entirely different point
of view taken.
H.M.Jr:
Well I wouldn't know how to handle it.
W:
Well I - I
H.M.Jr:
I - I mean I'm not very good at this thing but -
I mean - in the first place - the part about my
father, see?
W:
Yes.
H.M.Jr:
He has never talked to me along those lines in
any way whatsoever.
W:
I see - now
H.M.Jr:
That's No. 1.
W:
Yes, thank you.
H.M.Jr:
Ah - No. 2 - ah - for your own information, you
might be interested to know that my advice was
asked about this Black business, see, and I said,
"On account of my religion, I wished to keep
completely out of it" and I kept entirely out of
it officially or otherwise, see?
28
- 5 -
W:
Well that I can't use though.
H.M.Jr:
What?
W:
That I mustn't use?
H.M.Jr:
No.
W:
All right, but that's helpful.
H.M.Jr:
But I just wanted to give you the facts.
W:
Yes, thank you.
H.M.Jr:
And - ah - and as to any help or contact I'd
like McMullen to name one single Jewish Banking
House that's ever talked to me about Treasury
business - one.
W:
Well I'll ask him to do that.
H.M.Jr:
I'd like to have him name one Jewish Banking
House - there is one - Solomon Brothers of Hutzler
come down on - come down occasionally with the
other three or four Discount Houses, you see?
W:
Yes.
H.M.Jr:
But they're purely on issues, you see?
W:
Yes.
H.M.Jr:
I mean they're so-called the big five who have to
do with government bonds.
W:
Yes, of course.
H.M.Jr:
Solomon Brothers are one of those.
W:
Yes.
H.M.Jr:
And on several occasions one of their partners,
who is a government bond expert, has come down
just the way the people from the First National,
the Discount Corporation or any of those have,
you see? But with that exception that is the only
time that I've ever had any contact or any advice
Regraded Unclassi
29
- 6 -
W:
That's purely formal.
H.M.Jr:
Pardon me?
W:
That's purely formal. That's purely a formal
contact.
H.M.Jr:
Oh yes.
W:
Ex-officio.
H.M.Jr:
Oh yes - yes, but I mean I've never had any advice
or any help of any kind from them. I mean the
inferences, you see - these - here's the inferences.
Here's these Jewish bankers - they help me make good,
see? Now - they - they're excited about this thing
so I've got to pay my debt and they're going to
bring pressure to me - on me and make me get out,
see?
W:
Oh well, I see.
H.M.Jr:
See? Do you get it?
W:
No I didn 't but I do now. I get the point, yes.
H.M.Jr:
And also that the Jewish bankers are running the
Treasury.
W:
Ah -
H.M.Jr:
I mean it's the most insidious.
W:
Leave that to me, will you?
H.M.Jr:
Pardon me?
W:
Well I - I can have that - I didn't get that but
you give me your points of view right along -
I'm not getting them - and when I read it again
I will be guided by what you are telling me now.
H.M.Jr:
I mean I consider it the most insidious anti-semetic
line that's been taken since I've been in the
Treasury.
Regraded Unclassi
30
- 7 -
W:
Well I - I can't tell you how far I'd be willing
to go from my knowledge of the man in every way
and our organization in every way that there is
nothing of the kind intended though it may have
that appearance. It couldn't be intended.
H.M.Jr:
Well - ah. ...
W:
We - we go the other direction.
H.M.Jr:
We'll give him the benefit of the doubt.
W:
Yes.
H:M.Jr:
Who sold him this - this bill of goods? Where
does this come from.
W:
Ah - that we have a record of in the office
H.M.Jr:
Sure.
W:
and when I get back there - I shall be back
there on Thursday.
H.M.Jr:
Yes.
W:
In the meantime, I shall have the office on the
telephone this afternoon.
H.M.Jr:
Yes. Well I felt this way - I mean - I felt that
if I presented the facts to you calmly
W:
Yes.
H.M.Jr:
that I couldn't imagine that you, as an
individual, would knowingly be back of a thing
like this. I just couldn't imagine it.
W:
Well - ah - not intentionally.
H.M.Jr:
Intentionally.
W:
Not intentionally.
H.M.Jr:
No, that's what I mean.
Unclassi
31
- 8 -
W:
After all, I have to run an organization and I
have been out - covering a good deal of territory.
H.M.Jr:
Oh I understand but I meant in view of our con-
versations we've had over three or four years.
W:
Well you know that.
H.M.Jr:
Yes.
W:
There's nothing of the kind could be intended and
you have given me some very startling light from
the other side which I might have missed entirely
had I read it to myself
H.M.Jr:
Yes.
W:
but cannot miss now and shall act accordingly.
H.M.Jr:
Yes.
W:
I appreciate very much your giving me the benefit
of this. It means a very great to me and I think
you will find that the situation can be met satis-
factorily.
H.M.Jr:
Well I sincerely hope so.
W:
At my attention.
H.M.Jr:
And then just as soon as you do get this straightened
out, I wish you'd come down and I'd like to see you
and I wish you'd bring McMullen with you.
W:
I'm
H.M.Jr:
Or else see you alone.
W:
I'd like to see you alone after - after I get the
facts.
H.M.Jr:
Well after you've got them - ah - ah
W:
Would that be acceptable?
H.M.Jr:
Ah -
W:
Well let me - let me use my own judgment on it,
will you?
Regraded Unclassified
32
- 9 -
H.M.Jr:
Well I mean - I just - yes.
W:
Let me use my judgment.
H.M.Jr:
I'll let you use your judgment.
W:
I'll - and I shall be down - I don't know that I
can do it this week because they tell me there's
a lot of work waiting for me
H.M.Jr:
Yes.
W:
.....but if I got down next week?
H.M.Jr:
Any time - if you can just give me a day or two
notice, that's all.
W:
Thanks so much.
H.M.Jr:
And - ah....
W:
That's all and my very deep regrets.
H.M.Jr:
Thank you.
W:
Thanks.
Regraded Unclassified
33
RE ECONOMY PLANS
September 27, 1937
2:35 p.m.
Present:
Mr. Oliphant
Mr. Gaston
Mr. Haas
Mr. Bartelt
Mr. Bailey
Mr. Hawton
H.M.Jr:
Do I know this gentleman?
Bailey:
I brought Mr. Lawton along, Mr. Secretary. He
worked with Mr. Bell on the summation.
H.M.Jr:
How do you do. Know everybody else?
Lawton:
I think SO.
Bartelt:
Mr. Secretary, there is a transcript of my telephone
conversation with Mr. Mulligan. You may wish to read
that. (Hands to Secretary)
H.M.Jr:
The way I'd like to divide - as you told me, this is
divided into two problems: one, the revolving fund,
which you told me Bartelt had; and then, the other thing,
trying to make the public works stretch for 18 months
instead of - so shall we do the - let's do the revolving
fund first, huh?
Bailey:
O.K.
H.M.Jr:
I'll get some of this junk out of my way.
I'm going to read this out loud, Mr. Bartelt. Do
you have any objection?
Bartelt:
No, sir.
H.M.Jr:
To my reading this?
Bartelt:
No, sir.
H.M.Jr:
May I just explain to you so we can all travel together.
Mr. Jones asked whether he could come over and see me
Regraded Unclassified
34
-2-
tomorrow, and what he's trying to do is to find
some way to get the P.W.A. revolving fund into the
Treasury. In other words - this is just a guess -
he figured, well, if he's got to do it, by God, he's
got to see that Ickes does it too. Which is beautiful,
see? So Mr. Jones is going to help me find a way to
get hold of this Ickes money, which means that Mr.
Jones is going to play ball. He's figured that if
he's going to play ball, he's going to see that Mr.
Ickes plays ball. Which is all to the good. I mean
we're talking strictly in the family.
"Mr. Bartelt: I was just down with the Secretary
of the Treasury and he told me that he is going to
have a conference with Mr. Jones tomorrow. He wanted
to know if you would have Mr. Jones bring with him
commitments outstanding against your balances. In
connection with that I would like to ask you a question
or two,
"You expect to make payments this year of about
$400,000,000 and your receipts from figures we have
are estimated at $550,000,000, leaving net receipts
over payments of $150,000,000.
"Mr. Mulligan: I am going over the thing again today
and I'll be able to give you a better idea of it then.
That was made sometime ago and I want to go over the
figures before I say anything.
"Mr. Bartelt: Will Mr. Jones have that?
"Mr. Mulligan: I don't know. If he wants it he will.
I'm going to start right now.
"Mr. Bartelt: Will you have him bring it with him?
"Another thing, Mr. Mulligan, do you know of any way
in which the Reconstruction Finance Corporation can
turn the proceeds of its sales into the Treasury so
as to avoid respending the money by the Public Works
Administration?
"Mr. Mulligan: I don't know of any way. We can buy
securities from them.
35
-3-
"Mr. Bartelt: Do you know of any way in which they
would not be able to use the money?
"Mr. Mulligan: I know of no way it could be done.
We buy from the Public Works Administration. We
have no control over the money from that point on.
Mr. Claude Hamilton, the General Counsel, may be
able to help you.
"Mr. Bartelt: When you sell those securities can the
money be turned into the Treasury?
"Mr. Mulligan: It is turned into the Treasury.
"Mr. Bartelt: It goes to your account?
"Mr. Mulligan: You get it all. The only difference
is our debt to you. When we sell to the Public Works
Administration it increases our debt to you.
"Mr. Bartelt: Would that be available for expenditure
again?
"Mr. Mulligan: Under the original law we were
authorized to buy from the Public Works Adminis-
tration but not over $250,000,000. This was later
increased to $500,000,000. Beyond that we can't go.
"Mr. Bartelt: When you buy the securities from Ickes
you give him a check and when you sell the securities
you deposit that in the Treasury. I was wondering if
there was some step in there that I had overlooked.
"Mr. Mulligan: I don't think so. You seem to have a
good idea of the thing.
"Mr. Bartelt: The Secretary would like for Mr. Jones
to bring those figures."
Who's General Counsel Hamilton?
Bartelt:
R.F.C. General Counsel. But I wasn't able to get him.
H.M.Jr:
Oh, I see.
I'm still not convinced. There's some intermediate
step in there, by God, that when the money - I know
36
-4-
it - that when the money once gets into the
Treasury General Fund, Ickes can't reloan it.
There's some catch in it. Have you (01iphant)
had a chance to look at it?
Oliphant:
I've had a chance to look at it, and I've got a
tentative conclusion, but it needs a little study
to be sure. So this is going to be a horseback
opinion.
H.M.Jr:
I'll take it on horseback; I'll receive it on
horseback.
Oliphant:
The thing to do is divide carefully two situations:
First, Jones has not yet bought his securities; and
second, Jones has bought his securities.
H.M.Jr:
Both those conditions exist.
Oliphant:
Now, those two different problems, see? Now, it's
my
H.M.Jr:
Now just & second. Can you hold it right there?
You (Bartelt) gave me those figures. Jones has got
what - 80 million, and there's still 120 million to go?
Bartelt:
125 million, I think, he's agreed to take.
H.M.Jr:
Well, anyway, I won't confuse you by getting
Go shead. Just theoretical.
Oliphant:
Well, it is my horseback opinion that if Jones has
not yet bought the securities and the President told
him not to buy them and he decided not to buy them,
and Ickes had to sell them, then the proceeds would
have to be applied to the reduction of the national
debt.
H.M.Jr:
Now, say that again, Herman.
Oliphant:
If Jones has not yet bought the securities, so that
Ickes still has them, and Jones refused to buy them
and sell them for Ickes, so that Ickes would have to
sell them, which he is authorized to do, then the money
realized would have to go, not into the revolving fund,
but into reduction of the national debt.
3
-5-
H.M.Jr:
Now, can I tell you what's back here (back of head) -
and Jones has the same thing, and you've got it. I'm
going to ask you boys, whoever is working on it, to
work through if necessary, so that when Jones comes
here at ten tomorrow I can have more. Back here is
something that says this, that under the law Ickes
must let Jones sell them, as I understand it.
Oliphant:
(Nods no)
H.M.Jr:
Well, let me put it this way, that under the law
there are two ways to do it, that Ickes can get the
money: Ickes says to Jones, "Will you sell these for
me?" And Jones says, "Yes." He gets the money and
gives it back to Ickes. Back here there is another
thought, that if Jones sells these - now, maybe it's
when Ickes sells them - if he sells them or we sell
them for him
Oliphant:
(Nods yes)
H.M.Jr:
...there is a way that once the money comes here, so
to speak, it becomes sterilized and he can't use it
over again.
Oliphant:
That's right; that's what I'm saying.
H.M.Jr:
There's that thing in there; there are two ways.
Oliphant:
That's right. Now, if Jones, on the other hand,
has already bought the securities
H.M.Jr:
Well, let me just...
You (Bailey) gave me this
memo.
Bailey:
What's that?
H.M.Jr:
I can't find it.
Lawton:
Jones holds about 86 million on August 31 of P.W.A.
securities.
H.M.Jr:
I'm just looking for this memo so I can mark it.
Bailey:
Here's a copy, sir.
H.M.Jr:
Where is it?
Regraded Unclassifie
38
-6-
Bailey:
Underneath that one. That's it.
H.M.Jr:
Yes, I've got it. Let me read it.
"The balance of funds (words not understandable)
P.W.A. is entirely obligated. To meet obligations
on the program which the President approved, it will
be necessary to supplement the existing balance of
P.W.A. funds by the sale of 61 million and the total
amount of 129 million of bonds held by P.W.A."
In other words, Ickes has 129 million now, and in
order to make these commitments which he made and
the President announced the other day, he needs
another 61 million.
Lawton:
That's right.
H.M.Jr:
"It will also be necessary to sell bonds in the amount
of about 8 million to provide funds for administrative
expenses for the fiscal year 1939." In other words,
ne needs 8 in one and he needs 61 - 69 million. That
checks with that figure that Congress - well, anyway,
I'll read through.
"Just how much of the remaining 60 in bonds can be
converted into cash during 138 could not be estimated
without examination of the portfolio of P.W.A. Some
of these securities are readily marketable. Others,
by reason of the small size of the issues, are only
available in local communities in which projects are
under way. Still others are payable from revenue
produced by the project for the construction of which
they are issued. This latter group could not be con-
sidered readily marketable until the project had been
completed and begins to bring in revenue, and some of
these projects will not be completed during the current
fiscal year.
"If the 60 million in bonds are sold to the R.F.C.,
the cash will be deposited to the credit of P.W.A.
However, unless the R.F.C. is able to dispose of these
bonds, the total of Government credit will not be
affected, since R.F.C. expenditures will increase in
the same amount BS those of the Public Works Adminis-
tration. Proceeds of all bonds neld to maturity by
P.W.A. must be applied to reduction of public debt,
but this amount would be small in '38."
39
-7-
Now, I just need one minute to bring all of these
pieces together. I'm afraid somebody knows all
this, but I don't.
In this statement the President gave out: "The
President announced today that he had just approved
the allotment of a few border-line applications for
PWA projects, which increases the number allotted
under the new program to 1,253 projects, amounting
to $113,034,735 in grants and $58,005,700 in loans."
Now, that's the cut-off date of the President's.
And in this memorandum to me which you sent me,
Bailey, you say here: "Grants authorized under
E.R.A. for '36, 300 million. Additional b rants
authorized for PWA on the extension of Act of '37,
59. Making a total of 359 million. Projects
approved by the President under E.R.A. of 1936,
up to June 30, 163 million; under PWA extension
of September 20, 113 million. Making a total of
276 million, or a balance of 82 million; less admin-
istrative expenses, 67 million."
Bailey:
Less administrative expenses for '38,
H.M.Jr:
Yes, well
Bailey:
Leaves 67. Of the 67, about 8 million is counted
for administrative expenses in 139, and that leaves
the 59 million balance that the President, up to
date, hasn't intended to use.
H.M.Jr:
Well, do I understand, then - where is that sheet
you(Bartelt) gave me this morning?
Bartelt:
I gave you the - that's it.
H.M.Jr:
Do I understand that in Public Works loans and grants
to states
Bartelt:
Mr. Secretary, I think I should say that those figures
are subject to rather material revision.
H.M.Jr:
Well then, I shouldn't use it.
Bartelt:
Well, it's based upon the April message. I can give
you some totals that I got from Mr. Maxcy, the Chief
40
-8-
Accountant, this morning, if you'd like to hear them.
H.M.Jr:
Well, let me get everybody - see if we're all talking
the same language. Let's forget the administrative
expenses for a minute and use the 82 million. Shall
we use 82?
Bailey:
O.K., beginning this year.
H.M.Jr:
Well, he has a balance after the President - after
the President allotted this 113 million, he had a
balance of 82 million?
Beiley:
Yes, but we've got 15 million to charge out against
that for administrative expenses this year.
H.M.Jr:
15 million it cost this year?
Bailey:
To charge out, yes.
H.M.Jr:
That leaves 67.
Bailey:
That's right.
H.M.Jr:
Do I understand that's all we might fish for?
Bailey:
That's all you might fish for, except that there's
supposed to be eight of that to carry the closing up
in 1939.
H.M.Jr:
Well, for the moment I just pass that. But I mean
that the most I can hope to salvage is 67?
Bailey:
Well, that's the way - on ultimate savings.
H.M.Jr:
Well, let me put it another way. Has Mr. Bell already
counted on the 67? Has that been counted once?
Lawton:
Well, that 67, of course, is a commitment figure,
and he hasn't counted that, of course, in his cash
figures, because they be running on cash for two
or three years yet. This is on an obligation or
commitment basis, and of the total authorized for
PWA there is 67 million which they will not commit
or obligate or allocate. That canbe saved.
H.M.Jr:
Let me put it this way. What I am working on right
Unclassifil
41
-9-
now is the fiscal year that we are in, see, and
if we use the figures of July 1, it showed - I want
to use that basis rather than any subsequent - I
mean let's use those figures. Now, those figures
of July 1 - our deficit was 418 million. Now, if I
could get back 67 million dollars either in cash or
Mr. Ickes' securities, you see, and get that now -
let's say I could get the 67; would that reduce the
418 million by 67 million?
Lawton:
Yes.
H.M.Jr:
to you see what I mean? If I could, some way or
other, lay my hands legally or illegally on 67
million, would it reduce the 418 million by that
amount?
Lawton:
It would reduce it by approximately that amount, yes.
H.M.Jr:
Well
Bartelt:
Does that mean that you would cancel any commitments
outstanding?
Lawton:
Wouldn't have to with that.
H.M.Jr:
No, no, that's - the resident announced - I've got
his announcement here. Incidentally, Herbert, would
you get for me the official copy of the President's
announcement on that PWA? The date of it is - I mean
+1ve just got the New York Times - September 21, at
Hyde Park.
Gaston:
Yes.
H.M.Jr:
The President announced commitments of 113 million.
Bailey takes that in this sheet here, see, end he
brings that down to 67 after allowing 15 million for
administrative expenses for this year and next year.
Bailey:
No, this year; another eight comes out of that for
next year.
H.M.Jr:
My God, has he spent 15 million dollars to administer
that thing?
Lawton:
Spent almost 26 million last year.
Unclassifi
42
-10-
H.M.Jr:
On administrative expenses?
Bailey:
(Nods yes)
H.M.Jr:
It seems unbelievable, doesn't it? Well, anyway,
there's 67 million, and then all I could hope to
salvage for the President for this fiscal year is
67 million.
Bailey:
(Nods yes)
Bartelt:
According to this statement, that's right.
H.M.Jr:
What?
Bartelt:
According to this statement, that would be right.
H.M.Jr:
Well then, let's put these two things together.
Where's the one - oh, here it is. Then, putting
the 61 and 8 - well, these two go together. Let's
just see, we've got - this clicks in a minute,
Oliphant, but now do this thing again. Do this thing
again. PWA has 129 million dollars. You say in order
to complete the 113 of their program, they have to
sell 61 million, which would leave a balance with PWA
of 68 million dollars.
Oliphant:
May I suggest that instead of selling theirs, let
them sell Jesse's. See what I mean?
H.M.Jr:
Well, what I am trying - well, it would be easier to
get Jesse to turn his in to me.
Oliphant:
No, no, if Jesse sells their securities, then it's
for loans and grants.
H.M.Jr:
But if I wrote a memorandum to the President - "Would
you please turn over 67 million dollars of Mr. Ickes'
securities to the Treasury" - then your horseback
opinion would be that that would stick, is that right?
Oliphent:
Let's put it this way. If they don't route them
through Jesse to sell, then those securities can be
taken out of the revolving fund. Now, just the
details I don't....
Regraded Unclassified
43
-11-
H.M.Jr:
Allowing Mr. Ickes - because, - 1 mean 15 million
dollars to run his shop this year, and going on the
theory that if they want administrative expenses to
run PWA they should get it the same way any other
department gets its allotments; should come down and
submit it to the Budget, get it out of the general
appropriations, not from securities which are supposed
to go to retire the debt - let them justify it. I
don't take it ne justifies this 15 million.
Bailey:
No, he's reduced
H.M.Jr:
Well, anyway, it's the worst budgeting I can imagine
to take administrative expenses out of a revolving
fund which we - on record that the assets from that
should go to retire the public debt. So I mean I
certainly would fight not to take any more. I don't
think it would be fair to do it this year, but certainly
as far 85 139 is concerned he should get his administra-
tive expenses from Congress through the Budget, shouldn't
ne, Bailey?
Bailey:
Well, if he can get his money back in the receipts,
that's the way to do it, of course.
H.M.Jr:
Well then, we ought to aim to get 67 million, and
that would reduce the 418. I know - he (Bartelt)
tells me it's 470, but I don't want to go on that
figure; I want to keep using the July figure. There's
one way the President can pick up 67 million.
Bartelt:
This is only the grant statement, isn't it?
.Bailey:
That's right.
H.M.Jr:
What?
Bartelt:
This covers only the grants. This isn't the whole
revolving fund. These are only grants.
H.M.Jr:
Now, can we do loans the same way?
Bartelt:
I should think SO, I wanted to give you some figures
that I got from the Chief Accountant this morning.
H.M.Jr:
Well, I just wanted to put these pieces of paper
together.
44
-12-
Bartelt:
Looks to me like they've got a pretty big commitment
that I haven't heard you mention yet - loans that
come out of the revolving fund. Mr. Maxcy told me
this morning that he had a cash balance now of 04
million and a helf. He's got to reserve 53 million,
300 thousand for grants. That leaves him 21 million,
one in the revolving fund in cash for loans. He's
got commitments at the present time of 148 million,
plus the 58 million that you mentioned before that
the President authorized, making a total commitment
of 206 million. That's his total commitment. Now,
de said that he's got an R.F.C. agreement to purchase
125 million dollars more of his securities. Now, that
125 million dollars, plus the 60 million dollars that
you mentioned before, plus the 21 million cash, takes
care of the 206 million dollars in commitments.
H.M.Jr:
In other words, there's nothing left of it.
Bartelt:
Well, it isn't absolutely clear to me at the present
moment that there is. I'd want to make some further
analysis of these figures before stating positively
that there is. It looks to me like they've got a
tremendous commitment hanging over their heads here.
H.M.Jr:
Well now, just do that again, because this is the first
time that I have heard - I don't know, it may be
familiar to the Budget, but it isn't - is this
Bailey:
No.
H.M.Jr:
Are you familiar with this?
Bailey:
No.
Oliphant:
Could I ask a few preliminary figures before youget
him to repeat that?
H.M.Jr:
Yes.
Oliphant:
What's the total of bonds and securities that Ickes
has?
Bartelt:
129 million, as I understand it, right now.
Oliphant:
That's all he has?
45
-13-
Bartelt:
Uh-huh.
Oliphant:
What are the total volume of bonds and so forth
that Jesse has that ne got from Ickes?
Lawton:
About 86 million on "ugust 31.
Oliphant:
Uh-huh.
Lawton:
For which he has already paid.
H.M.Jr:
Yes, but that doesn't
All right, now, go ahead
and say that again, what you have said.
Bartelt:
Mr. Maxcy advised me this morning over the telephone
that he has 148 million dollars in commitments. Added
to that
H.M.Jr:
What does that mean? 148 committed to what?
Bartelt:
Obligations, agreements to purchase the obligations
of public bodies. To that must be added the recent
authorization of 58 million dollars. That makes a
total of 206 million dollars of potential obligations.
H.M.Jr:
Yes.
Bartelt:
de says that he has 742 million dollars in his revolving
fund in cash, of which he must reserve 53 million, three
for grants. That leaves 21 million in cash for loans.
He has an agreement from the R.F.C., as I understand
it, to purchase an additional 125 million dollars of
their securities. That 125 million, plus the 21 cash,
plus the 60 million dollars that they are going to
sell - the securities that they now have out of the
125 - would make up the 206 million.
H.M.Jr:
Well, in other words, they have committed themselves
right up to their hilt.
Bartelt:
It looks to me like they have.
H.M.Jr:
And there isn't a chance to save a nickel there
unless they cancel some of these commitments?
Lawton:
well, when he makes an agreement to purchase this
148 million dollars in bonds he will expect to sell
Regraded Unclassified
46
-14-
those bonds to R.F.C. That will be 148 million
dollars worth of bonds that he will get in addi-
tion to what he has now on his loan commitments,
and he will roll those over, sell them to R.F.C.,
and use that money to make the loans.
H.M.Jr:
Yes, but doesn't the 113 million come out of that
148?
Lawton:
The 148 is loans.
H.M.Jr:
Let me put it this way
Lawton:
The 113 is grants.
H.M.Jr:
You fellows put your heads together on this. Loans
and grants. If Mr. Ickes didn't make a single new
commitment after September 20, when the President
gave out this statement, see; if that really was the
cut-off date and no more commitments were made after
September 20 of either loans or grants, how much could
the United States Treasury salvage out of that thing?
I mean if they stopped on September 20 and made no
more loans, no more grants, of any kind, if they really
went into liquidation, how much could we take? Now,
isn't that the - that's what I want, and I haven't got
the answer yet. You can't give it to me, Bartelt.
Bartelt:
I can't right this moment, Mr. Secretary. I've got
to get into these figures.
H.M.Jr:
All right, now what I have allowed for - what we are
trying to do here is to get those figures so that
when the President returns here on the sixth I've
got them. But I want them this week. We've got all
week to work on this, but I'm going to push like hell,
see.
Bartelt:
Well, I didn't feel free to talk to any of these
people until I talked to you this morning.
H.M.Jr:
Well, as I say, I gradually explained to you what I
want, and you'll tell me whether you've got them,
like that or not. But I'm going to go back to this,
And incidentally, Herbert, get enough copies to give
everybody in this room the official statement the
President gave out on September 20. Get a half dozen
copies.
47
-15-
Caston:
This same one on PWA allocation.
H.M.Jr:
This same one, so they can all take a look at it.
Then I can go, to the President - "All right, Mr.
President, if this is what you said, PWA is through.
Well now, if that was the cut-off date and you meant
no more loans, no more grants, after September 20,
there are so many bonds left or will come into the
possession of Mr. Ickes which could go to the Treasury,
which we feel 11 - Mr. Oliphant will no longer be
riding horseback; by that time he will have explored
the cellar and will give us a legal opinion as to how
we can do that. And, you see, evidently now he needs
another night, so
Oliphant:
Yes.
H.M.Jr:
See what I mean?
Now, do I make - and now you (Bartelt) are carrying
the ball on that, as opposed to the Budget,
Bartelt:
Well, I'll work with the Budget on it, to be sure
that we are in agreement.
H.M.Jr:
It's terribly important. Do you get what I want?
Bartelt:
Yes.
S.M.Jr:
All right.
Bartelt:
Along that line, you see, there's a figure of 180
million dollars in this budget statement with this
418 million dollar deficit. And from what I got in
connection with my talk this morning with Maxcy, I
wouldn't be a bit surprised that that would be
200 million instead of 180 million. So I'm just
trying to figure out how you can reduce this 418 mil-
lion dollar deficit when you had such conditions.
H.M.Jr:
Well, certainly the Commissioner of Accounts and
Deposits, the Budget, and the Secretary of the
Treasury are entitled to know. We're talking in
big figures. How is a poor public expected to
understand it?
48
-16-
Bartelt:
Well, I Just didn't want to mislead you by indi-
cating that we could reduce this 418 million dollar
deficit by, say, 67 million dollars from that parti-
cular source, when the figure in here looks a little
bit low already by 20 million.
H.M.Jr:
Well, I don't expect anything until we get it, but
what I want - whatever it is, I want to be able to put
it on the President's desk and say, "Now, Mr. President,
using September 20 as a cut-off date, this is what we
can do. This is what we interpret that you meant."
And incidentally, as you talk to Maxcy, you could
say, "By the way, Maxcy, that was & good statement
the President gave out. Did you prepare that for him?"
Let's find out who prepared that statement for him,
see. Will you, Bartelt?
Bartelt:
Yes, sure.
H.M.Jp:
"By the way
It Because that didn't come out of
the Budget, that statement, and it didn't come out
of this office, and I just wondered who slipped that
to him. Huh? Do you suppose? Huh?
Bartelt:
(Nods yes)
H.M.Jr:
Now, that's as far 23 - now that's Mr. Ickes. Now
shall we talk about Mr. Jones, who is coming in here
tomorrow morning?
Bartelt:
All right.
H.M.Jr:
Are you ready on that? What? You know, if this
wasn't so serious, it would be funny. But I've done
this with Bell for the last three years, and it's
always the same thing. It's always like looking for -
it's almost impossible to get a straight story out of
PWA. But we'll get it this time.
Now Mr. Jones. If Mr. Jones doesn't make any more
commitments, then what? Who's going to give me revolving
funds? Come on, Bartelt, you're the revolving funds.
Bartelt:
Well, I was hopeful to have with me right now the obli-
gations of the R.F.C.
49
-17-
H.M.Jr:
But you're not ready.
Bartelt:
Those figures ought to be down here any minute.
Unfortunately, they are not.
H.M.Jr:
You're not ready?
Bartelt:
I think these figures will have to be revised.
H.M.Jr:
All right, I'll give you time.
Are there any other revolving funds that we can
squeeze anything out of? Bartelt? Eddie?
Bartelt:
I don't know of any large - any material sums.
H.M.Jr:
Anybody else know of any?
Bailey:
Not talking now about possible abolishment of any
of the corporations?
H.M.Jr:
Well, I'll come to that in a minute. I just want
to give Eddie a chance.
Bartelt:
I don't know of any other source from revolving funds.
H.M.Jr:
Well, think about it a little more. Now, what I'd
like to do is read out loud the memorandum which Mr.
Bailey has given me, which I haven't had a chance to
read yet.
Oliphant:
Is that loans of the Federal Reserve - is that a
revolving fund?
H.M.Jr:
The only way to stop that is through legislation,
and then - then we get our gold back.
Oliphant:
It's not a revolving fund?
H.M.Jr:
Well, it's a separate thing, and we ve got to go
and get a piece of legislation through. And as I
remember, if they stop now we can get about one
hundred million dollars worth of gold back out of
it, and then it would take them, oh, 15 or 20 years
to GO what they've got But any time we can get
a hundred million dollars worth of gold back and
retire that much.
50
-18-
Gaston:
Certificates.
H.M.Jr:
National bank notes. I think we're short, as a
matter of fact, that much on National bank notes.
But that's the way to do it. It should be done in
this next Congress. I mean they should be stopped.
No excuse for it.
(Reading memorandum from Mr. Bailey) "The estimate
is based on two factors: First
(this portion
read in undistinguishable undertone)
that this reserve be maintained."
That doesn't help this picture very much.
Then you come and say: "Agencies which appear to have
accomplished the purpose for which they were established
and which may now be discontinued by Executive Order."
Before I go on that would you mind telling me what
I call the postponement of public works for this year.
Have you got the answer on that?
Bailey:
Here's this table. There's a running comment.
H.M.Jr:
Better come here and sit down.
Bailey:
There's a running comment as to each of those
figures - running comment there.
H.M.Jr:
Well, suppose - pardon me?
Bailey:
I have copies.
H.M.Jr:
Would you give a few around? Everything's confidential
here.
"Public Buildings outside of the District of Columbia. -
Amount available for cash withdrawal. - '38." How
does that mean '38? First column, first page.
Bailey:
1938 fiscal year.
H.M.Jr:
Is that the year we're in now?
Bailey:
That's right.
Regraded Unclassifi
51
-19-
H.M.Jr:
Do you call that '38?
Bailey:
Ending June 30, 1938.
H.M.Jr:
Total, 130 million dollars. "Amount available for
cash withdrawal, by departments."
Bailey:
That's the apportionment.
H.M.Jr:
You mean they've been given
Bailey:
That's what they estimate will be the cash with-
drawals under the approved apportionments for 1938.
H.M.Jr:
That's 76 million, and the Budget estimates 45 million.
Huh?
Bailey:
At the present time.
H.M.Jr:
"Appropriated for 138, 35 million."
Bailey:
Those are the appropriations for the fiscal year
'38 - in the law for 138.
H.M.Jr:
"Estimated cash withdrawal for '38 is 26 million,
Budget 16 million." Hey, listen, you've got to come
around. This just doesn - I don't get this. You
start with 130 and you're going to spend 16.
Bailey:
Out of the 35 spend 16. Take the first item.
H.M.Jr:
You mean he has 130 million to work with?
Bailey:
oh yes, starting back with the unliquidated, unobli-
gated money - it's available coming from 136 and '37
year appropriations, that much. But I kept separate
the '38, because you remember Admiral Peoples' memor-
andum....
H.M.Jr:
Yes.
Bailey:
...on the 23 million, in which the Department originally
estimated a cash withdrawal of 15 and he now estimates
3 million 8 hundred; and the purpose of these columns
is to
H.M.Jr:
So they've got 130 as a backlog.
52
-20-
Bailey:
That's right.
H.M.Jr:
And the current Budget estimate is that they will
only spend 16 million.
Bailey:
No, sir, they will spend out of all their money
here, which includes this 45.
H.M.Jr:
45.
Bailey:
That's right.
H.M.Jr:
Is this 16 in that 45?
Bailey:
That's right, but I wanted to show it this way for
you because that was the illustration, you know, we
started with, and I thought you would also
H.M.Jr:
How does that 45 compare with what we said we'd do
on July 1?
Bailey:
Well
H.M.Jr:
See what I mean? On July 1 how much did you say you'd
spend?
Lawton:
45.
Bailey:
45 was in the July figure.
H.M.Jr:
Must have been more.
Bailey:
And that's our summation figure.
H.m.Jr:
But he only agreed here the other day to cut this down
to three million eight from 23.
Bailey:
And that's why that 16 million is set apart from this
total appropriation for '38. But he had - you see, he
had 90 million dollars worth of available previous
year appropriations.
H.M.Jr:
But I still say, is this figure here, this column,
the same as the July 1 column?
Bailey:
Oh, that is, isn't it, Lawton?
53
-21-
Lawton:
Yes.
H.M.Jr:
Well, it doesn't check, b ecause on July 1 he didn't
know he was only going to spend three, eight out of
the 23.
Lawton:
No, but the Budget estimate was that he would spend
about 10 percent of his appropriation for the fiscal
year, based upon what he did in the two previous years
with larger appropriations.
H.M.Jr:
Well, let me put it another way. On these figures
you're going to give me you're not going to save any
savings?
Lawton:
Some.
H.M.Jr:
"here am I going to compare the savings?
Bailey:
Here's the present - no, that's the apportionment.
What was the July figure as compared with our current
387 million dollar figure for all of them?
Lawton:
It was about 395.
Bailey:
You see, we discounted
H.M.Jr:
But there's no way of my showing
There's room
there; couldn't you run right in there the column
on what the July figure was? There's room, without
retyping all of this. Huh?
Lawton:
All right.
H.M.Jr:
Couldn't you put it right in there?
Bailey:
That's right. Now, how these figures compare with
July - of course, I thought you were particularly
interested in how much of the 1938 appropriation
H.M.Jp:
No, I'm interested
Bailey:
In the whole picture.
H.M.Jr:
I'm interested in the whole picture. I'm interested
particularly in how much cash is going out of the till
in this fiscal year and how much can we slow it up.
That's the best way I can describe it. I mean that's
54
-22-
what the President said - "Slow up these public
works."
Bailey:
Well, this is - it was estimated that their cash
withdrawals would be 419 million dollars. Now
our cash withdrawals are 387 million.
H.m.Jr:
Well, would that - if that figure - could you say
to the President that there is one hundred million
dollars of saving on the 418 million?
Lawton:
No, we discounted their estimate by practically
that amount.
Bailey:
Almost that amount.
Bartelt:
You're about 38 million down in the River and Harbor,
aren't you - about 38 million dollars less in this
statement than in the July 1 statement.
H.M.Jr:
Then, taking again the 387 million, you'd have to
improve on that to save anything out of the 418
million deficit.
Bailey:
Well, that is an improvement.
Lawton:
That is an improvement over the original amount
included in the 418, which we will supply in a separate
column.
H.M.Jr:
How much, roughly?
Gaston:
7 million.
Bartelt:
About 41 million, isn't it, Fred?
Lawton:
Have you got a copy of that?
Bartelt:
I think it's 38 million flood control and about
3. million dollars in the T.V.A. Those are the
principal differences.
H.M.Jr:
Well, they....
Bailey:
I think there is a million dollars in the Park
Service and Indian Service, about five million dollars
in Reclamation.
55
-23-
H.M.Jr:
Well, you could give me that figure and the July
1 figure, can't you?
Bailey:
I can show you how much what we do now is below
the July figure. Of course, in July we discounted
most all of this.
H.M.Jr:
I know, but I need another figure there.
Bailey:
Now, these are the emergency figures: Cash with-
drawals for the year and for seven months. Our
present figure is about that much.
H.M.Jr:
What funds are these?
Bailey:
mergency funds, available for the same major
construction work.
H.M.Jp:
Where do they come from?
Bailey:
Those are the different emergency fund appropriations.
150 million dollar figure on that is about the July
figure.
H.M.Jr:
Now let me just put it this way a minute. I'll get
something through here.
Well now, when the President says that he's going
to spend 500 million for public works - I have down
here for '38 these figures that Haas gave me, which
he says he got from you people: Public buildings,
60 million dollars - these don't check with any
figures that I've got here - public highways, 253;
rivers and harbors, 173; PWA grants, 250; others,
150; total, 886.
Lawton:
That includes emergency and regular money, combines
the figures that are on both these statements.
H.M.Jr:
All right, but does that check on these two? It's
an addition of these two? Well, that's 387 - using
your figure here, 387 plus 150 is 527. That doesn't
make
Bailey:
*hen all that
H.m.Jr:
That doesn't make 886.
56
-24-
Lawton:
That doesn't include PWA at all.
H.M.Jr:
He's got 250 for PWA.
Bailey:
And then the other public works - we haven't all of
those in this list of the na jor ones. So the
difference lies in the 250 to add to your figure
there
H.M.Jr:
Well, there's 250.
Bailey:
...and then the sum of this and 250 there would
make you 777, and about the difference between
that and the 886 is out of this 150.
H.M.Jr:
You see, what I want to get is this. Let me get
over the idea; I've got all week, and we want these
figures. The President keeps saying publicly he's
going to spend 500 million dollars a year for public
works. Now, that's what he thinks, but according
to this figure it's 886.
Bailey:
Including emergency money.
H.M.Jr:
Now, what I want to show him is - "Mr. President,
using your own figure of 500 million which you have
used for three years, let's get down to 500 million."
And therefore this stuff here is a start, but it isn't
all. This thing here - I want it all together so I
can say, "Mr. President, we're going to spend 886."
And the first thing he says, "How do you arrive at
886?" Then I can't, when I'm with him, begin to fish
around all over my desk the way I'm doing now. I mean
I've got to have it all in one place and say, "You're
spending for this year 886 million." And he'll say,
"Is that out of the Treasury, or is that obligations
or is that commitments or what?" And you fellows have
got to get together and give me a figure which will stand
up under his eyes, and believe me, he is sharp. I want
a figure - now, if I say, "Now, Mr. President" - if
886 is right - "I want to show you where we can put
that down to 500 million. Then we'll have a backlog
of so many million to carry over to next year, and we
can ask Congress for that much less, and it would help
us balance the budget beginning with July first." But
I haven't got it now.
57
-25-
Bailey:
No use talking about a 500 million dollar program;
that is, a 500 million dollar Budget estimate of
appropriations. He can't get to a 500 million dollar
cash withdrawal program in 1939, but he's got that
carry-over.
H.M.Jr:
Yes, but I'm not - you fellows haven't been tough
enough for me. I want to slow this thing down, if
I can, to 500 million dollars cash withdrawal for
all public works this year.
Bailey:
This year?
H.M.Jr:
Yes sir!
Bailey:
And emergency funds?
H.M.Jr:
Yes sirl
Bailey:
You've got to go some, sir.
H.M.Jr:
Well, I'd like at least to put it on the President's
desk and snow him how it can be done, and show him
how much carry-over we've got for next year without
appropriating a dollar. But I want to get it all.
Now, I have here Public Works. Under that I have
Public Buildings, Public Highways, Rivers and Harbors,
PWA, and others.
George, you ought to give them a copy of this.
Unemployment Relief would not be Public Works, would
it? Direct Relief, Work Relief, Civilian Conservation.
Would it?
Bailey:
It isn't in our tabulation.
H.M.Jr:
No, but is this - I want a cash withdrawal figure
the way it is now; I'd like to put it down to 500
million. And then, without appropriating another
dollar, how much can we carry over to the first of
July? Or start this way, do it two ways. Do it the
way you've got it, using your figure of 387 plus 150;
and then get our Public Works figure, you see. Then
we have those three things, that's all. And put them
all down and show the way the thing stands now; that
Regraded Unclassified
58
-26-
we'll spend out of the Treasury so many hundred
millions of dollars and we'll have so much left
over. "Now, Mr. President, if you want to cut that
to 500 million, you can save so many hundred millions
of dollars and put that over to next year." But I'd
like to have those all together.
Bartelt:
He's got 858 here in the budget. Here's 451 in nis
general Public Works program. Then he's got 407
additional in his recovery and relief program. So
he's got 858 million dollars.
H.M.Jr:
Well, I want all the figures. I want it so the thing
is all the same. I want to keep using those figures.
But this breakdown here I mean it isr⁺t-in_so many
items. Have you (Bartelt) got a copy of this that
Haas prepared for me?
Bartelt:
No.
Haas:
I've got a copy of it here. I kept it very close on
account of this last column here.
H.M.Jr:
Well, give it to nim.
Now let me go over it once more. I want from you
gentlemen, first, what are all of the Public Works
figures as they were of July 1 - everything from any
source, Public Works - what you people estimated would
be spent out of the till this year, see; and how much
the carry-over would be. Then let's take a figure
and say to the President how much we think we could
slow that up. Now, I - I don't say I can - but I
think I've got & chance, if you fellows will show me
how, by putting all these figures on one page of
Public works, of getting them to slow down to the
actual expenditure this year of 500 million dollars.
You notice, I'm not - and then I want how much we've
got left over. I don't think it is at all impossible
to get the President to say that he will not permit
the expenditure of in excess of 500 million dollars for
Public Works this year. I mean that's a possibility
and that's what I'd like to aim for.
But you've got - you've got - Eddie, the missing figures
on this thing are the PWA figures.
Regraded Unclassified
59
-27-
Bartelt:
(Nods yes)
H.M.Jr:
Am I asking - I'm not asking impossible information,
am I?
Bailey:
No, sir.
H.M.Jr:
It's there, but it just isn't in the way I asked
for it.
Lawton:
This is the major items included in this general
Public Works program, what he calls his general
Public works program, that he includes in the
budget as such.
H.m.Jr:
Well
Lawton:
which eliminated PWA funds.
H.M.Jr:
Pardon me?
Lawton:
PWA funds were not included in his 500 million
dollar program.
H.M.Jr:
Well, I'm going to include them for this. Why the
hell don't they belong in there?
Lawton:
They were non-federal expenditures, that's the reason.
Bartelt:
135 million dollars in highways that weren't in there
either.
Lawton:
No emergency money.
H.M.Jr:
Well, but - you say they're non-federal, but we're
financing them, aren't we?
Lawton:
Yes.
H.M.Jr:
And as a result of the activity of the Federal Govern-
ment, these works are going ahead. I mean, gentlemen,
that's the mark I want to shoot for. Then let him go
back as far as he wants to. But he's thrown - I
don't know in how many speeches he's made, hes said
that the figure he wants is 500 million. Will you
(Gaston) look that up? Going back three years, how
many times nas he said he only expected to spend 500
million a year for Public Works?
Regraded Unclassified
60
-28-
Gaston:
Said it a number of times at press conferences.
H.M.Jr:
Just look it up. Then we say, "Mr. President,
we have put together all the funds that's come
out of the Treasury for public works." And if you
notice, in this press release he even included Soil
Erosion, at which I was surprised. He even included
Soil Erosion.
Bailey:
But he hasn't' been including in his contemplation of
that half a billion dollar Public Works program the
carry-over on PWA, completing those projects.
H.M.Jr:
But you don't mind if I do it?
Bailey:
0.4., sir.
H.M.Jr:
I mean I may be fighting against windmills, but don't
discourage me.
Bailey:
That's right.
H.M.Jr:
Because what you gentlemen have done in the Budget -
you have just scraped the barrel clean. Now, what I
want to do is take the barrel apart, see?
(Hearty laughter)
See? You've absolutely scraped all the molasses out
of it. Now, I want to take that barrel apart so they
can't fill it up again. I don't want them to fill the
damn thing up again, see? Do you see it? And I don't
think until you give me....
Now, there's just one thing that they keep throwing
in my teeth all the time, and I'd like Mr. Oliphant
to work on that. Am I correct that on the first of
January each year they apportion this road money?
How does that work? Have you got that yet, Herman?
Oliphant:
It's pretty plain. The law's pretty plain. I'll
have a memorandum on it for you.
Lawton:
Before the first of January.
H.M.Jr:
When do they do that?
Regraded Unclassified
61
-29-
Lawton:
They have an authorization now for the fiscal year
139, which is the year beginning July first next.
That money must be apportioned before the first of
January, 1938 - before the first of next January.
H.M.Jr:
Has it been voted - the money?
Lawton:
No appropriation has been made. They are two years
back on the appropriations, - that far.
H.M.Jr:
Do you get that, George?
Haas:
Yes.
H.M.Jr:
Now, would you mind calling up MacDonald - is that
his name - and telling him that if he is thinking
of making these things, please not to do it until
I get a chance to talk to him, or the President gets
a chance to talk to him.
Bailey:
Between now and January first.
H.M.Jr:
Between now and the first of January, not to do that
until the President has had a chance. But as I under-
stand it, they sit down now and appropriate money for
the states beginning to be spent July 1, '38.
Bailey:
Allotment money. They are required by law to do it.
H.M.Jr:
And that money - they don't draw on us for that until
when?
Bailey:
A year later. The last nalf of that first sheet
memorandum sets that out.
H.M.Jr:
Well, you see, what I'm going to do - I don't want to
take the time of you gentlemen now, but I want to read
that all at home. Then I'll be up with you. But I
don't want to take your time now. But so there's no
overlapping, Eddie Bartelt is going to get this stuff
from Maxcy and also the R.F.C., those two things, is
that right? And you fellows are going to set this
thing up differently for me - the Budget - going back
to July first. I don't have to go over it again.
Bailey:
All construction items; not just the ma jor ones, but
all.
Regraded Unclassified
62
-30-
H.M.Jr:
All. Put it this way: Put everything in there
that would go there if there was a Department of
Public Works. What would the President do if he
had a Department of Public Works? What would he
put in there?
Bailey:
Which would assume that any emergency loan money
would go to the Department of Public Works.
H.M.Jr:
Yes. Sure.
Bailey:
For construction.
H.M.Jp:
Yes.
Now, in this memorandum do you take up land?
Bailey:
No, I don't think we have land, because there's none
of it that is - well, the most is ten million dollars
for 1938 for buying sub-marginal lands.
H.M.Jp:
How about forest lands?
Lawton:
That isn't in there.
Bailey:
It isn't in there, no.
H.M.Jr:
Could you have somebody do a memorandum of all land
buying? Throw that all together. Throw that all
into one pot - from all funds - all funds, all land
buying.
Haas:
Mr. Secretary, we have the loans and also the expendi-
turesof Public Works. Would you want those - even
though you have the total, you want them separately.
H.M.Jr:
What's that, George?
Haas:
You want the loans
For instance, Mr. Bailey
asked the question whether you wanted loans used
for Public Works all put in. I think you'd want
them but you'd want to see separately how big the
loan aspect is, because it's quite a different thing
to loan money than to spend it outright.
H.M.Jr:
what's the difference? They don't get it back. I'm
just thinking out loud here.
Regraded Unclassified
63
-31-
I think that the best way to think of this thing -
1f the reorganization is going through, the President
would set up & Department of Public Works. What would
he have put in there? Certainly everything that has
to do with construction. And I know he was going to
put public highways in there; I know he was going to
put PWA in there.
Bailey:
Of course, the largest, biggest single piece of
money is this public roads money.
H.m.dr:
True. That's why I want to
Bailey:
There's 408 million and a half million dollars worth
of legally authorized obligations standing now that
there's been no appropriation for.
H.M.Jr:
Well, there you are. That's shocking.
Bailey:
That's the thing to
H.M.Jr:
Four hundred and eight million
Bailey:
five hundred thousand dollars worth still to
be appropriated of amounts that the Secretary of
Agriculture is directed to apportion to the states,
and their expenditure of that is a contractual
obligation.
H.M.Jr:
Which has not been
Bailey:
Which has not been appropriated.
Oliphant:
Not sure when that obligation arises; whether or
not the obligation arises on apportionment or arises
when the state acts.
Bailey:
I think it arises when the state acts.
H.m.Jr:
Well, that's the whole question.
But do you gentlemen see the way I'm trying to work
this thing? Now, when shall we meet again? Tomorrow
afternoon, will that give you a little time? About
three o'clock tomorrow afternoon?
Regraded Unclassified
64
-32-
Bailey:
O.K.
H.M.Jr:
What's tomorrow, Tuesday? Let's say three o'clock
tomorrow afternoon.
Bailey:
The new road authorization act, of course, will be
up, probably be one of the first bills - be all
ready at the beginning of the next session.
H.M.Jr:
Well, let us be ready for it. That's the kind of
thing - George, the road thing is a glaring example.
How can you balance the budget in the future when
your hands are tied two years in advance and you're
sunk 408 million dollars before you start?
I
Bailey:
If the President might hand a road bill of his own
to Cartwright in the House and Hayden or McKellar
in the Senate, instead of waiting for their bill to
come along through, I don't know what that would do.
H.M.Jr:
Do you get that, George?
Haas:
Uh-huh.
H.M.Jr:
O.K., gentlemen. Thanks very much.
Telephone conversation between Mr. Mulligan, Treasurer of the Reconstruction
65
Finance Corporation, and Mr. Darielt. September 27, 1937.
Regraded Unclassified
Mr. Bartelt: I vas just down with the Secretary of the Treasury and be told
no that he is going to have a conference with Mr. Jones tomorrow.
Se wanted to know if you would have Mr. Jones bring with him
commitments outstanding against your balances. In connection
with that I would 11km to ask you a question OF two.
You expect to make payments this year of about $400,000,000 and
your receipts from figures we have are ostimated at $650,000,000.
leaving net receipts over payments of $180,000,000.
Mr. Mullicant I MI going over the thing again today and I'll be his to give
you a better idea of it then. That was made sometime ago and
I want to go over the figures before I say anything.
Mr. Bartelt: will Mr. Jones have that?
Mr. Mulligant I don't know. If he wants it he will, I'm going to start
right now,
Mr. Bartelt: will you have him bring 11 with him?
Another thing. Mr. thilligan, do you know of any way in which
the Reconstruction Finance Corporation can turn the proceeds
of its sales into the Treasury no all to avoid respending the
money by the Public Works Administration?
Mr. Mullirant I don't know of any way. Ta can buy securities from them.
Mr. Bartelt! Do you know of any way in which they would not be able to use
the money?
Mr. Valligant I know of no way it could be done. We buy from the Public
Works Administration. To have no control over the money from
that point one Mr. Claude Hamilton, the Ceneral Counsel, my
be able to help you.
Mr. Bartelt: When you sell those securities can the money be turned into
the Treasury?
Mr. Mullicant It is turned into the Treasury.
Mr. Bartelt: It good to your account?
Mr. Mulligant You get it all. The only difference is our dobt to you, Then
we sell to the Public Works Administration 11 increases our
debt to you.
Mr. Bartelt: Would that be available for expenditure egain?
Mr. Walligan: Under the original 1aw we vers authorised to boy from the
2.
66
Public Works Administration but net over $260,000,000.
This was later increased to $800,000,000. Beyond that
1,5mg 8 É
Mr. Bartelt: Then you buy the securities from you give his a check
and when you 0011 the securities you departs that is the
Treasury. I was vendering if there was some step in there
that I had overleeked,
Mr. Mulligan: I don't think 00. You seem to have a good idea of the
thing.
Mr. Bartelts The Secretary would like for He. Jenes to bring these figures,
Unclassi
67
September 27, 1937.
2:38 p.m.
H.M.Jr:
Hello
S.
I talked to that fellow and he thinks that we're
Gibbons:
handling this thing in the proper way.
H.M.Jr:
Good
G:
This man Woodward made that request to Waesche you
know, he wanted & special boat to go down there.
H.M.Jr:
Well-
G:
And we turned the whole thing down - we're handling
it just as you said the other morning, in the usual
way.
H.M.Jr:
Good - but the point that I want to make - I didn't
want somebody else outside to say to you, I said
80 and 80.
G:
Yes, I see.
H.M.Jr:
See
G:
Uh-huh.
H.M.Jr:
So -
G:
Well, I wouldn't - they wouldn't talk to me without
my checking on it.
H.M.Jr:
Well - forget what I said about this morning in -
the personal matter.
G:
Yes.
H.M.Jr:
You just have to be it, that's all.
G:
Yes.
H.M.Jr:
I'll see you tomorrow.
G:
O.K. All right sir, I'll report to you on that other
thing - on - what the fellow said, because - you know
you get kicked around for a lot of stuff, but -
H.M.Jr:
I know -
G:
- But this Dutchman that I'm going to see told me
68
- 2 -
that they had a promise when they contributed -
H.M.Jr:
Uh-huh -
G:
To the Campaign Fund, that they were going to get
this stuff back -
H.M.Jr: .
Well -
G:
Now, that's just -
H.M.Jr:
I doubt it.
G:
You know -
H.M.Jr:
But, you've got - I've got to leave those
80 my tax will take care of it.
G:
Yes, but -
H.M.Jr:
Take care of me - I don't believe he ever got any
such promise.
G:
Ah - I'm going to put it right up to Jim - I'm
going to ask him.
H.M.Jr:
That fellow from Chicago might have given him such
a promise.
G:
Well, if he did, why - it's too bad.
H.M.Jr:
Well, let him make good.
G:
Uh -
H.M.Jr:
Let him make good.
G:
Yes.
H.M.Jr:
He's a rich guy.
G:
This man is all right, only he - he doesn't understand
the thing and is under a wrong impression, and he's
got a bad impression of you, and me and everybody
else.
69
- 3 -
H.M.Jr:
Well, you try and straighten him out.
G:
0. K.
H.M.Jr:
Thank you.
70
RB
GRAY
Paris
Dated September 27, 1937
REC'd 3:45 p. m.
Secretary of State
Washington.
1347, September 27, 4 P. m. SECTION ONE.
FROM COCERAN.
French control apparently has had a bad day
yielding sterling directly and through Credit Lyonnais
at 144.52 to 60. Discount against sterling for one
month has touched three and three fourths and for three
months SEVEN and one-half, Understand big Paris banks
have been requested to send representatives to confidential
meeting at Bank of France at 6 o'clock tonight when it
is anticipated they will bE asked to cooperate against
speculative transactions in francs. Rentes opened weak;
internationals better here with heartening news the
Americans improved at London. NEWS that Van ZEELAND re-
considered his resignation and is continuing to head
Government and work toward improving international Economics
had little market Effect here. FINANCIAL NEWS resents
what it interprets as an Effort on the part of Finance
Linister de Man to succeed Van Zeeland.
WILSON
GW:WNC
71
RB
GRAY
Paris
Dated September 27, 1937
REC'd 3:59 D. m.
Secretary of State
Washington.
1347, September 27, 4 P. m. (SECTION TWO)
British press comments on renswed gold hoarding.
Kung sailed from Naples for China.
Leading French financial writers are not in sympathy
with Editorial in Friday's LONDON TIMES which blames
exchange speculation for the difficulty of the franc and
leads for a "Nyon arrangement" against "financial piracy".
Jenny among others considers speculation the result and
finds the cause in France's Economic and political situa-
tion.
At Bank of France on Saturday morning I was told that
defense of franc is proving specially difficult for the
French control since funds other than francs coming directly
from the banks are being converted into foreign currencies.
That is with bank deposits so low future discounts so wide
and control still possessing resources of gold and forsign
Exchange sufficient to bE Effective in more normal cir-
cumstances additional funds for conversion into flight
from
Regraded Unclassified
72
RB
-2-#1347, September 27, 4p. m.
SECTION TWO from Paris
from the franc are becoming constantly available. Part
of these are attributed to the fact that with an official
fund now supporting French rentes holders thereof find it
quite Easy to step out of these into francs which can bE
at once sent abroad. Furthermore the new disbursements
by the state from funds borrowed from
(END SECTION TWO)
WILSON
NPL
CSB
Regraded
I
73
GRAY
RB
Paris
Dated September 27, 1937
Rec'd 3:50 p. m.
Secretary of State
Washington.
1347, September 27, 4 P. III. (SECTION THREE)
Bank of France release the new currency which the Bank
has had to out into circulation. Certain Paris acceptance
facilities to fortign interests are also blamed. French
press partly realizes above mentioned factors.
Reftrring to Washington conversations and particularly
to Pripartite agreement London ECONOMIST says in part
"The difficulties of France since the agreement was
signed a year ago are not, of course, in any way an
argument for its abrogation. The term "tripartite"
has long been misleading for the agreement was quickly
adhered to by many other countries besides the three
original signatories. Nor has France broken the terms
of the agreement for she has neither imposed Exchange
restrictions nor indulged in a willful and compatitive
depreciation of her currency. Today the chief need is
to continue the agreement and to interpret it Elastically." "
British
74
RB
-2-#1347, September 27, 4 p. m.
SECTION THREE from Paris
British press gives much space but little praise to
idea of Anglo-American reciprocity with respect to hot
money. French writers refer to present efforts to make
American markets antagonistic to foreign capital. AGENCE
ECONOMIC commenting upon curious fate of alien funds
which have already suffered such a loss on Wall Street
now facing further prospect of federal punishment.
(END OF MESSAGE)
WILSON
10
1
WIC
Unclass
75
September 27, 1937.
3:48 p.m.
B:
H.M.Jr:
That's right.
Randolph
Burgess:
That market's being doing very nicely, I think, under
the strain of circumstances. It's a little wobbly
today and a little wobbly on Saturday.
H.M.Jr:
Yes. Did you do anything today?
B:
Not today - no, we did & little something Saturday,
you know.
H.M.Jr:
Uh-huh.
B:
Just used up a few hundred thousand of that order
we still had.
H.M.Jr:
How much?
B:
Five hundred thousand of what we had.
H.M.Jr:
I see. Have you got some left.
B:
We've still got a million and a quarter left -
F.I.C.
H.M.Jr:
Well, that'll come in useful some time.
B:
Oh very - and we're holding off and letting the market
take care of itself ae fully as it will.
H.M.Jr:
Uh-huh.
B:
There's apparently buyers around for notes - very few for
bonds.
H.M.Jr:
Uh-huh.
B:
Very quiet, and the dealers get a little nervous when
the stock market goes down.
H.M.Jr:
Uh-huh.
B:
It all hangs on the stock market now.
H.M.Jr:
What
B:
It's all a stock market proposition here now.
76
- 2 -
H.M.Jr:
Uh-
B:
Everybody's watching that.
H.M.Jr:
Yes. Well, of course the market was up today but
that may be Just technical.
B:
Yes - it may have reached what they call a selling
climax today or something.
H.M.Jr:
Yes.
B:
I hope BO.
H.M.Jr:
Well, you're=coming down Wednesday.
B:
I'll be there Wednesday - - yes.
H.M.Jr:
We got another good break today.
B:
Yes, very satisfactory wasn't it.
H.M.Jr:
Yes. And - are you in any rush to stop selling these
nine months.
B:
H.M.Jr:
Well, I thought the idea was to go to these tax bills
first.
B:
Well - I'll do the two together.
H.M.Jr:
Well, you must be having some idea different than what
we've got down here.
B:
No, I don't think 80,
H.M.Jr:
We don't need more than just a turnover each week.
We don't need any new money.
B:
Well what do you mean - you're going to need new money
before the end of the year aren't you.
H.M.Jr:
Not necessarily.
B:
Aren't you really.
H.M.Jr:
No. It's too early to tell, but we may be able to
squeak through.
77
- 3 -
B:
Well when you say new money, then we don't mean
the same thing. You buy yourself some tax bills.
H.M.Jr:
Yes.
B:
And roll over the others, aren't you.
H.M.Jr:
No - - I'm just - I'm thinking about. - that's what I'm
calling you, 80 you can be thinking and call me back
tomorrow. The suggestion 18 that when we stop the
nine months we begin selling the tax bills, fifty
million & week in place of them.
B:
Oh - - I see.
H.M.Jr:
And continue that through until some time in December
and then start the ninety days.
B:
Yes.
H.M.Jr:
I want to - I want to give you that to think about.
B:
Well I'll turn that over - I think it's a pity not to -
There are two problems there, one is the problem of
keeping the market
(fade out )
and
if
you
don't sell any to speak of, those rates can be driven
down to too low B. level.
H.M.Jr:
Yes, but the point I want to get to you 18, we don't -
believe it or not - we don't need any more money.
B:
(laughs)
H.M.Jr:
Now
B:
Well, I hear what you say anyway
.....
H.M.Jr:
Whether you believe it - (laughs) - I mean the best
figure that we've got now - certainly go through the
15th without anything in addition to the fifty million
a week.
B:
Yes.
H.M.Jr:
See.
B:
Yes.
H.M.Jr:
Now 60 the question 1s if we stop the nine months, what
are we going to substitute, it's a question of substitution,
78
- 4 -
not addition.
B:
Yes - yes. The other point 1s that I think it would
be helpful, from a Federal Reserve point of view,
to have more January and February bills out then.
H.M.Jr:
January and February.
B:
Bills, yes - BO that if we - if we had to go in and buy,
there'd be some January and February bills that we could
buy, which would off after the end of the year.
H.M.Jr:
You mean on a nine months.
B:
No, ninety days. Supposing that money tightens up
around Christmas time.
H.M.Jr:
Yes.
B:
So that the Federal Reserve System has to do some
buying.
H.M.Jr:
Yes.
B:
To put money into the market - if we can buy January
bills, say, which ran off -
H.M.Jr:
I see
B:
After the turn of the year, it would be very advantageous.
H.M.Jr:
Yes.
B:
We only have about fifty million in January bills now.
H.M.Jr:
Well, here's the point - if we were going to stop selling
the nine months, and start the ninety days, I wouldn't
want to do it until - 80 that the ninety days - the first
ninety days wouldn't mature until say, about the middle
of January.
B:
I see. But you wouldn't want to do it until then.
H.M.Jr:
Well, so that the first ninety days would begin to
mature, say about the second week in January.
B:
So they can start about the 13th of October.
H.M.Jr:
That's the 1dea.
- 5 -
79
B:
Yes. Well that's all right. I don't think - we can
( fade out )
H.M.Jr:
But then the other point, if we start that, and we
don't need any additional money, we won't have any -
sell any additional tax bills into March.
B:
Yes. The tax bills are the most important in a way.
H.M.Jr:
Pardon me.
B:
The tax bills are important because -
H.M.Jr:
Well, that's what I wanted you to sleep over, which
18 more important.
B:
I see
H.M.Jr:
I mean - if we stop the nine months to sell ninety
days or to sell tax bills.
B:
I see
H.M.Jr:
Now people here in the Treasury lean toward the March
15th tax date.
B:
I see, yes.
H.M.Jr:
See
B:
Yes
H.M.Jr:
And then to start the ninety days after Christmas
B:
Not till then, huh
H.M.Jr:
No
B:
My gosh you must be rich.
H.M.Jr:
Well, we're comfortable.
B:
Well, that's very good news, I'm glad to hear it
anyway.
H.M.Jr:
But - I just wanted to get that to you, BO that -
B:
Yes
H.M.Jr:
And I'd like to talk to you about it again tomorrow
80
- 6 -
- come down here you know.
B:
Yes - come down loaded.
H.M.Jr:
Well, at least -
B:
At least intelligent - as possible.
H.M.Jr:
As possible.
All right
B:
All right.
H.M.Jr:
Thank you
B:
Yes, sir.
H.M.Jr:
Goodbye
B:
Goodbye.
MEMORANDUM OF THE DAY'S ACTIVITIES
81
September 27. 1937
To:
The Secretary
From: Mr. Magill
1. Revision of administrative provisions of the revenue laws
Mr. Traynor who is in charge of this work discussed his progress
in organizing the topics to be considered. Mr. Oliphant has appointed
a group of six men to do the actual work and they will begin upon it
at once. We hope to complete the revision in about six months. If
it is well done, it will be in my opinion the most important accomplish-
ment in this field for twenty years.
2. Treaties on tax evasion
Mr. King is leaving in another day or two for Geneva. He feels
hopeful that the groundwork can be laid for treaties for the exchange
of tax information between ourselves and France, Belgium, Holland,
end possibly Italy and Switzerland. Sir Frederick Phillips asked
that Mr. King come to London at the close of the Geneva conferences
for informal discussions with the inland revenue authorities there.
3. Revision of rules of the Board of Tax Appeals
You will recall that a joint committee from the Board of Tax
Appeals and the General Counsel's office has been working on a re-
vision of the rules of the Board. The work has been somewhat impeded
by the resignations of Messrs. Russell Ryan and Logan Morris,
Mr. Morris having been chairman of the committee. Mr. Surrey who has
served as secretary has put in my hands a draft revision of the rules.
I think there will be difficulty in persuading the Board to make these
changes but I am going to work on the subject as soon as the General
Counsel's office indicates its approval of their proposals.
Rm
82
GROUP MEETING
September 28, 1937
9:30 a.m.
Present:
Mr. Magill
Mr. Oliphant
Mr. Lochhead
Mr. Gaston
Mr. Haas
Mr. Gibbons
Mr. Thompson
H.M.Jr:
Something which interested me very much was a little
line of Waley-Eaton in which it said, "I wonder if
this is another Federal Reserve panic."
Oliphant:
Yes, that's a marvelous line.
H.M.Jr:
Ha hal That's a marvelous line.
Oliphant:
Well, it was.
H.M.Jr:
What? I don't think - what's their publicity man
over there - I don't think he put that in.
Gaston:
Elliot Thurston.
H.M.Jr:
Yes.
And would you mind, half-seriously, half-jokingly,
telling the New York Tribune Bureau that my son Bob
is not at Princeton with John Lewis, Jr.; he happens
to be at Amherst.
Gaston:
Oh, he's going to Amherst.
H.M.Jr:
Otherwise they're all right.
Gaston:
Well, they got this from Princeton.
H.M.Jr:
Bob almost forgot to cancel his registration.
Gaston:
on, he registered in both places.
H.M.Jr:
Well, he did originally - took his examinations for
Princeton and passed. I told him all summer that he
ought to write them a letter and tell them he was no
longer planning to go there. Whether he did I don't
Regraded Unclassified
83
-2-
know. He was pretty busy this summer - Honolulu.
Who do they refer to 89 the pump-priming group in
Washington, Herbert?
Gaston:
Uh
H.M.Jr:
What?
Gaston:
I don't know.
H.M.Jr:
Well, it will come out. I don't think it's Hopkins.
Gibbons:
Mrs. Hopkins died.
H.M.Jr:
I know.
Magill:
Mrs. Hopkins?
Haas:
Harry Hopkins' wife?
Gibbons:
(Nods yes)
Magill:
She's a young woman.
H.M.Jr:
Here's all I've got - which simply proves that I'm
not going to do again what I did last week. I was a
damn fool last week, worked every night. Not going to
do it any more. This is from the British Embassy:
"I have received a telegram from the Chancellor of the
Exchequer asking me to convey to you an expression of
his thanks to you for having kept so closely in touch
with him with regard to the French situation. It has
been a great satisfaction to Sir John Simon to feel
that your views and his own have so closely coincided."
After it took him one week to agree with mel
"May I add, on behalf of Sir Frederick Phillips,
Mr. Trentham and myself a special word of thanks for
your courtesy in giving up so much of your valuable
time last week and for the princely hospitality with
which you honoured us on that delightful visit to
Mount Vernon."
All very nice, but I "aint" goin' to do it again.
I'm paying for it this week.
84
-3-
Archie?
Lochhead:
I've given you everything I had for this morning.
H.M.Jr:
In this room, it's very interesting, the fact that -
we just don't know what the answer is; we've checked
up now all around the world - the Japanese have
stopped selling gold. "ither they got enough money
or they're afraid to sell more on account of the
reaction at home. But the fact remains that since
the 9th of September we haven't received any gold.
And they tried one shipment to England of what?
Lochhead:
Four million.
H.M.Jr:
But previous
Lochhead:
Well, they shipped three weeks ago - previous gold -
just arrived.
H.M.Jr:
For over three weeks, they practically haven't
shipped any gold?
Lochhead:
Three weeks, haven't shipped any.
H.M.Jr:
The question is, "Button, button, who's supplying
them with the money?" Just passing a little gossip,
that's all.
Mr. Gibbons?
Gibbons:
I've got two things I'd like to see you about later on.
H.M.Jr:
Well, Mr. Jesse
Gibbons:
No hurry.
H.M.Jr:
Well, Jesse Jones comes in at 10. Now, if it's anything
about Black or Landy, you better say it now.
Gibbons:
No, it's not about Black.
H.M.Jr:
About who? Not Justice Black?
Gibbons:
No, no, that's official business.
H.M.Jr:
Now I've got one thing for you. I'm not going to
accept that suggestion for the Internal Revenue
Collector.
85
-4-
Gibbons:
Reynolds?
H.M.Jr:
That isn't his name, is it?
Gaston:
Yes, Arthur Reynolds.
H.M.Jr:
And you've got to pass it down.
Gibbons:
Jim Farley passed it, so I just....
H.a.Jr:
And I'm not going to clear it. I won't accept it.
The last fellow was a crook; I had to fire him. The
best he could ever earn - this fellow - was two thou-
sand dollars. Perfectly true, Jim Farley says he's
an honest man and he's got a clean record. Well, Mr.
Jones, my doorman down here - you can check up on him
and he's an honest man, but I wouldn't make him
Collector of Internal Revenue for Baltimore; and I
think he'd do a better job than this fellow he sug-
gested. And I think it's bad policy if you have to
fire a man and then take on somebody else you may have
to fire.
I asked Herbert to do a little checking, because he
worked for Bill Myers, and what he did for Bill Myers
was to interview people wanting a job, and they paid
him two thousand dollars. And after he left that, he
got a job for $1800. And that's the man they want to
make Collector. After having made an ass of him for
one year, I should think they'd come along with an
outstanding fellow. Instead, they give me a clerk.
Gibbons:
Congressman Ryan was up and said there was a namesake
of Tom Gibbons, the ex-prize fighter, a college
graduate, you could appoint.
H.M.Jr:
There's a letter there
Gaston:
This man here, Commissioner of Labor, says Einar
Hoidale - he would be an immensely better appointment
than this man he mentioned.
H.M.Jr:
Would you mind turning that over to Steve and tell
Steve afterwards what
Will you assume this
responsibility?
Gibbons:
This thing was jammed right through. Jim called me
Regraded Unclassified
86
-5-
on Saturday and wanted me to g et hold of you.
H.M.Jr:
I'm not going to do it.
Gibbons:
I haven't seen this Reynolds report at all.
H.M.Jr:
I'm not going to do the President a disservice.
I'm not doing the President any service to appoint
an $1800 clerk just because he's honest.
Gibbons:
Yes.
H.M.Jr:
It is certainly an awful reflection on the Democratic
party that the only person that is honest in the State
of Minnesota is an $1800 clerk.
Oliphant:
Honesty extends no higher.
H.M.Jr:
Well, honest in that you can't find anything else
against him. It's ridiculous, and I'm disappointed
that the thing has come up to me all signed and every-
thing else.
Gibbons:
Well, I didn't see it.
H.M.Jr:
No, I'm looking at Thompson. No red flag on it,
Thompson.
Thompson:
I gave it to Miss Chauncey. I thought you had given
instructions to make it
H.M.Jr:
No, just to get it ready. No red flag on it, I mean.
Well, anyway
Gibbons:
This other man was a candidate for Senator. He was
a candidate also.
H.M.Jr:
Why is Hoidale's name so familiar to me?
Gaston:
He was Congressman and then Democratic candidate for
Senator, and then he later had some job, I think, in
the Farm Credit set-up.
H.M.Jr:
I should think they've had an experience here recently
about rushing people through. Don't we ever learn any
Regraded Unclassifie
87
-6-
lessons? I mean the reason I'm saying this is
so that you (Gibbons) can repeat. "This is what
Henry told me." See? Do you get the point?
Gibbons:
The answer will be - he gave it to me - that the
Party was in such bad shape out there, and just as
soon as this other fellow was out they wanted to have
somebody put in his place so there wouldn't be a
wide-open fight. But that's nonsense.
H.M.Jr:
I know this much about public relations, not
politics. If you want to have people forget we
had to fire the fellow, then give us such an out-
standing fellow that they will forget; but not
immediately begin to say, "My God, look at this
fellow."
Gibbons:
And particularly in a community like this. Not
like New York, Philadelphia, some big community.
They take their politics seriously out there.
H.M.Jr:
And they know their people.
Gibbons:
Sure they do.
H.M.Jr:
Do you mind my pinning this on you, and you're simply
quoting me. I hope you agree.
Gibbons:
Oh, absolutely. What you have just told me is the
first I ever heard about the fellow. But if he's
an $1800 clerk, absolutely.
H.M.Jr:
They say he worked for one of these subsidiaries of
Farm Credit. We asked Bill Myers, "What about this
fellow?" Well, Bill had to stop and think. They
couldn't find him.
Now, the other - what you've got isn't pressing?
Gibbons:
No, no, that's just a lot of nasty gossip. You know
the thing I mentioned to you yesterday.
H.M.Jr:
Yes,
Gibbons:
It smells lousier than this thing out there. Nearly
everything that was done was done in cash, currency.
Regraded Unclassifica
88
-7-
H.M.Jr:
Was it?
Oliphant:
Steve enjoyed it.
H.M.Jr:
What?
Oliphant:
He enjoyed it.
Gibbons:
Just smells bad.
H.M.Jr:
Not so good. When you get through. Good juicy gossip
might cheer me up. I don't want anything depressing
today.
Thompson, your decks clear?
Thompson:
All clear, yes, sir.
H.M.Jr:
All right.
Georgie?
Haas:
1 put this bill stuff on a sheet somewhat similar to
Danny.
H.M.Jr:
Yes.
Haas:
And changed ours somewhat and also changed Danny's
on the same design, so you can see the....
H.M.Jr:
Do you mind telling me what you recommend to take the
place of the 9-months?
Haas:
Of the 9-months?
H.M.Jr:
(On phone) Bartelt on the wire.
I mean what do you recommend? Just tell me. What
do you recommend?
Haas:
Well, it's just a question of when. It runs this
way. On the 22d we're issuing - continued to issue
9-months - 22d, 29th, October 6th.
H.M.Jr:
Wait a second.
(On phone) Hello, Eddie. Can you bring down to that
Open Market Committee at 11 o'clock tomorrow the usual
89
-8-
thing which Bell brings, which is an estimate of
what we need in the way of money from now until the
15th of December. Who makes that up for Bell? -
- Well, you bring it down at 11 o'clock tomorrow.
Because when I told Burgess that we didn't need any
money until the 15th, he wept bitterly. - - Yes,
because he said the Federal Reserve have only 50
million dollars maturing in January, and what are
they going to do in case they have to go in and buy
some stuff? They'd. actually have to put in fresh
money. - - All right.
You know, it's really - he wasn't joking; he said,
"My God, we have only 50 million dollars maturing
in January, and supposing there is a shortage."
He says, "What are we going to do? We wouldn't
have any bills to run off. We wouldn't have any
odd money to use."
Haas:
That is something to worry about.
H.M.Jr:
Now, he says, "What are we going to do? So if there
is a tight situation over Christmas, if you don't give
us anything now to buy, we don't have anything maturing
in January, we'd have to actually increase our port-
folio."
Lochhead:
Spoil that nice authorization.
H.M.Jr:
And they'd actually have to use it.
Lochhead:
That's the point.
H.M.Jr:
Well, what do you suggest?
Heas:
Well,....
H.M.Jr:
Oh, come on.
Haas:
Here's the 273-day bills; here's the dates; issue
four more of them, up to the 13th. Then we run these
tax bills into March.
H.M.Jr:
Yes.
Haas:
And then down here
Unclassifi
90
-9-
H.M.Jr:
That's enough.
Haas:
Down here the 91-days start.
H.M.Jr:
All right. I told him the 13th. But this is the
taxes. How many taxes?
Haas:
1 - - 2 - 3 - 4 - 5 - 6 - 7 - 8 - 9.
H.M.Jr:
Nine - 450. And then you start the 90-days on the.....
Haas:
On the 22d of December. And then the certificates
we're doing on the 15th.
H.M.Jr:
300 million. Don't do that.
Haas:
O.K., drop that out.
H.M.Jr:
And do it down here when you do need it.
Haas:
Now Danny's is a little bit different.
H.M.Jr:
I know.
Haas:
You've got two sheets. That's Danny's suggestion.
H.M.Jr:
What's that?
Haas:
That's Danny's suggestion, and the only difference
is that down here we didn't want to start a hundred
million dollars just before the March financing, so
we modified to get away from that. That's the only
difference.
H.M.Jr:
These fellows can't get used to it here. May not
need new money until the 15th of December; may not
need it then. But I got a great kick out of hearing
Burgess; really, he was upset. So I repeated. He
says, "You don't have to yell at me. I know it the
first time."
You're (Thompson) all right?
Thompson: Yes.
Haas:
I'm clear.
Regraded Unclassified
91
-10-
H.M.Jr:
Have you heard - did you see what happened on the
automobile stuff in the Times today?
Haas:
No, I didn't.
H.M.'r:
Went up about 20 notches.
Haas:
On their index?
H.M.Jr:
Yes.
Haas:
No, I didn't see that.
H.M.Jr:
Is your boy back?
Haas:
No. He may be on the wire trying to get me now. But
he is to call me this morning. Either that or he's
back.
H.V.Jr:
(On phone) Find out if Henry Murphy is back from
Detroit - in Mr. Haas' office. Please.
daas:
Well, that would line up somewhat with the information
that they're going back into production.
H.M.Jr:
Automobile index, Times, jumped from 108.7 to 133.6.
Just as a matter of interest I called up George Haas
and asked him to send a man out to Detroit to find
out when this automobile thing was going to turn,
because I thought it was one of the most important
things. So she's jumped.
But the thing that doesn't check here - it says the
Ford and Lincoln plants were closed completely. You
said they were in production.
Haas:
The story 1 got was that they were working on old
models; that would keep some of them open. That
wasn't Henry's check.
H.M.Jr:
This would make a terrific difference in the Times
index next week.
Oliphant:
In the steel index too.
H.M.Jr:
Yes, I know. All right, George. That meeting this
92
-11-
afternoon with all the boys - I'm going to have it
at 2:30. I mean on this question of economy, budget.
Haas:
Oh, 2:30.
H.M.Jr:
2:30.
Gaston:
(Nods nothing)
H.M.Jr:
You feeling all right?
Gaston:
Yes, yes, I'm O.K.
H.M.Jr:
What?
Gaston:
Yes, I feel all right.
Oliphant:
There's a question - the Attorney General gave me
that - gives you this authority to - gives us
authority to go out and find it somewhere else,
having failed twice to get competition.
H.M.Jr:
You're going - we're asking him to give us something
so that we can go out somewhere else and buy tires,
is that the idea?
Oliphant:
(Nods yes)
H.M.Jr:
Hello (On phone) - - Thank you.
Murphy is not in.
Oliphant:
I know what they're going to say, but I want to get
their opinion so as to keep our records straight.
H.M.Jr:
Did-they bid?
Oliphant:
Bid simultaneously.
H.M.Jr:
Then why do you need this?
Oliphant:
I just want the record. I've got their verbal opinion.
But I don't want their
H.M.Jr:
But you don't have to use this?
Oliphant:
Just to keep our records straight.
93
-12-
Gaston:
They're not bidding in open bidding.
Oliphant:
We're acting on the authority which this will
formally register; namely, having tried to get
competitive bids twice, then under the law the
Government 1s entitled to go out and buy as best
it can.
H.M.Jr:
You know this, you've got it pat, and I haven't.
Twice we have asked for bids and twice they were
identical. And now, on the third time, we have
gone out and gotten Sears-Roebuck and they've come
in with something lower. And this is the authority
to close, is that the idea?
Oliphant:
This confirms their previous oral opinion to us.
H.Z.Jr:
Do you think I ought to see Captain Collins? What?
Oliphant:
Just telephone him. Give you very interesting news.
I'd just call him.
H.M.Jr:
All right. You stay. We'll call him.
Oliphant:
Miss Chauncey gave me this telegram, sent it in to
me.
H.M.Jr:
Well, this fellow's been phoning all day and he's
an attorney; I don't see lawyers.
Oliphant:
I'll see him.
H.M.Jr:
But you better get from Wayne Taylor the memorandum.
Oliphant:
Well, I know the story.
H.M.Jr:
I don't. But he's an attorney, and I told Kieley
to turn him over to you, that I don't see lawyers.
I mean if there's an ammonium sulphate company, one
company - I think he represents an association,
doesn't he?
Oliphant:
(Nods yes)
H.M.Jr:
I won't see him. If the President of a company wants
to come down and see me, all right, but if it's an
94
-13-
association and I don't belong to....
Gibbons:
Is that a dumping case?
H.M.Jr:
Yes. Laurel Curtis' husband
Gibbons:
Domestic concern.
H.M.Jr:
It's an association.
Gibbons:
Yes, I know.
Oliphant:
I'll see him; I'll take care of it.
+
Magill:
Nothing.
H.M.Jr:
All right.
Regraded Unclassified
September 28, 1937.
95
9:58 a.m.
H.M.Jr:
Hello
Operator:
Admiral Peoples won't be in at all today. I have
Captain Collins for you.
O:
Go ahead.
H.M.Jr:
Hello
Collins:
Good morning, sir.
H.M.Jr:
Sir Captain Collins.
C:
Yes, sir.
H.M.Jr:
I hear we've got a good bid on tires.
C:
It looks that way sir, yes, sir.
H.M.Jr:
Tell me about it.
C:
Well, the prices apparently - I wouldn't want to say
definitely how much of a reduction it is but it looks
like probably a ten to a twelve per cent reduction.
I'm working on the tabulation now, sir.
H.M.Jr:
I see.
C:
These people came in yesterday morning through the
courtesy of Leon Henderson of - Harry Hopkins sent up.
H.M.Jr:
Yes.
C:
- and ostensibly to give us some advice as to where
the source of supply was, and when they got here they
became very much interested in it, and they have sub-
mitted the price list - 1s what it really amounts to,
sir.
H.M.Jr:
Who is they
C:
Seare and Roebuck.
H.M.Jr:
Uh-huh.
C:
And they have tires manufactured by four companies -
practically the total output of those companies
and while they do not bid on all the sizes
they do bid on all of the popular sizes.
96
- 2 -
H.M.Jr:
Yes.
C:
And they take - there's no bid at all however for such
things as aeroplane tires and specialties, such as we
have carried on & schedule in the past.
H.M.Jr:
Yes.
C:
I am laying it down now, Mr. Secretary, in order that
we may have a picture, - as I told Mr. Oliphant last
night, a picture of the whole transaction from start to
finish, and until I can get that laid out and see how
it affects other tire prices on which bide had been
received, why we will not know just what the reduction
18.
H.M.Jr:
Well, now, when you've got it ready, and it's all
ready for decision, let me know and I want you to come
over here.
C:
All right, sir, I'll be over.
H.M.Jr:
Righto.
C:
Thank you, sir.
H.M.Jr:
Because. I'm - this 18
C:
81r.
H.M.Jr:
This 1s a matter both the President and I are inter-
ested in.
C:
Yes, sir. Well, I'll be in contact with your office
as soon as I finish.
H.M.Jr:
Thank you.
C:
Thank you, sir.
97
September 28, 1937.
10:00 a.m.
H.M.Jr:
Hello
Operator:
Mr. Henderson - Go ahead.
H.M.Jr:
Leon Henderson
Leon
Henderson:
Yes, sir.
H.M.Jr:
Morgenthau
H:
Yes, Mr. Secretary.
H.M.Jr:
I Just want to tell you how much pleased I am on the
assistance you gave us on that tire business.
H:
Well, I'm just holding my breath to see whether it
works out all right, I don't know -
H.M.Jr:
Well, I Just talked to Captain Collins, and I told him
both the President and I were very much interested
when he's got it laid out, and he knows where he's at,
to come over and see me.
H:
Well, that's swell. Well, now I tell you - what I
think would be a good idea, - now you're going to talk
to Herman about it, I think it would be a good idea
to anticipate some of these things and look ahead to
new lettinge where we've had identical bide in the past.
H.M.Jr:
I know
R:
I've always felt - one of the things I've wanted to talk
to you about, and never really got around to, I believe
the Government ought to centralize all its information
about the - say, pretty largest industries, particularly
those with which it has dealings and which policy is
concerned. When you get into a situation like oil,
rubber or steel, there's a great difference of opinion,
and the information on which the Government can base
its action is scattered all over - all over all the
Departments.
H.M.Jr:
But that suggestion 18 80 practical
H:
And -
one will
H.M.Jr:
No / most likely pay any attention to it.
H:
You people down in your Procurement have a closer
98
- 2 -
contact with industry, than practically anyone else.
H.M.Jr:
Yes
H:
And - I'm going to talk to Herman to see whether it
couldn't be worked out.
H.M.Jr:
I don't see why it can't, unless the fact that it's so
practical, it kills it before we start.
H:
How are you feeling after your trip?
H.M.Jr:
How do I sound.
H:
You sound pretty good, I'll tell you.
H.M.Jr:
O.K.
H:
Well, I hope to see you some evening.
H.M.Jr:
I hope 80.
H:
All right, Mr. Secretary.
Regraded Unclassified
99
September 28, 1937.
12:06 p.m.
H.M.Jr:
Hello, Cochran.
Cochran:
Yes, sir.
H.M.Jr:
What do you know
C:
The situation is a little nervous here but not quite
Bo much pressure on the franc.
H.M.Jr:
I see
C:
Money 1s awfully scarce for the month end 80 we can't
tell much by it.
H.M.Jr:
Uh-huh
C:
Yesterday and today on each state operation the control
is less than one hundred billion francs
H.M.Jr:
Yesterday
C:
Yesterday less than one hundred
H.M.Jr:
Yes, a hundred million france
C:
A hundred million francs
H.M.Jr:
And how much today
C:
I would say it was less than one hundred
H.M.Jr:
Oh, 80 between - in two days they've done about two
hundred million
C:
Yes - I'll get the dispatch ticker tomorrow but that's
the estimate I got.
H.M.Jr:
I see
C:
H.M.Jr:
Well -
C:
I expected a circular out today following that state-
ment at the bank last night.
H.M.Jr:
Yes
100
- 2 -
C:
Which wont expect banks to refrain from ticker
operation which were not of a commercial character.
H.M.Jr:
I see
C:
And also to give bank notes only to bona fide
while the
rumored it might come out, the rumor
on it. the market 1s that the Minister of Finance stopped
H.M.Jr:
I see
C:
I - I called my friend and he asked me to come out and
-
see him in the morning.
H.M.Jr:
I see
C:
8o that
H.M.Jr:
Well, how much longer is this going to last.
C:
It's awfully hard to say, I got straight information
this - the 26th, that the statement on Thursday would
not show any new advance to the
H.M.Jr:
Uh-huh. I see
C:
So the thing is up in the air.
H.M.Jr:
Uh-huh. All right, I just want to check with you
personally. I - I hope the Belgian thing will quiet
down a. little bit.
C:
I think that is - it looked a little better today.
H.M.Jr:
Yes
C:
And I - because my worry about this whole thing was,
that it might start some of these nearby getting
nervous.
H.M.Jr:
Yes
C:
And that they'll be
susceptible.
H.M.Jr:
Yes
C:
But today it looks a little better and I think that
man may hold on, now.
101
- 3 -
H.M.Jr:
Uh-huh
C:
Until December
H.M.Jr:
Until when?
C:
December
H.M.Jr:
I see
C:
At least, that's my personal belief that it will get
out then and go into the banks.
H.M.Jr:
Yes
C:
I - I'm not sure of course, that's my hope.
H.M.Jr:
O.K. All right.
C:
And here - as you know the election
H.M.Jr:
Yes
C:
Then they have a radical socialist convention on the
28th of October.
H.M.Jr:
Yes
C:
Then Parliament would like to speak on the 6th - about
the 6th of November.
H.M.Jr:
Yes All right.
C:
Whether anything will happen and when, is still a
question.
H.M.Jr:
All right, thank you.
C:
You have no change in your plans for me, is there.
H.M.Jr:
No you'd better stick there and see this thing
through until it either gets better or worse.
C:
Yes - that's what I feel too, because -
H.M.Jr:
You mean there's no sense of coming over here with
this thing pending.
C:
Oh no, no, no this 18 the interesting place right now.
102
- 4 -
H.M.Jr:
Well, - stick it through until it gets better or
worse
C:
Well, I think we'll know something within the next
ten days.
H.M.Jr:
All right
C:
Maybe the week, and if I was on the way home -
it'd be -
H.M.Jr:
No, no, you could serve us much better by being there
than being on the water.
C:
All right, if you feel that way I'm very
H.M.Jr:
All right
C:
There's nothing more right here.
H.M.Jr:
All right
C:
Goodbye
H.M.Jr:
Goodbye.
103
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Parie, France
DATE: September 29, 1937, noon.
NO.: 1355
RUSH
FROM COCHRAN. ULTRA CONFIDENTIAL.
Re my telegram No. 1345, September 25, 2 p.m. The
letter as drafted by Bonnet was duly signed and delivered
to the Bank of France. In the letter Bonnet practically
called upon the Bank of France for an explanation as to
why the French monetary situation has not improved in
spite of the policies which Bonnet has followed. Bonnet
intimated that the Bank of France should take stronger
measures to check speculation against the franc. The
preparation of a reply was immediately begun by the Bank
of France in which no reference was made to politics. In
it the point was maintained that the reason for the in-
ability of the stabilization fund and the Bank of France
to improve the currency situation lay outside the technical
monetary field.
The Bank, acting upon the suggestion in the letter that
steps to check speculation be taken, called B. meeting for
6 o'olock on Monday evening of leading Paris bankers, as
I reported previously. The Bank of France at this meeting
sought pledges of cooperation which involved limiting future
exchange operations against the franc to purely commercial
transactions
104
- a -
transactions and only giving bona fide travelers foreign
bank notes. Plans were made for issuance of a circular
letter to the banks the foblowing morning.
However, before the circular could be issued yesterday
morning, Bonnet got in touch with the Bank. Bonnet said
that he had thought over more carefully the letter he had
sent to the Bank; since he particularly desired to avoid
any possible appearance of controversy between himself and
the Bank Governor, he had decided to withdraw the letter and
asked that the original which he had sent to the Governor
be canceled. This was agreed to by the Governor, who
also stopped preparation of his reply to Bonnet.
Bonnet told the Bank Governor, also, that he did not
believe the Bank should bear down too severely on the banks
along the lines which had been discussed at the meeting
the night before. Therefore no circular letter was issued
by the Bank of France. My friends are of the opinion that
bankers who had attended the conference - and Lazard in
particular - who have very close contact with the Minister
of Finance reported to him after the meeting what took
place there and set forth their objections to the proceed-
ings. Officials of the Bank of France decided that on their
own responsibility they would continue to do what they could
to check speculation against the franc, but they realized
that the market would know that such efforts could not be
very vigorous in view of the above-mentioned circumstances.
Regraded Unclass
105
- 3 -
There 1s a story in today's press of the cooperation which
Paris banks have pledged in helping the Bank of France
to check speculation.
The market this morning reacted very strongly against
the franc, as fully anticipated by the Bank of France
officials as a result of the above developments - which all
of the bankers who attended the conference knew about or
at least suspected. The field seems to be left fairly clear
for bear speculation in view of Bonnet's public intimations
that further gold resources of the Bank of France itself
will not be used to support the franc, the promises of
the Government that exchange control will not be imposed,
and in view of the Ministry of Finance now failing to back
up the informal restrictive measures which it was contemplated
the Bank of France should inaugurate. The French stabiliza-
tion fund is, of course, the main obstacle. The fund by
11 o'clock this morning had been obliged to yield a little
over one million pounds of sterling at 144.60 operating
through its own trader and through the Societe Generale and
the Comptoir. The losses for Monday and Tuesday of this
week each day were less than 100 million france of foreign
exchange.
The Bank of Spain for several years has had on deposit
in France gold as security for a franc credit from the
Bank
106
- 4 -
Bank of France; I have been most confidentially informed kx
that decision has been reached by the Valencia Government
to pay off the franc loan. The Valencia Government has
sold is gold to the French stabilization fund in order to
procure the francs, with the result that the gold holdings
of the stabilization fund are now increased by a little
over one billion French francs.
My informants are of the opinion that the letter
drafted by Bonnet to Chautemps (which I previously mentioned)
has actually gone forward; this however has not been con-
firmed as yet. My usual informants and other sources have
convinced me that there is active political maneuvering.
Some action may be hastened by renewed pressure on the
franc.
END MESSAGE.
WILSON.
EA:LWW
107
September 28, 1937
To:
The Secretary
Fromt Mr. Magill
Subject: Conference with Congressman Fred M. Vinson -
Re: Revenue program for 1938
Kr. Vinson said that he would be in town continuously during the
fall. Ee thought his subcommittee of the Ways and Means Committee
would all be ready to come to Washington early in November to begin
work unon the proposed revenue bill. He said Mr. Doughton had, as
he put it, "sworn in" each of the members of the committee with a
view to insuring peaceful and objective consideration of the various
proposals. He anticipated, however, that we would have difficulty on
particular subjects, such as percentage depletion and community property,
from such men as Congressmen Buck and Disney, from California and
Oklahoma respectively. He thinks, however, that we will be able to
eliminate percentage depletion or cut it down in some way so 88 to
insure e large increase in revenue.
Mr. Vinson is very anxious to keep the budget balanced and to
eliminate no taxes unless we can be sure of obtaining an equivalent
amount of revenue from some other source. He said he thought the
sentiment of the country was not in favor of eliminating the tax on
capital gains. Be thought it might be well to tax capital gains at
a flat rate and he is toying with the 1dea of some form of transfer
tax to be collected et the time of the sale. He believes that one
basic trouble with our present revenue system is too long deferment
of collections of texes after the transactions have occurred and,
hence, be would like to see the introduction of provisions for with-
holding the tax at the source, particularly in the case of salaries
and possibly in the case of transfers of property. You will recall
that his lest week's press release suggested the possibility of with-
holding the tax at source on salaries.
His present thought seems to be either to retain the undistributed
profits tax without much change or to return more nearly to the pro-
visions of the house bill on the subject. If this were done, he might
be willing to repeal the capital stock tax and the normal tax on
corporations but he is doubtful about the repeal of these two latter
taxes on account of the amount of revenue involved.
He thinks the upper rates of the estate tax and probably the
income tax are too high to be effective.
108
- 2 -
He contemplates the repeal of only a few of the excise taxes on
account of his basic desire to keep the total volume of revenue up to
its present level.
He would like to do something about tax-exempt bonds but he is
not very clear as to what should be done.
In general Mr. Vinson was very friendly and I have the impression
that if we consult him in advance he will be quite open to our sugges-
tions. I am sure that he realizes his chairmanship of the subcommittee
gives him an excellent chance to increase his reputation and that the
best way to do it is to work with the Treasury as closely as possible.
He has not as yet done much thinking about specific proposals. In my
judgment it will be to our advantage to discuss our major recommenda-
tions with him privately since I think that in that way we can generally
secure his strong support. I told him that I would get in touch with
him again within a week.
RM
109
September 28, 1937.
If the President wants to do it and if he means
what he says, that they are not going to make any more
commitments to WPA, then I suggest that they turn the
whole of WPA over to the RFC for liquidation. I told
this to Jesse Jones and I could tell that he was just
crazy to have it. He said that all of these lending
agencies should be fitted together and headed up by a
business man which, of course, he says he is.
Unclassit
110
September 28, 1937
DELL
I was in conference today with the Secretary.
Mr. délimveisor, and Mr. Reason of the Federal Reserve
Beard, in connection with the problem of 050000 reserves.
The Secretary thought that 10 would be advisable, for at
least two weeks, when we make our calls on Monday and
Toursday, to got in toush with the Federal Reserve Board
(Mr. Ramson), and advise him with respect to the proposed
call in order that the Board night have an opportunity
to acquaint us with my matters which they feel should
be called to our attention before the call is sent out.
of
kfb:HBV
TREASURY DEPARTMENT
M111
111
OFFICE OF THE SECRETARY
COMMISSIONER OF
WASHINGTON
ACCOUNTS AND DEPOSITE
RE: CONFERENCE BETWEEN SECRETARY MORGENTHAU
AND HONORABLE JESSE JONES, SEPTEMBER 28,
1937. REGARDING BUDGET OUTLOOK FOR 1938
A conference was held in the Office of the Secretary of
the Treasury at 10:00 o'clock, a. m., September 28, 1937, for the
purpose of discussing the estimated receipts and expenditures of
the Reconstruction Finance Corporation for the fiscal year ending
June 30, 1938.
There were present at the conference Secretary Morgenthau,
Honorable Jesse Jones, Mr. Mulligan of the Reconstruction Finance
Corporation, Messrs. Bailey and Lawton of the Bureau of the Budget,
and Mr. Bartelt, Commissioner of Accounts and Deposits.
Mr. Jones presented to the Secretary a letter dated September
28, 1937, in which he stated that the Reconstruction Finance Corpora-
tion had submitted to the Bureau of the Budget, for inclusion in
the 1938 budget, an estimate of disbursements in excess of receipts
of $148,500,000, and that this estimate had been changed by the
Bureau of the Budget from a net disbursement of $148,500,000 to net
receipts of $150,000,000, a difference of $298,500,000.
I understood Mr. Jones to say that he had received a letter
from the President some time ago requesting that the Reconstruction
Finance Corporation improve its cash position with the Treasury
during the fiscal year 1938 to the extent of $150,000,000. I also
understood Mr. Jones to say that he took this to mean that the
improvement requested by the President was to be made in relation
to his net disbursement estimate previously submitted to the Bureau
of the Budget. This would practically balance the Reconstruction
Finance Corporation's budget on a cash basis for the fiscal year
1938. Mr. Jones indicated that if the Reconstruction Finance
Corporation can reach the Budget estimate of $150,000,000 in excess
of receipts during the fiscal year 1938, that is all that could be
expected. However, be assured the Secretary of his fullest coopera-
tion in the Secretary's effort to reduce the budget deficit below
the estimate of $418,000,000. as submitted to the Congress in the
President's Message of April 20, 1937. To this end, he will have
112
- 2 -
a careful analysis made of the estimated receipts and expenditures
of the Reconstruction Finance Corporation and will furnish the
Secretary with a statement showing the bed-rock figures on which
the Secretary can absolutely depend, plus the additional amount
of receipts which the Reconstruction Finance Corporation might
deposit in the Treasury if it gets "the breaks". Mr. Jones will
also furnish the Secretary with a list of the major projects which
enter into the picture.
Mr. Jones mentioned the following undisbursed commitments
which are outstanding at the present time:
Loans
$ 520,703,000
Commodity Credit Corporation
(including $150,000,000 for
cotton)
227,000,000
Rural Electrification Adminis-
tration
41,900,000
Allocations to other Govern-
mental agencies, of which
not more than $5,000,000
will probably be used
....
137,247,000
Among the more important iteme included in the $520,703,000.
of undisbursed commitments for loans, Mr. Jones mentioned the
following:
$48,000,000 for the East River Tunnel (which
will be disbursed over & period
of approximately 4 years);
$28,000,000 for the Hudson Tube (which will
be disbursed over a period of 3
years);
$90,000,000 for jobs in the Metropolitan Water
District in Southern California;
$63,000,000 for closed banks; and
$40,000,000 for drainage and irrigation districts.
Mr. Jones agreed to submit his revised estimates within the
next week and will have another conference with Secretary Morgenthau
at 10:00 o'clock a.m. on October 5, 1937, for further discussion of
the situation.
113
- 3 -
There was then some discussion with respect to the Public
Works Administration program, with particular reference to the
securities which the Reconstruction Finance Corporation will buy
from Public Works Administration, Mr. Jones mentioned an under-
standing which the Reconstruction Finance Corporation has with the
Public Works Administration to take over $99,000,000 of securities
acquired by Public Works Administration in connection with the East
River Tunnel, Hudson Tube and a few other major projects. Mr. Jones
also indicated that he had tentatively agreed to take from Public
Works Administration certain securities now held by Public Works
Administration (amounting to approximately $120,000,000) at 66-2/3.
(Mr. Jones said this information should be regarded as strictly
confidential.)
Mr. Bartelt gave the following figures as representing the
undisbureed commitments of Public Works Administration and the
estimated cash outlays by fiscal years in connection with such
commitments according to information furnished by Mr. Marcy. Chief
Accountant of Public Works Administration. -- (In millions).
Loans
Grants
HousingC
Total
Commitments
$ 206
$ 384
$ 54
$ 644
Cash disbursements:
(estimated)
1938
$ 145
$ 200
$ 42
$ 3874
1939
61
164
12
237b
1940
-
20
-
20
Total
$ 206
$ 384
$ 54
$ 644
Exclusive of $15,000,000 for administrative expenses.
Exclusive of $9,000,000 for administrative expenses.
s/
Old program.
Mr. Bartelt also stated that Mr. Maxcy had advised him that
the $206,000,000 loan commitment for 1938 would be financed B.S
follows:
1. From cash balance now in revolving
fund ($53M must be reserved for
grants)
$ 21 M
114
- 4 -
2. From sales of present holdings of
securities to Reconstruction
Finance Corporation (PWA now
holds $129M)
$ 60 M
3. From additional sales of securities
to Reconstruction Finance Corpora-
tion (as and when acquired by PWA) .
125 M
Total
$ 206 M
After the meeting in Secretary Morgenthau's office,
Mr. Mulligan of Reconstruction Finance Corporation, Mr. Lawton
of the Budget Bureau, and Mr. Bartelt, Commissioner of Accounts
and Deposits, called Mr. Maxcy, Chief Accountant of the Public
Works Administration, over to the Treasury to discuss the program
of Public Works Administration in 80 far as the budgetary outlook
was concerned, and with particular reference to the purchase of
Public Works Administration securities by the Reconstruction Finance
Corporation.
Mr. Maxcy furnished the following breakdown of projects
included in the $125,000,000 which he stated the Reconstruction
Finance Corporation had committed itself to take off their hands
as and when acquired:
Midtown Tunnel
$ 47,130,000
City of Detroit
7,700,000
Pennsylvania Plan
......
45,000,000
Lincoln Tunnel, New York City.
26,000,000
Total
$125,830,000
Of the $125,000,000 of securities, which Mr. Maxcy said
the Reconstruction Finance Corporation agreed to take over a.e and
when acquired, Mr. Mulligan of Reconstruction Finance Corporation
knew of only $99,000,000 (previously referred to).
After some discussion, Mr. Maxcy agreed to furnish a list
of the major projects making up the present commitments of Public
Works Administration. This list will be classified according to
probability of execution and also according to periods in which
it is estimated the disbursements will be made. Mr. Maxcy also
Regraded Unclassified
115
- 5 -
was requested to group the projects according to the methods by
which they will be financed. For example, the list of projects
aggregating $125,000,000 which the Public Works Administration
expects to finance through the sale of the securities to the
Reconstruction Finance Corporation will be in a separate group
and sub-totaled. Mr. Maxcy will also furnish a list of the
securities now held by the Public Works Administration. He was
also requested to furnish a complete financial statement with
respect to each appropriation and fund under the Public Works
Administration showing the cash balances with disbursing officers
and on the booke of the Division of Bookkeeping and Warrants, the
estimated receipts to go into each fund and the estimated dis-
bursements from each fund.
Mr. Maxcy and Mr. Mulligan were cautioned to be sure that
the receipts from sales by Public Works Administration to the
Reconstruction Finance Corporation correspond exactly with the
disbursemente that the Reconstruction Finance Corporation takes
up in its revised estimates on accountof such purchases.
Mr. Mulligan was also cautioned to see that both receipts
and paymente of the Reconstruction Finance Corporation with respect
to the Reconstruction Finance Corporation's own obligations which
it has sold in the market are stated separately in its revised
estimates of receipts and expenditures.
Attachments:
Letter of Honorable Jesse Jones, Chairman
of the Reconstruction Finance Corpora-
tion, dated September 28, 1937;
Transcript of telephone conversation
between Mr. Maxcy of Public Works Admin-
istration and Mr. Bartelt, Treasury,
September 28, 1937.
116
RECONSTRUCTION FINANCE CORPORATION
WASHINGTON
JESSE H JONES
CHAIRMAN OF THE BOARD
September 28, 1957
Dear Mr. Morgenthau:
Net RFC receipts for the fiscal year 1937 were $129,000,000
more than the estimate we gave the Director of the Budget. Our estimated
receipts were $715,800,000; actual receipts were $720,500,000; estimated
disbursements were $514,645,300; due to recovery actual disbursements were
$389,600,000.
The Buresu of the Budget arbitrarily increased our estimate of
net receipts from $201,154,700 to $425,000,000, which latter estimate was
not realized by $94,000,000, but the bad guessing was by the Budget and not
by us.
For 1958 we gave the Budget an estimate of excess disbursements
over receipts of $148,500,000. This estimate the Budget changed from net
disbursements of $148,500,000 to net receipts of $150,000,000, B difference
of $298,500,000.
The President's letter of June 29th asks that we make every
effort to facilitate the liquidation of our loans BO as to deposit with
the Treasury a net of $500,000,000 instead of the $150,000,000 Budget
estimate.
This would make $448,500,000 more than our estimate, and much
more than seems likely of accomplishment.
For the past three months our receipts, exclusive of the pro-
ceeds of the sale of Triborough Bridge bonds, have about offset our dis-
bursements.
At the conference we all had with the President July 8, 1937,
I was asked if the RFC could be depended upon to return to the Treasury
$150,000,000 more in the fiscal year 1938 than the estimate we had furnished.
I replied that we could.
We have been curtailing our lending policy for more then & year,
and are making no new commitments except where it appears that 8. real need
or emergency exists. The net result of our operations will to & large extent
depend upon our ability to sell securities and liquidate losns.
Sincerely yours,
JunesJones
Homorable Henry Morgenthan, Jr.
Chairman
Secretary of the Treasury
Washington, D. C.
117
Telephone conversation between
Mr. Maxcy, Chief Accountant, P.W.A.,
and Mr. Bartelt, September 29, 1937
After Mr. Bartelt explained the purpose of his telephone
call the following conversation ensued.
Mr. Maxcy:
The cash balance in the revolving fund as of September
24, was $74,000,000.
Mr. Bartelt: $74,000,000 in cash?
Mr. Maxcy: Yes, well you had better make that $74,500,000.
Mr. Bartelt: $74,500,000, all right.
Mr. Mexcy: There are grants which have not yet been transferred of
$53,300,000.
Mr. Bartelt: $53,300,000.
Mr. Maxcy: That would bring us down to $21,200,000 of available cash
in the revolving fund.
Mr. Bartelt: Yes.
Mr. Maxcy: We are under contract to purchase $148,000,600 and with the
new allotments coming through will have $58,000,000 more,
making $206,000,000, we have entered into.
Mr. Maxcy: The R.F.C., have obligated themselves to take right off our
hands $125,000,000 of those, or close to $126,000,000,
leaving about $80,000,000 that we have to purchase.
Mr. Bartelt: Yes,
Mr. Maxcy:
We will purchase for our own account and have previously
arranged for them to buy. If you compare with cash we
have on hand, we have to sell about $60,000,000 in bonds to
put this program into being.
Mr. Bartelt: How will you do that?
Mr. Maxcy: Out of securities we have on hand.
Mr. Bartelt: How much in securities do you now hold?
Mr. Maxcy: $129,000,000
Mr. Bartelt: In other words, you would sell securities in the market?
- 2 -
118
Vr. Marcy:
Oh no, to the R.F.C.
Mr. Maxcy:
We have to sell about $60,000,000 of the $129,000,000
in order to put us in a cash position where we will be
able to take care of the grants. of course, the grants
are transferred to special accounts.
Mr. Bartelt:
Will the R.F.C., take the $60,000,000?
Mr. Maxcy:
They have said "we will take those just as fast as you
buy them". See, I mean they are committed to those,
That commitment rune up to $125,800,000.
Mr. Bartelt:
Does that include the $60,000,000 in addition to the
$125,000,000? That would make $185,000,000 in all.
That and the $21,000,000 of available cash would take
care of your $206,000,000.
Mr. Maxcy:
Now, on expenditures our forecast shows that we would
spend for loans $145,000,000 or $150,000,000,and of
course, that may be greatly modified by these bonds not
being cold to us. For instance, the $45,000,000 of the
Pennaylvania loan - - they may stick it in their sinking
fund and may never tender them to us, So, we do not know
that any figures we give you now are right.
Estimates for the fiscal year 1938 are $150,000,000 in
loans; $200,000,000 in grants, and $42,000,000 for
housing, making $392,000,000 that we will probably spend
in the fiscal year 1938.
Mr. Bartelt:
How much will you get back?
Mr. Maxcy:
Of course, straight off, it's pretty hard to tell but the
chances are ten to one you can say we will get back all
of our loan money.
Mr. Bartelt:
During 19381
Mr. Maxcy:
Yes, because the reason I eun saying that is this - - We
have got to sell $60,000,000 now to take care of our
present commitments,
Mr. Bartelt;
Under the law, are you authorized to sell any of your
securities in the market.
Mr. Maxcy:
Yes, we are but under the agreement with R.F.C., we would
not do that.
Mr. Bartelt:
Then you expect total expenditures of $392,000,000, and
receipts from the R.F.C., of $150,000,000. That would
give a net expenditure of $142,000,000, exclusive of
$15,000,000 administrative expenses. Is that larger than
your previous budget estimate?
119
- 3 -
Mr. Maxcy:
It may be, }efore we had these allotments ,but I don't
think it is on our present figures. These figures have
been reconciled with the daily treasury statement to a
million dollars.
Mr. Bartelt:
Then that figure is approximately right.
Mr. Bartelt:
Under present law you have authority to sell your ob-
ligations in the market and put the proceeds in a re-
volving fund?
Mr. Maxcy:
The 1935 act gave us that privilege. It gave permission
to revolve, that is to revolve more than once. That
this money should be used over and over, and that at the
expiration it would be used for the purpose provided in the
N.R.A., Act, that is, public debt retirement,
Mr. Bartelt:
Out of $150,000,000 of loans, how many have already been
made during the first three months.
Mr. Maxcy:
We have only spent $5,000,000.
Mr. Bartelt:
Then you are going to have $145,000,000 more from now on?
Mr. Maxcy:
That is right.
Mr. Maxcy:
$145,000,000 under loans and $140,000,000 grants and
Housing, $42,000,000. On the receipt side $150,000,000.
Mr. Bartelt:
You did not get any of that yet.
Mr. Maxay:
No, we may have one or two million but nothing to amount
to anything.
Mr. Bartelt:
The daily Treasury statement for first two months shows
total payments for loans and grants of $41,000,000.
Mr. Maxcy:
I guess that is about right, $41,000,000.
120
GENERAL COUNSEL
TREASURY DEPARTMENT
WASHINGTON
SEP 28 1937
My dear Mr. Secretary:
My opinion has been requested as to whether in
connection with the administration of the provisions of the Fed-
eral Highway Act of 1921 (42 Stat. 212), as mended, the Secretary
of Agriculture is bound to take any action which might obligate
the Federal Government to pay out money in the future which has not
at the time the action is taken been appropriated by Congress.
My attention has been directed to the provisions of the
Act of June 16, 1936, 49 Stat. 1519, amending the Federal Highway
Act of 1921, which read in part as follows:
"Be it enacted by the Senate and House of
Representatives of the United States of Amerios
in Congress assembled, That for the purpose of
carrying out the provisions of the lot entitled
'An Act to provide that the United States shall
aid the States in the construction of rural post
roads, and for other purposes', approved July 11,
1916, and all Acts amendatory thereof and sup-
plementary thereto, there is hereby authorized to
be appropriated, out of any money in the Treasury
not otherwise appropriated, the following suns,
to be expended according to the provisions of such
Act as amended: The sum of $125,000,000 for the
fiscal year ending June 30, 1938, and the sum of
$125,000,000 for the fiscal year ending June 30,
1939.
"(a) All sums authorised in this section
and apportioned to the States shall be available
for expenditure for one year after the close of
the fiscal year for which said sums, respectively,
121
- 2 -
are authorized, and any non remaining un-
expended at the end of the period during
which it is available for expenditure shall
be respportioned among the States as provided
in section 21 of the Federal Highway Act
of 1921 (42 Stat. 212).
"(b) On or before January 1 of each
year, the Secretary of Agriculture shall ADDOT-
tion among the several States, as provided in
section 21 of the Federal Highway Act of 1921,
the sume authorized for the fiscal year 1m-
mediately following. When said apportionment
has been made for any fiscal year, the State
highway departments may submit projects to the
Secretary of Agriculture for his approval.
The Secretary of Agriculture shall act upon
projects submitted to him under any such appor-
tionment and his approval of any such project
shall be deemed a contractual obligation of the
Federal Government for the payment of its pro-
portional contribution thereto: Provided, That
projects approved under any apportionment be-
fore the beginning of the fiscal year for which
such apportionment has been made may be con-
tracted for by the States and construction
thereon may be begun, but the total reimburse-
mente to any State or Territory before the be-
ginning of such fiscal year shall not exceed
the total of all previous apportionments to such
State or Territory." (Single underscoring
supplied.)
At the outset, it should be pointed out that it is of course
clear from the express wording of the above provisions that the obli-
cation of the Federal Government does not arise upon the apportionment
under such provisions of the sums authorized to be appropriated, but
arises only upon the authorized approvel of projects submitted by the
State highway departments.
122
- 3 -
In connection with the aforementioned approval of projects,
my attention has also been directed to the fact that a statement sub-
mitted to the Committee on Appropriations, House of Representatives,
75th Congress, lat Session, by the Bureau of Public Roads, indicated
that out of the $400,000,000 appropriated by the National Industrial
Recovery Act, the $200,000,000 authorised to be appropriated by the
Hayden-Cartwright Act of 1934 and appropriated by later Acts, and the
$400,000,000 allocated by the President under the Emergency Relief
Appropriation Act of 1935, only $44,929,452 were available for new
projects on February 1, 1937. It has been pointed out to me that, in
view of this great depletion in the sums available under the emergency
appropriation acts to cover commitments for highway construction, if
the Secretary of Agriculture approves all the projects for the years
1938 and 1939 falling within the apportionments for those years he will
be obligating the Federal Government to pay out large sums of money
appropriations for which have not been made.
Section 11 of the Federal Highway Act of 1921, as amended
(U.S.C. title 23, sec. 12), reads in part as follows:
"Any State having complied with the provi-
sions of this chapter, and desiring to avail
itself of the benefits thereof, shall by its
State highway department submit to the Secretary
of Agriculture project statements setting forth
proposed construction or reconstruction of any
123
- 4 -
primary or interstate or secondary or inter-
county highway therein. If the Secretary of
Agriculture approve the project, the State
highway department shall furnish to him such
surveys, plans, specifications, and estimates
therefor as he may require; items included for
engineering, inspection, and unforeseen con-
tingencies shall not exceed 10 per centum of
the total estimated cost of its construction.
"When the Secretary of Agriculture approves
such surveys, plans, specifications, and estimates,
he shall notify the State highway department
and immediately certify the fact to the Secretary
of the Treasury. The Secretary of the Treasury
shall thereupon set aside the share of the United
States payable under this chapter on account of
such projects, .... (Underscoring supplied.)
Section 13 of the Federal Highway Act of 1921 (U.S.C. title
23, sec. 14) reads in part as follows:
"When the Secretary of Agriculture shall
find that any project approved by him has been
constructed or reconstructed in coupliance with
said plans and specifications, he shall cause to
be paid to the proper authorities of said State
the amount set aside for said project. II (Under-
scoring supplied.)
In addition to the fact that the Federal Highway Act of
1921 does not by its terms compel the Secretary of Agriculture to ap-
prove projects falling within standards which he himself may fix, the
above-quoted provisions of section 11 and section 13 thereof make it
clear that if, for example, the Secretary of the Treasury should ad-
vise the Secretary of Agriculture that he could not, upon the approval
of a project and the subsequent approval of the surveys, plans, spec-
ifications, etc., in connection therewith, thereupon set aside the
share of the United States payable on account of such project, as
124
5 I I
provided for by section 11, because there would be no funds in the
Treasury by appropriation made available therefor, the Secretary of
Agriculture would for that reason be justified in refusing to approve
of such project.
This position is fortified by the general policy underly-
ing such sections of law as section 3732 of the Revised Statutes,
as amended (U.S.C. title 41, sec. 11), and section 3733 of the Re-
vised Statutes (U.S.C. title 41, sec. 12), which read as follows:
"§ 11. No contract or purchase on behalf
of the United States shall be made, unless the
same is authorized by law or is under an appro-
priation adequate to its fulfillment, except in
the War and Navy Departments, for clothing, sub-
sistence, forage, fuel, quarters, transportation,
or medical and hospital supplies, which, however,
shall not exceed the necessities of the current
year. (R. S. E 3732; June 12, 1906, C. 3078, 34
Stat. 255.)"
"8 12. No contract shall be entered into
for the erection, repair, or furnishing of any
public building, or for any public improvement
which shall bind the Government to pay a larger
sum of money than the amount in the Treasury
appropriated for the specific purpose. (R. S.
e 3733.)*
and section 3679 of the Revised Statutes, as amended (U.S.C. title 31,
sec. 665), which reads in part as follows:
"No executive department or other Government
establishment of the United States shall expend,
in any one fiscal year, any sum in excess of appro-
priations made by Congress for that fiscal year, or
involve the Government in any contract or other obli-
gation for the future payment of money in excess of
such appropriations unless such contract or obligation
is authorised by law. *** Any person violating any
provision of this section shall be summarily removed
from office and may also be punished by 8. fine of not
less than $100 or by imprisonment for not less than
one month. (R. S. I 36791 Mar. 3, 1905.)
- 6 -
125
c. 1484, I 4, 33 Stat. 1257; Feb. 27, 1906, Co
510, I 3, 34 Stat. 48.)"
The requirement that the share of the United States payable
on account of a project be set aside upon the approval of the surveys,
plans, mpecifications, etc., submitted in consequence of the approval
of the project might not have been a material one and perhaps may
justifiably have been ignored 80 long as (1) funds were actually by
appropriation available from some source to pay the share of the United
States, or (2) the approval of projects did not bind the Federal Govern-
ment. However, the making of commitments coupled with a failure to set
aside the funds with which to meet such obligations - such failure being
due to lack of funds by appropriation available for setting aside -
takes on a very serious aspect when it is considered that by express
statutory provision, such commitments irrevocably bind the United
States. Under such circumstances there can certainly be no question
that the Secretary of Agriculture may limit his commitments to the
amount by appropriation available to be set aside by the Secretary of
the Treasury.
It is my opinion, therefore, that the Secretary of Agriculture
is not bound, at least under conditions such as those described above,
to take any action in connection with the administration of the pro-
visions of the Federal Highway Act which might obligate the Federal
Government to pay out money in the future which has not at the time
the action 1g taken been appropriated by Congress.
It would seem appropriate to suggest that the Secretary
of Agriculture, if he has reason to believe, when on or before January 1
of any year he apportions among the several states the sums authorized
126
- 7 -
for the fiscal year immediately following, that he may wish to
disapprove projects submitted under such apportionment because
of lack of funds, might well advise the State highway departments
at the time of the apportionment that some of the projects sub-
mitted may be disapproved for that reason.
Very truly yours,
Oliphands
General Counsel
The Honorable
The Secretary of the Treasury
TREASURY DEPARTMENT
127
INTER OFFICE COMMUNICATION
DATE: September 28, 1937
To
Secretary Morgenthau
FROM A. Lochhead
M. A. Harris
THE SHORT DATED DEBT
In view of the fact that in the near future discussions will be
entered into for the purpose of arriving at some new program for the
issuing and refunding of short dated securities, it is suggested:
(1) That any program calling for the refunding of 273-day bills
with 3-month bills is undesirable until the Treasury is in a position
to retire some of its outstanding obligations, and,
(2) That any program which will result in a better distribution
of the short term debt, such as the refunding of maturing bills into
1-year Certificates of Indebtedness at fixed rates, would be of benefit
both to the Treasury and the general money market.
The present condition of the bill market is & healthy one as
indicated by the recent declining rate at which 273-day bills have been
sold and the ease with which dealers are disposing of their allottment
but past experiences indicate that any weekly turnover of 100 million
for a few weeks result in a congested market. Any new program devised
for the refunding of 273-day bills into 3-month bills would meen a
weekly turnover of at least 150 millions a week in 9 months' time plus
any new money raised through the issuance of bills. Such a refunding
in time would result in the concentration of a tremendous debt in a
3-month period. This might result in rising short term rates, assuming
that money conditions remain such the same as they are now, and any
hardening of these rates would increase enomously the Treasury's carrying
128
cost of the present debt due in one year, which at present amounts to
about five billions of dollars. It is to the Treasury's advantage to
have the short dated field to resort to in case of some unforessen
disturbing event and with present international conditions making the
future one of uncertainty, this seems even the more necessary. If the
Treasury continues to raise new money by the use of tax dated bills
this will provide the market with a large supply of short dated secur-
ities. The use of these bills has provided a flexible program and
makes for orderly conditions in the money market around tax dates.
If a program of issuing Certificates of Indebtedness is to be
undertaken, we suggest that these be offered in large amounts such as
300 millions every 3 months rather than weekly, and that such offerings
be made for cash subscription. If offered weekly. additional expense
and delay would result and emall percentage of allottments might be
most discouraging. If offered only in exchange for maturing Treasury
bills they will go only into the hands of holders of the bills, which
would work against the program to secure a better distribution of the
short dated debt. It 1s well known that the bill market under ordinary
conditions is practically concentrated in New York and Chicago.
Exchanges would also result in uncertainty as to what portion of the
maturing issues would be exchanged and the probability that a portion
would have to be paid off in cash,
129
September 28, 1937
3:35 p.m.
H.M.Jr:
Hello Randolph, how are you, sir.
Randolph
Burgess:
Oh, I'm all right - I've been thinking about that
program you put up last night.
H.M.Jr:
Yes
B:
And I want to put up a question in return, please.
Now about answering your question direct, if they
were - if one were limited to just a choice, I would
start in with the Marches.
H.M.Jr:
With the what -
1
B:
Start in selling the tax paid in the - the March tax
bills rather than the ninety day, that's more 1m-
portant.
H.M.Jr:
To start the March
B:
Yes
H.M.Jr:
Yes
B:
But, I want toraise a broader question -
H.M.Jr:
Please -
B:
Now I assume that this fiscal year, you're going to
be able to retire from somewhere between five hundred
millions to a billion dollars of Government debts.
Of course nobody knows just what that -
H.M.Jr:
No, I don't think that's right.
B:
What's that?
H.M.Jr:
I doubt if that's correct.
B:
You think that's too much.
H.M.Jr:
I think it's entirely too much
B:
Yes - well I think that the stock market makes an
enormous difference.
H.M.Jr:
No, to us
130
2 I I
B:
I think that this market -
H.M.Jr:
On the revenue
B:
Yes
H.M.Jr:
No, because we figured - our boys were very bearish -
B:
Yes
H.M.Jr:
And, if I'm correct they figured much lower on the
production figure than everything else this Fall,
and even
B:
I see, yes
H.M.Jr:
So, we - in our revenue estimates - I don't think
it'll affect us much, we can ask that of Haas
tomorrow
B:
Yes.
H.M.Jr:
But that subject has
been very bearish
since last June.
B:
I see, yes
H.M.Jr:
So I doubt if that would make any difference, but
we can ask him.
B:
Yes - well I think it's quite an interesting question,
I didn't know how much it was.
H.M.Jr:
No, he's been very bearish and I question whether
it will make any difference, but I'll ask him that
tomorrow.
B:
But on the basis of - of course I don't know the
figures - I'm a little handicapped - but you will
have a certain amount of debt to retire this year,
won't you?
H.M.Jr:
No, I don't think 80. I've been spending all this
time. You see - you go back - I'm going to talk to
you - well, I always talk very frankly -
B:
Yes.
Regraded Unclassified
131
- 3 -
H.M.Jr:
The last budget summation was July lst.
B:
Yes
H.M.Jr:
million. We figured &) deficit estimate of four hundred and eighteen
B:
Yes, that's right.
H.M.Jr:
Then Congress passed in addition to that - raised
that, and passed - legislation cost us two hundred
and forty million.
B:
Yes
H.M.Jr:
Now, I've been working all week to see whether we
could/any way overcome that two hundred and forty.
B:
Yes
H.M.Jr:
And I question whether we can much
B:
I see
H.M.Jr:
A little, maybe we could hold it down to four hundred
and eighteen
B:
Yes
H.M.Jr:
But that's all
B:
But even with that much deficit, you will have receipts
from Social Security.
H.M.Jr:
Well, we'll ask the boys that. Maybe I don't know,
but we'll ask them that tomorrow.
B:
The way I figured it, the way our boys here figured
it was that the receipts from Social Security will be
- oh a billion dollars.
H.M.Jr:
Why don't you do this, Randolph. Do you have to
go over the Federal Reserve before you come here?
B:
Well that's - I think I could come there a few
minutes first.
H.M.Jr:
Well, a few minutes wouldn't be enough. How about
a half an hour.
132
- 4
B:
Yes, I mean that. Yes - I don't think we meet there
until ten.
H.M.Jr:
Could you be here at ten thirty.
B:
Well, I ought to - if I come over to the Treasury,
I ought to come between nine and ten. I think we
have a meeting at ten.
H.M.Jr:
Oh.
B:
We meet with you at eleven, don't we?
H.M.Jr:
Yes
B:
I think we meet the Board at ten. Suppose I come to
the Treasury at nine. Is that a good time.
H.M.Jr:
Well, I tell you, it's - no - supposing you come at -
if we had a half an hour -
B:
Yes
H.M.Jr:
Then the boys could get your figures and ours.
B:
Yes
H.M.Jr:
And they could work on them and have them ready by
the time you come back.
B:
Yes - or maybe I could check with somebody there over
the phone - who's working on it there.
H.M.Jr:
Bartelt
B:
Bartelt
H.M.Jr:
Yes
B:
Oh yes, in Dan Bell's absence.
H.M.Jr:
Well, he's Commissioner of Accounts and Deposits.
B:
Yes - well, suppose I talk to him by phone this
afternoon, & little.
H.M.Jr:
Well, that's all right.
B:
That would be a good idea
H.M.Jr:
Then when would you like to come in.
B:
Oh, about nine o'clock, say
- 5 -
133
H.M.Jr:
What's that
B:
Nine or half past
H.M.Jr:
About nine o'clock is all right.
B:
All right, I'll be in at nine o'clook.
H.M.Jr:
But tell Bartelt what you want.
B:
Yes. All right, I'll talk to him.
H.M.Jr:
And he could be working on it - getting me the
figures on the expenditure from now until the 15th
in place of Bell, who 16 away.
B:
Yes
H.M.Jr:
See
B:
Yes. Well, now let me tell you in regard to the
figures -
H.M.Jr:
Now, I may be wrong, but - I'm only thinking in terms
of cash out of the drawer
B:
Yes, that's right, yes
H.M.Jr:
See
B:
But of course, you'll receive in B. lot of funds on
unemployment relief and Social Security old age.
H.M.Jr:
Yes, yes
B:
Which 16 available to retire debt in the hands of
the public.
H.M.Jr:
Yes, it doesn't decrease the total debt -
B:
But, it seems to me that no matter how you figured it,
you'd be retiring from half a billion to a billion
dollars of debt, which is in the hands of the public
this fiscal year.
H.M.Jr:
Maybe.
B:
8o the problem was - which 18 the most effective debt
to retire
H.M.Jr:
Yes
134
- 6 -
B:
Now, looking at it from the point of view of the
market and from the point of view of getting the new
capital issues market going -
H.M.Jr:
Yes
B:
Which is the best thing in the world for this session.
H.M.Jr:
No question.
B:
The one thing that would stimulate that most, it
seems to me, would be not to have any December
financing, and to pay off the February notes without
refunding them.
H.M.Jr:
That's right.
B:
Now there are two hundred and seventy seven million
H.M.Jr:
Yes
B:
of February first notes
H.M.Jr:
Yes
B:
And if it were a choice, now I'd rather do that, right
now, than reduce the amount of bills outstanding - I
think that would be -
H.M.Jr:
I think under - on offhand first blush, I'd say yes.
B:
Yes
H.M.Jr:
When you say no December financing, you don't
mean not even have a refunding.
B:
No, nothing at all.
H.M.Jr:
Nothing at all.
B:
Just nothing at all until December 15th.
H.M.Jr:
I see
B:
And if you were able to announce that, perhaps in
connection with this budget review that you are planning-
when the President comes back.
H.M.Jr:
Yes
Regraded
135
- 7 -
B:
Then you can do the budget, and you're going to pay
December. off the February's and there'll be no financing in
H.M.Jr:
Yes.
B:
Then people would believe what we've been telling them
about the budget.
H.M.Jr:
I see.
B:
They don't believe it at all now.
H.M.Jr:
I appreciate that.
B:
They think it's going to be B. great big deficit.
H.M.Jr:
I appreciate that.
B:
And that would be more convincing than any amount of
talk.
H.M.Jr:
Yes.
B:
And it would improve this market for a new financing
more than anything I can think of.
H.M.Jr:
You mean if they thought the Treasury was out now
the first of January
B:
out until March
H.M.Jr:
Except the Treasury bills.
B:
Well, Bo that's the question I want to raise, if by
going ahead with your bill program -
H.M.Jr:
Well, I wouldn't want in any case- to let myself beyond
December 31, but they thought - because there's some
rumours around we're going in the market October.
B:
Yes, yes. Well, that would be all right.
H.M.Jr:
But if they knew we were out of the market for the
rest of the year.
B:
Yes
H.M.Jr:
That ought to be good enough.
136
- 8 -
B:
Well, I was thinking about these February's -
H.M.Jr:
Well, I - I know, but we can handle those when they
came.
B:
No, but, if we're not going to give them any de-
scription right - to a new issue, you want to tell
them well ahead of time.
H.M.Jr:
I see.
B:
At the moment, the rights have practically no
value.
H.M.Jr:
I see
B:
So it wouldn't be unfair to the holders.
H.M.Jr:
I see
B:
If you wait until too late, then they have valuable
rights -
H.M.Jr:
I see
B:
And somebody would accuse you of double crossing them.
H.M.Jr:
I see.
B:
But that's a problem of your estimate of course, from
where you stand.
H.M.Jr:
Well, I think you could talk to Bartelt.
B:
All right I'll talk to him, and arrange to see him
first thing in the morning.
H.M.Jr:
You want him here at nine.
B:
I think that's a good time.
H.M.Jr:
Well would you tell him what you want.
B:
Yes
H.M.Jr:
Well, I'll tell you what to do, give me a minute to
tell him that you want to talk to him, and he can
be ready, and he should be at my office at nine and
have those figures ready.
137
- 9 -
B:
Very good, then I'll talk to him a little later.
H.M.Jr:
Now, if you wait five minutes.
B:
0. K.
H.M.Jr:
And you tell him what you want.
B:
Well - yes.
H.M.Jr:
And I'll just tell him that - to get ready what you
do want.
B:
All right, I'll call him about four o'clock.
H.M.Jr:
I - I think the sooner we tell the market what we're
going to do now the better.
B:
I agree
H.M.Jr:
Yes
B:
I think 80. I think if we give them a program there's
a chance here to do something dramatic that would
give the thing a lift.
H.M.Jr:
0. K.
B:
Good.
H.M.Jr:
Thank you.
B:
Goodbye.
H.M.Jr:
Goodbye.
138
September 29, 1937
9:48 a.m.
H.M.Jr:
Hello
Operator:
Mr. Jones - Go ahead
H.M.Jr:
Hello
Jones:
Hello Henry.
H.M.Jr:
Jesse, I'm Just doing a little checking -
J:
Just a minute - what
H.M.Jr:
I was just checking up on our financing, and am I
right that you talked to Taylor about the series
K-1- per cent which could be called in December -
if you decided to let them run.
J:
Yes
H.M.Jr:
Is that right
J:
That I talked to Taylor about it.
H.M.Jr:
Didn't you talk to Taylor.
J:
Oh, yes.
H.M.Jr:
And you decided not to call them in December.
J:
We decided not to.
H.M.Jr:
That's what I thought. Bartelt was asking me.
J:
That's right.
H.M.Jr:
Thank you very much.
J:
Thanks.
139
GROUP MEETING
September 29, 1937
10:00 a.m.
Present:
Mr. Magill
Mr. Gaston
Mr. Baas
Mr. Lochhead
Miss Roche
Mr. Gibbons
Mr. Thompson
H.M.Jr:
The thing I've been through is trying to get Jones'
and Mr. Ickes' figures to agree. Just can't make
them agree. Got all their accountants running around
here. Darndest thing you ever saw. Of course, each
one doesn't want to tell the other fellow, you see.
But I'm making them give a typewritten statement naming
the projects that he's talking about - their projects
and their commitments. Name them. I want to name
them, so then they don't come along in six months
and say, "We had a moral commitment of 50 million
dollars." So I'm going to make them name the
commitments.
Amongst them was that 45 million dollars for Pennsylvania.
Supposed to do Pennsylvania 45 million. I don't think
the State of Pennsylvania will ever take it up. But
it's the darndest job.
(To Gibbons) What's that about, Baltimore?
Gibbons:
Essary, of the Baltimore Sun, congratulated the
Collector and told the Collector that he thought the
Justice made a very favorable impression on the news-
papermen, and everything went off without any hitch.
So, thank God.
H.M.Jr:
That's that.
Gibbons:
We're out of that. I called the Collector up, by
the way, and congratulated him on 1t.
H.M.Jr:
Good.
Magill:
I had quite a long talk with Mr. Vinson yesterday,
of the - Chairman of the Sub-committee of Ways and
Means on Taxes, and he's anxious to go to work fairly
140
-2-
soon. He is also anxious to give out & statement
to the newspapers about once a week with respect to
what he is thinking, and has some ideas that he
propounded on that score. He said he'd get his full
committee together, he thought, around the middle of
November - first or the middle of November, depending
on whether or not there will be a special session.
So I told him he and I better get together in a week
or two.
H.M.Jr:
Did you write anything about it?
Magill:
I'm going to
H.M.Jr:
Fine.
Magill:
...write it up in full.
H.M.Jr:
Anything else?
Magill:
I think that's all.
H.M.Jr:
Herbert?
Gaston:
Byrd did not give out a prepared statement. Two
or three of the newspapermen went in to see him and
asked him if he had any comment to make on the economy
things and the A.P. statementsby the President and the
Secretary, and the A.P. reporter who wrote this story
said that he has in his story everything that Byrd said
except that where this - this estimate of 700 million
of revenue that might be obtained by taxing tax-exempt
securities. He said that Byrd credited that estimate
to Ashurst. But otherwise everything else was as
Byrd said it.
H.M.Jr:
What about the statement that the regular expenses
were running much higher.
Gaston:
Of course, that's it. The regular expenses are not
running - that's the point.
H.M.Jr:
Did you call up Barkley's office?
Gaston:
I tried to get Barkley's office, but no one answered.
I wondered whether, in view of the fact that this was
not a volunteered statement, was not & written statement,
it would be - Barkley would want to pay any attention
141
-3-
to it.
H.M.Jr:
Well, how about me, tomorrow morning, today? The
Treasury - should we do anything?
Gaston:
Tomorrow morning I think there might be some questions
about it, and that you might call their attention to
the facts about that.
H.M.Jr:
But I don't - that's the point, you see - I don't
answer Senators or Congressmen.
Gaston:
No, but you wouldn't be answering him if they asked
you whether it was true.
H.M.Jr:
Couldn't you show the boys downstairs?
The
Gaston:
Yes, I can.
H.M.Jp:
Why don't you show them?
Gaston:
Of course, this statement, I believe, is true, that
all the regular departments have increased appropria-
tions, but it is not true that we are spending seven
and a half billions for regular activities.
H.M.Jr:
Exactly. That's the point. Would you mind correcting
that?
Gaston:
Not at all.
H.M.Jr:
All right. Anything else, Herbert?
Gaston:
I presume you noticed this Brookings man's statement
about the Federal crime agencies, conflicts between
crime agencies.
H.M.Jr:
No.
Gaston:
Dr. Arthur C. Millspaugh says that the agencies don't
work together very well, that they indulge in feverish
bursts of self-advertising. I wonder, if that fellow
Dr. Millspaugh were any good, whether it might be
worth while to get him in and have him examine the
Treasury enforcement agencies from the inside and
make recommendations.
142
-4-
H.M.Jr:
Why don't you try to meet him and see what kind of
fellow he is?
Gaston:
Yes. I'll find out first whether any of our people
know him. Mac may know him; Mac gets back tomorrow.
H.M.Jr:
All right. Do you want to do that?
Gaston:
Yes, I'll do that.
H.M.Jr:
What else you got?
Gaston:
Nothing, except the questions that I have marked here -
Foreign Service - and some questions Miss Lonigan
asked me in connection with this self-help organization.
They're getting out some publicity. I thought I'd kind
of cooperate with her.
H.M.Jr:
Sure. Anything else?
Gaston:
You don't object to having your name mentioned if it's
done in the proper way.
H.M.Jr:
No, I don't. I've spent enough time on it.
Gaston:
Yes.
H.M.Jr:
How did all these statements get out in today's
paper hooking Eccles into all this stuff?
Gaston:
They all resulted from Ardery's, or the A.P., lead
yesterday in which he endeavored to get a fresh angle
on your conference of Monday, and I think it was
Ardery's own idea of bringing Eccles into it. And
the others followed it.
H.M.Jr:
At least it shows where the Federal Reserve stands
anyway.
Gaston:
Yes.
H.M.Jr:
Anything else?
Gaston:
No, nothing else.
H.M.Jr:
George?
143
-5-
Haus:
I have nothing this morning.
H.M.Jr:
When you going to have that business survey?
Haas:
I've got it and it will - I think the final typing
of it is probably done now. I went over it. There
were some holes, I thought, in it, so I checked them.
I asked them to check some other items. But I think
I'll have it this morning to
H.M.Jr:
I wouldn't read it this morning anyway, but have it
this afternoon.
Maas:
Yes, sir.
H.M.Jr:
And you and Seltzer coming to the 11 o'clock meeting?
Haas:
Like very much to,
H.M.Jr:
All right.
Haas:
Did you get the report on the automobiles?
H.M.Jr:
Yes.
I had quite a talk with Dr. Burgess. I didn't realize
he was President of American Statistical Association.
And he is very much worried about this thing, and he
is the first man that I've talked to that realizes that
we are not spending the bonus money and that we are
spending a great deal less relief money, and that
private interests have to spend more to make up the
difference. And he feels that the capital market is
the key to the situation, and he's comparing it to 123
and 124. And he doesn't agree with Goldenweiser. I
had Goldenweiser in; Goldenweiser just thought every-
thing was about all right.
daas:
He is concerned because of the rapid reduction in
Government spending?
H.M.Jr:
Yes.
Haas:
There are reports of a couple boys over in the Federal
Reserve Board prepared on that; that's one of the
things that were holding up this report. And there's
some points at which we disagree rather violently with
them on it.
144
-6-
B.M.Jr:
Well, at least give me the benefit of what they
think, see?
Haas:
Yes.
H.M.Jr:
Give me both sides.
Haas:
0.4.
H.M.J.:
But the Goldenweiser - the Board's people - they're
not disturbed much about anything.
Haas:
Well, that may be Goldenweiser, but these two boys
that wrote this, and probably Currie, may have a
different view.
H.M.Jr:
On the other hand, Burgess, who met with American
Tel and Tel crowd Friday and his own crowd last
night, is very much disturbed.
Now, who feeds Roper all this stuff that he keeps
coming out with, that everything is beautiful?
Haas:
I don't know. They have a staff - a small staff
over there that follows the business situation,
puts out publications. But the "beautiful" part
is probably his own idea; I don't know. The Depart-
ment of Commerce has always seen things "beautiful"
for as long as I remember.
Gibbons:
Aren't their statistics always way behind? For
instance, we give them a lot of figures - Customs to
Commerce - and they don't compile them for six months.
H.M.Jr:
Well, George, when you have that stuff I want to go
over it personally. Just let me know.
Gaston:
I suppose you noticed that Eugene Meyer gave his
personal blessing to the action of the Federal
Reserve Board the other day in relaxing the discount
provisions. First page of the Post this morning.
H.M.Jr:
In his own name?
Gaston:
In his own name.
H.M.Jr:
That's the first time he's ever done that.
145
-7-
Gaston:
Little box on page one - "Eugene Meyer." Of course,
he does take credit for originating the idea himself.
H.M.Jr:
He's been quiet for a long time. A few more state-
ments from Eugene Meyer and they'll take this as the
Federal Reserve slump.
Miss Roche?
Roche:
I have the names of the Advisory Council of the
National Institute of Health very carefully selected,
and want your approval on it. Went over it with Mr.
Gaston.
(H.M.Jr signs letter listing names)
Roche:
Thanks very much.
Haas:
That's what Alexander Sachs calls it - the Eccles
recession, or something like that.
H.M.Jr:
Did you show that list to Mr. Farley (jokingly)?
doche:
No.
H.M.Jr:
I think you better.
Roche:
Not really.
Gibbons:
I wonder if it would be all right if she showed it
to me.
H.M.Jr:
That would be worse.
Roche:
I had some qualms about one or two of them myself a
few moments, but after all they're very great
scientists.
H.M.Jr:
Science rises above party politics.
Roche:
President of Harvard.
.....
H.M.Jr:
Everything else all right?
Roche:
Yes. We have had all our regional nurses in and all
our new public health officers - conducting a school.
I met with the crowd yesterday and things are moving
very well, sir.
146
-8-
H.M.Jr:
O.K.
Mr. Gibbons?
Gibbons:
Nothing.
H.M.Jr:
What are you going to worry about now that you've
landed Mr. Black?
Roche:
I'm going to worry him.
H.M.Jr:
All right. Anything else?
Gibbons:
Nothing.
Thompson:
Everything's clear.
Lochhead:
Paris market still getting more nervous by the
moment, but as I say, last day or two has been show-
ing signs of appreciated condition by the inside.
H.M.Jr:
The French people must be a very hardy nation. They've
been getting "more nervous" for three years.
Gaston:
Well, everything's normal over there; that's reassuring.
Gibbons:
Imagine them compared with us - a franc down from 20
cents to three. God, that's - supposing our dollar
dropped like that.
(Mrs Betts brings in charts)
H.M.Jr:
Stocks are weak and Governments are steady.
Lochhead:
They've got a stock settlement in Amsterdam tomorrow,
so that there's going to be a lot of selling on that
side. Probably ease their positions.
H.M.Jr:
Well, I have nothing else.
147
REETING WITH EXECUTIVE COMMITTEE OF
September 29, 1937
FEDERAL RESERVE OPEN MARKET COMMITTEE
11:00 a.m.
Present:
Mr. Lochhead
Mr. Haas
Mr. Seltzer
Mr. Harris
Mr. Bell
Mr. Harrison
Mr. Burgess
Mr. Sinclair
Mr. Ransom
Mr. Goldenweiser
Mr. Piser
Mr. McKee
Mr. Bartelt
Mr. Davis
Mr. Williams
A.L.Jp:
Mr. Bell is supposed to be away on & vacation, but
he smelt smoke, SO he came back for a half a day,
which is very nice for me.
Bell:
Well, as I
K.V.Jr:
we always open the meeting by telling them the cash
needs from now until the end of the year.
Bell:
As I understand it, you wanted a program drawn up
which would eliminate any cash financing in December.
This program provides for 200 million dollars in new
Treasury bills in October and 200 million in November.
That would give us balancesof 675 million, 841 million
going out of October, and 936 million going out of
November. And we would leave December with 641 million
and then begin 200 million of June bills in January,
and a hundred million of June bills in February. So
that our balances going out of January would be 721
million and going out of February 736 million. The
low point in this program would be 641 million going
out of December, which would certainly be ample.
Ransom:
what was that last figure, Dan?
Bell:
641 million going out of December.
H.1.Jr:
Once more?
Bell:
Yes. New Treasury bills, 200 million dollars in
each of the months of October and November, for
maturity in January and February.
148
-2-
Burgess:
You mean in addition to the replacement of the
maturing 50.
Bell:
That's right, new Treasury bills.
Burgess:
They'd be March bills.
H.M.Jr:
You mean a hundred million a week.
Bell:
No, 50 million a week in new bills.
H.M.Jr:
What would you do with the other 50?
Bell:
Roll them over.
Harrison:
Then you'd be putting out B hundred million a week
of 9-months bills.
Bell:
No, sir, we'd be putting out 50 million B week of
9-months bills and 50 million a week of 90-day bills.
Harrison:
oh, that's what I didn't get.
Burgess:
Wait a minute, your March tax bills are part of it,
aren't they?
Bartelt:
Yes, they are.
Bell:
Oh, I see, we're going back to our schedule of -
that's right; well, I haven't got the roll-over here.
H.M.Jr:
Dan just dropped in a couple minutes ago; we've
been talking about balancing the budget. We haven'
Bell:
The 200 million dollars of new bills in October and
November would be 90-day bills, and your roll-over
of the maturing bills would go into March to the
extent of 400 million, is that right? Now, that
could be switched the other way.
Burgess:
But the point is you're selling 100 million a week,
of which 50 would be rolling over and 50 new, and
with half March bills and half 90-day bills.
M.M.Jr:
This isn't the program that I've got in mind at all.
Bell:
Well, I understand you wanted this program drawn up
to see what it looked like.
149
-3-
11.2.Jp:
True, but this isn't in the schedule you gave me
before you left.
Bartelt:
This is the same, with that one exception.
Bell:
No, that's right, Mr. Secretary. But 1 understood
you wanted this program drawn up so as to eliminate
any l'inancing in December.
A.M.Jr:
No, that's what Dr. Burgess wants. This is set up
after Burgess - this is after Burgess had a long
talk last night with Eddie Bartelt. That's the
Burgess plan.
(Hearty laughter)
Sinclair:
not his work in, you see.
Burgess:
That's the plan you fellows started with.
H.M.Jr:
This is the plan that Burgess gave birth to last
night. Now give me the Morgenthau-Bell.
Bell:
That's the one we talked about before.
a.d.Jr:
Yes.
Bell:
All right.
H.N.Jr:
This is a photostat of what you gave me.
Bell:
This other plan would contemplate starting on
October 6 with the maturing 50 million dollars
a week, rolling them into March for eight successive
weeks; that would be 400 million dollars. And then
on December 1 start the roll-over of 50 million
dollars a week into 90-day bills. And then on
January 5 we would start an additional issue of 50
million dollars 8 week for June. Those would go six
weeks and represent new money. And then that would
run along until we got to April 6 and we'd start 50
million dollars a week for September; that would also
be new money.
Now, with that program we would have a balance, going
out of September, of about 880; going out of October,
150
-4-
of about 640; and out of November, about 540.
Then, when we come to December, we would have a
new issue of 700 million dollars, of which 450
million would be used to pay off maturing Treasury
bills, leaving us B balance of about 850 million
dollars at the end of December. That's the program
we talked about before I left.
A...Jr:
well, there's two distinct ideas here which
the only member of the Federal Reserve System
I've talked to is Dr. Burgess, and I don't know
whether the rest of the members of the Open Market
Committee agree with him or not, but I would like to
hear from them. Burgess, as I talked to him this
morning - the idea that - as I understand, that he
has, he'd like us to pick up enough money through
the bill market between now and the 15th of December
so we wouldn't have to do any financing in December.
We here felt that we'd go along just with the 50
million a week, and then do whatever financing is
necessary on the 15th of December.
And, quite frankly, 1 differ completely with Dr.
Burgess. I mean if you - if we take another 50
million is week out of the market that we don't need
at this time, I just can't get it through my head
that that's going to help the capital market. But
the purpose of these meetings is to exchange ideas, and
I'd like to hear from anybody that's got anything to
contribute. I mean I just can't see that if the
Treasury at this time, between now and the 15tn, goes
in and every week takes out 50 million E week extra,
how that's going to help the capital market. But
if I'm - I'm open to argument and more than willing
to listen. But that's the proposition, and that's
much more important than whether it's 9-months or
6-months or tax bills or 90-day bills. I mean that
is just a question - after we have decided what our
factory production is going to be, we can decide on
the styles afterwards.
Harrison:
I think that's the real issue.
H.M.Jr:
And I'm more than willing to listen.
Harrison:
Isn't this the problem? Supposing, Mr. Secretary,
that your objective in formulating your program is
151
-5-
to do whatever would be the least harmful to
the capital market or, if you want, the most
helpful to the capital market. In the one case,
the program that you last mentioned, you take 50
millions less a week between now and December,
but then in December you would have to take X
hundred millions of new money. Would that be
more helpful to the capital market than taking
50 million more each week in short-term bills,
which tap a different field of credit entirely,
between now and December, which would avoid the
necessity in December of going in for a large
amount of new money?
It seems to me that the program which looks for-
ward to raising a large amount of new money in
December might be more of a deterrent to the
capital market, because it would anticipate that
you'd be after capital funds in December instead
of taking currently short bank money each week in
the meantime,
H.M.Jr:
Well, of course, if - we always talk very frankly
here - we just barely made this move of putting
300 million dollars in gold in there, and now we
come along and we're going to take 400 million
dollars back.
Harrison:
But you don't take it back
H.M.Jr:
Well, we borrow it.
Harrison:
You don't take it any faster then you're going to
use it.
H.M.Jr:
We won't use it at all; we won't use it at all. Now,
what's the sense of putting 300 million dollars in on
one hand and taking 400 million dollars out that we
don't need?
darrison:
You avoid taking it out of the capital market in
December.
Burgess:
It doesn't come out of the money market. You'd
only take it out just as fast as you spend it.
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Your balances don't go up especially.
H.A.Jr:
It just doesn't make sense to me.
Harrison:
I see your problem, and you can argue that it
doesn't make sense. But, after all, if you take
it currently each week and leave it on deposit,
you haven't taken it out of the market.
H.M.Jr:
You mean do it on book credit?
Harrison:
If you're afraid of taking it out of the market.
discort
Well, the other argument that I can't see is that
if we take this way, that this is going to convince
the people we're going to balance the budget, and
if we take it the 15th they're not going to think
we're going to balance the budget; and I think it's
just the opposite. I mean if the Treasury suddenly
announces it's going to be in the market for a hun-
dred million 8 week, I think it will come as a great
shock to the people.
Burgess:
No, they expect it. You see, this is just exactly
what you did in July and August.
H.B.Jr:
But we needed the money.
Burgess:
Just exactly the same program, and your balances were
in the same position.
H.M.Jr:
Well, but we had to, but we never - I at least don't
think we have - built up our balances in order to
pay off a maturity on the 15th of December.
And then, the other thing is, if we're talking now
in terms of public reaction, aren't we - I mean that -
now, my public debt again goes above 37 billion, and
then for another two months they 'll be harping at us -
"37 billion dollar debt" - and I mean they keep using
that figure over and over and over. It's below 37
now, isn't it?
Bell:
(Nods yes)
H.M.Jr:
And the thing - if this is a question of giving
153
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people confidence, all I can say is the reaction
it does to me. Now, I told Burgess, "I'll listen,
but to me it does just the opposite. What the
hell is the matter with the Treasury that they've
got to go out and borrow an extra 50 million? Are
expenses so much greater?" I mean there's a great
difference between the very small group of bond
houses and discount houses, and the great mass of
institutions that nold Government securities,
I want to say this, too. The reaction I've got from
the field - Upham is out traveling for me; he's an
excellent reporter - is that they are completely con-
fused on all these Federal Reserve moves. I mean
he's started in New Orleans and ne's working up, and
he hasn't visited a bank yet that understands what
the Federal Reserve has done. Not one.
And now suddenly the Treasury comes along and says,
"We need another 50 million dollars a week extra."
You're talking about balancing the budget. Well, if
you're going to balance the budget, why do you need
another 50 million a week?
marrison:
You have to borrow it in December anyway.
H.M.Jr:
True, but I don't - and they don't expect it now.
Harrison:
I think they expect it more this time; end certainly
in New York I should think they would expect you to
borrow currently rather than to borrow new money in
December.
Burgess:
I'm sure that's right, I'm sure that's what the
market expects.
Ransom:
Mr. Secretary, speaking in terms of possible public
reaction, it seems to me we've got to consider it
somewhat in the light of the action which the Federal
Reserve System did recently take, regardless of whether
banks understand it or not. I'm getting a little
bit hopeless on the subject of having action always
understood. But at least I think that that particular
action was taken on the predicate that there would be
no new financing.
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H.M.Jr:
May I add they didn't understand what the 300
million dollars of gold was for any better. I
mean we're both in the same boat. I don't want
to be misunderstood.
Ransom:
I agree fully, but I do think that there might be
a question of timing there to consider; whether it
outweigns the other is certainly a subject for dis-
cussion.
H.M.Jr:
Well, now do you feel about this? I mean here's
B clean-cut difference of opinion. What do you
think?
Ransom:
My offhand feeling is that it would be wiser not to
defer this borrowing until December, but to go ahead
right straight through now and eliminate it. But I
must say frankly that that is in large part the result
of the fact that the Reserve System has announced a
bill-buying program for December, which was to take
care of a tight situation in the money market. Now,
if the tightness in the money market is going to be
perhaps accentuated by deferring this borrowing pro-
gram until December, I think we ve got to consider
whether that action would be wholly misconstrued and
not just simply misunderstood; whether it might be
construed as having been done for the purpose of
having that purchasing power available at the time
the financing was done. I would like to hear, if I
may, Dr. Burgess's view of it at some time during
the discussion.
H.M.Jr:
You said something - I wonder 1f you meant what you said:
that by deferring this action we'd be tightening the
money market.
Hansom:
No, I didn't.
H.M.Jr:
1 think that's what you said. Didn't де? That's
what you said: by deferring this borrowing we'd be
tightening the money market. I don't get that.
Sunsom:
In December at the time in December when you would
be borrowing, it seems to me that there might be a
great pressure on a market on which we think there
already will be pressure by reason of the shortness
155
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of the reserve position, at which time we have
announced program. we are ready to step in with a bill-buying
H.M.J.:
Now let's be terribly honest with each other, see?
A bill-buying program. How much are you fellows in-
fluenced in advising me to put out a hundred million
dollars worth of bills the next two months in order
that the bills would be there for you to buy them if
necessary?
Ransom:
Well, I'm not influenced by that at all.
H.A.Jr:
I mean just be
Ransom:
Well, if they're not, why then perhaps we won't have
to adopt this policy.
H.d.Jr:
Let's all - because this is important - let's all
be terribly nonest with each other. Burgess was,
I mean I'm not saying that you are not. I mean he
said, "My heavens, we've only got 50 million dollars
worth of maturities in January. What are we going
to do if we've got to buy some bills? where are they
going to be?"
Burgess:
I don't think that that is a major factor in my
reasoning, but I do think it is fair to say that that
is a factor and it is a legitimate factor. I think
this is a joint program, that furnishing the ammunition
in the market by which we can operate properly is a
factor and is a proper factor.
Jr:
Well, I think the other side of the thing, and as I
say, you haven't made a dent yet. The fact that you
naven't got the ammunition, I think, is bullish, and
+ think that to supply you with three or four hundred
million dollars worth of stuff in order that it would
be there in case ou have to buy them - I just can't
see it. I haven't asked anybody on my - we'll give
everybody plenty of time. I just can't see it.
Burgess:
The point is not to have stuff to buy, but to have
stuff which will run off after the turn of the year,
if that's part of the program. It looks just now
as if it will be less than was thought, but that part
of the program
156
-10-
H.J.Jr:
Now, one of the arguments you are using - as
far as our playing ball with you is concerned,
the object of that statement that the Federal
Reserve made Sunday two weeks ago was in order
to take care of the excess reserve situation
between now and the end of the year, and I want to
ask Dr. Goldenweiser if that isn't taken care of
now.
Golden.:
The excess reserve situation, I should think, would
be perfectly satisfactory no matter which of these
programs you adopt.
H.M.Jr:
But - you do think so?
Golden.:
Yes.
Burgess:
You mean through the year?
Golden.:
Yes.
Surgess:
You mean to say we will not have to buy?
Golden.
No, I didn't mean that exectly.
Burgess:
I think that's the question you got.
Golden.
I didn't mean to give that impression. I mean with
the 300 millions that have been put in and the
readiness of the System to buy whatever is necessary,
which may be a hundred or two hundred million dollars,
if we're going to, the excess reserve situation is
going to be satisfactory whichever program you adopt.
D.J.Jp:
In other words, I could then say, based on that state-
ment, that as far 83 any moral obligation of the
Treasury is concerned, we nave fulfilled that moral
obligation toward the Federal Reserve when we deposited
the 300 million dollars worth of gold. I mean it isn't -
I mean that obligation doesn't make us - we're not
under obligation, in other words, to go beyond what we
have done to make the joint action work. Do you see
what I mean?
Golden.:
Yes, I see what you mean, Mr. Secretary. I think it
is perfectly clear that the program that WAS announced,
157
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as you say, two weeks ago can be carried out and
be satisfactorily carried out whichever of these
programs is adopted. I think that is quite clear.
The only ,uestion there is the question - the one
Mr. Ransom raises of the public reaction: whether
our purchases will then be interpreted as fixing the
market for the December financing; and that is the
question that you can discuss. But I think you'll
agree with me, Mr. Ransom, that with either program
of financing, the program that was announced two weeks
ago can be carried out satisfactorily.
Ransom:
Yes, I agree with that, doctor.
Burgess:
I don't think this is a major point; I don't think
it ought to be a major factor.
E.M.Jr:
No, but I'm taking the different arguments that
you're putting up and I want to see, if you don't
mind again being very frank, 85 far as I'm concerned,
whether they hold water.
Now, taking Dr. Goldenweiser's statement, I take it
no one in the Federal Reserve System disagrees with
nim, and then there is no moral obligation on my part
to adjust our financing in order that our end of the
obligation of the announcement of two weeks ago should
be made workable. In other words, we have done our
part.
Harrison:
I would like to make one supplemental remark, if not
one modifying remark, about what Goldenweiser says.
While there was no commitment on the part of the
Treasury at all as to what they would be doing in
this last quarter of the year
4.M.Jr:
Was never discussed.
Harrison:
No, I say there was no commitment at all. Neverthe-
less I in my own mind assumed that the bill program
would probably go on about as it nas in the last
three quarters, because there was no reason to think
then that it would be any different; and that if that
would be done, it would be unlikely that the Treasury
would ask for any new money in December.
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That made a great difference in my approach to
the Federal Reserve program, for this reason: that
if in following the excess reserve program - let's
forget the Treasury for a moment - reserves do get
down to a point where the Federal has to buy bills,
it will probably be in the last week of November and
early in December; and if you're going to issue 8 new
money issue in the middle of December, your announce-
ment will come out just about the week that we will
have bought bills in order to carry out our program
about excess reserves. And it would be so patently
construed, in the minds of a great many people, as
a tie-up to buy bills just to float your issue, that I
don't think you would like it, and I don't think that
we would like it. It is the kind of thing that you
have yourself opposed in the past, and it would be a
very unfortunate coincidence. Therefore, I'm not so
sure that We will have to buy any bills at all,
frankly.
ded.dp:
Well, that's the next question.
Harrison:
I differ with those wao think we have to.
E.M.Jr:
I was going to ask you: on a percentage basis, what
percentage of B. chance do you think between now and
the end of the year you will have to buy any bills?
Harrison:
That depends on who is deciding.
H...Jr:
I mean just the opinion of George Harrison.
corrison:
In my own opinion, I don't think it would be necessary,
even under the announced policy of maintaining adequate
excess reserves. Following your desterilization of
300 million, I don't believe that the money market
situation would make it necessary for us to buy any
bills. That is my own personal opinion. I do think,
however, that probably a ms jority of the Open Market
Committee might feel differently when the time comes
as to the amount of excess reserves that ought to be
in the market.
Well, I'll make anybody E sporting bet that they
won't buy any bills no matter what happens.
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-13-
Golden.:
I'd like to take you up on tast bet, Mr. Secretary.
UcKee:
I'll take some of that myself.
B.
All right.
Harrison:
I'll join you if you make your bet that there won't
be any necessity to buy bills.
E.S.Jr:
No, I just say you won't. And when I'm talking,
I'm talking about B 25-cent bet. I mean Just have
a bet.
Sinclair:
I won't make any bet. I haven't won any yet,
8.1.Jr:
what's that?
Sinclair:
I haven't won E bet yet, and I won't make any.
H.M.Jr:
I mean I'm not - talking just....
Hurrison:
But I think this, Mr. Secretary: that if you do adopt
this second program of new money, it would or should be
very influential on the Open Market Committee in not
buying any bills in December.
Jr:
Say that again.
marrison:
I think if you follow the program of asking for new
money in December - then I think that would be a very
strong added argument against our buying bills in
December for the purpose of increasing excess reserves.
Ransom:
I'd like to explore that, Mr. Secretary, a little if
I may, by asking George just exactly why he thinks
that would be true. I'm interested in that.
Harrison:
For the reason that I still believe it is to the best
interests of the Reserve System and of the Treasury
for us not to go into the market and increase our
portfolio just at the time of a new issue. The
Treasury has tried to avoid that in its own policy
and I think it is just as wrong as it can be from
our own standpoint.
Ransom:
That, Mr. Secretary, gets back to where I started.
I did not perhaps make myself clear.
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Harrison:
The ordinary peak of demand for currency begins
the last of November or Thanksgiving, really, and
then for the first - then the next three weeks in
December, or so - it would be running all through
that period, if you're going to follow this program
that we'd have to be buying bills, 1f you're going
to follow it literally and maintain a high level of
excess reserves. I'm not at all worried about some
considerable decline in excess reserves over that
seasonal period, where it is to be expected that
funds will decrease.
Rensom:
Might I say, Mr. Secretary, I think we are clear on
two points: First, that the obligation of the Treasury
in connection with the statement of two weeks ago has
been fully discharged, and that the obligation of the
System SS to whether or not it buys bills is one con-
tingent upon the situation in the excess reserve
position at that time. I think those two points are
perfectly clear, so I think perhaps they are not
immediately related to the question which you asked
in the beginning.
But there is a collateral relationship that I think
it is very well that we explore.
H.M.Jp:
Well, I think this. I think we have come into this
meeting for the first time with two definite opinions
arrived at through a misunderstanding. Now - I mean
I didn't have the slightest idea that Dr. Burgess had
this idea; he didn't have the slightest idea that I
had my idea. And this is the first time we have ever
come to a meeting that we didn't - we approached -
got into a meeting, I unprepared as to what he thought,
ne unprepared as to what I thought. And what - I
mean I'd like to hear more, but 1 certainly - due to
that situation, and not having had a chance to explore
this with my own people - I mean take what you call
the Burgess idea and explore it here; and certainly
you people didn't know how I felt. And I think under
those circumstances I'd like to postpone any action
for one or two weeks and give us B. chance to approach
this thing knowing what Here's two ideas. Now,
I'd like to ask you gentlemen whether if we postpone
any action for two weeks, would that - or do it for one
week, I don't care; I'll either say postpone it one week
161
-15-
or two weeks, either one, and
liansom:
Might I ask what day one week would fall on?
Bell:
October 6.
Ransom:
The following week, the week of October 11, there's
a meeting of the American Bankers Association that a
good many of us would like to a ttend.
H.M.Jr:
We'll have it a week from today.
Ransom:
A week from today.
H.M.Jr:
And that gives us E chance to talk it over with
my crowd. Because both memorandums furnished me
by bell before he left and Haas since then - neither
of these memoranda contain anything other than 50
million a week. So I mean we're entirely unprepared
for this thing. I mean I've got a memorandum from
Bell which he gave me before he left; the only differ-
ence was whether we should start selling the March
tax bills next week or whether we should start on the
13th. That's the only difference between Bell and
Haas. But in neither of them was there anything
about a nundred million E week. So it shows we are
completely unprepared.
Bell:
I think everybody's assumed that the 300 million
dollars in gold would take care of our cash require-
ments up to December. We have.
Herrison:
I think that's the real danger of your program for
new money in December, frankly: that, whether rightly
or wrongly, that desterilization and figures that
have been published in the press have made the great
majority of people think that there would be no new
financing in December. I think that's the impression
of the market. I'm not saying that it is anybody's
fault at all, but it's
Bell:
The press didn't say that.
Harrison:
What's that?
Bell:
The press didn't say that. The press indicated that
there would be no bill financing until December.
162
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Durgess:
Oh no.
Harrison:
Mr. Secretary, may I ask 8 question? You asked,
and I think quite rightly, whether anybody thought
that you had in any way failed to discharge your
part of the cooperation.
H.M.Jr:
I asked that question.
Harrison:
I say you asked that question, and didn't we think
that you had done your part when you desterilized
the 300 millions of gold. Might I ask whether in
your opinion you would think that we had failed to
do our part if at any time during the balance of
this year we decided we didn't want to buy any new
bills at all? You were willing to bet a minute ago
that it wouldn't be necessary to buy them.
H.d.Jr:
No, I didn't say that. I didn't - I said I bet you
wouldn't. I didn't say whether it would be necessary.
No, I didn't.
Harrison:
In other words, I don't regard that there is any
obligation on us now, willy-nilly, to buy bills
before the end of the year, and I should think if
there were that obligation would be somewhat changed
if you make a new issue for new money in December.
H.M.Jr:
I can't answer that question directly, but I'll
answer it the best I can. I think that circumstances
have to decide whether you have or have not discharged
your obligation in view of your statement of two eeks
ago.
Harrison:
But I do think - all I wanted you to feel
E.H.Jp:
Excuse me. I mean the money market - I couldn't say
today whether on the 15th of November or the first
of December the money market - where it would be;
and I wouldn't want to say to you gentlemen that you
have fulfilled your obligation today es of the 15th
of December.
Harrison:
No, I didn't mean that. All I - we'll put it this
way. Wouldn't you agree that whatever obligation we
163
-17-
have is somewhat modified, or might be somewhat
modified, by 8 later decision of the Treasury
to ask for new money in December, because you
wouldn't want us to do with our funds just prior
to an issue what you wouldn't do with your own
funds prior to an issue?
George, you're asking - if you don't mind, you're
asking two questions at once. You're asking me,
has the Federal Reserve discharged its obligation
in view of its statement of two weeks ago, and I say
that the money market has to answer that as between
LOW and the end of the year. If you ask me, do I
like to see the Federal Reserve go in with & heavy
buying program just ahead of a Treasury issue, my
answer to that is "No."
aurrison:
That's what I wanted.
ded.Jp:
See? I mean I think there's two questions. Have
I answered both of them?
marrison:
Yes, you have. And all 1 wanted to point out was
that I agree with you about going in just prior to
an issue; that, that being so, it might make it very
difficult for us to put the money in the market to
increase excess reserves at the time that I think
many in the Open Market Committee thought it would be
likely they'd have to put it in.
Sinclair:
The only Question I wanted to TSK - I think supple-
mental to that is this. The circumstances in the
money market which might influence the Federal Reserve
System to operate its bill-buying program which they
have stated the possibility of, might DE substantially
changed by a Treasury program on December 15. I assume
that it would be notes or some shortbonds of some kind
which might tap something which would affect the capital
market, whereas the bill-buying - bill program between
now and December might not do that - tap an entirely
different field, the liquid market, the banks.
belther:
Suppose a certificate were offered with announcement of
the intention of displacing an equivalent amount of
bills.
cinclair:
You mean in December?
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-18-
Seltzer:
Suppose that were used in December. Would that
affect some of your reasoning? Mr. Harrison?
Dr. Burgess?
Harrison:
I don't know that I got your point, really.
Seltzer:
Suppose in December our new financing operation
was confined to a certificate issue, with the
announced intention of employing such certificate
issues to convert into certificates part of the
outstanding bill volume. Would that change your
feeling about new money operation in December? In
essence, you see, it would be raising short-term
money in December instead of stretching it over a
period of eight weeks in advance,
Harrison:
I think I would feel & little better about it. I
don't know whether that would be - I'm not passing
on whether that would be the wise thing to do, but
I think it would answer a part of my argument against
the new money issue in December.
H.M.Jr:
We have yet to get an answer from the Pystem as to
what the banks would like in the way of certificates;
whether they like it four times a year or twelve
times & year; and the System was going to explore
that field for us, Am I right?
Ransom:
You are right.
H.K.Jp:
And we haven't had ary answer on that yet.
Ransom:
would you like that discussed this morning too?
H.d.Jp:
If you have the answer.
Mansom:
I don't know that we have the answer. I'm very
sure that we haven't the answer. But at least we
might start; the thing is, as I see it, a matter
of money market policy, so that I would like to,
with your permission, ask Dr. Burgess to state his
views and then take it in that sequence of getting
the evidence before us before anybody expresses an
opinion.
H.M.Jr:
All right.
165
-19-
Burgess:
Just on the question of certificates, Well, the
market will take certificates in almost any reason-
sble amount. And perfectly glad to get them. I
think the reception for your 1-1/4 year note this
time and for your two-year note in June are the best
indication of what the market would or would not do
with a short-term certificate. They would take them.
The June issue was E cash offering, and about half of
that was taken in New York and about half outside..
No question about their taking B certificate.
M.M.Jr:
well, Randolph, do they want It Quarterly or do they
want it monthly or weekly?
surgess:
Well, I think you wouldn't want to issue them weekly,
because you've got to have the machinery set-up of
allotments and instructions; it's & Job for quarter
dates,
Harrison:
I think so. And do away with the Quarter date tax
bills.
surgess:
But you'll have some difficultywith your certificate
now because all your tax dates are filled up to
1940. You've got maturing notes in every tax date
to 1940. So that there doesn't seem to be any rush
about starting certificates perticularly, at least
not until the point where you get your 90-day bills
replacing your 9-months. But again, I think, Mr.
Secretary, that is a problem of the particular design
of the clothes and not B. question of what clothes
you want to wear.
Don't want any clothes. What you people asked us is
to give you a pair of undershirts and a pair of
drawers in case you need them. What?
Burgess:
Mr. Secretary, may I say this, that it seems to me
the crucial problem right before us now is the capital
market; that we ve got a very bad capital market right
at 3 time when We need the best kind of a capital
market. That is, you have come to a point where the
support to business recovery from Government spending
is tapering off, and quite properly so, and that should
be replaced by private spending. Private spending is
166
-20-
dependent in part, as one of the elements of the
capital market, on new issues. New issues have been
increasing - that is, new issues for new money - over
a period of months, until last summer they got up to
more substantial amounts than they had been for a
while, but still very much smaller amounts than before
the depression, or very much smaller amounts than you
were putting into the market through your Treasury
financing. Now, just at that critical point, when
your Government supply of funds was going down, as it
should, and you are dependent on your new capital
market, you have that new capital market cracked wide
open and the whole machine for new capital issues is
stalled, so that issuers are delaying their issues and
the underwriting capacity is pretty well taken up. So
I think it 15 & major factor in determining your own
financing.
Now, I have no question in my mind whatever but that
a December issue of fair size by the Treesury is much
less good for that capital market than the current
issues of Treasury bills.
E.M.Jr:
Well, that's the whole question.
Burgess:
That's really the wnole Question, it seems to me.
Now, there is - at the moment there is 8 very large
supply of short-term funds seeking employment. Re-
serves are high. There is no question about the
Treasury bills being taken and taken easily at good
rates: On the other hand, as you step up even to a
little longer market, you begin to collide with your
private capital market, where the difficulty lies.
You collide psychologically as well as actually. If
they knew there was going to be no new cash financing
in December, it would have a stimulating effect on the
market. That seems to me the greatest argument there
is for deciding the question reasonably soon and
getting that out of the way.
H.E.Jr:
Well, if you don't mind my saying, the premises which
you lay down on the capital market - I'm still uncon-
vinced. I'm still unconvinced.
Burgess:
And there is a seasonal factor too, you see. Well, I'm
167
-21-
watching evidence. it constantly; I'll give you all the
L.M.Jr:
No, I believe the capital market is shot, but the
fact that we get out bills, sell bills now, instead
of an issue in December - that that would help them -
that's not
darrison:
That's the question of judgment.
Burgess:
You see, the New York banks now have 400 million
of excess reserves. When a market is shell-shocked,
it shortens its maturities; it doesn't want to reach
out. And the thing that you can dispose of without
bothering very much, that they're eager for, is the
snort stuff. You're trying to feed them the other.
And now the sessonal factor on the thing. The market
has & tremendous amount of excess reserves at the
moment - these 400 million dollars in New York -
that's gradually going to be lapped up by the seasonal
pull, so that the time when you will have the least
funds will be in the week or two before Christmas,
and your December financing would come at absolutely
the worst time in the next three months, seasonally.
It would come when the reserves are the smallest and
when the strain is the greatest and when there is most
probability of our having to go in and do an operation
ourselves.
S.M.Jr:
"Still the same fact remains that our December financings
have always been successful.
Surgess:
Yes, but tals is the first time you are doing it with
small excess reserves.
H.M.Jr:
And our September 15ths are going badly.
Burgess:
Well, the only time the Secretary of the Treasury fell
down very badly on them was in '31.
H.M.Jr:
Repeat the year.
Burgess:
'31.
H.M.Jr:
No misunderstanding. I hope this Secretary will never
do that; he never will.
168
-22-
Harrison:
But, Mr. Secretary, isn't it right that this is a
question of judgment as to which of these two courses
of action will be most helpful to the capital market?
Now we have one impression and I think you have
another impression. I'd like to take another week
to study it, but I do believe that there is the diffi-
culty that the longer you wait the more nearly you
commit yourself to your course of action. Because
what program? will we do with bills on October 6 under your
H.M.Jr:
Be another 9-months bill issue. I mean & week or
Burgess:
But it's a good thing to get these March bills cleared
up before December; December is the time when pressure
is coming on this market, if at all.
Bell:
You can start the March bills October 6 if you want
to; then the 13th you can announce your 90-day bills
for cash.
Burgess:
I think
H.M.Jr:
Oh, I don't want to - I'd rather sit tight for another
week. Another week can't hurt.
marrison:
You don't lose your freedom of choice entirely by
waiting another week.
Burgess:
Oh no, oh no.
dansom:
I'd rather see you take that week to further explore
it.
8.2.Jr:
On yes. I mean we have seldom had such a fundamental
difference in en Open Market - mind you, Open Market -
meeting.
Golden.:
How much would your public debt have to go up, the
total public debt?
Bell:
About 300 million, if we had 300 million of new bills.
Golden.:
How fer above 37 billion would that take 1t?
Burgess:
Well, it would carry you back to where you were.
169
-23-
Bell:
About 37.2.
Golden.:
From 36.9.
Burgess:
Carries you back where you were before September
15, doesn't it?
Bell:
Just about.
Harrison:
You'll go over again in December anyway, on the
other program. I don't think it makes B bit of
difference; you're going over one time or snother.
H.M.Jr:
I'd like to take this week to study it. If enybody
gets any ideas, I'd be more than pleased if they'd
send them down nere or call me on the telephone. But
I haven't - this is something entirely new. I haven't
had a chance to think it over and talk it over with
my own people, because we weren't thinking along
those lines. The first I knew Burgess was thinking
this was yesterday afternoon at four o'clock.
Harrison:
We haven't been thinking along the other line at all.
We were assuming that sometning like this would be the
program; the only question was the maturity of the
bills.
H.d.Jr:
I think it's well worth taking E week to think it
over. Get out another 9-months issue.
Ranson:
Don't you think that same week might be taken to give
further consideration to the question of the maturity
of your bills in relation to the program? Those things
seem to me now to be very closely tied together, and
there isn't any positive answer that I think the System
can give you on that. We can give you some evidence
and can give you some expression of opinion, but after
all it is, in my mind, very closely related to the
fundamental Question that is up this morning, and I
wouldn't see any great advantage in exploring it at
any great length today, until we explore the other
further.
H.M.Jr:
Check.
Harrison:
I would like very much to wait a week, because I'm
sure if you decide it today we'll get licked.
170
-24-
B.M.Jr:
No, no, I wouldn't decide it today.
Harrison:
What's that?
H.M.Jr:
I wouldn't decide it today.
Harrison:
As I say, I think it is much better to wait.
H.M.Jr:
I didn't want to decide when you people feel that
strongly, and I think it would be a great mistake
to decide. I wouldn't attempt to decide it. I
don't even know how the Treasury staff feels - I
mean I haven't had a chance - and I always discuss
these things with them. I wouldn't decide today.
Harrison:
But it is an entirely new approach to us and I for
one would like to have the chance to think it over.
And you may be dead right about the capital market.
At the moment I still feel that we are right.
Ransom:
Effect on the capital market is so important at the
present time that I would like to see it thoroughly
explored.
H.M.Jr:
Between now and next Wednesday I'm going to have a
talk with Mr. Douglas and see what they think. I
think that Federal Reserve and the Treasury - we
assume too much of this burden; and I think there are
some other agencies in town that should assume some
of this, be a little helpful.
Harrison:
I think you're right.
H.M.Jr:
I think we assume too much. Talking about capital
market - I mean I think we've got to have the S.E.C.
in and see how they feel about it.
Burgess:
They've got some work to do.
Harrison:
Or undo.
Burgess:
There's a little test of that party right now.
H.M.Jr:
Certainly between now and next Wednesday I'm going to
have a talk with S.E.C. and see now they feel.
171
-25-
well, is it agreeable that we meet 8 week from
today, the same time?
Harrison:
What day of the month is that?
Ransom:
That's the 6th.
Harrison:
It's all right with me.
Burgess:
It's nice weather down here. What?
H.w.Jr:
Very nice.
Sinclair:
Not as nice as Honolulus
Herrison:
I have E dinner engagement I can get out of.
Harris:
Mr. Secretary, may I ask was there any thought of
refunding the 2-5/8 notes maturing the first of
February in December, or raising the money in
December and paying them off in cash, or
H.M.Jr:
I think we ought to cross that next week. I think
it's good to bring it up now. We can think about 2 it.
Also the suggestion of announcing there will be no
rights for February.
Burgess:
That was only in case you could pay them off.
H.Mr:
Well, I think we've got to announce that pretty soon.
harris:
Only 277 million.
H.W.Jr:
I think it would be nice if we could take care of it
out of cash in February, not attempt to take it in
December; have enough cash on hand, just pay it off,
in February; not in December, but to meet it when it comes
and pay it out of the cash drawer. But again, I'm open
to argument. Anybody else?
Harrison:
I move we ad journ.
H.S.Jr:
Right now.
OK. Im.h.
172
TREASURY DEPARTMENT
WASHINGTON
September 29, 1937
TO THE SECRETARY:
I conferred today with Governor Myers of the Farm
Credit Administration regarding his proposed financing
for November 1.
There are two issues of Federal Land Bank Bonds
available for call on November 1, 1937, one a 4-1/4%
obligation in the aggregate of $44,109,620 and the other
a 4% obligation in the aggregate of $27,805,080, or a
total of $71,914,700, both of which are due November 1,
1957. If the call is made it has to be announced not
later than October fifteen.
Governor Myers proposes to finance these called
issues approximately as follows:
Utilizing part of the current
cash balances of the Federal
Land Banks
$ 15,000,000
Federal Land Banks to borrow
privately from commercial
banks on short-term paper,
same as in the past
15,000,000
To borrow from the Federal
Farm Mortgage Corporation
...
42,000,000
Total
$ 72,000,000
In order to place the Federal Farm Mortgage Corpora-
tion in funds, it is proposed to sell a short-term obligation,
say two years, for the full amount required, these to be
marketed in the usual manner through the Federal Reserve Banks.
The exact maturity and rate will be fixed some time just before
the offering, which will be between October fifteenth and
thirty-first.
173
- 2 -
This will make an ideal arrangement for the Land
Banks as they have no maturities of any consequence during
the years 1939, 1940, 1941 or 1942, but they do expect some
large repayments of principal which can be used to pay off
the indebtedness created in this refunding to the commercial
banks and to the Federal Farm Mortgage Corporation.
I recommend that you approve the proposal of Governor
Myers, after which he will submit to you a formal letter
asking for a formal approval of the issuance of securities
of the Federal Farm Mortgage Corporation with the maturity
and rate of interest agreed to by the Treasury.
If you will indicate hereon your approval, Mr. Bartelt
will telephone Governor Myers that you have approved it and
he can proceed with such arrangemente as may be necessary.
DWB
Regraded Unclassified
174
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: September 29, 1937, 5 p.m.
NO.: 1358
FROM COCHRAN.
Pressure on franc continued heavy until in after-
noon trading when there was reaction and market offered
some sterling at 144.53 to 55. With the end of the month
80 close and money so tight a more widespread reaction
would be expected if it were not for the very nervous
atmosphere which still exists. Forward premiums on
sterling were as high as 6 3/4 for 1 month and 12 1/2 for
3 months. Rentes down one franc or more and French shares
depressed on a generally blue market.
This morning one Paris American Bank consulted the
Bank of France as to whether certain facilities should
be extended to importers of American materials in Northern
France; the Bank of France stated that the stocks were
already ample, and on this ground the Paris-American Bank
was asked definitely to turn down the requests.
Market is gossiping of possible changes in the
cabinet but has nothing definite. Some operators as well
as some financial writers interpret Bank of France efforts
even
175
- 2 -
even though informal to limit forward dealings as really
the first step in or at least toward exchange control.
I had lunch with Porters, the European financial ad-
viser of Standard 011. Porters had been in London very
recently, and he said that in banking and business circles
there the French financial and monetary situation was
viewed very seriously. These circles do not see a clear
way out for the French. My friend expressed extreme
cynicism over the prospects of any results coming from
the efforts of Paul Van Zeeland in the international ec-
onomic sphere. At present he does not see many oppor-
tunities for the BIS, and he hopes that the BIS will not
immediately fill Quesnay's post.
WILSON.
EA: LWW
176
September 30, 1937.
9:03 a.m.
W.I.
Myers:
Hello
H.M.Jr:
Hello, Bill
M:
Hello, Henry
H.M.Jr:
How are you?
M:
I'm well, I wanted to see you, and I thought you'd
been too busy.
H.M.Jr:
Well, I've been moderately busy, but never too busy
to see you.
M:
Well, I didn't have real business until now, but
I have wanted to see you.
H.M.Jr:
Bill, Bell left this memorandum on your financing,
you see.
M:
Yes
H.M.Jr:
And I'm not quite sure if I understand it.
M:
Yes.
H.M.Jr:
He says that if you call those two maturities, it
amounts to approximately seventy two million.
M:
That's right.
H.M.Jr:
Now, you're going to take fifteen million out of
Federal Land Bank cash balances.
M:
Yes
H.M.Jr:
And fifteen million -
M:
Commercial Bank borrowing.
e
H.M.Jr:
Yes - and then forty two from the Federal Mortgage -
now, what I don't - are you going into the market
for forty two million - two years - or seventy
two million.
M:
Forty million.
177
- 2 -
H.M.Jr:
That wasn't clear in the memorandum.
M:
In other words there are two steps, Henry - the land
banks have their seventy two million.
H.M.Jr:
Yes
M:
And we want to call them and retire them and substitute
stuff that they can pay off out of collections over
the next three or four years.
H.M.Jr:
Well, I think it makes sense.
M:
And then, in order to get the money, the mortgage
corporation will have to BUTT #arty million approxi-
mately of two year notes -
H.M.Jr:
Yes
M:
And turn around and lend it to the land banks at 8.
little higher rate which will give the land banks -
give the mortgage corporation a little margin on it.
H.M.Jr:
Well - I got a memorandum, and I've Just written
O.K. on it.
M:
Fine, and we'll get the regular thing too.
I'll
H.M.Jr:
give this to Bartelt - I've left word as soon as he
came in, he should come down.
M:
Fine
H.M.Jr:
And how much money can you give US to help balance
the budget this year.
M:
Well, I'll tell you - we have been trying to get
along on as little a6 we could - are you going to
do it this year.
H.M.Jr:
Yes - you know darn well we're not.
M:
I meant '39.
H.M.Jr:
'39 - yes. This year - no
M:
I got my ears padded down, trying to save forty
million on interest notes.
H.M.Jr:
Yes
178
- 3 -
M:
But - well the outlook is good. Certainly they
don't need as much relief in agriculture, and we're -
going to get - we're getting - - we're going to get
very heavy payments this fall.
H.M.Jr:
What will you do with them.
M:
011 - We're going to pay back ten million that the
mortgage corporation owed to the Treasury.
H.M.Jr:
How much do you owe us altogether. - Mortgage
M:
Well - we owe relatively little.
H.M.Jr:
Uh-huh
M:
The capital that's put in is - that's Just capital.
H.M.Jr:
I see - you don't expect to get that back.
M:
Well - never is a long time.
H.M.Jr:
Well, sometime - I don't want to kid - sometime I
want you down to take a look at your picture.
M:
I'd like to.
H.M.Jr:
And everybody else's
M:
Yes
H.M.Jr:
I'd like to do it next week.
M:
All right.
H.M.Jr:
All right, B111.
M:
Henry, you don't walk down. You're living up at the
Carlton, I understand.
H.M.Jr:
Yes - next week, I'll be up at the - probably move
into our house, then I'll
M:
Well, I've been going to call Mrs. Klotz and make a
date with you when you get time.
H.M.Jr:
Well next week I'll be walking, and I'll be glad to
walk.
M:
That's not till the first.
179
- 4 -
H.M.Jr:
Well, not till next week.
M:
Oh yes, that's
H.M.Jr:
I mean I -
M:
O.K. I'll get in touch with you the first of the
week.
H.M.Jr:
Righto.
M:
That's right.
H.M.Jr:
Thank you.
M:
How's your apple crop
H.M.Jr:
Oh, biggest we've ever had.
M:
Prices not 80 good
H.M.Jr:
Prices smallest we ever got,
M:
Well, you know how the cotton farmers feel, you get
just as much dollars and you'll have more fun.
H.M.Jr:
Yes - says you economist.
M:
Well -
H.M.Jr:
Well Bill, I'm happy - I'm all right.
M:
0. K.
180
GROUP MEETING
September 30, 1937
9:30 0.0.
Present:
Mr. Magill
Mr. Oliphant
Mr. Gaston
Mr. Hass
Mr. Gibbons
Mr. Lochhead
Mr. Thompson
E.S.Jr:
I read your memorandum on Vinson. I'd say his ideas
are "flukey."
Magill:
They are, very definitely. And, to me, that seemed
the more nopeful.
H.V.Jr:
Yes.
Magill:
We'd be much worse off if he had some very definite
convictions as to what he wanted to do,
H.V.Jr:
I think I'm going to be free this afternoon to work
with you, because I've gone about as far as I can on
this budget business now. I'm going to put you down
here for three o'clock.
Magili:
Good.
R.S.Jr:
Strictly in this room, I nau half an hour's visit with
Mr. Ickes yesterday and, much to my surprise, he is in
entire sympatny with what we are trying to do here.
That statement which was gotten out on September 20,
saying that PWA would stop, was written by his office
and was forced on the President. He is anxious to
balance the budget, and he says ne's sick and tired
of being the whipping boy. I almost fainted. He said,
25 far as he's concerned, he isn't going to encourage
any more spending.
So I've been around the circle with the exception of
Wallace, who is out of town, and - but they are very,
very interested and very encouraging. But I've seen
them all except Wallace.
Magill:
Well, now I'll take a billion off of the receipts that
we're trying for.
H.M.Jr:
It doesn't help much except from the standpoint of the
next three years. I mean you can't do much on this
181
-2-
year, but if they stop making loans and grants
now, why, we get the benefit in 139 and '40.
That's what it amounts to. But most encouraging.
The other encouraging thing was that, in spite of
I guess about as severe selling abroad as we have
had, the market took it in its stride and absorbed
it and gained yesterday, which Archie thinks was
most significant: that we were able to take this
very severe selling from Holland, absorb it, and
end the day with a gain. I mean it was very severe.
Oliphant:
That was in stocks or bonds?
Lochhead:
Stocks and second-grade bonds. Don't carry much
high-grade bonds. The Government bond market has
carried itself right through anyway, without.
H.W.Jr:
Herbert, can I say something to Wall Street Journal
about - something about my saying the bond market was
a bulwark against this drop? "When I said the Govern-
ment bond market, I meant the Government bond market."
and then I could say, "Well, all right, if yesterday
was a test, my theory is borne out. Or would you
simply say to the boys, "When I said the bond market,
1 had in mind the Government bond market," and let it
go?
Gaston:
Oh, it wouldn't
H.M.Jr:
The boys don't like to be corrected.
Gaston:
No, they don't.
1.4.Jr:
It's unimportant.
Gaston:
No, they
B.M.Jr:
AS a matter of fact, the Ohio Edison yesterday - that
money goes into new construction. One of the few
issues they've had for expansion.
Lochhead:
It wasn't all sold yesterday, but it moved very well,
and they think they can term it 8 success.
H.M.Jr:
Burgess is going to write me a letter once a week,
George. He's been watching these issues very closely.
182
-3-
He's got Edie, or Edie, doing it - the fellow that
used
Heas:
Used it. to be with me. I don't know who's been doing
H.D.Jr:
And he's going to give me B letter once a week. They
know whether these issues 80 well.
As a matter of fact, again very confidentially, the
Pure Oil issue was 8 hundred percent flop, and it's
the first big issue which both was guaranteed by the
underwriters and went completely back on the under-
writers. Now, it's that kind of stuff - I mean often
you wonder why does the Government bond market act
sour, It has nothing to do with the big issues. How
big was the Pure Oil issue?
Hass:
I don't recall,
B.d.Jr:
Well, it went completely sour, and the underwriters
have got it. +hen they most likely turn around and
blame us or S.E.C. for some rules and regulations;
and they simply priced the thing wrong and timed it
wrong. And they've got to look around - they blame
me or Landis or Eccles because they timed the thing -
sold wrong merchandise at the wrong time.
Haas:
I talked to Randolph yesterday about this capital
market to see what his ideas were. We're very close
together, only he usually puts in different reasons;
but we get the same conclusions. He never mentioned
the increase in excess reserves; it seems that the
S.E.C., or all those things
But he admits that
this tightening up had some effect to force the issues
out of the banks.
6.4.Jr:
I mean the thing - I mean, to philosophize a minute,
if we make a mistake it's front page news. I don't
know who sold Pure Oil; do you suppose the Well
Street Journal or New York Times is going to ride
the Pure 011 as a flop, and so on, and that these
dealers did a bum job, and look what they did to the
market, etc. They keep it a deep secret.
011phant:
Inat's a private incentive.
183
-4-
H.M.Jr:
Deep secret. There's another one too, but Pure
011 was the worst one.
Oliphant:
Did Durning drop in to see you (Gibbons) yesterday?
He was in my office. He spent three hours with Gay
the day before.
a.a.Jr:
with who?
011phant:
with Gay.
Gibbons:
The one thing I heard was on the public utilities
like gas companies and railroads - that their rates
are fixed and what they are afraid of, why they
can't float issues, As that labor costs and other
costs will go up and the gross income is set.
Oliphent:
Well, the news is that that crowd is mystified.
Gay and his crowd are all at sea, haven't any
explanation.
Gaston:
Did you see the neat way in which Chester Davis
kept Mr. Broderick's secret in the Post this morning?
They said in the Post this morning that Broderick was
going to resign and they asked Chester Davis about it
and he said - this is Mr. Davis - "Mr. Broderick wanted
to keep it a secret that nis resignation is going in
today and ne is accepting the presidency of a New York
bank, and it's going to be very embarrassing to him if
you print it." So they quote him.
Lochhead:
New York Times carries the story, bank and all.
Gibbons:
He was out here yesterday talking to Kieley when we
came in.
Jr:
de came in to say goodbye.
Gaston:
frank Gardner, the A.P. man who used to be here, now
writing financial news in New York, told me some
figures that they were talking about in New York -
rather interesting point of view. They figure that
something like between three and a half and four
billions of pump-priming money has been withdrawn
in this fiscal year 88 compared with last fiscal year,
and it adds up that way. There's about a billion and
184
-5-
a quarter bonus expenditure, and in Social Security
funds there's over a billion; and then there is
about B billion two decrease in recovery and relief.
1.2.Jp:
Yes, but that doesn't - the Social Security money
isn't pump-priming money.
Gaston:
The point is that withdrawing it - it is withdrawing
from consumption expenditures.
H.M.Jr:
Then you are in the field of withdrawals from capital
markets.
Bas:
Net spending deficit.
H.w.Jr:
Actual cash deficit is what goes in. What's the
difference?
duas:
I don't recall the figures, but I think Herbert is
pretty near right on that. And that Social Security
does come into it, because your concept is your net
spending deficit.
Gaston:
It would practically be all withdrawn from consump-
tion expenditure.
E.A.Jr:
You give me B figure when I get back Tuesday.
Hass:
we're working on it now.
Gaston:
I'll give you that figure.
Oliphant:
That argues for bigger business investments.
Gaston:
It does, because I called his attention that our
miscellaneous internal revenue, our excise taxes,
are something like 13 percent right now above last
year, in spite of that.
H.M.Jr:
They're beginning to get on to that. They nate to
admit it, you see, because that argument is against
the balanced budget.
Gaston:
Yes, yes.
H.M.Jr:
You see?
185
-6-
Caston:
Too abrupt tapering off.
H.M.Jr:
That argument is against a balanced budget. But
if you'd take that, George, and give me something
Tuesday morning, if you please.
Haas:
Yes, sir.
H.M.Jr:
What else you know, Herbert?
Gaston:
I think - oh, Emanuel Celler put out some kind of
a statement last night saying that - taking note of
this A.P. story that you were in favor of balancing
the budget even if we had to increase taxes, and
saying that he was vigorously opposed to any increase
in taxes.
Magill:
He's coming around to see me this morning, I suppose
about that.
H.M.Jr:
Well, if you see him, tell him he's all cock-eyed.
Magill:
well, he is apparently trying to get in on the tax
program. As I understand, ne's bringing Mark Graves
with him, and somebody else. I presume what he wants
to talk about is either state-federal coordination
or else repeal of capital gains. Those are the two
things he's been trying to swing onto.
H.M.Jr:
George?
Gibbons:
I think he better be repealing capital gains.
6.M.Jr:
George?
Haas:
I finally got that up to you at the hotel last night,
but the most important section - like for you to read
it all, but the most important section is the end
section there.
H.M.Jr:
I read it. It's only about half the story.
Haas:
Well, on that end.
H.M.Jr:
Yes.
Haas:
We're writing
186
-7-
H.M.Jr:
It doesn't belong in there.
Haas:
Hun?
H.M.Jr:
It doesn't belong in this memorandum.
Haas:
I don't think you can discuss the business situation
without market. putting up some consideration of the capital
H.M.Jr:
Dut you only did half the job on that.
Haas:
Well, I think that's one of the - either the heart
or the kidney of it. We haven't got it all there.
H.M.Jr:
Well, all right, that would come into what Gaston
says on this whole Federal spending - I mean come
into that.
Haas:
Did I say - I don't know whether I did - that we
were writing a more full memorandum?
H.M.Jr:
Yes.
Haas:
ies. You're right, then. That's all.
Thompson:
Nothing.
H.M.Jr:
You all clear?
Thompson:
(Nods yes)
Gibbons:
(Nods nothing)
H.M.Jr:
Tell the boys verbally I'm pleased the way they
handled Black yesterday, will you?
Gibbons:
Yes, I called the Collector
H.M.Jr:
All right.
Gibbons:
....and congratulated him on the way the thing was
done.
Gaston:
Black didn't let them use the sound-track on their
news reels. He wouldn't talk for the news reel cameras.
187
-8-
Gibbons:
He radio. said ne'd make a statement, apparently over the
Gaston:
Silent films,
Dibbons:
I told you that Fred Essary, of the Baltimore Sun,
congratulated the Collector too on the way he
handled it.
Gaston:
want to read the tail end of Russell Porter's story,
the last two paragraphs - swell little anecdote in
the New York Times on page three, at the very bottom
of the story, about what the Customs inspector said.
Oliphant:
Very jolly for the Times.
11.M.Jr:
"Major I. ", Truxtun, Collector of Customs, and
Mrs. Truxtun....."
Caston:
No, about the Customs inspector who examined the
baggage, pulled the cartoon out of his pocket.
H.M.Jr:
"The reporter thought at first that the inspector
was an ardent New Dealer indignant at an affront to
judicial dignity. But the inspector quickly corrected
this impression. 'That's a hell of a way to draw a
customs inspector,' was nis complaint. 'You never
SEW a customs man that looked like that. "hy, it's
just a caricature.
All right.
George, you want to stay a minute?
Oliphant:
Got clearance from the Comptroller General on that.
H.d.Jr:
Really? Well, I'm seeing your friend at 11:30, Herman.
Will you be in at 11:30? Collins.
Oliphant:
Is it 11:30 or 11:15?
(Gibbons, Lochnead, Thompson leave)
S.K.Jr:
Just asking you fellows to stay here a second.
George, on this business thing that you've given me,
see - between now and Wednesday. This thing - I just
188
-9-
am glad; you see, what happened yesterday is very
interesting - in this Open Market Committee.
Have Archie come back, because he's all "het up"
over this thing.
These babies come in here and they say, "Why, you've
got to raise additional money between now and December
15 in order to nelp the capital market, and then pay
off your stuff. We want you to borrow 50 million
dollars extra a week - 50 million extra a week. And
then when the 15th of December comes, you pay off
your maturities and that will be wonderful, and that's
going to help the capital market." Well, I said, "To
me, as I sit here, I just think entirely opposite."
So suddenly 1 say, "We're talking about balancing the
budget and we go in to borrow 50 million dollars a
week extra. For what?" And they say it's worse than
they thought it was. "And back it goes over 37 billion."
So we argued along, and finally they said, "Well, of
course, the Federal Reserve has only got 50 million
dollars coming due in January. Supposing we have to
buy some bills and there is no ammunition. We can't
buy anything."
(Lochhead returns)
Haas:
"Without putting the rates up."
H.M.Jr:
"Without putting the rates up."
And they said, "Furthermore, if there is going to be
any tightness we'd have to buy our bills around
December, just anead of your financing, and you know,
Mr. Secretary, you're always opposed to our buying
just ahead of the financing in order to give it a
false look. n
So I said, "Well, listen, I'll bet anybody in this
room that, no matter what we do....." - oh, first
I said to Goldenweiser, "NOW, listen, Goldenweiser,
the way the situation looks, do you think it's all
right as far as you can tell?"
"Well,' he said, "as far as I can tell it looks all
right, and we may have to do a little buying. As
far as I can tell, it looks all right, as far as
excess reserves."
189
-10-
I said, "Well, I'll bet anybody in this room that,
no matter how it looks, you won't buy anything."
So McKee got mad - "ies we will, yes we will."
00 I said, "On, you won't buy anything, whether you
need to create excess reserves or not."
"Well, the most important thing now is the capital
market, and if they knew you were out on the 15th
of December, that would be the most encouraging thing.
And you've got to borrow a hundred million a week now
instead of 50."
Gaston:
Keep it secret,
Jr:
So I said, "What you really want me to do is to go
out End create enough paper so that sround the first
of December you can buy some of our stuff."
"Well, that isn't just the way
"
00 Archie, who has a way of utting Mis finger on
things - he said, did it ever occur to them that
they could start buying now if they wanted to,
Now, just in order to get this Question of the capital
markets, you see, I'm going to Quarters where I've got
confidence - this is very much in the family - and I'm
going to ask Parker Gilbert to get together with
Morgan-Stanley, make a little survey. I'm going to
see them Monday; want to say to them, "I'd like you
to tell me what difference, if any" - I'll put it
fairly - "whether the Treasury - you're an old Treasury
man - whether ne borrow each week 50 million dollars
extra, or whether we wait until the 15th of December,
QDBS that that have any effect on Morgen-Stanley in
deciding on their issues? I'd like to know if it makes
any difference to Morgan-Stanley as to what they'll
do between now and the 15th of December." And then
I say, "While you're at it, I'll be perfectly willing
to have you tell me anything that you think the Federal
Government might do to encourage it."
But just that particular issue - because, believe me,
as far as the Federal Reserve is concerned, they still
190
-11-
jump when Morgan-Stanley talks. I mean there's
no - that's the cream; they've got the best issue
business. I'd just like to ask them.
George Harrison was a little canny, though, wasn't he?
Lochhead:
He tried to maneuver you into saying - remember,
using one word?
H.M.Jr:
George said, "You wouldn't want us to buy around
December."
I said, "Oh no."
Then they tried to twist it around that we still
had an obligation on that joint statement of two
weeks ago. So I said, "Well, we fulfilled our obli-
gation."
They said, "Do you think we fulfilled ours?"
I said, "No, I don't." I said, "Money rates will
decide that." I said, "I don't think you have ful-
filled that; how do I know?"
"Don't you want us to buy - we'll have to buy around
December, and we won't have anything to buy. You're
not borrowing enough."
I mean really - am I exaggerating?
Lochhead:
No.
H.M.Jr:
what?
Haas:
No.
H.M.Jr:
Am I exaggerating?
Haas:
No.
H.M.Jr:
It was the funniest show I ever saw. All I could do
was to keep from laughing.
Haas:
There's one thing that Harrison tried to put on you -
was that their action was an obligation to the Treasury
market, and you cut him right off on that by switching
it the other way.
191
-12-
H.M.Jr:
You see, for some reason or other their meturities
in their portfolio for the next three months are
low, and they are going to have stuff riding off.
By God, they might even have to buy a three or
four year obligation. If worst comes to worst,
they might have to buy E three or four year obliga-
tion. They haven't learned anything and they are no
different, and these boys down here just aren't smart
enough and that New York crowd just continues to put
it all over them. And I don't think it is conceited
to say that they don't put it over me.
but I don't think I'm going to - say, I don't know
anybody I'd rather have the opinion of than Parker
Gilbert and his crowd, to say whether it does or
doesn't. If he says, "Yes, it does make a difference,"
gives me en intelligent reason, I'd be influenced.
Guas:
You're in & swell position of cooperating with them
there.
H.M.Jr:
I'm going to ask them. They have always been very
nigh-class in their dealings with us. I think they
are a high-class crowd. I'd like to know. And
after all, what Morgan-Stanley does is the bellwether
on the writing, isn't it? I mean they've got out the
only issue now that's gone over - this Onio Edison.
but I'd Just be curious - of course, I'm not going to
tell Burgess - if he said, "Way, Mr. Morgenthau, it
doesn't make the slightest bit of difference whether
you borrow now or borrow new money on the 15th; it's
all the same."
If I go to the well and take it out two months before
I need it, to me it just doesn't make sense. And then
we've got to sit here for two months and nave them
calling nell out of us that the a ebt is over 37
billion.
Ollyasnt:
And the rates
H.2.Jr:
Pardon me?
Oliphant:
And you'd harden rates pro tanto.
H.M.Jr:
And to say this money that we take is in no way in
conflict with other capital issues - we take it now,
192
-13-
it's not in conflict, but on the 15th of December
it is.
Oliphant:
Did Archie ask them any reason
a.M.Jr:
What?
Oliphant:
Did Archie ask them any reason why they hadn't
thought of starting to buy earlier?
Lochhead:
I was afraid to mention it in that way, because it
was very apparent that it's never entered their head.
They're just firm. They don't want
Haas:
I think they've been very consistent, the New York
crowd.
Lochhead:
Of course they've been consistent.
naas:
Want higher rates.
Lochhead:
Higher short-term rates, certainly.
Haas:
Right clever.
H.M.Jr:
As near as I can tell, I think the 300 million will
see them through. I mean it looks to me as though
there is enough excess reserves now. It's well over
a billion, and
Haas:
Well, it depends on the distribution of it.
H.M.Jr:
Well, we control that here.
Haes:
Can to some extent.
H.S.Jr:
On yes, just change deposits. I mean that's - we
completely control the distribution of reserves by
just changing deposits.
But I thought you fellows would be amused by this.
George, I think that you ought to give these gentlemen
a copy of that business thing that you've got, I
really think they ought to have it - in the room here,
nobody else. But I think they ought to have that for
193
-14-
background.
Hass:
All right, I'll give each a copy.
H...Jr:
But I thought you'd be amused at that little gossip.
Magill:
Very much, very much.
H.M.Jr:
It's Just - I mean there's nothing sinister about it.
Oliphant:
No, but it's unfortunate that this whole set-up down
here is continuously outsmarted by them.
A.M.Jr:
There is nothing serious, but these people - I don't
know
Say, Herman, I wish you'd have somebody make in your
office a study of this whole Trans-America business,
see? I've been wanting to tell you that a long, long
time. Here's a holding company, a chain of banks.
I think it's called Trans-America.
Oliphant:
That's right.
H.M.Jr:
And here's a thing dealt in, not even listed on the
New York stock exchange, not listed on the curb, not
even listed on the San Francisco stock exchange. And
personally - I mean this is just my personal opinion -
I think it's one of the dangerous things in the whole
banking business. And I don't like his friends.
Oliphant:
Well, you remember that liquor picture we got once.
H.M.Jr:
I don't
Oliphant:
Yes, tne liquor organization, liquor industry.
H.M.Jr:
Yes.
Oliphant:
We're going to get this the same way. Is that what
you want?
H.M.Jr:
Well, I - no, I just - no, I know the set-up, know
how it goes down, but
Oliphant:
You don't know all the Board of Directors - interlock-
ing directors.
194
-15-
H.M.Jr:
Oh no, no. I want the thing, and then what I've got
in mind is the thought that - the possibility of
introducing just a little innocuous piece of legis-
lation making it impossible to have a holding company
in banks. See? That would be one step. And the
next step - some day we'll hit this chain banking
thing. But I think it's a very dangerous thing to
permit a holding company in banks.
Oliphant:
There's a lot of background and sentiment in favor
of doing something about the whole thing.
H.M.Jr:
Pardon me?
Oliphant:
There's a lot of sentiment in town here and on the
Hill against the holding company in banks.
195
September 30, 1937.
10:05 a.m.
H.M.Jr:
Hello
Operator:
Mr. Gilbert
H.M.Jr:
Thank you
0:
Go ahead
H.M.Jr:
Hello
Gilbert:
Hello, Mr. Secretary.
H.M.Jr:
Hello, how are you.
G:
Pretty well thank you.
H.M.Jr:
Good - are you at your office.
G:
No, I'm up town at the moment.
H.M.Jr:
Oh, where you can talk.
G:
Yes, quite all right.
H.M.Jr:
Good. - I'd like you to think over this situation,
I'd like to get your advice Monday.
G:
Yes
H.M.Jr:
Between now and the 15th of December we have to arrange
certain amount of money for the Treasury. As far 8.8
we can tell we don't need any money but we have a four
hundred and fifty million dollars coming due on the
15th of December - bille which we could pay off and the
we would have to raise money at that time. Now there's
two schools of thought, one 18 that we should begin to
raise that money now, through bills you 800 - or
certificates, and - 80 that we'd have to have no
financing on the 15th of December. The other school
1s that we go along just the way we are, turning over
each week the fifty million which comes due and then
have our financing on the 15th. Now the argument, the
reason I'm calling you is this. The argument that I've
given, and if I pick up the money now and each week
fifty million extra and don't do it on the 15th, but
that will help the capital market, see.
196
- 2 -
No I don't know the Morgan Stanley crowd, but you do,
and I wish you'd talk it over with some of your
associates and let me know if, in their opinion, it
would have any effect on their getting out any new
issues, you see, or whether it would.
G:
I hardly doubt it would just'now, - other things -
H.M.Jr:
Pardon me
G:
I say, I doubt if it really makes much difference
right now owing to the fact that the two issues are
not likely to have them for other reasons.
H.M.Jr:
Well - I'm just - this argument has been put up to
me - I - I don't like - - I don't know whether you want
to know what I think or not, or whether -
G:
You'd better reserve your opinion.
H.M.Jr:
Better reserve - but I mean that it was put up to me
80 strongly by the Federal Reserve crowd, and that -
I just thought I'd talk to somebody who makes his
living out of it.
G:
They - they think you ought to -
H.M.Jr:
They think I ought to pick up the extra fifty million
each week.
G:
As you go along.
H.M.Jr:
As I go along.
G:
Making it a hundred instead of fifty.
H.M.Jr:
Right.
G:
Yes
H.M.Jr:
My inclination is not to draw on the money market for
money which I don't need now - have no use for - and
wait until the 15th of December.
G:
Well
H.M.Jr:
I mean - I have no use for the money now.
197
- 3 -
G:
Pretty good reason for not borrowing it.
H.M.Jr:
Well -
G:
It's worth thinking over.
H.M.Jr:
But then the effect - I would be very glad to have
you tell me - this is proposition A - what in your
opinion are the factors which influence houses and
concerns who have to do with the Waesche movement,
why they are or are not getting them out, you see.
G:
I'll be glad to try to do that.
H.M.Jr:
For your own information I expect to be in New York
with my family on Monday, 800.
G:
Oh, yes.
H.M.Jr:
I thought I'd get in touch with you, we're staying
at the Savoy Plaza. I thought if you could drop in
there, maybe Monday afternoon, we could have a talk.
G:
That would be perfect, I'd like to do that. I'd like
to talk to you about several things.
H.M.Jr:
And if you want to bring anybody along from Morgan
Stanley, that's entirely up to you, or whether you'd
rather see me alone.
G:
All right.
H.M.Jr:
I mean - that's up to you, and I'll phone your office
Monday, and - some time Monday afternoon. Would it
make much difference
G:
Any time Monday afternoon would be perfect.
H.M.Jr:
Well, that'll be the time, and then anything else
that you have on your mind, but this particular
thing, - it just doesn't make sense - I never borrow
money that I don't need, because I think money 18
cheap - - - why don't you borrow a lot of money now,
it's cheap.
G:
Yes
H.M.Jr:
Well, I never know when money 18 cheap or when it's
dear, and only borrow when I need it.
G:
Well, I think that's a very sound principle.
198
- 4 -
H.M.Jr:
And I've done that now since I've been here.
G:
Yes.
H.M.Jr:
But, if in this case, if by borrowing the money now
and not having an issue, the 15th of December
would really have any influence, why then I'd like
to know.
G:
Well, I think - I'll go over that very carefully,
and I think I can give you - anyway our opinion.
H.M.Jr:
Righto.
G:
Very clearly on Monday.
H.M.Jr:
Well, then it gives you time to talk it over, doesn't
1t.
G:
Oh, that's perfect.
H.M.Jr:
Fine.
G:
I'd love to see you anyway and that'll work very
well.
H.M.Jr:
All right.
G:
You'll ring me up.
H.M.Jr:
I'll - I'll get in touch with your office Monday
morning and it will be some time Monday afternoon,
always dependent on something unforeseen coming up,
but my present plans are to spend Monday with the
family in New York, I mean I've got a little shopping
to do, I've got to buy a suit this winter and a pair
of shoes, - things like that.
G:
Well, anytime it suits you Monday afternoon will
suit me.
H.M.Jr:
Thank you. Goodbye
G:
Goodbye.
199
September 30, 1937
11:15 a. m.
Present:
The Secretary
Mr. Altmeyer
Dr. Haas
HM,Jr: This gives us a chance to discuss the thing.
What the President told me that you had in mind, which I
think is excellent (the reason I have Haas here is he has
been on it for a couple of months) 18, as I understand it,
to have a confidential committee which you would like to
have working with you looking towards the future for oppo-
sition people like Senator Vandenberg.
Mr. Altmeyer: Yes.
HM,Jr: If you will philosophy and expound, I will
be more than glad to sit back.
Mr. Altmeyer: Of course you know the talk about
the reserve. Nobody knows what they are talking about
when they talk. They use the word "pay as you go" and
think they have said something, but on the other hand there
1s a lot of support -- getting a lot of support for the so-
called "pay as you go plan". I don't think any of us are
supposed to pay as you go if people are ready to take the
consequences and make other provision 80 that we don't get
into a situation where 15 or 20 years hence we are in a
predicament.
I think from the standpoint of the Treasury you
have two worries: you want a system that your books will
show you what liabilities are accumulating on you and will
show you B. true situation, and, secondly, you want to have
an alternative tax suggestion BO that revenue will be com-
ing in 1f they are going to touch the payroll tax. We
could operate, as you know, on the reserve system -- either
way -- if we had certain things.
Now, I think that from a practical standpoint and
from a social standpoint, too, that it is unwise to post-
pone payment of monthly benefits until 1942 because these
200
-3-
small lump sum payments that are being made will not
satisfy the people that something really tangible is
coming out of this payroll tax. This last year you
had 6 months to run and it ran, as I recall, about
$250,000,000 collections. This year it is going to
run, probably, around $600,000,000 collections. We
will be paying out in benefits, oh, probably, a couple
millions dollars at the most, because they are not
filing. We estimated 350,000 claims filed and I think
we have had, down to date, maybe 20 or 25,000 filed
since the first of the year.
Well, if it 18 socially desirable and also de-
sirable from a practical standpoint to start benefits
sooner, then the question would arise: How shall we
start benefits sooner and show shall we adjust the amounts
to be paid in the early years? And we have several al-
ternative suggestions as regards that.
The two main types are these: if you start
benefits sooner, of course the amounts will be small
unless you allowed some kind of unearned benefit even
in addition to the age unearned benefit element that
is in the present law for these people reporting in the
first few years, otherwise you would not have accomplished
anything from a practical or social standpoint because
benefits would be 80 small you would be derided for having
started. There are two ways you can do it: either change
your percentage credit for the first $2,000 or $3,000 --
1t's now 1 of 1%. You could increase that to, say, 1%.
For a man who has only earned $2,000, he could get $20.00
a month pension. That would stay in your picture for
all time to come, increasing the present set-up for a man
to get a job during the last five years of his lifetime
60 he can build up a pension right, which will be a very
terrible problem. Now, the other way is sort of a eliding
bonus -- shouldn't call it bonus; that would be the last
word on earth to call it. Say you today pay on a certain
amount plus the present scale, but as each quarter 7068 by
people reporting in successive quarters would get a little
bit less and this addition, 80 that in the course of years
that would just pass away as their earned benefits increased.
Well, those are the two main alternatives 80 far
as starting benefit payments sooner. It would run into
sizable sums starting benefits sooner. You might have
8.8 many annuitants as 200,000 or 300,000 by 1941 and you
201
-3-
might be paying out as much as $300,000 a year and those
are terrific sums, but over B period of time if you use
the sliding bonus that does not amount to much as compared
with the $47,000,000,000 reserve which we calculated will
be accumulated by 1980. It does amount to sizable sums
on an absolute basis, but not on a relative basis consider-
ing the period between now and some period in the future
like 1980. That's 80 much for starting benefit payments
sooner.
I think there are a number of things that I men-
tioned in the memorandum to the President that we ought
to give consideration tor
I have Just been mentioning (a) "Start monthly benefit
payments not later than January 1, 1939, instead of January 1,
1942, and liberalize the monthly benefits payable during the
early years." The next point " (b) Provide an extra allowance
for wife of old age benefit recipient." In Great Britain,
for example, they pay double if there are two aged 65 years
living together; instead of giving $11.00 they get $11.00
apiece or $22.00 altogether. That 18 Just a point to con-
sider in lieu of any increase in basic allowances to any
individual. There is complaint that basic allowances are
too small for a man to live on. Instead of increasing
those basic allowances you might meet the problem by al-
lowing extra amounts in case the man's wife was alive, and
it would not cost near as much, of course.
(c) "Provide benefits for surviving widows and
orphans, regardless of age of deceased," -- what they call
"survivors' benefits in most of the European insurance
claims. They run together -- old age, invalidity and sur-
vivors. That sort of provision would cut into our present
expenditures considerably for what we call "mothers' pensions"
in the States. It would out into that segment of the
relief problem to the extent we allowed this type of bene-
fits to widows and orphans. Very little for the widow,
but a certain amount for the first child and a certain
amount for successive children. You would cut into the
relief payments that we are making for mothers' pensions.
(a) "Provide benefits for permanent total disabil-
ity." That 1s, if a man reached the age of 40 or 45 or
50 permanently totally disabled, he could start drawing
202
benefits that he would otherwise have drawn if he retired
at 65. That's 80 much for the old age insurance.
Those are suggestions that I made of phases that
I thought ne ought to study.
HM,Jr: Study.
Mr. Altmeyer: Yes. On unemployment insurance I
suggested we ought to consider the possibility of extending
unemployment insurance systen to include compensation, for
example, due to temporary disability. The old age insurance
will take care of permanent-total disability people. The
unemployment would take care of the temporarily disabled
people.
(Mr. Magill came in at this point.) The Secretary
said to him: I explained it was my fault. that you could
not be present. I will talk to Mr. Altmeyer for this half
hour and then he has this memorandum which he gave to the
President, which I "ill give to you and we can all read it
over the week-end and next week we will all get together if
that is agreeable to him.
Mr. Altmeyer: I am going to be out of town for a
month. I have speaking engagements all over the country
and I will do them all next month.
HM,Jr: Well, when you come back. But there 18
nothing in addition to this memorandum?
Mr. Altmeyer: No. What you might do is ask Mr.
Haas to do some thinking about costs.
Dr. Haas: That's right.
HM,Jr: Now, you would like him to work with your
people?
Mr. Altmeyer: Yes. Two people I have over there.
I am not using up my whole research staff because I want to
keep it close to home. Don't want people to get the idea
we are starting out on a new scheme. Falk and Williamson
are carrying it over there. Those two people have been
doing some work.
203
-5-
HM,Jr: We could get started, using this memorandum
as a basis. Haas could work along on the cost. What else
could we do while you are away?
Mr. Altmeyer: You are most interested in costs --
the whole economic implication.
Mr. Haas: How it fits into the whole fiscal program
and, again, if you need more money, the whole tax question is
opened up.
HM,Jr: You want to keep this very quiet?
Mr. Altmeyer: Oh, absolutely!
HM,Jr: We don't want any more disturbances just now!
It really gets down to Magill, Haas and myself working with
your people while you are gone and we ought to have something
by the time you get back. When are you leaving.
Mr. Altmeyer: Sunday afternoon or Monday morning.
HM,Jr: (to Mr. Haas) Put the month of October on
it.
Mr. Haas: It's a very big job. We will have some-
thing.
HM,Jr: Early in November -- the first ten days of
November.
Mr. Haas: All right.
HM,Jr: Isn't that about all we can do today?
Mr. Magill: What is the proposal?
HM,Jr: There is his memorandum to the President and
I will have copies made and send you one.
Mr. Magill: Sorry to rush out this way.
HM,Jr: It's entirely my fault. Isn't that about
the whole picture?
204
-6-
Mr. Altmeyer: Yes, I think it 18. It runs into
a lot of money. The substance, the gist of it is this:
as far as we have gone -- we haven't gone very far on this
thing -- as far as figuring the cost 16 concerned, you can
get an old age, survivors' and invalidity insurance system
along the lines I have just mentioned and get it into oper-
ation, say, January 1, 1939 or January 1, 1940. You would
not have to attach present payroll tax rates. The step-ups
would remain the same, but you would have to continue the
step-up for 1949 because it will cost more money. The
present type 1s 3% or a 6% total. You could not get all
this for a 6% total. You would have to build it up to, I
think, 8% and even then eventually the Government would have
to come in with a subsidy, a sizable subsidy, probably 1/3
of the total, and that would run into money say for the next
15 or 20 years. In other words, your present payroll tax
and that sort of thing takes care of the thing. After you
get past that point, you have an ever-increasing Government
subsidy until you reach a maturity of the system 45 years
from now. Then you level off. Now, the question 1s how
far we should go in this direction recognizing that as we
do we probably are also abandoning, to a certain extent, the
reserve system, the self-sufficiency basis of this thing
and running into an eventual Government subsidy. Whether
that's wise or not, how far can we go on that sort of program.
HM,Jr: I have what you have in your mind and it's
tremendously important and if they even thought we were
thinking about it the impact would be terrible. We can
keep it quiet.
Mr. Altmeyer: We can keep it quiet too. I have
Just been ruminating it in my mind.
HM,Jr; I appreciate your coming over.
Mr. Altmeyer: Thank you very much for letting me
come over.
000-000
205
COFT
Regraded Unclassified
LOCAJA
September 11, 1937.
Memorandum for the President
From Mr. Altmayer
Subjects Amondments to the Social Security Act.
I should greatly appreciate an opportunity to confer with you relative
to the above subject as soon " possible. The imediate reason is that,
at you know, last February Senator Marrison AS chairman of the Senate
Committee on Finance acting at the request of Senator Vendenberg agreed
to the creation of an advisory council on social security. The matter
enze up during the course of a hearing before the Senate Committee on
Finance and it appeared at that time that there was no alternative but for
the Social Security Board to agree, although reluctantly, to the creation
of this advisory group. Bose time thereafter an advisory group me apr
pointed jointly by & subcommittee of the Senate Committee on Finance and
the Social Security Board, Aside from the wisdom of the appointment of such
6. group, the mistake was made of not consulting the House Committee on Roya
and Means. Nothing has been done to utiline the services of this edvisory
group although Senator Vandenberg has become more and more insistent that
a meeting be called. I have talked with Senator Herrison several times
about the matter. Be still feels that it me wise to consent to the
creation of this advisory group and that we ought to call & meeting. How
over, he suggested that before doing so I discuss the matter with you.
The problem of what to do with the advisory group is 8 part of the
much larger problem of what va should look forward to by way of future
amendments to the Social Security Act. This is likely to become a very
hot partisen issue.
Same time age 16 vore warned that the Republicen National Committee
me already supplying material to various nationally known columista
relative to the Sccial Security Act the substance of which, in a little
more refined version, was that the payroll taxes constituted & method
shereby the government as collecting penniss from the poor to finance
a wasteful government. Recently, John Hamilton in his speeches has claimed
All an accomplishment of the Republican sembers of Congress that they "forced
the Democratic Social Security Board to start action to adopt the Republicas
proposal to insuress and hosten old age benefits and to keep at & low leval
payroll taxes OD employers and employees by doing away with A needless
47 billion dollar reserve." While these attacks 670 to be expected,
206
- 2 -
novertheless they need to be receased with because both the 4. 7. of L
Regraded
and the c. L 0. labor leaders and unions have publicly indicated dis-
satisfaction with the present provisions of the Social Security Act and
particularly the payrell tax provisions. While, of course, 10 should not
be stampeded into taking unvise action, I think that it La most necessary
to consider at this time the general character of the Administration's
policy regarding amendment of the Social Security set.
so a matter of fact, I think it is possible not only to offset these
attacks on the Social Security Act, but really to utilize them to advance
a socially desirable program, fully in accord with present fundemental
principles underlying the Social Security ACT and within our financial
capacity. You will resall that some time age at & conference in your office
Harry Hopkins outlined & long time program dealing with unemployment end
relief. I have indicated to Mr. Hopkins and the Secretary of Labor how the
insurence approach in the Social Security Act should fit into this lang
time program and they have reacted favorably to the general idea. The die-
cussions I have had with them may be summarised at follows:
1. The full reserve feature of the old age insurance system may be
secentially sound, but is under considerable sttack by both conservatives
and liberals. The position of the liberals is more consistent than the
position of the conservatives since they recognise more clearly that if we
" off the reserve plan it is most important not only to bring the budget
into balance, but provide for rapid retirement of the government debt through
the imposition of higher progressive taxes. This necessity arises out
of the fact that unless 10 do no we will reach A period in the future when
10 must either raise payroll taxes to almost twice the present contemplated
maxima, or provide a large government subsidy which together with the
service charges on the government debt may prove unbearable.
2. If we ⑈ off the reserve plan with our eyes open it is more
desirable to do no by increasing and extending both the size and character
of the benefits provided instead of reducing the present tax rates which
are relatively lew.
3. Specifically, 96 should convert our old age insurance system
into an old ago, comment invelidity and survivors' insurance nystem,
at follows:
(a) Start southly benefit payments not leter than January 1,
1939, instead of January 1, 1942, and liberalize the acathly
benefits payable during the early years.
(b) Provide an extre allowance for wife of old age benefit
recipient.
(e) Provide benefits for surviving widows and orphans, regardless
of age of deceased.
(a) Provide benefits for permanent total disability.
4. LD regards unexployment componsation it is feasible and desirable
to extend the system BC all to include unemployment due to
207
- 3 -
diaability not arising out of the employment. This proposal would not
neet with objection from the medical profession; in fact, it standa &
good chance of eliciting notive support from the metical profession. The
increased cost would be less than 15 of the payroll.
5. The extension of % considerable part of this program to D greater
proportion of the population, particularly agricultural workers, domestic
maployees and the self-employed Can probably be accomplished through changing
to x combined payroll and earned income beais for conputing taxes and
benefits. Such extension should be dependent upon solving the administrative
problems involved and upon popular demand, Iven DOW, injortant excluded
groups, such 05 banks, sooner, and religious and charitable organisations
are urging extension of cover " to them.
6. The foregoing program would supplement the grogram of unemployment
and relief outlined by Mr. Topkins and AS time- west on take care of a
larger and larger segment of the problem, without .ffecting the Federal
buiget during the next fifteen yours and *1thout the necessity of incrussing
the present total payroll taxes more thus 18 (ficured on the payroll) during
that period of time. Eventually It would be necessary to provide another
step-up in payroll tax rates under the proposed old age permenent invalidity
and survivors' insurance system so that instead of EL maximum of 35 from the
employer end employee, the seximum might be 43 from each. However, this
step-up need not occur until 1952. Beginning some time after 1952 a
government subsidy would be necessary which would incruase each year, due
chiefly to the fact that the system sould not reach its naturity for
about 40 years.
Because of the magnitude of the problems involved, I should like to
suggest tast you ppoint M very small unofficial, unpublicised group,
including Miss Perkins, Marry Hopsins, Senry Corgenthau, Henry Wallier,
and myself to explore these problems and to report to you from time to
time the course of their thinking.
I should also like to n/ve your suggestion as to what to do about the
Misory group described in the attached newspaper release of Noy 10, 1937.
208
MEMORANDUM OF THE DAY'S ACTIVITIES
September 30, 1937
To:
The Secretary
From:
Mr. Magill
1. Congressman Celler, Morris Tremaine of New York and two
absociates and Mr. L. H. Parker spent an hour with me today on the
subject of the tax on capital gains and the undistributed profits
tax. Mr. Celler urged that the undistributed profits tax WBB un-
duly burdensome on small companies and that the tax on capital gains
was preventing business transactions, particularly sales of securities.
Mr. Tramaine, after a long speech, made specific proposals as follows:
increase the incone tax on the lower brackets; modify the undistributed
profits tax so as to permit the accumulation of earnings needed for
growth; tax capital gains and losses in B. separate schedule, using a
flat rate of tax; apply 80(i) form of tax to corporations which do not
have net income. I gave no indication to these men of my own views
or the Treasury's views with respect to these proposals or others;
and consequently, I do not at all understand Congressman Celler's state-
ment to the press that I had indicated that the Treasury was studying
the possibility of moderating the undistributed profits tax on small
businesses and of increasing the income tax rates on middle sized in-
comes. Celler advoceted these two changes, but I expressed no opinion.
2. Settlement of the Bahamas insurance cases:
At my request Mr. Oliphant and Commissioner Helvering discussed
the settlement of the five cases which were presented to the Joint
Committee involving fake insurance policies in Bahanas companies. Mr.
Leming, who has been in charge of the cases, indicated that his con-
clusion was that there was not enough evidence to form a basis for
criminal prosecution but that the fraud penalty should be asserted
against each of the individuals in proceedings before the Board of
Tax Appeals. Mr. Oliphant agreed with this point of view and directed
that the Penal Division complete its recomendations so that the work
on the cases will go forward in the usual course. Work has been held
up during the past month due to the fact that the files are in the
hands of Mr. Parker's staff, at the request of Senator LaFollette, who
has asked for an analysis of the cases,
am
209
September 30. 1937
To:
The Secretary
From:
Mr. Magill
Subject: Conference with Congressman Celler, Morris S. Trensine,
Controller of the State of New York, Mr. Carl Whitney
of the New York Bar, Mr. Jones, President of the Alcron
Belting Company, Akron, Ohio, and Mr. L. H. Parker.
Mr. Celler had arranged the conference. He opened the discussion
by reading letters from two New York corporations to the effect that
the undistributed profite tax prevented the small and middle-size cor-
poretions from building up B. sufficient surplus to compete successfully
with the larger corporations. One of the corporations had had a series
of deficits followed by B. net income of between three and four thousand
dollars. The letter pointed out the desirability of retention of the
earnings which it was asserted the present law prevented. 1 pointed
out to Mr. Celler that the present law was more favorable to a. corpora-
tion with earnings of this size than the prior law.
Mr. Tremaine then made a long speech, the gist of which was that
he was strongly in fevor of the President and his policies but that he
believed business was being stifled by the present taxes. The illus-
trations which he gave indicated that his main complaint had to do
with the surtax rates in the upper brackets rather than with the tax
on capital gains. When he concluded his remarks I asked him specifically
what be recommended to cure the situation. His first proposal was to
broaden the income tax base. I asked him how much he would lower the
exemptions and he said that he thought the single exemption should not
be more than B. thousand dollars. I pointed out that that was the amount
of the exemption at present. Mr. Celler then interposed to the effect
that it would be politically undesirable to lower the exemptions but
he thought the top surtax rates should be reduced and the surtex rates
in the middle brackets might be increased. Secondly, both Celler and
Tremaine went capital gains taxed in B separate schedule at 8. flat 12b
percent rate. They do not seriously advocate the repeal of the tax.
Thirdly, they suggest a reduction in the rates of the undistributed
profits tex, and Celler suggests some special provision for carrying
over net losses to subsequent years. Finally, Mr. Tremaine would like
to see some form of tax on corporations that have no net income. His
memorandum in his own hendwriting is attached hereto.
I gave the men no indication of the Treasury's own point of view
but simply listened to them and took notes. There 10 no basis for the
statement which Celler and Tremaine subsequently gave the reporters to
the effect that I had indicated that the Treasury "plans" RD increase
in the rates in the middle brackets and B. moderation of the undistributed
profits tax on smaller companies.
new
210
September 30, 1937.
2:18 p.m.
Operator:
Go ahead
H.M.Jr:
Hello
Gordon
Rentschler: Hello there, how are you
H.M.Jr:
I'm all right, how are you.
R:
Very good.
H.M.Jr:
I wish you'd be thinking over something very con-
fidentially for me.
R:
Be glad to. do it.
H.M.Jr:
And I'd like to get an answer from you maybe Monday
or Tuesday.
R:
Find
H.M.Jr:
In considering our financing from now until the 15th
of December, there are two schools of thought, one
school 18 recommending that we pick up each week the
additional fifty million dollars BO that when we come
to the 15th of December we may not need any money, see.
R:
I see.
H.M.Jr:
The other school says no, just go along the way you
are, Just fifty million a week, roll over and then on
the 15th of December pay off your maturing bills and
borrow whatever you need.
R:
Borrow on a longer time baeis.
H.M.Jr:
Well, whatever the market will take, you see.
R:
Yes.
H.M.Jr:
Now, one of the arguments that they are using on this
thing with me is the situation which I am not familiar
with, and they say, now if you take this extra fifty
million a week now, they know you're not going to have
any financing on the 15th, that will be the most
reassuring thing you can do to the capital market.
R:
Yes.
H.M.Jr:
Well, I just wondered if that's 80.
211
- 2 -
R:
I'm not BO sure, I'd like to think about that pretty
carefully before I answer it.
H.M.Jr:
Well, I didn't - I wouldn't want an answer off the
bat, but they're telling me if I take 8. hundred million
a week now in bills or tax, you know, bills, something
in the bill form you see, an extra fifty, 80 - with
the hopes that I sail through December 15th without
any refunding or refinancing, they say that will be
most reassuring.
R:
Yes, it's better to have an issue then.
H.M.Jr:
Yes, now frankly I can't see it.
R:
No -
H.M.Jr:
But, therefore, I'd like to have some - talk to some
fellow who makes his money by that, see.
R:
Yes, now I'll - you let us think that over, and I'll
give you a ring on that Monday or Tuesday.
H.M.Jr:
Yes - I may be in New York Monday, I'm not sure yet.
R:
All right, fine. If you are, I'll come up wherever
you are.
H.M.Jr:
Well, I'll be at the Savoy Plaza.
R:
Yes, fine. We can get together up there then.
H.M.Jr:
But I'll let you know, but you might sort of keep
Monday afternoon, sort of not too tied up.
R:
Yes, I'll be glad to arrange it that way.
H.M.Jr:
I'm just going to - shopping.
R:
Yes, well that will be fine.
H.M.Jr:
But, - you get the picture.
R:
Yes, indeed I do.
H.M.Jr:
And you might be thinking about this whole question, -
I mean this is 80 important to the capital market, -
well let's consider that and then what is the matter
with the capital market. What's keeping people
from going in.
212
- 3 -
ir
H.M.Jr:
See, we wanted your opinion as to real reasons, see.
R:
Quite right, that's all right - we'll run that through
our mind. We will be ready to talk to you.
H.M.Jr:
If you'd kind of be careful - - I'd Just leave -
R:
I'll be very careful not to mention either that you
were up here.
H.M.Jr:
Yes, - and also, but - I mean you can ask questions
in a way that -
R:
Oh yes, indeed, I'll be very careful, 80 there'll be
no discussions.
H.M.Jr:
Yes, but you get the point.
R:
Oh yes, indeed I do.
H.M.Jr:
And if it wasn't that these people were 60 insistent
that I'm wrong - I wouldn't be asking advice
R:
That's right.
H.M.Jr:
And - - I mean - if I'm wrong, I'm open to argument.
R:
Very good. Yes, let's think that over and take a
look at the whole situation. Now of course you've
got this February maturity coming along too.
H.M.Jr:
Well, yes, but that 16 - we could handle it either
then or take enough money in December.
R:
Take enough in December.
H.M.Jr:
Yes.
R:
Which of course would be just in accordance with the
four annual debts.
H.M.Jr:
That's right.
R:
Which would be better.
H.M.Jr:
Which the people are -
R:
That would be a logical thing.
H.M.Jr:
Yes
R:
And then you won't have to bother with the others
until March, which 1s a long ways off.
213
- 4 -
H.M.Jr:
That's right.
R:
We might be able to get a lot of things cleaned up
between now and March and won't cause any difficulty.
H.M.Jr:
That's right.
R:
Well, all right, I'll be very glad to do this, and
then we'll sit down some time Monday afternoon at
your convenience.
H.M.Jr:
That's right.
R:
How else are you?
H.M.Jr:
Oh, I'm fine.
R:
Lot of fellows still coming in with nervousness.
H.M.Jr:
I won't let them come in.
R:
Well, we've got all kinds of nervous indigestion
fellows around these days.
H.M.Jr:
Well, I've been trying to saw wood down here.
R:
Oh by all means, and -
H.M.Jr:
I - I read everything that comes along but I'd
rather take it in print than have it given to me
with a lot of nervous fervor.
R:
Oh, yes, and then of course, they don't - do any
cross questioning then.
H.M.Jr:
That's right.
R:
That wouldn't do any good.
H.M.Jr:
No. - Well, you think this over for me.
R:
Indeed I will.
H.M.Jr:
Thank you.
R:
Fine. It'll be awfully nice to see you.
H.M.Jr:
Thank you.
R:
Bye. Bye.
H.M.Jr:
Goodbye.
214
September 30, 1937
My dear Mr. Mallet:
Thank you for your very courteous letter
of September 27th.
I would appreciate your informing sir John
Since that I consider Sir Frederick Phillips'
visit distinctly worth while and 1 hope that
officials of the British Treasury will again
visit us in the not tee distent future.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Mr. v. A. L. Mallet,
Counselor of Embasey.
the British Embassy.
Washington, D. C.
van
Regraded Unclassified
215
BRITISH embassy,
WASHINGTON, D.C.
September 27th, 1937
PERSONAL AND
CONFIDENTIAL
My dear Mr. Secretary,
I have received B. telegram from the
Chancellor of the Exchequer asking me to
convey to you an expression of his thanks
to you for having kept so closely in touch
with him with regard to the French situation.
It has been a great satisfaction to Sir John
Simon to feel that your views and his own
have so closely coincided.
May I add, on behalf of Sir Frederick
Phillips, Mr. Trentham and myself a special
word of thanks for your courtesy in giving up
80 much of your valuable time last week and for
the princely hospitality with which you honoured
us on that delightful visit to Mount Vernon.
Believe me,
My dear Mr. Secretary,
Yours very sincerely,
The Honourable
Henry Morgenthau, Jr.,
Victor m aller
United States Treasury,
Washington, D.C.
-
FEDERAL RESERVE BANK
m
OF NEW YORK
216
FICE CORRESPONDENCE
DATE September 80, 1987.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION
L. U. Knoks
WITH BANK OF ENGLAND.
Mr. Bolton called me at 12:10 for the purpose of keeping no
in touch with affairs in Europe. According to their view the French
situation is nearing 8 crisis tomorrow or Saturday. The flight of
French capital has been on a tremendous scale during the last two days
and still continues. The movement is directly into sterling, today's
figure being about £4,000,000. I pointed out that what he told ne was
contrary to market reports received here, which spoke of the pressure
against the French franc being very much smaller today. Bolten simply
replied that that showed the value of market reports and explained
that the reason for this divergence most probably was a recent change
in technique on the part of the French, as a result of which the Bank
of France furnished a good deal of sterling to the buyers direct in-
stead of operating through banks in the market. According to their
information, he continued, the market in Paris was terribly disturbed
with a panicky scramble for international securities which today had
spread into French industrial securities. Some people in Paris seemed
to be convinced that by Monday we would have a rate of 175 franes to the
pound. There seemed to be no doubt that there was a complete split in
the Chautemps setup, with the proppect of the popular front breaking
down and giving way to a new government of the moderate centre and the
parties of the right, that is a kind of government of national union.
If this came off, it would most certainly mean a break between the
radical socialists and Blum's socialist party. Such a new combination
would be a difficult problem because, at best, it would commend only
I small majority in the Chamber. At any rate, as far as he understood,
Regraded Unclassified
FEDERAL RESERVE BANK
217
OF NEW YORK
FFICE CORRESPONDENCE
DATE September 20, 1937.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION
ROM
L. 1. Knoke
WITH BANK OF ENGLAND.
- 2 -
some such plan was under contemplation to be put through before October
10, the day of the cantonal elections. In his personal opinion, some
decision would have to be made before this workend. In the memtime,
the market was just toppling into sterling.
Bolton then referred to our conversation last Monday about
Japanese funds in London. He had no further definite information, he
stated, but as far as they had been able to discover, it now seemed to
them that the Japanese were rather low in funds in London. The Japanese
banks were reported to be continually endeavoring to borrow sterling
against any form of security, offering high rates for deposits, etc.
But so far all their requests had been turned down out of hand. He ad-
mitted that what he was telling no now was somewhat different from what
he had said last Monday.
Bolton then asked Just as a matter of curiosity" whether my-
thing was happening in silver, that is whether there was any change in
the silver policy. I told him that I knew of nothing, that as far as
the price for domestic silver was concerned, the Secretary had recently
stated that he had three and a half months to deal with this problem.
As far as non-domestic silver was concerned, all I knew was that the
mandate given the Secretary of the Treasury in 1954 to buy silver, con-
tinued in force. that would become of the London silver agreement when
it expired at the and of this year, I did not know but, judging by dis-
cussions in the daily press, it seemed to no that nobody ⑉ any longer
much interested in this problem. Bolton sentioned that they had had runers
in London from India and Shoughai to the effect that our domestic price of
FEDERAL RESERVE BANK
218
OF NEW YORK
FFICE CORRESPONDENCE
DATE September x3, 1937.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION
ROM
L. V. Knoks
WITH BANK OF HUGLAND,
- B -
silver was going to be raised. I replied that I had not we heard much
rumors. Bolton then referred to the 50,000,000 ounces of silver on the
way from Hongkong to London, which were sent there for safe custody,
the capacity of the Hangkong market in this respect having been 0051-
pletely exhausted because the banks in Hongkong had had to take in amy
valuables of all sorts from Chinese residents. I wondered, I said,
whether these shipments did not have more significance then just seeking
a place for safe custody for the silver. Bolton replied that they had
an eye on that too but had been assured by the Chinese that there vas
no intention to throw that silver on the market. He promised he would
let no know if he heard anything further.
I asked whether he had heard anything about further gold ship-
ments from Japan and he repeated that, as he had previously said on
Monday, it was their understanding that the one shipment had been ID
experimental one, had proven to be very expensive and that, therefore,
the Japanese had no intention to ship any more to London. I nentioned
that we here had not been advised of any further shipments to Ban Francise
In conclusion, Bolten said that probably he would ring no up
again tomorrow because he was certain the French situation was very near
breaking point.
LEK:KNC
219
MBo
GRAY
Paris
Dated September 30, 1937
Rec'd 12:28 p.m.
Secretary of State,
ashington,
203%
1364, September 30, 4 p.m.
SECTION IDE FROM COCHRAN -
"rench control has been under terrific pressure to-
day giving sterling at 144.59 to 53. Rente up and big turn
over in French shares on rapidly rising market. Bank of
France statement as of September 23 showed no significant
changes and no new advances to the state; coverage 51.61
versus 51,81. Gold much in demand at London with British
control supplying it.
Above activity in Paris market results from increasing
fear of early crisis in the franc accentuated by following
rumors among others current today:
OnE. That Governor Fournier has recommended immediate
stabilization of franc on gold with Bourse to bE closed for
one WEEK.
Two, That new basis for franc will be 175 to the pound.
Three. That tripartite agreement will bE revised the
franc going down because of social charges, the dollar de-
clining with gold because of Wall Street
(Eilt) SECTION ONE).
PR:CSB
WILSON
220
PARTIAL PARAPHRASE OF SECTION TWO OF TELEGRAM NO. 1364
of September 30, 1937, from Paris
crash and raw materials slump, and the pound allowed
to depreciate because of British armament costs;
Four.
That Bonnet will head a reshuffled Popular Front
Government or
Five. That a consolidated government under Daladier
will succeed the Popular Front Government.
I telephoned Rueff at the Ministry of Finance at
four o'clock this afternoon. Rueff said that he could
not confirm any of the current rumors on the Bourse,
including the rumor that a Cabinet change is imminent.
This afternoon he said there was to be an ordinary meeting
of the Finance Committee of the Chamber, which was for
the purpose of discussing the 1938 budget plan. However
it was not certain that it would even be attended by
Bonnet. I was asked for my night telephone number.
Tannery, former Governor of Bank of France, has
been chosen President of the Banque de l'Union Parisienne.
END OF MESSAGE.
WILSON.
EA; LWW
221
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: September 30, 1937, 7 p.m.
NO.: 1367
RUSH
FROM COCHRAN.
I learned at six o'clock that in today's very bad
trading the French control yielded approximately
4,000,000 pounds of foreign exchange. Ample funds are
still at command of control, but because of the political
situation the control is unable to make any sort of a
maneuver. Therefore the control cannot do anything but
give foreign exchange at the present rate. The person
who gave me this information had no word as to what is
to happen and he does not expect anything to happen
before the Saturday morning Cabinet meeting. Conse-
quently Friday promises to be most unpleasant for the
French control.
WILSON.
EA:LWW