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Volume 210, September 7 – September 12, 1939
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Volume 210, September 7 – September 12, 1939
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 210
September 7 - September 12, 1939
Regraded Unclassified
- A -
Book Page
Appointments and Resignations
Graves, Harold N.: To be placed in charge of
Procurement, Engraving and Printing, Wint - 9/11/39 210 244
- B -
Brasil
See War Conditions: Latin America
- F -
Farm Credit Administration
Bell and HMJr discuss recent order so that Farm Credit
Administration operates almost independently - 9/7/39
54
a) HMJr and Wallace discuss financing
55
- G -
Graves, Harold N.
See Appointments and Resignations
- M -
Morgan and Company, J. P.
See War Conditions: Financial Advisory Committee
- W -
War Conditions
Australia:
Exchange control established 9/9/39
129,130,194
Bankers' Committee: Frank (Securities and Exchange
Commission) provided with resumé of Harrison's
comments at 4/13/39 meeting - 9/7/39
66
a) FDR's memorandum to Frank warning against
"double-crossing" (9/5/39)
72
b) Frank's report to FDR concerning subcommittee
consisting of representatives of Treasury,
State, Federal Reserve, Justice, and Securities
and Exchange Commission
73
c) Frank's memorandum to FDR concerning appointment
of "examining board" by New York Stock Exchange
d) Frank's letter of protest to Harrison over
omission of Securities and Exchange Commission
from "general committee" (9/1/39)
85,124
e) Harrison's answer to Frank
86
f) Securities and Exchange Commission's proposed
reply sent to Treasury for comment - 9/8/39
101
- - (Continued)
Book
Page
War Conditions - (Continued)
Business situation for week ending 9/9/391 Heas
memorandum,
210
245
Coast Guards
Participation in scientific expeditions:
Byrd antarctic expedition will probably go
through - 9/7/39
16,28,40
a) Byrd willing to give up NORTHLAND - 9/7/39
89
1) Gaston memorandum to H/Wr on
revision of plans - 9/7/39
90
Office of Ship Movements to be established under
Coast Guard - 9/7/39
88,122
Treasury to ask for Executive Order so that Coast
Guard may exceed its budget - 9/8/39
93
Credits to Belligerents (Section 3 of Neutrality Act):
See Mar Conditions - Neutrality Act
Straits Settlements:
Exchange control set up - 9/12/39
278
Export-Import Bank:
Pierson visits Fain, Secretary General of French
Government Export Credit Insurance System - 9/8/39
95
Financial Advisory Committee: Personnel and criticism
of participation by J. P, Morgan and Company
referred to HiJr for comment by FDR - 9/7/39
11
France:
Rist (Charles) confers with Bullitt - 9/9/39
137
New exchange control measures - 9/10/39
149,161,197
205,207,273
a) DWr's message to Finance Minister Reynaud -
9/11/39
202
b) Copy sent to Chancellor of Exchequer,
Great Britain
204
Conference on proposed statement to press concerning
monetary policy; present: HWr, Cochran, Bailie,
Viner, White, Bernstein, Duffield, Riefler, and
Lochhead - 9/11/39
170,177
HWr suggests to Leroy-Beauliou that France set up
its own purchasing agency similar to Universal
Trading Corporation - 9/12/39
312
Germany:
Standstill Agreement: American Embassy, Berlin, reports
on plans for new agreement - 9/9/39
144
American Embassy, Berlin, reports on full war control
measures - 9/12/39
269
Government Bond Market:
Developments in Government bonds and high-grade
securities during week following outbreak of war -
9/11/39
183
Regraded Unclassified
- # - (Continued)
Book
Page
War Conditions - (Continued)
Government Bond Market: - (Continued)
a) Disturbed condition discussed by HMr, Hanes,
Bell, Bailie, Burgess, Smith - 9/12/39
210
330
1) HMJr talks to Ransom.
352
b) Conference with Federal Reserve group on
support of Government bond market by Federal
Reserve System and Treasury - 9/12/39
357
Great Britain:
Purchasing: British Ambassador reports receipt of
Riverdale plan; start to be made in Canada with
agency to be set up in New York later - 9/7/39
13
Justice, Department of:
Antitrust Division: Thurman Arnold aska for cooperation
with Treasury in recxamination of plans in view of
present state of war in Europe - 9/7/39
47
Kennedy, Joseph P.:
In connection with proposed purchase of SS NORMANDIE
and QUEEN MARY, expresses displeasure at lack of
direct information from his own Government - 9/7/39
14
a) HMJr discusses with State Department
41,43
Letin America:
Loan situation discussed by Treasury group together
with special advisers - 9/12/39
288
Brazil:
American Embassy reports on noticeable switch on
orders to United States - 9/9/39
142
Navy: Shipbuilding Program:
Proposed Treasury release on agreement to be signed
with steel companies - 9/8/39
119
Neutrality Act:
Credits to Belligerents: (Section 3 of Neutrality Act),
State Department appoints Berle with Feis as alternate
to Advisory Committee - 9/7/39
10
Commerce appoints Young - 9/8/39
116
Conference of Treasury group and special advisers -
9/12/39
320
SS NORMANDIE and QUEEN MARY: See War Conditions - Ship
Movements
Passports:
Collector of Customs, San Francisco, asks for advice
concerning visitors on board vessels on sailing days -
9/8/39
115
Prices:
Meeting in North Interior Building; Currie chairmant
Haas memorandum - 9/11/39
240
Puleston, William D. - Captain: See War Conditions -
Special Advisers
Radios on German Vessels:
HMJr asks Communications Commission to review situation -
9/8/39
118
Regraded Unclassified
- W - (Continued)
Book
Page
War Conditions - (Contimued)
St. Pierre and Miquelon, Islands of (French-owned
and near Newfoundland):
HMJr discusses use as landing bases with Navy -
9/7/39
210
18
Securities and Exchange Commission: See Mar
Conditions - Bankers' Committee
Securities Market:
Developments in Government bonds and high-grade
securities during week following outbreak of war -
9/11/39
183
Ship Movements:
SS NORMANDIE and QUEEN MARY:
Hanes assures British Ambassador offer is in no
way intended to take advantage of an unfortunate
situation but rather intended to be as helpful
as possible - 9/7/39
9
Kennedy asks for more details in accordance with
request by British Treasury; expresses
displeasure at not having been informed by his
own Government - 9/7/39
14
a) HMJr discusses with State Department
41,43
Hull informs Kennedy FDR has issued instructions
proposal is to be considered as not having been
made - 9/11/39
176
a) HMJr and Xennedy also discuss; HWr talls
Kennedy Hull call entire matter off without
informing him (HMr) either - 9/11/39
228
SS BREWEN: Waesche tells HMr she is at Murmansk,
northern part of Russia - 9/7/39
22
Office of Ship Movements to be established under
Coast Guard - 9/7/39
88,122
Special Advisers:
Captain Puleston (William D.) asked to join Treasury
staff to evaluate war naws - 9/7/39
30
a) Reports for duty - 9/11/39
174
b) HMJr asks Edison to see Puleston - 9/11/39
214
Strategic War Materials:
Manganese, tungsten, chromite, hemp, and optical
glass: Procurement memorandum - 9/8/39
108
Quinine: Procurement memorandum - 9/11/39
169
Tobacco:
Wallace and HMJr discuss closing of Southern markets
because of British cancellation of purchases -
9/12/39
284
War Resources Board: Personnel and criticism of same
referred to HWr for comment by FDR - 9/7/39
11
Regraded Unclassified
1
NC
GRAY
PARIS
Dated September 7, 1939
Rec'd 3:25 p.m.
Secretary of State
Washington
1835, September 7, 6 p.m.
FOR THE TREASURY.
The Exchange market today r esembled that of yes-
terday in dearth of transactions. The Bank of France
quoted a buying rats of 175.95 for pounds and 43.50
for dollars. It was willing to sell foreign Exchange
on presentation of bona fides import licenses and did
so. For Example, in a transaction with the Guaranty
Trust for one of the oil companies, the control sold
dollars today through the Credit Lyonnais and the
Comptoir National, As indicated, it will SEll only to
responsible banks and where convinced that the transaction
is "legitimate": it has however issued no instructions
to banks concerning fortign exchange operations and has
no objection to their dealing therein, where and if they
can find their own sellers of foreign securities. In
other words, through its refusal to SELL foreign
currencies EXCEPT as above and given Existing war con-
ditions and the natural caution of banks thereunder,
the
Regraded Unclassified
2
NC -2- #1835 from Paris, September 7, 1939
the control is accomplishing its objectives without
Establishing any formal regulations or restrictions
for the moment.
(END SECTION ONE)
BULLITT
CSB
3
REB
GRAY
Paris
Dated September 7, 1939
Rec'd 4:53 P. m.
Secretary of State,
Washington.
1835, September 7, 6 P. m. (SECTION TWO)
The security market was again inactive but (?) and
quotations were largely nominal. Rentes were off 10 to
30 centimes EXCEPT a dollar Exchange guaranty issue of
1937 which continues to gain. The Bank of France
statement published today for the WEEK Ending August 31
could hardly bE called satisfactory and shows the Effect
of the then impending war. Advances under the commercial
portfolio increased by 7,000,000,000 francs, to a total
of 15,000,000,000. The item under which "open market"
operations are reported increased by 784,000,000, and
30-day advances increased by 693,000,000. The note
circulation increased by 12,000,000,000 to 142,000,000,000.
The account of the Treasury decreased by 1,000,000,000
francs to a total of 1,252,000,000. Total withdrawals
from current and deposit accounts amount to 3,970,000,000.
As total demand liabilities thus increased by about
8,400,000,000 francs the ratio of gold cover fell from
62.64 to 59.42%.
(WE
4
REB -2-#1835, From Paris, Sept. 7, 6 P. m.
(WE give below as of possible interest for comparative
purposes the changes which occurred in the bank statement
for the crisis WEEK ended September 29, 1938: commercial
portfolio advances increased 7,000,000,000 francs to a
total of 20,000,000,000; open market operations increased
by 214,000,000 and 30-day advances WERE up 727,000,000,000;
note circulation increased by 14,860,000,000 to a total
of 124,000,000,000; the Treasury account decreased by
120,000,000 to a total of 345,000,000. The ratio of gold
coverage fell from 43.01 to 38.37% -- this was, of course,
before revaluation of the bank's gold.)
(END OF MESSAGE)
BULLITT
NPL
BECEINED
1333 - 072
TW3MTRA930 YHUZAJHT
The miz to
-
-
I
5
REB
PLAIN
London
Dated September 7, 1939
Rec'd 4:45 p. me
Secretary of State,
Washington.
1516, September 7, 9 p. m.
FOR TREASURY FROM BUTTERWORTH.
An agreement will be signed at the Foreign Office
today by wrich the British and Prenco Governments
undertake in lend Poland L8,500,000. British Treasury
states that of this amount $5,000,000 will bE supplied
by the British Government and L3 1/2 Hillion by the
French Government, the latter having asked that its
previous advance of 11 1/2 million to Poland bE taken
into consideration. The manner in which this money will
bE Expended will be decided from time to time but a
substantial part of it will go to meeting sterling and
franc obligations of the Poles which they are now not
able to deal with.
(END SECTION ONE)
KENNEDY
NPL
PARAPHRASE OF SECTION TWO, TELEGRAM NO. 1516
6
OF SEPTEMBER 7, 1939, FROM LONDON
The British Treasury, however, states in strict con-
fidence that the Poles have been informed by the Soviets
that they are prepared to sell supplies to them. Therefore,
for that purpose the French and British Governments have agreed
to permit the Poles to use 1,000,000 pounds from each. It
remains to be seen whether the Soviets will do as they said
they would.
I am informed by the Polish Financial Attaché, inciden-
tally, that happenings came 80 fast that Poland only
received a few thousand pounds worth of goods out of the
British credit of August 2 in the amount of 8,500,000 pounds.
From the British Treasury I also gather that Turkey
1s again asking for money. I understand that there is
great concern on the part of the British Embassy in Turkey
that everything should be done to line up the Turks.
BULLITT.
EA:LWW
Regraded Unclassified
7
LAR
PLAIN
London
Dated September 7, 1939
Rec'd 4:55 p.m.
Secretary of State,
Washington
1516, September 7, 9 p.m. (SECTION THREE).
Foreign exchange rates as fixed today remained
unchanged except for Belgium which was fixed 23,42-72 and
Switzerland which 768 17,87-18.05.
The Bark of England return shows di decrease of
₺263,000,000 as compared with last week in the gold held
in the Issue Department (gold was valued at 158S,6D. last
week and 1688. this week 80 that the sele of gold by the
Bank of England W&B $278,000,000). There was an increase
of 620.4 million in the note circulation making the total
L549.9 million. A decrease in public deposits of $16,000,000
and an increase in bankers' deposits of $21,000,000 reflects
the heavy government expenditure of the past week. An
increase in government securities in the banking department
of $280,000,000 is a consequence of the gold transfer to the
exchange equalization account,
Meanwhile money market conditions are relatively easy
with overnight accommodation at 3 percent and 3 1/4 percent
against Treasury bills and bonds respoctively and bills
were sold at 3 1/8 and 3 3/8 percent for October and
November
Regraded Unclassified
8
LAR-2-1516, September 7, 9 p.m., from London. (SECTION THREE).
November dates respectively.
The Treasury is obviously obtaining large quantities
of foreign oxchange and as this is changed into pounds in
the hands of the public and financial institutions the
money merkot will further 2880 and improve the conditions
for the floating of long term war loans.
The Stock Exchange opened today and was quiet with
littlo inclination to do business, only about half the
usual number of dolors boing in their offices; the tone
was fairly firm with gilt-odged steady.
The transfer of the Bank of England's gold to the
exchange equalization account WAS approved in the press,
which, be it noted under censorship in mainly interesting
as the reflection of a government point of view, and
omphasized that the step was not an inflationary one since
the fixed "fiduciary issue" at $580,000,000 might well have
been exceeded if the price of gold had further increased,
The press also takes it for granted that the gold will be
used for war purchases and indoed emphasizes that such was
considered to be the intontion all along.
(END OF MESSAGE)
BEREINED
KENNEDY
NPL
2333 7 (1)
MUSTAIRT
211 In +2(H)
,
Regraded Unclassified
September 7. 1939
9
To:
The Secretary
From: Mr. Hanes
The British Ambassador stopped by at my request after having seen
the Secretary on the matter of British purchasing policy in this
country during the war. I told him that I wanted to clear in his mind
any misapprehension that he might have concerning the Secretary's
suggestion to him and to the French Ambassador that the United States
Government take over the S. S. Queen Mary and the S. S. Normandie in
exchange for a credit of EL given amount, (to be decided upon.) on the
English and French debts to the United States.
I explained very carefully to the Ambassador that, whereas the
proposal may have sounded somewhat in the nature of a suggestion which
would take advantage of the unfortunate situation in which they now
find themselves, this was not at all what the Secretary had in mind;
that his suggestion WES prompted entirely by a desire to be helpful
to all concerned in the present crisis, and at the seme time to maintain
a policy of the strictest neutrality.
The Ambassador was extremely grateful for this information and
said it would be most helpful to him in clearing up any misunderstanding
which might have been created had the matter been allowed to rest
where it was. The Ambassador stated frankly that he had refrained from
discussing this matter further this morning with the Secretary for the
reason that he had been given to understand by Mr. Welles that it should
be forgotten. He said that in view of this circumstance. with which he
judged the Secretary was familiar, no further reference to the incident
was necessary.
I may have gone A bit too far in assuring the Ambassador of our
desire to help. However, I put this entirely on a personal basis, having
no reference whatsoever either to his position with his government, or
my position with mine. I am sure that he went away with a totally
different feeling than he had before.
J.W.H.
DONESE OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
WASHINGTON, D.C.
10
DEPARTMENT OF STATE
WASHINGTON
September 7, 1939
My dear Mr. Secretary:
In response to your letter of September 7, 1939,
advising me of an advisory committee which you are
creating for the handling of questions that may arise
in connection with the Executive Order signed by the
President on September 6, 1939, having to do with
Section 3 of the Neutrality Act, I have requested
Assistant Secretary Adolf A. Berle, Jr. and, as alter-
nate, Mr. Herbert Feis, Adviser on International
Economic Affairs, to represent the Department on
this committee.
Sincerely yours,
Correshee
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
B15210
THE WHITE HOUSE
WASHINGTON
11
September 7, 1939
MEMORANDUM FOR SECRETARY MORGENTHAU
To speak to me about.
F. D. R.
Enclosure
by
12
Two powerful war committees have been appointed
with the blessing of the Administration, namely, the War
Resources Board, which will dominate American industry, and
the Financial Advisory Committee, which will dominate the
entire realm of American finance. The majority of both
committees are representatives of J. P. Morgan & Co. On
War Resources Board are: Stettinius of U. S. Steel, as
Chairman; Gifford of AT&T and Pratt of General Motors.
On Financial Committee are: Potter, of Morgan's Guaranty
Trust, as Chairman; Fraser, of Morgan's First National
Bank, Vice-Chairman; and Henry Morgan, son of J. P. Morgan,
representing all investment bankers. It has also been
announced that J. P. Morgan & Co. have been appointed fiscal
agents for England.
As you will remember, during the World War the
Morgan firm not only handled all allied purchases of mater-
ials end supplies, but also arranged the vast credite which
made those purchases possible - both operations at substantial
profits to the Morgan house. Thoughtful people throughout
the country have been shocked by the placement of these
powerful boards in Morgan's hands.
The War Resources Board should be composed of bona
fide representatives of the nation's industrial areas rather
then by men located in and connected with the New York financ-
ial district. The Financial Advisory Committee should be
representative of the entire country.
BM
Regraded
Unclassified
13
September 7, 1939
The British Ambassador was here. He said that
only today he received a report from Lord Riverdale on
how they should do their purchasing. He has not yet
had time to read it. This they will start in Canada
and then set up some sort of an agency in New York.
As soon as he knows he will let me know.
I asked him what arrangements they had made
about disposing of American securities which they have
taken over in this country and he said that they have
made no arrangements and would let me know Just as soon
as they have.
All I
DEPARTMENT OF STATE
29-11-39
THE SECRETARY
14
September 7, 1939.
MEMORANDUM FOR SECRETARY MORGENTHAU
There is furnished below a paraphrase of a telegram
just received from the American Ambassador at London;
LONDON
Dated September 6, 1939
Secretary of State
Washington
1500, September 6, 5 p.m.
FOR THE SECRETARY OF THE TREASURY
Your conversation with the French and British
Ambassadors in Washington was recounted to Butter-
worth this morning when he was called to the British
Treasury and read a telegram from Lord Lothian. Ac-
cording to the British Treasury, which stated that it
had received the question from the Foreign Office,
no reply to the proposal concerning the turning over
as part payment on the war debts of the NORMANDIE
and QUEEN MARY could be formulated unless further
information concerning the proposal's nature and ex-
tent
15
-2-
tent was furnished which it requested be obtained.
I accordingly request you to transmit the desired
details which I shall send the British Treasury.
Because of the present times, I feel that I
should not have to be informed about things vitally
concerning Great Britain by the British Government
and that I should be maintained up to date on ac-
tions in Washington.
KENNEDY
September 7, 1939
16
9:07 a.m.
Captain
Callaghan:
Fine, sir. How are you, sir?
HNJp:
I'm fine.
C:
Mr. Secretary, that man you spoke to me about --
about the retired officer yesterday.
MJr:
Yes.
C:
The Navy Department says they think that that's
perfectly all right, sir.
HNJr:
Fine !
&
Now, about the Byrd Antartic Expe -- Expedition, sir.
HiJp:
About the Byrd.
C:
Yes, sir.
HMJr:
Yes.
C:
I find that -- that two of the ships will be ready
to leave, according to the Navy Department data
here, towards the first of November, and the --
the BEAR will be ready to leave between the 15th
of November and the 1st of December.
HiJpi
Yeah.
8:
All fully equipped and ready to 50.
H/Jr:
Yeah.
C:
According to the information here that will still
give that expedition time to get in there and --
and get settled before the winter senson starts in.
HMJr:
Yeah.
C:
Now, I gave that information to the President late
yesterday, sir, and he didn't say one way or the
other about the expedition.
HiJr:
Yeah.
- 2 -
17
C:
I -- I assume that he'll probably take it up with
you to find out whether the thing is to go on or
not.
HMJr:
Well, as I gathered -- of course, we were talking
awfully fest -- that he -- that 1f they were ready
they'd 20 along.
0:
Yeah.
HAJr:
But now I -- I take it that if they are reacy, that
he wants them to go on down.
::
Yes, sir. Well, I -- I didn't know just what his --
I didn't hear the preliminaries of that conversation
BO
Wr:
Well, I just said that I thought that unless -- that
these things are vital, and it was 8. mistake to tie
up all this equipment at this time.
0:
Yes, sir.
HWr:
So he said, "Well, 03 far as the one with the National
Geographic was concerned, kill it."
0:
Yes.
IllJr:
The other one, on account of establishing -- whatever
you call
C:
Yes.
H:Jr:
possible air bases there, he'd like to TO
through with that.
C:
Yes, sir.
HWr:
So I think we'll let the Byrd Expedition TO through
then.
C:
Well, I -- I think it's perfectly all right, sir.
According to the present indications everything will
be all set and they can get away in time.
HMJr:
Right.
C:
A little bit later than they originally planned, but
still in -- in plenty of time to carry out.
18
- 3 -
HMJr:
Well, I -- well, I -- I think I'll just drop it.
C:
All right, sir.
HMJr:
Now, look -- let me give you a thought while I've
got you on the wire. When this -- these destroyers
are going up on this trip, I'd like to make a sugges-
tion that they take a look at the islands of Miquelon
off Newfoundland -- you know, San Pierre and Miquelon,
those two islands.
C:
San -- yes, Miquelon and San Pierre.
HMJr:
Now, I flew over them.
C:
Yes, sir.
HMJr:
And Miquelon, -- of course it belongs to the French
C:
Yes, sir.
HMJr:
is so situated, ideal protection for a flying
boat to land.
C:
I see.
HMJr:
And there's a tremendous big flat space with -- with
a little -- looks kind of swampy and it looks to me
as though -- as though -- two or three miles either
way, which would make an ideal landing field.
C:
Um-hm. That's on Miquelon, sir.
HMJr:
On Micuelon.
C:
Yes, sir.
HMJr:
And -- of course, it's a strategic place and I
think it's a much better place than Botwood.
0:
Um-hm.
HMJr:
And if we wanted a jumping-off place at any time,
I wondered if when the Navy was up there, they
couldn't just land there and make a report on it.
C:
Well that's a good thought, sir. I'll
HMJr:
What?
4
19
C:
I'll pass that thought on.
HMJr:
Because it's 90 -- the -- the little island is 90
situated it would be perfect for a sea plane to
land.
C:
Right.
HMJr:
It looks like deep water from the chart.
C:
Yes, sir.
C/Jr:
And there's a tremendous big flat space which with
not too great expenditure, I think would make a
marvelous landing field.
o:
Um-hm. Well, I'll -- I'll pass that word along,
Mr. Secretary.
18Wr:
And we might take it from the French and give them
a credit on their war debt for it.
C:
Uh-huh. (Laughissly) Well, I'll -- I'll put that
thought in their minds here and the first -- the
first destroyers that TO up in that area, we'll
have them drop in and take & look and see.
MJr:
Well, as I understand, these two destroyers are
going up that way now.
C:
Well, they -- they don't go up quite that fer, sir.
HilJr:
Well, they might,
C:
They -- it's possible that they might. It will
depend
HIJr:
What I was thinking, if it's worth while sending
all these ships down to the South Pole
C:
Um-hm.
HMJr:
this thing -- it's so much more invortant
and in such a strategic place.
O:
Yes, sir. Well, I'll -- I'll -- I'll uses that
thought on, Mr. Secretary, and have somebody take
a look and see at that.
Regraded Unclassified
- 5 -
20
HMJr:
And I appreciate your promptness in calling me
this morning.
C:
All right, sir. All right, Mr. Secretary.
HMJr:
Thank you.
C:
Thank you, sir.
HMJr:
Goodbye.
21
September 7, 1939
10:22 a.m.
HMJr:
Hello.
Operator:
Admiral Waesche.
Go ahead.
HMJr:
Hello.
Admiral
Waesche:
Good morning, Mr. Secretary.
HMJr:
Good morning, Waesche. Anything new particularly
in your department?
W:
No, sir. Nothing at all.
HMJr:
I see. All right. Now when am I going to hear
about -- I'm counting on you to let me know about
when the Bergensfjord gets in tomorrow.
W:
Yes, sir. We -- we got a -- we haven't heard from
New York this morning. I told them -- we told them
yesterday to let us know the -- as soon this morning
as they found out. I'll check up with them right
away and -- and push them on it.
HMJr:
I could know by one o'clock.
W:
Yes, sir. One o'clock.
HMJr:
After you've got the lighthouses now, you ought to
know whether she passed the Fire Island light.
W:
We will -- we'll -- we'll know even before she gets
to Fire Island light because she -- she's not due
until tomorrow morning.
HMJr:
What -- what is the -- where would she -- she does
about four hundred miles. Where would she be?
W:
Ah
HMJr:
What lighthouse would she be off?
W:
Well, let's -- she would be -- when -- would not
have reached Nantucket lightship as yet -- that is,
it's a less than a 24-hour run from Nantucket light-
ship to New York.
- 2 -
22
HMJr:
Do you have radio communication with Nantucket light-
ship?
W:
Yes, sir.
HMr:
You can -- will you send them & radio?
Yes, sir, we'll do that. I'll get in touch with
New York right away and 1f they have not found out
anything at all within the -- by the time I call
them, I'll have them sená a message out to Nan-
tucket lightship and have them report from there
if and when they see the ship.
HMr:
Why not do that anyway?
W:
We'll do it anyway, all right.
SWr:
The Nantucket lightship 18 under you now, isn't it?
W:
Yes, sir.
HWr:
What?
%:
Yes, sir.
HMJr:
Well, send them a radio and way that headquarters
wants to know when the Bergensf jord passes.
M;
Fine.
HXJr:
What?
%
Yes, sir. You got the word about the Bremen?
HWr:
No.
W:
The Brewen is up in -- I'll spellthe name for you --
but up on the Arctic Ocean up there near the White
Sea, northern mrt of Russia. Wait I'll -- I'll
get the exact name.
HMr:
Really?
V:
Do you want it?
HMJr:
She's un in the White Sea?
Regraded Unclassified
23
- 3 -
W:
Yeah, up in the Arctic Ocean.
HMJr:
Well, how in the hell áid she get there?
W:
It's -- she's at X-U-R-M-A-N-S-K.
HMJr:
Murmansk, yeah.
W:
M-U-R-M-A-N-S-K. She went up around the northern
end of Finland, Norway and Sweden into the Arctic
Ocean and then back Just below the Arctic circle
at the Soviet port of Murmansk -- M-U-R-M-A-N-S-K,
which 1s very close to the -- eh -- border of
Finland.
EWr:
Well, -- ah
W:
Near -- near the White Sea.
MJr:
All right. Now, just as & matter of interest, I'd
like to Bee whether -- how well you're organized --
whether you can send a radio to Nantucket and find
out what time she passes there.
W:
All right, sir. I will.
HWr:
And I would also find out
W:
And while we're doing that I think we'll simply tell
the Nantucket lightship to report into New York
every -- every steamer that passes.
HIJr:
What's that?
W:
I think we'll order -- we might as well tell the
Nantucket lightship to report to our New York
district every ship that passes.
HMJr:
Why wouldn't that be a good idea?
W:
I think it's an excellent idea.
IMJr:
What?
V:
Yes, sir.
HMJr:
I mean, they might as well be doing something out
there.
Regraded Unclassified
- 4 -
24
W:
Yeah, and then get them -- give them a little
training.
HMJr:
I think it would be a good idea.
W:
Yes, sir.
HMJr:
0. K.
W:
All right, sir. I'll do that right away.
25
September 7, 1939
10:26 a.m.
HMJr:
Hello.
Operator:
Mr. Frank.
HMJr:
Thank you.
0:
Go ahead.
MMJr:
Hello.
Jerome
Frank:
Good morning.
HIJr:
How are you?
F:
Very good, thank you. I'm sorry to bother you, but
I wondered whether a review of those minutes showed
any such discussion as
HIJr:
Yes, it did in full detail. He outlined the whole
plan on April 13th.
7:
When I Was present?
HMJr:
No, you were not there.
P:
Oh, well then he's totally in error in saying that
I WAS,
HKJr:
No, you were -- you were -- now wait just a second.
I haven't got the thing; I sent it back. No, you
were not present. There was a group of people
here but he -- he outlined it in great length --
Just about the committee and all the rest of it,
and BO forth.
F:
Well, did he -- was it -- was there a discussion
to the effect that such a committee WE.B to make
suggestions and -- and proposals to the various
governments -- governmental agencies?
H/r:
I tell you, I'll -- I'll have a copy made and send
it to you.
All right, thank you, but he's surely in error in
saying that we were present.
- 2 -
26
HMJr:
I don't think anybody from the S.E.C. was present.
I -- I'll send you -- I tell you what I'll do, I'll
have an extract made of that
F:
Yes.
HMJr:
and send it to you, plus the people who were
there.
F:
All right, thank you.
HMJr:
I called up George and told him that as soon B.B the
bond market straightens out I'd like him to come
down and have lunch with you and me.
F:
All right.
HMJr:
He said he'd be delighted.to.
F:
Thank you very much.
HMJr:
So I think you might maybe let the thing rest until
then?
F:
Well, the only thing that bothers me, the newspapers
keep buzzing about things that are doing and if he
has -- has told that committee that they were ap-
pointed with our understanding, that they were to
be appointed ànd were to make proposals and sugges-
tions to us, the difficulty is this: Of course,
any group of citizens can make any proposals they
want to anybody
HMJr:
Sure.
F:
that's in the government. That's quite
another matter from a suggestion of proposal made
to us by somebody that we've blessed.
HMJr:
Well, I just would say this: He's been under EL
terrific train this week.
:
Yes.
HMJr:
George has because it was -- as you know the bond
market
F:
Yes, of course.
- 3 -
27
HMJr:
And, incidentally, for the last hour it's taken
care of itself.
F:
That's fine.
HMJr:
The government bond market.
F:
Fine!
HMJr:
And -- but I'll have a copy made
F:
All right, thank you.
HIJr:
and I'll send it -- and I'll give you a list
of who was there.
F:
All right. Thank you very much.
28
September 7, 1939
11:42 a.m.
HMJr:
Hello.
Operator:
Captain Callaghan.
HMJr:
Hello.
Captain
Callaghan:
Hello, Mr. Secretary.
HMJr:
Hello, Callaghan.
0:
The President just brought up the question of the
Bear expedition again, sir.
HMJr:
Yes,
0:
The Byrd expedition, rather.
HMJr:
Yes.
C:
And he -- he out forth this thought.
HMJr:
Yes.
C:
He wanted to know how efficient the expedition would
be if We withdrew the NORTHLAND, that's the Coast
Guard vessel
HWr:
Yes.
6:
and let the expedition establish only one base
with the BEAR and the NORTH STAR, I think is the
other one.
HMr:
Yes.
C:
He wanted to know what your reaction would be to
that sir; or what the reaction would be to that.
HMJr:
If they withdrew the
C:
NORTHGUARD -- the NORTHLAND, I think is her
name.
HMJr:
Right.
C:
And the other two vessels, the BEAR and the -- and
the NORTH STAR, I think is the name of the third
vessel -- those two alone would establish Just
one base.
Regraded Unclassified
- 2 -
29
HMJr:
I see.
C:
Instead of us trying to establish two.
HMJr:
Well, I'll get an answer for you as soon as I can.
C:
All right, sir. Fine.
HMJr:
Thank you for calling.
C:
Yes, sir. Goodbye.
September 7, 1939
30
11:43 a.m.
HKJr:
Hello.
Operator:
Captain Puleston.
HMJr:
Hello.
Captain
Fuleston:
Hello, Mr. Secretary.
MJr:
How are you?
in
Fine. How are you.
ENP:
I'm quite well.
in
I -- I'll bet you are ! (Laughs)
EWr:
Captain, I'm calling you un after clearing this with
the President's naval aide. Hello?
in
Hello?
MJr:
I say -- what I -- I'm talking to you, but before I
did this I talked with Captain Callaghan
?:
Yes.
HMJr:
and I got & clearance from him and from the
Navy Department.
6:
Yes.
HXJr:
Now, what I want is to ask you whether you'd care to
come down here and -- in the Treasury
2:
Yeah.
HMJr:
and to evaluate the war news for me.
is,
Yes.
EMJr:
And -- we need somebody very badly who will be here
and tell us what's going on and what it's all about.
n°
Well, I -- I'd like to come, Mr. Secretary, if you
want me.
HMJr:
What's that?
- 2 -
31
P:
I -- I'm -- if you want me, I'll like to come.
HRJr:
Well, I -- well, I -- I ão want you, and as I say,
I got a clearance on this from Captain Callaghan
first.
P:
Yes.
HMJr:
And he cleared it -- called me and said it was all
right to ask you.
is
Yes.
HMJr:
So if you could be here Monday morning?
is:
Ah -- this -- this coming Monday. Oh yes, I could
be there Monday.
ENJr:
And ready to go to work, and then we'll make -- you'll
make your contacts, I mean, with the Army and Navy and
-- and BO that -- well, that you can keep me posted.
You see?
6:
I -- well, I -- I'll come on down and -- on Monday
and we'll -- we'll fix it up afterwards what I am to
do. (Laughs)
HMJr:
Well, you know what I want.
is:
I know what you want, and I'll try very hard to do it.
HMJr:
Well, there's nobody can do it any better than you.
P:
(Laughs) Well, I -- I hope you'll think DO when --
at the end of a couple of months.
HMJr:
Well, is everything
P:
Did you have a nice time coming home?
HMJr:
Pardon?
P:
Did you have a good time coming home?
HMJr:
I wouldn't call it that. Have you ever crossed in a
two thousand ton boat?
- 3 -
32
P:
(Laughs) You know, I followed your movements with
considerable interest. (Laughs)
HNJr:
Well, if you've got somebody you don't like, let me
know and I'll send them across the ocean in a
Coast Guard cutter.
P:
(Laughter) I've been in them.
HiJr:
I know you have.
94
(Hearty laughter) They're not so good, are they?
Jr:
leah, but you're a professional; I'm only an
amateur.
Well, I'll -- I'll be down there Monday then, Mr.
Secretary.
HMJr:
Fine.
e:
And I -- I suppose you'll -- you'll have everything
cleared up by then with the authorities.
HiJr:
Well, I don't know what else there 1s to do.
Callaghan said that
2:
I suppose I'll have to have some
orders or something.
HMr:
Well
P:
You take that up with Callaghan and
. They
can do it.
HXJr:
Well, I don't know just what the orders -- but he
called me this morning and said that it was all right
to invite you in.
P:
Yeah. Vall, I'll -- I'll be down, Mr. Secretary.
H:Jr:
Righto.
P:
On -- on Monday.
H.Jr:
*hank you.
as
Good luck.
33
September 7, 1939
5:25 p.m.
HMJr:
Hello.
Operator:
I can't get Mr. White. He has evidently not gone
back to his own office yet.
HMJr:
Well, gosh, I won't bother. If he'd 70 home, I'll
reach him at home when I'm ready.
0:
Wait 8. minute, here he is. He's in your outer
office now. Just & minute. I have Chairman
Ecoles. Talk to him first?
HNJr:
Yes.
0:
Right. Go ahead.
HAIR:
Hello.
Varriner
Ecoles:
Hello. Hello, Henry.
HMJr:
Hello, Marriner.
E:
I just wanted to say that I've been planning on
leaving here on Saturday, taking the plane out
Saturday afternoon going out home 'til -- it
looks like it -- 'til Congress meets it may be
at least a temporary interim period here.
HMJr:
Yeah.
E:
That's assuming that tomorrow -- nothing happens
tomorrow and Saturday. I think the -- I think the
security market -- the perticular bond market has
cretty well run its course.
H/Jr:
Yeah.
61
And the -- we're uo -- I think -- I think we're
pretty well on top of It now, and if tomorrow or
the next day demonstrates that fact -- I don't
mean by that that there's not going to be some
fluctuations, but I don't think we're going to
have the same serious problems we've had for a.
week here.
ENJr:
No.
- 2 -
34
is
And I just wondered if you saw any -- any -- any
objection -- any reason why I shouldn't get away
for a week anyway, or 80, pending on developments.
Of course, I can always take an overnight plane
and come back.
HMJr:
No, I think if things quiet down and you've got
plenty of help there and you've got to go home
for a week, why I'd go.
in
Well, I -- I've only been there about four or five
days since last October.
HMJr:
Well then, I think
E:
(Laughs) And I need to really get out there and --
I don't know, it Just seemed to me that this may
be as good a period as any unless you saw some
HMJr:
No.
E:
-- some -- something that I don't see about
it.
HMJr:
No, I don't see anything. You can always come
back, as you say, in 24 hours.
E:
I can come back in 13.
HMJr:
Yes. Well
E:
I'm not looking for another trip back though and I
wouldn't go if I thought I had to come back
immediately.
HMJr:
No.
E:
Well, I -- I understood you were going out of town
and I
HMJr:
Yeah.
E:
-- I just didn't want to go out without
HMJr:
Well, that -- I
E:
checking with you.
- 3 -
35
HMJr:
Well, that's terribly nice.
X
And 80
HMJr:
If there's anything I'll give you a ring.
E:
Well, -- oh -- I wish you'd do that. I'll be
available, and so I -- I'll plan on getting out
of here by -- by Saturday, unless there's develop-
ments tomorrow or Saturday that make it appear
that I shouldn't go.
HMJr:
O. K.
E:
All right then.
HMJr:
Thank you, Marriner.
E:
Goodbye.
September 7, 1939
36
5:35 p.m.
HMJr:
Hello.
Operator:
Frank.
HMJr:
Hello.
Jerome
Frank:
Yes, sir.
HMJr:
Hello, Jerry.
F:
Yes.
HMJr:
Henry Morgenthau.
F:
Yes.
HMJr:
Did you call me?
i.,
Oh -- oh, it was Just -- I -- I just -- Mrs. -- I
got the message to Mrs. Klotz.
HMJr:
Yes.
F:
I Just wanted to be fair to Harrison and make
sure
HMJr:
Yes.
F:
that he hadn't discussed another committee,
because he indicated in his telephone conversation
to me that he had two com -- there'd been dis-
cussions of two committees.
HMJr:
Well, I really don't know. We can't find anything.
F:
You can't. All right, thank you.
HMJr:
No, but why don't you -- if I might make the sugges-
tion, why don't you wait now until you see him next
week and talk it over?
F:
Well the only bother now is this, I'm afraid of
these boys and I'm afraid that Potter will go
sounding off on something.
HMJr:
Oh.
- 2 -
37
F:
And what I wanted to make sure -- I -- I'm just
dictating a let -- draft of a letter which I
thought I'd send to you.
HMJr:
Yeah.
F:
For your -- see whether you disapproved.
HMJr:
Yeah.
is
Calling his attention to this fact - that since
committees are acting, in effect, as advisers to
the Treasury and the Federal Reserve and were
appointed on that basis that they are not merely
private groups of citizens.
HMJr:
Yeah.
F:
And therefore ought not to publicize any comments
they have to make concerning our activities, but
ought to transmit them to you and the Federal,
which, of course, would do B.S. they always do in
any such matters, send them to us without publi-
cation.
HMJr:
Well, send it over to me.
F:
All right, I'll send it over either tonight or
tomorrow morning.
HMJr:
Thank you.
F:
Thank you.
HMJr:
Goodbye.
Regraded Unclassified
38
September 7, 1939
5:38 p.m.
HMJr:
Hello.
Operator:
Captain Collins. Go ahead.
HMJr:
Collins
Captain
Collins:
Yes, sir.
HNr:
The Secretary speaking.
C:
Yes, sir.
HMr:
There's all sorts of mix-up as to just when this
Bergensf jord gets in. The Collector of Customs
has given us a different time.
8:
Yes, sir.
HMJr:
Where do you get your information from?
C:
As to ships?
HiJr:
Yes, the Bergensfjord.
:
I don't have any information on them, sir.
HMJr:.
Who is this?
C:
This is Collins over at
HMJr:
Oh -- oh
C:
Procurement.
HMJr:
I was asking for Waesche. I thought it was
Coast Guard. I'm sorry.
0:
Well, did you want me to
HMJr:
No, no, no, I got
I'm sorry.
C:
No.
HMJr:
They gave -- I asked for Waesche.
C:
Yes, sir.
- 2 -
39
HMJr:
I thought I was talking to Waesche.
C:
Yes, sir.
HMJr:
What I wanted to say was this: This information
which you gave me on these strategic materials
C:
Yes, sir.
HiJr:
I want the balance of that. You said there are
eight altogether, aren't there?
C:
That's right. Four more. Yes, sir.
HMJr:
And you've got to find some way to get it to me
to the farm by Sunday morning.
C:
Well, I'll get it to you somehow, sir. (Laughs)
10Wr:
See?
C:
Yes, sir.
HMJr:
You can do it through Secret Service. They'll
bring it up. They -- they -- they'll have a man
up there anyway.
0:
Aye, aye, sir. I'll have it -- I'll have it
rolling tomorrow night, sir.
HMJr:
Have it up into my hands by Sunday morning.
C:
Yes, sir. I shall.
HMJr:
Thank you.
C:
You're welcome, sir.
September 7, 1939
5:38 D.I.
40
HJr:
Hello.
Corretor:
Mrs. Herbert.
The:
Hello.
Trs.
Corbert:
Yes, Mr. Secretary.
Mr:
Mrs. Herbert, make & note that the President said
that We should -- it's not necessary to send the
NORTHLAND with Admiral Byrd to the South Pole.
Have you got it?
H:
Yes, sir, that the President saya that it 18 not
necessary to send the NORTHLAND with Admiral End
to the South Pole.
MMr:
Yes.
Yes, sin Mr. Goston has zone home, Xr
SIN:
He did. Well, I's giving it to you end
in
Yes.
:
it's us to you to get it to Hr. Gaston.
%
Yes, I'll see that he gota it.
Tonight.
#:
Yes, sir.
TXJ:
Aighto.
::
Yes, sir.
H/Jr:
Thank you.
Regraded Unclassified
September 7, 1939
41
5:44 p.m.
HMJr:
I don't feel it's up to me to advise the American
Ambassador over there. I don'
John
Stone:
I can tell you I know that Mr. Welles sent off a
reply to him.
HMJr:
Yeah.
S:
And that -- what it said, I don't know, but I know
that he did handle it.
HMJr:
Well
S:
And I -- I raised the question of -- myself, be-
cause a copy came into this office -- as to sending
it over to you, and he said yes, send it over to
you. But he did not suggest about making any
notation as to your possible replying.
HMJr:
Well
S:
And I think Mr. Welles' reply may have covered the
situation, sir.
HMJr:
Well, could I have a copy of that?
S:
Of Mr. Welles' reply?
HMJr:
1es.
5:
I'll -- I'll see, sir. I -- I don't know the
situation very well.
HMJr:
Well
S:
Would you like to speak with Mr. Welles, sir.?
HMJr:
Yes.
S:
Well, I'll see if he's over there, sir, and if he
is I'll -- I'll
HMJr:
Have him call.
S:
have him call you, and 1f he isn't, I'll
just call your secretary and tell you the situation.
- 2 -
42
HNJr:
No -- well, you could call me because
S:
All right, sir.
HIST:
Let me know one way or the other.
S:
Right, sir.
HMJr:
Because I -- I don't like the tone of Kennedy's
telegram.
S:
No, I understand that, sir.
HIJr:
And.....
S:
I -- I'll get in touch with them and maybe the
Secretary would like to speak with you. He's --
he's gone out to Woodley.
HMJr:
Well.....
S:
Department of
MJr:
Well
S:
He hasn't gotten there yet.
HMJr:
Ah -- I -- I'm here for fifteen minutes, and after
that I can be reached at home after seven fifteen.
S:
After seven fifteen?
HMJr:
Yeah.
S:
All right, Mr. Secretary. Fine.
HMJr:
Thank you.
S:
Goodbye.
September 7, 1939
43
5:55 p.m.
Sumner
Welles:
Hello.
HYJr:
Hello, Sumner.
11:
Hello, Henry. They tell me you want to speak to
me.
MiJr:
Yes.
W:
All right.
HiJr:
Well, I asked for Mr. Hull and I asked about this
telegram from Kennedy number 1500.
Oh, yes. Um-hm.
ENJr:
And they said that you had answered Kennedy and so
I asked
I told Kennedy that the President had instructed
that the matter was to be regarded as -- 88
finished.
HWr:
Yes.
Now, I didn't say anything more than that. I couldn't
possibly attempt, naturally, to answer his telegram
except that.
HMJr:
Well
Vi
Because if he W&B complaining that we hadn't in-
formed him, I wanted him to know that there wesn't
anything for him to be informed of.
HMJr:
I see. of course, I consider it an impertinent
telegram, and after all, I have no way of communi-
cating with Kennedy. And Mr. Hackworth W&B here.
For your information I asked Mr. Hull how I should
handle it and he said to handle it at this end
and not to handle it through Kennedy.
W:
Um-hm.
HMJr:
Or Bullitt. Now that's -- he said to do it at this
end. That was Mr. Hull's
- 2 -
44
Yeah.
MJr:
own suggestion. So if
$
Well, I knew nothing about it until afterwards and
17:Jr:
Well
W:
all I'm trying to do is to compose the -- the
question. I'm -- I'm awfully sorry but I couldn't
possibly inform Kennedy myself because I didn't
know anything about it.
HJr:
Well, let me ask you a question for future
:
Yeah.
MJr:
guidance. Is it -- where e State Department
representative sits here with me, which Mr. Hackworth
did representing the Secretary of State, 18 it up
to ne to take any further action?
Well, I think your point 18 perfectly well made.
I think if the State Department was fully informed
of a thing of that kind, Kennedy should have been
advised.
RMJr:
Well, I mean -- but Mr. Hackworth was sitting here
at -- as D. representative of the Secretary of State.
V:
Yeah.
HIlJr:
And I asked -- I mean -- and I -- it was taken up
at Cabinet. At the Cabinet I said to Mr. Hull,
"Now, should I -- how about my calling up Kennedy
and Bullitt -- or what do you think"?
10
Yes.
HWr:
And he said, "No, I wouldn't do it that way."
He said, "I'd do it by asking the Ambassadors
here to see you." II
W:
Um-hm.
HWr:
And the appointment for the Ambassadors was made
through his office.
W:
Um-hm. I see.
45
- 3 -
HMJr:
Mr. Gray made the appointment.
I see.
HWr:
And Mr. Hackworth sat here as Mr. Hull's represen-
tative.
Yes,
Wr:
So
Well, I think any failure to inform Kennedy Was
entirely the responsibility of this Department.
I fully agree with you.
ID:
Well, would you do this for me?
What is that?
Mr:
Would you write Kennedy a letter?
Yes, indeed.
Dr:
And explain to him the circumstances?
I'll be very glad to do that, Menry.
I'm willing to take the blame when the blane is
mine, but I don't think It is this time.
Well, I'll be very glad to ão that. I'll write
him a personal letter and explain it fully.
Mar:
I -- I mean, you orn tell him that Mr. Hull said
I should do it this way, but I -- I think I would
explain that Kr. Hackworth was sitting here
%
I will.
RWr:
as Mr. Hull's representative.
I will. I'll make that clear and I'll send him e
letter tonight. I don't know how soon a pouch
can Bet off under present
HiJr:
Well
%:
conditions, but I'll see that he geto it.
- 4 -
46
HMJr:
I -- I think that I'm entitled to that.
W:
All right. I fully agree with you; I think you are.
HMJr:
What?
W:
I think you are. I fully agree with you.
HWr:
All right, sir.
W:
All right, Henry.
HMJr:
Then that's a closed issue.
W:
Right, and I'm very sorry it happened.
HMJr:
Thank you.
W:
Goodbye.
HMJr:
Goodbye.
HURMAN ARNOLD
ASSISTANT ATTORNEY GENERAL
WASHINGTON
September 7, 1939
My dear Mr. Secretary,
The present state of war in Europe has introduced
a number of new factors in our industrial situation.
We have always considered the Antitrust Division as a
balance wheel against profiteering and as a protection
to independent business in times of rapid consolidation.
It should not be used in a vacuum but in coordination
with other government departments.
Present conditions therefore compel a. reexamination
of our plans so that the personnel of the Division can
be most effectively used under the new situation. The
Attorney General has directed me to prepare 8. memorandum
of general policy for our own. guidance with this in
mind.
In the preparation of that memorandum it is impor-
tant that we do not conflict with any policy of your
Department. I will appreciate it if you will appoint
someone whom we can consult in the preparation of this
memorandum of policy 80 as to avoid any such conflict.
In return for this cooperation may I call your
attention to the fact that the expansion of the Division
last year permitted investigation of industrial situa-
tions on a larger soale than has ever before been pos-
sible. We have & technical staff now familiar in great
48
detail with a very large number of key industries.
This staff may be of assistance to other departments
wherever questions of price policy, methods of dis-
tribution, the use of patents and other trade prac-
tices and labor restrictions are involved.
Sincerely,
THURMAN ARNOLD, Amold
Assistant Attorney General.
The Honorable
The Secretary of Treasury
Washington, D. C.
49
GROUP MEETING
September 7, 1939.
9:30 a.m.
Present:
Mr. Hanes
Mr. Duffield
Mr. Foley
Mr. Haas
Mr. Lochhead
Mr. White
Mr. Craves
Mr. Bell
Mr. Thompson
Mr. Viner
Mrs Hlotz
E.X.Jr:
I don't know how I'm going to work this with all
the people here; I haven't crossed that bridge
yet. Whether we will all meet at the same time
on each day I don't know.
Duffield:
You will have to put in B public address system.
E.N.Jr:
Do you have anything?
Hones:
Nothing at all.
Duffield:
Some of the press services and photographic ser-
vices are asking when Mr. Harris will be sworn in.
H.M.Jr:
At 4:30 today, and Er. Moyle will be sworn in today.
Duffield:
The only other thing I have is that the Country Home
magazine has a policy of selecting America's "Far-
mer of the Month" with each issue, with each monthly
issue.
(Viner enters)
E.W.Jr:
Anoy!
Viner:
I will saluto that one.
E.X.Jr:
Incidentally, I hear the fast thinkers put it over
on the quick thinkers, and you got the best rooms.
Viner:
We were the fast thinkers.
H.M.Jr:
And the quick thinkers were slower than the fast
thinkers.
Viner:
I will admit quite modestly that I put it over on
them.
50
- 2 -
H.M.Jr:
And they say you admit it.
Duffield:
This magazine which is Crowell Publishing Company
magazine, Country Home magazine, each month nominates
America's "Farmer of the Month" in its issue and
they want to nominate you. The only catch to it
is that you have to write a little message to the
farmers of the country of five or six hundred words.
Do you want to be the "Farmer of the Month?"
H.M.Jr:
That ought to be the "Farmer in the Dell."
Duffield:
And if you do, do you want me to write something?
They offered to write something for your approval.
I don't see why you don't do it unless you have some
personal reason.
H.M.Jr:
I think it's kind of silly, don't you?
Henes:
I don't know what kind of a magazine it is.
H.M.Jr:
Why don't you get & copy of the magazine?
Duffield:
There was one attached to this letter but it was
lost.
White:
It is a bad month to be picked as the "Farmer of the
Month."
Hanes:
This might be a pretty good month to be the farmer,
because the farm prices at this time have gone up.
White:
Not when you are Secretary of the Treasury.
H.M.Jr:
Just take a look at the publication. Have you read
it?
Hanes:
Yes.
H.M.Jr:
Ed?
Foley:
I have these letters from the State Department and
Commerce Department asking someone to serve on that
advisory committee on credit to belligerents under
that order exempting ordinary peace-time shipping.
H.M.Jr:
Is that the one I signed?
S1
- 3 -
Poley:
Yes,
B.M.Jr:
Peace-time credits?
lisnes:
A committee was formed already dealing with the
Treasury, and if it could be arranged to keep that
same committee on this thing, it would be helpful.
I think that is what the State Department wants
also.
Poley:
We don't know who they want to serve on this
advisory committee and I thought the thing to do
was for the Secretary to write -
Ranes:
1 don't understand what they did. They appointed
a permanent sub-committee to deal with Treasury
affairs. That was Townsend, Feis and Miller, I
assume, from the Department of Commerce, although
we had no Department of Commerce on It before, so
whoever the Department of Commerce man is -
Foley:
Well, I don't see any reason why Justice should be
on this committee, particularly. I think that
might complicate things and I think that the head
of the department ought to be given an opportunity
to designate the person he wants to serve on this
particular committee.
lianes:
That is what I am tolling you, the head of the
department did want it. We don't want Justice, I
believe, or Townsend, but just for your Information
I don't care.
H.M.Jr:
You might talk this over with Hanes. lie has been
handling this and you can bring it up again. He
is entirely familiar with it. lle 1s on the conmittee
himself, representing the Treasury.
Foley:
That 1s right.
S.M.Jr:
Talk It over with John and fix it up the way John
would like to have it. It is something he did while
I was gone. Anyway he wants it, it suits me. In
that all right?
Foley:
Yes.
Heas:
I have nothing here but EL little peace-time business.
Regraded Unclassified
52
- 4 -
H.M.Jr:
How do you spell peace?
Haas:
P-e-a-c-e. There is an interesting development
there. Our corporate bonds flattened.
H.M.Jr:
Which flattened?
Haas:
Corporate bonds flattened out.
H.M.Jr:
Do you mind - well, I sent yours in yesterday to
Burgess.
Haas:
Hadley told me to send a copy to him so he got a
copy yesterday.
H.M.Jr:
So Treasuries flattened and the Moodys didn't?
Haas:
And the reason for Moodys not flattening is this,
Mr. Secretary. On a bond that doesn't quote, they
carry the previous quotations forward, so it is
obvious they don't get the bottom of the market.
H.M.Jr:
Well, Burgess is handling the bond market for me
so you ought to -
Haas:
I am sending it in. Hadley asked me to send B.
copy in.
H.M.Jr:
Anything else?
Haas:
I have this minor thing. Walker, each time FHA
puts out a complicated schedule, writes to you.
Do you want me to take this up with Fisher like
we did the last time?
H.M.Jr:
Yes.
Haas:
All right, I will do that. That is all I have.
H.M.Jr:
Have you got something?
Viner:
No.
H.M.Jr:
Have you got & place to live?
Viner:
The town reminds me of 1917 B. little. It is already
filled.
53
- 5 -
A.M.Jr:
(To Duffield) Do you want to give this clipping
to the Tribune and k1d them?
Lochhead:
You already saw the Post that came over from the
other side this morning. They just simply arrange
what transactions they can and the small trans-
actions between those rates is nearly all nominal.
Harry?
Crito:
Whenever you have time 1 will give you some messages
and things from Trazil. There are a fow major
problems that occurred to me, thinking them over,
that we ou ht to take up, but they are not acute
at this moment. I don't know whether you have
already done something on them, SO whenever you
want to CO into then - outside of that, I have
nothing.
0.2.dr:
Harold?
Traves:
1 have nothing.
Will you stay E minute? I want to talk to you.
Did you talk to that fellow?
cell:
Yes. lie is very highly complimented and would
like to think It over during the day. I talked
to some of his associates and he hopes to call
us back this afternoon. He felt very appreciative.
: have some information about some of the Federal
Intermediate Credit Banks. They think they ought
to do the job tomorrow.
E.M.Jr:
Should I 887 anything at 10:30?
Bell:
I will try and Let you some dope before 10:30.
He is talkin it over with his associatos and
will lot us know at 10:00 o'clock.
The market opened pretty good this morning, much
better, and they Are 2011.8 to pick up between one
and two millions. It looks as though there are
several of the bids in.
Hunes:
What did it close?
Regraded Unclassified
54
- 6 -
Bell:
It opened as it closed last night. There was no
change.
Thompson:
We have started on the space changes in the depart-
ment. One of the problems is the question of
furnishings. Mr. Bell was telling me about his
discussion with you and I have a memorandum here
to authorize use of the stabilization fund for
furniture.
H.M.Jr:
This is going to be the run-of-the-mine furniture?
Thompson:
Yes, of course it will be that.
H.M.Jr:
I thought you were going to have it gilt edged on
the side.
Thompson:
No, we will get very modest furniture.
Lochhead:
I would like to donate that rug in my room.
H.M.Jr:
That seems kind of high.
Thompson:
Probably it is, but still there's quite a lot of
rooms to take care of. I have obtained from
Mr. Graves quite 8. number of desks and chairs.
H.M.Jr:
I understand, for instance, if you want a desk and
Procurement has a desk this size at contract price,
you buy it at that price, is that right?
Thompson:
Yes, that 1s right. If you want to get luxurious
furniture you have to get special bids.
Bell:
These are high-class people here.
Thompson:
If you get a little better material, of course,
it is life-time furniture.
H.M.Jr:
No, just the regular stuff.
Bell:
There was some order issued in the last month or
80 virtually putting Farm Credit back where they
were before the reorganization. It operates almost
independently.
(Telephone conversation with the Secretary of
Agriculture follows:)
Regraded Inclassified
55
September 7, 1939
9:45 a.m.
HiJr:
Hello.
Operator:
Secretary Wallace.
HMJr:
Right.
0:
Go ahead.
HMJr:
Hello.
Henry
Wallace:
Yes, Henry.
HMr:
How are you?
V:
Fine, sir.
HMr:
Henry, we have been working here in the Treasury
with the Farm Credit people as usual, as we have
heretofore, on their financing.
W:
Um-hm.
HMJr:
And intermediate credit will, in the next day or
so, have a 20 million dollar refunding and they
may have to go to the market for 10 million dollars
new money, and I wondered if it was agreeable to
you that we handle it, the announcement and every-
thing else, the way we always do from this office.
W:
Why of course, Henry.
HMr:
I mean, the way we always have.
W:
Yes, I don't see any reason why not.
HiJr:
Well, I -- I didn't want to do it with
W:
Do you know of any reason why not?
HMJr:
No, they'd like us to do it but, after all, it's
in your shop now and I didn't want to ão it with-
out asking you.
V:
Well, that aspect of it 16 more in your shop than
it 18 in ours in a way, isn't it?
Regraded Unclassified
- 2 -
56
HMr:
Well, we have always advised them with their
financing and helped them and it's -- particularly
now, we don't want any agency to go in until we can
find a good spot for them. Now, we've got 8 good
time for intermediate credit and they'll do it mostly
likely tomorrow or the next day.
Yeah.
MJr:
But Just -- I -- I -- you remember I called you up
on commodity credit before we handled it and you said,
"Go ahead.
:
Yeah.
ENF:
Well, this is the first time we're doing one for
Farm Credit and I Just wanted to clear it with you.
V:
Yes. Well, that's fine, Henry.
INP:
Is that all right?
That's fine. How are things?
HWr:
Ah -- under the circumstances, I think everything
is fine.
I think 90 too.
HIMr:
What?
Yeah. The -- things have got to shake down a bit
during the next week or two. There's R little bit
of 2 hystoria abroad the land.
HMJr:
Oh, yes.
But
HMr:
But I'm trying to -- I had to strengthen my Treasury
greatly on personnel and we're ready now.
V:
You say you have strengthened your Treasury greatly.
HMJr:
Yes. Oh, yes, I've taken on -- we've taken on a lot
of people that I arranged for last April.
Uh-huh.
- 3 -
57
HMJr:
To come down and we've -- they're here now working.
V:
Yeah.
HMJr:
And.....
W:
Well all right, fine.
HMJr:
Thank you. Goodbye.
50
- 7 -
Bell:
There was some order issued by the Secretary of
Agriculture with the approval of the President
putting the Farm Credit almost back on an indepen-
dent status.
1.8.Jr:
I didn't want to come out and say we are going to
do this, but I want to make & little speech to
the press explaining that from now on there is E
coordination of financing and the Government will
go in on & coordinated basis, and I want to use
this as an example so that they will know we are
going to take our time.
Boll:
This is going ahead with this routine job in the
regular way.
1.2.Jr:
Yes, that it is all coordinated through the Treasury
and the Government will not ask the money from its
agencies or any direct obligation without the thing
being cleared through.
Bell:
This is morely a clearance. The don't actually do
the job like we do the others.
N.H.Jr:
But I can say what I am saying.
Dell:
That is right, yes sir.
N.M.Jr:
Do you think Governor Hill wanted something like
this said?
Bell:
Fie would be very pleased 1f you would say this, but
he hasn't got the approval of the Board yet.
Hanes:
Would you like to take E, couple of minutes to clear
up this Florida situation? Norman Thompson has
been having an awful time with the White House and
they are on his neck and I took the responsibility
of telling him not to send it over there until you
came back. Yesterday Mrs. Pepper called me up,
the Senator being in the hospital, and Mrs. Pepper
gave ne the works about a half hour over the tele-
phone about what E distress that was. I told her
we had been swfully busy here and had something
else to do and I thought it best not to concern
her with the details of it. So they are putting
all kinds of pressure on us and I think the history
Regraded Unclassified
59
- 8 -
is that we told Mac not to let this fellow go
until they got another job for him. Well, they
got another job for him but they put a 'joker'
in it by saying it was E temporary appointment
for 60 days. I don't think that 18 fair to the
fellow 30 1t didn't go through, I guess -
Thompson:
General Watson has requested that the Commission
be sent over.
H.M.Jr:
I tell you what you do. You tell the Chief Clerk
that my understanding is that this follow 1a to
have B. full-time Job at the same salary and when
we are convinced that he has that we will send
him over, but until that I am going to sit on
1t, barring written instructions from the President.
Barring written instructions from the President,
we will not send over this fellow until he has
got B. job at the same salary. You notice I am
not saying he has to be in Florida.
Hanos:
This was a 60-day appointment, wasn't it?
Thompson:
Yes, they said 60 days.
E.V.Jr:
Is that all right?
hanes:
That is fine, yes,
H.S.Jr:
0. K.
Dogradod
Conversation with Mr. Harrison in New York City.
September 7, 1939
8:37 a.m.
80
HMJr:
Hello.
Operator:
Harrison.
MJr:
Hello.
George
Harrison:
Hello. Henry?
MWr:
Good morning, George.
a
Cood morning.
HWr:
How are you?
51
I'm first rate, thank you, and I hope you are.
PMJr:
Oh, I'm -- I'm feeling mentally fine.
ni
(Laughs)
HWr:
Physically, n little pooped. Ah -- are you feeling
a little better since you talked to me Monday night?
H:
Well, I feel & little better and I'm very much
obliged to you for some, I'm sure, active support
that you gave in the way to handle this thing.
HMr:
Plenty.
H:
Anc the -- they've been very much more liberal in
their leeway.
HXJr:
Oh, yes.
H:
llow, we're debating just how we shall handle it this
morning.
HKJr:
Yeah.
H:
Last night there beran to he a little evidence of
some buying even in the longer stuff.
HMJr:
Yeah.
E:
Not much, but there was one case where our bid was
topped on the Stock Exchange Board, which 19 an
encouraging sign.
Regraded Unclassified
- 2 -
61
HMJr:
Wonderful !
H:
It was just one swallow, however.
HMJr:
Yeah.
H:
And
HMJr:
The fellow -- the fellow didn't choke, did he?
H:
What?
HMJr:
He didn't choke, did he?
H:
(Laughs) No, he lost a little, because it went right
down to our bid afterwards.
HMJr:
I see.
H:
Now, the question is, whether, and at what point, we
should make some sort of a stand. We still think
that the long bonds are a little bit over what's
going on outside.
HMJr:
Yeah.
H:
Marriner agrees with that and his suggestion is that
we open up this morning on the long bonds a full half
point off, just to vary the pattern as he expresses
it. My point -- we feel that we'à do better to open
up where we were last night as long as we've found
a point there where there seemed to be some buying.
HMJr:
Yeah.
H:
And that to open up a full half point off this morning
might be a discouragement. In other words, in the
early days, I was for opening up a whole point off....
HMJr:
Yeah.
H:
and they made me stick to -- to an eighth then.
HMJr:
Well, the
H:
And now when we're getting near the bottom they're
for the -- for the big action rather than the little
action.
- 3 -
82
HWr:
Well, the meeting we had in my office that Tuesday
morning where they were having you hold the line at
one eighth.
ni
Yeah.
Then
TMr:
traveled along just
And -- and in the early days we should have gone down
faster and in bigger jumps, and I don't think now
that we've got it where we have got it that it would
be wise to open up and full half point off and then
make our stand there is what Warriner says.
Well, George, I'm going to refrain from making any
comment.
Yeah.
Because Rendolph Burgess is handling it for me.
Uh-huh.
Mr:
He's on his way over to see Eceles now.
Uh-hul.
MAr:
And I don't want to get my wires crossed.
No. Well, I think you're very wise on that.
MAJr:
I mean
B:
I spoke to Ranny a little while ago and I don't think
we are far apart.
HMJr:
llow, the other -- the thing that I wanted to tell you
WEB this: That Jerome Frank WOB over here yesterday
to see me; to tell me about his correspondence with
you
Yeah.
H/Jr:
about the committee. And I've gotten my notes
out as to that meeting on April 13th and in that
- 4 -
63
meeting you stated perfectly clearly what you were
going to do.
H:
Yes.
HRJr:
And I'm going to tell that to Frank today, you see?
H:
I don't
HIJr:
I'm
Henry, he -- he's been more nuisance about E little
bit of a thing. I don't know what his feelings are
hurt about
ID:Jr:
Well
6:
or what he's objecting to.
HWr:
Well -- now, what I'm suggesting is as soon 8.8 the
heat is off, and I told this, that you come down
and Frank and you'and Johnny Hanes and I will have
lunch together.
in
All right.
HMJr:
And I'll show him -- there's just a half a page where
you outlined in the greatest detail what
H:
Well, wes he present at the meeting?
HMJr:
Pardon?
H:
Was he present at the meeting?
HMJr:
He was not.
H:
Oh.
HMJr:
No, the people present were Hanes, White, Lochhead,
Bernstein, Foley, Eccles, Marrison, Knoke and myself.
H:
Yeah.
HMJr:
It was on April 13th at four p.m. He was not present
at that meeting.
H:
Well, I wrote him a letter yesterday and told him
that -- confirming what I told him on the telephone -
that we had no intention to trespass on his
- 5 -
S4
jurisdiction; we've got plenty to do of our own
without doing that.
HMr:
Well, I think it would be good all sround that some-
time next week when the things are straightened out,
come on down and the four of us will have lunch
together.
is
Yeah. Tell his for me that I'm glad he has BO little
to Co that he can fuse about E. thing like this.
INJr:
Well
5:
(Laughs)
DJr:
every -- well, everybody's -- how shall E say,
& little bit different.
%:
(Laughs) Well, we've -- I'd love to come down any-
time at all.
ENr:
Well, I -- I think it would be good.
di
All right.
HINr:
Because this thing -- I know the men, I think I'm
right; it'll keep revolving in his crop until
we get it straightened out, and Johnny is nodding
his head. He's sitting here, nobody else in the
room but Johnny and Johnny agrees.
H:
Yeah.
HVr:
And so I think -- I think it would be worth your
while to come down.
H:
All right.
HMJr:
See?
8:
In the meantime, if he's got any suggestions - if
he wants me to fire them out/the committee, that
suits ne.
to
MJr:
Well, I -- I'm not making any -- but I just like to
act -- I just like to furnish the food, that's all.
H:
Yes. All right.
- 6 -
65
HMJr:
And I will show him the minutes.
H:
I -- I accept your invitation to lunch.
HMJr:
Pardon?
H:
I accept your invitation to lunch.
HMJr:
Righto.
5:
First rate.
HMJr:
Goodbye.
H:
All right. Goodbye.
Septe ber 7, 1939
Jay dear Jerry!
For your own confidential information, I wish
to quote below George Harrison's coments at the
April 13th meeting, in my office, in regard to form-
inc A bankers' committee:
"before the union orisis we made a
complete survey in the New York banks of the
1014 versus the 1938 situation.
The one thing TO felt we needed def-
initely in New York, in the light of past ex-
perience, was to have & bankers' committee to
which I night go in any hurry upon any matter
dealing with credit, loans, foreign exchange,
gold, or anything else that the Treasury might
want us to do. The banking community agreed
definitely that I should have suon & committee -
call it advisory committee or a market committee
or A contact committee. There was come differ-
ence of opinion as to how it should be organ-
ized, but nevertheless the principle was agreed
to. Te dro ped it merely because of the Munich
appeasement, no it WRS called, I understand.
At the t time I discussed with the prin-
cipal banks in New York the whole question of
the bond market for one t ing, the foreign ex-
changes, and the question of foreign balances.
I think there 18 no question that they would
be all definitely willing and glod to do any-
thing that they legally can within their rights.
And if I set up much committees, as I had planned
yesterday to do today if I had been in New York,
all I would have to do would be to put up any
question I want to to the committee and let them
do the dirty work. That's the my I'd rather
do than call them up, as you say, at 2:00 o' clook
in the morning."
Regraded Unclassified
67
-8-
Also present at this meeting were:
Mr. Hanes
Mr. White
Mr. Lochhead
Mr. Bernstein
Mr. Foley
Mr. Ecoles
Mr. Knoke
Sincerely yours,
Hon. Jerome Frank, Chairman
Securities and Exchange Commission,
Washington, D. C.
58
September 7, 1939
My dear Jerry:
For your own confidential information, I wish
to quote below George Harrison's comments at the
April 13th meeting, in my office, in regard to form-
ing A bankers' committee:
"Before the lunioh crisis we made a
complete survey in the New York banks of the
1914 versus the 1938 situation.
The one thing we felt we needed lef-
initely in New York, in the light of past ex-
perience, was to have 8. bankers' committee to
which I might go in any hurry upon any matter
dealing with credit, loans, foreign exchange,
gold, or anything else that the Treasury might
want us to do. The banking community agreed
definitely that I should have such & committee -
call it advisory committee or & market committee
or & contact committee. There was some differ-
ende of opinion as to how it should be organ-
ized, but nevertheless the principle was agreed
to. We dro ped it merely because of the Munich
appeasement, as it was called, I understand.
At th t time I discussed with the prin-
cipal banks in New York the whole question of
the bond market for one thing, the foreign ex-
changes, and the question of foreign balances.
I think there 1s no question that they would
be all definitely willing and glad to do any-
thing that they legally can within their rights.
And if I set up such committees, as I had planned
yesterday to do today if I had been in New York,
all I would have to do would be to put up any
question I want to to the committee and let them
do the dirty work. That's the may I'd rather
do than call them up, as you say, at 2:00 0' clock
in the morning."
Regraded Unclassified
69
-8-
Also present at this meeting were:
Mr. Hanes
Mr. White
Mr. Lochhead
Mr. Bernstein
Mr. Foley
Mr. Rooles
Mr. Knoke
Sincerely yours,
Hon. Jerome Frank, Chairman
Securities and Exchange Commission,
Washington, D. C.
70
September 7. 1939
by dear Jerry:
For your own confidential information, I wish
to quote below George Harrison's comments at the
April 13th meeting, in my office, in regard to form-
ing a bankers' committee:
"Before the Munich crisis we made &
complete survey in the New York banks of the
1914 versus the 1938 situation.
The one thing we felt we needed def-
initely in New York, in the light of past ex-
perience, was to have a bankers' committee to
which I might go in any hurry upon any matter
dealing with credit, loans, foreign exchange,
gold, or anything else that the Treasury might
want us to do. The banking community agreed
definitely that I should have such a committee -
call it advisory committee or A market committee
or a contact committee. There was some differ-
enoe of opinion as to how it should be organ-
ized, but nevertheless the principle was agreed
to. We drouped it merely because of the Munich
appeasement, a8 it was called, I understand.
At the t time I disoussed with the prin-
cipal banks in New York the whole question of
the bond market for one thing, the foreign ex-
changes, and the question of foreign balances.
I think there is no question that they would
be all definitely willing and glad to do any-
thing that they legally can within their rights.
And if I set up such committees, as I had planned
yesterday to do today if I had been in New York,
all I would have to do would be to put up any
question I want to to the committee and let them
do the dirty work. That's the way I'd rather
do than call them up, as you say, at 2:00 'clook
in the morning."
Regraded Unclassified
71
-2-
Also present at this meeting were:
Mr. Hanes
Mr. White
Mr. Lochhead
Mr. Bernstein
Mr. Foley
Mr. Ecoles
Mr. Knoke
Sincerely yours,
Hon. Jerome Frank, Chairman
Securities and Exchange Commission,
Washington, D. C.
72
C
0
THE WHITE HOUSE
Washington
P
Y
September 5, 1939
CONFIDENTIAL
MEMORANDUM FOR
HON. JEROME N. FRANK
I wish you would have a confidential talk with
Henry Morgenthau, who is just back, and explain to
him the present situation in regard to the Stock
Exchange, Mr. Martin's letter, and especially the
creation of George Harrison's Committee now headed
by Mr. Potter. Tell H. M., Jr., that all of us are
distinctly from Missouri and to watch out for a
double play or a double cross or something similar.
F. D. R.
73
August 31, 1939
CONFIDENTIAL MEMORANDUM
TO:
THE PRESIDENT
FROM: Jerome I. Frank
I am somewhat disturbed by recent developments which may
seriously affect the adequate handling by the SEC of the
matters entrusted to its care, and feel that I ought to call
the subject to your attention;
1. You recently appointed an inter-departmental committee,
to deal with the war emergency situation, consisting of
representatives of the Departments of State, War, Navy,
Treasury and Justice.
2. A subcommittee has been appointed with reference to
security markets, foreign exchanges, etc., which consists of
representatives of Treasury, State, Federal Reserve, Justice
and the SEC. At a recent meeting of that subcommittee (the
only meeting thus far held) the Federal Reserve was represent-
ed by Dr. Perry (whose attitude toward Stock Exchange matters
has frequently been at variance with ours) and the State
Department was represented by Dr. Feis, (who has sometimes
been severely critical of our relation to the securities
Regraded Unclassified
No.2
74
markets). At that meeting Dr. Parry disclosed that he had,
unbeknownst to the SEC, discussed with Stock Exchange
officials steps which the Exchange contemplated taking and
of which the SEC had not then been informed.
3. The curious and subordinate position of the SEC, as
to matters within its peculiar province, in connection with
the workings of the inter-departmental committee, may lead to
strange results, as indicated by the following:
Several days ago, Governor George Harrison, of the Federal
Reserve Bank of New York, appointed a committee to advise and
consult with government officials on foreign exchange matters,
6. subject which is no direct concern of the SEC. However,
yesterday, with no knowledge on the part of the SEC until we
read of it in the press today, Governor Harrison appointed
another (nine man) committee to advise and consult on other
problems, including conditions in the securities market. That
second committee consists of Henry Morgan of Morgan Stanley
and Company, representing the investment bankers, Mr. Wartin,
President of the New York Stock Exchange, and the presidents
of the leading New York banks; it is also to include &
representative of the insurance companies. The press accounts
state that the committee "will forward its findings and opinions
to Washington" and that "it had not been decided whether to
Regraded Unclassified
No.8
75
make the committee permanent if future developments give
assurance of peaceful settlement of Europe's problems."
The appointment of that committee had not been discussed
with us. It had been informally and briefly discussed with
Under-Secretary Hanes, who knew little about its purposes. I
have no criticism whatever of Johnnie; I have no doubt that
the failure to advise with us was, at most, a pure oversight.
I talked to Johnnie about the matter today. At his
suggestion, Governor Harrison phoned no this afternoon. Be
explained that his new committee was formed merely to give him
advice so that he could keep the banks informed of developments,
and said that it was not intended that that committee should
encreach in any way on our activities.
However, regardless of Governor Harrison's intentions, it
is well known that several mémbers of that committee ardently
desire to procure amendments to the SEC statutes which would
emasculate them; and the existence of such a committee may
afford an opportunity for certain persons in Wall Street to
take advantage of the emergency, in an effort to establish a
program of encirclement of the SEC.
4. In the light of the foregoing, I respectfully suggest
that the main inter-departmentel Committee and the inter-
departmental subcommittee and the War Resources Committee be
Regraded Unclassified
50.4
76
instructed that, with respect to matters within the provines
of the SEC#, no steps should be taken, or plans drafted, or
tentative or other commitments or public statements made,
without the prior consurrence of our Commission.
5. Leon Henderson and Ed Eicher have read this memo
and fully approve.
6. I think the subject is of such great importance that
I would appreciate an opportunity to talk with you about it
for a few minutes in the near future.
includes the stock exchanges, over-the-counter markets, investment
6, capital markets (other than the government bond market), securities
Mons, public utilities, investment trusts, and investigation of
ince companies.
CONFIDENTIAL MEMORANDOM
September 2, 1939
TO:
The President
PROM: Jerome N. Prank
Responsive to comments by Bill Douglas and to
later coments by me, Mr. Martin, President of the
New York Stock Exchange, on July 14, 1939, appointed
a so-called "examining board" to study and report
on the matter of increased customer protection against
brokerage insolvencies. The board published its re-
port on August 31.
Mr. Martin, on September 2, made public a letter
addressed to the members of the Exchange sending them
copies of that report. Attached is a clipping from
the Now York Herald Tribune for today which quotes
his letter. In that letter he said that one of the
most urgent problems confronting the Exchange was
"the preservation of the market itself. The impact
of regulation has already acriously impaired the
vitality of the market." Be referred to "the low
volume of transactions and reduced listings" and com-
mented that "the policing power - should never
be 80 much to the forefront that it suppresses
Regraded Unclassified
- 2 -
78
legitimate activity."
In that same letter, he said that, in meeting
the broad problems, "wo earnestly invite the coopera-
tion of our listed companies, the banks of the country,
business generally. and all others who wish to 500 the
nation's primary securities market sustained at maxi-
mum efficiency. with its vital functions unimpatred,"
The tone of Mr. Martin's letter vas a surprise
to many persons, including prominent persons associated
with the Exchange who are friendly to us, including
Mr. Carle Conway. They interpreted Martin's letter
as a result of prodding from the old guard who think
that the present political situation makes this g.
good time to begin another attack on the SEC statutes.
I call your attention to the language which I
have underscored, taken from Martin's letter of
September 2, because it would seem to tie in with
the creation, on August 30, of the committee by
Governor Harrison, to which I directed your attention
in my memo of August 31. Mr. Martin and Mr. Harry
Morgan, you will recall, are members of that committee;
since my earlier memorandum was written, Mr. Potter,
President of the Quaranty Trust Company, has been
made Chairman of that committee and Mr. Maker, Chair-
Regraded Unclassified
79
- 3 -
man of the Board of the Netropolitan Life Insurance
Company (now on hearing before the TNRC), has been
made the insurance company representative. There
would seem to be some reason to believe that when
Mr. Martin appealed to leading corporations and the
banks of the country to assist him in resisting
regulation which "has already seriously impaired
the vitality of the market," he had in mind Harri-
son's committee, the composition of which fits 100.
Martin's requirements.
Life do not intend, for the present, to make
any reply to Martin's letter]
Regraded Unclassified
September 6, 1939
80
CONFIDENTIAL
Governor Harrison has appointed two committees.
The general impression is that he did so at the re-
quest of or with the approval of the Treasury.
One of these committees has to do with foreign
exchange. The other is a so-called "General Committee."
That committee, according to the press, was appointed
on August 30. The first that SEC knew of it was when
the announcement of that appointment appeared in the
morning papers on August 31. The committee consists
of nine persons, the Chairman, Mr. Potter of the Guaranty
Trust Company, the presidents of four other banks, Henry
Morgan of Morgan Stanley and Company (to represent the
investment banking group), Mr. Martin, President of the
Stock Exchange (to represent members of that institution),
and Mr. Ecker, Chairman of the Board of the Metropolitan
Life Insurance Company (to represent the life insurance
companies). There is some indication that each group
has appointed a subcommittee.
According to the press, the General Committee is
to include within its activities matters affecting
securities markets. That committee, according to the
press, 18 "to forward findings and opinions to Washington."
Subsequent stories indicate that it is thus to act not
only at the request of Washington or the Federal Reserve
Regraded Unclassified
- 2 -
81
Bank but also "on itsom initiative." It was stated
in the press that it had not as yet been decided
whether to make the committee permanent so that it
would continue even if the present emergency should
also
cease to exist. It was/stated in the press that the
committee "might, for instance, If it were deemed
necessary, or Washington wanted it, take up the British
order prohibiting Britains to sell or transfer American
and other foreigh securities without permission."
On August 31, Governor Harrison advised me on the
phone that the press had been in error when it stated
that that committee was to make findings and proposals
to the government with respect to the security markets,
and that it was not intended that either that committee
or the foreign exchange committee should consider or
make proposals or findings which relate to subjects
within the jurisdiction of the SEC, but that they would
be merely & means by which, during the emergency, Gov-
ernor Harrison could promptly obtain information as to
current market conditions and promptly transmit such
information to the financial community.
On September 1, I wrote a letter to Governor Harri-
son confirming the foregoing as my understanding of
what be had told me on the telephone on August 31.
Regraded Unclassified
82
- 3 -
On September 4 it was stated in the New York Times
that the committee "will have the duty of considering
and giving advice upon measures recommended or suggested
by Washington or the Reserve Bank here and may initiate
recommendations or make requests of its own."
In the New York World Telegram, for September 5,
it was stated that the committee had met and that "it
will interest itself in such matters as ... foreign
holdings of securities and trading on the various ex-
changes."
On September 5, I received a letter from Governor
Harrison stating that I was correct in assuming that
the Committee did not intend in any way to trespass
on the jurisdiction of our Commission. He states that
the reason for the organization of the committee was
to have avd lable a group through which the Federal
Reserve Bank of New York, "as fiscal agent of the govern-
ment and otherwise," may obtain information or "coopera-
tive consideration" in relation to matters affecting
"this market" as they may arise. He assures the Com-
mission that in whatever connection the committee may
be called upon, it will operate so that there vid. 11 be
no suggestion of any conflict "with the jurisdiction or
functions" of the SEC.
Regraded Unclassified
- 4 -
63
He states that while the SEC was not "directly"
informed of the plan to organize the committee in ad-
vance, nevertheless, he had assumed that I was aware
of the general plan to form such a committee (1) be-
cause of "advance references to it in the press," and
(2) because it was discussed in some detail at the
series of meetings held in Secretary Morgenthau's office
last April when the various departments of government,
including SEC and the Federal Reserve System, outlined
actions to be taken in the event of war.
As to those explanations: (1) I know of no reference
in the press to the appointment of that committee be-
fore it was organized. The first SEC knew of it was an
announcement in the press the day after it had been
organized. (2) Neither I nor Mr. Purcell of the SEC
(who was present with me at the meetings in April) have
any recollection of any suggestion made in April that
any such committee should be appointed.
Mr. Harrison's letter closes with the following
statement: "I assume, of course, that you would have
no objection to receiving suggestions or proposals from
this group, as you would from any other group, regard-
ing matters within the jurisdiction of the Commission,
in the event that any such suggestions seemed wise or
Regraded Unclassified
84
- 5 -
appropriate." of course, the SEC will be glad to re-
ceive suggestions or prèposals from anybody. But, if
critical comments or suggestions of an unwise character
come from a committee which has been appointed with
the apparent approval of another department of govern-
ment, publicity given thereto will inevitably embarrass
the SEC.
Jerome N. Frank
P.S. Since dictating the foregoing I have observed that
in the New York Times for today there is a statement
that yesterday the "general committee" held a meeting
"under the Chairmanship of William C. Potter at the
New York Federal Reserve Bank. It heard reports but
took no action, as the situation appeared to be completely
under control." That would make it sppear that the
"general committee" is acting as part of the mechanism
of the Federal Reserve Bank of New York and that it is
prepared "to take action" if the situation requires.
J.N.F.
September 1, 1950
Personal
Tovernor deorge Harrison,
you York Federal Reserve Bank,
New York, New York.
Dear Governor Harrison:
At the suggestion of the Commission, this letter
1a written to confirm my uniorstanding of our telephone
conversation of yeaterday as reported by me to the
Commission: You explained thut the so-called "general
committee" appointed by you (of which this Commission
Icriew nothing except what It learned from newspaper
accounts yesterday) had been erroneously pictured in
tire press no one which would make findings and proposels
to the government with respect to "the security market."
You said it was not intended that alther that connittee
or the foreign exchange committee, previously appointed
by you, should, nor will they, consider, 17" make pro-
posals or findings which relate to, ubjects which are
" thin the juriafiction of this Commission, but will
meraly be a means by which, during the emergency, you
can promptly obtein Caroration 0.0 to current market
conditions and promptly transmit such information to
the financial comunity. to angume that any aub-
committees 874 to have similarly limited functions.
Sincerely yours,
JHF : Law
Jarome N. Frank
Chairman
Regraded Unclassified
86
FEDERAL RESERVE BANK
OF NEW YORK
September 5, 1939
Hon. Jerome N. Frank, Chairman,
Securities and Exchange Commission
Washington, D. C.
Dear Chairman Frank:
I have received your personal letter of Septem-
ber 1 referring to our conversation on the telephone on
August 31 concerning the committee recently set up at
my suggestion by the various groups included in its mem-
bership.
You are quite right in assuming that this com-
mittee does not intend in any way to trespass upon the
jurisdiction of. the Securities and Exchange Commission.
As I advised you on the telephone, the reason for the
organization of the committee is to have available a
group, representative of the principal financial in-
terests in this market, through which this bank in its
capacity as fiscal agent of the Government or otherwise
may promptly obtain information or cooperative considera-
tion in relation to important problems affecting this
market as they may arise. Experience has demonstrated
the extreme difficulty of doing this without such a
representative committee of limited size.
87
Hon. Jerome N. Frank,
Sept. 5, 1339
While your Commission was not directly in-
formed of the plan to organize this committee in ad-
vance, nevertheless, I had assumed that you were aware
of the general plan to form such a committee because of
advance references to It in the press and because it
was discussed in some detail at the series of meetings
held in Secretary Morgenthau's office last April when
the verious departments of the Government, including
the Securities and Exchange Commission and the Federal
lleserve System, outlined actions to be taken in the event
of war.
I can assure you and your colleagues that there
was no thought that the organization of this committee
would in any way conflict with the jurisdiction or fune-
tions of the Securities and Exchange Commission, and I
am sure that in whatever connection the committee may
be called upon it will operate so that there will be no
suggestion of any such conflict. I assume, of course,
that you would have no objection to receiving suggestions
or proposals from this group, as you would from any other
group, regarding matters within the jurisdiction of tie
Commission, In the event that any such suggestions seemed
wise or appropriate.
Faithfully yours,
/s/ George L. Harrison
George L. Harrison,
President.
Regraded Unclassified
TREASURY DEPARTMENT
88
INTER OFFICE COMMUNICATION
DATE September 7, 1939.
TO
Secretary Morgenthau
FROM
Mr. Gaston
Sub
Mrs. Klotz asked me this afternoon to report to you on your
roturn from the Cabinet whether the Coast Guard had any system of compiling
information on ship movements. No such information has been compiled
except on special occasions for special purposes. However, pursuant to
his conversation with you yesterday and with me after he had talked to
you, Admiral Waesche has done the following: He has drafted radio
messages to be sent to all light ships near important harbor entrances
to observe and report to headquarters all ship movements visible from
the light ships. He has also given instructions to New York to set
up in the District Commander's Office a special Office of Ship Movements,
which is to compile 8. complete record of all ship movements into, out of,
and within the harbor. With the experience gained at New York he plans
to set up similar offices in all principal ports. Vital information
respecting ship movements will be sent to headquarters.
89
September 7. 1939.
Admiral Richard Evelyn Byrd,
9 Brimmer Street,
Boston, Masachusetts,
My dear Admiral Byrd.
On behalf of Secretary Morgenthau I en writing to
express our appreciation of the generaus attitude you have
taken with respect to the retention of the Coast Guard
Cutter NORTHLAND for use in your Antarotic Expedition to
start next month.
Mr. Bugh Cumming, Jr., of the state Department,
reported to - his telephone conversation with you after
I had naked him to find out whether the expedition could
go ahead without the use of the NORTHLAND, Be reported
that you told him that while you would regret greatly
losing the services of the Coast Guard ship, yet you were
quite willing to yield to the President's judgment as to
the need of the ship for other purposes and that you could
revise your plane 80 as to get along with the two remaining
ships.
The mtter at this moment has not been finally de-
eided, but I thought I should write you in any event to
tell you how grateful - are for your self-saorificing
attitude with respect to plane that mean no much to you
and promise to yield so such of good to the nation,
Às you undoubtedly know, two of our large outters
have been pressed into the North Atlantic patrol service
and we are recalling three others from the Pacific Coast
for use in eastern seaboard mators. The NORTHLAND would be
extremely valuable to us in the Pacific as soon AS she
could got around there.
Yours very truly,
Berbert E. Gaston
resistent Secretary.
100.00
Regraded Unclassified
90
September 7. 1939.
MEMORANDUM
TO: Secretary Morgenthau
FROM: Mr. Gaston
WS
SUBJECT: Antarctic expedition.
The Byrd antarotic expedition, to sail late in October,
planned to utilize three vessels, the Coast Guard Cutter NORTHLAND,
built for marctic service, the Department of Interior ship NORTH
STAR and the former Coast Guard Cutter BEAR, now known as the BEAR
OF OAKLAND.
The NORTH STAR is a wooden vessel, with little room for personnel
but large cargo space; the NORTHLAND has good accomodations for per-
sonnel but little cargo space; the BEAR OF OAKLAND is a smaller vessel
and quite old but it is understood that at Navy Board recently passed
upon her and found her seaworthy.
The expedition's plan was to establish two bases, one at Graham
land, a. part of the antarctic continent immediately south of South
America, and the other at Little America, which, I believe, is in the
Australian sector. The plan was for two edpeditions to set out toward
each other to draw a line between these bases cutting off 8 sector
as American territory. Plans for the expedition have been largely in
the hands of Richard Black, a member of the former Byrd expeditions,
who is in the Interior Department under Dr. Gruening's Division of
Territories and Island Possessions, and Hugh Cumming, Jr., of the State
Department, son of the former Surgeon General. Commander Rose, Chief
of Operations in the Coast Guard, has worked on the Coast Guard end
of it. It is Commander Rose's opinion that elimination of one of
the two bases would defeat the principal objective of the expedition,
which was to delimit this sector of territory.
Mr. Cumming tells me that since hearing yesterday of the possi-
bility that the NORTHLAND might be withdrawn they had been considering
readaptation of their plans. He thinks it highly important that the
expedition should go forward even though they do not have the services
of the NORTHLAND.
91
- 2 -
Mr. Cumming called his associates in Washington and also
called Admiral Byrd over the long distance telephone in Boston.
Admiral Byrd said he hated to give up the NORTHLAND but in view of
the National necessity he would do ao cheerfully. He said the
expedition could go forward and attain satisfactory results with
the remaining two vessels. He would still go ahead with the plan
of establishing two bases but with somewhat restricted personnel
and equipment, notably they would have to reduce the mumber of
planes. The two bases, however, would still be provisioned for
two years. As to the President's suggestion for eliminating one
base, he said they could still accomplish some worthwhile results
with a single base, but he didn't think that would be necessary.
TREASURY DEPARTMENT
92
INTER OFFICE COMMUNICATION
DATE September 7, 1939
TO
Secretary Morgenthau
FROM W. H. Hadley
TREASURY PURCHASES
Only one issue, the H.O.L.C. 1-1/25, showed a gain on yesterday's
average purchase price at the close today. The four longest Treasury bonds
closed about unchanged from yesterday's close, and 80 were about a half point
under the average purchase price of yesterday. Yesterday's purchases were
made on a declining price range of one point so that the average purchase
price is in the neighborhood of 1/2 point above today's and yesterday's closes.
The following table shows the high, low and average purchase price
for yesterday of the issues which the Treasury and the H.O.L.C. took,
Treasury Purchases Sept, 6 (19,412,375)
Purchase Price
Today's
Issue
Amount
High
Low
Average
Close
1955-60's
7,016,000
104.16
103.16
104.0
103.16
1956-59's
1,611,000
103,8
102,8
102.24
102.8
1958-63's
2,290,000
102.30
101.30
102.14
101.30
1960-65's
5,877,000
102.27
101.27
102.19
101.30
HOLC 1-1/2's
2,618,375
98.20
98,4
98.12
98.24*
Gain of 12/32nds for a dollar increase of $9800 over the purchase price.
original 9-11-39 to Bell
93
September 8, 1939.
MEMORANDUM
TO: Secretary Morgenthau
FROM: Mr. Gaston
After consulting with Mr. Hanes I approved today as Acting
Secretary a letter to the Budget by Admiral Waesche requesting
permission to incur a deficiency on a group of Coast Guard appro-
priations made necessary by the recruitmentof a thousand additional
men and the other expenses we are assuming because of the transfer
of ships, increase of equipment, etc. During the day I learned
that the President had signed Executive Orders authorizing Army and
Navy to exceed their appropriations. I discussed the matter with
Ed Foley and be thought it would be helpful if we got a similar
Executive Order for the Coast Guard that you could ask the President
to sign on Monday. He is preparing such an order.
Regraded Unclassified
sc(e)
FEDERAL RESERVE BANK
OF NEW YORK
94
OFFICE CORRESPONDENCE
DATE September 8, 1939.
CONFIDENTIAL FILES
SUBJECT
TELEPHONE CONVERSATION WITH
L. W. Knoke
BANK OF ENGLAND.
I called Mr. Bolton at 10:35 a.m. I reminded him of my
previous request that he send us copies of all decrees, regulations,
etc., issued, if possible by Clipper, and explained the difficulties
this market was up against in the absence of any authentic informa-
tion. Bolton replied that copies of everything so far printed had
been sent to us; if it had gone out by boat he would see to it that
additional copies were sent by airmail.
I referred to the regulation supposedly just issued in
London dealing with the financing in sterling of the movement of
goods between other than British Empire points. The regulation was
FE7, Bolton replied, and was giving the accepting houses various
instructions regarding the opening of credits. Any documentary
credit which covered the movement of goods in or out of the country
or between any points of the British Empire could be maintained.
The only credits which were under supervision were credits covering,
for instance, shipments between Amsterdam and New York, that 1s,
between two foreign ports. He would have the document cabled to us
verbatim, he promised.
03V1303R
LWK:KW "
ecer e, crs
1 FEWAL 1 i 1
Regraded Unclassified
PARAPHRASE OF SECTION ONE OF TELEGRAM NO. 1851,
95
SEPTEMBER 8, 5 p.m., FROM THE AMERICAN EMBASSY,
PARIS, FRANCE.
Mr. Pierson, the President of the Export-Import Bank,
visited Mr. Fain, Secretary General of the French Govern-
ment Export Credit Insurance System; that institution
corresponds somewhat to the Export-Import Bank. The
Secretary General said that Reynaud is anxious for him (Fain)
to expand operations as much as possible, in view of his
need for all possible foreign exchange. Fain added that
his institution would urge all exporters to endeavor to
increase their exports to Latin America and also, for
the present, to Scandinavian nations. But his personal
belief was that the Scandinavian countries would be in-
volved in the war on France's side before very long.
The French Government Export Credit Insurance System
grew up primarily because of -omission- opposition
to outright loans to foreign governments and public en-
tities, and it accomplished the same purpose without
opposition from the public. However, Fain feels that
the French Treasury will be holding the same bag in the end.
BULLITT
EA:M8G
S6
VM
GRAY
Peris
Dated SEptember 8, 1939
Rec'd 7:50 p.m.
Secretary of State
Washington,
1851, September 8, 5 p.m. (SECTION TWO).
The foreign Exchange market WAS a little broader
today in trading between banks limited however to com-
mcroial needs. SELLERS of foreign currency, however,
are still rare and the control continues to give no
exchange EXCEPT for carefully investigated merchandise
imports. This policy is apparently beginning to arouse a
little anxisty in other continental centers, such as
Switzerland. The Bank of France quoted e buying rate of
176.50 this afternoon for sterling and 43.75 for dollars.
The belga was 7471 and the florin 2320 and the Swiss franc
982. Securities quotations WETE again largely nominel
but some rentes issues and French utility and industrial
stocks improved over yesterday's close. Foreign securi-
ties such as Royal Dutch and Rio Tinto continued to gain.
(END OF MESSAGE).
BULLITT
PEG
September 8, 1939
27
To:
The Secretary
From:
Mr. Hanes
Drew Pearson called me on the telephone this afternoon about
four o'clock and read B. statement which he said had been written
by his partner, Bob Allen, about as follows: "One day just before
sailing from Bergen, the Secretary of the Treasury, Henry Morgenthau, Jr.,
sent & cablegram to John Hanes, Under Secretary of the Treasury,
asking Hanes what the public opinion was concerning his using a
Government Coast Guard cutter for his return trip home."
Drew said that he hated to see this item published unless it
were true and would I care to discuss it with him. I told him that
I certainly would like to discuss it with him - that the statement
was grosely false and without foundation of fact whatsoever, that
no such cablegram had ever been sent, and that if he printed it I
felt that it would be the grossest injustice that he could possibly
do to the Secretary. I stated further that the Secretary was
solicitous about leaving Bergen if other Americans there were stranded
and in accordance with this wish not to leave when others were in
distress, the Secretary had gone to the American Consul to ascertain
whether there was anyone within his knowledge who could not obtain
passage. The Secretary was assured that there were adequate
accommodations for everyone from Norway to America. I told him further
that the steamship, Bergenefjord, had just arrived in New York today
with available space for from 50 to 100 more passengers.
Although Drew did not tell me he would not print it, I would
assume after this statement that he will not. This is for your
information only.
JwH
Regraded Unclassified
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
SB
THE OF THE CHAIRMAN
September 8, 1939
CONFIDENTIAL
The Honorable
Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Dear Henry:
I enclose & draft of a proposed letter from me to
Governor Harrisch which has been approved by the Commis-
sion. As I told you on the phone yesterday, I wanted
you to see it before it was sent.
What particularly bothers us about Harrison's letter
to me of September 5 (a copy of which is attached) is the
last paragraph. As you will note from the attached draft
of proposed letter to him, it is, of course, our position
that any citizens have a right to say anything they want
to the SEC or to anyone else about matters under our juris-
diction and, ordinarily, to publish such comments. But
we do not think that that general rule 1a applicable to
Harrison's committees. The discussion in your office on
April 13, and Harrison's letter of September 5, and press
accounts concerning the activities of the committees, all
show that they are acting, at least indirectly, 8.8 advisers
to the Treasury, and perhaps to the Federal Reserve Board,
and were appointed with the approval of the Treasury and
the Federal Reserve Board.
Those committees, therefore, occupy & quasi-govern-
mental status, and, accordingly, public comments by them,
as to matters within our jurisdiction, would be given EL
significance and weight which they would not otherwise
have. /Suppose, for instance, that Jack Viner or Earl
Baillie, while occupying their present poste, were to pub-
lish some comments about the SEC/. As I point out in the
attached draft of letter, if the Treasury or the Federal
Reserve ever had any suggestions or comments about matters
within our jurisdiction, they would make them to us in
confidence and would not think of publishing them. It
Regraded Unclassified
- 2 -
seema to us that Harrison's committees, being advisory
to, and having been appointed with the approval of, the
Treasury and the Federal Reserve should act in like manner.
That point becomes the more pertinent in the light
of an item appearing in this morning's Wall Street Journal
to the effect that "The Foreign Exchange Committee announced
that it is recommended to the market, because of delays in
cable transmission, that on and after September 11, ster-
ling be dealt in this market on the basis of payment here
and in Great Britain on the second New York business day
after the trade is made." In other words, the Foreign Ex-
change Committee is making public announcements on foreign
exchange matters. Public announcements concerning such
matters are no business of the SEC; and it may well be that
the Treasury wants the Foreign Exchange Committee to make
such announcements. The point is that either that committee,
or, more particularly, the so-called general committee ap-
pointed by Harrison, may make public comments or suggestions
on subjects which are within our jurisdiction and publicly
announce those comments. Having in mind that the so-called
general committee is composed of persons, several of whom
have already publicly urged substantial modifications of
the SEC statutes and regulations, we are fearful that,
unless Mr. Harrison promptly advises the committees that
they are not to publish any views on matters within our
jurisdiction, we may, in the next few days, find adverse
comments on the SEC publicly made by a committee which is
known to have the blessing and to be A sort of an adjunct
of the Treasury.
As indicated in my attached draft of letter to Ear-
rison, in appointing the general committee, be went con-
siderably beyond the scope of action indicated in his dis-
cussion in the conference on April 13; for there he re-
ferred to "a bankers' committee," whereas the "general
committee" consists not only of five bankers but of 8.
representative of investment bankers, the President of the
New York Stock Exchange, and Mr. Folter as representative
of the insurance companies.
/In passing it should be noted that Mr.
Ecker's company is now under examination by the
so-called Monopoly Committee; it would certainly
be most unfortunate if Mr. Harrison's general
committee, appearing to have the blessing of the
Regraded Unclassified
. 3 -
100
Treasury Department, were to sound off publicly
with adverse comments concerning that investiga-
tion of insurance companies, an investigation
which the President expressly urged in his mes-
sage to Congress which led to the creation of
the Monopoly Committee and in which he has several
times, since then, in private, expressed peculiar
interest.]
For the foregoing reasons, I think it most important
for me to answer Mr. Harrison's letter promptly instead of
waiting until you and he and I can have a conference some-
time next week; for in the interval one or the other of
his committees might give out some damaging publicity.
I would be obliged, therefore, to receive your com-
ments on the attached draft of letter at your early con-
venience.
Yours sincerely,
Jernne Jerome N. Frank
Enclosure.
DRAFT
101
September 8, 1939
Governor George Harrison
New York Federal Reserve Bank,
New York, New York.
Dear Governor Harrison:
Thank you for your letter of September 5. I was
pleased to learn from Secretary Morgenthau that he has
arranged with you that, in the near future, you and he
and I will get together for & chat. Meanwhile, the
Commission thinks it desirable that I should make the
following comments on your letter:
Responsive to the last sentence of that letter, I
want to say, most emphatically, that this Commission,
composed as it is of public servants, can have and has
no possible objection to receiving, for its considers-
tion, from any citizen or group or committee of citizens,
suggestions or proposals regarding matters within the
jurisdiction of this Commission, and, ordinarily and as
a general rule, can have and has no objection to the
publication of any such proposals or suggestions.
I think it appropriate, however, to point out, and
doubtless you will agree, that such proposals or suggestions,
regarding matters within the jurisdiction of this Commission,
if made by the committees recently appointed by you, have a
quite different status, because of the circumstances under,
and the purposes for, which these committees were appointed;
2
102
50 that proposals or suggestions from them are not within
that general rule. I have in mind the following:
In your letter you state that the plan of appointing
such committees "was discussed in some detail at the
series of meetings held in Secretary Morgenthau's office
last April when the various departments of the Government,
including the Securities and Exchange Commission and the
Federal Reserve System, outlined actions to be taken in the
event of war."
It 80 happens that there were no representatives of the
SEC present at any such discussions concerning the appoint-
ment of such committees. Secretary Morgenthau has just sent
me a copy of the transcript of the sole conference at his
office at which that subject was considered. It occurred on
April 13 when there were present only representatives of the
Treasury and the Federal Reserve Board. The transcript shows
that there was then discussed, to quote the words you then
used, "a bankers' committee to which I might go in any hurry,
upon any matter dealing with credit, loans, foreign exchange,
gold, or anything else that the Treasury might want us to do",
and that such a committee should be in the nature of an
"advisory committee". And until receipt of your letter of
September 5, this Commission had never been informed of that
2
3
103
discussion of that subject. It follows that those
committees were not appointed with the approval or con-
currence of the SEC.
Your remarks at the April 13 conference, quoted above,
also show that it was not contemplated that there be
included in the acope of the activities of any such bankers'
committee any suggestions or proposals or other action
concerning matters affecting the "securities markets", or
any other matters within the jurisdiction of the SEC,
excepting insofar as they might come within the clause
"anything else that the Treasury might want us to do."
Accordingly, it would seem that, when the Treasury and the
Federal Reserve Board concurred in the suggestion of the
appointment of such 8. committee they did not contemplate
that such committee would make proposals or suggestions with
regard to matters within our jurisdiction -- except at the
request of the Treasury.
Even more to the point 1s the fact that the discussion
at the April 13 conference and your letter of September 5
show that those committees were appointed pursuant to
those discussions to act (through your bank, "in its capacity
8.8 fiscal agent of the government") in advising the Treasury,
and perhaps the Federal Reserve Board. It 18 clear, there-
Regraded Unclassified
104
fore, that the committees are not merely groups of private
citizens formed on their own initiative, but, with the con-
currence of the Treasury and Federal Reserve Board, are to
act in a quasi-governmental capacity as advisers to those
government departments.
Now, as you know, it 18 a well settled and proper
practice that, if any department or agency of the federal
government, such as the Treasury or the Federal Reserve Board,
at any time has any proposals or suggestions regarding the
matters within our jurisdiction, they transmit them to us in
confidence and do not give them any publicity. Inasmuch,
therefore, as the committees which were appointed by you are
to act, through you, as adviser to the Treasury, and perhaps
to the Federal Reserve Board, I assume that with respect to
proposals or suggestions regarding matters within our juris-
diction, those committees will act similarly. In other words,
I assume that you will promptly advise such committees BO that
they will either, directly, or through you, transmit suggestions
or proposals, if any, relating to matters within our jurisdiction,
in confidence and without any publicity, to the Treasury or the
Federal Reserve Board, leaving it to those governmental agencies
to transmit those suggestions or proposals to the SEC, in
confidence, aa they may see fit; and that no publicity
Regraded Unclassified
5
105
whatsoever will be given by you or the committees to any
such suggestions or proposals except with the prior
approval of this Commission.
Sincerely yours,
Jerome N. Frank
Chairman
laster Name
FEDERAL RESERVE BANK
OF NEW YORK
Copy
_06
September 5, 1939
Hon. Jerome N. Frank, Chairman,
Securities and Exchange Commission
Washington, D. C.
Dear Chairman Frank:
I have received your personal letter of Septem-
ber 1 referring to our conversation on the telephone on
August 31 concerning the committee recently set up at
my suggestion by the various groups included in its nam-
bership.
You are quite right in assuming that this com-
mittee does not intend in any way to trespass upon the
jurisdiction of the Securities and Exchange Commission.
As I advised you on the telephone, the reason for the
organization of the committee is to have available &
group, representative of the principal financial in-
perests in this market, through which this bank in its
capacity as fiscal agent of the Government or otherwise
may promptly obtain information or cooperative considers-
tion in relation to important problems affecting this
market 0.8 they may arise. Experience has demonstrated
the extreme difficulty of doing this without such a
representative committee of limited size.
Regraded Unclassified
_07
=
Hon. Jerome N. Frank,
Sept. 5, 1039
While your Commission was not directly in-
formed of the plan to organize this committee in ad-
vance, nevertheless, I had assumed that you were aware
of the general plan to form such a committee because of
advance references to it in the press and because it
was discussed in some detail at the series of meetings
held in Secretary Morgenthau's office last April when
the various departments of the Government, including
the Securities and Exchange Commission and the Federal
Reserve System, outlined actions to be taken in the event
of war.
I can assure you and your colleagues that there
was no thought that the organisation of this committee
would in any way conflict with the jurisdiction or func-
tions of the Securities and Exchange Commission, and I
an sure that in whatever connection the committee may
be called upon it will operate 60 that there will be no
suggestion of any such conflict. I assume, of course,
that you would have no objection to receiving suggestions
or proposals from this group, as you would from any other
group, regarding matters within the jurisdiction of the
Commission, in the event that any such suggestions seemed
wise or appropriate.
Faithfully yours,
/s/ George L. Harrison
George L. Harrison,
President.
Regraded Unclassified
BK210
TREASURY department
108
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
September 8, 1939.
100 dear Mr. Secretary:
Please find attached nemoranda on manganese, tungsten, chro-
mite, hemp and optical glass.
In conversation with Mr. Veatch of the State Department this
afternoon he informed me that the negotiations being carried
on by the American Ambassador with the appropriate British
government officials will unquestionably result in increasing
the quota of tin allowed this country, making such quota ret-
roactive to the first of July, which will have the effect of
meeting all prospective demands of this commodity. He further
stated that the price of tin has been fixed at L230 per ton.
This figure compares favorably with the 229-7/8 per ton for
spot delivery on August 31st.
Concerning quinine, the American Minister at The Hague has
requested additional information to be presented to the Dutch
Syndicate, and it was indicated that these negotiations might
be favorably terminated at a very reasonable price per ounce.
Very Green respectfully,
Honorable Henry Morgenthau, Jr.,
Fishkill,
New York.
_09
MANGANESE
SOURCES OF SUPPLY
The Inion of Soviet Socialist Republics is the world's largest producer
of the ferro crade manganese. British India, the Inion of South Africa,
No loid Coast, Brazil and Cuba, In the order named, are the other prin-
cign2 producing countries. Manganese less suited for metallargical
is produced in a number of other countries. Durine the first
*** months of 1939 35,000 tons of Serro grade manganese were imported
Pine the Cold Coast, 34,000 tons from the U.S.S.R., 20,000 tens from
Cibs, 12,000 tons from Pritish India, and 3,000 tons from Frasil.
In comparison with world production the Serro grade manganese ore is
in the United States only to EL scall extent. By far the roater
un of the donsatic consumption is dependent upon foreign imports.
entana, Arkansas, Tennessee, liest Virginia, Virginia, New Mexico and
meda are the principal producing states.
CONTROL
The clanned production of manganese in the U.S.S.R. is under the control
of the government.
The production of manganess in Pritish India is regulated by British
arivate enterprise.
TM Tracil, Cuba and the Union of South Africa the production of manganese
is controlled by American private enterprise. A certain amount of pro-
divetion on the cold Coast is controlled by American capital.
USES
Perrograde is indispensable in the manufacture of steel for two
Regraded Unclassified
110
-2-
reasons; first, as a dioxidizing or purifying agent in all steel manu-
facture, and second, as an alloying element in the manufacture of special
purpose steels.
Domestic consumption in 1937 for metallurgical purposes was 770,496 tons
of which only 26,419 tons were shipped from mines in the United States.
The principal sources of imports were Russia, Gold Coast and Cuba, which
sources accounted for approximately 90% of the total imports. There is
no substitute for manganese.
$2,500,000 has been allocated for the purchase of manganese which it is
planned to store at the Curtis Bay Ordnance Depot, Baltimore, Maryland,
and at the Ogden Ordnance Depot, Ogden, Utah.
111
TINGSTEN
SOURCES OF SUPPLY
The principal sources of supply of tungsten ore are China and British Malaya.
Tungsten ore is also produced in Argentina, Bolivia, Mexico and Peru, but
the combined output of the western hemisphere is not sufficient to meet
donestic consumption in the United States. Tungsten ores are also obtained
from Arizona, California, Colorado, Idaho, issouri, Nontana, Nevada,
New Mexico, South Dakota, Utah and Washington. The protection afforded
domestic producers by the tariff has lept the industry alive and pentitted
the production of 3,500 short tons of ore in 1937, as compared to the im-
cortation of 9,350 short tons of foreign ores.
CONTROL
The production of tunrsten ore in the countries mentioned as sources of
supply is under the government control of each.
USES
The principal use of this material is in the manufacture of special alloy
steels, the most important of these being high-speed tool steels used for
cutting operations. Other tungsten alloy steels are used in the produc-
tion of a wide range of industrial products and military equipment such as
projectiles, ordnance and armor plate.
500,000 has been allocated for the purchase of tungsten which will be
stored in the Columbus General Depot, Columbus, Ohio.
CHROMITE
112
SOURCES OF SUPPLY
The principal sources of supply of chromite are South Africa, Cuba, New
Caladonia and the Philippine Islands. Approximately 50% of the foreign
ore incorted came from South Africa. Chromite is mined domestically in
Nevada, California and Oregon but in relatively small quantities. The
domestic consumption in 1937 was 556,237 tons of which only 2,321 tons
came from domestic mines.
CONTROL
Practically all of the nines operated in the foreign countries indicated
above are under government control.
USES
Chromite is used in the manufacture of ferro-alloys, chemicals
and refractories. Its principal use is in the manufacture of numerous
alloy steels designed for specific purposes, both civilian and military.
In many of its uses there is no substitute for chromite,
$1,100,000 has been allocated for the purchase of chromite which will be
stored in the Ogden Ordnance Depot, Ogden, Utah, and the llew Cumberland
General Depot, New Cumberland, Pennsylvania.
113
MANILA FIBER
SOURCE OF SUPPLY
The Philippine Islands is the only source of supply as it is the only
country in the world that produces manila fiber.
CONTROL
There is no governmental control other than the commercial grading of
manila fiber in the Philippine Islands. The sale and marketing of this
commodity is controlled by a dozen or more of private companies, and it
is sold in the open market under grades established by the Insular Cov-
ernment of the Philippine Islands.
USES
Manila fiber is used in the manufacture of high grade rope and cordage,
such as marine rope, transmission rope, rope used for construction pur-
poses and hard fiber twine.
$320,000 has been allocated for the purchase of manila fiber which will
be stored at the Army Base, Boston, Massachusetts.
14
OPTICAL GLASS
SOURCES OF SUPPLY
fhere is no available information concerning the world production of
optical plass. While Germany is probably the principal foreign source
of this commodity, it is also produced in England and France. In the
United States it is produced by the Bausch and Lomb Company of Rochester,
New York. The Pittsburgh Plate Glass Company and the Corning Glass Works
are also potential sources of supply. In addition to these companies,
the Bureau of Standards is presently supplying practically all of the
optical -lass used by the Navy in their manufacture of optical instruments.
Inquiry develops the fact that the output of the Bureau of Standards can
be sufficiently increased to provide the optical Plass required in the
strategic and critical material program in the event that it should be
impracticable to get it from one of the three comercial firms mentioned
above.
USES
Optical glass is used in the manufacture of microscopes, field glasses,
range finders, gun sights, periscopes, aiming circles, photographic
lenses and other optical instruments.
480,000 has been allocated for the purchase of optical glass which will
be stored at the Fairfield Ceneral Depot, Pairfield, Chio, and the
Washington llavy Yard, Washington, D.C.
Regraded Unclassified
15
SECRET
8 September, 1959.
To:
The Secretary of the Treasury.
From:
C. O. Dunbar, Collector of Customs,
San Francisco, California.
Refer Department wire 5th instant regarding European
passports. Orders have been issued by the American Presidents
Line prohibiting visitors going on board their vessels on sailing
days in order that a better check of passenger passports might be
had in connection with a representative of the State Department.
Local passport agency contacted steemship line prior to our doing
BO upon receipt of wire from Chief of Passport Division. It was im-
plied by company draft that this change was being made upon suggestion
of Customs and State Departments. While we did suggest considering such
action the company apparently did not consider it favorably at that time.
Does the Secretary perceive any objection to prohibiting visitors aboard
on sailing days vessels operated by Seatem Navigation Company, American
Presidents Line and llippon Tusen Keisha.
SECRET
Regraded Unclassified
- -
116
THE SECRETARY OF COMMERCE
«
x
WASHINGTON
STATES of
September 8, 1939.
My dear Mr. Secretary:
In response to your request of September 7th I
am directing Mr. James W. Young, Director of the
Bureau of Foreign & Domestic Commerce, Department
of Commerce, to serve as our representative on
the committee which is to advise with your
Department in connection with the administration
of the executive regulation of September 6, 1939,
concerning credits to belligerents.
Very truly yours,
Edwardpresse Edward J. Noble,
Acting Secretary of Commerce.
The Honorable,
The Secretary of the Treasury,
Washington, D. C.
117
-
THE SECRETARY OF COMMERCE
all
in
S (1 STATE C AMERICAN
WASHINGTON
3.2.20
September 8, 1939.
My dear Mr, Secretary:
In response to your request of September 7th I
an directing Mr. James N. Young, Director of the
Bureau of Foreign & Domestic Commerce, Department
of Commerce, to serve as our representative on
the committee which is to advise with your
Department in connection with the administration
of the executive regulation of September 6, 1939,
concerning credits to belligerents.
Very truly yours,
Edward J. Moble
Edward J. Noble,
Acting Secretary of Commerce.
The Honorable,
The Secretary of the Treasury,
Washington, D. C.
Regraded Unclassified
118
September 8, 1939
By phone this afternoon, the Secretary told
Mr. McReynolds that in connection with arranging to seal
radios in German vessels in our ports, it had occurred
to him that that precaution was rather futile 80 long
as these amateur radios were livensed to broadcast a
couple of hours every night and were able to put anything
on the air they chose and Mr. McReynolds, at the Secre-
tary's suggestion, through the General Counsel's Office,
communicated with the General Counsel of Communications
Commission calling their attention to this situation and
suggesting a careful review of amateur licenses.
B*210
19
September 8, 1939
FOR THE SECRETARY:
Secretary Edison's aide has said that
Mr. Edison has no objection to putting out a press
release on the arrangement with the steel companies.
I have drafted and submitted to him -- and to
Mr. Hanes and Mr. Foley -- the attached suggested
press release.
As you will see from the draft, the steel
companies have not yet accepted the agreement.
I am not sure that Secretary Edison, or his aide,
1s aware of this fact, or that you knew it when you
suggested a press release.
Attachment
ESD
120
To assist the Navy in the execution of its ship building
program, Secretary Morgenthau, exercising authority given him in
section 3760 of the Internal Revenue Code, has offered to sign a
closing agreement with three steel companies which supply armor
plate for naval vossels,
In order to furnish the Navy with armor plate rapidly enough
to fill the Navy's needs, the three steel companies would have to
invest about $6 million in additional equipment. They were not
inclined to do so, claiming that, whereas the equipment would be
of little value to them except on naval work of this character,
they might not be given any allowance for the cost of the equipment
when the work is completed and their profits are computed under the
Vinson-Tranmell Act. The Vinson-Tranmell Act limits profits on
naval ship building contracts to 10 percent of the contract price
and charges the Bureau of Internal Revenue with enforcing the
limitation.
The following arrangement. has been worked out and offered
to the steel companies:
If the companies 80 request and if the Navy certifies that
the request is technically justifiable, the Treasury will sign a
closing agreement with the companies under section 3760 of the
Internal Revenue Code. The agreement would bind the Treasury to
121
- 2 -
allow up to 50 percent of the cost of the machinery to be charged
off when the companies' profits are computed under the Vinson-
Tranmell Act. The agreement would further bind the Treasury to
investigate the condition of the machinery and the possible uses
for it at the time that the Navy contract is completed to determine
whether more than 50 percent of the cost of the special equipment
should be allowed as a deduction.
The steel companies have not yet informed the Navy whether
the proposed agreement is acceptable to them.
The general formula worked out in this instance is appli-
cable to other contracts under the Vinson-Trammell Act, which
covers the construction of battleships and aircraft, although the
exact terms would depend in each case upon the technical factors
in that case. The Treasury, War and Navy departments each have
special committees to handle matters under the Vinson-Trammell Act;
the three committees meet jointly to consider common problems.
TREASURY DEPARTMENT
122
INTER OFFICE COMMUNICATION
DATE September 8, 1939.
TO
Secretary Morgenthau
FROM
Mr. Gaston
Waesohe is proceeding right away to extend the system of
reporting ships' movements by establishing an Office of Ship Movements
in each of the principal ports. I have asked Pollio to cease confining
himself in his daily reports to German and Italian ships and to include
in his report of ships in port all foreign ships and also to note
important movements. His report will be built up as the information
begins to flow in from the new system of reporting.
I had a meeting today with Irey, Gorman, Shamhart and Pollio
on coordination matters, Shamhart suggested that we ought to reestab-
lish immediately the system of intensive patrol of the border including
the sea coast that we had in effect during the liquor and narcotic
drives. On the seacoast, notably in Florida, it involves a. system of
cooperation between Coast Guard and Customs Control and more regular
use of automobile patrol by the Customs Control. I spoke to Basil
Harris about it and he said that Johnson disagreed with Shamhart. In
view of this I called B. meeting for this afternoon at which Harris,
7. R. Johnson, Shamhart and Waesche were present. I presented the view
that NO ought to do a little more than necessary rather than 8. little
less at this time. Johnson thinks that it will take Customs patrolmen
from more essential work. Tie left it this way - that Maesche and
Shamhart will get out a report together as to just what it will involve
123
- 2 -
in the way of Customs cooperation. Johnson thinke he ought to send
some men down to the Florida Coast to find out just what is being
done now as there is a difference as to facts between Shamhart and
Ballinger's Committee. I told Harris that in any event the Coast
Guard would extend it 8 reporting service and do everything it could
to observe surreptitious ship movements.
SECURITIES AND EXCHANGE COMMISSION
_24
WASHINGTON
THE CHARMAN
September 8, 1939
PERSONAL
The Honorable
Henry Morgenthau, Jr.,
Secretery of State.
Dear Henry:
On further reflection, I think that the letter to
Governor Harrison should be changed 80 that the lest
paragraph will read 88 follows:
"Now, as you know, it is B. well settled and proper
practice that, if any department or agency of the federal
government, such as the Treasury or the Federal Reserve
Board, at any time has any proposela or suggestions regard-
ing the matters within our jurisdiction, they transmit them
to us in confidence and do not give them any publicity.
Inssmuch, therefore, as the committees which were appointed
by you are to act, through you, as adviser to the Treasury,
and perhaps to the Federal Reserve Board, and A8 the scope
of their advisory activities, 88 described by you at the
April 13 conference, were not to include matters within
the jurisdiction of this Commission, except at the request
of the Treasury, I assume that you will promptly make the
following clear to the committees: (1) Neither of those
committees will make proposals or suggestions regarding
matters within our jurisdiction, except at the request of
the Treasury; (2) if the Treasury should request that
either of those committees make suggestions or proposale
as to matters within our jurisdiction, then (3) the
committees will (either directly or through you) transmit
those suggestions or proposals to the Treasury or the
Federal Reserve Board, in confidence, and without any
publicity, leaving it (4) to the Treasury and the Federal
Reserve Board to transmit those suggestions or proposals
to the SEC, in confidence, as they may see fit, 80 that no
publicity whatever will ever be given by you or the
committees to any such suggestions or propossls, except
with the prior approval of this Commission."
Regraded Unclassified
No.2
125
My purpose in making that change is this: I think
that in view of Mr. Harrison's statement at the April 13
conference with you and the Federal Reserve Board
representatives, his committees should not make suggestions
or proposals even to the Treasury or the Federal Reserve
Board, concerning matters within the jurisdiction of the
SEC, except at your express request. If that is made
entirely clear, I would then like to have it understood
with you that no one in the Treasury or Federal Reserve
Board will, without the prior approval of this Commission,
ssk either of Mr. Harrison's committees to make any
suggestions or proposals as to matters within our juris-
diction. My reason for taking that added precaution 18
the fear of adverse publicity, because of the facts stated
in my earlier letter to you today and in the memoranda to
the President, copies of which I left with you the other
day.
For the reasons stated in my earlier letter of today,
I want to send my letter to Mr. Harrison tomorrow (Saturday),
and would therefore be greatly obliged if you would phone
me about this and my earlier letter, Saturday morning.
Sincerely yours,
Jenne Jerome N. Frank
Chairman
2 CENTS 2
UNITED
STATES
3
3 CENTS
3 CENTS 3
3 CENTS 3
COSTAGE
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
N
STATES
25V1500
PAR
OFFICIAL BUSINESS
CENT
1
STATES
STATES
STATES
DELIND
COUNT
CRINNO
RETURN AFTER FIVE DAYS
SPECIAL DELIVERY
17 12
6/x SPECIAL DELIVERY
2016
The Honorable
PERSONAL AND
Henry Morgenthau, DECREPART'S
Secretary of State,
V
CONFIDENTIAL
Washington, D. C.
EXPIRATION
126
CJ
03VI3038
<<> STATE / -
PLAIN
LONDON
Dated September 8, 1939
Rec'd 12:40 Dame
Secretary of State,
Washington.
1533, September 8, 6 p.m.
FOR TREAS BY FROM BUTTERWORTH.
Official exchange rates today WERE unchanged for
NEW York, Anoterdem and Switzerland, Montreal 4.35-9,
Paris 176-7, Brunstla 23.67-97, Stockholm 16.85-17.02,
and Oslo 17.67-84.
The Stock Exchange was EVEN more quiet today than
yesterday. No indices of stock prices have appeared
in the press this WEEK but EXCEPT for comper and ship-
ping shares which were strongly in demand, industrial
sharsa are about or alightly above the level before the
Exchange closed last Friday. The minimum prices are
still being adhered to for gilt-sdged securities, and
there is c. little business being done atthese prices.
Today's Treasury bill rate was 63,12s,6d. as com-
pared with 65,14s.3d. lest WEEK. Full details of the
Bank of England return mentioned in my No. 1516 of Septem-
ber 7, 9 Paille reveal gold holdings in 10BME Department
at 6102 thousand.
KENNEDY
CSB
Regraded Unclassified
TREASURY DEPARTMENT
127
INTER OFFICE COMMUNICATION
DATE September 8, 1939.
TO
Secretary Morgenthau
FROM
Mr. Gaston
as
Norman R. Hamilton, publisher of the Portamouth, Virginia, Star,
and former Congressman from the Norfolk district and former Collector of
Customs at Norfolk, called on me this morning at the suggestion of Steve
Early and General Watson, whom he had seen yesterday.
Hamilton, who WR.5 Collector of Customs at Norfolk in the Wilson
Administration, is a vigorous supporter of the President and therefore
persona non grate to Byrd and Glass. He was defeated by their man Darden
in 1934. He is interested in having a man who is reasonably friendly to
the Administration appointed Collector of Customs at Norfolk. A vacancy
exists due to the death of Collector Truxton early this summer. Truxton
had been 111 for B. long time and the office has been very competently
handled by Vipond, the Assistant Collector, who was appointed by Hamilton
during his term as Collector.
Hamilton told no that & mn named James E. Heath has been recom-
mended by Walter Moore, who, I believe, is the National Committeemen. Heath,
Hamilton tells no, is seventy years old and a sick man, and Hamilton tells
me he is a protege of Glass. Hamilton himself would be willing to serve as
Collector, with or without pay. He thinks, however, that if his name were
sent up to the Senate Byrd and Glass would just hold the nomination up
without confirmation.
128
Secretary Morgenthau
- 2 -
In view of this situation Hamilton is recommending as 8.
candidate Ezra T. Summers of Norfolk, an insurance man, whom
Hamilton brought in with him. Summers is a vigorous, intelligent
appearing fellow in his thirties and has good family connections,
which are important in Virginia. Hamilton doubts that the Senators
would refuse confirmation to Summers.
I told Mr. Hamilton that we would not be likely to advocate
actively any candidate for the position, but would, no doubt, refuse
to accept anyone who WB.S manifestly unfit for service at this time.
Copy to Mr. Basil Harris
100
COPY
129
TELEGRAM SENT
Washington,
September 9, 1939
11 a.m.
AMERICAN CONSUL
SYDNEY VIA MONTREAL
Press reported August twenty-eight that Australian
Government had established exchange control. Please
cable details of this and any other developments affecting
foreign trade.
HULL (HS)
ever
TA:JHL:EWE
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
120
OFFICE - THE CHAIRMAN
September 9, 1939
Confidential
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Dear Henry:
As I told you on September 7, I wanted you to see
my reply to Harrison's September 5 letter before it was
mailed, and, accordingly, I sent & draft of the same to
you in my first letter of yesterday, with a modification
in my second letter of yesterday. (By inadvertence in
sending that second letter, my secretary addressed you
as the Secretary of State, but I hope you will forgive
her and me.) Not hearing from you, I phoned your office
this morning and found that you had left the City on
September 8 and would not return until September 11,
which doubtless explains why I did not hear from you.
For the reasons explained in my letters to you of
yesterday, the Commission felt that it was imperative
that we should no longer delay in replying to Harrison,
and therefore decided today that, even though you had
not had opportunity to read the proposed letter, it
should be sent today. I trust you will understand. I
enclose a copy of the letter as sent.
Our apprehensions were augmented by an editorial.
in the Wall Street Journal for today, a copy of which I
enclose. It lays the foundation for public comments by
Harrison's committees on SEC activities, comments which
we feared would be forthooming in the very near future,
in the absence of such & letter as I have written to
him.
Repeating what I said in my second letter of yes-
terday, I hope matters can be so arranged that, if
Harrison agrees with my understanding of the situation
131
- 2 -
8.8 explained in my letter, no one in the Treasury or
the Federal Reserve Board will, without our prior
approval, ask either of Harrison's committees to make
any proposals or suggestions concerning matters within
our jurisdiction.
Sincerely yours,
Jane Jerome N. Frank
Chairman
Enclosure
P.S. In the press for today, there is reported 8. radio
talk made yesterday by Mr. Martin, President of the New
York Stock Exchange, in which he said that the Exchange,
in making plans to cope with the emergency, "cooperated
closely with officials in Washington, in the Treasury
and in the Securities and Exchange Commission." I know
that the Treasury was appropriately interested in
activities of the Exchange with respect to the government
bond market, and it may well be that, for that purpose,
Treasury officials have cooperated with the Exchange.
I know, of course, that you'll see that our lines wont
get crossed and that you and I will keep in touch with
one another 80 that the Exchange does not, without our
prior concurrence, receive advice or suggestions from
Treasury officials concerning Exchange activities which
are within our jurisdiction.
JNF
COPY
-32
September 9, 1939
Governor George Harrison,
New York Federal Reserve Bank,
New York, New York.
Dear Governor Harrison:
Thank you for your letter of September 5. I was
pleased to learn from Secretary Morgenthau that he has
arranged with you that, in the near future, you and he
and I will get together for A chat. Meanwhile, the
Commission thinks it desirable to make the following
comments on your letter:
Responsive to the last sentence of that letter, we
went to say, most emphatically, that this Commission,
composed as it is of public servants, can have and has
no possible objection to receiving, for its consideration,
from any citizen or group or committee of citizens,
suggestions or proposals regarding matters within the
jurisdiction of this Commission, and, ordinarily and as
a general rule, can have and has no objection to the
publication of any such proposals or suggestions.
The Commission thinks it appropriate, however, to
point out, and doubtless you will agree, that such
proposals or suggestions, regarding matters within the
jurisdiction of this Commission, if made by the
committees recently appointed by you, have B. quite
different status, because of the circumstances under, and
the purposes for, which these committees were appointed;
so that proposals or suggestions from them are not within
that general rule. We have in mind the following:
In your letter you state that the plen of appointing
such committees "was discussed in some detail at the
series of meetings held in Secretary Morgenthau's office
last April when the various departments of the Government,
including the Securities and Exchange Commission and the
Federal Reserve System, outlined actions to be taken in
the event of war.
Regraded Unclassified
33
It 60 happens that there were no representatives of
the SEC present at any such discussions concerning the
appointment of such committees. Secretary Morgenthau
has just sent me a copy of the transcript of the sole
conference at his office at which that subject was
considered. It occurred on April 13 when there were
present only representatives of the Treasury and the
Federal Reserve Board. The transcript shows that there
was then discussed, to quote the words you then used,
"a bankers' committee to which I might go in any hurry,
upon any matter dealing with credit, loans, foreign
exchange, gold, or anything else that the Treasury might
want us to do", and that such a committee should be in
the nature of an "advisory committee". And until receipt
of your letter of September 5, this Commission had never
been informed of that discussion of that subject. It
follows that those committees were not appointed with the
approval or concurrence of the SEC.
Your remarks at the April 13 conference, quoted above,
also show that it was not contemplated that there be
included in the scope of the activities of any such
bankers' committee any suggestions or proposals or other
action concerning matters affecting the "securities
markets", or any other matters within the jurisdiction of
the SEC. excepting insofer as they might come within the
clause 6 anything else that the Treasury might want us to
do." Accordingly, It would seem that, when the Treasury
and the Federal Reserve Board concurred in the suggestion
of the appointment of such a committee they did not
contemplate that such committee would make proposals or
suggestions with regard to matters within our jurisdiction
-- except at the request of the Treasury.
Even more to the point is the fact that the discussion
at the April 13 conference and your letter of September 5
show that those committees were appointed pursuant to those
discussions to act (through your bank, "in its capacity as
fiscal agent of the government") in advising the Treasury.
It is clear, therefore, that the committees are not merely
groups of private citizens formed on their own initiative,
but, with the concurrence of the Treasury and Federal
Reserve Board, are to act in & quasi-governmental capacity
as advisers to the Treasury.
Regraded
Unclassified
-34
Now, as you know, it is a. well settled and proper
practice that, if any department or agency of the federal
government, such as the Treasury, at any time has any
proposals or suggestions regarding the matters within our
jurisdiction, it transmits them to us in confidence and
does not give them any publicity. Inasuruch, therefore,
as the committees which were appointed by you are to act,
through you, as advisers to the Treasury, and as the scope
of their advisory activities, as described by you at the
April 13 conference, was not to include matters within the
jurisdiction of this Commission, except at the request of
the Treasury, the Commission assumes that you will promptly
make the following clear to the committees: (1) Neither
of those committees (nor any subcommittees) should make
proposals or suggestions regarding matters within our
jurisdiction, except at the express request of the
Treasury; (2) if the Treasury should request that either
of those committees make suggestions or proposals as to
matters within our jurisdiction, then (3) the committees
(or subcommittees) will (either directly or through you)
transmit those suggestions or proposals to the Treasury,
in confidence, and without any publicity, leaving it (4)
to the Treasury to transmit those suggestions or proposals
to the SEC in confidence, as the Treasury in its discretion
may see fit, so that no publicity whatever will ever be
given by you or the committees to any such suggestions or
proposals 8.3 to such matters, except with the prior approval
of this Commission.
Sincerely yours,
Jerome B. Frank
JNF:Lmv
Chairman
Regraded Unclassified
COPT
THE WALL STREET JOURNAL
September 9, 1939
REVIEW AND OUTLOCK
Reconciliation Begins?
It should not escape observation that several heads of federal
government departments have very recently invited the counsels
of non-official advisory groups and that among the men selected
for these conference activities are representatives of the producing
industries, the distributive trades and both institutional and
investment banking. The proportions of such members in the
composition of the advisory committees, moreover, are rather
surprisingly large.
This is one phase of the Administration's reaction to the
new conditions which the country must reokon with as a result
of WEE in Europe and it would appear to be & decidedly important
one, If the present selection of gon-official advisors contraste
sharply in respect to experience, attainments and general point of
view with the corresponding advisory recruits of recent years, the
difference may be taken to reflect & new willingness in Administration
quarters to listen to those who have had years of daily contact with
industrial and trade processes, with fluctuating labor relations,
with the needs and preferences of exacting consumers, with all
the intricately related factors that combine to govern the opera-
tion of the business machine.
To say that such 6. reconciliation between "government" and
"business" might long since have taken place does not detract
from its present value to the country M B whole--assuming that
now it has in fact occurred. No doubt that assumption should
be made only tentatively, subject to later verification or dis-
proof. But at the moment it appears that real lines of communi-
cation have been established between private enterprise on the
one hand and Treasury, Agriculture, Mar and Havy Departments on
the other.
This departure from the long familiar Administration atti-
tude toward business leadership gains interest--and perhaps also
gains importance--from the demand now 80 frequently heard in so
many quarters for "a truce to politics." 1 great deal depends,
of course, upon the definition to be given to "s truce" in this
connection. If anyone supposes that a truce here mens a sus-
pension of the critical faculty honestly exercised in Congress
136
or in the press or on the public platform, he is imagining a
vain thing. Such a truce, even if it were possible to bring
about, would do our people no service. No more now than at any
other time can a party in power expect the country supinely to
accept whatever it proposes. On the contrary, the idea of
cooperation for the general welfare which the appointment of
these new advisory bodies implies itself means the complete
freedom of the counselers to bring honest--that is, non-partisan
and unselfish--oriticism to bear upon what government does and
proposes to do. The same freedom, naturally, remains to the
rank and file of citizens.
In this sense a truce to politics can be realized and will
be wholesome to invigorate our economic and political life.
Within the limits here orudely drawn a reconciliation between
government and business can be attained, without sacrifice of
any real reforms accomplished or attempted under the Nov Deal.
1020 086 W 8 es
Ot
OELICE
SECURITIES AND EXCHANGE COMMISSION
SHINGTON.O COMPM SEP N.O.C.S
PENALTY Fee PRIVATE USE TO AVOID
PAYMENT OR OSTAGE $300
WASHINGTON, D.C.
1939
OFFICIAL BUSINESS
RETURN AFTER FIVE DAYS
The Honorable
Henry Morgenthau, Jr.,
CONFIDENTIAL
Secretary of the Treasury.
egrad
PARAHHRASE OF TELEGRAM RECEIVED
_37
FROM: American Embassy, Paris
DATE: September 9, 1 p.m.
NO.: 1872
FOR THE TREASURY.
Section
#.
This morning Professor Charles Rist called
on us. His five sons have now been mobilized. Professor
Rist 18 a member of & small committee which is working
closely with the pertinent British authorities in an effort
to make as tight as pessible the economic blockade of Germany.
That all possible measures be taken to prevent supplies of
any nature useful in war from reaching Germany through neu-
tral ports or otherwise he believes to be of the utmost im-
portance. Once the German General Staff 1a convinced of
the effectiveness of the blockade, there will be 8 much
greater chance of preventing B. long-drawn-out war. The
professor stressed the importance of bottling up the Medi-
terranean entrances at Buez and at Gibraltar; that Italy
should always be assured of sufficient supplies for her own
use, as long as she remains neutral; that such effective con-
trol of the Meditarranean would influence the Balkans with
great moral effect.
BULLITT
EA1M8G
PARAPHRASE OF SECTION TWO OF TELEGRAM NO. 1872, FROM
THE AMERICAN EMBASSY, PARIS, SEPTEMBER 9, 1 p.m.
138
Professor Rist went on to say that, speaking person-
ally and off the record, he felt that we could be of great
practical assistance in preventing supplies reaching
Germany, through neutral ports, from the United States.
However, he said he had no idea as to what detailed pro-
cedure would be required in order to render such assistance.
Itwas his recollections that we had been zealous during the
last war in protecting our ocean commerce destined for Ger-
many ultimately. However, he hoped that with the change in
public opinion in the U.S. over 1914 our attitude toward the
Allies would be more sympathetic; during the World War it
was not until 1917 that the British and French had been able
to choke off supplies destined for Germany, definitely.
He considered it of vital importance that, in this war,
no such delay should occur.
BULLITT
EA:MEG
PARAPHRASE OF SECTION THREE OF TELEGRAM NO. 1872,
_39
FROM THE AMERICAN EMBASSY, PARIS, SEPTEMBER 9, 1 p.m.
Professor Rist thought that the raw material help
which Russia could give Germany vas easily exaggerated.
On the following faots he placed emphasis: there 1a a
serious lack of transport facilities; the distance of
needed raw materials from the Baltic ports 1s great;
there is a lack in Russia of exportable surpluses in some
cases; except in political or territorial cash, Germany is
inable to "pay" for them.
He believes that the potentiality of Italy's entering
the war when Poland 18 defeated and Germany turns west will
depend in large party on whether or not the Mediterranean
is controlled by the Allies. On good authority he vas given
to understand that the Nari leaders had withheld news of
Italy's neutrality from the German Generals until just be-
fore the attach on Poland by Germany.
BULLITT
EA:MSG
140
NC
GRAY
PARIS
Dated September 9, 1939
Rec'd 3:22 p.m.
Secretary of State
Washington
1872, September 9, 1 p.m. (SECTION FOUR)
From the financial point of view hE felt that France
was in shape particularly with respect to
gold reserves. IIE foresaw no early difficulties in
financing :he war through national defense bonds and
short term treasury bills, HE said now that the people
perceived that no moratorium is taking place in happy
contrast to 1914 -- and notwithstanding that immediate
emergency needs have been satisfied monty will flow
back to the banks. France has been called upon to endure
SEVETE tax increases recently and it would be difficult
to raise them substantially further for the moment.
While hE looks for no great pressure on the franc in the
immediate future hE feels that exchange control is
insvitable. WE pointed out that while no form of
control Exists today in effect the reluctance of the Bank
of France to furnish foreign Exchange for appropriate but
carefully scrutinized licensed imports seems to indicate
considerable progress has already been made toward such
control with which statement he readily agreed.
BULLITT
CSB
LAR
GRAY
141
Paris
Dated September 9, 1939
Rec'd 4:00 p.m.
Secretary of State,
Washington.
1872, September 9, 1 p.m. (Section five).
No exchange rates were quoted by the Bank of France
this morning. While the market between banks quotes the
pound from 177.50 to 179.50 and the dollar around 44 there
have been practically no transactions,
Under a decree published in the Journal Official
today the special national tax of two percent on income from
professions of private individuals and companies and
associations decreed in November last (see the Embassy's
despatch No. 3349 of November 23, 1938) will be increased
to 4 percent after January 1 1940. For men between 18 and
49 years old not belonging to & military formation dating
from October 1 next the rate of the same tax is increased
to 15 percent as concerns (A) public and private salaries
and allowances and life annuities and (B) industrial,
commercial and agricultural profite and income from non-
commercial professions earned after October 1, 1939 and
assessable on these men, (End of message).
BECEINED
BULLITT
CSB
2333 11072
THEMTRANJU VRUGAINT
9d) to willo
the et - -
142
NC
GRAY
RIO DE JANEIRO
Dated September 9, 1939
Rec'd 2:50 p.m.
Secretary of State
Washington
317, September 9, 5 p.m.
The expected switch in orders to the United States
is very noticeable. The principal obstacle is the Exchange
of cash in the United States before shipment. This is
further complicated by Brazilian Exchange regulations.
In ViEW of the number of appeals received by the
Embassy from Brazilian importers, the Embassy today
discussed this matter with the Director of Exchange and
obtained an important concession.
Although the banks are permitted to open credits
abroad (my telegram Number 251 of August 17, 1939) they
are reluctant to do so because the Bank of Brazil is not
guaranteeing the delivery of future exchange. The
Director of Exchange now assures me that the bank will
close future Exchange for credits opened in the United
States for the purchase of Essential products. This
action will facilitate purchases of steel products,
chemicals, pulp, et cetera formerly imported from
European countries. Each CASE will be decided upon its
own merits.
The
143
NC -2- #317 from Rio de Janeiro, September 9, 1939
The bank has also resumed the sale of future
Exchange for payment of merchandise cleared through
Brazilian customhouses,
CONFIDENTIAL. The Exchange balance of the bank
now approximates $7,200,000. The bank continues to fix
the buying and selling rates for dollars at milreis
19,830 and milreis 19.980 respectively. Exchange
operations are normal.
CAFFERY
PEG
43211338
BEEF
VIRGININT
sill
8
PARAPHRASE OF TELEGRAM RECEIVED
144
FROM: American Embasey, Berlin
DATE: September 9, 9 a.m.
NO.: 1158
60, CONFIDENTIAL FOR TREASURY FROM HEATH.
I was informed today by Puhl, the active head of the
Reichsbank, that the Reichsbank was endeavoring to conclude
a now standstill agreement with the neutral countries of
Switzerland, Holland, Belgium and the United States along
the lines of the old standstill arrangement, in the long-
term interest of Germany and of the short-term creditors
thomselves. Furthermore, interested Swiss bankers had al-
ready accepted in principle and it was expected that the
Dutoh would aot accordingly. Pahl was uncertain as to the
attitude of the creditors in Belgium. Neither had he had
formal acceptance from the American Standstill Committee;
the Committee had merely wired that it was giving sympathetic
study to the proposal; however, he mentioned confidentially
that the National City Bank vas willing to enter into a new
standstill arrangement either with the other American banks
or alone.
Puhl said he could understand the action of the American
banks in joining the British in denunciation of the standstill
agreement but he regretted it. Without apparent rancor, be
mentioned the fact that various American banks, including
the Bank of Manhattan, had, following the denunciation,
brought
-2-
_45
brought suit to impound not only German private banks'
and gold Discount Bank funds in the United States and
Amsterdam, but funds of the Reichsbank. However, he 1n-
sisted that the latter institution was neither a debtor
nor a guarantor under the standstill agreement.
The best thing he could do at the present time,
Puhl said, was to refrain from going to Bawel to attend
the B.I.B. mestings.
There are a tremendous number of problems confront-
ing the Reichsband, he added; however, he did not vouch-
safe plans or details. Regarding Government finance, be
remarked that the Government would gradually cease 1esu-
ance of the tax anticipation certificates of the new f1-
nance plan of last spring. The Reichsbank had always op-
posed this plan not only on grounds of their expense but
more especially because the class 2 certificates presented
distinct dangers of inflation, being legal tender for cer-
tain payments. Puhl anticipates that the Government will
meet its needs in 80 far as they are not covered by the
increase of taxation by the issuance of short-term Treasury
paper and "normal" loans.
KIRK
EA:MSG
COPY
146
LONDON
Dated September 9, 1939.
Rec'd. 9:50 a.m.
Secretary of State,
Washington.
1557, September 9, 3 p.m.
Embassy's 1279, August 27, 8 p.m.; 1344, September 1,
1 p.m., paragraph two; 1487, September 6, 8 P m.
The Embassy has received a number of letters of inquiry
on this subject from Americans living in England. The
majority of them are dual nationality cases: American women
who have retained their American citizenship but who
have married British subjects and have lived here for some
time; others come from Americans who have been residing in
England for several years or more.
Please instruct as to the forms of reply to be made.
Incidentally, the various British financial measures
have been informally discussed with the British Treasury
from time to time. Individual cases of hardship in the
administration of the foreign exchange provisions have been
effected and the British Treasury has indicated that it is
now considering what can be done in such cases as those
mentioned in telegram No. 1344, September 1, 1 p.m.
KENNEDY.
Regraded Unclassified
22(f)
FEDERAL RESERVE BANK
OF NEW YORK
47
OFFICE CORRESPONDENCE
DATE September 9, 1929
CONFIDENTIAL FILES
SUBJECT:
TELEPHONE CONVERSATION WITH
L. W, Knoke
BANK OF FRANCE.
I called Mr. Cariguel at 11:50 today to inform him
that there were two best selling orders in the market for 8 total
of 11,000,000 francs and both coming from China. I also mentioned
that ne had received no cable from him today on gold or exchange
transactions.
Cariguel asked me to hold on for a moment and after
conferring with somebody else, stated that they were unwilling
to tske in the offered francs. The whole question of the franc
exchange was being discussed now and that was also the reason why
he had not cabled us today. He expected, he said, to be ready to
talk to me on the telephone again on Monday.
I emphesized thet my telephone call had been made only
for the purpose of keeping him posted as to what was going on here.
I made the request that he give the necessary instructions
that there be msiled to us by the quickest available route, three
copies of the official texts of all laws, decrees, regulations,
etc., published in France since September 1 or to be published
hereafter, dealing =1th financial and commercial watters. We were
beleaguered here with incuiries and not in a position to answer
them intelligently without the above. Cariguel promised that he
will see to it that my request was complied with.
LWX1KW
Regraded Unclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
148
DATE September 9, 1939
TO
Secretary Morgenthau
FROM
W, H. Hadley
Treasury Share of Recent Market Purchases
From August 31 through September 9, inclusive, various Treasury
accounts have taken a total of $50,207,950 out of a total of $379 million
purchased in the market by the Federal Reserve Bank, The break-down of
the Treasury's share by investment accounts is shown below. With the
exception of purchases for the HOLC, the Treasury took only the four
longest bonds.
Accounts
Purchases
Govt. Life Insurance Fund
$ 28,345,000
Postal Savings
10,945,000
Alien Property Bureau
2,400,000
Mutual Mortgage Ins.
1,825,000
D. c. Tenchers
107,000
Treasury Bonds Purchased
$ 43,622,000
H. O. L. C. Retirement Fund
$ 6,585,950
*
$ 50,207,950
4 Issues under par.
7
NC
149
GRAY
PARIS
Dated September 10, 1939
Rec'd 2:45 p.m.
Secretary of State
Washington
RUSH
1894, September 10, 4 p.m.
FOR THE TREASURY.
Our telegram Number 1492 September 10, 2 p.m.
The Finance Ministry tells us that the rotes to bE
Established tomorrow have not yet been finally determined
but that the pound (sterling) will bE quoted at around
176 and the dollar between 43.50 and 44.
The Exchange control measures are being published
under five headings. The first of these is a law
"prohibiting or regulating in time of war the export of
capital, foreign exchange operations and transactions in
gold". It consists of five fairly brief articles.
"Expert of capital under any form is prohibited unless
authorized by the Minister of Finance or by an authority
delegated by it". Exchange operations thus authorized
must bE handled through the Bank of France and/or banks or
Exchange brokers specifically approved by the Minister of
Finance. The purchase sale of, or transfer of foreign
securities and other foreign stock or foreign securities
may be subjected by decree to the same regulation.
"All cessions, negotiations and other operations relating
to
NC -2- #1894 from Paris, September 10, 1939
150
to gold will require the authorization of the Bank of
France". "Import and export of gold in any form is
prohibited unless authorized by the Bank of France." "
Infractions of the law and pertinent decrees are punishable
by fines ranging from one hundred to one hundred thousand
francs and imprisonment of from one to six months. Repeat-
Ed infractions are punishable by imprisonment up to
five years, (EN) SECTION ONE)
BULLITT
CSB
MECFIA
I
AMJU YHU2A3NT
mit by -
-
LAR
GRAY
151
Paris
Dated September 10, 1939
Rec'd 5:51 p.m.
Secretary of State,
Washington.
RUSH.
1894, September 10, 4 p.m. (SECTION TWO).
The second measure 18 a decree implementing the
foregoing. It defines export of capital as follows: (a)
the acquisition of movable or immovable property and rights
situated abroad or expressed in foreign currencies; (b)
leaving outside of French territory or holding in foreign
currencies all or part of the proceeds of exports or
payment for services rendered abrond as well as all or
part of all proceeds or revenue cashed abroad; (c) export
of all securities, rights, credit and ownership certi-
ficntes and (d) when Effected otherwise than under condi-
tions determined by present decree Exchange operations
carried out in France or by physical persons residing in
France and French or foreign moral persons for their
French establishments.
Physical persons of foreign nationality not residing
in France as WEll as foreign mural persons for their
Establishments situated outside France may bE authorized
to transfer the cash, securities, or property possessed by
them in France or the Equivalent thereof if proof is
furnished
LAR-2, 1894, September 10, 4 p.m. (Section twc) from Paris,
furnished that they belonged to them on the date of the
152
promulgation of the law.
"The same persons may be authorized to transfer
cash, property, or securities subsequently acquired wi th
foreign funds as WELL as the constituted cash and securities
or property acquired with revenue from any property or
securities pussessed in France".
The physical persons of French nationality nut
residing in France as well as French moral persons for
their firms situated outside of French territory may also
benefit by the Autherizations indicated in the two preced-
ing paragraphs.
The foreign Exchange office referred to bElow is
authorized to acquire all foreign currencies and credits.
The foreign Exchange office is authorized to deliver
foreign currencies (une) for payment of merchandise
imported into France under conditions to be laid down (two)
artain
for payment of debts (three) for EXDENSES of foreign
travel within certain limits.
All persons leaving France must prove that they are
not carrying any cash, notes, securities, Et cetera, the
exportation of which is prohibited ns indicated above.
HOWEVER such persons may carry checks or letters of credit
or ther similar document as well as French or foreign
(1)
bank or cash no tes/in the CASE of persons no t resident in
France up to the amount which they held when entering
France
153
LAR-3, 1894, September 10, 4 pame, (Section two) from Paris
France. As concerns persons finding themselves on French
territory on the date of the present decree transitory
(2)
measures will bE taken;/as concerns persons living in
France, upon representation f their visaed passport, a
maximum of five the usand francs may bE authorized. This
amount may be increased in ONSE of nn Extended residence
but is n. t to EXCEED ten thousand francs per me nth of
foreign residence, A decision by the Minister of Finance
is necessary for larger am unts.
The 1mo rtation f French bankne tes may be regulated
by decisi P the Minister of Pinance.
On entering French territ. ry all persons must declare
onsh, no tes, securities carried.
The issue of money orders, transfers and all postal
for the
or telegruphic money items, French oolonies, protectorates
and territ ry under mandate and foreign countries, is
subordinate to the authorization of the foreign exchange
office in question and within the limits get forth above.
All registered packages for French colonies, pro-
tectorates and territory under French mandate and foreign
countries must bE presented open to the postal authorities
and closed in their presence after verification.
The delivery of authorizations for the export of
capital under the provisions if the DEW law summarized
in Secti n ne of the Minister of Finance in accordance
with the Dr. visions of the present decree by a foreign
exchange
154
LAR-4, 1894, September 10, 4 p.m., (Section two) from Paris.
Exchange ffice administered by the Bank of France for
the account of and under the nsibility of the state,
The Exchange operations referred to in the law
"include all operations of purchase, sale, cession,
transfer and collection : f foreign currencies, at a loss
in foreign currencies and foreign sight or short term
credits, n. tably ocins - Excluding gold coins, which are
subject to the above mentioned provisions of the law
relating to gold - fortign bank no tes, checks, drafts,
bills if exchangs, coupons, interest, subscription rights,
Et cetera. These aperations may only bE handled thr ugh
the foreign Exchange office or banking establishments and
exchange brokers specially authorized by the Minister of
Finance. These must keep and present to the authorities
full and detailed records of their Paily Exchange opera-
tions on f. rms provided. They like all other physical or
m.ral DETS ns engaged in any surt wf banking operations or
commercial transactions with foreign countries are
required to shw their accounts to inspectors of the
Ministry if Finance.
Gold covered by the law is defined in this decree
as mi ney, bars, ingets, plaques /I' that employed in
industrial uses of any variety. Approval of the Bank of
France is required for all purchases or sales in France
or abroad B. 1d deposit obtaining in France or abroad
contracts with ES' 1d security wherever held or whatever
the
155
LAR-5, 1894, September 10, 4 p.m. (Section two) from Paris.
the operations for which it is stablished. The provisions
of the law are applicable to all operations carried out in
France or by physical persons residing in France and
French and foreign moral persons acting on behalf of their
establishments in France. (END SECTION TWO).
BULLITT
HBD
156
LAR
Paris
Part of this message must
be closely paraphrased bE-
Dated September 10, 1939
fore being communicated
to anyone. (c)
Rec'd 7:44 p.m.
Secretary of State,
Washington.
RUSH
1894, September 10, 4 p.m. (SECTION THREE).
(GRAY) FOR THE TREASURY.
The third measure is an arrete defining prohibited
and permitted operations and terms. Thereunder there
are prohibited and without possibility of Exception"
the following operations: (a) 301E are production I/f
foreign Exchange by there than the reign Exchange ffice
regardless whether these operations are carried out in
France ur abroad; (b) operations in foreign Exchange or
transfer between France and its everseas territories
unless Effected thr urh the intermediary of the banks of
issue of these territ ries by the nocepted intermediaries
either by Craft checks, postal m ney rders, or telegraph.
Special authority in each CASE must bE obtained to acquire
property abroad if the seller is n fortigner. Special
permission is likewise required for the holding beyond a
specified period (.f foreign Exchange derived from mer-
chandise exports or in payment of SERVICES rendered abroad.
Included am ng the operations which are permitted upon
verification with ut special authority are: (a) "the
purchase of foreign currencies by the ffice of foreign
exchange
157
LAR-2, 1894, September 10, 4 p.m. from Paris (SECTION THREE)
Exchange for the payment of fortign merchandise imported
into Prance" the conditions under which "permits are
requested and the proof furnished are set forth in
decree regulating imports and export. (b) "Purchase
of foreign currencies by the office of foreign Exchange
for the payment (f all debts abroad if the debt derives
from undertakings or facts of any nature prior to" the
present date LT "if a general auth: rization has been
granted by the foreign Exchange office at the moment when
the Rebt is contracted." The applications are to bE
presented for each peration to the ffice of foreign
Exchange on a specified form to which are to bE attached
the necessary proofs.
"(E) Acquisition of property abroad negotiated in
France on condition that the seller is C: nsidered to bE
French. The purchaser and the intermediary or inter-
mediaries must justify to the satisfaction of the com-
DETENT auth rities that the seller is 2 person considered
French r that the purchase (1f securities are in question)
has been carried in the Bourse". (f) The purchase of
pre perty clandestingly abroad under the category of TE-
investment". The purchaser must prove to the satisfection
of the mpetent auth rities that the operation con-
stitutes reinvestment of property abroad which belonged
to him prior to the present date. (g) The sale in
France of foreign securities. Pr. of must be furnished by
the
58
LAR-3, 1894, September 10, 4 p.m. from Paris (SECTION THREE)
the seller to the Exchange broker prior to the sale that
hE is a person considered to bE French".
The f. urth measure is an arrate relating to "inter-
mediaries in Exchange operations namEly banking Establish-
ments and Exchange brokers specially authorized by the
Minister of Finance. It stipulates n tably that clients
may ntinue to PEal with their usual bank whether or not
approved by the Minister but that all Exchange operations
must bE presented to the exchange office by an auth rized
bank. Detaile' instructions are Given relating to informa-
tion to be require from clients, records that must be
kept \f transactic na, Et cetera.
The fifth measure is an arrete with respect to
customs supervision. It provides that upon leaving
French territory all persons must declare means of payment,
securities and "Documents of &wnership or of credit"
Et. cetera carried.
Persons of whatever nati, nality residing habitually
in France may not take with them means of payment, securi-
ties and "ds cuments of (wnership L.T. of credit" unless
they possess a special outh. risation from m the foreign
exchange ffice.
Except ::8 provided in transitory previsions and
unless provided with special auth rization of the exchange
office pers.ns who habitually reside (utside 1-1 France
may
159
LAR-4, 1894, September 10, 4 p.m. fre Paris (SECTION THREE)
may take ut of France only "means (.f payment" for an
am unt n t greater than the "means of payment" which they
can prove to have brought into France. They may not
carry out securities or "di cuments of .wnership ur of
credit" unless specially auth rized by the exchange
office.
Temporarily persons (f whatever nationality habitu-
ally residing abroad finding themselves on French territory
at present date may carry out without proof "menns of pay-
ment" up to an am unt not EXCEEDING 5000 francs. If they
can Drove that they possessed"means of payment" in French
territ ry in EXCESS of 5000 francs at this date they may
bE auth rized to carry out "means if payment" for the
amount thus proved within this time limit which may not
EXCEED 31x m. nths dating from the time limit of their
arrival in France.
Declarations must be made that they di. not carry gold
in any f:rm (ing ts, bars and c. ins). Any import or
Export of & le and any attempt to import or Export without
the authrization of the Bank of France will give rise
to the sanctions provided for in the law one to seizure of
a * 1238
the MIC,
1333
The full text Lf these measures and accompanying
cap
f.rms will 3. forward by the next pouch. (END GRAY).
YHU2A38T
nerve my
160
- 5 -
We are told by Couve de Murville that no steps are
being taken just now with regard to the requisition of
foreign property owned by French nationals.
END OF MESSAGE.
BULLITT.
EA:LWW
181
NC
GRAY
PARIS
Dated September 10, 1939
Rec'd 11 a.m.
Secretary of State
Washington
RUSH
1892, September 10, 2 p.m. (SECTION ONE)
FOR THE TREASURY,
ThE French Government last evening approved a law
and accompanying decrees prohibiting the export of capital
and setting up a complete system of Exchange control under
the supervision of the Bank of France. WE shall cable a
full summary of this legislation this afternoon. WE WETE
called to the Finance Ministry this noon and handed a
message for the Secretary (which WE have just read to him
on the telephone) from Paul Reynaud, Minister of Finance.
That message which is dated September 10 reads as follows
in translation:
(END SECTION ONE).
BULLITT
KLP
AC
GRAY
162
Paris
Dated September 10, 1939
Rec'd 11:05 a.m.
Secretary of State
Washington
RUSH
1892, September 10, 2 p.m. (SECTION TWO).
"Taking advantage of the week-end and in conformity
with the plan established, the Franch Government is pro-
mulgating today, September 10, 1939, legislation setting
up a system of exchange control In France and in French
territories overseas. This measure imposed by the war
la motivated by the need to devote in the future all
resources of the country to the financing of its defense.
The French Government remembers with deep apprecia-
tion that the Government of the United States has kindly
assured it of its friendly collaboration in connection
with the application of the regime which has just been
established."
BULLITT
KLP
163
NC
GRAY
PARIS
Dated September 10, 1939
Rec'd 11:10 a.m.
Secretary of State
Washington
RUSH
1892, September 10, 2 p.m. (SECTION THREE)
WE also SRW Rueff who has just been named Under
Governor of the Bank of France. HE told us that this
appointment which may bE temporary is to enable him to
devote his entire time to setting un the mechanism for
putting into operation the Exchange control measures.
His place at the Finance Ministry for the time being will
bE taken by Boutillier. Couve de Murville at his own
request will bE mobilized on the first of October.
(END MESSAGE)
BULLITT
KLP
POTIVE
OF SUAVICE
WESTERN
1201
SYMBOLS
full-ture
DL=Day Letter
of Cables
Cram with as de-
and Deractor il in-
UNION
HL=Hight Lenes
(22)
LC- Deferred Cable
unded by a tenable
sember above (if pre-
NLT-Cable Night Letter
refund the address-
A. e. WHITE
NEWCOMB CARLTON
J.C. WILLEVER
PRESIDENT
CHAIRNAN OF THE BOARD
FIRST VICE-PRESIDEN)
Ship Rediepram
Time shive in the date line on telegrame and day letters in STANDARD TIME et point of origin, Time el reveipt le STAM AD TIME at point of destination
HA116 9= 9=TDWD BEACON NY 10 756A
100% SEP 10 AM 8 26
Il KLOTZ=
164
TREASURY DEPT WASHDC=
WASHINGTON MONDAY MORNING WITH THE BOSS BEST REGARDS=
MAY MORGANTHAU JR.
Leas beyes
Na6400
to
ALSE
home als
PI
853A
To
AM
850A NA 6400 ADSE LIVES WES CHESTER PI
851A RI NUMBER we 9658
THE COMPANY WILL APPRECIATE SUGGESTIONS FROM ITS PATRONS CONCERNING ITS SERVICE
Regraded Unclassified
WESTERN UNION
TELEGRAM sorry idea 9 opened by
Regraded Unclassified
185
CJ
GRAY
PARIS
Dated September 10, 1939
REC'd 7:05 p.m.
Secretary of State,
Washington.
1886, September 10, 10 p.m.
FOR THE TREASURY.
WE have just listened to the brief end stirring
appeal broadcast by Reynaud. The following summary is
based on our bastily scribbled notes.
The war he said will be won by the side which pro-
duots the most and consumes the least. All must work to
produce the utmost - no slackers. But in spite of all
efforts production will inevitably and materially de-
Crease, Therefor the counterpart is the reduction of
consumption to a minimum. There must bE no needless
waste to add to the terrible waste of war, Foreign
imports must bE confined to war necessities. Every ounce
of France's gold must be preserved for necessary war
purchases abroad. Nor can there bE any exports which
will hElp the enemy.
(END OF SECTION ONE).
BULLITT
EMB
LAR
GRAY
166
Paris
Dated September 10, 1939
REC'd 7:10 p.m.
Secretary of State,
Washington.
1898, September 10, 10 Dalla (SECTION TWO).
Steps have been taken ti prevent war profits going
int the 1) ckets of arms manufacturers 10 happened Curing
the last war; the salaried Employee has had tuxes
coubled; the workman in munitions factories hns now to
bear his share.
The next step is exchange control which was decreed
by the G+ vernment and signed by President Lebrun last
night. France has had ten months of a sound liberal
EO, my which has br ught massive returns t.f capital.
But while liberty in pence and after the victory is a
sound country's strength, it W uld mean weakness in war.
No speculation against the country's currency can bE per-
mitted. The measures which have now been premulgated have
long been prepared - for WEll over three nths. Today the
Aussier was opened ne all that was necessary was the
despatch of telegrams thre ugh ut the untry outting these
measures into immediate Effect
BULLITT
EMB
Regraded Unclassified
167
LAR
GRAY
Paris
Dated September 10, 1939
Rec'd 7:30 p.m.
Secretary of State,
Washington,
1898, September 10, 10 p.m. (SECTION THREE).
They mean, said Reynnud, that the private individual canno t
buy foreign Exchange for which the Bank of France has
been given n. mune poly. The OL unterpart is the rigidly
Established centrol of internal prices. No spsculation
1a n.w permitted on foreign Exchange and none is permitted
en internal prices. The & untry's savings will go into
armoment bunds and Treasury notes and with these the war
will be financed.
In C nclusion he brought a message of hope and
offered his complete confidence in victory. November 11,
1918 had clearly proved French superiority and that
superi rity was greater today. "WE shall win because WE
are the strangest". (END OF MESSAGE).
BULLITT
ROW
MECEINED
2332 11572
THENTRAM30 YHU2A3MT
sitt to -20
- <d # -
B1210
TREASURY department
PROCUREMENT DIVISION
168
OFFICE OF THE DIRECTOR
WASHINGTON
September 11, 1939
MEMORANDUM FOR MISS CHAUNCEY
The attached is in compliance with your telephonic request
of this afternoon.
Director of Procurement
(Rent taPres. 9/14/29)
see other transmettal
COPY
EC9
TREASURY DEPARTMENT
Procurement Division
Washington
fice of the Director
September 11, 1939
MEMORANDUM FOR THE SECRETARY
In the memorandum pertaining to quinine it W&S indicated
that the Netherland East Indies produced between 95% and
97% of the cinchons bark used in world trade.
The remaining 3% to 5% of cinchona bark available is
inclusive of that produced in Peru which is of a relatively
small quantity and of a very low grade, so low in fact, as
to probably place it beyond competition with the cinchona
bark and quinine sulphate manufactured by the Netherlands.
For this reason Peru was not mentioned as a source of supply
in the memorandum previously submitted on quinine.
It was understood from Mr. Mercke of Mercke and Company at
B conference at which he Was present that his company is
experimentally cultivating trees for the production of
cinchone bark in Gustemala but that it will be from five
to seven years before any production therefrom can be had
or the success or failure of this experiment determined.
(Signed) H. I. Collins
Director of Procurement
170
RE PROPOSED STATEMENT TO PRESS
September 11, 1939,
CONCERNING FRENCH MONETARY POLICY
9:00 E.M.
Present:
Mr. Hanes
Mr. White
Mr. Foley
Mr. Cochrane
Mr. Bailie
Mrs Klotz
H.M.Jr:
I will dictate this for the record. Saturday, on
talking to Cochrane, I learned that the French
for the first time had given us a price on gold.
Then I asked him and he told me that knowing I
had talked to the Bank of France and they told
him
Cochrane:
We had a meeting the night before and preferred
to send no data about a certain matter being
discussed.
B.M.Jr:
Then I called up the President Saturday at 7:00
o'clock and talked to him and told him the French
had given us a rate, and he said, "Well, give out
a statement on Monday showing that you are still
in existence, that you are still doing business
with Holland, Belgium and Switzerland," and he sald,
"Make it look as good as possible." I said, "Don't
give the Germans anything to hang their hat on,"
and he said, "That 1s right."
Then Sunday I called Bullitt and asked him if he
had heard anything and he said that he wanted to see
the men of the French Treasury and as soon as he came
back he wanted to call me, and he did. He said he
had all the regulations.
I spoke to Knoke again by appointment at B quarter
of one on Saturday and asked to have a document
ready for us this morning to take a look at. That
is my story, now. Have you got the document?
White:
Yes, we called Ed last night to help.
E.M.Jr:
Where is it?
Foley:
You (Mr. White) have got it.
171
- 2 -
White:
I haven't the original.
Poley:
I haven't the original, either.
Cochrane:
Here 18 the original.
White:
There 1s an alternative draft.
H.M.Jr:
Shall I read this out loud for the benefit of those
who haven't - I am reading this one?
Cochrane:
That is right.
E.M.Jr:
"The Secretary of the Treasury thanks the Minister
of Finance for his communication in regard to legis-
lation for setting up a system of exchange control
in France and in French territories overseas, and
has pleasure in providing herewith the text of a
statement which he is releasing to the press today:
'This Government was advised by the Minister of
Finance of France of the plan for setting up a
system of exchange control in France and in French
territories overseas,
"We recognize that the exigencies of war require
that French resources be safeguarded for the national
defense and the need under such circumstances for
exchange controls to promote stability of exchange
rates.
'We are satisfied that the monetary steps taken by
France in the present emergency are not motivated
by & desire to obtain an unreasonable competitive
exchange advantage. We sincerely hope that the
Tripartite Accord may continue to provide a satis-
factory basis of monetary cooperation in war times
as in peace and provide, with the cessation of
war conditions, the means for reexamination of
currency relationships.'"
I would say at first it looks very good. Who has
had e chance to chew on this?
White:
Nobody has except Jack looked at it for A minute,
but nobody else has had 1t. There are a couple
of points before they go in with that, that we
would like to raise for their consideration. One
172
- 3 -
is, that Bernstein has the feeling that possibly
it may not be a matter of desired policy at this
stage of the game for you to make 8 statement which
has the implication and the connotation of a pretty
strong cooperation with France and England, this
being the first time the statement would be made
since the war started, and 1t is contained in the
last sentence, and therefore we have a more innocuous
last sentence as an alternative.
E.G.Jr:
What is the last sentence?
White:
The last sentence 18, "We sincerely hope that the
Tripartite Accord may continue to provide & satis-
factory basis in war times as in peace."
E.E.Jr:
I see. This is the alternative?
White:
That is the alternative.
R.K.Jr:
I will tell you what I will do. I will call
Mr. Hull's office and ask him to send Herbert Feis
over here, see, and then you people go into B. huddle.
You needn't bother with my 9:30 meeting which is
straight Treasury B tuff, and you can chew it over.
When you have got something that looks good, come
back and Johnny and I will take a look at it.
Hanes:
He 18 coming at 11:00 o'clock.
H.M.J.:
I want to read it before I release it to Bill Bullitt
and let him take it over to the Minister of Finance
in France and let him see it.
White:
There 18 nothing said here of Holland and of Belgium,
but it is pretty difficult.
H.M.Jr:
I'm not going into fine shadations. That is the
advantage of having you people here. If you fellows
can get together and give us something, why then
bring it in and we will take & look at it. I don't
know whether you want to sit with them or not. I
don't.
Senes:
I don't think SO,
173
- 4 -
H.M.Jr:
I would much rather you would stay with the nine
thirty and do the regular Treasury business.
Hanes:
I would rather do that.
H.M.Jr:
Let in? me just get hold of - what room will you meet
Bailie:
Probably 296 because there 1s a big table there with
plenty of seats around it.
H.M.Jr:
Is this the way you gentlemen would like to work?
Bailie:
I think we can discuss that later after we see how
this one works out.
H.M.Jr:
That is a good example.
Bailie:
wait? Could we go out now to 296, or do you want us to
H.M.Jr:
No, you can go out now and then the minute you people
are ready to see me, would you let Mrs. Klotz know?
You (Mr. Foley) stay on the regular meeting.
Foley:
And Bernstein will go with them.
Orig
order to be endorsed
PULESTON -
read by Secretary of
6:6
the
NAVY DEPARTMENT
BUREAU OF NAVIGATION
WASHINGTON, D.C.
1366
1
939
The Chief of the Bureau of Navigation.
Captain
William D. Puleston, U.S.N. (Ret.),
2434 Belmont Road,
Washington, D. C.
be
Seet: t: To duty - Treasury Department.
1. You will report to the Secretary of the Treasury,
Department, Washington, D. C., for such duty 88 may
:
unwigned you.
8. The Secretary of the Navy has determined that this
employment on shore duty is required by the public interests.
3. The above assignment is subject to your consent.
this date.
Treasury Department, Washington, D.C.., 11 Sep 1939
Secretary of the Treasury
to:
retary of the Treasury,
reasury Dept.,
Washington, D. C.
Regraded Unclassified
175
m
THE COMMANDANT OF THE UNITED STATES COAST GUARD
WASHINGTON
11 September 1939.
MEMORANDUM FOR - The Secretary of the Treasury
With reference to our telephone conversation
the other day, regarding reports of movements of Merchant
ships by lightships, upon further study I have cancelled
the instructions to lightships to report such movements.
It is obvious that such reports would seriously endanger
Merchant ships of belligerent nations by disclosing
their location to enemy warships (including submarines)
and, even if such reports were made in code, such danger
would not be eliminated.
Also, neutral shipping suspected of carrying
contraband of war might likewise be endangered by radio
reports.
We have instructed our District Commanders to
keep current information regarding the location of all
Merchant shipping by getting reports from Coast Guard
Stations and Light Stations along the coast, by telephone
or means other than radio, and by contacting shipping
offices, Custom Houses, etc.
Please advise me if this meets with your approval.
R. R. WAESCHE
Rear Admiral, U.S. Coast Guard,
Commandant.
THE SECRETARY OF STATE
pre
15-9-7-39 a-
176
WASHINGTON
September 11, 1939.
My dear Mr. Secretary:
I have received your letter of September eleventh
and hasten to reply that, having seen Ambassador
Kennedy's telegram No. 1500, addressed to the Sec-
retary of the Treasury, I cabled him that, by instruc-
tion of the President, on September fifth I told the
British and French Ambassadors that the proposal in
question was to be considered by the British and French
Governments as not having been made.
Sincerely yours,
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
-77
RE PROPOSED STATEMENT TO PRESS
September 11, 1939.
CONCERNING FRENCH MONETARY POLICY
11:15 s.m.
Present:
Mr. Bailie
Mr. Viner
Mr. White
Mr. Bernatein
Mr. Duffield
Mr. Riefler
Mr. Lochhead
Swille:
There 1a one thing that bothers us in the communica-
tion that the French sent us, one paragraph. "The
French Government remembers with deep appreciation
that the Government of the United States has kindly
assured us of its friendly cooperation in connection
with the application of the regime which has just
been established."
Now, we feel that that 1s EL dangerous paragraph from
your point of view.
E.M.Jr:
Read it again, please.
Sailie:
"The French Government remembers with deop appreciation
that the Government of the United States has kindly
assured us of its friendly cooperation in connection
with the application of the regime which has just
been established."
That undoubtedly refers to the conversation of
several months ago, but in the context which appears,
it looks as if the United States had been working
with France to work out their war problem on exchange
and we feared the effect that might have on Holland
and Belgium and Switzerland. It might make them
feel that this thing was an un-neutral thing, which
18 the last thing we want them to think, so that
our first suggestion is that by & telephone message
we say to Mr. Bullitt that that paragraph be gotten
out of any material that the French Government
releases in this connection. Of course, if they
didn't release anything, we'd like it best of all,
but if they do want to release things, and I under-
stand from Mr. Cochrane that they are rather
accustomed to doing so, we don't want that para-
graph in it.
Regraded Unclassified
178
- 2 -
Now, our second point is that
S.M.Jr:
Leroy-Beaulieu 1s outside. Couldn't he do it?
Bailie:
Very possibly 30. You will know the best way.
H.M.Jr:
What do you think?
Cochrane:
If you were going to phone him
H.M.Jr:
I am not. I want to save my time.
Cochrane:
We can get him to do it.
S.M.Jr:
Wouldn't that save my time?
Cochrane:
Sure, let him phone any message.
S.M.Jr:
Sure, that just saves my sitting here for two
hours trying to get hold of Bullitt.
Bailie:
The second point we want to make is we think
that short form of statement will cause an
isolationist to have less material to talk & bout
than he would if we came out and said, "We are
trying to help France win the war by helping out
through this agreement."
Now, our third point is that so far as France 18
concerned, why, we know she has to do this and
we think what she has done is entirely reasonable,
but we don't particularly want to congratulate
her on putting in exchange control because we
don't think the Tripartite Agreement was made 88
a background for exchange control to operate.
It is just one of the misfortunes of war that it
has to be and the result is a rather colorless
statement, but we think it is friendly.
I think everyone thought that each one was done
a little bit different and I think Harry has a
little feeling that there isn't much punch left
in it, but the rest of us felt that the dangers
from the punch were too great.
White:
I think on the whole one can afford to be cautious
at this stage of the game and say less than what
you might think.
179
- 3 -
H.M.Jri
That is what the President has told me on two
different occasions, He says he has used more
weasel words in the last two weeks than in the
last seven years. I think we can all use weasel
words at the present time.
White:
We can increase the strength later.
Bailie:
We used rather short language in talking to the
British the day after they did their business and
we would like to be wholesome to the French.
H.M.Jr:
It 1s all right with me.
White:
I think in asking the French not to make public
that statement, it had better be made clear to
them that the reason why is that the public may
read into it something other because we don't
want to deny the position we have taken with
respect to that.
H.M.Jr:
I told Leroy-Beaulieu that you fellows would like
to handle him from the first of October. He 1s
your baby. I think if you just tell him this and
give him a copy of this thing and then I think
Bullitt can see that a copy - then see that a
copy of this be sent immediately on the wire to
Bullitt,
Viner:
And that he also be told about this request so
that he knows about it, because they may ask
him on the other side.
11.11.Jr:
I don't think 30.
Deilier
You instructed us, Mr. Secretary, on how to handle
the State Department in this connection because
Mr. Feis wants to be notified at once.
H.M.Jr:
I think so that we get this thing on this sort of
thing from now on, Cochrane will get these messages
to Feis and get them over there. He 18 the logical
person to do 1t. Bullitt should have a cable.
Viner:
Let the State Department decide that, I suppose,
as to what they will tell Bullitt. Fels knows about
it. That is all that 1s necessary. Feis should
know that we are going to talk to the
180
- 4 -
Dailie:
Feis knows that we do not wish to have in cable
or written form our request to change their
records.
E.H.Jr:
I don't want that. I think it should be word of
mouth. I don't want it in the record that we
say to Bullitt to say so and so, I don't think
it is nice.
White:
I would like to raise the question whether it is
necessary even to mention it.
Failie:
Here is a rather polite phrase, for instance, "We
transmit your message," which is the same as it
was in the previous one.
E.M.Jr:
That 18 right.
Riefler:
What about notifying the other members?
Sailie:
We would normally like to tell the other members
what we have done, so we would like to do that.
H.M.Jr:
I don't want it put in the record that I don't
want the French to say publicly that we have been
recommending for over B. year that they should put
on exchange control. I don't see any sense in that.
Leroy-Beaulieu will do that. He is 8. good fellow.
Just so it is orderly. I mean 11 Cochrane will
talk to Leroy. Feis says they are leaving Friday
from Panama. He has got to have an answer on
this thing.
Bailie:
We are meeting right after lunch.
E.M.Jr:
The earliest I could do would be tomorrow morning.
Shall we say 10:30? Will you tell Cochrane?
Bailie:
Yes.
Shall we say 2:30 in 296 or if we move downstairs
wherever we can have B. meeting room?
E.M.Jr:
That isn't rushing you too much?
Viner:
No, we have to start on that.
H.M.Jr:
But you will tell Cochrane? You know about it,
Harry?
181
S I ,
White:
Yes, I know about it.
E.M.Jr:
Does Cochran fit in on that or not?
Bailie:
Yes.
H.M.Jr:
I am going to forget about this and you will see
that Duffield has something for me at 4:00 o'clock
to give the press.
Bailie:
Yes,
White:
Just one point. The increasing volume of trans-
actions by foreigners being made under domestic
trusteeship and the Federal Reserve Dank is going
to ask their various member banks for B little
more information. I am just letting you know in
case you get some repercussion on it.
H.M.Jr:
What is happening which I haven't been able to
get to the bottom of yet, I don't understand
the significance, but they are meeting in Hanes's
office now - Hanes, Berle and somebody from
Commerce - on this question from the banks, what
they should or shouldn't do. When they are ready
they are going to give me EL report. Before I
do anything on it, I am going to show it to you
people. I can't see the fact that everybody is
pushing me 80 hard; I wonder why. I can't see the
sweat about it. So before I do anything - I am
trying to work it, that these things feed to me.
Before I act, you people get a chance to see it
and get all the time necessary. I'm not going
to be rushed off my feet.
Bailie:
We can't give you 8 worth while policy before
4:00 o'clock.
E.M.Jr:
I don't see why there has to be EL press release
at 4:00 unless it is just to say they met. Just
80 you know anything of policy. Unless I get
caught off base, I am not going to say yes or no.
Unless I get caught off base, I would like to work
this way and ease it in and I will try not to rush
too much with these things. I don't know what
this thing is in Hanes's office. You will find
out and take e look at it.
Regraded
182
- 6 -
Baille:
We have another thing which is right along the
line which Hanes 18 talking about and there is
some evidence that British securities are being
released on the New York Stock Exchange with the
permission of the Treasury for gradual liquidation.
We have got to find out if the SEC knows about it.
White:
There is no indication of that in the report.
Bailie:
That 18 the reason I spent Friday in New York and
I found four separate transactions totalling
three million dollars in the course of B. half
hour of questioning of various people, which
showed that actually British securities were
being released by the British Treasury and sold
in our markets.
Lochhead:
We got that check.
H.M.Jr:
Having you people here, I will stay calm and not
try to do all these things by myself.
Bailie:
None of them, as I see it, have been terribly
excited or worried at this moment.
H.M.Jr:
No, but you could say the wrong thing to the
French. The next thing is Panama unless this
other thing breaks. I don't know - when that
thing breaks, I will get hold of it and find out
what it 1s. I think the Panama thing comes
first.
Bailie:
I think so too. Of course, we could let them go
on to Panama and send them a message.
Regraded Unclassified
Prepared by: Mr. Murphy
Mr. Lindow
Mr. Tickton
Mr. Haas
TREASURY DEPARTMENT
163
INTER OFFICE COMMUNICATION
CONFIDENTIAL
DATE Sept. 11, 1939.
TO
Secretary Morgenthau
FROM
Mr. Hame 90H
Subject: Developments in the High-grade Securities Markets
During the Week Following the Outbreak of War
SUMMARY
(1) United States securities declined very sharply on
Tuesday and Wednesday, and slightly more during
the balance of the week. Except for the break at
the time of the Munich crisis, the average yield
on long-term Treasury bonds (2.59 percent) is now
the highest since April 1938 (Charte I and II).
Shorter- and medium-term bonde have been rela-
tively weaker than long-term bonds (Charts III
and IV).
(2) Official support WS6 given to the Government bond
market during the past week through the purchase
of securities by the Federal Reserve banks ($204
millions) and the Treasury ($50 millions). The
Federal Reserve purchases more than replaced the
bills allowed to run off during the summer and
brought the portfolio to a new high (Chart V).
(3) The high-grade corporate bond market was very weak
on Tuesday, and the spreads between bid and ask
prices were very large. As the week progressed,
however, spreads nerrowed and some of the lossee
were made up. At the close on Saturday, our aver-
age of the yields of long-term high-grade corporate
bonds was 3.27 percent, and the spread between the
yield of corporate bonds and long-term Treasury
bonda was .68 percent (Charts I and II).
(4) British console closed at 62 on Thursday (the day
the London Stock Exchange web reopened), and at
62-1/4 on Friday. The Friday price was equivalent
to B. yield of 4.02 percent. These prices are sub-
ject to the reservation that the London Exchange
is not a free market; the prices on Thursday and
Friday were at approximately the minimum set by
the Exchange. French 3 percent rentes declined
further during the week to new lows since the
spring of 1938. The yield on Friday was 4.35 per-
cent.
Regraded Unclassified
Secretary Morgenthau - 2
-E4
I. Price Movement of United States Securities
United States securities declined very sharply on Tues-
day and Wednesday, approximately held their own on Thursday
and Friday, and then declined somewhat further on Saturday
(Chart I). The average yield on all long-term Treasury bonds
increased by .19 percent during the week to 2.59 percent at
the close on Saturday. This is the highest yield since
September 28, 1938, the first day of the recovery from the
break in the market at the time of the Munich crisis; and,
aside from the break at that time, the highest since April
1938, immediately following the desterilization of the In-
active gold, It 18 lower, however, than the average had
ever been prior to that time, except for a few months im-
mediately preceding the 1937 break (Chart II).
Daily fluctuations since the beginning of July in the
prices and yields of four selected Government securities are
shown in Chart III. It will be noted that the 2-3/4's of
1960-65 have declined only about 6 points, while the 2's of
1947 have declined about 5 points. The yield on the 2's of
1947 has advanced by 0, 64 percent during the same period,
while that on the 2-3/4's of 1960-65 has advanced only 0.36
percent. The shorter-term bonds have thus failed notably
in the present break to furnish to their holders the sub-
stantially greater measure of protection against price de-
cline (as compared with that afforded by longer-term bonds)
for which they had hoped. This has been true in previous
sharp declines in the market. Whether it would prove true
during a more extended deoline 1s doubtful.
Chart IV compares the yields of Treasury securities on
April 1, 1937, June 5, 1939, and September 9. 1939. The
first date 1a the bottom of the trough of the 1937 break,
and the second 18 the 1939 high. The chart shows that since
June the securities have lost roughly two-thirds of their
gains from the bottom of the 1937 break until that time. It
also shows that the present relationship between the yields
and maturities of both the bonds and notes is much more 31m1-
lar to that at the bottom in 1937 than it is to that at the
high of last June. The present break, like that of 1937, has
reduced the spread between the yields of securities of dif-
ferent maturities and has thus produced a somewhat flatter
curve.
Regraded Unclassified
185
Secretary Morgenthau - 3
II. Official Support Given the Government
Bond Market
The Federal Reserve banks purchased $204 millions of
Government securities in the open market during the week
ended. Saturday, September 9 (Chart V). For a large part of
the week these banks were the principal or only bidders in
the Government securities market. Although they were still
continuing to increase their portfolio at the week-end, the
increases were much smaller than the earlier additions, as
the banks curtailed the volume of their purchases as soon as
the market appeared to have stabilized itself at its lowered
level. (Purchases on Thursday amounted to only $8 millions
and on Saturday to $16 millions; no purchases were made on
Friday.)
Nearly all of the securities acquired during the week's
operations were bonde, the Federal Reserve System having been
the principal market for such offerings. These purchases
were in contrast to those of the preceding week, when note
acquisitions amounted to nearly half of the increase in the
banks' portfolio of Government securities. Some outside buy-
ing interest for short-term securities had shown itself early
in the week, however -- particularly for issues maturing within
two years -- and the Federal Reserve banks avoided these 18-
sues.
Considerable newspaper comment was occasioned during the
week when it became known that the Federal Reserve banks had
deferred until Friday the delivery of some of their Tuesday
purchases of Governments. These securities would ordinarily
have been delivered on Wednesday and would have been included
in the figures on the regular Wednesday condition statement.
The procedure followed prevented the published figures from
indicating the full extent of the official support to the
market during this part of the crisis period. Figures for
Chart V have been adjusted to add into the current Wednesday
and Saturday figures all purchases actually made through to
the close of business on each of these days, whether or not
delivery had actually been effected.
Open-market purchases during the week brought the Federal
Reserve banks' portfolio to a new high level - $2,756 mil-
lions. The operations of the last ten days have more than
offset the decline in the banks' portfolio occasioned by the
run-off in their holdings of Treasury bills in June, July,
and August (Chart V). They have lengthened the average
Regraded
Secretary Morgenthau - 4
186
maturity of the banks' holdings considerably, moreover, and
have added guaranteed securities to a portfolio which had
previously been confined to direct obligations only.
The Treasury purchased some $50 millions of Governments
for its investment accounts during the week. These purchases
brought net acquisitions since September 1, to & higher level
than net acquisitions have reached in any month since March
1937.
Member bank holdings of Government securities appear to
have declined only moderately B.B a result of the crisis,
partly as the result of the informal agreement not to liqui-
date holdings negotiated by the Federal Reserve Bank of New
York with the New York banks. These banks extended the ef-
fact of the agreement, it was reported, by advising their
correspondents to do likewise. In the week ended September 6
-- when long-term bonds dropped four points on the average
-- reporting member banks in New York City reduced their
holdings of direct Government securities by only $8 millions;
and Chicago banks reduced their holdings by only $18 mil-
lions. Greater declines in the holdings of guaranteed 18-
suee were reported, but these reflected, to a large extent,
the retirement on September 1 of $100 millions of 1-1/2 per-
oent FFMC bonds maturing on that date.
An interesting sidelight on the Government market dur-
ing the week was provided by the rapid sky-rocketing of bond
trading on the New York Stock Exchange to 871 millions -- an
all-time high -- on Wednesday. This was due to two factors:
(1) Dealers who would have otherwise used the over-the-
counter market desired to avoid disclosing the names of
large sellers of Government securities as requested by Fed-
eral Reserve officials; and (2) the Reserve banks themselves
conducted a large share of their own operations on the Ex-
change. With the relaxing of the disclosure rules, and the
decline in official operations, the volume on the Stock Ex-
change immediately dropped to much lower levels -- $6 mil-
lions on Friday.
III. High-Grade Corporate Bonds
High-grade corporate bonds suffered considerably more
during the past week than Treasury bonds, a condition which
18 doubtless explained by the fact that the corporate bond
market was not receiving official support. In the early
167
Secretary Morgenthau - 5
part of the week, there was virtually no market in high-grade
corporate issues, and spreads between bid and ask prices
became very large. At the close on Tuesday, for example,
the Fennsylvania Railroad 4-1/2's of 1960 were quoted over
the counter at 107-1/2 bid and 117-3/4 ask, and the New
England Telephone and Telegraph 4-1/2's of 1961, at 111 to
123-3/4. In the latter part of the week, however, spreads
narrowed, and the corporate bond market recovered some of
its earlier losses.
Our average of the yields of long-term high-grade corpo-
rate bonds reached 3.41 percent on Tuesday, the highest it
has been since the spring of 1937. It was unchanged on
Wednesday, and thereafter decreased day by day to 3.27 per-
cent on Saturday. This 18 approximately the same level as
in the first week in April 1938, immediately preceding the
announcement of the desterilization program (Charts I and
II).
On Tuesday, the spread between the yield on long-term
Treasury and high-grade corporate bonds was .94 percent, the
highest in approximately 5-1/2 years. This spread was re-
duced steadily during the remainder of the week, as corpo-
rate bonds gained strength, while Treasury bonds continued
to decline. At the close on Saturday, the spread was
.68 percent.
The most probable explanation for the contrasting be-
havior of corporate and Treasury bonds during the week lies
in the fact that the former, having no official support,
absorbed at once the full immediate shock of the beginning
of the war, and rapidly fell to a bottom from which they
were able to rebound; whereas Treasury bonds absorbed the
shock only gradually, as official support permitted.
IV. British and French Markets
The London Stock Exchange reopened on Thursday, and it
was reported that the undertone of the market was steady to
firm. The 2-1/2 percent console closed at 62, a.8 compared
with 64-3/4 on August 31, the last day before the Exchange
was closed. On Friday, consols closed at 62-1/4, equivalent
to B yield basis of 4.02 percent. These prices are, of
course, subject to the reservation that since August 24,
the London Stook Exchange has not been & free market. The
minimum price set for the 2-1/2 percent consols 1a reported
188
Secretary Morgenthau - 6
to be 62-1/2, and the fact that prices have actually dropped
below this point may be explained by the fact that Wednesday
marked the "ex-interest" day for consols. This would a.0-
count for a difference of 5/8 of & point.
The past week has shown little change in the money mar-
ket in London. Call money against bills remained at around
2-1/2 percent, and six-months bille at 5 percent. Three-
months British Treasury bills sold Friday at 3.6 percent, 88
compared with 3.7 percent the week before.
French 3 percent rentes have declined further during
the week. The closing price on Friday was 69.0, as compared
with 71.5 last Friday, a yield increase from 4.20 percent to
4.35 percent. This brings this issue back to approximately
the level of the spring of 1938.
The weekly statements of the Bank of England and the
Bank of France, released Thursday, show record circulation
of notes in both countries. In the two weeks since August 24,
the circulation of the Bank of England increased 8.2 percent,
and that of the Bank of France 15.6 percent.
During the past week, the Bank of England transferred
all of its gold holdings (reported at L264 millions last
week) to the Exchange Equalization Fund. On Sunday
(September 10), France adopted exchange control, prohibit-
ing the exportation of capital in any form without the
authorization of the Ministry of Finance.
Attachments.
Chart I
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM US TREASURY
AND AVERAGE OF HIGH GRADE CORPORATE BONDS
1938
JAN
yes
MAS
APR
MAY
JUNE
JULY
AUS
SEPT.
OCT.
1939
1939
HOV
DEC
H
et
n
"
a
:
a
JAN
FEB
-
MAR
:
APR
-
=
-
MAY
-
JUNE
JULY
if
*
is
14.
is
AUG
is
...
SEPT
OCT
NOV
DEC
AUG
BEFT
OCT
se
IF
#
é
-
:
#:
⑉
.
.
-
-
--
Scale
Inverted Scale
Inverted Scale
FER CENT
FEE CENT
PER CENT
WEEKLY. Wednesday Quotations
DAILY
"
22
17
(4
Long Term Treasury (NP years - more the services can -
24
2.4
Long Term
Treasury
26
14
26
Corporates
21
11
2.6
30
1.0
3.0
Change --
-
12
"
32
Corporate
34
34
14
36
36
34
30
18
3.0
40
40
40
PER
PER
PER
CENT
CENT
CENT
100
100
-
100
BC
40
80
Spread Between Long Term
Treasury and Corporate*
Spread
so
40
60
40
:
40
20
20
re
o
o
o
-
.
-
if
#
have
à
=
*
-
=
"
.
-
13
:
-
-
"
OCT
a
f
:
=
-
-
H
#:
JAN
.
:
"
JUNE
:
.
17
an
-
:
as
-
JULY
AUS
SEPT
ACT
DEC
AUG
SEPT
=
ne
- 42
are
MAY
JULY
AUG
SEPT
OCT
NOV
DEC.
JAN.
FEB
MAR
APR
MAY
JUNE
1939
1939
1938
"Arger - change - compension of Lany Term Treesury everage
-
Regraded Unclassified
Chart =:
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY
AND AVERAGE OF HIGH GRADE CORPORATE BONDS
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
PER CENT
PER CENT
inverted Scale
inverted Scale
Monthly Average of Daily Figures
20
20
2.5
25
Long Term Treasury
3.0
3.0
3.5
3.5
Latest figures or of Saot 9
4.0
4.0
High Grade Corporate
4,5
4.5
50
5.0
Moody's Aaa
5.5
5.5
PER CENT
PER CENT
25
25
20
2,0
15
1.5
10
1.0
Spread
5
5
0
o
1927
1928
1929
1930
1931
1932
1933
1934
1936
1936
1437
1938
1939
1-4
-
# - limitry # - -
F-76-B
- - -
06
Regraded Unclassi
Che
III
PRICES AND TIELDS OF SELECTED GOVERNMENT SECURITION
party
Prices
Tields
CERTIMBER
If
19
.
16
es
5
e
N
Γ.
:
-
DELLARS
PERCENT
INVERTED)
100
100
is ROTER
4
+
ARE 15, 1944
se
se
is REFER
AME 15, 1944
a
,8
HOS
100
104
IDA
1.9
1.0
n -
ME. 15, 1947
102
for
12
1.2
100
100
14
96
$
1.4
a (
me. 15. 1947
96
*
1.6
1.6
105
IDS
as Boxes
sec. is. 1949-133
1.8
(4)
104
104
** Bours
MA. 15, 1949-'53
102
è
2,2
2.0
100
100
2.2
2.2
FOR
106
106
2,4
2.4
105
28 Bosts
28% Bowers
ME. 15, 1960-163 'as
M.C. 15. 1960-163 "63
104
124
2,6
2.6
-
E
A
1.8
100
100
X
19
3/9
3.8
26
2
9
:
23
30
.
IS
42
a
5
12
is
26
2
9
is
en
30
,
15
N
a
3
12
19
-
AUGUST
SEPTEMBER
VAT
wast
SUPTEMER
1939
"
(Re of - Servery of the
F
117
- of - - -
Regraded Unclass
YIELDS OF TREASURY BONDS AND NOTES
Based on Closing Prices
YEARS TO MATURITY OR CALL
5
10
15
20
25
PER
PER
CENT
CENT
3.2
3.2
APRIL 1. 1937
0
2.8
2.0
O
o
o
2.4
2.4
o
SEPTEMBER 9, 1939
o
2.0
2.0
1.6
1.6
JUNE 5, 1939
1.2
1.2
x
O
x NOTES
o BONDS
is
.8
.4
.4
o
o
I
5
10
15
20
25
YEARS TO MATURITY OR CALL
Office of the Secretary of the Treasury
- of - and -
F - NS
Regraded Unclas
Chart V
FEDERAL RESERVE BANK HOLDINGS OF U.S. SECURITIES
1939
1930
1931
1932
1933
1934
1435
1936
1937
an
1938
1939
1940
VALI
MAY
-
NOV
COLLARS
DOLLARS
DOLLARS
MONTHLY
Billions
Billions
WELALY
Equip
De -
- - law
26
28
28
>Totol
Total
24
24
24
Certificates and 9/1/2
Certificates and Bills
20
20
20
IA
16
16
Notas
12
1.2
12
Notes
e
a
8
Bonds
4
4
4
Bonds
o
o
0
1429
1930
1931
1932
1933
1934
1935
1936
1937
1938
1940
JAN
MAR
MAY
and
AT
1239
1939
184
CJ
GRAY
SYDNEY
Dated September 11, 1939
Rec'd 9:15 4.0.
Secretary of State,
Washington.
September 11, 6 p.m.
Referring to Department's telegram of September 9,
11 a.m., defence (monetary control) regulations issued
August 25 give Commonwealth Treasurer complete control
over all foreign Exchange operations. Full information
transmitted in my despatch number 527 of August 31.
Delivery of all gold to Commonwealth Treasury within one
month required. Subject to Exemptions granted by the
Treasurer the regulations provide for very drastic EX-
change control including 381E to Commonwealth Treasurer
of all foreign currency assets. This last mentioned
provision not yet put into effect. The Prime Minister
stated that an effort would bE made to cause minimum
dislocation of trade consistent with the national inter-
Esta. Control is being EXERCISED by Commonweal th Bank
and as its agents by trading banks. Am assured by high
official of the Commonwealth Bank that regulations have
been promulgated and for the present are being ad-
ministered
195
-2- September 11, 6 p.m., from Sydney
ministered with the primary object of preventing flight
of capital outside of Australia and that EVETY effort will
bE mode to avoid interference with normal (repeat normal)
trade. Business firms consulted report that banks are
selling United States dollar Exchange for usual require-
ments but refuse to make future commitments.
It appears probable that some form of restriction of
imports based on Essential requirements of Australia
may be anticipated and any expansion of American exports
to Australia would be subject to this principle.
Other developments are:
(1) Australia - London exchange rate remains un-
changed, but that Australian pound declines proportion-
ately with London - NEW York rate.
(2) Arran gements have been made for purchase by
Great Britain of all surpluses over Australian requirements
of most primary products including wool, canned and dried
fruits, meat, butter, et cetera. No announcement yet
regarding wheat.
(3) Increase in shipping freights inward and out-
ward of 25% have been announced and overseas sailings
restricted by reason of Admiralty control.
(4) Commonwealth Government has announced intention
to
196
-3- September 11, 6 p.m., from Sydney
to control prices of its commodities, including petroleum
products and tractors in connection with anti profitsering
program.
(5) Sales tax increased by one percent. Effective
September 9 increases in duties on a number of items
including gasoline 1 penny per gallon, mineral lubricating
oil 3 pence and on tariff item 404 increased from free
to 15 percent British preferential end from 12 to 30
percret general.
(6) Company income tax vate increased from 5.75
to 8.25 percent and rebate formerly granted to foreign
holding companies in the amount of such tax paid by
Australian incorporated subsidiaries now abolished.
This means double taxetion on income received by American
holding companies, but non Australian companies opera-
ting in Australia on purely branch office basis not
affected.
WILSON
CSB
GAV17038
-
24(f)
FEDERAL RESERVE BANK
OF NEW YORK
197
OFFICE CORRESPONDENCE
DATE September 11, 1939.
TO
CONFIDENTIAL FILES
SUBJECT TELEPHONE CONVERSATION WITH
FROM
L. W. Knoke
BANK OF FRANCE.
Mr. Cariguel called at 1 o'clock today. As I had
undoubtedly learned from the papers he said, there was now
exchange control in France. They had started at 176.50 buyers
of sterling and 176.75 sellers and he thought that those rates
would remain unchanged for some time to come.
I asked whether he could give me some details as to
how this thing was going to work in Paris and he said that it
would probably be some days before the machinery was properly
(
set up. Would we get any orders from him by cable? Be replied,
"No".
I again repeated my request that he send me by airmail
everything that had been and was going to be published in the
way of decrees, regulations, etc.
LAKIKW
RECEIVED
ecer St 080
must SAT
normal all -
- - F - -
Unclassified
pee
September 11, 1939
13-7-39
198
My dear Mr. Secretary:
In order that I may answer
Ambassador Kennedy's cable #1500,
I would appreciate your letting me
have a copy of the Department's
answer to his message.
Sincerely yours,
The Honorable
The Secretary of State.
September 11, 1939
199
My dear Mr. Secretary:
In order that I may enswer
Ambassador Kennedy's cable #1500,
I would appreciate your letting me
have a copy of the Department's
answer to his message.
Sincerely yours,
The Honorable
The Secretary of State.
200
September 11, 1939
My dear Mr. Secretary:
In order that I may answer
Ambassador Kennedy's cable #1500,
I would appreciate your letting me
have a copy of the Department's
answer to his message.
Sincerely yours,
The Honorable
The Secretary of State.
201
NC
PLAIN
LONDON
Dated September 11, 1939
Rec'd 3:30 p.m.
Secretary of State
Washington
1599, September 11, 6 p.m.
FOR TREASURY FROM BUTTERWORTH.
BEWLEY confirms that the declaration of wa." has not
changed the procedure with respect to forsign securities
as outlined in my 1344 September 1, 1 p.m. Permission is
bEing granted for transfers between residents in the
United Kingdom and also for sales abroad if the ' Esulting
foreign currency is handed over to the Bank of England,
the amount of business in the former is less than in the
latter. S.E.C. no doubt has information as to how
Extensive the latter transactions are and NEff who
1s here would appreicate it if a copy of this telegram could
bE given to Purcell. Incidentally BEWLEY mentioned that
they were actively considering what could be worked out
in the matter of Americans "resident" in England,
KENNEDY
RECEIAED
CSB
each
(Nimal off L -whe
The with # know what
202
TELEGRAM SENT
RFP
GRAY
September 11, 1939
7 p.m.
AMERICAN ENRASSY
PARIS
870.
FOR THE AMEASSADOR FROM THE TREASURY.
Reference your 1892 September 10, 2 p.m. The 3tore-
tary of the Treasury has this noon handed the following
statement to the French Financial Attache Leroy Beaulieu
for communication by telephone to Minister of Finance
Reynaud:
The 3ecretary of the Treasury thanks the Minister of
Finance for his communication in regard to logislation for
setting uo a system of exchange control in France and in
French territories overseas, and has the pleasure in pro-
viding herewith the text of 2 statement which he is TE-
leasing to the press today:
QTOTE. The Secretary of the Treasury stated that he
had been advised by the Minister of Finance of France of
the Emergency action of the French Government in setting
up a system of Exchange control in France and in French
territoriss overseas. The Secretary said that the Onited
States Government recognized the emergency conditions
which impelled this action, and stated that the Tri-
Partite
Regraded Unclassified
203
RFP -2- #870, September 11, 7 p.m. to Paris
Portits declaration continues in Effect. END QUOTE
The above statement will bE nade public in
Washington at 4 o'clock this afternoon Washington time.
HULL
(HF)
EA:HF:LWW
03V13038
eee: y 1
on
RFF
TELEGRAM SENT
GRAY
204
September 11, 1939
9 p.m.
AMERICAN EMBASSY
LONDON
911.
FOR THE AMBASSADOR FROM THE TREASURY.
There is quoted for your information and that of
the Chancellor of the Exchequer of Great Britain, the
following communication which will be released to the
prsss here at 4 D.M. Washington time.
QUOTE. The Secretary of the Treasury stated that
he had been civised by the Minister of Finance of France
of the emergency action of the French Government in set-
ting ap C. system of exchange control in France and in
French territories overseas. The Secretary scid that
the United States Government recognized the emergency
conditions which impelled this action, and stated that
the Tri-Partite declaration continues in Effect.
END QUOTE.
EA:IF:INT
HULL
(F)
SAME TO:
AMERICAN EMEASSY, BRUSSELS, as No. 58, September 11,
B substituting "Minister of Finance of Belgium"
for Dellay "Chancellor of the Exchequer of Great Britain".
AMERICAN LEGATION, BERNE, as No. 74, September 11, E
Dam., FOR THE MINISTER (substituting "Minister of
Finance of Switzerland")
AMERICAN LEGATION, THE HAGUE, as No. 84, September 11, of
8 Draffley FOR THE MINISTER (substituting "Minister
PRODUCT
Finance of the Netherlands)
Regraded Unclassified
GRAY
205
LAR
Paris
Dated September 11, 1939
Rec'd 4:01 p.m.
Secretary of State,
Washington.
1907, September 11, 6 p.m.
FOR THE treasury.
Confusion inherent in the sudden application of
complete exchange control has naturally continued throughout
the day. The foreign Exchange office hes quoted a selling
rate for sterling of 176.50 and & buying rate of 176.60.
The dollar has been quoted at 43.70 and 43.95. The foreign
axchange office was a seller of dollars in payment for war
supply purchases. While the "approved" French banks did
some exchange business American and other foreign banks
remained out of the market and are as yet unable to obtain
definite rulings from the authorities covering their
procedure or their future status. They naturally would
prefer dealing directly with the Bank of France rather than
through the French banks "the better to protect their
clients" and are hopeful that they may subsequently be put
on the "approved" list They well realize, however, that
France is at war and are prepared to adapt themselves
accordingly.
The Guaranty Trust did EXECUTE several foreign
Exchange transactions directly with the Bank of France.
The
Regraded Unclassified
LAR-2, 1907, September 11, 6 p.m. from Paris.
206
The transactions in question, however, WERE carefully
scrutinized and will bE carried in the Bank of France
daily record. There is no indication, however, that this
procedure will bE permitted as a general rule.
The securities exchange was open as usual but the
turnover was small. The tone was calm and firm, industrials,
utilities and banks registered advances over Friday's
quotations. Rentes were down slightly with the EXCEPTION
of the dollar Exchange guaranty issue of 1937 which again
improved.
BULLITT
CSB
BECEIAED
eeer 81512
TRINTANGO YRUPAINT
will to
207
NC
GRAY
PARIS
Dated September 11, 1939
Rec'd 9:22 s.m.
Secretary of State
Washington
RUSH
1899, September 11, 11 a.m.
FOR THE TREASURY
Our telepram 1894, September 10, 4 a.m., was based
on a pampilet text given us at the Finance Ministry. Com-
parison with the texts published in the Journal Official
appearing this morning indicates no change of any importance.
The "law prohibiting or regulating in time of war the
export of canital, exchange operations and transactions
in gold" is however published in the form of a Presidential
decree and an additional article provides that it shall
be subject to ratification by Parliament as provided in the
law of March 17, 1939.
The Journal Official likewise contains the text of
an additional decree "regulating imports and exports in
time of war". (END OF SECTION ONE)
BECEINED
BULLITT
RR
TIP
VHU2A39T
off in name
- un of - -
208
CJ
GRAY
PARIS
Dated September 11, 1939
REc'd 9:02 a.m.
Scoretary of State,
Washington.
RUSH.
1899, SEptember 11, 11 a.m. (SECTION TWO).
Under this decree all importations of foreign
merchandise are subject to the prior obtaining of &
certificate attesting that the delivery of foreign
currency necessary to Effect payment has been authorized
or that the importation does not call for payment in
foreign currency. When foreign currency is required it
will only be delivered upon presentation of this certi-
ficate. As concerns exports if payment therefor is made
totally or partially in foreign currency the exporter must
undertake to turn such currencies over to the Exchange
Office 03V13038 Within one month after receipt. If payment is
made totally or partially in francs the exporter must
undertake to accept in payment only fortign holdings in
VRUPAINT
france the utilization of which for the purchase of French
goods has been authorized beforehand by the Exchange
Office. Exporters must provide the Exchange Office with
all
Regraded Unclassified
209
-2- #1899, September 11, 11 a.m. (SEC. TWO) from Paris
all proof considered necessary by the latter regarding
the amount received by them in payment.
BULLITT
RR
BEGRIARD
eeer I I cr2
110ml any on
210
NC
PLAIN
PARIS
Dated September 11, 1939
Rec'd 10:10 a.m.
Secretary of State
Washington
RUSH
1889, September 11, 11 a.m. (SECTION THREE)
The Journal Official likewise lists the
"intermedierisa" authorized tc deal in Exchange operations
under the supervision of the Foreign Exchange Office. They
are as follows: Banque de L'Afrique Occidentale,
Banque de L'Algerie, Banque D Etat Du Maroc, Banque de
L'Indochine, Banque DE Madagascar, Banque Nationale
Francaise du Commerce Exterisur, Banque Nationale pour
le Commerce et L'Industrie, Banque de Paris Et des
Pays Bas, Banque de l'Union Parisienne, Compagnie
Algerienne, Comptoir National d Escomote de Paris, Credit
Commercialy , Credit Foncier d Algerie et de
Tunisie, Credit Lyonnais, Credit du Nord, MM Lazard
Frer Compagnie, Societé Generale Alsecienne de
Ban Generale de Credit Industriel et Com-
sit:
meroral, Societe Generale pour Favoriser le Developpement
due Commerce Et de l'Industrie En France, Societe
Marseillaise de Credit Industrial Et Commercial Et de
Depots.
BULLITT
HPD
PARAPHRASE OF SECTION FOUR OF TELEGRAM No. 1899 OF
211
SEPTEMBER 11, 1939, FROM PARIS.
No American or other foreign banks appear on the list
and our bank representatives here are still somewhat at 008
as to whether they must deal through one of the foregoing
institutions or whether they may deal directly with the
Bank of France.
There is some natural confusion ae to how the new eystem
will operate but the situation will probably shake down with-
out undue delay. For the moment no rates are being quoted.
From all appearances transfers of foreign currency
deposits in France are covered by the exchange control restric-
tione, though it is the impression of our banks here that
n. fairly liberal attitude regarding such holdings of foreigners
will be adopted by the authorities.
We have been told that the regulations in general
resemble those which were in effect during the World War
and afterwards.
END OF MESSAGE.
BULLITT.
EA:LWW
September 11, 1939
9:12 a.m.
Cecil W.
212
Gray:
Good morning, Mr. Secretary.
HMJr:
How are you?
G:
Just fine, thank you, sir. I hope you are well,
HMJr:
Would you give Mr. Feis this message for me?
G:
Yes.
HMJr:
I mean, Mr. Hull.
G:
To -- to the Secretary?
HMJr:
Yes.
G:
Right, sir.
HMJr:
Or if you could do something before he comes in.
We have this decree from the French Government.
G:
Yes, sir.
HMJr:
Putting on exchange control.
G:
Yes, sir.
HMJr:
My people are preparing an answer, see?
G:
Yes, sir.
HMJr:
To the French.
&
Yes, sir.
HMJr:
And I would like to have Mr. Feis over here now to
sit in with our people while we're doing the answer,
you see?
G:
Right, sir. Are you meeting now, Mr. Secretary?
HMJr:
We're meeting in room 296 right away.
G:
I'll get to work on it immediately.
HMJr:
And -- we'd like to have -- nobody else would be of
any use on this.
Regraded Unclassified
- 2 -
213
G:
Right, sir.
HMJr:
And -- but in order that Mr. Hull may know and it
would be agreeable to him, the answer, I'd like
Mr. Feis to see it and help formulate the answer.
Hello?
G:
Right -- right, Mr. Secretary. I'll endeavor to
reach him immediately.
HMJr:
Thank you.
G:
You're welcome, sir. Goodbye.
September 11, 1939
10:20 a.m.
214
HMJr:
Hello.
Charles
Edison:
Hello.
HMJr:
Edison?
E:
Yeah. Good morning.
HMJr:
Morgenthau.
E:
Yeah.
HMJr:
How are you?
E:
0. K.
HMJr:
Will you, at your convenience, see Captain Puleston
for me? He's here in my office now.
E:
Yes, surely.
HMJr:
Could you give him an appointment?
is
Ah -- yeah. Wait a minute until I get -- wait 'til
I get my dope sheet.
HMJr:
Thank you.
(Brief pause.)
E:
What does he want to see me about?
HMJr:
Well, you remember I wrote you that note.
E:
Yeah.
HMJr:
And he's to come here and help me.
E:
Yeah.
HMJr:
And I cleared it with Captain Callaghan.
E:
Yeah.
HMJr:
And he -- Captain Callaghan said he cleared it with
the Navy Department.
E:
Well that's all taken care of.
- 2 -
215
HMJr:
Well, he just would like to pay his respects.
E:
Oh yeah, sure. Well, that's fine.
HMJr:
He'd like to pay his respects to you.
E:
Oh, have him come in anytime. We'll -- wait a
minute. I can see -- two -- yeah, have him come
in anytime.
HMJr:
Well then, he can come over now?
E:
Yeah. I'll work him in.
HMJr:
Thank you so much.
E:
All right. Thank you.
HMJr:
Goodbye.
E:
Goodbye.
September 11, 1939
11:03 a.m.
Operator:
Go ahead.
216
HMJr:
Hello.
Frank
Boyce:
Yeah. Hello, Mr. Secretary. Frank Boyce.
HMJr:
Yes.
B:
I got your telegram and I've looked at the apples
and I think I've got bad news for you on the apples.
The -- the apples are mostly green, immature; they
haven't got enough color. And the apples that had
-- there are about three boxes -- three or four
apples in each box that have good color
HMJr:
Yes.
B:
and those apples, when you out them they have
brown centers.
HKJr:
Yeah.
B:
Now, I sent them up to the Department of Agriculture
to -- up here at the build -- 641 Washington Street
HMJr:
Yeah.
B:
to see just what 18 the trouble. I think it's
drouth spots, what we call drouth spots.
HMJr:
Yeah.
B:
A condition that's -- arises during a dry period.
HMJr:
Yeah.
B:
And I just wonder if it's going to be general or if
these apples came off of part of your orchard
HMJr:
No.
B:
that -- that's high.
HMJr:
We knew about it and the trees were supposed to be
marked and no apples that came off those trees were
to go into those boxes. Those were my instructions.
- 2 -
217
B:
Well, the -- the apples we got -- got here, there
were about four or five with color in at box.
HMJr:
Yeah.
B:
and the rest are green.
H/Jr:
Yeah.
B:
And you couldn't sell them at all. And the apples --
I just accidentally out one; I wanted to see what
they tasted like.
HMr:
Yeah.
in
And as I did why the entire center -- oh, for about
an inch and a half of the center -- ah -- 18 solid
brown color.
HMJr:
Yeah.
B:
And I -- the pathologist up there at the Government
office 16 -- to look at them. I called him right
before I called you to see if he had gotten to them
yet and he hadn't -- 8 fellow named Dr. Brown.
H/Jr:
Yeah.
3:
I'll have to give you a report 8. little later on him.
Now, the -- the question 18, is this condition going
to exist only in high spots in the orchard, or
HMr:
No.
B;
will it be pretty general in the valley?
HWr:
No, we had the Farm Bureau go all over it and it's
just a few of those trees on the knolle and those
are the ones they were picking first.
B:
on, I see.
HWr:
But none of them were supposed to get in. But I told
them to -- very definitely not to, but I also told
them to pick three boxes at random and send them down.
B:
Well, he picked them at random all right because
they're -- (chuckling) they're almost entirely
green and they're immature. You couldn't -- you
couldn't eat any of those apples at all. They're --
- 3 -
218
they
they're sour, and the seeds are -- are still a light
-- light color.
HNJr:
Well now, what do you suggest?
B:
They've got no color at all.
HWr:
What do you suggest?
in
Well, I -- let me see what this report 16 and I -- I
think if this 18 drouth spot -- if it's something
else besides drouth spot, I'll give you their re-
commendation and
SWr:
No
B:
I'm going to have my man go over there - Kaylin
run over and Just look the situation over and see if
we can't work out something. Meantime, if he's
going to have any apples and they're like the sample,
why the only thing we could do would be to sell them
through our Jobbing store or you can give them to
Stewart Hubbard or anybody like that to scatter the
Job out, see?
H/Jr:
Well, let me put it this way: If they're too hard
to eat, we'd better put them into storage.
B;
Oh well, you couldn't store these apples.
HMr:
Why not?
BE
They're immature, they're green BB grass, they --
they haven't any color. No, these apples are bruised
and he has Just picked the apples at random and just
tossed them in the boxes. You know e McIntosh has
to be handled with care.
oh.
B;
No, you couldn't store these apples, I'm sure. The
thing to do, if you've picked five hundred, - I -- I'm
getting Kaylin and his assistant over there. They'll
be over there within an hour or 80; probably there
now.
KHJr:
Yeah.
Regraded Unclassified
- 4 -
219
B:
To look the situation over, but meantime I think if
you have four or five hundred, they ought to go
right to some market and be sold.
H/Jr:
Well, they'd be slaughtered.
in
Well sure, they'll be slaughter, but these applee
never -- never improve. They never improve in
storage.
10Wr:
Well, I don't
in
Hasn't -- he hasn't graded these apples at all, He's
been very careless in -- in the packing of these
apples.
BWN
Well now, there's -- the other thing, what's his name
18 starting tomorrow to out up these two-pound boxes.
B:
oh, on the Cortland?
HMJr:
No, on the Macs.
3:
oh, yes. Two-pound on the Macs tomorrow?
HWr:
Yeah.
B:
Oh, well - I think he's -- I think he's too soon.
on that. Is the -- the State Grange man there?
The greens are in there. It's the same apples only
put up in 2 two-pound box.
3:
Well, these -- these apples are too green to pack,
Mr. Secretary.
HNJr:
Well then, we'd better out them all in storage
and then
B:
Better put them all in a bushel and a. peck box and -
and if he's going to pick any like this, they'd better
be picked and put in those regular bushel boxes.
HWr:
Just jumble pack and put them in storage?
B1
Jumble box -- pack and with a top facing. Face
the top row, Bee?
D'Jr:
Jumble pack but top the -- fact the
Regraded Unclassified
- 5 -
220
B:
Just the top row faced. That's -- that's the way
they're usually packed - jumble packed with the top
row faced.
HMJr:
Top row faced. But not to put up any in two-pounds?
B:
No. Do you want me to tell Miss
HMJr:
No, I'll -I'm going to call Mise Wais right away.
B:
Talking to her?
HMJr:
Yeah. I -- she's waiting to hear from me.
B:
All right. Well
HMJr:
And if a
B:
If I -- whatever further information I get I'll
pass on to Miss Wais or I'll call you, whichever
HMJr:
I'd rather you'd call me because I'm in a Jam on
this now.
B:
Yes. What -- will you be there
HMJr:
I'll be there all day.
B:
at three o'clock?
HMr:
What?
B:
Will you be there about three o'clock?
HMJr:
Oh, yeah.
B:
Three o'clock daylight I'll call you.
HMJr:
No, better make it three-thirty.
B:
Three-thirty daylight time.
HMJr:
Yeah.
B:
All right, Mr. Secretary.
HMJr:
Thank you.
B:
Goodbye.
September 11, 1939
12:46 p.m.
21
HMJr:
I had a message -- good morning to you
Captain
Cellaghan: How are you, sir.
RNJr:
-- you called me on Thursday or Friday.
Can you remember what it was about?
C:
Ah -- yes, sir. It was on the -- on the question
about that Byrd Expedition.
H/Jr:
Oh, yes.
8
The President asked me to -- you remember the other
day I called you up about the possibilities of
subtracting one ship from the three that were
originally
HWr:
Yeah.
0:
layed out for them - that Coast Guard ship
the NORTHLAND
HMJr:
Yeah.
C:
And asking whether you thought that the -- the
expedition then could go ahead and establish the
one base.
HWr:
Yeah.
8
And I wondered whether you had any word on that sir.
HNJr:
Well, we -- I reported it at Cabinet that we'd spoken
to Byrd that we withdraw the one ship. He was very
nice about it. He said, "All right."
8
Uh-huh.
HMr:
But he still felt he wanted to do -- have two bases.
C:
Well, the President suggested the one.
HWr:
Well now, would -- would you help me out? We're --
I consider that we're out of it now. See?
C:
Uh-huh.
Regraded Unclassified
- 2 -
222
H/Jr:
We contacted Byrd; it was perfectly agreeable that
we withdraw the NORTHLAND. We've done that.
C:
Yes, sir.
HMJr:
Now, would you mind, whoever has been contacting
Byrd for the President to do it direct.
0:
Well, do -- do you want me to take up the matter with
the President for you?
H/Jr:
No, I'd like you to take it up with Byrd.
0:
With Byrd?
HMJr:
Yeah.
C:
Uh-huh. Well, of course, the President put that on
as a suggestion of one base with -- his theory was
that if -- if they got down there and tried to
establish two bases and they got into trouble, then
we'd have to detach some other forces to go down
and rescue them.
HMJr:
Well, of course, I don't know enough about it.
Herbert Gaston talked to Byrd.
:
Uh-huh.
HMJr:
lle said, "I can get along without the NORTHLAND, but
I'd still like to establish two bases."
C:
Um-hm.
H/Jr:
Well, it doesn't mean anything to me, 80 I --I just
let it go. But you've got plenty of time. He
doesn't expect to shove off until November.
C:
No, that's true, sir.
HMJr:
But if you'd just count the Treasury out.
C:
I Bee.
H/Jr:
And if you wouldn't mind talking to Byrd yourself.
C:
Well, I'll -- I think Id probably better get the
President's reaction before I talk to him.
HMJr:
All right.
0:
on that.
- 3 -
223
HMJr:
Ah
C:
So I'll take it up with the President the first
chance I get.
HMJr:
And unless the President instructs' me additionally
I'm going to do nothing more.
C:
Uh-huh. Well -- but you have actually withdrawn
the NORTHLAND?
HMJr:
Yeah, and that's been in the papers.
C:
That's been in.
HMJr:
And I reported it at Cabinet on Thursday to the
President.
C:
I see.
HMJr:
And I told him about the two bases and the one base.
C:
Yes.
HMJr:
And told him what Byrd said.
C:
Yes, sir.
HMJr:
See?
C:
I see.
HMJr:
So I feel I've carried out my end.
C:
Right, sir. Well then, I'll take it up with the
President myself.
HMJr:
Captain Puleston 18 here and we're fixing him up
with an office.
C:
Oh, grand! Oh, that's fine, sir.
HMJr:
Thank you.
C:
All right, Mr. Secretary.
HMJr:
Thank you.
C:
Goodbye, sir.
September 11, 1939
2:43 p.m.
-24
H/Jr:
Hello.
Frank
Boyce:
Yes, hello.
HWr:
Hello, Boyce.
B:
Yes.
HMr:
Morgenthau.
5:
Oh, hello. I didn't recognize your voice
HNJr:
Yes.
3:
Mr. Secretary. Say, I talked with the Govern-
ment and they said that they've had this matter up
with the -- the inspectors up in the valley and this
18 a -- a condition that's pretty prevalent through-
out the valley evidently due to the drouth, the early
drouth. They call it caulking or drought spot.
HXJr:
Yeah.
9:
Now, they -- they claim that it will show up only
in the fruit that will mature early.
H/Jr:
Yes.
B:
In other words, if Bailey were to go through his
orchards there and spot-pick for the -- the fruit
that shows a hundred per cent color or that shows
a whole lot of color
HMJr:
Yeah.
3:
and packed that and sent it to market, and
get rid of it
HMJr:
Yeah.
in
your next fruit that comes on ought to be
all right.
H/Jr:
I BBe.
B:
Now, Bailey -- there's some representative of the
-- the State that's cooperating with the growers on this
Regraded Unclassified
- 2 -
25
problem that's located at Newburgh . I don't know
the name, but I'll get the name and give it to
Miss Wais. And I think Bailey ought to tie in with
him and try to work this thing out. You can't work
it out by simply going through your orchard now and
harvesting everything. I -- I don't believe that --
that's going to get you the right results.
HMJr:
Well, what I've done 18 - I've told him to send you
down ten boxes to sell on commission and see what
they bring.
3:
Yes.
HMJr:
That would give me some idea.
in
Well, that -- that I don't believe, Mr. Secretary,
will -- will give you the -- the right idea either,
don't you see, because while ten or a thousand --
or -- ten thousand here the first couple of days
might sell all right.
HKJr:
Yeah.
in
Everybody 18 going to be doing the same thing, you
Bee?
H(Jr:
Yeah.
B:
And
HMr:
What would you suggest?
B:
I believe that you -- you'll get the best
results by spot-picking for this ripe fruit, or
the ripe fruit will eventually drop to the ground.
HMr:
Yeah.
B:
Wait a little while and let all the ripe fruit drou.
HMJr:
Yeah.
3:
And then follow the -- follow this thing and 88 your
other apples ripen up, out them and see 1f it has
the caulking.
HMJr:
Yeah.
Regraded Unclassified
226
- 3 -
B:
They don't seem to think that it will.
HMJr:
Yeah. Well, will you explain this to Miss Wais?
B:
I did, yes.
HMJr:
Good.
B:
I called her first
HMJr:
Good.
B:
and she told me that you had given instructions
to send te n down here tonight, but she thought that
you also had instructed to go along and harvest A
certain amount each day.
HMJr:
That's -- well, we have to.
B:
Well -- by golly, I don't know how this thing 18
going to work out. It's -- it's B. real problem
HMJr:
Well, we'll have
3:
how to avoid these -- these apples that have
this caulking. You see, the -- the centers -- the
-- oh, about the size of a half a dollar 18 all brown.
HMJr:
Yeah.
B:
And it's in the best apples. It's in your apples
that had the high color.
HMJr:
Yeah.
B:
In other words, those apples have matured early.
Now, the Department of Agriculture tells me that
that's typical of this caulking.
HMJr:
Yes,
B:
That the apples that show the 08 ulking will mature
and will ripen faster than the others.
HMJr:
Yeah.
B:
Now, if that's the case why wouldn't there just be a
matter of B. couple of days and all the -- the apples
that were ripe would be the apples with the caulking
- 4 -
227
and if you could spot-pick for them, why the rest
of your apples ought to be all right.
HMJr:
Yeah. Well, I'll talk to Bailey tonight and I'll
see what he's doing.
B:
Yeah, and I think that -- I'll get the name of this
man up the valley
HMJr:
Yeah.
B:
and give it to Miss Wais, see if it won't be
8. good idea for him to go over and see -- have a
talk -- to Bailey.
HMJr:
Fine. Well
B:
All right. Well, I'll follow through with you on
it. I'll keep in touch with you.
HMJr:
Fine.
9:
And we'll see if we can't work this thing out,
HMJr:
Thank you 80 much.
B:
All right.
HMJr:
Thank you.
B:
Goodbye.
September 11, 1939
228
2:58 p.m.
HMJr:
Hello.
Operator:
Ambassador Kennedy.
HMJr:
Hello.
0:
Go ahead.
HMJr:
Hello.
Ambassador
Kennedy:
Hello, Henry.
HMJr:
How are you?
K:
I'm fine. Sorry to have missed you.
HMJr:
I'm sorry to have missed you, Joe. The reason I'm
calling you up is that I didn't want to wait for a
letter to reach you in answer to that number 1500
that you sent me.
K:
Yeah.
HWr:
Where you asked me "What the hell."
K:
Yeah.
H/Jr:
Now, I'll talk in riddles, but I wanted you to know
and I realize what B. strain you're under otherwise
you wouldn't send an old friend like me a telegram
like that.
K:
Yeah.
HilJp:
Now, on Monday last week at Cabinet it was decided
to go ahead with that proposal.
K:
Yeah.
H(Jr:
And I was asked to do it. And they sent Hackworth
over to sit at my side. Hello? Hello?
=
Yes, Henry.
HMJr:
I said, they sent Hackworth over to sit at my side.
Regraded
- 2 -
229
K:
Who -- they sent who?
HMJr:
Hackworth, the legal adviser.
K:
Oh, yes.
HMJr:
Now, I saw -- and I was told to do it with the two
men at this end.
K:
Yeah.
HWr:
I was told by Cordell to ão it that way.
is
Yeah.
HMJr:
Hackworth was here to keep Cordell advised what I
did.
K:
Yeah.
HMJr:
I asked him when he left, "Are you going back to
report to Cordell what's happened"? And he said,
"Yes."
a
Yeah.
HMJr:
And I figured that -- I don't know what their pro-
cedure 1e but the normal thing would be that they'd
keep you posted. See?
K:
Certainly.
HMJr:
Now, I only learned today that on the following day,
without saying anything to me, Cordell sent for those
same two fellows and called all bets off.
K:
That's right.
HMJr:
Well, I only learned that this morning.
K:
They sent -- well, 16 that 80? Well, they sent me a
wire
HMJr:
Yeah.
K:
and I sent that one, because I -- I sent it
direct to you. I didn't send any message to the
Secretary of State; I said for the Secretary of
the Treasury
- 3 -
230
HMJr:
I got it.
E:
because I was staggered!
HMJr:
Yeah.
T:
They have these monkeye cable me over here and then
they send me back a wire -- it said the offer was
withdrawn and never should have been made.
HWr:
Well, it was discussed at a full Cabinet meeting.
Hello?
K:
Yes.
H.Jr:
for a half an hour.
K:
Yeah.
HMJr:
And then I was told to go ahead and to do it.
K:
Well -- I -- you're the
the thing
that disturbed me very much and I can't tell you how
much -- appreciative I am of your calling me. The
thing that -- there wasn't any sense because you
were going to have a lot of issues that were tying
up that this would completely confuse.
HWr:
Yes. Well, after the Cabinet I said to Cordell,
"How should I do this"?
K:
Well, what W&B going on -- is somebody was willing
to take that particular thing and think it was
all right.
MJr:
Now, Joe
X:
Yeah.
HMJr:
I want to make it plain - after Cabinet I
said to Cordell, "How should I handle this"? And
he said, "Send for the two people here in Washington
and do it at this end."
X:
Well, it's awful funny, Henry, because they said
they know nothing about it.
- 4 -
231
HKJr:
What's that?
They said they knew nothing about it.
HWr:
Well, that isn't true, Joe.
Yeah.
HWr:
Because Johnny Hanes and Hackworth were both in
the room when these two fellows came.
Yeah.
HWr:
They both sat here and Hackworth was delegated by
Mr. Hull to be at my elbow, and it was discussed
at Cabinet for 8. half an hour.
Well, Henry, my own impression is that it doesn't
help the prestige of Cabinet Ministers to have
their -- if they're calling up Ambassadors and
saying that it doesn't count.
H/Jr:
I -- I don't hear you.
K:
I say, I don't think it 18 very helpful to the
prestige of Cabinet Ministers, 1f another Cabinet
Minister calls up Ambassadors and says, "Don't
pay any attention to it."
MJr:
Well
X:
I don't think -- I don't think that that 18 -- is
any good for us over here.
HMr:
Well, you -- I don't know how you feel, but I only
learned today after I had been instructed to do this,
that within 24 hours, without saying anything to me,
they called all bets off.
That's right. They sent me a cable saying there was
no -- it was -- they had sent for the people and told
them to consider that nothing had been said.
SWT:
Well, I was out on the end of the limb under direct
instructions and they sawed the 11mb off.
E:
They certainly sawed it off. Do you want to see the
instruction their wire conveyed?
- 5 -
232
HMJr:
What's that?
K:
You want to get the wire that they sent us.
HWr:
Well, I've asked for it and they won't show it to
me.
is
They won't.
HNJr:
No, I've asked for it and they've refused to show
it to me.
K:
I see.
HMr:
But I didn't want this kind of going on -- now the --
in your mind, and having you feel that -- that an
old pal -- that I've -- that I've done something - well,
-- which I wasn't guilty of.
K:
Well, I -- I appreciate that, Henry, and -- but it --
it looks worse and worse as you tell it to me.
HWr:
Well, Johnny's sitting across the desk from me now
and he was here when those two representatives
came in and 80 was Hackworth. He heard the whole
business.
X:
Yeah. Well, we were -- we were advised that there
was nothing to it and that there was nothing for
anybody to get excited about because it was un-
authorized
HMJr:
Yeah.
X:
and it was withdrawn.
HMJr:
Well, you got off easy.
E:
Yeah.
HMJr:
I say, you got off easy.
X:
I did?
HMr:
Sure.
2:
How?
- 6 -
233
HMJr:
Well, I WE.B authorized to make the representation
and then without any notice they called these two
fellows in and said, "All bets are off."
1:
Yeah. Well, we didn't -- they didn't give us any
authorization, they withdrew it right here in
Washington.
HWr:
Yeah. Well, I wanted you to get it and -- because
these are difficult times and you -- there'll be
lots of things that we've got to do together the
way we have in the past.
!:
Henry, don't worry about this -- don't worry about
the situation because if I was sore I -- you know,
I'd send you word at once.
HWr:
Yeah.
X:
I mean, I wouldn't keep it in my craw, because I
can't do that.
EVJr:
No, I know you and I -- and that goes both ways.
:
All right. I'd rather send you the word and then --
and now here's the situation. I mean, -- if he
goes and queers it up, the only thing to do is --
you've got a real fight with the State Department.
Wr:
I don't hear you.
51
You've got a real dispute then with the State
Department.
HMr:
Well, I'm calling on Cordell at a quarter of nine
tomorrow morning at his apartment.
X:
Yeah.
HMJr:
And I'm telling him that I'm not used to being
treated this way.
%:
Yeah.
HXJr:
But this is just in the family and 60 will you keep
it under your shirt?
134
- 7 -
K:
Certainly. What they're going to do is -- they've
got to build our prestige one to another. They
can't -- there's no sense in us -- in knocking any
of us -- our fellows -- our own fellows off.
MJr:
That's right.
And there -- there's no point in that, end -- and
it makes everybody look like a monkey. I -- I've
had two wires withdrawn this week.
HWr:
What's that'
I've had another withdrawal this week. I got --
another wire they sent me in connection with
HNJr:
I see.
X:
But you can't be wiring to this foreign office
and then get 8. wire 15 minutes later saying withdraw
the offer. They think we're crazy.
HMJr:
Yeah. Well, this is just between you and me.
K:
All right. It's -- it's dead as far 28 I'm concerned,
Henry, and I'm gled you called me up. And you know
how I feel about it. I don't want -- I know very
well that I can save you a lot of bumps as far 18
this place goes.
HMJr:
Well, the next time
X:
if I know what -- what's going on, but this
one struck me 80
between the eyes that I dián't
know whether I wes afoot or horseback.
HiJr:
Well, Joe, if I ever do anything else like this, no
matter what they tell me, I'm going to call you up
on the phone.
X:
Right. I'll do the same, boy.
EWr:
And if they don't like it I'm -- I don't -- they can
go jump in the Potomac.
Regraded Unclassified
35
- 8 -
K:
All right then, I won't pay any attention to that
any more. I mean, they get -- they've got me crazy.
HMJr:
O. K.
K:
All right. Give my love to Johnny.
HWr:
What?
Y:
Give my love to Johnny.
HMJr:
To who?
X:
Give my best to Johnny Hanes.
HWr:
Sure. He'd like to say hello to you.
31
All right.
(Mr. Hanes takes the phone.)
John
lianes:
Hello, Joe.
X:
Johnny, I just sent you my best.
S:
Well, I thank you very much. My best to you, Joe.
K:
Well, I hope everything is going all right. I'm
glad I had B. chance to talk to Henry because --
boy, they handed him one deep ripe tomatoe.
3:
Yeah. Well, I'm glad he got it straightened out
with you so you know exactly where he stands. And
I was with him in all of this thing and what he
tells you 1e the absolute fact of it.
X:
Well, I know -- I know that. I mean -- god, I'd
take his word on anything, but my point is this,
Johnny, I'm -- all I'm doing over here is trying
to find the lay of the land so that you won't make
any mistakes.
H:
Yeah.
K:
Because I see them first.
236
- 9 -
H:
I see.
X:
And there's -- that's why I was stunned at this one,
because I couldn't imagine anybody breaking the law,
with me as familiar as I was with the situation
without at least giving me 8 look.
Sure.
And -- and then they told me to forget it - there
was nothing to it.
Yeah. Well, of course, it was our understanding
that they had told you and when we found out they
hadn't today, we just get an awful shock ourselves.
Yeah. Well, you'll get a worse one.
H:
(Laughs) Well, Joe, it's nice to hear your voice.
Good luck to you.
K:
Well, I -- as I said to Henry, I'd rather send him
a wire right off to him - not for anybody else, but
for him, telling him exactly what was in my mind,
rather than be around here belly-aching.
Yeah. Right!
Yeah.
Well, goodbye, Joe.
Good luck, Johnny.
Good luck.
Goodbye.
September 11, 1939
3:08 p.m.
237
HMJr:
Hello.
Operator:
Governor Harrison.
HWr:
Hello.
0:
Go ahead.
George
Harrison:
Hello.
EVr:
George.
E:
Yes, Henry.
BWr:
How are you?
H:
First-rate, thank you.
H/Jr:
I hope you're going to be here tomorrow.
H:
I'm going to and I'd like to have lunch with you.
HWr:
Good. Well, I'll fix it up with Frank.
%
I would have called you sooner but I just this minute
got through my meeting.
Mir:
Well, other -- well, since then & couple of things
have happened which I think for everybody's sake
that we ought to -- the sooner we clean it up the
better.
50
All right.
HWr:
You'll be here at one tomorrow?
is
I'll be there at one.
MJr:
'Attaboy.
F:
All right.
HMJr:
Thank you.
September 11, 1939
238
4:35 p.m.
Earle
Bailie:
Yes.
HMJr:
Earle?
B:
Yes, Henry.
HMJr:
If you could do it on the phone you'd help me.
B:
Well, Henry, the point 18 this. We've bought 65
million bonds today.
HMJr:
Yeah.
B:
Randolph's been up in New York working with these
people and he feels reasonably satisfied about it.
HMJr:
Yeah.
B:
I feel very dissatisfied about it.
HMJr:
Yeah.
B:
And -- well, Bell 18 8. little bit between the two
fires. Bell's views are not very far from mine.
HMJr:
Yeah.
B:
And -- yet in the situation that we want to clear
with you 80 that -- before the opening tomorrow --
if we -- we do want to Bay something to the Federal,
now that
HMJr:
Well, Earle, I'm completely shot now and my brain
is no use.
B:
Well, I'll talk to you tonight about it.
HMJr:
You'll have to talk to me tonight.
3:
That's all right. I can tell you what Dan thinks
and there's no hurry about it. I just wanted to
give you a chance to hear from Dan as well as me.
HMJr:
Well, if we want Dan I'll send for him after supper.
B:
O. K.
Unclassified
- 2 -
239
HMJr:
But you get what Dan has and you give it to me at
supper time, but I'm completely shot.
B:
Well, you get yourself a little nap and I'll see
you later.
HMJr:
Righto.
B:
Goodbye.
TREASURY DEPARTMENT
240
INTER OFFICE COMMUNICATION
TO
At
DATE Sept. 11, 1939.
Secretary Morgenthau
FROM Mr. Haas OR
Attached 1s a report of a meeting on prices, held Friday,
September 8, 1939, which I attended at Mr. Hanes' request.
Mr. Hanes was given a copy of this report on Saturday, September 9,
1939.
Regraded Unclassified
TREASURY DEPARTMENT
-41
INTER OFFICE COMMUNICATION
DATE Sept. 9, 1939.
TO
Secretary Morgenthau
FROM
Mr. Haas OOH
Subject: Report of Meeting on Prices held in Room 6137
North Interior Building, on Sept. 8, 1939, st
2:30 P.M.
Attendance: Chairman, Mr. Lauchlin Currie, Assistant to the President
Hinrichs, Aflred F.,
Bean, Dr. L. H.,
Chief Economist,
Economic Adviser to A. A. A.,
Bureau of Labor Statistics,
Department of Agriculture.
Joy, Mise Aryness,
Thomsen, Dr. Frederick L.,
Assistant to the Commissioner,
Assistant in Charge of
Bureau of Labor Statistics.
Division of Statistics and
Historical Research,
Edwards, Corwin,
Bureau of Agricultural Economica
Special Assistant to the
Department of Agriculture.
Attorney General,
Department of Justice.
Henderson, Commissioner Leon,
Securities & Exchange Comm.
Kreps, Dr. Theodore,
Economic Consultant,
Gilberts, Richard V.,
Temporary National Economic
Expert, Office of the Secretary,
Committee.
Department of Commerce.
Thomas, Woodlief,
Piquet, Howard S.,
Assistant Director,
Chief of the Economics Division,
Division of Research and
U. S. Tariff Commission.
Statistics,
Board of Governors of the
Blaisdell, Thomas C., Jr.,
Federal Reserve System.
Chairman, Industrial Committee,
National Resources Planning Bd.
Ezekiel, Dr. Mordecai,
Economic Adviser,
Haas, George C.,
Office of the Secretary,
Treasury Department.
Department of Agriculture.
Ur. Currie, who was Chairman of the meeting, said that the
purpose of the meeting was not to discuss policy in connection with
prices but rather to ascertain (1) what price data were being
collected in the various Government departments, and (2) what
(U I -
242
particular price studies of various commodities had been made in
the different departments and whether or not these were being
kept up to date.
Mr. Hinrichs reported for the Bureau of Labor Statistics and
reviewed briefly the price material which that Bureau was collecting.
He indicated -
(a) The Bureau of Labor Statistics now publishes a monthly
index of wholesale prices, both in total and by various commodity
groups.
(b) A similar price index 18 issued on a weekly basie.
(c) For some years now the Bureau of Labor Statistics has
constructed a daily price index at the specific request of the
Treasury Department. Up to the present these particular daily
prices and the daily price index have been made available only to
the Treasury Department. He said, however, that if the Treasury
Department had no objection this index could be made generally
vailable.
(d) During the last week daily retail prices of nine commod-
ities were being secured by telegraph from various cities. He
questioned the reliability of these prices, however, as indicating
the rise in food costs. He went on at considerable length to
explain the difficulties in securing adequate retail price data.
For the time being at least they intend to continue receiving the
telegraphic retail price reports.
(e) The Bureau of Labor Statistics 1s now working out B.
basis for reporting a monthly figure on living costs. At the
present time the B.L.S. Index of Living Costs is published quarterly.
Mr. Thomsen, of the Bureau of Agricultural Economics, pointed
out that the Department of Agriculture assembles daily market prices
on all important agricultural commodities. A monthly index 18 con-
structed of prices paid by farmers and another index of prices
received by farmers. He also indicated that the Bureau of Agri-
cultural Economics releases once a year in the Fall an agricultural
outlook report which describes the price situation for all the
important agricultural products. This general report, he said,
WAS kept up to date by 8. general monthly report and this monthly
report is supplemented by specialized detailed reports covering
each of the major commodities.
Mr. Kreps, of the Temporary National Economic Committee, said
he would like to have the Bureau of Labor Statistics or some other
organization secure prices on important war materials, particularly
the chemicals. He felt that it was more important to keep a careful
*atch on that point in the economic structure than the agricultural
price situation.
3
Mr. Henderson, of the Securities and Exchange Commission,
nsked If the Bureau of Labor Statistics checked prices carefully,
particularly the metal prices, to see if actual business was done
at the quoted prices. He mentioned several of the metals - steel,
zinc, etc. Mr. Edwards, of the Department of Justice and formerly
an Economist with the Federal Trade Commission, and Mr. Hinriche
felt that in A period of increasing demand the quoted prices would
rarely be nominal prices.
Mr. Edwards said he thought it would be very valuable for some
department to assemble what he called 8 library of "price instruction
sheets". He pointed out that in the steel industry, for example,
this 16 A very good way to accurately follow what 18 nctually being
peid for the commodity.
Mr. Currie, after hearing this review of price material end
price analyses which were available in the Government departments,
then said that he thought studies of certain industries should be
made 80 as to forecast when bottlenecks or capacity production
would be reached. He expressed an interest in the following
industries: steel, railroad equipment, electrical equipment, and
chemical. The studies, he thought, should attempt to estimate
not only the domestic demand but also the European war and related
demand, and from this combination make an estimate of when capacity
production might be reached. The Department of Commerce and the
Justice representatives tentatively agreed to carry on investigation
along the lines suggested.
Mr. Currie closed the meeting, saying that he felt hé was
much better informed as to what was available in the Government
departments with regard to price material, and that it was possible
that Mr. Stettinius, Chairman of the War Resources Board, may call
unon him to act as liason man in securing information available
In the Government departments. He also indicated that similar
meetings would be held in the future.
Regraded Unclassified
244
September 11, 1939
2:30 P. m.
Present:
Mr. Hanes
Mr. Thompson
Mr. Graves
Mrs. Klotz
The Secretary explained that 80 far he
has been unable to get the Assistant Secretary
he has been looking for who would handle Procure-
ment, Bureau of Engraving and Printing and the
office of the Director of the Mint. His thought
WSB to place Harold Graves in charge of these
divions of the Treasury until such time as a
suitable Assistant Secretary can be found. He
pointed out that these are the only Divisions of
the Treasury which have not had 8. check-up or
study made of them and said he did not like the
idea of these three Bureaus floating around with
no one to look after them.
The Secretary asked Mr. Thompson if there
should be any order announcing the assignment of
Mr. Graves and Mr. Thompson said yes, he thought
there should be and that he would prepare such an
order.
Mr. Graves pointed out that there are a
few odds and ends in connection with his work in
the Bureau of Internal Revenue which he would like
to follow through to a conclusion, and the Secre-
tary agreed that he should.
He told Mr. Graves
he would like to be kept posted after Graves got
started on his new assignment.
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
245
CONFIDENTIAL
DATE September 11, 1939
TO
Secretary Morgenthau
FROM
Mr. Haas SOA
Subject: The Business Situation,
Week ending September 9, 1939,
Conclusions
(1) A continued rise in industrial production appears
in prospect for the months immediately ahead, with inventory
accumulation and war orders adding their influence to an
already favorable business situation.
(2) Last week's precipitous rise in basic commodity
prices has brought on a nationwide buying movement, which
1a likely to be quickly translated into increased industrial
production. To the extent that this reflects an anticipation
of future needs, however, it will tend to make the position
of business more vulnerable.
(3) The price upturn represents the combined effect of
et least four factors: (a) A low-inventory situation; (b)
widespread speculative buying of foodstuffs and other com-
modities; (c) 8 delayed response of prices to the recent
improvement in business activity; (d) the large volume of
idle funds seeking investment.
(4) Price movements are likely to be highly erratic,
perticularly in view of the possibility of peace rumore, and
A substantial setback 18 possible from current levels. The
possibility of B setback 1s strengthened by the following facts:
(a) The upturn occurred go suddenly that existing
supplies could not at once be made available to buyers:
(b) burdensome stocks of various agricultural products
remain 8. major domestic problem; (c) the widely-expected
war demand may prove disappointing, since the near-term
requirements of many countries have been enticipated;
(d) the heavy fall marketing of cotton, hoge, and cattle,
will soon provide increased pressure on prices.
Secretary Morgenthau - 2
246
The general situation
Economic developments of the past week have largely
centered around the sensational upturn in commodity prices,
which has brought such an increase in public demand for goods
and commodities as to assure a continued rise in industrial
activity during the months immediately shead.
The price rise has been general among domestic ae well
88 import commodities. (See Charte 1 and 2.) As compared
with closing quotations on August 31, the futures prices
for commodities included in the two charts showed on
September 8 the following percentage increases:
Per cent increase
Sugar
38
Lard
30
Hides
28
Cottonseed oil
25
Wheat
24
Copper
23
Rubber
17
Silk
17
Cotton
13
Tin
8
Coffee
7
The price upturn 1e the direct result of at least
four factors:
(1) A low-inventory situation in industry
generally, which had threatened for some time to bring
about a buying stampede as soon as prices turned upward.
(2) A speculative buying movement among consumers
and others, on the belief that this war will bring &
repetition of the price inflation that accompanied the
World War.
(3) A delayed response of prices to the sharp
increase in business activity and industrial demand
which has occurred during the past several months.
(4) The large volume of idle funds seeking invest-
ment, some part of which has doubtlees been diverted to
the commodity markets.
Regraded Unclassified
Secretary Morgenthau - 3
247
For practically a year, prices of basic industrial
materials had failed to respond adequately to the rise in
business activity. The shock of war, and the buying move-
nent it has created, have served to correct this disparity.
(See Chart 3.) During 1936 commodity prices lagged in &
somewhat similar manner, until the announcement of the
Sritich rearmament program late in that year touched off R
orice boom that lasted until the following spring.
Probable effects of price rise
The upturn in commodity prices, coming on top of an
improving business trend, will add 8. strong impetue to
industrial production through stimulating inventory accumu-
lation. This factor 18 entirely apart from whatever business
improvement may be derived from war orders and from foreign
demand diverted to this country because of the war.
Some idea of the potentialities in inventory accumula-
tion 88 a business factor may be gained from Dun and Bradstreet's
estimates, which show that from December 31, 1937, to
December 31, 1938, inventories in manufacturing, wholesale
trude, and retail trade were reduced $1,762,000,000. Avail-
Abie information indicates that inventories currently are not
such above those at the end of 1938.
To the extent that buyers anticipate their forward
requirements, and inventory accumulation brings a rise in
Industrial production above the level of consumption, the
future position of business will be weakened. This need not
necessarily result in an important business setback, however,
since (1) consumption will increase with improving business;
[2] 6 larger volume of inventories will be needed for trade
requirements; (3) if the price outlook remains favorable, it
will reduce the danger of inventory liquidation.
Industrial buying increasing
Evidence of a strong buying movement, representing in
port an anticipating of forward requirements, appears in
various industries. Sales of cotton cloth last week, accord-
Ing to the New York Times, reached & total estimated at over
550,000,000 yards or the equivalent of 20 weeks' production,
the largest in several years. Steel buying has increased
substantially, A6 domestic consumers have hastened to cover
Regraded Unclassified
Secretary Morgenthau - 4
249
their future requirements, A buying rush has developed in
the chemical industry during the past few days, and manu-
facturers of such products as paper and plate glass have
been faced with a broader demand for their products due to
B threatened restriction of foreign supplies.
These developments have not, AB yet, been reflected to
any appreciable extent in the published business statistics.
Our new orders index for the week ended September 2, before
the buying movement started, showed some decline from the
week before though remaining within its recent range. (See
Chart 4.)
Nevertheless, these developments have added to a busi-
ness situation that was already optimistic, and will shortly
provide a further impetus to the rising business trend. The
New York Times business index for the week ended September 2
rose 1.7 points to 94.0, 8. new high since December 1938. (See
Chart 5.) The Labor Day holiday will tend to obscure the
underlying trend in the week ended September 9, but the
following week will begin to show the effects of the recent
buying movement.
The seasonally-adjusted indices of steel production end
cotton mill activity, representing the two most heavily-
weighted industries in the FRB index, also rose during the
week ended September 2. (Shown on Chart 5.) Steel activity
this week wele boosted sharply to 70.2 per cent of capacity,
which compares with 58.6 last week, when it was reduced by
the holiday, and with 63.0 the previous week. Cotton mill
activity will doubtless rise further because of last week's
orders.
Increased demand from the agricultural areas resulting
from the marked improvement in prices of farm products may
become an important business factor, though its effect will
be more or less offset by 8. reduced purchasing power of other
consumers due to increased living costs.
Relapse may follow speculative buying
While B. substantial rise in commodity prices was warranted
by the improving business outlook and the prospect of increased
war demand, particularly in view of the depressed levels
to which prices had fallen earlier in the year, there is
little doubt that a considerable part of the recent upturn
Regraded Unclassified
Secretary Morgenthau - 5
269
has been of 8 purely speculative nature. Remembering the
high prices of the World War period, housewives throughout
the country have rushed to lay in supplies of such com-
modities 86 sugar and flour, attempting to buy in a few days
their requirements for several months, The result has been
a severe depletion of retail stocks of various commodities.
The shortage has not been in actual supplies, but in
immediately available supplies at the location of demand.
Speculative buying in the futures markets has been stimu-
lated by these developmente.
Erratic price movements seem in prospect, particularly
in view of the possibilities of peace rumors from time to
time. Since speculative price movements are notoriously
unsound, it 18 entirely possible that the almost percendicu-
Iar price rise of the past week may shortly be followed by
e substantial reaction.
The surpluses of various farm commodities which have
recently been a major domestic problem are just as heavy 88
ever, and an actual increase in demand as 8 result of the war
le not yet certain. Unlike in the previous war, many
countries have already anticipated much of their near-term
requirements. Certain other factors will operate egainst
the markets after the "shock" effect of the war has worn off:
(1) Prices have been carried up in part by the
suddenness of the increased demand, which has created
temporary shortages that will probably soon be corrected.
(2) Increased supplies of various agricultural
products will soon come on the market.
(a) The cotton crop will begin to move in
heavy volume this month. The cotton crop was
officially estimated last Friday considerably
above general expectations, at 12,380,000 bales
versus 11,943,000 bales last year.
(b) A very heavy movement of hoge expected
during the fall and winter, together with 8
seasonal increase in cattle marketing, will bring
increased pressure on livestock prices.
(c) The higher wheat prices are likely to
cause increased planting of wheat this fell. They
will also increase the "available" supply by
reducing the amount going into the Government loan.
Regraded Unclassified
PERCENTAGE CHANGE IN PRICES OF SELECTED COMMODITIES
250
December Futures
PER
CENT
Sugar (Jan. Futures)
35
30
Lard
Hides
26
Cottonseed 011
Wheat
Copper
20
Rubber
Silk
15
Cotton
10
fin
Coffee
5
0
Ang. 31, 1959
Sept. 8, 1939
Office of the Secretary of the Treasury
? - 182
Division of Research and Statistics
PAICES OF SELECTED DOMESTIC COMMONITISS
#ookly Averages (Futures)
Daily Futures*
wast
-
a
BASE
LEAVE
CANTE
PLA
PER
FLR
Pound
POURS
FOUND
Cotton
TE
Cotton
"
13.0
1040
10
10
9
5
9.0
9.0
é
0
7
7
8.0
8.0
CENTS
CENTS
è
PER
PER
to
RUSHEL
BUSHEL
CENTS
CENTS
90
90
PER
Whest
PER
Instruct
BUSHEL
Wheat
so
eo
ao
BQ
70
70
no
70
8
60
34
50
CENTS
SENTS
PER
PER
FOUND
FOUND
Lard
&
NO
7.5
7.5
CENTS
CENTS
PER
PER
7.0
7.0
Lard
POUND
FORD
7
5.5
6.5
7
6.0
5,0
6
é
5.5
5.5
à
5
5.0
5.0
à
+
14
14
s
15
Hides
is
Hides
13
13
1:
14
R
2
If
H
H
"
10
10
y
y
0.5
8.5
e
-
Cottonseed 011
Cottonseed 011
8.0
8.0
7
7
7,5
7.5
&
6
7.0
7,2
1
5
6.5
6,5
6.0
4
4
6.0
3.5
Copper
5.5
14
12
13.0
15.2
Copper
12.0
ID
IC
12.0
^
11.0
11.0
.
e
10.0
10.0
N.O
6
é
9.0
MAR,
i
JULY
SEPT.
NOV,
JAM.
MAR.
a
27
e
17
₹
JAN.
.
sujust
LEPTEMBER
1939
1940
1935
rutures
251
NAT FUTURES
-
SEPT. FUTURES
-
DCC. FUTURES
-
MAY FUTURES
* FUTURES
(MIDES, FUTURE) (GGITON, OCT. FUTURE)
(Hracs, ANL FUTURE)
the Sentary of the Insury
# - and
Regraded Unclas
Chart 1
PRICES OF SELECTED IMPORT COMMODITIES
Wookly Averages (Putures)
Daily Putures*
1939
1933
1939
IVAO
AUGUST
SEPTEMBER
MAY
JULY
LEFT.
NOV.
JAME
MAR.
20
27
3
CENTS
10
17
CENTS
24
CENTS
PLA
PER
CENTS
PER
FOUND
FOURSE
PER
FOUND
23
FOUND
23
20
Rubber
20
Retiber
22
22
18
la
21
21
20
16
16
20
19
IS
14
14
16
=
12
12
17
17
7.0
7.0
e
Coffee
8
Coffee
6.6
6.6
7
7
)
6.2
4-2
5.8
5.0
6
6
5.4
5.4
5
5
3.0
3.0
Gupar
4
4
2.8
2.8
2.8
Sugar
2.8
2.6
2.6
2.6
2.6
2.4
2,4
2.4
2.4
2.2
2.2
2.2
2.2
2.0
2.0
z.o
2.0
1-8
1.8
DOLLARS
DOLLARS
1.8
FEA
1.8
PER
POUND
POUND
DOLLARS
BILLARS
2,80
Bilk
2.80
PCR
PER
POUND
FOURS
811k
2.60
2.60
2.80
2.80
2.40
2.40
2.60
2,80
2.20
2.29
2.00
2.00
2.40
2,40
1.80
1.80
2.20
2.20
CENTS
COITS
PER
P
1.60
1.60
FOUND
1
64
64
CENTS
CENTS
PLA
Tin
PER
POLICE
FOURD
Tis
36
60
9
56
32
52
56
56
48
48
52
x
44
44
4d.
40
&
&
36
-
MAI,
JULY
36
44
MAY
SEPT.
É
44
JAN.
1
20
27
3
10
17
24
1939
1940
AUGUST
SEPTEMBER
1939
252
SEPT. FUTURES
MY FUTURES
SEPT. FUTURES
DEC. FUTURES
MAY FUTURES
- FUTURES
(SUGAR, JAN. FUTURE)
- FUTURE)
the Secretary of the Treasury
of - - -
Regraded Unclassit
Chart 2
egraded I Unclass
BUSINESS ACTIVITY AND PRICES OF SENSITIVE INDUSTRIAL MATERIALS®
938
1939
JUNE
001.
DEC.
FLB.
APR.
JUNE
AUG.
OCT.
DES.
PERCENT
PERCENT
(PRICES)
(BUS. ACT.)
Weekly
125
100
115
95
BUSINESS ACTIVITY, N.Y. TIMES
EST. NORMAL = 100, ADJ.
105
90
95
85
PRICES OF SENSITIVE
INDUSTRIAL MATERIALS
85
1936 = 100
80
75
75
65
70
JUNE
AUG.
OCT.
DEC.
FED.
APR.
JUNE
AUG.
OCT.
DEC.
1938
1939
*INDEX INCLUDES SPOT PRICES OF STEEL SCRAP, TIN, COPPER, LEAD, ZINC, BOOL, PRINT CLOTH, RUBBER AND HIDES.
Office of the Secretary of the Treasury
Chart 3
Division of hand and
c - 274
253
INDICES OF NEW ORDERS
Combined Index of New Orders and Selected Components
1939
SEPT,
PERCENTANT
PERSINIAGE
FORM
POINTS
100
100
90
3
TOTAL COMMINED INDER
1936 - 100
ao
BD
70
70
8
60
50
50
TOTAL EXCLUDING STELL AND TEXTILES
40
40
30
30
STEEL CADERS
20
20
10
10
TEXTILE ORDERS
0
0
JAN.
MAR.
MAT
JULY
SEPT.
NOV.
Jalie
MAR,
MAY
JULY
SCPT.
1936
1939
the of - Secretary - the Transary
1-85-A
- of - - -
CONFIDENTIAL
Chart 4
25
Regraded Uncla
255
BUSINESS ACTIVITY
Chart 5
PER
CENT
Seasonally Adjusted
Est. Normal . 100
110
100
37
36
90
38
39
80
70
N Y Times
60
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
STEEL INGOT PRODUCTION
COTTON MILL ACTIVITY
PER
PER
CENT
CENT
Est. Normal = 100, Adjusted
1921-31-100 Adjusted
120
140
37
39
100
120
36
36
37
80
100
38
39
60
80
38
40
60
imps
N.Y. Times
40
AN
MAR
MAY
JULY
SEPT
JAN
MAR.
MAY
JULY
SEPT.
NOV.
NOV
Socretary of the Treasury
C-235-1
- and States
256
GROUP MEETING
September 11, 1939.
9:30 a.m.
Present:
Mr. Hanes
Mr. Duffield
Mr. Smith
Mr. Haas
Mr. Bell
Mr. Foley
Mr. Graves
Mr. Thompson
E.M.Jr:
John?
Hanes:
I haven't got anything except we are having that
meeting here at 11:00 o'clock, which you know
about. Everything is under control. After we
have met, I would like to have five minutes with
you, and then tell you what we have recommended,
so you will have it in time for your press con-
ference this afternoon.
H.M.Jr:
I want it in plenty of time to digest it.
Hanes:
Sure.
H.M.Jr:
It affects the banks?
Hanes:
Yes.
S.M.Jr:
Well, let Tom take B look at it.
Hanes:
I did ask Burgess. Tom wasn't here. I thought
I would ask him to meet me right after we have
met with these people, or if they would like to,
sit in. I would like to have them if they are
not too busy with something else. It is under
Section 3 of the Neutrality Act which affects
banking credits.
S.M.Jr:
Either way, either they do it then or when it
comes to me they can sit with me and do it that
way.
Bell:
Burgess isn't here today.
Regraded Unclassified
257
- 2 -
H.M.Jr:
So I understood, But I would like to have plenty
of time.
Hanes:
I remember that I told Burgess that I would read
to him over the telephone in New York what we
decided, before you give it out to the press.
H.M.Jr:
Maybe it would be just as well if you and Tom and
I talk to Burgess on the phone.
Hanes:
Sure.
H.M.Jr:
Is that all right?
Smith:
Sure.
H.M.Jr:
United Press asked us about B. report from London
that the United States was negotiating for the
purchase of the Normandie. I think if I am asked
that question - if they ask me at 3:00 o'clock -
I don't want to lie to the boys. I will have
nothing to say.
Duffield:
They may not ask you because I rather indicated
over the phone last night when they asked me that
it wasn't 8. matter which would ordinarily come
under the Treasury.
B.M.Jr:
Under the State Department?
Duffield:
Maritime Commission is where they are working on it.
H.M.Jr:
Well, the State Department kind of grabbed it off.
Why not let it come under the State Department?
Hanes:
It seems to me there ought to be some way to answer
that so as to kill it.
H.M.Jr:
There are no negotiations going on. There were and
they were killed. That 1a the truth.
Hanes:
You could hardly call them negotiations.
H.M.Jr:
No.
Duffield:
That would be a good answer, if you could make it,
that there are no negotiations going on, as far
as you know.
258
- 3 -
H.V.Jr:
Well, no, I am not now carrying on any negotiations.
Hanes:
I would just say definitely there are no negotiations
for the purchase and let it go at that. No further
statement and no further comment.
H.M.Jr:
That does not mean that there were none.
Hanes:
If they ask you 1f there were, you can say, "I have
no further comment. There are no negotiations. "
That will do it.
H.M.Jr:
Well, if they ask you (Mr. Duffield) again, you can
simply say there are none.
Duffield:
As far as we know at the Treasury or in the Treasury,
yes.
H.M.Jr:
As far as the Treasury is concerned, we have no
negotiations.
Duffield:
That is a good answer.
H.M.Jr:
I knew that thing would leak sooner or later.
Duffield:
It came from the wrong capital.
Hanes:
Where did it come from?
Duffield:
London instead of Paris.
H.M.Jr:
I will write a letter to Joe when I get a chance.
Anything else?
Hanes:
No.
Duffield:
I have nothing.
H.M.Jr:
George?
Hans:
Nothing yet. We are getting some - at least here is
one telegram - people are asking you to investigate
high prices.
H.M.Jr:
I talked with the President about it at Hyde Park
coming down and I didn't get very much satisfaction.
259
- -
BRAS:
If the budget summation is going to be issued, I
think we ought to have another chance to look
over the revenue estimates. It may not be issued
at all. If so, we can let it ride.
Bell:
I think we ought to look it over anyhow. That is
the reason it was held up during your absence (speaking
to the Secretary), and Mr. Haas's absence. Looking
over the budget summation, we found that the revenue
estimate was materially reduced from January and
there is a statement in there that one reason it
was reduced was because we are not quite so optimistic
about the business outlook 8.8 we were in January.
We thought that wasn't quite the thing to put out
at this time.
H.M.Jr:
Who put that in?
Sell:
That was a memorandum written, I take it, by Miss
Michener.
Hass:
I dictated over the phone - that was good at that
time, but that is academic now in view of the war
coming on.
Bell:
We questioned whether you ought to put out e state-
ment like that, to say that we are not quite so
optimistic at this time.
Hass:
It didn't say that, Dan.
Bell:
That is the sense of it. So I asked Smith to hold
it up until you got back (speaking to the Secretary).
and there is where it 1s now. It 1s being held.
I take it this war situation will even change it
more.
S.M.Jr:
Why change it?
Bell:
Not only the revenue but the expenditure side.
S.M.Jr:
Would you take another look at it?
Bell:
I think Mr. Hans and Mr. Hanes ought to go back
over it and see whether or not we can eliminate
the reductions in the estimates due to the outlook
for business.
Regraded Unclassified
260
- 5 -
Haas:
I think you can do more than that now.
Hanes:
Dan and I talked about it when you were away
(speaking to the Secretary), and our estimates
showed about 261 million dollars reduction of
revenue. I think that is about right.
Hoas:
Part of it was Social Security which was eliminated,
the increase.
Hanes:
We decided the best thing to do was hold it up be-
cause we didn't want to put out a statement that
seemed 80 different than conditions at that par-
ticular moment.
H.M.Jrs
Supposing you grab hold of this and take a look
at it and when you are satisfied with it, using
the Treasury staff, bring it in and show me that
part which you think ought to be read. How 1a
that?
Hanes:
Fine.
H.S.Jr:
Will you take that responsibility?
Hanes:
Yes.
H.M.Jr:
All right. Now, George, there is one thing I would
like you to do. I wish you would take a look at
all of the expenditures, money that Agriculture
has available for this fiscal year, and in view
of the price rises on parity payments and things
like that, what money does it look like they will
not have to use, see?
Haas:
Yes.
E.M.Jr:
After all, I remember they got about 350 million
dollars for parity payments alone, didn't they?
Bell:
225 million for parity payments and the rest of
it was for loans to buy farms.
H.M.Jrt
Well, take a look at that, whatever it is, and in
view of the price rise, what monies are we likely
to save that they cannot use. Then the other thing,
for instance, on the Soil Conservation, which had
about 500 million at that time: For instance,
Regraded Unclassified
261
- 6 -
they pay me to put in rye and plow it under, 888,
to enrich the soil. How many of those kind of
things are in the process and what are those
kind of things that they might want to change,
because maybe we want more cTopB. Do you see?
Haas:
Yes.
H.M.Jr:
It is silly to pay me for planting that rye end
next spring give me so much an acre for plowing
it under. But, that 1a what they do. For every
acre of rye I plant and plow under, they give
me a bonus. They have got 500 million dollars for
that and a lot of these Soil Conservation things.
As to the rise in prices, and making 8. bold fore-
cast, why, possibly we might show the President
that they might save several hundred million
dollars.
Haas:
They may change their policy on that.
Hanes:
As a matter of interest, I think the report is
that Lauchlin Currie called up on Friday, I think,
after you had gone and asked us to send 8. representa-
tive to B. meeting Friday afternoon at 2:30. I
asked George Haas to go and he did go, and I have
B. memorandum for you on that meeting. No policy
matter was discussed, but the price situation was
discussed, and they had representatives there from
the Agriculture Department. I have forgotten now
who the other people were.
BARS:
About fourteen people from all over the Government.
The main point was informing themselves what material
was coming into the Department from prices, what
studies had been made, and the whole meeting was
taken up on that. He said there were going to be
some more meetings.
S.M.Jr:
Keep me posted.
Baes;
I will.
H.M.Jri
But you will take e. look at that?
Haas:
Yes, I will do that right away,
Regraded Unclassified
262
- 7 -
Smith:
That might be substantial, the thing you were
talking about.
H.M.Jr:
I'm thinking in terms of three to five hundred
million dollars.
Smith:
Aren't there other things except rye?
H.M.Jr:
I mean that the Soil Conservation program is
500 million. The parity payments are 225 million.
That 18 725 million dollars.
Bell:
About 140 or 150 million dollars of surplus food,
Customs money.
Smith:
This condition might make that a mess.
H.M.Jr:
Then there is the money for exports
Haas:
They've dropped that.
H.M.Jr:
Take B. look at the whole thing and we might say to
the President, "Here is a chance of saving hundreds
of millions of dollars which you may want to use
for purposes of national defense, to prepare the
nation," do you see?
Haas:
There is a capital impairment of 119 million dollars
which the Congress appropriated. I saw 8. statement
in the paper that that was all regained.
Bell:
That was in the paper.
H.M.Jr:
Well, George, you get that.
Haas:
I get that.
H.M.Jr:
Don't you think that 1s a good idea?
Smith:
I could see 500 million dollars.
S.M.Jr:
I think that 500 million dollars is - especially
where they are going to need additional monies.
Smith:
Of course the change in prices makes that unnecessary.
H.M.Jr:
Yes.
263
- 8 -
Haas:
I will get right on that.
Foley:
I don't have anything.
Graves:
I have nothing.
Bell:
I guess you know that we bought 379 million dollars
in bonds since September lat, including Friday, the
first.
H.M.Jr:
No, I didn't.
Bell:
279 million in bonds and about 50 million in notes
and about 50 million guaranteed.
Messersmith is having a meeting at 10:00 o'clock
to try to find ways and means of getting money and
bringing Americans back from abroad. He asked me
to attend it, more because of my former connection
with the budget than anything else, I guess there
1s no objection 1a there?
H.M.Jr:
No, as long as you keep me posted.
Would you tell me - I couldn't get it quite clear
from the papers - if the Intermediate Credit sort
of decided to make that offering? That is the way
it read in the paper.
Bell:
That is what we decided the night before.
E.M.Jr:
The morning newspapers said they didn't get notice
of it.
Bell:
I take it that Don didn't announce it until that
morning. It went 105 million, a 30 million dollar
issue. It went very well.
E.M.Jr:
It went very well. That 1s all right.
Bell:
They were over here at 5:30 and that meant 6:30
in New York. It may have been that they got it too
late in time to get out these notices. That might
be the answer.
H.M.Jr:
But it went all right?
Regraded Unclassified
264
- 9 -
Bell:
Yes, it went fine.
Thompson:
I have a letter from General Watson asking that
the Commissioner be sent home from that Jackson-
ville case.
E.M.Jr:
Asking that John J. Fahs be appointed for - vice
Duffield:
In place of
E.M.Jr:
In place of J. Edward Larson. What are they going
to do with Larson?
Thompson:
Well, the Department of Justice have offered Larson
a 60-day appointment. Senator Pepper's secretary
tells me that the Department of Justice might renew
that beyond 60 days. He doesn't think Larson 18
going to take the job. He is planning to run for
State Treasurer of Florida.
H.M.Jr:
That is the second time you have ordered it?
Thompson:
Yes, I ordered it two weeks ago. I have an order
here saying the Bureau of Customs will be assigned
to Basil Harria, in the capacity as Assistant to the
Secretary.
E.M.Jr:
What about the salary?
Thompson:
No salary. This letter just gives him the authority
to sign the class of mail the Assistant Secretary
would sign.
E.M.Jr:
All right.
Now, how about your moving?
Thompson:
The moving has made great strides. Mr. Smith moved
in this morning.
H.M.Jr:
Has he got a place?
Thompson:
A beautiful place.
H.M.Jr:
(Speaking to Mr. Smith) Is it all right?
Smith:
Sure.
Regraded Unclassified
265
- 10 -
Hanes:
Are they moved in?
Thompson:
Moved down this morning.
H.M.Jr:
Did you get the right kind of sharks?
Smith:
Didn't get one, It rained. We caught a submarine
and a German freighter. We were out in the picket
boat and a submarine came up right in front of us.
E.M.Jr:
Are you serious?
Smith:
Yes, I'm serious.
Foley:
An American submarine?
Smith:
Yes, they were practicing and the thing came up
right out of the water in front of us.
H.M.Jr:
What did you do?
Smith:
Looked at it. It is & sensation, though. And then
we started in after B. while and one of these German
motor vessels, coming from Boston to New York on
the inside route, came along. I didn't see what
the name was, but it was B. German vessel and they
said it had been up - made a trip a few days before
that through the Cape Cod. Canal and down. That is
all we could catch. It was very interesting, though.
Poley:
Mr. Secretary, there are two things, if I may bring
them up. One, the President signed a second order
on Friday speeding up the expenditures of the
regular appropriations for the Army and Navy and
Marines. Would you want to present one to the Coast
Guard?
B.M.Jr:
Yes.
Polay:
It isn't necessary, but he said he wanted to do it,
I understand, by Executive Order.
Bell:
The one for the Coast Guard is already presented,
went in last Monday or Tuesday.
Poley:
The Executive Order?
Bell:
No, speeding up the expenditures of the Coast Guard.
Regraded Ur classified
266
- 11 -
Foleys
But he signed an Executive Order. He's doing it
for the Army, Navy and Marines, and I thought we
might want to do it the same way, 80 far as the
Coast Guard is concerned, because you are adding
additional men because of this emergency.
H.M.Jr:
What about that?
Bell:
I don't know, but I think in the case of the Army
and Navy and Marine Corps it requires an Executive
Order under the National Defense Act, whereas under
the Coast Guard, it only requires money, and we
did send to the Budget last Tuesday B. request for
release of funds to take on those thousand men that
you said the President had approved last Monday.
That has gone to the Budget and I think it 1s
approved by this time,
Foley:
We found out about it from Justice. They had already
sent the order over to the White House. They said
they would have included the Coast Guard if they had
had the suggestion earlier.
H.M.Jr:
What do you suggest, Dan?
Sell:
We might look into it and see whether or not there
is anything like that required under the Coast Guard
law.
Foley:
It would simplify the thing and as long as he wants
to sign these Orders doing these things and making
public acknowledgment of it, it might be just 8.8
well to handle it this way.
E.M.Jr:
Dan, will you let me know?
Bell;
Yes, sir.
Foley:
The other thing 18 adding two additional belligerents
to our war credits regulations. Berle told me that
he would take care of our regulations as he took
care of the other orders, as additional belligerents
came in, and he didn't do it in so far as South Africa
1s concerned, and now Canada has come in, so it is
a question of whether we want to take the initiative
and present something to the President to bring that
regulation up to date today or wait on the State
Department.
267
- 12 -
Hanes:
They did bring South Africa up, didn't they?
Foley:
No, they did it for the Neutrality Proclamation
but not for our regulations.
Hanes!
I think so far as the Coast Guard and Customs are
concerned
Poley:
That 1s all right,
Hanes:
We added that. We sent out telegrams, you know,
Foley:
But they didn't bring up to date our regulations
in so far as credits to belligerents go, and now
there are two new belligerents, South Africa and
Canada.
E.H.Jr:
Can't that be taken care of?
Hanes:
Sure, but we haven't issued any regulations on the
belligerents yet.
Poley:
The President has signed this regulation and you
have got to add, each time a new belligerent comes
in, those belligerents to that regulation. So he
has to amend that regulation to add South Africa
and Canada.
Hanes:
I would assume that would be our responsibility,
to present that to the President for addition to
the regulations, wouldn't it?
Foley:
Are you going to see him at noontime?
E.M.Jr:
I usually do.
Foley:
Would you like to take
H.M.Jr:
No, let it go through the regular way. It can be
drawn up by Hanea, and Thompson can send it over the
regular way. It is up to you fellows to get it to
Thompson and let Thompson send it over there.
TREASURY DEPARTMENT
208
INTER OFFICE COMMUNICATION
DATE Sept. 12, 1939
TO
Secretary Morgenthau
FROM
Mr. Haas GA
subject: Corn marketing quotas.
Under the Agricultural Adjustment Act of 1938, 86 amended,
the Secretary of Agriculture may proclaim on or before Friday
of this week that a corn surplus 1s in prospect, preliminary to
conducting B referendum among farmers on the edoption of market-
ing quotas. Economists of the Department of Agriculture are
meeting on this problem this morning. The grain trade appar-
ently does not expect such & referendum, since total corn
supplies as indicated by yesterday's official crop estimate are
only moderately higher than last fall, when B. referendum was
considered unnecessary.
The Act provides that marketing cuotas shall be put in
effect in the commercial corn-producing area whenever the
Secretary of Agriculture determines from available statistics
of the Department that the total supply of corn as of October 1
*111 exceed the normal supply by more than 10 per cent, subject
to the following provisions:
(a) The Secretary shall determine, on the basie of
the current year's yield, what acreage would make available
E total supply of corn equal to a normal supply. This
acreage, expressed as a percentage of the acreage allotment
under Section 328 of the Act, gives the "marketing percent-
age" for the application of quotas.
(b) The Secretary shall proclaim his finding that 8
surplus 18 in prospect, together with his determination
of the marketing percentage, not later than September 15.
(c) Within 20 days after the issuance of the proclama-
tion & referendum shall be conducted among farmers subject
to the quota. The quota becomes effective only upon
approval by two-thirds of the farmers voting.
After marketing quotas are established, there is determined,
for each farm on which the acreage of corn exceeds the marketing
percentage, 8 "storage amount" which cannot be sold without
heavy penalty.
Regraded Unclassified
269
PARAPHRASE OF TELE GRAM RECEIVED
FROM: American Embassy, Berlin, Germany
DATE: September 12, 1939, 9 a.m.
NO.: 1200
The introduction of full war control measures has
occasioned little surface disturbance, since the German
economy was already on a military basis. However, the
measures for rationing are not working with complete smooth-
ness everywhere. There are sufficient stocks in many shope
to meet the restricted requirements of the customers, but
there is complaint in certain districts of the city that
the customers cannot get all the items listed on their ration
cards. During the morning buying hours there are long
lines in front of food shops.
There have as yet been no heavy runs on the banks, nor
have formal restrictions on withdrawals been imposed, 80
far as can be ascertained. However, an informed source
tells us that in certain centers there have been gradual
withdrawals and steady buying of articles whose sale 1a
not restricted or rationed. It may be said that the situation
1e one of incipient anxiety 8.8 to the mark's stable purchasing
power. The stock exchanges have not been closed. It is under-
stood that the turnover on the market 1s greater than in the
dull markets of late spring and early summer, although during
the past two days trading has been quieter and certain shares
have
270
- 2 -
have lost a part of the gains which they realized last week.
Apparently the bond market 18 remaining firm; shipping shares
are removed from trading.
The Reichsbank statement for the first week of September
reflects the heavy financial demande of the Government. This
statement showed that instead of the decrease in currency
circulation and loans and investments which invariably occurs
during the first week of the month, there has been & further
increase. On August 31 the total currency circulation of
the Reichsbank was 11,640 million marks; on September 7 it
had increased to 11,993 million marks. During the week the
bill and check portfolio rose from 10,272 million to 10,592
million marks. This statement again omitted from its record
of currency circulation the amount of coins and rentenbank
notes. It 1a certain that the amount of rentenbank notes in
circulation has gone above the figure of 400 million marks,
at which it has been relatively stable for the past three years,
in view of the introduction of one, two and five mark denomina-
tions. During the week the rentenbank note issue rose from
10,907 million marks to 10,970 million marks. It 1s probable
that the total currency circulation is now fairly close to
13.5 billion marks, assuming increased rentenmark (rentenbank
note) circulation and no decrease in ooin circulated.
Just
271
- 3 -
Just now it 1e still too early to speculate as to how
successful the control authorities of the Third Reich will
be in maintaining price stability, under war conditions, for
the next few months. A good authority tells us that it is
the belief of the price control authorities that the Govern-
ment should go farther in increasing taxation and decreasing
wages, saying that the measures which have been taken 80 far
for reducing and sterilizing expendable income are not
sufficient to insure against developments of an inflationary
character. Bo far, however, the Government 16 opposed to
further action in the field of direct wage reductions and
increased taxation. The Government, says one authoritative
opinion, will be successful in stabilizing the prices and
in assuring & fairly equal distribution of those things which
are vitally necessary. However, in the less necessary and
luxury articles, the Government will not be able to prevent
inflationary price advances, this authority states. Also,
this same source says it is very doubtful that any important
or general reduction of prices could be carried out by the
Government. It 18 his belief that the Government will be
successful in enforcing increased saving, through its
rationing measures; however, during the war these savings
cannot be used, and the Government will eventualy have to
"wipe out'
272
- 4 -
"wipe out" through capital levy or through inflation not
only the savings from wartime but much of the economies
from before the war too.
It is requested that this telegram be repeated to the
Treasury from Heath.
KIRK.
BECEIVED
2001 61020
wit to with
1880 - all - until
EA:LWW
273
EG
GRAY
Paris
Dated September 12, 1939
Rec'd 3:14 p.m.
Secretary of State,
Washington.
1923, September 12, 6 p.m.
FOR THE TREASURY.
Notable progress has been made today in working
out the mechanics of exchange control (the legalisation
covering which, incidentally, was largely the work of
Rueff) and rulings as to what may or may not bE done
may be expected to clarify the situation further
from day to day. American banks here have received
informal assurances that they may operate directly
through the Bank of France rather than through the
"approved" French institutions. It does not appear
probable, however, that they or other foreign banks
will be officially "approved" at this time. WE hear
expressions of satisfaction at the sympathetic and
flexible attitude bEing shown by the Bank of France.
(END SECTION ONE)
BULLITT
PEG
274
PARAPHRASE OF SECTION TWO OF TELEGRAM NO. 1923 or
SEPTEMBER 12, 1939, FROM PARIS.
The reason for France adopting exchange control, Gov-
ernor Fournier said, VRS not in order to curb speculation,
but to enable the country to ascertain what its natual bal-
nnce of payments is - that is, what France can finance in
the way of war supplies from abroad which it needs, and
what contribution to his financing can be made by its exports
and services. Tae statement has been made by Reynaud, in-
identally, that after making a careful study of the import
requirements of France for the first year of the war AS
the National "efense authorities have drawn up in their
report, he is confident that these needs can be entirely
net by the amount of gold which case back to the country
between the date when he assumed office And the date the
ostilities broke out.
KND SECTION TVO.
NUL ITT.
RAILMN
Regraded Unclassified
275
LAR
GRAY
Paris
Dated Soptember 12, 1939
Rec'd 7:33 p.m.
Secretary of State,
Washington,
1923, September 12, 6 p.m. (SECTION THREE).
The foreign exchange office today quoted a buying rato
of 176.50 for the pound and a solling rato of 177.50. For
the dollar the rims wore 43.70 and 43.95, for the bolga
748 and 753, for the Swiss frono 384 and 953 and for the
florin 2318 and 2334. Today again C, minimum of privato
exchange transactions word carried out punding clarification
of the new exchango control mochanism.
We have boun assured by the Finnnou Ministry that the
restrictions on taking money out of France will be applied
in a liboral spirit to doparting American touriste, As you
are aware (fourth from last paragraph our tologram No. 1894,
September 10, 4 p.u.) the authorization to take out nore
than 5000 francs in Frenoh or foreign currency OT other
"means of payment" may be granted by the office of foreign
exchange where there is evidence that greater sums were
brought in. Americans now here who are leaving France may
make application for authorization through their own banks
and we are hopeful that the authorities will be lenient in
the matter of "proofe" that the additional sums were
actually
Regraded Unclassified
276
LAR-2, 1923, September 12, 6 p.m. (SECTION THREE) from Paris.
actually brought into France.
The security market was strong today with French
industrials and internationals substantially increasing
their gains of yesterday. This optimism was due in part to
the news that Poland is holding firm, to rumors via
Switzerland of dissatisfaction in Germany and to the continued
gains of Wall Street, Rentes were hesitant at first but
firmed to close practically unchanged except for the 1925
issue which gained 4.50 and the 1937 which was up 1.30.
(END OF lessage).
BULLITT
EMB
03V13038
2333 EI 072
THE VRIDE
(mm) att in A
of that cidel
277
PAP
GRAY
LONDON
Dated September 12, 1939
Rec'd 3 p.m.
Secretory of State
Washington
1616, September 12, 4 p.m.
FOR TREASURY FROM BUTTERWORTH.
One, I had a lorg informal discussion at the Treasury to-
day about the liability of Americans who aro "resident" in
England to turn over their foreign (+) to the British
monetary authorities and to register with them their
American securities and I feel that they now fully realize
that n decided modification in their regulations is de-
sirable. A decision was promised shortly. Incidentally
orally end written inquiry from Americans here have reached
formidable proportions.
Two. The Bank of England has informally notified
financial institutions in the city that non-resident
foreigners holding gold in London can not sell the gold
and obtain a foreign exchange permit for the sterling pro-
ceeds. They were instructed to inform their clients who
wish to dispose of their gold that they must arrange to
BECETARD
have it shipped out of the country.
1333 1:10:12
KENNEDY
Regraded Unclassified
278
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Settlements Consulate General, Singapore, Straits
DATE: September 12, 1939, 7 p.m.
Tomorrow there will appear in the Government Gazette
notification of exchange control effective that day; the
regulations accompaning the notification provide that
all transactions in sterling exchange must be carried out
through one of four authorized banks, which are all British.
The transactions will be at rates spot and forward which
the Financial Secretary authorizes. One of the four author-
ized banks must be selected by unauthorized banks for
all exchange dealings - which includes the National City
Bank of New York. Daily returns of transactions must be
made to these authorized banks, as well as to the Financial
Secretary. It 18 stated that the public "should" continue
to contract for exchange through own bank whether it 1s
one of the four authorized or not, but it appears that this
1s only & recommendation.
There will be no commission charge to the unauthorized
banks by the authorized banks; they will collect from
the customer a uniform commission which the banks establish.
It 18 stated that exchange will be made available for
reasonable business requirements, which include payments for
shipping,
Regraded Unclassified
- 2 -
279
shipping, insurance, travel and imports.
It will be necessary to secure permits for the export
of moneys, gold and securities.
It 1s the feeling of the National City Bank that this
measure will seriously prejudice its interests. The
Financial Secretary, upon my informal representations,
promised that he would at once discuss the question of
including the National City Bank in the list of authorized
banks with the Government.
PATTON.
EA:LWW
September 12, 1939
280
10:00 a.m.
HMJr:
Hello.
Operator:
George Harrison calling.
HKJr:
O. K.
0:
Go ahead.
HMJr:
Hello, Georgie.
George
Harrison:
Hello, Henry.
H/Jr:
It's not lunch time yet.
E:
(Laughs) I know, but we've got a lot to do in the
meantime.
HMr:
I thought you were hungry.
St
Henry, Ronald just told me that he'd talked with you.
We'll be glad to talk with whoever you've got in
mind. Who 18 that - Randy and
HVJr:
No, me.
H:
Huh?
HMr:
Me and my boys.
is
Oh, you want us to come over there?
HMJr:
Yeah. I -- I want to sit in. Me.
H:
Oh, I see. Well, wait a minute, I'll
HMJr:
I think this is serious enough that papa should sit
in.
H:
Yes, all right. What time do you -- would you like
to have us come?
HWr:
The sooner the better. You've bought seven million
in twenty minutes.
a
Yeah. All right. First-rate.
Regraded Unclassified
- 2 -
281
HMJr:
Kind of expensive.
H:
It certainly 18.
EWr:
Yeah. Well, do you want me to hold on?
H:
Yes, just a minute, will you?
(Brief pause)
Ah -- Henry
HMJr:
Yes.
H:
We want to call the bank first and then come on
over -- then -- or I'll come over anyway and I'll --
I'll see what the situation is here.
HMJr:
Well, are the rest coming?
Some of them feel they ought to sit here and
HMJr:
Well, will -- will Ronald come?
H:
(Talking aside: He wants to know 1f you'll come,
Mr. Ranson.) Yes, he will come. So
MJr:
Will Ronald come?
H:
Yes, he will come.
HMJr:
All right then. Well, then, you and Ronald.
H:
Yes, all right.
HVJr:
What?
Yes.
HMJr:
And any others
H:
Yes.
HMJr:
will be welcome, but
I......
Ht
All right. First-rate.
HMJr:
Thank you.
Regraded Ur assified
September 12, 1939
3:32 p.m.
282
HMJr:
Hello.
Operator:
Mr. Welles is at the White House and she doesn't
know how soon he'll return.
HMJr:
Mr. Welles is at the White House?
0:
That's right.
HMJr:
Well, as soon as he comes back I'd like to talk to
him.
0:
All right.
HMJr:
Thank you.
0:
Right.
283
September 12, 1939
4:08 p.m.
HMJr:
Hello.
Operator:
The office. Federal Reserve people are in Mr. Kieley's
HMJr:
Oh, God! Well, just get everybody together.
Let's see -- Hanes and Tom Smith, Burgess and
Bell.
0:
All right.
HMJr:
By the time they all get together I'll be there.
O:
Bailie?
HMJr:
What?
0:
Bailie?
HMJr:
Bailie too.
0:
All right.
September 12, 1939
284
4:08 p.m.
BWr:
Hello.
Operator:
Secretary Wallace.
HWr:
Hello.
Henry
Wallace:
Hello, Henry.
E/Jr:
Hello. Henry, Johnny Hancs has been talking to me
about the markete being closed in North Carolina
because the
V:
On this tobacco thing?
HMJr:
Yes.
:-
Yeah. The -- that's because the British pulled out
with their -- with 50 million of purchasing power
there.
HWr:
Well, it's due -- they eay they can't get foreign
exchange. Now, if you care to send somebody over
here to talk to our foreign exchange people, we'd
be glad to look into it. I don't know if there's
anything we can do but we could make a try at it.
%
I'll talk to Jack Hutson on that. I don't quite
get what you mean by lack of foreign exchange. I
think it -- doesn't it 5° straight to the fact
that the British decided they could use their 50
million they usually
Mr:
Well, I'm just quoting Hanes and he said it was
because they -- they can't get foreign exchange.
W:
Who can't -- the British?
HMJr:
The British.
N:
Why
ENJr;
No, the
V:
You know, back -- I don't know whether you know it
or not, a week ago Kennedy sent a cable over to the
State Department which they relayed over here.
Regraded Unclassified
- 2 -
285
HMJr:
Yeah.
W:
Indicating that they -- that B. part of a definite
plan that inasmuch as they have two years' supply
of tobacco
HWr:
Yeah.
V:
Then -- by the way, that's just merely a normal
supply. That's what tobacco companies do in this
country; but inasmuch as they had that and had other
needs greater than buying their customary supply of
tobacco this year to maintain the two-year stock,
they just simply decided to pull out 50 million of
purchasing power.
MJr:
Well, then that -- then there isn't anything that
we can do?
V:
No. I called up -- I got in touch with Cordell.
HWr:
Yeah.
W:
I said we were -- the only thing that we could do
on our own here WELB to -- was to make a commodity
loan.
RHJr:
Yeah.
W:
And that we could do that to help the market from
going down through the cellar.
HMJr:
Yeah.
V:
But that before we entered into that we wanted to
call in some of the tobacco people. We'd probably
have to do it. We wouldn't make the loan to the
HMJr:
Well
W:
firms when they're not in a position
to store it and besides this would be tobacco that
would be stored for the eventual use of the Imperial
Tobacco Company.
HWr:
Well, you're on top of it. I -- it evidentally is
not a foreign exchange problem BO
Regraded Unclassified
- 3 -
286
W:
I don't think it 18, Henry, really.
HMr:
O. K. Well then, one less worry.
V:
Ah -- oh, by the way, Paul's here with me. I've
put him on that F ox matter. Let me see if
he's got anything on it.
HMJr:
O.K.
Just a second. (Brief pause.) Just -- well, he --
he says he hasn't had a chance to get on it yet
but we're -- I wanted you to know that we're right --
that we'll follow it right up.
HWr:
Well, I -- I -- 8.8 I said this morning, I appreciate
that.
W:
And could you -- could you tell ne one more thing?
X/Jr:
Yes.
V:
Did I get you right in saying that he WBB up before
the Civil Service Commission right now?
HMJr:
Yeah, they're ready -- they've got all of his papers
ready.
W:
The Civil Service has his papers all ready.
MJr:
They're all ready and I think I'm correct that they're
in the office of your personnel director.
V:
Oh, you think they're in the office of our personnel
director?
HMJr:
I think so,
V:
All right. Well now, I'll follow it up before the
day ends.
IDWr:
As I understand it, you RB the head of the depart-
ment have to O.K. it.
V:
I see.
See?
- 4 -
287
W:
Well, I don't -- if that's -- if that's -- if that's
where the thing is, why we'll get the clear -- the
thing cleared up before the day 18 ended.
HMJr:
Well, as I -- as I understand it, the Civil Service
-- they're all ready, but it has to be approved by
the head of the department or his personnel director.
W:
I see.
HMJr:
See?
W:
All right, Henry.
HMJr:
Thank you.
W:
Fine.
HMJr:
Thank you.
288
RE PROPOSED LATIN AMERICAN LOANS
September 12, 1959.
8:30 p.m.
Present:
Mr. Hanes
Mr. Feis
Mr. Stewart
Mr. Viner
Mr. Riefler
Mr. Beilie
Mr. Surgeas
Mr. Cochrane
Mr. Bernstein
Mr. Foley
Mr. White
Mr. Cotton
Mr. Pehle
H.M.Jrs
( Reading) "1. With respect to the first resolution:
"The Treasury approves the suggestion that an Inter-
American Advisory Committee be created. The Treasury
feels that the first task assigned to the Committee
might well be to study and report on the situation
which is resulting from the impact of war on the
financial and economic relations between the American
Republics. The Treasury suggests that the Committee
be asked to make a report available in time for the
Guatemala conference to be held in November. The
continuing functions of the Committee may best be
developed as a result of experience.
"2. With respect to the second resolution:
"The Treasury confirms the understanding of the
Department of State that, in view of all the cir-
cumstances, the Stabilization Fund should not be
made available for B. large majority of the trans-
actions which are contemplated. The Treasury knows
of no other source of funds, except some small
balance in the hands of the Export-Import Bank,
which may be available; it therefore agrees that
new congressional authority should be obtained If
the United States 1a to provide funds as contemplated
in the second resolution.
"In these circumstances, 1t would seem to the
Treasury unwise for the United States to make any
statement at Panama, before new congressional
authority 1s obtained, inviting the American Re-
publics to make available funds as contemplated
in the second resolution."
Regraded Unclassified
289
- 2 -
How do we know that is the State Department?
mille:
Because Mr. Welles stated that to Mr. Burgess,
Mr. Cotton and me. He said in view of what
Mr. Morgenthau said, he assumed that there would
have to be new legislation.
H.M.Jr:
Well, as far as 1 goes, nobody can arguè about
that.
Bailie:
Now, the conversation with Mr. Welles made it
clear that this Committee was to be formed and
its money - the money was to be used for strictly
exchange and emergency purposes and was not to
be used in connection with any general settle-
ments, such 8.8 were contemplated in your letter
of August lst. It was not clear because Mr. Welles
didn't tell us what purposes he had in mind other
than just general phrases that appear on that
piece of paper. We tried to get a little more
background so that we'd understand just what he
wanted done, He said these resolutions were 8.
very small part of what he was going to do at
Panama, but he thought they were important.
Now, there is no doubt that the chief importance
in the resolutions which he suggesta lie in those
words about making monies available. We didn't
realize what that phrase meant and asked what
sum he had in mind, and he said 200 million dollars,
and it is around the question of making directly
or indirectly B. statement about that 200 million
dollars that, as we see it, the chief problem of
the Treasury arises.
Mr. Welles said, although it doesn't appear in
the paper, that this 200 million dollars, he
thought, should be obtained by taking 100 million
from the stabilization fund and 100 million which
he said - which they wouldn't give us for the
Export-Import Bank. Putting those two things to-
gether, I think in his mind - and you check me,
Mr. Burgess and Mr. Cotton if you don't agree -
that he thought of half the problems as being
exchange problems, roughly, and the other half
would be special things like loans. I don't
think he worked it out exactly in his mind, but
that was why he happened to make up the 200
million the way he did.
Regraded Unclassified
290
- 3 -
Now, the reason we think that it would be unwise
for us to make any statement at Panama arises
because it 1a only six or seven weeks ago that
Congress turned down the Export-Import Bank re-
quest, and because September 21st is going to
come before 1t seema to us likely that any new
legislation could be presented, even if Congress
were called, and we feared that even if we went
overboard 100 percent on the advisability of
such a. 200 million dollar fund that we would
arouse antagonism in Congress by having someone
at Panama say that the Secretary of the Treasury
was in favor of 200 million dollars of United
States money being devoted to these purposes. In
other words, we doubted the time element.
H.M.Jr:
But he doesn't mention any figure.
Failie:
No, but you couldn't doubt that 8. figure would be
mentioned in every hallway in the hotel, 1f there
is one at Panama City, which I take it there is,
where this conference will be held. In other
words, that is & very large sum of money and e.
very interesting sum of money.
H.M.Jr:
You fellows spend that in two days, half of it.
Bailie:
Out of one pocket into the other.
Now, we also have felt this way about it: it is
talked about in the resolution as a fund which
would be made available by voluntary contributions
from everyone. Our contribution is 200 million
dollars. We may wrongly be assuming that the
other twenty nations would each pay a poll tax of
one dollar. There would therefore be 200 million
dollars and twenty nations paying poll tax. If
we are wrong in that to that extent, our thinking
is misdirected. Mr. Welles may be able to tell
us tomorrow 1f the Argentine wants to put up
100 million of this thing. That would make quite
a different picture.
We have also gone on the understanding that, or
gone under the idea that this Committee composed
of five members, one of which would be B. member
from the United States and the other four from
some Latin American country, would have, as we
291
- 4 -
say in paragraph one, a real job in studying what
the war situation 1s, what effect it has had on
these various countries. Now, Mr. Welles talked
about the dislocations and troubles of the war
and used adjectives which made one feel that there
were panic conditions in the South American coun-
tries. Now, I am sorry to say that we haven't
as much evidence as the Treasury should have of
what conditions are there. We will have within
a few days, but such evidence as we have gleaned
here and from our friends in New York is rather
amusingly to the contrary. The exchanges have
strengthened, because most of these countries are
countries producing materials where their nationals
think, and other people think, that they are going
to do very well if there 18 a war.
There are two exceptions to that, Brazil and Peru,
where in Brazil the cotton situation makes people
somewhat nervous and there is a like kind of diffi-
culty in Peru, but even there there seems to be
something much less than & panic in the exchanges
and no signs of real distress.
I had an amusing confirmation of that general thing
this afternoon when B. man told me that his company
had decided to buy n. very large number of bonds
of a company that does business in all South
American countries, the American Foreign Power
Company, to be specific, because in view of the
improved exchange conditions resulting from the
war, they would do so much better in their ability
to get their exchange out this next year that they
felt that their range would be 25 or 30 percent
higher effective dollars than they otherwise would.
I say this not to say that there aren't going to
be real needs develop, but merely to say at the
end of ten days, after the war 1s started, for the
Secretary of the Treasury to state that he believes
the 200 million dollars should be appropriated by
Congress for needs of this sort, we have to say to
you frankly we haven't the background of exact
facts, of any facts, specific facts that would
justify that. We are working on 1t very hard, but
we haven't the facts,
Maybe when Herbert Feis gets here tonight he will
tell us.
Regraded Unclassified
292
- 5 -
Baille:
Maybe he will. We tried to get some of them the
other day and they didn't seem to be there, but
that may have been because we didn't ask the
right questions. Now, I say that the trouble
with what I have been saying 80 far is that it
is pretty negative and everyone of us feels that
it is B. matter of very real importance, of great
importance to the future of our country that its
relations with South and Central America should
be developed and developed on a basis that will
result in increased goodwill. The problem 1s,
how can that be obtained? We think one very good
way that it can be obtained 1s outlined in your
letter of August 1st to Mr. Welles.
E.M.Jr:
We liked that letter.
Bailiet
We liked that letter very much. We didn't have
anything to do with writing it and we have read
it with great care and I must say
H.M.Jr:
We think it was et pip.
Bailie:
We think it is en extremely good letter. That 10
one way of doing it.
Another way of doing it is by forming this Committee.
H.M.Jr:
This Government has gone Committee-mad,
Taille:
Committees have, I suppose, at times done some good,
but in order to have 8. committee accomplish a great
deal, there must be - it must have some specific
object, not just some general desire, and until
there are specific problems, one would expect that
this might be just another committee.
Now, we think, however, that paragraph one, we
should go along with it. Maybe the State Department
has specific ideas. Maybe this committee will be
a perfect whiz and will be able to accomplish 8.
great deal. We phrased this, as you see, 20 that
it might not be & permanent committee unless it
justified itself. I mean it might or might not.
The continuing functions of the committee may best
be developed as B. result of experience, 18 the way
we put it. There certainly is need and great need
in the Government at Washington of B. thorough
knowledge of conditions as they actually exist in
Regraded Unclassified
293
- 6 -
South and Central America for the purpose of helping
our business men and our citizens who want to do
business there.
Now, whether the Bureau of Foreign and Domestic
Commerce 1s set up in such B. way as to make that
possible, you probably know better than we do.
Whether the Latin American division of the State
Department has the facilities, you probably know
better than we do. If, in fact, neither of those
places, which would seem natural depositories for
such information, have it, then thère is a place
clearly for a well-defined bureau which would have
those facts available to people wanting to do
business with South America.
H.M.Jr:
May I interrupt you a minute?
Mailie:
All right.
Before Feis comes, I wonder if this wouldn't be B.
sort of middle-of-the-road plan, and that is to
have him DO down and meke a very flowery statement
as to finances and our interests, and so forth,
and then appoint this committee and this committee
should make a study and bring that report when
they meet in November in Guatemala.
cellie:
That is our theory.
E.M.Jr:
But not say anything about the stabilization fund,
I mean just don't say anything about that, see?
Tallier
We don't want to say anything about it.
M.M.Jrs
I don't want to show Feis these papers. I don't
want him to have them, but just go along and say
fine.
White:
I think we can do that by making very few changes.
H.M.Jr:
My thought 18, don't show Feis this piece of paper.
but
Pailie:
You are going to be asked to commit yourself, that
is the point.
(Mr. Hanes and Mr. Feis enter the conference)
Regraded Unclassified
284
7
H.M.JrI
Herbert, you can help a lot, because we are all
kind of floundering here. I wasn't at this
meeting the other day and I wondered whether you
could tell us if Mr. Welles made a statement of
offering financial aid, and the committee, and 80
forth and 30 on, how much 1a this a mouth-bid, how
much is it a gesture, or how much does he definitely
want to commit for the Government at this time in
Panama as opposed to possibly & study group between
Panama and Guatemala in some group that might make
a report at Guatemala? Does he want a study group
announced, that we want to cooperate, or does he
want B. firm commitment at Panama? If so, what kind?
70is:
The latter. I don't think Guatemala is in his mind
at all except as a possible occasion to possibly
work out further things that can't be done at
Panama.
E.M.Jr:
You don't mind my getting right down to business?
Vein:
Oh no, I have been following for several weeks on
this. I speek completely without hesitancy and I
know everyone in this room
H.M.Jr:
You know everybody personally.
Fe10:
Exactly. I know everybody retains counsel. The
thing comes, to the best of my understanding, quite
originally and quite directly from the White House.
According to my understanding, in the form in which
it first came was that there should be & joint
stabilization fund of 200 million dollars and its
purpose would be to help in the various difficulties
of these Latin American states who are facing as
a result of the trade from monetary dislocations
attendant on the war, and we sat down with that in-
formation quite some time.
Well, we have gone over this enough so that I know
your views and I WELE near enough in agreement with
them to emphasize the fact that a joint stabilize-
tion fund was impracticable and that - I am a little
bit fussy tonight
H.M.Jr:
Take your time. Aren't you feeling well?
Pois:
oh, I am feeling perfectly well but it has been 6.
long day.
285
- 8 -
And that your preference was always for bilateral
handling of these situations and reasons in support
of those things are so obvious and so compelling
that everybody accepted them. Then came the job
of maintaining those essentials, by which I mean
adequate care and control and study of every
particular transaction that might present itself,
and the virtual necessity at this time of showing
a rather decisive indication of our willingness
to do something and the high desirability, which
as far AS I understand it is very much in the
President's mind as well aa Welles's mind, of giving
it to a certain extent a form which makes 1t E. joint
interest of the American Republics.
I will talk one minute longer and then I am through.
That 1s in correspondence with the whole underlying
idea of the Havana meeting. At Lima, foreseeing
possible trouble in Europe, the Republics expanded
beyond the traditional scope of their agreements
to try to foreshadow n real effort to work with
each other to make the policy of each other a
mutual policy, more or less in concert, in face
with the European war, and that 1a embodied in
certain very loose texts of certain importance.
Now, 88 always with South American resolutions,
they wear a certain air of unreslity and only an
advance will prove whether they have any substantial
reality or not. Now, EL crisis comes along. The
provision in the Lima agreements for consultation
swings to everyone's mind and this Havana conference
is by no means outreaching.
H.M.Jr:
You mean Panama, don't you?
Fuis:
Yes. This was the contingency we talked about
at Panama. I mean that we talked about it at Lima.
It has come and we said we would meet to discuss
it and see how far we could concert policy and help
each other in whatever difficulties we were faced
with here, so let's do it.
Now, in the minds of those countries there 1a the
possibility of political cooperation and also the
possible economic cooperation, and it is that that
creates the high advisability of finding something,
at least in form, that has a certain aspect of
joint effort. The thing that we handed Europe -
296
- 9 -
and I agree with anyone who wants to say it 1a B
funny document - was a compound of the effort to
create this sense of joint interests and still
retain the essentials of what you have always
insisted on. That is about the history.
H.M.Jr:
Let me ask you 8. few questions and in that way try
and enlighten myself. We are not going to argue
about the principles, because that isn't for me
to argue as to joint efforts. I mean that 1s all
to the good.
Now, you were talking about one phase of the f1-
nancial situation. Now, let's just for the moment
say we had "X" millions of dollars. We had better
say we have it or we could get it from Congress.
Now, we have got 100 million dollars. Is it in
your mind or Mr. Welles' mind or the President's
mind that the other country 1s to be A bank for
North and South America? What are we going to do
with this money? Are we to put up all the money?
Are they going to put up any money?
Fels:
Well, first, definitely no financial fund or fis-
cal fund that is jointly owned or controlled, that
is definitely not envisaged.
H.W.Jr:
That is news. I thought it was to have been e.
joint subscription.
Feis:
No.
Ballie;
Oh no, it is very clear.
Peint
I know
H.M.Jr:
Somebody around here was saying
Bailie:
They put up something but each one keeps
Feis:
There is no common part of any kind.
Burgess:
Say here 1s a sum of money which we might use in
an arrangement that we might make with this other
country. We make the arrangements at the same time
somebody else does. They put it up, but they still
control it.
Regraded Unclassified
297
- 10 -
Feter
They don't actually, as far as I can visualize this,
they wouldn't actually put it up. They simply say
at some appropriate time that they have a certain
available sum which they might use in response to
particular requests if those requests seemed to
them well founded. That is about all it comes to.
H.M.Jr:
Let's say that we have 100 million dollars. What
use is that money going to be put to, that is what
I have in mind.
781a:
That ought to be talked through 8. little bit further
before we leave for Panama, but I am fairly certain
that we would come out with the answer that we can
more or less foresee tonight. We would use it in
response to particular requests for one or all of
these types of assistance: short-term credit for
certain types of exports; long-term credit for other
types.
purpese:
You mean American exports?
Twis:
That is right. Short-term credits for a certain type
of exports; long-term credits for other types of
exports; requests of slight sums for building up
simple banking reserves; and possibly some sums as
exchange management funds. Any one or all of those
four types of requests are likely to come forward in
the course of the next year 1f we make this declara-
tion. In fact, they will come forward whether we
do or not. They are crowding in on us every day
now.
1.0.2et
What I get 1a that this is to be & fund which - to do
banking business with the twenty-one Latin American
countries. Is it governmental?
Yetar
Primarily. It would go under transactions that were
of an inter-governmental nature. For example, take
the last piece of business that the Export-Import
Bank did with Haiti, a million and a quarter to the
Standard Food Company to develop its benana planta-
tions down there. It 18 making an astonishing dif-
ference in the Haitian situation. They have pledged
the whole company, not only the Haitian properties,
but the whole company, to the loan. Why the National
City Bank shouldn't have taken it is only accounted
for by the complete panic that the New York banks
remain in. I visualize there might be E fraction
Regraded Unclassified
298
- 11 -
of it that would go to private enterprise, but my
guesa would be that three quarters of it would be
inter-governmental.
E.V.Jr:
It 18 the sort of thing which up to now the Export-
Import Bank has been doing.
Feini
No, I would say that the first two, short-term for
certain kinds of exports, long-term for other types
of exports, import-export banking - and now I am
improvising - the other two, possible loans for
reserve purposes or possible small loans for ex-
change management purposes. I should certain think
that Treasury had the responsibility in business.
S.M.Jrs
Is this to be - if we again had the money, who is
to make all of these deals, which department of the
Government!
Feis:
That, too, is a question that has to be talked out.
It's way over my head, especially on the basis of
the last two weeks. To me it is quite imperative
to put it as bluntly as I can, that you and Jesse
Jones and Sumner Welles form a committee of your
own, meeting together yourselves, and decide what
1s what. That is the only machine that will work,
H.N.Jr:
Let me ask you this: did you yourself advise ne
during the Brazilian thing that this type of busi-
nesa should not be done with the stabilization
fund?
Feigt
Correct.
H.M.Jri
I think I am correct in getting this stabilization
fund removed. I think I made the statement to
Congress that I would not make any loans to any
foreign countries without coming to Congress and
getting their sanction.
Feis:
May I go back B. minute? When I said "correct," I
now want to correct my "correct." I was definitely
of the opinion that that particular 19 million
dollar transaction of Brazil should not be under-
taken by the fund. I felt at that time, Mr. Secre-
tary, that you really had misunderstood my views
on the thing. I fully felt then, as I feel now,
that loans for simple banking reserve purposes
Regraded Unclassified
299
12 . ,
and possibly for exchange management purposes,
the fund could undertake - my particular contro-
versy swung around this deferred exchange clearance
which I knew was going straight into the pockets
of six or seven large American houses, and the
figures I have seen since are even more that way
than I thought before and my feeling was that that
was subject to criticism.
Now, if you wanted to take the position that out
of the fund, at any rate, you still didn't think
you wanted to make loans, either for reserve pur-
poses of other banks or for exchange management
purposes, I wouldn't - without consulting Congress -
I wouldn't differ seriously with you.
Bailie:
Mr. Welles made that statement to all of us the
other day when you were there, Mr. Feis, saying
that he assumed the Secretary would feel that
way. He didn't use the reserve purpose figure.
/eis:
In the Brazilian thing, my whole mind was on that
19 million dollar transaction.
H.M.Tr:
Well, we will go back to that, but what I want to
say is this: what the Government wants to do in
Panama is to make et bold gesture and these twenty-
one countries are not interested in our internal
difficulties, our preferring to do this kind of
business and some other agency could do this kind
of business, they want to know 1f we are going to
do this thing and they get the money when they
want it. How we divide that among ourselves, they
don't give a damn as long as they can get it.
Bris:
That's right.
I take it what the President wants to do - he called
me today - he simply sald, "Give Welles something."
He didn't mention any figures, but he said, "Give
him something." Now, you have worked with me long
enough to know that I have tried to find ways how
to do it and not how not to do it, but for the moment
the fund looks to me - for the moment the President
is an record
Feis:
I give you my personal Judgment. I don't think you
can go back.
Regraded Unclassified
700
- 13 -
H.M.Jr:
Furthermore, we did ask Congress for 100 million
dollars for North and South American Export and
Import Bank and they turned us down.
Fais:
Here I am just repeating what Jones' version of
that is. It 18 not
H.M.Jr:
Foley would know. Listen to this, Foley.
Feis:
I have been over this twice with Mr. Jones and
his position 1s, in the first place, still, and
he wouldn't commit himself as to how much or how
little a bank can do. He implied that a good many
of the bank's commitments of the RFC
R.M.Jr:
lie said that again.
Foley:
That is the position that was maintained right
straight through.
Feis:
Then as to the episode on the Hill, he emphasizes
the fact that the thing was voted on favorably by
committees in both Houses and that it was only lost
because the whole bill was lost.
Foley:
That is right, it passed the Senate.
Feis:
Here 1s the sense, The 100 million in one case and
the 75 - it was amended to 75 million in one of the
Houses. He said he had it all arranged to bring it
back to 100, that that would have gone through if
the whole bill hadn't been lost.
Foloy:
There was a vote on that amendment in the Senate,
on the addition of 75 million to the capital of the
Export-Import Bank. I think the vote was something
like 44 to 31, but it was a favorable vote and there
was 100 million included in the House bill that was
reported on favorably, and 1f we could have gotten
to the floor in the House, I think we would have
passed the bill and I think they would have put it
back to 100 million in conference.
White:
But Congress did not pass the bill.
Foley:
No, it was not passed.
H.M.Jr:
The President has stated to me again and again that
Regraded Unclassified
- 14 -
301
he could re-finance the Export-Import by Jesse
Jones.
Feist
You said Foley.
H.M.Jri
I meant Jones.
Cotton:
It has only been talked up to the extent of about
30 million dollars.
H.M.Jr:
Let me just ask this question: do you believe,
Mr. Foley, that Jesse Jones could finagle it at
a hundred million or two hundred million, that it
could be made available through the agencies
which he is the head of, for the kind of loans
that Mr. Feis is talking about here for the twenty-
one countries?
Foley:
It would all depend on the type of transaction. I
should say it would be rather difficult for Mr. Jones
to make available anything like 200 million dollars
for this purpose.
H.M.Jr:
How much could he make available?
Foley:
He is talking about shifting commitments that he
has against this 100 million margin of the Export-
Import Bank over to the RFC, and to the extent that
those commi tments haven't been taken up and they
are still outstanding and they can be shifted, he
will free the lending power of the Export-Import
Bank. What the limitations are and what the total
figure might be, I am not in a. position to say,
Mr. Secretary.
H.M.Jr:
Is Jones back in town?
Feis:
Yes. He also has in mind that some things he can
do directly through the RFC are, for example, there
is a small transaction on now involving the purchase
of ships by one of the Latin American countries. It
1s 8. deal that has much to recommend it. My guess
would be that he can do that directly.
Foley:
Through his loans to industry. He has the loans
to industry section, and if it can be worked out
through that channel, why he has almost unlimited
facilities.
302
- 15 -
Cotton:
He eventually has to have a dummy corporation to do
it through.
Voiss
Take this particular case, Joe, the Brazilian Govern-
ment want to buy some ships from an American concern.
The American company gives the mortgage on the ships.
It is a very advantageous deal for Brazil, because
they have negotiated before the crisis, you 300. Now,
if the RFC puts up money there, couldn't the RFC
give money directly? It wouldn't need a dummy cor-
poration for that, would it?
Cottons
Yes, but if it was a different type of transaction -
I mean that is B. rather special case, it seems to me.
Foley:
You have got to get an eligible borrower. That 1s
what Joe means. If it 13 EL question of lending to
a South American country, he wouldn't have that power,
but he might be able to set up some kind of a corpora-
tion here that would act as B. medium for the South
American power and in that way it might be worked
out,
Feist
In some instances it wouldn't have to be a dummy
corporation. It might be an actual American corpora-
tion.
Cotton:
He is prohibited from taking foreign collateral except
in connection with l'inancing the export of agriculture
and it all has to be done in the record.
E.V.Jri
Well, it seems to me that in order to get you fellows
off with something as immediately as possible we
ought to get hold of Jones the first thing tomorrow
morning. Mr. Welles is coming to my office at 11:00.
I will try to get hold of Jones at 9:00 o'clock.
Vals:
I have had two talks with Mr. Jones on this thing.
One thing we gave him 1s what I think Mr. Welles will
bring over to you tomorrow, a text of what they
thought the American representive could say down
there. Mr. Jones has sent back a revised version of
that, which is very much of an improvement and
This is something different than I have seen.
Fule:
It 1s not an alternative. This would be the resolution
in addition. The American representative would have
to make some statement.
303
- 16 -
H.N.Jr:
Oh, you have already sounded Jones out on that?
Feis:
You don't know
H.M.Jr:
Thinking that I was hopeless?
Feis:
You don't know half what a hole I was in and I
moved B. little bit on my own and I was there on
other business with Mr. Jones and I just stepped
out.
H.M.Jr:
Does Jones think he can do this?
Fels:
He thinks he can do part of it. I think he 1a
looking to the Treasury to do some of it. The
rest, I think - you see these things don't come
at once. There are always ways - not always but
almost always - that 1f you need 30 or 60 days
more you can put it off that long.
B.M.Jr:
Do you have to mention B. figure when you go down
there?
Feis:
No, in fact, I think it is highly inadvisable to
mention it.
S.R.Jr:
You traveled the same road, evidently, the last
week that I have traveled the last fifteen minutes,
that is that Jones is the best outlook.
Pois:
No, I think that there are certain types of things
to overcome before America does that, that only
the Treasury can do and should do. I don't quite
know how it is going to do it.
8.2.Jr:
We stood ready to go to Congress and ask them for
50 million for Brazil, but we were never asked to
do it.
Feis:
I think that the Neutrality question is cut of the
way. I think this is what is in the back of
everyone's head. It would be possible to 80 to
Congress 1f the President so wishes and ask for B.
hundred million dollars for the Export Bank for
these purposes, and you, in accordance with what
you told Congress, could ask authorization from
Congress to use 100 million dollars either from
the fund or from general Treasury, or from a
special appropriation for other purposes.
Regraded Unclassified
304
- 17 -
H.M.Jrt
Well, I got 100 million dollars. I don't have to
tap the stabilization. The Federal Reserve has
130 million dollars gold of our money, which was
given to them for industrial loans. One hundred
ten of the money is free. We don't want to be too
sharp. We will take one hundred.
Teis:
I think the underlying thought 1s in the spring the
two things would be brought together before Congress
when the Neutrality thing was out of the way.
P.K.Jr:
Don't you think we could take that money from the
Federal Reserve?
fels:
I presume you don't want to do that without first
consulting Congress.
H.M.Jr:
We would have to.
Veis:
I think that is the President's underlying thought.
Viner:
Herbert, is it your notion that you make commi tments
in general terms, not specific, and that then in
order to carry out these commitments you will have
to get legislative authorization?
Fels:
We might commit ourselves in general terms. We can
go on for the next 90 days with what funds we have
got left in the Bank and with what Jones can turn
over, and by spring if things EO well, Congress will
back the President to the extent of letting the Bank
have & certain amount and authorizing the Treasury
to do & certain amount. That 18 the general back-
ground program and it seemed to be quite a feasible
program unless the President gets licked on it and
then the Neutrality - 1f he gets licked on that,
there's going to be 30 much go to pieces anyway.
liner:
The State Department is prepared to take the risk
of making more commitments without prior legislative
authorization? I am just asking for information.
rela:
If you substitute the President for the State Depart-
ment I would say that is right.
Viner:
I would say that 18 all right.
E.V.Jr:
That is what four days of Norway tic for Jake.
105
- 18 -
Emiliva
Mr. Feis is getting very moral. Mr. Feis, in order
to be clear in my own mind, as I see it, this is
the situation where Jesse Jones is the bridge;
in other words, he has certain facilities in the
Export-Import Bank which he can make available.
Feis:
And carry through in the next 90 days.
Bailie:
Those would be rather commercial things, wouldn't
they?
Feis:
That is right.
Bailie:
I can't see 8. gold fund for Honduras being taken
out of the Export-Import Bank. So all those third
or fourth class things that you were talking about
would not be - they will come with the flowers in
the spring?
Feis:
Quite right.
Ballie:
The fall and winter 1s to be a commercial one, I
mean, and to us that 1s a
Feis:
After all, there will only be three months left.
I can pretty nearly tell you now what two-thirds
of the business will be that will come up between
now and the first of the year. Five million for
Chile for agricultural equipment and one or two
small transactions for Brazil, and there is a
scattering of stuff of that kind.
H.M.Jri
If I can get hold of Jones to come at 10:00, can
you be there at the office at 10:00 tomorrow?
Welles 18 coming at 11:00 and that will give us an
hour's head start. Or would you rather have me
talk to him alone.
Fels:
Yes.
H.M.Jr:
Would you?
Feis:
I think BO. There is a certain point at which -
yes, I think SO.
H.K.Jr:
Do you want to go and call up for me, Ed?
Foley:
Yes.
306
- 19 -
B.M.Jr:
Talk to him a bit and ask him if he can come to
the office at 10:00 tomorrow morning and be pre-
pared to stay for a couple of hours, and tell him
what we are talking about and ask him 1f he will
bring his papers and his good humor with him.
You (Feis) are coming at 11:00 with Welles, aren't
you?
Feis:
Yes.
S.M.Jr:
Will you shoot over to me the stuff that you have
given to Jones so I will have everything?
Feis:
Just two paragraphs.
H.M.J.:
Could I have that?
Feis:
First thing in the morning.
R.M.Jr:
If Welles talks the same way you talked, I think
we will get together.
Peis:
I think that there 1s really an infinite amount of
F.M.Jr:
You want some window dressing, don't you?
Peis:
Yes, which ultimately we sincerely mean to use, I
think we can use up to 200 million dollars in Latin
America over the next two years on carefully selected
projects without losing too much of it.
H.M.Jr:
Of course, I have been talking about this for two
years, so it 1s music to my ears.
Peis:
Two hundred million is my limit. I don't like to
see us pile up
H.M.Jr:
What is your limit?
Feis:
Even two hundred, I think, 18 too much. I would
like to see us hold it down to half that if we can.
Bailie:
You can hold it down to those certain projects which
you finally think are really useful.
Fe1s:
Getting out of the State Department as B.T. economist,
I would like to see it held down to 100 million
307
- 20 -
dollars, comprehending all kinds of loans, credite,
advances and transactions.
H.M.Jr:
Now, may I B.SK EL question?
Viner:
Are you going to make two-billion-dollar statements
and make 20-million-doller loans?
Feist
All right, Jake.
H.M.Jr:
That is very Vineresque.
Feis:
Jake, what would you do?
Viner:
Things are going to move very rapidly in the next
six months. If you make B. big-sounding statement,
you will have to carry it through. I'm not opposed
to making E. big-sounding statement, but I do say
we ought to be prepared to carry it through on E.
fairly substantial scale, We don't know what the
turn of events will be next spring or six months
from now. You make sort of promises, then some
really major crisis can develop - blow up in a few
weeks in war-time - and you have got EL darn good
case up under the terms of your statement for help
and then you tell them we haven't got the funds
and you can't do anything.
Feint
Jake, you won't find this statement a very large
promise. It is B. very modest statement that we
have prepared. No one could possibly deduce from
it that we are prepared for B. very large program
down there.
Viner:
It seems to me 200 million dollars does not neces-
sarily sound as a large sum to pay to insure the
goodwill we want in Latin American countries at a
time like this.
l'oise
This statement, as it is drafted, sounds like you
have interpreted it to mean less than 200 million
and not more. Our rough draft to Jones, 88 revised,
sounds like not more than 200 million.
Bellie:
Mr. Feis, do we have any reason to believe that
any of the other nations would chip in and -
in making funds available?
308
- 21 -
Feis:
I think that a few of them will announce that they
hold small funds, particularly Argentina.
Bailie:
It will probably be like contributions in a church
plate, they will all be anonymous. In other words,
they will say they are going to have some sums.
leis:
That may be, or Argentina may stand up as long as
it knows it is going to control the disposition of
this thing and say that, yes, it has 20 million or
something of that sort that it could use.
H.M.Jr:
Now, let me
Builie:
But you are not planning on saying two hundred?
Feis:
We are not planning on mentioning any figure, and
the statement we have got in mind is EL very moderate
statement.
Burgess:
More moderate than this?
Feis:
The resolution?
Burgess:
Yes.
Feis:
Well, the resolution is, I think, modest.
H.M.Jr:
Supposing somebody raises the question down there
about the private debt?
Feis:
We have only two
E.C.Jr:
I mean Government debt to private people.
Feis:
There are twenty-two American Republics. There are
only two of them in connection with which - no,
I take that back, there are three in which the
private debt situation 1s likely to arise ns a
factor in this: Brazil, Colombia and Peru, Now
Burgess:
Chile?
White:
Mexico?
Beis:
Oh, Mexico is a dead dog as far as the funded Govern-
ment goes, It is B. dead dog. We are not going to
Regraded Unclassified
309
- 22 -
bring that up now, Colombia negotistions are on
now. They have come to a lag. We are going to
try even in the next day or so to get life in them
again. Colombia could pay without any serious
difficulty whatsoever and I think simply this, that
we would have to avoid the Colombian situation until
and unless Colombia came to us and put a. proposal
to us and then bring up the debt situation, and it
is my own view that you have got B totally unjuo-
tified, calloused default from which Colombia her-
self will suffer in the long run. 3razil is more
complicated,
Buil10:
There is a million dollers, then, 50 I heard, sitting
in New York.
eta:
And there is little doubt that they will go on with
some other very small minimum sun, but how to work
out the Brazilian thing - it is the toughest one
in the field, especially since the Immediate effects
of this war crisis on Brazil are less fevorable
than on any other American Republic.
latlie:
I presume Peru
Polet
They get the benefit of the Increased sugar price.
She is the worst defaulter in the sense that she
hasn'tat least given a decent Intention of willingness
to pay. If the power were mine, I don't think I
would respond to 8 definite request until we got
some indication from Brazil that she is going to
do something on that public debt, and one thing
that sways me in this matter is that if a country
with a future like Brazil - its future is tremen-
dous. That is an Empire, that country. It is
another United States. There isn't the slightest
atom of doubt in my mind. If that country - a
country that big simply cannot leave its government
debt in complete default over a long period of time.
It cuts itself off from all sources of private credit
and makes itself dependent on other governments,
and it is such an obvious blunder that even from
the standpoint of the welfare of Brazil - I think
we should to et certain extent brins that home, but
I admit it is different.
esa:
Herbert, when Mr. Welles - when we were there the
other day - he said very politely that this
Regraded Unclassified
310
- 23 -
arrangement had nothing to do with private debta
or commercial arrangements. He meant that offi-
cially it had nothing to do with it, but when you
come to make these negotiations in each instance,
you can't avoid having such e situation.
Tule:
No, you see in this matter of to what extent or
when and how to take account of the private defaults,
I, with Secretary Hull's support, have had to fight
not only the Secretary of the Treasury but also
the Undersecretary of State, who also would be
inclined not to consider it an important element
in any situation. Welles was expressing his own
honest, direct attitude.
I.N.Jr:
Well, 1f I get this thing, it is cleared up a lot
for me, and I take it that you people are convinced
that Jesse can do something.
Feis:
Something ia general enough.
R.M.Jr:
And that is all that you want. I mean you want
enough so that if you go down there and say to
these people, "We are prepared to offer you coopera-
tion, If and 20 to 30 or 40 million dollars worth of
business rolls in between now and the first of
January, you think that is the most for the time
due to negotiations and trading and everything
else, that is about all you need?
veis:
Yes, that is all we need for the rest of this year.
H.C.Dr:
And the first of January we would ask Congress for
another million?
Fels:
And Welles and the President are ready to take the
gamble that by the time spring comes around we will
be in B. more effective position. They certainly
recognize it 1s a gamble, I take it that the
President does; he must know.
R.M.Jrt
There is nothing in Welles' mind, I mean you have
completely dynamited the 1dea out of him that
this sort of thing should come out of the stabill-
zation fund?
Joins
Well
Regraded Unclassified
311
- 24 -
Bailie:
Welles stated to us that he was clear
Feis:
I think we have told him fifteen times about your
testimony before Congress.
BK210 210
312
September 12, 1939
2: 45 p. m.
Present:
Mr. Leroy-Beaulieu
Mrs. Klotz
Mr. Lochhead)
Mr. Cochran ) at very end of meeting
HM,Jr: What I wanted to say to you, Archie
spoke to me
.....
Mr. L-B: Yes.
HM,Jr:
....
and told me that you people un-
officially were worried about this purchasing busi-
ness.
Mr. L-B: Yes.
HM,Jr: What I want to say to you 18 this:
it would be very pleasing to me
....
Mr. L-B: Yes.
HM,Jr:
....
and to the President
.....
Mr. L-B: Yes.
HM,Jr:
.... if your Government would set up
its own purchasing agency
.....
Mr. L-B: Yes.
HM,Jr:
.... along the line of the Universal
Trading Corporation ....
Mr. L-B: Yes.
HM,Jr:
which 18 doing the purchasing for
....
the Chinese.
313
-2-
Mr. L-B: Yes.
HM,Jr: Are you familiar with that?
Mr. L-B; No; I am not.
HM,Jr: Would you like to know how that thing
works?
Mr. L-B: Yes, surely!
HM,Jr: Well, if you would like to know how
that works -- who would be the best man, Mrs. Klotz:
Mrs. Klotz: Mr. Lochhead knows all the work-
ings of it.
Mr. L-B: A French corporation functioning
along the line of an American corporation?
HM,Jr: A corporation organized under the
State of New York.
Mr. L-B: So you mean to set up an American
corporation?
HM,Jr: An American corporation controlled by
the French with preferably French Treasury officials.
See? Then you see, what we do for them 18 this:
they ask us -- they asked us to get them a manager.
We got a retired Navy Pay Officer, a Captain, whom
they hired because he knows Captain Collins who is
in charge of our Procurement.
Mr. L-B: Yes.
HM,Jr: You know Collins.
Mr. L-B: Yes.
HM,Jr: They want to buy 80 many yards of cot-
ton. They come down, entirely unofficially, and ask
"Is this a good price?".
Mr. L-B: I see.
314
-3-
HM,Jr: And we advise them. And we can't
do that for you if you take some bank, private or
public, bank.
Mr. L-B: Well, I see.
HM,Jr: You see?
Mr. L-B: Yea; very well.
HM,Jr: And the President has spoken to me
two or three times. For your information, I passed
the same word along to the English. I told them
that if they would do it this way, then we could be
helpful to see that, if you want this or that, we
would not be competing; that your Government would
get a fair break. We can't do it if you are going
to use a middleman. You know the fight I made about
the planes and how well that worked out.
Mr. L-B: Very well.
May I ask a question. Just now, what we in-
tended to do was not to use a bank as purchasing
agent. It was to send a mission here, a commercial
mission, and which will be I think headed by the Com-
mercial Counselor, and then we will get in touch with
the industrialists here and ask advice either of you
or somebody else. But if you think we take this
path and it would be more difficult to give us the
information which we shall need
HM,Jr: If you would take a look, and I shall
be glad to show you the incorporation papers and
everything else.
Mr. L*B: Yes.
HM,Jr: To show you how this Universal Cor-
poration was set up. It has worked beautifully.
They have bought millions of dollars, bouth auto-
mobiles lower than the United States Government,
has bought trucks. They have gotten better prices
even than we. Their copper 18 contracted for at
315
nine centa and -- well, no organization could buy
any better than they have, because we have unof-
ficially advised them. Never wanted it to get out,
but feeling it 18 all Government we did not object
to their coming down and telling them well this 1e
too much, etc., and we can help direct people to
the proper places.
Mr. L-B: I see. You mean you can do that
much better, easier, if the people who come to you
are members of a corporation like that than if they
are of ficial representatives of the Government.
HM,Jr: No. I don't make myself quite clear.
This corporation is owned entirely by the Chinese.
Mr. B-L: But it's under the law of the State
of New York.
HM,Jr: Under the law of the State of New York,
which is a little bit of & buffer. But the thing we
hope you won't do 18 to use a private bank or some
other organization like that. We would like to have
an official French buyin g mission here
Mr. L-B: That what we intend
HM,Jr: ... and we feel that this corporation
of the Universal has worked out so well that all I
am suggesting is that we turn it inaide out and show
it to you
Mr. L-B: I see.
HM,Jr:
just to show you the whole thing
as it works.
Mr. L-B: Yes, but the men -- but I want also
to make myself quite plain. Just now, if we had an
official mission headed by the Commercial Counselor
of the Embasey and we could use a bank as an inter-
mediary, if those people wanted to buy cooper, went
to you and asked you or any of your Procurement people
"Is that a fair price?", wild it be as easy for
you towork with them?
316
-5-
HM,Jr: Not quite.
Mr. L-B: As if we created a corporation
along the lines of Universal.
HM,Jr: It would be a little better. Just
the way the Russians have the Amtorg.
Mr. L-B: Yes, I know about that.
HM,Jr: Just the way Amtorg
....
Mr. L-B: You think it would be better, because
it would be less official?
HM,Jr: I think 80.
Mr. L-B: Yes. Well I gee that, because, as
you know, we have been assailed by many banks who have
given us their offers aa purchasing agents -- Aldrich,
Morgan, and all these people. I told them that we
did not intend to have any purchasing agency. After
that they ask if they can be paying agents. Payments
is something entirely different.
HM,Jr: You don't need it. You would be the
paying agent.
Mr. L-B: Yes, but we need also someone to pay
the American bank. I don't pay money directly myself.
HM,Jr: Could you use the Federal Reserve?
Mr. L-B: Yes, but paying agency 18 not much.
HM,Jr: But the actual contacts. If the con-
taots could be between the Continental Corporation,
which is wholly owned by the French Government, and
the manufacturer, and a representative of the Con-
tinental Corporation comes down and saye to us, "We
are going to buy a million yards of this or that, is
that a fair price?", I don't see why we couldn't do
the ame thing for you as for the Chinese.
Mr. L-B: That's very kind of you. Mr. Lochhead
Regraded Unclassified
E17
-6-
told me they had had some very good prices. The
only think I can tell you 18 we had intended to
get up 8. commercial mission headed by the Commercial
Counselor, an official mission, 80 I don't know
whether we shall have to change it.
HM,Jr: Familiarize yourself with the Uni-
versal
Mr. L-B: Yea, I will; surely.
HM,Jr:
and I will arrange for you to
familiarize yourself with the Universal. I am not
putting too much emphasis on this. This 1s not
something like the French planes where I very def-
initely did not want a corporation.
Mr. L-B: It is a better way. It might be
B. better way.
HM,Jr: Yes. That's all. But I am not
saying that this 18
Mr. L-B:
g'11 you plaint ou non.
HM,Jr: Exactly!
Mr. L-B: Because if we thought for some
reasons we could not do it
HM,Jr: Perhaps. For example, somebody,
I don't know whether it was your Government or the
British, has a broker in Detroit who has an order
out for 500,000 blue blankets at any price.
Mr. L-B: Yes. No, it 1s not us.
HM,Jr: Look what that does to our markets.
Mr. L-B: Because, Mr. Secretary, your Muni-
tions Board Just now has only advisory capacity
and not executive capacity. That's what we were
wondering. We remember that in the last war, when
you Joined the war, we went through it.
318
-7-
HM,Jr: But the money, the only money we
have, for instance, for strategic war materials
18 only $10,000,000. We hope to get $100,000,000.
Capt. Collins 1e purchasing agent for that, because
we are the purchasing agent for everything except
the Army and Navy.
Mr. L-B: But we were wondering whether you
will eventually create a Board to supervise prices.
HM,Jr: I think they will.
Mr, L-B: And then we could go through it,
as we went through your Munitions Control War Board
when it was created in 1917.
HM,Jr: I am throwing it out Just as a aug-
gestion, but I would appreciate, as this thing de-
velops, that you would keep me informed.
Mr. L-B: Yes.
HM,Jr: Because I don't want to aee the
French and British coming in here, using an example
like blanks, and having out an order -- how many
mills get that order? No one would take it and
up go the prices of blankets.
Mr. L-B: All competing with each other, as
in the last war.
HM,Jr: It shouldn't. I will tell Archie.
It's purely a. suggestion. But there 18 a commer-
cial mission on the way?
Mr. L-B: Yes, there is one. When I left
Paris, a fortnight ago, there was the idea to create
a commercial mission which would be headed by the
Commercial Counselor.
(At this point Mr. Lochhead and Mr. Cochran
came in.)
HM.Jr: I want you to give Mr. Leroy-Beaulieu
a chance to have all the forms and everything else
319
-8-
that the Universal Corporation has; how the thing
is set up, 80 he can take a look at it. Give him
the whole works, corporation papers and everything
on how it is done.
Mr. Lochhead: And we can arrange for him to
go to New York and see Mr. Ren.
HM,Jr: Anything he wants, to familiarize
himself with it.
Mr. L-B: Thank you, Mr. Secretary.
o0o-o0o
220
RE REPORT OF ADVISORY COMMITTEE
ON SECTION 3 OF NEUTRALITY ACT
September 12, 1939,
3130 p.m.
Present:
Mr. Hanes
Mr. Burgess
Mr. Duffield
Mr. Riefler
Mr. Viner
Mr. White
Mr. Bell
Mr. Foley
Mr. Bailie
Mr. Smith
Mr. Stewart
Mr. Cochrane
Haness
Mr. Secretary, I think everybody here has seen
B. copy of the memorandum which I addressed to you
and which you have not yet seen. I believe every-
body here has - no, I didn't give Harry White one.
1 think everyone else has seen it, It is just &
rehash, really, and I think the best way to do it
is to start at the beginning, 80 - it will only
take four or five minutes longer this way, but it
would be better If we all understand it. I will
not read all of it but I will read the main part.
"The President has issued 8 proclamation under
Section 3 of the Joint Resolution of Congress,
approved May 1, 1937. After quoting the law, the
President stated in his proclamation as follows:
""I hereby find that it will serve to protect the
commercial and other interests of the United States
and its citizens to except from the operation of
Section 3 of the joint resolution of Congress
approved May 1, 1937, as made applicable to Cermany
and France, Poland, and the United Kingdom, India,
Australia and New Zealand by the Proclamation of the
President of September 5, 1939, issued under the
authority of Section 1 of such joint resolution,
ordinary commercial credits and short-time obliga-
tions in aid of legal transactions and of B. character
customarily used in normal peacetime commercial
transactions; and they are therefore hereby excepted.
"11 hereby authorize the Secretary of the Treasury
to administer the provisions of this regulation and
to promulgate such rules and regulations not incon- to
sistent with law as may be necessary and proper
carry out such provisions.
321
- 2 -
"This regulation shall continue in full force
and effect unless and until modified, revoked,
or otherwise terminated, pursuant to law.'
"After issuance of this proclamation, the Secretary
of the Treasury sent the following letter to the
Secretary of State and the Secretary of Commerce:
"'The regulation concerning credits to belligerents,
signed by the President on September 6, 1939, au-
thorizes the Secretary of the Treasury to administer
its provisions and to promulgate such rules and
regulations not inconsistent with law as may be
necessary and proper to carry out such provisions.
""I am forming an advisory committee to consult with
this Department concerning this matter. The Under
Secretary of the Treasury, John W. Hanes, will
represent the Treasury Department on such committee.
I will appreciate it if you will designate an official
of the Department of State to serve on such committee
and advise me as promptly BS possible of such designa-
tion.'
"In answer to this letter the Secretary of State
appointed Messrs. Berle and Feis and the Secretary
of Commerce nominated Mr. James W. Young.
"In accordance with the request of the Secretary
of the Treasury this committee had a. meeting in the
office of the Under Secretary of the Treasury on
September 11th for a general discussion of policy
which should be recommended to the Secretary of the
Treasury in administering the provisions of the
regulation and promulgation of such rules and regu-
lations not inconsistent with law as may be necessary
and proper to carry out such provisions. The committee
discussed at length the question of the meaning of
the words in the statute of 'persons within the
United States, and also whether they are permitted
under the said resolutions to buy and sell obliga-
tions of such belligerent governments, issued prior
to September 5, 1939, and also those issued after
that date.
"The committee recommends to the Secretary of the
Treasury that an opinion be requested of the
Attorney General as to whether (a) foreign branches
322
of American banks are, 'persons within the United
States, within the meaning of Section 3, paragraph
(a) of the Joint Resolution of May 1, 1937, (b)
whether they are permitted under the said Resolution
to buy and sell obligations of such belligerent
governments, ((1) issued prior to September 5, 1939,
and (2) issued after such date), as part of the
usual business of handling funds deposited in such
branches.
"A letter has been drafted for the Secretary of the
Treasury, requesting such opinion of the Attorney
General. After the discussion was completed, the
committee recommended to the Secretary of the
Treasury & statement to be given to the Press, which
is about as follows:
"A policy of encouraging banking and business houses
to continue B. normal international short-term credit
business within the scope of the Neutrality Act WEB
recommended to Secretary Morgenthau today by an
advisory committee which he has formed to assist the
Treasury in carrying out section 3 of the Act.
"This section of the Act governs credit transactions
between persons in the United States and Governments
of belligerent countries or their agents. President
Roosevelt on September 6th signed B. regulation under
the Neutrality Act permitting certain types of short=
term credit accommodations and authorizing the
Secretary of the Treasury to administer the provisions
of the regulation. To assist in the work Secretary
Morgenthau designated Under Secretary Hanes to head
an advisory committee composed of representatives of
the Department of State and the Department of Com-
merce.
"This committee today recommended to Secretary
Morgenthau that the President's regulations of
September 6th be administered with the least
possible disturbance to ordinary legal transactions
customarily employed in normal peacetime business.
No general regulations were suggested by the come
mittee at this time, but the committee did recom-
mend that, when creditors seek guidance on particular
transactions, they be requested to submit questions
to the Treasury through the Federal Reserve Banks.
123
"The committee suggested that attention be called
to the types of transactions which the Act itself
specifically exempts from any restriction, for
example, the renewal or adjustment of credits,
existing on September 5, 1939, and the legal
purchase of obligations of belligerents which were
issued prior to September 5, 1939. These exemptions
are in addition to the one which was ordered by
President Roosevelt on September 6th and which
applies to ordinary commercial credits for, or
short-term obligations of, belligerent Governments,
provided these credits or obligations are for the
financing of legal transactions and are of a
character customarily used in normal peacetime
financing."
That is the end of the so-called press release
that we are recommending. The last subject which
this Committee discussed was presented by the
State Department for consideration and will be
discussed at & future meeting. It was the ques-
tion of the cancellation of the standstill agree-
ments by American bankers and the terms and con-
ditions upon which these may be renewed, these
standstill agreements.
Mr. Secretary, this opens the subject for further
consideration and action, it being our opinion
that if we set up the machine to operate through
the Federal Reserve banks, the questions being
referred to those banks, as we make rules or as
the Treasury makes rules, we will send mimeographed
copies to the twelve districts, which would seem
to me to save us an awful lot of detailed work
being done here because as those opinions and
decisions accumulated in the Federal Reserve die-
tricts they could be handled promptly on the basis
of past decisions and it may not even be necessary
to refer them to this department.
It seems to us to set out at this time and try to
foresee all of the problems that are going to be
presented under this so-called Section 3 proclama-
tion would not be advisable and we are not advising
that we set up any definite or specific rules
beyond getting an opinion from the Attorney General
on this matter, which is important only to those
banks that have branches in foreign countries.
24
- 5
That is R matter dealing with the purchase or,
not so much in past obligations, but in obliga-
tions to be issued by those governmento in the
future.
H.M.Jr:
Anybody can talk that feels like it. Anybody
that wants to ask any questions may do 20. The
purpose of asking you people together was to
give you & chance to familiarize yourselves with
this and get your suggestions, 1f you have any,
before I act on it.
Burgese:
I should think the only question, really, Henry,
18 whether one should draw B. regulation which,
after all, could not do much more than repeat
the language of the Act, or whether one should
simply say, "There is the Act, it speaks for
itself. If you have questions, why, bring them
along for interpretation,' and then interpret
them as they come along.
H.M.Jr:
Do we commit ourselves on regulations in this
release?
Smith:
No.
Hanes:
About all we do say here 1s that we will answer
such questions as we can and it may become neces-
sary if we get an adverse opinion from the Attorney
General - I should assume that that ought to be
given to the public. I think that 1s a matter that
the banks would certainly not be wishing to violate,
and if their decision is adverse, then these banks
that are doing business in the foreign government
capitals, for instance, France and London, branches
of the National City Bank - it is customary for
them to buy for their secondary reserves certain
obligations of those governments just as they do
in this country, buying our Governments, and If
those banks are not allowed to buy future war loans,
we will say, of the government in which they are
located, they mi ght as well close up shop and come
home.
White:
John, as I read this, it says that the President
authorizes the Secretary of the Treasury to administer
the provisions of this regulation. I take it that
the responsibility of the administration of this
325
- 6 -
section rests with the Secretary, 18 that right?
Now, what is he doing to fulfill that responsi-
bility? What avenues, what agencies, are there
that will check up to see that there are no
violations of this? Where in your program is that
envisaged?
Hanes:
There is not anything in this program, Harry, which
suggests that the Treasury is going to do anything
more than act in an advisory capacity. I haven't
considered the possibility of releasing this situ-
ation, if that is what you mean.
White:
Is that involved as a legal matter in the placing
of the responsibility of the adminiatration on the
Secretary of the Treasury? Does that imply that
he presumably 1s to take care to see that there
are no violations?
Hanes:
That is the question I think the lawyers could better
answer than I. Frankly, I hadn't considered it in
that light.
H.M.Jr:
It is a good question.
Foley:
Well, the Act carries criminal penalties and they
are very severe and I should imagine that viola-
tions that are brought to your attention should
be made available to the Department of Justice
through this department for such action as they
may want to take.
Viner:
Brought to our attention by whom?
Poley:
I should imagine that if we have any information
we would make it available to the Department of
Justice. I don't think we are under a duty to
White:
Who is going to make it available to the Treasury?
How 1s the Treasury going to know if there 1a a
violation?
Burgess:
The Bank Examiner would. In the course of natural
business he would find in the course of the bank's
operation any violation of this as well as any
other law.
H.M.Jr:
That would be only the national banking people.
326
- 7 -
Burgess:
Federal Reserve Examiners, too, could call atten-
tion to anything they found. Automatically the
system is set up to deal with banks.
White:
All the banks that have foreign branches are either
members of the Federal Reserve System or Federal
banks. In other words, the responsibility of the
Secretary of the Treasury is to fulfill, when he
is ready to receive information with respect to
any violations.
Foley:
I don't think that is quite right, Harry.
H.M.Jr:
May I just make B. suggestion which might clear
this up B. little bit, or it may not. Harry said
we will use the Federal Reserve Banks, wouldn't
it help clear it up a little bit if it said we
will use the Federal Reserve Banks in their
capacity as fiscal agents of the United States
Treasury?
Foley:
I think that is advisable. I think we also ought
to talk to the Federal Reserve Banks.
H.M.Jr:
So that when you use "in their capacity of fiscal
agents of the United States Government." It 1s
not the System, I mean. We are not using the
Federal Reserve
Surgess:
You are using the Banks, not the Board.
H.M.Jr:
That is the point, Randolph got it.
Did you get it?
Hanes:
Yes.
H.M.Jr:
Did you hear what he said?
Hanes:
Yes.
H.M.Jr:
I was just thinking of the wear and tear - that
we are using the Federal Reserve Banks as fiscal
agents of the United States Treasury.
Viner:
Does that mean we will draft instructions to the
Federal Reserve Banks as to what to look for?
27
- B -
Foley:
I should think, Jake, we would want to talk to the
Federal Reserve Banks first to see whether or not
they are willing to take the bonds and tell them a
little bit about what is expected of them before
we just make an announcement through the press.
Banes:
We haven't considered doing that without discussing
it with them. This is merely tentative here, and
it is opan for - if anybody doesn't like this thing,
we ought to change 1t, that is all. It 1s just
brought in hore for something to shoot at.
Burgess:
It might be a very good plan to get Logan from the
New York Bank to come up here tomorrow. The New
York Bank is the one which has done all these
fiscal agency things in the first instance, and
Logan is their Counsel. I happened to sit beside
him at lunch yesterday and talked about this B.
little and he said he assumed that the Reserve
Banks would do it if they knew about it, but he
would be very helpful on the question of whether
regulations would be necessary and how to do it.
H.M.Jrs
(on phone) Hello. (Telephone conversation with
President Roosevelt unrecorded).
Bailie:
Mr. Secretary, I think you have to - we will have
to show some sort of record here of having told the
Federal Reserve Banks what you want them to do,
because after all, in an act of criminal penalties,
It is up to you to administer it, it can't be just
sort of self service. Don't you think that is right,
John?
Manes:
Sure.
I would like to know if there is any difference of
opinion in the method of approach, whether or not
there is any opinion here that thinks that we ought
to draft rules and regulations on this thing or
try to be specific on it until we know a little
bit more about the problems.
White:
I don't see how you can avoid drafting some regu-
lations, but they can be as general as you like
with subsequent specifications, but it appears
to me it 1s acceptance of a new responsibility
which ought to take some definite form. How much
528
- 9 -
you would want to specify 1s another matter. How-
ever, that 1s fully a legal question.
Burgess:
It says, "authorize the Secretary of the Treasury
to administer the provisions of this regulation
and to promulgate such rules and regulations not
inconsistent with law as may be necessary a nd
proper to carry out such provisions.'
White:
You don't have to, but it seems as though there
should be some indication that he has assumed
responsibility and has taken some steps toward
fulfilling it.
Viner:
Another phase is that the public has a right to be
told just what it can and cannot do, that it can't
be left altogether in & haze, and you can't keep
on answering individual questions. If you start
issuing interpretations, I should say at that stage
they ought to be concerted into regulations.
Hanes:
We assumed that the proclamation itself covered,
to the bankers' minds, the fellow that is dealing
in this kind of thing, specifically enough. For
instance, it says, "Ordinary commercial credits and
short-time obligations shall be excepted." They
are excepted from the Neutrality Act. Those which
are in aid of legal transactions. Well, illegal
transactions, of course, is B. matter that is pratty
well defined under the Neutrality Act. Another
character customarily used in normal peacetime
transactions. Now, the penalty for violating that
thing 1a $50,000 fine and five years imprisonment,
one or both.
Foley:
$10,000.
Hanes:
I thought it was $50,000.
Foley:
$10,000 and five years in prison, John. Those are
severe for this kind of an Act.
Banes:
If anybody has any questions in their mind as to
what is an ordinary peacetime commercial transaction
or what 1a B. short-time obligation in aid of legal
transactions, it would seem to me that that language
is specific enough to cover the ordinary rules and
regulations that we would promulgate unless we went
on to say the following shall be considered
- 10 -
29
ordinary peacetime transactions, the following
are not, or something like that.
Bailie:
You can't cover them that way.
Hanes:
We would be in a. worse fix 1f we specified those
and left out a couple. I don't think we would
be protecting our people adequately under the law.
Bailie:
The commercial community will get a great deal
more understanding out of published decisions by
the General Counsel as they come out than they
would by any attempt to think out in advance.
Banes:
That 1s what my suggestion was based on, that de
keep the Federal Reserve Banks posted as rulings
come from day to day, send those mimeographed
rulings right to the districts so they would have
a file and could keep up to date on what was and
was not allowed under this, in accordance with the
Treasury regulations or rules.
Viner:
Couldn't they go in the official register too?
What is it called?
Bernstein:
Federal Register.
Foleyt
The rulings? They could be inserted, Jake, 1f
wanted to.
"ailie:
Don't you think you would have to go this far, that
each one of the twelve Federal Reserve Banks acting
8.8 your fiscal agents would have to see to it that
they send in a written notice to every bank covered
by these regulations, telling them about them,
calling attention to them, and saying that they
were ready to advise with them as problems came up
so that there is no doubt that you have fairly given
notice of the fact that you have taken jurisdiction?
Banes:
There may be somebody here that thinks that 1s not
B, good way to go, If there is - 88 a matter of fact,
I am not the thinker-up of that idea. I think I
will have to give Gene Duffield credit for thinking
that idea up. It appealed to me 88 being B. sound
one. Maybe some better ideas can be approached to
this thing than that.
7311
- 11 -
Smith:
Randolph, this will affect comparatively few.
Burgess:
Yes, mostly New York banks. I just told John
to check with the City Bank Counsel to see if
this covers it, and I think you will get a pretty
good check on it.
H.M.Jri
How will that be, taking this suggestion that this
thing 60 out by airmail tonight and I write B. letter
to the President of each Federal Reserve Bank and
say that we are thinking of doing this. Everyone
could be reached, you see, by morning, and that we
would like to have any comments back and that we
are going to ask them to do this. Before we give
out a press release we would like to have the
answer back by airmail. If this went out by
5:00 o'clock this afternoon it would reach them
by airmail by tomorrow morning, and ask them to
just send it back to us within the same day.
What is today? Tuesday? Thursday morning you
would have the answers from every Federal Reserve
Bank and 1f they have any questions to ask they
should call who, you? (To Mr. Hanes)
Fanes:
I will be glad to answer them.
H.M.Jr:
Do you have the letters prepared?
Hanes:
Yes, sir.
H.M.Jr:
If there are any particular questions they want to
ask - just so that there won't be any, I would
send a copy of the letter over to the Board.
oley:
Even enclose & copy of the Neutrality Act and the
proclamation that the President signed, and the
Committee has been set up.
S.W.Jr:
And then B. copy to the Chairman of the Board for
his information.
Fines:
That would mean similar to what we have here. A
we would say to them, because that has got about
copy of this memorandum to you would be about what
the whole business in it.
Boll:
Why don't you send & copy of this last memorandum
except the last paragraph? There 1s ne harm in
the memorandum.
331
- 12 -
Burgess:
I think you could add one phrase, John. I think
you could put in, where you say the general regu-
lations were suggested, you could put in "In view
of the explicit character of the Act itself, no
regulations were considered necessary."
Foley:
I think that you are being facetious.
Burgess:
Don't you think it defines things? It isn't general;
after all, 1t does list things.
Poley:
It is pretty vague, I think, and therefore I don't
think it is susceptible of hard and fast regulations.
I think if the Act was clearer and defined exactly
what they had in mind, we would be able to administer
it with a great deal more facility, but because it
is so vague and because it parallels the Johnson
Act in its language so closely that we have to be
terribly careful about any general things we say now,
and I think it is better to feel our way and get
specific instances where we know the facts before
we make any commi tments.
surgess!
Well, in view of that feeling, I will withdraw that.
E.H.Jr:
If this thing can go out early airmail with a special
delivery stamp, that would go in the same day, do
you see?
Hanes:
You want to know whether or not they have any sug-
gestions to offer and whether they will agree to
act?
H.M.Jr:
And if they have any questions, to ask them to cell
you on the telephone.
Hanea:
Will you help me with this?
Foley:
Sure. I would suggest that we send - not the memo-
randum, but
H.M.Jr:
I don't care.
Poley:
EL copy of the regulations, of the rules, and the
Neutrality Act.
H.N.Jr:
Fix it up.
332
- 13 -
Poley:
Yes.
H.M.Jr:
Is that all right?
Hanes:
Yes.
B.M.Jr:
Now, what the President called me on - the reason
I am telling you this is, he said he gave me a
deadline of noon tomorrow to fix up something on
this stabilization for twenty-one Latin American
countries, so that 1e the reason I am outting this
a little bit short. He says that is a deadline,
go the whole hog and no quibbling.
Bailie:
The advice we are prepared to give you will not
fit that formula, but we will have to discuss that.
E.M.Jr:
Well, just 80 it is on time.
Railie:
When do you want to see us?
E.M.Jr:
I have got this Federal thing and after I am through
with that I will be no good, but I will be moderately
good tonight. The only thing was, I thought 1f we
could do it tonight and then I would call up Mr. Welles
and ask if he would come over here at 10:00 o'clock
tomorrow morning.
Pailie:
What time do you want us tonight?
H.M.Jr:
8:30?
Bailie:
That 1s all right.
H.M.Jr:
Should I have Feis sit in with us tonight?
Viner:
I would say by all means. We are very, very vague
as to what this is all about and we are guessing.
Bailie:
I would be quite worried about having him sit in
until you made up your mind about what you wanted
to do about the answer to the Secretary of State's
letter.
H.M.Jr:
The only thing, it would save time. Feis told me
in the few minutes I had with him that he con-
vinced Mr. Welles that the stabilization fund
couldn't be used for this purpose.
Regraded Unclassified
333
- 14 -
Bailie:
That 1s right.
H.M.Jr:
So, I would just as lief have Feis sit on the inside.
I don't care.
Bailie:
Would it be possible for Mr. Feis to come in at
say, 9:00, or a quarter past, so we would have &
little chance to discuss beforehand what our
attitude is going to be? We took our time in
discussing this thing, largely what our relation
with the State Department ought to be.
Burgess:
I suggest that maybe Dan and I go down to the
Board.
H.M.Jr:
All right.
Who is working on Pan-America?
Bailie:
I am, and Cotton, and the three "E's."
H.M.Jr:
Harry White 18 in on this.
Viner:
And Bernstein.
White:
And Cochrane.
Bailie:
I will see that Cotton gets everything. I will see
that Cotton gets every one at your house at 8:30.
H.M.Jr:
I don't know what the whole hog means.
Bailie:
Two hundred million dollars.
Hanes:
I don't think he gave you much choice in the matter.
Decisions won't be hard to make.
H.M.Jr:
I wish
Bailie:
You don't need us any more, do you?
H.M.Jr:
Well, I want White to look up my testimony before
the Senate where, as I remember, if my memory
serves me right, I said I would not use the
stabilization fund for loan purposes to any foreign
government without going to Congress for specific
Viner:
You said to any belligerent.
34
- 15 -
White:
At one point you said to any government involved
in war, but there are other parts we will have to
examine before we can definitely say that you
didn't say that.
H.M.Jr:
I think I said that I wouldn't approve any loan to
any foreign government without getting specific
authority from Congress.
Sailie:
Welles told us the other morning that he believed,
in view of what you had said - and this wasn't
on our saying so, he volunteered this - it would
be necessary to go to Congress. Welles volunteered
that comment himself.
H.M.Jr:
And particularly in view of the fact that we asked
for 100 million dollars for the Export-Import Bank
of North and South America and we got turned down.
And again in these few minutes I had with Feis, he
said I told him that you want - wouldn't want 8.
broad-side agreement with twenty-one countries. He
said that you would like to do each country indi-
vidually.
Whiter
I suspect that there may be some merit, in view of
the way in which this 1a being handled, in going
along in anticipation that the major difficulties
which you foresee will crop up.
H.K.Jr:
What do you mean?
White:
I mean they will crop up on the occasion and that is
when it will become apparent that nothing can be
done along those lines, rather than blocking it now.
I mean if you go ahead with it tentatively and
cooperate with the
H.N.Jr:
You mean let Welles make a commitment for 100 million
dollars?
White:
Let him make any commitment he wants, if he wants to
make a commitment.
Bailie:
I violently dissent with that view.
White:
If the thing 1a being written for us, the other
alternative is to go along - however, we will trust
that. The situation is changed, it appears to me,
by this last communication.
335
- 16 -
H.M.Jr:
Well, I doubt if - I am trustee for this fund and
I have made certain statements to Congress and I
expect to live up to them. I am not going to
break my word to Congress.
Ballie:
Mr. Welles has told us he expects you to. I think
our trouble comes in quite another alley. I think
we could get away from the stabilization fund. It
is & question of whether you want to take another
aspect of the situation.
E.K.Jr:
I still think you people could come et 8:30 tonight
and I could invite Feis for 9:00. He is always late
anyway. Don't you think he ought to be there?
Bailie:
What will Mr. Welles think?
Viner:
Welles ought to know or the State Department ought
to know that you invited him.
H.M.Jr:
I am making the appointment through Welles. I am
asking Welles to send Feis tonight.
White:
We will have all the statements typed up that you
made reference to this in your public statement.
S.M.Jr:
I have got to be consistent. I can't make B loan
on the stabilization fund.
Bailie:
It is more than the exact words that you said, it
1s the atmosphere that you created which the Under-
secretary thinks, and I think, too, is & very strong
feeling that you regarded the type of trensactions
that you had been doing as one that you planned to
continue to do and that 1f you were going to make
any violent changes of any sort using the fund, you
would come back to them. It was on that basis they
extended the period during which you had this great
power. That is the impression that was given. I
don't think it is so much the identical words you
said, because Mr. Welles, having looked it over,
came out with a statement he felt quite sure the
Secretary would want Congress to authorize it. I
don't think we have to fight that.
Would or would not?
- 17 -
336
Bailier
Oh no, Welles volunteered the statement that he
assumed that this would have to be done by new
Congressional authority. Now, why we should go
behind that I fail to see unless you should want
to use the fund for some of these purposes.
Whiter
I think there are a lot of developments which you
should hesitate to commit yourself, whether you
can or cannot. The best position to take 18 that
it depends entirely on the terms and conditions
and circumstances. There are certain conditions
and terms under which that fund can legitimately
be used, and I think not contrary to that statement
which you made. There are other conditions in which
that is not true.
B.E.JFI
Harry, you get the statement that I made before
Congress when I testified. I certainly gave the
Congress the impression I was not going to use this
to make any loans to any foreign governments, end
I am not going to do it for anybody. Somebody else
can do it, but I won't. I'm not going to do it.
I am the person that got that fund through. I am
the trustee. I am not going to break my trust. I
know what I went through to get that thing. Is
Welles asking you
Ballier
I don't think he is for a second. He is asking you
to agree to his making at Panama certain statements
and asking certain resolutions to be passed, and we
will bring those with us tonight.
H.M.Jr:
Can't he make some glittering generalities?
Bailie:
That is what we are suggesting.
White:
It is not going to meet the President's notion of
what is to be done.
H.M.Jr:
Harry, this is the way I want it done. I don't need
anybody to advise me how to administer the stabiliza-
tion fund and what to do with it. I got that through
and I an not going to make any loans to any foreign
powers as long as I am here, without getting Con-
gressional sanction. I don't need any advice on that.
I know what I went through and you look up my testi-
mony and you will see that that 1s there.
37
- 18 -
Rmllie:
Mr. Secretary, you moved back from that position,
which I think can't be controverted in any way,
to the place where you say, "Well, is it a loan
If you buy the paper currency of the government
that hasn't any gold back"? and our answer is
"Yes, in general, it is a loan." That 1s what it
would amount to if we can't sell it again. Then
you come on back with a variety of steps, for
instance, with the Argentine Government, where It
is pretty near possible with their financial strength,
but you have the Tripartite Agreement. They have
gold. They keep their engagement. They have a
central bank. The whole machine exists there.
E.N.Jr:
What 18 the State Department going to do s bout this
debt question they keep all the time?
ail10:
Mr. Welles stated to us that he did not have the
slightest intention of having that messed up with
this 200 million dollars. He didn't want anything
commercial or about debts mixed up with it. He
wanted just purchase exchange and - I can't get out
of my mind the exact phrase he used, but the 1dea
was to be as far away from your letter of August 1st
as it was possible to be in his idea of the way
this was to be handled. That is the thing we have
been wrestling with In our meeting, to see how wo
could
B.K.Jr:
of course, you could do two things seperately.
allie:
That 18 right.
E.M.Jr:
You could give him something to take to Panamu.
allie:
That is what we are doing.
H.W.Jr:
Then this letter to Mr. Hull about the Committee
could be done afterwards, which would make it
simpler.
White:
I still think the unassailability of your position
lies in requiring and demanding those terms and
conditions under which you will utilize the stabili-
zation fund that meets with what you regard as
sufficient safety to satisfy your ideas of what your
trusteeship involves. In other words, it 1s the terms
and conditions of the use and not a preliminary state-
ment to the effect that you are not going to use this
Regraded Unclassified
38
- 19 -
fund at all for any stabilization purposes. It is
only when they come forth for a specific purpose
that does not meet the terms, which you are at
liberty to set at that time, that I think you can
well say that this loan under these conditions
involves & risk which I am not going to assume, not
willing to assume.
Bailie:
Harry, I think you are talking 8 little bIt beside
the point. I happen to have been at this meeting
with Mr. Welles and Mr. Welles's statement was that
he thought Congress ought to take 100 million out
of the stabilization fund and take 100 million of
the Export-Import money that they didn't give.
That was the - added together you get 200 million
and you have got & fine new fund, end that fund
WSS to be used for these purposes, which I find so
hard to understand. I mean they are such general
phrases. There was no suggestion that you should
use the present stabilization fund, because Mr. Welles
said that he assumed in view of your testimony that
it would not be possible to use it.
D.M.Jr:
That is what Feis said he told him.
White:
What about the President?
T.M.Jr:
He didn't get down to any details.
Dellie:
Mr. Welles didn't quote the President to Mr. Burgess
and me as having taken any position about this
stabilization fund.
K.M.Jr:
Feis lolows what is in his mind because he is the
fellow who took this up, so we might as well have
him here. Maybe we are seeing bugaboos, but just
keep it in mind before the next stabilization
for 100 million dollars and the Export-Import for
100 they didn't get Let's take that 100 million
away from the Federal Reserve and use it. They have
anxious that I use all my free gold, let's take his
got 120-odd million dollars. Mr. Ecclos is so
hundred away and use it for South America. How
much has he got up there, 120?
White:
One hundred ten.
H.M.Jp:
Well, we won't be small. We will leave him ten.
339
- 20 -
Bailie:
I suggest a collection among the departments.
H.M.Jr:
Both the President and I are committed to use
the stabilization fund to eventually retire the
public debt. You can use this 100 million that
is lying right over at Federal Reserve.
Bailie:
I remember six years ago his stating he wanted to
keep that "kitty" entirely intact.
H.M.Jr:
He may be all right.
Bailie:
I really don't think it is as serious a situation
as it might seem.
H.M.Jr:
Let's get together at 8:30. I will only interrupt
you when the Federal comes over here.
Hanes:
Before you go, is everybody satisfied with this
thing now?
H.M.Jr:
You have got their approval.
340
GROUP MEETING
September 12, 1939.
9:30 e.m.
Present:
Mr. Hanes
Mr. Bell
Mr. Bailie
Mr. Burgess
Mr. Smith
Smith:
We have been discussing the American Bankers'
convention. Mr. Burgess is unable to go. With
your approval I will go to the convention.
Burgess:
I think he ought to go and carry the news.
Smith:
It means being away two weeks, starting the end
of this week. It 18 in Seattle.
B.M.Jr:
Are you kidding?
Smith:
No, that is our....
John, I just told the Secre-
tary that we had been talking about covering the
American Bankers' Association convention. Randolph
can't go.
Burgess:
No, I am not going, that is obvious.
Bailie:
The Treasury business is more important now.
Burgess:
This 1s no time for me to leave.
Smith:
That seems.
E.M.Jr:
Be gone for two weeks?
Smith:
Yes.
Hanes:
Does the Bankers' convention take two weeks?
Smith:
It is in Seattle, Washington, you know.
Henes:
Do you fly?
Smith:
I can if necessary, yes.
H.M.Jr:
I tell you, right now I understand that Preston
Delano 1s out there. The chances are he 18
going to get a telephone message from me on the
15th to come back.
341
- 2 -
Burgess:
He 18 not there yet.
Smith:
He 1s in Canada.
H.M.Jr:
But that is where he is headed.
Smith:
It doesn't make any difference to me.
H.M.Jr:
You can start there, but I am going to tell you
right now that 1f that fellow pays that dividend
I am going to send for you and Preston.
Smith:
That is all right.
H.M.Jr:
If you have that in your mind, you can do your
own betting as to whether you think they will or
they won't.
Smith:
Well, I think that today 1s the day.
E.M.Jr:
It is the 15th, isn't it?
Smith:
This is the second Tuesday. I thought that this
was....
Fell:
This 1s the second Tuesday. Do they have a Board
meeting today and pay it on the 15th?
Smith:
I think it 18 declared today if they declare it.
Hanes:
Let me make en observation. If it hinges on
whether or not they pay the dividends, then you
better not start, because they are surely going
to pay the dividends.
Smith:
No, personally, I would rather not go.
H.M.Jr:
In the next two weeks, 1f these fellows pay the
dividend, then I am going to ask a man from Boston
to come on down and send for Preston Delano and
then decide what we will do about it. After we
have decided that, you can go and explain that
to Seattle.
Smith:
I know what....
Burgess:
As a matter of fact, you don't have to leave until
the 21st.
342
- 3 -
H.M.Jr:
You could explain that.
Bailie:
The reason for being at the convention, I think,
is an important one, 1f there are no more important
things, and that is that there is B. widespread
misunderstanding with the Government bond market,
the responsibility of the Treasury for it, and the
Treasury is being criticized for it. Now, I think
it 1s a parcel of goodwill at the convention and it
could do us substantial good and could help the
background feeling about our bonds, unless there is
something more important for him to do.
Smith:
There 1a a very definite course to pursue in the
other matter 1f they declare the dividend.
H.K.Jrt
Well
Hanes:
We haven't got much alternative. There isn't much
to decide.
Smith:
The first thing you have got to do in the other is
to go in and see what they have done. That will
take EL week or two. The Chief Examiner should go
in there as soon as they declare the dividend and
see what they have done toward meeting the require-
ments and report to the Comptroller. Then is the
time to make 8. decision.
E.M.Jr:
I see.
Smith:
We have been discussing that and you couldn't take
a chance on not checking what they have done. They
might have done something that you didn't know about.
We thought they might sell their bonds and make this
charge-off. Of course, they can't do that now.
H.M.Jr:
If today is the day - let's put you on the same basis
the Treasury 1s on, 24 hours notice, how 1s that, as
far 8.3 your going to Seattle?
Smithi
I am on that basis.
H.M.Jr:
Then let's let it ride.
Smith:
I have made my plans and I am just holding my reserve-
tion until the last minute.
343
- 4 -
Hanes:
I wish Tom and Randy both could go.
Bailie:
Believe me, not unless I go too.
H.K.Jr:
Let's all go.
Smith:
You understand then, there isn't anything that
H.M.Jr:
I am living from hour to hour. Let's just see what
happens.
Smith:
That is all right.
H.M.Jr:
0. K.?
Smith:
Yes.
Bailie:
Henry, I reported to Burgess this morning and then
Tom Smith, the competition we had last night on
the Government bond market, and I think, Randolph,
you can go ahead and express the views.
Burgess:
I was up there yesterday and I had a pretty fair
exploration job to get the feel of things, Saturday
too. Now, it is presently clear to me that we are
dealing with the waves at sea.
H.M.Jr:
Don't say that, I have just come off it.
Burgess:
That is just what I mean.
H.M.Jr:
That is a pretty big ocean.
Burgess:
This speculative movement on the Exchange 1s supported
by much better business news than anybody has a right
to expect. Steel is going to be up 70 percent of
operations and their orders are coming in. They are
overdoing it also. On the face of that, it is just
an impossibility to have any other kind of bond
market but what we have had. In other words, you
have got 8. tide you are dealing with. Now, the only
sensible thing when you are dealing with a tide is
to go with it. You can't attempt to embattle it.
You want to find resistance points. I had hoped
that a point where the tide would begin to let up
a little bit and where you can make a stand and
build 8 few bulwarks, I had hoped that it was
102 or 101 3/4 for these '60s and '65a.
244
W , I
I was just as wrong 8.3 could be. It wasn't the
place because this speculative thing kept on moving
and the bonds kept on moving the other way. It
was just the psychology of it. They are over-
doing it. A little later 1t 18 going to readjust
itself, I am just as sure as I can be. Now these
fellows aren't fading back fast enough. They are
in their alabaster tower and they are unrealistic.
Now, I think the next point where there is B. chance
of getting some order in this thing, getting some
other buyers in, is at par. People may begin to
buy at par. That means only a point end B. quarter
more for the longest bonds. Yarl thinks that
three percent basis
Bailie:
I just say that to be offensive. In other words,
I say nobody can tell the point at which psychology
will change. It will change two or three days after
the average buyer believes that the market is
natural and Bethlehem steel stock 1s going up
ton points 8 day. Do you agree with that, John?
Hanes:
Sure.
Beille:
The combination of those two things will suddenly
turn people around. They won't do it as long ES
they think we are in the market and they see
Bethlehem steel going up ten points a day.
Surgess:
I think that is not keeping en orderly market, It
is pegging the market. I think 1f we have B
program where they spend 25 million dollars a day,
O. K.
E.M.Jr:
What did we get yesterday?
bell:
We got six million two hundred twenty-five thousand
bonds, and two million of Home Owners Loan.
Burgeas:
If you agree with us, we will go ahead and try to
negotiate with them and see if we can get any
satisfaction.
H.V.Jp:
That 18 pretty important.
John, do you want to express yourself?
Hanes:
I agree 80 thoroughly with everything that has been
said - you know, I have disagreed 80 absolutely with
- 6 -
everything they have done up to date. I have
agreed with what we did when Marriner Eccles
came back, and I don't believe there has been
anything done since. You take anybody that 1a
running & fund that had the right to buy equities,
as they did at that time - they were seeking
security and not profit, but Just looking for
security. They had their money invested in
high-grade bonds or Governments. The first
impulse is so natural to run and throw those
things over. It didn't make any difference to
them about price, because they would go into
equities. The market is equity-minus. This
country has gone from a buyer's market to the
seller's market. I can give you a dozen instances -
my brother-in-law called me on the phone & minute
ago and said that he had just been asked to take
8. 500 thousand blanket order - for blankets, 500
thousand. And he says, "I am just full." In the
last four days. He says, "I can't take any more
business."
Bailie:
That is the bottleneck.
Burgess:
You have had a business situation which for Fix
years, seven years, eight years, almost ten years,
has been underwraps. It WBB held back.
E.M.Jr:
I don't understand you.
Lurgess:
Under wraps. It has been held down, hobbled, and
it 1s suddenly released. People buy things
Hanes:
People are not bond-minded. To cope with Govern-
ment bonds, they have got to seek their own level,
and I think it is just like trying to dam up
Niagara Falls. If it wants to go down, it 1a
going down, and I say let it go down with B mild
cushioning to keep the air pockets opened up, keep
the market from falling away to nothing. In the
absence of that kind of a market, I would stay
out and buy six to eight or ten million dollars.
You can do 8. lot more with that and let the public
have the knowledge that it is a free and open
market than you can with fifty.
Surgess:
I was saying twenty at the outside.
346
- 7 -
Bailie:
In saying twenty, I think Randolph has in mind
the tremendous distance we are going to have to
pull with the Federal Reserve to get the twenty.
It seems to me if you could make a short-term
engagement for the next three days, we won't
spend more than twenty million B day.
H.M.Jri
If you don't mind, I think it is B. misteke to
place 8. limit, I mean even on the money. You
might say, "Let this thing 80," and they might
do it for five million and they might let it go
two points. I mean, 1f I was doing this thing
the way we always used to do it, that I worked
directly with you (Mr. Burgess)
Burgess:
We always got along somehow.
H.M.Jr:
I have done it eleven months out of twelve since
I have been here. When the President made the
Green Bay speech I think we bought 40 million
dollars that day. Another day something happened.
You always had plenty of leeway so that you could
take care of it. We might strike an air pocket
which might cause 15 million one minute and the
next minute he could call me up and say, "I can
sell a few, Henry, so what do you think?" And I
would say, "Go ahead and sell, " in the same day.
Failie:
The Federal is not sales-minded.
H.M.Jr:
You turned right around after that pocket and
sold a few.
Burgess:
Sure.
H.M.Jr:
Well, the boys in the Federal did a beautiful job
at the Munich Crisis. That was after I had gone.
They did B. nice job. They bought them on the way
down and they sold them up.
Bell:
But they were under the market all the time.
Burgess:
Yes. They started out this operation with & com-
plete erroneous 1dea. They are out of contact.
Smith:
And their action has accelerated this fifty per-
cent.
247
- 8 -
H.M.Jr:
What do you think, Tom?
Smith:
I think that unless you want the - I have been
doing a lot of thinking about it in the last
week bonds - unless you want to buy all long-term
H.M.Jr:
Which I don't.
Smith:
....you must let the market seek its level and
there is an imaginary point at which the public
will take the market out of your handa, and you
have got to ease it down to that point, but all
I want to say is, don't be disappointed if par
doesn't stop it.
Pailie:
That 1a why I said three percent.
Smith:
It is anybody's guess. Ease it down and when
sometime at a certain point the public will -
private industry will take your market, then it
is going to go up. I don't think par will do it.
H.M.Jr:
I don't think there is any disagreement. As I
get it, the thing is to ease this thing off and
try to find B. bond
Smith:
More rapidly than they have been doing.
Bailie:
Much more, because the picture now is, when Federal
yesterday asked people not to trade after 4:00
o'clock, it was a terrible mistake and it gives
the impression of fear on our part of D. situation
in which we are not afraid.
H.M.Jr:
That isn't "business as usual."
Bailie:
Clearly not, and Randolph is right there within a
block of them, talks to them several times, and
they didn't consult him about it.
Burgess:
I was in there until half past two and they didn't
consult me about it.
H.M.Jr:
Who 18 going to be the Ambassador from here over
there?
348
- 9 -
Bell:
Didn't we agree we ought to talk to George Harris?
Burgess:
They are in a. meeting now. I am not sure, but if
you didn't mind doing 1t, Henry, your calling Ransom
and telling him, I think it would be more forceful
than if we did. Don't you think soi
Bailie:
I think so, I have a feeling that I would like to
know that we have George with us so that we won't
get in between.
H.M.Jr:
Where is George?
Burgess:
He is over there, I think. They are having E. meeting
now.
Bailie:
George said last night something which rather
frightened me. He said he would like at the end
of the day to pull out and make an announcement
that the Government was going to let the bond
market go where it wanted. I have got hair on my
W
chest, but not that much. I want to be quiet
about it.
H.M.Jr:
Suppose I do this, suppose I call them up and say
that we are not satisfied and that I think it would
be wise 1f they would come over here again and have
a powwow. This Panama meeting could be postponed.
Bailie:
That would be an advantage to the Panama meeting
also.
H.M.Jr:
On the theory that we would do the most importent
first, I would say that this is the most important.
Burgess:
I would be glad to undertake it, but I don't think
it 16 quite strong enough, my just going over there.
H.M.Jr:
He was the man who called up and asked 1f it was
all right for him to leave town. Some of these boys
said if I didn't tell them to go they would just
slip out.
Bailie:
There wouldn't be any Secretary of the Treasury
any more.
H.M.Jr:
These fellows said if I told them to stay they would
never talk to me again.
349
- 10 -
Burgess:
I have talked to Ronald this morning. There is
one other fact you might be interested in. They
are within 108 million of their authority. They
have got to have a. meeting of their full committee.
In the light of that, they want to do 8.8 Ronald
said this morning, continue as yesterday, spending
A lot of money at this level, which is obviously
an absurd level in view of the attempt
Bailie:
In view of what the market 1s saying.
Burgess:
I can't understand it.
Bailie:
Marriner told us that when he got to 500 million
all he had to do was to call in the fellows on
the telephone and get another half billion. Now,
that kind of knowledge seeps out, I don't care
Burgess:
It comes out in statements too.
Smith:
It is general information that all you have got to
do is sell your bonds and a little later on you can
buy them back cheap.
Bailie:
That is exactly my point. We are just being suckers.
Smith:
The way they handled the market the week before last -
then Henry told me this morning, for instance, he
said, "I want to find out what this market 1s," and
offered a million bonds. After fooling around a
couple of hours the Federal Reserve said if the
broker would give up the name of the seller they
might handle & hundred thousand.
Bailis:
We felt very badly about that, that business about
asking names, We thought it was 8. sign of weakness.
Hanes:
Has the copper bond market shown any signs of finding
the bottom?
Burgess:
Yes.
Hanes:
Has it recovered any from the bottom?
Smith:
Sure.
Bailie:
It can't stand up against a day like yesterday.
250
- 11 -
Hanes:
When you have got feeling good in the equity market,
it doesn't destroy anybody's confidence to see bonds
go down. Anybody that understands knows why bonds
go down when equities 6° up.
Bailie:
We had a 1929 in the bond market just during June,
July and August, and we are now having the September
and October of it.
Smith:
Everybody has been looking for that. They say, "Now,
here it 18," and they are trying to run and then buy
them back. The minute they think that it has hit B.
level
Burgess:
I talked to the New York Bank this morning and they
are prepared to do just 88 we suggest, that is, fade
back to par on these things and only spending 8. little
money, so if when they get to par they want to spend
& little more before fading again, that seems to be
sensible.
Beilie:
I have the feeling to set any price at which you are
going to stand is wrong psychologically. I think we
kid ourselves when we do that. I wouldn't want to
make a stand any place. I wanted to just keep an
orderly - no stand.
Surgess:
You are between the devil and the deep blue sea, Earl.
You have to buy some way, Now, if you just buy right
on down in a steady line at the same amount
Hadley:
The Federal Reserve had gotten about seven million
by 10:30 and their bids are the only bids that are
in the market. There were a few sales on the Board
slightly under them, but most of the sales now are
Federal purchased and they are trying to divert the
volume from the Exchange to the Board, doing it
over the counter, and they have got their over-the-
counter bids at 2/32nds higher than their Exchange
bids.
Burgess:
What are they bidding for the longest bonds?
Hadley:
Their Exchange bids are 101.6 and over-the-counter
bids are 101.8.
Burgess:
They haven't faded at all.
351
- 12 -
Bell:
As a matter of fact, they raised that last night.
Those bids were down to 101.4 and they raised to
101.6 and then to 101.8.
Hadley:
The free market yesterday at the close was about
4/32nds below the general bids. They got the
dealer to bring those bids up. If they let it
down it would drop down about 4/32nds.
Bailie:
You say they get the dealers and they bring their
bids up; that means that everybody knows that there
is nothing in it.
H.M.Jr:
(on phone) Hello, Ronald. (Telephone conversation
with Mr. Ronald Ransom follows:)
352
September 12, 1939
9:55 a.m.
HMJr:
Hello.
Operator:
Governor Ransom. Go ahead,
Ronald
Ransom:
Good morning.
HMJr:
Hello, Ronald.
R:
I was right in the middle of reporting a conversation
with Marriner and Burgess to the committee BO I --
this is the first time I could get to the phone.
HMJr:
Well, I appreciate that. Ronald, we're sitting here
talking things over. I don't know -- we're disturbed
about the bond market.
R:
Yes.
HMJr:
And I'd appreciate 1f my crowd could get together
with your crowd
R:
Yes.
HMJr:
as soon as possible and talk it over,
2:
All right, sir.
Hilr:
Do you think that could be arranged?
I'm
R:
I think it can. Let -- let ne -- let :10 --/ in the
adjoining room to the committee that's meeting now
in the other room, and I'll ask them if that can
be done.
HMJr:
And will you
R:
Yes, and call you back.
HMJr:
If you'll call me back
R:
Right away.
HMJr:
I'd appreciate it.
Regraded Unclassified
353
- 13 -
Bailie:
I think you ought to tell him, Randy, about that
communication order that was issued against you.
Burgess:
Oh, I have been going down there in the morning
when they were determining the day's program and
I have been sitting in with them. Marriner called
me Saturday and said that they had been having 8.
little discussion because technically those meetings
were meetings of their Executive Committee and the
rule was that no outsider could be present at H.
meeting of their Executive Committee,
H.M.Jr:
Well, if it will make you feel any better, in
November, 1933, I W9.8 Acting Secretary of the
Treasury, and the Secretary of the Treasury was
Chairman of the Federal Reserve Board and he
questioned me about the meeting and I was told
that I couldn't come to the meeting.
Burgess:
It was a good alibi. I said I didn't care.
Bailie:
But Ransom thinks that you asked. The reason we
are asking this way is because of that.
Surgeas:
I told him
H.M.Jr:
As a result, I never went to a meeting when I was
Secretary. I think I went to one.
Burgess:
I told him that was all right as long as the Treasury
had a chance to register its views before the decisions
were made instead of after.
S.M.Jr:
Some mornings like this I feel like saying, "Thank
you for putting me off the Committee."
Smith:
They practically said they didn't want you at the
meeting?
H.M.Jr:
They did. It wasn't the
Bell:
That has always been a fight in the Treasury, about
the Undersecretary attending the meeting when he
is Acting Secretary. Gilbert had the second fight.
They finally let him come, I think.
H.M.Jr:
It wasn't a question of saying yes or no, they just
said no,
354
- 14 -
Smith:
There is just this, the market is like the 3ea, and
when you try to revise it, it just overwhelms you,
You have to let it through and let it level down
and take care of itself, and that is what you have
got to do in this case.
Sailie:
It 1a like some wild animals. If they see you are
afraid of them, they come at you, and if you are not,
they don't.
Smith:
John, don't underestimate the element of the banker
who has these bonds with his Board behind him,
telling him, "I told you you ought to have gotten
out of them a long time ago." Now he is trying to
run to cover. He thinks they are going down to
ninety. They still remember the Mellon days when
those three went down in the seventies.
Bell:
I would think the Chairman of the Board of Directors
H.M.Jr:
The Mellons went down to three cents and there was
twenty-five cent sugar.
Smith:
What did you say?
Bell:
I think some of these Chairmen on the Board of
Directors would have a hard time justifying their
position and agreeing not to sell Government bonds
on this market.
Bailie:
When the Government is saying, "Boys, come and sell
us 65 million a day."
Smith:
They do.
Bailie:
of course.
Smith:
The fellow that didn't meet this situation 8 long
time ago is in trouble.
Burgess:
I have been getting along all right with these fellows.
There has been no feeling at all.
Bell:
He was just politely thrown out.
Burgess:
I didn't object to that particularly. That is just
nonsense, that is all.
355
- 15 -
H.M.Jr:
You think as a result I will ask them to come over
here, is that what you think they will think?
Bailie:
I am sure that is what he thinks.
Would you like me to ask Mrs. Klotz to postpone the
10:30 meeting?
H.M.Jr:
Let's wait a second.
(Unrecorded telephone conversation
with Mr. Ronald Ransom)
Smith:
It would be funny 1f it wasn't so damn serious.
Burgess:
We have been going to them.
H.M.Jr:
I would go over there but I just don't think I
should.
Bailie:
I wouldn't go over there at all.
H.M.Jr:
Then, if you would tell the Panama.... And then
why don't you all go back to your offices and
when these boys come I will let you know.
Bailie:
And we will just issue another call for the
Panama.
TREASURY DEPARTMENT
WASHINGTON
September 12, 1939.
MEMORANDUM FOR THE SECRETARY*S VILES:
Governor Iccles called ne on Saturday, September 9. and stated that
the Executive Committee had been reviewing the Treasury's participation in
the System's purchases of Government securities during the past ten days and
had noticed that the Treasury had taken bloos of long bonds which had been
sold across the of the Stock Exchange, the amount of which did not
represent any prearranged percentage of the total or of any particular
issue. Es said that the Committee felt that as long as the Treasury as
participating in the program, it would be better to have an understanding
BE to just what option the Treasury would have. Be seid that if there vas DE
objection on the part of the Treasury he would like to see it have the
option at the close of business each day of taking up to 50 per cent of
each of the issues of the four longest bonds.
I told him that the Treasury had no objection to this suggestion
but I thought for the record he ought to know why ve had taken bloos of
bonds purchased across the Stock Exchange, The reason for our action was
to facilitate the transactions in the New York Federal Reserve Bank
because by taking all of a particular issue from the stock exchange, they
could lay that aside as Treasury business and handle it as such without
undertaking to divide up the various purchases across the exchange and
scross the board between the Treasury and the System. Ve are now
operating on the basis of the suggestion usde by the Governor.
On Monday, September 11, 1 called Mr. Morrill, Secretary of the
Board, and told him that I thought there should be one minor adjustment
to this understanding, and that is that ve should be permitted to take
at the close of business each day all or any part of the purchases mde
of the Home Owners' Loan bonds because the Corporation vanted these for
its Bond Retirement Account. He said that he you certain that there would
be no objection to that as the System did not particularly care for the
guaranteed issues and if we wanted any of those in could have them outside
of the agreement referred to above.
AWB
Regraded Unclassified
TREASURY DEPARTMENT
357
WASHINGTON
CONVERENCE IN THE SECHETARY'S OFFICE AT 10:30 A. M.,
SEPTEMHER 12, 1939, ON THE SUPPORT OF THE GOVERNMENT BOND
MARKET BY THE FEDERAL RESERVE SYSTEM WITH PARTICIPATION
BY THE TREASURY
-o0o-
Those present besides the Secretary were Under Secretary Hanes,
Dr. Burgess, Mr. Earle Bailie, Mr. Tom X. Smith, and Mr. Bell of the
Treasury staff: and Governor Harrison, Mr. Ransom, Mr. McKee, Mr. Draper,
Mr. Leach, Mr. Morrill, and Dr. Goldenweiser of the Federal Reserve System.
The Secretary outlined the reasons for the conference. He said
that he did not want to criticize the way the Federal Reserve System had
handled the bond market in the past, but ve had been watching it very
closely and we had come to the unanimous conclusion that the time had
arrived when the market should be allowed to go down just a little faster
than during the past few days: that the purchases on the market by the
System should not be in such large volume; and that there should be no
restrictions whatever on the market, such as yesterday's, when it was
closed approximately an hour earlier than usual. He said that he did
not believe ve could see the stock market go up from 5 to 10 points a
day and the commodity prices substantially increase without expecting
the Government security market to seek much lower levels.
Mr. Banson then gave a. short resume of the Board's action. He
stated that each day's operation should be looked upon in its relation
to the previous day, and as he looked back over yesterday's activities
358
- 2 -
he did not see that there was anything to regret; that they had allowed
the market to drop almost three-quarters of a point, and had given a.
great deal of latitude to the Federal Reserve Bank in its operations.
He said that he would like to have the Chairman of the Executive Committee
(Governor Harrison) state the Committee's views in this connection,
Governor Harrison reviewed the market operations since August 30.
He stated that the Committee had discussed various possibilities, one
of which was to let the market 00.00 off gradually with the System cushion-
ing it, or they could let the market go down one-sighth or one-quarter
of a point at B. time with the System buying substantial blocks at each
step. He stated that the last alternative was adopted and that they
have followed substantially that plan during the ten days' trading period
ending yesterday. Instructions which the Committee gave to the Federal
Reserve Bank yesterday were to keep the longest bonds from falling below
101, which was 24/32nde below the stock exchange closing of the previous
day but only about 18/32nde below the previous day's over-the-counter
closing. He said the question now in his mind is whether the market
should be allowed to go below 101. He thought possibly that the market
had now reached the point where it was beginning to dry up and that it
should level off at present prices. This 1s, however, anybody's guess,
he said.
The Secretary then said that he would like to give the Board the
Treasury's viewpoint on the present market. He said that he had a group
359
- 3 -
of advisers (composed of Hanes, Burgess, Bailie, Smith and Ball) who
had given a great deal of thought to the whole subject; to the policies
which had been followed during the past ten days. and the reaction of
the market to these policies, and that without in any way criticising
past actions, we in the Treasury had come to the unanimous conclusion
that the market should be allowed to seek its natural level just as fast
as it is safe for it to do so and that it may be necessary to allow the
longest bonds to go well below par before that level is reached.
Governor Harrison said that he did not attempt to speak for the
Committee, but personally he agreed with that viewpoint.
The Secretary then asked Dr. Burgess if he would express his
views on the market situation.
Dr. Burgess explained that he had been in close contact with
the market; had gone to New York and talked with several people on
Saturday and again on Monday and had spent a considerable part of the
day in the Federal Reserve Bank. On Friday of last week he was of the
opinion that the market had found its level at that day's prices when
the long bonds reached about 101-1/2. He said that he had to admit
now that he was wrong in this opinion, but he was in full agreement
with the idea expressed by the Secretary that ve should immediately
allow the market to seek its natural level. There seems to be a feeling
around now that ve are just suckers in taking the bonds that are being
offered at prevailing prices. He feels that we are not attempting to
find the bottom of this market fast enough. There are nome people who
Regraded Unclassified
360
- 4 -
are talking of B. 2-3/4 per cent level, while others are even going
as high as & 3 per cent level. He would not attempt to say where that
level should be, but he was quite satisfied that it should be con-
siderably below the present market. Be stressed the importance of
establishing the natural level for this market as soon as we can because
the Treasury has approximately $1,500,000,000 of financing to do before
December 31.
The Secretary then asked the question as to what had been done
with the municipals and Dr. Burgess said that they had as a general
rule been allowed to run down pretty fast although the National City,
in cooperation with the City of New York, had given some support to
the bonds of the City by purchasing them for retirement funds. This,
of course, has served as a cushion and has helped some of the other
closely related securities.
Mr. Bailie pointed out that the Government market 1s a very
definite factor in the municipal market also, and that 80 long as we
maintain uncertainty in our market, uncertainty will also prevail in
the municipal market.
Governor Harrison then said that it should be recalled that
when the conferences were held last April there were some who felt
that we should take the first shock in the bond market caused by the
declaration of war, without any attempt to support 1t, while there
were others who thought ve should be active in the market from the
beginning. The idea first expressed vas not adopted by the Committee
Regraded Unclassified
361
-5- - -
and he thinks now that maybe that was a wise decision. The Committee
this time adopted the program of dropping the market about one-eighth
of a point at B. time, buying at each level on the way down, Whether
this was the best policy is anybody's judgment, but he thought that
that has worked right well. On the other hand, he thought that maybe
ve had not allowed it to go down quite fast enough.
Mr. Draper then asked Dr. Burgess what he thought would be a
good program for the Committee to adopt.
Dr. Burgess said that he could not suggest any very definite
program in a situation such as now exists, because subsequent events
would no doubt make it necessary to change it. Any program that the
Committee might want to approve would have to be very flexible from
the standpoint of the Federal Reserve Bank of New York in its operations.
He said he would still try to keep an orderly market, but he would let
it go down gradually and would not worry if it went to par or even
lower. He felt that the System should not spend more than $20,000,000
in any one day from here on. He was inclined to believe that we should
operate about as we had in the past (this would mean buying under the
market 8. few 32nds and providing a. cushion rather than pegging at
certain levels as ve have done in the past ten days).
The Secretary then asked about the limit of the $500,000,000
which the Committee was authorized to purchase. He said he understood
that this limit is about exhausted. Governor Harrison stated that
they had received another authorization to purchase an additional
$500,000,000 do that the limit is now $1,000,000,000.
Regraded Unclassified
362
- 6 -
Mr. McKee then gave his opinion of the market situation for
the past few days by stating that we have had an orderly market. Re
thought that we all would agree to that; that it had been allowed
to go down on the average of about one-half a point & day, and whether
that was fast enough was, of course, B. matter of judgment. There was
at times some evidence of outside buying but this buying did not
materialize to the point where it vas in sufficient volume to hold
prices at the then levels. He said that they had reports from Presidents
of Federal Reserve Banks, who in turn had been in touch with the banks
of their districts, and he thought that the banks throughout the country
as B. general proposition had indicated to the Presidents of the Federal
Reserve Banks that they were well pleased with the way the Federal
Reserve System and the Treasury had handled the Government market. He
said that yesterday the Committee had given the Bank in New York author-
ity to hold the long bonds so that they would not go below 101 at the
close of last night, which meant a drop of 24/32nds and the orders that
went to the Federal Reserve Bank this morning were to the same effect.
This would mean that the Bank had a leeway of 24/32nds in yesterday's
operations, but in view of the fact that the bonds closed last night
at 101-6/32 to 101-8/32, it only had a leevay of 6/32nds to 8/32nds in
today's operations.
Mr. Rensom then undertook to state what he thought the views of
the Treasury were and that they had been in accord with what had been
done in the past. Governor Harrison said that he did not feel that
Regraded Unclassified
363
- 7 -
that vas quite the case as yesterday they had 24/32nds leeway and
today they had only 6/32nds leeway. Furthermore, when they first
started buying bonds they bought in small lots and did not in many
cases take all of the offerings. Moet of the purchases were in $100,000
and $200,000 lots. Now they are taking everything that is offered,
large and small. Furthermore, they find that the brokers on the stock
exchange are soliciting selling, which is quite contrary to the under-
standing that has been reached with the dealers. The dealers all along
have discouraged selling.
The meting adjourned with the understanding that the Committee
would operate through the day on the program approved early this morn-
ing and that at the close of business today it would confer at the
Federal Reserve Board with representatives of the Treasury and then
come to the Treasury about 4:15 for a meeting with the Secretary to
discuss the policy that should be adopted for tomorrow's trading.
DWB
-000-
MEETING AT 4:15 P.M. IN THE SECRETARY'S OFFICE
All of those present at the morning meeting, except Mr. McKee
and Dr. Goldsmweiser, were present at this meeting.
Mr. Harrison said that he would give & resume of the day's
operations, after which be would like to ask the Secretary for his
specific views as to just what should be done so that the Committee
could return to the Federal Reserve Board and there discuss tomorrow's
policy.
364
- 8 -
He said that they had operated throughout the day with the
idea of not permitting the longest bonds to fall below 101. They
opened this morning at 101-6/32 to 101-8/32. There appeared to be
no pressure on this particular issue, but there was a great deal of
pressure on the 1955-60's, and it was necessary to purchase some of
these securities, During the day the System purchased approximately
$44,000,000 in securities, of which $6,000,000 were purchased on the
stock exchange out of a total volume of only $7,000,000. Ee said
that the noon prices firmed and the offerings slackened. Some of the
bids which were placed in the market topped the Federal bide, but
along toward the close of business these bids were withdrawn. It may
be that the reason for this was that the bidders thought they might
get these bonds at a lower price at tomorrow's opening.
Mr. Sproul told the Governor over the telephone today that
he believes that the holders of Government bonde continue to be cellers
and not buyers, and this may continue until the longest bonds reach
par. He is in favor, in view of the action of the market today, of
withdrawing Federal bids tomorrow for short periods and then going in
to particular issues where they seen to be exceptionally weak; and
the next day doing nothing to let the market take care of itself.
Mr. Harrison said that he was not BO sure that he agreed with
Sproul about the second day's operations. He thought this might do
more harm than good. He was in favor of starting tomorrow with no
bids across the market and confining our support to weak issues, and
365
- 9 -
then in small volume; and if large blocks of bonds come into the
market, withdraw our bids and drop down a few thirty-seconds.
Mr. Harrison then turned to the Secretary and asked him how
he felt about this proposition.
The Secretary said he had not changed his opinion from the
morning meeting and he felt that we should operate about as ve did
last year, not trying to support the market at a given level; but
that we should be in a position to withdraw, at the same time keeping
an orderly market, allowing our purchases only to form a cushion.
The Secretary then asked various Treasury representatives if
they agreed with that, and they all said they did. Mr. Smith said
ha had always been of the opinion that the market should drop faster
than it had been allowed to, and that the Federal should buy fewer
bonds than it has been buying. Mr. Bailie said he agreed with this
general idea but he hoped that under no circumstanceswould the System
buy 8. large volume of bonds.
The meeting then adjourned and the Committee returned to the
Federal Reserve Board to discuss the policy to be adopted for tomorrow's
operations.
DWB
1-13
TREASURY DEPARTMENT
366
INTER OFFICE COMMUNICATION
DATE September 12, 1939.
TO
Secretary Morgenthau
FROM
Mr. Burgess
Mr. Harrison called me at 5:15 o'clock this afternoon
from the Federal Reserve Board and said that after discussing
the matter, they had decided to begin their operations at the
opening tomorrow morning on the same basis 88 today, with the
only change & drop in bide on certain of the intermediate
issues which do not seem to be in alignment with other issues.
The Committee will then meet at 10:00 o'olock tomorrow morning
to decide whether they will make any change in this procedure.