Ask the Scholar

{
    "localId": "28276235",
    "label": "Volume 210, September 7 – September 12, 1939",
    "core": "doc",
    "dtoType": "document",
    "citationUrl": "https://catalog.archives.gov/id/28276235"
}

{
    "id": "28276235",
    "sourceUrl": "https://catalog.archives.gov/id/28276235",
    "contentType": "document",
    "title": "Volume 210, September 7 – September 12, 1939",
    "citationUrl": "https://catalog.archives.gov/id/28276235",
    "collections": [
        "Henry Morgenthau, Jr. Papers",
        "Diaries of Henry Morgenthau, Jr."
    ],
    "iiifBase": "https://s3.amazonaws.com/NARAprodstorage/opastorage/live/35/2762/28276235/content/presidential-libraries/roosevelt/FDR-MORGEN/589213/md0276.pdf",
    "thumbnailUrl": "https://s3.amazonaws.com/NARAprodstorage/opastorage/live/35/2762/28276235/content/presidential-libraries/roosevelt/FDR-MORGEN/589213/md0276.pdf",
    "largeImageUrl": "https://s3.amazonaws.com/NARAprodstorage/opastorage/live/35/2762/28276235/content/presidential-libraries/roosevelt/FDR-MORGEN/589213/md0276.pdf",
    "imageCount": 1,
    "hasImages": true,
    "source": "import",
    "hasTranscription": false
}

{
    "url": "https://catalog.archives.gov/id/28276235",
    "naId": 28276235,
    "levelOfDescription": "fileUnit",
    "recordType": "description",
    "ocrSource": "nara-archive"
}

{
    "seq": 1,
    "pageIndex": 0,
    "type": "document",
    "url": "https://s3.amazonaws.com/NARAprodstorage/opastorage/live/35/2762/28276235/content/presidential-libraries/roosevelt/FDR-MORGEN/589213/md0276.pdf",
    "mediaId": "4a1a83ca591dc64f",
    "ocrText": "DIARY\nBook 210\nSeptember 7 - September 12, 1939\nRegraded Unclassified\n- A -\nBook Page\nAppointments and Resignations\nGraves, Harold N.: To be placed in charge of\nProcurement, Engraving and Printing, Wint - 9/11/39 210 244\n- B -\nBrasil\nSee War Conditions: Latin America\n- F -\nFarm Credit Administration\nBell and HMJr discuss recent order so that Farm Credit\nAdministration operates almost independently - 9/7/39\n54\na) HMJr and Wallace discuss financing\n55\n- G -\nGraves, Harold N.\nSee Appointments and Resignations\n- M -\nMorgan and Company, J. P.\nSee War Conditions: Financial Advisory Committee\n- W -\nWar Conditions\nAustralia:\nExchange control established 9/9/39\n129,130,194\nBankers' Committee: Frank (Securities and Exchange\nCommission) provided with resumé of Harrison's\ncomments at 4/13/39 meeting - 9/7/39\n66\na) FDR's memorandum to Frank warning against\n\"double-crossing\" (9/5/39)\n72\nb) Frank's report to FDR concerning subcommittee\nconsisting of representatives of Treasury,\nState, Federal Reserve, Justice, and Securities\nand Exchange Commission\n73\nc) Frank's memorandum to FDR concerning appointment\nof \"examining board\" by New York Stock Exchange\nd) Frank's letter of protest to Harrison over\nomission of Securities and Exchange Commission\nfrom \"general committee\" (9/1/39)\n85,124\ne) Harrison's answer to Frank\n86\nf) Securities and Exchange Commission's proposed\nreply sent to Treasury for comment - 9/8/39\n101\n- - (Continued)\nBook\nPage\nWar Conditions - (Continued)\nBusiness situation for week ending 9/9/391 Heas\nmemorandum,\n210\n245\nCoast Guards\nParticipation in scientific expeditions:\nByrd antarctic expedition will probably go\nthrough - 9/7/39\n16,28,40\na) Byrd willing to give up NORTHLAND - 9/7/39\n89\n1) Gaston memorandum to H/Wr on\nrevision of plans - 9/7/39\n90\nOffice of Ship Movements to be established under\nCoast Guard - 9/7/39\n88,122\nTreasury to ask for Executive Order so that Coast\nGuard may exceed its budget - 9/8/39\n93\nCredits to Belligerents (Section 3 of Neutrality Act):\nSee Mar Conditions - Neutrality Act\nStraits Settlements:\nExchange control set up - 9/12/39\n278\nExport-Import Bank:\nPierson visits Fain, Secretary General of French\nGovernment Export Credit Insurance System - 9/8/39\n95\nFinancial Advisory Committee: Personnel and criticism\nof participation by J. P, Morgan and Company\nreferred to HiJr for comment by FDR - 9/7/39\n11\nFrance:\nRist (Charles) confers with Bullitt - 9/9/39\n137\nNew exchange control measures - 9/10/39\n149,161,197\n205,207,273\na) DWr's message to Finance Minister Reynaud -\n9/11/39\n202\nb) Copy sent to Chancellor of Exchequer,\nGreat Britain\n204\nConference on proposed statement to press concerning\nmonetary policy; present: HWr, Cochran, Bailie,\nViner, White, Bernstein, Duffield, Riefler, and\nLochhead - 9/11/39\n170,177\nHWr suggests to Leroy-Beauliou that France set up\nits own purchasing agency similar to Universal\nTrading Corporation - 9/12/39\n312\nGermany:\nStandstill Agreement: American Embassy, Berlin, reports\non plans for new agreement - 9/9/39\n144\nAmerican Embassy, Berlin, reports on full war control\nmeasures - 9/12/39\n269\nGovernment Bond Market:\nDevelopments in Government bonds and high-grade\nsecurities during week following outbreak of war -\n9/11/39\n183\nRegraded Unclassified\n- # - (Continued)\nBook\nPage\nWar Conditions - (Continued)\nGovernment Bond Market: - (Continued)\na) Disturbed condition discussed by HMr, Hanes,\nBell, Bailie, Burgess, Smith - 9/12/39\n210\n330\n1) HMJr talks to Ransom.\n352\nb) Conference with Federal Reserve group on\nsupport of Government bond market by Federal\nReserve System and Treasury - 9/12/39\n357\nGreat Britain:\nPurchasing: British Ambassador reports receipt of\nRiverdale plan; start to be made in Canada with\nagency to be set up in New York later - 9/7/39\n13\nJustice, Department of:\nAntitrust Division: Thurman Arnold aska for cooperation\nwith Treasury in recxamination of plans in view of\npresent state of war in Europe - 9/7/39\n47\nKennedy, Joseph P.:\nIn connection with proposed purchase of SS NORMANDIE\nand QUEEN MARY, expresses displeasure at lack of\ndirect information from his own Government - 9/7/39\n14\na) HMJr discusses with State Department\n41,43\nLetin America:\nLoan situation discussed by Treasury group together\nwith special advisers - 9/12/39\n288\nBrazil:\nAmerican Embassy reports on noticeable switch on\norders to United States - 9/9/39\n142\nNavy: Shipbuilding Program:\nProposed Treasury release on agreement to be signed\nwith steel companies - 9/8/39\n119\nNeutrality Act:\nCredits to Belligerents: (Section 3 of Neutrality Act),\nState Department appoints Berle with Feis as alternate\nto Advisory Committee - 9/7/39\n10\nCommerce appoints Young - 9/8/39\n116\nConference of Treasury group and special advisers -\n9/12/39\n320\nSS NORMANDIE and QUEEN MARY: See War Conditions - Ship\nMovements\nPassports:\nCollector of Customs, San Francisco, asks for advice\nconcerning visitors on board vessels on sailing days -\n9/8/39\n115\nPrices:\nMeeting in North Interior Building; Currie chairmant\nHaas memorandum - 9/11/39\n240\nPuleston, William D. - Captain: See War Conditions -\nSpecial Advisers\nRadios on German Vessels:\nHMJr asks Communications Commission to review situation -\n9/8/39\n118\nRegraded Unclassified\n- W - (Continued)\nBook\nPage\nWar Conditions - (Contimued)\nSt. Pierre and Miquelon, Islands of (French-owned\nand near Newfoundland):\nHMJr discusses use as landing bases with Navy -\n9/7/39\n210\n18\nSecurities and Exchange Commission: See Mar\nConditions - Bankers' Committee\nSecurities Market:\nDevelopments in Government bonds and high-grade\nsecurities during week following outbreak of war -\n9/11/39\n183\nShip Movements:\nSS NORMANDIE and QUEEN MARY:\nHanes assures British Ambassador offer is in no\nway intended to take advantage of an unfortunate\nsituation but rather intended to be as helpful\nas possible - 9/7/39\n9\nKennedy asks for more details in accordance with\nrequest by British Treasury; expresses\ndispleasure at not having been informed by his\nown Government - 9/7/39\n14\na) HMJr discusses with State Department\n41,43\nHull informs Kennedy FDR has issued instructions\nproposal is to be considered as not having been\nmade - 9/11/39\n176\na) HMJr and Xennedy also discuss; HWr talls\nKennedy Hull call entire matter off without\ninforming him (HMr) either - 9/11/39\n228\nSS BREWEN: Waesche tells HMr she is at Murmansk,\nnorthern part of Russia - 9/7/39\n22\nOffice of Ship Movements to be established under\nCoast Guard - 9/7/39\n88,122\nSpecial Advisers:\nCaptain Puleston (William D.) asked to join Treasury\nstaff to evaluate war naws - 9/7/39\n30\na) Reports for duty - 9/11/39\n174\nb) HMJr asks Edison to see Puleston - 9/11/39\n214\nStrategic War Materials:\nManganese, tungsten, chromite, hemp, and optical\nglass: Procurement memorandum - 9/8/39\n108\nQuinine: Procurement memorandum - 9/11/39\n169\nTobacco:\nWallace and HMJr discuss closing of Southern markets\nbecause of British cancellation of purchases -\n9/12/39\n284\nWar Resources Board: Personnel and criticism of same\nreferred to HWr for comment by FDR - 9/7/39\n11\nRegraded Unclassified\n1\nNC\nGRAY\nPARIS\nDated September 7, 1939\nRec'd 3:25 p.m.\nSecretary of State\nWashington\n1835, September 7, 6 p.m.\nFOR THE TREASURY.\nThe Exchange market today r esembled that of yes-\nterday in dearth of transactions. The Bank of France\nquoted a buying rats of 175.95 for pounds and 43.50\nfor dollars. It was willing to sell foreign Exchange\non presentation of bona fides import licenses and did\nso. For Example, in a transaction with the Guaranty\nTrust for one of the oil companies, the control sold\ndollars today through the Credit Lyonnais and the\nComptoir National, As indicated, it will SEll only to\nresponsible banks and where convinced that the transaction\nis \"legitimate\": it has however issued no instructions\nto banks concerning fortign exchange operations and has\nno objection to their dealing therein, where and if they\ncan find their own sellers of foreign securities. In\nother words, through its refusal to SELL foreign\ncurrencies EXCEPT as above and given Existing war con-\nditions and the natural caution of banks thereunder,\nthe\nRegraded Unclassified\n2\nNC -2- #1835 from Paris, September 7, 1939\nthe control is accomplishing its objectives without\nEstablishing any formal regulations or restrictions\nfor the moment.\n(END SECTION ONE)\nBULLITT\nCSB\n3\nREB\nGRAY\nParis\nDated September 7, 1939\nRec'd 4:53 P. m.\nSecretary of State,\nWashington.\n1835, September 7, 6 P. m. (SECTION TWO)\nThe security market was again inactive but (?) and\nquotations were largely nominal. Rentes were off 10 to\n30 centimes EXCEPT a dollar Exchange guaranty issue of\n1937 which continues to gain. The Bank of France\nstatement published today for the WEEK Ending August 31\ncould hardly bE called satisfactory and shows the Effect\nof the then impending war. Advances under the commercial\nportfolio increased by 7,000,000,000 francs, to a total\nof 15,000,000,000. The item under which \"open market\"\noperations are reported increased by 784,000,000, and\n30-day advances increased by 693,000,000. The note\ncirculation increased by 12,000,000,000 to 142,000,000,000.\nThe account of the Treasury decreased by 1,000,000,000\nfrancs to a total of 1,252,000,000. Total withdrawals\nfrom current and deposit accounts amount to 3,970,000,000.\nAs total demand liabilities thus increased by about\n8,400,000,000 francs the ratio of gold cover fell from\n62.64 to 59.42%.\n(WE\n4\nREB -2-#1835, From Paris, Sept. 7, 6 P. m.\n(WE give below as of possible interest for comparative\npurposes the changes which occurred in the bank statement\nfor the crisis WEEK ended September 29, 1938: commercial\nportfolio advances increased 7,000,000,000 francs to a\ntotal of 20,000,000,000; open market operations increased\nby 214,000,000 and 30-day advances WERE up 727,000,000,000;\nnote circulation increased by 14,860,000,000 to a total\nof 124,000,000,000; the Treasury account decreased by\n120,000,000 to a total of 345,000,000. The ratio of gold\ncoverage fell from 43.01 to 38.37% -- this was, of course,\nbefore revaluation of the bank's gold.)\n(END OF MESSAGE)\nBULLITT\nNPL\nBECEINED\n1333 - 072\nTW3MTRA930 YHUZAJHT\nThe miz to\n-\n-\nI\n5\nREB\nPLAIN\nLondon\nDated September 7, 1939\nRec'd 4:45 p. me\nSecretary of State,\nWashington.\n1516, September 7, 9 p. m.\nFOR TREASURY FROM BUTTERWORTH.\nAn agreement will be signed at the Foreign Office\ntoday by wrich the British and Prenco Governments\nundertake in lend Poland L8,500,000. British Treasury\nstates that of this amount $5,000,000 will bE supplied\nby the British Government and L3 1/2 Hillion by the\nFrench Government, the latter having asked that its\nprevious advance of 11 1/2 million to Poland bE taken\ninto consideration. The manner in which this money will\nbE Expended will be decided from time to time but a\nsubstantial part of it will go to meeting sterling and\nfranc obligations of the Poles which they are now not\nable to deal with.\n(END SECTION ONE)\nKENNEDY\nNPL\nPARAPHRASE OF SECTION TWO, TELEGRAM NO. 1516\n6\nOF SEPTEMBER 7, 1939, FROM LONDON\nThe British Treasury, however, states in strict con-\nfidence that the Poles have been informed by the Soviets\nthat they are prepared to sell supplies to them. Therefore,\nfor that purpose the French and British Governments have agreed\nto permit the Poles to use 1,000,000 pounds from each. It\nremains to be seen whether the Soviets will do as they said\nthey would.\nI am informed by the Polish Financial Attaché, inciden-\ntally, that happenings came 80 fast that Poland only\nreceived a few thousand pounds worth of goods out of the\nBritish credit of August 2 in the amount of 8,500,000 pounds.\nFrom the British Treasury I also gather that Turkey\n1s again asking for money. I understand that there is\ngreat concern on the part of the British Embassy in Turkey\nthat everything should be done to line up the Turks.\nBULLITT.\nEA:LWW\nRegraded Unclassified\n7\nLAR\nPLAIN\nLondon\nDated September 7, 1939\nRec'd 4:55 p.m.\nSecretary of State,\nWashington\n1516, September 7, 9 p.m. (SECTION THREE).\nForeign exchange rates as fixed today remained\nunchanged except for Belgium which was fixed 23,42-72 and\nSwitzerland which 768 17,87-18.05.\nThe Bark of England return shows di decrease of\n₺263,000,000 as compared with last week in the gold held\nin the Issue Department (gold was valued at 158S,6D. last\nweek and 1688. this week 80 that the sele of gold by the\nBank of England W&B $278,000,000). There was an increase\nof 620.4 million in the note circulation making the total\nL549.9 million. A decrease in public deposits of $16,000,000\nand an increase in bankers' deposits of $21,000,000 reflects\nthe heavy government expenditure of the past week. An\nincrease in government securities in the banking department\nof $280,000,000 is a consequence of the gold transfer to the\nexchange equalization account,\nMeanwhile money market conditions are relatively easy\nwith overnight accommodation at 3 percent and 3 1/4 percent\nagainst Treasury bills and bonds respoctively and bills\nwere sold at 3 1/8 and 3 3/8 percent for October and\nNovember\nRegraded Unclassified\n8\nLAR-2-1516, September 7, 9 p.m., from London. (SECTION THREE).\nNovember dates respectively.\nThe Treasury is obviously obtaining large quantities\nof foreign oxchange and as this is changed into pounds in\nthe hands of the public and financial institutions the\nmoney merkot will further 2880 and improve the conditions\nfor the floating of long term war loans.\nThe Stock Exchange opened today and was quiet with\nlittlo inclination to do business, only about half the\nusual number of dolors boing in their offices; the tone\nwas fairly firm with gilt-odged steady.\nThe transfer of the Bank of England's gold to the\nexchange equalization account WAS approved in the press,\nwhich, be it noted under censorship in mainly interesting\nas the reflection of a government point of view, and\nomphasized that the step was not an inflationary one since\nthe fixed \"fiduciary issue\" at $580,000,000 might well have\nbeen exceeded if the price of gold had further increased,\nThe press also takes it for granted that the gold will be\nused for war purchases and indoed emphasizes that such was\nconsidered to be the intontion all along.\n(END OF MESSAGE)\nBEREINED\nKENNEDY\nNPL\n2333 7 (1)\nMUSTAIRT\n211 In +2(H)\n,\nRegraded Unclassified\nSeptember 7. 1939\n9\nTo:\nThe Secretary\nFrom: Mr. Hanes\nThe British Ambassador stopped by at my request after having seen\nthe Secretary on the matter of British purchasing policy in this\ncountry during the war. I told him that I wanted to clear in his mind\nany misapprehension that he might have concerning the Secretary's\nsuggestion to him and to the French Ambassador that the United States\nGovernment take over the S. S. Queen Mary and the S. S. Normandie in\nexchange for a credit of EL given amount, (to be decided upon.) on the\nEnglish and French debts to the United States.\nI explained very carefully to the Ambassador that, whereas the\nproposal may have sounded somewhat in the nature of a suggestion which\nwould take advantage of the unfortunate situation in which they now\nfind themselves, this was not at all what the Secretary had in mind;\nthat his suggestion WES prompted entirely by a desire to be helpful\nto all concerned in the present crisis, and at the seme time to maintain\na policy of the strictest neutrality.\nThe Ambassador was extremely grateful for this information and\nsaid it would be most helpful to him in clearing up any misunderstanding\nwhich might have been created had the matter been allowed to rest\nwhere it was. The Ambassador stated frankly that he had refrained from\ndiscussing this matter further this morning with the Secretary for the\nreason that he had been given to understand by Mr. Welles that it should\nbe forgotten. He said that in view of this circumstance. with which he\njudged the Secretary was familiar, no further reference to the incident\nwas necessary.\nI may have gone A bit too far in assuring the Ambassador of our\ndesire to help. However, I put this entirely on a personal basis, having\nno reference whatsoever either to his position with his government, or\nmy position with mine. I am sure that he went away with a totally\ndifferent feeling than he had before.\nJ.W.H.\nDONESE OFFICIAL COMMUNICATIONS TO\nTHE SECRETARY OF STATE\nWASHINGTON, D.C.\n10\nDEPARTMENT OF STATE\nWASHINGTON\nSeptember 7, 1939\nMy dear Mr. Secretary:\nIn response to your letter of September 7, 1939,\nadvising me of an advisory committee which you are\ncreating for the handling of questions that may arise\nin connection with the Executive Order signed by the\nPresident on September 6, 1939, having to do with\nSection 3 of the Neutrality Act, I have requested\nAssistant Secretary Adolf A. Berle, Jr. and, as alter-\nnate, Mr. Herbert Feis, Adviser on International\nEconomic Affairs, to represent the Department on\nthis committee.\nSincerely yours,\nCorreshee\nThe Honorable\nHenry Morgenthau, Jr.,\nSecretary of the Treasury.\nB15210\nTHE WHITE HOUSE\nWASHINGTON\n11\nSeptember 7, 1939\nMEMORANDUM FOR SECRETARY MORGENTHAU\nTo speak to me about.\nF. D. R.\nEnclosure\nby\n12\nTwo powerful war committees have been appointed\nwith the blessing of the Administration, namely, the War\nResources Board, which will dominate American industry, and\nthe Financial Advisory Committee, which will dominate the\nentire realm of American finance. The majority of both\ncommittees are representatives of J. P. Morgan & Co. On\nWar Resources Board are: Stettinius of U. S. Steel, as\nChairman; Gifford of AT&T and Pratt of General Motors.\nOn Financial Committee are: Potter, of Morgan's Guaranty\nTrust, as Chairman; Fraser, of Morgan's First National\nBank, Vice-Chairman; and Henry Morgan, son of J. P. Morgan,\nrepresenting all investment bankers. It has also been\nannounced that J. P. Morgan & Co. have been appointed fiscal\nagents for England.\nAs you will remember, during the World War the\nMorgan firm not only handled all allied purchases of mater-\nials end supplies, but also arranged the vast credite which\nmade those purchases possible - both operations at substantial\nprofits to the Morgan house. Thoughtful people throughout\nthe country have been shocked by the placement of these\npowerful boards in Morgan's hands.\nThe War Resources Board should be composed of bona\nfide representatives of the nation's industrial areas rather\nthen by men located in and connected with the New York financ-\nial district. The Financial Advisory Committee should be\nrepresentative of the entire country.\nBM\nRegraded\nUnclassified\n13\nSeptember 7, 1939\nThe British Ambassador was here. He said that\nonly today he received a report from Lord Riverdale on\nhow they should do their purchasing. He has not yet\nhad time to read it. This they will start in Canada\nand then set up some sort of an agency in New York.\nAs soon as he knows he will let me know.\nI asked him what arrangements they had made\nabout disposing of American securities which they have\ntaken over in this country and he said that they have\nmade no arrangements and would let me know Just as soon\nas they have.\nAll I\nDEPARTMENT OF STATE\n29-11-39\nTHE SECRETARY\n14\nSeptember 7, 1939.\nMEMORANDUM FOR SECRETARY MORGENTHAU\nThere is furnished below a paraphrase of a telegram\njust received from the American Ambassador at London;\nLONDON\nDated September 6, 1939\nSecretary of State\nWashington\n1500, September 6, 5 p.m.\nFOR THE SECRETARY OF THE TREASURY\nYour conversation with the French and British\nAmbassadors in Washington was recounted to Butter-\nworth this morning when he was called to the British\nTreasury and read a telegram from Lord Lothian. Ac-\ncording to the British Treasury, which stated that it\nhad received the question from the Foreign Office,\nno reply to the proposal concerning the turning over\nas part payment on the war debts of the NORMANDIE\nand QUEEN MARY could be formulated unless further\ninformation concerning the proposal's nature and ex-\ntent\n15\n-2-\ntent was furnished which it requested be obtained.\nI accordingly request you to transmit the desired\ndetails which I shall send the British Treasury.\nBecause of the present times, I feel that I\nshould not have to be informed about things vitally\nconcerning Great Britain by the British Government\nand that I should be maintained up to date on ac-\ntions in Washington.\nKENNEDY\nSeptember 7, 1939\n16\n9:07 a.m.\nCaptain\nCallaghan:\nFine, sir. How are you, sir?\nHNJp:\nI'm fine.\nC:\nMr. Secretary, that man you spoke to me about --\nabout the retired officer yesterday.\nMJr:\nYes.\nC:\nThe Navy Department says they think that that's\nperfectly all right, sir.\nHNJr:\nFine !\n&\nNow, about the Byrd Antartic Expe -- Expedition, sir.\nHiJp:\nAbout the Byrd.\nC:\nYes, sir.\nHMJr:\nYes.\nC:\nI find that -- that two of the ships will be ready\nto leave, according to the Navy Department data\nhere, towards the first of November, and the --\nthe BEAR will be ready to leave between the 15th\nof November and the 1st of December.\nHiJpi\nYeah.\n8:\nAll fully equipped and ready to 50.\nH/Jr:\nYeah.\nC:\nAccording to the information here that will still\ngive that expedition time to get in there and --\nand get settled before the winter senson starts in.\nHMJr:\nYeah.\nC:\nNow, I gave that information to the President late\nyesterday, sir, and he didn't say one way or the\nother about the expedition.\nHiJr:\nYeah.\n- 2 -\n17\nC:\nI -- I assume that he'll probably take it up with\nyou to find out whether the thing is to go on or\nnot.\nHMJr:\nWell, as I gathered -- of course, we were talking\nawfully fest -- that he -- that 1f they were ready\nthey'd 20 along.\n0:\nYeah.\nHAJr:\nBut now I -- I take it that if they are reacy, that\nhe wants them to go on down.\n::\nYes, sir. Well, I -- I didn't know just what his --\nI didn't hear the preliminaries of that conversation\nBO\nWr:\nWell, I just said that I thought that unless -- that\nthese things are vital, and it was 8. mistake to tie\nup all this equipment at this time.\n0:\nYes, sir.\nHWr:\nSo he said, \"Well, 03 far as the one with the National\nGeographic was concerned, kill it.\"\n0:\nYes.\nIllJr:\nThe other one, on account of establishing -- whatever\nyou call\nC:\nYes.\nH:Jr:\npossible air bases there, he'd like to TO\nthrough with that.\nC:\nYes, sir.\nHWr:\nSo I think we'll let the Byrd Expedition TO through\nthen.\nC:\nWell, I -- I think it's perfectly all right, sir.\nAccording to the present indications everything will\nbe all set and they can get away in time.\nHMJr:\nRight.\nC:\nA little bit later than they originally planned, but\nstill in -- in plenty of time to carry out.\n18\n- 3 -\nHMJr:\nWell, I -- well, I -- I think I'll just drop it.\nC:\nAll right, sir.\nHMJr:\nNow, look -- let me give you a thought while I've\ngot you on the wire. When this -- these destroyers\nare going up on this trip, I'd like to make a sugges-\ntion that they take a look at the islands of Miquelon\noff Newfoundland -- you know, San Pierre and Miquelon,\nthose two islands.\nC:\nSan -- yes, Miquelon and San Pierre.\nHMJr:\nNow, I flew over them.\nC:\nYes, sir.\nHMJr:\nAnd Miquelon, -- of course it belongs to the French\nC:\nYes, sir.\nHMJr:\nis so situated, ideal protection for a flying\nboat to land.\nC:\nI see.\nHMJr:\nAnd there's a tremendous big flat space with -- with\na little -- looks kind of swampy and it looks to me\nas though -- as though -- two or three miles either\nway, which would make an ideal landing field.\nC:\nUm-hm. That's on Miquelon, sir.\nHMJr:\nOn Micuelon.\nC:\nYes, sir.\nHMJr:\nAnd -- of course, it's a strategic place and I\nthink it's a much better place than Botwood.\n0:\nUm-hm.\nHMJr:\nAnd if we wanted a jumping-off place at any time,\nI wondered if when the Navy was up there, they\ncouldn't just land there and make a report on it.\nC:\nWell that's a good thought, sir. I'll\nHMJr:\nWhat?\n4\n19\nC:\nI'll pass that thought on.\nHMJr:\nBecause it's 90 -- the -- the little island is 90\nsituated it would be perfect for a sea plane to\nland.\nC:\nRight.\nHMJr:\nIt looks like deep water from the chart.\nC:\nYes, sir.\nC/Jr:\nAnd there's a tremendous big flat space which with\nnot too great expenditure, I think would make a\nmarvelous landing field.\no:\nUm-hm. Well, I'll -- I'll pass that word along,\nMr. Secretary.\n18Wr:\nAnd we might take it from the French and give them\na credit on their war debt for it.\nC:\nUh-huh. (Laughissly) Well, I'll -- I'll put that\nthought in their minds here and the first -- the\nfirst destroyers that TO up in that area, we'll\nhave them drop in and take & look and see.\nMJr:\nWell, as I understand, these two destroyers are\ngoing up that way now.\nC:\nWell, they -- they don't go up quite that fer, sir.\nHilJr:\nWell, they might,\nC:\nThey -- it's possible that they might. It will\ndepend\nHIJr:\nWhat I was thinking, if it's worth while sending\nall these ships down to the South Pole\nC:\nUm-hm.\nHMJr:\nthis thing -- it's so much more invortant\nand in such a strategic place.\nO:\nYes, sir. Well, I'll -- I'll -- I'll uses that\nthought on, Mr. Secretary, and have somebody take\na look and see at that.\nRegraded Unclassified\n- 5 -\n20\nHMJr:\nAnd I appreciate your promptness in calling me\nthis morning.\nC:\nAll right, sir. All right, Mr. Secretary.\nHMJr:\nThank you.\nC:\nThank you, sir.\nHMJr:\nGoodbye.\n21\nSeptember 7, 1939\n10:22 a.m.\nHMJr:\nHello.\nOperator:\nAdmiral Waesche.\nGo ahead.\nHMJr:\nHello.\nAdmiral\nWaesche:\nGood morning, Mr. Secretary.\nHMJr:\nGood morning, Waesche. Anything new particularly\nin your department?\nW:\nNo, sir. Nothing at all.\nHMJr:\nI see. All right. Now when am I going to hear\nabout -- I'm counting on you to let me know about\nwhen the Bergensfjord gets in tomorrow.\nW:\nYes, sir. We -- we got a -- we haven't heard from\nNew York this morning. I told them -- we told them\nyesterday to let us know the -- as soon this morning\nas they found out. I'll check up with them right\naway and -- and push them on it.\nHMJr:\nI could know by one o'clock.\nW:\nYes, sir. One o'clock.\nHMJr:\nAfter you've got the lighthouses now, you ought to\nknow whether she passed the Fire Island light.\nW:\nWe will -- we'll -- we'll know even before she gets\nto Fire Island light because she -- she's not due\nuntil tomorrow morning.\nHMJr:\nWhat -- what is the -- where would she -- she does\nabout four hundred miles. Where would she be?\nW:\nAh\nHMJr:\nWhat lighthouse would she be off?\nW:\nWell, let's -- she would be -- when -- would not\nhave reached Nantucket lightship as yet -- that is,\nit's a less than a 24-hour run from Nantucket light-\nship to New York.\n- 2 -\n22\nHMJr:\nDo you have radio communication with Nantucket light-\nship?\nW:\nYes, sir.\nHMr:\nYou can -- will you send them & radio?\nYes, sir, we'll do that. I'll get in touch with\nNew York right away and 1f they have not found out\nanything at all within the -- by the time I call\nthem, I'll have them sená a message out to Nan-\ntucket lightship and have them report from there\nif and when they see the ship.\nHMr:\nWhy not do that anyway?\nW:\nWe'll do it anyway, all right.\nSWr:\nThe Nantucket lightship 18 under you now, isn't it?\nW:\nYes, sir.\nHWr:\nWhat?\n%:\nYes, sir.\nHMJr:\nWell, send them a radio and way that headquarters\nwants to know when the Bergensf jord passes.\nM;\nFine.\nHXJr:\nWhat?\n%\nYes, sir. You got the word about the Bremen?\nHWr:\nNo.\nW:\nThe Brewen is up in -- I'll spellthe name for you --\nbut up on the Arctic Ocean up there near the White\nSea, northern mrt of Russia. Wait I'll -- I'll\nget the exact name.\nHMr:\nReally?\nV:\nDo you want it?\nHMJr:\nShe's un in the White Sea?\nRegraded Unclassified\n23\n- 3 -\nW:\nYeah, up in the Arctic Ocean.\nHMJr:\nWell, how in the hell áid she get there?\nW:\nIt's -- she's at X-U-R-M-A-N-S-K.\nHMJr:\nMurmansk, yeah.\nW:\nM-U-R-M-A-N-S-K. She went up around the northern\nend of Finland, Norway and Sweden into the Arctic\nOcean and then back Just below the Arctic circle\nat the Soviet port of Murmansk -- M-U-R-M-A-N-S-K,\nwhich 1s very close to the -- eh -- border of\nFinland.\nEWr:\nWell, -- ah\nW:\nNear -- near the White Sea.\nMJr:\nAll right. Now, just as & matter of interest, I'd\nlike to Bee whether -- how well you're organized --\nwhether you can send a radio to Nantucket and find\nout what time she passes there.\nW:\nAll right, sir. I will.\nHWr:\nAnd I would also find out\nW:\nAnd while we're doing that I think we'll simply tell\nthe Nantucket lightship to report into New York\nevery -- every steamer that passes.\nHIJr:\nWhat's that?\nW:\nI think we'll order -- we might as well tell the\nNantucket lightship to report to our New York\ndistrict every ship that passes.\nHMJr:\nWhy wouldn't that be a good idea?\nW:\nI think it's an excellent idea.\nIMJr:\nWhat?\nV:\nYes, sir.\nHMJr:\nI mean, they might as well be doing something out\nthere.\nRegraded Unclassified\n- 4 -\n24\nW:\nYeah, and then get them -- give them a little\ntraining.\nHMJr:\nI think it would be a good idea.\nW:\nYes, sir.\nHMJr:\n0. K.\nW:\nAll right, sir. I'll do that right away.\n25\nSeptember 7, 1939\n10:26 a.m.\nHMJr:\nHello.\nOperator:\nMr. Frank.\nHMJr:\nThank you.\n0:\nGo ahead.\nMMJr:\nHello.\nJerome\nFrank:\nGood morning.\nHIJr:\nHow are you?\nF:\nVery good, thank you. I'm sorry to bother you, but\nI wondered whether a review of those minutes showed\nany such discussion as\nHIJr:\nYes, it did in full detail. He outlined the whole\nplan on April 13th.\n7:\nWhen I Was present?\nHMJr:\nNo, you were not there.\nP:\nOh, well then he's totally in error in saying that\nI WAS,\nHKJr:\nNo, you were -- you were -- now wait just a second.\nI haven't got the thing; I sent it back. No, you\nwere not present. There was a group of people\nhere but he -- he outlined it in great length --\nJust about the committee and all the rest of it,\nand BO forth.\nF:\nWell, did he -- was it -- was there a discussion\nto the effect that such a committee WE.B to make\nsuggestions and -- and proposals to the various\ngovernments -- governmental agencies?\nH/r:\nI tell you, I'll -- I'll have a copy made and send\nit to you.\nAll right, thank you, but he's surely in error in\nsaying that we were present.\n- 2 -\n26\nHMJr:\nI don't think anybody from the S.E.C. was present.\nI -- I'll send you -- I tell you what I'll do, I'll\nhave an extract made of that\nF:\nYes.\nHMJr:\nand send it to you, plus the people who were\nthere.\nF:\nAll right, thank you.\nHMJr:\nI called up George and told him that as soon B.B the\nbond market straightens out I'd like him to come\ndown and have lunch with you and me.\nF:\nAll right.\nHMJr:\nHe said he'd be delighted.to.\nF:\nThank you very much.\nHMJr:\nSo I think you might maybe let the thing rest until\nthen?\nF:\nWell, the only thing that bothers me, the newspapers\nkeep buzzing about things that are doing and if he\nhas -- has told that committee that they were ap-\npointed with our understanding, that they were to\nbe appointed ànd were to make proposals and sugges-\ntions to us, the difficulty is this: Of course,\nany group of citizens can make any proposals they\nwant to anybody\nHMJr:\nSure.\nF:\nthat's in the government. That's quite\nanother matter from a suggestion of proposal made\nto us by somebody that we've blessed.\nHMJr:\nWell, I just would say this: He's been under EL\nterrific train this week.\n:\nYes.\nHMJr:\nGeorge has because it was -- as you know the bond\nmarket\nF:\nYes, of course.\n- 3 -\n27\nHMJr:\nAnd, incidentally, for the last hour it's taken\ncare of itself.\nF:\nThat's fine.\nHMJr:\nThe government bond market.\nF:\nFine!\nHMJr:\nAnd -- but I'll have a copy made\nF:\nAll right, thank you.\nHIJr:\nand I'll send it -- and I'll give you a list\nof who was there.\nF:\nAll right. Thank you very much.\n28\nSeptember 7, 1939\n11:42 a.m.\nHMJr:\nHello.\nOperator:\nCaptain Callaghan.\nHMJr:\nHello.\nCaptain\nCallaghan:\nHello, Mr. Secretary.\nHMJr:\nHello, Callaghan.\n0:\nThe President just brought up the question of the\nBear expedition again, sir.\nHMJr:\nYes,\n0:\nThe Byrd expedition, rather.\nHMJr:\nYes.\nC:\nAnd he -- he out forth this thought.\nHMJr:\nYes.\nC:\nHe wanted to know how efficient the expedition would\nbe if We withdrew the NORTHLAND, that's the Coast\nGuard vessel\nHWr:\nYes.\n6:\nand let the expedition establish only one base\nwith the BEAR and the NORTH STAR, I think is the\nother one.\nHMr:\nYes.\nC:\nHe wanted to know what your reaction would be to\nthat sir; or what the reaction would be to that.\nHMJr:\nIf they withdrew the\nC:\nNORTHGUARD -- the NORTHLAND, I think is her\nname.\nHMJr:\nRight.\nC:\nAnd the other two vessels, the BEAR and the -- and\nthe NORTH STAR, I think is the name of the third\nvessel -- those two alone would establish Just\none base.\nRegraded Unclassified\n- 2 -\n29\nHMJr:\nI see.\nC:\nInstead of us trying to establish two.\nHMJr:\nWell, I'll get an answer for you as soon as I can.\nC:\nAll right, sir. Fine.\nHMJr:\nThank you for calling.\nC:\nYes, sir. Goodbye.\nSeptember 7, 1939\n30\n11:43 a.m.\nHKJr:\nHello.\nOperator:\nCaptain Puleston.\nHMJr:\nHello.\nCaptain\nFuleston:\nHello, Mr. Secretary.\nMJr:\nHow are you?\nin\nFine. How are you.\nENP:\nI'm quite well.\nin\nI -- I'll bet you are ! (Laughs)\nEWr:\nCaptain, I'm calling you un after clearing this with\nthe President's naval aide. Hello?\nin\nHello?\nMJr:\nI say -- what I -- I'm talking to you, but before I\ndid this I talked with Captain Callaghan\n?:\nYes.\nHMJr:\nand I got & clearance from him and from the\nNavy Department.\n6:\nYes.\nHXJr:\nNow, what I want is to ask you whether you'd care to\ncome down here and -- in the Treasury\n2:\nYeah.\nHMJr:\nand to evaluate the war news for me.\nis,\nYes.\nEMJr:\nAnd -- we need somebody very badly who will be here\nand tell us what's going on and what it's all about.\nn°\nWell, I -- I'd like to come, Mr. Secretary, if you\nwant me.\nHMJr:\nWhat's that?\n- 2 -\n31\nP:\nI -- I'm -- if you want me, I'll like to come.\nHRJr:\nWell, I -- well, I -- I ão want you, and as I say,\nI got a clearance on this from Captain Callaghan\nfirst.\nP:\nYes.\nHMJr:\nAnd he cleared it -- called me and said it was all\nright to ask you.\nis\nYes.\nHMJr:\nSo if you could be here Monday morning?\nis:\nAh -- this -- this coming Monday. Oh yes, I could\nbe there Monday.\nENJr:\nAnd ready to go to work, and then we'll make -- you'll\nmake your contacts, I mean, with the Army and Navy and\n-- and BO that -- well, that you can keep me posted.\nYou see?\n6:\nI -- well, I -- I'll come on down and -- on Monday\nand we'll -- we'll fix it up afterwards what I am to\ndo. (Laughs)\nHMJr:\nWell, you know what I want.\nis:\nI know what you want, and I'll try very hard to do it.\nHMJr:\nWell, there's nobody can do it any better than you.\nP:\n(Laughs) Well, I -- I hope you'll think DO when --\nat the end of a couple of months.\nHMJr:\nWell, is everything\nP:\nDid you have a nice time coming home?\nHMJr:\nPardon?\nP:\nDid you have a good time coming home?\nHMJr:\nI wouldn't call it that. Have you ever crossed in a\ntwo thousand ton boat?\n- 3 -\n32\nP:\n(Laughs) You know, I followed your movements with\nconsiderable interest. (Laughs)\nHNJr:\nWell, if you've got somebody you don't like, let me\nknow and I'll send them across the ocean in a\nCoast Guard cutter.\nP:\n(Laughter) I've been in them.\nHiJr:\nI know you have.\n94\n(Hearty laughter) They're not so good, are they?\nJr:\nleah, but you're a professional; I'm only an\namateur.\nWell, I'll -- I'll be down there Monday then, Mr.\nSecretary.\nHMJr:\nFine.\ne:\nAnd I -- I suppose you'll -- you'll have everything\ncleared up by then with the authorities.\nHiJr:\nWell, I don't know what else there 1s to do.\nCallaghan said that\n2:\nI suppose I'll have to have some\norders or something.\nHMr:\nWell\nP:\nYou take that up with Callaghan and\n. They\ncan do it.\nHXJr:\nWell, I don't know just what the orders -- but he\ncalled me this morning and said that it was all right\nto invite you in.\nP:\nYeah. Vall, I'll -- I'll be down, Mr. Secretary.\nH:Jr:\nRighto.\nP:\nOn -- on Monday.\nH.Jr:\n*hank you.\nas\nGood luck.\n33\nSeptember 7, 1939\n5:25 p.m.\nHMJr:\nHello.\nOperator:\nI can't get Mr. White. He has evidently not gone\nback to his own office yet.\nHMJr:\nWell, gosh, I won't bother. If he'd 70 home, I'll\nreach him at home when I'm ready.\n0:\nWait 8. minute, here he is. He's in your outer\noffice now. Just & minute. I have Chairman\nEcoles. Talk to him first?\nHNJr:\nYes.\n0:\nRight. Go ahead.\nHAIR:\nHello.\nVarriner\nEcoles:\nHello. Hello, Henry.\nHMJr:\nHello, Marriner.\nE:\nI just wanted to say that I've been planning on\nleaving here on Saturday, taking the plane out\nSaturday afternoon going out home 'til -- it\nlooks like it -- 'til Congress meets it may be\nat least a temporary interim period here.\nHMJr:\nYeah.\nE:\nThat's assuming that tomorrow -- nothing happens\ntomorrow and Saturday. I think the -- I think the\nsecurity market -- the perticular bond market has\ncretty well run its course.\nH/Jr:\nYeah.\n61\nAnd the -- we're uo -- I think -- I think we're\npretty well on top of It now, and if tomorrow or\nthe next day demonstrates that fact -- I don't\nmean by that that there's not going to be some\nfluctuations, but I don't think we're going to\nhave the same serious problems we've had for a.\nweek here.\nENJr:\nNo.\n- 2 -\n34\nis\nAnd I just wondered if you saw any -- any -- any\nobjection -- any reason why I shouldn't get away\nfor a week anyway, or 80, pending on developments.\nOf course, I can always take an overnight plane\nand come back.\nHMJr:\nNo, I think if things quiet down and you've got\nplenty of help there and you've got to go home\nfor a week, why I'd go.\nin\nWell, I -- I've only been there about four or five\ndays since last October.\nHMJr:\nWell then, I think\nE:\n(Laughs) And I need to really get out there and --\nI don't know, it Just seemed to me that this may\nbe as good a period as any unless you saw some\nHMJr:\nNo.\nE:\n-- some -- something that I don't see about\nit.\nHMJr:\nNo, I don't see anything. You can always come\nback, as you say, in 24 hours.\nE:\nI can come back in 13.\nHMJr:\nYes. Well\nE:\nI'm not looking for another trip back though and I\nwouldn't go if I thought I had to come back\nimmediately.\nHMJr:\nNo.\nE:\nWell, I -- I understood you were going out of town\nand I\nHMJr:\nYeah.\nE:\n-- I just didn't want to go out without\nHMJr:\nWell, that -- I\nE:\nchecking with you.\n- 3 -\n35\nHMJr:\nWell, that's terribly nice.\nX\nAnd 80\nHMJr:\nIf there's anything I'll give you a ring.\nE:\nWell, -- oh -- I wish you'd do that. I'll be\navailable, and so I -- I'll plan on getting out\nof here by -- by Saturday, unless there's develop-\nments tomorrow or Saturday that make it appear\nthat I shouldn't go.\nHMJr:\nO. K.\nE:\nAll right then.\nHMJr:\nThank you, Marriner.\nE:\nGoodbye.\nSeptember 7, 1939\n36\n5:35 p.m.\nHMJr:\nHello.\nOperator:\nFrank.\nHMJr:\nHello.\nJerome\nFrank:\nYes, sir.\nHMJr:\nHello, Jerry.\nF:\nYes.\nHMJr:\nHenry Morgenthau.\nF:\nYes.\nHMJr:\nDid you call me?\ni.,\nOh -- oh, it was Just -- I -- I just -- Mrs. -- I\ngot the message to Mrs. Klotz.\nHMJr:\nYes.\nF:\nI Just wanted to be fair to Harrison and make\nsure\nHMJr:\nYes.\nF:\nthat he hadn't discussed another committee,\nbecause he indicated in his telephone conversation\nto me that he had two com -- there'd been dis-\ncussions of two committees.\nHMJr:\nWell, I really don't know. We can't find anything.\nF:\nYou can't. All right, thank you.\nHMJr:\nNo, but why don't you -- if I might make the sugges-\ntion, why don't you wait now until you see him next\nweek and talk it over?\nF:\nWell the only bother now is this, I'm afraid of\nthese boys and I'm afraid that Potter will go\nsounding off on something.\nHMJr:\nOh.\n- 2 -\n37\nF:\nAnd what I wanted to make sure -- I -- I'm just\ndictating a let -- draft of a letter which I\nthought I'd send to you.\nHMJr:\nYeah.\nF:\nFor your -- see whether you disapproved.\nHMJr:\nYeah.\nis\nCalling his attention to this fact - that since\ncommittees are acting, in effect, as advisers to\nthe Treasury and the Federal Reserve and were\nappointed on that basis that they are not merely\nprivate groups of citizens.\nHMJr:\nYeah.\nF:\nAnd therefore ought not to publicize any comments\nthey have to make concerning our activities, but\nought to transmit them to you and the Federal,\nwhich, of course, would do B.S. they always do in\nany such matters, send them to us without publi-\ncation.\nHMJr:\nWell, send it over to me.\nF:\nAll right, I'll send it over either tonight or\ntomorrow morning.\nHMJr:\nThank you.\nF:\nThank you.\nHMJr:\nGoodbye.\nRegraded Unclassified\n38\nSeptember 7, 1939\n5:38 p.m.\nHMJr:\nHello.\nOperator:\nCaptain Collins. Go ahead.\nHMJr:\nCollins\nCaptain\nCollins:\nYes, sir.\nHNr:\nThe Secretary speaking.\nC:\nYes, sir.\nHMr:\nThere's all sorts of mix-up as to just when this\nBergensf jord gets in. The Collector of Customs\nhas given us a different time.\n8:\nYes, sir.\nHMJr:\nWhere do you get your information from?\nC:\nAs to ships?\nHiJr:\nYes, the Bergensfjord.\n:\nI don't have any information on them, sir.\nHMJr:.\nWho is this?\nC:\nThis is Collins over at\nHMJr:\nOh -- oh\nC:\nProcurement.\nHMJr:\nI was asking for Waesche. I thought it was\nCoast Guard. I'm sorry.\n0:\nWell, did you want me to\nHMJr:\nNo, no, no, I got\nI'm sorry.\nC:\nNo.\nHMJr:\nThey gave -- I asked for Waesche.\nC:\nYes, sir.\n- 2 -\n39\nHMJr:\nI thought I was talking to Waesche.\nC:\nYes, sir.\nHMJr:\nWhat I wanted to say was this: This information\nwhich you gave me on these strategic materials\nC:\nYes, sir.\nHiJr:\nI want the balance of that. You said there are\neight altogether, aren't there?\nC:\nThat's right. Four more. Yes, sir.\nHMJr:\nAnd you've got to find some way to get it to me\nto the farm by Sunday morning.\nC:\nWell, I'll get it to you somehow, sir. (Laughs)\n10Wr:\nSee?\nC:\nYes, sir.\nHMJr:\nYou can do it through Secret Service. They'll\nbring it up. They -- they -- they'll have a man\nup there anyway.\n0:\nAye, aye, sir. I'll have it -- I'll have it\nrolling tomorrow night, sir.\nHMJr:\nHave it up into my hands by Sunday morning.\nC:\nYes, sir. I shall.\nHMJr:\nThank you.\nC:\nYou're welcome, sir.\nSeptember 7, 1939\n5:38 D.I.\n40\nHJr:\nHello.\nCorretor:\nMrs. Herbert.\nThe:\nHello.\nTrs.\nCorbert:\nYes, Mr. Secretary.\nMr:\nMrs. Herbert, make & note that the President said\nthat We should -- it's not necessary to send the\nNORTHLAND with Admiral Byrd to the South Pole.\nHave you got it?\nH:\nYes, sir, that the President saya that it 18 not\nnecessary to send the NORTHLAND with Admiral End\nto the South Pole.\nMMr:\nYes.\nYes, sin Mr. Goston has zone home, Xr\nSIN:\nHe did. Well, I's giving it to you end\nin\nYes.\n:\nit's us to you to get it to Hr. Gaston.\n%\nYes, I'll see that he gota it.\nTonight.\n#:\nYes, sir.\nTXJ:\nAighto.\n::\nYes, sir.\nH/Jr:\nThank you.\nRegraded Unclassified\nSeptember 7, 1939\n41\n5:44 p.m.\nHMJr:\nI don't feel it's up to me to advise the American\nAmbassador over there. I don'\nJohn\nStone:\nI can tell you I know that Mr. Welles sent off a\nreply to him.\nHMJr:\nYeah.\nS:\nAnd that -- what it said, I don't know, but I know\nthat he did handle it.\nHMJr:\nWell\nS:\nAnd I -- I raised the question of -- myself, be-\ncause a copy came into this office -- as to sending\nit over to you, and he said yes, send it over to\nyou. But he did not suggest about making any\nnotation as to your possible replying.\nHMJr:\nWell\nS:\nAnd I think Mr. Welles' reply may have covered the\nsituation, sir.\nHMJr:\nWell, could I have a copy of that?\nS:\nOf Mr. Welles' reply?\nHMJr:\n1es.\n5:\nI'll -- I'll see, sir. I -- I don't know the\nsituation very well.\nHMJr:\nWell\nS:\nWould you like to speak with Mr. Welles, sir.?\nHMJr:\nYes.\nS:\nWell, I'll see if he's over there, sir, and if he\nis I'll -- I'll\nHMJr:\nHave him call.\nS:\nhave him call you, and 1f he isn't, I'll\njust call your secretary and tell you the situation.\n- 2 -\n42\nHNJr:\nNo -- well, you could call me because\nS:\nAll right, sir.\nHIST:\nLet me know one way or the other.\nS:\nRight, sir.\nHMJr:\nBecause I -- I don't like the tone of Kennedy's\ntelegram.\nS:\nNo, I understand that, sir.\nHIJr:\nAnd.....\nS:\nI -- I'll get in touch with them and maybe the\nSecretary would like to speak with you. He's --\nhe's gone out to Woodley.\nHMJr:\nWell.....\nS:\nDepartment of\nMJr:\nWell\nS:\nHe hasn't gotten there yet.\nHMJr:\nAh -- I -- I'm here for fifteen minutes, and after\nthat I can be reached at home after seven fifteen.\nS:\nAfter seven fifteen?\nHMJr:\nYeah.\nS:\nAll right, Mr. Secretary. Fine.\nHMJr:\nThank you.\nS:\nGoodbye.\nSeptember 7, 1939\n43\n5:55 p.m.\nSumner\nWelles:\nHello.\nHYJr:\nHello, Sumner.\n11:\nHello, Henry. They tell me you want to speak to\nme.\nMiJr:\nYes.\nW:\nAll right.\nHiJr:\nWell, I asked for Mr. Hull and I asked about this\ntelegram from Kennedy number 1500.\nOh, yes. Um-hm.\nENJr:\nAnd they said that you had answered Kennedy and so\nI asked\nI told Kennedy that the President had instructed\nthat the matter was to be regarded as -- 88\nfinished.\nHWr:\nYes.\nNow, I didn't say anything more than that. I couldn't\npossibly attempt, naturally, to answer his telegram\nexcept that.\nHMJr:\nWell\nVi\nBecause if he W&B complaining that we hadn't in-\nformed him, I wanted him to know that there wesn't\nanything for him to be informed of.\nHMJr:\nI see. of course, I consider it an impertinent\ntelegram, and after all, I have no way of communi-\ncating with Kennedy. And Mr. Hackworth W&B here.\nFor your information I asked Mr. Hull how I should\nhandle it and he said to handle it at this end\nand not to handle it through Kennedy.\nW:\nUm-hm.\nHMJr:\nOr Bullitt. Now that's -- he said to do it at this\nend. That was Mr. Hull's\n- 2 -\n44\nYeah.\nMJr:\nown suggestion. So if\n$\nWell, I knew nothing about it until afterwards and\n17:Jr:\nWell\nW:\nall I'm trying to do is to compose the -- the\nquestion. I'm -- I'm awfully sorry but I couldn't\npossibly inform Kennedy myself because I didn't\nknow anything about it.\nHJr:\nWell, let me ask you a question for future\n:\nYeah.\nMJr:\nguidance. Is it -- where e State Department\nrepresentative sits here with me, which Mr. Hackworth\ndid representing the Secretary of State, 18 it up\nto ne to take any further action?\nWell, I think your point 18 perfectly well made.\nI think if the State Department was fully informed\nof a thing of that kind, Kennedy should have been\nadvised.\nRMJr:\nWell, I mean -- but Mr. Hackworth was sitting here\nat -- as D. representative of the Secretary of State.\nV:\nYeah.\nHIlJr:\nAnd I asked -- I mean -- and I -- it was taken up\nat Cabinet. At the Cabinet I said to Mr. Hull,\n\"Now, should I -- how about my calling up Kennedy\nand Bullitt -- or what do you think\"?\n10\nYes.\nHWr:\nAnd he said, \"No, I wouldn't do it that way.\"\nHe said, \"I'd do it by asking the Ambassadors\nhere to see you.\" II\nW:\nUm-hm.\nHWr:\nAnd the appointment for the Ambassadors was made\nthrough his office.\nW:\nUm-hm. I see.\n45\n- 3 -\nHMJr:\nMr. Gray made the appointment.\nI see.\nHWr:\nAnd Mr. Hackworth sat here as Mr. Hull's represen-\ntative.\nYes,\nWr:\nSo\nWell, I think any failure to inform Kennedy Was\nentirely the responsibility of this Department.\nI fully agree with you.\nID:\nWell, would you do this for me?\nWhat is that?\nMr:\nWould you write Kennedy a letter?\nYes, indeed.\nDr:\nAnd explain to him the circumstances?\nI'll be very glad to do that, Menry.\nI'm willing to take the blame when the blane is\nmine, but I don't think It is this time.\nWell, I'll be very glad to ão that. I'll write\nhim a personal letter and explain it fully.\nMar:\nI -- I mean, you orn tell him that Mr. Hull said\nI should do it this way, but I -- I think I would\nexplain that Kr. Hackworth was sitting here\n%\nI will.\nRWr:\nas Mr. Hull's representative.\nI will. I'll make that clear and I'll send him e\nletter tonight. I don't know how soon a pouch\ncan Bet off under present\nHiJr:\nWell\n%:\nconditions, but I'll see that he geto it.\n- 4 -\n46\nHMJr:\nI -- I think that I'm entitled to that.\nW:\nAll right. I fully agree with you; I think you are.\nHMJr:\nWhat?\nW:\nI think you are. I fully agree with you.\nHWr:\nAll right, sir.\nW:\nAll right, Henry.\nHMJr:\nThen that's a closed issue.\nW:\nRight, and I'm very sorry it happened.\nHMJr:\nThank you.\nW:\nGoodbye.\nHMJr:\nGoodbye.\nHURMAN ARNOLD\nASSISTANT ATTORNEY GENERAL\nWASHINGTON\nSeptember 7, 1939\nMy dear Mr. Secretary,\nThe present state of war in Europe has introduced\na number of new factors in our industrial situation.\nWe have always considered the Antitrust Division as a\nbalance wheel against profiteering and as a protection\nto independent business in times of rapid consolidation.\nIt should not be used in a vacuum but in coordination\nwith other government departments.\nPresent conditions therefore compel a. reexamination\nof our plans so that the personnel of the Division can\nbe most effectively used under the new situation. The\nAttorney General has directed me to prepare 8. memorandum\nof general policy for our own. guidance with this in\nmind.\nIn the preparation of that memorandum it is impor-\ntant that we do not conflict with any policy of your\nDepartment. I will appreciate it if you will appoint\nsomeone whom we can consult in the preparation of this\nmemorandum of policy 80 as to avoid any such conflict.\nIn return for this cooperation may I call your\nattention to the fact that the expansion of the Division\nlast year permitted investigation of industrial situa-\ntions on a larger soale than has ever before been pos-\nsible. We have & technical staff now familiar in great\n48\ndetail with a very large number of key industries.\nThis staff may be of assistance to other departments\nwherever questions of price policy, methods of dis-\ntribution, the use of patents and other trade prac-\ntices and labor restrictions are involved.\nSincerely,\nTHURMAN ARNOLD, Amold\nAssistant Attorney General.\nThe Honorable\nThe Secretary of Treasury\nWashington, D. C.\n49\nGROUP MEETING\nSeptember 7, 1939.\n9:30 a.m.\nPresent:\nMr. Hanes\nMr. Duffield\nMr. Foley\nMr. Haas\nMr. Lochhead\nMr. White\nMr. Craves\nMr. Bell\nMr. Thompson\nMr. Viner\nMrs Hlotz\nE.X.Jr:\nI don't know how I'm going to work this with all\nthe people here; I haven't crossed that bridge\nyet. Whether we will all meet at the same time\non each day I don't know.\nDuffield:\nYou will have to put in B public address system.\nE.N.Jr:\nDo you have anything?\nHones:\nNothing at all.\nDuffield:\nSome of the press services and photographic ser-\nvices are asking when Mr. Harris will be sworn in.\nH.M.Jr:\nAt 4:30 today, and Er. Moyle will be sworn in today.\nDuffield:\nThe only other thing I have is that the Country Home\nmagazine has a policy of selecting America's \"Far-\nmer of the Month\" with each issue, with each monthly\nissue.\n(Viner enters)\nE.W.Jr:\nAnoy!\nViner:\nI will saluto that one.\nE.X.Jr:\nIncidentally, I hear the fast thinkers put it over\non the quick thinkers, and you got the best rooms.\nViner:\nWe were the fast thinkers.\nH.M.Jr:\nAnd the quick thinkers were slower than the fast\nthinkers.\nViner:\nI will admit quite modestly that I put it over on\nthem.\n50\n- 2 -\nH.M.Jr:\nAnd they say you admit it.\nDuffield:\nThis magazine which is Crowell Publishing Company\nmagazine, Country Home magazine, each month nominates\nAmerica's \"Farmer of the Month\" in its issue and\nthey want to nominate you. The only catch to it\nis that you have to write a little message to the\nfarmers of the country of five or six hundred words.\nDo you want to be the \"Farmer of the Month?\"\nH.M.Jr:\nThat ought to be the \"Farmer in the Dell.\"\nDuffield:\nAnd if you do, do you want me to write something?\nThey offered to write something for your approval.\nI don't see why you don't do it unless you have some\npersonal reason.\nH.M.Jr:\nI think it's kind of silly, don't you?\nHenes:\nI don't know what kind of a magazine it is.\nH.M.Jr:\nWhy don't you get & copy of the magazine?\nDuffield:\nThere was one attached to this letter but it was\nlost.\nWhite:\nIt is a bad month to be picked as the \"Farmer of the\nMonth.\"\nHanes:\nThis might be a pretty good month to be the farmer,\nbecause the farm prices at this time have gone up.\nWhite:\nNot when you are Secretary of the Treasury.\nH.M.Jr:\nJust take a look at the publication. Have you read\nit?\nHanes:\nYes.\nH.M.Jr:\nEd?\nFoley:\nI have these letters from the State Department and\nCommerce Department asking someone to serve on that\nadvisory committee on credit to belligerents under\nthat order exempting ordinary peace-time shipping.\nH.M.Jr:\nIs that the one I signed?\nS1\n- 3 -\nPoley:\nYes,\nB.M.Jr:\nPeace-time credits?\nlisnes:\nA committee was formed already dealing with the\nTreasury, and if it could be arranged to keep that\nsame committee on this thing, it would be helpful.\nI think that is what the State Department wants\nalso.\nPoley:\nWe don't know who they want to serve on this\nadvisory committee and I thought the thing to do\nwas for the Secretary to write -\nRanes:\n1 don't understand what they did. They appointed\na permanent sub-committee to deal with Treasury\naffairs. That was Townsend, Feis and Miller, I\nassume, from the Department of Commerce, although\nwe had no Department of Commerce on It before, so\nwhoever the Department of Commerce man is -\nFoley:\nWell, I don't see any reason why Justice should be\non this committee, particularly. I think that\nmight complicate things and I think that the head\nof the department ought to be given an opportunity\nto designate the person he wants to serve on this\nparticular committee.\nlianes:\nThat is what I am tolling you, the head of the\ndepartment did want it. We don't want Justice, I\nbelieve, or Townsend, but just for your Information\nI don't care.\nH.M.Jr:\nYou might talk this over with Hanes. lie has been\nhandling this and you can bring it up again. He\nis entirely familiar with it. lle 1s on the conmittee\nhimself, representing the Treasury.\nFoley:\nThat 1s right.\nS.M.Jr:\nTalk It over with John and fix it up the way John\nwould like to have it. It is something he did while\nI was gone. Anyway he wants it, it suits me. In\nthat all right?\nFoley:\nYes.\nHeas:\nI have nothing here but EL little peace-time business.\nRegraded Unclassified\n52\n- 4 -\nH.M.Jr:\nHow do you spell peace?\nHaas:\nP-e-a-c-e. There is an interesting development\nthere. Our corporate bonds flattened.\nH.M.Jr:\nWhich flattened?\nHaas:\nCorporate bonds flattened out.\nH.M.Jr:\nDo you mind - well, I sent yours in yesterday to\nBurgess.\nHaas:\nHadley told me to send a copy to him so he got a\ncopy yesterday.\nH.M.Jr:\nSo Treasuries flattened and the Moodys didn't?\nHaas:\nAnd the reason for Moodys not flattening is this,\nMr. Secretary. On a bond that doesn't quote, they\ncarry the previous quotations forward, so it is\nobvious they don't get the bottom of the market.\nH.M.Jr:\nWell, Burgess is handling the bond market for me\nso you ought to -\nHaas:\nI am sending it in. Hadley asked me to send B.\ncopy in.\nH.M.Jr:\nAnything else?\nHaas:\nI have this minor thing. Walker, each time FHA\nputs out a complicated schedule, writes to you.\nDo you want me to take this up with Fisher like\nwe did the last time?\nH.M.Jr:\nYes.\nHaas:\nAll right, I will do that. That is all I have.\nH.M.Jr:\nHave you got something?\nViner:\nNo.\nH.M.Jr:\nHave you got & place to live?\nViner:\nThe town reminds me of 1917 B. little. It is already\nfilled.\n53\n- 5 -\nA.M.Jr:\n(To Duffield) Do you want to give this clipping\nto the Tribune and k1d them?\nLochhead:\nYou already saw the Post that came over from the\nother side this morning. They just simply arrange\nwhat transactions they can and the small trans-\nactions between those rates is nearly all nominal.\nHarry?\nCrito:\nWhenever you have time 1 will give you some messages\nand things from Trazil. There are a fow major\nproblems that occurred to me, thinking them over,\nthat we ou ht to take up, but they are not acute\nat this moment. I don't know whether you have\nalready done something on them, SO whenever you\nwant to CO into then - outside of that, I have\nnothing.\n0.2.dr:\nHarold?\nTraves:\n1 have nothing.\nWill you stay E minute? I want to talk to you.\nDid you talk to that fellow?\ncell:\nYes. lie is very highly complimented and would\nlike to think It over during the day. I talked\nto some of his associates and he hopes to call\nus back this afternoon. He felt very appreciative.\n: have some information about some of the Federal\nIntermediate Credit Banks. They think they ought\nto do the job tomorrow.\nE.M.Jr:\nShould I 887 anything at 10:30?\nBell:\nI will try and Let you some dope before 10:30.\nHe is talkin it over with his associatos and\nwill lot us know at 10:00 o'clock.\nThe market opened pretty good this morning, much\nbetter, and they Are 2011.8 to pick up between one\nand two millions. It looks as though there are\nseveral of the bids in.\nHunes:\nWhat did it close?\nRegraded Unclassified\n54\n- 6 -\nBell:\nIt opened as it closed last night. There was no\nchange.\nThompson:\nWe have started on the space changes in the depart-\nment. One of the problems is the question of\nfurnishings. Mr. Bell was telling me about his\ndiscussion with you and I have a memorandum here\nto authorize use of the stabilization fund for\nfurniture.\nH.M.Jr:\nThis is going to be the run-of-the-mine furniture?\nThompson:\nYes, of course it will be that.\nH.M.Jr:\nI thought you were going to have it gilt edged on\nthe side.\nThompson:\nNo, we will get very modest furniture.\nLochhead:\nI would like to donate that rug in my room.\nH.M.Jr:\nThat seems kind of high.\nThompson:\nProbably it is, but still there's quite a lot of\nrooms to take care of. I have obtained from\nMr. Graves quite 8. number of desks and chairs.\nH.M.Jr:\nI understand, for instance, if you want a desk and\nProcurement has a desk this size at contract price,\nyou buy it at that price, is that right?\nThompson:\nYes, that 1s right. If you want to get luxurious\nfurniture you have to get special bids.\nBell:\nThese are high-class people here.\nThompson:\nIf you get a little better material, of course,\nit is life-time furniture.\nH.M.Jr:\nNo, just the regular stuff.\nBell:\nThere was some order issued in the last month or\n80 virtually putting Farm Credit back where they\nwere before the reorganization. It operates almost\nindependently.\n(Telephone conversation with the Secretary of\nAgriculture follows:)\nRegraded Inclassified\n55\nSeptember 7, 1939\n9:45 a.m.\nHiJr:\nHello.\nOperator:\nSecretary Wallace.\nHMJr:\nRight.\n0:\nGo ahead.\nHMJr:\nHello.\nHenry\nWallace:\nYes, Henry.\nHMr:\nHow are you?\nV:\nFine, sir.\nHMr:\nHenry, we have been working here in the Treasury\nwith the Farm Credit people as usual, as we have\nheretofore, on their financing.\nW:\nUm-hm.\nHMJr:\nAnd intermediate credit will, in the next day or\nso, have a 20 million dollar refunding and they\nmay have to go to the market for 10 million dollars\nnew money, and I wondered if it was agreeable to\nyou that we handle it, the announcement and every-\nthing else, the way we always do from this office.\nW:\nWhy of course, Henry.\nHMr:\nI mean, the way we always have.\nW:\nYes, I don't see any reason why not.\nHiJr:\nWell, I -- I didn't want to do it with\nW:\nDo you know of any reason why not?\nHMJr:\nNo, they'd like us to do it but, after all, it's\nin your shop now and I didn't want to ão it with-\nout asking you.\nV:\nWell, that aspect of it 16 more in your shop than\nit 18 in ours in a way, isn't it?\nRegraded Unclassified\n- 2 -\n56\nHMr:\nWell, we have always advised them with their\nfinancing and helped them and it's -- particularly\nnow, we don't want any agency to go in until we can\nfind a good spot for them. Now, we've got 8 good\ntime for intermediate credit and they'll do it mostly\nlikely tomorrow or the next day.\nYeah.\nMJr:\nBut Just -- I -- I -- you remember I called you up\non commodity credit before we handled it and you said,\n\"Go ahead.\n:\nYeah.\nENF:\nWell, this is the first time we're doing one for\nFarm Credit and I Just wanted to clear it with you.\nV:\nYes. Well, that's fine, Henry.\nINP:\nIs that all right?\nThat's fine. How are things?\nHWr:\nAh -- under the circumstances, I think everything\nis fine.\nI think 90 too.\nHIMr:\nWhat?\nYeah. The -- things have got to shake down a bit\nduring the next week or two. There's R little bit\nof 2 hystoria abroad the land.\nHMJr:\nOh, yes.\nBut\nHMr:\nBut I'm trying to -- I had to strengthen my Treasury\ngreatly on personnel and we're ready now.\nV:\nYou say you have strengthened your Treasury greatly.\nHMJr:\nYes. Oh, yes, I've taken on -- we've taken on a lot\nof people that I arranged for last April.\nUh-huh.\n- 3 -\n57\nHMJr:\nTo come down and we've -- they're here now working.\nV:\nYeah.\nHMJr:\nAnd.....\nW:\nWell all right, fine.\nHMJr:\nThank you. Goodbye.\n50\n- 7 -\nBell:\nThere was some order issued by the Secretary of\nAgriculture with the approval of the President\nputting the Farm Credit almost back on an indepen-\ndent status.\n1.8.Jr:\nI didn't want to come out and say we are going to\ndo this, but I want to make & little speech to\nthe press explaining that from now on there is E\ncoordination of financing and the Government will\ngo in on & coordinated basis, and I want to use\nthis as an example so that they will know we are\ngoing to take our time.\nBoll:\nThis is going ahead with this routine job in the\nregular way.\n1.2.Jr:\nYes, that it is all coordinated through the Treasury\nand the Government will not ask the money from its\nagencies or any direct obligation without the thing\nbeing cleared through.\nBell:\nThis is morely a clearance. The don't actually do\nthe job like we do the others.\nN.H.Jr:\nBut I can say what I am saying.\nDell:\nThat is right, yes sir.\nN.M.Jr:\nDo you think Governor Hill wanted something like\nthis said?\nBell:\nFie would be very pleased 1f you would say this, but\nhe hasn't got the approval of the Board yet.\nHanes:\nWould you like to take E, couple of minutes to clear\nup this Florida situation? Norman Thompson has\nbeen having an awful time with the White House and\nthey are on his neck and I took the responsibility\nof telling him not to send it over there until you\ncame back. Yesterday Mrs. Pepper called me up,\nthe Senator being in the hospital, and Mrs. Pepper\ngave ne the works about a half hour over the tele-\nphone about what E distress that was. I told her\nwe had been swfully busy here and had something\nelse to do and I thought it best not to concern\nher with the details of it. So they are putting\nall kinds of pressure on us and I think the history\nRegraded Unclassified\n59\n- 8 -\nis that we told Mac not to let this fellow go\nuntil they got another job for him. Well, they\ngot another job for him but they put a 'joker'\nin it by saying it was E temporary appointment\nfor 60 days. I don't think that 18 fair to the\nfellow 30 1t didn't go through, I guess -\nThompson:\nGeneral Watson has requested that the Commission\nbe sent over.\nH.M.Jr:\nI tell you what you do. You tell the Chief Clerk\nthat my understanding is that this follow 1a to\nhave B. full-time Job at the same salary and when\nwe are convinced that he has that we will send\nhim over, but until that I am going to sit on\n1t, barring written instructions from the President.\nBarring written instructions from the President,\nwe will not send over this fellow until he has\ngot B. job at the same salary. You notice I am\nnot saying he has to be in Florida.\nHanos:\nThis was a 60-day appointment, wasn't it?\nThompson:\nYes, they said 60 days.\nE.V.Jr:\nIs that all right?\nhanes:\nThat is fine, yes,\nH.S.Jr:\n0. K.\nDogradod\nConversation with Mr. Harrison in New York City.\nSeptember 7, 1939\n8:37 a.m.\n80\nHMJr:\nHello.\nOperator:\nHarrison.\nMJr:\nHello.\nGeorge\nHarrison:\nHello. Henry?\nMWr:\nGood morning, George.\na\nCood morning.\nHWr:\nHow are you?\n51\nI'm first rate, thank you, and I hope you are.\nPMJr:\nOh, I'm -- I'm feeling mentally fine.\nni\n(Laughs)\nHWr:\nPhysically, n little pooped. Ah -- are you feeling\na little better since you talked to me Monday night?\nH:\nWell, I feel & little better and I'm very much\nobliged to you for some, I'm sure, active support\nthat you gave in the way to handle this thing.\nHMr:\nPlenty.\nH:\nAnc the -- they've been very much more liberal in\ntheir leeway.\nHXJr:\nOh, yes.\nH:\nllow, we're debating just how we shall handle it this\nmorning.\nHKJr:\nYeah.\nH:\nLast night there beran to he a little evidence of\nsome buying even in the longer stuff.\nHMJr:\nYeah.\nE:\nNot much, but there was one case where our bid was\ntopped on the Stock Exchange Board, which 19 an\nencouraging sign.\nRegraded Unclassified\n- 2 -\n61\nHMJr:\nWonderful !\nH:\nIt was just one swallow, however.\nHMJr:\nYeah.\nH:\nAnd\nHMJr:\nThe fellow -- the fellow didn't choke, did he?\nH:\nWhat?\nHMJr:\nHe didn't choke, did he?\nH:\n(Laughs) No, he lost a little, because it went right\ndown to our bid afterwards.\nHMJr:\nI see.\nH:\nNow, the question is, whether, and at what point, we\nshould make some sort of a stand. We still think\nthat the long bonds are a little bit over what's\ngoing on outside.\nHMJr:\nYeah.\nH:\nMarriner agrees with that and his suggestion is that\nwe open up this morning on the long bonds a full half\npoint off, just to vary the pattern as he expresses\nit. My point -- we feel that we'à do better to open\nup where we were last night as long as we've found\na point there where there seemed to be some buying.\nHMJr:\nYeah.\nH:\nAnd that to open up a full half point off this morning\nmight be a discouragement. In other words, in the\nearly days, I was for opening up a whole point off....\nHMJr:\nYeah.\nH:\nand they made me stick to -- to an eighth then.\nHMJr:\nWell, the\nH:\nAnd now when we're getting near the bottom they're\nfor the -- for the big action rather than the little\naction.\n- 3 -\n82\nHWr:\nWell, the meeting we had in my office that Tuesday\nmorning where they were having you hold the line at\none eighth.\nni\nYeah.\nThen\nTMr:\ntraveled along just\nAnd -- and in the early days we should have gone down\nfaster and in bigger jumps, and I don't think now\nthat we've got it where we have got it that it would\nbe wise to open up and full half point off and then\nmake our stand there is what Warriner says.\nWell, George, I'm going to refrain from making any\ncomment.\nYeah.\nBecause Rendolph Burgess is handling it for me.\nUh-huh.\nMr:\nHe's on his way over to see Eceles now.\nUh-hul.\nMAr:\nAnd I don't want to get my wires crossed.\nNo. Well, I think you're very wise on that.\nMAJr:\nI mean\nB:\nI spoke to Ranny a little while ago and I don't think\nwe are far apart.\nHMJr:\nllow, the other -- the thing that I wanted to tell you\nWEB this: That Jerome Frank WOB over here yesterday\nto see me; to tell me about his correspondence with\nyou\nYeah.\nH/Jr:\nabout the committee. And I've gotten my notes\nout as to that meeting on April 13th and in that\n- 4 -\n63\nmeeting you stated perfectly clearly what you were\ngoing to do.\nH:\nYes.\nHRJr:\nAnd I'm going to tell that to Frank today, you see?\nH:\nI don't\nHIJr:\nI'm\nHenry, he -- he's been more nuisance about E little\nbit of a thing. I don't know what his feelings are\nhurt about\nID:Jr:\nWell\n6:\nor what he's objecting to.\nHWr:\nWell -- now, what I'm suggesting is as soon 8.8 the\nheat is off, and I told this, that you come down\nand Frank and you'and Johnny Hanes and I will have\nlunch together.\nin\nAll right.\nHMJr:\nAnd I'll show him -- there's just a half a page where\nyou outlined in the greatest detail what\nH:\nWell, wes he present at the meeting?\nHMJr:\nPardon?\nH:\nWas he present at the meeting?\nHMJr:\nHe was not.\nH:\nOh.\nHMJr:\nNo, the people present were Hanes, White, Lochhead,\nBernstein, Foley, Eccles, Marrison, Knoke and myself.\nH:\nYeah.\nHMJr:\nIt was on April 13th at four p.m. He was not present\nat that meeting.\nH:\nWell, I wrote him a letter yesterday and told him\nthat -- confirming what I told him on the telephone -\nthat we had no intention to trespass on his\n- 5 -\nS4\njurisdiction; we've got plenty to do of our own\nwithout doing that.\nHMr:\nWell, I think it would be good all sround that some-\ntime next week when the things are straightened out,\ncome on down and the four of us will have lunch\ntogether.\nis\nYeah. Tell his for me that I'm glad he has BO little\nto Co that he can fuse about E. thing like this.\nINJr:\nWell\n5:\n(Laughs)\nDJr:\nevery -- well, everybody's -- how shall E say,\n& little bit different.\n%:\n(Laughs) Well, we've -- I'd love to come down any-\ntime at all.\nENr:\nWell, I -- I think it would be good.\ndi\nAll right.\nHINr:\nBecause this thing -- I know the men, I think I'm\nright; it'll keep revolving in his crop until\nwe get it straightened out, and Johnny is nodding\nhis head. He's sitting here, nobody else in the\nroom but Johnny and Johnny agrees.\nH:\nYeah.\nHVr:\nAnd so I think -- I think it would be worth your\nwhile to come down.\nH:\nAll right.\nHMJr:\nSee?\n8:\nIn the meantime, if he's got any suggestions - if\nhe wants me to fire them out/the committee, that\nsuits ne.\nto\nMJr:\nWell, I -- I'm not making any -- but I just like to\nact -- I just like to furnish the food, that's all.\nH:\nYes. All right.\n- 6 -\n65\nHMJr:\nAnd I will show him the minutes.\nH:\nI -- I accept your invitation to lunch.\nHMJr:\nPardon?\nH:\nI accept your invitation to lunch.\nHMJr:\nRighto.\n5:\nFirst rate.\nHMJr:\nGoodbye.\nH:\nAll right. Goodbye.\nSepte ber 7, 1939\nJay dear Jerry!\nFor your own confidential information, I wish\nto quote below George Harrison's coments at the\nApril 13th meeting, in my office, in regard to form-\ninc A bankers' committee:\n\"before the union orisis we made a\ncomplete survey in the New York banks of the\n1014 versus the 1938 situation.\nThe one thing TO felt we needed def-\ninitely in New York, in the light of past ex-\nperience, was to have & bankers' committee to\nwhich I night go in any hurry upon any matter\ndealing with credit, loans, foreign exchange,\ngold, or anything else that the Treasury might\nwant us to do. The banking community agreed\ndefinitely that I should have suon & committee -\ncall it advisory committee or a market committee\nor A contact committee. There was come differ-\nence of opinion as to how it should be organ-\nized, but nevertheless the principle was agreed\nto. Te dro ped it merely because of the Munich\nappeasement, no it WRS called, I understand.\nAt the t time I discussed with the prin-\ncipal banks in New York the whole question of\nthe bond market for one t ing, the foreign ex-\nchanges, and the question of foreign balances.\nI think there 18 no question that they would\nbe all definitely willing and glod to do any-\nthing that they legally can within their rights.\nAnd if I set up much committees, as I had planned\nyesterday to do today if I had been in New York,\nall I would have to do would be to put up any\nquestion I want to to the committee and let them\ndo the dirty work. That's the my I'd rather\ndo than call them up, as you say, at 2:00 o' clook\nin the morning.\"\nRegraded Unclassified\n67\n-8-\nAlso present at this meeting were:\nMr. Hanes\nMr. White\nMr. Lochhead\nMr. Bernstein\nMr. Foley\nMr. Ecoles\nMr. Knoke\nSincerely yours,\nHon. Jerome Frank, Chairman\nSecurities and Exchange Commission,\nWashington, D. C.\n58\nSeptember 7, 1939\nMy dear Jerry:\nFor your own confidential information, I wish\nto quote below George Harrison's comments at the\nApril 13th meeting, in my office, in regard to form-\ning A bankers' committee:\n\"Before the lunioh crisis we made a\ncomplete survey in the New York banks of the\n1914 versus the 1938 situation.\nThe one thing we felt we needed lef-\ninitely in New York, in the light of past ex-\nperience, was to have 8. bankers' committee to\nwhich I might go in any hurry upon any matter\ndealing with credit, loans, foreign exchange,\ngold, or anything else that the Treasury might\nwant us to do. The banking community agreed\ndefinitely that I should have such & committee -\ncall it advisory committee or & market committee\nor & contact committee. There was some differ-\nende of opinion as to how it should be organ-\nized, but nevertheless the principle was agreed\nto. We dro ped it merely because of the Munich\nappeasement, as it was called, I understand.\nAt th t time I discussed with the prin-\ncipal banks in New York the whole question of\nthe bond market for one thing, the foreign ex-\nchanges, and the question of foreign balances.\nI think there 1s no question that they would\nbe all definitely willing and glad to do any-\nthing that they legally can within their rights.\nAnd if I set up such committees, as I had planned\nyesterday to do today if I had been in New York,\nall I would have to do would be to put up any\nquestion I want to to the committee and let them\ndo the dirty work. That's the may I'd rather\ndo than call them up, as you say, at 2:00 0' clock\nin the morning.\"\nRegraded Unclassified\n69\n-8-\nAlso present at this meeting were:\nMr. Hanes\nMr. White\nMr. Lochhead\nMr. Bernstein\nMr. Foley\nMr. Rooles\nMr. Knoke\nSincerely yours,\nHon. Jerome Frank, Chairman\nSecurities and Exchange Commission,\nWashington, D. C.\n70\nSeptember 7. 1939\nby dear Jerry:\nFor your own confidential information, I wish\nto quote below George Harrison's comments at the\nApril 13th meeting, in my office, in regard to form-\ning a bankers' committee:\n\"Before the Munich crisis we made &\ncomplete survey in the New York banks of the\n1914 versus the 1938 situation.\nThe one thing we felt we needed def-\ninitely in New York, in the light of past ex-\nperience, was to have a bankers' committee to\nwhich I might go in any hurry upon any matter\ndealing with credit, loans, foreign exchange,\ngold, or anything else that the Treasury might\nwant us to do. The banking community agreed\ndefinitely that I should have such a committee -\ncall it advisory committee or A market committee\nor a contact committee. There was some differ-\nenoe of opinion as to how it should be organ-\nized, but nevertheless the principle was agreed\nto. We drouped it merely because of the Munich\nappeasement, a8 it was called, I understand.\nAt the t time I disoussed with the prin-\ncipal banks in New York the whole question of\nthe bond market for one thing, the foreign ex-\nchanges, and the question of foreign balances.\nI think there is no question that they would\nbe all definitely willing and glad to do any-\nthing that they legally can within their rights.\nAnd if I set up such committees, as I had planned\nyesterday to do today if I had been in New York,\nall I would have to do would be to put up any\nquestion I want to to the committee and let them\ndo the dirty work. That's the way I'd rather\ndo than call them up, as you say, at 2:00 'clook\nin the morning.\"\nRegraded Unclassified\n71\n-2-\nAlso present at this meeting were:\nMr. Hanes\nMr. White\nMr. Lochhead\nMr. Bernstein\nMr. Foley\nMr. Ecoles\nMr. Knoke\nSincerely yours,\nHon. Jerome Frank, Chairman\nSecurities and Exchange Commission,\nWashington, D. C.\n72\nC\n0\nTHE WHITE HOUSE\nWashington\nP\nY\nSeptember 5, 1939\nCONFIDENTIAL\nMEMORANDUM FOR\nHON. JEROME N. FRANK\nI wish you would have a confidential talk with\nHenry Morgenthau, who is just back, and explain to\nhim the present situation in regard to the Stock\nExchange, Mr. Martin's letter, and especially the\ncreation of George Harrison's Committee now headed\nby Mr. Potter. Tell H. M., Jr., that all of us are\ndistinctly from Missouri and to watch out for a\ndouble play or a double cross or something similar.\nF. D. R.\n73\nAugust 31, 1939\nCONFIDENTIAL MEMORANDUM\nTO:\nTHE PRESIDENT\nFROM: Jerome I. Frank\nI am somewhat disturbed by recent developments which may\nseriously affect the adequate handling by the SEC of the\nmatters entrusted to its care, and feel that I ought to call\nthe subject to your attention;\n1. You recently appointed an inter-departmental committee,\nto deal with the war emergency situation, consisting of\nrepresentatives of the Departments of State, War, Navy,\nTreasury and Justice.\n2. A subcommittee has been appointed with reference to\nsecurity markets, foreign exchanges, etc., which consists of\nrepresentatives of Treasury, State, Federal Reserve, Justice\nand the SEC. At a recent meeting of that subcommittee (the\nonly meeting thus far held) the Federal Reserve was represent-\ned by Dr. Perry (whose attitude toward Stock Exchange matters\nhas frequently been at variance with ours) and the State\nDepartment was represented by Dr. Feis, (who has sometimes\nbeen severely critical of our relation to the securities\nRegraded Unclassified\nNo.2\n74\nmarkets). At that meeting Dr. Parry disclosed that he had,\nunbeknownst to the SEC, discussed with Stock Exchange\nofficials steps which the Exchange contemplated taking and\nof which the SEC had not then been informed.\n3. The curious and subordinate position of the SEC, as\nto matters within its peculiar province, in connection with\nthe workings of the inter-departmental committee, may lead to\nstrange results, as indicated by the following:\nSeveral days ago, Governor George Harrison, of the Federal\nReserve Bank of New York, appointed a committee to advise and\nconsult with government officials on foreign exchange matters,\n6. subject which is no direct concern of the SEC. However,\nyesterday, with no knowledge on the part of the SEC until we\nread of it in the press today, Governor Harrison appointed\nanother (nine man) committee to advise and consult on other\nproblems, including conditions in the securities market. That\nsecond committee consists of Henry Morgan of Morgan Stanley\nand Company, representing the investment bankers, Mr. Wartin,\nPresident of the New York Stock Exchange, and the presidents\nof the leading New York banks; it is also to include &\nrepresentative of the insurance companies. The press accounts\nstate that the committee \"will forward its findings and opinions\nto Washington\" and that \"it had not been decided whether to\nRegraded Unclassified\nNo.8\n75\nmake the committee permanent if future developments give\nassurance of peaceful settlement of Europe's problems.\"\nThe appointment of that committee had not been discussed\nwith us. It had been informally and briefly discussed with\nUnder-Secretary Hanes, who knew little about its purposes. I\nhave no criticism whatever of Johnnie; I have no doubt that\nthe failure to advise with us was, at most, a pure oversight.\nI talked to Johnnie about the matter today. At his\nsuggestion, Governor Harrison phoned no this afternoon. Be\nexplained that his new committee was formed merely to give him\nadvice so that he could keep the banks informed of developments,\nand said that it was not intended that that committee should\nencreach in any way on our activities.\nHowever, regardless of Governor Harrison's intentions, it\nis well known that several mémbers of that committee ardently\ndesire to procure amendments to the SEC statutes which would\nemasculate them; and the existence of such a committee may\nafford an opportunity for certain persons in Wall Street to\ntake advantage of the emergency, in an effort to establish a\nprogram of encirclement of the SEC.\n4. In the light of the foregoing, I respectfully suggest\nthat the main inter-departmentel Committee and the inter-\ndepartmental subcommittee and the War Resources Committee be\nRegraded Unclassified\n50.4\n76\ninstructed that, with respect to matters within the provines\nof the SEC#, no steps should be taken, or plans drafted, or\ntentative or other commitments or public statements made,\nwithout the prior consurrence of our Commission.\n5. Leon Henderson and Ed Eicher have read this memo\nand fully approve.\n6. I think the subject is of such great importance that\nI would appreciate an opportunity to talk with you about it\nfor a few minutes in the near future.\nincludes the stock exchanges, over-the-counter markets, investment\n6, capital markets (other than the government bond market), securities\nMons, public utilities, investment trusts, and investigation of\nince companies.\nCONFIDENTIAL MEMORANDOM\nSeptember 2, 1939\nTO:\nThe President\nPROM: Jerome N. Prank\nResponsive to comments by Bill Douglas and to\nlater coments by me, Mr. Martin, President of the\nNew York Stock Exchange, on July 14, 1939, appointed\na so-called \"examining board\" to study and report\non the matter of increased customer protection against\nbrokerage insolvencies. The board published its re-\nport on August 31.\nMr. Martin, on September 2, made public a letter\naddressed to the members of the Exchange sending them\ncopies of that report. Attached is a clipping from\nthe Now York Herald Tribune for today which quotes\nhis letter. In that letter he said that one of the\nmost urgent problems confronting the Exchange was\n\"the preservation of the market itself. The impact\nof regulation has already acriously impaired the\nvitality of the market.\" Be referred to \"the low\nvolume of transactions and reduced listings\" and com-\nmented that \"the policing power - should never\nbe 80 much to the forefront that it suppresses\nRegraded Unclassified\n- 2 -\n78\nlegitimate activity.\"\nIn that same letter, he said that, in meeting\nthe broad problems, \"wo earnestly invite the coopera-\ntion of our listed companies, the banks of the country,\nbusiness generally. and all others who wish to 500 the\nnation's primary securities market sustained at maxi-\nmum efficiency. with its vital functions unimpatred,\"\nThe tone of Mr. Martin's letter vas a surprise\nto many persons, including prominent persons associated\nwith the Exchange who are friendly to us, including\nMr. Carle Conway. They interpreted Martin's letter\nas a result of prodding from the old guard who think\nthat the present political situation makes this g.\ngood time to begin another attack on the SEC statutes.\nI call your attention to the language which I\nhave underscored, taken from Martin's letter of\nSeptember 2, because it would seem to tie in with\nthe creation, on August 30, of the committee by\nGovernor Harrison, to which I directed your attention\nin my memo of August 31. Mr. Martin and Mr. Harry\nMorgan, you will recall, are members of that committee;\nsince my earlier memorandum was written, Mr. Potter,\nPresident of the Quaranty Trust Company, has been\nmade Chairman of that committee and Mr. Maker, Chair-\nRegraded Unclassified\n79\n- 3 -\nman of the Board of the Netropolitan Life Insurance\nCompany (now on hearing before the TNRC), has been\nmade the insurance company representative. There\nwould seem to be some reason to believe that when\nMr. Martin appealed to leading corporations and the\nbanks of the country to assist him in resisting\nregulation which \"has already seriously impaired\nthe vitality of the market,\" he had in mind Harri-\nson's committee, the composition of which fits 100.\nMartin's requirements.\nLife do not intend, for the present, to make\nany reply to Martin's letter]\nRegraded Unclassified\nSeptember 6, 1939\n80\nCONFIDENTIAL\nGovernor Harrison has appointed two committees.\nThe general impression is that he did so at the re-\nquest of or with the approval of the Treasury.\nOne of these committees has to do with foreign\nexchange. The other is a so-called \"General Committee.\"\nThat committee, according to the press, was appointed\non August 30. The first that SEC knew of it was when\nthe announcement of that appointment appeared in the\nmorning papers on August 31. The committee consists\nof nine persons, the Chairman, Mr. Potter of the Guaranty\nTrust Company, the presidents of four other banks, Henry\nMorgan of Morgan Stanley and Company (to represent the\ninvestment banking group), Mr. Martin, President of the\nStock Exchange (to represent members of that institution),\nand Mr. Ecker, Chairman of the Board of the Metropolitan\nLife Insurance Company (to represent the life insurance\ncompanies). There is some indication that each group\nhas appointed a subcommittee.\nAccording to the press, the General Committee is\nto include within its activities matters affecting\nsecurities markets. That committee, according to the\npress, 18 \"to forward findings and opinions to Washington.\"\nSubsequent stories indicate that it is thus to act not\nonly at the request of Washington or the Federal Reserve\nRegraded Unclassified\n- 2 -\n81\nBank but also \"on itsom initiative.\" It was stated\nin the press that it had not as yet been decided\nwhether to make the committee permanent so that it\nwould continue even if the present emergency should\nalso\ncease to exist. It was/stated in the press that the\ncommittee \"might, for instance, If it were deemed\nnecessary, or Washington wanted it, take up the British\norder prohibiting Britains to sell or transfer American\nand other foreigh securities without permission.\"\nOn August 31, Governor Harrison advised me on the\nphone that the press had been in error when it stated\nthat that committee was to make findings and proposals\nto the government with respect to the security markets,\nand that it was not intended that either that committee\nor the foreign exchange committee should consider or\nmake proposals or findings which relate to subjects\nwithin the jurisdiction of the SEC, but that they would\nbe merely & means by which, during the emergency, Gov-\nernor Harrison could promptly obtain information as to\ncurrent market conditions and promptly transmit such\ninformation to the financial community.\nOn September 1, I wrote a letter to Governor Harri-\nson confirming the foregoing as my understanding of\nwhat be had told me on the telephone on August 31.\nRegraded Unclassified\n82\n- 3 -\nOn September 4 it was stated in the New York Times\nthat the committee \"will have the duty of considering\nand giving advice upon measures recommended or suggested\nby Washington or the Reserve Bank here and may initiate\nrecommendations or make requests of its own.\"\nIn the New York World Telegram, for September 5,\nit was stated that the committee had met and that \"it\nwill interest itself in such matters as ... foreign\nholdings of securities and trading on the various ex-\nchanges.\"\nOn September 5, I received a letter from Governor\nHarrison stating that I was correct in assuming that\nthe Committee did not intend in any way to trespass\non the jurisdiction of our Commission. He states that\nthe reason for the organization of the committee was\nto have avd lable a group through which the Federal\nReserve Bank of New York, \"as fiscal agent of the govern-\nment and otherwise,\" may obtain information or \"coopera-\ntive consideration\" in relation to matters affecting\n\"this market\" as they may arise. He assures the Com-\nmission that in whatever connection the committee may\nbe called upon, it will operate so that there vid. 11 be\nno suggestion of any conflict \"with the jurisdiction or\nfunctions\" of the SEC.\nRegraded Unclassified\n- 4 -\n63\nHe states that while the SEC was not \"directly\"\ninformed of the plan to organize the committee in ad-\nvance, nevertheless, he had assumed that I was aware\nof the general plan to form such a committee (1) be-\ncause of \"advance references to it in the press,\" and\n(2) because it was discussed in some detail at the\nseries of meetings held in Secretary Morgenthau's office\nlast April when the various departments of government,\nincluding SEC and the Federal Reserve System, outlined\nactions to be taken in the event of war.\nAs to those explanations: (1) I know of no reference\nin the press to the appointment of that committee be-\nfore it was organized. The first SEC knew of it was an\nannouncement in the press the day after it had been\norganized. (2) Neither I nor Mr. Purcell of the SEC\n(who was present with me at the meetings in April) have\nany recollection of any suggestion made in April that\nany such committee should be appointed.\nMr. Harrison's letter closes with the following\nstatement: \"I assume, of course, that you would have\nno objection to receiving suggestions or proposals from\nthis group, as you would from any other group, regard-\ning matters within the jurisdiction of the Commission,\nin the event that any such suggestions seemed wise or\nRegraded Unclassified\n84\n- 5 -\nappropriate.\" of course, the SEC will be glad to re-\nceive suggestions or prèposals from anybody. But, if\ncritical comments or suggestions of an unwise character\ncome from a committee which has been appointed with\nthe apparent approval of another department of govern-\nment, publicity given thereto will inevitably embarrass\nthe SEC.\nJerome N. Frank\nP.S. Since dictating the foregoing I have observed that\nin the New York Times for today there is a statement\nthat yesterday the \"general committee\" held a meeting\n\"under the Chairmanship of William C. Potter at the\nNew York Federal Reserve Bank. It heard reports but\ntook no action, as the situation appeared to be completely\nunder control.\" That would make it sppear that the\n\"general committee\" is acting as part of the mechanism\nof the Federal Reserve Bank of New York and that it is\nprepared \"to take action\" if the situation requires.\nJ.N.F.\nSeptember 1, 1950\nPersonal\nTovernor deorge Harrison,\nyou York Federal Reserve Bank,\nNew York, New York.\nDear Governor Harrison:\nAt the suggestion of the Commission, this letter\n1a written to confirm my uniorstanding of our telephone\nconversation of yeaterday as reported by me to the\nCommission: You explained thut the so-called \"general\ncommittee\" appointed by you (of which this Commission\nIcriew nothing except what It learned from newspaper\naccounts yesterday) had been erroneously pictured in\ntire press no one which would make findings and proposels\nto the government with respect to \"the security market.\"\nYou said it was not intended that alther that connittee\nor the foreign exchange committee, previously appointed\nby you, should, nor will they, consider, 17\" make pro-\nposals or findings which relate to, ubjects which are\n\" thin the juriafiction of this Commission, but will\nmeraly be a means by which, during the emergency, you\ncan promptly obtein Caroration 0.0 to current market\nconditions and promptly transmit such information to\nthe financial comunity. to angume that any aub-\ncommittees 874 to have similarly limited functions.\nSincerely yours,\nJHF : Law\nJarome N. Frank\nChairman\nRegraded Unclassified\n86\nFEDERAL RESERVE BANK\nOF NEW YORK\nSeptember 5, 1939\nHon. Jerome N. Frank, Chairman,\nSecurities and Exchange Commission\nWashington, D. C.\nDear Chairman Frank:\nI have received your personal letter of Septem-\nber 1 referring to our conversation on the telephone on\nAugust 31 concerning the committee recently set up at\nmy suggestion by the various groups included in its mem-\nbership.\nYou are quite right in assuming that this com-\nmittee does not intend in any way to trespass upon the\njurisdiction of. the Securities and Exchange Commission.\nAs I advised you on the telephone, the reason for the\norganization of the committee is to have available a\ngroup, representative of the principal financial in-\nterests in this market, through which this bank in its\ncapacity as fiscal agent of the Government or otherwise\nmay promptly obtain information or cooperative considera-\ntion in relation to important problems affecting this\nmarket as they may arise. Experience has demonstrated\nthe extreme difficulty of doing this without such a\nrepresentative committee of limited size.\n87\nHon. Jerome N. Frank,\nSept. 5, 1339\nWhile your Commission was not directly in-\nformed of the plan to organize this committee in ad-\nvance, nevertheless, I had assumed that you were aware\nof the general plan to form such a committee because of\nadvance references to It in the press and because it\nwas discussed in some detail at the series of meetings\nheld in Secretary Morgenthau's office last April when\nthe verious departments of the Government, including\nthe Securities and Exchange Commission and the Federal\nlleserve System, outlined actions to be taken in the event\nof war.\nI can assure you and your colleagues that there\nwas no thought that the organization of this committee\nwould in any way conflict with the jurisdiction or fune-\ntions of the Securities and Exchange Commission, and I\nam sure that in whatever connection the committee may\nbe called upon it will operate so that there will be no\nsuggestion of any such conflict. I assume, of course,\nthat you would have no objection to receiving suggestions\nor proposals from this group, as you would from any other\ngroup, regarding matters within the jurisdiction of tie\nCommission, In the event that any such suggestions seemed\nwise or appropriate.\nFaithfully yours,\n/s/ George L. Harrison\nGeorge L. Harrison,\nPresident.\nRegraded Unclassified\nTREASURY DEPARTMENT\n88\nINTER OFFICE COMMUNICATION\nDATE September 7, 1939.\nTO\nSecretary Morgenthau\nFROM\nMr. Gaston\nSub\nMrs. Klotz asked me this afternoon to report to you on your\nroturn from the Cabinet whether the Coast Guard had any system of compiling\ninformation on ship movements. No such information has been compiled\nexcept on special occasions for special purposes. However, pursuant to\nhis conversation with you yesterday and with me after he had talked to\nyou, Admiral Waesche has done the following: He has drafted radio\nmessages to be sent to all light ships near important harbor entrances\nto observe and report to headquarters all ship movements visible from\nthe light ships. He has also given instructions to New York to set\nup in the District Commander's Office a special Office of Ship Movements,\nwhich is to compile 8. complete record of all ship movements into, out of,\nand within the harbor. With the experience gained at New York he plans\nto set up similar offices in all principal ports. Vital information\nrespecting ship movements will be sent to headquarters.\n89\nSeptember 7. 1939.\nAdmiral Richard Evelyn Byrd,\n9 Brimmer Street,\nBoston, Masachusetts,\nMy dear Admiral Byrd.\nOn behalf of Secretary Morgenthau I en writing to\nexpress our appreciation of the generaus attitude you have\ntaken with respect to the retention of the Coast Guard\nCutter NORTHLAND for use in your Antarotic Expedition to\nstart next month.\nMr. Bugh Cumming, Jr., of the state Department,\nreported to - his telephone conversation with you after\nI had naked him to find out whether the expedition could\ngo ahead without the use of the NORTHLAND, Be reported\nthat you told him that while you would regret greatly\nlosing the services of the Coast Guard ship, yet you were\nquite willing to yield to the President's judgment as to\nthe need of the ship for other purposes and that you could\nrevise your plane 80 as to get along with the two remaining\nships.\nThe mtter at this moment has not been finally de-\neided, but I thought I should write you in any event to\ntell you how grateful - are for your self-saorificing\nattitude with respect to plane that mean no much to you\nand promise to yield so such of good to the nation,\nÀs you undoubtedly know, two of our large outters\nhave been pressed into the North Atlantic patrol service\nand we are recalling three others from the Pacific Coast\nfor use in eastern seaboard mators. The NORTHLAND would be\nextremely valuable to us in the Pacific as soon AS she\ncould got around there.\nYours very truly,\nBerbert E. Gaston\nresistent Secretary.\n100.00\nRegraded Unclassified\n90\nSeptember 7. 1939.\nMEMORANDUM\nTO: Secretary Morgenthau\nFROM: Mr. Gaston\nWS\nSUBJECT: Antarctic expedition.\nThe Byrd antarotic expedition, to sail late in October,\nplanned to utilize three vessels, the Coast Guard Cutter NORTHLAND,\nbuilt for marctic service, the Department of Interior ship NORTH\nSTAR and the former Coast Guard Cutter BEAR, now known as the BEAR\nOF OAKLAND.\nThe NORTH STAR is a wooden vessel, with little room for personnel\nbut large cargo space; the NORTHLAND has good accomodations for per-\nsonnel but little cargo space; the BEAR OF OAKLAND is a smaller vessel\nand quite old but it is understood that at Navy Board recently passed\nupon her and found her seaworthy.\nThe expedition's plan was to establish two bases, one at Graham\nland, a. part of the antarctic continent immediately south of South\nAmerica, and the other at Little America, which, I believe, is in the\nAustralian sector. The plan was for two edpeditions to set out toward\neach other to draw a line between these bases cutting off 8 sector\nas American territory. Plans for the expedition have been largely in\nthe hands of Richard Black, a member of the former Byrd expeditions,\nwho is in the Interior Department under Dr. Gruening's Division of\nTerritories and Island Possessions, and Hugh Cumming, Jr., of the State\nDepartment, son of the former Surgeon General. Commander Rose, Chief\nof Operations in the Coast Guard, has worked on the Coast Guard end\nof it. It is Commander Rose's opinion that elimination of one of\nthe two bases would defeat the principal objective of the expedition,\nwhich was to delimit this sector of territory.\nMr. Cumming tells me that since hearing yesterday of the possi-\nbility that the NORTHLAND might be withdrawn they had been considering\nreadaptation of their plans. He thinks it highly important that the\nexpedition should go forward even though they do not have the services\nof the NORTHLAND.\n91\n- 2 -\nMr. Cumming called his associates in Washington and also\ncalled Admiral Byrd over the long distance telephone in Boston.\nAdmiral Byrd said he hated to give up the NORTHLAND but in view of\nthe National necessity he would do ao cheerfully. He said the\nexpedition could go forward and attain satisfactory results with\nthe remaining two vessels. He would still go ahead with the plan\nof establishing two bases but with somewhat restricted personnel\nand equipment, notably they would have to reduce the mumber of\nplanes. The two bases, however, would still be provisioned for\ntwo years. As to the President's suggestion for eliminating one\nbase, he said they could still accomplish some worthwhile results\nwith a single base, but he didn't think that would be necessary.\nTREASURY DEPARTMENT\n92\nINTER OFFICE COMMUNICATION\nDATE September 7, 1939\nTO\nSecretary Morgenthau\nFROM W. H. Hadley\nTREASURY PURCHASES\nOnly one issue, the H.O.L.C. 1-1/25, showed a gain on yesterday's\naverage purchase price at the close today. The four longest Treasury bonds\nclosed about unchanged from yesterday's close, and 80 were about a half point\nunder the average purchase price of yesterday. Yesterday's purchases were\nmade on a declining price range of one point so that the average purchase\nprice is in the neighborhood of 1/2 point above today's and yesterday's closes.\nThe following table shows the high, low and average purchase price\nfor yesterday of the issues which the Treasury and the H.O.L.C. took,\nTreasury Purchases Sept, 6 (19,412,375)\nPurchase Price\nToday's\nIssue\nAmount\nHigh\nLow\nAverage\nClose\n1955-60's\n7,016,000\n104.16\n103.16\n104.0\n103.16\n1956-59's\n1,611,000\n103,8\n102,8\n102.24\n102.8\n1958-63's\n2,290,000\n102.30\n101.30\n102.14\n101.30\n1960-65's\n5,877,000\n102.27\n101.27\n102.19\n101.30\nHOLC 1-1/2's\n2,618,375\n98.20\n98,4\n98.12\n98.24*\nGain of 12/32nds for a dollar increase of $9800 over the purchase price.\noriginal 9-11-39 to Bell\n93\nSeptember 8, 1939.\nMEMORANDUM\nTO: Secretary Morgenthau\nFROM: Mr. Gaston\nAfter consulting with Mr. Hanes I approved today as Acting\nSecretary a letter to the Budget by Admiral Waesche requesting\npermission to incur a deficiency on a group of Coast Guard appro-\npriations made necessary by the recruitmentof a thousand additional\nmen and the other expenses we are assuming because of the transfer\nof ships, increase of equipment, etc. During the day I learned\nthat the President had signed Executive Orders authorizing Army and\nNavy to exceed their appropriations. I discussed the matter with\nEd Foley and be thought it would be helpful if we got a similar\nExecutive Order for the Coast Guard that you could ask the President\nto sign on Monday. He is preparing such an order.\nRegraded Unclassified\nsc(e)\nFEDERAL RESERVE BANK\nOF NEW YORK\n94\nOFFICE CORRESPONDENCE\nDATE September 8, 1939.\nCONFIDENTIAL FILES\nSUBJECT\nTELEPHONE CONVERSATION WITH\nL. W. Knoke\nBANK OF ENGLAND.\nI called Mr. Bolton at 10:35 a.m. I reminded him of my\nprevious request that he send us copies of all decrees, regulations,\netc., issued, if possible by Clipper, and explained the difficulties\nthis market was up against in the absence of any authentic informa-\ntion. Bolton replied that copies of everything so far printed had\nbeen sent to us; if it had gone out by boat he would see to it that\nadditional copies were sent by airmail.\nI referred to the regulation supposedly just issued in\nLondon dealing with the financing in sterling of the movement of\ngoods between other than British Empire points. The regulation was\nFE7, Bolton replied, and was giving the accepting houses various\ninstructions regarding the opening of credits. Any documentary\ncredit which covered the movement of goods in or out of the country\nor between any points of the British Empire could be maintained.\nThe only credits which were under supervision were credits covering,\nfor instance, shipments between Amsterdam and New York, that 1s,\nbetween two foreign ports. He would have the document cabled to us\nverbatim, he promised.\n03V1303R\nLWK:KW \"\necer e, crs\n1 FEWAL 1 i 1\nRegraded Unclassified\nPARAPHRASE OF SECTION ONE OF TELEGRAM NO. 1851,\n95\nSEPTEMBER 8, 5 p.m., FROM THE AMERICAN EMBASSY,\nPARIS, FRANCE.\nMr. Pierson, the President of the Export-Import Bank,\nvisited Mr. Fain, Secretary General of the French Govern-\nment Export Credit Insurance System; that institution\ncorresponds somewhat to the Export-Import Bank. The\nSecretary General said that Reynaud is anxious for him (Fain)\nto expand operations as much as possible, in view of his\nneed for all possible foreign exchange. Fain added that\nhis institution would urge all exporters to endeavor to\nincrease their exports to Latin America and also, for\nthe present, to Scandinavian nations. But his personal\nbelief was that the Scandinavian countries would be in-\nvolved in the war on France's side before very long.\nThe French Government Export Credit Insurance System\ngrew up primarily because of -omission- opposition\nto outright loans to foreign governments and public en-\ntities, and it accomplished the same purpose without\nopposition from the public. However, Fain feels that\nthe French Treasury will be holding the same bag in the end.\nBULLITT\nEA:M8G\nS6\nVM\nGRAY\nPeris\nDated SEptember 8, 1939\nRec'd 7:50 p.m.\nSecretary of State\nWashington,\n1851, September 8, 5 p.m. (SECTION TWO).\nThe foreign Exchange market WAS a little broader\ntoday in trading between banks limited however to com-\nmcroial needs. SELLERS of foreign currency, however,\nare still rare and the control continues to give no\nexchange EXCEPT for carefully investigated merchandise\nimports. This policy is apparently beginning to arouse a\nlittle anxisty in other continental centers, such as\nSwitzerland. The Bank of France quoted e buying rate of\n176.50 this afternoon for sterling and 43.75 for dollars.\nThe belga was 7471 and the florin 2320 and the Swiss franc\n982. Securities quotations WETE again largely nominel\nbut some rentes issues and French utility and industrial\nstocks improved over yesterday's close. Foreign securi-\nties such as Royal Dutch and Rio Tinto continued to gain.\n(END OF MESSAGE).\nBULLITT\nPEG\nSeptember 8, 1939\n27\nTo:\nThe Secretary\nFrom:\nMr. Hanes\nDrew Pearson called me on the telephone this afternoon about\nfour o'clock and read B. statement which he said had been written\nby his partner, Bob Allen, about as follows: \"One day just before\nsailing from Bergen, the Secretary of the Treasury, Henry Morgenthau, Jr.,\nsent & cablegram to John Hanes, Under Secretary of the Treasury,\nasking Hanes what the public opinion was concerning his using a\nGovernment Coast Guard cutter for his return trip home.\"\nDrew said that he hated to see this item published unless it\nwere true and would I care to discuss it with him. I told him that\nI certainly would like to discuss it with him - that the statement\nwas grosely false and without foundation of fact whatsoever, that\nno such cablegram had ever been sent, and that if he printed it I\nfelt that it would be the grossest injustice that he could possibly\ndo to the Secretary. I stated further that the Secretary was\nsolicitous about leaving Bergen if other Americans there were stranded\nand in accordance with this wish not to leave when others were in\ndistress, the Secretary had gone to the American Consul to ascertain\nwhether there was anyone within his knowledge who could not obtain\npassage. The Secretary was assured that there were adequate\naccommodations for everyone from Norway to America. I told him further\nthat the steamship, Bergenefjord, had just arrived in New York today\nwith available space for from 50 to 100 more passengers.\nAlthough Drew did not tell me he would not print it, I would\nassume after this statement that he will not. This is for your\ninformation only.\nJwH\nRegraded Unclassified\nSECURITIES AND EXCHANGE COMMISSION\nWASHINGTON\nSB\nTHE OF THE CHAIRMAN\nSeptember 8, 1939\nCONFIDENTIAL\nThe Honorable\nHenry Morgenthau, Jr.\nSecretary of the Treasury\nWashington, D. C.\nDear Henry:\nI enclose & draft of a proposed letter from me to\nGovernor Harrisch which has been approved by the Commis-\nsion. As I told you on the phone yesterday, I wanted\nyou to see it before it was sent.\nWhat particularly bothers us about Harrison's letter\nto me of September 5 (a copy of which is attached) is the\nlast paragraph. As you will note from the attached draft\nof proposed letter to him, it is, of course, our position\nthat any citizens have a right to say anything they want\nto the SEC or to anyone else about matters under our juris-\ndiction and, ordinarily, to publish such comments. But\nwe do not think that that general rule 1a applicable to\nHarrison's committees. The discussion in your office on\nApril 13, and Harrison's letter of September 5, and press\naccounts concerning the activities of the committees, all\nshow that they are acting, at least indirectly, 8.8 advisers\nto the Treasury, and perhaps to the Federal Reserve Board,\nand were appointed with the approval of the Treasury and\nthe Federal Reserve Board.\nThose committees, therefore, occupy & quasi-govern-\nmental status, and, accordingly, public comments by them,\nas to matters within our jurisdiction, would be given EL\nsignificance and weight which they would not otherwise\nhave. /Suppose, for instance, that Jack Viner or Earl\nBaillie, while occupying their present poste, were to pub-\nlish some comments about the SEC/. As I point out in the\nattached draft of letter, if the Treasury or the Federal\nReserve ever had any suggestions or comments about matters\nwithin our jurisdiction, they would make them to us in\nconfidence and would not think of publishing them. It\nRegraded Unclassified\n- 2 -\nseema to us that Harrison's committees, being advisory\nto, and having been appointed with the approval of, the\nTreasury and the Federal Reserve should act in like manner.\nThat point becomes the more pertinent in the light\nof an item appearing in this morning's Wall Street Journal\nto the effect that \"The Foreign Exchange Committee announced\nthat it is recommended to the market, because of delays in\ncable transmission, that on and after September 11, ster-\nling be dealt in this market on the basis of payment here\nand in Great Britain on the second New York business day\nafter the trade is made.\" In other words, the Foreign Ex-\nchange Committee is making public announcements on foreign\nexchange matters. Public announcements concerning such\nmatters are no business of the SEC; and it may well be that\nthe Treasury wants the Foreign Exchange Committee to make\nsuch announcements. The point is that either that committee,\nor, more particularly, the so-called general committee ap-\npointed by Harrison, may make public comments or suggestions\non subjects which are within our jurisdiction and publicly\nannounce those comments. Having in mind that the so-called\ngeneral committee is composed of persons, several of whom\nhave already publicly urged substantial modifications of\nthe SEC statutes and regulations, we are fearful that,\nunless Mr. Harrison promptly advises the committees that\nthey are not to publish any views on matters within our\njurisdiction, we may, in the next few days, find adverse\ncomments on the SEC publicly made by a committee which is\nknown to have the blessing and to be A sort of an adjunct\nof the Treasury.\nAs indicated in my attached draft of letter to Ear-\nrison, in appointing the general committee, be went con-\nsiderably beyond the scope of action indicated in his dis-\ncussion in the conference on April 13; for there he re-\nferred to \"a bankers' committee,\" whereas the \"general\ncommittee\" consists not only of five bankers but of 8.\nrepresentative of investment bankers, the President of the\nNew York Stock Exchange, and Mr. Folter as representative\nof the insurance companies.\n/In passing it should be noted that Mr.\nEcker's company is now under examination by the\nso-called Monopoly Committee; it would certainly\nbe most unfortunate if Mr. Harrison's general\ncommittee, appearing to have the blessing of the\nRegraded Unclassified\n. 3 -\n100\nTreasury Department, were to sound off publicly\nwith adverse comments concerning that investiga-\ntion of insurance companies, an investigation\nwhich the President expressly urged in his mes-\nsage to Congress which led to the creation of\nthe Monopoly Committee and in which he has several\ntimes, since then, in private, expressed peculiar\ninterest.]\nFor the foregoing reasons, I think it most important\nfor me to answer Mr. Harrison's letter promptly instead of\nwaiting until you and he and I can have a conference some-\ntime next week; for in the interval one or the other of\nhis committees might give out some damaging publicity.\nI would be obliged, therefore, to receive your com-\nments on the attached draft of letter at your early con-\nvenience.\nYours sincerely,\nJernne Jerome N. Frank\nEnclosure.\nDRAFT\n101\nSeptember 8, 1939\nGovernor George Harrison\nNew York Federal Reserve Bank,\nNew York, New York.\nDear Governor Harrison:\nThank you for your letter of September 5. I was\npleased to learn from Secretary Morgenthau that he has\narranged with you that, in the near future, you and he\nand I will get together for & chat. Meanwhile, the\nCommission thinks it desirable that I should make the\nfollowing comments on your letter:\nResponsive to the last sentence of that letter, I\nwant to say, most emphatically, that this Commission,\ncomposed as it is of public servants, can have and has\nno possible objection to receiving, for its considers-\ntion, from any citizen or group or committee of citizens,\nsuggestions or proposals regarding matters within the\njurisdiction of this Commission, and, ordinarily and as\na general rule, can have and has no objection to the\npublication of any such proposals or suggestions.\nI think it appropriate, however, to point out, and\ndoubtless you will agree, that such proposals or suggestions,\nregarding matters within the jurisdiction of this Commission,\nif made by the committees recently appointed by you, have a\nquite different status, because of the circumstances under,\nand the purposes for, which these committees were appointed;\n2\n102\n50 that proposals or suggestions from them are not within\nthat general rule. I have in mind the following:\nIn your letter you state that the plan of appointing\nsuch committees \"was discussed in some detail at the\nseries of meetings held in Secretary Morgenthau's office\nlast April when the various departments of the Government,\nincluding the Securities and Exchange Commission and the\nFederal Reserve System, outlined actions to be taken in the\nevent of war.\"\nIt 80 happens that there were no representatives of the\nSEC present at any such discussions concerning the appoint-\nment of such committees. Secretary Morgenthau has just sent\nme a copy of the transcript of the sole conference at his\noffice at which that subject was considered. It occurred on\nApril 13 when there were present only representatives of the\nTreasury and the Federal Reserve Board. The transcript shows\nthat there was then discussed, to quote the words you then\nused, \"a bankers' committee to which I might go in any hurry,\nupon any matter dealing with credit, loans, foreign exchange,\ngold, or anything else that the Treasury might want us to do\",\nand that such a committee should be in the nature of an\n\"advisory committee\". And until receipt of your letter of\nSeptember 5, this Commission had never been informed of that\n2\n3\n103\ndiscussion of that subject. It follows that those\ncommittees were not appointed with the approval or con-\ncurrence of the SEC.\nYour remarks at the April 13 conference, quoted above,\nalso show that it was not contemplated that there be\nincluded in the acope of the activities of any such bankers'\ncommittee any suggestions or proposals or other action\nconcerning matters affecting the \"securities markets\", or\nany other matters within the jurisdiction of the SEC,\nexcepting insofar as they might come within the clause\n\"anything else that the Treasury might want us to do.\"\nAccordingly, it would seem that, when the Treasury and the\nFederal Reserve Board concurred in the suggestion of the\nappointment of such 8. committee they did not contemplate\nthat such committee would make proposals or suggestions with\nregard to matters within our jurisdiction -- except at the\nrequest of the Treasury.\nEven more to the point 1s the fact that the discussion\nat the April 13 conference and your letter of September 5\nshow that those committees were appointed pursuant to\nthose discussions to act (through your bank, \"in its capacity\n8.8 fiscal agent of the government\") in advising the Treasury,\nand perhaps the Federal Reserve Board. It 18 clear, there-\nRegraded Unclassified\n104\nfore, that the committees are not merely groups of private\ncitizens formed on their own initiative, but, with the con-\ncurrence of the Treasury and Federal Reserve Board, are to\nact in a quasi-governmental capacity as advisers to those\ngovernment departments.\nNow, as you know, it 18 a well settled and proper\npractice that, if any department or agency of the federal\ngovernment, such as the Treasury or the Federal Reserve Board,\nat any time has any proposals or suggestions regarding the\nmatters within our jurisdiction, they transmit them to us in\nconfidence and do not give them any publicity. Inasmuch,\ntherefore, as the committees which were appointed by you are\nto act, through you, as adviser to the Treasury, and perhaps\nto the Federal Reserve Board, I assume that with respect to\nproposals or suggestions regarding matters within our juris-\ndiction, those committees will act similarly. In other words,\nI assume that you will promptly advise such committees BO that\nthey will either, directly, or through you, transmit suggestions\nor proposals, if any, relating to matters within our jurisdiction,\nin confidence and without any publicity, to the Treasury or the\nFederal Reserve Board, leaving it to those governmental agencies\nto transmit those suggestions or proposals to the SEC, in\nconfidence, aa they may see fit; and that no publicity\nRegraded Unclassified\n5\n105\nwhatsoever will be given by you or the committees to any\nsuch suggestions or proposals except with the prior\napproval of this Commission.\nSincerely yours,\nJerome N. Frank\nChairman\nlaster Name\nFEDERAL RESERVE BANK\nOF NEW YORK\nCopy\n_06\nSeptember 5, 1939\nHon. Jerome N. Frank, Chairman,\nSecurities and Exchange Commission\nWashington, D. C.\nDear Chairman Frank:\nI have received your personal letter of Septem-\nber 1 referring to our conversation on the telephone on\nAugust 31 concerning the committee recently set up at\nmy suggestion by the various groups included in its nam-\nbership.\nYou are quite right in assuming that this com-\nmittee does not intend in any way to trespass upon the\njurisdiction of the Securities and Exchange Commission.\nAs I advised you on the telephone, the reason for the\norganization of the committee is to have available &\ngroup, representative of the principal financial in-\nperests in this market, through which this bank in its\ncapacity as fiscal agent of the Government or otherwise\nmay promptly obtain information or cooperative considers-\ntion in relation to important problems affecting this\nmarket 0.8 they may arise. Experience has demonstrated\nthe extreme difficulty of doing this without such a\nrepresentative committee of limited size.\nRegraded Unclassified\n_07\n=\nHon. Jerome N. Frank,\nSept. 5, 1039\nWhile your Commission was not directly in-\nformed of the plan to organize this committee in ad-\nvance, nevertheless, I had assumed that you were aware\nof the general plan to form such a committee because of\nadvance references to it in the press and because it\nwas discussed in some detail at the series of meetings\nheld in Secretary Morgenthau's office last April when\nthe various departments of the Government, including\nthe Securities and Exchange Commission and the Federal\nReserve System, outlined actions to be taken in the event\nof war.\nI can assure you and your colleagues that there\nwas no thought that the organisation of this committee\nwould in any way conflict with the jurisdiction or func-\ntions of the Securities and Exchange Commission, and I\nan sure that in whatever connection the committee may\nbe called upon it will operate 60 that there will be no\nsuggestion of any such conflict. I assume, of course,\nthat you would have no objection to receiving suggestions\nor proposals from this group, as you would from any other\ngroup, regarding matters within the jurisdiction of the\nCommission, in the event that any such suggestions seemed\nwise or appropriate.\nFaithfully yours,\n/s/ George L. Harrison\nGeorge L. Harrison,\nPresident.\nRegraded Unclassified\nBK210\nTREASURY department\n108\nPROCUREMENT DIVISION\nOFFICE OF THE DIRECTOR\nWASHINGTON\nSeptember 8, 1939.\n100 dear Mr. Secretary:\nPlease find attached nemoranda on manganese, tungsten, chro-\nmite, hemp and optical glass.\nIn conversation with Mr. Veatch of the State Department this\nafternoon he informed me that the negotiations being carried\non by the American Ambassador with the appropriate British\ngovernment officials will unquestionably result in increasing\nthe quota of tin allowed this country, making such quota ret-\nroactive to the first of July, which will have the effect of\nmeeting all prospective demands of this commodity. He further\nstated that the price of tin has been fixed at L230 per ton.\nThis figure compares favorably with the 229-7/8 per ton for\nspot delivery on August 31st.\nConcerning quinine, the American Minister at The Hague has\nrequested additional information to be presented to the Dutch\nSyndicate, and it was indicated that these negotiations might\nbe favorably terminated at a very reasonable price per ounce.\nVery Green respectfully,\nHonorable Henry Morgenthau, Jr.,\nFishkill,\nNew York.\n_09\nMANGANESE\nSOURCES OF SUPPLY\nThe Inion of Soviet Socialist Republics is the world's largest producer\nof the ferro crade manganese. British India, the Inion of South Africa,\nNo loid Coast, Brazil and Cuba, In the order named, are the other prin-\ncign2 producing countries. Manganese less suited for metallargical\nis produced in a number of other countries. Durine the first\n*** months of 1939 35,000 tons of Serro grade manganese were imported\nPine the Cold Coast, 34,000 tons from the U.S.S.R., 20,000 tens from\nCibs, 12,000 tons from Pritish India, and 3,000 tons from Frasil.\nIn comparison with world production the Serro grade manganese ore is\nin the United States only to EL scall extent. By far the roater\nun of the donsatic consumption is dependent upon foreign imports.\nentana, Arkansas, Tennessee, liest Virginia, Virginia, New Mexico and\nmeda are the principal producing states.\nCONTROL\nThe clanned production of manganese in the U.S.S.R. is under the control\nof the government.\nThe production of manganess in Pritish India is regulated by British\narivate enterprise.\nTM Tracil, Cuba and the Union of South Africa the production of manganese\nis controlled by American private enterprise. A certain amount of pro-\ndivetion on the cold Coast is controlled by American capital.\nUSES\nPerrograde is indispensable in the manufacture of steel for two\nRegraded Unclassified\n110\n-2-\nreasons; first, as a dioxidizing or purifying agent in all steel manu-\nfacture, and second, as an alloying element in the manufacture of special\npurpose steels.\nDomestic consumption in 1937 for metallurgical purposes was 770,496 tons\nof which only 26,419 tons were shipped from mines in the United States.\nThe principal sources of imports were Russia, Gold Coast and Cuba, which\nsources accounted for approximately 90% of the total imports. There is\nno substitute for manganese.\n$2,500,000 has been allocated for the purchase of manganese which it is\nplanned to store at the Curtis Bay Ordnance Depot, Baltimore, Maryland,\nand at the Ogden Ordnance Depot, Ogden, Utah.\n111\nTINGSTEN\nSOURCES OF SUPPLY\nThe principal sources of supply of tungsten ore are China and British Malaya.\nTungsten ore is also produced in Argentina, Bolivia, Mexico and Peru, but\nthe combined output of the western hemisphere is not sufficient to meet\ndonestic consumption in the United States. Tungsten ores are also obtained\nfrom Arizona, California, Colorado, Idaho, issouri, Nontana, Nevada,\nNew Mexico, South Dakota, Utah and Washington. The protection afforded\ndomestic producers by the tariff has lept the industry alive and pentitted\nthe production of 3,500 short tons of ore in 1937, as compared to the im-\ncortation of 9,350 short tons of foreign ores.\nCONTROL\nThe production of tunrsten ore in the countries mentioned as sources of\nsupply is under the government control of each.\nUSES\nThe principal use of this material is in the manufacture of special alloy\nsteels, the most important of these being high-speed tool steels used for\ncutting operations. Other tungsten alloy steels are used in the produc-\ntion of a wide range of industrial products and military equipment such as\nprojectiles, ordnance and armor plate.\n500,000 has been allocated for the purchase of tungsten which will be\nstored in the Columbus General Depot, Columbus, Ohio.\nCHROMITE\n112\nSOURCES OF SUPPLY\nThe principal sources of supply of chromite are South Africa, Cuba, New\nCaladonia and the Philippine Islands. Approximately 50% of the foreign\nore incorted came from South Africa. Chromite is mined domestically in\nNevada, California and Oregon but in relatively small quantities. The\ndomestic consumption in 1937 was 556,237 tons of which only 2,321 tons\ncame from domestic mines.\nCONTROL\nPractically all of the nines operated in the foreign countries indicated\nabove are under government control.\nUSES\nChromite is used in the manufacture of ferro-alloys, chemicals\nand refractories. Its principal use is in the manufacture of numerous\nalloy steels designed for specific purposes, both civilian and military.\nIn many of its uses there is no substitute for chromite,\n$1,100,000 has been allocated for the purchase of chromite which will be\nstored in the Ogden Ordnance Depot, Ogden, Utah, and the llew Cumberland\nGeneral Depot, New Cumberland, Pennsylvania.\n113\nMANILA FIBER\nSOURCE OF SUPPLY\nThe Philippine Islands is the only source of supply as it is the only\ncountry in the world that produces manila fiber.\nCONTROL\nThere is no governmental control other than the commercial grading of\nmanila fiber in the Philippine Islands. The sale and marketing of this\ncommodity is controlled by a dozen or more of private companies, and it\nis sold in the open market under grades established by the Insular Cov-\nernment of the Philippine Islands.\nUSES\nManila fiber is used in the manufacture of high grade rope and cordage,\nsuch as marine rope, transmission rope, rope used for construction pur-\nposes and hard fiber twine.\n$320,000 has been allocated for the purchase of manila fiber which will\nbe stored at the Army Base, Boston, Massachusetts.\n14\nOPTICAL GLASS\nSOURCES OF SUPPLY\nfhere is no available information concerning the world production of\noptical plass. While Germany is probably the principal foreign source\nof this commodity, it is also produced in England and France. In the\nUnited States it is produced by the Bausch and Lomb Company of Rochester,\nNew York. The Pittsburgh Plate Glass Company and the Corning Glass Works\nare also potential sources of supply. In addition to these companies,\nthe Bureau of Standards is presently supplying practically all of the\noptical -lass used by the Navy in their manufacture of optical instruments.\nInquiry develops the fact that the output of the Bureau of Standards can\nbe sufficiently increased to provide the optical Plass required in the\nstrategic and critical material program in the event that it should be\nimpracticable to get it from one of the three comercial firms mentioned\nabove.\nUSES\nOptical glass is used in the manufacture of microscopes, field glasses,\nrange finders, gun sights, periscopes, aiming circles, photographic\nlenses and other optical instruments.\n480,000 has been allocated for the purchase of optical glass which will\nbe stored at the Fairfield Ceneral Depot, Pairfield, Chio, and the\nWashington llavy Yard, Washington, D.C.\nRegraded Unclassified\n15\nSECRET\n8 September, 1959.\nTo:\nThe Secretary of the Treasury.\nFrom:\nC. O. Dunbar, Collector of Customs,\nSan Francisco, California.\nRefer Department wire 5th instant regarding European\npassports. Orders have been issued by the American Presidents\nLine prohibiting visitors going on board their vessels on sailing\ndays in order that a better check of passenger passports might be\nhad in connection with a representative of the State Department.\nLocal passport agency contacted steemship line prior to our doing\nBO upon receipt of wire from Chief of Passport Division. It was im-\nplied by company draft that this change was being made upon suggestion\nof Customs and State Departments. While we did suggest considering such\naction the company apparently did not consider it favorably at that time.\nDoes the Secretary perceive any objection to prohibiting visitors aboard\non sailing days vessels operated by Seatem Navigation Company, American\nPresidents Line and llippon Tusen Keisha.\nSECRET\nRegraded Unclassified\n- -\n116\nTHE SECRETARY OF COMMERCE\n«\nx\nWASHINGTON\nSTATES of\nSeptember 8, 1939.\nMy dear Mr. Secretary:\nIn response to your request of September 7th I\nam directing Mr. James W. Young, Director of the\nBureau of Foreign & Domestic Commerce, Department\nof Commerce, to serve as our representative on\nthe committee which is to advise with your\nDepartment in connection with the administration\nof the executive regulation of September 6, 1939,\nconcerning credits to belligerents.\nVery truly yours,\nEdwardpresse Edward J. Noble,\nActing Secretary of Commerce.\nThe Honorable,\nThe Secretary of the Treasury,\nWashington, D. C.\n117\n-\nTHE SECRETARY OF COMMERCE\nall\nin\nS (1 STATE C AMERICAN\nWASHINGTON\n3.2.20\nSeptember 8, 1939.\nMy dear Mr, Secretary:\nIn response to your request of September 7th I\nan directing Mr. James N. Young, Director of the\nBureau of Foreign & Domestic Commerce, Department\nof Commerce, to serve as our representative on\nthe committee which is to advise with your\nDepartment in connection with the administration\nof the executive regulation of September 6, 1939,\nconcerning credits to belligerents.\nVery truly yours,\nEdward J. Moble\nEdward J. Noble,\nActing Secretary of Commerce.\nThe Honorable,\nThe Secretary of the Treasury,\nWashington, D. C.\nRegraded Unclassified\n118\nSeptember 8, 1939\nBy phone this afternoon, the Secretary told\nMr. McReynolds that in connection with arranging to seal\nradios in German vessels in our ports, it had occurred\nto him that that precaution was rather futile 80 long\nas these amateur radios were livensed to broadcast a\ncouple of hours every night and were able to put anything\non the air they chose and Mr. McReynolds, at the Secre-\ntary's suggestion, through the General Counsel's Office,\ncommunicated with the General Counsel of Communications\nCommission calling their attention to this situation and\nsuggesting a careful review of amateur licenses.\nB*210\n19\nSeptember 8, 1939\nFOR THE SECRETARY:\nSecretary Edison's aide has said that\nMr. Edison has no objection to putting out a press\nrelease on the arrangement with the steel companies.\nI have drafted and submitted to him -- and to\nMr. Hanes and Mr. Foley -- the attached suggested\npress release.\nAs you will see from the draft, the steel\ncompanies have not yet accepted the agreement.\nI am not sure that Secretary Edison, or his aide,\n1s aware of this fact, or that you knew it when you\nsuggested a press release.\nAttachment\nESD\n120\nTo assist the Navy in the execution of its ship building\nprogram, Secretary Morgenthau, exercising authority given him in\nsection 3760 of the Internal Revenue Code, has offered to sign a\nclosing agreement with three steel companies which supply armor\nplate for naval vossels,\nIn order to furnish the Navy with armor plate rapidly enough\nto fill the Navy's needs, the three steel companies would have to\ninvest about $6 million in additional equipment. They were not\ninclined to do so, claiming that, whereas the equipment would be\nof little value to them except on naval work of this character,\nthey might not be given any allowance for the cost of the equipment\nwhen the work is completed and their profits are computed under the\nVinson-Tranmell Act. The Vinson-Tranmell Act limits profits on\nnaval ship building contracts to 10 percent of the contract price\nand charges the Bureau of Internal Revenue with enforcing the\nlimitation.\nThe following arrangement. has been worked out and offered\nto the steel companies:\nIf the companies 80 request and if the Navy certifies that\nthe request is technically justifiable, the Treasury will sign a\nclosing agreement with the companies under section 3760 of the\nInternal Revenue Code. The agreement would bind the Treasury to\n121\n- 2 -\nallow up to 50 percent of the cost of the machinery to be charged\noff when the companies' profits are computed under the Vinson-\nTranmell Act. The agreement would further bind the Treasury to\ninvestigate the condition of the machinery and the possible uses\nfor it at the time that the Navy contract is completed to determine\nwhether more than 50 percent of the cost of the special equipment\nshould be allowed as a deduction.\nThe steel companies have not yet informed the Navy whether\nthe proposed agreement is acceptable to them.\nThe general formula worked out in this instance is appli-\ncable to other contracts under the Vinson-Trammell Act, which\ncovers the construction of battleships and aircraft, although the\nexact terms would depend in each case upon the technical factors\nin that case. The Treasury, War and Navy departments each have\nspecial committees to handle matters under the Vinson-Trammell Act;\nthe three committees meet jointly to consider common problems.\nTREASURY DEPARTMENT\n122\nINTER OFFICE COMMUNICATION\nDATE September 8, 1939.\nTO\nSecretary Morgenthau\nFROM\nMr. Gaston\nWaesohe is proceeding right away to extend the system of\nreporting ships' movements by establishing an Office of Ship Movements\nin each of the principal ports. I have asked Pollio to cease confining\nhimself in his daily reports to German and Italian ships and to include\nin his report of ships in port all foreign ships and also to note\nimportant movements. His report will be built up as the information\nbegins to flow in from the new system of reporting.\nI had a meeting today with Irey, Gorman, Shamhart and Pollio\non coordination matters, Shamhart suggested that we ought to reestab-\nlish immediately the system of intensive patrol of the border including\nthe sea coast that we had in effect during the liquor and narcotic\ndrives. On the seacoast, notably in Florida, it involves a. system of\ncooperation between Coast Guard and Customs Control and more regular\nuse of automobile patrol by the Customs Control. I spoke to Basil\nHarris about it and he said that Johnson disagreed with Shamhart. In\nview of this I called B. meeting for this afternoon at which Harris,\n7. R. Johnson, Shamhart and Waesche were present. I presented the view\nthat NO ought to do a little more than necessary rather than 8. little\nless at this time. Johnson thinks that it will take Customs patrolmen\nfrom more essential work. Tie left it this way - that Maesche and\nShamhart will get out a report together as to just what it will involve\n123\n- 2 -\nin the way of Customs cooperation. Johnson thinke he ought to send\nsome men down to the Florida Coast to find out just what is being\ndone now as there is a difference as to facts between Shamhart and\nBallinger's Committee. I told Harris that in any event the Coast\nGuard would extend it 8 reporting service and do everything it could\nto observe surreptitious ship movements.\nSECURITIES AND EXCHANGE COMMISSION\n_24\nWASHINGTON\nTHE CHARMAN\nSeptember 8, 1939\nPERSONAL\nThe Honorable\nHenry Morgenthau, Jr.,\nSecretery of State.\nDear Henry:\nOn further reflection, I think that the letter to\nGovernor Harrison should be changed 80 that the lest\nparagraph will read 88 follows:\n\"Now, as you know, it is B. well settled and proper\npractice that, if any department or agency of the federal\ngovernment, such as the Treasury or the Federal Reserve\nBoard, at any time has any proposela or suggestions regard-\ning the matters within our jurisdiction, they transmit them\nto us in confidence and do not give them any publicity.\nInssmuch, therefore, as the committees which were appointed\nby you are to act, through you, as adviser to the Treasury,\nand perhaps to the Federal Reserve Board, and A8 the scope\nof their advisory activities, 88 described by you at the\nApril 13 conference, were not to include matters within\nthe jurisdiction of this Commission, except at the request\nof the Treasury, I assume that you will promptly make the\nfollowing clear to the committees: (1) Neither of those\ncommittees will make proposals or suggestions regarding\nmatters within our jurisdiction, except at the request of\nthe Treasury; (2) if the Treasury should request that\neither of those committees make suggestions or proposale\nas to matters within our jurisdiction, then (3) the\ncommittees will (either directly or through you) transmit\nthose suggestions or proposals to the Treasury or the\nFederal Reserve Board, in confidence, and without any\npublicity, leaving it (4) to the Treasury and the Federal\nReserve Board to transmit those suggestions or proposals\nto the SEC, in confidence, as they may see fit, 80 that no\npublicity whatever will ever be given by you or the\ncommittees to any such suggestions or propossls, except\nwith the prior approval of this Commission.\"\nRegraded Unclassified\nNo.2\n125\nMy purpose in making that change is this: I think\nthat in view of Mr. Harrison's statement at the April 13\nconference with you and the Federal Reserve Board\nrepresentatives, his committees should not make suggestions\nor proposals even to the Treasury or the Federal Reserve\nBoard, concerning matters within the jurisdiction of the\nSEC, except at your express request. If that is made\nentirely clear, I would then like to have it understood\nwith you that no one in the Treasury or Federal Reserve\nBoard will, without the prior approval of this Commission,\nssk either of Mr. Harrison's committees to make any\nsuggestions or proposals as to matters within our juris-\ndiction. My reason for taking that added precaution 18\nthe fear of adverse publicity, because of the facts stated\nin my earlier letter to you today and in the memoranda to\nthe President, copies of which I left with you the other\nday.\nFor the reasons stated in my earlier letter of today,\nI want to send my letter to Mr. Harrison tomorrow (Saturday),\nand would therefore be greatly obliged if you would phone\nme about this and my earlier letter, Saturday morning.\nSincerely yours,\nJenne Jerome N. Frank\nChairman\n2 CENTS 2\nUNITED\nSTATES\n3\n3 CENTS\n3 CENTS 3\n3 CENTS 3\nCOSTAGE\nSECURITIES AND EXCHANGE COMMISSION\nWASHINGTON, D. C.\nN\nSTATES\n25V1500\nPAR\nOFFICIAL BUSINESS\nCENT\n1\nSTATES\nSTATES\nSTATES\nDELIND\nCOUNT\nCRINNO\nRETURN AFTER FIVE DAYS\nSPECIAL DELIVERY\n17 12\n6/x SPECIAL DELIVERY\n2016\nThe Honorable\nPERSONAL AND\nHenry Morgenthau, DECREPART'S\nSecretary of State,\nV\nCONFIDENTIAL\nWashington, D. C.\nEXPIRATION\n126\nCJ\n03VI3038\n<<> STATE / -\nPLAIN\nLONDON\nDated September 8, 1939\nRec'd 12:40 Dame\nSecretary of State,\nWashington.\n1533, September 8, 6 p.m.\nFOR TREAS BY FROM BUTTERWORTH.\nOfficial exchange rates today WERE unchanged for\nNEW York, Anoterdem and Switzerland, Montreal 4.35-9,\nParis 176-7, Brunstla 23.67-97, Stockholm 16.85-17.02,\nand Oslo 17.67-84.\nThe Stock Exchange was EVEN more quiet today than\nyesterday. No indices of stock prices have appeared\nin the press this WEEK but EXCEPT for comper and ship-\nping shares which were strongly in demand, industrial\nsharsa are about or alightly above the level before the\nExchange closed last Friday. The minimum prices are\nstill being adhered to for gilt-sdged securities, and\nthere is c. little business being done atthese prices.\nToday's Treasury bill rate was 63,12s,6d. as com-\npared with 65,14s.3d. lest WEEK. Full details of the\nBank of England return mentioned in my No. 1516 of Septem-\nber 7, 9 Paille reveal gold holdings in 10BME Department\nat 6102 thousand.\nKENNEDY\nCSB\nRegraded Unclassified\nTREASURY DEPARTMENT\n127\nINTER OFFICE COMMUNICATION\nDATE September 8, 1939.\nTO\nSecretary Morgenthau\nFROM\nMr. Gaston\nas\nNorman R. Hamilton, publisher of the Portamouth, Virginia, Star,\nand former Congressman from the Norfolk district and former Collector of\nCustoms at Norfolk, called on me this morning at the suggestion of Steve\nEarly and General Watson, whom he had seen yesterday.\nHamilton, who WR.5 Collector of Customs at Norfolk in the Wilson\nAdministration, is a vigorous supporter of the President and therefore\npersona non grate to Byrd and Glass. He was defeated by their man Darden\nin 1934. He is interested in having a man who is reasonably friendly to\nthe Administration appointed Collector of Customs at Norfolk. A vacancy\nexists due to the death of Collector Truxton early this summer. Truxton\nhad been 111 for B. long time and the office has been very competently\nhandled by Vipond, the Assistant Collector, who was appointed by Hamilton\nduring his term as Collector.\nHamilton told no that & mn named James E. Heath has been recom-\nmended by Walter Moore, who, I believe, is the National Committeemen. Heath,\nHamilton tells no, is seventy years old and a sick man, and Hamilton tells\nme he is a protege of Glass. Hamilton himself would be willing to serve as\nCollector, with or without pay. He thinks, however, that if his name were\nsent up to the Senate Byrd and Glass would just hold the nomination up\nwithout confirmation.\n128\nSecretary Morgenthau\n- 2 -\nIn view of this situation Hamilton is recommending as 8.\ncandidate Ezra T. Summers of Norfolk, an insurance man, whom\nHamilton brought in with him. Summers is a vigorous, intelligent\nappearing fellow in his thirties and has good family connections,\nwhich are important in Virginia. Hamilton doubts that the Senators\nwould refuse confirmation to Summers.\nI told Mr. Hamilton that we would not be likely to advocate\nactively any candidate for the position, but would, no doubt, refuse\nto accept anyone who WB.S manifestly unfit for service at this time.\nCopy to Mr. Basil Harris\n100\nCOPY\n129\nTELEGRAM SENT\nWashington,\nSeptember 9, 1939\n11 a.m.\nAMERICAN CONSUL\nSYDNEY VIA MONTREAL\nPress reported August twenty-eight that Australian\nGovernment had established exchange control. Please\ncable details of this and any other developments affecting\nforeign trade.\nHULL (HS)\never\nTA:JHL:EWE\nSECURITIES AND EXCHANGE COMMISSION\nWASHINGTON\n120\nOFFICE - THE CHAIRMAN\nSeptember 9, 1939\nConfidential\nHonorable Henry Morgenthau, Jr.\nSecretary of the Treasury\nWashington, D. C.\nDear Henry:\nAs I told you on September 7, I wanted you to see\nmy reply to Harrison's September 5 letter before it was\nmailed, and, accordingly, I sent & draft of the same to\nyou in my first letter of yesterday, with a modification\nin my second letter of yesterday. (By inadvertence in\nsending that second letter, my secretary addressed you\nas the Secretary of State, but I hope you will forgive\nher and me.) Not hearing from you, I phoned your office\nthis morning and found that you had left the City on\nSeptember 8 and would not return until September 11,\nwhich doubtless explains why I did not hear from you.\nFor the reasons explained in my letters to you of\nyesterday, the Commission felt that it was imperative\nthat we should no longer delay in replying to Harrison,\nand therefore decided today that, even though you had\nnot had opportunity to read the proposed letter, it\nshould be sent today. I trust you will understand. I\nenclose a copy of the letter as sent.\nOur apprehensions were augmented by an editorial.\nin the Wall Street Journal for today, a copy of which I\nenclose. It lays the foundation for public comments by\nHarrison's committees on SEC activities, comments which\nwe feared would be forthooming in the very near future,\nin the absence of such & letter as I have written to\nhim.\nRepeating what I said in my second letter of yes-\nterday, I hope matters can be so arranged that, if\nHarrison agrees with my understanding of the situation\n131\n- 2 -\n8.8 explained in my letter, no one in the Treasury or\nthe Federal Reserve Board will, without our prior\napproval, ask either of Harrison's committees to make\nany proposals or suggestions concerning matters within\nour jurisdiction.\nSincerely yours,\nJane Jerome N. Frank\nChairman\nEnclosure\nP.S. In the press for today, there is reported 8. radio\ntalk made yesterday by Mr. Martin, President of the New\nYork Stock Exchange, in which he said that the Exchange,\nin making plans to cope with the emergency, \"cooperated\nclosely with officials in Washington, in the Treasury\nand in the Securities and Exchange Commission.\" I know\nthat the Treasury was appropriately interested in\nactivities of the Exchange with respect to the government\nbond market, and it may well be that, for that purpose,\nTreasury officials have cooperated with the Exchange.\nI know, of course, that you'll see that our lines wont\nget crossed and that you and I will keep in touch with\none another 80 that the Exchange does not, without our\nprior concurrence, receive advice or suggestions from\nTreasury officials concerning Exchange activities which\nare within our jurisdiction.\nJNF\nCOPY\n-32\nSeptember 9, 1939\nGovernor George Harrison,\nNew York Federal Reserve Bank,\nNew York, New York.\nDear Governor Harrison:\nThank you for your letter of September 5. I was\npleased to learn from Secretary Morgenthau that he has\narranged with you that, in the near future, you and he\nand I will get together for A chat. Meanwhile, the\nCommission thinks it desirable to make the following\ncomments on your letter:\nResponsive to the last sentence of that letter, we\nwent to say, most emphatically, that this Commission,\ncomposed as it is of public servants, can have and has\nno possible objection to receiving, for its consideration,\nfrom any citizen or group or committee of citizens,\nsuggestions or proposals regarding matters within the\njurisdiction of this Commission, and, ordinarily and as\na general rule, can have and has no objection to the\npublication of any such proposals or suggestions.\nThe Commission thinks it appropriate, however, to\npoint out, and doubtless you will agree, that such\nproposals or suggestions, regarding matters within the\njurisdiction of this Commission, if made by the\ncommittees recently appointed by you, have B. quite\ndifferent status, because of the circumstances under, and\nthe purposes for, which these committees were appointed;\nso that proposals or suggestions from them are not within\nthat general rule. We have in mind the following:\nIn your letter you state that the plen of appointing\nsuch committees \"was discussed in some detail at the\nseries of meetings held in Secretary Morgenthau's office\nlast April when the various departments of the Government,\nincluding the Securities and Exchange Commission and the\nFederal Reserve System, outlined actions to be taken in\nthe event of war.\nRegraded Unclassified\n33\nIt 60 happens that there were no representatives of\nthe SEC present at any such discussions concerning the\nappointment of such committees. Secretary Morgenthau\nhas just sent me a copy of the transcript of the sole\nconference at his office at which that subject was\nconsidered. It occurred on April 13 when there were\npresent only representatives of the Treasury and the\nFederal Reserve Board. The transcript shows that there\nwas then discussed, to quote the words you then used,\n\"a bankers' committee to which I might go in any hurry,\nupon any matter dealing with credit, loans, foreign\nexchange, gold, or anything else that the Treasury might\nwant us to do\", and that such a committee should be in\nthe nature of an \"advisory committee\". And until receipt\nof your letter of September 5, this Commission had never\nbeen informed of that discussion of that subject. It\nfollows that those committees were not appointed with the\napproval or concurrence of the SEC.\nYour remarks at the April 13 conference, quoted above,\nalso show that it was not contemplated that there be\nincluded in the scope of the activities of any such\nbankers' committee any suggestions or proposals or other\naction concerning matters affecting the \"securities\nmarkets\", or any other matters within the jurisdiction of\nthe SEC. excepting insofer as they might come within the\nclause 6 anything else that the Treasury might want us to\ndo.\" Accordingly, It would seem that, when the Treasury\nand the Federal Reserve Board concurred in the suggestion\nof the appointment of such a committee they did not\ncontemplate that such committee would make proposals or\nsuggestions with regard to matters within our jurisdiction\n-- except at the request of the Treasury.\nEven more to the point is the fact that the discussion\nat the April 13 conference and your letter of September 5\nshow that those committees were appointed pursuant to those\ndiscussions to act (through your bank, \"in its capacity as\nfiscal agent of the government\") in advising the Treasury.\nIt is clear, therefore, that the committees are not merely\ngroups of private citizens formed on their own initiative,\nbut, with the concurrence of the Treasury and Federal\nReserve Board, are to act in & quasi-governmental capacity\nas advisers to the Treasury.\nRegraded\nUnclassified\n-34\nNow, as you know, it is a. well settled and proper\npractice that, if any department or agency of the federal\ngovernment, such as the Treasury, at any time has any\nproposals or suggestions regarding the matters within our\njurisdiction, it transmits them to us in confidence and\ndoes not give them any publicity. Inasuruch, therefore,\nas the committees which were appointed by you are to act,\nthrough you, as advisers to the Treasury, and as the scope\nof their advisory activities, as described by you at the\nApril 13 conference, was not to include matters within the\njurisdiction of this Commission, except at the request of\nthe Treasury, the Commission assumes that you will promptly\nmake the following clear to the committees: (1) Neither\nof those committees (nor any subcommittees) should make\nproposals or suggestions regarding matters within our\njurisdiction, except at the express request of the\nTreasury; (2) if the Treasury should request that either\nof those committees make suggestions or proposals as to\nmatters within our jurisdiction, then (3) the committees\n(or subcommittees) will (either directly or through you)\ntransmit those suggestions or proposals to the Treasury,\nin confidence, and without any publicity, leaving it (4)\nto the Treasury to transmit those suggestions or proposals\nto the SEC in confidence, as the Treasury in its discretion\nmay see fit, so that no publicity whatever will ever be\ngiven by you or the committees to any such suggestions or\nproposals 8.3 to such matters, except with the prior approval\nof this Commission.\nSincerely yours,\nJerome B. Frank\nJNF:Lmv\nChairman\nRegraded Unclassified\nCOPT\nTHE WALL STREET JOURNAL\nSeptember 9, 1939\nREVIEW AND OUTLOCK\nReconciliation Begins?\nIt should not escape observation that several heads of federal\ngovernment departments have very recently invited the counsels\nof non-official advisory groups and that among the men selected\nfor these conference activities are representatives of the producing\nindustries, the distributive trades and both institutional and\ninvestment banking. The proportions of such members in the\ncomposition of the advisory committees, moreover, are rather\nsurprisingly large.\nThis is one phase of the Administration's reaction to the\nnew conditions which the country must reokon with as a result\nof WEE in Europe and it would appear to be & decidedly important\none, If the present selection of gon-official advisors contraste\nsharply in respect to experience, attainments and general point of\nview with the corresponding advisory recruits of recent years, the\ndifference may be taken to reflect & new willingness in Administration\nquarters to listen to those who have had years of daily contact with\nindustrial and trade processes, with fluctuating labor relations,\nwith the needs and preferences of exacting consumers, with all\nthe intricately related factors that combine to govern the opera-\ntion of the business machine.\nTo say that such 6. reconciliation between \"government\" and\n\"business\" might long since have taken place does not detract\nfrom its present value to the country M B whole--assuming that\nnow it has in fact occurred. No doubt that assumption should\nbe made only tentatively, subject to later verification or dis-\nproof. But at the moment it appears that real lines of communi-\ncation have been established between private enterprise on the\none hand and Treasury, Agriculture, Mar and Havy Departments on\nthe other.\nThis departure from the long familiar Administration atti-\ntude toward business leadership gains interest--and perhaps also\ngains importance--from the demand now 80 frequently heard in so\nmany quarters for \"a truce to politics.\" 1 great deal depends,\nof course, upon the definition to be given to \"s truce\" in this\nconnection. If anyone supposes that a truce here mens a sus-\npension of the critical faculty honestly exercised in Congress\n136\nor in the press or on the public platform, he is imagining a\nvain thing. Such a truce, even if it were possible to bring\nabout, would do our people no service. No more now than at any\nother time can a party in power expect the country supinely to\naccept whatever it proposes. On the contrary, the idea of\ncooperation for the general welfare which the appointment of\nthese new advisory bodies implies itself means the complete\nfreedom of the counselers to bring honest--that is, non-partisan\nand unselfish--oriticism to bear upon what government does and\nproposes to do. The same freedom, naturally, remains to the\nrank and file of citizens.\nIn this sense a truce to politics can be realized and will\nbe wholesome to invigorate our economic and political life.\nWithin the limits here orudely drawn a reconciliation between\ngovernment and business can be attained, without sacrifice of\nany real reforms accomplished or attempted under the Nov Deal.\n1020 086 W 8 es\nOt\nOELICE\nSECURITIES AND EXCHANGE COMMISSION\nSHINGTON.O COMPM SEP N.O.C.S\nPENALTY Fee PRIVATE USE TO AVOID\nPAYMENT OR OSTAGE $300\nWASHINGTON, D.C.\n1939\nOFFICIAL BUSINESS\nRETURN AFTER FIVE DAYS\nThe Honorable\nHenry Morgenthau, Jr.,\nCONFIDENTIAL\nSecretary of the Treasury.\negrad\nPARAHHRASE OF TELEGRAM RECEIVED\n_37\nFROM: American Embassy, Paris\nDATE: September 9, 1 p.m.\nNO.: 1872\nFOR THE TREASURY.\nSection\n#.\nThis morning Professor Charles Rist called\non us. His five sons have now been mobilized. Professor\nRist 18 a member of & small committee which is working\nclosely with the pertinent British authorities in an effort\nto make as tight as pessible the economic blockade of Germany.\nThat all possible measures be taken to prevent supplies of\nany nature useful in war from reaching Germany through neu-\ntral ports or otherwise he believes to be of the utmost im-\nportance. Once the German General Staff 1a convinced of\nthe effectiveness of the blockade, there will be 8 much\ngreater chance of preventing B. long-drawn-out war. The\nprofessor stressed the importance of bottling up the Medi-\nterranean entrances at Buez and at Gibraltar; that Italy\nshould always be assured of sufficient supplies for her own\nuse, as long as she remains neutral; that such effective con-\ntrol of the Meditarranean would influence the Balkans with\ngreat moral effect.\nBULLITT\nEA1M8G\nPARAPHRASE OF SECTION TWO OF TELEGRAM NO. 1872, FROM\nTHE AMERICAN EMBASSY, PARIS, SEPTEMBER 9, 1 p.m.\n138\nProfessor Rist went on to say that, speaking person-\nally and off the record, he felt that we could be of great\npractical assistance in preventing supplies reaching\nGermany, through neutral ports, from the United States.\nHowever, he said he had no idea as to what detailed pro-\ncedure would be required in order to render such assistance.\nItwas his recollections that we had been zealous during the\nlast war in protecting our ocean commerce destined for Ger-\nmany ultimately. However, he hoped that with the change in\npublic opinion in the U.S. over 1914 our attitude toward the\nAllies would be more sympathetic; during the World War it\nwas not until 1917 that the British and French had been able\nto choke off supplies destined for Germany, definitely.\nHe considered it of vital importance that, in this war,\nno such delay should occur.\nBULLITT\nEA:MEG\nPARAPHRASE OF SECTION THREE OF TELEGRAM NO. 1872,\n_39\nFROM THE AMERICAN EMBASSY, PARIS, SEPTEMBER 9, 1 p.m.\nProfessor Rist thought that the raw material help\nwhich Russia could give Germany vas easily exaggerated.\nOn the following faots he placed emphasis: there 1a a\nserious lack of transport facilities; the distance of\nneeded raw materials from the Baltic ports 1s great;\nthere is a lack in Russia of exportable surpluses in some\ncases; except in political or territorial cash, Germany is\ninable to \"pay\" for them.\nHe believes that the potentiality of Italy's entering\nthe war when Poland 18 defeated and Germany turns west will\ndepend in large party on whether or not the Mediterranean\nis controlled by the Allies. On good authority he vas given\nto understand that the Nari leaders had withheld news of\nItaly's neutrality from the German Generals until just be-\nfore the attach on Poland by Germany.\nBULLITT\nEA:MSG\n140\nNC\nGRAY\nPARIS\nDated September 9, 1939\nRec'd 3:22 p.m.\nSecretary of State\nWashington\n1872, September 9, 1 p.m. (SECTION FOUR)\nFrom the financial point of view hE felt that France\nwas in shape particularly with respect to\ngold reserves. IIE foresaw no early difficulties in\nfinancing :he war through national defense bonds and\nshort term treasury bills, HE said now that the people\nperceived that no moratorium is taking place in happy\ncontrast to 1914 -- and notwithstanding that immediate\nemergency needs have been satisfied monty will flow\nback to the banks. France has been called upon to endure\nSEVETE tax increases recently and it would be difficult\nto raise them substantially further for the moment.\nWhile hE looks for no great pressure on the franc in the\nimmediate future hE feels that exchange control is\ninsvitable. WE pointed out that while no form of\ncontrol Exists today in effect the reluctance of the Bank\nof France to furnish foreign Exchange for appropriate but\ncarefully scrutinized licensed imports seems to indicate\nconsiderable progress has already been made toward such\ncontrol with which statement he readily agreed.\nBULLITT\nCSB\nLAR\nGRAY\n141\nParis\nDated September 9, 1939\nRec'd 4:00 p.m.\nSecretary of State,\nWashington.\n1872, September 9, 1 p.m. (Section five).\nNo exchange rates were quoted by the Bank of France\nthis morning. While the market between banks quotes the\npound from 177.50 to 179.50 and the dollar around 44 there\nhave been practically no transactions,\nUnder a decree published in the Journal Official\ntoday the special national tax of two percent on income from\nprofessions of private individuals and companies and\nassociations decreed in November last (see the Embassy's\ndespatch No. 3349 of November 23, 1938) will be increased\nto 4 percent after January 1 1940. For men between 18 and\n49 years old not belonging to & military formation dating\nfrom October 1 next the rate of the same tax is increased\nto 15 percent as concerns (A) public and private salaries\nand allowances and life annuities and (B) industrial,\ncommercial and agricultural profite and income from non-\ncommercial professions earned after October 1, 1939 and\nassessable on these men, (End of message).\nBECEINED\nBULLITT\nCSB\n2333 11072\nTHEMTRANJU VRUGAINT\n9d) to willo\nthe et - -\n142\nNC\nGRAY\nRIO DE JANEIRO\nDated September 9, 1939\nRec'd 2:50 p.m.\nSecretary of State\nWashington\n317, September 9, 5 p.m.\nThe expected switch in orders to the United States\nis very noticeable. The principal obstacle is the Exchange\nof cash in the United States before shipment. This is\nfurther complicated by Brazilian Exchange regulations.\nIn ViEW of the number of appeals received by the\nEmbassy from Brazilian importers, the Embassy today\ndiscussed this matter with the Director of Exchange and\nobtained an important concession.\nAlthough the banks are permitted to open credits\nabroad (my telegram Number 251 of August 17, 1939) they\nare reluctant to do so because the Bank of Brazil is not\nguaranteeing the delivery of future exchange. The\nDirector of Exchange now assures me that the bank will\nclose future Exchange for credits opened in the United\nStates for the purchase of Essential products. This\naction will facilitate purchases of steel products,\nchemicals, pulp, et cetera formerly imported from\nEuropean countries. Each CASE will be decided upon its\nown merits.\nThe\n143\nNC -2- #317 from Rio de Janeiro, September 9, 1939\nThe bank has also resumed the sale of future\nExchange for payment of merchandise cleared through\nBrazilian customhouses,\nCONFIDENTIAL. The Exchange balance of the bank\nnow approximates $7,200,000. The bank continues to fix\nthe buying and selling rates for dollars at milreis\n19,830 and milreis 19.980 respectively. Exchange\noperations are normal.\nCAFFERY\nPEG\n43211338\nBEEF\nVIRGININT\nsill\n8\nPARAPHRASE OF TELEGRAM RECEIVED\n144\nFROM: American Embasey, Berlin\nDATE: September 9, 9 a.m.\nNO.: 1158\n60, CONFIDENTIAL FOR TREASURY FROM HEATH.\nI was informed today by Puhl, the active head of the\nReichsbank, that the Reichsbank was endeavoring to conclude\na now standstill agreement with the neutral countries of\nSwitzerland, Holland, Belgium and the United States along\nthe lines of the old standstill arrangement, in the long-\nterm interest of Germany and of the short-term creditors\nthomselves. Furthermore, interested Swiss bankers had al-\nready accepted in principle and it was expected that the\nDutoh would aot accordingly. Pahl was uncertain as to the\nattitude of the creditors in Belgium. Neither had he had\nformal acceptance from the American Standstill Committee;\nthe Committee had merely wired that it was giving sympathetic\nstudy to the proposal; however, he mentioned confidentially\nthat the National City Bank vas willing to enter into a new\nstandstill arrangement either with the other American banks\nor alone.\nPuhl said he could understand the action of the American\nbanks in joining the British in denunciation of the standstill\nagreement but he regretted it. Without apparent rancor, be\nmentioned the fact that various American banks, including\nthe Bank of Manhattan, had, following the denunciation,\nbrought\n-2-\n_45\nbrought suit to impound not only German private banks'\nand gold Discount Bank funds in the United States and\nAmsterdam, but funds of the Reichsbank. However, he 1n-\nsisted that the latter institution was neither a debtor\nnor a guarantor under the standstill agreement.\nThe best thing he could do at the present time,\nPuhl said, was to refrain from going to Bawel to attend\nthe B.I.B. mestings.\nThere are a tremendous number of problems confront-\ning the Reichsband, he added; however, he did not vouch-\nsafe plans or details. Regarding Government finance, be\nremarked that the Government would gradually cease 1esu-\nance of the tax anticipation certificates of the new f1-\nnance plan of last spring. The Reichsbank had always op-\nposed this plan not only on grounds of their expense but\nmore especially because the class 2 certificates presented\ndistinct dangers of inflation, being legal tender for cer-\ntain payments. Puhl anticipates that the Government will\nmeet its needs in 80 far as they are not covered by the\nincrease of taxation by the issuance of short-term Treasury\npaper and \"normal\" loans.\nKIRK\nEA:MSG\nCOPY\n146\nLONDON\nDated September 9, 1939.\nRec'd. 9:50 a.m.\nSecretary of State,\nWashington.\n1557, September 9, 3 p.m.\nEmbassy's 1279, August 27, 8 p.m.; 1344, September 1,\n1 p.m., paragraph two; 1487, September 6, 8 P m.\nThe Embassy has received a number of letters of inquiry\non this subject from Americans living in England. The\nmajority of them are dual nationality cases: American women\nwho have retained their American citizenship but who\nhave married British subjects and have lived here for some\ntime; others come from Americans who have been residing in\nEngland for several years or more.\nPlease instruct as to the forms of reply to be made.\nIncidentally, the various British financial measures\nhave been informally discussed with the British Treasury\nfrom time to time. Individual cases of hardship in the\nadministration of the foreign exchange provisions have been\neffected and the British Treasury has indicated that it is\nnow considering what can be done in such cases as those\nmentioned in telegram No. 1344, September 1, 1 p.m.\nKENNEDY.\nRegraded Unclassified\n22(f)\nFEDERAL RESERVE BANK\nOF NEW YORK\n47\nOFFICE CORRESPONDENCE\nDATE September 9, 1929\nCONFIDENTIAL FILES\nSUBJECT:\nTELEPHONE CONVERSATION WITH\nL. W, Knoke\nBANK OF FRANCE.\nI called Mr. Cariguel at 11:50 today to inform him\nthat there were two best selling orders in the market for 8 total\nof 11,000,000 francs and both coming from China. I also mentioned\nthat ne had received no cable from him today on gold or exchange\ntransactions.\nCariguel asked me to hold on for a moment and after\nconferring with somebody else, stated that they were unwilling\nto tske in the offered francs. The whole question of the franc\nexchange was being discussed now and that was also the reason why\nhe had not cabled us today. He expected, he said, to be ready to\ntalk to me on the telephone again on Monday.\nI emphesized thet my telephone call had been made only\nfor the purpose of keeping him posted as to what was going on here.\nI made the request that he give the necessary instructions\nthat there be msiled to us by the quickest available route, three\ncopies of the official texts of all laws, decrees, regulations,\netc., published in France since September 1 or to be published\nhereafter, dealing =1th financial and commercial watters. We were\nbeleaguered here with incuiries and not in a position to answer\nthem intelligently without the above. Cariguel promised that he\nwill see to it that my request was complied with.\nLWX1KW\nRegraded Unclassified\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\n148\nDATE September 9, 1939\nTO\nSecretary Morgenthau\nFROM\nW, H. Hadley\nTreasury Share of Recent Market Purchases\nFrom August 31 through September 9, inclusive, various Treasury\naccounts have taken a total of $50,207,950 out of a total of $379 million\npurchased in the market by the Federal Reserve Bank, The break-down of\nthe Treasury's share by investment accounts is shown below. With the\nexception of purchases for the HOLC, the Treasury took only the four\nlongest bonds.\nAccounts\nPurchases\nGovt. Life Insurance Fund\n$ 28,345,000\nPostal Savings\n10,945,000\nAlien Property Bureau\n2,400,000\nMutual Mortgage Ins.\n1,825,000\nD. c. Tenchers\n107,000\nTreasury Bonds Purchased\n$ 43,622,000\nH. O. L. C. Retirement Fund\n$ 6,585,950\n*\n$ 50,207,950\n4 Issues under par.\n7\nNC\n149\nGRAY\nPARIS\nDated September 10, 1939\nRec'd 2:45 p.m.\nSecretary of State\nWashington\nRUSH\n1894, September 10, 4 p.m.\nFOR THE TREASURY.\nOur telegram Number 1492 September 10, 2 p.m.\nThe Finance Ministry tells us that the rotes to bE\nEstablished tomorrow have not yet been finally determined\nbut that the pound (sterling) will bE quoted at around\n176 and the dollar between 43.50 and 44.\nThe Exchange control measures are being published\nunder five headings. The first of these is a law\n\"prohibiting or regulating in time of war the export of\ncapital, foreign exchange operations and transactions in\ngold\". It consists of five fairly brief articles.\n\"Expert of capital under any form is prohibited unless\nauthorized by the Minister of Finance or by an authority\ndelegated by it\". Exchange operations thus authorized\nmust bE handled through the Bank of France and/or banks or\nExchange brokers specifically approved by the Minister of\nFinance. The purchase sale of, or transfer of foreign\nsecurities and other foreign stock or foreign securities\nmay be subjected by decree to the same regulation.\n\"All cessions, negotiations and other operations relating\nto\nNC -2- #1894 from Paris, September 10, 1939\n150\nto gold will require the authorization of the Bank of\nFrance\". \"Import and export of gold in any form is\nprohibited unless authorized by the Bank of France.\" \"\nInfractions of the law and pertinent decrees are punishable\nby fines ranging from one hundred to one hundred thousand\nfrancs and imprisonment of from one to six months. Repeat-\nEd infractions are punishable by imprisonment up to\nfive years, (EN) SECTION ONE)\nBULLITT\nCSB\nMECFIA\nI\nAMJU YHU2A3NT\nmit by -\n-\nLAR\nGRAY\n151\nParis\nDated September 10, 1939\nRec'd 5:51 p.m.\nSecretary of State,\nWashington.\nRUSH.\n1894, September 10, 4 p.m. (SECTION TWO).\nThe second measure 18 a decree implementing the\nforegoing. It defines export of capital as follows: (a)\nthe acquisition of movable or immovable property and rights\nsituated abroad or expressed in foreign currencies; (b)\nleaving outside of French territory or holding in foreign\ncurrencies all or part of the proceeds of exports or\npayment for services rendered abrond as well as all or\npart of all proceeds or revenue cashed abroad; (c) export\nof all securities, rights, credit and ownership certi-\nficntes and (d) when Effected otherwise than under condi-\ntions determined by present decree Exchange operations\ncarried out in France or by physical persons residing in\nFrance and French or foreign moral persons for their\nFrench establishments.\nPhysical persons of foreign nationality not residing\nin France as WEll as foreign mural persons for their\nEstablishments situated outside France may bE authorized\nto transfer the cash, securities, or property possessed by\nthem in France or the Equivalent thereof if proof is\nfurnished\nLAR-2, 1894, September 10, 4 p.m. (Section twc) from Paris,\nfurnished that they belonged to them on the date of the\n152\npromulgation of the law.\n\"The same persons may be authorized to transfer\ncash, property, or securities subsequently acquired wi th\nforeign funds as WELL as the constituted cash and securities\nor property acquired with revenue from any property or\nsecurities pussessed in France\".\nThe physical persons of French nationality nut\nresiding in France as well as French moral persons for\ntheir firms situated outside of French territory may also\nbenefit by the Autherizations indicated in the two preced-\ning paragraphs.\nThe foreign Exchange office referred to bElow is\nauthorized to acquire all foreign currencies and credits.\nThe foreign Exchange office is authorized to deliver\nforeign currencies (une) for payment of merchandise\nimported into France under conditions to be laid down (two)\nartain\nfor payment of debts (three) for EXDENSES of foreign\ntravel within certain limits.\nAll persons leaving France must prove that they are\nnot carrying any cash, notes, securities, Et cetera, the\nexportation of which is prohibited ns indicated above.\nHOWEVER such persons may carry checks or letters of credit\nor ther similar document as well as French or foreign\n(1)\nbank or cash no tes/in the CASE of persons no t resident in\nFrance up to the amount which they held when entering\nFrance\n153\nLAR-3, 1894, September 10, 4 pame, (Section two) from Paris\nFrance. As concerns persons finding themselves on French\nterritory on the date of the present decree transitory\n(2)\nmeasures will bE taken;/as concerns persons living in\nFrance, upon representation f their visaed passport, a\nmaximum of five the usand francs may bE authorized. This\namount may be increased in ONSE of nn Extended residence\nbut is n. t to EXCEED ten thousand francs per me nth of\nforeign residence, A decision by the Minister of Finance\nis necessary for larger am unts.\nThe 1mo rtation f French bankne tes may be regulated\nby decisi P the Minister of Pinance.\nOn entering French territ. ry all persons must declare\nonsh, no tes, securities carried.\nThe issue of money orders, transfers and all postal\nfor the\nor telegruphic money items, French oolonies, protectorates\nand territ ry under mandate and foreign countries, is\nsubordinate to the authorization of the foreign exchange\noffice in question and within the limits get forth above.\nAll registered packages for French colonies, pro-\ntectorates and territory under French mandate and foreign\ncountries must bE presented open to the postal authorities\nand closed in their presence after verification.\nThe delivery of authorizations for the export of\ncapital under the provisions if the DEW law summarized\nin Secti n ne of the Minister of Finance in accordance\nwith the Dr. visions of the present decree by a foreign\nexchange\n154\nLAR-4, 1894, September 10, 4 p.m., (Section two) from Paris.\nExchange ffice administered by the Bank of France for\nthe account of and under the nsibility of the state,\nThe Exchange operations referred to in the law\n\"include all operations of purchase, sale, cession,\ntransfer and collection : f foreign currencies, at a loss\nin foreign currencies and foreign sight or short term\ncredits, n. tably ocins - Excluding gold coins, which are\nsubject to the above mentioned provisions of the law\nrelating to gold - fortign bank no tes, checks, drafts,\nbills if exchangs, coupons, interest, subscription rights,\nEt cetera. These aperations may only bE handled thr ugh\nthe foreign Exchange office or banking establishments and\nexchange brokers specially authorized by the Minister of\nFinance. These must keep and present to the authorities\nfull and detailed records of their Paily Exchange opera-\ntions on f. rms provided. They like all other physical or\nm.ral DETS ns engaged in any surt wf banking operations or\ncommercial transactions with foreign countries are\nrequired to shw their accounts to inspectors of the\nMinistry if Finance.\nGold covered by the law is defined in this decree\nas mi ney, bars, ingets, plaques /I' that employed in\nindustrial uses of any variety. Approval of the Bank of\nFrance is required for all purchases or sales in France\nor abroad B. 1d deposit obtaining in France or abroad\ncontracts with ES' 1d security wherever held or whatever\nthe\n155\nLAR-5, 1894, September 10, 4 p.m. (Section two) from Paris.\nthe operations for which it is stablished. The provisions\nof the law are applicable to all operations carried out in\nFrance or by physical persons residing in France and\nFrench and foreign moral persons acting on behalf of their\nestablishments in France. (END SECTION TWO).\nBULLITT\nHBD\n156\nLAR\nParis\nPart of this message must\nbe closely paraphrased bE-\nDated September 10, 1939\nfore being communicated\nto anyone. (c)\nRec'd 7:44 p.m.\nSecretary of State,\nWashington.\nRUSH\n1894, September 10, 4 p.m. (SECTION THREE).\n(GRAY) FOR THE TREASURY.\nThe third measure is an arrete defining prohibited\nand permitted operations and terms. Thereunder there\nare prohibited and without possibility of Exception\"\nthe following operations: (a) 301E are production I/f\nforeign Exchange by there than the reign Exchange ffice\nregardless whether these operations are carried out in\nFrance ur abroad; (b) operations in foreign Exchange or\ntransfer between France and its everseas territories\nunless Effected thr urh the intermediary of the banks of\nissue of these territ ries by the nocepted intermediaries\neither by Craft checks, postal m ney rders, or telegraph.\nSpecial authority in each CASE must bE obtained to acquire\nproperty abroad if the seller is n fortigner. Special\npermission is likewise required for the holding beyond a\nspecified period (.f foreign Exchange derived from mer-\nchandise exports or in payment of SERVICES rendered abroad.\nIncluded am ng the operations which are permitted upon\nverification with ut special authority are: (a) \"the\npurchase of foreign currencies by the ffice of foreign\nexchange\n157\nLAR-2, 1894, September 10, 4 p.m. from Paris (SECTION THREE)\nExchange for the payment of fortign merchandise imported\ninto Prance\" the conditions under which \"permits are\nrequested and the proof furnished are set forth in\ndecree regulating imports and export. (b) \"Purchase\nof foreign currencies by the office of foreign Exchange\nfor the payment (f all debts abroad if the debt derives\nfrom undertakings or facts of any nature prior to\" the\npresent date LT \"if a general auth: rization has been\ngranted by the foreign Exchange office at the moment when\nthe Rebt is contracted.\" The applications are to bE\npresented for each peration to the ffice of foreign\nExchange on a specified form to which are to bE attached\nthe necessary proofs.\n\"(E) Acquisition of property abroad negotiated in\nFrance on condition that the seller is C: nsidered to bE\nFrench. The purchaser and the intermediary or inter-\nmediaries must justify to the satisfaction of the com-\nDETENT auth rities that the seller is 2 person considered\nFrench r that the purchase (1f securities are in question)\nhas been carried in the Bourse\". (f) The purchase of\npre perty clandestingly abroad under the category of TE-\ninvestment\". The purchaser must prove to the satisfection\nof the mpetent auth rities that the operation con-\nstitutes reinvestment of property abroad which belonged\nto him prior to the present date. (g) The sale in\nFrance of foreign securities. Pr. of must be furnished by\nthe\n58\nLAR-3, 1894, September 10, 4 p.m. from Paris (SECTION THREE)\nthe seller to the Exchange broker prior to the sale that\nhE is a person considered to bE French\".\nThe f. urth measure is an arrate relating to \"inter-\nmediaries in Exchange operations namEly banking Establish-\nments and Exchange brokers specially authorized by the\nMinister of Finance. It stipulates n tably that clients\nmay ntinue to PEal with their usual bank whether or not\napproved by the Minister but that all Exchange operations\nmust bE presented to the exchange office by an auth rized\nbank. Detaile' instructions are Given relating to informa-\ntion to be require from clients, records that must be\nkept \\f transactic na, Et cetera.\nThe fifth measure is an arrete with respect to\ncustoms supervision. It provides that upon leaving\nFrench territory all persons must declare means of payment,\nsecurities and \"Documents of &wnership or of credit\"\nEt. cetera carried.\nPersons of whatever nati, nality residing habitually\nin France may not take with them means of payment, securi-\nties and \"ds cuments of (wnership L.T. of credit\" unless\nthey possess a special outh. risation from m the foreign\nexchange ffice.\nExcept ::8 provided in transitory previsions and\nunless provided with special auth rization of the exchange\noffice pers.ns who habitually reside (utside 1-1 France\nmay\n159\nLAR-4, 1894, September 10, 4 p.m. fre Paris (SECTION THREE)\nmay take ut of France only \"means (.f payment\" for an\nam unt n t greater than the \"means of payment\" which they\ncan prove to have brought into France. They may not\ncarry out securities or \"di cuments of .wnership ur of\ncredit\" unless specially auth rized by the exchange\noffice.\nTemporarily persons (f whatever nationality habitu-\nally residing abroad finding themselves on French territory\nat present date may carry out without proof \"menns of pay-\nment\" up to an am unt not EXCEEDING 5000 francs. If they\ncan Drove that they possessed\"means of payment\" in French\nterrit ry in EXCESS of 5000 francs at this date they may\nbE auth rized to carry out \"means if payment\" for the\namount thus proved within this time limit which may not\nEXCEED 31x m. nths dating from the time limit of their\narrival in France.\nDeclarations must be made that they di. not carry gold\nin any f:rm (ing ts, bars and c. ins). Any import or\nExport of & le and any attempt to import or Export without\nthe authrization of the Bank of France will give rise\nto the sanctions provided for in the law one to seizure of\na * 1238\nthe MIC,\n1333\nThe full text Lf these measures and accompanying\ncap\nf.rms will 3. forward by the next pouch. (END GRAY).\nYHU2A38T\nnerve my\n160\n- 5 -\nWe are told by Couve de Murville that no steps are\nbeing taken just now with regard to the requisition of\nforeign property owned by French nationals.\nEND OF MESSAGE.\nBULLITT.\nEA:LWW\n181\nNC\nGRAY\nPARIS\nDated September 10, 1939\nRec'd 11 a.m.\nSecretary of State\nWashington\nRUSH\n1892, September 10, 2 p.m. (SECTION ONE)\nFOR THE TREASURY,\nThE French Government last evening approved a law\nand accompanying decrees prohibiting the export of capital\nand setting up a complete system of Exchange control under\nthe supervision of the Bank of France. WE shall cable a\nfull summary of this legislation this afternoon. WE WETE\ncalled to the Finance Ministry this noon and handed a\nmessage for the Secretary (which WE have just read to him\non the telephone) from Paul Reynaud, Minister of Finance.\nThat message which is dated September 10 reads as follows\nin translation:\n(END SECTION ONE).\nBULLITT\nKLP\nAC\nGRAY\n162\nParis\nDated September 10, 1939\nRec'd 11:05 a.m.\nSecretary of State\nWashington\nRUSH\n1892, September 10, 2 p.m. (SECTION TWO).\n\"Taking advantage of the week-end and in conformity\nwith the plan established, the Franch Government is pro-\nmulgating today, September 10, 1939, legislation setting\nup a system of exchange control In France and in French\nterritories overseas. This measure imposed by the war\nla motivated by the need to devote in the future all\nresources of the country to the financing of its defense.\nThe French Government remembers with deep apprecia-\ntion that the Government of the United States has kindly\nassured it of its friendly collaboration in connection\nwith the application of the regime which has just been\nestablished.\"\nBULLITT\nKLP\n163\nNC\nGRAY\nPARIS\nDated September 10, 1939\nRec'd 11:10 a.m.\nSecretary of State\nWashington\nRUSH\n1892, September 10, 2 p.m. (SECTION THREE)\nWE also SRW Rueff who has just been named Under\nGovernor of the Bank of France. HE told us that this\nappointment which may bE temporary is to enable him to\ndevote his entire time to setting un the mechanism for\nputting into operation the Exchange control measures.\nHis place at the Finance Ministry for the time being will\nbE taken by Boutillier. Couve de Murville at his own\nrequest will bE mobilized on the first of October.\n(END MESSAGE)\nBULLITT\nKLP\nPOTIVE\nOF SUAVICE\nWESTERN\n1201\nSYMBOLS\nfull-ture\nDL=Day Letter\nof Cables\nCram with as de-\nand Deractor il in-\nUNION\nHL=Hight Lenes\n(22)\nLC- Deferred Cable\nunded by a tenable\nsember above (if pre-\nNLT-Cable Night Letter\nrefund the address-\nA. e. WHITE\nNEWCOMB CARLTON\nJ.C. WILLEVER\nPRESIDENT\nCHAIRNAN OF THE BOARD\nFIRST VICE-PRESIDEN)\nShip Rediepram\nTime 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\nHA116 9= 9=TDWD BEACON NY 10 756A\n100% SEP 10 AM 8 26\nIl KLOTZ=\n164\nTREASURY DEPT WASHDC=\nWASHINGTON MONDAY MORNING WITH THE BOSS BEST REGARDS=\nMAY MORGANTHAU JR.\nLeas beyes\nNa6400\nto\nALSE\nhome als\nPI\n853A\nTo\nAM\n850A NA 6400 ADSE LIVES WES CHESTER PI\n851A RI NUMBER we 9658\nTHE COMPANY WILL APPRECIATE SUGGESTIONS FROM ITS PATRONS CONCERNING ITS SERVICE\nRegraded Unclassified\nWESTERN UNION\nTELEGRAM sorry idea 9 opened by\nRegraded Unclassified\n185\nCJ\nGRAY\nPARIS\nDated September 10, 1939\nREC'd 7:05 p.m.\nSecretary of State,\nWashington.\n1886, September 10, 10 p.m.\nFOR THE TREASURY.\nWE have just listened to the brief end stirring\nappeal broadcast by Reynaud. The following summary is\nbased on our bastily scribbled notes.\nThe war he said will be won by the side which pro-\nduots the most and consumes the least. All must work to\nproduce the utmost - no slackers. But in spite of all\nefforts production will inevitably and materially de-\nCrease, Therefor the counterpart is the reduction of\nconsumption to a minimum. There must bE no needless\nwaste to add to the terrible waste of war, Foreign\nimports must bE confined to war necessities. Every ounce\nof France's gold must be preserved for necessary war\npurchases abroad. Nor can there bE any exports which\nwill hElp the enemy.\n(END OF SECTION ONE).\nBULLITT\nEMB\nLAR\nGRAY\n166\nParis\nDated September 10, 1939\nREC'd 7:10 p.m.\nSecretary of State,\nWashington.\n1898, September 10, 10 Dalla (SECTION TWO).\nSteps have been taken ti prevent war profits going\nint the 1) ckets of arms manufacturers 10 happened Curing\nthe last war; the salaried Employee has had tuxes\ncoubled; the workman in munitions factories hns now to\nbear his share.\nThe next step is exchange control which was decreed\nby the G+ vernment and signed by President Lebrun last\nnight. France has had ten months of a sound liberal\nEO, my which has br ught massive returns t.f capital.\nBut while liberty in pence and after the victory is a\nsound country's strength, it W uld mean weakness in war.\nNo speculation against the country's currency can bE per-\nmitted. The measures which have now been premulgated have\nlong been prepared - for WEll over three nths. Today the\nAussier was opened ne all that was necessary was the\ndespatch of telegrams thre ugh ut the untry outting these\nmeasures into immediate Effect\nBULLITT\nEMB\nRegraded Unclassified\n167\nLAR\nGRAY\nParis\nDated September 10, 1939\nRec'd 7:30 p.m.\nSecretary of State,\nWashington,\n1898, September 10, 10 p.m. (SECTION THREE).\nThey mean, said Reynnud, that the private individual canno t\nbuy foreign Exchange for which the Bank of France has\nbeen given n. mune poly. The OL unterpart is the rigidly\nEstablished centrol of internal prices. No spsculation\n1a n.w permitted on foreign Exchange and none is permitted\nen internal prices. The & untry's savings will go into\narmoment bunds and Treasury notes and with these the war\nwill be financed.\nIn C nclusion he brought a message of hope and\noffered his complete confidence in victory. November 11,\n1918 had clearly proved French superiority and that\nsuperi rity was greater today. \"WE shall win because WE\nare the strangest\". (END OF MESSAGE).\nBULLITT\nROW\nMECEINED\n2332 11572\nTHENTRAM30 YHU2A3MT\nsitt to -20\n- <d # -\nB1210\nTREASURY department\nPROCUREMENT DIVISION\n168\nOFFICE OF THE DIRECTOR\nWASHINGTON\nSeptember 11, 1939\nMEMORANDUM FOR MISS CHAUNCEY\nThe attached is in compliance with your telephonic request\nof this afternoon.\nDirector of Procurement\n(Rent taPres. 9/14/29)\nsee other transmettal\nCOPY\nEC9\nTREASURY DEPARTMENT\nProcurement Division\nWashington\nfice of the Director\nSeptember 11, 1939\nMEMORANDUM FOR THE SECRETARY\nIn the memorandum pertaining to quinine it W&S indicated\nthat the Netherland East Indies produced between 95% and\n97% of the cinchons bark used in world trade.\nThe remaining 3% to 5% of cinchona bark available is\ninclusive of that produced in Peru which is of a relatively\nsmall quantity and of a very low grade, so low in fact, as\nto probably place it beyond competition with the cinchona\nbark and quinine sulphate manufactured by the Netherlands.\nFor this reason Peru was not mentioned as a source of supply\nin the memorandum previously submitted on quinine.\nIt was understood from Mr. Mercke of Mercke and Company at\nB conference at which he Was present that his company is\nexperimentally cultivating trees for the production of\ncinchone bark in Gustemala but that it will be from five\nto seven years before any production therefrom can be had\nor the success or failure of this experiment determined.\n(Signed) H. I. Collins\nDirector of Procurement\n170\nRE PROPOSED STATEMENT TO PRESS\nSeptember 11, 1939,\nCONCERNING FRENCH MONETARY POLICY\n9:00 E.M.\nPresent:\nMr. Hanes\nMr. White\nMr. Foley\nMr. Cochrane\nMr. Bailie\nMrs Klotz\nH.M.Jr:\nI will dictate this for the record. Saturday, on\ntalking to Cochrane, I learned that the French\nfor the first time had given us a price on gold.\nThen I asked him and he told me that knowing I\nhad talked to the Bank of France and they told\nhim\nCochrane:\nWe had a meeting the night before and preferred\nto send no data about a certain matter being\ndiscussed.\nB.M.Jr:\nThen I called up the President Saturday at 7:00\no'clock and talked to him and told him the French\nhad given us a rate, and he said, \"Well, give out\na statement on Monday showing that you are still\nin existence, that you are still doing business\nwith Holland, Belgium and Switzerland,\" and he sald,\n\"Make it look as good as possible.\" I said, \"Don't\ngive the Germans anything to hang their hat on,\"\nand he said, \"That 1s right.\"\nThen Sunday I called Bullitt and asked him if he\nhad heard anything and he said that he wanted to see\nthe men of the French Treasury and as soon as he came\nback he wanted to call me, and he did. He said he\nhad all the regulations.\nI spoke to Knoke again by appointment at B quarter\nof one on Saturday and asked to have a document\nready for us this morning to take a look at. That\nis my story, now. Have you got the document?\nWhite:\nYes, we called Ed last night to help.\nE.M.Jr:\nWhere is it?\nFoley:\nYou (Mr. White) have got it.\n171\n- 2 -\nWhite:\nI haven't the original.\nPoley:\nI haven't the original, either.\nCochrane:\nHere 18 the original.\nWhite:\nThere 1s an alternative draft.\nH.M.Jr:\nShall I read this out loud for the benefit of those\nwho haven't - I am reading this one?\nCochrane:\nThat is right.\nE.M.Jr:\n\"The Secretary of the Treasury thanks the Minister\nof Finance for his communication in regard to legis-\nlation for setting up a system of exchange control\nin France and in French territories overseas, and\nhas pleasure in providing herewith the text of a\nstatement which he is releasing to the press today:\n'This Government was advised by the Minister of\nFinance of France of the plan for setting up a\nsystem of exchange control in France and in French\nterritories overseas,\n\"We recognize that the exigencies of war require\nthat French resources be safeguarded for the national\ndefense and the need under such circumstances for\nexchange controls to promote stability of exchange\nrates.\n'We are satisfied that the monetary steps taken by\nFrance in the present emergency are not motivated\nby & desire to obtain an unreasonable competitive\nexchange advantage. We sincerely hope that the\nTripartite Accord may continue to provide a satis-\nfactory basis of monetary cooperation in war times\nas in peace and provide, with the cessation of\nwar conditions, the means for reexamination of\ncurrency relationships.'\"\nI would say at first it looks very good. Who has\nhad e chance to chew on this?\nWhite:\nNobody has except Jack looked at it for A minute,\nbut nobody else has had 1t. There are a couple\nof points before they go in with that, that we\nwould like to raise for their consideration. One\n172\n- 3 -\nis, that Bernstein has the feeling that possibly\nit may not be a matter of desired policy at this\nstage of the game for you to make 8 statement which\nhas the implication and the connotation of a pretty\nstrong cooperation with France and England, this\nbeing the first time the statement would be made\nsince the war started, and 1t is contained in the\nlast sentence, and therefore we have a more innocuous\nlast sentence as an alternative.\nE.G.Jr:\nWhat is the last sentence?\nWhite:\nThe last sentence 18, \"We sincerely hope that the\nTripartite Accord may continue to provide & satis-\nfactory basis in war times as in peace.\"\nE.E.Jr:\nI see. This is the alternative?\nWhite:\nThat is the alternative.\nR.K.Jr:\nI will tell you what I will do. I will call\nMr. Hull's office and ask him to send Herbert Feis\nover here, see, and then you people go into B. huddle.\nYou needn't bother with my 9:30 meeting which is\nstraight Treasury B tuff, and you can chew it over.\nWhen you have got something that looks good, come\nback and Johnny and I will take a look at it.\nHanes:\nHe 18 coming at 11:00 o'clock.\nH.M.J.:\nI want to read it before I release it to Bill Bullitt\nand let him take it over to the Minister of Finance\nin France and let him see it.\nWhite:\nThere 18 nothing said here of Holland and of Belgium,\nbut it is pretty difficult.\nH.M.Jr:\nI'm not going into fine shadations. That is the\nadvantage of having you people here. If you fellows\ncan get together and give us something, why then\nbring it in and we will take & look at it. I don't\nknow whether you want to sit with them or not. I\ndon't.\nSenes:\nI don't think SO,\n173\n- 4 -\nH.M.Jr:\nI would much rather you would stay with the nine\nthirty and do the regular Treasury business.\nHanes:\nI would rather do that.\nH.M.Jr:\nLet in? me just get hold of - what room will you meet\nBailie:\nProbably 296 because there 1s a big table there with\nplenty of seats around it.\nH.M.Jr:\nIs this the way you gentlemen would like to work?\nBailie:\nI think we can discuss that later after we see how\nthis one works out.\nH.M.Jr:\nThat is a good example.\nBailie:\nwait? Could we go out now to 296, or do you want us to\nH.M.Jr:\nNo, you can go out now and then the minute you people\nare ready to see me, would you let Mrs. Klotz know?\nYou (Mr. Foley) stay on the regular meeting.\nFoley:\nAnd Bernstein will go with them.\nOrig\norder to be endorsed\nPULESTON -\nread by Secretary of\n6:6\nthe\nNAVY DEPARTMENT\nBUREAU OF NAVIGATION\nWASHINGTON, D.C.\n1366\n1\n939\nThe Chief of the Bureau of Navigation.\nCaptain\nWilliam D. Puleston, U.S.N. (Ret.),\n2434 Belmont Road,\nWashington, D. C.\nbe\nSeet: t: To duty - Treasury Department.\n1. You will report to the Secretary of the Treasury,\nDepartment, Washington, D. C., for such duty 88 may\n:\nunwigned you.\n8. The Secretary of the Navy has determined that this\nemployment on shore duty is required by the public interests.\n3. The above assignment is subject to your consent.\nthis date.\nTreasury Department, Washington, D.C.., 11 Sep 1939\nSecretary of the Treasury\nto:\nretary of the Treasury,\nreasury Dept.,\nWashington, D. C.\nRegraded Unclassified\n175\nm\nTHE COMMANDANT OF THE UNITED STATES COAST GUARD\nWASHINGTON\n11 September 1939.\nMEMORANDUM FOR - The Secretary of the Treasury\nWith reference to our telephone conversation\nthe other day, regarding reports of movements of Merchant\nships by lightships, upon further study I have cancelled\nthe instructions to lightships to report such movements.\nIt is obvious that such reports would seriously endanger\nMerchant ships of belligerent nations by disclosing\ntheir location to enemy warships (including submarines)\nand, even if such reports were made in code, such danger\nwould not be eliminated.\nAlso, neutral shipping suspected of carrying\ncontraband of war might likewise be endangered by radio\nreports.\nWe have instructed our District Commanders to\nkeep current information regarding the location of all\nMerchant shipping by getting reports from Coast Guard\nStations and Light Stations along the coast, by telephone\nor means other than radio, and by contacting shipping\noffices, Custom Houses, etc.\nPlease advise me if this meets with your approval.\nR. R. WAESCHE\nRear Admiral, U.S. Coast Guard,\nCommandant.\nTHE SECRETARY OF STATE\npre\n15-9-7-39 a-\n176\nWASHINGTON\nSeptember 11, 1939.\nMy dear Mr. Secretary:\nI have received your letter of September eleventh\nand hasten to reply that, having seen Ambassador\nKennedy's telegram No. 1500, addressed to the Sec-\nretary of the Treasury, I cabled him that, by instruc-\ntion of the President, on September fifth I told the\nBritish and French Ambassadors that the proposal in\nquestion was to be considered by the British and French\nGovernments as not having been made.\nSincerely yours,\nThe Honorable\nHenry Morgenthau, Jr.,\nSecretary of the Treasury.\n-77\nRE PROPOSED STATEMENT TO PRESS\nSeptember 11, 1939.\nCONCERNING FRENCH MONETARY POLICY\n11:15 s.m.\nPresent:\nMr. Bailie\nMr. Viner\nMr. White\nMr. Bernatein\nMr. Duffield\nMr. Riefler\nMr. Lochhead\nSwille:\nThere 1a one thing that bothers us in the communica-\ntion that the French sent us, one paragraph. \"The\nFrench Government remembers with deep appreciation\nthat the Government of the United States has kindly\nassured us of its friendly cooperation in connection\nwith the application of the regime which has just\nbeen established.\"\nNow, we feel that that 1s EL dangerous paragraph from\nyour point of view.\nE.M.Jr:\nRead it again, please.\nSailie:\n\"The French Government remembers with deop appreciation\nthat the Government of the United States has kindly\nassured us of its friendly cooperation in connection\nwith the application of the regime which has just\nbeen established.\"\nThat undoubtedly refers to the conversation of\nseveral months ago, but in the context which appears,\nit looks as if the United States had been working\nwith France to work out their war problem on exchange\nand we feared the effect that might have on Holland\nand Belgium and Switzerland. It might make them\nfeel that this thing was an un-neutral thing, which\n18 the last thing we want them to think, so that\nour first suggestion is that by & telephone message\nwe say to Mr. Bullitt that that paragraph be gotten\nout of any material that the French Government\nreleases in this connection. Of course, if they\ndidn't release anything, we'd like it best of all,\nbut if they do want to release things, and I under-\nstand from Mr. Cochrane that they are rather\naccustomed to doing so, we don't want that para-\ngraph in it.\nRegraded Unclassified\n178\n- 2 -\nNow, our second point is that\nS.M.Jr:\nLeroy-Beaulieu 1s outside. Couldn't he do it?\nBailie:\nVery possibly 30. You will know the best way.\nH.M.Jr:\nWhat do you think?\nCochrane:\nIf you were going to phone him\nH.M.Jr:\nI am not. I want to save my time.\nCochrane:\nWe can get him to do it.\nS.M.Jr:\nWouldn't that save my time?\nCochrane:\nSure, let him phone any message.\nS.M.Jr:\nSure, that just saves my sitting here for two\nhours trying to get hold of Bullitt.\nBailie:\nThe second point we want to make is we think\nthat short form of statement will cause an\nisolationist to have less material to talk & bout\nthan he would if we came out and said, \"We are\ntrying to help France win the war by helping out\nthrough this agreement.\"\nNow, our third point is that so far as France 18\nconcerned, why, we know she has to do this and\nwe think what she has done is entirely reasonable,\nbut we don't particularly want to congratulate\nher on putting in exchange control because we\ndon't think the Tripartite Agreement was made 88\na background for exchange control to operate.\nIt is just one of the misfortunes of war that it\nhas to be and the result is a rather colorless\nstatement, but we think it is friendly.\nI think everyone thought that each one was done\na little bit different and I think Harry has a\nlittle feeling that there isn't much punch left\nin it, but the rest of us felt that the dangers\nfrom the punch were too great.\nWhite:\nI think on the whole one can afford to be cautious\nat this stage of the game and say less than what\nyou might think.\n179\n- 3 -\nH.M.Jri\nThat is what the President has told me on two\ndifferent occasions, He says he has used more\nweasel words in the last two weeks than in the\nlast seven years. I think we can all use weasel\nwords at the present time.\nWhite:\nWe can increase the strength later.\nBailie:\nWe used rather short language in talking to the\nBritish the day after they did their business and\nwe would like to be wholesome to the French.\nH.M.Jr:\nIt 1s all right with me.\nWhite:\nI think in asking the French not to make public\nthat statement, it had better be made clear to\nthem that the reason why is that the public may\nread into it something other because we don't\nwant to deny the position we have taken with\nrespect to that.\nH.M.Jr:\nI told Leroy-Beaulieu that you fellows would like\nto handle him from the first of October. He 1s\nyour baby. I think if you just tell him this and\ngive him a copy of this thing and then I think\nBullitt can see that a copy - then see that a\ncopy of this be sent immediately on the wire to\nBullitt,\nViner:\nAnd that he also be told about this request so\nthat he knows about it, because they may ask\nhim on the other side.\n11.11.Jr:\nI don't think 30.\nDeilier\nYou instructed us, Mr. Secretary, on how to handle\nthe State Department in this connection because\nMr. Feis wants to be notified at once.\nH.M.Jr:\nI think so that we get this thing on this sort of\nthing from now on, Cochrane will get these messages\nto Feis and get them over there. He 18 the logical\nperson to do 1t. Bullitt should have a cable.\nViner:\nLet the State Department decide that, I suppose,\nas to what they will tell Bullitt. Fels knows about\nit. That is all that 1s necessary. Feis should\nknow that we are going to talk to the\n180\n- 4 -\nDailie:\nFeis knows that we do not wish to have in cable\nor written form our request to change their\nrecords.\nE.H.Jr:\nI don't want that. I think it should be word of\nmouth. I don't want it in the record that we\nsay to Bullitt to say so and so, I don't think\nit is nice.\nWhite:\nI would like to raise the question whether it is\nnecessary even to mention it.\nFailie:\nHere is a rather polite phrase, for instance, \"We\ntransmit your message,\" which is the same as it\nwas in the previous one.\nE.M.Jr:\nThat 18 right.\nRiefler:\nWhat about notifying the other members?\nSailie:\nWe would normally like to tell the other members\nwhat we have done, so we would like to do that.\nH.M.Jr:\nI don't want it put in the record that I don't\nwant the French to say publicly that we have been\nrecommending for over B. year that they should put\non exchange control. I don't see any sense in that.\nLeroy-Beaulieu will do that. He is 8. good fellow.\nJust so it is orderly. I mean 11 Cochrane will\ntalk to Leroy. Feis says they are leaving Friday\nfrom Panama. He has got to have an answer on\nthis thing.\nBailie:\nWe are meeting right after lunch.\nE.M.Jr:\nThe earliest I could do would be tomorrow morning.\nShall we say 10:30? Will you tell Cochrane?\nBailie:\nYes.\nShall we say 2:30 in 296 or if we move downstairs\nwherever we can have B. meeting room?\nE.M.Jr:\nThat isn't rushing you too much?\nViner:\nNo, we have to start on that.\nH.M.Jr:\nBut you will tell Cochrane? You know about it,\nHarry?\n181\nS I ,\nWhite:\nYes, I know about it.\nE.M.Jr:\nDoes Cochran fit in on that or not?\nBailie:\nYes.\nH.M.Jr:\nI am going to forget about this and you will see\nthat Duffield has something for me at 4:00 o'clock\nto give the press.\nBailie:\nYes,\nWhite:\nJust one point. The increasing volume of trans-\nactions by foreigners being made under domestic\ntrusteeship and the Federal Reserve Dank is going\nto ask their various member banks for B little\nmore information. I am just letting you know in\ncase you get some repercussion on it.\nH.M.Jr:\nWhat is happening which I haven't been able to\nget to the bottom of yet, I don't understand\nthe significance, but they are meeting in Hanes's\noffice now - Hanes, Berle and somebody from\nCommerce - on this question from the banks, what\nthey should or shouldn't do. When they are ready\nthey are going to give me EL report. Before I\ndo anything on it, I am going to show it to you\npeople. I can't see the fact that everybody is\npushing me 80 hard; I wonder why. I can't see the\nsweat about it. So before I do anything - I am\ntrying to work it, that these things feed to me.\nBefore I act, you people get a chance to see it\nand get all the time necessary. I'm not going\nto be rushed off my feet.\nBailie:\nWe can't give you 8 worth while policy before\n4:00 o'clock.\nE.M.Jr:\nI don't see why there has to be EL press release\nat 4:00 unless it is just to say they met. Just\n80 you know anything of policy. Unless I get\ncaught off base, I am not going to say yes or no.\nUnless I get caught off base, I would like to work\nthis way and ease it in and I will try not to rush\ntoo much with these things. I don't know what\nthis thing is in Hanes's office. You will find\nout and take e look at it.\nRegraded\n182\n- 6 -\nBaille:\nWe have another thing which is right along the\nline which Hanes 18 talking about and there is\nsome evidence that British securities are being\nreleased on the New York Stock Exchange with the\npermission of the Treasury for gradual liquidation.\nWe have got to find out if the SEC knows about it.\nWhite:\nThere is no indication of that in the report.\nBailie:\nThat 18 the reason I spent Friday in New York and\nI found four separate transactions totalling\nthree million dollars in the course of B. half\nhour of questioning of various people, which\nshowed that actually British securities were\nbeing released by the British Treasury and sold\nin our markets.\nLochhead:\nWe got that check.\nH.M.Jr:\nHaving you people here, I will stay calm and not\ntry to do all these things by myself.\nBailie:\nNone of them, as I see it, have been terribly\nexcited or worried at this moment.\nH.M.Jr:\nNo, but you could say the wrong thing to the\nFrench. The next thing is Panama unless this\nother thing breaks. I don't know - when that\nthing breaks, I will get hold of it and find out\nwhat it 1s. I think the Panama thing comes\nfirst.\nBailie:\nI think so too. Of course, we could let them go\non to Panama and send them a message.\nRegraded Unclassified\nPrepared by: Mr. Murphy\nMr. Lindow\nMr. Tickton\nMr. Haas\nTREASURY DEPARTMENT\n163\nINTER OFFICE COMMUNICATION\nCONFIDENTIAL\nDATE Sept. 11, 1939.\nTO\nSecretary Morgenthau\nFROM\nMr. Hame 90H\nSubject: Developments in the High-grade Securities Markets\nDuring the Week Following the Outbreak of War\nSUMMARY\n(1) United States securities declined very sharply on\nTuesday and Wednesday, and slightly more during\nthe balance of the week. Except for the break at\nthe time of the Munich crisis, the average yield\non long-term Treasury bonds (2.59 percent) is now\nthe highest since April 1938 (Charte I and II).\nShorter- and medium-term bonde have been rela-\ntively weaker than long-term bonds (Charts III\nand IV).\n(2) Official support WS6 given to the Government bond\nmarket during the past week through the purchase\nof securities by the Federal Reserve banks ($204\nmillions) and the Treasury ($50 millions). The\nFederal Reserve purchases more than replaced the\nbills allowed to run off during the summer and\nbrought the portfolio to a new high (Chart V).\n(3) The high-grade corporate bond market was very weak\non Tuesday, and the spreads between bid and ask\nprices were very large. As the week progressed,\nhowever, spreads nerrowed and some of the lossee\nwere made up. At the close on Saturday, our aver-\nage of the yields of long-term high-grade corporate\nbonds was 3.27 percent, and the spread between the\nyield of corporate bonds and long-term Treasury\nbonda was .68 percent (Charts I and II).\n(4) British console closed at 62 on Thursday (the day\nthe London Stock Exchange web reopened), and at\n62-1/4 on Friday. The Friday price was equivalent\nto B. yield of 4.02 percent. These prices are sub-\nject to the reservation that the London Exchange\nis not a free market; the prices on Thursday and\nFriday were at approximately the minimum set by\nthe Exchange. French 3 percent rentes declined\nfurther during the week to new lows since the\nspring of 1938. The yield on Friday was 4.35 per-\ncent.\nRegraded Unclassified\nSecretary Morgenthau - 2\n-E4\nI. Price Movement of United States Securities\nUnited States securities declined very sharply on Tues-\nday and Wednesday, approximately held their own on Thursday\nand Friday, and then declined somewhat further on Saturday\n(Chart I). The average yield on all long-term Treasury bonds\nincreased by .19 percent during the week to 2.59 percent at\nthe close on Saturday. This is the highest yield since\nSeptember 28, 1938, the first day of the recovery from the\nbreak in the market at the time of the Munich crisis; and,\naside from the break at that time, the highest since April\n1938, immediately following the desterilization of the In-\nactive gold, It 18 lower, however, than the average had\never been prior to that time, except for a few months im-\nmediately preceding the 1937 break (Chart II).\nDaily fluctuations since the beginning of July in the\nprices and yields of four selected Government securities are\nshown in Chart III. It will be noted that the 2-3/4's of\n1960-65 have declined only about 6 points, while the 2's of\n1947 have declined about 5 points. The yield on the 2's of\n1947 has advanced by 0, 64 percent during the same period,\nwhile that on the 2-3/4's of 1960-65 has advanced only 0.36\npercent. The shorter-term bonds have thus failed notably\nin the present break to furnish to their holders the sub-\nstantially greater measure of protection against price de-\ncline (as compared with that afforded by longer-term bonds)\nfor which they had hoped. This has been true in previous\nsharp declines in the market. Whether it would prove true\nduring a more extended deoline 1s doubtful.\nChart IV compares the yields of Treasury securities on\nApril 1, 1937, June 5, 1939, and September 9. 1939. The\nfirst date 1a the bottom of the trough of the 1937 break,\nand the second 18 the 1939 high. The chart shows that since\nJune the securities have lost roughly two-thirds of their\ngains from the bottom of the 1937 break until that time. It\nalso shows that the present relationship between the yields\nand maturities of both the bonds and notes is much more 31m1-\nlar to that at the bottom in 1937 than it is to that at the\nhigh of last June. The present break, like that of 1937, has\nreduced the spread between the yields of securities of dif-\nferent maturities and has thus produced a somewhat flatter\ncurve.\nRegraded Unclassified\n185\nSecretary Morgenthau - 3\nII. Official Support Given the Government\nBond Market\nThe Federal Reserve banks purchased $204 millions of\nGovernment securities in the open market during the week\nended. Saturday, September 9 (Chart V). For a large part of\nthe week these banks were the principal or only bidders in\nthe Government securities market. Although they were still\ncontinuing to increase their portfolio at the week-end, the\nincreases were much smaller than the earlier additions, as\nthe banks curtailed the volume of their purchases as soon as\nthe market appeared to have stabilized itself at its lowered\nlevel. (Purchases on Thursday amounted to only $8 millions\nand on Saturday to $16 millions; no purchases were made on\nFriday.)\nNearly all of the securities acquired during the week's\noperations were bonde, the Federal Reserve System having been\nthe principal market for such offerings. These purchases\nwere in contrast to those of the preceding week, when note\nacquisitions amounted to nearly half of the increase in the\nbanks' portfolio of Government securities. Some outside buy-\ning interest for short-term securities had shown itself early\nin the week, however -- particularly for issues maturing within\ntwo years -- and the Federal Reserve banks avoided these 18-\nsues.\nConsiderable newspaper comment was occasioned during the\nweek when it became known that the Federal Reserve banks had\ndeferred until Friday the delivery of some of their Tuesday\npurchases of Governments. These securities would ordinarily\nhave been delivered on Wednesday and would have been included\nin the figures on the regular Wednesday condition statement.\nThe procedure followed prevented the published figures from\nindicating the full extent of the official support to the\nmarket during this part of the crisis period. Figures for\nChart V have been adjusted to add into the current Wednesday\nand Saturday figures all purchases actually made through to\nthe close of business on each of these days, whether or not\ndelivery had actually been effected.\nOpen-market purchases during the week brought the Federal\nReserve banks' portfolio to a new high level - $2,756 mil-\nlions. The operations of the last ten days have more than\noffset the decline in the banks' portfolio occasioned by the\nrun-off in their holdings of Treasury bills in June, July,\nand August (Chart V). They have lengthened the average\nRegraded\nSecretary Morgenthau - 4\n186\nmaturity of the banks' holdings considerably, moreover, and\nhave added guaranteed securities to a portfolio which had\npreviously been confined to direct obligations only.\nThe Treasury purchased some $50 millions of Governments\nfor its investment accounts during the week. These purchases\nbrought net acquisitions since September 1, to & higher level\nthan net acquisitions have reached in any month since March\n1937.\nMember bank holdings of Government securities appear to\nhave declined only moderately B.B a result of the crisis,\npartly as the result of the informal agreement not to liqui-\ndate holdings negotiated by the Federal Reserve Bank of New\nYork with the New York banks. These banks extended the ef-\nfact of the agreement, it was reported, by advising their\ncorrespondents to do likewise. In the week ended September 6\n-- when long-term bonds dropped four points on the average\n-- reporting member banks in New York City reduced their\nholdings of direct Government securities by only $8 millions;\nand Chicago banks reduced their holdings by only $18 mil-\nlions. Greater declines in the holdings of guaranteed 18-\nsuee were reported, but these reflected, to a large extent,\nthe retirement on September 1 of $100 millions of 1-1/2 per-\noent FFMC bonds maturing on that date.\nAn interesting sidelight on the Government market dur-\ning the week was provided by the rapid sky-rocketing of bond\ntrading on the New York Stock Exchange to 871 millions -- an\nall-time high -- on Wednesday. This was due to two factors:\n(1) Dealers who would have otherwise used the over-the-\ncounter market desired to avoid disclosing the names of\nlarge sellers of Government securities as requested by Fed-\neral Reserve officials; and (2) the Reserve banks themselves\nconducted a large share of their own operations on the Ex-\nchange. With the relaxing of the disclosure rules, and the\ndecline in official operations, the volume on the Stock Ex-\nchange immediately dropped to much lower levels -- $6 mil-\nlions on Friday.\nIII. High-Grade Corporate Bonds\nHigh-grade corporate bonds suffered considerably more\nduring the past week than Treasury bonds, a condition which\n18 doubtless explained by the fact that the corporate bond\nmarket was not receiving official support. In the early\n167\nSecretary Morgenthau - 5\npart of the week, there was virtually no market in high-grade\ncorporate issues, and spreads between bid and ask prices\nbecame very large. At the close on Tuesday, for example,\nthe Fennsylvania Railroad 4-1/2's of 1960 were quoted over\nthe counter at 107-1/2 bid and 117-3/4 ask, and the New\nEngland Telephone and Telegraph 4-1/2's of 1961, at 111 to\n123-3/4. In the latter part of the week, however, spreads\nnarrowed, and the corporate bond market recovered some of\nits earlier losses.\nOur average of the yields of long-term high-grade corpo-\nrate bonds reached 3.41 percent on Tuesday, the highest it\nhas been since the spring of 1937. It was unchanged on\nWednesday, and thereafter decreased day by day to 3.27 per-\ncent on Saturday. This 18 approximately the same level as\nin the first week in April 1938, immediately preceding the\nannouncement of the desterilization program (Charts I and\nII).\nOn Tuesday, the spread between the yield on long-term\nTreasury and high-grade corporate bonds was .94 percent, the\nhighest in approximately 5-1/2 years. This spread was re-\nduced steadily during the remainder of the week, as corpo-\nrate bonds gained strength, while Treasury bonds continued\nto decline. At the close on Saturday, the spread was\n.68 percent.\nThe most probable explanation for the contrasting be-\nhavior of corporate and Treasury bonds during the week lies\nin the fact that the former, having no official support,\nabsorbed at once the full immediate shock of the beginning\nof the war, and rapidly fell to a bottom from which they\nwere able to rebound; whereas Treasury bonds absorbed the\nshock only gradually, as official support permitted.\nIV. British and French Markets\nThe London Stock Exchange reopened on Thursday, and it\nwas reported that the undertone of the market was steady to\nfirm. The 2-1/2 percent console closed at 62, a.8 compared\nwith 64-3/4 on August 31, the last day before the Exchange\nwas closed. On Friday, consols closed at 62-1/4, equivalent\nto B yield basis of 4.02 percent. These prices are, of\ncourse, subject to the reservation that since August 24,\nthe London Stook Exchange has not been & free market. The\nminimum price set for the 2-1/2 percent consols 1a reported\n188\nSecretary Morgenthau - 6\nto be 62-1/2, and the fact that prices have actually dropped\nbelow this point may be explained by the fact that Wednesday\nmarked the \"ex-interest\" day for consols. This would a.0-\ncount for a difference of 5/8 of & point.\nThe past week has shown little change in the money mar-\nket in London. Call money against bills remained at around\n2-1/2 percent, and six-months bille at 5 percent. Three-\nmonths British Treasury bills sold Friday at 3.6 percent, 88\ncompared with 3.7 percent the week before.\nFrench 3 percent rentes have declined further during\nthe week. The closing price on Friday was 69.0, as compared\nwith 71.5 last Friday, a yield increase from 4.20 percent to\n4.35 percent. This brings this issue back to approximately\nthe level of the spring of 1938.\nThe weekly statements of the Bank of England and the\nBank of France, released Thursday, show record circulation\nof notes in both countries. In the two weeks since August 24,\nthe circulation of the Bank of England increased 8.2 percent,\nand that of the Bank of France 15.6 percent.\nDuring the past week, the Bank of England transferred\nall of its gold holdings (reported at L264 millions last\nweek) to the Exchange Equalization Fund. On Sunday\n(September 10), France adopted exchange control, prohibit-\ning the exportation of capital in any form without the\nauthorization of the Ministry of Finance.\nAttachments.\nChart I\nCOMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM US TREASURY\nAND AVERAGE OF HIGH GRADE CORPORATE BONDS\n1938\nJAN\nyes\nMAS\nAPR\nMAY\nJUNE\nJULY\nAUS\nSEPT.\nOCT.\n1939\n1939\nHOV\nDEC\nH\net\nn\n\"\na\n:\na\nJAN\nFEB\n-\nMAR\n:\nAPR\n-\n=\n-\nMAY\n-\nJUNE\nJULY\nif\n*\nis\n14.\nis\nAUG\nis\n...\nSEPT\nOCT\nNOV\nDEC\nAUG\nBEFT\nOCT\nse\nIF\n#\né\n-\n:\n#:\n⑉\n.\n.\n-\n-\n--\nScale\nInverted Scale\nInverted Scale\nFER CENT\nFEE CENT\nPER CENT\nWEEKLY. Wednesday Quotations\nDAILY\n\"\n22\n17\n(4\nLong Term Treasury (NP years - more the services can -\n24\n2.4\nLong Term\nTreasury\n26\n14\n26\nCorporates\n21\n11\n2.6\n30\n1.0\n3.0\nChange --\n-\n12\n\"\n32\nCorporate\n34\n34\n14\n36\n36\n34\n30\n18\n3.0\n40\n40\n40\nPER\nPER\nPER\nCENT\nCENT\nCENT\n100\n100\n-\n100\nBC\n40\n80\nSpread Between Long Term\nTreasury and Corporate*\nSpread\nso\n40\n60\n40\n:\n40\n20\n20\nre\no\no\no\n-\n.\n-\nif\n#\nhave\nà\n=\n*\n-\n=\n\"\n.\n-\n13\n:\n-\n-\n\"\nOCT\na\nf\n:\n=\n-\n-\nH\n#:\nJAN\n.\n:\n\"\nJUNE\n:\n.\n17\nan\n-\n:\nas\n-\nJULY\nAUS\nSEPT\nACT\nDEC\nAUG\nSEPT\n=\nne\n- 42\nare\nMAY\nJULY\nAUG\nSEPT\nOCT\nNOV\nDEC.\nJAN.\nFEB\nMAR\nAPR\nMAY\nJUNE\n1939\n1939\n1938\n\"Arger - change - compension of Lany Term Treesury everage\n-\nRegraded Unclassified\nChart =:\nCOMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY\nAND AVERAGE OF HIGH GRADE CORPORATE BONDS\n1927\n1928\n1929\n1930\n1931\n1932\n1933\n1934\n1935\n1936\n1937\n1938\n1939\nPER CENT\nPER CENT\ninverted Scale\ninverted Scale\nMonthly Average of Daily Figures\n20\n20\n2.5\n25\nLong Term Treasury\n3.0\n3.0\n3.5\n3.5\nLatest figures or of Saot 9\n4.0\n4.0\nHigh Grade Corporate\n4,5\n4.5\n50\n5.0\nMoody's Aaa\n5.5\n5.5\nPER CENT\nPER CENT\n25\n25\n20\n2,0\n15\n1.5\n10\n1.0\nSpread\n5\n5\n0\no\n1927\n1928\n1929\n1930\n1931\n1932\n1933\n1934\n1936\n1936\n1437\n1938\n1939\n1-4\n-\n# - limitry # - -\nF-76-B\n- - -\n06\nRegraded Unclassi\nChe\nIII\nPRICES AND TIELDS OF SELECTED GOVERNMENT SECURITION\nparty\nPrices\nTields\nCERTIMBER\nIf\n19\n.\n16\nes\n5\ne\nN\nΓ.\n:\n-\nDELLARS\nPERCENT\nINVERTED)\n100\n100\nis ROTER\n4\n+\nARE 15, 1944\nse\nse\nis REFER\nAME 15, 1944\na\n,8\nHOS\n100\n104\nIDA\n1.9\n1.0\nn -\nME. 15, 1947\n102\nfor\n12\n1.2\n100\n100\n14\n96\n$\n1.4\na (\nme. 15. 1947\n96\n*\n1.6\n1.6\n105\nIDS\nas Boxes\nsec. is. 1949-133\n1.8\n(4)\n104\n104\n** Bours\nMA. 15, 1949-'53\n102\nè\n2,2\n2.0\n100\n100\n2.2\n2.2\nFOR\n106\n106\n2,4\n2.4\n105\n28 Bosts\n28% Bowers\nME. 15, 1960-163 'as\nM.C. 15. 1960-163 \"63\n104\n124\n2,6\n2.6\n-\nE\nA\n1.8\n100\n100\nX\n19\n3/9\n3.8\n26\n2\n9\n:\n23\n30\n.\nIS\n42\na\n5\n12\nis\n26\n2\n9\nis\nen\n30\n,\n15\nN\na\n3\n12\n19\n-\nAUGUST\nSEPTEMBER\nVAT\nwast\nSUPTEMER\n1939\n\"\n(Re of - Servery of the\nF\n117\n- of - - -\nRegraded Unclass\nYIELDS OF TREASURY BONDS AND NOTES\nBased on Closing Prices\nYEARS TO MATURITY OR CALL\n5\n10\n15\n20\n25\nPER\nPER\nCENT\nCENT\n3.2\n3.2\nAPRIL 1. 1937\n0\n2.8\n2.0\nO\no\no\n2.4\n2.4\no\nSEPTEMBER 9, 1939\no\n2.0\n2.0\n1.6\n1.6\nJUNE 5, 1939\n1.2\n1.2\nx\nO\nx NOTES\no BONDS\nis\n.8\n.4\n.4\no\no\nI\n5\n10\n15\n20\n25\nYEARS TO MATURITY OR CALL\nOffice of the Secretary of the Treasury\n- of - and -\nF - NS\nRegraded Unclas\nChart V\nFEDERAL RESERVE BANK HOLDINGS OF U.S. SECURITIES\n1939\n1930\n1931\n1932\n1933\n1934\n1435\n1936\n1937\nan\n1938\n1939\n1940\nVALI\nMAY\n-\nNOV\nCOLLARS\nDOLLARS\nDOLLARS\nMONTHLY\nBillions\nBillions\nWELALY\nEquip\nDe -\n- - law\n26\n28\n28\n>Totol\nTotal\n24\n24\n24\nCertificates and 9/1/2\nCertificates and Bills\n20\n20\n20\nIA\n16\n16\nNotas\n12\n1.2\n12\nNotes\ne\na\n8\nBonds\n4\n4\n4\nBonds\no\no\n0\n1429\n1930\n1931\n1932\n1933\n1934\n1935\n1936\n1937\n1938\n1940\nJAN\nMAR\nMAY\nand\nAT\n1239\n1939\n184\nCJ\nGRAY\nSYDNEY\nDated September 11, 1939\nRec'd 9:15 4.0.\nSecretary of State,\nWashington.\nSeptember 11, 6 p.m.\nReferring to Department's telegram of September 9,\n11 a.m., defence (monetary control) regulations issued\nAugust 25 give Commonwealth Treasurer complete control\nover all foreign Exchange operations. Full information\ntransmitted in my despatch number 527 of August 31.\nDelivery of all gold to Commonwealth Treasury within one\nmonth required. Subject to Exemptions granted by the\nTreasurer the regulations provide for very drastic EX-\nchange control including 381E to Commonwealth Treasurer\nof all foreign currency assets. This last mentioned\nprovision not yet put into effect. The Prime Minister\nstated that an effort would bE made to cause minimum\ndislocation of trade consistent with the national inter-\nEsta. Control is being EXERCISED by Commonweal th Bank\nand as its agents by trading banks. Am assured by high\nofficial of the Commonwealth Bank that regulations have\nbeen promulgated and for the present are being ad-\nministered\n195\n-2- September 11, 6 p.m., from Sydney\nministered with the primary object of preventing flight\nof capital outside of Australia and that EVETY effort will\nbE mode to avoid interference with normal (repeat normal)\ntrade. Business firms consulted report that banks are\nselling United States dollar Exchange for usual require-\nments but refuse to make future commitments.\nIt appears probable that some form of restriction of\nimports based on Essential requirements of Australia\nmay be anticipated and any expansion of American exports\nto Australia would be subject to this principle.\nOther developments are:\n(1) Australia - London exchange rate remains un-\nchanged, but that Australian pound declines proportion-\nately with London - NEW York rate.\n(2) Arran gements have been made for purchase by\nGreat Britain of all surpluses over Australian requirements\nof most primary products including wool, canned and dried\nfruits, meat, butter, et cetera. No announcement yet\nregarding wheat.\n(3) Increase in shipping freights inward and out-\nward of 25% have been announced and overseas sailings\nrestricted by reason of Admiralty control.\n(4) Commonwealth Government has announced intention\nto\n196\n-3- September 11, 6 p.m., from Sydney\nto control prices of its commodities, including petroleum\nproducts and tractors in connection with anti profitsering\nprogram.\n(5) Sales tax increased by one percent. Effective\nSeptember 9 increases in duties on a number of items\nincluding gasoline 1 penny per gallon, mineral lubricating\noil 3 pence and on tariff item 404 increased from free\nto 15 percent British preferential end from 12 to 30\npercret general.\n(6) Company income tax vate increased from 5.75\nto 8.25 percent and rebate formerly granted to foreign\nholding companies in the amount of such tax paid by\nAustralian incorporated subsidiaries now abolished.\nThis means double taxetion on income received by American\nholding companies, but non Australian companies opera-\nting in Australia on purely branch office basis not\naffected.\nWILSON\nCSB\nGAV17038\n-\n24(f)\nFEDERAL RESERVE BANK\nOF NEW YORK\n197\nOFFICE CORRESPONDENCE\nDATE September 11, 1939.\nTO\nCONFIDENTIAL FILES\nSUBJECT TELEPHONE CONVERSATION WITH\nFROM\nL. W. Knoke\nBANK OF FRANCE.\nMr. Cariguel called at 1 o'clock today. As I had\nundoubtedly learned from the papers he said, there was now\nexchange control in France. They had started at 176.50 buyers\nof sterling and 176.75 sellers and he thought that those rates\nwould remain unchanged for some time to come.\nI asked whether he could give me some details as to\nhow this thing was going to work in Paris and he said that it\nwould probably be some days before the machinery was properly\n(\nset up. Would we get any orders from him by cable? Be replied,\n\"No\".\nI again repeated my request that he send me by airmail\neverything that had been and was going to be published in the\nway of decrees, regulations, etc.\nLAKIKW\nRECEIVED\necer St 080\nmust SAT\nnormal all -\n- - F - -\nUnclassified\npee\nSeptember 11, 1939\n13-7-39\n198\nMy dear Mr. Secretary:\nIn order that I may answer\nAmbassador Kennedy's cable #1500,\nI would appreciate your letting me\nhave a copy of the Department's\nanswer to his message.\nSincerely yours,\nThe Honorable\nThe Secretary of State.\nSeptember 11, 1939\n199\nMy dear Mr. Secretary:\nIn order that I may enswer\nAmbassador Kennedy's cable #1500,\nI would appreciate your letting me\nhave a copy of the Department's\nanswer to his message.\nSincerely yours,\nThe Honorable\nThe Secretary of State.\n200\nSeptember 11, 1939\nMy dear Mr. Secretary:\nIn order that I may answer\nAmbassador Kennedy's cable #1500,\nI would appreciate your letting me\nhave a copy of the Department's\nanswer to his message.\nSincerely yours,\nThe Honorable\nThe Secretary of State.\n201\nNC\nPLAIN\nLONDON\nDated September 11, 1939\nRec'd 3:30 p.m.\nSecretary of State\nWashington\n1599, September 11, 6 p.m.\nFOR TREASURY FROM BUTTERWORTH.\nBEWLEY confirms that the declaration of wa.\" has not\nchanged the procedure with respect to forsign securities\nas outlined in my 1344 September 1, 1 p.m. Permission is\nbEing granted for transfers between residents in the\nUnited Kingdom and also for sales abroad if the ' Esulting\nforeign currency is handed over to the Bank of England,\nthe amount of business in the former is less than in the\nlatter. S.E.C. no doubt has information as to how\nExtensive the latter transactions are and NEff who\n1s here would appreicate it if a copy of this telegram could\nbE given to Purcell. Incidentally BEWLEY mentioned that\nthey were actively considering what could be worked out\nin the matter of Americans \"resident\" in England,\nKENNEDY\nRECEIAED\nCSB\neach\n(Nimal off L -whe\nThe with # know what\n202\nTELEGRAM SENT\nRFP\nGRAY\nSeptember 11, 1939\n7 p.m.\nAMERICAN ENRASSY\nPARIS\n870.\nFOR THE AMEASSADOR FROM THE TREASURY.\nReference your 1892 September 10, 2 p.m. The 3tore-\ntary of the Treasury has this noon handed the following\nstatement to the French Financial Attache Leroy Beaulieu\nfor communication by telephone to Minister of Finance\nReynaud:\nThe 3ecretary of the Treasury thanks the Minister of\nFinance for his communication in regard to logislation for\nsetting uo a system of exchange control in France and in\nFrench territories overseas, and has the pleasure in pro-\nviding herewith the text of 2 statement which he is TE-\nleasing to the press today:\nQTOTE. The Secretary of the Treasury stated that he\nhad been advised by the Minister of Finance of France of\nthe Emergency action of the French Government in setting\nup a system of Exchange control in France and in French\nterritoriss overseas. The Secretary said that the Onited\nStates Government recognized the emergency conditions\nwhich impelled this action, and stated that the Tri-\nPartite\nRegraded Unclassified\n203\nRFP -2- #870, September 11, 7 p.m. to Paris\nPortits declaration continues in Effect. END QUOTE\nThe above statement will bE nade public in\nWashington at 4 o'clock this afternoon Washington time.\nHULL\n(HF)\nEA:HF:LWW\n03V13038\neee: y 1\non\nRFF\nTELEGRAM SENT\nGRAY\n204\nSeptember 11, 1939\n9 p.m.\nAMERICAN EMBASSY\nLONDON\n911.\nFOR THE AMBASSADOR FROM THE TREASURY.\nThere is quoted for your information and that of\nthe Chancellor of the Exchequer of Great Britain, the\nfollowing communication which will be released to the\nprsss here at 4 D.M. Washington time.\nQUOTE. The Secretary of the Treasury stated that\nhe had been civised by the Minister of Finance of France\nof the emergency action of the French Government in set-\nting ap C. system of exchange control in France and in\nFrench territories overseas. The Secretary scid that\nthe United States Government recognized the emergency\nconditions which impelled this action, and stated that\nthe Tri-Partite declaration continues in Effect.\nEND QUOTE.\nEA:IF:INT\nHULL\n(F)\nSAME TO:\nAMERICAN EMEASSY, BRUSSELS, as No. 58, September 11,\nB substituting \"Minister of Finance of Belgium\"\nfor Dellay \"Chancellor of the Exchequer of Great Britain\".\nAMERICAN LEGATION, BERNE, as No. 74, September 11, E\nDam., FOR THE MINISTER (substituting \"Minister of\nFinance of Switzerland\")\nAMERICAN LEGATION, THE HAGUE, as No. 84, September 11, of\n8 Draffley FOR THE MINISTER (substituting \"Minister\nPRODUCT\nFinance of the Netherlands)\nRegraded Unclassified\nGRAY\n205\nLAR\nParis\nDated September 11, 1939\nRec'd 4:01 p.m.\nSecretary of State,\nWashington.\n1907, September 11, 6 p.m.\nFOR THE treasury.\nConfusion inherent in the sudden application of\ncomplete exchange control has naturally continued throughout\nthe day. The foreign Exchange office hes quoted a selling\nrate for sterling of 176.50 and & buying rate of 176.60.\nThe dollar has been quoted at 43.70 and 43.95. The foreign\naxchange office was a seller of dollars in payment for war\nsupply purchases. While the \"approved\" French banks did\nsome exchange business American and other foreign banks\nremained out of the market and are as yet unable to obtain\ndefinite rulings from the authorities covering their\nprocedure or their future status. They naturally would\nprefer dealing directly with the Bank of France rather than\nthrough the French banks \"the better to protect their\nclients\" and are hopeful that they may subsequently be put\non the \"approved\" list They well realize, however, that\nFrance is at war and are prepared to adapt themselves\naccordingly.\nThe Guaranty Trust did EXECUTE several foreign\nExchange transactions directly with the Bank of France.\nThe\nRegraded Unclassified\nLAR-2, 1907, September 11, 6 p.m. from Paris.\n206\nThe transactions in question, however, WERE carefully\nscrutinized and will bE carried in the Bank of France\ndaily record. There is no indication, however, that this\nprocedure will bE permitted as a general rule.\nThe securities exchange was open as usual but the\nturnover was small. The tone was calm and firm, industrials,\nutilities and banks registered advances over Friday's\nquotations. Rentes were down slightly with the EXCEPTION\nof the dollar Exchange guaranty issue of 1937 which again\nimproved.\nBULLITT\nCSB\nBECEIAED\neeer 81512\nTRINTANGO YRUPAINT\nwill to\n207\nNC\nGRAY\nPARIS\nDated September 11, 1939\nRec'd 9:22 s.m.\nSecretary of State\nWashington\nRUSH\n1899, September 11, 11 a.m.\nFOR THE TREASURY\nOur telepram 1894, September 10, 4 a.m., was based\non a pampilet text given us at the Finance Ministry. Com-\nparison with the texts published in the Journal Official\nappearing this morning indicates no change of any importance.\nThe \"law prohibiting or regulating in time of war the\nexport of canital, exchange operations and transactions\nin gold\" is however published in the form of a Presidential\ndecree and an additional article provides that it shall\nbe subject to ratification by Parliament as provided in the\nlaw of March 17, 1939.\nThe Journal Official likewise contains the text of\nan additional decree \"regulating imports and exports in\ntime of war\". (END OF SECTION ONE)\nBECEINED\nBULLITT\nRR\nTIP\nVHU2A39T\noff in name\n- un of - -\n208\nCJ\nGRAY\nPARIS\nDated September 11, 1939\nREc'd 9:02 a.m.\nScoretary of State,\nWashington.\nRUSH.\n1899, SEptember 11, 11 a.m. (SECTION TWO).\nUnder this decree all importations of foreign\nmerchandise are subject to the prior obtaining of &\ncertificate attesting that the delivery of foreign\ncurrency necessary to Effect payment has been authorized\nor that the importation does not call for payment in\nforeign currency. When foreign currency is required it\nwill only be delivered upon presentation of this certi-\nficate. As concerns exports if payment therefor is made\ntotally or partially in foreign currency the exporter must\nundertake to turn such currencies over to the Exchange\nOffice 03V13038 Within one month after receipt. If payment is\nmade totally or partially in francs the exporter must\nundertake to accept in payment only fortign holdings in\nVRUPAINT\nfrance the utilization of which for the purchase of French\ngoods has been authorized beforehand by the Exchange\nOffice. Exporters must provide the Exchange Office with\nall\nRegraded Unclassified\n209\n-2- #1899, September 11, 11 a.m. (SEC. TWO) from Paris\nall proof considered necessary by the latter regarding\nthe amount received by them in payment.\nBULLITT\nRR\nBEGRIARD\neeer I I cr2\n110ml any on\n210\nNC\nPLAIN\nPARIS\nDated September 11, 1939\nRec'd 10:10 a.m.\nSecretary of State\nWashington\nRUSH\n1889, September 11, 11 a.m. (SECTION THREE)\nThe Journal Official likewise lists the\n\"intermedierisa\" authorized tc deal in Exchange operations\nunder the supervision of the Foreign Exchange Office. They\nare as follows: Banque de L'Afrique Occidentale,\nBanque de L'Algerie, Banque D Etat Du Maroc, Banque de\nL'Indochine, Banque DE Madagascar, Banque Nationale\nFrancaise du Commerce Exterisur, Banque Nationale pour\nle Commerce et L'Industrie, Banque de Paris Et des\nPays Bas, Banque de l'Union Parisienne, Compagnie\nAlgerienne, Comptoir National d Escomote de Paris, Credit\nCommercialy , Credit Foncier d Algerie et de\nTunisie, Credit Lyonnais, Credit du Nord, MM Lazard\nFrer Compagnie, Societé Generale Alsecienne de\nBan Generale de Credit Industriel et Com-\nsit:\nmeroral, Societe Generale pour Favoriser le Developpement\ndue Commerce Et de l'Industrie En France, Societe\nMarseillaise de Credit Industrial Et Commercial Et de\nDepots.\nBULLITT\nHPD\nPARAPHRASE OF SECTION FOUR OF TELEGRAM No. 1899 OF\n211\nSEPTEMBER 11, 1939, FROM PARIS.\nNo American or other foreign banks appear on the list\nand our bank representatives here are still somewhat at 008\nas to whether they must deal through one of the foregoing\ninstitutions or whether they may deal directly with the\nBank of France.\nThere is some natural confusion ae to how the new eystem\nwill operate but the situation will probably shake down with-\nout undue delay. For the moment no rates are being quoted.\nFrom all appearances transfers of foreign currency\ndeposits in France are covered by the exchange control restric-\ntione, though it is the impression of our banks here that\nn. fairly liberal attitude regarding such holdings of foreigners\nwill be adopted by the authorities.\nWe have been told that the regulations in general\nresemble those which were in effect during the World War\nand afterwards.\nEND OF MESSAGE.\nBULLITT.\nEA:LWW\nSeptember 11, 1939\n9:12 a.m.\nCecil W.\n212\nGray:\nGood morning, Mr. Secretary.\nHMJr:\nHow are you?\nG:\nJust fine, thank you, sir. I hope you are well,\nHMJr:\nWould you give Mr. Feis this message for me?\nG:\nYes.\nHMJr:\nI mean, Mr. Hull.\nG:\nTo -- to the Secretary?\nHMJr:\nYes.\nG:\nRight, sir.\nHMJr:\nOr if you could do something before he comes in.\nWe have this decree from the French Government.\nG:\nYes, sir.\nHMJr:\nPutting on exchange control.\nG:\nYes, sir.\nHMJr:\nMy people are preparing an answer, see?\nG:\nYes, sir.\nHMJr:\nTo the French.\n&\nYes, sir.\nHMJr:\nAnd I would like to have Mr. Feis over here now to\nsit in with our people while we're doing the answer,\nyou see?\nG:\nRight, sir. Are you meeting now, Mr. Secretary?\nHMJr:\nWe're meeting in room 296 right away.\nG:\nI'll get to work on it immediately.\nHMJr:\nAnd -- we'd like to have -- nobody else would be of\nany use on this.\nRegraded Unclassified\n- 2 -\n213\nG:\nRight, sir.\nHMJr:\nAnd -- but in order that Mr. Hull may know and it\nwould be agreeable to him, the answer, I'd like\nMr. Feis to see it and help formulate the answer.\nHello?\nG:\nRight -- right, Mr. Secretary. I'll endeavor to\nreach him immediately.\nHMJr:\nThank you.\nG:\nYou're welcome, sir. Goodbye.\nSeptember 11, 1939\n10:20 a.m.\n214\nHMJr:\nHello.\nCharles\nEdison:\nHello.\nHMJr:\nEdison?\nE:\nYeah. Good morning.\nHMJr:\nMorgenthau.\nE:\nYeah.\nHMJr:\nHow are you?\nE:\n0. K.\nHMJr:\nWill you, at your convenience, see Captain Puleston\nfor me? He's here in my office now.\nE:\nYes, surely.\nHMJr:\nCould you give him an appointment?\nis\nAh -- yeah. Wait a minute until I get -- wait 'til\nI get my dope sheet.\nHMJr:\nThank you.\n(Brief pause.)\nE:\nWhat does he want to see me about?\nHMJr:\nWell, you remember I wrote you that note.\nE:\nYeah.\nHMJr:\nAnd he's to come here and help me.\nE:\nYeah.\nHMJr:\nAnd I cleared it with Captain Callaghan.\nE:\nYeah.\nHMJr:\nAnd he -- Captain Callaghan said he cleared it with\nthe Navy Department.\nE:\nWell that's all taken care of.\n- 2 -\n215\nHMJr:\nWell, he just would like to pay his respects.\nE:\nOh yeah, sure. Well, that's fine.\nHMJr:\nHe'd like to pay his respects to you.\nE:\nOh, have him come in anytime. We'll -- wait a\nminute. I can see -- two -- yeah, have him come\nin anytime.\nHMJr:\nWell then, he can come over now?\nE:\nYeah. I'll work him in.\nHMJr:\nThank you so much.\nE:\nAll right. Thank you.\nHMJr:\nGoodbye.\nE:\nGoodbye.\nSeptember 11, 1939\n11:03 a.m.\nOperator:\nGo ahead.\n216\nHMJr:\nHello.\nFrank\nBoyce:\nYeah. Hello, Mr. Secretary. Frank Boyce.\nHMJr:\nYes.\nB:\nI got your telegram and I've looked at the apples\nand I think I've got bad news for you on the apples.\nThe -- the apples are mostly green, immature; they\nhaven't got enough color. And the apples that had\n-- there are about three boxes -- three or four\napples in each box that have good color\nHMJr:\nYes.\nB:\nand those apples, when you out them they have\nbrown centers.\nHKJr:\nYeah.\nB:\nNow, I sent them up to the Department of Agriculture\nto -- up here at the build -- 641 Washington Street\nHMJr:\nYeah.\nB:\nto see just what 18 the trouble. I think it's\ndrouth spots, what we call drouth spots.\nHMJr:\nYeah.\nB:\nA condition that's -- arises during a dry period.\nHMJr:\nYeah.\nB:\nAnd I just wonder if it's going to be general or if\nthese apples came off of part of your orchard\nHMJr:\nNo.\nB:\nthat -- that's high.\nHMJr:\nWe knew about it and the trees were supposed to be\nmarked and no apples that came off those trees were\nto go into those boxes. Those were my instructions.\n- 2 -\n217\nB:\nWell, the -- the apples we got -- got here, there\nwere about four or five with color in at box.\nHMJr:\nYeah.\nB:\nand the rest are green.\nH/Jr:\nYeah.\nB:\nAnd you couldn't sell them at all. And the apples --\nI just accidentally out one; I wanted to see what\nthey tasted like.\nHMr:\nYeah.\nin\nAnd as I did why the entire center -- oh, for about\nan inch and a half of the center -- ah -- 18 solid\nbrown color.\nHMJr:\nYeah.\nB:\nAnd I -- the pathologist up there at the Government\noffice 16 -- to look at them. I called him right\nbefore I called you to see if he had gotten to them\nyet and he hadn't -- 8 fellow named Dr. Brown.\nH/Jr:\nYeah.\n3:\nI'll have to give you a report 8. little later on him.\nNow, the -- the question 18, is this condition going\nto exist only in high spots in the orchard, or\nHMr:\nNo.\nB;\nwill it be pretty general in the valley?\nHWr:\nNo, we had the Farm Bureau go all over it and it's\njust a few of those trees on the knolle and those\nare the ones they were picking first.\nB:\non, I see.\nHWr:\nBut none of them were supposed to get in. But I told\nthem to -- very definitely not to, but I also told\nthem to pick three boxes at random and send them down.\nB:\nWell, he picked them at random all right because\nthey're -- (chuckling) they're almost entirely\ngreen and they're immature. You couldn't -- you\ncouldn't eat any of those apples at all. They're --\n- 3 -\n218\nthey\nthey're sour, and the seeds are -- are still a light\n-- light color.\nHNJr:\nWell now, what do you suggest?\nB:\nThey've got no color at all.\nHWr:\nWhat do you suggest?\nin\nWell, I -- let me see what this report 16 and I -- I\nthink if this 18 drouth spot -- if it's something\nelse besides drouth spot, I'll give you their re-\ncommendation and\nSWr:\nNo\nB:\nI'm going to have my man go over there - Kaylin\nrun over and Just look the situation over and see if\nwe can't work out something. Meantime, if he's\ngoing to have any apples and they're like the sample,\nwhy the only thing we could do would be to sell them\nthrough our Jobbing store or you can give them to\nStewart Hubbard or anybody like that to scatter the\nJob out, see?\nH/Jr:\nWell, let me put it this way: If they're too hard\nto eat, we'd better put them into storage.\nB;\nOh well, you couldn't store these apples.\nHMr:\nWhy not?\nBE\nThey're immature, they're green BB grass, they --\nthey haven't any color. No, these apples are bruised\nand he has Just picked the apples at random and just\ntossed them in the boxes. You know e McIntosh has\nto be handled with care.\noh.\nB;\nNo, you couldn't store these apples, I'm sure. The\nthing to do, if you've picked five hundred, - I -- I'm\ngetting Kaylin and his assistant over there. They'll\nbe over there within an hour or 80; probably there\nnow.\nKHJr:\nYeah.\nRegraded Unclassified\n- 4 -\n219\nB:\nTo look the situation over, but meantime I think if\nyou have four or five hundred, they ought to go\nright to some market and be sold.\nH/Jr:\nWell, they'd be slaughtered.\nin\nWell sure, they'll be slaughter, but these applee\nnever -- never improve. They never improve in\nstorage.\n10Wr:\nWell, I don't\nin\nHasn't -- he hasn't graded these apples at all, He's\nbeen very careless in -- in the packing of these\napples.\nBWN\nWell now, there's -- the other thing, what's his name\n18 starting tomorrow to out up these two-pound boxes.\nB:\noh, on the Cortland?\nHMJr:\nNo, on the Macs.\n3:\noh, yes. Two-pound on the Macs tomorrow?\nHWr:\nYeah.\nB:\nOh, well - I think he's -- I think he's too soon.\non that. Is the -- the State Grange man there?\nThe greens are in there. It's the same apples only\nput up in 2 two-pound box.\n3:\nWell, these -- these apples are too green to pack,\nMr. Secretary.\nHNJr:\nWell then, we'd better out them all in storage\nand then\nB:\nBetter put them all in a bushel and a. peck box and -\nand if he's going to pick any like this, they'd better\nbe picked and put in those regular bushel boxes.\nHWr:\nJust jumble pack and put them in storage?\nB1\nJumble box -- pack and with a top facing. Face\nthe top row, Bee?\nD'Jr:\nJumble pack but top the -- fact the\nRegraded Unclassified\n- 5 -\n220\nB:\nJust the top row faced. That's -- that's the way\nthey're usually packed - jumble packed with the top\nrow faced.\nHMJr:\nTop row faced. But not to put up any in two-pounds?\nB:\nNo. Do you want me to tell Miss\nHMJr:\nNo, I'll -I'm going to call Mise Wais right away.\nB:\nTalking to her?\nHMJr:\nYeah. I -- she's waiting to hear from me.\nB:\nAll right. Well\nHMJr:\nAnd if a\nB:\nIf I -- whatever further information I get I'll\npass on to Miss Wais or I'll call you, whichever\nHMJr:\nI'd rather you'd call me because I'm in a Jam on\nthis now.\nB:\nYes. What -- will you be there\nHMJr:\nI'll be there all day.\nB:\nat three o'clock?\nHMr:\nWhat?\nB:\nWill you be there about three o'clock?\nHMJr:\nOh, yeah.\nB:\nThree o'clock daylight I'll call you.\nHMJr:\nNo, better make it three-thirty.\nB:\nThree-thirty daylight time.\nHMJr:\nYeah.\nB:\nAll right, Mr. Secretary.\nHMJr:\nThank you.\nB:\nGoodbye.\nSeptember 11, 1939\n12:46 p.m.\n21\nHMJr:\nI had a message -- good morning to you\nCaptain\nCellaghan: How are you, sir.\nRNJr:\n-- you called me on Thursday or Friday.\nCan you remember what it was about?\nC:\nAh -- yes, sir. It was on the -- on the question\nabout that Byrd Expedition.\nH/Jr:\nOh, yes.\n8\nThe President asked me to -- you remember the other\nday I called you up about the possibilities of\nsubtracting one ship from the three that were\noriginally\nHWr:\nYeah.\n0:\nlayed out for them - that Coast Guard ship\nthe NORTHLAND\nHMJr:\nYeah.\nC:\nAnd asking whether you thought that the -- the\nexpedition then could go ahead and establish the\none base.\nHWr:\nYeah.\n8\nAnd I wondered whether you had any word on that sir.\nHNJr:\nWell, we -- I reported it at Cabinet that we'd spoken\nto Byrd that we withdraw the one ship. He was very\nnice about it. He said, \"All right.\"\n8\nUh-huh.\nHMr:\nBut he still felt he wanted to do -- have two bases.\nC:\nWell, the President suggested the one.\nHWr:\nWell now, would -- would you help me out? We're --\nI consider that we're out of it now. See?\nC:\nUh-huh.\nRegraded Unclassified\n- 2 -\n222\nH/Jr:\nWe contacted Byrd; it was perfectly agreeable that\nwe withdraw the NORTHLAND. We've done that.\nC:\nYes, sir.\nHMJr:\nNow, would you mind, whoever has been contacting\nByrd for the President to do it direct.\n0:\nWell, do -- do you want me to take up the matter with\nthe President for you?\nH/Jr:\nNo, I'd like you to take it up with Byrd.\n0:\nWith Byrd?\nHMJr:\nYeah.\nC:\nUh-huh. Well, of course, the President put that on\nas a suggestion of one base with -- his theory was\nthat if -- if they got down there and tried to\nestablish two bases and they got into trouble, then\nwe'd have to detach some other forces to go down\nand rescue them.\nHMJr:\nWell, of course, I don't know enough about it.\nHerbert Gaston talked to Byrd.\n:\nUh-huh.\nHMJr:\nlle said, \"I can get along without the NORTHLAND, but\nI'd still like to establish two bases.\"\nC:\nUm-hm.\nH/Jr:\nWell, it doesn't mean anything to me, 80 I --I just\nlet it go. But you've got plenty of time. He\ndoesn't expect to shove off until November.\nC:\nNo, that's true, sir.\nHMJr:\nBut if you'd just count the Treasury out.\nC:\nI Bee.\nH/Jr:\nAnd if you wouldn't mind talking to Byrd yourself.\nC:\nWell, I'll -- I think Id probably better get the\nPresident's reaction before I talk to him.\nHMJr:\nAll right.\n0:\non that.\n- 3 -\n223\nHMJr:\nAh\nC:\nSo I'll take it up with the President the first\nchance I get.\nHMJr:\nAnd unless the President instructs' me additionally\nI'm going to do nothing more.\nC:\nUh-huh. Well -- but you have actually withdrawn\nthe NORTHLAND?\nHMJr:\nYeah, and that's been in the papers.\nC:\nThat's been in.\nHMJr:\nAnd I reported it at Cabinet on Thursday to the\nPresident.\nC:\nI see.\nHMJr:\nAnd I told him about the two bases and the one base.\nC:\nYes.\nHMJr:\nAnd told him what Byrd said.\nC:\nYes, sir.\nHMJr:\nSee?\nC:\nI see.\nHMJr:\nSo I feel I've carried out my end.\nC:\nRight, sir. Well then, I'll take it up with the\nPresident myself.\nHMJr:\nCaptain Puleston 18 here and we're fixing him up\nwith an office.\nC:\nOh, grand! Oh, that's fine, sir.\nHMJr:\nThank you.\nC:\nAll right, Mr. Secretary.\nHMJr:\nThank you.\nC:\nGoodbye, sir.\nSeptember 11, 1939\n2:43 p.m.\n-24\nH/Jr:\nHello.\nFrank\nBoyce:\nYes, hello.\nHWr:\nHello, Boyce.\nB:\nYes.\nHMr:\nMorgenthau.\n5:\nOh, hello. I didn't recognize your voice\nHNJr:\nYes.\n3:\nMr. Secretary. Say, I talked with the Govern-\nment and they said that they've had this matter up\nwith the -- the inspectors up in the valley and this\n18 a -- a condition that's pretty prevalent through-\nout the valley evidently due to the drouth, the early\ndrouth. They call it caulking or drought spot.\nHXJr:\nYeah.\n9:\nNow, they -- they claim that it will show up only\nin the fruit that will mature early.\nH/Jr:\nYes.\nB:\nIn other words, if Bailey were to go through his\norchards there and spot-pick for the -- the fruit\nthat shows a hundred per cent color or that shows\na whole lot of color\nHMJr:\nYeah.\n3:\nand packed that and sent it to market, and\nget rid of it\nHMJr:\nYeah.\nin\nyour next fruit that comes on ought to be\nall right.\nH/Jr:\nI BBe.\nB:\nNow, Bailey -- there's some representative of the\n-- the State that's cooperating with the growers on this\nRegraded Unclassified\n- 2 -\n25\nproblem that's located at Newburgh . I don't know\nthe name, but I'll get the name and give it to\nMiss Wais. And I think Bailey ought to tie in with\nhim and try to work this thing out. You can't work\nit out by simply going through your orchard now and\nharvesting everything. I -- I don't believe that --\nthat's going to get you the right results.\nHMJr:\nWell, what I've done 18 - I've told him to send you\ndown ten boxes to sell on commission and see what\nthey bring.\n3:\nYes.\nHMJr:\nThat would give me some idea.\nin\nWell, that -- that I don't believe, Mr. Secretary,\nwill -- will give you the -- the right idea either,\ndon't you see, because while ten or a thousand --\nor -- ten thousand here the first couple of days\nmight sell all right.\nHKJr:\nYeah.\nin\nEverybody 18 going to be doing the same thing, you\nBee?\nH(Jr:\nYeah.\nB:\nAnd\nHMr:\nWhat would you suggest?\nB:\nI believe that you -- you'll get the best\nresults by spot-picking for this ripe fruit, or\nthe ripe fruit will eventually drop to the ground.\nHMr:\nYeah.\nB:\nWait a little while and let all the ripe fruit drou.\nHMJr:\nYeah.\n3:\nAnd then follow the -- follow this thing and 88 your\nother apples ripen up, out them and see 1f it has\nthe caulking.\nHMJr:\nYeah.\nRegraded Unclassified\n226\n- 3 -\nB:\nThey don't seem to think that it will.\nHMJr:\nYeah. Well, will you explain this to Miss Wais?\nB:\nI did, yes.\nHMJr:\nGood.\nB:\nI called her first\nHMJr:\nGood.\nB:\nand she told me that you had given instructions\nto send te n down here tonight, but she thought that\nyou also had instructed to go along and harvest A\ncertain amount each day.\nHMJr:\nThat's -- well, we have to.\nB:\nWell -- by golly, I don't know how this thing 18\ngoing to work out. It's -- it's B. real problem\nHMJr:\nWell, we'll have\n3:\nhow to avoid these -- these apples that have\nthis caulking. You see, the -- the centers -- the\n-- oh, about the size of a half a dollar 18 all brown.\nHMJr:\nYeah.\nB:\nAnd it's in the best apples. It's in your apples\nthat had the high color.\nHMJr:\nYeah.\nB:\nIn other words, those apples have matured early.\nNow, the Department of Agriculture tells me that\nthat's typical of this caulking.\nHMJr:\nYes,\nB:\nThat the apples that show the 08 ulking will mature\nand will ripen faster than the others.\nHMJr:\nYeah.\nB:\nNow, if that's the case why wouldn't there just be a\nmatter of B. couple of days and all the -- the apples\nthat were ripe would be the apples with the caulking\n- 4 -\n227\nand if you could spot-pick for them, why the rest\nof your apples ought to be all right.\nHMJr:\nYeah. Well, I'll talk to Bailey tonight and I'll\nsee what he's doing.\nB:\nYeah, and I think that -- I'll get the name of this\nman up the valley\nHMJr:\nYeah.\nB:\nand give it to Miss Wais, see if it won't be\n8. good idea for him to go over and see -- have a\ntalk -- to Bailey.\nHMJr:\nFine. Well\nB:\nAll right. Well, I'll follow through with you on\nit. I'll keep in touch with you.\nHMJr:\nFine.\n9:\nAnd we'll see if we can't work this thing out,\nHMJr:\nThank you 80 much.\nB:\nAll right.\nHMJr:\nThank you.\nB:\nGoodbye.\nSeptember 11, 1939\n228\n2:58 p.m.\nHMJr:\nHello.\nOperator:\nAmbassador Kennedy.\nHMJr:\nHello.\n0:\nGo ahead.\nHMJr:\nHello.\nAmbassador\nKennedy:\nHello, Henry.\nHMJr:\nHow are you?\nK:\nI'm fine. Sorry to have missed you.\nHMJr:\nI'm sorry to have missed you, Joe. The reason I'm\ncalling you up is that I didn't want to wait for a\nletter to reach you in answer to that number 1500\nthat you sent me.\nK:\nYeah.\nHWr:\nWhere you asked me \"What the hell.\"\nK:\nYeah.\nH/Jr:\nNow, I'll talk in riddles, but I wanted you to know\nand I realize what B. strain you're under otherwise\nyou wouldn't send an old friend like me a telegram\nlike that.\nK:\nYeah.\nHilJp:\nNow, on Monday last week at Cabinet it was decided\nto go ahead with that proposal.\nK:\nYeah.\nH(Jr:\nAnd I was asked to do it. And they sent Hackworth\nover to sit at my side. Hello? Hello?\n=\nYes, Henry.\nHMJr:\nI said, they sent Hackworth over to sit at my side.\nRegraded\n- 2 -\n229\nK:\nWho -- they sent who?\nHMJr:\nHackworth, the legal adviser.\nK:\nOh, yes.\nHMJr:\nNow, I saw -- and I was told to do it with the two\nmen at this end.\nK:\nYeah.\nHWr:\nI was told by Cordell to ão it that way.\nis\nYeah.\nHMJr:\nHackworth was here to keep Cordell advised what I\ndid.\nK:\nYeah.\nHMJr:\nI asked him when he left, \"Are you going back to\nreport to Cordell what's happened\"? And he said,\n\"Yes.\"\na\nYeah.\nHMJr:\nAnd I figured that -- I don't know what their pro-\ncedure 1e but the normal thing would be that they'd\nkeep you posted. See?\nK:\nCertainly.\nHMJr:\nNow, I only learned today that on the following day,\nwithout saying anything to me, Cordell sent for those\nsame two fellows and called all bets off.\nK:\nThat's right.\nHMJr:\nWell, I only learned that this morning.\nK:\nThey sent -- well, 16 that 80? Well, they sent me a\nwire\nHMJr:\nYeah.\nK:\nand I sent that one, because I -- I sent it\ndirect to you. I didn't send any message to the\nSecretary of State; I said for the Secretary of\nthe Treasury\n- 3 -\n230\nHMJr:\nI got it.\nE:\nbecause I was staggered!\nHMJr:\nYeah.\nT:\nThey have these monkeye cable me over here and then\nthey send me back a wire -- it said the offer was\nwithdrawn and never should have been made.\nHWr:\nWell, it was discussed at a full Cabinet meeting.\nHello?\nK:\nYes.\nH.Jr:\nfor a half an hour.\nK:\nYeah.\nHMJr:\nAnd then I was told to go ahead and to do it.\nK:\nWell -- I -- you're the\nthe thing\nthat disturbed me very much and I can't tell you how\nmuch -- appreciative I am of your calling me. The\nthing that -- there wasn't any sense because you\nwere going to have a lot of issues that were tying\nup that this would completely confuse.\nHWr:\nYes. Well, after the Cabinet I said to Cordell,\n\"How should I do this\"?\nK:\nWell, what W&B going on -- is somebody was willing\nto take that particular thing and think it was\nall right.\nMJr:\nNow, Joe\nX:\nYeah.\nHMJr:\nI want to make it plain - after Cabinet I\nsaid to Cordell, \"How should I handle this\"? And\nhe said, \"Send for the two people here in Washington\nand do it at this end.\"\nX:\nWell, it's awful funny, Henry, because they said\nthey know nothing about it.\n- 4 -\n231\nHKJr:\nWhat's that?\nThey said they knew nothing about it.\nHWr:\nWell, that isn't true, Joe.\nYeah.\nHWr:\nBecause Johnny Hanes and Hackworth were both in\nthe room when these two fellows came.\nYeah.\nHWr:\nThey both sat here and Hackworth was delegated by\nMr. Hull to be at my elbow, and it was discussed\nat Cabinet for 8. half an hour.\nWell, Henry, my own impression is that it doesn't\nhelp the prestige of Cabinet Ministers to have\ntheir -- if they're calling up Ambassadors and\nsaying that it doesn't count.\nH/Jr:\nI -- I don't hear you.\nK:\nI say, I don't think it 18 very helpful to the\nprestige of Cabinet Ministers, 1f another Cabinet\nMinister calls up Ambassadors and says, \"Don't\npay any attention to it.\"\nMJr:\nWell\nX:\nI don't think -- I don't think that that 18 -- is\nany good for us over here.\nHMr:\nWell, you -- I don't know how you feel, but I only\nlearned today after I had been instructed to do this,\nthat within 24 hours, without saying anything to me,\nthey called all bets off.\nThat's right. They sent me a cable saying there was\nno -- it was -- they had sent for the people and told\nthem to consider that nothing had been said.\nSWT:\nWell, I was out on the end of the limb under direct\ninstructions and they sawed the 11mb off.\nE:\nThey certainly sawed it off. Do you want to see the\ninstruction their wire conveyed?\n- 5 -\n232\nHMJr:\nWhat's that?\nK:\nYou want to get the wire that they sent us.\nHWr:\nWell, I've asked for it and they won't show it to\nme.\nis\nThey won't.\nHNJr:\nNo, I've asked for it and they've refused to show\nit to me.\nK:\nI see.\nHMr:\nBut I didn't want this kind of going on -- now the --\nin your mind, and having you feel that -- that an\nold pal -- that I've -- that I've done something - well,\n-- which I wasn't guilty of.\nK:\nWell, I -- I appreciate that, Henry, and -- but it --\nit looks worse and worse as you tell it to me.\nHWr:\nWell, Johnny's sitting across the desk from me now\nand he was here when those two representatives\ncame in and 80 was Hackworth. He heard the whole\nbusiness.\nX:\nYeah. Well, we were -- we were advised that there\nwas nothing to it and that there was nothing for\nanybody to get excited about because it was un-\nauthorized\nHMJr:\nYeah.\nX:\nand it was withdrawn.\nHMJr:\nWell, you got off easy.\nE:\nYeah.\nHMJr:\nI say, you got off easy.\nX:\nI did?\nHMr:\nSure.\n2:\nHow?\n- 6 -\n233\nHMJr:\nWell, I WE.B authorized to make the representation\nand then without any notice they called these two\nfellows in and said, \"All bets are off.\"\n1:\nYeah. Well, we didn't -- they didn't give us any\nauthorization, they withdrew it right here in\nWashington.\nHWr:\nYeah. Well, I wanted you to get it and -- because\nthese are difficult times and you -- there'll be\nlots of things that we've got to do together the\nway we have in the past.\n!:\nHenry, don't worry about this -- don't worry about\nthe situation because if I was sore I -- you know,\nI'd send you word at once.\nHWr:\nYeah.\nX:\nI mean, I wouldn't keep it in my craw, because I\ncan't do that.\nEVJr:\nNo, I know you and I -- and that goes both ways.\n:\nAll right. I'd rather send you the word and then --\nand now here's the situation. I mean, -- if he\ngoes and queers it up, the only thing to do is --\nyou've got a real fight with the State Department.\nWr:\nI don't hear you.\n51\nYou've got a real dispute then with the State\nDepartment.\nHMr:\nWell, I'm calling on Cordell at a quarter of nine\ntomorrow morning at his apartment.\nX:\nYeah.\nHMJr:\nAnd I'm telling him that I'm not used to being\ntreated this way.\n%:\nYeah.\nHXJr:\nBut this is just in the family and 60 will you keep\nit under your shirt?\n134\n- 7 -\nK:\nCertainly. What they're going to do is -- they've\ngot to build our prestige one to another. They\ncan't -- there's no sense in us -- in knocking any\nof us -- our fellows -- our own fellows off.\nMJr:\nThat's right.\nAnd there -- there's no point in that, end -- and\nit makes everybody look like a monkey. I -- I've\nhad two wires withdrawn this week.\nHWr:\nWhat's that'\nI've had another withdrawal this week. I got --\nanother wire they sent me in connection with\nHNJr:\nI see.\nX:\nBut you can't be wiring to this foreign office\nand then get 8. wire 15 minutes later saying withdraw\nthe offer. They think we're crazy.\nHMJr:\nYeah. Well, this is just between you and me.\nK:\nAll right. It's -- it's dead as far 28 I'm concerned,\nHenry, and I'm gled you called me up. And you know\nhow I feel about it. I don't want -- I know very\nwell that I can save you a lot of bumps as far 18\nthis place goes.\nHMJr:\nWell, the next time\nX:\nif I know what -- what's going on, but this\none struck me 80\nbetween the eyes that I dián't\nknow whether I wes afoot or horseback.\nHiJr:\nWell, Joe, if I ever do anything else like this, no\nmatter what they tell me, I'm going to call you up\non the phone.\nX:\nRight. I'll do the same, boy.\nEWr:\nAnd if they don't like it I'm -- I don't -- they can\ngo jump in the Potomac.\nRegraded Unclassified\n35\n- 8 -\nK:\nAll right then, I won't pay any attention to that\nany more. I mean, they get -- they've got me crazy.\nHMJr:\nO. K.\nK:\nAll right. Give my love to Johnny.\nHWr:\nWhat?\nY:\nGive my love to Johnny.\nHMJr:\nTo who?\nX:\nGive my best to Johnny Hanes.\nHWr:\nSure. He'd like to say hello to you.\n31\nAll right.\n(Mr. Hanes takes the phone.)\nJohn\nlianes:\nHello, Joe.\nX:\nJohnny, I just sent you my best.\nS:\nWell, I thank you very much. My best to you, Joe.\nK:\nWell, I hope everything is going all right. I'm\nglad I had B. chance to talk to Henry because --\nboy, they handed him one deep ripe tomatoe.\n3:\nYeah. Well, I'm glad he got it straightened out\nwith you so you know exactly where he stands. And\nI was with him in all of this thing and what he\ntells you 1e the absolute fact of it.\nX:\nWell, I know -- I know that. I mean -- god, I'd\ntake his word on anything, but my point is this,\nJohnny, I'm -- all I'm doing over here is trying\nto find the lay of the land so that you won't make\nany mistakes.\nH:\nYeah.\nK:\nBecause I see them first.\n236\n- 9 -\nH:\nI see.\nX:\nAnd there's -- that's why I was stunned at this one,\nbecause I couldn't imagine anybody breaking the law,\nwith me as familiar as I was with the situation\nwithout at least giving me 8 look.\nSure.\nAnd -- and then they told me to forget it - there\nwas nothing to it.\nYeah. Well, of course, it was our understanding\nthat they had told you and when we found out they\nhadn't today, we just get an awful shock ourselves.\nYeah. Well, you'll get a worse one.\nH:\n(Laughs) Well, Joe, it's nice to hear your voice.\nGood luck to you.\nK:\nWell, I -- as I said to Henry, I'd rather send him\na wire right off to him - not for anybody else, but\nfor him, telling him exactly what was in my mind,\nrather than be around here belly-aching.\nYeah. Right!\nYeah.\nWell, goodbye, Joe.\nGood luck, Johnny.\nGood luck.\nGoodbye.\nSeptember 11, 1939\n3:08 p.m.\n237\nHMJr:\nHello.\nOperator:\nGovernor Harrison.\nHWr:\nHello.\n0:\nGo ahead.\nGeorge\nHarrison:\nHello.\nEVr:\nGeorge.\nE:\nYes, Henry.\nBWr:\nHow are you?\nH:\nFirst-rate, thank you.\nH/Jr:\nI hope you're going to be here tomorrow.\nH:\nI'm going to and I'd like to have lunch with you.\nHWr:\nGood. Well, I'll fix it up with Frank.\n%\nI would have called you sooner but I just this minute\ngot through my meeting.\nMir:\nWell, other -- well, since then & couple of things\nhave happened which I think for everybody's sake\nthat we ought to -- the sooner we clean it up the\nbetter.\n50\nAll right.\nHWr:\nYou'll be here at one tomorrow?\nis\nI'll be there at one.\nMJr:\n'Attaboy.\nF:\nAll right.\nHMJr:\nThank you.\nSeptember 11, 1939\n238\n4:35 p.m.\nEarle\nBailie:\nYes.\nHMJr:\nEarle?\nB:\nYes, Henry.\nHMJr:\nIf you could do it on the phone you'd help me.\nB:\nWell, Henry, the point 18 this. We've bought 65\nmillion bonds today.\nHMJr:\nYeah.\nB:\nRandolph's been up in New York working with these\npeople and he feels reasonably satisfied about it.\nHMJr:\nYeah.\nB:\nI feel very dissatisfied about it.\nHMJr:\nYeah.\nB:\nAnd -- well, Bell 18 8. little bit between the two\nfires. Bell's views are not very far from mine.\nHMJr:\nYeah.\nB:\nAnd -- yet in the situation that we want to clear\nwith you 80 that -- before the opening tomorrow --\nif we -- we do want to Bay something to the Federal,\nnow that\nHMJr:\nWell, Earle, I'm completely shot now and my brain\nis no use.\nB:\nWell, I'll talk to you tonight about it.\nHMJr:\nYou'll have to talk to me tonight.\n3:\nThat's all right. I can tell you what Dan thinks\nand there's no hurry about it. I just wanted to\ngive you a chance to hear from Dan as well as me.\nHMJr:\nWell, if we want Dan I'll send for him after supper.\nB:\nO. K.\nUnclassified\n- 2 -\n239\nHMJr:\nBut you get what Dan has and you give it to me at\nsupper time, but I'm completely shot.\nB:\nWell, you get yourself a little nap and I'll see\nyou later.\nHMJr:\nRighto.\nB:\nGoodbye.\nTREASURY DEPARTMENT\n240\nINTER OFFICE COMMUNICATION\nTO\nAt\nDATE Sept. 11, 1939.\nSecretary Morgenthau\nFROM Mr. Haas OR\nAttached 1s a report of a meeting on prices, held Friday,\nSeptember 8, 1939, which I attended at Mr. Hanes' request.\nMr. Hanes was given a copy of this report on Saturday, September 9,\n1939.\nRegraded Unclassified\nTREASURY DEPARTMENT\n-41\nINTER OFFICE COMMUNICATION\nDATE Sept. 9, 1939.\nTO\nSecretary Morgenthau\nFROM\nMr. Haas OOH\nSubject: Report of Meeting on Prices held in Room 6137\nNorth Interior Building, on Sept. 8, 1939, st\n2:30 P.M.\nAttendance: Chairman, Mr. Lauchlin Currie, Assistant to the President\nHinrichs, Aflred F.,\nBean, Dr. L. H.,\nChief Economist,\nEconomic Adviser to A. A. A.,\nBureau of Labor Statistics,\nDepartment of Agriculture.\nJoy, Mise Aryness,\nThomsen, Dr. Frederick L.,\nAssistant to the Commissioner,\nAssistant in Charge of\nBureau of Labor Statistics.\nDivision of Statistics and\nHistorical Research,\nEdwards, Corwin,\nBureau of Agricultural Economica\nSpecial Assistant to the\nDepartment of Agriculture.\nAttorney General,\nDepartment of Justice.\nHenderson, Commissioner Leon,\nSecurities & Exchange Comm.\nKreps, Dr. Theodore,\nEconomic Consultant,\nGilberts, Richard V.,\nTemporary National Economic\nExpert, Office of the Secretary,\nCommittee.\nDepartment of Commerce.\nThomas, Woodlief,\nPiquet, Howard S.,\nAssistant Director,\nChief of the Economics Division,\nDivision of Research and\nU. S. Tariff Commission.\nStatistics,\nBoard of Governors of the\nBlaisdell, Thomas C., Jr.,\nFederal Reserve System.\nChairman, Industrial Committee,\nNational Resources Planning Bd.\nEzekiel, Dr. Mordecai,\nEconomic Adviser,\nHaas, George C.,\nOffice of the Secretary,\nTreasury Department.\nDepartment of Agriculture.\nUr. Currie, who was Chairman of the meeting, said that the\npurpose of the meeting was not to discuss policy in connection with\nprices but rather to ascertain (1) what price data were being\ncollected in the various Government departments, and (2) what\n(U I -\n242\nparticular price studies of various commodities had been made in\nthe different departments and whether or not these were being\nkept up to date.\nMr. Hinrichs reported for the Bureau of Labor Statistics and\nreviewed briefly the price material which that Bureau was collecting.\nHe indicated -\n(a) The Bureau of Labor Statistics now publishes a monthly\nindex of wholesale prices, both in total and by various commodity\ngroups.\n(b) A similar price index 18 issued on a weekly basie.\n(c) For some years now the Bureau of Labor Statistics has\nconstructed a daily price index at the specific request of the\nTreasury Department. Up to the present these particular daily\nprices and the daily price index have been made available only to\nthe Treasury Department. He said, however, that if the Treasury\nDepartment had no objection this index could be made generally\nvailable.\n(d) During the last week daily retail prices of nine commod-\nities were being secured by telegraph from various cities. He\nquestioned the reliability of these prices, however, as indicating\nthe rise in food costs. He went on at considerable length to\nexplain the difficulties in securing adequate retail price data.\nFor the time being at least they intend to continue receiving the\ntelegraphic retail price reports.\n(e) The Bureau of Labor Statistics 1s now working out B.\nbasis for reporting a monthly figure on living costs. At the\npresent time the B.L.S. Index of Living Costs is published quarterly.\nMr. Thomsen, of the Bureau of Agricultural Economics, pointed\nout that the Department of Agriculture assembles daily market prices\non all important agricultural commodities. A monthly index 18 con-\nstructed of prices paid by farmers and another index of prices\nreceived by farmers. He also indicated that the Bureau of Agri-\ncultural Economics releases once a year in the Fall an agricultural\noutlook report which describes the price situation for all the\nimportant agricultural products. This general report, he said,\nWAS kept up to date by 8. general monthly report and this monthly\nreport is supplemented by specialized detailed reports covering\neach of the major commodities.\nMr. Kreps, of the Temporary National Economic Committee, said\nhe would like to have the Bureau of Labor Statistics or some other\norganization secure prices on important war materials, particularly\nthe chemicals. He felt that it was more important to keep a careful\n*atch on that point in the economic structure than the agricultural\nprice situation.\n3\nMr. Henderson, of the Securities and Exchange Commission,\nnsked If the Bureau of Labor Statistics checked prices carefully,\nparticularly the metal prices, to see if actual business was done\nat the quoted prices. He mentioned several of the metals - steel,\nzinc, etc. Mr. Edwards, of the Department of Justice and formerly\nan Economist with the Federal Trade Commission, and Mr. Hinriche\nfelt that in A period of increasing demand the quoted prices would\nrarely be nominal prices.\nMr. Edwards said he thought it would be very valuable for some\ndepartment to assemble what he called 8 library of \"price instruction\nsheets\". He pointed out that in the steel industry, for example,\nthis 16 A very good way to accurately follow what 18 nctually being\npeid for the commodity.\nMr. Currie, after hearing this review of price material end\nprice analyses which were available in the Government departments,\nthen said that he thought studies of certain industries should be\nmade 80 as to forecast when bottlenecks or capacity production\nwould be reached. He expressed an interest in the following\nindustries: steel, railroad equipment, electrical equipment, and\nchemical. The studies, he thought, should attempt to estimate\nnot only the domestic demand but also the European war and related\ndemand, and from this combination make an estimate of when capacity\nproduction might be reached. The Department of Commerce and the\nJustice representatives tentatively agreed to carry on investigation\nalong the lines suggested.\nMr. Currie closed the meeting, saying that he felt hé was\nmuch better informed as to what was available in the Government\ndepartments with regard to price material, and that it was possible\nthat Mr. Stettinius, Chairman of the War Resources Board, may call\nunon him to act as liason man in securing information available\nIn the Government departments. He also indicated that similar\nmeetings would be held in the future.\nRegraded Unclassified\n244\nSeptember 11, 1939\n2:30 P. m.\nPresent:\nMr. Hanes\nMr. Thompson\nMr. Graves\nMrs. Klotz\nThe Secretary explained that 80 far he\nhas been unable to get the Assistant Secretary\nhe has been looking for who would handle Procure-\nment, Bureau of Engraving and Printing and the\noffice of the Director of the Mint. His thought\nWSB to place Harold Graves in charge of these\ndivions of the Treasury until such time as a\nsuitable Assistant Secretary can be found. He\npointed out that these are the only Divisions of\nthe Treasury which have not had 8. check-up or\nstudy made of them and said he did not like the\nidea of these three Bureaus floating around with\nno one to look after them.\nThe Secretary asked Mr. Thompson if there\nshould be any order announcing the assignment of\nMr. Graves and Mr. Thompson said yes, he thought\nthere should be and that he would prepare such an\norder.\nMr. Graves pointed out that there are a\nfew odds and ends in connection with his work in\nthe Bureau of Internal Revenue which he would like\nto follow through to a conclusion, and the Secre-\ntary agreed that he should.\nHe told Mr. Graves\nhe would like to be kept posted after Graves got\nstarted on his new assignment.\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\n245\nCONFIDENTIAL\nDATE September 11, 1939\nTO\nSecretary Morgenthau\nFROM\nMr. Haas SOA\nSubject: The Business Situation,\nWeek ending September 9, 1939,\nConclusions\n(1) A continued rise in industrial production appears\nin prospect for the months immediately ahead, with inventory\naccumulation and war orders adding their influence to an\nalready favorable business situation.\n(2) Last week's precipitous rise in basic commodity\nprices has brought on a nationwide buying movement, which\n1a likely to be quickly translated into increased industrial\nproduction. To the extent that this reflects an anticipation\nof future needs, however, it will tend to make the position\nof business more vulnerable.\n(3) The price upturn represents the combined effect of\net least four factors: (a) A low-inventory situation; (b)\nwidespread speculative buying of foodstuffs and other com-\nmodities; (c) 8 delayed response of prices to the recent\nimprovement in business activity; (d) the large volume of\nidle funds seeking investment.\n(4) Price movements are likely to be highly erratic,\nperticularly in view of the possibility of peace rumore, and\nA substantial setback 18 possible from current levels. The\npossibility of B setback 1s strengthened by the following facts:\n(a) The upturn occurred go suddenly that existing\nsupplies could not at once be made available to buyers:\n(b) burdensome stocks of various agricultural products\nremain 8. major domestic problem; (c) the widely-expected\nwar demand may prove disappointing, since the near-term\nrequirements of many countries have been enticipated;\n(d) the heavy fall marketing of cotton, hoge, and cattle,\nwill soon provide increased pressure on prices.\nSecretary Morgenthau - 2\n246\nThe general situation\nEconomic developments of the past week have largely\ncentered around the sensational upturn in commodity prices,\nwhich has brought such an increase in public demand for goods\nand commodities as to assure a continued rise in industrial\nactivity during the months immediately shead.\nThe price rise has been general among domestic ae well\n88 import commodities. (See Charte 1 and 2.) As compared\nwith closing quotations on August 31, the futures prices\nfor commodities included in the two charts showed on\nSeptember 8 the following percentage increases:\nPer cent increase\nSugar\n38\nLard\n30\nHides\n28\nCottonseed oil\n25\nWheat\n24\nCopper\n23\nRubber\n17\nSilk\n17\nCotton\n13\nTin\n8\nCoffee\n7\nThe price upturn 1e the direct result of at least\nfour factors:\n(1) A low-inventory situation in industry\ngenerally, which had threatened for some time to bring\nabout a buying stampede as soon as prices turned upward.\n(2) A speculative buying movement among consumers\nand others, on the belief that this war will bring &\nrepetition of the price inflation that accompanied the\nWorld War.\n(3) A delayed response of prices to the sharp\nincrease in business activity and industrial demand\nwhich has occurred during the past several months.\n(4) The large volume of idle funds seeking invest-\nment, some part of which has doubtlees been diverted to\nthe commodity markets.\nRegraded Unclassified\nSecretary Morgenthau - 3\n247\nFor practically a year, prices of basic industrial\nmaterials had failed to respond adequately to the rise in\nbusiness activity. The shock of war, and the buying move-\nnent it has created, have served to correct this disparity.\n(See Chart 3.) During 1936 commodity prices lagged in &\nsomewhat similar manner, until the announcement of the\nSritich rearmament program late in that year touched off R\norice boom that lasted until the following spring.\nProbable effects of price rise\nThe upturn in commodity prices, coming on top of an\nimproving business trend, will add 8. strong impetue to\nindustrial production through stimulating inventory accumu-\nlation. This factor 18 entirely apart from whatever business\nimprovement may be derived from war orders and from foreign\ndemand diverted to this country because of the war.\nSome idea of the potentialities in inventory accumula-\ntion 88 a business factor may be gained from Dun and Bradstreet's\nestimates, which show that from December 31, 1937, to\nDecember 31, 1938, inventories in manufacturing, wholesale\ntrude, and retail trade were reduced $1,762,000,000. Avail-\nAbie information indicates that inventories currently are not\nsuch above those at the end of 1938.\nTo the extent that buyers anticipate their forward\nrequirements, and inventory accumulation brings a rise in\nIndustrial production above the level of consumption, the\nfuture position of business will be weakened. This need not\nnecessarily result in an important business setback, however,\nsince (1) consumption will increase with improving business;\n[2] 6 larger volume of inventories will be needed for trade\nrequirements; (3) if the price outlook remains favorable, it\nwill reduce the danger of inventory liquidation.\nIndustrial buying increasing\nEvidence of a strong buying movement, representing in\nport an anticipating of forward requirements, appears in\nvarious industries. Sales of cotton cloth last week, accord-\nIng to the New York Times, reached & total estimated at over\n550,000,000 yards or the equivalent of 20 weeks' production,\nthe largest in several years. Steel buying has increased\nsubstantially, A6 domestic consumers have hastened to cover\nRegraded Unclassified\nSecretary Morgenthau - 4\n249\ntheir future requirements, A buying rush has developed in\nthe chemical industry during the past few days, and manu-\nfacturers of such products as paper and plate glass have\nbeen faced with a broader demand for their products due to\nB threatened restriction of foreign supplies.\nThese developments have not, AB yet, been reflected to\nany appreciable extent in the published business statistics.\nOur new orders index for the week ended September 2, before\nthe buying movement started, showed some decline from the\nweek before though remaining within its recent range. (See\nChart 4.)\nNevertheless, these developments have added to a busi-\nness situation that was already optimistic, and will shortly\nprovide a further impetus to the rising business trend. The\nNew York Times business index for the week ended September 2\nrose 1.7 points to 94.0, 8. new high since December 1938. (See\nChart 5.) The Labor Day holiday will tend to obscure the\nunderlying trend in the week ended September 9, but the\nfollowing week will begin to show the effects of the recent\nbuying movement.\nThe seasonally-adjusted indices of steel production end\ncotton mill activity, representing the two most heavily-\nweighted industries in the FRB index, also rose during the\nweek ended September 2. (Shown on Chart 5.) Steel activity\nthis week wele boosted sharply to 70.2 per cent of capacity,\nwhich compares with 58.6 last week, when it was reduced by\nthe holiday, and with 63.0 the previous week. Cotton mill\nactivity will doubtless rise further because of last week's\norders.\nIncreased demand from the agricultural areas resulting\nfrom the marked improvement in prices of farm products may\nbecome an important business factor, though its effect will\nbe more or less offset by 8. reduced purchasing power of other\nconsumers due to increased living costs.\nRelapse may follow speculative buying\nWhile B. substantial rise in commodity prices was warranted\nby the improving business outlook and the prospect of increased\nwar demand, particularly in view of the depressed levels\nto which prices had fallen earlier in the year, there is\nlittle doubt that a considerable part of the recent upturn\nRegraded Unclassified\nSecretary Morgenthau - 5\n269\nhas been of 8 purely speculative nature. Remembering the\nhigh prices of the World War period, housewives throughout\nthe country have rushed to lay in supplies of such com-\nmodities 86 sugar and flour, attempting to buy in a few days\ntheir requirements for several months, The result has been\na severe depletion of retail stocks of various commodities.\nThe shortage has not been in actual supplies, but in\nimmediately available supplies at the location of demand.\nSpeculative buying in the futures markets has been stimu-\nlated by these developmente.\nErratic price movements seem in prospect, particularly\nin view of the possibilities of peace rumors from time to\ntime. Since speculative price movements are notoriously\nunsound, it 18 entirely possible that the almost percendicu-\nIar price rise of the past week may shortly be followed by\ne substantial reaction.\nThe surpluses of various farm commodities which have\nrecently been a major domestic problem are just as heavy 88\never, and an actual increase in demand as 8 result of the war\nle not yet certain. Unlike in the previous war, many\ncountries have already anticipated much of their near-term\nrequirements. Certain other factors will operate egainst\nthe markets after the \"shock\" effect of the war has worn off:\n(1) Prices have been carried up in part by the\nsuddenness of the increased demand, which has created\ntemporary shortages that will probably soon be corrected.\n(2) Increased supplies of various agricultural\nproducts will soon come on the market.\n(a) The cotton crop will begin to move in\nheavy volume this month. The cotton crop was\nofficially estimated last Friday considerably\nabove general expectations, at 12,380,000 bales\nversus 11,943,000 bales last year.\n(b) A very heavy movement of hoge expected\nduring the fall and winter, together with 8\nseasonal increase in cattle marketing, will bring\nincreased pressure on livestock prices.\n(c) The higher wheat prices are likely to\ncause increased planting of wheat this fell. They\nwill also increase the \"available\" supply by\nreducing the amount going into the Government loan.\nRegraded Unclassified\nPERCENTAGE CHANGE IN PRICES OF SELECTED COMMODITIES\n250\nDecember Futures\nPER\nCENT\nSugar (Jan. Futures)\n35\n30\nLard\nHides\n26\nCottonseed 011\nWheat\nCopper\n20\nRubber\nSilk\n15\nCotton\n10\nfin\nCoffee\n5\n0\nAng. 31, 1959\nSept. 8, 1939\nOffice of the Secretary of the Treasury\n? - 182\nDivision of Research and Statistics\nPAICES OF SELECTED DOMESTIC COMMONITISS\n#ookly Averages (Futures)\nDaily Futures*\nwast\n-\na\nBASE\nLEAVE\nCANTE\nPLA\nPER\nFLR\nPound\nPOURS\nFOUND\nCotton\nTE\nCotton\n\"\n13.0\n1040\n10\n10\n9\n5\n9.0\n9.0\né\n0\n7\n7\n8.0\n8.0\nCENTS\nCENTS\nè\nPER\nPER\nto\nRUSHEL\nBUSHEL\nCENTS\nCENTS\n90\n90\nPER\nWhest\nPER\nInstruct\nBUSHEL\nWheat\nso\neo\nao\nBQ\n70\n70\nno\n70\n8\n60\n34\n50\nCENTS\nSENTS\nPER\nPER\nFOUND\nFOUND\nLard\n&\nNO\n7.5\n7.5\nCENTS\nCENTS\nPER\nPER\n7.0\n7.0\nLard\nPOUND\nFORD\n7\n5.5\n6.5\n7\n6.0\n5,0\n6\né\n5.5\n5.5\nà\n5\n5.0\n5.0\nà\n+\n14\n14\ns\n15\nHides\nis\nHides\n13\n13\n1:\n14\nR\n2\nIf\nH\nH\n\"\n10\n10\ny\ny\n0.5\n8.5\ne\n-\nCottonseed 011\nCottonseed 011\n8.0\n8.0\n7\n7\n7,5\n7.5\n&\n6\n7.0\n7,2\n1\n5\n6.5\n6,5\n6.0\n4\n4\n6.0\n3.5\nCopper\n5.5\n14\n12\n13.0\n15.2\nCopper\n12.0\nID\nIC\n12.0\n^\n11.0\n11.0\n.\ne\n10.0\n10.0\nN.O\n6\né\n9.0\nMAR,\ni\nJULY\nSEPT.\nNOV,\nJAM.\nMAR.\na\n27\ne\n17\n₹\nJAN.\n.\nsujust\nLEPTEMBER\n1939\n1940\n1935\nrutures\n251\nNAT FUTURES\n-\nSEPT. FUTURES\n-\nDCC. FUTURES\n-\nMAY FUTURES\n* FUTURES\n(MIDES, FUTURE) (GGITON, OCT. FUTURE)\n(Hracs, ANL FUTURE)\nthe Sentary of the Insury\n# - and\nRegraded Unclas\nChart 1\nPRICES OF SELECTED IMPORT COMMODITIES\nWookly Averages (Putures)\nDaily Putures*\n1939\n1933\n1939\nIVAO\nAUGUST\nSEPTEMBER\nMAY\nJULY\nLEFT.\nNOV.\nJAME\nMAR.\n20\n27\n3\nCENTS\n10\n17\nCENTS\n24\nCENTS\nPLA\nPER\nCENTS\nPER\nFOUND\nFOURSE\nPER\nFOUND\n23\nFOUND\n23\n20\nRubber\n20\nRetiber\n22\n22\n18\nla\n21\n21\n20\n16\n16\n20\n19\nIS\n14\n14\n16\n=\n12\n12\n17\n17\n7.0\n7.0\ne\nCoffee\n8\nCoffee\n6.6\n6.6\n7\n7\n)\n6.2\n4-2\n5.8\n5.0\n6\n6\n5.4\n5.4\n5\n5\n3.0\n3.0\nGupar\n4\n4\n2.8\n2.8\n2.8\nSugar\n2.8\n2.6\n2.6\n2.6\n2.6\n2.4\n2,4\n2.4\n2.4\n2.2\n2.2\n2.2\n2.2\n2.0\n2.0\nz.o\n2.0\n1-8\n1.8\nDOLLARS\nDOLLARS\n1.8\nFEA\n1.8\nPER\nPOUND\nPOUND\nDOLLARS\nBILLARS\n2,80\nBilk\n2.80\nPCR\nPER\nPOUND\nFOURS\n811k\n2.60\n2.60\n2.80\n2.80\n2.40\n2.40\n2.60\n2,80\n2.20\n2.29\n2.00\n2.00\n2.40\n2,40\n1.80\n1.80\n2.20\n2.20\nCENTS\nCOITS\nPER\nP\n1.60\n1.60\nFOUND\n1\n64\n64\nCENTS\nCENTS\nPLA\nTin\nPER\nPOLICE\nFOURD\nTis\n36\n60\n9\n56\n32\n52\n56\n56\n48\n48\n52\nx\n44\n44\n4d.\n40\n&\n&\n36\n-\nMAI,\nJULY\n36\n44\nMAY\nSEPT.\nÉ\n44\nJAN.\n1\n20\n27\n3\n10\n17\n24\n1939\n1940\nAUGUST\nSEPTEMBER\n1939\n252\nSEPT. FUTURES\nMY FUTURES\nSEPT. FUTURES\nDEC. FUTURES\nMAY FUTURES\n- FUTURES\n(SUGAR, JAN. FUTURE)\n- FUTURE)\nthe Secretary of the Treasury\nof - - -\nRegraded Unclassit\nChart 2\negraded I Unclass\nBUSINESS ACTIVITY AND PRICES OF SENSITIVE INDUSTRIAL MATERIALS®\n938\n1939\nJUNE\n001.\nDEC.\nFLB.\nAPR.\nJUNE\nAUG.\nOCT.\nDES.\nPERCENT\nPERCENT\n(PRICES)\n(BUS. ACT.)\nWeekly\n125\n100\n115\n95\nBUSINESS ACTIVITY, N.Y. TIMES\nEST. NORMAL = 100, ADJ.\n105\n90\n95\n85\nPRICES OF SENSITIVE\nINDUSTRIAL MATERIALS\n85\n1936 = 100\n80\n75\n75\n65\n70\nJUNE\nAUG.\nOCT.\nDEC.\nFED.\nAPR.\nJUNE\nAUG.\nOCT.\nDEC.\n1938\n1939\n*INDEX INCLUDES SPOT PRICES OF STEEL SCRAP, TIN, COPPER, LEAD, ZINC, BOOL, PRINT CLOTH, RUBBER AND HIDES.\nOffice of the Secretary of the Treasury\nChart 3\nDivision of hand and\nc - 274\n253\nINDICES OF NEW ORDERS\nCombined Index of New Orders and Selected Components\n1939\nSEPT,\nPERCENTANT\nPERSINIAGE\nFORM\nPOINTS\n100\n100\n90\n3\nTOTAL COMMINED INDER\n1936 - 100\nao\nBD\n70\n70\n8\n60\n50\n50\nTOTAL EXCLUDING STELL AND TEXTILES\n40\n40\n30\n30\nSTEEL CADERS\n20\n20\n10\n10\nTEXTILE ORDERS\n0\n0\nJAN.\nMAR.\nMAT\nJULY\nSEPT.\nNOV.\nJalie\nMAR,\nMAY\nJULY\nSCPT.\n1936\n1939\nthe of - Secretary - the Transary\n1-85-A\n- of - - -\nCONFIDENTIAL\nChart 4\n25\nRegraded Uncla\n255\nBUSINESS ACTIVITY\nChart 5\nPER\nCENT\nSeasonally Adjusted\nEst. Normal . 100\n110\n100\n37\n36\n90\n38\n39\n80\n70\nN Y Times\n60\nJAN.\nMAR.\nMAY\nJULY\nSEPT.\nNOV.\nSTEEL INGOT PRODUCTION\nCOTTON MILL ACTIVITY\nPER\nPER\nCENT\nCENT\nEst. Normal = 100, Adjusted\n1921-31-100 Adjusted\n120\n140\n37\n39\n100\n120\n36\n36\n37\n80\n100\n38\n39\n60\n80\n38\n40\n60\nimps\nN.Y. Times\n40\nAN\nMAR\nMAY\nJULY\nSEPT\nJAN\nMAR.\nMAY\nJULY\nSEPT.\nNOV.\nNOV\nSocretary of the Treasury\nC-235-1\n- and States\n256\nGROUP MEETING\nSeptember 11, 1939.\n9:30 a.m.\nPresent:\nMr. Hanes\nMr. Duffield\nMr. Smith\nMr. Haas\nMr. Bell\nMr. Foley\nMr. Graves\nMr. Thompson\nE.M.Jr:\nJohn?\nHanes:\nI haven't got anything except we are having that\nmeeting here at 11:00 o'clock, which you know\nabout. Everything is under control. After we\nhave met, I would like to have five minutes with\nyou, and then tell you what we have recommended,\nso you will have it in time for your press con-\nference this afternoon.\nH.M.Jr:\nI want it in plenty of time to digest it.\nHanes:\nSure.\nH.M.Jr:\nIt affects the banks?\nHanes:\nYes.\nS.M.Jr:\nWell, let Tom take B look at it.\nHanes:\nI did ask Burgess. Tom wasn't here. I thought\nI would ask him to meet me right after we have\nmet with these people, or if they would like to,\nsit in. I would like to have them if they are\nnot too busy with something else. It is under\nSection 3 of the Neutrality Act which affects\nbanking credits.\nS.M.Jr:\nEither way, either they do it then or when it\ncomes to me they can sit with me and do it that\nway.\nBell:\nBurgess isn't here today.\nRegraded Unclassified\n257\n- 2 -\nH.M.Jr:\nSo I understood, But I would like to have plenty\nof time.\nHanes:\nI remember that I told Burgess that I would read\nto him over the telephone in New York what we\ndecided, before you give it out to the press.\nH.M.Jr:\nMaybe it would be just as well if you and Tom and\nI talk to Burgess on the phone.\nHanes:\nSure.\nH.M.Jr:\nIs that all right?\nSmith:\nSure.\nH.M.Jr:\nUnited Press asked us about B. report from London\nthat the United States was negotiating for the\npurchase of the Normandie. I think if I am asked\nthat question - if they ask me at 3:00 o'clock -\nI don't want to lie to the boys. I will have\nnothing to say.\nDuffield:\nThey may not ask you because I rather indicated\nover the phone last night when they asked me that\nit wasn't 8. matter which would ordinarily come\nunder the Treasury.\nB.M.Jr:\nUnder the State Department?\nDuffield:\nMaritime Commission is where they are working on it.\nH.M.Jr:\nWell, the State Department kind of grabbed it off.\nWhy not let it come under the State Department?\nHanes:\nIt seems to me there ought to be some way to answer\nthat so as to kill it.\nH.M.Jr:\nThere are no negotiations going on. There were and\nthey were killed. That 1a the truth.\nHanes:\nYou could hardly call them negotiations.\nH.M.Jr:\nNo.\nDuffield:\nThat would be a good answer, if you could make it,\nthat there are no negotiations going on, as far\nas you know.\n258\n- 3 -\nH.V.Jr:\nWell, no, I am not now carrying on any negotiations.\nHanes:\nI would just say definitely there are no negotiations\nfor the purchase and let it go at that. No further\nstatement and no further comment.\nH.M.Jr:\nThat does not mean that there were none.\nHanes:\nIf they ask you 1f there were, you can say, \"I have\nno further comment. There are no negotiations. \"\nThat will do it.\nH.M.Jr:\nWell, if they ask you (Mr. Duffield) again, you can\nsimply say there are none.\nDuffield:\nAs far as we know at the Treasury or in the Treasury,\nyes.\nH.M.Jr:\nAs far as the Treasury is concerned, we have no\nnegotiations.\nDuffield:\nThat is a good answer.\nH.M.Jr:\nI knew that thing would leak sooner or later.\nDuffield:\nIt came from the wrong capital.\nHanes:\nWhere did it come from?\nDuffield:\nLondon instead of Paris.\nH.M.Jr:\nI will write a letter to Joe when I get a chance.\nAnything else?\nHanes:\nNo.\nDuffield:\nI have nothing.\nH.M.Jr:\nGeorge?\nHans:\nNothing yet. We are getting some - at least here is\none telegram - people are asking you to investigate\nhigh prices.\nH.M.Jr:\nI talked with the President about it at Hyde Park\ncoming down and I didn't get very much satisfaction.\n259\n- -\nBRAS:\nIf the budget summation is going to be issued, I\nthink we ought to have another chance to look\nover the revenue estimates. It may not be issued\nat all. If so, we can let it ride.\nBell:\nI think we ought to look it over anyhow. That is\nthe reason it was held up during your absence (speaking\nto the Secretary), and Mr. Haas's absence. Looking\nover the budget summation, we found that the revenue\nestimate was materially reduced from January and\nthere is a statement in there that one reason it\nwas reduced was because we are not quite so optimistic\nabout the business outlook 8.8 we were in January.\nWe thought that wasn't quite the thing to put out\nat this time.\nH.M.Jr:\nWho put that in?\nSell:\nThat was a memorandum written, I take it, by Miss\nMichener.\nHass:\nI dictated over the phone - that was good at that\ntime, but that is academic now in view of the war\ncoming on.\nBell:\nWe questioned whether you ought to put out e state-\nment like that, to say that we are not quite so\noptimistic at this time.\nHass:\nIt didn't say that, Dan.\nBell:\nThat is the sense of it. So I asked Smith to hold\nit up until you got back (speaking to the Secretary).\nand there is where it 1s now. It 1s being held.\nI take it this war situation will even change it\nmore.\nS.M.Jr:\nWhy change it?\nBell:\nNot only the revenue but the expenditure side.\nS.M.Jr:\nWould you take another look at it?\nBell:\nI think Mr. Hans and Mr. Hanes ought to go back\nover it and see whether or not we can eliminate\nthe reductions in the estimates due to the outlook\nfor business.\nRegraded Unclassified\n260\n- 5 -\nHaas:\nI think you can do more than that now.\nHanes:\nDan and I talked about it when you were away\n(speaking to the Secretary), and our estimates\nshowed about 261 million dollars reduction of\nrevenue. I think that is about right.\nHoas:\nPart of it was Social Security which was eliminated,\nthe increase.\nHanes:\nWe decided the best thing to do was hold it up be-\ncause we didn't want to put out a statement that\nseemed 80 different than conditions at that par-\nticular moment.\nH.M.Jrs\nSupposing you grab hold of this and take a look\nat it and when you are satisfied with it, using\nthe Treasury staff, bring it in and show me that\npart which you think ought to be read. How 1a\nthat?\nHanes:\nFine.\nH.S.Jr:\nWill you take that responsibility?\nHanes:\nYes.\nH.M.Jr:\nAll right. Now, George, there is one thing I would\nlike you to do. I wish you would take a look at\nall of the expenditures, money that Agriculture\nhas available for this fiscal year, and in view\nof the price rises on parity payments and things\nlike that, what money does it look like they will\nnot have to use, see?\nHaas:\nYes.\nE.M.Jr:\nAfter all, I remember they got about 350 million\ndollars for parity payments alone, didn't they?\nBell:\n225 million for parity payments and the rest of\nit was for loans to buy farms.\nH.M.Jrt\nWell, take a look at that, whatever it is, and in\nview of the price rise, what monies are we likely\nto save that they cannot use. Then the other thing,\nfor instance, on the Soil Conservation, which had\nabout 500 million at that time: For instance,\nRegraded Unclassified\n261\n- 6 -\nthey pay me to put in rye and plow it under, 888,\nto enrich the soil. How many of those kind of\nthings are in the process and what are those\nkind of things that they might want to change,\nbecause maybe we want more cTopB. Do you see?\nHaas:\nYes.\nH.M.Jr:\nIt is silly to pay me for planting that rye end\nnext spring give me so much an acre for plowing\nit under. But, that 1a what they do. For every\nacre of rye I plant and plow under, they give\nme a bonus. They have got 500 million dollars for\nthat and a lot of these Soil Conservation things.\nAs to the rise in prices, and making 8. bold fore-\ncast, why, possibly we might show the President\nthat they might save several hundred million\ndollars.\nHaas:\nThey may change their policy on that.\nHanes:\nAs a matter of interest, I think the report is\nthat Lauchlin Currie called up on Friday, I think,\nafter you had gone and asked us to send 8. representa-\ntive to B. meeting Friday afternoon at 2:30. I\nasked George Haas to go and he did go, and I have\nB. memorandum for you on that meeting. No policy\nmatter was discussed, but the price situation was\ndiscussed, and they had representatives there from\nthe Agriculture Department. I have forgotten now\nwho the other people were.\nBARS:\nAbout fourteen people from all over the Government.\nThe main point was informing themselves what material\nwas coming into the Department from prices, what\nstudies had been made, and the whole meeting was\ntaken up on that. He said there were going to be\nsome more meetings.\nS.M.Jr:\nKeep me posted.\nBaes;\nI will.\nH.M.Jri\nBut you will take e. look at that?\nHaas:\nYes, I will do that right away,\nRegraded Unclassified\n262\n- 7 -\nSmith:\nThat might be substantial, the thing you were\ntalking about.\nH.M.Jr:\nI'm thinking in terms of three to five hundred\nmillion dollars.\nSmith:\nAren't there other things except rye?\nH.M.Jr:\nI mean that the Soil Conservation program is\n500 million. The parity payments are 225 million.\nThat 18 725 million dollars.\nBell:\nAbout 140 or 150 million dollars of surplus food,\nCustoms money.\nSmith:\nThis condition might make that a mess.\nH.M.Jr:\nThen there is the money for exports\nHaas:\nThey've dropped that.\nH.M.Jr:\nTake B. look at the whole thing and we might say to\nthe President, \"Here is a chance of saving hundreds\nof millions of dollars which you may want to use\nfor purposes of national defense, to prepare the\nnation,\" do you see?\nHaas:\nThere is a capital impairment of 119 million dollars\nwhich the Congress appropriated. I saw 8. statement\nin the paper that that was all regained.\nBell:\nThat was in the paper.\nH.M.Jr:\nWell, George, you get that.\nHaas:\nI get that.\nH.M.Jr:\nDon't you think that 1s a good idea?\nSmith:\nI could see 500 million dollars.\nS.M.Jr:\nI think that 500 million dollars is - especially\nwhere they are going to need additional monies.\nSmith:\nOf course the change in prices makes that unnecessary.\nH.M.Jr:\nYes.\n263\n- 8 -\nHaas:\nI will get right on that.\nFoley:\nI don't have anything.\nGraves:\nI have nothing.\nBell:\nI guess you know that we bought 379 million dollars\nin bonds since September lat, including Friday, the\nfirst.\nH.M.Jr:\nNo, I didn't.\nBell:\n279 million in bonds and about 50 million in notes\nand about 50 million guaranteed.\nMessersmith is having a meeting at 10:00 o'clock\nto try to find ways and means of getting money and\nbringing Americans back from abroad. He asked me\nto attend it, more because of my former connection\nwith the budget than anything else, I guess there\n1s no objection 1a there?\nH.M.Jr:\nNo, as long as you keep me posted.\nWould you tell me - I couldn't get it quite clear\nfrom the papers - if the Intermediate Credit sort\nof decided to make that offering? That is the way\nit read in the paper.\nBell:\nThat is what we decided the night before.\nE.M.Jr:\nThe morning newspapers said they didn't get notice\nof it.\nBell:\nI take it that Don didn't announce it until that\nmorning. It went 105 million, a 30 million dollar\nissue. It went very well.\nE.M.Jr:\nIt went very well. That 1s all right.\nBell:\nThey were over here at 5:30 and that meant 6:30\nin New York. It may have been that they got it too\nlate in time to get out these notices. That might\nbe the answer.\nH.M.Jr:\nBut it went all right?\nRegraded Unclassified\n264\n- 9 -\nBell:\nYes, it went fine.\nThompson:\nI have a letter from General Watson asking that\nthe Commissioner be sent home from that Jackson-\nville case.\nE.M.Jr:\nAsking that John J. Fahs be appointed for - vice\nDuffield:\nIn place of\nE.M.Jr:\nIn place of J. Edward Larson. What are they going\nto do with Larson?\nThompson:\nWell, the Department of Justice have offered Larson\na 60-day appointment. Senator Pepper's secretary\ntells me that the Department of Justice might renew\nthat beyond 60 days. He doesn't think Larson 18\ngoing to take the job. He is planning to run for\nState Treasurer of Florida.\nH.M.Jr:\nThat is the second time you have ordered it?\nThompson:\nYes, I ordered it two weeks ago. I have an order\nhere saying the Bureau of Customs will be assigned\nto Basil Harria, in the capacity as Assistant to the\nSecretary.\nE.M.Jr:\nWhat about the salary?\nThompson:\nNo salary. This letter just gives him the authority\nto sign the class of mail the Assistant Secretary\nwould sign.\nE.M.Jr:\nAll right.\nNow, how about your moving?\nThompson:\nThe moving has made great strides. Mr. Smith moved\nin this morning.\nH.M.Jr:\nHas he got a place?\nThompson:\nA beautiful place.\nH.M.Jr:\n(Speaking to Mr. Smith) Is it all right?\nSmith:\nSure.\nRegraded Unclassified\n265\n- 10 -\nHanes:\nAre they moved in?\nThompson:\nMoved down this morning.\nH.M.Jr:\nDid you get the right kind of sharks?\nSmith:\nDidn't get one, It rained. We caught a submarine\nand a German freighter. We were out in the picket\nboat and a submarine came up right in front of us.\nE.M.Jr:\nAre you serious?\nSmith:\nYes, I'm serious.\nFoley:\nAn American submarine?\nSmith:\nYes, they were practicing and the thing came up\nright out of the water in front of us.\nH.M.Jr:\nWhat did you do?\nSmith:\nLooked at it. It is & sensation, though. And then\nwe started in after B. while and one of these German\nmotor vessels, coming from Boston to New York on\nthe inside route, came along. I didn't see what\nthe name was, but it was B. German vessel and they\nsaid it had been up - made a trip a few days before\nthat through the Cape Cod. Canal and down. That is\nall we could catch. It was very interesting, though.\nPoley:\nMr. Secretary, there are two things, if I may bring\nthem up. One, the President signed a second order\non Friday speeding up the expenditures of the\nregular appropriations for the Army and Navy and\nMarines. Would you want to present one to the Coast\nGuard?\nB.M.Jr:\nYes.\nPolay:\nIt isn't necessary, but he said he wanted to do it,\nI understand, by Executive Order.\nBell:\nThe one for the Coast Guard is already presented,\nwent in last Monday or Tuesday.\nPoley:\nThe Executive Order?\nBell:\nNo, speeding up the expenditures of the Coast Guard.\nRegraded Ur classified\n266\n- 11 -\nFoleys\nBut he signed an Executive Order. He's doing it\nfor the Army, Navy and Marines, and I thought we\nmight want to do it the same way, 80 far as the\nCoast Guard is concerned, because you are adding\nadditional men because of this emergency.\nH.M.Jr:\nWhat about that?\nBell:\nI don't know, but I think in the case of the Army\nand Navy and Marine Corps it requires an Executive\nOrder under the National Defense Act, whereas under\nthe Coast Guard, it only requires money, and we\ndid send to the Budget last Tuesday B. request for\nrelease of funds to take on those thousand men that\nyou said the President had approved last Monday.\nThat has gone to the Budget and I think it 1s\napproved by this time,\nFoley:\nWe found out about it from Justice. They had already\nsent the order over to the White House. They said\nthey would have included the Coast Guard if they had\nhad the suggestion earlier.\nH.M.Jr:\nWhat do you suggest, Dan?\nSell:\nWe might look into it and see whether or not there\nis anything like that required under the Coast Guard\nlaw.\nFoley:\nIt would simplify the thing and as long as he wants\nto sign these Orders doing these things and making\npublic acknowledgment of it, it might be just 8.8\nwell to handle it this way.\nE.M.Jr:\nDan, will you let me know?\nBell;\nYes, sir.\nFoley:\nThe other thing 18 adding two additional belligerents\nto our war credits regulations. Berle told me that\nhe would take care of our regulations as he took\ncare of the other orders, as additional belligerents\ncame in, and he didn't do it in so far as South Africa\n1s concerned, and now Canada has come in, so it is\na question of whether we want to take the initiative\nand present something to the President to bring that\nregulation up to date today or wait on the State\nDepartment.\n267\n- 12 -\nHanes:\nThey did bring South Africa up, didn't they?\nFoley:\nNo, they did it for the Neutrality Proclamation\nbut not for our regulations.\nHanes!\nI think so far as the Coast Guard and Customs are\nconcerned\nPoley:\nThat 1s all right,\nHanes:\nWe added that. We sent out telegrams, you know,\nFoley:\nBut they didn't bring up to date our regulations\nin so far as credits to belligerents go, and now\nthere are two new belligerents, South Africa and\nCanada.\nE.H.Jr:\nCan't that be taken care of?\nHanes:\nSure, but we haven't issued any regulations on the\nbelligerents yet.\nPoley:\nThe President has signed this regulation and you\nhave got to add, each time a new belligerent comes\nin, those belligerents to that regulation. So he\nhas to amend that regulation to add South Africa\nand Canada.\nHanes:\nI would assume that would be our responsibility,\nto present that to the President for addition to\nthe regulations, wouldn't it?\nFoley:\nAre you going to see him at noontime?\nE.M.Jr:\nI usually do.\nFoley:\nWould you like to take\nH.M.Jr:\nNo, let it go through the regular way. It can be\ndrawn up by Hanea, and Thompson can send it over the\nregular way. It is up to you fellows to get it to\nThompson and let Thompson send it over there.\nTREASURY DEPARTMENT\n208\nINTER OFFICE COMMUNICATION\nDATE Sept. 12, 1939\nTO\nSecretary Morgenthau\nFROM\nMr. Haas GA\nsubject: Corn marketing quotas.\nUnder the Agricultural Adjustment Act of 1938, 86 amended,\nthe Secretary of Agriculture may proclaim on or before Friday\nof this week that a corn surplus 1s in prospect, preliminary to\nconducting B referendum among farmers on the edoption of market-\ning quotas. Economists of the Department of Agriculture are\nmeeting on this problem this morning. The grain trade appar-\nently does not expect such & referendum, since total corn\nsupplies as indicated by yesterday's official crop estimate are\nonly moderately higher than last fall, when B. referendum was\nconsidered unnecessary.\nThe Act provides that marketing cuotas shall be put in\neffect in the commercial corn-producing area whenever the\nSecretary of Agriculture determines from available statistics\nof the Department that the total supply of corn as of October 1\n*111 exceed the normal supply by more than 10 per cent, subject\nto the following provisions:\n(a) The Secretary shall determine, on the basie of\nthe current year's yield, what acreage would make available\nE total supply of corn equal to a normal supply. This\nacreage, expressed as a percentage of the acreage allotment\nunder Section 328 of the Act, gives the \"marketing percent-\nage\" for the application of quotas.\n(b) The Secretary shall proclaim his finding that 8\nsurplus 18 in prospect, together with his determination\nof the marketing percentage, not later than September 15.\n(c) Within 20 days after the issuance of the proclama-\ntion & referendum shall be conducted among farmers subject\nto the quota. The quota becomes effective only upon\napproval by two-thirds of the farmers voting.\nAfter marketing quotas are established, there is determined,\nfor each farm on which the acreage of corn exceeds the marketing\npercentage, 8 \"storage amount\" which cannot be sold without\nheavy penalty.\nRegraded Unclassified\n269\nPARAPHRASE OF TELE GRAM RECEIVED\nFROM: American Embassy, Berlin, Germany\nDATE: September 12, 1939, 9 a.m.\nNO.: 1200\nThe introduction of full war control measures has\noccasioned little surface disturbance, since the German\neconomy was already on a military basis. However, the\nmeasures for rationing are not working with complete smooth-\nness everywhere. There are sufficient stocks in many shope\nto meet the restricted requirements of the customers, but\nthere is complaint in certain districts of the city that\nthe customers cannot get all the items listed on their ration\ncards. During the morning buying hours there are long\nlines in front of food shops.\nThere have as yet been no heavy runs on the banks, nor\nhave formal restrictions on withdrawals been imposed, 80\nfar as can be ascertained. However, an informed source\ntells us that in certain centers there have been gradual\nwithdrawals and steady buying of articles whose sale 1a\nnot restricted or rationed. It may be said that the situation\n1e one of incipient anxiety 8.8 to the mark's stable purchasing\npower. The stock exchanges have not been closed. It is under-\nstood that the turnover on the market 1s greater than in the\ndull markets of late spring and early summer, although during\nthe past two days trading has been quieter and certain shares\nhave\n270\n- 2 -\nhave lost a part of the gains which they realized last week.\nApparently the bond market 18 remaining firm; shipping shares\nare removed from trading.\nThe Reichsbank statement for the first week of September\nreflects the heavy financial demande of the Government. This\nstatement showed that instead of the decrease in currency\ncirculation and loans and investments which invariably occurs\nduring the first week of the month, there has been & further\nincrease. On August 31 the total currency circulation of\nthe Reichsbank was 11,640 million marks; on September 7 it\nhad increased to 11,993 million marks. During the week the\nbill and check portfolio rose from 10,272 million to 10,592\nmillion marks. This statement again omitted from its record\nof currency circulation the amount of coins and rentenbank\nnotes. It 1a certain that the amount of rentenbank notes in\ncirculation has gone above the figure of 400 million marks,\nat which it has been relatively stable for the past three years,\nin view of the introduction of one, two and five mark denomina-\ntions. During the week the rentenbank note issue rose from\n10,907 million marks to 10,970 million marks. It 1s probable\nthat the total currency circulation is now fairly close to\n13.5 billion marks, assuming increased rentenmark (rentenbank\nnote) circulation and no decrease in ooin circulated.\nJust\n271\n- 3 -\nJust now it 1e still too early to speculate as to how\nsuccessful the control authorities of the Third Reich will\nbe in maintaining price stability, under war conditions, for\nthe next few months. A good authority tells us that it is\nthe belief of the price control authorities that the Govern-\nment should go farther in increasing taxation and decreasing\nwages, saying that the measures which have been taken 80 far\nfor reducing and sterilizing expendable income are not\nsufficient to insure against developments of an inflationary\ncharacter. Bo far, however, the Government 16 opposed to\nfurther action in the field of direct wage reductions and\nincreased taxation. The Government, says one authoritative\nopinion, will be successful in stabilizing the prices and\nin assuring & fairly equal distribution of those things which\nare vitally necessary. However, in the less necessary and\nluxury articles, the Government will not be able to prevent\ninflationary price advances, this authority states. Also,\nthis same source says it is very doubtful that any important\nor general reduction of prices could be carried out by the\nGovernment. It 18 his belief that the Government will be\nsuccessful in enforcing increased saving, through its\nrationing measures; however, during the war these savings\ncannot be used, and the Government will eventualy have to\n\"wipe out'\n272\n- 4 -\n\"wipe out\" through capital levy or through inflation not\nonly the savings from wartime but much of the economies\nfrom before the war too.\nIt is requested that this telegram be repeated to the\nTreasury from Heath.\nKIRK.\nBECEIVED\n2001 61020\nwit to with\n1880 - all - until\nEA:LWW\n273\nEG\nGRAY\nParis\nDated September 12, 1939\nRec'd 3:14 p.m.\nSecretary of State,\nWashington.\n1923, September 12, 6 p.m.\nFOR THE TREASURY.\nNotable progress has been made today in working\nout the mechanics of exchange control (the legalisation\ncovering which, incidentally, was largely the work of\nRueff) and rulings as to what may or may not bE done\nmay be expected to clarify the situation further\nfrom day to day. American banks here have received\ninformal assurances that they may operate directly\nthrough the Bank of France rather than through the\n\"approved\" French institutions. It does not appear\nprobable, however, that they or other foreign banks\nwill be officially \"approved\" at this time. WE hear\nexpressions of satisfaction at the sympathetic and\nflexible attitude bEing shown by the Bank of France.\n(END SECTION ONE)\nBULLITT\nPEG\n274\nPARAPHRASE OF SECTION TWO OF TELEGRAM NO. 1923 or\nSEPTEMBER 12, 1939, FROM PARIS.\nThe reason for France adopting exchange control, Gov-\nernor Fournier said, VRS not in order to curb speculation,\nbut to enable the country to ascertain what its natual bal-\nnnce of payments is - that is, what France can finance in\nthe way of war supplies from abroad which it needs, and\nwhat contribution to his financing can be made by its exports\nand services. Tae statement has been made by Reynaud, in-\nidentally, that after making a careful study of the import\nrequirements of France for the first year of the war AS\nthe National \"efense authorities have drawn up in their\nreport, he is confident that these needs can be entirely\nnet by the amount of gold which case back to the country\nbetween the date when he assumed office And the date the\nostilities broke out.\nKND SECTION TVO.\nNUL ITT.\nRAILMN\nRegraded Unclassified\n275\nLAR\nGRAY\nParis\nDated Soptember 12, 1939\nRec'd 7:33 p.m.\nSecretary of State,\nWashington,\n1923, September 12, 6 p.m. (SECTION THREE).\nThe foreign exchange office today quoted a buying rato\nof 176.50 for the pound and a solling rato of 177.50. For\nthe dollar the rims wore 43.70 and 43.95, for the bolga\n748 and 753, for the Swiss frono 384 and 953 and for the\nflorin 2318 and 2334. Today again C, minimum of privato\nexchange transactions word carried out punding clarification\nof the new exchango control mochanism.\nWe have boun assured by the Finnnou Ministry that the\nrestrictions on taking money out of France will be applied\nin a liboral spirit to doparting American touriste, As you\nare aware (fourth from last paragraph our tologram No. 1894,\nSeptember 10, 4 p.u.) the authorization to take out nore\nthan 5000 francs in Frenoh or foreign currency OT other\n\"means of payment\" may be granted by the office of foreign\nexchange where there is evidence that greater sums were\nbrought in. Americans now here who are leaving France may\nmake application for authorization through their own banks\nand we are hopeful that the authorities will be lenient in\nthe matter of \"proofe\" that the additional sums were\nactually\nRegraded Unclassified\n276\nLAR-2, 1923, September 12, 6 p.m. (SECTION THREE) from Paris.\nactually brought into France.\nThe security market was strong today with French\nindustrials and internationals substantially increasing\ntheir gains of yesterday. This optimism was due in part to\nthe news that Poland is holding firm, to rumors via\nSwitzerland of dissatisfaction in Germany and to the continued\ngains of Wall Street, Rentes were hesitant at first but\nfirmed to close practically unchanged except for the 1925\nissue which gained 4.50 and the 1937 which was up 1.30.\n(END OF lessage).\nBULLITT\nEMB\n03V13038\n2333 EI 072\nTHE VRIDE\n(mm) att in A\nof that cidel\n277\nPAP\nGRAY\nLONDON\nDated September 12, 1939\nRec'd 3 p.m.\nSecretory of State\nWashington\n1616, September 12, 4 p.m.\nFOR TREASURY FROM BUTTERWORTH.\nOne, I had a lorg informal discussion at the Treasury to-\nday about the liability of Americans who aro \"resident\" in\nEngland to turn over their foreign (+) to the British\nmonetary authorities and to register with them their\nAmerican securities and I feel that they now fully realize\nthat n decided modification in their regulations is de-\nsirable. A decision was promised shortly. Incidentally\norally end written inquiry from Americans here have reached\nformidable proportions.\nTwo. The Bank of England has informally notified\nfinancial institutions in the city that non-resident\nforeigners holding gold in London can not sell the gold\nand obtain a foreign exchange permit for the sterling pro-\nceeds. They were instructed to inform their clients who\nwish to dispose of their gold that they must arrange to\nBECETARD\nhave it shipped out of the country.\n1333 1:10:12\nKENNEDY\nRegraded Unclassified\n278\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Settlements Consulate General, Singapore, Straits\nDATE: September 12, 1939, 7 p.m.\nTomorrow there will appear in the Government Gazette\nnotification of exchange control effective that day; the\nregulations accompaning the notification provide that\nall transactions in sterling exchange must be carried out\nthrough one of four authorized banks, which are all British.\nThe transactions will be at rates spot and forward which\nthe Financial Secretary authorizes. One of the four author-\nized banks must be selected by unauthorized banks for\nall exchange dealings - which includes the National City\nBank of New York. Daily returns of transactions must be\nmade to these authorized banks, as well as to the Financial\nSecretary. It 18 stated that the public \"should\" continue\nto contract for exchange through own bank whether it 1s\none of the four authorized or not, but it appears that this\n1s only & recommendation.\nThere will be no commission charge to the unauthorized\nbanks by the authorized banks; they will collect from\nthe customer a uniform commission which the banks establish.\nIt 18 stated that exchange will be made available for\nreasonable business requirements, which include payments for\nshipping,\nRegraded Unclassified\n- 2 -\n279\nshipping, insurance, travel and imports.\nIt will be necessary to secure permits for the export\nof moneys, gold and securities.\nIt 1s the feeling of the National City Bank that this\nmeasure will seriously prejudice its interests. The\nFinancial Secretary, upon my informal representations,\npromised that he would at once discuss the question of\nincluding the National City Bank in the list of authorized\nbanks with the Government.\nPATTON.\nEA:LWW\nSeptember 12, 1939\n280\n10:00 a.m.\nHMJr:\nHello.\nOperator:\nGeorge Harrison calling.\nHKJr:\nO. K.\n0:\nGo ahead.\nHMJr:\nHello, Georgie.\nGeorge\nHarrison:\nHello, Henry.\nH/Jr:\nIt's not lunch time yet.\nE:\n(Laughs) I know, but we've got a lot to do in the\nmeantime.\nHMr:\nI thought you were hungry.\nSt\nHenry, Ronald just told me that he'd talked with you.\nWe'll be glad to talk with whoever you've got in\nmind. Who 18 that - Randy and\nHVJr:\nNo, me.\nH:\nHuh?\nHMr:\nMe and my boys.\nis\nOh, you want us to come over there?\nHMJr:\nYeah. I -- I want to sit in. Me.\nH:\nOh, I see. Well, wait a minute, I'll\nHMJr:\nI think this is serious enough that papa should sit\nin.\nH:\nYes, all right. What time do you -- would you like\nto have us come?\nHWr:\nThe sooner the better. You've bought seven million\nin twenty minutes.\na\nYeah. All right. First-rate.\nRegraded Unclassified\n- 2 -\n281\nHMJr:\nKind of expensive.\nH:\nIt certainly 18.\nEWr:\nYeah. Well, do you want me to hold on?\nH:\nYes, just a minute, will you?\n(Brief pause)\nAh -- Henry\nHMJr:\nYes.\nH:\nWe want to call the bank first and then come on\nover -- then -- or I'll come over anyway and I'll --\nI'll see what the situation is here.\nHMJr:\nWell, are the rest coming?\nSome of them feel they ought to sit here and\nHMJr:\nWell, will -- will Ronald come?\nH:\n(Talking aside: He wants to know 1f you'll come,\nMr. Ranson.) Yes, he will come. So\nMJr:\nWill Ronald come?\nH:\nYes, he will come.\nHMJr:\nAll right then. Well, then, you and Ronald.\nH:\nYes, all right.\nHVJr:\nWhat?\nYes.\nHMJr:\nAnd any others\nH:\nYes.\nHMJr:\nwill be welcome, but\nI......\nHt\nAll right. First-rate.\nHMJr:\nThank you.\nRegraded Ur assified\nSeptember 12, 1939\n3:32 p.m.\n282\nHMJr:\nHello.\nOperator:\nMr. Welles is at the White House and she doesn't\nknow how soon he'll return.\nHMJr:\nMr. Welles is at the White House?\n0:\nThat's right.\nHMJr:\nWell, as soon as he comes back I'd like to talk to\nhim.\n0:\nAll right.\nHMJr:\nThank you.\n0:\nRight.\n283\nSeptember 12, 1939\n4:08 p.m.\nHMJr:\nHello.\nOperator:\nThe office. Federal Reserve people are in Mr. Kieley's\nHMJr:\nOh, God! Well, just get everybody together.\nLet's see -- Hanes and Tom Smith, Burgess and\nBell.\n0:\nAll right.\nHMJr:\nBy the time they all get together I'll be there.\nO:\nBailie?\nHMJr:\nWhat?\n0:\nBailie?\nHMJr:\nBailie too.\n0:\nAll right.\nSeptember 12, 1939\n284\n4:08 p.m.\nBWr:\nHello.\nOperator:\nSecretary Wallace.\nHWr:\nHello.\nHenry\nWallace:\nHello, Henry.\nE/Jr:\nHello. Henry, Johnny Hancs has been talking to me\nabout the markete being closed in North Carolina\nbecause the\nV:\nOn this tobacco thing?\nHMJr:\nYes.\n:-\nYeah. The -- that's because the British pulled out\nwith their -- with 50 million of purchasing power\nthere.\nHWr:\nWell, it's due -- they eay they can't get foreign\nexchange. Now, if you care to send somebody over\nhere to talk to our foreign exchange people, we'd\nbe glad to look into it. I don't know if there's\nanything we can do but we could make a try at it.\n%\nI'll talk to Jack Hutson on that. I don't quite\nget what you mean by lack of foreign exchange. I\nthink it -- doesn't it 5° straight to the fact\nthat the British decided they could use their 50\nmillion they usually\nMr:\nWell, I'm just quoting Hanes and he said it was\nbecause they -- they can't get foreign exchange.\nW:\nWho can't -- the British?\nHMJr:\nThe British.\nN:\nWhy\nENJr;\nNo, the\nV:\nYou know, back -- I don't know whether you know it\nor not, a week ago Kennedy sent a cable over to the\nState Department which they relayed over here.\nRegraded Unclassified\n- 2 -\n285\nHMJr:\nYeah.\nW:\nIndicating that they -- that B. part of a definite\nplan that inasmuch as they have two years' supply\nof tobacco\nHWr:\nYeah.\nV:\nThen -- by the way, that's just merely a normal\nsupply. That's what tobacco companies do in this\ncountry; but inasmuch as they had that and had other\nneeds greater than buying their customary supply of\ntobacco this year to maintain the two-year stock,\nthey just simply decided to pull out 50 million of\npurchasing power.\nMJr:\nWell, then that -- then there isn't anything that\nwe can do?\nV:\nNo. I called up -- I got in touch with Cordell.\nHWr:\nYeah.\nW:\nI said we were -- the only thing that we could do\non our own here WELB to -- was to make a commodity\nloan.\nRHJr:\nYeah.\nW:\nAnd that we could do that to help the market from\ngoing down through the cellar.\nHMJr:\nYeah.\nV:\nBut that before we entered into that we wanted to\ncall in some of the tobacco people. We'd probably\nhave to do it. We wouldn't make the loan to the\nHMJr:\nWell\nW:\nfirms when they're not in a position\nto store it and besides this would be tobacco that\nwould be stored for the eventual use of the Imperial\nTobacco Company.\nHWr:\nWell, you're on top of it. I -- it evidentally is\nnot a foreign exchange problem BO\nRegraded Unclassified\n- 3 -\n286\nW:\nI don't think it 18, Henry, really.\nHMr:\nO. K. Well then, one less worry.\nV:\nAh -- oh, by the way, Paul's here with me. I've\nput him on that F ox matter. Let me see if\nhe's got anything on it.\nHMJr:\nO.K.\nJust a second. (Brief pause.) Just -- well, he --\nhe says he hasn't had a chance to get on it yet\nbut we're -- I wanted you to know that we're right --\nthat we'll follow it right up.\nHWr:\nWell, I -- I -- 8.8 I said this morning, I appreciate\nthat.\nW:\nAnd could you -- could you tell ne one more thing?\nX/Jr:\nYes.\nV:\nDid I get you right in saying that he WBB up before\nthe Civil Service Commission right now?\nHMJr:\nYeah, they're ready -- they've got all of his papers\nready.\nW:\nThe Civil Service has his papers all ready.\nMJr:\nThey're all ready and I think I'm correct that they're\nin the office of your personnel director.\nV:\nOh, you think they're in the office of our personnel\ndirector?\nHMJr:\nI think so,\nV:\nAll right. Well now, I'll follow it up before the\nday ends.\nIDWr:\nAs I understand it, you RB the head of the depart-\nment have to O.K. it.\nV:\nI see.\nSee?\n- 4 -\n287\nW:\nWell, I don't -- if that's -- if that's -- if that's\nwhere the thing is, why we'll get the clear -- the\nthing cleared up before the day 18 ended.\nHMJr:\nWell, as I -- as I understand it, the Civil Service\n-- they're all ready, but it has to be approved by\nthe head of the department or his personnel director.\nW:\nI see.\nHMJr:\nSee?\nW:\nAll right, Henry.\nHMJr:\nThank you.\nW:\nFine.\nHMJr:\nThank you.\n288\nRE PROPOSED LATIN AMERICAN LOANS\nSeptember 12, 1959.\n8:30 p.m.\nPresent:\nMr. Hanes\nMr. Feis\nMr. Stewart\nMr. Viner\nMr. Riefler\nMr. Beilie\nMr. Surgeas\nMr. Cochrane\nMr. Bernstein\nMr. Foley\nMr. White\nMr. Cotton\nMr. Pehle\nH.M.Jrs\n( Reading) \"1. With respect to the first resolution:\n\"The Treasury approves the suggestion that an Inter-\nAmerican Advisory Committee be created. The Treasury\nfeels that the first task assigned to the Committee\nmight well be to study and report on the situation\nwhich is resulting from the impact of war on the\nfinancial and economic relations between the American\nRepublics. The Treasury suggests that the Committee\nbe asked to make a report available in time for the\nGuatemala conference to be held in November. The\ncontinuing functions of the Committee may best be\ndeveloped as a result of experience.\n\"2. With respect to the second resolution:\n\"The Treasury confirms the understanding of the\nDepartment of State that, in view of all the cir-\ncumstances, the Stabilization Fund should not be\nmade available for B. large majority of the trans-\nactions which are contemplated. The Treasury knows\nof no other source of funds, except some small\nbalance in the hands of the Export-Import Bank,\nwhich may be available; it therefore agrees that\nnew congressional authority should be obtained If\nthe United States 1a to provide funds as contemplated\nin the second resolution.\n\"In these circumstances, 1t would seem to the\nTreasury unwise for the United States to make any\nstatement at Panama, before new congressional\nauthority 1s obtained, inviting the American Re-\npublics to make available funds as contemplated\nin the second resolution.\"\nRegraded Unclassified\n289\n- 2 -\nHow do we know that is the State Department?\nmille:\nBecause Mr. Welles stated that to Mr. Burgess,\nMr. Cotton and me. He said in view of what\nMr. Morgenthau said, he assumed that there would\nhave to be new legislation.\nH.M.Jr:\nWell, as far as 1 goes, nobody can arguè about\nthat.\nBailie:\nNow, the conversation with Mr. Welles made it\nclear that this Committee was to be formed and\nits money - the money was to be used for strictly\nexchange and emergency purposes and was not to\nbe used in connection with any general settle-\nments, such 8.8 were contemplated in your letter\nof August lst. It was not clear because Mr. Welles\ndidn't tell us what purposes he had in mind other\nthan just general phrases that appear on that\npiece of paper. We tried to get a little more\nbackground so that we'd understand just what he\nwanted done, He said these resolutions were 8.\nvery small part of what he was going to do at\nPanama, but he thought they were important.\nNow, there is no doubt that the chief importance\nin the resolutions which he suggesta lie in those\nwords about making monies available. We didn't\nrealize what that phrase meant and asked what\nsum he had in mind, and he said 200 million dollars,\nand it is around the question of making directly\nor indirectly B. statement about that 200 million\ndollars that, as we see it, the chief problem of\nthe Treasury arises.\nMr. Welles said, although it doesn't appear in\nthe paper, that this 200 million dollars, he\nthought, should be obtained by taking 100 million\nfrom the stabilization fund and 100 million which\nhe said - which they wouldn't give us for the\nExport-Import Bank. Putting those two things to-\ngether, I think in his mind - and you check me,\nMr. Burgess and Mr. Cotton if you don't agree -\nthat he thought of half the problems as being\nexchange problems, roughly, and the other half\nwould be special things like loans. I don't\nthink he worked it out exactly in his mind, but\nthat was why he happened to make up the 200\nmillion the way he did.\nRegraded Unclassified\n290\n- 3 -\nNow, the reason we think that it would be unwise\nfor us to make any statement at Panama arises\nbecause it 1a only six or seven weeks ago that\nCongress turned down the Export-Import Bank re-\nquest, and because September 21st is going to\ncome before 1t seema to us likely that any new\nlegislation could be presented, even if Congress\nwere called, and we feared that even if we went\noverboard 100 percent on the advisability of\nsuch a. 200 million dollar fund that we would\narouse antagonism in Congress by having someone\nat Panama say that the Secretary of the Treasury\nwas in favor of 200 million dollars of United\nStates money being devoted to these purposes. In\nother words, we doubted the time element.\nH.M.Jr:\nBut he doesn't mention any figure.\nFailie:\nNo, but you couldn't doubt that 8. figure would be\nmentioned in every hallway in the hotel, 1f there\nis one at Panama City, which I take it there is,\nwhere this conference will be held. In other\nwords, that is & very large sum of money and e.\nvery interesting sum of money.\nH.M.Jr:\nYou fellows spend that in two days, half of it.\nBailie:\nOut of one pocket into the other.\nNow, we also have felt this way about it: it is\ntalked about in the resolution as a fund which\nwould be made available by voluntary contributions\nfrom everyone. Our contribution is 200 million\ndollars. We may wrongly be assuming that the\nother twenty nations would each pay a poll tax of\none dollar. There would therefore be 200 million\ndollars and twenty nations paying poll tax. If\nwe are wrong in that to that extent, our thinking\nis misdirected. Mr. Welles may be able to tell\nus tomorrow 1f the Argentine wants to put up\n100 million of this thing. That would make quite\na different picture.\nWe have also gone on the understanding that, or\ngone under the idea that this Committee composed\nof five members, one of which would be B. member\nfrom the United States and the other four from\nsome Latin American country, would have, as we\n291\n- 4 -\nsay in paragraph one, a real job in studying what\nthe war situation 1s, what effect it has had on\nthese various countries. Now, Mr. Welles talked\nabout the dislocations and troubles of the war\nand used adjectives which made one feel that there\nwere panic conditions in the South American coun-\ntries. Now, I am sorry to say that we haven't\nas much evidence as the Treasury should have of\nwhat conditions are there. We will have within\na few days, but such evidence as we have gleaned\nhere and from our friends in New York is rather\namusingly to the contrary. The exchanges have\nstrengthened, because most of these countries are\ncountries producing materials where their nationals\nthink, and other people think, that they are going\nto do very well if there 18 a war.\nThere are two exceptions to that, Brazil and Peru,\nwhere in Brazil the cotton situation makes people\nsomewhat nervous and there is a like kind of diffi-\nculty in Peru, but even there there seems to be\nsomething much less than & panic in the exchanges\nand no signs of real distress.\nI had an amusing confirmation of that general thing\nthis afternoon when B. man told me that his company\nhad decided to buy n. very large number of bonds\nof a company that does business in all South\nAmerican countries, the American Foreign Power\nCompany, to be specific, because in view of the\nimproved exchange conditions resulting from the\nwar, they would do so much better in their ability\nto get their exchange out this next year that they\nfelt that their range would be 25 or 30 percent\nhigher effective dollars than they otherwise would.\nI say this not to say that there aren't going to\nbe real needs develop, but merely to say at the\nend of ten days, after the war 1s started, for the\nSecretary of the Treasury to state that he believes\nthe 200 million dollars should be appropriated by\nCongress for needs of this sort, we have to say to\nyou frankly we haven't the background of exact\nfacts, of any facts, specific facts that would\njustify that. We are working on 1t very hard, but\nwe haven't the facts,\nMaybe when Herbert Feis gets here tonight he will\ntell us.\nRegraded Unclassified\n292\n- 5 -\nBaille:\nMaybe he will. We tried to get some of them the\nother day and they didn't seem to be there, but\nthat may have been because we didn't ask the\nright questions. Now, I say that the trouble\nwith what I have been saying 80 far is that it\nis pretty negative and everyone of us feels that\nit is B. matter of very real importance, of great\nimportance to the future of our country that its\nrelations with South and Central America should\nbe developed and developed on a basis that will\nresult in increased goodwill. The problem 1s,\nhow can that be obtained? We think one very good\nway that it can be obtained 1s outlined in your\nletter of August 1st to Mr. Welles.\nE.M.Jr:\nWe liked that letter.\nBailiet\nWe liked that letter very much. We didn't have\nanything to do with writing it and we have read\nit with great care and I must say\nH.M.Jr:\nWe think it was et pip.\nBailie:\nWe think it is en extremely good letter. That 10\none way of doing it.\nAnother way of doing it is by forming this Committee.\nH.M.Jr:\nThis Government has gone Committee-mad,\nTaille:\nCommittees have, I suppose, at times done some good,\nbut in order to have 8. committee accomplish a great\ndeal, there must be - it must have some specific\nobject, not just some general desire, and until\nthere are specific problems, one would expect that\nthis might be just another committee.\nNow, we think, however, that paragraph one, we\nshould go along with it. Maybe the State Department\nhas specific ideas. Maybe this committee will be\na perfect whiz and will be able to accomplish 8.\ngreat deal. We phrased this, as you see, 20 that\nit might not be & permanent committee unless it\njustified itself. I mean it might or might not.\nThe continuing functions of the committee may best\nbe developed as B. result of experience, 18 the way\nwe put it. There certainly is need and great need\nin the Government at Washington of B. thorough\nknowledge of conditions as they actually exist in\nRegraded Unclassified\n293\n- 6 -\nSouth and Central America for the purpose of helping\nour business men and our citizens who want to do\nbusiness there.\nNow, whether the Bureau of Foreign and Domestic\nCommerce 1s set up in such B. way as to make that\npossible, you probably know better than we do.\nWhether the Latin American division of the State\nDepartment has the facilities, you probably know\nbetter than we do. If, in fact, neither of those\nplaces, which would seem natural depositories for\nsuch information, have it, then thère is a place\nclearly for a well-defined bureau which would have\nthose facts available to people wanting to do\nbusiness with South America.\nH.M.Jr:\nMay I interrupt you a minute?\nMailie:\nAll right.\nBefore Feis comes, I wonder if this wouldn't be B.\nsort of middle-of-the-road plan, and that is to\nhave him DO down and meke a very flowery statement\nas to finances and our interests, and so forth,\nand then appoint this committee and this committee\nshould make a study and bring that report when\nthey meet in November in Guatemala.\ncellie:\nThat is our theory.\nE.M.Jr:\nBut not say anything about the stabilization fund,\nI mean just don't say anything about that, see?\nTallier\nWe don't want to say anything about it.\nM.M.Jrs\nI don't want to show Feis these papers. I don't\nwant him to have them, but just go along and say\nfine.\nWhite:\nI think we can do that by making very few changes.\nH.M.Jr:\nMy thought 18, don't show Feis this piece of paper.\nbut\nPailie:\nYou are going to be asked to commit yourself, that\nis the point.\n(Mr. Hanes and Mr. Feis enter the conference)\nRegraded Unclassified\n284\n7\nH.M.JrI\nHerbert, you can help a lot, because we are all\nkind of floundering here. I wasn't at this\nmeeting the other day and I wondered whether you\ncould tell us if Mr. Welles made a statement of\noffering financial aid, and the committee, and 80\nforth and 30 on, how much 1a this a mouth-bid, how\nmuch is it a gesture, or how much does he definitely\nwant to commit for the Government at this time in\nPanama as opposed to possibly & study group between\nPanama and Guatemala in some group that might make\na report at Guatemala? Does he want a study group\nannounced, that we want to cooperate, or does he\nwant B. firm commitment at Panama? If so, what kind?\n70is:\nThe latter. I don't think Guatemala is in his mind\nat all except as a possible occasion to possibly\nwork out further things that can't be done at\nPanama.\nE.M.Jr:\nYou don't mind my getting right down to business?\nVein:\nOh no, I have been following for several weeks on\nthis. I speek completely without hesitancy and I\nknow everyone in this room\nH.M.Jr:\nYou know everybody personally.\nFe10:\nExactly. I know everybody retains counsel. The\nthing comes, to the best of my understanding, quite\noriginally and quite directly from the White House.\nAccording to my understanding, in the form in which\nit first came was that there should be & joint\nstabilization fund of 200 million dollars and its\npurpose would be to help in the various difficulties\nof these Latin American states who are facing as\na result of the trade from monetary dislocations\nattendant on the war, and we sat down with that in-\nformation quite some time.\nWell, we have gone over this enough so that I know\nyour views and I WELE near enough in agreement with\nthem to emphasize the fact that a joint stabilize-\ntion fund was impracticable and that - I am a little\nbit fussy tonight\nH.M.Jr:\nTake your time. Aren't you feeling well?\nPois:\noh, I am feeling perfectly well but it has been 6.\nlong day.\n285\n- 8 -\nAnd that your preference was always for bilateral\nhandling of these situations and reasons in support\nof those things are so obvious and so compelling\nthat everybody accepted them. Then came the job\nof maintaining those essentials, by which I mean\nadequate care and control and study of every\nparticular transaction that might present itself,\nand the virtual necessity at this time of showing\na rather decisive indication of our willingness\nto do something and the high desirability, which\nas far AS I understand it is very much in the\nPresident's mind as well aa Welles's mind, of giving\nit to a certain extent a form which makes 1t E. joint\ninterest of the American Republics.\nI will talk one minute longer and then I am through.\nThat 1s in correspondence with the whole underlying\nidea of the Havana meeting. At Lima, foreseeing\npossible trouble in Europe, the Republics expanded\nbeyond the traditional scope of their agreements\nto try to foreshadow n real effort to work with\neach other to make the policy of each other a\nmutual policy, more or less in concert, in face\nwith the European war, and that 1a embodied in\ncertain very loose texts of certain importance.\nNow, 88 always with South American resolutions,\nthey wear a certain air of unreslity and only an\nadvance will prove whether they have any substantial\nreality or not. Now, EL crisis comes along. The\nprovision in the Lima agreements for consultation\nswings to everyone's mind and this Havana conference\nis by no means outreaching.\nH.M.Jr:\nYou mean Panama, don't you?\nFuis:\nYes. This was the contingency we talked about\nat Panama. I mean that we talked about it at Lima.\nIt has come and we said we would meet to discuss\nit and see how far we could concert policy and help\neach other in whatever difficulties we were faced\nwith here, so let's do it.\nNow, in the minds of those countries there 1a the\npossibility of political cooperation and also the\npossible economic cooperation, and it is that that\ncreates the high advisability of finding something,\nat least in form, that has a certain aspect of\njoint effort. The thing that we handed Europe -\n296\n- 9 -\nand I agree with anyone who wants to say it 1a B\nfunny document - was a compound of the effort to\ncreate this sense of joint interests and still\nretain the essentials of what you have always\ninsisted on. That is about the history.\nH.M.Jr:\nLet me ask you 8. few questions and in that way try\nand enlighten myself. We are not going to argue\nabout the principles, because that isn't for me\nto argue as to joint efforts. I mean that 1s all\nto the good.\nNow, you were talking about one phase of the f1-\nnancial situation. Now, let's just for the moment\nsay we had \"X\" millions of dollars. We had better\nsay we have it or we could get it from Congress.\nNow, we have got 100 million dollars. Is it in\nyour mind or Mr. Welles' mind or the President's\nmind that the other country 1s to be A bank for\nNorth and South America? What are we going to do\nwith this money? Are we to put up all the money?\nAre they going to put up any money?\nFels:\nWell, first, definitely no financial fund or fis-\ncal fund that is jointly owned or controlled, that\nis definitely not envisaged.\nH.W.Jr:\nThat is news. I thought it was to have been e.\njoint subscription.\nFeis:\nNo.\nBallie;\nOh no, it is very clear.\nPeint\nI know\nH.M.Jr:\nSomebody around here was saying\nBailie:\nThey put up something but each one keeps\nFeis:\nThere is no common part of any kind.\nBurgess:\nSay here 1s a sum of money which we might use in\nan arrangement that we might make with this other\ncountry. We make the arrangements at the same time\nsomebody else does. They put it up, but they still\ncontrol it.\nRegraded Unclassified\n297\n- 10 -\nFeter\nThey don't actually, as far as I can visualize this,\nthey wouldn't actually put it up. They simply say\nat some appropriate time that they have a certain\navailable sum which they might use in response to\nparticular requests if those requests seemed to\nthem well founded. That is about all it comes to.\nH.M.Jr:\nLet's say that we have 100 million dollars. What\nuse is that money going to be put to, that is what\nI have in mind.\n781a:\nThat ought to be talked through 8. little bit further\nbefore we leave for Panama, but I am fairly certain\nthat we would come out with the answer that we can\nmore or less foresee tonight. We would use it in\nresponse to particular requests for one or all of\nthese types of assistance: short-term credit for\ncertain types of exports; long-term credit for other\ntypes.\npurpese:\nYou mean American exports?\nTwis:\nThat is right. Short-term credits for a certain type\nof exports; long-term credits for other types of\nexports; requests of slight sums for building up\nsimple banking reserves; and possibly some sums as\nexchange management funds. Any one or all of those\nfour types of requests are likely to come forward in\nthe course of the next year 1f we make this declara-\ntion. In fact, they will come forward whether we\ndo or not. They are crowding in on us every day\nnow.\n1.0.2et\nWhat I get 1a that this is to be & fund which - to do\nbanking business with the twenty-one Latin American\ncountries. Is it governmental?\nYetar\nPrimarily. It would go under transactions that were\nof an inter-governmental nature. For example, take\nthe last piece of business that the Export-Import\nBank did with Haiti, a million and a quarter to the\nStandard Food Company to develop its benana planta-\ntions down there. It 18 making an astonishing dif-\nference in the Haitian situation. They have pledged\nthe whole company, not only the Haitian properties,\nbut the whole company, to the loan. Why the National\nCity Bank shouldn't have taken it is only accounted\nfor by the complete panic that the New York banks\nremain in. I visualize there might be E fraction\nRegraded Unclassified\n298\n- 11 -\nof it that would go to private enterprise, but my\nguesa would be that three quarters of it would be\ninter-governmental.\nE.V.Jr:\nIt 18 the sort of thing which up to now the Export-\nImport Bank has been doing.\nFeini\nNo, I would say that the first two, short-term for\ncertain kinds of exports, long-term for other types\nof exports, import-export banking - and now I am\nimprovising - the other two, possible loans for\nreserve purposes or possible small loans for ex-\nchange management purposes. I should certain think\nthat Treasury had the responsibility in business.\nS.M.Jrs\nIs this to be - if we again had the money, who is\nto make all of these deals, which department of the\nGovernment!\nFeis:\nThat, too, is a question that has to be talked out.\nIt's way over my head, especially on the basis of\nthe last two weeks. To me it is quite imperative\nto put it as bluntly as I can, that you and Jesse\nJones and Sumner Welles form a committee of your\nown, meeting together yourselves, and decide what\n1s what. That is the only machine that will work,\nH.N.Jr:\nLet me ask you this: did you yourself advise ne\nduring the Brazilian thing that this type of busi-\nnesa should not be done with the stabilization\nfund?\nFeigt\nCorrect.\nH.M.Jri\nI think I am correct in getting this stabilization\nfund removed. I think I made the statement to\nCongress that I would not make any loans to any\nforeign countries without coming to Congress and\ngetting their sanction.\nFeis:\nMay I go back B. minute? When I said \"correct,\" I\nnow want to correct my \"correct.\" I was definitely\nof the opinion that that particular 19 million\ndollar transaction of Brazil should not be under-\ntaken by the fund. I felt at that time, Mr. Secre-\ntary, that you really had misunderstood my views\non the thing. I fully felt then, as I feel now,\nthat loans for simple banking reserve purposes\nRegraded Unclassified\n299\n12 . ,\nand possibly for exchange management purposes,\nthe fund could undertake - my particular contro-\nversy swung around this deferred exchange clearance\nwhich I knew was going straight into the pockets\nof six or seven large American houses, and the\nfigures I have seen since are even more that way\nthan I thought before and my feeling was that that\nwas subject to criticism.\nNow, if you wanted to take the position that out\nof the fund, at any rate, you still didn't think\nyou wanted to make loans, either for reserve pur-\nposes of other banks or for exchange management\npurposes, I wouldn't - without consulting Congress -\nI wouldn't differ seriously with you.\nBailie:\nMr. Welles made that statement to all of us the\nother day when you were there, Mr. Feis, saying\nthat he assumed the Secretary would feel that\nway. He didn't use the reserve purpose figure.\n/eis:\nIn the Brazilian thing, my whole mind was on that\n19 million dollar transaction.\nH.M.Tr:\nWell, we will go back to that, but what I want to\nsay is this: what the Government wants to do in\nPanama is to make et bold gesture and these twenty-\none countries are not interested in our internal\ndifficulties, our preferring to do this kind of\nbusiness and some other agency could do this kind\nof business, they want to know 1f we are going to\ndo this thing and they get the money when they\nwant it. How we divide that among ourselves, they\ndon't give a damn as long as they can get it.\nBris:\nThat's right.\nI take it what the President wants to do - he called\nme today - he simply sald, \"Give Welles something.\"\nHe didn't mention any figures, but he said, \"Give\nhim something.\" Now, you have worked with me long\nenough to know that I have tried to find ways how\nto do it and not how not to do it, but for the moment\nthe fund looks to me - for the moment the President\nis an record\nFeis:\nI give you my personal Judgment. I don't think you\ncan go back.\nRegraded Unclassified\n700\n- 13 -\nH.M.Jr:\nFurthermore, we did ask Congress for 100 million\ndollars for North and South American Export and\nImport Bank and they turned us down.\nFais:\nHere I am just repeating what Jones' version of\nthat is. It 18 not\nH.M.Jr:\nFoley would know. Listen to this, Foley.\nFeis:\nI have been over this twice with Mr. Jones and\nhis position 1s, in the first place, still, and\nhe wouldn't commit himself as to how much or how\nlittle a bank can do. He implied that a good many\nof the bank's commitments of the RFC\nR.M.Jr:\nlie said that again.\nFoley:\nThat is the position that was maintained right\nstraight through.\nFeis:\nThen as to the episode on the Hill, he emphasizes\nthe fact that the thing was voted on favorably by\ncommittees in both Houses and that it was only lost\nbecause the whole bill was lost.\nFoley:\nThat is right, it passed the Senate.\nFeis:\nHere 1s the sense, The 100 million in one case and\nthe 75 - it was amended to 75 million in one of the\nHouses. He said he had it all arranged to bring it\nback to 100, that that would have gone through if\nthe whole bill hadn't been lost.\nFoloy:\nThere was a vote on that amendment in the Senate,\non the addition of 75 million to the capital of the\nExport-Import Bank. I think the vote was something\nlike 44 to 31, but it was a favorable vote and there\nwas 100 million included in the House bill that was\nreported on favorably, and 1f we could have gotten\nto the floor in the House, I think we would have\npassed the bill and I think they would have put it\nback to 100 million in conference.\nWhite:\nBut Congress did not pass the bill.\nFoley:\nNo, it was not passed.\nH.M.Jr:\nThe President has stated to me again and again that\nRegraded Unclassified\n- 14 -\n301\nhe could re-finance the Export-Import by Jesse\nJones.\nFeist\nYou said Foley.\nH.M.Jri\nI meant Jones.\nCotton:\nIt has only been talked up to the extent of about\n30 million dollars.\nH.M.Jr:\nLet me just ask this question: do you believe,\nMr. Foley, that Jesse Jones could finagle it at\na hundred million or two hundred million, that it\ncould be made available through the agencies\nwhich he is the head of, for the kind of loans\nthat Mr. Feis is talking about here for the twenty-\none countries?\nFoley:\nIt would all depend on the type of transaction. I\nshould say it would be rather difficult for Mr. Jones\nto make available anything like 200 million dollars\nfor this purpose.\nH.M.Jr:\nHow much could he make available?\nFoley:\nHe is talking about shifting commitments that he\nhas against this 100 million margin of the Export-\nImport Bank over to the RFC, and to the extent that\nthose commi tments haven't been taken up and they\nare still outstanding and they can be shifted, he\nwill free the lending power of the Export-Import\nBank. What the limitations are and what the total\nfigure might be, I am not in a. position to say,\nMr. Secretary.\nH.M.Jr:\nIs Jones back in town?\nFeis:\nYes. He also has in mind that some things he can\ndo directly through the RFC are, for example, there\nis a small transaction on now involving the purchase\nof ships by one of the Latin American countries. It\n1s 8. deal that has much to recommend it. My guess\nwould be that he can do that directly.\nFoley:\nThrough his loans to industry. He has the loans\nto industry section, and if it can be worked out\nthrough that channel, why he has almost unlimited\nfacilities.\n302\n- 15 -\nCotton:\nHe eventually has to have a dummy corporation to do\nit through.\nVoiss\nTake this particular case, Joe, the Brazilian Govern-\nment want to buy some ships from an American concern.\nThe American company gives the mortgage on the ships.\nIt is a very advantageous deal for Brazil, because\nthey have negotiated before the crisis, you 300. Now,\nif the RFC puts up money there, couldn't the RFC\ngive money directly? It wouldn't need a dummy cor-\nporation for that, would it?\nCottons\nYes, but if it was a different type of transaction -\nI mean that is B. rather special case, it seems to me.\nFoley:\nYou have got to get an eligible borrower. That 1s\nwhat Joe means. If it 13 EL question of lending to\na South American country, he wouldn't have that power,\nbut he might be able to set up some kind of a corpora-\ntion here that would act as B. medium for the South\nAmerican power and in that way it might be worked\nout,\nFeist\nIn some instances it wouldn't have to be a dummy\ncorporation. It might be an actual American corpora-\ntion.\nCotton:\nHe is prohibited from taking foreign collateral except\nin connection with l'inancing the export of agriculture\nand it all has to be done in the record.\nE.V.Jri\nWell, it seems to me that in order to get you fellows\noff with something as immediately as possible we\nought to get hold of Jones the first thing tomorrow\nmorning. Mr. Welles is coming to my office at 11:00.\nI will try to get hold of Jones at 9:00 o'clock.\nVals:\nI have had two talks with Mr. Jones on this thing.\nOne thing we gave him 1s what I think Mr. Welles will\nbring over to you tomorrow, a text of what they\nthought the American representive could say down\nthere. Mr. Jones has sent back a revised version of\nthat, which is very much of an improvement and\nThis is something different than I have seen.\nFule:\nIt 1s not an alternative. This would be the resolution\nin addition. The American representative would have\nto make some statement.\n303\n- 16 -\nH.N.Jr:\nOh, you have already sounded Jones out on that?\nFeis:\nYou don't know\nH.M.Jr:\nThinking that I was hopeless?\nFeis:\nYou don't know half what a hole I was in and I\nmoved B. little bit on my own and I was there on\nother business with Mr. Jones and I just stepped\nout.\nH.M.Jr:\nDoes Jones think he can do this?\nFels:\nHe thinks he can do part of it. I think he 1a\nlooking to the Treasury to do some of it. The\nrest, I think - you see these things don't come\nat once. There are always ways - not always but\nalmost always - that 1f you need 30 or 60 days\nmore you can put it off that long.\nB.M.Jr:\nDo you have to mention B. figure when you go down\nthere?\nFeis:\nNo, in fact, I think it is highly inadvisable to\nmention it.\nS.R.Jr:\nYou traveled the same road, evidently, the last\nweek that I have traveled the last fifteen minutes,\nthat is that Jones is the best outlook.\nPois:\nNo, I think that there are certain types of things\nto overcome before America does that, that only\nthe Treasury can do and should do. I don't quite\nknow how it is going to do it.\n8.2.Jr:\nWe stood ready to go to Congress and ask them for\n50 million for Brazil, but we were never asked to\ndo it.\nFeis:\nI think that the Neutrality question is cut of the\nway. I think this is what is in the back of\neveryone's head. It would be possible to 80 to\nCongress 1f the President so wishes and ask for B.\nhundred million dollars for the Export Bank for\nthese purposes, and you, in accordance with what\nyou told Congress, could ask authorization from\nCongress to use 100 million dollars either from\nthe fund or from general Treasury, or from a\nspecial appropriation for other purposes.\nRegraded Unclassified\n304\n- 17 -\nH.M.Jrt\nWell, I got 100 million dollars. I don't have to\ntap the stabilization. The Federal Reserve has\n130 million dollars gold of our money, which was\ngiven to them for industrial loans. One hundred\nten of the money is free. We don't want to be too\nsharp. We will take one hundred.\nTeis:\nI think the underlying thought 1s in the spring the\ntwo things would be brought together before Congress\nwhen the Neutrality thing was out of the way.\nP.K.Jr:\nDon't you think we could take that money from the\nFederal Reserve?\nfels:\nI presume you don't want to do that without first\nconsulting Congress.\nH.M.Jr:\nWe would have to.\nVeis:\nI think that is the President's underlying thought.\nViner:\nHerbert, is it your notion that you make commi tments\nin general terms, not specific, and that then in\norder to carry out these commitments you will have\nto get legislative authorization?\nFels:\nWe might commit ourselves in general terms. We can\ngo on for the next 90 days with what funds we have\ngot left in the Bank and with what Jones can turn\nover, and by spring if things EO well, Congress will\nback the President to the extent of letting the Bank\nhave & certain amount and authorizing the Treasury\nto do & certain amount. That 18 the general back-\nground program and it seemed to be quite a feasible\nprogram unless the President gets licked on it and\nthen the Neutrality - 1f he gets licked on that,\nthere's going to be 30 much go to pieces anyway.\nliner:\nThe State Department is prepared to take the risk\nof making more commitments without prior legislative\nauthorization? I am just asking for information.\nrela:\nIf you substitute the President for the State Depart-\nment I would say that is right.\nViner:\nI would say that 18 all right.\nE.V.Jr:\nThat is what four days of Norway tic for Jake.\n105\n- 18 -\nEmiliva\nMr. Feis is getting very moral. Mr. Feis, in order\nto be clear in my own mind, as I see it, this is\nthe situation where Jesse Jones is the bridge;\nin other words, he has certain facilities in the\nExport-Import Bank which he can make available.\nFeis:\nAnd carry through in the next 90 days.\nBailie:\nThose would be rather commercial things, wouldn't\nthey?\nFeis:\nThat is right.\nBailie:\nI can't see 8. gold fund for Honduras being taken\nout of the Export-Import Bank. So all those third\nor fourth class things that you were talking about\nwould not be - they will come with the flowers in\nthe spring?\nFeis:\nQuite right.\nBallie:\nThe fall and winter 1s to be a commercial one, I\nmean, and to us that 1s a\nFeis:\nAfter all, there will only be three months left.\nI can pretty nearly tell you now what two-thirds\nof the business will be that will come up between\nnow and the first of the year. Five million for\nChile for agricultural equipment and one or two\nsmall transactions for Brazil, and there is a\nscattering of stuff of that kind.\nH.M.Jri\nIf I can get hold of Jones to come at 10:00, can\nyou be there at the office at 10:00 tomorrow?\nWelles 18 coming at 11:00 and that will give us an\nhour's head start. Or would you rather have me\ntalk to him alone.\nFels:\nYes.\nH.M.Jr:\nWould you?\nFeis:\nI think BO. There is a certain point at which -\nyes, I think SO.\nH.K.Jr:\nDo you want to go and call up for me, Ed?\nFoley:\nYes.\n306\n- 19 -\nB.M.Jr:\nTalk to him a bit and ask him if he can come to\nthe office at 10:00 tomorrow morning and be pre-\npared to stay for a couple of hours, and tell him\nwhat we are talking about and ask him 1f he will\nbring his papers and his good humor with him.\nYou (Feis) are coming at 11:00 with Welles, aren't\nyou?\nFeis:\nYes.\nS.M.Jr:\nWill you shoot over to me the stuff that you have\ngiven to Jones so I will have everything?\nFeis:\nJust two paragraphs.\nH.M.J.:\nCould I have that?\nFeis:\nFirst thing in the morning.\nR.M.Jr:\nIf Welles talks the same way you talked, I think\nwe will get together.\nPeis:\nI think that there 1s really an infinite amount of\nF.M.Jr:\nYou want some window dressing, don't you?\nPeis:\nYes, which ultimately we sincerely mean to use, I\nthink we can use up to 200 million dollars in Latin\nAmerica over the next two years on carefully selected\nprojects without losing too much of it.\nH.M.Jr:\nOf course, I have been talking about this for two\nyears, so it 1s music to my ears.\nPeis:\nTwo hundred million is my limit. I don't like to\nsee us pile up\nH.M.Jr:\nWhat is your limit?\nFeis:\nEven two hundred, I think, 18 too much. I would\nlike to see us hold it down to half that if we can.\nBailie:\nYou can hold it down to those certain projects which\nyou finally think are really useful.\nFe1s:\nGetting out of the State Department as B.T. economist,\nI would like to see it held down to 100 million\n307\n- 20 -\ndollars, comprehending all kinds of loans, credite,\nadvances and transactions.\nH.M.Jr:\nNow, may I B.SK EL question?\nViner:\nAre you going to make two-billion-dollar statements\nand make 20-million-doller loans?\nFeist\nAll right, Jake.\nH.M.Jr:\nThat is very Vineresque.\nFeis:\nJake, what would you do?\nViner:\nThings are going to move very rapidly in the next\nsix months. If you make B. big-sounding statement,\nyou will have to carry it through. I'm not opposed\nto making E. big-sounding statement, but I do say\nwe ought to be prepared to carry it through on E.\nfairly substantial scale, We don't know what the\nturn of events will be next spring or six months\nfrom now. You make sort of promises, then some\nreally major crisis can develop - blow up in a few\nweeks in war-time - and you have got EL darn good\ncase up under the terms of your statement for help\nand then you tell them we haven't got the funds\nand you can't do anything.\nFeint\nJake, you won't find this statement a very large\npromise. It is B. very modest statement that we\nhave prepared. No one could possibly deduce from\nit that we are prepared for B. very large program\ndown there.\nViner:\nIt seems to me 200 million dollars does not neces-\nsarily sound as a large sum to pay to insure the\ngoodwill we want in Latin American countries at a\ntime like this.\nl'oise\nThis statement, as it is drafted, sounds like you\nhave interpreted it to mean less than 200 million\nand not more. Our rough draft to Jones, 88 revised,\nsounds like not more than 200 million.\nBellie:\nMr. Feis, do we have any reason to believe that\nany of the other nations would chip in and -\nin making funds available?\n308\n- 21 -\nFeis:\nI think that a few of them will announce that they\nhold small funds, particularly Argentina.\nBailie:\nIt will probably be like contributions in a church\nplate, they will all be anonymous. In other words,\nthey will say they are going to have some sums.\nleis:\nThat may be, or Argentina may stand up as long as\nit knows it is going to control the disposition of\nthis thing and say that, yes, it has 20 million or\nsomething of that sort that it could use.\nH.M.Jr:\nNow, let me\nBuilie:\nBut you are not planning on saying two hundred?\nFeis:\nWe are not planning on mentioning any figure, and\nthe statement we have got in mind is EL very moderate\nstatement.\nBurgess:\nMore moderate than this?\nFeis:\nThe resolution?\nBurgess:\nYes.\nFeis:\nWell, the resolution is, I think, modest.\nH.M.Jr:\nSupposing somebody raises the question down there\nabout the private debt?\nFeis:\nWe have only two\nE.C.Jr:\nI mean Government debt to private people.\nFeis:\nThere are twenty-two American Republics. There are\nonly two of them in connection with which - no,\nI take that back, there are three in which the\nprivate debt situation 1s likely to arise ns a\nfactor in this: Brazil, Colombia and Peru, Now\nBurgess:\nChile?\nWhite:\nMexico?\nBeis:\nOh, Mexico is a dead dog as far as the funded Govern-\nment goes, It is B. dead dog. We are not going to\nRegraded Unclassified\n309\n- 22 -\nbring that up now, Colombia negotistions are on\nnow. They have come to a lag. We are going to\ntry even in the next day or so to get life in them\nagain. Colombia could pay without any serious\ndifficulty whatsoever and I think simply this, that\nwe would have to avoid the Colombian situation until\nand unless Colombia came to us and put a. proposal\nto us and then bring up the debt situation, and it\nis my own view that you have got B totally unjuo-\ntified, calloused default from which Colombia her-\nself will suffer in the long run. 3razil is more\ncomplicated,\nBuil10:\nThere is a million dollers, then, 50 I heard, sitting\nin New York.\neta:\nAnd there is little doubt that they will go on with\nsome other very small minimum sun, but how to work\nout the Brazilian thing - it is the toughest one\nin the field, especially since the Immediate effects\nof this war crisis on Brazil are less fevorable\nthan on any other American Republic.\nlatlie:\nI presume Peru\nPolet\nThey get the benefit of the Increased sugar price.\nShe is the worst defaulter in the sense that she\nhasn'tat least given a decent Intention of willingness\nto pay. If the power were mine, I don't think I\nwould respond to 8 definite request until we got\nsome indication from Brazil that she is going to\ndo something on that public debt, and one thing\nthat sways me in this matter is that if a country\nwith a future like Brazil - its future is tremen-\ndous. That is an Empire, that country. It is\nanother United States. There isn't the slightest\natom of doubt in my mind. If that country - a\ncountry that big simply cannot leave its government\ndebt in complete default over a long period of time.\nIt cuts itself off from all sources of private credit\nand makes itself dependent on other governments,\nand it is such an obvious blunder that even from\nthe standpoint of the welfare of Brazil - I think\nwe should to et certain extent brins that home, but\nI admit it is different.\nesa:\nHerbert, when Mr. Welles - when we were there the\nother day - he said very politely that this\nRegraded Unclassified\n310\n- 23 -\narrangement had nothing to do with private debta\nor commercial arrangements. He meant that offi-\ncially it had nothing to do with it, but when you\ncome to make these negotiations in each instance,\nyou can't avoid having such e situation.\nTule:\nNo, you see in this matter of to what extent or\nwhen and how to take account of the private defaults,\nI, with Secretary Hull's support, have had to fight\nnot only the Secretary of the Treasury but also\nthe Undersecretary of State, who also would be\ninclined not to consider it an important element\nin any situation. Welles was expressing his own\nhonest, direct attitude.\nI.N.Jr:\nWell, 1f I get this thing, it is cleared up a lot\nfor me, and I take it that you people are convinced\nthat Jesse can do something.\nFeis:\nSomething ia general enough.\nR.M.Jr:\nAnd that is all that you want. I mean you want\nenough so that if you go down there and say to\nthese people, \"We are prepared to offer you coopera-\ntion, If and 20 to 30 or 40 million dollars worth of\nbusiness rolls in between now and the first of\nJanuary, you think that is the most for the time\ndue to negotiations and trading and everything\nelse, that is about all you need?\nveis:\nYes, that is all we need for the rest of this year.\nH.C.Dr:\nAnd the first of January we would ask Congress for\nanother million?\nFels:\nAnd Welles and the President are ready to take the\ngamble that by the time spring comes around we will\nbe in B. more effective position. They certainly\nrecognize it 1s a gamble, I take it that the\nPresident does; he must know.\nR.M.Jrt\nThere is nothing in Welles' mind, I mean you have\ncompletely dynamited the 1dea out of him that\nthis sort of thing should come out of the stabill-\nzation fund?\nJoins\nWell\nRegraded Unclassified\n311\n- 24 -\nBailie:\nWelles stated to us that he was clear\nFeis:\nI think we have told him fifteen times about your\ntestimony before Congress.\nBK210 210\n312\nSeptember 12, 1939\n2: 45 p. m.\nPresent:\nMr. Leroy-Beaulieu\nMrs. Klotz\nMr. Lochhead)\nMr. Cochran ) at very end of meeting\nHM,Jr: What I wanted to say to you, Archie\nspoke to me\n.....\nMr. L-B: Yes.\nHM,Jr:\n....\nand told me that you people un-\nofficially were worried about this purchasing busi-\nness.\nMr. L-B: Yes.\nHM,Jr: What I want to say to you 18 this:\nit would be very pleasing to me\n....\nMr. L-B: Yes.\nHM,Jr:\n....\nand to the President\n.....\nMr. L-B: Yes.\nHM,Jr:\n.... if your Government would set up\nits own purchasing agency\n.....\nMr. L-B: Yes.\nHM,Jr:\n.... along the line of the Universal\nTrading Corporation ....\nMr. L-B: Yes.\nHM,Jr:\nwhich 18 doing the purchasing for\n....\nthe Chinese.\n313\n-2-\nMr. L-B: Yes.\nHM,Jr: Are you familiar with that?\nMr. L-B; No; I am not.\nHM,Jr: Would you like to know how that thing\nworks?\nMr. L-B: Yes, surely!\nHM,Jr: Well, if you would like to know how\nthat works -- who would be the best man, Mrs. Klotz:\nMrs. Klotz: Mr. Lochhead knows all the work-\nings of it.\nMr. L-B: A French corporation functioning\nalong the line of an American corporation?\nHM,Jr: A corporation organized under the\nState of New York.\nMr. L-B: So you mean to set up an American\ncorporation?\nHM,Jr: An American corporation controlled by\nthe French with preferably French Treasury officials.\nSee? Then you see, what we do for them 18 this:\nthey ask us -- they asked us to get them a manager.\nWe got a retired Navy Pay Officer, a Captain, whom\nthey hired because he knows Captain Collins who is\nin charge of our Procurement.\nMr. L-B: Yes.\nHM,Jr: You know Collins.\nMr. L-B: Yes.\nHM,Jr: They want to buy 80 many yards of cot-\nton. They come down, entirely unofficially, and ask\n\"Is this a good price?\".\nMr. L-B: I see.\n314\n-3-\nHM,Jr: And we advise them. And we can't\ndo that for you if you take some bank, private or\npublic, bank.\nMr. L-B: Well, I see.\nHM,Jr: You see?\nMr. L-B: Yea; very well.\nHM,Jr: And the President has spoken to me\ntwo or three times. For your information, I passed\nthe same word along to the English. I told them\nthat if they would do it this way, then we could be\nhelpful to see that, if you want this or that, we\nwould not be competing; that your Government would\nget a fair break. We can't do it if you are going\nto use a middleman. You know the fight I made about\nthe planes and how well that worked out.\nMr. L-B: Very well.\nMay I ask a question. Just now, what we in-\ntended to do was not to use a bank as purchasing\nagent. It was to send a mission here, a commercial\nmission, and which will be I think headed by the Com-\nmercial Counselor, and then we will get in touch with\nthe industrialists here and ask advice either of you\nor somebody else. But if you think we take this\npath and it would be more difficult to give us the\ninformation which we shall need\nHM,Jr: If you would take a look, and I shall\nbe glad to show you the incorporation papers and\neverything else.\nMr. L*B: Yes.\nHM,Jr: To show you how this Universal Cor-\nporation was set up. It has worked beautifully.\nThey have bought millions of dollars, bouth auto-\nmobiles lower than the United States Government,\nhas bought trucks. They have gotten better prices\neven than we. Their copper 18 contracted for at\n315\nnine centa and -- well, no organization could buy\nany better than they have, because we have unof-\nficially advised them. Never wanted it to get out,\nbut feeling it 18 all Government we did not object\nto their coming down and telling them well this 1e\ntoo much, etc., and we can help direct people to\nthe proper places.\nMr. L-B: I see. You mean you can do that\nmuch better, easier, if the people who come to you\nare members of a corporation like that than if they\nare of ficial representatives of the Government.\nHM,Jr: No. I don't make myself quite clear.\nThis corporation is owned entirely by the Chinese.\nMr. B-L: But it's under the law of the State\nof New York.\nHM,Jr: Under the law of the State of New York,\nwhich is a little bit of & buffer. But the thing we\nhope you won't do 18 to use a private bank or some\nother organization like that. We would like to have\nan official French buyin g mission here\nMr. L-B: That what we intend\nHM,Jr: ... and we feel that this corporation\nof the Universal has worked out so well that all I\nam suggesting is that we turn it inaide out and show\nit to you\nMr. L-B: I see.\nHM,Jr:\njust to show you the whole thing\nas it works.\nMr. L-B: Yes, but the men -- but I want also\nto make myself quite plain. Just now, if we had an\nofficial mission headed by the Commercial Counselor\nof the Embasey and we could use a bank as an inter-\nmediary, if those people wanted to buy cooper, went\nto you and asked you or any of your Procurement people\n\"Is that a fair price?\", wild it be as easy for\nyou towork with them?\n316\n-5-\nHM,Jr: Not quite.\nMr. L-B: As if we created a corporation\nalong the lines of Universal.\nHM,Jr: It would be a little better. Just\nthe way the Russians have the Amtorg.\nMr. L-B: Yes, I know about that.\nHM,Jr: Just the way Amtorg\n....\nMr. L-B: You think it would be better, because\nit would be less official?\nHM,Jr: I think 80.\nMr. L-B: Yes. Well I gee that, because, as\nyou know, we have been assailed by many banks who have\ngiven us their offers aa purchasing agents -- Aldrich,\nMorgan, and all these people. I told them that we\ndid not intend to have any purchasing agency. After\nthat they ask if they can be paying agents. Payments\nis something entirely different.\nHM,Jr: You don't need it. You would be the\npaying agent.\nMr. L-B: Yes, but we need also someone to pay\nthe American bank. I don't pay money directly myself.\nHM,Jr: Could you use the Federal Reserve?\nMr. L-B: Yes, but paying agency 18 not much.\nHM,Jr: But the actual contacts. If the con-\ntaots could be between the Continental Corporation,\nwhich is wholly owned by the French Government, and\nthe manufacturer, and a representative of the Con-\ntinental Corporation comes down and saye to us, \"We\nare going to buy a million yards of this or that, is\nthat a fair price?\", I don't see why we couldn't do\nthe ame thing for you as for the Chinese.\nMr. L-B: That's very kind of you. Mr. Lochhead\nRegraded Unclassified\nE17\n-6-\ntold me they had had some very good prices. The\nonly think I can tell you 18 we had intended to\nget up 8. commercial mission headed by the Commercial\nCounselor, an official mission, 80 I don't know\nwhether we shall have to change it.\nHM,Jr: Familiarize yourself with the Uni-\nversal\nMr. L-B: Yea, I will; surely.\nHM,Jr:\nand I will arrange for you to\nfamiliarize yourself with the Universal. I am not\nputting too much emphasis on this. This 1s not\nsomething like the French planes where I very def-\ninitely did not want a corporation.\nMr. L-B: It is a better way. It might be\nB. better way.\nHM,Jr: Yes. That's all. But I am not\nsaying that this 18\nMr. L-B:\ng'11 you plaint ou non.\nHM,Jr: Exactly!\nMr. L-B: Because if we thought for some\nreasons we could not do it\nHM,Jr: Perhaps. For example, somebody,\nI don't know whether it was your Government or the\nBritish, has a broker in Detroit who has an order\nout for 500,000 blue blankets at any price.\nMr. L-B: Yes. No, it 1s not us.\nHM,Jr: Look what that does to our markets.\nMr. L-B: Because, Mr. Secretary, your Muni-\ntions Board Just now has only advisory capacity\nand not executive capacity. That's what we were\nwondering. We remember that in the last war, when\nyou Joined the war, we went through it.\n318\n-7-\nHM,Jr: But the money, the only money we\nhave, for instance, for strategic war materials\n18 only $10,000,000. We hope to get $100,000,000.\nCapt. Collins 1e purchasing agent for that, because\nwe are the purchasing agent for everything except\nthe Army and Navy.\nMr. L-B: But we were wondering whether you\nwill eventually create a Board to supervise prices.\nHM,Jr: I think they will.\nMr, L-B: And then we could go through it,\nas we went through your Munitions Control War Board\nwhen it was created in 1917.\nHM,Jr: I am throwing it out Just as a aug-\ngestion, but I would appreciate, as this thing de-\nvelops, that you would keep me informed.\nMr. L-B: Yes.\nHM,Jr: Because I don't want to aee the\nFrench and British coming in here, using an example\nlike blanks, and having out an order -- how many\nmills get that order? No one would take it and\nup go the prices of blankets.\nMr. L-B: All competing with each other, as\nin the last war.\nHM,Jr: It shouldn't. I will tell Archie.\nIt's purely a. suggestion. But there 18 a commer-\ncial mission on the way?\nMr. L-B: Yes, there is one. When I left\nParis, a fortnight ago, there was the idea to create\na commercial mission which would be headed by the\nCommercial Counselor.\n(At this point Mr. Lochhead and Mr. Cochran\ncame in.)\nHM.Jr: I want you to give Mr. Leroy-Beaulieu\na chance to have all the forms and everything else\n319\n-8-\nthat the Universal Corporation has; how the thing\nis set up, 80 he can take a look at it. Give him\nthe whole works, corporation papers and everything\non how it is done.\nMr. Lochhead: And we can arrange for him to\ngo to New York and see Mr. Ren.\nHM,Jr: Anything he wants, to familiarize\nhimself with it.\nMr. L-B: Thank you, Mr. Secretary.\no0o-o0o\n220\nRE REPORT OF ADVISORY COMMITTEE\nON SECTION 3 OF NEUTRALITY ACT\nSeptember 12, 1939,\n3130 p.m.\nPresent:\nMr. Hanes\nMr. Burgess\nMr. Duffield\nMr. Riefler\nMr. Viner\nMr. White\nMr. Bell\nMr. Foley\nMr. Bailie\nMr. Smith\nMr. Stewart\nMr. Cochrane\nHaness\nMr. Secretary, I think everybody here has seen\nB. copy of the memorandum which I addressed to you\nand which you have not yet seen. I believe every-\nbody here has - no, I didn't give Harry White one.\n1 think everyone else has seen it, It is just &\nrehash, really, and I think the best way to do it\nis to start at the beginning, 80 - it will only\ntake four or five minutes longer this way, but it\nwould be better If we all understand it. I will\nnot read all of it but I will read the main part.\n\"The President has issued 8 proclamation under\nSection 3 of the Joint Resolution of Congress,\napproved May 1, 1937. After quoting the law, the\nPresident stated in his proclamation as follows:\n\"\"I hereby find that it will serve to protect the\ncommercial and other interests of the United States\nand its citizens to except from the operation of\nSection 3 of the joint resolution of Congress\napproved May 1, 1937, as made applicable to Cermany\nand France, Poland, and the United Kingdom, India,\nAustralia and New Zealand by the Proclamation of the\nPresident of September 5, 1939, issued under the\nauthority of Section 1 of such joint resolution,\nordinary commercial credits and short-time obliga-\ntions in aid of legal transactions and of B. character\ncustomarily used in normal peacetime commercial\ntransactions; and they are therefore hereby excepted.\n\"11 hereby authorize the Secretary of the Treasury\nto administer the provisions of this regulation and\nto promulgate such rules and regulations not incon- to\nsistent with law as may be necessary and proper\ncarry out such provisions.\n321\n- 2 -\n\"This regulation shall continue in full force\nand effect unless and until modified, revoked,\nor otherwise terminated, pursuant to law.'\n\"After issuance of this proclamation, the Secretary\nof the Treasury sent the following letter to the\nSecretary of State and the Secretary of Commerce:\n\"'The regulation concerning credits to belligerents,\nsigned by the President on September 6, 1939, au-\nthorizes the Secretary of the Treasury to administer\nits provisions and to promulgate such rules and\nregulations not inconsistent with law as may be\nnecessary and proper to carry out such provisions.\n\"\"I am forming an advisory committee to consult with\nthis Department concerning this matter. The Under\nSecretary of the Treasury, John W. Hanes, will\nrepresent the Treasury Department on such committee.\nI will appreciate it if you will designate an official\nof the Department of State to serve on such committee\nand advise me as promptly BS possible of such designa-\ntion.'\n\"In answer to this letter the Secretary of State\nappointed Messrs. Berle and Feis and the Secretary\nof Commerce nominated Mr. James W. Young.\n\"In accordance with the request of the Secretary\nof the Treasury this committee had a. meeting in the\noffice of the Under Secretary of the Treasury on\nSeptember 11th for a general discussion of policy\nwhich should be recommended to the Secretary of the\nTreasury in administering the provisions of the\nregulation and promulgation of such rules and regu-\nlations not inconsistent with law as may be necessary\nand proper to carry out such provisions. The committee\ndiscussed at length the question of the meaning of\nthe words in the statute of 'persons within the\nUnited States, and also whether they are permitted\nunder the said resolutions to buy and sell obliga-\ntions of such belligerent governments, issued prior\nto September 5, 1939, and also those issued after\nthat date.\n\"The committee recommends to the Secretary of the\nTreasury that an opinion be requested of the\nAttorney General as to whether (a) foreign branches\n322\nof American banks are, 'persons within the United\nStates, within the meaning of Section 3, paragraph\n(a) of the Joint Resolution of May 1, 1937, (b)\nwhether they are permitted under the said Resolution\nto buy and sell obligations of such belligerent\ngovernments, ((1) issued prior to September 5, 1939,\nand (2) issued after such date), as part of the\nusual business of handling funds deposited in such\nbranches.\n\"A letter has been drafted for the Secretary of the\nTreasury, requesting such opinion of the Attorney\nGeneral. After the discussion was completed, the\ncommittee recommended to the Secretary of the\nTreasury & statement to be given to the Press, which\nis about as follows:\n\"A policy of encouraging banking and business houses\nto continue B. normal international short-term credit\nbusiness within the scope of the Neutrality Act WEB\nrecommended to Secretary Morgenthau today by an\nadvisory committee which he has formed to assist the\nTreasury in carrying out section 3 of the Act.\n\"This section of the Act governs credit transactions\nbetween persons in the United States and Governments\nof belligerent countries or their agents. President\nRoosevelt on September 6th signed B. regulation under\nthe Neutrality Act permitting certain types of short=\nterm credit accommodations and authorizing the\nSecretary of the Treasury to administer the provisions\nof the regulation. To assist in the work Secretary\nMorgenthau designated Under Secretary Hanes to head\nan advisory committee composed of representatives of\nthe Department of State and the Department of Com-\nmerce.\n\"This committee today recommended to Secretary\nMorgenthau that the President's regulations of\nSeptember 6th be administered with the least\npossible disturbance to ordinary legal transactions\ncustomarily employed in normal peacetime business.\nNo general regulations were suggested by the come\nmittee at this time, but the committee did recom-\nmend that, when creditors seek guidance on particular\ntransactions, they be requested to submit questions\nto the Treasury through the Federal Reserve Banks.\n123\n\"The committee suggested that attention be called\nto the types of transactions which the Act itself\nspecifically exempts from any restriction, for\nexample, the renewal or adjustment of credits,\nexisting on September 5, 1939, and the legal\npurchase of obligations of belligerents which were\nissued prior to September 5, 1939. These exemptions\nare in addition to the one which was ordered by\nPresident Roosevelt on September 6th and which\napplies to ordinary commercial credits for, or\nshort-term obligations of, belligerent Governments,\nprovided these credits or obligations are for the\nfinancing of legal transactions and are of a\ncharacter customarily used in normal peacetime\nfinancing.\"\nThat is the end of the so-called press release\nthat we are recommending. The last subject which\nthis Committee discussed was presented by the\nState Department for consideration and will be\ndiscussed at & future meeting. It was the ques-\ntion of the cancellation of the standstill agree-\nments by American bankers and the terms and con-\nditions upon which these may be renewed, these\nstandstill agreements.\nMr. Secretary, this opens the subject for further\nconsideration and action, it being our opinion\nthat if we set up the machine to operate through\nthe Federal Reserve banks, the questions being\nreferred to those banks, as we make rules or as\nthe Treasury makes rules, we will send mimeographed\ncopies to the twelve districts, which would seem\nto me to save us an awful lot of detailed work\nbeing done here because as those opinions and\ndecisions accumulated in the Federal Reserve die-\ntricts they could be handled promptly on the basis\nof past decisions and it may not even be necessary\nto refer them to this department.\nIt seems to us to set out at this time and try to\nforesee all of the problems that are going to be\npresented under this so-called Section 3 proclama-\ntion would not be advisable and we are not advising\nthat we set up any definite or specific rules\nbeyond getting an opinion from the Attorney General\non this matter, which is important only to those\nbanks that have branches in foreign countries.\n24\n- 5\nThat is R matter dealing with the purchase or,\nnot so much in past obligations, but in obliga-\ntions to be issued by those governmento in the\nfuture.\nH.M.Jr:\nAnybody can talk that feels like it. Anybody\nthat wants to ask any questions may do 20. The\npurpose of asking you people together was to\ngive you & chance to familiarize yourselves with\nthis and get your suggestions, 1f you have any,\nbefore I act on it.\nBurgese:\nI should think the only question, really, Henry,\n18 whether one should draw B. regulation which,\nafter all, could not do much more than repeat\nthe language of the Act, or whether one should\nsimply say, \"There is the Act, it speaks for\nitself. If you have questions, why, bring them\nalong for interpretation,' and then interpret\nthem as they come along.\nH.M.Jr:\nDo we commit ourselves on regulations in this\nrelease?\nSmith:\nNo.\nHanes:\nAbout all we do say here 1s that we will answer\nsuch questions as we can and it may become neces-\nsary if we get an adverse opinion from the Attorney\nGeneral - I should assume that that ought to be\ngiven to the public. I think that 1s a matter that\nthe banks would certainly not be wishing to violate,\nand if their decision is adverse, then these banks\nthat are doing business in the foreign government\ncapitals, for instance, France and London, branches\nof the National City Bank - it is customary for\nthem to buy for their secondary reserves certain\nobligations of those governments just as they do\nin this country, buying our Governments, and If\nthose banks are not allowed to buy future war loans,\nwe will say, of the government in which they are\nlocated, they mi ght as well close up shop and come\nhome.\nWhite:\nJohn, as I read this, it says that the President\nauthorizes the Secretary of the Treasury to administer\nthe provisions of this regulation. I take it that\nthe responsibility of the administration of this\n325\n- 6 -\nsection rests with the Secretary, 18 that right?\nNow, what is he doing to fulfill that responsi-\nbility? What avenues, what agencies, are there\nthat will check up to see that there are no\nviolations of this? Where in your program is that\nenvisaged?\nHanes:\nThere is not anything in this program, Harry, which\nsuggests that the Treasury is going to do anything\nmore than act in an advisory capacity. I haven't\nconsidered the possibility of releasing this situ-\nation, if that is what you mean.\nWhite:\nIs that involved as a legal matter in the placing\nof the responsibility of the adminiatration on the\nSecretary of the Treasury? Does that imply that\nhe presumably 1s to take care to see that there\nare no violations?\nHanes:\nThat is the question I think the lawyers could better\nanswer than I. Frankly, I hadn't considered it in\nthat light.\nH.M.Jr:\nIt is a good question.\nFoley:\nWell, the Act carries criminal penalties and they\nare very severe and I should imagine that viola-\ntions that are brought to your attention should\nbe made available to the Department of Justice\nthrough this department for such action as they\nmay want to take.\nViner:\nBrought to our attention by whom?\nPoley:\nI should imagine that if we have any information\nwe would make it available to the Department of\nJustice. I don't think we are under a duty to\nWhite:\nWho is going to make it available to the Treasury?\nHow 1s the Treasury going to know if there 1a a\nviolation?\nBurgess:\nThe Bank Examiner would. In the course of natural\nbusiness he would find in the course of the bank's\noperation any violation of this as well as any\nother law.\nH.M.Jr:\nThat would be only the national banking people.\n326\n- 7 -\nBurgess:\nFederal Reserve Examiners, too, could call atten-\ntion to anything they found. Automatically the\nsystem is set up to deal with banks.\nWhite:\nAll the banks that have foreign branches are either\nmembers of the Federal Reserve System or Federal\nbanks. In other words, the responsibility of the\nSecretary of the Treasury is to fulfill, when he\nis ready to receive information with respect to\nany violations.\nFoley:\nI don't think that is quite right, Harry.\nH.M.Jr:\nMay I just make B. suggestion which might clear\nthis up B. little bit, or it may not. Harry said\nwe will use the Federal Reserve Banks, wouldn't\nit help clear it up a little bit if it said we\nwill use the Federal Reserve Banks in their\ncapacity as fiscal agents of the United States\nTreasury?\nFoley:\nI think that is advisable. I think we also ought\nto talk to the Federal Reserve Banks.\nH.M.Jr:\nSo that when you use \"in their capacity of fiscal\nagents of the United States Government.\" It 1s\nnot the System, I mean. We are not using the\nFederal Reserve\nSurgess:\nYou are using the Banks, not the Board.\nH.M.Jr:\nThat is the point, Randolph got it.\nDid you get it?\nHanes:\nYes.\nH.M.Jr:\nDid you hear what he said?\nHanes:\nYes.\nH.M.Jr:\nI was just thinking of the wear and tear - that\nwe are using the Federal Reserve Banks as fiscal\nagents of the United States Treasury.\nViner:\nDoes that mean we will draft instructions to the\nFederal Reserve Banks as to what to look for?\n27\n- B -\nFoley:\nI should think, Jake, we would want to talk to the\nFederal Reserve Banks first to see whether or not\nthey are willing to take the bonds and tell them a\nlittle bit about what is expected of them before\nwe just make an announcement through the press.\nBanes:\nWe haven't considered doing that without discussing\nit with them. This is merely tentative here, and\nit is opan for - if anybody doesn't like this thing,\nwe ought to change 1t, that is all. It 1s just\nbrought in hore for something to shoot at.\nBurgess:\nIt might be a very good plan to get Logan from the\nNew York Bank to come up here tomorrow. The New\nYork Bank is the one which has done all these\nfiscal agency things in the first instance, and\nLogan is their Counsel. I happened to sit beside\nhim at lunch yesterday and talked about this B.\nlittle and he said he assumed that the Reserve\nBanks would do it if they knew about it, but he\nwould be very helpful on the question of whether\nregulations would be necessary and how to do it.\nH.M.Jrs\n(on phone) Hello. (Telephone conversation with\nPresident Roosevelt unrecorded).\nBailie:\nMr. Secretary, I think you have to - we will have\nto show some sort of record here of having told the\nFederal Reserve Banks what you want them to do,\nbecause after all, in an act of criminal penalties,\nIt is up to you to administer it, it can't be just\nsort of self service. Don't you think that is right,\nJohn?\nManes:\nSure.\nI would like to know if there is any difference of\nopinion in the method of approach, whether or not\nthere is any opinion here that thinks that we ought\nto draft rules and regulations on this thing or\ntry to be specific on it until we know a little\nbit more about the problems.\nWhite:\nI don't see how you can avoid drafting some regu-\nlations, but they can be as general as you like\nwith subsequent specifications, but it appears\nto me it 1s acceptance of a new responsibility\nwhich ought to take some definite form. How much\n528\n- 9 -\nyou would want to specify 1s another matter. How-\never, that 1s fully a legal question.\nBurgess:\nIt says, \"authorize the Secretary of the Treasury\nto administer the provisions of this regulation\nand to promulgate such rules and regulations not\ninconsistent with law as may be necessary a nd\nproper to carry out such provisions.'\nWhite:\nYou don't have to, but it seems as though there\nshould be some indication that he has assumed\nresponsibility and has taken some steps toward\nfulfilling it.\nViner:\nAnother phase is that the public has a right to be\ntold just what it can and cannot do, that it can't\nbe left altogether in & haze, and you can't keep\non answering individual questions. If you start\nissuing interpretations, I should say at that stage\nthey ought to be concerted into regulations.\nHanes:\nWe assumed that the proclamation itself covered,\nto the bankers' minds, the fellow that is dealing\nin this kind of thing, specifically enough. For\ninstance, it says, \"Ordinary commercial credits and\nshort-time obligations shall be excepted.\" They\nare excepted from the Neutrality Act. Those which\nare in aid of legal transactions. Well, illegal\ntransactions, of course, is B. matter that is pratty\nwell defined under the Neutrality Act. Another\ncharacter customarily used in normal peacetime\ntransactions. Now, the penalty for violating that\nthing 1a $50,000 fine and five years imprisonment,\none or both.\nFoley:\n$10,000.\nHanes:\nI thought it was $50,000.\nFoley:\n$10,000 and five years in prison, John. Those are\nsevere for this kind of an Act.\nBanes:\nIf anybody has any questions in their mind as to\nwhat is an ordinary peacetime commercial transaction\nor what 1a B. short-time obligation in aid of legal\ntransactions, it would seem to me that that language\nis specific enough to cover the ordinary rules and\nregulations that we would promulgate unless we went\non to say the following shall be considered\n- 10 -\n29\nordinary peacetime transactions, the following\nare not, or something like that.\nBailie:\nYou can't cover them that way.\nHanes:\nWe would be in a. worse fix 1f we specified those\nand left out a couple. I don't think we would\nbe protecting our people adequately under the law.\nBailie:\nThe commercial community will get a great deal\nmore understanding out of published decisions by\nthe General Counsel as they come out than they\nwould by any attempt to think out in advance.\nBanes:\nThat 1s what my suggestion was based on, that de\nkeep the Federal Reserve Banks posted as rulings\ncome from day to day, send those mimeographed\nrulings right to the districts so they would have\na file and could keep up to date on what was and\nwas not allowed under this, in accordance with the\nTreasury regulations or rules.\nViner:\nCouldn't they go in the official register too?\nWhat is it called?\nBernstein:\nFederal Register.\nFoleyt\nThe rulings? They could be inserted, Jake, 1f\nwanted to.\n\"ailie:\nDon't you think you would have to go this far, that\neach one of the twelve Federal Reserve Banks acting\n8.8 your fiscal agents would have to see to it that\nthey send in a written notice to every bank covered\nby these regulations, telling them about them,\ncalling attention to them, and saying that they\nwere ready to advise with them as problems came up\nso that there is no doubt that you have fairly given\nnotice of the fact that you have taken jurisdiction?\nBanes:\nThere may be somebody here that thinks that 1s not\nB, good way to go, If there is - 88 a matter of fact,\nI am not the thinker-up of that idea. I think I\nwill have to give Gene Duffield credit for thinking\nthat idea up. It appealed to me 88 being B. sound\none. Maybe some better ideas can be approached to\nthis thing than that.\n7311\n- 11 -\nSmith:\nRandolph, this will affect comparatively few.\nBurgess:\nYes, mostly New York banks. I just told John\nto check with the City Bank Counsel to see if\nthis covers it, and I think you will get a pretty\ngood check on it.\nH.M.Jri\nHow will that be, taking this suggestion that this\nthing 60 out by airmail tonight and I write B. letter\nto the President of each Federal Reserve Bank and\nsay that we are thinking of doing this. Everyone\ncould be reached, you see, by morning, and that we\nwould like to have any comments back and that we\nare going to ask them to do this. Before we give\nout a press release we would like to have the\nanswer back by airmail. If this went out by\n5:00 o'clock this afternoon it would reach them\nby airmail by tomorrow morning, and ask them to\njust send it back to us within the same day.\nWhat is today? Tuesday? Thursday morning you\nwould have the answers from every Federal Reserve\nBank and 1f they have any questions to ask they\nshould call who, you? (To Mr. Hanes)\nFanes:\nI will be glad to answer them.\nH.M.Jr:\nDo you have the letters prepared?\nHanes:\nYes, sir.\nH.M.Jr:\nIf there are any particular questions they want to\nask - just so that there won't be any, I would\nsend a copy of the letter over to the Board.\noley:\nEven enclose & copy of the Neutrality Act and the\nproclamation that the President signed, and the\nCommittee has been set up.\nS.W.Jr:\nAnd then B. copy to the Chairman of the Board for\nhis information.\nFines:\nThat would mean similar to what we have here. A\nwe would say to them, because that has got about\ncopy of this memorandum to you would be about what\nthe whole business in it.\nBoll:\nWhy don't you send & copy of this last memorandum\nexcept the last paragraph? There 1s ne harm in\nthe memorandum.\n331\n- 12 -\nBurgess:\nI think you could add one phrase, John. I think\nyou could put in, where you say the general regu-\nlations were suggested, you could put in \"In view\nof the explicit character of the Act itself, no\nregulations were considered necessary.\"\nFoley:\nI think that you are being facetious.\nBurgess:\nDon't you think it defines things? It isn't general;\nafter all, 1t does list things.\nPoley:\nIt is pretty vague, I think, and therefore I don't\nthink it is susceptible of hard and fast regulations.\nI think if the Act was clearer and defined exactly\nwhat they had in mind, we would be able to administer\nit with a great deal more facility, but because it\nis so vague and because it parallels the Johnson\nAct in its language so closely that we have to be\nterribly careful about any general things we say now,\nand I think it is better to feel our way and get\nspecific instances where we know the facts before\nwe make any commi tments.\nsurgess!\nWell, in view of that feeling, I will withdraw that.\nE.H.Jr:\nIf this thing can go out early airmail with a special\ndelivery stamp, that would go in the same day, do\nyou see?\nHanes:\nYou want to know whether or not they have any sug-\ngestions to offer and whether they will agree to\nact?\nH.M.Jr:\nAnd if they have any questions, to ask them to cell\nyou on the telephone.\nHanea:\nWill you help me with this?\nFoley:\nSure. I would suggest that we send - not the memo-\nrandum, but\nH.M.Jr:\nI don't care.\nPoley:\nEL copy of the regulations, of the rules, and the\nNeutrality Act.\nH.N.Jr:\nFix it up.\n332\n- 13 -\nPoley:\nYes.\nH.M.Jr:\nIs that all right?\nHanes:\nYes.\nB.M.Jr:\nNow, what the President called me on - the reason\nI am telling you this is, he said he gave me a\ndeadline of noon tomorrow to fix up something on\nthis stabilization for twenty-one Latin American\ncountries, so that 1e the reason I am outting this\na little bit short. He says that is a deadline,\ngo the whole hog and no quibbling.\nBailie:\nThe advice we are prepared to give you will not\nfit that formula, but we will have to discuss that.\nE.M.Jr:\nWell, just 80 it is on time.\nRailie:\nWhen do you want to see us?\nE.M.Jr:\nI have got this Federal thing and after I am through\nwith that I will be no good, but I will be moderately\ngood tonight. The only thing was, I thought 1f we\ncould do it tonight and then I would call up Mr. Welles\nand ask if he would come over here at 10:00 o'clock\ntomorrow morning.\nPailie:\nWhat time do you want us tonight?\nH.M.Jr:\n8:30?\nBailie:\nThat 1s all right.\nH.M.Jr:\nShould I have Feis sit in with us tonight?\nViner:\nI would say by all means. We are very, very vague\nas to what this is all about and we are guessing.\nBailie:\nI would be quite worried about having him sit in\nuntil you made up your mind about what you wanted\nto do about the answer to the Secretary of State's\nletter.\nH.M.Jr:\nThe only thing, it would save time. Feis told me\nin the few minutes I had with him that he con-\nvinced Mr. Welles that the stabilization fund\ncouldn't be used for this purpose.\nRegraded Unclassified\n333\n- 14 -\nBailie:\nThat 1s right.\nH.M.Jr:\nSo, I would just as lief have Feis sit on the inside.\nI don't care.\nBailie:\nWould it be possible for Mr. Feis to come in at\nsay, 9:00, or a quarter past, so we would have &\nlittle chance to discuss beforehand what our\nattitude is going to be? We took our time in\ndiscussing this thing, largely what our relation\nwith the State Department ought to be.\nBurgess:\nI suggest that maybe Dan and I go down to the\nBoard.\nH.M.Jr:\nAll right.\nWho is working on Pan-America?\nBailie:\nI am, and Cotton, and the three \"E's.\"\nH.M.Jr:\nHarry White 18 in on this.\nViner:\nAnd Bernstein.\nWhite:\nAnd Cochrane.\nBailie:\nI will see that Cotton gets everything. I will see\nthat Cotton gets every one at your house at 8:30.\nH.M.Jr:\nI don't know what the whole hog means.\nBailie:\nTwo hundred million dollars.\nHanes:\nI don't think he gave you much choice in the matter.\nDecisions won't be hard to make.\nH.M.Jr:\nI wish\nBailie:\nYou don't need us any more, do you?\nH.M.Jr:\nWell, I want White to look up my testimony before\nthe Senate where, as I remember, if my memory\nserves me right, I said I would not use the\nstabilization fund for loan purposes to any foreign\ngovernment without going to Congress for specific\nViner:\nYou said to any belligerent.\n34\n- 15 -\nWhite:\nAt one point you said to any government involved\nin war, but there are other parts we will have to\nexamine before we can definitely say that you\ndidn't say that.\nH.M.Jr:\nI think I said that I wouldn't approve any loan to\nany foreign government without getting specific\nauthority from Congress.\nSailie:\nWelles told us the other morning that he believed,\nin view of what you had said - and this wasn't\non our saying so, he volunteered this - it would\nbe necessary to go to Congress. Welles volunteered\nthat comment himself.\nH.M.Jr:\nAnd particularly in view of the fact that we asked\nfor 100 million dollars for the Export-Import Bank\nof North and South America and we got turned down.\nAnd again in these few minutes I had with Feis, he\nsaid I told him that you want - wouldn't want 8.\nbroad-side agreement with twenty-one countries. He\nsaid that you would like to do each country indi-\nvidually.\nWhiter\nI suspect that there may be some merit, in view of\nthe way in which this 1a being handled, in going\nalong in anticipation that the major difficulties\nwhich you foresee will crop up.\nH.K.Jr:\nWhat do you mean?\nWhite:\nI mean they will crop up on the occasion and that is\nwhen it will become apparent that nothing can be\ndone along those lines, rather than blocking it now.\nI mean if you go ahead with it tentatively and\ncooperate with the\nH.N.Jr:\nYou mean let Welles make a commitment for 100 million\ndollars?\nWhite:\nLet him make any commitment he wants, if he wants to\nmake a commitment.\nBailie:\nI violently dissent with that view.\nWhite:\nIf the thing 1a being written for us, the other\nalternative is to go along - however, we will trust\nthat. The situation is changed, it appears to me,\nby this last communication.\n335\n- 16 -\nH.M.Jr:\nWell, I doubt if - I am trustee for this fund and\nI have made certain statements to Congress and I\nexpect to live up to them. I am not going to\nbreak my word to Congress.\nBallie:\nMr. Welles has told us he expects you to. I think\nour trouble comes in quite another alley. I think\nwe could get away from the stabilization fund. It\nis & question of whether you want to take another\naspect of the situation.\nE.K.Jr:\nI still think you people could come et 8:30 tonight\nand I could invite Feis for 9:00. He is always late\nanyway. Don't you think he ought to be there?\nBailie:\nWhat will Mr. Welles think?\nViner:\nWelles ought to know or the State Department ought\nto know that you invited him.\nH.M.Jr:\nI am making the appointment through Welles. I am\nasking Welles to send Feis tonight.\nWhite:\nWe will have all the statements typed up that you\nmade reference to this in your public statement.\nS.M.Jr:\nI have got to be consistent. I can't make B loan\non the stabilization fund.\nBailie:\nIt is more than the exact words that you said, it\n1s the atmosphere that you created which the Under-\nsecretary thinks, and I think, too, is & very strong\nfeeling that you regarded the type of trensactions\nthat you had been doing as one that you planned to\ncontinue to do and that 1f you were going to make\nany violent changes of any sort using the fund, you\nwould come back to them. It was on that basis they\nextended the period during which you had this great\npower. That is the impression that was given. I\ndon't think it is so much the identical words you\nsaid, because Mr. Welles, having looked it over,\ncame out with a statement he felt quite sure the\nSecretary would want Congress to authorize it. I\ndon't think we have to fight that.\nWould or would not?\n- 17 -\n336\nBailier\nOh no, Welles volunteered the statement that he\nassumed that this would have to be done by new\nCongressional authority. Now, why we should go\nbehind that I fail to see unless you should want\nto use the fund for some of these purposes.\nWhiter\nI think there are a lot of developments which you\nshould hesitate to commit yourself, whether you\ncan or cannot. The best position to take 18 that\nit depends entirely on the terms and conditions\nand circumstances. There are certain conditions\nand terms under which that fund can legitimately\nbe used, and I think not contrary to that statement\nwhich you made. There are other conditions in which\nthat is not true.\nB.E.JFI\nHarry, you get the statement that I made before\nCongress when I testified. I certainly gave the\nCongress the impression I was not going to use this\nto make any loans to any foreign governments, end\nI am not going to do it for anybody. Somebody else\ncan do it, but I won't. I'm not going to do it.\nI am the person that got that fund through. I am\nthe trustee. I am not going to break my trust. I\nknow what I went through to get that thing. Is\nWelles asking you\nBallier\nI don't think he is for a second. He is asking you\nto agree to his making at Panama certain statements\nand asking certain resolutions to be passed, and we\nwill bring those with us tonight.\nH.M.Jr:\nCan't he make some glittering generalities?\nBailie:\nThat is what we are suggesting.\nWhite:\nIt is not going to meet the President's notion of\nwhat is to be done.\nH.M.Jr:\nHarry, this is the way I want it done. I don't need\nanybody to advise me how to administer the stabiliza-\ntion fund and what to do with it. I got that through\nand I an not going to make any loans to any foreign\npowers as long as I am here, without getting Con-\ngressional sanction. I don't need any advice on that.\nI know what I went through and you look up my testi-\nmony and you will see that that 1s there.\n37\n- 18 -\nRmllie:\nMr. Secretary, you moved back from that position,\nwhich I think can't be controverted in any way,\nto the place where you say, \"Well, is it a loan\nIf you buy the paper currency of the government\nthat hasn't any gold back\"? and our answer is\n\"Yes, in general, it is a loan.\" That 1s what it\nwould amount to if we can't sell it again. Then\nyou come on back with a variety of steps, for\ninstance, with the Argentine Government, where It\nis pretty near possible with their financial strength,\nbut you have the Tripartite Agreement. They have\ngold. They keep their engagement. They have a\ncentral bank. The whole machine exists there.\nE.N.Jr:\nWhat 18 the State Department going to do s bout this\ndebt question they keep all the time?\nail10:\nMr. Welles stated to us that he did not have the\nslightest intention of having that messed up with\nthis 200 million dollars. He didn't want anything\ncommercial or about debts mixed up with it. He\nwanted just purchase exchange and - I can't get out\nof my mind the exact phrase he used, but the 1dea\nwas to be as far away from your letter of August 1st\nas it was possible to be in his idea of the way\nthis was to be handled. That is the thing we have\nbeen wrestling with In our meeting, to see how wo\ncould\nB.K.Jr:\nof course, you could do two things seperately.\nallie:\nThat 18 right.\nE.M.Jr:\nYou could give him something to take to Panamu.\nallie:\nThat is what we are doing.\nH.W.Jr:\nThen this letter to Mr. Hull about the Committee\ncould be done afterwards, which would make it\nsimpler.\nWhite:\nI still think the unassailability of your position\nlies in requiring and demanding those terms and\nconditions under which you will utilize the stabili-\nzation fund that meets with what you regard as\nsufficient safety to satisfy your ideas of what your\ntrusteeship involves. In other words, it 1s the terms\nand conditions of the use and not a preliminary state-\nment to the effect that you are not going to use this\nRegraded Unclassified\n38\n- 19 -\nfund at all for any stabilization purposes. It is\nonly when they come forth for a specific purpose\nthat does not meet the terms, which you are at\nliberty to set at that time, that I think you can\nwell say that this loan under these conditions\ninvolves & risk which I am not going to assume, not\nwilling to assume.\nBailie:\nHarry, I think you are talking 8 little bIt beside\nthe point. I happen to have been at this meeting\nwith Mr. Welles and Mr. Welles's statement was that\nhe thought Congress ought to take 100 million out\nof the stabilization fund and take 100 million of\nthe Export-Import money that they didn't give.\nThat was the - added together you get 200 million\nand you have got & fine new fund, end that fund\nWSS to be used for these purposes, which I find so\nhard to understand. I mean they are such general\nphrases. There was no suggestion that you should\nuse the present stabilization fund, because Mr. Welles\nsaid that he assumed in view of your testimony that\nit would not be possible to use it.\nD.M.Jr:\nThat is what Feis said he told him.\nWhite:\nWhat about the President?\nT.M.Jr:\nHe didn't get down to any details.\nDellie:\nMr. Welles didn't quote the President to Mr. Burgess\nand me as having taken any position about this\nstabilization fund.\nK.M.Jr:\nFeis lolows what is in his mind because he is the\nfellow who took this up, so we might as well have\nhim here. Maybe we are seeing bugaboos, but just\nkeep it in mind before the next stabilization\nfor 100 million dollars and the Export-Import for\n100 they didn't get Let's take that 100 million\naway from the Federal Reserve and use it. They have\nanxious that I use all my free gold, let's take his\ngot 120-odd million dollars. Mr. Ecclos is so\nhundred away and use it for South America. How\nmuch has he got up there, 120?\nWhite:\nOne hundred ten.\nH.M.Jp:\nWell, we won't be small. We will leave him ten.\n339\n- 20 -\nBailie:\nI suggest a collection among the departments.\nH.M.Jr:\nBoth the President and I are committed to use\nthe stabilization fund to eventually retire the\npublic debt. You can use this 100 million that\nis lying right over at Federal Reserve.\nBailie:\nI remember six years ago his stating he wanted to\nkeep that \"kitty\" entirely intact.\nH.M.Jr:\nHe may be all right.\nBailie:\nI really don't think it is as serious a situation\nas it might seem.\nH.M.Jr:\nLet's get together at 8:30. I will only interrupt\nyou when the Federal comes over here.\nHanes:\nBefore you go, is everybody satisfied with this\nthing now?\nH.M.Jr:\nYou have got their approval.\n340\nGROUP MEETING\nSeptember 12, 1939.\n9:30 e.m.\nPresent:\nMr. Hanes\nMr. Bell\nMr. Bailie\nMr. Burgess\nMr. Smith\nSmith:\nWe have been discussing the American Bankers'\nconvention. Mr. Burgess is unable to go. With\nyour approval I will go to the convention.\nBurgess:\nI think he ought to go and carry the news.\nSmith:\nIt means being away two weeks, starting the end\nof this week. It 18 in Seattle.\nB.M.Jr:\nAre you kidding?\nSmith:\nNo, that is our....\nJohn, I just told the Secre-\ntary that we had been talking about covering the\nAmerican Bankers' Association convention. Randolph\ncan't go.\nBurgess:\nNo, I am not going, that is obvious.\nBailie:\nThe Treasury business is more important now.\nBurgess:\nThis 1s no time for me to leave.\nSmith:\nThat seems.\nE.M.Jr:\nBe gone for two weeks?\nSmith:\nYes.\nHanes:\nDoes the Bankers' convention take two weeks?\nSmith:\nIt is in Seattle, Washington, you know.\nHenes:\nDo you fly?\nSmith:\nI can if necessary, yes.\nH.M.Jr:\nI tell you, right now I understand that Preston\nDelano 1s out there. The chances are he 18\ngoing to get a telephone message from me on the\n15th to come back.\n341\n- 2 -\nBurgess:\nHe 18 not there yet.\nSmith:\nHe 1s in Canada.\nH.M.Jr:\nBut that is where he is headed.\nSmith:\nIt doesn't make any difference to me.\nH.M.Jr:\nYou can start there, but I am going to tell you\nright now that 1f that fellow pays that dividend\nI am going to send for you and Preston.\nSmith:\nThat is all right.\nH.M.Jr:\nIf you have that in your mind, you can do your\nown betting as to whether you think they will or\nthey won't.\nSmith:\nWell, I think that today 1s the day.\nE.M.Jr:\nIt is the 15th, isn't it?\nSmith:\nThis is the second Tuesday. I thought that this\nwas....\nFell:\nThis 1s the second Tuesday. Do they have a Board\nmeeting today and pay it on the 15th?\nSmith:\nI think it 18 declared today if they declare it.\nHanes:\nLet me make en observation. If it hinges on\nwhether or not they pay the dividends, then you\nbetter not start, because they are surely going\nto pay the dividends.\nSmith:\nNo, personally, I would rather not go.\nH.M.Jr:\nIn the next two weeks, 1f these fellows pay the\ndividend, then I am going to ask a man from Boston\nto come on down and send for Preston Delano and\nthen decide what we will do about it. After we\nhave decided that, you can go and explain that\nto Seattle.\nSmith:\nI know what....\nBurgess:\nAs a matter of fact, you don't have to leave until\nthe 21st.\n342\n- 3 -\nH.M.Jr:\nYou could explain that.\nBailie:\nThe reason for being at the convention, I think,\nis an important one, 1f there are no more important\nthings, and that is that there is B. widespread\nmisunderstanding with the Government bond market,\nthe responsibility of the Treasury for it, and the\nTreasury is being criticized for it. Now, I think\nit 1s a parcel of goodwill at the convention and it\ncould do us substantial good and could help the\nbackground feeling about our bonds, unless there is\nsomething more important for him to do.\nSmith:\nThere 1a a very definite course to pursue in the\nother matter 1f they declare the dividend.\nH.K.Jrt\nWell\nHanes:\nWe haven't got much alternative. There isn't much\nto decide.\nSmith:\nThe first thing you have got to do in the other is\nto go in and see what they have done. That will\ntake EL week or two. The Chief Examiner should go\nin there as soon as they declare the dividend and\nsee what they have done toward meeting the require-\nments and report to the Comptroller. Then is the\ntime to make 8. decision.\nE.M.Jr:\nI see.\nSmith:\nWe have been discussing that and you couldn't take\na chance on not checking what they have done. They\nmight have done something that you didn't know about.\nWe thought they might sell their bonds and make this\ncharge-off. Of course, they can't do that now.\nH.M.Jr:\nIf today is the day - let's put you on the same basis\nthe Treasury 1s on, 24 hours notice, how 1s that, as\nfar 8.3 your going to Seattle?\nSmithi\nI am on that basis.\nH.M.Jr:\nThen let's let it ride.\nSmith:\nI have made my plans and I am just holding my reserve-\ntion until the last minute.\n343\n- 4 -\nHanes:\nI wish Tom and Randy both could go.\nBailie:\nBelieve me, not unless I go too.\nH.K.Jr:\nLet's all go.\nSmith:\nYou understand then, there isn't anything that\nH.M.Jr:\nI am living from hour to hour. Let's just see what\nhappens.\nSmith:\nThat is all right.\nH.M.Jr:\n0. K.?\nSmith:\nYes.\nBailie:\nHenry, I reported to Burgess this morning and then\nTom Smith, the competition we had last night on\nthe Government bond market, and I think, Randolph,\nyou can go ahead and express the views.\nBurgess:\nI was up there yesterday and I had a pretty fair\nexploration job to get the feel of things, Saturday\ntoo. Now, it is presently clear to me that we are\ndealing with the waves at sea.\nH.M.Jr:\nDon't say that, I have just come off it.\nBurgess:\nThat is just what I mean.\nH.M.Jr:\nThat is a pretty big ocean.\nBurgess:\nThis speculative movement on the Exchange 1s supported\nby much better business news than anybody has a right\nto expect. Steel is going to be up 70 percent of\noperations and their orders are coming in. They are\noverdoing it also. On the face of that, it is just\nan impossibility to have any other kind of bond\nmarket but what we have had. In other words, you\nhave got 8. tide you are dealing with. Now, the only\nsensible thing when you are dealing with a tide is\nto go with it. You can't attempt to embattle it.\nYou want to find resistance points. I had hoped\nthat a point where the tide would begin to let up\na little bit and where you can make a stand and\nbuild 8 few bulwarks, I had hoped that it was\n102 or 101 3/4 for these '60s and '65a.\n244\nW , I\nI was just as wrong 8.3 could be. It wasn't the\nplace because this speculative thing kept on moving\nand the bonds kept on moving the other way. It\nwas just the psychology of it. They are over-\ndoing it. A little later 1t 18 going to readjust\nitself, I am just as sure as I can be. Now these\nfellows aren't fading back fast enough. They are\nin their alabaster tower and they are unrealistic.\nNow, I think the next point where there is B. chance\nof getting some order in this thing, getting some\nother buyers in, is at par. People may begin to\nbuy at par. That means only a point end B. quarter\nmore for the longest bonds. Yarl thinks that\nthree percent basis\nBailie:\nI just say that to be offensive. In other words,\nI say nobody can tell the point at which psychology\nwill change. It will change two or three days after\nthe average buyer believes that the market is\nnatural and Bethlehem steel stock 1s going up\nton points 8 day. Do you agree with that, John?\nHanes:\nSure.\nBeille:\nThe combination of those two things will suddenly\nturn people around. They won't do it as long ES\nthey think we are in the market and they see\nBethlehem steel going up ten points a day.\nSurgess:\nI think that is not keeping en orderly market, It\nis pegging the market. I think 1f we have B\nprogram where they spend 25 million dollars a day,\nO. K.\nE.M.Jr:\nWhat did we get yesterday?\nbell:\nWe got six million two hundred twenty-five thousand\nbonds, and two million of Home Owners Loan.\nBurgeas:\nIf you agree with us, we will go ahead and try to\nnegotiate with them and see if we can get any\nsatisfaction.\nH.V.Jp:\nThat 18 pretty important.\nJohn, do you want to express yourself?\nHanes:\nI agree 80 thoroughly with everything that has been\nsaid - you know, I have disagreed 80 absolutely with\n- 6 -\neverything they have done up to date. I have\nagreed with what we did when Marriner Eccles\ncame back, and I don't believe there has been\nanything done since. You take anybody that 1a\nrunning & fund that had the right to buy equities,\nas they did at that time - they were seeking\nsecurity and not profit, but Just looking for\nsecurity. They had their money invested in\nhigh-grade bonds or Governments. The first\nimpulse is so natural to run and throw those\nthings over. It didn't make any difference to\nthem about price, because they would go into\nequities. The market is equity-minus. This\ncountry has gone from a buyer's market to the\nseller's market. I can give you a dozen instances -\nmy brother-in-law called me on the phone & minute\nago and said that he had just been asked to take\n8. 500 thousand blanket order - for blankets, 500\nthousand. And he says, \"I am just full.\" In the\nlast four days. He says, \"I can't take any more\nbusiness.\"\nBailie:\nThat is the bottleneck.\nBurgess:\nYou have had a business situation which for Fix\nyears, seven years, eight years, almost ten years,\nhas been underwraps. It WBB held back.\nE.M.Jr:\nI don't understand you.\nLurgess:\nUnder wraps. It has been held down, hobbled, and\nit 1s suddenly released. People buy things\nHanes:\nPeople are not bond-minded. To cope with Govern-\nment bonds, they have got to seek their own level,\nand I think it is just like trying to dam up\nNiagara Falls. If it wants to go down, it 1a\ngoing down, and I say let it go down with B mild\ncushioning to keep the air pockets opened up, keep\nthe market from falling away to nothing. In the\nabsence of that kind of a market, I would stay\nout and buy six to eight or ten million dollars.\nYou can do 8. lot more with that and let the public\nhave the knowledge that it is a free and open\nmarket than you can with fifty.\nSurgess:\nI was saying twenty at the outside.\n346\n- 7 -\nBailie:\nIn saying twenty, I think Randolph has in mind\nthe tremendous distance we are going to have to\npull with the Federal Reserve to get the twenty.\nIt seems to me if you could make a short-term\nengagement for the next three days, we won't\nspend more than twenty million B day.\nH.M.Jri\nIf you don't mind, I think it is B. misteke to\nplace 8. limit, I mean even on the money. You\nmight say, \"Let this thing 80,\" and they might\ndo it for five million and they might let it go\ntwo points. I mean, 1f I was doing this thing\nthe way we always used to do it, that I worked\ndirectly with you (Mr. Burgess)\nBurgess:\nWe always got along somehow.\nH.M.Jr:\nI have done it eleven months out of twelve since\nI have been here. When the President made the\nGreen Bay speech I think we bought 40 million\ndollars that day. Another day something happened.\nYou always had plenty of leeway so that you could\ntake care of it. We might strike an air pocket\nwhich might cause 15 million one minute and the\nnext minute he could call me up and say, \"I can\nsell a few, Henry, so what do you think?\" And I\nwould say, \"Go ahead and sell, \" in the same day.\nFailie:\nThe Federal is not sales-minded.\nH.M.Jr:\nYou turned right around after that pocket and\nsold a few.\nBurgess:\nSure.\nH.M.Jr:\nWell, the boys in the Federal did a beautiful job\nat the Munich Crisis. That was after I had gone.\nThey did B. nice job. They bought them on the way\ndown and they sold them up.\nBell:\nBut they were under the market all the time.\nBurgess:\nYes. They started out this operation with & com-\nplete erroneous 1dea. They are out of contact.\nSmith:\nAnd their action has accelerated this fifty per-\ncent.\n247\n- 8 -\nH.M.Jr:\nWhat do you think, Tom?\nSmith:\nI think that unless you want the - I have been\ndoing a lot of thinking about it in the last\nweek bonds - unless you want to buy all long-term\nH.M.Jr:\nWhich I don't.\nSmith:\n....you must let the market seek its level and\nthere is an imaginary point at which the public\nwill take the market out of your handa, and you\nhave got to ease it down to that point, but all\nI want to say is, don't be disappointed if par\ndoesn't stop it.\nPailie:\nThat 1a why I said three percent.\nSmith:\nIt is anybody's guess. Ease it down and when\nsometime at a certain point the public will -\nprivate industry will take your market, then it\nis going to go up. I don't think par will do it.\nH.M.Jr:\nI don't think there is any disagreement. As I\nget it, the thing is to ease this thing off and\ntry to find B. bond\nSmith:\nMore rapidly than they have been doing.\nBailie:\nMuch more, because the picture now is, when Federal\nyesterday asked people not to trade after 4:00\no'clock, it was a terrible mistake and it gives\nthe impression of fear on our part of D. situation\nin which we are not afraid.\nH.M.Jr:\nThat isn't \"business as usual.\"\nBailie:\nClearly not, and Randolph is right there within a\nblock of them, talks to them several times, and\nthey didn't consult him about it.\nBurgess:\nI was in there until half past two and they didn't\nconsult me about it.\nH.M.Jr:\nWho 18 going to be the Ambassador from here over\nthere?\n348\n- 9 -\nBell:\nDidn't we agree we ought to talk to George Harris?\nBurgess:\nThey are in a. meeting now. I am not sure, but if\nyou didn't mind doing 1t, Henry, your calling Ransom\nand telling him, I think it would be more forceful\nthan if we did. Don't you think soi\nBailie:\nI think so, I have a feeling that I would like to\nknow that we have George with us so that we won't\nget in between.\nH.M.Jr:\nWhere is George?\nBurgess:\nHe is over there, I think. They are having E. meeting\nnow.\nBailie:\nGeorge said last night something which rather\nfrightened me. He said he would like at the end\nof the day to pull out and make an announcement\nthat the Government was going to let the bond\nmarket go where it wanted. I have got hair on my\nW\nchest, but not that much. I want to be quiet\nabout it.\nH.M.Jr:\nSuppose I do this, suppose I call them up and say\nthat we are not satisfied and that I think it would\nbe wise 1f they would come over here again and have\na powwow. This Panama meeting could be postponed.\nBailie:\nThat would be an advantage to the Panama meeting\nalso.\nH.M.Jr:\nOn the theory that we would do the most importent\nfirst, I would say that this is the most important.\nBurgess:\nI would be glad to undertake it, but I don't think\nit 16 quite strong enough, my just going over there.\nH.M.Jr:\nHe was the man who called up and asked 1f it was\nall right for him to leave town. Some of these boys\nsaid if I didn't tell them to go they would just\nslip out.\nBailie:\nThere wouldn't be any Secretary of the Treasury\nany more.\nH.M.Jr:\nThese fellows said if I told them to stay they would\nnever talk to me again.\n349\n- 10 -\nBurgess:\nI have talked to Ronald this morning. There is\none other fact you might be interested in. They\nare within 108 million of their authority. They\nhave got to have a. meeting of their full committee.\nIn the light of that, they want to do 8.8 Ronald\nsaid this morning, continue as yesterday, spending\nA lot of money at this level, which is obviously\nan absurd level in view of the attempt\nBailie:\nIn view of what the market 1s saying.\nBurgess:\nI can't understand it.\nBailie:\nMarriner told us that when he got to 500 million\nall he had to do was to call in the fellows on\nthe telephone and get another half billion. Now,\nthat kind of knowledge seeps out, I don't care\nBurgess:\nIt comes out in statements too.\nSmith:\nIt is general information that all you have got to\ndo is sell your bonds and a little later on you can\nbuy them back cheap.\nBailie:\nThat is exactly my point. We are just being suckers.\nSmith:\nThe way they handled the market the week before last -\nthen Henry told me this morning, for instance, he\nsaid, \"I want to find out what this market 1s,\" and\noffered a million bonds. After fooling around a\ncouple of hours the Federal Reserve said if the\nbroker would give up the name of the seller they\nmight handle & hundred thousand.\nBailis:\nWe felt very badly about that, that business about\nasking names, We thought it was 8. sign of weakness.\nHanes:\nHas the copper bond market shown any signs of finding\nthe bottom?\nBurgess:\nYes.\nHanes:\nHas it recovered any from the bottom?\nSmith:\nSure.\nBailie:\nIt can't stand up against a day like yesterday.\n250\n- 11 -\nHanes:\nWhen you have got feeling good in the equity market,\nit doesn't destroy anybody's confidence to see bonds\ngo down. Anybody that understands knows why bonds\ngo down when equities 6° up.\nBailie:\nWe had a 1929 in the bond market just during June,\nJuly and August, and we are now having the September\nand October of it.\nSmith:\nEverybody has been looking for that. They say, \"Now,\nhere it 18,\" and they are trying to run and then buy\nthem back. The minute they think that it has hit B.\nlevel\nBurgess:\nI talked to the New York Bank this morning and they\nare prepared to do just 88 we suggest, that is, fade\nback to par on these things and only spending 8. little\nmoney, so if when they get to par they want to spend\n& little more before fading again, that seems to be\nsensible.\nBeilie:\nI have the feeling to set any price at which you are\ngoing to stand is wrong psychologically. I think we\nkid ourselves when we do that. I wouldn't want to\nmake a stand any place. I wanted to just keep an\norderly - no stand.\nSurgess:\nYou are between the devil and the deep blue sea, Earl.\nYou have to buy some way, Now, if you just buy right\non down in a steady line at the same amount\nHadley:\nThe Federal Reserve had gotten about seven million\nby 10:30 and their bids are the only bids that are\nin the market. There were a few sales on the Board\nslightly under them, but most of the sales now are\nFederal purchased and they are trying to divert the\nvolume from the Exchange to the Board, doing it\nover the counter, and they have got their over-the-\ncounter bids at 2/32nds higher than their Exchange\nbids.\nBurgess:\nWhat are they bidding for the longest bonds?\nHadley:\nTheir Exchange bids are 101.6 and over-the-counter\nbids are 101.8.\nBurgess:\nThey haven't faded at all.\n351\n- 12 -\nBell:\nAs a matter of fact, they raised that last night.\nThose bids were down to 101.4 and they raised to\n101.6 and then to 101.8.\nHadley:\nThe free market yesterday at the close was about\n4/32nds below the general bids. They got the\ndealer to bring those bids up. If they let it\ndown it would drop down about 4/32nds.\nBailie:\nYou say they get the dealers and they bring their\nbids up; that means that everybody knows that there\nis nothing in it.\nH.M.Jr:\n(on phone) Hello, Ronald. (Telephone conversation\nwith Mr. Ronald Ransom follows:)\n352\nSeptember 12, 1939\n9:55 a.m.\nHMJr:\nHello.\nOperator:\nGovernor Ransom. Go ahead,\nRonald\nRansom:\nGood morning.\nHMJr:\nHello, Ronald.\nR:\nI was right in the middle of reporting a conversation\nwith Marriner and Burgess to the committee BO I --\nthis is the first time I could get to the phone.\nHMJr:\nWell, I appreciate that. Ronald, we're sitting here\ntalking things over. I don't know -- we're disturbed\nabout the bond market.\nR:\nYes.\nHMJr:\nAnd I'd appreciate 1f my crowd could get together\nwith your crowd\nR:\nYes.\nHMJr:\nas soon as possible and talk it over,\n2:\nAll right, sir.\nHilr:\nDo you think that could be arranged?\nI'm\nR:\nI think it can. Let -- let ne -- let :10 --/ in the\nadjoining room to the committee that's meeting now\nin the other room, and I'll ask them if that can\nbe done.\nHMJr:\nAnd will you\nR:\nYes, and call you back.\nHMJr:\nIf you'll call me back\nR:\nRight away.\nHMJr:\nI'd appreciate it.\nRegraded Unclassified\n353\n- 13 -\nBailie:\nI think you ought to tell him, Randy, about that\ncommunication order that was issued against you.\nBurgess:\nOh, I have been going down there in the morning\nwhen they were determining the day's program and\nI have been sitting in with them. Marriner called\nme Saturday and said that they had been having 8.\nlittle discussion because technically those meetings\nwere meetings of their Executive Committee and the\nrule was that no outsider could be present at H.\nmeeting of their Executive Committee,\nH.M.Jr:\nWell, if it will make you feel any better, in\nNovember, 1933, I W9.8 Acting Secretary of the\nTreasury, and the Secretary of the Treasury was\nChairman of the Federal Reserve Board and he\nquestioned me about the meeting and I was told\nthat I couldn't come to the meeting.\nBurgess:\nIt was a good alibi. I said I didn't care.\nBailie:\nBut Ransom thinks that you asked. The reason we\nare asking this way is because of that.\nSurgeas:\nI told him\nH.M.Jr:\nAs a result, I never went to a meeting when I was\nSecretary. I think I went to one.\nBurgess:\nI told him that was all right as long as the Treasury\nhad a chance to register its views before the decisions\nwere made instead of after.\nS.M.Jr:\nSome mornings like this I feel like saying, \"Thank\nyou for putting me off the Committee.\"\nSmith:\nThey practically said they didn't want you at the\nmeeting?\nH.M.Jr:\nThey did. It wasn't the\nBell:\nThat has always been a fight in the Treasury, about\nthe Undersecretary attending the meeting when he\nis Acting Secretary. Gilbert had the second fight.\nThey finally let him come, I think.\nH.M.Jr:\nIt wasn't a question of saying yes or no, they just\nsaid no,\n354\n- 14 -\nSmith:\nThere is just this, the market is like the 3ea, and\nwhen you try to revise it, it just overwhelms you,\nYou have to let it through and let it level down\nand take care of itself, and that is what you have\ngot to do in this case.\nSailie:\nIt 1a like some wild animals. If they see you are\nafraid of them, they come at you, and if you are not,\nthey don't.\nSmith:\nJohn, don't underestimate the element of the banker\nwho has these bonds with his Board behind him,\ntelling him, \"I told you you ought to have gotten\nout of them a long time ago.\" Now he is trying to\nrun to cover. He thinks they are going down to\nninety. They still remember the Mellon days when\nthose three went down in the seventies.\nBell:\nI would think the Chairman of the Board of Directors\nH.M.Jr:\nThe Mellons went down to three cents and there was\ntwenty-five cent sugar.\nSmith:\nWhat did you say?\nBell:\nI think some of these Chairmen on the Board of\nDirectors would have a hard time justifying their\nposition and agreeing not to sell Government bonds\non this market.\nBailie:\nWhen the Government is saying, \"Boys, come and sell\nus 65 million a day.\"\nSmith:\nThey do.\nBailie:\nof course.\nSmith:\nThe fellow that didn't meet this situation 8 long\ntime ago is in trouble.\nBurgess:\nI have been getting along all right with these fellows.\nThere has been no feeling at all.\nBell:\nHe was just politely thrown out.\nBurgess:\nI didn't object to that particularly. That is just\nnonsense, that is all.\n355\n- 15 -\nH.M.Jr:\nYou think as a result I will ask them to come over\nhere, is that what you think they will think?\nBailie:\nI am sure that is what he thinks.\nWould you like me to ask Mrs. Klotz to postpone the\n10:30 meeting?\nH.M.Jr:\nLet's wait a second.\n(Unrecorded telephone conversation\nwith Mr. Ronald Ransom)\nSmith:\nIt would be funny 1f it wasn't so damn serious.\nBurgess:\nWe have been going to them.\nH.M.Jr:\nI would go over there but I just don't think I\nshould.\nBailie:\nI wouldn't go over there at all.\nH.M.Jr:\nThen, if you would tell the Panama.... And then\nwhy don't you all go back to your offices and\nwhen these boys come I will let you know.\nBailie:\nAnd we will just issue another call for the\nPanama.\nTREASURY DEPARTMENT\nWASHINGTON\nSeptember 12, 1939.\nMEMORANDUM FOR THE SECRETARY*S VILES:\nGovernor Iccles called ne on Saturday, September 9. and stated that\nthe Executive Committee had been reviewing the Treasury's participation in\nthe System's purchases of Government securities during the past ten days and\nhad noticed that the Treasury had taken bloos of long bonds which had been\nsold across the of the Stock Exchange, the amount of which did not\nrepresent any prearranged percentage of the total or of any particular\nissue. Es said that the Committee felt that as long as the Treasury as\nparticipating in the program, it would be better to have an understanding\nBE to just what option the Treasury would have. Be seid that if there vas DE\nobjection on the part of the Treasury he would like to see it have the\noption at the close of business each day of taking up to 50 per cent of\neach of the issues of the four longest bonds.\nI told him that the Treasury had no objection to this suggestion\nbut I thought for the record he ought to know why ve had taken bloos of\nbonds purchased across the Stock Exchange, The reason for our action was\nto facilitate the transactions in the New York Federal Reserve Bank\nbecause by taking all of a particular issue from the stock exchange, they\ncould lay that aside as Treasury business and handle it as such without\nundertaking to divide up the various purchases across the exchange and\nscross the board between the Treasury and the System. Ve are now\noperating on the basis of the suggestion usde by the Governor.\nOn Monday, September 11, 1 called Mr. Morrill, Secretary of the\nBoard, and told him that I thought there should be one minor adjustment\nto this understanding, and that is that ve should be permitted to take\nat the close of business each day all or any part of the purchases mde\nof the Home Owners' Loan bonds because the Corporation vanted these for\nits Bond Retirement Account. He said that he you certain that there would\nbe no objection to that as the System did not particularly care for the\nguaranteed issues and if we wanted any of those in could have them outside\nof the agreement referred to above.\nAWB\nRegraded Unclassified\nTREASURY DEPARTMENT\n357\nWASHINGTON\nCONVERENCE IN THE SECHETARY'S OFFICE AT 10:30 A. M.,\nSEPTEMHER 12, 1939, ON THE SUPPORT OF THE GOVERNMENT BOND\nMARKET BY THE FEDERAL RESERVE SYSTEM WITH PARTICIPATION\nBY THE TREASURY\n-o0o-\nThose present besides the Secretary were Under Secretary Hanes,\nDr. Burgess, Mr. Earle Bailie, Mr. Tom X. Smith, and Mr. Bell of the\nTreasury staff: and Governor Harrison, Mr. Ransom, Mr. McKee, Mr. Draper,\nMr. Leach, Mr. Morrill, and Dr. Goldenweiser of the Federal Reserve System.\nThe Secretary outlined the reasons for the conference. He said\nthat he did not want to criticize the way the Federal Reserve System had\nhandled the bond market in the past, but ve had been watching it very\nclosely and we had come to the unanimous conclusion that the time had\narrived when the market should be allowed to go down just a little faster\nthan during the past few days: that the purchases on the market by the\nSystem should not be in such large volume; and that there should be no\nrestrictions whatever on the market, such as yesterday's, when it was\nclosed approximately an hour earlier than usual. He said that he did\nnot believe ve could see the stock market go up from 5 to 10 points a\nday and the commodity prices substantially increase without expecting\nthe Government security market to seek much lower levels.\nMr. Banson then gave a. short resume of the Board's action. He\nstated that each day's operation should be looked upon in its relation\nto the previous day, and as he looked back over yesterday's activities\n358\n- 2 -\nhe did not see that there was anything to regret; that they had allowed\nthe market to drop almost three-quarters of a point, and had given a.\ngreat deal of latitude to the Federal Reserve Bank in its operations.\nHe said that he would like to have the Chairman of the Executive Committee\n(Governor Harrison) state the Committee's views in this connection,\nGovernor Harrison reviewed the market operations since August 30.\nHe stated that the Committee had discussed various possibilities, one\nof which was to let the market 00.00 off gradually with the System cushion-\ning it, or they could let the market go down one-sighth or one-quarter\nof a point at B. time with the System buying substantial blocks at each\nstep. He stated that the last alternative was adopted and that they\nhave followed substantially that plan during the ten days' trading period\nending yesterday. Instructions which the Committee gave to the Federal\nReserve Bank yesterday were to keep the longest bonds from falling below\n101, which was 24/32nde below the stock exchange closing of the previous\nday but only about 18/32nde below the previous day's over-the-counter\nclosing. He said the question now in his mind is whether the market\nshould be allowed to go below 101. He thought possibly that the market\nhad now reached the point where it was beginning to dry up and that it\nshould level off at present prices. This 1s, however, anybody's guess,\nhe said.\nThe Secretary then said that he would like to give the Board the\nTreasury's viewpoint on the present market. He said that he had a group\n359\n- 3 -\nof advisers (composed of Hanes, Burgess, Bailie, Smith and Ball) who\nhad given a great deal of thought to the whole subject; to the policies\nwhich had been followed during the past ten days. and the reaction of\nthe market to these policies, and that without in any way criticising\npast actions, we in the Treasury had come to the unanimous conclusion\nthat the market should be allowed to seek its natural level just as fast\nas it is safe for it to do so and that it may be necessary to allow the\nlongest bonds to go well below par before that level is reached.\nGovernor Harrison said that he did not attempt to speak for the\nCommittee, but personally he agreed with that viewpoint.\nThe Secretary then asked Dr. Burgess if he would express his\nviews on the market situation.\nDr. Burgess explained that he had been in close contact with\nthe market; had gone to New York and talked with several people on\nSaturday and again on Monday and had spent a considerable part of the\nday in the Federal Reserve Bank. On Friday of last week he was of the\nopinion that the market had found its level at that day's prices when\nthe long bonds reached about 101-1/2. He said that he had to admit\nnow that he was wrong in this opinion, but he was in full agreement\nwith the idea expressed by the Secretary that ve should immediately\nallow the market to seek its natural level. There seems to be a feeling\naround now that ve are just suckers in taking the bonds that are being\noffered at prevailing prices. He feels that we are not attempting to\nfind the bottom of this market fast enough. There are nome people who\nRegraded Unclassified\n360\n- 4 -\nare talking of B. 2-3/4 per cent level, while others are even going\nas high as & 3 per cent level. He would not attempt to say where that\nlevel should be, but he was quite satisfied that it should be con-\nsiderably below the present market. Be stressed the importance of\nestablishing the natural level for this market as soon as we can because\nthe Treasury has approximately $1,500,000,000 of financing to do before\nDecember 31.\nThe Secretary then asked the question as to what had been done\nwith the municipals and Dr. Burgess said that they had as a general\nrule been allowed to run down pretty fast although the National City,\nin cooperation with the City of New York, had given some support to\nthe bonds of the City by purchasing them for retirement funds. This,\nof course, has served as a cushion and has helped some of the other\nclosely related securities.\nMr. Bailie pointed out that the Government market 1s a very\ndefinite factor in the municipal market also, and that 80 long as we\nmaintain uncertainty in our market, uncertainty will also prevail in\nthe municipal market.\nGovernor Harrison then said that it should be recalled that\nwhen the conferences were held last April there were some who felt\nthat we should take the first shock in the bond market caused by the\ndeclaration of war, without any attempt to support 1t, while there\nwere others who thought ve should be active in the market from the\nbeginning. The idea first expressed vas not adopted by the Committee\nRegraded Unclassified\n361\n-5- - -\nand he thinks now that maybe that was a wise decision. The Committee\nthis time adopted the program of dropping the market about one-eighth\nof a point at B. time, buying at each level on the way down, Whether\nthis was the best policy is anybody's judgment, but he thought that\nthat has worked right well. On the other hand, he thought that maybe\nve had not allowed it to go down quite fast enough.\nMr. Draper then asked Dr. Burgess what he thought would be a\ngood program for the Committee to adopt.\nDr. Burgess said that he could not suggest any very definite\nprogram in a situation such as now exists, because subsequent events\nwould no doubt make it necessary to change it. Any program that the\nCommittee might want to approve would have to be very flexible from\nthe standpoint of the Federal Reserve Bank of New York in its operations.\nHe said he would still try to keep an orderly market, but he would let\nit go down gradually and would not worry if it went to par or even\nlower. He felt that the System should not spend more than $20,000,000\nin any one day from here on. He was inclined to believe that we should\noperate about as we had in the past (this would mean buying under the\nmarket 8. few 32nds and providing a. cushion rather than pegging at\ncertain levels as ve have done in the past ten days).\nThe Secretary then asked about the limit of the $500,000,000\nwhich the Committee was authorized to purchase. He said he understood\nthat this limit is about exhausted. Governor Harrison stated that\nthey had received another authorization to purchase an additional\n$500,000,000 do that the limit is now $1,000,000,000.\nRegraded Unclassified\n362\n- 6 -\nMr. McKee then gave his opinion of the market situation for\nthe past few days by stating that we have had an orderly market. Re\nthought that we all would agree to that; that it had been allowed\nto go down on the average of about one-half a point & day, and whether\nthat was fast enough was, of course, B. matter of judgment. There was\nat times some evidence of outside buying but this buying did not\nmaterialize to the point where it vas in sufficient volume to hold\nprices at the then levels. He said that they had reports from Presidents\nof Federal Reserve Banks, who in turn had been in touch with the banks\nof their districts, and he thought that the banks throughout the country\nas B. general proposition had indicated to the Presidents of the Federal\nReserve Banks that they were well pleased with the way the Federal\nReserve System and the Treasury had handled the Government market. He\nsaid that yesterday the Committee had given the Bank in New York author-\nity to hold the long bonds so that they would not go below 101 at the\nclose of last night, which meant a drop of 24/32nds and the orders that\nwent to the Federal Reserve Bank this morning were to the same effect.\nThis would mean that the Bank had a leeway of 24/32nds in yesterday's\noperations, but in view of the fact that the bonds closed last night\nat 101-6/32 to 101-8/32, it only had a leevay of 6/32nds to 8/32nds in\ntoday's operations.\nMr. Rensom then undertook to state what he thought the views of\nthe Treasury were and that they had been in accord with what had been\ndone in the past. Governor Harrison said that he did not feel that\nRegraded Unclassified\n363\n- 7 -\nthat vas quite the case as yesterday they had 24/32nds leeway and\ntoday they had only 6/32nds leeway. Furthermore, when they first\nstarted buying bonds they bought in small lots and did not in many\ncases take all of the offerings. Moet of the purchases were in $100,000\nand $200,000 lots. Now they are taking everything that is offered,\nlarge and small. Furthermore, they find that the brokers on the stock\nexchange are soliciting selling, which is quite contrary to the under-\nstanding that has been reached with the dealers. The dealers all along\nhave discouraged selling.\nThe meting adjourned with the understanding that the Committee\nwould operate through the day on the program approved early this morn-\ning and that at the close of business today it would confer at the\nFederal Reserve Board with representatives of the Treasury and then\ncome to the Treasury about 4:15 for a meeting with the Secretary to\ndiscuss the policy that should be adopted for tomorrow's trading.\nDWB\n-000-\nMEETING AT 4:15 P.M. IN THE SECRETARY'S OFFICE\nAll of those present at the morning meeting, except Mr. McKee\nand Dr. Goldsmweiser, were present at this meeting.\nMr. Harrison said that he would give & resume of the day's\noperations, after which be would like to ask the Secretary for his\nspecific views as to just what should be done so that the Committee\ncould return to the Federal Reserve Board and there discuss tomorrow's\npolicy.\n364\n- 8 -\nHe said that they had operated throughout the day with the\nidea of not permitting the longest bonds to fall below 101. They\nopened this morning at 101-6/32 to 101-8/32. There appeared to be\nno pressure on this particular issue, but there was a great deal of\npressure on the 1955-60's, and it was necessary to purchase some of\nthese securities, During the day the System purchased approximately\n$44,000,000 in securities, of which $6,000,000 were purchased on the\nstock exchange out of a total volume of only $7,000,000. Ee said\nthat the noon prices firmed and the offerings slackened. Some of the\nbids which were placed in the market topped the Federal bide, but\nalong toward the close of business these bids were withdrawn. It may\nbe that the reason for this was that the bidders thought they might\nget these bonds at a lower price at tomorrow's opening.\nMr. Sproul told the Governor over the telephone today that\nhe believes that the holders of Government bonde continue to be cellers\nand not buyers, and this may continue until the longest bonds reach\npar. He is in favor, in view of the action of the market today, of\nwithdrawing Federal bids tomorrow for short periods and then going in\nto particular issues where they seen to be exceptionally weak; and\nthe next day doing nothing to let the market take care of itself.\nMr. Harrison said that he was not BO sure that he agreed with\nSproul about the second day's operations. He thought this might do\nmore harm than good. He was in favor of starting tomorrow with no\nbids across the market and confining our support to weak issues, and\n365\n- 9 -\nthen in small volume; and if large blocks of bonds come into the\nmarket, withdraw our bids and drop down a few thirty-seconds.\nMr. Harrison then turned to the Secretary and asked him how\nhe felt about this proposition.\nThe Secretary said he had not changed his opinion from the\nmorning meeting and he felt that we should operate about as ve did\nlast year, not trying to support the market at a given level; but\nthat we should be in a position to withdraw, at the same time keeping\nan orderly market, allowing our purchases only to form a cushion.\nThe Secretary then asked various Treasury representatives if\nthey agreed with that, and they all said they did. Mr. Smith said\nha had always been of the opinion that the market should drop faster\nthan it had been allowed to, and that the Federal should buy fewer\nbonds than it has been buying. Mr. Bailie said he agreed with this\ngeneral idea but he hoped that under no circumstanceswould the System\nbuy 8. large volume of bonds.\nThe meeting then adjourned and the Committee returned to the\nFederal Reserve Board to discuss the policy to be adopted for tomorrow's\noperations.\nDWB\n1-13\nTREASURY DEPARTMENT\n366\nINTER OFFICE COMMUNICATION\nDATE September 12, 1939.\nTO\nSecretary Morgenthau\nFROM\nMr. Burgess\nMr. Harrison called me at 5:15 o'clock this afternoon\nfrom the Federal Reserve Board and said that after discussing\nthe matter, they had decided to begin their operations at the\nopening tomorrow morning on the same basis 88 today, with the\nonly change & drop in bide on certain of the intermediate\nissues which do not seem to be in alignment with other issues.\nThe Committee will then meet at 10:00 o'olock tomorrow morning\nto decide whether they will make any change in this procedure."
}