Volume 271, June 10 – June 11, 1940

DIARY Book 271 June 10 and 11, 1940 - A - Book Page Annenberg, Moe See Tax Evasion Appointments and Resignations Nelson, Donald: Wood (Sears-Roebuck) states again leave of absence with pay can be for two months only - 6/11/40 271 273 Parker, Dale: Bailie (Earle) expresses opinion on qualifications - 6/11/40 296 Stemple, Frank: Bailie (Earle) gives his opinion of ability - 6/11/40 291 - B - Belgium See War Conditions Blast Furnaces See War Conditions Bombs See War Conditions Brett, George H. (General; Chief, Army Air Corps) HMJr thanks Army for able assistance - - 6/10/40 96-I Bullitt, William C. Last letter to H/Jr prior to expected cut-off from all communication to the outside world - 6/10/40 96-A Business Conditions Haas memorandum on situation for week ending June 8, 1940 124 - C - Canada See War Conditions China See War Conditions - F - Federal Reserve Bank of New York Statement of "Balances" "Earmarked Gold" and "Short-Term Investments" held for foreign accounts 434 Financing, Government 6/15/40: Refunding conference; present: HMJr, Jones, Viner, Hans, Bell, Eccles, Ransom, Piser, and Hadley - 6/10/40 78,97 a) Hadley memoranda on Treasury note maturities and new issues 115,116 b) Dudley Mills, C. J. Devine, Eccles, Rentschler, and George Harrison consulted by HMJr - - 6/10/40. 160,163,165, 173,175,181, 183,185 Bailie and HMJr discuss note - 6/10/40. 157 Announcement of offering - 6/11/40 167-A a) Subscription and allotment figures - 6/17/40: See Book 273, page 163-A Regraded Unclassified - F - - (Continued) Book Page Financing, Government (Continued) Reconstruction Finance Corporation: HMJr writes to Jones concerning Jones' letter thanking Banking and Currency Committee regarding elimination of section dealing with purchase of preferred stock in banks and insurance companies by Reconstruction Finance Corporation - - 6/11/40 271 345 Finland See War Conditions Ford, Edsel See War Conditions: Airplanes Foreign Funds Control See War Conditions France See War Conditions Freezing of Funds of Foreign Governments See War Conditions: Foreign Funds Control - G - Germany See War Conditions Gold See War Conditions Great Britain See War Conditions: United Kingdom Guns See War Conditions: United States (Surplus Materiel) - I - Italy See War Conditions - K - Kraus, S. M. (Captain, United States Navy) HMJr thanks Navy Department for able assistance - 6/10/40 96-K,258 - M - Mexico Further report on Bank of Mexico - 6/11/40 295-A a) Additional data: See Book 272, page 85-A Monetary Research, Division of Reports on studies during April and May, 1940 51 - N - Nelson, Donald See Appointments and Resignations - P - Book Page Parker, Dale See Appointments and Resignations Pelley, J. J. See War Conditions: Airplanes (Bombs) Pershing, John J. (General) Discusses financing of Allied purchases with HMJr - - 6/11/40 271 314 Phillips, Sir Frederick See War Conditions: United Kingdom - R - - Reconstruction Finance Corporation See Financing, Government Revenue Revision Press conference statement by HMJr: "Tax resolution entirely acceptable and most pleasing to President and myself" - - 6/10/40 136-A a) Discussion at 9:30 meeting 138 Additional funds for Irey's office discussed with Congressman Cochran and Sullivan - 6/10/40 168,171 - S - - Ships See War Conditions Stemple, Frank See Appointments and Resignations Switzerland See War Conditions: Foreign Funds Control; Switzerland - T - Tax Evasion Annenberg case: Complete set of all papers in connection with offer in settlement of tax liabilities 6/10/40.. 1 - U - U.S.S.R. See War Conditions United Kingdom See War Conditions United States Steel Marshall suggests that FDR thank president of United States Steel for assistance to War Department in connection with used materiel; HMJr thinks Woodring should sign letter - 6/11/40 271 Regraded Unclassified - V - Book Page Vatican See War Conditions: Gold - W - War Conditions Airplanes: Bombers (Dive): 200 valued at $12,800,000: Joint Anglo-French letter of intention with Brewster Aeronautical Corporation signed May 29, 1940: Young report - 6/10/40 271 96-C Bombs: 750 bombs (1000 tons) 8.8 equipment for bombers: FDR given resumé of steps taken by HMJr to provide - 6/11/40 193 a) Admiral Stark and HMJr discuss entire situation - 6/11/40 270 b) Stettinius gives replacement list to be ordered (100's, 300's, 500's) - 6/11/40 274,305 c) Pelley (J. J.) thanked for assistance in transportation - 6/11/40 316 Engines: Superiority of Pratt-Whitney and Curtiss-Wright over Hispano-Suiza and Cnome-Rhone emphasized by Ward (J. Carlton) to Bullitt a) Knudsen so informed - 6/10/40 96-D Allison Engineering Company: Estimated deliveries through February, 1942 96-M a) HWr discusses with Sloan 96-Q Rolls Royce: Ford "willing to sign contract with Allies and one with United States Government" - Knudsen informs HNJr - 6/11/40 235 a) HMJr discusses with Treasury group Ford's attitude when he discovers Army and Navy want none but Allies do 287 b) Kennedy asks when and where HMJr will get plans and specifications - 6/11/40 443 HMJr and Knudsen discuss Allied purchasing orders of "so-called Merlin type" - 6/11/40 446 a) Ford with Knudsen at the time b) Beaverbrook advises production of Merlin - 6/13/40: See Book 272, page 152 Lockheed Aircraft Corporation: 360 Model 37 planes - contract signed by British June 6, 1940: Young report - 6/10/40 96-C Ward, J. Carlton: Report No. 1 - 6/4/40: See Book 275, page 298 " No. 2 - 6/10/40 96-A (For Report No. 2 see also Book 277, page 25) Belgium: Text of Anglo-Belgian financial agreement - 6/10/40 72 Blast Furnaces: Map of distribution in United States as of June 11, 1940 272 Regraded Unclassified - To - (Continued) Book Page har Conditions (Continued) Canada: Governor Graham Towers of the Central Bank of Canada discusses foreign exchange resources with HAJr - 6/11/40 271 300 China: Indo-China--Yunnan Railway: New system of freight space allocation discriminating against Chinose Government reported by American Consul, Hanoi - 6/10/40 48 Exchange market resume - 6/10/20, et ceters 121,302 Finland: HMJr's letter to Senator Harrison concerning Vandenberg's motion to authorize postponement of payment of debt - 6/11/40 318 Foreign Funds Control: Fossible courses of action in extending freesing control to Switzerland (see also page 298; and Book 272, page 240); France (see niso page 292 for partial freesing); Germany, Poland, Czecho- slovakia, Italy, and Albania; all of Europe except Creat Britain end Ireland; all of Europe and issuing immediately E general license for Great Britain and Ireland end possibly Turkey; all of Europe and Asia 264 Federal Reserve Bank of New York: Statement of "Balances" "Earmarked Gold" and "Short-Term Investments" held for foreign accounts 434 Germany: Funds in United States 93 Gold: Vetican: First consignment due in New York June 12, 1940: Cochran memorandum 294,322 Guns: See Wer Conditions: United States (Surplus Asteriel) Italy: Declares war on France a) Mussolini's speech 114-A b) Funds in United States and freezing thereof discussed - 6/10/40 93,93-0, 114-0 1) Regulations ready to be signed 12:15 P.M., June 10, 1940 150 Ships: Permits for departure from United States discussed at conference; present: HaJr, Harris, Puleston, Cairns, Foley, Young, Berle, and Bell - 6/11/40 197 Destroyers: Purvis told by H&Jr "FDR is not impressed by data on losses by English and French presented thus far" - 6/11/40 219 Switzerland: Financial Mviser to Swiss Legation discusses support of Swiss franc on United States market - 6/11/40 289 U.S.S.R.: Federal Buresu of Investigation report giving complete resume of attitude toward Great Britain, United States, Germany, et cetero 62 Regraded Unclassified - W - (Continued) Book Page War Conditions (Continued) United Kingdom: Text of Anglo-Belgian financial agreement - 6/10/40 271 72 Military Situstion: Reports from London transmitted by Lothian - 6/10-11/40 187-A,H,N Phillips, Sir Frederick: Proposed visit discussed at 9:30 meeting - 6/11/40 329 United States: Surplus Materiel: Conference on entire situation; present: HeJr, Young, Nelson, Purvis, Bloch-Laine, and Ballantyne - 6/11/40 213 E) Agenda for meeting 240 Guns: FDR approves release of 500 additional 75-mm guns; Assistant Chief of Staff opposes sale although Major Smith feels 1000 could be released without damage to the Army - 6/11/40 188 a) HAJr's conversation with Marshell's office concerning above statement 215,217 hard, J. Carlton See War Conditions: Airplanes Regraded Unclassified nr 1 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE JUN 1 0 1949 TO Miss Nell Chauncey, Office of the Secretary. FROM E. H. Foley, Jr. In re: M. L. Annenberg and The Cecelia Company I am herewith transmitting to you one complete set of all the papers in connection with the offer in settlement of tax lia- bilities of the above-named proponents executed by them on June 4, 1940, and accepted by the Secretary of the Treasury and the Attor- ney General on the same date. These papers include a copy of the offer itself, together with Exhibits A to D, inclusive, a copy of a memorandum by the Commissioner of Internal Revenue to the Secretary of the Treasury, dated June 4, 1940, recommending accept- ance of the offer; a copy of & tolegram dated June 5, 1940, from the Commissioner of Internal Revenue to the proponents notifying them of acceptance; and copies of letters exchanged between the Department of Justice and the office of the Chief Counsel, Bureau of Internal Revenue, dated June 5 and June 7, 1940, respectively. Siith Enc. Regraded Unclassified An Y llos. Camiel 1, CIATE, Jr., asistent ttorney General, Department of Justice, June 7, 1940. makington, F. In 20: H. L. Annenberg, The Cecelia Company Dar Sir: I have received your letter duted June 0, 1940, with which you enclosed the original signed offer Jn settlement of tax lisbilities made by M. La Annen' org end The Cecelie Company and duly executed by the respective proponents. I have compared the signed offer with the copy which were sub- mitted to the Secretary for approval and find no variances between them other then the two minor exceptions noted by you, namely, at Dage 10, where the word "device" is misspelled; and nt price 13, fourth line, where the last word reads "law" instend of "lows". In the fourth paragraph on page 3 of your letter you state Vist the financial statements referred to in the last paragraph of the signed offer were not attached but that you were advised over the telephone on June 5, 1940 by one of counsel for the proponents that it WAB the understanding of the proponents that the originals of these financial statements which had been delivered by mail to the Commissioner would be annexed to the offer 18 signed by the pro- ponents and become a part thereof in accordance with the last pare- graph of the offer, You also state that in order to avoid any pos- sible uncertainty in this connection you have requested and the !torneye for the proponents have agreed to forward a letter from the proponents authorizing such inclusion. The originals of the "inancial statements were attached to the copy of the offer which THE submitted to and accepted by the `scretary at about 6:50 P. June 4, 1940, shortly after you Dad informed se by telephone that Regraded Unclassified 3 - Non. Samuel 0. Clark, Jr. the offer had been signed by the proposents. Attached also to the copy of the offer submitted to and accepted by the Secretary were original Schedules no B, C and D which had been previously received through the mail on June 3, 1940, by this office from counsel for the proponents. On page 11 of original Schedule A, one of the cor- porations is referred to as "Cumberland Ness Service, Inc."; on page 111 of original Schedule A, another corporation is referred to as "Louisiana News Co., Ltd."; on page T of original Schedule A another corporation is referred to as "R. T. & K. Corp.". In the last line on the last page of original Schedule 8 the word "values" is used; on the first page of original Schedule D the heading of the right hand column reads "Pledgee". There are some penoil notations in the file of this office which indicate that the names of the companies above referred to may have been incorrectly stated in the original schedules. It is suggested that counsel for the proponents be requested to confirm by letter the correct corporate names of those three companies in- tended to be named. Very truly yours, (Signed) J. P. Wenchel J. P. WENCHEL, Chief Counsel, Bureeu of Internal Revenue Regraded Unclassified on 4 June 5, 1940. J. P. Wenchel, Require, Chief Counsel, Bureau of Internal Revenue, lashington, D.C. In re' loses L. Annenberg and The Cecelia Company Dear Phil: I as onclosing herewith the original signed offer in settlement of tax liabilities made by Moses L. Annenberg and The Cecelia Company and duly executed by the respective proponents. Attached to the agreement and made a part thereof are Schedules a, s, C and D, respectively, these Schedules being described in the body of the agreement. You will note that the offer is undated. However, the letter of United States Attorney illiam J. Campbell dated June 4, 1940 transmitting the executed agreement to as, a copy of which letter is also enclosed herewith, would seen to con- tain a sufficient indication of the date of the offer. This offer and the supporting Schedules are being transmitted to you as the permanent record of your Department. For your files I wish to describe the procedure followed in the execution of this offer. A draft of the offer in the form resulting from the labors of your and my attorneys, which concluded late Monday night, June 3rd, was delivered by air mail to the United States Attorney, William J. Campbell, arriving at his office at about 3 P.M. yesterday, June 4th. In the meantime you and I had agreed upon certain changes in that draft. These were transmitted by tele- phone to Mr. Campbell yesterday afternoon and confirmed by telegram. A copy of that telegram is enclosed herewith. dr. Campbell immediately brought the draft, together with such changes, to the attention of the proponents' attorneys. The draft was acceptable to the proponents and their attorneys with two exceptions. The first concerned the period of grace extended to the proponents to correct a default in the agree- ment other than in the payment of the installments, and the second concerned pledging as collateral security certain shares of stock of The Cecelia Company. After discussion with you and the receipt of your approval, Jr. Campbell was authorized to make minor changes in the offer in these two respects, such changes being acceptable to the proponents and their attorneys. Regraded Unclassified to 5 J. P. Senchel + June 5. 1940 In view of the fact that all these verious changes in the draft would require the retyping of several pages, Mr. Campbell decided that it would be desirable to retype the entire offer. This he did and the offer as so retyped was executed by the proposents about 6:30 P.M. yesterday. Mr. Campbell immediately notified Be of this fast and confirm 11 by telegrem, a copy of which is enclosed herewith. In the meantime this office had prepared - copy of the offer reflecting all the changes cutually agreed upon during the course of the day. I understand that a similar copy was prepared in your office. Upon receiving notification from Mr. Compbell of the execution of the agreement, the offer in the form of the above-mentioned copy prepared in this office was submitted to the Attorney General and accepted by him yesterday, June 4th, at about 7 P.M. I was notified by you shortly thereafter that the Decretary of the Treasury had likewise accepted the offer. I have received & copy of your telegram dated June 5th to the proponents notifying them of such acceptance by the Secretary of the Treasury. I also wrote a letter of like tenor to the proponents notifying them of the Attorney General's scceptance. A copy of this letter, deted June ith, has already been delivered to you. I carefully proof-read the original signed offer end the supporting Schedules against the copy thereof in our office. I find that they are in eract conformence with the following minor exceptions: Page 10 of the signed offer, 8th lines the word "device" is misspelled. Page 12 of the signed offer, 4th line: the last word should be "laws" instead of "lew". These minor typographical errors appear to be immaterial. I have noted the following few instanges of look of con- formity of the Schedules: Schedule A. page 11: the corporate name apparently should be Cumberland News Service, Inc. instead of Cumberland Ness Service, Inc. Schedule A, page 111: The corporate name appears M Louisiana News Co., Ltd., wherees on our copy of Schedule A it appears as Louisiana News Co., Ino. Regraded Unclassified 6 J. P. Wenchel June 5, 1940 - 3 - Schedule A, page VI The corporate name appears as R. T. & K. Corp. whereas on our copy the name appears as R. T. & K. Com- pany. Schedule B. last page:With reference to the last line of the "Note" the third word appears as "value" whereas in our copy it appears as "values." Schedule D. first page: One of the headings is "Pledgee" whereas on our copy it is "pledges". These variations also appear to be immaterial. Your attention is directed to the fact that the enclosed original offer does not contain the financial statements referred to In the last paragraph of the offer. As I advised you by telephone today, I have been informed by one of Mr. Annenberg's attorneys that it was their understanding that the originals of these financial statements, which have heretofore been delivered to the Commissioner, would be annexed to the offer and become a part thereof in accord- ance with the last paragraph of the offer. In order to avoid any possible uncertainty in this connection, I have requested and the proponents' attorney has agreed to forward a letter from the pro- ponents authorizing such inclusion. This offer was executed by the proponents in duplicate. The signed duplicate offer has likewise been forwarded to me by United States Attorney Campbell and when it arrives it will be included in our file in this matter. Sincerely yours, SAMUEL 0. CLARK, JR., Rncls. Assistant Attorney General. P.S. Will you kindly acknowledge receipt of the above described enclosures. Regraded Unclassified COPY ANDARD FORM NO. 14A TREASURY DEPARTMENT APPROVED BY THE PRESIDENT MARCH 10. HZS BUREAU OF INTERNAL REVENUE 7 WASHINGTON TELEGRAM GC:E:JPW (Unit, Division, and Bection) (Time written) CHARGE: OFFICIAL BUSINESS-GOVERNMENT RATES TREASURY DEPARTMENT, APPROPRIATION FOR COLLECTING THE INTERNAL REVENUE" 1435a NOTIONALITY numero - Mr. M. L. Annenberg and the Ceoelia Company, June 5, 1940 % Kirkland, Fleming, Green, Martin & Ellis, 33 North LaSalle Street, Chicago, Illinois Reference is made to the offer submitted jointly by you to settle for the years prior to January 1, 1939 any civil liability for the taxes specified therein by the payment of the principal sum of eight million dollars. You are advised that this offer has been accepted by the Secretary of the Treasury subject to the terms and conditions thereof. (Signed) G. T. H. Guy T. Helvering Commissioner of Internal Revenue Regraded Unclassified MBC 8 COPY 800 GST:LLG 5-25-1205 June 4, 1940. Mr. M. L. Annenberg, The Cecelia Company, Chicago, Illinois. Sir: Reference is made to the annexed offer submitted jointly by you to settle for the years prior to January 1, 1939, any civil liabilities for the taxes specified therein by the payment of the principal sum of $8,000,000. You are advised that this offer has been accepted by the Attorney General, subject to the terms and conditions thereof. Respectfully, For the Attorney General. SAMUEL 0. CLARK, JR., Assistant Attorney General. Regraded Unclassified no 9 COPY June 4, 1940. 328442 MEMORANDUM FOR SECRETARY MORGENTHAU, In re: M. L. Annenberg, The Cecelia Company. I hand you herewith a proposal of M. L. Annenberg and the Cecelia Company to pay $8,000,000.00 on an installment basis over di period of six years in settlement of all civil liability on the part of (1) either proponent; (2) subsidiary corporations of The Cecelia Company, and (3) certain members of the family of M. L. Annenberg, for 1923 to 1938, inclusive. The deferred payments are to bear interest at the rate of 6 per cent per annum until paid. Annenberg has pleaded guilty to an indictment, charging will- ful attempt to defeat and evade his individual income taxes for the year 1936. The Court has set June 5, 1940, for sentencing Annenberg. The proposal to settle the civil liabilities has no relation to the disposition of the criminal aspects of the case. Annenberg's plea of guilty was entered voluntarily and without commitments on the part of this office concerning the amount, or payment of any civil liability. According to the terms of the offer acceptance is required by the Secretary of the Treasury, and by the Attorney General. I recommend acceptance of the offer. (Signed) Guy T. Helvering Commissioner. Approved: (Signed) Henry Morgenthau, Jr. Secretary of the Treasury Regraded Unclassified COPY 10 COMMISSIONER OF INTERNAL REVENUE, Through Collector of Internal Revenue (First District) at Chicago, Illinois. Sir: The following offer in compromise is submitted to you by the undersigned, The Cecelia Company, an Illinois corporation, and M. L. Amenberg, hereinafter referred to as the proponents, Charges of violations of law or failures to meet internal revenue obligations have been made against the proponents and against some or all of the individuals and corporations hereinafter named on Schedule A hereto attached and made a part hereof. The alleged violations or failures are due to failure to report income and failure to pay income and excess profits taxes, and divers other causes. The proponents, to secure for any or all of the years set forth on said Schedule A, (1) the release of themselves and said corporations and individuals, and their transferees, from any civil liability for income, excess profits taxes, surtax on undistributed profits, surtax on unreasonable accumulation of surplus, and surtax imposed on corporations classified as personal holding companies and any civil penalties and interest with respect thereto, (2) the release of M. L. Annenberg and Walter H. Annenberg from any civil liability for any gift taxes for any or all of the years set forth on said Schedule A and any civil penalties and interest with respect thereto, and (3) the release of all other individuals set forth on said Schedule A from any gift tax arising out of any transfer of stock of The Cecelia Company and any civil penalties and interest with respect thereto, hereby offer to pay the sum of $8,000,000, said sum of $8,000,000 (hereinafter referred to a.6 "said principal sum") and interest from July 15, 1940 thereon until paid at the rate of 6% per Regraded Unclassified - 2 - 11 - to be paid in the following installments, (A) $800,000 on or before July 15, 1940, all of which shall be applied in reduction of said principal sum; (B) $200,000 on or before November 15, 1940, all of which shall be applied in further reduction of said principal sum; (c) $1,000,000 during the calendar year 1941 which shall be applied as follows, (1) $500,000 on or before June 30, 1941, of which sum $406,260.26 shall be applied as the interest due on (a) the unpaid balance of $7,200,000 for the period July 15, 1940 to and including November 15, 1940, and (b) the unpaid balance of $7,000,000 for the period November 16, 1940 to and includ- ing June 30, 1941, and the balance of said $500,000, or $93,739.74 shall be applied in further reduction of said principal sume (2) $500,000 on or before December 31, 1941, of which sum $208,323.08 shall be applied as the interest due on the unpaid balance of $6,906,260.26 for the period July 1, 1941 to and including December 31, 1941, and the balance of said $500,000, or $291,676.92, shall be applied in further reduc- tion of said principal sum. (D) $1,000,000 during the calendar year 1942 which shall be applied as follows: (1) $500,000 on or before June 30, 1942, of which sum $197,964.43 shall be applied as the interest due on the unpaid balance of $6,614,583.34 for the period January 1, 1942 to and including June 30, 1942, and the balance of said $500,000, or $302,015.57, shall be applied in further reduction of said principal sum. Regraded Unclassified - 3 - 1.5 12 (2) $500,000 on or before December 31, 1942, of which sum $190,414.71 shall be applied as the interest due on the unpaid balance of $6,312,567.77 for the period July 1, 1942 to and including December 31, 1942, and the balance of said $500,000 or $309,585.29, shall be applied in further reduc- tion of said principal sume (E) $1,500,745.62 on or before June 30 of each of the years 1943 to 1946, both inclusive, each payment of which shall be applied in further reduction of said principal sum, plus interest on the principal sum as from time to time reduced at the rate of 6% per annum from January 1, 1943 to and including the date of payment. The proponents agree that said principal sum and interest thereon is A joint and several tax liability and that they shall be jointly and severally liable for the payment of said principal sum and interest thereon. All obligations set forth in this agreement including the obligation to pay said principal sum and interest thereon as herein set forth shall be binding upon proponent, The Cecelia Company, its successors, assigns, transferees, and any corporation with which it may hereafter consolidate or be merged, and upon proponent M. L. Annenberg, his heirs, executors, administrators and assigns. Said principal sum shall be considered in its entirety as principal and no part of said principal sun shall be allocated to interest or penalties nor shall payment of any part thereof entitle the payor to & deduction in the computation of any income or excess profits tax liability. Assessment of the principal sum may be made against each of said proponents immediately following the acceptance of this offer by the Treasury Department and the Department of Justice, any re- strictions upon assessment of said sum being hereby Regraded Unclassified - 4 - P. 13 expressly waived, provided, however, that no 10-day notice and demand shall issue with respect thereto unless and until default shall be made in the performance of any provision of this offer. In the event that (1) & default shall ooour in the payment of any of said installments as the same becomes due and payable and such default shall continue for a period of 10 days; or (2) a default shall be made in the performance or observance of any other covenant, condition or agreement on the part of the proponents or either of them or their successors, assigns, heirs, executors or administrators, as the case may be, of this offer and such default shall continue for a period of 30 days or in the event that it is determined that any representation made herein is materially false then the entire amount of said principal sum then remaining unpaid, to= gether with interest accrued thereon to the date of such default, shall immediately become due and payable, and in the event that said proponents, or either of them, shall fail to pay the same forthwith, the collection of the whole amount 80 due and owing, together with interest thereon at rate of 6% until paid, may be enforced by all legal means available. As part of this offer, it is agreed that upon notice to the proponents of the acceptance of this offer in compromise, the proponents shall have no right, in the event of a default as set forth in the preced- ing paragraph, to contest in court or otherwise the amount of said principal sun or such part thereof as then remains unpaid together with interest accrued thereon; and that in the event of such default the Commissioner of Internal Revenue, at his option, may (1) proceed immediately by suit to collect the entire unpaid balance of said principal sum and interest thereon, or (2) without further notice of any kind, assess and/or collect by distraint or suit (the restrictions against assessment and/or collection Regraded Unclassified - 5 - 14 being hereby specifically waived) the unpaid balance of said principal sum and interest thereon. It is clearly understood however that there are no limitations whatsoever with respect to the remedies which may be employed by the Commissioner of Internal Revenue to enforce collection of said principal sum and interest. Proponents, or either of them, may pay all or any part of said principal sum and interest accrued thereon from time to time, as set forth in the foregoing schedule of payments, and proponents or either of them shall have the privilege of accelerating, in whole or in part, any or all of the said installments heroinabove provided. Neither of the proponents shall be deamed to be in receipt of any income or gift by virtue of the payment by the other proponent of all or part of said principal sun or the interest thereon. Each proponent shall be allowed to deduct, in computing his or its income taxes, the interest from time to time actually paid by each such proponent. Proponents agree that they will execute their personal bonds (not surety bonds) or other similar undertaking to pay the United States the said principal sum and interest, and further agree that they will give or cause to be given to the United States as collateral security for said bonds or similar undertaking and for the payment of said principal sum and interest to become due thereon, the following: (1) A first mortgage on all real estate unencumbered as of the date of this offer owned by the proponents or any of the corporations hereinabove named. Attached hereto and made a. part hereof as Schedule B is & schedule of such unencumbered real estate which proponents believe and represent to be all of the unencumbered real estate owned by them and all of said corporations hereinabove named. Regraded Unclassified - 6 - br 15 (2) A mortgage on all real estate enoumbered at the date of this offer, owned by the proponents or any of the corporations set forth on said Schedule A. Attached hereto and made a part hereof as Schedule C is a schedule of such encumbered real estate. The mortgage to be given hereunder shall be junior only to such existing enoumbrances. (3) A lien on all other property of proponents or any of said corporations which is as of the date of this offer or which may hereafter be, but prior to July 15, 1940, pledged 0.8 collateral security to a. bone fide loan owing by proponents or any of the said corporations to any bank, such lion to be junior only to the liens of such banks. Attached hereto and made a part hereof as Schedule D is & list of the property now pledged or which proponents propose to pledge prior to July 15, 1940, to said banks, which proponents believe and represent to be all of the property now pledged or so to be pledged to such banks. Proponents represent that it is necessary to make such additional pledges of property prior to July 15, 1940, in order to secure bank credits and extensions of bank credits necess- ary to permit the fulfillment of the provisions of this offer. (4) A lien on (a) 240 shares of the stock of The Cecelia Company owned by the proponent M. L. Annenberg, such lien to be junior only to the liens existing thereon as of the date of this offer; (b) a lien on such right, title and interest as M. L. Annenberg, Sadie C. Annenberg, Walter H. Annenberg and each daughter of proponent M. L. Annenberg may have in the remaining 260 shares of stook of the proponent The Cecelia Company. This proposal in respect to the liens on the said remaining 260 shares shall be with- out prejudice to proponents or to any individual named or to the United States in Regraded Unclassified BY 16 - 7 - respect to the actual ownership of said shares for any taxable period beginning after December 31, 1938. The proponents further agree that they will execute and deliver, or will cause to be executed and de- livered, as soon as possible, but in any event before September 1, 1940, such documents or instruments as will give the United States, in the event of a default of any provision of this offer by proponents or either of them control of stock of the proponent The Cecelia Company possessing not less than 51 percent of the total com- bined voting power of all the outstanding stock of said proponent. It is intended that all real estate and all property pledged as collateral security for loans from banks on or before July 15, 1940, and owned by said proponents or said corporations and any real estate which may hereafter be acquired by said proponents, or either of them, or by any of said corporations prior to payment of the full amount of said principal sum and interest, whether or not set forth in said Schedules B, C or D, shall be subject to a lien to secure the payment of the principal sum and interest thereon, and in the event that it is ascertained at any time that any property of such character shall have been omitted from said Schedules or in the event any such real estate shall be hereafter acquired 8.8 above set forth, then the proponents or any of said corporations shall immediately subject or cause to be subjected any such properties to a lien of the type therein provided for. Regraded Unclassified br 17 - 8 . The owners of said real estate described in subparagraph (1) above may at any time sell said real estate, and the lien upon said real estate to be sold under the mortgage in said subparagraph (1) provided for shall be released simultaneously with such sale; provided, however, that before the release of such mortgage satisfactory assurance is given that the proceeds from the sale of such real estate, less the reasonable costs and expenses of sale, will be applied in further reduction of said principal sum and the interest due thereon, provided, however, that no sale of any of such real estate shall be made at a price less than the fair value thereof at the time of such sale as determined by an independent appraiser acceptable to the Collector of Internal Revenue for the collection district in which the property is located. In the event of any such sale, such proceeds shall be credited upon the next of the payments hereinabove set forth (including interest) immediately thereafter coming due. With respect to the real estate described in subparagraph (2) above, and the collateral described in subparagraph (3) above, the owner or owners thereof may refund, extend, or refinance the encumbrances existing there- on or debts secured thereby at the date of this offer, or up to and in- cluding July 15, 1940, and any such refunding, renewal, or refinancing shall be superior to the lien given in said subparagraphs (2) and (3), provided, howaver, that in the event such refunding, renswal, or re- financing with respect to such real estate shall be in excess of the en- cumbrances existing at the date of this offer, a sum equal to such excess shall be applied in further reduction of said principal sum and the interest due thereon. Regraded Unclassified Dr 18 - 9 - It is understood, with respect to subparagraph (3), that the owners of any of the property therein mentioned may from time to time continue to pledge or repledge the same superior to the lien provided for in subparagraph (3) for the purpose of obtaining loans in addition to those for which said property shall at the time of making such additional loan or loans be pledged, if any; provided, however, ex- cept as herein provided, that (A) the proceeds of such additional loans shall be used and expressly limited (a) to refunding of then existing obligations secured by such property, and (b) for the usual and ordinary operation of the businesses conducted by the proponents, or any of said corporations; and (B) that such additional loans shall not at any time exceed by more than $500,000 the amount of the then outstanding loans from said banks secured by said prop- erty. Notwithstanding the foregoing, however, it is understood that the proponents or either of them or any of such corporations may secure additional loans not in excess of $1,000,000 provided the proceeds are used solely for the payment of Federal taxes. Nothing in subparagraph (3) above set forth shall be construed to prevent the owner or owners of the property in said subparagraph described from selling such property or, insofar as the same Regraded Unclassified or 19 - 9a - consists of obligations, paying or receiving payment therefor and cancelling same if and when paid in full, provided, that the pro- ceeds of said sale and said payment shall be applied first to the indebtedness, if any, due to the bank or banks to which such properties are pledged, and the balance, or all, as the case may be, to the next installment of said principal sum next coming due and the interest thereon; and provided, further, without prejudice to the rights of the banks, that no sale thereof shall be made by such owners at a price less than the fair value thereof at the time of such sale as determined by an independent appraiser ao- ceptable to the Collector of Internal Revenue for the collection district in which such property is at the time located. Further, nothing in said subparagraph (3) shall be construed to prevent the maker or owners of said property, insofar as the same shall consist of promissory notes, from renewing or extending the same, in whole or in part. Regraded Unclassified 20 - 10 - The proponents further agree that neither they nor any of the above-named corporations will either sell or otherwise dispose of any of their other assets except in the ordinary course of business or in a bona fide arms-length transaction, nor will they utilize any subsidiary corporation or any successor or transferee, or any device in any manner to defeat or adversely affect the rights of the United States. It is further understood, and it is a condition of this offer, that the payment of said principal sum and interest thereon is in full settlement of all said tax liabilities, civil penalties, and interest specified on page 1 hereof, and that appropriate action will be taken or caused to be taken both by the said proponents and by the United States to dispose of all matters now pending either before the Board of Tax Appeals or the Bureau of Internal Revenue relating thereto without further liability to proponents, said corporations, and individuals with respect to said taxes, civil penalties, and interest, whether such taxes, penalties, and interest have been asserted or not. Proponents agree to waive or cause to be waived any and all claims to amounts of money to which proponents, said corporations, and said individuals, or any of them, may be entitled with respect to said taxes for any taxable year prior to January 1, 1939. The proponents agree that neither the proponent, The Cecelia Company, or any of said corporations listed in Schedule A will create any additional capital stock of any character whatsoever and will not sell, dispose or otherwise transfer any capital stock presently authorized but not issued, Regraded Unclassified 21 11. and will not reissue any stock which at the time of this offer is held as treasury stock. Proponents further agree that they will furnish to the Commissioner of Internal Revenue as promptly as possible, and in any event within 120 days after the close of each calendar year, or at such other times as said Commissioner may request, until the said principal sum and interest thereon has been paid, (1) a consolidated balance sheet and profit and loss statement of the principal company and its subsidiaries, together with supporting schedules, prepared in accordance with accepted accounting principles, and (2) a sworn statement of assets and liabilities of the proponent M. L. Annenberg 8.8 of the close of each such preceding calendar year. Proponents agree that the said Commissioner, through his representa- tives, may have access at any time to the books and records of the proponents and said corporations. If this offer is accepted and becomes effective in accordance with the terms and conditions above specified, the proponents hereby expressly agree to deliver to the Collector of Internal Revenue, at Chicago, Illinois, written agreements to the suspension of the running of the statutory periods of limitations on assessment and/or collection for the period during which this offer is pending, or the period during which any installment remains unpaid and for one year thereafter. Upon the request of the Commissioner of Internal Revenue, the proponents will execute and deliver, or cause to be executed and delivered, to said Commissioner, such further instruments and do such further acts as may be reasonably necessary or proper to carry out the purpose and provisions of this offer. Regraded Unclassified - 12 - 22 The principal sum specified above to be paid upon the foregoing terms and conditions together with said interest at the rate of 6% per annum thereon is hereby tendered voluntarily in compromise and in full settlement of any and all civil liabilities of the proponents and said corporations and individuals listed on Schedule A hereto attached for the taxes specified on page 1 hereof and civil penalties and interest thereon for the taxable periods stated on Schedule A. The following facts and reasons are submitted as grounds for accepting this offer: The proponents for themselves and on behalf of the said corporations and individuals enumerated on Schedule A represent that they are unable to tender an offer in compromise in excess of the principal sum or to pay an amount in excess of said principal sum. They further represent that the payment of said principal sum can not be made except on an installment basis. The principal sum has been determined after numerous conferences by representatives of the proponents with representatives of the Bureau of Internal Revenue of the Treasury Department, and with representatives of the Department of Justice. It is a sum agreed upon as a fair settlement on an amicable basis of the contentions advanced respectively by representa- tives of the proponents and representatives of the United States with respect to civil liabilities of the proponents and the said corporations and individuals enumerated on Schedule A. It is understood that this offer in compromise does not afford relief from any civil liabilities sought to be compromised unless and until it is actually accepted by the Secretary of the Treasury, or the Under Secretary of the Treasury, or an Assistant Secretary of the Treasury, and also by the Attorney General of the United States. Regraded Unclassified 23 13. It is further understood that no provision of this offer in compromise shall operate to the prejudice of either the proponents of the United States with respect to the civil liabilities of the proponents or of the corporations and individuals listed on Schedule A for taxes other than those specified on page 1 of this offer in compromise, and for taxable periods not covered by this offer in compromise. It is further understood that this offer in compromise is entirely separate and apart from and does not embrace in any way any settlement or compromise whatsoever of any criminal liabilities for violation of the revenue laws. Proponents agree that they will carry out the provisions of this offer with respect to the giving of the collateral security hereinbefore set forth as soon after said offer is accepted as possible, and, in any event, on or before September 1, 1940. Annexed hereto and made a part of this offer is a consolidated balance sheet of the Cecelia Company and its subsidiaries as of December 31, 1939 and a sworn current net worth statement of M. L. Annenberg. M. L. Annenberg. The Cecelia Company By By Regraded Unclassified 24 C KIRKLAND, FLEMING, GREEN, MARTIN & ELLIS 0 P 33 North La Salle Street Y Chicago June 2, 1940. J. P. Wenchel, Chief Counsel, Bureau of Internal Revenue, Treasury Department, Washington, D. C. Dear Sir: In accordance with our conference of yesterday, I am enclosing herewith the following schedules to be attached to our offer in compromise: Schedule A - Proponents, corporations and individuals Schedule B - List of unencumbered real estate owned June 3, 1940 Schedule C - List of encumbered real estate on June 3, 1940 Schedule D - Property of Cecelia and subsidiaries pledged as collateral to bank loans You appreciate, of course, that I have been pressed for time in having these schedules prepared and they are subject to check and confirmation which I will give you over the telephone tomorrow. Very truly yours, KIRKLAND, FLEMING, GREEN, MARTIN & ELLIS, By /s/ A. L. Hodson alh/ec encs. Regraded Unclassified Mr 25 SCHEDULE A PROPONENTS CORPORATIONS AND INDIVIDUALS PROPONENTS: Name Year The Cecelia Company, formerly Cecelia Investment Company, and Sheva Leah Pismon Company 1923 to 1938, both inclusive M. L. Annenberg 1923 to 1938, If M CORPORATIONS: Name Year A. B. & M. Corporation 1928 to 1938, both inclusive Acme Photo Engraving Co. 1937 to 1938, = If Acme Printing & Publishing Company 1933 to 1938, If # Allegheny Distributing Company 1930 to 1938, = If American Continent News Service, Inc. 1929 to 1938, = If American Racing Record Corporation (Del.) 1926 to 1936, If = American Racing Record Corporation (I11.) 1927 to 1936, If = Bay State News Service, Inc. 1935 to 1938, # # Bensinger Recreation Corporation 1927 to 1938, # = 1 Regraded Unclassified 26 Name Year Broward Tomato Farms, Inc. 1933 to 1938, both inclusive Cecelia Company, The (originally Sheva Leah Pismon Company; later Cecelia Investment Company, Proponent set forth above 1923 to 1938, If et 1930 to 1936, " = Central Distributing Company Central News Agency, Inc. 1924 to 1938, " If Click, Inc. 1938 Cumberland News Service, Inc. 1937 to 1938, " " 1928 to 1938, it Daily Running Horse, Inc. " Detective Stories Publishing Co. (originally Official Detective Stories, Inc.) 1934 to 1938, # If District News Company, Inc. 1924 to 1938, If " 1923 to 1938, II es Empire News Company, Inc. Far West Distributing Co., Inc. (originally Pacific Distributing Co., Inc.) 1931 to 1938, 11 " Form Building Corporation (originally "M. L. Annenberg Realty Corporation"; name 1925 to 1938, " changed on Nov. 7, 1934) " Form Distributing Company 1935 to 1938, # If General News Bureau, Inc. 1923 to 1936, 11 " General News Press Bureau, Inc. 1937 to 1938, If " 11 Regraded Unclassified r 27 Name Iear General News Ticker, Inc. 1937 to 1938, both inclusive Greater New York News 1931 to 1933, " # Service, Inc. Illinois Nationwide News Service, Inc., originally Nationwide liews Service, 1934 to 1938, - # Inc. (Ill.) Interstate Brokerage 1929 to 1938, a " Company, Inc. Interstate News Company 1930 to 1937, ⑉ of Ivanhoe Realty Company 1923 to 1925, # # Kansas City News 1929 to 1936, - " Distributors, Inc. 1934 to 1936, # " Local Laundry & Cleaning Co. LOS Angeles Morning 1932 to 1938, 18 - Telegraph, Inc. Louisiana News Co., Ltd. 1930 to 1936, is at 1923 to 1938, " If Maryland News Company M. L. Annenberg Do. 1925 to 1938, " M.L.A. Investment Company (originally Mal Investment 1923 to 1938, = # Company) 1934 to 1938, If - Mollurray Printing Company Miami Tribune, Inc. (Originally Beach Publishing Company) 1934 to 1938, " - Milwaukes News Co. (Originally 1923 to 1938, - If Milwaukee Circulators, Inc.) Min-Haf Distributing 1929 to 1938, " # Corporation Mohawk Distributing 1931 to 1938, - - Corporation III Regraded Unclassified 28 Name Year Molasky Company, The (originally Molasky Holding Corporation) 1931 to 1938, both inclusive 1928 to 1936, Il = Morning Telegraph, Inc. Morning Telegraph Sports 1935 to 1938, If # News, Inc. National Turf Publications, Inc. 1928 Nationwide News Service, Inc. (Del.) 1934 to 1938, If " Nebraska News Service, Inc. 1937 to 1938, = # 1935 to 1938, = New York Daily Tab, Inc. No. 112 Fourth Avenue 1929 to 1938, # " Corporation Norfolk News Agency, 1925 to 1938, " If Incorporated Ohio Nationwide News Service, Inc. (originally General News Bureau of Ohio, Inc.) 1932 to 1938, n If 1933 to 1938, 19 = Oriental Theatre Corporation Oriental Theatre Pharmacy, Inc. 1933 to 1938, If Il Pioneer Publishing Company 1931 to 1933, # # Plymouth Printing and 1929 to 1933, " " Publishing Company Race Chart Syndicate 1933 1931 to 1933, = Racing Guide Publishing Co. Radio Guide, Inc. (Del.) 1931 to 1935, - # Radio Guide, Ino. (N.Y.) 1931 to 1932, # " Regal Press, Inc. (formerly Daily Racing Form Publishing 1922 to 1938, - If Company) iv Regraded Unclassified 29 Name Year R. D. Publishing Co. (Del.) 1937 to 1938, both inclusive R. D. Publishing Co. (I11.) 1932 to 1937, = " R. T. & K. Compling 1928 to 1935, # " Seaboard News Service, Inc. 1938 Severn News Co., Inc. 1937 to 1938, = # Standard Wine & Liquòr Co. 1934 to 1938, # If Star News Company 1936 to 1938, . " Sunset News Company Los Angeles, California 1923 to 1930, n II Teleflash Loudspeaker Corporation (Ill.) (formerly Teleflash, Inc.) 1935 to 1936, If " Teleflash Loudspeaker Corporation (Del.) 1935 to 1938, = " Telegraph Building Corporation (originally AB&ML Realty Corporation) 1923 to 1938, If - Texas News Service 1935 to 1938, If " Thrifty Liquor Company 1938 Tower Building Company 1926 to 1938, " = Tower Theatre Corporation 1933 to 1938, = - Tower Theatre Pharmacy, Inc. 1935 to 1938, " Triangle News Company 1924 to 1938, = " Triangle Press, Inc. 1935 to 1938, " Turf Publications, Ino. 1934 to 1938, If # Twin Peaks News Company 1924 to 1938, If " V Regraded Unclassified 30 Name Year Universal Publishing Company 1929 to 1935, both inclusive Wal-Min Press, Inc. 1923 to 1938, If If Waltan Features Syndicate, Inc. 1937 to 1938, " If Waltan Publications, Inc. 1936 to 1938, If If Walter Holding Corporation 1923 to 1938, " # Wayne News Agency, Inc. 1931 to 1938, " # Weekly Baseball Guide Publishing Corporation 1925 to 1927, " " The White Arrow Coffee Pot Corporation 1929 to 1938, = " The White Arrow Coffee Pot, Inc. 1929 And any and all other corporations with respect to which M. L. Annen- berg and/or The Cecelia Company owned, directly or through nominees, a majority of the capital stock thereof, provided the period for such corporations shall be the period of such majority ownership and the taxes shall be limited to income and excess profits taxes, and pro- vided further such corporations shall not include (1) Consensus Pub- lishing Company; (2) Pioneer News Service, Inc.; (3) Elverson Corporation; (4) The Philadelphia Inquirer Company (Del.), and (5) The Philadelphia Inquirer Company (Pa.). INDIVIDUALS: Name Year M. L. Annenberg (Proponent) 1923 to 1938, both inclusive Sadie C. Annenberg (S. C. Annenberg) 1923 to 1938, = = Walter H. Annenberg 1923 to 1938, " If Esther Simon 1923 to 1938, If Pearl (Polly) Levee 1923 to 1938, = If vi Regraded Unclassified 31 Name Year Janet Nefsky 1923 to 1938, both inclusive 1923 to 1938, If 92 Enid Haupt Lita Hazen 1923 to 1938, If If 1923 to 1938, # If Evelyn Friede 1923 to 1938, " a Harriet Ames vii S H DULE B - LIST 09 UNMICULIBERED PEAL ESTATE OWNED JUNE 3, 1940 Reserve Ret Company owning Carrying Value for B.ok operty and Location Description Land Buildings Together Depreciation Value L. A. Investment Company 27th and Wells Streets, Milwaukee, Cecelia Building - 4-story $ $ $ 4a $ Vieçonein brick apartment nd tore building 1,946.57 370,253.25 432,199.82 99,277.97 332,921.85 27th and Wells Streets, Milwaukee, West Point Building - Wisconsin 4-story brick apartment and store building 19,437.04 95,080.19 114,517.23 48,710.24 65,806.99 Farwell and North Avenues, Oriental Building - Vilwaukce, Wisconsin 2-story brick apartment theater and store building 106,840.40 695,681.29 802,521.69 170,880.91 631,640.78 Ferwell and North Avenues, Ivanhoe Building - 3-story Wilwaukee, Wisconsin brick apartment and E tore building 25,761.48 176,760.79 202,522.27 53,088.81 149,433.46 12th and Wells Streets, Muriel Building -2-story Milwaukee, Wisconsin brick apartment and atore building 11,171.24 35,463.90 46,635.14 18,456.30 28,178.84 828-832 N. 27th Street, 1-story brick store Milwaukee, Wisconsin building 9,740.53 20,064.27 29,804.80 5,656.77 24,148.03 834-840 N. 27th Street, Bensinger Building - Milmankee, Wisconsin 2-story brick 40,043.84 163,383.37 203,427.21 23,065.04 180,362.17 2714-16 Y. Wells Street 2-story frame flat Visconsin building 20,105.90 20,105.90 20,105.90 Nov Jersey Warehouse building 16,000.00 30,739.96 46,739.96 4,844.73 41,895.23 Broated and Crescent Streets, Things, Illinois Apartment building 111,150.00 111,150.00 111,150.00 Company - Real Ratate through Liquidation of OFF Service, Inc. District, Prince George's 4,544.00 Waryland Real estate near racetrack 4,544.00 4,544.00 Illinois Real estate near racetrack 1,050.00 1,050.00 1,050.00 Heights, Illinois Real estate near racetrack 6,375.81 6,375.81 6,375.81 County, Florida Real estate near racetrack 61,875.00 61,875.00 61,875.00 Florida Real estate near racetrack 5,000.00 5,000.00 5,000.00 Oalifornia Real estate near racetrack 3,781.74 3,781.74 3,781.74 Angales, California Real estate near race track 7,843.90 7,843.90 7,843.90 egraded Unclas sifi SCHEDULE B - LIST OF UNEN MBERED REAL ESTATE OWNED JUNE 3. 940 Carrying alue Reserve Net for Book owning and Location Description Land Buildin Together Depreciation Value Remarks Company south Court, Daily Racing Form Plant $ Net sound value of building per Building - 6-Story brick American Appraisal Company appraised Illinois as of March 1, 1938 - $30,998.53 Company does not own land. Net sound value of building per firmouth Court, Illinois Cecelia Building - 7-story American Appraisal Company appraised brick and steel frame 20,000.00 220,000.00 240,000.00 35,200.00 204,800.00 as of March 1, 1938 - $523,302.81 Company owne only one-half of land- Vermont Avenue, Pacific Daily Racing Form Net sound value of building per Angeles, California Building - 2-story rein- American Appraisal Company appraise forced brick and concrete 10,000.00 37,22.22 47,225.22 2,750.27 44,474.95 as of May 1, 1938 - $31,202.44 Karrison Street, Pacific Daily Racing Form Francisco, California Building - 2-story con- orete 4,250.00 17,96.89 22,212.89 2,446.09 19,766.80 T. First Ave., Warehouse building - 1- Florida story concrete block 4,000.00 51,03.63 55,037.63 6,044.10 46,993.53 Ohio Evening Independent Net soundwlus of buildings INP Building - 3-story brick Manufacturers Appraisal Da. Office Building -2-story appraised as of December 31, 3527 brick. Warehouse - 3-story $40,727.22 brick 10,000.00 39,941.38 49,943.38 4,160.77 45,782.61 Company Court, à 1-story concrete block Birth building 565.00 10,070.00 10,590.00 1,604.00 8,986.00 VOID Cerporation ATE., You York 6-story brick building 30,390.67 40,000.00 70,390.67 8,300.00 62,090.67 Mehing Co., St., Bast 5-story brick building 20,000.00 35,000.00 55,000.00 6,300.00 48,700.00 Serio, Canada Company 40-acre improved farm 12,000.00 12,000.00 12,000.00 Street, Tower Building - 2-story Wisconsin brick office, theater and store building 81,812.34 416,6,1.93 498,444.27 117,561.07 380,883.20 R classified 01 SATE o JUNE 3, 1940. Reserve Net Company owning Carrying for Book property and location Description 'alue * Depreciation Value Form Building Corporation Merrick Road, Long Island, N. Y. Vucant lot $12,682.39 - $12,682.39 Corona, Long Island, N. Y. 250 Junction Ave. Vacant lot 11,562.55 - 11,562.55 95th Street Vacant lot 13,644.55 - 15,644.55 Great Neck, Long Island, N. Y. (King's Point) Land and residence 534,425.86 - 534,425.86 Miami Beach, Florida Land, residence and improvements 295,865.38 - 295,865.38 Wyoming ranch Ranch, buildings and improvements 311,553.36 - 311,553.36 - The carrying value of properties owned by Form Building Corporation includes the cost of land, buildings, improvements and certain 12 additions for interest, taxes and other carrying charges. Note - The carrying value and the relative reserve for depreciation of the properties listed on this schedule (3 pages) represent the book values as of December 31,1939. Regraded Unclassified SCHEDULE C . LIST 03 ENCU BERED REAL ESTATE OWNED JUNE 3, 1940 Reserve Net gening Carrying for Book Incumbrances as reflected on and location Description Value Depreciation Value books at December 31, 1939 railding Corporation Long Island, N. Y. First mortgage payable to Corner of Jericho turnpike land and store and apartment Jamaica Savings Bank, Long and Commonwealth Ave. building $104,750.52 $5,400.00 $99,350.52 Island $37,000.00 SBA, Long Island, N. Y. First mortgage payable Corner of Junction Ave. and to Henry and Sophie Northern Blvd. Two vacant lots 143,585.70 - 143,585.70 Pfistner 21,000.00 plaston, Long Island, N. Y. First mortgage payable to Northern Blvd. and Lot with suall frame 86,794.64 - 86,794.64 Dime Savings Bank of Douglaston Parkway shack Brooklyn 6,650.00 Kyde Park, Long Island, 55 acres undeveloped land 207,347.68 - 207,347.68 First mortgage payable E. Y. to Edward Muller, due July 1, 1942 H wrenh Building Corporation First mortgage bonds INJ-P Park Avenue and 101-9 your 2-store brick store 568,215.2 Land 61,852.82 640,615.45 payable to Farmers bit 59th st., New York City buildings 134,250.00 Buildings) Loan & Trust CO., New York City $428,424.00 Less - Cost of bonds in treasury 541.20 - the carrying value of properties owned by Form Building Corporati includes the cost of land, buildings, improvements and certai additions for interest, taxes and other carrying charges. Vale - The carrying value and the relative reserve for depreciat of the properties listed on this schedule represent the book values as of December 31, 1939. Regraded Unclassified B7 36 SCHEDULE D. PROPERTY OF CECELIA AND SUBSIDIARIES PLEDGED AS COLLATERAL TO BANK LOANS Security Pledgee American Telephone & Telegraph Company - - United States Fidelity & Guaranty Com- 1000 shares Common stock pany under agreement providing stock to be deposited with First National Bank of Chicago upon release. General Electric Company - Same. 3000 shares Common stock General Electric Company - Tradesman's National Bank & Trust Co. and 5000 shares Common stock The Philadelphia National Bank Westinghouse Electric & Manufacturing Company= Tradesman's National Bank & Trust Co. 2400 shares Common stock and The Philadelphia National Bank. Triangle Press, Inc. - First National Bank of Chicago 100 shares Common stock he Philadelphia Inquirer Company (Del.) First National Bank of Chicago 22000 shares common stock $900,000 promissory note of Elverson Corpo- First National Bank of Chicago ration payable to The Cecelia Company and endorsed to bank $900,000 promissory note of The Philadelphia First National Bank of Chicago Inquirer Company (Del.) payable to Elverson Corporation securing last-mentioned Elverson note and endorsed to Bank $900,000 promissory notes of The Philadelphia Tradesman's E National Bank & Trust Co. Inquirer Company (Del.) to The Cecelia and The Philadelphia National Bank Company and endorsed to Bank PROPERTY TO BE PLEDGED TO BANKS ON OR BEFORE JULY 15, 1940. $1,400,000 promissory note of Elverson Corporation payable to The Cecelia Company $1,400,000 promissory note The Philadelphia Inquirer Company (Del.) to Elverson Corpo- ration to secure last-mentioned Elverson note. 1. Regraded Unclassified I r 37 - 2 - 740,000 promissory notes of Philadelphia Inquirer (Del.) payable to The Cecelia Company. Securities now pledged to secure $725,000 due by The Cecelia Company to Hekor In- vestment Holding Company, Ltd., consist- ing of 1000 shares of Elverson Corporation capital stock and 146,550 shares of The Philadelphia Inquirer Company (Del.) stock. 11. Regraded Unclassified C o P Y 36 PRICE, WATERHOUSE & CO. 33 North In Salle Street Chicago June 3, 1940 Messrs. Kirkland, Fleming, Green, Martin & Ellis, 33 North La Salle Street, Chicago, Illinois. Dear Sirs: You have asked us if we could give you an opinion to the effect that the tentative consolidated balance sheet of The Cecelia Company and its subsidiaries as at December 31, 1939, copy of which is attached hereto, ia substantially correct. It is impossible for us at this time to certify to any balance sheet of The Cecelia Company and its subsidiaries 8.8 being correct. We point out to you that the Treasury Department in Washington itself has raised numerous issues, which, if the Department is correct therein, would have a material effect upon the correctness or incorrect- ness of any such statement. Notwithstanding this, we are prepared to advise you that, as a result of our investigation the scope of which is outlined celow, we do not have knowledge of any items of material amount, other than liabilities for income taxes, which would require adjustments and which have not been made the subject of adjustment in the attached tentative consolidated balance sheet. The investigation into the affairs of The Cecelia Company and its domestic and Canadian subsidiary companies, which we undertook at your request, wes not completed although substantially completed for the years prior to 1939, and was directed principally to specific transactions recorded on the books of the respective companies in order to determine the propriety or otherwise of their treatment in Federal income tax returns filed. The investigation did not have for its purpose the determination of the financial position of the companies. The investigation covered the period from January 1, 1933 to December 31, 1938, and included all companies in the group with the exception of The Triangle Press, Incorporated, which company WES formed on January 1, 1936, and the Philadelphia Inquirer Company, which W.S acquired in August 1936, and a few minor companies. The investigation WB.6 supplemented by fa, review of the history and organization of the principal companies for the years prior to 1933, but we did not attempt to make any check of the detailed transactions for these prior years. With respect to the year 1939, the recorded transactions on the books of the Wilwaukee group of companies and the Wire Service Group, which latter group discontinued operations in November 1939, were reviewed, but no review of the transactions of any of the other companies in the Annenberg organization were undertaken for that year. Our investigation disclosed = number of errors in the bookkeeping, and in the consolidated balance sheet at December 31, 1939, attached hereto, effect has been given to adjustments correcting all substantial errors thus disclosed. Regraded Unclassified 39 - 2 - Messrs. Kirkland, Fleming, Green, Martin & Ellis, Chicago, Illinois. June 3, 1940. In a number of instances, complete information was not forthcoming with regard to certain of the transactions, and the treatment accorded these transao- tions was decided upon in the light of the information available. The books of certain of the companies have not yet been closed for the year 1939, but in preparing the tentative consolidated balance sheet we have been advised that all known entries, including the usual year-end entries, have been given effect to. Yours very truly, (Signed) Price, Waterhouse & Co. NJ M. L. ANNENBERG LIST OF ASSETS AND LIABILITIES June 3, 1940 Y ASSETS 240 shares of capital stock of The Cecelia Company (239 shares pledged as collateral to notes payable of The Cecelia Company to Jos, D. Bannon and Hugh E. Murray under eacrow agreement) - 10150 shares of CORRON stock of Wisconsin Bank- shares- present market value approximately - $ 40,000.00 (A certificate for 5,000 shares of this stock has been lost) - 47 shares of common stock of United Aircraft Corporation - present market value approximately - 8,050.00 300 shares of common stock of Phoenix Hosiery Company - no quoted murket - Certificate of Deposit for 25 shares of capital stock of Federation Bank of New York - no quoted market - 335 shares First preferred stock, and 335 shares of Class B common stock of Rosenbaum Grain Corp. (probably worthleas) - 20 shares of common stock, and 20 shares of preferred stock of Lincoln Finance & Mortgage Co. (Probably worthless) - (Initialed M. L. 4.) 100 shares of common stock of Canadian Marooni, Limited - present market value approximately - 50.00 Cash surrender value of a paid-up life insurance policy for $2,000.00 on life of M. L. Annenberg. Walter H. Annenberg is the beneficiary of this policy. Balance in Philadelphia National Bank - approximately 257,000.00 (of this balance approximately $250,000.00 will be paid to The Cecelia Company and applied on or before July 16, 1940 toward the first payment of the Federal income tax sottlement) Balance in First National Bank of the Black Hills, Balle Fourche, South Dakota - 6,371.66 Balance in Tradesmens National Bank & Trust Co., Philadelphia, Penna, - approximately 3,000.00 Cash on hand - 200,000.00 Regraded Unclassified 11 LIABILITIES Account payable to The Ceoelia Company as of December 31, 1989 $2,509,611.00 Less: Notes receivable from The Cecelia Company in respect of dividends declared in 1938 and 1939 1,680,000.00 Balance indicated by tentative consolidated balance sheet of The Cocolia Company and its subsidiaries as at December 31, 1939 $829,611.00 Contingent liabilities in respect of endorsement or guarantees of notes payable of, The Cocelia Company - To Jos. D. Bannon $ 300,000.00 To Hugh E. Murray 381,250.00 To First National Bank of Chicago 1,137,500.00 To Tradesmens National Bank & Trust Co. and Philadelphia National Bank 470,062.50 Triangle Press, Ino.- To Tradesmens National Bank & Trust Co. and Philadelphia National Bank 366,000.00 STATE OF ILLINOIS) ) 35. COUNTY OF COOK ) M. L. ANNENBERG, being first duly sworn, deposes and says that he has read the foregoing statement of his assets and liabilities; that the same is true and correct to the best of his knowledge and belief. The foregoing statement does not, however, reflect therein any income taxes which may be assessed against him for any years prior to the year ending December 31, 1939, and such statement does not reflect ownership of certain assets which affiant has been informed by his attorneys the Treasury Department of the United States has contended were owned by him, or any other matters which the said Treasury Department may consider as rendering him taxable upon any income or other sources of income hereto- fore claimed by the Treasury Department to be attributable to him. /a/ M. L. Annenberg SUBSCRIBED and BWORN to before me this 3rd day of June, A. D. 1940. /a/ Florence Sorem Notary Public. Regraded Unclassified THE CEOELIA COMPANY AND DOMESTIC AND CANADIAN AUBSIDIARY COMPANIES TENTATIVE CONSOLIDATED BALANCE SHEET DECEMBER 11, 193 CASH 4 1,648,897.73 NOTES PAYABLE: To banks $3,243,960.00 ACCOUNTS RECEIVABLE: To others $1,925,522.99 1,845,558.57 $ 5,089,516.57 Customers Deposita with publishers, etc. 95,353.50 Sundry 314,421.07 MORTOAGES PAYABLE 524,532.80 $2,335,297.56 Less - Reserves 178,476.40 2,156,821.16 FIRST MORTGAGE BONDS PAYABLE 1,882,000.00 INVENTORIES 734,206.85 SECURITIES: ACCOUNTS PAYABLE 1,955,347.91 Marketable securities (aggregate approximate quoted market value at December 31, 1939 - (1,324,297.25) (See note below) $1,290,578.31 AMOUNTS PAYABLE TO STOCKHOLDERS respect of 1,647,505.05 Other 43,261.26 1,333,839.57 dividends declared) INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES 287,300.05 RESERVES FOR PEDERAL INCOME AND OTHER TAXES FOR 1939 1,643,860.40 PROPERTIES $20,985,857.37 Less - Reserves for depreciation 7,421,596.43 13,582,250.94 RESERVE FOR LOSSES ON INVESTMENTS 358,756.75 INTANGIBLE ASSETS: Excess of carrying value of investments in MINORITY STOCKHOLDERS' EQUITY IN - PHILADELPHIA subsidiary companies consolidated over INQUIRER COMPANY (DELAWARE) net worth of such aubaldiaries at dates 116,745.57 of acquisition $4,908,446.62 Goodvill, Franchises, Leaseholds, etc. CAPITAL STOCK (500 shares of 6 par value or $100.00 each) 50,000.00 carried on books of subsidiary companies consolidated 3,234,818.31 8,143,264.93 SURFLOS DEFERRED CHARGES 134,790.08 15,986,044.16 MISCELLANROUS ASSETS AND UNADJUSTED DEBITS 423,316.70 AMOUNT DUE FROM M. L. ANNENBERG 829,611.00 $29,254,309.01 $29,254,309.01 The above tentative unaudited statement includes the accounts of the companies listed on the ttached achedule. The figures abovn thereon have been tab from the books or from available reports in res act of certain of the companies, the books of which are intained in Chicago, and have been adjusted respect of (a) intercompany account differences as other items disclosed during the general revie de in connection with the uncompleted investigation into M affairs of the companies and Mr. N. L. And E as of December 31, 1938 and (b) certain year-and entri at December 51, 1939 not reflected on the be The statement includes at the par rate of DANE* the following items carried on the if the Canadian subsidiary companies: cash - $97,219.00 jounts receivable - $66,052.90; inventorie 12,498.92; securities - $740,737.88; properties 11,35) goodwill - - $46,212.35; deferred els and miscellaneous Items - $16,665.51; accounts payable and for taxes - $256,407.90. mice & carrying value of $1,155,575.39 roximate quoted market The marketable securities include securit h vere pledged with banks and brokers Illateral to notes and value at December 31, 1839 of $1,278,65 accounts payable. Regraded nc ssified 43 LIST OF COMPANIES WHOSE ACCOUNTS ARE INCLUDED IN FOREGOING STATEMENT The Cecelia Company Nationwide News Service, Inc. Bay State News Service, Inc. Cumberland News Service, Inc. ) Illinois Nationwide News Service, Ino. ) In process of Mohawk News Service, Inc. ) liquidation Nebraska News Service, Inc. ) or dissolu- Seaboard News Service, Inc. ) tion Severn News Company, Inc. ) Teleflash Loudspeaker Corporation (Delaware)) Nationwide News Service of Canada, Ltd. ) M. L. A. Investment Company M. L. Annenberg Company Bensinger Recreation Corporation Oriental Theatre Corporation Oriental Theatre Pharmacy, Inc. Standard Wine and Liquor Company Thrifty Liquor Company Tower Building Company Tower Theatre Corporation Tower Theatre Pharmacy, Inc. Central liews Agency, Inc. Form Distributing Company Maryland News Company Mileaukee News Company Mohawk Distributing Corporation Twin Peak News Company Wayne News Agency, Inc. Click, Inc. Consensus Publishing Company Detective Stories Publishing Company Form Building Corporation Interstate Brokerage Company, Inc. McMurray Printing Company Triangle Press, Inc. New York Daily Tab, Inc. 112 Fourth Avenue Corporation Turf Publications, Inc. Waltan Features Syndicate, Inc. Telegraph Building Corporation City News Company, Limited McMurray Publishing Company, Ltd. Montreal Newsdealers Supply Company, Ltd. Wentworth News Agency, Ltd. Elverson Corporation The Philadelphia Inquirer Company (Delaware) (96.98% owned) The Philadelphia Inquirer Company (Pennsylvania) Regraded Unclassified TREASURY DEPARTMENT 44 INTER OFFICE COMMUNICATION DATE JUN 1 5 1940 TO Miss Nell Chauncey, Office of the Secretary. FROM E. H. Foley, Jr. In re: M. L. Annenberg and The Cecelia Company I am herewith transmitting to you one copy of a letter from the Department of Justice dated June 8, 1940, addressed to the Chief Counsel of the Bureau of Internal Revenue, with which was enclosed authorization under date of June 5, 1940, of M. L. Annenberg and The Cecelia Company to attach as exhibits to their offer the tentative consolidated balance sheet of The Cecelia Company and subsidiary companies and the sworn statement of M. L. Annenberg as to his assets and liabilities. 9.10.7L Enc. Regraded 15 DEPARTMENT or JUSTICE mel 0. Clark, Jr., Washington ant Attorney General. June s, 1940 Honorable J. P. heachel, Chief Counsel, Bureeu of Internal Revenue, Washington, D. 0. In ze: M. L. Annenberg and The Cecelia Company Dear Phil: 1 have your letter of June 7, 1940 with respect to the agreement in settlement of the tex liabilities of the above pro- ponents. I note that you have compared the signed offer with the copy which 155 submitted to the Secretary for approval and find no verianoes other than those mentioned is my letter to you of June 5, 1940. I note the statement in the third paragraph of your letter that the originals of the financial statements (such state- ments being described in the last peragraph of the proponents* offer) and Schedules ,, B. C and D were ettached to the copy of the offer submitted to the Secretary for approval. For completeness of the record, I likewise advise that copies of such financial statements and the four Schedules were attached to the copy of the offer sub- mitted to the Attorney General on June 4, 1940 for his approval. Your letter refers to minor discrepancies in the names of three of the corporations listed on Schedule A attoched to the signed offer. In accordance with your request I em writing counsel for the proponents for advice as to the correct corporate names of these three companies. with reference to the financial statements, I am mending you herewith & statement signed by the proponents under date of June 5, 1940, authorizing the Commissioner to attach to the signed original offer the following documents which heretofore had been delivered to him: Tentative consolidated balance sheet of the Cecelia Company and subsidiaries se of December 31, 1939, together with letter from Price, Materhouse & Company dated June 5, 1940, and M. L. Annenberg's list of acueta and liabilities ⑉8 of June 3, 1940. Regraded Unclassified 46 J. P. Wenshel + June 8, 1940 The proponents' attorneys have also sent - an executed copy of the list of M. L. Annenberg's essets and lisbilities end an executed copy of the enclosed authorization dated June 5, 1940. These documents will be annexed to the duplicate original of proponents' offer, in order that it my conform in all respects to the original that you hold. The duplieste original has now errived in my office from Chieago. As soon as I receive advice concerning the proper names of the three corporations referred to above, I shall again communicate with you. Sincerely, (Sgd) Samuel 0. Clark, Jr. SAMUEL 0. CLARL, JR., Assistant Attorney General Enel. 47 June 5, 1940. Honorable Guy T. Helvering, Commissioner of Internal Revenue, Washington, D. C. Sir: In connection with the offer in compromise submitted to you by the undersigned yesterday, you are hereby authorized to attach as exhibits to said offer the tentative consolidated belance sheet of The Cecelia Company and domestic and subsidiary companies as of December 31, 1939, together with the accompanying letter to Kirkland, Fleming, Green, Mertin & Ellits from Price, Katerhouse & Co. dated June 3, 1940, and the statement entitled "X" L. Annenberg List of Assets and Liabilities, June 3, 1940." The originals of the two above-mentioned instruments have been furnished to you heretofore and we enclose herewith an executed copy thereof to be attached to the copy of the offer. Very truly yours, (Sgd) M. L. ANNEMBERG THE OEGELIA COMPANY, # (Sgd) M. L. ANNIHERO President. ATTEST: The Seal of Said Corporation By (Sgd) H. L. KAMIN Assistant Secretary Regraded Unclassified 48 No.101 American Foreign Service, Hanoi, Indochina, June 10, 1940. Subject: Chinese Government secures increased Freight Allotment from Railway. The Honorable The Secretary of State, Washington. Sir: I have the honor to refer to my despatch no. 95 of May 27, 1940, reporting a new system of freight space allocation by the Indochina-Yunnan Railway, under which the Chinese Government re- ceived a smaller proportion of the freight space than previously. I have now been informed by the Chief Engineer of the railway that the Chinese Government has protested this reduction and that, as a result of negotiations at Paris, that system of allocation will be deferred for B. period of 2 months, during which the Chinese Government will receive 80 per cent of the total freight capacity minus the railway's own requirements. From an anticipated freight capacity of 24,000 tons monthly, 3,500 tons will be deducted for the railway. The Chinese Government, represented by the Southwest Transportation Company, will be allotted 16,100 tons, but all Chinese governmental agencies will participate in this amount, including the Yunnan Provincial Government (4,500 tons), gasoline and petroleum products (3,800), the Post Office, cement, et cetera. During the 2 month period it is said that no shipments Regraded Unclassified 4S - 2 - shipments will be made on behalf of the Salt Gabelle and the Szechwan- Yunnan Railway. The carriage of Renault Diesel trucks (despatch no. 99 of June 6, 1940) was the subject of discussion but it was agreed that this was to continue as part of the 50 per cent. The remaining 20 per cent, 4,100 tone, will be devoted to the transportation of commercial cargo, including gasoline and petroleum products for the account of the oil companies, according to the priority established by the railway through its listing of commercial cargo at Haiphong. (despatch no. 96 of June 1, 1940) The percentage system has the advantage of requiring no readjust- ments should the total tonnage depart from the anticipated 24,000 tons monthly. As the rainy season in Yunnan is commencing, traffic dis- ruptions are to be expected. But the Chinese Government will benefit by having, for a period of 2 months, 80 per cent of the net traffic regardless of the tonnage carried. It will be interesting to note whether the Yunnan Provincial Government will contimue to obtain 4,500 tons monthly, regardless of traffic disruptions and a consequent re- duction in the tonnage equivalent of 80 per cent. It remains to be seen how this arrangement will work out but I believe that it should accelerate the clearing of the congestion at Haiphong. The real question remains, however, whether continued Allied reverses in Europe will encourage the Japanese to resume bombing of the railway or to demand the closing of the frontier to all transit on account of the Chinese Government. This is a possibility that cannot pass unremarked. Respectfully yours, For the Consul at Saigon, Charles S. Reed IT, American Consul. 50 - 3 - In triplicate to the Department (By air mail) Copies to the Embassy, Chungking and Peiping Copies to Consulates General, Hongkong and Shanghai Copies to Consulates, Kumming and Saigon 815.4 CSR:csr 01 A M9 -- CG E 4A. 10 1 IVSA 51 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE June 10, 1940 TO Secretary Morgenthau FROM Mr. White There is attached a list of memoranda and reports prepared in the Division of Monetary Research during April and May, 1940. 52 Memoranda Prepared in the Division of Monetary Research during April and May, 1940. Political Democracy and Freedom of Enterprise in Britain, Germany and France Compared. Information which should be obtained if current reporte are to be prepared on the financial status of the Allied countries. Speech on Gold. What does the Invasion of Norway and Denmark mean to the U.S.? The British Budget 1940-41, and Summary. Questions to be asked of the British authorities concerning the sterling-dollar rate. The Trade Picture of the Western Hemisphere. British Official Rate and American Agricultural Exports. Foreign Economic Developmente. Third and fourth foreign business letters. Memoranda on strategic materials: Carbon black, Columbium, Cobalt, Tantelum, Industrial Diamonds. Comment on "Declaration of Principles Relating to the Con- duct of American Industry". Special Wartime Trade Agreements. Estimated United States' Claims against and Investments in Belgium and Netherlands. Survey of the Needs and Productive Capacity of the U. S. for Defense Purposes. The Chinese Ambassador's informal request for advice apropos Chiang Kai-Shek's telegram to the President for financial aid. Tin Smelting in the United States. Tungsten. Shipments to U.S.S.R. U.S. Exports of Molybdenum to Itely. Division of Monetary - 2 - Research 53 Re-exports of Tin. Re-exports of Rubber. Shipments of Aluminum to Rumania. Assets of Netherlands, Belgium and Luxembourg held in the U.S. British War Industry Production. British Foreign Exchange Losses. How Britain is Financing the War. Employment and Production Figures of Bureau of Mint. Comment on "The Case for the Gold Standard". The plan for the restoration of basic credit control for the Federal Reserve Board. Comment on Gold Article by Frederic Jenny in LE TEMPS. Sources of Durable Goods Demand. Winthrop Aldrich's views with respect to gold. Foreign Exchange Control Licensing. Paying for Armament. Recent studies of Italian national income. Economic Importance of the Invaded Area of France. German Government Expenditures and Sources of Funds. What significance does the unofficial sterling-dollar rate have for the United States? Estimated Danish, Norwegian and Swedish Investments in the United States. The Foreign Trade of the Belligerents. Imports from the United Kingdom paid for with sterling pur- chased in the free market and in U. S. dollars. Suggested form of questionnaire to be used by appraisers for all imports from the British and French Empires. U. S. Trade with Belgium-Luxembourg and the Netherlands, 1939. 54 Division of Monetary - 3 - Research Estimated Assets of China in dollars or Convertible into Dollars. Banking Funds held in the U. S. as of May 15, 1940. Proposals or agitation to restrict or embargo exports of spruce. Status of Latin American Dollar Bonds. Opportunity for Treasury to strengthen Inter-American Treasury activity at the Scientific Congress in Washington. Antecedents of the Inter-American Bank. Questions and Answers on the Inter-American Bank. Status of the Inter-American Bank. Colombia's request for a loan of $10 million. Preliminary Comment on the British Trade Drive in Latin America. What can they accomplish by clearing agreements? Translation of the Chilean Corp. de Fomento plans. Chilean Application for an Export-Import Bank Loan. Coffee crisis. Brazil at last is feeling the burden. Coffee. The Situation in Brazil and Colombia. Coffee. Is American action needed? The Argentine Situation. The Mexican Situation. Weekly Reports on Latin America. Is a general foreign-exchange collapse brewing in Latin America? Effect of Dutch-Belgium invasion on Latin America. Brazil's Impending Exchange Crisis. Dutch Possessions in this Hemisphere. Program to implement the Good Neighbor Policy. Regraded Unclassified 55 Division of Monetary - 4 - Research Ecuador. A case in American policy, or the lack of policy. Dudley Wood's project for Latin America. The Fifth Column in Latin America. Measures suggested for the relief of Latin America. A Plan for Latin American Trade. Its superiority to Dudley Wood's Scheme. Highlights in our Export Trade in March. Prospects for Increased U.S. Bacon and Ham Exports to U.K. U.S. Export Trade Picture. Economic Resources and Deficiencies of the Low Countries. Multiple Exchange Rates - Argentina. Chinese silver deposited in the British and French conces- sions at Tientsin. Recent collapse in Chinese Yuan. Summary of despatch from J. M. McHugh, Naval Attache at Chungking. Dutch colonies and the war. Japan's Attitude Toward Dutch East Indies in Light of Petroleum situation. Salient facts respecting the relative importance to Japan of American, 8.8 compared to Dutch East Indian, petroleum supplies. Survey of Netherlands East Indies. Netherlands Indies currency now independent. Tentative suggestions regarding economic aid to the Allies. Potash. Preliminary Report on Toluol. Mr. Stettinius' comments on tungsten. France's Cereal Supplies. Division of Monetary 56 - 5 - Research. French Policy in the Far East. American Investments in Germany and the Areas now held by Germany. The French Deficit. Draft and skeleton table for world supplies of basic food- stuffs. Shipments of Strategic Materials. Dumping Cases Completed: Acetate and viscose rayon cut fiber from Germany and Belgium. Bio-shavings from Germany. Candied citrous fruit peel from Italy. Strike-on-box matches from Northern European countries. Crimson clover seed from Hungary. Red clover seed from Hungary. Hulled millet seeds from Hungary. Aluminum kitchen utensils from Italy. Sugar beet seed from Germany. Chemical porcelain ware from Germany. Chemicals (14 from Germany; 1 from Canada). Onion powder, from Hungary. Glass frostings from Germany. Current reports: See report of February 1, 1940. Correspondence: 288 Letters replied to. 57 No. 3133 Rio de Janeiro, June 10, 1940. Subject: Request for Release of Funds Belonging to Belgian Ambassador to Brazil. ORIGINAL & THREE COPIES BY AIR MAIL - CONFIRMATION COPY BY STEAMER. The Honorable The Secretary of State, Washington, D. C. Sir: I have the honor to enclose herewith a copy of a communication from the Belgian Ambassador in Rio de Janeiro, Monsieur Maurice Cuvelier, stating that he has been unable to obtain the release of the balance of some one thousand dollars in his account with the Banque Belge pour l'Etranger, 67 Wall Street, New York, following the. freezing of Belgian assets in the United States. He states that this is also true of the account of Monsieur Andre Regraded Unclassified 58 - 2 - Andre Fosset, Second Secretary of the Belgian Embassy in Rio de Janeiro, with the same bank. He states that these funds are required for his living expenses here. I should appreciate it if the Department would do whatever it can to facilitate the re- lease of these funds and let me know the outcome by telegraph. Respectfully yours, For the Ambassador: Ware Adams, Second Secretary of Embassy. F ile No. 701 WA;LEF. Regraded Unclassified 59 Enclosure to Despatch No. 3133 of June 10, 1940, from the American Embassy at Rio de Janeiro on the subject of the release of funds belonging to the Belgian Ambassador to Brazil. Translation BELGIAN EMBASSY Rio de Janeiro, June 8, 1940. No. 1202 My dear Ambassador: About fifteen days ago, I cabled the Banque Belge pour l'Etranger, (Overseas). 67 Wall Street, New York, N. Y., with which I have an account in American dollars, to transfer to me at Rio de Janeiro a. sur of $1,000. The Banque Belge replied that it would do so "as soon as the required authorizations were obtained". I euro still awaiting this transfer, without further word. As my deposit in dollars at New York constitutes, at this moment, my only funds for living expenses, I should be deeply grateful if you would recommend to the suitable authorities of the United States that they permit the Banque Belge pour l'Etranger at New York, to transfer to me, without restraint, the $1,000 which I await, as well as all other amounts which it would have occasion to send ne in proportion to my needs. Thanking you in advance for your kind intervention, I wish to convey to you, Mr. Ambassador, my highest esteem and consideration. The Ambassador from Belgium (ε) Maurice Cuvelier. P.S. I also wish to ask Your Excellency to have the restric- tions removed. at the same time, from the credits in American dollars, at the Banque Belge pour l'Etranger, New York, of Mr. Andre Fosset. Second Secretary of the Belgian Embasay at Rio de Janeiro. His Excellency Mr. Jefferson Caffery, Ambassador of the United States of America. Rio de Janeiro. Regraded Unclassified CHEASE MR 165 FOR 13813 80 CK PLAIN Stockholm Dated June 10, 1940 Rec'd 9:50 peme Secretary of State Vashington 609, Tenth. Riksbank report June 7, in millions crowns: metallic reserve 800.3, foreign exchange reserve 424.4, domestic loans 940.7, Government deposits 117, Banks 75, other 6.8. Riksdag approved 19 for completion falsterbo canal, 140 for commodity purchases our 470, also supplementary gasoline tax our 558, and 49 for firewood production. Riksdag ajourning 15th re- assembling late July. Swedish national debt May 31 in millions crowns: 3491.9 compared 2633.6 June 30, last year, and state loans outstanding 2107.7. Crop products dark according to first crop conditions report which assigns index of 1.9 for fall wheat and 2.7 for fall rye on basis of Index number 4 equals good crop and 1 a failure, Much wheat area replanted. INFORM COMMERCE STERLING DB Doaraded June 10, 1940 MEMORANDUM FOR THE SECRETARY: Shipping Situation. Last weeks Pacific Coast freight and charter market was one of the quietest and most uneventful periods under review in the past five or aix years. The collapse of Belgium fortnight ago had the effect of "freezing" market conditions, and last weekm with the threat of Italy entering the war growing more intense, the condition was made worse. So far as could be positively established only one vessel - the motorship Ecuador (Swedish) - was fixed during the week. This vessel was taken presumably on B voyage basis at undisclosed terms from the Pacific Northwest to Vladivostok. The Maerek Line ennounced a chartered ship - motorship Bardaland (Swedish) - for a voyage from Los Angeles to the Orient, but whether this vessel had been fixed before or during the week in review could not be ascertained. Some vessels were said to have been taken on the Atlantic Coast, but no confirming reports were forthcoming. Charterers' ideas were said to have declined to as low as $3.75 and $4 for time charters but nothing was reported closed at these levels. Demand for space in all directions seemed to decline, and there was little or no inquiry for full cargoes. In the Oriental trade, the berth lines could handle without difficulty all the scrap parcels that were offering. Rates wer quoted at $16 for rails; $17 for melting. General cargo, lumber, and cotton were dull. Business to Australasia continued in the doldrums due to the severe restrictions imposed against imports. Lumber was slack, and the lines were having difficulty getting $30. The intercosstal section continued to ease off, and the lines, despite the recent reduction of tonnage due to sales abroad, foresaw 8 small enough volume to be handled by the lines on hand. Lumber offerings were easier and were expected to continue 60. One lumber operator made an off-the- record statement to the effect that if the present amount of intercoastal tonnage was increased by 10 per cent, the backlog of lumber shipments would be wiped out within a week or 50. Banil Harris Regraded Unclassified 61-A TREASURY DEPARTMENT WASHINGTON June 10, 1940. MEMORANDUM FOR THE SECRETARY: The Rumanian Steamship MANGALIA, is sailing from New York for Constanza, Rumania, on June 15th, carrying 15,410 slabs of electrolytic zinc and 6,698 pieces of copper cathodes. Banil Marris Bf 62 June 10, 1940 My dear Mr. Hoover: This will acknowledge receipt of your letter of June 6th inclosing m memorandum on the international sit- uation. Thank you for bringing this to my attention. Yours Sincerely, (Signed) H. Mergenthau, Jr. Mr. J. Edgar Hoover, Director, Federal Bureau of Investigation, Department of Justice, Washington, D.C. Regraded Unclassified Ar. 63 June 10, 1940 My dear Mr. Recver: This will acknowledge receipt of your letter of June 6th inclosing a semorandum on the international 018- untion. Thank you for bringing this to mg attention. Yours Sincerely, (Signed) E. Morgenthau. Jr. Mr. J. Edgar Neover, Director, Federal Bureau of Investigation, Department of Justice, Washington, D.C. 64 June 10, 1940 My dear Mr. Hoover: This will acknowledge receipt of your letter of June 6th inclosing a memorandum on the international sit- uation. Thank you for bringing this to my attention. Yours Sincerely, (Signed) H. Morgenthau, Jr. Mr. J. Edgar Hoover, Director, Federal Bureau of Investigation, Department of Justice, Washington, D.C. Regraded Unclassified Have not read EDGAR HOOVER DIRECTOR Federal Bureau of Imentigation 10mg United States Department of Justice Washington, D. C. June 6, 1940 Personal and Confidential Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. Dear 1/Γ. Secretary: As of possible interest to you, I am inclosing herewith a memorandum dated June 4, 1940 received from a confidential informant, commenting generally upon the international situation. Sincerely yours, I edgan Hoover Inclosure im 22% 1+, the 7 B 19 liah P 66 June 4, 1940 In res World Situation The following information LUS gathered from a Mr. B. to whom reference will be made throughout this report. It to also necessary to state that the information contained herein is that given by Mr. D. and 10 not the idea or suggestion of the writer. It 1a also highly important to mention the faot that I/T. B. enjoya the fullest confidence of the Soutet Government and represents that Government in an assicial capacity in this country. The writer spent quite a long time with Mr. B. in an exchange 05 views covering the present situation with respect to the European conflict. I/r. 3, was righly elated and was perfectly frank in stating that at last the British had come to their senses in sending such a capable man as Sir stafford Cripps as Ambassador to Moscow. Mr. Crippa, who 10 a member of the Britten Labor Party, has always been a great admirer of the Souiet Union according to Nr. 8. and is the one man that can Dot things done between England and the Souiet Government. B. states that this appointment was most welcome to Foreign Minister Volotoff and the Russton Ambassador to Great Dritain - Nateky (this spelling nov not be correct) and Mr. Dimitross (the writer also to not sure about the correct apelling 05 this name). According to J. it appears that Mr. Dimitross is the outstanding leader 05 Soutet Suesta today - although Stalin is the symbol of Soulet Aussia, Dimitross is the real man behind the Soviet regime and gets things done. According to 3. the date of Churchill, Chamberlain, Foldwin and men os their type, are about ready to go down in history "finis" as far as Creat Britain to concerned. The Labor Party has chosen most visely in sending Cripps to Russia - he understands the temperament 05 the Russian people 08 B. puts it, and in time to come he will solidisy the good feeling between Britain and Russia. It to through Crippe that the Hubsians expect to infiltrate their Communist propaganda and ideals into the Brittsh Labor Party whom B. compares to our C.I.O., the Labor Party in America, headed by such strong "lest wing" or "radicals" as John L. Lewis, B. was very critical of Churchill, whom he described as the "leading apostle 05 retreate" having reference to the retreat os Gallipoli, Norway and the recent retreat from Flanders. He further described Mr. Churchill as a typical British Conservative, who have had things all their our way for centuries, and that there was no 015- ference between the Churchill regime and the Chamberlain regine - that Churchill carries on where Chamberlain left ass using more or less the same pattern 05 plane and strategy= From my own observation I would say that the Reds are going to do everything possible to carry their Red propaganda into England and Regraded Unclassified 67 use the Labor Party and friends of Sir Stafford Cripps as the nucleus and cells for the Communists in Great Britain and to be frank, although the writer has no evidence to substantiate this other than my conclu- sions from my talk with D. Crippe has very strong Communistic leanings. Whether he would deliberately concur in the achemes os Communistic buildup in England or whether he can be duped by Dimitross, Molotoff and the rest of the Red scoundrels 05 Ruesia remains to be seen. One thing to certain - unless Crippe is closely watched by the British them- selves there is no doubt that but something sinister will happen out 0.5 this Cripps-Moscow-Mataky and Brittsh Labor Party setupe Be went on to say that the reason why Russia had to take Finland in the winters which was the least appropriate time to undertake such a campaign, was because their Intelligence Service had learned that England and France were given permission by the Finns to land at Petconic, the northern part of finland, with a heavy expeditionary force which 100.8 to join up with the Finnish Army who had been preparing for a number of years in building up the Mannerheim Line and other strong defenses against a possible Russian invasion. The plan then was to forego issian consent to this expeditionary force going through their country a a rear attack on Germany, and is they were not permitted to de this they were to counter with a var on the Souiet Union. The Russians had no time to lose, according to B. hance their immediate attack on Finland. New, today, D. says the Finne and Russians are getting along very well. The Russians, B. says, have restored the buildings destroyed at Petsonie and other parts of the country, and they have also paid a heavy Indem- nity to Sweden for the destruction caused there on account os that war, The Mannerheim Line 18 a thing of the past and the Finna are glad now that they are not hook up with the Brittsh and French as they at first intended to do. Às to Germany 3. says that the conflict will last about two years and that the vinner will be neither the Allies nor the Germans, but Humata and Japan and that Russia will control the economic orbits of all Europe and Japan likewise will control this in the Pacific. The United States will enhance itself with riches from war con- tracts which will be of little value and only a momentary success be- cause the other countries won't have anything to trade with. with a strong Communistic influence, and D. expects it will be brought B. feels that a Federation of Nations will be set up in Europe about in the following manner! Dimitross, who has been previously mentioned as the No. #2 man of soia today is the same person who was accused by the Germans 05 setting tre to the Reichatag, and during his trial for arson and treason B. says Dinitreff spot in the face of Gosbbela while he, Goobells, was stuing testimony against Dimitrasse Dimitreff was sent to jail and in some Regraded Unclassified - 3 58 spurtous way Dimitrass escaped from Germany with the conntuance of some 05 the leading Communists in Germany in official positions in the Retch. Dimitross has never sorgotion this and carries this as 6 cause for vengeance against Mitler and his immediate associates. After the Allies and Germany have sought themselves into a stage of exhaustion, and Russta having had this additional two years to fit up her war machine which to not undergoing a 24 hour day buildup will be in a position to crush both the Allien and the Germans - the Allies from a military point 05 vion and the Germane through their propaganda. According to B. the Communist cells in Dermany have been regenerated 00 to speak through the recent German-Voscow Pact accomplished by Nib- bentrop. tross at the head will give the signal through G heavy propaganda in the well populated Communist centres in Germany to bring on a revolution there and then become a Red Germanys that the Allies would put up a strong, jurious and short For but that both France and Britain would be brought to submission; that although the economic ottua- tion to France had been very bad in recent years, the Communist leaders there had been pretty well subdued. This, however, will rise again is France should undergo a revolution which, in all prebability, she will do, and if this come about It will bring forth as a leader the present neralissino Wygand who appeals to the Fascist Farty known as "Cagoulards" a sort os party similar to the Ku Kluz Klan in this country. It la delieved that the Communiet Party in France will rise In opposition to the Factst Legion net up by Fygand who, according to B. is ste leading member. The British Isles by that time will have absorbed the Communist pattern through its Labor Party to such an extent that they will be in such shape that they will look upon Communism 10 a possible solution for the welfare and betterment 05 Great Britain. The "dic-hards," Conser- Datives and aristocracy 05 Great Britain will have been oushed into the diseard by that time. Great things are expected by the Reda t hrough this Cripps appointment. As to Germany receiving great quantities os war materials at this time D. says 10 sheer nonaense. Everything 10 being done to hamper GO much as possible any shipments to the Retch and a sort 05 sabotage is being put on the Russtans at the instigation os Dimitroff in his answer to Ur. Hitler. for example B. says you don't see Russia butlding any roads through Poland into Germany or putting in new equipment, or build- inco, or roads, all of which does not show good friendship for neighbor- Ing Germany. Russia has no Intention os modernising this part of Poland which was oeded her in this way by Cermany. She will retain the marches and everything as they are, looking torard the day it will serve them for the destruction 05 Germany. ( Às to the Balkans, D. stated that negotiations between Turkey and Russia were hitting topspeed right now and that the most friendly rela- tions exist between these two countries under agreement that Turkey will not allow the Allten, Jernany or anyone else to use the Black Sea or the Regraded Unclassified 69 Bosphoreus in this war. Further, that Turkey will not take any aggree- vive step in the direction of warfare on her neighboring countries. Turkey has placed her orders according to B. 80 as to get her money from England and also planes, but that the planes which England had sent her were poor and not of modern type. De save that Russia has sold a considerable amount of FOR material to Turkey such as planes, guns, etc. West of this, however, is antiquated and would be of little effect in modern warfare of today. Furthermore the Turks keep up the propaganda 05 the Italians among the Araba and is Turkey should attack any 05 the neighboring countries the Arabs will stone the opportunity a paying back a 10ng awaited debt. 48 to Bessarabia, B. feels that Russie has no Imediate design on this country - that this will fall in her lap the same as the other Daltic States such as Estonia, Latula and , which, by the way, according to B. will probably be incorporated into the Soviet Unton, giving up their sovereignty and independence. creat pressure to now being brought to bear on them. As to Juge-Slavia - nost cordial relations, both military and conomic - now extat between Ruesie and that country. B. feels, however, that is Italy should invade ruga-Slavia Russia would not come to the latter's assistance. Russia wants to keep the Balkans in a state of status que and will try to wield economic influence to a greater degree than she has in the past in that particular region, in competition with Italy. The feeling between Italy and Russia is far from friendly. Rusela, according to B. is not in a position to take any military action even though Bitler should get Italy to join in this present conflict. According to 8. Germany to getting over her normal supply 05 oil from Rumanta and expects to reach out for oil from Persian sources in the near suture. Some sort of a deal according to B. to now on foot in that direction. It 10 5.'s belief that Italy will strike against France occupying the Island of Corstoa Immedi ately and work in close cooperation with Spain for jumping 055 places for Italian Planes, sub-marine bases and the highly touted motor torpedo boats. B. again stated, 08 he did in a previous report 05 a monthago, that Spain would make a tremendous enclaught against Gibralter for the purpose 05 occupying the strategic point to the Meditemnsan. B. says st shows how stupid this present Government to in England V the fact of having sent Mr. Seare, a strong conservative, as her Regraded Unclassified 1-bassador to Vadrid. This has resulted in a student uprising against the Brittish for the return of Cibrolter and 18 creating continued bitter feeltn against the Oritish. He called the letdown as the Spantsh by she French and British the hardest blow ever struck to real democracy. I assee A10 whether General Prance vould head an army for attack against the French on the French houndry. J. suys he coee not think the Spanish are in 3 vasition to ertake car nunoevers of she vas pretty well Sled through internal ctrise but that for strategic reasons a large spaster army would in all probability be centered on the French frontier. I then asked 7. 15 Rugeta vould join HD with us in the event that the Jape setzed the Dutch last Indies. Se said there was no doubt but that the Jape would in time fine a Ingical ercuse to take over the witch last Indies, which yould be a direct challenge to the United States are that as for at Bussia 12121 concerned the would not interes herself should Japan uncertake to to this. She certainly would not join up 11th the United States, and 110 asked the question "why should she?". Re stated that the Communists in this country are being treated for worse than the Nowts. For illustration, he sald, you probably know that the sulet Government has dismantled ite exhibit at the Worlds Fair. This naterial 90 all been crated and sent to Staten Island to a storage carchouse, which has cost the Soviet Government 1360, 000, The Coulet Government vished to charter a ship from the United States, and every Merchance vas given by the State Department in allowing a charter for this transportation, one It finally resulted that lussia had to send one or its own ships from Hurmanak to the United States. This ship is here not and has been loaded to capacity with most os the objects in- cluding the figure 0," Joseph Stalin and the Red Star. B. jokin 11/ said that this would jue Stalin a chance to look over the Panamu Canal, the looks, sufe-guarde, etc. while he 168 going through. He continued sur- ther tiat there is a great deal 0/ electric notors and other nachinery and equipment which they were unable to put on the boat because there 102 insurpicient space to hold It. lie said they again applied to the State Department for permission to ship these, and again asted if 1t were possible to charter on American or other ship in this country in order to transport this heavy naterial. After having made this applica- tion for a number of months the State Department has not AS yet acted as to what it will do in this direction. It has refused Russia G charter to is boat. This required again that they send one of their our ships over here to take the material bank 15 and when the State Department rants their request. I then said to de well, we are still taking your 2020, and I think that 10 a great help to meeta, to otser he Pr Ited "Ho." ise said Uncle - am is ylad to set all the gold he can jet but our 2018 18 being used payment for ebto incurred in the country for heavy materials such 60 notors purchased jrom the General lectric Company, hestinghowe, etc. Regraded Unclassified 71 - 6 . There are very few favors being granted to Russia, said B. Even the State Department is very slow about letting us move this heavy machinery figuring that we will give st to Hitler, which is very remote and not even worth counting on said B. I then asked 3. what he thought about a possible invasion by Hitler of the United States through some South American country to which B. replied that Hitler had plenty to do without worrying about Mr. Roosevelt, whom he described as the coming greatest war President this country has ever had, and that it 18 his heltef that F.D.R. has in the back os his head a third term that will give him as much P ower as the other Dictators have. I Regraded Unclassified 72 PAP PLAIN LONDON Dated JUNE 10, 1940 Rec'd 1:51 pam. Secretary of State Washington 1575 June 10. FOR TREASURY FROM BUTTERWORTH. CONFIDENTIAL The following is the text of the Anglo-3Elgian finan- cial agreement but the British Treasury states that some minor textual changes were made at the last moment in Paris where it was signed: "The Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Kingdom of Belgium have agreed as follows: Article 1. From the date of the signature of this agreement the rate of Exchange of the Belgian franc and the franc of the Belgian Congo is fixed at 176-1/2 francs for one pound starling, (hereinafter called the official rate). No change in this rate shall bE made without prior agreement between the two governments. Article 2. The National Bank of Belgium shall con- tinue to bE solely responsible for the rate of Exchange of Belgian currency in markets of third countries. The monstary 73 PAP -2- 1575, June 10, from London monetary authorities of both countries will always consult together on the policy to be followed in regard to this question and on any intervention which may SEEN to bE neces- sary. Article 3. The pounds sterling required br the National Bank of Belgium for Belgion expenditure in the sterling area will be provided at the official rate by the United King- dom exchange equalisation fund against payment in Belgian franca (without prejudice to the agreement to he entered into between the Bank of England and the National 3:2k of BElgium in regard to the notes of the National Bank of BElgium at present in the possession of the Bank of England or of His Majesty's forces). The Belgion francs required by the United Kingdom exchange equalisation fund (hereinafter called the United Kingdom fund) for expenditure on the part of the United Kingdom in Belgian territory will bE provided at the official rate by the National Bank of Belgium against payment of pounds sterling. The National Bank of BElgium for the purpose of this article and of articles 5, 5 and 7 is deemed to act as the agent of the Balgian state for making and receiving payments. Article 4. If the United Kingdom fund should at any time hold Belgian francs in EXCESS of one milliard Belgian francs, the EXCESS will bE used for the purchase of Belgian Treasury Regraded Unclassified 74 PAP -3- 1575, June 10, from London Treasury bills expressed as payable in pounds starling. These bills shall bear interest at 3% and will DE repayable one year after the End of the war. They will bE renewable at the option of either government for two further SUCCESSIVE periods of one year each. Article 5. No gold security nor specific security will bE asked for in respect of the currency obtained in the above circumstances by the United Kingdom fund or by the National Bank of Belgium. No request for the conversion of these currencias into gold will bE made. If the two govern- ments agree to change the official rate of Exchange between the pound starling and the Belgian franc the amount of pounds to bE repaid by the National Bank of Belgium in res- pect of the BElgian francs hEld by the United Kingdom fund would be calculated at the rate in force when the Belgian francs were acquired. The same arrangement would apply to pounds held by the National Bank of Delgium. Article 5. The pounds sterling hEld by the National Bank of BElgium may be used to pay for all Expenditure in sterling in the sterling areas. The Belgion francs held by the United Kingdom fund may bE used to pay for all Expendi- ture in Belgian or Congo francs in Belgium or the Belgion- Congo. No payment in pounds or in SElgian francs may bE made in third countries without previous agreement between the 75 PAP -4- 1575, June 10, from London the two governments. Article 7. The United Kingdom fund will provide where necessary the local currencies required by the National Bank of BElgium for all payments in the sterling area. Similarly where necessary the National Bank of Belgium will furnish the Congo francs required by the United Kingdom fund. Article 8. ThEBElgian Government reserves the right to register and where necessary to requisition foreign assets of all kinds in the possession of Belgian nationals. ThE realisation of assets so requisitioned will only bE carried out after agreement between the two governments. The United Kingdom government will as far as possible assist in these operations. Article 9. The United Kingdom and French Governments having made an agreement to share equitably between them the costs of the war payable in gold, in dollars, or in foreign Exchange related to the dollar, the Balgian Govern- mEnt similarly agrees to assume an Equitable proportion of these charges as their share in their apportionment. Article 10. In their relations with third countries the contracting governments will keep each other informed, co-operate and reach agreements in order to obtain the best results from their unity of action. Article 11. The two governments will not impose restric- tions on trade between their two countries for the purpose of 76 PAP -5- 1575, June 10, from London of protecting their home industries or for fortign EX- change reasons. They will do all that is possible to Estab- lish the same solidarity between their colonial Empires. Article 12. In the present agreement the sterling area shall mean the United Kingdom together with any part of His Majesty's dominions outside the United Kingdom (EXCEPT Canada, Newfoundland and Hong Kong), any territory in respect of which a mandate on behalf of the League of Nations has been accepted by His Majesty and is being EXEr- cised by His Majesty'sGovernment in the United Kingdom or in any dominion, any British protectorate or protected state, Egypt, the Ango-Egyptian Sudan and Iraq. Article 13. The present agreement shall remain in force for the whole duration of the war and for a period of six months following the signature of the treaty of peace. In witness whereof the undersigned, duly authorised thereto by their respective governments, have signed the present agreement. Done in duplicate at Paris this 7th day of June, 1940 in English. For the United Kingdom of Great Britain and Northen Irsland. The tripartite protocol signed at the same time is as follows: "On signing today the agreements Entered into between the Royal Belgian Government and the Government of the United Kingdom of Great Britain and Northern Regraded Unclassified 77 PAP -6- 1575, June 10, from London Northern Ireland, on the one hand, and between the Royal Belgian Government and the Government of the French RE- public on the other hand, for the purpose of settling the monetary and financial relations of the three countries the representatives signatory thereto declare that it is the intention of their governments to regard these agree- ments as forming the basis of their relations during the war, the agreements being regarded as complementary to each other and forming an indivisible whole. Done in triblicate at Paris the 7th day of June, 1940 in English.' If The British Treasury states that the Dutch negotiations have DEET. con- cluded EXCEPT for minor details affecting Java and as soon 0.8 word is received from there the agreement will bE signed. KENNEDY PEG Dearaded aite 78 June 10, 1940. 11:00 a.m. RE REFUNDING Present: Mr. Jones Mr. Viner Mr. Haas Mr. Bell Mr. Eccles Mr. Ransom Mr. Piser Mr. Hadley H.M.Jr: I thought you (Jones) might sit in and give us the benefit of your old horse sense. Jones: I am delighted to keep up and be advised. H.M.Jr: We are shooting from the hip these days. First the question is, should we do a refunding today or not. There is a bond that comes due on the fifteenth. It is three hundred and fifty odd million dollars. Jones: I would do it. H.M.Jr: That is the first. And then we have a blank space going back on our notes, the first blank space going backwards, which is September, 43. Jones: As good a time as any. H.M.Jr: And that is three and a quarter years and the argument is, should we do the seven- eighths or one percent, you see. Jones: That would be pretty sweet at one. H.M.Jr: That is right, but I know that Marriner is going to say that I am giving the bankers too many, but I just wanted to find out how much I am giving them. Hadley: You would give them about - a saving over three years of about a million four hundred thousand. 79 - 2 - H.M.Jr: A million four hundred thousand? Hadley: Yes. H.M.Jr: On three hundred fifty million. Hadley: That 1s right. Jones: You mean the difference between seven- eighths and one? Hadley: And one percent. You see, one percent for three years would be about ten million dollars. Jones: That is three-eighths for three years. What is one percent on three hundred fifty million? Hadley: That would be three million five hundred thousand and three years would be ten million and an eighth of that be about a million four hundred. H.M.Jr: So I mean, the worst they can say - sit down. They might say I am giving away & million four hundred thousand dollars. Viner: Assuming that that figure 15 precise, the present value of that 18 less. I mean, that is the aggregate increased interest income they would receive over the period. Haas: Interest rates are pretty low. Hadley: That is the amount of money the Treasury would have to pay out. H.M.Jr: We would be out of pocket a million four hundred thousand dollars more if I gave one percent than if I gave seven-eighths. Jones: What does the three year sell at now? What is the market on the three year? Hadley: The three-year yield is about seven-tenths. 80 - 3 - H.M.Jr: Seven-tenths. Jones: Yes. H.M.Jr: This 1s, you see, here the three and a quarter. The seven-eighths they figured would be a premium between sixteen and eighteen thirty- seconds and the one between a twenty-eight and B. thirty. Hadley: They have moved down about a thirty-second from that. H.M.Jr: They have. Bell: This morning. Hadley: All the markets are very quiet but a little easier on quotations. Jones: Have you got anything else coming along? H.M.Jr: Nothing until next December, of refunding, nothing until December but we will have to raise the money. We will have to raise some new money. Jones: Can't you sell some more bonds? H.M.Jr: Of yes. Bell: Sell some of yours. Jones: And that is -- the only thing there is, if you give them a sweet bond now they will expect it next time. H.M.Jr: As a matter of fact, Jesse, the last note we sold was a five years, wasn't it? Hadley: Five years, three quarters percent. H.M.Jr: Five years, three quarters percent and how much margin did we have? Hadley: We gave them almost a point on that. Regraded Unclassified 81 - 4 - H.M.Jr: And we almost gave them B. point then and that was some months ago and when things weren't nearly as bad as they are now. (Mr. Eccles, Mr. Ransom and Mr. Piser entered the conference.) 11.M.Jr: I am a little bit under pressure this morn- ing because the President is leaving about half past one and he hasn't written his speech yet and he said that if I came over at eleven fifteen he would see me and I said, "Make it eleven thirty, and so he said eleven thirty, 30 I thought I had until one but I find I have only got - I have got much less time than I thought I had. The thing, Marriner, that I would like your advice on is this: First, should we do A refunding this afternoon? That is number one and if so, what? Have you boys been talking it over? Nooles: Well, we have been talking it B. little back and forth. I don't think that it makes a great deal of difference. There are argu- ments both ways. There would be no problem, in my opinion, to do EL refunding 1f you wanted to do one in 8. note issue or in a short-term bond issue. The bonds have held up remarkably well here all during this period and as far as the Federals are con- cerried, we have given the market very little support. In fact, nothing in the past two weeks, which indicates the underlying strength of the market with a small issue like this and with it being B. refunding 1ssue there would be no question about it. On the other hand, the fact that it 1s a small issue, it may be a good time to pay it off and until such time 8.8 you can always 20 into the bill market and there 18 some disadvantage of going into the bill market, of course. That would be financed Regraded Unclassified 82 - 5 - entirely by the banks and that creates additional deposits, which we don't need. These bonds, I imagine, would be held outside of the banks and it would leave these investors who think they have rights somewhat disappointed, Some of the people feel that rights should be protected. I haven't felt that way about it. I have felt that the rights sooner - sooner or later we ought to get to B. point where it shouldn't be necessary to give these speculative rights to dealers and those who buy bonds merely for the purpose of distributing and getting the rights. I think I would prefer personally the paying of this 1ssue off and then putting out bills if you need them until such time as the financing program of the future possibly can be a little more clearly determined. You are going to have a lot of refunding and a lot of new financing to do and it is the question of the long-range course of that type of financing and in the meantime, you could finance it by the issue of rights. That is my personal view. H.M.Jr: Let me point out to you that if we pay this off, our balances go below eight hundred million dollars right away. Recles: Do they do that today? H.M.Jr: Yes. Bell: Well, the fifteenth. Eccles: Well, can you get the tax money? Bell: The tax money will be eaten up by interest and other things. Our balance is going down this month in spite of tax money. We will have between nine hundred and fifty and B. billion dollars in balance. Eccles: You could add & hundred million a week to your bills without the slightest trouble. Regraded Unclassified 83 - 6 - Bell: Oh yes. Eccles: Until such time as you want to do some long- term financing refunding. Bell: At fifty million & week, it would take seven weeks to get back the three fifty. Eccles: Yes, but it would keep you from going down. It would not only hold your balances but it would gradually build them up. Well, I don't feel very strongly one way or the other on it. Jones: I don't think there is any point at all in paying it. H.M.Jr: You don't think there 1a any point? Jones: Not any point in paying it. Eccles: I don't think it makes very much difference with a small issue. H.M.Jr: Ronald? Ransom: Mr. Secretary, it seems to me that the deci- sion depends largely on what your rather long-range scheme 18 going to be and of course I have had no opportunity to discuss that. The only possible advantage that I can see of paying them off would be that you might bring to a conclusion this question of rights which has been more or less a trouble- some one but not a. vitally important one, but 8.8 to your type of financing I think you can do anything you please at the present time in regard to that financing. I told Mr. Bell over the 'phone the other day, our own feeling was that if you are not going to pay them off that fast a short maturity, say September '44, would be indicated as a pretty good place to put it. Now, I imagine you people have, of course, been giving a lot of consideration to your general scheme as to what it is you are going to do over the next few months or perhaps over the next year or 80 and I don't know which plan would fit in best with that; if paying it off would fit in best with that, then I wouldn't see any possible objection to paying it off. Regraded Unclassified 84 - 7 - If refunding it on a short term such as the March or September, 144, would fit in with that, then I think that can be done very simply. There was 8. feeling on the part of some of our people that there was no reason at this time to give any very long notice of it, that you could possibly do it on a twenty-four hour notice or at the most A forty-eight hour notice and that whatever you propose to be done could be done without the slightest difficulty. H.M.Jr: Well, I have talked to some of the people this morning who are in this business and they all tell me it can be done if it is priced correctly. They all say that they would like to see it done, that it would be a cheering note to them. It would be something that would be cheerful. They say that if we didn't do it, they would be even more frightened than they are, The note market is in good shape. I can't tell you what I am going to do thirty days from today or a week from now. I mean, things change so fast - I met one day with the leaders here and we decided we were going to raise the debt limit three million dollars and B. week later they came back and I said, "Please make it four billion," BO how the Hell desa person know from one day to the next where he 1a and before that they said they wouldn't - under no circumstances would they have a tax bill. Barkley said there was going to be no tax bill and Sam Rayburn said that and now there is going to be one. Here I just live from hour to hour. I just don't know where I am at. I don't. The people here in the Treasury - we would like to do B. refunding today. Eccles: on notes or bonds? H.M.Jr: Notes. Eccles: '44? Regraded Unclassified 85 - 8 - H.M.Jr: The December, 143, three and a quarter years. Ransom: December, '43? H.M.Jr: September, '43. Ransom: That fits in best -- H.M.Jr: It is the first blank space going back. Eccles: That is three years and three months. What is the rate on that now? Viner: Do you ever split the rates one-sixteenths? Bell: Never have. It is an eighth. We have sold them at B. premium in order to bring that rate. Haas: It is about a seven-tenth yield basis, seven-eighth coupon. H.M.Jr: What did you say? Haas: He asked what rates we would put on that. I said approximately seven-tenth yield basis and you may put a. seven-eighth or a one depending on how much premium. H.M.Jr: If we give them as mich gravy as we did last time we would make it one. Eccles: of course, you had a shorter issue. H.M.Jr: Right. Also we have got more ahead of us, too. Ransom: Do you think there is an advantage in put- ting it there rather than '44? It isn't, of course, very material. H.M.Jr: When would you put it in '448 Ransom: September, '44. Hass: There is one in there. You would have to put it in December, '44. Ransom: It is & very small one. Regraded Unclassified 86 - 9 - H.M.Jr: Well, there is one there, one percent. Bell: It is only two eighty-three. H.M.Jr: You mean reopen that? Bell: No, B. new note right on top of that. There is no reason why you couldn't put another note in there if you didn't want to reopen the old one. That was Ronald's point. H.M.Jr: That would justify the one percent rate more than the other. Bell: A little less premium. Hadley: The one percent on that base would only give you about ten thirty-seconds. H.M.Jr: Not enough for me. Bell: I thought it was twenty-one. Hadley: No. H.M.Jr: It is not enough. Bell: Where does the twenty-one come in? H.M.Jr: I mean, I am not going to stick my neck out for that. I would rather do a three and B. quarter - I have got a half -- Haas: If you are going there, Dan, you might as well 60 out to December and put one and one-eighth on it. Jones: I think it is all right. I think they will take it as a matter of course. Eccles: They will take it. They haven't any- thing else to do. Viner: I would refund on a note and I would start creeping up on those rights, trying to get them lower than they are because you don't want to - if we have lots of financing to do in the future, we don't 87 - 10 - want to establish the prices too firmly that each issue has to be very sweet and I think B. good place to work that out on is an issue which is probably so strong that no crisis can come, no matter how the market reacts. H.M.Jr: How much did the - excuse me, are you finished? Viner: I am through. H.M.Jr: How much did the note fall off last time when the bad news came out? Hadley: It moved off about a half 8. point in at least ten days. H.M.Jr: Half 8. point? Not enough. Well, gentle- men, if that is -- if you move offa half a point with the situation the way it 18, with the Italians and the Paris situation -- Jones: You would feel happier to make it & little bit sweeter? H.M.Jr: I would. Eccles: Of course, it moved off a half point from B. higher price. It has already moved out. Viner: My guess is that if you allow us, say seven-tenths now, it will be six-tenths or five-tenths by the time the thing is actually subscribed to. With the news of the next two days, I think the market is likely to slide off 8. little. Haas: That is an argument for making it B. little sweeter. Viner: I am thinking in terms of what is today's -- Eccles: Anybody would have predicted & month ago that this market couldn't have held the way it has, but it has held and it has had no support. I think it is pretty well - don't you think the market 1s - especially in these short issues, is pretty well dis- counted? 88 - 11 - Jones: The point is, what are you going to do with the money. Eccles: That is right. Viner: The bad news always has a residual effect. Eccles: If this was new money, I would feel B. little different about it. Ransom: This particular issue is not very widely distributed, as I understand. H.M.Jr: It 18, excuse me. Bell: It may be, we don't know. Ransom: Our understanding was it was not widely distributed. H.M.Jr: I don't know, Bell can talk for himself. Bell: We don't know where it 1s, but it was issued to a large extent in refunding the thirds which were widely held. We know where there are about & hundred and sixty- eight million of them and there are eighty million in New York, about half of them. Eccles: What have we got? Piser: That is about the way we account for it. Eccles: No, what have we got? Piser: None. Eccles: One hundred eighty-six million? Bell: That is another reason for refunding. The Government accounts got rid of them. It looks like inside information if you pay them off in cash. H.M.Jr: Well, Marriner, perfectly frankly, I don't want to stick my neck out for half a point with the news in the offing the way it is. The difference is a million four hundred thousand dollars on three hundred fifty million and let's say there is one chance 83 - 12 - in five that these should go below in the next two days. I don't think I have the right to take that risk on the Government's credit, have it go all over the world that the United States couldn't refund. I just don't think you can - do you think that is -- Jones: I think your position is all right. H.M.Jr: I'd say there is one chance in five, Jessie. There is only one chance in five that a seven-eighths wouldn't go but I don't want to take that one chance. Jones: I think it would go, but I wouldn't hesitate to go to one percent. That would make it all the sweeter. Eccles: Well, the one percent on three and three- quarter year at twenty-six thirty-seconds -- H.M.Jr: Well, last time we sat here it was how much at the same time? Haas: It was all of that. H.M.Jr: The last one we did. It was about the same, wasn't it? Haas: About that, yes. And the conditions now are B. little more hazardous than they were then. of course, this is a little shorter issue. Eccles: Well, that went off -- H.M.Jr: Do you think I am safe with the seven-eights? Jones: I think it is safe, yes. I don't think there 18 any doubt about that. H.M.Jr: If it was your sole responsibility, would you do it? Jones: When will you have to go for more money? H.M.Jr: When do we have to go for more money? Bell: Well, we contemplate going for more money on the agencies, yours or Commodity Credit's, in July. We would like to start getting Regraded Unclassified 90 - 13 - some of this seven hundred million in in July. After Treasury financing, we hadn't contemplated anything until along in September or October and then only in very small amounts, two or three hundred million. Jones: I should think that the -- whatever you give on this, would you want to pay on this next issue, the corresponding issue? It might be better to quote it at seven- eighths. Eccles: That is the way I feel about it. Bell: Three and B. quarter years? That is September, '43. Jones: Three and B. quarter years. Bell: What 18 the premium on that? Haas: About seventeen. H.M.Jr: George, do you think it is safe at seven- eighths? Haas: Yes, I think it is safe but it is not as safe as some of the things you have done before. Rensom: You don't want to make it too sweet. That might have just as bad a repercussion as the other. H.M.Jr: There won't be any repercussion. Ransom: Then if it will go at seven-eighths, it is just as wise to take it at seven-eights. Haes: There is one thing about this issue, the point is, you don't know what you are deal- ing into. In other words, you don't know the distribution B.B well as we have known some others, you see. H.M.Jr: Dan? 91 - 14 - Bell: Well, I think the 7/8 will go, but I think it would make you feel better - well, one percent can be sweet. I would kind of like to keep these rights down while they are down. The negative yield on this is only about 11/32, whereas heretofore our right values have been worth anywhere from twenty to par and - or a point. Jones: On reexchange? Bell: Yes. They may have a right value. They are about 11/32 at the present time. Viner: You couldn't in any way make your announce- ment 80 that it would be indicating you don't care if any of them don't want to convert? H.M.Jr: I think -- Bell: The Secretary wants to do it - I think he wants to -- H.M.Jr: I want a success. Piser? Piser: I think 7/8 would be very safe. It would take a break of perhaps two or three points in the long-term bonds, to drop that even to par. H.M.Jr: That could happen easily. Ransom: When would it be closed, Mr. Secretary? H.M.Jr: You have got to keep it open et least two days. Haas: Then I would take the one. H.M.Jr: You have got to keep it open at least two days. Bell: New York wants to keep it open one day. They don't object to putting a provision in the announcements that any holder of, say, up to ten thousand dollars can have longer. What that does 1s force in the large holders. 92 - 15 - Ransom: Have you ever done that, Dan? Bell: Never have, but it can be done. It is very simple. The Secretary has complete control. Viner: Take care of the small fellows. H.M.Jr: Anything over ten thousand, give them one day. Eccles: That 18 right, make them come in. Well, they know, the little fellows don't know. Viner: It takes time for the word to reach him. He doesn't get the ticker service. H.M.Jr: It is a good wrinkle. Well, you may all - you can all laugh at me, but I am going to make it one percent. Jones: Okay. H.M.Jr: I can't help it. Bell: We can't cuarrel. Eccles: He is Just that way, isn't he, an awfully conservative fellow. 93 FUNDS OF GERMANY AND ITALY IN THE UNITED STATES (In millions) of dollars Gold on earmark: as of 6/10 Italy None Germany If Central Bank balances: In Federal Reserve Bank as of 6/10 Italy 0.2 Germany 0.3 1/ Central Bank balances: In Market as of 5/29 Italy 1.5 Germany 0.8 Private Funds: As of 5/29 Italy 62.0 Germany 8.6 1/ All attached by court order 93-A June 10, 1940 3:30 p.m. RE FREEZING ORDER Mr. Hackworth Present: Mr. Louchheim sec. Mr. Viner Mr. Cochran Mr. Gaston Mr. Foley Mr. Bernstein Mr. Frank Mr. Berle Mr. Purcell Mr. Bell Mr. White Gaston: We have nothing for the President to sign. The State Department has two or three procls- mations which he might sign. One 1s neutrality. H.M.Jr: He 18 going to sign that. Sumner Welles told me he would. Gaston: We have arranged to get promot word from the State Department when he signs the Neutrality Act. H.M.Jr: Then what do we do? Gaston: Then we send out certain communications to Coast Guard and Customs with anybody's signature here. I can sign them or Harris can sign them and we will errange to do that, as soon as we get word from the State Department that these two controlling proclamations have been signed. H.M.Jr: Does it mean I have to Ask the President to sign anything? Gaston: Nothing, it 18 all State Department. Regraded Unclassified 22- B - 2 - H.M.Jr: I don't have to ask the State Department to sign anything? Gaston: Nothing. Foley: Berle said they wouldn't get to the State Department tomorrow. Gaston: Sumner Welles told the Secretary the Neutrality Proclamation would be signed tonight. Foley: Oh. H.M.Jr: He told - the President told me and Sumner Welles told me that the President 18 going to sign at 10:15 tonight the Proclemation. The President said if I had anything to sign, bring it over. Would there be anything for him to sign? Foley: From us? H.M.Jr: For the President. Gaston: I know of nothing. I Just talked to Huntington and he doesn't know of anything. Foley: You mean on the neutrality angle? H.K.Jr: On anything. Foley: There won't be anything on neutrality and depending upon what we decide insofar a.8 freezing 18 concerned. Gaston: Yes. Foley: That will govern whether we have anything at All or not. E.M.Jr: We will make sure, gentlemen, make sure. Viner: There 18 nothing. H.M.Jr: It 18 a nuisance to have to talk to the columnists. Regraded Unclassified C - 3 - Last week General Motors turned out four Allison engines and the week before they turned out five. Gaston: The main plant isn't in production at all. H.M.Jr: There is no more plant. Gaston: I thought they had an experimental production plant, a small plant -- H.M.Jr: They wiped it out and it doesn't exist any more. They turned out -- delivered four engines last week and five the week before. I had the figures and I talked with Sloan, and he was there for two days this week and am I lucky, because he is holding it up now until they can make certain corrections on the advice of Mead. Well, Mead hasn't been with me for ten days. He said he had to decide whether it was wise to hold it up or not. I said, "You're not asking me, because I don't know anything about it. I am calling you for information." He said, "No, I don't know anything about it, either," but he said, "I have got to make up my mind. And believe me when the company finds out there are about R hundred planes in Buffalo waiting for engines, somebody 1s going to be the goat and it isn't going to be me. Why don't you start in? Can't somebody bring me up to date on what happened this morning at the State Department? Berle: Shall I report on that? H.M.Jr: Would you, please. Berle: The problem has to do with whether we make any orders based on the - I guess Danny can do it better than I can. Bell: Go ahead, I AM BO tired. Berle: The question 18 whether we can do anything effective with any blooking orders following the Italian declaration of war. There are Regraded Unclassified D - 4 several possibilities, one of which seems to be rather controversial and one that there is immediate - the object of doing that would be twofold. First it would be to protect the financial exchange interests of the United States and second, in the privacy of this room, it would be to try to assist certain forces in Europe which we think are important for our national safety or penalize others which we think don't. H.M.Jr: In other words, you mean help the Allies? Berle: Since you are taking this down, I don't know how far you want to go on the record. H.M.Jr: Well, it 18 only for me. Berle: And the possibilities in the situation have seemed to be various. To block German and Italian accounts, that would seem to be ineffective unless you also block Swies accounts and probably practically all accounts in Europe with the possible exception of the British and the French. There would be danger of leakage, of course, in the whole thing unless you covered the whole situation. It would be a universal blocking order which would block virtually all Europe and presumably all Africa and would probably have to be extended later to other parts of the world or perhaps very soon to other parts of the world and develop your policy thereafter through general licensing agreements. On balance, if you really want to do something, that seems to be practical. There is a third possibility which seems to be indicated anyway, irrespective of whether the othere are done or not, and that would be some blocking of the Swiss securities owing to the peculiar position of Switzerland. There are large amounts of foreign holdings in Switzerland and large amounts of Swise holdings here, and that is in B. large measure 8. central point of manipulation. H.M.Jr: I haven't eat in on this thing. All Mr. Bell Regraded Unclassified S3-E - 5 - told me was that he still thought the thing hadn't jelled, and not having sat in, I would like to throw this into the pot that in order to keep some semblance of neutrality and et the same time really do a good job, which is what we are all after, I would like to throw out the suggestion that we block every- thing. Berle: That was the conclusion of the meeting, that if we were going to do anything, we would have to blook everything. Bell: You mean all over the world, now? H.M.Jr: Everything that we have, I mean have complete exchange control. Let's call it by its proper name and have complete exchange control. Berle: As to that, we tried to add up the advantages you would get as against the disadvantages. The advantages that you would get would be the blooking one way or another of two hundred millions of French - of German and Italian assets of one sort or another, plus whatever you catch through the Swiss block. That would be the principal advantage. It would also get defensively the advantage of being able to follow propaganda end other activities on this Hemisphere insofar B.B they reflected themselves in the foreign exchange. The disadvantage we foresee 1s that you would have to disclose your hand almost at once BO far 88 neutrality 18 concerned. We would have the French and British wenting general licenses and in substance getting them; the Germans and Italians would be presently down wanting the same thing and not getting them, and you then would be engaged in & whole long sequence which leads to a situation we imagine may happen but it would be really A political step, and the main suggestion outside of a comparatively small amount of assets and the defensive result, which 18 important but not of immediate importance in Europe at the moment, would probably be that it engaged us to a political act and attitude which would come very rapidly after that. Regraded Unclassified S3-F - 6 - H.M.Jr: Well -- Berle: That 18 the conclusion, I think, of the meeting. H.M.Jr: That 1e painting it with a broad brush. To go down to a little bit more refinement than I have noticed, we for instance have been having reported to us on a volunteer basis all movement of Italian funds, and you (Cochran) can check my memory and with perfect amazement the amount of business that they do, the Bank of Italy and the Italian Bank do in South America for other people than themselves - I mean, there have been a number of transactions which were handled by Italian banks in South America, that I am convinced had nothing to do with Italy. Berle: They are the principal channels, that is true. H.M.Jr: And it 1e impossible to catch that kind of stuff unless you went the whole hog. Berle: That is right. H.M.Jr: And after all, nine or ten million dollars in a small republic in South America 1s a Hell of a lot of money. Berle: That 18 right. H.M.Jr: It isn't very much in the whole picture. Bell: Have they operated down there through dollar accounts? White: Some. Bell: We would get that. H.M.Jr: There has been a lot that has cleared through New York in very queer purchases of copper and different things. Cochran: There is much copper going on into Germany. Regraded Unclassified 93 G 7 - H.M.Jr: But I mean money from Brazil flowing through New York and All kinds of queer things which you just couldn't catch unless you had complete control. I mean, that 18 why Dan and I in the few minutes we had together, talked about just doing it for Switzerland. I think it would be just like stuffing one hole in a sieve. Berle: Against that you have to set this; By a precedent A great many of those accounts have gone through there, as we see documents go over my desk, at least, because Italy was still open and imports to Italy were coming to Germany. That happened because the British, you know, were, to say the least, loose, finally to the point of not having any blockade control at Gibralter as against Italians at a time when they were trying to appease, if you like, the Italians. With the advent of war that situation ends, and I should imagine that EL lot of these accounts insofar as they reflect actual movement of goods, will simply stop. There are remaining propagande and organization activities which are very much on my mind, as they are on yours. K.M.Jr: Tremendous. Jerome, do you went to say something? Frank: I AM in general agreement with you. Since the meeting this morning, I canvassed the members at my Commission and they all felt that purely from our point of view a blanket order would be desirable because you would plug the holes. That 1e just looking at it purely from the point of view of security transactions. I would like to ask a stupid question. Will the controls that you have in mind meet the problem of German ownership or control of securities siezed in the occupied portion of France? I don't know whether they will. Foley: Well, if you put on B general control, it would, Jerry. Regraded Unclassified S3-H - 8 - Frank: But will your control prevent Germany from realizing on such securities? White: It is supposed to do that now insofar as we can catch 1t. Frank: Not Northern France, not now. White: They haven't got any in France yet. Frank: Well, I understand there is some discussion - didn't you tell me of - I think the State Department has had with the French Ambassador about being fearful that some securities have been siezed in Northern France. Cochran: It is possible. Frank: Yes. Bell: Wouldn't they ordinarily come out through neutral countries, such as Switzerland and Italy up to this time, and we might get those in the mail. Frank: I Just wondered whether - as I understand it, there are two aspects to the rules. One 1s that you get scrutiny and the other 18, what you do about the scrutiny. In other words, what do you impede as a result of this scrutiny? Have you got a block against anything in your present orders or anything that you contemplated that would prevent the Germans using securities thus obtained? You have? Foley: Yes. Berle: Do you need the general orders to take care of those securities? Can you not simply require proof of sound ownership, if you like, for securities which you can trace 8.8 having come out of, let's say, any of those places. Frank: All I mean 1s, as the President worded it, it only covers Holland, Belgium, and Norway. S3-I - 9 - Foley: Denmark. Frank: And Denmark end doesn't cover the occupied portions of France. H.M.Jr: Well, it seems to me that we have all got to do A lot more work on this, and it ie B pretty big move. Berle: Vell, I meant to say our conclusion was this, or mine at least: It 18 a big move. I think it 18 a move we are going to have to take. I am inclined to think it 18 really dependent on probably a major decision of policy which would fundamentally have to be taken by you and the President and Mr. Hull and BO forth and to sign the chit for the b1g political move on this, which is to my mind important, but the proportion 18 as of one to a hundred, for instance. It seems to me this ought to depend on the political decision rather than force the political decision from this, if I make myself clear. H.M.Jr: I understand. I think the thing to do is this: I would like my regular staff to prepare a brief on this for me, not too long. After you have got the brief, submit it to Mr. Berle And Mr. Frank for criticism, you Bee, and then after we have it, I would like to get together with Mr. Hull and Bee whether he and I - I mean our two staffs, associates, can have a meeting; and then if we could have A meeting of minds, then we could present it to the President. Don't you think that is a good idea? Berle: Yes. I might add that the situation will be changing now almost at breath-taking speed. There was a rumor in the shop which le un- confirmed, that Turkey was in the war. I don't know if anything has come in in the last hour. That strikes me as a little bit previous. You can expect crucial moves in 48 hours. H.M.Jr: Wao would you have do it, Dan? Bell: Harry, I think, and Bernstein ought to get up the brief. Regraded Unclassified 93-J - 10 - H.M.Jr: And Viner. Frank: If that 1s likely to take several days, I was wondering whether the Swiss matter couldn't be taken - since everybody agrees, there 18 no reason for waiting on that, that that doesn't involve major political considerations, whether that couldn't be done more promptly. White: There wasn't complete agreement on that after the discussion of yours. H.M.Jr: I am not sold on doing that. Bell: We question that very much. Berle: The Swiss thing does yield to separate treatment. There you have a completely encircled country. No operation can take place out of Switzerland, I think, except by the will of one or the other of the three belligerents, BO that there 16 some point in talking -- Viner: Could there be an order dealing with securities without naming countries, that all the imports of various securities shall be required to show B. genuine ownership regardless of what country they come from? H.M.Jr: That 18 an interesting idea. Perle: It occurred to me this way, Mr. Secretary. If you want to do something now, that you might have all the securities go through the Federal Reserve for an open entry and hold it on that line. You are already comptrolling securities. They already have to go there. This really doesn't materially alter an existing status. White: But that would take care of Switzerland without taking any action. Viner: Without naming any countries in the orders. Frank: It won't take care of Switzerland at all because the point about the differential, Mr. Secretary, is the great bulk, 80 we are advised, of the nominally Swise-owned American Regraded Unclassified 93-K - 11 - securities are already in the United States, physically, 80 that your importation order will not meet that at all. Bell: That 18 right. Frank: Or that proportion of it. H.M.Jr: Well, if these gentlemen can get together - I mean, I am here all the time with my own people and just 88 soon as you have got something, let me know and we will keep it moving. How 18 that? As soon as we have something, we will submit it to Frank and send one over to Mr. Berle and then you can criticize it and have it come back -- Frank: Presumably you would have action within the next 48 hours or Bo? H.M.Jr: Sure. We will get your memorandum tomorrow. We will get your memorandum tomorrow, but whether there is action depends upon, as far as I am concerned, two other people, the President and Mr. Hull. We will get your memorandum tomorrow, how is that? Frank: Okay. H.M.Jr: Okay. Herbert, you are carrying this thing now, about the President signing anything. 94 June 10, 1940 12:11 p.m. Operator: Go ahead. H.M.Jr: Hello, Wm. S. Knudsen: This is Knudsen. H.M.Jr: Good morning. K: How are you, sir? H.M.Jr: I'm all right. K: I got this cable. H.M.Jr: Yeah. K: Now, don't you think you ought to cable and ask them how they feel about the Rolls-Royce engine? H.M.Jr: The French? K: Don't you think you ought to cable them and ask them how they feel about the Rolls-Royce engine? H.M.Jr: You mean the French? K: Yes. H.M.Jr: Well, they feel this way about it. They'd like -- what 18 it, 800 or a 1000 of them a month. That's what their answer 1s. K: Well, they cabled in and the man said they wanted entirely radial engines. H.M.Jr: Well, I -- I'll go by what the Allied Purchasing Mission wants here. K: I see. H.M.Jr: And I think they've asked, haven't they, for ..... K: Yes, I know that, 95 - 2 - H.M.Jr: Well, I'd go by that. I don't think I'd cable back. Ambassador Bullitt sends a lot of stuff like that. K: I see. H.M.Jr: So -- but I thought that you ought K: Of course, we were familiar with his picture, you know. H.M.Jr: No K: We knew about that. H.M.Jr: No, I think that -- I keep my line for the Allied Purchasing Mission very straight and I don't think it's -- unless you want me to I don't think I'll cable to them. K: No, I don't, only he -- he expresses a preference for -- entirely for radial engines. H.M.Jr: Why sure, that's Carl Ward. K: (laughs) Yeah. H.M.Jr: What? K: (laughs) Yeah. I thought there was something to that. H.M.Jr: No, that's Carl Ward. That's what he wants. K: Now, at this luncheon tomorrow, we can talk about this overtime provision, can't we? H.M.Jr: Sure, that's what it's for. K: I see. H.M.Jr: That, or depreciation, or - take our coats off and get down to brass tacks. K: All right, sir, thank you. 96 - 3 - H.M.Jr: You know, I suppose they've told you Mussolini has declared war. K: He has? H.M.Jr: Yeah, on France and England. K: That makes it unanimous. H.M.Jr: That's right. K: All right, sir. Thank you very much. H.M.Jr: See you tomorrow. 96-A Paris, June 10, 1940. Dear Henry: I am transmitting herewith the second report with reference to French aircraft engine industry, in quadruplicate. May I say once more that I think Ward is a first-rate person, and I can't thank you enough for having had him sent over. Since everybody is leaving Paris this after- noon, I am sending this letter with Matthews, who will be the ranking Foreign Service Officer under Ambassador Biddle who, as you know has been ap- pointed as my Deputy to the French Government. I shall probably be out off from all com- munication with the outside world within the next twenty-four hours. Heaven only knows when I shall be able to be in touch with you again, but I want you The Honorable Copy of report filed Henry Morgenthau, Jr., with Letter of Secretary of the Treasury, transmittal to Pres., Washington, D. C. stark Marchall and Knudsen on 6/28/40 -: 96-B - 2 - you to know now that it has been grand working with you; and you couldn't have been kinder or more 00- operative. With affectionate regards to you, Elinor, and the children, I remain, Yours always, Bill Enclosure. 96-C CONFIDENTIAL June 10, 1940 To: The Secretary From: Mr. Young BREWSTER AERONAUTICAL CORP. A joint Anglo-French letter of intention was signed May 29, 1940, providing for 200 dive bombers (12% to 15% spares) with 8 total value of $12,800,000; no capital commitment involved. Delivery begins January, 1941, and extends through May, 1941. There is also an option under this contract for 350 addi- tional planes, exercisable within 60 days from the date of this letter of intention. LOCKHEED AIRCRAFT CORP. Contract was signed by the British June 6, 1940, for 360 Lockheed Model 37 airplanes, with a total value of $29,407,000; no capital commitment involved. Delivery begins February, 1941, and continues through October, 1941. (This order is part of the joint Anglo-French program.) Py. 96-D D June 10, 1940. My dear Mr. Knudsen: I an sending you in strictest confidence a copy of a cable which I have just received from Ambassador Bullitt. May I make the suggestion that you show this only to George Mead. Yours sincerely, (Signed) H. Morgenthau, Jr. Mr. William 8. Knudsen, Room 2064, Federal Reserve Building, Washington, D. c. strictly confidential sent by special messengerco 10:45 Regraded Unclassified 98.E June 10, 1940. My dear Mr. Knudsen: I as sending you in strictest confidence a copy of a cable which I have just received from Ambassador Bullitt. May I make the suggestion that you show this only to George Mead, Yours sincerely, (Signed) H. Morgenthau, Jr. Mr. William 8. Knudsen, Room 2064, Federal Reserve Building, Washington, D. C. Regraded Unclassified 96-F PARAPHRASE OF TELEGRAM RECEIVED Paris Dated June 7, 1940 Rec'd 8:35 a.m. Secretary of State Washington 1084, June 7, MOST CONFIDENTIAL FOR SECRETARY MORGENTHAU, THE SECRETARY OF STATE AND THE PRESIDENT. In a recent conversation with Carlton Ward, who 18 the Chief of the General Motors Aviation mission, Henry Ford's interest in manufacturing the new Hispano- Suiza motor and a rumor of the Studebaker Company's interest in producing the new Gnome-Rhone motor were discussed, Ward emphatically believes that the new Pratt and Whitney and Curtiss-Wright engines are definitely superior to the Hispano-Suiza and he has absolutely no doubts about the inferiority of the Gnome-Rhone to these American engines. Ward mentioned that the General Manager of the Ford Company here, Tollfus, told him on two different occasions of his hope that Ford would manufacture either the Curtiss-Wright or Pratt and Whitney satisfactorily and 96- G -2- and would not manufacture the Hispano-Suiza in view of the great inferiority of the French engines. I have been informed that it takes three French engines to be equivalent to a single Pratt and Whitney of the same horsepower since this renders week after week thrice the number of air hours without repair by a large number of fighting pilots, Colonel Meny, the French General Staff Chief for Air, the Minister for Air and the Undersecretary for Air in charge of produc- tion. The French themselves believe that the French engines which require continual repair are in no way comparable to the American. It would be a great waste of American energies in my mind, and during these times they should not be wasted, 1f anybody should commence the manufacture of French rather than Pan American engines and Ward concurs. BULLITT S:JFS:AR Regraded Unclassified S6.H CONFIDENTIAL JUN 1 0 1940 Dear Mr. Kundrent I all sending you herewith, for your confidential use, statistical data on airplanes and airplane engines showing (1) delivaries and an orders, May 1 to has 1, 1940, and (2) unfilled orders as of has 1. 1940, together with the ostimated deliveries of these ordere W months. The tables are assembled in two volumes - Part 1, which wings begother the date submitted en airplanes: and Part 2. which brings together the date mailted on airplane engines. These date have been semptled from reports submitted w twenty-six airplane and twalve sirplane engine & similar report covering lest veek's operations will be transmitted to you the middle of this week. Sincerely, (Signed) H. Morgesthau. n Mr. Villiam s. Chairman, Advisory Commission to the Council of National Defense, loss 2064, Federal Reserve Building, Vashington, D. 0. By Measenger 430 4 30 FILE COPY Regraded Unclassified 96-I SA unr 1 0 1940 My dear Mr. Secretary: I enclose for your information e photostatic copy of a memorandum of June 6, addressed to me by the President, relieving no of the responsibility of clearing contracts for air craft and engines as required in the President's memorandum of May 24, 1940. This action is in accordance with the suggestion in By letter of June 5 to Mr. McReynolds, a copy of which I sent to you. The very able assistance rendered by General Brett in this work is worthy of special cornendation and I take this opportunity to express my thanks for his excellent service. Sincerely, (Signed) H. Morgenthau, Jr. Secretary of the Treasury. The Honorable The Secretary of War, File to Mr. Thompson By Messenger 1255 WST:nne THE WHITE HOUSE WASHINGTON June 6, 1940 MEMORANDUM FOR THE SECRETARY OF THE TREASURY: I enclose for your information copies of memoranda I have just sent to the Secretary of War and the Secretary of the Havy instructing them to clear all contracts for purchases through Commissioner Knudsen. This will relieve you of the responsibility of clearing contracts for air craft and engines, as required in my memorandum of May 24, 1940. Regraded Unclassified 96-K JUN 1 0 1940 By dear Mr. Secretary: I enclose for your information & photostatic copy of a memorandum of June 6, addressed to me by the President, re- lieving NO of the responsibility of clearing contracts for aircraft and engines as required in the President's memoran- dum of May 24, 1940. This action is in accordance with the suggestion in by letter of June 5 to Mr. McReynolds, a copy of which I sent to you. I should like to take this opportunity to express my thanks for the very able assistance rendered by Captain Kraus on this highly important assignment. Sincerely, (Signed) H. Morgenthau, Jr Secretary of the Treasury. The Honorable File to Mr. Thompson The Secretary of the Navy. By Messenger 1255 WNTIRES Regraded Unclassified THE WHITE HOUSE WASHINGTON June 6, 1940 VEMORATION FOR THE SECRETARY or THE TREASURY: I enclose for your information copies of memoranda I have just sent to the Secretary of War and the Secretary of the Havy instructing them to clear all contracts for purchases through Commissioner Knudsen. This will relieve you of the responsibility of clearing contracts for air craft and engines, as required in my memorandum of May 24, 1940. Regraded Unclassified $6 - M STRICTLY CONFIDENTIAL ALLISON ENGINEERING COMPANY Deliveries of Airplane Engines : Actual : Estimated deliveries : deliveries : on existing orders 1940 January 10 May 1. - 23 10 May 24 - June 1 5 June 2 - OR. 4 June 9 - 30 68 July 115 August 160 September 310 October 351 November 331 December 332 1941 January 362 February 416 March 416 April 414 May 408 June 437 July 320 August 294 September 431 October 45 November 45 December 45 1942 January 25 February 21 Office of the Secretary of the Treasury, Division of Research and Statistics. June 10, 1940. Regraded Unclassified 96-N CONFIDENTIAL June 10, 1940 To: The Secretary From: Mr. Young The attached was delivered to me tonight by Major Brooks in person on behalf of General Marshall. This memorandum sets forth the present status of the 93 A-17A airplanes, together with information as to the availability of bombs. Major Brooks was doubtful as to whether the figures representing bombs requested were accurate. The figures given for "Navy bombs available" represent those bombs which the Navy is willing to release. P4. I gather that WE are carrying the ball as to whether Army or Nary gives up the bombs, and how many- - P. Regraded Unclassified 96-0 imp has not WAR DEPARTMENT only OFFICE OF THE CHIEF OF STAFF P. WASHINGTON, D.C. June 10, 1940 MEMORANDUM: A-17A airplanes. STATUS OF CONCENTRATION Now moving to areas; by June 12 will be located as follows: Mitchel Field 34 Langley Field 26 Middletown Field 33 TOTAL 93 Planes will be complete except for chemical supply tanks, pyrotechnic projectors and amminition. Equipment includes 4 fixed and 1 flexible .30 cal machine guns. All planes will receive EL 40-hour inspection and will be available at dawn June 15 (Friday) BOMBS PMP On Require- PMP of Required for Type Hand ments Shortage Requested 93 planes 83,700 30 # 32000 93810 61810 per 4185 plane 100 # 20000 65278 45278 105 per 9765 plane 58,590 A-17A planes can take Navy 100# demolition bomb as is; Navy 30# fragmentation bomb with slight alteration (tail lug, arming wire and swivel loop required - 2 days required) NAVY BOMBS AVAILABLE 30# fragmentation 5343 100# demolition 558 BECEIVED Regraded Unclassified 96-P CONFIDENTIAL June 10, 1940 To: The Secretary Trom: Mr. Young Mr. Ballantyne called me at 4:10 this afternoon end stated that the arrangement which had been made between the War Department and North American for the exchange of the 93 A-17A's had fallen through. Under that deal the Army Vas to receive in ex- change trainers. The lawyer for North American stopped the deal because he considered it illegal for the Army to trade one kind of plane for another kind of plane. I checked with General Brett, who told me that the North American deal had fallen through, but that he had already talked with Douglas (which controls Northrup), who said that they would take over the deal whereby the Army would get in exchange Douglas A-20's. Because of the fact that General Arnold is out of town, this new Douglas deal has not yet been consummated. I call this to your attention as, undoubtedly, Mr. Purvis will bring up this situation tomorrow. Mr. Dwyer in Mr. Pelley's office called un and said that the bombs from Yorktown were moving right along and that they were following them up. Dy 96-Q June 10, 1940 2:10 p.m. H.M.Jr: Hello. Alfred P. Sloan: Hello. H.M.Jr: Mr. Sloan? S: Yes. H.M.Jr: Morgenthau talking. Henry Morgenthau, Jr. S: Yes, Mr. Secretary. How are you? H.M.Jr: Is this Mr. Sloan? S: Yes. H.M.Jr: How are you? S: Pretty well. H.M.Jr: Mr. Sloan, I just got the report for the number of engines that Allison turned out last week. S: Yeah. H.M.Jr: It totaled four. S: Yeah. H.M.Jr: Do you think there's any prospects S: When was that test made Mr. Secretary? I was down there Tuesday and Wednesday. H.M.Jr: Well, from June 2nd to June 8th. 8: June 8th, that's the engine -- well, is that -- that must be one -- is that a "C" engine? H.M.Jr: Well, it's just total deliveries, it said four. S: What? SG-R - 2 - H.M.Jr: Total deliveries. S: Oh, you're talking about deliveries. H.M.Jr: Deliveries. B: oh, pardon me. I thought you were talking about the test. H.M.Jr: No, deliveries. 8: Oh, I see. R.R.Jr: Is there any -- any B: Are you familiar, Mr. Secretary, with the conferences that Mr. Hunt had in Washington last Tuesday? E.M.Jr: Yeah, I Baw Mr. Hunt myself. B: I thought you did for a few minutes. H.M.Jr: But this just was put on my desk a few minutes ago, and inasmuch as you and I started these conversa- tions, I -- although a lot of new people have come in since S: Yeah. H.M.Jr: I still wanted to get it directly from you. 0: Fine. I'm awfully glad to keep the contact in any way that you see fit because I think it might be helpful. Well now, let me tell you what the status of it -- may I tell you what the status of it 1s? H.M.Jr: That's what I hoped you would. S: I tell you, here's what's been done, Mr. Secretary. Goingback to the time that I was down there you were in the light that Mr. Mead - when you and he and I were talking about it challenged the validity of the action. H.M.Jr: Yes. S: Do you remember that? Regraded Unclassified 96-S - 3 - H.M.Jr: Yes, very well. S: And I told him that whether I was -- whether we here were right or wrong, that we had looked upon it as something that we had been asked to develop experi- mentally and subsequently been asked to manufacture in quantities by the Army. H.M.Jr: Yes. 8: Remember I distinguished it between 8. normal product of General Motors and this product. H.M.Jr: Yes. S: I'm not dreadfully worried in that position, Mr. Secretary. It's too important to get in any argument on that. H.M.Jr: That's right. S: That's the position. Well now, Mr. Mead challenges this and as a result of the discussion which hap- pened in Washington on Tuesday, Mr. Hunt -- I transferred Mr. Hunt, in whom I've got great confi- dence, to Allison. H.M.Jr: Yes. S: And they have relieved him of all other duties. H.M.Jr: I see. S: And Mr. Hunt -- 18 taking such suggestions that have been made, plus his own suggestions -- he's 8. very able man -- and he 18 doing -- he is making certain changes in the engine with a view to seeing if he can bring the engine up to the test that Mr. Mead has described more to where Mr. Mead thinks it ought to be. H.M.Jr: I see. S: Now, in the meantime, Mr. Secretary, we are holding up assembly of engines. H.M.Jr: I see. 96-T - 4 - S: Now, I don't know whether that's the right thing to do or not because what I don't -- and I don't think anybody elee knows this -- the relationship between the teet which Mr. Mead has prescribed, to which, Mr. Secretary, I have taken no exceptions, and the relation of the engine, or rather the opera- tion of the engine when it's in an airplane up in the air. H.M.Jr: I see. S: But we have taken Mr. Mead's test 8.8 the standard because, BE 8 matter of fact, if we can make a few changes and improve the results under Mr. Mead's test it ought to be a better engine anyway. H.M.Jr: I see. S: But what I am debating in my mind 1e to whether in lieu of the terrific importance of the job whether we really ought to stop assembling and not ship engines or whether we ought to ship engines baeed more upon the Army test at Dayton 80 far as their performance in an actual airplane in the air is concerned. H.M.Jr: Well, of course, I wouldn't be qualified to pass on -- judgment on S: I wouldn't either, Mr. Secretary. I don't know 8.8 anyone else 1s, because apparently these -- all these different enginee are tested in different ways. H.M.Jr: I was under the impression when I talked to Mr. Mead about a week ago or ten days ago that they had come to an agreement with you people that they were going to manufacture three hundred of the engines. 8: Well now - the understanding with Mr. Mead was -- let me get this in your mind. You know there are two engines, there's -- in the first place there's a "C" engine, which we're talking about, then there's a newer design which we've been putting into production for several months past known as the "E and M". Regraded Unclassified 96-U - 5 - H.M.Jr: I was talking about the "C". I think you've got an order for 300. S: On the "C" you're right. We were only going to make a limited number of those because of the fact that the other is a far better design. H.M.Jr; Yes. S: But -- and 80 we're talking about the "C". Well now, as we stand now -- at least when I was there Wednesday, we had -- it was understood that we would hold up assembly -- not hold up manufac- ture. H.M.Jr: I see. S: Hold up the assembly which I mean putting the parts together until we can make -- develop the parts around two or three changes which have been sug- gested that Mr. Hunt 1s now working on day and night. H.M.Jr: I see. S: Now, that being the case, Mr. Secretary, that will delay the shipment of engines. H.M.Jr: How long? S: I can't tell exactly, but I -- I am now debating in my mind whether that 18 the right thing to do and I'm wondering whether we shouldn't send such engines as we can over to Wright Field and have it tested in airplanes under the conditions that they'll operate under rather than on an arbitrary standard set on a test stand. H.M.Jr: Well S: Do you get my point? H.M.Jr: Yeah, and again I'm not qualified to pass on that. B: I'm not either, Mr. Secretary, and I don't think that there's any way to correlate one with the other. Regraded Unclassified 96-V - 6 - H.M.Jr: The only thing, I am worried like hell when I see that four engines were delivered last week and five the week before. D: Well, if we take the position that we are in now, you won't get any engines assembled, that is shipped, until after we've tried out some of these changes that Mr. Mead has suggested. n.X.Jr: I 900.. Well S: That's the policy that Mr. Hunt and Mr. Mead and the Army Officers determined last Tuesday in Washingtor S.M.Jr: Well, I wanted to get it directly from you what was going on and you've been kind enough to tell me. 3: I tellyou, anything I can, Mr. Secretary, I'll do anything in God's world I can. S.M.Jr: And I may call you up again next week. 5: Call me up anyway. Now, I haven't -- I haven't had any report from Indianapolis this morning. The boys have been working day and night ever since Tuesday when I was down there to try to check these changes that Mr. Mead has -- and others that have been suggested and things we've developed ourselves, and they're under such strain that I didn't like to bother them by calling them on the telephone. I thought I'd give them a couple of days and then I'd ask them rather than keep after them all the time. M.K.Jrd Well, I think that sounds sensible. I tell you what I'll do, if you'd like to have me, I'll give you a ring in a day or 30 when I get anything tangible. H.M.Jr: I'd appreciate that very much. is In other words, you'd like to have me keep per- sonally in touch with you on it. Regraded Unclassified S6-W - 7 - H.M.Jr: I would until the thing is solved. I'm tremendously interested. S: I'll do that. Now, Mr. -- now, one thing more. So far as production 18 concerned, I was down, as I said Tuesday and Wednesday, and I'm perfectly satisfied that this -- that if the quality of the engine hadn't come up that we would have -- we would have shipped our schedule this month. H.M.Jr: I see. S: But now we're in a kind of a -- we're upset on account of this question of the quality of the engine. H.M.Jr: 0. K. S: Thank you very much. H.M.Jr: Thank you. 97 June 10, 1940 2:30 p.m. RE REFUNDING Present: Mr. Jones Mr. Haas Mr. Ecoles Mr. Ransom Mr. Hadley Mr. Bell Mr. Viner H.M.Jr: That WB.6 George Harrison on the phone. Everybody says the market 1s in beautiful shape. They say it took the things and it 1s off about 4/32, isn't it? Eccles: It was off 6 - it WAB off 4 this afternoon and then it went off 2/32 only and I haven't heard since. Haas: It is off 2/32. There 18 one issue on each side of this. Ecoles: It was off 6 for the whole day. H.M.Jr: How much premium 1s there on those three and a quarters now? Hadley: I would say 24 to 27/32. That issue only lost about 2/32 today. Jones: On 8. whole day? Hadley: On the whole day. Eccles: They discounted this thing. Bell: Off much? Hadley: About two to three on the notes. Bell: How much on the bonde? Hadley: On the bonds, four and five. Regraded Unclassified 98 - 2 - Bell: That isn't bad. That isn't much of a shock. Ecoles: You can't shock them any more. Bell: It is pretty good. Jonee: Can't shock them any more. Eccles: Not with this war news. Of course, if they get to offering A lot of new securities where you have - the difficulty today 1s your supply is limited in relation to the funde you have got. When you get to offering & lot of new securities and business activity becomes - if it should expand greatly, then you would find your market going down, but I don't think this war news is - I don't Bay it won't work down, but I just don't think you are going to have any breaks like we had last September or anything like it. It will work down gradually. Hadley: I don't think it 18 something you can very well forecast though, because when the Germans went into Belgium and Holland, the market jumped down 8. point and here with another country coming into the war it only moves off 3 and 4/32. Jones: Did it go off a point on bond governments? Hadley: When they went into Belgium and Holland. Jones: A full point, you mean? Hadley: In one day. Ecoles: But you are up to 107. There 16 a Hell of a. lot of difference in the market going off one point when the market is up and when it sage four points. Hadley: of course, it depends upon whether this 10 8 high level still. Ecoles: It isn't in relationship to the supply. Viner: Invasion of Belgium and Holland was a more major event than this. This 18 perhaps just Regraded Unclassified 99 - 3 - the end of a bad etory whereas that was the substantial beginning of a -- Eccles: There was no assurance that they were going to do that. Hadley: But this might be the killing blow. Viner: Yes. That blow has been foreshadowed now for A long time. At the Belgium-Holland stage, there was no reason to suppose the Allied armies would crack the way they did. (Discussion off the record) H.M.Jr: Well, the reason I asked you gentlemen to come back again, I didn't know Just how the market would take this thing and in view of the situation, I thought it WAB just good sense to have another talk. The President signed the thing before he left. Jonest Is this yours? H.M.Jr: It is yours now. I don't want you to any you don't get anything out of the Treasury. Jonest I think you have got the right rate, particularly since the -- Eccles: George Harrison didn't feel there was any question about it, did he? H.M.Jr: No, I was talking to him more about the condition of the market. I didn't get the feeling that he was up particularly. Maybe I am doing him an injustice - on the rates and everything else. I just wanted to know how the market took the shock and he said it took it beautifully, 80 that was the principal thing and I just wondered if any of you people thought I was making & mistake to go ahead at three o'clock. Jones: I don't think 80. I think you have got the right rate. I thought it was B. little bit sweet this morning. 100 - 4 - H.M.Jr: Now that Mussolini - Jones: Yes. I think there will be some little uncertainty about that. I wouldn't - certainly I wouldn't make it any lower. H.M.Jr: Dan? Bell: I think it 18 all right. Go ahead. H.M.Jr: George? Haas: Okay. Viner: Okay. Ecoles: All right with me. I think if you didn't - Italy coming into the war, it might be good psychology to put this over right now. H.M.Jr: Good? Eccles: Yes. I think it may be good, the very factor and when you do put it over the indication is that so far A8 the Government 18 concerned, they have no concern at all about the market. H.M.Jr: Well, it just sort of makes me feel good to thumb my nose at Mussolini and say, "That 1s what you think you can do and this 1s what we can do here, and this to you." That refers to Mussolini. Right? Jones: Yes. I heard him scream some. H.M.Jr: I did too. I turned the damn thing off. Jones: He certainly WAB screaming, wasn't he? Bell! He had his gang with him, didn't he? H.M.Jr: They shoot them if they don't say yes. Jones: He sure had them there. Ransom: That was B. packed meeting. Jones: Do you think it was backed, steam rollered? Regraded Unclassified 101 - 5 - Ransom: You cheer or else. Ecoles: I think that 18 true with him. Much more than it is with Hitler. He has got a division that Hitler hasn't got. That church influence ien't with him. H.M.Jr: I loved the way he said King Victor Emanuel thought this was a great thing and kept talking about the King all the time. Jones: King - in other words, in this situation the King 18 an asset to him. H.M.Jr: Yes. Eccles: He 1s whistling to keep from getting scared in the dark when he 1s talking about the King, all right. Jones: The King 18 very popular. Eccles: Sure he 1s. That 1s what I am saying, that he is -- Ransom: If there was a lower form of animal life than Hitler, which I don't think is possible, it would be Mussolini. H.M.Jr: It means I have got to swear off of spaghetti from now on. Ecoles: I never did like the stuff, 80 I am all right. Viner: And Dry Martinis. Eccles: That would be more difficult, wouldn't it? H.M.Jr: Jake Viner says also Dry Martinis. Ransom: Take your gin straight. Viner: You can drink French Vermouth but -- Jones: Gordon gin is better. Viner: Let's see, what have you got? 106 - 6 - H.X.Jri Do I understand, Dan - now, this 18 going to be open for twenty-four hours except the people who have ten thousand or less. Bell: Vell, we hadn't planned to out anything in the circular on that. You Bee, that comes with your ennouncement on closing. Now, there 18 A question 88 to whether you want to any anything at your press conference this afternoon, that this will be closed. H.M.Jrs I think BO. Bell: Tomorrow night. I question that, because I wonder if it wouldn't give them a chance to shift around tomorrow and divide un their holdings into ten thousand doller lots. H.M.Jr: Well, how would they do that? Ransom: Isn't there this to be considered too, that RO long 88 you are going to go right ahead and do it, why not do it as near normal as you can, why make A distinction at this particular time and lose part of the psychological value that Marriner points out exists in going on with it? Docles: with this 18, I think if you had been on the 7/8, your premium would have been closer. There would have been more reason to have adopted this principle that was suggested by the New York bank. with the l/o you have got enough margin there that - now that this shock 18 over with, you ought to be safe for A couple of days. Bellt lie are urging them to turn in their securities if they want an exchange because - we are pointing out that you have the authority end have reserved the right to close it at any time without notice. You have always had that, and we are pointing it out in this press statement. Ranson: I think if you have the slightest doubt about it you could use that device, but if you feel as confident AB I take it we all feel, then Regraded Unclassified 103 - 7 why give the market the impression there 18 any weakness at all in you? H.M.Jr: Leave it open for two days? Ransom: I think BO. H.M.Jr: It 1s all right with me. Ransom: What do you think of that, Jesse? Jones: I like the other plan best. Ransom: I like the plan. The only possible reason that I would raise the question was whether or not somebody would interpret that as & sign of weakness. Viner: I had thought of it as a sign of confidence in your strength, but I may be wrong. Ranson: I just don't know. That would be the test, I think, as to whether it would be taken as a sign of weakness or of strength or perhaps overlooked entirely. Probably no one would pay much attention to it. Jones: I would like to have you make up your mind tomorrow. Hadley: They have had plenty of notice on this thing. Eccles: Why not give them until tomorrow and give no one else - I mean give them all until tomorrow and then close it. Give them all one day. Viner: Except some of the small people. They don't need 6. ticker, they don't know of this. Eccles: In the past you have given them B. certain period, haven't you? Viner: Yes. Eccles: How long have you usually given? Regraded Unclassified 104 - 8. - Viner: Two days. Some of them may happen to be away from home. They can't get to their bank or the bank can't get to them and they find they have lost a chance to convert. Eooles: Your 1dea would be to give one day for those that are ten thousand dollars or over and those that are less than ten thousand, give them two days? Viner: On the assumption the ones with ten thousand and over keep in touch with the market, have access to news of this sort and can deal properly with their agent or banker. H.M.Jr: If a fellow had a hundred thousand dollar certificate and wanted to get it split, he would have to go to the Federal Reserve, wouldn't he? Jones: There would be 8 lot of shenanigan about it and they won't do that. H.M.Jr: But the Federal Reserve wouldn't give 8. fellow ten certificates for one tomorrow, would it? Eccles: No. H.M.Jr: You could tell them not to, couldn't you? Eccles: Oh no, they wouldn't -- Jones: They Just wouldn't do it. H.M.Jr: Well, I mean your boye would be looking for that kind of stuff. Eccles: You could just simply say that the very fact you are making this announcement, if they permitted that, would be an evasion. I don't know what is the legal status, whether they can prevent it. They might come in and demand it be done and then raise a question as to whether they had any right to refuse to do it. Jones: Then you have got a list and put that fellow's name on there. Regraded Unclassified 105 - 9 - Ecoles: Oh yes, but I don't think as a practical matter it could be done. Bell: There probably won't be much of it done, but I don't think you could prevent it. If a fellow had B. hundred thousand dollar certificate he would sell that ten ways in the market. H.M.Jr: I don't think they could prevent it. They might talk to the bank or something and say, "Now listen, that 1e an evasion here and we don't think you ought to do that, see," but I don't think they could refuse to do it. I don't think they have got any legal right to. I think they would have to do it if it was demanded. Bell: In the meantime, he sold the -- Ransom: If a fellow had B. twenty thousand dollar certificate, he might want to take ten thousand cash and convey ten, but I shouldn't think he would have much -- Viner: That would be all right, too. Ransom: That would be perfectly all right. H.M.Jr: Well, why don't I just announce it at three o'clock and then sit tight and then if I feel like it tomorrow I can say - tomorrow 1s Tuesday - if everything looks all right we will say we will close it to everybody Wednesday night. Eccles: You don't announce the time you are going to close it every time -- H.M.Jr: No. Ecoles: Then why do it now? Bell: Tomorrow would be the usual time you would announce closing. H.M.Jr: Would it, Dan? Bell: Yes, sir, tomorrow would be the day. 106 10 I I Ransom: What time during the day would you make the announcement ordinarily? H.M.Jr: Closing? Ransom! Yes. Sell: Tomorrow evening. Ransom: That it 18 closed as of -- Bell: No, we would say tomorrow evening that it would be closed Wednesday night and take all subscriptions in the mail un to twelve o'clock. Sansom: That means you are keeping it open two days, then? H.M.Jr: Oh yes, Viner: Will you get my reporte? You will know how it is going by one o'olock tomorrow. Bell: We will get preliminary reports. H.M.Jr: It 16 pretty tough to do A thing like this in one day. Eooleal Isn't this 9 practical matter though? We were talking about it going back. It seems to me that we Just don't have to depend, when you get right down to it, as a practical matter, in a situation of this sort, on what private individuals are going to do about the situation. I can't imagine a Government issue failing or being permitted to fail in the first place, with the Dowers the Treasury has and the Federal Reserve has. Just assume now that it appeared something happened and they weren't making a conversion. We would have to do something about it, that is all. You just couldn't permit the thing to not go over. For instance, you could - this is something that could be done - buy these rights certainly at par. There would be no loss on it and If the market went down to where there WAS no premium, you could buy Regraded Unclassified 101 - 11 - the rights at par, couldn't you? Bell: Yes. H.M.Jr: Well, I would rather price the thing A little bit better and not have to do that. Eccles: That is right, but you have priced it that way now, haven't you? H.M.Jr: Yes. Eccles: We are just talking about leaving it two days or one day. H.M.Jr: well, you (Ranson) think two days. Ransom: I think to get the full advantage of going ahead and do it -- H.M.Jr: One day would be pretty tough. Scoles: Then if something should happen -- Ransom: That 1s what this open market committee is for. Ecoles: You have got investment funds. H.M.Jr: I know, but it 1s much better to sit around and talk about it and do it this way than be hit over the head and not be ready. Regraded Unclassified 108 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE June 10, 1940 TO Secretary Morgenthau FROM Mr. Haas WA Employment under the Work Projects Administration shows a decline of 20,000 from the 1,945,000 persons reported for the week ended May 22, 1940. The 1,925,000 persons employed during the week ended May 29, 1940 also represents a decrease of 168,000 from the 2,093,000 reported at the end of April. Attachments 109 WORK PROJECTS ADMINISTRATION Number of Workers Employed - Monthly United States Number of Workers 1937 (In thousands) July 1,569 August 1,480 September 1,448 October 1,476 November 1,520 December 1,671 1938 January 1,901 February 2,075 March 2,445 April 2,582 May 2,678 June 2,807 July 3,053 August 3,171 September 3,228 October 3,346 November 3,287 December 3,094 1939 January 2,986 February 3,043 March 2,980 April 2,751 May 2,600 June 2,551 July 2,200 August 1,842 September 1,790 October 1,902 November 2,024 December 2,152 1940 January 2,266 February 2,324 March 2,288 April 2,093 May 1,925 Source: Work Projects Administration Monthly figures are weekly figures for the latest week of the month. They include certified and noncertified workers. 110 WORK PROJECTS ADMINISTRATION Number of Workers Employed - Weekly United States Week Ending Number of Workers 1939-40 (In thousands) October 4 1,834 October 11 1,875 October 18 1,899 October 25 1,902 November 1 1,901 November 8 1,929 November 15 1,961 November 22 1,987 November 29 2,024 December 6 2,075 December 13 2,123 December 20 2,144 December 27 2,152 January 3 2,160 January 10 2,190 January 17 2,222 January 24 2,244 January 31 2,266 February 7 2,288 February 14 2,306 February 21 2,319 February 28 2,324 March 6 2,324 March 13 2,319 March 20 2,312 March 27 2,288 April 3 2,204 April 10 2,162 April 17 2,118 Aoril 24 2,093 May 1 2,059 May 8 2,008 May 15 1,970 May 22 1,945 May 29 1,925 Source: Work Projects Administration. 111 WORK PROJECTS ADMINISTRATION Number of Workers Employed United States Monthly W.P.A. Employment Weekly W.P.A. Exployment 1937 41 1039 1940 1941 1936 1938 1939 1940 MARA MAY AND META MAR MAT. ALL BILLIONS MILLIONS MILLIONS MILLIONS or or or OF BOOKERS MORKERS GORKERS MORKERS 3.4 3.4 Ja3 3.3 3-2 3.2 3.2 3.2 3.1 3,1 2.8 2.8 3.0 3.0 1.9 2.9 2.4 2.4 2.8 2.8 2.7 2.7 2,6 2.0 2,0 2.6 2,5 2.5 2.4 1.6 1.6 2.4 2.3 2.3 2.2 2.2 1.2 1.2 2.1 2.1 2.0 2.0 .8 .8 1.9 1.9 1.8 1.8 1.7 -4 A 1.7 1.6 1.6 1.5 o o 1.5 NOV. MAY JULY SEPT. NOV. JAM. MR. L . . SEPT. JAM. Il - If - 7 . . di # JAN. MAR. MY JULY MI. 1936 1937 1938 1939 1940 1939 1940 1941 1135 '41 SOURCE: BORK PROJECTS ADMINISTRATION (Place of The Secretary of the Transury 2-221-12 1 , 1 I I Regraded Unclassified 111-A June 10, 1940 10:45 a.m. H.M.Jr: Hello. Operator: Mr. H.M.Jr: Hello. J.J. Pelly: Hello, Mr. Secretary. H.M.Jr: How are you? P: Fine, thank you. H.M.Jr: Well, here's my first real request. P: Yes, sir. H.M.Jr: This morning at Yorktown, Virginia. P: I didn't get it -- where? H.M.Jr: Yorktown, Virginia P: Yes. H.M.Jr: there may be loaded three cars. Have you got a pencil? P: Yes, sir. H.M.Jr: C & 0, 8328. P: 8328. H.M.Jr: Right. 8859. P: 8859. H.M.Jr: 4216. P: 4216. H.M.Jr: Now, they're moving through Richmond to -- on the C & O and the Pennsylvania up to Rouses Point. 111-B - 2 - P: Yeah. H.M.Jr: They've got bombs on them. P: Yeah. H.M.Jr: They -- we want that thing to go through on a passenger train schedule. P: All right. H.M.Jr: And they say the bottleneck 18 Richmond. P: All right. H.M.Jr: And no fooling on this. For your own confidential information they're the bombs to go with those 50 Navy planes. P: Yes, sir. H.M.Jr: And we're a couple days behind schedule -- now let's see what American Railways can do to catch up. P: All right, we'll handle them. They're at Yorktown H.M.Jr: They left Yorktown this morning. P: Yeah. H.M.Jr: And they're on the way now. They say they ought to be in Richmond now. P: Going to Rouses Point. H.M.Jr: Yeah. P: We'll take care of it, Mr. Secretary. H.M.Jr: Now, we've got another movement of the same things from -- wait a second, (Aside: Where in Nevada?) Hawthorn, Nevada. P: Hawthorn? 111- C - 3 - H.M Jr: Nevada. Hawthorn, Nevada. P: Yeah. H.M.Jr: (Aside: And where do they go to?) We think they're going to New York, but they're being loaded this morning. P: You haven't got their car numbere? H.M.Jr: Not yet. Now, on this Donald Nelson -- who is here with me P: Ies. H.M.Jr: of Sears Roebuck. P: Yes. H.M.Jr: When you get this thing would you -- would you call back to him if you want any further information on this? P: Nelson? H.M.Jr: Donald Nelson. F: Yes, sir. Say, does heknow what Line these are being loaded on at Hawthorn? H.M.Jr: He's sitting here. Southern Pacific Union Pacific. P: O.K., I'll handle it. H.M.Jr: But these other things are rolling -- these out of Yorktown. They're actually -- they ought to be in Richmond now. P: O.K., I'll get in touch with them right away. H.M.Jr: And -- and the car numbers at Hawthorn, as soon as we have those we'll give them to you. = All right, and I'll let you know when they get to Rouses Point. Regraded Unclassifie 111-D - 4 - H.M.Jr: That's the stuff, now see how good you are. P: O.K. Thank you. 112 CK GRAY Paris Dated June 10, 1940 Rec'd 8:35 p.m. SECRETARY of State Washington 1125, June 10, 6 p.m. FOR THE TREASURY FROM MATTHEWS I saw COUVE de Nurville this morning and also Governor Fournier for a few moments. Couve sermed somewhat harassed and depressed and was practically alone in the Finance Ministry. HE said that naturally financial questions seemed of minor importance in the present crisis. HE Expressed the view that the great majority of such French owned American securities as are physically in France have long since been deposited with banks here and have been sent out of Paris. (PEARCE of the National City Bank and Barrett confirmed this impression to me this afternoon.) Couve said that he has as yet no orders to leave Paris but that when and if they come he will proceed to Chinon. The representatives of American banks in Paris held a meeting this afternoon at the suggestion of the Bank of France and decided to leave Paris tonight or tomorrow morning. 113 -2-#1125, June 10, 6 p.m. from Paris morning. They will Establish themselves at Chatel Guyon, Lepuy (National City), Vichy (Guarenty Trust) and Niort (Morgan). They are Each however leaving a small staff of three or four Americans in Paris and have been instructed to destroy their currency (recording such destruction) in CASE of imminent German occupation. In the interim they will remain open for cashing checks, drawn and presented by their own depositors. The Bank of France is also leaving Paris tonight though a "branch" will bE maintained here for the time being. Governor Fournier, the under governors and Carigvel are proceeding to Saumur; the essential admin- istrative offices will bE at Chatel Guyon. Bletry will bE in charge of the Paris "branch". Under the Ambassador's written instruction I am leaving this EVENING for Chateau de Cande at Monts near Tours. BULLITT EMB 113-A June 10, 1940 2:55 p.m. RE FRENCH PURCHASING PROGRAM Present: Mr. Nelson Mr. Young Mrs. Klotz H.M.Jr: You and I have been covering the same tracks but it doesn't do a bit of harm. I just wanted to make sure about these French seventy-fives, because I told you you will find every once in a while I will give it an extra push. I called up General Marshall and he eaid be had somebody or other give a report to Captain Young, meaning you (Mr. Young) and he said that he will let me know - I told him I wanted to know. Young: He didn't give it to me. H.M.Jr: Then it didn't do me any harm. Young: This is on the extra number you were speaking of. H.M.Jr: I just told you I wanted more French seventy- fives. Purvis told me yesterday that was No. 1. I said by ten o'clock tomorrow I wanted to know, 80 he said, "We have already told Phil Young about this." Nelson: That was on that list, I think, Phil, that he sent over. H.M.Jr: Bo I said I wanted it in writing. Anyway, it has got to come over from General Marshall to me either tonight or tomorrow morning, and the other thing he said, the 93 planes - and I want to wait now until I get it in writing before I say anything. They will be ready Friday. Don't say anything about that. Nelson: He said tomorrow. H.M.Jr: Now he says Friday, and they have got bomba to go with them. Regraded Unclassified 113-B - 2 - Young: Army bombs? H.M.Jr: Navy bombs, but I asked him for it in writing by ten tomorrow, 80 let's hold everything until we get it in writing. Nelson: You don't want us to check on the bomba until you get it in writing? H.M.Jr: He was just leaving And he mentioned somebody's name whom I didn't know and he gave it to this fellow and he would order him to get it into my hands either tonight or before ten o'clock tomorrow morning. Young: On these additional French seventy-fives, they are being included in the steel contract which will probably be agreed on tomorrow. H.M.Jr: I suppose 80. But I thought I would tell you I gave that a little push. Nelson: We will appreciate any push you give it. Young: Any more pushes? H.M.Jr: Oh, the day 1s long yet. We are half way through the day. Young: We are just waking up. Klotz: You must have an awful lot of peo. Young: You should have seen General Harris trying to hire Colonel Cox away from the Treasury. H.M.Jr: Colonel Cox? Young: Oscar Cox. He had never seen the lawyer in the War Department, evidently. Nelson: Cox did a really beautiful thing. Cox really sat down and wrote out this agreement in five minutes. Young: He wrote out the first draft of the agreement and it was signed by all present. 113-C - 3 - Nelson: General Harris just stared at it. H.M.Jr: Major Fleet was here of Consolidated, and after he had worked one day with John Sullivan, he asked him to come and have dinner with him or something and tried to hire him that night. Young: Well -- H.M.Jr: All right. 2 114 HSM 1 GRAY Milan Dated June 10, 1940 Rec'd 1:16 P. Ile Secretary of State, Washington. 61, June 10, 5 p. 11. Today's market index 215.23. Volume 75,500. Prices generally weaker in moderate trading but recovered somewhat toward close of session. SCHNARE TFV Pograded 6-10-40 SUMMARY OF PREMIER MUSSOLINI'S SPEECH: - 114-A Combatants on land, sea and in the air, blackshirts of the revolution and of the legion, men and women of Italy, of the Empire and of the Kingdom of Albania, listen! An hour signed by destiny is ticking on the skies of our country; an hour of irrevocable decisions. A declaration of war has already been given to the ambassadors of France and England. We shall descend on the fields against the plutocratic democracies and the reactionary democracies of the West who in all times have always obstructed the march of the Italian people. Some facts in more recent history can be assumed from these words, promises, threats of fifty-two states. Our conscience is absolutely quiet. With us the whole world is Et testament that Italy has done what is humanly possible to avoid the storm that is overhanging Europe. It was enough to see again the treaties to realize that they were not adequate to the times--they would have to be changed, The Allies should have accepted the proposals of Hitler before the Polish campaign. Today we are ready to face the secrifices of war to safeguard the honor and interests of the future because a great people is only such if it con- siders sacred those pledges to safeguard history. You will take arms to safeguard our frontiers and also to solve the 114-B - 2 - maritime problems. We want to break the chains which are keep- ing our seas closed because 45,000,000 souls are not free unless they have free access to the ocean. This sigantic effort is the fight of the rich people wainst those who have nothing but who are rich with arms and the right to work. Our will is Italy does not intend to bring other people into the conflict. Jugoslavia, Greece, Turkey and Egypt will take notice of this fact. Itelians, in a memorable meeting in l'ilan I said: When you have a friend, live with him to the end, With Germany we shall march with these victorious armed forces. In this vigil of such an important event, we think of the Italian umperor-King, Victor Emmanuel. He has interpreted forever the soul of Italy, Italy, fascist and proletarian. Italy is for the third time on its feet, strong and united categorically victorious. And we shall win to give a long period of peace to Itely, to Imrope and the world. Italian people, to arms and show your tenscity, your courage, your valor! -0-0- 114-C June 10, 1940 2:59 p.m. H.M.Jr: Hello. Sumner Welles: Hello. H.M.Jr: Yes, Sumner. W: Hello, Henry, I had a message from you saying that you wanted to see me this afternoon. H.M.Jr: What I said was this. They're trying to decide this whole question on freezing assets for the whole of Europe and Asia. W: Yes. H.M.Jr: And I said I wouldn't go into it unless you were here. I mean, Berle was coming, but I wouldn't do it with just Berle, that was the point. But Bell Just left here and he says he doesn't think we're ready yet. W: Well, Henry, I'm terribly sorry about this afternoon. of course, I -- if I'd have known it I'd have out things out, but I'm just absolutely swamped with engagements that I can't very well break. H.M.Jr: All right. W: And -- do you think this step would have to be taken today? H.M.Jr: Well, from the way Bell just talked to me, he doesn't think it should be. W: I see. H.M.Jr: It's too important, and if it's as important as all that, why we'd have to get the President to pass on it and of course he isn't here. W: No, I was with him when he spoke to you this morning ...... Regraded Unclassified 114 D - 2 - H.M.Jr: So V: he'd be back, he said, at 10:15. H.V.Jr: Well, the point then 18 that we'll talk about it at 3:30 -- I take it Berle will be here W: Yes. H.M.Jr: And then he can take it back and you and Mr. Hull can think about it and if we can come to an agreement amongst ourselves, we can put it up to the President tomorrow, if we come to an agreement. W: Yes, indeed. I'll meet you at any time in the morning that 1s convenient for you. H.Y.Jr: Well, let's see how this 3:30 meeting goes. W: All right, Henry. R.V.Jr: Now, are you going to do anything on Italy today that will cause us to move tonight? W: Well, the President will sign the neutrality proclamations tonight. H.M.Jr: He will. W: Yeah. H.M.Jr: Oh. Now, 18 that definite? W: That's what he told me. H.M.Jr: Well, then, I can tell that to Gaston W: That's right. H.M.Jr: for whatever we have to do. He'll sign the neutrality proclamations. #: That's what he told me when I left him. He'll sign them as soon as he gets back. Regraded Unclassified 114-E - 3 - H.M.Jr: That affects Italy of course, does it? W: That's right. H.M.Jr: Well, then I'll count on that. I don't know -- whatever our boys will have to do, they'll have done. W: Yeah. H.M.Jr: Well, I'll see how this goes and Berle can give you a report and if I need you -- need help, I'll call you. W: All right, Henry. H.M.Jr: Thank you. W: Good-bye. H.M.Jr: Thanks. 114-F June 10, 1940 3:20 p.m. H.M.Jr: Yes? Operator: Mr. Gaston. H.M.Jr: Herbert? Herbert Gaston: Yes. H.M.Jr: Sumner Welles tells me the President 16 going to sign the neutrality proclamation tonight. G: He's going to sign it tonight. H.M.Jr: Yes. And that he -- the President personally called me at 1:00 o'clock to say that he'd sign whatever we wanted him to sign. G: Yes. H.M.Jr: So will you, personally, get things - a roundup, and see what there will be and check with everybody and I'll -- are you coming in to this ...... G: At 3:30? Yes. H.M.Jr: Yes. Well, check with everybody 80 -- he gete back at 10:15 80 whatever's necessary G: Yes. Well, the State Department would have that controlling document for him to sign, and I'll Bee what else there would be, whether there's anything else for his signature. H.M.Jr: Will you carry the ball on that? G: Yes. H.M.Jr: Yes. Then if I've got to take it to the President tonight, let me know? G; Yes, I will. H.M.Jr: Please. G: Right. 114-G June 10, 1940. 2:50 p.m. RE FREEZING ORDER Present: Mr. Bell Bell: This conference we had with the State Department isn't settled yet. H.M.Jr: I will settle it. Bell: I think we in the Treasury would urge you not to be too strong on it because this 1s A little different situation than we have had at any time, and whether or not there is enough at stake for you to take this strong position and certainly it 1s a major administration policy and I think it is a political policy. Now, whether this 1s going to throw us further on the side of the Allies and one step nearer war, I think, is a State Department problem; and if the President tonight makes some declaration of policy, national policy, then that might be & stepping stone. H.M.Jr: I saw the speech and there 18 no policy in it. Bell: There 1sn't? H.M.Jr: No, I read it over. I read it very fast. I didn't think it was a statement of policy. I read it in five minutes. Bell: There 18 some feeling over there today in this meeting that we got to take this step with respect to Switzerland because that 1s a neutral. Coming back and thinking about it, I question whether we ought to take that step. H.M.Jr: Are they coming over here? Bell: Yes. I couldn't get Welles, but Berle Regraded Unclassified 114- - H - 2 - said he would contact him before three. H.M.Jr: I want you at my press conference. Bell: At three? H.M.Jr: Yes. Bell: I don't know how this other thing 1s coming. H.M.Jr: I want you at my press conference at three. Bell: Should I plan to leave then at four? H.M.Jr: Definitely. I would say four fifteen at the latest. Bell: I certainly hate to go. Regraded Unclassified 115 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 10, 1940 TO Secretary Mergemthau FROM W. H. Hadley TREASURY NOTE MATURITIES Amount Coupen Date Outstanding Price Iield 1 1/2% 12/15/40 737 mil. 101,1 Negative 1 1/2% 3/15/41 677 mil. 101.9 Negative 1 3/8% 6/15/41 504 mil. 101.12 0.03 Open 9/15/41 1 1/4% 12/15/41 204 mil. 101.26 0.06 1 3/4% 3/15/42 426 mil. 102.27 0.14 Open 6/15/42 2% 9/15/42 542 mil. 104.2 0.20 1 3/4% 12/15/42 232 mil. 103.19 0.32 Open 3/15/43 1 1/8% 6/15/43 629 mil. 101.12 0.66 Open 9/15/43 1 1/8% 12/15/43 421 mil. 101.12 0.73 1% 3/15/44 515 mil. 100.15 0.87 3/4% 6/15/44 416 mil. 99.15 0.88 1% 9/15/44 283 mil. 100.11 0.91 3/4% 3/15/45 718 mil. 98.30 0.97 116 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 10, 1940 to Secretary Morgenthau FROM W. H. Hadley BEW ISSUES Notes: Offering Pessible Issue Coupen Yield Price Mkt.Price Premium 2-3/4 years 5/8% 0.49 100 100.12 12/32nds (3/15/43) 0.50 100 100.10 10/32nds 3/4% 0.49 100 100.23 23/32nds 0.50 100 100.21 21/32nds 3-1/4 years 7/8% 0.70 100 100.18 18/32nds (9/15/43) 0.72 100 100.16 16/32nds 1 No 0.70 100 100.30 30/32nds 0.72 100 100.28 28/32nds 5 years 1 1/8% 1.01 100 100.18 18/32nds (6/15/45) 1.03 100 100,14 14/32nds 1 1/4% 1.01 100 101.5 1 pt. 5/32 1.03 100 101.2 1 pt. 2/32 "Rights" Market Premium Above Amount Bid No Tield 3 3/8% T/B of June 15, 1943 353 mil. 100.14 13/32nds Regraded Unclassified 117 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 10, 1940. TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL At 11:30 this morning, at the request of Mr. Philip Young, I telephoned Air Attache Pirie of the British Embassy. The latter told me that he had not yet received any Rolls-Royce plans or specifications. He expects a diplomatic pouch to reach the Embassy on Tuesday. He will telephone me as to whether the plans come in that pouch. He understands that the Secretary is anxious to see these plans as soon as they are received. 118 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 10, 1940. TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL On Friday, June 7. I let Pinsent know that the Federal Reserve Bank had been instructed and requested to open the accounts in the name of the British Government At bad been sought through the British Embassy in its memorandum to the Treasury Department. I told Pinsent that the Federal Reserve Bank of New York would cable directly to the Bank of England in regard to the technical arrangements. On Saturday, June 3, Mr. Knoke let me know that a cablegram had been sent to the Bank of England on the above subject, and that B. similar message would be ent to the Netherlands Government in London on Monday. The cablegram to the Netherlands is necessary before any additional deposits are eligible for accept- ance by the Federal Reserve Bank of New York. p.m.s. 119 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 10, 1940 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL Mr. Knoke told me by telephone this afternoon that the Chase Bank reported to him the receipt of telegraphic instructions from the German Asiatic Bank in Shanghai to pay out in bank notes of large denominations $480,000 to a Japanese named Itoh, who is manager of a Japanese concern known as "Showva Teusho Kaisha" at 1775 Broadway. The Chase Bank was not acquainted with the payee. When the Chase mentioned this transaction to Knoke, he reminded them that it was his understanding that the Presidential Proclamation of December 30, 1933 is still in force. This proclamation Lontains the phrase "nor allow the withdrawal of any currency for hoarding". B.M.S 120 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 10, 1940. TO Secretary Morgenthau FROM Vr. Cochran STRICTLY CONFIDENTIAL At one o'clock on Saturday, June 8, Mr. Knoke telephoned me that the Banco Commerciale Italiano had that day withdrawn from the Irving Trust $200,000 in one-hundred-dollar bills. In talking with a friend in one of the big banks in New York on June 7. I was informed that there was Italian buying of United States Treasury securities and also withdrawal of currency on instructions from Milan. At six o'clock this afternoon, Mr. Knoke told me that Italian banks con- tinued to withdraw currency. The Credito Italiano has today withdrawn $400,000 from the Guaranty Trust, On June 7, the Benco Commerciale Italiano withdrew $200,000 from the Guaranty end on June 8,$150,000 from the Guaranty. Mr. Knoke told me that the important payments which had been made recently by Italian banks to Post end Plage had, he thought, been used for purchasing United States Government securities, rather than for supporting the Italian bond market as previously suspected. Ee is looking further into this matter. BMP. Regraded Unclassified 121 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE June 10, 1940 TO Secretary Morgenthau CONFIDENTIAL FROM Mr. Cochran Sterling moved erratically downward today in & market made very thin by the coming into effect of Great Britain's new foreign exchange regulations. As compared with Saturday's closing rate of 3.75, the pound opened at 3.67 today. In a short time it touched the high of 3.69-1/4. Sterling then began to recede and by noontime, the quotation was 3.59. In the half-hour that followed Italy's declaration of war, there was no business transacted, and the spread between the bid and offered rates for the pound at one point reached 14#. The rate subsequently receded to & low of 3.50. The final quotation was 3.52. With respect to the new British foreign exchange regulations which became effective today, whereby all commercial transactions with the United States and Switserland are placed on the basis of the official rates for sterling, I wish to point out that while foreign balances in England are not legally blocked, and transfers between non-residents of sterling balances previously acquired in the open market are still being allowed, the result is practically the same since the use of such sterling balances 1a limited to employment within Great Britain. An interesting feature of the reported turnover figures is the purchase by commercial concerns of L212,000, especially since a cable sent from London to one of the New York banks implies that open market sterling cannot now be bought to pay for shipments of goods from Great Britain under contract made before June 8. The greater proportion of the sterling purchased by commercial concerns was to cover imports from Great Britain which are now in transit to this country. Sales of spot sterling by the six reporting banks totaled L193,000 from the following sources: By commercial concerns : 48,000 By foreign banks (South America, Far East and Europe) L145,000 Total L193,000 Purchases of spot sterling amounted to L297,000, as indicated below: By commercial concerns L212,000 By foreign banks (Far East and Europe) 1 85,000 Total L297,000 The Guaranty Trust Company reported that it had sold cotton bills totaling 2,000 to the British Control on the basis of the official rate of 4.02-1/2. Regraded CONFIDENTIAL 122 2 Spot sterling in the amount of 137,000 vas purchased from the British Control at the official rate of 4.03-1/2 by the following banks: 119,000 by the Guaranty Trust Company (for rubber and lumber) 14,000 by the Bank of Manhattan (for rubber) 4,000 by the Irving Trust Company (for various commodities) 137,000 Total Developments in the other currencies were as follows: The French franc moved with sterling and closed at .0200. The Swiss franc vas quoted all day at an offered rate of .2243. Tery little business was reported to have been transacted in that currency. The discount for the Canadian dollar was 21-1/26 during most of the day. Toward the close it widened to 224. The lira and reichamark were unchanged at offered rates of .0505 and 4000 respectively. While the New York banks aupeared unwilling to execute orders in lire, it was reported that the New York branches of Italian banks were sellers at the .0505 level. The Cubar peso, which vas quoted on Saturday at a discount of 9-5/16%. weakened to 9-15/16% today. Since there was B holiday in Shanghai today, no rates for the yuan were received from that center. We purchased $4,000,000 in gold from the earmarked account of the Bank of Java. The Federal Reserve Bank of New York reported that the following shipments of gold were being consigned to it: $50,043,000 from Canada, shipped by the Bank of Canada, Ottawa, to be earmarked for account of the Bank of England. 6,092,000 from Canada. shipped by the Bank of Canada, Ottawa, for its own account, for sale to the U. S. Assay Office. 1,285,000 from Mexico, shipped by the Bank of Merico, to be earmarked for its account. $57,420,000 Total The State Department forwarded to us a cable stating that the following ship- wate of gold were made from England, all of which will be sold to the U. 5. Assay Office at New York: $6,085,000 shipped by Morgan Grenfell and Co., London, to J. P. Morgan and Co., New York. 100,000 shipped by N. M. Rothschild and Co.. London. to the New York Trust Company, New York, 65,000 shipped by the National City Bank, London, to its head office at New York, $6,250,000 Total Regraded Unclassified confidential 3 - 123 The Bombay gold price was slightly higher at an aquivalent of $35.50. The Bombay spot silver quotation worked out to the equivalent of 44.674, up 3/16#. A cable received today from Bombay reveals that available stocks of silver in that center now total only 8,000,000 ounces, which is the lowest amount that has been reported for a considerable period of time. The cable also cites an appreciable increase in up-country demand. Extension of the European war may provoke another speculative boom, and with conditions as tight as they are, there may shortly be an upward movement in the Indian silver price. In London, spot silver was fixed at 23d, off 3/8a. The forward quotation was 22-1/16d, up 3/16d. The U. S. equivalents, calculated at the official sterling- dollar rate, were 41.81# and 40.11# respectively. Since Great Britain's new regulations place all commercial transactions between that country and the U. S. on an official sterling basis, calculation of the U. S. equivalents of London's silver prices at the open market rate for sterling should no longer be made. Handy and Harman's settlement price for foreign silver was unchanged st 34-3/44. The Treasury's purchase price for foreign silver was also unchanged at 35#. We made four purchases of silver totaling 425,000 ounces under the Silver Purchase Act, all of which were new production from foreign countries, for forward delivery. BMR. 124 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION CONFIDENTIAL DATE June 10, 1940 TO Secretary Morgenthau FROM Mr. Haae all Subject: The Business Situation, Week ending June 8, 1940. Conclusions (1) Business improvement has continued through the Memorial Day week, according to seasonally-adjusted weekly indexes. The New York Times index in that week reached an FRB equivalent of 108, as compared with a low of 102 in April. Preliminary data on steel and automobile production indicate a more rapid advance during the week ended June 8. (2) The increasing industrial demand 1e beginning to strengthen commodity prices, particularly for basic industrial materials. The past week or more has seen & noticeable strength- ening in futures prices of zinc, copper, tin, and rubber, and A further advance in steel scrap prices. Increased buying has been confined more largely to the metal group, perhaps because this group 18 expected to be affected earliest by the armament program. (3) From a price viewpoint, conditions now seem more favor- able than they are likely to be later for placing large Government orders. Commodity prices have been "deflated" of much of their war-induced rise of last September; the shock of recent Allied reverses has confused buyers and made them reluctant to take speculative positions; and industrial demand has not yet improved enough to reduce existing supplies. (4) Our index of new orders declined somewhat during the Memorial Day week. New orders reported by U. S. Steel, however, held for the second week around full capacity; automobile sales improved substantially in the third period of May; and sales of such metals as copper and zinc have noticeably increased. secretary Morgenthau - 2 Business activity makes further gaine Despite the effect of the Memorial Day holiday, "hich brought en extended shutdown in the automobile industry. weekly jusiness indexes continued to rise during the week ended June 1. (See Chart 1.) Barron's index advanced 1.0 point to 105.4. The New York Times index, rising for the fifth succes- give week, reached an FRB index equivalent of 103. This com- -aree with A low FRE index of 102 in April, and & preliminary ficure of 105 in May. A more ran1d advance 18 indicated for the following week 1.- preliminary date on steel and automo 11e production. The GAT York Times index of steel production in that week may rise 18 mich 9.5 6 points, and the automobile production index by 17 maints. No let-up in steel advance An steel orders continue to increase, the rising trend of activity in the steel industry 88 yet shows no sign of Blackening. Following last week's increase of 3.4 coints to 30.7 per cent of capacity, the steel rate this week is scheduled 4.3 points higher at 84.6 per cent. (See Chart 2, upper section, ) Continued expansion of production to virtual capacity, perhaps 23 midsummer, 18 expected by various observers in the steel trade. New orders reported by the U. S Steel Corporation for the 100 snded May 30 held close to the high level of the previous work. despite the holiday. (Shown on Chart 2.) The total of 31,000 tona reported in that week was at the rate of 98 per cent of capacity, versus 102 per cent for the preceding week. The Iron Age reports that domestic business has expanded in nearly all directions, and that export buying by the Allies has been hesvy. Export demand from other countries, however, has become quieter. For the first time in 8. considerable period the rate of operations of the U. 8. Steel Corporation 1e above that of the independent commanies (Bee lower section of Chart 2), which provides some evidence that production 18 being centered more largely than usual in heavy steel products. Regraded Unclassified 126 Secretary Morgenthau - 3 Steel companies are preparing for 8 period of high produc- tion by expanding coke and pig iron output and by bringing down large quantities of iron ore from the Lake Superior district. The ore movement up to June 1 totalled 7.7 million tons, an in- crease of 4.1 million tons over the same period of 1939. Pig iron production has expanded racidly, with 76 per cent of All furnaces in blast early last week. This high percentage compares with B. 1939-40 meximum monthly figure of 79.9 per cent, reached in December and January. The highest figure reached during the World War period was 90.9 per cent in the month of May 1916. Very high operating rates mean heavy wear on blast furnaces. In the present situation, a rate as high a.8 90 per cent may not be possible, owing to prospective repairs to vari- our furnaces necessitated by the heavy production last fall and winter. A limited capacity for coke production may provide & bottle- neck in pig iron output, according to the Iron Age. Some steel companies are already buying outside coke, their own coke-making facilities being engaged at capacity. Last fall, when a coke shortage was threatened, B. number of obsolete beehive coke fur- naces were pressed into service. Automobile companies maintain production Automobile production in the week ended June 8 rose to 95,560 unite, as compared with 60,980 units in the previous (Memorial Day) week, and 96,810 units in the week ending May 25. Thus the rebound in production, encouraged in part by the sales recovery in the last period of May, carried back almost to pre- holiday levels. The production of automobiles in June usually shows a sharp curtailment from the May total. Normally, one might expect this trend to be accentuated by the current heavy stocks of new cars in factory and dealer hande, which at the end of April were the hi chest on record, and which have appar- ently been reduced but little in May. On the contrary, however, according to Ward's Reports, there 16 little evidence 80 far that any nearby curtailment 18 blanned. Ward's takes this to mean either that (1) production may be reduced later with unprecedented suddenness, or (2) new models will not be introduced this fall when planned. The in- ference 18 that the automobile companies are making cars while they can, in order to be able to meet whatever requirements may be demanded of them for armament production during the 1941 model season. Regraded Unclassified 127 Secretary Morgenthau - 4 Prices of industrial materials firmer A strengthening of industrial material prices has been noticeable during the past week or more, apparently reflecting an expansion in industrial buying socompanying the recent in- crease in business activity. Futures prices of basic indus- trial materials are shown in Chart 3. The most pronounced price upturn has been in zinc, in which 8 tight supply situation 1s developing somewhat similar to that early in the World War period. Zino shipments during the week ended June 1 increased to 7,131 tone, the highest figure since last September, while shipments in the month of May were the highest since November. A shortage of available zine has developed, due to a bottleneck in smelting capacity. which is now being operated at its limit. Had it not been for the shortage in supplies, according to trade reports, the volume of sales during the past few weeks would have been even higher. As a consequence, the buying pressure 18 affecting prices rather than production. During the World War period, zinc prices rose from 5 cente & pound to above 20 cente in less than 8. year after the outbreak of war, when the shutting off of smelting capac- ity in Germany and Belgium made the United States the major source of zine for the Allies. At present & similar situation existe, and recent heavy foreign demand on our smelting capao- ity, particularly from England for zino smelted in bond, from foreign ore, has intensified the capacity problem. An allevi- ating factor is the fairly high stocks of zino held by domestic consumers, estimated in some quarters at 60 days' requirements. Copper sales have also expanded markedly in the past week, extending a trend that has been under way for the past two months. Domestic sales of copper in May (see Chart 4) showed a decided improvement over those in the previous two months, and sales in the first 6 days of June averaged 27 per cent higher than the daily average in May. Price situation more favorable now for Government orders than expected later From a price viewpoint, conditions now seem more advan- tageous for placing large Government orders then they are like- ly to be later, assuming continued active warfere: Regraded Unclassified 128 Secretary Morgenthau - 5 (1) Prices of industrial materials have been "deflated" substantially since the period of War-inspired buying last September, (Refer to Chart 1.) (2) The recent Allied reverses, causing heavy liquida- tion in commodities and securities, have confused buyers and made them less interested in accumulating speculative holdings. (3) industrial activity has not yet increased suffic- iently to curtail available supplies of raw materials, an important bullish factor in the price rise of 1936 and 1937. The situation created by the armament program and increased Allied buying, of course, favors rising prices of industrial materials, particularly after capacity levels have been reached (as in the case of zinc). Bullish statistical conditions exist in some other individual commodities affected by the armament program. The stocks of hides in this country, according to preliminary figures, are the lowest in at least the 18 years for which records are available, with the exception of last October. Hide prices, nevertheless, have declined sharply in recent weeks with the break in security prices, being affected also by low shoe production figures for April. The pending Army order for 10,500,000 yards of serge, over- coating, and other woolen goods has apparently been placed at an opportune time, since price conditions are liable to become less favorable for buyers in view of the rather tight supply situation for woolen goods in this country. Prices of wool have shown some increase under the influence of thie large order. New orders index slightly lower Our weekly index of new orders declined somewhat during the week ended June 1, doubtless affected by the Memorial Day holiday. (See Chart 5.) Automobile sales increased sharply during the last period of May. On a daily average basis, allowing for the Memorial Day holiday, General Motors sales increased in that period to 5,800 units, A6 compared with 4,700 units in the second period of the month, and 6,100 in the first period. For the month as a whole, General Motors' sales to consumers in May were 9.6 per cent below the April total, 88 compared with an average decline of 6.5 per cent in the previous four years. Regraded Unclassified 123 Secretary Morgenthau - 6 F.H.A. mortgages hold steady Mortgages selected for appraisal by the F.H.A. in May were but slightly above the April level. (See Chart 6, upper section.) Weekly data (lower section of chart) also show a flattening-out in the volume of F.H.A. selected mortgages. In comparison, residential construction awards as reported by F. W. Dodge, which normally lag & month or two behind the F.H.A. figures, increased further to 8. new high since August 1929. (Upper section of chart.) The number of new homes started under F.H.A. inspection, after establishing a new high early in May, declined 26 per cent during the Memorial Day week, 8.8 compared with a 22 per cent decline in that week last year. (See Chart 7.) The F. W. Dodge monthly figures on number of residential projects awarded show an expansion in May to B. new high level for recent years. New York Times index higher Due largely to the continued contra-seasonal expansion in steel mill operations, the New York Times index of business activity for the week ending June 1 rose .4 to 96.9. In add1- tion to the sharp rise in the index of steel ingot production, the indexes of cotton mill activity and "all other" freight car loadings also showed gains, the latter again benefiting from the continued rise in loadings of ore, which were 53 per cent above the corresponding week in 1939. All other compo- nente of the index declined, with the indexes of automobile production and lumber production showing sizable recessions. The declines in the indexes of electric power production and miscellaneous freight car loadings, however, were only frac- tional. Preliminary data thus far available for the week ending June 8 reveal a still further contra-seasonal gain in steel ingot production and 8. good recovery in automobile production following the shutdown around Memorial Day. Regraded Unclassified Chart 1 130 INDICES OF BUSINESS ACTIVITY AND PRICES OF INDUSTRIAL MATERIALS Weekly 1939 1940 MARA MAY JULY PERCENT PERCENT SEPT. NOV. JAN, MAR- MAY JULY SEPT. NOV PERCENT (BARRON'S) (N. Y, (PRICES) TIMES) 120 106 BARRON'S INDEX 85 1923-25 - 100° N.Y.TIMES 110 100 EST. NORMAL - 100 80 100 94 75 90 88 70 80 82 65 INDUSTRIAL MATERIAL PRICES B. L. 5., 1926 - 100 70 76 60 60 70 55 JAN. MAR. MAY JULY SEPT. NOV. JAN. MAR. MAY JULY SEPT. NOV. 1939 1940 *ADJUSTED FOR SEASONAL, NOT FOR TREND 131 STEEL INGOT PRODUCTION AND U.S. STEEL CORPORATION ORDERS Chart 2 CONFIDENTIAL 1930 1939 1940 MAY JULY SEPT. nov. JAM MAR, MAY JULY SERE NOV. JAN. MAR. MAY JULY SEPT. MOV. PER N° CENT sext U.S. Steel Ordere and Total Steel Output 160 (W) (EXPRESSED in PEACENT of CAPACITY) 140 140 120 120 ORDERS, U.S. STEEL CORPORATION TH TERMS OF U.S. STEEL CAPACITY 100 100 BO a TOTAL 5TEEL OUTPUT 60 di 40 40 20 20 MAY JULY SEPT. NOV. JAN MAR, MAY JULY SEPT. NOV. JAN. MAR. MAY JULY SEPT. NOV. JAN. MAR. 1938 1939 1940 100 DC Steel Output (Cirnissed IN PERCENT or CAPACITY) 80 INDEPENDENT COMPANIES 60 40 U.S. STEEL CORPORATION 20 MAR, MAY JULY SEPT. NOV JAN. MAR. MAY NOV. JAN. MAR. MAY JULY SCPT. NOV. JULY SEPT. 1940 1938 1939 - o - end Date 1-48-8 - e Regraded Unclassified PAICES OF SECECTED INDUSTRIAL MATERIALS Daily Futures - 1440 APRIL i BAT - MPT. com 15 et - la or in , CONTS = DAMIS PER FEX : POLICE author PANE - E x 20 18 16 18 10 HI le 14 14 WILLARD BILLARY 16 15 PER our PER POURD POURD SOLLARS BOLLARE FEB FOR 4.00 4.00 POID FORM Bllk 2.80 2.40 3.50 3.50 1.40 2.40 3.00 3.00 2,20 2,20 2.50 2.50 2.00 2.00 GENTS com PER PER SENTS CENTS POUND I PER PER POUND Hides - Ittdee 13 13 16 18 12 12 14 14 II " 12 12 is to me. . APRIL, AND FUTURE 10 10 Copper " " 13 is Copper 12 R 10 10 11 11 9. , 10 10 - 9 9 e - I 5. 3 is a so Tia Tin 55 55 40 - 50 50 44 44 e 45 8 8 % 40 7,0 T.O Zine 6.0 sub 6.5 6.5 2ime 6.0 1.6 4.0 5.0 5,5 5,3 5,2 3.2 5.0 5,0 4,3 4.5 4.8 4,8 4.0 4.0 $ 5,6 4.3 6.5 Lead Land 5,2 2 s.o 6.0 5,5 5 5.5 4.4 4.8 sue 1.0 4.4 4,4 4.5 4.5 4,0 4.0 4,0 4,8 JULY SEPT. NOV. - i BAY JULY MPI. 14 21 20 5 12 19 X 2 P 16. 21 Я 1939 940 APRIL - - 1940 LEFT. asc. FUTURES MAY MPT. MAD are - PUTUAGE name FUTURES (AIMS, and -SEPT. never 132 the of is Serviary el the P 120 4 - al - - - Regraded Unclassified Chart 4 133 DOMESTIC SALES OF COPPER AND INDUSTRIAL PRODUCTION 1935 1936 1937 1938 1939 1940 SHORT TOMS PER THOUSANDS CENT 360 130 330 125 300 120 270 115 240 INDUSTRIAL PRODUCTION 110 F.R.B. 1923-25 : 100 210 105 DOMESTIC SALES OF COPPER (THOUSANDS OF TONS) 180 100 150 95 120 90 90 85 60 80 30 75 o 70 1935 1936 1937 1938 1939 1940 34 INDICES OF NEW ORDERS Combined Index of New Orders and Selected Components 1939 1940 1938 o N D M la PERCENTAGE POINTS POINTS 160 100 150 150 140 140 130 130 Total |combined Index! 1000 . 100 120 120 110 110 100 100 90 90 BO ao 70 70 60 60 Total excluding Steel and Textiles 50 40 Steel Orders 30 NO 20 10 Textile Orders o A B o - D o " D J F M M J N D J F E A M J J A J A 5 o 1940 1938 1939 I 85 - C Regraded Unclassified RESIDENTIAL CONTRACT AWARDS AND F.H.A. MORTGAGES 1939 1940 to D , E - - J A SONDJFMAMJJASO - DOW APS MILLIONS MILLIONS (MONTEASES) (AMARDS) Mortgages Selected for Appraisal 133 1,38 and F.W. Dodge Awards Monthly 120 126 110 114 100 102 90 90 80 78 F.W. DODGE AMARDS 70 66 MORTGAGES SELECTED FOR APPRAISAL,F. M. A. 60 54 50 42 40 30 30 18 M A 5 o N D J. # M A M J J A 5 o # D J F M A M J. J A $ o M D ? F M A J J 1938 1939 1940 DOLLARS MAR. MAY JULY SEPT. NOV. JAN. DOLLARS MILL IONS MILLIONS Mortgages Selected 40 40 for Appraisal, F.H.A. Wookly 35 35 30 30 1939 25 25 20 20 15 is 11940 1938 10 10 5 5 o o JAN. MAR, MAY JULY SEPT. NOV. 135 Regraded Unclassified of the Treasury 136 Chart 7 RESIDENTIAL AVARDS AND F.H.A. HOMES STARTED 1939 1940 JFNAW J J A 5. o N D se A J J ASOND HOMES HOMES (F.W.DODES) (F.H.A.) 26,000 3,750 24,000 3,500 3,250 22,000 20,000 3,000 18,000 2,750 16,000 2,500 14,000 2,250 12,000 2,000 New HOMES STARTED UNDER F.H.A. INSPECTION (WEEKLY) 10,000 1,750 Number or RESIDENTIAL PROJECTS (F.W.Doose, MONTHLY) 6,000 1,500 8 1,250 . M A $ o N. D , , M A M all ALOMD 1939 1240 Office et - Secretary of the Transury 1 el j - C - 300 Regraded Unclass 136-A June 10, 1940 Preso (Conference) 6/10/40 Jay Resolution entrely acceptable to Presant myself and most pleasing to Pres and myself 137 June 10, 1940 9:30 a.m. GROUP MEETING Present: Mr. Graves Mr. Cochran Mr. Nelson Mr. Gaston Mr. Haas Mr. Schwarz Mr. Foley Mr. Thompson Mr. White Mr. Sullivan Mr. Harris Mr. Viner Mr. Young Mrs. Klotz Mr. Bell H.M.Jr: Herbert? Gaston: I think I haven't anything this morning. H.M.Jr: Mr. Bell 1en't here yet. Nothing, Herbert? Gaston: Nothing important, I think. H.M.Jr: The Navy got that done. Gaston: The Navy did? H.M.Jr: On the other side. Gaston: You telegraphed them, did you? H.M.Jr: Yes. Gaston: He told me the Army was taking care of it. H.M.Jr: The Army delivered eleven to LaGuardia Field and somebody in the State Department found out it was highly illegal, 80 you can check this off. Regraded Unclassified - 2 - 138 Gaston: Fine. H.M.Jr: Ed? Foley: I have nothing. H.M.Jr: Good. Nelson: I have a number of things. Do you want to take them up here? H.M.Jr: I will tell you what I can do. I can see you at 10:30. Nelson: That will be fine, sir. H.M.Jr: Phil, are these things - do these things affect both of you? Nelson: Yes, sir, two of them do. H.M.Jr: Supposing I see you first, then. Nelson: All right, sir. H.M.Jr: Well, I phoned the President last night, Ed And John, and read him this resolution. He hadn't read it and he was simply delighted. John did a wonderful job on the Hill Saturday. He brought home two bacons. Right? Sullivan: Senator LaFollette isn't delighted. H.M.Jr: And I am going to say - you people think this over this afternoon. Chick has suggested some way to ask me the question of how I like this resolution. The tax resolution 18 entirely acceptable and most pleasing to the President and myself. Herbert, is that all right? Gaston: It sounds all right, yes. Sullivan: Senator LaFollette last week wrote us a letter and asked us for information. It will take us somewhere between four and six weeks to get it. Regraded Unclassified - 3 - 139 H.M.Jr: Make it months. Sullivan: It is tremendous. H.M.Jr: Well, I mean it. Really, I would. And then I understand in one of the papers this morning he had a statement that if the Treasury got him that information, he would be able to introduce an excess profite bill this week. (Mr. Bell entered the conference). H.M.Jr: You are not cutting us, are you, Dan? Bell: What? H.M.Jr: Didn't you know there was going to be a meeting? Bell: Yes, but they had me on the telephone. Sorry. Sullivan: So we lost a Job for him. H.M.Jr: A little weakish, are you? D1d you have a bad day yesterday? Sullivan: I Just slept all day. H.M.Jr: So that 1s what WAS the matter. I have got to tell & good story on Ed. Do you mind if I tell that story on you, Ed? Foley: No, go ahead. H.M.Jr: We got a telegram, an answer to the one I sent for the President in regard to having a little trouble getting these bombs for these fifty ships, giving the authority to go ahead and last night Ed says that"I Just want you to know, Mr. Secretary, that I have given out a ruling that a bomb 1s an appurtenance to a ship and I did it before I saw the President's telegram." He just wanted to be on record that he was before Chicago, not after. He knew it was funny when he did it. It was all right. We get these rulings before the telegrams and afterwards. 140 - 4 - Nelson: Does the man who makes the ruling go to jail, Mr. Secretary? H.M.Jr: Oh, absolutely. You know, on an income tax you have got to have your lawyer sign it AB well 8.6 your accountant. Merle? Cochran: The French stock market closed this morning after just an hour in trading for the first time since the war began and the report 1s that they will move it out of Paris very shortly. The Government is still functioning. H.M.Jr: Incidentally, I gave you something Thursday night to translate. Cochran: I know. H.M.Jr: I never got it. Cochran: I will give it to you today. H.M.Jr: Are you all right? Cochran: Yes. H.M.Jr: I did get your envelope Sunday. What 18 it, anyway, a list of stuff they want? Cochran: No, it 1s on that trip of Monet's. here a year ago. It 1s old stuff. It 1s just for the record. I have a couple of telegrams that I told you about Saturday. I have the other one. I don't know whether to give it to you or hold it. It 18 a long one. H.M.Jr: Why don't you stay behind a minute? Cochran: All right. H.M.Jr: Philip? Young: I have no problems. H.M.Jr: At eleven o'clock we are meeting with the Federal Reserve, and I have asked Mr. Jones to sit in on financing. Dr. Viner, will you be here, and Haas, please. Haas: Yes. Do you want to give that out, Chick? Regraded Unclassified 141 - 5 - Schwarz: No, but they will be up here. H.M.Jr: Well, it 18 to discuss financing. Schwarz: Federal Reserve will tell them. I have one matter I would like to see you about after the meeting. H.M.Jr: All right. Bell: It 1s not, however, an open market. H.M.Jr: No, it 18 Federal Reserve Board. George? (Mr. Haae handed report to Secretary.) H.M.Jr: George, if the report comes in on how many engines Allison turned out last week, put that in my own hands, will you? I am just curious. Don't wait to make up this whole chart, see, just give it to McKay if the Allison one comes in. Haas: The deliveries for last week? H.M.Jr: Yes. Who does that come to? Haas: It 1s probably already in now. H.M.Jr: I am very curious. If you could go back as far 6.6 you have it by weeks, I would like to have it. Do you have each week since the first of January? Haas: I haven't got it back there. H.M.Jr: As far back 8.6 you have got it by weeks. Heas: Fine. H.M.Jr: Basil? Basil, did you get in on this thing that Nelson -- Nelson: I am going to bring him in on it this morning. H.M.Jr: These 14 or 15 ships on the Black Sea. Regraded Unclassified 142 - 6 - Nelson: Yes, sir, I want to see Mr. Harris about it this morning. H.M.Jr: Incidentally, if I was on the Maritime Com- mission and had 14 or 15 ships up in the Black Bea, I think I would have something on my conscience, wouldn't you, Basil? Harris: No, I don't think 80. H.M.Jr: You wouldn't? Harris: No. H.M.Jr: Wouldn't you be worried? Harris: Not if they - unless they were big ships. H.M.Jr: How are they going to get them out? Harris: Well, they will come along. If you get an outbreak in the Mediterranean, that doesn't mean she 1a going to be closed in ten minutes. I don't think they will touch any American ships there. Nelson: They also think they can get them out through the Suez. Harris: That 1s always an alternative. Nelson: It is the long way around. Harris: There was a broadcast - I didn't hear it but somebody told me and I am trying to check up on it - the other night in which Mussolini said that no American ships had any need to be worried about coming into Italian ports, that they were perfectly safe. It didn't give any guarantees, however. Viner: That sounds awfully dangerous. Gaston: Your stuff 18 welcome B.B. long as you will ship it. H.M.Jr: Anything else, Basil? Regraded Unclassified 143 - 7 - Harrie: No. H.M.Jr: Harry? Harris: I would like just a second, if I could, after the meeting 18 over. H.M.Jr: Sure. Harry, this 18 on this Josh Lee business that you were evidently in on it. Would you mind reading this some time today? White: You may be interested in the results of our first compilation of the inventory reports of Norwegian and Danish balances here. They show that our estimates, which are based on the Commerce estimates, are too low. In other words, they have substantially more security holdings than we had record of. In the case of Norway and Denmark, it 1s not very important quantitatively, but if the same thing holds true with regard to Dutch, Swiss and French accounts, there 1e a good deal more here than we had thought of. We will know shortly. Bell: I would like to know - and to the Minister to those countries when they request it. The Norwegian Minister has asked for a copy of the analysis. H.M.Jr: You are living with this, Dan. If that 1a what you think -- Bell: I think it ought to be sent. H.V.Jr: All right, Dan. You are living with it and I am not. If you think that it's proper, all right. Bell: I do. H.M.Jr: All right. White: You may have noticed A telegram from Esthonia last week. H.K.Jr: A little louder, Harry. Regraded Unclassified 144 - 8 - White: You may have noticed a telegram with respect to the Russian holdings on the foreign exchange -- H.W.Jr: From Wiley? There was a very good cable from Wiley. White: Wiley, that is it. H.M.Jr: It was a very good cable. White: Then there 1s one that just came in from Berlin indicating A very drastic curtailment of the information which can go out for letters to belligerent companies which may be significant. H.M.Jr: I just happened to read those by accident. White: I see. The Chinese Exchange situation 1s much better than I had hoped for, BO your action was not -- H.M.Jr: The longer I live with the Chinese, the more I am amazed at their resiliency. It 18 simply amazing. White: You know they had one of the greatest victories in the war last Sunday. There was no notice in the American papers. It was very important. Harris: When was that, Harry, recently? White: The battle actually took place, I think, around May 8th or 10th. Viner: Were any of our Chinese observers there? White: I don't know. They do have military attaches on both sides. H.M.Jr: Harry, has anybody found out whether those six hundred and some odd trucks which were tied up in Indo-China belonging to the Universal Trading Company ever got out? White: You made inquiry, didn't you, and they promised to send that. They promised to take care of it. Regraded Unclassified 6 I I 145 I will find out. H.M.Jr: And then while we are at it, how much merchandise - Chinese merchandise 1s in Indo-China awaiting shipment and what proportion of it belongs to the Universal Trading. White: I heard 8. rumor that the funds for the Chinese on that last loan were going to be held up. Did you hear that? H.M.Jr: No. But would you get the tonnage? White: I will do that. H.M.Jr: And what proportion of it is Universal Trading. White: Yes. Foley: I think Marsh is going to be here today. H.M.Jr: Anything else, Harry? White: That 18 all. The plans and proposals with regard to Latin America are moving along. Nothing decisive or important on it. H.M.Jr: Harold? Graves: Nothing. H.M.Jr: Nelson, would you take over and talk over about that professor from Harvard, talk it over with Harold? Nelson: Yes, sir. We were discussing the other man this morning. H.M.Jr: Professor Lewis. Nelson: Yes, I have a clipping on my desk. H.M.Jr: And then the other thing that Ed Foley talked about last night, Ralph Straus, Vice-President of Macy's would like to Regraded Unclassified 146 - 10 - resign from Macy's and come down here and help. Nelson: He is a very good man. H.K.Jr: He 18 in charge of buying, I think. Nelson: I know him very well. H.M.Jr: Would you think about it? Nelson: Ralph or Jack? H.M.Jr: No, it is Jack. Nelson: I know both of them. H.M.Jr: Would you think about it? Nelson: I will, sir. H.M.Jr: You might talk about it at ten thirty AS to whether you want -- Nelson: We are looking at a man. Mr. Graves 1s having a man come in at ten o'clock whom he thinks 1e worth considering for this committee work, 80 he will be in at ten and -- H.M.Jr: Well, I was thinking more of Straus. There is a possiblity he wants - he wants to come down permanently. Nelson: Oh, he does? H.M.Jr: Yes, he 18 ready to resign from Macy's and come down permanently. Nelson: He 18 a very good man. H.M.Jr: All I know of him, I crossed on the steamer with him once a couple of years ago. He seemed very serious and quite social minded, but how good a business man he 18 I don't know. Nelson: He has a good reputation. Regraded Unclassified - 11 - 147 H.M.Jr: Is he on the merchandising end? Nelson: Yes, sir. Foley: He was on the committee, Mr. Secretary, that reorganized purchasing for LaGuardia. Nelson: That is why I thought of him in this connection. H.M.Jr: Was it him? Foley: Yes. Nelson: They had a representative of New York Central and a representative of Macy's, and a representative of another store. H.M.Jr: Well, they are bringing down the New York Central man. Nelson: Bringing him down for Stettinius? H.M.Jr: If Straus was on that, you could try him out on this committee. If you liked him, we might keep him. Foley: They are the ones who put - what 1s his name, Forbes? Nelson: Yes. Foley: They found Forbes for LaGuardia and put him in charge of purchasing for New York. H.M.Jr: Well, I throw it at you. You can throw it back at me at ten thirty. Nelson: All right, sir. H.M.Jr: Are they doing a good job in New York City? Nelson: They are, I think. Klotz: They are. H.M.Jr: Have you heard about it? Klotz: Yes. Regraded Unclassified 148 - 12 - H.M.Jr: Anything, Harold? Graves: No. H.M.Jr: When you have that increase for that man, I want to give it to him. Graves: Yes. I am waiting to see Mr. Helvering about it. H.M.Jr: Dan? Bell: Can I get your approval of the new investment for the old age? H.M.Jr: How much 1s it, Dan? Bell: One hundred forty-two million. H.M.Jr: Okay. These Civil Service fellows have got & hundred and forty-two million. Bell: Archer M. Huntington who left quite a large trust to the library trust fund has resigned as trustee and he has also waived his right to appoint a successor, so according to the terms of the trust, the Board has to appoint a successor and this is a letter recommending one. H.M.Jr: Would you find out how much stock of the Newport Shipping Company we have? Bell: That 18 this trust. H.M.Jr: Yes. Bell: I think that is the reason this fellow is resigning. Huntington didn't like the way it was operating 80 he resigned to not only the trust, but waived his right to appoint 8 successor. H.M.Jr: Well, would you find out - I know we are one of the largest stockholders, and I am interested to Bee what we get out of it. Bell: Yes. Regraded Unclassified - 13 - 149 H.M.Jr: And I am talking about the Library of Congress funds. Bell: That is all. Thompson: I have nothing. Bell: I am going to the Capitol. H.M.Jr: You are? Bell: Yes. H.M.Jr: Norman, you know the President sent me back & letter saying he would relieve me of the responsibility on the planes. I would like every person to get a copy of that who got the one where I said - I wrote them first. I want them to get a copy of it and then when this comes back, would you send them a copy or a photostat? Thompson: I think a photostat. H.M.Jr: I want every person on that list showing that I am relieved of that responsibility and in the case of the Army and the Navy, I would like to write a letter to the Secretary of War and Navy thanking them for the excellent cooperation given me by Brett and Kraus, something that would help them in their records. All right, gentlemen. Regraded Unclassified 150 June 10, 1940. 12:15 p.m. GROUP MEETING Present: Mr. Gaston Mr. Haas Mr. Thompson Mr. Young Mr. Cochran Mr. White Mr. Foley Mr. Graves Mr. Sullivan Mr. Nelson Mr. Bell Mrs. Klotz Mr. Viner H.M.Jr: I suppose you have all heard the news. Gaston: Yes. H.M.Jr: Now, are your regulations on Italy ready for me to sign? Bell: They are ready. H.M.Jr: Well, I am ready. Bell: I think it 18 a question of what we want to do now, how much we ought to take in. I was just talking to Berle, and he thought we had to have a conference right away. H.M.Jr: Nuts to a conference. Go the whole hog. White: We have the papers drawn up for the whole Eastern Hemisphere or for the whole of Europe. H.M.Jr: Why the whole Hemisphere? Foley: They might use Russia to bring the stuff out. H.M.Jr: Do Italy now and we will talk about the rest. You can always add them. Regraded Unclassified 151 - 2 - Bell: How about Germany, Czechoslovakia, and Poland? H.M.Jr: Bell, haven't you thought all of this stuff through? Bell: Well, we have got those matters of policy that we haven't been able to decide. H.M.Jr: Why didn't somebody put it up to me? We have talked about this thing - every day they were going on the fourth of June. Bullitt said they were going in and ever since then I thought the papers had just been ready to put on my desk. Bell: We have got drafts that are all ready to sign and this 1a a matter of policy which we couldn't decide. H.M.Jr: No one has put them up to me. I didn't know there was any question. Bell: I think I asked you one morning in the car whether we should include Germany. H.M.Jr: If you did, it didn't ring the bell. Bell: I Just thought we ought to call 8. meeting. It doesn't take long. White: We have already discussed this, and Mr. Bell went over it and the agreement at that time was that they thought that the next opportunity which came, which would be provided by Italy, would be the moment. H.M.Jr: That 1s all very nice, but why didn't somebody say to me, "I want to sit down and talk this thing over." Foley: Mr. Secretary, Italy 1sn't being invaded. If we follow the policy we have been following up to now and include in the freeze only countries that are being invaded, we couldn't include Italy now. We have been saying that the first opportunity we got, we would sit down and enlarge this thing to go beyond invaded countries. I think we ought to include all of Europe, and I think that a 152 - 3 - lot of other people in the Treasury share my feeling, but I think that we have to have B. meeting with the State Department in order to do that, and I would be willing to see it go beyond that. I would like to see it include Asia to take care of the Japanese- Chinese situation, and I think if we are going to do that, this 1s the time to do it, because we are going beyond where - we have gone BO far, namely, limiting it to the countries that are invaded. Bell: It 18 a departure in the policy and I don't see how you can leave Berle out of it. White: I think if Danny could oall & meeting right away with Berle, we could ascertain the State Department's wishes within a very short time and the papers are all ready. Whichever way they decide, the papers are ready. H.M.Jr: Well, if you could call R meeting so that - I have got to decide on this thing, you see, and - those who were here with me be here at two-thirty 80 between two-thirty and three we will decide. I have got a press conference at three. Then et three- thirty I will be ready to - if you fellows will have a meeting earlier -- Bell: On this other thing? H.M.Jr: Yes. Foley: Yes. Bell: Is the President going away? H.M.Jr: I Just came back from there. This place 1s an oasis compared to that place. Hia speech isn't even written, not finished. They got me 80 excited over there because everybody just - well, I mean he 18 leaving at two to go down to Charlottesville and he isn't ready. He will be back tonight. He signed this thing. I got in to see him. He gave me all the time I wanted. But I want to talk at two-thirty on financing Regraded Unclassified - 4 - 153 and I have got press at three and at three- thirty I will be ready to see you fellows, but please do it, and have Jerome Frank sit in on this. Bell: We will be ready by that time. H.M.Jr: Have Jerome Frank, will you? Foley: As far as sending out telegrams 1s concerned, Mr. Secretary, we have to wait until the President amende the neutrality proclamation to add Italy as a belligerent. Gaston: I suppose the State Department will get that signed before the President goes. H.M.Jr: Well, will you watch that, Herbert? That 1s your baby, you and Basil. Where is Basil? That doesn't look like Basil sitting there. Viner: Well, it 1e though. H.M.Jr: He must have shrunk. Nelson: I guess maybe I am responsible, Mr. Secretary. He 1a looking up right away whether there is one boat in the Mediterranean that 1en't loaded, and he is helping try to get that -- H.M.Jr: Now - excuse me, are you through? Nelson: Yes, sir. H.M.Jr: On the tax bill, you are not to go up to the Hill. Pat Harrison has just called me in the last ten minutes, first for you (Sullivan) to go up tomorrow, and then he called back that I am to open it on Wednesday. Why, I don't know. So you go home. Sullivan: No, I am on call this afternoon in the House. Thank you just the same. H.M.Jr: Well anyway, 1s somebody going to give me a speech? Sullivan: Yes. 154 - 5 - H.M.Jr: There are two things I want to include in that talk. I want to Bay the thing on tax exempts and I want to say something about 10%. I am not going to let these fellows say, "Aren't you saving any money?" So let's find out what the budget position 1s and adopt it if it 18 any good. Sullivan: Shall we send your statement and the President's in response to the inquiry of Governor Sulzer? H.M.Jr: I don't know what it 1s. Sullivan: The President sent to you for preparation of a reply for his signature B. letter from Governor Sulzer recommending the taxation of interest on all Government securities. H.M.Jr: Former Governor Sulzer of New York? Sullivan: That 1s right, so are we to give the President for his signature a reply which embodies the statement you are going to make? H.M.Jr: Sure. Sullivan: That 18 easy. H.K.Jr: Governor Sulzer, when he was Governor, WBB given a dinner and my father got up and made a speech at the dinner given Governor Sulzer and he said, "The trouble with you, Governor, if your backbone was only not your wishbone, we would have & better administration in the State of New York." A great guy. I didn't know anybody could answer him. Well, Dan, two-thirty? Bell: Yes. H.M.Jr: I see that the thing is 8. little different, ien't it? A country being invaded 1s different than a country being the invader. That makes 8 difference. Okay. Anybody want to ask me anything? Regraded Unclassified 155 - 6 - Merle? Cochran: We still have something on France as of Saturday noon. Leroy-Beaulieu was in late. He raised the question then as to perhaps & partial blocking of France, which I hadn't gotten to tell Dan about, by departments instead of the whole country. Bell: Well, we ought to block them all. H.M.Jr: Wasn't it Belgium or Holland who asked us to do it by provinces? Bell: I think we have to block the whole thing and then issue general licenses for anybody out of the line. Gaston: You might just have & general exchange control as to all countries and then issue general licenses for South and Central America and 80 on. H.M.Jr: At this meeting this afternoon - are you through, Herbert? Gaston: Yes, sir. H.M.Jr: At this meeting this afternoon, your early one, ask Mr. Welles to come to the three- thirty one. I want Sumner Welles here. Bell: And Berle too? H.M.Jr: And Berle too. And Hackworth. Cochran: There is a big spread in the Sterling quotation this morning. H.M.Jr: And Hackworth. Bell: All right. H.M.Jr: Sure, and why not have Feis? You have always got to have a minority. Let Herbert Feis come in. I would like to have him make a record on the Stenotype. He was here a year ago or something when we were taking & record, and he said, Regraded Unclassified 156 - 7 - "Throw that blankety blank machine out the window." He said, "How can I talk with that machine there?" Gaston: I have a suggestion. Let's bring in three Stenotypes and compromise on one. Viner: And have them arranged right in front of him. H.M.Jr: All right, gents. 156-A TREASURY DEPARTMENT WASHINGTON June 10, 1940. MEMORANDUM FOR THE SECRETARY: The Italian Steamship ARSA which was scheduled to sail from New York for Rome, Italy, on June 8th, and which is being detailed on instructions of the Italian Government, is carrying 732 bags of wolfram ore. Incidentally this is the ship on which we are holding up 300 tons of rubber on request of the State Department. Banil Kamis 157 June 10, 1940 8:32 a.m. Earle Bailie: I'm quite sure. H.M.Jr: Well, it would be & note. B: It would be a note. H.M.Jr: Yes. B: Ah -- H.M.Jr: It would be sweet enough to carry plenty of margin. B: If it were sweet enough to carry plenty of margin and it was a note, I would do it. H.M.Jr: You would. B: Yeah. I'd do it and these are the reasons I'd do it. H.M.Jr: Yeah. B: For you to use cash at the present moment will disturb the business community. H.M.Jr: Will it? B: I think it will. H.M.Jr: Why? B: Because they'll feel that you feel you can't do a note. H.M.Jr: Uh-huh. B: A few weeks ago they would have thought it showed how strong you felt. But with this great program standing up in front of us for you to draw down against that program, I think, would cause worry rather than comfort. 158 - 2 - H.M.Jr: I 800. B: That would be using your what you -- I would think of as your ultimate reserve -- your cash. H.M.Jr: Yeah. B: Therefore, I'd make it aweet as the devil and H.M.Jr: Sweet as in honey. B: And I -- yeah. Exactly. Honey 18 the word I said -- sweet 88 honey -- and I'd just let her go because I think the banks will support you. H.M.Jr: I see. B: I was Just talking to my boys outside here, for instance, about municipal bonds. H.M.Jr: Yeah. B: Well, they say that at the new levele they'll be eagerly taken. H.M.Jr: I see. B: Ah -- now that wasn't true even a week ago. It maybe it may not be true by the end of today H.M.Jr: Yeah. B: ...... but, Henry, what right have we to suppose that the news one week, two weeke, or three weeks from now will be better H.W.Jr: That's right. B: and that's my second point. Then you may ...... very well have to take rather unsuccessful offerings once in a while. Well, gosh, you've got a wonderful record of success to back it up and I'd do my business as usual. I believe people will back you up. Regraded Unclassified 159 - 3 - H.M.Jr: Well, I wanted to get your reaction, and you've given it to me. 1EO June 10, 1940 9:03 a.m. H.M.Jr: Hello. Operator: Dudley Mills. H.M.Jr: Hello. Dudley Mills? Dudley Mills: How are you, sir? H.M.Jr: I'm all right. How are you? M: Very well, thank you. H.M.Jr: Dudley, if you should be 80 unfortunate as to happen to be working for the Government -- ah -- would you do a refunding today? M: I would, sir. H.M.Jr: You would? M: Yes, sir. H.M.Jr: Uh-huh. What are your reasons? M: I would do it. H.M.Jr: What are your reasons? M: What are my reasons? H.M.Jr: Yeah. M: Well, I think that if anything, the situation 18 going to get worse, and you'd better do it. H.M.Jr: Un-huh. M: I would -- it's a small amount, only $350 million, and I would bring out a December .44 note at one and an eighth. H.M.Jr: December -- what's that? M: I would bring out a December 144 1-1/8. 161 - 2 - H.M.Jr: December .44, 1-1/8. M: Yes, sir. H.M.Jr: I Bee. M: I really feel that this market has stood up very, very well through this whole thing, sir. It has stood the difficulty with the Belgian King, it has stood up under that terrific battle in Flanders, it has stood up under this close approach to Paris, and I believe that it would take the $350 million. H.M.Jr: Uh-huh. M: And I think it would inspire confidence for you to do it, sir. H.M.Jr: How many days do I have to leave the thing open? M: Two days. H.M.Jr: Two days. Uh-huh. Well, you've given me what I want, I mean -- I mean, not the -- you've given me the information that I wanted. M: I'd do it, sir. I just feel that as time goes by you'll have to get higher and higher rates. H.M.Jr: Uh-huh. M: It looks that way now and I think to do it and have it over with is -- I think it will show courage and I think it would inspire confidence in the market. H.M.Jr: How much -- what do you think the December 144 1-1/8 would sell at? M: Well, I have the yield right in front of me here, sir. At a 1% basis which would be a par 17, a 1.05 basis would be par 10. H.M.Jr: So from -- from -- you think there's from 10/32nds to ...... 162 - 3 - M: 17. H.M.Jr: to 17. M: On the '40-43's I might Bay we haven't got any so we're not -- I'm not speaking from H.M.Jr: Yeah. M: disposition. We haven't -- I think we've 17,000 or 12,000. H.M.Jr: I see. M: I think that note would pay up above 10 and as high as 17/32nds. H.M.Jr: I see. M: And the banks will be glad to take them, sir. H.M.Jr: They would. O. K. M: Thank you very much, sir. H.M.Jr: Good-bye. M: Good morning. H.M.Jr: Thank you. M: Good-bye. 163 June 10, 1940. 9:14 a.m. H.M.Jr: Hello. Operator: Mr. Devine hasn't come in yet. They expect him shortly. H.M.Jr: Well, find out if Mr. Eccles 16 in town. I'd like to talk to him, if not, who is there -- who's in charge. Operator: All right. H.M.Jr: If Eccles is not there -- what's the name of the man from Atlanta? Ransom -- Ronald Ransom. Operator: Right. H.M.Jr: If Eccles isn't there, Ronald Ransom. Operator: All right. 9:15 a.m. H.M.Jr: Hello. Operator: Mr. Devine. H.M.Jr: Hello. Mr. C. J. Devine: Good morning, Mr. Secretary. H.M.Jr: How are you? Devine: Fine, thank you. How are you? H.M.Jr: Chris, if you were 80 unfortunate as to happen to be working for the Government ...... D: What's that? 164 - 2 - H.M.Jr: If you happened to be as unfortunate as I am and had to work for your Government ...... D: Yes, sir. H.M.Jr: ...... would you do a refunding today? D: Ah -- I'd like -- I'd like to think about it a little while. H.M.Jr: Well, that's all right. D: I'd like to think about it. H.M.Jr: Think about it and call me back on DIstrict 2626. D: On DIstrict 2626. H.M.Jr: Think about it and call me back. D: Yes, I'd rather do that. I wouldn't want to make any snap judgments. H.M.Jr: Fair enough. D: All right, sir. H.M.Jr: Call me back, please. D: Yes, I will. What time -- any special time? H.M.Jr: Well, I'd say around 10 -- 11:30 your time? D: 11:30 our time. Yes, Mr. Secretary. H.M.Jr: Right-o. D: Thank you.