Volume 344, January 1 – January 3, 1940

DIARY Book 344 January 1 - 3, 1941 Regraded Unclassified - 1 - Book Page Advisory Commission, Council of National Defense See Defense, National instrican Friends Service Committee See Ver Conditions: France - B - bank Molding Company Legislation Conference with Glass: Foley memorandum - 1/2/41 344 98 a) Proposed bill. 103 Memorandum on legislation for FDR - 1/3/41 296 "Paiding" on subscriptions to Government securities to be used as example of great evil of holding companies (Bank of America) in testimony before Congress - - 1/6/41: See Book 345, page 64 Treasury memorandum to Barkley as to type of bill Treasury prefers - 1/6/41: Book 345, page 74 Senate Bill: Book 345, page 76 Belgium See Var Conditions: Gold Brandeis, Louis D. (Justice) Approves EMJr's ideas - so Frankfurter tells H&Jr - 1/2/41 91 - C - China See Var Conditions - D - Dakar See Var Conditions: Gold Davis, Chester C. See Defense, National Defense, National *Decentralization of Defense Production": Memorandum sent to HMr by Davis (Advisory Commission, Council of National Defense) (12/27/40) 170-3 Advisory Commission, Council of National Defense: Davis asks that relationship to Office of Production Management be clearly defined (12/27/40) 170-J Defense Production See Defense, National Defense Sevings Bonds, United States See Financing, Government Dowding, Sir Hugh (Air Marshal) See Var Conditions: Airplanes Datch last Indies See Var Conditions: Netherlands last Indies - ? - Book Page Federal Bureau of Investigation Items - 1/2/41 344 317,318 Financing, Government United States Defense Savings Roads: Advertising compaign discussed at 9:30 meeting - 1/3/41 208 Trance See War Conditions: France; Gold; Shipping - 6- General Counsel, Office of Legislative program for 1941: Foley memorandum - 1/3/41 310 Germany See War Conditions: Foreign Funds Control; Shipping Gold . See Var Conditions Government Pay-Days See Pay-Days, Government - I - Hungary See Var Conditions: Foreign Funds Control - I - - Italy See War Conditions: Foreign Funds Control; Shipping - J - Japan See War Conditions - L - Legislation See General Counsel, Office of Lend-Lease Legislation See War Conditions - E - Martinique See War Conditions: France: Gold Monnet, Jean Letter of appreciation for assistance and HMJr's reply - 1/3/41 292 - If - Book Page Netherlands East Indies See War Conditions - 0 - 011 See War Conditions: U.S.S.R. Ordnance See War Conditions: Purchasing Mission - P - Pay-Days, Government Staggered pay-days discussed at 9:30 meeting - 1/3/41 344 210 Production, Defense See Defense, National - R - - Revenue Revision Tax-exempt Securities: Legislation discussed by Treasury group - 1/3/41 211 a) Sullivan draft 224 - S - - Shipping See War Conditions - :- Tax Research, Division of Report on projects during December 1940 327 Taxation See Revenue Revision Tax-exempt Securities See Revenue Revision - 0- - U.S.S.R. See War Conditions United Kingdom See War Conditions: Military Planning Y - Book Page for Conditions Airplanes: Mr Marshal Sir Hugh Dowding (plane production expert) arrives in United States - 1/1/41 344 4 a) BUT and Purvis discuss - 1/6/41: See Book 345, page 100 b) Dowling, Purvis, and Young confer with BUr - 1/7/41: Book 345, page 216 e) Press comment on Dowding arrival: Book 345, page 307 d) Number of P-40's turned over to British - Toung memorandum - 1/10/41: Book 346, page 376 P-40 Pursuit Planes: Need for increasing deliveries to England and Middle East emphasized in Wilson assorandur - 1/2/41 66-A China: Soong, HMJr. Young, etc., confer at HMJr's home - 1/1/41 12 a) Bombers (long-range heavy): Doubtful if any can be turned over b) Burna Road protection discussed c) "Leak" to newspapers explained by Soong - 1/3/41 258 Purchases discussed by HMJr. Purvis, Wilson, Young, and Ballantyne - 1/2/41 46 HMr tells Soong of conference with Purvis - 1/2/41 86,171 a) Hopes 2 planes can be delivered to China for each of 18 working days and 1 plane each day for the next 10 weeks - 100 in all 3) Ammunition also discussed Financial position reviewed by Y.C. Koo, Vice Minister of Finance - 1/2/41 126 Exchange market resume' - 1/2-3/41 118,319 Foreign Funds Control: Germany: Transaction with Chase National Bank - 1/2/41 122 Imgary: Transactions with Guaranty Trust Company - 1/2/41 120 Italy: Transactions with Chase National Bank - 1/2/41 121 France: American Friends Service Committee: Milk distribution to French children reported on - 1/2/41 136 a) Copy to Mrs. FDR - 1/6/41: See Book 345, page 182 Pickett asks for release of additional $50,000 - 1/10/41: Book 346, page 297 Martinique: Rehabilitated planes to be exchanged in Cuba for food discussed in Young memorandum - 1/2/41 145 - 1 - (Continued) Book Page Var Conditions (Continued) Gold: Germans demand Belgies gold held at Dakar - 1/2/41 344 140 Martinique: Tentative arrangement between French Ambatsador and Welles reported to HMJr - 1/3/41 196 a) Cochran memorandum - 1/7/41: See Book 345, page 308 Japan: Agreement with Netherlands Bast Indies to facilitate accetary traffic reached - 1/2/41 131 Lend-Lease Legislation: Frankfurter asked to review proposed legislation - 1/2/41 91 Resume' of events - 1/2/41 149 Foley told to contact Beaman, of Drafting Committee: FIE wants appearance of originating in House - 1/3/41 391 Military Planning: Reports from London transmitted by Butler - 1/2/41, 1/3/41 173,400 Netherlands last Indies: Agreement to facilitate monetary traffic reached with Japan - 1/2/41 131 Ordnance: See War Conditions: Purchasing Mission Purchasing Mission: See also Var Conditions: Lend-Lease Legislation Ordnance: Coordination and atrance ordnance preparations for United States defense program and British Purchasing Commission discussed by HMJr. Purvis, Foley, Cox, Young, and Ballantyne - 1/2/41 67 a) HMJr's illustration: Steam-shovel actually ready to start on post-offices when bill is finally signed Requirements: Courchill's message to FDR, copy of which is given to HNJr simultaneously, discussed by HWr. Sell, Phillips, Sallantyne, Purvis, Kuha, White, and Foley - 1/3/41 237,261 $230 million still available: McCloy (War Dept.) memorandum os use thereof - 1/3/41 351 Knox tells BW: be cas "cracked whip" and binoculars, 4-inch gass, forgings for flasks for torpedo boats, etc., will be turned over to British - 1/6/41: See Book 345, page 86 Statement showing dollar disbursements transmitted by Federal Reserve Bank of Sev York - 1/3/41 320 Vesting Order: Official sales of British-owned dollar securities - 1/2/41 123 Regraded Unclassified - V - (Continued) Book Page Var Conditions (Continued) Shipping: Immobilised Shipping: HMJr's memorandum to FDR suggesting procedure discussed at 9:30 meeting - 1/3/41 344 185 a) German and Italian ships: HMJr tells Gaston to inform Navy well in advance of any sailing - 1/3/41 349 1) Mamorandum for FDR (not sent) 350 2) Gaston memorandum on possible procedure - 1/3/41 354 Convoyed Shipping to Britain: Report on - 1/3/41 342 Resume' of situation in American ports - 1/3/41 393 Losses - British, Allied, and neutral - 1/3/41 397 U.S.S.R.: 011: Confidential report by White - 1/2/41 272 1 January 1, 1941 I called up Jerome Frank today, and asked him please to hurry up and get this Bethlehem crowd ready 80 that by Monday I would be able to tell the British that they were lined up. They gave Quinn the authority and their blessing, and it is up to him to line up the rest of the crowd. Frank asked me whether I had done anything about Beardsall, the attorney who used, to be with FDIC. I said he should keep his fingers crossed and look out for him. He is a great friend of Jesse Jones, and it probably was Jones who got him the job with the Bank of America. 2 January 1, 1940 From nine until ten o'clock Wednesday night, Bell and White were at the house with me discussing what we should do about the Ecoles' article. 3 THE TRUSTEE SAVINGS BANK GAZETTE CANADA VOL. XI. No 1. JANUARY, 1941 ESAVINGS ENEM SECURITY INTERIOR OF THE SAVINGS BANK or GLASGOW'S VEW PREMISES AT HILLHEAD PAGE 740 PAGE THREE and the oppressed nations all the world the fa de adequate to cope with this expension of business, National Savings Certificates, Three per Cent. TRUSTEE SAVINGS BANK GAZETTE and the tolerance for which we fight, and for Wa and the Truitees decided to secure larger and more Defence Bonds, and the facilities of the Post Office OFFICIAL ORGAN OF THE fight, money is so vitally Important. convenient premises. The new branch office was and Trustee Savings Banks will, uf course, continue No words in this message are aceded to TRUSTEE SAVINGS BANKS ASSOCIATION opened un October 17th, no formal ccremony taking to be available, and I have no doubt all of these will or augment this national appeal. I would ado unly the encouragement and good wishes which way place owing to current conditions. continue on their successful coune. You will see, therefore, there is a large list from which to choose, our Chairman's intention and is my privile to Hall and I think that it will mest every need and circum- NEW YEAR'S MESSAGE express to all who are to-day patting so man lato An an example of the way in which the Savings stance, We have had a great savings and the work of the Banks, and for the success or their Banks can adapt themselves to the present condi- lending year-lec us see to it that 1941 beats even Tr has been customary for the Chairman of the co-operation in the National Savings Movem at, time, il is interesting in note that the Hell Savings this fine record." Association till address ( New Year's message to CLAUD L. C HAMILTON, Bank have decided to open a branch actually within the Trustee Savings Banks through the medium of the GAZUTTE. This is bei matter of form, and we Deputy Chairanna, lone of the large works in Yuckshire, for the benefit of the three or four thousand employees, who, all terrytive the (incure feeling with which these OBITUARY being on dury Emm early in the morning until late melsages have been written at night, have no opportunity to use ordinary bank- Mr. John Buxendale Unforminately, Sir Gourge Rainy has been laid vp for e-me werks and is unable this year to write NEWS FROM THE BANKS and facilities, We regret the recurd the death of Mr. John In conjunction with this branch, they are also Basendale, which requered on November 17th last. his nwo merage. I feel sure that every one con- nectes] with the Trussee Savings Banks sincerely Glasgow operating di big Direct Transfer Scheme, and within Mr. Basendale was a member of the Association The Glasgow Savings Bank recently opened DCB The here few days of commencement over tis bundred representing the Chorley Trantee Savings Bank, looks forward to his speedy rocovery, and wishes premises at Hillhead, and the capacious and will of the employees opened accridats. The branch is and was a Customstion Trustee of that Bank. him, BY far as the circumstances of the time permit, happy and prosperoso year in 1941. and many as firted interior which is depleted upua our fronti- to be open during the lunch hour-11 to 1. p.m.- each day from Monday to Friday inclusive, and it Mr. George Gibson fullow. We time him beartfeld geautude for has plese would admittedly do justice B many a head will bei intenesting Ell fullow the progress of this The Galashiels Savings Bank has puffered a leadership and indefatigable Work. office The office, which is one of the boest, if ant On behalf of the Trustee Savings Banks Assoca- the finest, of the Glasgow Savings Bank, is the work puvel experiment. severe loss in the detth of their Chairman, Mr. Genrge Gibson, which occurred on November agth. tion, of the Chairmin, and in all Inamility on my of Mr. Eric A. Sutherland, Architect, and it ⑉ Mr. Gibson had a long connéction with the Bank, uwn behalf, I send our best wishes to the Trustee the last piece of work be executed. The brand having been electod a Manager in 18Hg, . Truster Savings Banks fue their prosperity, their protection, had just been completed when Mr. Sutherland died WAR SAVINGS in 1919, and Chairman sinet 1934 Of the Trustees and all pesceful blessings in the year upon which we suddenly, and his passing will be 4 yreat loss to the and Managers in office at the time of his elective have entered, Further, 1 express what I know was Glasgow Savings Bank, five be had been five mans In a besidest on December 17th, the Chancellor he Was the sule surviving member in the Chairman's mind, namely his consciousness years their skilled adviser and friend. the Exchoquer announced the thating of a new of the Injal support and assistance which be received medium-term Government loan to help finance the Mr. James Maxtone Graham Inios the Banks and from our colleagues, to all of Falkirk wan The new security, to be known as Three We record with the deepent regret the death, whom he would wish to tender to very grateful We reproduce below a phomgraph of the new Per Cent. Savings Boads, 1933-1961," was openest which occurred on October with last, of Mr. James thanks. premises of the Palkitk Savings Bank or Whirburn for subscription on January and Speaking of the Masrrine Grahim, Chairman of the Scottish Savings When last year's New Yeir message was rent out progress of the War Savings Campaign, to date, Sir Committee. Mr. Mastone Graham joined the Com- tri the Banks we were " the outset of the greatest Kingsley Whold said: mitree in 1924, successing the late Sit Alexander War Savings Campaign ever launched, and Sit light sis months ago 1 came to the microphone Wright M Chairman in 1931 Members of the George expressed the belief that the Banks would DI tell you of à new War Liven which was about to Association will from with the members of the prove themselves worthy of the place they bold in be launched. Recalling the great success during Scottish Savings Committee in extending sincere the national life. How well founded was this the last war of the plan of borrowing from day to condolences to Mrs. Maxtone Grabam and family belief for been amply proved by their contribution day by National War Bonds, I placed on sale the in their great lon. in the was effort let year, when they placed in per Cent. National War Bonds, Dr. John Lamont the Government's hunds 8 um nearly twice as 1945-47- In the 16 weeks which have passed since then we have raised in these boods 00 less than It is with deep regult that we record the deads, great AS that raned by them in the previous year- which occurred on November 17th, of Dr. John and than a record year. The has not licen achieved (119,000,000.) A fine achievement Lamont, M.B.E., J.P., P.S.A. (Scot.), U.D., Chair- without great offort and indesal sarrifice un the part This B. as you know, only one part of all we of the Danks, their states and their depositurs, In BFC doing to provide money for victory, Since man of the Bute Savings Bank, Roibesay. expressing gratinude ini pride in this rehievement, FALKING 4 XRW TAEMENTS If BATHGATE November, 1939, we have raised through Savings one cannot but fund that this o the cohn of the feelings Cérificates, Defence Boads, and increased deposits of three in higher authority, by whom the dfort Road, Bathgare. After being in existence for twenty- do the Post Office and Trostee Savings Banks a total WAR WEAPONS WEEKS is most appreciately reargnised. three yours is a separate concern, Bathgate Saving of (111,000,000. With the [100,000,000 raised by And now for the second year! the musile, the Bank unalgamated with Falkirk in 1937, and the the Three per Cent. War Lan, the $419,000,000 As it well known, War Weapons Weeks are being determination and the hope of the workers and total funds at that time were £29,000 Since thes from National Wait Bonds, and about $21,000,000 held throughout the country : up m the end or savers has brought a magnifient response through- the Bank has been open Full time and the program from luans free of interest, the total reaches December no less than one hundred and receiv- our all the country, in the year that has passed, has been extraondicary, for the funds of the Bank really wonderful result." two such Weeks' had been celebrated, and there but we have got tu keep it up-mire, We have to amounted at the end of September last NO Bill lest Sir Kingsley Wood proceeded to esplain the we many more to follow. However varied have go one better, in the cffort to retain the namelves than (200,000. The existing accommodation red advantages of the now security, and continued been the results in the tities and towns in which Regraded Unclassifie PAGE FOUR PAGE FIFE they have been held, the variations are but degrees guard. We overcame dus difficulty by born in viously opened for the vole purposes of having a The afforts of that week were well worth while of suppers, for the response 1 we understand, a large portable hut and having it alongside the sik. ary for # free a Wolverhampton aimed ar $1,000,000 and mised over amized even the must sanguine organisers among The whole exhibit was arranged on a site the The black-our will hailed wish relief on the (1,216,000, and our share in this was All follows: the National Savings Committee, to whom we tender middle of the main shopping centre of the we, closing Saturday by the exhausted Staff for it tes- our respectful cringratulations upon the SUCCOR of and was quite apare from the displays arrang by minared nur campaign, but it will with quiet sativ- Cash Deposited £28,66, " the Lincola War Wespons Committee, as the Was faction that one made onc's way carefully homeward National Savings Certificares sold their efforts. Trustee Navings Banks, no, have played their so large that it could not be accommodated is the in the darkness for not only had the Bank played 20,124 £19.743 o part, and H is gratifying to DUE how many Actuaries city centre. This was a great advantage to - promident and very important part in the Lincoln Savings Stamps sold Eyes " o have been upon the special committoes set up To support and stimulate the appeal of the ank, War Weapons Week but it had also fared extremely Three per Cent. Defence Bonds (Loty o locally for this special purprise, and have been in in was decided to credit every hundredth new account well in the process. What a week Two and a Half per Cent. Nat- opened at the Tank or Bank with £ at the B-ok") ional War Bonds the forefront in making arrangements, participating £2,000 5 o in the publicity, the business accruing to the Bank, and expense, and to present the purchaser of cach C. R. STILES, the resultant MEACE of these magnificent war efforts. thousandth unit National Savings Certificate with Actuary Lincoln Savings Bank, Total for Week £12,943 " " We have pleasure in reproducing below the one National Savings Certificate free of cost. The I have nothing bur praise for the way in which experiences of two of our Banks during their public was acquainted of these arringements by the Wolverhampton my depleted staff worked, but I should not like to respective War Wespone Wooks. Viewed as they insertion of paragraphs and small editorials in the Are from different standpoints, they give what must When it was announced that War Weapons Week face the prospect of another War Wespons Week local papers during the fortnight preceding Wespons in the immediate future. be typical examples of the ways in which the Truster Week and by advertisements during the week mele was to be held in the period November 16th-13rd, Savings Banks have responded to this further oppor- We also carmarked some of the excess of Deposits it was realised that, with the year end falling mid- ALBERT HARRISON, may for share in the great work Tue the national over Withdrawals in the Special Investment Depan- way in the period, we could expect an unusually Termary Wnlyerhampton Savings Bank, que ment for the quarter ended November soth, 1949 buse time. Lincoln for the purchase of a substantial amount of Two We suffered * severe blow in the first week of and a half per Cent. National War Bonds during the November, when the senior assistant was called up. Appended below a a list of forthcoming Was Week, and this fact was also given wide publicity The staff remaining was the Actuary, one clerk, a Weapons Works which have been arranged in the During the past year specist efforts have been places at which there are Trustee Savings Banks and made to comulate National Savings no two The Weapons Week opened in corrential cain junior of three weeks' experience, and a temporary branches. Natural Savings Week and War Weapons Week, and in under that Trustee Savings but despite this Éact, the public were so aware of asistant. No help being available from our the Tank and as purpose that we actually did six Branches we had to carry on to the best of our Jan, 10-21 Feb. 9-16 (cont.) Brake serain their place as nine of the principal times as much business there than was transacted ability. Burnley Rotherham that (gencies in the country and enjoy Til the full The rush of business started immediately the doors Worenter Wakefield the Gesh business cade svailable, it was fels essential at the official booth at the Weapons Exhibition. opened on the 16th and throughout the week the Wallasey that full advantage be taken of such appeals. There On the Wednesday of the Week I had been at essure uncreased. From the time of opening each Jan. 13-Pal. Walsall is also the Do the consider that, unless the services to artange for a laila raid uver the city by day the Bank was full of people and cur accominuda- Hampden Botther. The leatlet drew attention Bill Myth of the Banks he constantly brought before the public, tion, madequare even for normal business, was tased Coine the facilities of the Bank and the special attraction Feb. 16-13 special National Savings efforts might cause a to the utmost on occasions, It was improvible for which we were making for new accounts, to which Kettering Aberdeen County ACCOUNS withdrawal of deposits (in the purpose of more people tu get in and the start had lime for Pembrokerbire Excres purchases of National Savings Certificates, for I have already referred. nothing but the selling of certificates and dealing Preston Kincandineshire despite the Daily Prox advertivements issued be the This, to my mind, was the high spot of the week. with depositors. Most days funch had m. fre post- Smithplict National Savings Committee and local efforts, many The public simply surged in great masses to otais possible until after closing time, people still rhink of National Savings only in terms the leaders as they fell and I must admit that, from To add EN our difficulties throughmit that week Fib. any Pek 13-March of National Savings It was bearing these my viewpoint card the Speaker's platform, I fels some we had a period or early alerts," and is was féic Attoncham points in mind that 1 planned the campaign for ansiery as to the safety of the crowd as they struggled that the staff could DOE be kepi nn the premise to Hedford Danford Lincoln War Wespons Week. to obtain one. deal with the scrumulated work. As a emisquence Bootle Stockport From the commencement I had the advantage of The days following the leatier raid proved DE be work piled up and it was not possible DO bring down Danded Wednesbury being oft the treat Savings Committee and the a nightruare to the Staff, The Bank was practically the interest or do anything towards the Annual Bast Lothisa appropriate Special War Weapons Committees, and disorganised owing to the rush of the public en Balance, Neath March 1-1) K ! knew exactly what form Lincoln's effort was to conduct business through us wod, norwithstanding Br the end of the week the rusbi was at in height Audenshaw take. 1 also had the advantage of knowing and the fact that everyone worked until very late al and on the last Saturday morning, in the three hours Frit. 9-16 Camborne having the sympathics of several members of night, it was quite impossible die complete the recents to a.m. to - p.m., we had 224 transactions of deposit Aberdeen City Denton engineering directorates and, by exploiting this to of each day's business before the next day's work or repayment plus à much increased sale of Certifi- Accrington Dunstable the foll, we were able to have a modern Cruiser was before us. are. etc. Bridgwater East Retford Tank placed at our disposal five War Wespons Week. It all proved well worth while, bowever, the We opened 92 New Accounts and dealt with 1,127 Carlisle Gusport 1 intendest the tank TO lse used as a sub-office of the total expenses for the whole week were about 64. transactions of deposit and repayment plus 1,722 Chatlism Lutua Bank the the Week and to have business retually and this expenditure resulted in our figure the Direct Transfer transactions. These figures do not Croydon Morayshire transacted at the Tank Gan Turret. However, the week being four times as great as the average weeklt give - true impression of the number of people dealt Darlaston Redicar latter Idea had in be scrapped owing to the fact with, as it has to be realised that must of tie Certifi- Doncaster Redruth tigure taken over the precesting ten weeks, that the War Office suddents realthed that the Tank were un thereselves well above the average We cares sold were to individuals and groups for cash. Kelso St. Helen's outsidied several new item, and comequently that Numerous enquiries had to be answered and normal Little Lever Smetford also opened a very large number of new accounts, il must be mounted by a twenty-four bours a day and of these I have only found TWO which WORE Insuress of cashing cheques etc. carried on. Newbory Thome Regraded Unclassified PAGE SIX March 9-16 March 30-April a the Glasgow Savings Bank, to be a member Middleslmugh Newark Committee in the place of the late Sir illan Morley Northwich Henderson. St. Austell New Banks Although details of the funds of the I nko 21 March 16-23 Ipril 10-17 November 20th last are not yet available, it open Bury Dewsbury likely that the combined funds of the Ne Bank) Melton Mowbray will show an increase of approximately L1 10,000 Sale May 4-11 over the previous year. Outstanding achie ment Torquay Bidefond include: Portsmouth, highest in total funds Lumn, Radeliffe highest increase for the year Cardiff, exce. de the March 23-30 (200,000 mark in its third year. Congrato lines Ellesnien: Part Exmouth May 8-17 Amalgamation Harrogate Loughborough As from November zist last the Luton Surings Bank is amalgamated with the London Savings Bank New Zealand - A Kindly Thought ASSOCIATION NOTES The Association Office was cheered recently to N- ceive the following letter form Mr. F.E. Suthoriand, Election of Officials for 1940-41 General Manager of the Auckland Savings Bank, President New Zealand. Sin SPESCER ): PORTAL The GAZRYTE issued in Ortober last reached IM the Escative Committe mirning and to real are remarkable give the Six GEORGE RAINY (Charman) deposits during the twelve month. coding August jist be I think that the is an mountry where harms speak vilume Co., MAJOR C B. L. I.. C. FLETCHER HAMILTON (Depate Chairmen) us regard tu the Hanks themselves and their deposities R to difficult fur the of us 40 far (nm ihe MR. W. Louis LAWTON (How. Treamme) theathes of War fully to approvate how the MR. 1. R. Promis (How. Suintary) " varrying in with the effects and ravages of the Wet ever provist. The bombing of combutant- and the Mr. H. SANDERS (North-Ear Inw) wanton destruction of Un old landmarks All us with grad. Me, E, C C EVANS (North-Were and yes product all this turmoil, onlinary Insurers Conscition W. 1. WING (Youtherm (10w) provided and III'W high limits am laving started The Ms. II. Outen HORSE (Scottich Ind) Agares aft further evidence of the confidence ni the persiple the standing of the and the financial structure MR. 11, B. ROBINSON (Northew Indand Ami) of the emintry Compiral Members The water was ⑉ the last War and enjoyed is MR. E. M. CAMPHELL numbers OCCURIORE the hospitality of the people of both ADM. L., A. H. DONALDONS (Nor Pngland and Smtlant The personnel of FISIF una fun fun responded splendidly and at the present time " pm Sin louis MASN (Numiferm -1ml) was of the male statt are in uniform, and We have less Sin KISNETO STEWART (Monderic) obligati till under Then above die War age and have - Ma. W. 14-7) had En adopt to uning termate assistance Ms. T. 11. 11. WALKER that were nover dreams et prior to the Wat un on the upwant insul and no (Ith The Trantee Savings Hank- in New Zealand submit Messon Thomas Countro & Sox, Chartered competate with the X/ Government Treasury in a Naturnal Savings Slame The acheme has INIV - Accountants amd beside the mate of War Normal Scottish Savings Committee Investment Accounts are wine opened and an him Lost Alness who has been appointed Claiman with subjett unimally at . with but the -men is not preside nmil fune with 1045 the of the Seottish Savings Committee NO fill the vacancy informe Leving This memory is unmediancy created by the death of Mi. Mustom Graham, has - to The Transury and the tank receives I 1 will had a distingsibled legal and Citydr. He only un Hive sudgements 11 will this De men that the - a former Load Adviside for Scotland, and doning of the work that the Trustee Savings thinks 4D name without cost to the Government the years 1916 tis 1922 he was Secretary for Sentland, 1 hoge you do mas usland my writing 111 you Trustee Savings Banks Inspection TIN this manner but I fult that something mm we Simil für Than just ordinary busitiess contacts, Committee I do not know whether you an still problems the The Trustee Savings Banks Inspection Committee Vone lost, if will aboutd to glad " copie= int have compted Mr. R. C Greig, CA,, A Trustee of crisht the forwarded 10 ne ingetted with mill los - BY - Submit Hanks Association Voiden - box, W.C.A. - 1 in Wimm - Houting and (A) 14 BRITISH EMBASSY, WASHINGTON, D.C. January 1st, 1941 My dear Mr. Secretary, As you have perhaps already heard, my Government are sending Air Chief Marshal Sir Hugh Dowding to this country to act as head of the British Air Commission at Washington on technical matters. According to our latest information he is expected to arrive very shortly after the New Year. As you know, Sir Hugh Dowding is one of the most distinguished officers of the Royal Air Force and was in charge of the Fighter Command during last summer's battles over Britain. Believe me, My dear Mr. Secretary, Very sincerely yours, hare Butter The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. Reard Jan 3,10.09 5 THE WASH Bardia Pubs Air Marshal Dowding Arrives Open?' Shout For Plane-Production Talks Australians Sir Hugh to Confer With Morgenthau, Anzacs in High Army, Navy Officials Spirits Awaiting Air Marshal Sir Hugh Dowding, Attack Order former chief of Britain's sky de- tenses. arrived in Washington yes- ATTACK, from Page L terday to confer with Treausry Sec- relary Morgenthau and officials of whirling their the Army and Navy no plans for peinted. intergration of American plane pro- had in eerie appear- duction with England's supply (brit knitted needs. Sir Hugh. the tall. thin World them against sand War atlot whose genus for organ- in the last great war ization and understanding of plane consider in enough to design is credited with developing ser for them. but Britain's valiant air defense. de- clined to see reporters until after enarged on to gain add:- his conference with Margenthau He said as yet no appointment resultance the British said. had been made for him to see the GEN. DOWDING but there Treasury chief. but Brush Embassy sources said the conference prob- instances of unusual ably would be held tomorrow. He *On Tuesday at 3 D. m. after my is expected to spend about a week with officials of the Britsh Pur- visit with Morgentbau I expect to Parcet officer kept shooting chasing Commission bere and after- grant a kind of general interview they said. until it was ward to visit several American and. perhaps. to answer some ques- as pand. Othera resisted plane factories. tions." Sir Hugh promised. Regraded Unclassified CONFIDENTIAL Paraphrase of Code Indiagram Received at the M Department at 1:44 P.M., Junuary 1, 1941. London, filed January 1, 1941. la On Tuesday, December $1, 29 planse of the Coastal Command were active and the Fighter Command engaged in nimer activities only. The Bomber Command launched day attacks against airdromes in Holland and France and against oil installations in Germany without a great deal of success. During the night before the British operated only nine patrols and engaged in no bombing activities because of unfavorable conditions. 2. During daylight hours of December $1, 22 German planes were plotted over Britain, practically none of them were fighters. During the preceeding night no German planes of any sort were over Britain because of adverse weather. 3. Ten ships in a convey from Sierra Leons arrived in Britain without mishap. 4. On December 31 a tanker of British registry was dan- aged by a mine off Liverpool. 5. 1 total of 314 individuals were seriously injured and 89 were killed in the recent raids on London. All of the fires: started by these raids had been put out by December 31. Food warehouses and three munitions plants were damaged severely and there vm some damage to dock facilities. The lack of high water pressure in the "city" was the most serious damage to utility services. Service is still not available in submy stations at six points, but services have now been resumed at three railroad CONFIDENTIAL CONFIDENTIAL 7 stations which were damaged. The central telegraph office has resumed service after having been knocked out temporarily, but as yet there are no telegraph commections with Southeastern and Southern England. Telephone communications between London and Southeastern England have not yet been resumed and one London exchange is entirely out of comission. Other types of communi- cations are now in order. 6. On December 31, British bombers based in Malta attacked Torre Annumsiata, a suburb of Eaples. Attacks were also made on a chemical plant at Cotrone and against Palermo and Taranto. LEE Distribution: Military Aide to the President Secretary of War State Department Secretary of Treasury Asst. Secretary of Har Chief of Staff - 2 Tar Plans Division Office of Naval Intelligence AC - 2 G-3, 1 -2- CONFIDENTIAL 8 JR GRAY Caracas Dated January 1, 1941 Rec'd 7:20 a.m., 2nd. Secretary of State, Washington. 1, January 1, 7 p.m. Following his annual NEW Year's reception the President of VENEZUELA formally inaugurated the new Central Banks in the presence of high Government officials, the Diplomatic Corps and "representatives of all national activities". During the ceremony it was announced that & loan had been concluded with the National City Bank thus providing Exchange which will make possible the immediate cancellation of foreign commitments already contracted and restors normal conditions of commercial interchange. I was informed by one of the directors that the loan is for $10,000,000. CORRIGAN TFV 9 PAR EAST BULLETIN So. 25 let Junuary, 1941 CHIKA'S NATIONAL CURRENCY AND NATIONAL UNITY The reported opening of the loug-heralded "Central Reserve Bank* in Senking on R1st December has not only ushered in B. new phase in the currency war between China and Jroan, but has also brought added importance to the problem of China's ver-time conetary policy. Like its counterpart, the "Federated Reserve Bank of North China", the new bank is obviously designed to obtain at China's expense foreign exchange to support a currency which is otherwise without any backing, and more significantly, to create out of the note-issues a weapon wherewith to consolidate the economic harvests of the military aggression. But unlike its counterpart in the North, it has never been such favoured by the Japanese military who feared, legitimately enough, that the BEY 3ank may be availed of as a source of revenue to finance an "independent" aray of the numet Government, which Japan can never afford to tolerate. Though in many respects the prospects of the new Bank are no brighter than its redecessor, the Bue Hein Commercial Bank of Shanghei, its immediate and implied threats to the position of the national currency are no less obvious and the probabil- ity of its success would supear to depend not 80 much on what the numet Government desires to do, as on the ability or inability to appreciate the bearings of monetary molicy and currency control upon the larger national issues at stake and to examine the robles in the light of these broader considerations. The problem is admittedly as serious RE the need for solution is urgent. Procosed Exchange Certificate One of such solutions, reported in the Chinese press to have received the serious consideration, if not the sporoval, of the authoritative quarters, is the proposed issue of the so-called "Ver-Time Exchange Certificates", into which only the national currency circulating in the unoccusied areas, will be made convertible at certain fixed rates. In its essence, it amounts to an artificial differentiation of the national currency according to the temporary political conditions obtaining in the greas in which they happen to circulate, and en arbitrary discrimination against those circulat- ing in the occupied erees, In the ultimate analysis. however, it amounts to en aban- doment of the national currency in the occupied areas and with it, 8 cornlete abandor- sent of the national currency policy. Sino-Jananese Currency Var Obviously, such an spproach to the currency problem not only fails to understand the basic political significence of E unified currency, but also overlooks completely the political implications of China's war-time monetary policy and the grave repercus- sions, once that policy is lightly discarded. It must be recognized at the outset that the unified national currency system, introduced in November 1935, is at once the symbol and the instrument of national political unity. It is by concerted choice. not by cure chance. that the national currency came to possess such en imense and invisi- ble power. The unique and unified netional currency occupies a position which is in influence as unrivalled as it is historically unprecedented. It is not therefore a pere coincidence that the reformed currency has been known as the national currency, Regraded Unclassified 10 2 there is is effect the lerger national as contrasted with the pure currency assect the problem. In vistever form or disguise, the Japanese currency maneuvers in Chine have been 10- brishly directed towards destroying the integrity and uniformity of the national currency g instrument of political and economic control. in order to capture the last wespon X zeed to complete their military conquest of e large and rich part of China. It is the credit of the policy of persistently maintaining under extremely difficult condi- in the integrity of the national currency. that the Japanese have been prevented from notes as creat economic benefits as their initial military success would superficially - to suggest. The so-called occupied areas are controlled by the Japanese only at ertain well garrisoned points and lines of communications. In these areas the unshabable with is the national currency has been responsible for the continued loyalty end alle- detre to the Intional Government and for the continued maintenance and activities of the berills forces. Indeed. the Japanese have comelled, for examle, the use of the "?ederal Reserve his cotes in connection with the import and export trade of North China, but that rice remine in the last enalysis to be financed through the national currency. Secure to actional currency remains the only scceptable circulating medium to the pessants, Le amorters who receive the "7.2," notes from the importers for their link trassac- total DATE to sell the 723' notes to obtain the national currency. while the imort- visa receive the national currency have to sell it for the "F.B.B." notes to the ex- me with what their transactions are linked. The continued practice of ruoting for- encludge in Tientsis in terms of the national currency. the 20 percent -reaim in ACE of foreign exchange of the national currency in Cientein as compred with Stanchet, ti to large volume of the national surrency still circulating in the Forth, estimated 700,000,000, notwithstanding legal prohibitions and severe punishments to the con- all meal of the unshribible confidence in the national currency. stare conseruences To introduce the "Yar-Time Exchange Certificate", or for that estter SIXT other idad zer currene in the unoccunied areas alone would at once destroy the unique position the attail currency, thereby impairing its effectiveness as an instrument of political of economic control, which Japan has repestedly attempted to do in vain. More danger- at it is tentemount to 8. comlete stendonnent of the people in the occuried areas = Main to encourage political regionalism. The temporary loss of territories would their to da): into comparative inconservences when compared with the loss of support = allegiance of the people. Psychologically, the shock to confidence, which NAT nile R. asspected change in the traditional policy is bound to entail, voulé inevitelly the to E scramble for foreign exchange end 8 competitive hoarding of vécterer comodities At C22 be had, leading to E runnway inflation end social unrest, with CONSECUPOCES so 891 serious the political non-allegiance. last is zore, under the present international alignment, the course to the altimate detory vould emear to be en active guerills variare, and An intensified economic viz- are, is contination with large-scale military counter-offensive. But neither the befills variage nor the economic 8 verfare vould be possible without maintaining the in- trity and continuity of the national currency, which AS ve have seen it et once the Prestote of the undeunted loyalty to the National Government and the mainsporing of Regraded Unclassified 11 in I # guerilla activities and economic non-cooperation in the occupied areas. It is the are imperative to preserve a wespon that has more than proven its effect. China's war-time currency is no longer a pure and simple monetary problem. It is efinitely a much larger problem involving much wider issues and more far-reaching con- ecuences than vas generally recognized. To study the currency question, it is essential examine it in the light of past experience and accomplishments from a much vider angle the possible political stakes and political consequences involved. Anything short such broad considerations is certain to miss the issue and the essence of the looming arrency war. I OPT:lap 12 Notes on Conference at the Home of the Secretary, 6 P.K., January 1, 1941 Those present, Secretary Morgenthau, Dr. T. V. Soong, General Mow, Colonel Chennault, and Philip Young. Secretary Morgenthau opened the conference by stating that it looked very doubtful if any of the long range heavy bombers could be made available to the Chinese. He added that, although the idea had the backing of the President, the Army felt that it just couldn't release any of those ships at the present time. The Secretary said, however, that there was a good possibility of getting some P-40 pursuit ships, and he inquired from Dr. Soong as to how many ships they would have to have in order to start operations. Dr. Soong and General Now carried on quite a con- versation discussing the various uses and tactical maneuvers for which the P-40 would be used and then decided that probably twenty- seven ships would be required. The idea of using these P-40's was to protect the Burma Road from Japanese raids, and twenty-seven ships would mean three squadrone of nine each. Both General Now and Colonel Chennault felt that that number of ships would be required before any could be put into the air. The general theory was that two squadrons totaling eighteen ships would operate at a relatively low level while one squadron of nine ships would operate at a high level to protect the lower ships from attack. The Secretary inquired AS to whether that number would in- clude spares, and General Now replied that it would not. It was General Mow's feeling that there should be nine more bringing the total up to thirty-six if spares were to be included. The Secretary explained that these shipe would have to come from British deliver- ies, that the situation was a very complicated one because, in order to get the British to release the planes, arrangements would have to be made for doing more for the British at a later date. Dr. Soong said he realized the complications involved and greatly appreciated the efforts of the Secretary and the President in attempting to work out something. The Secretary went on to may that it would probably be pos- sible to get a few ships at a time after the initial batch 80 that the number would probably be increased up to about one hundred over 13 - the next three months. The Secretary inquired as to the number of spare engines which would be necessary and ented the Chinese as to whether they wanted to purchase all of the 150 no-called "rejects" from Allison. General Now said be thought ten or twelve engines would be sufficient for spares, but the Secretary said it seemed to him the Chinese should have an allowance of at least fifty per cent for spares. Colonel Chennault agreed with the Secretary that fifty per cent ves the proper proportion. The Secretary asked Philip Young to tell the Chinese about the guns. It seemed that there were 132 machine guns suitable for aircraft and of an odd calibre already manufactured and avail- able at the Colt plant. These guns had been made by Colt on a rumor that the Chinese or some similar nation would like to buy them, and as no order had ever materialized the guns were still on the shelves. Preliminary investigation had shown that these guns could be used in the P-40, and that they could be sold to the Chinese who presumably had ammition for that particular calibre. In this way, it was pointed out that the British could be asked to release less guns than they would have to otherwise, and at the same time it would be helpful to the Chinese who, according to Colonel Chennault, were in a position to supply the ammunition. After conferring with Colonel Chennault and General Now, Dr. Soong said that, of course, they would be delighted to buy the guns. After some general discussion which brought out no new facts, it was agreed that the Secretary would talk with the interested Government Departments and with the British in an effort to see if the latter would release the P-40's for the Chinese. The under- standing was that the planes would be released with guns, except for the 132 guns at Colt, and with a reasonable amount of .50 calibre ammunition. The definite statement vas made at this conference that the Chinese had or could supply .30 calibre amunition for the wing guns so that the British would not have to part with that. The Secretary in closing the conference promised Dr. Soong that he would get in touch with him as soon as he had any informe- tion to report as to the attitude of the British. 00000 & 14 January 2, 1941 9:00 a.m. RE ECCLES' ANNOUNCEMENT OF FEDERAL RESERVE BOARD'S REPORT Present: Mr. Gaston Mr. Bell Mr. Haas Mr. White Mr. Kuhn Mrs. Klotz H.M.Jr: Have you had a chance to read this? Kuhn: The Eccles thing? H.M.Jr: Yes. Kuhn: Yes. H.M.Jr: Have you read it all? Kuhn: Yes. That is, I read what is in the Times this morning. H.M.Jr: No Times has come yet. Kuhn: I also read that Krock was all sweetness and light this morning on the Treasury. H.M.Jr: On what? Kuhn: Did you see that? H.M.Jr: I can't get a copy of the New York Times. Kuhn: He said it is widely assumed that this means & battle between the Treasury and the Federal Reserve, but, as a matter of fact, there is reason 15 - 2 - to believe that the Treasury is going along with Mr. Eccles as Mr. Morgenthau himself has expressed similar opinions, and that the whole thing was done very politely and sweetly, that Mr. Eccles had seen Mr. Morgenthau before his report, and this is politically very bold but very good. White: Sweetness and light with a sting, with a purpose. H.M.Jr: Why? White: Well, I mean his sweetness and light consists in saying that the Treasury is going along with them in this. (Mr. Haas entered conference) H.M.Jr: You don't understand, Harry. Ask him afterward, and don't worry. Harry is always - says what he thinks. He thinks it is & trap, that is what he means. He thinks it is a trap. Kuhn: It was in a sense of pressure to get the Eccles thing pushed through. White: It would be hard now for the Secretary to dis- agree with that. Heas: There is a drop in excess reserves. Then over here, you remember the long debate where we de- cided to do it in two bites but announced it all at once? (Exhibiting chart to Secretary) H.M.Jr: Yes. Haas: That is there. H.M.Jr: It is not much ahead. Haas: Not nuch ahead of that one. 16 - 3 - H.M.Jr: Isn't this the one? Haas: Yes, but that has no effect, the excess reserves. H.M.Jr: It is the same. Haas: Right there on that one. H.M.Jr: I mean the net cash deficit did start. Haas: That started about the first time, the first one. The first one had no effect. The bond market reached a new high. Then they started really tipping it up, you see. They took it in two bites. Then they announced both bites at the same time. So the effect of it all came at once. H.M.Jr: Do you think this is safe, Harry? I mean, you see, the first time-- Haas: That is that same story. You helped write it. H.M.Jr: Here is the first announcement, and, of course, there is where the cash deficit went off. Here is where they began to really reduce this thing. White: I shouldn't draw on those charts to support your position, Mr. Secretary. It seems to me it is & general position you take. Because the minute they begin arguing about-- H.M.Jr: Am I safe to say that the last time they had this thing, it took 18 months to get the bond market straightened around? White: I would be a little reluctant to make that state- ment. Haas: The bond market took it up to there. That is right. To get up there again it took it over 18 months. Regraded Unclassified 17 - 4 - White: But I think your strongest position-- H.M.Jr: To give you a little of the background, I am see- ing the President at 9:30. I want to hit this thing, and hit it just as hard as I can, but I am not going to do it unless I have got a hundred percent backing of the President, you see. We had this meeting, this dress rehersal last night. (Mr. Gaston entered the conference.) White: , Do you want any figures in your mind? M.M.Jr: Yes. White: Do you (Gaston) H.M.Jr: No, he hasn't had a chance. Haas: Go ahead, Harry. White: Do you want to ask me or do you want & table? H.M.Jr: Go ahead. White: You would like to know what is the percentage of reserve which is required now. H.M.Jr: I didn't ask George that. White: The maximum which they can do now is 26 percent on the two cities, New York and Chicago, 20 on the Reserve cities, and 14 in the country banks, and they have got it about a sixth or a seventh under that, that is, 22and three-quarters, 17 and a half, and 12. H.M.Jr: What does that amount to? White: In terms of amounts, what it is is the total re- serves - required reserves are seven billion, Regraded Unclassified 18 - 5 - seven point one, a little more than that. H.M.Jr: If they went the whole-- White: If they went the whole hog, the the total re- serves would be five point seven. In other words, they would reduce it about a billion dollars. They would increase the reserve requirements by about a billion if they went the whole hog with- out any new legislation. S.M.Jr: That is the only figure I want. Now, wait 8 minute, that isn't right. The statement, as I remember it, is this: If they can increase them another billion they have the power. That is number one. (Mrs. Klotz entered the conference.) I.M.Jr: Number 2, where this statement is a trick is that if Congress took this thing at its face value, it would automatically raise it a billion-- White: That is right. R.E.Jr: and freeze it at that point. White: On the lower limit. It would freeze the florr and raise the ceiling-- H.E.Jr: By another seven million. White: Raise the ceiling from the present ceiling of eight billion two required reserves to 16 billion five. In other words, it would take-- E.N.Jr: Where do you get your 82? I thought you had six now. White: Six is what the excess is, that is, what is left. I an taking how much-- 19 - 6 - H.M.Jr: Now wait a minute, how much is locked up now? White: There is now required seven billion one. H.M.Jr: Seven billion one? And how much are they? White: There is 14 billion total reserves. H.M.Jr: Yes, but we haven't got locked up 17 billion one, have we? White: Seven billion one. H.M.Jr: Then if they raise it, they raise it to eight. White: If they raise it, they will raise it to eight point two. H.M.Jr: Oh, because you fellows were talking six last night. Bell: Yes, I thought it was six. I was thinking of 13 billion. You say the reserves are 14 billion now? White: The present reserves that are held are 14 billion, and there is required against that seven point one. H.M.Jr: What is the situation now? What is the technical description of the situation? White: The situation now is that the reserve require- ments are seven point one billion. They have to keep those in reserve. H.M.Jr: Today, and they could raise them about another billion. White: And they could raise it about another billion. 20 - 7 - H.M.Jr: Interrupt, George, if you want to. Haas: That is all right. H.M.Jr: They could go to eight. White: They could go to eight. H.M.Jr: And leave mother six. White: If they went to eight point two, they would leave a little less than six. H.M.Jr: And this authority they are asking gives them ad- ditional authority to lock up another eight? White: Another eight which doesn't exist so that there would be two and a half billion shy. H.M.Jr: That is different than last night's figures. Bell: And the eight billion would be frozen. H.M.Jr: I understand. Bell: Under this proposal. White: Yes. You asked how much total deposits there were. About 40 billion demand deposits in the member banks. That does not include non-member banks. H.M.Jr: Dan, will you read this for me? This was the first - are you through, Harry? White: Yes, unless you want some other figures. H.M.Jr: This was the first memorandum of the Federal Re- serve that the same crowd gave me on December 3; and, if my memory serves me right, and I went you to read this thing, what they recommended at that time was - I had better take it with me. I want 21 - 8 - to show what - it was a long-term bond that they recommended at that time. Bell: You mean on the financing? II.M.Jr: Yes. Bell: Yes, they recommended that you sell a bond that would appeal to the private investor, but Eccles has put a memorandum on there for consideration in favor of the short term. E.M.Jr: A long bond should be issued at this time, they say. He says here, "Due to the large volume of excess reserves of bank deposits, it is possible that inflationary tendencies will develop some- time in the future. There will be other uncer- tainties regarding the banking situation. Unless these questions are settled the market can't be expected to take a long-time bond." The point I am thinking about is this. This is what I am proposing to say. Here on December 3 they come in and recommend a long-term bond, knowing that they are going to come along and do the other thing, see, and if we had done that, followed their advice, what would the purchasers of these bonds say to us two weeks later? Bell: In view of this recommendation-- E.V.Jr: Yes. White: They recommend a long-term bond, realising at the same time that interest rates will rise and knowing at the same time that they are going to recommend measures which will tend to rise, both of which the bond prices will fall, so if they expect bond prices to fall, why should they recom- mend & long-term bond? If they don't expect interest rates to rise, why are they worring about Regraded Unclassified 22 - 9 - the prices of bonds? H.M.Jr: I mean it is definitely insincere and bad advice. White: I have one bit of information that might come up. There is a lot of talk about how the falling bond prices are going to ruin institutions. I had one of the boys look it up. One percent of the assets of endowed institutions consists of governments. H.M.Jr: Now, I have got five minutes. Dan, on sleeping over this, what is your advice? Bell: Well, I still feel that we should say as little as possible on it. I still feel that we should say that it is being studied and that-- H.M.Jr: That is your advice? Bell: Yes. I.M.Jr: Are you through, or did you just drop your voice? Bell: I am through. H.M.Jr: All right. Herbert? Bell: But I have no other thoughts. H.M.Jr: Have you got another thought? Bell: No. H.M.Jr: Herbert? Gaston: It goes back to Eccles having submitted this to you. The fact that he did submit it to you, which was quite proper, didn't imply your ap- proval. You didn't give your approval. H.M.Jr: I very, very carefully said that I felt free to 23 - 10 - say anything - I would only accept it on the basis - I was free to say anything I wanted. Gasten: Yes. Now, as to this thing, it has to be very carefully studied. Certainly you are not going to assent to anything that will force an arti- ficially higher level of interest rates which you do not believe to be justified. H.M.Jr: When I come back on my table, Mrs. Klotz, have that part underlined where he talks about "together we stand or divided we fall." It is right in the last page of the statement, you see, right at the end. The point that I have in mind is-- White: There are two ways of ending the division. H.M.Jr: Yes. I have told this to Eccles, there can only be one Secretary of the Treasury in twon. White: Aren't you thinking of raising that with the President? H.M.Jr: No. That gets it on a personal basis. This is an attack on him, this isn't an attack on me. This is always after the horse is gone. When I read all of this stuff, I think I should have put up & tougher fight on the whole question. White: In the expectation that he would have changed his mind? H.M.Jr: No. Well, I might have. White: Well, he claimed he was speaking for 30 men, and he wouldn't change his mind. Klotz: He wouldn't change his mind. H.M.Jr: Well, he is in the position he can say that I put 24 - 11 - up no fight. I think I should have put up more. Bell: Well, that is a good statement, Mr. Secretary, but about 90 percent of it should have come from the President rather than Eccles. That is the trouble, I think. H.M.Jr: Kuhn, would you, when I leave here, go with White and soak up as much as you can in the next half hour, please? He will give you how my mind is running, what I am thinking of, see. You know, Herbert, because I told you over the telephone. Gaston: Yes, I have the impression it goes a little too far at this stage of the proceedings. H.V.Jr: My feeling is this, I mean - always depending upon what the - if the President says hit it and hitit hard, then I think the thing to do is to - I have two chances. I have this morning or Monday, and I think if I wait until Monday, then everything is going to Jell and there will be other articles like Krock's and so forth and so on, and if I am going to hit it, do I hit it this morning or do I hit it Monday? Do you want to give a curbstone opinion? Kuhn: You should do it this morning. H.M.Jr: If I am going to do it? Kuhn: Yes, because tomorrow morning editorials and columns will be out. H.M.Jr: All right, I will let you know when I come back. I am going to go over to the White House. Gaston: Yes. NSW YORK TIMES - January 2, 1941. 25 In The Nation vealed this - when 11. was no- Income to os the riso and there is and quainted with of the board's - intry that runsway prices may develop 1941 x port unless that abould be made ad- as & remit of commissioners goods short- ministration policy once more 40. overloaded production plants and The Federal Reserve Board WIII Opposo Polities what may BOOD have to be & rigid m and the Treasury This was construed in some quartera term of priorities. Therefore, the clubs in the closet have been revened as to mean that the Treamry la not net, By ARTHUR KROCK as a. matter of 1941 monetary philoso- paychological wespons to support of phy, to Instat on continued authority to the general welfare. This la the opin- WASHINGTON, Jan. 1-The anti-in- devalus, but that # would make the son of the Federal Reserve Board flation recommendatinns of the Federal fight In Congres again If any political And it le the optnion of its chairman, Reserve Board to Congrees today care effort were made to represent the pro- Mr Secies, who did not accept it. until so auddenly, and politically seemed no posal as part of an anti-Ecosevelt pro- be concluded that new conditions had bold, that the Immediate and general made It sound. gram. expectation WM of & bitter battle over Finally, the Federal Reserve Board The Rocks Theory the proposals between the board and observed the full amonities in talking In supporting the new proposals Mr. the Treasury, This was prophesied In over its recommendations with the Ecclas has been faithful to & moostry several places Yet there are good THA- Secretary in advance of publication. By philosophy which has brought him sons to expect the contrary unless the the terms of the Banking Act of 1935, much prains and blame from time to President himself Instructs the Treas- the Treasury's head ceased to be an ex- time and has confused or angered, ury to oppose the board's report. officio member of the board and there- often both, more conservative econo- Among the reasons are these: fore lo have any responsibility for its mists and financiers. It was consistent The Eccles recommendations include acts and statements. Nevertheless, as to his theory to advocate spending, In- repeal of the Treasury's power to issue matter of cooperative courtesy, Mr. creased government deficita and etecu- silver certificates against the seignior- Eccies consulted Mr. Morgenthau in tive inflationary powers in one period, age of eilver, and currency against pur- what in said in have been & most chases of foreign aliver: also that its and it. Le consistent to his theory to friendly conference. stabilization fund be used to hold down take en opposite position now. For For these several reasons the prophe- the mounting excess reserves which, by Mr. Eccies is generally & believer in clas of drawn battle may be more than their very existence, are an inflationary the Keynes Idea. This is that govern premature: they may never come true threat But Secretary Morgenthau has ments should spend their way out of imless the President decides to put the depressions and keep taxes light, but never seemed personally to like the all- weight of the administration against that when national Income rises goy- YEE program: and nome who have dis- the unanimous views of the board and curred the excess reserves with him are Its fiscal and business advisers. ernments should move toward 8 pay- sure he acknowledges that these cannot an-you-go tax system and put sharp Hitherto Mr. Roosevelt has been un- be hald down or absorbed without some willing to aurrender any of the powers checks on inflationary Influences. His extra tools. basic philosophy has thus Impelled him granted or loaned by Congress, includ- The Federal Reserve Board proposes ing the monetary controla which have to refer at one cime to & huge national that the President's authority further always constituted a beate of inflation. debt as & "blessing" and at another to devalue the dollar be allowed to time to propose measures to cut down He has referred to the two which the that debt. lapse next June, and that his power un- Federal Reserve Board would-now an- der the Thomas amendment to lanue $3 The President has always meemed to nul M "clube in the closet," usefuls billions in greenbacks be withdrawn. things to possess in case they might be impressed with Mr. Ecelen's theory When the devaluation clause came up be needed, but not necessarily aug- and practice, though the administration for extension last year, and strong op- grative of any spection to use them. has occasionally interveted to prevent position to this showed in Congress, the But this view was expressed LG a period the accomplishment of some of his administration made a hard fight to of depression, when the effort was to ideas. The fact that no bank in the Federal Reserve chairman's chain ever retain the power which was narrowly ralse prices and increase the national successful. But It is said that Do dis- Income. failed la cited frequently by the Pros- Ident as one reason why be thinks Mr. position on the Treasury's part to Now, because of the deferine agend-: initiate such a battle again was N° mg and for other causes, the national Decles must be & pretty good financier, 26 EXCESS asserves, BOND TINLOS, NEW ORDERS, PRODUCTION AND NST CASH DEFICIT 1020 1836 sear / - . 2 . . , . . # a . 1010 a - . a - . a - - - . . fillies - - - 11 : 1.0 10 a.9 C 2.0 M 1.9 w M 1.0 La -5 , Personal (perial) I 1 - TheMe of - the - of 15 3 LI 14 1.7 as a.e as a.s : 3.8 as 3.1 as I - Personal Orderst failure 1 Prof.) ⑉ - activity ! - - ! - total , - - HD - ! 120 Intertrial Probation, us - - -VB . - - - - Activity, orwer - - - I 1 1 -- - - - - - . TO - a 40 # 4 a - . - a . . a - . a . - 2 - - - . . a # . , . . 1935 1938 1037 1038 , - 240 - - I - . - - of - - - - - HMH 27 EXCESS RESERVES. DOND TISLUD, PRODUCTION and NET CARR DEFICIT 1938 1000 seef , . . , . . a . . J . # e # 1028 - a . . à Initiare a # J . . Ellies - dellars 5 - - Allias 1.5 M 5.8 M as M 1.0 E is 1.0 1.0 M J - revent Invest Timide of treasury - - 1 as as as 14 BLT 3.7 3.8 as 2.9 a.e 1.0 se 1.1 = Personal activity Dellars ! HB deficiti 135 1,40 us 1,35 115 1,00 105 - delivity, 5 I I I - , - Cade Infiait - - BILLARS - 46 E - - e = a . . J . . 2 . . a - - a M # a . . , . . 2 a . 1038 1936 1037 1030 É J I g 3 I : I 1 I No of - I e - - - # - - - 1-90-: January 2, 1941 10:56 a.m. RE ECCLES' ANNOUNCEMENT OF FEDERAL RESERVE BOARD'S REPORT Present: Mr. Foley Mr. Sullivan Mr. Haas Mr. Gaston Mr. Bell Mr. White Mr. Kuhn Mrs. Klotz H.M.Jr: The President's first reaction was that this thing was under study. He said he didn't want to get into a fight, that it was too unimport- ant. He said, "After all, what is the Federal Reserve Board anyway." He was under the im- pression that he could control this thing through the Senate Banking and Currency, and I disil- lusioned him as to that. I said they would like this. He said, "What about Wagner?" and I said, "Wagner will like this." Then he said, "What about Steagall?" and I said, "You can't count on Steagall." He pointed out something which I hadn't thought of before, that it was up to his administrative assistant, who is a monetary expert, to have brought this matter to his at- tention. He said, "Why didn't he?" I said, "I can't tell you." I know we gave him 8. copy. It is a very good point, too. Bell: That is what the papers are contending, that they are assuming it had the approval of the President because Currie was here. I think that is a little unfortunate. 29 - 2 - H.M.Jr: Well, after all, being absolutely down Currie's line, I had a perfect right to bring him in and consult with him and get his ideas. Bell: Yes, I think you had too. H.N.Jr: But, after all, if Currie knows anything, if his training is good for anything, this is his field, but the President raised the point, why didn't he bring it to him. I said, "Well, I didn't know." Do you know? White: Well, I knew the President would raise that point. E.M.Jr: Well, it never occured to me. White: There are certain difficulties. The thing was told to him in confidence. H.M.Jr: By me? White: Oh, no. H.V.Jr: It wasn't told to him by me. I furnished him a copy of it. White: I see. From that point of view-- E.M.Jr: Didn't I furnish him with a copy of it? White: Not to my knowledge. H.M.Jr: Didn't you let him see a copy? White: No. H.M.Jr: Oh, yes. White: I didn't have to because he had seen & copy, but he didn't see it from me. H.M.Jr: You (Klotz) just look up our records. I gave you 30 - 3 - (White) 8 copy. White: Oh, yes. You didn't say that I couldn't show it to him but that wasn't in the picture because he had already seen it, but he had seen it in con- fidence. Klotz: That is what I did. You said to show the copy to Mr. White and to tell Mr. White that you wouldn't - you told Mr. Eccles you wouldn't do anything until you consulted with Mr. Currie and Mr. White. White: But I wouldn't have hesitated to have shown him 8. copy in the light of that statement had I not learned that he had seen a copy. But he didn't get it from me. H.M.Jr: But my record is perfectly clear. I consulted Currie at least on two occasions. Well, anyway, the President wants our analysis of what this means and its implications for his own confi- dential use. If you boys will have it ready Monday, I will go over it with you. Now, I would like White and Haas to collaborate on it and show it to everybody here before I see it on Monday, and sometime Monday we will go over it together. Now, I tried my best to get the President to let me come out with & - I said that the thing would jell and the press would like it, Banking and Currency of the Senate is going to like it, you can't rely on Steagall. I pointed this out to him. His first reaction was, well, all of these things which he did were when we were at the bottom and he might have needed them to get the country going, but he says, "Now there is no depression in sight." So I said, "Well, how about if England went under tomorrow." Of course, he hadn't thought of that. And I had ample opportunity - I took an hour to tell him about - I think this is a fight of the money owners against the money borrowers and that the only thing that Aldridge evidently wasn't suc- cessful in putting over was free coinage of gold, 31 that I thought he had kioked the money changers out in 1933 but they are back knocking on the door again. So I had ample chance and I had time to explain to him what the locking up of this money, the seven or eight, meant. I told him I had no objection, that if the Federal Reserve mated the authority to handle excess reserves - but I said I did strenuously object to freezing it at the lower level, automatically raising it another billion, and I said the chances were one in three that the bond market would go down, go down very sharply, but I said if they simply wanted the power to increase, if and when it is necessary, leaving it flexible, that I had no objection to that. Bell: That is right. H.M.Jr: And I haven't now. Bell: And the increase might not do any harm, a bil- lion dollars at this time; but, nevertheless, locking it there might do some harm at a time when you would want to unlock it and couldn't. H.M.Jr: Well, I explained to him, and the more I talked the more he seemed to get it, that suppose England went under. He said, "If all the banks in the English banking system were under control of the Germans, what would we need?" The nan hadn't thought about the thing, you see, about having his hands untied. I said, "Do you think you can go back to Congress again and get the right to devalue the dollar?" I said, "Wouldn't that be a terrific fight?" He said, You bet your life it would." I said, "You have denon- strated to the country over eight years that you can be trusted to these powers and not abuse them, 30 why take them away from you." I said, "You have demonstrated for eight years you can handle this power." I said, You put ne in the Treasury so that you could be free, and you have 32 - 5 - been free from that day to this. Well, what he feels is this, you see. This comes so sudden. He said he wants to put it on the table and keep walking around it and taking a look at it. If Arthur Krock wants to nake a hero out of ne and - I carried the torch on the Hill and got the President's power renewed twice or three times. Bell: Twice. Shite: That was an inspired story by Krock. Se got that from Elliott Thurston. He is his pal and the stories are being made about the conservative Secretary of the Treasury, and 50 forth and 30 on. It is all right with me, but I told the President on the question of tublic reaction; tining, he is a past master and I wouldn't argue with hin, that if he wanted to withhold saying something at this time, that is all right with De, Sastem: That reserve requirement thing can be fixed up very simply, giving then complete Dower over reserves with the approval of the President. Zell, you see his attitude is this, "Henry, this is SO unimortant, the Federal Reserve system is so unimportant, mobody believes any- thing that Harriner Socles says or pays any attention to hin." He said, The important thing is the war. England, that is the impor- tant thing. le said, Don't give the newspapers the satisfaction of getting into & row with him. Don't give then that satisfaction. If you talk. you will give then another headline tomorrow, and on the question of public reaction, I can't hear E better public relations counsel than 15. Roosevelt, and I an tilling to take his advice. White: What happened at the press conference? Regraded Unclassified 6 H.M.Jr: matter. I simply said three words, "No comment on the Klots: No, "The matter is under study." : You have got the press conference? Reporter: It is in the office. H.M.Jr: Are the girls doing it? Reporter: Yes. Klotz: "The matter is under study." Bell: And there were no questions after that? H.M.Jr: Oh, plenty of questions, but I said it would just make the matter easier for discussion. Are we going ahead with our study with Mr. Wagner? Yes. Is it finished? No. Bell: The bond market went off half a point in the first 45 minutes. It is churning around a little. Well, we had a nice statement all fixed up for you to make at the press conference. H.M.Jr: Had you? Let's see it. (Mr. Kuhn handed statement to the Secretary) White: Well, it was only to be made orally. If you were going to give it as a release, it would be improved. H.M.Jr: "Chairman Eccles showed me the special report of the Federal Reserve Board on monetary and reserve matters before making it public. This was a courtesy that I appreciated. "I was not asked to give my approval to it and it was clearly understood that I reserved my 34 7 opinion as to the merits of the various proposals made by the Board of Governors. "I have very serious doubts as to the wisdom of some of the Board's recommendations. I cer- tainly don't think this is a time to look up financial resources any more than it is a time to lock up any physical resources that we shall need in our defense effort; nor is it 8. time to increase the cost to the government and the people of making full use of any resources. "In so far as this report draws public attention to the danger of inflation in our defense effort, I am glad that it has been made. You will renem- ber that I mentioned it to you weeks ago, and said that it was one of my chief concerns. I have been having constant discussions about it with Leon Henderson, and both of us are determ- ined to nail any sign of rising spiral, and to nail it hard, as soon as it appears. Specifically, what I have in mind is the sudden rise in one or two commodities that are essential to the defense effort. There has been no all-round rise; we are seeing to it that there shall be none. We are not going to let prices run away or even begin to run away. Where they show signs of doing so, we are determined to stop the process at the very beginning. "That to my mind is the first and best way to guard the people of this country against infla- tion. The first and best way, in other words, is not to let it start. That is another reason why I have doubts, serious doubts, about the recom- mendations in Mr. Eccles' report. Moreover, a rise in interest rates at the present time would tend to push prices up at the very moment when we want to keep them down. It would hamper the defense effort and create the very evils which the Treasury and the Defense Commission are work- ing to avoid. This is not the time for tinkering 35 - 8 - with money rates. It is the time for 8 resolute job on the prices of physical things. That is the job the Administration is now doing." (Mr. Foley and Mr. Sullivan entered conference) H.M. Jr: It is a very nice statement. Now, just so there can be no misunderstanding as to the Treasury helping any columnists or anybody else, let ne tell you & little story that happened at my house last night between six and seven. I nean it just happened to come to ly mind at this moment. I had General Mow and Mr. 7. V. Soong and General Chennault there, and we were talking about the planes and so forth and so on, and then I got on to & matter which is very confi- dential. Having no ulterior notive in mind, any more than I have now, I simply said, "As you know, Mr. Soong, if what I an saying to you now ever appears in the paper or you ever say you talked to me about it, I will just say I never S&W you. I repeated it three times, and he got it. So then he looked at ne and he said, Well, lir. Secretary, I want to tell you that I can't tell you how disturbed I was when that story appeared in the paper about the Chinese planes and what they needed," and he said, "General Mow talked to a newspaper man and after I saw it, I sent for General Mow and I said, 'General, you are a military nan. You go back to China for court martial, and he said, "You know in war times what that means." And de said, "General llow should be very, very grateful that you received him so graciously, because now he does not have to go back to be court martialed." So Chennault stayed behind and I said, "Well, what is all this? He didn't tell it half to ne." He said, "The true story, after this appeared in the paper, General Now shot his mouth off." He said Soong sent for him, and he says, "General, here is a pistol. You are a soldier. You know what to do. Klotz: No! Regraded Unclassified 36 9 - H.M.Jr: Ies. White: What was the matter with the pistol. Bell: No report was there? H.M.Jr: He thought the Chinese would get a bad press, so he didn't do that. Klotz: He didn't say that, that is cute. H.M.Jr: Yes. (Laughter) No, he said, "That is impossible. You can't do that. The Secretary wouldn't like it." Klots: That sounded like you. H.M.Jr: I told the story to the President this morning, and he liked it very much. He thought he might use it the next time. Klotz: I think they all got it. White: So if we are sent a pistol, I gather, from this Office, we all know what to do with it. Rlotz: You will do what You did. (Laughter) H.M.Jr: I don't think we would - I thought it was a very amusing story. Foley: Don't look at ne. (Laughter) He takes all the humor out of it when he does that. Sullivan: I don't even know what he is talking about so he shouldn't look this my. Gaston: He wasn't looking at you. Don't worry. Or should you worry? (Laughter) 37 - 10 - H.M.Jr: Don't you think it is a good story, Dan? Bell: well. It is a good story. I think it went over pretty White: I think we all got it any way. (Laughter) Bell: You don't have to repeat it. H.M.Jr: Well, I feel lots better, and I know General Mow did too. So if you people - before we get on - I sent for you two people. How is your old stomach? Sullivan: Oh, the stomach is fine. Foley: It was, not now. (Laughter) Sullivan: Just the same. White: You know something you are not telling us, Ed. H.M.Jr: There is a man up at Amherst by the name of Professor Peter Odegarde who, I think, teaches social science, but what he really teaches is propaganda. If you could call up both Professor Viner and Walter Stewart on the phone and ask them whether they know anything about him, see, or who he is, or if you can call up - do you know anybody in Columbia? Do you know the head of the school of journalism up there? Kuhn: Ackerman? No. H.M.Jr: Ask him and ask Stewart. I understand he is a great friend of Justice Frankfurter. They all say he is good. I would like to get him down here Tuesday to stay a day or two and talk things over generally. What I want him to do is sort of make a study of what is the best method of approach for us on getting over the selling of bonds and taxes and that. He isn't a man that 38 - 11 - could do the thing, but he is the outstanding authority on Russia, Germany, South America, Mexico, the whole art of propaganda. They say he is a wonder. I think if we could get him down here B. couple of days, he would be very useful. Kuhn: I will find out about him and let you know. H.M.Jr: Would you? Now, the other thing, Ed, the Presi- dent says he doesn't need me Saturday and Sunday. I will check with him before I go away. And - but at nine thirty Monday morning, he wants a finished, complete plan on the fire hose for England. Foley: You were going to give me a memorandum and then talk to me. H.M.Jr: Is that the story? I have got Purvis in the other room, and I will see him about fifteen minutes, something I want to clear up with him on the planes for China, and then I will have him in and I will give it to you verbally. Now, so much for that. Now, who has - this thing which I gave to you, is the Bureau of the Budget waiting on that? Foley: No, they have got a copy, and Smith has gone over it, and we have also cleared it informally with Justice, but this is to put the thing formally on the record, and that letter is only an in- corporation of what you signed. H.M.Jr: Whether it goes half an hour earlier or later doesn't make any difference. Foley: No. H.M.Jr: Then the other thing, John, who do I look to for the legislation on the debt limit and the tax exempts on Federal securities and guaranties? 39 - 12 - Sullivan: We have the one on tax exempts prepared, sir. H.M.Jr: Is it finished? Sullivan: That is finished, sir. H.M.Jr: How about the debt limit? Sullivan: I got your note of the thirtieth this morning, and that is being worked on this morning. H.M.Jr: When will that be ready? Sullivan: I hope it will be ready this afternoon. There won't be any figures though. H.M.Jr: Those two pieces of legislation I would like to take with ne when I go to the country. Bell: We are going to finish this afternoon on the debt limit. Foley: We prepared & letter on both of those, and we had a meeting in Dan's Office on Tuesday after- noon, and we spent several hours on it, and we are redrafting it in the light of that con- ference. That will be ready-- Bell: ....this afternoon. Foley: We are going to have another conference this afternoon so I think we had better draw John in on what we have already done, and then consoli- date these two proposals. H.M.Jr: All right. Well, let's say tomorrow morning at ten thirty. The will take an hour and go into the question of legislation, anything that the Treasury wants, thinks we need, you see. That will include our bank holding thing, too. Foley: Well, we saw Glass at ten thirty this morning, 40 - 13 - and we left our bill with him and a comparative analysis of our bill and the bill he introduced two years ago. He says he wants to talk to Wagner and Adams and Byrnes and Crowley, and I asked him if he would want us to talk to those gentlemen or help him, and he said, no, he didn't want us to do anything until after he had seen them and talked with them and then he would get in touch with us again, and I reminded him that after seeing him the other time we had called Senator Wagner and we had that request for a conference with Senator Wagner still out- standing and undoubtedly he would get in touch with us when he got in town next week, and he said that would be all right, but, otherwise, he doesn't want us to do anything until after he has checked with these people and then come back and talked to us further. H.K.Jr: Don't you think you had better try to do 8. job on Leo just the same? Bell: Delano has done something on that. Foley: Delano talked with Leo just before we went over there, and he has already explained the thing to him and he is going to call Leo now and tell him the result of this conference. The only thing I think we want to be careful about is not to give Glass the impression that we are running around trying to sell & bill of goods, and I don't want to get the bill out all over town. I think we ought to be careful just to leave the bill with the Senator until he wants us to give it to somebody else, but we can talk to Leo generally. H.N.Jr: You mean you believe in the Chinese system? Foley: Yes, I believe in the Chinese system. Bell: I think Leo is 8. little luke warm, although he 41 - 14 - said he would go along. He probably will tell & different story to Glass. Foley: On the liquidation of the voting stock in in- sured banks held by holding companies, after the cut-off date, Leo is disinclined to go along with it. He says if the quarterback tells him to carry the ball through that hole, he will go through that hole, and if that is what you and the President want, he will 20 along, but he wants it clear that that is so. Now, Glass says that he doesn't want to intro- duce something he can't pass, and I think maybe these people are going to tell him that our bill is too drastic. It is much more drastic than the bill McAdoo joined with him in putting in in 1938, but if we could get him to agree to give the Comptroller negative control over the payment of dividends by national banks and the FDIC over the payment of dividends by state insured banks, and get that into his bill that he introduced in 1938, I think we have enough to control the situation and maybe that is the way the thing will work out. H.E.Jr: Early was there also. He says that the report to Congress yesterday was made with the knowledge of the President, but that the President studied it before approving or disapproving the program. Now, I say I can only say that we have the matter under study and that is all. That ties it up. Well, let's anybody who has any ideas as to what they need in the way of legislation - those of you who are here are invited back at ten fifteen tomorrow, but for God's sake get together, as much as possible, between now and ten fifteen, see, so that we don't - at least in the Treasury Te are working together. Sullivan: Is that going to include the tax program, too? E.V.Jr: Anything. Tomorrow morning. Anything that 42 - 15 - anybody has got in mind. Come in at ten fifteen tomorrow morning. Bell: We have got the Chinese agreement in the mill, and Dr. Soong would like to sign it before Monday. Monday is the day that the puppet bank goes into operation. H.M.Jr: liby not? Bell: I think maybe we will clean it up either today or tomorrow morning. H.M.Jr: I an here. Bell: We night be able to sign it tomorrow afternoon after Cabinet. What time are you leaving. H.M.Jr: Well, depending upon the weather or the trains and so forth. I am going to take a reservation for the four and five o'clock trains. Bob, my son Bob, wants to go with me. It will be four or five. White: If there is to be any publicity to avoid the repetition of the last difficulty, maybe it could be done now. H.M.Jr: Difficulty on what? White: Didn't you have to do it over twice. H.M.Jr: What? White: If there is to be any publicity. H.M.Jr: On what, Harry. White: On the signing of the agreement. H.M.Jr: Yes. Well, that is Kuhn. 43 - 16 - Kuhn: Any novies this time? White: Sure, why not? H.E.Jr: Well, whatever there is - I En willing to do the movies, but I think White's point is good, but I an going to take reservations on the four o'clock and the five o'clock train. Bell: Better try to do it in the morning then. Gaston: It ought to be done tomorrow morning if it is to be done. H.S.Jr: Well, Ed, I want to clean up this thing with Purvis, and then : will have you come back. Now, is there anybody else here on this English plan except Ed? Well, I want you (Kuhn) to sit in so that you have the background. I will let you know. Motz: How about Philip Young. H.N.Jr: Oh, yes. Regraded Unclassified / 44 Chairman shousd me the questal report of the I I 1 I attens I I Total s 1 à - I . I = I I was ast asked to also w approval to 10 and 11 wee clearly understand that I reserved w opinion as to the mrite of the various proposals mis w the Deard of Covernmen. I form way ceriese desire as to the violes of ottergin some ing # of the Deard's of this-Mar. 1 as I a visit. (certainly) this this 10 a the to look - financial any - then 10 is a time to look - my physical nume that w shall met is - defense offerts ane is 10 a time to insure the cost to the greenament and the people of full - of my name. 2a # for as this report - pullic attention to the - of inflation in - - offert, I a del that " has be male. 1 = = 1 I 1 - 1 z I E 1 $ UP The - one of chief - I have been hering contact discussions about 11 with Less from, ml both of w are determined to noth - de of & rising girl, and to mill 11 hard, # - as 10 appairs. 1 a i $ de N an the s I I or committies that an consitial to the defense effort. There has been m all-rownd rism - an seelng to 10 that there shall be - 1 3 unt into s É 2 E as E I 19th : & so, determined Where they above eigne of delag, in an 90 stop the process at the X very beginning. that to mini to the first and best to gurd the people of this country against inflation. the first ml best m. in other words, is not to 100 11 start. That is mother reason my I have desirts, serious doubts, about the recommendations is Mr. Recles' report. these 1 $ poloco before realize will - Marcover, a rise in interest rates at the present time would tend to push prices up at the very memont when - wet to - them 4m. It would hamper the defense effort and create the very ovils which the Treasury and the Defense Complesion are working to arreid. Shis is not the time for tiskering with may rates. It is the time for 8 recelate job - the pricess of physical things. that is the w the Mministration is - doing. Regraded Unclassified 46 January 2, 1941 11:35 a.m. RE CHINESE PURCHASING PROGRAM Present: Mr. Purvis Mr. Wilson Mr. Young Mr. Ballantyne Mrs. Klotz H.M.Jr: What about these letters that I an to write on priorities? Young: Yes. We have worked up some cases on some forms which blew up to some extent last night because BPC didn't want to sign the form which was made up. However, we shall have some revised cases made out on a comparable basis by noontime, I hope. H.M.Jr: Well, you are carrying it? Young: Yes. H.M.Jr: It is up to you to get it to me. Young: Yes. H.M.Jr: Does that mean, for instance, that in the case of Consolidated, they are being help up on put- ting the Sperry bomb sights into Consolidated? Young: How soon will you be held up on Sperry sights because of priorities? Do you know? 47 - 2 - Ballantyue: Until the spring. Purvis: What is the difficulty? I hadn't heard about it. Ballantyne: They have to take - see if I am right - the Sperry. Norden sight out of these planes and put in the Purvis: Well, we knew that. S.S.Jr: As I understand, the Priorities Board is holding the thing up. Young: You have got more bombers coming on; and, while there are enough Sperry sights released by the Army at the moment to cover the immediate planes, the bombers coming out in the spring will not be equipped with Sperry bomb sights because of the bottle neck on optical instruments, primarily, over which the Army and Navy have assumed first class priority, and you can't get the lenses in your Sperry bomb sights. H.K.Jr: But right now is there a delay in those 20? Young: No, I think they have adequate sights. S.N.Jr: I understand that Sperry had some of these on the shelves. Young: The British have taken over all the Sperry sights that the Army had on order plus what they had in stock. H.M.Jr: How many is that? Young: It is about 8. hundred. H.M.Jr: Well, that keeps them going for 8. while. Purvis: But that doesn't take care of the spring deliveries? Young: None of the spring deliveries. 48 - 3 - H.M.Jr: Well, we can get it cleaned up. And there is a good chance of getting you 9 more Consolidated bombers. There were 29 in that order. There is a good chance of getting another nine. Is there any little thing that you want to take up before Morris Wilson comes? Purvis: Well, I would like to ask you, for instance, you remember the old motor torpedo boatquestion? H.M.Jr: Very well. Purvis: Would there be any harm - our people are pre- pared to take those. Would there be any harm in my opening that ball with Secretary Knox again? H.M.Jr: Not whatsoever. I think this - it is quite all right. I think that when we do this thing now, whatever you do, if you don't mind-- Purvis: Quite. H.M.Jr: I would open the whole thing. You see, when I get into this thing - as soon as we get Wilson and get this Chinese thing, I want to make a little speech for the benefit of Foley who is doing the legislation and the deadline on it, the President wants it at nine-thirty Monday morning, and I would like to have you here, and then you can fill in, you see. Purvis: May I ask this question on that, then? The in- tention - could the intention be handled, per- haps, a. little less dangerously from the British viewpoint? My understanding is that if the weapon could be returned as is, if it could be repaired, bearing in mind the President's case, however, as he put it on Sunday, could we not achieve the simplification that it would go if it was agreed that it was America's contribution to keep- ing it - its defenses intact? That would get rid of an awful lot of difficulties we will other- wise get into. Because I see already that 49 especially difficult thing creeping in, tin and rubber. Tin and rubber, after all, will be our working capital. H.M.Jr: Look, don't take too seriously anything you see in the paper on this thing. I am going to make 8. little speech for the benefit of Foley and whoever is going to work with him on it, and, after you hear it, if you don't mind-- Purvis: Quite. H.M.Jr: If I am any use to Mr. Roosevelt, it is that he says these things, and he knows perfectly well when he says them if I don't think they are workable, it is up to me to tell him so. He has often said to me, "I have a hundred ideas, and, if two of them are good, I think I am lucky." But he has 8 press conference the way I do, and they press him and he has got to think of some- thing, and he hasn't thought the thing through. Well, tin and rubber come to his mind. Well, that doesn't mean it is going to be tin and rubber. Purvis: No. As a matter of fact, I think it was put in his mind. H.M.Jr: And you can't-- Purvis: But it would be a tremendous simplification if it were made that way. I believe I could give the Chinese story sufficiently and the note would come along with him, that is all. H.M.Jr: Let's do that because I am awfully tight on time. Purvis: Yes. The situation is that at the present time - This is really off the record, because they don't want to put this in writing for certain reasons, but what his happening is the P-40's are being built up in England for squadron 50 - 5 - purposes. The first deliveries took place in September, the second in October. It takes about a month for them to get there. They then have to have certain tuning up done in conformance with British practice, and then they have got to be formed in squadrons, and we can't hope, ever, in shipping planes over there of a new type like that to build them into squadrons under two or three months, so that they are actually flying. Now, actually, they are, how- ever, being used, I understand, in the Far East and the last 44 are in this number. I believe, off the record again, the 44 have gone already down there and that 50 more are routed under construction, which I an not supposed to put on the record because it is information for the enemy. H.M.Jr: Well, you know my record. Purvis: Fifty being sent, to be perfectly frank, to Takoradi from which they are flown across the desert to Khartoum up into the campaign. H.M.Jr: Just where is Takoradi? Purvis: Takoradi is on the West Coast of Africa. It is around about here (indicating on map). Then it is flown right across the desert. H.M.Jr: How do they get them there? I have seen dis- patches that planes were going there. Purvis: By boat. H.M.Jr: By boat? Purvis: Yes. Morris Wilson is supposed to give you some- thing on this, see, but actually then what is done is to take that right across to Khartoum and into the campaign. 51 - 6 - H.M.Jr: Do they fly across? Purvis: Yes. Takoradi is farther down. It must be in British territory. H.M.Jr: I thought it was right in around here. Purvis: Probably in Nigeria. It must be in British territory. H.M.Jr: I think it was somewhere around here. Purivs: That is what it would be. It is well around into British territory. It has got to be, I think. H.M.Jr: And the boats go from us to there? Purvis: We have got direct boats to Takoradi. H.M.Jr: I have seen that in dispatches, and I just wondered. Purvis: That is it. That is the fellow. H.M.Jr: Here is the British mandate, the Cameroons. Purvis: That is what it is, I am sure. It would be either Cameroons or Nigeria. H.M.Jr: Haven't they taken over the French somewhere here? Purvis: Yes, but you see I would think they wouldn't come too far down because then you get into Equatorial Africa with jungle, whereas here you can fly over the desert. Young: I have got an atlas in my office. H.M.Jr: Oh, no. Purvis: I am sure that is the answer. That is really what is happening. The result is that our people 52 - 7 - are rather coming into an active compaign. They are genuinely worried about loss of planes in the very critical three months that we talked about. H.M.Jr: Well, here is the thing. They think the Far Eastern thing is critical, the Administration does. We think the drive on Singapore is criti- cal, you see, and we are very anxious to give these people a hundred of these P-40's. Now, how many have you got on the docks in New York awaiting shipment, do you know? Purvis: That I don't. Ballantyne: Forty-four. Purvis: Forty-four is it? Ballantyne: Yes. Purvis: Then that is the 44 for Takoradi. H.M.Jr: There are 44 there? Ballantyne: There are 44 on the docks. H.M.Jr: I am surprised you have so few. There are 44 there, and those are going to Takoradi. Purvis: That is probably the difficulty of shipping, probably, to get frequent opportunities to Takoradi. H.M.Jr: Well, do you want to make a counter proposal? Purvis: Well, what I would like to do is, I have put this up to Morris and he may bring in that, but that is your problem, is to get something to the Chinese immediately, is that right? H.M.Jr: Yes. Have you got a proposal? I wish he would be waiting here instead of my waiting for him. 53 - 8 - Purvis: I am sorry. I didn't know quite where we were going to tackle the legislature first. H.M.Jr: No, I want to get-- Purvis: Yes. I can put something on the table on that. Can we assume that I will get you before lunch some suggestions? H.M.Jr: But you don't know what the answer is. Purvis: Well, England won't give way to us in any way. Otherwise, every plane that is lost to them is a loss from the point of view of the campaign. Therefore, as a proposal, it just doesn't work out. Anything that has got to go is that amount lost to the campaign. H.M.Jr: You mean we have got to take it. Purvis: I mean, we shall - either Morris has got to take the responsibility with me or it has just got to be put up to us that this has got to come. Young: Here is Takoradi on the map. H.M.Jr: Gold Coast? Purvis: Gold Coast, yes. That is just where you said. H.M.Jr: A little bit further around. Gold Coast. Purvis: This is a vital matter, is it? H.M.Jr: If I tell you that we had a meeting in Mr. Hull's Office at which Secretary Stimson and Secretary Knox, General Marshall, two or three of his top people, Admiral Stark, two or three of his top people, plus myself and after this meeting, run- ning an hour and a half, it was decided with that number of people there that they thought this was a good move. - 9 - Purvis: Yes, yes. Did they weigh, at that time, the possible detriment to the H.M.Jr: Yes. Here is what they weighed. The proposal was to take 12 of your Consolidated bombers. That was the proposal, to take 12 of these Consolidated bombers. And they said no, they thought you needed those more and could put them to better use than the Chinese. Purvis: Yes, quite. H.M.Jr: And is & compromise rather than taking these 12 from you General Marshall said no, you ought to have those. The compromise was that here are three hundred planes which can come along in May, June, and July. Purvis: Yes. H.M.Jr: And we will be giving you two for one. Purvis: Yes. Could we spin them out over a greater peri- od so as to give them at least some of these go- ing directly? H.M.Jr: Yes. Purvis: If we could spread it over six instead of three - as I say, I am not authorized to make any-- H.M.Jr: What do you mean. Purvis: Six months. H.M.Jr: No, they have got to have enough, you see, to do a job on the Burma Road. That is where they are going to go, to keep that thing open. I don't know-- Purvis: And the United States hasn't any further stuff? 55 - 10 - H.M.Jr: I have got a terrible job to do for the Greeks next. I an blocked up on time. Purvis: I an sorry. He said he could be here in five minutes flat. We have been much more. He can say very little more than I have said. It is simply that I told him that he had to have & written statement of a position that could be put on the record. But there is really nothing more in it than that. H.M.Jr: Incidentally, the Chinese will take the contract over. They pay direct. (Mr. Wilson entered conference) Purvis: Morris, I have just said to the Secretary we are not empowered to make any counter offer to this suggestion because everything is a drop of blood out of the thing-- Wilson: You are speaking for China now? Purvis: Yes. And these are really needed for the cam- paign in the Far East, the ones that are cur- rently going, is that right? Wilson: The Middle East. I have a memorandum. May I read this? H.M.Jr: Please. Wilson: "A squadron of fighters are 16 aircraft on the front line with at least 32 to 40 aircraft in reserve to insure serviceability of the front line during continuous periods of enemy action. Behind each service squadron there has to be a training squadron equipped with the same type in order that pilots may be fully trained in battle tactics on the new aircraft type before taking their place in the battle line. There are on order for England under present contracts 56 - 11 - eight hundred eighty P-40's. This total is roughly sufficient for 16 squadrons with a total establishment of 54 each. Present con- tract totals would thus equip eight front-line squadrons and eight training squadrons behind them. To build up the strength of these squad- rons will involve a period extending to June 1941. Allowing for the time required for delivery by sea, re-erection in England, and delivery to service squadrons, the time required to build up even this limited number of squadrons by June 1941 makes it overwhelmingly important that there should be no interruption in the flow of aircraft during the early months of 1941, if we are to be prepared for this serious enemy pressure in the several theaters of war which will develop in the early spring. So far as deliveries already made might have been expected to come into the battle line, it is pointed out that shipments were not made until the beginning of October 1940. We got deliveries in September, but they only shipped in October. Allowing 60 days for shipment, re-erection, and delivery to service units, the first aircraft were with the training squadrons by December 1940. The training of personnel on this new type had then to take place so it would not be possible to have battle experience of that type in the front line before February 1, 1941, or thereabouts." These figures don't include any of the three hundred that we have been discussing in the last few weeks. This, in answer to your query, Arthur, yesterday, have any of these planes actually been in the front line and where are they? This was prepared by Self and me, some of it from information off the record. We are told they are going to the Far East. We learned that through service men who come out here. London doesn't tell us where they send these things. We just learn it through conver- sations. 57 - 12 - H.M.Jr: Is that the whole memorandum? Milson: That is the whole thing, yes. In other words, they are busily engaged at the present time building up a fighting line of these planes down in Egypt. Purvis: I understand from the Secretary that the first thought had been to take Consolidated bombers from us, but that the point was made that they would be less - the Chinese would have less - I mean that we would loose more with bonbers and they would get less. Wilson: Yes. Purvis: And that this was reached as something to help with the Burma Road. H.M.Jr: And I might say that this whole thing started with the President and then people who sat in on this were Mr. Hull, Mr. Stimson, General Marshall, Admiral Stark and his staff, so it has been some- thing which has gone all over the - I nean it isn't just a thing lightly arrived at. Wilson: If this were just an ordinary trade that came across the street, from the War Department or the Navy, you would deal on it at B. different level, but this comes from the highest level and that is why I say your people over there are so disturbed. H.V.Jr: How many days do they work, six, Curtiss? Young: Six, yes. H.M.Jr: You see, what they asked to do, the original proposal, was to get these over there in January, February, and March, wasn't that it? 58 - 13 - Wilson: Fifteen in January, twenty-five in February, and twenty-five in March. H.M.Jr: What I would like to do - this is my proposal, that we take two a day for 18 days, that is three weeks. It gives them 36, and that is what they need. I mean, I asked him how many they needed to - before they could put them in the air, you see what I mean, and they have three squadrons of nine each. They figure three squadrons of nine each would give them three reserve for each squadron. Wilson: That is about right. H.M.Jr: And he said with that number, they are prepared to defend the Burma Road, and then the proposal is one a. day after that, so the thing, the way I figure it, would run about 13 weeks. It would take about 13 weeks, the may I figure it. The first would take three weeks, and then one a day after that would take 10 weeks, so it would be 13 weeks to complete the thing. On the machine guns-- Wilson: That would be 36 in June. H.M.Jr: Instead of 50. Wilson: It wouldn't be feasible to delay the whole thing for 30 days? H.W.Jr: No. the whole thing is - you know, you people - we think you have got even more at stake than we have. All military information shows that the march is to the south by the Japanese. The only way they can get this thing in is through the Burma Road, and these people haven't got & thing to keep that Road open. Given these planes, they can keep that Road open and keep these fel- lows occupied, and we think it is a tremendous influence in the whole Far Eastern picture, and 59 - 14 - both Hongkong and Singapore are at stake. Purvis: The situation is developing very fast whereby we ought to have, surely, over here sitting with your people, General Staff people, who could help us in B. situation of this kind because, Mr. Secre- tary, you can see that from an argument - from a purely supply angle without due appreciation of the joint general staff view on such a proj- ect as this, it is awfully difficult for us, isn't it Morris? Wilson: Oh, we are just messenger boys in things like this. H.M.Jr: So am I. Wilson: Oh, no, you can make decisions. But we can't make any. H.M.Jr: Oh, no, this isn't - I didn't have a bad night and wake up in the morning and say, "I want the Chinese to have so many planes, but this meet- ing took place in Mr. Hull's office where all these people sat around and everybody sat around and discussed this thing after we were asked to do it by the President, and as a result of 8. long conference where everybody had his oar in, they started to take 12 Consolidated bombers, and they thought they could be used better. It isn't a question of that or this. The President is determined that China get something at this time, and he has the full backing of his military ad- visors, you see. He has the complete backing of the Army and Navy general staffs on this, that this is highly important. I don't know - I know your staff knows how far we have gone on the Philippines, but I am not even going to mention it. We have gone our limit that we can as far as the Philippines go, and this is 8. general staff, Army and Navy - they are completely back of the President. Now, I had the Chinese in and this is 60 - 15 - the minimum. I said, "How much do you think is the minimum?" and they are going to ship these things by boat to Burna and then they go up the Irawadi River and they are in there and they have got a factory right in there and they have the aviators. This isn't an idle gesture. It means a diversion as far as the Japanese are concerned. I can't weight the military thing, but I know that after very, very careful consi- deration, this is what Mr. Roosevelt wants, with the complete backing of the Secretary of State and the Army and Navy. Purvis: I think we must feel it that may. There is no way - could you make It one every two days after the-- -...Jr: No, because my instructions are to clean this up in the first three months. Purvis: I see. Wilson: This is just 50, 25, and 25. Well, it isn't quite that. It is 36. Purvis: Thirty-six in the first three weeks. E.M.Jr: First three weeks, and then one a day after that. ilson: Oh, yes, yes. Oh, however, we are not quibbling about that. The last word, Mr. Secretary, that-- Jr: What I am saying is two 8 day for three weeks, and then one day, and then this would - as to when it would go into effect, Philip has found a hundred and twenty-five machine guns which Colt ordered - built without any order for China, and they are on the shelves, and those can % into the wings, 30 that takes care of the wing guns; but the 50-caliber guns, when they are going to come, I don't know, but all I know is each plane Regraded Unclassified 61 - 16 - has to have two 50-caliber guns. That is all 1 know. They have got to have two 50-caliber guns, but the wing guns, we found & hundred and twenty- five, and ue are giving then also - they haven said yes, but I think they will. They are galmg to take 50 of these so-called rebuilt Allison engines for spares. Purvis: It really comes to this, Morris, we have no option. Wilson: Oh, no, Mr. Morgenthau has said to us what Beaver- brook asked us to find out. He said, "Find out from Mr. Morgenthau, is this what we call palace command? If it is, then there is no use to dis- cuss it." H.M.Jr: This is - what the President and his Cabinet and his Army and Navy officials think that with these very scarce, that this is the best distribution at this time. Purvis: Then so far as-- H.M.Jr: I mean, I, as I say, can't say - all I can assure you is, it has been very, very carefully weighed and in return, for whatever it is worth, you get two for one. I mean you do get three hundred in May, June, and July for whatever it is worth. Wilson: Oh, yes. H.M.Jr: Do you see? Wilson: Well, I will get on the air with hin. H.M.Jr: You can get three hundred planes by giving up one. o Wilson: Curiously, this command crossed E report that we had from the other side, Beaverbrook saying that he had just put up to the Cabinet the statement 17 - of our position in regard to the deliveries from the United States and so on and ao on, and asking, this sound sourwhat ironic, asking if you could do anything to speed things up. H.M.Jr: I an going to tell you, I have got another order from the President which I got on New Year's Eve, and I an not looking to you, I am looking to the Army, but just how I an going to do it - he told me he wants 60 planes for the Greeks. The Greek Minister came in on New Years Eve, and the Presi- dent was in & good humor, so he said, "We will double what we are going to give you." So I said, "Well, double zero is zero. Purvis: I suppose the British feel they have got their RAF actually down there. H.M.Jr: I know. I needn't tell you how I feel, but here is the situation and carefully weighed, and I have got to see that it is carried out, that is all. Wilson: Well, apropos of that, is it fair for us to infer from what you have just said that we can forget about the Greek thing so far as we are concerned, that you are going to deal with that across the street? H.M.Jr: No, I can't give you a promise. Wilson: But we need do nothing about it at the moment. H.M.Jr: There is nothing you need to do about it. It is my baby, and I don't like it. Purvis: Either its face or its form. H.M.Jr: What I an thinking of doing is, I am looking - my father, when he was ambassador in Turkey used to have an Armenian secretary, whose name I can't 63 - 18 - think of, but I an thinking of retaining him to fight the Greeks for me. (Laughter) Purvis: Yes, and a very good time to do it too. Wilson: We would be very glad to pay half the salary. H.M.Jr: The Armenians are the only people I know that can out-trade the Greeks. Andonian, that is his name. He was his secretary the whole time he was there. Purvis: Well, let us put this to London clearly as it is, Morris. It has just got to be done. Wilson: Oh, yes, oh, sure, there is nothing - we will tell them there is no further discussion about it. H.M.Jr: Now, can I, so that I won't be getting too zany details, can I leave it between the Mission and Philip Young so that this thing can begin to go at once? I don't know how long it takes to put - to beging to crate these things for China, you see what I mean, so that these first - they make use of the 125 guns which will be for-- Wilson: If you are thinking of us, we will act the minute I get back to the office. I will get on the telephone and then the idea is, I will tell you (Young) right away. H.M.Jr: I would like to tell it to the President, and I would like to tell T. V. Soong that it is accom- plished. If I could be kept out from now on, I mean, because there are details to be worked out. Do they need the thing in Chinese marking and that sort of stuff? Young: No. They can take them the way they are. H.M.Jr: Well, what I was figuring, two & day for three 64 - 19 - weeks, and then six a week after that. That gives them their first squadron and after that they are-- Purvis: Quite. H.M.Jr: How, could I-- Purvis: That is that. We fully appreciate your position. H.M.Jr: lihen you first smell ether, it smells sweet. Wilson: Well, I think the first thing I will say to the Minister is that the Greek thing is in cold storage just at the moment. H.E.Jr: Right at the moment I want to get this thing sewed up, and then we are going after these Brewsters, are they? Young: Republics. Wilson: Arthur, have you got that Greek thing? I had great difficulty in getting it. Purvis: I an sure you had. Wilson: You are through with me? E.V.Jr: Yes. Wilson: Good morning. H.M.Jr: Remember in your talk that we first were going to take 12 of your Consolidateds. Wilson: I will tell him that. H.M.Jr: Now, we have & good hope to get you nine more Consolidateds. 65 - 20 - Wilson: I won't forget to tell him that. H.1.Jr: There is a good hope of getting you nine more. As a matter of fact, Phil, General Marshall said if he got some good trade - well, he is two- thirds committed to it, you see, so I think that might cheer them up a little bit. Purvis: He will need all the cheer. H.K.Jr: There is a sixty-six and two-thirds percent chance of getting you nine more Consolidateds. There are twenty-nine in that run and the sug- gestion I made is that you get all twenty-nine, and I think there is a sixty-six percent chance that you will get them. Wilson: Thank you. I will tell them that. E.E.Jr: It was carefully weighed, and they thought you should have these Consolidated rather than China, but that was the original proposal. I am going to try my best to get you the other nine, and those will be coming immediately, you know. Purvis: Morris, Tie are going to get a half ownership in the Burma Road. Wilson: Thank you. M...Jr: I thought you had that now. And they have the ammunition and all that, but I would like, if I could, to be able to tell T. V. Soongthis is an accomplished fact, you see. Wilson: I will get after it right now. H.V.Jr: Thank you. (Mr. Wilson left conference) Regraded Unclassified 66 - 21 - H.M.Jr: Philip, I would like it if those two a day for the Chinese could start next Monday. Purvis: I wonder whether we have any that are packed that could have markings changed or something like that in order to get the feeling that you want. H.M.Jr: That would be swell. Purvis: We might explore that as a thought, don't you think? and 66- A d NOTE OR NEED FOR BUILDING Pr ULIVIALES OF 1 P-40'S TO ENGLAND AND MIDDLE EAST 1. A. squadron of fighters has 16 aireraft in the front line did et least 32 to 40 aircraft in reserve to ensure serviceability in the front line during continuous periods of essay artim. 2. Behind each service squadron, there has to be E training squadron equipped with the name type in order that pilots my be fully trained in battle tactics on the new drunit type before taking their place in the battle line. 3. There are on order for England under present contracts 880 P. 10's This total is roughly sufficient for 16 squadrons at . total establishment of 54 each. : Present contract totals would this squip B front line squad- IVES and 3 training squadrons behind them. 5. To build up the strength of these squadred will involve a period extending to June 1941. 6. Allowing for the time required for delivery by sea, re-erection in England and delivery to service squaires, the time required to build %) even this limited number of squadrons by June 2941 makes it overwhel- singly important that there should be no internation in the flow of air- can during the early months of 1941 if F are to be prepared for the serious enemy pressure in the several theatres of NET which will develop is early spring. 7. So far as deliveries already made sight LATE best expected to come into the battle line, it is pointed at that shipments were not made until the beginning of October 1940. Allowing sirty days for were ship- ment, re-erection and delivery to service units, the first aircraft/with the training were squadrons by December 1940. The training of personnel DD this new type had then to take place, so it would not be possible to have battle experience of the type in the frost line before February 1941 or thereabouts. BUTE: The to al of 880 aircraft given to hand 3 does not include try of the 300 aircraft now being discussed for additional deliveries in May, June and July, 1941. Regraded Unclassified 1062 January 2, 1941 12:05 RE ATD TO PRITAIN Present: Mr. Purvis Mr. Foley Vr. Cox Vr. Young Mr. Ballantyne Mrs. Klotz H.V.Jr: You gentlemen sit still while I give you a little speech. Here is the thing. And I say, we have to have it by 9:30 Monday morning. As I get it, what I think the President wants and he is groping for is legislation which would give him a free hand to have the Army and Navy place orders in this country for the material that they need, and adding to these orders as much more of a particular commodity as they think we will be called upon to lend to England or to China or to Greece. Now, in the conversations that we had with them, he said quite frankly that he couldn't envisage even what we might need. Do you remember? Purvis: Yes. H.M.Jr: And that when Mr. Purvis told him that he was going to give him an inventory- he finally got to the inventory as to what the English need- Regraded Unclassified 68 - 2 - he said, "Well, that is fine, because we don't have such a thing ourselves." And I am getting the thing - I an going to tell him it the way I see it, and then Purvis, who was with me, can fill in. As I see it, for instance, what he could say is this, that we need a thousand tanks or ten thousand tanks. Well, that is what we think we need, and the English say they need five thousand. "Well, all right, Army, create the facilities for 15,000 tanks and go ahead and build those facilities, the Army placing the order for that. Now, the President was very clear in his discussions with us that he wanted the extra facilities built and that it is just too bad if the manufacturer is going to worry what happens afterwards, because nobody can tell anyway, but he very definitely wants these additional facilities created so that we can have the capacity to take - build as much as we now see that we need, plus what we know that the English want, or any other country that might need it. Now, I think that that is as to the - I mean, this is the way I assimilated it, after thinking it over, what he needs and what I think he should want. Purvis: Yes, and he visualizes sacrifices of civil goods, luxury goods, in doing it. H.M.Jr: He gave examples and said, "After all, people can get along without cream separators, but after all, they are people that make 8 highly technical piece of machinery; I am sure they can make gun mounts or anything else." Regraded Unclassified 69 - 3 - But then the point that he made, which I thought was significant to show how he was thinking, he wants Congress to leave it to him to say, "Well, of these 15,000 tanks, as the situation arises I may want to give so many to England, 80 many for ourselves, and so forth. He says, "You can't tell from day to day," and he wants a blanket authority from Congress. He, as Commander in Chief, should have the discretion to say how much he can distribute. In other words, he doesn't want to tie it down that the English get so much, the Greeks get SO much, China gets so much. In other words, after thinking the whole thing over and getting all the infor- mation, we need 15,000 tanks and we need them in 8 year. All right, go ahead and build the capacity. The Army places the order, and then he, the President of the United States, can say, "Well, of those I am going to lend so much to this and so much to that." Are we together so far? Purvis: Correct. Now, as to the lending and the method of repayment, I don't know any law but if the word can be simply lend and leave it very much un in the air as to how they should be repaid, I think that that is what he wents, because it is to show that he doesn't know and he hasn't got anybody else working on this, as far 85 I know. It is very much up in the air, and how can he say if and when the war is over what England will want to give back to us, what she wants to do about the civil copulation, whether it is wise to build up B big force in India or Australia, where the weak Regraded Unclassified 70 - 4 - spots are that have to be strengthened, or just how quickly we want the thing back, what do we need for the reconstruction period and what does Angland need, and one of the things that is worrying England and after all, certainly talking for myself, we are not going to be short sighted and I think in my prognosti- cation so far I said what would happen. I don't think I have been very far wrong. Purvis: Correct. H.M.Jr: Certainly there will be every reason in this country to do everything possible to help England during the reconstruction period, provided there is B. just peace. Purvis: Yes. H.M.Jr: I add that. So I think - and I am sure that they will want a just peace after going through Versailles. He are certainly not in our generation going to make the same mistake twice. Purvis: Never. H.M.Jr: Non, this part I haven't studied, but I have looked 8. little bit ahead and I certainly think that that - we will throw our weight of our influence on that side. In other words, to go back to the free trade as far es possible and raising the standards of living of the people of the world so there isn't over again - I hope in the time of my life and the time of my children - 8 repetition of what happened due to the shortsightedness of Versailles. Purvis: Right. Regraded Unclassified 71 - 5 - H.M.Jr: And no one has discussed this with me, but this is By ONE feeling, and I think that that is where we will want to throw our weight in and I an sure that it will be sympathetically received on that side, but if there was this thing of again setting the stage so that in another 20 years we would be right where we are now, I don't think we would want to be a party to it. So I don't think that England and Sir Frederick Phillips, who is here for the Treasury, want to worry too much. They have just got to trust Mr. Roosevelt and this thing of lending and how it is to be repaid, the words "in kind" - the most elastic words. Foley: On such terms and conditions as the President shall prescribe. H.M.Jr: I think I have outlined what he has told us, plus what I have added of my own intervretation to what I think he wants, plus what I think is good. Now, I have finished. You were there, you heard the whole thing. Purvis: I think cutting out all the necessary detail that surrounded it, I think that - and certainly that last thought of yours is very definitely what he had in mind, because he said we would have to perhaps trust - I mean he made a very significant renark. H.V.Jr: About being trusted and about if he knew the English people, the English knew that he knew them. Purvis: That is right, I remember that part of the conversation. H.M.Jr: You know he said to Lothian, "I know the English people," and Lothian said, "Yes, they know Regraded Unclassified 72 - 6 - that you know them." Purvis: That is what he said. H.M.Jr: But isn't that about the thing? Purvis: Yes. I think that is what he has very definitely in mind. The thought I would like to intro- duce which was not said by him at all, in fact the reverse, but it does seem to me - think it over - that if the situation could be left so elastic that he could decide either at that time or that there would be nothing said that would destroy the possibility of his deciding, that where weapons have actually been demolished they wouldn't necessarily have to be rebuilt and replaced as such or in kind - I mean, otherwise that might go as America's contribution to the war. What could be returned, what still existed, or what had to be repaired, but the rest might be -- H.M.Jr: Look -- Purvis: It is the same thought you have to leave it open so that he can do it that way. H.M.Jr: I wouldn't worry too much about this thing. I was with the President for an hour this morning on another matter. The only thing that all of us are worrying about is, we want to make sure that you win. Purvis: That is right. H.V.Jr: And I know that he is not WD rrying, and neither am I, what is going to happen after you win. All of our thought and all of our energy and everything we have got has got to go toward that one thing, and certainly as long as I am here there will be everything that I can do 73 - 7 - after the war is over to see that there will be some kind of a rationalized world where people like the English and ourselves can live and let other people live. Purvis: That is right. H.M.Jr: And to try to set the stage when we might hope to go for 40 years instead of 20, but I mean - and that gets down to a question of just how broadminded all of us are in trying to make room for everybody 30 that everybody can have enough to eat and enough to wear and 8 house over his head, and not have this economic pressure which drives people to war. Now, that is the whole thing. Purvis: That is right, that is the whole thing; and there is nobody, I believe, that the British people would rather trust in that regard than the President of the United States. H.M.Jr: Well, they have got to trust him. Purvis: But I mean I don't think there is anybody they would rather trust. H.M.Jr: Here I am and whatever authority or capacity I have, I am letting you know how I feel. Purvis: Can Congress be expected to grant powers of a broad kind? H.M.Jr: Well, that is what the President wants. Now, he can see, and then he wants me at 9:30 30 that immediately after he can give it to the leaders, Monday morning. Now, am I asking you something which is im- possible? Regraded Unclassified 74 - 8 - Foley: No, not at all. H.M.Jr: When do you gents think you could have some- thing for me to look at? Foley: When do you want it? You tell us. H.M.Jr: How long since you have worked all night, Cox? Cox: Three days. I am getting out of training. H.M.Jr: I mean counting New Year's Eve out. (Laughter) Foley: That was only night before last. H.M.Jr: Well -- Foley: We can do it. H.M.Jr: Here is the thing. I am giving you people tomorrow morning for Treasury legislation, 10:30. Foley: We can have something on this by 10:30 in the morning. H.M.Jr: I don't mean a finished document with all your references. Foley: No, it won't be finished, but we know now what we want to do, and how we would like to go ahead and I would like to tell you a little bit of what I have in mind if I may. H.M.Jr: If you will. I waited until Purvis was here. Purvis: This was quite in accord with the general picture. H.M.Jr: If they gave you & memo, and all the details with what you have read in the paper, I think it would 75 be misleading. Purvis: Quite. H.M.Jr: Go shead, Ed. Foley: Last June, a statute was passed which gives the President in his discretion certain powers, and the statute is entitled "to authorize the Secretaries of War and of Navy to assist the governments of the American Republics to in- crease their military and naval establishments and for other purposes. Now, that discretion is given to the President and then he may authorize the Secretary of War to use the facilities of our arsenals and our gun plants and the things that are operated and controlled by the government to produce for sale to the South American republics war supplies and things that they need to build up their defense, and the same thing is true in so far as the Navy is concerned. He may authorize the Secretary of the Navy to use our ship yards and our navy yards and our gun plants and so forth to build for South American order and for their use, gun boats and war ships and airplane carriers and submarines and all the rest of it. Now, I think that if we start with that statute which is a legislative framework, and we enlarge it to include such countries as the President in his discretion may deem proper and necessary and then enlarge it further to permit orders to be placed with private manufacturers for airplanes and guns and every other thing that is necessary to carry on 8. war, and then to sell or otherwise lease or dispose of on such terms and conditions as he may prescribe that materiel, and then -- 76 - 10 - H.M.Jr: Can I interrupt you? One point the President made very clear, he wants this direct, no RFC, no monkey business. Remember? Purvis: That is right. H.M.Jr: No monkey business. Army places the contracts direct, no corporations, no monkey business and no - he said, "We don't want to fool the public, we want to do this thing right out and out." Purvis: He went so far as to say the Neutrality Act would probably have to be amended to permit of & belligerent - of the United States Government loaning goods to a belligerent government. Foley: That we would have to trim out of this statute. This statute has that in there. It says, "Provided further that no transactions authorized herein shall result in expense to the United States nor involve the extension of credits by the United States," and that, of course, we will have to get out of there. Purvis: It does not contemplate any change in the Johnson Act. H.M.Jr: And also he said, "I want to do this right out in the open." This will be an order of the Army to the manufacturer. Foley: In so far as expanding the plant facilities are concerned, I should think that within what we have now we have got all the power we need. I don't think we need any additional power to do that. We have got the full resources of the RFC available through the Defense Plant Corporation to build and to lease or to otherwise dispose. of under some kind of a. management operation, 77 - 11 . contractor or something of that character, plant facilities that are necessary to meet these orders that would be placed not only for our own use but for your use or any other country's use. So I think we can limit it to enlarging the countries, this statute, and also enlarge the powers in the statute by authorizing the work to be done under private contract with private manufacturers and then get a large appropriation, whatever is necessary, to carry out the purpose of this act. H.M.Jr: Well, it sounds all right. I will tell you, Arthur, if you would be in here tomorrow, you may have to wait a little bit, about a quarter of eleven. Purvis: Yes, I will. H.M.Jr: And then I would be glad to have you listen and we will do some of the other Treasury things first, you see. Purvis: Thank you very much. H.M.Jr: You come in at quarter of eleven, you see. We will have something for you to see. Now, while I am hitting on all six - are you through? (Foley) Foley: Yes, I am through. H.M.Jr: There is an entirely different thing which I want you to be thinking about which also the President hasn't thought through. During this interim - and Cox is in on this and Phil - we have got to find some way that these orders can be placed, legally. 78 - 12 - Now, Phil has managed a letter of intent, but this whole thing has bogged down and there is some way certainly amongst us here, there are brains enough and hearts here to do this thing. There are brains enough to find an interim plan, letter of intent, or something you see, like you did with the airolane people. You give these fellows a letter and you say, "Go ahead and get everything lined up. Purvis: In many cases that would involve the putting down of a much lesser sum if the President's prohibition did not apply against the signing of 8. letter of intent as we have viewed it as applying against assigning of a contract. If we could get it to that point that a letter of intent could be used, undoubtedly the sums that could be required to ease us over, it would be 8. palliative. H.M.Jr: If by chance we could also have that by 9:30 Monday, you see, so he could lay this before the Congressional leaders and say, "Now look, here are two things, the permanent legislation and the emergency act, and the Army is going to go ahead and get 8. fellow -" well, they are short on machine guns. Now, all right, we have got to have double capacity of machine guns and they are going to tell such and such an organization to go ahead and build a plant in Kansas City and St. Louis to do the thing up to the point of actually spending the money, but they have got to get the materials and the plans drawn and so forth and so on. I mean, they are not going to spend the money, but they are going to have everything so that when the day comes that the bill passes, the whistle blows and the steam shovel begins to function. I mean, to use an example, when I had Procurement and 79 - 13 - Buildings and they voted 80 many hundred post offices that we should build and the bill was going through, the day the President signed the bill they started to dig for a post office in every congressional district in the United States. They voted 150 million for national defense in July, and they haven't, I don't believe, spent a dollar of it yet. What I envisage is that everything will be done up to the point that when he signe the bill, they have gone so far that the steam shovel will begin to work that day, which would save you three months, wouldn't it? Purvis: Oh, undoubtedly. That would bridge the gap if we can get 8. situation which is sufficiently substantial for the manufacturer to see that it is going to mean business. H.M.Jr: Vy post office example is very good. I mean, they vote 360 post offices or whatever it is. Now we go ahead and get the contractor, get the design, we get everything down until actually the fellow was ready to start the steam shovel when the President signed it. Which would save six months. Purvis: Knudsen is the man who has got to understand that or whoever is the Procurement head. H.M.Jr: I hope - you see, the Budget - this is Treasury gossip and White House Budget - is over there right now seeing the President, trying to get an Executive Order fixed up which will say what Vr. Knudsen's duties are. That hasn't been signed yet. But once we know that, whoever the person is we work with, I take it if I have such and such a plan the President will say "this is fina and go ahead and do it. Purvis: That is right, get it all up to date. 80 - 14 - H.M.Jr: But no one else is thinking on this thing the way you and I are, so if we could have some- thing for him, you knowing what your needs are - and that is why I shied off doing torpedo boats because me don't want to -- Purvis: Don't let's muddy the issue. H.M.Jr: Here is what the British want, this is their priorities, this means additional plant capacity; now why can't we 20 ahead up to the point of putting the steam shovel to work, which would mean from three to six months argument, etc., etc. Now, I don't - I know it can be done. Toung: Well, the RFC is ready to go ahead now and build the capacity. H.V.Jr: The President doesn't want the RFC. Young: Not on building capacity" Purvis: Yes, he did mention that we might get some money in the interim. H.V.Jr: That is right. He asked did they have any authority left. Young: Jesse will build plants without any orders being placed. H.M.Jr: He raised that. Purvis: He raised that. He said he felt that there was the unexpended contractual balances wherever they might exist. He mentioned his own in connection with ships, merchant ships. He then referred to the possibility of also getting from the RFC certain interim funds and then he 81 - 15 - raised himself the difficulty which he said ought to be legally considered 8.8 to whether one had the right to use balances totally in the construction of B. plant without including any payment for the actual goods that come out of the plant. Foley: Well, that the RFC clearly has, and that is why the RFC is ideal and that is why I mentioned that I didn't think we needed to have any additional authority in so far as the capacity of production is concerned. RFC has not only the funds, but they have the power to build 8. plant now, even though no orders are in sight for the plant. They have got the power to do it, and they wouldn't have to wait until this money was available and this authority - they could start right now and they could begin to build all over the country different kinds of manufacturing plants with a view to authority being placed for the orders. H.M.Jr: If Congress decided in its wisdom to do it. Foley: But they could build them and just leave them there and wait. Purvis: I think it is hopeful. I am delighted to see the way you are tackling it. H.M.Jr: While I happened to be hitting on all six, I wanted to go through the whole line. I think that is the thing. Do you think of anything, Philip? Young: No. Jesse told McCloy over at the War Department he was ready to go ahead on that basis. It might take a little persuading. H.M.Jr: When did he tell him that? 82 - 16 - Young: Oh, about & week ago. H.M.Jr: Well, this would be a whole program, you see. Now, what I think the President should do, when he sees the leaders at ten o'clock Monday, say, "Well now, here is what - the kind of legislation I want and this is what I am proposing to do in the interim. Can I get backing on the Hill for it?" you see. And if they would say, "Yes, it is all right." Purvis: Yes. Cox: Does the President have any objection to using the monies over in the War Department which have been scraped together for Fourth Quarter maintenance to place orders pending the RFC's production capacity expansion? H.M.Jr: I thought they had done that. Purvis: I used the terms that contractual balances might be available. Foley: That would be for the orders and the RFC funds for the plants. Purvis: That is right. Foley: So you could 70 ahead on both fronts to some extent, to a limited extent. H.M.Jr: Well -- Purvis: Now then, could we - if we could get a talk - could Sir Frederick Phillips join with the crowd where there is any - so that he can come into this thing and realize how it is going? H.M.Jr: Let him come in at eleven tomorrow. Anybody 83 - 17 - that you want to pull along with you, bring them at eleven. Not too many. Weir and Phillips? Purvis: That would be the maximum. H.M.Jr: I don't think you need any help between now and eleven, do you, Ed? Purvis: Well, if you do, we are available at any point. H.M.Jr: "ell, fairly early in the game I think we ought to have somebody from the Attorney General's office sit in with us. How about eleven tomorrow? Would that be a good time? Think it over. Foley: All right. I don't think it is necessary at eleven tomorrow, because if we draw them in they will want to do it their way and not our way. Let's get something down. There won't be any question of legality here. This isn't like an executive order that has to be approved. We can draft it so it is constitutional all right. H.M.Jr: There are two ways in Washington to do a thing. Go around and tell everybody what you are doing and ask for their cooperation and get nowhere, or do it as secretly as possible -- Purvis: And fight it out to 8 finish. H.M.Jr: And then give it to the President. Purvis: Yes. Well, I must say I am very relieved and I think it is quite in accord with the spirit of what he has said. Now, I think we should leave you and I thank you very much. H.M.Jr: Well, that is the thing. 84 January 2, 1941 2:10 p.m. H.M.Jr: Hello. Wn. S. Knudsen: Hello. H.M.Jr: Bill? K: I just wanted to wish you a Happy New Year. H.M.Jr: That's what I wanted to wish you. K: Thank you 80 much. H.M.Jr: How are you? K: Pretty good, sir. H.M.Jr: And your family? K: Fine, thanks. H.M.Jr: I'd like to see you sometime, whenever it's convenient. K: All right. Later in the afternoon? H.M.Jr: What's that? K: Later in the afternoon? H.M.Jr: Today? K: Yes. H.M.Jr: I'd rather do it the first thing in the morming. K: Fine. H.M.Jr: How about 9:15? K: I'll pick you up. H.M.Jr: You want to pick me up at the house? K: Uh-huh. 85 - 2 - H.M.Jr: What time? I: You set the time. H.M.Jr: Oh ..... K: 8:30P H.M.Jr: 8:30 will be all right. X: All right, sir. H.M.Jr: Because I'd like to tell you what the status of the English situation 1s. K: Yeah. All right, sir. H.M.Jr: I'll see you tomorrow morning. X: Yes, sir. H.M.Jr; Good-bye. 86 January 2, 1941 3:45 p.m. RE CHINESE PURCHASING PROGRAM Present: Mr. Soong Mr. Young H.M.Jr: This is what happened this morning. I saw Mr. Purvis and I told him it was the wish of this Administration and I hope that not later than next Monday, if possible, they would give you two planes a day for 18 working days, that is three weeks, or 36 planes, and then one plane 8 day for the next ten weeks, or a total of a hundred; that there were these 125 guns which Colt had and which were available; but that these planes must have - how I don't know, but they just must, each of them, have two 50 calibre guns. Now, they agreed to this program. I said the final details would be between you and Mr. Purvis, with Mr. Young assisting you, but I considered it an accomplished fact, that I could say it was finished. As to the details, that was between you and them and the Curtiss Company, and Vr. Young can assist you. Eas anything happened since then Young: Not that I know of. H.M.Jr: So the rest is up to you. But that is the proposal. Two a day until the 18 working 87 - 2 - days are over, which would be three weeks, when you will have 36, and then one & day for ten weeks; so in 18 weeks, beginning Monday, you ought to get 8. hundred planes, 13 weeks. That is that. Now, have I stated it all, Philip? Young: That is all there is to it. H.M.Jr: So I think if you - any time you can call up Mr. Purvis and say you want to talk to him about it. He is here in Washington now. Soong: I thank you for it. Young: No ammunition included. H.M.Jr: No, except that I said each plane must have two 50 calibre guns. Those are the two that fire through the propeller. Soong: No ammunition for that? Young: For the 50 calibre? No. H.M.Jr: Who has the ammunition? Young: The British have some 50 calibre ammunition. H.M.Jr: Well, they will have to give it to them. There is no use of giving them the planes and guns without the ammunition. Young: You don't have 50, but you do have 30, don't you? Soong: Yes. H.M.Jr: But no 50? Young: No. 88 - 3 - H.M.Jr: We will have to, Philip. There is no use doing this thing half way. Enough ammunition to keep the planes going. It will have to come out of that pool. We have gone to all this trouble now, and I don't want to have planes without any ammunition. So that is that. Soong: Well, thank you very much, Mr. Secretary. H.M.Jr: I hope with Mr. Bell that we will get - when are we going to be ready on that? Soong: I hope it will be tomorrow. H.M.Jr: Is that when it is? I hadn't heard. Soong: Thank you. H.M.Jr: Good-bye. 89 January 2, 1941 3:55 p.m. H.M.Jr: Hello. Operator: Harold Smith. H.M.Jr: Hello, Morgenthau. Harold Smith: Yes. H.M.Jr: How are you coming? S: Pretty good. H.M.Jr: Anything new on that Order that I'm personally interested in? S: No, there 1sn't. We just took over this Defense Commission order and that's gotten a little snarled up and I think he wants to straighten that out first. H.M.Jr: I see. So there's nothing new on the one I'm interested in. S: No, no. H.M.Jr: How do you feel about it? Have you had a chance to read it? S: Yeah. As I look over it as it stands now, I just have one quick reaction to it, that the factor of production ought to be left out of it and that it ought to be solely on the Cabinet level. H.M.Jr: Well, that's something that I wouldn't fight about. S: Yeah. Well, that reaction comes out of trying to balance off & little pulling and hauling that has been going on this week in connection with reorganization of the Defense Commission itself. H.M.Jr: Just a little pulling and hauling, huh? S: (Laughs). I just got through telling the President that my shoulder sockets were all sore I'd been yanked around so much. 90 2 I , H.M.Jr: Well, I'll call you again or if you happen to have anything on that ..... 8: Yeah. Well, I tell you, I think there is no use in taking it over to him until he gets this other - now he's revised this and I think there 18 going to be a little struggle over it and we thought the other Order would be signed today in which event we'd get this other one into the hopper. But it wasn't signed today and he's going to see Hillman and Knudsen and I suspect there's going to be some fireworks in other directions, I don't know. H.M.Jr: O. K. S: All right. H.M.Jr: Thank you. 91 January 2, 1941 I spoke to Justice Frankfurter tonight, and asked him whether he would be ready to look over our proposed legislation on how to lend war materials to England. He said he would be very glad to have it left with him so that he could read it. Justice Frankfurter also was kind enough to say that he had a conversation with Justice Brandeis. Justice Brandeis told him that after having talked with me he found that I seemed to have ideas which fitted in with his more closely than anybody else connected with the Administration. I evidently had made a hit with the old man. 92 January 2, 1941 MEMORANDUM TO: Secretary Morgenthau FROM: Mr. Gaston use Supplementing my previous memoranda, the following charter of a vessel of the United States to an alien is considered of interest: SS SCHOHARIE (Official No. 217799) - Application filed by the South Atlantic Steamship Company for approval of charter to Mitsubishi Shoji Kaisha, for one voyage with a cargo of gasoline and lubricating oil from a United States Gulf port or ports to a port or ports in Japan, loading commencing on or about December 15, 1940. Approved 12/7/40. 93 HAROLD K. HOCHSCHILD SUTY-CRE BROADWAY NEW YORK January 2, 1941 Honorable Henry Morgenthau, Washington, D. C. Dear Henry: Enclosed is a brief memorandum on the silver item I mentioned to you this afternoon. If I get any more reasonably authentic dope I'll pass it on to you. Your suggestion that we go out to La Ose to- gether on January 30th or 31st for a week or so hit the bull's eye with me and immediately filled me with e yearning for the great open spaces. Following our talk I made inquiries from counsel about the case I referred to and find it is more than likely that I can get away for that week, but I won't know positively until Janu- ary 20th. In the meantime, please make my plane reser- vetions with yours on the assumption that I will be able to go. Aside from the pleasure of being with you, the trip is really important to me because I have prectically run out of my supply of stories, and I want to replenish it from Dick at the earliest possible moment. Incidentally, I an confidentially informed that one or two of our old ranchmates (no, I don't mean Flora) are going to be at La Osa around the end of the month. Sincerely, Harold Ene 94 9 New York, January 2,1941 To the Honorable Henry Morgenthau: I understand that during the past few months the airplane industry has been using increesingly important quantities of silver solder. This is made of en alloy con- taining 50% silver and 50% zinc and cadmium combined. The indications given to me of quantities of silver being consumed for this purpose sound so fantastic to ne that I hesitate even to quote them without further investigation. I am making inquiries through various chan- nels end will transmit any further information received that sounds reliable. Harold K. Hochschild. Regraded Unclassified 95 January 2, 1940 Messrs. Kuhn, White and Bell prepared the attached drafts for the Secretary's use at his press conference when he expected to be asked for comment on the Eccles' statement. However, the Secretary was at the White House while the men were working on the drafts and returned Just in time to hold his press conference. He, therefore, did not have an oppor- tunity to see these drafts before he met with the newspaper men. His comment at the press conference was, "I would say that the matter is under study." 96 Chairman Eccles showed me the special report of the Federal Reserve Board on monetary and reserve matters before sing it public. This was a courtesy that I appreciated. I vas not asked to give By approval to it and it vas clearly understood that I reserved my opinion as to the merits of the various proposals made by the Board of Governors. I have very serious doubts as to the wisdom of attempt lag to of the Board's recommendations, * this time. This applies with particular lever to the proposal to increase requirements. If this should have the diest of creating & scarative of used and faming - increase in interest rates the name would be TATY unfortunate. in By certainly opinion. I don't think this is a time to lock up financial resources any more than it is a time to lock up any physical resource that we shall need in our defense effort; nor is it a time to increase the cost to the government and the people of making full use of any resource. 97 Is so far as this report draws public attention to the danger of !nflation in our defense effort, I an glad that it has been nade. You will remember that I mentioned it to you voeks ago, and said that It was one of as chief concerns. I have been having constant discussions about it with Leon Henderson, and both of If are determined to nail any do of a rising spiral, and to nail it hard, as soon as it appears. Specifically, what I have in mind is the sublen rise in one or two compdities that are essential to the defense effort. There has been 30 all-round rise; we are seeing to it that there shall be none. Ta are not going to let prices run aray or even begin to run away. so, determined Date they show signs of doing A we are guing/to stop the process at the very beginning. That to 17 mind is the first and best vay to guard the people of this country against inflation. The first and best viry, in other words, is not to let it start. That is another reason du I have doubts, serious doubts, shout the recommendations in Mr. Eccles' report. accept these Moreover, a rise in interest rater at the present time would tend to push prices up at the very moment to " want to keep then down. It would hamper the defense effort and create the very evils which the Treasury and the Defense Commission are working to avoid. This is not the time for tiskering with money rates. It is the time for a. resolute job on the prices of physical things. Iss is the job the Administration is now doing. carbon wa TREASURY DEPARTMENT Bank america Regraded 98 Uncla INTER OFFICE COMMUNICATION DATE January 2, 1941 Secretary Morgenthan TO FROM Mr. Folsy Memorandum for the Diary Re: Meeting with Senator Glass on Bank Holding Company Legislation. Messrs. Delano, Foley, and Sherbondy discussed the Treasury De- pertaent's draft of the bank holding company bill with Senstor Glass in his suite at the Mayflower Hotel on Thursday morning, January 2, 1941, at 10:30. Mr. Delano opened the discussion by explaining briefly the neces- sity for legislation to control adequately holding companies of banks, after which Mr. Foley pointed out the differences between the Treasury Department draft of the bill and S. 3575, introduced in 1938 by Senators Glass and McAdoo. A comparative summary of the Treasury draft, the Treasury draft bill and S. 3575 (a copy of each are attached to this memorandum) were loft with the Senator. Mr. Foley emphasized that the Treasury draft would require all companies to reduce their holdings of stock in insured banks to 10% by June 30, 1944, while S. 3575 would, in effect, freeze the existing situation in that it would not require holding companies to dispose of any stock in in- sured banks which they now hold. Mr. Foley also pointed out that the Treasury draft contained a provision prohibiting insured banks from paying dividends over the objec- tion of the Comptroller of the Currency with respect to national banks, and the Federal Deposit Insurance Corporation with respect to State insured banks. Mr. Delano stated that, although he was aware of the arguments against concentrating too much authority over banks in an administrative agency and he recognised that voto power over dividends paid by insured banks was a rather powerful senction, he felt sincerely that such control was necessary if the problem were to be effectively mt. He pointed out that such veto control over dividends was necessary prior to June 30, 1944, in order to prevent holding compaies from bleeding banks prior to the date of the termination of holding company control, and that it WES also needed as a general sanction of indefinite duration for the Comptroller of the Currency over all national banks. Mr. Foley emphasized that the dividend control was a negative senetion, and did not require the approval of all dividends paid by insured banks. 99 - 2 Regraded Uncla At one point, Senator Glass stated that he RI impressed by the fact that such of this expension of holding company systems had been permitted who various Federal banking agencies. In reply, Mr. Foley pointed out that, although the Comptrollar of the Currency had certain sanctions, such as appointment of a conservator, publication of the report of examination of a national bank, and a proceeding before the Board of Governors of the Federal Reserve System to remove directors and officers, those sanctions were either too drastic or too cumbersome to be used. Senator Glass indicated that he was entirely in sympathy with the purpose of the legislation, namely, to restrict the concentration of control of banks in the hands of a. small group, and be stated specifically that no man should have the control over banking presently held by A. P. Giannini. He stated, however, that he was desirous of introducing & bill which would pass, and would not want to introduce a bill that would result in excessive opposition. Mr. Foley pointed out that the Treasury draft had not been shown to anyone outside the Treasury Department, because it was desired to discuss it with Senator Glass first, since he might care to suggest certain changes. Mr. Foley informed Senator Glass that the matter had not, as yet, been discussed with Senator Wagner, pursuant to the under- standing with Senator Glass, because Senator Wagner had not been avail- able. The understanding WELB that Senator Wagner would return to Washington shortly after January 1, and that he would call and arrange to see Secre- tary Morgenthau, Messrs. Delano and Foley. Senator Glass stated that he desired to discuss the legislation with Mr. Crowley and with Senators Wagner, Adams, and Byrnes. He indicated that he preferred that the Treasury Department not discuss the bill with persons outside the Department, until he indicated that the time to do BO was appropriate. It was agreed, however, that when Senator Wagner tele- phoned the Treasury Department the general character of the problem would be discussed with him, but that he would not be given a copy of the Treasury draft of the bill. In terminating the conference, Senator Glass caid to Mr. Foley that it would appear from glancing at the Treasury draft that it as simpler than his bill. E.Nth. 100 January 2, 1941 TREASURY DRAFT 8, 3575 - INTRODUCED BY SENATORS GLASS AND McADOO DEFINITIONS VINITIONS sells any bank, corporation, "Control" defined as ownership of more than artership, association, joint stock 10% of voting stock for electing direc- company, business trust or organized tors, or domination of election of m- - of people, or any receiver, jority of directors, of an insured bank trutes, or other liquidating ageat or any other company. Sec. 2(7), page 2. of my of the foregoing. Sec. 2(1), 2400 1. "Holding company* of an insured bank de- fined 861 (1) Any company which "controls" insured bank. (2) Any company which "controls" another Company which "controls" insured bank. (3) Every company in a system of "oon- trolled" and "controlling" companies, in which any company or combination of companies "controls" the insured bank. Sec. 2(8), page 2. "Affilinte" of an insured bank defined 6.81 (1) Any "holding company" of the insured bank. (2) Every company in a system of "con- trolling" and "controlled" compunies in which any company is "controlled" by the insured bank or by the "hold- ing company" of such insured bank or by any company or combination of companies in the system. (3) Any company having one or more share- holders who own more than 50% of the voting stock for electing directors of both the company and the insured bank. Sec. 2(9), page 3. BOLITION OF HOLDING COMPANY CONTROL OF RESTRICTIONS UPON HOLDING COMPANIES DISTRID BANKS effect, abolishes holding companies, Does not abolish existing holding com- affective June 30, 19/4, by providing penies, nor require them to dispose of say that, after June 30, 1944, it shall be bank stock which they now hold, or which unlawful (1) for any company to own, con- they may couire before the effective date tol, hold, or acquire more than 10% of of the Act, but marely imposes the follow the voting securities of an insured bank, restrictions upon holding commanies and in- & (2) for more than 10% of the voting sured banks "controlled" by holding securities of an insured bank to be held by trustees for the benefit of the stock- companies: (1) Existing holding companies may not hold "rs of any one company, or (3) for any acquire any more voting stock of any DOD or ny to control in any numer the election insured bank, and no company my 80- e majority of the directors of an insured quire sufficient voting stock of an base or the management or policies of an insured insured bank to become 8 holding com- bank. (Thus holding companies would have to re- duce all their boldings in stock of insured banks pany. to 10% or less) Sec. 3, page 2. Regraded Unclassified 101 - 2 - (Thus aristing holding companies are not abolished, although they my not acquire any additional voting stock in insured banks and no new holding commenies my be established.) Sec. 4, page 4. (2) An insured bank controlled by 8. holding company cannot make loans to or col- lateralized with securities issued by, purchase securities from, or invest in securities issued by, the holding com- pany or any other "affiliate" of the bank. Sec. 3, page 3. (3) An insured bank "controlled" by a hold- ing company cannot establish any new or additional branches. Sec. 5, page 5. (4) No "voting permit" to a holding company to vote the stock of & bank, under as- isting legislation, my be granted or extended by the Board of Governors of the Federal Reserve System without the consent of the Board of Directors of the Federal Deposit Insurance Corporation. Sec. 8, page 7. DIVIDEND RESTRICTIONS DIVIDEND RESTRICTIONS After the date of approval of the Insured bank may not pay any dividends Let it shell be unlawful for any to any holding company 80 long as such national bank to declare or to pay holding company holds any voting stock any dividend over the objection of of such insured bank, or of any holding the Comptroller of the Currency, company of such bank, acquired in viola- or for any State insured bank to tion of this Act. (This section only pro- declare or pay any dividend over the hibits payment of dividends to the hold- objection of the Federal Deposit ing company if it has acquired additional Insurance Corporation. (This section voting stock in the insured bank after will prevent holding companies from the effective date of the Act, and has, blooding insured banks through 01- accordingly, acquired the stock in viols- cessive dividends prior to the ter- tion of the Act. Otherwise, the section mination of holding company control does not cut off dividends from insured 8 June 30, 1944, and will protect banks on stock now held by holding COM- insured banks against payment of panies or acquired by them prior to the excessive dividends after June 30, effective date of the Act.) Sec. 10, 1944, if groups of persons should devise page 8. means to circumvent this Act and con- to their control over insured banks.) 86 5, page 3. 102 - 3 - SANCTIONS FOR ENFORCING ACT SANCTIONS FOR ENVORCING ACT Board of Directors of Federal Deposit Board of Directors of Federal Deposit Insurance Corporation can obtain in- Insurance Corporation can obtain junctive relief from courts to enjoin injunctive relief from courts to violations of Act. Sec. 6(3), page 5. enjoin violations of Act. Sec. 9, page 7. If an insured bank or any holding company of such insured bank violates the Act, the insured bank may become ineligible to receive deposits of public funds of the United States, and may have its insurance terminated by the Federal Deposit Insurance Cor- poration. Sec. 11, page 9. Company violating Act subject to fine of Violation of Act a misdemeanor. not exceeding $100,000. Individual $5,000 fine for each violation by violating Act subject to fine not exceed- a company, and $5,000 or not exceeding ing $10,000, or not exceeding five years' one year's imprisonment, or both, for imprisonment, or both. Sec. 6(1), page 4. each violation by a natural person. Sec. 14, page 12. Board of Directors of Federal Deposit In- surance Corporation may remove from office, after hearing, any officer or director of an insured bank, who is responsible for, or fails to disclose to proper authorities, any violation of the Act. Sec. 6(2), page 40 ACT TO BE ADMINISTERED BY THE FEDERAL DEPOSIT ACT TO BE ADMINISTERED BY THE FEDERAL INSURANCE CORPORATION DEPOSIT INSURANCE CORPORATION 103 75TH CONGRESS 3D SESSION S. 3575 IN THE SENATE OF THE UNITED STATES JANUARY 5 (calendar day, MARCH 2), 1938 Mr. GLASS and Mr. McAnoo introduced the following bill; which was read twice and referred to the Committee on Banking and Currency A BILL To provide for the regulation of bank holding companies and affiliates, and for other purposes. 1 Be it enacted by the Senate and House of Representa- 2 tires of the United States of America in Congress assembled, 3 That this Act may be cited as the "Bank Holding Company 4 Act of 1938". 5 SEC. 2. (1) "Insured bank" means any operating 6 bank, banking association, trust company, savings bank, or 7 other banking institution, the deposits of which are insured 8 in accordance with the provisions of section 12B of the 9 Federal Reserve Act, as amended. 10 (2) "Person" means any individual, partnership, asso- 11 ciation of persons, or company. 104 2 3 1 (3) "Company" means any corporation, incorporated 1 any company or combination of companies control the in- 2 bank, banking association, insured bank, joint-stock com- 3 sured bank. 3 pany, business trust, or trustees of any voting trust. 3 (9) "Affiliate" of any insured bank means any com- 4 (4) "Director" means any director or trustee of any 4 pany which with respect to the insured bank is a holding 5 company, or any individual who performs similar functions 5 company, every company in any serios or succession of com- 6 in respect of any company. 6 panies constituting any system of controlling and controlled 7 (5) "Securities" include notes, drafts, acceptances, 7 companies, in which any company is controlled by the in- 8 bonds, debentures, capital notes, voting trust certificates, 8 sured bank or by such holding company or by any company 9 capital stock, treasury stock, warrants, and rights to sub- 9 or combination of companies in such system, and any com- 10 seribe to or certificates of deposit for any of the foregoing. 10 pany having one or more shareholders who have legal or 11 (6) "Capital stock" includes common and preferred 11 equitable ownership of more than 50 per centum of the 12 stock, capital notes, and débentures. 12 number or par value of the outstanding shares of capital stock 13 (7) "Control" means the legal or equitable ownership 13 or voting rights for electing directors of both the company 14 or bokling of more than 10 per centum of the total number 14 and the insured bank: Provided, That notwithstanding the 15 or par value of the outstanding shares of capital stock or total 15 foregoing, any company engaged solely in the business of 16 number of voting rights for electing directors, or the domina- 16 (a) operating a safe-deposit vault; or (b) holding or op- 17 tion, directly or indirectly, in any manner of the election of 17 erating the building and premises occupied by any insured 18 a majority of the directors of an insured bank or any other 18 bank, shall not be an affiliate of the insured bank. 19 company, and wherever used in this Act the word "control" 19 (10) "Effective date" means the date of enactment of 20 in any grammatical form shall have this meaning. 20 this Act. 21 (8) "Holding company" of any insured bank means any 21 SEC. 3. It shall be unlawful for any insured bank, 22 company which controls the insured bank or controls any 23 other company which in turn controls the insured bank, and 22 directly or indirectly or by any device whatever (1) to 23 make any loan or extension of credit to any of its affiliates 24 every company in any series or succession of companies in 25 any system of controlling and controlled companies, in which 24 or to invest any of its funds or any funds administered by 25 it, in any securities issued or guaranteed by any of its Regraded Unclassified 105 4 5 1 affiliates; or (2) to purchase any securities from any of 1 insured bank, if such company is or upon such acquisition 2 its affiliates; or (3) to make any loan or extension of 2 would become a holding company of any insured bank. 3 credit to any person secured by any collateral consisting 3 SEC. 5. No insured bank shall establish or operate or 4 of any securities issued or guaranteed by any of its affiliates. 4 be permitted to establish or operate any new or additional 5 Notwithstanding the foregoing, any insured bank, which 5 branches while such insured bank is controlled by any hold- 6 prior to the effective date, shall have made any loans, exten- 6 ing company. 7 sions of credit, or investments which by virtue of this section 7 SEC. 6. Every company shall before the expiration of 8 would constitute prohibited loans, extensions of credit, or 8 sixty days after the effective date cause to be filed with the 9 investments if made after the effective date, shnll have three 9 cashier or secretary of every insured bank as to which it is 10 years after the effective date within which to collect, sell, 10 an affiliate, an affidavit to be signed by one of its executive 11 or otherwise dispose thereof. During said three-year period 11 officers having knowledge of the facts, which shall set forth 12 noy such loans or extensions of credit may be renewed or 12 as of the effective date (1) the total number and par value 13 extended, but no renewal or extension shall be given beyond 13 of the ontstanding shares of capital stock and total number H subl period. Within TWo years after the effective date, 14 of voting rights for electing directors of such insured bank, 15 where necessary to surve itself from loss, any such insured là which such company owns or holds, the names of the per- 16 bank may accept securities issued or guaranteed by its 16 sons in whose names such shares or rights are issued and a 17 affiliates, No payments to apply on or as collateral security 17 full description of any instruments evidencing such shares IS for loans III extensions of credit made prior to the effective 18 or rights; (2) the amount of any indebtedness of such com- 19 date to any person other than one of its affiliates, and in 19 pany to the insured bank, direct and indirect, the maturity 20 such event the insured bank shall collect, sell, or otherwise 20 dates, and the person in whose name such indebtedness 21 dispose of such securities within three years after the 22 effective date. 21 stands, if other than the company; and (3) an itemized 23 22 statement of its assets and liabilities as of the last day of the SEC. 4. It shall be unlawful for any company to acquire 24 any capital stock, or voting rights for electing directors, 23 preceding month and of its earnings for the current fiscal 25 of any insured bank or of any holding company of any 24 year to the Inst day of the preceding month, if the company 25 be directly or indirectly indebted to the hank. Within 106 7 6 1 twenty days after the close of each calendar month them- 1 the books and records thereof, as shall be necessary or 2 after, if there has been any change in any of the matters 3 proper to disclose the condition of any insured bank or the 3 covered in such affidavit, except item 3 thereof, during such 3 effect of the relations between any holding company or 4 month, the company shall file a like report, so long as it 4 affiliate and any insured bank, upon the Federal deposit 5 shall continue to stand in the relation of an affiliate to such 5 insurance system or any insured bank. And such investi- 6 insured bank. Every company shall file within thirty days 6 gations shall be made at the expense of the Corporation; 7 after the last day of June and December of each year with T and it shall be unlawful for any insured bank, holding com- 8 the cashier or secretary of every insured bank as to which 8 pany, or affiliate knowingly to make any false statement 9 it is an affiliate a like sworn itemized statement of its assets 9 or report to the Corporation or to refuse authorized repre- 10 and liabilities as of the last day of June and December of 10 sentatives of the Corporation access to any information re- 11 each year and of its earnings for the current fiscal year to 11 quired in connection with any such investigations. 12 the last day of June and December of each year. Every 12 Sec. 8. After the effective date, the Board of Governors 13 insured bank shall retain such affidavits and statements on 13 of the Federal Reserve System shall not, without the consent 14 file as a part of its records for at least three years. 14 of the Board of Directors of the Federal Deposit Insurance 15 SEC. 7. Every insured bank, holding company, and 15 Corporation, grant or extend the operative effect of any 16 affiliate shall file with the Federal Deposit Insurance Cor- 16 voting permit to any holding company affiliate under the 17 poration such annual, semiannual, quarterly, and other 17 provisions of section 2 of the Banking Act of 1933, as 18 periodic and special reports, the answers to such specific 18 amended (U. S. C., title 12, sec. 61). 19 questions and the minutes of such directors', stockholders', 19 SEC. 9. Whenever it shall appear to the Board of Direc- 20 committees', and other meetings, as the Corporation by 20 tors of the Federal Deposit Insurance Corporation that any 21 order may prescribe as necessary or appropriate for the 21 person is engaged or about to engage in any acts or practices 22 proper consideration of the condition of any insured bank 22 which constitute or will constitute a violation of the provi- 23 or for the proper supervision of the Federal deposit insur- 23 sions of this Act, the Board in its discretion may bring all 24 ance system, and the Corporation may make such investiga- 24 action in the proper district court of the United States or the 25 tions of any insured bank, holding company or affiliate, and 25 Supreme Court of the District of Columbia, to enjoin such 107 9 a 1 acts or practices and to enforce compliance with this Act, 1 holding company shall continue to hold any shares of the 2 and upon a proper showing a temporary or permanent injune- 2 capital stock or voting rights for electing directors of such 3 tion, decree, of restraining order shall be granted without 3 insured bank, or of any company which is a holding company 4 bond. The Corporation may transmit such evidence as may 4 with respect of such insured bank, acquired in violation of 5 be available concerning such nets or practices to any United 5 any provision of this act. 6 States attorney or to the Attorney General, who, in his dis- 6 SEO. 11. Whenever the Board of Directors of the Fed- 7 cretion, may institute appropriate criminal proceedings under 7 eral Deposit Insurance Corporation shall determine, after 8 this Act. The proper district for the commencement of any 8 reasonable notice to the company affected an opportunity for 9 injunction proceeding pursuant to this section shall be any 9 a hearing, that any insured bank or any company which with 10 district wherein any act or transaction constituting the viola- 10 respect to any insured bank is a holding company has violated 11 tion occurred or in which the detendant is an inhabitant or 11 any provision of this Act, and that such action is necessary 12 transacts business, and process in such cases may be served 12 for the protection of the public or the safety and integrity of 13 in any district in which the defendant is an inhabitant or 13 the Federal deposit insurance system, it may make a finding H transacts business or wherever the defendant may be found. It of the facts of such violation. Upon making such finding, 15 Judgments and decrees so rendered shall be subject to review 15 the Board of Directors of the Federal Deposit Insurance Cor- 16 as provided in sections 225 and 347 of title 28 of the United 16 poration may cause the same to be published in the Federal 17 States Code, and section 7, as amended, of the Act entitled 17 Register and thereafter the insured bank shall be ineligible 18 "An Act to establish n court of appeals for the District of 18 to receive deposits of public funds of the United States or of 19 Columbia", approved February 9, 1893 (D. C. Code, title 19 any public officer, agent, or instrumentality of the United 20 18, sec. 26). No costs shall be assessed for or against the 20 States. Upon making such finding, the Board of Directors 21 Corporation in any proceeding under this Act brought by it 21 of the Federal Deposit Insurance Corporation may proceed 22 in any court. 22 to terminate the insured status of the insured bank, in like 23 SEC. 10. It shall be unlawful for any insured bank to 23 manner as provided in subsection (i) of section 12B of the 24 pay to any holding company, directly or indirectly, any 24 Federal Reserve Act, as amended. Upon notification in 25 dividend on any shares of its capital stock so long as such 25 writing by the Board of Directors of the Federal Deposit In- Regraded Unclassified 108 II 10 1 surance Corporation to the Board of Governors of the Fed- 1 Board, of any efficer thereof designated by the said 2 eral Reserve System of any such finding of such violation on 2 Board be that purpose, and thereupon the said Board shall 3 the part of any holding company and request for such revoca- 3 certify and file in the court a transcript of the record upon 4. tion, the Board of Governors of the Federal Reserve System 4 which the onles complained of Was eniered. Upon the 5 forthwith shall proceed to revoke any voting permit thereto- 5 filing of such transcript such court shall have exclusive 6 fore granted to such holding company as a holding company 6 jurisdiction to affirm, modify, or set aside such order, in 7 affiliate ander the provisions of section 2 of the Banking Act T whole or in part. No objection to the order of said Board 8 of 1933, as amended (U. 8. C., title 12, sec. 61). The 8 shall be considered by the court unless such objection shall 9 Board of Directors of the Federal Deposit Insurance Cor- 9 have been urged before said Board or unless there were 10 poration shall have the right, upon such terms and conditions 10 reasonable grounds for failure so to do. The findings of 11 as may be consistent with the public interest, the safety and 11 the said Board ES to the facts, if supported by substantial 12 integrity of the Federal deposit insurance system and the 12 evidence, shall be conclusive. If application is made to the 13 purposes of this Act, to review, suspend, modify, or revoke 13 court for leave to adduce additional evidence, and it is shown 14 any order or finding made pursuant to this section, 14 to the satisfaction of the court that such additional evidence 15 SEC. 12. Any person or party aggrieved by an order 15 is material and that there were reasonable grounds for failure 16 issued by the Board of Directors of the Federal Deposit 16 to adduce such evidence in the proceedings before said Board, 17 Insurance Corporation under this Act may obtain a. review 17 the court may order such additional evidence to be taken 18 of such order in the circuit court of appeals of the United 18 before the said Board and to be adduced upon the hearing 19 States within any circuit wherein such person resides or has 19 in such manner and upon such terms and conditions as to 20 his principal place of business, or in the United States Court 20 the court may seem proper. Said Board may modify its 21 of Appeals for the District of Columbia, by filing in such 21 findings as to the facts by reason of the additional evidence 22 court, within sixty days after the entry of such order, $ 2 so taken, and it shall file with the court such modified or 23 written petition praying that the order of said Board be 23 new findings, which, if supported by substantial evidence, 24 modified or set aside in whole or in part. A copy of such 24 shall be conclusive, together with its recommendation, if any, 95 petition shall be forthwith served upon any member of said 5 for the modification or setting aside of the original order. 109 13 12 1 The judgment and decree of the court, affirming, modifying, 1 wholly owned, directly or indirectly, by any one or more of 2 or setting aside, in whole or in part, any such order of said the foregoing, or any corporation which is managed by a 2 8 Board shall be final, subject to review by the Supreme Court 3 person or persons appointed pursuant to law by the Presi- 4 of the United States upon certiorari or certification as pro- 4 dent of the United States or the Governor of a State or the 5 vided in sections 346 and 347 of title 28 of the United States 5 chief executive of any political subdivision of a State, or any 6 Code. The commencement of proceedings under this section 6 officer, agent, or employee of any of the foregoing acting 1 shall not, mless specifically ordered by the court, operate 7 as such in the course of his official duty or to any company 8 as n. stay of said Board's order. 8 which is determined by the Board of Directors of the Fed- 9 Sm. 13. It shall be unlawful-for the individual directors. 9 eral Deposit Insurance Corporation, on application for 10 officers, or agents of any company to authorize. order. or do 10 exemption or of its own motion, to be only incidentally a 11 any art constituting in whole or in part a violation of the 11 holding company and to be primarily engaged in business 12 provisions of this Act by such company. 12 other than holding the stock of or managing or controlling 13 Sec, 14. Any person who knowingly violates any pro- 13 banks, banking associations, savings banks, or trust com- Id vision of this Act shall be guilty of a misdemeanor; any 14 panies, or to be only incidentally or temporarily an affiliate 15 company which knowingly violates any provision of this 15 of any insured bank. 16 Act, upon conviction thereof, shall be punished by fine of 16 SEC. 16. If any provision of this Act or the application 17 not exceeding $5,000 for each violation, and any natural 17 of such provision to any person or circumstances shall be 18 person who knowingly violates any provision of this Act, 18 held invalid, the remainder of the Act and the application 19 upon conviction thereof, shall be punished for each violation 19 of such provision to persons or circumstances other than those 20 by line of not exceeding $5,000 or by imprisonment for not 20 as to which it is declared invalid shall not be affected 21 exceeding one year, or by both, in the discretion of the 21 thereby. 22 court. 23 Sec. 15, No provision in this Act shall apply to, or be 24 deemed to include, the United States, a State, or any politi- 25 cal subdivision of a State, or any corporation which is 75TH CONGRESS 3p SESSION S. 3575 A BILL To provide for the regulation of bank holding companies and affiliates, and for other pur- poses, By Mr. GLASS and Mr. McADoo JANUARY 5 (enlendar day, MARCH 2), 1088 Read twice and referred to the Committee on Banking and Currency 110 111 Jamuary 2, 1941 ? A BILL I To regulate the control of insured banks by holding companies, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, Section 1. This Act may be cited as the "Bank Holding Company Act of 1941". Section 2. Definitions. When used in this Act unless the context otherwise requires- (1) The term "company" means any bank, corpora- tion, partnership, association, joint stock company, business trust, or organized group of persons, whether incorporated or not, or any re- ceiver, trustee, or other liquidating agent of any of the foregoing in his capacity as such, but shall not be deemed to include the United States, a State, any political subdivision of a State, or any agency of the United States, of a State, or of any political subdivision of a State. (2) The term *insured bank" means any bank the deposits of which are insured under the provisions of section 128 of the Federal Reserve Act, as amended. (3) The term "voting security" includes any security entitling the owner or holder thereof to vote in the direction 112 - 2 - or management of the affairs of a. bank, either directly or through any other person or company, and any security issued under or pur- suant to any trust, agreement, or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are entitled to vote in the direction or management of the affairs of a bank. (4) The terms "own", "control", "hold", and "acquire", as applied to voting securities are intended and shall be deemed to include the receipt, possession or enjoyment, directly or through any other company, entity, device, or status whatsoever, of any legal, equitable, or beneficial right, title, or interest in any voting security. (5) The term "Board" means Board of Directors of the Federal Deposit Insurance Corporation. (6) The term "State" means any State of the United States or the District of Columbia. The preceding definitions shall be broadly in- terpreted so as to prevent the evasion or circumvention by any device wha- soever of the provisions of this Act or of any rule or regulation there- under, Section 3. Prohibitions. After June 30, 1944, it shall be un- lawful (a) for any company to own, control, hold, or acquire more Regraded Unclassified 113 - 3 - than 10 per centum of the voting securities of an insured bank, or (b) for noze than 10 per centum of the voting securities of an in- sured bank to be held by a trustee or trustees for the benefit of the shareholders, sembers or participants of any one company, or (e) for any company to control in any manner, either directly, or indirectly through any other company or individual, or otherwise, the management or policies of an insured bank, or the election of & majority of the directors of 42 insured bank. Section L. Exemptions. Notwithstanding the foregoing, the urchi- Mitions contained in section 3 of this Act shall not apply to any COD- Mr. which is determined by the Board (a) not to control the management or policies of any insured bank, or (b) to control only incidentally the or policies of one or more insured banks, the company being primarily engaged in business not closely related to banking, when stach control will not, in the opinion of the Board, adversely affect the banking business or the public or be inconsistent with the general pur- cose of this statute. In E cition, section 3 of this Act shall not be construed as prohibiting any company from acquiring in good faith any voting securities of an insured bank in satisfaction of debts previously contracted in the course of its business, but no voting securities 30 accuired in excess of the amounts prescribed in section 3 of this Act shall be owned, controlled, or held by such company for a longer period than six nonths. Section 5. Dividend Restrictions. After the date of the approval of this det, it shall be unlewful for any insured bank, over the objection of the Cooptroller of the Currency if such bank is E: national banking Regraded Unclassified 114 - & - association, or & bank or trust company doing business in the District of Columbia, or over the objection of the Board if such bank is not & national banking association, or a bank or trust company doing business in the District of Columbia, to declare or to pay any dividend on any of its capital stock when, in the opinion of the Comptroller of the Currency or the Board, as the case may be, the declaration or payment of any such dividend would not to compatible with the best interests of such bank, its depositors or other creditors, or with the public interest. Section 6. Sanctions. (1) Any company which knowingly violates any provision of this Act or of any rule or regulation thereunder, upon con- viction thereof, shall be subject, for each violation, to a fine of not ex- ceeding $100,000, and any individual who knowingly violates any provision of this Act or of any rule or regulation thereunder, upon conviction thereof, shall be subject, for each violation, to = fine of not exceeding $10,000, or to inprisonment for not exceeding five years, or to both, in the discretion of the court. (2) Whenever, in the opinion of the Board, any officer or director of an insured bank is responsible for any violation of any of the provisions of this Act, or of any of the rules or regulations thereunder or, having knowledge of a violation, fails to disclose such violation to the proper authorities, the Board my cause notice to be served upon such director or officer to appear before the Board to show cause why be should not be removed from office. A copy of such order shall be sent to each director of the bank affected, by registered mil. If after granting the accused director or officer a Regraded Unclassified 115 5 - reasonable opportunity to be heard the Board finds that he is respon- sible for, or having knowledge thereof has failed to disclose to the proper authorities, any such violation, the Board in its discretion, XT order that such director or officer be removed from office. A copy of such order shall be served upon such director or officer. 1 copy of such order shall also be served upon the bank of which he is a director or officer, whereupon such director or officer shall casse to Je a director or officer of such bank. Any such director or officer removed from office as herein provided, who thereafter participates in any manner in the management of such bank, shall be deemed to have violated this Act and shall be subject to the penalties prescribed in subsection (1) of this section. (3) Whenever it shall appear to the Board that any person is engaged in or about to engage in any acts or prac- tices which constitute or will constitute a violation of any of the pro- visions of this Act, or of any rule or regulation thereunder, the Board may in its discretion bring an action, in any court granted jurisdic- tion in such cases by this Act, to enjoin such acts or practices and to enforce complaince with the provisions of this Act or of any rule or regulation thereunder, and upon a proper showing a permanent or temporary injunction or decree or restraining or mandatory order shall be granted without bond. Section 7. Jurisdiction. The District Courts of the United States, and the United States Courts of any Territory or other place subject to the jurisdiction of the United States, shall have original jurisdiction over any proceedings instituted under any of the provisions of this Act or of any rule or regulation thereunder, and, concurrently with State and Regraded Unclassified 116 - 6 Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by, or to enjoin any violation of, any provisions of this Act, or of any rule or regulation thereunder. No costs shall be assessed for or against the Board in any proceeding under this Act brought by or against the Board in any court. Section 8. Administration. (1) The administration of this Act is hereby vested in the Board which shall have authority to make, issue, amend and rescind such rules and regulations (including definitions of banking, technical and trade terms used in this Act) as may be necessary or appropriate to carry out the provisions of this Act. (2) The Board, in its discretion, may inves- tigate any facts, conditions, practices, or matters which it may deem necessary or appropriate for the purpose of determining whether any company or individual has violated or is about to violate any provision of this Act or of any rule or regulation thereunder, or for the pur- pose of aiding in the enforcement of the provisions of this Act, or aiding in the prescribing of rules and regulations thereunder, or in the obtaining of information to serve as a basis for recommending fur- ther legislation concerning the matters to which this Act relates. For the purpose of any investigation or any other proceeding under this Act, any member of the Board, or any officer thereof designated Regraded Unclassified 117 by it, is empowered to administer oaths and affirmations, subpoens vit- nesses, compal their attendance, take evidence, and require the produc- tion of any books, papers, correspondence, memorands, contracts, agree- ments, or other records which the Board, R any such mmber, or any such officer, deems relevant or mterial to the inquiry. Such attendance of witnesses and the production of any such records my be required from any place in any State or in any Territory or other place subject to the jurisdiction of the United States at any designated place of hearing. In case of contumncy by or refusal to obey a. subpoena issued to, any per- son, the Board may invoke the aid of any District Court of the United States or of any United States Court of any Territory or other place sub- ject to the jurisdiction of the United States, in requiring the attendance and testimony of witnesses and the production of books, papers, corre- spondence, memoranda, contracts, agreements, or other records. Any such Court may issue an order requiring such person to appear before the Board, any member of the Board, or any officer thereof designated by the Board, there to produce records, if so ordered, or to give testimony touching the matter under investigation or in question; and any failure to obey such order of the Court may be punished by such Court as a contempt thereof. Section 9. Separability of Provisions. If any provision of this Act, or the application of such provision to any person or circumstances, shall be held invalid, the reminder of this Act and the application of such provision to persons or circumstances other than those as to which it is held invalid, shall not be affected thereby. Regraded Unclassified 118 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION / DATE Jamary 2, 1941 of Secretary Morgenthau FROM Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns L163,000 Purchased from commercial concerns 1 73,000 of the sterling sold, L90,000 was used to cover the importation of tin, and the rest for various commercial purposes. The Federal Reserve Bank of New York sold L20,000 in registered sterling to a non-reporting bank, and bought L20,000 from another non-reporting bank. Open market sterling was quoted at 4.03-3/4 until late afternoon. It closed at 4.03-1/2. Transactions of the reporting banks were as follows: Sold to commercial concerns L10,000 Purchased from commercial concerns is 2,000 Closing quotations for the other currencies were: Canadian dollar 14% discount Swise franc .2321 Swedish krons .2385 Reichsmark .4005 Lira .0505 Argentine peso (free) .2365 Brarilian milreis (free) .0505 Mexican peso .2066 Cuban peso 8-11/16% discount Chinese yuan .05-5/8 There were no gold transactions consummated by us today. The Federal Reserve Bank of New York reported that the Bank of Canada, Ottawa, shipped $1,006,000 in gold to the Irving Trust Company, New York, for account of the Mellie Iran, Tehran, for sale to the New York Assay Office. the State Department forwarded a cable to us stating that the Chase Bank, Hong Loog, shipped $742,000 in gold from Hong Kong to the Chase National Bank, San Francisco, for sale to the U.S. Mint. Regraded Unclassified -2- 119 A gold price equivalent to $33.93 was received from Bombay this morning, unchanged from the quotation of December 28. Silver in Bombay was 1/24 higher at the equivalent of 44.31#- In London, the prices fixed for spot and forward silver both declined 1/16d, to 23-1/4d and 23-3/16d respectively. The dollar equivalents were 42.22# and 42.10#. Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44. The Treasury's purchase price for foreign silver was also unchanged at 35#. Te made six purchases of silver totaling 1,280,000 ounces under the Silver Purchase Act. Of this amount, 720,000 ounces represented sales from inventory, and the other 560,000 ounces consisted of new production from foreign countries, for forward delivery. BMP. CONFIDENTIAL 120 TREASURY DEPARTMENT FOR Miss Chauncey INTER OFFICE COMMUNICATION DATE January 2, 1941. TO Secretary Morgenthmu STRICTLY CONFIDENTIAL FROM Mr. Cochran The Federal Reserve Bank of New York reported the following transaction in the account of the Penzintezeti Kaspont, Budapest, maintained with the Guaranty Trust Company, New York: Date Amount Debited Paid To December 31 $20,000 Chase National Bank, E.Y., for account of the Reichs- bank, Berlin, in favor of Reichspostzentralaut Ausland- sabrechungen, Berlin, for account of the Director General of the Royal Bungarian Posts, Budspest in accordance with letter of December 2. mP 121 TREASURY DEPARTMENT / INTER OFFICE COMMUNICATION DATE January 2, 1941 Sectetary Morgenthau TO Mr. Cochran FROM STRICTLY CONFIDENTIAL The Federal Reserve Bank of New York reported the following transaction in the account of the Credito Italiano, New York, maintained with the Chase National Bank, Few York. Date Amount Debited Paid To December 31 $300,000 Check in favor of Banco di Napoli Trust Co., N.Y. Luck 122 TREASURY department / INTER OFFICE COMMUNICATION DATE January 2, 1941. of Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL The Federal Reserve 3ank of New York reported the following transaction in the account of the Deutsche Asistische Bank, Shanghai, maintained with the Chase National Bank, Sev York. Date Amount Debited Paid To Lecember 31 $70,000 Chase National Bank, N.Y., for the account of the Credit Suisse, K.Y. pmp 123 TREASURY department INTER OFFICE COMMUNICATION DATE January 2, 1941 Secretary Morgenthau TO FROM Mr. Cochran STRICTLY CONFIDENTIAL Official sales of British-owned dollar securities under the vesting order effective February 19: No. of Shares $ Proceeds of Nominal Value $ Proceeds of Sold Shares Sold of Bonds Sold Bonds Sold December 23 82,966 1,154,861 5,000 2,766 24 2,450 111,682 Nil yil 25 H o 1 i d a y 26 185,785 3,785,724 Nil Nil 27 45,683 1,234,392 Nil Nil 28 59,562 1,170,817 Nil Nil 376,446 7,457,476 5,000 2,776 Sales from February 22 to December 21 2,731,346 93,030,725 5,897,500 4,515,322 Total February 22 to December 28 3,107,792 100,483,201 5,902,500 4,518,098 Rise Poate reported sales of non-vested securities for the week ended December 21 totaled $950,000. B.M.S. Regraded Unclassified 124 COPI 5 PLAIN en Panama via N.R. Dated January 2, 1941 Rec'd 8:35 p.m. Secretary of State Vashington RUSH 2, January 2, 4 p.m. In his address this morning at the ceremony of taking the oath of the Dev constitution President Arias devoted the following paragraph to the foreign debt: "Almost no progress has been made with respect to the foreign debt which 88 you will recall amounts to a very heavy sum for us Panamanians a people small as respects population and area and little developed commercially and industrially. The principal of over twenty-one millions without counting interest which is accumulating month by month bears heavily upon us for which reason we have made a special effort to effect a conversion of the debt on terms as favorable as possible for Panama without prejudicing the creditors. Unfortunately our efforts have not met on the part of the bondholders with the full cooperation which we have hoped in order to reach & solution satisfactory for all interested parties. That is what has induced us to grant on different occasions an extension of the period of expiration of the proposed readjustment plan for successive periode of one month and the present extension runs until January 25. But this expedient necessitated particularly by the stagnation of stock exchange operations in the United States during the recent presidential campaign is not to be continued indefinitely: Our Government will not avoid the imperious duty of seeking a rapid and definite solution for this urgent problem." UNSIGNED KPL COPY:alm Regraded Unclassified 125 RDS GRAY NOSCOW Dated Jamary 2, 1941 Rec'd 9:50 p.m. Secretary of State Washington. 7, January 2, 5 p.m. Embassy's 1665, (27576) December 3, 9 p.m. The collection of laws No. 31, December 19, 1940 15 which has just been received contains a resolution of the Soviet of Peoples Commissars in accordance with which the customs tariffs of Lithuania, Latvia and Estonia are M9 MAL 12 THEMIRATIC Y2 ABST BECEARED replaced by the customs tariffs of the Soviet Union as of December 10, 1940. The Chief Customs Administration in Moscow has informed the Embassy today that the customs frontiers between the former Baltic states and the Soviet Union proper and between those territories themselves were abolished on the date indicated. STEINHARDT. EMB ch:copy 126 300 738 Chungking, Jamary 2, 1941 Subject: Opinion of Vice Minister of Finance Regarding China's Financial Condition. AIR MAIL The Honorable The Secretary of State, Washington, D. C. Sir: I have the honor to refer to a. conversation between Mr. Y. C. Koo, Tice Minister of Finance, and an officer of the staff of this liabuary regarding the financial condition of the Chinese Government. During the interview the above-mentioned official expressed his personal opinion that China needs additional American financial advisers to assist the Government in utilizing the new loans and to aid the country in conducting economic warfare against Japan. Mr. Koo expressed considerable satisfaction over the American and British loans and stated that it is his personal opinion that the financial position of Government is stronger now than it has been for some time. According to him the consistent attempts of Japan to weaken the national currency and undersine the Chinese economic system almost met with success and were as serious, if even not more so, than the military operations. the two new loans, in addition to the fact that China has been able to resist Japan for almost three years and B half, leaves no doubt in the Vice Minister's opinion that the country is in an excellent position to hold out for another year. In connection with this Anglo-American assistance he stressed, however, that Japan will undoubtedly direct new economic measures against China in the hope of mullifying any benefits which may be derived from the loans. It is therefore necessary that every effort be made by the Chinese Govers- ment to obtain the maximum advantage from the loans and at the same time combat Japan with economic warfare as well. He considers the establishment and early operation of the stabilization fund of utmost importance and stressed the necessity of American assistance and advice in this matter if the fund is going to be operated properly. 127 - 2 with regard to the Japanese economic warfare, Mr. Koo referred to lerms economic advisors in Japan and in particular to a person who recently arrived there who is believed to have been the second man in the Reichsbank and an expert on economic warfare. The presence of this official leads the Chinese Government to assume that Japan is contemplating additional economic measures against China. The Vice Minister felt that If additional measures are taken against this country his Government will sot know how to retaliate and will have to depend solely on the recent (inancial assistance to help it survive which will weeken the nation's fisancial position again. Rather than continually absorb these repeated Japanese attacks at the expense of weakening the financial and economic position of the country, be proposes that China retaliate by starting economic warfare against Japan which will help counteract all such enemy coves. At present he is convinced that China can accomplish something in that FAT and claims it is only along these lines that his country can win the struggle. The difficulty of conducting such a policy, however, rests to the fact that China lacks men with sufficient training to compete with the German experts who are directing Jaranese policy. The Vice Minister elaborated at considerable length on this topic and said that he has been giving it closer attention then any official since the conflict started and 12 a result of his observations and studies he has reached the conclusion that China must have the assistance of expert economic advisers who can assist the country in counter economic warfare. He requested that his resarks be made known to the Department and that they be given serious con- sideration. The above statements are Mr. Koo's personal views and as far as is known do not represent the official attitude of the Government. It is not et all improbable, however, that Mr. Koo intends to make suggestions along these lines to his superiors. Mr. Koo's closing remark was: "To deeply appreciate the valuable assistance you have given us in the form of loans but unfortunately we need more. We now require American brains to show and to help us use the money to the best advantage". Mr. Eoo in considered one of the ablest younger men in the Government and his orinion is highly regarded by the Generalissimo. In addition to holding the position of Vice Minister of Finance he is Manager of the Farmers Bank of China and Director of the Central Planning Board which is commonly referred to as the "Brain Trust of China". Not only is he noted for his ability but also for his honesty and opposition to official graft and corruption. It is felt that his opinions regarding the present financial position of the National Government present 8 clear and correct picture. He night be over optimistic in believing that American advisere would accomplish all be thinks they could in preserving China's financial position and vising economic warfare against Japan. However, he is correct in feeling that the Chinese are rather dased by some of Japan's moves and the mere resence of foreign advisers with whom the Chinese could discuss some of their problems-would have & aplendid psychological effect. On the other Regraded Unclassified 128 - 3 - hand, there seems little doubt that foreign advice would be extremely helpful at this time when there is a certain amount of dissatisfaction with officials in high positions and an apparent lack of harmony. Respectfully yours, Nelson Trusler Johnson. Original and two copies by air mail to the Department Two copies by air mail via Hong Kong Copy to Embassy, Peiping 851 JJM:HHK True copy of signed original. COPIED: aja the vizare 06 Noted 129 all in Cochras TREASURY DEPARTMENT UNITED STATES COAST GUARD HEADQUARTERS WASHINGTON 2 Jamary, 1941. SECRET From: Spagent, Shanghai, China. To : Secretary of the Treasury. Message from Mr. Nicholson. Cyril Rogers, Chairman of the Sino-British Stabiliza- tion Fund Committee, left Hongkong for the United States by clipper on December 28th and is due in Washington about January 5th, where, it is believed, he will join T. V. Soong and then proceed to London. Rogers' departure from Hongkong was quite secret and, I understand, H. H. Kung is greatly displeased because Rogers did not advise him of his intended trip when the latter was in Chungking a few days before his departure. This disclosure is liable to reflect on Soong who will be blamed for conspiring with Rogers to keep his departure secret from Chungling authorities. The American Consul General in Hongkong states that Rogers was most disagreeable and assumed a high-handed attitude, demanding all kinds of special privileges when applying for a visa to the United States. TREASURY DEPARTMENT 130 United States Coast Guard dquarters Washington SECRET 2 January, 1941 From: Spagent, Shanghai, China. To : Secretary of the Treasury. Message from Mr. Nicholson. Cyril Rogers, Chairman of the Sino-British Stabiliza- tion Fund Committee, left Hongkong for the United States by clipper on December 28th and is due in Washington about January 5th, where, it is believed, he will join T. V. Soong and then proceed to London. Rogers' departure from Hongkong vas quite secret and, I understand, H. E. Kung is greatly displeased because Rogers did not advise him of his intended trip when the latter vas in Chungking a few days before his departure. This disclosure is liable to reflect on Soong who will be blamed for conspiring with Rogers to keep his departure secret from Chungking authorities. The American Consul General in Hongkong states that Rogers was most disagreeable and assumed a high-handed attitude, demanding all kinds of special privileges when applying for a visa to the United States. eh:copy Dem 131 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Consulate General, Batavia DATE: January 2, 1941, 2 p.m. On the twenty-fourth of December an agreement was entered into by the Yokohama Specie Bank of Tokyo and the Java Bank, the purpose of the agreement being "facilitating monetary traffic (omission) the Netherlands Indies". The Japanese Bank, under the terms of the above- mentioned agreement, will have with the local bank an open account for 2,000,000 guilders. The local bank will in turn have 4,500,000 yen in a similar account in Japan. Dollar exchange on the New York market will be eliminated, until further notice, by using these balances and with the two currencies stabilized. Under the agreement the excess must be paid in dollars if either balance should exceed the limitations aforementioned. The agreement was negotiated with the advice and consent of the local authorities, although it 1s called a private arrangement between the two banks. It is my opinion that the agreement 18 of considerable value to Japan financially and 8.8 a propaganda instrument, although in local circles there 18 B. tendency to regard it as having little or no importance. At the present time the text of the agreement 18 not available; Regraded Unclassified 132 - 2 - available; as further details become known I shall report them. On the twenty-eighth of December Yoshizawa arrived here, but there has been no resumption of negotiations. Probably because he thinks the conference. will go on for several months, he has taken a large residence. European developments will no doubt be anxiously watched by both sides. FOOTE. 10 LHE LECHNICY OFFICE 811 we 8 VW BECEINED MALING YOURAT EA:LWW 1 = 1 \ of SECRETARY or STATE 133 - ac & DEPARTMENT OF STATE WASHINGTON In reply refer to RA 856D.5151/18 January 4, 1941. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses 7 copies of paraphrase of telegram of January 2, 1941, from the American Consulate General, Batavia, Java, reporting on an agreement concluded by the Yokohama Specie Bank of Tokyo and the Java Bank. Enclosure: From Batavia, January 2, 1941. It 134 RDS GRAY (PARIS) VICHY Dated January 2, 1941 REC'd 5 a.m., 3rd Secretary of State, Washington. 8, January 2, 9 p.m. FOR THE TREASURY FROM MATTHEWS. Expenditures during the first quarter of 1941 in the total amount of 39.7 billion francs are authorized in the ordinary and Extraordinary budgets which were published in yesterday's Journal Official. Of this amount, 12.1 billion francs are allocated for the liquidation of EX- PENSES resulting from the war; 10 billions for the army, navy and air force, 5.1 billions for the national debt and 3.1 billions for public works and other unemployment projects. The sums needed to meet the costs of the German army of occupation are not included in the budgets, being carried in a special account with the Bank of France. MATTHEWS EMB 135 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, (Paris) Vichy DATE: January 2, 80 1941, noon HALIA NO.: 2 CONFIDENTIAL. WHOST Reference is made to telegram of December 23, 10 p.m., No. 877 from the Department. I have been told by a high official of the French Finance Ministry that an attempt has in fact been made by the Germans to buy the blook of shares which the Schneider-Creusot Munitions Corporation holds in the Hungarian Credit Bank. Authorization for the deal was, however, refused by the Finance Minister, to whom the matter had been referred in accordance with the recent changes in France's exchange control regulations. My informant said he doubts whether the Marshal's personal attention was brought to the proposed transaction, and he said he does not believe that the Germans actually have custody of the managing director general of the Schneider-Creusot Munitions Corporation. I was told by the Finance Ministry official that apparently the Germans merely consider the aforementioned changes in the exchange measures as unimportant modifications in the existent system, and do not yet realize that their primary purpose 10 to prevent the sale to them of French owned foreign and French securities. END OF MESSAGE. MATTHEWS. EA:LMW Regraded Unclassified 136 PARTIAL PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embasay, (Paris) Vichy DATE: January 2, 1941, 5 p.m. NO.: 4 FOR THE TREASURY FROM MATTHEWS. Reference is made to telegram of December 18, 8 p.s., No. 856 from the Department. There is no representative of the American Friends Service Committee stationed at Vichy. Therefore I asked our Consul General at Marseille to keep a close eye on milk distribution to French children; the headquarters of the Committee 1s at Marseille. In a letter from the Consul General at Marseille he reports that a "great difficulty" confronts Mr. Kershner, the head of the Quakers organization in France, in view of the fact that milk exports from Switzerland are not permitted by the Swiss Government. Seventy tons of milk were purchased in Switzerland by the Committee, and this purchase has been paid for in full, but delivery has not been made. The letter from the Consul General continues that with past supplies "substantial stocks of which are apparently still on hand Mr. Kershner and his associates have been making distribution through the Secours National in a large number of centers in unoccupied France and a considerable shipment of milk was sent recently to Paris where its distribution will be supervised by two members 137 - 2 - members of Mr. Kershner's organization, The Quakers are not only distributing milk but clothing and such medicines as are available to them. END SECTION ONE. MATTHEWS. YRATEHOBE 3HT OT THATEIREA INT 70 301940 00 SI M9 2 MAC livel 1861 chan DESTRUMENT BECEINED EA:LWW 138 PARTIAL PARAPHRASE, SECTION TWO, TELEGRAM No. 4, January 2, 1941, from the American Embassy, Vichy "Mr. Kerschner said that although the Secours National was in active charge of the distribution of supplies in unoccupied France, his own people kept a close personal check on this distribution also and that no case had arisen as yet where he had any reason to believe that the relief went elsewhere than to the French children for whom it was intended. He also expressed his conviction that whatever vas being sent to Paris would be given only to French dhildren there. Up to this time his organization has had no difficulty whatever with the German authorities and has, apparently, been impressed with the correctness of the latter with respect to this distribution". Kershner himself, says his executive secretary, personally oversees a "great variety of projects such as delivery of food to 140 school canteens in Marseille where 10,000 children receive a noon day meal; delivering milk to 90 nurseries and clinice in Marseille where 4,000 children receive half 8. liter of milk a day". I am making attempts to check milk distribution through other sources, and shall try to keep as careful a watch as possible on this matter. END OF MESSAGE. MATTHEWS. EA:LNV Regraded Unclassified 139 JR GRAY (Poris) Vichy Dated January 2, 1941 Rec'd 11:15 a.m. Secretary of State, Washington. 1, January 2, 11 a.m. Barlin's 5071, December 16, 6 p.m., repeated to Vichy. French Ministry of Finance confirms that negotiations have been concluded for the sale of Mines DE Bor stock to Germans. Franch owned bonds in the Skoda Verke of Pilsen have also now been sold to them. As French held stock in that enterprise was sold to German interests after Munich the Ministry considers the present transaction of "minor importance". Repected to Berlin. MATTHEWS TFV 140 PARAPHRASE OF TELEBRAM RECEIVED FROM: American Embasay, (Paris) Vichy DATE: January 2, 1941, 10 p.m. NO.: 9 FOR THE TREASURY FROM MATTHEWS. Tonight I had dinner with Couve de Murville. He is leaving again for Paris and Wiesbaden. In confidence he admitted that demand had been made by the German authorities, and they are receiving, the Belgian gold which was held at Dakar and which totalled about 8,000,000,000 French francs, he said. However, with a smile he remarked that he had proved to the German authorities that to transport it by airplane it would take two years. I said that I presumed ship transportation would be employed for the part that had not yet reached metropolitan France. He said that delays were quite likely even then, considering transportation difficulties. Couve continued that he was encouraged by the tactics of delay being developed by the French in complying with requests from the German authorities. In defense of the earlier French attitude he said that in 1918 it had taken the Germans far longer than six months to develop their "passive resistance" to the demands of the Allies. Despite curiosity concerning French gold, Couve said that the Germans really had not asked for any of it. At 141 - 2 - At dinner Guindet, who 1s chief of the Foreign Exchange and Foreign Finance Section of the Finance Ministry, vas with us. He said that the Germans had finally stopped altogether with their issues of kredit kassenchein. Since the beginning of the occupation he said the total amount which had been put in circulation was around 12,000,000,000 france, which he did not think was really excessive. As for German purchases of French securities, Cours said that they are not using the 400,000,000 francs being accumulated daily under costs of the army of occupation in more than moderate quantities for buying into French industries. He said that the Germans did not seen to be in a great hurry to do so, but that he feels they are vexed with the fact that industry in France is operating at only 10 percent of normal operation; the Germans are in fact bending effort to increase production in France. In Germany he said he thought there is a real shortage of labor, and he believed that no negligible number of allegedly "volunteer" French workmen is being taken from occupied France to work in factories in Germany. From his experiences at Wiesbaden Couve does not think that the civilian population in Germany will suffer any serious privations this winter. The Germans are better off in many respects than before, he said, thanks to the occupied countries, but he feels shortages are developing 142 - 3 - developing particularly in rubber, and in wool, cotton, lubricating oils and ferro-alloye. Certain amounts of aluminum are being obtained from France, he said. Couve remarked that he has much more optimism now than he had when here last, about the British powers of resistance. The speech of the President of course delighted him. When I asked how Lacour-Gayet and Alphand were getting along, both Couve and Guindet remarked laughingly that it seemed to be just a question of asking that dollars be unblocked and getting the same answer that they could not be unblocked. They did not show the slightest annoyance about this matter. END OF MESSAGE. MATTHEWS. $ 0 00 MALIAG MAL 120 owner EA:LWW 143 AC PLAIN London Dated January 2, 1940 Rec'd 7:18 p.m. Secretary of State Washington 11, second. FOR TREASURY. 1. The payments agreement with Paraguay mentioned as under negotiation in the Embassy's telegram No. 3673 of November 7, 11 p.m. is now in operation. A Bank of Englan. notice to banks stating that "es 8 result of arrangements made with the Argentine and Paraguayan authorities the sterling proceeds of entrepot trade undertaken by Argentine firms who export goods of Paraguayan origin to the sterling area may bE credited to Argentine special accounts. "The agreement includes arrangements for individuals resident in Paraguay to open sterling area accounts. Total government expenditure in the thirty-one days of December was starling 387.2 million 6S compared with the sterling 423.7 million reported in the Embassy's telegram No. 3945 of December 4. For the five WEEKS ended November 30 revenue totalled sterling 94.7 million leaving & deficit of sterling 291 million per cent or sterling 105 million of which was financed by 144 - - fil, January 2, from London by savings and 63.8% per cent or sterling 186 million by increases in the floating debt as compared with the respective November percentages of 41.3% and 58.7% The weekly average supply Expenditure remained at the high level of about sterling 81.2 million in December which WES slightly above the record level of sterling 80.8 million established in November as compared with about sterling 68 million the weekly averages in August and October. The total expenditure in the first nine months of the fiscal year was sterling 2.708 million if the present level of total expenditure is maintained and account is taken of debt service the total expenditure for the fiscal year ending next March 31 will bE over sterling 3.760 million or Close on sterling 295 million more than the Estimates contained in the supplementary budget of July 13 the deficit for the nine months stands at sterling 1,955.7 million. About sterling B35 million of this deficit has been raised by savings net and the remainder by en increase in the floating debt. The pace of the increase in the floating debt gives rise to comments on the need for much greater savings if the inflationary trend is to bE held in check Especially in the sbsence of any indication that a further supplementary budget is likely before the end of the fiscal year. JOHNSON XFL Regraded Unclassified 145v Ace 1-17-41 MEMORANDUM January 2, 1941 TO: The Secretary FROM: Mr. Young RE: Planes at Martinique From time to time we have talked to Mr. Hodgkin of the Bellanca Aircraft Company, which is seeking orders from the British and other foreign governments. On December 20 he said that they had been approached with reference to their willingness to recondition the planes at Martinique for a South American country and wondered if we were interested. Ve said that we should be glad to learn about the proposal informally. On December 23 and December 28 he gave us further details, which are summarized as follows: 1. They have been discussing the possibility of Bellanca reconditioning the French planes at Martinique with Mr. Levine of Ladenberg Thalmann, a New York banking house. 2. The deal presumably is to be one between Martinique and the Cuban Government, whereby the planes will be sold to Cuba in exchange for food for Martinique. 3. Apparently, this deal has the blessing of the Vichy Government. 4. Mr. Hodgkin does not know the person in the French Government who is negotiating the deal, nor does he know who 18 negotiating the deal for Cuba. 5. Ladenberg Thalmann come into the picture because the bulk of the food to go to Martinique will have to come from the United States and some financing arrangements will be necessary. Mr. Hodgkin inquired whether we were interested in the transaction and indicated that he and Ladenberg Thalmann would be willing to be guided in any way we might suggest. Regraded Unclassified 146 - 2 - I pointed out very definitely that we had no interest in the transaction formally in any way and had not the power to do anything about it or to issue any instructions. In the course of our discussion, however, it was indicated informally to Mr. Hodgkin that the picture would be much clearer if there were available the following additional information: 1. The name of the agent acting for the Cuban Government. 2. The name of the agent acting for the French Government. 3. The type of financing which would be required and the method by which it would be worked out. 4. The technique proposed for getting the planes to the United States in order that they could be reconditioned by Bellanca. I gather that Mr. Hodgkin will be in sometime soon and pass on to us any additional information which he may have picked up. Have you any suggestions with reference to the course you would like to have me follow? N.B. Since the above was dictated Mr. Hodgkin called to say that later information indicates that the French may not be in this deal at all yet, but that possibly the British have a hand in it. He expects to be in town on January 3 with complete information. TO4. 147 KING'S HOUSE, JAMAICA. 2.1.41 My dear w Morgenttan, I write to thank you and Jour wife Very much indeed for Jour Rudly geft of apples chocolates Sees bott are They have immienre. of a quality one never been - by appreciated by all speech the President of us. what a magnificent made the other clay. It will undoubted -ly rank with the greatest speeches of all time My wife I enjoyed the privilege of meeting him on the Tuscaloosa Very much. It is generally suppored to be a mistake to meet a man for whom che has long cheriebed a deep admination / but, as in so many other respects, he is an exception: Ion are indeed lucky to have such a man at he head of your nation in there 148 EINO'S HOUSE, VARAICA. days when moral leadership may make or mar a nation Our beat workes to Jon all for the New )ear. Jours Very Sincerely 149 MEMORANDOM FOR THE SECRETARY'S DIARY Land-Lease Legislation to Aid England Thursday, January 2, 1941 After the meeting in Secretary Morgenthen's office from 12:10 to 12:40 p.m., and pursuant to the Secretary's and Foley's suggestion, Cox prepared the first draft of the legislation to carry out the policy stated by the Secretary at that meeting. From 4:20 to 11:50 p.m., Foley and Cox revised the proposed joint resolution and prepared a memoranden on the plan to be used in the interim-until the legialation is passed. Annexed are copies of the draft of the resolution end the interim plan prepared today. Friday, January 3. 1941 After the meeting in the Secretary's office from 11:28 to 11:25 a.m., the following met from 11:30 e.n. to 12:30 p.m. and went over the legislation in detail: Hr. Foley, Dr. White, Arthur Purvis, Sir Frederick Phillips, D. V. Ball, and Oscar Cox. It was suggested by Dr. White that Purvis get up the detailed reasons why the joint resolution should be passed quickly. From 12:40 to 1:05 Dalla, Cor discussed with Mr. Foley the implications of the section which authorized the United States to procure arms, minitions, end implements of war in a foreign country when they cannot be produced in the United States, indicating to him that if our tank capacity were fully used we could procure tanks from Canada and lease them to the British under the proposed legislation S.B it stands. Between 2:15 and 3:00 p.m., Foley and Cor made several cor- rections in the proposed legislation. Cox cleared with D. K. Bell and Kr. Foley the change in section 5(b), providing that the ap- proval of the Budget is necessary in order that the moneys result- ing from a lease, etc., can be used by the War Department or Navy. From 3:05 to 4:25 p.m., Foley and Cox went over the bill with B, V. Cohen. He suggested that the proviso suggested by Bernstein that "no such transaction shall be entered into in violation of inter- national law as interpreted by the Department of State" be amitted. Ee also suggested the broadening of the powers of the President by making it clear that vessels now owned by the British, for example, Regraded Unclassified 150 . 2 can be repaired and outfitted in our navy yards and that a case such as B bare boat charter by the United States be covered BO that the United States could sub-charter. From 4:35 p.m. to 5:35 p.m., Mr. Foley, Benjamin V. Cohen, Felix Frankfurter, and Cor went over the joint resolution again. Mr. Frankfurter made the following comments: (a) Should the var- ious powers and mothods of acting on bohalf of or on the part of foreign government be so particularized; (b) Should there be a perticularization of the countries; (c) Shouldn't the word "con- sideration* be omitted; (d) That B. title such as "Joint Resolution to Promote the Defense of the United States" might be used. Mr. Cohen suggested that section 1 of the resolution state that "This act shall be known BB an act to aid nations whose defense 18 related to the de- fense of the United States"; (e) It might be a good idea to have a preamble stating in quotable language the need for and purposes of the resolution; and (f) That the word "welfare" be amitted on the first page of the joint resolution reading "whose defense the Presi- dent doems to be related to the defense or welfare of the United States". From 5:50 p.m. to 6:50 p.m., the joint resolution was revised by Foley and Cox in the light of this afternoon's conference. Saturday, January 4, 1941 At 9:45 a.m., Secretary Morgenthau telephoned Foley from Fishkill, suggesting that he get in touch with Speaker Rayburn about the proposed legislation. At 10:54 a.m., Foley end Cox went over to the office of Secretary of War Stimson. Де called in Mr. McCloy and they both went over the proposed joint resolution. When Mr. Stimson finished going over it, he said that he thought the proposed resolution was broad enough. Mr. Stimson said that McCloy was ready to go over the resolution in more detail at any time we wanted him to do 80. At 11:30 a.m., Foley end Cox left Secretary Stimson's office to go to the office of Speaker of the House--Samuel Rayburn. They conferred with him and Mr. Beaman, the Legislative Counsel, from 11:55 to 12:10. Mr. Foley told Mr. Rayburn that he had just talked to Secretary Morgenthau, who advised him that in yesterday's Cabinet meet- ing with the President, he suggested that Mr. Foley talk to the Speaker about the legislation to execute the lease-lend policy. Mr. Rayburn said that he would be pleased to have Mr. Beaman assist in the drafting of the legislation. Regraded Unclassified 151 - 3 - From 12:20 to 1:10 p.m., Foley and Cox had lunch with Mr. Beaman, E. John O'Brien, Itr. Morgan, and Mr. Perley, of the Legialative Counsel's Office, and discussed the proposed ,legislation. They then adjourned to Mr. Beaman's office end continued going over the draft until about 5 o'clock. Upon returning to the Treasury, Foley and Cox had the redraft typed up. Copies of it were sent to Felix Frankfurter, Benjamin V. Cohen, and McCloy. At 7:00 p.m., Mr. Charles Ballantyne dropped in to present to Car several questions which were raised by Sir Fredarick Phillips: (1) Whether the act was broad enough to authorize the take-over of existing orders, and (2) whether the legislation was broad enough to authorize the Arty and Navy to dispose of property which it now has. Cox pointed out to him that question (1) was answered by existing legislation and that the only issue presented was whether or not enough funds were available to do the taking over, and that question (2) is completely covered by the proposed legislation. About 8:00 o'clock, John O'Brien called Cox et home to say that he would be available tomorrow. Cox said that we would not bother him unless it was necessary. 0'Brien added that he might feal hurt if we did not call on him for help tomorrow. Sunday, January 5, 1941 From 11:15 to 11:44 s.m., Foley and Cox went over the draft. At 11:48, Mr. Foley telephoned Falix Frankfurter at his home and ad- vised him of the changes made in the bill, particularly the addition of the new subsection 6--the catch-ull section. Mr. Frankfurter said be liked it very much and suggested that NO add the words "to effec- tuste the purposes of this act" at the end of the section. He also said that he had only one other suggestion to anke-that the word "vital" be used in the place of "related" in the title of the bill. At 11:50 S.E., Mr. John O'Brien cume in and with Foley and Cox con- tinued going over the draft until 1:35. At 12:45 palle, Secretary Morgenthau called Foley to ask him how he was getting along. From 2:20 to 7:10 p.m., Mr. Foley, Mr. O'Brien, Mr. Bernard, Mr. Mo01oy, Colonels Greenbeum and Quenton, 3. V. Cohen, and Oscar Cox wont over the resolution again and prepared several redrafts. At 4:25 p.m., Secretary Morgentheu called Foley end asked him to show the bill to Dean Acheson. Regraded Unclassified 152 - 4 - From 5:42 to 6:25 p.m., D. Poley disensed with Secretary Knox the latest draft of the bill, which E. Foley delivered to him. Mr. Knox thought the bill was satisfactory. At the Secre- tary's suggestion, Mr. Foley also spoke to Secretary Hall, who asked to have Green Hackworth go over the bill in his behalf. Mr. Backworth was satisfied with the proposed legislation. Between 7:10 and 7:30 p.m., Foley and Cox prepared the first draft of 8. memorandum to the President sumarising the proposed logislation. At 7:26, Dean Acheson came in and net over the proposed bill. He could find nothing wrong with it and said that he wished he could make B. brilliant suggestion, but that be had none to make. At 8:15 p.m., Secretary Morgenthau called Foley from Ossining and told him that the meeting at the White House on the legislation us postponed from tomorrow until Tuesday norning. From 10:00 p.m. to 11:50 p.m., Foley end Cox revised the remorendum to the President and the summary of the bill. Monday, January 6, 1941 Foley and Cox worked on the revision of the joint resolution zost of the morning. 'At 3:40 p.m., Cox discussed with Mr. Foley the memorandum on the resolution which we had revised this norming. During the after- noon O'Brien, McCloy, and Greenbaum called Cox about changes which they thought ought to be made in the resolution. At 4:15 p.m., Secretary Morgenthau west to the White House with Foley to discuss the joint resolution. Tuesday, January 7, 1941 Foley end Cox spent most of the morning revising the bill and talking to John O'Brien about changes. At 11:00 a.m., Secretary Morgenthau and Mr. Foley went to Secretary Bull's office to discuss with him the draft bill to give aid to the democracies. Full called in Reckrorth, and after Secre- tary Morgentheu had explained in particular detail all that had tran- spired at the White House the afternoom before, the bill was taken up Regraded Unclassified 153 - 5 section by section. Hull thought it would be better to make the measure an independent one rather then an emendment to Public Resolution No. 83. This would snable us to steer it to the proper committees. It W&B thought that the Foreign Affairs Committee in the House and the Finance Committee in the Senate would be ideal. Hull remarked that Garner had permitted the Foreign Relations Com- mittee to be packed with isolationists and he wanted, if possible, to avoid the difficulties he had encountered with the emendments of the Neutrality Act. Hull also thought we should not name the countries we desired to aid but make the language general. This change was agreed to by Secretary Morgenthau. Hackworth had a suggested change in regard to the consideration language which was also adopted. It was decided that Foley would redraft the bill and bring it back as soon as possible for Hull's initials. It was also decided that Hull would ask Royburn, McCornack, and Deschler to meet with him and Morgenthau in Hull's office to- morrow morning and later with Senators Barkley, Harrison end the Senate Parliamentarien to discuss legislative strategy. The meet- ing broke up at 12:30. At 12:37 p.m., Speaker Rayburn telephoned Mr. Foley to learn the latest status of the legislation. Foley said that it stends this way: Foley had a very good afternoon with Beanen end his boys all afternoon on Saturday. Mr. O'Brien, Mr. Beaman's assistant, came to the Treasury on Sunday and we worked all day on the bill and got 8. general agreement with the boys and with Knox, Stinson, end Hull. Yesterday after the speech Foley said they had a good session with the President. Stimson had raised the question of naking this an amendment to existing legislation and suggested this be made in- dependent legislation and then hand it to you fellows and let you de- cide where it could best be handled. Speaker Rayburn said that he would have to know where it 18 to go before the bill camo up to him. Ee thought it wise to decide which committees were to hondle it, end then before the President did anything more, to call in the members of those committees. Foley said that the Secretary and he had just had a long conference with Secretary Hull and there were a few changes, but they were in language and not in substance. Hull wanted to get in touch with Rayburn and McCormack either in his office or the Speaker's, whichever arrangement would cause the least publicity, and discuss possible strategy. Foley thought that this meeting would probably be tomorrow morning. At that time they could discuss the committee to handle the legislation. Rayburn said if they had the meeting in his office, he wanted to have the parliamentarian there. Foley said that the Secretary had suggested that if Rayburn came down town he might want to bring his perliamentarian. Rayburn said that would be fine. Regraded Unclassified 154 - 6 - At 1:07 p.m., Foley spoke to Middleton Beaman, the House Legislative Counsel, on the telephone, bringing him up to date on the status of the legislation and discussing further changes which Beaman end his staff had in mind. At 1:55 p.m., Foley discussed with Eddie Greenbeum some of the changes which the Army wanted made in the proposed legislation. At 2:10 p.m., Foley and Cox spoke to Beaman and O'Brien about further suggested changes in the bill. At 2:35 p.m., Foley told Hackworth that he bad made the changes which were agreed upon. Foley talked with Beanan end made some other word changes to satisfy him. Foley is having it typed up now and would like to take it over to Hackworth's office a little after three to show it to him. Hackworth said he would see Foley at that time. Mr. Foley and Mr. Cox went to Mr. Hackworth's office at 3:15 p.m. it. Foley explained to Mr. Hackworth the changes that were made in the proposed bill to embody the suggestions made by Secretary Bull and Dr. Hackworth, and also the latest changes suggested by Mr. Boaman, the House Legislative Counsel. Mr. Hackworth looked over the changes and said they were satis- factory to him. Foley, Cox, end Hackworth then went to Secretary Hull's office where, at 3:25 p.m., Secretary Bull approved the bill. After Foley and Cox left Secretary Hull, he called them back and said that he was a little concerned about the Executive Order because of the delicate situation vis-a-vis Russia and Japan. Secretary Bull said he thought, for what it was worth, his men should put before the Treasury the various considerations which they had in mind on this score. Mr. Foley said he had already arranged for some of the Treasury boys to get in touch with State Department representatives to go over the situation. Foley added, if Secretary Hull still had reservations, he would have an oppor- tunity to bring them to Secretary Morgenthau's attention at the legislative strategy meeting tomorrow. When Mr. Foley returned to the Treasury he obtained Secretary Morgenthau's approval to the bill. Foley and Cox then went to Secretary Knox's office where Secretary Knox's approval was obtained at 4:20 p.m. Secretary Knox asked Foley to point out the provisions in the bill covering ships. He then initialed the 6911 without further comment. After that, Foley and Cox went to Secretary Stimson's office. At 4:29 p.m., Secretary Stimson initialed the bill after he read it and the changes were pointed out to him. Regraded Unclassified 155 7 At 5:05 p.m., Secretary Morgenthau and Foley went to the White House where the President approved the bill at 5:15 p.m. after a brief discussion of the changes. The President commented that he was not to be outdone. He was in a grand humor and joked about the dispatch with which the draft was initialed and returned to him. The President then discussed legialative strategy. Secretary Morgenthau told him that Secretary Hull was calling a meeting of the leaders in his office tomorrow morning. The President indicated that the bill should be introduced simultaneously in both Houses. Foley suggested that the bill be handled by McCormack in the House and Barkley in the Senate. The President thought it would be good to have Senator Harrison handle it in the Senate if there was a chance that it might go to the Finance Committee. Secretary Morgenthau said he would call Secretary Hull and tell him that the bill had been approved by the President and see that the arrangements for tomorrow's meetings were carried out. 156 JOINT RESOLUTION To amend Public Resolution Numbered 83, approved June 15, 1940, entitled "Joint resolution to authorize the Secretaries of War and of the Navy to assist the governments of American republics to in- crease their military and naval establish- ments, and for other purposes" Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That Public Resolution Numbered 83, approved June 15, 1940, entitled "Joint resolution to authorize the Secretaries of War and of the Navy to assist the governments of American republics to increase their military and naval establishments, and for other purposes" be, and is hereby, amended to read as follows: Section 1. The President may, from time to time, when he deems it in the interests of the national defense, authorize the Secretary of War, the Secretary of the Navy and the head of any other department or agency of the Government concerned, any other law to the contrary notwithstanding: to manufacture in arsenals, factories and shipyards under their jurisdiction, or otherwise procure, any weapon, ship, boat, aircraft, munitions or equipment or component parts thereof, or machinery, tools, or material or sup- plies necessary for the manufacture, servicing or operation thereof, or 157 - 2 - any other article or commodity needed for defense, on behalf of the government of any American republic, of Great Britain, Greece, China or any other country whose defense against the forces of foreign 46- gression the President deems to be related to the defense or welfare of the United States; to sell, transfer, exchange, lease, lend, or otherwise dispose of, to any such government any such article, or any liko article to which the United States now has or hereafter acquires title, possession or control, upon such terms as the President may deem satisfactory, including, but not limited to, a sale, transfer, exchange, lease or loan providing for payment or ropayment in kind, or property, or for any other direct or indirect consideration or benefit to the United States which the President may deem satisfactory; on behalf of my such government, to test, prove, repair, outfit and otherwise to treat any such article owned, leased or otherwise held by any such government, 8.6 if it were for the use of the United States, and to com- minicate to any such government plans, specifications, or other informa- tion relating to any such articles: Provided, however, that no action shell be taken hereunder which in the light of the over-all defense position of the United States is inimical to the defense or welfare of the United States. Section 2. In carrying out the transactions authorized by section 1, the Secretary of War, the Secretary of the Navy end the head of any depart- ment or agency concerned are authorized, in their discretion, and provided Regraded Unclassified 158 - 3 - that it be not inconsistent with any defense requirements of the United States or its possessions, to communicate or transmit to the government of any country to which section 1 is applicable, and to any duly authorized person for the use of any such government any in- formation pertaining to any article, therein referred to, for the use of such government in using any such article, or manufacturing such article within its own jurisdiction, and to export any such - article and information for the use of any such government. Section 3. All contracts or agreements made for the disposi- tion of any article or information pursuant to section 1 shall contain a cleuse by which the foreign government undertakes not to transfer title or possession of such article or information by gift, sale or otherwise, or authorizes the use of such article by or under the direction of Eny other foreign government. Section 4. The Secretary of War, the Secretary of the Navy or the head of the department or agency concerned, as the case may be, shall when any such article or information is exported immediately inform the department or agency designated by the President to 80- minister section 6 of the Act of July 2, 1940 (54 Stat. 1090), of the quantities, character, value, terms of disposition end destination of the articles and information so exported. Section 5(s). There is hereby authorized to be appropriated from time to time, out of any moneys in the Treasury not otherwise Regraded Unclassified 159 - 4 - appropriated, such amounts as my be necessary to carry out the provisions and accomplish the purposes of this joint resolution. (b) All moneys, and all property received from 4 govern- nent to which section 1 applies and which is corrected into may, shall revert to the respective appropriation or appropriations out of which funds were expended in acquiring the article for which such consideration is received, end such moneys shall be available for expenditure for the purpose for which such expended funds were appropriated by law, during the fiscal year in which such funds are received and the ensuing fiscal year. Section 6. The Secretary of War, the Secretary of the Eary and the head of the department or agency concerned shall in all contracts or agreements for the disposition of any such article fully protect the rights of all citizens of the United States uho have patent rights in and to any such article which is hereby author- ized to be disposed of and the payments collected for royalties on such petents shall be paid to the owners and holders of such patents. Section 7. The Secretaries of War and of the Savy are hereby authorized to purchase arms, ammition and implements of VIZ produced within the jurisdiction of any country to which section 1 is applicable if such ares, ammition and implements of wer cemot be proênced in the United States. Section 8. The President my, from time to time, promilgate such rules and regulations, not inconsistent with lew, as my be Regraded Unclassified 160 -5- - - necessary and proper to carry out any of the provisions of this joint resolution; and he my exercise any power or authority con- ferred on him by this joint resolution through such department, agency or officer as he shall direct. 1/2/41 161 MEMORANDUM FOR THE SECRETARY Interim Plan Pending the enactment of the proposed joint resolution authorising the placement by the United States of orders on behalf of foreign governments and leasing to foreign governments the articles BO ordered, the following interio plan can be used for (1) The expansion of productive facilities for defense materiel; and (2) The procurement of such material. (1) Expansion of Production Facilities The R.F.C. and the Tar and Navy Departments presently have funds available for the expansion of defense production. The R.F.C. has 8. revolving fund of $1,500,000,000 for such purposes. or this amount approximately $400,000,000 is probably still avail- able. By a recent decision of the R.F.C. to reduce the take out obligations of the War and Navy Departments about $40,000,000 more bas been made available to these departments for defense plant expension. In addition to other plant expansion funds which these departments still have available, further funds for this purpose could be made available by releasing all R.F.C. take out funds which have been set aside to Arwy and Navy. There would appear to be ample funds for the additional plant expension program. If any more funds become necessary, the note issuing power of the R.F.C. could be increased by the amount necessary to accomplish this objective. Regraded Unclassified 162 - 2 - (2) Procurement For the actual placement of additional orders the War Department has available: (a) $60,000,000 for the procurement of aircraft, aircraft engines and aircraft parts; and (b) $430,000,000 for the procurement of ordnance items. The Var Department is prepared to make these funds available for the foregoing purposes, instead of using them, for example, for April - June 1941 maintenance of aircraft, with the idea in mind that the War Department can get further appropriations later for such raintenance and similar purposes. In all probability, the Navy Department can make similar funds available. By spreading the procurement orders with these funds and dovetailing then with plant expansion, the program can be car- ried forward so that the necessary deliveries can be nade as soon as the proposed joint resolution is enacted. 1/3/41 TREASURY DEPARTMENT 163 INTER OFFICE COMMUNICATION DATE February 14, 1941 as Quanney 90 P.I.MoGuire 1 Time Schedule on - of 1/2'41 re "Leaso-Land Bill". X PERSONS INVOLVED REMARKS 21 dest called Secretary Outlined his plan for leasing equipment to Britain. Morgenthan a called Foley, Car Told then what the President had in mind regarding leasing of equipment to Britain. Foley to have prepared by 10:30 a.m. tomorrow a draft of permanent legislation giving the President all the powers that are necessary to get and lease the equipment to Britain and other democracies; and also & memorandum on an interia plan for handling the same problem. 3'41 SI 11. Foley, Car Gave the Secretary the draft of Joint Resolution assed- y's ing Public Resolution #83; also an interim plan. the R 11 Foley, White, Preparing memorandum setting forth the reasons why the derence Arthur Purvis, Joint Resolution should be passed quickly. Sir Frederick Phillips, D. I. Bell, 0.S. Cax Foley and Cox Discussed with Foley the section authorizing the United States to procure arms, etc., in a foreign country when that can not be produced in the United States. Page 2 164 1/2'41 Memo PERSONS INVOLVED REMARKS Bell, Foley, Cox Incorporated changes sade by the group at the 11:30 meeting. Cleared with D. W. Bell change in the draft which would make it necessary to have the approval of the Bureau of the Budget in order that money resulting from the leases, eto. can be used by the War and Navy Department. Cohen, Foley and Discussed the proposed Joint Resolution. Cohen sug- issum's Cox gested that Mr. Bernstein's change: "no transaction shall be entered into in violation of international law as interpreted (ce in Interior by the Department of State" should be taken out. Cohen thought the President's powers should be broad enough to permit British owned vessels to be repaired and outfitted in the navy yards of the United States. Justice Frank- Justice Frankfurter made the following comments: furter, Cohen, 1. Should the various powers and methods of acting on behalf Foley and Cox of or on the part of a foreign government be so par- ticularized. 2. Should there be a particularisation of the countries. 3. Shouldn't the word "consideration" be omitted. 4. That a title such as "Joint Resolution to Promote the Defense of the United States" might be used. 5. It might be B. good idea to have a preamble stating in quotable language the need for and purposes of the resolution. 6. The word "welfare" be omitted on the first page of the Joint Resolution - "whose defense the President dooms to be related to the defense or welfare of the United States." Cohen suggested that section one of the resolution state that "This Act shall be known as an Act to aid nations whose defense is related to the defense of the United States." Foley and Cox Redrafted Joint Resolution incorporating the suggestions made at the conferences. L. Foley Asked him to get in touch with Speaker Rayburn. This was called the request from the President made at Cabinet Meeting yester- the farm day. ded to Page 3. 165 Momo of 1/2'41 PERSONS INVOLVED REMARKS 11 Sec'y Stimson, Foley 1.3. Went over the Joint Resolution and Secretary Stimson McCloy and Cox thought the Joint Resolution was broad enough. 30 her's Speaker Rayburn, Foley Foley passed on the request of the President mde at Cox and Beeman the Cabinst Netting yesterday to the Secretary - Folsy was to discuss the proposed legislation with Speaker Rayburn. Speaker Rayburn said he would be pleased to have Beaman help with the drafting of the legislation. a Foley, Cox, Benen Began drafting the Joint Resolution. Copy of the distive O'Brien, Morgan and redraft was sent to Justice Frankfurter, Cohen and McCloy. wel's Perley ce p.m. Cox and Charles Gave Cox questions that had been raised by Sir Prod- Ballantyne (BPM) erick Phillips: 1. Is the Act broad enough to authorise the taking over of existing orders? This question is covered by existing legislation, the problem here is enough available noney to take over the existing orders. 2. Is the Act broad enough to authorise the Nar and Eary to dispose of property which we have on hand? Proposed legislation completely covers question R. 5'41 15 1.2. Foley, Cox and Secretary Morgenthau wanted then to have & draft 5,6 O'Brien ready to be taken to the White House at 9:30 a.m. on Mondays ice 1/6'41. They were considering the draft written after conference all Saturday afternoon in office of the Legis- Intive Counsel. 48 by cal- Justice Frankfurter Foley told him that a subsection had been added to section six - a catch-all section. Frankfurter suggested that there be added at the end of section six these words "to effectuate the purposes of this Act." Frankfurter suggested that the word "vital" be in- serted in lieu of the word "related" in the title of the bill. Page 4166 New on 1/2'41 PURSONS INVOLVED REMARKS for Folsy Fanted to have a progress report on the MILL called Folay, Bernard, Cox, Working OR the preposed Joint Resolution John McCloy, Cal. Greenboun, Col. Quenton, Ben Coban, and John O'Briem Folay Asked him to show the draft of the Joint Reso- lution to Dean Acheson. Secy Ball Foley told him that be had tried to get him eurlier but had missed him at the office. Secretary Margenthen is in the country and had asked Foley to get in touch with Secretary Hull. Hull said be had sickness in his family and wouldn't be able to do much with it. Suggested th t Foley get a copy of it to Backworth, and let him look it over. Secly Knox and Foley left him 8. copy of the latest draft. Seld it Foley wes satisfactory. Eackworth Told him of the proposed statute as drafted by Beaman along the lines suggested by the President. Secretary Morgenthau out of town and bad usted Foley to get in touch with Secretary Hull ani tell him about the statute. Foley told Hackworth that be had talked to Secretary Hull who had told him that be had sickness in his family and suggested that Foley get in touch with Hackworth and give him a copy of the statute. Foley also going to give & copy to Secretary Bull. The President wants the draft st 9:30 Monday morning. Foley & Car Prepared nono for the President summarising the proposed Joint Resolution. Dean Acheson Tent over the Joint Resolution; could find nothing wrong with it and had no suggestions to offer. Page 5 167 Memo BD. 1/2'41 PERSONS INVOLVED REMARKS Falsy Told his that the President would not B86 them on the statute until Tuesday. Be had to go over his nos- sage to Congress to be given st noon on 1/6'41 oil the State of the Union. Faley the as out Said he had gone over the bill and thought it & Backworth talked was 6. good job. He had only one suggestion, that section dù Bernard 3(a)(2) was unnecessarily repetitious - Bernard told him that perhaps he was right, but that seemed the best way to say it and it was agreed not to change it. Hackworth had one question about section 3(a) Asked Bernard if he thought the bill would pass - Bernard said yes. Back- worth replied that be certainly hoped it would, and that be was glad to hear Bernard say that be thought it would. Secretary Berry Gave to the President the latest draft of pro- iss Jr. posed legislation. The President asked what Morgenthau end Foley and Foley thought of the ides of setting up a corporation similar to RFC, Export-Import Bank or Commodity Credit to handle this whole problem. Foley explained that if this were done it would be necessary to repeal the Johnson Act as well as the Neutrality Act. He explained that the John- son Act did not apply to the Government. After this ex- planation, the President dropped the corporation plan and told Secretary Morgenthau to get the initials of the Cabinet Officers who were also interested in this Joint Resolution and bring it back to him. L.L. Secretary Full, Morgenthau told Full what had taken place at Secretary Lorgen- White House yesterday afternoon. Bill was discussed sec- than, Foloy and tion by section. Hull thought it would be wiser to make the seasure an independent one rather than an amendment to the Pub. Res. No. 83. This would enable the Adminis- tration to refer to a more sympathetic committee. Hull thought the House Foreign Affairs Committee and the Senate Finance Committee would be the ideal committees to handle the bill. Hull suggested that the countries we were going to aid not be specifically set forth. Morgenthau agreed to this change. Foley was to redraft the statute and bring it back for Hull's initials. Hull was to ask Speaker Rayburn, John MeCormack, Lewis Deschler to B. meeting with him and Morgenthau tomorrow morning. He was to have Barkley, Harrison and Watkins for a meeting in the after- noon. The purpose of the meeting would be to decide on strategy as well as to discuss the bill. Page 6 168 Memo 1/2'41 PERSONS INVOLVED REMARKS Foley Foley expressed appreciation for the help of the Legislative Counsel. local 1. Hull, Stimson and Xnox are now in general greement on the proposed statute. 2. Foley told him that Stimson raised objection to bill's being handled by committees BO antagonistic to the Adminis tration policy. 3. Stimson suggested that the bill not be in the form of a Joint Resolution, but as an independent statute. 4. Hull is going to call a meeting of the House Leqders and the Senate Leaders tomorrow BO that there might be an agree- ment on the strategy of committee assignments. p.s. Beaman Foley told him of suggestions made by Secretary Hull Led and Hackworth. 1. On page 2 in subparagraph 1 of section 3(a) Secretary Hull wanted to omit specific reference to the countries to be aided. He wanted it to read "for the government of any American republic or any other country belligerent or neutral. 2. Hackworth wants to say in section 3(a) (2) "To sell, etc. to any such government any defense article, and to accept payment or repayment in kind or property or any other direct or indirect benefit to the United States which the President deems satisfactory." Beaman thought this ought to come out of "2" and be put in "b" so that it would apply to "3" of section 3(a) as well. Foley said he was committed on Hackworth's language, but would see what he could do about "b." 3. Stimson has suggested, and Hull agrees, that the first five lines be taken out and the statute nade En independent statute rather than an amendment to Public Resolution 1183. They thought this would help on committee assignment. 4. Beaman said he thought section 3(a)(6) didn't make sense. Foley said it was there to make certain that "food" was covered. Beaman said he thought that it ought to come out, Greenbaum Zold him that the new title WEE "To furnish support to those nations whose defense is vital to the defense of the United States." Told him of the suggestions made by Hull and Hack- worth. Also that the Congressional Leaders were going to get together. Greenbaum said that he thought that section 3(a) (2) should be put in section 3(b). Foley said that this had been done. Page 7 169 Neto on 124 INVOLVED REMARKS = D'Brien All four X thes agreed that section 3(=) (2) should read "Io well, transfer, lease, lend, or otherwise dispose to such foreign government any defense article"; 42d to put in section 3(b) "the terms and conditions upon which of net foreign government N- deives any aid authorized under section (=) shell be those which the President deens attifictory and the benefit of the United State IN be paymet or evycyment in kind or property or any stair firest or indirect beneft :hich the President deena satimatory. Foley tolá Beinn that sectiva 3(4) (6) had been removed from the 3111. Serean thought the = cudit to strike out "notwithstending =A7 other povisious of Isv". ougsted = CO LA section - which provides that at - change to which the foreign govérnment the N 2: it di not, out * consett of to invident, trade title 02 possevalin of Also article 4 otherwise their use by any de foreign pressur. to add nos its The is 4 not 4 dfficer, 4F. Loyee or :gort of such this (mm/dd/yyyy) thought that them NE : artel is - between the the suggettion Acced to Lin to reint di the statute - 200 -24 Cart taining the X Y have a MA 15. Redmorth at the 11 - T2- Information to way di Cox Secryt if Edil the 6123. liter And had inititied to. indi, be mild Saloy -na Ooz back end tals the this N tab ovacerned Acct the Executive Order = Well termin DE the delicate situation 124 de Folep touch 14 he hd intenged for 2016 of the vehicle to pet in 2] State Department go with Preservy the rojosed th t Hill would over have an opportunity to talk to E. ungention clost that toworrow. Regraded Unclassified page 8 Meno DD 1/2'41 170 PURSONS INVOLVED REMARKS Secretary Enox, Initialed the draft of the Mill. 100 100 Cos Secretary Mason, Secretary Stimson initialed the draft of the MIL, Poley and Cox Morgenthau Secretary Morgenthau initialed the druft of et Foley the bill. W invidenty Morgenthau President also initialed the HII, stating that ni folog N nos not to be outdone. Joked dti the Secretary about the "ispatch with which the deft this initialed and returned to him. They discussed the legialative stateg. Secretary Morgenthau told him about the proposed meeting tourrer with the Congressional Leaders to to 3425 in in Secretary Hull's office. President suggested this the Mll chould be introduced simultaneously in both Bouses. Foley suggested that the Hill be hundled by McCormack (Majority Leader in the Bouse) at XII Sension Barkley (Majority Lender in the Semite). The Prevident thought it would be good to have Setution burrison handle it in the Sennte if there vis 2 chance di the Hill's being referred to the Senste Finance Comittee. Morgenthau said he yould call Bill ini tell him that the President had approved to MIL, sni see stat the arrangements for the meetings toneror were curried out. Regraded Unclassified 170. - * 1941 I I It I Amy s 1 any 1 g E December 29, enclosing the - memorials regusting defends production. Sincerely, (ligned) E 4. Im. Checker 6. Davis, the Advistry Commission be the Council of National Defense, Poleral Reserve Building, makington, D. c. Regraded Unclassified 170-B JMI 2 1941 By dear Chester: Thank you very much for your letter of December 27, enclosing the two memorands regarding defense production. Sincerely, 1 of 1 4 Non. Chester c. Davis, The Misery Commission to The Council of National Defense, Federal Reserve Building, Washington, D. c. HHG/mff Regraded Unclassified ! I # 1 1 Eng 1 w December 29, enclesing the to regarding defense production. Siscerely, I Chester 6. Davis, Commission to of National Defense, Federal Reserve Building, makington, D.C. st 170-D THE ADVISORY COMMISSION TO THE COUNCIL OF NATIONAL DEFENSE FEDERAL RESERVE BUILDING WASHINGTON, D.C. December 27, 1940. Personal and Confidential Bon. Henry Morgenthau, dr., Secretary of the Treasury, Rashington, D. c. Dear Mr. Secretary: Pursuant to your telephone call yesterday, I - sending you herewith two memoranda. Only the first, on "Decentraliza- tion of Defense Production," deals directly with the question you posed. It seems to be that either of two alternative courses my be taken. Both require that the President issue a strong directive as to the policy to be followed. In one case, the President would issue the order directly to the Secretary of War and the Secretary of the Navy, and depend on them to see that it is carried out without reference to or dependence on any outside agency. In the other case, the directive would be issued to the Ear and Havy Departments, but the cooperation of an agency out- side the service departments would be enlisted to aid in the development and execution of the policy. ky suggestion follows the second course. The other memorandum, which is headed "In General," is volunteered because it seems to ne to be very important that the forthooming executive order should rationalize the whole defense picture, as far as possible. It is particularly important, I think, that the field and functions of the Advisory Commission be clearly defined, and its relationship to the Office of Production Management and other defense agencies be definitely stated. With personal regards and best wishes of the Season, I an, Sincerely, Chester C. Davis Enclosures (2) 170-E December 27, 1940. DECENTRALIZATION OF DEFENSE PRODUCTION. There are two aspects to the problem of decemtralization of defense production: (1) the distribution of supply orders to existing manufac- turers, and, (2) the distribution of projects calling for new or expanded plant facilities. These two aspects will be considered in order. 1. Distribution of Supply Orders. Large, well-ostablished firms, accustoned to bidding on govern- ment orders, and meeting government specifications, have e definite advantage over new and smaller contractors. Procurement officers of Army and Navy neturally turn first to accustomed sources of supply. It requires a fresh point of view and real determination to overcome established habit end inertia. The Advisory Commission does not have control over the placing of supply orders by the Army and Navy. The Coordinator of National Defense Purchases has had limited authority to advise and coordinate Army and Navy purchases. Most standard articles are purchased by the Army and Navy on the basis of competitive bids. While broad authority has been given to negoti- ate contracts, this has been exercised only where supplies are not normally available. By inserting some limitations in the invitations for competitive bids, the Coordinator of Defense Purchases has obtained some wider distri- bution of orders, notably for shoes and textiles. In nost instances negotiated contracts have resulted in orders being placed with the outstanding Regraded Unclassified 170-F as I , firms in the usual well-known industrial areas. Little real affort has been sade to negotiate such contracts with smaller companies outside the customery areas. The Production Division of the Commission was authorized by the President to clear all contracts of any importance which was interpreted to cover all contracts of $500,000 or more. However, only slight attention was given by the Production Division to the wider distribution of orders in order to encourage decentralization of industry. 2. Location of Government-financed Plants. Under the Appropriation Acts the "recommendation" of the Commission is required for certain expenditures by the Secretary of War to expedite pro- duction. The Commission is therefore given an opportunity to review the plants and sites proposed under such Acts. However, the Army has consulted with the Commission only after the requirements have been established and most of the field work concluded. This has frequently forced the Commission to recommend the proposed plans in order not to delay armament. Frequantly, however, suggestions are presented in the hope that they may influence later plans. As in the case of supply contracts, most of the expansion pro- posed has been for established industries within well-known industrial areas. The Commission has not been able to establish working arrangements which would enable its staff members who are interested in decentralization to work effec- tively with the Army and Navy. Naval appropriation acts have not required Commission "recomends- tions". Consequently the Navy industriel expansion has largely been without the knowledge or advice of the Commission. Regraded Unclassified 170.G 3- PROCEDURE TO ACCOMPLISH DECENTRALIZATION Without 8. clear sense of the relative positions of the Office of Production Management and the National Defense Advisory Commission, it is difficult to recomend procedure to accomplish the desired distribe- tim of supply orders for the Any and Havy and the decentralisation of - factories and facilities required in the armament program. The following suggestions, therefore, may be entirely incompatible with the organization that is visualized for the future. They nerely indicate one way in which the desired policy may be carried into effect. I. Policy Directive. The President should issue positive directives to the Secretary of War and the Secretary of the Savy. These directives should establish a definite policy in two fields: (a) Supply contracts must be distributed in such & maner as to nake full use of the facilities throughout the country, large and small, cherever they can do an efficient production job at reasonable prices. (b) Further location of new government-financed defense factories should be discouraged in regions that are already heavily industrialised and in which the existing labor supply is certain to be fully employed by existing factories when the areasment program reaches full stride. The rule should be laid down that & new defense plant will be placed in such an industrial area only if DO other place for its successful operation can be found. Even the expansion of existing plants in industrialized regions should be scrutinised carefully to determine whether the desired production Regraded Unclassified 170-H - be secured as efficiently in a MI location. II. Procedure to Imlement Policy. (a) Distribution of Orders. Authority must be granted to the Coordinator of Purchases to require procurement officers of the Army and May to distribute orders in accordance with this policy. (b) Decentralisation of la Plants. Create a board composed of mmbers of the Advisory Commission with an administrative officer, similar in its organisation to the Priorities Board, to work with the branches of the har and Navy Departments in: (1) planning the entire program for KI- panding industrial facilities; (2) determining the number and size of DEV plants required; and (3) participating in the process of selecting sites for government-financed factories required by the expanded arnament program. Approval by this board of a site finally chosen should be required in the case of both Army and Navy. The Army and Navy should be directed to work with this board in their initial consideration of sites for new factories, and no project should be submitted to the Commission for final approval or sttagts made to negotiate contracts with private companies without the ap- proval of this board. It would strengthen the hands of this board if future appropriations to finance new plants and facilities continued the Commission's responsibility to recommend or approve expenditures. This board would operate along the lines of the policy laid down by the President and would be in a position to refer questions of general policy to the whole Commission. The Coordinator of Purchases should be required to consult with the board on policy matters relating to the effort to distribute supply orders. If 170-I - 5 - the Coordinator is authorized to give final approval to the contracts for industrial plants, such emproval should be subject to suggestions as to policy from the foregoing board. 170.J December 27, 1940. IN GENERAL Creation of the Office of Production Management leaves the Defense organization picture far from clear. Efforts should be mede now before the looseness of the set-up is demonstrated, to tighten it up; to run a common thread through the component parts so that the function of each can be seen in relation to the others. The Advisory Commission is left floating in the air. Heretofore it has been in the anomalous position of a commission to advise a non- functioning, non-meeting body -- the Council of National Defense. It has drewn what authority it possessed from three sources. 1. Its chairmen was the President. It net and advised with and reported to the President. 2. It exercised functions delegated to one or more of the Commissioners, for example, clearance of important con- tracts was delegated to Mr. Knudsen, administration of priorities to 8 board composed of Knudsen, Henderson, and Stettinius, and the basis for cooperation between the Commission and the Coordinator of Purchases was laid in en executive order. 3. It was required by statute to "recomend" certain expendi- tures authorized in three appropriation bills for a total of $703,000,000 to be expended for new plants, facilities and to expedite production for the Army. It was also authorized by statute to issue certain certificates re- quired by the Second Revenue Act of 1940. Now certain of these functions will pass to the Office of Production Management, such as priorities and coordination of purchases. Opportunity for the Advisory Commission to advise with the President will insvitably be restricted as the work of the Office of Production Management takes more of his attention. Regraded Unclassified 170-K - 2 - Just how does the Advisory Commission fit ta? Is it made sub- ordinate and advisory to the Office of Production Management? Is B co- ordinate with the Office of Production Management, each being a in end meeting with the President? Or will it tend to pass out of the picture from disuse and absorption of its functions elsewhere? The Advisory Commission has lacked a general nerve center with the assigned responsibility to see that its functions as a Commission as dis- tinguished from functions of the individual Commissioners were properly discharged. Unless an executive center is provided for the new Office of Production Management it is likely to be subject to the seae handiesp and develop the same defects. Differences between the representative of industrial management and the representative of labor, between the Secretary of War and the Secretary of Navy and between the heads of the armed services and the other two, will probably develop. They should be resolved wherever possible without submission to the President. A strong competent organizer, possibly an executive secretary, is needed. The Advisory Commission should not be permitted to knock around locse. Its field of work should be clearly delinested and its tie-in with the new agency end the old ones in the defense picture should be defined. There is still the need for someone under the President to run a comeon thread through the multiplicity of commissions, committees, and agencies that have been assigned important defense functions to do. 171 January 2, 1941 At 7:00 o'clock, I called up Mr. Neville Butler of the British Embassy and thanked him for his note. I asked him if he had heard of the result of By conference with Purvis today, and he said that he had not. I told him that I would tell Purvis tomorrow to send him a memorandum setting forth the results of our 11:00 o'clock meeting. I then called up General Marshall, and told him that today I had notified the English that they definitely had to give up a hundred planes to the Chinese, and that they had taken it very badly. I told Marshall that I was wondering if there wasn't something we could do to make them feel better, and I asked him whether he thought it would be possible to give them the nine Consolidated 4-engine bombers. He said he didn't want to ask the English for something which was difficult for them to give up, but if they would tell him what was the least difficult to give up on their part in exchange for these bonbers, he would be glad to consider it. He said that after all, when he signs these certificates he has to nake it look fairly realistic. Marshall then asked ne what is going to happen in the future about these certificates which both he and Admiral Stark have to sign, and I told him in confidence what the President had in mind. I said, however, that in the meantime, during the interim period, I would have to continue to bother him about nine planes or any other thing for the English. I feel that General Marshall's whole attitude is very friendly, and I couldn't ask for better cooperation. I then called up Arthur Purvis and told him that General Marshall's attitude was that he had to get something from the English, and he would leave it to the English to say what they felt they could give up most readily. Purvis thought that that was more than fair, and he would try to give them the answer by 11:00 o'clock tomorrow. 172 - 2 - I suggested to Purvis that he keep Neville Butler posted. He said that he had already sent him a memorandum about the meeting this morning, which should reach him in about a half hour. I asked Purvis what he thought about our meeting this morning, and he said that he was much more encouraged, and that he thought it was a splendid meeting. He was really quite enthusiastic about it. AAT 173 BRITISH EMBASSY, WASHINGTON, D.C. PERSONAL AND SECRET. 2nd January, 1941. Dear Mr. Secretary, I enclose herein for your personal and secret information copies of the latest reports received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, have Butter The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 174 Tolegram from London dated December 30th. Attacks en Shipping. British merchant ressel (5,000 tons) bonbed and set on fire in Borth Featern approaches yesterday and has been abradoned. Greek ship (4000 toas) also attacked in the sass are but BO report of damage received. 2. Yesterday aftermoon, a constal convoy was us- successfully attacked by aircraft in the Thanes Natuary. 3. It is understood that progress is being made with the clearing of the block in the Kiel Canal reforred to previously. 4. on December 2 th eight enemy bombers and sever fighters made two attacks on Sollum but only caused ali damage. Our Hurricanes shot down one bomber and one fi (confirmed) one fighter (unconfirmed) and damaged four other bombers. 5. In the Southern aree Itelians now have four infentry divisions, part of one armoured division, and various other units totalling 80,000 - 90,000 men. 6. During the night 29th/30th, teenty-seven aircraft despatched to attack aerodroses in occupied territory, inland part at Prankfurt, emraballing yards at Hame and docks and shipping at Boulogne. Reports not yet received. Two aircraft missing. 7. German Air Porce. During raid a Plymouth night of 28th/29th over a thousand incendiaries but only nine high explosive boobs were dropped. gost damage was done to dwelling houses. Ossualties now reported at eleven killed and thirty-four seriously injured. 8. During December 29th min enemy activity took Regraded Undessified 175 place over the strongl and North sea, and the micrity of our fighter aircraft vere directed against these air craft for the protection of shipping. One easy bomber vas probably destroyed and two others damaged. Six energy aircraft operated inland, and Crews was bombed, case war factory being dam ged, but not seriously. 9. During the night of December 29th/30th an intense but comperatively short attack was sade on London by about 140 energy aircraft. Attack developed from 18.00 hours to 22.00 hours. main attack concentrated on the City and practically the whole area from Bt. Pauls to the Guildhall and from the Guildhall to Finebury was set on IN. The roof of the Guildhall was destroyed and St. Lawrence Jewry Church gutted. Various key points including docks were affected but details not yet available. Up to the present the number of casualties reported is remarkably small. 10. Aircraft essualties in the above operations over and from the British Isles. Enemy : cos bomber probably destroyed, 2 bombers damaged. British: two heavy bonbers missing. In assessing com- parative results it will be appreciated the summaries of casualties do not include enemy night bomber casualties approaching or returning from this country. Regraded Unclassified 176 Telegram from Landon dated Documber 31st. Naml. Two remining ships of convey referred to in tylegram of December 26th, first paragraph, have been losated and were expected to join the min body this morning. Senior officer of escort reports that one ship of the convoy was hit above water line and might be one of the enemy claimed to have sunk. 2. Attacks on shipping. A British tankers of 8000 tons was damaged by wine off Liverpool yesterday norning. 3. A convey of ten ships has arrived safely from Sierre Leone. Royal Air Force. 4. Home Front. Night of December 29th/30th. Owing to very bad weather conditions only ten bombers attached certain targets in Germany and aerodromes in German occupation. 5. There were no operations by our bomber command during might of 30th/31st. 6. Home Security. London night of 29th/30th. 7. All fires are nov out except for some amoulderings Pactories. One platinum factory: work aeriously reduced from loss of ple pressure. One diving apparatus and one machine tool factory seriously damaged by fire. Railways. Services to three London railway termini temporarily stopped but since resumed. Six under- ground stations temporarily closed. Public utility. No really serious dauage either to pas or electric services. Water supply normal except in city and other central areas where pressure is low. DoRegraded Unclassified 177 Reaka- Name damage to docks and considerable damage to certain from versiouses is the doek areas. Tele-commumisations. One min telephone ex- change completely out of service. Central telegroph office and Phonograms temporarily out of setion. London temporarily not in telephonic comunication with South Hast England and telegraph service with South and Bouth East England 10 severely interrepted. Communication between London and important towns in other districts are available. 8. The Guildhall was burnt out as were several churches and nine hospitals were affected to a varying extent by fire. 9. Casualties BO far reported: Killed 89, seriously injured 314. 10. Roumnia. It now seems probable that German troops destined for Roumania are those of twelfth army. This army has recently been in South West Poland and is commanded by Field Marshal List. Average strength of an army is 10-12 divisions. Projected train movements suggest that this figure my be exceeded to allow for internal security in Roumnia. There are indications that the Army will include mostly motorised and armoured divisions. Regraded Unclassified 178 CONFIDENTIAL TENTATIVE LESSONS BULLETIN MILITARY INTELLIGENCE DIVISION NO. 80 WAR DEPARTMENT G-2/2657-235 Washington, January 2, 1941. NOTICE The information contained in this series of bulletins will be restricted to items from official sources which are reasonably confirmed. The lessons necessarily are tenta- tive and in no sense nature studies. This document is being given an approved distribution, and no additional copies are available in the Military In- telligence Division. For provisions governing its reproduc- tion see Letter TAG 350.05 (9-19-40) N-B-M. MISCELLANEOUS OBSERVATIONS ON THE GERMAN ARMY SOURCES The sources of these observations are listed in account- ing footnotes. CONTENTS 1. USE OF THE AREEITSDIENST 2. NOTE ON MOTORCYCLES 3. NOTES ON CZECH TANKS IN USE BY GERMANY 40 RAFTING OF HEAVY TANKS CONFIDENTIAL -1- 179 CONFIDENTIAL 1. ISS 07 THE ARBEITSDIENST The Beichs Arbeitsdienst is composed minly of young men who are undergoing a. period of service prior to their entry upon regular stiltary training and duty. Indications are that these men are used for miscellaneous tasks in the rear areas and that they are kept out of combat zones insofar as possible. The existence of such organizations as the Arbeitsdienst has enabled the German Pioneers to restrict the number of their functions as conbat engineers and thus to strengthen their pro- ficiency as an integral part of the combat team. Among the duties of the Arbeitsdienst in time of war are the following: Cultivation of occupied farm areas, as in Poland; Construction and maintenance of important highways; Salvage of equipment, munitions, and materiel, both friendly and enery; Policing of battlefields; Construction of rummays for all types of air fields; Passive protection-including cancuflage, sandbagging, etc.,-of important military establishments; In emergencies, construction of any type under the supervision of construction engineers. 2. NOTE CE NOTORCYCLES 2 The field performance of motorcycles in the German Army has been found generally unsatisfactory, Reliable reports indicate that a military model of the Volk Lagen is replacing motorcycles as they become unserviceable. 3. NOTES ON CZSCH TANKS IN USZ BY GERMANY4 8. Anti-Gas Protection It in now established that the Csech tank known as 1. From the report of an American official observer in Berlin, November 5, 1940. 2, Prom the report of an American official observer in Berlin, 3. The Volk Tagen is a very small and inexpensive autonobile December 16, 1940. manufactured under government subsidy and originally intended for use by the masses of people. 4. Prom a British official source, October 10, 1940. CONFIDENTIAL & 180 CONF IDENTIAL the C.K.D.V.8 H. has collective anti-gas protection. Since equip- ment used in Czech tanks can probably be adapted for use in any type of tank, it may be encountered in later German models. The interior of the tank can be made gas-proof by means of fitting gas filters to all louvres and raising the air pressure to 11 atmospheres. The fighting compartment is separated from the engine chamber by en air-tight bulkhead. An electric fan drawing air through a large gas filter raises the inside pressure, but if this pressure becomer too high, an automatic release valve permits air to escape into the engine chamber, The C.X.D.V.SH. also has an eccentric track ad- juster which allows quick slackening of tracks for high-speed road travel. b. Vulnerable Points All Caech tanks appear to have a most vulnerable point alongside the engine compartment. An attempt has been made to reduce vulnerability by fitting angle sections in staggered positions on each side of the gap. Since these restrict air cir- culation, however, and cause overheating of engines, they have been removed. There is another vulnerable point behind and be- tween the bogey wheels. 4. RAFTING OF HEAVY TAIKS Available information indicates that the heaviest load which can be taken on a standard German ponton bridge or raft is 18 tons. It is known that most German armored divisions had e certain number of 22-ton Mark IV tanks, while at least three divi- sions had Mark V and VI tanks, which weigh about 35 tons. The strengthening of ponton equipment to meet these heavy loads would not have been a simple matter. Probably the Germans, having de- cided that provision of bridging equipment for these comparatively few but very heavy loads could not be justified, arranged for their transportation across rivers and canals by rafting. There is evidence of the use of a large raft, probably designed for this purpose. It consists of box girder sections about 60 feet in length and supported at the end by piers, each of which consists of two double pontons. The girder is very similar to the British small box girder, Mr.: II. The exact load capacity of the raft is not known, but the buoyancy of the four double-ponton piers would be sufficient to carry a distributed 5. From 8 British official source, July 25, 1940. CONFILENTIAL -3- Regraded Unclassified 181 CONFIDENTIAL load of about 45 tons. It can be assumed that the strength of the super-structure is proportionate. At the moment when a tank is driven onto such a raft, the whole weight of the tank must inevitably be taken by only one pier. The saximum load which could be driven onto the raft when floating, consequently, would be only about 23 tons. In order that this difficulty may be overcome, the site chosen is of such a nature that one pier grounds while loading. It is known that the pontons used are strong enough to take the load under these conditions. The unusual length of the raft and the great strength of the superstructure are required by the method of loading used. The raft must be so long as to permit the transference of sufficient weight to the offshore end in order that the grounded pier may be freed. This effect is accomplished when the tank is driven beyond the center of the raft. Shore bays, approximately eight feet long and con- structed of fabricated lattice girders, are provided on each bank for running the tank on and off the raft. Ferrying is probably effected by means of a cable stretched across the river; by towing or pushing with a 100 horse- power motor boat, which is part of the ponton equipment; or by using two or three smaller outboard motorboats. CONFIDENTIAL 182 G-2/2657-220 RESTRICTED M.I.D., W.D. January 2, 1941. No. 282 SITUATION REPORT 12:00 M. This military situation report is issued by the Military Intelligence Division, General Staff. In view of the occasional inclusion of political information and of opinion it is classified as Restricted. I. Western Theater of War. On December 31 German bombing attacks en railroad stations and harbors in Southeast England caused some damage and fires in warehouses. Neither side engaged in bombing on the night December 31- January 1. On January 1 a British bombing of Bremen started large fires. German planes bombed central and southern England. À series of bombs were dropped in various parts of Ireland on the night of January 1. The German High Command reports that 43,000 tons of high explosive bombs and 1,800 tons of incendiaries have been dropped on British territory from August 8 to December 31. II. Greek Theater of War. Local clashes by ground elements in contact were reported. Italian air attacks against ground troops and materiel continued. III. Mediterranean and African Theaters of War. The British siege of Bardía continues. Artillery is shell- ing the town. On the Sudan and Kenya frontiers patrols are active and there is some artillery fire. On December 31 the R.A.F. bombed Valona, Taranto, Palermo, Naples and Cotrone. Both British and Italian air attacks were made on ground troops and materiel. The British bombed Italian airdromes in Libya. RESTRICTED Regraded Unclassified CONFIDENTIAL Paragiamo of todo Rediegres 183 I a 1 1 $ III 1 $ I i INC. Lendon, filed 20:55, Junuary s, 1941. 2. a Walmoday, - 1, planes of the British Geastal Consent operated the used gatrols with as important results. Same a 1 18 I I 1 E weather conditions provented then from currying out these missions, During the preseding night 19 planse were disputched because of bad weather. 8. Party-eight German planes were plotted over Britain a January 1, but their activity was limited. During the night of Junuary 1-3, there was no consentration of German raids but attacks wro seattered used many points in Britain. s. On Jenuary 1, a 5,600-tam Swedish ship in Liverpeel my was damaged by s. mine. German aircraft attached, but did as damage, to a servey treveling resteurd in "Churchill's Charnel". off Delmar & British 8,800-50m tanker and a 5,800-tem vessel of Berwegine reg- Latry were terpodeed. 4. In the Ighian theater, the British report that the area between Bartia and Tobrek is in their hands and that any patrols have advanced as far west as Tobruk. s. The British claim to have control of the air in all Middle Bastern theaters, where they are currying out normal aircraft activities. LEE Distribution: Military Aide to the President Chief of Staff - a Secretary of Yes War Plane Division Office of Naval Intelligemes State Departments AG - 8 Bearetary of treasury last. Secretary of Mar e-3, 1 CONFIDENTIAL Regraded Unclassified CONFIDENTIAL Paraphrase of Code Radiogram 184 Received at the Var Department st 11:08 deMo, January 2, 1941 Berlin, filed January 2, 1941. Positive senfirmation received that advance elements of the German air force are new in Italy. Aviation Signal troops have been seea in Venice and it is estimated that more than 100 Ju-82 transport planse and 8000 aviation personnel have passed through that city headed south. At Bolegna, railread trains German aviation motor transportation reported moving south. PETTON Distribution: Military Aide to the President Secretary of War State Department Secretary of Treasury Asst. Secretary of War Chief of Staff War Plans Division Office of Naval Intelligence CONFIDENTIAL Regraded Unclassified 185 January 3, 1941 9:30 a.a. GROUP MEETING Present: Mr. Haas. Mr. Young Mr. Cochran Mr. Gaston Mr. Sullivan Mr. Thompson Mr. Graves Mr. Kuhn Mr. Schwarz Mr. Pehle Mr. Wiley Mr. White Mr. Foley Mr. Bell Mrs. Klotz Gaston: I have that letter you suggested. I still think it is wrong. H.M.Jr: Well, we will read it out loud. Herbert thinks this is wrong. "My dear Mr. President: "The only my the Federal Government can be assured that German and Italian merchant ves- sels immobilized in our ports will be incapable of causing serious damage to channels, terminals, merchant shipping, or unterfront property gen- erally, is to seize these vessels immediately and remove their officers and crews, and I there- fore recommend that I be empowered to take this 186 - 2 - step, for which I how have legal authority. "There are two German merchant ships and twenty-eight Italian merchant ships at present imobilized in our harbors. One German ship is in Boston harbor, and the other at Port Ever- glades, Florida. The Italian ships are scat- tered along the Atlantic and Gulf coasts, with the exception of one Italian ship at Portland, Oregon, one in the Panama Canal Zone, and one in Puerto Rico. I am attaching hereto & list of these vessels by name, their locations, and other pertinent data. "All these vessels are under as close sur- veillance by the Coast Guard as can be given without actually placing guards on board or seizing the vessels. Placing guards on board without taking possession of the vessel would only result, I feel sure, in sabotage, which could not be prevented as long ES officers and crews remained on board. "As an example, the Italian tanker Brennero, loaded with lubricating oil, is immobilized at Port Newark, New Jersey. There is nothing, short of seisure or maintaining armed guards on board, to prevent this vessel from getting underway and charging along the waterfront at Bayonne, New Jersey, where there is the greatest concentre- tion of oil terminals in the world, and where E serious fire would be a national disaster. While this vessel might be moved to a point where the possibility of damage would be less, only actual seizure would be complete assurance against destructive acts. "I very careful study has been made of the situation presented by these immobilized vessels, and I therefore recommend that you give me instruc- tions to proceed immediately to seize these ships." Regraded Unclassified 187 - 3 H.M.Jr: Well, I didn't know that you had to remove the officers. Gaston: Well, you would have duplicate crews aboard, and I don't see any point in letting the other crews remain aboard. They would just create trouble. You would have to remove their officers and put them somewhere. H.M.Jr: Well, that I wouldn't do. Gaston: I don't think it would do just to put three or four or half a dozen men aboard a ship and then rely on their preventing the regular crew of the vessel from doing damage. The only way you could be assured that there wouldn't be any damage done is to take the crews off and put them somewhere else. H.M.Jr: Does Waesche agree with that? Gaston: Oh, yes. H.M.Jr: Well, I wouldn't do that. Gaston: I don't think you can select out the German and Italian ships without causing very serious com- plications. I think for one thing you invite-- H.M.Jr: Well, Herbert, then you might just as well say, which I am not ready to say, that the Coast Guard cannot do what the President expects us to do, and that is to see that these ships are not either scuttled or let out into the channels and damage the waterways. I will not accept the responsibility as Secretary of the Treasury. I will not accept that responsibility. Gaston: Scuttling will be minor danger. There are a lot more things they could do. They could smash the machinery. They could have done it at any time, and they haven't done it. 188 - 4 - H.M.Jr: That doesn't mean they won't. Was it the St. Louis during the War? What was that boat they smashed the machinery? Gaston: All of them. H.M.Jr: Well, I an not going to accept it. Gaston: The only way you can prevent that sort of thing from happening is to take the boat, which I don't think the have any precedent for doing. We can violate precedents, but I think we will invite reprisals of different sorts. For instance, there has never been any sabotage ordered by Germany or Italy in this country, none at all. What about the St. Louis and those boats during the War? When we took them over, the machinery was damaged. Sell: After we declared war? Saston: Yes, absolutely, after it was known that we were declaring war. R.S.Jr: In view of the steps and in view of the position the President has taken, and Secretary Knox, I am not going to sit there as custodian of these ships there; I won't take the responsibility. Gaston: The only way is to take the ships, and of course in view of our normally neutral position, there is 8 question of our authority to do that and there is & question of whether we want to incur what will happen if we do that. E...Jr: Do you mind if I put this up to Waesche at eleven- thirty with you here? Gaston: No, I don't mind at all. Regraded Unclassified 189 - 5 - H.M.Jr: Have you any objection? Gaston: Oh, no, not at all. White: Herbert, if you wanted to spend enough money, couldn't you put a duplicate crew or & larger crew on board? Gaston: Well, that is what we are talking about. That means taking posession of the ships and the safest, most convenient may to do that is to take the other crews off and then you will be sure they won't be doing anything you don't want them to do. White: But you don't have to take the other crews off. Gaston: It would be the logical thing to do. H.M.Jr: Well, that makes it impossible. Well, I an not going to take the responsibility and not carry it out. Gaston: If we were at war or about to declare mar, of course, we would do it. H.M.Jr: Knox is willing today to put the Marines on those ships. Gaston: Sure, they want to get in on the thing. If you raise the question with them, they say, "Oh, we will take these ships." H.M.Jr: Sure, and the slightest thing happens, Knox is perfectly justified to say, "I told Morgenthau I wanted to do it, and he sent for Gaston and Gaston said everything was all right. He had charge of the situation." Gaston: Well, it is perfectly evident that we are not in complete control of those ships unless we have our own crews aboard then. Lots of things 190 6 - can be done. LLk: I want to be in & position to say, "llr. Presi- dent, I can not guarantee that one or two or three things will not be done to impede traf- fic or this or that or the other unless - now, if you don't want to give me that authority, all right." leston: We can't guarantee either that there won't be other kinds of acts of sabotage having nothing to do with ships occur at any time. Lobody can guarantee that. Herbert, if you don't mind, we will bring this up at eleven-thirty. I won't be in that posi- tion, that is all there is to it. Eleven-thirty. I just won't take that. I mean, it is an honest difference of opinion. Gaston: Yes. Well, there is no perfect my of handling this thing. You can't - the chances you just can't assure yourself against. The point is, the Navy is willing to do it. We have said that we are looking after ships. This is our responsibility. All right. Well, now, either we do a good job 07 Te don't. Geston: Yes, we are doing and are prepared to do the best job that can be done under the present situation in which we are at peace. Thite: Well, does doing & good job require taking off their crews? I think it is merely a matter of expense. I don't think it does. Thite: Put more men on there. Gaston: I don't just get your point, Harry. You have Regraded Unclassified 191 - 7 - got to put an adequate crew aboard to insure yourself that no camage will be done by the foreign crew that is on that ship. Why embar- rass yourself by keeping the foreign crew on and add to it the number of men you will have to put on the ship to prevent them from doing damage. White: I suppose there is 8. political, not a military, reason that the Secretary doesn't want to take their crew off. Gasten: I can't imagine there would be any political reason, because either our crew is in charge or they are not. They are mere boarders. The foreign crew are mere boarders on that ship if our crew is in charge. Tie would have to put more men on to watch that crew if me left them on. White: You nean it isn't possible merely to put enough watchers which would act in the same capacity that the Marines might act there, that that would be taking over control? Gaston: Yes, certainly. You can't have three men watch thrity or forty. White: No, but you could have 10 or 15 men watch them. S.K.Jr: And make those men prisoners on their own ship. It is better to have them prisoners ashore. Gaston: Sure. E.K.Jr: What is the situation with those Latvian ships up in Baltimore, that one ship? Gaston: You mean under the United States Marshall? E.M.Jr: Yes. Gaston: They have no-- Regraded Unclassified 192 - 8 - H.M.Jr: Well, Herbert-- Gaston: They have no guarantee that damage won't be done to that ship. It is only the interests of the owners and the crew of the ship. H.M.Jr: Well, I have got 8. definite sense of responsi- bility on this thing, and I an not going to be put on the spot by the Navy or Mr. Roosevelt. Gaston: Well, I think it may be a. good thing to get their views on the thing. E.M.Jr: I won't do it, and, if Coast Guard doesn't want to do it, I am not going to - then let - say let the Navy do it. Geston: There isn't any question of Coast Guard not want- ing to do it. They are perfectly willing to do anything that they are directed to do and so am I. I am merely saying I don't think it is & wise thing to do. H.H.Jr: Well, that is your privilege, but I am not say- ing whether it is & wise thing or not a wise thing, but I say I am not going to sit in this chair knowing that any night they might cut the cables and slip the ship out into the channel and sink her, and then I am held responsible for that damage. I will not take that respon- sibility. Gaston: Well, I think it is & good idea to talk it over with the President or Cabinet, whether they understand the situation. H.M.Jr: I am willing and want to say that we will take the necessary steps to see that they can't do it. Then if the Cabinet says they don't want me to do it, then I an relieved of that responsi- bility. 193 - 9 - Gaston: Yes, that is right. That is, if they simply say they want things to 80 on as they are. R.V.Jr: Yes, but then it is the Cabinets responsibility but not mine. Gaston: That is right. H.M.Jr: But that was the purpose of the letter to resd it at Cabinet and make a recomendation that we be permitted to put enough nen on ship board, not to take the crews off, to put enough nen on ship board, whatever the number is, SO that they can not maneuver the ship around SO it can do any damage. Gaston: Well, es to that, I say the logical thing is to take the other crews off. B.H.Jr: Well, that is where I differ with you. Gaston: Because you are taking control of the ship and those other nen are just prisoners on board that ship? No. Gaston: And there are more convenient and economical ways of handling those men as prisoners. In- stead of having 15 or 20 men aboard the ship, we can have six men aboard the ship. M.M.Jr: As far as handling it, look at the difficulties of handling those fellows off the Columbus, one of the most difficult problems the Administration has. Gaston: Exactly. Whether you leave them on or take them off, you still have E difficult problem. If you leave them on, you have got to have 2 much larger guard on board the ship in order to insure con- trol of it. Regraded Unclassified 194 - 10 - E.M.Jr: But you have still got the nen living in their own berths, you don't have to try to find a place ashore for then the my you do for the crew of the Columbus. Gaston: Then you have to have some place for your own men to live. S.M.Jr: They can live in the first class passenger cabins. Gaston: These are mostly freighters. E.L.Jr: Let's do it at eleven-thirty. Geston: Yes, right. E.E.Jr: Ed? Poley: The time to appeal in the Spanish silver cases expired so the decision in the Circuit Court of Appeals in our favor stands, and they are dis- missing-- E.K.Jr: What case? Poley: The Spanish silver case that Stimson handled for us in the lower court. E.S.Jr: Did Stimson ever get paid for that? Foley: I don't know whether he has been paid or not. I haven't seen the bill. E.K.Jr: Would you find out? Foley: Yes. I don't know if he ever submitted a bill. Has he been paid? Bell: I think SO. We had a question, you remember, about charging it to the cost of silver. Regraded Unclassified 195 - 11 - Fehler It was deferred until the suit was settled. lie has never been paid anything, and we still owe the Spanish something on the silver that we never paid to the Loyalists, five percent. Foley: I don'tthink he ever submitted E bill. call: Oliphant had up the question as to whether we shouldn't charge it to the Federal Reserve Bank of New York. 74th I think that was at the time it TIES retained, Dan, as to how he would be paid. But I don't think the bill has been submitted. If it has, I have never seen it. Here is & memorandum for the diary on the neet- ing with Glass yesterday. n right. Will you give Leo Crowley of copy of that letter to the President? Yes. And a copy to Delano? Yes. To will be ready on all that legislation at EL quarter after ten. Good. I hope I will be too. Tie are ready on it also. And here are some news- paper articles. From now on, give those to Kuhn, and I wish you would talk to Kuhn about this whole subject about handling this fight, the whole question of this tex exempt fight, how are we going to handle it and all the rest of it. Will you have S. telk with him? Regraded Unclassified 196 - 12 - Sullivan: Yes. H.M.Jr: My mind is running along about the possibilities of getting a man down here whom Kuhn could select to do that and nothing else. Cochran: I have nothing. Wiley: Nothing. Pehle: Do you want to see me later on on that letter you sent down to Mr. Hoover? H.M.Jr: Oh, that can wait. Pehle: One of our people, Stemple, has an offer to go with Export-Import Bank in & much better job; and, as a matter of fact, he has more or less al- ready accepted before he cleared it with us. Warren Pierson is going to use him as his as- sistant. H.M.Jr: Stemple? Pehle: Stemple, yes. H.M.Jr: Where does he come from? Pehle: New York. He has extensive banking experience. He is & pretty good man. I don't see that we can stand in his way. Lacour Gayet was in the other day and said that the French Ambassador had & tentative agreement with Sumner Welles with regard to some of the gold at Vartinique. Do you know about that? H.M.Jr: Not a thing. Pehle: I didn't either. The proposal was to send to some United States port, apparently Puerto Rico, some of the gold at Martinique on the condition 197 - 13 . that we would release an equivalent amount of funds that are frozen, the French funds, and they would use the funds in buying supplies in this hemisphere to send to North Africa. Whether Welles agreed to anything like that I don't know, but I told them we wouldn't do any- thing or discuss any details unless we heard from the State Department. It rests there. On the I. T. & T. matter, Livesey called me about two days ago and said that the matter had been put up to the President, who said, "No. Then he called back to say that that might be a little premature, and the President had said, "Not now, so he said they would take it up again with him when it came to a head. Well, it is coming to a head right now, because the I. T. & T. has signed the agreement with the Roumanian Government, subject to the licenses being issued, and the cable is coming over from the Roumanian Central Bank to the Federal to sell the gold necessary and pay the dollars to the I. T. & T., so as soon as the application has come in, we will notify the State Department, and then we will hear from them again. That is all. H.M.Jr: Phil, Mr. Knudsen called for ne this norning, and he brought up this question of priorities. It seems that some list that I sent the Presi- dent was - the President referred it to him. Was that the list showing the 20 different countries and the different odds and ends that they want? Young: Those plane tables, did you send that to the President? E.E.Jr: I must have. Well, it is - Knudsen's position is, if we want anything cleared on any priorities, send it to him and he will do it at once. Regraded Unclassified 198 - 14 - Toung: I will send them about six today, then. H.K.Jr: I told him you would. I think you had better take them over yourself. He said yesterday he had cleared seven planes of Lockheed. Young: I hadn't heard about it. H.M.Jr: Well, he seems to think he is going to do it all. He said certainly any parts for any planes that have been sold must go. I think I would walk over there today and just find out what he has in mind. lie says if you will bring them to him - he says, "Nobody has asked ne to clear anything." He says, "I an the boss." I couldn't argue with him. I didn't have ny facts. But he seemed excited about it, so I said, "well, wonderful, we will see how good you are. lie says, "Try ne, try ne." Toung: That is easy enough. He says, "Try ne." So I would call him up and go over and see him today. Toung: Fine. I won't even stop to sign it because I won t have time to do it, so while I an at Cabinet this afternoon, go over and see him. Young: Meigs called ne yesterday, who is the air can under Knudsen there. Ee said he is perfectly willing to take all the responsibility for clear- ing all of these smaller requests for planes and parts. Ee called ne back later to say that he had talked with Brett about it, and Brett said it was O.K. with him provided Te would accept his clearance on it. E.C.Jr: Well, then, he said, "Suppose you had the clear- ance and you could get it through Colonel Maxwell. Regraded Unclassified 199 - 15 - Anyway, I an telling you please to go over and see Mr. Knudsen this afternoon and see just what he has in mind. Toung: Right. S.M.Jr: 0. K.? Exas: I have nothing, Mr. Secretary. To bring you up to date, Phil, in talking with General Marshall, last night, on the nine more Consolidateds, his position was, if the English will tell ne what they can spare the best - he says, "I don't want to ask them for something to enbarrass them, in other words, what they need the least, that he can use for a swap on the nine, he will do it, and I told that to Purvis last night and he is to give us an answer this morning, see. Will you follow through on it? Total: Yes. S.L.Jr: In other words, whatever they can say they can spare the best - something that he can, as he says, save his face with, he will release the nine. Trung: Right. Harry? Wite: Chen sent back & young man, Chi, who he took over the Burna Road with him who reported on the condition of the Road, etc., but he made one comment that I want to raise here to see whether anything should be done about it. lie mentioned in the course of the conversation I had with him that there were quite a few Chinese bankers who had just come here and wanted to know what con- vention was going on or whether we were having a conference, and I began to be curious, and I said, "No, we haven't, and I asked him now he knew they were here. He said he had met 8 few, Unclassified 200 - 16 - and I let the matter drop. The idea occurred to me later, why should they all be coming over here now, unless they got worried about the possibility of imposing exchange control and are making ar- rangements with banks here to get out from under ahead of time, and I am wondering whether we could find out about it, because they have got a hundred and seventy-five million dollars here, and I am willing to bet 8 dollar to a doughnut that over et hundred million of that is in the hands of individuals who have no business to have it over here. H.M.Jr: You are too suspicious, Harry. White: Well, why do they all come over all of EL sudden, Chinese bankers here? (Laughter) K.N.Jr: Why are my son and I going up to New York tonight? To see "Panama Hattie. White: You might look these Chinese over. Isn't there some way We can find out what is going on? H.M.Jr: Bob, last night, says, "You tell the President at three-thirty, Daddy, it is a matter of national defense, and you want to study the Panama situa- tion.' He says, "You needn't tell him it is "Panama Hattie. Just tell him it is the Panama situation." So that is 8. notice to everybody that the boss is leaving at three-thirty on the four o'clock train. I will be back Sunday night, I think, or Monday morning. Well, you have got all of these would-be detectives around here. White: Well, I'll put the proposition up to them. Sullivan: Sammy Klaus will take care of that. (Laughter) S.K.Jr: All right, Harry. White: That is all. Any time you want to know about Regraded Unclassified 201 - 17 - that Burma Road, I will be glad to report to you, but on the whole his comments were very favorable with respect to that. H.F.Jr: Would you (Klotz) ask the White liouse usher that - Sunday night somebody was in who had been over to China and taken some remarkable pictures which they showed Sunday night, and I would like to get them for downstairs. It is on the bomb- ing of Chungking. White: He had a long movie film of the Burma Road. H.M.Jr: Excuse me, I am mixed up on Sunday night. I went to see him yesterday morning. What was yesterday morning? .lots: Thursday. R.E.Jr: He showed it to them Tuesday night. Shite: Chen took a moving picture especially for you. It hasn't arrived yet. When it arrives, Mr. Rem Chen would like to bring it down. Schware: Sylvia Porter has written & piece in which she predicts the Fed's recommendations will split Congress wide open. We are collecting all the editorials from that all over the country which will take several days. White: Which reminds me of something, Mr. Secretary. Senator Wagner's secretary called me up and wanted to know what this was all about, and I asked him some questions. He said that - (Laughter) that this fellow, I have forgotten his name, it sounds like Goldsborough, said that the Administration was for it, and ne was for it, and he helped write it, and he was going to push it. Some important Congressman. Isn't there a Goldsborough. Foley: There is a Goldsborough on the FDIC who used to Regraded Unclassified 202 - 18 - be a Congressman from Maryland. White: No, somebody there now. I an awfully sorry, I have forgotten the name. But apparently there is an opinion among many up here that this is all right with the Administration because the Administration hasn't said anything to the con- trary, and I took the liberty of telling him that if Senator Wagner asked him any questions about it, he had better ask Senator Wagner to get in touch with you before he makes any statement on it. H.M.Jr: Let him get in touch with the President. Bell: I see Early helped write it. It says in the paper this morning that Early helped write this statement. Schwarz: It said he helped on the timing. H.M.Jr: I saw last night what I called the most exclu- sive club in Washington, Dr. McIntyre's office, and he said that the Star was much too enthusi- astic over what he had said. He hadn't said that at all. That is the interpretation they got. Schwarz: United Press on the other hand said they con- cluded that the Treasury was opposed to it because we had refused to approve it. So you can get either interpretation. H.M.Jr: Well, Harry will give them an interpretation (facetiously). White: I will ask them some more questions. H.M.Jr: That is right. White: But I don't want any toy pistol. H.M.Jr: All right. (Laughter) 203 - 19 - Harold? If you and Norman would press McKay to give you two gents an appointment, I would like to clean up that thing. I don't know whether you think I have forgotten about it or not. On that personnel matter. Graves: You mean today? R.E.Jr: Not today. Monday. I don't know why you two are 30 retiring about it. Thompson: There are so many pressing you now. E.E.Jr: Well, anyway-- Sraves: O.K. 1.3.Jr: Dan? Fell: George has the annual report ready for release. He thinks it ought to go out probably tonight in view of the criticism we had last year that it was released too late for the boys to read. Now, it has the eight year review in it which we talked about before, and I think George has done an excellent job of it. Is it all right with you for it to go out tonight? .....Jr: Sure. I can't look at it. Bell: Well, it has the usual release, that it can't be published until after the Budget message. E.M.Jr: It is all right. Caston: You know, Steve Early has raised some questions in the past about the timing of giving that out in view of the fact that it does have budget figures in it. Schwarz: This copy does not have them. Seston: Oh, that is all right. Regraded Unclassified 204 - 20 - Bell: They eliminated 10 pages of budget figures. I guess we won't be able to sign the Chinese agreement today because we have heard nothing from Soong. It had probably better go over until Monday. H.M.Jr: All right. Bell: There is one question raised in the agreement. We had in the draft that we sent them last week not to exceed five million dollars a month, and he said that wasn't enough and that he would like to see it increased some. So we thought maybe we would put in eight million dollars a month so as to get rid of the money by the time the fund authority expires, which would be June 30. Now, Harry raises B. question of whether that isn't just a little high and maybe we had better stick to our original five. Do you have any feeling about it? H.M.Jr: No. Bell: We still have control over it even though it is eight million & month. H.M.Jr: Harry thinks it is all right. Bell: Well, he raises a question. I think he could be argued out of it but-- H...Jr: Why can't you do the same as you did with the Argentinians? I understood it if you thought the fund was going to lapse you would shovel it out the last month. Bell: We would do that, but he is arguing it would make his position & little better with his board and psychologically it would be better for the timing of this new bank coming in, that a larger sum would look better. I don't think it makes a lot of difference. 205 - 21 - H.V.Ir: ..e will never get a penny of it back, so what is the difference? White: The thought in my mind, Mr. Secretary, is this: Not that you get any of it back, but they are constantly teetering on the edge of making peace with Japan or not, and I thou ht the longer we could stretch out our control over them, the longer we can be certain that they are going to use the money, they will act in such & way as we would like the to. It isn't that the money will be any safer because the money is bound to fly the coop, but I think it is a question of 10 months rather than six months unless at some time you feel differently and want to give then more. That is the only thought I had. Jr: with that argument, let's cake it 10 months. It puts off the tay until Harry comes around and asks us to give then some 2005. That is right. of course you have the authority to increase that five million 2 month. The last month. Fell: Well, any time. Witer lio, any tine, if you see fit. O.K. The is going to match all of these thin s? Does that come under you (Cochran) that you are going to match the Assentine and China? No. The are going to - I zean, as many can match it as want to. (Laughter) I mean the fact that somebody else will watch it won't exclude the fact that we will, and you remember we are going to send e can down there. Regraded Unclassified 206 - 22 - H.M.Jr: Yes. Well, I want to get in on that. Before the man goes, I wat to look him over. White: Yes. And I was going to raise the question we would also like - no matter who goes to China, we would like to send one of our young men down there to watch 8. while. Bell: Watch him. E.M.Jr: Well, in any case, seeing that there are going to be lots of watchers, I still think that be- sides everybody else watching it, that you ought to watch it too. Cochran: All right, sir. White: The Stablization Fund, I should think, sir. Bell: Merle will spend the money. B.K.Jr: All right. Schwarz: I would suggest Tuesday then, instead of Monday. The President's message Monday will blanket every- thing. B.M.Jr: What else? Bell: Guy Emerson, the vice president of the Bankers Trust Company, had a great deal to do with the last liberty loan campaign. He was Ben Strong's right-hand man. He had charge of all the adver- tising and the forms and so forth. He has got quite a file on his whole campaign. E.M.Jr: Would you give it to-- Bell: Well, I haven't got it. What I want to do is send Gene Sloan and Broughton to New York to see Emerson and Pope, who will report together on that whole scheme and what they worked out and was used for the rest of the country. 207 - 23 - H.M.Jr: Just as long as it is no indication any way that we are going to use them. Bell: Oh, no, not at all. They are perfectly willing to cooperate and give us anything they have got. H.M.Jr: That is all right. So long as there is no indi- cation. Because those aren't the kind of people I an going to use this time. Bell: Well, you don't have to use them. H.V.Jr: I wouldn't Bell: Guy Emerson is a good man. H.M.Jr: No, I don't want any New York bankers in on this thing. You can't have the money until - you can't own it and lend it both, so you have got to be on one side of the table or the other. Bell: Do you mind if we discuss with them what they have in the files? S.M.Jr: I don't mind your getting what they have, but I mean there is & conflict between the fellows that have the money to lend and the people that have got to borrow it, and I am not going to do what they did in the last one, have the fellows sit in here from the banks and run this show. So, if that is understood, just to go down and get what they have in their files, it is all right, but there isn't a more vicious, anti-Roosevelt man in the United States than Colonel Pope. Bell: This isn't Colonel Pope. It is his brother. (Laughter) H.M.Jr: But I mean there is no more vicious anti-Roose- velt man. 208 - 24 - Bell: I don't know how he stands, but it isn't Colonel Pope. H.M.Jr: You know how I feel about those kind of people. I don't have any objection. Bell: Well, I didn't want to nake any arrangements with them to come down here at all. I just wanted Broughton and Sloan to go to New York and see what Guy Emerson has in his files. He told me that he thought he had the most complete file on the liberty loan campaign because he traveled all over the country and talked to all the Federal Reserve Banks and he helped them work out their systems and arrange their advertising. H.M.Jr: I don't mind this, just as long as it is one-way traffic. If they want to give us something. Bell: It really saves a lot of money in advertising because they got these large firms to give all of their advertising space to liberty loan and at the bottom they would just say the space con- tributed by, say, Sears-Roebuck Company, and it really saved an awful lot of money. White: Mr. Secretary, before final decision is made with respect to the kind of campaign on bonds, I wonder whether there might not be & little discussion. I have, myself, some very serious doubts about the appropriateness of the kind of campaign that was carried on during the Mar for the sale of liberty bonds. I didn't know whether you were making up your nind already or not. H.M.Jr: Kuhn is checking on the various people that I can get down, people like this professor from Amherst, Odegarde, and several other people who can sort of advise me as to what is the best method of approach and study all of this stuff that has been done before, you see. Now, Odegarde 209 - 25 - is a good New Dealer who voted for Roosevelt and so forth and so on, and there are other people like that. I asked, a couple of weeks ago, the Librar- ian, MacLeish, if he could find some Roosevelt Democrat who was in the advertising business and so forth and so on and - I mean I an looking for somebody along those lines. Now, we could 20 to the universities and get 8 couple of people, but before I make any move or anything else, I mut that kind of an angle, Harry, see. That is the way I an going at it. And Kuhn is lining these people up. I an just beginning to get into the thing. I read Broughton's memorandum, and it is & very nice memorandum, but there is nothing in it that would help me. Bell: Well, it is & memorandum of what happened dur- ing the last War. E.M.Dr: That is right. Bell: That is all. We didn't ask him for any sugges- tions. H.V.Jr: Well, I didn't know - yes, I think on the last page there were some suggestions. Bell: Only as to using the present force. S.V.Jr: Yes. Bell: The organization is much better now than it was in '17. lie have an organization that they didn't then. H.M.Jr: Well, let the boys go up and get what they have, but I just want to keep the thing wide open. Bell: I understand that. O.K. S.V.Jr: What else. 210 - 25 - Bell: That is all. H.E.Jr: All right. Thompson: You have been interested for sometime, Mr. Sec- retary, in a plan for staggering pay days. 5.2.Jr: Yes. Thempsont lir. Bell's organization has & draft of legis- lation which would accomplish that. It goes a little beyond that. I didn't know but what you would want to discuss it with-- If Bell says it is all right, it is all right with ne. sell: All it does is sumit to the Bureau of the Budget a proposal for consi deration. It in- volves E five-day week and staggered paydays, and it involves the merchants in town and the bankers and everybody else, and all I want to do is lay it before the Budget and not send it to Congress at this time. Do you approve the five-day week, Dan? Yes, I an approving the five-day week. Attaboy! Fell: I don't see much use of coming down here on Saturday if you work 39 hours the other five days. Then I an in favor of it. I think the Government ought to lead in the general direction of social progress. Fell: Particularly the progress. He saw you wink, Harry. You didn't get Bell that time. O.K., gents. Regraded Unclassified