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79
United States Savings Bonds
Comparison of Present Plan with Plan for Reduced Intermediate Yields
Number of
Yield during remainder
Redemption value
Tield during period held
of 10-year period
sent-
Plan for
Plan for
Plan for
annual
Present
reduced
Present
reduced
Present
reduced
periods
plan
intermediate
plan
intermediate
plan
intermediate
held
yielde
yields
yields
o
$75.00
$75.00
.00%
.00%
2.90%
2.90%
1
75.00
75.00
.00
.00
3.05
3.05
2
76.00
75.50
1.33
.67
3.07
3.15
3
77-00
76.00
1.76
.88
3.10
3.25
&
78.00
76.50
1.97
.99
3.13
3.38
5
79.00
77.00
2.09
1.06
3.17
3.52
6
80.00
78.00
2.16
1.31
3.21
3.58
7
81.00
79.00
2.21
1.49
3.27
3.66
8
82.00
80.00
2.24
1.62
3.34
3.75
9
83.00
81.00
2.26
1.72
3.42
3.87
10
84.00
82.00
2.28
1.79
3.52
4.01
11
85.00
83.00
2.29
1.85
3.64
4.18
12
86.00
84.00
2.29
1.90
3.81
4.41
13
87.00
85.00
2.30
1.93
4.02
4.70
14
88.00
86.00
2.30
1.96
4.31
5.09
15
90.00
87.50
2.45
2.07
4.26
5.41
16
92.00
89.00
2.57
2.15
4.21
5.91
17
94.00
91.00
2.67
2.29
4.17
6.39
18
96.00
93.00
2.76
2.40
4.12
7.39
19
98.00
95.00
2.84
2.50
4.08
10.53
20
100.00
100.00
2.90
2.90
I
-
Treasury Department, Division of Research and Statistics.
Tields are nominal annual rates compounded emiennually.
Regraded Uclassified
2.
80
United States Savings Bonds
Comparison of Proposed 2 and 24 Percent Appreciation Plans
Number of
Redemption value
Yield during remainder
semi-annual
Yield during period held
of 10-year period
periods held
2% plan
24% plan
2% plan
24% plan
2% plan
24% plan
o
$82.00
$80.00
.00%
.00%
1.99%
2.24%
1
82.00
80.00
.00
.00
2.10
2.36
2
82.20
80.20
.24
.25
2.19
2.47
3
82.40
80.40
.32
.33
2.29
2.58
4
82.60
80.80
.36
.50
2.40
2.68
5
83.00
81.20
.49
.60
2.50
2.80
6
83.40
81.80
.57
.74
2.61
2.89
7
84.00
82.40
.69
.85
2.70
3.00
OR
84.60
83.20
.78
.98
2.81
3.09
9
85.40
84.20
.90
1.14
2.89
3.15
10
86.20
85.20
1.00
1.26
2.99
3.23
11
87.20
86.20
1.12
1.36
3.07
3.33
12
88.20
87.20
1.22
1.44
3.16
3.45
13
89.20
88.40
1.30
1.54
3.29
3.55
14
90.40
89.80
1.40
1.66
3.39
3.62
15
91.60
91.20
1.48
1.75
3.54
3.72
16
93.00
92.60
1.58
1.84
3.66
3.88
17
94.40
94.20
1.66
1.93
3.88
4.02
18
96.00
96.00
1.76
2.04
4.12
4.12
19
97.80
97.80
1.86
2.13
4.50
4.50
20
100.00
100.00
1.99
2.24
I
-
Treasury Department, Division of Research and Statistics.
Regraded Uclassified
elds are nominal annual rates compound
United States Savings Bonds
Comparison of Present Plan with Plan for Reduced Intermediate Yields
Number of
Redemution value
Yield during period held
Yield during remainder
of 10-year period
semi-
Plan for
Plan for
Plan for
annual
Present
reduced
Present
reduced
Present
reduced
periods
plan
intermediate
plan
intermediate
plan
intermediate
held
yields
yields
yields
0
$75.00
$75.00
.00%
.00%
2.90%
2.90%
1
75.00
75.00
.00
.00
3.05
3.05
2
76.00
75.50
1.33
.67
3.07
3.15
3
77.00
76.00
1.76
.88
3.10
3.25
4
78.00
76.50
1.97
.99
3.13
3.38
5
79.00
77.00
2.09
1.06
3.17
3.52
6
50.00
78.00
2.16
1.31
3.21
3.58
7
81.00
79.00
2.21
1.49
3.27
3.66
8
82.00
80.00
2.24
1.62
3.34
3.75
9
83.00
51.00
2.26
1.72
3.42
3.87
10
84.00
52.00
2.28
1.79
3.52
4.01
11
85.00
83.00
2.29
1.85
3.64
4.18
12
86.00
84.00
2.29
1.90
3.81
4.41
13
87.00
85.00
2.30
1.93
4.02
4.70
14
88.00
86.00
2.30
1.96
4.31
5.09
15
90.00
87.50
2.45
2.07
4.26
5.41
16
92.00
89.00
2.57
2.15
4.21
5.91
17
94.00
91.00
2.67
2.29
4.17
6.39
18
96.00
93.00
2.76
2.40
4.12
7.39
19
98.00
95.00
2.84
2.50
4.08
10.53
20
100.00
100.00
2.90
2.90
-
-
Treasury Department, Division of Research and Statistics.
Tields are nominal annual rates compounded semiannually.
81
Regraded Uclassified
United States Savings Bonds
Comparison of Proposed 2 and 2% Percent Income Plans
Number of
semi-annual
Redemption value
Yield during period held
Yield during remainder
of 10-year period
periods held
2% plan
21% plan
2% plan
21% plan
2% plan
21% plan
O
$100.00
$100.00
.00%
.00%
2.00%
2.25%
1
99.00
98.90
.00
.05
2.12
2.38
2
98.20
98.00
.20
.25
2.22
2.50
3
97.40
97.20
.27
.39
2.34
2.62
FV
96.80
96.50
.40
.51
2.44
2.74
5
96.20
95.90
.49
.62
2.56
2.86
6
95.80
95.50
.61
.76
2.66
2.97
7
95.40
95.10
.70
.87
2.78
3.09
OR
95.10
94.90
.79
1.00
2.90
3.19
9
95.00
94.80
.91
1.12
2.99
3.29
10
94.90
94.80
1.00
1.24
3.11
3.39
11
94.90
94.90
1.10
1.35
3.23
3.48
12
95.00
95.00
1.19
1.45
3.35
3.60
13
95.30
95.20
1.30
1.55
3.44
14
3.73
95.60
95.60
1.40
1.65
3.56
3.82
15
96.00
96.00
1.49
1.75
3.69
3.95
16
96.50
96.60
1.59
1.85
3.83
4.04
17
97.10
97.20
1.68
1.95
4.01
4.20
18
97.90
98.00
1.78
2.05
4.17
4.31
19
98.80
98.90
1.88
2.15
4.45
4.50
20
100.00
100.00
2.00
2.25
-
-
Treasury Department, Division of Research and Statistics.
Vields are nominal annual rates compounded semiannually.
Regraded Uclas
83
Reen 278
>
Unior Secretary
by. Seese
February 26, 1941
To Presidents, Federal Reserve Banks.
Boston, Mass.
Chicago, Ill.
Burgess - New York, N. Y.
St. Louis, Mo.
Philadelphia, Pa.
Minneapolis, Minn.
Cleveland, Ohio.
Kansas City, No.
Richmond, Va.
Dallas, Texas.
Atlanta, Ga.
San Francisco, Calif.
in mailing you tenight ea propesed savings bead program
of the Treasury. Vould appreciate it if you and your staff would
carefully study this program on Monday and Tessday and let as have
year critisisms and suggestions late Tessday ovening by vire.
il
Regraded Uclassified
84
COPY
February 28, 1941
Dear Mr. Martin:
By direction of the Secretary, I am transmitting herewith
a copy of & memorandum covering a proposed savings bond program
which the Treasury now has under consideration. I would appreciate
it if you and your staff would carefully review this proposed program
and let me have your criticisms and suggestions by wire Tuesday
evening so that we can have them here for study early Wednesday
morning. If it would be helpful to you, you are free to call in any
outside people you may deem advisable for consultation.
Very truly yours,
(s) D. W. Bell
Under Secretary of the Treasury
Mr. William McC. Martin,
President,
Federal Reserve Bank,
St. Louis, Mo.
Same letter sent to all
Presidents of the Federal
Reserve Banks
DWB:ce
Regraded Uclassified
85
Proposed Savings Bond Program
Three series of United States savings bonds are under
consideration for use in connection with the forthooming
savings bond program. Each of these is designed to tap a
different sector of investment demand, and it is proposed
that all three be offered simultansously. The first 1a &
modification of the present form of savings bond, and is
intended primarily for small investors. The other two
are designed primarily for large individual investors and
for banks. limited purchase by institutions other than commercial
The three proposed types are described in more detail
in the remainder of this memorandum.
I. Savings Bond Offered
Primarily for Small Investors
It is proposed that the present type of savings bond
be retained, with one relatively minor modification. The
modification relates to the yield allowed on the bonds if
redeemed prior to maturity. The yield if held to final
maturity would continue to be 2.90 percent. It is pro-
posed, however, that the yields allowed in the event of
intermediate redemption should be reduced substantially.
The proposed reductions are shown in Table I, which 005-
pares the intermediate yields allowed under the present
plan with those proposed for the new series. The primary
purpose of this modification is to build up the yield
during the remainder of the ten-year period if held to
maturity as rapidly as possible. It is this yield (which
is shown in the last column of the table) which determines
the decision of & holder of the bonds whether to redeem
them or hold them to final maturity. It is felt that this
yield should be built up as rapidly as possible, thus pro-
viding & substantial inducement to holders of the bonds to
retain them to final maturity.
It 1s proposed that the limit on the maximum amount
of the bonds of this type which may be purchased by any
one individual in any one year be fixed at $5,000 matu-
rity value, as compared with $10,000 for the presen^ type
of savings bond. Sales would continue to be restricted to
natural persons.
Regraded Uclassified
86
2 - I
II. Savings Bonde Designed
Primarily for Larger Investors
It 18 proposed that two types of savings bonde be of-
fered primarily for larger investore. These bonds would
be eligible for purchase by any class of investor except
commercial banks, and could be purchased up to & total
amount of $50,000 original issue price by any investor in
any one year. This limit could be taken in either type of
bond or divided between the two in any way desired by the
investor, and would be in addition to the $5,000 maturity
value permitted to be purchased of the bond described in
the first section of this memorandum.
One of the proposed new series would be an appreci-
ation-type security similar to the existing savings bonds,
while the other would provide a current income. Both se-
curities would yield & return of approximately 2-1/4 per-
cent if held to final maturity. Their yield for the
period held if redeemed prior to maturity would also be
approximately the same. The two securities are compared
in this respect, and their intermediate redemption values
are shown in Table II. Both types would be redeemable
only on semiannual dates and on-thirty days' written notice,
such notice to be irrevocable when once given.
The appreciation-type security would be the same as
the existing series of savings bonds, except that it would
have an issue price of 80, rather than 75, thereby reduc-
ing the yield to maturity from 2.90 percent to 2.24 per-
cent. The intermediate redemption values would also be
reduced more sharply than is proposed in the case of the
bond described in the first section of the memorandum.
These values would still be generous, however, as compared
with open market yields for corresponding periods.
The income-type of security presente a somewhat more
difficult technical problem. It would bear & current re-
turn at a level rate of 2-1/4 percent per annum, payable
semiannually throughout the period. In order to compen-
sate for the high current return in early years, it has
been considered necessary to reduce the intermediate re-
demption values below the original sales price by an
Amount sufficient to out intermediate yields to the same
Regraded Uclassified
87
- 3 -
level as those on the appreciation-type security. The re-
duced intermediate redemption values thus arrived at would
reach a minimum of $94.80 per $100 of original issue price
after the bond has been held 4-1/2 years.
This scale of intermediate redemption values is that
which would be available to the original purchaser should
he desire to redeem the security prior to maturity. It is
proposed, however, that in the event of the death of the
original purchaser during the ten-year period, his suo-
cessor in interest should have the right for a reasonable
period after the death of the original purchaser to obtain
the full purchase price of the bond, rather than the re-
duced intermediate redemption value named in the instrument.
This provision is proposed primarily in order to make the
securities attractive to life tenant and remainderman
trusts.
Regraded Uclassified
Thole I
United States Savings Bonds
Comparison of Present Plan with Plan for Reduced Intermediate Tields
Number of
Redemption value
Tield during period held
Tield during remainder
of 10-year period
semi-
Plan for
Plan for
Plan for
annual
Present
reduced
Present
reduced
Present
reduced
periods
plan
intermediate
plan
intermediate
plan
intermediate
held
yields
yields
yields
0
$75.00
$75.00
.00%
.00%
2.90%
2.90%
1
75.00
75.00
.00
.00
3.05
3.05
2
76.00
75.50
1.33
.67
3.07
3.15
3
77.00
76.00
1.76
.88
3.10
3.25
4
78.00
76.50
1.97
.99
3.13
3.38
5
79.00
77.00
2.09
1.06
3.17
3.52
6
80.00
78.00
2.16
1.31
3.21
3.58
7
81.00
79.00
2.21
1.49
3.27
3.66
8
82.00
80.00
2.24
1.62
3.34
3.75
9
83.00
81.00
2.26
1.72
3.42
3.87
10
84.00
52.00
2.28
1.79
3.52
4.01
11
85.00
83.00
2.29
1.85
3.64
4.18
12
86.00
84.00
2.29
1.90
3.81
4.41
13
87.00
85.00
2.30
1.93
4.02
4.70
14
88.00
86.00
2.30
1.96
4.31
5.09
15
90.00
87.50
2.45
2.07
4.26
5.41
16
92.00
89.00
2.57
2.15
4.21
5.91
17
94.00
91.00
2.67
2.29
4.17
6.39
18
96.00
93.00
2.76
2.40
4.12
7.39
19
98.00
95.00
2.84
2.50
4.08
10.53
20
100.00
100.00
2.90
2.90
-
-
Treasury Department, Division of Research and Statistics.
Tields are nominal annual rates compounded semiannually.
88
Regraded Uclassified
Comparison of Proposed Appreciation and Income Plane for New
Series of United States Savings Bonds Yielding
2-1/4 Percent if Held to Final Maturity
Number of
Redemption value
Yield during period held
Yield during remainder
semi-annual
of 10-year period
periods held
Appreciation
Income
Appreciation
Income
Appreciation
Income
plan
plan
plan
plan
plan
plan
0
$ 80.00
$100.00
.00%
.00%
2.24%
2.25%
1
80.00
98.90
.00
.05
2.36
2.38
2
80.20
98.00
.25
.25
2.47
2.50
3
80.40
97.20
.33
-39
2.58
2.62
4
80.80
96.50
.50
.51
2.68
2.74
5
81.20
95.90
.60
.62
2.80
2.86
6
81.80
95.50
.74
.76
2.89
2.97
7
82.40
95.10
.85
.87
3.00
3.09
8
83.20
94.90
.98
1.00
3.09
3.19
9
84.20
94.80
1.14
1.12
3.15
3.29
10
85.20
94.80
1.26
1.24
3.23
3.39
11
86.20
94.90
1.36
1.35
3.33
3.48
12
87.20
95.00
1.44
1.45
3.45
3.60
13
88.40
95.20
1.54
1.55
3.55
14
89.80
95.60
1.66
3.73
1.65
3.62
3.82
15
91.20
96.00
1.75
1.75
3.72
3.95
16
92.60
96.60
1.84
1.85
3.88
4.04
17
94.20
97.20
1.93
1.95
4.02
4.20
18
96.00
98.00
2.04
2.05
4.12
4.31
19
97.80
98.90
2.13
2.15
4.50
4.50
20
100.00
100.00
2.24
2.25
-
-
Treasury Department, Division of Research and Statistics.
89
Yields are nominal annual rates compounded semiannually.
Regraded Uclas
90
February 28, 1941
11:16 a.m.
H.M.Jr:
Hello.
Operator:
Mr. Harriman 18 expected back about 11:30
or quarter of 12:00.
H.M.Jr:
Well, is there anybody there in his office?
Operator:
I'll see. (Pause). I have his secretary.
H.M.Jr:
Hello.
Robt. P.
Meiklejohn:
This 1e Mr. Meiklejohn, Mr. Harriman's
assistant. Can I help you?
H.M.Jr:
Yes. This 18 Mr. Morgenthau. Will you tell
Mr. Harriman that I've been thinking over very
carefully his request to let him have some of
my statisticians to go with him to London and
in view of the shape this whole thing is taking
in the last few days, I think that the Treasury
should contract its activities with regard to
that sort of thing rather than expand, and I
wish Mr. Harriman would see if he can't t get
somebody from the Statistical Section of O.P.M.
rather than the Treasury.
M:
All right. I'll tell him that.
H.M.Jr:
Because I want to contract our activities
rather than expand.
M:
I'll tell him that.
H.M.Jr:
Thank you.
M:
You're welcome.
Regraded Uclassified
3/1/41
91 :
HM JR took this to the White House
with him today at 11:30.
92
February 28, 1941.
Dear Mr. President:
The Coast Cuard vessels which seam most suitable
for convoy work are the ten outters of the 250-foot class
built between 1928 and 1932. The names of the vessels
and the years in which they were completed are:
CHELAN
- 1028
ITASCA - 1930
P INTCHARTRAIN - 1928
SARANAC - 1930
TAKOE
- 1928
SEBAGO - 1930
CHAMPLAIN
- 1929
SHOSHONE - 1930
MENDOTA
- 1929
CAYUGA - 1932
The over-all length of each is 250 feet, molded
beam 42 feet, maximum draft 16 foot, displacement 1,979
tons, speed 16 knots. The gross tonnage of the first
five is 1,632 and of the later five, because of minor
changes in power plants and internal arrangement, la
1,573. All are oil-burning turbo-electric. The first
five develop 3,000 horsepower and the later five 3,200.
With the exception of one, the SHOSHONE, all of
the vessels are now on the east coast and all are in such
condition as to hull and machinery that they could be
turned over immadiately. Consideration has to be given,
however, to the areament and other equipment they would
need for convoy service. Although & program of arming
and equipping all ten for service with our Navy has been
in progress, It scons far from certain that this equip-
ment will meet British needs and it seems probable also,
in view of the history of the destroyers turned over to
the British, that some structural changes will be desired.
This work could probably best be done In American yards.
We have consulted the Navy Department on this
point and the Embassy has asked advice from London. The
time when the ten cutters can be turned over for actual
Regraded Uclassified
93
- 2 -
convey work will of course depend upon the extent of the
changes and additions desired sad the speed with which
DE can get the work done.
The transfer of these ten vessels means the loss
of about half the fleet of cruising outters end the pro-
gram of work laid out for the year will of course have to
be drastically revised. Among cutters of the large sea-
going class there will remain seven of the now 327-foot
type and four 240-foot ships that are now twenty years
old. of the seven 327-footers one, the CAMPBELL, is now
on Savy service In Portugal.
The following steps appear to be necessary to
adjust this year's program to the equipment available:
(a) International Ice Patrol - The recommendation
is renewed that the International Tes Patrol be abandoned
for this year. Such patrol of the Grand Banks area as may
be necessary from time to time mould be carried out to the
extent that vessels are available. If the regular Inter-
national Ice Patrol is continued it will have to be done
with vessels of the 125-foot class, which are 111 suited
for this work.
(b) Greenland Patrol - This patrol can be made by
the Arctic cutter NORTHLAND, the 165-foot ice breaking
cutter COMANCHE, and a vessel of the 240-foot class. Efforts
are being made to obtain the BEAR OF OAKLAND from Admiral
Byrd for Greenland duty, upon the return of that vessel from
the Antarotic, about May 1. This is not quite as extensive
patrol of Greenland as had been planned for the coming sug-
mer, but it may be sufficient.
(c) Atlantic Weather Stations - To maintain a two-
station patrol In the North ADENTO will require five
vessels of the 327-foot class. This will be 8 full-time
duty for these five vessels, and they could not be diverted
for other use. Strong representations have been made by
the British Government, the State Department, the Weather
Bureau, and the Civil Aeronautics Administration to maintain
Regraded Uclassified
HA
- 8 -
a third station on this Atlantic Weather Patrol, which
moulo require at least two more vessels. These are not
available. It is recommended that Immediate stops be
taken to obtain and equip seven merchant vessels for this
duty. There appears to be no doubt but that all of the
327-foot outters will shortly be needed for more important
duty. It ought to be possible to obtain for this work
seven of the Danish ships now tied up in our ports. If
the bare boats could be chartered they could be manned by
Coast Quard crows.
(d) Cadet Practice Cruise - No vessels whatever,
of suitable type, are now available for the Cadet Practice
Cruise, during the coming summer. This crulse is & very
important part of a. cadet's training. It is urgently
recommended that immediate action be taken to obtain the
Danish training ship DANMARK, now immobilised at Jackson-
ville, Florida. Prellminary negotiations have been under-
taken through the State Department.
(a) Bering Sea Fatrol - Two of the 250-foot outters
were scheduled for Bering Sea Patrol during the coming
suster. The Coast Guard has no replacements for these
vensels and, consequently, the activities of the Cosst
Guard in the Bering Sea will need to be somewhat curtailed
this coming summer. The patrol will have to be made entirely
by small craft, with the exception of the HAIDA (240-foot
class).
(f) Cruise to American Colonies Southwest of Honolulu -
The TANEY (327-foot class) makes periodic cruises to the
colonies established on Baker, Howland, and Jarvis Islands,
and is the only vessel available for this duty. This duty
can be continued only " long as the TANEY remains available
for Coast Guard activities.
(E) General Duties - Many other duties of the Coast
Guard - such as: neutrality patrol, law enforcement, assist-
ance to vessels in distross, towing of vessels for the
Maritime Commission, and other emergency taske, will have
Regraded Uclassified
95
to be ourtailed.
For some time we have felt the need of additional
and better equipment to take care adequately of lee con-
ditions on our Bastern coast, in the rivers, the Great
Lakes and on the Alaskan coast. We lack also vessels
entirely suitable for coping with ice conditions in the
harbors of Newfoundland and Greenland and Iceland; nor
do Canada or Great Britain have sultable vessels for this
purpose, which may continue for some time to come to be
of great importance.
The replacement of the ten cutters to be trans-
ferred will give us an opportunity to remody this lack.
As a part of our National defense needs it would seem
prudent to equip the Coast Guard with ships specially
constructed to overcome difficult ise conditions wherever
they are called upon to perform service.
I an therefore suggesting & program for the con-
struction of ten dual purpose ships at an estimated cost
of $22,500,000 ($2,250,000 each), and respectfully ask
your permission to submit & deficiency estimate in that
amount. These would be combination loe-breakers and
cruising cutters, 250 feet in over-all length and approxi-
mately 42 feet beam, similar to the ten outters to be
transferred except that the bow characteristics would be
materially different and the vessels would be more steunchly
constructed, in order to break ice and to penetrate ice-
fields. Perhaps a half-knot of speed (of the 16 knots of
the present cutters) would be sacrificed for more rugged
construction and better ice-breaking qualities. In addition
to their value for working through 100 the vessels would
also have all necessary useful qualities for towing, render-
ing assistance at sea and other varied Coast Guard work.
To summarise, the program I desire to suggest for
your approval is as follows:
(1) Submit deficiency estimates In the amount of
$22,500,000 for ten dual-purpose cutters.
Regraded Uclassified
mix. 96
- 5 -
(2) Undertake negotiations to obtain and equip
seven merchant ships for weather patrol
purposes, to be manned by Coast Guard crews.
(3) Negotiate for the purchase of the Danish
training vessel DANMARK for Coast Guard
cadet training.
Faithfully,
Secretary of the Treasury.
The President,
The White House.
Regraded Uclassified
97
- THE U.S. court NMD
MD - to -
CR-21
TREASURY DEPARTMENT
311
46
UNITED STATES COAST GUARD
RESTRICTED
HEADQUARTERS
SECRET
WASHINGTON
27 February, 1941
MEMORANDUM FOR SECRETARY OF THE TREASURY:
Subject:
250-foot Class Coast Guard Cutters; rearmament
conversion; estimated completion dates
Inclosure: 1. Schedule of 250-foot Class Rearmament Con-
version; equipment required for Completion
1. The subject class of Coast Guard outters now in
the process of being converted to Gunboats (XPG) for national
defense under general specifications prepared by the Navy
Department includes the following vessels permanently eta-
tioned at the ports noted:
CAYUGA
Boston, Massachusetts
CHAMPLAIN
Stapleton, Staten Island, New York
CHELAN
Boston, Massachusette
ITASCA
San Diego, California
MENDOTA
Norfolk, Virginia
PONTCHARTRAIN
Stapleton, Staten Island, New York
SARANAC
Galveston, Texas
SEBAGO
Norfolk, Virginia
SHOSHONE
Alameda, California
TAHOE
New Bedford, Massachusetts
2. In general, the rearmament of vessels of this
class provides for the following ordnance equipment and re-
lated alterations and modifications:
Install two 5"/51 Cal. guns
Install three 3"/50 Cal. antiaircraft guns
Install four .50 Cal. antiaircraft machine guns
Install one Y-gun with six depth charges
Install two 5-charged depth charge tracks
Install echo ranging equipment (underwater listening device)
Provide signalling searchlights
Provide two 24" high intensity searchlights
Install altimeter range finder and 21 meter range finders
Install fire control telephone systems
Provide magnetic mine protection
Modify magazines for war-time ammunition allowance
Revise accommodations and facilities to provide for 150
enlisted men and 12 officers
Regraded Uclassified
98
CR-21-311-46-RESTRICTED
Memorandum for Secretary of Treasury
27 February, 1941
Provide chemical warfare defense equipment
Furnish steel helmets
Install various alarms, light dimming and control switches
Provide electric lanterns
3. The first phase of the conversion of vessels of
this class has been completed on all vessele except the
SHOSHONE and B. schedule has been prepared for their return
to various shipyards and Navy yards beginning 1 March, 1941,
at which time all equipment which has been accumulated since
completing the first part of the work will be installed and
every effort made to finish the conversions to the extent
available material and equipment will permit. Items such
as, range finders, searchlights, .50 Cal. machine guns, B
limited number of 3"/50 Cal. A.A. guns and hydraulic depth
charge controls have been ordered since early in the con-
version program, but excessive delay has occurred in their
deliveries, and in the case of several items, deliveries are
not anticipated during the forthcoming visits of the vessels
to the shipyards. This delay is due to the length of time
required for the manufacture of the fire control and ordnance
equipment and also to the deferred priority assigned the
Coast Guard in the receipt of defense material and equipment.
In the case of four of the outters, the MENDOTA, PONTCHARTRAIN,
SARANAC and TAHOE, scheduled to proceed to the Navy Yard, New
York, for conversion completions, the lack of equipment was
brought to the attention of the Navy Department, and I an
advised that department has arranged to furnish the missing
items of equipment which will permit approximately 100 per
cent completion of the conversion work.
4. Satisfactory completion of the remaining six vea-
sele of the class ie dependent on the receipt of the items of
equipment mentioned above, deliveries of which have been sub-
ject to extraordinary delay. The only possibility which
would allow these six vessels to be completed during the
proposed overhaul period would be the Navy Department sup-
plying the wissing equipments by granting earlier priority
to equipment now under manufacture or diverting that now de-
livered and earmarked for Navel units under construction or
conversion.
5.
The present schedule for the return of vessels of
the 250-foot Class for conversion completions 1a:
CAYUGA
17 March - 15 April - Navy Yard, Boston
CHAMPLAIN
1 - 21 March - Coast Guard Depot
- 2 -
Regraded Uclassified
99
CR-21-311-46-RESTRICTED
Memorandum for Secretary of Treasury
27 February, 1941
CHELAN
15 - 30 March - Coast Guard Depot
ITASCA
21 January to 11 March - Coast Guard Depot
MENDOTA
15 - 31 March - Navy Yard, New York
PONTCHARTRAIN
1 - 31 March - Navy Yard, New York
SARANAC
3 - 31 March - Navy Yard, New York
SEBAGO
1 - 21 May - Coast Guard Depot
SHOSHONE
25 March - 25 May - Coast Guard Depot
TAHOE
15 - 31 March - Navy Yard, New York
6. To expedite the completion of the conversion on
the ten vessels of the 250-foot Class, the following alternate
schedule 1s recommended providing the work on the vessels can
be given priority at the Boston and New York Navy yards. Four
of the vessels, the MENDOTA, PONTCHARTRAIN, BARANAC and TAHOE,
as noted above, are scheduled to proceed to the Navy Yard, New
York, during March, and preliminary work in connection with
their completion has been initiated and no change in this
schedule 1s recommended. As noted above, the missing equip-
ment for these four vessels will be furnished by the Navy De-
partment and their requirements are not included in the tabu-
lation inclosed which liste the material and equipment required
to permit completion of the remaining six vessels of the class.
The modified schedule which will provide for completion of the
conversione on all vessels of the class by 15 April, 1941, 1s
as follows:
CAYUGA
17 March - 15 April - Navy Yard, Boston
CHELAN
15 March - 15 April - Navy Yard, Boston
CHAMPLAIN
1 - 21 March - Coast Guard Depot
ITASCA
21 January - 11 March - Coast Guard Depot
SEBAGO
24 March - 15 April - Coast Guard Depot
SHOSHONE
15 March - 15 April - Coast Guard Depot
MENDOTA
15 - 31 March - Navy Yard, New York
PONTCHARTRAIN
1 - 31 March - Navy Yard, New York
SARANAC
3 - 31 March - Navy Yard, New York
TAHOE
15 - 31 March - Navy Yard, New York
7.
It 1s urgently recommended that it be arranged by
the Navy Department to furnish either by granting higher priorities
or diverting from vessels now under construction or conversion 7
3"/50 Cal. antiaircraft gune, 24 .50 Cal. machine guns, 12 24"
high intensity searchlights, six 2% meter range finders, 12 hydrau-
lio depth charge release controls, 300 sound powered telephone
Jack boxes and 150 sound powered telephone plugs for installation
on the six vessels of the 250-foot Class for which previous ar-
rangements to obtain this equipment have not been completed.
R. R. WAESCHE
- 3 - Commandant
Regraded Uclassified
100
se/c
MEMORANDUM TO THE PRESIDENT
There has been an amendment proposed
to H.R. 1776 by Senators Taft and Byrd which
Senator Byrnes has indicated he is willing to
accept in substance. Its implications are 80
serious we think it ought to be called to your
attention.
This amendment provides that no defense
articles procured out of appropriations made to
the War and Navy Departments after the effective
date of H.R. 1776 can be transferred under the
bill without the consent of Congress.
This amendment would seriously cripple
the contemplated operations under the bill. It
would make it impossible effectively to carry out
a joint procurement program. It would mean practically
that We would have to have a separate Army, Navy and
foreign aid program. It would also take away the
flexibility that is necessary in disposing of defense
articles.
Regraded Uclassified
101
- 2 -
We have felt justified in bringing this
to your attention because no amendment to which
administration Senators have been receptive cuts
so close to the heart of the bill.
Do you have any suggestions for us?
Henry L Stinson
Secretary of War
Herry Mayonthan Ir.
Secretary of the Treasury
Forestal
Acting Secretary of the Navy
February 28, 1941
Regraded Uclassified
102
February 28, 1941
My dear Mr. Smith:
For your information, I am send-
ing you copy of a memorandum signed by
Secretaries Stimson, Forrestal and myself,
which was transmitted to the President to-
day.
Yours sincerely,
(Signed) 1 Mangenthan, st.
Honorable Harold D. Smith,
Director of the Budget.
Rv Measons 241
Regraded Uclassified
103
February 28, 1941
Ity dear Harry:
For your information, I am send-
ing you copy of a memorandum signed by
Secretaries Stimson, Forrestal and myself,
which was transmitted to the President to-
day.
Yours sincerely,
(Signed) E Mongesthau, Jr.
Honorable Harry Hopkins,
The White House.
By Measenger 241
Regraded Uclassified
104
February 28, 1941
My dear Mr. Secretary:
For your files, I am sending you
& copy of the memorandum which we
sent to the President today.
Sincerely yours,
(Signed) E. Morgenthan, &
Honorable Henry L. Stimson,
Secretary of War,
Washington, D.C.
By Momenager 241
Regraded Uclassified
105
February 28, 1941
My dear Mr. Forrestal:
For your files, I am sending you
a copy of the memorandum which we
sent to the President today.
Yours sincerely,
(Signed) E. Mergenthau, Jr.
Honorable James Forrestal,
Under Secretary of the Navy,
Navy Department,
Washington, D.C.
By Memenager 2ᵗʰ
Regraded Uclassified
106
TTH CONGRESS
1st SESSION
H. R. 1776
IN THE SENATE OF THE UNITED STATES
FEBRUARY 26 (legislative day, FEBRUARY 13), 1941
Ordered to lie on the table and to be printed
AMENDMENT
Intended to be proposed by Mr. BYRD to the bill (H. R. 1776)
further to promote the defense of the United States, and
for other purposes, viz:
1
On page 3, line 10, after the period, insert the follow-
2 ing new sentence: "Defense articles procured from funds
3 hereafter appropriated shall not be disposed of in any way
4 under authority of this paragraph except to the extent
5 hereafter specifically authorized by the Congress in the Acts
6 appropriating such funds or otherwise."
2-26-41-A
107
February M. 1941
Under Secretary Boll
Mr. Cechran
40 11:30 this morning Mr. Mazwell Namilton, Chief of the Far Nastern Division
of the Department of State, telephoned se to ask for an appointment for his
Mr. Jenes, to present a nenerandum to the Treasury Department setting forth State
Department views on the Chinese stabilization arrangement. I explained to Mr. Kanilton
that pressure of financing had prevented the Treasury from calling any joint meeting
is this question the past two or three days, but that w hoped to get on 10 again 1002.
b. Familton stressed the urgency of the matter insefar as the Department of State Vid
conserned.
At 2140 this afternoon I received Mr. James, who handed to se the atteshed
informal neuorandum. No said that this had been cleared with the appropriate efficials
is the Department of State, including Secretary Ball.
I reminded Mr. Jenes of our conversation come days age with Dr. Seeng
and let his know that the British Treasury people had provided us with a copy of a
Acorgo cost free Lendon to Cheagking, but that ve had received since that meeting
9 other documents which night have served as & basis for the remarks which Dr. Seong
mis from a pencil monorandum. Mr. Jenes confirmed that he likevise had received
nothing other then the Lendon-Chungking tolegram which had been handed to W. I -
unsertain, therefore, whether the message from Lendon which Phillips had used as a
basic for his to the Treasury had also served as the basic of Dr. Seorg's
or whether some later message is invelved. Ve should clarify this with
the British when they next meet with M.
HNC:dM:2.28.41
Regraded Uclassified
COPY
108
February 12, 1941
INFORMAL MEMORANDUM IN REGARD TO
THE CURRENCY SITUATION
IN CHINA
Officers of the Department understand that Sir
Frederick Phillips has presented to the Treasury De-
partment on behalf of the British Government a plan for
dealing with the Chinese currency situation which, if
accepted, would serve as B. substitute for the draft
agreement which has been tentatively worked out between
the Treasury and Mr. T. V. Soong in Washington. The
draft as agreed upon between the Treasury Department
and Mr. Soong provides certain procedures whereby this
Government would aid the Chinese Government in stabiliz-
ing the exchange value of the Chinese yuan with respect
to the United States dollar and other foreign currencies,
procedures which allow a continuation of the present
policy of maintaining a free market for Chinese cur-
rency. Conversations which have thus far been had with
Mr. Soong have assumed that a free market for Chinese
currency would be continued.
According to our understanding of the matter, the
British plan to conclude at an early date a payments agree-
ment between the British Empire and Japan and between the
British Empire and China. These two steps would result in
the disappearance of the free market for sterling in China.
We
Regraded Uclassified
109
- 2 -
We understand that the British plan calls further for the
establishment of external exchange control by the Chinese
Government, the freezing of Chinese balances in the British
Empire and in the United States, and the operation of ex-
change controls in the British Empire and in the United
States to the advantage of the Chinese National Government,
1.e., the Government of the United States and the govern-
ments of the various areas of the British Empire would
provide that exchange accruing from current Chinese exports
from occupied areas must be turned over to the Chinese
National Government if the commodities concerned are to
be accepted in the British Emmire or in the United States.
The British Empire and the United States would therefore
be helping China enforce exchange control in the occupied
areas. The free market for Chinese currency would, of
course, largely disappear and presumably the Chinese
National Government would fix an exchange rate for future
transactions.
There is reason to believe that if the preceding
measures were taken, the following developments would have
to be taken into account:
(1) The Japanese would probably decline to allow
exchange accruing from exports from Shanghai and
Tientsin
Regraded Uclassified
110
- 3 -
Tientsin and other occupied ports to be made available
to the Chinese National Government. There is little
doubt that they would promptly declare the currency of
the Chinese National Government invalid in the occupied
areas and substitute the currency of their own puppet
banks therefor, instituting at the same time full ex-
port and import control providing that no exports could
take place until the exchange involved should accrue to
the puppet banks. The result of conflicting Japanese
and British policies would be a stalemate in which
trade between the occupied areas and countries other
than Japan would be cut off, except for the export and
import trade with occupied Chine which would probably be
carried on through Japan, and the occupied areas would
be thrown largely upon Japan for both imports and exports.
Any hope, therefore, that the Chinese Government would
under the British plan derive foreign exchange from the
trade of the occupied areas would seem to be wholly 11-
lusory. Moreover, the Japaness could argue with con-
siderable reason, if the foregoing should transpire,
that China, Great Britain, and the United States had
destroyed the free market for China's currency and that
they had no alternative but to put their own currency
and trade measures into
operation.
Regraded Uclassified
111
4
operation. The adverse effect of these developments
not only on Shanghai but on the large guerrilla-controlled
hinterland and upon the resistance to Japanese policies
which is maintained in those areas would probably be
great. The circulation of the Chinese currency through-
out China, including the occupied areas, tends to cause
the Chinese to continue to regard Chungking as their
legitimate government, and is therefore an important
unifying factor.
(2) Perhaps the most important immediate effect to
the United States of putting the British plan into ef-
fect would be that the large quantities of Chinese Na-
tional currency at present circulating end hoarded at
Shanghai and in the central and north China hinterland
emounting to between three or four billion yuan or more
would be pushed back into the interior where the Chi-
nese National Government is endeavoring at the present
time to prevent a runaway inflation. Either the owners
of Chinese National currency would take that currency
from Shanghai into the interior or the Japanese would
collect it, in exchange for puppet currencies, and
smuggle it into the interior. The result of a great
addition of the circulating medium in free China, where
investment opportunities for private capital are meager,
would be probably to cause inflationary forces operating
there
Regraded Uclassified
112
- 5 -
there to get out of hand and thereby underwine the all-
thority of the Chinese National Government,
Both this Government and the British Government are
concerned that the strength end authority of the Chinese
National Government be maintained. We feel that the no-
ceptance of the British plan would not be in accord with
that general policy. If the preceding developments took
place they would appear to be working in the opposite
direction. This Government is carrying out as a measure
of self-defense a. broad policy of aid to countries resist-
ing aggression and, as part of that policy, recently an-
nounced the extension of a loan of $100,000,000 to the
Chinese Government. Shortly after that announcement, the
British Government announced that it was similarly making
a. large sum available to the Chinese Government, partly
for currency stabilization purposes and partly for in-
creased purchases within the British Empire. The effect
of the proposed British plan would seem to be not only not
to make a material contribution to the support of the Chi-
nese currency, but to make difficult American efforts to
support that currency. Should the British Government pro-
ceed to negotiate a payments agreement with China, the
inability of China to sell her surplus of sterling in the
open market and to obtain therefor gold dollars would exert
additional pressure on the Chinese currency.
It
Regraded Uclassified
113
- 6 -
It would 000m to be preferable as a matter of
policy to keep the situation in China on as even e keel
as possible during the coming months and to avoid, if
possible, drastic measure, exfecting China's economy.
If China can be tided over during the next few months a
new and more hopeful situation may present itself. It
would seem to be useful to have a plan such as the
British have in mind thoroughly discussed and worked
out as between the British and ourselves as a necessary
emergency measure to be put into operation if the Japa-
nese seize Shanghai and establish full trade and ex-
change controls or if the further maintenance of a free
market for the Chinese currency should otherwise seem
to be completely untenable. However, it is suggested
that it is highly desirable to continue for a while
longer the policy which this Government and the British
Government have followed since the beginning of hostili-
ties in the Far East, namely. that of holding our ground
as long as possible and of retreating only when obliged
to do BO. Such a course of action may require & greater
expenditure of funds but in our opinion the returns for
that expenditure would be substantial.
copy:kma
2/28/41
114
TREASURY DEPARTMENT
with
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO Secretary Morgenthau
FROM Mr. Cochran
At 11:45 on February 21 Mr. Dave Schenker of Securities and Exchange telephoned
SF. He said that Mr. Quian, representing an investment trust group in New Tork
which had been in touch with S. B. C., had heard rumers that the British were nago-
tisting directly with various firms "on the Street" in regard to sale of direct
investments in this country. He wanted to know how 8. E. C. should & about effect-
ing liaison between Quinn and Sir Edward Peaceck.
I told Mr. Schenker that I could only renew the advice which I had given his
office after & personal conversation with Sir Edward Peacock, assely, that all parties
applying to our Government offices here in Washington for information about or con-
lact with Sir Edward Peaceck's office and his functions should be referred directly to
his at 15 Broad Street, New York, is care of the British Purchasing Commission.
Schenker said that he reaclled this nessage from me, but that Quian seemed hesitant
is taking such & forward stop. I assured Mr. Schenker that Sir Mward's reports of
vallers and their efforts to interest his in their propositions indicated no excessive
solesty an the part of New York speraters, and again told him the Treasury vas
infinitely following the policy suggested by Peacock, without making any exceptions
in behalf of special pleaders.
When Mr. White and I were with the Secretary on February 24 I mentioned the
stove conversation. Mr. White stated that Mr. Schenker had spoken with his on the
and was sending over a nemorandum to the Secretary indicating the people who
W been in touch with him conserning British direct investments, and asking advice
la the premisss. The Secretary took the position that the policy of referring every-
use directly to Sir Edward Peacock should be followed by the S. 1. C. as well as by
the Treasury, and that there should not be any comfusing of this pelicy through
8. 1. c. approaching more than one efficer in the Treasury. The Secretary said he wanted
this handled through no. At the Steff meeting of February 25 the Secretary reminded
the group that he desired that Mr. Young be his contact with the British Purchasing
Commission and that I be the contact with the British When he asked whether
any of the other officers had direct contact with the Embasay, Nessre. Gaston and
Pable stated that they sometimes saw Stepford. I remarked that this had been agreed
un, since Stopford dealt with certain shipping matters which Mr. Gasten comtrolled.
at occasionally went on to ... Mr. Pehle on Foreign Funds matters after he had filed
de nemoranda on this subject with no.
H.M.R.
Regraded Uclassified
115
February 28, 1941
11:45 a.m.
H.M.Jr:
Hello.
Operator:
Mr. Schenker.
David
Schenker:
Hello, Mr. Secretary.
H.M.Jr:
Hello.
S:
I'm sorry to bother you but Mr. Quinn has
come to Washington and my phone literally has
been ringing innumerable times every day with
respect to that British ai tuation.
H.M.Jr:
I'm going to be available at 3:00.
S:
Well, may we come over for 5 minutes?
H.M.Jr:
Who is we?
S:
Just Frank Quinn and myself.
H.M.Jr:
Sure.
S:
Fine.
Thank you.
116
February 28, 1941
11:50 a.m.
RE AID TO BRITAIN
Present:
Mr. Gaston
Admiral Waesche
Mrs. Klotz
Gaston:
Mrs. Herbert is typing the last few lines of
a letter to the President for your signature.
H.M.Jr:
What do I do, read this?
Gaston:
There is & memorandum that was really prepared
before the discussion with the Navy Department
on the status of these cutters.
H.M.Jr:
Should I read this? Have you got a copy of
this?
Gaston:
No, I haven't a copy of that.
Waesche:
I don't think it is necessary for you to read
that, Mr. Secretary. I can just tell you in
a very few words what it contains.
H.M.Jr:
Please.
Waesche:
That simply gives you the present state of
conversion of these ships for Navy use, and it
runs all the way from the Shoshone, which hasn't
been touched, to one of the other vessels,
which is almost completed. Under the present
plans, the Navy of course have not given pri-
ority to all of those ships. They have been
Regraded Uclassified
117
- 2 -
given priority before which they expect to
use on the ones in the Caribbean Sea. In the
present setup those ships would not be ready
until April or May with those particular type
of guns. When I took it up with the Navy
yesterday, there was no question in their
mind that the British would not want that arma-
ment, and they simply said, "We are not going
to send these guns over on these ships for the
British to take off and use them for something
else." They were very positive those were not
the guns which the British would use. Then
we cabled London yesterday to find out what
armament the British would want on these ships,
so that practically scraps that whole conver-
sion program. As far as the material already
in the ships are concerned, the machinery and
the hull are in the pink of condition, all ten
of them, and it is only a question now of find-
out what the British want put on there, and as
soon as we get that word, the Navy have told
me they would give me an estimated date--
H.M.Jr:
Let me interruptyou. I hope you didn't con-
sider just the armament. Let me tell you what
happened in the case of the destroyers. My
informant is the President of the United
States. One of the many reason why there was
such delay in putting these destroyers in the
service, I understand they have four boilers
each, and the English took one boiler out in
order to make room for more full capacity.
They said they could get along with less speed,
but they wanted them to stay out longer. And
then on the bridge of our destroyers, it is
covered with steel, and they find that they
have lost more men from broken necks because
when they dropped these bombs the concussion
throws the men up, and they hit their heads
on the top of these steel roofs, and they
break their necks. Furthermore, they want to
Regraded Uclassified
118
- 3 -
be able to see the planes when they come.
Therefore, they removed the top of all these
bridges. Now, the point of the story is,
the bridge is open, there is no protection,
80 - if we are going to do this thing so they
will be able to use them this spring, the
English ought to be able to see them or have
a plan of them and say, "To put them into
service, this is what we need. So when they
leave and are delivered up to Halifax, these
things are in the condition they want, not
just as to guns, but everything. So if you
could - if you didn't make it all inclusive,
I would ask the British - - here is the type of
ship we are thinking of letting them have under
the Lend-Lease. "What would you want done to
this ship 80 that when it is delivered to Hali-
fax, the next day it goes into service with the
first convoy that goes out," you see.
Waesche:
Yes, sir.
H.M.Jr:
Or if this ship is of no use, all right. Now,
I should think one of the things which would
help them would be, if you haven't got a man
in Halifax, send one up there and let him take
a look at these ones the Canadians are building,
how are they equipped.
These new Corvettes which they are building -
but it would be better, I think, to let the
British say, "Here, now this is fine and wonder-
ful, but we want the following things done to
these ships before we can use them under our
ideas." There is no use arguing with them.
Unless they were in condition so that they can
be used this spring, I would lose most of my
interest. Now, is that plain what I am saying?
Waesche:
Yes, sir.
Regraded Uclassified
119
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Gaston:
Of course the ships themselves can all be
delivered right now.
H.M.Jr:
I know, Herbert, but if you send them over to
England and they go through the thing, it is
another three months, and the whole idea is
lost, but if they have - as I understand it,
these convoys go over of from 40 to 60 ships,
and they are having one, two, or three destroy-
ers, that is all, for the whole thing. I mean,
and that is why they are losing so many. They
only have, I understand, sometimes as few as
two. Have you heard that?
Waesche:
Yes, yesterday. sir, I have. I was talking to the Navy
H.M.Jr:
Am I right?
Waesche:
Yes, sir, and also they were saying - they
talked about those convoys over there yesterday.
They were saying that the guns that we have on
these ships would not stop those German planes,
that they usually report those German bombers
come down there and shoot over those convoys
about two hundred feet up in the air and one
bomb to each merchant ship.
H.M.Jr:
But the point I am getting at is, from their
daily experience there are undoubtedly things
that they want. We can do those things very,
very rapidly here, 80 that they get them in
the spring, and I don't want them to leave
here and have them lie over in some port in
England for three months.
Waesche:
The only question in my mind is, of course,
whether the Navy is to make these arrangements
with the British by putting the Navy in there,
Regraded Uclassified
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- 5 -
which, of course, I think it is 8. Navy job,
but I am not in a position to go over and tell
the Navy I want them to do this, that, and the
other thing.
H.M.Jr:
Well, I am, and so is the President. Don't
hesitate about that. I will drive it home.
Waesche:
To my mind, just as you say, there should be
somebody from the British authorities who knows
what they want come down here with the Navy and
Coast Guard and say, "Here is the ship. Now
what do you want done to it?"
Gaston:
Yes. The final thing is to find out what the
British want done.
H.M.Jr:
They have got the people here.
Make a note, Herbert, please, gross tonnage of
the earlier five, I would like to have you give
the date of when those are available. The
meeting is tomorrow morning. I just got word.
Gaston:
Twenty-eight and twenty-nine the first five,
and thirty-one and thirty-two the second five.
H.M.Jr:
Now, if you don't mind, I would change this
letter. It isn't what I want. I would simply
put in here, "We have asked the Navy to ascer-
tain from the British what will be necessary
to convert these ships so that they would be
ready to be put to the use that they want and
depending upon what we hear from the British
and depending upon the speed with which the
Navy will make it available, we are unable to
tell you, you see.
Gaston:
Yes.
H.M.Jr:
In other words, there are two factors, one,
Regraded Uclassified
121
- 6 -
how quickly the British can get them; and, two,
how quickly our own Navy can act on them.
Gaston:
That is just listing what is being done now,
and then I say in the last paragraph--
H.M.Jr:
I think it is confusing, if you don't mind,
all that stuff may come off.
Gaston:
Yes.
H.M.Jr:
I would simply, after the first paragraph, in-
troduce a new paragraph in place of this one.
Gaston:
The second paragraph there is descriptive of the
boats, I think.
H.M.Jr:
No.
Gaston:
Isn't it?
H.M.Jr:
No. I would cut this out because what we are
doing now may be of no use to the British.
Gaston:
Yes, we realize that.
H.M.Jr:
So I would just say with the exception of one -
then I would say we are asking the English and
when we hear from that, We will put it up to
the Navy and it will depend on how quickly the
Navy will do it. We can then tell you.
Gaston:
It is really the Navy that has asked the British.
H.M.Jr:
Well, say 80.
Gaston:
Yes.
H.M.Jr:
You say they could probably all be completed by
March 15.
Gaston:
That was the old changes.
122
- 7 -
H.M.Jr:
Well, you have got this time limit here.
Gaston:
Yes.
H.M.Jr:
I just think you could say, with the exception
of one, they are all on the West Coast; and
then, however, we do not know what armament
the British will desire, and the Navy Depart-
ment has asked and 80 forth. Time of delivery
would therefore depend on that. Now, if you
will fix that up and get it back to me this
afternoon.
Gaston:
Yes. Now, we have--
H.M.Jr:
Now, there should be a companion letter which
would go with it - oh, I think I would put it
on the same thing. "Now, Mr. President, if we
do this, the Coast Guard needs the following
in exchange." I would put it right in the same
letter.
Gaston:
Well, there is the other thing too, of what
this is going to do to our present set-up.
We can't get ships immediately. What this is
going to mean to us, and what help we will
have to have in being able to cover our -
there is a memorandum on that.
H.M.Jr:
Do you understand what I want on this letter?
Gaston:
Yes.
H.M.Jr:
Don't say the President's emergency fund, be-
cause he always hits the ceiling on that. Say
the deficiency appropriation. He says there is
no emergency fund. He says that consistently,
so say deficiency appropriation.
Gaston:
Should we cover this in the same letter?
Regraded Uclassified
123
- 8 -
H.M.Jr:
Yes, I would.
Gaston:
And summarize that whole situation in the same
letter.
H.M.Jr:
Yes, I would.
Gaston:
The International Ice Patrol is rather an in-
volved subject.
H.M.Jr:
But it is brief and short. I would put it all
home. in one letter so I can have it before I go
Gaston:
Now, on the type of ships--
H.M.Jr:
Oh, yes.
Gaston:
The Admiral had a memorandum here suggesting
initially what the Navy would undoubtedly want
is the 327 footers, but adding to that what he
wants and the service men want would be an
alternate, and I think we had better turn that
around and say nothing about the 327 footers,
and say what we really want. What we really
want in the Admiral's opinion, the opinion over
there, is a vessel of the Cayuga-Champlain type
but lengthened to 210 feet and with more power
so as to give her 20 knots speed and still make
here 8. usable boat for Coast Guard purposes.
Waesche:
In other words, speed is determinate. We feel
our seagoing vessels should have 20 knots speed.
Then when you start with the speed, that de-
termines the length and the power and to get
20 knots you have got to have a vessel about
310 feet long.
Gaston:
It costs about a half million less per vessel
than the Bibb type.
124
- 9 -
H.M.Jr:
Do you mind if I differ with you? What I would
ask, and I think from the standpoint of national
defense, looking after everything else, I would
like you to tell me, in order to keep free of
ice, all of the Atlantic ports, to keep free of
ice our base at Newfoundland, to have enough
ships to send up to Greenland and to Iceland,
I would put that in first because I think it
comes first, and I think, in the long run, that
Coast Guard has a - has more justification for
its existence, it is more popular with the
Congressmen, more political appeal in the broader
sense, than if you get into this other thing,
this deep seagoing stuff, which, with the Navy
so big anyway - I don't know.
Waesche:
I follow you very closely. The only reason we
need the seagoing ships at all is for these
special cruises and--
H.M.Jr:
Now, look, Admiral, you are not going to be
doing those. Let's be frank. You are not going
to be doing those, but if I can say and you can
say to the Congressmen, "After all, here are so
many harbors that we cannot keep open, 80 many
inland lakes where they can't bring the iron
ore down, and if you are going to expect us to
keep Halifax open, because the Canadians don't
have any ice breakers, I take it--"
Waesche:
That is right.
H.M.Jr:
"And if you expect us to go to Greenland or
Iceland - now there is the talk, you know, of
shipping to Iceland and then trans-shipping
from there to England. There is 8 job for
Coast Guard to do."
Waesche:
Of course the type of ship which is best suited
for that sort of work is this type that We are
planning to use, the type of the Cayuga.
Regraded Uclassified
125
- 10 -
Gaston:
The large 310 boat is what he is talking
about. If you are going to do deep sea work,
and after all, the Coast Guard can't abandon
its function of rescue at sea, and if you are
going to do that type of work, you have to have
a ship that is workable in heavy seas, You
can't have these small ships that pitch all
over and stand on their noses in heavy seas.
H.M.Jr:
Now, Herbert, let's be practical. Would you
please give me & list, what - this ship, for
instance, the one like you had in Cleveland,
it is a--
Waesche:
A hundred and sixty-five feet long.
H.M.Jr:
That is an ice breaker, isn't it?
Waesche:
Yes, sir,
H.M.Jr:
What I want to know is, whatever that one is,
that type of ship, how many do you need of
those and how many smaller ones do you want
and what would they cost, and I certainly would
give those priority over deep sea rescue work.
Waesche:
I agree, Mr. Secretary, but I think you will
find that - well, 225 to 250 foot is the type
of ship we want. For example, we got appro-
priations from Congress to build a Greenland
cutter to break the ice up there. We studied
the ships around Greenland. We had boys in
Washington who had been aboard all these ships.
We started out with e 200-foot ship, and Smith
and all the people who were up there in Green-
land came down and said it was too short, so
we have now raised it to 230 feet. Now then,
from 230 feet - as a matter of fact, Smith,
Iceberg Smith, wanted a 250-foot ship for the
Greenland cutter to go up there and work in the
ice, to be able to take care of herself in
Regraded Uclassified
126
- 11 -
heavy seas and heavy gales that are going
around the south coast of Greenland, and going
into Newfoundland and so forth, and when you
get below 250 foot - you take the Escanaba--
H.M.Jr:
Now look, I want two different things. One
that can go up to Greenland and Iceland or
whatever is necessary and whatever is the most
efficient ship. They keep getting bigger and
bigger all the time. These Corvettes that
they have are much smaller than your boats,
that they are building in Canada. They are
what, 250 feet?
Waesche:
I think they are, yes, sir.
H.M.Jr:
I want to know how many - don't blow it up -
of the big ones do you need, seagoing ice
breakers, see, and what will they cost and
how many do you need for the harbor work that
won't go to sea? Now, can I get a list of that?
Waesche:
Yes, sir.
H.M.Jr:
And see how much they cost.
Waesche:
Yes, sir.
H.M.Jr:
And if you gentlemen will be back here again
at four o'clock, I will see you at four o'clock.
Waesche:
I will be back at four.
H.M.Jr:
And then after you have got that and totaled
that, then we will talk last about the thing
that Herbert Gaston is talking about.
Gaston:
Well, you are talking about the same thing. If
you get a heavy ice breaker type of around 250
feet, you have got an all-purpose boat that can
go out to sea and work, but these - this Itasca
Regraded Uclassified
127
- 12 -
type is 8. compromise vessel. She is not a
good ice breaker or sea boat, either one.
H.M.Jr:
What I am asking for is from your experience
what is the best type of thing that will work
in heavy ice and can go - clean out Halifax
or clean out the Newfoundland base or can go
to Greenland or Iceland, and then I know what
I am talking about. That is a function that
the Coast Guard should have and you can defend,
but as soon as you get into the other thing,
wants. you are going to be in something that the Navy
Waesche:
I follow you, and I agree with you 100 percent.
H.M.Jr:
If you don't, don't say so, but be back here at
four o'clock with Mr. Gaston, how many of these
big fellows do you want and how many do you
need, how many more do you need to do the harbor
work, which is a different type of thing, isn't
it.
Waesche:
Yes.
H.M.Jr:
Running from here - the Hudson up to Albany,
you don't need that type of boat, do you?
Waesche:
No, sir.
Gaston:
One hundred twenty-five foot.
Waesche:
We have given that considerable thought in the
Coast Guard, and we feel we can consolidate
our needs into about three classes of ships.
One would be of the Cayuga class, 250 feet.
The only reason we shot it up to 300 feet, we
did feel that we should have more speed in it.
H.M.Jr:
That is where you and I differ. You are think-
ing of 20 knots and I am thinking of the best
Regraded Uclassified
128
- 13 -
ship to break ice. You can't get an ice
breaker with a beem that is going to go 20
knots. Am I right?
Waesche:
That is true, and of course the second type
was this intermediate type of around 175 feet,
and the third type was around a small 80-foot
boat for the harbors.
H.M.Jr:
Come back thinking in terms of ice.
Gaston:
Then maybe we want to go into the question of
whether we want a big ice cutter that can
actually break heavy ice. This country has
none except the car ferry up on Lake Michigan.
The Russians have them.
H.M.Jr:
I think we should have them.
Gaston:
We have never had anything that will really
break any ice.
H.M.Jr:
I was talking about something like the Russians
have that will break ice up in Greenland and
Newfoundland.
Gaston:
That is a different ship.
Waesche:
That is a much different ship, and of course
it is a large ship. They have got to get weight.
These two ice breakers up on the lakes are three
thousand-ton ships, over 300 feet long.
H.M.Jr:
Do you know how to build one?
Waesche:
Oh, yes. As a matter of fact, we have the plans
of the Russian ice breakers over there.
H.M.Jr:
But will you think of ice breakers and not in
terms of speed?
129
- 14 -
Waesche:
Yes, sir.
H.M.Jr:
Because you can't get an ice breaker with
speed.
Waesche:
No, the two don't go together.
H.M.Jr:
Then think about it, and then say, "Mr. Morgen-
thau, we will want this kind of ship."
If I talked to him, "Mr. President, I want the
Coast Guard - and it-is the place for Coast
Guard to keep this thing open, Greenland, New-
foundland, Iceland," he is going to like it,
and I think I am going to get somewhere. I
have failed every time up to now, and we have
failed because the Navy sticks a dagger in our
back on this thing. I don't think they want to
get in this ice breaking business. I think it
is a function, and I think it is a chance of
keeping Coast Guard going, 80 please don't try
to jam that 20-knot thing down me because I
can't - I have been unsuccessful with the
President now for seven years.
Waesche:
All right, sir, I realize your position.
H.M.Jr:
Think it over, Herbert.
Gaston:
All right.
H.M.Jr:
Four o'clock
130
1st Draft
February 28, 1941
Dear Mr. President:
The Coast Guard cutters which seem most suitable
for convoy work are the ten vessels of the 250 foot class
built between 1928 and 1932. The vessels are the CAYUGA,
CHAMPLAIN, CHELAN, ITASCA, MENDOTA, PONTCHARTRAIN,
SARANAC, SEBAGO, SHOSHONE, and TAHOE. The over-all
length of each is 250 feet, molded beam 42 feet, maximum
draft 16 feet, displacement 1,979 tons, speed 16 knots.
The gross tonnage of the earlier five built is 1,632 and
of the later five, because of minor changes in internal
arrangement, is 1,573. All are oil burning turbo-
electric. The earlier five develop 3,000 horse power and
the later five 3,200.
With the exception of one, the SHOSHONE, all of
the vessels are now on the east coast and all are in such
condition as to hull and machinery that they could be
turned over immediately. We are, however, in process of
adding additional armament to all of them to put them on
a war basis. This work includes degaussing, under water
sound equipment, addition of searchlights, depth charge
racks, range finders and additional guns. Armament as
agreed to with the Navy would include two 5 inch broad-
side guns, three 3 inch, 50 caliber anti-aircraft guns,
four 50 caliber machine guns and one Y gun for depth
charges.
The Navy has agreed to give, at your direction,
urgent priority to completing these changes and they
could probably all be completed by March 15, with the ex-
ception of one vessel, the SHOSHONE, which is enroute from
the Pacific Coast. With respect to this vessel, it would
probably take about two weeks longer.
Regraded Uclassified
131
- 2 -
However, we do not know what armament the British
would desire and the Navy Department has asked the British
to cable advice on this point. Time of delivery would
therefore depend on what reply we get from the British.
Respectfully,
Secretary of the Treasury.
The President,
The White House.
132
w
TREASURY DEPARTMENT
Regraded Uclas
INTER OFFICE COMMUNICATION
DATE February 28, 1941
10 Marchary Margenthen
FROM Mr. Cechran
STRICTLY CONFIDENTIAL
At 12:15 today. lb. Pinsent, Financial Counseler of the British Interny, called
as 26. Be said that Sir Frederick Phillips wated M to have that the nagotiations
of the British Government with Finance Minister Outt of Belgium, a nember of the
Belgian Government set up in London, terant the berrowing of Bolgian gold by Great
Britain had net succeeded. It appears that Outt will ast take an independent deci-
den toward the end desired by the British, but is in consultation with Special dates-
under Thounis in this country in the premises. Phillips stated that the British
Treasury efficials here in Washington have net been in teach with Thounds and do not
contemplate contact with his. I stated that I had net seen Themis for several months
and thought he spent most of his time la New York, I asked Phillips whether ha had
usy information as to a probable early visit to the United States by Minister Gutt.
He replied is the negative, (It will be recalled that I recently learned that
Minister Outt night be coming to the United States, and had been told by the State
Department that he had applied for a. diplomatic visa to caable Ma to make this trip.)
Pinsent told me that Deputy Finance Minister Clark of Ottawn is accompanied to
Mahington this time by Mr. Wrong, who has been connected with the Dominion Government
for some years, and who usy remain in Mashington for seae time at lisison afficer on
financial subjects.
The British Treasury efficials had cabled to Lendon after Sir Proderick Phillips'
conversation with Secretary Margenthan yesterday morning. A wire from Lenden had
crossed this workge. the British are endervering to fellow Secretary Mergenthau's
sivice that they take care of their own financial position pending the passage of the
Lease-Lond Bill. Toward this end the British will send deem ima more gold from
Canada, possibly as such as $25,000,000, representing the balance that the British
will hold is Canada, together with certain accretions from new shipments to Canada
free Australia and elsewhere. The British are also prepared to "switch" Franch gold
is Canada against gold held scattered throughout the world by the British. The
British efficials here are cabling Londen today for details as to their gold and
dollar position as of February 28. They are seeking information particularly in re-
and to $40,000,000 which has been reported as hold in instralia by the Exchange
Apalisation Account of Great Britain. Pinsent is not sure whether there is still
this such is Anstralia, er whother this was a figure of some weeks & that has been
disistabed by shipments of gold free Australia to America.
Pinsent asked as to let his know whenever we have word of shipments of gold from
Canada, in order that their figures my be coordinated. I premised this and gave his
certain data which we had received the past two days.
P.Z.
133
- 2 -
Pinsent read to no extracts from a message which the lisbasay had received from
London reporting that the American Imbassy there vas making vigorous protest against
the British rules requiring payments of legacies into blocked accounts. The British
Government did not contemplate replying to such pretest until the Babasay in
Washington might ascertain whether the American Treasury had any feelings en this
subject. That is, the British authorities are appreciative of the immense assistance
which the United States is arranging to grant Great Britain. They do not know, how-
ever, whether the American Treasury would desire that dellar resources of Great
Britain be diminished through exceptional release of dellar exchange to pay off
legacies due American citizens, or whether we would prefer that the rule be rigidly
enforced and dollar assets conserved.
BMS.
134
TREASURY DEPARTMENT
put Rico -
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
When Mr. Pinsent vas with me at 12:15 this noon, I told him that I was still
receiving inquiries from various individuals and concerns who desire to acquire
British direct investments in this country. Likewise Mr. Schenker of the 8. I. c.
was being approached by such parties. I vas following the practice unifersly of
referring such inquirers directly to Sir Edward Peacook in New York, and had advised
Mr. Schenker's office to do likewise. Pinsent agreed that this was the proper pro-
reture. I told him, however, that state of these people had not obtained entisfaction
des they had endoavered to contact Sir Edward Peaceck directly, and that the B. 1. c.
had received complaints en this ground.
At 3 e'cleck this afterneen the Secretary received Mr. David Schemker of 5. I. c.
and Mr. Qrill Quinn of the Tri-Centinental Corporation. Measrs. White and Cechran.
tegether with the stemotypist, were present. Mr. Schenker teld the Secretary of his
unsuccessful efferts in placing directly is tench with Sir Mivard Peaceck a number
of parties who had indicated a desire to acquire particular British investments in
this country. Furthermore, Mr. Quinn, with whom the 8. 1. c. had worked directly in
sivancing the plan for investment trasts to take over British investments, had net
tem invited to call as Sir Mivard Peaceck. Mr. Quinn stated that he had refrained
from naking a direct approach, but had heard gossip to the effect that the British
are already dealing with certain concerns 02 the "Street" After a considerable con-
vereation, which continued after Mr. Quinn had left the meeting, and which the stemo-
typist has reported, I case to w effice and telephoned Hr Frederick Phillips. re-
questing that be and Mr. Pineent come to ⑉ no at 5 o'oleck this aftermoon. then
those gentlemen appeared I teld them that I had been present when the Secretary had
telephoned 8ir Prederick from the meeting above mentioned. The Secretary had vanted
Be to give Sir Frederick and Hr. Pinsent, for the Ambassader's information. a definite
explanation of his position in the premises. Xe VSA much that the 1. 3. c.
was able to report that the individuals who had been referred to Sir Rivard Panceek
by it had not been received by his and ware not able to present their propositions.
The Secretary desired that Sir Mari Peacock invite Mr. Quinn to come to his
office for a meeting 4a Monday sext. I presented to Phillips a. copy of the attached
which Mr. Schenker had sent to no after the conference this afternoon.
I told Sir Frederick that is addition to inviting Quinn to his office, Peaseck should
also address a letter to Mr. Schenker stating that be had received by reference from
the Secretary of the Treasury the list of inquiries with respect to British direct
investments which Mr. Schenker had submitted, and ask that these inquirers be
recommended to get directly la touch with him, Sir Mivard Peacock. I stressed upon
4 visitors the importance of these listed inquirers, in particular, being received
by Sir Blward, or at least semeone definitely in authority. whenever they wight call.
Phillips appreciated the position of the Secretary, especially considering the
fact that Peacock had not yet been able to sell any direct investments and that this
135
- 2 -
argument night be raised at any mement while Congress is debating the Lease-Lend
Bill and its supplementary appropriation measure.
Phillips and Pinsent both promised to cooperate with us theroughly. Since
Peaceck will be in Canada temorrow and Sunday, Phillips may request Gifford to get
directly in touch with Quinn temerrow and either effer to receive him or make the
appointment for him with Peaceek for Menday.
H M.S.
136
MEMORANDUM
DATE
February 28, 1941.
TO:
The Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury.
FROM: David Schenker.
SUBJECT:
I am herewith sending you an itemized list of the inquiries
I have received with respect to the British direct investments in
this country.
1. Cyril Quinn, of Tri-Continental Corporation, New York, N. Y.,
who represents a substantial group of investment companies.
2. Arthur Bunker, of Lehman Corporation.
3. Wilder Bellamy, of the National Bond and Share Corporation,
New York, N. Y.
4. Raymond McGrath, of American General Corporation and a
representative of the United States & Foreign Securities
Corporation.
5. Frank Ryan, of John J. Ryan & Sons, 40 Worth Street,
New York, N. Y., Worth 2-3423, who represents a group
interested in purchasing American Viscose Co.
6. Carl M. Loeb, of Rhoades & Co., 61 Broadway, New York,
N. Y., who are interested in the purchase of
Oxo, Ltd., Boston;
Bovril of America, Inc., Philadelphia;
Hartley's Marmalade Co.;
R. T. French Co., Rochester, N. Y.
7. Prentiss L. Coonley, Washington Building, Washington, D. C.,
Republic 6016, of Freeport Sulphur Co., who represents a
group who are interested in purchasing any chemical or
mining properties of the British.
8. Donald MacCrudden, vice president of Moody's Investors
Service, New York, N. Y. who is interested in the Oxford
University Press or any other publishing companies owned
by the British.
9. Ernest Kuneo, 40 Wall Street, New York, N. I., Whitehall
3-5038, who represents a group who is interested in
purchasing Dunlap Tires.
137
2.
10. Arthur Ross, of the Central National Corp., 22 East 40th
Street, New York, N. Y., Ledington 2-7300, who is interested
in H. Reeve Angel Co., Biwater Sales Corporation, and
New York Real Estate properties.
11. Mr. Waddell, of Barret, Herrick & Co., 60 William Street,
New York, N. Y., who represents a group who is interested
in New York real estate and dock properties of the
British in New York City.
12. Walter H. Merritt, of Merritt and Bangs, 36 West 44th
Street, New York, N. Y., Murray Hill 2-0320, who represents
a group interested in
Burroughs Wellcome & Co., Inc., Tuckahoe, N.Y.;
Cyclox Ltd.;
Yardley & Co.;
Brown & Williamson Tobacco Co.; and
small drugs and cosmetics companies.
13. Floyd B. Odlum, of Atlas Corporation, which is interested
in Burroughs Wellcome & Co., Inc., Tuckahoe, N. Y.,
and other situations.
14. Norman L. Myers, Washington Building, Washington, D, C.,
District 0637, who represents a group interested in
purchasing the National Portland Cement.
15. Serge Rubenstein, 63 Wall Street, Whitehall 3-3833,
who is interested in purchasing the English minority
interest in the Chosen Corporation, the English company,
or the English minority interest in the British-American
Securities Co., an American company.
16. Edward J. Dimock, 49 Wall Street, New York, N.Y.,
Hanover 2-5141.
17. James Ryan, Bingham, Inglar, Jones & Houston,
99 John Street, New York, N. Y., Rector 2-4646.
18. Frank H. Barnett, Henderson & Co., 340 Pine Street,
San Francisco, California, Douglas 1303.
19. W, R. Dameron, Dover, Delaware, Phone Dover 1032.
20. Benjamin Becker, Levinson, Becker, Peebles & Swiren, 1 North
La Salle Street, Chicago, Illinois. Central 8130.
138
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE February 28, 1941
TO
Secretary Morgenthau
FROM
E. H. Foley, Jr.
At 2:30 o'clock this afternoon Mr. Sullivan and I attended 8.
conference at the office of Solicitor General Biddle. With us
were Messrs. Wenchel and Kades.
Representing the Department of Justice in addition to Solicitor
General Biddle were Assistant Attorneys General Clark and Shea,
Special Assistants to the Attorney General Gardner, Key, Raum and
Tweedy, and Mr. Sidney Kaplan, one of Mr. Shea's principal assistants.
The first question discussed was whether or not the Government
should ask the United States Supreme Court to review the case of
Standard Oil Co. V. Lee, decided by the Supreme Court of Florida on
December 20, 1940 [199 So. 325]. This case involves the question
whether sales of gasoline, by the Standard Oil Company to contractors
for use in the construction of the Naval Air Station at Jacksonville
which is being built by the United States on 8 cost plus basis, are
taxable under the Florida Gasoline Tax Act. The Court held that al-
though the tax falls ultimately upon the Federal Government and in-
creases the cost to the Government, the burden was consequential and
remote and that the tax was therefore constitutional.
I stated that I thought the Government should ask for B. review
of the case and argue in the Supreme Court that the tax was consti-
tutional urging the Court to overrule earlier cases to the contrary.
[Panhandle Oil Co. V. Mississippi, (1928) 277 U. S. 218; Indiana
Motocycle Co. V. United States, (1931) 283 U. S. 570]
Mr. Shea stated that he took 8. contrary view of the case; i.e.,
that he wanted the Department of Justice to ask for certiorari and
argue in the Supreme Court that the tax was unconstitutional. Al-
though Solicitor General Biddle did not express himself, it was clear
that none of the other representatives of the Department of Justice,
except possibly Mr. Kaplan, agreed with Mr. Shea. Mr. Shea then
stated that he thought that, if the Supreme Court was asked to review
the case on this basis, the Department of Justice should recommend
legislation prohibiting the imposition of sales, gross receipts, and
similar taxes upon transactions involving national defense matters.
Regraded Uclassified
139
- 2 -
Mr. Sullivan stated that introduction of such legislation, even
if it did not pass, would kill any chance of enacting a statute at
this session subjecting future issues of state and municipal securi-
ties to the Federal income tax. I took the same position and stated
that I felt that the Treasury's position was the same as that taken
by the Attorney General in a letter to you dated April 17, 1939 re-
lating to a proposal that the California Retail Sales Tax be chal-
lenged with respect to Government purchases, in which the Attorney
General had said:
"Resistance to the tax coming from the Federal Government
would be inconsistent with the position of the Government
generally taxation. in cases involving constitutional immunity from
This is consistent with the position which Solicitor General
Reed took when he appeared before the Court in James V. Dravo Contract-
ing Co., [(1937) 302 U. S. 134], and which has been the Administration
policy since that time. Mr. Clark agreed with me that but for this
policy we would not have progressed toward eliminating tax-exempt
securities and salaries.
The Solicitor General then expressed the opinion that he felt
the proper course was to go before the Supreme Court in the Standard
Oil case, presenting in 8. neutral fashion, both sides of the contro-
versy, with a view to getting a final determination by the Supreme
Court of the validity of nondiscriminatory taxes applicable to sales
to the United States, or its agencies, and not to ask for legislation
at this session, but that he would submit the entire matter to the
Attorney General for his decision.
After A rather desultory discussion concerning the applicability
of state price fixing (fair trade) laws to sales and deliveries to
the Federal Government, I pointed out that Mr. Oliphant in 1937 had
ruled that the Treasury's contract with Sears Robuck for tires to be
delivered in Colorado was enforceable notwithstanding the fact that
Sears Robuck may have violated the Colorado statute forbidding sales
below cost; and, further, that the Comptroller General had advised
the Treasury that state sales taxes could be paid as part of the cost
of goods purchased for the Government, whenever it was necessary under
state judicial decisions to pay the tax. Mr. Gardner asked for a copy
of the opinion of Mr. Oliphant and references to the Comptroller
General's decision, which we are sending to the Department of Justice.
Regraded Uclassified
140
- 3 -
I then asked for an expression of opinion from those present
upon the desirability of proceeding against bondholders of the Port
of New York Authority, as recommended in my memorandum to you of
February 21, 1941. Every one agreed that it ought to be done prompt-
ly except Mr. Raum who did not feel that the constitutional issue
would be settled in the case. In view of Mr. Raum's reluctance,
the Solicitor General said he would like to consider the matter for
a few days and asked me to give Mr. Raum a memorandum. I gave him
a copy of my memorandum to you.
As a result of the conference Mr. Sullivan and I both feel that
it would be extremely bad policy for the Administration to ask for
legislation of the character suggested by the Department of Justice
which would grant state tax immunity to defense contractors. We also
feel that the fact that there was only one dissent expressed against
our instituting a test case in connection with Port Authority bonds
confirms our view that this is sound policy and will aid materially
in securing ultimately a statute eliminating future issues of tax-
exempt securities.
E.18.7h.
Regraded Uclassified
141
é in $
Doo. 24, 1937.
w dear Metral Peoples:
& question has boon relead 60 to the possible effect of the
Vafair Practices Act of the State of Colorado (Seesten love, 1937.
on. 261, approved May 6, 1937) upon the Repartment's contract with
Sear Resbuck a Company for tires and tabes under Classes 6 and X
of the General Schodule of Supplice, with perticular reference to
Section 3 of the see, which makes 19 walawful for any corporation
engaged in business is Colorado to cell, effer for sale, of stres-
tise for sale any article or product ofer loss than the cost thereof
10 each vender", the term cooste being further defined is embusations
(a) and (b) of Section 3.
20 appears extressly doubtful that this Act would be cea-
street as applicable to a contract entered tate with the United States
is Vachington. But oven If 10 be assened that the Act might be se
construed, in my opinion 19 would not affect the validity of the -
tract with respect to orders of tires atd tubes for delivery in
Colorado, notwithstending the prevision of Section 9 that any contract
use in violation of the Act is an illegal contract. Mate laws my
not be as applied as to exert centrol over efficers of the United
States to the performance of their datise, of - - to interfore with
the exercise of Federal functions (Artness 1. California. (1931) ass
U.S. has. 45311 Maryland. (1920) 29% U.S. 52. 551
Regraded Uclassified
141
op. No. 291.
Dee. 14, 1937.
By dear Matral Peopless
A question has been raiced - to the possible effect of the
Unfair Practices Act of the State of Colorado (Seesion have, 1937,
on. 261, approved May 6. 1937) upon the Department's contract with
sear Roobusk & Company for tires and tabes under Classes 6 and 49
of the General Schedule of Supplies, with particular reference to
Section 3 of the 200, which makes 10 unlavful for any corporation
engaged is business is Colorado to sell, offer for sale, or néver-
time for sale any article or product "for less them the cost thereof
to such vendor". the term "cost" being further defined in subsections
(a) and (b) of Section 3.
It appears extremely doubtful that this Act would be con-
strued as applicable to a contract entered into with the United States
in Washington. At OTHER If 10 be accumed that the Aot night be no
construed, in my opinion 10 would not affect the validity of the 000-
tract with respect to ordere of tires and tubes for delivery is
Colorade, notwithstanding the prevision of Section 9 that any contract
made in violation of the Act is an illegal contract. State laws may
not be 60 applied as to exert control over officers of the United
States in the performance of their dubjee, or 60 $ to interfore with
the exercise of Federal functions (Arisona " California. (1931) 283
U.S. 423, 4511 Johnson 1. Maryland, (1920) 20/4 U.S. 51, 551 Cate T.
Regraded Uclassified
142
- 2 -
I (1899) 173 U.S. 276. 2631 and - Perform41- ORL
(1925) 277 U.S. 215, 222), and I feel that this rule clearly frees Gen-
evenent officers from the necessity of accortaining is cash case, is
order to insure the complete validity of empply contracts, whether the
prices effered w a badder comply with the laws of all states where
deliveries my be destrod. See, also (1937) 17 Comp. Gen. 257, 209:
(1936) 16 Coup. 6am, 348, 350; (1936) 16 Coup. Gon. 97. 98; and (1935)
15 deep. 6am. 425. Na6.
I all than of the opinion that the contract 10 valid and that
the contractor my legally be required to furnish tires and tubes in
Colorado at the prices provided by the contract. See (1909) 26 Op.
Atty. Ges. 127. 128. Purther, 16 my well be that under such circus-
stances the contractor could net be subjected to the oriminal penalties
provided by Section 11 of the Ast. In Oabera V. Bank of United Males,
(U.S. 1624) 9 Wheat. 738. the following distus appeare (as 867):
"Can a contractor for supplying a military post with
provisions, be restrained from noting purchases
within - state, or from transporting the provisions
to the place at which the treeps valid stationed?
or could he be fined of taxed for doing est No have
not yet heard these questions answered is the at-
firmative. It is true, that the property of the
contractor my be taxed, as the property of other
citizens; and $0 my the leeal property of the bank.
Det we de not admit, that the ast of purchasing. or
of conveying the articles purchased, can be under
state control."
Regraded Uclassified
143
- 3 -
the above statement - cited with approval and the first two contrasce
thereof were quesca in & disten in & Harring. (1920) 15%
U.S. 52. 56. x Faited Mates 1. farter. (1093) 149 U.S. 2101 Shis
Thomas. (1899) 173 U.S. 876, Ambresist V. United States. (1902)
157 U.S. 1. Date st. Fidelity a Reposit Co. 1. Pennsylvania. (1916)
240 U.S. 3191 Metcolf & May , Nitchell, (1986) 269 U.S. 514. Dut
whatever the situation my be with respect to the contracter's orin-
isal liability. the Department 10, of course, wher as obligation to
not as its legal advicer. the contractor check be required to sale
deliveries is Colorado in accordance with the contract, and to cettle
with the State authorities my question which my be raised as to the
legality of such action.
Very truly yours,
(Signed) Bernan Olighant.
General Gouncel.
Non. 0. s. Peoples.
Director of Procurement.
TND:TAM:hbk 12/8/37
Copiedings
2/28/41
Regraded Uclassified
144
February 28, 1941
2:37 p.m.
H.M.Jr:
Hello.
Operator:
Secretary Wickard.
Secy.
Wickard:
Hello. I Just had a call from Pa Watson saying
that our friend, Campbell, 1s going to Europe
because the British want him, and he's not
going officially - he's just going. Do you
know anything about that?
H.M.Jr:
I don't know a damn thing about it. I was at
the White House for supper last night and he
was there. It's the first time I ever met him,
and I was amazed to learn that he was going
to go. That was the first that I knew about
it. I thought the matter was dead because
Purvis never mentioned it to me again.
W:
Yes. Well, I didn't know whether you knew that
he was going at all or not and that's the reason
I called you.
H.M.Jr:
No, I only learned of it there and I met him,
but what has happened I don't know.
W:
Well, I understand he's not going officially,
but I understand that the British have requested
him to come according to the information that the
President has had. Now, I know what kind of an
inside worker he is and he's build up his own
case, as I told Pa Watson, but Pa told me that
the Boss has said he may go if he wishes and
if they want him to come 80 I think the thing
is a closed issue.
H.M.Jr:
I think 80.
W:
Now, one other thing I want to talk to you about.
Have you heard anything about whether Mr. Purvis
has some breakdown of the British fruit requirements?
H.M.Jr:
Not that I know of.
W:
We get that from some other sources. One thing
that gives us trouble all the time 1e that we
hear from two different sources concerning the
British requirements. Apparently they have a
Regraded Uclassified
145
- 2 -
Food Ministry that gets one set of figures
together and communicates with us over here
and then some of it comes through Purvis. We
don't know which one we should give our
attention to.
H.M.Jr:
Why don't you send for Purvis and have a heart-
to-heart talk with him.
W:
Have Purvis come over.
H.M.Jr:
I would.
W:
Well, I expect that's a good idea.
H.M.Jr:
I'd send for him.
W:
I tell you what we were doing. You remember
the President asked me to make some study of
the refrigerated space and we're working on
that. Of course if we knew about what they
wanted why we could come a little more nearly
satiefying the query as to whether the space
would be adequate or not.
H.M.Jr:
Well, Claude, I would send for him, and just
tell him what you told me.
W:
Yes.
H.M.Jr:
O.K.?
W:
Yeah.
H.M.Jr:
Thank you.
W:
Should I - - if the President says anything about
my getting in touch with Purvis through you -
that is not necessary?
H.M.Jr:
Oh, no. Just call him up - don't bother -
you and I know each other well enough.
W:
All right.
H.M.Jr:
You won't have any trouble with me.
W:
All right. How is this thing shaping up?
Like we talked about the first of the week as
far 8.8 .....
Regraded Uclassified
146
- 3 -
H.M.Jr:
Yeah, I think 80.
W:
..... R.8 far as the purchasing of
H.M.Jr:
You see I don't know how Harry will feel about
the whole thing but as far as I'm concerned
until it crystallizes I'd certainly call up
Purvis. Later on maybe Harry will want you
to do it through him.
W:
I see. Well, I didn't know whether there had
been any further discussion along this line or
not. I hadn't heard anything from the White
House and I didn't know whether you had any
more information on it or not.
H.M.Jr:
No, not now, and I'm not trying to be
either. There's just nothing to tell.
B:
All right.
H.M.Jr:
Right?
W:
O.K.
147
February 28, 1941
2:41 p.m.
H.M.Jr:
Hello.
Wm. S.
Knudsen:
This is Bill.
H.M.Jr:
Hello, Bill.
K:
When you had us for lunch yesterday, I
didn't know the numbers of the planes that
are coming through that carry the 2 3350
engines, and there are four of them. There
are two 4-motor bombers, B-29 and B-32; there
is a 2-motor bomber, B-33 and there is a Bell
pursuit plane, P-62. They are all due in
October of this year.
H.M.Jr:
Now those planes are going to have what kind
of an engine?
K:
The big motor - the 2200 h.p. you were talking
about, the 3350.
H.M.Jr;
Oh, they re going to take - did they take
the Wright or the Pratt-Whitney?
K:
No, they're taking the Wright.
H.M.Jr:
And those planes will take the big engine.
K:
That's right. I knew that they were in
development but I didn't know the numbers of
them when I spoke to you so I thought I'd call
you and tell you.
H.M.Jr:
But the Army has no orders for those big
engines.
K:
Well, they have now in the 12,000 program,
you see - in the program that follows this
they have these engines.
H.M.Jr:
Oh, that's in the program which 16 yet to come.
K:
That's right.
H.M.Jr:
Of course I didn't know that.
148
- 2 -
K:
No. That's the reason I called you up to
tell you that I knew these planes were coming
through and the main part of the engines you
showed me yesterday of course were for the
stratosphere planes. You remember that.
H.M.Jr:
That's right.
K:
But here are four new developments.
H.M.Jr:
That's a 4-engine ......
K:
Two 4-engines, a 2-engine and a pursuit.
H.M.Jr:
Yeah, 80 there is something coming along.
K:
Yes, sir.
H.M.Jr:
And the engines will be included in this next
program.
K:
Yes, sir.
H.M.Jr:
Well, that's encouraging.
K:
All right.
H.M.Jr:
Thank you.
149
February 28, 1941
3:00 p.m.
RE AID TO BRITAIN
Present:
Mr. Cochran
Mr. White
Mr. Quinn
Mr. Schenker
Schenker:
Mr. Secretary, I have had quite a few requests
from people who are ostensibly reputable --
H.M.Jr:
Like Mr. Quinn?
(Laughter.)
Schenker:
He is superficial.
H.M.Jr:
I see. I just wanted to be sure.
Schenker:
And of course these people keep calling me, as
Mr. Quinn has been calling me. Now, I feel
that I am in this position. If I tell these
people I have nothing to do with it, I have no
contact with the British themselves, that is
all right with me, see. Somehow or other when
I implicate that, they don't believe that, so
they persist in calling me. Now, Mr. Quinn
finds himself in this position, that he has
got this group and they have made fairly exten-
sive plans and he hasn't heard from them.
I also understand, although I am not sure of
this, that Bobby Lehman wrote to the British
and said he was ready to talk to them, and I
Regraded Uclassified
150
- 2 -
think they didn't even acknowledge his letter.
So what I would like to find out for myself,
is whether I should just drop the whole busi-
ness and tell these people, as far as I am
concerned it is all off, and just call the
British or what.
Mr. Quinn has a little different angle. He
feels that he would like to be helpful in the
picture and that he has got an idea that he
would like to formulate & plan that may be of
some help.
H.M.Jr:
Have you seen Sir Edward Peacock?
Quinn:
I haven't gone to see him, Mr. Secretary, be-
cause I followed - talking with Dave, I followed
the policy of having - - this thing having been
mentioned to them and just waiting until they
were ready to talk. I had the feeling that
they probably were busy and that I didn't know
whether I was to move or not. In the meantime,
there have been all these stories, which I don't
know how accurate they are, saying that there
is a change in plan; and I didn't want to move
until I got worrying a little bit.
H.M.Jr:
No, there is no change in plan.
Quinn:
I appreciate they must have quite & job getting
this stuff assembled and getting their own
figures on it.
Schenker:
Why don't you give the Secretary your idea with
respect to one operation?
Quinn:
Here is the thing that has been running through
my mind, and I will just broach it. It seemed
to me that this group of investment companies,
Regraded Uclassified
151
- 3 -
we are in a position where if they did -
did want to buy and the price was attractive
and business seemed good, that they would be
able to move without the 20-day waiting
period, because they would be, in effect, buy-
ing for investment, and that under those cir-
cumstances, you had, it seemed to me, this
desirable thing. I am speaking now from the
British point of view. You had this thing
that if you picked out something that was
doable and could be done relatively easy, they
would be doing something.
At the same time, I counted up the number of
shareholders roughly represented in that group,
and there is something like 500,000 shareholders.
H.M.Jr:
In what group?
Quinn:
In that group of investment companies, so that
if the transaction were profitable from the
point of view of the investment companies,
that profit would go to a large number of share-
holders scattered all over the country, and I
would think that from their point of view they
would get the maximum of psychological benefit
out of that transaction, and then I think it
would be very unfair to push them into a lot of
transactions now, even if that were the de-
sirable thing to do, because you can't move
too fast on it.
H.M.Jr:
But haven't they sent for you or anything?
Quinn:
No, sir, they haven't. I talked to Dave about
it for & minute, and my feeling was that I
didn't know quite - I had the feeling that I
ought to sit quiet and wait.
Schenker:
The impression I got, Mr. Secretary, the last
time I saw Mr. Peacock over at Chairman Frank's
Regraded Uclassified
152
- 4 -
W&S that they would let me know, and he clearly
indicated that it would be no useful purpose
served in anybody calling him because they had
a routine answer, "We are working on it, and
we are not prepared to talk," and that is the
answer to all these people. Virtually all of
them have gotten the answer I suggested. "Don't
prejudice yourself by relying on me, and you
call up, yourself.' That was the answer they
received in almost every instance.
Cochran:
Have they received that recently, too?
Schenker:
As recently as three days ago.
Cochran:
Because for a while they told me that, and then
they said they were in shape to receive the people.
Quinn:
I have heard rumors that there were negotiations
with people, but two of the rumors I checked up
myself and were not correct.
H.M.Jr:
They haven't sold anything yet?
Schenker:
They haven't even carried on negotiations.
H.M.Jr:
Yes, they have been carrying on negotiations, but
they haven't made any sales. How many can I tell
them you have got? Have you got a dozen?
Schenker:
I have got 20 requests and these are for virtu-
ally specific properties. One is the Oxford
Press, one fellow wants the New York Real
Estate, the Freeport Sulphur Company, the R.B.
French Company, and these people are interested
in specific companies; and one of the biggest
ones is a fellow who represents a group and is
interested in buying Viscose and told me his
idea was 60 to 100 million dollars and they
would pay cash right on the barrel head. These
Regraded Uclassified
153
- 5 -
people are different people. He called up,
and he was one of them who called up
recently. He said that at that time.
My only concern, Mr. Secretary, is that I
don't want them to say to me, You prejudiced
me, I relied upon you, or I would have done
business with them directly." I tell them to
do that, but somehow or other --
(Telephone conversation with Mr. Phillips
follows.)
154
February 28, 1941
3:10 p.m.
H.M.Jr:
Hello.
Operator:
Sir Frederick Phillips.
H.M.Jr:
Hello.
Phillips:
Hello.
H.M.Jr:
Phillips, Morgenthau. I have here with me
Mr. Schenker of the Securities and Exchange
Commission and Mr. Quinn, who got together
that investment trust group.
P:
I see.
H.M.Jr:
Now they say they haven't heard a thing from
anybody and they want to know if the English
are interested in selling. Mr. Schenker here
has 20 separate requests from 20 people who
want to buy 20 different English properties and
he says he doesn't know what to do. He said
nobody representing the British Government
seems to be interested.
P:
Well, I had a talk with Peacock when he was
here and he told me he was going to get in
touch with Mr. Schenker on this at once. I
don't know whether he has done so; I suppose
he hasn't.
H.M.Jr:
Well, to put it mildly, it's very embarrassing
for me to be apologizing all the time.
P:
Yes, I know. I thought Peacock was actually
getting in touch with him. It was only two or
three days ago.
H.M.Jr:
Well, evidently he didn't.
P:
Evidently he didn't. I'll get in touch with
him to make sure he does.
H.M.Jr:
Well, something ought to happen.
P:
Yes, I think.
H.M.Jr:
Neither the Securities and Exchange or myself
know what to answer these people.
Regraded Uclassified
155
- 2 -
P:
Yes, I agree. I'll get in touch with Peacock
at once on that.
H.M.Jr:
And why can't he send for Mr. Quinn. He's
in New York, but he's here sitting here now.
P:
Yes.
H.M.Jr:
And what I'm going to do 18 I'm going to ask
Mr. Schenker if he'll send you the list that
he has.
P:
Yes, all right. I'm quite glad.
H.M.Jr:
He'll send you the list and if Mr. Peacock
could send for Mr. Quinn why I'm sure he'd be
glad to come around and see him Monday.
P:
Right. If Mr. Schenker will do that I'll see
that it 18 got on with at once.
H.M.Jr:
And I'm preparing a formal memorandum in answer
to the one that I received from the Ambassador.
I hope to have it Monday.
P:
Right-o.
H.M.Jr:
Thank you.
156
- 6 -
H.M.Jr:
Is that plain enough?
Quinn:
Quite.
H.M.Jr:
He said that Peacock was supposed to have gotten
in touch with you (Schenker) in the last couple
know. of days. You can lead a horse to water, you
Quinn:
Well, I felt I didn't want to move, Mr. Secre-
tary, until I got oriented.
H.M.Jr:
I am glad you came in, and I have got nothing up
my sleeve, but all I hope is that somebody on
the Hill doesn't send for me and ask me the same
question.
Quinn:
I think you get a little of that impression talk-
ing to some of the various people. They say
that -- well, we don't think anything will
happen.
Schenker:
Just stalling until the Lease-Lend Bill passes.
H.M.Jr:
I would like you (Schenker) to stay, if you
don't mind. I am glad you came in, Mr. Quinn.
Quinn:
Right, sir, thank you, Mr. Secretary.
(Mr. Quinn left the conference.)
H.M.Jr:
Now, let me tell you something you can repeat to
Jerome, but I don't want it to go to your Board.
I got this memorandum from the British, you see,
and I am talking as much for the benefit of
Cochran and White as for yourself. Have you
(Cochran) got copies of it?
Cochran:
No, not of the memorandum.
157
7
H.M.Jr:
In this thing, what they have done is, they
say they will turn over all their direct invest-
ments to the President and he should go ahead
and tell them when to sell and when not to sell.
Now, I told - it was brought in by Halifax and
I told him my first reaction. I said, "I am
not going to let the President be put in that
position, if the British investors get sore,
they can be sore at Sir Edward Peacock but not
at my President."
He asked me to take this thing, and I wouldn't
take it, and I said furthermore, "I don't want
to get in the business of selling properties
and be stuck with that kind of tar." I said,
"I have got a clean organization, and I don't
want to get mixed up.
Well, I went over to see the President and his
immediate reaction was the same as mine, that
they were dumping it all in our laps.
Now, I haven't answered them yet formally, but
they say that the trouble is that they are
having great, great difficulty in making sales.
Now, the first thing that they tried to put
through was the sale of this --
Cochran:
Viscose.
H.M.Jr:
Viscose. How did they try to do it? They went
to J.P. Morgan to get a loan, you see, and no
passing of title. I told them absolutely no.
I said, "They want title to pass, but they cer-
tainly don't want J.P. Morgan to do it." I
think they brought it in here three times,
always a little bit different, and we always
said "no." I am talking in the room here.
Schenker:
I understand.
Regraded Uclassified
158
8 -
H.M.Jr:
The understanding is that before anything passes,
they will lot us take a look si it and 88e that
there is nothing that any Trust or anything
which is - which we think is contrary to what
the administration would like to have, and it is
the only thing that they have brought in here.
Schenker:
I am convinced, Mr. Secretary, that this group
could handle Brown and Williamson, possibly
American Viscose. They could do it expeditiously,
fast, paying the money, and not disrupting the
market because they would hold substantially all
of it in their portfolios and possibly at some
subsequent date undertake a secondary distribu-
tion when they had the chance to effect the
registration.
Now, American Viscose, I have got these people
who have been on me. They say, "Mr. Schenker,
I am not kidding, those people are prepared to
buy that and we are prepared to pay 60 to 100
million dollars depending on what the income is,
and we will give them a cashier's check."
H.M.Jr:
Now, I have got to talk to you. This is terribly
confidential, you see.
Schenker:
I will forget it as soon as you tell me.
H.M.Jr:
I mean you have just got to be - you just can't
even - some things are confidential and some
things are extra-confidential.
Schenker:
Sacred.
H.M.Jr:
Well, they are, because this whole bill is tied
up in this thing, and these fellows, you see,
tell us how much money they have got. They don't
know whether they can last until the bill is
passed, and I have told them they had to, not
to come around and bother me, because there is
nothing that I can do for them until the bill
159
- 9 -
passes, but then If the bill passes, I might
consider - I haven't told them yet - that We
might go up to the Hill and say, "Now, look,
gentlemen, here is 900 million dollars worth
of direct investments, and we would like a
vote of confidence or approval from Congress
that we can advance against that from the
Stabilization Fund 75 per cent of what we
think is the value;" but the English are
going to have to do the selling, we are not
going to sell it. If they come to us and
say, "Is it a satisfactory price?", we will
say, "Yes" or "No" but they have got to do the
negotiating, you see, we don't want to get
in on it. I would want the help of the S.E.C.,
the Evaluation Section, and 80 forth and 50 on,
because we haven't got it and you fellows have.
Schenker:
We have a big staff.
H.M.Jr:
And the President said, well, he thought
that sounded all right and Jones hoped to get
a bill. He wants to do the business. You saw
that story in the Wall Street Journal of all
the stuff Jones had been giving out. He is
crazy to get his finger in this thing. What
is going through my head is this. I am think-
ing of calling up the British Ambassador in view
of this thing and ask him when he can come down
with Phillips and just give them - read them
the riot act and simply say, "A representative
of the S.E.C. has 20 different business men, and
they can't even get into see this fellow Peacock."
Schenker:
They haven't sent for Quinn, and Quinn can get
together 50 or 60 million dollars just like
that.
H.M.Jr:
And here is Phillips, says he hasn't got the
money.
Regraded Uclassified
160
- 10 -
White:
Don't you think your last telephone conver-
sation will stir them up?
H.M.Jr:
No. Halifax came to see me. I would like
to give it back to him. He brought me a
message for the President from the Prime
Minister.
Schenker:
I think the most unfortunate thing that can
happen, Mr. Secretary, is for the American
Government to handle that.
H.M.Jr:
You agree with me?
Schenker:
Oh, there is no doubt about it. With all the
rumblings that you get about Ed Flynn being
at the Mayflower and everything else, I wouldn't
get within 50 miles of him, because as soon as
you suggest the name and if you ever sold them
the property, three weeks later I would be up
on the Hill with a subpoena, where did I get
this fellow's name?
H.M.Jr:
You are with me a hundred per cent, but I
couldn t get that over with Purvis, he couldn't
understand that. I could, for instance, get
the evaluation section over there to give me
some idea of what the property is worth, if we
made a loan, but we haven't arrived at that
point yet. I could get that and keep it be-
tween the S.E.C. and the Treasury. There is
no reason why Jesse should get into this. Do
you see any reason why?
Schenker:
No. But I think Mr. Jones is making prepara-
tions to go ahead, because I got some phone
calls and I called Wright over there and he
referred me to Mr. Johnston, and Mr. Johnston
said he was in the throes of preparing the
form of procedure that will have to be followed
with individuals who desire to make loans against
these investments and they haven't abandoned them,
Regraded Uclassified
161
- 11 -
I don't think, and they said they would be
prepared in the early part of March.
H.M.Jr:
Who is this fellow?
Schenker:
Costello. That is the individual I spoke to.
White:
Well, something will be done. It depends -
if nothing is done they will have a stronger
case to come before Congress, particularly if
they are able to say that nothing has been
taking place.
H.M.Jr:
Well, he has got to get legislation. Mind
you, Jones is talking to the President. He
has got to get the Johnson Act knocked out,
before he can do it, although Jones claims,
and you (Schenker) are an attorney, the
Johnson Act does not include a government
corporation.
White:
Well, that is what your legal staff claims,
too.
Schenker:
Well, the only thing I want to do, Mr. Secre-
tary, is to get myself out of this position.
I knew that you were anxious to know whether there
was any --
H.M.Jr:
Well, can you see now? I can't give you a yes
or no.
Schenker:
Well, I will stay with it as long as you want
me to. I think maybe I should.
H.M.Jr:
I would stay with it this way and see what
happens, and I would tell anybody to get in
direct touch with Sir Edward Peacock and tell
them if they can't get in to see him, within
twenty-four hours from the time they get the
refusal, to let you know, that they are to see
Sir Edward Peacock, and if they can't get in
162
- 12 -
within twenty-four hours you tell them to
let you know and you bring it to my atten-
tion. How is that?
Schenker:
All right, I will.
H.M.Jr:
Do you think, Harry, I should try to get Hali-
fax down here and make a big thing out of it?
White:
I would be inclined to wait and see --
Schenker:
Wait until Monday in the light of the conver-
sation.
White:
See what they do with Quinn and the others and
until you have also finished your memorandum
and had a chance to suggest what you are --
H.M.Jr:
What do you think, Merle?
Cochran:
Exactly the same.
H.M.Jr:
I didn't mince matters any, did I?
White:
He got it. Phillips gets that kind of thing.
It was very clear.
H.M.Jr:
Now, Phillips told me when he was in here -
you (Cochran) check my memory. I didn't see
him alone, did I?
Cochran:
I was with you.
H.M.Jr:
Didn't he say he was absolutely opposed to doing
this thing through a mortgage.
Cochran:
Yes, sir. He said he wanted an out and out sale.
You said, "I agree with you. We have the same
principle but for different reasons."
Schenker:
I am surprised they haven't taken this approach.
163
- 13 -
I don't know how expeditious it is. I thought
what they were going to do is probably take a
company like American Viscose and give out a
50 million dollar debenture issue and they
stay with the equity stock and control the
company. I am surprised they haven't broached
that. Have they?
White:
I doubt whether that would be legal, would it?
Schenker:
Why?
White:
Well, wouldn't that run into both the Johnson
and Neutrality Acts?
Schenker:
Well, it is & private company.
White:
Yes, but they are agents of the Government. But
Mr. Secretary, there is one point you stated.
I wonder if it is correct. If it isn't correct
you may want to correct it. As I understood it,
you told Mr. Schenker, and he would pass it on
to his chairman, that Halifax stated they were
going to turn these properties over to the Presi-
dent. It was my understanding that what they
were going to do was, they wanted to turn the
problem over to you and they will do whatever
you say. I don't think they were going to turn
the properties over.
Cochran:
In one of these - there were two memos, the first
and the second one. I have & copy of the first
and not the second. In that second one, as I
recall it, they included that vesting of title
in the United States also.
H.M.Jr:
That is right.
Schenker:
The only thing I would like to tell the chairman,
if I may, Mr. Secretary, is - I don't know whether
you want him or anybody to know - I think he may
164
- 14 -
feel there is some compulsion to tell the rest
of the Commission. I think I would only like
to tell him that - ask him whether the Commission
would be prepared if at some time it becomes
necessary to assist the Treasury in the evalua-
tion of these properties and nothing about whether
title should be turned over or a loan, because
if it ever leaks out I don't want to be --
H.M.Jr:
And tell him nothing else.
Schenker:
Because I think he would be duty bound to tell
the Commission.
H.M.Jr:
That has happened before.
Schenker:
Not that I am casting anything on Jerry. He would
be bound to tell the rest of the Commission and
the stenographers and all of that.
H.M.Jr:
Let me tell you what he did once before. We got
these daily figures on the sales of English
stock. I said, "Do you want these?" and he
said, "No." Isn't that right? Or was it the
list of - no, it was the list of the stocks, and
he said, "No," because he says, "I can't guarantee
you secrecy. It was the list. Wasn't it?
White:
It was the list.
H.M.Jr:
He said, "I don't want it."
Cochran:
Well, we had the talk also on the daily sales,
because he had us put it up to him in such a
way that he wasn't permitted to pass it on. He
said if it were on his own responsibility, he
would feel obliged to.
Schenker:
Well, the only thing I will tell him is that I
talked to you and that you talked to the British
and told them to get moving and 80 forth and
165
- 15 -
you also asked whether the Commission would
be in the position to assist the Treasury if
at some time they wanted our assistance in
connection with the evaluation of these
properties.
H.M.Jr:
Yes, and then I think you (Cochran) might send
for Phillips and tell him I am very much upset
over this thing, you see, and for him to come
in one day and say he is broke and the next day
I hear that there are twenty people who want to
buy businesses. The two and two just don't add
together, and I am very much upset.
Cochran:
As a matter of fact, I spoke to Pinsent this noon
on it. He was in to see me at 12:00 o'clock on
some other things I would like to mention after
awhile, and I said, "I am still referring people
up there and the S.E.C. definitely has & problem
because people are looking to the S.E.C., and
they haven't had any answers," and I said, "I
don't know how my people have fared, I haven't
had any comebacks.
H.M.Jr:
Why don't you send for them, Phillips and Pin-
sent both, and Phillips will repeat it to the
Ambassador, and you tell them I am really not
only embarrassed, I am very much upset, that
here are the people, they say they are here as
a group with a hundred million dollars, who want
to do business and they can't do it, and on the
one hand he says he is going to go broke and on
the other hand here are people with their tongues
hanging out trying to get this business.
Cochran:
Did you want Mr. Schenker to give that list by
mail to them?
Schenker:
No, I will give it to you.
Cochran:
I could give them this list when they come in.
Regraded Uclassified
166
- 16 -
H.M.Jr:
He has got a copy there.
Schenker:
I will get it with the names and addresses and
have it over before 4:30.
Cochran:
All then. right, I will try to get them here at 5:00
H.M.Jr:
Is that agreeable to you, Mr. Schenker?
Schenker:
Yes.
Cochran:
It is direct evidence that we have this problem.
H.M.Jr:
And Merle, bear down on them.
Cochran:
I will.
H.M.Jr:
Bear down on them and tell them that - was it
yesterday they were in here?
Cochran:
Yes, yesterday morning.
H.M.Jr:
Yesterday they were in here in the morning doing
the pauper's act, and then the next day I get
this, and I am getting very much upset and dis-
pleased.
Cochran:
I will get them both 80 it will get to the
Ambassador.
H.M.Jr:
Get them both and tell them that - well, I am.
I am not bluffing. And then you (Schenker) see
when you send these messages to me, I have got
no answer. But if you tell these business men,
now go and see this fellow Peacock, if they
can't get in to see him in twenty-four hours,
tell them to let you know and you let me know.
Schenker:
All right, thank you, Mr. Secretary.
167
- 17 -
H.M.Jr:
you for that reason.
Now, do you see why? I haven't been answering
Schenker:
And with respect to Mr. Frank, I forgot what
you told me about this other thing. I will just
confine it to that.
H.M.Jr:
That would be terrible if it got out.
Schenker:
I forgot it.
168
February 28, 1.41
4:00 p.m.
Cost Juard Cutters
RE AID TO BRITAIN
Present:
Mr. Gaston
Mr. Waesche
H.M.Jr:
How are you coming?
Gaston:
All right. I wrote a letter. I did not incor-
porate recommendations for new instructions in
the letter and simply said that you expected to
submit a program next week with estimates on the
construction.
H.M.Jr:
Oh, you are not ready?
Gaston:
Well, I didn't know that the program - it could
easily be added on the last page, but I wasn't
quite sure.
H.M.Jr:
You didn't put the date of these things in? Oh,
yes, you did.
Gaston:
Yes, there are groups of five.
H.M.Jr:
I would like to put in the whole --
Gaston:
Well now, as the Admiral and the officers have
agreed upon it, it is rather short and sweet and
it could be put in.
H.M.Jr:
I hate to do it in two bites.
Regraded Uclassified
169
- 2 -
Gaston:
We could just put it in on the last page, those
two paragraphs.
Waesche:
Part of this is already incorporated. You begin
in the middle.
H.M.Jr:
Well, you can't put it that way. You will have
to say, if it meets with his approval.
Waesche:
Yes.
H.M.Jr:
Well, I mean it is essential. "With your approval
this would be included." That is all right. It
is a little bit too snappy, a little bit too
terse.
Gaston:
Yes, I will word it that way.
H.M.Jr:
Now, let me just talk to you. This isn't the way
to present it, you see. I would say something
like this, Herbert. "For some time we have felt
that we have not been able to adequately take
care of ice conditions in our - ice conditions
along the coast, in our harbors and rivers and
lakes."
Waesche:
"And in Alaska."
H.M.Jr:
"And in Alaska," yes. "We do not have the ade-
quate equipment for ice breaking to get into
harbors in Newfoundland and Greenland, and if
the world conditions continue as they are at
present, neither Canada or England or ourselves
are equipped with the necessary ice-breaking
vessels.
"Therefore, as a part of our national defense
needs, it would seem prudent to equip Coast
Guard with the ships especially constructed
to do an ice-breaking job wherever they may be
170
- 3 -
called upon to do so."
Waesche:
Wouldn't you want to bring out the point that
this is a dual-purpose vessel, that in addition
to doing that, we will 80 equip these vessels
so they can, carry on their off-shore patrol?
H.M.Jr:
What I want to say is, "In view of this situa-
tion, we present to you a request for money to
build ten dual-purpose ships." But I wanted
to lay the foundation. You just - "Which can
both do the ice-breaking job and off-shore
patrol," see?
Waesche:
Yes.
H.M.Jr:
And then I will again say, "These ships will be
of unique character," or something. I don't
think that is necessary. But the point that I
want to catch in the beginning is, 80 he won't
say, "Oh, I don't want any more for Coast Guard,
Newfoundland, Greenland, and so forth." But
if you just say it like this, it is no good.
Do you get it, Herbert?
Gaston:
Yes, I do. Of course, it will further strengthen
the argument. Of course he ought to see that
he is taking away ten of the best ships we have
and that we have asked for more ships before
losing those ten, but this will strengthen the
argument.
H.M.Jr:
Well just to say you are taking away ten - he
said, "I will give you the ten, but I have said
that this is going to do the thing and --
Waesche:
Here we are getting ten ships which will do
not only the work that those ten did before,
but they do the ice-breaking job as well.
Gaston:
The danger of pressing that too much is that
Regraded Uclassified
171
-4-
they will say, "Now, you will get these ten
and they are all ice-breakers. You won't
need any more ice-breaking equipment." But
we will.
H.M.Jr:
Well, I am surprised you don't ask for some of
these smaller ones for the harbors.
Waesche:
We did ask for four in our last budget, and
they cut out two, and those again are dual-purpose
vessels. They do all this harbor work of carry-
ing customs inspectors and harbor patrol and
supervising of anchorage and all of that, but
at the same time, when winter comes along they
are needed for ice.
Gaston:
Well, Admiral, we didn't ask for four, we asked
for twelve.
Waesche:
We started on a program of two a year and this
last budget we asked only for four to bring us
up to this program of two a year, and they gave
us two. We asked for ten altogether, and we so
far have gotten four out of the ten.
Gaston:
Yes, I will do that.
H.M.Jr:
If you could work that up, Herbert, and get it
to my house tonight.
Gaston:
You would like it up there tonight?
H.M.Jr:
Yes, just so it is up there tonight. All you
have got to do is change the last page. But
you get the idea. And I think this is a little
bit too wordy. I think you have got enough,
and then he is taking away ten and we come in
and say --
Gaston:
Yes, I will condense that.
172
- 5 -
H.M.Jr:
Are you with me on that?
Gaston:
Oh, yes. I think it will be of double value.
H.M.Jr:
I don't know that --
Gaston:
This will give us an opportunity to build the
ships that are specially designed for ice work.
You see Greenland is not so much ice-breaking
as it is for ice work. They need a bow for
forcing their way through a field of ice. It
ice. is very different from the lake job of breaking
H.M.Jr:
I don't say that We have got to go into Hali-
fax, but I do point out that neither England
nor Canada has any of this equipment, if I am.
right.
Waesche:
Yes, sir.
H.M.Jr:
Canada and England have nothing like this?
Waesche:
No, sir. They have a few sealers up there.
They don't belong to the ships, but there are
& few sealers that work in the ice.
H.M.Jr:
But Government?
Waesche:
No government ships. And of course these
sealers have little power to stand the ice
pressure.
H.M.Jr:
How do you feel after working this this way?
Waesche:
Oh, I think we can prove our point, Mr. Secre-
tary, and this will meet our purposes very
nicely. There is one other point I wanted to
make which I told Herbert outside.
H.M.Jr:
How much beam would these have?
173
- 6 -
Waesche:
About 42 or 43 feet, I think.
H.M.Jr:
I think I would put that in the letter.
Gaston:
Yes. I think it is in this draft here. I will
work it in. The keel would be 42 feet.
Waesche:
There is some question as to whether there is
any need for a high-powered heavy ice-breaker
such as the Russians have in the Arctic up in
the northern Greenland waters. We discussed
that a little today, but I stayed off that at
the present time, but I am going to get Iceberg
Smith on this coming Greenland cruise which is
going up there very soon.
By the way, I have a memorandum from the State
Department, from Penfield, whereby there is
only a little snow on the ground up there now,
and they could come up any time. So I am
going to have Smith this summer when he is up
there go into thoroughly a study as to whether
there is any need for this Government to have
a four-or five-thousand ton ice-breaker such as
the Russians have for that Arctic ice, but that
is too big a problem for us to decide down here
in such a short space of time.
Gaston:
It would cost about five million, wouldn't it?
Waesche:
Yes. It would be about a four- or five-thousand
ton ship, 350 feet long, with propellers on bow
and stern and a regular ice-breaker such as the
Russians have up in the Arctic..
H.M.Jr:
Where would we use such e. ship?
Waesche:
The only place we would need it would be if - on
the east coast of Greenland. If we want to get
into the east coast of Greenland almost any time
of year or even in the summertime, to be sure of
174
7
getting in then you have got to get one of
those Arctic ice-breakers.
H.M.Jr:
How about if we wanted to get into Halifax?
Waesche:
We don't need anything like that for Halifax.
H.M.Jr:
O.K. I am satisfied with this. I am willing
to go to town on it. I think he will get this.
Are there yards where these could be built?
Waesche:
Yes, sir, I won't say we won't have any diffi-
culty, but we do know - when we get ten of these
we will have a lot of people interested in it.
When we have one ship they are not bothered so
much.
H.M.Jr:
How long before you can get the first one? I
mean how long before they will be commissioned?
Gaston:
Can you have one in a year?
Waesche:
I would say a year and a half. It would be a
year to a year and a half. Not more than a
year and a half, because it would just be a
modification --
H.M.Jr:
And the last one?
Waesche:
Oh, they would come along within a month or two
of each other. We ought to get them all in
two to two and a half years.
H.M.Jr:
What would you do with the personnel on these
ten ships, how would you occupy them?
Waesche:
You mean for the time being? Well, we have need
right today, urgent need, for over half of them,
and the rest we will be able to find - we will
find jobs for them. As a matter of fact, we
will use them all on getting this Coast Guard
Regraded UIclassified
175
- 8 -
reserve started. We have got this reserve
going through, and we can use most of those
people on the reserve problem.
H.M.Jr:
You know the President approved this letter?
Gaston:
Yes, I haven't had a chance to tell the Admiral.
He has approved the contract thing, 80 we can
do the 10 per cent contract thing.
Waesche:
That is good.
H.M.Jr:
He approved it, and I forgot to sign mine. I
sent it over without signing it, and he signed
it and Forster over there said, "It is all
right, the President signed it, but for heaven's
sake, get the Secretary to sign it too." So
we got it this time. I think you have got two
out of three chances of getting the ten when
we give up the other ten.
Gaston:
My gosh, we ought to have.
Waesche:
We would be very much up against it without them.
H.M.Jr:
Anyway, on that appeal, that basis, and not on
the speed basis. This is & useful ship.
Waesche:
It is. These ten ships they are taking away are
really all-round purpose ships. They are our
most valuable ships.
H.M.Jr:
These ten replacements would be valuable ships.
Gaston:
What did you say, 14 and a half knots?
Waesche:
About 15 and a half knots.
Gaston:
Power plants are a little better now. You ought
to get pretty close to what you do now.
176
- 9 -
H.M.Jr:
What do you call economy speed on this?
Waesche:
About 11 or 12 knots.
H.M.Jr:
It would be a swell ship not to get sea-sick
in, wouldn't it? They won't roll with that
beam, would they?
Waesche:
No, they would be very stable in & sea.
Gaston:
If you want & real ride you ought to take one
of those 165-footers. You haven't been out
on one of those, have you?
H.M.Jr:
No.
Gaston:
Or take one of the Comanche type for some nice
pitching.
H.M.Jr:
O.K., gents. Say, you don't have to give me
anything. I came back on the Campbell.
Gaston:
I don't think I told you - about this Danmark
thing. We have been working on this Danmark
thing to buy that for 365 thousand dollars.
That Danish training ship. We haven't the
money and have to get the appropriations.
177
2nd Draft
February 28, 1941.
Dear Mr. President:
The Coast Guard vessels which seem most suitable
for convoy work are the ten cutters of the 250-foot class
built between 1928 and 1932. The names of the vessels
and the years in which they were completed are:
CHELAN
- 1928
ITASCA
- 1930
PONTCHARTRAIN
- 1928
SARANAC
- 1930
TAHOE
- 1928
SEBAGO
- 1930
CHAMPLAIN
- 1929
SHOSHONE
- 1930
MENDOTA
- 1929
CAYUGA
- 1932
The over-all length of each is 250 feet, molded
beam 42 feet, maximum draft 16 feet, displacement 1,979
tons, speed 16 knots. The gross tonnage of the first
five is 1,632 and of the later five, because of minor
changes in power plants and internal arrangement, is
1,573. All are oil-burning turbo-electric. The first
five develop 3,000 horsepower and the later five 3,200.
With the exception of one, the SHOSHONE, all of
the vessels are now on the east coast and all are in such
condition as to hull and machinery that they could be
turned over immediately. Consideration has to be given,
however, to the armament and other equipment they would
need for convoy service. Although & program of arming
and equipping all ten for service with our Navy has been
in progress, it seems far from certain that this equip-
ment will meet British needs and it seems probable also,
in view of the history of the destroyers turned over to
the British, that some structural changes will be desired.
This work could probably best be done in American yards.
We have consulted the Navy Department on this
point and the Embassy has asked advice from London. The
time when the ten cutters can be turned over for actual
Regraded Uclassified
178
- 2
convoy work will of course depend upon the extent of the
changes and additions desired and the speed with which
we can get the work done.
The transfer of these ten vessels means the loss
of about half the fleet of cruising cutters and the pro-
gram of work laid out for the year will of course have to
be drastically revised. Among cutters of the large sea-
going class there will remain seven of the new 327-foot
type and four 240-foot ships that are now twenty years
old. Of the seven 327-footers one, the CAMPBELL, is now
on Navy service in Portugal.
The following steps appear to be necessary to
adjust this year's program to he equipment available:
(a) International Ice Patrol - The recommendation
is renewed that the International Ice Patrol be abandoned
for this year. Such patrol of the Grand Banks area as may
be necessary from time to time would be carried out to the
extent that vessels are available. If the regular Inter-
national Ice Patrol is continued it will have to be done
with vessels of the 125-foot class, which are ill suited
for this work.
(b) Greenland Patrol - This patrol can be made by
the Arctic cutter NORTHLAND, the 165-foot ice breaking
outter COMANCHE, and & vessel of the 240-foot class. Efforts
are being made to obtain the BEAR OF OAKLAND from Admiral
Byrd for Greenland duty, upon the return of that vessel from
the Antarotic, about May 1. This is not quite as extensive
patrol of Greenland 8.5 had been planned for the coming sum-
mer, but it may be sufficient.
(c) Atlantic Weather Stations. To maintain a two-
station patrol in the North Atlantic will require five
vessels of the 327-foot class. This will be a full-time
duty for these five vessels, and they could not be diverted
for other use. Strong representations have been made by
the British Government, the State Department, the Weather
Bureau, and the Civil Aeronautics Administration to maintain
Regraded Uclassified
179
- 3 -
a third station on this Atlantic Weather Patrol, which
would require at least two more vessels. These are not
available. It is recommended that immediate steps be
taken to obtain and equip seven merchant vessels for this
duty. There appears to be no doubt but that all of the
327-foot cutters will shortly be needed for more important
duty. It ought to be possible to obtain for this work
seven of the Danish ships now tied up in our ports. If
the bare boats could be chartered they could be manned by
Coast Guard crews.
(a) Cadet Practice Cruise - No vessels whatever,
of suitable type, are now available for the Cadet Practice
Cruise, during the coming summer. This cruise is a very
important part of a cadet's training. It is urgently
recommended that immediate action be taken to obtain the
Danish training ship DANMARK, now immobilized at Jackson-
ville, Florida. Preliminary negotiations have been under-
taken through the State Department.
(e) Bering Sea Patrol - Two of the 250-foot cutters
were scheduled for Bering Sea Patrol during the coming
summer. The Coast Guard has no replacements for these
vessels and, consequently, the activities of the Coast
Guard in the Bering Sea will need to be somewhat curtailed
this coming summer. The patrol will have to be made entirely
by small craft, with the exception of the HAIDA (240-foot
class).
(f) Cruise to American Colonies Southwest of Honolulu -
The TANEY (327-foot class) makes periodic cruises to the
colonies established on Baker, Howland, and Jarvis Islands,
and is the only vessel available for this duty. This duty
can be continued only as long as the TANEY remains available
for Coast Guard activities.
(g) General Duties - Many other duties of the Coast
Guard - such as: neutrality patrol, law enforcement, assist-
ance to vessels in distress, towing of vessels for the
Maritime Commission, and other emergency tasks, will have
Regraded Uclassified
180
- 4 -
to be curtailed.
I expect to be able to lay before you for your
approval early next week a program, with estimates, for
new vessels to be constructed to replace the ten vessels
to be transferred and to give you further information as
to the time schedule for delivery of the ten vessels to
the British.
Faithfully,
3rd Draft
(Final)
181
February 28, 1941
Dear Mr. President:
The Coast Guard vessels which seem most suitable
for convoy work are the ten cutters of the 250-foot class
built between 1928 and 1932. The names of the vessels
and the years in which they were completed are:
CHELAN
- 1928
ITASCA
- 1930
PONTCHARTRAIN - 1928
SARANAC
- 1930
TAHOE
- 1928
SEBAGO
- 1930
CHAMPLAIN
- 1929
SHOSHONE
- 1930
MENDOTA
- 1929
CAYUGA
- 1932
The over-all length of each is 250 feet, molded
beam 42 feet, maximum draft 16 feet, displacement 1,979
tons, speed 16 knots. The gross tonnage of the first
five is 1,632 and of the later five, because of minor
changes in power plants and internal arrangement, is
1,573. All are oil-burning turbo-electric. The first
five develop 3,000 horsepower and the later five 3,200.
With the exception of one, the SHOSHONE, all of
the vessels are now on the east coast and all are in such
condition as to hull and machinery that they could be
turned over immediately. Consideration has to be given,
however, to the armament and other equipment they would
need for convoy service. Although a program of arming
and equipping all ten for service with our Navy has been
in progress, it seems far from certain that this equip-
ment will meet British needs and it seems probable also,
in view of the history of the destroyers turned over to
the British, that some structural changes will be desired.
This work could probably best be done in American yards.
We have consulted the Navy Department on this
point and the Embassy has asked advice from London. The
time when the ten cutters can be turned over for actual
Regraded Uclassified
182
- 2 -
convoy work will of course depend upon the extent of the
changes and additions desired and the speed with which
we can get the work done.
The transfer of these ten vessels means the loss
of about half the fleet of cruising cutters and the pro-
gram of work laid out for the year will of course have to
be drastically revised. Among cutters of the large sea-
going class there will remain seven of the new 327-foot
type and four 240-foot ships that are now twenty years
old. Of the seven 327-footers one, the CAMPBELL, is now
on Navy service in Portugal.
The following steps appear to be necessary to
adjust this year's program to the equipment available:
(a) International Ice Patrol - The recommendation
is renewed that the International Ice Patrol be abandoned
for this year. Such patrol of the Grand Banks area as may
be necessary from time to time would be carried out to the
extent that vessels are available. If the regular Inter-
national Ice Patrol is continued it will have to be done
with vessels of the 125-foot class, which are ill suited
for this work.
(b) Greenland Patrol - This patrol can be made by
the Arctic cutter NORTHLAND, the 165-foot ice breaking
cutter COMANCHE, and & vessle of the 240-foot class. Efforts
are being made to obtain the BEAR OF OAKLAND from Admiral
Byrd for Greenland duty, upon the return of that vessel from
the Antarctic, about May 1. This is not quite as extensive
patrol of Greenland as had been planned for the coming sum-
mer, but it may be sufficient.
(c) Atlantic Weather Stations - To maintain a two-
station patrol in the North Atlantic will require five
vessels of the 327-foot class. This will be a full-time
duty for these five vessels, and they could not be diverted
for other use. Strong representations have been made by
the British Government, the State Department, the Weather
Bureau, and the Civil Aeronautics Administration to maintain
Regraded Uclassified
183
- 3 -
a third station on this Atlantic Weather Patrol, which
would require at least two more vessels. These are not
available. It is recommended that immediate steps be
taken to obtain and equip seven merchant vessels for this
duty. There appears to be no doubt but that all of the
327-foot cutters will shortly be needed for more important
duty. It ought to be possible to obtain for this work
seven of the Danish ships now tied up in our ports. If
the bare boats could be chartered they could be manned by
Coast Guard crews.
(d) Cadet Practic Cruise - No vessels whatever,
of suitable type, are now available for the Cadet Practice
Cruise, during the coming summer. This cruise is a very
important part of a cadet's training. It is urgently
recommended that immediate action be taken to obtain the
Danish training ship DANMARK, now immobilized at Jackson-
ville, Florida. Preliminary negotiations have been under-
taken through the State Department.
(e) Bering Sea Patrol - Two of the 250-foot cutters
were scheduled for Bering Sea Patrol during the coming
summer. The Coast Guard has no replacements for these
vessels and, consequently, the activities of the Coast
Guard in the Bering Sea will need to be somewhat curtailed
this coming summer. The patrol will have to be made entirely
by small craft, with the exception of the HAIDA (240-foot
class).
(f) Cruise to American Colonies Southwest of Honolulu -
The TANEY (327-foot class) makes periodic cruises to the
colonies established on Baker, Howland, and Jarvis Islands,
and is the only vessel available for this duty. This duty
can be continued only as long as the TANEY remains available
for Coast Guard activities.
(g) General Duties - Many other duties of the Coast
Guard - such as: neutrality patrol, law enforcement, assist-
ance to vessels in distress, towing of vessels for the
Maritime Commission, and other emergency tasks, will have
Regraded Uclassified
184
- 4 -
to be curtailed.
For some time we have felt the need of additional
and better equipment to take care adequately of ice con-
ditions on our Eastern coast, in the rivers, the Great
Lakes and on the Alaskan coast. We lack also vessels
entirely suitable for coping with ice conditions in the
harbors of Newfoundland and Greenland and Iceland; nor
do Canada or Great Britain have suitable vessels for this
purpose, which may continue for some time to come to be
of great importance.
The replacement of the ten cutters to be trans-
ferred will give us an opportunity to remedy this lack,
As a part of our National defense needs it would seem
prudent to equip the Coast Guard with ships specially
constructed to overcome difficult ice conditions wherever
they are called upon to perform service.
I am therefore suggesting 8. program for the con-
struction of ten dual purpose ships at an estimated cost
of $22,500,000 ($2,250,000 each), and respectfully ask
your permission to submit a deficiency estimate in that
amount. These would be combination ice-breakers and
cruising cutters, 250 feet in over-all length and approxi-
mately 42 feet beam, similar to the ten cutters to be
transferred except that the bow characteristics would be
materially different and the vessels would be more staunchly
constructed, in order to break ice and to penetrate ice-
fields. Perhaps a half-knot of speed (of the 16 knots of
the present outters) would be sacrificed for more rugged
construction and better ice-breaking qualities. In addition
to their value for working through ice the vessels would
also have all necessary useful qualities for towing, render-
ing assistance at sea, and other varied Coast Guard work.
To summarize, the program I desire to suggest for
your approval is as follows:
(1) Submit deficiency estimates in the amount of
$22,500,000 for ten dual-purpose cutters.
Regraded Uclassified
185
- 5 -
(2) Undertake negotiations to obtain and equip
seven merchant ships for weather patrol
purposes, to be manned by Coast Guard crews.
(3) Negotiate for the purchase of the Danish
training vessel DANMARK for Coast Guard
cadet training.
Faithfully,
Secretary of the Treasury.
The President,
The White House.
186
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO
Secretary of the Treasury
FROM Alan Barth
The Senators opposing H. R. 1776 have refrained with ostentations
virtue from embarking on a formal filibuster. Yet, in effect, they have
been engaged in a filibuster - deliberately delaying action on the bill -
ever since it moved over from the House to the Senate,
The plea of the isolationists is that they need more time in which
to prepare and present their case. It seems worthwhile, therefore, to
take a glance at the time which has already been accorded them and the use
which has been made of it,
H. R. 1776 was introduced in Congress on January 10. For a period of
two weeks, the House Committee on Foreign Affairs listened patiently and
courteously to the opinions of 15 opposition witnesses, ranging in expert-
ness and erudition from the Reverend Gerald L. K. Smith who represented
the Committee of One Million to Mr. George H. Cless, Jr., of Glens Falls,
N. Y., who confessed with disarming candor that "I do not represent my
group, organization, or association of any kind. I an here today to
speak for only one person - myself
When the Senate Foreign Relations Committee undertook consideration of
the measure, it heard a total of 41 witnesses. Well over half of these -
2) in fact - registered opposition arguments. Five of the 29 had already
expressed their views at considerable length before the House Committee,
The bill went to the floor of the House on February 3, and was debated
there through February 8. It has been before the Senate for consideration
on the floor ever since the Foreign Relations Committee reported it out on
February 13. Every Senator opposed to it has had full opportunity to
express his point of view. Proponents of the bill, indeed, have kept their
advocacy of it to a minimum in the hope of exhausting the rhetoric of the
opposition as speedily as possible.
But the Senators opposing H. R. 1776 by no means confined their fore-
casting of doom to the Senate floor. One reason why they may have felt a
reluctance to participate in night sessions on the bill was that they pre-
ferred to devote this time to broadcasting their message to the people at
large via the radio. The patience of attentive members of Congress during
the long debate was exceeded only by that of the general public whose radio
loudspeakers for more than an entire month have blared repetitious warnings
of death and dissolution for the Republic.
Regraded Uclassified
187
- 2
Senators Wheeler, Walsh and Taft have each indulged themselves in two
radio outbursts against the Lend-Lease measure within the past week..
Senators of Hiram Johnson, Nye, LaFollette, Reynolds, Lodge, Denaher, Capper,
Johnson Colorado, Chavez, Tobey, Clark of Missouri and Clark of Idaho
have confined themselves to a single oratorical effort apiece on the air.
They have been bolstered to be sure, by the eloquence of others, such as
Alf Landon, John T. Flynn, General Hugh Johnson, General Robert Wood,
Norman Thomas, Hamilton Fish, and lesser lights who have availed themselves
of the free time put at their disposal to discuss the issue by the major
radio networks. The number of speeches and the quantity of time allotted
to fulminations on the bill over local stations are incalculable.
Despite the flow of words which has fattened the Congressional Record
and titillated the air waves, the isolationists have succeeded in making
converts neither among the people nor among their colleagues who will vote
on the question in the Senate. But the winning of support by persuasion is
no part of their program. Their plain strategy is to compound delay until
an explosion in the Pacific makes the public unwilling to release any part
of our defense equipment, or until a disaster in Europe makes release of
the equipment too late to be of service. A filibuster in the ordinary
sense is obviously hopeless. The opposition cannot continue to talk until
the Senate adjourns. It may, however, be able to talk until time itself
defeats the very purpose of the bill. Its method of keeping this country
from involvement in war is to court the very conditions which make involve-
sent inevitable.
Regraded Uclassified
188
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 28, 1941.
TO Secretary of the Treasury
FROM Alan Barth
THE PRESS AND PUBLIC OPINION ON H. R. 1776
Since current editorial comment continues to pursue the trend
previously reported toward acceptance of H. R. 1776, it seems useful at
this time to examine its relationship to public opinion. Newspapers, in
the recent past, have revealed themselves as markedly antipathetic to the
political judgments of their readers.
A rather curious parallel is apparent, however, between the geo-
graphical distribution of editorial opinion on H. R. 1776 and the election
returns of November, 1940. On the current foreign policy issue, news-
papers divided, at the outset, not at all as they divided during the fall
campaign, but rather as their readers divided when they went to the polls
on November 5.
GEOGRAPHICAL DISTRIBUTION
Southern newspapers solidly support the Administration position on
foreign policy. With few exceptions, they endorsed the original version
of H. R. 1776, encouraging amendment of it only as a form of enlisting
northern support for a basic program which they regarded as their own.
Regraded Uclassified
Press and Public Opinion
189
- 2 -
Conversely, the editorial opposition to the bill has been strongest
in the middle western farm belt - in those vary states, indeed, which
by fairly narrow margins recorded their electoral votes in November for
Wendell Willkie. Newspapers in this section are by no means preponder-
antly against the measure; they merely exhibit more antipathy toward it
than is apparent elsewhere.
Contrary to a rather widespread assumption, newspapers in the far
west are not inimical to the Lend-Lease proposal. The majority are sup-
porting the President, just as their readers supported him, despite
editorial fulminations, in November.
A considerable scattering of opposition is to be found among New
England newspapers. Here, too, it is certainly not in the majority; yet,
as among the people of this region during the campaign, it is sufficient
to be formidable.
These findings conform closely with the Gallup Poll analysis of
sectional differences of opinion on the Lend-Lease proposal. Gallup
showed, on February 11, in favor of the bill: South, 77 per cent; far
west, 55 per cent; New England and middle Atlantic states, 54 per cent;
west central states, 53 per cent.
In addition, Gallup showed a single section, composed of the east
central states of Ohio, Michigan, Illinois and Indiana, in which the
opinion favorable to the measure was only 39 per cent, with 35 per cent op-
posed. Chicago, he reported, is the hub" of the sentiment against aid to
Britain. It is also, through the headquarters of the America First Com-
mittee, the American Peace Mobilization and the Chicago Tribune, the hub
Regraded Uclassified
Press and Public Opinion
190
of the propaganda drive against H.R. 1776. Almost exclusively from this
source emanate such artificial protests as the mothers' march on Washing-
ton or resolutions by the D. A. R. and the Daughters of 1812.
TREND
In every sector, according to the Gallup reports, sentiment for the
bill has risen steadily since its introduction. The lag between Gallup
samplings of public opinion and publication of the results makes it dif-
ficult to gauge popular reaction to the more recent amendments proposed in
the Senate. But these amendments undoubtedly leveled a large measure of
the remaining opposition.
Newspaper support of the bill has grown similarly, as the Administra-
tion has accepted revisions of the bill's original form. But the growth
of this support has merely kept abreast of the published Gallup reports.
This seems to indicate that the newspapers are expressing what their readers
thought some time in the past and lag behind the swifter evolution of
popular opinion. Newspapers, in short, have reflected, more than they have
affected, public thinking.
One other inference seens warranted from these observations: The con-
sideration which basically motivates public opinion on H. R. 1776 is trust
or distrust of President Roosevelt. The arguments as to the dictatorial
possibilities or the dangers of war involvement inherent in the bill are the
rationalizations of editorial writers. A majority of the public backed the
President in November in large measure because it had confidence in his con-
duct of foreign affairs. A similar majority backed him when the Lend-Lease
issue was first broached. That majority has been increasing steadily in
direct ratio to the growing sense of national unity under the President's
leadership.
Regraded Uclassified
191
February 28, 1941
4:21 p.m.
Cordell
Hull:
Hello, Henry?
H.M.Jr:
Hello. How are you?
H:
All right. Secretary Stimson called me up
about that Jim Byrnes amendment and it's a
little bit hard for me to get my teeth in it.
I wanted to Bee what your slant is on it.
H.M.Jr:
Well, we got up this little memo which War
and Navy and we signed and then sent it over.
Did you see it?
H:
Yes, I saw - I didn't see whether you signed
it or not.
H.M.Jr:
Yeah, I signed 1t. Would you like me to send
you a photostat of what I sent.
H:
Well, I've got a copy of that. Now, what I'm
trying to get to 1e, first, you think it's a
serious matter, do you?
H.M.Jr:
Yes, because I think it would make it very,
very difficult for the Army and Navy to operate.
H:
Byrnes didn't confer with anybody?
H.M.Jr:
Not in our shop. Well, now, wait B. minute.
He asked one of our men - the way we heard
about it - he asked somebody down here whether
they wouldn't draw it up for him, you see, and
I guess that's the way it came, and we refused
to. We refused to draw it up.
H:
Yes. Well, what I'm trying to get at is to get
enough material here to talk to Byrnes. Stimson
wanted me to talk with him and I'll be glad to
talk to any of those fellows over there but it's,
88 I said, hard for me to get my teeth into the
thing.
H.M.Jr:
Well, would this be helpful? The lawyer here
who has been following it is Oscar Cox. Would
you like him
Regraded Uclassified
192
- 2 -
H:
I think he came over. I think he was with
the War Department man who came into my office.
H.M.Jr:
With McCloy?
H:
Yeah. They gave me some data and I just wanted
to see how you were impressed with this thing.
H.M.Jr:
Well, I think it would make it very, very
difficult for the Army and Navy.
H:
Well, I'll call up two or three of these
fellows and talk with them and see if I can
get anywhere. You haven't heard whether the
President talked to Byrnes or not.
H.M.Jr:
No, I sent it over by letter around 1:30
o'clock and I haven't heard from him since.
In that we asked him to let us know, you see,
in the memorandum whether there was anything
we could do.
H:
You asked the President.
H.M.Jr:
Yes, and I've not heard from the President.
H:
Well, then I think we'd better hear from him
80 we'll know just what - don't want to work
at cross-purposes.
H.M.Jr:
Well, I haven't done anything and my boys
haven't done anything other than to send this
over to the President.
H:
Well, now I don't want to step out in front of
the President on this because these amendments
have generally been considered by you and him
there and Stimson and among them, that is
relating to this part of the bill.
H.M.Jr:
Well, he's been sort of handling it himself
and 80 I didn't want to do anything/he asked
me to.
unless
H:
Yes. Now, I've been spending some little time
in helping fight off the Ellender amendment
and some others that I'm familiar with and I
want to help on this in any way I can if the
President wants to make a fight on it.
Regraded Uclassified
193
- 3 -
H.M.Jr:
Well, I don't know whether he does or he
doesn't but it's in his lap right now. We're
him. doing absolutely nothing until we hear from
H:
Well then there's nothing for me to do.
H.M.Jr:
Well, that's of course up to you but
......
H:
The only thing I could do would be to talk to
some Senators, you know.
H.M.Jr:
Well, as I remember it we say, "Will you advise
us what you'd like us to do," and I haven't
heard from him 80 I'm not going to move.
H:
Yes. I see. All right then. You let me know
any of you. I'll be reading up on this thing
and if and when you want me to protest to a few
of those Senators I'll be mighty glad to do it.
H.M.Jr:
Thank you 80 much.
194
February 28, 1941
4:33 p.m.
H.M.Jr:
Hello.
Wm.
McReynolde: So far we haven't found any more men who were
drawing money from the British Commission and
the Federal Government too. I found that that
fellow had been transferred to Knudsen's rolls
after they moved over to O.P.M. and they were
paying him $22.00 a day as a consultant for
whenever he worked in addition to his drawing -
his firm drawing $2,000 a month from the
British Commission.
H.M.Jr:
Uh-oh.
McR:
Bill is praying over it today. He hasn't
made a report to me on it. I talked to Hervey
Emerick this morning and he said he'd try and
get a report in my hand before the end of the
day but I haven't got it yet. I'm going to
call him again later. But I thought you might
like to know. We haven't found anybody else
in the same category yet and I'm having them
all checked.
H.M.Jr:
O.K., Mac.
McR:
Right.
Regraded Uclassified
195
February 28, 1941
4:38 p.m.
H.M.Jr:
Hello.
Morris
Troper:
This is Troper talking. (Joint Distribution
Committee).
H.M.Jr:
Yes.
T:
Where would that meeting be on Sunday,
Mr. Secretary.
H.M.Jr:
It will be at my home.
T:
At your home, and what 1s the address?
H.M.Jr:
2211 - 30th Street. It's just off Massachusetts
Avenue.
T:
Off Massachusetts Avenue.
H.M.Jr:
That's important because 30th runs down to
Georgetown.
T:
I see. Is there any Northwest or anything
connected with it.
H.M.Jr:
Northwest, yes.
T:
Now, I'm trying to arrange the following:
For what time would you want that?
H.M.Jr:
Well, how many would there be?
T:
Well, I'm trying to arrange for Edward Warburg,
Harold Linder, Harold Ginsberg, Paul Baerwald
and myself. That would be five.
H.M.Jr:
Well, we'd be glad to have them for supper.
T:
Well, what time would that be?
H.M.Jr:
7:30.
T:
May I confirm that to your secretary?
H.M.Jr:
Surely. Well, you'd better send me a telegram
to that address because I - send a telegram to
my address.
196
- 2 -
T:
Now I'll repeat it. 2211 - 30th Street, N.W.
H.M.Jr:
Yes. Off Massachusetts. And that would be
at ......
T:
Yes, you see there 1s a conference going on
down at Princeton today and tomorrow and some
of the people I couldn't reach, but I thought
that that's a varied group and there are at
least three nice young men there and I thought
that - now will you have Ed Greenbaum there?
H.M.Jr:
Yes. I'll get word to him.
T:
having. I see. Anybody else that you were thinking of
H.M.Jr:
Well, if I could get him I'd get Justice
Frankfurter.
T:
I see. Well, then I'll tell these people and
I'll confirm it by telegram for 7:30 Sunday
evening - this Sunday.
H.M.Jr:
When do you think I'd know?
T:
Well, I'll find out in a little while and I'll
send a telegram immediately.
H.M.Jr:
I mean I'd hear still today.
T:
Yes, you'll hear this evening.
H.M.Jr:
And if you don't remind repeat in the telegram
who 18 coming.
T:
Yes.
H.M.Jr:
So I'd have it.
T:
Yes.
H.M.Jr:
Well, that'll be fine.
T:
Well, I'm doing the best I can. All right,
sir. Glad to talk to you. Thank you very much.
H.M.Jr:
Thank you.
197
February 28, 1941
4:45 p.m.
Harry Hopkins just called me up and said that
after checking all over town, he finds that the best
lawyer, the most resourceful lawyer, in town is Oscar
Cox, and he would like to have him. So I said that he
was asking 8 lot but I would give him anything to help
him. Then he said that what he really wanted was me.
I told him that I would be here any time he wanted to
get me on the telephone or see me.
Then Hopkins told me he didn't want to build
up his own statistical organization and could he use Haas?
He said that he would have to be talking to me all the time,
and if he gave me somebody else's figures I would only have
Haas check them any way, and so if he gave me Haas' figures
he said that I would be better satisfied. I told him that
we could try it and see just how much he needed Haas as we
go along.
I asked Hopkins why he didn't speak to the
President and get him to call up Cordell Hull and get Hull
to talk to Byrnes about killing the so-called Byrnes amend-
ment. This is the one we wrote the President about today.
He asked me if I thought it was really important and I said,
"Yes."
It certainly is interesting that the more Hopkins
goes into this job the more he wants the Treasury people,
and I think he had better move over here.
#######
Regraded Uclassified
198
MEMORANDUM TO THE PRESIDENT
There has been an amendment proposed
to H.R. 1776 by Senators Taft and Byrd which
Senator Byrnes has indicated he is willing to
accept in substance. Its implications are 80
serious we think it ought to be called to your
attention.
This amendment provides that no defense
articles procured out of appropriations made to
the War and Navy Departments after the effective
date of H.R. 1776 can be transferred under the
bill without the consent of Congress.
This amendment would seriously cripple
the contemplated operations under the bill. It
would make it impossible effectively to carry out
a joint procurement program. It would mean practically
that we would have to have a separate Army, Navy and
foreign aid program. It would also take away the
flexibility that is necessary in disposing of defense
articles.
Regraded Uclassified
199
- 2- -
We have felt justified in bringing this
to your attention because no amendment to which
administration Senators have been receptive cuts
so close to the heart of the bill.
Do you have any suggestions for us?
Henry L Stinson
Secretary of War
Henry Mayonthan Ir.
Secretary of the Treasury
Fouestal
Acting Secretary of the Navy
February 28, 1941.
Regraded Uclassified
200
February 28, 1941
5:00 p.m.
H.M.Jr:
Hello.
Operator:
Secretary Stimson.
Henry L.
Stimson:
Henry?
H.M.Jr:
Yes, Harry.
S:
I'm a good deal troubled about that Byrnes
amendment to that bill. I think it would Just
take the guts out of the whole thing.
H.M.Jr:
I agree with you.
S:
Now I called up Cordell this morning and I
asked him if he would help in it and I sent
him a set of my own remarks on that subject
and you see he hadn't taken any part in the
analysis of the bill before the committee. I
gave him the points which I thought would show
the important - what we thought was the
important part of the bill and how this thing
would destroy it. I sent him a copy of the
argument that I think has been drawn up between
Cox and McCloy in regard to what the amendment
would do to the proposed system as I had set
it out in my statement to the Senate and the
House both.
H.M.Jr:
Yes.
S:
Well, I called him up again and he has read
them and told me he
H.M.Jr:
I don't hear awfully well.
S:
I say, I called him up again and talked with
him again on the phone and he has prepared
himself and 18 ready to go into action but he
doesn't want to do 80 unless the President
wants him to.
H.M.Jr:
Yeah. Well, he called me - I don't know whether
it was before or after - and he asked what my
position was and I said that in this note which
we all signed, the last sentence, we said we
were all waiting to hear from the President
what he wanted us to do.
Regraded Uclassified
201
- 2 -
S:
Well, now frankly this is the situation. An
soon as I heard of it, which was yesterday
afternoon, I called the President up myself
and told him Just this - told him I thought
this would take the guts right out of the bill
and he told me that he thought 80 too and was
doing - gave me the impression that he was
handling it 60 I told him I was very glad to
hear that and that if there was anything I
could do why to let me know. His voice
sounded very husky - gave me the impression
at once that his cold was worse again and I
thought that it was the part of humanity not to
talk any longer about it and I just hung up.
Now, I've done all that I dare do towards
stirring him up but you as his close personal
friend perhaps now can carry the ball a. little
bit further and pull the string that will
start Cordell going.
H.M.Jr:
Well, that thing undoubtedly got into the
President's hand by 2 o'clook or earlier. I
sent it over by special messenger; I sent a
copy of it to Harry Hopkins and one to the
Director of the Budget and, frankly, with the
man sick I don't like to call him up.
S:
Well, I'm in the same position 88 you with the
addition that I've already called him up once.
This would be 8. second time.
H.M.Jr:
Has that been introduced?
S:
Why no, it's in rumor position. It hasn't been
introduced but it has been talked about - it
may have been introduced but it hasn't been yet
fathered absolutely by Byrnes and the leaders
although the papers reported them as saying
that they didn't Bee any objection to it. That's
what scared me.
H.M.Jr:
Yeah. Well, frankly - you want my straight
answer - in view of the condition of his health
I don't want to call him up. He's got that
memorandum and that was a strong memorandum.
S:
Henry, here's the point: the President's whole
effort may be ditched by the failure to pull the
string on Cordell to get after Byrnes. Now I
Regraded Uclassified
202
3
Would a call to Harry Hopkins help?
don't like to see that rest in that way.
H.M.Jr:
Yes, I think it would.
9:
Because I think someone - I can't sit still
and watch the highwaymen killing a friend.
H.M.Jr:
I tell you what I'll do - let me see if I can
get Harry Hopkins and if I can I'll talk to
him and I'll call you
.....
S:
You can because I've just talked with him
on another matter that the President has given
us - you know that matter of the reconciliation
of the programs - the British programs - and he
is there now. You can get him.
H.M.Jr:
Well, I'll see if I can get him and I'll call
you back and let you know what he says.
S:
Well, I'm at the hospital to see how Palmer
is - he's been very sick.
H.M.Jr:
Well, I'll call him anyway.
S:
You can get me at my house as soon as I get
from the hospital there, or - I don't think
it's necessary for me to wait
H.M.Jr:
No, no, you go ahead and I'll let you know
later tonight.
S:
All right.
203
TREASURY department
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO
Secretary Morgenthau
FROM Mr. Cechran
Mr. Pinsent called on me between 5 and 6 e'sleck on February 20. He said that
rumers were current in New York that the Irish Free State was endeavoring to obtain
& lean there. I told him that the Treasury had absolutely no information with
respect to any attempted or contemplated borrowing by the Irish Free State Government
in the United States. Mr. Pinsent reminded no that the Irish Free State is in the
sterling area and that the British Government is responsible for providing her with
dollars. There would be quite a complication, therefore, if the Irish Free State
should be able to burrow on our market, when Great Britain is ferbidden, while the
latter still has the responsibility of keeping the Irish supplied with dellars.
HMS.
204
Regraded Uclassified
February 28, 1941
MEMORANDUM FOR THE PRESIDENT:
There have just been returned to me by Mr. Hoover, Director
of the Federal Bureau of Investigation, all requests heretofore
made for investigations by his Bureau of individuals proposed for
appointment by the Advisory Commission and other organizations
coming under the general jurisdiction of the Office for Emergenor
Management. In only 73 of the 469 cases referred for investigation
have completed reports been received from the Federal Buresu of
Investigation. In view of the extreme slowness with which the
Bureau was able to furnish service in this matter. I have made no
effort to convince Mr. Hoover that he should reconsider his decision
to discontinue these investigations. However, it seems quite in-
practical to undertake ourselves the work of investigating these
cases, particularly since they require inquiries in all parts of the
country. and without an organization set up with field headquarters
it would be not only difficult. but very expensive to conduct
adequate Investigations. Therefore. I have made a personal request
of the Secretary of the Treasury that he authorise the Treasury's
investigative organization to undertake this work for us. No told
me that he would be willing to have this done only at your direction.
I have, therefore. prepared and attach herebo: a draft to him for
your signature. making such & request. In view of the urgent need
for very prompt and thorough investigations of all major personnel
recruited for the defense agencies. plus the fact that the Treasury's
investigative organization is the largest and most widely distributed
one, I hope you will be willing to make this request.
= signed R. McReynolds
205
February 28, 1941
MEMORANDUM FOR THE SECRETARY OF THE TREASURY:
I have just received a memorandus from Mr. McReynolds to
the effect that investigations of persons proposed for employ-
ment in the several defense organizations which he has requested
of the Federal Bureau of Investigation have been unsatiefactory
because of the slowness with which the Bureau was able to handle
them. I have, therefore, instructed him to turn over to you
all cased requiring investigation and I wish you would have your
investigative service arrange to handle than very promptly and
thoroughly. HoReynolds will make the usual form of request for
this work to be performed by the Treasury under authority of the
provisions of the Economy Act.
Regraded Uclassified
206
THE WHITE HOUSE
WASHINGTON
February 26, 1941
MEMORANDUM FOR THE SECRETARY OF THE TREASURY:
I have just received a memorandum from Mr. McReynolds to
the effect that investigations of persons proposed for employ-
ment in the several defense organizations which he has requested
of the Federal Bureau of Investigation have been unsatisfactory
because of the slowness with which the Bureau was able to handle
them. I have. therefore, instructed him to turn over to you
all cases requiring investigation and I wish you would have your
investigative service arrange to handle them very promptly and
thoroughly. McReynolds will make the usual form of request for
this work to be performed by the Treasury under authority of the
provisions of the Economy Act.
Regraded Uclassified
207
February 20, 1041
My dear General:
I would appreciate it if you
would arrange an appointment for me
to see the President on next Thursday,
March 6th, and hope that you can make
it his first appointment.
My purpose in seeing the President
is to lay before him, at that time, my
plans for selling Defense Savings Bonds.
Yours sincerely,
(Signed) E Merganihau, Jr.
General Edwin M. Watson,
Secretary to The President,
The White House.
By Musser 535
Regraded Uclassified
208
February 28, 2001
liy dear General:
I would appreciate it if you
would arrange an appointment for no
to see the President on next Thursday,
March 6th, and hope that you can make
it his first appointment.
My purpose in seeing the President
is to lay before him, at that time, my
plans for selling Defense Savings Bonds.
Yours sincerely,
(Signed) E dr.
General Edwin M. Watson,
Secretary to The President,
The White House.
By Memorager
Regraded Uclassified
209
February 28, 1941
lty dear General:
I would approciate it if you
would arrange an appointment for me
to see the President on next Thursday,
March 6th, and hope that you can make
it his first appointment.
My purpose in seeing the President
is to lay before him, at that time, 4
plans for selling Defense Savings Bonds.
Yours sincerely,
(Signed) E Jt.
General Edwin M. Watson,
Secretary to The President,
The White House.
m
I
Regraded Uclassified
210
February 29, 1941
My dear Mr. President:
I an sending you herewith, for
your confidential information, a copy
of the latest statement of aircraft
shipped to the United Kingdom and other
points. The figures represent planes
which have been received at the assembly
points listed during this last week.
Yours sincerely,
(Signed) 1 Margenthan, Jr.
The President,
The White House.
& I
520
Regraded Uclassified
211
February 28, 1941
My dear Mr. President:
I an sending you herewith, for
your confidential information, & copy
of the latest statement of aircraft
shipped to the United Kingdom and other
points. The figures represent planes
which have been received at the assembly
points listed during this last week.
Yours sincerely,
(Signed) E Margathan, Jr.
The President,
The White House.
& !
Regraded Uclassified
212
February so, 1941
My dear Mr. President:
I am sending you herewith, for
your confidential information, a copy
of the latest statement of aircraft
shipped to the United Kingdom and other
points. The figures represent planes
points listed during this last week.
which have been received at the assembly
Yours sincerely,
(Signed) E. Merganthau, Jr.
The President,
The White House.
By Measenger
Regraded Uclassified
213
CONFIDENTIAL
(To Keep You Posted)
February 26, 1941
To:
The Secretary
From: Mr. Young
Re: British Aircraft Shipments.
Attached herewith is the latest statement of aircraft
shipped to the United Kingdom and other points. This state-
ment is submitted in the same form as the one which you
received last week. As you will recall, the figures repre-
sent planes which have been received at the assembly points
listed during this last week.
P4.
214
STRICTLY CONFIDENTIAL
STATEMENT OF AIRCRAFT SHIPPED TO U.K.
& OVERSEAS COMMANDS
By Sea
By Air
during week
during week
Assembly
ending
ending
Type
Destination
Point
Feb. 1.41
Feb. 22.41
Douglas
Boston II
U.K.
U.K.
14
-
Lockheed
Hudson III
-
4
Hudson IV
U.K.
U.K.
1
-
Glenn Martin
Maryland
M.E.
Capetown
16
-
Consolidated
PBY
U.K.
via Bermuda
-
-
Brewster
Buffalo
F.E.
Singapore
(via Panama)
27
-
38
4
British Air Commission
February 24th, 1941
STRICTLY CONFIDENTIAL
Regraded Uclassified
215
copy given
to Mr. Jones
Fabruary 28, 1941
3/1/41
My dear Mr. Secretary:
I - attaching herewith for your information
a copy of a memorandum dated February 26th, con-
cerning British requests for clearance pending in
the Var Department.
Sincerely,
(Signed) E Menganthan, Jr.
Secretary of the Treasury
The Menorable,
The Secretary of War.
bj
a %
Regraded Uclassified
A
216
Merusy so, 1941
Dear Harrys
I - conting you herewith a espy of
w/ letter to Secretary Others together
with a copy of the memerandes referred to
concerning British requests for clearance
pending in the Yes Department.
Sincerely,
Honorable Harry Heyking,
the White House.
bj
By Manager
Regraded Uclassified
046
NET
Petruary se, 2941
Dear Marrys
I - conding you herevith a copy of
my letter to Secretary Stinson together
with & espy of the referred to
concerning British requests for elearance
pending in the Yes Department.
Sincerely,
Henry
Honorable Envry Hopkins,
the White House.
by
& I
Regraded Uclassified
00/1
218
25, 1941.
MINORANDOM
201
The Secretary
FROM: Mr. Young
Be: British requests for clearance pending in the
Var Department.
For your information. there is presented below a listing
of requests for elearance filed by the British Furchasing Commission
with the President's Linison Committee through this office and which
at this writing are hold by the Var Department:
Date Filed
Material
P.N.R. No.
Oct. 23. 1940
37 ⑉ A.P. that (Frejectile only)
21-0F-3 Alt.
Nov. 2. 1940
2-Pounder A. P. that
1 Alt.
Dec. 8. 1940
ma-73 Purents Aircraft
370
.
.
e
8-39 Pursuit Aircraft
371
-
.
e
Dector Dembers
372
#
.
.
Benber - Martia 157
373
.
a
.
Madeon Reconnaisence Benhers
374
-
.
.
Bender - Lookhood-37s
375
.
.
.
Estrard Trainer Aircraft
376
. . a
Hands 574 - Aircraft
377
. . .
MA-73 - Pursuit Aircraft
378
.
.
#
Typhoon - Pureuit Aircraft
379
Dec. 9. 1940
Miss. Spare Barrols, Gase One-
plete, Noviteers, etc.
414
Dec. 12. 1940
Fase Be. 253 for 20 IN 1.1.
Shell (Hispano duisa)
192-02-6
Dec. 21, 1940
40 Mark XVI Leese Barrels
A-13-R
Des. 31. 1940
Anti-Pank Carriages for
37 IN Guas
358 Alt.
Jan. 3. 1941
Before A. A. Mounts
501
Jan. 9. 1941
Pratt & Whitney Ingines
563
Jan. 22, 1941
Binsoulars 6 % 30
598
.
e
6
9
...
599
Regraded Uclassified
219
- 2 -
Date Filed
Material
P.K.R. Ze.
Jam. 23. 1941
be Case 50 Gal. U.S. Savel Cartridge
Jam. 27. 1941
602
20 ⑉ Hispane Sulsa Cannoa for
Aircraft Mounting
Jam. 26, 1941
610
Pase Be. 253 for 20 MM R. 1.
Shell (Hispano Suisa)
Feb. 3. 1941
6 = 30 Priematic Discoulare with
192-0F-6 Alt.
Grationles
648
.
.
I
6 a 30 Prienatic Bineoulars with
Orationles
64g Alt.
Feb. 4. 1941
Stool Galv. Sinc Powder Boxes
670
8
9
e
.
e
.
II
e
671
Feb. 7. 1941
Spares for 2. 4 V. Engines
524 Alt.
Feb. 10, 1941
Discoulars 6 = 30
596 Alt.
. # .
6 a 30 Prienatic Bineculare with
Graticules
648 Alt.
Feb. 11, 1941
Bineoulare 6 X 30
598 Alt.
#
.
e
.
...
599 Als.
e a a
6 I 30 Priomatic Bineoulars with
Graticules
as Alt.
Feb. 17. 1941
Nitration Telmel
422-2
Feb. 19. 1941
Steel Galv. Sine Powder Bozes
670 Alt. Lat.
. # a
#
.
.
#
.
672 Alt. Let.
The above listing includes only those requeste which have
been filed by the British Purchasing Commission. to official
notification of Mar Department action with respect to these requests
has been received by this office.
Copies of this liet are being cont to General Durne, Admiral
Spear, and Mr. Imples. These copies are going forward today.
2/26/41.
Regraded Uclassified
220
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE February 25, 1941
TO
Secretary Morgenthau
FROM
H. D. White
Subject: Changes in U.K. Gold and Dollar Exchange Assets.
On January 8, the British submitted estimates to us that
their "cash" resources--gold and official dollar balances--
would be exhausted by the end of January and that a deficit
of $250 million would be incurred by the close of February.
That 16 to say, the expected drain on their cash assets in
the two months was estimated at $600 million.
There are appended two tables:
1. The first table shows that the United Kingdom had $270
million of gold and official dollar balances on January 31 and
$208 million on February 19. This latter figure excludes re-
ceipts of newly mined gold in February and assumes that the
British have not sold gold outside the U. S. since January 31.
(They have sold less than $150,000 to us in February.)
The drain on dollar exchange assets in January was $134
million and the estimated drain from February 1 to 19 was $78
million, or a total of $212 million since December 31, 1940, &s
compared to British estimate for the 2-month period of $600 million.
Inasmuch as the British direct investments have not been
touched and their securities sales have been about what they
88 to their dollar expenditures or their dollar receipts or both.
anticipated, it 18 evident that the British were in error either
The major source of error seems to have been in the forecast of
expenditures, which included large sums for new program-sume
which were not spent.
2. The second table 18 computed as 8. rough check upon the
drain on assets. It gives estimates, based upon British informa-
tion, of British dollar expenditures and receipts for the to 7-week
period. This shows that if expenditures from January 1
million. year This is $70 million higher than the drain on assets the
for the 19, 1941, the drain on assets would have been $280
February 1941 were at the rate anticipated by the British
most plausible explanation of the difference would be in defer-
shown in table I. If the British estimates are accepted,
ment of payments due Canada or in seasonal movements.
Regraded Uclassified
221
1. Gold and Dollar Exchange Assets of the United Kingdom
(In millions of dollars)
Dec. 31
Jan. 31,
Feb. 19,
Decrease Since
1940
1941
1941
Dec. 31, 1940
Gold
292
154
154 #
138
Official dollar balances
54
116
54
-
Private dollar balances
302
298
299 *
3
Marketable U.S. securities
616
562
545
71
Direct and wiscellaneous
investments
900
900
900
-
Total
2,164
2,030
1,952
212
of which there are avail-
e,according to British 1,811
1,697
1,610
2. Estimated Dollar Expenditures and Receipts of
British Empire, excluding Canada and Newfound-
land, from January 1 to Feb. 19, 1941
(in millions)
Dollar Expenditures
a. Payments of British Purchasing Missions in U. 5.
Jamary, as reported by British
$180
February 1 to 19 (British forecast
for Feb. on a pro-rata basis)
100
$280
b. Deficit with Canada required to be settled in
gold or dollars (British estimate made
early in Jamary; Feb. forecast on a
50
pro-rata basis)
C. Other dollar payments to U. 8. and other countries
(British estimate for 1941 on a pro-rata basis).
110
Total
$440
Dollar Receipts
a. Dollar Receipts for commodity exports and service
transactions (British estimate for 1941 on a
90
b. Newly-mined Australian and South African gold
pro-rata basis)-
70
(British estimate)
160
Net dollar expenditures,Jan. Total 1 to Feb. 19, 1941.....
$280
# This figure is based on the assumption that the U.K. sold 1 to no 19. gold out of
its monetary $142,000 of gold to U.S., January 31 through February this country. 18.
stock to countries other than U.S., Feb.
** Another of British private dollar balances in the January 29,
U.S. sold mall only shipment of $203,000 is reported in transit NoY. to F.R.D. on
This February is the 11 sun ($276 million) and outside the N.Y. F.R.D. on
($23 million).
February 27, 1941
Treasury Department, Division of Monetary Research
Regraded Uclassified
222
February 28, 1041
Dear Helson:
Your letter dated February 14th
is postmarked at 4 Pallies February 27th,
and was received by me on February 28th
at 9:04 Bellie
I have read the contents of your
letter and have brought it to the atten-
tion of Mr. Fehle, who is in charge of
foreign funds.
Yours sincerely,
(Signed) a Morganihan, Jr.
Honorable Nelson As Rockefeller,
Coordinator of Commercial and Cultural
Relations Between the American Republics,
State Department Building,
Washington, D. C.
Copy of this letter + incoming
to mr. Peble 3/4/41
Regraded Uclassified
223
February 28, 1941
Dear Nelson:
Your letter dated February 14th
is postmarked at 4 pomes February 27th,
at 9:04 &.m.
and was received by me on February 28th
I have read the contents of your
letter and have brought it to the atten-
tion of Mr. Fehle, who is in charge of
foreign funds.
Yours sincerely,
(Signed) e Mongrathau, Jr.
Monorable Nelson A. Rockefeller,
Coordinator of Commercial and Cultural
Relations Between the American Republics,
State Department Building,
Washington, D. C.
7y f t ile sent to the Pehle 3/4/41
for his information
Regraded Uclassified
224
COUNCIL OF NATIONAL DEFENSE
COORDINATOR OF COMMERCIAL AND CULTURAL RELATIONS
BETWEEN THE AMERICAN REPUBLICS
STATE DEPARTMENT BUILDING
WASHINGTON, D. G
February 14, 1941.
My dear Mr. Secretary:
We understand that the extension of the Foreign Funds
Control Regulations to include Central and South America
is being considered. In case this 1s done, I am offering
certain suggestions which I believe may considerably alle-
viate the apprehensions which would be almost certain to
arise.
I feel it would be particularly helpful if the
central banks of the various countries, where they exist,
could be informed of the extension in confidence before
it takes place and be given assurances that would place
them in a more receptive and cooperative spirit.
It also seems important that any publicity or regu-
lations issued at the time of the extension be written 60
as to convince our neighboring countries that no confiscations
or unnecessary impairment of their normal activities need be
feared.
Undoubtedly these thoughts have already occurred to
you and your associates, but in view of the importance of
the matter to our relations with our neighbors, I have taken
the liberty of bringing them to your attention.
Sincerely, When 6. Rochipellor
NELSON A. ROCKEFELLER,
Coordinator
The Secretary of the Treasury
Washington, D. C.
Regraded Uclassified
225
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO
Mr. White
FROM
Mr. Southard
Subject: Trade Agreements Committee consideration of a flaxseed
concession to Argentina
1. At a meeting on Tuesday, February 25, 1941, the Trade Agreements
Committee again debated this question and finally agreed, only the
Tariff Commission majority dissenting, on a reduction of the tariff from
65 cents to 50 cents per bushel, without quotas. Mr. Wheeler says that
the AAA is prepared to defend this much of the concession (as long as
it is not made responsible for it), on the ground that it will help to
prevent the development of the domestic flaxseed into one more "surplue"
commodity. Any greater concession - even though hodged by a quota -
the Department of Agriculture is not prepared to support,
2. No one can be sure whether the Argentines will regard a reduction
of the duty to 50 cents as worth very much, Mr. Hawkins doubts that they
will and I personally share his doubts. Argentina is worried about its
future prospects for the export of cereals and meat. In the case of
neat, we are apparently going to be able to offer them an important
concession only on canned meat, In the case of cereals, flaxseed is
apparently the only possibility.
3. I realize that our domestic agricultural policy, the present
abnormal state of foreign trade, and the impossibility of forecasting
post-war trade conditions all combine to diminish one's enthusiasm for
a trade agreement as 8 major contribution to Argentine-American relations.
But I think it is worth noting that a few days ago the German Ambassador
to Argentina, on his return from Berlin, warned Argentina that her trade
relations with the United States have no future and that post-war Germany
would become the biggest buyer of Argentine goods. He specifically
asserted that Germany would buy Argentine corn, wheat and meat and that
we would not. He therefore urged the Argentines to maintain "an india-
pensable common respect" for the Germans in Argentina who, be said "have
contributed to the creation of industries and commerce and have given
their active life'to Argentina. This is the sort of appeal that makes
sense to the Argentines and its effectiveness is certainly going to be
increased. if it becomes once more apparent that we are prepared to make
only the most niggardly concession on agricultural products.
Regraded Uclassified
226
TREASURY DEPARTMENT
Country
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO Secretary Morgenthau
FROM Mr. Cochran
While talking with the Secretary today on various problems, I reminded him that
some days ago I had mentioned the visit of the Spanish Ambassador and our plans to
begin the refining in the Assay Office at New York of the remaining Spanish silver
which had been held up by litigation.
I told the Secretary that in this complicated case there vas some difference of
opinion among his staff as to how much of & fee should be paid the Treasury's special
counsel, Mr. Stimson, and whether this should be deducted from the balance due the
Spanish Government on account of their silver sales to us. I recommended to the
Secretary that this matter was sufficiently important that it should come up to him,
through the usual departmental channels. in written form, recommending specifically
what amount of legal fees should be paid and also setting forth opinions as to the
proper source of the funds for such payment of legal fees. I thought that there
should be no contact with the Spanish Ambassador until a decision on these points is
reached within the Treasury. I felt this matter deserved especially careful review,
.onsidering the possibility of unfortunate reactions either if a fee might be paid
to a Cabinet member or to his firm in an amount which might by some be regarded as
on the generous side, or if the Spanish Government might find ground for a new com-
plaint against this Government, alleging that the latter was withholding from it
funds to pay Treasury counsel without a specific agreement providing therefor.
The Secretary agreed with the above suggestions.
Jall
227
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 28, 1941
TO
Secretary Morgenthau
FROM Mr. Cochran
On February 24 Dr. Amos Tayler telephoned me from the Department of Commerce
that Consul Herace H. Smith from Shanghai had completed his tour of duty in the
Department of Commerce, fellowing a similar one in the Department of Agriculture,
and was now available for two weeks in the Treasury Department before returning to
his post.
Before receiving Mr. Smith in the Treasury that afternoon, I talked with
Messrs. Livesey and Bailey (Assistant Chief of the Division of Foreign Service Per-
sonnel) in the Department of State and with Mr. White in the Treasury. It vas the
understanding that the State Department would like to have Mr. Smith sit with us
here for a couple of weeks, to give us the benefit of such information as he might
have of use on China, and to obtain from us any suggestions which might improve his
reporting work from Shanghai, particularly in view of our contemplated Stabilization
arrangement with China. Mr. Smith accempanied me to Mr. White's office and has been
given a desk in Mr. White's division. It is suggested that he be presented to
Jader Secretary Bell before his fortnight teur of duty expires.
Regraded Uclassified
So. 5416
228
Tokyo, Japan
February 28, 1941
SUBJECT: JAPAN'S GOLD POSITION
CONFIDENTIAL
The Honorable
The Secretary of State
Washington
Sir:-
I have the honor to refer to Department's instruction No. 2098 dated
January 4, 1941, and to the memorandum relative to estimated monetary gold
stocks of Japan, attached thereto.
The Department's attention is invited to this Embassy's despatch No. 5168
dated November 22, 1940, subject: "Japan's Gold Position". The only additional
statistics now available are those covering gold shipments during 1940, which
show that these aggregated 2,239,485.278 troy ounces or 69,648 kilos valued at
Ten 328,953,425.48. Comparative figures for 1939 are 4,819,759.970 ounces,
149,894 kilos, and Ten 660,958,733.81. These data indicate a reduction of 53-1/2%
in volume and 50$ in value.
Our estimates of collection for January-October, 1940 may have been somewhat
low as there are rumors afloat to the effect that, although the Government has
not actually enforced the Gold Compulsory Purchase Law promulgated in October,
1940, & nationwide collection of gold articles is now being meticulously carried
out on the basis of the census of gold holdings taken during 1938, and that this
pseudo collection is actually a confiscation of holdings even though it is cloaked
in patriotic garb. However it is not believed that receipts of exportable gold
from this source during 1940 equalled the estimate for 1939. but they may have
reached something like 8,000 kilos.
Regraded Uclassified
229
- 2 -
By using the figures for total shipments during 1940 of 69,648 kilos and
an estimated 8,000 kilos for collections, the tabulation of stocks at the onl
of October. 1940 on page 2 of our despatch No. 5168 will be changed se follows
to show the position at the cal of 1940.
Kilos
Balance on hand Jan. 1, 1940
62,895
Estimated production 1940
77,000
Estimated gold collections, 1940
5,000
85,000
Total resources Dec. 31, 1940
147,895
Estimated domestic consumption 1940.. 3,600
Exports, 1940
69,648
73,248
Stocks on hand January 1, 1941
74,647
Equivalent to:
$86,000,000
Ten 366,360,000
It is believed that these figures will throw additional light on the
position as viewed by the writer of the memorandum attached to the Department's
instruction No. 2098.
Respectfully yours,
Joseph 0. Grew.
FSW/mp
563.4
Distribution:
Original and 2 copies to Department
0%
VII
De
chicopy
230
FOR THE PRESS
IMMEDIATE RALZASE
FEBRUARY 20, 1941
1931
STYML INDUSTRY REPORT BY JANO DUND
1730
At the request of the President, Mr. Gano Dunn has made
an exhaustive survey of the capacity of the steel industry to
determine whether it has adequate facilities to meat the combined
requirements of the United States and British defense programs and
expanded demands for civilian usea. Mr. Duon is senior consultant
to the Production Division of the Office of Production Management,
but in this instance made ais report direct to the President.
The study WUB requested by the President because of con-
flicting estimates of steol requirements during the next two years
and of the consequent ability of the industry to meet all demends
placed upon it. This question is of such importance to the defense
program and the national aconomy as B whole that the President re-
quested Mr. Dunn, as a qualified authority capable of presenting an
impertial, factual study, to make a special report on the subject.
The investigation on which it was based was carried out
over B. period of six weeks. During the course of his inquiry Mr.
Dunn consulted with e great many oconomists and experts, both in
government and industry, and roprosentatives of organized labor in
the steel industry. He has acknowledged the valuable assistance of
many of these persons.
Mr. Dunn has accepted the ostimates of Melvin de Chazeau,
economist attached to the Materials Branch, Office of Production
Management, on probable requiroments of steel for civilien uses
during 1941 and 1942, These estimatos are based on the assumption
of B. national income of 80 billion dollars in 1941, 90 billion in
1942, and B. greatly increased demand for steel for civilian uses R$
8 result of the rise in national incomo.
Howaver, the Dunn report includes information on actual
capacity for production of steel ingota which has nover been known
before and which demonstrates that that capacity is considerably
higher than was generally realized,
The report concludes that if certain measures are under-
taken there will be an excess of ingot-producing capacity over total
requirements of 10,100,000 tony during the prosent year and
2,100,000 in 1942, These measures that must be taken to attain
capacity production include the olimination of potential bottle-
nocks in output of pig iron and coke, an avon distribution of orders
throughout the industry, and a shortening of the period of time
during which stoel-making fecilities are normally closed down for
ropair work,
Mr. Dunn has arrived at a now measure of steel capacity
which he has called "roliable capacity." The difference between
"reliable capécity" and "roported capacity" is that "reliable
capacity" takes into secount cortain existing facilities for the
production of steel castings which are not included in reported
statistics of the industry and that the poriod of time normally non-
sumed for repairing facilities can be reduced et B. nominal increase
in cost to the stud companies. This increased expenditure in the
interests of time-saving 1a justified by the smergency nature of
demands on the industry,
Regraded Uclassified
231
The report vatimated that, on the basis of existing resilities
at the beginning of the year, E shortage of 1,230,314 tons, or 2,3%,
in capacity for production of pig iron would result If the industry were
to operate at reliable capacity throughout the year, In 1942 e potential
shortage in the production of pig iron of 544,481 tons is anticipated on
the basic of existing facilities if the industry were to operate at
capacity during that year.
Coke shortage during 1941, on the sare banks, 1a estimated at
5,360,315 tono, or 12%, and during 1942 at 2,670,806 cons. Total cost of
removing these deficits by construction of additional facilities would
be $59,545,975 in 1941 and $29,462,964 in 1947. Some of these facilities
820 already under construction.
Mr. Dunn has rocommanded that this increase in facilities be
undertaken and that If it does not occur normally that it be pro-rated
over the industry by the Director General of the Office of Froduction
Management. His recommendation slon. these lines is based on the con-
viction that the normal relationship between pig iron and scrap going into
Inpot stool should be maintained and that Adequate cupplies of coke should
be available both for steel making and for home and commercial heating
purposes. Pending the installation of now fucilities, however, any short-
agos that might arise from three directions could be ant (1) by increasing
the ratio of scrap to pig iron golup Into ingots and (2) by diverting coke
from use in home and commercial heating units to the steol industry. If
such expedients are found necessary it is agreed that they should be made
temporary by the creation of new pig and ooke facilities to maintain normal
balance and practices in the industry and to minimize any disturbance of
civilian consumption of coke,
The Dunn report strongly emphasizes the nucessity of oven
distribution of orders throughout the industry If maximum overall pro-
duction is to be reached and maintained. In other words, one producer
must not be allowed to acquire a large backlor, of orders for delivery
well into the future while another producer is operating at leas-than-
miximum capacity, This might involve a considerable shifting of orders
and require users of steel to deal with different sources of supply than
they have in the peat. Mr. Dunn recommended that unless such di stri-
button takes place by voluntary action of the industry that the Director
of the Division of Priorities saume responsibility for the task,
lisliable capacity for stool ingota at the beginning of this
year, with emple allowances for periodic shut-down for repairs, is reported
in the Durus study 10 57,576,099 tons por year. This is roughly
3,500,000 tons higher than proviously supposed, Completion of additional
91,124,718 tons by the end of the your. It should be clearly understood
facilities. now under pay, will raiso reliable annual capacity to
that those figures on capacity represent the maximum rate of operations
that could be continued over An extended poriod of time. Mr. Dunn has
concluded that the industry could, under proper condi tions, operato indo-
finitely at 5. rato of slightly more than 102% of reported capacity, which
heretofore has boon the normal missure of stuol onpacity.
Ingot production In January was at the highest point in the
history of the country, amounting to 6,943,084 tons. Howover, the Dunn
97.1% of "reported capacity" it is only 94.5% of "reliable empacity".
report make the intoresting observation that while this figure represents
year, January production would represent only 91% of that espacity.
Than compared with roliable capacity that will crist at the and of this
Regraded Uclassified
232
-
Direct defense requirements for steel in 1941 are
estimated in the Dunn report at 5,100,000 tone. There La not
much controversy over this figure. Exports of steel, mostly
to England and Canada, are placed at 13,400,000 tons. Civilian
requirements, based on a national income of eighty billion dol-
lars, are estimated at £1,000,000 tone, making a total of
77,500,000 tons or 10,100,000 less than the reliable capacity
of the industry to produce ingota. Naturally, if the national
income is less than eighty billion dollars, civilian require-
ments will be less and the safety margin correspondingly in-
creased. For instance, 11 the national income in 1941 reaches
only seventy-seven billion dollars, surplus capacity is es-
timated at 14,100,000 tons.
Surplus capacity in 1942, based on 0 national income
of ninety billion dollars, is estimated at 2,100,000 tens.
Again, if the national income in 1942 reaches but 87 billion
dollars, surplus capacity would be 6,100,000 tons.
"hile exact figures in every category cannot be col-
lected, the Durin report finds that capacity for rolled and other
stoel products is generally well in excess of ingot capacity,
ranging from 50% in certain sectors to an average of 15%. The
conclusion is that if orders MY properly distributed, total
requirements for fabricated producto can be net without unusual
delay. This should not be taken to mean that at no time during
the course of the dofense program will any user of any steel
product face difficulty in obtaining prompt deliveries. During
a period of tremandous industrial expansion, with requirements
for specific products undergoing froquent changes, the dovelop-
ment of temporary choke points in certain spota from time to
time appears to be inevitable.
However, the statistics unearthed by Mr. Dunn's
study and the conclusions drawn from them, present an encourag-
ing picture to the directors of tois nation's defense program,
to good neighbor nations, and to usure of steel and stucl products
for civilian consumption.
In viow of the importance of stool capacity and the
necessity of having an up-to-date picture of the situation,
the President has asked Mr. Dunn to make this survey and report
the starting point of a continuing study. Kr. Dunn has accepted
this assignment and will revise his statistics and conclusions
periodically, reporting directly to the President on his find-
ings.
Regraded Uclassified
233
WAR DEPARTMENT
OFFICE OF THE CHIEF OF STAFF
WASHINGTON
February 28, 1941.
MEMORANDUM FOR SECRETARY MORGENTHAU:
Re: Malcolm Wheeler-Nicholson.
Malcolm Wheeler-Nicholson is a former officer of Cavalry,
Regular Army. He has had some success as a. short story writer,
and in addition to his recent article in Harper's criticizing the
Army, he has written a book, "Battleshield of the Republic", along
the same line, which has recently been published. Some time ago
he submitted a rather lengthy document to the President in criticism
of Army organization, administration and personnel system.
His military record is highly discreditable. In 1920 he
was placed provisionally in Class B (below minimum standard required
for commission in the Army), but was restored to Class A by order
of the President. In 1922 he was again placed provisionally in
Class B, and in the same year he was tried by general court-martial
and found guilty of disorderly and discreditable conduct. He was
finally placed in Class B on September 25, 1922, and the action of
the board was approved by the President.
He was wholly discharged from the service on December 26,
1922, it having been determined that his inefficiency was due to his
own neglect and misconduct.
The records in The Adjutant General's Department indicate
that his difficulties were the result of drinking, bad debts and
false official statements.
He is a good writer and has the faculty of dramatizing dry
facts. His material is readable and some of his criticisms have been
justified, although the weaknesses he emphasizes are thoroughly
appreciated by the War Department.
W. B. S.
Regraded Uclassified
234
For Nice -
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
Regraded Uclas
DATE February 28, 1941
TO
Secretary Morgenthan
CONFIDENTIAL
FROM Mr. Cochram
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
£53,000
Purchased from commercial concerns & 8,000
Open market sterling opened at 4.03-1/2 and closed at 4.03-3/4. Transactions
of the reporting banks were as follows:
Sold to commercial concerns
£2,000
Purchased from commercial concerns £8,000
In New York the closing rates for the foreign currencies listed below were
as follows:
Canadian dollar
14-1/4% discount
Swies franc (commercial)
.2323
Swedish krona
.2385
Reichamark
.4005
Lira
.0505
Brasilian milrois (free)
.0505
Mexican peso
.2066
Cuban peso
6-27/32% discount
On February 26th the Ministry of Finance in Argentina announced that pending
the organization of corporations to export new commodities, the dollar exchange
resulting from such exports to be used to pay for imports into Argentina (Decree of
November 29, 1940). all dollar exchange derived from exports previously dealt in
in the free market wast be surrendered to the Argentine Control at 4.2182 pases
to the dollar ($.2370). The announcement also stated that all such dollar exchange
surrendered would be auctioned to the highest biddersin order to pay for imports
other than those for which official exchange is provided. These new regulations
tend to restrict the scope of the free market which will now be reduced to financial
transactions, capital repayments and similar operations. As a reflection of the
reduced utility of the free market the free peso declined from .2365 at yesterday's
opening to .2345 at today's close.
In Shanghai, the U. 8. equivalent of the yuan was 5-5/84. up 1/32#. Sterling
was 3.93-1/2, up 2-1/20. In Hong Kong, both the H.E. dollar and sterling were -
changed in terms of United States currency at 24-5/8# and 3.94, respectively.
235
- 2 -
We cold the following amounts of gold to be added to the earmarked accounts
of the banks indicated:
$ 7,500,000 to the Bank of Java
2,550,000 to the National Bank of Ingoslavia
$10,000,000 Total
The Federal Reserve Bank of New York reported that the Bank of Mexico shipped
to it $51,000 in gold, for sale to the Assay Office.
In London the price of spot silver vas off 1/16d at 23-3/8d and forward vas
unchanged at 23-5/16d. The U.S. equivalents of these prices are 42.444 and 42.33#.
respectively.
Handy and Harman's settlement price for foreign silver was unchanged at
34-3/44. The Treasury's purchase price for foreign silver vas also unchanged at 35#.
There were no purchases of silver under the Silver Purchase Act.
During the month of February our purchases of silver were considerably reduced
from the total of 9,149,600 ounces during January. During the current month ve
purchased 3,661,871 ounces, the sources of which were as follows:
Type of Silver
Ounces
New Production
1. From various countries
2,556,871
2. From Canada under agreement
500,000
Inventory
605,000
Total
3,661,871
Jomp
CONFIDENTIAL
Regraded Uclassified
236
February 28, 1941
MEMORANDUM FOR THE SECRETARY:
Attached is & summary report of the projects
which have been worked on in the Division of Tax
Research during February, 1941.
RB
Attachment
237
Monthly Report on Projects in the
Division of Tax Research
February, 1941
I. New projects
1. Tax revision, 1941
A series of brief memoranda concerning certain
possible revisions of the individual surtax,
estate and gift taxes, liquor, wine and beer
taxes, soft drinks tax, tax on passenger
automobiles and motorcycles, check tax, admissions
tax and stock transfer taxes were completed.
(Mr. Ecker-Racz and staff)*
2. Tax-exempt securities
(a) A brief statement was prepared for the use
of Mr. Doughton on H.R. 2959 relating to
tax-exempt securities. (Mr. Ecker-Racz)
(b) A memorandum was prepared relating to tax-
exempt securities of Great Britain and
Canada indicating the issues, tax status,
and amounts outstanding. A memorandum
containing similar data for other countries
1s in process. (Mr. Ecker-Racz and
Mr. Mannen)
Persons listed as working on the different projects do
not include those who acted largely or exclusively in
a consulting or reviewing capacity. In general, the
person, if any, actively in charge of the project is
listed first.
238
- 2 -
(c) A table showing the treatment of interest
from governmental obligations under State
income taxes 1s in process. (Miss Wells)
(d) A memorandum relating to the taxation of
Federal securities under State and local
intangible property taxes was prepared.
(Mr. Ecker-Racz)
(e) A digest of legislative proposals pertaining
to the elimination of tax-exemption of
government securities is in process.
(Mr. Mannen)
3. Prepayment of income taxes
A memorandum is in process analyzing the problems
involved in a system of prepayment of income
taxes and outlining possible plans for prepayment.
(Mr. Atlas)
4. Taxation of banks and insurance companies
A memorandum analyzing statistical information
relating to the profits and income tax payments
of banks has been prepared. A similar memo-
randum on insurance companies is in process.
(Mr. Mills)
5. Taxation and the cost of national defense program
A memorandum on the effect of State and local
taxes on the cost of the national defense program
was prepared. (Mr. Ecker-Racz)
239
- 3 -
6. Social security
An analysis of the Social Security Board's
legislative program for 1941 is in preparation.
(Mr. Ecker-Racz)
7. Income tax
(a) Examples comparing present and proposed
individual income taxes on net incomes of
selected sizes under certain proposed
surtax rate schedules were prepared.
(Mr. Zorach)
(b) An analysis of the personal exemption and
credit for dependents based on data supplied
by the Income Tax Study is in process.
(Mr. Zorach)
8. Excess profits tax
An analysis of the relief provisions of the
excess profits tax law 18 in process. Examples
were prepared of (1) types of situations
affected by the relief provisions and (2)
companies in the munitions business which,
because their last fiscal year ended before
December 31, 1939, were not subject to the excess
profits tax for 1940. (Mr. Campbell)
240
- 4 -
9. Excise taxes
A comparison of the British and United States
excise taxes on selected commodities showing
British rates, Federal rates and highest and
average State rates was prepared. (Mr. Atlas)
10. Tax suggestions
A summary of tax suggestions received in the
Division from October 1, 1940 to February 20,
1941 were classified into those worthy of
study or adoption and those which are apparently
not useful. (Mr. Zorach and Mr. Mills)
11. Intergovernmental fiscal relations
Memoranda have been prepared showing (a) what
the Division of Tax Research has done in the
field of Federal, State and local fiscal
relations, and (b) a possible program for
further research on this subject. (Mr. Ecker-
Racz)
II. Continuing projects
1. Income tax collected at source
A memorandum analyzing the problems involved
in the collection of the individual income
tax at source 18 in process. (Mr. Atlas)
241
- 5 -
2. Excess profits tax
An analysis of special treatment afforded
financial, personal service and public
utility companies, the professions and
agriculture under the World War and present
excess profits taxes of the United States,
Great Britain and Canada, is in preparation.
(Mr. Mills)
3. Federal excise taxes
A memorandum analyzing possible additional
sources of excise tax revenue is in process.
(Mr. Campbell)
4. Federal sales taxes
A memorandum on the value added and other
possible forms of Federal sales taxes 16 in
preparation. (Mr. Farioletti and Mr. Copeland)
5. Foreign taxes
(a) Memoranda on the latest changes in
Canadian and Australian taxes are in
preparation. (Mr. Atlas and Miss Hughes)
(b) In collaboration with the Division of
Monetary Research, a study of the Haitian
fiscal system is in process. (Miss Wells)
Regraded Uclassified
242
- 6 -
6. Amount of surtax net income by brackets
A table showing for 1938 the amount of surtax
net income falling within each surtax bracket
of the surtax rate schedule 1s in process.
(Miss Hughes)
7. Treasury Bulletin
An article for possible publication in the
Treasury Bulletin is in process comparing tax-
payers' reported state of residence in 1936
with the states in which they filed their
income tax returns. (Mise Coyle and Mr. Zorach)
8. Undistributed profits and income taxation
Reports on the following subjects have not
been actively prosecuted during the month:
(1) Analysis in the light of issues raised
by the undistributed profits tax of the
statistics made available from income
tax returns and other sources.
(Mr. Atlas and Mr. Copeland)
(2) Analysis of the proposal to allow corpo-
rations with five or less shareholders
to be treated for tax purposes as
partnerships. (Mr. Mills)
243
7
III. Routine Assignments
1. Technical review of forthcoming Treasury
publications
(a) The work of the Philadelphia project
analyzing income, excess profits and
estate tax returns is in final stages
of completion. Among the portions of
the study reviewed were (1) volume 3
of the Income Tax Study, 1936, (2)
procedures for the analysis of dividends
and (3) table outlines for the excess
profits tax study. (Miss Coyle)
(b) Four press releases for the complete
report "Statistics of Income for 1938,
Part 2," were reviewed. (Miss Hughes)
2. Digests and comments on other studies
The following studies are pending analysis:
(a) A memorandum from the Price Stabilization
Division of the Advisory Commission of
the Council of National Defense entitled
"The Effect of the Tax Structure on
Saving and Consumption." (Mr. Farioletti)
244
- 8 -
(b) The report "Concentration and
Composition of Individual Incomes,
1918-1937" prepared by the Temporary
National Economic Committee. (Miss Coyle)
(e) The report "Million Dollar Incomes"
by L. H. Parker. (Miss Coyle)
(d) The report "Study of the Delaware State
Income Tax Yields" by Walter C. Wilson.
(Miss Coyle)
(e) The article "British War Taxes and
Corporate Earnings" in the National City
Bank Bulletin for December, 1940.
(Mr. Copeland)
3. Statistics
(a) In connection with the supervision of
the statistical work of the Bureau of
Internal Revenue, various proposals for
statistical compilations were examined
including suggested tabulations from the
corporation income and excess profits
tax returns. (Mr. Blough, Mr. Shere
and Miss Coyle)
245
- 9 -
(b) Administrative reports and statistics
of the Bureau of Internal Revenue are
graphed and commented upon for Mr.
Sullivan's information. (Mr. Campbell)
(e) Data relating to different taxes,
digests of tax items, and congressional
activity on tax items of interest to
the Division are currently prepared.
(Staff members)
4. Correspondence
The Division handled correspondence per-
taining to tax matters. (Staff members)
246
BRITISH EMBASSY,
WASHINGTON, D.C.
Personal and Secret
February 28th, 1941.
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a copy
of the latest report received from
London on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Halifax
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.C.
247
Telegram received from London
dated February 26th.
Havel.
At 21/25 "Exaoor" escorting castern
coast convey off Norfolk coast was torpedoed and
sunk by E-boat and British Minor (CA) 1100 tons in
the same convoy was also torpedoed and at 2.30/26.
8.
"Dainty" sunk by aircraft off Tobruk
p.m. 24th 20 casualties.
5.
In Mediterranean, Kasteloritzo Island
occupied dawn 25th. Enemy air activity caused withdrawal
of Ladybird from harbour and reported permanent garrison
might have to be landed by night.
de
At (words undecypherable) on February 25th
coastal aircraft unsuccessfully attacked four merchant
vessels and escort vessels off Sogne Fiord also without
seeing results (words omitted) bombed two E-boats off
Stadlandet and attacked convoy of merchant vessels off
Optend but scored no hits.
B.
Night of 25/26th small force of aircraft
bombed doeks at Boulogne.
6.
Three merchant vessels bombed or torpodeed
western approach lest few days have arrived safely in
harbour.
7.
R.A.F. night of 24th/25th
Attack on Brest. On account of searchlights
and flares detailed results could not be observed but
over 50 bombers dropped bombs in target area. The
aircreft reported missing has returned safely.
8./
Regraded Uclassified
248
Daylishs 20th One Blenheim attacked
submarine assembly and repair station at Flushing
burste being observed on target. In afternoon six
medium bombers Gecorted by three squadrone of fighters
with a further five aquadrons in support unsuccessfully
bombed enemy shipping off Dunkirk. In course of this
operation our fighters destroyed 3 ME 109's and a
fourth probable. One of our fighters is missing.
9.
Night of 25th/26th
114 bombere despatched. Mein targets:
Dusseldorf industrial area ao aerodromes 17 and
Boulogne 8. One aircraft is missing.
10.
Lybia. Night of 24th/25th
Nine Wellingtons attacked Tripoli, hits
being made on Customs wharf and shipping. Numerous
fires and a violent explosion were caused. One
aircraft 1s missing.
11.
German Air Force. Daylight 25th Enemy
activity mainly confined to ses reconnaissances and
patrols.
12.
Night of 25th/26th
About 100 aircraft operated, activity being
widespread over east Anglie and Lincolnshire. One enemy
aircraft was shot down by a night fighter.
15.
Aircraft casualties in operations over and
from British Isles. German: Fighters - three destroyed,
one probable, Bombers - one destroyed, totals four
destroyed, one probable. British One fighter (bomber
reported missing yesterday has returned safely).
14.
Home Security Night of 25th/26th. Damage
Regraded done Uclassified
249
done negligible except at Hull area where many
fires were started and at Harwich where gas
and water mains were damaged. Very few casualties.
All fires have been extinguished.
Regraded Uclassified
250
BRITISH EMBASSY,
WASHINGTON.
Personal and
Secret
28th February, 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,
Halifax
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.C.
251
REPORT RECEIVED FROM LONDON
DATED EBRUARY SATE, 194
HAVAL
MANISTER ocean boarding Vessel torpedoed 500
miles west of Butt of Lewis a.m./23rd.
Three M/G trawlers whilst sweeping off Cardiff
have been damaged by mine explosions - one of these only
elightly damaged.
2.
CUSE while sweeping at Herea Tobruk was sunk by
coast ......
3.
No further news received of pocket battleship sighted
by GLASGOW search continues.
4.
One of the chips bombed on the 22nd by Fokke-Mulf
a/a has been found and taken in tow.
5.
Sues Canal still closed and one mine reported detonated.
6.
Mine destroying home waters continues satisfactorily.
Mines being detonated regularly off manoreus ports.
7.
Four enemy N/O bombed Benghasi a.m./23rd. Six bombe
on the water front and some near; little damage - no
casualties.
:
SHROPSHIRE bombarded Modun hear Brave S.M. 22nd con-
siderable damage caused.
9.
HIPPER class cruiser still at Brest 23rd M/O attacked
this ship night of the 23rd/24th, frustrated by weather.
10. Vilitary. Itelian Someliland
To 8 p.m. 22nd. Our forces have taken Jumbo and
exptured 28 Italian officers 85 other ranks and much material
including arms and ammition. A pontoon bridge has been
completed at Yonte.
Regraded Uclassified
252
11. Royal Air Force Night of 93rd/24th.
Seventy-ore aircraft were sent to dooks at Calais,
Boulogne and Den Holder. Remrous fires were started
at Boulogne but elsewhere results were unobserved.
Two aircraft sere missing.
12. Eritren. on Slst South African Hurricanes des-
troyed six aircraft and six hangare at Hassawa aero-
drome. one Hurricans was loat.
13. Greece on 22nd Blenheimo shot down three enemy
aiscreft.
14. German Air Force During daylight 23rd enemy aircraft
carried out continuous patrols of the Straite and made
one sweep over East Kent Coast.
15. Night of 23rd/24th. A small wcale bombing attack
was made on the Humber area and there was slight activity
over Eastern and South Mastern England and the London area.
16. Aircraft casualties in operations over and from
the British Isles. Germani Hil British - two bombers
missing.
Regraded Uclassified
253
TELEGRAM RECEIVED PROM LONDON
DATED PREDUARY 25th,1941
NAVAL
MANISTRE, having been terpedoed February
24th for the second time presumed sunk. No trace
of her or survivors found yet.
:
Terror sank off Derna Feb. 24th, having
been near missed in two bombing attacks February
22nd and February 23rd. No casualties. Enemy
does not know of this loss.
3.
Situation Bengasi being made difficult for
ships owing to enemy air activity being little
hampered by anti-aircraft and fighters, however
5 or 6 enemy aircraft have been shot down includ-
ing one torpedo aircraft by Peony's enti-aircraft
gun.
4.
Three ships reported torpedoed in outward
convey Some February 24th in N.W. approaches.
Salvage of all three in possible.
5,
Bastbound convey in Streits of Dever was
shelled before dawn February 24th by enemy shore
batteries. No damage reported,
6.
A.M. Feb. 19th. 9 aircraft attacked anti-
stycraft cruiser Voyager and name Corvettes off
Bengasi. No damage caused though there were near
misses,
70
R.A.F. Night of Feb.24th/25th. 63 heavy
and 7 medium bombers attacked Hipper class cruiser
at Breat. All returned safely, except one heavy
bomber.
8,
Preliminary report of reconneissance Bello
February 25th, shows ship still there but photo
Regraded Uclassified
254
photographs not good enough to show if damage caused,
9, ETHIOPIA.
On February 23rd, 7 South African Air Force
Burricanes machine-gunned Makale aerodrome and dos-
troyed 8 enemy aircraft on the ground and one in the
air. One Burricane is missing.
10. Our medium bombers also considerably damaged
aerodrome buildings at Addis Ababa.
11.
GERMAN AIR FORCE.
Yesterday limited also entirely to patrols
in Straits and night of February 24/25, scattered
raide by 28 aircraft in East Anglis and mining by
19 sircraft off Liverpool.
18. Aircraft casualties in operations over and
from British Isles. Germens, nil. British, 1
bomber missing.
Regraded Uclassified
255
RESTRICTED
G-2/2657-220
M.I.D., W.D.
No. 327
February 28, 1941
12:00 M
SITUATION REPORT
I.
Western Theatre of War.
Air: German. The High Command claimed long range
bombers had destroyed 13 ships and damaged 6 others.
British. Bad weather left both British and
German planes grounded during the night.
II. Greek Theatre of War.
Ground: No change.
Air: Nothing to report.
III. Mediterranean and African Theatres of War.
Air: The Italian High Command reported both Italian
and German planes bombed and machine gunned British armored forces
in North Africa.
Ground: Libya. A reconnaissance unit of armored
fighting vehicles, believed to be German, was encountered west
of El Agheila and driven back by British mechanized forces.
Italian Somaliland. Italian forces are
reported demoralized. Many prisoners and much war materiel have
been captured.
Note: This military situation report is issued by the Military In-
telligence Division, General Staff. In view of the occasional in-
clusion of political information and of opinion it is classified as
Restricted
RESTRICTED
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"ocrText": "79\nUnited States Savings Bonds\nComparison of Present Plan with Plan for Reduced Intermediate Yields\nNumber of\nYield during remainder\nRedemption value\nTield during period held\nof 10-year period\nsent-\nPlan for\nPlan for\nPlan for\nannual\nPresent\nreduced\nPresent\nreduced\nPresent\nreduced\nperiods\nplan\nintermediate\nplan\nintermediate\nplan\nintermediate\nheld\nyielde\nyields\nyields\no\n$75.00\n$75.00\n.00%\n.00%\n2.90%\n2.90%\n1\n75.00\n75.00\n.00\n.00\n3.05\n3.05\n2\n76.00\n75.50\n1.33\n.67\n3.07\n3.15\n3\n77-00\n76.00\n1.76\n.88\n3.10\n3.25\n&\n78.00\n76.50\n1.97\n.99\n3.13\n3.38\n5\n79.00\n77.00\n2.09\n1.06\n3.17\n3.52\n6\n80.00\n78.00\n2.16\n1.31\n3.21\n3.58\n7\n81.00\n79.00\n2.21\n1.49\n3.27\n3.66\n8\n82.00\n80.00\n2.24\n1.62\n3.34\n3.75\n9\n83.00\n81.00\n2.26\n1.72\n3.42\n3.87\n10\n84.00\n82.00\n2.28\n1.79\n3.52\n4.01\n11\n85.00\n83.00\n2.29\n1.85\n3.64\n4.18\n12\n86.00\n84.00\n2.29\n1.90\n3.81\n4.41\n13\n87.00\n85.00\n2.30\n1.93\n4.02\n4.70\n14\n88.00\n86.00\n2.30\n1.96\n4.31\n5.09\n15\n90.00\n87.50\n2.45\n2.07\n4.26\n5.41\n16\n92.00\n89.00\n2.57\n2.15\n4.21\n5.91\n17\n94.00\n91.00\n2.67\n2.29\n4.17\n6.39\n18\n96.00\n93.00\n2.76\n2.40\n4.12\n7.39\n19\n98.00\n95.00\n2.84\n2.50\n4.08\n10.53\n20\n100.00\n100.00\n2.90\n2.90\nI\n-\nTreasury Department, Division of Research and Statistics.\nTields are nominal annual rates compounded emiennually.\nRegraded Uclassified\n2.\n80\nUnited States Savings Bonds\nComparison of Proposed 2 and 24 Percent Appreciation Plans\nNumber of\nRedemption value\nYield during remainder\nsemi-annual\nYield during period held\nof 10-year period\nperiods held\n2% plan\n24% plan\n2% plan\n24% plan\n2% plan\n24% plan\no\n$82.00\n$80.00\n.00%\n.00%\n1.99%\n2.24%\n1\n82.00\n80.00\n.00\n.00\n2.10\n2.36\n2\n82.20\n80.20\n.24\n.25\n2.19\n2.47\n3\n82.40\n80.40\n.32\n.33\n2.29\n2.58\n4\n82.60\n80.80\n.36\n.50\n2.40\n2.68\n5\n83.00\n81.20\n.49\n.60\n2.50\n2.80\n6\n83.40\n81.80\n.57\n.74\n2.61\n2.89\n7\n84.00\n82.40\n.69\n.85\n2.70\n3.00\nOR\n84.60\n83.20\n.78\n.98\n2.81\n3.09\n9\n85.40\n84.20\n.90\n1.14\n2.89\n3.15\n10\n86.20\n85.20\n1.00\n1.26\n2.99\n3.23\n11\n87.20\n86.20\n1.12\n1.36\n3.07\n3.33\n12\n88.20\n87.20\n1.22\n1.44\n3.16\n3.45\n13\n89.20\n88.40\n1.30\n1.54\n3.29\n3.55\n14\n90.40\n89.80\n1.40\n1.66\n3.39\n3.62\n15\n91.60\n91.20\n1.48\n1.75\n3.54\n3.72\n16\n93.00\n92.60\n1.58\n1.84\n3.66\n3.88\n17\n94.40\n94.20\n1.66\n1.93\n3.88\n4.02\n18\n96.00\n96.00\n1.76\n2.04\n4.12\n4.12\n19\n97.80\n97.80\n1.86\n2.13\n4.50\n4.50\n20\n100.00\n100.00\n1.99\n2.24\nI\n-\nTreasury Department, Division of Research and Statistics.\nRegraded Uclassified\nelds are nominal annual rates compound\nUnited States Savings Bonds\nComparison of Present Plan with Plan for Reduced Intermediate Yields\nNumber of\nRedemution value\nYield during period held\nYield during remainder\nof 10-year period\nsemi-\nPlan for\nPlan for\nPlan for\nannual\nPresent\nreduced\nPresent\nreduced\nPresent\nreduced\nperiods\nplan\nintermediate\nplan\nintermediate\nplan\nintermediate\nheld\nyields\nyields\nyields\n0\n$75.00\n$75.00\n.00%\n.00%\n2.90%\n2.90%\n1\n75.00\n75.00\n.00\n.00\n3.05\n3.05\n2\n76.00\n75.50\n1.33\n.67\n3.07\n3.15\n3\n77.00\n76.00\n1.76\n.88\n3.10\n3.25\n4\n78.00\n76.50\n1.97\n.99\n3.13\n3.38\n5\n79.00\n77.00\n2.09\n1.06\n3.17\n3.52\n6\n50.00\n78.00\n2.16\n1.31\n3.21\n3.58\n7\n81.00\n79.00\n2.21\n1.49\n3.27\n3.66\n8\n82.00\n80.00\n2.24\n1.62\n3.34\n3.75\n9\n83.00\n51.00\n2.26\n1.72\n3.42\n3.87\n10\n84.00\n52.00\n2.28\n1.79\n3.52\n4.01\n11\n85.00\n83.00\n2.29\n1.85\n3.64\n4.18\n12\n86.00\n84.00\n2.29\n1.90\n3.81\n4.41\n13\n87.00\n85.00\n2.30\n1.93\n4.02\n4.70\n14\n88.00\n86.00\n2.30\n1.96\n4.31\n5.09\n15\n90.00\n87.50\n2.45\n2.07\n4.26\n5.41\n16\n92.00\n89.00\n2.57\n2.15\n4.21\n5.91\n17\n94.00\n91.00\n2.67\n2.29\n4.17\n6.39\n18\n96.00\n93.00\n2.76\n2.40\n4.12\n7.39\n19\n98.00\n95.00\n2.84\n2.50\n4.08\n10.53\n20\n100.00\n100.00\n2.90\n2.90\n-\n-\nTreasury Department, Division of Research and Statistics.\nTields are nominal annual rates compounded semiannually.\n81\nRegraded Uclassified\nUnited States Savings Bonds\nComparison of Proposed 2 and 2% Percent Income Plans\nNumber of\nsemi-annual\nRedemption value\nYield during period held\nYield during remainder\nof 10-year period\nperiods held\n2% plan\n21% plan\n2% plan\n21% plan\n2% plan\n21% plan\nO\n$100.00\n$100.00\n.00%\n.00%\n2.00%\n2.25%\n1\n99.00\n98.90\n.00\n.05\n2.12\n2.38\n2\n98.20\n98.00\n.20\n.25\n2.22\n2.50\n3\n97.40\n97.20\n.27\n.39\n2.34\n2.62\nFV\n96.80\n96.50\n.40\n.51\n2.44\n2.74\n5\n96.20\n95.90\n.49\n.62\n2.56\n2.86\n6\n95.80\n95.50\n.61\n.76\n2.66\n2.97\n7\n95.40\n95.10\n.70\n.87\n2.78\n3.09\nOR\n95.10\n94.90\n.79\n1.00\n2.90\n3.19\n9\n95.00\n94.80\n.91\n1.12\n2.99\n3.29\n10\n94.90\n94.80\n1.00\n1.24\n3.11\n3.39\n11\n94.90\n94.90\n1.10\n1.35\n3.23\n3.48\n12\n95.00\n95.00\n1.19\n1.45\n3.35\n3.60\n13\n95.30\n95.20\n1.30\n1.55\n3.44\n14\n3.73\n95.60\n95.60\n1.40\n1.65\n3.56\n3.82\n15\n96.00\n96.00\n1.49\n1.75\n3.69\n3.95\n16\n96.50\n96.60\n1.59\n1.85\n3.83\n4.04\n17\n97.10\n97.20\n1.68\n1.95\n4.01\n4.20\n18\n97.90\n98.00\n1.78\n2.05\n4.17\n4.31\n19\n98.80\n98.90\n1.88\n2.15\n4.45\n4.50\n20\n100.00\n100.00\n2.00\n2.25\n-\n-\nTreasury Department, Division of Research and Statistics.\nVields are nominal annual rates compounded semiannually.\nRegraded Uclas\n83\nReen 278\n>\nUnior Secretary\nby. Seese\nFebruary 26, 1941\nTo Presidents, Federal Reserve Banks.\nBoston, Mass.\nChicago, Ill.\nBurgess - New York, N. Y.\nSt. Louis, Mo.\nPhiladelphia, Pa.\nMinneapolis, Minn.\nCleveland, Ohio.\nKansas City, No.\nRichmond, Va.\nDallas, Texas.\nAtlanta, Ga.\nSan Francisco, Calif.\nin mailing you tenight ea propesed savings bead program\nof the Treasury. Vould appreciate it if you and your staff would\ncarefully study this program on Monday and Tessday and let as have\nyear critisisms and suggestions late Tessday ovening by vire.\nil\nRegraded Uclassified\n84\nCOPY\nFebruary 28, 1941\nDear Mr. Martin:\nBy direction of the Secretary, I am transmitting herewith\na copy of & memorandum covering a proposed savings bond program\nwhich the Treasury now has under consideration. I would appreciate\nit if you and your staff would carefully review this proposed program\nand let me have your criticisms and suggestions by wire Tuesday\nevening so that we can have them here for study early Wednesday\nmorning. If it would be helpful to you, you are free to call in any\noutside people you may deem advisable for consultation.\nVery truly yours,\n(s) D. W. Bell\nUnder Secretary of the Treasury\nMr. William McC. Martin,\nPresident,\nFederal Reserve Bank,\nSt. Louis, Mo.\nSame letter sent to all\nPresidents of the Federal\nReserve Banks\nDWB:ce\nRegraded Uclassified\n85\nProposed Savings Bond Program\nThree series of United States savings bonds are under\nconsideration for use in connection with the forthooming\nsavings bond program. Each of these is designed to tap a\ndifferent sector of investment demand, and it is proposed\nthat all three be offered simultansously. The first 1a &\nmodification of the present form of savings bond, and is\nintended primarily for small investors. The other two\nare designed primarily for large individual investors and\nfor banks. limited purchase by institutions other than commercial\nThe three proposed types are described in more detail\nin the remainder of this memorandum.\nI. Savings Bond Offered\nPrimarily for Small Investors\nIt is proposed that the present type of savings bond\nbe retained, with one relatively minor modification. The\nmodification relates to the yield allowed on the bonds if\nredeemed prior to maturity. The yield if held to final\nmaturity would continue to be 2.90 percent. It is pro-\nposed, however, that the yields allowed in the event of\nintermediate redemption should be reduced substantially.\nThe proposed reductions are shown in Table I, which 005-\npares the intermediate yields allowed under the present\nplan with those proposed for the new series. The primary\npurpose of this modification is to build up the yield\nduring the remainder of the ten-year period if held to\nmaturity as rapidly as possible. It is this yield (which\nis shown in the last column of the table) which determines\nthe decision of & holder of the bonds whether to redeem\nthem or hold them to final maturity. It is felt that this\nyield should be built up as rapidly as possible, thus pro-\nviding & substantial inducement to holders of the bonds to\nretain them to final maturity.\nIt 1s proposed that the limit on the maximum amount\nof the bonds of this type which may be purchased by any\none individual in any one year be fixed at $5,000 matu-\nrity value, as compared with $10,000 for the presen^ type\nof savings bond. Sales would continue to be restricted to\nnatural persons.\nRegraded Uclassified\n86\n2 - I\nII. Savings Bonde Designed\nPrimarily for Larger Investors\nIt 18 proposed that two types of savings bonde be of-\nfered primarily for larger investore. These bonds would\nbe eligible for purchase by any class of investor except\ncommercial banks, and could be purchased up to & total\namount of $50,000 original issue price by any investor in\nany one year. This limit could be taken in either type of\nbond or divided between the two in any way desired by the\ninvestor, and would be in addition to the $5,000 maturity\nvalue permitted to be purchased of the bond described in\nthe first section of this memorandum.\nOne of the proposed new series would be an appreci-\nation-type security similar to the existing savings bonds,\nwhile the other would provide a current income. Both se-\ncurities would yield & return of approximately 2-1/4 per-\ncent if held to final maturity. Their yield for the\nperiod held if redeemed prior to maturity would also be\napproximately the same. The two securities are compared\nin this respect, and their intermediate redemption values\nare shown in Table II. Both types would be redeemable\nonly on semiannual dates and on-thirty days' written notice,\nsuch notice to be irrevocable when once given.\nThe appreciation-type security would be the same as\nthe existing series of savings bonds, except that it would\nhave an issue price of 80, rather than 75, thereby reduc-\ning the yield to maturity from 2.90 percent to 2.24 per-\ncent. The intermediate redemption values would also be\nreduced more sharply than is proposed in the case of the\nbond described in the first section of the memorandum.\nThese values would still be generous, however, as compared\nwith open market yields for corresponding periods.\nThe income-type of security presente a somewhat more\ndifficult technical problem. It would bear & current re-\nturn at a level rate of 2-1/4 percent per annum, payable\nsemiannually throughout the period. In order to compen-\nsate for the high current return in early years, it has\nbeen considered necessary to reduce the intermediate re-\ndemption values below the original sales price by an\nAmount sufficient to out intermediate yields to the same\nRegraded Uclassified\n87\n- 3 -\nlevel as those on the appreciation-type security. The re-\nduced intermediate redemption values thus arrived at would\nreach a minimum of $94.80 per $100 of original issue price\nafter the bond has been held 4-1/2 years.\nThis scale of intermediate redemption values is that\nwhich would be available to the original purchaser should\nhe desire to redeem the security prior to maturity. It is\nproposed, however, that in the event of the death of the\noriginal purchaser during the ten-year period, his suo-\ncessor in interest should have the right for a reasonable\nperiod after the death of the original purchaser to obtain\nthe full purchase price of the bond, rather than the re-\nduced intermediate redemption value named in the instrument.\nThis provision is proposed primarily in order to make the\nsecurities attractive to life tenant and remainderman\ntrusts.\nRegraded Uclassified\nThole I\nUnited States Savings Bonds\nComparison of Present Plan with Plan for Reduced Intermediate Tields\nNumber of\nRedemption value\nTield during period held\nTield during remainder\nof 10-year period\nsemi-\nPlan for\nPlan for\nPlan for\nannual\nPresent\nreduced\nPresent\nreduced\nPresent\nreduced\nperiods\nplan\nintermediate\nplan\nintermediate\nplan\nintermediate\nheld\nyields\nyields\nyields\n0\n$75.00\n$75.00\n.00%\n.00%\n2.90%\n2.90%\n1\n75.00\n75.00\n.00\n.00\n3.05\n3.05\n2\n76.00\n75.50\n1.33\n.67\n3.07\n3.15\n3\n77.00\n76.00\n1.76\n.88\n3.10\n3.25\n4\n78.00\n76.50\n1.97\n.99\n3.13\n3.38\n5\n79.00\n77.00\n2.09\n1.06\n3.17\n3.52\n6\n80.00\n78.00\n2.16\n1.31\n3.21\n3.58\n7\n81.00\n79.00\n2.21\n1.49\n3.27\n3.66\n8\n82.00\n80.00\n2.24\n1.62\n3.34\n3.75\n9\n83.00\n81.00\n2.26\n1.72\n3.42\n3.87\n10\n84.00\n52.00\n2.28\n1.79\n3.52\n4.01\n11\n85.00\n83.00\n2.29\n1.85\n3.64\n4.18\n12\n86.00\n84.00\n2.29\n1.90\n3.81\n4.41\n13\n87.00\n85.00\n2.30\n1.93\n4.02\n4.70\n14\n88.00\n86.00\n2.30\n1.96\n4.31\n5.09\n15\n90.00\n87.50\n2.45\n2.07\n4.26\n5.41\n16\n92.00\n89.00\n2.57\n2.15\n4.21\n5.91\n17\n94.00\n91.00\n2.67\n2.29\n4.17\n6.39\n18\n96.00\n93.00\n2.76\n2.40\n4.12\n7.39\n19\n98.00\n95.00\n2.84\n2.50\n4.08\n10.53\n20\n100.00\n100.00\n2.90\n2.90\n-\n-\nTreasury Department, Division of Research and Statistics.\nTields are nominal annual rates compounded semiannually.\n88\nRegraded Uclassified\nComparison of Proposed Appreciation and Income Plane for New\nSeries of United States Savings Bonds Yielding\n2-1/4 Percent if Held to Final Maturity\nNumber of\nRedemption value\nYield during period held\nYield during remainder\nsemi-annual\nof 10-year period\nperiods held\nAppreciation\nIncome\nAppreciation\nIncome\nAppreciation\nIncome\nplan\nplan\nplan\nplan\nplan\nplan\n0\n$ 80.00\n$100.00\n.00%\n.00%\n2.24%\n2.25%\n1\n80.00\n98.90\n.00\n.05\n2.36\n2.38\n2\n80.20\n98.00\n.25\n.25\n2.47\n2.50\n3\n80.40\n97.20\n.33\n-39\n2.58\n2.62\n4\n80.80\n96.50\n.50\n.51\n2.68\n2.74\n5\n81.20\n95.90\n.60\n.62\n2.80\n2.86\n6\n81.80\n95.50\n.74\n.76\n2.89\n2.97\n7\n82.40\n95.10\n.85\n.87\n3.00\n3.09\n8\n83.20\n94.90\n.98\n1.00\n3.09\n3.19\n9\n84.20\n94.80\n1.14\n1.12\n3.15\n3.29\n10\n85.20\n94.80\n1.26\n1.24\n3.23\n3.39\n11\n86.20\n94.90\n1.36\n1.35\n3.33\n3.48\n12\n87.20\n95.00\n1.44\n1.45\n3.45\n3.60\n13\n88.40\n95.20\n1.54\n1.55\n3.55\n14\n89.80\n95.60\n1.66\n3.73\n1.65\n3.62\n3.82\n15\n91.20\n96.00\n1.75\n1.75\n3.72\n3.95\n16\n92.60\n96.60\n1.84\n1.85\n3.88\n4.04\n17\n94.20\n97.20\n1.93\n1.95\n4.02\n4.20\n18\n96.00\n98.00\n2.04\n2.05\n4.12\n4.31\n19\n97.80\n98.90\n2.13\n2.15\n4.50\n4.50\n20\n100.00\n100.00\n2.24\n2.25\n-\n-\nTreasury Department, Division of Research and Statistics.\n89\nYields are nominal annual rates compounded semiannually.\nRegraded Uclas\n90\nFebruary 28, 1941\n11:16 a.m.\nH.M.Jr:\nHello.\nOperator:\nMr. Harriman 18 expected back about 11:30\nor quarter of 12:00.\nH.M.Jr:\nWell, is there anybody there in his office?\nOperator:\nI'll see. (Pause). I have his secretary.\nH.M.Jr:\nHello.\nRobt. P.\nMeiklejohn:\nThis 1e Mr. Meiklejohn, Mr. Harriman's\nassistant. Can I help you?\nH.M.Jr:\nYes. This 18 Mr. Morgenthau. Will you tell\nMr. Harriman that I've been thinking over very\ncarefully his request to let him have some of\nmy statisticians to go with him to London and\nin view of the shape this whole thing is taking\nin the last few days, I think that the Treasury\nshould contract its activities with regard to\nthat sort of thing rather than expand, and I\nwish Mr. Harriman would see if he can't t get\nsomebody from the Statistical Section of O.P.M.\nrather than the Treasury.\nM:\nAll right. I'll tell him that.\nH.M.Jr:\nBecause I want to contract our activities\nrather than expand.\nM:\nI'll tell him that.\nH.M.Jr:\nThank you.\nM:\nYou're welcome.\nRegraded Uclassified\n3/1/41\n91 :\nHM JR took this to the White House\nwith him today at 11:30.\n92\nFebruary 28, 1941.\nDear Mr. President:\nThe Coast Cuard vessels which seam most suitable\nfor convoy work are the ten outters of the 250-foot class\nbuilt between 1928 and 1932. The names of the vessels\nand the years in which they were completed are:\nCHELAN\n- 1028\nITASCA - 1930\nP INTCHARTRAIN - 1928\nSARANAC - 1930\nTAKOE\n- 1928\nSEBAGO - 1930\nCHAMPLAIN\n- 1929\nSHOSHONE - 1930\nMENDOTA\n- 1929\nCAYUGA - 1932\nThe over-all length of each is 250 feet, molded\nbeam 42 feet, maximum draft 16 foot, displacement 1,979\ntons, speed 16 knots. The gross tonnage of the first\nfive is 1,632 and of the later five, because of minor\nchanges in power plants and internal arrangement, la\n1,573. All are oil-burning turbo-electric. The first\nfive develop 3,000 horsepower and the later five 3,200.\nWith the exception of one, the SHOSHONE, all of\nthe vessels are now on the east coast and all are in such\ncondition as to hull and machinery that they could be\nturned over immadiately. Consideration has to be given,\nhowever, to the areament and other equipment they would\nneed for convoy service. Although & program of arming\nand equipping all ten for service with our Navy has been\nin progress, It scons far from certain that this equip-\nment will meet British needs and it seems probable also,\nin view of the history of the destroyers turned over to\nthe British, that some structural changes will be desired.\nThis work could probably best be done In American yards.\nWe have consulted the Navy Department on this\npoint and the Embassy has asked advice from London. The\ntime when the ten cutters can be turned over for actual\nRegraded Uclassified\n93\n- 2 -\nconvey work will of course depend upon the extent of the\nchanges and additions desired sad the speed with which\nDE can get the work done.\nThe transfer of these ten vessels means the loss\nof about half the fleet of cruising outters end the pro-\ngram of work laid out for the year will of course have to\nbe drastically revised. Among cutters of the large sea-\ngoing class there will remain seven of the now 327-foot\ntype and four 240-foot ships that are now twenty years\nold. of the seven 327-footers one, the CAMPBELL, is now\non Savy service In Portugal.\nThe following steps appear to be necessary to\nadjust this year's program to the equipment available:\n(a) International Ice Patrol - The recommendation\nis renewed that the International Tes Patrol be abandoned\nfor this year. Such patrol of the Grand Banks area as may\nbe necessary from time to time mould be carried out to the\nextent that vessels are available. If the regular Inter-\nnational Ice Patrol is continued it will have to be done\nwith vessels of the 125-foot class, which are 111 suited\nfor this work.\n(b) Greenland Patrol - This patrol can be made by\nthe Arctic cutter NORTHLAND, the 165-foot ice breaking\ncutter COMANCHE, and a vessel of the 240-foot class. Efforts\nare being made to obtain the BEAR OF OAKLAND from Admiral\nByrd for Greenland duty, upon the return of that vessel from\nthe Antarotic, about May 1. This is not quite as extensive\npatrol of Greenland as had been planned for the coming sug-\nmer, but it may be sufficient.\n(c) Atlantic Weather Stations - To maintain a two-\nstation patrol In the North ADENTO will require five\nvessels of the 327-foot class. This will be 8 full-time\nduty for these five vessels, and they could not be diverted\nfor other use. Strong representations have been made by\nthe British Government, the State Department, the Weather\nBureau, and the Civil Aeronautics Administration to maintain\nRegraded Uclassified\nHA\n- 8 -\na third station on this Atlantic Weather Patrol, which\nmoulo require at least two more vessels. These are not\navailable. It is recommended that Immediate stops be\ntaken to obtain and equip seven merchant vessels for this\nduty. There appears to be no doubt but that all of the\n327-foot outters will shortly be needed for more important\nduty. It ought to be possible to obtain for this work\nseven of the Danish ships now tied up in our ports. If\nthe bare boats could be chartered they could be manned by\nCoast Quard crows.\n(d) Cadet Practice Cruise - No vessels whatever,\nof suitable type, are now available for the Cadet Practice\nCruise, during the coming summer. This crulse is & very\nimportant part of a. cadet's training. It is urgently\nrecommended that immediate action be taken to obtain the\nDanish training ship DANMARK, now immobilised at Jackson-\nville, Florida. Prellminary negotiations have been under-\ntaken through the State Department.\n(a) Bering Sea Fatrol - Two of the 250-foot outters\nwere scheduled for Bering Sea Patrol during the coming\nsuster. The Coast Guard has no replacements for these\nvensels and, consequently, the activities of the Cosst\nGuard in the Bering Sea will need to be somewhat curtailed\nthis coming summer. The patrol will have to be made entirely\nby small craft, with the exception of the HAIDA (240-foot\nclass).\n(f) Cruise to American Colonies Southwest of Honolulu -\nThe TANEY (327-foot class) makes periodic cruises to the\ncolonies established on Baker, Howland, and Jarvis Islands,\nand is the only vessel available for this duty. This duty\ncan be continued only \" long as the TANEY remains available\nfor Coast Guard activities.\n(E) General Duties - Many other duties of the Coast\nGuard - such as: neutrality patrol, law enforcement, assist-\nance to vessels in distross, towing of vessels for the\nMaritime Commission, and other emergency taske, will have\nRegraded Uclassified\n95\nto be ourtailed.\nFor some time we have felt the need of additional\nand better equipment to take care adequately of lee con-\nditions on our Bastern coast, in the rivers, the Great\nLakes and on the Alaskan coast. We lack also vessels\nentirely suitable for coping with ice conditions in the\nharbors of Newfoundland and Greenland and Iceland; nor\ndo Canada or Great Britain have sultable vessels for this\npurpose, which may continue for some time to come to be\nof great importance.\nThe replacement of the ten cutters to be trans-\nferred will give us an opportunity to remody this lack.\nAs a part of our National defense needs it would seem\nprudent to equip the Coast Guard with ships specially\nconstructed to overcome difficult ise conditions wherever\nthey are called upon to perform service.\nI an therefore suggesting & program for the con-\nstruction of ten dual purpose ships at an estimated cost\nof $22,500,000 ($2,250,000 each), and respectfully ask\nyour permission to submit & deficiency estimate in that\namount. These would be combination loe-breakers and\ncruising cutters, 250 feet in over-all length and approxi-\nmately 42 feet beam, similar to the ten outters to be\ntransferred except that the bow characteristics would be\nmaterially different and the vessels would be more steunchly\nconstructed, in order to break ice and to penetrate ice-\nfields. Perhaps a half-knot of speed (of the 16 knots of\nthe present cutters) would be sacrificed for more rugged\nconstruction and better ice-breaking qualities. In addition\nto their value for working through 100 the vessels would\nalso have all necessary useful qualities for towing, render-\ning assistance at sea and other varied Coast Guard work.\nTo summarise, the program I desire to suggest for\nyour approval is as follows:\n(1) Submit deficiency estimates In the amount of\n$22,500,000 for ten dual-purpose cutters.\nRegraded Uclassified\nmix. 96\n- 5 -\n(2) Undertake negotiations to obtain and equip\nseven merchant ships for weather patrol\npurposes, to be manned by Coast Guard crews.\n(3) Negotiate for the purchase of the Danish\ntraining vessel DANMARK for Coast Guard\ncadet training.\nFaithfully,\nSecretary of the Treasury.\nThe President,\nThe White House.\nRegraded Uclassified\n97\n- THE U.S. court NMD\nMD - to -\nCR-21\nTREASURY DEPARTMENT\n311\n46\nUNITED STATES COAST GUARD\nRESTRICTED\nHEADQUARTERS\nSECRET\nWASHINGTON\n27 February, 1941\nMEMORANDUM FOR SECRETARY OF THE TREASURY:\nSubject:\n250-foot Class Coast Guard Cutters; rearmament\nconversion; estimated completion dates\nInclosure: 1. Schedule of 250-foot Class Rearmament Con-\nversion; equipment required for Completion\n1. The subject class of Coast Guard outters now in\nthe process of being converted to Gunboats (XPG) for national\ndefense under general specifications prepared by the Navy\nDepartment includes the following vessels permanently eta-\ntioned at the ports noted:\nCAYUGA\nBoston, Massachusetts\nCHAMPLAIN\nStapleton, Staten Island, New York\nCHELAN\nBoston, Massachusette\nITASCA\nSan Diego, California\nMENDOTA\nNorfolk, Virginia\nPONTCHARTRAIN\nStapleton, Staten Island, New York\nSARANAC\nGalveston, Texas\nSEBAGO\nNorfolk, Virginia\nSHOSHONE\nAlameda, California\nTAHOE\nNew Bedford, Massachusetts\n2. In general, the rearmament of vessels of this\nclass provides for the following ordnance equipment and re-\nlated alterations and modifications:\nInstall two 5\"/51 Cal. guns\nInstall three 3\"/50 Cal. antiaircraft guns\nInstall four .50 Cal. antiaircraft machine guns\nInstall one Y-gun with six depth charges\nInstall two 5-charged depth charge tracks\nInstall echo ranging equipment (underwater listening device)\nProvide signalling searchlights\nProvide two 24\" high intensity searchlights\nInstall altimeter range finder and 21 meter range finders\nInstall fire control telephone systems\nProvide magnetic mine protection\nModify magazines for war-time ammunition allowance\nRevise accommodations and facilities to provide for 150\nenlisted men and 12 officers\nRegraded Uclassified\n98\nCR-21-311-46-RESTRICTED\nMemorandum for Secretary of Treasury\n27 February, 1941\nProvide chemical warfare defense equipment\nFurnish steel helmets\nInstall various alarms, light dimming and control switches\nProvide electric lanterns\n3. The first phase of the conversion of vessels of\nthis class has been completed on all vessele except the\nSHOSHONE and B. schedule has been prepared for their return\nto various shipyards and Navy yards beginning 1 March, 1941,\nat which time all equipment which has been accumulated since\ncompleting the first part of the work will be installed and\nevery effort made to finish the conversions to the extent\navailable material and equipment will permit. Items such\nas, range finders, searchlights, .50 Cal. machine guns, B\nlimited number of 3\"/50 Cal. A.A. guns and hydraulic depth\ncharge controls have been ordered since early in the con-\nversion program, but excessive delay has occurred in their\ndeliveries, and in the case of several items, deliveries are\nnot anticipated during the forthcoming visits of the vessels\nto the shipyards. This delay is due to the length of time\nrequired for the manufacture of the fire control and ordnance\nequipment and also to the deferred priority assigned the\nCoast Guard in the receipt of defense material and equipment.\nIn the case of four of the outters, the MENDOTA, PONTCHARTRAIN,\nSARANAC and TAHOE, scheduled to proceed to the Navy Yard, New\nYork, for conversion completions, the lack of equipment was\nbrought to the attention of the Navy Department, and I an\nadvised that department has arranged to furnish the missing\nitems of equipment which will permit approximately 100 per\ncent completion of the conversion work.\n4. Satisfactory completion of the remaining six vea-\nsele of the class ie dependent on the receipt of the items of\nequipment mentioned above, deliveries of which have been sub-\nject to extraordinary delay. The only possibility which\nwould allow these six vessels to be completed during the\nproposed overhaul period would be the Navy Department sup-\nplying the wissing equipments by granting earlier priority\nto equipment now under manufacture or diverting that now de-\nlivered and earmarked for Navel units under construction or\nconversion.\n5.\nThe present schedule for the return of vessels of\nthe 250-foot Class for conversion completions 1a:\nCAYUGA\n17 March - 15 April - Navy Yard, Boston\nCHAMPLAIN\n1 - 21 March - Coast Guard Depot\n- 2 -\nRegraded Uclassified\n99\nCR-21-311-46-RESTRICTED\nMemorandum for Secretary of Treasury\n27 February, 1941\nCHELAN\n15 - 30 March - Coast Guard Depot\nITASCA\n21 January to 11 March - Coast Guard Depot\nMENDOTA\n15 - 31 March - Navy Yard, New York\nPONTCHARTRAIN\n1 - 31 March - Navy Yard, New York\nSARANAC\n3 - 31 March - Navy Yard, New York\nSEBAGO\n1 - 21 May - Coast Guard Depot\nSHOSHONE\n25 March - 25 May - Coast Guard Depot\nTAHOE\n15 - 31 March - Navy Yard, New York\n6. To expedite the completion of the conversion on\nthe ten vessels of the 250-foot Class, the following alternate\nschedule 1s recommended providing the work on the vessels can\nbe given priority at the Boston and New York Navy yards. Four\nof the vessels, the MENDOTA, PONTCHARTRAIN, BARANAC and TAHOE,\nas noted above, are scheduled to proceed to the Navy Yard, New\nYork, during March, and preliminary work in connection with\ntheir completion has been initiated and no change in this\nschedule 1s recommended. As noted above, the missing equip-\nment for these four vessels will be furnished by the Navy De-\npartment and their requirements are not included in the tabu-\nlation inclosed which liste the material and equipment required\nto permit completion of the remaining six vessels of the class.\nThe modified schedule which will provide for completion of the\nconversione on all vessels of the class by 15 April, 1941, 1s\nas follows:\nCAYUGA\n17 March - 15 April - Navy Yard, Boston\nCHELAN\n15 March - 15 April - Navy Yard, Boston\nCHAMPLAIN\n1 - 21 March - Coast Guard Depot\nITASCA\n21 January - 11 March - Coast Guard Depot\nSEBAGO\n24 March - 15 April - Coast Guard Depot\nSHOSHONE\n15 March - 15 April - Coast Guard Depot\nMENDOTA\n15 - 31 March - Navy Yard, New York\nPONTCHARTRAIN\n1 - 31 March - Navy Yard, New York\nSARANAC\n3 - 31 March - Navy Yard, New York\nTAHOE\n15 - 31 March - Navy Yard, New York\n7.\nIt 1s urgently recommended that it be arranged by\nthe Navy Department to furnish either by granting higher priorities\nor diverting from vessels now under construction or conversion 7\n3\"/50 Cal. antiaircraft gune, 24 .50 Cal. machine guns, 12 24\"\nhigh intensity searchlights, six 2% meter range finders, 12 hydrau-\nlio depth charge release controls, 300 sound powered telephone\nJack boxes and 150 sound powered telephone plugs for installation\non the six vessels of the 250-foot Class for which previous ar-\nrangements to obtain this equipment have not been completed.\nR. R. WAESCHE\n- 3 - Commandant\nRegraded Uclassified\n100\nse/c\nMEMORANDUM TO THE PRESIDENT\nThere has been an amendment proposed\nto H.R. 1776 by Senators Taft and Byrd which\nSenator Byrnes has indicated he is willing to\naccept in substance. Its implications are 80\nserious we think it ought to be called to your\nattention.\nThis amendment provides that no defense\narticles procured out of appropriations made to\nthe War and Navy Departments after the effective\ndate of H.R. 1776 can be transferred under the\nbill without the consent of Congress.\nThis amendment would seriously cripple\nthe contemplated operations under the bill. It\nwould make it impossible effectively to carry out\na joint procurement program. It would mean practically\nthat We would have to have a separate Army, Navy and\nforeign aid program. It would also take away the\nflexibility that is necessary in disposing of defense\narticles.\nRegraded Uclassified\n101\n- 2 -\nWe have felt justified in bringing this\nto your attention because no amendment to which\nadministration Senators have been receptive cuts\nso close to the heart of the bill.\nDo you have any suggestions for us?\nHenry L Stinson\nSecretary of War\nHerry Mayonthan Ir.\nSecretary of the Treasury\nForestal\nActing Secretary of the Navy\nFebruary 28, 1941\nRegraded Uclassified\n102\nFebruary 28, 1941\nMy dear Mr. Smith:\nFor your information, I am send-\ning you copy of a memorandum signed by\nSecretaries Stimson, Forrestal and myself,\nwhich was transmitted to the President to-\nday.\nYours sincerely,\n(Signed) 1 Mangenthan, st.\nHonorable Harold D. Smith,\nDirector of the Budget.\nRv Measons 241\nRegraded Uclassified\n103\nFebruary 28, 1941\nIty dear Harry:\nFor your information, I am send-\ning you copy of a memorandum signed by\nSecretaries Stimson, Forrestal and myself,\nwhich was transmitted to the President to-\nday.\nYours sincerely,\n(Signed) E Mongesthau, Jr.\nHonorable Harry Hopkins,\nThe White House.\nBy Measenger 241\nRegraded Uclassified\n104\nFebruary 28, 1941\nMy dear Mr. Secretary:\nFor your files, I am sending you\n& copy of the memorandum which we\nsent to the President today.\nSincerely yours,\n(Signed) E. Morgenthan, &\nHonorable Henry L. Stimson,\nSecretary of War,\nWashington, D.C.\nBy Momenager 241\nRegraded Uclassified\n105\nFebruary 28, 1941\nMy dear Mr. Forrestal:\nFor your files, I am sending you\na copy of the memorandum which we\nsent to the President today.\nYours sincerely,\n(Signed) E. Mergenthau, Jr.\nHonorable James Forrestal,\nUnder Secretary of the Navy,\nNavy Department,\nWashington, D.C.\nBy Memenager 2ᵗʰ\nRegraded Uclassified\n106\nTTH CONGRESS\n1st SESSION\nH. R. 1776\nIN THE SENATE OF THE UNITED STATES\nFEBRUARY 26 (legislative day, FEBRUARY 13), 1941\nOrdered to lie on the table and to be printed\nAMENDMENT\nIntended to be proposed by Mr. BYRD to the bill (H. R. 1776)\nfurther to promote the defense of the United States, and\nfor other purposes, viz:\n1\nOn page 3, line 10, after the period, insert the follow-\n2 ing new sentence: \"Defense articles procured from funds\n3 hereafter appropriated shall not be disposed of in any way\n4 under authority of this paragraph except to the extent\n5 hereafter specifically authorized by the Congress in the Acts\n6 appropriating such funds or otherwise.\"\n2-26-41-A\n107\nFebruary M. 1941\nUnder Secretary Boll\nMr. Cechran\n40 11:30 this morning Mr. Mazwell Namilton, Chief of the Far Nastern Division\nof the Department of State, telephoned se to ask for an appointment for his\nMr. Jenes, to present a nenerandum to the Treasury Department setting forth State\nDepartment views on the Chinese stabilization arrangement. I explained to Mr. Kanilton\nthat pressure of financing had prevented the Treasury from calling any joint meeting\nis this question the past two or three days, but that w hoped to get on 10 again 1002.\nb. Familton stressed the urgency of the matter insefar as the Department of State Vid\nconserned.\nAt 2140 this afternoon I received Mr. James, who handed to se the atteshed\ninformal neuorandum. No said that this had been cleared with the appropriate efficials\nis the Department of State, including Secretary Ball.\nI reminded Mr. Jenes of our conversation come days age with Dr. Seeng\nand let his know that the British Treasury people had provided us with a copy of a\nAcorgo cost free Lendon to Cheagking, but that ve had received since that meeting\n9 other documents which night have served as & basis for the remarks which Dr. Seong\nmis from a pencil monorandum. Mr. Jenes confirmed that he likevise had received\nnothing other then the Lendon-Chungking tolegram which had been handed to W. I -\nunsertain, therefore, whether the message from Lendon which Phillips had used as a\nbasic for his to the Treasury had also served as the basic of Dr. Seorg's\nor whether some later message is invelved. Ve should clarify this with\nthe British when they next meet with M.\nHNC:dM:2.28.41\nRegraded Uclassified\nCOPY\n108\nFebruary 12, 1941\nINFORMAL MEMORANDUM IN REGARD TO\nTHE CURRENCY SITUATION\nIN CHINA\nOfficers of the Department understand that Sir\nFrederick Phillips has presented to the Treasury De-\npartment on behalf of the British Government a plan for\ndealing with the Chinese currency situation which, if\naccepted, would serve as B. substitute for the draft\nagreement which has been tentatively worked out between\nthe Treasury and Mr. T. V. Soong in Washington. The\ndraft as agreed upon between the Treasury Department\nand Mr. Soong provides certain procedures whereby this\nGovernment would aid the Chinese Government in stabiliz-\ning the exchange value of the Chinese yuan with respect\nto the United States dollar and other foreign currencies,\nprocedures which allow a continuation of the present\npolicy of maintaining a free market for Chinese cur-\nrency. Conversations which have thus far been had with\nMr. Soong have assumed that a free market for Chinese\ncurrency would be continued.\nAccording to our understanding of the matter, the\nBritish plan to conclude at an early date a payments agree-\nment between the British Empire and Japan and between the\nBritish Empire and China. These two steps would result in\nthe disappearance of the free market for sterling in China.\nWe\nRegraded Uclassified\n109\n- 2 -\nWe understand that the British plan calls further for the\nestablishment of external exchange control by the Chinese\nGovernment, the freezing of Chinese balances in the British\nEmpire and in the United States, and the operation of ex-\nchange controls in the British Empire and in the United\nStates to the advantage of the Chinese National Government,\n1.e., the Government of the United States and the govern-\nments of the various areas of the British Empire would\nprovide that exchange accruing from current Chinese exports\nfrom occupied areas must be turned over to the Chinese\nNational Government if the commodities concerned are to\nbe accepted in the British Emmire or in the United States.\nThe British Empire and the United States would therefore\nbe helping China enforce exchange control in the occupied\nareas. The free market for Chinese currency would, of\ncourse, largely disappear and presumably the Chinese\nNational Government would fix an exchange rate for future\ntransactions.\nThere is reason to believe that if the preceding\nmeasures were taken, the following developments would have\nto be taken into account:\n(1) The Japanese would probably decline to allow\nexchange accruing from exports from Shanghai and\nTientsin\nRegraded Uclassified\n110\n- 3 -\nTientsin and other occupied ports to be made available\nto the Chinese National Government. There is little\ndoubt that they would promptly declare the currency of\nthe Chinese National Government invalid in the occupied\nareas and substitute the currency of their own puppet\nbanks therefor, instituting at the same time full ex-\nport and import control providing that no exports could\ntake place until the exchange involved should accrue to\nthe puppet banks. The result of conflicting Japanese\nand British policies would be a stalemate in which\ntrade between the occupied areas and countries other\nthan Japan would be cut off, except for the export and\nimport trade with occupied Chine which would probably be\ncarried on through Japan, and the occupied areas would\nbe thrown largely upon Japan for both imports and exports.\nAny hope, therefore, that the Chinese Government would\nunder the British plan derive foreign exchange from the\ntrade of the occupied areas would seem to be wholly 11-\nlusory. Moreover, the Japaness could argue with con-\nsiderable reason, if the foregoing should transpire,\nthat China, Great Britain, and the United States had\ndestroyed the free market for China's currency and that\nthey had no alternative but to put their own currency\nand trade measures into\noperation.\nRegraded Uclassified\n111\n4\noperation. The adverse effect of these developments\nnot only on Shanghai but on the large guerrilla-controlled\nhinterland and upon the resistance to Japanese policies\nwhich is maintained in those areas would probably be\ngreat. The circulation of the Chinese currency through-\nout China, including the occupied areas, tends to cause\nthe Chinese to continue to regard Chungking as their\nlegitimate government, and is therefore an important\nunifying factor.\n(2) Perhaps the most important immediate effect to\nthe United States of putting the British plan into ef-\nfect would be that the large quantities of Chinese Na-\ntional currency at present circulating end hoarded at\nShanghai and in the central and north China hinterland\nemounting to between three or four billion yuan or more\nwould be pushed back into the interior where the Chi-\nnese National Government is endeavoring at the present\ntime to prevent a runaway inflation. Either the owners\nof Chinese National currency would take that currency\nfrom Shanghai into the interior or the Japanese would\ncollect it, in exchange for puppet currencies, and\nsmuggle it into the interior. The result of a great\naddition of the circulating medium in free China, where\ninvestment opportunities for private capital are meager,\nwould be probably to cause inflationary forces operating\nthere\nRegraded Uclassified\n112\n- 5 -\nthere to get out of hand and thereby underwine the all-\nthority of the Chinese National Government,\nBoth this Government and the British Government are\nconcerned that the strength end authority of the Chinese\nNational Government be maintained. We feel that the no-\nceptance of the British plan would not be in accord with\nthat general policy. If the preceding developments took\nplace they would appear to be working in the opposite\ndirection. This Government is carrying out as a measure\nof self-defense a. broad policy of aid to countries resist-\ning aggression and, as part of that policy, recently an-\nnounced the extension of a loan of $100,000,000 to the\nChinese Government. Shortly after that announcement, the\nBritish Government announced that it was similarly making\na. large sum available to the Chinese Government, partly\nfor currency stabilization purposes and partly for in-\ncreased purchases within the British Empire. The effect\nof the proposed British plan would seem to be not only not\nto make a material contribution to the support of the Chi-\nnese currency, but to make difficult American efforts to\nsupport that currency. Should the British Government pro-\nceed to negotiate a payments agreement with China, the\ninability of China to sell her surplus of sterling in the\nopen market and to obtain therefor gold dollars would exert\nadditional pressure on the Chinese currency.\nIt\nRegraded Uclassified\n113\n- 6 -\nIt would 000m to be preferable as a matter of\npolicy to keep the situation in China on as even e keel\nas possible during the coming months and to avoid, if\npossible, drastic measure, exfecting China's economy.\nIf China can be tided over during the next few months a\nnew and more hopeful situation may present itself. It\nwould seem to be useful to have a plan such as the\nBritish have in mind thoroughly discussed and worked\nout as between the British and ourselves as a necessary\nemergency measure to be put into operation if the Japa-\nnese seize Shanghai and establish full trade and ex-\nchange controls or if the further maintenance of a free\nmarket for the Chinese currency should otherwise seem\nto be completely untenable. However, it is suggested\nthat it is highly desirable to continue for a while\nlonger the policy which this Government and the British\nGovernment have followed since the beginning of hostili-\nties in the Far East, namely. that of holding our ground\nas long as possible and of retreating only when obliged\nto do BO. Such a course of action may require & greater\nexpenditure of funds but in our opinion the returns for\nthat expenditure would be substantial.\ncopy:kma\n2/28/41\n114\nTREASURY DEPARTMENT\nwith\nINTER OFFICE COMMUNICATION\nDATE February 28, 1941\nTO Secretary Morgenthau\nFROM Mr. Cochran\nAt 11:45 on February 21 Mr. Dave Schenker of Securities and Exchange telephoned\nSF. He said that Mr. Quian, representing an investment trust group in New Tork\nwhich had been in touch with S. B. C., had heard rumers that the British were nago-\ntisting directly with various firms \"on the Street\" in regard to sale of direct\ninvestments in this country. He wanted to know how 8. E. C. should & about effect-\ning liaison between Quinn and Sir Edward Peaceck.\nI told Mr. Schenker that I could only renew the advice which I had given his\noffice after & personal conversation with Sir Edward Peacock, assely, that all parties\napplying to our Government offices here in Washington for information about or con-\nlact with Sir Edward Peaceck's office and his functions should be referred directly to\nhis at 15 Broad Street, New York, is care of the British Purchasing Commission.\nSchenker said that he reaclled this nessage from me, but that Quian seemed hesitant\nis taking such & forward stop. I assured Mr. Schenker that Sir Mward's reports of\nvallers and their efforts to interest his in their propositions indicated no excessive\nsolesty an the part of New York speraters, and again told him the Treasury vas\ninfinitely following the policy suggested by Peacock, without making any exceptions\nin behalf of special pleaders.\nWhen Mr. White and I were with the Secretary on February 24 I mentioned the\nstove conversation. Mr. White stated that Mr. Schenker had spoken with his on the\nand was sending over a nemorandum to the Secretary indicating the people who\nW been in touch with him conserning British direct investments, and asking advice\nla the premisss. The Secretary took the position that the policy of referring every-\nuse directly to Sir Edward Peacock should be followed by the S. 1. C. as well as by\nthe Treasury, and that there should not be any comfusing of this pelicy through\n8. 1. c. approaching more than one efficer in the Treasury. The Secretary said he wanted\nthis handled through no. At the Steff meeting of February 25 the Secretary reminded\nthe group that he desired that Mr. Young be his contact with the British Purchasing\nCommission and that I be the contact with the British When he asked whether\nany of the other officers had direct contact with the Embasay, Nessre. Gaston and\nPable stated that they sometimes saw Stepford. I remarked that this had been agreed\nun, since Stopford dealt with certain shipping matters which Mr. Gasten comtrolled.\nat occasionally went on to ... Mr. Pehle on Foreign Funds matters after he had filed\nde nemoranda on this subject with no.\nH.M.R.\nRegraded Uclassified\n115\nFebruary 28, 1941\n11:45 a.m.\nH.M.Jr:\nHello.\nOperator:\nMr. Schenker.\nDavid\nSchenker:\nHello, Mr. Secretary.\nH.M.Jr:\nHello.\nS:\nI'm sorry to bother you but Mr. Quinn has\ncome to Washington and my phone literally has\nbeen ringing innumerable times every day with\nrespect to that British ai tuation.\nH.M.Jr:\nI'm going to be available at 3:00.\nS:\nWell, may we come over for 5 minutes?\nH.M.Jr:\nWho is we?\nS:\nJust Frank Quinn and myself.\nH.M.Jr:\nSure.\nS:\nFine.\nThank you.\n116\nFebruary 28, 1941\n11:50 a.m.\nRE AID TO BRITAIN\nPresent:\nMr. Gaston\nAdmiral Waesche\nMrs. Klotz\nGaston:\nMrs. Herbert is typing the last few lines of\na letter to the President for your signature.\nH.M.Jr:\nWhat do I do, read this?\nGaston:\nThere is & memorandum that was really prepared\nbefore the discussion with the Navy Department\non the status of these cutters.\nH.M.Jr:\nShould I read this? Have you got a copy of\nthis?\nGaston:\nNo, I haven't a copy of that.\nWaesche:\nI don't think it is necessary for you to read\nthat, Mr. Secretary. I can just tell you in\na very few words what it contains.\nH.M.Jr:\nPlease.\nWaesche:\nThat simply gives you the present state of\nconversion of these ships for Navy use, and it\nruns all the way from the Shoshone, which hasn't\nbeen touched, to one of the other vessels,\nwhich is almost completed. Under the present\nplans, the Navy of course have not given pri-\nority to all of those ships. They have been\nRegraded Uclassified\n117\n- 2 -\ngiven priority before which they expect to\nuse on the ones in the Caribbean Sea. In the\npresent setup those ships would not be ready\nuntil April or May with those particular type\nof guns. When I took it up with the Navy\nyesterday, there was no question in their\nmind that the British would not want that arma-\nment, and they simply said, \"We are not going\nto send these guns over on these ships for the\nBritish to take off and use them for something\nelse.\" They were very positive those were not\nthe guns which the British would use. Then\nwe cabled London yesterday to find out what\narmament the British would want on these ships,\nso that practically scraps that whole conver-\nsion program. As far as the material already\nin the ships are concerned, the machinery and\nthe hull are in the pink of condition, all ten\nof them, and it is only a question now of find-\nout what the British want put on there, and as\nsoon as we get that word, the Navy have told\nme they would give me an estimated date--\nH.M.Jr:\nLet me interruptyou. I hope you didn't con-\nsider just the armament. Let me tell you what\nhappened in the case of the destroyers. My\ninformant is the President of the United\nStates. One of the many reason why there was\nsuch delay in putting these destroyers in the\nservice, I understand they have four boilers\neach, and the English took one boiler out in\norder to make room for more full capacity.\nThey said they could get along with less speed,\nbut they wanted them to stay out longer. And\nthen on the bridge of our destroyers, it is\ncovered with steel, and they find that they\nhave lost more men from broken necks because\nwhen they dropped these bombs the concussion\nthrows the men up, and they hit their heads\non the top of these steel roofs, and they\nbreak their necks. Furthermore, they want to\nRegraded Uclassified\n118\n- 3 -\nbe able to see the planes when they come.\nTherefore, they removed the top of all these\nbridges. Now, the point of the story is,\nthe bridge is open, there is no protection,\n80 - if we are going to do this thing so they\nwill be able to use them this spring, the\nEnglish ought to be able to see them or have\na plan of them and say, \"To put them into\nservice, this is what we need. So when they\nleave and are delivered up to Halifax, these\nthings are in the condition they want, not\njust as to guns, but everything. So if you\ncould - if you didn't make it all inclusive,\nI would ask the British - - here is the type of\nship we are thinking of letting them have under\nthe Lend-Lease. \"What would you want done to\nthis ship 80 that when it is delivered to Hali-\nfax, the next day it goes into service with the\nfirst convoy that goes out,\" you see.\nWaesche:\nYes, sir.\nH.M.Jr:\nOr if this ship is of no use, all right. Now,\nI should think one of the things which would\nhelp them would be, if you haven't got a man\nin Halifax, send one up there and let him take\na look at these ones the Canadians are building,\nhow are they equipped.\nThese new Corvettes which they are building -\nbut it would be better, I think, to let the\nBritish say, \"Here, now this is fine and wonder-\nful, but we want the following things done to\nthese ships before we can use them under our\nideas.\" There is no use arguing with them.\nUnless they were in condition so that they can\nbe used this spring, I would lose most of my\ninterest. Now, is that plain what I am saying?\nWaesche:\nYes, sir.\nRegraded Uclassified\n119\n- 4 -\nGaston:\nOf course the ships themselves can all be\ndelivered right now.\nH.M.Jr:\nI know, Herbert, but if you send them over to\nEngland and they go through the thing, it is\nanother three months, and the whole idea is\nlost, but if they have - as I understand it,\nthese convoys go over of from 40 to 60 ships,\nand they are having one, two, or three destroy-\ners, that is all, for the whole thing. I mean,\nand that is why they are losing so many. They\nonly have, I understand, sometimes as few as\ntwo. Have you heard that?\nWaesche:\nYes, yesterday. sir, I have. I was talking to the Navy\nH.M.Jr:\nAm I right?\nWaesche:\nYes, sir, and also they were saying - they\ntalked about those convoys over there yesterday.\nThey were saying that the guns that we have on\nthese ships would not stop those German planes,\nthat they usually report those German bombers\ncome down there and shoot over those convoys\nabout two hundred feet up in the air and one\nbomb to each merchant ship.\nH.M.Jr:\nBut the point I am getting at is, from their\ndaily experience there are undoubtedly things\nthat they want. We can do those things very,\nvery rapidly here, 80 that they get them in\nthe spring, and I don't want them to leave\nhere and have them lie over in some port in\nEngland for three months.\nWaesche:\nThe only question in my mind is, of course,\nwhether the Navy is to make these arrangements\nwith the British by putting the Navy in there,\nRegraded Uclassified\n120\n- 5 -\nwhich, of course, I think it is 8. Navy job,\nbut I am not in a position to go over and tell\nthe Navy I want them to do this, that, and the\nother thing.\nH.M.Jr:\nWell, I am, and so is the President. Don't\nhesitate about that. I will drive it home.\nWaesche:\nTo my mind, just as you say, there should be\nsomebody from the British authorities who knows\nwhat they want come down here with the Navy and\nCoast Guard and say, \"Here is the ship. Now\nwhat do you want done to it?\"\nGaston:\nYes. The final thing is to find out what the\nBritish want done.\nH.M.Jr:\nThey have got the people here.\nMake a note, Herbert, please, gross tonnage of\nthe earlier five, I would like to have you give\nthe date of when those are available. The\nmeeting is tomorrow morning. I just got word.\nGaston:\nTwenty-eight and twenty-nine the first five,\nand thirty-one and thirty-two the second five.\nH.M.Jr:\nNow, if you don't mind, I would change this\nletter. It isn't what I want. I would simply\nput in here, \"We have asked the Navy to ascer-\ntain from the British what will be necessary\nto convert these ships so that they would be\nready to be put to the use that they want and\ndepending upon what we hear from the British\nand depending upon the speed with which the\nNavy will make it available, we are unable to\ntell you, you see.\nGaston:\nYes.\nH.M.Jr:\nIn other words, there are two factors, one,\nRegraded Uclassified\n121\n- 6 -\nhow quickly the British can get them; and, two,\nhow quickly our own Navy can act on them.\nGaston:\nThat is just listing what is being done now,\nand then I say in the last paragraph--\nH.M.Jr:\nI think it is confusing, if you don't mind,\nall that stuff may come off.\nGaston:\nYes.\nH.M.Jr:\nI would simply, after the first paragraph, in-\ntroduce a new paragraph in place of this one.\nGaston:\nThe second paragraph there is descriptive of the\nboats, I think.\nH.M.Jr:\nNo.\nGaston:\nIsn't it?\nH.M.Jr:\nNo. I would cut this out because what we are\ndoing now may be of no use to the British.\nGaston:\nYes, we realize that.\nH.M.Jr:\nSo I would just say with the exception of one -\nthen I would say we are asking the English and\nwhen we hear from that, We will put it up to\nthe Navy and it will depend on how quickly the\nNavy will do it. We can then tell you.\nGaston:\nIt is really the Navy that has asked the British.\nH.M.Jr:\nWell, say 80.\nGaston:\nYes.\nH.M.Jr:\nYou say they could probably all be completed by\nMarch 15.\nGaston:\nThat was the old changes.\n122\n- 7 -\nH.M.Jr:\nWell, you have got this time limit here.\nGaston:\nYes.\nH.M.Jr:\nI just think you could say, with the exception\nof one, they are all on the West Coast; and\nthen, however, we do not know what armament\nthe British will desire, and the Navy Depart-\nment has asked and 80 forth. Time of delivery\nwould therefore depend on that. Now, if you\nwill fix that up and get it back to me this\nafternoon.\nGaston:\nYes. Now, we have--\nH.M.Jr:\nNow, there should be a companion letter which\nwould go with it - oh, I think I would put it\non the same thing. \"Now, Mr. President, if we\ndo this, the Coast Guard needs the following\nin exchange.\" I would put it right in the same\nletter.\nGaston:\nWell, there is the other thing too, of what\nthis is going to do to our present set-up.\nWe can't get ships immediately. What this is\ngoing to mean to us, and what help we will\nhave to have in being able to cover our -\nthere is a memorandum on that.\nH.M.Jr:\nDo you understand what I want on this letter?\nGaston:\nYes.\nH.M.Jr:\nDon't say the President's emergency fund, be-\ncause he always hits the ceiling on that. Say\nthe deficiency appropriation. He says there is\nno emergency fund. He says that consistently,\nso say deficiency appropriation.\nGaston:\nShould we cover this in the same letter?\nRegraded Uclassified\n123\n- 8 -\nH.M.Jr:\nYes, I would.\nGaston:\nAnd summarize that whole situation in the same\nletter.\nH.M.Jr:\nYes, I would.\nGaston:\nThe International Ice Patrol is rather an in-\nvolved subject.\nH.M.Jr:\nBut it is brief and short. I would put it all\nhome. in one letter so I can have it before I go\nGaston:\nNow, on the type of ships--\nH.M.Jr:\nOh, yes.\nGaston:\nThe Admiral had a memorandum here suggesting\ninitially what the Navy would undoubtedly want\nis the 327 footers, but adding to that what he\nwants and the service men want would be an\nalternate, and I think we had better turn that\naround and say nothing about the 327 footers,\nand say what we really want. What we really\nwant in the Admiral's opinion, the opinion over\nthere, is a vessel of the Cayuga-Champlain type\nbut lengthened to 210 feet and with more power\nso as to give her 20 knots speed and still make\nhere 8. usable boat for Coast Guard purposes.\nWaesche:\nIn other words, speed is determinate. We feel\nour seagoing vessels should have 20 knots speed.\nThen when you start with the speed, that de-\ntermines the length and the power and to get\n20 knots you have got to have a vessel about\n310 feet long.\nGaston:\nIt costs about a half million less per vessel\nthan the Bibb type.\n124\n- 9 -\nH.M.Jr:\nDo you mind if I differ with you? What I would\nask, and I think from the standpoint of national\ndefense, looking after everything else, I would\nlike you to tell me, in order to keep free of\nice, all of the Atlantic ports, to keep free of\nice our base at Newfoundland, to have enough\nships to send up to Greenland and to Iceland,\nI would put that in first because I think it\ncomes first, and I think, in the long run, that\nCoast Guard has a - has more justification for\nits existence, it is more popular with the\nCongressmen, more political appeal in the broader\nsense, than if you get into this other thing,\nthis deep seagoing stuff, which, with the Navy\nso big anyway - I don't know.\nWaesche:\nI follow you very closely. The only reason we\nneed the seagoing ships at all is for these\nspecial cruises and--\nH.M.Jr:\nNow, look, Admiral, you are not going to be\ndoing those. Let's be frank. You are not going\nto be doing those, but if I can say and you can\nsay to the Congressmen, \"After all, here are so\nmany harbors that we cannot keep open, 80 many\ninland lakes where they can't bring the iron\nore down, and if you are going to expect us to\nkeep Halifax open, because the Canadians don't\nhave any ice breakers, I take it--\"\nWaesche:\nThat is right.\nH.M.Jr:\n\"And if you expect us to go to Greenland or\nIceland - now there is the talk, you know, of\nshipping to Iceland and then trans-shipping\nfrom there to England. There is 8 job for\nCoast Guard to do.\"\nWaesche:\nOf course the type of ship which is best suited\nfor that sort of work is this type that We are\nplanning to use, the type of the Cayuga.\nRegraded Uclassified\n125\n- 10 -\nGaston:\nThe large 310 boat is what he is talking\nabout. If you are going to do deep sea work,\nand after all, the Coast Guard can't abandon\nits function of rescue at sea, and if you are\ngoing to do that type of work, you have to have\na ship that is workable in heavy seas, You\ncan't have these small ships that pitch all\nover and stand on their noses in heavy seas.\nH.M.Jr:\nNow, Herbert, let's be practical. Would you\nplease give me & list, what - this ship, for\ninstance, the one like you had in Cleveland,\nit is a--\nWaesche:\nA hundred and sixty-five feet long.\nH.M.Jr:\nThat is an ice breaker, isn't it?\nWaesche:\nYes, sir,\nH.M.Jr:\nWhat I want to know is, whatever that one is,\nthat type of ship, how many do you need of\nthose and how many smaller ones do you want\nand what would they cost, and I certainly would\ngive those priority over deep sea rescue work.\nWaesche:\nI agree, Mr. Secretary, but I think you will\nfind that - well, 225 to 250 foot is the type\nof ship we want. For example, we got appro-\npriations from Congress to build a Greenland\ncutter to break the ice up there. We studied\nthe ships around Greenland. We had boys in\nWashington who had been aboard all these ships.\nWe started out with e 200-foot ship, and Smith\nand all the people who were up there in Green-\nland came down and said it was too short, so\nwe have now raised it to 230 feet. Now then,\nfrom 230 feet - as a matter of fact, Smith,\nIceberg Smith, wanted a 250-foot ship for the\nGreenland cutter to go up there and work in the\nice, to be able to take care of herself in\nRegraded Uclassified\n126\n- 11 -\nheavy seas and heavy gales that are going\naround the south coast of Greenland, and going\ninto Newfoundland and so forth, and when you\nget below 250 foot - you take the Escanaba--\nH.M.Jr:\nNow look, I want two different things. One\nthat can go up to Greenland and Iceland or\nwhatever is necessary and whatever is the most\nefficient ship. They keep getting bigger and\nbigger all the time. These Corvettes that\nthey have are much smaller than your boats,\nthat they are building in Canada. They are\nwhat, 250 feet?\nWaesche:\nI think they are, yes, sir.\nH.M.Jr:\nI want to know how many - don't blow it up -\nof the big ones do you need, seagoing ice\nbreakers, see, and what will they cost and\nhow many do you need for the harbor work that\nwon't go to sea? Now, can I get a list of that?\nWaesche:\nYes, sir.\nH.M.Jr:\nAnd see how much they cost.\nWaesche:\nYes, sir.\nH.M.Jr:\nAnd if you gentlemen will be back here again\nat four o'clock, I will see you at four o'clock.\nWaesche:\nI will be back at four.\nH.M.Jr:\nAnd then after you have got that and totaled\nthat, then we will talk last about the thing\nthat Herbert Gaston is talking about.\nGaston:\nWell, you are talking about the same thing. If\nyou get a heavy ice breaker type of around 250\nfeet, you have got an all-purpose boat that can\ngo out to sea and work, but these - this Itasca\nRegraded Uclassified\n127\n- 12 -\ntype is 8. compromise vessel. She is not a\ngood ice breaker or sea boat, either one.\nH.M.Jr:\nWhat I am asking for is from your experience\nwhat is the best type of thing that will work\nin heavy ice and can go - clean out Halifax\nor clean out the Newfoundland base or can go\nto Greenland or Iceland, and then I know what\nI am talking about. That is a function that\nthe Coast Guard should have and you can defend,\nbut as soon as you get into the other thing,\nwants. you are going to be in something that the Navy\nWaesche:\nI follow you, and I agree with you 100 percent.\nH.M.Jr:\nIf you don't, don't say so, but be back here at\nfour o'clock with Mr. Gaston, how many of these\nbig fellows do you want and how many do you\nneed, how many more do you need to do the harbor\nwork, which is a different type of thing, isn't\nit.\nWaesche:\nYes.\nH.M.Jr:\nRunning from here - the Hudson up to Albany,\nyou don't need that type of boat, do you?\nWaesche:\nNo, sir.\nGaston:\nOne hundred twenty-five foot.\nWaesche:\nWe have given that considerable thought in the\nCoast Guard, and we feel we can consolidate\nour needs into about three classes of ships.\nOne would be of the Cayuga class, 250 feet.\nThe only reason we shot it up to 300 feet, we\ndid feel that we should have more speed in it.\nH.M.Jr:\nThat is where you and I differ. You are think-\ning of 20 knots and I am thinking of the best\nRegraded Uclassified\n128\n- 13 -\nship to break ice. You can't get an ice\nbreaker with a beem that is going to go 20\nknots. Am I right?\nWaesche:\nThat is true, and of course the second type\nwas this intermediate type of around 175 feet,\nand the third type was around a small 80-foot\nboat for the harbors.\nH.M.Jr:\nCome back thinking in terms of ice.\nGaston:\nThen maybe we want to go into the question of\nwhether we want a big ice cutter that can\nactually break heavy ice. This country has\nnone except the car ferry up on Lake Michigan.\nThe Russians have them.\nH.M.Jr:\nI think we should have them.\nGaston:\nWe have never had anything that will really\nbreak any ice.\nH.M.Jr:\nI was talking about something like the Russians\nhave that will break ice up in Greenland and\nNewfoundland.\nGaston:\nThat is a different ship.\nWaesche:\nThat is a much different ship, and of course\nit is a large ship. They have got to get weight.\nThese two ice breakers up on the lakes are three\nthousand-ton ships, over 300 feet long.\nH.M.Jr:\nDo you know how to build one?\nWaesche:\nOh, yes. As a matter of fact, we have the plans\nof the Russian ice breakers over there.\nH.M.Jr:\nBut will you think of ice breakers and not in\nterms of speed?\n129\n- 14 -\nWaesche:\nYes, sir.\nH.M.Jr:\nBecause you can't get an ice breaker with\nspeed.\nWaesche:\nNo, the two don't go together.\nH.M.Jr:\nThen think about it, and then say, \"Mr. Morgen-\nthau, we will want this kind of ship.\"\nIf I talked to him, \"Mr. President, I want the\nCoast Guard - and it-is the place for Coast\nGuard to keep this thing open, Greenland, New-\nfoundland, Iceland,\" he is going to like it,\nand I think I am going to get somewhere. I\nhave failed every time up to now, and we have\nfailed because the Navy sticks a dagger in our\nback on this thing. I don't think they want to\nget in this ice breaking business. I think it\nis a function, and I think it is a chance of\nkeeping Coast Guard going, 80 please don't try\nto jam that 20-knot thing down me because I\ncan't - I have been unsuccessful with the\nPresident now for seven years.\nWaesche:\nAll right, sir, I realize your position.\nH.M.Jr:\nThink it over, Herbert.\nGaston:\nAll right.\nH.M.Jr:\nFour o'clock\n130\n1st Draft\nFebruary 28, 1941\nDear Mr. President:\nThe Coast Guard cutters which seem most suitable\nfor convoy work are the ten vessels of the 250 foot class\nbuilt between 1928 and 1932. The vessels are the CAYUGA,\nCHAMPLAIN, CHELAN, ITASCA, MENDOTA, PONTCHARTRAIN,\nSARANAC, SEBAGO, SHOSHONE, and TAHOE. The over-all\nlength of each is 250 feet, molded beam 42 feet, maximum\ndraft 16 feet, displacement 1,979 tons, speed 16 knots.\nThe gross tonnage of the earlier five built is 1,632 and\nof the later five, because of minor changes in internal\narrangement, is 1,573. All are oil burning turbo-\nelectric. The earlier five develop 3,000 horse power and\nthe later five 3,200.\nWith the exception of one, the SHOSHONE, all of\nthe vessels are now on the east coast and all are in such\ncondition as to hull and machinery that they could be\nturned over immediately. We are, however, in process of\nadding additional armament to all of them to put them on\na war basis. This work includes degaussing, under water\nsound equipment, addition of searchlights, depth charge\nracks, range finders and additional guns. Armament as\nagreed to with the Navy would include two 5 inch broad-\nside guns, three 3 inch, 50 caliber anti-aircraft guns,\nfour 50 caliber machine guns and one Y gun for depth\ncharges.\nThe Navy has agreed to give, at your direction,\nurgent priority to completing these changes and they\ncould probably all be completed by March 15, with the ex-\nception of one vessel, the SHOSHONE, which is enroute from\nthe Pacific Coast. With respect to this vessel, it would\nprobably take about two weeks longer.\nRegraded Uclassified\n131\n- 2 -\nHowever, we do not know what armament the British\nwould desire and the Navy Department has asked the British\nto cable advice on this point. Time of delivery would\ntherefore depend on what reply we get from the British.\nRespectfully,\nSecretary of the Treasury.\nThe President,\nThe White House.\n132\nw\nTREASURY DEPARTMENT\nRegraded Uclas\nINTER OFFICE COMMUNICATION\nDATE February 28, 1941\n10 Marchary Margenthen\nFROM Mr. Cechran\nSTRICTLY CONFIDENTIAL\nAt 12:15 today. lb. Pinsent, Financial Counseler of the British Interny, called\nas 26. Be said that Sir Frederick Phillips wated M to have that the nagotiations\nof the British Government with Finance Minister Outt of Belgium, a nember of the\nBelgian Government set up in London, terant the berrowing of Bolgian gold by Great\nBritain had net succeeded. It appears that Outt will ast take an independent deci-\nden toward the end desired by the British, but is in consultation with Special dates-\nunder Thounis in this country in the premises. Phillips stated that the British\nTreasury efficials here in Washington have net been in teach with Thounds and do not\ncontemplate contact with his. I stated that I had net seen Themis for several months\nand thought he spent most of his time la New York, I asked Phillips whether ha had\nusy information as to a probable early visit to the United States by Minister Gutt.\nHe replied is the negative, (It will be recalled that I recently learned that\nMinister Outt night be coming to the United States, and had been told by the State\nDepartment that he had applied for a. diplomatic visa to caable Ma to make this trip.)\nPinsent told me that Deputy Finance Minister Clark of Ottawn is accompanied to\nMahington this time by Mr. Wrong, who has been connected with the Dominion Government\nfor some years, and who usy remain in Mashington for seae time at lisison afficer on\nfinancial subjects.\nThe British Treasury efficials had cabled to Lendon after Sir Proderick Phillips'\nconversation with Secretary Margenthan yesterday morning. A wire from Lenden had\ncrossed this workge. the British are endervering to fellow Secretary Mergenthau's\nsivice that they take care of their own financial position pending the passage of the\nLease-Lond Bill. Toward this end the British will send deem ima more gold from\nCanada, possibly as such as $25,000,000, representing the balance that the British\nwill hold is Canada, together with certain accretions from new shipments to Canada\nfree Australia and elsewhere. The British are also prepared to \"switch\" Franch gold\nis Canada against gold held scattered throughout the world by the British. The\nBritish efficials here are cabling Londen today for details as to their gold and\ndollar position as of February 28. They are seeking information particularly in re-\nand to $40,000,000 which has been reported as hold in instralia by the Exchange\nApalisation Account of Great Britain. Pinsent is not sure whether there is still\nthis such is Anstralia, er whother this was a figure of some weeks & that has been\ndisistabed by shipments of gold free Australia to America.\nPinsent asked as to let his know whenever we have word of shipments of gold from\nCanada, in order that their figures my be coordinated. I premised this and gave his\ncertain data which we had received the past two days.\nP.Z.\n133\n- 2 -\nPinsent read to no extracts from a message which the lisbasay had received from\nLondon reporting that the American Imbassy there vas making vigorous protest against\nthe British rules requiring payments of legacies into blocked accounts. The British\nGovernment did not contemplate replying to such pretest until the Babasay in\nWashington might ascertain whether the American Treasury had any feelings en this\nsubject. That is, the British authorities are appreciative of the immense assistance\nwhich the United States is arranging to grant Great Britain. They do not know, how-\never, whether the American Treasury would desire that dellar resources of Great\nBritain be diminished through exceptional release of dellar exchange to pay off\nlegacies due American citizens, or whether we would prefer that the rule be rigidly\nenforced and dollar assets conserved.\nBMS.\n134\nTREASURY DEPARTMENT\nput Rico -\nINTER OFFICE COMMUNICATION\nDATE February 28, 1941\nTO Secretary Morgenthau\nFROM Mr. Cochran\nSTRICTLY CONFIDENTIAL\nWhen Mr. Pinsent vas with me at 12:15 this noon, I told him that I was still\nreceiving inquiries from various individuals and concerns who desire to acquire\nBritish direct investments in this country. Likewise Mr. Schenker of the 8. I. c.\nwas being approached by such parties. I vas following the practice unifersly of\nreferring such inquirers directly to Sir Edward Peacook in New York, and had advised\nMr. Schenker's office to do likewise. Pinsent agreed that this was the proper pro-\nreture. I told him, however, that state of these people had not obtained entisfaction\ndes they had endoavered to contact Sir Edward Peaceck directly, and that the B. 1. c.\nhad received complaints en this ground.\nAt 3 e'cleck this afterneen the Secretary received Mr. David Schemker of 5. I. c.\nand Mr. Qrill Quinn of the Tri-Centinental Corporation. Measrs. White and Cechran.\ntegether with the stemotypist, were present. Mr. Schenker teld the Secretary of his\nunsuccessful efferts in placing directly is tench with Sir Mivard Peaceck a number\nof parties who had indicated a desire to acquire particular British investments in\nthis country. Furthermore, Mr. Quinn, with whom the 8. 1. c. had worked directly in\nsivancing the plan for investment trasts to take over British investments, had net\ntem invited to call as Sir Mivard Peaceck. Mr. Quinn stated that he had refrained\nfrom naking a direct approach, but had heard gossip to the effect that the British\nare already dealing with certain concerns 02 the \"Street\" After a considerable con-\nvereation, which continued after Mr. Quinn had left the meeting, and which the stemo-\ntypist has reported, I case to w effice and telephoned Hr Frederick Phillips. re-\nquesting that be and Mr. Pineent come to ⑉ no at 5 o'oleck this aftermoon. then\nthose gentlemen appeared I teld them that I had been present when the Secretary had\ntelephoned 8ir Prederick from the meeting above mentioned. The Secretary had vanted\nBe to give Sir Frederick and Hr. Pinsent, for the Ambassader's information. a definite\nexplanation of his position in the premises. Xe VSA much that the 1. 3. c.\nwas able to report that the individuals who had been referred to Sir Rivard Panceek\nby it had not been received by his and ware not able to present their propositions.\nThe Secretary desired that Sir Mari Peacock invite Mr. Quinn to come to his\noffice for a meeting 4a Monday sext. I presented to Phillips a. copy of the attached\nwhich Mr. Schenker had sent to no after the conference this afternoon.\nI told Sir Frederick that is addition to inviting Quinn to his office, Peaseck should\nalso address a letter to Mr. Schenker stating that be had received by reference from\nthe Secretary of the Treasury the list of inquiries with respect to British direct\ninvestments which Mr. Schenker had submitted, and ask that these inquirers be\nrecommended to get directly la touch with him, Sir Mivard Peacock. I stressed upon\n4 visitors the importance of these listed inquirers, in particular, being received\nby Sir Blward, or at least semeone definitely in authority. whenever they wight call.\nPhillips appreciated the position of the Secretary, especially considering the\nfact that Peacock had not yet been able to sell any direct investments and that this\n135\n- 2 -\nargument night be raised at any mement while Congress is debating the Lease-Lend\nBill and its supplementary appropriation measure.\nPhillips and Pinsent both promised to cooperate with us theroughly. Since\nPeaceck will be in Canada temorrow and Sunday, Phillips may request Gifford to get\ndirectly in touch with Quinn temerrow and either effer to receive him or make the\nappointment for him with Peaceek for Menday.\nH M.S.\n136\nMEMORANDUM\nDATE\nFebruary 28, 1941.\nTO:\nThe Honorable Henry Morgenthau, Jr.,\nSecretary of the Treasury.\nFROM: David Schenker.\nSUBJECT:\nI am herewith sending you an itemized list of the inquiries\nI have received with respect to the British direct investments in\nthis country.\n1. Cyril Quinn, of Tri-Continental Corporation, New York, N. Y.,\nwho represents a substantial group of investment companies.\n2. Arthur Bunker, of Lehman Corporation.\n3. Wilder Bellamy, of the National Bond and Share Corporation,\nNew York, N. Y.\n4. Raymond McGrath, of American General Corporation and a\nrepresentative of the United States & Foreign Securities\nCorporation.\n5. Frank Ryan, of John J. Ryan & Sons, 40 Worth Street,\nNew York, N. Y., Worth 2-3423, who represents a group\ninterested in purchasing American Viscose Co.\n6. Carl M. Loeb, of Rhoades & Co., 61 Broadway, New York,\nN. Y., who are interested in the purchase of\nOxo, Ltd., Boston;\nBovril of America, Inc., Philadelphia;\nHartley's Marmalade Co.;\nR. T. French Co., Rochester, N. Y.\n7. Prentiss L. Coonley, Washington Building, Washington, D. C.,\nRepublic 6016, of Freeport Sulphur Co., who represents a\ngroup who are interested in purchasing any chemical or\nmining properties of the British.\n8. Donald MacCrudden, vice president of Moody's Investors\nService, New York, N. Y. who is interested in the Oxford\nUniversity Press or any other publishing companies owned\nby the British.\n9. Ernest Kuneo, 40 Wall Street, New York, N. I., Whitehall\n3-5038, who represents a group who is interested in\npurchasing Dunlap Tires.\n137\n2.\n10. Arthur Ross, of the Central National Corp., 22 East 40th\nStreet, New York, N. Y., Ledington 2-7300, who is interested\nin H. Reeve Angel Co., Biwater Sales Corporation, and\nNew York Real Estate properties.\n11. Mr. Waddell, of Barret, Herrick & Co., 60 William Street,\nNew York, N. Y., who represents a group who is interested\nin New York real estate and dock properties of the\nBritish in New York City.\n12. Walter H. Merritt, of Merritt and Bangs, 36 West 44th\nStreet, New York, N. Y., Murray Hill 2-0320, who represents\na group interested in\nBurroughs Wellcome & Co., Inc., Tuckahoe, N.Y.;\nCyclox Ltd.;\nYardley & Co.;\nBrown & Williamson Tobacco Co.; and\nsmall drugs and cosmetics companies.\n13. Floyd B. Odlum, of Atlas Corporation, which is interested\nin Burroughs Wellcome & Co., Inc., Tuckahoe, N. Y.,\nand other situations.\n14. Norman L. Myers, Washington Building, Washington, D, C.,\nDistrict 0637, who represents a group interested in\npurchasing the National Portland Cement.\n15. Serge Rubenstein, 63 Wall Street, Whitehall 3-3833,\nwho is interested in purchasing the English minority\ninterest in the Chosen Corporation, the English company,\nor the English minority interest in the British-American\nSecurities Co., an American company.\n16. Edward J. Dimock, 49 Wall Street, New York, N.Y.,\nHanover 2-5141.\n17. James Ryan, Bingham, Inglar, Jones & Houston,\n99 John Street, New York, N. Y., Rector 2-4646.\n18. Frank H. Barnett, Henderson & Co., 340 Pine Street,\nSan Francisco, California, Douglas 1303.\n19. W, R. Dameron, Dover, Delaware, Phone Dover 1032.\n20. Benjamin Becker, Levinson, Becker, Peebles & Swiren, 1 North\nLa Salle Street, Chicago, Illinois. Central 8130.\n138\nTREASURY DEPARTMENT\nINTER-OFFICE COMMUNICATION\nDATE February 28, 1941\nTO\nSecretary Morgenthau\nFROM\nE. H. Foley, Jr.\nAt 2:30 o'clock this afternoon Mr. Sullivan and I attended 8.\nconference at the office of Solicitor General Biddle. With us\nwere Messrs. Wenchel and Kades.\nRepresenting the Department of Justice in addition to Solicitor\nGeneral Biddle were Assistant Attorneys General Clark and Shea,\nSpecial Assistants to the Attorney General Gardner, Key, Raum and\nTweedy, and Mr. Sidney Kaplan, one of Mr. Shea's principal assistants.\nThe first question discussed was whether or not the Government\nshould ask the United States Supreme Court to review the case of\nStandard Oil Co. V. Lee, decided by the Supreme Court of Florida on\nDecember 20, 1940 [199 So. 325]. This case involves the question\nwhether sales of gasoline, by the Standard Oil Company to contractors\nfor use in the construction of the Naval Air Station at Jacksonville\nwhich is being built by the United States on 8 cost plus basis, are\ntaxable under the Florida Gasoline Tax Act. The Court held that al-\nthough the tax falls ultimately upon the Federal Government and in-\ncreases the cost to the Government, the burden was consequential and\nremote and that the tax was therefore constitutional.\nI stated that I thought the Government should ask for B. review\nof the case and argue in the Supreme Court that the tax was consti-\ntutional urging the Court to overrule earlier cases to the contrary.\n[Panhandle Oil Co. V. Mississippi, (1928) 277 U. S. 218; Indiana\nMotocycle Co. V. United States, (1931) 283 U. S. 570]\nMr. Shea stated that he took 8. contrary view of the case; i.e.,\nthat he wanted the Department of Justice to ask for certiorari and\nargue in the Supreme Court that the tax was unconstitutional. Al-\nthough Solicitor General Biddle did not express himself, it was clear\nthat none of the other representatives of the Department of Justice,\nexcept possibly Mr. Kaplan, agreed with Mr. Shea. Mr. Shea then\nstated that he thought that, if the Supreme Court was asked to review\nthe case on this basis, the Department of Justice should recommend\nlegislation prohibiting the imposition of sales, gross receipts, and\nsimilar taxes upon transactions involving national defense matters.\nRegraded Uclassified\n139\n- 2 -\nMr. Sullivan stated that introduction of such legislation, even\nif it did not pass, would kill any chance of enacting a statute at\nthis session subjecting future issues of state and municipal securi-\nties to the Federal income tax. I took the same position and stated\nthat I felt that the Treasury's position was the same as that taken\nby the Attorney General in a letter to you dated April 17, 1939 re-\nlating to a proposal that the California Retail Sales Tax be chal-\nlenged with respect to Government purchases, in which the Attorney\nGeneral had said:\n\"Resistance to the tax coming from the Federal Government\nwould be inconsistent with the position of the Government\ngenerally taxation. in cases involving constitutional immunity from\nThis is consistent with the position which Solicitor General\nReed took when he appeared before the Court in James V. Dravo Contract-\ning Co., [(1937) 302 U. S. 134], and which has been the Administration\npolicy since that time. Mr. Clark agreed with me that but for this\npolicy we would not have progressed toward eliminating tax-exempt\nsecurities and salaries.\nThe Solicitor General then expressed the opinion that he felt\nthe proper course was to go before the Supreme Court in the Standard\nOil case, presenting in 8. neutral fashion, both sides of the contro-\nversy, with a view to getting a final determination by the Supreme\nCourt of the validity of nondiscriminatory taxes applicable to sales\nto the United States, or its agencies, and not to ask for legislation\nat this session, but that he would submit the entire matter to the\nAttorney General for his decision.\nAfter A rather desultory discussion concerning the applicability\nof state price fixing (fair trade) laws to sales and deliveries to\nthe Federal Government, I pointed out that Mr. Oliphant in 1937 had\nruled that the Treasury's contract with Sears Robuck for tires to be\ndelivered in Colorado was enforceable notwithstanding the fact that\nSears Robuck may have violated the Colorado statute forbidding sales\nbelow cost; and, further, that the Comptroller General had advised\nthe Treasury that state sales taxes could be paid as part of the cost\nof goods purchased for the Government, whenever it was necessary under\nstate judicial decisions to pay the tax. Mr. Gardner asked for a copy\nof the opinion of Mr. Oliphant and references to the Comptroller\nGeneral's decision, which we are sending to the Department of Justice.\nRegraded Uclassified\n140\n- 3 -\nI then asked for an expression of opinion from those present\nupon the desirability of proceeding against bondholders of the Port\nof New York Authority, as recommended in my memorandum to you of\nFebruary 21, 1941. Every one agreed that it ought to be done prompt-\nly except Mr. Raum who did not feel that the constitutional issue\nwould be settled in the case. In view of Mr. Raum's reluctance,\nthe Solicitor General said he would like to consider the matter for\na few days and asked me to give Mr. Raum a memorandum. I gave him\na copy of my memorandum to you.\nAs a result of the conference Mr. Sullivan and I both feel that\nit would be extremely bad policy for the Administration to ask for\nlegislation of the character suggested by the Department of Justice\nwhich would grant state tax immunity to defense contractors. We also\nfeel that the fact that there was only one dissent expressed against\nour instituting a test case in connection with Port Authority bonds\nconfirms our view that this is sound policy and will aid materially\nin securing ultimately a statute eliminating future issues of tax-\nexempt securities.\nE.18.7h.\nRegraded Uclassified\n141\né in $\nDoo. 24, 1937.\nw dear Metral Peoples:\n& question has boon relead 60 to the possible effect of the\nVafair Practices Act of the State of Colorado (Seesten love, 1937.\non. 261, approved May 6, 1937) upon the Repartment's contract with\nSear Resbuck a Company for tires and tabes under Classes 6 and X\nof the General Schodule of Supplice, with perticular reference to\nSection 3 of the see, which makes 19 walawful for any corporation\nengaged in business is Colorado to cell, effer for sale, of stres-\ntise for sale any article or product ofer loss than the cost thereof\n10 each vender\", the term cooste being further defined is embusations\n(a) and (b) of Section 3.\n20 appears extressly doubtful that this Act would be cea-\nstreet as applicable to a contract entered tate with the United States\nis Vachington. But oven If 10 be assened that the Act might be se\nconstrued, in my opinion 19 would not affect the validity of the -\ntract with respect to orders of tires atd tubes for delivery in\nColorado, notwithstending the prevision of Section 9 that any contract\nuse in violation of the Act is an illegal contract. Mate laws my\nnot be as applied as to exert centrol over efficers of the United\nStates to the performance of their datise, of - - to interfore with\nthe exercise of Federal functions (Artness 1. California. (1931) ass\nU.S. has. 45311 Maryland. (1920) 29% U.S. 52. 551\nRegraded Uclassified\n141\nop. No. 291.\nDee. 14, 1937.\nBy dear Matral Peopless\nA question has been raiced - to the possible effect of the\nUnfair Practices Act of the State of Colorado (Seesion have, 1937,\non. 261, approved May 6. 1937) upon the Department's contract with\nsear Roobusk & Company for tires and tabes under Classes 6 and 49\nof the General Schedule of Supplies, with particular reference to\nSection 3 of the 200, which makes 10 unlavful for any corporation\nengaged is business is Colorado to sell, offer for sale, or néver-\ntime for sale any article or product \"for less them the cost thereof\nto such vendor\". the term \"cost\" being further defined in subsections\n(a) and (b) of Section 3.\nIt appears extremely doubtful that this Act would be con-\nstrued as applicable to a contract entered into with the United States\nin Washington. At OTHER If 10 be accumed that the Aot night be no\nconstrued, in my opinion 10 would not affect the validity of the 000-\ntract with respect to ordere of tires and tubes for delivery is\nColorade, notwithstanding the prevision of Section 9 that any contract\nmade in violation of the Act is an illegal contract. State laws may\nnot be 60 applied as to exert control over officers of the United\nStates in the performance of their dubjee, or 60 $ to interfore with\nthe exercise of Federal functions (Arisona \" California. (1931) 283\nU.S. 423, 4511 Johnson 1. Maryland, (1920) 20/4 U.S. 51, 551 Cate T.\nRegraded Uclassified\n142\n- 2 -\nI (1899) 173 U.S. 276. 2631 and - Perform41- ORL\n(1925) 277 U.S. 215, 222), and I feel that this rule clearly frees Gen-\nevenent officers from the necessity of accortaining is cash case, is\norder to insure the complete validity of empply contracts, whether the\nprices effered w a badder comply with the laws of all states where\ndeliveries my be destrod. See, also (1937) 17 Comp. Gen. 257, 209:\n(1936) 16 Coup. 6am, 348, 350; (1936) 16 Coup. Gon. 97. 98; and (1935)\n15 deep. 6am. 425. Na6.\nI all than of the opinion that the contract 10 valid and that\nthe contractor my legally be required to furnish tires and tubes in\nColorado at the prices provided by the contract. See (1909) 26 Op.\nAtty. Ges. 127. 128. Purther, 16 my well be that under such circus-\nstances the contractor could net be subjected to the oriminal penalties\nprovided by Section 11 of the Ast. In Oabera V. Bank of United Males,\n(U.S. 1624) 9 Wheat. 738. the following distus appeare (as 867):\n\"Can a contractor for supplying a military post with\nprovisions, be restrained from noting purchases\nwithin - state, or from transporting the provisions\nto the place at which the treeps valid stationed?\nor could he be fined of taxed for doing est No have\nnot yet heard these questions answered is the at-\nfirmative. It is true, that the property of the\ncontractor my be taxed, as the property of other\ncitizens; and $0 my the leeal property of the bank.\nDet we de not admit, that the ast of purchasing. or\nof conveying the articles purchased, can be under\nstate control.\"\nRegraded Uclassified\n143\n- 3 -\nthe above statement - cited with approval and the first two contrasce\nthereof were quesca in & disten in & Harring. (1920) 15%\nU.S. 52. 56. x Faited Mates 1. farter. (1093) 149 U.S. 2101 Shis\nThomas. (1899) 173 U.S. 876, Ambresist V. United States. (1902)\n157 U.S. 1. Date st. Fidelity a Reposit Co. 1. Pennsylvania. (1916)\n240 U.S. 3191 Metcolf & May , Nitchell, (1986) 269 U.S. 514. Dut\nwhatever the situation my be with respect to the contracter's orin-\nisal liability. the Department 10, of course, wher as obligation to\nnot as its legal advicer. the contractor check be required to sale\ndeliveries is Colorado in accordance with the contract, and to cettle\nwith the State authorities my question which my be raised as to the\nlegality of such action.\nVery truly yours,\n(Signed) Bernan Olighant.\nGeneral Gouncel.\nNon. 0. s. Peoples.\nDirector of Procurement.\nTND:TAM:hbk 12/8/37\nCopiedings\n2/28/41\nRegraded Uclassified\n144\nFebruary 28, 1941\n2:37 p.m.\nH.M.Jr:\nHello.\nOperator:\nSecretary Wickard.\nSecy.\nWickard:\nHello. I Just had a call from Pa Watson saying\nthat our friend, Campbell, 1s going to Europe\nbecause the British want him, and he's not\ngoing officially - he's just going. Do you\nknow anything about that?\nH.M.Jr:\nI don't know a damn thing about it. I was at\nthe White House for supper last night and he\nwas there. It's the first time I ever met him,\nand I was amazed to learn that he was going\nto go. That was the first that I knew about\nit. I thought the matter was dead because\nPurvis never mentioned it to me again.\nW:\nYes. Well, I didn't know whether you knew that\nhe was going at all or not and that's the reason\nI called you.\nH.M.Jr:\nNo, I only learned of it there and I met him,\nbut what has happened I don't know.\nW:\nWell, I understand he's not going officially,\nbut I understand that the British have requested\nhim to come according to the information that the\nPresident has had. Now, I know what kind of an\ninside worker he is and he's build up his own\ncase, as I told Pa Watson, but Pa told me that\nthe Boss has said he may go if he wishes and\nif they want him to come 80 I think the thing\nis a closed issue.\nH.M.Jr:\nI think 80.\nW:\nNow, one other thing I want to talk to you about.\nHave you heard anything about whether Mr. Purvis\nhas some breakdown of the British fruit requirements?\nH.M.Jr:\nNot that I know of.\nW:\nWe get that from some other sources. One thing\nthat gives us trouble all the time 1e that we\nhear from two different sources concerning the\nBritish requirements. Apparently they have a\nRegraded Uclassified\n145\n- 2 -\nFood Ministry that gets one set of figures\ntogether and communicates with us over here\nand then some of it comes through Purvis. We\ndon't know which one we should give our\nattention to.\nH.M.Jr:\nWhy don't you send for Purvis and have a heart-\nto-heart talk with him.\nW:\nHave Purvis come over.\nH.M.Jr:\nI would.\nW:\nWell, I expect that's a good idea.\nH.M.Jr:\nI'd send for him.\nW:\nI tell you what we were doing. You remember\nthe President asked me to make some study of\nthe refrigerated space and we're working on\nthat. Of course if we knew about what they\nwanted why we could come a little more nearly\nsatiefying the query as to whether the space\nwould be adequate or not.\nH.M.Jr:\nWell, Claude, I would send for him, and just\ntell him what you told me.\nW:\nYes.\nH.M.Jr:\nO.K.?\nW:\nYeah.\nH.M.Jr:\nThank you.\nW:\nShould I - - if the President says anything about\nmy getting in touch with Purvis through you -\nthat is not necessary?\nH.M.Jr:\nOh, no. Just call him up - don't bother -\nyou and I know each other well enough.\nW:\nAll right.\nH.M.Jr:\nYou won't have any trouble with me.\nW:\nAll right. How is this thing shaping up?\nLike we talked about the first of the week as\nfar 8.8 .....\nRegraded Uclassified\n146\n- 3 -\nH.M.Jr:\nYeah, I think 80.\nW:\n..... R.8 far as the purchasing of\nH.M.Jr:\nYou see I don't know how Harry will feel about\nthe whole thing but as far as I'm concerned\nuntil it crystallizes I'd certainly call up\nPurvis. Later on maybe Harry will want you\nto do it through him.\nW:\nI see. Well, I didn't know whether there had\nbeen any further discussion along this line or\nnot. I hadn't heard anything from the White\nHouse and I didn't know whether you had any\nmore information on it or not.\nH.M.Jr:\nNo, not now, and I'm not trying to be\neither. There's just nothing to tell.\nB:\nAll right.\nH.M.Jr:\nRight?\nW:\nO.K.\n147\nFebruary 28, 1941\n2:41 p.m.\nH.M.Jr:\nHello.\nWm. S.\nKnudsen:\nThis is Bill.\nH.M.Jr:\nHello, Bill.\nK:\nWhen you had us for lunch yesterday, I\ndidn't know the numbers of the planes that\nare coming through that carry the 2 3350\nengines, and there are four of them. There\nare two 4-motor bombers, B-29 and B-32; there\nis a 2-motor bomber, B-33 and there is a Bell\npursuit plane, P-62. They are all due in\nOctober of this year.\nH.M.Jr:\nNow those planes are going to have what kind\nof an engine?\nK:\nThe big motor - the 2200 h.p. you were talking\nabout, the 3350.\nH.M.Jr;\nOh, they re going to take - did they take\nthe Wright or the Pratt-Whitney?\nK:\nNo, they're taking the Wright.\nH.M.Jr:\nAnd those planes will take the big engine.\nK:\nThat's right. I knew that they were in\ndevelopment but I didn't know the numbers of\nthem when I spoke to you so I thought I'd call\nyou and tell you.\nH.M.Jr:\nBut the Army has no orders for those big\nengines.\nK:\nWell, they have now in the 12,000 program,\nyou see - in the program that follows this\nthey have these engines.\nH.M.Jr:\nOh, that's in the program which 16 yet to come.\nK:\nThat's right.\nH.M.Jr:\nOf course I didn't know that.\n148\n- 2 -\nK:\nNo. That's the reason I called you up to\ntell you that I knew these planes were coming\nthrough and the main part of the engines you\nshowed me yesterday of course were for the\nstratosphere planes. You remember that.\nH.M.Jr:\nThat's right.\nK:\nBut here are four new developments.\nH.M.Jr:\nThat's a 4-engine ......\nK:\nTwo 4-engines, a 2-engine and a pursuit.\nH.M.Jr:\nYeah, 80 there is something coming along.\nK:\nYes, sir.\nH.M.Jr:\nAnd the engines will be included in this next\nprogram.\nK:\nYes, sir.\nH.M.Jr:\nWell, that's encouraging.\nK:\nAll right.\nH.M.Jr:\nThank you.\n149\nFebruary 28, 1941\n3:00 p.m.\nRE AID TO BRITAIN\nPresent:\nMr. Cochran\nMr. White\nMr. Quinn\nMr. Schenker\nSchenker:\nMr. Secretary, I have had quite a few requests\nfrom people who are ostensibly reputable --\nH.M.Jr:\nLike Mr. Quinn?\n(Laughter.)\nSchenker:\nHe is superficial.\nH.M.Jr:\nI see. I just wanted to be sure.\nSchenker:\nAnd of course these people keep calling me, as\nMr. Quinn has been calling me. Now, I feel\nthat I am in this position. If I tell these\npeople I have nothing to do with it, I have no\ncontact with the British themselves, that is\nall right with me, see. Somehow or other when\nI implicate that, they don't believe that, so\nthey persist in calling me. Now, Mr. Quinn\nfinds himself in this position, that he has\ngot this group and they have made fairly exten-\nsive plans and he hasn't heard from them.\nI also understand, although I am not sure of\nthis, that Bobby Lehman wrote to the British\nand said he was ready to talk to them, and I\nRegraded Uclassified\n150\n- 2 -\nthink they didn't even acknowledge his letter.\nSo what I would like to find out for myself,\nis whether I should just drop the whole busi-\nness and tell these people, as far as I am\nconcerned it is all off, and just call the\nBritish or what.\nMr. Quinn has a little different angle. He\nfeels that he would like to be helpful in the\npicture and that he has got an idea that he\nwould like to formulate & plan that may be of\nsome help.\nH.M.Jr:\nHave you seen Sir Edward Peacock?\nQuinn:\nI haven't gone to see him, Mr. Secretary, be-\ncause I followed - talking with Dave, I followed\nthe policy of having - - this thing having been\nmentioned to them and just waiting until they\nwere ready to talk. I had the feeling that\nthey probably were busy and that I didn't know\nwhether I was to move or not. In the meantime,\nthere have been all these stories, which I don't\nknow how accurate they are, saying that there\nis a change in plan; and I didn't want to move\nuntil I got worrying a little bit.\nH.M.Jr:\nNo, there is no change in plan.\nQuinn:\nI appreciate they must have quite & job getting\nthis stuff assembled and getting their own\nfigures on it.\nSchenker:\nWhy don't you give the Secretary your idea with\nrespect to one operation?\nQuinn:\nHere is the thing that has been running through\nmy mind, and I will just broach it. It seemed\nto me that this group of investment companies,\nRegraded Uclassified\n151\n- 3 -\nwe are in a position where if they did -\ndid want to buy and the price was attractive\nand business seemed good, that they would be\nable to move without the 20-day waiting\nperiod, because they would be, in effect, buy-\ning for investment, and that under those cir-\ncumstances, you had, it seemed to me, this\ndesirable thing. I am speaking now from the\nBritish point of view. You had this thing\nthat if you picked out something that was\ndoable and could be done relatively easy, they\nwould be doing something.\nAt the same time, I counted up the number of\nshareholders roughly represented in that group,\nand there is something like 500,000 shareholders.\nH.M.Jr:\nIn what group?\nQuinn:\nIn that group of investment companies, so that\nif the transaction were profitable from the\npoint of view of the investment companies,\nthat profit would go to a large number of share-\nholders scattered all over the country, and I\nwould think that from their point of view they\nwould get the maximum of psychological benefit\nout of that transaction, and then I think it\nwould be very unfair to push them into a lot of\ntransactions now, even if that were the de-\nsirable thing to do, because you can't move\ntoo fast on it.\nH.M.Jr:\nBut haven't they sent for you or anything?\nQuinn:\nNo, sir, they haven't. I talked to Dave about\nit for & minute, and my feeling was that I\ndidn't know quite - I had the feeling that I\nought to sit quiet and wait.\nSchenker:\nThe impression I got, Mr. Secretary, the last\ntime I saw Mr. Peacock over at Chairman Frank's\nRegraded Uclassified\n152\n- 4 -\nW&S that they would let me know, and he clearly\nindicated that it would be no useful purpose\nserved in anybody calling him because they had\na routine answer, \"We are working on it, and\nwe are not prepared to talk,\" and that is the\nanswer to all these people. Virtually all of\nthem have gotten the answer I suggested. \"Don't\nprejudice yourself by relying on me, and you\ncall up, yourself.' That was the answer they\nreceived in almost every instance.\nCochran:\nHave they received that recently, too?\nSchenker:\nAs recently as three days ago.\nCochran:\nBecause for a while they told me that, and then\nthey said they were in shape to receive the people.\nQuinn:\nI have heard rumors that there were negotiations\nwith people, but two of the rumors I checked up\nmyself and were not correct.\nH.M.Jr:\nThey haven't sold anything yet?\nSchenker:\nThey haven't even carried on negotiations.\nH.M.Jr:\nYes, they have been carrying on negotiations, but\nthey haven't made any sales. How many can I tell\nthem you have got? Have you got a dozen?\nSchenker:\nI have got 20 requests and these are for virtu-\nally specific properties. One is the Oxford\nPress, one fellow wants the New York Real\nEstate, the Freeport Sulphur Company, the R.B.\nFrench Company, and these people are interested\nin specific companies; and one of the biggest\nones is a fellow who represents a group and is\ninterested in buying Viscose and told me his\nidea was 60 to 100 million dollars and they\nwould pay cash right on the barrel head. These\nRegraded Uclassified\n153\n- 5 -\npeople are different people. He called up,\nand he was one of them who called up\nrecently. He said that at that time.\nMy only concern, Mr. Secretary, is that I\ndon't want them to say to me, You prejudiced\nme, I relied upon you, or I would have done\nbusiness with them directly.\" I tell them to\ndo that, but somehow or other --\n(Telephone conversation with Mr. Phillips\nfollows.)\n154\nFebruary 28, 1941\n3:10 p.m.\nH.M.Jr:\nHello.\nOperator:\nSir Frederick Phillips.\nH.M.Jr:\nHello.\nPhillips:\nHello.\nH.M.Jr:\nPhillips, Morgenthau. I have here with me\nMr. Schenker of the Securities and Exchange\nCommission and Mr. Quinn, who got together\nthat investment trust group.\nP:\nI see.\nH.M.Jr:\nNow they say they haven't heard a thing from\nanybody and they want to know if the English\nare interested in selling. Mr. Schenker here\nhas 20 separate requests from 20 people who\nwant to buy 20 different English properties and\nhe says he doesn't know what to do. He said\nnobody representing the British Government\nseems to be interested.\nP:\nWell, I had a talk with Peacock when he was\nhere and he told me he was going to get in\ntouch with Mr. Schenker on this at once. I\ndon't know whether he has done so; I suppose\nhe hasn't.\nH.M.Jr:\nWell, to put it mildly, it's very embarrassing\nfor me to be apologizing all the time.\nP:\nYes, I know. I thought Peacock was actually\ngetting in touch with him. It was only two or\nthree days ago.\nH.M.Jr:\nWell, evidently he didn't.\nP:\nEvidently he didn't. I'll get in touch with\nhim to make sure he does.\nH.M.Jr:\nWell, something ought to happen.\nP:\nYes, I think.\nH.M.Jr:\nNeither the Securities and Exchange or myself\nknow what to answer these people.\nRegraded Uclassified\n155\n- 2 -\nP:\nYes, I agree. I'll get in touch with Peacock\nat once on that.\nH.M.Jr:\nAnd why can't he send for Mr. Quinn. He's\nin New York, but he's here sitting here now.\nP:\nYes.\nH.M.Jr:\nAnd what I'm going to do 18 I'm going to ask\nMr. Schenker if he'll send you the list that\nhe has.\nP:\nYes, all right. I'm quite glad.\nH.M.Jr:\nHe'll send you the list and if Mr. Peacock\ncould send for Mr. Quinn why I'm sure he'd be\nglad to come around and see him Monday.\nP:\nRight. If Mr. Schenker will do that I'll see\nthat it 18 got on with at once.\nH.M.Jr:\nAnd I'm preparing a formal memorandum in answer\nto the one that I received from the Ambassador.\nI hope to have it Monday.\nP:\nRight-o.\nH.M.Jr:\nThank you.\n156\n- 6 -\nH.M.Jr:\nIs that plain enough?\nQuinn:\nQuite.\nH.M.Jr:\nHe said that Peacock was supposed to have gotten\nin touch with you (Schenker) in the last couple\nknow. of days. You can lead a horse to water, you\nQuinn:\nWell, I felt I didn't want to move, Mr. Secre-\ntary, until I got oriented.\nH.M.Jr:\nI am glad you came in, and I have got nothing up\nmy sleeve, but all I hope is that somebody on\nthe Hill doesn't send for me and ask me the same\nquestion.\nQuinn:\nI think you get a little of that impression talk-\ning to some of the various people. They say\nthat -- well, we don't think anything will\nhappen.\nSchenker:\nJust stalling until the Lease-Lend Bill passes.\nH.M.Jr:\nI would like you (Schenker) to stay, if you\ndon't mind. I am glad you came in, Mr. Quinn.\nQuinn:\nRight, sir, thank you, Mr. Secretary.\n(Mr. Quinn left the conference.)\nH.M.Jr:\nNow, let me tell you something you can repeat to\nJerome, but I don't want it to go to your Board.\nI got this memorandum from the British, you see,\nand I am talking as much for the benefit of\nCochran and White as for yourself. Have you\n(Cochran) got copies of it?\nCochran:\nNo, not of the memorandum.\n157\n7\nH.M.Jr:\nIn this thing, what they have done is, they\nsay they will turn over all their direct invest-\nments to the President and he should go ahead\nand tell them when to sell and when not to sell.\nNow, I told - it was brought in by Halifax and\nI told him my first reaction. I said, \"I am\nnot going to let the President be put in that\nposition, if the British investors get sore,\nthey can be sore at Sir Edward Peacock but not\nat my President.\"\nHe asked me to take this thing, and I wouldn't\ntake it, and I said furthermore, \"I don't want\nto get in the business of selling properties\nand be stuck with that kind of tar.\" I said,\n\"I have got a clean organization, and I don't\nwant to get mixed up.\nWell, I went over to see the President and his\nimmediate reaction was the same as mine, that\nthey were dumping it all in our laps.\nNow, I haven't answered them yet formally, but\nthey say that the trouble is that they are\nhaving great, great difficulty in making sales.\nNow, the first thing that they tried to put\nthrough was the sale of this --\nCochran:\nViscose.\nH.M.Jr:\nViscose. How did they try to do it? They went\nto J.P. Morgan to get a loan, you see, and no\npassing of title. I told them absolutely no.\nI said, \"They want title to pass, but they cer-\ntainly don't want J.P. Morgan to do it.\" I\nthink they brought it in here three times,\nalways a little bit different, and we always\nsaid \"no.\" I am talking in the room here.\nSchenker:\nI understand.\nRegraded Uclassified\n158\n8 -\nH.M.Jr:\nThe understanding is that before anything passes,\nthey will lot us take a look si it and 88e that\nthere is nothing that any Trust or anything\nwhich is - which we think is contrary to what\nthe administration would like to have, and it is\nthe only thing that they have brought in here.\nSchenker:\nI am convinced, Mr. Secretary, that this group\ncould handle Brown and Williamson, possibly\nAmerican Viscose. They could do it expeditiously,\nfast, paying the money, and not disrupting the\nmarket because they would hold substantially all\nof it in their portfolios and possibly at some\nsubsequent date undertake a secondary distribu-\ntion when they had the chance to effect the\nregistration.\nNow, American Viscose, I have got these people\nwho have been on me. They say, \"Mr. Schenker,\nI am not kidding, those people are prepared to\nbuy that and we are prepared to pay 60 to 100\nmillion dollars depending on what the income is,\nand we will give them a cashier's check.\"\nH.M.Jr:\nNow, I have got to talk to you. This is terribly\nconfidential, you see.\nSchenker:\nI will forget it as soon as you tell me.\nH.M.Jr:\nI mean you have just got to be - you just can't\neven - some things are confidential and some\nthings are extra-confidential.\nSchenker:\nSacred.\nH.M.Jr:\nWell, they are, because this whole bill is tied\nup in this thing, and these fellows, you see,\ntell us how much money they have got. They don't\nknow whether they can last until the bill is\npassed, and I have told them they had to, not\nto come around and bother me, because there is\nnothing that I can do for them until the bill\n159\n- 9 -\npasses, but then If the bill passes, I might\nconsider - I haven't told them yet - that We\nmight go up to the Hill and say, \"Now, look,\ngentlemen, here is 900 million dollars worth\nof direct investments, and we would like a\nvote of confidence or approval from Congress\nthat we can advance against that from the\nStabilization Fund 75 per cent of what we\nthink is the value;\" but the English are\ngoing to have to do the selling, we are not\ngoing to sell it. If they come to us and\nsay, \"Is it a satisfactory price?\", we will\nsay, \"Yes\" or \"No\" but they have got to do the\nnegotiating, you see, we don't want to get\nin on it. I would want the help of the S.E.C.,\nthe Evaluation Section, and 80 forth and 50 on,\nbecause we haven't got it and you fellows have.\nSchenker:\nWe have a big staff.\nH.M.Jr:\nAnd the President said, well, he thought\nthat sounded all right and Jones hoped to get\na bill. He wants to do the business. You saw\nthat story in the Wall Street Journal of all\nthe stuff Jones had been giving out. He is\ncrazy to get his finger in this thing. What\nis going through my head is this. I am think-\ning of calling up the British Ambassador in view\nof this thing and ask him when he can come down\nwith Phillips and just give them - read them\nthe riot act and simply say, \"A representative\nof the S.E.C. has 20 different business men, and\nthey can't even get into see this fellow Peacock.\"\nSchenker:\nThey haven't sent for Quinn, and Quinn can get\ntogether 50 or 60 million dollars just like\nthat.\nH.M.Jr:\nAnd here is Phillips, says he hasn't got the\nmoney.\nRegraded Uclassified\n160\n- 10 -\nWhite:\nDon't you think your last telephone conver-\nsation will stir them up?\nH.M.Jr:\nNo. Halifax came to see me. I would like\nto give it back to him. He brought me a\nmessage for the President from the Prime\nMinister.\nSchenker:\nI think the most unfortunate thing that can\nhappen, Mr. Secretary, is for the American\nGovernment to handle that.\nH.M.Jr:\nYou agree with me?\nSchenker:\nOh, there is no doubt about it. With all the\nrumblings that you get about Ed Flynn being\nat the Mayflower and everything else, I wouldn't\nget within 50 miles of him, because as soon as\nyou suggest the name and if you ever sold them\nthe property, three weeks later I would be up\non the Hill with a subpoena, where did I get\nthis fellow's name?\nH.M.Jr:\nYou are with me a hundred per cent, but I\ncouldn t get that over with Purvis, he couldn't\nunderstand that. I could, for instance, get\nthe evaluation section over there to give me\nsome idea of what the property is worth, if we\nmade a loan, but we haven't arrived at that\npoint yet. I could get that and keep it be-\ntween the S.E.C. and the Treasury. There is\nno reason why Jesse should get into this. Do\nyou see any reason why?\nSchenker:\nNo. But I think Mr. Jones is making prepara-\ntions to go ahead, because I got some phone\ncalls and I called Wright over there and he\nreferred me to Mr. Johnston, and Mr. Johnston\nsaid he was in the throes of preparing the\nform of procedure that will have to be followed\nwith individuals who desire to make loans against\nthese investments and they haven't abandoned them,\nRegraded Uclassified\n161\n- 11 -\nI don't think, and they said they would be\nprepared in the early part of March.\nH.M.Jr:\nWho is this fellow?\nSchenker:\nCostello. That is the individual I spoke to.\nWhite:\nWell, something will be done. It depends -\nif nothing is done they will have a stronger\ncase to come before Congress, particularly if\nthey are able to say that nothing has been\ntaking place.\nH.M.Jr:\nWell, he has got to get legislation. Mind\nyou, Jones is talking to the President. He\nhas got to get the Johnson Act knocked out,\nbefore he can do it, although Jones claims,\nand you (Schenker) are an attorney, the\nJohnson Act does not include a government\ncorporation.\nWhite:\nWell, that is what your legal staff claims,\ntoo.\nSchenker:\nWell, the only thing I want to do, Mr. Secre-\ntary, is to get myself out of this position.\nI knew that you were anxious to know whether there\nwas any --\nH.M.Jr:\nWell, can you see now? I can't give you a yes\nor no.\nSchenker:\nWell, I will stay with it as long as you want\nme to. I think maybe I should.\nH.M.Jr:\nI would stay with it this way and see what\nhappens, and I would tell anybody to get in\ndirect touch with Sir Edward Peacock and tell\nthem if they can't get in to see him, within\ntwenty-four hours from the time they get the\nrefusal, to let you know, that they are to see\nSir Edward Peacock, and if they can't get in\n162\n- 12 -\nwithin twenty-four hours you tell them to\nlet you know and you bring it to my atten-\ntion. How is that?\nSchenker:\nAll right, I will.\nH.M.Jr:\nDo you think, Harry, I should try to get Hali-\nfax down here and make a big thing out of it?\nWhite:\nI would be inclined to wait and see --\nSchenker:\nWait until Monday in the light of the conver-\nsation.\nWhite:\nSee what they do with Quinn and the others and\nuntil you have also finished your memorandum\nand had a chance to suggest what you are --\nH.M.Jr:\nWhat do you think, Merle?\nCochran:\nExactly the same.\nH.M.Jr:\nI didn't mince matters any, did I?\nWhite:\nHe got it. Phillips gets that kind of thing.\nIt was very clear.\nH.M.Jr:\nNow, Phillips told me when he was in here -\nyou (Cochran) check my memory. I didn't see\nhim alone, did I?\nCochran:\nI was with you.\nH.M.Jr:\nDidn't he say he was absolutely opposed to doing\nthis thing through a mortgage.\nCochran:\nYes, sir. He said he wanted an out and out sale.\nYou said, \"I agree with you. We have the same\nprinciple but for different reasons.\"\nSchenker:\nI am surprised they haven't taken this approach.\n163\n- 13 -\nI don't know how expeditious it is. I thought\nwhat they were going to do is probably take a\ncompany like American Viscose and give out a\n50 million dollar debenture issue and they\nstay with the equity stock and control the\ncompany. I am surprised they haven't broached\nthat. Have they?\nWhite:\nI doubt whether that would be legal, would it?\nSchenker:\nWhy?\nWhite:\nWell, wouldn't that run into both the Johnson\nand Neutrality Acts?\nSchenker:\nWell, it is & private company.\nWhite:\nYes, but they are agents of the Government. But\nMr. Secretary, there is one point you stated.\nI wonder if it is correct. If it isn't correct\nyou may want to correct it. As I understood it,\nyou told Mr. Schenker, and he would pass it on\nto his chairman, that Halifax stated they were\ngoing to turn these properties over to the Presi-\ndent. It was my understanding that what they\nwere going to do was, they wanted to turn the\nproblem over to you and they will do whatever\nyou say. I don't think they were going to turn\nthe properties over.\nCochran:\nIn one of these - there were two memos, the first\nand the second one. I have & copy of the first\nand not the second. In that second one, as I\nrecall it, they included that vesting of title\nin the United States also.\nH.M.Jr:\nThat is right.\nSchenker:\nThe only thing I would like to tell the chairman,\nif I may, Mr. Secretary, is - I don't know whether\nyou want him or anybody to know - I think he may\n164\n- 14 -\nfeel there is some compulsion to tell the rest\nof the Commission. I think I would only like\nto tell him that - ask him whether the Commission\nwould be prepared if at some time it becomes\nnecessary to assist the Treasury in the evalua-\ntion of these properties and nothing about whether\ntitle should be turned over or a loan, because\nif it ever leaks out I don't want to be --\nH.M.Jr:\nAnd tell him nothing else.\nSchenker:\nBecause I think he would be duty bound to tell\nthe Commission.\nH.M.Jr:\nThat has happened before.\nSchenker:\nNot that I am casting anything on Jerry. He would\nbe bound to tell the rest of the Commission and\nthe stenographers and all of that.\nH.M.Jr:\nLet me tell you what he did once before. We got\nthese daily figures on the sales of English\nstock. I said, \"Do you want these?\" and he\nsaid, \"No.\" Isn't that right? Or was it the\nlist of - no, it was the list of the stocks, and\nhe said, \"No,\" because he says, \"I can't guarantee\nyou secrecy. It was the list. Wasn't it?\nWhite:\nIt was the list.\nH.M.Jr:\nHe said, \"I don't want it.\"\nCochran:\nWell, we had the talk also on the daily sales,\nbecause he had us put it up to him in such a\nway that he wasn't permitted to pass it on. He\nsaid if it were on his own responsibility, he\nwould feel obliged to.\nSchenker:\nWell, the only thing I will tell him is that I\ntalked to you and that you talked to the British\nand told them to get moving and 80 forth and\n165\n- 15 -\nyou also asked whether the Commission would\nbe in the position to assist the Treasury if\nat some time they wanted our assistance in\nconnection with the evaluation of these\nproperties.\nH.M.Jr:\nYes, and then I think you (Cochran) might send\nfor Phillips and tell him I am very much upset\nover this thing, you see, and for him to come\nin one day and say he is broke and the next day\nI hear that there are twenty people who want to\nbuy businesses. The two and two just don't add\ntogether, and I am very much upset.\nCochran:\nAs a matter of fact, I spoke to Pinsent this noon\non it. He was in to see me at 12:00 o'clock on\nsome other things I would like to mention after\nawhile, and I said, \"I am still referring people\nup there and the S.E.C. definitely has & problem\nbecause people are looking to the S.E.C., and\nthey haven't had any answers,\" and I said, \"I\ndon't know how my people have fared, I haven't\nhad any comebacks.\nH.M.Jr:\nWhy don't you send for them, Phillips and Pin-\nsent both, and Phillips will repeat it to the\nAmbassador, and you tell them I am really not\nonly embarrassed, I am very much upset, that\nhere are the people, they say they are here as\na group with a hundred million dollars, who want\nto do business and they can't do it, and on the\none hand he says he is going to go broke and on\nthe other hand here are people with their tongues\nhanging out trying to get this business.\nCochran:\nDid you want Mr. Schenker to give that list by\nmail to them?\nSchenker:\nNo, I will give it to you.\nCochran:\nI could give them this list when they come in.\nRegraded Uclassified\n166\n- 16 -\nH.M.Jr:\nHe has got a copy there.\nSchenker:\nI will get it with the names and addresses and\nhave it over before 4:30.\nCochran:\nAll then. right, I will try to get them here at 5:00\nH.M.Jr:\nIs that agreeable to you, Mr. Schenker?\nSchenker:\nYes.\nCochran:\nIt is direct evidence that we have this problem.\nH.M.Jr:\nAnd Merle, bear down on them.\nCochran:\nI will.\nH.M.Jr:\nBear down on them and tell them that - was it\nyesterday they were in here?\nCochran:\nYes, yesterday morning.\nH.M.Jr:\nYesterday they were in here in the morning doing\nthe pauper's act, and then the next day I get\nthis, and I am getting very much upset and dis-\npleased.\nCochran:\nI will get them both 80 it will get to the\nAmbassador.\nH.M.Jr:\nGet them both and tell them that - well, I am.\nI am not bluffing. And then you (Schenker) see\nwhen you send these messages to me, I have got\nno answer. But if you tell these business men,\nnow go and see this fellow Peacock, if they\ncan't get in to see him in twenty-four hours,\ntell them to let you know and you let me know.\nSchenker:\nAll right, thank you, Mr. Secretary.\n167\n- 17 -\nH.M.Jr:\nyou for that reason.\nNow, do you see why? I haven't been answering\nSchenker:\nAnd with respect to Mr. Frank, I forgot what\nyou told me about this other thing. I will just\nconfine it to that.\nH.M.Jr:\nThat would be terrible if it got out.\nSchenker:\nI forgot it.\n168\nFebruary 28, 1.41\n4:00 p.m.\nCost Juard Cutters\nRE AID TO BRITAIN\nPresent:\nMr. Gaston\nMr. Waesche\nH.M.Jr:\nHow are you coming?\nGaston:\nAll right. I wrote a letter. I did not incor-\nporate recommendations for new instructions in\nthe letter and simply said that you expected to\nsubmit a program next week with estimates on the\nconstruction.\nH.M.Jr:\nOh, you are not ready?\nGaston:\nWell, I didn't know that the program - it could\neasily be added on the last page, but I wasn't\nquite sure.\nH.M.Jr:\nYou didn't put the date of these things in? Oh,\nyes, you did.\nGaston:\nYes, there are groups of five.\nH.M.Jr:\nI would like to put in the whole --\nGaston:\nWell now, as the Admiral and the officers have\nagreed upon it, it is rather short and sweet and\nit could be put in.\nH.M.Jr:\nI hate to do it in two bites.\nRegraded Uclassified\n169\n- 2 -\nGaston:\nWe could just put it in on the last page, those\ntwo paragraphs.\nWaesche:\nPart of this is already incorporated. You begin\nin the middle.\nH.M.Jr:\nWell, you can't put it that way. You will have\nto say, if it meets with his approval.\nWaesche:\nYes.\nH.M.Jr:\nWell, I mean it is essential. \"With your approval\nthis would be included.\" That is all right. It\nis a little bit too snappy, a little bit too\nterse.\nGaston:\nYes, I will word it that way.\nH.M.Jr:\nNow, let me just talk to you. This isn't the way\nto present it, you see. I would say something\nlike this, Herbert. \"For some time we have felt\nthat we have not been able to adequately take\ncare of ice conditions in our - ice conditions\nalong the coast, in our harbors and rivers and\nlakes.\"\nWaesche:\n\"And in Alaska.\"\nH.M.Jr:\n\"And in Alaska,\" yes. \"We do not have the ade-\nquate equipment for ice breaking to get into\nharbors in Newfoundland and Greenland, and if\nthe world conditions continue as they are at\npresent, neither Canada or England or ourselves\nare equipped with the necessary ice-breaking\nvessels.\n\"Therefore, as a part of our national defense\nneeds, it would seem prudent to equip Coast\nGuard with the ships especially constructed\nto do an ice-breaking job wherever they may be\n170\n- 3 -\ncalled upon to do so.\"\nWaesche:\nWouldn't you want to bring out the point that\nthis is a dual-purpose vessel, that in addition\nto doing that, we will 80 equip these vessels\nso they can, carry on their off-shore patrol?\nH.M.Jr:\nWhat I want to say is, \"In view of this situa-\ntion, we present to you a request for money to\nbuild ten dual-purpose ships.\" But I wanted\nto lay the foundation. You just - \"Which can\nboth do the ice-breaking job and off-shore\npatrol,\" see?\nWaesche:\nYes.\nH.M.Jr:\nAnd then I will again say, \"These ships will be\nof unique character,\" or something. I don't\nthink that is necessary. But the point that I\nwant to catch in the beginning is, 80 he won't\nsay, \"Oh, I don't want any more for Coast Guard,\nNewfoundland, Greenland, and so forth.\" But\nif you just say it like this, it is no good.\nDo you get it, Herbert?\nGaston:\nYes, I do. Of course, it will further strengthen\nthe argument. Of course he ought to see that\nhe is taking away ten of the best ships we have\nand that we have asked for more ships before\nlosing those ten, but this will strengthen the\nargument.\nH.M.Jr:\nWell just to say you are taking away ten - he\nsaid, \"I will give you the ten, but I have said\nthat this is going to do the thing and --\nWaesche:\nHere we are getting ten ships which will do\nnot only the work that those ten did before,\nbut they do the ice-breaking job as well.\nGaston:\nThe danger of pressing that too much is that\nRegraded Uclassified\n171\n-4-\nthey will say, \"Now, you will get these ten\nand they are all ice-breakers. You won't\nneed any more ice-breaking equipment.\" But\nwe will.\nH.M.Jr:\nWell, I am surprised you don't ask for some of\nthese smaller ones for the harbors.\nWaesche:\nWe did ask for four in our last budget, and\nthey cut out two, and those again are dual-purpose\nvessels. They do all this harbor work of carry-\ning customs inspectors and harbor patrol and\nsupervising of anchorage and all of that, but\nat the same time, when winter comes along they\nare needed for ice.\nGaston:\nWell, Admiral, we didn't ask for four, we asked\nfor twelve.\nWaesche:\nWe started on a program of two a year and this\nlast budget we asked only for four to bring us\nup to this program of two a year, and they gave\nus two. We asked for ten altogether, and we so\nfar have gotten four out of the ten.\nGaston:\nYes, I will do that.\nH.M.Jr:\nIf you could work that up, Herbert, and get it\nto my house tonight.\nGaston:\nYou would like it up there tonight?\nH.M.Jr:\nYes, just so it is up there tonight. All you\nhave got to do is change the last page. But\nyou get the idea. And I think this is a little\nbit too wordy. I think you have got enough,\nand then he is taking away ten and we come in\nand say --\nGaston:\nYes, I will condense that.\n172\n- 5 -\nH.M.Jr:\nAre you with me on that?\nGaston:\nOh, yes. I think it will be of double value.\nH.M.Jr:\nI don't know that --\nGaston:\nThis will give us an opportunity to build the\nships that are specially designed for ice work.\nYou see Greenland is not so much ice-breaking\nas it is for ice work. They need a bow for\nforcing their way through a field of ice. It\nice. is very different from the lake job of breaking\nH.M.Jr:\nI don't say that We have got to go into Hali-\nfax, but I do point out that neither England\nnor Canada has any of this equipment, if I am.\nright.\nWaesche:\nYes, sir.\nH.M.Jr:\nCanada and England have nothing like this?\nWaesche:\nNo, sir. They have a few sealers up there.\nThey don't belong to the ships, but there are\n& few sealers that work in the ice.\nH.M.Jr:\nBut Government?\nWaesche:\nNo government ships. And of course these\nsealers have little power to stand the ice\npressure.\nH.M.Jr:\nHow do you feel after working this this way?\nWaesche:\nOh, I think we can prove our point, Mr. Secre-\ntary, and this will meet our purposes very\nnicely. There is one other point I wanted to\nmake which I told Herbert outside.\nH.M.Jr:\nHow much beam would these have?\n173\n- 6 -\nWaesche:\nAbout 42 or 43 feet, I think.\nH.M.Jr:\nI think I would put that in the letter.\nGaston:\nYes. I think it is in this draft here. I will\nwork it in. The keel would be 42 feet.\nWaesche:\nThere is some question as to whether there is\nany need for a high-powered heavy ice-breaker\nsuch as the Russians have in the Arctic up in\nthe northern Greenland waters. We discussed\nthat a little today, but I stayed off that at\nthe present time, but I am going to get Iceberg\nSmith on this coming Greenland cruise which is\ngoing up there very soon.\nBy the way, I have a memorandum from the State\nDepartment, from Penfield, whereby there is\nonly a little snow on the ground up there now,\nand they could come up any time. So I am\ngoing to have Smith this summer when he is up\nthere go into thoroughly a study as to whether\nthere is any need for this Government to have\na four-or five-thousand ton ice-breaker such as\nthe Russians have for that Arctic ice, but that\nis too big a problem for us to decide down here\nin such a short space of time.\nGaston:\nIt would cost about five million, wouldn't it?\nWaesche:\nYes. It would be about a four- or five-thousand\nton ship, 350 feet long, with propellers on bow\nand stern and a regular ice-breaker such as the\nRussians have up in the Arctic..\nH.M.Jr:\nWhere would we use such e. ship?\nWaesche:\nThe only place we would need it would be if - on\nthe east coast of Greenland. If we want to get\ninto the east coast of Greenland almost any time\nof year or even in the summertime, to be sure of\n174\n7\ngetting in then you have got to get one of\nthose Arctic ice-breakers.\nH.M.Jr:\nHow about if we wanted to get into Halifax?\nWaesche:\nWe don't need anything like that for Halifax.\nH.M.Jr:\nO.K. I am satisfied with this. I am willing\nto go to town on it. I think he will get this.\nAre there yards where these could be built?\nWaesche:\nYes, sir, I won't say we won't have any diffi-\nculty, but we do know - when we get ten of these\nwe will have a lot of people interested in it.\nWhen we have one ship they are not bothered so\nmuch.\nH.M.Jr:\nHow long before you can get the first one? I\nmean how long before they will be commissioned?\nGaston:\nCan you have one in a year?\nWaesche:\nI would say a year and a half. It would be a\nyear to a year and a half. Not more than a\nyear and a half, because it would just be a\nmodification --\nH.M.Jr:\nAnd the last one?\nWaesche:\nOh, they would come along within a month or two\nof each other. We ought to get them all in\ntwo to two and a half years.\nH.M.Jr:\nWhat would you do with the personnel on these\nten ships, how would you occupy them?\nWaesche:\nYou mean for the time being? Well, we have need\nright today, urgent need, for over half of them,\nand the rest we will be able to find - we will\nfind jobs for them. As a matter of fact, we\nwill use them all on getting this Coast Guard\nRegraded UIclassified\n175\n- 8 -\nreserve started. We have got this reserve\ngoing through, and we can use most of those\npeople on the reserve problem.\nH.M.Jr:\nYou know the President approved this letter?\nGaston:\nYes, I haven't had a chance to tell the Admiral.\nHe has approved the contract thing, 80 we can\ndo the 10 per cent contract thing.\nWaesche:\nThat is good.\nH.M.Jr:\nHe approved it, and I forgot to sign mine. I\nsent it over without signing it, and he signed\nit and Forster over there said, \"It is all\nright, the President signed it, but for heaven's\nsake, get the Secretary to sign it too.\" So\nwe got it this time. I think you have got two\nout of three chances of getting the ten when\nwe give up the other ten.\nGaston:\nMy gosh, we ought to have.\nWaesche:\nWe would be very much up against it without them.\nH.M.Jr:\nAnyway, on that appeal, that basis, and not on\nthe speed basis. This is & useful ship.\nWaesche:\nIt is. These ten ships they are taking away are\nreally all-round purpose ships. They are our\nmost valuable ships.\nH.M.Jr:\nThese ten replacements would be valuable ships.\nGaston:\nWhat did you say, 14 and a half knots?\nWaesche:\nAbout 15 and a half knots.\nGaston:\nPower plants are a little better now. You ought\nto get pretty close to what you do now.\n176\n- 9 -\nH.M.Jr:\nWhat do you call economy speed on this?\nWaesche:\nAbout 11 or 12 knots.\nH.M.Jr:\nIt would be a swell ship not to get sea-sick\nin, wouldn't it? They won't roll with that\nbeam, would they?\nWaesche:\nNo, they would be very stable in & sea.\nGaston:\nIf you want & real ride you ought to take one\nof those 165-footers. You haven't been out\non one of those, have you?\nH.M.Jr:\nNo.\nGaston:\nOr take one of the Comanche type for some nice\npitching.\nH.M.Jr:\nO.K., gents. Say, you don't have to give me\nanything. I came back on the Campbell.\nGaston:\nI don't think I told you - about this Danmark\nthing. We have been working on this Danmark\nthing to buy that for 365 thousand dollars.\nThat Danish training ship. We haven't the\nmoney and have to get the appropriations.\n177\n2nd Draft\nFebruary 28, 1941.\nDear Mr. President:\nThe Coast Guard vessels which seem most suitable\nfor convoy work are the ten cutters of the 250-foot class\nbuilt between 1928 and 1932. The names of the vessels\nand the years in which they were completed are:\nCHELAN\n- 1928\nITASCA\n- 1930\nPONTCHARTRAIN\n- 1928\nSARANAC\n- 1930\nTAHOE\n- 1928\nSEBAGO\n- 1930\nCHAMPLAIN\n- 1929\nSHOSHONE\n- 1930\nMENDOTA\n- 1929\nCAYUGA\n- 1932\nThe over-all length of each is 250 feet, molded\nbeam 42 feet, maximum draft 16 feet, displacement 1,979\ntons, speed 16 knots. The gross tonnage of the first\nfive is 1,632 and of the later five, because of minor\nchanges in power plants and internal arrangement, is\n1,573. All are oil-burning turbo-electric. The first\nfive develop 3,000 horsepower and the later five 3,200.\nWith the exception of one, the SHOSHONE, all of\nthe vessels are now on the east coast and all are in such\ncondition as to hull and machinery that they could be\nturned over immediately. Consideration has to be given,\nhowever, to the armament and other equipment they would\nneed for convoy service. Although & program of arming\nand equipping all ten for service with our Navy has been\nin progress, it seems far from certain that this equip-\nment will meet British needs and it seems probable also,\nin view of the history of the destroyers turned over to\nthe British, that some structural changes will be desired.\nThis work could probably best be done in American yards.\nWe have consulted the Navy Department on this\npoint and the Embassy has asked advice from London. The\ntime when the ten cutters can be turned over for actual\nRegraded Uclassified\n178\n- 2\nconvoy work will of course depend upon the extent of the\nchanges and additions desired and the speed with which\nwe can get the work done.\nThe transfer of these ten vessels means the loss\nof about half the fleet of cruising cutters and the pro-\ngram of work laid out for the year will of course have to\nbe drastically revised. Among cutters of the large sea-\ngoing class there will remain seven of the new 327-foot\ntype and four 240-foot ships that are now twenty years\nold. Of the seven 327-footers one, the CAMPBELL, is now\non Navy service in Portugal.\nThe following steps appear to be necessary to\nadjust this year's program to he equipment available:\n(a) International Ice Patrol - The recommendation\nis renewed that the International Ice Patrol be abandoned\nfor this year. Such patrol of the Grand Banks area as may\nbe necessary from time to time would be carried out to the\nextent that vessels are available. If the regular Inter-\nnational Ice Patrol is continued it will have to be done\nwith vessels of the 125-foot class, which are ill suited\nfor this work.\n(b) Greenland Patrol - This patrol can be made by\nthe Arctic cutter NORTHLAND, the 165-foot ice breaking\noutter COMANCHE, and & vessel of the 240-foot class. Efforts\nare being made to obtain the BEAR OF OAKLAND from Admiral\nByrd for Greenland duty, upon the return of that vessel from\nthe Antarotic, about May 1. This is not quite as extensive\npatrol of Greenland 8.5 had been planned for the coming sum-\nmer, but it may be sufficient.\n(c) Atlantic Weather Stations. To maintain a two-\nstation patrol in the North Atlantic will require five\nvessels of the 327-foot class. This will be a full-time\nduty for these five vessels, and they could not be diverted\nfor other use. Strong representations have been made by\nthe British Government, the State Department, the Weather\nBureau, and the Civil Aeronautics Administration to maintain\nRegraded Uclassified\n179\n- 3 -\na third station on this Atlantic Weather Patrol, which\nwould require at least two more vessels. These are not\navailable. It is recommended that immediate steps be\ntaken to obtain and equip seven merchant vessels for this\nduty. There appears to be no doubt but that all of the\n327-foot cutters will shortly be needed for more important\nduty. It ought to be possible to obtain for this work\nseven of the Danish ships now tied up in our ports. If\nthe bare boats could be chartered they could be manned by\nCoast Guard crews.\n(a) Cadet Practice Cruise - No vessels whatever,\nof suitable type, are now available for the Cadet Practice\nCruise, during the coming summer. This cruise is a very\nimportant part of a cadet's training. It is urgently\nrecommended that immediate action be taken to obtain the\nDanish training ship DANMARK, now immobilized at Jackson-\nville, Florida. Preliminary negotiations have been under-\ntaken through the State Department.\n(e) Bering Sea Patrol - Two of the 250-foot cutters\nwere scheduled for Bering Sea Patrol during the coming\nsummer. The Coast Guard has no replacements for these\nvessels and, consequently, the activities of the Coast\nGuard in the Bering Sea will need to be somewhat curtailed\nthis coming summer. The patrol will have to be made entirely\nby small craft, with the exception of the HAIDA (240-foot\nclass).\n(f) Cruise to American Colonies Southwest of Honolulu -\nThe TANEY (327-foot class) makes periodic cruises to the\ncolonies established on Baker, Howland, and Jarvis Islands,\nand is the only vessel available for this duty. This duty\ncan be continued only as long as the TANEY remains available\nfor Coast Guard activities.\n(g) General Duties - Many other duties of the Coast\nGuard - such as: neutrality patrol, law enforcement, assist-\nance to vessels in distress, towing of vessels for the\nMaritime Commission, and other emergency tasks, will have\nRegraded Uclassified\n180\n- 4 -\nto be curtailed.\nI expect to be able to lay before you for your\napproval early next week a program, with estimates, for\nnew vessels to be constructed to replace the ten vessels\nto be transferred and to give you further information as\nto the time schedule for delivery of the ten vessels to\nthe British.\nFaithfully,\n3rd Draft\n(Final)\n181\nFebruary 28, 1941\nDear Mr. President:\nThe Coast Guard vessels which seem most suitable\nfor convoy work are the ten cutters of the 250-foot class\nbuilt between 1928 and 1932. The names of the vessels\nand the years in which they were completed are:\nCHELAN\n- 1928\nITASCA\n- 1930\nPONTCHARTRAIN - 1928\nSARANAC\n- 1930\nTAHOE\n- 1928\nSEBAGO\n- 1930\nCHAMPLAIN\n- 1929\nSHOSHONE\n- 1930\nMENDOTA\n- 1929\nCAYUGA\n- 1932\nThe over-all length of each is 250 feet, molded\nbeam 42 feet, maximum draft 16 feet, displacement 1,979\ntons, speed 16 knots. The gross tonnage of the first\nfive is 1,632 and of the later five, because of minor\nchanges in power plants and internal arrangement, is\n1,573. All are oil-burning turbo-electric. The first\nfive develop 3,000 horsepower and the later five 3,200.\nWith the exception of one, the SHOSHONE, all of\nthe vessels are now on the east coast and all are in such\ncondition as to hull and machinery that they could be\nturned over immediately. Consideration has to be given,\nhowever, to the armament and other equipment they would\nneed for convoy service. Although a program of arming\nand equipping all ten for service with our Navy has been\nin progress, it seems far from certain that this equip-\nment will meet British needs and it seems probable also,\nin view of the history of the destroyers turned over to\nthe British, that some structural changes will be desired.\nThis work could probably best be done in American yards.\nWe have consulted the Navy Department on this\npoint and the Embassy has asked advice from London. The\ntime when the ten cutters can be turned over for actual\nRegraded Uclassified\n182\n- 2 -\nconvoy work will of course depend upon the extent of the\nchanges and additions desired and the speed with which\nwe can get the work done.\nThe transfer of these ten vessels means the loss\nof about half the fleet of cruising cutters and the pro-\ngram of work laid out for the year will of course have to\nbe drastically revised. Among cutters of the large sea-\ngoing class there will remain seven of the new 327-foot\ntype and four 240-foot ships that are now twenty years\nold. Of the seven 327-footers one, the CAMPBELL, is now\non Navy service in Portugal.\nThe following steps appear to be necessary to\nadjust this year's program to the equipment available:\n(a) International Ice Patrol - The recommendation\nis renewed that the International Ice Patrol be abandoned\nfor this year. Such patrol of the Grand Banks area as may\nbe necessary from time to time would be carried out to the\nextent that vessels are available. If the regular Inter-\nnational Ice Patrol is continued it will have to be done\nwith vessels of the 125-foot class, which are ill suited\nfor this work.\n(b) Greenland Patrol - This patrol can be made by\nthe Arctic cutter NORTHLAND, the 165-foot ice breaking\ncutter COMANCHE, and & vessle of the 240-foot class. Efforts\nare being made to obtain the BEAR OF OAKLAND from Admiral\nByrd for Greenland duty, upon the return of that vessel from\nthe Antarctic, about May 1. This is not quite as extensive\npatrol of Greenland as had been planned for the coming sum-\nmer, but it may be sufficient.\n(c) Atlantic Weather Stations - To maintain a two-\nstation patrol in the North Atlantic will require five\nvessels of the 327-foot class. This will be a full-time\nduty for these five vessels, and they could not be diverted\nfor other use. Strong representations have been made by\nthe British Government, the State Department, the Weather\nBureau, and the Civil Aeronautics Administration to maintain\nRegraded Uclassified\n183\n- 3 -\na third station on this Atlantic Weather Patrol, which\nwould require at least two more vessels. These are not\navailable. It is recommended that immediate steps be\ntaken to obtain and equip seven merchant vessels for this\nduty. There appears to be no doubt but that all of the\n327-foot cutters will shortly be needed for more important\nduty. It ought to be possible to obtain for this work\nseven of the Danish ships now tied up in our ports. If\nthe bare boats could be chartered they could be manned by\nCoast Guard crews.\n(d) Cadet Practic Cruise - No vessels whatever,\nof suitable type, are now available for the Cadet Practice\nCruise, during the coming summer. This cruise is a very\nimportant part of a cadet's training. It is urgently\nrecommended that immediate action be taken to obtain the\nDanish training ship DANMARK, now immobilized at Jackson-\nville, Florida. Preliminary negotiations have been under-\ntaken through the State Department.\n(e) Bering Sea Patrol - Two of the 250-foot cutters\nwere scheduled for Bering Sea Patrol during the coming\nsummer. The Coast Guard has no replacements for these\nvessels and, consequently, the activities of the Coast\nGuard in the Bering Sea will need to be somewhat curtailed\nthis coming summer. The patrol will have to be made entirely\nby small craft, with the exception of the HAIDA (240-foot\nclass).\n(f) Cruise to American Colonies Southwest of Honolulu -\nThe TANEY (327-foot class) makes periodic cruises to the\ncolonies established on Baker, Howland, and Jarvis Islands,\nand is the only vessel available for this duty. This duty\ncan be continued only as long as the TANEY remains available\nfor Coast Guard activities.\n(g) General Duties - Many other duties of the Coast\nGuard - such as: neutrality patrol, law enforcement, assist-\nance to vessels in distress, towing of vessels for the\nMaritime Commission, and other emergency tasks, will have\nRegraded Uclassified\n184\n- 4 -\nto be curtailed.\nFor some time we have felt the need of additional\nand better equipment to take care adequately of ice con-\nditions on our Eastern coast, in the rivers, the Great\nLakes and on the Alaskan coast. We lack also vessels\nentirely suitable for coping with ice conditions in the\nharbors of Newfoundland and Greenland and Iceland; nor\ndo Canada or Great Britain have suitable vessels for this\npurpose, which may continue for some time to come to be\nof great importance.\nThe replacement of the ten cutters to be trans-\nferred will give us an opportunity to remedy this lack,\nAs a part of our National defense needs it would seem\nprudent to equip the Coast Guard with ships specially\nconstructed to overcome difficult ice conditions wherever\nthey are called upon to perform service.\nI am therefore suggesting 8. program for the con-\nstruction of ten dual purpose ships at an estimated cost\nof $22,500,000 ($2,250,000 each), and respectfully ask\nyour permission to submit a deficiency estimate in that\namount. These would be combination ice-breakers and\ncruising cutters, 250 feet in over-all length and approxi-\nmately 42 feet beam, similar to the ten cutters to be\ntransferred except that the bow characteristics would be\nmaterially different and the vessels would be more staunchly\nconstructed, in order to break ice and to penetrate ice-\nfields. Perhaps a half-knot of speed (of the 16 knots of\nthe present outters) would be sacrificed for more rugged\nconstruction and better ice-breaking qualities. In addition\nto their value for working through ice the vessels would\nalso have all necessary useful qualities for towing, render-\ning assistance at sea, and other varied Coast Guard work.\nTo summarize, the program I desire to suggest for\nyour approval is as follows:\n(1) Submit deficiency estimates in the amount of\n$22,500,000 for ten dual-purpose cutters.\nRegraded Uclassified\n185\n- 5 -\n(2) Undertake negotiations to obtain and equip\nseven merchant ships for weather patrol\npurposes, to be manned by Coast Guard crews.\n(3) Negotiate for the purchase of the Danish\ntraining vessel DANMARK for Coast Guard\ncadet training.\nFaithfully,\nSecretary of the Treasury.\nThe President,\nThe White House.\n186\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE February 28, 1941\nTO\nSecretary of the Treasury\nFROM Alan Barth\nThe Senators opposing H. R. 1776 have refrained with ostentations\nvirtue from embarking on a formal filibuster. Yet, in effect, they have\nbeen engaged in a filibuster - deliberately delaying action on the bill -\never since it moved over from the House to the Senate,\nThe plea of the isolationists is that they need more time in which\nto prepare and present their case. It seems worthwhile, therefore, to\ntake a glance at the time which has already been accorded them and the use\nwhich has been made of it,\nH. R. 1776 was introduced in Congress on January 10. For a period of\ntwo weeks, the House Committee on Foreign Affairs listened patiently and\ncourteously to the opinions of 15 opposition witnesses, ranging in expert-\nness and erudition from the Reverend Gerald L. K. Smith who represented\nthe Committee of One Million to Mr. George H. Cless, Jr., of Glens Falls,\nN. Y., who confessed with disarming candor that \"I do not represent my\ngroup, organization, or association of any kind. I an here today to\nspeak for only one person - myself\nWhen the Senate Foreign Relations Committee undertook consideration of\nthe measure, it heard a total of 41 witnesses. Well over half of these -\n2) in fact - registered opposition arguments. Five of the 29 had already\nexpressed their views at considerable length before the House Committee,\nThe bill went to the floor of the House on February 3, and was debated\nthere through February 8. It has been before the Senate for consideration\non the floor ever since the Foreign Relations Committee reported it out on\nFebruary 13. Every Senator opposed to it has had full opportunity to\nexpress his point of view. Proponents of the bill, indeed, have kept their\nadvocacy of it to a minimum in the hope of exhausting the rhetoric of the\nopposition as speedily as possible.\nBut the Senators opposing H. R. 1776 by no means confined their fore-\ncasting of doom to the Senate floor. One reason why they may have felt a\nreluctance to participate in night sessions on the bill was that they pre-\nferred to devote this time to broadcasting their message to the people at\nlarge via the radio. The patience of attentive members of Congress during\nthe long debate was exceeded only by that of the general public whose radio\nloudspeakers for more than an entire month have blared repetitious warnings\nof death and dissolution for the Republic.\nRegraded Uclassified\n187\n- 2\nSenators Wheeler, Walsh and Taft have each indulged themselves in two\nradio outbursts against the Lend-Lease measure within the past week..\nSenators of Hiram Johnson, Nye, LaFollette, Reynolds, Lodge, Denaher, Capper,\nJohnson Colorado, Chavez, Tobey, Clark of Missouri and Clark of Idaho\nhave confined themselves to a single oratorical effort apiece on the air.\nThey have been bolstered to be sure, by the eloquence of others, such as\nAlf Landon, John T. Flynn, General Hugh Johnson, General Robert Wood,\nNorman Thomas, Hamilton Fish, and lesser lights who have availed themselves\nof the free time put at their disposal to discuss the issue by the major\nradio networks. The number of speeches and the quantity of time allotted\nto fulminations on the bill over local stations are incalculable.\nDespite the flow of words which has fattened the Congressional Record\nand titillated the air waves, the isolationists have succeeded in making\nconverts neither among the people nor among their colleagues who will vote\non the question in the Senate. But the winning of support by persuasion is\nno part of their program. Their plain strategy is to compound delay until\nan explosion in the Pacific makes the public unwilling to release any part\nof our defense equipment, or until a disaster in Europe makes release of\nthe equipment too late to be of service. A filibuster in the ordinary\nsense is obviously hopeless. The opposition cannot continue to talk until\nthe Senate adjourns. It may, however, be able to talk until time itself\ndefeats the very purpose of the bill. Its method of keeping this country\nfrom involvement in war is to court the very conditions which make involve-\nsent inevitable.\nRegraded Uclassified\n188\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE February 28, 1941.\nTO Secretary of the Treasury\nFROM Alan Barth\nTHE PRESS AND PUBLIC OPINION ON H. R. 1776\nSince current editorial comment continues to pursue the trend\npreviously reported toward acceptance of H. R. 1776, it seems useful at\nthis time to examine its relationship to public opinion. Newspapers, in\nthe recent past, have revealed themselves as markedly antipathetic to the\npolitical judgments of their readers.\nA rather curious parallel is apparent, however, between the geo-\ngraphical distribution of editorial opinion on H. R. 1776 and the election\nreturns of November, 1940. On the current foreign policy issue, news-\npapers divided, at the outset, not at all as they divided during the fall\ncampaign, but rather as their readers divided when they went to the polls\non November 5.\nGEOGRAPHICAL DISTRIBUTION\nSouthern newspapers solidly support the Administration position on\nforeign policy. With few exceptions, they endorsed the original version\nof H. R. 1776, encouraging amendment of it only as a form of enlisting\nnorthern support for a basic program which they regarded as their own.\nRegraded Uclassified\nPress and Public Opinion\n189\n- 2 -\nConversely, the editorial opposition to the bill has been strongest\nin the middle western farm belt - in those vary states, indeed, which\nby fairly narrow margins recorded their electoral votes in November for\nWendell Willkie. Newspapers in this section are by no means preponder-\nantly against the measure; they merely exhibit more antipathy toward it\nthan is apparent elsewhere.\nContrary to a rather widespread assumption, newspapers in the far\nwest are not inimical to the Lend-Lease proposal. The majority are sup-\nporting the President, just as their readers supported him, despite\neditorial fulminations, in November.\nA considerable scattering of opposition is to be found among New\nEngland newspapers. Here, too, it is certainly not in the majority; yet,\nas among the people of this region during the campaign, it is sufficient\nto be formidable.\nThese findings conform closely with the Gallup Poll analysis of\nsectional differences of opinion on the Lend-Lease proposal. Gallup\nshowed, on February 11, in favor of the bill: South, 77 per cent; far\nwest, 55 per cent; New England and middle Atlantic states, 54 per cent;\nwest central states, 53 per cent.\nIn addition, Gallup showed a single section, composed of the east\ncentral states of Ohio, Michigan, Illinois and Indiana, in which the\nopinion favorable to the measure was only 39 per cent, with 35 per cent op-\nposed. Chicago, he reported, is the hub\" of the sentiment against aid to\nBritain. It is also, through the headquarters of the America First Com-\nmittee, the American Peace Mobilization and the Chicago Tribune, the hub\nRegraded Uclassified\nPress and Public Opinion\n190\nof the propaganda drive against H.R. 1776. Almost exclusively from this\nsource emanate such artificial protests as the mothers' march on Washing-\nton or resolutions by the D. A. R. and the Daughters of 1812.\nTREND\nIn every sector, according to the Gallup reports, sentiment for the\nbill has risen steadily since its introduction. The lag between Gallup\nsamplings of public opinion and publication of the results makes it dif-\nficult to gauge popular reaction to the more recent amendments proposed in\nthe Senate. But these amendments undoubtedly leveled a large measure of\nthe remaining opposition.\nNewspaper support of the bill has grown similarly, as the Administra-\ntion has accepted revisions of the bill's original form. But the growth\nof this support has merely kept abreast of the published Gallup reports.\nThis seems to indicate that the newspapers are expressing what their readers\nthought some time in the past and lag behind the swifter evolution of\npopular opinion. Newspapers, in short, have reflected, more than they have\naffected, public thinking.\nOne other inference seens warranted from these observations: The con-\nsideration which basically motivates public opinion on H. R. 1776 is trust\nor distrust of President Roosevelt. The arguments as to the dictatorial\npossibilities or the dangers of war involvement inherent in the bill are the\nrationalizations of editorial writers. A majority of the public backed the\nPresident in November in large measure because it had confidence in his con-\nduct of foreign affairs. A similar majority backed him when the Lend-Lease\nissue was first broached. That majority has been increasing steadily in\ndirect ratio to the growing sense of national unity under the President's\nleadership.\nRegraded Uclassified\n191\nFebruary 28, 1941\n4:21 p.m.\nCordell\nHull:\nHello, Henry?\nH.M.Jr:\nHello. How are you?\nH:\nAll right. Secretary Stimson called me up\nabout that Jim Byrnes amendment and it's a\nlittle bit hard for me to get my teeth in it.\nI wanted to Bee what your slant is on it.\nH.M.Jr:\nWell, we got up this little memo which War\nand Navy and we signed and then sent it over.\nDid you see it?\nH:\nYes, I saw - I didn't see whether you signed\nit or not.\nH.M.Jr:\nYeah, I signed 1t. Would you like me to send\nyou a photostat of what I sent.\nH:\nWell, I've got a copy of that. Now, what I'm\ntrying to get to 1e, first, you think it's a\nserious matter, do you?\nH.M.Jr:\nYes, because I think it would make it very,\nvery difficult for the Army and Navy to operate.\nH:\nByrnes didn't confer with anybody?\nH.M.Jr:\nNot in our shop. Well, now, wait B. minute.\nHe asked one of our men - the way we heard\nabout it - he asked somebody down here whether\nthey wouldn't draw it up for him, you see, and\nI guess that's the way it came, and we refused\nto. We refused to draw it up.\nH:\nYes. Well, what I'm trying to get at is to get\nenough material here to talk to Byrnes. Stimson\nwanted me to talk with him and I'll be glad to\ntalk to any of those fellows over there but it's,\n88 I said, hard for me to get my teeth into the\nthing.\nH.M.Jr:\nWell, would this be helpful? The lawyer here\nwho has been following it is Oscar Cox. Would\nyou like him\nRegraded Uclassified\n192\n- 2 -\nH:\nI think he came over. I think he was with\nthe War Department man who came into my office.\nH.M.Jr:\nWith McCloy?\nH:\nYeah. They gave me some data and I just wanted\nto see how you were impressed with this thing.\nH.M.Jr:\nWell, I think it would make it very, very\ndifficult for the Army and Navy.\nH:\nWell, I'll call up two or three of these\nfellows and talk with them and see if I can\nget anywhere. You haven't heard whether the\nPresident talked to Byrnes or not.\nH.M.Jr:\nNo, I sent it over by letter around 1:30\no'clock and I haven't heard from him since.\nIn that we asked him to let us know, you see,\nin the memorandum whether there was anything\nwe could do.\nH:\nYou asked the President.\nH.M.Jr:\nYes, and I've not heard from the President.\nH:\nWell, then I think we'd better hear from him\n80 we'll know just what - don't want to work\nat cross-purposes.\nH.M.Jr:\nWell, I haven't done anything and my boys\nhaven't done anything other than to send this\nover to the President.\nH:\nWell, now I don't want to step out in front of\nthe President on this because these amendments\nhave generally been considered by you and him\nthere and Stimson and among them, that is\nrelating to this part of the bill.\nH.M.Jr:\nWell, he's been sort of handling it himself\nand 80 I didn't want to do anything/he asked\nme to.\nunless\nH:\nYes. Now, I've been spending some little time\nin helping fight off the Ellender amendment\nand some others that I'm familiar with and I\nwant to help on this in any way I can if the\nPresident wants to make a fight on it.\nRegraded Uclassified\n193\n- 3 -\nH.M.Jr:\nWell, I don't know whether he does or he\ndoesn't but it's in his lap right now. We're\nhim. doing absolutely nothing until we hear from\nH:\nWell then there's nothing for me to do.\nH.M.Jr:\nWell, that's of course up to you but\n......\nH:\nThe only thing I could do would be to talk to\nsome Senators, you know.\nH.M.Jr:\nWell, as I remember it we say, \"Will you advise\nus what you'd like us to do,\" and I haven't\nheard from him 80 I'm not going to move.\nH:\nYes. I see. All right then. You let me know\nany of you. I'll be reading up on this thing\nand if and when you want me to protest to a few\nof those Senators I'll be mighty glad to do it.\nH.M.Jr:\nThank you 80 much.\n194\nFebruary 28, 1941\n4:33 p.m.\nH.M.Jr:\nHello.\nWm.\nMcReynolde: So far we haven't found any more men who were\ndrawing money from the British Commission and\nthe Federal Government too. I found that that\nfellow had been transferred to Knudsen's rolls\nafter they moved over to O.P.M. and they were\npaying him $22.00 a day as a consultant for\nwhenever he worked in addition to his drawing -\nhis firm drawing $2,000 a month from the\nBritish Commission.\nH.M.Jr:\nUh-oh.\nMcR:\nBill is praying over it today. He hasn't\nmade a report to me on it. I talked to Hervey\nEmerick this morning and he said he'd try and\nget a report in my hand before the end of the\nday but I haven't got it yet. I'm going to\ncall him again later. But I thought you might\nlike to know. We haven't found anybody else\nin the same category yet and I'm having them\nall checked.\nH.M.Jr:\nO.K., Mac.\nMcR:\nRight.\nRegraded Uclassified\n195\nFebruary 28, 1941\n4:38 p.m.\nH.M.Jr:\nHello.\nMorris\nTroper:\nThis is Troper talking. (Joint Distribution\nCommittee).\nH.M.Jr:\nYes.\nT:\nWhere would that meeting be on Sunday,\nMr. Secretary.\nH.M.Jr:\nIt will be at my home.\nT:\nAt your home, and what 1s the address?\nH.M.Jr:\n2211 - 30th Street. It's just off Massachusetts\nAvenue.\nT:\nOff Massachusetts Avenue.\nH.M.Jr:\nThat's important because 30th runs down to\nGeorgetown.\nT:\nI see. Is there any Northwest or anything\nconnected with it.\nH.M.Jr:\nNorthwest, yes.\nT:\nNow, I'm trying to arrange the following:\nFor what time would you want that?\nH.M.Jr:\nWell, how many would there be?\nT:\nWell, I'm trying to arrange for Edward Warburg,\nHarold Linder, Harold Ginsberg, Paul Baerwald\nand myself. That would be five.\nH.M.Jr:\nWell, we'd be glad to have them for supper.\nT:\nWell, what time would that be?\nH.M.Jr:\n7:30.\nT:\nMay I confirm that to your secretary?\nH.M.Jr:\nSurely. Well, you'd better send me a telegram\nto that address because I - send a telegram to\nmy address.\n196\n- 2 -\nT:\nNow I'll repeat it. 2211 - 30th Street, N.W.\nH.M.Jr:\nYes. Off Massachusetts. And that would be\nat ......\nT:\nYes, you see there 1s a conference going on\ndown at Princeton today and tomorrow and some\nof the people I couldn't reach, but I thought\nthat that's a varied group and there are at\nleast three nice young men there and I thought\nthat - now will you have Ed Greenbaum there?\nH.M.Jr:\nYes. I'll get word to him.\nT:\nhaving. I see. Anybody else that you were thinking of\nH.M.Jr:\nWell, if I could get him I'd get Justice\nFrankfurter.\nT:\nI see. Well, then I'll tell these people and\nI'll confirm it by telegram for 7:30 Sunday\nevening - this Sunday.\nH.M.Jr:\nWhen do you think I'd know?\nT:\nWell, I'll find out in a little while and I'll\nsend a telegram immediately.\nH.M.Jr:\nI mean I'd hear still today.\nT:\nYes, you'll hear this evening.\nH.M.Jr:\nAnd if you don't remind repeat in the telegram\nwho 18 coming.\nT:\nYes.\nH.M.Jr:\nSo I'd have it.\nT:\nYes.\nH.M.Jr:\nWell, that'll be fine.\nT:\nWell, I'm doing the best I can. All right,\nsir. Glad to talk to you. Thank you very much.\nH.M.Jr:\nThank you.\n197\nFebruary 28, 1941\n4:45 p.m.\nHarry Hopkins just called me up and said that\nafter checking all over town, he finds that the best\nlawyer, the most resourceful lawyer, in town is Oscar\nCox, and he would like to have him. So I said that he\nwas asking 8 lot but I would give him anything to help\nhim. Then he said that what he really wanted was me.\nI told him that I would be here any time he wanted to\nget me on the telephone or see me.\nThen Hopkins told me he didn't want to build\nup his own statistical organization and could he use Haas?\nHe said that he would have to be talking to me all the time,\nand if he gave me somebody else's figures I would only have\nHaas check them any way, and so if he gave me Haas' figures\nhe said that I would be better satisfied. I told him that\nwe could try it and see just how much he needed Haas as we\ngo along.\nI asked Hopkins why he didn't speak to the\nPresident and get him to call up Cordell Hull and get Hull\nto talk to Byrnes about killing the so-called Byrnes amend-\nment. This is the one we wrote the President about today.\nHe asked me if I thought it was really important and I said,\n\"Yes.\"\nIt certainly is interesting that the more Hopkins\ngoes into this job the more he wants the Treasury people,\nand I think he had better move over here.\n#######\nRegraded Uclassified\n198\nMEMORANDUM TO THE PRESIDENT\nThere has been an amendment proposed\nto H.R. 1776 by Senators Taft and Byrd which\nSenator Byrnes has indicated he is willing to\naccept in substance. Its implications are 80\nserious we think it ought to be called to your\nattention.\nThis amendment provides that no defense\narticles procured out of appropriations made to\nthe War and Navy Departments after the effective\ndate of H.R. 1776 can be transferred under the\nbill without the consent of Congress.\nThis amendment would seriously cripple\nthe contemplated operations under the bill. It\nwould make it impossible effectively to carry out\na joint procurement program. It would mean practically\nthat we would have to have a separate Army, Navy and\nforeign aid program. It would also take away the\nflexibility that is necessary in disposing of defense\narticles.\nRegraded Uclassified\n199\n- 2- -\nWe have felt justified in bringing this\nto your attention because no amendment to which\nadministration Senators have been receptive cuts\nso close to the heart of the bill.\nDo you have any suggestions for us?\nHenry L Stinson\nSecretary of War\nHenry Mayonthan Ir.\nSecretary of the Treasury\nFouestal\nActing Secretary of the Navy\nFebruary 28, 1941.\nRegraded Uclassified\n200\nFebruary 28, 1941\n5:00 p.m.\nH.M.Jr:\nHello.\nOperator:\nSecretary Stimson.\nHenry L.\nStimson:\nHenry?\nH.M.Jr:\nYes, Harry.\nS:\nI'm a good deal troubled about that Byrnes\namendment to that bill. I think it would Just\ntake the guts out of the whole thing.\nH.M.Jr:\nI agree with you.\nS:\nNow I called up Cordell this morning and I\nasked him if he would help in it and I sent\nhim a set of my own remarks on that subject\nand you see he hadn't taken any part in the\nanalysis of the bill before the committee. I\ngave him the points which I thought would show\nthe important - what we thought was the\nimportant part of the bill and how this thing\nwould destroy it. I sent him a copy of the\nargument that I think has been drawn up between\nCox and McCloy in regard to what the amendment\nwould do to the proposed system as I had set\nit out in my statement to the Senate and the\nHouse both.\nH.M.Jr:\nYes.\nS:\nWell, I called him up again and he has read\nthem and told me he\nH.M.Jr:\nI don't hear awfully well.\nS:\nI say, I called him up again and talked with\nhim again on the phone and he has prepared\nhimself and 18 ready to go into action but he\ndoesn't want to do 80 unless the President\nwants him to.\nH.M.Jr:\nYeah. Well, he called me - I don't know whether\nit was before or after - and he asked what my\nposition was and I said that in this note which\nwe all signed, the last sentence, we said we\nwere all waiting to hear from the President\nwhat he wanted us to do.\nRegraded Uclassified\n201\n- 2 -\nS:\nWell, now frankly this is the situation. An\nsoon as I heard of it, which was yesterday\nafternoon, I called the President up myself\nand told him Just this - told him I thought\nthis would take the guts right out of the bill\nand he told me that he thought 80 too and was\ndoing - gave me the impression that he was\nhandling it 60 I told him I was very glad to\nhear that and that if there was anything I\ncould do why to let me know. His voice\nsounded very husky - gave me the impression\nat once that his cold was worse again and I\nthought that it was the part of humanity not to\ntalk any longer about it and I just hung up.\nNow, I've done all that I dare do towards\nstirring him up but you as his close personal\nfriend perhaps now can carry the ball a. little\nbit further and pull the string that will\nstart Cordell going.\nH.M.Jr:\nWell, that thing undoubtedly got into the\nPresident's hand by 2 o'clook or earlier. I\nsent it over by special messenger; I sent a\ncopy of it to Harry Hopkins and one to the\nDirector of the Budget and, frankly, with the\nman sick I don't like to call him up.\nS:\nWell, I'm in the same position 88 you with the\naddition that I've already called him up once.\nThis would be 8. second time.\nH.M.Jr:\nHas that been introduced?\nS:\nWhy no, it's in rumor position. It hasn't been\nintroduced but it has been talked about - it\nmay have been introduced but it hasn't been yet\nfathered absolutely by Byrnes and the leaders\nalthough the papers reported them as saying\nthat they didn't Bee any objection to it. That's\nwhat scared me.\nH.M.Jr:\nYeah. Well, frankly - you want my straight\nanswer - in view of the condition of his health\nI don't want to call him up. He's got that\nmemorandum and that was a strong memorandum.\nS:\nHenry, here's the point: the President's whole\neffort may be ditched by the failure to pull the\nstring on Cordell to get after Byrnes. Now I\nRegraded Uclassified\n202\n3\nWould a call to Harry Hopkins help?\ndon't like to see that rest in that way.\nH.M.Jr:\nYes, I think it would.\n9:\nBecause I think someone - I can't sit still\nand watch the highwaymen killing a friend.\nH.M.Jr:\nI tell you what I'll do - let me see if I can\nget Harry Hopkins and if I can I'll talk to\nhim and I'll call you\n.....\nS:\nYou can because I've just talked with him\non another matter that the President has given\nus - you know that matter of the reconciliation\nof the programs - the British programs - and he\nis there now. You can get him.\nH.M.Jr:\nWell, I'll see if I can get him and I'll call\nyou back and let you know what he says.\nS:\nWell, I'm at the hospital to see how Palmer\nis - he's been very sick.\nH.M.Jr:\nWell, I'll call him anyway.\nS:\nYou can get me at my house as soon as I get\nfrom the hospital there, or - I don't think\nit's necessary for me to wait\nH.M.Jr:\nNo, no, you go ahead and I'll let you know\nlater tonight.\nS:\nAll right.\n203\nTREASURY department\nINTER OFFICE COMMUNICATION\nDATE February 28, 1941\nTO\nSecretary Morgenthau\nFROM Mr. Cechran\nMr. Pinsent called on me between 5 and 6 e'sleck on February 20. He said that\nrumers were current in New York that the Irish Free State was endeavoring to obtain\n& lean there. I told him that the Treasury had absolutely no information with\nrespect to any attempted or contemplated borrowing by the Irish Free State Government\nin the United States. Mr. Pinsent reminded no that the Irish Free State is in the\nsterling area and that the British Government is responsible for providing her with\ndollars. There would be quite a complication, therefore, if the Irish Free State\nshould be able to burrow on our market, when Great Britain is ferbidden, while the\nlatter still has the responsibility of keeping the Irish supplied with dellars.\nHMS.\n204\nRegraded Uclassified\nFebruary 28, 1941\nMEMORANDUM FOR THE PRESIDENT:\nThere have just been returned to me by Mr. Hoover, Director\nof the Federal Bureau of Investigation, all requests heretofore\nmade for investigations by his Bureau of individuals proposed for\nappointment by the Advisory Commission and other organizations\ncoming under the general jurisdiction of the Office for Emergenor\nManagement. In only 73 of the 469 cases referred for investigation\nhave completed reports been received from the Federal Buresu of\nInvestigation. In view of the extreme slowness with which the\nBureau was able to furnish service in this matter. I have made no\neffort to convince Mr. Hoover that he should reconsider his decision\nto discontinue these investigations. However, it seems quite in-\npractical to undertake ourselves the work of investigating these\ncases, particularly since they require inquiries in all parts of the\ncountry. and without an organization set up with field headquarters\nit would be not only difficult. but very expensive to conduct\nadequate Investigations. Therefore. I have made a personal request\nof the Secretary of the Treasury that he authorise the Treasury's\ninvestigative organization to undertake this work for us. No told\nme that he would be willing to have this done only at your direction.\nI have, therefore. prepared and attach herebo: a draft to him for\nyour signature. making such & request. In view of the urgent need\nfor very prompt and thorough investigations of all major personnel\nrecruited for the defense agencies. plus the fact that the Treasury's\ninvestigative organization is the largest and most widely distributed\none, I hope you will be willing to make this request.\n= signed R. McReynolds\n205\nFebruary 28, 1941\nMEMORANDUM FOR THE SECRETARY OF THE TREASURY:\nI have just received a memorandus from Mr. McReynolds to\nthe effect that investigations of persons proposed for employ-\nment in the several defense organizations which he has requested\nof the Federal Bureau of Investigation have been unsatiefactory\nbecause of the slowness with which the Bureau was able to handle\nthem. I have, therefore, instructed him to turn over to you\nall cased requiring investigation and I wish you would have your\ninvestigative service arrange to handle than very promptly and\nthoroughly. HoReynolds will make the usual form of request for\nthis work to be performed by the Treasury under authority of the\nprovisions of the Economy Act.\nRegraded Uclassified\n206\nTHE WHITE HOUSE\nWASHINGTON\nFebruary 26, 1941\nMEMORANDUM FOR THE SECRETARY OF THE TREASURY:\nI have just received a memorandum from Mr. McReynolds to\nthe effect that investigations of persons proposed for employ-\nment in the several defense organizations which he has requested\nof the Federal Bureau of Investigation have been unsatisfactory\nbecause of the slowness with which the Bureau was able to handle\nthem. I have. therefore, instructed him to turn over to you\nall cases requiring investigation and I wish you would have your\ninvestigative service arrange to handle them very promptly and\nthoroughly. McReynolds will make the usual form of request for\nthis work to be performed by the Treasury under authority of the\nprovisions of the Economy Act.\nRegraded Uclassified\n207\nFebruary 20, 1041\nMy dear General:\nI would appreciate it if you\nwould arrange an appointment for me\nto see the President on next Thursday,\nMarch 6th, and hope that you can make\nit his first appointment.\nMy purpose in seeing the President\nis to lay before him, at that time, my\nplans for selling Defense Savings Bonds.\nYours sincerely,\n(Signed) E Merganihau, Jr.\nGeneral Edwin M. Watson,\nSecretary to The President,\nThe White House.\nBy Musser 535\nRegraded Uclassified\n208\nFebruary 28, 2001\nliy dear General:\nI would appreciate it if you\nwould arrange an appointment for no\nto see the President on next Thursday,\nMarch 6th, and hope that you can make\nit his first appointment.\nMy purpose in seeing the President\nis to lay before him, at that time, my\nplans for selling Defense Savings Bonds.\nYours sincerely,\n(Signed) E dr.\nGeneral Edwin M. Watson,\nSecretary to The President,\nThe White House.\nBy Memorager\nRegraded Uclassified\n209\nFebruary 28, 1941\nlty dear General:\nI would approciate it if you\nwould arrange an appointment for me\nto see the President on next Thursday,\nMarch 6th, and hope that you can make\nit his first appointment.\nMy purpose in seeing the President\nis to lay before him, at that time, 4\nplans for selling Defense Savings Bonds.\nYours sincerely,\n(Signed) E Jt.\nGeneral Edwin M. Watson,\nSecretary to The President,\nThe White House.\nm\nI\nRegraded Uclassified\n210\nFebruary 29, 1941\nMy dear Mr. President:\nI an sending you herewith, for\nyour confidential information, a copy\nof the latest statement of aircraft\nshipped to the United Kingdom and other\npoints. The figures represent planes\nwhich have been received at the assembly\npoints listed during this last week.\nYours sincerely,\n(Signed) 1 Margenthan, Jr.\nThe President,\nThe White House.\n& I\n520\nRegraded Uclassified\n211\nFebruary 28, 1941\nMy dear Mr. President:\nI an sending you herewith, for\nyour confidential information, & copy\nof the latest statement of aircraft\nshipped to the United Kingdom and other\npoints. The figures represent planes\nwhich have been received at the assembly\npoints listed during this last week.\nYours sincerely,\n(Signed) E Margathan, Jr.\nThe President,\nThe White House.\n& !\nRegraded Uclassified\n212\nFebruary so, 1941\nMy dear Mr. President:\nI am sending you herewith, for\nyour confidential information, a copy\nof the latest statement of aircraft\nshipped to the United Kingdom and other\npoints. The figures represent planes\npoints listed during this last week.\nwhich have been received at the assembly\nYours sincerely,\n(Signed) E. Merganthau, Jr.\nThe President,\nThe White House.\nBy Measenger\nRegraded Uclassified\n213\nCONFIDENTIAL\n(To Keep You Posted)\nFebruary 26, 1941\nTo:\nThe Secretary\nFrom: Mr. Young\nRe: British Aircraft Shipments.\nAttached herewith is the latest statement of aircraft\nshipped to the United Kingdom and other points. This state-\nment is submitted in the same form as the one which you\nreceived last week. As you will recall, the figures repre-\nsent planes which have been received at the assembly points\nlisted during this last week.\nP4.\n214\nSTRICTLY CONFIDENTIAL\nSTATEMENT OF AIRCRAFT SHIPPED TO U.K.\n& OVERSEAS COMMANDS\nBy Sea\nBy Air\nduring week\nduring week\nAssembly\nending\nending\nType\nDestination\nPoint\nFeb. 1.41\nFeb. 22.41\nDouglas\nBoston II\nU.K.\nU.K.\n14\n-\nLockheed\nHudson III\n-\n4\nHudson IV\nU.K.\nU.K.\n1\n-\nGlenn Martin\nMaryland\nM.E.\nCapetown\n16\n-\nConsolidated\nPBY\nU.K.\nvia Bermuda\n-\n-\nBrewster\nBuffalo\nF.E.\nSingapore\n(via Panama)\n27\n-\n38\n4\nBritish Air Commission\nFebruary 24th, 1941\nSTRICTLY CONFIDENTIAL\nRegraded Uclassified\n215\ncopy given\nto Mr. Jones\nFabruary 28, 1941\n3/1/41\nMy dear Mr. Secretary:\nI - attaching herewith for your information\na copy of a memorandum dated February 26th, con-\ncerning British requests for clearance pending in\nthe Var Department.\nSincerely,\n(Signed) E Menganthan, Jr.\nSecretary of the Treasury\nThe Menorable,\nThe Secretary of War.\nbj\na %\nRegraded Uclassified\nA\n216\nMerusy so, 1941\nDear Harrys\nI - conting you herewith a espy of\nw/ letter to Secretary Others together\nwith a copy of the memerandes referred to\nconcerning British requests for clearance\npending in the Yes Department.\nSincerely,\nHonorable Harry Heyking,\nthe White House.\nbj\nBy Manager\nRegraded Uclassified\n046\nNET\nPetruary se, 2941\nDear Marrys\nI - conding you herevith a copy of\nmy letter to Secretary Stinson together\nwith & espy of the referred to\nconcerning British requests for elearance\npending in the Yes Department.\nSincerely,\nHenry\nHonorable Envry Hopkins,\nthe White House.\nby\n& I\nRegraded Uclassified\n00/1\n218\n25, 1941.\nMINORANDOM\n201\nThe Secretary\nFROM: Mr. Young\nBe: British requests for clearance pending in the\nVar Department.\nFor your information. there is presented below a listing\nof requests for elearance filed by the British Furchasing Commission\nwith the President's Linison Committee through this office and which\nat this writing are hold by the Var Department:\nDate Filed\nMaterial\nP.N.R. No.\nOct. 23. 1940\n37 ⑉ A.P. that (Frejectile only)\n21-0F-3 Alt.\nNov. 2. 1940\n2-Pounder A. P. that\n1 Alt.\nDec. 8. 1940\nma-73 Purents Aircraft\n370\n.\n.\ne\n8-39 Pursuit Aircraft\n371\n-\n.\ne\nDector Dembers\n372\n#\n.\n.\nBenber - Martia 157\n373\n.\na\n.\nMadeon Reconnaisence Benhers\n374\n-\n.\n.\nBender - Lookhood-37s\n375\n.\n.\n.\nEstrard Trainer Aircraft\n376\n. . a\nHands 574 - Aircraft\n377\n. . .\nMA-73 - Pursuit Aircraft\n378\n.\n.\n#\nTyphoon - Pureuit Aircraft\n379\nDec. 9. 1940\nMiss. Spare Barrols, Gase One-\nplete, Noviteers, etc.\n414\nDec. 12. 1940\nFase Be. 253 for 20 IN 1.1.\nShell (Hispano duisa)\n192-02-6\nDec. 21, 1940\n40 Mark XVI Leese Barrels\nA-13-R\nDes. 31. 1940\nAnti-Pank Carriages for\n37 IN Guas\n358 Alt.\nJan. 3. 1941\nBefore A. A. Mounts\n501\nJan. 9. 1941\nPratt & Whitney Ingines\n563\nJan. 22, 1941\nBinsoulars 6 % 30\n598\n.\ne\n6\n9\n...\n599\nRegraded Uclassified\n219\n- 2 -\nDate Filed\nMaterial\nP.K.R. Ze.\nJam. 23. 1941\nbe Case 50 Gal. U.S. Savel Cartridge\nJam. 27. 1941\n602\n20 ⑉ Hispane Sulsa Cannoa for\nAircraft Mounting\nJam. 26, 1941\n610\nPase Be. 253 for 20 MM R. 1.\nShell (Hispano Suisa)\nFeb. 3. 1941\n6 = 30 Priematic Discoulare with\n192-0F-6 Alt.\nGrationles\n648\n.\n.\nI\n6 a 30 Prienatic Bineoulars with\nOrationles\n64g Alt.\nFeb. 4. 1941\nStool Galv. Sinc Powder Boxes\n670\n8\n9\ne\n.\ne\n.\nII\ne\n671\nFeb. 7. 1941\nSpares for 2. 4 V. Engines\n524 Alt.\nFeb. 10, 1941\nDiscoulars 6 = 30\n596 Alt.\n. # .\n6 a 30 Prienatic Bineculare with\nGraticules\n648 Alt.\nFeb. 11, 1941\nBineoulare 6 X 30\n598 Alt.\n#\n.\ne\n.\n...\n599 Als.\ne a a\n6 I 30 Priomatic Bineoulars with\nGraticules\nas Alt.\nFeb. 17. 1941\nNitration Telmel\n422-2\nFeb. 19. 1941\nSteel Galv. Sine Powder Bozes\n670 Alt. Lat.\n. # a\n#\n.\n.\n#\n.\n672 Alt. Let.\nThe above listing includes only those requeste which have\nbeen filed by the British Purchasing Commission. to official\nnotification of Mar Department action with respect to these requests\nhas been received by this office.\nCopies of this liet are being cont to General Durne, Admiral\nSpear, and Mr. Imples. These copies are going forward today.\n2/26/41.\nRegraded Uclassified\n220\nTREASURY DEPARTMENT\nINTER-OFFICE COMMUNICATION\nDATE February 25, 1941\nTO\nSecretary Morgenthau\nFROM\nH. D. White\nSubject: Changes in U.K. Gold and Dollar Exchange Assets.\nOn January 8, the British submitted estimates to us that\ntheir \"cash\" resources--gold and official dollar balances--\nwould be exhausted by the end of January and that a deficit\nof $250 million would be incurred by the close of February.\nThat 16 to say, the expected drain on their cash assets in\nthe two months was estimated at $600 million.\nThere are appended two tables:\n1. The first table shows that the United Kingdom had $270\nmillion of gold and official dollar balances on January 31 and\n$208 million on February 19. This latter figure excludes re-\nceipts of newly mined gold in February and assumes that the\nBritish have not sold gold outside the U. S. since January 31.\n(They have sold less than $150,000 to us in February.)\nThe drain on dollar exchange assets in January was $134\nmillion and the estimated drain from February 1 to 19 was $78\nmillion, or a total of $212 million since December 31, 1940, &s\ncompared to British estimate for the 2-month period of $600 million.\nInasmuch as the British direct investments have not been\ntouched and their securities sales have been about what they\n88 to their dollar expenditures or their dollar receipts or both.\nanticipated, it 18 evident that the British were in error either\nThe major source of error seems to have been in the forecast of\nexpenditures, which included large sums for new program-sume\nwhich were not spent.\n2. The second table 18 computed as 8. rough check upon the\ndrain on assets. It gives estimates, based upon British informa-\ntion, of British dollar expenditures and receipts for the to 7-week\nperiod. This shows that if expenditures from January 1\nmillion. year This is $70 million higher than the drain on assets the\nfor the 19, 1941, the drain on assets would have been $280\nFebruary 1941 were at the rate anticipated by the British\nmost plausible explanation of the difference would be in defer-\nshown in table I. If the British estimates are accepted,\nment of payments due Canada or in seasonal movements.\nRegraded Uclassified\n221\n1. Gold and Dollar Exchange Assets of the United Kingdom\n(In millions of dollars)\nDec. 31\nJan. 31,\nFeb. 19,\nDecrease Since\n1940\n1941\n1941\nDec. 31, 1940\nGold\n292\n154\n154 #\n138\nOfficial dollar balances\n54\n116\n54\n-\nPrivate dollar balances\n302\n298\n299 *\n3\nMarketable U.S. securities\n616\n562\n545\n71\nDirect and wiscellaneous\ninvestments\n900\n900\n900\n-\nTotal\n2,164\n2,030\n1,952\n212\nof which there are avail-\ne,according to British 1,811\n1,697\n1,610\n2. Estimated Dollar Expenditures and Receipts of\nBritish Empire, excluding Canada and Newfound-\nland, from January 1 to Feb. 19, 1941\n(in millions)\nDollar Expenditures\na. Payments of British Purchasing Missions in U. 5.\nJamary, as reported by British\n$180\nFebruary 1 to 19 (British forecast\nfor Feb. on a pro-rata basis)\n100\n$280\nb. Deficit with Canada required to be settled in\ngold or dollars (British estimate made\nearly in Jamary; Feb. forecast on a\n50\npro-rata basis)\nC. Other dollar payments to U. 8. and other countries\n(British estimate for 1941 on a pro-rata basis).\n110\nTotal\n$440\nDollar Receipts\na. Dollar Receipts for commodity exports and service\ntransactions (British estimate for 1941 on a\n90\nb. Newly-mined Australian and South African gold\npro-rata basis)-\n70\n(British estimate)\n160\nNet dollar expenditures,Jan. Total 1 to Feb. 19, 1941.....\n$280\n# This figure is based on the assumption that the U.K. sold 1 to no 19. gold out of\nits monetary $142,000 of gold to U.S., January 31 through February this country. 18.\nstock to countries other than U.S., Feb.\n** Another of British private dollar balances in the January 29,\nU.S. sold mall only shipment of $203,000 is reported in transit NoY. to F.R.D. on\nThis February is the 11 sun ($276 million) and outside the N.Y. F.R.D. on\n($23 million).\nFebruary 27, 1941\nTreasury Department, Division of Monetary Research\nRegraded Uclassified\n222\nFebruary 28, 1041\nDear Helson:\nYour letter dated February 14th\nis postmarked at 4 Pallies February 27th,\nand was received by me on February 28th\nat 9:04 Bellie\nI have read the contents of your\nletter and have brought it to the atten-\ntion of Mr. Fehle, who is in charge of\nforeign funds.\nYours sincerely,\n(Signed) a Morganihan, Jr.\nHonorable Nelson As Rockefeller,\nCoordinator of Commercial and Cultural\nRelations Between the American Republics,\nState Department Building,\nWashington, D. C.\nCopy of this letter + incoming\nto mr. Peble 3/4/41\nRegraded Uclassified\n223\nFebruary 28, 1941\nDear Nelson:\nYour letter dated February 14th\nis postmarked at 4 pomes February 27th,\nat 9:04 &.m.\nand was received by me on February 28th\nI have read the contents of your\nletter and have brought it to the atten-\ntion of Mr. Fehle, who is in charge of\nforeign funds.\nYours sincerely,\n(Signed) e Mongrathau, Jr.\nMonorable Nelson A. Rockefeller,\nCoordinator of Commercial and Cultural\nRelations Between the American Republics,\nState Department Building,\nWashington, D. C.\n7y f t ile sent to the Pehle 3/4/41\nfor his information\nRegraded Uclassified\n224\nCOUNCIL OF NATIONAL DEFENSE\nCOORDINATOR OF COMMERCIAL AND CULTURAL RELATIONS\nBETWEEN THE AMERICAN REPUBLICS\nSTATE DEPARTMENT BUILDING\nWASHINGTON, D. G\nFebruary 14, 1941.\nMy dear Mr. Secretary:\nWe understand that the extension of the Foreign Funds\nControl Regulations to include Central and South America\nis being considered. In case this 1s done, I am offering\ncertain suggestions which I believe may considerably alle-\nviate the apprehensions which would be almost certain to\narise.\nI feel it would be particularly helpful if the\ncentral banks of the various countries, where they exist,\ncould be informed of the extension in confidence before\nit takes place and be given assurances that would place\nthem in a more receptive and cooperative spirit.\nIt also seems important that any publicity or regu-\nlations issued at the time of the extension be written 60\nas to convince our neighboring countries that no confiscations\nor unnecessary impairment of their normal activities need be\nfeared.\nUndoubtedly these thoughts have already occurred to\nyou and your associates, but in view of the importance of\nthe matter to our relations with our neighbors, I have taken\nthe liberty of bringing them to your attention.\nSincerely, When 6. Rochipellor\nNELSON A. ROCKEFELLER,\nCoordinator\nThe Secretary of the Treasury\nWashington, D. C.\nRegraded Uclassified\n225\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE February 28, 1941\nTO\nMr. White\nFROM\nMr. Southard\nSubject: Trade Agreements Committee consideration of a flaxseed\nconcession to Argentina\n1. At a meeting on Tuesday, February 25, 1941, the Trade Agreements\nCommittee again debated this question and finally agreed, only the\nTariff Commission majority dissenting, on a reduction of the tariff from\n65 cents to 50 cents per bushel, without quotas. Mr. Wheeler says that\nthe AAA is prepared to defend this much of the concession (as long as\nit is not made responsible for it), on the ground that it will help to\nprevent the development of the domestic flaxseed into one more \"surplue\"\ncommodity. Any greater concession - even though hodged by a quota -\nthe Department of Agriculture is not prepared to support,\n2. No one can be sure whether the Argentines will regard a reduction\nof the duty to 50 cents as worth very much, Mr. Hawkins doubts that they\nwill and I personally share his doubts. Argentina is worried about its\nfuture prospects for the export of cereals and meat. In the case of\nneat, we are apparently going to be able to offer them an important\nconcession only on canned meat, In the case of cereals, flaxseed is\napparently the only possibility.\n3. I realize that our domestic agricultural policy, the present\nabnormal state of foreign trade, and the impossibility of forecasting\npost-war trade conditions all combine to diminish one's enthusiasm for\na trade agreement as 8 major contribution to Argentine-American relations.\nBut I think it is worth noting that a few days ago the German Ambassador\nto Argentina, on his return from Berlin, warned Argentina that her trade\nrelations with the United States have no future and that post-war Germany\nwould become the biggest buyer of Argentine goods. He specifically\nasserted that Germany would buy Argentine corn, wheat and meat and that\nwe would not. He therefore urged the Argentines to maintain \"an india-\npensable common respect\" for the Germans in Argentina who, be said \"have\ncontributed to the creation of industries and commerce and have given\ntheir active life'to Argentina. This is the sort of appeal that makes\nsense to the Argentines and its effectiveness is certainly going to be\nincreased. if it becomes once more apparent that we are prepared to make\nonly the most niggardly concession on agricultural products.\nRegraded Uclassified\n226\nTREASURY DEPARTMENT\nCountry\nINTER OFFICE COMMUNICATION\nDATE February 28, 1941\nTO Secretary Morgenthau\nFROM Mr. Cochran\nWhile talking with the Secretary today on various problems, I reminded him that\nsome days ago I had mentioned the visit of the Spanish Ambassador and our plans to\nbegin the refining in the Assay Office at New York of the remaining Spanish silver\nwhich had been held up by litigation.\nI told the Secretary that in this complicated case there vas some difference of\nopinion among his staff as to how much of & fee should be paid the Treasury's special\ncounsel, Mr. Stimson, and whether this should be deducted from the balance due the\nSpanish Government on account of their silver sales to us. I recommended to the\nSecretary that this matter was sufficiently important that it should come up to him,\nthrough the usual departmental channels. in written form, recommending specifically\nwhat amount of legal fees should be paid and also setting forth opinions as to the\nproper source of the funds for such payment of legal fees. I thought that there\nshould be no contact with the Spanish Ambassador until a decision on these points is\nreached within the Treasury. I felt this matter deserved especially careful review,\n.onsidering the possibility of unfortunate reactions either if a fee might be paid\nto a Cabinet member or to his firm in an amount which might by some be regarded as\non the generous side, or if the Spanish Government might find ground for a new com-\nplaint against this Government, alleging that the latter was withholding from it\nfunds to pay Treasury counsel without a specific agreement providing therefor.\nThe Secretary agreed with the above suggestions.\nJall\n227\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE February 28, 1941\nTO\nSecretary Morgenthau\nFROM Mr. Cochran\nOn February 24 Dr. Amos Tayler telephoned me from the Department of Commerce\nthat Consul Herace H. Smith from Shanghai had completed his tour of duty in the\nDepartment of Commerce, fellowing a similar one in the Department of Agriculture,\nand was now available for two weeks in the Treasury Department before returning to\nhis post.\nBefore receiving Mr. Smith in the Treasury that afternoon, I talked with\nMessrs. Livesey and Bailey (Assistant Chief of the Division of Foreign Service Per-\nsonnel) in the Department of State and with Mr. White in the Treasury. It vas the\nunderstanding that the State Department would like to have Mr. Smith sit with us\nhere for a couple of weeks, to give us the benefit of such information as he might\nhave of use on China, and to obtain from us any suggestions which might improve his\nreporting work from Shanghai, particularly in view of our contemplated Stabilization\narrangement with China. Mr. Smith accempanied me to Mr. White's office and has been\ngiven a desk in Mr. White's division. It is suggested that he be presented to\nJader Secretary Bell before his fortnight teur of duty expires.\nRegraded Uclassified\nSo. 5416\n228\nTokyo, Japan\nFebruary 28, 1941\nSUBJECT: JAPAN'S GOLD POSITION\nCONFIDENTIAL\nThe Honorable\nThe Secretary of State\nWashington\nSir:-\nI have the honor to refer to Department's instruction No. 2098 dated\nJanuary 4, 1941, and to the memorandum relative to estimated monetary gold\nstocks of Japan, attached thereto.\nThe Department's attention is invited to this Embassy's despatch No. 5168\ndated November 22, 1940, subject: \"Japan's Gold Position\". The only additional\nstatistics now available are those covering gold shipments during 1940, which\nshow that these aggregated 2,239,485.278 troy ounces or 69,648 kilos valued at\nTen 328,953,425.48. Comparative figures for 1939 are 4,819,759.970 ounces,\n149,894 kilos, and Ten 660,958,733.81. These data indicate a reduction of 53-1/2%\nin volume and 50$ in value.\nOur estimates of collection for January-October, 1940 may have been somewhat\nlow as there are rumors afloat to the effect that, although the Government has\nnot actually enforced the Gold Compulsory Purchase Law promulgated in October,\n1940, & nationwide collection of gold articles is now being meticulously carried\nout on the basis of the census of gold holdings taken during 1938, and that this\npseudo collection is actually a confiscation of holdings even though it is cloaked\nin patriotic garb. However it is not believed that receipts of exportable gold\nfrom this source during 1940 equalled the estimate for 1939. but they may have\nreached something like 8,000 kilos.\nRegraded Uclassified\n229\n- 2 -\nBy using the figures for total shipments during 1940 of 69,648 kilos and\nan estimated 8,000 kilos for collections, the tabulation of stocks at the onl\nof October. 1940 on page 2 of our despatch No. 5168 will be changed se follows\nto show the position at the cal of 1940.\nKilos\nBalance on hand Jan. 1, 1940\n62,895\nEstimated production 1940\n77,000\nEstimated gold collections, 1940\n5,000\n85,000\nTotal resources Dec. 31, 1940\n147,895\nEstimated domestic consumption 1940.. 3,600\nExports, 1940\n69,648\n73,248\nStocks on hand January 1, 1941\n74,647\nEquivalent to:\n$86,000,000\nTen 366,360,000\nIt is believed that these figures will throw additional light on the\nposition as viewed by the writer of the memorandum attached to the Department's\ninstruction No. 2098.\nRespectfully yours,\nJoseph 0. Grew.\nFSW/mp\n563.4\nDistribution:\nOriginal and 2 copies to Department\n0%\nVII\nDe\nchicopy\n230\nFOR THE PRESS\nIMMEDIATE RALZASE\nFEBRUARY 20, 1941\n1931\nSTYML INDUSTRY REPORT BY JANO DUND\n1730\nAt the request of the President, Mr. Gano Dunn has made\nan exhaustive survey of the capacity of the steel industry to\ndetermine whether it has adequate facilities to meat the combined\nrequirements of the United States and British defense programs and\nexpanded demands for civilian usea. Mr. Duon is senior consultant\nto the Production Division of the Office of Production Management,\nbut in this instance made ais report direct to the President.\nThe study WUB requested by the President because of con-\nflicting estimates of steol requirements during the next two years\nand of the consequent ability of the industry to meet all demends\nplaced upon it. This question is of such importance to the defense\nprogram and the national aconomy as B whole that the President re-\nquested Mr. Dunn, as a qualified authority capable of presenting an\nimpertial, factual study, to make a special report on the subject.\nThe investigation on which it was based was carried out\nover B. period of six weeks. During the course of his inquiry Mr.\nDunn consulted with e great many oconomists and experts, both in\ngovernment and industry, and roprosentatives of organized labor in\nthe steel industry. He has acknowledged the valuable assistance of\nmany of these persons.\nMr. Dunn has accepted the ostimates of Melvin de Chazeau,\neconomist attached to the Materials Branch, Office of Production\nManagement, on probable requiroments of steel for civilien uses\nduring 1941 and 1942, These estimatos are based on the assumption\nof B. national income of 80 billion dollars in 1941, 90 billion in\n1942, and B. greatly increased demand for steel for civilian uses R$\n8 result of the rise in national incomo.\nHowaver, the Dunn report includes information on actual\ncapacity for production of steel ingota which has nover been known\nbefore and which demonstrates that that capacity is considerably\nhigher than was generally realized,\nThe report concludes that if certain measures are under-\ntaken there will be an excess of ingot-producing capacity over total\nrequirements of 10,100,000 tony during the prosent year and\n2,100,000 in 1942, These measures that must be taken to attain\ncapacity production include the olimination of potential bottle-\nnocks in output of pig iron and coke, an avon distribution of orders\nthroughout the industry, and a shortening of the period of time\nduring which stoel-making fecilities are normally closed down for\nropair work,\nMr. Dunn has arrived at a now measure of steel capacity\nwhich he has called \"roliable capacity.\" The difference between\n\"reliable capécity\" and \"roported capacity\" is that \"reliable\ncapacity\" takes into secount cortain existing facilities for the\nproduction of steel castings which are not included in reported\nstatistics of the industry and that the poriod of time normally non-\nsumed for repairing facilities can be reduced et B. nominal increase\nin cost to the stud companies. This increased expenditure in the\ninterests of time-saving 1a justified by the smergency nature of\ndemands on the industry,\nRegraded Uclassified\n231\nThe report vatimated that, on the basis of existing resilities\nat the beginning of the year, E shortage of 1,230,314 tons, or 2,3%,\nin capacity for production of pig iron would result If the industry were\nto operate at reliable capacity throughout the year, In 1942 e potential\nshortage in the production of pig iron of 544,481 tons is anticipated on\nthe basic of existing facilities if the industry were to operate at\ncapacity during that year.\nCoke shortage during 1941, on the sare banks, 1a estimated at\n5,360,315 tono, or 12%, and during 1942 at 2,670,806 cons. Total cost of\nremoving these deficits by construction of additional facilities would\nbe $59,545,975 in 1941 and $29,462,964 in 1947. Some of these facilities\n820 already under construction.\nMr. Dunn has rocommanded that this increase in facilities be\nundertaken and that If it does not occur normally that it be pro-rated\nover the industry by the Director General of the Office of Froduction\nManagement. His recommendation slon. these lines is based on the con-\nviction that the normal relationship between pig iron and scrap going into\nInpot stool should be maintained and that Adequate cupplies of coke should\nbe available both for steel making and for home and commercial heating\npurposes. Pending the installation of now fucilities, however, any short-\nagos that might arise from three directions could be ant (1) by increasing\nthe ratio of scrap to pig iron golup Into ingots and (2) by diverting coke\nfrom use in home and commercial heating units to the steol industry. If\nsuch expedients are found necessary it is agreed that they should be made\ntemporary by the creation of new pig and ooke facilities to maintain normal\nbalance and practices in the industry and to minimize any disturbance of\ncivilian consumption of coke,\nThe Dunn report strongly emphasizes the nucessity of oven\ndistribution of orders throughout the industry If maximum overall pro-\nduction is to be reached and maintained. In other words, one producer\nmust not be allowed to acquire a large backlor, of orders for delivery\nwell into the future while another producer is operating at leas-than-\nmiximum capacity, This might involve a considerable shifting of orders\nand require users of steel to deal with different sources of supply than\nthey have in the peat. Mr. Dunn recommended that unless such di stri-\nbutton takes place by voluntary action of the industry that the Director\nof the Division of Priorities saume responsibility for the task,\nlisliable capacity for stool ingota at the beginning of this\nyear, with emple allowances for periodic shut-down for repairs, is reported\nin the Durus study 10 57,576,099 tons por year. This is roughly\n3,500,000 tons higher than proviously supposed, Completion of additional\n91,124,718 tons by the end of the your. It should be clearly understood\nfacilities. now under pay, will raiso reliable annual capacity to\nthat those figures on capacity represent the maximum rate of operations\nthat could be continued over An extended poriod of time. Mr. Dunn has\nconcluded that the industry could, under proper condi tions, operato indo-\nfinitely at 5. rato of slightly more than 102% of reported capacity, which\nheretofore has boon the normal missure of stuol onpacity.\nIngot production In January was at the highest point in the\nhistory of the country, amounting to 6,943,084 tons. Howover, the Dunn\n97.1% of \"reported capacity\" it is only 94.5% of \"reliable empacity\".\nreport make the intoresting observation that while this figure represents\nyear, January production would represent only 91% of that espacity.\nThan compared with roliable capacity that will crist at the and of this\nRegraded Uclassified\n232\n-\nDirect defense requirements for steel in 1941 are\nestimated in the Dunn report at 5,100,000 tone. There La not\nmuch controversy over this figure. Exports of steel, mostly\nto England and Canada, are placed at 13,400,000 tons. Civilian\nrequirements, based on a national income of eighty billion dol-\nlars, are estimated at £1,000,000 tone, making a total of\n77,500,000 tons or 10,100,000 less than the reliable capacity\nof the industry to produce ingota. Naturally, if the national\nincome is less than eighty billion dollars, civilian require-\nments will be less and the safety margin correspondingly in-\ncreased. For instance, 11 the national income in 1941 reaches\nonly seventy-seven billion dollars, surplus capacity is es-\ntimated at 14,100,000 tons.\nSurplus capacity in 1942, based on 0 national income\nof ninety billion dollars, is estimated at 2,100,000 tens.\nAgain, if the national income in 1942 reaches but 87 billion\ndollars, surplus capacity would be 6,100,000 tons.\n\"hile exact figures in every category cannot be col-\nlected, the Durin report finds that capacity for rolled and other\nstoel products is generally well in excess of ingot capacity,\nranging from 50% in certain sectors to an average of 15%. The\nconclusion is that if orders MY properly distributed, total\nrequirements for fabricated producto can be net without unusual\ndelay. This should not be taken to mean that at no time during\nthe course of the dofense program will any user of any steel\nproduct face difficulty in obtaining prompt deliveries. During\na period of tremandous industrial expansion, with requirements\nfor specific products undergoing froquent changes, the dovelop-\nment of temporary choke points in certain spota from time to\ntime appears to be inevitable.\nHowever, the statistics unearthed by Mr. Dunn's\nstudy and the conclusions drawn from them, present an encourag-\ning picture to the directors of tois nation's defense program,\nto good neighbor nations, and to usure of steel and stucl products\nfor civilian consumption.\nIn viow of the importance of stool capacity and the\nnecessity of having an up-to-date picture of the situation,\nthe President has asked Mr. Dunn to make this survey and report\nthe starting point of a continuing study. Kr. Dunn has accepted\nthis assignment and will revise his statistics and conclusions\nperiodically, reporting directly to the President on his find-\nings.\nRegraded Uclassified\n233\nWAR DEPARTMENT\nOFFICE OF THE CHIEF OF STAFF\nWASHINGTON\nFebruary 28, 1941.\nMEMORANDUM FOR SECRETARY MORGENTHAU:\nRe: Malcolm Wheeler-Nicholson.\nMalcolm Wheeler-Nicholson is a former officer of Cavalry,\nRegular Army. He has had some success as a. short story writer,\nand in addition to his recent article in Harper's criticizing the\nArmy, he has written a book, \"Battleshield of the Republic\", along\nthe same line, which has recently been published. Some time ago\nhe submitted a rather lengthy document to the President in criticism\nof Army organization, administration and personnel system.\nHis military record is highly discreditable. In 1920 he\nwas placed provisionally in Class B (below minimum standard required\nfor commission in the Army), but was restored to Class A by order\nof the President. In 1922 he was again placed provisionally in\nClass B, and in the same year he was tried by general court-martial\nand found guilty of disorderly and discreditable conduct. He was\nfinally placed in Class B on September 25, 1922, and the action of\nthe board was approved by the President.\nHe was wholly discharged from the service on December 26,\n1922, it having been determined that his inefficiency was due to his\nown neglect and misconduct.\nThe records in The Adjutant General's Department indicate\nthat his difficulties were the result of drinking, bad debts and\nfalse official statements.\nHe is a good writer and has the faculty of dramatizing dry\nfacts. His material is readable and some of his criticisms have been\njustified, although the weaknesses he emphasizes are thoroughly\nappreciated by the War Department.\nW. B. S.\nRegraded Uclassified\n234\nFor Nice -\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nRegraded Uclas\nDATE February 28, 1941\nTO\nSecretary Morgenthan\nCONFIDENTIAL\nFROM Mr. Cochram\nRegistered sterling transactions of the reporting banks were as follows:\nSold to commercial concerns\n£53,000\nPurchased from commercial concerns & 8,000\nOpen market sterling opened at 4.03-1/2 and closed at 4.03-3/4. Transactions\nof the reporting banks were as follows:\nSold to commercial concerns\n£2,000\nPurchased from commercial concerns £8,000\nIn New York the closing rates for the foreign currencies listed below were\nas follows:\nCanadian dollar\n14-1/4% discount\nSwies franc (commercial)\n.2323\nSwedish krona\n.2385\nReichamark\n.4005\nLira\n.0505\nBrasilian milrois (free)\n.0505\nMexican peso\n.2066\nCuban peso\n6-27/32% discount\nOn February 26th the Ministry of Finance in Argentina announced that pending\nthe organization of corporations to export new commodities, the dollar exchange\nresulting from such exports to be used to pay for imports into Argentina (Decree of\nNovember 29, 1940). all dollar exchange derived from exports previously dealt in\nin the free market wast be surrendered to the Argentine Control at 4.2182 pases\nto the dollar ($.2370). The announcement also stated that all such dollar exchange\nsurrendered would be auctioned to the highest biddersin order to pay for imports\nother than those for which official exchange is provided. These new regulations\ntend to restrict the scope of the free market which will now be reduced to financial\ntransactions, capital repayments and similar operations. As a reflection of the\nreduced utility of the free market the free peso declined from .2365 at yesterday's\nopening to .2345 at today's close.\nIn Shanghai, the U. 8. equivalent of the yuan was 5-5/84. up 1/32#. Sterling\nwas 3.93-1/2, up 2-1/20. In Hong Kong, both the H.E. dollar and sterling were -\nchanged in terms of United States currency at 24-5/8# and 3.94, respectively.\n235\n- 2 -\nWe cold the following amounts of gold to be added to the earmarked accounts\nof the banks indicated:\n$ 7,500,000 to the Bank of Java\n2,550,000 to the National Bank of Ingoslavia\n$10,000,000 Total\nThe Federal Reserve Bank of New York reported that the Bank of Mexico shipped\nto it $51,000 in gold, for sale to the Assay Office.\nIn London the price of spot silver vas off 1/16d at 23-3/8d and forward vas\nunchanged at 23-5/16d. The U.S. equivalents of these prices are 42.444 and 42.33#.\nrespectively.\nHandy and Harman's settlement price for foreign silver was unchanged at\n34-3/44. The Treasury's purchase price for foreign silver vas also unchanged at 35#.\nThere were no purchases of silver under the Silver Purchase Act.\nDuring the month of February our purchases of silver were considerably reduced\nfrom the total of 9,149,600 ounces during January. During the current month ve\npurchased 3,661,871 ounces, the sources of which were as follows:\nType of Silver\nOunces\nNew Production\n1. From various countries\n2,556,871\n2. From Canada under agreement\n500,000\nInventory\n605,000\nTotal\n3,661,871\nJomp\nCONFIDENTIAL\nRegraded Uclassified\n236\nFebruary 28, 1941\nMEMORANDUM FOR THE SECRETARY:\nAttached is & summary report of the projects\nwhich have been worked on in the Division of Tax\nResearch during February, 1941.\nRB\nAttachment\n237\nMonthly Report on Projects in the\nDivision of Tax Research\nFebruary, 1941\nI. New projects\n1. Tax revision, 1941\nA series of brief memoranda concerning certain\npossible revisions of the individual surtax,\nestate and gift taxes, liquor, wine and beer\ntaxes, soft drinks tax, tax on passenger\nautomobiles and motorcycles, check tax, admissions\ntax and stock transfer taxes were completed.\n(Mr. Ecker-Racz and staff)*\n2. Tax-exempt securities\n(a) A brief statement was prepared for the use\nof Mr. Doughton on H.R. 2959 relating to\ntax-exempt securities. (Mr. Ecker-Racz)\n(b) A memorandum was prepared relating to tax-\nexempt securities of Great Britain and\nCanada indicating the issues, tax status,\nand amounts outstanding. A memorandum\ncontaining similar data for other countries\n1s in process. (Mr. Ecker-Racz and\nMr. Mannen)\nPersons listed as working on the different projects do\nnot include those who acted largely or exclusively in\na consulting or reviewing capacity. In general, the\nperson, if any, actively in charge of the project is\nlisted first.\n238\n- 2 -\n(c) A table showing the treatment of interest\nfrom governmental obligations under State\nincome taxes 1s in process. (Miss Wells)\n(d) A memorandum relating to the taxation of\nFederal securities under State and local\nintangible property taxes was prepared.\n(Mr. Ecker-Racz)\n(e) A digest of legislative proposals pertaining\nto the elimination of tax-exemption of\ngovernment securities is in process.\n(Mr. Mannen)\n3. Prepayment of income taxes\nA memorandum is in process analyzing the problems\ninvolved in a system of prepayment of income\ntaxes and outlining possible plans for prepayment.\n(Mr. Atlas)\n4. Taxation of banks and insurance companies\nA memorandum analyzing statistical information\nrelating to the profits and income tax payments\nof banks has been prepared. A similar memo-\nrandum on insurance companies is in process.\n(Mr. Mills)\n5. Taxation and the cost of national defense program\nA memorandum on the effect of State and local\ntaxes on the cost of the national defense program\nwas prepared. (Mr. Ecker-Racz)\n239\n- 3 -\n6. Social security\nAn analysis of the Social Security Board's\nlegislative program for 1941 is in preparation.\n(Mr. Ecker-Racz)\n7. Income tax\n(a) Examples comparing present and proposed\nindividual income taxes on net incomes of\nselected sizes under certain proposed\nsurtax rate schedules were prepared.\n(Mr. Zorach)\n(b) An analysis of the personal exemption and\ncredit for dependents based on data supplied\nby the Income Tax Study is in process.\n(Mr. Zorach)\n8. Excess profits tax\nAn analysis of the relief provisions of the\nexcess profits tax law 18 in process. Examples\nwere prepared of (1) types of situations\naffected by the relief provisions and (2)\ncompanies in the munitions business which,\nbecause their last fiscal year ended before\nDecember 31, 1939, were not subject to the excess\nprofits tax for 1940. (Mr. Campbell)\n240\n- 4 -\n9. Excise taxes\nA comparison of the British and United States\nexcise taxes on selected commodities showing\nBritish rates, Federal rates and highest and\naverage State rates was prepared. (Mr. Atlas)\n10. Tax suggestions\nA summary of tax suggestions received in the\nDivision from October 1, 1940 to February 20,\n1941 were classified into those worthy of\nstudy or adoption and those which are apparently\nnot useful. (Mr. Zorach and Mr. Mills)\n11. Intergovernmental fiscal relations\nMemoranda have been prepared showing (a) what\nthe Division of Tax Research has done in the\nfield of Federal, State and local fiscal\nrelations, and (b) a possible program for\nfurther research on this subject. (Mr. Ecker-\nRacz)\nII. Continuing projects\n1. Income tax collected at source\nA memorandum analyzing the problems involved\nin the collection of the individual income\ntax at source 18 in process. (Mr. Atlas)\n241\n- 5 -\n2. Excess profits tax\nAn analysis of special treatment afforded\nfinancial, personal service and public\nutility companies, the professions and\nagriculture under the World War and present\nexcess profits taxes of the United States,\nGreat Britain and Canada, is in preparation.\n(Mr. Mills)\n3. Federal excise taxes\nA memorandum analyzing possible additional\nsources of excise tax revenue is in process.\n(Mr. Campbell)\n4. Federal sales taxes\nA memorandum on the value added and other\npossible forms of Federal sales taxes 16 in\npreparation. (Mr. Farioletti and Mr. Copeland)\n5. Foreign taxes\n(a) Memoranda on the latest changes in\nCanadian and Australian taxes are in\npreparation. (Mr. Atlas and Miss Hughes)\n(b) In collaboration with the Division of\nMonetary Research, a study of the Haitian\nfiscal system is in process. (Miss Wells)\nRegraded Uclassified\n242\n- 6 -\n6. Amount of surtax net income by brackets\nA table showing for 1938 the amount of surtax\nnet income falling within each surtax bracket\nof the surtax rate schedule 1s in process.\n(Miss Hughes)\n7. Treasury Bulletin\nAn article for possible publication in the\nTreasury Bulletin is in process comparing tax-\npayers' reported state of residence in 1936\nwith the states in which they filed their\nincome tax returns. (Mise Coyle and Mr. Zorach)\n8. Undistributed profits and income taxation\nReports on the following subjects have not\nbeen actively prosecuted during the month:\n(1) Analysis in the light of issues raised\nby the undistributed profits tax of the\nstatistics made available from income\ntax returns and other sources.\n(Mr. Atlas and Mr. Copeland)\n(2) Analysis of the proposal to allow corpo-\nrations with five or less shareholders\nto be treated for tax purposes as\npartnerships. (Mr. Mills)\n243\n7\nIII. Routine Assignments\n1. Technical review of forthcoming Treasury\npublications\n(a) The work of the Philadelphia project\nanalyzing income, excess profits and\nestate tax returns is in final stages\nof completion. Among the portions of\nthe study reviewed were (1) volume 3\nof the Income Tax Study, 1936, (2)\nprocedures for the analysis of dividends\nand (3) table outlines for the excess\nprofits tax study. (Miss Coyle)\n(b) Four press releases for the complete\nreport \"Statistics of Income for 1938,\nPart 2,\" were reviewed. (Miss Hughes)\n2. Digests and comments on other studies\nThe following studies are pending analysis:\n(a) A memorandum from the Price Stabilization\nDivision of the Advisory Commission of\nthe Council of National Defense entitled\n\"The Effect of the Tax Structure on\nSaving and Consumption.\" (Mr. Farioletti)\n244\n- 8 -\n(b) The report \"Concentration and\nComposition of Individual Incomes,\n1918-1937\" prepared by the Temporary\nNational Economic Committee. (Miss Coyle)\n(e) The report \"Million Dollar Incomes\"\nby L. H. Parker. (Miss Coyle)\n(d) The report \"Study of the Delaware State\nIncome Tax Yields\" by Walter C. Wilson.\n(Miss Coyle)\n(e) The article \"British War Taxes and\nCorporate Earnings\" in the National City\nBank Bulletin for December, 1940.\n(Mr. Copeland)\n3. Statistics\n(a) In connection with the supervision of\nthe statistical work of the Bureau of\nInternal Revenue, various proposals for\nstatistical compilations were examined\nincluding suggested tabulations from the\ncorporation income and excess profits\ntax returns. (Mr. Blough, Mr. Shere\nand Miss Coyle)\n245\n- 9 -\n(b) Administrative reports and statistics\nof the Bureau of Internal Revenue are\ngraphed and commented upon for Mr.\nSullivan's information. (Mr. Campbell)\n(e) Data relating to different taxes,\ndigests of tax items, and congressional\nactivity on tax items of interest to\nthe Division are currently prepared.\n(Staff members)\n4. Correspondence\nThe Division handled correspondence per-\ntaining to tax matters. (Staff members)\n246\nBRITISH EMBASSY,\nWASHINGTON, D.C.\nPersonal and Secret\nFebruary 28th, 1941.\nDear Mr. Secretary,\nI enclose herein for your\npersonal and secret information a copy\nof the latest report received from\nLondon on the military situation.\nBelieve me,\nDear Mr. Secretary,\nVery sincerely yours,\nHalifax\nThe Honourable\nHenry Morgenthau, Jr.,\nUnited States Treasury,\nWashington, D.C.\n247\nTelegram received from London\ndated February 26th.\nHavel.\nAt 21/25 \"Exaoor\" escorting castern\ncoast convey off Norfolk coast was torpedoed and\nsunk by E-boat and British Minor (CA) 1100 tons in\nthe same convoy was also torpedoed and at 2.30/26.\n8.\n\"Dainty\" sunk by aircraft off Tobruk\np.m. 24th 20 casualties.\n5.\nIn Mediterranean, Kasteloritzo Island\noccupied dawn 25th. Enemy air activity caused withdrawal\nof Ladybird from harbour and reported permanent garrison\nmight have to be landed by night.\nde\nAt (words undecypherable) on February 25th\ncoastal aircraft unsuccessfully attacked four merchant\nvessels and escort vessels off Sogne Fiord also without\nseeing results (words omitted) bombed two E-boats off\nStadlandet and attacked convoy of merchant vessels off\nOptend but scored no hits.\nB.\nNight of 25/26th small force of aircraft\nbombed doeks at Boulogne.\n6.\nThree merchant vessels bombed or torpodeed\nwestern approach lest few days have arrived safely in\nharbour.\n7.\nR.A.F. night of 24th/25th\nAttack on Brest. On account of searchlights\nand flares detailed results could not be observed but\nover 50 bombers dropped bombs in target area. The\naircreft reported missing has returned safely.\n8./\nRegraded Uclassified\n248\nDaylishs 20th One Blenheim attacked\nsubmarine assembly and repair station at Flushing\nburste being observed on target. In afternoon six\nmedium bombers Gecorted by three squadrone of fighters\nwith a further five aquadrons in support unsuccessfully\nbombed enemy shipping off Dunkirk. In course of this\noperation our fighters destroyed 3 ME 109's and a\nfourth probable. One of our fighters is missing.\n9.\nNight of 25th/26th\n114 bombere despatched. Mein targets:\nDusseldorf industrial area ao aerodromes 17 and\nBoulogne 8. One aircraft is missing.\n10.\nLybia. Night of 24th/25th\nNine Wellingtons attacked Tripoli, hits\nbeing made on Customs wharf and shipping. Numerous\nfires and a violent explosion were caused. One\naircraft 1s missing.\n11.\nGerman Air Force. Daylight 25th Enemy\nactivity mainly confined to ses reconnaissances and\npatrols.\n12.\nNight of 25th/26th\nAbout 100 aircraft operated, activity being\nwidespread over east Anglie and Lincolnshire. One enemy\naircraft was shot down by a night fighter.\n15.\nAircraft casualties in operations over and\nfrom British Isles. German: Fighters - three destroyed,\none probable, Bombers - one destroyed, totals four\ndestroyed, one probable. British One fighter (bomber\nreported missing yesterday has returned safely).\n14.\nHome Security Night of 25th/26th. Damage\nRegraded done Uclassified\n249\ndone negligible except at Hull area where many\nfires were started and at Harwich where gas\nand water mains were damaged. Very few casualties.\nAll fires have been extinguished.\nRegraded Uclassified\n250\nBRITISH EMBASSY,\nWASHINGTON.\nPersonal and\nSecret\n28th February, 1941\nDear Mr. Secretary,\nI enclose herein for your personal\nand secret information copies of the latest\nreports received from London on the military\nsituation.\nBelieve me,\nDear Mr. Secretary,\nVery sincerely yours,\nHalifax\nThe Honourable\nHenry Morgenthau, Jr.,\nUnited States Treasury,\nWashington, D.C.\n251\nREPORT RECEIVED FROM LONDON\nDATED EBRUARY SATE, 194\nHAVAL\nMANISTER ocean boarding Vessel torpedoed 500\nmiles west of Butt of Lewis a.m./23rd.\nThree M/G trawlers whilst sweeping off Cardiff\nhave been damaged by mine explosions - one of these only\nelightly damaged.\n2.\nCUSE while sweeping at Herea Tobruk was sunk by\ncoast ......\n3.\nNo further news received of pocket battleship sighted\nby GLASGOW search continues.\n4.\nOne of the chips bombed on the 22nd by Fokke-Mulf\na/a has been found and taken in tow.\n5.\nSues Canal still closed and one mine reported detonated.\n6.\nMine destroying home waters continues satisfactorily.\nMines being detonated regularly off manoreus ports.\n7.\nFour enemy N/O bombed Benghasi a.m./23rd. Six bombe\non the water front and some near; little damage - no\ncasualties.\n:\nSHROPSHIRE bombarded Modun hear Brave S.M. 22nd con-\nsiderable damage caused.\n9.\nHIPPER class cruiser still at Brest 23rd M/O attacked\nthis ship night of the 23rd/24th, frustrated by weather.\n10. Vilitary. Itelian Someliland\nTo 8 p.m. 22nd. Our forces have taken Jumbo and\nexptured 28 Italian officers 85 other ranks and much material\nincluding arms and ammition. A pontoon bridge has been\ncompleted at Yonte.\nRegraded Uclassified\n252\n11. Royal Air Force Night of 93rd/24th.\nSeventy-ore aircraft were sent to dooks at Calais,\nBoulogne and Den Holder. Remrous fires were started\nat Boulogne but elsewhere results were unobserved.\nTwo aircraft sere missing.\n12. Eritren. on Slst South African Hurricanes des-\ntroyed six aircraft and six hangare at Hassawa aero-\ndrome. one Hurricans was loat.\n13. Greece on 22nd Blenheimo shot down three enemy\naiscreft.\n14. German Air Force During daylight 23rd enemy aircraft\ncarried out continuous patrols of the Straite and made\none sweep over East Kent Coast.\n15. Night of 23rd/24th. A small wcale bombing attack\nwas made on the Humber area and there was slight activity\nover Eastern and South Mastern England and the London area.\n16. Aircraft casualties in operations over and from\nthe British Isles. Germani Hil British - two bombers\nmissing.\nRegraded Uclassified\n253\nTELEGRAM RECEIVED PROM LONDON\nDATED PREDUARY 25th,1941\nNAVAL\nMANISTRE, having been terpedoed February\n24th for the second time presumed sunk. No trace\nof her or survivors found yet.\n:\nTerror sank off Derna Feb. 24th, having\nbeen near missed in two bombing attacks February\n22nd and February 23rd. No casualties. Enemy\ndoes not know of this loss.\n3.\nSituation Bengasi being made difficult for\nships owing to enemy air activity being little\nhampered by anti-aircraft and fighters, however\n5 or 6 enemy aircraft have been shot down includ-\ning one torpedo aircraft by Peony's enti-aircraft\ngun.\n4.\nThree ships reported torpedoed in outward\nconvey Some February 24th in N.W. approaches.\nSalvage of all three in possible.\n5,\nBastbound convey in Streits of Dever was\nshelled before dawn February 24th by enemy shore\nbatteries. No damage reported,\n6.\nA.M. Feb. 19th. 9 aircraft attacked anti-\nstycraft cruiser Voyager and name Corvettes off\nBengasi. No damage caused though there were near\nmisses,\n70\nR.A.F. Night of Feb.24th/25th. 63 heavy\nand 7 medium bombers attacked Hipper class cruiser\nat Breat. All returned safely, except one heavy\nbomber.\n8,\nPreliminary report of reconneissance Bello\nFebruary 25th, shows ship still there but photo\nRegraded Uclassified\n254\nphotographs not good enough to show if damage caused,\n9, ETHIOPIA.\nOn February 23rd, 7 South African Air Force\nBurricanes machine-gunned Makale aerodrome and dos-\ntroyed 8 enemy aircraft on the ground and one in the\nair. One Burricane is missing.\n10. Our medium bombers also considerably damaged\naerodrome buildings at Addis Ababa.\n11.\nGERMAN AIR FORCE.\nYesterday limited also entirely to patrols\nin Straits and night of February 24/25, scattered\nraide by 28 aircraft in East Anglis and mining by\n19 sircraft off Liverpool.\n18. Aircraft casualties in operations over and\nfrom British Isles. Germens, nil. British, 1\nbomber missing.\nRegraded Uclassified\n255\nRESTRICTED\nG-2/2657-220\nM.I.D., W.D.\nNo. 327\nFebruary 28, 1941\n12:00 M\nSITUATION REPORT\nI.\nWestern Theatre of War.\nAir: German. The High Command claimed long range\nbombers had destroyed 13 ships and damaged 6 others.\nBritish. Bad weather left both British and\nGerman planes grounded during the night.\nII. Greek Theatre of War.\nGround: No change.\nAir: Nothing to report.\nIII. Mediterranean and African Theatres of War.\nAir: The Italian High Command reported both Italian\nand German planes bombed and machine gunned British armored forces\nin North Africa.\nGround: Libya. A reconnaissance unit of armored\nfighting vehicles, believed to be German, was encountered west\nof El Agheila and driven back by British mechanized forces.\nItalian Somaliland. Italian forces are\nreported demoralized. Many prisoners and much war materiel have\nbeen captured.\nNote: This military situation report is issued by the Military In-\ntelligence Division, General Staff. In view of the occasional in-\nclusion of political information and of opinion it is classified as\nRestricted\nRESTRICTED"
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