Volume 388, April 11 – April 14, 1941

DIARY Book 388 April 11 - 14, 1941 - A - Book Page Africa, French North See War Conditions: Foreign Funds Control (French North Africa) Regraded Uclassifie Africa, South See Var Conditions: Gold American Friends Service Committee See War Conditions: Foreign Funds Control (France) American Viscose Corporation See War Conditions: Purchasing Mission Appointments and Resignations Banyas, Lawrence: Maps praised by HMJr, Cox, and Young: Mrs. Klots takes credit for transfer from Farm Credit - 4/11/41 388 25 - B - Bank Holding Company Legislation HMJr's testimony before Congress discussed by representatives of offices of Secretary, General Counsel, and Comptroller of Currency - 4/11/41 77 a) Draft 95 Banyas, Lawrence See Appointments and Resignations Belgium See Var Conditions Brown and Williamson Tobacco Corporation See Var Conditions: Purchasing Mission Business Conditions Hass memorandum on situation for week ending April 18, 1941 365 - C - Canada See War Conditions China See Var Conditions Coast Guard See also Var Conditions: Greenland Havy provided with copy of General Counsel, Treasury Department, opinion with regard to transfer of portion of Coast Guard to Havy - 4/11/41 69 a) FDR aske HWr to settle transfer with Knox - 4/14/41 301 1) HMJr's memorandum to FDR. 304 a) HMJr tells 9:30 group of conversation with FOR complete transfer only when war is declared; Knox agrees - 4/15/41: See Book 389, page 2 (Gaston's memorandum: Book 389, page 30) 1) "Shoe"to fit over ordinary steamer for ice-breaking purposes discussed also Corcoran, Thos. G. See Var Conditions: China - D - Book Page Defense, National Morale discussed by Ickee and HMJr - 4/11/41.. 388 112 Bill to extend to all Government agencies authority to enter into contracts without advertising or competitive bidding transmitted to Budget Bureau for Congress by Treasury - 4/14/41 286 - 7 - Fats and 0ils See War Conditions: Price Control Financing, Government Tenders invited for $100 million 91-day Treasury bills to be issued on discount basie and to nature July 16, 1941 - 4/11/41 118 Reconstruction Finance Corporation: Subscription figures and bases of allotment of 7/8% notes of Series U and 1-1/8% notes of Series V- 4/14/41 213 (See also Book 389, page 187 4/16/41) Defense Savings Bonds: HMJr thinks of phrase at press conference March 3, 1941 - 4/14/41 314 Talk used by HMJr in newsreel pictures - 4/14/41 317 France See War Conditions: Foreign Funds Control (American Friends Service Committee) French North Africa See War Conditions: Foreign Funds Control - G - Germany See War Conditions Gold See War Conditions: Belgium; Gold Greenland See War Conditions - I - Indo-China See War Conditions: Foreign Funds Control Inflation See Revenue Revision - L - Book Page Lever Brothers See War Conditions: Purchasing Mission Liaison Committee See War Conditions Lovett, Robert A. Congratulated as Assistant Secretary of War for Air by HMJr - 4/11/41 388 120 - M - Maps See War Conditions: Lend-Lease McCloy, John J. Congratulated as Assistant Secretary of War by HMJr - 4/11/41 121 a) In reply, McCloy comments on HMJr's "insight and persistence in connection with issues we face" 122 Morale See Defense, National - 0 - Office of Price Administration and Civilian Supply Created by Executive Order - 4/11/41 138 a) Henderson congratulated as Administrator. 114 Jones and HMJr discuss first meeting and alternates they may appoint later - 4/14/41 214 a) J.J. O'Connell appointed alternate; Hans and White to assist - 4/18/41: See Book 389, page 436 Stabilization discussed by HMJr, Jones, Wickard, Knudsen, Hillman, Henderson, etc. - 4/14/41 227 Oils and Fats See War Conditions: Price Control - P - Price Control See Office of Price Administration and Civilian Supply # War Conditions: Price Control Regraded Uclassified - R - Book Page Reconstruction Finance Corporation See Financing, Government # War Conditions: Purchasing Mission (Brown-Williamson loan) Revenue Revision 2/3 of current expenditures to be met by current revenue and 1/3 financed through borrowing will necessitate tax bill yielding an additional $3.5 billion per year: Memorandum for FDR discussed by HMJr, Sullivan, and Blough - 4/11/41..388 1 a) Conference with FDR; present: HMJr and Sullivan 20 1) Henderson, Eccles, and Currie to be contacted at request of FDR. 21 a) Eccles-HMJr conversation - 4/11/41 52 2) Currie-Sullivan discussion - 4/15/41: See Book 389, page 63 b) Conference at HMJr's home; present: Sullivan, Senator George, Congressmen Doughton, Cullen, and Cooper - 4/16/41: Book 389, page 188 Inflation: Possible check by use of taxation discussed in Merillat memorandum - 4/11/41 142 Obsolescence: "Treasury's severely criticized position that congressional legislation was necessary to authorise amortization allowances sustained by judiciary" - Foley memorandum - 4/14/41 323 - S - Shell Union Corporation of Delaware See War Conditions: Purchasing Mission Siam See War Conditions: Thailand South Africa See War Conditions: Gold Spencer, Herbert (Doctor) See War Conditions: Germany Statements by HMJr Defense Savings Bonds: Talk used by HMJr in newsreel pictures - 4/14/41 317 - T- Taxation See Revenue Revision Thailand See War Conditions - U - Book Page Unemployment Relief Work Projects Administration report for week ending April 2, 1941 388 361 - V - Viscose Corporation See War Conditions: Purchasing Mission - V - War Conditions Airplanes: Airframes and Engines: Disposition of those inspected by British Empire, week ending April 8, 1941 173,176 Belgium: Action against Bank of France for failure to conserve gold entrusted to it discussed by Belgian representatives and HMr: Cochran memorandum - 4/11/41 44 Canada: Foreign exchange position: White memorandum - 4/24/41 388 China: Corcoran and HMJr discuss FDR's possible aid-to-China plan - 4/14/41 220 Exchange market resume' - 4/11/41, etc. 145,172,359 Export Control: Exports of petroleum products, scrap iron, and scrap steel from United States to Japan, Russia, Spain, and Great Britain, week ending April 12, 1941 360 Foreign Funds Control: France: Welles refuses to recommend transfer of $50,000 from frozen French Government funds to American Friends Service Committee - 4/11/41 123 French North Africa: State Department agrees to permit purchase of certain specified commodities in United States - 4/12/41 193 Indo-China: Question of transfer of certain military equipment imported from France for purpose of fitting such equipment to American-built aircraft ordered by French discussed in memoranda from Pahle and State Department - 4/11/41 126 - W - (Continued) Book Page War Conditions (Continued) Germany: German diet, effect of air raids, etc., discussed by Dr. Herbert Spencer, of Public Health Service - 4/12/41 388 186 Economic (recent) developments: American Embassy. Berlin, report - 4/14/41 341 Gold: See also War Conditions: Belgium South African shipment due at Tompkinsville: Cochran memorandum - 4/14/41 279 (See also Book 389, pages 60, 61, 204, 205, 206, 327, and 328 - 4/15/41) a) Prese release discussion - 4/17/41: Book 389, pages 324 and 326 Greenland: Stimson asks for Coast Guard assistance in examination of possible steps to be taken by United States - 4/11/41 47 a) Germans already threatening East Coast b) HMJr, Waesche, Gaston, Lovett, and Sherman diecuse possible air base and Coast Guard assistance - 4/11/41 57 Lend-Lease: For weekly report, see War Conditions: Purchasing Mission Map showing effect of Neutrality Act on shipping discussed by HMJr, Cox, and Young - - 4/11/41 22 Exiled Governments: Aid for suggested by Greenbaum - 4/14/41 280 Liaison Committee: FDR congratulates HMJr as work ceases on signing of Lend-Lease Act - 4/14/41 281 a) Press releases: See Book 389, page 58 Military Planning: Army strength in Balkans, etc., discussed in Kamarck memorandum - 4/11/41 149 Reports from London transmitted by Halifax - 4/11/41, etc. 151,196,380 War Department bulletins: German Army - notes on - 4/11/41 154 German administrative services - 4/14/41 384 Price Control: See also Office of Price Administration and Civilian Supply Fate and Oils - price situation for: Haas memorandum - 4/14/41 263 - W - (Continued) Book Page War Conditions (Continued) Purchasing Mission: See also War Conditions: Lend-Lease Vesting Order: Substantial vesting of American securities on April 19 contemplated; Playfair (British Treasury Mission) consults Cochran and Purcell (Securities and Exchange Commission) concerning formalities in disposing of shares since two or three lots will constitute 15- or 20% of outstanding voting stock of the issuing concerns - 4/11/41 388 117 American Viscose Corporation, Lever Brothers and Unilever, and Shell Union Corporation of Delaware discussed in Peacock memorandum to Cochran - 4/11/41 133 Brown and Williamson Tobacco Corporation: Jones memorandum - 4/14/41 276 a) Cochran memorandum on conversation with Phillips suggesting "circumventing" of Reconstruction Finance Corporation - 4/15/41: See Book 389, page 68 1) HMJr-Jones conversation - 4/15/41: Book 389, page 69 2) Jones agrees to $40 million loan: Book 389, page 223 a) British press comment - 4/18/41: Book 389, page 463 3) Bureau of Internal Revenue with- draws request for rulings and closing agreements - 4/21/41: Book 390, page 167 First shipment of supplies for British Purchasing Commission concluded: HMJr gives FDR Mack's memorandum - 4/14/41 283 Federal Reserve Bank of New York statement showing dollar disbursements, week ending April 2, 1941 - 4/14/41 355 Thailand: State Department discusses with British possible joint financial assistance - 4/11/41 43 Work Projects Administration See Unemployment Relief 1 April 11, 1941 9:30 a.m. RE TAX LEGISLATION Present: Mr. Sullivan Mr. Blough Sullivan: I will have to change one figure there. (See Attachment No. 1.) It should be two hundred. H.M.Jr: What should be two hundred? Sullivan: Instead of 9,280, it should be 9,200. H.M.Jr: Now, what is the thing that goes with this? (See Attachment No. 2.) Clocks and watches, that is a new one. How much does the $25 license fee for a place to sell liquor produce, do you know? Sullivan: We can get that. I don't know offhand. A great deal of those occupational licenses we are not able to collect because of lack of personnel. H.M.Jr: You ought to go after that. I spoke to Hel- vering yesterday about it. Sullivan: I discussed it with him, too. Regraded Uclassified 2 - 2 - H.M.Jr: I don't know what it produces, but if it produced any real amount, I wouldn't mind, for instance, making it fifty dollars. Sullivan: There are & number of those occupational licenses that we can increase. H.M.Jr: Would you look at those? Sullivan: Yes. I have gone over that with Berkshire, and I have quite a memorandum on it. H.M.Jr: Would you digest it, and we can talk about it? Sullivan: Yes, sir. H.M.Jr: This is good enough. What does that mean, "a related tax basis?" Sullivan: Well, because of these various corporation taxes, there will be less in dividends, you see. H.M.Jr: I see, this is the break-down here? (See second page of Attachment No. 2.) Sullivan: Yes. Blough: The second page is the description. H.M.Jr: And the next one is the individual rates. Sullivan: And that one is your estates. H.M.Jr: What is this? Sullivan: The upper line, the red line, shows the -- H.M.Jr: Where does it go? Sullivan: ....the new tax, and the black line is the 1940 Regraded Uclassified 3 - 3 - tax, and the upper line there is the new' tax - new surtaxes without the defense taxes. H.M.Jr: I see. Sullivan: I don't know whether you want these charts to go to the President. H.M.Jr: Yes, they are interesting. We might as well. This is all right. Now, what I would suggest is this. I think you could fix two little books, you see, with covers and holes through it so it would be flat, you see, and I can give him this in a book and have one for me. I think this is fine. Sullivan: Let me do that over so there won't be any corrections. Are we going to see him today? H.M.Jr: It is supposed to be at eleven o'clock. The Treasury doesn't close today, does it? Sullivan: I don't recall that it did last year. H.M.Jr: What time did you go to Mass? Sullivan: I didn't go. H.M.Jr: Can you go later? Sullivan: Twelve-thirty. H.M.Jr: What if you miss it then? Sullivan: It isn't a Holy Day obligation. H.M.Jr: If you miss it is it another one? Sullivan: No. - 4 - 4 - H.M.Jr: I think we are in good shape to go over there. Sullivan: Yes, I think so. I had a very interesting luncheon with Senator LaFollette yesterday. April 11, 1941. MEMORANDER FOR THE PRESIDENT: Testifying bafore the Samate Finance Condittee on the Public Dobt in of 1941, I expressed the hope that be-thinds of - oursent expenditives be mt for surved severno and the other on-third be financed thorough harvendage. If this to to be neeemplished 18 will be income to caset at this received of Congress & tom will yislding - additional 13.5 Willion por year. Ordersted expenditures for fiscal 1948 : 229,000 million 218 Two-thirds of 12,667 million 146 Retinated net revenue fiscal 1942 .... 9,223 aillion 9.4 Inlance to be valued by - sames .... 3,444 million 52 the attached schedule prosente a reggeried plan for raising approximiely 13.5 billion. This - represents - to lisbilities which would More during the fises) your of 1942. Incover, Issues of the 20g is collections in the - of Income, I profits and estate taxes, the natual collections in fissal 1948 will be substantially Lego the the total of 13.5 billion. Regraded Uclassified Allactment 6 April 11, 1941. MISCRANDON FOR THE PRESIDENT: Testifying before the Senste Plance Consittee - the Public Debt Act of 1941 I expressed the hope that two-thinis of our current expendituren be not by current INVOICE and the other ene-third be financed through If this is to be scomylished it will be to amet at this restem of Dengress a tax will yielding an additional 03.5 billion per year. Retirated expenditures for fiscal 1948 $19,000 million Ive-thirds of expenditures 12,667 addlion Estimated net reverse fiscal 1942 .... 9,350 willion Balance to be raised by - taxes 3,467 million The attashed schedule presents a suggested plan for raising approximately 63.5 billion. This - represents - tax liabilities which would secree during the fiscal year of 1942. Invoice, because of the lag in collections in the 69.00 of income, - prefits and estate tame, the astual collections in fiscal 1942 will be substantially less thes the total of 83.3 billion. JLS.M Regraded Uclassified April 11, 1941. REMORANIXM FOR THE PRESIDENT: Testifying before the Senate Finance Committee on the Public Debt Lot of 1941, I expressed the hope that two-thirds of our surrent expenditures be net by current revenue and the other one-third be financed through berrowings. If this is to be accomplished 11 will be necessary to enast at this seesion of Congress a tax bill yielding an additional $3.5 billion par year. Estimated expenditures for fiscal 1942 $19,000 adlion Two-thirds of expenditures 12,667 million Estimated net revenue fiscal 1942 .... 9,223 million Belance to be raised by - taxes 3,444 million The attashed schedule presents a suggested plan for raising approximately 13.5 billien. This assest represents new tax liabilities which would accres during the fiscal year of 1942. Newver, because of the lag is collections in the case of income expess profits and estate taxes, the setual cellections in fiscal 1942 will be substantially less than the total of $3.5 billice. 12:16 Regraded Uclassified % SM-5 for - appropating approximately a additional 03,600 william of INTERMS lagress Bearee TOTAL Income $1,517.1 acrosse eartax rabed, adopting attached schodule (with defense tax) held and LAN Sexes 393.0 760 durgent (1) retuce exemption to $25,000 DI stept attached estate tax rate schedule (with defense tax) (3) reduce incomence exclusion to $25,000 DLC tax should (1) refuse exemption to $25,000 (2) increase the on tax rates to three-fourths the rates in the estate tax schodule nomities sease 933-5 W THE on normal tax net income, w 533-5 2) profits - Return the average earatage credit from 55 to 15 persent and the invested capital credit from 6 to 6 percent 400.0 200.8 igarattee: Additional 75 emte per 1,000 105.8 Signature, tobanco má smift Souble rates 75.6 onciee texas 1,056.0 scoline, 2 emts por gallen additional heo.e left drinks, 1 - a bettle and equivalents 132.5 utemobiles, parts and accessories, double rates 78.3 Theak - 2 senta per chesk 96.0 (wednes exemptions from 20 conts to , senta) 55.0 well. 10 persent of retail sale pripe 50.0 200 and then, increase rates from 21 and # emta to 5 and 9 cashe 43.5 Jolephone, telegraph, cable, ore., lover exceptions and increase rates 37.0 / Mill, 5 person's 30.0 essenger transportation, 5 persont of amount paid 30.0 landy, chaving - 5 persont 20.0 ups. 10 persent of retail sale price 15.0 hotographic apparates. etc., 20 persons 13.0 Poilet preparations, revise hasts 12.0 Blocks. whenes, ate., 20 percent 11.0 Blub dues, initiation food, lover emerytions and redefine have 9-5 Nechanical refrigerators, increase rate from 90 to 10 parcents 9.0 Katchos, 2 conto por 1,000 8.0 Caberets, change base and impose compational tax I-5 - Desilfries, toilet coap, etc., 5 persons 7.2 Sporting greds, 20 persont 6.5 Radio sets and parts, inspecs rate from sb to 10 persent 5.0 Musical instruments, 20 persent 5.0 Bouling allays, 015 per alley, billierd or pool table 5.0 Trusks, suitences and other Ingrage, 10 percent 4.0 Playing cardo, increase rate from 11 to 15 emba 2.0 Safe decosit benes, Increase from 11 to 20 persent 2.0 Phonagraphs end phonagraph records, 20 percent 2.0 Surnation of items 4,000.4 law Allowance for intervelated tax bases (spproximate) 460.4 Total 3,600.0 any Department, Division of Tax Research Agril 10, 1941 Retination for individual Insure taxes are on basis of colonder year 1941 lovels of Income all other cottinutes an at business levels cotimated for the fiomal year 1942. Regraded Uclassified 9 Other excise taxes Estimated increase (In millions) Gassiine Increase rate 2 cants per galles additional 100.0 soft drinks 1 cost per bettle with equivalent taxes 132.5 en unbettled drinks and fountain eyrops Automobiles Increase rates on automobiles, etc., from 78.3 * to 7 percent and ea parts or accesso- rice from nb to 5 persent Chesit tax Re-emact the 2-cent las, Act of 1932 56.0 Admissions Reduce exemption free 20 conte to 9 conts 55.0 Jewelry 20 persent of retail sale price 50.0 Tires and tabes Increase rates from ab and wb conts to 5 and 9 sents 43.5 Telephone, telegraph, cable, etc. lever exemptions and increase rates 37.0 Telephone bill Impose 5% tax 68 amount paid 30.0 Passenger transportation 5 percent of the assest paid 30.0 date at 5 persons 20.0 10 persent of retail sale price 15.0 Photographic apparates, otc. 10 persent 13.0 Toilet preparations Increase rate and revise basis for sale price 12.0 looks, mtches, etc. 10 persent 11.0 Flub dass, initiation fees fax amounts in excess of 010 por year 9.5 and estend coops of ten Fechanical refrigerators Increase rate from sb to 10 persent 9.0 atches 2 sente per 1,000 8.0 Cabarete Change rate to be persent of amount paid 7-5 for refreshments, ate., and impose tax on operators Dentifyiess, toilet seap, ets. 5 persont 7.2 Sporting goods 10 percent 6.5 Radio sets and parts Increase rate free 5t " 19 percent 5.0 Masical instruments 10 persont 5.0 Bealing alleys 025 for each alley, billiard or peel table 5.0 frucks, suitenses and other leggage 10 persont 4.0 Playing cards Inspense rate from 11 to 15 combo 2.0 Safe deposit benes Increase rate from 11 to 20 persent 2.0 Photographs and phonograph recerds 10 percent 2.0 Total 1,056.0 Treasury Department, Division of for Research April 10, 1941 Regraded Uclassified 10441-5 Individual surtax rate schedule Surtax net income I Bracket rate I (In thousands Total surtax # of dollars) # (percent) : cumulative # $ 0 - 2 11 $ 220 2 - 4 14 500 24 - 6 16 820 6 - 8 19 1,200 8 - 10 21 1,620 10 - 12 23 2,080 12 - 14 25 2,580 14 - 16 27 3,120 16 - 18 29 3.700 18 - 20 31 4,320 20 - 22 33 4,980 22 - 26 36 6,420 26 - 32 39 8,760 32 - 38 42 11,280 38 - 44 45 13,980 44 - 50 48 16,860 50 - 60 51 21,960 60 - 70 54 27,360 70 - 80 57 33,060 80 - 90 59 38,960 90 - 100 61 45,060 100 - 150 62 76,060 150 - 200 63 107,560 200 - 250 64 139,560 250 - 300 66 172,560 300 - 400 68 240,560 400 - 500 70 310,560 500 - 1,000 72 670,560 1,000 - 2,000 73 1,400,560 2,000 - 5,000 74 3,620,560 Over - 5,000 75 - Treasury Department, Division of Tax Research March 31, 1941 11 441-5 Comparison of surtax rate schedules under present lax and proposal Surtax net : Bracket rate : Total surtax income : (percent) # custulative ($000) I Present law : Proposal # Present law 1 Proposal $ 0 - 2 - 11 - $ 220 2 - " - 14 - 500 4 - 6 4 16 $ 80 820 6 - 8 6 19 200 1,200 8 - 10 8 21 360 1,620 10 - 12 10 23 560 2,080 12 - 14 12 25 800 2,580 14 - 16 15 27 1,100 3,120 16 - 18 18 29 1,460 3.700 18 - 20 21 31 1,880 4,320 20 - 22 24 33 2,360 4,980 22 - 26 27 36 3,440 6,420 26 - 32 30 39 5,240 8,760 32 - 38 33 42 7,220 11,280 38 - 44 36 45 9,380 13,980 44 - 50 40 48 11,780 16,860 50 - 60 44 51 16,180 21,960 60 - 70 47 54 20,880 27,360 70 - 80 50 57 25,880 33,060 80 - 90 53 59 31,180 38,960 90 - 100 56 61 36,780 45,060 100 - 150 58 62 65,780 76,060 150 - 200 60 63 95.780 107,560 200 - 250 62 64 126,780 139,560 250 - 300 64 66 158.780 172,560 300 - 400 66 68 224,780 240,560 400 - 500 68 70 292,780 310,560 500 - 750 70 72 467,780 490,560 750 - 1,000 72 72 647,780 670,560 1,000 - 2,000 73 73 1,377,780 1,400,560 2,000 - 5,000 74 74 3,597,780 3,620,560 Over - 5,000 75 75 - - Treasury Department, Division of Tax Research March 31, 1941 12 441-5 Comparison of present and proposed individual income taxes on net incomes of selected siges 1/ Married person - no dependents Net income 1 : Amount of tax : Increase in tax before : Effective rates # under proposal personal : Present : exemption 2/ Proposal Present law Proposal Amount : : : : law : Percent I 2,500 $ 11 $ 72 .4% 2.9% $ 61 554.5% 3,000 31 152 1.0 5.1 121 390.3 4,000 70 312 1,8 7.8 242 345.7 5,000 110 506 2.2 10.1 396 360.0 6,000 150 700 2.5 11.7 550 366.7 8,000 317 1,131 4.0 14.1 814 256.8 10,000 528 1,628 5.3 16.3 1,100 208.3 12,500 858 2,316 6.9 18.5 1,458 169.9 15,000 1,258 3,073 8.4 20.5 1,815 144.3 20,000 2,336 4,800 11.7 24.0 2,464 105.5 25,000 3,843 6,824 15.4 27.3 2,981 77.6 50,000 14,128 19,540 28.3 39.1 5,412 38.3 75,000 27,768 35,127 37.0 46.8 7.359 26.5 100,000 43,476 52,474 43.5 52.5 8,998 20.7 500,000 330,156 346,122 66.0 69.2 15,966 4.8 1,000,000 717,584 738,086 71.8 73.8 20,502 2.9 5,000,000 3,916,548 3,937,050 78.3 78.7 20,502 -5 Treasury Department, Division of Tax Research April 9. 1941 1/ Under the proposal the attached surtax rate schedule is substituted for the present schedule. Maximus earned income assumed. 3/ Includes 10 percent defense tax. 13 441-5 Estate tax rate schedule Net estato after 1 : specific exemption : Bracket rate Cumulative : (in thousands : (Percent) : tax on higher of dollars) # amount : $ o - $ 5 24 $ 200 5 - 10 8 600 10 - 20 12 1,800 20 - 30 16 3,400 30 - 40 20 5,400 40 - 60 23 10,000 60 - 80 26 15,200 80 - 100 29 21,000 100 - 150 32 37,000 150 - 200 35 54,500 200 - 250 38 73,500 250 - 300 41 94,000 300 - 500 44 182,000 500 - 1,000 47 417,000 1,000 - 2,000 49 907,000 2,000 - 3,000 51 1,417,000 3,000 - 4,000 53 1,947,000 4,000 - 5,000 55 2,497,000 5,000 - 6,000 57 3,067,000 6,000 - 7,000 59 3,657,000 7,000 - 8,000 61 4,267,000 8,000 - 9,000 63 4,897,000 9,000 - 10,000 65 5,547,000 10,000 - 20,000 67 12,247,000 20,000 - 50,000 69 32,947,000 Over - 50,000 70 - Treasury Department, Division of Tax Research April 9. 1941 441-5 14 Proposed estate tax rates compared with present estate tax rates Net estate after : Proposed rates 1/ I Present rates 1/ specific exemption: Bracket rate 1 Ousulative I Bracket rate # Cumulative (in thousands : : (percent) itex on higher: of dollars) 2 amount (percent) tax on higher : : amount $ 0 - $ 5 4 $ 200 2 $ 100 5 - 10 8 600 2 200 10 - 20 12 1,800 4 600 20 - 30 16 3,400 6 1,200 30 - 40 20 5,400 8 2,000 40 - 60 23 10,000 10 - 12 4,200 60 - 80 26 15,200 12 - 14 6,800 80 - 100 29 21,000 14 9,600 100 - 150 32 37,000 17 18,100 150 - 200 35 54,500 17 26,600 200 - 250 38 73,500 20 36,600 250 - 300 41 94,000 20 46,600 300 - 500 44 182,000 20 - 23 89,600 500 - 1,000 47 417,000 23 - 29 222,600 1,000 - 2,000 49 907,000 32 - 35 557,600 2,000 - 3,000 51 1,417,000 38 - 41 952,600 3,000 - 4,000 53 1,947,000 44 - 47 1,407,600 4,000 - 5,000 55 2,497,000 50 - 53 1,922,600 5,000 - 6,000 57 3,067,000 56 2,482,600 6,000 - 7,000 59 3,657,000 59 3,072,600 7,000 - 8,000 61 4,267,000 61 3,682,600 8,000 - 9,000 63 4,897,000 63 4,312,600 9,000 - 10,000 65 5,547,000 65 4,962,600 10,000 - 20,000 67 12,247,000 67 11,662,600 20,000 - 50,000 69 32,947,000 69 32,362,600 Over 50,000 70 - 70 - Treasury Department, Division of Tax Research April 9, 1941 1/ Exclusive of temporary defense tax. Regraded Uclassifie 15 441-5 Comparison of proposed estate tax with present estate tax on net estates (before exemption) of selected sizes 1/ Net estate: : Amount of tax Effective rate before : Increase in tax : exemption : Present : Proposal :Present: : (000) : law : : law : Proposal Amount Percent $ 50 $ 220 $ 2,860 0.4% 5.7% $ 2,640 1,200.0% 60 660 4,840 1.1 8.1 4,180 633.3 80 2,200 9,735 2.6 12.2 7,535 342.5 100 4,620 15,290 4.6 15.3 10,670 231.0 200 21,780 50,325 10.9 25.2 28,545 131.1 400 64,460 139,700 16.1 34.9 75,240 116.7 600 113,740 238,975 19.0 39.8 125,235 110.1 1,000 232,100 445,775 23.2 44.6 213,675 92.1 2,000 597,960 984,225 29.9 49.2 386,265 64.6 4,000 1,527,680 2,127,125 38.2 53.2 599,445 39.2 6,000 2,706,220 3,358,025 45.1 56.0 651,805 24.1 10,000 5,430,260 6,083,825 54.3 60.8 653,565 12.0 20,000 12,799,380 13,453,275 64.0 67.3 653,895 5.1 40,000 27,978,500 28,632,725 69.9 71.6 654,225 2.3 60,000 43,268,060 43,922,450 72.1 73.2 654,390 1.5 100,000 74,068,060 74,722,450 74.1 74.7 654,390 .9 Treasury Department, Division of Tax Research April 9, 1941 1/ Under the proposal the attached rate schedule is substituted for the present schedule and the specific exemption is reduced from $40,000 to $25,000. 2/ Includes 10 percent defense tax. INDIVIDUAL INCOME TAX RATES 1940 AND PROPOSAL Combined Normal and Surtax Rates PERCENT PERCENT 90 90 80 80 70 70 Proposal Excluding Defense Tax 60 60 50 50 40 40 1940 30 30 Excluding Defense Tax 20 20 10 10 0 o 4 6 10 20 40 60 100 200 400 600 1000 2000 4000 6000 SURTAX NET INCOME IN THOUSANDS OF DOLLARS Office of the Secretary of the Incory 0-217-2 - of Tax hard 16 Regraded Uclassi EFFECTIVE INDIVIDUAL INCOME TAX RATES WITH DEFENSE TAX Married Person, No Dependents PERCENT PERCENT 90 90 80 80 70 70 60 60 50 50 1940 40 40 30 30 Proposal 20 20 10 10 0 0 2 4 6 10 20 40 60 100 200 400 600 1000 2000 4000 6000 I NET INCOME IN THOUSANDS OF DOLLARS Office of the Secretary of the Treasury 0-220-2 17 Deser of Tax Research Regraded Uclassit ESTATE TAX KATES, WITHOUT DEFENSE TAX Bracket Rates PERCENT PERCENT 90 90 80 80 70 70 60 60 Proposal 50 50 40 40 30 30 Present Law (1935 Act) 20 20 10 10 0 0 4 10 20 40 100 200 400 LOOO 2,000 4,000 10,000 20,000 40,000 100,000 NET ESTATES IN THOUSANDS OF DOLLARS 18 Office of the Secretary of the Transury B-219-1 - of Tax Regraded Uclassified EFFECTIVE ESTATE TAX RATES, with DEFENSE TAX Proposal Computed on Basis of $25,000 Exemption PERCENT PERCENT 90 90 80 80 70 70 60 60 50 50 Proposal 40 40 30 30 Present Low (1935 Act) 20 20 10 10 o 40 100 L000 o 10 20 200 400 2,000 4,000 10,000 20,000 40,000 100,000 NET ESTATES BEFORE EXEMPTION IN THOUSANDS OF DOLLARS 19 Office of the Secretary of the Treasury Dupan d Tax B-223-2 Regraded Uclas 20 Regraded Uclassi MEMORANDUM April 11, 1941. TO: Secretary Morgenthau FROM: Mr. Sullivan SUBJECT: Conference with the President. Present: Secretary Morgenthau and Mr. Sullivan. This conference immediately followed the press conference and the President spent some time reviewing the announcements he had made at the press conference. Before looking at the memorandum and schedules sub- mitted to him he said he wished us to regard taxes from the point of view of their impact upon the impending upward spiral of prices. He then dis- cussed at some length the situation in the steel industry and referred to his conference with Leon Henderson in regard to the proposed ten cents an hour raise for steel workers. Secretary Morgenthau advised him that TO were making some studies on the 1939 and 1940 comparative distribution of profits and wages and that as far as we had gone the increase in wages seemed to be lagging behind the increase in profits. He then said, "I an sure that what you are submitting to me is already approved in principle but I would like to have you discuss it with Messrs. Henderson, Eccles and Currie and get their views." Addressing himself to the memorandum he asked but one question in regard to it. He inquired if the estimated receipts for fiscal 1942 was the same figure he had sent to Congress in the Budget and I replied that this estimate had been revised upward almost a billion dollars over the figure he sent to Congress. The amount of $3.5 billion did not seem to disturb him. He said it might be a good idea to ask for more than we hoped to get. He further commented that he would like to have an absolute minimum of $2.5 billion, a probable goal of $3 billion, and a possible goal of $3.5 billion. He then addressed himself to the first page of the attached schedules showing the taxes through which additional revenue was to be raised. He made some inquiry about estate taxes and then approved our making the increase on corporations a surtax rather than a normal tax. He said he thought the excess profits tax increase looked like the old undistributed profits tax. I told him they were altogether different but that there was a surprising support in Congress last summer for the undistributed profits tax as a substitute for the excess profits tax. 21 - 2 - He suggested that we work out & revised undistributed profits tax bill to have as an alternative for the excess profits tax.increase. The increase in excise on gasoline and automobiles he suggested we discuss with Leon Henderson, and he seemed to approve the increased tax on gasoline as one means of reducing consumption of automobiles. He questioned the increase in tax on refrigerators and I advised him the reason we had done this was because the plants manufacturing refrigerators appeared to be particularly adaptable to defense projects. He then said, Yes, that's the way to go at this". After we arose to leave, he said he had talked with a friend of his from Aiken who said he was the only liberal in Aiken. This gentleman advised the President there were between two and three hundred families in Aiken with net incomes of $200,000 and the President asked this gentle- man how those families would get along if the tax law were to take from them everything over $100,000, and this gentleman said they would get along all right. Secretary Morgenthau said that we would go to work upon his idea. As we left the President again asked us to get in touch with Henderson, Eccles and Currie and returning to the Treasury the Secretary asked me to see each of these three gentlemen on Monday and show them the schedules we had prepared. Ths Regraded Uclassified 22 April 11, 1941 9:50 a.m. RE AID TO BRITAIN Present: Mr. Young Mr. Cox Mrs. Klotz Cox: Would you like to take a look at this? (Re- ferring to large map) H.M.Jr: Oh, I love maps. Cox: This was an attempt to make this understand- able in terms of that complicated Neutrality Act. H.M.Jr: This is your interpretation of it? Cox: Yes. Green is where you can go anywhere with anything in a private American vessel. H.M.Jr: I see. Cox: Red is where you can't go unless the Presi- dent issues a proclamation. (Mrs. Klotz entered the conference.) Cox: Red and Green is where you can carry on Regraded Uclassified 23 - 2 - private American vessels oil and trucks and tractors except machineguns and 80 forth. Broken red is where you can go with Presi- dential permission. That was Banyas' idea of where you can get a loophole. H.M.Jr: Who is he? Cox: He is George Haas' man. H.M.Jr: You will be amused at this meeting yesterday. The President said, "It is wonderful that Harry Hopkins discovered a loophole in this thing that even the Attorney General doesn't know about." I just grinned a sarcastic grin at Harry thinking he would drop his eyes and say bashfully, "Of course, Mr. President, it really wasn't me. It was given me by Oscar Cox," but he sat there. Cox: That doesn't bother me. I notice they are going to use those ships for transporting stuff to the bases and re- lieve the load on the others. H.M.Jr: But he never said boo on it. Young: Do you see this sort of peculiar thing around Montreal? You can ship arms into Montreal and Quebec but not into Newfoundland. H.M.Jr: That is that big place. That is where the CPR handles all this stuff. You know Sir Edward Beatty is the man who handles it. Cox: Yes. The Neutrality Act is one of the crazi- est-- 24 - 3 - H.M.Jr: They can go into Montreal? Cox: But they can't stop at Halifax. You can take either the inland way or the ocean way. H.M.Jr: Is this for Hopkins? Cox: Yes. I guess he wants to give it to the President. H.M.Jr: Have you got on there any where that the Treasury has done it? Cox: We really ought to put a big label on there somewhere. Klotz: I would. Cox: We will get some binder strip and put it on. H.M.Jr: Why not put it right up here? Klotz: So they can't rub it off. H.M.Jr: I would put in, "Prepared by,"whatever Haas' office is called. Cox: Traffic Section of the Division of Research. Klotz: That is & wonderful map. H.M.Jr: But I would put it right up there. Cox: Look at what we do down here. (Indicating) Those are the two people in the War College who did it. But they only did the basic map. They didn't do the classifying. H.M.Jr: Where would the President be apt to look at it? 25 - 4 - Cox: I would think down there. H.M.Jr: Why not here? (Near legend) Klotz: That part was prepared by the Treasury. H.M.Jr: Why not put it here? Cox: That is right. H.M.Jr: I think I would put it right here, right across the bottom. The other day when I took over that map that - was it done in the Treasury? Somebody gave it to me. Oh, yes, it was Kamarck. The President said, "What does the Treasury know about this sort of thing?" Cox: Well, this fellow Banyas is good. Klotz: He must be. I brought him into the Treasury. H.M.Jr: Did you? Klotz: Sure. Cox: He is as smart as can be. Klotz: And Haas didn't want him. Cox: He is good. Klotz: Brought him over from Farm Credit. He was there. H.M.Jr: Oh! Cox: He is an engineer by trade. H.M.Jr: Was he in Farm Credit? 26 - 5 - Klotz: I brought him into Farm Credit and then brought him over here. He is marvelous. Haas didn't want him. H.M.Jr: He must be good. Klotz: I am sure he is. That is the man. H.M.Jr: I remember sort of vaguely something about him. Causing a lot of trouble, wasn't he? Klotz: That is right. Haas didn't want him. Cox: We did one other mapping job here, but it is mostly Phil's handiwork. (See Attachment) H.M.Jr: What is that? Cox: That is mostly Phil's handiwork. Young: This is a joint effort to serve as a point for discussion. H.M.Jr: What are you, the Executive Assistant? (Young) Cox: Yes. Young: I guess so. H.M.Jr: Very good. Has Hopkins accepted this? Cox: He hasn't seen it. Young: He hasn't seen it. H.M.Jr: Yesterday the President asked - Hopkins after he got through with everything else brought up 27 - 6 - the discussion of six ships of sixteen knots each. The Maritime Commission turned him down. Cox: That was the one I told you about the fight in Land's office. H.M.Jr: He said unhesitatingly to give it. I won- dered what happened. Would you hear very soon? Cox: Yes. H.M.Jr: Oh, I wouldn't go out of the way. Do you what to bring up anything? Cox: Yes. Still on this shipping thing, as you know, the Greenland thing has gone through and - the Greenland bases. It seems to me that the next thing of political signifi- cance would be a constant harping on this Western Hemisphere thing because that has & lot of implications. One is in terms of patrolling in that area generally, which means that the British convoy work is much less. And I think publicly you can say that any German raider or submarine that is in there will just be cleaned out or that there should be no fighting there and make it apply to the British as well as to the Germans on the surface SO that their convoy route will be shortened to the point from where the Western Hemisphere ends to their North Atlantic ports. The other second implice- tion to that might very well be that you actually convoy to the Western Hemisphere point and the British pick up. That is looking to the future on the practical end of it. H.M.Jr: It has been settled. I can't discuss it, but the President is going to announce it Regraded Uclassified 28 - 7 - either Monday night or Tuesday morning, and I am entirely satisfied. As far as I know, it is a brilliant conception. The thing would jell. Cox: Well, we have been sort of talking about it ahead of the game, and I didn't know how far it had gone. H.M.Jr: It has been jelled, and it is all right. Were you in on the Greenland base thing? Cox: Yes. H.M.Jr: You were? Cox: You know what happened. State and Justice had been looking up the law, apparently, for weeks as to how to do it, and then Hopkins - I had mentioned to him that it was bogged down. H.M.Jr: Was what? Cox: Was bogged down, and thought he ought to give it a push, and then he called up one afternoon and said, "Can you in 15 minutes tell me legally how to do this thing?" H.M.Jr: I don't think you told me about that, did you? Cox: Yes, I did. H.M.Jr: Did you? Cox: So we called them back and told them how it could be done, and he wrote a short memo for the President, and the President added in his own handwriting, "All right to go ahead, Regraded Uclassified 29 - 8 - if the consent of the Greenland Government is obtained." The way it is done is, the President is allocating five million dollars from his emergency fund for defense to the War Department to start immediate construc- tion of bases. H.M.Jr: Did you tell me about that? Cox: Yes. H.M.Jr: Funny I have no recollection of it. Cox: Well, now, the next thing which may be-- Young: That was quite a while ago. Cox: It was about a week ago. Young: A week or 10 days ago. Cox: The other thing which may not be a practical possibility but which I think ought to be explored is the extent to which aircraft, as I mentioned before, can be integrated in the convoy job. H.M.Jr: Yes, going over. Cox: Yes, going over, and that raises the next question which is going to come up, and that is the allocations of things like the North American B-25 and the Glenn Martin medium bombers, of which the British are getting none as the schedules now stand. H.M.Jr: Well, I looked up the Martin production thing, and the British are getting most of their production, and the Army is getting very little in the bomber. 30 - 9 - Cox: That is so in one bomber-- Young: On the B-26? H.M.Jr: Almost no B-26's have been produced. Young: They are just beginning to come over the line. The schedules don't maka any provi- sion for the British. H.M.Jr: But look what they are getting from the Glenn Martin factory. It is almost four to one coming off the line. Cox: That is right. H.M.Jr: The English are getting, my guess is almost four to one. Cox: I think that is roughly correct. H.M.Jr: It is the B-26 which the Army gets, of which the English gets nothing. But they are get- ting - I say, out of the factory, I think you will find it is about four to one. I don't understand it. Cox: I don't think they are getting any of the North American B-25's, either. H.M.Jr: I am rusty on this stuff. I used to know this. I happened to look up the other day to see what they were getting out of Glenn Martin, and what they were getting out of Consolidated, and what they were getting out of Boeing and Curtiss, and they are getting more than 50 percent of it. Of course they are not on the trainers. Cox: And also not on certain types. On the new B-17-D and -E, I don't think they are getting any. Regraded Uclassified 31 - 10 - H.M.Jr: But they have their own ship coming out. Cox: That is right. H.M.Jr: Incidentally, that memo which finally came through which was a good order, one of the last ones you sent me, I wrote you a memo- randum on. If it comes through - - I would like a similar memo within 10 days. Young: I have arranged for it every week. H.M.Jr: Well, this stuff that you are talking about is something that I am not in on any more. Klotz: Well, I think, from time to time, asthese meetings go along, you will be in. H.M.Jr: I would like to know about it. I like to know about them. What else? Cox: That is all. H.M.Jr: No, the patrol area thing is fixed up beauti- fully. How about you (Young)? Young: We are just moseying along on our procedures, getting that all worked out, the mechanical details and so on. We are handling requi- sitions at about the rate of a hundred 8. week to start off for the British. That is what it has been for the last two weeks. It is going along fairly smoothly. We have got 17 offices in Federal Reserve. H.M.Jr: How many offices? Regraded Uclassified 32 - 11 - Young: Seventeen, which I am going down and look at this morning. I think that it - we ought to move in this weekend. H.M.Jr: Well, I told you the other day that was your decision, yours and Cox'. Young: Because we have got files now scattered all over the darn place. There are some in the Budget and some in the War Department and some here. H.M.Jr: But you realize once you move off, you no longer are on Treasury soil. That is what you want to get off from. Cox: Well, I raised the question-- H.M.Jr: Philip said he - he wasn't on neutral soil when he was here. Once you leave here, you have left. I mean, it is no longer a Treasury organization. Young: That is right. H.M.Jr: You appreciate that? You must. It is one of the reasons why. You said you wanted to get off on a neutral soil. Young: I think it will be better for that particular organization. I don't think it can operate this way. H.M.Jr: I told you it was your decision. But we won't have these meetings any more when you are over at the Federal. Cox: I was going to raise another question with Phil. That is this. Certainly until the first of July on the Budget end, it is going 33 - 12 - to be handled on an allotment basis. I mean, a request is now in to transfer monies to the Treasury to reimburse the Treasury for Philip's pay, so to speak. To that extent thère is a degree of connection. He is a Treasury man, and he has been assigned on an allotment basis to the Lease-Lend, which raises the question of whether you ought to break the contact completely in the sense that he has no office here at all, because I think you have got this thing - it is go- ing to come more and more into the picture, and it seems to me for informational and other purposes the more you know about it the more of that objective is going to be achieved, and with 8. parking space here, 80 to speak, I should think, and spending a certain amount of time here, I should think it would be use- ful on the over-all picture. That is my off- hand reaction on it. H.M.Jr: What are you going to do? Cox: I am only a lawyer. These are the fellows that get to the guts of this job. H.M.Jr: That doesn't answer me. Where are you going to have your office? Cox: Well, I understand they are making some space over there, but I would like to keep a two- by-four space here, if it is all right with you, in terms of law books and whatnot. H.M.Jr: It is all right with me, if it is all right with Foley. Cox: Yes. H.M.Jr: Well, you are all of age, and you will just have to make up your own minds, that is all. 34 - 13 - Young: As far as I am concerned, of course I would rather be here, no doubt about that. At the same time, I don't think it is going to be as effective, and I don't think it is going to get over this psychological barrier with the other Departments, Budget and so on, as long as you have got it operating within the Department or even if it is physically in a departmental building with no connection technically with the Depart- ment. I still think you have got a psycho- logical hurdle to get over. Maybe I am crazy. H.M.Jr: You see, one of the things that they don't do, Harry doesn't attempt in any way to service this committee of four. Cox: That was one of the reasons I think they should get more and more into these policy questions and the committee in terms of servicing and in terms of effectiveness is going to be conditioned by the information and the facts it has, and if you just walk in cold and don't know the background and the factual picture, it is pretty hard to advise on policy. Young: We ought to have a series of weekly reports, I think, for the committee for one thing and special reports of different things that come up, something of that sort. I think it ought to be a regular service. H.M.Jr: Do I understand that after the first of July this group will be completely detached? Cox: I don't think so. Budget would like to see it, but I don't think opkins wants to see it that way. I think he wants to be in a position to resist job seekers and to say Regraded Uclassified 35 - 14 - that he hasn't got a big staff and is using 10 million dollars a year to run it. H.M.Jr: How does Budget want it? You say they want-- Cox: They would like to have a separate organiza- tion with a separate fund for it instead of on the allotment basis. (Telephone conversation with Mr. Mack follows:) 36 April 11, 1941 10:15 a.m. H.M.Jr: Mack? Clifton Mack: Yee, sir. H.M.Jr: Is your operator on there? M: Hello. H.M.Jr: Are you on all right now? M: Yes, sir. H.M.Jr: Anything new in regard to foreign purchasing? M: This. We will complete today the War Department list and that will be over with. H.M.Jr: Good. M: Now, on the new materiel we have certain requisitions that have come through that we're waiting for clearances on from O.P.M. and they're all timely. None of them have been delayed beyond any reasonable time, and we have one expedite shipment we're working on now that they want on the boat tomorrow morning - oh, let's see, Sunday morning. H.M.Jr: What's that? M: That's 1,000 rolls of mosquito proof gauze for West Africa. It has to be on the boat leaving here Sunday morning in order to get there in time for use. H.M.Jr: Can you do it? M: I think we can get substantially what they want. H.M.Jr: How do you transport it? M: It's going by boat. It's being shipped in or trucked in from the various manufacturers. H.M.Jr: Coming in by truck. 37 - 2 - M: By truck to New York and the Shipping Commission up there 18 taking it over from that point. H.M.Jr: Now, Mack, when this present thing is completed - the buying - - give me a little report on it. Will you? M: Yes, sir. H.M.Jr: On the first group. See? M: Yes, sir. I'll do that. H.M.Jr: Get it to me fairly promptly. M: I'll do that today. H.M.Jr: Got enough help over there on thie? M: Yes, but we are now working on an outline of what additional help will be needed, depending on the increased flow of these requisitions. H.M.Jr: O.K. M: All right. H.M.Jr: Anything else? M: There is just one other thing that I'm taking up with Young today and I think perhaps you ought to know about it. Some of these requisitions are coming through asking for materiels that seem to be much too expensive for the indicated use, but I'm taking it up with him and I'm sure he can straighten it out. H.M.Jr: In other words, you mean they're charging too much? M: Well, they're asking for things that are altogether too expensive. H.M.Jr: For instance, what? 38 - 3 - M: Well, for example, on this 1,000 rolls of mosquito gauze that they want Monel Metal. Well, now Monel Metal costs $28.50 a roll and it's a commodity that 18 not available only in small quantities. H.M.Jr: Have you 8 substitute? M: And the substitutes, yes - bronze and copper, that's what we're working on, and they cost about half the amount. H.M.Jr: Monel screen. Is this mosquito screening? M: Yeah. That's it. H.M.Jr: And you'll get it in copper? M: Yeah, we can get it in copper and we get it in bronze and it costs just about half the $28.50 price. H.M.Jr: Seems silly. M: Well, it does, and I'm taking that up with Young this morning. H.M.Jr: I'm glad you're watching that. M: Yes, sir. H.M.Jr: Thank you. M: Yes, sir. 39 - 15 - H.M.Jr: My original purpose was to give Hopkins the people necessary to make this thing work. You people are on this thing and after all, if you didn't do it, I don't think it would work nearly as well, but it will be differ- ent. I mean, I am conscious of it. I want the thing to work. So wherever it can be most effective, I have got only one objec- tive and have had on this thing. I want the English to get the stuff and get it as fast as possible. But as to what my own arrangements will be and where I will get my information, I will just have to think that over. Cox: Well, just thinking out loud, would it be wise for us to combine the whole thing in terms of obtaining one room here and report in to you at a set time every day for a while for 10 or 15 minutes a day? H.M.Jr: Well, think it over. Cox: The main objective-- H.M.Jr: I am going to get my information somewhere, I don't know how. Cox: Well, it is more than information, because you are doing an effective job in moving these things on on the basis of that informa- tion so if it works the end result, it is better from the all around standpoint if we can supply you with that information. Young: You don't want as much the information as you want the feel of it. H.M.Jr: That is right. Regraded Uclassified 40 - 16 - Young: And you can't get that unless you talk to us. H.M.Jr: Handling that thing on the Danish ships, I was able to dynamite that out. I made no contribution on the Greenland thing. A little on the patrol, not much. Some on the six ships. I helped some in getting Donovan to go after the shipping. At least I know where the things are blocked. Cox: I think there will be a lot of those from day to day where, if they are pushed by you, you can probably put them over the hump. H.M.Jr: All right. Cox: Would it be asking you too much sometime to give Banyas a vote of thanks through Haas. H.M.Jr: Sure. Klotz: He works day and night. He works all hours. H.M.Jr: You write the letter and send it to Mrs. Klotz and I will sign it. Cox: O.K., thanks. Uclassified 42 4-16-41 4/11/91 DEFENSE AID ORGANIZATION President CABINET COMMITTEE BUREAU OF THE BUDGET State Allotments Treasury SECRETARY OF Reimbursements War Navy DEFENSE AID Estimates Administrative Agriculture Procedures Maritime, etc. Records Other LEGAL ADVISER EXECUTIVE ASSISTANT DEPARTMENTAL LIASON TECHNICAL ADVISER Advice State Agreements Military Office Manager Treasury Directives Naval Agriculture Patents and Royalties Shipping Statistics Maritime Executive Orders R.F.C. Regulations War Legislation, etc. Navy, etc. SUPPLY TRANSPORTATION BUDGET AND FINANCIAL Divisions for Army. Navy, Agri- Rail and Accounting culture, Maritime Reports and Treasury Pro- Ocean Shipping Budget Estimates curement. Requests for Follow up controls, Allotments, etc. etc. 1-153 DEFENSE AID ORGANIZATION President CABINET COMMITTEE BUREAU OF THE BUDGET State Treasury Allotments War SECRETARY OF Reimbursements Navy DEFENSE AID Estimates Administrative Agriculture Procedures Maritime, etc. Records Other 41 LEGAL ADVISER EXECUTIVE ASSISTANT TECHNICAL ADVISER DEPARTMENTAL LIABON Advice Agreements Military State Office Manager Treasury Directives Naval Agriculture Patents and Royalties Shipping Statistics Maritime Executive Orders R.F.C. Regulations War Legislation, etc. Navy, etc. SUPPLY TRANSPORTATION BUDGET AND FINANCIAL Divisions for Army. Navy, Agri- Rail and Accounting culture, Maritime Reports and Treasury Pro- Dopan Shipping Budget Estimates our Requests for Follow up controls, Allotments, etc. etc. 1-153 Regraded Ucla 43 TREASURY DEPARTMENT with INTER-OFFICE COMMUNICATION Regraded Uclassifi and DATE April 11, 1941 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL At 9:50 this morning Mr. Jones of the Far Eastern Division of the Department of State telephoned me, and I called him back at 10 o'clock. He asked me what balances the Thailand Government had with the Federal Reserve Bank. I saked him why he was seeking this confidential information. He said that the question was up as to whether this country should consider a loan to Thailand. I reminded him that this same question had arisen several months ago and that it had been the understanding of the Treasury that the State Department desired no such assistance to be given. I asked why this question is now again up. Jones replied that every- thing was still in a very uncertain state, but that the British had approached the State Department with the idea of 8 possible joint financial assistance to Thailand. Jones said that this Government, therefore, might be called upon to make a loan. When I asked him what branch of the Government he vas talking about, he thought the Export-Import Bank would be the most likely source. I reminded Jones that when the matter was up before it had been agreed that the Treasury should not recommend that in this instance a practice heretofore not followed be now instituted through which a foreign government or central bank could borrow from a private American institution on gold held under earmark with the Federal Reserve Bank of New York. The Treasury would desire very much to be consulted before any plan toward such an end be carried forward by the Department of State. Mr. Jones promised faithfully to keep us informed of any developments. I told him in strict- est confidence, and with the request that the figure should not appear in any memo- randum and should not be communicated to any British or other foreign officials, that the Thai land Government at present has $9,000,000 of gold under earmark with the Federal Reserve Bank at New York. N.M.P. 44 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION THE DATE April 11, 1941 TO Secretary Morgenthau STRICTLY CONFIDENTIAL FROM Mr. Cochran At 10:15 this morning Secretary Morgenthau received Messrs. Gutt, Theunis and van der Straten-Ponthos. Mr. Gutt arrived in New York a few days ago from London where he is serving as Minister of Finance, War and Commerce in the Belgian Refuges Government in England. Mr. Theunis is the special Belgian Ambassador who has been in this country for over a year attending to purchases and certain financial matters. Mr. van der Straten-Ponthos is the resident Belgian Ambassador in Washington. Messrs. White and Cochran also were present. Mr. Gutt explained to the Secretary that he had come over from England to look after the case of his Government against the Bank of France based upon the failure of the latter properly to conserve gold entrusted to it by the Bank of Belgium. The Secretary stated that he vas femilier with the proceedings which had been instituted, but that there vas an uncertainty in our minds as to the correct figures of Belgian gold holdings. Messrs, Gutt and Theunis insisted that all calculations made on this side of the water by Mr. Theunis, upon checking just a day or two ago, had been found to be within $30,000 of the latest figures of the National Bank of Belgium. In newer to Mr. White's questions on this point, Mr. Gutt promised to give us a memorandum on their gold position. He made the point that the sum which Belgium is esking from the Bank of France includes not only the gold taken to Dakar, but also covers the sums alleged to be due the National Bank of Belgium for transactions in Belgian france carried out through the Bank of France. Mr. Gutt is returning to New York tomorrow, and will probably remain there ten days. Before entering the Secretary's office, I had a brief conversation with Mr. Gutt, whom I have known for many years. He told me that the British had tried very hard to "bamboosle" the Belgian Government in London into selling their gold to the British against sterling. The Belgians had not agreed to this and have only made an arrangement with the British which involves 8 loan of gold until after the war. During the conversation Mr. Theunis remarked that legislation had been before our Congress which would give Secretary Hull the authority to decide who was entitled to National Bank of Belgium gold held under earmark in this country. It was explained to the Belgian group that the bill which they presumably referred to had actually been signed by the President a few days ago. BMP. Regraded Uclassified 45 April 11, 1941 12:02 p.m. Jerome Frank: Yes, Henry. H.M.Jr: Hello, Jerry. F: I just called to ask whether you had any other talk with the President Saturday about that Departmental Committee. H.M.Jr: I did and he said he liked it very much. I left the memorandum with him and told him when he was ready he should talk to me. I haven't pressed him on it again. F: I see. Well, now, I'm going to be shoving off shortly - I don't know just when. Ed Eicher is the new Chairman and he knows all about it. H.M.Jr: Good. Well, I hope to see you before you go. F: I'll drop over sure if I may. H.M.Jr: Will you do that? F: Yes, indeed. H.M.Jr: Thank you. 46 April 11, 1941 12:04 p.m. H.M.Jr: Hello. Operator: Mr. Stettinius. Edward Stettinius: Hello, Henry. H.M.Jr: How are you? S: I'm fine. I just wanted to tell you that this Netherlands thing did not look BO bad and we've already taken care of a large quantity of it and everyone seems happy and I think we'll be able to do the necessary. H.M.Jr: Well, I'm delighted. S: You might have to be a little patient on some of the deliveries but I wanted to report progress to you. H.M.Jr: Thank you 80 much. S: Right-o, Henry. 47 April 11, 1941 12:08 p.m. Henry L. Stimson: Hello, Henry. H.M.Jr: Hello, Harry. 8: How's your cold. It sounds rather bad. H.M.Jr: Well, it's a little better, thank you. S: Well, I hope that it will clear up. You don't want one this fine weather. H.M.Jr: No, that's right. It's much better today, thank you. S: Yes. I called you up just on this point. The Coast Guard is still in your hands, and the President asked me as you may have heard yesterday in that meeting to fly into the question of Greenland, and I've been working on it ever since almost. H.M.Jr: Yes. S: It's a grim problem - that coast, and I'm looking for all the help in the way of ice breakers that I can get, and the Coast Guard is the only group that has any ships that could be called that at all. H.M.Jr: That's correct. S: Now, you see, the Germans are already threatening the East Coast of Greenland and that's right within range of the Norwegian and this Russian-Siberian coast along there where the Russians have been using those exceptionally big ice-breakers that keep that - they've been able to go all the way along between the two oceans - between the Atlantic and the Pacific. Now, the Germans have got access to them, too, so we've got to take all of that into our consideration, and I've been talking with Frank and he told me that you had the only ice-breakers or anything of that nature except possibly the Bear, which is down 48 - 2 - with Byrd's party, I think, still coming up. H.M.Jr: Yeah. S: And he also told me - he gave me the impression that the best ones you had were in the Pacific. H.M.Jr: No, I don't think that 18 correct. We have one up there now, you know. S: Only one? H.M.Jr: No, up at Greenland. S: Oh. Which one is that? H.M.Jr: I don't know the name of it. 8: Who has it? H.M.Jr: Well, it's there as I understand it - well, it's up there and I think it's under Navy orders. S: Well, that was what I was going to ask you. It's under the Navy. H.M.Jr: I'm not sure but I think 80. I know there is one there now. Tell me what you want and I'll see if I can get it for you. S: I want an ice breaking ship, practically, or at least one of that type to carry up the men who are going to do the work. We've got a survey party now up on the West Coast of Greenland, but it 1s only a survey party. They've just arrived and they're up at Godhavn. H.M.Jr: Now, you ...... S: And I have this memorandum that we want in addition to that - I'm just looking over the list here - a boat that will serve to carry the construction party up to Greenland. 49 - 3 - H.M.Jr: Yeah. Well, now these boats are not terribly big, you know. S: No, I suppose not. H.M.Jr: The ones that are the best ice breakers are 165 feet long and they've got this 44-foot beam. I don't know how many people they would hold, but how soon would you want this, Harry? S: Well, just as soon as we can get up there. H.M.Jr: I mean - well, let's put it this way. How ...... S: I think it will depend a little on the weather. One party - I mean somebody was saying - the Navy or somebody was saying that we couldn't get up there now, but it isn't BO. We've got the party up there already. H.M.Jr: Now, which part of Greenland - there's quite B. difference. Which part of Greenland do you want to go to? S: Well, we want to go to both sides. Of course, the easy side, comparatively, the one where we're probably going to be limited to 18 the Western side. H.M.Jr: Now, would you hold the wire just a minute. I just sent for Mr. Gaston. Would you mind holding one second. S: Sure. H.M.Jr: (Talks aside). Harry. S: Yes. H.M.Jr: We think we have one - the Northland - which is either leaving today or tomorrow for Greenland. I'll find out. Hello. S: Yes, but that's on its regular duty. 50 - 4 - H.M.Jr: No, going up there specially to replace another one - the one up there. I'll have all the facts and figures at my finger-tips and I can call you a little bit before 3:00. How'll that be? S: Well, you'll catch me where I H.M.Jr: Are you going ...... S: I was going away this afternoon but H.M.Jr: Well, who were you going to leave this in charge of? B: Well, I can leave it in charge of Lovett. I've been telling him about it. H.M.Jr: Well, I tell you what you do. Fill Lovett up with this thing, you see, and if he'll be at my office at quarter of 3:00, I'll have the necessary people here. See? And I'll ask the Navy to send somebody over too because we're sort of in the midst of transferring S: All right. At what time ..... H.M.Jr: 2:45 my office, and if the boat isn't full, we'll hold it BO that you can put some people on her. S: I see. Where is it now - Northland? H.M.Jr: The Northland. I don't know where ..... S: Where in the devil is Northland? H.M.Jr: No, that's the name of the boat. S: Oh, that's the name of the boat. But you don't know where - it's down here then somewhere. H.M.Jr: It's here somewhere, but I'll have every- thing a quarter of 3:00 and I can assure you that if you want to send a party up there, Frank Knox being willing, we'll send them up. 51 - 5 - S: Frank is willing; I've talked with him. H.M.Jr: Well, consider it done. We'll do it. 5: All right. Thank you very much. H.M.Jr: We'll do it; we'll find a way. You have your people that know about it S: That's the way to talk. H.M.Jr: What? S: That's the way I like to hear a friend talk. H.M.Jr: You forget about it and it'll be done and we'll have the boat ready before your men are ready. S: I've no doubt you will. H.M.Jr: Yeah. S: All right. Thank you very much. H.M.Jr: Have a good time. S: Thanks. 52 April 11, 1941 2:27 p.m. H.M.Jr: Hello. Operator: Chairman Ecoles. Marriner Eccles: Hello, Henry. H.M.Jr: Marriner, we went in today and saw the President for the first time on the tax bill and we gave him kind of an outline, and he said that he'd like us to keep you posted, et cetera, which I'm delighted to do and I said I had expected to do it anyway. E: Yes. H.M.Jr: Now, what I'd like to do on Monday is to have John Sullivan show you what we have in strictest confidence and then get the benefit of your advice. E: What happened, I didn't go over to talk to the President on the tax question at all yesterday and when I was away the week before he had sent over word by Watson that he wanted to see me next week and set a tentative date, which was Tuesday. Then he later put it off until Wednesday. I suppose it was a result - prior to his going away I had sent him a letter with reference to the vacancy on the Board here - primarily that, and there was that matter that I wanted to talk to him about. He had sent me a memorandum over in his own handwriting with reference to a vacancy on the New York Board, which he wanted me to talk to him about. There was the annex to the building which I discussed with him last fall and which he wanted us to go ahead with because they were going to need space anyway - if we didn't use it for banking purposes we'd need it anyway, and he had a memorandum on taxes that he had discussed with Currie, that he had gotten from Currie. H.M.Jr: Currie never showed it to me. 53 - 2 - E: Well, of course, Currie being Assistant to the President I suppose he was driving him with reference to that just as he would other matters, and it was dealing more or less, I understand, with just general things. And I was discussing with him also the inflationary deposit developmente and also the - some of the price developments, and he asked me what I thought about a tax program. I mean, we just got into the subject and he said that he had this from Currie and wanted to know what views I might have with reference to the matter. So that's how the tax thing came up. Of course I was very glad to get into the situation and to have an opportunity to express views which I haven't expressed because I hadn't had - I didn't go into any discussion of the details of taxes at all, and he said that he hadn't made up his mind with reference to the tax program or the tax question and that was one of the things that he had to do, and he was going away Monday and it was a matter he'd have to consider. Now, I've given you the entire story and BO as far as a tax program is concerned, I didn't discuss any tax program at all and H.M.Jr: Well, Sullivan will get in touch with you. E: Well, I'll be delighted to do it because, as I expressed myself to you once before, H.M.Jr: Well, we only were ready today ....... E: that the tax thing 1s of course closely related to this whole question of budget and inflation and everything else. H.M.Jr: That's right. E: And from that standpoint I certainly would be delighted to ...... H.M.Jr: We'll be glad - the only thing is we hope to be able to keep it quiet until the leaders on the Hill want to get it out. Pograded 54 - 3 - is Oh, sure. Well, any discussion that I have on it I can assure you it isn't a matter that requires any Board action at all; it isn't anything of that sort. H.M.Jr: Well, you have a tax man over there haven't you? E: Well, we have a couple of men who have been working on the whole tax field with the idea - in connection with its financial and its economic implications, and your people over there I'm sure they know both these men, Krost and Defpref. H.M.Jr: Well, I'm sure you could make constructive suggestions and after you've had a look at it, I'd like to get together with you myself. E: What you'd like me to do then 18 to meet with Sullivan on Monday? H.M.Jr: That's right. He'll call you and he'll make an appointment and we'll show you just where we are and the initial suggestion. You see, this is just a rough suggestion - something to start from. E: Yes, I'll be very glad to do it and anything that we can contribute, I'll be glad to have our staff work with you on the thing. H.M.Jr: For once we took the President's breath away. E: You did. H.M.Jr: Sure. E: In other words you went farther than he would. H.M.Jr: Oh, way. E: Well, I'm delighted to hear that because if I had had a tax program to discuss with him, I think I would have taken his breath away too. 55 - 4 - H.M.Jr: We did. We're away above him. E: Well, I'm delighted because I feel the thing awfully strongly ...... H.M.Jr: We left him breathless, which is difficult. E: Uh-huh. Well, from that it looks like we'll be in the same boat on this tax picture. H.M.Jr: That'll be pleasant. E: O.K. H.M.Jr: Thank you. E: Good-bye. TO: 4-11-41 The Secretary The Northland sailed last Monday, April 7th. Departure was speeded up 80 that she could relieve the Cayuga, which is to be transferred to the British. The Modoc can be used, or one of the 165-foot ice-breakers. Waesche will bring details and be here at 2:45. The Cayuga is the only one there now. Crs. From: MR. GASTON 57 S April 11, 1941 2:40 p.m. RE GREENLAND AIR BASE Captain Sherman Present: Mr. Gaston Mr. Waesche Mr. Lovett H.M.Jr: What is in Greenland now? Of the Coast Guard. Waesche: Cayuga. H.M.Jr: Is she staying there? Waesche: Until the Northland arrives, and then she starts back to be made ready for transfer to the British. H.M.Jr: And the Northland has left? Waesche: This morning she was a hundred miles south- west of St. Johns. H.M.Jr: Where does the Northland go to? Waesche: She goes up and makes contact with the Cayuga. She went on up to Godthaab and is there now. The Cayuga is here in Godthaab. Julianehaab still has ice in it. We have a little coasting vessel that can work its way down behind the ice and it is in Julianehaab and its people are making a survey now. The Northland's point of position was here. Regraded Uclassified 58 - 2 - H.M.Jr: Where is she going? Waesche: To Godthaab and relieve the Cayuga, and then she will come down to Julianehaab. H.M.Jr: What armed forces are there in Julianehaab now, what service? Waesche: These representatives of the Army. H.M.Jr: Army representatives? Waesche: Yes. H.M.Jr: And we took them up? Waesche: Yes, up on the Cayuga. H.M.Jr: And they are at Julianehaab? Waesche: Yes, making a survey of this proposed air field back of Julianehaab. H.M.Jr: The Army wants to send more people up there, Which one of these boats can you send up? Waesche: My suggestion would be if they are in a hurry to get them up there, would be to stop and let the Northland come back to Halifax and let them jump on & train here and go up to Halifax and go get on the Northland. H.M.Jr: I wouldn't do that. Haven't you got people on board there? They are not ready. They won't have their people ready. Gaston: The Comanche can leave New York any time they are ready. 59 - 3 - H.M.Jr: What about the Comanche? Waesche: She is & hundred and sixty-five footer and is ready to leave any time today or tomorrow or & week from now. She is a hundred and sixty-five footer, and if there are only eight or ten in the party, they can be crowded aboard there and sleep on cots. If it is a party of twenty or twenty-five, then it would be rather difficult to pile them in there. H.M.Jr: But you could? Waesche: But we could. Now, if they are not going to leave for a week or ten days, in ten days we can have the Tampa up, which is on patrol down here in the Gulf, and in ten days she can be up here at New York. She is a two hundred forty footer. H.M.Jr: Has she got any ice breaking equipment? Waesche: She is almost as good as the Cayuga. She is a good ship. She can go right in there. As a matter of fact, the sister ship of the Tampa is slated to go up there on May 5. H.M.Jr: Who is going up on May 5? Waesche: She is going up there in accordance with the plans of the State Department. I don't know right now who is slated to go. Regraded Uclassified 60 - 4 - H.M.Jr: What is the boat? Waesche: Modoc. H.M.Jr: She is going on May 5 to Greenland? Waesche: Yes, sir. H.M.Jr: That is the State Department wants her to go up? Waesche: Yes, sir, State and War. H.M.Jr: Now, have you got another one? Waesche: Now, the Tampa, which is a sister ship of the Modoc - the Modoc can't go now because the Modoc is down in New Orleans shipyard getting guns put on. But the Tampa is now off Mobile, and she is & sister ship of the Modoc, and she is avail- able to go to Greenland now. We can start her North. It will take about ten days before she will get her supplies. H.M.Jr: Well, it is just a question of how many people and how soon, is that right? Waesche: Yes, sir. How many people and how soon they want to go. (Mr. Lovett and Mr. Sherman entered the conference.) 61 - 5 - H.M.Jr: You are not breaking any champaigne bottles until you get confirmed? Lovett: My wife telephoned from New York and said on the basis of the pictures she saw in the papers, she didn't think there was a chance. H.M.Jr: I see. Well, if you could tell us how many men and how soon you want them to go, if it is agreeable to the Navy, we are ready. Lovett: Mr. Secretary, I have found since the Secre- tary spoke to me at about noon today on this that there are two parts to this plan which I think perhaps we ought to separate in considering it here. The first is the proj- ect on which we have been working 80 far. That is the ferry stop, landing field, that is, the West Coast base to permit the ferry- ing of the medium range bombers. H.M.Jr: Is that the one back of Julianehaab? Lovett: There is a survey up there now, sir, which you took up on the Cayuga, and I think the Northland left the seventh to spell it. Waesche: That is correct. Lovett: The Canadians think that there is land along the Julianehaab part. This large scale Danish map shows it fairly clearly here. Our men who have been up there flying with the Coast Guard officers-- H.M.Jr: Do you want to show it to me? Lovett: Yes, sir. (Exhibiting large map) H.M.Jr: Everybody has to have a map these days. It 62 - 6 - is no good unless you have a map. Lovett: There is only one name in this that I can pronounce, so it is kind of difficult. H.M.Jr: I see. Lovett: The Julianehaab section, which is here, was surveyed with the Coast Guard pilot working with Lacey, the Air Corps man, and then they went all the way up to here. (Indicating) There is a possible strip in there, but the only adequate place, both from the point of view of transportation and reasonable freedom from fog and ice is this district here. Now, the survey party, the Army survey party which we took up there, is in this district now and is going to move on up there later. This is the Holstenborg district. H.M.Jr: You have learned a lot since noon, haven't you? Lovett: Yes, sir. I haven't done anything except look at this. This Holstenborg district would make the best flight conditions from over here as regards weather and everything else. But the Canadians say that this Baffin Island section over here is almost impossible from the point of view of terrain for landing fields, and they, therefore, have asked us to inspect by survey this section so that we can make a direct hop from Newfoundland. H.M.Jr: That is where they are now. Lovett: Yes. The odds are somewhat against it, for really hot aircraft that lands fast. Here we can get a four thousand foot runway. So that dividing the problem into two parts, 63 - 7 - Our West Coast survey is under way. The Coast Guard is going to carry us on up when the Northland replaces the Cayuga. We have one remaining problem there and that is to get 340 engineers and three thousand tons of equipment and a 20-ton crane up there. That is to establish the base when the point is determined where it should be. H.M.Jr: But you are not ready for that. Lovett: No, sir. H.M.Jr: I mean, you are not ready for that. You won't be ready this month. Lovett: We can be ready this month if they estab- lish the fact that there is no place here. H.M.Jr: You are not ready to say, "Give me a ship today"? Lovett: No, sir. H.M.Jr: We are ready to give you one today. Lovett: That is what they told me. I wanted to find out what it was for. There is nothing we can use a ship for today. H.M.Jr: The other thing that you are talking about, we have nothing in Coast Guard that could move anything like that. Lovett: No, sir, I was sure you didn't have. That is problem number one. Problem number two-- H.M.Jr: I mean the thing that you are describing, the 340 engineers-- Regraded Uclassified 64 - 8 - Lovett: And three thousand tons-- H.M.Jr: And & 20-ton crane, we have got nothing that would move that. Lovett: No, sir. I was confident there wasn't. H.M.Jr: We have nothing, so that is out. Lovett: You have been my Father Confessor. I thought I had better come over and tell you the whole works. H.M.Jr: Even on Good Friday? 65 - 9 - Lovett: Yes, sir, even on Good Friday. (Laughter.) Now we have got the second problem. That is the East Coast, which is his problem. There have been German meteorological expeditions in here (indicating). Apparently the British took them out. But there have been recently four-motored and two-motored German planes over there on reconnaissance. It is a rela- tively easy hop from northwest Norway. Our own men, Colonel Bissell, surveyed all of this land in connection with round-the-world flight and this - I won't even pronounce that, but it sounds like Angmagsalik. This district here has to carry two years' food supply because occasionally & year goes by when they can't get in because of the ice. The ice conditions here apparently are such that you couldn't get a ship in there until July or somewhere along around July even in 8. good year. Therefore, our second problem is to get an East Coast survey up there, and that was the survey that We understood someone, some department here, had suggested that Byrd's ship, the Bear, would be back and available and -- H.M.Jr: We have got 8. boat scheduled to sail on the fifth of May at the request of the State Depart- ment to do that. What is her name? Waesche: Well, the Northland the Modoc will go up here on the West Coast to relieve the Northland and make available the Northland to go around there. In regard to the Bear, I have been pressing Byrd for the Bear -- H.M.Jr: She isn't here. Waesche: No, she won't get up to Boston until May 20. 66 - 10 - H.M.Jr: What was going on the fifth? Waesche: The Modoc. H.M.Jr: Where is she going? Waesche: She is going to relieve the Northland and let the Northland go around to do the ice work over here. H.M.Jr: What ship is sailing the fifth of May? Waesche: Modoc. H.M.Jr: Does she have to go there? Couldn't the Modoc go right up on the -- Waesche: No, because the Northland is an ice ship. Lovett: This is all heavy ice. H.M.Jr: Would that help you any, a ship sailing on the fifth of May? Lovett: We can't get in there until sometime - what, June or July? Waesche: Not before the first of July and probably not until August. From the middle of August until the middle of September is the best time to go in there. I don't think anybody has ever gotten in before the first of July, so when this ship goes up May 5 she will have plenty of time to relieve the Northland, and the Northland can get around here by the first of July and will simply have to work her way in and get in when she can through the ice. H.M.Jr: Have you got that? Lovett: Yes, sir. The second part of the problem is at Regraded Uclassified 67 - 11 - least a month off, 80 we have got plenty of time for that. H.M.Jr: And you know there is a ship scheduled the fifth of May. I don't know who the State De- partment is going to put on. I don't know how many it can take, but you have got plenty of time to find out. Lovett: Well, the War Department had been working with the Coast Guard and the State Department on this, and we were perfectly content until this new element was injected, which is Plan 3, and that is that heretofore we have only been talk- ing about getting refueling stops for the medium- sized stuff, and if possible, to find some way to get the single-seater jobs over; and we had hoped to find something there and then fly them up into this district and then across, but that is the worst mountain section up here. Those are all the high mountains. It is very doubt- ful whether there is anything in there that we can use as a field. Consequently, we will have to rely on the medium-sized stuff coming right across Greenland and going into Iceland. H.M.Jr: I am going to have to interrupt you. Just tell me this. Do you want anything in the next ten days? Lovett: I don't see how we could use it, sir. H.M.Jr: Then I will ask you to excuse me. Lovett: Unless we can get a great big thing the size of the St. Mihiel to take in the construction stuff. H.M.Jr: If you don't want anything in ten days, there is nothing I can do today, and if you do want any- thing, contact Herbert Gaston. 68 - 12 - Lovett: Fine. H.M.Jr: Just remember, we have a ship that can go today. Lovett: I don't know what we could use it for. I am confident that the major problem behind all of this is how to protect these fellows, and it isn't something to be settled this way. H.M.Jr: I would love to listen to it some other day. Lovett: My story is told, sir. I don't see what we can do. H.M.Jr: If you don't want anything for ten days, that is 8. life time. Lovett: Much obliged to you, sir. 69 April 11, 1941 My dear Mr. Secretary: Supplementing our conversation of this morning, I as enclesing an opinion from the General Counsel for the Department of the Treasury, ruling that the plan for transfer of a portion of the Coast Guard to the Havy is legally authorised. The plan is set forth in the proposed memorandum which is attached to the opinion. I might add that on September 5 and 6, 1933, the President orally directed that certain Coast Guard vessels and their personnel be placed under the military control of certain naval officers, in connection with the internal Cuban disturbances at that time. Very truly yours, (Signed) H. Morgenthau, Jr. The Honorable Frank Knex, Secretary of the Navy. By Messanger Regraded Uclassified 70 C 0 P Regraded Uclassified Y April 11, 1941 TO: The Secretary of the Treasury FROM: General Counsel. Attached is a copy of & proposed memorandum from you to the President which is intended, if it is approved by the President, to effect a transfer of part of the Coast Guard to the Navy. More particular- ly, approval of the nemorandum is intended to cause the entire sea-going fleet of the Coast Guard, with certain exceptions, together with the necessary per- sonnel to man it, to operate as a part of the Navy under the Chief of Naval Operations. Together with the operation of the present ses-going fleet of the Coast Guard the Navy will take over responsibility for (1) off-shore resoue and assistance work; (2) weather observation patrol; (3) Bering sea and Alaskan patrol; (4) international ice patrol; (5) Greenland patrol; (6) transport and supply service to Pasifie equatorial islands; (7) eff-shore neutrality patrol. My opinion has been requested whether the President has authority 50 to transfer part of the 71 - 2 - Regraded Uclassified Coast Guard and its functions to the Havy. It is my opinion that the President has such power. Section 1 of the Act of January 28, 1915, 38 Stat. 800 (U.S.C. title 14, sec. 1), provides as follows: "That there shall be estab- lished in lieu of the existing Revenue-Cutter Service and the Life- Saving Service, to be composed of those two existing organizations, with the existing offices and posi- tions and the insumbent efficers and men of those two services, the Coast Guard, which shall constitute a part of the military forces of the United States and which shall operate under the Treasury Department la time of peace and operate as a part of the Navy, subject to the orders of the Secretary of the Navy, in time of war or when the President shall 80 direct. When subject to the Secretary of the Havy in time of war the expense of the Coast Guard shall be paid by the Navy Depart- ment: Provided, That no provision of this Act shall be construed as giving any officer of either the Coast Guard or the Havy, military or other control at any time over any vessel, efficer, or man of the other service exespt by direction of the President.' Beyond question, the President may direct that the entire Coast Guard shall operate as a part of the Naty. 72 - 3 - It is submitted that the provise at the end of the section clearly indicates that by the di- restion of the President, officers of the Havy may be given military or other control at any time over any Coast Guard vessel, officer, or man. It is obvious that the President may exercise that authority with respect to some vessels, officers, and non and not with respect to others. On May 2, 1916, President Wilson issued Executive Order No. 2378. That order provided as follows: "By virtue of the authority vested ln the President by the act approved January 28, 1915, entitled "An Act to create the Coast Guard # # ", it is hereby directed that whenever the Coast Guard or any part of it shall in time of peace operate as & part of the Navy, in accordance with law, the personnel of the Coast Guard shall be subject to the regula- tions of the Coast Guard service, ex- sept in so far as relates to military requirements which have to do solely with the movements or operations of ships, concerning which they shall be subject to the orders of the senior naval officer to whom they are di- rected by proper authority to report. It is further directed that whenever the whole or any part of the personnel of the Coast Guard is operating with Regraded Uclassified 73 - 4 - the personnel of the Navy, of- ficers and men of each service shall have the same authority and control over officers and men of the other service as that to which their rank OF rating on- titles them in their respective services." (Underscoring supplied.) It is apparent, therefore, that President Wilson was of the opinion that under the organic law establishing the Coast Guard, part of that organization could in time of peace operate as part of the Navy. President Wilson, of course, signed the Act of January 28, 1915 which established the Coast Guard. He participated equally with the Houses of the Congress in enacting the law, and his view on the meaning of the words - ployed in it is of great significance. (1984) 37 Op. Atty. Gen. 505, 510. Some months later there was enacted the Appropriation Act of August 29, 1916, 89 Stat. 556. The Act contained the following provision (at page 600): "Whenever the personnel of the Coast Guard, or any part thereof, is operating with the personnel of the Navy in accordance with law, prece- dence between commissioned officers Regraded Uclassified 74 - 5 - of corresponding grades in the two services shall be determined by the date of commissions in those grades." That prevision has been covered into the United States Code as Title 14, section 7. It is an unequivital recognition by the Congress that part of the personnel of the Coast Guard may operate with the personnel of the Havy. In view of the foregoing considerations, I have concluded that the President has authority to transfer part of the Coast Guard vessels and personnel and part of the Coast Guard functions to the Havy at the present time. (Signed) B. H. Foley, Jr. General Counsel. Regraded Uclassified The 4/14/47 - what dits The Preo and vien -3 5 will April 10, 1941. 75 TO: The President FROM: The Secretary of the Treasury. The following embedies my understanding of your verbal instructions of this day with respect to the assignment of certain equipment and functions of the Coast Guard to the Navy: With the exception of those vessels which are on- pecially adapted to use as ice-breakers, and with the exception of outters needed for operations on the Great Lakes, the entire seagoing fleet of the Coast Guard to- gether with the necessary personnel to man it will here- after operate as a part of the Nevy under the Chief of Naval Operations. The normal operation and maintenance costs of the vessels of the Coast Guard which are to operate as a part of the Navy will be defrayed from Coast Guard appropri- ations. All major alterations and other unusual costs to fit the above ships for Navy service will be defrayed from Havy appropriations. If necessary, legislation is to be obtained to authorise this. Together with the operation of the present sea- going fleet of the Coast Guard the Ravy will take over re- spensibility for (1) off-shore rescue and assistance work; (2) weather observation patrol; (3) Bering sea and Alaskan patrol; (4) international ice patrol; (5) Greenland patrol; (6) transport and supply service to Pacific equatorial islands; (7) off-shore neutrality petrol. with the above exceptions the Coast Guard will re- tain its present organization, functions and equipment. Regraded Uclassified 76 - 2 - The functions which the Coast Guard will continue to perform include the following: (1) All in-shore assistance work. (2) All merchant ship control and other duties performed by Captains of the Ports. (3) Operation, maintenance, repair, construction and development of lighthouses and other aids to naviga- tion. (4) All duties on the Great Lakes normally falling within the scope of operation of the Coast Guard. (5) Ice-breaking in interior and coastal waters of the United States, including the Great Lakes. (6) Training of merchant marine and Coast Guard personnel. Equipment to be retained by the Coast Guard will includer (1) All present Coast Guard shore establishments. (2) All Coast Guard aircraft. (3) All other floating and shore equipment necessary to the performance of the functions listed above. "Seagoing fleet" as used above, is understood to include the following: Seven 327-foot cutters; feur 240-foet outters; seventeen 165-foot patrol boats; twenty 125-feet patrol boats, and the following unclassified SEAUREE. seagoing outters: unalga, TALLAPOOSA, NORTHLAND, REDWING, APPROVED: April # 1941. 3 inth. Regraded Uclassified 77 April 11, 1941 3:00 p.m. RE BANK HOLDING COMPANY LEGISLATION Present: Mr. Delano Mr. O'Connell Mr. Upham Mr. Williams Mr. Sherbondy Mr. Duffield Mr. Foley Mr. Bell Mrs. Klotz Mr. Kuhn H.M.Jr: Where is one Foley? O'Connell: He had to stop in Mr. Bell's office. I think they will both be in in & minute. Kuhn: This is mostly & rearrangement, Mr. Secretary, rather than any new stuff. There is only one really new passage in it. (see attach- ment No. 1) H.M.Jr: You don't think I am apologizing a little bit for coming up there, too much? Upham: Yes. H.M.Jr: That is what I think. I mean, I say it twice. Upham: You mean the sentence, "That is my chief justification for being here"? 78 - 2 - H.M.Jr: Yes, and "You may well ask why the Secretary of the Treasury chooses this" - I mean, why put that in their minds? I personally just wonder if that last paragraph - "The best of all moments to remove abuses and make improvements is the time when our boat is on an even keel." "Our banking structure is stronger today than it has ever been." Just make it, "The worst of all moments," and leave out the rest. "The best of all moments to remove abuses and to make improvements is the time when our banking structure is as strong today as it ever has been." (Mr. Bell and Mr. Foley entered the conference.) H.M.Jr: You see? Then I would leave out that thing, "That, gentlemen, is my chief justification." Has Mr. Bell got a copy? Bell: Yes, sir. I have a copy. H.M.Jr: On the top of page four, you might get the impression - "The bill under consideration simply carries out the President's recommend- ations. That was almost three years ago." Does that mean the President's recommendation was almost three years ago? Kuhn: Yes. H.M.Jr: It wasn't, was it? Regraded Uclassified 79 - 3 - Foley: April '38, and this is April '41. H.M.Jr: Then that is right. Foley: Time passes. H.M.Jr: At the bottom of page four, last sentence, "which has been strengthened during the past eight years by the patient efforts of the Government and the bankers. Who the hell keeps putting the bankers first all the time? (Laughter) It sounds like the Association of Manufacturers. Delano: The Comptroller's office didn't do that. Foley: He caught that before. Upham: Government should have a capital "G," also. H.M.Jr: As long as the Government is in Washington. This is another one. You had bankers and depositors before. Kuhn: That is on the next page. Bell: They cut both of them out. H.M.Jr: That is all right. Foley: It doesn't read very well now, though. Protect bank depositors and help bankers, especially in the small local banks." H.M.Jr: You don't mean in small local banks. You mean in -- Bell: Small communities. H.M.Jr: That is right. Regraded Uclassified 80 - 4 - Kuhn: Small communities? H.M.Jr: Yes. Banks in small communities. What? Foley: Yes. H.M.Jr: A lot of this which is new has to be smoothed up. From now on, is it the same? Kuhn: The new stuff is on page seven. O'Connell: All of page seven is new. H.M.Jr: None of these reads smooth. Have you been on this with & planer, Ferdie? Kuhn: Not a good one yet. H.M.Jr: You had better sharpen it. Foley: Ferdie did it. H.M.Jr: He did? Foley: Yes. It is his product. H.M.Jr: That is a swell paragraph. I like that. Kuhn: Ed did that. H.M.Jr: Who did this one? Foley: The lawyers. (Laughter) If it is good, the lawyers did it. H.M.Jr: It is & damn good paragraph. That is a swell paragraph. "No legitimate local enterprise should lack necessary credit at a rate made reasonable by free competition among free banks." 81 - 5 - - I don't quite get that. Sherbondy: Reasonableness resulting from competition. Without competition the rate would not be reasonable. H.M.Jr: There is an awful lot packed into that. Do you think that is quite clear, Dan, at a rate made reasonable? Bell: Well, I think I know what the meaning is. Sherbondy: Reasonable credit resulting from free compe- tition among free banks. H.M.Jr: Oh, reasonable rate of credit. Sherbondy: Reasonable rate of credit resulting from free competition among free banks. H.M.Jr: Something like that. What you mean is a reasonable rate of interest, don't you? Sherbondy: Credit at 8. reasonable rate of interest. H.M.Jr: It is Я little bit -- Foley: At & fair rate of interest resulting from free competition among free banks. H.M.Jr: That is a swell page. Bell: I don't know how far you can go with that, but I suppose it is 8. little inconsistent with the policy of the Comptroller's office of not granting charters and branches in communities where the community is already well banked, maybe with one bank and that is sufficient, but you wouldn't put another bank there if you couldn't make a go of it. Delano: I think the word "locality" is sufficiently 82 - 6 - broad to cover the point. You see, if you had just a little bit of & small area and had only one bank in it, that would be one condition, but the locality gives you & chance to get competition. Bell: You are not afraid of that? Delano: The Comptroller's office does not deny competition in localities. It only denies it where it would ruin both banks, and that is in very small communities. Where a locality is sufficiently wide - we debated that question. Upham: We hope that doesn't mean two banks in Podunk. Delano: We don't think it does. We think the size and dimensions of the locality is sufficiently general. Bell: To carry this out to its conclusion might mean over-banked. Delano: We think the word is sufficiently broad to cover it. Foley: Where is the next new place, Jo? Kuhn: At the very end. Sherbondy: Last page. H.M.Jr: Page eight is not new? O'Connell: No. H.M.Jr: That page seven is a swell page. It packs 83 - 7 - a lot of stuff in it. You know who will love this page is Bob Jackson. That is his whole theme song. He makes these speeches about local enterprises. Now where do we go to? Kuhn: Page sixteen, middle of page sixteen. H.M.Jr: I am not watching the clock without watching a certain gentleman's (Foley's) suit. The two things go together. Foley: Both fast, are they? (Laughter) H.M.Jr: The two things have a correlation. You don't get it? Look around the room. Foley: I told the Secretary this meant the orders were "shoreward march." Bell: It seems to have been lengthened & little, hasn't it? Kuhn: There is a whole page added, at least. Foley: It was fourteen before. It is sixteen now. O'Connell: About two more pages. H.M.Jr: Now, what you haven't said anywhere is this. A fellow by the name of Cyril Upham came to see me and said, "Mr. Morgenthau, here is a very dangerous situation. We insure the 84 - 8 - deposits of one institution for eight hundred million dollars, which is just twice the reserves of the Federal Deposit Insurance." Now, I want it for this paragraph. Potentially dangerous. The thing that originally made it evident was that the danger was that in one institution we insured the depositor for twice the amount of the reserves of the Federal Deposit Insurance. I don't know whether those figures are true any more, but they were true B. few years ago. I wonder if you don't want to work that in? Foley: Gene is outside. H.M.Jr: Tell him to come in. You don't want to put it in? Upham: I wouldn't. (Mr. Duffield entered the conference.) 85 - 9 - H.M.Jr: Do you want a breath of fresh air? What page is this, eight? O'Connell: Seven. H.M.Jr: Read that for a breath of fresh air. That will cleanse you from the Wall Street grime. (Laughter.) I want to watch his face when he sees it. Duffield: Yes, I saw this yesterday. This is good. H.M.Jr: Did you see it yesterday? Duffield: Yes. It is all right. H.M.Jr: Isn't that good? Duffield: You bet. H.M.Jr: I like that page. What was the decision, do you want to put in something about the large banks? Do you want to put in that one bank has twice the amount of insurance - insured deposits repre- sent twice the total reserve of FDIC. Delano: We have many banks that do that, big banks, that are way over the resources. It would be a ques- tion of policy. It is undoubtedly true in the case of a great many of those big institutions. H.M.Jr: How many do have eight million dollars worth of insured deposits? How many? Delano: I would say - how many? Upham: Not very many. Regraded Uclassified 86 - 10 - Bell: Chase and National City and Guaranty, would they carry deposits of that much insured? Delano: Yes. Well, the Chase certainly would, and the National City would. Bell: The National City carries small deposits. Foley: Well, the Bank of America has more deposits than any other bank, doesn't it? Bell: Oh, no. Foley: I don't mean in volume -- Upham: More small depositors. Foley: That is what I mean, separate deposits that are insured, even though in volume, in amount they might not be first. But they are probably first insofar as number is concerned. H.M.Jr: Take a look at it. Delano: All right. H.M.Jr: It is just a suggestion. It may not be any good. But it is what started the whole thing. That is what started it. Take a look at it. Upham: That bank is first in volume of insured deposits, there is no question about that. Sherbondy: It has about eighty percent, doesn't it? Upham: It has a different class. H.M.Jr: Take a look at it just for fear somebody may not realize I have got the Bank of America in mind, just to make a hundred percent sure. I am not saying to put it in, you know. 87 - 11 - Now, in the middle of page 16, at the end of the first paragraph, I just wonder if you don't want to add this, "And we do not have that necessary authority today. Hence the bill. Hence the need of legislation. Hence the urgent need for legislation.' What do you think? "We haven't got that authority. That is why I am up here. That is why I am pleading this case." What? This will only be the second time saying that I want this legislation. I only say it the once. I say it again now at the end. That last, "I should like to urge you all in earnestness and sincerity." That is a little bit strong. Delano: Wonder if we couldn't change that word, elementary, to fundamental. H.M.Jr: Fundamental? Bell: Just say "this precaution." Foley: Take out the adjective. Delano: I don't like elementary there. H.M.Jr: "I should like to urge you --" Upham: "...to remove." Foley: "....to remove the menace of bank holding com- panies and to do it now." Strike out that whole clause. Strike out "with all the earnestness and sincerity at my command," just put, "I should like to urge you to remove and 80 forth." H.M.Jr: The other is like a prayer. Foley: They will begin calling you Senator, if you do that. Regraded Uclassified 88 - 12 - H.M.Jr: I will have to buy myself a different kind of suit. Upham: That is a Good Friday influence. (Laughter.) H.M.Jr: I think it still needs a little polishing, a word here and a word there. What do you think, Dan? Bell: A very good statement. H.M.Jr: Have you seen it in its present form? Duffield: Yes, sir. H.M.Jr: What do you think would be the reaction on the Hill after I gave this? Duffield: Well, I don't know. It is awfully hard up there now to get them interested in anything that isn't defense. H.M.Jr: I know. Duffield: That is really true. I think if you keep after it - (Mrs. Klotz entered the conference.) ....I think that is why it is important. H.M.Jr: Is there one chance in three of getting the bill through? Duffield: Yes, about that. H.M.Jr: Which is this page, eight? Upham: Seven. Regraded Uclassified 89 - 13 - H.M.Jr: This is a magnificent page. One in three? Duffield: Yes. H.M.Jr: Well, that is good enough. Now let me ask you this, Gene. Will we make the papers at all on this? Duffield: Yes. It depends a little bit, of course, on the kind of world we have today and what else happens on that particular day. I would say on an ordinary news day, yes, very definitely. H.M.Jr: How will the majority of the bank directors feel? Duffield: Well, I don't know as I know enough to answer that. H.M.Jr: Do you think it will make them sore? Duffield: I look around here at all these people who see the bankers every day, and I think they ought to know. I don't. Delano: I don't think 80. H.M.Jr: Do you think it is a mistake for me to do this? Duffield: No, sir. H.M.Jr: Would you like to see me do it? Duffield: Yes, sir. Bell: I just wonder what effect it might have on our cooperation with the banks in our financing. I suppose you have thought of that. I wondered if you might want to discuss it with somebody outside. H.M.Jr: Oh, I think that - if I did it with anybody I 90 - 14 - would do it with the people who advise me, those three bankers. Bell: I thought you might want to. Foley: Charley Spencer is affected, isn't he? H.M.Jr: No. Upham: He has a holding company group. Duffield: Isn't that the answer, that those bankers who will be affected won't like it, and won't it go well with the others? Delano: That is right. As a matter of fact, Charley Spencer is antagonistic to it because it strikes him. H.M.Jr: I will tell you, gentlemen, every so often I have got to do something for the good of my soul, and right now my soul needs it. Delano: I don't think it will go too bad. H.M.Jr: I need something distinctly New Deal-ish. (Laughter.) I think the fellows that elected Mr. Roosevelt will like it, all of them. Delano: I think the small banks will be much in favor of this. H.M.Jr: I am just afraid it will leak out and Willkie will get to it first. (Laughter.) Is that good? Regraded Uclassified 91 - 15 - Bell: It ought to help it. H.M.Jr: Gene, your paper is getting so good these days I told somebody the other day that you can't be in the financial business and not read the Wall Street Journal, especially the Washington news. Duffield: I am glad to hear that. I hope they all feel that way. 92 - 16 - H.M.Jr: I told that to Lauch Currie and he said he has it on his desk now regularly. Duffield: So he told me. H.M.Jr: It is getting very good. Duffield: We are working. H.M.Jr: I don't think there is anything - I don't think that they will go on a sit-down strike on us or something like that. Foley: They can't. H.M.Jr: Well, as far as I am concerned, it needs a little polishing. We will hear from Senator Glass Monday. When am I going up? Delano: We have it in rough, and we would like to polish it & little bit. H.M.Jr: How are you going to get it on the fairway? (Laughter) Delano: We will be all teed up by Monday. H.M.Jr: All right. You don't know how appreciative I am that I don't have to do it this after- noon, for Ed's sake. We have got to get Ed and that suit on the floor (of Congress). Delano: I would like to-- Bell: I might as well read it this afternoon. It won't spoil my golf game. Delano: The Undersecretary and I had a golf game and that is the reason why we are feeling a little bit-- 93 - 17 - Bell: A little low. H.M.Jr: How about tomorrow morning? Bell: I think it can be arranged. H.M.Jr: I will promise not to bother you. Well, gentlemen, I know you have helped a lot. I am ever so much obliged. Duffield: I didn't help so much. Bell: One other thing on it. Are we going to in any way discuss this program with the bank- ing group, interdepartmental banking group? H.M.Jr: No, Jones didn't want to come to the meeting and Eccles wanted to write his own bill-- Foley: He was going to write us 8. letter and give us the Board views, which we never received. Bell: There was a little feeling, you remember, last time we met because of the fact that the bill was introduced without sort of-- Foley: But he didn't do what he said he would when he was here last, Dan. Bell: I figured he hasn't got the Board views yet. H.M.Jr: I will tell you what we will do. I will take an hour off, and I will call up Eccles (Laughter) and tell him that I am going up on the Hill, and he had better start in. We will wait until we get the green light from Glass, and I will call him up the night before. The same with Jones. But you remind me again. I will do it. I will call him up. 94 - 18 - Bell: I don't know if it is necessary. I just raised it. H.M.Jr: I think we should. Thanks for everybody's help. 95 April 10, 1941 I have come here today to discuss with you a problem which is essentially domestic but which seems to as to 30 a potential threat to our national strength. This is the problem of the domination of banks by bank holding companies - a form of domination which, to my mind, is in como respects just as undemeration and appressive as demination by 4 totalitarism government, Breats abroad have made it all too clear that 8 nation is an likely to collapse from internal weaknesses as from ortannal forees. The survival of the democratic form of government depends so a large degree upon its ability, during national and international crison, to continue to protest the lives, the rights and the interests of its citizens, net only egainst from abroad, but against oppression from withing You my well ask why the Secretary of the Treasury chooses this, of all time, to come before the Congress a such 4 mitter. The reason this is a good time is because w backing structure is stranger today than it has ever bome the best w di namests to abuses and to make improvements is the Nao when our best 10 - an oven keol. the warst of all - La is time of economic strain and trouble, 20 to emp Regraded Uclassifie 96 - = - duty now to propere for the day when there may be peace, when we shall not be spending these billions for the national defense, and when the strain of a readjustment period will abain be weighing on our banking system. That, gentleuen, is w chief justification for being here now. I have another reason for coming before you today a the bank holding company problem. Seven years have gene by since your committee made its exhaustive inquiry into the stock exchanges, the se-called Pecera investigation. the menumental report that followed your investigation called attention, energ other things, to the abuses and the dangers inherent in the domination of banks by bank holding companies, The Banking hot of 1935 conferred some posse upon the Federal Reserve Beard with respect to bank holding companies. That yower has proved whelly insffective, the additional legislation has been exasted to deal with the problem. Admittedly, as Secretary of the Treasury, I must castas part of the blame, if there is to be say blame, fer the failure to press for further legislation, Three years after the yassage of the 1935 Banking Let, an interdepartmental committee composed of representatives of the Beard of Governors of the Federal Reserve system, the Federal Deposit Insurance Corporation, the Reconstruction Regraded Uclassified 97 - a Finance Corporation, and the Treasury Department gave 0021- siderable attention to the bank holding company problem end reached the unanimous conclusion that the operations of bank holding companies should not be allowed to expand, that the principle of bank holding companies is not in the best interests of the country and that something should be done about theme The opinion of that committee was communicated to the President. Shertly, thereafter, in his message to Congress, on April 20, 1938, the President recomended the enactment of bank holding company legislation in the following languages "Do have seen the multiplied evils which have arison from the holding company system in the case of public util- ities, where a small minerity has been able to dominate a fer-flung system. "Wo do not want these ovils reported in the banking fields and we should take stops new to ⑉ that they are note It is not & sufficient assurance against the future to say that no great ovil has yet resulted from holding company operations in this field. The possibilities of great harm are inherent in the situation. *I recommend that the Congress exact at this session legislation that will effectively control the operation of bank holding companies; prevent holding companies from acquiring control of any more banks, directly or indirectly; prevent banks controlled by holding companies from establish- Ing any more branches; and make it illogal for a holding company, or any corporation or enterprise in which it 10 financially interested, to borrow from or sell securities to 4 bank is which It holds steek. "I recommend that this bank legislation make No vision for the gradual separation of banks from holding company control 02 concrahips allowing a reasonable time for this accomplishment - time enough for It to be done in an orderly manner and without causing inconvenience to communities served by holding company banks. Regraded Uclassified 98 s - That was almost three years age. Congress has not yet taken any action to dual with the problem. The bill under - sideration simply carries out the President's recommendations. It is a bill designed to curb the extent to which banks insured by the Federal Deposit Insurance Corporation may be controlled w holding companies. At present the activities of such holding companies are almost shally unrestricted. In brief the bill, which would be administered by the Federal Deposit Insurance Corporation, would make it unlamful, after June SO, 1944, for any company to - or centrol more than 20 percent of the voting stock of my bank insured by the Federal Deposit Insurance Corporation, or to control in any nanner the management or policics of an insured bank. The bill also would confer upon the Comptroller of the Currency, with respect to national banks, and the Federal Deposit Insur- once Corporation, with respect to other insured banks, the authority to vote the payment of excessive dividends w insured banks. I favor the enactment of the measure. Its purpose is to protect and safeguard the banking structure which has been strengthened during the past eight years by the patient efforts of bankers and government alike Today Regraded Uclassified 99 - 5 - bankers are cooperating wholeheartedly in the national defense prégram. It 10 because I want to protect bank do- positors and help bankers, especially in the small local banks, that I favor legislation to deal with the bank holding company problem. To my mind, holding company domination is s serious nanses to our banking structure. I as not intend to burden you with an involved dis- sussion of the evils inherent in holding company control of banks. h substantial part of the very excellent report of your committee at the close of its stock exchange investi- gatien was devoted to the bank holding problem. This merning, I want to discuss briefly - of the abuses in the operations of bank holding companies as dis- closed by that report and, purhaps, bring to your attention further abuses not taken up at that time. One of the greatest dangers involved in the expansion of bank holding companies is the resulting monopolistic tread in the banking field. Menopoly in banking is just as visious and just as antagenistic to our free democratic order M it is in other fields. The small unit banker needs Regraded Uclassified 100 - s - protection against menopely just as much as the small mnufacturer. Our records disclose several instances In which a holding company has threatened to establish a branch of - of its captive banks to compete with a small, into- pendent institution, unless the independent bank sold out to the helding company. In this connection the statement of the president of a small independent bank, taken from our files, is - times. Be said, "ase it new appears that a move is being mão to attempt to scare us into selling out against our on wishes, or the alternative, to be obliged to compete with this bank in a branch to be established here if a charter can be presured." & manufacturer in the same commity wrote, "There is & feeling in all classes that the petition of the Targe branch banking institution for & branch in this city is a 'squeeze' play calculated to force the sale of our one independent bank." Regraded Uclassified 101 r . . Morcover, the absorption of a lecally-ewned bank by an outside holding company brings with it all the recognized evils inherent in absentee ownership of local enterprises. Such ownership can mean that banking and credit policies are distated by persons ignerant of the needs of the commity; that local citizens are unable to make direct contact with these ultimately responsible for the granting or denying of loans. Credit can be drained from the local commity where credit may be needed, and turned to other sections where the return to the bank and the holding company is greater. the bank portfolio may be loaded with investments in enterprises whelly unrelated to the community, and bank afficers and employees imported to direct the local banks' affairs. Such absentee concrahip of banks amounts to financial domination without representation. Free locally-mmed banks are essential to a healthy banking structure. Even that is not enough. There must be competition among & number of such free lecally-suned banks in a given lecality if credit needs are to be net on a basis equitable to londer and borrower. No legitimate local enter- prise should lack necessary credit at a rate made reasonable by free competition - free banks Regraded Uclassified 102 - 8 - After a bank has been absorbed into a holding company system, it is exposed to the danger of intragroup deals at fictitious values. This is self-deeling. It is the typical holding company practice with which the public became familier in the Insull and Associated Gas and Klee- trie cases. It is particularly Important that banks and their depositers be protected against it. then a bank Le in a holding company system It is frequantly used to hosp afleat the weak affiliated enterprises of the holding company. This 10 done Y durping into the captive bank depreciated real estate or other assets of affiliates. The bank is foreed by the holding company to pay fictitious prices for these assets in order to ball out the affiliates. The bank holding company tends to drain the resources of the banks in the system in order to mintain the dividend policy of the helding company. The unintenance of the market value of its stock is fundamental to the eontinued prestige and growth of a bank holding company. The value of that stock depends primarily upon the dividends Regraded Uclassified 103 - 9 - paid w the holding company, which in turn are made up from dividends paid to the holding company by its sub- sidiary banks. The result is that the bank holding - panty is frequently so much concerned with maintaining an undininished flow of dividends from its controlled banks that it is unwilling to recognize the dangerous effect of an excessive dividind policy upon the soundares of the banks. The investigation of your Committee disclosed documentary evidence of the strong pressure by>holding companies in Detroit to compel controlled banks to pay dividends in ****** of the anounts decemed advisable by the bank directors. Ever since 1983 the office of the Comptroller of the Currency has endoavered to persunds one large mational bank controlled by a holding company group to reduce its dividend rate. Instead the dividend rate has steadily increased from 6% to approximately 20% at the present time. The complicated structure of a bank holding company system is a constant temptation to evasion and eircum- vention of the banking 1ame. Several years age the M- tional bank examiners directed a large national bank - Regraded Uclassified 104 - 10 - trelled by a holding company to charge off some $35,000,000 of bad assets. Such a charge off by the bank would have meessitated suspension of dividends by the bank to the holding company. To svoid any such possibility the benk entered into a series of inter-compery deals. Instead of charging off the $35,000,000 of assets the bank turned them ever to an affiliated company which premised to pay the bank $$5,000,000. Had the $35,000,000 contrasts been carried out in good faith the deal perhaps would not have been subject to critisism. But the deal laft the affiliated company holding the bag. To resource the affiliated company, the bank deliberately wrote up the value of its bonds by $14,000,000 - e purely paper transaction. The bank them credited this $14,000,000 paper profit against the $85,000,000 and by the affiliate, in effect exemsing that much of the debt. Thus the bank's assets were juggled and diverted to SETU the holding company affiliate from a heavy loss and to permit the holding company to continue draining the bank through dividends. Your Committee reported that certain of the bank holding companies investigated deliberately prepared Regraded Uclassified 105 - 11 - their statements and reports in such a form as to misropresent the real condition of their controlled banks. The experience of the office of the Comptroller of the Currency has shown that the structure of - bank holding companies so as confusing that adaquate examination and supervision of the national banks controlled by such companies 20 at times all but - possible. One of the prevulent mothods of misusing the funds of & bank controlled by a holding company is to force the bank to lend money to the holding company or to make leans on stock of the holding company. One of the easisst ways for the holding company to nain- tain the market price of its steek is to have the bank lend money to friendly persons se that they om buy the holding company's stock. For example, the ferner National Bank of Kentucky leaned approximately $5,800,000 of its funds 08 stock of the helding company which controlled the bank. then the holding company collapsed the bank suffered a less of almost $2,000,000 on such leans. Regraded Uclassified 106 - 18 - Although existing law restricts loans by number banks of the Federal Reserve System to executive efficers of such banks, the spirit of the law is frequently sir- currented by loans made to officers and directors of bank holding companies or affiliated interests. X have in mind an officer of & corporation affiliated with a bank hold- ing company who had inadequately secured loans of OTHP $7,000,000 outstanding at - time from a bank controlled by the holding company. The fact that bank holding empanies list their stocks on national exchanges 10 an over-present menace to the banks controlled w the holding companies. Declines in the market price of the holding company stock affect the public confidence, not only in the holding company, "-s a distinct entity but in each and every banking unit of the shole, regardless of its our inherent soundness." (page 234) Strong banks in n holding company greep are often endangered by weak banks. As your Committee suesinetly expressed this eriticisms Regraded Uclassified 107 - 18 - "This most patent deficiency in group banking is that the group is only as strong as its workest wit. 0 6 6 When the sheck of adversity # e 6 dislodges confidence in any one of the units, the entire structure is destined to collapse. Unit banks which might otherwise have survived are documed be. cause of their affiliation just the public mind with the weaker units. (page 294) After its careful investigation this Connittee - circled thats " 6 e Little justification, commin or social, exists for the holding company as presently constituted and conducted. Holding companies, whether employed in the banking, public utility or reilread field, have poen entastrephic to the - lean public. (page sea) The intensive investigation mão by this Committee in 1984 and the very positive condemation of holding ⑉ panics by your Committee in its meminental report, show that legislation is needed to end the domination of in- sured banks by helding companies. And nothing has happened to diminish the need. In fast our expariemes in 2020 № cont years will, I believe, lead additional support to that proposition. Regraded Uclassified 108 = . - The impelling necessity for bank holding company legislation was made increasingly clear as a result of recent difficulties which the office of the Comptroller of the Currency, in cooporation with the other Federal bank supervising agencies, encountered in the examina- tion and supervision of one of the largest national banks, which is a unit in a complicated holding company system. In that case, the value of the holding company steck depended to a marked degree upon the dividends paid X the bank to the holding company and many of the financial transactions of the holding congany group involved the questionable use of funds obtained from the bank. The bank, under the domination of the holding - passy groups refused to fellow recommendations and diren- tiess of the Comptroller of the Currency to reince its execusive dividend rate, improve its capital pesition, charge off certain lesses set up w the national book emminors, drastically reduce excessive leans to the holding company and affiliated and allied interests, climinate execusive real estate holdings, and take other steps considered by the Comptroller of the Currency Regraded Uclassified 109 - 18 - as necessary to protect the soundness and stability of the bank. Some of the sanctions given the Comptreller of the Currency under existing legislation are so work that their use would have been ineffective, while others are no drastic that their use might have done excessive in- jury to the bank. Consequently, for appreximately three years a tug of war went on between the bank on the one hand and the office of the Comptroller of the Currency and the other regulatory agencies on the other. Finally, as a result of constant pressure over those three yours, the bank agreed to make a number of the changes insisted upon by the Comptroller of the Currency, although it ase not agree to any reduction in its dividend rate. These for the bank has cooperated in earrying out mest of the agreed changes with resulting benefits to the bank and its depositors. But st should not be necessary for the supervising agencies to struggle for years with a hold- ing company deminated bank to obtain the adoption of sound banking practices which most free banks follow without argunsat. Regraded Uclassified 110 - 10 - It 10 potentially dangerous, when the future of - of the largest banks in the country, as well as numerous mall banks, is tied to the career of a few hold- ing companies. Banks are established, not to nurture hold- ing companies, but to serve the depositors and the general public. The Federal Government, as chas charapror, emainer, and supervisor of banks, has the responsibility of taking every pessible step to assure the sominess of such tanks. The various agencies intrusted w Congress with that responsibility cannot function effectively unless Congress emasts legislation conferring adequate powers upon such agencies. I - envinced that this evil of bank holding companies needs to be corrected without delay. It my not look like a major problem se - judge it by the scale of the immes evils and dangers that are sweeping asrees the world. But 10 se s major problem, to my mind, if - judge it w what happened 12 this country before 1988, - shall never have a better opportunity to settle 10 them n have at this mement. the have 11 in - yours to sufeguard - baking structure and the to strengthen - of the fomier time of American democracy. the my yet represch ourselves Regraded Uclassified 111 if the next financial storm blows down upon without our having taken this elementary presaution. I should like to urge you, with all the cornectures and sincerity at my command, to remove the menage of bank holding come panies, and to do it now. Regraded Uclassified 112 April 11, 1941 4:00 p.m. Harold Ickes: Say, Henry. H.M.Jr: Yes. I: You've heard us at Cabinet once or twice discuss this morale stuff. Have you any idea where the block is coming on that? H.M.Jr: No, I never discussed it with the President. He never mentioned it to me. I: Well, now, I just talked with Frank Knox a while ago and he went to bat on it again the last day or two and the President apparently hasn't the least interest in it. H.M.Jr: Well, I think he's wrong. I: Frank tried to arrange for a committee from New York, headed by Marshall Field, to come down and see him and you know of the obligations he's under to Field. "Oh," he said, "sometime later! H.M.Jr: I don't know. I can't tell you because I: This home defense thing - seem to think that they've shunted it off into that. Now, that'll just kill it. Why, Henry, this is of tremendous importance. H.M.Jr: I agree with you. I: You know and he knows himself that that's what licked France, and Belgium and all the rest, that it wasn't the armies of the Germans, it was Goebbel's propaganda. We're doing nothing to meet it. H.M.Jr: Absolutely nothing. I just don't know. You remember I asked you to send me something on it and you were kind enough I: of course, Mellett has been against it. Regraded Uclassified 113 - 2 - H.M.Jr: Oh, has he? I: Now I hear that apparently he had Wayne McCoy and Bill Bullitt or somebody working on it. H.M.Jr: I think that was on home defense. I: Well, I know that was home defense but they also sent over here for some papers on the other while I was away on that trip. Burlew tells me that; he gave them the papers. Well, if you get any chance put in a few words. H.M.Jr: I'll do that cheerfully. I: Thanks, Henry. H.M.Jr: Thank you. 114 April 11, 1941 4:06 p.m. H.M.Jr: Hello. Operator: Leon Henderson. H.M.Jr: Hello, Leon. Leon Henderson: Hello, Henry. H.M.Jr: My congratulations. H: Thank you very, very much. H.M.Jr: All power to you. H: I heard the thing was over there on the Boss' desk and I was going to call you and then I heard it was getting along all right and nobody interfering and it seemed to have gone through pretty well. H.M.Jr: Wonderful. H: And on this civilian supply thing, we've got authorization to suggest programs and 80 forth. What I'd like - you notice that they put you and Jesse and 80 forth on an advisory committee. H.M.Jr: Didn't see that. H: Yeah, that's right, and that's in line with & suggestion that Baruch made to me about the last war, seeing that the agencies directly concerned had an access, you know, and had a status. What I'd like to do 18 next week ask the committee if we couldn't have one meeting with the top boys, like yourself and Jesse, and then make sure that we've got somebody that would work pretty much full-time on it representing you. We've got this kind of a situation, Henry. Here's this steel wage question, and if they get what they're bargaining for now, it means an increase in steel prices. I talked to the Boss today and I went down and talked to Miss Perkins about it. Well, that's 8. very delicate situation. 115 - 2 - H.M.Jr: Yeah. H: And I'm going to work on it over the weekend, but it's something that I'd like a little advice from the rest of you about. H.M.Jr: Well, whenever you want it. Now, I talked to the President today - - I was over there on taxes - and he said he'd like us to keep you posted and get your advice. H: Yeah. H.M.Jr: So John Sullivan is going to get in touch with you Monday. H: All right, swell. H.M.Jr: So that's that. H: We need to go right down the line. H.M.Jr: O.K. H: All right. I've had my boys studying this British thing, by the way, and trying to keep up with your fellows and we'll be ready. H.M.Jr: Fine. Good luck. H: All right. Thanks for calling, Henry. H.M.Jr: Right. 116 TREASURY DEPARTMENT / INTER-OFFICE COMMUNICATION DATE April 11, 1941 s Secretary Morgenthau TO st Mr. Cochran FROM Sir Frederick Phillips telephoned me at 3:45 this afternoon. He asked how the Brown and Williamson deal was coming along. He also stated that he would like an appointment with the Secretary to talk over some of his matters before the Canadians come down next week. I brought the foregoing to the Secretary's attention at 4:10. He told no to let Sir Frederick know that Mr. Jones, with whom he had talked in regard to the Brown and Williamson transaction, would not be able to give us a report until Monday or Tuesday next. Mr. Jones did not come to the Treasury today as antici- pated, since the Secretary was obliged to go to the White House. The Secretary asked me to take up with Lieutenant Stevens the question of an appointment for Sir Frederick. I telephoned the foregoing message to Sir Frederick at 4:20. I then indicated to Lieutenant Stevens the preference of Sir Frederick for a Tuesday morning appointment. Stevens will take this up with the Secretary and call me back. AMP. Regraded Uclassified 117 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION Chadroey DATE April 11, 1941 Secretary Morgenthau TO for Mr. Cochran FROM AS 2:45 p.m. yesterday Mr. Playfair of the British Treasury Mission called on no. He stated that Mr. Gifford contemplated B. substantial vesting of American securities on April 19. Among such securities there may be two or three lots which constitute 15 or 20 percent of outstanding voting stock of the issuing concerns. Se asked my advice about complying with S. E. c. formalities in disposing of shares in which there is such an extensive interest concentrated in one seller. The British would like to have freedom to dispose of such securities up to 8. 30 percent interest without going through S. 1. c. formalities. In agreement with Mr. Playfair I telephoned Mr. Ganson Purcell at the 8. E. c. and explained the question. Mr. Purcell said it would be impossible to fix any general limit such as 30 percent, since the test is that as to whether there is factual ability to control. It was the suggestion of Mr. Purcell that Mr. Playfair obtain such information as may be readily available with Mr. Gifford, and without calling upon the people from whom the securities were obtained, and then visit Xr. Purcell at the S.E.C. The latter would put Mr. Playfair in touch with the office of the General Counsel of the S. 1. C. if this proved advisable. Mr. Purcell offered to be of all possible assistance. I recommended to Mr. Playfair that he follow Mr. Purcell's advice and call in the near future, since 8. 2. 0. regulations are involved and it would be preferable to obtain a clear understanding at once rather than to go ahead without a definite knowledge of what should and can be done. I promised Mr. Playfair that I would bring this matter to the attention of the Secretary if any difficulties were experienced by the British in their negotiations with the S. 1. C. Mr. Playfair seemed quite satisfied and promised to keep ne in- formed. 76.mp. Regraded Uclassified 118 TREASURY DEPARTMENT FOR RELEASE, MORNING PAPERS Friday, April 11, 1941. The Secretary of the Treasury, by this public notice invites tenders for $100,000,000, or thoreabouts, of 91-day Treasury bills, to be issued on B discount basis under competitive bidding. The bills of this series will be dated April 16, 1941, and will mature July 16, 1941, when the face amount will be payable without interes They will be issued in bearer form only, and in denominations of $1,000, $5,000, $10,000, $100,000, $500,000, and $1,000,000 (maturity value). Tenders will be received at Federal Reserve Banks and Branches up to the closing hour, two o'clock p. m., Eastern Standard time, Monday, April 14, 1941. Tenders will not be received at the Treasury Department, Washington. Each tender must be for an even multiple of $1,000, and the price offered must be expressed on the basis of 100, with not more than three decimals, e. B., 99.925. Fractions may not be used. It is urged that tenders be made on the printed forms and forwarded in the special envelopes which will be supplied by Federal Reserve Banks or Branches on appli- cation therefor. Tenders will be received without deposit from incorporated banks and trust companies and from responsible and recognized dealers in investment securities. Tendors from others must be accompanied by payment of 10 percent of the face amount of Treasury bills applied for, unless the tenders are accompanied by in express guaranty of payment by an incorporated bank or trust company. 24-54 Regraded Uclassified 119 - 2 - Immediately after the closing hour, tenders will be opened st the Federal Reserve Banks and Branches, following which public "nnouncement will be made by the Secretary of the Treasury of the amount and price range of accepted bids. Those submitting tenders will be advised of the acceptance or rejection thereof. The Secretary of the Treasury expressly reserves the right to accept or reject any or all tenders, in whole or in part, and his action in any such respect shall be final. Payment of accepted tenders at the prices offered must be made or completed at the Federal Reserve Bank in cash or other immediately available funds on April 16, 1941. The income derived from Treasury bills, whether interest or gain from the sale or other disposition of the bills, shall not have any exemption, as such, and loss from the sale or other dis- position of Treasury bills shall not have any special treatment, RS such, under Federal tax Acts now or hereafter enscted. The bills shall be subject to estate, inheritance, gift, or other excise. taxes, whether Federal or State, but shall be exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. For purposes of tax- ation the amount of discount at which Treasury bills are originally sold by the United States shall be considered to be interest. Treasury Department Circular No. 418, as amended, and this notice, prescribe the terms of the Treasury bills and govern the conditions of their issue. Copies of the circular may be obtained from any Federal Reserve Bank or Branch. -000- Regraded Uclassified 120 April 11, 1941 hat Mr. Lovett: 19 vas with the greatest pleasure that $ heard of year assignment to the Important post of Assistant Secretary of hr for Mr. I low that when you undertake the heavy responsibilities of this poot the work will be in the best possible Image for able eet efficient administration. If and when this effice - be of - vise to you, I hope you will an hositate to call upon m. with of organizations and all good visites, Sincerely, (Signed) H. Horgenthou, 22. Senerable Robert A. Levett, Assistant decretary of New for ARP, Vachington, D. 6. GHF/jba Regraded Uclassified 121 April 11, 1941 now Mr. I think I need not tell you hav pleased $ me to learn of year appointment as Ascistant Secretary of Var. 1 seal you 4 heartice) # gratulations and good vichos 88 you - the daties of this difficult and Exportant post. Is leeking forward to our further associa- time during the days that are so - I hope that you vill call upon this office whenever 10 my be of cervice to m. with cordial personal regards, Discovely, (Signed) F. Morgenthes, 20% Denorable John J. Mo01ey, Accistant Secretary of Mr. Techington, D. c. 638/30m Regraded Uclassified 122 war department WASHINGTON April 14, 1941 Dear Mr. Secretary: I cannot tell you how much I appre- ciate your thoughtfulness in sending me your note. I know of no one whose esteem and good wishes I would rather have. I feel that you and those who work with you have shown more insight and persist- ence in connection with the issues we face than any other group I have so far met in Washington. If ever I can be of the slightest help, I hope you will feel that you can call upon me any where and at any time. Sincerely, In Jully The Honorable The Secretary of the Treasury 123 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 11, 1941 TO Secretary Morgenthau FROM Mr. Pehle I think you will be interested in the attached letter from Summer Welles refusing to recommend the transfer of $50,000 from frozen French Government funds to the American Friends Service Committee. JH 124 DEPARTMENT OF STATE WASHINGTON 0 P I April 9, 1941 BIT 840.51 Frosen Credits/1456 In reply refer to My dear Mr. Secretaryr The receipt is acknowledged of your letter of March 21, 1941, with particular regard to the pend- ing application No. NY 103767 permitting the transfer of $50,000 from frosen French Government funds to the American Friends Service Committee. The Committee states that the funds will be used for the purchase in Portugal of supplies to be shipped to France and distributed to French children. Inasmuch as the French Government has available in Portugal deposits amounting to a minimum of $600,000 and inasmuch as the French Purchasing Commission is at present in Lisbon en- deavoring to raise transportation of supplies to France, the Friends Service Committee has been informed that they should, in the first instance, communicate with this Com- mission to determine whether it would be possible to make use The Honorable Henry Morgenthau, Jr., Secretary of the Treasury Regraded Uclassified 125 - 2 - use of its facilities in connection with the purchase of these supplies. It is further understood from the British Embassy that the British authorities are reluctant to grant a navicert if these supplies are to be purchased from blocked accounts in this country as long as ample funds exist in Portugal for this purpose. Under these circum- stances, this Department is not at the present time pre- pared to recommend this transfer. Sincerely yours, For the Secretary of State: (Signed) Summer Welles Under Secretary Regraded Uclassified 126 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE APR 1 1 1941 TO Secretary Morgenthau FROM Mr. Pehle On January 30, 1941, the French Government filed with the Foreign Funds Control an application to export to Indo-China certain military equipment which had been imported from France to the United States during 1939 and 1940 for the purpose of fitting such equipment to American built aircraft ordered by the French. Included in this military equipment, which is still in the United States, are 79 machine guns (7.5 mm) and ammunition, torpedos, bomb racks, bomb sights, etc., a list of which is attached. The application was discussed at a meeting held at the State Department on March 6, 1941, at which time Mr. Acheson expressed the view that under no conditions should this material be allowed to go to Indo-China, Later the same day Acheson called me to say that he had discovered that the State Department had made 8 firm commitment that the armaments be allowed to be shipped to Indo-China in exchange for some quid which he did not specify. Subsequently we wrote to the State Department asking for its views and the attached letter from Dean Acheson was received in which he states: 127 - 2 - "When the French Government decided to export to Indochina the arms listed in the application enclosed with Mr. Bell's letter, the matter was taken up with the Department by the French Embassy. It was decided in the light of all the circumstances that the proposed exportation should be permitted, and export licenses were issued accordingly. The Department has not altered its views in regard to this proposed shipment." If you agree, I will tell Dean Acheson orally that the Treasury Department is not prepared to license the export of this material to Indo-China in the absence of a written request to that effect from the Secretary of State. Job Regraded Uclassified 128 DEPARTMENT OF STATE WASHINGTON I March 28, 1941 reply refer to My dear Mr. Secretary: The receipt is acknowledged of Mr. Bell's letter of March 13, 1941, in regard to an application filed by the French Government in connection with a proposed exportation of certain listed arms, ammunition, and accessories to Indochina. In reply, I have to inform you that the items listed in the application of the French Government were imported into the United States by that Government in connection with the manufacture of arms ordered by the French Government before the conclusion of the Franco-German Armistice. When the French Government decided to export to Indochina the arms listed in the application enclosed with Mr. Bell's letter, the matter was taken up with the Department by the French Embassy. It was decided in the light of all the circumstances that the proposed exportation should be permitted, and export licenses were issued accordingly. The Department has not altered its views in regard to this proposed shipment. Sincerely yours, For the Secretary of State; /8/ Dean Acheson Assistant Secretary The Honorable Henry Morgenthau Jr., Secretary of the Treasury. Regraded Uclassified 129 LIST OF EQUIPMENT 20 Machine guns 7.5 IIIIII 1 Machine gun 7.5. m & access. 2 Machine guns 7.5 mm 2 Machine guns 7.5 mm 4 Machine guns 7.5 mm 2 Machine guns 7.5 mm Machine gun (mockup) & Access. 2 Machine guns 7.5 mm & access. 2 Machine guns 7.5 mm 2 Machine guns 7.5 nm 2 Machine guns 7.5 mm 2 Machine guns 7.5 mm 2 Machine guns 7.5 mm 346 cartridges 1 Machine gun & access. 1980 cartridges 2 Machine guns 7.5 mm 1980 cartridges 2 Machine guns 7.5 mm 1980 cartridges 2 Machine guns 7.5 mm 1040 cartridges 2 Machine guns 7.5 mm 50 cartridges & links 8 Machine guns 7.5 mm 1980 cartridges 8 Machine guns 7.5 mm 1235 cartridges & links 2 Machine guns 7.5 mm 1200 cartridges & links 2 Machine guns 7.5 IIIII 1980 cartridges each 2 Machine guns 7.5 mm (40 cases) 2 Machine guns 7.5 IIII 2025 cartridges each ( 4 cases) 2 Machine guns 7.5 mm 780 cartridges 130 - 2 - 1100 Cartridges Radio remote control (mockup) 1000 Cartridges 3 Parachutes 1500 Cartridges 2 Machine gun mounts 2000 Cartridges Antenna support 1900 links Gun sight (mockup) Gauges for torpedos 7 Lamps for radio Gauges for torpedos Battery Gauges for torpedos Bomb hoist Torpedo Bomb rack Cone for torpedo Access. for bomb rack 16 air containers for torpedos 3 Intervalometres 17 liquid containers for torpedos 2 Bomb sight Gauges for mines 4 Machine gun mounts Gauges for mines 7 ammunition boxes 27 Electric storage batteries Oxygen equipment 2 Parachutes Gauge for machine gun support 1 Electric Plug 2 Camera remote control 1 Gun mount Ammunition box 9 Oxygen containers 4 bomb racks Access. for bomb racks 15 Gun sights 1 gun sight Bomb rack access. 1 gun sight Bomb rack 131 - 3 - 8 Batteries Battery Access. for bomb racks Actuating mechanism for bomb racks 7 Ammunition boxes 4 Oxygen containers 8 Bomb racks Bomb hoist & access. 2 Parachutes 1 Safety Belt 1 Parachute (mockup) Bomb hoist gears & access. 132 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL DATE April 11, 1941 TO Secretary Morgenthau FROM Mr. Wiley ONE reports: March 14 - Gustemala. The owner and operator of the leading tourist organ- isation in Guatemala has deposited between January 2 and Merch 8, 1941, only 1200 in American money although his receipts for the period were $34,567.60 in cash and $14,435.42 in checks. (This would indicate that he is disposing of his currency elsewhere, and from prior reports it would seem that the Germans are buying up American dollars.) Guatemala has permitted Christian Zinsser, Charge d'Affaires at Honduras, who was expelled by the Honduran Government, to stay in Guatemala. FBI reports: April 7. Officials of the German Legation in Costa Rica called on the Secre- tary of the Treasury of Costa Rica, offering Costa Rice the German market for coffee and adding that Germany would be able to receive deliveries by July 1, 1941 (adding that the present war was already won by Germany). April 8. Fritz Mandl, the Austrian munitions magnate, is said to be acting as at go-between for the Nazis in organizing a revolution in Argentina. The lead- 67 of the Argentine group in question, whom Mandl is reported to have supplied with munitions and money, 18 an Argentine general who, in 1934, was B. member of a silitary commission sent from Argentina to purchase arms from Mandl's factory in Holland. . First husband of Hedy Lamarr rew Regraded Uclassified 0, 133 0 ? I 15 Broad Street, New York Telephone Hanover 2-2460 BRITISH PURCHASING COMMISSION April 11, 1941 Dear Cochran, After our talk last Wednesday I promised to send a note on the various points touched upon, and I am enclosing it herewith. I hope you will find that it meets your requirements. Gifford and I enjoyed our lunchson party very much and we both thought that the discussion we most helpful. I look forward to having further talks from time to time, Yours sincerely, /=/ 1. R. Peacock Sir Edward Peacock Mr. H. Merle Cochran Treasury Department Washington, D. 0. 134 MEMORANDUM FOR MR, COCHEAN NOTES OF DISCUSSION ON APRIL 9th, 1941. April 11, 1941 The details of the sale of Viscose Corporation were explained and the position of the negotiations of Brown & Williamson. The following matters were then discussed:= 1. I asked whether I might assume, in dealing with direct investments, that the first principle should be to raise as large a sum of dollars as I reasonably could and that I might do this in the may that would do the least damage to the British and American companies. 2. I asked if we could agree that companies that would produce less than some settled figure, say $500,000, should not be further considered, at least for the present. These small companies have been much disturbed by my inquiries and are worried about what is to happen to their business, their staffe, etc. the would be relieved of such fruitless labor because each company, though mall, requires 5 good deal of attention, Crosse & Blackwell was given as an illustration where Mr. Gifford had come to the conclusion that we could not raise $50,000 by the sale. 3. There are many companies which are mere agencies or dependent on the activities of one or two people acting on behalf of an English company. They really have nothing salable. I gave as an illustration Charles Tennent Co., which deals in non-ferrous metals. Its success is dependent on the personal activites of Mr. Van Sinderen and his being able to maintain his connection with the British Vetals Co. Others could not be sold because their business is dependent upon their parent company securing substantial Sterling credits to provide the goods which they sell - Hecht, Levis & Kahn is a case in point. 4. There are companies like Burroughs Wellcome whose income is devoted entirely to scientific research under a charitable trust; the Oxford Press which is a company devoted to cultural activities. Regraded Uclassified 135 -2- liany of the companies present special problems because they have grown 5. up as part of a larger whole, never intended to be separated. Às a result, most cases must be dealt with in the light of their special circumstances. The most important are those which are a link in a worldwide system where the breaking of the link would cause confusion, and where the use of a special name and trademark would raise difficulties and doubts. In some of these cases it would be extremely difficult to find a buyer even at a price far below anything reasonable, and & larger amount could be raised by way of loan, 6. A mumber of companies depend upon the use of a secret formula. The separate exploitation of this would be difficult to arrange without endangering the existence of the parent company. Control of the American company would probably be secured by one of the big combines and sales ruthlessly pushed every- there. Examples are Yardleys, Gordons Gin and Lea & Perrins. 7. I enclose notes regarding the position of Levers and the Shell Union. COPYING 136 LEVER BROTHERS & UNILEVER April 11, 1941 1. There are two parent companies, one British and one Datch, referred to hereafter as Limited and N. V. respectively. For the purpose of this memorandum the subsidiaries formed for trading or holding purposes can be ignored. 2. Limited holds no shares in N. V. 3. Shareholders of Limited are preponderatingly British, those of N. V. principally Dutch and Continental. 4, Lever Brothers, Boston, WBS a wholly owned subsidiary of Limited until 1935. In that year 25% of the American company was sold to N. v. in order to increase the earnings of that company which had fallen owing to the situation in Germany. 5. In 1936 it was proposed to rearrange the interests of Limited and N. v. so as to give Limited the whole of the British Empire as its sphere and N, V. the rest of the world. This was accomplished in 1937. 6. Às part of the arrangement to achieve this, Limited sold to N. V. its remaining 75% interest in Lever Brothers. The American company thus became a wholly owned subsidiary of N. V. 7. In the Spring of 1940, alarmed at the German progress on the Continent, and to prevent possible seizure, N. V. registered a private company at Durban, South Africa, called Overseas Holdings (Proprietary) Ltd. To this company N. V. transferred the shares in Lever Brothers, Boston, and certain other subsidiaries is an emergency war measure with a view ultimately to re-transfer to the Dutch company. The position today, therefore, is that Lever, Boston, is owned by Overseas, a South African company, which in turn is wholly owned by N.V. Regraded Uclassified C 137 0 ? I THE SHELL UNION INC. OF DELAWARE April 11, 1941 The Batavian Petroleum Company, a Dutch company incorporated in The Netherlands, holds 64% of the shares of the Shell Union. The remaining 36% are held by the public. The control of the Batavian Petroleum Company is held by the Royal Dutch company, which owns 60% of the stock. Neither the Shell Transport nor the British Government has power to deal with the properties of the Royal Dutch or Shell Union in the U.S.A. United Kingdom residents hold a certain number of shares of the Shell Union and these will be vested and sold in the ordinary way. Y Regraded I Uclassified EXECUTIVE ORDER 138 ESTABLISWING THE OFFICE OF PRICE ADMINISTRATION AND CIVILIAN SUPPLY IN THE EXECUTIVE OFFICE 07 THE PRESIDENT AND DEFINING ITS FUNCTIONS AND DUTIES By virtue of the authority vested in me by the Constitution and the statutes, and in order to define further the functions and duties of the Office for Emergency Management with respect to the national emergency as declared by the President on September 8. 1939, for the purpose of avoiding profiteering and unwarranted price rices, and of facilitating an ade- quate supply and the equitable distribution of materials and comodities for civilian use, and finding that the stabilization of prices is in the interest of national defense and that this Order is necessary to increase the efficiency of the defense program, it is hereby ordered: 1. There shall be in the Office for Emergency Management of the Executive Office of the President an Office of Price Administration and Civilian Supply, at the head of which shall be an Administrator appointed by the President. The Administrator shall receive com- pensation at such rate us the President shall determine ano, in addition, shall be entitled to actual and neces- sary transportation, subsistence, and other expenses incidental to the performance of his duties. 2. Subject to such policies, regulations, and directions as the Prosident may from time to time progoribe, and with such advioe and assistance as may be necessary from the other departments and agencies of the Federal Government, and utilizing the services and facilities of SQUA other departments and agencies to the fullest extent compatible with efficiancy, the Administra- tor shall: a. Take all lawful steps necessary or appropriate in order (1) to prevent price spiraling, rising costs of living, profiteering, and inflation resulting from market conditions caused by the diversion of large segments of the Nation's resources to the defense program, by interruptions to normal sources of supply, or by other influences growing out of the omergency; (2) to prevent specula- tive accumulation, withholding, and hoarding of metorials and commodities; (3) to stimulate provision of the necessary supply of materials and commodities required for civilian use, in such mannor as not to conflict with the require- ments of the liar, Navy, and other departments and agencies of the Government, and of foreign governments, for matorials, articles, and equipment needed for defonse (such require- ments are heroinafter referred to as "military defonse nouds"); and (4) after the satisfaction of military defense needs to provide, through the determination of policies and the formu- lation of plans and programs, for the equitable distribution of the residual supply of such materials and commodities anong competing civilien domands. Regraded Uclassified 139 b. Make studies of the Nation's civilian re- quirements for mitorials and commodities, the supply of goods and services, the status and trend of prices and factors thereof, and the impact of the defense program upon civilian living standards; exercise the powers of the President in requesting such studies pursuant to Section 336(a) of Title III of the Tariff Act of 1050 (Title 19, U.S.C., Sec. 1336(a)); and conduct such investigations, hold such hearings, and cotain such reports as may be necessary or desirable to carry out this Order. C. Determine and puolish, after proper investi- gation, such maximum prices, commissions, margins, fees, charges, or other elements of cost or price of materials or commodities, as the Administrator may from time to time deem fair and reasonable; and take all lawful and appropriate steps to facilitate their observance. 0. Advise and make recommendations to other de- partments and agencies, whenever the Adminis- trator deems it appropriate, in respect to the purchase or acquisition of materials and commodities by the Government, the prices to be paid therefor, and in respect to such of their other activities as may affect the price of materials and commodities. B. Inform the Office of Production Management of the anount, character, and relative impor- tance of materials and commodities needed for civilian use; and advise and consult with the Office of Production Management with reference to its procurement, production planning, priority, and other actions the effect of which may be to diminish the supply of naterials and commodities available for civilian use. 1. Establish and maintain liaison with such de- partments and agencies of the Government and with such other public or private agencies and persons as the Administrator may aeem necessary or decirable to carry out the pro- visions of this Order. & Formulate programs designed to assure adequate standards for, and the nost effective use of, consumer goods; stimulate the utilization of substitutes by civilians for consumer goods and commodities of limited supply; develop programs with the object of stabilizing rents; and promote civilian activities which will contribute to the purposes of this Order. h. Recommend to the President the exercise of the authority vested in him by the following named Acts, whenever, in the opinion of the Administrator, such action by the President will enable the Administrator to carry out and secure compliance with the provisions of Section 2a and 2c of this Order: Regraded Uclassified 140 (1) Section 9 of the Selective Training and Service Act of 1940 (Publie No. 783, 76th Congress). (2) Section 120 of the National Defense Act (Title 50, U.S.C., Sec. 80). (3) Section 1 (15) of Title 49, U.S.C. (4) The Aot of October 10, 1940 (Public No. 829, 76th Congress). 1. Perform the functions end exercise the authority vosted in the President by the following mained Acts, in 50 far as and only to the extent that the authority conferred by such Acts will, in the opinion of the Administrator, enable him to carry out and secure compliance with the provisions of Section 2a and 2c of this Order: Section 713(a)-7 of Title 15, U.S.C., Supp. V; Section 4 of the Act approved June 7, 1939 (Title 50, U.S.C., Supp. V., Sea. 980); and Section 6 of the Reconstruction Finance Corporation Act, as amended by the Act approved June 25, 1940 (Public No. 664, 76th Congress): subject to the disapproval by the Secretary of war or the Secretary of the Navy of each proposed action thereunder. J. Adviso upon proposed or oxisting logislation, and recommend such additional legislation as may be necessary or desirable, relating to prices, ronts, or the increase in supply and the equitable distribution of materials and commodities for civilian use. k. Koop the President informed in respoct to progress made in carrying out this Order: and perform such other related duties 0.8 the Prosident may from timo to time assign or dolegato to him. 3. The Administrator may provide for the inturnal organization and management of the Office of Price Adminis- tration and Civilian Supply, and may appoint such advisory committees as he finds necessary to the performance of his dutios and responsibilities. The Administrator shall obtain the Presidont's approval for the establishment of tha prin- cipal subuivisions of the Office and the appointment of the hoads theroof. 4. Thoro shall be in tho Office of Price Administra- tion and Civilian Supply G Price Administration Committoe consisting of the Administrator as Chairmen, the Secretary of the Troasury, the Secretary of Agriculture, the Federal Loan Administrator, the Chairman of the Tariff Commission, the Chairrin of the Fedoral Trade Commission, the Director Goneral md Associnto Diroctor Genoral of the Office of Production Management, or such alternate B.B otch may designate, and such other members L.S the President may subsequently appoint. The Cormittoe shall from time to- timo, upon request by the Administrator, neko findings end submit roconmondations to the administrator in respoct to Regraded Uclassified 141 - 4 - the establishment of maximum prices, commissions, margins, fees, charges, and other elements of cost or price of materials or commodities as provided under paragraph 2c above. 5. Within the limits of such funds as may be appro- priated to the Office of Price Administration and Civilian Supply or as may be allocated to it by the President through the Bureau of the Budget, the Administrator may employ necessary personnel and make provision for necessary supplies, facilities, and services. However, the Office of Price Administration and Civilian Supply shall use such statistical, informational, fiscal, personnel, and other general business services and facilities as may be made available to it through the Office for Emergency Management or other agencies of the Government. FRANKLIN D. ROOSEVELT THE WHITE HOUSE April 11, 1941 Regraded Uclassified 142 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 11, 1941 Secretary Morgenthau TO Herbert Merillat FROM TAXES AND INFLATION The upward trend of prices, demands of labor for increased wages, and the accelerated rate of government spending for defense have given rise to widespread talk of the dangers of inflation. Last month the savings bond program was applauded as a check on in- flationary tendencies; now taxation is getting increased attention as & complementary method of fighting inflation. The newspapers carry stories of a four-point anti-inflation program calling for increased taxes, sale of bonds to tap private savings, price con- trols, and curbs on installment sales. Mr. Donald M. Nelson of the 0. P. M., Dr. E. A. Goldenweiser, Director of the Federal Reserve Board's Division of Research and Statistics, Dr. L. R. Robinson of Columbia University, Dr. Edwin Kemmerer of Princeton University, and Mr. H. H. Heimann, Executive Manager of the National Association of Credit Men, are among the public figures and economists who have recently urged the use of taxation to check possible inflation. The emphasis by the press in all parts of the country on the importance of taxation as an anti-inflation measure has doubtless helped to prepare people to accept greater tax burdens. The statement of the Regraded Uclassified 143 - 2 - British Chancellor of the Exchequer that the proposed tax increases in Britain are designed to cut purchasing power as well as to raise revenue has also helped to focus attention on the inflation-checking aspect of taxation. Reaction to the British Budget To date, the reaction of only a few Eastern papers to the new British budget is available. Already the proposal of a modified form of the Keynes compulsory savings plan has produced a crop of rumors that similar proposals will soon be forthcoming in this country. "Such 8. plan will be proposed," John T. Flynn predicts, "not merely for war effort, but as part of what is sometimes called the 'new order' in America." The Wall Street Journal, shocked at Keynes' suggestion of a capital levy at the end of the war to pro- vide funds for repayment of the forced loans, concludes that the borrowed savings can be returned only by imposing additional taxes in the future and warns taxpayers not to believe that they can "save" anything under the Keynes plan. The New York Times also is skeptical about the repayment feature, but regards the check on the public's purchasing power through increased taxes as a measure vitally neces- sary to prevent inflation. Tax Predictions Although the press still reports that the Administration favors increases in existing taxes rather than new untried taxes, Regraded Uclassified 144 - 3 - it is predicted that Congressional sentiment will be strong for a general manufacturers' excise tax, particularly if the Treasury in- sists on & revenue increase of more than 11 billions. Senators George and Taft are reported as agreed that it may be necessary to increase the individual normal tax rate to 8 per cent and the corpor- ation tax rate to 30 per cent. The Wall Street Journal predicts that individual specific exemptions and credits for dependents will be disallowed in computing surtax net income. Some papers report that the Treasury is still plugging for elimination of the average earn- ings credit under the excess profits tax law, but stiff Congres- sional opposition to any such proposal is predicted. Regraded Uclassified 145 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION Regraded Uclassif DATE April 11, 1941 TO Secretary Morgenthau FROM Mr. Cochran confidential Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £35,000 Purchased from commercial concerns £38,000 Open market sterling was quoted at 4.03-1/4. Transactions of the reporting banks were as follows: Sold to commercial concerns -0- Purchased from commercial concerns 23,000 In New York, the closing rates for the foreign currencies listed below were as follows: Canadian dollar 12-11/16% discount Swies franc (commercial) .2321-1/2 Swedish krona .2384 Reichsmark .4005 Lira .0505 Argentine peso (free) .2325 Brasilian milreis (free) .0505 There vas a holiday in Shanghai today, and no quotations were received from that center. There were no gold transactions consummated by us today. No new gold engagements were reported. In London, spot silver vas unchanged at 23-1/24. The forward quotation was also 23-1/24, up 1/16d. The U.S. equivalent of this price is 42.674. Handy and Harman's settlement price for foreign silver vas unchanged at 34-3/44. She Treasury's purchase price for foreign silver was also unchanged at 35#. Ve made no purchases of silver today. AH. M. Comman noted 146 I =. x: Geseral CONFIDENTAIL PARAPHRASE & telegram (no. 49) of April 11, 1941 from Gensul Road at Manoi reads substantially as fellows: Information received from persons in Razel indicates that in general under the coonemic agreement between Indo- china and Japan, Jayan is to receive is 1948 700,000 tess of rice at 12.20 piacters you hundred kiles: that payment will be sale into a special account for sonthly deliveries of this rice; that an equal payment will be made only is the corresponding month of 1948 iste the general clearing account from this special assounts that, except perhape for rubber for which the Fresch are trying to get American dellare, payment for other articles delivered so Japen and for deliveries " Indochina will be más to the general clearing account operated w and between the Tokshann Specie leak and the Bask of Indeshine: that at the end of each month settlement is theoretically to be unde of the general clearing account is gold currency or is other currency solected w the crediter test, but only the anount which exceeds five millies piestore or yea, Capanding an the balance of trade, to to be settled is this ver. It to understand that the operation of the general clearing account is stailar to the agreement of December last between the Regraded Uclassified 147 + the Tekobema Specie Bank and the Java Bank. According to information which Gensul Reed has been able to obtain, Japan will take 25,000 tens of rubber. the Consul has not been able to learn whether any rubber will be designated for Germany, all of the production, eno-half and sine-teaths respectively, of the tis and sise production and 600,000 tens of coal at least. At first the Japanese asked for 600,000 tess of eeal a year. the Japanese will be permitted to take part in the exploits- ties of such minerals as phosphates trea and manganess which is the past have played a preminent yard is trade with the Far East. the general belief to that discussion of colonisation rights as will as special treatment of Jape- ness norchants will be postponed until later and wast s supplementary agreement, although there has been came talk of the Japanese making demands along these lines. OFFICE Ot THE E0 A M9 al Я9А INCI ТИЗМТЯАЯЗО Copy:hj:4-16-61 LECHHICVE BECEIAED 10 THE Regraded Uclassified 9207 TREASURY 148 EH GRAY Bucharest Dated April 11, 1941 Rec'd 2:35 p.m., 12th. Secretary of State, Washington. 336, April 11, 8 p.m. A circular published in the official MONITOR by the Ministry of Finance on April 3 announces that the Rumanian Government has been compelled because of the disturbance of international Economic relations and the decrease in its territory to suspend all foreign pay- ments on the Rumanian public debt. The circular adds that the Rumanian Government is prepared to initiate negotiations with the interested governments concerning the resumption of foreign debt SERVICE as soon as the stability of the External situation permits. GUNTHER FMB Regraded Uclassified 149 s TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 11, 1941 Secretary Morgenthau TO FROM Mr. Kamarck Subject: Weekly Military Report 1. Summary of information on army strengths in the Balkans (as of approximately April 6) Germany had a total of 45 - 59 divisions or about 1,000,000 men. On the Austrian-Yugoslav frontier 10 - 12 divisions Hungarian-Yugoslav frontier 3 - 6 divisions Romanian-Yugoslav frontier 9 divisions Bulgarian-Yugoslav frontier 12 divisions Bulgarian-Greek frontier 6 divisions In reserve in Bulgaria 7 - 14 divisions Total 45 - 59 divisions Italy had 28 divisions or 450,000 men in Albania. Yugoslavia had 30 divisions or 800,000 men. Greece had 15 divisions (my estimate) or 400,000 - 450,000 men (my estimate). Great Britain had parts of 3-1/2 divisions or perhaps 75,000 men. The Germans at the beginning of hostilities on April 6, had, ready for the Yugoslav invasion, roughly the same number of men as the Yugoslav army at peak war strength (about 800,000 men). Back of this well-equipped striking force, the Germans have practically unlimited reserves (1.e., about 4 million men more under arms) so far as the needs of this campaign are concerned. Regraded Uclassified 150 - 2 - Division of Monetary Research Against the approximately 500,000 Greeks and English, there were 450,000 Italians and 120,000 Germans originally allotted. In addition, some of the 150,000 to 300,000 immediate German reserves in Bulgaria have been probably thrown in against the Allies. 2. Summary of information on air strengths in the Balkans, at about April 6 German: Total in the Balkans 780 planes (plus an unknown number in Austria) Bombers 350 Pursuit 430 Italian: No estimate available. Yugoslavs: 400 - 500 combat planes (mostly obsolete). Greeks: No estimate available, probably a negligible number, English: Less than 100. No comment is necessary on the overwhelming German air superiority indicated by the above figures. 3. Bulgaria is experiencing a shortage of food due to German military demands (March 28, Sofia report). Hungary cannot carry out an extensive mobilization due to a food shortage (April 7. Budapest report) This information is a small indication of the supply difficulties the German Balkan army is going to experience if the Balkan war is prolonged. Even more important, it underscores the defeat Germany suffers from war going on in the Balkans, an important German source of food supplies. Regraded Uclassified 151 BRITISH embassy, WASHINGTON, D.C. April 11th, 1941. Personal and Secret. 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. 152 Telegram from London dated April 9th. 1. Naval. Red Bes: morning of the 8th. About 11 ships left inseawa including a small warship. Swordfish aircraft were operating, a mall destroyer was bombed in the harbour without definite result. Massawa occupied 1.00 p.m. harbour found blocked and extensive demolitions. 2. His Majesty's armed merchant cruiser Worcestershire torpedoed on the 3rd ......... in port. 3. Military. Libya. Our forces concentrating in R1 Gasala - Tobruk area, 4. Yugoslavia. Germans occupied Skoplje, whence columns moving north towards Belgrade and west on Totovo following the Yugoslav division advencing into Albania from Prisen. They have also oscupied Veles and are advencing towards Prilep Bitolj. Armoured division advancing on Pirot. At noon April 7th Yugoslava holding Koshirino Pass south of Strumics but later reported driven back. 5. of seven Yugoslav armies only the 3rd advancing into Albania was fully mobilised and concentrated. The first army partly in Pirot area and the rest driven west of Skoplje. The second army reported in reserve Serajevo area or distributed amongst other armies. The remaining four armies are in north. 6. Greece. Reports up to noon April 7th stated that the Greeks holding from the sea at the mouth of the Nestos River to Yugoelav-Bulgurian and Greek boundery (Metaxas Line); they were evacuating Alexandroupolis by sea, Their covering troops X area had withdrewn unmolested to the Metaxas Line but scall forts near the frontier still holding out. The Cormane attacked with tanks south of Nevrokop and suffered heavy casualties, Perithorion changing hands twice. The Greek/ Regraded Uclassified 153 -2- Oreek forts cast of Rupel Pass twice attacked wi thout success but west of the Pass Oreeks forced back to cast bank of the Struma, although some mountain forts still holding out. The Greeks and Serbs in touch in Lake Doiran area. 7. Air ministry signal received early April 9th states that German forces entered Salonika at 4 p.m. April 8th. 8. Royal Air Force. Night of April 8th/9th. 100 military aircraft sent to Kiel (160) Bremenhafen, Rotter- dam. The primary targets attacked in clear weather and very large fires started in Kiel. 5 aircraft missing. 9. Balkans. Night of April 6th/7th, heavy bombers attacked Sofia railway machine gunned transport in the Struma Valley where Blenheims also bombed Petrich Railway at Simitli, Gorna, Djukaya. 10. German A1r Force. Night of April 8th/9th. About 180 operated against Coventry and a large attack en Porte- mouth. Night fighters shot down six enemy aircreft (five in Coventry area) probably damaged one and damaged two more. 11, Home Security. Night of April 7th/8th. Cusualties estimated at 72 killed and 428 seriously wounded throughout the country. 12. Night of April 8th/9th. Coventry. Owing to interrupted communications accurate estimate not yet possible. The attack was heavy but not to be compared with the one on November 14th/15th. One serious fire Daimler factory other industrial premises and key point factories damaged. Regraded Uclassified 154 CONFIDENTIAL MILITARY INTELLIGENCE DIVISION TENTATIVE LESSONS BULLETIN WAR DEPARTMENT No. 90 Washington, April 11, 1941 G-2/2657-235 NOTICE The information contained in this series of bulletins will be restricted to items from official sources which are reasonably confirmed. The lessons necessarily are tentative and in no sense mature studies. This document is being given an approved distribution, and no additional copies are available in the Military Intel- ligence Division. For provisions governing its reproduction, see Letter TAG 350.05 (9-19-40) M-B-M. MISCELLANEOUS NOTES ON THE GERMAN ARMY SOURCE Sections 1, 2, and 3 of these notes are based upon information compiled by a. high British official source late in 1940. Section 4 is based upon information recently received from the intelligence division of 8. European army and Section 5 upon a recent report of an American official observer in France. CONTENTS 1. METHOD OF ATTACK UPON A PORT 2. EFFECT OF REFUGEES UPON MILITARY OPERATIONS 3. DOGS IN THE GERMAN ARMY 4. ADDITIONAL NOTE ON REORGANIZATION OF PANZER DIVISIONS 5. COMMENT BY GENERAL RICARD CONFIDENTIAL -1- Regraded Uclassified 155 CONFIDENTIAL MISCELLANEOUS NOTES ON THE GERMAN ARMY 1. METHOD OF ATTACK UPON A PORT A competent observer who was in Norway at the time of the German invasion and who personally witnessed two German landings has given a description of the methods adopted. These methods were peculiarly successful against Norway, where no attack was expected and where the defense was not properly organized. At each landing witnessed, the methods used and the sequence of events were precisely the same, Open beaches were never used except as a diversion, for in each case landings were made at a quay. The time chosen was between 2:00 and 2:30 A.M., the darkest part of the night, The first intimation of landing was provided by a series of magnesium flares dropped from aircraft over permanent defenses, This action was followed within 20 or 30 seconds by heavy and accurate bombing of gun defenses, and simultaneously the first sea-borne flight arrived. This invariably consisted of light vessels of about the size of large fishing craft, No attempt was made to neutralize gun defenses by landing; complete reliance seemed to be placed upon neutralising them by aircraft during the passage of the first and subsequent flights of ships. The next event was the lighting of the quays of the port by magnesium flares. Immediately afterwards there were very heavy and accurate attacks by many dive bombing planes on the extremities of the quays, where machine gun posts would normally be located. Then the first ships arrived at the quay and made fast. The first ship contained soldiers armed with grenades. These men jumped ashore, flinging their grenades in all directions and clearing B. passage for the men disembarking from the vessels which followed. Subsequent vessels landed machine guns, light antiaircraft guns, and light tanks; these last were chocked up so as to be at the correct quay level for the state of the tide. The object was to put the quay defenses out of action before material was landed. Reliance seems to have been placed almost entirely on the very heavy bombing and prolific and in- discriminate use of hand grenades by the first men ashore. Having got men and material ashore, the Germans seemed content to advance into the town and wait for further reinforce- ments in heavier ships. They relied upon the presence of the CONFIDENTIAL -2- Regraded Uclassified 156 CONFIDENTIAL civilian population all around them to prevent air retaliation. As these phases of action developed, it was the usual practice to organize diversions in the shape of beach landings on the immediate flanks and parachutists' descents behind the ports. From the time the quays were first lit up by the flares it was reckoned that within 30 minutes the Germans would expect to land about 1,600 men. 2. EFFECTS OF REFUGETS UPON MILITARY OPERATIONS Detailed reports have been received regarding evacua- tion of a large proportion of the population of Paris and the consequent effect upon the roads. The exodus en masse began upon the sight of a vast pall of smoke upon the horizon heralding the approach of the Germans. Rumors also set in motion streams of refugees in quite remote back areas, with the result that when military traffic finally should have got clear of the refugees it encountered all the refugee difficulties over again. The refugees had such an effect on the roads that one military car took 14th hours to cover 25 miles. Refugees paid no attention to black-out orders at night, and their lights attracted enemy bombing. This in turn increased the confusion, for even if no hits were registered, the refugees, upon the commencement of bombing, left their driver- less cars to block the road and hid in the ditches. On one occasion a direct hit on B. road caused a delay of 2/2 hours while wounded and debris were moved. It was not possible to provide ambulances for refugee casualties as, coming from the rear, they were moving against the stream of traffic, Two hundred miles from Paris another form of traffic jam set in; it was caused by refugees' running out of gasoline. These people simply abandoned their cars and continued their flight on foot, In general, refugee traffic could be kept in motion and in some form of control only by a certain degree of ruthless- ness and disregard of sentimental considerations. Any vehicle which broke down had to be got off the road at once. Any relax- ation led to jams and attracted enemy aircraft. It was fatal to delay any pre-arranged scheme of dem- olitions out of consideration for the refugees. CONFIDENTIAL -3- Regraded Uclassified 157 CONFIDENTIAL 3. DOGS IN THE GERMAN ARMY Two kinds of dogs are used in the German Army - messenger dogs and tracking dogs. The two breeds best suited are the German sheepdog and the Dobermann, These notes deal with the training of tracking dogs. After a period of training at Dessau or Berlin, the dog is taken to its allotted company by its trainer. The trainer remains with the company for about three weeks until the dog has become familiar with its new master, who is chosen from volunteers that are dog lovers. During this period the dog is also accustemed to all the men of the reconnaissance party with which he will have to work later. The period of adoption being over, the dog obeys its new master and takes part in the work of the reconnaissance party under his direction. The dog is considered satisfactory and sufficiently trained when it is able to work under the follow- ing conditions: Precede the patrol silently at a distance of about 30 to 40 yards, assuring itself by turning its head that the rest of the patrol is following. When he scents the presence of people, strangers to the reconnaissance party, at a distance of 30 to 40 yards away, the dog must warn the reconnaissance party by returning silently to its master's side, A dog which barks or growls at any moment during a patrol is sent back as unsuitable. At the end of every reconnaissance, the dog returns with its master to company hendquarters. It must never stay in the front line. One company belonging to a regiment in the line on the Saar front had three of these dogs. 40 ADDITIONAL NOTE ON REORGANIZATION OF PANZER DIVISIONS The reorganisation of German Panzer divisions was out- lined in TENTATIVE LESSONS BULLETIN No. 86. The following points may be added: a. The Class VII tank is reported to weigh 90 tons and to have arnament consisting of one 105-mm. gun, two 47-mm. guns, and four machine guns. b. The Class VI tank is reported to weigh 45 tons and to have armament consisting of one 75-m. gun and four machine guns. CONFIDENTIAL Regraded Uclassified 158 CONFIDENTIAL C. The Class V tank is reported to weigh 36 tons and to have armament of one 75-mm. gun and four machine guns. d. The antiaircraft battalion, equipped with dual- purpose 15-mm., 20-mm,, and 37-mm. antiaircraft and antitank guns, is reported using largely multiple mountings on its guns. e. The armament of the divisional antitank regiment is said to consist of thirty-six 47-mm. antitank guns and eighteen 75-mm. or 88-mm. antitank guns. 5. COMMENT BY GENERAL RICARD In a recent interview, General Ricard, French G-1 and G-3, admitted that the difference in the numbers of Allied and German divisions was not of great importance and stated the belief that, had this been the only factor to consider, the French and the English could have withstood the German attack. General Ricard is convinced that one reason for the complete collapse of the French Army was the overwhelming support given German ground forces by bombing planes. Almost all the preparations made by France for the War of 1939-40, General Ricard said, were based upon the 1914-1918 principles of infantry supported by artillery. Germany, with a more modern conception of war, prepared and trained a striking force of motorized and armored units closely supported by a strong air force. CONF IDENTIAL -5- Regraded Uclassified 159 RESTRICTED G-2/2657-220 M.I.D., W.D., No. 363 April 11, 1941 12:00 M. SITUATION REPORT I. Western Theater of War, Air: German. Normal night activity over England, partiou- larly in the Midlands, where concentrations were made on Coventry and Birmingham. British. Normal night attacks on the Ruhr, partiou- larly on Dusseldorf. The "Scharnhorst" and "Gneisengu" were again attacked at Brest. II. Balkan Theater of War. Greek Front. German columns advancing from Skoplje and Salonika have reached Monastir and Jannitza, Fighting has begun between German and British troops. Yugoslav Front. A German column moving northwest from Skoplje has captured Urosevac and is moving on Pristina. The strong German mechanized army under General Oberst von Kleist which captured Nish on April 8, continues to advance in a. north- westerly direction and has taken Cuprija and Paracin. This group has also taken Prokuplje to the southwest of Nish, Northern Yugoslavia is being invaded at six points, includ- ing a Hungarian thrust, Szeged--Novi Said, and an Italian advance on Laibach. The Italians also claim to be on the offensive on the Albanian frontier. Albania. Minor activity. Air: German, Close support continued, British. Attacks were made on troop columns in the Monastir area. III. Mediterranean and African Theaters of War, Ground, Libya. The British are hard pressed at Tobruk and their situation east of the town is difficult. RESTRICTED Regraded Uclassified 160 RESTRICTED Air: Considerable air fighting. The Germans bombed Tobruk, The R.A.F. attacked German formations. 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 -2- 161 Paraphrase of Code Cablegram SECRET Received at the War Department By authority A. C. of 5., 0-2 at 10:30, April 11, 1941 Date APR 12 194K BPH ) Initials Cairo, filed 12:15, April 10, 1941. 1. It is probable that British forces in Greece will BOOK - action as it is reported that an armored German force is moving on the city of Monastir from Veles. British plans were to establish a defensive line southeast of Monastir. 2. A second armored German force has left Skopl.je in a northerly direction. 3. If German bombers attack Athens the Royal Air Force is planning to retaliate with attacks on Rome. The Vatioan City will not be raided. 4. Salonika has fallen to two German arnored divisions. 5. Three divisions of the Tugoslav Army have been captured by the German. VELLERS Distributions Secretary of War State Department Secretary of Treasury Under Secretary of War War Plans Division Office of Naval Intelligence Collection Section Assistant Chief of Staff, 0-3 Air Corps SECRET Regraded Uclassified CONFIDENTIAL 162 Purchase of Code Cableguan Reseived of the w Department es 9us, Agril 220 1941. Leason, filed 24:36, April 10, 1942. 1. a the flights of Brittich purcuas chips - in operation - Completed France off the - straits. too freighter me damaged. in attache a memberso wellie off and to Invo. - - reported - a stagle stone bonded - contrations and troup a the Prictes totants. m. Large make - w reported - a reid w six Indom benters against the students place at Mayanger Burnet). the Constal - - a an - - Acts chip, and my fires wire observed after abtects w 80 please is Sevita, cal MS on and shipbailding plants as Iream. - - also claimed in valide - Northern Issue where buildings - me. a the senio of Brittch ottacks a Etal - 340 planos. 9a Mashesters drogged terry 1,000- lb. basis to addition to my there benived ml tuesty tame of high explecive vere utilized and - then 50,000 inscrituries. form beats veightng 2,000 the., n of 1,900 the. and 92 of 1,000 lbs. - instated in the high explosives dropped. a. a Attache as the of airfields in Terinhire onl - hurder CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 163 - - been - - recently, with eitles a the earth coset from Readerd to the Licerd culturing - - - definite reparts have born received. by - activity - Largely limited to - gatrols although be planes raided inland - Bat. there - senttored abbetts as thereing Coventary, and Selfert. & Importent intertrial plants at Stratagham not shipbuilding yends along the - actived constituble I 3. s Brittsh (1) Deglight, Agril 200 - I I s $ 1 1 Times (a) she = after reide - - w I (2) Hight of April 10-11; sight parents planse accounted ter six benbere (including ⑉ chot density a Bougles Invoice). Artillery fire brought down 6 seventh. (a) Buylight, April 20, - ml probably three, planse I I Government I 1 n 1 4. t s Depented operations against motor cirficide 1 great troups took place is the m Agreels, m Neckill ml Beene cestors. During the - parted Lew-flying parents ships becaused. troop octumn ml airfields with mehine - fire. CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 164 % Avia Ate Activity. Middle The s Operations - limited to support I a x h (Mital During the - poried - activity teek place over mits. 6. Bash Thestre- s Britten aircraft destraged 16 Asta planse in flight ml , - the greent. b the British took presention of 31 destrayed w damaged. Italian planse at the Male Ababe airficid. 7. Committee to the besting w Gerentry - unier 150 with 200 accuraly injured. Forty-sta fires - reported. s. (Libm) It to reported w the Brittich that in the with- drovel from West of Borna a for mechanized vehicles - ont off w the - and have net been hourd from since. Brittich acchenized units retreated from Moobill a April s. there is evidence that the - alvance is leaing force ml that their situation to regred w supplies is serious. - Distributions Becretary of Year State Department Secretary of Treasury Under Secretary of Mar Chief of Statt Ver Plane Division Office of I Intelligence Air Gerge I + CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 165 Paraykrace of Code Radiogram Reseived at the Ver Department at 10:25, April 11, 1941 Remo, filed 21:14, April 11, 1941. It is reported that in Italian That Africa the Date of Assta who is at Dessie is trying to rally what remins of his treops but not with the 14am of continuing to resist. A asvement is is progress of British treeps to from Instern Africa. In order to provide quarters for German treepe. the estimated strength of which it is setionated will be 250,000,barreaks are being built in Italy. Distribution: Secretary of Mar State Department Secretary of Treasury Under Secretary of Mar Chief of Staff Assistant Chief of Staff, 0-2 Var Plans Division Office of Naval Intelligence CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 166 Paraphrase of Code Radiogram Received at the Your Department at 20:44, April 11, 1941 Ankara, filed 20:11, April 11, 1941. 1. Reference is unde to eable No. 96 dated the 11th of April - by the Embasay. 2. The Turks are being assured w Tea Paper that they are not threatened and that the Pulgers will attack mither Tugeslavia MP Grosse. 3. Although not confirmed, 11 to reported that in the - future & nonaggreesion pact w - searet understanding will be suggested to the Turks w Certify. 4. Unsursessful attempts have been made w Tageslar - representatives have for Turkey to one the - 18 is expected they will lasve KLUSS Distributions Secretary of for State Department I % Borretary Under Secretary of Mar Chief of Staff Var Plans Division Office of Nevel Intelligence Collection Section CONFIDENTIAL Regraded Uclassified 167 CONFIDENTIAL Paraphrase of Code Radiogram Received at the Mar Department 10:00, April 11, 1941. Bofia, filed 18:30, April 10, 1941. I had a talk in Italian for half an hour, alone with the Minister of Var today. No stated the following ideas: The Ingoslave can last only 3 days. Greece will fall within a week. The Bulgarians will get a small section of Tugoslav territory and Bedengatch (Alerandropolis). The sector of Skoplje (Weksh) vas captured W notor- cycle troops followed by armored troops. the number of Tagoslav prisoners 10 40,000. In Eastern Greece 6 divisions of the Greek army vere taken prisoner. The Tagoslave had reseived assersance that they would got Salomika if they vere villing to lot the Germane through. Today and yesterday a great doal antitenk equipment has been going through the Bulgarian capital, noving in a vesterly direction. Reply to 4 eable No. 7 is requested. JADWIN Distribution: Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff War Plans Division Office of Noval Intelligence CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 168 Persphrase of Code Cablegram Reserved as the Ver Department at 11:59, April 11, 1941. London, filed 17:10, April 11, 1941. The following information was released by the British Var Office as of 7 A.M. today: 1. It is extimated that four Greek divisions vere est off in Thrace w the oupture of Solentim. 2. Germen long range aircraft to assisting the emply of forward elements in the Mochilli area of Like. British are going tate defensive positions based on the Italian Itmes about Tobrush. 3. A viroless communication purporting be be - enter from General Sineviteh was intercepted directing all Tegeslar commai- are to net on their om responsibility. 4d Contact was gained botwoon the dresks and - motor- cycle troop at Mossa and small - form elements sivensing through the Mustir - Similarly light - advence forces attached the British at Tese in the Florina area. In Marthern Tage- alavia - columns advancing from Virevities reached Direver. There are four principal column operating in South Tegeslavia as follows: a. From Stimlje southweet a Prisren. b. Hish northwest a Belgrade. 4. Hish northeast on Enjaseves (1). 4. Envertasi west a Bitalj. (Munstir) I CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 169 Distribution: Secretary of Mar State Department Secretary of Treasury Under Becretary of The thief of Staff Mar Plans Division Office of Naval Intelligunce Air Garya 6-3 CONFIDENTIAL Regraded Uclassified 170 TREASURY DEPARTMENT Regraded Uclass INTER-OFFICE COMMUNICATION Chauncey DATE April 12, 1941 Subtary Morgenthau TO yos Mr. Cochran FROM At 4:25 yesterday afternoon Mr. Loy Henderson telephoned me from the Department of State. He reminded ne that our Government is now requisitioning certain equipment purchased by Antorg for shipment to Russia. Antorg has heretofore refused to accept refunds from the American suppliers. Within the past two days, however, Antorg has not only indicated to suppliers a willingness to accept refunds of advance payments. etc., which they have made for goods which are now requisitioned by the United States. but have been pressing these manufacturers to give them everything by April 14. Mr. Henderson, 88 head of the Russian Section in the Department of State. had dis- mased this with Under Secretary Velles. The latter had asked that the Treasury Department be consulted. lest the Russians might conceivably have in mind scae nove 02 or after April 14 which might be construed as cause for our freesing their assets in the United States. I called the Federal Reserve Bank at New York at 4:30 yesterday evening. In Dr. Incice's absence, I asked Mr. Cameron to let me know the status of the Russian ccount with the Federal, and also to ascertain from the Chase Bank whether there had ME us unusual activity in the Russian accounts the past few days. Mr. Cameron told BO that for the past year the Russian State Bank had maintained its dollar account at closs to the present figure of $3,200,000. The State Bank has no gold with the Federal. The dollar account has been fed by credits coming from Sweden, Switzerland and other countries and out payments have been made to Yugoslavia and other foreign countries. although principally to the account of the Russian State Bank with the Chase in New York. Within the past few days there had been no important changes in the Russian account with the Federal. At 5:20 last night Mr. Cameron telephoned as back to let me know that there vas to one available at the Chase to give the desired information. At 5:30 I telephoned Kr. Handerson and summarized the above report. At 9:30 this morning I telephoned Hr. Knoke in the Federal and explained my call to Xr. Cameron of last night, Mr. Knoke promised to look into the matter personally with the Chase and give me a report this morning. Just before I got Mr. Knolor, Mr. Henderson had called to 100 if I had sit- thing further to give him, since he vas then seeing Mr. Volles. I replied that New York had not yet given no anything to supplement last night's information, Yesterday ovening I had mentioned this matter to Under Secretary Bell, and this morning I re- ported it to Secretary Morgenthau when he called ne at 9:45 a.m. I had also informed Kr. Pahle in the premises at 9:15 this morning. At 11 o'clock Mr. Knoke telephoned me from New York. He said be had been in con- versation with the Chase Bank. No one there had attached any importance to the date of April 14 in connection with Russian affairs. The Chase has no knowledge of Russia wring any immediate used for dollars. The Antorg account with the Chase vas $2,900,000 at the beginning of 1941 and is now at the figure of $2,200,000, and has been maintained 171 - 2 - between these limits the past three months. The Russian State Bank account with the Chase has been going up rather steadily, starting at $4,000,000 at the beginning of the year. reaching as high as $13,000,000 during the quarter, and now being at $10,000,000. The letter of credit account of the State Bank of Russia with the Federal was around $14,000,000 at the beginning of the year, until up to $25,000,000 in March and is now st $20,600,000. This is the account to which funds are transferred from the regular Russian account with the Chase when credits are opened to cover purchases from American suppliers. The slight diminution of the past two or three weeks might indicate expe- dited deliveries or cancellation of orders. The gains in the Russian State Bank account with the Chase resulted principally from imports of Russian gold. In summary, New York knows nothing as to April 14 being a significant date: on their face the Russian accounts show no unusual transactions. I gave the foregoing information to Mr. Henderson by telephone at 11:35 a.m. 10.ms 172 TREASURY DEPARTMENT FOR Blus - INTER-OFFICE COMMUNICATION DATE April 12, 1941 Secretary Morgenthau TO FROM Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £ 3,000 Purchased from commercial concerns £11,000 Open market sterling was quoted at 4.03-1/4, and there were no reported transactions. In New York, the closing rates for the foreign currencies listed below were as follows: Canadian dollar 12-5/8% discount Swiss franc (commercial) .2321-1/2 Swedish krone .2384 Reichsmark .4005 Lira .0505 Argentine peso (free) .2325 Brasilian milreis (free) .0505 Mexican peso .2066 Cuban peso 4-11/16% discount There was a holiday in Shanghai today, and we received no quotations. There were no gold transactions consummated by us today. No new gold engagements were reported. The Bureau of Foreign and Domestic Commerce reported on April 11 an import of 410,000 ounces of refined silver bullion from Canada, consigned to the Chartered Bank of India, Australia and China, San Francisco, for trans-shipment to the Chartered Bank in Bombay, India. Including the above shipment, a total of 2,813,000 ounces of refined silver is now consigned to Bombay. BMP. Regraded Uclassified AIRPLANE mine Table 1. Disposition of Inglass Impected by the Brittsh Repire 1/ Yest unded April 4, 1941 STRICTLY CONFIDENTIAL : Vest onled april 5, 1941 Total to date 1 T Exporte daring week 1 : I Inspected Regisee Exports to date 2/ Bagine and I englass I I Inspected type of engine 08 hand Inspected Regises for American sirframs I enginee Bugines Bagines for daring - hand inspected Engines Englass for American airframs I beginning Total British for west Installed of vesk System E : Company and type of 1 and of week to date Total I strings British Installed engines Spare I I - I enginee sirfrese involved : airframs , magines englass Alliess Division, General Metors Corp. T-1720-615 1000 h.p. zu 16 10 - 10 - Ourtise-Wright Bank 514 pursuit 237 1,160 931 . 755 176 V-1710-B4 1150 h.p. 3 - - - - . 3 3 . - - - T-1710-F3R 1150 h.p. - 1 - - . . 1 1 - - - - Total Allison 214 37 10 - 10 - 241 1,172 951 - 755 176 Jacoba Aircraft Ingian Ce. L-400 225 h.p. , - 8 - # - Crease 1-50 2-engine trainer 32 140 106 - 106 . L-6MB 330 h.p. - 12 12 12 - - - 310 310 310 - - Total Jacobs 5 12 20 12 I - 32 h50 418 310 108 - Linner Metere, Inc. 3-5 125 h.p. - - - - - - - 509 509 509 - - Lycoming Division, Aviation Masafacturing Corp. R 680-83 300 h.p. - - - , - - - 3 3 3 - - Manufacturing De. 04, 125 b.p. - 8 R R - . - 182 182 182 . - Prost 4 Whitney Aircraft 450 N.P. No - - - - - NO 46 6 2 " - 600 h.p. - - . - - - - 50 50 R. - - 81340-83H1 600 h.p. 172 - 30 . 30 - North American BA 66 trainer 142 1,262 1,120 - 1,005 115 31340-83H1-0. 600 h.p. - - - - 2 2 2 - # - - - 81535-504-0 825 h.p. 55 - - . - - 58 610 752 752 . - X1690-8183-0. 875 h.p. 38 - 2 - 2 - Lockheet 18 Ledester transport 16 25 10 - 10 - 21530-80-0. 1050 a.y. 3 3 3 - - - - - - . - - 11530-803-0 (3:2) 1050 h.p. 26 - - - - - 26 328 302 - 260 42 21530-SC3-0 (1619) 1050 a.y. so - 20 , 20 , Martis 1677 2-angine boober 60 52% 64 . 364 100 81830-8103-0 (1619) 1200 h.p. 234 12 18 - 16 a Consulidated 28-50 2-mgise boaber 225 305 77 1 66 10 81830-5304-0. 1200 h.y. 121 M 73 Lockheed 414-13 2-engine reces. bomber 1,081 50 - 1,010 2,607 1,597 1,032 427 138 Brusses 0-363 Havy fighter 21830-33 (2:1) 1200 h.p. 12 - - Consolidated 13 30 b-eagine boaber 5 28 en - 20 - - - - H1830-82. 1200 h.p. - - - - - 14 14 - 14 - - - (5:2) 1650 h.p. - - - - - - - 2 2 2. , - K2800-8144-0 (1619) 2 - - - - 1850 h.p. 2 - . - - , 2 Total Prait A Vhitney 1,725 62 195 € 145 2 1,590 6,009 4,419 1,84 2,170 405 Varner Aircraft Corp. 165-D 165 h.p. 1. 9 - 10 52 82 82 - - - - - Fright Aeromentical Corp. 8760-31 300 h.p. - - 2 2 2 - - - - - - . 1975-03 450 h.p. - 168 166 - 119 $ - - - - - - 081820-0102A - #35 835 - 788 WT 1100 k.p. - - - - - - 1100 h.g. a 25 175 145 - 139 to GRISZO-G105A. 5 - - - - 1200 h.p. 305 R - - 325 527 499 - 475 24 GR1820-02054. - - Boning B-170 4-engine humber - . I - 8 . 081420-73 1300 a.p. - a - - E - 022500-A58 1600 h.p. 1,073 #6 173 173 - - 986 2,514 1,528 1,304 194 50 GR3350-3 1 2 1 1 - - 2300 h.p. 1 - - - - - Total Wright 1,403 119 181 173 a 1,341 4,531 3,290 1,307 1,723 160 - TOTAL ALL COMPANIES, 3.301 259 425 253 171 1 3,214 12,94# 9.734 4,257 4,756 742 Office of the Secretary of the freasury, Division of Assersh and Statistics, Restour British Air Commission Prepared April 12, 1941. 1/ Excluier spare parte but included agare employe engines: 2/ adjusted to allow for revisions in recerts. Regraded Uclassified 171 AXIPLAND - Mable 21 States of Imprested Ingines of the British Registro as Bank in the Delived States 1/ As of April 4. 1841 STRICTLY CONFIDENTIAL 1 I 1 inalysis of Inspectat englass - hand : I I I Total swelting expart 1 Enginee at waging factory 1 Registe at sirframs factory I Ingine company and Airfram company and up of Laspected (or survide thereis) for 1 airfrass Involved enginee Ragines 1 Buginess for 1 L Ingines I Bagines for # : Defi- I type of engine two Encess - hand for Amricas assigned: American cleasy: 02:00 engines 1 (Total) British Installed Spare (Total: se Assigned months' rengines: in 1 1 airfrases I British I englase sugisme for 10- can spare: require-:- hand:engines: E I englass 1 mate : 108 hand: I Allises Division. General Motors Cary. 48 12 36 120 125 1000 h.p. Curtise-Wright Taxic Six pureait 193 a - K - F - 5 F-1710-015 tale - , - - - - - lake Lockheed 322 2-eagine pursuit 12 32 - Bell P-39 Airacobra persult 3 . - - , # - , , 3 80 - T-1710-34. 1150 h.p. 11 Curtise-Wright Bank STA persuit 1 . - - . - - . . 1 20 - 19 T-1710-732 1150 h.p. 241 a - R # 45 . 12 36 160 237 32 101. Total Allieos Jacobs Aircraft Engine Co. 32 . - - - 32 100 . 64 h.p. Cessas T-50 2-engine trainer - - - - 1-40 330 prait A Whitasy Aircraft 450 h.p. Grumma 0-224 sephikins benber No - + - - - - - - 8 . No - North interious IL 66 trainer the 33 - 33 - - - - - 109 217 - 106 R1340-8381 600 h.p. 56 3 3 - - - - - Airfrans deliveries 2 ses. late - 55 22 33 - 11535-034-0. 625 h.p. Teught-Bilorsky V-156 dive booker 16 6 6 - - - - - 10 10 - - Lockbeed 18 Lelestar transport - 81690-5183-0 #75 h.p. Lockheed 414-08 2-engiam recea. boster 26 26 - - B. - - - - , - . - 81530-503-0 (3:2) 1050 h.p. 21830-503-0 (16:9) 1050 h.p. Martin 1677 2-engine bomber 60 56 56 - - - 4 M . - - . - Consolidated 26-583 2-engine leater 228 15 - 12 3 16 - 16 - 197 61 116 - 81630-3103-0 (16:9) 1200 h.p. 702 20% 17% 30 2 - 2 - 496 legal 2 11830-8304-0 Leckbeed 414-13 2-engine reces. bouher - 1200 h.p. * . . - , 115 - - - 111 36 75 - Airfrass deliveries 3 asi. lase Gramma 0-360 Havy fighter 193 36 - 34 - 155 100 55 - Airfram deliverias 2 an. late - Consolidated LB 30 - beader - - - Consolidated La 30 4-engine bother 5 8 - # - - . 1 - - - - - M1830-33 1200 up. 2 - - - - - - 2 2 - - (16:9) 1850 b.p. Lockhood 37 2-engine bomber - - 56 319 110 1,590 355 - 296 59 56 - - 1,179 910 Total Prait & Whitaay Varner Aircraft Corp. - - - I - - - - 165 a.p. Separate engines 10 10 10 - 165-D. Wright Aeronantical Corp. 26 21 21 - - - - - 5 43 - 38 - 321620-01054 1100 h.p. Irevater 339 pureuis 80 80 - 109 - 109 - 133 125 - 12 081820-02056 1200 2.7. Lockheed 112-56 2-engine recon. boaber 302 - en le 15 - 15 - - - - - 19 - . Ourtise-Wright Have 754-4 perall - - - - - - - 7 - trums 0-36A Havy fighter 7 - + 7 + - 3 - , - #6 6 BO - Airfrass deliveries 2 ses. late 082500-A50 1600 h.p. Fulsee 72 Live beaker 6 - " - - No to - - Airfrass deliveries 2 me. late E N - - - Martin 167 2-eagias rema. bester - 30 2 25 - 35 35 # - - is . - 1 Boxing Douglas IN-73 2-mglar treater 340 dive - - . 1/9 - 34 - 106 2 100 - diriness deliveries 6 nos. late 100 - 66 - 63 - 65 - 3 3 - - Northrop 72 dive baster - - 196 10 15 & as - 7% 2N 35€ 160 - dirives deliverise . - late Deuglas IB-7 3-eaglee leaber 80 - 53 - - - - - - 138 75 75 - - e Deparate englass - - - - - # 1 1 1 - . - - 083350-8 2200 h.p. Deparate englass 1,341 B2 76 121 15 390 63 296 & 759 381 408 50 Total Vright - - - - . 399 16 té - - 63 63 - Subtotal: engines assigned Le British strframs 366 566 * 2,118 1,655 759 329 Subtotal: englase assigned for installation La American sirfram 2,926 Ma 4kg - # - R $ S - - - - - - Subtotal: englase seatged as spares for American sittlened 139 R - - 3.214 502 # the R $ 63 365 $ 2,118 1,688 759 39 TOTAL ALL Propared April 12. 1341. Office of the Secretary of the Treasury, Division of and Statistics. Seurver ALT Commission. 1/ Excludes spare parts but Laclades eyere complete engineers - recentions Regraded Uclassified AIRPLANE ENGINES 1/ 175 Table 3: Location of Separate Ingines Awaiting Export by the British Empire 31 As of April 5. 1941 STRICTLY CONFIDENTIAL : : Engine company and : Ingines : Analysis of engines swaiting export by location type of engine I awaiting : At engine factory : In : : export : At port of embarkation I transit : : Paterson, J. J. : : Port of New York Engines for British airframes Warner Aircraft Corp. 165-D. 165 h.p. 10 - - 10 Wright Aeronautical Corp. 0R2600-A5B 1600 h.p. 75 18 2 55 GR3350-B 2200 h.p. 1 1 - - Total Wright 76 19 2 55 Total engines for British airframes 86 19 2 $ Spare enginee for American airframes Pratt & Whitney E1830-SC3-0 (3:2) 1050 h.p. 26 - - 26 E1830-S103-0 (16.9) 1200 h.p. 3 - - 3 E1830-83C4-0 (16:9) 1200 h.p. 30 - - 30 Total Pratt & Whitney 59 - - 99 Wright Aeronautical Corp. GR1820-0205A 1200 h.p. 11 3 - 5 082600-A5B 1600 h.p. 14 - - 4 Total Wright 15 3 - 12 Total spare engines for American airframes 74 3 - 71 TOTAL SEPARATE ENGINES ANAITING REPORT 160 22 2 136 Office of the Secretary of the Treasury. Division of Research and Statistics. Prepared April 12, 1941. Source: British Air Comission. Excludes spare parts but includes spare complete engines; excludes secondhand engines. 2/ Excludes enginee installed in American airframes, which are covered in Airfrance Table 3. Regraded Uclassified 176 4/10 AIRFRAMES Table 11 Disposition of Airfrance Inspected by the British Empire Week ended April a, 1941 STRICTLY CONFIDENTIAL a . Work unded April 8, 1941 Total to date Airfrass company and : Inspected I Airfrance I I airfrasse I Exporte during vesk I Inspected: I type of airframs I os hand inspected Ruber I airframent I beginning during I of Ingine company and type on hand Airfrance I Airfrance week I # 1 airfrance I and of inspected I of net of eagina involved exported - 1 I yeek I Bell Aircraft Corp. 1-39 Airacobra pursuit 1 - - 1 1 - Boeing Aircraft Co., Inc. B-170 4-engine bomber 3 - 2 Wright 081820-73 1200 b.p. 1 3 2 Brevater Aeronantical Carp. 339 pursuit 13 8 # 21 127 106 339 3 fighter 1 - - - - 33 33 Total Breveter 13 $ - 21 160 139 Cessas Aircraft Co., Inc. Tw30 2-engine trainer - 4 4 Jacobe 1-400 225 h.p. - 54 54 Consolidated Aircraft Corp. 28-5MB 2-engine beaber 7 T 6 Pratt & Whitney R1830-5103-0 (16:9) 1200 h.p. 6 46 NO LB 30 4-eagine bomber 3 3 1 Pratt & Whiteey R1830-33 1200 h.p. 5 10 5 Total Consolidated 10 10 9 11 56 $ Ourties-Wright Corp. Bank 754-4 persuit - - - - 20% 204 Havk SIA pursuit 35 - 10 Allison V-1710-015 1000 h.p. 25 780 755 Total Curtise-Wright 35 - 10 25 984 959 Douglas Aircraft Co., Inc. 318A 2-engine bomber - - # - 24 24 DB-7 2-engine bomber - - - - 138 138 DD-7A 2-engine bomber - - - - 97 97 DB-73 2-engine bomber - E - 8 8 - Total Douglas - 8 - 5 267 259 Gruman Aircraft Engineering Corp. 0-21A amphibian bomber - - - - 2 2 0-36A Havy fighter - - - - 61 81 0-36B Havy fighter 9 - 5 Pratt & Whitery 21530-8304-0 1200 h.p. " , 5 Total Greaman 9 - 5 is 92 68 Lockheed Aircraft Corp. 214-40 2-ongine recon. bomber - - - - 100 100 414-08 2-engine recon. bomber - - - - 30 30 414-13 2-eagine recon. bomber 98 23 34 Pratt 4 Whitney R1830-8304-0 1200 h.p. 57 160 73 414-40 2-eagine recon. bomber - - - - 20 20 414-56 2-engine recon. bomber 34 6 - 40 135 95 3-14 2-eagine recon. bomber - - - - 350 350 18 Lodestar transport 3 1 1 Pratt a Whitney 21690-81N3-0 875 h.p. 3 8 5 Total Lockheed 135 30 35 130 803 673 Glean L. Martin Co. 167# 2-eagine bomber 35 3 10 Prait & Valtary 11830-803-0 (16:9) 1050 h.p. 26 210 182 North American Aviation, Inc. MA 49 trainer - - 430 430 - - BA 64 trainer - - - - 119 119 BA 66 trainer 55 I 30 Pratt & Whitney R1340-8381 600 h.p. 33 608 575 BA 73 pureait 1 - 1 1 - - Total North American 56 I 30 34 1,158 1,124 Tought-Sikersky Aircraft V-156 dive benber - 3 - 3 3 - TOTAL ALL COMPANIES 297 74 105 266 3.791 3.525 Office of the Secretary of the Treasury, Division of Research and Statistics. Source: British Air Commission. Propared April 12, 1941. 1/ Includes spare parts and secondiend airframes. Includes 29 airfrases without enginee. Regraded Uclassified AIRFRAMES Table 2: Status of Inspected Airframes of the British Repire on Hand in the United States 1/ As of April 8, 1941 STRICTLY CONFIDENTIAL I Analysis of inspected airfrance on hand Airframe company and Bagine company and type Total type of airframs of engine involved inspected: Airframes at factory Airfrance airfrance I on hand awaiting Ragines , I export Total being Awaiting Avaiting installed engines teste Dell Aircraft Corp. P-39 Airacobra pursuit Allison V-1710-34 1150 h.p. 1 . 1 - - 1 Bosing Aircraft Co., Inc. B-17C 4-engise bomber Wright GR1820-73 1200 h.p. 1 1 . - - - Browsier Aeronautical Corp. 339 pursuit Wright 981820-6105A 1100 h.p. 21 21 - - - - Consolidated Aircraft Corp. 28-5KR 2-engine bember Pratt é Whitney R1830-8103-0 (16:9) 1200 h.p. 6 6 LB 30 4-engine bamber - - - - Pratt & Whitney R1830-33 1200 h.p. 5 5 - - - Total Consolidated 11 11 - - - - Ourties-Wright Corp. Bank 81A pursuit Allison V-1710-015 1000 h.p. 25 25 - - - - Douglas Aircraft Co. DB-75 2-engine bomber Wright GB2600-A5B 1600 h.p. 5 8 I - - - Grumman Aircraft Engineering Corp. 0-36B Havy fighter Pratt & Whitney R1830-8304-0 1200 b.p. 4 4 - - - - ockheed Aircraft Corp. 414-13 2-engine recon. beaber Pratt & Whitney R1830-8304-0 1200 h.p. 87 87 - - - - 414-56 3-engine recon. benber Wright GB1820-0205A. 1200 h.p. 40 39 1 - - 1 18 Lodestar transport, Pratt à Whitney R1690-8183-G 875 h.p. 3 3 - - - - Total Lockheed 130 129 1 - - 1 loan L. Martin Co. 1678 2-engine bomber Pratt & Whitney R1830-803-0 (16:9) 1050 h.p. 26 28 # - - - orth American Aviation, Inc. HA 66 trainer Pratt a Whitney R1340-83H1 600 h.p. 33 33 - - - - HA 73 persuit Allison V-1710-F3R 1150 h.p. 1 - 1 - 1 - Total North American 34 33 1 - 1 - Vought-Bikorsky Aircraft V-156 dive bomber Pratt & Whitney 21535-834-0 825 h.p. 3 3 - - - - TOTAL ALL COMPANIES 266 263 3 - 1 2 Office of the Secretary of the Treasury, Division of Research and Statistics. Source: British Air Commission. Prepared April 12, 1941. Excludes spare parte and secondhand airframes. Regraded Uclassified 178 AIRFRAMES Table 31 Location of Airframes with Installed Engines Awaiting Export by the British Empire 1/ As of April 8, 1941 STRICTLY CONFIDENTIAL - I Hold at I - Airframe company and I Airframes I airfram factory : : At port of embarkation type of airfram : swaiting I : In : 1 export I Total I Los Angeles I Baltimore Stratford # transit I : (Comn.) Total I New York # I New Orleans 1 : Los Angeles I I : # : Bosing Aircraft Co., Inc. B-170 4-engine bomber 1 - - - - 1 - - - - Browster Aeronautical Corp. 339 pursuit 21 - - - - - 21 21 - - Consolidated Aircraft Corp. 28-5MI 2-engine bomber 6 - - - - 6 - - - LB 30 4-engine bomber - 5 - - - - 5 - - . - Total Consolidated 11 - - - - 11 - - - - Curties-Wright Corp. Havk S.L.A. pursuit 25 - - - - - 25 25 - - Douglas Aircraft Co. 113-73 2-engine bomber 5 - - - - 3 5 5 - - Grummen Aircraft Engineering Corp. 0-36a Havy fighter la - - - - - " 4 - - Lockheed Aircraft Corp. 414-13 2-engine recon. bomber 87 5 5 - - 14 68 52 16 - 414-56 2-engine recom. bomber 39 29 29 - - - 10 - - 10 18 Lodester transport 3 1 1 - - 1 1 1 - - Total Lockheed 129 35 35 - - 15 79 53 16 10 Glenn L. Martin Co. 1678 2-engine bomber 28 4 - is - - 24 24 - - North American Aviation. Inc. NA 66 trainer 33 6 6 - - - 27 - - 27 Vought-Bikorsity Aircraft V-156 dive bomber 3 2 - - 2 - 1 1 - - TOTAL ALL COMPANIES 263 47 41 4 2 30 186 133 16 37 Office of the Secretary of the Treasury, Division of Research and Statistics. Source: British Air Commission. Prepared April 12, 1941. 1/ Excludes spare parte and secondhand airfrasse. Regraded Uclassified gits this 179 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 12, 1941. TO Secretary Morgenthau Alan Barth FROM BATTLE SMOKE The Mediterranean The rapidity of the week's events has blurred their imprint on American opinion. With each new bulletin from the Balkans, the editorial analysts waver in their judgments, uncertain still as to the outcome of the battle. The early news of a setback to British fortunes undoubtedly ( dealt & stunning blow to American hopes. How exalted, and perhaps unfounded, these hopes were is revealed in the degree of disappoint- ment which has been felt. But the reaction has been one only of disappointment, not one of despair. It has been possible thus far to examine only a limited number of editorial comments on the Balkan battle -- and these, for the most part, in the eastern metropolitan press; the smaller news- papers of the middle west may prove less resilient in their responses. Judging from those editorials now available, however, it may be said that the commentators have rolled with the punch and have hardened in their determination to hit back. The British victcries during March, in Africa and in the Ionian Sea, together with the Yugoslavian revolt, gave rise here to a buoyant Regraded Uclassified 180 - 2 - feeling that the war had reached a turning point. While they were restrained in the expression of their optimism, many commentators, as well as & large segment of the general public, permitted them- selves the private hope that the Nazi war machine might crumble as readily as had the Italian. They clung tenaciously to the notion that the panzer divisions were no more than a papier-mache nightmare conjured up by Nazi bluff and bluster; and they daydreamed of popular uprisings inspired by the magic of America's Lend-Lease law. In a sense, the dashing of these illusions has been healthful. It has brought home more effectively than anything that has gone be- fore the reality and urgency of the dangers confronting the United ( States. It has shattered the American tendency to rely on mere legis- lation as a panacea. There is now genuine recognition that the Lend- Lease law must be powerfully implemented in order to make it meaning- ful. One moral commonly drawn in editorial comments is that the good will of the United States was of small avail to the Yugoslavs; real aid must be delivered to be of value. Undoubtedly some degree of defeatism has been engendered by the Balkan reversal. The Scripps-Howard chain observed editorially that it may turn out that the German armies are literally invincible, however inhospitable the terrain and the people." The isolationists can be counted upon to spread this "wave of the future" doctrine. But the tone of most comments suggests that it is a doctrine unlikely to sit well with the American temperament. Regraded Uclassified 181 - 3 . The Atlantic Three main fears haunt the editorial writers analyzing the trend of the war: (1) That the crushing of Yugoslavia will crush the morale of other weak nations which might have been encouraged to resist ag- gression; (2) That the Japanese may be sufficiently convinced of German strength to move against Dutch and British possessions in the Pacific; (3) That the German advance in Africa may succeed, not only in closing the Suez Canal, but also in securing Dakar and the west coast of Africa for German use in the Battle of the Atlantic. The dismay over these possibilities is not because they are held to presage an ultimate Axis triumph, but because they seem to make merican involvement more probable. A high percentage of commentators take it for granted that the United States Navy must thwart Japanese attempts to move farther to the south and that it must convoy aid to Britain if German sea raiding is intensified in the Atlantic. There has been singularly slight consideration of methods other than convoying to overcome German sea power. The alternative which has received the liveliest attention is the transfer of additional units of the United States Navy to Britain; but this is held to have almost equal disadvantages. Rumors that the United States may convoy merchant vessels part way to England have been criticized as & subter- fuge embracing most of the dangers of full convoying. Redefinition of the zones of belligerency to permit American ships to make deliveries Regraded Uclassified 182 4 to Red Sea ports occasioned very little comment during the period since the President intimated that it might be done; it is regarded as & palliative at best. Extension of American protection to Green- land has been welcomed as a defensive measure, but it is not con- sidered a solution to the main issue. The main issue now taking shape in the American mind is one of peace or war. Hope is waning that a British victory can be purchased without full American participation. Events are prodding Americans to a grim choice which they have been reluctant, until now, to face.. But the impression is beginning to prevail that the choice can no longer be evaded. Regraded Uclassified 183 MEMORANDUM April 12, 1941 To: Mr. Harry Hopkins From: Oscar Cox Subject: Neutrality Act Opinion I think that it might be unwise, as a matter of beth law and policy, to cover too much ground in one opinion. In this fast-changing situation, no one can predict with certainty just what problems are likely to arise. About the best thing that can be done is to put up a well-thought-out specific question at a time in such a way that the future will not be blocked. On the basis of an opinion in answer to one specific question, it is also likely that the Presi- dent will get the best public reaction as well as be on the firmest legal ground. At this time, orally or in writing, the Presi- dent might ask for an opinion somewhat along the fol- lowing lines: Regraded Uclassified 184 - 2 - "By agreement with the British Government, the United States has acquired the right to lease and con- struct naval and air bases in Newfoundland and British Guiana and in the islands of Bermuda, the Bahamas, Jamaica, St. Lucia, Trinidad, and Antigus. By agreement with the Danish Government, the United States has ac- quired the right to lease and construct military bases in Greenland. To effectuate these agreements, it is necessary to ship arms, munitions and implements of war, as well as non-arms such as lumber, oil and food to these places. It is also necessary to send American citizens to work on the construction of these bases. If it is legally proper to do so, it is desired to transport these men and supplies by public vessels of the United States. I would appreciate your opinion on this question." An opinion on this question might well cover the transfer of all kinds of articles to all ports of the world in public vessels: Because the Neutrality Act of 1939 does not apply to public vessels, they can go to any Regraded Uclassified 185 n I - port with anything, and, therefore, a public vessel can be used to transfer supplies and personnel to our bases. (sga) Cay 186 ) TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 12, 1941 TO Secretary Morgenthau FROM Mr. Kamarck Subject: Interview with Dr. Spencer Summary Observations on the German Diet. 1. The German army is well fed in every respect. 2. The German civil population receives an adequate quantity of food but the diet is not well balanced in that there is & shortage of fats and some vitamins. 3. The diet of the German civil population, while it does not result in serious 111 effects, does affect the people somewhat adversely. The unbalanced diet causes lassitude, lack of ambition, increased susceptability to disease, decreased vitality and stamina, and insomnia. Other Observations 1. The civil population of Germany is very much afraid of air raids. 2. If the bombing by the Royal Air Force of important secret German installations 1s any criterion, the British Secret Service is most efficient. Regraded Uclassified 187 - 2 - Division of Monetary Research Dr. Herbert Spencer is a senior surgeon at Ellis Island, New York. He has had considerable experience with war, having been in Spain during the Spanish Civil War and in Finland during the Russo-Finnish War. Dr. Spencer was sent to Germany in May, 1940 to inspect war prisoner camps and remained in Germany until February, 1941. In this work he was in close contact with the German army and its diet. He was also able to make some observations on the German civilian rations. The following summarizes his conclusions on the subject of the diet of the German population. 1. The German army 1s well fed in every respect, The military messes receive food which cannot be bought for any price by the civilian population. The ration is well balanced and there 1e enough of it. The blockade has not affected the German army at all in this vital matter. 2. The German civil population receives an adequate quantity of food but the diet is not well balanced. The diet does not include a sufficient amount of fat and, Dr. Spencer suspects, some of the vitamins are also lacking. 3. The unbalanced diet does not have any serious 111 effects but it does decrease the efficiency of the population. Even though an individual may look perfectly healthy he will be deficient in vitality and stamina. Susceptability to disease is increased. In general, there results a feeling of lassitude and of lack of ambition. (This may partly account for the general impression of apathy some observers notice in Germany.) Dr. Spencer told B. personal story illustrating the character of the diet. He would often eat in B. restaurant and would order as much food as he wanted to eat. At the end of the meal a most peculiar feeling would be experienced: even though he was full and could not eat anymore, he still felt hungry. Dr. Spenger had a number of observations on other features of life in Germany which might be of interest. 1. The German civil population 18 very frightened by air raids. Dr. Spencer said that one had to be very quick to beat a Berliner to the air raid shelter when the alarm sounded. Last June when the first British air raid occurred, Regraded Uclassified 188 - 3 - Division of Monetary Research the Berlin population was shocked because, as they remarked, Goering had promised that no British bombers could get through. 2. The efficiency of the British Secret Service was most impressive. For example, a new barracks was being erected in one town. On the second day after it had been built and was occupied by troops, the British came over and bombed it. Dr. Spencer saw a power line bottleneck that the British had knocked out of commission for some while. It was very plain to see that the British were after this power line, as a stick of bombs had been laid perpendicular to the line extending several hundred yards on both sides. 3. The Germans always attempt to conceal rapidly the results of the air raids. Repairs are made hurriedly. If the repair cannot be completed at once, the damage 18 hidden in some manner. Dr. Spencer told of a house which had been badly struck a few hundred yards from where he lived. The front of the house had been repaired and new windows put in, making the building appear completely normal from the street, whereas inside it was a shambles. Regraded Uclassified 189 CORRECTED COPY DES GRAY BERLIN Dated April 12, 1941 Rec'd 7:04 p.m. Secretary of State, Washington. 1404, April 12, 1 p.m. FROM HEATH FOR TREASURY AND DEPARTMENT'S INFORMATION. Official German news SERVICE states that the April 15 coupons of the American tranche of the Dawes loan which have been stamped "United States of America domicile October 1, 1935" will bE bought in the same manner as the coupons which fEll due on October 15, 1940. MCRRIS EMB 190 C 0 P Y PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Moscow, U.S.S.R. DATE: April 12, 1941, 6 p.m. NO. : 755 The following is strictly confidential. I have received the following information from the General Manager of the Swims Bank Corporation of Basle, Albert Mussbaumer. He arrived here yesterday for the purpose of arranging to finance the recent trade agreement between Switserland and the U.S.S.R. He said that at the moment Swise banks are probably in B. better position than any other agencies in the world to observe the amount of dollars being sold by the German Reichsbank; according to careful estimates of the Swiss banks, the Germans are selling to New York and Swies banks from $200,000 to $300,000 each day. South America he said was the source of most of these dollars, which are being converted into Swies france for the most part. Swiss banks, he said, refuse to purchase the securities which the Reichsbank had obtained from the occupied countries but dollars which the Reichabank presented to the Swine banks were readily converted into Swiss francs. With these funds, he said, it is possible for the Germans to finance their purchases outside Germany and the occupied countries, and they have besides 5. substantial surplus. Regraded Uclassified 191 -2- With this surplus Germany is buying up its dollar bonds in the United States at their depreciated value, and bonds of the French Government at from 40 to 60 percent of face value. I asked why the Germans should be buying bonds of the French Government, and he replied that bonds bought in this manner were tendered at their par value to the French holders of shares in important industries in France. In this way the Reichsbank is getting control of many of France's most important industrial concerns. Furthermore, according to Mussbaumer, the Reichsbank is pursuing this course in other countries too. He said he knows of instances in South American countries where with Swiss france the Reichsbank is purchasing control of important companies. I asked Mussbaumer whether it was possible for him to give me an estimate of the var's cost to Germany, and whether he knew how the war is being financed by Germany. He replied that there is substantial agreement on the part of the best-informed Swise banks that the monthly expenses of the German Government amount to about 2,500,000,000 marks. Current income of the German Government takes care of about 45 percent of this amount, and loans, short term notes, etc., finance the remainder of about 55 percent. My informant remarked that the standard of living of the German people 192 -3- has fallen commensurately with the mounting deficit over such a considerable period of time. He said that the purchasing power in Germany has become only a fraction of what it was before the war. It is the opinion of Mussbaumer and his associates in Switzerland that until the German standard of living has reached the irreducible minimum there will not be any serious inflation in Germany; and that it will be "one or two years more" before this happens, in the opinion of Swies bankers. STEINHARDT. EA:LWW 5 00PY:mg/bj:4/21/41 Regraded Uclassified