Volume 495, February 10 – February 11, 1942

DIARY Book 495 February 10 and 11, 1942 Regraded Unclassified A - Book Page Appointments and Resignations Friedman, Irving S,: Biographical data - 2/11/42 495 44? American Boach Corporation See Foreign Funds Control Automobile Salesmen See Financing, Government: Defense Savings Bonda - 8 - Boettiger, John See Financing, Government: Defense Savings Bonds British Purchasing Mission Gold and dollar balances during Fridays in January and January 31 - 2/10/42 148, 472 Federal Reserve Bank of New York statement showing dollar disbursements, week ending January 28, 1942 152 Vesting order sales - 2/11/42 480-485 Brotherhood of Teamsters, International See Financing, Government: Defense Savings Bonde - 6 - Capital Funds Committee Memorandum to FDR and suggested reply to Healy (Securities and Exchange Commission) - 2/11/42 411 China Fox's report after return to United States given to Stimson by HMJr - 2/10/42 14 Loan: Fox memorandum on possible uses - 2/11/42 492 Consultants, Tax See Revenue Revision Correspondence Mrs. Forbush's resume' - 2/10/42 135 Cuba See Latin America - D Douglas, Melvyn See Office of Civilian Defense - 5 - Ecuador 3ee Latin America Engraving and Printing, Bureau of Military guarò to be withdrawn February 28, 1942 448 Exchange Market Resumes - 2/10-11/42 177,504 Regraded Unclassified - E - (Continued) Book Page Exports To Russia, Free China, Surma, and other blocked countries, week ending January 31, 1942. 495 141 Freight Situation - Haas memorandum - 2/11/42 454 - ? - Financing, Government February Financing: Stimson-HMJr conversations concerning outlook for the var - 2/10-11/42 11,261 (See also Book 496, page 30 - 2/12/42) Discount Corporation, Devine, etc., suggestions 56 Rouse-HMJr conversation 63 Treasury Notes and Bonds - Hadley memoranda 69.70 Treasury Notes, Tax Series A and B - sales of: August 1941 to January 1942, 71 Sources of funds for Government borrowing. fiscal year 1943 - progress report (Haas) on study to outline 73 Open Market Committee confers with Treasury group - 2/11/42 197 a) A bond and a short note - HMJr's choice 197 b) Sproul-Rouse-HMr conversation 199,249 c) Conversations with Young (Boston) and Fleming (Cleveland) 225,232, 236,259 d) Ecclee memorandum 246 Conference: present: HMJr, Bell, Murphy, Hadley, and Haas - 2/11/42 269,313 a) Sproul-HMJr conversation 274,298,322 b) Eccles-HMJr conversation 289,314 c) Jonea-HMJr conversation 304 d) Treasury Notes and Bonds - Hadley memoranda 325 e) Recommendation to FDR 327 1) $1.5 billion cash subscription - 2% Treasury Bonds, 1952-1955 Defense Savings Bonds: Tobin (Daniel J.), President of International Brother- hood of Teamsters, thanked for cooperation - 2/10/42. 79 Boettiger thanked for cooperation - 2/10/42 117 Automobile Salesmen: Employment of - Graves memorandum - 2/11/42 420 Payroll Savings Plan: Gallup Foll - 2/11/42 421 Stock of Series 3 Savings Sonds on Hand, January 25 to date - 2/11/42 422 Foreign Funds Control Knudsen, William S.: Request to remit funds to sisters in Denmark denied - 2/10/42 139 China: Soong and Kung holdings - 2/11/42 450 American Boach Corporation - Thurman Hill memorandum - 2/11/42 451 Friedman, Irving S. See Appointments and Regignations Regraded Unclassified - G - Book Page Germany German casualties in Russian campaign through December 8, 1941 - Kamarck report 495 509 Guaranty Trust - New York City Stetson, Eugene - President: Ransom tells HMJr Stetson is complete and violent reactionary - 2/10/42 8 - I - International Brotherhood of Teamsters See Financing, Government: Defense Savings Bonds - K - Knudsen, William S. See Foreign Funds Control Kung, H, H. See Foreign Funds Control - L - Latin America Cuba: Proposed issue against gold from United States Stabilization Fund - 2/11/42 496 (See also Book 501, page 206 - 2/20/42) Ecuador: Exchange Stabilization Agreement - resume' of negotiations - 2/10/42 169 a) Welles' letter - 2/11/42 309 1) White-HMJr conversation 307 2) Welles-HMJr conversation - 2/12/42: See Book 496, page 24 (See also Book 497, page 33 - 2/14/42) 3) Welles' second letter - 2/18/42: Book 498, page 152 b) Conference with Eduardo Salazar - 2/19/42: Book 498, page 219 c) Draft - 2/23/42: Book 500, page 147 1) Discussion - 2/24/42: Book 500, page 168 2) White memorandum on conference: Book 500, page 178 d) Agreement as signed February 27, 1942: Book 502, page 18 Lend-Lease Allocations and obligations: Executive Reports transmitted by Stettinius - 2/11/42 465 Regraded Unclassified - H - Book Page Military Reports Reports from London transmitted by Campbell - 2/10-11/42 495 178,506 German casualties in Russian campaign through December 8, 1941 - Kamarck report - 2/11/42 509 C # 1 Office of Civilian Defense Douglas, Melvyn| Defense offered at Press Club luncheon - 2/11/42 426 - R - Revenue Revision HMJr's statement before House Ways and Meane Committee, on Revenue Bill of 1942: Draft 1 - 2/10/42 89 Consultants: Justice Department asked for opinion on restrictions on activities after service with Government is terminated - 2/11/42 427 $ I I Shipping Allied shipping position as reported by Sir Arthur Salter - 2/11/42 486 Soong, T. V. See Foreign Funds Control Stabilization Fund See Latin America: Cuba Statements by HMJr Before House Ways and Meane Committee, on Revenue Bill of 1942: Draft A - 2/10/42 89 Draft B - 2/16/42: See Book 497, page 199 Stetson, Zugene See Guaranty Trust - New York City - T - Tax Consultants See Revenue Revision Teameters, International Brotherhood of See Financing, Government: Defense Savings Bonds Tobin, Daniel J. (President, International Brotherhood of Teamsters) See Financing, Government: Defense Savings Bonde Regraded Unclassified 1 February 10, 1942 Mr. Phillip Murray called on me to tell me that they expect to have a great battle over trying to increase the wages of the steel workers. He said according to their figures -- they took the prices from the A & P the cost of living has gone up 30%. lie said they used those figures rather than the Bureau of Labor Statistics which only shows 11%. lie said he asked the President and asked Leon Hen- derson to keep his mouth shut until they had B chance to apppear before the National War Labor board, but Henderson, this morning, has shot his mouth off and he thinks it most unfair that 8 Presidential appointee should take his case to the public before they have a chance to have a hearing. he then told me a thing which amazed me. He said, "You remember, last year, when they raised the price of wages and froze the price of steel, and at the time they said the steel companies would not be able to make any money", Henderson jumped on a plane and flew out to Pitts- burgh secretly to ask Phil Murray whether he would not agree to increase the price of steel. He said, "I have known that fat windbag for 25 yearn. I have seen him walk the highways and the byways of the United States and," he said, "he's just 8. big fat windbag full of gas. I imagine the reason he came to see me was he must have heard somehow about Renderson's conversation with me. (wee phone conversation of February 4, 1942.) Regraded Unclassified 2 February 10, 1942 9:23 a.m. HMJr: George. George Buffington: Yes, sir. HMJr: Mr. Philip Murray just left. B: Yes. HMJr: That Motion Picture Operators 1s not his union, it's A. F. of L. He said 80 are the actors. B: Yes. Well HMJr: Wait a minute, please. He said they have what they call a meeting of the war board on Monday B: Yes. HMJr: of which he and Green are members. B: Yes. HMJr: He said if Green will ask him to join him, he will be glad to join Green on Monday and give out a public statement supporting us. B: Fine. HMJr: He said he'll - that, incidentally, would be the first public statement the both of them have ever made. B: Fine. HMJr: So that in itself would be a sensation. B: Yes, sir. HMJr: So he said if Green will get in touch with him, he'd be very glad to join him on Monday to make the public statement saying that this should be - we should get our money. B; Fine. All right, sir. 3 - 2 - HMJr: So if you need any help on that, we have very good contacts with Green through - oh, ask Harold Graves. I forget the man's name. B: All right, sir. HMJr: But through Harold Graves. He has a man who has very good contacts. B: All right, sir. HMJr: You see? B: Thank you, sir. HMJr: But he says both the motion picture operators' and actors' union are under B: A. F. of L. HMJr: Yeah. B: All right, sir. HMJr: Thank you. Regraded Unclassified 1 February 10, 1942 9:32 a.m. John Sullivan: Yes, Mr. Secretary. HMJr: Will you please get in touch with Buffington and work with him, because I really want to put a fight on in the Senate to get back this appropriation. S: I'm glad. I think you should. HMJr: Well, it - and I want you to really put your shoulder to this. S: Well, I'll be very happy to get back into it, sir. HMJr: Back into it? S: Yes. HMJr: What do you mean by that? S: Well, I mean, I haven't been in on this up there in the House, you know. HMJr: Well, anyway, I don't - anyway, you're in on it now. S: Right. HMJr: I'm not going to argue about what happened in the House. S: Right. HMJr: You're in on it, and I wish you'd consult with Buffington and really go to town on this. S: I'll do my best, sir. HMJr: All right. S: Righto. Regraded Unclassified 5 February 10, 1942 9:35 a.m. Edward Foley: Good morning, Mr. Secretary. HMJr: Have you had time to see what the opinion 1s in regard to paying for the Donald Duck picture? F: I've got it in my hand, Mr. Secretary, and I'm just going OV er it. HMJr: You haven't read it yet? F: No. HMJr: Well, I won't have time now for hours. F: All right. HMJr: I suppose the men worked - I know that Huntington Cairns was here last night, because he called up Buffington. F: Yeah. Well, he's right here now. HMJr: Well, let me talk to him, will you? F: Yeah. (Aside) He wants to talk to you. Huntington Cairns: Hello. HMJr: Hello, Huntington. C: Yes, Mr. Secretary. HMJr: I hear you worked late last night. C: Well (Laughs) HMJr: Anyway, thank you for it. C: Not at all. HMJr: What is your offhand opinion on that? C: Why I think it's doubtful that the Comptroller General will pass it. 6 - 2 - HMJr: You think it's doubtful? C: Yes. HMJr: I see. C: He has refused it in cases, and he has granted it in cases; and so far as you can distinguish a line of thought in his opinions HMJr: I see. C: .....1t seems that he would deny this one. HMJr: That's your offhand opinion? C: Well, that's an analysis of the cases last night. HMJr: I see. Well, that's not so good. C: No. You see, if he refuses it, you'd have to go back to Congress anyway. HMJr: Uh huh. Well, of course, the thing to do would be to talk to him before we paid it. C: That's right. HMJr: Yes. C: And Lindsay Warren wants very much to cooperate with us. HMJr: Well, I've got Sullivan and Buffington handling this fight on the Hill, and I wish that you and Foley would talk to them. Let me talk to Foley a minute. C: Yes, sir. F: Yes, Mr. Secretary. HMJr: I've asked Sullivan and Buffington to handle this fight on the Hill, and I'm going to fight. Now I wish you'd get busy on this thing. C: All right. Regraded Unclassified - 3 - 7 HMJr: And I want all the help I can get around here. F: All right. HMJr: And - I mean, I've got to fight this thing out now. F: All right. HMJr: So please get busy on it, will you? F: Okay. I'll talk to John and George. HMJr: But I mean I want help now. F: All right. HMJr: All right. F: Okay. Regraded Unclassified 8 February 10, 1942 10:10 a.m. HMJr: Hello. Operator: Governor Ransom. HMJr: Hello. Ronald Ransom: Hello. This is Ronald Ransom. HMJr: Yes. R: Yesterday you mentioned or someone mentioned the Guaranty Trust of New York, and I believe you said you'd like to see some of those people if they came down. HMJr: Yes. R: I thought it might be helpful to you to get a little of that background. The president and most active man in that bank is a former Georgian named Eugene Stetson. HMJr: Yes. R: He's a pretty able banker; he's got a pretty sharp pencil. He knows what he's doing, and he's a very likable man. He has many friends. HMJr: Yes. R: But I thought you'd be on the safest side if I told you I don't know in the world - even in banking - a more completely reactionary individual who has been more violent in his expressions of views about the whole Roosevelt administration during the entire time it's been in office. HMJr: Yeah. R: Now I don't think Gene Stetson's patriotism is bounded by his political convictions, but it colors & lot of peoples' thinking HMJr: Yeah. Regraded Unclassified 9 - 2 - R: and nothing whatever that's been done by this administration, 80 far as I've ever been able to ascertain, has ever pleased or euited Stetson. HMJr: I see. R: And he - even the New York - well, Winthron Aldrich, whom I know ouite intimately, might well be classed as a liberal man in comparison to Stetson. HMJr: I see. R: And I thought you might have something of that background in mind. HMJr: Well, that's very kind of you. R: Yes. HMJr: Thank you 30 much. R: All right. You're welcome. HMJr: Thank you. Regraded Unclassified 10 February 10, 1942 10:29 a.m. Allan Sproul: Good morning, Mr. Secretary. HMJr: How are you? I just thought I'd tell you this. We have nobody down here on the savings banks. Hello. S: Yes. AMJri And I take it you're going to see them. 5: We'll do that. We'll see the Savings Bank Trust people, which covers practically all of them. HMJr: Yeah. So fer the people I've seen are all talking for two issues. S: They are? HMJr: Most of them for a note and a two end a half. S; I see. HMJr1 But - then they all end up by saying, "Of course, if you want to do a two and a cuarter, you can do it all right." But they all seem to be scared of one issue. S: I see. HMJr: And - but we went all through that last time, you remember. S: Yes, I do. HMJr: And I kept insisting that I can't sollt it uo. S: Yeah. HMJr: I just thought I'd tell you. S: Well, I'm glad to have it. Well, we'll, in our checks here, we'll see how that goes. HMJr: Right. Thank you. S: All right. Thank you. Regraded Unclassified 10 February 10, 1942 10:29 a.m. Allan Sproul: Good morning, Mr. Secretary. HMJr: How are you? I just thought I'd tell you this. We have nobody down here on the savings banks. Hello. S: Yes. HMJr: And I take it you're going to see them. S: We'll do that. We'll see the Savings Bank Trust people, which covers practically all of them. HMJr: Yeah. So far the people I've seen are all talking for two issues. S: They are? HMJr: Most of them for a note and a two and a half. S: I see. HMJr: But - then they all end up by saying, "Of course, if you want to do a two and a quarter, you can do it all right." But they all seem to be scared of one issue. S: I see. HMJr: And - but we went all through that last time, you remember. S: Yes, I do. HMJr: And I kept insisting that I can't split it up. S: Yeah. HMJr: I just thought I'd tell you. 8: Well, I'm glad to have it. Well, we'll, in our checks here, we'll see how that goes. HMJr: Right. Thank you. S: All right. Thank you. Regraded Unclassified 11 February 10, 1942 10:34 a.m. HMJr: Henry. Secretary Stimson: Yes. HMJr: How are your 8: First rate. HMJr: Henry, on Friday I have to raise 8. billion and a half dollars. B: Yes. HMJr: And I wondered S: A billion and a half? HMJr: One billion and 8 half - just getting started. Hello. B: Yes. HMJr: And I wondered whether you would care to give me an estimate between now and Friday - anything particular that's going to happen in the Far East, like either what are the chances that either Singapore or Rangoon might fall, say between now and Saturday. 8: Between now and Saturday. Today is Tuesday. HMJr: Yeah. S: Well HMJr: I know it's a guess, but I've got to - in my business I can only be wrong once. S: I know, I know. HMJr: I mean, I can only be wrong once. S: I don t think that Singapore will actually fell by that time, but the Japanese have made a secure landing on the final Island. Regraded Unclassified 12 - 2 - HMJr: Yeah. 8: And I have the map before me now which I've just been studying, and I think they'll move pretty steadily on. HMJr: Yeah. 8: And I think that ultimately they'll get it - there is a possible chance. But I imagine that the reports will be gloomy right along, even if there's no fall. HMJr: Yes. How about Rangoon? 8: Well, Rangoon, I think, will be fairly safe until Singapore falls..... HMJr: I see.. B: and will leave a lot of people, a lot of forces. The reports coming from there are pretty fair. Evidently the Japanese are not making as determined a push yet on the land side, and in the air, we maintain the superiority. HMJr: I see. 8: But, of course, what will happen there will be that if Singapore falls, there'll be a very large force released that will very likely go up there and I don t see any means of stopping that yet. HMJr: Well, if you don't mind, I'd like to call up again tomorrow. 8: Sure, sure. HMJr: Because I'll have to - we have to send out the announcements tomorrow afternoon, you see. 8: I'm answering you just off the bat on my own guess. HMJr: Yeah. 8: Not on the guess of any expert. 13 - 3 - HMJr: Well 8: Although I'm getting the facts from them, I'll - in the meanwhile, I'll.... HMJr: Well, I know it's a guess, but I knew you'd give me your honest one, whatever it was. 8: oh, yes, I'll give you that. HMJr: And I'd like to call up again tomorrow if I say. 8: Sure. HMJr: Because, as I say, because all the radio com- mentators are very gloomy about it..... 8: Yes. HMJr: and my own guess 1s that even if it fell, the public's pretty well prepared for it. 8: Yes. HMJr: But still I wanted to get the best information, and that's why I'm calling you. S: Yes. Well, I spent yesterday on a very critical matter - I don't know whether you've heard of it from the President, but it might have been very critical in that meanwhile, in regard to the P. I. HMJr: P.I.? S: Yes. HMJr: P. I.? 8: The P. Islande. HMJr: Yes. S: But I think we've taken action which I think will prevent any catastrophic thing there. 14 - 4 - HMJr: I see. Well, if you would just have me in the back of your mind. 8: Yes, I do, and I think you're entitled to it. HMJr: And I'd like to call again tomorrow. Now, one other thing - hello. 8: Yes. HMJr: Mr. Fox, who is the Treasury representative in China, got back yesterday, and he had a talk with the Generalissimo before he left. He's a very intelligent fellow. S: Yeah. HMJr: And you might like to have a talk with him. 8: Well, I would, but..... HMJr: Well, he's here and..... S: I'll take his name down. HMJr: He's formerly of the Tariff Commission. He was a Commissioner with the Tariff Commission, and he's been out there for about six months. S: Yes. HMJr: And..... S: In HMJr: He's here in the Treasury. 8: He's been in China, has he? HMJr: Yeah. He just got back. S: Yes. HMJr: And he spent an hour and a half with the Generalissimo and with Kung the day before 15 - 5 - he left. 8: Yes. HMJr: And he has some very interesting information. He says the Japanese, whose troops were trained in Japan, are making a terrific drive. 8: Really? Of course they are. HMJr: A terrific drive. 8: Yes, I know. HMJr: And that this loan has come when they needed it most. 8: Yeah. HMJr: And, of course, another thing is that the British are increasing the prices of food, and all that sort of thing. B: Yes. HMJr: And he also told me that they are hoarding goods. 8: Yes. HMJr: And he said that the English will conteract almost, not quite, what we do. S: Isn't it the devil? HMJr: Yeah. B: Their Colonials are the worst of the whole bunch. HMJr: He says that Sir Otto Niemeyer is just terrible. I told you what Churchill said, you know. 8: He said he would call..... HMJr: He said he would call Sir Otto Niemeyer back to England. 16 - 6 - 8: Well, why not tell them then that HMJr: No, I'm going to talk to Fox again about it. For instance, Sir Otto Niemeyer advised a de- flationary movement would save money. The result was that they out down a little on pro- duction of articles and munitions that actually were needed. S: Too bad! HMJr: Yes. Well, if you don't mind, I'll call you once more tomorrow, because S: All right. I might not know anything more, but I'm glad to be of any help to you. HMJr: Because as I say, it's my job to raise the money even if the news of the invasion gete worse. 8: Well, I'll keep my ear to the keyhole. (Laughs) HMJr: (Laughs) All right. Good-bye, now. B: All right. (Laughs) HMJr: Thank you. 17 February 10, 1942 11:13 a.m. HMJr: How are you? Grace Tully: I'm all right, sir. How are you? HMJr: I'm alive and kicking. T: That's good. HMJr: If the President wasn't too busy Thursday morning, I've got a couple of things that I'd like to clear. T: All right, sir. I'll make a note of it. HMJr: I'm putting in my bid. T: All right, fine. Thursday morning bedside, huh? HMJr: Yeah. (Laughs.) You don't know whether that Aniline and Dye thing has got to him yet? T: I think it did. HMJr: Do you think it did? T: Yeah. Did you get no word back on it? HMJr: No. T: I think yesterday something happened on it. HMJr: I see. T: I think you ought to have something today, Mr. Secretary, on it. HMJr: Has he dictated something to me? T: No, I don't - oh, was it for approval? HMJr: Yes. T: I think he approved it. HMJr: You think so? Regraded Unclassified 18 - 2 - T: Yes. I think so, yeah. HMJr: I see. T: I'll check with Mr. Forster if you want me to, and let'you know. HMJr: I'd appreciate it. T: All right, fine. HMJr: Now, one other thing - someone told me you went down to Bee Missy. T: Yeah. HMJr: Elinor and I are very much interested. T: Well, she's a good deal better, Mr. Secretary. HMJr: She 18? T: Yeah. A good deal better. HMJr: Well, that's nice. That's nice. Is she cheerful? T: Yeah, pretty. HMJr: Pretty. T: Oh, naturally she can't be too contented with all that's going on and being that far away from the scene of action, like any of us would be. HMJr: That's right. T: A little low about the whole thing, naturally, even about 1t - - and then being away from it and not being in the swing of the whole thing, it's pretty tough. HMJr: But you could Bee..... T: I could see great improvement. HMJr: Fine. T: Yeah. 19 - 3 - HMJr: Thank you, T: All right. HMJr: If you - - if Forster knows anything, if you'd call me back. T: I will, Mr. Secretary. Fine. Good-bye. Regraded Unclassified 20 February 10, 1942 11:40 a.m. DONALD DUCK MOVIE Present: Mr. Charles Bell Mr. Schoeneman Mr. Bernard Mr. Sullivan Mr. Thompson Mr. Foley Mr. Cairns Mr. Buffington Mrs. Klotz H.M.JR: You asked Larry Bernard? MR. THOMPSON: Yes. MR. CAIRNS: He refused to express an opinion. MR. THOMPSON: No, he was in a conference. MR. FOLEY: Well, Mr. Secretary, there is no pro- hibition in the law-- H.M.JR: What is this about Larry Bernard? MR. THOMPSON: Larry Bernard was in a meeting in John Sullivan's office when the question was first opened six or eight weeks ago, and he told us that it was his legal opinion that appropriation was available for this payment. On that basis we went ahead. H.M.JR: Oh, you did have legal advice? Regraded Unclassified 21 - 2 - MR. THOMPSON: Oh, yes. Helvering was there, and we had Larry up before the whole group, Sullivan and Helvering and Norman Cann, and we discussed the whole thing. That was before we even sent the estimate to the Budget two months ago or six weeks ago. MR. FOLEY: There is no prohibition in the law against the use of the regular appropriation for the Bureau of Internal Revenue for this movie. Whether or not the Comptroller General will think that it is neces- sary and essential expenditure, nobody can say. He has allowed expenditures where the specific authorization for a movie was not provided in some instances and in some instances has denied the use of funds for & movie. I don't know whether any of these matters have been before Lindsay Warren since he took over as Comptroller General. I think, Mr. Secretary, this may be one of those situations where it is the better part of discre- tion not to force this fight. You have got a roll call against you in the House, two hundred fifty-eight to & hundred and twelve, and even if you succeed in the Senate, when the House managers come out, even though they came from a committee that recommended this to the House, neverthe- less they have got to - they are bound by the two hundred fifty-eight to a hundred and twelve vote in the House, and this thing has reached 80 large proportions now in relation to its importance or significance that I think it might be much wiser on our part not to press the thing at all, to allow the matter to be paid out of the regular appropriation, end then when the certificate goes over to the Comptroller General for audit in 8. year and a half or so, all of this controversy and all of this heat will be gone, and the thing will probably go through in the regular way. If he raises a question about it at that time and then disallows the item, it will be necessary for us to go to Congress to relieve the disbursing officer's account. But if we go down there with a relief bill at that time, all of this unfortunate publicity in connection with OCD and the emotion and the heat that is focused on this problem now won't be present. 22 - 3 - MR. THOMPSON: It probably wouldn't be seen, because the disbursing officer now has a billion dollars disallowed to his credit, and if you go down with a relief bill - there are hundreds and hundreds of items that will go through at the end of the war. H.M.JR: Yesterday they asked me what I was going to do, and I said I would cross that bridge when I came to it. MR. FOLEY: I think if they ask that question on the Senate side, Mr. Secretary, you can say that we always intended to use the regular appropriation, and we put this item in the deficiency bill to relieve the Internal Revenue bill appropriation of the eighty thousand dollars, but in view of all the controversy we are not pressing the matter, and you are going to pay it out of regular funds. MR. THOMPSON: Well, the reason John Sullivan has gone to the Capitol, Mr. Secretary, is to see why, after they voted for it in the committee, they voted against it in the House. H.M.JR: I see Woodrum of Virginia and Ludlow voted against it. MR. THOMPSON: Yes. We thought we had better find out the reason for the change before we decided whether it was-- MR. FOLEY: I think the only explanation, Mr. Secretary, is that this is an election year, and this is an item on & movie, and they would have to explain their vote in the campaign next fall, and when you put it up to them that way, they just can't afford to take a chance. I think that is the reason. H.M.JR: Well, Ludlow, that is surprising. MR. THOMPSON: It was to me, too. H.M.JR: Wasn't he down-- 23 - 4 - MR. BUFFINGTON: Yes, and he specially mentioned how favorably he was impressed by it and said that he approved it. MR. THOMPSON: O'Neal, and Johnson of West Virginia, voted for it. They stood their grounds. H.M.JR: For? MR. THOMPSON: For the Donald Duck picture. H.M.JR: Well, John has gone up to see who? MR. THOMPSON: He is going to see Woodrum to get the story from him as to just what happened, why the vote was that way, whether there was something else back of it all, and when he comes back, we thought we would sit down and decide what to recommend to you, but Mark Shields in the meantime called up and advised definitely not to go to the Senate. He feels exactly as you (Foley) do, and he followed through by saying, "Why don't you just pay the bill out of Internal Revenue. That is available." He said, "You won't hear anything more of it. Forget it." H.M.JR: Did anybody keep minutes of this meeting which took place in Sullivan's office when this thing was discussed? MR. THOMPSON: This morning? H.M.JR: No, six weeks ago. MR. THOMPSON: I don't think there were any minutes kept, Mr. Secretary. He was called in - we were just discussing whether funds were available for the picture, and Mr. Helvering came and raised the question as to whether it would be legal. We called Larry Bernard, and he came up and gave 'us the oral advice that it would be legal to use that. I don't think Helvering had any doubt on it. He was a little afraid we might nick him for eighty thousand dollars, and he was trying to find ways to avoid that. 24 - 5 - H.M.JR: How long ago was that? MRS. KLOTZ: Six weeks, he said. MR. THOMPSON: I may be able to get the exact date. I am not sure whether Schoeneman kept notes on it or not. H.M.JR: Have you talked to Larry Bernard today? MR. FOLEY: No. H.M.JR: This is the first you had heard about it? MR. FOLEY: I didn't know about the conference. MR. CAIRNS: I have a written memorandum from him in which he expressly declined to give an opinion, ad- dressed to Charlie Bell, I think. He said, "I can not give you an opinion on this." I have that on my desk in writing. MR. FOLEY: A memorandum? MR. CAIRNS: From Larry, yes. MR. THOMPSON: How old is that? MR. CAIRNS: I don't recall the date. H.M.JR: Get it. (Mr. Cairns left the conference.) H.M.JR: Is he in the building? MR. FOLEY: Yes, he is in today. MR. BUFFINGTON: Norman, that was not as long aa six weeks ago, because that was about the time that Charlie Bell wrote for your signature the letter to Walt Disney at his request when we raised that question, could it be paid, and I got the impression from the talk that you Regraded Unclassified 25 - 6 - had decided, or it had been decided that it could be paid. MR. THOMPSON: It must have been the subject of this memorandum he wrote. I was under the impression it was when We were debating about the estimates for our budget. You see, we questioned as to whether the funds were available. H.M.JR: Was Charlie Bell in on this? MR. THOMPSON: Bell and Schoeneman both. MR. BUFFINGTON: That was about & month ago, I think, early in January. H.M.JR: And Bernard came in and said it was all right? MR. THOMPSON: Yes. (Mr. Cairns re-entered the conference.) H.M.JR: Well, I would say from this - he doesn't say that - "We are not in a position to give you a legal opinion on this. I suggest you explain your actions somewhat as follows." MR. CAIRNS: Yes. I understood Mr. Bell was going up on the Hill, and he called Larry to ask him, and Larry said, "I can't tell you whether it is legal or not." H.M.JR: But he didn't tell him not to do it. If I got that thing I would say, "That is all right. I can go ahead." This is the way to explain it. I mean, I would take it from that that if you are going to go ahead, it is all right. MR. THOMPSON: He probably gave that to Mr. Bell when he was going up on the hearings. MR. CAIRNS: When he was going up on the hearings, and I think Charlie said, "Is this legal or not," and Regraded Unclass 26 - 7 - Larry said, "I can't tell you, but if you are asked about it, answer the Committee this way." H.M.JR: But he didn't say, "Don't do it." (Mr. Bernard entered the conference.) H.M.JR: Larry, good morning. Evidently there was a meeting in Mr. Sullivan's office where they asked you whether we could or couldn't pay for the Disney picture out of Internal Revenue. MR. BERNARD: No, not in Sullivan's office. H.M.JR: Where was it? MR. BERNARD: Charlie Bell called me on the phone the day they went up before the Appropriations Committee and asked me whether I could give an opinion on the legality of the payment, and I told him no, I would have to look into it, and we talked about it a little bit. He told me something about the picture. I said, "Well, Charlie, I have got a few minutes. I will do the best I can. I will give you an argument which you can use if you are called upon to say anything about it, but I just don't have time." H.M.JR: There was no meeting? MR. BERNARD: No. MR. THOMPSON: Didn't you attend the meeting Helvering was in in Sullivan's office on this? The question was-- MR. BERNARD: How long ago? MR. THOMPSON: Oh, six or eight weeks ago. MR. BERNARD: Oh, no, that wasn't on this film. MR. THOMPSON: Yes, that is what they were discussing, the funds for the film. Regraded Unclassified 27 - 8 - MR. BERNARD: No. I was in a meeting at which-- MR. THOMPSON: Helvering was there, you remember. MR. BERNARD: This is about two and a half months ago or longer. Helvering, Sullivan, Norman Cann, Tarleau, Blough, Groves, Gulick-- MR. THOMPSON: That is right. It was all the tax money that was up at the same time. MR. BERNARD: No, they didn't ask me about the picture at all. What they wanted to know at that time was whether the regular Revenue appropriation would be available to pay for salaries of this study group in Tommy Tarleau's office and Blough's office, and I said yes, they were all working on tax matters, but there was no mention-- H.M.JR: Well, this picture is in that same group. MR. BERNARD: No, their salaries. MR. THOMPSON: There is no question about the legality of their salaries. MR. BERNARD: That was the question that he raised. MR. BUFFINGTON: Norman, if you get over two months ago, you are getting behind the time when we had our first discussions with Disney, because this was the tenth of December, and we had our first discussions the nineteenth. MR. THOMPSON: Charlie Bell told me just 8. couple of days ago that Guy Helvering raised the question of the legality of this picture, and you were called in and said it was legal. MR. BERNARD: No, I did not. The only time I ever talked to anybody about the Donald Duck film was when Charlie called me on the telephone the day that he went up before the Appropriations Committee, and I told him Regraded Unclassified 28 - 9 - then I just couldn't give him an opinion on it, because I would have to look into it. H.M.JR: One of your memories is wrong. You can't both be right. MR. THOMPSON: I wasn't present. Schoeneman and Bell told me that. H.M.JR: Oh, you weren't present? MR. THOMPSON: No. I wasn't present when they were discussing that particular item. MR. BERNARD: I remember the meeting you mentioned very distinctly. MR. THOMPSON: That is what they told me, that you gave them that opinion. MR. BERNARD: That question was not raised. The only question they raised was the availability of the regular appropriation to pay for the salaries of these people, because they were working over here in the Treasury, and I told them as long as they were working on tax mat- ters, it was perfectly all right, that location didn't mean a thing. MR. THOMPSON: I don't see why they ever asked such & silly question, because we have been doing it for eight years. All the people Blough and Tarleau have are paid that way. MR. BERNARD: Charlie Schoeneman was also there. No, the question, Norman, as I recall it, the Ap- propriation Act says that the money shall be spent under the direction of the Commissioner of Internal Revenue, and Helvering raised the question whether that money could be used inasmuch as these people were not working under his direction. MR. THOMPSON: Yes, but the personnel is placed under 29 - 10 - the hands of the Secretary of the Treasury. MR. BERNARD: John Sullivan called me up. They had had some discussion about it. (Mr. Charles Bell entered the conference.) H.M.JR: Hello, Bell. MR. BELL: Good morning, sir. H.M.JR: Well, what is your reaction, what authority or opinion did you get on the Donald Duck picture as to methods of paying for it. MR. BELL: Mr. Barnard gave me a Comptroller General's opinion that the Government had entered into contracts to take moving pictures. We had that much of a precedent. We had nothing identically with the Donald Duck picture. MR. FOLEY: Well, was that before or after the picture was made, Charlie? MR. BELL: That was before. MR. FOLEY: When, do you remember? MR. BELL: I think it was right following our conference with Helvering and Norman Cann when you came up in Sullivan's office. It might have been probably two or three weeks after that. MR. BERNARD: No, the only time I talked to you about the Donald Duck thing was the day you called me on the telephone before you went up before the Appropriations Committee. MR. BELL: I think that is correct. MR. BERNARD: And I gave you a memorandum. I told you I couldn't give you an opinion because I didn't have time to go into it. 30 - 11 - MR. BELL: That is right. MR. BERNARD: I gave you & memorandum saying, "This is an argument that you might use if you are called upon, but I can't-- MR. BELL: That is right. MR. BERNARD: And the memorandum said that in 80 many words, and I did give you a couple of Comptroller General's decisions, but it was all I could do in the time I had. H.M.JR: What about this meeting, Norman, that you told me that was in Sullivan's office where he did get an opinion? (Mr. Schoeneman entered the conference.) MR. BELL: We had a meeting in Mr. Sullivan's office, and we asked Mr. Bernard at that meeting whether Mr. Helvering could pay for certain of these expenses, the research principally. That was the item of discus- sion. It was Mr. Bernard's general, offhand opinion that that was administrative expense. H.M.JR: I am not interested in that. Did you ask him about Donald Duck at that meeting? MR. BELL: I believe not, Mr. Secretary, as an item. H.M.JR: At that meeting you didn't ask him? Then when did you get an opinion? MR. BELL: Just before we went to the Hill. H.M.JR: And all you got is what is in this memo. MR. BELL: Yes,sir. H.M.JR: But that is not an opinion. MR. BELL: No, sir, as I recall it, Mr. Bernard said he couldn't give me & definite opinion. Regraded Unclassified 31 - 12 H.M.JR: Well, did you ever ask him for an opinion subsequently? MR. BELL: Only on that one occasion before going to the Hill. We thought they would probably ask us what basis of authority they had. We would then be in & position to say that we had been guided by the General Counsel, but we decided that we couldn't use just that language. H.M.JR: Well, now, here we are, you ask before you go up on the Hill and we have got this hit and run memorandum. It is not an opinion. That is all we have got. Now we are faced - what is the date of that memo? MR. FOLEY: The twenty-seventh of January. That was after the picture was made. H.M.JR: Oh, well, that is a long time after. MR. BELL: I don't believe there has ever been any question in anyone's mind as to the ability of the Treasury Department to pay for this expense. It has always been regarded as 8 legitimate expense. H.M.JR: You see the point I am going back to is this. Yesterday I asked Norman, "Can we pay for it?" I have asked him before that also. You (Thompson) always told me yes, there was no question about it. MR. THOMPSON: I still have no doubt in my mind. H.M.JR: Then, being cautious, I asked formally for an opinion. I said I wanted it from Foley and I said, "Have somebody work on it." I wanted it done last night. I just wanted to double check. Now I find myself in the position that we have got the thing and it is very questionable whether We can pay for it. MR. FOLEY: I wouldn't say very questionable, Mr. Secretary. That isn't what I said. I say that I can't tell you unequivocally that the Comptroller General will pass it. He has allowed some, and he has disallowed 32 - 13 - others. Whether or not it is 8. necessary expenditure in his opinion is something that he alone can determine. H.M.JR: Well, excuse me, I don't know, we had something similar to this, you remember, Norman, when I told you I would hold you responsibile. You most likely remember the case. I said I would hold you responsible to see that I didn't get out on the end of the limb on any expenditures of any kind, that it was your job to see that we got the lawyers and you would take the initiative. Do you remember what the case was? MR. THOMPSON: That was the case of the telephone private line. H.M.JR: Yes, but I told you at that time. It is your job - who is chairman of this Treasury Budget Committee? MR. THOMPSON: Mr. Schoeneman. Well, I always consult Larry on any doubtful questions. H.M.JR: Yes, but-- MR. THOMPSON: I know of no provision of law that prohibits the purchase of a moving picture, 80 in the absence of a prohibition in the law and a broad appro- priation like Revenue, I can't see now there is any doubt. H.M.JR: Gentlemen, after listening to all of this, I feel the regular Treasury personnel hasn't protected me. You haven't. I might just as well call a spade a spade. You have got the whole legal stuff, and now here we are and I say - I just got that flimsy thing to rest on. MR. THOMPSON: Well, Mr. Secretary, there is no doubt about the availability of that - the fact that Congress is writing in a prohibition to prohibit funds for that purpose, that indicates there was no prohibi- tion up to now. Regraded Unclassified 33 - 14 - H.M.JR: If Wigglesworth was smart, he would write it the way they did the other thing. I understood, they would write it 80 we couldn't pay it out of any appro- priation. If he suspected that we could pay for it, he would write the thing 80 we couldn't pay for it at all. MR. SCHOENEMAN: Mr. Mark Shields, Clerk of the House Committee, told me this morning, or rather sug- gested this morning, "Why don't you go ahead and pay for it out of Internal Revenue, and let the matter drop?" H.M.JR: Well, now, Schoeneman, let's say that I say, "Go ahead and pay for it." Which Treasury official - I know I don't - but which Treasury official will this be slapped on? MR. SCHOENEMAN: I doubt very much, Mr. Secretary, whether it will be slapped on any Treasury official. I believe it will end up merely an exchange of correspond- ence between the Comptroller General and the Treasury. H.M.JR: Yes, but suppose - let's just say the Comptroller rules point blank that this can't be paid, or rather that after it has been paid - I don't know all the red tape they hold somebody responsible, don't they? MR. THOMPSON: The disbursing officer. MR. FOLEY: The disbursing officer, and then you would have to go to go to the Hill with a release bill to free his account that had been disallowed in the amount of eighty thousand dollars. H.M.JR: And supposing they don't do it? Supposing they vote me down then? Then who is held for the eighty thousand? MR. BERNARD: Technically the disbursing officer, on his bond. MR. SCHOENEMAN: But every other Department of the Regraded Unclassified 34 - 15 - Government has motion pictures. Shields told me this morning. He said, "Your Navy Department has any number of films. You folks are just novices in the game. You needn't be ashamed of having 8. motion picture film because the other fellows are doing it." H.M.JR: I am not ashamed. I said at my press con- ference yesterday not only that I take full responsibility for it, but I said, "I wish everything we did in the Treasury was as good." It is in the paper today. You can read what I said. I am not ashamed of the film, but I am trying - I went all through this once before, and I am trying to impress on you Treasury people - I mean, I think that this was done - there was a question of doubt. Charlie Bell had a doubt because he called up Larry Bernard and he doesn't until just before he goes up on the thing. You can come back and say, "Well, now, you had better button this thing up." I mean, you had better button this thing up. MR. BELL: Mr. Secretary, we had the clearance of the Bureau of the Budget before we entered into any of this. We went over early in December. We aired it with them. They told us to spend the money out of the last quarter of Revenue money. H.M.JR: Is Harold Smith goind to go up on the Hill and testify in my behalf. MR. BELL: No, sir, he won't, but I believe it is a legitimate expenditure that will stand up with the Comptroller General. H.M.JR: Charlie, you know in the long-run no one looks after any Treasury people except the Treasury. MR. BELL: Well, Mr. Secretary, there wasn't a - Mr. Bernard will tell you, any basis that would give us concrete advice as to whether we could definitely or could not definitely, isn't that true? You couldn't conclusively say. MR. BERNARD: Well, when you called me, I hadn't thought of it at all. Regraded Unclassified 35 -16- MR. BELL: And I don't believe anybody here can say this morning definitely that we can or we cannot. MR. FOLEY: Mr. Secretary, the procedure in my division for opinions is pretty well defined and I think it is pretty well understood throughout the Department. If we had been formally asked for an opinion on this matter before any contract wes entered into for the picture and before any expense was incurred, we would have said at that time that there is no specific prohibition against the use of these funds. Whether or not the Comptroller General will allow the expenditure as a necessary expenditure out of the current appropriation for the Bureau is & question that ought to be taken up with him and it ought to be cleared with him before the expenditure is incurred. That is the only way to be safe. That is what we would have said. Now, we weren't asked and I don't think that we do business around here on a basis of calling somebody in from my office that may or may not have anything to do with this. Larry is not in the opinion section and Larry wouldn't be the fellow that would work on an opinion of this kind. The matter is a thing that would be referred to Cairns and then to Fiedler and the opinion section would work on it and the opinion section would say, "Here are the precedents," and I would review the thing and I would come to you and I would tell you as & practical matter what I thought you ought to do, and I would say to be prudent here and to be safe if you weren't going to ask-- MR. THOMPSON: Why go to you at all? Why not go to Lindsay Warren? MR. FOLEY: Now, you have to go to him after a record has been made against you, after you have been turned down in the House after a specific request for a deficiency appropriation to pay for this item, whereas if you had gone over in the first place and just said, "Now, we don't have any doubt about this, but we want to make sure that you are not going to raise 8. question about it, and here is this proposition and we want to make sure that we are not going to have any trouble with you later on," and he, under those circumstances, would say O.K. This way he may want to look into it. He may pass it on down the line and some of his people like Tulloss and those people that were Regraded Unclassified 36 - 17 - there before he came over may have very serious doubts about this and it may be rather difficult for Lindsay Warren now to say O.K., whereas before there would have been no question about it. 25. SCHOENEMAN: You remember we had some difficulty years ago on the use of radio and the Comptroller General disallowed the item, didn't he, Mr. Thompson? R. Thompson: Yes, the same thing. MR. SCHOENEMAN: And then there were a series of letters, but in the end he finally permitted us to do it. MR. FOLEY: Back in 1935 he allowed out of the appropriation that the President made available from his emergency fund of a million dollars an item for a Resettlement picture on soil erosion. lle said that was all right. There was a lot of correspondence back and forth. There was not-- R. CAIRNS: They wanted to instruct the employees before they sent them out in the field. R. FOLEY: Yes, and they wanted to use the film for purposes of instruction and he cleared that. Another time he told the Veteran's Administration that they couldn't contract for radio time in order to instruct the Veterans in the change of the law and in the change of regulations. Re said that that wesn't essential to the administration of the Veteran's laws. H.M.JR: Was Mr. Sullivan handling this in the first place? MR. FOLEY: well, it normally would come under John, because he is in charge of the Bureau and it comes out of the Bureau appropriation. H.M.JR: well, who took it up with you people? Who said we wanted it? 13. Mr. Builington. U.S. EXPINGTON: I did. Regraded Unclassified - 18 - 37 H.M.JR: Who did you go to, George? MR. BUFFINGTON: I wrote a memorandum originally outlining in a general way what the expenses were and I had that initialed by John Sullivan, Norman, Mr. Helvering, with the understanding that his initials were attached, we understanding that there were no funds available in Internal Revenue. Then I went to Charlie Bell and to Norman Thompson to determine how we were going to get funds for that purpose. MR. THOMPSON: We decided we would have to go to the Budget with an estimate in view of the -- H.M.JR: I still say, gentlemen, I hope that this will be a lesson to the regular Treasury personnel, because it isn't the standards under which I can work. MR. THOMPSON: Of course, at that time we had no question of the legality of the thing. H.M.JR: No, wait. The thing was something new for the Treasury and it should have been gone into right in the first instance; "Is this all right? Can we go ahead and make a commitment for $80,000? Is the money in Internal Revenue? Is Mr. Helvering satisfied?" I mean, this isn't something - I mean, if I had sent for you and said, "I am going to do this, I don't care what happens I mean, there was no particular pressure on you. (Mr. Sullivan entered the conference.) H.M.JR: Hello, John. MR. SULLIVAN: May I come in? H.M.JR: I don't know where you fit in the picture, but I am simply saying that this picture never should have been born in the first instance until they had satisfied themselves with the General Counsel's office that it was absolutely legal. Now I find they never gave the General Counsel's office a chance and on the 27th Regraded Unclassified 38 - 19 - of January they asked Bernard here, and that was long after the picture was made, and it was ready to be delivered in a couple of days. Now we are faced with the fact that we don't know what your message is from the Hill but - let's say your message is that we shouldn't make the fight. Then how are we going to pay for it and what is going to happen and 80 forth and 80 on? I don't know just where you fit in the whole picture. MR. SULLIVAN: I didn't fit in it. I wasn't in it. I mean, George frequently talked with me about it. H.M.JR: You (Schoeneman) are Chairman of this Committee? MR. SCHOENEMAN: Yes, sir. May I make this statement? H.M.JR: Norman is my Administrative Assistant and I charge him particularly, and it is his responsibility and it is your responsibility to see on something like this that there are no loopholes. MR. SCHOENEMAN: On the afternoon that Walt Disney was here-- H.M.JR: I mean, after all if you had come to me and said, "Now, Mr. Morgenthau, give us time, don't push us," through Norman - but no one has ever mentioned a word until I raised this question last night. I called you at home, didn't I, Foley? MR. FOLEY: Yes. It was late in the afternoon and you called me at my office. H.M.JR: I was home. I was worried. This isn't the way. It is water over the dam and I am going to take it now. MR. SCHOENEMAN: Mr. Secretary, there are other matters along similar lines which we should watch. For instance, changing procedure in the Mint. We shouldn't let that happen without having it very carefully investigated. H.M.JR: What is that? Regraded Unclassified 39 - 20 - MR. SCHOENEMAN : Paying overtime to the Mint employees. MR. THOMPSON: Mr. Swope ordered that and I had to stop it because of the same thing, we had no money. He has ordered them to buy presses and told Harold, Don't worry about the money, you will get the money, but I told Harold not to do it. H.M.JR: That is what you are here for. MR. SCHOENEMAN: We don't feel that we should stop what you have ordered done, Mr. Secretary but-- H.M.JR: Yes you should. But I want you to go back over nine years and show me a case where I ordered some- thing where I didn't first go through the regular channels because I have never been in hot water. Norman, give me a case where I have gone ahead and bought anything or made any financial commitments. I remember during the World War the time that Julius Rosenwald got in trouble over the shoes. I never found out until the other day that it wasn't Rosenwald, it was Stanley King, president of Amherst, who bought the shoes from the former president of the company that he was associated with and Stanley King was under Rosenwald and McKellar went after Rosenwald and he had to resign from his job and go over in the Red Cross, but it was Stanley King. But I have always re- membered that and ever since I have been here I have told you boys-- MR. THOMPSON: Well, It is our duty, if you order a picture or anything to see that we tell you-- H.M.JR: I mean, I have never bought two cent's worth of anything, as far as I know. Do you know of a case? MR. THOMPSON: No. H.M.JR: And I have never been in hot water before. MR. THOMPSON: I don't think you are in hot water now. Regraded Unclas ed 40 - 21 - MR. SCHOENEMAN: Mr. Secretary, may I make this further statement? Walt Disney had to take a plane at about & quarter of four and with him he had to take a yes or no answer in order to get into production. That was before we went to the Budget. The décision had to be made. You remember that, George. MR. BUFFINGTON: Yes. MR. THOMPSON: Neither Schoeneman nor I had any doubt as to legality. H.M.JR: How long have you worked for the Government? MR. SCHOENEMAN: I hate to tell you. Thirty-six years. H.M.JR: You ought to know how to resist snap judgment or pressure. MR. SCHOENEMAN: I have learned it this morning. H.M.JR: Well, don't forget. You know me. When I am through with this meeting it is washed up and forgotten and we go on to the next thing, I don't carry anything from one meeting to another. It is finished, but I want to impress on you. You too, Charlie. But when this meeting is through then we go on and decide how to handle it, but I don't carry things over. Now, John? MR. SULLIVAN: I couldn't see Congressman Cannon until one thirty but I did talk to him on the phone because Mr. Thompson and Mr. Bell and Mr. Buffington and Mr. Foley and I were afraid that if we pressed this they might come back and put a stoppage on all pictures and prevent us from paying it from any source and that was the intimation the clerk of Appropriations had given to Mr. Schoeneman. So I talked with Mr Cannon and I asked his opinion over the phone, since I couldn't see him until one thirty and he said that he thought that it would be better to let this go over until the next deficiency bill and that by that time all of these associated troubles would be forgotten and we wouldn't have any trouble, and I asked him how we would fare if it came back from the Senate with this item in it and he Regraded Unclassified 41 - 22 - ssid well, he thought he could put it over but on the whole he thought it would be better to let it go until the next bill. Then I went up to the Hill. I was leaving as this meeting started and I saw Congressman Woodrum and I talked with him about it and he said that he voted for it in the committee and against it on the floor. That the thing W&B generally misunderstood that it was an unorthodox approach to the problem of educating the public on pictures and, hence, should have & very strong presentation. And he said, "By the way, how much are the producers paying for this picture and to whom are they paying the money? We understand you are not getting anything for it and the Disney pictures just aren't thrown around." and I said, "They are not paying anything. We couldn't get them to re-arrange their schedules to show this all over the country in six weeks in twelve thousand theaters if we were going to make them pay for it." He said, "Many people asked me on the floor yesterday afternoon." Then we dis- cussed the picture at some length and the numbers of the filers and the fact that there were seven million filers beyond that who had filed only once and that was last year beyond our general problem. And he said, "I think you ought to go ahead with this and go ahead over in the Senate and present a strong case and then come back and we can take care of it in conference." And he said, "If there is anybody in the Senate Committee you want me to call, I will be glad to call them and you can tell them that I have reconsidered and I am in favor of this, and I will be glad to do anything I can to help you." I said, "Would it be better to present this now or to wait until the next bill?" And he said, "Oh, no, present it right now because if you don't then you have lost in both houses and you have got & two way verdict against you. The way it stands now you have only lost one decision." H.M.JR: Now what is your advice to me? MR. SULLIVAN: I think I ought to try to see Woodrum. H.M.JR: Woodrum? MR. SULLIVAN: I mean Cannon and put it up to him again because his recommendation was going over until the next bill and I think that in the opinion of all of the fellows here I have talked to. H.M.JR: Of course, the fellow to talk to is Carter Glass. None of you have talked to him. Regraded Uncla 42 - 23 - Mh. SULLIVAN: That is right. MR. FOLEY: Well, let's say that the Senate Appropriations Committee agrees. I think they probably will. It will get out on the floor, and you will have 8. repetition of this same thing again, and you get politics mixed up with it, and you get a voting record again. Let's say you get by the Tafts and fellows who will attack you. You will have a good deal of publicity again. Then, the thing goes back to Congress, with the Senate authorizing eighty thousand dollars, with the House disallowing the expenditure with 8. two to one vote against you, two fifty-eight to 8 hundred and twelve. The House managers, it seems to me, have to represent the vote of the House in conference, and they will have to ask either for of special vote on this thing or they will have to stand their ground; and then, if you get a. vote of the entire Congress against you, it makes it much more difficult. You should let the thing go through in the ordinary way and come up to the Comptroller General without any heat or controversy, and perhaps you will never hear about it again. And, if you happen to hear about it again, and after all these letters that go back and forth in the light of what happened two years ago, because it will be a year and a half or two years before the thing comes up, those things are usually passed by the Comptroller General, but - and he is not going to - has got no prohibition in the law, Mr. Secretary, that he can point to. It is merely his judgment against yours as to what is necessary: and under those circumstances, I don't think he is ever going to disallow the item finally; but if he should disallow the item finally, you can go back with a relief bill to free the account of the disbursing officer of this item that has been disallowed, and those things are usually paid. H.M.JR: Well, you told me that before, You are repeating. MR. FOLEY: Yes, I am repeating myself, and I don't think that Woodrum is any fellow to rely on. Here be changed his vote, voted for it in committee and against it on the floor, and now be says. "You can Regraded Unclassified 43 - 24 - tell those fellows over on the other side that I think they ought to do it." I don't think that is good advice. H.M.JR: I will tell you, John, what I would like you to do, seer- MR. SULLIVAN: Yes, sir. H.M.JR: I would like you to see Ludlow, who is, after all, Chairman of the Treasury Committee-- MR. SULLIVAN: That is right. H.M.JR: I would like you to see Sam Rayburn, see, and John McCormack, who was not there yesterday. MR. SULLIVAN: I tried to get John this morning. Hewas coming back from Boston, and went direct from the train to the White House. H.M.JR: I would like you to see those people. MR. SULLIVAN: Yes,sir H.M.JR: And then this thing isn't coming up in the Senate tomorrow, is it? MR. SCHOENEMAN: Tomorrow or later, not today. H.M.JR: Well, I would see-- MR. SULLIVAN: I guess I had better see Cannon again, too. H.M.JR: I would see Sam Rayburn, John McCormack, Cannon, Ludlow, and Doughton, because Doughton, after all - it was to help the taxes. MR. FOLEY: He voted against it. H.M.JR: I know. I would see those people, and then either this afternoon or the first thing tomorrow morning we will have another meeting, depending upon what luck you have, see. 44 - 25 - MR. SULLIVAN: Yes, sir. H.M.JR: But I would like you to see those people because I can - I did say yesterday at my press con- ference I would fight, see. Just to give you an indi- cation, Mr. Phillip Murray was here this morning on his invitation, and I asked him whether his union - the motion picture union was CIO. He said, "No, it is AF of L." He says, "I know what you want, and I am with you. We are meeting, the so-called War Board, Monday with Mr. Green. It is Mr. Green's union; and if Mr. Green will ask me, I will join with him on Monday in making a public statement address to Congress, asking that you get this." That would be the first joint statement the AF of L and the CIO have made in five years. We have some friends. He says, "I will join Mr. Green in making & powerful statement, urging Congress to give you this appropriation, because you should have it." I will wait, but my inclination is to fight. MR. FOLEY: Yes. I mean if that has got to be the decision. My judgment is that it isn't worth it on your part for an eighty thousand dollars approp- riation that can be absorbed out of your regular expenditures. H.M.JR: It is a little bit deeper than that, Ed. I think that - you see, back of all of this - this is the opening of the Congressional fight. They can't criticize Mr. Roosevelt on his war effort. They can't criticize him on his war production. So it gets down to a very narrow field. MR. FOLEY: Very petty. MR. SULLIVAN: Both Cannon and Woodrum said exactly that, just what you are saying now, that they can't go after him. He is invulnerable on his war record, and that is the big thing, and they are trying to get things between the eyes of the voters and the major issue. MRS. KLOTZ: That is right. 45 - 26 - MR. FOLEY: Why give them fire for that? H.M.JR: Oh, no, because I have to be able to fight on & good basis. The OCD crowd haven't. Therefore, I think it is up to me to fight. MR. FOLEY: But you are suffering because of the bad position they are putting you in. H.M.JR: Well, all through this - I haven't read the Congressional Record. Have you read it yet? There is no attack on me personally, is there? MR. BERNARD: No. H.M.JR: There is no attack on me personally. MR. BERNARD: No. MR. THOMPSON: Not a word. H.M.JR: I am going to wait. After all, this is John's meat, because if he is anything - amongst his many qualifications, he has good sense. I was going to say if he was anything, he was & politician. But amongst his many qualifications, his old elbow clicks on this. I am not saying that others don't, but he knows this, and I would like his advice both as 8. friend and as Assistant Secretary, and as & politician on this thing, but they can't fight on the other basis, but I can, and I would love to go to the country with Donald Duck as a partner. I think in the long-run I can laugh these fellows out of town, but I am not going to let them laugh me out. If I quit, everybody will think there is something I am ashamed of. I have got nothing to be ashamed of. That is the finest Government picture that has been turned out by any agency in any country anywhere. Why should I have to do this by the back door? MR. FOLEY: Well, you have got a vote of two hundred fifty-eight to a hundred and twelve, and it is not on the merits, it is a political thing. Regraded Unclassified 46 - 27 - H.M.JR: If Doughton would say he would do it - I don't know, but let's count noses. If Sam says all right, we will have - if they will pass it in the Senate, we are all right over here. Sam said yesterday, "I am shorthanded. McCormack isn't here. I have got no floor leader." After all, when they come back they will be voting on ours, and wouldn't they be voting on the three things? MR. SULLIVAN: Yes. H.M.JR: They would be voting on the question of over-lapping taxes, which hasn't been explained. MR. SULLIVAN: That is right. H.M.JR: The tax research thing which hasn't been explained. It wasn't handled right in the House, and anyone of those three things I could talk about, any one of those three things. MR. SULLIVAN: May I ask a question? H.M.JR: The three things are in one appropriation, aren't they? MR. SULLIVAN: That is right. H.M.JR: Three hundred and how much? MR. SCHOENEMAN: Three hundred and fifty thousand. H.M.JR: If we come back and OCD doesn't, they will vote on the Treasury alone, won't they? They won't be voting the two things-- MR. SCHOENEMAN: Yes, because OCD has nothing to protest. They have lost nothing. The amendment that was put in affecting OCD doesn't really affect them. H.M.JR: They can go ahead and hire anybody they want? MR. SCHOENEMAN: Certainly, because those folks are not paid from that appropriation. 47 - 28 - H.M.JR: Ed? MR. FOLEY: That is all the more reason why this is all a lot of politics. It isn't on the merits. H.M.JR: Well, there is no argument about that. John, if you would go up there and see Sam Rayburn and John McCormack and Cannon and Ludlow and Doughton and just keep a little thumbnail sketch of what each says, either tonight or tomorrow, and I would like to talk about it again. I realize it has taken three quarters of an hour, but I have got enough Irish in me that I like to fight. MR. SULLIVAN: Atta-boy. (Laughter) H.M.JR: I just don't like to take & licking-- MR. FOLEY: Don't count me out. I will fight too. (Laughter) MR. SULLIVAN: I would like to ask a question, Mr. Secretary. I think time is very definitely on our side, because every day-- H.M.JR: I agree with you. MR. SULLIVAN: Every day millions of people have seen this and the reaction is good, and I want to know the chances of our deferring the hearing in the Senate. MR. SCHOENEMAN: Well, you can defer it only as long as they themselves defer their consideration of the bill. They won't touch it today, but they may touch it tomorrow. MR. SULLIVAN: But can we ask them not to touch it tomorrow? MR. SCHOENEMAN: While you are at the Capitol, could you see McKellar or Glass? MR. SULLIVAN: I will see Glass. 48 - 29 - MR. FOLEY: McKellar is Chairman of the Subcommittee on the Treasury, isn't he? MR. SCHOENEMAN: On deficiencies. MR. FOLEY: This will go to McKellar. MR. SCHOENEMAN: And Glass will be merely a member of his subcommittee. MR. FOLEY: So McKellar is the fellow to see. MR. SULLIVAN: I had better see both of them. H.M.JR: He should tell Carter Glass, "This is the appropriation I am in. I didn't want to encumber my appropriation with this additional eighty thousand dollars if I could avoid it, but I have been turned down in the House. Now, you fellows advise me what I ought to do." That is the way I feel. MR. THOMPSON: Would you do that before-- H.M.JR: All right, any more Irishmen in this room? MR. BUFFINGTON: May I make one point? MR. SCHOENEMAN: I am half Irish, so I will take it. MR. BUFFINGTON: When Walt Disney left here after the first conference, he had seen Helvering's memorandum stating he had no appropriation for this purpose and left with a statement that he was willing to take his chances that if the Secretary wanted the film, he thought the money would be found and no definite commitment was made to him until the letter was written in your (Bell's) office when Walt Disney was present. During that interval, he understood he was taking his chances subject to the money being found for this purpose. MR. SULLIVAN: Who, Commissioner Helvering? MR. FOLEY: No, Disney. Regraded Unclassified 49 - 30 - MR. SULLIVAN: No, the Commissioner protected him- self on this. H.M.JR: Well, let's stop this now. John, you do a little work on this. Regraded Unclassified 50 February 10, 1942 12:41 p.m. HMJr: Hello. Operator: Senator Glass. HMJr: Hello. Senator Glass: Hello. HMJr: Henry Morgenthau talking. Junior. G: How do you do, Mr. Secretary. HMJr: How are you? G: Very well. HMJr: Senator, I need a little friendly advice. G: Yes. HMJr: You may have seen the vote in the House yesterday on this Donald Duck picture. Hello. G: Yes. HMJr: And I wondered whether I could have an opportunity to show it to you; then after you've seen it, get your advice on what you think we ought to do. G: Well, yes, you can do that. HMJr: Would you like to see it late in the afternoon or first thing in the morning? G: Well, either; whichever you HMJr: Well, we'll fix it to suit your convenience. We can show it right here in the Treasury. We have 8. place for showing it. G: What 1s it you want to show me? HMJr: It's the actual picture. It takes seven and a half minutes. Regraded Unclassified 51 - 2 - G: The picture that you propose to pay eighty thousand dollars for? HMJr: That's right. G: Yeah. Well, I can see it most any time. HMJr: Well, what would....: G: I'll come down in the morning and see it. HMJr: What time would that be? G: Well, I suppose ten-thirty? HMJr: That'll be fine. Now, would you like me to call for you? G: No, I have a car and I'll drive down. HMJr: Fine. And then I'll look forward to seeing you at ten-thirty, and it only takes seven and a half minutes. G: All right. HMJr: And we can show it right here. G: All right, sir. HMJr: At ten-thirty. G: Yes. HMJr: Thank you so much. Regraded Unclassified MEMBER JOHN TADER COMMITTEE ON APPROPRIATIONS 35ml Diet. NEW Vum 52 Congress of the United States Douse of Representatives gi J February 10, 1942 Hon. Henry Morgenthau Jr. Treasury Department Washington, D.C. Dear Mr. Secretary: I have your letter of February 9th. I em glad to be able to report that the House voted on yesterday 259-112 to eliminate the Donald Duck operation. The vote in Committee of the Whole on Friday was 78 to 63. This showed vast improvement in sentiment B.S. knowledge of the situation became more general. I am in hopes that you, elso, will be persuaded, and that you will see that the Treasury Department does not get into any more such situations. I have not held this against you or against the Department, in my own mind, because you have simply drifted with the pressure for the wasting of Government funds on some of these projects. I do hope that we may now have an all-out defense effort on the part of the Treasury and all other departments. Very sincerely yours, John Jahr Regraded Unclassified MEMBER JOHN TABER COMMITTEE ON APPROPRIATIONS 36TH Dur. NEW Yes 52 Congress of the United States Douse of Representatives Mashington, D.C. February 10, 1943 Hon. Henry Morgenthau Jr. Treasury Department Washington, D.C. Dear Mr. Secretary: I have your letter of February 9th. I am glad to be able to report that the House voted on yesterday 259-112 to eliminate the Donald Duck operation. The vote in Committee of the Whole on Friday was 78 to 63. This showed vast improvement in sentiment as knowledge of the situation became more general. I am in hopes that you, also, will be persuaded, and that you will see that the Treasury Department does not get into any more such situations. I have not held this against you or against the Department, in my own mind, because you have simply drifted with the pressure for the wasting of Government funds on some of these projects. I do hope that we may now have an all-out defense effort on the part of the Treasury and all other departments. Very sincerely yours, John Jobs Regraded Unclassified 53 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS, Press Service Tuesday, February 10, 1942. No. 30-20 2/9/42 The Secretary of the Treasury announced last evening that the tenders for $150,000,000, or thereabouts, of 91-day Treasury bills, to be dated February 11 and to mature May 13, 1942, which were offered on February 6, were opened at the Federal Reserve Banks on February 9. The details of this issue are as follows: Total applied for - $399,966,000 Total accepted - 150,049,000 Range of accepted bids: (Excepting 2 tenders totaling $230,000) High - 99.950 Equivalent rate approximately If 0.198 percent 11. if di Low - 99.932 0.269 Average of " H 0.250 = Price - 99.937 (17 percent of the amount bid for at the low price was accepted) -000- Regraded Unclassified 54 TREASURY FINANCING INTERVIEWS IN SECRETARY'S OFFICE TUESDAY, FEBRUARY 9, 1942 10 9:30 Messrs. Mills and Repp, Discount Corporation 9:50 C. J. Devine, C. J. Devine and Co., New York 10:10 Mr. Baker, Travelers Insurance Company, Hartford 10:30 Mr. Parkinson, Equitable Life Assurance, N. Y Y. 10:50 Mr. Gibson, Manufacturers Trust Company 2:30 Mr. Brown, First National Bank, Chicago 2:50 Mr. Fitzgerald, or Mr. Walker, Northwestern Mutual Life 3:10 Mr. Fisher and Mr. Murray, National Bank of Detroit 3:30 Mr. Congdon and Mr. Coney, National City Bank of Cleveland 3:50 Mr. George L. Harrison, New York Life Regraded Unclassified Feb10th 55 mills Discount Corp. 2 th 60-65 61-66 } $750.00 If June 15 -A45 } 750.00 sell at 100. or 2/4 53-55 whole issue go very well c.g plevine, 60-63}- - $750. by either Sept 4567 $750. 1/8 Dec Ky 53- 55 would Aplit issue Regraded Unclassified 56 m Beben - Travelers Ins. 2½ 61-63 750,00 00 few 2% 49-51 $750.00 gibson mant Imst 0 2 17 59-63 Regraded Unclassified 57 Brown- 1st not. BK 2-4 (54-56 (53-55 muth werstern Life 2 1/2 % Regraded Unclassified 58 national BK of Latwel 24 53-55 101.8 seft 15 - #750 note $750. march 15-451'/8 Sept 15- 451'4 Sept 15 sLt SH15-44 5-46 13/8 1½ Regraded Unclassified 1 59 Gat. City of Chivelend 10yr Band 3-5 yr note het guye Harrism wants 22% and 2 % Regraded Unclassified 60 OFFICIAL FEBRUARY 10, 1942 MR. R. A. YOUNG PRESIDENT FEDERAL RESERVE BANK BOSTON MASSACHUSETTS I WILL TELEPHONE YOU WEDNESDAY FORENOON TO GET YOUR OPINION AS TO WHAT YOUR DISTRICT WOULD LIKE IN CONNECTION WITH OUR FINANCING. WOULD APPRECIATE YOUR CHECKING WITH PEOPLE IN YOUR DISTRICT BETWEEN NOW AND TOMORROW. REGARDS. HENRY MORGENTHAU JR. Regraded Unclassified 61 February 10, 1942 4:15 p.m. FINANCING Present: Mr. Bell Mr. Haas Mr. Hadley Mr. Murphy Mr. Schaeffer Mr. Morris MR. BELL: Stedman wants & two and a half, and he has got B. hundred million dollars he would like to invest. H.M.JR: What bank is he? MR. BELL: He is the Prudential Company. H.M.JR: He wants a two and a half? MR. BELL: Yes. H.M.JR: What have you got, Hadley? MR. BELL: But he has got a hundred million dollars to invest in two and a half's, and he doesn't want any other security. H.M.JR: Is this today's? MR. HADLEY: Yes. H.M.JR: What? MR. HADLEY: Yes, those are right up to the amount. H.M.JR: Did they lose much today? Regraded Unclassified 62 - 2 - MR. HADLEY: They lost about eight thirty-seconds in the longer area. It shoves them back about six months from previous estimates. (Mr. Morris entered the conference.) MR. HADLEY: It pushes the estimates back about sir months. H.M.JR: Dan, supposing this military thing doesn't look so good tomorrow? Could we announce it on Friday? MR. BELL: I was wondering if you would like to do this. Supposing we sent it to the banks tomorrow after- noon. H.M.JR: Yes. MR. BELL: And said, "Get all ready to catch an early train and release Thursday afternoon," and then they would put it in the mails and announce it Friday morning. We will be here, but there is a holiday in eight districts. How would you like to do that? H.M.JR: I think we will do that and not announce it until Thursday morning. MR. BELL: Well, I noticed you said Thursday yester- day. I didn't know whether you meant that or not. Did you? II.M.JR: It was a slip of the tongue. MR. BELL: Because there are four districts open, and we shouldn't announce it until we announce it in all of them. (The Secretary held a telephone coversation with Mr. Rouse as follows:) Regraded Unclassified 63 February 10, 1942 4:18 p.m. HMJr: Hello. Operator: Mr. Rouse. HMJr: Hello. Robert Rouse: Hello. HMJr: Bob Rouse. R: Yes, sir. HMJr: I hope you got less different kinds of advice than I did. R: Oh, we got a great variety. HMJr: Yeah, 80 did I. R: But I think the weight of it - of the whole thing - would tend toward the - doing the whole thing with a one and a quarter - two and a quarter. HMJr: I see. But the insurance companies want two and a half. R: That's clear. HMJr: Yeah. R: You probably found some of the banks wanted a note. HMJr: Yeah. R: And that the two and & quarter really didn't satiefy a hundred per cent. HMJr: No. I don't think anybody - I'm just looking over my notes - there's only one man was for - Gibson, the manufacturer, said "Let's put it all into two and a half's, '59-'63." Hello. R: Yes, sir. HMJr: And outside of that, about everybody else wanted Regraded Unclassified 64 - 2 - to split it or the insurance companies talked - what is it - - two and a half long. The most con- servative was the bank from Cleveland. Hello. R: They're good people. HMJr: They were the most conservative. They wanted a ten-year and a three to five year note. R: Uh huh. Well, we talked with the Savings Bank Trust Company this afternoon, and they thought either two and a quarter or two and three eights. HMJr: Yeah. R: Recommended against the two and a half on the theory that at the price the two and a half's at '72 are selling, any insurance company or any buyer for two and a half can practically buy them at par. HMJr: Yeah. R: And he thought it would be a healthy thing in the whole market. HMJr: Yeah. R: We find no interest in notes at all. HMJr: No interest in notes? R: No. People that mention them don't want to buy them themselves, particularly. Just a case of playing short. And the only ones that do recommend it, recommend it at a pretty substantial rate. HMJr: Well, one thing that I think I'm going to do 1s this. I'm going to tell them - - I'm not going to make any public announcements until Friday, be- cause Bell tells me four of the Districts are open - hello. R: Yes. HMJr: And then on account of the war news, I might Just Regraded Unclassified 65 - 3 - as well gain another day. R: Uh huh. HMJr: But my reason 1s going to be that I thought all the Districts were going to be closed, and I find four of them opened. R: It will appear in the papers on Friday morning. HMJr: Yeah. R: And you'll have your meeting tomorrow at HMJr: Just the same. R: Just the same. HMJr: But then we think we'll give you & preliminary and hold it until Thursday afternoon. R: Right. HMJr: Have everything ready. R: Uh huh. HMJr: But not shoot it until Friday afternoon. R: We sent word to you that HMJr: Thursday afternoon. R: I mean Thursday afternoon, yeah. HMJr: Yeah, Thursday afternoon. R: Well, I hope you can go through with your meeting at eleven, because we have quite a job to get it out in time. HMJr: Yeah. R: And have it ready. HMJr: Yeah. (Talks aside) Tell Shaeffer to come in. R: In any event, we'll be here and we'll be working. Regraded Unclassified 66 - 4 - HMJr: Well, we'll be talking to you tomorrow. I say, I don't - how much do you think the two and a quarter was knocked off today? R: Yesterday and today, possibly to September '52. HMJr: September. R: I think that's something I'd rather thing about over night. HMJr: I see. R: Because part of it's an anticipation, and we find here there's been some unsettlement in the tax- exempt bonds - there's some talk of the Treasury developing some line of apportionment on taxes which has caused B. further unsettlement there. HMJr: Well, anybody that knows anything about taxes officially - it's Just one wild guess. R: Well, I assumed that that was the case, and any- body that's raised the question with us we assume have taken your statement at face value and re- peated it ae such. HMJr: Yes. Nothing 18 settled other than what I said at Cleveland. R: Well, I think the later - the market took and we're taking the later statement that should do nothing to circumvent the tax exemption. HMJr; That's right. R: That's fair enough, isn't it? HMJr: That sticks. R: Good. HMJr: That holds. R: Because we're giving that assurance here that we - your statement - later statement - 1s the thing. Regraded Unclassified 67 - 5 - HMJr: That's still true. R: Good. HMJr: It will be as far as I'm concerned. R: That's fine. HMJr: Yeah. Even though - let's see, what's his name - Henry Epstein begs me to change. R: (Laughs) HMJr: I refuse to change. R: Right. HMJr: Okay. R: That's fine. We'll be talking in the morning. HMJr: Thank you. Regraded Unclassified 68 - 3 - (Mr. Murphy and Mr. Schaeffer entered the conference.) H.M.JR: You (Schaeffer) tell your boys that I didn't realize when I said that we announced this financ- ing for Thursday morning that four Federal Reserve districts would be open. I thought they would all - you see? MR. SCHAEFFER: Yes, sir. H.M.JR: And therefore the announcement will not come until Friday morning. In other words, out of the twelve districts, four of them are going to be open, so it isn't fair to the other eight that will be closed, so We won't - the announcement will not be until Friday morning. MR. SCHAEFFER: Yes, sir. H.M.JR: That is official. The other thing, I wanted to have an extra day to see what happens in Singa- pore. MR. SCHAEFFER: Yes, sir. H.M.JR: I don't think I am getting away with any- thing. I need the extra day. (Laughter) MR. SCHAEFFER: Yes, sir. (Mr. Schaeffer left the conference.) H.M.JR: I just thought I would tell you it is a mess so far, so we will take a look at it tomorrow morning. Regraded Unclassified TREASURY DEPARTMENT 69 INTER OFFICE COMMUNICATION DATE February 10, 1942 TO Secretary Morgenthau FROM W. H. Hadley TREASURY NOTES Approx. Coupon Maturity Date Yield Price Premium 1% 2 yrs. 10 mos, 12/15/44 0.85 100.14 14/32nds 1-1/85 3 yrs. ? TO. 3/15/65 0.90 100.22 22/32nds 1-1/82 3 yrs. 4 nos, 5/15/65 0.95 100.18 28/32nds 2-1/80 7 yne. 7 nos, 9/15/45 1,00 100.14 11/32nds 1-1/45 4 yrs. 4 mos. 6/15/46 1,15 100.13 13/32nds 2-3/85 4 yrs. 7 mos, 9/15/46 1.20 100.24 24/32nds 1-3/eg 2 yrs. 10 mos, 12/15/46 1.25 100.19 19/32nds Regraded Unclassified 70 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE February 10, 1942 TO Secretary Vorgenthau FROM W. IL Madley TREASURY BONDS Approx. "cimon Vaturity Date Yield Price Premium E-1/4- R 1/4 yrs. 1948-50 1.79 101.8 1 pt. 8/32nds June 15 1.81 101.4 1 pt. 4/32nds 6-1/20 8 1/2 yrs. 1948-50 1,82 101.3 1 pt. 3/32nds Dec. 15 1.84 100.30 30/32nds 19/10 10 2/4- 12 1/4 yrs. 1952-54 2.10 101.13 1 pt. 13/32nds June 15 2.12 101.6 1 pt. 6/32nds In :/4- 13 1/4 yrs. 1952-55 2,12 101.6 1 pt. 6/32nds June 15 2.14 101, 1 pt. 10 1/2- 12 1/2 yrs. 1952-54 2.12 101.9 1 pt. 9/32nds Sept. 15 2.14 101.3 1 It. 3/32nds 37 3/4- 12 3/4 yrs. 1952-54 2.13 101.5 1 nt. 5/32nds Dec. 15 2,15 100.31 31/32nds 7-1/20 16 - 21 yrs. 1958-63 2.37 101,24 1 pt. 24/32nds HAR. 15 2.39 101.15 1 pt. 15/32nda 17 - 22 yrs. 1959-64 2.39 101.17 1 pt. 17/32nds Ear. 15 2.41 101.9 1 pt. 9/32nds 18 - - 23 yrs. 1960-65 2.41 101.10 1 pt. 10/32nds Mar. 15 2.43 101.1 1 pt. 1/32nd Regraded Unclassified 71 Sales of Treasury Notes - Tax Series A and Tax Series B August 1941 to January 1942 Classified by denomination (Par amounts in millions of dollars - As reported by the Federal Reserve Banks) Series and : Aug. & : : : Oct. Nov. Dec. : Sept. ..... : Jan. Total denomination : : : : .. Tax Series A $25 .9 .3 .3 .3 .2 2.0 50 1.2 .4 .3 .6 .4 2.9 100 24.7 5.1 3.5 4.9 4.1 42.3 * # * 500 .5 .5 # * * $ .9 in 1,000 Total-Tax Series A 26.8 5.8 4.1 5.8 6.1 48.6 Tax Series B $100 1.7 .5 .5 .9 .6 4.2 500 4.0 1.4 1.2 2.1 1.3 10.0 1,000. 40.2 12.1 11.2 19.2 12.1 94.8 10,000 165.3 44.2 43.9 58.7 39.8 351.9 100,000 478.1 114.2 104.4 120.9 71.8 889.4 500,000 91.0 26.5 32.0 22.0 19.0 190.5 1,000,000 576.0 233.0 123.0 116.0 77.0 1,125.0 Total-Tax Series B 1,356.3 431.9 316.2 339.8 221.6 2,665.8 Total-Both Series 1,383.1 437.7 320.3 345.6 227.7 2,714.4 Office of the Secretary of the Treasury, Division of Research and Statistics. February 10, 1942 # $500 and $1,000 denominations not available prior to Jenuary 1942. Regraded Unclassified 72 Classification by Type of Purchaser of the Sales of Treasury Notes Tax Series A and Tax Series B August 1941 to January 1942 (Par amounts in millions of dollars - As reported by the Federal Reserve Banks) Type of purchaser : Tax Series : Tax Series : Total and month : A : B : Individuals 1/ August 16.0 50.0 66.0 September 6.2 21.1 27.3 October 5.2 20.4 25.6 November 3.5 14.3 17.8 December 5.4 36.7 42.1 January 5.4 60.7 66.1 Total 41.7 203.2 244.9 Corporations August 3.7 1,024.9 1,028.6 September .9 260.3 261.2 October .6 411.5 412.1 November .6 301.9 302.5 December .4 303.1 303.5 January .7 160.9 161.6 Total 6.9 2,462.6 2,469.5 Total sales August 19.7 1,074.9 1,094.6 September 7.1 281.4 288.5 October 5.8 431.9 437.7 November 4.1 316.2 320.3 December 5.8 339.8 345.6 January 6,1 221,6 227.7 Total 48.6 2,665.8 2,714.4 Office of the Secretary of the Treasury, Division of Research and Statistics. February 10, 1942 Includes partnerships and fiduciaries. Regraded Unclassified TREASURY DEPARTMENT 73 INTER OFFICE COMMUNICATION DATE Febr. 10. TO Secretary Norgenthau FROM Mr. Haas PA Subject: Progress Recort on Study to Outline Sources of Funds for Government Borrowing, Fiscal Year 1943 1. Introduction According to the budget, the Treasury will have to Lorrow $39. B billions in the fiscal year 1943 in order to Finance the deficit and purchase obligations from those Federal agencies which formerly financed themselves through the sale of guaranteed securities. The development of B. program for borrowing this amount raises two important cues- tions: (1) How much will be available for borrowing from current savings and accumulations? (2) How should the additional amount required be reised? In order to answer these and similar questions, we inaugurated a study of the basic fectors involved. 2. Method of approach of our study The first etep in our ans lysis was to make a set of estimates comparing the prospective flow of goods and services in the fiscal year 1943 with the prospective appli- cation of the resulting incomes to verious uses. This provided us with estimates showing now much coode and services Government ae & whole was -oing to buy and how much tax receipts would be available to day for its expenditures. In addition, it showed how much would be svailable for Government borrowing from savings and accumu- lations out of current income payments to individuals and businesses. These estimates, which are shown in the attached Table I, were made on the assumotion of an increase of 10 percent in the cost of livin from December 1941 and an increase in national income to $115 billions in terms of such increased prices. The assumotion of such a rise in the cost of livin seems necessary in view of the outlook st present end because some price rise may be e useful device to maximize output. Regraded Unclassified 74 Secretary Morgenthau - 2 The estimates we have used in this part of our analysis, although still tentative, have been discussed with repre- sentatives of the Divisionsof Monetary Research and Tax Research, and with representatives of the nine agenoles re- quested by you, in your letter of December 6, to appoint a consultant for this type of work. 3. Opinions of the consulting group Although individual figures in our basic analysis are subject to disagreement, there is a unanimous feeling among the outside consultants and the Treasury staff working on this study that the present outlook 1s for a very substantial amount of borrowing from inflationary sources, and for a large increase in prices beyond the assumed 10 percent rise in the cost of living. This feeling was concurred in by the entire group which met Thursday, February 5, in Mr. Bell's office on this problem. In fact, the consensus of the meeting was that the situation 1s extremely serious and that the Administration should look into every possible means to combat the large degree of inflation which appears in prospect. Richard Gilbert, from the Office of Price Administration, contended that taxes should be increased even beyond the $9 billions recommended in the budget. He also stated that his organization was going to have to take vigorous steps at once through extensions of price control and consumer rationing to tie-in with the suggested vastly increased tax program. There was no evidence of any significant disagreement with Mr. Gilbert's point of view. Other persons present, including particularly Isidor Lubin, stressed the advisability of confining new taxes as much as possible to forms which could not be seized upon by labor as justification for further wage increases; and the prospective wage adjustment negotiations for Little Steel were cited to indicate the need for immediate and con- certed action on the inflation front. 4. Funds available for borrowing from current savings and accumulations The data in Table I on current savings and accumulations show that $26.5 billions will be available for Government borrowing either directly or indirectly from these sources. The figures are itemized again in the upper part of the attached Table II, and We have distributed them among the Regraded Unclassified 75 Secretary Morgenthau - 3 various types of Government securities which might be sold to absorb the funds either directly from the persons who may be said to own them or from secondary sources which might acquire these funds through transfers, such as by paying off consumer credit, home mortgages, or other debt. The amount available from current savings and accumula- lations, however, is $13.3 billions short of the amount of financing which the budget states it will be necessary to undertake. If there is no increase in the amount of these funds made available, this additional $13.3 billions will have to be borrowed from banks and idle balances, as indicated in the lower part of Table II, and a larger price rise will occur than was assumed in our estimates. This would begin of vicious inflationary circle, since the price rises would in turn cause Government expenditures to rise further and 80 cause even more borrowing to be made from what may be called inflationary sources, 5. Suggestions From the point of view of financing, our present analysis, even though using very tentative data, suggests certain steps for immediate consideration as follows: (1) The reserve position of banks should be eased in some manner, in order to facilitate their purchase of securities to whatever extent is necessary. (2) The new security which has been suggested as a medium to absorb deferred business expenditures should be offered as soon as possible. (3) Unless the intention 18 to rely very heavily on price fixing and rationing, voluntary savings and the present tax program will be inadequate to avert inflation. The introduction of additional new taxes and compulsory savings should be seriously considered. (4) A tentative goal for sales of savings bonde to absorb current savings and accumulations and idle balances should be placed in the range of from $10 to $12 billions annually. These figures would, of course, have to be reduced somewhat if substan- tially higher taxes or a compulsory savings plan were adopted but might be substantially increased if extensive rationing and orice fixing were put into effect. Regraded Unclassified 76 Secretary Morgenthau - 4 (5) Every effort should be made to induce corporations and individuals to greatly expand their holdings of tax notes by investing current savings and accumulations in this manner. 6. Future plans We will continue to work with members of the con- sultative committee in order that we may improve our estimates as much as possible and keep a continuous check on current developments, and will provide you with periodic reports. Attachments 77 STRICTLY CONFIDENTIAL Table 1 if the Disapillibrium Implicit in the Estimated Flow of Goods and Services and the Estimated Application of Incomes to Various Uses Fiscal Year 1943 on e national income of $115 billions and a rise in the cont of living of about 10% from December 19k1) (In billions of dollars) ved. Services Application of Incomes made available (Under existing habit potterns and pressures) to 5 mirchased by Government: A. Available for Government uset 1. Seronce expenditure: Av Total 56.6 1. Assitred - Taxes: is Loss: Prepayments, land and No Existing business taxes 1/ 16.7 offshore, etc 2.5 b. Existing personal taxes 9,8 c. Set defense expenditure 54.1 C. Vaw business and personal taxes 7.0 de Total taxes 30.5 e. Other public expenditure: Federal 6.1 2. Potential - For buying Government b. State and local 7.8 securities, directly or indirectly C. Total other public expenditure (Unabsorbed arving, depreciation 13.9 and other allowances): R. Unabsorbed personal saving 3/ 15.5 3. Total Government b. Social security net accumulation 68.0 4.0 C. Unabsorbed business asving .3 d. Reserves for existing taxes 1.7 0. Reserves for new taxes 0.5 f. Unabeorbed depreciation and other allowances 4.5 E. Total 26.5 3. Total incose available for Government use, 57.0 1, To be purchased by private persons: 1. Private capital expenditures: 3. Available for private use: a. Plant and equipment 5.5 1. Income absorbed by private capital b. Inventories: expenditures: (1) Increase in volume -.5 a. Absorbed depreciation and other (2) Increase in value 1.5 allowances 4.5 (3) Total 1.0 b. Absorbed business saving 1.5 C. Foreign balance --5 C. Absorbed personal saving -5 4. Residential housing construction. d. Total -5 6.5 C. Total 6.5 2. Income available for consumer spending 79.0 P. Consumption goode And services: n. Durables 3.5 b. Non-durables and services 64.5 C. Total 68.0 3. Total income evailable for private use 85.5 3. Total private 74.5 Intional gross product plus inventory revaluations 142.5 C. National gross product plus inventory revaluations 142.5 February 4. 1942 included in national income concept used by Department of Commerce. In instanting personal rund business saving, the revenue to be obtained from new taxes is arbitrarily divided 1/3 each from (1) corporation income and rofits taxes, (2) excise taxes, and (3) individual income, estate and gift taxes, 00rsonal seving, exclusive of social security net accumulation, is estimated at $16.0 billions. saving is estimated at $1.8 billions. and other allowences is estimated at $9.0 billions. services Phone is & disequilibrium implicit in the above figures, amounting to $11.0 billions. resulting from the discrepancy between the goods and astimated by to be available for private use BO that it becomes available for Government use. This may be accomplished by increasing taxes, the Government requires and the income available for Overneent use. This disequilibrium say be solved by transferring income now or is increasing saving. either by voluntary or forced means, or by the use of direct price and rationing controls. Unless the disequilibrium price Please which will occur 10 addition to the 10 percent rise is the cost of living allowed for. This will in tarn came Ocvernment a solved by changing the application of incomes, however, it will solve itself by changing the flow of goods and services as result of Day the expenditures. expenditures for to increase in order to purchase the - volume of goode and services and ed further complicate the problem of raising funds to Regraded Unclassified PRELIMINARY ENTIMATES Table 11 78 STRICTLY CONFIDENTIAL Estimated Sources of Funds to Tinance Budgetary Deficit and Toderal Agencies Financed with Treasury Funds Fiscal year 1943 (In billions of dollars) Distribution between types of Government securities Kerketnble securities Total Bev Special Sold to Sourcee of funds amount security issues Sold corporations Sold Sold Subtotal Savings to absorb Tax to S other than to to for bonds deferred notes trust individuals banks and insurance banks marketable business funds insurance companies accurities expenditures companies 1. Current savings and accumulations ostimated on the basis of existing nabit patterns and pressures (based on . cational income of $115 billions and a rise in the cost of living of about 10% from December 1941) 1/ 1. Personal saving 15.5 7.0 .5 .5 - 1.0 .5 2.0 4.0 7-5 2. Social Security trust funds ... 4.0 - - - 1.0 - - - - - 3. Business saving .3 - .2 - - - I - .1 .1 26. Corporate tax accruals in ex- coss of tax payments (n) Existing taxes 1.7 - - 1.2 - - , - -5 -5 (b) Yew taxes .5 - - .3 - - - - .2 .2 5. Sxcess of bookkeeping charges for depreciation and similar items over natual outlays therefor 4.5 .2 1.3 -5 - - .5 - 2.0 2.5 6. Net surplus of State and local revenues over expenditures - - 1 - - - - - I ... - 7. Total from current savings and accumulations 26.5 7.2 2.0 2.5 4.0 1.0 1.0 2.0 6.8 10.8 1:. Funds available only at the cost of an additional price rise: 1. Funds derived by drawing on old idle balances (a) Increase in outstanding amount of tax notes due to habit growth in their use .5 I .5 I 1 - - I - - (b) Conversion of idle balan- cea of individuals into active balances through 2.0 - - - - - 2.0 1 - purchase of savings bonds - (e) Conversion of idle balan- ces of corporations into active balances through purchase of Government - - - 1,0 - 1.0 - - I - securities (a) Total from old idle bal- 1.0 -5 - - - - - 3.5 2.0 - ancee 2. Residual balance which will - - - 9,5 9.8 have to be borrowed from banks 9.8 - - - - 3. Total 13.3 2.0 1,0 .5 - - -, ", 9.8 9.8 III. Total borrowing according to the budget (but this will lave to be incressed as A result of prices rising even higher than allowed for if borrowing listed under II is 39,8 9.2 3.0 3.0 4.0 1.0 1.0 2.0 16.6 20.6 used) Tebruary 4. 1942 Estimates derived from Table I. Regraded Unclassified 79 February 10, 1942 Dear Kr. Tobin: Your letter of February 5, addressed to the President, has been referred to no for reply. I am especially glad to have seen your letter because of the fine spirit of patriotism which prompted you to send it. It should be an example to the whole country. It is most encouraging to know that your union is willing to lend six million dollars to the Government without any interest, to help in winning the war. We at the Treasury feel, however, that it would be unfair to accept your offer. After all, we pay interest to millions of other holders of govern- ment obligations, and there is no reason why we should not do the same for your union. It may help you in investing your six million dollars to know that we plan to have B. regular financing operation of $1,500,000,000 on Friday of this week. In all probability the books will remain open for that day only. You can, of course, subscribe up to the limit permitted by the regulations and you can do this through your local bank, or the nearest Federal Roserve bank, or through the Treasury itself. We are also considering the issuance within 8. few weeks of of Lew kind of security which, I think, will be of particular interest and usefulness to your organization and others with idle balances. I am sorry that I cannot tell you more about this offering, as we ourselves have not yet reached final decisions regarding it, but I thought you would like to know that n now issue of this kind is in prospect. Sincerely, (Signe) I. in Mr. Daniel J. Tobin, General President, International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, Washington, D. C. File By they 9.05 FK/hkb 2/12/42 Regraded Unclassified 79 February 10, 1942 Dear Mr. Tobin: Your letter of February 5, addressed to the President, has been referred to no for reply. I am especially glad to have seen your letter because of the fine spirit of patriotism which prompted you to send it. It should be an example to the whole country. It is most encouraging to know that your union is willing to lend six million dollars to the Government without any interest, to help in winning the war. We at the Treasury feel, however, that it would be unfair to accept your offer. After all, we pay interest to millions of other holders of govern- ment obligations, and there is no reason why we should not do the same for your union. It may help you in investing your six million dollars to know that we plan to have a regular financing operation of $1,500,000,000 on Friday of this week. In all probability the books will remain open for that day only. You can, of course, subscribe up to the limit permitted by the regulations and you can do this through your local bank, or the nearest Federal Reserve bank, or through the Treasury itself. We are also considering the issuance within 6. few weeks of a new kind of security which, I think, will be of particular interest and usefulness to your organization and others with idle balances. I am sorry that I cannot tell you more about this offering, as we ourselves have not yet reached final decisions regarding it, but I thought you would like to know that n new issue of this kind is in prospect. Sincerely, (Signed) 1. Morganthan, Mr. Daniel J. Tobin, General President, International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, Washington, D. C. file n.m.c FK/hkb By they 9:05 2/12/42 X Regraded Unclassified 80 THE SECRETARY OF THE TREASURY WASHINGTON February 10, 1942 Dear Mr. Tobin: Your letter of February 5, addressed to the Fresident, has been referred to me for reply. I am especially glad to have seen your letter because of the fine spirit of petri- otlam which prompted you to send it. It should be an example 10 the whole country. It is most encouraging to know that your union is willing to Tena six million dollars to the Government without any Interest, to help in winning the war. We at the Treasury feel, however, that it would be unfair to accept your offer. After all, we pay interest to millions of other holders of govern- ment obligations, and there is no reason why we should not do the same for your union. It may help you in investing your six million dollars to know that we shall have a regular financing operation of 21,500, 000, 000 very shertly, and that the terms of this financing will be announced on Friday of this week. It would be perfectly possible for you to subscribe up to one helf of your total assets and you сал do this through your local bank, or the nearest Federal Reserve bank, or through the Treasury Itself. .e are also considering the issuance within a few weeks of B. new kind of security which, I think, will be of particular interest and usefulness to your organization and others with ille belances. I am sorry that I cannot tell you more about this offering, as we ourselves have not yet reached final nacisions regarding it, but I thought you would like to know that a new issue of this kind is in prospect. Sincerely, Γ. Deniel J. Tobin, General President, International Brotherbood of Teamsters, Chauffeurs, Brehousemen and Velners of America, imphington, D. C. Regraded Unclassified 81 THE WHITE HOUSE WASHINGTON February 9, 1942. MEMORANDUM FOR H.M. Jr. For preparation of reply to Dan. F.D.R. 82 BROTHERHOOD EN&HELPERS OF OF AMERICA AFFILIATED WITH THE AMERICAN FEDERATION OF LABOR WASHINGTON, D. C. 932 Bowen Building February 5, 1942 The Honorable Franklin Delano Roosevelt President of the United States The White House Washington, D.C. My dear President: At a meeting of the General Executive Board of the International Brotherhood of Teamstors, held on January 29, 1942, I was instructed to personally convey to you the following information and action of the Board: The International Brotherhood of Teamsters has now over eight million dollars in finances, Two million of this amount 1s invested in United States Defense and other Government bonds. There remains six million dollars in cash, This fund has been created over a period of thirty years by contributions of one cont per day per member of the International Union. The measage that I have been instructed to colivey is that this realning amount of cash in the tressury of the Interentional Union, six million dollars, is at the disposal of our Dovernment at any Interest rate that the Government Gesires to pay, or at no interest rate 1f the Government so desires; this money to be hold and used by the Government until this world conflict is ended and until peace nus been established throughout the world under the inspiration of God and the loadership of the President of the United States. The General Executive Board further adds that 1t takes this action knowing that unless our country is successful in winning this present struggle our civilization, liberty and all we have will De destroyed. Secondly, we hope that by this action we may influence other Labor Unions, Individuals and corporations that have large amounts of money to act likewise, so that we can all join in helping toward the re-establishment of world safety and relievo, 1f possible, future ;enerations from enormous taxa 100 which must outnin Regraded Unclassified - 2 - 83 as a result of tremendous interest rates on Government indebtedness. Very Sincerely Yours, Daniel Robin GENERAL PRESIDENT. 84 [ CONGRESS OF THE UNITED STATES JOINT COMMITTEE ON REDUCTION OF NONESSENTIAL FEDERAL EXPENDITURES There will be a meeting of the Joint Committee in Room 314 Senate Office Building on Tuesday, Feb. 10, at 10:00 a.m. To 18.87. HARRY FLOOD BYRD, Chairman. [ are 68558 Regraded Unclassified 85 TREASURY DEPARTMENT WASHINGTON February 10, 1942. MEMORANDUM ON MEETING 07 THE JOINT COMMITTEE on REDUCTION OF NON-DEFENSE EXPENDITURES A meeting vas called at 10:00 1. M., Tuesday, February 10, to the Senate Finance Committee Room in the Senate Office Building. There were presenti Senators: Congressment Byrd Taber Glass American Farm Bureau: McKellar Mr. O'Neill and associates LaFollette Bureau of the Budget: George Mr. Lawton Nye General Accounting Office: Xr. Barger Senator LaFollette addressed hibself to Mr. O'Neilll and asked Mr. O'Neill in his remarks concerning hie Association's investigation of the FSA if he would explain who his investigators were and how the investigation was made. Mr. O'Neill stated that the General Counsel of the organization employed certain Attorneys to make the investi- gation and that his associates end the State officials of his organization were contacted. Senator LaFollette read a telegram which he had received from Mr. Bentwell, Chairman of the Agricultural Committee of the Mississippi House of Representatives and Chairman of A Fact Finding Committee. Based upon such telegram Senator LaFollettee asked Mr. O'Neill whether it was a fact that E Mississippi counties were credited with 19,000 members in the Mississippi Farm Bureau Association; whether it was true that 13,000 negro membership dues were involuntarily set off against AAA payments; whether or not banks, etc. donate blocks of memberships, without in some instances names of members. Mr. O'Netll explained that his organization published a national magazine which Mad from 500,000 to 600,000 subscriptions and that Farm Bureau repra- centatives are often present when AAA payments are made. These representatives carry cash with them and cash checks for their PORDETENSE BUY RUNINE the Regraded Unclassified 86 - 2 - members and at such time deduct the Farm Bureau Association dues. Mr. O'Neill in reply to questions by Senator LaFollette explained the manner of organization of the American Farm Bureau. He also explained and presented reports of the Bureau's investigators who investigated the activities of the FSA. These reports, in some cases supported by affidavits, were submitted for the record. A number of particular situations were presented which appeared to be isolated cases and not generally applicable to all FSA activities. Thereupon the meeting adjourned at 12:30 P. M. to meet again on Friday, February 13, at 10:00 A. M. wit Regraded Unclassified 87 February 10, 1942 4:31 p.m. HMJr: Yes. Grace Tully: Nine-thirty Thursday morning. HMJr: Nine-thirty Thursday would be perfect. T: And I asked the President again about that Aniline thing. He said, "Why, yes, I think I approved it." Now, if you haven't got it, and Mr. Forster doesn't seem to remember 1t - - I asked him - he doesn't recall it going over his desk. I recall it coming over this desk, but I don't - I thought that it went to the President and that he did approve it, but I couldn't swear to it. HMJr: How about looking under the desk? T: (Laughs) But Rudolph didn't remember seeing it 18 the only reason why I HMJr: What has he got - you say over the desk, but why not under the desk? T: Well, he doesn't usually put them under the desk. HMJr: Oh, he doesn't? T: No, we try to work on them on top. However, that's what he thinks he did about it. HMJr: Well, it's 8 big help to me. T: Yeah, it's a big help if you don't get it back with the okay on it, but I don't know - if he did approve it, of course, it should go back to you. HMJr: Yeah. T: And if you haven't got it, I don't know what happened to it. HMJr: How about if I make another one? Regraded Unclassified 88 - 2 - T: Yeah, how about that? HMJr: What? T: Then it won't hold it up. If we get another one, then we'll see if we can hang onto that one until you get it back. HMJr: Supposing I make another one and send it to you. T: All right, fine. HMJr: How's - are you alone? T: Yes - no. HMJr: Well, make up your mind. T: (Laughs) HMJr: Have you got time for a joke? T: Yeah, oh, sure. HMJr: I can't vouch for this, but I think it was Felix Frankfurter who told it to me. If you've heard it, stop. Because you said looking for the papers - they said they couldn't find some Lend-Lease papers. T: Yeah. HMJr: And he said, fortunately they change the linen on Wednesday and they found it at the foot of the bed of Harry Hopkins. T: (Laughs) Oh, dear! That could be. (Laughs) HMJr: Okay. T: All right. Fine, Mr. Secretary. HMJr: I'll make another one. T: All right, grand. HMJr: Good-bye. T: Good-bye. the 89 February 10, 1942 Statement by Secretary Morgenthau before the Ways and Means Committee I. Introduction I am here to offer my suggestions as to our first revenue act of the war. I hardly need empha- size the seriousness of the occasion. The task be- fore us 18 to decide how this war is to be financed and how its cost is to be distributed. Economic and social conditions during and after the war will depend to a large degree upon the courage and vigor with which we attack these problems. Victory in this war will demand expenditures on a scale for which there is no precedent. The Presi- dent has announced a program involving war expendi- tures of $52.8 billion in the fiscal year 1943. If we are to furnish the weapons to the men who are doing the fighting, we shall have to mobilize every possible dollar of our income. It is my belief that the mini- mum amount of revenue to be raised by the Revenue Act of 1942 is $7 billion. This will leave $ billion Regraded Unclassified 90 - 2 - to be borrowed. Of this amount I am hopeful that $ billion will be raised by the sale of Defense Savings Bonds. In the development of our program for financing the war, several principles should guide us. The first will be to facilitate the maximum production of war materials. This will mean that our usual ways of living will be drastically affected. We should not hesitate to change our ways of living in any way that helps the war effort. However, it is also important that we should not upset civilian life beyond the point which is helpful to war production. Still another considera- tion is that the readjustment after the war should not be made unnecessarily difficult. We must never forget that our first task is to win the war, but we must also remember that our problems will not cease with the end of the war. As we assemble for the consideration of the 1942 tax bill we are confronted with an economic problem Regraded Unclassified 91 - 3 - which goes far beyond the need of revenue. I refer, of course, to the grave threat of inflation. In war time money incomes are high due to full employ- ment at high wages, while the quantity of civilian goods available for purchase is not enlarged, and in general is actually diminished. The consequence is that, in the absence of effective measures, there will be a rapid general rise in prices. Such a price rise would be an unqualified evil at a time when we are approaching full utilization of our productive resources. An inflationary price rise is a source of grave social injustice. It undermines morale and impedes war production. The hardships of inflation strike at random without con- sideration of equity or ability. Once it has acquired momentum, inflation is extremely difficult to control, and it will leave a heritage of post-war difficulties that will haunt us for decades. Every consideration of national welfare calls for its pre- vention. Regraded Unclassified 92 - 4 - The way to prevent inflation is to prevent people from engaging in the futile effort to buy more goods than can be produced. This requires a comprehensive and integrated program of anti-infla- tionary measures, in which increased taxes and in- creased savings are essential parts. Price control, allocations, rationing, and the regulation of con- sumer credit are other parts of such an integrated program. All these controls are interrelated. The devices of price control, allocation, and rationing will be more effective if taxes and savings are in- creased. Similarly, the effectiveness of the fiscal devices in preventing inflation will be greater if price control and controls over the quantity of goods available for sale are used. Although increased taxes cannot by themselves solve the inflation problem, a much larger volume of taxes is necessary than will be collected from our existing tax system. My purpose today is to Regraded Unclassified 93 - 5 - indicate the tax program which the Administration believes should be adopted at this time for the best interest of the country in the light of the considerations I have mentioned. II. Volume of Revenue A. Objectives of Tax Bill It is my belief that the minimum amount of revenue which should be raised by the Revenue Act of 1942 is $7 billion. In reaching the conclu- sion that the tax bill should raise $7 billion, I have had in mind the fact that a social security program should be expanded both as to coverage and to protection, and that increased taxes and contri- butions for this purpose should be increased by approximately $2 billion a year. I am not making any recommendations with regard to social security taxation or benefits in connection with this bill, but changes of the magnitude indicated should be kept in mind in planning the tax program. 94 - 6 - B. Restraint of Inflation The tax recommendations which will be pre- sented have been framed also to promote the objective of curbing inflation a.s well as raising revenue. I have already indicated the menace of inflation and the manner in which taxes contribute to its restraint. The most effective anti-inflationary taxes are those which bear most directly on consumers' purchasing power. Since mass purchasing power is very largely in the low incomes, it is therefore necessary to place heavier burdens on such incomes than would be justifiable if there were no inflationary danger. It may be noted in passing that the increased collections for social security taxes will also serve an anti-inflationary purpose. C. Ability to Pay In his recent Budget Message the President said that "progressive taxes are the backbone of the Federal tax system.' Although the financing of the war requires taxes upon lower income levels to help Regraded Unclassified 95 - 7 - in restraining inflation, we must not lose sight of the basic principle of our tax system, namely, that taxes should be imposed in accordance with ability to pay and that taxes should be fair and nondiscriminatory. The recommendations I am making at this time have been framed with these principles clearly in mind. Accordingly, increases in taxes on lower incomes should be accompanied by increases in taxes at all other levels of income as well. Taxation according to ability to pay leads to other conclusions also. One of these is that loop- holes in our tax laws should be removed. Another is that taxes not capable of being adjusted to dif- ferences in income or family responsibilities, such as general sales taxes, should be avoided except as a last resort. Finally, it is an essential of taxa- tion according to ability to pay that undue profits should be recaptured wherever they occur. It is not necessary to allow unreasonable profits in order to secure maximum production with economical business Regraded Unclassified 96 to I I management. Under conditions of a war time economy the country cannot tolerate the retention of undue profits. III. Tax Recommendations A. Removal of Special Privileges There are in our tax system certain pro- visions which allow relatively few of our people special advantages and privileges at the expense of the great mass who must pay what is thereby lost. I am unwilling to ask the great mass of the taxpayers of the United States to pay billions of dollars of additional revenues until these defects have been removed from the tax laws. They are bad enough in time of peace-they are completely inexcusable in time of war. An important example of such a privilege is presented by tax exempt securities. Every element in our population should bear its fair share of the burdens which war imposes. Through tax exempt 97 - 9 - securities, however, persons with large taxpaying ability find themselves in a sheltered position. For the most part they did not buy these securities at prices reflecting the great privilege of escape from war time burdens and surely the States did not offer the securities on any such basis. The holders of tax exempt securities are obtaining what are essentially windfall profits in a time of national sacrifice. For a long time Presidents, Secretaries of the Treasury, and Congressional Committees have recom-. mended the elimination of the tax exemption of inter- est on Government securities. Last year the Congress, at my recommendation, removed the exemption on inter- est from future issues of Federal securities. No action has been taken with respect to the interest on State and local securities. In times of peace, when the strain on other ele- ments in the population was not so heavy, the gradual elimination of tax exemption through imposing taxes Regraded Unclassified 98 - 10 - only on future issues had much to recommend it, but the national emergency of war makes this gradual approach unacceptable. I therefore recommend the repeal of the present exemption applicable to out- standing issues of State and local securities. Un- fortunately, tax exemption clauses appear in many of the outstanding issues of Federal securities and these promises must not be violated. In the case of State and local securities, however, there has never been any contract between the Federal Govern- ment and the security holders regarding Federal taxa- tion. Moreover, since the Supreme Court decision in the case of Graves V, O'Keefe in 1939 fair minded experts in constitutional law have had no doubt of the Federal power to tax the income from State and municipal securities. Federal tax policy has never been static; new taxes and higher rates have always been adopted when necessary. The absence of taxation has never been considered to give a right or claim to the continuation of such exemption. The holders of Regraded Unclassified 99 - 11 - State and local securities have no more claim to special treatment than the numerous other groups on whom new or higher taxes will have to be imposed. A tax system cannot be defended which in a time of grave national emergency calls upon the great mass of our taxpayers to shoulder the heavy burden of additional taxes and yet permits persons with large taxpaying ability to pay nothing. The sacrifices necessary to win a war for the benefit of all of us should be shared by all of us--includ- ing the holders of tax exempt securities. The President said in his Budget Message, "When so many Americans are contributing in their energies and even their lives to the Nation's great task, I am confident that all Americans will be proud to con- tribute their utmost in taxes." I should feel re- miss in duty if I did not recommend the elimination of an exemption which prevents all Americans from contributing their utmost. Regraded Unclassified 100 - 12 - Further examples of special privileges which should be removed from our tax laws will be given to the Committee in the statement following mine. B. Removing Other Discriminations The inequities of our tax laws work in two directions. As I have said, some of them extend undue privileges to a favored few. Still others result in unfair burdens upon certain taxpayers. Such inequities are like the defects in a picture-- bad enough when the picture is small, but increasingly glaring as the picture is enlarged. With rates at war time levels it becomes urgent to correct all such defects. I, therefore, propose that we make every effort in this session of Congress to eliminate all hardships of this character so that our tax laws will cast their burden equitably upon all taxpayers. C. Individual Income Taxes Most of the revenue that will be raised by closing loopholes will come from the individual in- come tax. In addition, it is recommended that the 101 15 I 1 individual income tax be changed to yield anproxi- mately $2 billion more revenue than will be vielded under the present law. In recommending this amount I have had in mind that the great bulk of tax in- creases under the social security changes will fall on individual incomes. The individual income tax is the best available type of tax based upon ability to Day. Its rates and exemptions can be adjusted according to amount of income and differing family responsibilities. Furthermore, it is a direct tax. It falls where the Congress wants it to fall. If the income tax is to be an effective means of inflationary control, it must reach smaller in- comes than have been taxed in the past. A large proportion of the total income and of the increased income during the defense and war periods is received by persons whose incomes are too small to be subject to the income tax at present exemption levels. These are people whose incomes are so meager that only with Regraded Unclassified 102 = 1 I the greatest reluctance do I suggest the lowering of the personal exemptions to $1200 for married persons and $600 for single persons and $300 for each dependent. I make this suggestion because I can see no alternative if there is to be effective control of inflation, and if we are to avoid the harsher alternative of a. general sales tax. If any sales tax were enacted I would not be in favor of lowering the exemptions. If we do reduce the exemptions, relief should be afforded to persons who have very small incomes, in that part of their income taxes should be treated as savings deposited with the Government, to be re- paid after the war. The result will not only be the maintenance of purchasing power after the war when purchasing power may be badly needed, but also the assurance that the standard of living of these low income groups will not be permanently impaired. Because of the lowering of exemptions and the addition of large numbers of taxpayers with small Regraded Unclassified 103 - 15 - incomes to the tax rolls, it becomes essential to afford an easy way for the payment of income taxes. A provision for the collection of 88 much of the tax as possible at the source for those incomes that are paid periodically, including wages, sala- ries, bond interest, and royalties, is the best available expedient to this end. To institute such a system immediately, however, might cause consider- able hardship to taxpayers because of the substantial increases they are already called upon to pay during the year 1942 as a result of the Revenue Act of 1941. On the other hand, if the threat of inflation makes necessary quick and substantial increases in the rate of tax collection, the institution of the collection at the source cannot be postponed. Since it is not known how soon substantial increases in the rate of tax collection may be necessary for the restraint of inflationary price rises, it would be desirable to enable the collection of income taxes at the source at any time and at rates within the discretion of the Regraded Unclassified 104 - 16 - Treasury up to percent--the rate applicable to the first dollar subject to normal and surtax. This will furnish desirable flexibility without imposing additional taxes that may not be necessitated by future economic conditions. D. Corporation taxes It is recommended that additional taxes be raised from corporations in the amount of $3 billion. A large share of the increased corporation tax should fall on excess profits. Taxes paid from such profits have less disrupting effects on business than have taxes which are generally applicable to all corporate earnings, irrespective of amount. A tax which absorbs excess profits still leaves the corporate taxpayer with a sufficient margin of in- come for dividends and safety and for continued in- centive to produce. On the other hand, a tax which dips too deeply into the incomes of low earning corporations may seriously affect their debt-paying 105 - 17 - capacity, if not their very existence. Excess profits taxes have the additional virtue of recap- turing undue profits on war contracts. The goal of $3 billion additional corporate taxes cannot be achieved alone by increased excess profits taxes. Unfortunately, the surtax rate an- plicable to all corporations must also be substan- tially increased. There should be no increase in the corporate normal tax because any such increase would be an undesirable windfall to the holders of partially tax exempt Federal securities. There can be no fair quarrel with the imposi- tion upon corporations of substantial proportions of the increased load of taxation required by our National peril. We are fighting for the maintenance of the very system of free enterprise which enables corporations as the largest segment of the business community to earn profits in the future as they have in the past. I am confident that incorporated business will willingly contribute at such a time Regraded Unclassified 106 - 18 - an additional amount of tax which will leave it in a position in which its profits after taxes will in the aggregate be at the level of corporate earnings during the relatively prosperous year 1939. Although the proposed increases in the corpo- rate surtax and excess profits tax rates will prob- ably not bring the aggregate corporate profits after taxes below the 1939 level, they will apply a very high rate of tax to any additional dollars earned by corporations subject to maximum excess profits tax rates. It is recognized that very high top or so-called "marginal" rates leave very little incen- tive for the maintenance of efficiency in business operations. For this reason it is believed desirable that in the case of any dollar of corporate profits the receipt of which results in an increase in tax beyond 80 cents, the additional tax on such dollar shall be held by the Government to the account of the corporation and be returnable after the war is over, in those cases where it is spent for new and Regraded Unclassified 107 - 19 - additional capital equipment or otherwise is spent in the employment of labor. E. Estate and Gift Taxes Increased revenues of approximately $250 million should be obtained from estate and gift taxes. This will involve primarily an increase in rates. It will also call for somewhat lower exemptions and the further elimination of loopholes and special privi- leges which exist in the law at the present time. F. Excise Taxes New and increased special excise taxes are suggested to raise approximately $ of addi- tional revenue. Although these excise taxes are in the nature of sales taxes, their effects are substantially different from the effects of general sales taxes. Most of them are imposed on commodities of which there is or will increasingly be & scarcity. The taxes yield needed revenue while exercising a rationing effect and conserv- ing materials needed for defense. Those excise taxes not relating to commodities of which there is a partic- ular scarcity have been chosen 80 as to fall on goods Regraded Unclassified - 20 - 108 which are widely used and are of a luxury or semi- luxury character. The increase in consumer incomes will permit maintenance of the demand for those com- modities despite the higher taxes. The Government will thus secure needed revenue, consumer purchasing power will be tapped, the producers will not be injured, and the consumers will not be taxed on neces- saries of life. These special excise taxes have the further advan- tage of not requiring any substantial expansion of administrative machinery. No general sales tax is recommended and, indeed, I strongly recommend that no such tax be made a part of this revenue bill. The general sales tax falls on scarce and non-scarce commodities alike. It falls across the board on necessaries and luxuries alike. It bears disproportionately on the low income groups whose incomes are wholly spent on consumers goods. It is, therefore, regressive and lowers the standard of living. It increases prices and makes price control more difficult. It encourages demands for higher wages and adds to the parity prices of agricultural products. Regraded Unclassified 109 - 21 - It is not, as many suppose, easily collected; on the contrary, its collection would require much additional administrative machinery at a time when manpower is scarce. IV. Conclusion I would like to end my recommendations with & further plea as to their importance as part of our war effort. Your task is the hardest any Congress has ever faced. The consequences of failure are staggering. But--on the happier side--if our war financing is wisely done, war production may be encourage, inflation may be curbed, public morale may be improved, and our economic world after the war will be in a better position to meet the inevi- table problems following victory. Such objectives cannot be painlessly accomplished. There must be temporary dislocation, hardship, and sacrifice. But I feel certain that we will all rise to the opportunity presented to us. Taxes have been described by a great American as "the cost of living in a civilized society." It will be our privilege to pay that cost cheerfully. Regraded Unclassified - 22 - 110 This is the spirit in which the American people will want to approach the problem of financ- ing the war. TREASURY DEPARTMENT 111 INTER OFFICE COMMUNICATION DATE February 10, 1942 TO secretary Corgenthau FROM ?f, Hase A. Attached to this memorandum are tables showing (1) the number of agents cualified to issue Lefense Sev- And Bonns, Series E, at the close of business on Politiary 7. classified by type of agent, by Federal Reserve istricts, and (2) the number of such agente on selected Artes since Lay 7, 1941. 2, On February 7. there were 19,483 agente other DDS 1080 offices ouslified to issue Series E sevings bonds, C, increase of 335 since Januery 31. 3. On February 7, there were 457 corporations cuali- flee to issue Series E sevings bonos on ocyroll allotment clans in accordance with the instructions contained in your zelegram of December 27 to the Federal Reserve Banke, This represented en increase of 106 corporations over last week. 4. There were 48 members of the investment industry curlified to issue Series E savings bonds on February 7, " compared with 37 members one week ago. attachments Regraded Unclassified Classification of the number of agents cualified to issue Series E Savings Bonds, on February 7, 1942 : :Building: : : : : : : and : : Banks : loan Credit : Other : Invest- : All : : unions :corpora-: ment : others : Total : :associa- : tions :industry : : : : tions : : : : Corporations and Associations: Federal Reserve District of: Boeton 830 233 208 19 - 12 1,302 New York 1,169 253 376 41 9 50 1,898 Philadelphia 843 105 103 124 I - 1,175 Cleveland 1,168 364 320 33 6 1 1,892 Richmond 1,022 184 124 23 7 1 1,361 Atlanta 1,012 151 169 20 - - 1,352 Chicago 2,323 457 197 115 13 14 3,119 St. Louis 1,355 146 57 18 8 2 1,586 Minneapolis 1,282 55 62 3 - 3 1,405 Kansas City 1,755 179 158 5 2 30 2,129 Dallas 347 118 200 42 - 2 1,209 3m Francisco 549 231 255 14 3 3 1,055 Sub-total 14,155 2,476 2,229 457 48 118 19,483 Post offices - - - - I - 17,604 112 Grand total 14,155 2,476 2,229 457 48 118 37,087 Office of the Secretary of the Tressury, February 10, 1942 Division of Research and Statistics 1 In accordance with telegram of December 27, 1941. 2/ Except ost offices. Regraded Unclassified Number of agents qualified to issue Series E Savings Bonds, May 7, 1941 to date : 1941 : 1942 Type of agent : May : Sept. : Jan. : Jan. : Jan. : Jan. : Feb. : 7 : 30 : 10 : 17 : 24 : 31 : 7 Commercial and savings banks 7,676 11,571 13,832 13,966 14,037 14,097 14,155 Building and loan associations 739 1,481 2,144 2,268 2,365 2,434 2,476 Credit unions OF 389 1,529 1,736 1,911 2,080 2,229 Other corporations 1/ - - 12 118 24C 351 457 Investment industry - - - - 10 37 48 All others 7 27 59 30 54 99 118 Total other than post offices 8,430 13,468 17,576 18,118 18,617 19,098 19,483 Post offices 15,812 16,429 16,883 17,140 17,140 17,123 17,604 Grand total 24,242 29,897 34,459 35,258 35,757 36,221 37,087 Office of the Secretary of the Treasury, February 10, 1942 Division of Research and Statistics. 1/ In accordance with telegram of December 27, 1941. 113 114 CONFIDENTIAL Stock of Series E Savings Bonds on Hand 1/ January 25, 1942 to date (In thousands of pieces) : Stock on hand : : Bonds Stock on hand IBM Sales : beginning : : manufactured close of deliveries : of day : this day : this day day this day Jan. 25 10,525 none-closed none-closed 10,525 - 26 10,525 487 1,000 11,038 2,000 27 11,038 186 1,000 11,852 - 28 11,852 251 1,000 12,601 2,000 29 12,601 265 1,000 13,336 - 30 13,336 283 800 13,853 2,000 31 13,853 139 800 14,514 - Feb. 1 14,514 none-closed none-closed 14,514 - 2 14,514 505 800 14,809 - 3 14,809 158 800 15,451 - 4 15,451 262 800 15,989 2,500 5 15,989 250 800 16,539 - 6 16,539 341 800 16,998 2,500 7 16,998 159 none-closed 16,839 - 8 16,839 none-closed none-closed 16,839 - 9 16,839 379 740 17,200 Office of the Becretary of the Treasury, February 10, 1942 Division of Research and Statistics. Includes stock in hands of (1) Federal Reserve Banks and branches, (2) Post offices, (3) Federal Reserve Bank issuing agents, and (4) Treasury vaults in Washington. Regraded Unclassi 115 CONFIDENTIAL UNITED STATES SAVINGS BONDS Comparative Statement of Sales During First Seven Business Days of February and January 1942 and December 1941 (February 1-9, January 1-8, December 1-8) On Basis of Issue Price (Amounts in thousands of dollars) : : Amount of Increase : Percentage of Increase Sales : : or Decrease (-) : or Decrease (-) Item : : $ : February : January : February : January February January December : : I : over : over : over : over 1942 1942 1941 : : : : January : December : January : December Series 1- Post Offices $ 33,976 $ 43,894 $ 14,424 -$ 9,918 $ 29,470 - 22.6% 204.3% Series 1- - Banks 133,627 107,467 25,128 26,160 82,339 24.3 327.7 Series 1 - Total 167,602 151,362 39,552 16,240 111,810 10.7 262.7 Series 1- Banks 24,207 17,394 6,371 6,813 11,023 39.2 173.0 Series G - Banks 113,526 73,022 44,732 40,504 28,290 55.5 63.2 Total $305,336 $241,777 $ 90,655 $ 63,559 $151,122 26.36 166.7% Office of the Secretary of the Treasury, Division of Research and Statistics. February 10, 1942. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassit CONFIDI 116 UNITED STATES SAVINGS BONDS Daily Sales - February 1942 On Basis of Issue Price (In thousands of dollars) Post Office Bond Sales Bank Bond Sales All Bond Sales Date Series E Series E Series F Series G Total Series E Series F Series G Total February 1942 2 $ 5,435 $ 34,150 $ 6,191 $ 19,795 $ 60,136 $ 42,585 $ 6,191 $ 19,795 $ 68,571 3 3.572 7,887 2,793 19,518 30,199 11,459 2,793 19,518 33,770 4 4,893 16,537 3,937 18,515 38,989 21,430 3,937 18,515 43,882 5 4,257 16,149 2,367 14,640 33,156 20,406 2,367 14,640 37,413 6 4,310 23,510 3,829 18,620 45,958 27,820 3,829 18,620 50,269 7 3,023 10,039 2,019 6,174 18,233 13,062 2,019 6,174 21,256 9 5,486 25,354 3,071 16,265 44,690 30,839 3,071 16,265 50,176 Total $ 33,976 $133,627 $ 24,207 $113,526 $271,360 $167,602 $ 24,207 $113,526 $305,336 Office of the Secretary of the Treasury, Division of Research and Statistics. February 10, 1942. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. Regraded Unclassified 117 February 10, 1942 Dear John: I ES delighted to learn from your letter of the fine results of your newapaper's campaign to push the sale of Defense Savings Bonds and Stamps. You seem to have done an excellent job in Seattle, and I should like you to know how much we appreciate all your efforts. Best regards to you and Anna from both of us. Sincerely, (Signed) Heary Vr. John Doettiger, Seattle Post-Intelligencer, Seattle, Washington. AirMail June FR/ogk Regraded Unclassified 118 Buy a Boeing Bomber 2/5/42 118 Drive Zooms Over the Top Regraded Unclassified 119 HAVE YOU JOINED IN Better oct quickly if you want YOUR investment in Defense Savings Bonds and Stamps to be applied on the purchase of Seottle's own Boeing Bomber! That's because the giant ship is nearly paid for! However, there's still time for you to take part-and here's 2/4/42 THE "BUY A BOEING how you do it. Buy Defense Savings Bonds or Stamps-then write your name and the amount invested on the coupon which you will find in today's Post-Intelligencer. Then mail the coupon (YOU KEEP THE DEFENSE BONDS AND STAMPS) to The Post-Intel- ligencer-and your investment will be earmarked by the U.S. 118 das BOMBER DRIVE? treasury department to be applied on the purchase of the Boeing Bomber which is to be inscribed with the name of Seattle and the Pacific Northwest, See the coupon and list of those who invested on Poge 7. Regraded Unclassified 120 SEATTLE POST INTELLIGENCER 1941 when ------------------------- February 5, 1942 Dear Henry: We have just put on here B. campaign to "Buy a Boeing Bomber" through the purchase of Defense Bonda and Stamps. Today we completed our campaign and have sold approximately $400,000 worth of stamps and bonds. From what I have gathered of the campaigns in other cities, the newspapers conducting them claimed credit for all the stamps and bonds that were sold in the region. Our program was somewhat different, in that we listed as our contributors only those people who notified us specifically of their NEW purchases and requested that they be earmarked for the purchase of 8. bomber. All in all 1 think It was an excellent campaign, and that it has done B. lot of good. I am sending you herewith copies of letters which went off today to Assistant Secretary of War Lovett and Colonel Arthur I, Ennis, Chief of the Public Relations Branch of the Army Air Forces. I thought you might like to know of the very en- thusiastic manner in which our Seattle people entered into this program. Also, I would appreciate your sharing this file with Carlton Duffus of your Defense Sevings Staff, who has been in constant touch with this campaign. Anna joins me in sending our best to you ns always. Sincerely, John John Pootticer. Venorable Ferry Morgenthau, Jr., Genretary of the Treasury, Mahington, D. C, Regraded Unclassified 121 February 8, 1942 Dear Mr. Secretary: The Seattle Post-Intelligenoer has just completed E drive to "Buy a Boeing Bamber." I have been advised that, under en agreement between your self and the Treasury Department, you will designate basters in production to be presented at the culmination of drives of this character. In our 05.00, the Post-Intelligencer has invited its readers to purchase Defense Savings Bond and Stamps, and to report their specific purchases to us. No have acknowledge these purchases is detail in our paper, giving the name of the purchasers and the amounts invested. No have not eought to include all purchases of stampe and bonds in the region, Today the funds 80 invested reached & total of $357,318. I have been advised that the amount agreed upon between yourself and the Treasury Department for heavy bombers if at & rate of $335,000 each. Therefore, may I ask that you please designate a Boeing Flying Portress, now in production at the Seattle Besing plant, to be used for presentation by ourselves to the Army Command in this area. No wish to place upon the plane a 25-word inscription, which I as clearing through Colenel Arthur I. Ennie, Chief of the Public Relations Branch of the Army Air Forces. No should like to complete this program as som M possible, and therefore would appreciate your designating . plane which is about ready for delivery to the Army. Thanks very much, and with every good wish. Sincerely yours, John Noettiger. Secorable Robert A. Lorett, Assistent Secretary of far for Air. Washington, D. C. Regraded Unclassified 122 February 5, 1942 Dear Colonel Meniss With further reference to my letter of Junuary 27 and your reply of January 31, signed by Major N. R. Cooper, I as pleased to advise you that our campaign to "Buy a Beeing Maher" went "over the top" today. Our program We est up a Mt differently than other - papers engaged in this effort, in that - have included is our total only those purchases of Defense Stamps and Bends as were unde by individuals directly advising us that they wished their purchases to be earmarked specifically for the purchase of a Beeing Bomber. We required individuals to send us equpons advising us of the amount of stamps or bonds they were purchasing as of that date. This norning the total so invested reached a - of $357,318. For your information, I as sending you elippings from the Post- Intelligemeer of this morning and of yesterday morning, which will give you a general 1dea of the manner in which the campaign was - ducted, the type of coupon used, the method of acknowledging investments and the - total involved, I have today written to Assistant Secretary of War Lovett asking him to designate a bomber in production for us to present on behalf of these investors to the United StatesArey. A copy of my letter to Secretary Lovett is attached. low with respect to the inscription which - wish to place upon the plane, ve suggest the following, subject to your approval: CHIEF SEATTLE This Flying Fortress presented by the people of Seattle and the Pacific Northwest to the fighting forees of the United States Army. This inscription would be lettered upon the plane iteelf, rather than in the form of a plaque, as I first indicated. The inscription is within the limit of twenty-five words described in your letter of January 81. May we have your approval of this inscription, and may - also ask your consent to our having public coremonies Regraded Unclassified 123 Colonel Arthur I. Ranis - 2. February 5, 1942 at which the presentation my be made, Our suggestion is that the ceremonies be held in front of the Administration Building of the Bosing Aircraft Company. No propose to invite the public to the dedication and have the proceedings broadoust over a lesal radio station. Tie should also be happy to christen the ship with a bottle broken against a steel plate held in frost of the fuselage. To take part in this ceremony, - propose to invite General Carlyle Wash, in command of the Second Air Interceptor Command, to accept the plane en behalf of the Tastical Commands Lieutement Colonel John S. Griffith, at present assigned to the Booing Company as the Army's representative, to scoept the plane on behalf of the Armys Phillip Johnson, president of the Booing Company) officials of the state and city governamte; Mrs. Boottiger and myself. To would, of course, like to take pictures of the dedication for publication, and would appreciate having your approval of this procedure. Should you have any further suggestions or changes to propose, we would be pleased to have you outline them. Since THE are anxious to proceed as rapidly as possible, go as to maintain the continuity of the campaign, et to instre them patriotie individuals who participated in it, we would appreciate hearing from you as soon as possible. With every good wish, Sincerely yours, John Bosttiger. Colonel Arthur I. Ennis, Chief, Public Relations Branch, Army Air Forces, Washington, D. C. Regraded Unclassified 'BUY A BOMBER' CAMPAIGN HAS BUY BOMBER' DRIVE CLOSES GRAND FINALE (Continued from Page 1) 2/5/42 marked enough defense ammurities By Carlton Fitchett to buy the bomber. He asked that Lavelt choose the Baning homing Imbued with some of the from three now In production and spirit of MacArthur's gallant that the migity Air craft be In- scribed with the wordlog. "Boat- men and the heroes of Wake the and the Pacific Northwest Island, Sentile and the Pacific DEDICATION PLANNED Northwest smashed far be- Formal dedication coremonies yond the goal in The Post- will be held in the near future. De- Lails of this will be given later. Intelligencer's "Buy a Boeing The higgest contribution of the Bomber" campaign yesterday. closing day was made by the Joint It was an inspiring "V for Vie Vouncil of Teamsters No. 38. its tory" written by men, women and (ffillated Seattle unions and their children who sent their dollars to memberships. They earmarked the lighting line to nattle for de $18,909.75 in defense bonds and moeracy and human liberties stamps to bring their total Invest- Hondreda ot patriotic citizens, ment in defense socurities up to eager to be listed among the hemb $115,000. er'a purchasers, added the near reo Another Seattle union, Stage to ord sum of $46,227.50 to the rund ployes No. 16. swelled yesterday's yesterday to bring the campaign's list with a contribution of $1.000. total np to $357,315.21 POEM FOR VICTORY Since the officially quoted eati- Inspired by the objectives of the mated price of & Boeing bomber is campaign, Julia Exthleen Boban, 1 $335,000. this leaves $22,518.21 over teacher in Seattle public schools, enhacribed. wrote an excellent poem contain- This will go to Day for tanke, Ing good adview for every Ameri- :usta and ammunition-powsibly for can. the bomba our own Fiyles For- Its Theme la expressed in the to). tresses will soon be spowering on lowing Axis war. lords Immediately after the campaigo Come, buy @ Defense bond, had reached its gont. John Boetli Be proud of what you're dame, get, publisher of THE POST-INTEL When too hold America's banner LIAKNCER. wired Robert A. Lovett. Above the Rising Sun. secretary or war for air, The goal was reached to Just in Washington. D. C., that Seattle two and one-half weeks, which and the Paciffe Northwest had ear. makes It by INT the most success- ful campaign ever conducted by a newspaper in Pacific Northwest history. To those who made this The achievement possible The Post-In- TELLIMENCES offers its congratula- Hoar. This newspaper is proud to have had the privilege at directing the campaign. And so, good luck and happy landin-e-to the good ship "Reattle and Pacific Northwest." An- chough our bomber la now bought and paid tor, let's not rest on OUT honore, but heep vight on buying defense bonds and stamps. WE MUST KEEP BUYING TO KEEP EM FLYING! Regraded Unclassified TELEPHONE MAIN 2000 125 THE BOMBER HONOR ROLL the William Lapinds 15.75 John and Anna 16.15 TW Anote Tapinels 15.55 Aus and Tem Daker, (Dorb- Barbara Ama Toubin T.25 Part Transend " Curtix c, and Winsin William shaping Clinica 38,75 v. st. PV Boland 14. Monros Ernest La Chase 37,50 38,75 sive - No the affiliated at from Charles U. Deskiet Mussell Machenale 27,24 A.M. 1. F. Kinnes Jobe Markensie 1,000.00 AUT maile - and Mass Hansen Juke G. Jensen $0,00 Haman C. Lame, Waeltey - - ---- (umpany Harriet aujus Dahr Mary Kiths Day 15,5 - all -1 B. emploi- hari E. Holdel Mrs. orhella Alice visas IL Chambers E same Mothews 75.00 Earl 4. Unhuru St. --- 1. 1,000.00 Beverly Jean Passes 2,00 la., and George Regroder 1,00 Frank Allen Kalova IND 37.5u Patty und Unite 20000 - withhel if Locant Duddy Maire 9) FINE Vire E 2. 1. G. Club MATE INTR Harry and Mingle Chese- Kénari F. A Hasei Bahr 18.75 just weth 14.75 37,50 Donald Malvin Chastain and (gunt i) HMS Mrs. Frances Couple LGC 20.00 Travia Emptieta 1,00 y Mis. Ullien Juhusen 1,00 18.77 Elissbeth Home 14,75 livert Holans o. N. Complete 24.32 37.50 Capo M. A, swift TOJHI M. B. Mr. and Mrs. 1b. A. Alder- Charles Bunden 2,00 Relutive Jess - --- 300.00 14/75 Mrs. W. B. Kirk 37.20 goviable Backs, Fred a. Grame 4.00 150.00 W. li- Birk 37.30 N. Stewan 79 100 F. G. TRAN harben Dest w. Lerkhart 24.01 INTE Mrs. Marie E. Johnson 37.34 Nrs. Kranst F. list i Unrden 15 Manahes 14,75 Not - D-arate und any Baber 5.00 IN Havy A. Nonalise JACTS 204.00 Hynne, Vorks, lieurar F. Houshan 37.50 Viall Week, 2,1ml Alle - --- 1115 / Warrey Home, Yorks, Jobs United - $0.00 1 400,00 - "--- 2.00 Budres press Parcure - 7,00 street Narious L Rataoris Lim Backara Ann Creent TAB una auf Valud M - Tomar Mate Loaser - William 1º. Marner 25.00 without Sharfox 3.00 Lestie a. Costry in Mil. and Mrs. Alex P. An- Nert Fishbark INITS - 488 decome 8.34 AM - è John and Arrika fiblism, Jape 14. 1ATA Misson Line and Amount - 225,00 + e- appropial 14.75 Mantes H. Haves secm . end fluelye strinters 1 the and use o, 2,000.00 John la Garreli 16.73 Era and Bar Balibitc 4.50 ** - NINE INTE the Lazine 18.73 Edward Cruver LIMI the K- IATE Name Warren Jarkson James Cruver - APTS n. TASINT 16.72 crue & Birhard Angel LIMI Alau Watter Jacheon Music As 2,000 We 4. No and MPA n. - 1515 (fune and ane-half Hamid Unsum 11. where the SAMURI months) 1,5% J. W. and Rade J. Leugh INLINE - 1 Mr. num Mr. Genrge Huderlek 6. Readings AM78 are lie TA.00 Prassier 37.59 Mr. and Mrs. P. A used . Pallibues 3,99 Mr. and Mrs. Devid N. Invoice 91. 18,75 Hosseld 70.00 73.00 bermaine ---- 16.75 No numble 1476 N. 1. homor, Nodro Ma) L Main your INTO Wondler, Wark Unrker 190,00 Dirths " 1425 Time Hei Lee Miller TMM to I- (tore Chan dinane Joan Mindom 1,30 Tenancy Decksek (Fight Estie s, 100,00 N. quale (ATÉ persons fail Mr.A.Mrs. W.Y. na uma United Derback Hour J. V. Edlond 15,75 VANTER URERA William " Behratte CAM 1,000 Fail medic Dechach take No. F. J. Spou sue Mr. and Nov. M. P. JT. TERENT Hung Pulmer fire EXPIRATION V. signati INTO 7,00 Frank and Tamil Twell the Hunden Club /AREON wall nate Made- failes 3,600,000 Constant M.SA Ben is. Barrell 16,45 Mr. A: THE has, 3. benefit Mee 2474 Birbord IL 3,00 am Williams 730 11. a Drugs 1,000 Unsuld 50,00 11. P. SUM B. W/ - 27.100 Mariowes Berus Juses un san + Withs 37.34 May searth devision Lno Mrs. Urane Melates a - 31AZM Wr. and lies n. H Malel Pricesso service 14,75 behed L 1.16FT Mille Add About Jael Philip lawise ..... DE Itels and sandes TMINI George Present that ADDRESS 12,23 Catherier Wirkman 18.75 Rene Underno 1573 - No Tin 1. .. 1,000,000 Date seil Drues Late 14.74 Mailin Hain 10.72 the - Use M. n. INTA Carby Paint Juice 14.75 , MIZA Prior 11. and Past 1. Targer 14.75 Mine Vand 1.40 Univer k. TOJHI 14,75 Mr. and Mrs. " E. Marinrie COUPON 14/24 à w WHERE Limi Undeber. Barb 75,04 leas) Marevich 14.12 4. and TAUN 11. 15 Wallare 14.70 - Jose Irene Lanenator Hell . Liled and Chel ------------------------- 3,00 (tour-and use half Previously reported n. 5,00 indefire C.IM Owned N. Wike, livelid THIS associated Unit wass presion Numble: 11.20 Carbiames 87.00 me sue M. stret June Lense W. should insime hills Bransit, 50,00 BE Islana INTO Value 1,10 Bruhen Canen 3277 files 11. Miles, 25m - and JAMIT M. has Garden Capeland 2.18 amart the A. Selates 2/44 down 10,74 Bridge 30.7% Name TRAUPER INITE lines Ganalad = 140 do 14/74 Mr. and Mrs. Jobo Mar 77.20 Goosted 75/- - EPS the FC 11. NIF Date Himelbert MR 14,77 Mr. and Mrs. 1. 37,50 T-ve 11. Terms ILIM Mavie Nowman 220 14019 15 Build Code) Panter Brokener Signature M 14,53 in nail firm 130/- Card P. 22.00 Mr. Claim s, Miste Marie Marre - 15. N. Pore in- RM 91% HAINY 17.50 agree Light P. Octwork 67.00 No sed No Name mean - Billy Von 1.50 they Hands Brantly Varie Barine three FEATS the 11 Visio Mania naves months) INF Visit become no neu NA Nature Fleb 10.00 Hallen AE line, " 224 Buth M. Meddon MD this F. "Time- liencer ! United of Nurber 1 GOLD SPAR WITHER them V. Jobance 231 or 1015 1/A " and Eyes +) 1 at:- Mr. and Vira, John Maller - Press Rarb Les Terms " Juhnson INTO Natures L. firts 3 -18, Tohis 1.00 am 1: The Harve s Belo Lee B.D. Mrs. L Γ. : P. 14 out Date Buber 11.00 Contro unders care 3,ml dark ned finenth? Perkins sere In. nise - No and fine Ring Perhine $0.00 Rice Barhára drinse Daties 1.00 Nonald thing i Neart Merio Havies 1.00 Bandi "Sime Heil de Vrames 50.21 Les Homen Lee HELT and Las Ratis heries United Hears 3 Prod. Deseporte 10.00 Mrs. euro Name Marger Red - EMP 5 - Michael 4. \amin - 1 1. 07.30 Vificit Needby Nan No. mill Mrs. n II, Mark 15.21 1. Todor - Bra. --- Rever Mr. E IN Blacke - 4, Given 5 Miss MARTH Have lime 1,00 a Trips ME and Jodi Delbers 1475 TAIR the AND Nie was of Mrs. yourres 14/1 Willine Produce Robert % 4. Vorm IMAN The now-+ Numbers the Racie address 1.3% intent 0 The und the 11163 HAVE --- Boat 1,000.00 Winning Hangbine I Comp 11. M. and Unionpit - A. Regraded Unclassified *EATTLE POST-INTELLIGE PERRUAR BUY BOMBER' $39,049 More Swells 'Buy a Boeing Bomber DRIVE ALMOST Grand Total Now Over €300,00; Still Coming OVER THE TOP 1 - (Send this Coupon in The Post-Intelligencer) BUY A BOMBER FUND Regraded 127 KIWANIS CLUB HELPS SWELL BOMBER FUND VING PORTRESS-Furthering THE their "Buy a Romber" compute in President Hart The Il Boring Bomber" campaign. I Thompson, The Irinania invested that amount III home 150 Clab of Seattle yesterday helped in buy the every will hird, in addition 10 previous PSTATE of Here they are presenting chases.-15tory on Page ii) Regraded Unclassified 128 February 10, 1942 Dear Senator: Thank you very much for your letter of February 9th, enclosing a copy of your speech to the Real Estate board of New York. 1 had seen the quotations from your speech in the newspapers, but I am very glad Indeed to have the full text. You have paid the Treasury a fine tribute, and one which I appreciate immensely. Sincerely, (Signed) 4. Morgeathaw. 19. Ren. Joseph C. O'Mahoney, United States Senate, Washington, D. C. PK/cgk Copies to shompson File n.m.e. Regraded Unclassified - ALME - - 129 SERALD F. NYE, 1a. ges. - MILAR pridges. 4a. - HEARY CABOT LODGE, A. MARRI 1 1 numb c, GREA. - - H. WINTE. JR.. - por e. DAM: United States Senate E. WASLAMP M. 1 COMMITTEE ON APPROPRIATIONS - : - - 1' - - February 9, 1942. are 1 Hon. Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C, Dear Henry: In a talk to the New York Real Estate Board Saturday night I took occasion to make a little reference to the perfectly splendid job you have done in reducing the interest rate on the public debt and in selling defense bonds. Incidentally I took occasion also to outline my idea that in a democratic country the salvation of the people lies with themselves. I am taking the liberty of sending you a copy. With best wishes, Sincerely yours, cosept Regraded Unclassified 130 For release guiday 4. IL February E, 1942. THE INDIVIDUAL AND THE WORLD of the address of Senator Joseph C, O'llahoney of Wyoming to TWO Real Eatste Board of New York at its 46th annual dinner Persuary 7 at the Totol Cornodore, l'aw York City, This the denocratic philosophy of nocial, political And economic organi- is TAX facing its greatest test, no one, I'm sure, would be bold enough to NTO Cr. every war front in the world, the United Nations stand in desperate not Fethre the mechanized legions of leaders who frankly assort that the princi- NEO of derocracy have outlived their usefulness and should give way to the theory if mislitation authority. we reject that theory, because we believe that all non ware and of 110M with to by froo and independent", tre are marshalling all the wealth and power of this nation to keep the light of liborty hurning for all mankind. Not only - Ln the United States, but throughout the Vestern Hemisphere and wherever they una able to recipt the terror of the oppressor, non are responding to we call of mean. The danger 1/3 democracy, however, is far greater than that which to repre- rented by the military power of the Axis. It 10 to be neasured only by the es- tent to much the ideas of the authoritarian state have spruad, even subconsciously knong our GYM, people and by the degreo to which we have forgotten the real meaning of democracy. I do not henitate to say that right Thire in America there are porçle who believe the democracy and the capitalistic system are out-moded and who are confident that out of the war will done a new social and political order based used the principles of totalitarianism. The friends of denocracy will be blind, indeed, if they fail to realize this Act, for in the desperate crisis of war we have been forced to adopt early of the of the totalitarian state. Civilian industry in giving may to war industry de -ar injustry is controlled by contralized political power. The task TO mist when the war is over will be not only the restoration of civilian industry, 60 the restoration of authority of the citizen over his government and over the creminations through which his economic neuds are served. The expansion of government power, a necessity, of course, in time of mar, CAS incomed to a degree that will make core fficult than ever before the re- sumption of normal denocratic processos. Nothing illustrates this better, actoualy enough, than the enthusiastic and patriotic response of the people to the All of Sucretary Unrigenthau for investment in war bonds, It is a record of popu- lip contribution to the defense of the nation which excends anything that over in history. Without pressure, without force and with only an appoal to of our people, the Treasury Department, during the month of January, Mid Dragn bonds having a cash wills of BYOT one billion dollars. More than million superate bonds were nold during that moth and there is every reason 15 billeve that the contributions will continue ao Long AO the people are able to propervo their sources of income. Pentricable as this achievement is, honever, it represents an increase of the color none much, in the years to como, will challengu the loyalty of our people No "the Anveden my of life" in a dogree gronter even than the chillenge by which they 47% non confronted. It to estimated by the Prosident in the budget which to to Congress of the buginning of the present stanion that the interest on 200 pulic debt for the your 194] will amount to $1,750,000,000. The highest innual phyment of interust ever proviously recorded VIVO in 1919 when the World Mar list cost the government $1,054,000,000. BV$ in 1919 the government was paying AN intervat rate slightly in excess of 4,1%. The interest rate tóday is only about 2.48 bit tM debt is none then twice as great as it was in 1919. Something more Man 25 Willions then, it is ain dy nore than 60 billions and me are appropriating under the pressure of necessity, for the immitacture of the instruments of and Me equipment of our arred forces at IN rate which defier impiration, The program Credy cally for additional expenditures that will equal last year's debt. No shall nevor even begin to comprehend what this dehit benna in terms of denderacy unloss - reslize that though the government may create & debt, only the people can pay it, The government has nothing except that which it taken from Mie reale by may of tration or by way of proupting the activities in which the should engage. Production by the people in the only dupendible of government revenue, The supreme task of à denocracy therefore is to the purple to produce. The only alternative in 2050 form of national TO can talk easily about the "Anerican way of 1916', the Declaration or If dependence, the Constitution and the Bill of Rights. The onn repeat the femiliar maning of all of these traditional principles will be lost unless WC realise that phrasos about freedom of speech, freeden of religion, froodem of the press, but eb,131 the freedoms of which those great the triments sponk are the freedoms of individuals, The right to life, liberty and the pursuit of happiness to & right which can be 00> or bad according to the manner in which they servo the living person, It is only yored only by living persons, and all of the organizations which men form are good because we have lost eight of this fundamental fact, because we have confused the rights of non with the rights of organizations of mon, that democracy, in the middlo of the Imontieth Century, Clada itself in nortal danger, It 18 only because we have lost sight of the foot that government should be only the servant of men, that own hero in this country no well as in the Old World, government threstens to be- come our permanent master, The pattern of the neoblem which is presented to us should perhops be aore clear to sen who are engaged in the real estate Business than to any other group because real estate 10 local and because most of the troubles of modern real proper- ty ownerd proceed from the (not that WE have been losing our local coonomic Indo- pondunce. Local desires and needs have increased more rapidly than the capacity of lourl revenue to net them. Inadequacy of local revenue 17 turn proceèda from the inability of local onterprise to hold its CWI) with national enterprise. The struggle has been constantly becoming more unequal as the resphasive and Loope of economic life during the past half contury has been turring stendily amy from the local to the national aphere. This has been mecossarily accompanied by a atondy expansion of the power and notivity of the contral government and a stondy 600-> triction of the effective powers of local government, When the ideals and principles of democratic society were developed, Land WAS the principal source of economic income, and burdness activity, 11km the Innd it- solf, WAS principally local. In the early days of our history whenever non found themselves oppressed or confronted by an economic depression they: could asse on to now land and there earn their own living in their own my with their cwm labor and the resources of nature, The growth of this country for one hundred years was esseured by the nigration of nen into unsettled areas where they brought unoccupied land into cultivation and built now communities. Ours was an agricultural economy until after the Civil We Rx In that are the problem of readjusting the lives of the nun who had fought the Civil War was solved in the building of the transcontin- ental railroads and the settlement of the Great Most, The building of the railrdads and the spanning of the country by the first telograph wire was the beginning of the nodern phase of the industrial Age and after the World Mr. when our economy had be- cone indestrial rether than agricultural, we found the runns of readjustment, not in the opening of new landy, but in the building of notor reads and automobiles, air- planos and redion and all of the devicer which have rade the modern econday DO Incurious. As our economy changed from an agricultural one to an industrial one, from local to national, 1t. nlso changed from an individual economy to a group or organisational economy and we have never taken the time or the thought to adjust these organizations of the modern world to the lives of individuals. In that fail- who line not only the cause of the prosent war, but the challenge to democracy, Drable to support themselves in the complex concerdo order of our day, unable to connand their own jobs and make these own living on their own land or with their ONE) tools, people have turned to government for support and when they do that they under- nine democracy, Government cannot produce for us, TO must produco for ourselves, Government, when it becouse the naster of non, produces only disaster, If, therefore, we believe in the demoratic theory, in the right of the in- dividual to govern hirself and if T/C are determined that this right shall be prosor- vad, then we have no recourse except to name certain thilt, first of all, the right of the individual to support hinself shall be protected. Political decocracy deponds absolutely and completely upon económic democracy There can be no such thing as a. froo government without from enterprise. There can be no such thing as free enterprise without the right of private property, Thoma two institutions, the institution of private property and the institution of free goverment, are one and the same thing. They are inseparable from the individual. Tony belong to him before they belong to any organization, It was procisely because the foundors of this government understood that people cose before any of the organizations which society forms that they drafted the Bill of Rights and limited the authority of government to control the citizens, If it be trup, as we must addit, that the government should not control the citizens then how much more true in it that no subordinate organization under the government should exercise that power, The people in a democratic nation are the source of all power and if they are to remain democratic they must control every organization, whether it be oconomic, pocial or political, and the control must be co-extensive with the organization itemlf. If is operates locally, local public control in sufficient, If it. operates nationally, then national control in the public interest 10 excential. But Then we speak of control in a denocratio government we do not seen No exercise of discrotionary power by any government official, No mean only regulation within the Iam. Through the Im the people met, If they are to protect their rights, lay down the standieds of responsibility and conduct which shall - 3 132 paide the proups which they permit to come into azistance. Only this can group be proserved from becoming collectivism, Whatover may happen to be our habit of thought with respect to this contro- vergial question, |:0wever determined we may be not to take the blinders off, hom- LYNE cilfully TO close our eyes to the malitics, the fact rénains that contralism $ government has been the product of contralism in husiness, The facts thomsolves scretch at W. In this superlative Tar effort in which 70 are now unitaged, - are of requestly utilizing not local enterprise, not small business, but the resources of miss counertic and political organizations which have been the product of our 120 A. for works ago, on the floor of the Inited States Bonato, I pointed out that M foderal government had awardod in war contracts between June, 1940, and October Is 1941, a total of fifteen and one-quarter billion dollars, More than 50% of this not en insure awarded to fifteen corporations; more than BOX was awarded to only 100 comporations. And as these mards have hono rade, Alw pónition of little business Y of local business has hecone steadily more procarious, The government at Trob- ***ton had no other choice if it were to be faithful to its obligation to nanufacture airplanes, the guns, the torpodons and the For sidps by which alone the deno- -vatio principle any nom be defended. Not only was it necessary for the government to award these contracts to the organizations which could speedily produce the weapons that wore needed, but it was six nicossary for the government itself to assuno complete power over the oconomic So here before our very eyes, in the throes of the life and doath struggle or democracy, we aoe exemplified the fact which we have been so slow to comprehend, Shit Biz Business loads directly to Big Government, This turning array from Little Buzinoss to Bic Burdness has taken place in the face of insistent and even desperate efforts upon the parte of acchors of Con- 2015 and officers in the executive branch to protect Little Business. Committee have honn hold, spunches nade, bills have been introduced, executive orders been issued, all intended to provide naterials und contracts of Little but the bulk of the work has gone nevertholoss to the huge units. Before Poarl Harbor I sought to octablish in the Office of "roduction Manage- PRUE a division to protect the interests of Little Business. 'After Pearl Herbor ret was dismontled and the Mar "roduction Board took its place, To Donald "claon (si consitted the responsibility of specing up the production of war mptorials. In Use effort which be 18 making, be desorvos and will 800 the support of all loyal War production corpo first and we nuot náles whatever sacrifice 18 necosa- by to help him to achieve it, Novertheless, it met on cloar to all who study Num crisia that the throst to free, independent onterprise in the war effort 10 /mtter by for than it night otherwise have been if, in the years that proceded the IN, We had not blindly permitted huge organizations to secure a more dominent place La our economy than was proper in the public interest. Because we did not protect citile businoss and local business in time of peace, because we allowed contral povernment stendily to expand instead of building up the strength of local government - find ourselves antoring the wer to defond denocracy suffering from precisely the problems of unexployment of non and of capital tist produced Mitior in Cornany and tore France asunder before the advance of the dictator's armies, I believe it in an essential part of our defense even now to preserve little business and to preserve agriculture because the little businessman and the farmer reprosent practically the only ties me have left to fron, individual enterprise, In this pront crisis we are not using nll our material, TO are not uning all our capital, TO are not using all our Inbor and this has boon the result of failure By keep individual enterprise free and abrong. Because we have pormitted such an condition to ariso in this country, we are compelled, in the mortal - with of the notdon, to tairn the great bulk of our war contracts over to a for large organizations with the result that displaced Little Business and displaced - are turning to government for relief, thus only increasing the gravity of the problem. Instead of putting Little Business, the unemployed and the farmer on a WPA bists to be supported by government subsidies drawn from the over-deopening well of 15% national deficit, our effort over non should be to stimulate She investment of provate cepttal and manan labor in free, independent enterprise. That, honover, is a subject which must eventually be prosented to the tax create of the government, in the Tronsury and in the Congress. No shall not find viration for froe enterprise and the capitalistic system by dostroying the profit native. Unless NO adopt a wise tax policy TO shall cause the springs of revenue to Regraded Inclassified 133 at would DE such a simple natter, it secum to no, to set free all of the 19, contries of the people by holding forth rewards in the way of abated taxes to MP independent onterprise for the production of the materials we so Instead of encouraging independent enterprise, TFC are loaning non- novement funds to the huge organizations which have alrendy pushod frée 00% of the Dicture. shall the the whole thrent to the democratic ideal if we fail to reglize the cervative mark of concentration of economic power in government and in hure is that they eru controlled from the top instead of from the in the democratic way. economic organization has developed in the national and international listend of in the Local sphure, the position of the individual Na become con Iko independent private and worker has been to We employee, for oven the ognentives of Ric Business are today gone in the S'IDU nanner, if not to the Angree, 18 the nage worker. who occupy places of responsibility and indued even those who occupy ninor of SOME or Loss sccurity with the nodern huro rennente organization have noro loyalty to the organizations with which their economic lives - 40 than to the communities of thich they are citisons. That, too, is only because, after all, a nan's job is his exissunce and in this complex ora or a business executive who usos or nanages the hugo nachdrica that madern atry requires cannot easily change from job to job or from place to place 63 his listler 010. So " in that in the path of the hig national industrial organization there followed the big national labor organization. Bic Labor, like Big Government, Loon a. product of Big Burinoss, and here again the tondency is to govern from top down instead of from the botton up. Abuses in the field of labor, as in Piold of often tend to be oraggerated. It is easy to find fault, it 47 to arguo from the particular to the general; so not infrequently We find and able persons condemning all business organization and all labor organi- The time for that approach, it soums to on, has gone. The time is here 200 to recordse that organization mosns power and that power can be exercised wish unvisoly, in the public interest or against the public interest. Too time weer for the people of this nation to sook the good in all (conomic organization to preserve 11, because, when all 1a said and done, the great majority of the of Amorica, whatever their walk of life, their affiliation, are ***** loyal Americans devoted to the democratic ideal and to the institutions of Provider which WO all cherish, They do not want to allow power to be abused. The nood of pur tino is to recognize that the ordern world is indoud a world of organization and that all types of citimens tend to ban together to protocr their deparate interest, sonetimes against OHC another und donotized against the public interest, no in Washington today, to behold préseure groups of verious kinds receive their influence enon the national povernment, not only organizations of methods and industry, not only labor organizations, but trode associations, 277 *ltural appociations and consumers organizations, All established in Washington with offices and staffs to muldo the action of the government so that the particu- lir inter st. NY be protected, Sundly the tino the comu to 045 nn and so all of these little class campaigns Dr soparate groups and begin oné hip campaign for All of us, Tive public interest, - is any, the interest of all of the people is superior to the interest of class pr group. We must nake up our nimin to work together and not against another, Prosperous business is the only misrantee that lábor has that it DATE octs pood WAROD. Standily employert Intor at cood Regen 15 the only guarantee USE susanss has of a market in which it any dispose of its goods and services with profit, The best my to incroate government revente 15 to imprové business, Business, and thus to increase employment by private enterpriso, There La a fiuld for government. There is a fiola for carrigement. There 1, a field for Labor, There is a field for agriculture. But no one of then can Do pomitted to docinute the whole, not if YOU desire to proserve the democratic principle. Muskind 12 in scarch of the formia by which the responsibilition and dostro of ench croup may be defined and democratic controlo established. ID- cand of HAVENG each of various divisions of society presping for the last ourse of advantage for its own negbers and therely following the and pattern of the prot in which wars over the and distribution of a scarcity have Beno- el to decinate history, NDC must stop forward into the new era of abundance which cin Du attatned by intelligent cooporation. 134 - 5 - I whe pleased last week to read in a panphlet written by Professor Alvin H. Banson of Harvard University, and published by the National Resources Planning Board at Washington, this unlightened paragrapht do not want the government to run the whole show, We de not want a totalitarian state, We want freedom of enterprise. To want freedom for collective hargaining between employers and en- ployees. Tie want freedom for cooperative action. We want freedom of choice of occupation," These are objectives which the democratic state can achieve and which, Indeed it just achieve 1f the world is to be saved from disaster and despair, There can oe no business, there can be no prosperity, there can be no culture, no education, no art, no civilisation without people, The needs and the desires of people are the minapring of all human activity. The natural resources of land and DDA and air are utterly uncless without people. Rich or poor, educated or uneducated, W skito et black or yellow, people inhabit the world and create the demand for over- thing that people produce. The more people thère are, the greator is the demand and this in turn varies with their intelligence. The more honest and onergetic they are, the more the opportunity for development and the démocratic system is the only one which releasos all their energies and abilities, That is why I applaed the decláration of "refessor Honson that WO do not want the goverment to run the whole show, No organization, least of all the organi- zation of revernment, should, in time of peace, be permitted to direct the course eseo shall follow, The natural and inevitable rosult of concentrated power is the Limitation of growth, The progress of the world in letters, in art, in science has boon the work of froo non, so democratic society nust, first LI all, nake ab- solutely certain that no arbitrary power, whether it be excrcised by private or public authority shall be permitted to restrain the activities of non. It 18 only by setting non free to use all their onergies, to work for then- solves and for their families, for honor and (Lory and even for pecuniary roward that WC can render possible the full production and the full employment which alono will pay the bills we are now incurring in defonne of democracy. 135 FOR THE SECRETARY. February 10, 1942. Mail Report The outburst of protest over the Chaney-Douglas oppointments has been reflected in comments on seles - Defense bonds and Stamps. I am therefore sending you this separate trief on letters of this type, as re- relved up to noon, Tuesday. Subsequent criticism and recent will be aúded to the other report at the end of -- neek. So Tar, we have received 24 such communications in 011 -- not B large number, but outstanding in proportion to the rest of the mail, and unanimous in registering discription of the situation. The Congressional voting of pensions which, for 8 while, dominated the complaint -1. tous been entirely forgotten. The only reference to It came this morning in a bulky package addressed to Mr. is theau", from Clearwater, Minn. Inside W&S a typewritten with - "Bundles for Congress - a cabbage for Morgantheau", IEF bundle contained just that! The protest mail on OCD appointments varies from mongrous postal cards to signed telegrams. Among the letter are two requesting at definite statement that funds from Bond seles do not go into activities of this ware, The following states are represented: Pennsylvanie, The York, Washington, D. C., Kinnesota, California, Montens, State, Maryland, end New Jersey. people quotations follow: slone, Steinberg, N.Y.C. If your Bona sales drop, blame 25. Roosevelt. What suckers we would be to spend money JD Fonca to have said money used to pay some of her favorite 2020 - Choney-Dougles-Insh. why this Gilbert-Sullivan Opera? st "A Q We Women wire know what war is, do all the work. No Ametican bas 9 price, and when these three take money to help min the wer four thousand miles behind the $21 8. month Regraded Unclassified 136 - 2 - Memorandum for the Secretary. February 10, 1942. [jerting men, you can bet your bottom doller they're not real Americans. A Disgusted American Citizen, Washington, D. C. I saw your film stout paying taxes, I would have been impressed EP 1 bean't recelled also that my money is going to finance Mrs. Roosevelt's travels, aná salaries for her dancing prionds, picture actors, parlour pinks, and glamour boys on the peyroll of the OCD. So why should I rush to pay LAXES or be for National unity? The billions are running Com the sewers and you know it. Ananymous - N.Y.C. (A chain letter.) I shall buy no more Mefense Stamps or Defense Bonds until the Government gets rid of Mrs. Roosevelt. Why should our money be wested by that silly woman? Ask 5 of your friends to write carás like this. Aline M. Van Dlusey, Rochester, N.Y. As spokeswomen for + group of business women of this city, who are going to pay larger income texes this spring than ever before, I respectfully ask you to read the two enclosed clippings. ARE wish to esk you if this is the way our tex money is to loe spent? Not one of our group earns more then $30 a week, service WE maintein ourselves and contribute to our femilies. THE Fromby, Staten Island, N.Y. For your information, four prople today have - without any prompting or asking from me - to me in different words 8.5 follows: "Why the hell should I cut my expenses and buy Defense Bonds if the invernment is going to throw fet selaries to movie stars and dencing girl pels of Mrs. Roosevelt?" SEWUND W. Piper, Beltimore, Ma. HEADLINES in Beltimore Newspaper -- Secretary Morgentheu urges "More buying De- TRIME Stamps and Bonds" P $2 17 Mrs. Roosevelt recomends Dancers to OCD st $4,600.00 per. to it & Senate votes for - pensions despite plea of Byrd to end weste. at sir Jahn Smith, Texpeyer, sees his shadow, scered - retreats, Tame for cover, afraid to buy more 10-cent Defense Stamps and conds. Regraded Unclassified 137 - 3 - Memorandum for the Secretary. February 10, 1942. N. B. Matthews, Vice President, Basin State Bank, Stanford, Montana. Late in December I was asked to go to Helena for a Bond meeting and got up at 5 a.m. and drove 180 miles in the cold for the said meeting, at my own expense, even to paying for the lunch at noon for myself and the one other member from this country, who was less able to pay than I. Then we were told that we had to pay the postage on all correspondence pertaining to the defense program, as well as for ordering and re- mitting for Bonds, and that one-half of one man's time for selling the Bonds had to be absorbed by the bank. (Quotes Chaney clipping.) Then I also have a service from Washington which states that the State Administrators for Defense Bonds are being paid from $4,600 to $8,000 salaries. Apparently us little fellows on the firing line are not worth much anyway. C. H. Longshore, Westfield, N.J. From time to time I have received from your office requests to subscribe to various issues of Savings and Defense Bonds, and have done what I felt I could in purchasing such Bonds. To use an expression of the street, "it burns me up" to hear that the funds con- tributed by myself and other patriotic Americans, are used in part at least, for such purposes as the Physical Fitness Division of the Office of Civilian Defense. E. W. Bennison, St. Paul, Minn. ... If you will check you will find I purchased $2,000 in Defense Bonds last year, and I had planned to purchase a similar amount this year. How- ever, after reading the reports about the activities of the Civilian Defense program, I have decided to spend no more money that might be used for such purposes as dancing, etc., or paying any movie actors' saleries. I happened to serve overseas in the last World's War, and it seems to me it would be more appropriate to get at the Japs and let the dancing go.. P. 0. Huston, N.Y.C. (Telegram) Have purchased six Defense Bonds in January. Refuse to buy additional until assured my money not used to pay fancy salaries to fan dancers, movie actors or communist proteges under cloak of national defense. Regraded Unclassified 138 - 4 - Memorandum for the Secretary. February 10, 1942. from Disgusted Patriot, Albany, N.Y. Enclosed clippings may give en inkling why real patriotic U. S. citizens hence- forth will shy/buying Defense Bonds. # # # If Mrs. Roosevelt is too dense to realize her disgraceful position, and has not the sense to resign, she should be asked to do SO, She certainly is not helping to bolster the morale of American citizens. Furthermore, will you or anyone else please tell us citizens one single word she or her misfits have spoken, or one act they have done that will add to the protection or "physical fitness" of our people? * # # No more Bonds for yours truly as long as the present bunch of nitwits control our unfortunate country's policies, if any. R. S. Woglum, Pasadena, California. We have received your literature on the sale of war Bonds and Stamps. We have been purchasing issues and intended to continue. However, since Mrs. Roosevelt seems to think this is a Roman holiday, rather than war, and we are told is squandering our Bond money for such pinks as the night club Chaney-Douglas duet, rather than permitting its full use in real prosecution of destroying the Japs and Germans, we have decided to discon- tinue further purchases until the rotten mess of OCD is cleaned up. One communication which reads as follows -- As American citizens, we are willing and anxious to do our part in win- ning the war, but in view of the recent ruling passed, granting B. pension to our "$10,000 a year" Congressmen, and the salaries granted for the so-called physical fitness division of the OCD, (as per enclosed newspaper clipping), we are wondering if our country needs our "Bond Money" quite BS much as we are led to believe. -- is signed by 26 dif- ferent residents of Pittsburgh, Pa. Regraded Unclassified TREASURY DEPARTMENT 139 INTER OFFICE COMMUNICATION DATE FEB 101942 Secretary Morgenthau TO FROM E. H. Foley, Jr. An application has been filed by General Motors Over- seas Corporation to remit a total of $700 to the four sisters of William S. Knudsen, who are Danish subjects residing in Denmark. A similar application was approved shortly after war broke out, when our policy with respect to such transactions had not been decided. Our policy has now been clarified, and we are not allowing remittances to be made to non-American citizens residing in enemy or enemy occupied areas. Accord- ingly, the application filed by General Motors Overseas Corporation will be denied. I am bringing this to your attention, as Knudsen will probably call you on the matter. 9..7h TREASURY DEPARTMENT 139 INTER OFFICE COMMUNICATION DATE FEB 10 1942 Secretary Morgenthau TO E. H. Foley, Jr. FROM An application has been filed by General Motors Over- seas Corporation to remit a total of $700 to the four sisters of William S. Knudsen, who are Danish subjects residing in Denmark. A similar application was approved shortly after war broke out, when our policy with respect to such transactions aua not been decided. Our policy has now been clarified, and we are not allowing remittances to be made to non-American citizens residing in enemy or enemy occupied areas. Accord- ingly, the application filed by General Motors Overseas Corporation will be denied. I am bringing this to your attention, as Knudsen will probably call you on the matter. 9..7h Regraded Unclassified Trensactions in domestic stocks executed on February 10, 1942 for account of foreigners (Values in thousands of dollars) Country Purchases Sales Net Purchases Net Sales Great Britain 2 2 Switzerland 41 16 25 Other European 9 2 7 Countries Canada 6 4 2 Latin America 14 5 9 Far East 1 1 All Other For- eign Countries TOTAL 71 30 41 140 22 firms reporting volume and value for regular transactions. Regraded Unclassified TREASURY DEPARTMENT 141 INTER OFFICE COMMUNICATION DATE February 10, 1942. Secretary Morgenthau TO FROM fr. White Subject: Exports to Russia, Free China, Burma and other blocked countries, 8.5 reported to the Treasury Department during the week ending January 31, 1942. 1. Exports to Russia Exporte to Russia, as reported to the Treasury during the week ending January 31, 1942, amounted to more than $9,600,000, of which the chief items were landplanes, and military tanks and parts. (See Appendix C.) 2. Exports to Free China and Burma Exports to Free China during the week under review amounted to nearly $7 million, the largest figure for any single week since July 28, 1941. The principal item was landplanes. (See Appendix D.) Exports to Burma amounted to $923,000. A large percentage of the exports to Burma are destined for Free China. (See Appendix E.) 3, Exports to France No exports to France were reported during the week ending January 31, 1942. "- Exports to other blocked countries Exports to other blocked countries are given in Appendix A. Regraded Unclassified STRICTLY CONFIDENTIAL NOT FOR PUBLICATION SUMMARY OF UNITED STATES 142 DOMESTIC EXPORTS TO SELECTED COUNTRIES AS REPORTED TO THE TREASURY DEPARTMENT FROM EXPORT DECLARATIONS RECEIVED DURING THE PERIOD INDICATED 1/ July 28, 1941 to January 31, 1942. (In thousands of dollars) July 28 to Week ended Week ended Total Jan. 17 January 24 January 31 Domestic Exports V. 5. S, R. $94,669 $ 3,880 $ 9,608 $ 108,157 30,155 - From China 6,038 37,093 Burma 8,522 - 923 9,445 France 3/ 6 - I 6 2 1 I 2 Occupied France occupied France 04 - I +4 Spain 2,334 78 81 2,493 Switzerland 5,279 600 906 6,785 Sweden 11,516 566 75 12,157 Fortugal 5,467 6 1 5,474 French North Africa 4/ 1,731 . 16 1,747 Treasury Department, Division of Monetary Research February 4, 1942. 1/ Vany of the export declarations are received with a lag of several days or more. Therefore this compilation does not accurately represent the actual shipment of a particular week, The longer the period covered, the closer will these figures come to Department of Commerce revised figures. From September 11, 1941 to date - It is presumed that a large percentage of mate- rial listed here, consigned to Burma, is destined for Free China. Includes both Occupied and Unoccupied France through week ending October 4, 1941. Occupied and Unoccupied France separated thereafter. Includes Morocco, Algeria and Tunisia. Yes: Starting February 10, 1942, this report will be released on a ten day "or tri- monthly basis in order to coincide with the time period of expected releases by the Department of Commerce. Regraded Unclassified 143 APPENDIX B Exports from the U. 8. to Free China, Burma and U.S.S.R. as reported to the Treasury Department July 28, 1941 - January 31, 1942 (Thousands of Dollars) 1/ Exports to Exports to Exports to Free China Burma 3/ U.S.S.R. July 28 - Aug. 2 395 4,523 Aug. 4 - Aug. 9 - 551 Aug. 11 - Aug. 16 309 986 Aug. 18 - Aug. 23 2 2,735 Aug. 25 - Aug. 30 1 1,023 Sept. 2 - Sept. 6 204 4,280 Sept. 8 - Sept. 13 2,281 5,217 Sept.15 - Sept. 20 3,822 752 Sept.22 - Sept. 27 110 449 4 2,333 Sept.29 - Oct. 1,225 684 323 Oct. 6 - Oct. 11 5,312 1,157 6,845 Oct. 13 - Oct. 18 5 35 1,924 Oct. 20 - Oct. 25 269 403 5,623 Oct. 27 - Nov. 1 4,772 58 4,484 Nov. 3 - Nov. 8 1,672 342 4,552 Nov. 10 - Nov. 15 2,851 88 2,677 Nov. 17 - Nov. 22 1,228 1,021 3,581 Nov. 24 - Nov. 29 3,239 1,364 2,436 Dec. 1 - Dec. 6 791 64 3,609 Dec. 8 - Dec. 13 2,337 18 12,040 Dec. 15 - Dec. 20 111 8 4,580 Dec. 22 - Dec. 27 1 196 1,829 Dec. 29 - Jan. 3 35 2 3,993 Jan. 5 - Jan. 10 91 1,073 8,247 Jan. 12 - Jan. 17 1,695 447 5,874 Jan. 19 - Jan. 24 - - 3,885 Jan. 26 - Jan. 31 6,938 923 9,608 Total $39,696 $8,332 $108,510 1. These figures are in part taken from copies of shipping manifeste. 2. Figures for exports to Free China during these weeks include exports to Rangoon which are presumed to be destined for Free China. 3. It is presumed that a large percentage of exports to Burma are destined for Free China. Treasury Department, Division of Monetary Research February 9, 1942 144 APPENDIX C Principal Exports from U.S. to U.S.S.R. as reported to the Treasury Department during the week ending January 31, 1942 (Thousands of Dollars) Total Exports $ 9,608 Principal Items: Landplanes, powered 2,573 Military tanks and parts 1,831 Wheat 794 Explosive shells and projectiles 394 Insulated copper wire 307 Motor trucks and chassis 288 Ethyl fluid (anti-knock compound) 257 Copper pipes and tubes 244 Wheat flour 229 Aluminum plates, sheets, bars, strips and rods 229 Sole leather 206 Refined copper 205 Brass and bronze plates and sheets 170 Coated wire, n.e.s. 142 Forging machinery and parts 119 Trinitro toluene (T.N.T.) 116 Drilling machines 115 Tool, cutter, and universal grinding machines 97 Treasury Department, Division of Monetary Research February 9, 1942 145 APPENDIX D Principal Exports from U.S. to Free China as reported to the Treasury Department during the week ending January 31, 1942. (Thousands of dollars) Total Exports $ 6,938 Principal Items: Landplanes, powered (P-43) 3,510 Motor trucks 479 Printed matter (bank notes) 397 Cotton sheeting 362 Aircraft parts and accessories, n.e.s. 328 Auto replacement parts 270 Refined copper 239 Anti-tank guns and parts 175 Smokeless powder 154 Explosive bombs 130 Projectiles 111 Steel bars 110 Relief supplies - surgical and hospital 86 Treasury Department, Division of Monetary Research February 9, 1942. Regraded Unclassified 146 APPENDIX E Principal Exports from U. S. to Burma as reported to the Treasury Department during the week ending January 31, 1942 (Thousands of Dollars) Total Exports $ 923 Principal Items: Motor trucks and chassis 287 Metallic cartridges 208 Condensed and evaporated milk 98 Steel sheets 88 Iron and steel bars 46 Insulated copper wire 31 Well and refining machinery 23 Auto replacement parts 17 Portable air compressors 17 Barbed wire 16 Treasury Department, Division of Monetary Research February 9, 1942 Regraded Unclassified 147 - - - pravé DEPARTMENT OF STATE WASHINGTON In yeply reter to Pobruary 10 1942 MY dear Mr. Secretary: I am in receipt of your letter of February 6, 1942, in which you request that an effort be made to include in the American official party to be repatristed from Jupan and Japanese-occupied territory certain personnel 01 the Treasury Department now in the Far East. The names of the Treasury personnel which are shown in the enclosure to your letter under acknowledgment to be stationed in Japan, Japanese-occupied China, and liong Kong are all included in B list of American official personnel already submitted to the Swiss authorities as - basis for negotiations. Should it become advisable to open nerotiations with the Japanese authorities for the return to the United States of American officials now in the Philippine Islands, every consideration will be given PORDEFENSE The Monorable BUT Henry Morgenthau, Jr., Secretary of the Treasury. Regraded Unclassified 148 -2- be given to the matter of the presence of Treasury personnel in Manila. Sincerely yours, Regraded Unclassified 149 February 10, 1962. Dear Mr. Finsent: Thank you for your letter of February 9th, enclosing a table showing gold and dollar balances for each Friday in January and for January 31st. Sincerely yours, (Signed) B.D. Wille H. D. White, Director of Monetary Research. Mr. 0. H. 3. Pinsent, British Supply Council in North America, Box 680 Benjamin Franklin Station, Washington, D. C. LS 2/20/42 Regraded Unclassified 150 THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA Box 680 TELEPHONE: REPUBLIC 7060 BENJAMIN FRANKLIN STATION WASHINGTON, D. C. February 9, 1942 Dear Dr. White, In continuation of previous correspondence, I enclose a table showing our gold and dollar balances for each Friday in January and for January 31st. Yours sincerely, Artiment Dr. H. D, White Director of Monetary Research United States Treasury Washington, D.C. Regraded Unclassified 151 AVAILABLE GOLD AND DOLLARS 1942 Jan. Jan. Jan. Jan. Jan. 2 9 16 23 31 Total Gold (incl. Belgian) 529 539 545 5573 570 Official Dollar Balance 80 74 63 611 55 Total Gold and Dollars 609 613 608 619 625 Less: Belgian Gold 105 105 105 105 105 Scattered Gold 37 38 37 51 52 Gold reserve against immediate liabilities 10 10 10 10 10 Available Gold and Dollars 457 460 456 453 458 davidosa visamit SABI 01.637 in interriti Regraded Unclassified 152 for Vins Chauncey THEASURY DEPARTMENT OFFICE OF THE SECRETARY February 10. 1942, CONFIDENTIAL Received this date from the Federal Reserve Bank of New York, for the confidential informa- tion of the Secretary of the Treasury, compilation for the veek ended January 26, 1942, showing dollar disbursements out of the British Repire and French accounts at the Federal Reserve Bank of Nev York, and the mans by which these expendi- tures were financed. dm:2/10/42 Regraded Unclassified a 0 153 F Y FEDERAL RESERVE BANK OF NEW YORK February 5, 1942 CONFIDENTIAL Dear Mr. Secretary: Attention: Mr. H. D. White I em enclosing our compilation for the week ended January 28, 1942, showing dollar disbursements out of the British Empire and French accounts at this bank and the means by which these exrenditures WETH financed. Faithfully yours, (s) L. W. Knoke L. W. Knoke, Vice President. The Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D.C. inclosure Coty:hj:2-10-42 Regraded Unclassified Coy't 100% (+) or Bor's Total Expendi- Other Total Securities Other Decr.(-) Total Expendi- Other PERIOD Debits tures(a) Debite Credits Gold (Official)(b) Credite(c)in Balaboe Debite tarve (d) Debite Grade Sales Dovid First year of war (6/29/39-8/28/40)* 1,793.2 605.6 1,187.61 ,826.2 1,356.1 52.0 420.1 + 35.0 866.3(e) 416.6(e) 149.7 (1,095.3(a) 900.2 195.1(e) +229.0 for period through December, 1960 2,792.3 1,425.6 1,356.7 2,793.1 2,109,5 108,0 575.6 + 10.8 878.3 421.4 456,9 1,098.4 900,2 198.2 +220.1 Second year of war (8/29/40-8/27/41)** 2,203.0 1,792.2 410.8 2,189.8 1,193.7 274.0 722.1 - 13.2 38.9 4.8 34.1 8.8 - 8.6 - 30.1 1941 Augs 28 - Oct. 1 140.9 105.9 35.0 176.2 20.1 2,0 154.1 + 35.3 0.3 - 0.3 0.5 . 0.5 + 0,2 Oct. 2- Oct. 29 109.0 77.3 31.7 150.9 0.8 - 150.1 + 41.9 0.3 - 0.3 0,3 - 0.3 - Oct, 30 - - Dec. 3 156.1 111,6 44.5 134.6 - 1,0 133,6 - 21,5 16,1 - 16.1 0.4 - 0.4 - 15.7 Dec. 6 - Dec. 31 88.4 69.6 18.8 51.5 - - 51.5 - 36.9 0.8 - 0.8 0.4 - 0.6 - 0.6 1942 Jan. la Jan. 28 102,3 73.2 29.1 69.3 [ 0.5 68.8 - 33.0 0.2 I 0.2 0.4 - 0.4 + 0.2 NDED: Jan. 2 25.4 172 8.7 11.5 I - 11.5 - 14.9 0.1 I 0.1 0.1 - 0.1 E 14 30.2 22.9 7.3 24.8 - 0.5 24.3 - 5.6 - - B 0.1 - 0.1 + 0.1 21 24.4 16.8 7.6 10,2 - € 10,2 - 14.2 1 . I 0.1 El 0.1 + 0.1 28 21.3 15.8 5.5 22.8 - - 22.8(f) + 1.5 0.1 - 0,1 0.1 - 0.1 Avenues Wookly Expenditures Since Outbreak of Mar Transfers from British Purchasing Commission to France (Mirou) June 19,1940) $19.6 willion Bank of Canada for French Account England (through June 19,1940) 27.6 million Beek ended January 28, 1942 - million England (since June 19,1940) 40.8 million Cumulation from July 6, 1940 $162.7 million *For monthly breakdown peo tabulations prior to April 23, 1941. offer monthly breakiown 500 tabulations prior to October 8, 1941. (See attached sheet for other footnotes) (a) Includes permate fair becourt of British Purchasing Commission, Brithsh Air kinistry, British Supply Beard, of Supply Tlaber Costrol, and Ministry of Shipping. (b) Estimated figures based on transfers from the New York Agency of the Bank of Montreal, which apparently representi proceeds of official British sales of American securities, including those effected through direct magotistion. :- to the official selling, substantial liquidation of securities for private British account occurred, particularly during the early months of the war, although the receipt of the proceeds at this Bank cannot be identified with any accuracy. According to data supplied by the British Treasury and released by Secretary Morgenthau, total official and private British liquidation of our securities through December, 1940 amounted to $334 million, (c) Includes about $85 million received during October, 1939 from the accounts of British authorised banks with New York banks, presumably reflecting the requisitioning of private dollar balances, Other large transfers from such accounts since October, 1939 apparently represent the acquisition of proceeds of exports from the sterling area and other currently accruing dollar receipts. (d) Includes payments for account of French Air Commission and French Purchasing Commission. (e) Adjusted to eliginate the effect of $20 million paid out on June 26, 1940 and returned the following day.. (f) Includes 10.0 illions transforred from New York accounts of British authorized banks. Regraded Unclassified ANALYSIS OF CANADIAN AND AUSTRALIAN ACCOUNTS (In Willions of Dollars) Strictly Week Ended Confidential BANK OF CANADA (and Canadian Government) DEBITS COMMONWEALTH BANK OF AUSTRALIA (and Australian Government) CREDITS DE BITS Transfers CREDITS to Proceeds Transfers from Official Transfers Net Incr. of British A/C to Proceeds Her Incr- Official (+) or Official of (+) or Total British Other Total Gold For Own For French Other Decr. (-) Total British Other Total Gold Other Decr. (-) PERIOD Debits A/C Debits Credite Sales A/C A/C Credite in Balance Debits A/C Debite Credits Sales Credits in Balance First year of war (8/29/39-8/28/40)* 323.0 16.6 306.4 504.7 412.7 20.9 38.7 32.4 +181.7 31.2 3.9 27.3 36.1 30.0 6.1 - 4.9 War period through December, 1940 477.2 16.6 460.6 707.4 534.8 20.9 110.7 41.0 +230.2 57.9 14.5 43.4 62.4 50.1 12.3 . 4.5 Second year of war (8/29/40-8/27/41)** 460.4 - 460.4 462.0 246.2 3.4 123.9 88.5 . 1.6 72.2 10.7 35.5 81,2 62.9 18,3 - 9.0 Aug. 28 - Oct. 1 23.1 . 23.1 52.2 21.2 - - 31.0 . 29.1 10.7 0.5 10.2 2,8 2.1 0,7 - 7.9 1941 Oct. 2- Oct, 29 37.4 - 37.4 -9.7 11,9 1 - 7.8 - 17.7 8,2 5,5 2.7 6,0 5,9 + 0,2 Oct. 30 - Dec. 3 52.F 0,1 52.7 32.5 19.3 1 - 13.2 - 20.3 10.3 6.9 3-4 11.6 0,0 7.6 + 1.3 Dec, C- Dec. 31 42.2 - 22 - - all I 1942 28 - - - 0.5 I + WEEK ENDED: James 7 - 7.0 - - 1.1 - S. 0.7 - 14 9.2 1 - - 2.0 - 1. - - 21 12.0 32.0 I - 14 - - = 1. + 26 - - I 1.1 + 0.5 - S.A - +7.2 Weekly Average of Total Debits Since Outbreak of War Through Junuary 28, 1942 en million . For monthly breakdown see tabulations prior to April 23, 1941. - For monthly breakdown see tabulations prior to October 8, 1941. (n) Thelmier 8,000,000 poid 10 Line pollary Regraded Unclassified 157 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE February 10, 1942 Secretary Morgenthau TO H. D. White FROM Subject: London Press Resctions, January 29-February 4, 1942. Arrangements have been made to obtain regularly telegraphic London prese digests from Colonel Donovan's office, following ad- vice from Mr. Casaday that such reports were sent to Washington. The first of these digests have been received, covering January 29- February 4, 1942. The following are some of the more interesting highlights: 1. There is general but "temperate" approval of Beaverbrook inister of Production. Still considerable disappointment 18 expressed 16 that the Cabinet changes do not include the creation of 1. smiler, stronger war cabinet. Only two papers--Telegrach and Nerald--express unqualified approval of the Cabinet changes. It is skid that Sir Stafford Cripps refused to accept appoint- ===2 28 Minister of Supply because he was denied adequate guarantees sentnet encroachment on his authority in that post. E. Although general satisfaction is expressed over Churchill's rote of confidence, criticism of the government has not subsided. Stor ndverse criticism runs along the following lines: (a) Charges of government complacency and inefficiency continue. (b) The R.A.F. is concentrating toc much on long-range bombing, which cennot knock out Germany. More dive- bombers, fighter planes and troop carriers are needed. <<> British treatment of India 18 short-sighted and lin- democratic. (0) China's importance in the wer 18 not sufficiently recognized. (-) One paper thinks the Government might profit from the example of the Soviet army, which has many generals in their thirties. (5) A recurrent theme 18 the urgency of more aid to Russia. (z) The Government 18 chided for failing to conduct a campaign to explain the new income tax to workers. Regraded Unclassified 157 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE February 10, 1942 Secretary Morgenthau TO H. D. White FROM subject: London Press Reactions, January 29-February 4, 1942. Arrangements have been made to obtain regularly telegraphic London preas digests from Colonel Donovan's office, following ad- vice from Mr. Casaday that such reports were sent to Washington. The first of these digests have been received, covering January 29- February 4, 1942. The following are some of the more interesting highlights: I. There 18 general but "temperate" approval of Beaverbrook «E Minister of Production. Still considerable disappointment is #xpressed that the Cabinet changes do not include the creation of smuller, stronger war cabinet. Only two papers--Telegraph and Herald--express # unqualified approval of the Cabinet changes. It 16 56.1d that Sir Stafford Cripps refused to accept appoint- sent as Minister of Supply because he was denied adequate guarantees meainst encroachment on his authority in that post. 2. Although general satisfaction is expressed over Churchill's vote of confidence, criticism of the government has not subsided. Such adverse criticism rune along the following lines: (a) Charges of government complacency and inefficiency continue. (b) The R.A.F. is concentrating too much on long-range bombing, which cannot knock out Germany. More dive- bombere, fighter planes and troop carriers are needed. (e) British treatment of India is short-sighted and un- democratic. (a) China's importance in the war is not sufficiently recognized. (e) One paper thinks the Government might profit from the example of the Soviet army, which has many generals in their thirties. (r) A recurrent theme 1s the urgency of more aid to Russia. (g) The Government 18 chided for failing to conduct A campaign to explain the new income tax to workers. Regraded Unclassified 158 EXCHANGE STABILIZATION FUB FEB 10 1942 FEDERAL RESERVE SAFE OF INV YORK NEW TORE SEV TORK ATTENTION D. J. CAMERON PLEASE TRANSFER BY CARLE THROUGH THE BANK or ENGLAND, LONDON, $300 TO THE CEASE NATIONAL BANK, BEHEALET SQUARE, LONDON, TOB ACCOUNT of LAURES W. CASADAY, SPECIAL ASSISTANT TO YES AMBASSADOR, AMERICAN IMPASST, LOSDOS STOP YOU ARE EXPENT AUTHORIZED TO DEBIT $300 FLUS CABLE COSTS TO THE ACCOUNT OF YOUR BOOKS ENTITLED "SECHNTARY or THE TREASURY, SPECIAL ACCOUNT STOP SCENV (Signed) D. W. BELL ACTING SECRETARY OF THE TREASURY RH:1c:2/10/42 Regraded Unclassified 159 COPY No. 3439 Habana, February 10, 1942. AIR MAIL ( Cuban Government seeice authority to issue additional Subject: ( peso certificates and to reduce minimum bank reserve ( requirements The Honorable The Secretary of State, Washington, D. 0. Sir: Supplementing the Embassy's air mail despatch No. 3418 of February 9, 1942, on the Cuban peso exchange rate, and with special reference to the statement contained therein to the effect that the Cuban Government in- tended to issue additional Cuben peso certificates in order to meet the increasing demand for circulating media, I have the honor to enclose B. copy and translation of a Presidential message to Congress dated February 7. 1942, as it appeared in today's issue of the Diario de la Marina. The Department will note from the enclosure that the President 18 seeking authority from Congress to issue such additional amounts of Cuban peso certificates as may be required to meet the increased demands of the monetary market and that each peso of the proposed issue would be guaranteed by $0.98 in gold, United States dollars or dollar exchange. In other words, the proposed issue would have a. gold or dollar coverage equal to 98 per cent of its total nominal value (not 100 per cent, as mentioned in the Embassy's despatch No. 3418 of February 9). The message states that the gold or dollar backing mentioned above would give the new issue sufficient elasticity to permit the Government to withdraw readily all or part thereof if at any future date the amount of Cuban currency in circulation were found to be in excess of the mar- ket's requirements. In order further to increase the available supplies of circulating media, the President also requests authorization to reduce, should it be deemed necessary, the minimum reserve requirements of Cuban banks from 25 cent to 12-1/2 per cent of their total deposits. (on the basis of per aggregate deposits in local banks on November 30, 1941, of Regraded Unclassified 160 roughly 146,000,000 DEBOS, the suggested 12-1/2 per cent reduction would release for circulation, at lenst theoretically, about 18,000,000 nesos which PIE nov held in the banks' veults as nart of the required legal onels reserves.) Authorization is also sought to issue Treasury notes, the amount in circulation of which could not at any time exceed 6,000,000 pesos. It proceeds from the sale of these notes would, the Embessy understands, be deroted mainly to facilitating the purchase of old or dollars and other operations arising from the proposed issue of peso certificates, Joe proceeds would enparently also be used to meet urgent budgetary obligatione in enticipation of future revenue receipts. The notes would nature within one year from the date of their issue and the interest and other charges thereon could not exceed 4-1/4 per cent per annum. In sisition to the above mensures, the message also recomends the of D 25 per cent surcharge on the eristing nort improvements =no tonnage texes, the proceeds from which would be devoted to the defense of Cuben nevigation, harbors, etc. The preamble to the attached Presidential message explains briefly the notives which led the President to request the onectment of the several messures mentioned above. It should be noted in this connection that insofer 06 the proposed issue of silver certificates is concerned, the mine outlined in the message is based to a lorge extent on the occomendations made in the matter by the technical mission which visited Culx seyeral months ago to assist the Goverment in its financial and monetery problems, Respectfully yours, 2111s 0. Briers. Charge d'Affeires ad interis indictures: 1. President's messare, as published in Dierio de la Marina of February 10, 1942 2. Translation thereof Pile Yo. 851.5 Regraded Unclassified 161 Enclosure No, 2 to despatch No. 3439 o of February 10, 1942, from the Embassy at Habana P I (From Habana newspaper Diario de la Marina of February 10, 1942) TRANSLATION MESSAGE To the Honorable Congress of the Republic: Existing circumstances resulting from the world war from which humanity is now suffering has obliged the principal industries of the United States to devote themselves almost exclusively to the produc- tion of commodities necessary for the huge conflict in which the entire world is involved. The efficient help which the great republic is rendering its allies requires the use of an enormous quantity of raw materials, manufactured articles and foodstuffs, resulting inevitably in their substantial price increase, to which we must add increases in freights and other services which logically reflect themselves in increased prices in Cuba for such pro- ducts. The increased cost of many of the so-called articles of prime necessity consumed in Cuba has in- duced the Government to take very necessary protective measures for the working classes, among others the just and equitable increase in the wages which were being paid by industries and by commerce. On the other hand, the inevitable increase in the next sugar crop, due to the necessity of Cuba's grind- ing all available sugar cane to supply the United States market and the other allied nations, and the impetus which will be given to the production of other Cuban produce, will result in a substantial increase in agricultural activities. All these present and future factors have affected and will affect even more our monetary market as they will require an increasing volume of means of payment, especially coined and printed money, which are the kinds preferentially used in the payment of salaries and wages, 162 - 2 - There is already circulating in this country at discount in terms of the national currency a very substantial amount of United States money which in cormer months did not appear in daily market transac- tione. This opportunity must not be lost in view of the possible establishment of a central bank, and an offort must be made by all possible wans to accumulate this American money which night have to serve not only for the purpose of contributing to the establishment of the gold reserves of that bank, but also to maintain the value of our money when unforeseen factors may cause it to go to an unexpected discount. In addition to the problem of monetary circulation which we have just outlined, the Government will be con- fronted with another problem resulting from the func- tioning of the Exchange Stabilization Fund, which the Government must maintain in all events, as it will be the most effective complement of the progosed bank, In order that the functioning of the Fund may not be obstructed as a result of the heavy emorts of sugar which will be made during the early months of 1942, the Government must have available, even if only temporari- ly. an additional amount of Cuban money, without which it would find itself required imediately to dispose of in the market the dollars which it receives from exporters. The only feasible way in which additional amounts of Cuban money can be repidly created to meet the edergency situation without affecting the stability of the money market when the causes remponsible for the incressed demand diseppear, would be to issue silver certificates guaranteed by 8018 or dollars which certificates could be easily withdrawn from circula- tion se BOOD as circumstances indicate that the volume of circulating media 1s excessive. With this end in view, the Executive requeste the Congress of the Recublic to authorise him to purchase end well cold, dollars or dollar exchange; to negotinte short-term Lonno with national or foreien benkin entities for the missine of focilitating these -11]'= chases, and to issue silver certificates guaranteed be cold, dollers or doller exchange held by the Cressury General of the Reyublic. Regraded Unclassified 163 - 3 - While the printing of the new certificates neces- sary for said issue is taking place, it is desirable to authorize the Executive to place in provisional circulation the printed but unissued certificates which may be in the Treasury General of the Republic under the custody of the commission created by Decree- Law No. 406 of August 10, 1934. In order to give even greater elasticity to the Cuban money in circulation, Congress is requested to modify Article 180 of the existing Code of Commerce 80 as to authorize the Executive to reduce to 12-1/2 per cent, when circumstances BO require, the amount which the banks must maintain in cash reserves against do- posits. With the dollars obtained through the function- ing of the Exchange Stabilization Fund or through purchases from banking or private entities, the Government will purchase gold at the rate of 35 dollars per troy ounce and must be authorized to pay on these purchases & commission which will not exceed 1/2 of 1 per cent, and with the guarantee of this gold it will issue the amount of silver certi- ficates which the market requires. The issue of certificates guaranteed by dollars or dollar exchange which the Government may make will have a provisional character and will be used only until the necessary gold for their coverage can be purchased, Both issues will be made with a coverage equi- valent to at least 98 per cent of the nominal value thereof and the profits obtained thereby will be destined first to cover the expenses incurred in mak- ing the loans and other operations in connection with the purchase of gold, and the balance to the payment for the printing of the new certificates destined to increase the circulation of Ouban money and to sub- stitute deteriorated bills presently in circulation. Finally, in view of the urgency of this matter, the Executive must avail himself of this opportunity to inform the Honorable Congress of the necessity of duly preparing the coasts, bays, keys and ports of the Republic and the navigation against war risks, which involves additional expenditures not provided for, for which the Treasury must be provided with ap- propriate sources of income, for which purpose he pro- 164 4 poses to establish a 25 per cent surcharge in the port improvements and tonnage taxes established by Articles 175 and 176 of the Customs Ordinances. In virtue thereof and in compliance with an agree- ment of the Cabinet, and under the authority granted me by Article 135, item b) of the existing Constitu- tion of the Republic, I submit to the consideration of the Honorable Congress, through the Senate, the following LAW PROJECT Article I. Article 180 of the Code of Commerce will be amended to read B.S follows: "Banks will maintain in their vaulte in legal tender currency, as reserves, at leget one-fourth of the amount of the de- posite of all kinds which they hold. "The Executive at any moment may re- duce the amount of the reserves set forth in the preceding paragraph but it in no case may be less than 12-1/2 per cent of the amount of the deposits. The President of the Republic will also periodically and in accordance with the market requirements, fix the proportion of the several kinde of legal tender currencies which must compose that reserve." Article II. The Executive is authorized to 18- sue silver certificates to be guaranteed by the gold, dollars or dollar exchange in the possession of or purchased by the Treasury General of the Republic. Article III. The guarantee of the certificates issued in accordance with this law 1s fixed as follows: For each silver peso placed in circulation in the form of 8 certificate there will be deposited in the Treasury General of the Republic in accordance with the formalities established in Presidential Decree No. 161 of January 26, 1935, an amount of gold equivalent to at least 98/100 of the gold content of the peso, of the weight and fineness established by Article I of Decree-Law No. 410 of August 10, 1934. or $0.98 in United States currency or in doller exchange. Regraded Unclassified 165 - 5 - The gold guarantee of this issue may also, ⑉ long as the circumstances warrant, be partially or wholly deposited with the Treasury of the United States or with a. Federal Receive Bank of said Republic and in that event, there will be delivered to the commission established by the above mentioned Decree No. 161 of January 26, 1935, a certificate issued by the afore- mentioned entities certifying to the existence of the deposit and that the same may not be withdrawn without the presentation of that certificate. Article IV. Upon presentation and delivery of any certificate to be issued under this law. the Treasury General of the Republic will deliver to the bearer in Ouban metal money an amount equal to the nominal value of the certificate presented for conversion. Article V. The President of the Republic is authorized to negotiate with the appropriate entity for the engraving end printing of the new silver certificates of the same denominations and designs previously authorized in the amount which is believed necessary for the strictest compliance with the present law. He may also negotiate for the printing of silver certificates in 500 peso and 1,000 peso denomina- tions with such designs as he believes appropriate. Article VI. The Executive is also authorized to purchase at the rate of 35 pesos /dollaral/per troy ounce, hold /conservar/or sell gold, as well as dollars or dollar exchange, and to negotiate loans with national or foreign benking entities for the purpose of implementing such operations, and may give in guarantee for such loans the gold or dollars held by the Republic. The proceeds from the loans authorized by this law will be destined emlusively to the purchase of gold, dollars or dollar exchange and said loans must be paid within & period not 02- ceeding 120 days. The Executive is also authorized to pay for the gold purchases a commission not 03- ceeding 1/2 of 1 per cent. Article VII. While the engraving and printing of the certificates referred to in Article II of this law is taking place, the Executive is authorized to place in circulation the engraved and printed but un- issued silver certificates which may be in the Treasury General of the Republic under the custody of 166 - 6 - the commission created by Decree-Law No. 406 of August 10, 1934. As воод as the certificates referred to in Article II of this law have been engraved and printed, they will be substituted, with all the formalities prescribed by Decree-Law No. 406 of August 10, 1934. Article VIII. The profits which might be derived from the issue authorized by the present law will be applied first to defraying the expenses incurred by the operations authorized by Article VII thereof and any remaining balance to meeting the cost of the silver certificates to be printed in accordance with the authorization granted by this law and the Law of June 23, 1938. Article IX. The President is authorized to is- sue Treasury certificates or Treasury notes, the amount in circulation of which may not exceed 6,000,000 pesos, for the purpose of borrowing from eny benking institu- tions or entities or by subscription the amounts which are considered necessary to meet budgetary obligations or to substitute revenues to be received later and which are indispensable to meet obligations against the Treasury, the interest charges and expenses on which /notes may not exceed 4-1/4 per cent per annum. The notes referred to in the foregoing paragreph may also be discounted by the Treasurer against any account, loan, liquidation or fund widch is not needed at the moment. The maturity date of these notes may not exceed one year, and for their payment pertinent receipts will be pledged 8.8 the Executive may decide. Article X. There is established a surcharge of 25 per cent on the port improvements and tonnage taxes referred to in Articles 175 and 176 of the Customs Ordinances as regulated by the Law of February 9. 1938, and Decree-Law No. 491 of January 7. 1936. The proceeda from the surcharges mentioned above will be devoted to the defense end protection of the navigation, the consts, bays, keys and ports, and the President is authorized to pledge the receipts obtained from the surcharges in contracting for projects or in issuing notes or negotisting loans destined to the pur- poses mentioned above. Regraded Unclassified 167 - 7 - Article XI. All laws, decree-laws, orders, de- crees and other legislative dispositions opposed wholly or in part to the fulfillment of this law are derogated, and the law will become effective upon its promulgation in the Official Gazette of the Republic. Presidential Palace, Habana, February 7, 1942. F. BATISTA President. Translated/AFN:cd Copy: eh: dm: lp: VW: 2-20-42 Regraded I Inclassified Treasury Department 168 Division of Monetary Research Date 2/11/42 19 To: Miss Chauncey I would like this called to the Secretary's attention today if possible. H.D.W. MR. WHITE Branch 2058 - Room 214 Regraded Unclassified 169 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE February 10, 1942 Secretary Morgenthau TO FROM Mr. White subject: Exchange Stabilization Agreement with Ecuador 1, The State Department has urged that we resume exchange atabilization negotiations with Ecusdor in order to de- termine, at the earliest possible moment, what sort of an agreement -- if any -- we can offer to the Ecuadoreans. An exchange stabilization agreement in en amount up to $5 million is one of & four-point program of aid which was handed to the Ecuadoreans at R1o by Under Secretary Summer Telles in an effort to provide some offset for Ecuadorean bitterness over the boundary settlement with Peru. You will recall that in your conversation with Finance !inister Illingworth, on August 15, 1941, you informed him that the Treasury would sympathetically consider Equador's request. 2. Equador's gold and foreign exchange position 18 good. Gold reserves have been increasing and the Central Bank reserve ratio 16 now about 61 percent. Ecuador's exports have improved and foreign exchange has been carefully rationed. The official exchange rate has been firm end black market transactions are unimportant. 3. Will you indicate an early hour at which the negotiations can be taken up with you? This agreement could follow the lines of our agreement with Mexico, which includes the Government and the Central Bank B.6 co-signers or possibly could be an agreement between the two Treasuries. Dr. Eduardo Salazar -- Ecuadorean Financial Counselor -- in in mashington for a very short time and Under Secretary wellee has asked if anything can be done to provide Dr. Salazer with & draft agreement before he returns to Quito. T.e have had several meetings on this matter with representa- tives of the State Department and Treasury people and agree tost it 1a desirable to make the etabilization arrangement in view of all the circumstances. Regraded Unclassified 170 Treasury Department Division of Monetary Research Date February 11 1942 To: Miss Chauncey From: Mr. Southard This is a routine matter which was handled in conversations between Mr. White and Messrs. D. W. Bell, Pehle and B. Bernstein. 171 MEV Lima This telegram must bE paraphrased before being Dated February 10, 1942 communicated to anyone other than a Governmental Rec'd 12:14 p.m. agency. (32) Secretary of State, Vashington. 120, February 10, 10 a.m. The Central RESErVE Bank of Peru has presented for certification a consular invoice covering 52 bars of Cold containing ounces 24,707,058691 at 35 per ounce valued at $64,747.05 excluding shipping charges. The gold was received from Japan prior to December 7. !!inister of Hacienda Dasso says that Mr. White of the Treasury Depart- ment told him at the Rio Conference the shipment would be permitted. The Bank wishes to make the shipment on the motorship ACONCAGUA sailing tomor- row. Please Expedite instructions. NORWEB BB Regraded Unclassified 172 INCOMING CABLEGRAM REC'D: February 10, 1942 FROM: Lisbon DATED: February 10, 1942 Federal Reserve Bank of New York, New York, New York. No. 6. In order to strengthen our gold reserves request you obtain license and convert $5,000,000 into gold to be held by you earmarked our account. You will receive Bank of Manhattan, New York, $2,000,000, Chase Bank, New York, $2,000,000, City Bank, New York, $400,000. Please cable execution. (Signed) Banco de Portugal (Received by telephone from Federal Reserve Bank of New York - 11:55 a.m. - 2-10-42) VW 0081 173 VEV PLAIN F: Districts Stockholm Dated February 10, 1942 Rec'd 4 a. 11th Secretary of State, Washington, 244, tenth. Riksbenk returns February 7 loans and discounts 868 gold holdings, 947 foreign exchange, 766 note circulation 1539 all million crowns. Existing financial agreement between Hiksbank and Bank of Norway extended March 31, 1943 covering all Norwegian obligations maturing 1843. Social board cost living index January increased two points to 150. Swedish trade delegation now negotiating Budapest, also visiting Bratisleva for informal discussions explore possibilities trade agreement. So far small volume Swedish business Slovakia transacted barter beais. Sand Swedish delegation expected efter completing negotiations Sudarest discuss certain matters German authorities regarding Swedish trade with Holland, Belgium. Sweden February 7 declared free foot mouth discase by local medical board. Washing, cleansing comuounds and honey placed under Government control. According Oslo advices Sweden purchased 2000 tons herring and negotiating delivery further 3500 tons. INFORM COMMERCE. AGRICULTURE, TREASURY. JOHNSON MG Cory:bj:2-12-42 Regraded Unclassified 174 C 0 P Y DEPARTMENT OF STATE WASHINGTON February 10, 1942 In reply refer to FD 893.51/7401 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of telegram No. 34, dated February 9, 1942, from the American Commissioner, New Delhi, India. Enclosure: From Commissioner, New Delhi, No. 34, February 9, 1942. Copy:bj:2-10-42 Regraded Unclassified C o P Y NWN New Delhi This telegram must be paraphrased before being Dated February 9, 1942 communicated to anyone other than & Governmental Rec'd. 12:39 p.m. agency. (BR) Secretary of State, Washington. RUSH 34, February 9, 4 p.m. Fil telegrams are subject to indefinite delay. Department's 21, January 31, 7 p.m. was not received here until today. Fox has already left Karachi. See my 24, February 1, 4 p.m. WILSON HPD Copy:bj:2-10-42 Regraded Unclassified C 0 175 P Y DEPARTMENT OF STATE NOJONIHS VA February 10, 1942 In reply refer to FD 811.515/1326 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses copies of telegram no. 94, dated February 9, 1942, from the American Consulate, Batavia, Java, Netherlands Indies, reporting that Treasury checks in the aggregate amount of $111,654.02 were delivered to the American Consul at Batavia by the Javasche Bank on February 7. 1942. Enclosure: From Consulate, Batavia, no. 94, February 9, 1942. Copy:ec:2-9-42 Regraded Unclassified 176 EJ Batavia This telegram must bE paraphrased before being Dated February 9, 1942 communicated to anyone other than a Governmental Rec'd 6:26 Pame ngency. (BR) Secretary of State, Washington. RUSH 94, February REFERENCE is nade to paragraph two Department's telegrah no. 22, January 21, 5 person Treasury checks aggregating United States dol- lars 111,654.02 (repent one hundred Eleven thousand six hundred fifty-four point zero two) cashed by the DE Javasche Bank, WERE dEliVErEd to TIE on February 7, 1942. FOOTE C., Regraded Unclassified 177 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE February 10, 1942 TO secretary (orgenthau FROM 2. Metricn CONFIDENTIAL égistered storling transactions of the reporting besice were 18 follows: Sold to commercial concerns 247,000 Purchased from commercial concerns 6 0,000 26% birset sterling ressined et 4.03-5/4, with no reported trensactions. sut Juban 980, which wes offered et 1/2, premium at yesterday's close, JII further to El grenium of 3/8% today. The Venezuelan Doliver advenced 30 points to close at .2800. It -02 fore, closing quobetions for the foreign currencies listed below inlions: Sanadian doller 11-3/40 discount Argentine peso (free) .2364 Brazilien milreis (free) .0516 Colombian VEBO -5775 Aexican peso .2065 Urugunyan peso (free) .5310 , t Dold 2600,000 in 601d to tue 32100 of Fortual, which WAS acced to its recount. An additional $4,400,000 in ¿old vill be goló to that Dank - _arcunsed $9,307,000 in sold from the eermarted account of Due BEAK of This wes the amount of ¿DIa We.Teh the BENK of ,,exico sent to the United other in four shipments curing tue last few Asys, to De used in liquidating the w payment due under agreements with the United states Government. In order to incresse the Stabilization Fund's gold belonce, we purchased 5,400,000 in 6016 from the General ?und through the New York Assay Office. - Pederal Reserve Jank of sew York reported test the sanc of ..exico vould may 2,7a2,000 In 6010 from ,esico to the Federal for its account. for sele is the . tw Tax ARREY office. Is London, suot and forward silver ressined et 23-1/84 oné 23-9/166 equivalent to 42.576 thé 42.78$. 7, Pressury's 2 purchase price for foreign gilver yes unchanged st 35% EAnay settlement price for foreign silver voe Also unchanged at 35-2/84. 0.28 ao of silver toury. & Regraded Unclassified 178 BRITISH EMBASSY WASHINGTON, D.C. PERSONAL AND SECRET February 10, 1942. Dear Mr. Secretary, I enclose herein for your personal and secret information & copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, (For the Ambassador) R.J. Compbell The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D.C. Regraded Unclassified 179 Copy No, 13 BRITISH 170ST SECRET (U.S. SECRET) OPTEL No. V Information received up to ? 4.11, 9th February, 1942, 1. NAVAZ One of H.M. submarines was danaged In collision with an enemy destroyer which she had unsupcessfully attacked off ARGOSTOLI on the 8th and is returning to port. A Froe French corvette mas torpodoed and sunk on the 8th off NETFSUNDLAND. :, MILITARY LIBYA. Nothing to report, SINGAPORE. 8th, The enemy fter heavy artillery fire larded in unknown strength on the northwest coast on a front of about 5,000 (5,000 yards, On the same day a small force landed on UBIN ISLAND, JOHORE STRAIT, and our patrols withdrew after inflicting casualties, BURMA. Reference OPTEL No, 45, SURMA paragraph, Small force in PAPUN area turned out to be thirty Siamese irregulars who have been dispersed by the police forces. NETHERLANDS EAST INDIES. AMBOINA 1a reported almost entirely in enemy handa although guorilla fighting continues, 3. AIR OPERATIONS WESTERN FRONT. 8th. Coastal command sent twenty-three aircraft thich Included some R.C.A.F., on anti-shipping operations off the Dutch coast, 4 4,000 ton merchant vessel was hit. Three aircraft are missing including one R.C.A.F. and one crashed, A Rudson bombed 5. 3,500 ton ship off the Norwegian coast leaving her low in the water and listing. One of our fighters shot down as enemy bomber near OSTEND. LIBYA. 7th/8th. Wellingtons claimed at least three hits DD shipping at TRIPOLI (L) and naval scurces report that aircraft set on fire a morchant versel near LAMPEDUSA ISLAND, MALTA. 7th, In addition to the raide reported yenterday sixty= one enery adroraft attacked HAL FAR and LUQA aerodremes. At the former serique damage mas done to stores and administrative buildings and many craters nate cade on the serodrute, 7th/8th, Further craters mere mada at HAL FAR and NOT aircraft on the ground were hit. Philldings at KALABRANA more severely damaged. BURMA. 7th. [hurricanes made 6. low nititush awonp over HOULMEI) and attacked suitable objectives, 8th. Bambers, in support of our ground Regraded Unclassified 180 - 2 - forces attacked a concentration of boats and barges near PAAN, Enemy fighters were intercepted by Hurricanes and American Tomahawka over MINGALADON on the 7the Two Japanese fighters were destroyed, two probably destroyed and four damaged. 7th/8th. MINGALADON and its satellite were bombed with little damage. 40 ICE CONDITIONS BALTIC. The belts are closed. Navigation in the Sound is just possible with icebreakers. NORTH SEA. The inner end of OSLO FJORD is probably closed, Southern Norwegian ports east of and including KRISTIANSAND (s) are difficult of access. There is ice up to the ten-fathom line off the west coast of DENMARK, HAMBURG is probably closed, Traffic in and out of the Dutch ports north of ROTTERDAM must be very restricted. DENMARK STRAIT. There is a channel about sixty miles wide between the edge of the pack ice and the northwest point of ICELAND (c). Regraded Unclassified 181 February 10, 1942 Dear Col. Donovan: This will acknowledge receipt of your letter of February 4th, transmit- time the contents of a cable received from your representative in London. I was very much interested in reading this information. Yours sincerely, (Signed) 1. Morganthaus 11. Col. william J. Donovan, Coordinator of Information, Amehington, D. C. file nme. Regraded Unclassified 182 UNITED STATES GOVERNMENT COORDINATOR OF INFORMATION WASHINGTON, O.C. February 4, 1942 The The secretary at the Treasury D. C. La3 deur al. Secretary: The following is a cable we have received from our representative in London: "1. In their home propaganda, Germans continue to avoid re- vealing Russian place names, and have sought for six weeks to maintain fiction that German line is substantailly unchanged since December 7. Attribution of rumor of new German spring difensive to British sources indicated new propaganda tech- civue. Prominence given to alleged German air supremacy in missia. "2. America - raw material shortage represented as making Rousevelt's armament figures ridiculous. Their technique is to refrain from discussion of American arms program while plug- sing American vulnerability. Indications oi 'blockade of U.S.A.' 300n featurable. Parallels with American production of the just wur varefully avoided. "3. Large scale ridiculing of Churchill blaming him for unre- liability of British propaganda, for collapse of British Empire, for failure of Libyan campaign to produce dividends: report Imperial dissension; prophecies of American domination . of Bri- tish Empire apparently intended to (a) conform to nome campaign to Germans think 'news bad with us but worse with British', (b) discredit result of washington consultations. "4. U-boat sinkings in Canadian and North American waters given great prominence as proving long range capabilities of operation ussuring cutting offi of enemy's supply lines in all tisaters of the war. Practically no news about America except sincings dun Pacific reverses, very little about Rio." Sincerely, hallon William Dmm Donovan Regraded Unclassified 183 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE February 10, 1942 Secretary Morgenthau TO FROM Mr. Kamarck Subject: Summary of Military Reports French Aid to the Axis On February 3 and 4, three French ships arrived at Tunis and another was unloaded there. It had been reported previously that all four were carrying trucks and supplies from Marseilles to Tunis destined for Libya. (U.K. Operations Report, February 8, 1942) Use of American Planes During the night of February 5/6, two Consolidated Liberators (B-24, four motor bombers) from Egypt dropped seven tons of bombs on the Tripoli docks. (The main use the British have put their Liberators to in the past, I believe, is in the ferry service to North America and in Coastal Command work. In the latter use, they have performed reconnaissance and patrol duty and on occasion acted as long-range fighters in protecting convoys from the German long-range bombers.) (U.K. Operations Report, February 8, 1942) Conditions in Europe Passenger train services have recently been still further drastically reduced in Germany and German-domina- ted territory. The immediate reasons are the severe weather, essential military movements, transportation of fuel, and the food and coal shortage. The reductions re- flect the increasing strain upon the European railroad system. (U.K. Operations Report, February 8, 1942) Regraded Unclassified 184 RESTRICTED 0-2/2557-220: No. 627 H.I.D. W.D. 11:00 A,H,, February 10, 1942. SITUATION EPORT I, Pacific Theater. Philippines: The Intenese have been repulsed again, after suffering severe casualties, during intermittent but savago engagements along our front linos. Our artillery executed counter-battery missions on hostile gune firing from the Cavito coast, Seven Japanose planes were shot down yesterday. There is no change in the Visayane or at .indanan, Hawail: No further reports of enemy activity. Malaya: Prese reports indicate that sovere fighting is taking place on Singapore Island, with the Japanese claiming substantial gains in the north. An artillery battle continues across the Johore Strait. Burma: lin important chango. Light patrol activity continues. Australasia: This morning's Notherlands Enot Indipm communique announces that the Jananese have made A landing at (southwest Colebes) and states that communications between Java and Bendjermasin (southern Borneo port) have been interrupted. Ele ewhere in this area the situation remains relatively unchanged with both sides active in the air. West Coast: To reports of hostile activity. II. Sastern Theater. There is no change in the general situation. (A situation map will not be issued this date). III. Vestern Theater. No operations of any importance have been reported. 17. Liddle Eastern Theater. Ground The press reports the establishment of a North-South ritish defense line in the vicinity of Oazala. British patrols are said to be oncrating considerable districes to the north and west of this line. Air: The A.A.F. is concentrating against Libyan porte, airdromos, and aditerrahean convoys. Axis air activity is directed against ground troops and sunnly INDOE to Cyrenaica. According to the press, the +erman Air Force vesterday bombed n ritish convoy in the castern Mediterrannan, Appults WATE not announced, SSTRICTED Regraded Unclassified 185 February 11, 1942 9:40 a.m. MS: Hello. sen for All right, Mr. Secretary. Dr. 32W ATE you? & Fine. I'm sorry to miss your company this morning. Well, I 8m, too. I met Hr. Sulliven yester- Say, one of your assistants He tole ne. Vot .....and I told him that I'd see it if I could and I went lest night and saw it. PM WELL, that was good. Not I don't get the full vote of it, though, Mr. Secretary. EVX: You don't? Wet I wish you'd 6° 10 before the Committee. -Mr: I see. Well, now, when would you like me to come, Senator? Any time you wish. well, what day? Hen Well, we're going to start hearings on the whole bill today, but we'd make that to suit your convenience. - Well, sre you going to be having hearings this afternoon? Kate I don't think they'll lest longer than - today - longer than the noon hour. Regraded Unclassified 186 - 2 - HMJr: Well, my trouble 18, Senator, I'm trying to make up my mind how to borrow a billion and a half dollars the cheapest way. Me: You'd better go on and do that, and we'll hold it until you..... HMJr: How about tomorrow? Me: Tomorrow will be all right. HMJr: Would eleven o'clock be agreeable? Me: That would be fine. HMJr: Well, eleven..... Mc: We meet at ten-thirty. HMJr: Well, I tell you - could I just tell you confi- dentially why I said eleven? Mc: Well, it's not necessary. We'll be delighted to have you at eleven o'clock tomorrow. HMJr: I'd like to tell you. Mc: Yes, sir. HMJr: Because I'm due over at the White House tomorrow. Mc: Oh, yes. Well, that's all right. Sure. HMJr: And 80 - but I always count a little bit on the President being a little late. Mc: Yeah. HMJr: All right. Mc: That'll be all right. Any time you come tomorrow morning. HMJr: Eleven o'clock? Mc: That'll be all right. Regraded Unclassified 187 - 3 - HMJr: And have you made up your mind whether you think..... Mc: Well, I haven't made up my mind. I've talked to Senator Glass about it. HMJr: Yes. Mc: He's going to come up there and see this picture today, I think. HMJr: He's coming at ten-thirty. Mc: Yes. HMJr: Yes. Mc: Well, you come before the Committee tomorrow. HMJr: I'll come tomorrow. Mc: All right. HMJr: Thank you 80 much. 188 Norman Thompson February 10, 1942 George Buffington John Sullivan Secretary Morgenthau I will be busy all day today on lay financing so I would like you people to find out when the Deficiency Bill will come up in the Senate. Will enstor Glass call for & hearing? I would like to lieve an opportunity to show "The New Spirit" to Senator Glass and as many members of his Committee an possible. I want to put up & fight in the Senate for this appropriation and the other part of the appropriation - the three hundred and some odd thousand which was cut out by the House. Just as soon as the three of you know what the procedure is, please give If memo to Lt. Stephens and he will bring it in to 2. Just remember that we want to put up a real fight in the Senate and try to get this appropriation back. John Care Thompson Regraded Unclassified 189 February 11, 1942 Senator Glass came to see me at 10:30 this morning, and I showed him the Donald Duck picture. He said, "It is very impressive but I don't know whether it would make anybody want to pay his taxes who isn't going to pay his taxes any way." I tried to get him to advise me as to whether I should go ahead with it, but he wouldn't say what I should do. So I said I would call on him tomorrow morning before I go before the Committee at eleven and ask his advice after he has had time to think it over. ####### Regraded Unclassified 190 February 11, 1942 10:43 a.m. HMJr: We're going up on the Hill at eleven tomorrow. John Sullivan: Yes, sir. HMJr: Sometime after lunch I want to Bee a draft of a justification for those things that have to do with taxes. 8: Yes, sir. HMJr: Will you have it ready for me? S: That's Gulick, Paul, Buffington, Tarleau and Blough. HMJr: Yeah. S: I will. HMJr: But I want to have it ready after lunch without fail, please. S: Yes, sir. And what about Donald? - HMJr: Well, I'll take care of Donald. S: Righto. HMJr: I'll take care of Donald. S: All right. Regraded Unclassified 191 February 11, 1942 Mr. Norman Thompson, Mr. George Buffington The Secretary Please let me have a memo, if possible, before ten- thirty, Just how much we owe Disney and how much we owe Technicolor on the picture, The New Spirit". Regraded Unclassified 192 February 11, 1942 Secretary Morgenthau Mr. Thompson Respecting your memorandum of February 11, conserning amounts due Walter Disney and Technicolor, you are advised a.e follows: lie have an itemised bill from Technicolor embracing the total expense which amounts to $38,140.29. We have received no formal billing from Walter Diansy but have been given to understand that the total expense for his participation in this picture will amount to $46,500. Our agreement with Mr. Disney was to the effect that WD would not be obligated for the production of this film by his company for en amount in excess of $40,000 covering out-of-pooket expense. It appears that certain incidental contingent expenses have arisen in connection with this project which were not considered as a part of the direct production costs, such as furnishing 5,000 posters, still shots for newspaper purposes, traveling expense for conferences, long distance telephoning, and other incidentals, the total of which could bo, according to verbal understanding with Mr. Disney, fixed at $6,500. lienoe the total of $46,500 would represent (a) $40,000 covering the cost of the production of the film in accordance with the understanding had with Mr. Dianey, and (b) $6,500 for incidental expenses, making up the total of $46,600 for his out-of-pocket expense. Am CSB:em Regraded Unclassified 193 February 11, 1942 10:44 e.m. CWri Hello. consider: Buffington. NM George. ton: Yes, sir. HAJPI I've just got this memo from Thomoson saying that the Disney now comes to forty-six five, Yes, sir. I've talked to you personally on this at least three times on the cost. well, the And every time you eaid We were going to keep it under forty. We have, Mr. Secretary. One day 18st week for the first time I heard from Roy Disney that their actual cost would be in excess of forty thousand, but we are not In any way obligated to Day more than forty; and the conversation which I told you about that I had with Walt Disney in California before I left was would we be happy if the cost were around thirty-six thousand. Then on Sunday - last Sunday - I had word from New York that they'd received a memorandum from the California office stating that the actual cost was forty-six five; but we're in no way obligated to DAY forty-six Mr: Well, then, why give me a memo like this? 2: Well, I did explain to Charles Bell that those were the figures that I hud been given by Disney most recently: but we're not obligated to day - under our arrengement with him - more than forty thousand, but I wanted you to know the facts and the actual Regraded Unclassified 193 February 11, 1945 10:44 8.0. MJr: Hello. Buffington, George. Yes, sir. I've just got this memo from Thomoson saying that the Disney now comes to forty-six five. Yes, sir. -XJr: I've talked to you personally on this at least three times on the cost. Sell, the Jr: And every time you said we were going to keeu it under forty. We have, Mr. Secretary. One day last week for the first time I heard from Roy Disney that their actual cost would be in excess of forty thousand, but we are not in any way obligated to Day more than forty; and the conversation which I told you about that I had with Welt Disney in California before I left vas would we be happy 1f the cost were around thirty-six thousand. Then on Sunday - last Sunday - I had word from New York that they'd received a memorandum from the Celifornia office stating that the actual cost was forty-six five; but we're in no way obligated to oay forty-six Well, then, why give me a mero like this? Well, I did exolain to Charles Bell that those were the figures that I had been given by Disney most recently: but we're not obligated to pay - under our arrangement with him - more than forty thousand, but I wanted you to know the facts and the actual Regraded Unclassified 194 - 2 - HMJr: Well, I - when it came to ordering anything over the thousand reels, you told me that the thing was only up to thirty-six. B: I think I told you thirty-seven, Mr. Secretary. HMJr: Well, let's say thirty-seven. I can't remember. Now it jumps to forty-six five. B: No, sir. The figure I gave you W8.8 on Techni- color for the eleven hundred reels, plus a hundred additional sixteen millimeter reels. HMJr: But look, the last time you gave me a figure on how much Disney was, it was under forty, wasn't it? B; Yes, sir. Yes, sir. That was the information I had at that time, and on Sunday they called me from New York, telling HMJr: Remember the discussion that you said that you thought it very important to keep it under the eighty? B: Yes, sir, I do remember. HMJr: And I agreed with you. B; Yes, sir. HMJr: Well, let's keep it under eighty. B: All right, sir. We'll be HMJr: I mean - because you told me that you thought it was very important because you told the committee to keep it under eighty. B: That is correct, sir. HMJr: Well, I'm going to hold you to that. B: Why, that's all right. HMJr: I'm going to hold you to that. B: That's fine. Regraded Unclassified 195 - 3 - HMJr: Because I wouldn't order the extra two hundred reels. I wouldn't do anything. Do you remember? B: I remember. HMJr: And you told me yourself you told the committee under eighty, and you were going to keep it under eighty. B: Well, Mr. Secretary, as far as I am concerned, we are obligated for no more than forty HMJr: Then don't send me stuff showing that they have spent more. B: All right, sir. HMJr: Don't send it to me. I've got enough worries. B: May I have that back, and I will change it. HMJr: I don't want it in the record. B: All right, sir. HMJr: I mean - well, there's no sense putting this up to me. I mean, it's your job - you've had the job and you said you'd keep it under eighty and I'm going to expect you to keep it under eighty. B: I will do that, Mr. Secretary. HMJr: All right. B: May I have that memorandum back? HMJr: You certainly can. B: All right, sir. Regraded Unclassified TREASURY DEPARTMENT 196 INTER OFFICE COMMUNICATION DATEFebruary 11, 1942 Secretary Morgenthau TO FROM George Buffington Respecting your memorandum of February 11, concerning amounts due Walter Disney and Technicolor, you are advised as follows: We have an itemized bill from Technicolor embracing the total expense which amounts to $37,790.29 plus estimated shipping expense, $350.00, or a total of $38,140.29. We have received no formal billing from Walt Disney Productions. Mr. Walt Disney assured me today their bill would not exceed $40,000.00 in accordance with our agreement dated January 7, 1942. G.D. TREASURY DEPARTMENT 196 INTER OFFICE COMMUNICATION DATEFebruary 11, 1942 Secretary Morgenthau TO FROM George Buffington Respecting your memorandum of February 11, concerning amounts due Walter Disney and Technicolor, you are edvised as follows: We have an itemized bill from Technicolor embracing the total expense which amounts to $37,790.29 plus estimated shipping expense, $350.00, or a total of $38,140.29. We have received no formal billing from Walt Disney Productions. Mr. Walt Disney assured me Loday their bill would not exceed $40,000.00 in accordance with our agreement dated January 7, 1942. GD Regraded Unclassified 197 February 11, 1942 10:50 a.m. FINANCING Present: Mr. Eccles Mr. Ransom Mr. McKee Mr. Goldenweiser Mr. Piser Mr. Bell Mr. Haas Mr. Murphy Mr. Hadley Mr. Morris Mrs. Klotz H.M.JR: While shaving this morning I think I got the answer to this, gentleman. We will pull the same thing that we did before. We will offer the people a choice of & bond and a short note as an anchor to the windward, you see, and then if Singapore falls on Friday, we have got that thing. It worked before, and I think it will work again. Not that same note, but another one. A new note for an anchor to the windward. MR. MURPHY: How can you do that on a cash offering, Mr. Secretary? H.M.JR: Now, Henry, don't ask a lot of smart aleck questions. Why the hell do you think I am trying to do it? MR. MURPINY: Pardon me, Mr. Secretary-- H.M.JR: Why do you think I am trying to do it? Regraded Unclassified 198 - 2 - You think up something to get the people to buy a bil- lion and a half dollars 80 that they will take it. MR. MURPHY: I am sorry, Mr. Secretary. I meant quite well. H.M.JR: What do you mean? MR. MURPHY: My problem is merely this, that if We offer two issues, we will customarily have to name the amount of each issue. H.M.JR: No you don't. You are wrong. Leave it purely one issue. MR. BELL: We had an issue one time, I believe, Henry, where we offered a billion and a half and gave them their choice, and we allotted proportionately on the basis of subscriptions received. I think we did that one time several years ago. It is a little diffi- cult to do, but I think we did that once. (The Secretary held a telephone conversation with Mr. Sproul and Mr. Rouse as follows:) Regraded Unclassified 199 February 11, 1942 10:53 a.m. 4Vr: Hello. Hello. HEAT: Are you noth on the wire? 31 Yes, we are. Bobert Rouse: Yes, sir. I've got this suggestion to make, and I'd like to get your reaction - if not right AW8Y, at least after you've had a chance to think about it. Yes. I think in view of much - well, different kind of advice that I'm getting, I'd like to make this suggestion, that we offer this - let's say this two and a quarter bond, and then if any- body doesn't like it, let's have 9 short note RE an alternative. Well, that's just the suggestion we were going to make to you. Well, that shows that I must be smart. (Laughs) I can't adult that. Modesty forbid=. Yes- Well, end I leave - what I - the only thing that I think I may be different from you, I mean, not set any amounts. Not set any amounts of either. No, let them decide. Yes. A billion and 8 half. Yesh. Regraded Unclassified 200 - 2 - HMJr: And then they can subscribe either to a bond or a note, just as they want to. S: I see. Well, we were thinking in terms of a billion on the bond and a half & billion on the note. Well, we'll think that over. HMJr: No, the reason I'm doing it my way 1s that I hope - I'd made the note Just as unattractive as possible. Hello. S: Yeah. HMJr: But then if we should be unfortunate enough that Singapore should fall on Friday, why - and they want to buy, oh, something with a, say, eight thirty-seconds margin, a note, you see? S: Yeah. Well, it's there. HMJr: As a catch-all. On the other hand, if this market has just fallen because they're getting ready for the financing and if Friday - - well, we've made a bottom - and the thing works, we might only sell fifty or 8 hundred million, see? S: Yes, I see. Well..... HMJr: It's an anchor to the windward, that's my idea. S: Yes, I see. Well, as I say, we've been thinking along the same lines and with fixed amounts and..... HMJr: No, I don't want fixed amounts. S: You do not. HMJr: Well, I say I don't want it - - I think it would be a mistake. S: Well, it has the virtue of not seeming so much a concession to a possible unfavorable develop- ment which we'll have to face whenever we do 201 - 3 - financing from here on. HMJr: Well, I know, but you don't have a big military disaster hanging over your head the way we have right now. 8: Not every week, no. HMJr: I hope not. S: No. But we will undoubtedly have a possi- bility of bad situations constantly with us for some time to come. HMJr: Well, the only place I differ - I think making it a billion and five hundred million - that shows that we're five hundred million scared. And the other way, we've just got it there if S: somebody 18 frightened or if something goes wrong. Well, you might say you were a billion end a half scared then. HMJr: Well, that would be the worst. S: Yeah. HMJr: Think about it. S: Well, we'll think about it. HMJr: Think - I would hate to make it a billion and a half a billion. Maybe there's something wrong with me, but I wouldn't mind doing it my way. S: Yes, I see. Well, we'll think about it and give you our view on it. HMJr: But - I was going to put it up to this group at eleven o'clock, and I wanted you to have 8 chance to think about it. 8: All right. Now when will you want to talk to us again? HMJr: Well, it will be right around twelve. Regraded Unclassified 202 - 4 - S: All right, fine. HMJr: Thank you. ..... 203 - 3 - H.M.JR: I am sorry I jumped on you, Henry. MR. MURPHY: That is perfectly all right. H.M.JR: I apologize. MR. MURPHY: Well, you can't expect to have Singa- pore fall without being jumped at. My troubles are minor. H.M.JR: Well, everybody's troubles are relative, but you just keep making your suggestions. Just forget I ever said it. MR. HAAS: Could I throw another one-- H.M.JR: Let's see if Henry has another suggestion. MR. MURPHY: No, Mr. Secretary. As far as I can remember, the action that is proposed to be taken is - I can't recall the precedent that Mr. Bell speaks of, but I think it is quite feasible technically. The only objection to it - the principal objection to it I see is the one that Mr. Sproul mentioned, that it would appear we were-- MR. BELL: That is the thing that occurs to me. I am wondering if it is a sign of weakness here when maybe 8. little strong heart is needed? MR. HAAS: I have got an idea that might help out. H.M.JR: Well, it is just a consession to the times, that is all. MR. BELL: Yes, I agree with that. H.M.JR: And I had it this morning, but then you had these fellows come in here this morning from the Guaranty, and this is the kind of advice they give you, "We won't buy anything over five million dollars - five years unless we are asked." VP.. HAAS: Mr. Secretary, you know-- Regraded Unclassified 204 - 4 - H.M.JR: Just a minute. Then he turns around - I said, "What do you think the Treasury should do, only sell long-term governments?" I said, "How do you make that out? You won't buy any, but you tell us to sell long-term governments. I think if you price this thing low enough that - now, I was amazed. I thought people would say - and here is this fellow - what is this man's name? MR. HAAS: Conway. H.M.JR: He can't make up his mind until Friday morning whether he is going to subscribe. I said, "You mean to say that you don't know today whether you are going to subscribe Friday?" And he has got to - get this. They have one-third of all the excess reserves in New York. MR. MORRIS: Well, that is always the Guaranty's attitude, you know. Whenever it is shaky, they always call their loans. H.M.JR: But - which all goes - I have got - why do I see these people? I want to look at their teeth and see how sound and how sharp they are, and here is & fellow sitting with one-third of all the excess reserves, and he doesn't know today whether he will buy 8 bond on Friday. And I told him-- MR. BELL: Well, I think-- H.M.JR: He said, "Unless somebody tells me to." I said, "Nobody is going to tell you to. MR. HAAS: He wished he had 8. little more time. He thought he conveyed the wrong impression on that. MR. BELL: Yes. H.M.JR: Listen, George, I ask - when B man comes down and he is my guest and I ask him three times, "Will Regraded Unclassified 205 - 5 - you or won't you subscribe--" MR. HAAS: That is right. H.M.JR: And each time he tells me - how did he put it? "Well, we don't know whether we - " he wouldn't answer me. MR. HAAS: He said it was 8 market proposition. He kept repeating. H.M.JR: Well, there is such a thing as a fellow says, "I come down and I am not coming in, Morgenthau puts me, with my back against the wall, and says, 'Are you or aren't you - 1" I asked him three times, and he wouldn't answer me. I knew what he meant, I thought I did, namely that he would buy and sell, but I wasn't sure. Did he clear that up? MR. BELL: That is what he meant. They have a trading desk, you see. H.M.JR: I did ask him three times, didn't I? MR. BELL: That is right. But he said, when he went out, he thought he had left the wrong impression. He didn't want to leave the impression with you that the Guaranty wasn't behind this program. They are, one hundred percent. H.M.JR: Well, he did leave that impression. MR. BELL: He said he was sorry he didn't have a little more time. He wanted to clear that up. H.M.JR: Well, he had his chance. MR. BELL: He just left with the Treasury the Guaranty attitude that has been a policy for five years. There is no doubt about it. H.M.JR: Dan, the only difference between that and Regraded Unclassified 206 - 6 - a lot of the others, this fellow was honest. This fellow was being honest, and you know-- MR. BELL: Except-- H.M.JR: Dave, aren't there a lot of people feel that way, but wouldn't tell me so? MR. MORRIS: Yes, but the Guaranty is outstanding in their attitude toward things. They are notorious. They really are. H.M.JR: How many correspondents have they got? MR. MORRIS: Oh, that is very important, yes. H.M.JR: And I said to Mr. Conway, "What do you tell somebody when you call up?" He said, "Naturally, there is only one thing to tell them, I tell them what I do myself. MR. MORRIS: Sure. No, I agree with you in looking at it that they are a big company. H.M.JR: I would much rather have a fellow come down like that than say, "Morgenthau is wonderful, how are you doing?" and, "We are back of you," and then go out and knife me. I would much rather have that kind of a fellow. He was perfectly frank with me. I mean, he was being very honest. I will bet you that they have - what, a couple of thousand banks who are correspondents? MR. BELL: They have a lot of them. MR. MORRIS: They have a lot of them. H.M.JR: They are one of the-- MR. MORRIS: They are one of the big correspondent centers. MR. BELL: They have got three or four hundred Regraded Unclassified 207 - 7 - million dollars in outside deposits. H.M.JR: When you get a man like that calling up and everybody saying, "We won't buy anything over a five-year note, we don't know until Friday morning whether we will buy a bond or not," they need B. couple of Donald Duck pictures. MR. HAAS: We made an analysis, Mr. Secretary, of the holdings of governments by the large New York banks and ninety-five percent of the governments were five years or less, not only the Guaranty but all the large banks up there. H.M.JR: Say it again? MR. HAAS: We made an analysis of the government holdings of all the large New York banks, and the govern- ments which - in aggregate these large New York banks held, ninety-five percent of them had maturities of five years or less, so you see his situation is - the whole New York situation is that way; and, if outsiders call in, they are calling in to a bank which operaters sort of like a central bank and their situation is entirely different. It isn't new. It has been that way for some time. H.M.JR: Oh, I know that, but it is - well, it doesn't help you sell it. MR. HAAS: No, particularly with the reserve situa- tion. H.M.JR: And we are just at the very inception of this program. I mean, we are just - I heard now, Dan, it is up to a hundred and fifty billion, the war program. MR. BELL: It probably is, yes. I don't think these things going up, Mr. Secretary, change the budget picture any. They contemplated all of these. H.M.JR: All of that? Regraded Unclassified 208 - 8 - MR. BELL: Yes. (Mr. Eccles, Mr. Goldenweiser, and Mr. Piser entered the conference.) MR. ECCLES: I don't know what happened to the others. We were late, and they didn't show up, so I said we would come on over here. H.M.JR: For discussion, after we get this thing settled, Marriner, I would like very much to talk to you about this excess reserve situation, because, with only 8. little over a billion - eleven hundred million, for instance, in New York, the Guaranty was in here this morning, and they have three hundred fifty million of it. MR. ECCLES: The Guaranty? H.M.JR: Yes. MR. ECCLES: Well, of course it is - the situation isn't the same with each bank. H.M.JR: No, but here they have it, and they frankly say, "We won't buy and keep anything over a five-year note." I am just telling you, see. They can't make up their mind until Friday morning whether they will sub- scribe to a bond or not. If they do, it is just for trading purposes, and they control a third of the excess reserves in New York. It is not healthy. MR. BELL: That would be the case even-- H.M.JR: It is not healthy. MR. ECCLES: Of course it gets down to the question of whether we want to finance this through the banks. Now, if that is what the Treasury wants-- H.M.JR: You know what we want. We want to get every dollar we can from every kind of money outside of the banks, but then you and I know when we have done that Regraded Unclassified 209 - 9 - we have still got to go to the banks. MR. ECCLES: Yes, that is right, but of course what-- H.M.JR: You and I know we have still got to go to the banks. MR. ECCLES: The way we feel is that we haven't gone nearly as far as we can go outside of the banks. H.M.JR: I agree, but I am just looking forward, not too far, you see. What, Marriner? MR. ECCLES: Well, we have-- H.M.JR: It makes a difference in the feeling. (Mr. McKee and Mr. Ransom entered the conference.) MR. ECCLES: And as was indicated in this-- H.M.JR: Come up here, fellows. I can't see that far any more. I am getting old and decrepit. MR. RANSOM: You are not missing 8. great deal if you don't see Dan and me. H.M.JR: Well, let me decide that. MR. McKEE: I was late for a cause this morning. H.M.JR: A good cause? MR. McKEE: Ever hear of Mr. Giannini? H.M.JR: Yes. MR. McKEE: Well, we are working for a good cause. H.M.JR: Did you see him? MR. McKEE: No, it was another problem out there. Regraded Unclassified 210 - 10 - H.M.JR: Just another one, was it? MR. ECCLES: Let me read just this-- H.M.JR: One with us or one with the SEC? MR. McKEE: No, it is a banking problem. H.M.JR: Your own? MR. BELL: We are involved. MR. RANSOM: You can get involved very easily. MR. BELL: We don't want to. We want you fellows to keep it. MR. RANSOM: That is what we are trying to do. MR. BELL: O.K. H.M.JR: Keep it until this afternoon anyway. (Laughter) Do you mind if I just repeat what I said for the benefit of these gentlemen? MR. ECCLES: Go ahead. H.M.JR: I said as soon as this financing is over I would like very much to talk to you people about the excess reserve situation, because we have just had the Guaranty Trust people here, and they have been very frank. Of the eleven hundred million excess reserves in New York, they have three hundred fifty, and they say, very frankly, they won't buy anything over a five- year note, and they can't make up their mind until Friday morning whether they will buy a bond or not. They will only buy it for speculating purposes. They have got 8. third of all the excess reserves. Now, Marriner says, "Do you want to finance through the banks?" and I said, "No, not now." I-want to get every dollar I can, but before long I will have to, but on the other hand if the banks in New York would be a Regraded Unclassified 211 - 11 - little bit more interested in bonds than they are, it would just give me a - more customers, that is all, and I really think that we have got to take a look at it. MR. ECCLES: Let me just read this-- H.M.JR: I think you have to take 8. look at it. Not this morning. MR. McKEE: I can verify that story they told you about the Guaranty Trust Company. The Guaranty Trust Company has done 8. better job with the liquidation of their portfolios than every other bank in New York, and when they tell you three hundred fifty, don't forget that that bill covers the entire district. H.M.JR: That is the point. MR. McKEE: And that - take the Guaranty and the Chase out of the picture, there is only two or three others that are really liquid to take care of themselves. H.M.JR: Then you take it that the banks for all over the country - I said to Mr. Conway, "What do you tell a bank that calls you up?" I suppose they have got what, a couple of thousand correspondents? MR. McKEE: I imagine SO. H.M.JR: I think so. He said, "Naturally we tell them what we do our- selves.' MR. ECCLES: Well, that would indicate that no matter what the excess reserves were, if they take the attitude of the Guaranty Trust, they just don't want long bonds. It isn't a question of reserves. They have got reserves and could buy if they want to, but they just don't want to. H.M.JR: But my point, there are banks in the New York district that would buy bonds if the reserve situation Regraded Unclassified 212 - 12 - wasn't so tight. MR. McKEE: Well, they will all buy them, but they will sell them. MR. ECCLES: That is right, they won't hold them. MR. McKEE: There is no-- MR. ECCLES: That is the difficulty. MR. McKEE: The New York picture, if we might take & minute to discuss it, is that they offer both in '41 in the first six months before realizing that their deposit liability has become stationary. They ended the year with - about where they started in '41 with a very much increased portfolio which cut into their liquidity. They really did that because of the necessity for earnings. MR. ECCLES: Here is a memorandum that we gave you the morning Jesse was here. It was on October 7. I don't know whether you got a chance to read it, but it covers this very point, that no matter what the excess reserves may be, it doesn't necessarily mean that banks would buy long bonds at these rates, that it isn't a question of the reserve in itself that will do it, and that the more inflation you get irrespective of reserves, the higher the rate goes, that that has been true of other countries, that with an inflationary development, interest rates have gone up irrespective of the supply of money. I just - just look at that again in the light of what you said. H.M.JR: I won't do it now-- MR. ECCLES: No. Better have the boys look at it too. H.M.JR: I will. I will circulate it. MR. ECCLES: It is one that we left back in October. Regraded Unclassified 213 - 13 - Now, there is just one thing I would like to say, Henry, on this - just a very short thing. It is on this memo- randum we sent over here last week. It is the closing paragraph. "Within the terms of the general financing program, we suggest the establishment and maintenance of such a pattern of rates does not require the excessive volume of excess reserves which has characterized recent years.' That doesn't say immediately. That is recent years. "It does contemplate that should excess reserves shrink to a point that endangers the maintenance of the pattern of rights, that is, whatever pattern we decide upon, the Reserve System will provide a sufficient volume of reserves to enable the banks to assist the Treasury's financing to whatever extent is necessary." H.M.JR: Well, I had-- MR.ECCLES: I mean, that is-- H.M.JR: That is fine if you don't mind my saying, if you will carry through. MR. ECCLES: Well, there is a commitment we have put down in black and white. H.M.JR: Well, then just as soon as we get by this income tax, the money flows in and out, and we see where the thing settles, wouldn't you say around the first of April? MR. ECCLES: Well, I would say at least then, yes. I would think so. I would like-- MR. McKEE: You mean when it would be settled and starting to go back? H.M.JR: Yes. MR. McKEE: Before that, I would say. Regraded Unclassified 214 - 14 - H.M.JR: Whenever you can see where it leaves us, then we ought to talk about what would be the wise thing to do. MR. ECCLES: This currency situation is, of course, pretty serious, and that has been responsible for a very large drop in the excess reserves because of the amount of hoarding. You take at this time of year you would naturally expect the currency in circulation to be less than it was during the holiday period, but it reached a new peak here just last week. MR. BELL: It didn't come back in January? MR. ECCLES: Well, some of it, but it didn't-- MR. McKEE: Not very much. MR. ECCLES: A small amount only. MR. McKEE: In certin districts, Dan, that is all. MR. ECCLES: It is still going into - they are still going into hoarding. MR. McKEE: And another thing, in addition to that, is that your Savings Bond program is bringing on market liquidation from the mutuals and a lot of other people, where people are converting their savings into Defense Bonds, and you get more market liquidation than you probably do pick up in Defense Savings Bonds. MR. ECCLES: The drive to get current savings rather than existing savings. MR. RANSOM: Mr. Secretary, on your suggested timing of a consideration of this, don't you think we could, between now and the first of April through contacts with your own staff and otherwise, give 8 more complete exploratory trip into this whole field than waiting until the first of April? I think-- MR. BELL: Immediately? MR. RANSOM: jour collectively we ought to be able to project our thinking into that period almost now. H.M.JR: Well, if you can, I was trying to be fair. I didn't want to crowd you. Regraded Unclassified 215 - 15 - MR. ECCLES: You suggested a day or two ago, though, that we do just that, that we get together on this memorandum. Now, if we get together and discuss the memorandum that we submitted, that would open up this-- H.M.JR: Well, I think we ought to-- MR. BELL: We can't excape that subject in that memorandum. MR. ECCLES: That is right. We can't escape every aspect of it. MR. McKEE: Now, we have got this present thing to meet, I mean your financing with limited purchasing power in the Street. H.M.JR: That is right. MR. McKEE: Again I might raise the question I raised the other day. May I ask you directly? Do you feel that you are obligated to go your billion and a half now plus your ten percent? Could you go your - a billion and take some additional? H.M.JR: No. MR. McKEE: You feel you have got to go the bil- lion and a half? H.M.JR: Definitely. I have got to. MR. RANSOM: I think once having announced a billion and a half you couldn't recede from that. MR. McKEE: He will take the plus ten anyway, won't you, Dan? MR. BELL: Well, it doesn't always go to ten. It might be five, you see. H.M.JR: And we are not putting anything in for the Government account. Regraded Unclassified 216 - 16 - MR. BELL: No, I am not. MR. McKEE: Then how soon can you, to offset that additional money, how soon can you stop selling bills, around the first of March? MR. BELL: Stop altogether? MR. McKEE: Not put any bills out. MR. BELL: We could stop any time we wanted to. MR. McKEE: Because we are going to take additional money. Your balances are going to be well preserved. MR. BELL: I contemplate running the balances down below a hundred million by March 14, and we will go in with practically no balance. H.M.JR: You don't mean below a hundred million? MR. BELL: Yes, in the Federal Reserve Banks. I will draw no money out of the bank depositaries but go into the tax payment date with a very small balance, practically no balance, and then it will have to be - they will have to build up out of tax receipts in ten days, and in addition pay off four hundred fifty million dollars worth of bills. MR. McKEE: Four hundred fifty million-- MR. BELL: Plus tax bills. MR. McKEE: Could you pay off some bills prior to that time, Dan? Could you afford to pay off bills prior without rolling them over? MR. BELL: The only way would be to call money from the depositaries which would be just & wash. MR. McKEE: Yes, just a wash there. MR. ECCLES: If you let your balances run down to where you propose, it will be all right. Regraded Unclassified 217 - 17 - MR. McKEE: What I was trying to figure out and just thinking out loud was how can we put money in the market in New York between now and March 15? Should we start a bill buying program if you can't afford to let your bills run off? MR. ECCLES: If they let their balances run down it takes care of it. MR. McKEE: He wants to keep his balances up, which is good. MR. BELL: No, I don't. I am letting my balances in the Federal Reserve banks at the present time run down below three hundred million, and I am going to try to let them run down by the twenty-fifth, which is the payment date of this new issue, to around & hundred million. Then we will get cash on the new issue. We are going to let that cash run off by meeting the expenditures from day to day plus paying off a hundred and fifty million dollars of bills, three issues of two hundred million dollars each. We will have heavy expenditures in the first ten days of March, more, I am sure, than enough to exhaust our balances. So we may have to call some money from the banks between the first and the fourteenth, but in spite of that, I am going to let my balances run down to a hundred million or less. MR. ECCLES: In Federal? MR. BELL: In the Federal, yes, so that we won't have to call anything beginning the fourteenth. We will let our balances build back up to around three hundred and we will pay off four hundred fifty million, at least, of bills and we can pay off another hundred and fifty if we want to and pay off five or six hundred million dollars in tax notes. MR. McKEE: I am just putting forth this thought. If the Open Market Committee would start a bill buy- ing program that would equal to - in amount to what your roll-over would be. How much would that relieve the New York situation in your opinion? Regraded Unclassified 218 - 18 - MR. BELL: I don't know. The fourth, eleventh, eighteenth, - three one hundred fifty million dollar issues. That would be four hundred fifty million dollars, would be the maximum roll-over in that period. According to the New York banks' own figures given by Rouse and Sproul the other day in making their state- ment on the figures that you have just indicated, that is, the paying off of the fourhundred and fifty or the six hundred million, letting your balances run down, the New York situation will not - their funds will not - their balance - I don't mean their balance, I mean their reserves will not drop over this period. MR. BELL: Just about level out. MR. ECCLES: That is right.. And if that works out the way they have figured it, this program will not upset the market at all. MR. BELL: I don't believe it will. MR. ECCLES: I don't either. MR. BELL: I don't believe it will. MR. ECCLES: And you wouldn't need to do what John indicated. MR. BELL: That is right, but we can always do that. MR. ECCLES: You can always do it. If we get to the point we can always go and guy whatever bills are necessary in the market any time and, of course, we would be able to buy direct pretty quick, it looks like, if we need to. MR. McKEE: Mr. Secretary, do you think that Conway's statement W&S 30 pointed that it was more or less trying to direct your hand by giving his own picture? I doubt very much whether he wouldn't come along-- H.M.JR: No, I don't think he was doing that. I think he was just being very frank. He said, "This is nothing new. We have been this way all the time. of course, if somebody asked us--" I said, "Nobody is Regraded Unclassified 219 - 19 - going to ask you." You mean, whether he was trying to put me on the spot? MR. McKEE: Or whether he was trying to develop your financing according to his own needs. H.M.JR: No. I would ten times rather have a man like that come in here who is very frank and tell you what he thinks than to have some of these other people. No, there was nothing I could take objection to. MR. ECCLES: There are a lot of banks that won't go into notes now. They won't do it. MR.BELL: I wouldn't be surprised, though-- H.M.JR: I don't object to a man like that. MR. BELL: He is-- H.M.JR: What did you say? MR. BELL: I wouldn't be surprised if it isn't discussed the next time the board of directors meets. H.M.JR: What? MR. BELL: The question of how long they should go. He has gotten down here and found out what our program is and what we have got to do to finance this war, and I think he was a little concerned when he - went out of here. H.M.JR: If he was, then-- MR. BELL: It was & good thing to have him down. H.M.JR: Then it was a good thing. I must have handled myself all right. MR. BELL: You did. H.M.JR: I was very anxious to be courteous to him. Regraded Unclassified 220 - 20 - MR. BELL: You were courteous and I think he appreciated your asking him, and I think it just set him to thinking, don't you, George? MR. HAAS: Yes, MR. BELL: When he went out of here, that may be we are not following the right policy. I think he was thinking about it because he wanted to come back and make it clear that they were not - they were behind the program. H.M.JR: Well, there was nothing in here that would give you any idea that he was. (Laughter) MR. RELL: That is the reason I think it will he discussed in the next board meeting. H.M.JR: When 8. man can't make up his mind until Friday morning whether he wants to buy A Government Bond, there is something the matter with him. Well now, look, gentlemen, what I would like to do, if it is agreeable to you, I sent telegrams yesterday to Mr. Young of Chicago, Mr. Fleming of Cleveland, and Mr. Young of Poston. Get them on the wire and we can put them on the loud-speaker. I asked them to give me what they thought. Is that all right? MR. ECCLES: Sure. They were supposed to find out what the banks wanted? H.M.JR: This is the telegram: "I will telephone you Wednesday forenoon and get your opinion as to what your customers would like in connection with our financing. I would appreciate your checking with people in your district between now and noon." MR. ECCLES: Glad to hear it. H.M.JR: Have you people changed any since I have seen you last? MR. ECCLES: We haven't discussed it any. Regraded Unclassified 221 - 21 - MR. McKEE: We haven't been together since. MR. ECCLES: The market has shown & little weakness in this range of maturity that was considered and there has been a - there has been this aspect of it, whether to put out a billion of the two and a quarter, and a half billion of & note. It would be my personal judge- ment that we ought to be bold in this thing. We have got to be bold in this thing. We have got 8. lot of financing to do, and it is just going to be done. If the Fed has to do it all. It is one of those things that has got to be done, and I would say, let's be bold about it and put out the one issue of the billion and a half with a - as far as I am concerned, I would be willing to agree, and I think the Open Market Com- mittee - I would think they would - if that was the decision of the Treasury to put out one issue, that we would give the market what ever support was necessary to see to it that the issue didn't go below par and that it-- MR. McKEE: Your next refinancing is when, Dan? MR. BELL: It ought to be April. MR. McKEE: Refinancing? MR. BELL: Refinancing? MR. McKEE: Yes. MR. BELL: New financing would be in April. MR. MORRIS: July. MR. BELL: No refunding until-- MR. McKEE: No refunding? MR. BELL: The first refunding is July and then that is a call security-- MR. MORRIS: July 1. Regraded Unclassified 222 - 22 - MR. BELL: ... of the Home Owners' Loan. We don't have to do that. It is eight hundred seventy five million, I think. H.M.JR: Well, the only suggestion that I have to make this morning is that we do that and then follow that thing that - 80 that we have & note as an anchor to the windward. MR. ECCLES: That is, do one and a note. H.M.JR: Well,offer & billion and a half and give them a choice of the two and & quarter and then have a note and cut the note very fine, maybe eight thirty- seconds, you see. MR. ECELES: Yes. H.M.JR: And if Singapore should fall on Friday, and somebody gets scared, it is there, you see. I mean, cut the note very fine. MR. ECCLES: Don't you think they have written off Singapore by now? H.M.JR: Well, I asked some of them, and the sur- prising thing is, there was only one man said to me, "Well, if Singapore falls, I will buy more than ever." Everyone said, "Well, it won't be 80 good. MR. McKEE: They won't be market-wise. H.M.JR: There was only one fellow said, "If Singapore falls, I will go out and buy heavier than ever," which is & pretty bad state of affairs. It is all right for the President to talk about complacency being a thing of the past. He should say that. I haven't met it in the last two days, I am sorry to say. Regraded Unclassified -23- 223 MR. McKEE: No, it isn't. H.M.JR: I haven't met it in the last two days. But I think - think that little wrinkle over, you see. MR. ECCLES: You mean the option? H.M.JR: Yes. MR. ECCLES: Of course, if you cut the one fine and you give the other - you price it fairly liberally, they-- H.M.JR: I will. MR. ECCLES: They certainly are not going to take the note. H.M.JR: Well, it is just there-- MR. ECCLES: Would it be a short note? How long do you have in mind? H.M.JR: Oh, somewhere around three or four years. MR. McKEE: I think we might as well prepare our- selves, whether we have to meet it or not, that the circumstances surrounding the present day situation may prepare a secondary market here that is bad. Now let's hope we don't have it but let's prepare that if we do have it we know - we are ready to handle it. I think a lot of things could happen that would just make our secondary market of the two and a quarter a real problem, but there is going to be a lot of - there is going to be a lot of subscriptions re-sold immediately. But if that - they are going to work faster because they thought of Pearl Harbor when they had a premium and it just disappeared over the week end, and right on top of Singapore, if Singapore is still standing, and there is any premium in subscription, aren't they going to sell their rights? MR. ECCLES: We ought to stand ready to buy them. MR. McKEE: Well, that is-- -24- 224 MR. ECCLES: I mean, what difference if they want to sell - if it is a bill, if it is five hundred - I mean, if it is a hundred million or if it is five hundred million, it just seems to me that we have got the job to do, me have got to determine it and put it out and then go ahead. That is the way I look at it. MR. MoKEE: That is right. MR. ECCLES: I don't think there should be any-- MR. MoKEE: We have got to be prepared to meet it. H.M.JR: That is encouraging to hear you men talk like that. MR. ECCLES: After all, I don't think - I think we want to try to feel that it - but I don't feel that we want to be concerned about the financing job. It has got to be done and we have got to put ourselves to do it and I think it is just a question of when the market knows we have made up our mind that we are going to do it and at what rates we are going to do it, they can take it or leave it, and I think we are going to have & little different picture. MR. RANSOM: It is only natural that the market is trying to mix profits and patriotism in a somewhat equal degree. That is elmost an irreconciliable situation facing what this country faces today, and I think they are going to take their cue ultimately from the Treasury's attitude toward this situation, and in 80 far as the Federal Reserve can back the Treasury's attitude I think those two things together are going to make the pattern of thinking that is going to dominate this situation from now on. I think it takes courage and boldness and a definite policy. (The Secretary held a telephone conversation with Governor Young of the Federal Reserve Bank of Boston as follows:) (The Secretary held a telephone conversation with Mr. Fleming, President of the Cleveland Federal Reserve Bank as follows:) pass Regraded Unclassified 225 February 11, 1942 11:31 a.m. Governor Roy Young: Hello. HMJr: Governor Young? Y: Yes. HMJr: Morgenthau. Y: Oh, yes. HMJr: Can you hear me? Y: Yes. Can I go in another room for a minute? HMJr: Yeah. Y: It'll only take me a half a minute. HMJr: That's all right. Operator: Hello. Hello. HMJr: Yes. Operator: Just a minute, please, for Governor Young. Y: Hello. Hello. HMJr: Hello. Mr. Young. Y: Yeah. HMJr: Morgenthau. You're on a loudspeaker in my room. I wanted to tell you. Y: Yeah. HMJr: And the Open Market Committee, plus my own people, are listening. Hello. Y: Yes. HMJr: Now, would you mind telling me how you find things in your district in regard to our next financing? Regraded Unclassified 226 - 2 - Y: Well, promptly after I got your wire, Mr. Secre- tary, we got in touch with about thirty-five banks and insurance companies. HMJr: Yeah. Y: We didn't go beyond that. HMJr: Yeah. Y: The banks yesterday seemed to think about two and a quarter with the maturity in the fifties. About fifty-three to fifty-five. Now, I realize that the banks are always a little high. HMJr: Yeah. Y: Because some of the banks didn't want to go beyond three years. HMJr: I see. Y: They thought on that one and an eighth; and, of course, they always estimate a little high, too. One bank thought they might go to five per cent at one and a quarter. HMJr: Yeah. Y: And had you called me yesterday, that's what I would have said to you. HMJr: Yes. Y: Now thie news is very bad. HMJr: Yes. Y: Some of it I think was anticipated by many people; I think even if they go beyond Singapore a good deal of that is anticipated. HMJr: Yes. Y: I don't see how we're going to get any good news for some time to come, so the problem will be Regraded Unclassified 227 - 3 - with you for some - for three or four months I think. However, there is this situation. If you try to put an issue out simultaneously with bad news, even if it's anticipated, you know the public as well as I do. If on the other hand the anticipated news 1s out, and it really comes out worse than anticipated, an issue is still possible. HMJr: Yeah. Y: I think that's a reasonable line of reasoning on the whole situation. Now, I did get some intimation that they're expecting a tightening situation in New York. That I don't know about. I don't know how heavy the New York banks would go into thie. I don't know what position you can make with the Open Market Committee, or with the Federal Reserve in case this should slip somewhat. I talked with some of my associates in the bank this morning - some of those that have more to do with the market than I do. They thought I was a little unduly alarmed. It would be ex- tremely unfortunate to have it slip. Hello. HMJr: Hello. I'm here. Y: Yeah. Now 1s that reaction far away from the others? HMJr: Well, I think that possibly Chairman Eccles can talk to you best himself as to what the Open Market Committee is ready to do. Y: Yeah. HMJr: And I think that - (talks aside) wouldn't you like to say something? Marriner Eccles: Hello, Roy. Y: Yeah. E: With reference to what the Open Market would do, Regraded Unclassified 228 4 we haven't had any formal meeting; but based on the authority that the Executive Committee has and the authority that the Executive Committee has given to New York, and the general under- standing with reference to Treasury markete, it would seem to me that there would be no question whatever about the Executive Committee carrying out a buying program to whatever extent wee necessary. Y: Yeah. E: That was our attitude before, and I see no reason whatever why it should be any different now. The - certainly it would be my attitude and, ae I say, there has been no formal meeting of the Committee. Rouse - I mean, Allan and Hugh are not here today. They were here to a meeting a day or two ago, but they decided they'd prefer not to come in today unless it was necessary. Y: Well, how much am I off the location? E: Well, I think that on the - what you say about the issues, it seems to me the two and & quarter is in line; and likewise, if B. note 1e to be put out, the note seems to be in line. I would not be - you may know more about the market picture up there, but it would be my impression that the country is pretty well - has had bad news 80 continuously - that they pretty well discounted it and I think that the situation calls for some boldness on the part of the Government - God, if Britain could finance themselves when they were being raided right and left, it seems to me we shouldn't have any problem to do any financing that's necessary if we just make up our mind what we're going to do and go out and do it and give the support to the market that's necessary. Y: Well, wouldn't you have to - if this did slip, wouldn't you have to go beyond the market? E: How do you mean? Y: Well, I mean, if they're not taken. For instance, Regraded Unclassified 229 - 5 - this was what they said yesterday, and it just looked like a push-over on a two and a quarter with the maturity in the fifties. E: Yes. Fifty-two, fifty-four; fifty-three, fifty-five. T: Yeah. Now, today I would hesitate about calling them back on it. E: Yes. Y: Now, my people in the bank say I'm unduly alarmed about that: but if the thing should slip some way, shape, or manner, shouldn't go - you know how bankers are - supporting the market in another issue might not be 80 hot, and you might have to go out and ask these banks to take it with an understanding from the Federal that we'd take it off their hands at par E: We could do that if we had to. Y: after thirty days. E: That's right. Y: Now, do you think that we can announce that ahead of time? E: Well, I don't think you're going to need to. You can get this subscribed to. We always get a heavy over-subscription. It's B. question of getting it subscribed once - and once and a half or twice seems fantastic. Y: Yeah. E: I think you're going to get it subscribed. Y: I think probably we're pretty much in agreement then. E: It's a question of your secondary market. They'll take it in the first instance. There won't be any question about that. It's a question of your secondary market. Regraded Unclassified 230 - 6 - Y: Yeah. Well, I was a little skeptical about that; but I don't know, I guess I had a - I was unduly alarmed last night. E: Just a second, Roy. Y: What? E: Just a second. Just one second; hold the line. Y: Yeah. E: Your inquiry for the short-time paper, that is, the three year; that is, the note instead of the bond - has that inquiry come from the large banks in Boston and that area? Y: That's right. E: I see. Any of it come from the country? Y: Well, the country banks seem to be interested in the longer bond. E: Yes. Uh huh. Earning. Y: As far as the insurance companies are concerned, they're interested in rate rather than maturity, most of them. E: Yes. Uh huh. Y: But there seems to be a favorable reaction to two and a quarter in the fifties - that's fifty- three to fifty-five. E: Uh huh. Y: One company said they would rather see the two and three eighths at fifty-five, fifty-seven; but there's only one company that talked that way. E: Uh huh. Well, that's all I have. Just a minute. Let me see if the Secretary has anything more. That's all, Roy. Unclassified - 7 - 231 Y: Yeah. E: All right. Well, that's all. Thanks. Y: All right. Good-bye. E: Good-bye. 232 February 11, 1942 11:41 a.m. HMJr: Hello. Operator: Mr. Fleming in Cleveland. HAIR: Have the Chicago wire ready for me. Corretor: I will. 9MJr: Hello. Rr. 7. J. Pleming: Good morning, Mr. Secretary. FMJr: Hello, Mr. Fleming. You're on the loud- speeker in my room and the Open Market Com- mittee are here listening besides the Treasury people. F: Yeah. Mir: I wanted you to know. Tell me, what have you found amonget the banks? 7: They're pretty dull, shifting towards the re- opening of the two of 1949 And '51. Wr: Just say that again. F: A reopening of the two's in 1949 and '51. Made: Really? F: Yeah. Put it all in that one spot? F: Well, they are favorable to a note. MAJr: What's that? F: A note - probably one to one and a ouarter. 9XJr: Well, how would they divide it? F: Well, I had no discussion as to the percenteges, BB to the dividing of it, but they thought it Regraded Unclassified 233 - 2 - should be broken up in two pieces. HMJr: Two pieces. F: Yeah. HMJr: Does that come - you don't have any insurance companies out there, do you? F: We have one of them. We have one insurance company. Of course, they say they're three per cent minded. HMJr: Yeah. F: And they want a long maturity with a high rate, you know. HMJr: Yeah. Well, let me see whether any of the Federal Reserve people want to ask anything. How 18 the feeling toward this? I mean, do you think they'll subscribe about the regular amount? F: Yes, I do. HMJr: You do. F: Yeah. HMJr: I see. F: I think they're interested in it. I think the banks in this issue will go through all right with anything you want. HMJr: Well, thank you very much, Mr. Fleming. F: You're very welcome. HMJr: Thank you. 234 -25- MR. BELL: They have the Central Union Life out there and they want a two and three eighths '57-'59 or '59-'61. MR. ECCLES: Union Central, do you mean? Isn't that Cincinnati? MR. BELL: It is in that district. The fellow there calls me up every time we have a financing. H.M.JR: What do they want? MR. BELL: A two and three eighths, '57-'59 or '59-'61, wherever it would fit. This suggestion of re-opening the '49-'51's also came from the Travelers, you remember. They said two issues or split the amount in two, and re-open the two's for '49-'51 for seven hundred fifty and have a '61-'63. Two and a half of that amount also. H.M.JR: Well, I don't think - as far as I am concerned if we are going to do the bond I would just as lief do it two and a quarter. MR. McKEE: Would you want to do two bonds? H.MJR: No. MR. McKEE: In a bond market that hasn't really got a lot of demand. H.M.JR: No. MR. ECCLES: I think your suggestion that the two and a quarter - giving them the option of subscribing to a three year note, for instance a note - say 8. one and an eighth of & June maturity. That is three years and three months or maybe three and an eighth of October. At least get it so that it is pretty thin so that they lean toward the bond. H.M.JR: I wouldn't give them more than eight thirty- seconds. Regraded Unclassified -26- 235 MR. ECCLES: Well, if you can figure it. The trouble is something that will figure around that. I think that is right. Eight to twelve. MR. McKEE: Have you got any issues outstanding that you could -- H.M.JR: No. MR. BELL: Forty-five in September and -- MR. HADLEY: You couldn't give eight thirty-seconds on any of the outstanding ones. MR. McKEE: You couldn't? H.M.JR: They are below, aren't they? MR. HADLEY: Yes. MR. ECCLES: Where do you fellows figure a-- (The Secretary had a telephone conversation with Mr. Young, President of the Federal Reserve Bank of Chicago as follows:) Regraded Unclassified February 11, 1942 236 11:45 A.M. inspeter: Po ahead. Tollo. wello. Young speeking. E "T. Young, Morgenthau. You're on my loudsneaker and, besider the Treasury, members of the Open Yarket Committee are listening. T just thought I'd tell you. III right. 1371 For - how do you find things in - In your district? "hat yould they like to have? "ell, T have checked a - oh, probably twenty-four "ee. banks and corporations, insurance commanies, and nov, for example, the National Bank of Detroit, which to - large buyer - why, they would rather have 8 - a long term of A billion and A short tern of five hundred -1°}ion around five years. Vegin. "1th e short term. Mark. And the naturity of the two and n cuarter's about - fifty-three to fifty-five or fifty-four - fifty-six. Yeah. And the Detroit bank 18 along the Rane lines. Yeah. They probably yould be setisfied with one and A cuarter. Veah. And the First Vational of "llyaukee - - large buyer - Vy, they's rather have one 18sue st two and n cuarter accunt fifty-four - fifty-six. Regraded Unclassified February 11, 1942 236 11:45 a.m. inspetor: Co ahead. Vello. e. Vello, Young speeking. "r, Hound, "orgenthau. You're on my loudeneaker and, besides the Treasury, members of the Open "arket Committee pre listening. I just thought I'd tell you. 111 right. Nr: Toy - how do you find things in - in your district? that would they like to have? "ell, - have checked a - or, probably twenty-four Yes, banks and corporations, insurance compenies, and 30V, for example, the National Bank of Detroit, which 1" 1) large buyer - why, they vould rather have a - a long term of P billion and a short term of five hundred around five years. Yesil. "ith a short term. Yesh. And the deturity of the two and n. cuarter's About -ifty-three to fifty-five or fifty-four - fifty-six. Yoah. And the Detroit hank 10 along the game lines. Yoah. may probably would be matiefied with one and e cuarter. Yeah. And the First National of "Ilwankee - 1 large buyer - 198, they'd rather have one leave st two and à cuarter around fifty-four - fifty-six. Regraded Unclassified - 2 - 237 HMJr: I see. Y: And the Continental would rather have one issue, but the Northern Trust Company and the Harris Trust - why, of course, they are - they're sold on the - on the short only. unJr: I see. Y: And - and the City National along the same line, although they - they thought that the - the two issues would be advisable. MJr: I see. Y: Now the insurance companies that we talked to - why they feel that they would rather go into the market and buy the two's and a half now outstanding rather than to - to buy the two and a quarter's. HMJr: Yeah. Y: And I also talked to the Continental Casualty which 18 a pretty good buyer and they - they thought that - that two issues were advisable, but they would rather buy the two's and a half now outstanding. HMJr: Yeah. Y: And the Security dealers, they want two issues, and I had two suggestions from them for the shorts to have a - to open up the two's. HMJr: Yeah. Y: That was the only suggestion I had - like that. HMJr: I Bee. Y: Ah - but the - nearly all of the smaller institutions, the smaller buyers - why, they recommended two issues. But the Continental and the First Wisconsin-Milwaukee and one or two others - why, they'd rather have one - one 1ssue and to save the short term for future markets. And one or two of them would like to have a three-year one per cent, but they - they were in the minority. And, BO that's about the story, Mr. Secretary - I had twenty-four - checkings. HMJr: Fine. Well, let me ask you this: What - what will be their attitude, do you think, Friday about subscribing? Regraded Unclassified - 3 - 238 Y: Well, they - - here's what nearly all of them told me: Regardless of what the 1ssue was they were going to subscribe for the - for the - for all they could anyway. HMJr: Good for Chicago 1 Y: And, with the possible exception of one bank that said that they just - they just couldn't pass the long term HMJr: I see. Y: ..And - practically all of them said regardless of what it was, why they were going to subscribe for the - for the limit. And, of course, nearly all of them are kicking on the - they want a hundred per cent privi- lege of capital and surplus -- in practically every bank. HMJr: I see. Y: That 18 - and, of course, that's out this time, but they - they mention that practically in every - every inquiry will want to know what's going to be done about that. HMJr: I thought Bell sent that out. Y: Well, that was - no change this time. HMJr: Yeah, but the - no change? Y: No change, 88 far as the banks are concerned - they can only subscribe for fifty per cent. HMJr: But that WAS supposed to have gone out Monday. Y: Uh-huh. Well, they - - they know about that, but they - they had reference to future issues. HMJr: Oh. Oh, Y: Future issues and they all are anxious for the - for the hundred per cent privilege. HMJr: I see, Y: And We had had two that thought that maybe & ten- year bond but the ten to twelve years would be satisfactory for one 1ssue - but they would rather have the two. - 4 - 239 HMJr: I see. Y: And they thought they'd sell around a hundred one and a cuarter - most of them. HVJr: Well. Now let me see if anybody wants to ask you anything. That's a very good report; they're all satisfied. Y: Yes, and I think that, regardless of what they - what they said about the - that whatever, for example, if you'd out out one issue, why - they feel it'll go over with - one or two exceptions. HMJr: Well, I'm very much obliged to you. Y: Yeah; all right. HVJr: Thank you. Y: All right. Goodbye. Regraded Unclassified 240 -27- H.M.JR: Chicago feels better than the rest of the country. MR. ECCLES: It is farther removed. MR. BELL: Farther from Singapore. MR. ECCLES: They are closer than Boston. (Laughter) H.M.JR: Well, I don't - I think you know I decided we wouldn't do it until Friday morning. I thought we might as well have an extra day. You have been very quiet there, doctor. MR. GOLDENWEISER: I haven't anything to say, Mr. Secretary, I am well satisfied with the two and a quarter bond. If you wanted a note for your - in your cupboard for safety, I don't think that will do any harm but I think you will get your subscription and you won't have much of a secondary market. You won't have much of B. problem in the secondary market. H.M.JR: Piser? MR. PISER: Well, I would be in favor of putting the whole issue in a two and & quarter bond. I think the market will take it on its own but if not the Federal Reserve could come in and support the market, if it proved to be necessary. MR. ECCLES: Piser, let me ask you this. You wouldn't see any objection to putting out a three year note priced very close to par, say as the Secretary indicated, from eight to twelve thirty seconds, would you? MR. PISER: I think it would be better if it were not done because there might be some reaction in the market that the Treasury was scared of the market and it seems to me this is the time that you should have a bold financing policy. MR. ECCLES: Except you have got outfits like the Guaranty in New York and you have got certain other banks, as has been indicated, that won't take 8. bond and will take a short issue. Now, the question is, should you be Regraded Unclassified 241 -28- arbitrary and say to them, "You can either take this or nothing," or is it sensible to say, "Well, all right, we will give you 8. three year issue here priced very close to the market if you - if that is what you want"? Should you attempt to say within reason some of these banks that I can't personally say that - I can't feel that We should try to force them into a long-term bond. H.M.JR: That is the way I feel. That is what you (McKee) said. MR. ECCLES: And if it is their policy and their judgment they don't want to go in for twelve or fifteen, that is a long while, and they don't need the earning from the higher rate and they are willing to put their funds in to the shorter one, then why should you say that you are not going to give it to them? H.M.JR: There is one thing I just said to McKee. Supposing the thing goes sour and they say, "Well, we told Morgenthau we would go for a note, but by gosh he wouldn't give us one, he was stubborn and he wanted a bond." Now, if we give them a note, it is there. I would be surprised if we sold B. hundred million of them but atleast, again, these people can't say that we are trying to force something down their throat. MR. EOCLES: I wouldn't like to see it divided so that you put a billion of one and five hundred of the other. I don't like that. I like to put the billion and 8. half with the option to - but the option to take the note is as unfavorable as you can make it. H.M.JR: You and I agree. I don't want to divide it up. It is there for anybody that wants it. MR. McKEE: Well, what is the harm in having all kinds of goods on the shelf? I can't be very much impressed with that. The A & P has done a pretty good job selling all kinds of soap. MR. ECCLES: Would you mind using another example? (Laughter) Regraded Unclassified 242 -23- MR. HAAS: A cafeteria. Help yourself. H.M.JR: Could I leave you with this impression, and call you up again, maybe between three and four, I take it that you people have no objections, as of this morning, if we want to go ahead with B. two and a quarter with an option of a note with eight to twelve thirty-seconds, and I take it if we do something like that you people are ready to stand behind us a hundred and one percent. MR. RANSOM: We will stand behind you regardless of what you do. H.M.JR: Well, I know, but it is just as nice to stand behind something that you like. MR. McKEE: I don't know how Ronald feels, but that is agreeable to me. MR. ECCLES: It looks all right to me. H.M.JR: How about it? MR. RANSOM: If that is your decision, yes. I would personally prefer to see you do it in the bond. I think it would go all right but it is a rather close decision and if you, in the light of your survey, of this market, think that to give them an option will help your situation, then I don't think it is anything about which we should object. H.M.JR: But you people are agreeable to the note, aren't you? MR. McKEE: Yes, I am. H.M.JR: And you are, Marriner? MR. ECCLES: Yes, I am agreeable. MR. McKEE: As long as you don't allocate any certain amount to it. Regraded Unclassified -30- 243 H.M.JR: I won't. MR. ECCLES: The way I look at it, market financing must depend upon the banks to a very large extent 8.8 underwriters. Now, if you have got a lot of the banks, quite a substantial number of them, that say, we are not willing to go in and take a long bond but we are willing to take a note, then it seems to me that it would be rather arbitrary and possibly a mistake in policy to not bring those banks in that are willing to take this short note, especially if we don't make it - if we make it unfavorable, as unfavorable as you can. H.M.JR: Well, supposing we wait. What time will this market close, around four? MR. HADLEY: Four o'clock. H.M.JR: In the neighborhood of four I would like to call you people up and we will keep open. My mind is open. MR. ECCLES: Ronald, are you free at four? MR. RANSOM: Yes. MR. ECCLES: John? MR. McKEE: Yes. MR. ECCLES: Let's do this. We will arrange to be together. H.M.JR: I will call you sharp at four. MR. ECCLES: We will be together. MR. McKEE: Does that mean you are going to announce it tonight? H.M.JR: Oh, no but-- MR. BELL: Well, we do intend to send the information do we not, to Regraded Unclassified 244 -31- the banks tonight but to hold it for release-- H.M.JR: Until Friday morning. MR. BELL: That is, tomorrow afternoon, we will tell them to go ahead and mail it out to the banks. to release Friday morning. MR. ECCLES: When will you release it to the market? MR. BELL: Friday morning. Regraded Unclassified 245 2/11/42 Handed to the Secretary by Mr. Eccles today. WHE 246 CONFIDENTIAL October 7, 1941 FINANCING PROGRAM In view of the enormous amount of financing that the Treasury will have to do in the next. few years, it is essential to formulate as soon 1.2 possible a long-time policy in regard to the character of the debt. structure that it is proposed to build and the interest rates at which the funds should be obtained. Monetery policy, at this time, is closely related to and de- pendent on the financing policy of the Treasury. Both should be related to the Government's general program to fight inflation. By itself mone- tery action cen accomolish little, but it can play an important part in a general program pursued by the Government in all fields. The following observations are presented for consideration with a view to having the method of Treasury financing contribute to the schievement of the general objective of preventing infletion. In the long run it will not be in the public interest, and con- sequently not in the interest of the Treasury, which represents the public, to obtain funds at rates so low as to lead to serious consequences in other fields. A rate on open-market offerings that is too low will have the effect of discouraging purchases by individuals, insurance commanies, trusts, endorments, and educational and philanthropic institutions. They will suffer from the low rates on their holdings of Government's and will tend to seek outlete in other securities or to hold their funds idle. On the other hand, binks, having a large supply of idle funds, will tend to buy more Government Regraded Unclassified 247 -2- securities in order to make up in volume of holdings for the decline in rates and to maintain earnings at a level sufficient to meet expenses and dividends. Allowing rates to go too low, therefore, would work against the purpose of the Treasury to finance the maximum possible amount of its requirements through sales of securities to others than commercial banks: as the rate goes down others will buy less and banks will buy more Government securities. Such purchases will swell the already ex- cessive volume of deposits. The deposits so created will, in turn, add to the buying power pressing on the limited amount of goods available. They will be an inflationary factor. Except for the fact that sales of securities to banks require interest payments and do not increase but rather utilize bank reserves, the process of financing defense or war through the sale of Government obligations to the banks has the same economic effects as financing through the printing press. In either case fiscal needs are met by the creation of new money rather than by the use of money already in existence. Both courses of action are inflationary. Experience shows that inflation, aside from its other economic, financial and social consequences, results in a rapid rise in interest rates. Every inflation in history has been accompanied by high, sometimes by fantastic rates of interest. When the value of money is shrinking, when the amount of goods a dollar will buy is declining, holders of money are eager to exchange it for land or goods, but are reluctant to lend it, for Regraded Unclassified 248 -3- fear that the buying power of the principal will decline. Others are eager to borrow in order to convert the proceeds into real values. When lenders are reluctant and borrowers eager, a rise in interest rates is inevitable. The extraordinarily low yields that prevail in the market this sutum were brought about largely by bank purchases and could probably not be sustained without continued large-scale bank participation. To capitalize on the present low level of long-time yields would tend to continue the spiral of lower rates, more bank purchases, more money, still lower rates, and ultimately, as inflation progresses, a sharp rise in rates and & severe drop in the price of all fixed interest- bearing obligations, including Government securities. A saving of interest to the Treasury from a further low- ering of the coupon rate on long bonda to be issued now, therefore, would be only & temporary saving which would in all probability result in greater difficulties and much higher costs for Treasury financing in the not too distant future. It would also increase the risk of subject- ing the country to other consequences of inflation. On the other hand, the selection now of a sustainable rate to constitute the core of a pattern of rates would stabilize the situation, facilitate the development of a program of credit control, and help to avoid grave difficulties in months and years to come. Regraded Unclassified 249 February 11, 1942 12:06 p.m. Mr: Hello. Allon Soroul: Hello, Mr. Secretary. (XJr: Bell's here with me. in Yeah. -VJr: The other peoble have left. Whet'e your thought now? 1: Well, I've asked Mr. Rouse to tell you what we think of the idea on open end issues - two issues - from the market's standpoint. EXJr: Go ahead. Sobert Rouse: Well, it seems to me that it just emphasizes what Allen said earlier of being a billion and A half afraid. And then mechanically HWr: When it's bad news, Soroul lete Rouse tell me, huh? 3: (Laughs) 9: (Laughs) R: Well, I raised the ouestion right at the start of the mechanical difficulties involved. Yeah. R: And you take subscriptions for both, people would be subscribing to a blind pool and they wouldn't know where they'd come out. You could have no trading after the books closed until the allotments were announced eo people knew where they stood. It seems to me to be an almost impossible situation that would be created from the standpoint of the market, and at this point en innovation of that kind I think would be more disturbing than com- forting. Regraded Unclassified 250 - 2 - HMJr: Well, now, the two out of the three members of the Fed liked it, the Open Market Committee. R: Well, I don't know - - offhand, it may seem like a good idea until you get to the mechanics and see what the effect 1s. I'm not sure that they would understand how the mechanics would work. How does Dan feel about it? HMJr: Wait 8. minute. Daniel Bell: Hello. R: Hello, Dan. B: We have no difficulties here, Bob, in working out the mechanical end of it; but I had some misgivings about the same point you raise. But I think we could give the market on Saturday morning, say, approximately the basis of allot- ment. Now, would that be soon enough? R: Well, could you spell it all out in extension with the offering as to how it would be handled? B: Oh, yes. We'd say that we'd offer a billion and a half dollars of Treasury notes and Treasury bonds, and that the amount of each issue will be determined in proportion to the subscriptions received for each as related to the total offering. We did that in 1930 on an eight hundred million dollar issue of certificates - two certificate issues. R: And you could get out Bome preliminary figures Saturday morning which would be close enough to give the market something to go on. B: That's right. Of course, we couldn't get the mail stuff that came in midnight that night. R: No. B: I don't know why - we'd probably miss it some, too. We certainly could have it out by Monday. Probably wouldn't be much trading. 251 - 3 - R: We ought to have it Monday. B: We could have it Monday, because Saturday at noon we have pretty accurate figures on the total subscriptions and we could say then that the note - the amount of the note will be in the neighborhood of four hundred million, and the amount of the bond can be a billion one, if that's what it turns out. R: And on the basis of your announcement of Monday, people could subscribe the limit on each. B: No. The books would be closed then. R: No. You announced last Monday that the same rules would apply that applied in December. B: Yeah. R: Whichis that if B. bank had a limit of ten billion subscription, it could subscribe ten million for each. B: Yeah, that's right. They could subscribe on each issue on the basis of that formula sent out Monday. R: And your basis of allotment would be in pro- portion to the amount subscribed. In other words, you wouldn't reduce in advance your base of allotment to sell more of one issue than the other out of proportion to the sub- scription. B: No. We got four billion subscriptions in bonds and two billion subscriptions in notes; we'd give a billion dollars in bonds and five hundred million in notes. R: Yeah. B: Two thirds and one third. R: Well, I should say that if you could get out 252 4 a reasonably accurate forecast on Saturday, it would meet the objections to the market situation. B: We can have it out just as soon as we have the final reports in, and I should say they ought to be in here around between eleven and twelve. We could give out preliminary the night before, but of course we wouldn't have the mail reports. R: No. They're not B: I mean, we have some big mail reports. R: You get some big mail reports, and they're not usually available even here and the same time that you are until pretty close to eleven o'clock. B: Yeah. Well, I say, we usually get our reports between - around twelve o'clock the next day. We certainly could have them out by Monday morning, and there isn't much of a market Saturday anyhow; and I'm wondering what harm would be done Saturday morning if there isn't any trading in them. R: Well, there normally is no trading on Saturday, but with the books closed Saturday night there'd be trading, and we've had a good deal of pressure by the dealers coming to us and suggesting that the market be kept open and some suggested until one o'clock, and some until four. We've taken the position that it should be just a normal day's trading - start at ten, close at twelve. B: Uh huh. R: That there shouldn't be anything unusual about it on the general theory it will just facilitate the subscription dealer, the fellow who's trying to sell subscriptions B: And he can take a vacation on this Saturday. R: more than those that are buyers of sub- scriptions. 253 - 5 - B: Yeah. R: The first morning. B: Well, do you think that much harm would be done if we got it to you by opening of business Monday? We can get it to you Saturday, but the market would probably be closed. R: Well, the harm 1e done on Friday when people don't know how to subscribe. - they don't know how to make their calculations and it would tend to throw - to be safe - to throw the sub- scription to the note, which is what you don't want. B: No, I don't get that. R: Well, they'd rather play safe - they could go the limit on the note and there'd be no harm done, and they probably would tend to - they might tend to cut down their subscriptions to the bond because of the uncertainty. B: Then we'd give them more bonds. R: Give those that subscribe more bonds. B: Yeah. R: Then there are always some who would figure that just that would happen and subscribe for more bonds than they wanted and get caught on B. bigger allotment base. The whole thing, I know, 1s bound to be confusing to the market. It's always notable how little comprehension and understanding of a thing of this sort there is on their part. The country banks don't under- stand, and they don't know how to do it. The banks don't understand even the simplest instructions. It's surprising the amount of error we have, and you've seen that yourself, of course, in a good many fielde in dealing with the banks. B: The Secretary wants to talk to you. HMJr: Hello. R: Yes. 254 - 6 - HMJr! I've got no objection if you want to try it out on a few people. Hello. R: Yes. HMJr: Why don't you try it out on a few people. S: All right, we'll do that. I think we'll probably get no great help from them in rights. HMJr: Well, the only thing is they might be able to understand it better than you think. R: (Laughs) Well, it can't do any harm. We can try it. HMJr: Try it out. R: All right, we'll do that. HMJr: Why don't you try it out. R: All right, we'll try it. HMJr: Well, now let me ask you this. Let's say that these fellows don't understand these things. I thought I might do this and then be known as the greatest Secretary of the Treasury since Ogden Mills. R: (Laughs) 8: (Laughs) HMJr: Because he did it. Evidently - and did it successfully. So - well, let's say we don't. Then what do you advise? S: Could you put out a billion at two and a quarter and then five hundred million in a note? HMJr: No, that's what I don't want to do. S: That, you think, puts a price on your uncertainty. HMJr: Yes. That's where you and I differ. S: Yeah. Regraded Unclassified 255 - 7 - HMJr: That puts a label on my uncertainty. 8: Yeah. Well, we'll HMJr: No. I think if I can't do it my way - or rather, I don't want to say my way, the way I suggest - then I think I'll put all my money on the - what is it when you just place to win, what 1s 1t, on the nose? 8: On the nose, yeah. HMJr: On the nose. S: Yeah. HMJr: On the nose. Yeah, I'll put it all on the two and a quarter. 8: Yeah. HMJr: Not to place. S: Yeah. HMJr: Is that correct? What is place? S: Place is HMJr: Second. 8: Second, yeah. HMJr: Well, that's right. This - what I'm suggesting 1s putting my bet place, you see, you give 8. fellow a first and second choice. S: Well, we'll..... HMJr: You think it over, and I'll be calling you up, oh, around three o'clock, somewhere around there. S: And we'll check that over meanwhile with a few people, and see if they react favorably or un- favorably or with confusion. HMJr: But I just went under the - if it's good enough Regraded Unclassified - 8 - 256 for Ogden Mills, it ought to be good enough for me. 8: (Laughs) Yeah. You have a bigger problem than he ever had. HMJr: That's right. That's right. And he died. 8: Well, we won't go into that. HMJr: All right. 8: All right. HMJr: Okay. Regraded Unclassified 257 February 11, 1942 12:18 p.m. HMJr: Hello. Operator: Buffington. HMJr: Hello. George. George Buffington: Yes, sir. HMJr: I can't remember whether I asked you to pre- pare a little booklet of the good reviews. I don't mean like just a photograph of Donald Duck, but the criticisms - like the one in the Tribune? B: Yes, sir. HMJr: Have you got one for each member of the Com- mittee? B: I have it in preparation, but I haven't it finished yet, Mr. Secretary. HMJr: When will it be finished? B: I think I can get it this evening - this after- noon. HMJr: No, no, no, no. It's got to be up here by two-thirty with a letter from me to each member saying, "My dear Senator Glass, I'm sending you, enclosed herewith, copies of some of the reviews in the newspaper B: All right, sir. HMJr: of "The New Spirit'". B: All right, sir. HMJr: And I want that - plus a complete set - they can do it down there in the B: Photostatic. HMJr: Yes. And I want it up here by two-thirty with Regraded Unclassified 258 - 2 - a letter from me, and I'll sign one and send one up by messenger by hand to each of these people. B: All right, sir. HMJr: But it's got to be up here by two-thirty. B: Yes, sir. HMJr: I think I asked you this yesterday. B: You did, Mr. Secretary. HMJr: Well, they ought to - - they can turn that out down there. B: All right, sir. HMJr: And if you - just get busy and have the letter just along those lines, and then we'll send them up by hand to each member of the Finance Committee, starting with Carter Glass. B: Yes, sir. HMJr: And I want it by two-thirty. B: All right, Mr. Secretary. HMJr: Thank you. Hello. B: Yes, sir. HMJr: Show the letter to Kuhn before you have it typed. B: Yes, sir. HMJr: Thank you. 259 February 11, 2.942 12:20 p.m. HMJr: Hello. Gov. Roy A. Young: Hello, Mr. Secretary. HMJr: Yeah. You've got me alone, now. Y: Well, when I talked with you before there happened to be a banker in my office. HMJr: Yes. Y: That's why I excused myself to go in another room. HMJr: That's all right. Y: He was the man that I didn't talk to yesterday because he happened to be in New York. HMJr: Yes. Y: He's awfully conservative, and I sounded him out on it a little bit, which I could HMJr: Yes. Y: better than some of those that I talked to yesterday. HMJr: Yes. Y: As near as I can figure out, even the most con- servative are reconciled to the bad news - even worse than they anticipate. HMJr: Yes. Y: And he said that his institution had made up its mind that it had to go ahead and do every- thing it could and everything that was requested of it, even to 8. point of reducing the dividends if not outting them out entirely. HMJr: Right. Regraded Unclassified 260 - 2 - Y: Now, in addition to that, I talked to another very conservative banker and the attitude seemed to be pretty much the same; BO I guess that maybe the impression of my associates this morning is a little better than my own. HMJr: I see. Y: I think that. HMJr: Hello. Y: I assume you have in mind a split issue now. HMJr: Not necessarily. Y: Uh huh. HMJr: Not necessarily. Y: I see. HMJr: But we're working on it. Y: Yeah. Well, I think some of them have that in mind. HMJr: Yeah. Well, thank you very much for calling back. Y: Yeah. HMJr: Thank you. Y: Well, I thought you'd like to get the expression of these two other men after this bad news is out and everything. HMJr: Yes. It's very helpful. Y: Yeah. HMJr: Thank you. Y: All right. 261 February 11, 1942 12:36 p.m. HMJr: Hello. Secretary Stimson: Hello, Henry. I was sorry that - took that minute. I couldn't wait. HMJr: That's all right. 8: But now I can - do you want to speak to me about the same matter as yesterday? HMJr: If you please. S: Well, of course, the situation 18 bad and is deteriorating very rapidly. HMJr: Yes. S: I just spoke to Marshall about it, and put to him the answer that I gave you yesterday that I thought it wouldn't break before Friday. HMJr: Yes. S: And he thinks I'm right still, although the things are deteriorating rather more rapidly than I thought yesterday. HMJr: No. You see, my financing 18 on Friday. We go to the country for a billion and a half on Friday. 8: Yes. I see. HMJr: And they have up until midnight Friday night. S: Yes. HMJr: So Friday's the day. 8: Yes. Well, that'll be a pretty bad day. We have word that they're running tanks over the causeway. HMJr: Good heavens! S: Yeah. 262 - 2 - HMJr: Good heavens! B: But..... HMJr: I don't announce it B: .....it'e going faster than I thought yesterday. HMJr: They're running tanks over the causeway? 8: Yeah. HMJr: Looks bad. Well, it doesn't go out of the Treasury until four o'clock tomorrow. We hold it until four o'clock tomorrow. So I think I'll call you up just before that, if I may. 8: Yes. HMJr: What? 8: Yes. HMJr: I've got until four o'clock tomorrow. S: Well, I'll be right on the - up to date with the news. There's a little - I don't always get those messages quite 86 close as that. HMJr: Well, I mean, supposing I call you an hour in advance - tell your secretary I'm going to call up within an hour. Is that all right? S: Yes. HMJr: What? S: Yes. HMJr: But I meant, I have until four o'clock. S: All right. HMJr: Ie that pressing you too hard? S: Oh, no. It 1en't pressing me. I was only considering whether I would have the up-to-the- date newa on the moment, but I'll try to. Regraded Unclassified 263 - 3 - HMJr: Well..... S: You see, we don't get it - it isn't like having it happening in the next state. HMJr: No, I know. But if you tell me that the tanks are running over the causeway, I can use my own imagination. S: Yes. Yes, they've made - the Japanese have made one of the most astonishingly good operations that military history in recent times have fought. HMJr: The Japanese have. S: Yes, the Japanese have. HMJr: Yes. 8: In getting across as they did that strait the way they did and with the speed they did. HMJr: Yeah. S: And they're doing a very good job of it. HMJr: Yeah. 8: And I heard this morning that Wavell had thrown up there - evidently he regarded it as critical. HMJr: Yeah. S: My only fear is that he may not get out. HMJr: I 600. S: And - now the latest news that Marshall gave me was that, as I say, they were going over the causeway pretty fast. HMJr: Uh huh. Well, I'll be calling you, and I'll let your secretary give you an hour's notice. S: Yes. Of course, you'll keep these things to yourself - the details. Just take - use your 264 4 own judgment. HMJr: There are no leaks out of my office. 8: That's right. HMJr: There haven't been yet. I'm knocking wood when I say that. 5: That's a good plan. HMJr: No, there have been no leaks in nine years. S: Well, that's a..... HMJr: It may be more luck than brains. S: Well, I'm trying to help you on this thing, because I realize how important it 18 to you. I've given you everything that I know. HMJr: The thing that bothers me 18 that there's been only one institution 80 far has said, "Well, if Singapore falls on Friday, we'll buy more than we would normally." S: Yes. HMJr: In other words, the spirit has not yet got around that I hope for. S: Only one has said that. HMJr: Only one. 8: Well, they ought to buy more. HMJr: of course they should. S: Because it's - it means that we've got to make a real totalitarian effort. HMJr: Well S: And HMJr: they haven't let me down yet, and - 265 - 5 - but I Just want all the information BO I have all the tools available, because the President relies on me on this entirely, and I don't even bother him with it. S: Yes. HMJr: I mean, I don't bother him with these at all. S: Well, the..... HMJr: So with me it's sink or swim. 8: The picture is sombre in a great many ways. The picture 16 sombre, as you know, in Libya and it's having its effect in the European nations, like France, and the situation has darkened up. HMJr: Yeah. 8: But the outstanding things still remain, and Russia has made a very surprising comeback. In the reports - the reports, for instance, that I got this morning were that the Germans were showing - way up from Finland there came a report that the Germans were in pretty desperate straits there. They showed it, I mean; and there comes in other reports that they've taken out of France all - the only troops they've got there are certain of the poorer type. HMJr: Yeah. S: Things like that. But there's going to be a period of - from now on - of enemy successes, undoubtedly, in these fields. HMJr: Well, I told T. V. Soong last night - I saw him out for dinner - that I hoped that we can take bad news as well as the Chinese have for four and a half years. 8: Well, you bet. They're doing mighty well. HMJr: Wonderful. Regraded Unclassified - 6 - 266 S: And the thing that I haven't told - well, you heard me mention it before the House Committee there..... HMJr: Yeah. S: ..... the man 18 off and..... HMJr: Good. S: the staff..... HMJr: Good. S: .....and I - well, we're moving I tell you - give you this idea - we're playing safe in our - we see 80 much difficulty in the Indies, we're playing the bases which I've always thought we'd have to fall back on in Australia and in India. HMJr: I see. S: And we're concentrating our forces there. HMJr: Yeah. 8: Although we're still fighting hard to hold the Indies as far as we can. HMJr: How are these four-engine bombers getting through? 8: Why, the trouble has been that - they get through all right, but they haven't been handled right over there. HMJr: I see. 8: And we've had to take a big percentage of losses being caught on the ground. HMJr: For heaven's sake. 8: And - oh, it's been sickening to me. HMJr: Yeah. 8: But for that reason - I mean, the Japanese came 267 7 through so fast..... HMJr: Yeah. 8: that our people didn't adapt themselves to what they should have. They ran them up to bases that were too close to the front, and, of course, they can be bashed up on the ground just as easy as any other place. HMJr: Yeah. S: And they have lost quite a lot that way. For that reason, we're not going to put any in now, and they've set them pretty well back. HMJr: I see. 8: And until we have a big group - big groups in each place - when they do move, they'll move with force. The great thing about air - and, of course, it's all moving 80 that - everybody's learning - that the great thing is that - 1s to get it in masses, and then it's enormous advantage of being able to swarm quickly en masse HMJr: Yeah. 8: counts like the devil. HMJr: Yeah. 8: The Germans know that, and they've been doing it. HMJr: Yeah. 8: And other people don't. HMJr: Yeah. S: The British have been on the shoestring right along. HMJr: Yeah. 268 - 8 - 8: And we've been pretty much on the shoestring, because we've been trying to help them. HMJr: Yeah. S: And in this case in the Far East, we've suffered very badly from it. HMJr: Yeah. S: It's been very expensive. But wherever they've got into action, they've done mighty well. HMJr: Yeah. Well, sir, thank you. I'll take the liberty of calling again. S: Sure. HMJr: Thank you. Don't worry about..... 269 February 11, 1942 2:30 p.m. FINANCING Present: Mr. Bell Mr. Murphy Mr. Hadley Mr. Haas Mrs. Klotz H.M.JR: Dan, your sheet is as good as any to see where this damnstuff will drop. Have you got your sheet? MR. BELL: I can get it in a second. H.M.JR: Which is the last one? MR. BELL: Isn't this it right here? Is this the last one? MR. HADLEY: Yes. MR. BELL: June 15, '52-'54 issue. Right here, see. That is your first issue, June 15, '52, right there. This is a vacant date, and there is where it will be called. H.M.JR: I see. MR. BELL: Right there, at six eighty one. That is a '54-156 bond, you see. This is a '53-'55. That is vacant, and then you have got two-- H.M.JR: Now, just one second, please. I just wanted to see what the difference is. Regraded Unclassified 270 - 2 - MR. BELL: It is down three thirty-seconds. MR. HADLEY: I moved it up on the basis that it wouldn't be & billion and a half issue. H.M.JR: Did you all move them up on that basis? MR. BELL: Anyhow, it would be from four to eight points premium, four to eight thirty-seconds. H.M.JR: That isn't enough. You are not giving me enough gravy. MR. HADLEY: You can't get any more than that. If you try harder, you will get less. H.M.JR: How do you mean? MR. HADLEY: You will scare the market if you make it too short. MR. BELL: No. MR. HADLEY: About a point premium is what you can expect on most of those issues, and if you back back of June 25, you will land on top of an outstanding issue. If you back back to December '51, you will land on top of another, and it won't be as good as if you move out farther. H.M.JR: What about the '52-'55? Where would that be? MR. BELL: That would be June. H.M.JR: June '52, yes. MR. BELL: Same place as the other one. That would go from there down to here (indicating on table). H.M.JR: He has got one '52 and the other is a '54. MR. BELL: There is a little difference in the price, you see. 271 - 3 - H.M.JR: O.K. MR. BELL: Here are the notes. These are the only vacant spots in the noties. There is June 1945 and-- H.M.JR: We have got one in there. MR. BELL: No, the bonds come in there, '46-'48. H.M.JR: What have you got in March? MR. BELL: Five hundred three million in the notes and four hundred eighty-nine million of the bonds. H.M.JR: What have you got in '47? MR. BELL: You can't go over the five year. H.M.JR: How about back in here? MR. BELL: Yes, you can make it September - - December or September, '46. They are both vacant. H.M.JR: What about December '46? MR. BELL: That is four years and ten months, one and three-eights. H.M.JR: On the one and a quarter. MR. BELL: That would be September. H.M.JR: What about that. MR. BELL: That is vacant. H.M.JR: That is about right. (Mrs. Klotz left the conference.) MR. BELL: Have you talked to New York on it? H.M.JR: No, I am going to do it now. While we are Regraded Unclassified 272 - 4 - waiting, how do you - George, how do you feel about the mechanics of this thing, of making it optional? MR. HAAS: I am afraid of it. H.M.JR: Why? MR. HAAS: I think on one side there will be uncertainty as to what the people's allotments will be and on the other side the banks will probably subscribe to the full amount in each issue, and you will get & lot more in the note than you like. H.M.JR: Where do you stand? MR. HAAS: I would stand - I think over the period - I mean this war period on it, I think you will improve your situation by putting out the two and a quarter all in one issue and depend on the Federal Reserve as your anchor and be prepared to have to use it. H.M.JR: It is a hell of an anchor. MR. HAAS: Well, I think your - this anchor business isn't so good, Mr. Secretary. I think it is a little - if you price that note, then your anchor will sink before the - probably before the bond, in case something happens and it doesn't work as well on a cash deal as it does on a refunding. It is all over in & day. MR. BELL: If you have an insurance company that would ordinarily subscribe for two hundred million of bonds, it might they might say, "Well, we don't know how many of these bonds we are going to get, so we had better cut our subscriptions to fit our cash," and you might have that subscription cut way down to thirty or fifty million. H.M.JR: At four years and four months, that is & vacant spot, isn't it, June? MR. BELL: No, you have got two bonds in there that Regraded Unclassified 273 - 5 - are callable, see. Those two bonds are in that same area. H.M.JR: Oh, yes. MR. HADLEY: It is vacant as far as notes are con- cerned, but not bonds. MR. BELL: They are three and three eights percent bonds aren't they? MR. HADLEY: Yes. H.M.JR: Is that the first call date? MR. BELL: Yes. H.M.JR: That is 8. little thin, isn't it? MR. BELL: Yes. MR. HADLEY: Especially when you are getting out on the end there, and you are not too sure of the estimates. If you were going to do this, I would prefer the three years, one month, one percent issue, March '45. MR. BELL: How about June '45? That is an open date. MR. HADLEY: Well, there again that might be six, and it might only be three or four thirty-seconds. H.M.JR: Well, three years is too little. (The Secretary held & telephone conversation with Mr. Sproul and Mr. Rouse as follows:) Regraded Unclassified 274 February 11, 1942 2:45 p.m. Operator: Go ahead. HMJr: Hello. Mr. Allan Sproul: Hello, Mr. Secretary. HMJr: Well, where do you gentlemen stand after lunch now on this? S: Well, we've talked to some people from the market and have confirmed our own views. HMJr: I see. S: It - it would be another element of uncertainty in the market; it would make people doubtful as to the amount of their allotments, and therefore probably cautious on their subscriptions to give them a couple of open-end issues. HMJr: I see. Well, then - what - what do you - if you had the responsibility of writing the terms, what kind of a ticket would you give me? S: I'd give you a billion on a two and & quarter per cent bond and half a billion on a note - either one and an eighth on June forty-five, say, or one and one- quarter out a little further. HMJr: Well, wait a minute now, Let's do the bonds first. Which S: I think that 8 billion on the - on the two and a quarter per cent bond of fifty-three/five. HMJr: Fifty-three/five - due when? 8: March. HMJr: March. And how much cushion is that? S: How much what? HMJr: How much cushion? 8: Well, that would be HMJr: What would that total? Regraded Unclassified - 2 - 275 S: Well, that would be anywhere from eighteen thirty- seconds to 8 point, I should say. HMJr: Is that all? - 8: Yesh. HMJr: Not enough, I don't think. S: Well, I think you'd have & good market for it and - and it would probably be toward the upper rather than the lower side. HMJr: You say from eighteen to what? S: To & point. HMJr: To a point. S: Yeah. HMJr: Let me see what we have. 8: That - I - I say that on the basis that I think this market in there has gone down on very little since the first announcement of your financing and ought to be - that the deoline ought to be discounted a bit. HMJr: Well, our boys give it & - from thirty - thirty-two thirty-seconds to a point four thirty-seconds. S: That 1e a - fifty-three/five? HMJr: Yeah. Mr. Robert Rouse: Well, based on markets as they were, I think that that's right. They've gone down fairly sharply the last few days, as you know. HMJr: Uh-huh. R: About three-quarters of a point on the fifty-two/four's, for example. HMJr: This was written at noon. R: As far as we can figure it, it - - the fifty-three/five looked like it might possibly be a little lower than that, but we didn't think that was the real market. We think nearer the top figure that Allan mentioned. Regraded Unclassified - 3 - 276 HMJr: Uh-huh. To a point. Well - R: To a point - yeah. HMJr: Just 8 moment. will you hold on a minute? R: Yeah. (Secy. speaks aside to Henry Murphy.) HMJr: What do you think, Henry? Murphy: I wouldn't like to go beyond fifty-two, fifty-four, June. We have that figured for a point. - for par thirty-one on the assumption that the whole issue would go into it. Maybe that would be a little over a point, if only a billion went into it, but I wouldn't like to go beyond June. I wouldn't be - unless your boldness in going out there, which 18 a high factor to Discount, results in pulling the market along with you, I would say that you should get nearer the lower end of Mr. Sproul's range than the higher on the fifty-three, fifty-five. HVJr: You are for fifty-two, fifty-four? Murphy: Yes. HMJr: (On phone) Henry Murphy 18 for a fifty-two, fifty- four. Hello. 8: Oh, yeah. What month? HVJr: (To Murphy) What month? Murphy: June. S: Well, my own opinion 18 that you don't have to - for a billion you don't have to go back that far - you could do it for March fifty-three/five and have a good market. HMJr: Well - that's - anybody who's down here - I'm just looking over - Knight of Continental said fifty- three, fifty-five for a billion end a half. S: Yeah. HMJr: Discount was fifty-three, fifty-five for a billion and a half. Devine fifty-three, fifty-five; billion and a half. Regraded Unclassified - 4 277 Well, I'd go..... S: HMJr: I - I don't see any fifty-two, fifty-four's. S: Well, I'd certainly, for & billion would go fifty- three, five. HMJr: You would? S: Yeah. HVJr: Just a moment. (Murphy speaks from aside to Secy.) Murphy: Mr. Secretary, the market has changed since you talked with Devine. We would have been fifty-three, fifty-five then. HMJr: (On phone.) Have you talked with Devine or Discount today? S: We talked to both of them. HMJr: What did they say? S: Why, they said - we talked to them about this possible type of issue, injecting that into a discussion of the whole financing 80 as not to make it too pointed - they reflected what I already told you on that - and they would go for fifty-three, five on a billion of two and a cuarter. HMJr: Uh-huh. S: And they'd go fora note of about the maturity and coupon I mentioned. HMJr: Yeah, well, the note - what was the note that you mentioned? S: I said one and an eighth for June forty-five or a one and a quarter if you go out beyond that. HMJr: One and an eighth. Just a minute. One and an eighth - June forty-five? S: Yes, Discount said one and & quarter for June forty- five, but I think that would be a little rich myself. HMJr: Well, give me something further out. S: Out five years? Regraded Unclassified - 5 - 278 HMJr: Well, yeah . - now. 8: Or one and three-eighths out to September forty-six. HVJr: or - S: But don't - we don't think that's a very good place to stick a note. HMJr: You don't? S: When you get out to five years it figures out one and a half. HMJr: How about December fifteen, forty-six? S: Well, you'd have to - that'd be between one and three- eighths and one and a half. I'd better let Mr. Rouse answer on that. R: Oh, I think that would have to be one and a half. HMJr: Oh. 8: See, Mr. Secretary, the relationship there with the two's at forty-eight/fifty and the March one's of forty-six nominally at par one per cent, there's too big a discrepancy in that period. HMJr: I see. S: And there's got to be an adjustment there sooner or later. HMJr: Yeah. S: And today to do a note offering there, you'd have to discount that fully, and the query 18 iseven whether one and a half per cent does it. HMJr: Well, give me something long in a June forty-five. What have you got? 3: Well, I think the September maturity there - how would that be - another three months? HMJr: And what - what coupon? S: I'd go to one and a quarter there. HMJr: You would. Well, that isn't long enough to make it interesting. Regraded Unclassified - 6 - 279 S: Well, it's - it normally isn't - but your one and an eighth 18 not rich at all. At June forty-five it's all right. HMJr: Well, how - how - what do you figure it? 8: It works out, I think, about half a point to eighteen. HMJr: Half a point. S: At ninety-five - I have - ninety-five one-hundredths to one per cent should be the range. HMJr: Well, that's rich enough, isn't it? S: I think that June forty-five one and one-eghth fite the bill best myself. HMJr: You do? S: Yeah. HMJr: Just a minute. (Talks aside.) Well, I'll be back again not too long off. Have you - have you said anything to the Fed? R: No, we have not. HMJr: Tell you what you might do to be saving me wear and tear. Why don't you call up - unless you'd rather not - would you call up Ecoles and tell him what R: I think it'd be better if you would call him, if you, HMJr: I'll - I'll S: have the time and the wear and tear. (Laughs.) HMJr: I've got the wear and tear. I'm all right. S: All right, HMJr: Okay. 8: I HMJr: I'll be calling you back. Do you want 8: He usually feels that we're short-circuiting him if we call him. HMJr: I'll call him. S: All right. HMJr: Okay. Regraded Unclassified 280 - 6 - MR. BELL: We were just thinking. A six year bond would be just over the note area, March '47. H.M.JR: What would we have to pay there? MR. BELL: About one and three quarters. MR. HADLEY: That is paying too much and not getting out far enough. My first preference is still & - one two and a quarter issue for the whole works. H.M.JR: One what? MR. HADLEY: One issue of two and 8. quarter for the works. H.M.JR: That is your preference? MR. HADLEY: That is my first preference. The second one would be the billion in the two and & quarter and five hundred million in the note. H.M.JR: How about you? MR. MURPHY: My personal preference-- H.M.JR: Where is Dave Morris? MR. BELL: I meant to ask you when you came in why he wasn't on your list. H.M.JR: What? MR. MURPHY: I would prefer it all in the two and a quarter at the present time, June '52-'54. H.M.JR: George? MR. HAAS: That would be my preference too, Mr. Secretary, but I would be prepared to call on the Federal if you had to. I think you will have to do that before this way is over. I think the market is waiting for leadership and I think you can dictate the terms by stepping out. Regraded Unclassified 281 - 7 - H.M.JR: Dan? MR. BELL: I feel that way. I don't like 8. note. MR. HADLEY: I think there will come some bad news later where the note market will be very useful and I think we should save it longer. H.M.JR: Well, there I agree with you. I am just full of perfume. I shook hands with Barry Wood and his wife. Can you smell it? MR. BELL: Yes, sure we can smell it. MR. HAAS: If someone was an expert they could give you the name of it. MR. BELL: You had better get it off before you go home to your wife. H.M.JR: How about you, Dan, did you say? MR. BELL: Yes, I agree with George. I am afraid of a note. I hate to put out a note. (Mr. Morris entered the conference.) H.M.JR: I called up New York, Dave, and they say mechanically they think that this suggestion of mine is not good. MR. MORRIS: That is too bad. H.M.JR: It gets down to whether we want 8. billion bond and a note, or something else. Everybody here except myself has expressed an opinion. These fellows are all putting it in one shot right on the nose. MR. MORRIS: I am afraid I am in that camp. H.M.JR: You are? MR. MORRIS: Yes. Regraded Unclassified 282 - 8 - MR. MURPHY: I might prefer two bonds, Mr. Secretary, except the Federal has expressed the preference for a single - originally for a single two and B. quarter and still the preference of Governor Ransom, certainly ás second choice, is for a bond and a note, of Chairman Eccles also. And I think we ought to go into this very closely in accordance with them because we want to make sure that the issue is well covered. H.M.JR: Well, let us be practical. What the hell can the Federal Reserve do? MR. MURPHY: They can buy as much of the issue as necessary. I don't think it will be necessary. I think it will go over all right. H.M.JR: I am a little bit - I pride myself on psychology. I don't think - - I think everybody has discounted the fall of Singapore. MR. HAAS: I think that is probably the case. I am not much good on that but if that is the case, then the one shot is just the ticket. MR. BELL: The market ought to go up, hadn't it? MR. HAAS: Yes. H.M.JR: Just talk a minute and then I am going to ask you. Have you (Morris) expressed yourself? MR. MORRIS: Yes. (The Secretary left the conference temporarily) MR. HAAS: You said you were a Democrat. MR. MURPHY: What more could you want? MR. BELL: He went out to consult. MR. MORRIS: I take it you said you were all on one shot. Regraded Unclassified - 9 - 283 MR. HADLEY: Yes. MR. HAAS: You have been one shot, Dave, for a long time. MR. MORRIS: Yes. MR. BELL: If you are going to put out two issues why wouldn't a split issue of two and a half and B. note be better than a billion two and a quarter? MR. HAAS: One thing I don't like about the two and & half - it doesn't bother some people as much - on the two and 8. half, Dan, you have to run it way back about ten years or more. MR. BELL: How far can you put out a two and a half? MR. HADLEY: If you have a split issue I think you can go to 1960. H.M.JR: '60-'63? MR. HADLEY: '60-'63, '60-'65, it doesn't make any difference. MR. BELL: What is the matter with that? MR. HADLEY: I don't see anything wrong with it. MR. BELL: Your big insurance companies want it. New York life would like a hundred. Prudential would like a hundred. MR. MORRIS: Do they want that or want to subscribe for that? MR. BELL: They want that. There is two hundred million of it right there in two places and they would like to have it at 8 two and a half and they don't give a damn about the maturity. Prudential has got a hundred and sixty million dollars in cash and they would like to put a hundred million dollars of it in a two and B. Regraded Unclassified 284 - 10 - half percent bond at par. MR. MURPHY: I had been for a split two and a two and a half. MR. HADLEY: I would prefer that to that split and a note. I would rather have it two and a two and & half. MR. MURPHY: I think that with the exception of your New York banks they have no portfolio in anything. The 2's are going to be very popular among banks. MR. BELL: The banks outside of New York would rather have the two and a note. MR. MURPHY: I feel there is 8. real investment demand for the two and a half which would be glad to absorb perhaps & half billion or three quarters of a billion of them and so, as I am told, Mr. Harrison said, yesterday, it would. MR. HAAS: If an area of - no. MR. MURPHY: Consistency? Well, a phrase of that kind. MR. HAAS: You are not taking him in as an ally, are you? I would rather lose. MR. BELL: Who? MR. MURPHY: George Harrison. MR. MORRIS: George, howfar do you think you could put a two and & half out? MR. HAAS: I don't know, we had it - we had '58-'63 or something, didn't we? MR. MURPHY: After yesterday's market we have '56-'62. Now, beyond that you are going on psychology. That involves a weight of a half point and if we supposed that the market Regraded Unclassified - 11 - 285 is going to stand up on its existing curb without the weight, we could push that out to billions, '60-'65. MR. HAAS: Well, you know this fellow Brown of Chicago, Dan, says if you do that it will depress the outstanding '67-'72's. That is what I am afraid of. MR. HADLEY: Well, they are depressed now. MR. HAAS: I know but that wouldn't improve the situation any. MR. HADLEY: Well, all the taxable issued today are practically held unchanged after early losses this morning and the tax exempts have been going out. MR. BELL: These two and a half's here, that changed a little, I suppose. '56-'63. MR. HADLEY: I would stand by those for today. MR. BELL: '59-'64 and '60-'65. It would be point one to - one, one to one, ten premium on the long one. MR. HAAS: They are thinking about a two and a quarter. I don't think they are thinking about & two and a half at all, are they? MR. HADLEY: No, They have given that up. MR. HAAS: So then we shoot this thing out right now on them and the - and the banks outside of New York, I think, would like the two and a quarter a little better than the two. MR. BELL: You do? MR. HAAS: It is still short bonds, you know. MR. HADLEY: It is so close to the ten year bond that it is pretty attractive, and June is only ten and a quarter years. Regraded Unclassified - 12 - 286 MR. BELL: Do you think eleven - - thirteen is & little out of line, Henry? MR. MURPHY: That is fifty-three - fifty-five? MR. BELL: Yes. MR. MURPHY: Yes, I do. I might say that we have allotted B. helf point for the depression in the market at the area where the bond would hit, assuming that the whole financing goes into it. Now, if we don't allow that half point, the fifty-three - fifty-five is all right. MR. BELL: Why haven't they taken that? Damn near it, haven't they? MR. HADLEY: I think they have. MR. MURPHY: Of course, they know that there is going to be 8. billion and a half financing, but they don't know where it falls. If we assume that the mar- ket has properly anticipated the area in which it will fall and has already adjusted that area to the weight of the new financing, then fifty-three - fifty-five is perfectly all right. MR. HADLEY: I think they have pretty well antici- pated it when you stop to think that in 8. week the fifty-two - fifty-four's fell off twenty-two thirty- seconds and the issues around it fell eight and ten. MR. MORRIS: I should say with all the talk on a two and & quarter in that area it is pretty well anticipated. MR. HADLEY: The fifty-two--fifty-four really took & drop when the rest of them were comparatively small. MR. MURPHY: What do you figure the premium on fifty-three - fifty-five? MR. HADLEY: I figure you might get & point. Regraded Unclassified 287 - 13 - MR. HAAS: That is about the weight. MR. MURPHY: Yes. MR. BELL: Would this be a pretty good time to price it closely? Of course, a billion and a half might be a weight, whereas & billion might not. MR. MURPHY: The market doesn't know it is going to be one issue. After all, we don't. The market can't know any more than we do. MR. BELL: Well, but they have been down here talking, and they have been talking to New York, and they have got it pretty well figured out that it is going to be two issues. MR. HAAS: Two? MR. BELL: Yes. MR. MURPHY: In that case, if it is one, there has to be more weight. (Secretary returned to the conference.) MR. BELL: I say, if you put the whole thing in there, it might press it, the half point you are talking about. MR. MURPHY: A half point allows for the whole issue. H.M.JR: They are fussing about Ecuador. I must do it today, says Summer Welles. I told him to keep his shirt on. I can't do more than one thing at a time. Are you fellows all for one shot? MR. BELL: Yes. H.M.JR: What a crowd. Here I give you fellows all this lecture - twice I have been for one shot, haven't I? - 14 - 288 MR. HAAS: You sold us too well. H.M.JR: What were the last two issues we did, anyway, what was the last one? MR.HADLEY: The last one was a '49-'51. That was a refunding of about a billion dollars. H.M.JR: What is that selling at now? MR. HADLEY: It is selling for about par twenty- three. H.M.JR: And the one before that? MR. HADLEY: The one before that was an addition to your '67-'72, so it came about par twelve and the '51-'55's which were about par nine. They have been up and down. H.M.JR: I hate like hell to get out a three year note. My experience has always been that before the news is out is the worst. (The Secretary held & telephone conversation with Mr. Eccles as follows:) Regraded Unclassified 289 February 11, 1942. 3:10 p.m. Operator: Hello. HMJr: Hello. Mr. Marriner Eccles: Hello. HMJr: Marriner. E: Yes, Henry. HMJr: We've been talking a couple of times with New York and they say that this thought that I had of giving it at option to 8. fellow for a bond or note E: Yes, HMJr: mechanically it wouldn't work, and they - I told them try it out on a couple of fellows and they didn't get a good reaction. They said it would be throwing something new into the picture and they're afraid that the people might buy quite a lot of these notes. E: Well, what if they do? I can't Bee how they'd say - I'm not afraid of something new, damn it, we're go - we're having something new every day. HMJr: Yeah, I know. E: And we're going to have to try a lot of things new before we get through. Now I don't know about the mechanics - I can't - while I would - I would be influenced if it won't work mechanically, but I wouldn't be influenced much about the fact that it HMJr: No. E: That the different HMJr: No, no, no, they're all right, they didn't bother us new because, as I told them, Ogden Mills did it in 1930, and if he did it, why that makes it all right. E: Well, it ought to make it all right in the New York market. Regraded Unclassified - 2 - 290 HMJr: Yeah. But they said - they pretty well unsold me on it - about throwing new confusion. Not, as I say - a bank nor know which way, you know, and that sort of thing. E: Well, but if you don't want to go one way, you could go the other maybe. HMJr: Yeah. E: of course, - HMJr: My crowd, they've come baok now - they - they're back to one issue. They were impressed with what you said here this morning, and they're back to one issue, two and a quarter. E: Well, I'm - that was, of course, my first choice, and I saw no objection to your suggestion HMJr: Yeah. E: If - - if - but at the same time, insofar as the ons issue 1s concerned, I haven't the slightest fear of it, and - and further than that I think it has - it does have this advantage in that it's an indication of - of a bold program, and we've got to be bold. It, likewise, 1e an indication of - of us, more or less, giving to the market what we feel - what we feel we want to give to them instead of trying there's such a thing as trying to meet - - to meet the wishes of an awful lot of people in the market and letting them run it. Now in giving the one issue 18, of course, not catering to any particular group, it's - it's a compromise - of the entire situation and I - I know our people feel - Piser felt pretty strongly only for the one issue: Ransom, as he indicated, favored that; as far as MoKee and I were concerned, we had no objection to the other, but I'm sure that you'll have no difficulty with the one issue, and we - we're ready to HMJr: Supposing it doesn't go well, what will the Fed do? E: Well, we'll Just buy whatever 18 necessary. HMJr: Well, we - we wouldn't know, would we, until too late? E: Well, you mean, if it isn't subscribed for? HMJr: Yeah. Regraded Unclassified - 3 - 291 E: of course, I can't imagine an issue not being sub- scribed for. Now, of course, if We could buy directly, what wasn't subscribed for, we'd Just take. HMJr: Yeah. But you can't do that yet. E: No; but we can do this: It would seem to me if there's any question about it being subscribed, we could do just 88 we did before in the case of the bills. We could get the dealers HMJr: Yeah. is to take whatever 18 necessary and agree to take them off their hands HMJr: Uh-huh. to .....at some commission. - HMJr: Yeah. Well, ah - but..... E: But, you see, your subscriptions have usually been - oh, anywhere from five to ten times. HMJr: Yes. E: Now it's rather difficult to imagine not having this fully subscribed. HMJr: Yeah; well, I was just..... E: From what Young said on the phone this morning, he - he said the banks were complaining over there because they were out - we continued to cut them down to one-half the capital surplus. HMJr: Well, I had an interesting thing happen from Young from Boston. E: Yeah. HMJr: He called me back and said he saw two more men..... E: Yeah. HMJr: and they said they were going to go along no matter what it was. He didn't want to leave in my mind that Boston wasn't going to do its part. I thought that was very interesting. E: Yeah; well, of course, he didn't sound much like that this morning. Regraded Unclassified - 4 - 292 HMJr: No. Well, I wanted to tell you he called me back. Evidently he also gotto thinking about the impression he made, you see? E: Yeah; which was pretty pessimistic. HMJr: Yeah; well, he called back and said, "I've seen two more people and they feel different, and I think you ought to know it." E: Fine. HMJr: So E: Well, I - I would - I would be favorable to the one 1ssue if the New York boys feel it's - it offers any - any objection. HMJr: Have you people figured about what that would sell at? E: Yes. HMJr: What do you..... E: We - we - we figured - well, now, it depends on which maturity. HMJr: Well, we're talking here of - just a minute E: Do you - is that a fifty-two, fif--..... HMJr: Fifty-three, fifty-five, March. E: No, we haven't. We've got a fifty-two, fifty-four. HMJr: Oh. E: A June. A June. Take this one: We've got 8 June fifty-two, fifty-four. HMJr: Just a minute - June, fifty-two, fifty-four, - yeah. E: Yeah. Now this 18 pretty conservative, I think, and that's from a hundred and one to a hundred and - and one and four-thirty-seconds. HMJr: A hundred what? E: From a hundred and one to a hundred and one and four thirty-seconds - somewhere in the range of from a hundred and one to 8 hundred and an eighth. Regraded Unclassified - 5 - 293 HMJr: oh, you're back June fifty-two, I see, E: You say you're September fifty-three? HMJr: No; March fif- ..... E: of course - yeah - this list 18 nine months shorter. HMJr: Yeah. E: Yeah, that's one issue. That's a billion and a half. That's assuming the whole thing 18 put into the one issue. HMJr: Yeah. E: Yeah. Of course, if you put..... HMJr: Well, let's talk one issue now - one issue. E: Yes. Well, figuring on the one issue, that - that's the estimated price. If the issue were small, the estimated price would be a little bit more. HMJr: Is that the one you pick? E: That's right. HMJr: You'd rather have that than the little one a little longer, huh? E: Well, I think this. If you have any - if you have any - if you're going to put it all in the one issue..... HMJr: Uh-huh. E: .....and not give an option HMJr: That's right. E: and you put the billion - the million and a half out..... HMJr: Yes. E: it - it would seem to me to - to make it a little bit surer - if it was - if it was a ten. This 18 a - this 18 a little over B. ten - twelve year issue. HMJr: How would you feel about a fifty-two, fifty-five? E: All right. Regraded Unclassified - 6 - 294 HMJr: Huh? is All right. I think it - - I - I think a - - I think I'd just as soon go to rifty-five. I think I'd sooner. If you're going to make it fifty-two, I think I'd - I think I'd put it at fifty-five. HMJr: Gives us a little bit more E: Gives you - gives you three years. HMJr: Yeah. I think there's room enough there. E: I - - I don't know - I don't know what your maturity is. HMJr: What? E: What your fifty-five maturity 18 - - why they - why we figured it fifty-four here. HMJr: Just a minute. I've got the - Just a minute - we get - June fifty-two 1s vacant, and June fifty-five is vacant. They're both vacant. E: They're both vacant? HMJr: What? E: You say they're both vacant? HMJr: Yeah. E: Yeah. Is fifty-four vacant? HMJr: What's that? E: Fifty-five 1s vacant, 1s it? HMJr: June fifty-five 18 vacant. E: Well, then, I'd - I'd make it fifty-two, fifty-five, June. And that gives you just - that gives you slightly over a hundred and one premium. HMJr: Well, why not let's - I'll - I'll say just - I'll call you back. Are you going to be where I can get at you? E: Well, we were going to - I was going to meet with John and Ronald at four. You HMJr: Yeah. Regraded Unclassified - 7 - 295 E: You said you'd call us back at four, and I'd have the other two fellows here. HMJr: I'll call you back. In the meantime, we'll work on June fifteen, fifty-two, fifty-five, because that seems to have a little bit more attraction than a fifty-three, fifty-five. E: Well - and I think if you're going to have the one issue and there's any question about it, the one way to get around that 16 to make it slightly more attractive. HMJr: That's right. *And this does it. E: Yes. HMJr: This does it. E: Well, that's what - that's what we figured here if you're going to have the one issue. HMJr: Yeah. E: Yeah. HMJr: Well, I'll call you back at four. E: Okay. HMJr: Goodbye. 296 - 15 - H.M.JR: You know, the one I suggested has every- thing that the '53-'55 has. MR. HADLEY: Plus three months longer. H.M.JR: Yes, what is the matter with that, Henry? MR. MURPHY: I think it is a little thin. AS you know, I am always in favor of-- H.M.JR: What would you do? MR. MURPHY: I would fall back to December and make it a '51-'54. H.M.JR: I don't think 80. MR. HADLEY: You will fall right on top of your '51-'55's if you do that, and you will have & worse reception than if you put it out by itself on an open date. You have & two percent of '51-'55. MR. MURPHY: With 8. four year call period you don't have to - 8. three year call period, you don't have to worry about it. MR. BELL: Why won't that be around a point, '52- '55? MR. MURPHY: It depends on this weight we were dis- cussing. MR. BELL: Well, they have already got bad news and they have discounted that and they have got certainly in mind a billion dollars for that area, and they have probably discounted that area, and they have probably discounted that 80 all the weight there is about a half billion dollars, and you have taken that out of the note area. MR. MURPHY: We would figure maybe a par twenty- five and thereabouts. Regraded Unclassified 297 - 16 - MR. BELL: Supposing it drops back to a half point premium? MR. MURPHY: Well, I understand the Secretary wanted it priced for a larger premium than that. I think 8. '52-'55 will go, but-- E.M.JR: New York will guarantee a '53-'55. MR. MURPHY: Of course, I can't guarantee it. H.M.JR: The stock market, industrial, was only off a quarter of 8. point and in- the government bonds, off three thirty-seconds. MR. HADLEY: Your taxable issues didn't lose at all today. That is mostly tax exempts. (The Secretary held a telephone conversation with Mr. Sproul and Mr. Rouse as follows:) Regraded Unclassified 298 February 11, 1942 3:22 p.m. HNJP: Hello. Cperator: Sproul and Rouse. HMJr: Hello. Allan Sproul: Hello. AMJr: Morgenthau. 8: Yes, sir. HWr: Now, I've Just been talking with Eccles and with my own people. We're like A weather vane in e storm - we're hard to keep up with. 3: (Laughs) HMJr: We're back to one issue. 3: Well, that would be my second choice. FyJr: What's that? S: That would be my second choice. And we were talking about June 15, '52-'55. S: Fifty-two, five. HMJr: Yes. 3: That's all right. HMJr: There's nothing in June 15, '52 or 155 falling due. S: No. HYJr: They're both blank. E: That's all right, I should say. Fl.Jr. What? Regraded Unclassified 299 - 2 - S: J. should say that's all right. HMJr: Wouldn't that sell at a little bit better price than & March 15, '53-'552 S: I think it would, yes. HMJr: A little bit better. S: A little better. HMJr: A little sweeter. S: Yes. HMJr: Would there be a point in that for the whole issue? S: On our figures there would be e point in that, yes. HMJr: There would be a point. S: Yeah. HMJr: What? S: On our figures there'd be a point in that. HMJr: Anything more than a point? S: Well, we figure it would range from thirty thirty-seconds to one and four; 50 it would be around a point premium. HMJr: Yes. Well, isn't that enough? S: Yes, I think that's plenty. HMJr: Yes. (Laughs) Bell wants to know whether you'll guarantee it. S: Sure, I'll guarantee it'll go; I don't know how long it will be around the market before it's finally put away, but I'll guarantee it'll go. HMJr: Well, that's good enough, because the Federal Regraded Unclassified 300 - 3 - Reserve Board will buy up to B. billion and a half of it. S: That's what I thought. HMJr: (Laughs) You don't think that's a very good rumor to spread? S: No. But it will 80, and the market knows it will go and knows 1t's got to go and that's that. HMJr: Well, would they be cheerful about it? S: I think they'd be cheerful about that, yes. I think we've indicated they'd be more cheerful about the two, but I think they'd be cheerful about this one. HMJr: There's something else I want to ask you - I don't know. The - well, I told the Board I'd call them back at four, see? S: Told who? HMJr: The Federal Reserve Board. S: Yes. HMJr: And right after that I'll call you gentlemen. S: All right, we'll be here. HMJr: But you feel there's a good point in it? S: Yes, I do. HMJr: Well, I think that's all right. Thank you. S: All right. Regraded Unclassified 301 - 17 - H.M.JR: Your thought is that you would get the stuff out and then hold it? MR. BELL: Yes, we would send it out just as though we were going to announce it, see, but tell them not to send it out to the banks and not to release it to the press until they get another wire from us tomorrow, say about two o'clock or something like that, so they can catch all afternoon trains. H.M.JR: Anybody worried about that, about it going? MR. MORRIS: I wanted to ask, would you put in the rate, the whole thing? MR. BELL: Yes, just as though we had made the decision final, but we will take one more look at it with the news tomorrow. H.M.JR: I don't mean worried about doing it that way; I mean worried about that particular issue. MR. MORRIS: Oh, no. H.M.JR: I mean worried about a June '52-'55. MR. MORRIS: But I would hate to have to recall it. H.M.JR: Well-- MR. BELL: You would only recall it from the Federal Reserve Banks. MR. MORRIS: I know, but when it goes that far it has gone a long way. H.M.JR: There isn't much chance. I know what I want to ask. You (Hadley) run out and get that for me, have they made any bottom today, is there any bottom in the market? Is there any bottom in this bond market, Have they made 8. bottom yet? Regraded Unclassified 302 - 18 - MR. HADLEY: They have leveled off. H.M.JR: Have they? MR. HADLEY: This morning the long taxables were off two thirty-seconds and they came up around noon and they have stayed that way the rest of the day, H.M.JR: Go out there now and come right back, nlease. MR. HAAS: And bring in that little sheet that you gave me. H.M.JR: Henry, are you still a little uneasy? MR. MURPHY: I wouldn't be uneasy. I think the pricing is perhaps B. little high, but even if it is three-quarters of & point it is still 8 successful issue, 80 I wouldn't be uneasy. MR. BELL: Oh, you mean the way they are figured it is & little high? MR. MURPHY: Yes, However, the difference between our figuring, Mr. Secretary, is principally that we had supposed that the market, not knowing whether it would be all in one issue or where that issue would be, that putting it all in one issue at a particular place would grease the market about 8. half point. We may be wrong. I think we have been conservative. Even allowing the full force of our assumptions, the issue would still be quite successful. H.M.JR: How about you, George? MR. HAAS: New York may allow something and even on our conservative figures we are only off around five thirty-seconds, 80 I think we are all right. You can't price it that close. H.M.JR: If the market would level off between now and four o'clock, I would feel & little bit better. Regraded Unclassified 303 - 19 - MR. BELL: The market hasn't been bad today. It has pretty well leveled off. H.M.JR: I think I have got an excellent chance to have Singapore drop in my lap about Friday. MR. BELL: Yes. MR. HAAS: Do you know what we have got here now? Friday the thirteenth and a thirteen-year bond. (Laughter) H.M.JR: Thirteen-year bond? MR. HAAS: Isn't that what it is? H.M.JR: Yes, That makes it all right. MR. MORRIS: The United States started with thirteen original states. MR. BELL: Sure. H.M.JR: I never heard anybody say that before in connection with superstition. MR. MORRIS: That is my old war cry. H.M.JR: Is it? MR. MORRIS Yes. If anybody pulls thirteen on me, I give them that one. H.M.JR: If you gentlemen would come back a couple of minutes before four, please. MR. BELL: Yes. Regraded Unclassified 304 February 11, 1942 3:41 p.m. HWr: Jesse. Jeese Jonest Yeah. HMJr: I thought you might like to know what I'm thinking about doing about this billion and a half financing. J: I would. HMJr: We're thinking of - I think they call it in racing, "putting it all on the nose", one shot. JI Yeah. HMJr: A June 15, '52-'55 bond. J: Uh huh. HKJr: Two and a quarter per cent. J: Uh huh. HAJr: There ought to be about a point leeway in that they figure. J: That sounds pretty good to me. HMJr: Well, around J: It sounds rather normal, rather natural. HMJr: Yeah. Well, we think here - - you've heard me before - in these times, that a billion and A half is not too big to do at one time because we'll have to be doing more. J: You've got to be trying it, 60 you just as well put it on the line. HMJr: Yeah. The people in New York would like us to split it up, you know. J: Yeah. Regraded Unclassified 305 - 2 - HMJr: Does it frighten you? J: Not the elightest. HMJr: Now the slightest. J: Not the slightest. I like the time, and I think the rate's appropriate. HMJr: There's a little over a point in it. J: Well, that's good enough. HMJr: But, of course, what'll happen between now and Friday we don't know. J: You're going to do this on Friday, the thirteenth, are you? HMJr: Yes, sir. J: That's good. HMJr: Well, as somebody said, we started this country with thirteen states and we got along pretty well. J: Well, why not, huh? HMJr: What? J: I think it's - it looks to me like it sounds very, very right and very appropriate. HMJr: Now, if I could change the subject. J: Yes. HMJr: Are you in on this Ecuador deal? J: Ecuador? HMJr: Yeah. Are you doing anything for Ecuador? J: Yeah. HMJr: What are you doing? They're trying to get me to do something. Regraded Unclassified 306 - 3 - J: Are they? HMJr: Yeah. J: Well, let's get Harry White and Warren Pearson together on it. HMJr: Well, I'll tell - yes, that would be fine. Would you tell Warren? J: I will. We - when they were down there, Henry, we did make some agreements that we would give consideration to certain items up to so many dollars. HMJr: Well, I got a letter today from Sumner. Did you get one? J: I haven't seen it. HMJr: Telling me he'd got - he had to have something as of yesterday. J: Yeah. Well..... HMJr: Well, supposing I tell Harry he'll hear from Warren Pearson? J: Yes, he'll do it right away. I'll have Warren call him right away. HMJr: How's that? J: Fine. HMJr: Thank you. J: Thanks. Regraded Unclassified 307 February 11, 1942 3:45 p.m. HMJr: I'm sending you in & letter from Sumner Welles about Ecuador. Miss Chauncey has it. Dr. Harry White: Yes. HMJr: That's number one. Number two, I tried to get Sumner Welles. He's out until five-thirty. W: Yes. HMJr: Number three, I called up Jones and asked him what he was doing about it, and he said he was. "Have you got a letter from Welles?" "No." But he'd like you and his Export-Import W: Warren Pearson. HMJr: Warren Pearson. W: Warren Pearson has been in touch with me on it. HMJr: Well, he said he'll be in touch with you again this afternoon. W: Yes. Well, I sent a note around this morning to you on it. HMJr: Yes, I got it. W: I see. Well, do you want us to wait until we..... HMJr: Well, let's find out what Jones is going to do. He hasn't made up his mind. W: Oh, well, I can tell you what HMJr: Well, he haen't made up his mind. W: All right. HMJr: Just stall it for another day, because I'm in the midst of my financing. W: Oh, well, it's easy enough to stall it for 8 Regraded Unclassified 308 - 2 - day or more. HMJr: I've tried to get Welles; he wasn't in. I talked to Jones; he knew nothing about it, and he's sending what's-hie-name over to see you. W: Yes. HMJr: Now, we've got to do Lend-Lease in reverse W: Okay. HMJr: .....and we've got to work out China. W: Right. I'll call - I'll remind you of it if you don't remind me of it by Saturday. HMJr: That's right. W: Okay, sir. HMJr: Thank ycu. \ = I \ 1 \ 309 1 PROTETARY OF STATE - p. c. DEPARTMENT OF STATE WASHINGTON in reply refer to go February 11. 1942 My dear Mr. Secretary: Reference is made to discussions which took place last summer between officials of the Treasury Depart- ment and representatives of the Government of Ecuador regarding the request of that Government for aid in the stabilization of the relationship between the dollar and the sucre. As you are aware, this matter was raised with the United States Delegation at the recent meeting at Rio de Janeiro, and has been discussed during the last several days by the financial representative of the Ecuadoran Government with officials of the Treasury. It is the view of the Department that the speedy conclusion of such a. stabilization arrangement would strengthen public confidence in the stability of the Ecusdoran currency, which is, 8.3 B. matter of fact, in 8 relatively The Honorable FORDEFENSE Henry Morgenthau, Jr., BUY ENTER STATES Secretary of the Treasury. was Regraded Unclassified 310 -2- a relatively good situation. This would assist the Government of Ecuador materially in dealing with prob- lems which have arisen as a result of the Peruvian- Ecuadoran boundary dispute recently settled at Rio de Janeiro. I cannot, consequently, too strongly urge that the Treasury make every appropriate effort to expedite this matt r. Sincerely yours, L Under Secretary Alls INSTRUCTIONS evin laws 608 IDVS LEB " VII Ri 55 TRUMPO MMC Name Regraded Unclassified 311 February 11, 1942 3:56 D.M. 9%Jr: We got the letter from the President telling us to go ahead. Edward Foley: Yeah. HMST: What did we do about it? F: Well, we're getting the papers ready, Mr. Secretary. HMJr: Well, how long does that take. F: Well, I think we ought to be - have the stock vested by the time we get together on Monday next week, for the next discussion. You're not going to - I thought you were going to rush it through. Well, I'm doing the best I can, Mr. Secretary. This is the guinea D16, you know, the firet one; and we haven't got any precedents and we haven't got any papers and we're drafting each one de novo. HMOFT And Leo Crowley's got all the books or. 1t, huh? F : (Laughs) Well, that's where we found they were when we went to the liorary: but we're making progress. Well, it's in hand - I can forget about it. F: I think SO. And I think we'll be able to tell you by the end of the week that we've taken over the stock. MJr: Well, I'd rather have you do it carefully than make a mistake. Nell, it's an important steo and it's going to be a precedent for the rest of them, and we haven't got any guides. We're doing the best we can. Regraded Unclassified 312 - 2 - HMJr: I know. I just thought you'd have everything ready, waiting for the President's signature. F: Well, I'm pushing the fellows just as hard as I can. HMJr: I say, I just thought, you know - - once you sent it over to the President, you'd have it all ready. Evidently it's more of a job than I realized. F: It's a big Job. HMJr: Well, be sure you're right. F: It's a big job. HMJr: All right, I won't call again. You just let me know when you're ready. But don't - if it's a big job, do it right. F: Right. Thank you, sir. HMJr: Good-bye.