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Volume 121, April 26 – April 30, 1938
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Volume 121, April 26 – April 30, 1938
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 121
April 26 - April 30, 1938
Regraded Uclassified
- B -
Book Page
Bank Examinations
Conference; present: HMJr, Taylor, Upham, Gaston, Smythe,
Davis, MoKee, and Crowley - 4/26/38
CXXI
36
a) HMJr describes Crowley's displeasure at
inclusion of Smythe (Comptroller of Currency
office)
111
Copy of address by Jones (Reconstruction Finance
Corporation)
164
Business Conditions
Eccles' recovery plan left at White House after
conference between HMJr and Eccles with FDR -
4/27/38
148
Delano memorandum on utilization of national resources:
HMJr approves - 4/28/38
206
Program, Administrative (Future): FDR's message to
Congress - 4/29/38
305
- C -
Cement
See Housing
China
Loan discussed by Chinese Ambassador and Welles -
4/27/38
158
Current United States trade with Japan and China:
reports to end 4/30/38
188,294
Conference; present: Chinese Ambassador, HMJr, Taylor,
and Lochhead - 4/28/38
195
a) HMJr, Taylor, Lochhead, and White confer
199,227
b) Memorandum of conversation sent to Welles
201
Commodity Credit Corporation
See Financing, Government
Customs, Bureau of
Lauer smuggling case discussed at 9:30 meeting - 4/27/38
105
- D -
Debts, Foreign
Hungary:
Feis asks HMJr whether Treasury will not arrange to have
Congressional hearings - - 4/27/38
169
- E -
Ecoles, Marriner 8.
For recovery plan, see Business Conditions
Ethiopia
Recognition of conquest discussed by Chinese Ambassador
and Welles - 4/27/38
158
Regraded Uclassified
- F -
Book Page
Financing, Government
Commodity Credit Corporation offering: Subscription
books closed 4/25/38
CXXI
1
a) HMJr congratulates Jones - 4/26/38
29
b) Subscription figures, et cetera - 4/29/38
238
Limitations on bond issues: request for legislation:
White memorandum suggesting postponement - 4/26/38
27
a) Bell statement at Harrison conference - 4/27/38.
142
Rate on obligations of United States Housing Authority
which Treasury will purchase on April 28th in the
amount of $1 million to be à of 1% - 4/27/38
141
France
See Stabilization
Franklin, P.A.S.
See Panama Railway Company
- G -
Government Bond Market
See Panama Railway Company
Great Britain
Armament expenditures: report by Butterworth - 4/26/38
2
Income tax increase discussed by Butterworth - 4/27/38
81
British and American tax comparisons: Shoup memorandum -
4/27/38
146
- H -
Housing
Cement: HMJr confers with Peoples concerning new bids - -
4/28/38
215
Hungary
See Debts, Foreign
- J -
Japan
Current United States trade with Japan and China:
reports to end 4/30/38
188,294
- K -
Krock, Arthur (New York Times)
Article in New York Times dated 4/29/38 discussed with
Greenbaum
239,249,278
Regraded Uclassified
- L -
Book Page
Lauer, Edgar J. (Justice)
See Customs, Bureau of
Liquor
See Taxation
- N -
National Resources
See Business Conditions
- P -
Panama Railway Company
HMJr confers further with P.A.S. Franklin - 4/26/38.
CXXI
52
HMJr also consults Louis Johnson (War Department) -
4/26/38
54,58
HMJr discusses situation with FDR - 4/26/38
69
Discussion at 9:30 meeting - - 4/27/38
90
HMJr-Woodring conversation - 4/27/38
93
Conference with Rossbottom and Smith; Bell present -
4/27/38
118
a) HMJr asks Burgess for details on sale
115
b) Bell memorandum on conference - 4/27/38
139
Program, Administrative (Future)
FDR's message to Congress - 4/29/38
305
- R -
Revenue Revision
Liquor: Rosensteel and Sack, representatives of Schenley's,
confer with HMJr, requesting that Treasury propose the
imposition of a larger increase in lieu of the 254 a
gallon increase in taxes on distilled spirits now
included in proposed tax bill - 4/26/38
26
a) HMJr asks Jones to see representatives concerning
loan for $20 million - 4/26/38
34
British and American tax comparisons: Shoup memorandum -
4/27/38
146,220
Copy of statement of objections to the corporation tax
and capital gains tax to be used by FDR taken to
White House by HMJr and Magill - 4/29/38
287
Rhinebeck, New York, Post Office
Peoples tells HMJr stone from old Kip-Beekman House and
various old fence walls is to be used for facing building
4/26/38
79 A-B
Riefler, "infield W.
Letter of resignation as adviser of Treasury and
acknowledgment - 4/29/38
266
a) Riefler notes on recent fiscal and monetary
program
270
Regraded Uclassified
- S -
Book Page
Schenley Distillers Corporation
See Revenue Revision
Self-Help
HMJr consults Woodrum concerning bill making additional
funds available - 4/28/38
CXXI 171
a) HMJr-Aubrey Williams conversation
179,193
Silver
HMJr announces revocation of certain orders, regulations,
et cetera, as of 4/28/38
205
Stabilization
France:
Exchange market movements resume - 4/26/38
5,75,84,
86,235,264
Bullitt-HMJr conference on United States attitude
toward French franc - 4/26/38
78
Bonnet conversation with Chancellor of Exchequer
reported on by Butterworth - 4/29/38
317
If # If Cochran
321
- T - -
Taxation
See Revenue Revision
Transportation, Department of
HMJr consults Jones about possibilities - 4/27/38
136
- U -
Unemployment Relief
Works Progress Administration employment for week ending
4/23/38
168
United States Housing Authority
See Financing, Government
- V -
Viner, Jacob
Letter of resignation as adviser of Treasury and
acknowledgment - 4/29/38
274
- W -
War Debts
See Debts, Foreign
Works Progress Administration
See Unemployment Relief
1
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Pross Service
Tuesday, April 26, 1938.
No. 13-10
4-25-38
Secretary of the Treasury Morgenthau announced last night that the sub-
scription books for the current offering of 3/4 percent notes of Sorios C of
the Commodity Credit Corporation closed at the close of businoss Monday, April 25,
for the receipt of cash subscriptions.
Cash subscriptions placed in the nail before 12 o'clock nidnight, Monday,
April 25, will be considered as having boon entored bofore the close of the sub-
scription books.
The subscription books will close at the close of business Wednesday,
April 27, for the receipt of subscriptions in payment of which Series B Collateral
Trust Notos of the Commodity Credit Corporation, naturing May 2, 1938, are ton-
dored. Any such subscriptions placed in the mail before 12 o'clock nidnight,
Wednesday, April 27, will be considered as having been entered before the close of
the subscription books.
Announcement of the amount of cash subscriptions and the basis of allotment
will probably be nade on Friday, April 29.
o0o
Regraded Uclassified
2
REB
PLAIN
London
Dated April 26, 1938
REC'd 4:15 P. m.
Secretary of State,
Washington.
RUSH
341, April 26, 8 P. m.
FOR TREASURY FROM BUTTERWORTH:
Armament Expenditure hung like a pall over the
House of Commons throughout the Chancellor of the
Exchequer's budget speech this afternoon.
War preparations will require 343 million pounds
of which 253 million pounds will bE raised by taxation
and 90 millions by borrowing under the defence loans act
(my 58, February 11, 1937). The total Expenditure of
1003 million pounds for the fiscal year which began
April 1st is larger by 81 million pounds than last year.
Since income tax is collected a year late and surtax
two years late the natural Expansion in revenue will
make up 51 of the required 81 million. Simon decided to
obtain the remaining 30 million by doubling the duty on
tea, which hits All sections of the population
particularly
Regraded Uclassified
3
REB
2-#341, From London, Apr.26,Sp.m.
particularly the poor; increasing the already high
duties on light oils and gasoline; and raising the
income tax rate from 5 shillings to 5 shillings and
sixpence in the pound, a rate Equivalent to 27-1/2%.
HOWEVER, industry (repeat industry) 18 to bE virtually
unaffected by the rise through an offsetting adjustment
of the wear and tear allowance. Likewise the tax rate
on the first taxable pounds 135 will remain the same
thus leaving unaffected, for Example, a single man with
an income up to pounds 290 and 8. married man with one
child with an income up to pounds 460, In announcing
his decision to increase taxation Simon emphasized that
the total armament Expenditure for the five-year period
will bE "a good deal more" than anticipated; that more
supplementary estimates of Expenditure for the fighting
SERVICES will have to bE made during the year; that the
peak of armament Expenditure will not come until "next
year or perhaps the year after"; and that having regard
for the future hE "would not bE doing his duty by taking
the easier course" of borrowing instead of increasing
taxation. Incidentally I had a word with Montagu Norman
after the speech who said that he was "devilish glad
that
Regraded Uclassified
4
REB
3-#341, From London, Apr.26,8p.m.
that Simon had done the right thing and taxed instead
of borrowed". However, the House of Commons did not
sem altogether to share the Governor's sense of grim
satisfaction. Simon gave the impression of carefully
avoiding any prognostications as to the course of
Economic activity and his Estimates of revenue returns
from such sources as stamp duties pre-suppose a
maintenance of the present lEVEL. Simon repeated the
formula used in recent budget speeches that the Equali-
zation fund continues to show a profit."
Simon also revealed that for war storage purposes
purchases of wheat, sugar and whale-oil have already been
made. The quantities were not revealed but 10 million
pounds is to bE voted for these and "other purchases
during the year where secrecy is less Essential" and
for certain other measures. Incidentally the Governor
of the Bank of England also commented caustically on
the recent depreciation of the franc and Expressed
indignation at "this ramp".
KENNEDY
CSB
Regraded Uclassified
5
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Imbassy, paris, France
DATE: April 26, 1938, 5 p.m.
M
NO.: 653
RUSH
FROM COCHRAN.
Reference my 651, April 26, noon.
Market continued to take a good amount of sterling
from the control with latter very gradually strengthening
the franc rate (160.20 at 5:00 p.m.). Forward franc more
offered. French rentes and shares irregular. Balga
stronger with Guaranty trying to acquire the last three
million required for the fifty million belga French Rail-
way repayment (see my 636, April 23, 4 p.m.). Swiss
buying sterling, presumably to use on Argentine loan
transaction (see my 636, April 22, 4 p.m.)
At noon today I had a brief talk with Marchandeau
and Rueff. This afternoon by telephone I also spoke with
Rueff again. Both of these officials state that their
objectives are "to improve economic activity and to
achieve Treasury equilibrium". However, at the present
time, they can give no details to supplement the general
lines of the communiques which they have already given
out. Continuous sessions of governmental officials
charged with working out those details are held, at
which Marchandeau and Rueff are present, and they have
not
Regraded Uclassified
6
- 2 -
not completed their task. Today they are laboring under
very heavy pressure preparing for the departure on Wed-
nesday afternoon of Daladier and Bonnet on their visit
to London.
Re the last sentence of my telegram No. 652 of
April 26, I repeat my belief that the French Government
will try to get financial assistance (?) through the
equalization fund (reference: my 645 of April
through financing by London of French purchases of war
materials to be repaid over a certain period of time.
It is not to be expected that any further announcement
or even any final conclusion of the general plans of the
Government will be forthcoming until the Government sees
the accomplishments of the London visit.
Wilson.
07V19030
6881 US 89A
EA:LWW
adam - -
Regraded Uclassified
#: 7
PARTIAL paraphrase OF TELEGRAM RECEIVED
FROM: American paris, France
DATE: April 26, 1938, a p.m.
NO.: 653
RUSH
FROM OCCHRAN.
Reference my 851, April 25, noon.
Market continued to take a good amount of sterling
from the control with latter very gradually strengthening
the frane rate (160.20 at 5:00 p.m.). Forward franc more
offered. French rentes and shares irregular. Belga
stronger with Quaranty trying to acquire the last three
million required for the fifty million belga French Rail-
way repayment (see my 636, April 23, 4 p.m.). Swiss
buying sterling, presumably to use on Argentine loan
transaction (see my 636, April 22, 4 p.m.)
At noon today I had a brief talk with Marchandeau
and Rueff. This afternoon by telephone I also spoke with
Rueff again. Both of these officials state that their
objectives are "to improve economic activity and to
achieve Treasury equilibrium". Newever, at the present
time, they can give no details to supplement the general
lines of the communiques which they have already given
out. Continuous sessions of governmental officials
charged with working out those details are held, at
which Marchandeau and Rueff are present, and they have
not
Regraded Uclassified
Dec
8
- 2 -
not completed their task. Today they are laboring under
very heavy pressure preparing for the departure on Wed-
needay afternoon of Daladier and Bonnet on their visit
to London.
Re the last sentence of my telegram No. 652 of
April 26, I repeat my belief that the French Government
will try to get financial assistance (1) through the
equalization fund (reference: my 645 of April 25) or
through financing by London of French purchases of war
materials to be repaid over a certain period of time.
It is not to be expected that any further announcement
or even any final conclusion of the general plans of the
Government will be forthooming until the Government ....
the accomplishments of the London visit.
Wilson.
BECEINED
8338 as ЯЧА
EA:LBW
THENTRA930 YRUSA397
instruct adt to solil0
1 1 18 1 I
Regraded Uclassified
9
GROUP MEETING
April 26, 1938.
9245 A. M.
Present:
Mr. Oliphant
Mr. Gaston
Mr. White
Mr. Haas
Mr. Taylor
Mr. Gibbons
Mr. Lochhead
Mr. Bell
Mr. Upham
Mr. McReynolds
Mrs. Klotz
H.M.Jr:
Good morning, stranger.
Gibbons:
Am I a stranger?
H.M.Jr:
You weren't here yesterday.
Gibbons:
I wasn't here yesterday; I was in New York yesterday.
H.M.Jr:
Herman?
Oliphant:
Nothing.
H.M.Jr:
Good. Herbert?
Oliphant:
(Inaudible - something about Mr. Cox.)
H.M.Jr:
Keep right on it.
Oliphant:
Mention it every day.
H.M.Jr:
(To Mr. Gaston:) Go ahead.
Gaston:
The Association of Business Paper Correspondents
here are very insistent that they have a press
conference with somebody on the subject of cement
and the rejected cement bids. They either want
a conference or they want an outright refusal to
hold a conference. I don't believe there is much
we can tell them about the cement situation.
Regraded Uclassified
- 2 -
10
H.M.Jr:
Well, I simply would tell them this: That we're
in the process - we've just rejected these bids
and we're in the process of formulating new bids,
and that there isn't anything to tell - that is
all.
Gaston:
The Iron Age wants to ask a series of questions.
I haven't seen them yet, but I think what they want
to know is just what was the reason for rejecting
the bids.
H.M.Jr:
Well, let Peoples see them.
Gaston:
You want to let Peoples hold a conference with
them?
Oliphant:
Hold a press conference on the stabilization
fund - on negotiating that agreement.
H.M.Jr:
Well, that's hard. That's hard. What do you
think, Herbert?
Gaston:
I just don't know whether there's anything to tell
them or not.
H.M.Jr:
There isn't.
Gaston:
I don't believe we ought to hold any conference.
H.M.Jr:
All right. Supposing the Iron Age says I'm a
so-and-so - then what?
Oliphant:
It's still Iron Age, speaking for the Steel Institute.
H.M.Jr:
I think we'll have to sit it through and hope when
we come out we'll come out on the right end.
McReynolds: Harry Collins is on his way over here to tell me
what he has - the details - definite information.
H.M.Jr:
(Over telephone:) Admiral Peoples, three thirty.
What else, Herbert?
Gaston:
Nothing else. Our bill seems to have been a record
yesterday on price.
H.M.Jr:
Yeah. Harry, I was told yesterday by George
Harrison that one Eccles thinks there is going to
be a big flood of gold coming this way. What do
you think?
Regraded Uclassified
- 3 -
:
11
White:
I think so.
H.M.Jr:
You think so too?
White:
Sometime within the next six months.
H.M.Jr:
Give me a memo, please.
White:
Yes sir.
H.M.Jr:
Have you any social engagements tonight?
White:
No sir.
H.M.Jr:
I may work with you on this. Will you keep
these (printed sheets) please, until later.
Mrs. Morgenthau's work - and I'll take the
work - and if she doesn't I'll have you at
eight thirty. I'd go over your plans for your
organization.
White:
Something that's a little out of the immediate
responsibility, but I'm mentioning it in case it
hasn't been brought to your attention. I under-
stand you're going forward with some investiga-
tion of steel prices, and it's come to my atten-
tion and knowledge, from other sources that
there is - although that is a rumor; it's not a
fact - that there is an arrangement which has
already been made between the President and John
Lewis that nothing be done about steel prices
.....
H.M.Jr:
The President and what?
White:
John Lewis.
H.M.Jr:
That he
White:
Nothing will be done about steel prices - that it
was under those conditions that United States
Steel signed up with the C. I. 0. Now I can't
verify the facts of that at all; I'm merely
passing it on as gossip.
H.M.Jr:
Well, these committees are working on the stuff,
and I am perfectly willing, frankly - going to
let them slide for the time being - for the next
ten days, because I've got stuff to do that's
Treasury responsibility, and I when I get & chance
one of these days, I'm going to ask the President
Regraded Uclassified
4 -
12
if he wants a Price Board and let him appoint
somebody to take it. I just haven't got the time
to do it. I mean, I don't consider it as
important as when we started. Maybe it's much
more important for the President to decide if a
million dollars is going to run up the prices -
going to again squeeze off the housing program
the way it did last time. I mean, it was our
own Government in competition which ran the
prices up so on lumber, that we are partly
responsible for squeezing this thing. We are
going to do it all over again. What's the sense
of running up competition when we're going to be
in direct competition with people like Stewart
McDonald and Nathan Straus. You're going to have
Ickes and others-fooling around with one item.
White:
In other words, you're going to shift the item to
a committee?
H.M.Jr:
Yes, because somebody gave us those figures on
the price of lumber - running the price of lumber
up, and what's the use of fooling around with
individual items if you have in mind two big pro-
grams developing, which are going to come out in
a headon collision? That's the way I feel. But
I mean, if those committees are working, let them
work - see if we can find a berth for them.
Haas:
They are making pretty good progress.
H.M.Jr:
That's all right. Let them work.
George?
Haas:
I have nothing this morning.
H.M.Jr:
George, have you got anybody in your place that
knows anything about bank examinations?
Haas:
Ah, the best man I've got is Henry Murphy.
H.M.Jr:
What does he know about it?
Haas:
He knows something about it
H.M.Jr:
What?
Haas:
Well, he has the general theoretical background of
banking; he's worked in a bank and managed the
portfolio in one of the largest banks in Detroit
before he came down here.
Regraded Uclassified
- 5 -
13
H.M.Jr:
Think he could contribute anything on 1t?
Taylor:
I think he would be useful
H.M.Jr:
Then let him come in at ten thirty, will you,
George?
Haas:
Uh-huh.
Taylor:
.....
particularly from the standpoint of the
portfolio standpoint, which they are going to
discuss.
H.M.Jr:
And George, just a general impression - I thought
your weekly business review was more bullish than
the material in it justified. That is my
impression.
Haas:
Well, I think in listing the tables there were
more favorable than were unfavorable. The unfavor-
able - there may be enough to overshadow the
other one. I think you're right, in reading the
thing through. That's the difficulty in preparing
a case. I'll look it over again.
H.M.Jr:
I just wanted to give you my feeling, for what it's
worth. I thought it was more bullish than the
facts in it justify. Take another look at it, will
you?
Haas:
Yes.
H.M.Jr:
Wayne?
Taylor:
This is the suggested agenda Mr. Upham and I
prepared. There are really only two things they
concentrate on. They want to talk about it for
any length of time, you may get some
(inaudible)
:
.... other aspects.
H.M.Jr:
(Over telephone:) Have Berkshire here at ten
fifteen. Berkshire.
All right. We'll just kind of ease our way into
it.
(Side conversation with Mrs. Klotz.)
(Nods to Mr. Gibbons.)
Regraded Uclassified
14
- 6 -
Gibbons:
Did McIntyre speak to you about Senator Hughes of
Delaware wanting to change the Collector of
Internal Revenue? He finally went in to see the
President, after talking to Jim Farley and Jim
Halloway. Mac (McIntyre) wanted me to talk to
you about it. I'm going up to see the old Senator.
The President, I suppose, told him, "I'll go along
with you.
H.M.Jr:
Customs?
Gibbons:
No, Collector of Internal Revenue. He's been
talking about it for a year. I told him just
to send in another name and if the President
wanted to appoint him
But we can't remove
him unless we prefer charges.
H.M.Jr:
Everything else all right?
Gibbons:
Did you see Oliphant's opinion on inviting
Senator Copeland to go up to Alaska on one of
our Coast Guard boats?
H.M.Jr:
I haven't seen it.
Gibbons:
We're justified in doing it.
H.M.Jr:
We've already done it.
Gibbons:
Well, the invitation is to be signed by you.
H.M.Jr:
It's legal?
Gibbons:
So Herman says.
McReynolds: I sent it along. I guess Miss Chauncey's got it.
Taylor:
Did you give him a one-way ticket?
Oliphant:
Let him down - we let him down.
H.M.Jr:
What are you going to do, feed him to the white
bears up there?
Bell:
He'll have to find out about red salmon so next
year when he speaks in the Senate he can talk more
generally about it.
H.M.Jr:
0. K. All right. (Nods to Mr. Lochhead.)
Regraded Uclassified
- 7 -
15
Lochhead:
The french franc continues to be steady at 3.11 -
working on both sides - sold in the markets, but
not very much activity. Sir John Simon is making
his budget speech this morning. It's going to
take about two hours, they say, and don't know
just how they're going to get the money. With
regard to gold, Japan is shipping another five
million dollars in gold, shipment to start
immediately - makes about thirty-five million
dollars total, they have shipped.
H.M.Jr:
(Nods to Mr. Bell.)
Bell:
I again want to bring to your attention the
limitations on the kind of public debt you can
issue. We can issue March 31, a billion seven
hundred thirty-one million dollars of bonds, and
taking out about four hundred million to assign
the United States Savings bonds between now and
next March will leave you a billion three hundred
million dollars of additional bonds that you can
issue between now and next Congress, and you have
up to December 15, a billion seven hundred million
dollars of notes maturing, and you may want as
much as a billion dollars in cash, so that all you
can put of that total in bonds is a billion three.
H.M.Jr:
What is the total of bonds?
Bell:
You've got plenty of note issues.
H.M.Jr:
How much are the total bonds?
Bell:
Twenty-three billion dollars outstanding, and you
have an authority of twenty-five billion dollars -
twenty-three billion, two hundred sixty-three
H.M.Jr:
How much?
Bell:
Twenty-five billion dollars. Then you have
authority of twenty billion of notes, certificates,
and bills - six billion balance left on that.
H.M.Jr:
How much did I ask additional, five or ten?
Bell:
How much should you ask for? Last time I brought
it up you said you didn't want to ask this Congress
for anything. You thought it would scare everybody.
Regraded Uclassified
- 8 -
16
I think if you're going to ask for additional
authority, the thing to do is to combine the bonds
and notes, making a forty-five billion total,
rather than separating the bonds and notes. I
think if you ask for an additional five billion,
which will run it up to fifty, everybody will say
you're anticipating the debt to go to fifty.
H.M.Jr:
Will we have to fix up a bill?
Oliphant:
Yes, a bill.
White:
Does that include
Bell:
There are six billion dollars of additional notes
that can be issued, and I've taken off, say, oh,
eight hundred million dollars between now and
March would give you a total of five billion
three hundred million dollars of additional note
issues - eight hundred million dollars covering
the unemployment compensation and old age reserve.
H.M.Jr:
Well, Dan, fix me up a note and statement; I'll
go up on the Hill. You - have you got a statement
there?
Bell:
No. I'll have to make up something.
H.M.Jr:
Well, fix it up. That ought to be very easy.
Oliphant:
We can have it by tomorrow.
H.M.Jr:
Well, fix it up and Dan and I will go up on the
Hill and I'll see.
Bell:
It's Ways and Means and Senate Finance Committees.
H.M.Jr:
Well, I'd better see. That's Pat Harrison, isn't
it?
Bell:
Yeah - and Doughton are the leaders.
H.M.Jr:
Those two.
Bell:
And if you want to add any other leaders, I don't
know.
Oliphant:
It does go to Senate Finance?
Regraded Uclassified
1
- 9 -
17
Bell:
Yes.
H.M.Jr:
Well, we could ask for five minutes to go up to
the meeting on this tax bill tomorrow if we want
to get something through. When they meet tomorrow
morning at 9:30 "would they see us for five
minutes?"
Bell:
You mean the full Committee?
Oliphant:
That would be the Conference Committee.
McReynolds: Of both Houses?
H.M.Jr:
Of both Houses.
Bell:
Well, that is just the Conference Committee.
H.M.Jr:
Well, you see, both the Republican and Democratic
leaders of the Senate and House is the easiest
way for us. With Pat Harrison and Doughton it is
all right, and explain it to the Republican
members and they'll shoot it through. Anybody got
a better way of handling it?
Taylor:
I think the question of whether that Conference
Committee can talk about anything except
.....
H.M.Jr:
Well, I'll ask them. I'll ask Magill to ask
them, 1f you'll be ready tomorrow morning. Can
you be ready?
Oliphant:
Oh yes.
H.M.Jr:
I'll ask Harrison. Who's Chairman of that Committee,
Harrison or Doughton?
Bell:
I don't know.
H.M.Jr:
I'll find out.
Bell:
I should think the first conference might take place
between you and Doughton and Harrison.
H.M.Jr:
That's what I'll ask them. I'll ask them, but it
ought to be done fast.
Bell:
Yes. Well, any time, just so we get it through
before the end of the session.
Regraded Uclassified
18
- 10 -
H.M.Jr:
Well, you haven't got much time. You have it
ready today and I'll ask them.
Bell:
All right.
H.M.Jr:
But I want a memorandum explaining it.
Bell:
All right.
H.M.Jr:
0. K.?
Bell:
It's all I have.
H.M.Jr:
Glad you brought it up.
(Nods to Mr. Upham.)
Upham:
There's nothing. Smythe seems to be fully in
over there
....
H.M.Jr:
Is Smythe
.....
Upham:
.... and working full steam, yes.
H.M.Jr:
Mac?
McReynolds: (Nods "No.")
H.M.Jr:
Any after thoughts?
Oliphant:
I probably should have mentioned that Lee Liquor
bill that in effect puts us back in the prohibi-
tion
.....
H.M.Jr:
I thought that was called the Oliphant bill.
Oliphant:
That was the Oliphant opinion. Lee put it in the
Senate tax bill and Magill was going to undertake
to get it out, but apparently it's going out on
the understanding that we pass a separate bill.
H.M.Jr:
What did you rule that's got them all upset?
Oliphant:
Just what it said.
H.M.Jr:
What's that?
Oliphant:
That we wouldn't undertake to go in
.....
Regraded Uclassified
- 11 -
19
H.M.Jr:
Excuse me.
(Over telephone:) Hello. Hello Randolph. What's
worrying you? Go ahead. Oh. Ohhhhhh. Well,
that's a horse of & different color - entirely.
Yeah. Yeah. Yeah. Yeah, and ask them to make
bids on these bonds at one thirty.
(Remaining portion of conversation with Mr.
Burgess at 10:05 a. m. attached hereto.)
20
April 26, 1938.
10:05 a.m.
W. R.
Burgess:
Hello, Henry.
H.M.Jr:
Good morning.
B:
I think we've finally got this - this bond sale on
Friday straightened out.
H.M.Jr:
Go ahead.
B:
Well, I'm embarrassed, for one thing, because I find
one of these fellows reported the name to me erroneously.
H.M.Jr:
Oh.
B:
It was the Panama Railway Company.
H.M.Jr:
Oh!
B:
Just as bad, but it's ....
H.M.Jr:
Well, that's a horse of a different color.
B:
Yes, although it's - it's wholly owned by the
Government.
H.M.Jr:
Entirely. Yes.
B:
Well, I'm terribly sorry about getting the name
wrong.
H.M.Jr:
Yes.
B:
But I relied on - on one of the most reliable dealers,
but he got it from - from a security house.
H.M.Jr:
Yes.
B:
In transit the name got twisted.
H.M.Jr:
Yes.
B:
Now, what happened was that about lunch time they called
up a number of dealers. It was at least four - and asked
them to make bids on these bonds at 1:30.
H.M.Jr:
Yes.
21
-2-
B:
And then they got the various bids of those who -
who bid; some of the dealers wouldn't bid under
those circumstances. Of course, it went throughout
the country, these fellows trying to get firm - firm
bids from their customers, so that they could bid
for the block with the steamship - with the railroad
company. And then quite late, after getting firm bids
for 15 or 20 minutes, and so on - after 40 minutes or
so, these fellows called the dealers back and - and
told one dealer that he'd bought them; well, he said
he hadn't bought them, because he only gave them to
him firm for 15 minutes.
H.M.Jr:
I see.
B:
Well, then they shopped around and kept on the wire
and - and made a pretty terrible mess of it for a
couple of hours, and finally sold all the direct
Governments to Childs, and the Federal Land Bank
bonds to Solomon. So ....
H.M.Jr:
How many directs did they have?
B:
They had - just a minute, I've got the whole list
here - six, seven, eight, nine, - about nine and a
half million.
H.M.Jr:
Nine and a half
....
B:
Yes.
H.M.Jr:
... Governments.
B:
And about one and a half of Federal Land Banks.
H.M.Jr:
Yes.
B:
Now, I've got their statement.
H.M.Jr:
Yes.
B:
They were listed in their statement, evidently, under -
under two headings: a fund for the construction of
vessels, a reserve fund; and a fund for taking care of
depreciation and depletion and worn-out equipment ...
H.M.Jr:
Yes.
22
-3-
B:
... and so on. And evidently in those two funds they
had these Governments. Some of these actual ones are
listed in Poor's Manual - in Poor's Manual on the thing.
So they had the bonds all right, and they have sold
them.
H.M.Jr:
Yes.
B:
But they - they did it like you would work with a
hacksaw.
H.M.Jr:
Well, you don't know who was giving the orders for
the Panama Railway?
B:
Yes. It was Newton, who was the Treasurer, and
Rossbottom, who's the - the Vice President in charge
of this office.
H.M.Jr:
Ross - ?
B:
Wrigley, the fellow who - the President, is, I under-
stand, in the Canal Zone.
H.M.Jr:
Yes, but who was giving the orders?
B:
Newton.
H.M.Jr:
Newton. N-e-w-t-o-n?
B:
Yes. Mr. Victor M. Newton is the Treasurer.
H.M.Jr:
Victor M.
B:
Yes.
H.M.Jr:
And he was giving - he was handling the orders.
B:
Yes.
H.M.Jr:
Victor Newton.
B:
Now, also, Rossbottom, the - the first Vice President.
H.M.Jr:
Yes.
B:
Thomas H. Rossbottom.
H.M.Jr:
Yes.
23
B:
Who is evidently his superior, - talked with some
of the dealers himself.
H.M.Jr:
First Vice President.
B:
Yes. Now, I gather that Wrigley, the President,
is in the Canal Zone ordinarily.
H.M.Jr:
Well, this is Army, isn't it?
B:
This is Army, yes. Woodring is on the Board.
He's one of the directors.
H.M.Jr:
Yes. Well, now - well, this gives me a lead, and I'll
call up Woodring and tell him what I think.
B:
I think that's the - the procedure.
H.M.Jr:
Yes.
B:
I told these dealers I'd protect them individually
H.M.Jp:
That's right.
B:
... and I haven't told you any names of dealers.
H.M.Jr:
No, I don't know anything.
B:
So you just got it from the air.
H.M.Jr:
That's right.
B:
(Laughs)
H.M.Jr:
Got it through the Communications Commission.
B:
That's right. Through your mysterious sources.
H.M.Jr:
Right.
B:
Well, I'm sorry we got it wrong the first time.
H.M.Jr:
That's all right.
B:
But it really wasn't our fault on that.
H.M.Jr:
Something tells me - the ring in your voice, now that
you know it's a Government agency, sounds entirely
different.
24
-5-
B:
(Laughs) Well, I'm a little relieved myself.
H.M.Jr:
Hel Hat Hal
%
B:
It sounded awful funny to me.
H.M.Jr:
Yes.
All right.
B:
All right, Henry.
H.M.Jr:
Good-bye.
B:
Good-bye.
25
- 12 -
Oliphant: It isn't funny since it's a Government agency.
H.M.Jr:
Well, we'll talk about that some other time.
McReynolds: Rossbottomis their New York man.
H.M.Jr: - Thank you all.
26
MEMORANDUM
April 26th, 1938.
Messrs. Rosensteel and Sack, of Shenleys, called on the
Secretary at 10:20 a. m., to request that the Treasury
propose the imposition of a larger increase in lieu of the
25¢ a gallon increase in taxes on distilled spirits, now
included in the Tax Bill about to be reported out of conference.
The reason given was that 80 small an increase could not be
passed on to the consumer. It would, therefore, have to be
absorbed by the industry; as a result of which the weaker
sections would be unable to continue to operate at a profit.
The Secretary stated that the Treasury had done all it
could to prevent the imposition of the additional 25# a gallon
tax and he could not, therefore, consistently propose a higher
tax. Consequently, he declined to make any effort to comply
with Mr. Rosensteel's request.
Mr. Rosensteel also pointed out the serious results to
the price structure in the liquor industry if the additional
25# & gallon tax is permitted to be imposed without at the
same time imposing a similar floor tax on stocks already
distilled. The Secretary suggested that he take that matter
up with Stewart Berkshire and attempt to get the necessary
adjustment made in Congress.
Mr. McReynolds and Mr. Berkshire were present at the
conference.
AM
april 26
27
Request for Legislation Regarding Limitation
on Bond Issues
With reference to the contemplated request to Congress for
legislation eliminating the limitations on the proportion of bonds
to notes that oan be outstanding, I am wondering whether it may
not be wise to postpone the matter at least until next year.
The only justification for requesting the legislative change
seems to be that it would give the Secretary greater flexibility
in his financing program. The Secretary may wish to take advan-
tage of the low interest rates now prevailing and undertake to
finance next year's requirements with bonds rather than notes.
But the amount of bonds that can be issued under present limita-
tions is only about 21 billions, one half billion of which must be
reserved for savings bonds. It may be felt that 2 billions do
not provide sufficient leeway and therefore removal of the 25
billion limit is called for.
Against this consideration must be weighed the following:
1. The action might have a bearish influence on Government bond
prices.
Realizing that the statutory limit permits issues of approx-
imately 68 billions of notes and bills, but only 2 billions of
bonds, the market would conclude that the Treasury intends to ac-
complish its new financing (or a portion of its re-financing)
through bond issues rather than through notes or bills. The ex-
pectation of increased bond issues in preference to note and bill
issues may be a depressing factor on Government bond prices.
2. It may stir up criticism against the Treasury financing policy.
The request may give opportunity for the numerous critics of
Treasury financing to air their criticism in Congress. They may
repeat and elaborate upon the theme that the Treasury is "whipsawing"
the bond market by driving up bond prices, etc, The critics might
say that the reason the Secretary of the Treasury is asking for
new legislation is because he anticipates a weakening of Govern-
ment credit in the near future and wants to issue bonds before it
is too late. The expression of such views with Congress as a
sounding board can do no good at this time.
3. Is it necessary to obtain new legislation now?
The only justification for requesting a change now in the
legal limitation of bonds versus notes and bills would be the in-
tention of the Treasury to issue more bonds within the next year.
But it would seem that during the next year the financing were
better done with bills and notes then bonds,
9a) The Treasury oan, of course, borrow at B. lower rate of
interest if bills (or notes) are used.
Uclassified
28
(b) Short-term financing helps to promote a low cost of
borrowing for private industry. Bills tap the liquid resources
of banks. Notes do so likewise thoughhto a lesser degree. The
Treasury (and the Federal Reserve Board) have ample powers for
maintaining those liquid resources at a high level, and there-
fore increased issues of bills and notes need not greatly increase
the interest rate.
On the other hand, a larger proportion of the invest-
ments in bonds comes from private individuals, insurance companies,
etc. The Government has no direct control over the volume of their
savings; it cannot increase them as easily as, inot as much as it
can excess reserves. The smaller the investments of these insti-
tutions and private individuals in Government securities, the more
are they forced to seek investment in private enterprise and in
the construction of capital goods.
(c) It may be claimed that it is desirable to take advantage
of the present favorable bond market and issue bonds this year
even though bills can be sold at extremely low rates. If bills
or notes were sold now, the Treasury might be confronted two or
three years from now with interest rates which are much higher
than the present ones on bonds as well as bills.
The validity of that position in my opinion is open to
question. Unfortunately the subject can be treated adequately
only in a longer memorandum (which we shall be glad to prepare if
you are interested). At this point I would merely like to suggest
that the decision to request new legislation be postponed until
you are satisfied that the advantages outweigh the disadvantages.
Howhit
Regraded Uclassified
29
April 26, 1938
10:16 a.m.
H.M.Jr:
Hello.
Operator:
Go ahead.
H.M.Jr:
Hello.
Jesse
Jones:
Hello.
H.M.Jr:
Jesse?
J:
Good morning.
H.M.Jr:
How are you?
J:
Swell. You made a good sale of Commodity Credit bonds.
H.M.Jr:
It wasn't bad.
J:
It was fine.
H.M.Jr:
It's good merchandise.
J:
Yes.
H.M.Jr:
That's the way to sell them, Jesse.
J:
That's right. Well, that's fine.
H.M.Jr:
You know - got to go through the regular machinery ...
J:
Yep.
H.M.Jr:
... that's been perfected over years.
J:
Well, that's fine.
H.M.Jr:
An - Jesse.
J:
Yes.
H.M.Jr:
I'm glad you called, because I don't know what you've
got in your strong box over at R.F.C., but if you've
got any of those bridge bonds or anything else
....
J:
I'm working awfully hard to get 'em.
H.M.Jr:
... I'd put 'em - I'd put the pressure on to sell
them.
Regraded Uclassified
30
-2-
J:
Yes, I'm trying awfully hard to get them, but
we haven't got them yet; we've got to refund the
issue.
H.M.Jr:
Well, because the first to 15th of June - I want
to keep that for the Treasury.
J:
First to the 15th of June.
H.M.Jr:
Yes.
J:
All right, fine.
H.M.Jr:
See? I want to keep that for ....
J:
Well, I've got - I'll bear that in mind.
H.M.Jr:
So you've got the rest of this month.
J:
All right.
H.M.Jr:
See?
J:
First to the 15th of June.
H.M.Jr:
Well, I'll put it - I mean I wouldn't - I - I -
I never gave a look at the calendar - I mean I
wouldn't want you fellows to come out on the
15th. Well, let's say - I'll put it this way
to you. I'll - I'll keep from the 6th to the
20th of June inclusive.
J:
All right, and if I do anything big I'll call you
first anyway.
H.M.Jr:
I mean - yes - but from the 6th to the 20th
inclusive.
J:
All right, 6th to the 20th of June.
H.M.Jr:
And then we'll - we'd - we'll do our offering on
the 6th.
J:
The.6th. Did you
....
H.M.Jr:
Wait, I'll change that - let's see - 6th to the
18th inclusive.
Regraded Uclassified
31
-3-
J:
6th to the 18th.
H.M.Jr:
6th to the 18th, you see.
J:
All right.
H.M.Jr:
That gives me two weeks.
J:
Yes.
H.M.Jr:
That gives me two weeks.
J:
Did you see the President yesterday?
H.M.Jr:
Yes.
J:
Anything mentioned about railroads?
H.M.Jr:
Not a word.
J:
Uh-huh.
H.M.Jr:
What do you know about railroads?
J:
Well, I had a meeting with Wheeler on Saturday and
I'm going to have another one today at noon - at
two o'clock.
H.M.Jr:
Uh-huh.
J:
with him and - and Lea, of the House Committee, and
H.M.Jr:
Ah ...
J:
...
just to talk about seeing what we can do at this
session; if anything, in the way of - Idon't think
anything big can be done, but we may get some little
something. And I just wondered whether
....
H.M.Jr:
Well, are you - have you given up any idea of a bill?
J:
Well, I want to talk; that's what I want to talk
about with these fellows.
H.M.Jr:
I see.
J:
See, Lea is Chairman of the Committee in the House.
Regraded Uclassified
32
-4-
H.M.Jr:
Gosh, I - you know, Jesse, if this Congress goes
home without doing something about railroads, I'm
just going to be sick about it.
J:
Yes.
H.M.Jr:
And so's the country.
J:
All right, I'll - I'll - I'll use that as my cue.
H.M.Jr:
I mean the country is just going to be sick a bout
it. I mean we can sit around here and talk About
pump-priming and all the rest of that stuff.
J:
Yes.
H.V.Jr:
And - but the railroad transportation and the
allied industries that go with it
J:
Yes.
H.M.Jr:
if they don't see some silver lining, I think
it's going to be one of the most discouraging things
to the country I know of.
J:
Yes.
H.M.Jr:
That's the way I feel.
J:
Well, I'll - I'll
....
H.M.Jr:
And I'll tell you something; by God, we've got to
have something like it, because - an - ah - just
between us, I - I haven't got any good news, ...
J:
Yes.
H.M.Jp:
... Jesse.
J:
I see.
H.M.Jr:
But if we could do something so the people knew
where we were going on this railroad thing, I think
it would make the difference - I really do - of day
and night. Now, that's the way I feel.
J:
Yes. Well, I'll talk with you after I've had this
meeting.
Regraded Uclassifie
33
-5-
H.M.Jr:
Because I - as I say, there's - if there's something
in sight which can cheer me up ....
J:
Yes.
H.M.Jr:
But if - if we could - if we could get this thing ....
J:
That would be a definite step.
H.M.Jr:
What?
J:
That would be a definite step.
H.M.Jr:
Most important.
J:
Yes. I'll use - I'll use that as my cue.
H.M.Jr:
O.K.
J:
I'll call you later.
H.M.Jr:
I wish you would.
J:
Thank you.
H.M.Jr:
Good-bye.
Regraded Uclassified
34
April 26, 1938.
10:30 a.m.
H.M.Jr:
Hello.
Operator:
Mr. Jones.
Go ahead.
H.M.Jr:
Hello.
Jesse
Jones:
Hello, Henry.
H.M.Jr:
Jesse.
J:
Yes.
H.M.Jr:
Mr. Rosenstiel is in my office - of Schenley's,
Distillers.
J:
Yes.
H.M.Jr:
And he came down on this question of increase in
taxes on liquor, see?
J:
Yes.
H.M.Jr:
And in his conversation he said that the industry
can't borrow any money.
J:
Yes.
H.M.Jr:
And he wants to borrow 20 million dollars.
J:
Uh-huh.
H.M.Jr:
I said, well, if he wants to borrow 20 million
dollars, he can go over to see you and you've got
it and if he's got a solvent business he can borrow
it.
J:
Yes.
H.M.Jr:
Is that right?
J:
Ah - in - in part.
H.M.Jr:
Well ...
J:
I'll be glad to see him, Henry.
H.M.Jr:
All right.
Regraded Uclassified
35
-2-
J:
And then I'll talk to you about it.
H.M.Jr:
Now, what time do you want to see him?
J:
Well, I think it will be about four o'clock.
H.M.Jr:
Just a minute.
(Aside:) Four o'clock?
He'll be at your office at four o'clock.
J:
Fine. Rosenstiel.
H.M.Jr:
Yes, President of Schenley's.
J:
Fine.
H.M.Jr:
But I'm going on the theory that anybody that's got
a legitimate business,
J:
Yes.
H.M.Jr:
... a solvent business - I don't want him to say
he can't borrow money.
J:
Fine. Send him over.
H.M.Jr:
Is that right?
J:
Yes.
H.M.Jr:
O.K.
J:
Fine.
Regraded Uclassified
36
RE BANK EXAMINATION POLICY
April 26, 1938.
10:30 a.m.
Present:
Mr. Taylor
Mr. Upham
Mr. Gaston
Mr. Smyth
Mr. Davis
Mr. McKee
Mr. Crowley
H.M.Jr:
All right, Wayne, where are we?
Taylor:
Well, I described to you very briefly what the two
points were that I thought you could start discussion
on. One was this classification end the other is how
to handle your bond account.
H.M.Jr:
And you kept all the experts out?
Taylor:
Yes, temporarily. Thought we would make a little
faster progress if you listened to the heads of the
agencies, and so on, and then went on from there,
because their feeling is that it is going to be
comparatively easy for them to come to an agreement
in principle, and then they can tell the heads of
their staffs what those agreements are and say,
"Go ahead and work it out." Isn't that about right?
H.M.Jr:
All right. Let's go around the room, start with Mr.
Crowley.
Crowley:
I always seem to get myself in the wrong location.
Well, as far as we're concerned were perfectly willing
to sit down with the other two agencies and work out
any determination of the "slow" item, but to do it with
the understanding that that item is not to be criti-
cized and not give these bankers any, reason for using
that as an excuse for forcing liquidation. We are
opposed to changing the policy of bank examinations.
In other words, we don't want to go backwards on bank
examination, we think we should go forward. And
personally I don't believe that there is any justi-
fication to a lot of the complaint and the criticism
on bank examinations. Now, these bankers have always
used the bank examiners as the Tribune used the tax law
this morning, as an excuse, More or less - kind of
on a sit-down strike. I don't believe that there is
37
-2-
any great difference of opinion between the three
Federal agencies on what should be done in that
particular matter.
On the bond depreciation, we are willing to go along
and ignore bond depreciation in the higher bracket
securities, providing that we can have a constant
improvement in the type of securities that are in
these banks and that these banks are not permitted
to speculate in and out of the market. Where a bank
is speculating in and out of a market, we don't feel
that they should be given the benefit of their loss
on securities. In other words, they should be penalized
and the market should be followed down. Where a bank
is in a good position, has good liquidity and- good
management, and has bought their securities for invest-
ment, I think we are substantially in accord. We do
feel that on the matter of profits on securities, where
they are sold at a profit, it is nothing more than
writing up inventory, and that those profits should be
earmarked to take care of depreciation; otherwise,
there is no way in the world that you are going to
discourage bond speculation.
That's substantially our position in the matter, and
we're glad to let our technical men sit down with the
other fellows and work out a program.
H.M.Jr:
All right. Federal Reserve?
Davis:
Shall I?
McKee:
You speak your piece, or do you want me to speak my
piece?
Davis:
I'll speak mine. It's coming this way, John.
McKee:
All right.
Davis:
We have talked this over for some time on the Board.
In general we favor meeting with the other agencies
as soon as possible and working out the technical
points of agreement. I believe, like Leo, that on
general principles it isn't so difficult to get an
agreement as it may be when we come to working out
the point in words.
Regraded Jclassified
38
-3-
In our general discussion the Board members have
indicated they are in favor of eliminating the
"slow" classification in examination reports and
working out a method of providing special comment
on loans that need special comment.
On bond depreciation, the Board has indicated
informally that it believes the practices should
be uniform among the three agencies, that they
should put less stress on current market quotations
in the high grade bonds, elways provided that you're
not sacrificing safety in your examination policy
for 8. change.
Now, we're just talking about examination policy,
and Wayne, you didn't refer to or raise the third
point that we mentioned yesterday; that is, the
Comptroller's regulations as to investment in
securities, so I'll not raise that at all.
Taylor:
I was including that in how you handled your bond
account, or intended to.
Davis:
That's all I want to say.
H.M.Jr:
All right. McKee?
McKee:
Mr. Secretary, I have felt for many years - and I
am not predicating my statement or thoughts on so
much present-day conditions as the effect the type
of examination that has continued by the various
agencies has had in accelerating a depression. I
arrive at that deduction by - the first evidence of
a depression is always the market. The first evidence
of losses in the bank usually come through market
depreciation. And when it appears in abnormal
amounts, it excites the bank, the directors, and
has a tendency to restrain them from continuing
credit as well as making available additional credit.
And as it goes along, as the history of that for the
various depressions has gone, it appears to have made
its impressions on these bankers to the extent that
they ultimately force liquidation at the worst time
for the good of the public.
Now, my approach to this thing is that it is something
I think should have been corrected years ago, and we
Regraded Uclassified
39
-4-
have always missed the boat because the time to do
it is when you're on a level that you can do it with
improvement. We appear to be there now.
And the point that I'm interested in most is the type
of an examination that classifies all assets - not
appraise just the notes and price the bonds, but
that treats all assets in the same fashion. What I
mean by that is that if you're going to classify notes
you should classify bonds.
They'll tell you that the ordinary examiner is not
equipped to classify bonds. I say that he is just
as well equipped to classify bonds based on statements
that the banks should have in their files on those
bonds, as he is to pass on a line of credit of a local
merchant based on a financial statement.
Now, if you'd take that system of examination you would
eliminate all bond depreciation except those that are
in default, and I think we'd all agree that that
should be charged off - the difference between book
and market. Now, that is just exactly what you do
with a fellow that is in receivership. And a note -
in classifying the asset you try to arrive at the
recovery value of the note and put the balance of it
in the loss.
Now, I'm satisfied that, by the right kind of direction
by the supervising heads, that kind of 8 method can be
installed in the examinations of the banks of this
country, and I only recommend it if and when you give
that opportunity to a banker to consider his securities
always at book, unless they are in default, with the
proviso that he sets up an earmarked reserve for a
stated percentage - we'll say, for the sake of
argument, 20 percent, and maintain that account at
all times, if he wants to use his non-recurring bond
profits for other expenses, bonuses, dividends,
salaries. Now, if he will reserve those as they
accrue until he has built up that kind of B. reserve,
we'll have something in this country that we have
never had before, and that is adequate reserves for
bond depreciation without the impairment of capital.
Now, it is with that approach that I think, Mr.
Secretary, unless - you go into the history of this
40
-5-
thing and there have been attempts at times like
this to try to adjust the medium of bank examination,
and they haven't been satisfactory, and unless we
have a program of & change, I think it is dynamite
to play with it now, because you're going to attract
the attention of smart money to banks and they are
not going to believe what enybody says about how good
the banks are; they're just going to use their own
judgment and they're going to run that money from
one institution to another, and God knows what kind
of 8 situation we might arrive at - a lot worse than
we've got today.
H.M.Jr:
You think we're on the right foot in what we're
trying to do here?
McKee:
My approach is to change this examination for the
future on 8 classified basis. I mean as long as
they're good, they're good; if they're in default,
they ought to be taken out. And you ought to maintain
your profit from bond sales as a reserve for just such
losses when they occur.
Taylor:
Which must be earmarked and out of which no dividends
or anything else can be paid. That's the
....
H.M.Jr:
Well, I don't know whether everybody's in agreement.
But that's what you feel.
McKee:
That's right.
H.M.Jr:
You feel evidently very strongly.
McKee:
That's right.
H.M.Jr:
Anything else?
McKee:
No.
H.M.Jr:
Now shall we go to the Comptroller's office?
Diggs:
Mr. Secretary, we of course are for uniformity in
examinations. We think that would be very desirable -
if all the banks could be examined with the same
yardstick.
We very definitely do not believe that the "slow"
41
-6-
column should be abandoned. It might be changed
in name. But we feel that the banks of the
country want to know the condition of their banks,
and National Bank Examiners place into that column
now loans which are questionable - "additional
collateral," "further information desired, and
many other things which they are instructed to do.
We believe the bank wants to know about those loans.
We do not think it would be desirable to take it out.
We have no objection to changing the name, if a better
name can be found. If it isn't changed or even is
left as it is, we think that all examiners in all
departments should have the same regulations as to
what is placed in that column.
We do not believe that the examiners have been too
severe in their examinations. You probably know the
figures for 1934. At that time we showed 27 percent
of the loans in the "slow" column, and after our
regulations were changed, following the meeting of
'34 here, which you opened, that dropped in 135 to
16 percent in the "slow" column. In the last half
of '37 it dropped to under 10 percent in the "slow"
column. So we do not believe they have been too
severe. It comes down pretty well, 28 we see it,
to the human equation in the examiner. Some of them
are probably a little hard and others may not be hard
enough.
On the question of investments, we do not think that
any greater latitude should be given to the banks in
the purchase of securities than they now have. I
think what's happened during the past few months has
shown that, if anything is needed, probably they
should buy higher grade bonds, because the banks that
are in trouble are those that have bought the ones that
are not in the upper brackets.
On the writing off of depreciation, we of course
think that should be done on all defaulted bonds.
And the question of setting up a reserve - it seems
to me that that might be a policy, but as for making
a rule, we doubt if it could be enforced - how we can
do it. It's a policy as to what the banks can do with
their profits on bonds and other profits; I think it is
Regraded Uclassif
42
-7-
purely a policy matter.
Crowley:
May I ask a question?
H.M.Jr:
Sure.
Crowley:
Certainly, Marshell, if you allow them the
depreciation you've got a right to say what they're
going to do in the way of building reserves, so
that you can make them build a reserve. Now, they
can put it in the profit account if they wish, but
you can make them transfer it right back to a
reserve account before you allow them to take
this depreciation. You don't under your law; you've
got the right to specify the manner and the type of
examination and your way of arriving at a valuation
of the security or of an asset.
Diggs:
But my thought is that you can't tell the bank
everything they're going to do, that you can't run
it for them.
Crowley:
No, but I think you can do this. You certainly can
stop these fellows - they're making more damn money
now on security profits than they're making off their
loan and discount account. And if you analyze your
big banks, you'll find that to be correct. And that
was never the intention of an investment fund.
H.M.Jr:
Well, I gather this is where we get down to a differ-
ence of opinion, and that's the point we're trying
to iron out, aren't we?
Are you through?
Diggs:
Yes, sir.
H.M.Jr:
Smyth, got anything?
Smyth:
No, sir.
H.M.Jr:
Cy?
Upham:
No.
Taylor:
(Nods nothing)
Regraded Uclassified
43
-8-
H.M.Jr:
Well, there is still this difference of
Upham's given me this agenda here, which looks
good.
I mean we study the "slow" classification of loans:
"A. Should the 'slow' column be abandoned?
"B. Should the 'slow' column be renamed, and if
so, what title should it be given?
"C. If renamed, should the type of loans listed
be the same as now? If not, how changed?
"D. Are bank examiners too severe in their
classification of loans as slow?
"III. The treatment of investment securities by
examiners.
"A. Should banks be given a greater latitude in
the securities they may purchase?
"B. How should securities be valued by the
examiner -- cost or market price or what?
"C. How should market appreciation and depreciation
be treated?
"D. Should any special restrictions be placed on
profits from the sale of securities?"
Well, I gather from what Taylor told me that you
fellows wanted to see me, some of you, alone without
your staff. As the agenda - we haven't come to an
agreement; I don't want to force one. But if you -
what I would suggest is, you people have all got
able people; let's lock them up in a room and let's
have them come in with a ma jority and minority report.
Maybe it'll be a unanimous opinion. Let's lock them
up.
Davis:
That's what you'll have to do.
Crowley:
That's right.
Regraded
Uclassifie
44
-9-
H.M.Jr:
Now, I would say this, that when they're ready I'm
ready. But let's lock these boys up and
....
Who would you (Diggs) designate?
Diggs:
Mr. Folger.
H.M.Jr:
Folger. He's all right. And the Fed?
McKee:
Paulger.
H.M.Jr:
P-0-1- ?
McKee:
P-a-u-1-
H.M.Jr:
F.D.I.C.?
Crowley:
John Nichols.
H.M.Jr:
I'd say just lock them up. And they can use this
agenda. Cy can go in every once in a while and give
them spirits of ammonia.
Crowley:
I think that's the way to do it.
H.M.Jr:
I'd lock them up.
I tell you, I'm going to ask - as chairman I'm not
going to express any opinion; the only thought I had
was this: when you get something I thought I'd
invite a few bankers in, big and little, that I have
confidence in, and show them this before we shoot it.
Now, take a fellow like Tom Smith, a fellow like
Jeff Coolidge, maybe a fellow from New York, say, "Here
is this plan." I can show it to them in confidence.
"What do you think?" I mean they're all interested
and they're all good sound fellows. I don't know,
I've never asked them how they feel on this thing.
But they have shown their interest in the Government.
And just bring them in and say, "Now here's the
program; what do you think of the thing?" I mean
because I don't pretend to be an expert on banking
regulations. But those fellows are making their
living at it.
Crowley:
They operate good banks.
Regraded Uclassified
45
-10-
McKee:
Mr. Secretary, do you disagree to the fact that
this thing should be kept just as quiet as it can,
because if it does get much publicity it's going to
make everybody conscious that we're sitting down
here worried about banks.
H.M.Jr:
I don't think - that doesn't start that way.
McKee:
what?
H.M.Jr:
You see, all we're sticking to is, first, what the
President said in his message. Just trying to carry
out the spirit of what he said in his message, and
that's all. I was very careful of what I said
yesterday. I have a press conference twice & week.
But I think what I said was all right. Did you (McKee)
see it, did you think so?
McKee:
I haven't seen it. I looked at the headline in the
Wall Street Journal, but I didn't read it carefully.
H.M.Jr:
Well, I simply said that we were going to study this
thing. But nobody said anything about being worried
about banks.
McKee:
Well, the interpretation - the erroneous interpretation
placed on everything at this time is the thing that
worries me a little.
H.M.Jr:
I think if you people would be willing to let Gaston
do the talking - I think he could handle the Treasury
press men so that it wouldn't get out. I mean we're
pretty successful in getting out the sort of thing
we want - do it openly, tell all the regular men what
it is.
McKee:
As far as I'm concerned, I'll do no talking about it
because I'm afraid of it.
H.M.Jr:
All right. Well, I don't have to see them again until
Thursday morning. I don't see them in between.
I think that would be the thing to do. But hell, all
I'm going to insist on as chairman - I don't want - I'm
not just going to sit back and say, "Well, we can't get
them together." They've got to get together. Somebody's
Regraded Uclassified
46
-11-
got to give way. Now, I'm not pretending to say
what's the right way.
Crowley:
I don't think, Mr. Secretary, that when you get these
technical men together there's going to be any great
difference of opinion. I think they'll come back
here with a report. And what you want - we don't
care about the language you use - what you want is
the thing carried out, and what the President wants
is a unification of spirit.
H.M.Jr:
That's right.
Crowley:
I don't doubt but what they can get together. And
they'll get together better themselves than if we
sit around with them, and they sit around with their
tongues in their cheeks and not express themselves.
We can keep out of it, let them bring B report back,
and then we can take it afterwards.
H.M.Jr:
Well, they can go wherever there is a nice good room
and plenty of sunlight.
Taylor:
I think they'd work better in the dark.
H.M.Jr:
Want to say something, Weyne?
Taylor:
Yes.
H.M.Jr:
What?
Taylor:
There was one point brought out yesterday - also some
difference of opinion - that had to do with the
question of marketable securities and so on. The
Comptroller's office takes the position that that is
a question of law and that cannot be changed without
an amendment of the law. I get the impression that the
Federal Reserve Board didn't entirely agree with that.
Is that right, Chester?
Davis:
Well, in our - we think that is a point which hould be
thoroughly explored. I wouldn't go so far as to say
we disagree with the legal opinion, because I've had
no legal opinion. However, it's been studied from the
legal standpoint, but we have never approached it from
that angle before. The thing that should be examined
on that is this question: Do the Comptroller's regula-
tions force the investing banker into too close a
Regraded Uclassified
47
-12-
dependence on and relation to the stock market
ticker in handling his bond account? Now, that -
I wouldn't express an opinion; I think it should
be examined.
H.M.Jr:
Why not put that on the agenda?
Taylor:
It should be in there.
Davis:
1 think it is in there. I think you've got it in
there.
H.M.Jr:
Well, Cy, you're going to ride herd on these fellows
for all of us. It's your responsibility to see that
they meet, see that they get plenty of water and food,
but that they keep going,
Upham:
Well, of course, they have other things to do. They
can't just - Folger, for instance, couldn't go in a -
when you say "lock him in a room," you don't mean that.
H.M.Jr:
I mean this. They could devote exclusively to this
problem half a day.
Upham:
Might do that,
H.M.Jr:
Couldn't they?
Diggs:
Yes.
McKee:
We can urnish our representative as many days and
many half-days as you want, because I think it's
important.
H.M.Jr:
Well, why not say this, that they meet every a fternoon
at two o'clock and work as long as they can. That
gives them their morning free for routine.
Davis:
That's right.
Crowley:
That's a good arrangement.
H.M.Jr:
Let them work from two on as long as they can stick
it out. How's that, huh?
Davis:
I think this morning that will give a little time for
each agency here to talk - sit down and talk with their
48
-13-
men before they go into the meeting. I think they
should do that.
H.M.Jr:
Any other suggestions, Cy?
Upham:
No.
H.M.Jr:
As you represent us, if they get into any trouble,
we'll expect you to step right in, do & public
service.
Upham:
Thanks.
H.M.Jr:
When they do come to an agreement, I want to show the
thing to some fellows that have got to make their
living by it.
Davis:
I think, Mr. Secretary, that when you're getting your
bank advice, don't confine it altogether to the large
banker, who has a method of handling his bonds and
investments.
H.M.Jr:
Well, maybe you can give me the names of a couple
fellows.
Davis:
I think, John, it would be a good idea to take a
cross-section and get some men who are really
familiar with the little country bank problem
and what he's got to do.
H.M.Jr:
Well, you can give me the names of a couple fellows.
Crowley:
I'd like to suggest that when you get ready for your
conference with the bankers, call B111 White, of New
York, who is President of the State Bank Supervisors.
H.M.Jr:
Good idea. White's a good man. And I thought I'd
bring down Broderick too, because Broderick's been
all through the mill on this. What? He'd have a
kind of savings - no, you don't examine savings banks,
do you? He's a good fellow.
Crowley:
We have savings banks.
H.M.Jr:
We can keep it down, not get it too big; but I think
get half a dozen to ten fellows. Because 1 don't
want to shoot on this, and I think it's always good
49
-14-
to show these fellows what you're going to do anyway
in advance; then if they like it, they'll sell it
for you. So I think White - that's a good idea.
All right, gentlemen. Thank you.
Davis:
Thank you.
Regraded Uclassified
50
Agenda for Meeting of Banking Agency Heads April 26, 1938
with Secretary Morgenthau
I. Why this meeting is being held.
A. The President's message of April 14, 1938.
B. The long-recognized necessity for coordina-
tion of banking agencies on examination
policy.
II. The "slow" classification of loans.
A. Should the "slow" column be abandoned?
B. Should the "slow" column be renamed, and
if so, what title should it be given?
C. If renamed, should the type of loans
listed be the same as now? If not, how
changed?
D. Are bank examiners too severe in their
classification of loans as slow?
III. The treatment of investment securities by examiners.
A. Should banks be given a greater latitude
in the securities they may purchase?
B. How should securities be valued by the
examiner -- cost or market price or what?
C. How should market appreciation and depre-
ciation be treated?
D. Should any special restrictions be placed
on profits from the sale of securities?
Regraded
51
April 26, 1938.
11:24 a.m.
H.M.Jr:
Hello.
Operator:
Mr. Franklin is at lunch until one o'clock our time.
They said they might be able to reach him at lunch.
H.M.Jr:
I'll talk afterwards. Get the Secretary of War.
I'll take it afterwards.
Operator: All right.
11:25 a.m.
H.M.Jr:
Hello.
Operator:
Secretary Woodring will not be in his office today.
H.M.Jr:
Well, leave word I want to talk to him when he gets
back.
Operator:
They say we might reach him at home.
H.M.Jr:
No.
Operator: All right.
H.M.Jr:
Ah - let me see - get me General Craig, will you?
Operator: All right.
H.M.Jr:
General Craig.
Operator:
Right.
11:26 a.m.
H.M.Jr:
Hello.
Operator:
General Craig is away for the week.
H.M.Jr:
Gosh. All right. Well, leave word I'll talk to
Woodring tomorrow.
Operator: All right.
Regraded Uclassifie
52
April 26, 1938.
2:13 p.m.
H.M.Jr:
Hello.
Operator:
Mr. Franklin.
H.M.Jr:
Hello.
Operator:
Go ahead.
H.M.Jr:
Hello.
P.A.S.
Franklin:
Hello, is this Mr. Morgenthau?
a.M.Jr:
Talking. Mr. Franklin.
F:
Yes.
H.M.Jr:
On third investigation, we find that we had one third
of the name right; that it's the Panama Railway Company.
F:
Oh, Panama Railway Company.
H.M.Jr:
Yes.
F:
Oh.
H.M.Jr:
And the people up in New York - Federal Reserve was
very much embarrassed to think that they told me it
was the Panama Pacific Steamship.
F:
Yes.
H.M.Jr:
It was the Panama Railway Company.
F:
I don't see how they got them mixed up.
H.M.Jr:
I don't either, but they did. And that was the concern,
and I've now got to get in touch with the Governor of
the Panama Canal Zone, ....
F:
Yes.
H.M.Jr:
:. who is President of that railway.
F:
Yes.
H.M.Jr:
And find out what the hell he was doing.
53
-2-
F:
Are they - are they keen about selling their bonds?
H.M.Jr:
I don't know. They must have been awful keen to do
it the way they did it.
F:
Well, they were very keen and very short in their
sale.
H.M.Jr:
And very stupid.
F:
Well, that was too bad.
H.M.Jr:
But thank you for your cooperation.
F:
Well, I'm very much obliged to you and I'm sorry I
couldn't be of any assistance.
H.M.Jr:
Well - and you're sorry you didn't own the bonds.
F:
Yes, I'm very sorry I didn't own the bonds or anything
else.
H.M.Jr:
All right. Thank you, Mr. Franklin.
F:
They could last forever.
H.M.Jr:
All right.
F:
All right, much obliged to you.
H.M.Jr:
Good-bye.
Regraded Uclassified
54
April 26, 1938.
2:19 p.m.
H.M.Jr:
Hello.
Louis
Johnson:
Hello, Mr. Secretary.
H.M.Jr:
How are you?
J:
Just fine. How are you, sir?
H.M.Jr:
I'm alive.
J:
Sorry I don't see you more frequently.
I.M.Jr:
That's mutual. Mr. Johnson, the reason I'm calling is
this. Something happened on Friday which disturbed me
very much, and that was an action taken by the Panama
Railway Company, which, as far as I can tell, is more
or less under the War Department. Is that right?
J:
Its stock is all owned in the name of the War Department.
Mr. Woodring votes it. He's President of it.
H.W.Jr:
Right. Well now, let me tell you what they did. Friday,
about one o'clock, they offered to five different brokers
eleven million dollars worth of Governments.
J:
Good Lord!
H.M.Jr:
And asked for bids, and said that they had to have bids
in five minutes. An - eleven multiplied by five - that
made 55 million. And that went all over the country
and it just knocked the bottom out of our Government
bona market. And of all the stupid things that I've
ever seen in my life, that is the stupidest. Now, the
man that they tell me was in charge is a man by the name
of Victor Newton - was Treasurer; and a man by the name
of Rossbottom, the first Vice President. And they say
that those two men handled this thing. Now, it seems to
me if a subsidisry, so to speak, of the War Department
is going to sell eleven million dollars worth of
Governments, they might ask the Secretary of the Treasury,
"is this a good time to sell it?" See?
J:
May I be just utterly frank with you and off the record
a minute?
H.M.Jr:
I'm being very frank and off the record with you. You
can call a spade a spade.
Regraded Uclassified
55
-2-
J:
About last August, the White House got an anonymous
letter about the letting of contracts there for
stevedoring, and it was referred directly, either
by the President or Jimmy at his direction, to me.
H.M.Jr:
Yes.
J:
I investigated it, found that this had been going on
with some sort of a preference for a number of years.
H.N.Jr:
Yes.
J:
I wrote the President a memorandum in which I called
attention to the un-American spirit of that and the
lack of proper safeguarding of the Government's interest
in the method of handling it; then told him that in the
course of the checking I had found four or five other
things.
H.M.Jr:
Yes.
J:
That was el direct communication and request to me.
I handled it as that.
H.M.Jr:
Yes.
J:
It came back to - it came back to the War Department,
to the Secretary, with a letter I was sent E blind
copy of, directing that the situation be changed, ...
H.M.Jr:
Yes.
J:
saying there was E vacancy on the Board, and a
White House suggestion that I be put in in the vacancy.
H.N.Jr:
Yes.
J:
That letter W&S very much resented over here, got me in
bad with the Secretary; he's never mentioned Panama
Reilroad in my presence since. I'm not on the Board.
And 50 with that background - I agree with you thoroughly
that this is the craziest thing here to do, but I don't
know anything I can do about it under the present set-up,
Mr. Secretary.
H.W.Jr:
Well, the reson I'm calling you is - I asked for the
Secretary or the Acting Secretary.
Regraded Uclassified
:
56
-3-
J:
Well, I - I am the Acting Secretary.
H.M.Jr:
Well then, I
J:
All right, then, we'll talk upon that basis.
H.M.Jr:
Well, now I'm going to talk official.
J:
All right, sir.
H.M.Jr:
I'm saying as Secretary of the Treasury that I protest
vigorously the method that the Government bonds were
handled by an agency of the United States Government,
and that I am asking that an investigation be made and
find out why Mr. Newton and Mr. Rossbottom handled it
in that way; and I think they should be sent for, and
I'd be glad to tell them face to face what I think of
them.
J:
Well, I think you're right and I'll start that now.
H.M.Jr:
That - that I'm asking you as Acting Secretary of War.
J:
All right, sir. That - that will be checked into now.
H.M.Jr:
And if they come down and they will be brought over here,
I would like to see them and ask them what they mean by
handling Governments in that way. And we haven't
recovered from it yet. And incidentally, it may again
give the people in Wall Street a chance to give the
Government the laugh, and we'll be made the laughing
stock in Wall Street.
J:
Oh, well, that ...
B.M.Jr:
And I - I told - I told the President about it.
J:
Oh, you have done that?
H.M.Jr:
E didn't know who it was at that time.
J:
Well, I tell you what I - if the President would say to
me, "You investigate this," believe me, you'll get the
story.
H.M.Jr:
Well, all right, I will
....
J:
You aren't - you aren't going to get the actual story,
Regraded Uclassified
57
-4-
you're going to get a whitewash, if/is it otherwise
handled.
H.M.Jr:
All right, I'll call the President and ask him to
direct you.
J:
All right, sir.
H.M.Jr:
How's that?
J:
All right, sir. Then we'll get to the bottom of it.
I agree with you off record now on your indignation.
You're entitled to it. I'd have a lot more than you're
showing.
H.M.Jr:
Yes. Well, I don't want to - not - no use getting
burned up. I mean people like that, if they haven't
got a good explanation, should be fired.
J:
Well, sir, if - will you do that? Then I'll get this -
this full story and let the chips fall where they will.
H.M.Jr:
Right.
J:
Yes, sir.
H.M.Jr:
Thank you.
J:
Thank you, Mr. Secretary. Good-bye.
Regraded
58
April 26, 1938.
3:56 p.m.
H.M.Jr:
Hello.
Operator:
Mr. Johnson.
H.M.Jr:
Thanks. Hello.
Louis
Johnson:
Mr. Secretary.
H.M.Jr:
Talking.
J:
The President called me. This is Louis Johnson.
H.M.Jr:
Yes.
is
J:
I called New York and immediately got my ears knocked
down by their telling me that the War Department as such
had nothing to do with this, it was Mr. Woodring personally
who held the stock.
H.M.Jr:
Oh for Heaven's sakes.
J:
I told them then that in the name of the President
I ordered Mr. Newton and Mr. Rossbottom, one or the
other, to communicate with you on the phone and fix
an hour to come down.
H.M.Jr:
Yes.
J:
I called over about ten minutes, fifteen minutes ago to
see if they had called you; they had not.
H.M.Jr:
Well, they
...
J:
Then I took the call from Wayne Johnson, their attorney.
Mr. Rossbottom went to the office of the $16,000-a-year
counsel of this company.
H.M.Jr:
Who is - who?
J:
Wayne Johnson.
H.M.Jr:
Wayne Johnson. I know the name.
J:
He called me and tried to give me an argument that they
were responsible for this money, that they had these
Regraded Uclassified
59
-2-
commitments of a million four, I think ne said, per
month to pay on these ships; that they made about
$800,000 by selling them the way they did; that it was
their responsibility, they would have been held
responsible if they had held them and the bonds had
gone down, they'd have to have. taken 1-loss.
H.M.Jr:
Yes.
J:
I wanted to give you their story. Wayne Johnson wanted
to call you or come to see you in lieu of these two, and
I told him that the orders of the President were that Mr.
Newton and Mr. Rossbottom should report and I saw no
occasion for his, Mr. Johnson, being there.
H.M.Jr:
Yes.
J:
And I hope you'll talx to them pretty frankly.
H.M.Jr:
Well - an
...
J:
Because they ignore - they ignore the country as a
whole in arriving at their own little petty problem.
H.M.Jr:
Well, I frankly - I just - I mean I'm not running the
War Department, but if I held a - the stocklofa cor-
poration and - I'd wonder what
.....
J:
Well, frankly, that's just exactly what they told me.
I was afraid of that when I was talking to you, because
of
H.M.Jr:
Well, why should I call them down? It's up to the
Secretary of War.
J:
The President wants you to tell them.
H.M.Jr:
What should 1
....
J:
Wants you to dress them down. That's what he said.
H.M.Jr:
I can do it.
J:
And so I've ordered them to report to you on the
telephone making a
....
H.M.Jr:
All right.
60
-3-
J:
... an appointment to come down.
H.M.Jr:
I'll - I'll take care of it.
J:
All right, sir.
H.M.Jr:
I got right to the President.
J:
Yes, you certainly did. He called me personally.
H.M.Jr:
All right.
J:
All right, sir, I think you'll get some action over
here on those
.....
H.M.Jr:
Let's see, that's Rossbottom and what's the other?
J:
Newton.
H.M.Jr:
And Newton.
J:
Victor Newton and Rossbottom.
H.M.Jr:
O.K.
J:
All right, sir. Good-bye.
H.M.Jr:
Thank you.
Regraded Uclassified
61
April 26, 1938
The Secretary had as luncheon guests today Mr. Eccles,
Mr. Davis, Mr. Taylor and Mr. Upham.
Mr. Eccles stated that the Open Market Committee is
coming for a meeting this week-end and that prior thereto
he would like to go to the White House and ask the Presi-
dent about letting the Federal Reserve portfolio of Govern-
ments decline. Mr. Eccles thinks it would be a mistake for
them to let the portfolio decline at this time and Mr.
Morgenthau agreed. Later, Mr. Eccles modified that posi-
tion by stating that they can't let their portfolio decline
unless they find that to maintain it will require paying
a premium on securities acquired.
Mr. Morgenthau agreed with him that if the Open Market
Committee found it necessary to pay a premium for bills and
notes, it might give them an excuse for letting the total
decline. Mr. Eccles said that so far they have been re-
placing their maturities but on almost a no-yield basis.
They have sold more than $100 million in bonds the last few
weeks.
Uclassified
62
- 2 -
Mr. Eccles said that he is disturbed by the necessity
of making all of their purchases through five New York
dealers who profit magnificently thereby. He said that if
there is to be banking legislation this year, he may want
to ask Congress to permit the Federal Reserve to have
direct dealings with and buy securities directly from the
Treasury. He said that the New York dealers are building
up their portfolios at this time when, as a matter of fact,
they profess to find it difficult to fill the orders that
they receive. He said they always buy when the market is
going up and sell when it is going down, thus emphasizing
the movement in both directions. They do not cooperate
with the Government in the regulation of the market for
stability. Mr. Morgenthau and Mr. Taylor ventured the
opinion that the dealers were only engaged in operating
their business as a business and for profit. Mr. Taylor
pointed out that the Federal Reserve had made about $5
million of profit this year on their portfolio and suggested
that this was a good deal more than the dealers had made
probably. Mr. Eccles said that he found it very nice to
have a profit on their portfolio but, after all, that was
not their motive in managing the open market fund. Mr.
Taylor pointed out that the dealers have suffered losses
also,
Regraded Uclassified
63
- 3 -
Mr. Morgenthau told Mr. Eccles and Mr. Davis the
story of the market operations of the Panama Railway
last Friday, which they had not heard. He explained that
the Panama Railway, & wholly Government-owned corporation
in the War Department, had, without consultation with any-
one in the Treasury, offered in the most unbusinesslike
way possible some $11 million of Government securities to
the market. They telephoned five dealers asking for bids
and the resulting market activity was on the basis of an
offering of 555 million instead of $11 million. They
finally disposed of the bonds and "took the bloom" off
the market. Fortunately, on this particular day the
market could stand and indeed needed some knocking off,
but if the action had been taken on almost any other day,
it would have been disastrous to the Government market.
Mr. Eccles spoke of the action of the Treasury in
letting $50 million of bills run off last week and agreed
that things had run along pretty smoothly and the Govern-
ment bond market had not gotten out of control and that the
problem was not 30 desperate by reason of the first
week's activity but would become increasingly so as the
weeks went on. He said that he did not really oppose the
Regraded Uclassifie
64
- 4 -
Treasury proposal to let $50 million run off weekly but had
just seen the problem ahead and had wanted to bring it into
the open. He said the New York bank felt much more keenly
than he did.
The Secretary suggested the possibility of issuing on
May 15th a $200 to $300 million block of three or five-year
RFC notes: Mr. Eccles and Mr. Davis both thought that
-
looked good at first blush and would help their position
and offset the $50 million weekly bill run-off. They thought
it might be done without attracting too much. public attention
to that feature of it also.
Mr. Morgenthau said that he had told the President this
week that business indices do not look so good and he sees
nothing in the immediate future to help the situation. Mr.
Eccles said that inflation is not catching on and that it
will not. The spending is not proceeding speedily enough.
He stated that what brought him to approve the spending
program was the fact that he saw the President was not going
to do anything about wages and fixed costs. To remedy the
discrepancies and lack of balance of farm prices, the pur-
chasing power of the farmer, and unorganized labor, he thought
it was necessary "to put something in at the bottom." He
had urged WPA help be made available to the railroads and
Regraded Uclassified
65
- 5 -
to house builders. That would put people to work faster
and bring expenditures more quickly. He also urged that
WPA abandon the means test and take on 8 greater number
of clients.
Mr. Morgenthau said that he had urged the President
to revive the CWA under Hopkins rather than renew the PWA
under Ickes. He said that they can start faster and can
stop any time. The President's reply was that he would
not go back to raking leaves.
Mr. Eccles said that when he and Mr. Morgenthau see
the President, he would like to take up this subject as
well as the Federal Reserve portfolio. Mr. Morgenthau
said that he would be very glad to have Mr. Eccles and
the President discuss it but that he wouldn't do anything
but listen. He said he had done all that any human being
or friend could do in the three days before the President
sent his message to Congress. Mr. Eccles said that he had
favored the third barrel when all other proposals had failed.
Mr. Morgenthau asked Mr. Davis why he thought the prices
of commodities continued downward even after the President's
announcement. Mr. Davis replied that he did not think the
situation in commodities could be cured by monetary means.
Regraded Uclassified
66
- 6 -
He pointed out that as he had said before when the $300
million was desterilized, he did not expect very much from
that action. It might hold the line until the psychological
effect could be translated into real catching on of infla-
tion. He predicted that 1f things continued 8.8 they are
now, we would have 60¢ wheat in the fall. Mr. Morgenthau
referred to visits he had had with a dean of an agricultural
college who has travelled up and down the Atlantic coast
and who finds among the farmers a good deal of criticism
in the AAA. Mr. Davis said that is partly the fault of
Congress because of amendments they insisted on putting in.
Mr. Eccles supplemented Mr. Davis' statement by pointing out
that it is important to recognize that manipulation of mone-
tary factors is not enough, and that he has taken that posi-
tion probably for a year and more.
Mr. Morgenthau spoke skeptically of the Ickes' testimony
on the Hill this morning that he is now ready to go ahead
with 2900 PWA projects. Mr. Morgenthau compared them to
two-year old orders on the books of B business man. He said
that there will be no spending on the public works until fall
and that people now recognize it.
Regraded Uclassified
67
- 7 -
Mr. Davis and Mr. Eccles agreed that the market for
Governments has been well taken care of and any appre-
hensions they might have had with respect to the retire-
ment of $50 million of bills weekly have disappeared.
Mr. Eccles said that the Open Market Committee expects
him to sound out the President on their portfolio before
the meeting on Friday. He and Mr. Morgenthau went to the
Secretary's office at the conclusion of the luncheon to
telephone Mr. McIntyre for an appointment with the
President.
Upm
Regraded Uclassified
68
12981
Confidential
Weekly WPA Employment
Not for Publication
Series - Table 1
EMPLOYMENT ON WPA PROJECTS, BY STATE
UNITED STATES AND TERRITORIES
Weeks Ending April 23 and April 1938
(Partly Estimated - Subject to Revision)
Number of Persons Employed
Increase (+)
State
Wook Ending
Week Ending
or
Apr. 23, 1938
Apr. 16, 1938
Decroese (-)
GRAND TOTAL
2,545,124
2,532,448
+
12,676
CONTINENTAL UNITED STATES
2,542,978
2,530,255
- 12,723
Alabama
39,149
36,380
+
769
Arizona
9,378
9,267
+
111
Arkansas
35.394
35,553
-
159
California - Total
95,141
95,706
.
625
Northern
50,485
51,113
-
628
Southern
44,656
44,653
+
3
Colorado
26,133
27.732
+
401
Connectiout
21,889
21,776
.
113
Delaware
3,297
3,324
-
27
District of Columbia
8,146
8,133
-
13
Florida
32,595
32,511
+
BL
Georria
42,155
42,398
-
243
Idaho
10,898
11,198
-
300
Illinois
199,134
199,572
-
438
Indiana
92,535
92,013
+
522
I owe
32,978
32.597
+
381
Kenses
35,925
35,863
+
&
Kentucky
54,407
52,920
+ 1,487
Louisiana
31,808
31,636
+
172
Maine
7,922
7,307
+
115
Maryland
12,196
12,090
+
106
Mossechusetts
100,351
100,007
+
344
Michigan
130,191
132,848
+ 3,343
Minnosota
00,220
59,479
+
741
Mississippi
31,136
31,116
+
20
Missouri
91,067
90,636
+
431
Montana
19,148
10,850
-
298
Nebruska
28,816
26,316
+
498
Nevada
2,476
2,523
-
147
New Hampshire
8,503
8,708
,
145
New Jersey
91,538
91,732
-
194
New Mexico
9,986
10,015
-
27
New York City
157,842
157,947
-
105
New York (Excl, N.Y.C.)
54,499
53,690
-
809
North Caroline
33,049
32,712
+
337
North Dakote
13,610
13,888
-
278
Ohio
223,532
219,859
+ 5,673
Oklahoma
62,343
61,470
+
873
Oregon
16,764
16,720
+
We
Pennsylvania
226,553
228,642
- 2,089
Rhode Island
13,672
13,356
-
316
South Carolina
32,159
31,613
-
546
South Dakota
15,496
15,871
-
375
Tennessee
32,063
31,739
+
324
Texas
80,712
79,663
+ 1,049
Utah
10,205
10,190
+
15
Vermont
5,089
5,066
-
23
Virginia
23,098
23,172
-
74
Washington
45,931
46,726
-
795
Most Virginia
42,906
42,748
+
158
Wisconsin
70,236
69,627
.
409
Wyoming
4,645
4,588
+
57
Hawaii
2,146
2,193
-
47
WORKS PROGRESS ADMINISTRATION
Division of
Research, Statistics and Records
Regraded Oclassified
69
April 26, 1938
2:45
HM, Jr spoke to the President over the phone and
said "The Panama Railway Company sold the bonds and the
man in New York is Fisher Newton, Treasurer, and I called
up Louis Johnson, who is Acting Secretary of War, and he
said he would be delighted to have them down and ask them.
So if you would tell them to do it. He thought he would
like to have word from the President. And it was even
worse -- they offered it to five brokers 80 it looked as
though they were selling $55,000,000 and it went all over
the country and in New York it's gotten out and they are
giving the Government the horse-laugh." The President
asked who Newton was and the Secretary said, "He 1s Treas-
urer of the Panama Railway Company with office in New
York. The President said, "I have never heard of him.
I will find out about him. à The President's next com-
ment was "I am glad it was the Army and not the Navy.
Regraded Uclassified
TO
April 26, 1938
SMALL HOME MORTGAGE INSURANCE
During the week ending April 23, mortgages selected for appraisal
numbered 5,076 and amounted to $22,994,647. For the correspond-
ing week of 1937, 3,796 mortgages were selected for appreisal in
the amount of $16,017,136.
of the nortgages selected for the week, 2,551, or 50.3 per cent, cov-
sred new homes to be constructed and during the week construction
was started on 1,355 now small homes.
LARGE SCALE PROJECTS
The attached table gives as of April 23, the name and location of
the 16 projects valued at $15,300,000 in operation as of that date,
the additional 22 projects valued at $17,300,000 under construction,
and the 22 projects for $24,800,000 on which financing had been ar-
ranged as of that date. Financing arrangements were completed on
4 of these projects totalling $4,000,000 during the week ending
April 23.
Applications for insurance were received the past week on 25 projects
in the amount of $7,500,000.
PROPERTY IMPROVEMENT LOANS
More than 1,900 lending institutions are now reporting notes cover-
ing advances made for improvement to existing properties or for
new construction, end during the week ending April 23, 6,705 notes
were accepted for insurance totalling $3,160,958.
Regraded Uclassified
m. - 71
FEDERAL HOUSING ADMINISTRATION
WASHINGTON, D.C.
WESKLY VOLUME OF FEA INSURING OPERATION
Per 1980 and corresponding Period of 1937
HOME MORTGAGES SELECTED FOR APPRAISAL
1930
1937
Week Ending:
No.
il
No.
il.
Jan. 6
1,256
$ 5,483,184
1,967
8 8,895,680
15
1,506
6,851,200
8,286
9,568,860
9
22
1,711
7,299,975
2,167
9,447,127
.
29
2,888
8,150,040
2,272
10,091,713
Feb. 8
1,902
8,571,895
2,306
9,721,165
.
18
1,980
8,787,105
2,701
11,068,000
.
19
2,219
10,085,800
2,765
11,764,009
.
26
2,775
13,100,280
2,835
11,747,954
Mr.
8
8,899
17,618,40€
3,844
13,685,500
.
12
4,470
20,586,711
5,405
14,176,580
#
19
4,697
21,293,061
4,095
16,879,710
-
26
4,065
22,588,219
3,476
14,970,845
Apr.
1
4,722
81,414,849
5,627
18,366,435
9
5,057
23,248,102
3,520
15,414,083
.
18
4,483
20,388,490
3,481
15,234,425
.
as
5,076
22,994,667
5,796
16,017,158
Regraded Uclassified
72
FEDERAL HOUSING ADMINISTRATION
WASHINGTON, D.C.
WEEKLY VOLUME OF NORTGAGES ACCEPTED FOR INSURANCE
1938
1937
Yeek Ending:
Number
Amount
Number
Amount
Jan. 8
943
$4,035,500
1,462
$5,821,275
15
1,101
4,542,900
1,756
7,241,815
22
1,058
4,445,500
1,767
7,438,500
29
1,329
5,501,500
1,880
7,860,250
Feb. 5
1,099
4,431,000
1,811
7,424,100
12
1,172
4,649,900
1,778
7,410,850
19
1,194
4,837,100
1,869
7,702,650
26
1,033
4,350,200
1,867
7,524,500
Mar. 5
1,589
6,905,400
2,291
9,092,500
12
1,705
7,601,400
2,135
8,947,600
19
1,883
8,288,400
2,388
9,781,500
26
2,290
9,990,900
2,497
10,298,380
Apr. 2
2,642
11,601,700
2,602
10,856,395
9
2,947
12,703,400
2,598
10,661,655
16
3,256
14,330,625
2,660
10,919,110
23
3,751
16,514,000
2,922
12,089,160
E
Regraded Uclassified
73
WEEKLY VOLUME OF HOME MORTGAGES SELECTED FOR APPRAISAL
AMOUNT REPORTED BY INSURING OFFICES AT END OF EACH week
MILLIONS OF DOLLARS
MILLIONS OF DOLLARS
30
30
1938
1937
25
25
20
20
15
15
10
10
5
5
O
o
30
G
oz
27
3
iD
17
24
1
6
15
22
29
5
12
19
26
3
5
17
24
31
-
15
22
a
5
12
=
26
5
12
a
26
2
e
16
23
30
7
14
21
20
4
II
18
25
2
9
16.
23
6.
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
Regraded Uclassified
74
EXPTAL 0000100 MONTGAGE COMMITTED
Camsistive through April 11. 1084
D. OF
PAIMI or PROJECT
LOCATION OF PROJUCT
FAMILY
AMOUNT OF MORTGAGE
-
In Operation - Projects Completed
City
2
000-00001
Colonial Fillape, 2ade
Arlingion
To.
B76
# 1,180,000
I #TE,000
000-0000
Columial Village,
Arlingica
1s.
463
1,880,800
1,480,000
000-00003
Falkiand Properties, Inc.
filmr Spring
M.
178
1,100,000
$40,000
000-00004
Colonial Village Million
Arlington
Ts.
2M
105,800
TAB,000
000-00008
Village
Washington
D.C.
401
2,090,000
1,480,000
000-00008
Addition
filmer Spring
m.
801
1,919,000
1,888,000
052-00002
Buring Do. of Dumalk
Bultimers
m.
EYE
1,000,480
600,000
023-00002
Falls Imploy Carp.
Falls
That
1.00
$77,000
100,000
160-00002
Cheeter Crest
Fleebrood
N.T.
ETS
1,802,340
1,180,000
034-00001
Six Termes
Tork
è
48
168,564
141,000
038-00001
Madville Souring
Mostrille
è
202
1,008,000
800,000
058-00001
Country Club Apartmento
N.C.
44
471,000
$68,000
058-00002
University Apartamate
Durban
N.C.
114
655,000
900,000
073-00001
Colonial
Initenapolia
Ind.
as
$20,000
189,000
068-00001
Green True Memor
Louieville
á
265
1,397,000
1,000,000
002-00001
Crossett Insing
Crossells
Art.
199
440,134
880,000
16
5,666
$16,948,18
$15,820,000
Loans Closed . *inder Construction
000-00007
Second Buskingham Community
Arlington
Va.
160
* $48,635
# $88,000
000-00000
First Bankington Commity
Arlington
To.
GLC
2,250,000
1,888,000
000-00010
Third Baskingham Comunity
arlingion
Ta.
200
$41,000
650,000
052-00002
Landing
Amapolis
NO.
66
$50,000
$80,000
052-00008
Borthmod
Beltimore
M.
-
1,007,000
1,880,000
051-00001
Machroy Court
leart
I.J.
210
1,813,000
1,088,000
180-00003
Garth Limited No.
N.T.
140
1,010,000
TTB,000
180-00004
Grayrosk ligited Div.
N.T.
188
TET,000
620,000
018-00001
Second Gamine My
Jackson Beights
N.T.
110
1,081,000
60,000
038-00002
Marberth Apartments
è
114
049,000
480,000
061-00001
Limited Divident Beusing
Ahlanta
Os.
174
806,000
$40,000
053-00003
Myrtle Apartments
Charlette
N.C.
T2
406,000
800,000
083-00007
Salsigh Apartmento
Malaigh
N.C.
114
T25,700
975,000
053-00004
Twin Casties
N.C.
124
660,000
600,000
053-00008
Courte
Maleigh
N.C.
147
TOS,000
$60,000
051-00002
dilmer Courts
Richard
The
155
$20,800
$80,000
071-00001
n.
196
197,700
190,000
073-00008
in Alloway Knusing
live Alleng
2d.
40
180,000
130,000
073-00003
Smith Celegial
Indianapelis
Ind.
as
226,250
$80,780
095-00001
Village
it. Louis
No.
284
2,018,000
1,800,000
112-00001
Cala's Manor
Dallas
fax.
96
451,771
800,000
114-00001
liver Only
Sourton
184
TEO,000
$11,000
12
8,671
$18,344,606
$14,984,750
TOTAL PREMIUM PATING
14 Projects
$87,144,760
Financing Arranged
017-00001
from Corporation
Barkfurd
Cas.
a
4 188,600
I
99,000
*000-00009
*Parthelt
Drembelt
il
10
48,780
$0,000
031-00008
General Increasy
Berry
I.d.
100
649,000
$10,000
051-00008
Muglish Village
Creations
E.J.
80
me,000
676,000
051-00004
Linden Brunking
Lindon
I.J.
194
1,200,000
190,000
031-00006
Heleigh Carp.
Atlentic City
I.J.
to
$90,000
180,000
014-00001
Orandy's Village
Baffalo
I.T.
100
1,676,000
1,480,000
1128-00008
faird Garden bay
Justices Beights
N.Y.
ETO
1,803,000
1,300,000
018-00008
- Bolloward
Loss Island
N.Y.
BIO
1,998,000
3,200,000
*160-00002
Apartments
Tadore
N.Y.
SWT
1,768,000
1,350,000
160-00005
Cardons
N.Y.
584
1,176,000
1,880,000
034-00008
19th Street Corporation
Opper Party
7.
450
1,900,000
1,480,000
056-00004
Park Plass
Barrisharg
é
137
695,000
$50,000
054-00005
fail las Byers Corp.
Philadelyhia
É
133
666,000
400,000
034-00008
liergate Housing
Typer Darly
é
so
180,975
101,000
US3-00009
Encymed
Eight Point
N.C.
so
908,000
255,000
061-00002
Lardment
Berfolk
è
178
$16,000
$35,000
051-00008
Description Court
Date
è
-
411,000
$98,000
051-00006
Faberview Apertando
é
TO
808,800
$40,000
043-00001
Levega Olastange Village
Columina
dida
sio
1,888,000
1,800,000
122-00001
les
Los Imples
Dalif.
1,000
$,800,000
8,800,000
127-00001
Medicane Park touring
Sextile
1
BOS
1,960,000
1,080,000
22
0,200
$19,847,000
Millirmal Consitents Ortatending
19
3,600,000
TOTAL INSURED
re Projects
. Construction - in process.
1/Includes 1 project for $1,100,000 reflamed.
Division of Commission not Relictive
Quesking Mustistion Sention
No. DE Special
21769
Regraded-Uclassified
H
75
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: April 26, 1938, noon
NO.: 652
FROM COCHRAN.
RUSH.
This morning at half-past eleven I called at the
Bank of France. This morning at 160.50 to the pound
trading began in the franc. Instructions had been given
by the French Treasury to the control that by noon the rate
should be brought near 160.30. At the time I taken called
at the Bank, half-past eleven, the rate had been moved
to 160.40, 175,000 pounds having been taken by the market.
The control lost 225,000,000 france through the
operations of the stabilization fund yesterday when it
brought the franc from around 166 to 160.50. Most of this
amount was spent after reaching 8 level of 161. From
statistics it was apparent tim t the market had been & com-
paratively narrow one and that last week firm opposition
by the control could probably have stopped the speculative
drop in the franc without it having cost too much.
Daladier's written declaration mentioned my 649,
April 25, 6 p.m. as given out after the Cabinet meeting
at noon was followed by only a brief comminique after the
meeting of the Council of Ministers in the evening to the
effect that the latter had, after explanations by Daladier,
unanimously ratified the plan for economic and financial
recovery
Regraded Uclassified
76
- 2 -
recovery which had been examined during the forenoon by
the Cabinet. It had been anticipated in some circles and
certain journals that 8. more definite elaboration of the
program would be made on this occasion or appear this
morning. So far nothing else has been communicated.
END SECTION ONE.
WILSON.
DECEIAED
seer 88 FA
THINTHARE
-
- - at - Line
EA: LWW
Regraded Uclassified
77
PARAPHRASE OF SECTION TWO, NO. 652 OF APRIL 26
1938 FROM PARIS.
Yesterday's recovery on the market 18 attributed to
Daladier's statement in part of the prese; however, the
general opinion is that this in itself was too indefinite
to be of much help except to give some assurance that there
was no dissension in the Cabinet and that the stabiliza-
tion fund had been responsible for the real improvement
in the franc. From observation of the market this morning,
operators seem to have been convinced by the movement of
the French franc in recent days that at a quotation of
around 160.50 sterling is & good buy.
Most confidentially I have been given to understand
that the decision to push back the franc energetically
yesterday was entirely the Minister of Finance's, Mar-
chandeau. It appears that no Government official wants
to advocate depreciation of the franc to 175 to the pound
since they obtained very specific information about cer-
tain bankers spreading the report that there would be
such depreciation; the Government officials do not want
the risk of appearing as defending such bankers.
END MESSAGE.
WILSON.
EA; LWW
Regraded Uclassified
78
April 36, 1938
3 P. m.
Ambassador Bullitt was here. Wanted me to explain
that our sttitude was towards the French franc. He tried
his best to get me to take the position that Paul Reynaud
does: that the franc should be permitted to float, seek
its own level, and that Paul Reynaud believes that if that
happens that, after it seeks its own level, capital will
return to France.
I said, I am very sorry; that neither the Treas-
ury, the Federal Reserve Bank of New York or the State
Department agreed with that theory and we believe that the
best thing for France and for the United States would be
to have them put on the same kind of rules and regulations
that we have, which would stop the flight of capital from
France; that if they followed the theory of Paul Reynaud
and allow the franc to float, he asked me what I would do
and I said I believed I would have to tell the French
that they had broken the agreement of the Tripartite and
that the English would take the same position. He said,
Well, do you want the French to continue to lose gold? I
said, No: it's bad for them and it's bad for us, but I
Just can't understand why the French don't put on rules
which would stop the flight of capital.
It was quite evident that Bullitt was impressed
with the so-called Reynaud theory of letting the franc
seek its own level. He said, Suppose it does go to 200
france to the pound-sterling. I said, Well, we just
can't sit here and permit it. And he said, Why? and I
said, What the Tripartite has done, it has stopped countries
from using competitive devaluation as a weapon with which
to get trade. I said, The Italians got away with bomb-
ing civilian populations in Ethiopa and they set the style.
They are bombing, now, civilian populations in Spain and
China. If we permit France to get away with permitting
her franc to continue down to nothing, it will set a style
and other countries will follow suit and we just cannot
permit that.
Bullitt said he was convinced and that he had got
the information that he wanted.
He then said, Tell me about Bonnet's speculating
in the franc. I said, All I know is that the Indo-Chin
keeps an account with a bank in New York and this bank
Regraded Uclassified
79
-2-
informs us that they were always right in their operation
in the franc and this only took place while Bonnet was
Minister of Finance, 80 the natural inference is that
Bonnet was interested in this account, although we can't
prove it. He said, That's all that I want because, he
said, sometime when Bonnet is riding on his high horse,
Bullitt said, "I can hint that I know about this and it
will be useful to me for trading purposes.' So I said,
If you want to use high-class blackmail, it's up to you.
He said, 1 'I have used it before and it's proved to be very
useful.
o0o-o0o
Regraded
Uclassifie
270
April 26, 1938
79A
My dear Mr. President:
I am inclosing herewith a
photostat of memorandum I have re-
ceived from Admiral Peoples which
is self-explanatory.
Faithfully yours,
The President,
The White House.
Regraded Uclassified
RHINEBECK, N. Y. P. 0. (NEW)
#
TREASURY DEPARTMENT
79B
PROCUREMENT DIVISION
PUBLIC BUILDINGS BRANCH
WASHINGTON
BUILDING. AND THESE LETTERS
LYING. QUOTE THE ABOVE SUB- PB- SA
April 25, 1938
MEMORANDUM:
To:
Secretary of the Treasury
From: Director of Procurement
Reference is made to your telephone call regarding
the stone to be used for facing the proposed new Post
Office building at Rhinebeck.
As previously arranged, stone from the old Kip-
Beekman House is to be used for the Post Office 80 far
as the condition of that old stone would permit. For
the remainder of the facing of the building it is proposed
to get stone from the various fence walls, etc., that
exist in great quantities all over Dutchess County.
No new stone whatever 1s to be used for facing on
the new Rhinebeck Post Office.
Director of Procurement
Regraded
4.1f
FEDERAL RESERVE BANK
80
OF NEW YORK
FFICE CORRESPONDENCE
DATE April 87, 1958.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
J. W. McKeon
BANK OF FRANCE
GM
Mr. Knoke called Mr. Cariguel at noon today to advise
him that francs were steady here at around 311 and the market
very quiet. Futures, however, seemed to be under pressure. He
had heard of one 30-day transaction going through this morning
at 6 points discount for the equivalent of 23% per annum. 90-day
francs were quoted 10 points discount for the equivalent of about
13% per annum,
Cariguel reported that he had had a bad day end lost
about £2,000,000 in exchange today after losing £1,500,000 yester-
day. Under present conditions no technique would be of avail; all
he could do was to stand up or retreat. He did not look for any-
thing to happen one way or the other until after the London Conference,
and the promised decrees began to come out early in May.
JWMcK:LWK:KW
Regraded Uclassified
81
M
MB
PLAIN
London
Dated April 27, 1938
Rec'd 2:31 p.m.
Secretary of State,
Washington.
345, April 27, 6 p.m.
FOR TREASURY FROM BUTTERWORTH,
The increase in the British income tax to 4 shillings
C
6 pence in the pound came as/painful surprise to the City
which had Expected the income tax st least to remain un-
changed. Despite declines in over the counter tradings
last Evening and at the opening this morning security
markets have not been unduly weak. In fact towards the
close & general rise occurred and prices ended the day at
about pre-budget levels. There is being manifest Else-
where a characteristic acceptance of the necessities of
the situation. This feeling is accurately protrayed in
the opening paragraph of the Editorial in the NEWS-CHRONICLE
"A school boy was once asked what he thought of his head-
master. HE replied that he was la beast, but a just beast'.
That will Exactly Express the feelings of the British
public about Sir John Simon's budget." The titles of the
Editorials tell their tale: "Facing the cost" "Paying
while
Regraded Uclassified
82
2- No. 345, April 27, from London.
while WE can" Et cetera. Even the Socialist DAILY HERALD
states "In face of Enormous pressure to put all the deficit
upon the shoulders of the future Sir John Simon has however
had the courage to call at least a partial halt. HE has
decided that since ninety million pounds of the deficit
incurred as a direct consequence of armament Expenditure
has been financed out of loan and since future supplemen-
tary charges are to bE financed in the same way the balance
of thirty million pounds shall bE not out of taxation.
That is a wise decision."
The MANCHESTER GUARDIAN: "the financial picture the
Chancellor presents is a desperate one and calls for
desperate remedies. WE cannot have rearmament without
tears and with the prospect of EVEn worse years to come --
worse both in the scale of Expenditure and in the capacity
to pay taxes -- the Chancellor was WISE not to resort to
suberfuge to rabbits from the Treasury's hat. WE may need
those later. What should give us pause is not the present
measures but the outlook ahead and where the Ever-mounting
Expenditure will lead when the capacity to pay charfully
has gone from us."
The TIMES: "This will not bE a popular solution but
it may at any rate claim the virtue of courage. If it
ETTS
Regraded Uclassified
83
3- No. 345, April 27, from London.
errs it Errs on the side of candor. It certainly does more
than would DE achieved by a more Extensive recourse to
borrowing to make the country realize the truths of rearma-
ment. The cost of it is not greater than the country can
bear and it will bE born without flinching so long as the
necessity persists. Sir John Simon has been influenced
by the desire to keep as large a proportion as possible
of his borrowing power in reserve to meet the still higher
demands of next year and the year after when the Expenditure
on defence is EXPECTED to reach its peak."
KENNEDY
CSB:
Regraded Uclassified
84
Mb
GRAY
Paris
Dated April 27, 1938
REc'd 2:35 pame
SECRETARY of State,
Washington.
661, April 27, 6 p.m.
FROM COCHRAN.
Franc was first traded today at 160.20. Losing fair
amount at this rate control let it slide to 161 and then
intervened to bring it back to 160,15. Forward frano
weakened to discount of 3 1/8 for one month sterling and
5 for three months. Swiss still buying sterling and sElling
French francs. Paris market atmosphere is not good.
Operators fEEl that control is purposely keeping franc
strady pending visit of Daladier and Bonnet in London where
it is Expected they will Explain difficulty of holding
franc in view of heavy armament costs and will SEEK aid
therefore.
Local press repeats without comment stories from
London nEwspapers to the Effect that French MOVE in
strengthening the franc resulted from representations
made to French by British authorities on the ground that
last week's decline in the franc contravened the tripar-
tite
Regraded Uclassified
85
2- No. 661, April 27, from Paris.
tite agrEEMENT. Financial news criticises British for
dictating advice on the franc rate unless they are able
through a loan to hElp France maintain the present lEVEl.
Local observers look for heavy pressure on the franc if
negotiators return empty handed financially from London.
Sentiment perturbed further by request of Government
Employees for more pay because of increased cost of
living which may lead to renewed labor unrest or heavier
burden on the Treasury.
(END SECTION ONE).
WILSON
CSB:
DECEIVED
SECT is
Regraded Uclassified
88
PARAPHRASE OF SECTION TWO OF TELEGRAM NO. 661
OF APRIL 27, 1938, FROM PARIS.
At half-past five I called at the Bank of France;
the French control by that time had yielded in foreign
exchange 320,000,000 francs. On Tuesday a total of
255,000,000 francs was spent in defense of the franc.
My Bank contact had told the Bank's Governor that there
was no technical measure which could be used by the
stabilization fund in the present circumstancesto over-
come the franc's present weakness. In the last conversa-
tion which Fournier had with Daladier before he left
for London this afternoon he passed on this information.
The Prime Minister asked what would be recommended by
Fournier, and the latter advised that the budget be
balanced. Daladier told Fournier that he personally
was in favor of increasing the country's production
rather than have the taxes increased. Fournier emphasized
the possibility of raising the 20 or 30 billion francs
required by the Treasury this year through industrial
expansion.
Constant recommendations have been made by Daladier's
advisers against his endeavoring to get financial assistance
in London on this visit. However it is not yet certain
whether Daladier will take this advice. Those who feel
that
Regraded Uclassified
87
- 2 -
that it will not be possible to get financial aid from
the British at this time are convinced that if the French
Government itself would only show more initiative and
confidence inspiring ability in rectifying the situation,
the British would be quick to give the French Government
a loan.
END MESSAGE.
WILSON.
BECEIAED
EA:LWW
BRN BS 99A
THEMTHA930 YRURAIRT
a y mill
remo - at Instructions now
Regraded Uclassifie
88
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, London, England
DATE: April 27, 1938, 6 p.m.
AA
NO.: 346
FROM BUTTERWORTH.
FOR TREASURY.
In accordance with instruction, I passed on a discreet
version of the pertinent parts of telegrame No. 645 and
653 of April 26 from Cochran to Waley. The latter said
he appreciated being informed. Waley expressed the hope
that the visit of the French Prime Minister and the
French Foreign Secretary would be primarily a diplomatic
occasion and not a financial one. He said that the Chan-
cellor of the Exchequer would not participate actively in
the discussions since he was still engaged with the debate
on the budget. Financial questions will be discussed,
of course. It was hardly appropriate to have Bonnet
to carry on any such conversations, as these would have to
be primarily between the two Prime Ministers. While
Waley could not say definitely, it was certainly likely
that they would be connected with other matters. It would
probably be e a horse deal" as a. matter of fact. Waley
told me that for his part he was just as glad that the
responsible negotiator would not be Simon because he had
Regraded Uclassified
89
- 2 -
a great deal more confidence in the ability of Chamber-
lain to. horse trade with Daladier or anyone else than
he did in Simon.
The French control has given decided support to the
franc today and kept the rate between 160 and 16h. It
lost a considerable amount of sterling. Furthemore, the
futures moved out, one month being bid at 3 3/8, three
months at 5 1/2. The demand for coin also increased.
KENNEDY.
03V13038
8681 is Я9А
TM3MT8A930 YRUZA3RT
EA: LWW M st ," - la willo wast
Regraded
Uclassifie
90
GROUP MEETING
April 27, 1938.
9:30 A. M.
Present:
Mr. Magill
Mr. Oliphant
Mr. Gaston
Mr. White
Mr. Haas
Mr. Gibbons
Mr. Lochhead
Mr. Bell
Mr. Upham
Mr. McReynolds
Mrs. Klotz
H.M.Jr:
Mac, what about the Panama Pacific Railway thing?
McReynolds: It's a corporation, totally Government owned.
H.M.Jr:
A little louder.
McReynolds: It's a corporation, totally Government owned -
stock all held by the Secretary of War. He
appoints the Directors to operate it - officers
and directors. He, ah - then one share - qualify-
ing share is held by each director by assignment
when they are appointed, and they operate not
only the railroad and the steamship company, but
various concessions on the Canal Zone. But it
is just an operating corporation for the business
of the Panama Canal.
H.M.Jr:
How much money do we supply them with?
McReynolds: We only supply them with money on subscription to
stock. Of course, they take in- - through their
operations, revenue they take in they spend and
turn over profits to the Panama Canal.
H.M.Jr:
Are there any profits?
McReynolds: Sometimes there have been.
H.M.Jr:
Supposing there is a deficit?
McReynolds: The Government would subscribe to more stock.
H.M.Jr:
How much have they subscribed to?
Regraded Uclassified
- 2 -
"
91
McReynolds: I'm getting an estimate upstairs. Danny's place
upstairs is making up a statement.
H.M.Jr:
(Over telephone:) Secretary of War Woodring.
No one else will do, please.
All right, Mac, what else?
McReynolds: I have nothing but just this list of - revised
list of buildings that
gave me last night -
said he had assigned everything, - signed by the
Assistant Postmaster. It's up to date. It's the
up-to-date list prepared by the Post Office and
Procurement.
H.M.Jr:
Who's Ramsey Black? I never heard of him.
McReynolds: I never heard of him either.
Gaston:
Ramsey Black? He's Third Assistant Postmaster,
succeeding the man that died.
H.M.Jr:
(Nods to Mr. Upham.)
Upham:
You asked me to bring in this memo from Herman
this morning on the U. S. H. A.
H.M.Jr:
(To Mr. Oliphant:) Now what's the purpose of
sending me a memorandum like that? What am I going
to do with it? What am I going to do with a thing
like that?
Oliphant:
(Reads memo - remark inaudible.)
H.M.Jr:
Yeah, but sometimes the information is very
embarrassing. I mean, you give it to me - what
am I going to do with it?
Oliphant:
Well, I thought you were raising a question on it.
H.M.Jr:
I didn't raise a question. The President of the
United States writes the Comptroller that he should
do this, and you write me and I don't - after
reading 1t twice, I don't get - are you saying
that
Oliphant:
The ruling is sound.
H.M.Jr:
Yeah.
Regraded Uclassified
- 3 -
92
Oliphant:
The ruling is sound.
H.M.Jr:
But I mean - you've never given me an opinion
before on any action taken - on the action of
the Comptroller of the Currency. It's out of the
ordinary. I was just wondering why.
Oliphant:
I thought you had raised a question. But it was
mentioned here in the staff meeting - a question
was raised about it.
Upham:
I think the other morning you did refer to having
seen something about it in the paper.
Oliphant:
And asked about it.
H.M.Jr:
(Telephone conversation with Secretary of War
Woodring at 9:34 A. M. is attached hereto.)
Regraded Uclassified
93
April 27, 1938.
9:34 a.m.
H.M.Jr:
Hello.
Operator:
Secretary woodring.
H.M.Jr:
Hello.
Harry
woodring: Hello.
H.M.Jr:
Harry?
#:
Yes.
H.M.Jr:
Henry Morgenthau.
M:
Yes.
H.W.Jr:
Herry, I don't know whether Louie Johnson had a chance
to tell you about my conversation with him and the
President yesterday.
W:
No, I just got in this morning.
H.M.Jr:
Well, I - 1 wanted to take a minute to tell you.
W:
Yes.
H.E.Jr:
On Friday the Panama Railway dumped on the market
11 million dollars worth of Government securities.
W:
Yes.
H.M.Jr:
And completely disturbed the Government market, and
knocked it down, due to the asinine way in which they
handled it. They offered it to five brokers, and each
broker thought he had an order for 11 million dollars.
N:
Ah-ha.
H.M.Jr:
I find that you're the sole stockholder.
A:
Yes.
H.M.Jr:
I asked for you yesterday; you weren't there. I spoke
to Johnson and Johnson said that he couldn't do anything
about it without the President, so I called the President
and the President called Johnson and told nim that he
Regraded Uclassified
94
-2-
wanted Rossbottom, the Vice President, who handled
this thing, to come down and see me, He's going to
be here at 10:30 this morning. Hello - hello -
hello.
Operator:
Operator.
H.A.Jp:
We were cut off.
Operator:
Oh, I'll get him right back.
H.M.Jr:
Hello.
%:
Hello.
H.M.Jr:
lie were cut off.
A:
Yes. Yes.
H.M.Jr:
Well now, I was simply bringing it to the attention
of the Acting Secretary of Mar, and I don't particularly
enjoy calling down one of your subordinates.
W:
Yes.
H.M.Jr:
But this was the orders of the President, and I wanted
to let you know that this man is going to be here at
10:30, and if you cared to send a representative here
at this time I'd be very much pleased to have you do
50,
W:
Rossbottom is coming to your office at 10:30?
H.N.Jr:
At 10:30 this morning.
No, I think that's all right.
H.M.Jr:
But I'd be glad - I'd be more than pleased to have you
have a representative here.
N:
No. No, I think that's all right.
H.M.Jr:
What?
I think that's all right.
H.M.Jr:
Yes,
Regraded Uclassified
95
-3-
N:
Well, what you want to do is to find out, don't you,
about what - how it was handled.
H.M.Jr:
I want to know why - how it was handled, and why he
handled it in that most unusual ...
⑉:
Yes.
H.H.Jr:
... manner.
W:
Now, all I know about it - I got a report from them.
R.M.Jr:
Yes.
n:
That is, we have a committee - a Finance Committee.
H.M.Jr:
Yes.
#:
At the last directors' meeting there was nothing said
about selling Government bonds,
H.M.Jr:
Yes.
W:
And I had no knowledge of it; only I got a report after
it was done, saying that the Finance Committee had voted
to sell these bonds. We have to pay for these three
ships
H.M.Jr:
Yes.
... in the course of, perhaps - well, we have a payment
due now and - about four hundred and fifty thousand, and
then a couple of weeks or a week later we have the same
amount all now through up until August.
H.M.Jr:
Yes.
W:
And this report that came to me said that the Finance
Committee had decided that they had better sell those
bonds now because of the high profit in it, of course.
Now, I didn't know in which way - in any way that they
had offered them, only that they told me that they had
offered them to one broker rather than - I got the
impression - rather than putting them on the market.
H.M.Jr:
No, they handled them in - in - according to our fiscal
agents, the Federal Reserve of New York - that they don't
Regraded Uclassified
98
-4-
know when anything has been handled in B.S stupid
& way or in B way that disturbed the market 88 much
as they did it.
Hmmai
H.M.Jr:
Five different brokers had an order, were asked to
bid on 11 million dollars worth of bonds, and they
wired all over the country for bids, so it looked
...
N:
Yes.
H.M.Jr:
as though they were selling 55 million.
Yes, I see. Well now
E.V.Jr:
And it - and - and it disturbed the market. It so
happened that that day they could take them, but they -
most any other day of this year they couldn't have.
Yes. what - what did it do to the market?
H.M.Jr:
well, it just knocked the top off and it hesn't
recovered yet.
Hramm!
H.M.Jr:
And ...
Now, I know this, that they had offered it to the
Bethlehem Shipbuilding Company, tried to get them to
take the bonds in exchange - instead of cash, you know.
H.M.Jr:
Yes.
N:
Tried to offer them to them. But - but just what the
story was on that I'm not certain. I think maybe they -
the Bethlehem said that they would accept the bonds at
prices quoted on the exchange the day before, and I
think these other people, Childs, took them, didn't
they? - do you know who it was took them?
H.M.Jr:
Childs.
Childs - I think Childs took them at a higher price.
H.M.Jr:
But they offered them, I believe,
....
Regraded
Uclassif
97
-5-
#:
Well, that's the bad part, offering them to five
different brokers. I see the point.
H.K.Jr:
AS a matter of fact, since the Russians offered a
million pounds sterling the day after the tripartite, -
this was the second most stupid way any money has been
handled since the Russians handled that thing about
three years ago.
W:
Yes. You
S.N.Jr:
But the bad part about it is, the Street all knows
that it's an agency of the Government and we're all
getting the horse laugh.
Yes.
H.S.Jr:
Just gives them something else to roll along their
tongues.
Yes. You'll see Rossbottom at 10:30.
H.M.Jr:
I'm seeing him, but I - I dian't - I wanted to give
you a chance to send your own person here.
.7:
No, I think that's all right, because
d.M.Jr:
I mean I thought
W:
I didn't have any knowledge of it before it was
done, 30 I think that's all r ight, just to
H.M.Jr:
Well, the normal way was, I would have filed my
complaint with you and let you handle it.
That's - yes.
H.M.Jr:
But this is the President's order, ...
X:
Yes.
H.M.Jr:
that he should come to see me.
#:
Well, that's all right.
H.N.Jr:
I wented to make it - be sure that you understood.
W:
Yes. Quite all right.
H.M.Jp:
Thank you, Harry.
W:
Good-bye.
Regraded Uclassified
- 4 -
98
H.M.Jr:
He didn't know about it.
McReynolds: He doesn't even mind.
H.M.Jr:
What?
McReynolds: I say, apparently he doesn't even mind.
H.M.Jr:
At least I've cleared myself. Herman, let me -
may I have that.
(Mr. Oliphant hands H.M.Jr. memo, which he
reads for a minute.)
H.M.Jr:
You see, Herman, you - you - in this thing, you
are criticizing the Comptroller of the Currency -
and maybe you're right. You say, "I understand
that bonds of local housing authorities are the
only ones singled out for special treatment by the
Comptroller of the Currency." The natural question
is "Why were they singled out?" The answer is,
"Because the President of the United States
directed that he do so."
"In all other cases the standards provided in the
Regulations of February 15, 1936, are applied by
the bank examiners to the securities included in
the banks' portfolios." In other words, this is
being treated a special way. The natural inference
is, why?
Oliphant:
That is for your personal information, and I under-
stood you made the inquiry.
H.M.Jr:
No. You know nothing here is personal - I mean,
it just can't be.
Oliphant:
part of the process of keeping you fully
informed.
H.M.Jr:
"The ruling makes no mention of the eligibility of
the balance of the issue. As a matter of fact, 90%
of the issue ordinarily would be purchased by the
USHA and offered eventually for sale to the public.
If these bonds are to enjoy the same market advantages
as the 10% of the issue included in the Comptroller's
ruling, it would appear necessary for the Comptroller
to broaden his ruling when such an offering is made."
Regraded Uclassified
99
- 5 -
Well now, the point that I raise - what I got from
this was that if this ruling could apply to ten
it should also apply to the ninety. Is that your
opinion? Huh?
Oliphant:
That's as good a reason for it, yes.
H.M.Jr:
Now, on that, "New Deal Experts act to stimulate
housing - remove ten per cent borrowing restriction."
Are you (Bell) familiar with it?
Bell:
In a general way only.
H.M.Jr:
What I'm trying to get at is this: In this room -
we're all here. I think that Straus was very much
in error when he got the President to write this
letter which he did.
Oliphant:
I didn't know about it.
H.M.Jr:
Cy, am I correct?
Upham:
Right.
H.M.Jr:
Now Straus got him to write this letter, and if the
ten per cent is removed. and I want to get - at
least, I'm thinking about it - to get the Comptroller
to reverse himself and withdraw the rule, and then
it's up to him to decide, and should he rule that
localities can buy a hundred per cent of the
securities of the U. S. H. A. - or can they buy
nothing.
Upham:
Banks can buy it.
H.M.Jr:
Banks. See what I'm getting at? The thing that -
since I have this thing, should I say to the
President, "Should I withdraw this letter?" Then
the Comptroller will say, "No, I made that ruling."
Upham:
He thought, in addition to the President's request,
that they were eligible for purchase, but he didn't
do it just because the President requested it. He
thought they were all right. In addition to that.
H.M.Jr:
That may or may not, but I mean - Oliphant makes
an excellent point, but it's embarrassing to me,
knowing that the President wrote this letter, and
I think it's a very stupid ruling. I mean, what
you say 18, the banks can't buy on the ninety per
Regraded Uclassified
100
- 6 -
cent but they can buy the last ten.
Upham:
Well, the U. S. H. A. only asks for a ruling on
the ten per cent. They didn't ask
H.M.Jr:
That's like you say a man pleads guilty - he is
committed for ten years, and asks to have it
recommitted - he says, "I only want to have my
sentence recommitted for one year." "If you
didn't do the crime, why do you ask to be let
off only for the last year?"
Upham:
They didn't feel the ninety per cent bond would
be marketable, and they asked the Comptroller to
rule that this ten per cent would be marketable.
The ten per cent bond seemed better than the ninety.
H.M.Jr:
We're in it now - I'm going to ask, as long as we're
in it, and I'm going to keep Mr. Oliphant's
memorandum because if this thing - if we have to
advance a hundred per cent, see, then I'm going
to have you (Upham) informally tell the Acting
Comptroller I want him to re-examine this whole
question, and should he tell the banks that they
can buy a hundred per cent of the securities or
not. See?
Upham:
(Nods "Yes.")
H.M.Jr:
And keep both Mr. Oliphant and me informed because
I - I think that
.....
Oliphant:
Like Foley to sit in?
H.M.Jr:
Yes.
McReynolds: Foley's entirely familiar with the whole background
on that because Foley and I spent hours with the
administrator over there on this question of that
ten per cent, and its relationship and its position
with respect to the ninety.
H.M.Jr:
You see my position, Herman?
Oliphant:
Well, I
----
H.M.Jr:
Go ahead and talk to me.
Regraded Uclassified
101
- 7 -
Oliphant:
I don't know any other basis on which to operate
except to keep you fully informed. I think the
records being made up in the Treasury will never
need to be apologized for.
H.M.Jr:
Quite true, but I think if you look up your records
you'll find that this is most likely the first
time that you've written an opinion on a ruling
of the Comptroller.
Oliphant:
But there's been no other occasion.
H.M.Jr:
Yeah. There might be if we looked at them. Might
find plenty.
Oliphant:
Well, no other occasions on which you made
inquiry.
H.M.Jr:
Well, I don't remember, but evidently I must have -
based on that. Evidently I did, but I have no
recollection of it, because I just can't -
(to Mrs. Klotz) I wish you'd, just to satisfy my
curiosity, look through, will you, and see what
I did or didn't say. It must be within the last
ten days.
Oliphant:
First or second day after you got back.
H.M.Jr:
Huh?
Oliphant:
First or second day after you got back.
H.M.Jr:
So, well now - how are we going to leave it. You
are going to look into this bill.
Upham:
(Nods "Yes.")
H.M.Jr:
And see where we're at.
McReynolds: And find the legislative history on it.
H.M.Jr:
And I also would like a copy of the letter that
the President wrote. And who's going to find out
about this bill?
Upham:
I'd be glad to.
H.M.Jr:
Well, does Foley know about this bill?
Regraded Uclassified
- 8 -
102
Ollphant:
I think he does.
H.M.Jrt
Clear through you?
Bell:
No, it did not. I was a little surprised at that
bill on a hundred per cent. I thought that the
ten per cent they were talking about that the
United States would advance that ten per cent and
then allow the localities to reimburse it later
on or at the end of the construction period.
H.M.Jr:
And in discussing it with Straus I said, "That's
perfectly silly." I said, "We'll advance it;
we'll never get it back. Why not give them the
whole thing?" That's an impossible plan. The
way to do it is waive the ten per tent. "We
won't turn the stuff over to the community until
we get the last ten per cent, and that is the
way I want it." I said, "Well, that makes sense
to you, but if you really want to get' it, give
them the whole thing.
Now, while we're on bills, who knows the status of
Ickes' bill - Public Works?
Bell:
I only know that it's - there's a draft in the hands
of the Appropriation Committee. They had a hearing
Monday, I think, with Ickes and Woodrum. They told
me it went off very well, and they thought they
were going to get the bill through without any
earmarking, but he advised me that there was a
provision in that bill that would permit these
loans without interest, and I expressed surprise
and he said, "Oh, I'm sure it's there."
H.M.Jr:
Who's your informer?
Bell:
Cliff Woodrum, Chairman of the Committee.
Oliphant:
That was the discussion we had between - Ben Cohen
etc., was in there - that it was no use - no
point in its being in, and
H.M.Jr:
Now, did the President mention it in his message?
Bell:
Yes.
Oliphant:
Well, it's harmless, and nobody will take advantage
of it.
Regraded Uclassified
- 9 -
203
Bell:
Well, I think Woodrum would like to have it out
of the bill. He says it's there now, and he's going
to talk to the President about it.
H.W.Jr:
Well, you say it's harmless. I disagree with you,
and I pointed out to Jimmy Roosevelt that if you're
going to do business, why not let's go to Thomas
Currency.
Bell:
It's a bad principle.
Oliphant:
That's the way it stands; nobody would use it,
but it's open to the charge that you're trying to
abolish it.
H.M.Jr:
I think it's fraught with danger - I think 1t's
full of danger.
McReynolds: There's a public statement from Woodrum about it
in which he mentioned the interest on loans and
In which he said it is confined to forty years.
H.M.Jr:
Will you find out. And the reason I didn't know
about it - the particular reason I'm bringing it
up, it isn't the way the bill was explained to me
last, that four fifty for grants and five fifty
for loans. It's now the way it was before you and
I argued with the President. It now stands, a
billion loans and four fifty, grants. There's
nothing in there that the aggregate should not
exceed a billion dollars. In other words, we
didn't get a thing.
Bell:
I didn't know that.
H.M.Jr:
The way I saw it somewhere - billion dollars for
loans, four fifty, grants, and not the way the
President agreed with you and me, that the aggregate
should not exceed a billion.
Bell:
Make any difference what form it went out, it
should not exceed a billion.
Oliphant:
It didn't?
Bell:
He allocated it in his message.
H.M.Jr:
A billion for loans and four fifty for grants, and
in the aggregate it should not exceed a billion,
and I think that's the way it was in his message.
Regraded Uclassified
104
- 10 -
In the bill I don't think it is limited to a billion.
And if the bill is that way, I thought Bell and I
might write the President a note calling his
attention to it. Today.
Bell:
All right.
H.M.Jr:
What?
Bell:
All right.
61iphant:
So it's to be five fifty for loans and four
fifty for grants.
H.M.Jr:
No, no. According to the understanding that
Bell and I had, it would be a billion for loans
and four fifty for grants, but in the aggregate
they could not do more than a billion dollars
worth of business.
Bell:
In other words, if they made grants at four fifty
Gaston:
It's all in the President's message.
H.M.Jr:
Now, the last time I saw Foley he said they couldn't
do that for legal reasons, and, therefore, they
were drawing it four fifty for grants and five
fifty for loans. I said, "That isn't the way the
President meant, but if that's the way it stands,
it's a little better for the Treasury." He
said, "No, for legal reasons they can't get it that
way," and therefore, they are going to have four
fifty and five fifty, but instead of that, I see
it's going to be a billion and four fifty. I'd
just like to know. We're talking a lot of money.
Are we together now?
Bell:
Well, I thought that Mr. Ickes, in talking to me
yesterday morning, indicated that the billion was
in his mind because he was a little worried about
them earmarking a part of the billion dollars for
Rural Electrification loans.
H.M.Jr:
How much?
Bell:
He said, I think, "If we don't do something before
this bill is Housed, that they will earmark part
of this billion dollars for Rural Electrification
loans. There's quite a drive on it for that, and
Regraded Uclassified
- 11 -
105
he wanted to know whether Jones could make those
loans, or allocations for the loans. He talked
about a billion dollars.
H.M.Jr:
Between you and Oliphant, will you see where
we're at? Ed Foley
Oliphant:
I'll get it and give it to Dan.
H.M.Jr:
I don't know whether I spoke to you about it
before, but this is for Bell and Oliphant too.
I would very, very much like to get into the
Hopkins bill the following paragraph:
"Funds made available by this act may be used,
in the discretion of the President, for aiding
self-help and cooperative associations for the
benefit of unemployed and under employed in the
production of goods and services."
Bell:
Well, I haven't seen any bill since the President's
message, authorizing direct relief which is a
provision under which the present self-help
organization is carried out.
H.M.Jr:
Well, what I wanted to make sure, myself, is the
self-help here in Washington and the self-help in
Baltimore, Richmond, or any place else, can get
money.
Oliphant:
Or concede to that little Montana thing, or any-
thing of that sort.
H.M.Jr:
Will you
Oliphant:
I'll take care of it.
H.M.Jr:
I'm very much interested in that.
Oliphant:
I'll see that it gets in there.
H.M.Jr:
Just to break the tension a minute, I got a letter
from a Judge of the Supreme Court by the name of
one Mr. Lauer, and he says here that, "We contemplate
a trip to Europe again this summer. Mrs. Lauer is
fearsome and nervous that her last year's experience
may be repeated this year, even though I shall be
most careful that a full declaration is made of all
purchases from abroad. Were we subjected on our arrival
to treatment similar to last year's, all benefit which
I hope will accrue to Mrs. Lauer from her 'cure' while
Regraded Uclassified
- 12 -
106
abroad will be lost. How can we be assured that our
experience of last year will not be repeated, and
because of what happened last year her return to this
country this year be made the more unpleasant? A
contemplation such as this, harbored over the summer,
would go far to undo any possible benefit from the
summer's vacation. Is it not possible that when we
return from our European trip this summer the
government's interests may be safeguarded by some
more considerate and gentlemanly representatives than
those we encountered last year?"
Magill:
Such as Gibbons.
Gaston:
I've got a better scheme - let Mrs. Klotz go with
them and save the expense sheets.
Klotz:
Thank you.
H.M.Jr:
And all they did last year was to pay a $10,000.00
fine on arrival. Mrs. Lauer had a $1500.00 watch
under her glove that she forgot all about.
Klotz:
You know how it was discovered? An informer sent a
picture of the watch and they showed her the picture
and out came the watch.
Gibbons:
You know how she goes on the bench with him and tells
him what to do. You know that the higher courts have
reversed him several times. She sits on the bench
with him and tells him what to do.
Oliphant:
He's a nice old fellow. He's one of the nicest
fellows in New York.
Klotz:
Is he, really?
Oliphant:
Oh, surely. He's fine.
Gibbons:
But he's just under her thumb - it's a very pathetic
case, on his part.
H.M.Jr:
You (Gibbons) say it's pathetic, and you (Oliphant)
say he's a grand guy.
Oliphant:
He's one of the most important influences in law
reform in New York.
H.M.Jr:
But it doesn't begin with the customs.
Oliphant:
It doesn't begin at home.
Gibbons:
He had a case reversed and she wrote a lot of notes
on the edge of the case.
Oliphant:
I admit, I knew him before he was married.
Regraded Uclassified
- 13 -
107
H.M.Jr:
Now, Mr. Gaston, you talk on Thomas Currency.
Gaston:
There have been some rumors going around - we had
one letter from a man up in Boston that he'd seen
an item in the paper that we were - a reporter
called up Al Hall from a Congressman's office and
cross questioned him about the thirteen hundred
tons of currency paper that they were ordering.
He had a very firm idea that was being ordered
so we could print greenbacks on it.
Bell:
Congressman Taylor made a speech on that.
shall
H.M.Jr:
Well, I/refer those matters to the President's
economic advisors. I'm having lunch with them
today.
Gibbons:
Who's that?
H.M.Jr:
What? Well, you read the papers. The President's
having lunch with Mr. Ford and his economic
advisors.
Upham:
Mr. Ford's or his.
H.M.Jr:
The President's economic advisors. Is everybody
going to rush for papers, like when they complained
about Ken magazine? Five Cabinet members tripped
over each other rushing to the news stand to get
a copy.
McReynolds: In the Post this morning, under this Coffee Cup
column they've got a predicted interview
H.M.Jr:
Will you (Gaston) see that I get my "coffee"
served.
Gaston:
Yes sir.
Gibbons:
Mr. Secretary, on this housing thing, I read
coming down on the train day before yesterday,
somebody, before the Housing Committee said that
sixty-seven per cent of all the property between
fourteenth street and Brooklyn Bridge, east -
from the East River and Madison Avenue, were in
tax arrears, and thirty six per cent of the people
are on relief. Most desperate thing you've ever
read, in this testimony.
H.M.Jr:
Harry?
Regraded Uclassified
108
- 14 -
White:
Might be of interest to comment on the British
deficit which, as you know, is planned to be about
six hundred million dollars. But if you make
the figure comparable on the basis of population
it would equal about a billion six, with the United
States, and that billion six must be regarded in
the light of the fact that they don't anticipate
in the figures any reduction in business activity
and that they are in no sense in a depression, so
here you have a country that's undertaking a
deficit - a very large deficit - without a reces-
sion, in the hope possibly of postponing one.
H.M.Jr:
And the moral?
White:
The moral is that probably a balanced budget isn't
as angelic as it is usually considered. "If you
can only copy the British you will be perfect."
H.M.Jr:
I am raising Mr. Chamberlain by at least three
million dollars.
White:
I think you're doing well.
H.M.Jr:
I mean, I'm just raising him at least by three
million dollars. The question is, can he see me?
White:
Not for a while.
H.M.Jr:
I am just - our deficit on that basis - on the
population - is just three times Chamberlain's.
White:
Yes, but we are not in a state of prosperity
in the first place, and in the second place we've
got 2.8 times the population.
H.M.Jr:
But still based on the population, if their's is
a billion six ours is just three times that.
Bell:
Third place, we haven't got a gun at our head.
H.M.Jr:
What do you mean, "gun at our head?"
Bell:
Well, I mean
H.M.Jr:
It's interesting - I mean, it just shows I'm three
times as good as Mr. Chamberlain on that basis.
(Nods to Mr. Lochhead.)
Regraded Uclassified
- 15 -
109
Lochhead:
The British bond market went down this morning
one to two points on the news of that budget.
H.M.Jr:
How much worse off are we on that?
White:
Well, they're at the highest point in their
history in physical production.
H.M.Jr:
On a physical production basis.
White:
There is no way of comparing it. Their national
income this year will be probably around - well,
last year, about thirty-seven billion dollars.
H.M.Jr:
How many per population? Do a little figuring -
you translate it.
White:
You want me to do it now? I'll give it to you on
the other figures.
H.M.Jr:
Magill's going to do the other tax bill - they're
going to
.....
White:
Well, all right. I can do some quick figuring.
Magill:
You may be interested - I was just looking at it
this morning. A man with ten thousand dollar
income, married and no dependents, our total Federal
tax is four hundred fifty-eight dollars. The
British is nineteen hundred sixty, under this new
White:
Of course, that isn't the only significant figure.
Even that fact in it needs to be supplemented by
a control tax.
H.M.Jr:
I want something - if Magill
White:
I'll give him what I've got.
H.M.Jr:
Talk to Sharp 3 direct. I'd like to have something
on it.
What other good news you got?
White:
I thought that would fill the day.
H.M.Jr:
All right. George?
Haas:
I have nothing.
Regraded Uclassified
16 I I
110
H.M.Jr:
(Nods to Mr. Gibbons.)
Gibbons:
(Nods "No.")
Lochhead:
Nothing for me.
Oliphant:
Groups made some of those comparisons on taxes.-
they were publicized yesterday - between England
and America.
H.M.Jr:
Dan. Dan, would you mind just looking up here a
minute please. When we talk about gold we can
use - you've got twenty-nine there and twenty-
seven here.
Bell:
There is a difference in dates, see - one day behind.
We can use this.
H.M.Jr:
Which is the one? I mean, supposing five million
comes in from Japan - is that where it is added
in?
Bell:
Yes, and it will go down in here when this date
comes along.
H.M.Jr:
Why will it go down?
Bell:
It will go both places. This is a current thing
and this is the date of the clearance - one day
behind.
H.M.Jr:
This is anticipated and this is actual. Couldn't
that come off? But this means, as of the twenty-
fifth we've got twenty-seven, and this one, twenty-
six, would be a day later than the twenty-nine.
Bell:
You see, this is put on as of the same date as
the Federal Reserve balance.
H.M.Jr:
The point is, we've got around thirty million
dollars. Will you stay behind a minute? I
didn't know this would last so long.
(Nods to Mr. Upham.)
Upham:
Perhaps I should have told you we sat until six
last night behind locked doors.
H.M.Jr:
Fine. Make any progress?
Regraded Uclassified
- 17 -
111
Upham:
Yes, I think the heads - the supervisors are
probably farther apart than the heads of the agencies
so in that sense we aren't as far along as we are
in the morning.
H.M.Jr:
When will you meet again?
Upham:
Today. Two o'clock.
H.M.Jr:
Honestly, all I could do was control myself with
Crowley yesterday. He was just furious that Smythe
was pressed in; that is, he said, "How can I keep
up the morale of my office; my people aren't
allowed to come in, but Diggs can bring in Smythe."
I said, "Well, Smythe 1s here at my request."
Then he walked up and down the room - "I'm going
to resign in July." All I could say was "Whoopie."
McReynolds: Why didn't you say, "Why wait until July?"
H.M.Jr:
No, all I could keep from saying was "Whoopie."
This is what I thought maybe somebody could do.
He was counting on filling the vacancy of O'Connor,
and did he expect to have that job?
Upham:
I don't know.
H.M.Jr:
He's furious that Diggs is here. See, I mean, for
some reason or other, he figured that the O'Connor
influence was through and that he could do whatever
he wanted to do; and then he made the most amazing
statement. He said the Smathers bill was partly
written by his General Counsel in cooperation with
some of the people in O'Connor's crowd without his
knowledge.
Oliphant:
Well?
H.M.Jr:
I'm just passing
Oliphant:
Who is his General Counsel?
Upham:
Birdzell.
H.M.Jr:
Oh.
Oliphant:
That's the reasom I. couldn't understand the other
day. You said there was no contact between Jefty's
office.
Regraded Uclassified
112
18 I I
H.M.Jr:
And he's wild that Diggs is still here and that
we put a strong fellow like Smythe as his assistant,
and we've just gummed his whole game. I'm giving
it to you for what it's worth.
Upham:
I think he'd like to see the Comptroller's
office in the F. D. I. C, both the Comptroller's
office and the Treasury, and him the head of it.
H.M.Jr:
Well I - I'm afraid he's going to resign.
Upham:
You'll be interested to know, because of that,
three men - Folger, Bulger, and Nichols - just
the three heads - and they asked me to sit with
them
.....
H.M.Jr:
Who?
Upham:
Folger, Bulger, and Nichols.
Bell:
I thought you said Folger, Folger, and Nichols.
H.M.Jr:
Sounds like Kelly, Kelly, Kelly,
>
a law firm in New York City.
Gibbons:
You've got two bachelors - want to get rid of
one.
H.M.Jr:
This is very serious for Cy.
Upham:
Well, I don't know whether I can remember the rest
of this sentence or not. There was a fourth person,
one of Mr. Crowley's braintrusters that came along
with Nichols, so he packed our meeting yesterday
morning.
H.M.Jr:
Who was the braintruster?
Upham:
His name is Tucker. He's a smart boy - he's all
right. But if we start a "town meeting" of that
kind and each one brings one or two with him
we'll never get through. There's too much talk
even with three, but I think it will be all right.
H.M.Jr:
Well, as they say, gradually get little pieces here
and there.
Upham:
Tom Smith will be here Friday morning between
trains if you are interested.
H.M.Jr:
I think not.
Thank you all.
Regraded Uclassified
113
April 27, 1938.
10:21 a.m.
H.M.Jr:
Hello.
Clifton
Woodrum:
Yes, Henry, how are you?
H.M.Jr:
oh, I'm all right, how are you?
Well, I'm better since We got this baby out of our
laps.
H.M.Jr:
I see. You had quite a lot of little things, didn't
you?
T:
oh, a lot of them, yes. Henry, Magill told me that you'd
like to talk to me about a matter and
...
R.M.Jr:
Yes.
W:
When do you want to see me?
H.M.Jp:
Well, I just want - can I chin a minute with you over
the phone?
2.
Yes.
M.M.Jr:
I want to get your advice if you think We ought to
introduce this this year, see? We'll need it pretty
badly.
Well, I don't know enough about it to say.
H.1.Jp:
Yes. Well, what would be your convenience? I'll do
I can see you now, I can see you when you want to. I
won't be here tomorrow, I'm going
H.V.Jr:
Well, Igot an appointment at 10:30 and after that I'm
free.
W:
Well, how long will it take you on that appointment?
R.M.Jr:
Oh, fifteen minutes.
W:
Well, why don't you get through - when you're through
with that appointment, you all come down.
H.M.Jr:
All right.
#:
You want me to go up there or do you want me to
Regraded Uclassified
114
-2-
H.M.Jr:
No. No, we'll come up and
...
W:
I'll be in 186.
H.M.Jr:
Well ...
W:
I mean I'll be at my main office.
H.M.Jr:
186.
W:
Yes - well, my main office is 217.
H.M.Jr:
217. Well, supposing we say we'll be there sharp 11:15.
W:
All right.
H.M.Jr:
Sharp 11:15.
W:
Yes, I'll be glad to see you.
H.M.Jr:
How's that?
W:
All right.
H.M.Jr:
Thank you.
%:
Yes.
Regraded Uclassified
115
April 27, 1938.
10:30 R.M.
H.M.Jr:
Hello
0:
Dr. Burgess.
H.M.Jr:
Hello
Burgess:
Hello Henry.
H.M.Jr:
Randolph
B:
Yes.
H.M.Jr:
Would you refresh my memory on that deal with
Panama.
B:
Yes.
H.M.Jr:
I'm going to see the fellow in two minutes.
B:
Yes.
H.M.Jr:
and I just want to refresh my memory.
B:
Yes.
H.M.Jr:
Go ahead, will you?
B:
Ah ell - it was on Friday last
H.M.Jr:
Yes.
B:
....ah - at 1:30 Friday afternoon.
H.M.Jr:
Yes.
I
B:
Ah - they asked - ah - at least four dealers
to submit bids to them for a list of 11 million
of government and Land Bank bonds.
H.M.Jr:
Yes.
B:
Ah - then the dealers promptly began to get bids
from their customers so they had a basis on which
to make bids.
H.M.Jr:
Did they give them any time limits?
Regraded Uclassified
- 2 -
116
Rd.
Ah - they wanted it at 1:30 and they didn't call
them until - ah - about lunch time. Some of them
got calls at quarter past one, some at one
H.M.Jr:
I see.
B:
....end some at 12:30 - along in there.
B.M.Jr:
I see.
B:
Now the whole market sagged a bit. Ah - they got
in a number of bids; some of them refused to bid -
Discount, for example, refused to bid on that
H.M.Jr:
I see.
B:
on that basis, because it was a foolish thing
to do.
H.M.Jr:
Yes.
B:
And - ah - but they did get bids from a number of
dealers.
H.N.Jr:
I see.
B:
They went into a meeting apparently and about forty
minutes later began calling up dealers saying,
"You bought so and so"; the dealers said, "Oh no
we haven't - we gave you bids from 15 minutes".
(Laughs).
H.V.Jr:
I see.
B:
(Laughs) Well then they - they get the number
of wires going and finally sold the bonds to
Childs and to Solomon.
H.M.Jr:
Yes.
B:
But the whole thing, of course, - ah - upset the
market a good deal; I wouldn't say seriously but
it - but it was a foolish way to do it.
H.M.Jr:
I see. Well thank you.
B:
All right.
Regraded Uclassified
- 3 -
117
H.M.Jr:
How are the bonds to-day?
B:
They're a little firm to-day - they're up two
or three four thirty-seconds.
H.M.Jr:
Good. Thank you.
B:
There'll be a little buying I think.
H.M.Jr:
Thank you.
B:
Yep.
H.M.Jr:
Goodbye.
Regraded Uclassified
118
RE PANAMA RAILWAY SALE OF GOVERNMENTS
April 27, 1938.
10:30 a.m.
Present:
Mr. Bell
Mr. Rossbottom
Mr. Smith
H.N.Jr:
Mr. Rossbottom, being held responsible by the
President and Congress for the Government bond
market, I WBS very much disturbed the way your
organization went about selling $11, ,000,000
worth of Government securities on Friday. And
I 30 reported to the Acting Secretary of War, and
he asked me to take it up with the President, which
he did, and the President sent word to me that he
wanted me to see you. I told Mr. Woodring this
morning that I don't like to see people of other
agencies and I felt that if I was displeased end
1 let the Secretary of War know that, it was up
to him to do as he saw fit. But this is the way
the President wanted it done, so on that basis,
why, you're here.
And if you are 50 inclined to tell Mr. Bell and me
why you handled those 11 million dollars worth of
bonds the way you did, why, I'd like to know about
it.
Rossb'm:
Well, I'll be very glad to tell you. Our company
started about 25 years ago to create E fund for the
construction of ships. At that time we purchased
railroad bonds that were legal for investment savings
of New York, Connecticut, end Messachusetts, which
were the highest type of bonds; we made purchases from
year to year. Those securities were in the hands of
01 Committee on Securities of the Board of Directors.
The present Committee on Securities consists of Mr.
Frederick Osborn, Chairman, Mr. Wayne Johnson, and Mr.
F. Bayard Reeves. With the approval of the President,
we entered into a contract with the Bethlehem Ship-
building Company last April, 8 year ago, for the
construction of three ships which would cost us about
$14,000,000. The payments were to be made after the
ships were started, on the basis of 8 million and a
half dollars every four or five weeks, depending on
the progress of construction of the ships. We have
made payments of approximately two million dollars
out of our cash to take care of those payments, and
from now on we will need at least three times $440,000
Regraded Uclassified
119
-2-
every four or five weeks.
We didn't figure at the time that we made the
contracts that we would be called upon to make
payments ES rapidly as that. But the Bethlehem
Company, because of failure to agree with the Nevy
Department HS to the date of construction of some
torpedo bombs and cruisers, put their entire force
on our three ships, so they're just going like
wild fire.
At the last meeting of our Board of Directors, at
which the Secretary of War was present, I advised
the Board that we had about reached the limit where
we could make these payments out of our cash and
that it would be necessary for the Committee on
Securities, or the Directors, to take action on it
in the direction of selling some securities. Just
last Wednesday I wrote to each member of the
Committee on Securities giving them the list of the
securities that we have, the Treasurys aná the
Federal wand Bank bonás, and asked them to arrange
for a meeting at which they would determine what they
wanted to do. In that memorandum I told them that the
Bethlehem Shipbuilding Company had stated at one time
that they might take over some of the bonds in lieu
of cash and sell them for our account. That, of
course, would be on the basis of the bid price
instead of the asked price. They weren't anxious to
do that at all; they wanted the cash.
So, at a meeting of the Committee on Securities, held
on Friday in Mr. Wayne Johnson's office, the Committee
decided to authorize the officers to dispose of this
$11,000,000 of Treasury bonds and Federal Land bank
bonds. I got back to the office shortly before 12
o'clock and had our treasurer cell up Childs and
Devine, both specialists in Government securities,
and Solomon Brothers & Hutzler, end asked them to give
us the prices at which they would be willing to take
all or any part of the different securities we had.
About half past two the bids were submitted to me and
the bid of Childs WSS the highest - 1/32 and 1/64 in
each instance, except in those cases where it was
exactly the same as the others.
And under the authority given me by the Committee on
Securities, I sold the securities to Childs, except the
Federal Land Bank 4'5, which we sold to Solomon Brothers
Regraded Uclassified
120
-3-
& Hutzler.
H.M.Jr:
Well, of course, the method that you used was so out
of the ordinary - and I was told by the Federal
Reserve that you asked four dealers to bid.
Rossb'm:
No, three.
H.M.Jr:
Well, they told me four.
Rossb'm:
No, three.
H.m.Jr:
And as a result of that they sent out wires all over
the country - well, if you say three - so they were
asking for bids on $33,000,000 worth.
Rossb'm:
Yes, we got bids from only three of them.
H.M.Jr:
And it looked as though suddenly somebody wanted to
sell an awful lot of
nossb'm:
Wovernment securities.
H.M.Jr:
Government securities. And it just so happened
that that was the day that we announced we were only
going to sell $50,000,000 worth of bills instead of
a hundred, so we had a very strong market; but if you
had picked almost any other day and used that method
of selling them, you might have even disturbed the
market more than what you did. And there were all
kinds of rumors around and it just knocked the bloom
off the Government market. And I've seen a lot of
boners pulled in Government agencies, but since the
Russian Government dumped a million pounds sterling
on the market the day after we agreed to the
tripartite agreement, I haven't seen anything equal
to what you people did, and
Rossb'm:
Well, we - the Committee on Securities felt they had
this definite dollar obligation to the Bethlehem
Shipbuilding Company, and the thing was to get cash,
and the only cash
H.M.Jr:
Well, you didn't need the $11,000,000 on Friday.
Bell:
Tell me why you didn't sell the bonds as and when
you had to make your cash payments.
Rossb'm:
Well, we thought of that also. In the first place, I
Regraded Uclassified
121
-4-
called up Devine three or four days before, to find
out if this was a good time to sell Government bonds.
He said his idea was that the Government bond market
would remain at its present level for the time, and
he then expected B drop. I told that to the Committee
on Securities. The Committee then felt, "Well now,
if we just sell a million and & half dollars today
and then a million and 8 half dollars next month,
why, our company will suffer the loss, if there is any
loss, and depreciation between the high prices of that
day and the prices that we get afterwards."
H.M.Jr:
But supposing the prices go up a point.
Rossb'm:
Well, we don't lose anything; we haven't lost
anything.
Bell:
Suppose you'd sold them in January, on the same
theory.
Rossb'm:
It wasn't a question of speculating.
H.d.Jr:
But supposing two months from now they're selling
two points nigher.
Rossb'm:
Well, you never can get the highest, can you?
Never get the highest price.
I.M.Jr:
But you sold them on the theory that you were getting
the highest prices.
Rossb'm:
No, because they'd been higher than that.
H.M.Jr:
But instead of asking & dealer - the advice of a
dealer who has to make his money out of dealing in
Governments, why didn't it occur to you that you
might ask the United States Treasury or our fiscal
agents, the Federal Reserve of New York, and ask their
advice?
Rossbim:
Well, as a matter of fact, I don't believe that ever
occurred to any of us.
H.M.Jr:
Well, that's my complaint. My complaint 1s, here's a
wholly-owned subsidiary of the United States Government,
and they want to sell $11,000,000 worth of United States
Governments, or guaranteed Governments, and they don't
Regraded Uclassified
122
-5-
ask the advice of either the Treasury or our fiscal
agent, and they ask the advice of some dealers in
Government bonds, and then they handle it in a way
that it goes all over and it makes - and that all
of these things have to be sold. I've never, since
I've been here, for four years - I've never known
of a transaction handled by a Government agency or a
privately owned agency - handled in this way. Never
known that they asked it. Unknown as far as I know.
Mr. Burgess tells me he never heard of a transaction
being held in that way. and if you had done it a
week before that way and handled the thing, you might
have knocked the market off one and two points.
And as 1 say, I don't - I simply filed my complaint
with the Secretary of War, but the President wanted
me to tell you this direct, so I'm doing it. And
that's that.
But my own feeling is, I think we ought to look
around - and how many more agencies have got a lot
of these Government bonds? And I think they should
trustee them with us, because I don't think - if
that's the way they're going to handle them, how do
we know
Bell:
Got any more?
Rossb'm:
No.
Bell:
That's all you got.
Rossb'm:
They were purchased by the same Committee on Securities.
Whenever we have any excess of cash, we put the cash
in Government securities.
Bell:
who are the gentlemen on this committee? What's their
connection?
Rossb'm:
Well, Mr. Wayne Johnson, also General Counsel of the
company; Mr. Frederick Osborn - he was selected by
the Secretary of War as a director.
Bell:
Dut what is his business outside of the "company?
Rossb'm:
I think he's handling his own personal affairs. Very
wealthy man, interested in conservation.
Regraded Uclassified
123
-6-
H.M.Jr:
Son of William Church Osborn.
Rossb'm:
And Mr. F. Bayard Reeves, selected by the Secretary
of War, He's the Counsel for the All-America Cables,
or was at the time he was selected.
H.M.Jr:
But here's the Treasury and the Federal Reserve of
New York, and our advice wasn't asked.
hossbim:
Well, these three members decided - they have always
decided what to buy and what to sell.
Bell:
That's the reason I asked the question as to connec-
tions of these gentlemen. I wonder why a Federally-
owned corporation needs to go outside of its own
bailiwick to get advice on the investment of really
Government funds? Why shouldn't the Federal Reserve
Bank at least
G.M.Jr:
Stupidest thing I ever heard of.
Bell:
give that advice as to how to invest Government
funds?
H.S.Jr:
Why do they need three outsiders and 8 couple
Government bond dealers to tell them how to handle
our own securities by a corporation owned by the
United States Government?
Rossb'm:
Well, I'm sure it never occurred to any of the members
of the Committee on Securities to take it to the
Federal Reserve Bank or the Treasury.
H.M.Jr:
But Mr. Bell makes a very good point. Why should a
wholly-owned corporation need an advisory committee
on how to invest your securities? Is that a
statutory committee?
Rossb'm:
No, that's a direct action of the Board of Directors,
The Board of Directors 1s responsible. This is a
committee.
Bell:
We handle about three billion dollars of Government
funds through Government trust funds, do our investing
without outside advice. But I think if you had taken
that to the Federal Reserve Bank, the advice you would
have gotten would have been to sell those securities
124
-7-
over a period of a week at a million dollars or two
million dollars a day, and you would have gotten
much better prices than you did. The market was
surging up; you stopped it right in its tracks when
you offered them all.
H.M.Jr:
You killed the market.
Bell:
I think you lost several points by offering them all
at once.
Rossb'm:
That was the action of this Committee on Securities,
and we just obeyed their orders.
Bell:
I don't think you got very good advice, if you're
paying them for it.
H.M.Jr:
Pardon me?
Bell:
I said they didn't get very good advice, and if
they're paying for it it's not very good.
H.M.Jr:
Well, they're paying Wayne Johnson.
Rossb'm:
Yes.
H.M.Jr:
How much does he get as General Counsel?
Rossb'm:
$10,000 a year.
H.M.Jr:
Well, that's how I feel. I think you people ....
Rossb'm:
Yes. I'll tell the Committee just the way you feel
about it. Don't know what can be done now.
H.M.Jr:
Well, that's the way I feel, and as I say - and I
think you agree with me, don't you (Bell)?
Bell:
Yes, I
....
H.M.Jr:
You've been in the Government how long?
Bell:
27 years.
H.M.Jr:
Ever know one that happened like this in 27 years?
Bell:
No, sir.
Regraded Uclassified
125
-8-
H.M.Jr:
It's unique, isn't it?
bell:
Yes, sir.
H.M.Jr:
There you are. As I say, the last time - and the
only other time something like this happened was
when the Russian Government did it; they dumped a
million pounds sterling on us, and that's a - just
like that we were offered a million pounds sterling.
Bell:
I think the Panama and possibly the Waterways
Corporation - they're the only corporations in the
Government that don't operate through the Treasury.
The other agencies are Bill Myers'
H.M.Jr:
Well, the whole set-up, Dan, is most unusual. I
mean this whole - I wish as Director of the Budget
you'd look into it.
Bell:
vuite an old organization.
H.M.Jr:
I know, but I think it's a most unusual set-up.
Bell:
Don't even have the money on our books. The Treasury
doesn't keep the cash.
H.M.Jr:
And why all the casn shouldn't come in to us and
shouldn't be resppropriated every year the way
everything else is
....
Rossb'm:
We never get any appropriation from Congress.
Bell:
They're operating on revenue, paying us a dividend.
You haven't this year, have you? You're going to
use your earnings this year on your ships.
Rossb'm:
I hope SO. No, we expect to pay a dividend - part
of the dividend anyway.
Smith:
This fiscal year - this next fiscal year.
Bell:
What is it, five percent?
Rossb'm:
Yes.
H.M.Jr:
All right, sir, thank you for coming down.
Regraded Uclassified
126
April 27, 1938.
12:06 p.m.
H.M.Jr:
Hello
0:
Governor Harrison
H.M.Jr:
Hello
Gov.
Harrison:
Hello Henry?
H.M.Jr:
Yes, George?
H:
Yes sir, how are you?
H.M.Jr:
I'm wonderful.
H:
Good. Good, fine. Henry, I got a Personal and
Confidential cable from my friend Norman
H.M.Jr:
Oh yes.
H:
that I'm
H.M.Jr:
Oh good old Bobby?
H:
(Laughs) Yes, that I thought I would just tell
you privately because I don't suppose Jesse will
believe me but he refers to the recent protest
of the British Government against the expropriation
of oil fields in Mexico.
H.M.Jr:
Yes.
H:
And then goes on to say that he has the banks and
other financial houses in London to make sure that
the facility for the purchase of Mexican oil are
not granted by the London market.
H.M.Jr:
Oh.
H:
In other words, - ah - the government having taken
a firm stand on the expropriation
H.M.Jr:
I see.
H:
he's asked the banks not to finance the
importation of Mexican oil, see?
H.M.Jr:
Ah-ha.
Regraded Uclassified
127
- 2 -
H:
But after all I just want to let you know that.
H.M.Jr:
Gosh.
H:
And I've got a call in for Sumner Welles. I
thought I'd just tell him.
H.M.Jr:
Oh you're going to tell Sumner.
H:
Yes.
H.M.Jr: O.K.
H:
Yes sir.
H.M.Jr:
Thank you very much.
H:
First rate.
Regraded Uclassified
128
April 27, 1938.
12:23 p.m.
H.M.Jr:
about ten minutes past ten to ask when the
Tax Bill would be out.
Marvin H.
McIntyre:
Yes.
H.M.Jr:
Well Magill said definitely it won't get out
until the middle of the week.
M:
Of this week.
H.M.Jr:
Next week.
M:
Well they just - ah - Fred Vinson just called me
a minute ago and said they were going to have it
all out of the way before Friday.
H.M.Jr:
Ah - the - ah - we've got to do a little helping
on the drafting, see.
M:
Ah-ha.
H.M.Jr:
What?
M:
I see.
H.M.Jr:
And it's kind of difficult.
M:
I imagine so.
H.M.Jr:
And so I don't think that we can help giving
them the figures because the President said he
didn't want it out.
M:
Ah-ha.
H.M.Jr:
Do you get it?
M:
Yep.
H.M.Jr:
Now if there's any change, let me know.
M:
O.K.
H.M.Jr:
But the way the thing stands, the bill-drafting
and the Treasury experts - ah - have such a
difficult job it's doubtful whether it will be
out until the middle of next week.
Regraded Uclassified
129
- 2 -
M:
I get you exactly, Henry.
H.M.Jr:
Do you see what I mean?
M:
Yes.
H.M.Jr:
And if there's any change why let me know.
M:
Yes. Yes.
H.M.Jr:
O.K.?
M:
I'll let you know this afternoon.
H.M.Jr:
All right.
M:
Thank you.
Regraded Uclassified
130
April 27, 1938.
12:26 p.m.
H.M.Jr:
Hello.
Operator:
Gordon Rentschler.
H.M.Jr:
Right.
Operator:
Go ahead.
H.M.Jr:
Hello.
Gordon
Rentschler: Hello there, Henry. How are you?
H.M.Jr:
All right. You sound as though you were in
Europe.
R:
No. Pretty nearly. I'm sitting right up here
in New York.
H.M.Jr:
Well, I mean, I don't hear you very well.
R:
You don't?
H.M.Jr:
Yeah.
R:
Ah, wait, I've got ah - wait until I see if we
can get a better connection. I can hear you
perfectly.
H.M.Jr:
Well, go ahead, I hear you better now.
R:
Ah, all right now?
H.M.Jr:
Yeah.
R:
Ah, how've you been?
H.M.Jr:
Wonderful.
R:
Not too good?
H.M.Jr:
No, I said wonderful.
R:
Oh, wonderful, oh, well that's fine.
H.M.Jr:
Sure.
Regraded Uclassified
131
N I I
R:
I ran out on you.
I went down South and picked
up a couple of kidney stones; then took a month
or two to get over it.
H.M.Jr:
You picked up what?
R:
A couple of kidney stones.
H.M.Jr:
Oh, for heaven's sake! Where'd you find those?
R:
Well, I found them down in Cuba.
I just, ah
....
H.MJr:
Oh.
R:
And after I got rid of-that, why I took a while
to get over it.
H.M.Jr:
I wondered what had happened to you because I hadn't
heard from you.
about
R:
That's exactly it, but I just -/the first of this
last week is the first time that I've even been
back on the telephone.
H.M.Jr:
Oh, for heaven's sakes.
R:
Got a couple of "docs" bossing me and so that
isn't so easy.
H.M.Jr:
Yeah.
R:
But, ah, we never got to finish all our talks on
our friend, the tax bill, and I guess you're damned
glad we didn't.
H.M.Jr:
Well, ah, I
R:
But there's one - one matter that's come up this
morning that I understand that the Conference
people have now agreed again to this duplication
on the transfer tax.
H.M.Jr:
I don't know a thing about it.
R:
Well, they, ah I don't - I imagine that that must
come along with Treasury regulations in the tax
bill, doesn't it? Why don't you take a look at it?
H.M.Jr:
Well, I can.
132
- 3 -
R:
Ah, what that does, Henry, in a nut shell, is
this: We have a customer who probably travels all
over the world, or may be a, a ah, woman, or may
be an older man, or may be anybody. It might be
a fellow like yourself.
H.M.Jr:
Yeah. May be a child in arms.
R:
Yeah, but he says, "Now here, ah, I want to buy
a thousand shares of steel."
H.M.Jr:
Yeah.
R:
And instead of putting that in the name of the
individual customer, we put that in the name of
our nominee.
H.M.Jr:
I see.
R:
Now, as long as that - ah, and of course, in the
face of that change of ownership the tax is paid.
H.M.Jr:
Uh-huh.
R:
Now, ah, when that stock is actually sold by that
owner .....
H.M.Jr:
Yeah.
R:
....
of course, the tax is paid.
H.M.Jr:
Uh-huh.
R:
But we don't want to pay a tax when it goes from
the name of, ah, Mr. Jones, to our nominee company.
H.M.Jr:
I see.
R:
And then when it's sold again, because there's been
no real change in ownership.
H.M.Jr:
Well, I'll ask Magill what he ...
R:
What it really means to us is that it is a facility
that we can give to a great number of our customers,
and if there's any question whatsoever
H.M.Jr:
Yeah.
R:
.....as to people hiding their identity by using a
nominee .....
Regraded Uclassifie
133
- 4 -
H.M.Jr:
Yeah.
R:
Ah, then by all means we ought to be will' - well,
we are not only willing, but we'd be glad to be
required
H.M.Jr:
0. K.
R:
to give the name of the actual
H.M.Jr:
I - I understand. I know what it is now.
R:
as we now have to do it.
H.M.Jr:
I know what it is now.
R:
We just don't want to pay that double tax - if
you will be good enough to take a look at it.
H.M.Jr:
0. K.
R:
I think that they rather feel, ah, as nearly as
I can get it, that this is something that the
Treasury wants.
H.M.Jr:
Well, I don't know, but I'll find out.
R:
Well, if you can do that, it'd be very very.
helpful.
H.M.Jr:
Well, I'm making no promises.
R:
Well, I don't want any promise from you, young
fellow; all I want to do is get your eyes on it.
H.M.Jr:
All right.
R:
I'm very much interested in seeing what you did on
gold while I was loafing.
H.M.Jr:
Yeah. Well, we'll talk
.....
R:
Right now - say fellow, we're getting back now to
where we ought to have been in the first place.
H.M.Jr:
Well, we'll talk about it sometime.
R:
All right. Well, that's a good job.
Regraded Uclassified
134
- 5 -
H.M.Jr:
Take care of yourself.
R:
Well, all right. When are - when you coming to
New York?
H.M.Jr:
I don't know.
R:
Let me know the next time. They won't let me out
for a while, but if you let me know when you come
up we'll sit down together.
H.M.Jr:
Fine.
R:
All right. Good luck to you.
H.M.Jr:
Fine.
R:
Bye bye.
H.M.Jr:
Bye.
Regraded Uclassified
135
April 27, 1938.
12:45 p. m.
Jesse
Jones:
Well, how are you?
H.M.Jr:
Will you sell me a railroad?
J;
I will - what? Yeah. Are you dated up for
lunch.
H.M.Jr:
Unfortunately, I am, Jesse.
J:
I wanted to come over and - ah - chat.
H.M.Jr:
I'd like to - I'm free tomorrow.
J:
Well, I'll be in New York tomorrow.
H.M.Jr:
Oh.
J:
The, ah
....
H.M.Jr:
Oh.
J:
You going to have any time this afternoon?
H.M.Jr:
Well, ...
J:
Few minutes. I'm not so particular, except I
wanted to talk to you about the railroads a
little bit, and
H.M.Jr:
Uh-huh.
J:
And ah, not - maybe I can do it Friday just as
well.
H.M.Jr:
Uh-huh. Kind of a bad day for me. Ah, if - if
it's pressing, I can do it; if it's not pressing
ah .....
J:
Well, it is not pressing.
H.M.Jr:
It's not?
J;
No. It is not pressing.
H.M.Jr:
It's ah
....
Regraded Uclassified
136
- 2 -
J:
Just - what I was going to say now - I can say
this much now
H.M.Jr:
Well, say - say it now.
J:
Ah, I had, ah, a pretty harmonious meeting
H.M.Jr:
Yeah.
J:
.... and when I got into things that we couldn't, ah
...
H.M.Jr:
Yeah.
J:
ah, obviously couldn't solve, why, ah, I just
cast those aside for the time being. See?
H.M.Jr:
Yeah.
J:
And we got them to agree on some of these things,
and, ah, there's no disposition not to go along
and do the things that we did - we agreed to do.
H.M.Jr:
Uh-huh.
J:
And, ah, my thought was - ah - get what we could
get and then, button up the belts and, ah, try for
something else a little later.
H.M.Jr:
Any chance for a Transportation Department?
J:
They don't - there's no objection by Wheeler or
Lee.
H.M.Jr:
(Coughs.) Pardon me.
J:
Sam Rayburn's opposed to it.
H.M.Jr:
Oh, really?
J:
Yeah. Sam, ah - he didn't come to this meeting;
he didn't think he ought to.
H.M.Jr:
Yeah.
J:
Because Lee is Chairman of the Committee.
H.M.Jr:
Yeah.
J:
And, ah, I thought he was probably right about it.
Regraded Uclassified
137
- 3 -
H.M.Jr:
Uh-huh.
J:
But I've talked to him about this thing, and he -
ahhh - he's against it - I've never just sat down
and gone to the mat with him - but, ah, I'll have
plenty of time to do that.
H.M.Jr:
Have you still got time before they go home?
J:
For that - for that Department?
H.M.Jr:
Before Congress goes home?
J:
I doubt if that could be created before Congress
goes home.
H.M.Jr:
I see.
J:
Ahhhh, I doubt if it could. Ahhh, if we could get -
ah, enthusiasm on Sam's part, and, ah - ah, Wheeler's
part we might do it.
H.M.Jr:
Uh-huh.
J:
But, that, we didn't go into much actually, because
I don't believe the Commission would like it.
H.M.Jr:
Uh-huh.
J:
I don't believe that the railroads would like it,
and, ah
....
H.M.Jr:
Well.
J:
But anyway, I'll talk with you maybe Friday?
H.M.Jr:
Yeah - what time? I
....
J;
Whatever time suits you.
H.M.Jr:
Well, you, ah - how, how
....
J:
If you're open for lunch, I'll come for lunch.
H.M.Jr:
Ah - 0. K.
J:
That - that's 8. - a convenient time, and besides
I would like to have you to lunch.
Regraded Uclassified
138
- 4 -
H.M.Jr:
All right. All right.
J:
All rightie.
H.M.Jr:
Ah ...
J:
How's the market today?
H.M.Jr:
Ohhh, a little bit better.
J:
Uh-huh.
H.M.Jr:
Ah - one o'clock?
J:
One o'clock, Friday.
H.M.Jr:
Yeah.
J:
Fine.
H.M.Jr:
Allright.
J:
Thanks.
H.M.Jr:
Thank you, Jesse.
J:
All right.
Regraded Uclassified
April 27, 1938.
MEMORANDUM FOR
139
The Secretary of the Treasury
Subject: Panama Railroad Company
The Panama Railroad Company was incorporated in 1849 under the laws
of the State of New York for the purpose of building and operating a rail-
road across the Isthmus of Panama. Its incorporators were American citi-
zens. It was later sold to a French Company, concerned with the building
of a canal across the Isthmus. In 1904, before actual construction work
on the Panama Canal was started by the United States, our Government se-
cured control of the capital stock of the railroad company, which it now
owns completely. The capital stock amounts to $7,000,000 and is held in
the name of the Secretary of War, except one qualifying share held by each
member of the board of directors, numbering 13, including the Secretary of
War. All directors are officers of the Government except five. The Gover-
nor of the Panama Canal is President and the railroad is operated as an
adjunct to the Canal; at the same time carrying on its operations as a com-
mon carrier.
The railroad operates on its revenues. No appropriations whatever are
made for it by Congress. It declares annual dividends, which are deposited
in the Treasury of the United States. For many years such annual dividends
have amounted to around $700,000.
The railroad owns and operates the Panama Steampship Company and its
other enterprises include commissaries, quarters, cargo handling activi-
ties at harbor terminals, hotels, fueling plants, and telephone system
on the Canal Zone and certain real estate in the Republic of Panama.
The gross revenue of the railroad (exclusive of subsidiary business
activities) during the fiscal year 1937 amounted to $1,609,7441 operat-
ing expenses were $1,333,404; net revenue, $276,340 - an increase of
70,941 over the previous year.
Business operations on the Isthmus, carried on by the railroad com-
pany, yielded a profit of $1,358,595 for the fiscal year 1937.
The steamship line operates at a loss, the deficit for 1937 being
$212,206. However, this steamship line carries freight and passengers
for account of the Panama Canal and other departments of the Government
at material reductions from tariff rates, which reductions, it is re-
ported, amounted to $533,262 in 1937.
AWB
Bureau of the Budget,
April 27, 1938.
Regraded Uclassified
140
The Panama Railroad Company was incorporated in 1849 under
the laws of the State of New York for the purpose of building and
operating 8 railroad across the Isthmus. In 1904, before actual
construction work on the Panama Canal was started, the United
States Government secured control of the capital stock of the
Panama Railroad Company which it now owne completely and has
operated the company eince that date through & board of directors
appointed by the Secretary of War, who holds all the stock of the
company except the qualifying shares of the directors. By
Executive order of May 9, 1904, the President of the United States
directed that the general policy of the railroad be controlled by
the United States and that the road be made an adjunct to the
Panama Canal, at the same time carrying on its operations as a
common carrier. Since that time the corporation has established
and operates various business activities upon the Isthmus incidental
to the construction. operation, and maintenance of the Canal. Thus
the United States Government is conducting the business activities
relating to the Canal enterprise under two distinct organizations:
first, the Panama Canal, which is a direct branch of the Govern-
ment; and second, the Panama Railroad Company, which is a Govern-
ment-owned corporation.
Regraded Uclassified
Mrs. Klotz
TREASURY DEPARTMENT
- 141
WASHINGTON
April 27, 1938
TO THE SECRETARY:
In order to complete the records it
was determined today by Mr. Taylor, and
cleared by you, that the rate to be applied
on the obligations of the United States Hous-
ing Authority which the Treasury will purchase
on April 28 in the amount of $1,000,000, will
be 1/2 of one per cent.
DWB
Regraded Uclassified
142
TREASURY DEPARTMENT
WASHINGTON
April 27, 1938.
MEMORANDUM TO THE SECRETARY:
In compliance with your request there 10 attached & copy
of the statement which was read this morning by Senator Harrison
in his conference with you on the matter of amending the Second
Liberty Bond Act 80 as to combine the limitations of 25 billion
dollars on the authority to issue bonds and 20 billion dollars on
the authority to issue Treasury notes, Certificates of Indebtedness,
and Treasury bills.
Senator Harrison called Senator Glass while we were there
and explained the matter to him. Senator Glass said he saw no or
jection to the Treasury's policy and thought it should have the all-
thority requested.
Senator Harrison then told the Secretary he thought he
should discuss the matter wi th Congressman Doughton, on his return
to the city, and start the legislation in the House and he saw no
difficulty except that the Republicans would naturally take this
opportunity to ask a great many questions on fiscal policies.
DWB
Regraded Uclassified
143*
PRACE
April %, 1938
the son of February no 1935. uniting the Second Liberty
Bond sot, as enended, limited the amount of bonds to be outstanding at
any one time under the provisions of that доб, to an aggregate of
$25,000,000,000 and the amount of Treasury notes, certificates of indebted-
ness and Treasury bills to be outstanding at any one time to an aggregate
of $20,000,000,000.
The following statement shows the ment of public dobt obliger
tions issued under the Becond Liberty Bond 400, as anmied, and outstand-
ing as of March 31, 1938 and the additional amounts which the Secretary
of the Treasury my Same under the authority of that Act:
Bondas
Total mount that my be outstanding
at my cae time
$25,000,000,000
Outstanding as of March 31. 1938:
Treasury bonds
$20,927,262.250
U. 8. Sevings Bonde
(matority value)
......
1,503,900,000
Veterans Missted Service
bonds
$32,455,906.710
Total additional mont of bonds
which my be issued under present
limitation
2,736,350,043.60
Taken. certificates of infortations and Treasury bills
Total amount that my be outstanding
at any one time
$20,000,000,000
Outstanding as of March 31, 1938:
Treasury notes
$11,322,211,050
Certificates of indebted-
nass
772,565,000
Treasury bills
$2,534.000
13.096.330,050
Total additional - which my
be 1ssued under present limitation.
$6,103,600.00
Regraded Uclassified
144
- 2 -
Respitalation
Total public are obligations which my be
issued wis the seesed Liberty Bond sot,
as entried, má be achetending at my cas
time
$45,000,000,000.00
Total outstanding as of March 31, 1938
37,150,959,206.40
Total amount which my be termed under
present limitation
7,840,040,793.60
The total combined amounts that my be issued under the two limite-
tions are, I believe, sufficient for the present but the division as between
bonds and notes and certificates of indebtedness and Treasury bills should be
adjusted in order to give the Treasury more latitude as to the kind of w
curities 10 can tome. In the months of June, September, and December, 1938,
the Treasury has naturities of Treasury notes aggregating more than
$1,600,000,000 fate amount and it will probly be accessary during this period
to raise additional cash between $500,000,000 and $2,000,000,000. midag
the total financing during the next eight months period, emlusive of
bill operations, of nove them $2,600,000,000. It may be highly deskrable,
from the standpeint of the public debt program in the Government security
market, for the Treasury to meet the naturing notes and to raise whatever
additional dash 10 accessary off a major partion thereof through the
of additional Treasury bonds, rether then through the Lesumes of Treasury
notes. the recerving $236,000,000 to neet the and Somes of U. a.
Servings bonds, only $1,500,000,000 would be available to father bend son
case under the present limitation. This night not w sufficient to neet
Regraded Uclassified
: 145
- 3 -
the Treasury notes is this respect.
I should to emphasise that we are not asking for - intrease
in the total limitation on the aggregate of the public debt obligations which
may be outstanding at my one time under authority of the Second Liberty Bend
лев, - assended, but to are addas only for a consolidation of the present
limitations on the two classes of securities montioned in that met w as to
give the Treasury greater flexibility in its financing operations.
Regraded Uclassified
246
April 27, 1956.
AAt
To:The Secretary
From:Mr. Shoup.
British and American Tax Comparisons.
At Mr. Magill's suggestion, I submit herewith some comparative
data on British and American taxes (chiefly income taxes),
The individual income tax payable by a married person with
two children under the British rates proposed by the Chancellor
of the Exchequer in his recent budget speech is compared below
with the individual income tax payable under the present United
States law. The comparison is in terms of effective rates (that
is, the amount of tax, divided by the amount of not income)
Net Income
British
United States
effective
effective rate
rate
%
3,000
3.9%
0
10,000
18.0%
3.4%
25,000
30.4%
9.3%
50,000
40.8%
17.2%
100,000
50.0%
32.0%
500,000
63.9%
60.7%
1,000,000
66.3%
67.8%
The United States figures do not include any State income
tax. From 2 to 5 per cent must be added to include the net
additional burden imposed by the individual income tax of NOW
York State, for example (after allowing for the deduction from
gross income that the Federal Government grants for State income
taxes paid), except that no New York tax at all is due at the
$3,000 level in this illustration.
Regraded Uclassified
147
- 2 -
Comparisons such as these, however, can give only a rough idea
of the relative burden of the two systems. A true comparison would
require elaborate research. The chief difficulty is that what the
British call taxable income is not the same as what the United States
or New York State oall taxable income. The British exclude certain
items that we include; and they differ from us in the deductions
that they allow. Differences in price levels also complicate the
comparison.
Some comparisons--also necessarily rough--with respect to taxes,
debt, and national income follows
1. If Americans paid in taxes to the Federal Government the same
proportion of the national income as the British will pay to their
national government in the coming fiscal year, they would pay over
$10 billion (instead of $6 billion, as they will pay according to the
last published budget estimates).
2. Even if all national and local taxes are taken into con-
sideration, the Americans pay about the same percentage of their
national income in taxes as do the British - at least no greater.
The percentage is about 23.
3. The interest on the national debt in the United States amounts
to 1.5 per cent of our national income while the interest on the
British national debt amounts to 4.3 per cont of their national income.
CAS
Regraded Uclassified
M-148 4/27/35
Eccles Recovery plan, left at the White House when
HM,Jr and Ecoles saw the President.
Regraded Uclassified
21. 149
April 27, 1950.
OUTLINE OF MEXT STEPS X THE RECOVERY FROGRAM
The Outlook for the Boxt Six Months
1. No eign of an early upturn. When production was last is ourrent
levels (in 1931 and 1934) industrial maintenance and new plant and equip-
ment expenditures were nearly $5 billion less than in 1937. No reason
to expect upturn in reilroed and utility expenditures.
Mildly favorable factors,
(a) Residential housing increasing but small and below last year.
Contracts awarded in the first half of April 38 por cont below 'BT
corresponding period;building permits outside E. Y. in March
28 per cent below last year.
(b) Moderate increase in deficit but not substantial, W.P.A., C.O.O.,
roads, P.W.A., U.S.H.A., revenues.
Unfavorable,
(a) Inventories 05 billion higher at year end than in 1935,
(b) Dwindling backlege of unfilled orders and uncompleted projects.
(c) Consumer credit liquidation
(a) Agricultural and foreign prospects
(o) Stock prices high in relation to probable earnings.
Necessary to speed up expenditures in next six months to prevent further
deterioration.
1. R. 1. c. Leans for R. R. equipment-- no legislation required,
(a) Up to January 1, 1959, equipment delivered before June or
September 1939.
(b) 100 por cent of cost
(c) Long muturities " safe
(a) I per cent
#
(o) Interest beginning one year after date of loan.
Regraded Uclassified
*94150
4
2. Further Stimulation of Residential Construction.
V. 7. A. common labor contribution to private builders --
requires legislation.
(a) 10 per cent of appraised value of new construction
(b) On housing units appraised at $5,000 or less
(o) Limited to contracts let this calender year and
started after May lst
Socially beneficial, powerful stimulent, no cost to Government.
S, R. F. c. Leans for New Utility Expenditures - No logislation No
quired
1. Favorable terms
2. Limited period
S. Assist in lowering rates for private financing and refunding.
4. No lean to municipal power plants
4. Speeding Up of Ordinary Government Spending after New Fiscal Year
Starts
(1) Supplies
(2) Public buildings
(5) Armements
Desirable because of critical business situation ia summer and because
other parts of program will be well laumched in second half of fiscal year.
Regraded Uclassified
April 27,
NEXT TYPS IN THE RECOVERY PROGRAM
The Outlook for the Next Bix Months
1. On belance the probabilities favor no significant upturn
in the noxt six months. Unemployment 10 still increasing and retail
00100 are declining. The Index of production remains below 80 as
contrasted with the 1939 average of 110. When the index was last
around 80, in 1931 and 1934, the yearly volume of maintenance and
now plant and equipment expenditures of mining and memurecturing
amounted to $3 billion, or $2.7 billion less than in 1937. Utility
and railroad expenditures are being cortailed.
Mesidential housing expenditures Are increasing but the magnitude
10 mall. 7. W. Dodge residential building contracts awarded in the
first helf of April were 38 por cent bolow the first half of April 1937.
The volume of Dew residential building permits outside of New York in
March was 28 per cent below March 1937.
No significant increase under the present progress in Government
expenditures can be reasonably expected, W. P. À. bes about reached
its penk; C, C. C. and public roads expenditures will be mointained;
P, W. A., depending us it does upon local initiative, will be alow
in gotting under ways the Blue 18 true of U. 8, E. A. On the other
hand, revenues will continue to fall off 60 that not expenditures will
increase moderately, though not to the levels of 1934-1935.
As against the mildly favorable Postors of housing and HOTOTO-
ment expenditures must be offset the atrong deflationary effects of
Regraded Uclassified
404152
the process of working off inventories, of the completion of orders
for heavy durable goods carried over from last year, of the liquide-
tion of consumer credit. The agricultural outlook is depressing.
The foreign economic situation 10 dateriorating.
Masufacturers, wholesalers and retailers entered the year with
16 billion more inventory than they had two years previously. Then
sales were increasing) now they are declining. It will be months
before inventories are worked down to comfortable levole for industry
If 8 whole. Witness the automobile industry with its still large bank
of parts. The process of working off inventories involves losses,
involves a feilure to pass along money received from consumers, and
involves a stoppage of production and DAY buying by producers. The
working off of a billion dollars of inventories subtracts AS much from
the money stream as is added by 9 billion dollars of new construction,
the most we can expect this year.
Under the stimulus of reduced down payments and longer terms there
is evidence that consumer credit reached a high level in late 1937.
The process of working this off will be a drag throughout the year.
Stock prices are high in relation to probable earnings in 1938,
This is € potentially dangerous situation " 8 further fall in stocks
would have depressing psychological repercussions.
A survey of various important elements in the current and immed-
intely prospective situation yields, therefore, no basis for easy
optimism for prospects in the next half year.
8. In the light of the above considerations every effort should
be made to increase the total volume of public and private expenditures
in the next six months to prevent a further deterioration in the buel-
nose situation.
Regraded Uclassified
153
-$-
How Additional Expenditures May be Made
1. R, F. C, lease for reilreed equipment. The R, 7. C. has the
power to purchase adequately-escured equipment trust certificates upon
auch terms and conditions as it may determine. Louns made for mainten-
ance or purchase of equipment need the approval of the I. c. C. as regards
maturity, but do not require a certification by the I. C. c. that the
reilroad in question, on the basis of present and prospective sernings,
any reasonably be expected to neet its fixed charges, as do loans to rail-
roads for other purposes.
It is maggested that for a limited period the B, F. c. announce
itself prepared to purchase Dev equipment trust certificates:
(a) covering 100 por cont of the cost of new equipment,
(b) naturing in twenty years in the case of freight cars, fifteen
years in the of steam locomotives and passenger care, and
ten years in the case of complete streamlined trains and Diesel
electric engines,
(o) et a 2 per cent interest rate,
(a) interest beginning one year after date of loan.
Arguments in Depport of Proposal
(a) An offer on less favorable terms would not interest the better
railroads that can DOW sell equipment trust certificates on . 4 por cent
basis or better. Oa an offer such " outlined above, they could hardly
afford not to anticipate part of their future requirements.
Regraded Uclassified
154
+
(b) In the present conditions of railroad finances, equipment
trust certificates constitute the most secure type of loon that can
be made to the roads,
(c) In no other way could the Ocvernment induce as much total
expenditure and employment at as little cost to itself. It has been
carefully estimated that to handle the volume of traffic consequent
upon full recovery in three years' time would necessitate the purchase
of st billion dollars worth of equipment.
(a) Any amticipation of these requirements would provide both
employment and buying power now, and help mitigato the almost inevit-
able bottlemecks in the future.
(o) It is important to limit this offer to equipment purchased
in the comparatively near future, as otherwise roads will hold back.
The stipulation that the equipment must be contracted for in this
calendar year to be delivered before June 30, 1959, in the case of
freight cars, and September so, 1939 is the case of locomotives and
streenlined trains, appears to be reasonable. This type of work could
be begus almost immediately, as contrasted with some other elements
of the recovery program,
1, Further Stimulation of Residential Construction
The volume of private 100-00st residential construction continues
disappointingly low. If 10 10 to grow to become a significant force
Regraded Uclassified
155
making for . sustained revival, additional stimulus appears necessary.
This could be provided by an amendment to the Relief Appropriation
empowering W. P. A. to supply W. P. A. common labor equal to 10 per cent
of the appraised value of new low-cost residential building from to
the builder. This offer should apply only to units appraised at $5,000
or loss, the contracts for which are awarded between, say, May 1st and
December 31st of this year.
This proposal would
(a) stimulate a socially desirable type of activity
(b) give a substantial fillip to private residential building
expenditures this year, when they are most needed
(c) not involve any cost to the Government
The possibilities of siding in reilroad maintemance through the use of
W. P. A. labor might be studied. A precedent exists in Canada.
3. R, Fa C, Louns for Now Utility Expenditures,
As in the case of the railroads, the R. F. 0. could make loans for
new expenditures for a limited period on very favorable terms. Although
it is true that may operating companies are heavily bonded and that
they are not now in need of new capacity, still an offer on favorable
terms for a limited period should induce many companies to anticipate
their future requirements and modernise or replace old equipment. More-
over, the offer by the 2. 7. C. to lean for such purposes at lower rates
than you provail should have the offect of bringing about a reduction is
Regraded Uclassified
156
the open market rates and honce permit private borrowing and refunding
on more favorable terms. Befunding at lower rates reduces the burden
of fixed costa, enhances the outlook for profits, and brightens the
prospect for securing equity money, the greatest need of the utilition.
In addition to the considerations mentioned above an offer by the
R, F. c. to loan money for Ber equipment for reilroads and utilities
on very fevorable terms for a limited period would permit the replacement
of obsolete and high cost equipment by modern low cost equipment. Psycho-
logically, it should have the effect of strengthening the confidence of
investors and of adding billions of dollars to the market valuation of
the securities of railroads and utilities.
As 1 supplement to this program it would be helpful if 1t were
announced that the P. W. A. would make no gore loans for the construe-
tion of municipal power plants.
4. Speeding up of ordinary Government spending at the beginning
of the now fiscal year
Mach can be done through the Director of the Budget, the Procure-
ment Division of the Treasury, and the various Government departments
to vary the rate of current expenditures and to anticipate the purchases
of necessary supplies. Work on public buildings can be speeded 4.
There should be come possibility of consentrating a larger part of the
program TO in the first half of the fiscal year.
Anything that could be done to throw ordinary expenditures into
the first half of the fiscal year would be extremely worthwhile both
because or the business situation in the numer may be critical and because
Regraded Uclassified
Mais 157
the other elements of the program will result in a stepping up of ex-
penditures in the second half of the fiscal year.
Regraded Uclassifie
158
DEPARTMENT OF STATE
Memorandum of Conversation
J INFIDENTIAL
DATE:
April 27, 1938.
SUBJECT:
Recognition of the conquest of Ethiopia;
loan to China.
PARTICIPANTS:
The Chinese Ambassador, Dr. Chengting T. wang:
the Under Secretary.
COPIES TO:
s, A-B, FE, PA/H, PA/D, Eu, EA
are 1-1493
The Chinese Ambassador called to see me this
morning.
The Ambassador stated that he had received a
confidential telegram from his Foreign Minister in
which Dr. Wan requested him to ascertain if this Govern-
ment would give informally and confidentially to the
Chinese Government its views as to the attitude which
China should assume at the meeting of the Council of
the League of Nations on May 9 in regard to the recog-
nition of the conquest of Ethiopia by Italy. I replied
to the Ambassador that this Government of course ap-
preciated the friendship and the confidence which was
Regraded Uclassified
159
request for our advice, but that I felt that the question
was one which had such far-reaching implications and which
cas of much importance that only the Chinese Government and
the responsible authorities of that Government could pos-
sibly determine such a question and that, consequently, it
would seem to me impossible for this Government to give any
advice in the matter. The Ambassador seemed to expect this
reply and made no comment.
The Ambassador then went on to say that, as he had
told the President, the Chinese Government had ample suni-
tions and military supplies to last until the end of this
year: that the friendly policy adopted by the United States
Treasury with regard to the purchase of Chinese silver had
made it possible for the Chinese Government to obtain suf-
ficient United States exchange to pay for the military sup-
plies which they urchased here, but that this situation
of course could not continue after the first of the year
and they were therefore considering ways and means of ob-
taining financial assistance in the American market. The
Ambassador told me trat negotiations were under way and
would probably shortly be concluded for & loan to the
Chinese Government by American banking interests of from
ten to twenty millione of dollars, which summ would be
expended for the purchase of military supplies in this
country. The Ambassander did not advance the names of
Regraded Uclassified
160
-30
these banking institutions, nor aid I question him.
The Ambassador then went on to say that his Foreign
Minister had also informed him confidentially that the
Chinese Government was informed that the Government of
Japan was considering in the near future requesting
President Reosevelt to offer his good offices with a view
to bringing about peace between Japan and China. The
Ambassador inquired whether any such approach had been
made to this Government. I answered that no approach
of any kind along these lines had been made by Japan to
this Government, nor by any responsible or authorized
agency or representative of the Government of Japan. I
said that of course, as the Ambassador know, there were
a great many individual Japanese both in this country and
elsewhere who apparently on their own initiative had ad-
vanced such a suggestion, but that the Government of Japan
itself had never indicated any such desire on its part.
The Ambassador then inquired what the attitude of this
Government would be if Japan did make such an approach.
I said that necessarily the President would inquire of
the Government of China what its views might be. The
Ambassador stated that he believed that if this question
arose and if in inquiry was then made of the Government
of China, the Government of China would refuse to discuss
the possibility of any peace negotiations unloss Japan
withdrew all of her military forces from Chinese territory.
Regraded Uclassified
161
and this, the Ambassador felt, was not possible for nome
time to come. He gave no clearly to understand that except
on some such prerequisite as this, China was so.sneouraged
by the military situation that she would be unwilling to
consider the discussion of peace terms.
Before he left the Ambassador said that he himself -
not his Government - had been considering the possibility
of "capitalising American sympathy for China" by the flota-
tion in the United States of a so-called liberty loan for
China in the amount of fifty million dollars in issues
ranging from twenty-five to one thousand dollars, at a
low rate of interest and with as collateral the Chinese
ouetoms and the salt tax. He inquired, in the event that
the Government of China wanted to go ahead on this plan,
whether the Government of the United States would have any
objection. I told the Ambassador that this was a matter
concerning which I would desire to consult nome of the high
officials of this Government before expressing any opinion.
I told his that I assumed that he had considered the
probability that if the Government of China took such
action as this, a very large section of American public
opinion would feel that this was counter to the spirit,
if not to the letter, of existing neutrality legislation
and that pressure would be brought in order to have the
neutrality legislation invoked. I inquired also, telling
Regraded Uclassified
162
-5-
him that this was simply a snap judgment, whether he asd
not think it likely that if this action were taken
the Government of Japan would declare that a state of war
existed in order to bring about the automatic operation
of our existing neutrality legislation no as to shut the
doors to such financing in this country on the part of
China. The Ambassador said that these ideas had not really
occurred to him, but that he felt the sympathy of the
people of the United States for China was 80 great as not
to make this danger a very real one. He mentioned in passing
that the Government of China had received altogether
$10,000,000 in cash from the United States for the proseou-
tion of the war through individual contributions and that
of this amount he estimated $2,000,000 came from purely
American and not Chinese sources. I told the Ambassador
that I would be happy to see him again within a few days
and give him a more considered reply to the last inquiry
he had made of me.
Usewill
Regraded Uclassified
163
April m. 1988.
My dear Mr. Jones:
The Secretary has asked - to M-
knowledge the copy of your letter of
April 25rd, which encloses & reprint of
an address recently delivered w you over
the radio. He has noted this, and the
copy of your letter to State Banking
Commissioners, etc.
Sincerely yours.
H.S. Kets,
Private Secretary.
Nonerable Jesse H. Jenes,
Chairman of the Board,
Reconstruction Finance Corporation,
Vashington, D. c.
GEF/dbs
Regraded Uclassified
VOOPI
184
REGONSTRUCTION FINANCE CORPORATION
WASHINGTON
Jeane H. JONES
April 23, 1938
HAIRMAN OF THE BOARD
Gentlemen:
I enclose copy of an address that I recently
delivered over the radio in which I spoke about bank
lending, bank examinations, examiner criticism, etc.;
also copy of a letter which I am today sending to the
various State Banking Commissioners.
I em aware of your respective responsibilities
with reference to bank supervision, and it is my well-
considered opinion that B uniform examination by your
several agencies, and where possible state banking
authorities, will contribute materially to releasing
credit.
I know something of the effect on bank manage-
ment of examiner criticism with respect to items criticized,
or to which special attention is called by the examiner.
I appreciate that criticism 1a often necessary,
but where a bank has ample capital funds, and is not in-
clined to over-extend its lending, criticism of its loans
and investments should be avoided where possible.
The RFC is prepared to cooperate in any construc-
tive program with respect to bank examinations.
Sincerely yours,
(signed) Jesse H. Jones
Chairman
Honorable Marriner S. Eccles
Chairman, Board of Governors
Federal Reserve System
Washington, D. C.
Honorable Leo T. Crowley, Chairman
Federal Deposit Insurance Corporation
Washington, D. C.
Honorable Marshall R. Diggs
Acting Comptroller of the Currency
Treasury Building
Washington, D. C.
Regraded Uclassified
VOOPY
RECONSTRUCTION FINANCE CORPORATION
165
WASHINGTON
JESSE H. JONES
BIAIRMAN OF THE BOARD
April 23, 1938
Dear Mr. White:
I enclose copy of an address that I recently
delivered over the radio in which I spoke about bank
lending, bank examinations, examiner criticism, etc.
I em aware of the respective responsibilities
of all bank supervising authorities, and it is my well-
considered opinion that a uniform examination by all
authorities will contribute materially to releasing credit.
I know something of the effect on bank management
of examiner criticiem with respect to items criticized, or
to which special attention is called by the examiner.
I appreciate that criticiem is often necessary.
but where a bank has ample capital funds, and is not in-
clined to over-extend its lending. criticism of its loans
and investments should be avoided where possible.
The RFC is prepared to cooperate in any construc-
tive program with respect to bank examinations.
This letter is being sent to all State Banking
Commissioners and to the Federal Reserve Board, the Federal
Deposit Insurance Corporation and the Acting Comptroller of
the Currency.
Sincerely yours,
(Signed) Jesse H. Jones
Chairman
Mr. William R. White
Superintendent of Banks
State of New York
Albany, New York
Regraded Uclassified
166
SPEECH
of
JESSE H. JONES
Chairman, Reconstruction Finance Corporation
Arranged by
The Washington Star
Broadcast Over
The Blue Network
of
The National Broadcasting Company
Monday Evening, April 18, 1938
Washington, D.C.
Regraded Uclassified
I wish to discuss business and credit. The decline in the
purchase of consumers' goods-the things we need and
use every day-caused an accumulation of inventories by
the merchant and the manufacturer that has resulted in
widespread unemployment. The manufacturer cannot con-
linue to produce what be cannot sell, nor can the merchant
buy unless he sells. So until these inventories are reduced,
employment will not likely pick up.
In discussing credit I have in mind credit for all pur-
poses-for business, for industry, for agriculture, and for
building. As you know, the Reconstruction Finance Cor-
poration was created in 1932 for the purpose of lending to
banks, insurance companies, mortgage loan companies, Fed-
eral land banks, joint-stock land banks, agriculture,
railroads, etc. March 9, 1933, just five days after Presi-
dent Roosevelt was inaugurated, our law was supplemented,
and has been amended and supplemented many times since
then, expanding the scope of RFC operations to meet vary-
iug conditions. The March 9, 1933, law was the most
important of all. It made it possible for us to save the
banks by buying their preferred stock, capital notes, or
debentures.
Aside from advances to other governmental agencies by
direction of Congress, we have authorized $9,404,000,000 in
loans and investments, including bank capital. $1,760,000,-
000 of these authorizations were later cancelled, the appli-
cante finding they did not need the money, or that they
could get it elsewhere. $6,900,000,000 has actually been
disbursed, and $4,934,000,000, or more than 71%, repaid.
This vast sum of money went directly or indirectly to
every class of our citizenship and represents hundreds of
thousands of individual loans.
1
Regraded Uclassified
Industry was aided by direct loans and through aid to
banks that enabled them to extend credit and to grunt EX-
With the approval of the President, Congress has just
amended our Act again by passing the Glass Bill which
tensions to their borrowers. Agriculture was aided through
empowers us to lend to public bodies, States, municipalities
loans on commodities-cotton, corn, wool, mohair, tobacco,
and political subdivisions, for the construction of useful
peanuts. prunes, dates, figs, raisine, and naval stores. More
public works projects. This is a restoration of authority
than 3 million separate loans have been made to the pro-
which we had prior to the establishment of PWA, und
ducers of farm commodities, These loans have been largely
under which we have loaned $300,000,000 in addition to
through the Commodity Credit Corporation, and average
buying $600,000,000 of such loans from PWA.
The Glass Bill also broadened our powers so that we may
less than $500 to each borrower. Several hundred million
lend on longer maturities. This authority will be particu-
dollars was loaned through Federal land banks, joint-
larly helpful in industrial loans for plant construction and
stock land banks and regional agricultural credit cor-
new equipment-in other words, in extending long-time
porations. Probably 20 million depositors in closed banks
credit to industry.
The objective of the law and of the President and Con-
were aided through RFC loans, Almost every line of busi-
gress is to aid business through increasing employment,
ness has been helped by the RFC and we were getting along
and our loans will be made with that in view. The law
fine unfil last Autumn.
requires that loans must be secured, but may be upon such
Our collections in 1936 and 1937 exceeded our disburse-
terms and conditions and for such length of time as, in the
ments by almost a billion dollars, so by the latter part of
opinion of our board of directors, are appropriate to the
particular application.
1937 it looked as though we could withdraw from the lend-
While our purpose will be to make business and industrial
ing field. Accordingly, on the 18th of last October Presi-
loans that will maintain or create work, we will not feel
dent Roosevelt directed that we accept no more loan
authorized to make such loans unless in our opinion the
applications.
borrower will be able to pay the money back, Too much
But due to the continued recession in business, the Presi-
debt and inflation of values were the principal causes of
the 1929 collapse, and prudent borrowing is just as essen-
dent authorized us to start lending again February 18th of
tial as prudent lending. It does no good to lend a man or
this year. Since that time we have approved $12,191,716 in
a business money which be will lose. It merely postpones
industrial loans, and have applications, definite and tenta-
the inevitable readjustment of his affairs. This does not
tive, for approximately $70,000,000 more of this character
mean that we are not making every effort to lend to deserv-
of loans.
ing borrowers, particularly where employment will be main-
tained or increased. We try to find a way to authorize
2
every such loan for which we have an application.
3
Regraded Uclassified
Apparently many people believe the Glass-Steagall
amendment to our Act permits us to lend on a different
The Securities and Exchange Commission Saturday,
busis of security than heretofore, and that a billion and a
April 16th, issued new regulations intended to simplify the
half dollars has been especially allocated by the Congress
registration and distribution of securities, particularly small
for this purpose. The facts are that this amendment did
issues of established enterprises. The Commission stated
not change the security provisions in our Act, nor did il
that these regulations will tend to reduce the registration
increase our available credit for lending.
expenses and save time for the registrant.
Ours is a revolving fund and fluctuates daily with our
To aid in the legitimate distribution of such securities
receipts and disbursements. At present our unused borrow-
where they appear to be sound and will increase employ-
ing authority is $1,416,000,000 for all purposes, and this is a
ment, we will consider lending to private bankers and
great deal of money, 80 don't be afraid it will give out. We
underwriting bankers when the loans can be properly
have more than a billion and a half dollars of sound assets,
secured. We will not buy the stock of any private business.
and collections from these may also be loaned. The great-
Usually when there is a demand for investment capital that
est amount we have ever had outstanding at any one time
promises a fair return, it is forthcoming, and no doubt this
was $2,700,000,000.
will be true again as business improves.
In addition to lending for all other purposes, we will lend
There is B widespread impression that many who are
for earrying inventories, thus enabling manufacturers to
entitled to credit cannot get credit from banks and other
anticipate trade requirements with the assurance that they
private lending institutions. No one knows the extent to
will not be forced to sacrifice their products to pay for the
which this situation actually exists: but whatever legitimate
cost of production. We will bring to the manufacturer the
demand there may be for credit, the RFC is prepared to
same assistance and same assurance in this respect that We
furnish, preferably in cooperation with banks and bankers.
give to the producers of farm commodities through com-
In this effort we would like for every bank in the United
modity loans. Loans on inventories, like loans on com-
States either for the account of the RFC, or for the joint
modities, will necessarily require the inventories to be ware-
account of the bank and the RFC, to make its lending
housed, or so segregated as to permit an enforceable lien,
facilities available to those of its customer-depositora who
unless of course the borrower is able to give other acceptable
feel they are being deprived of credit.
security.
We want to make it perfectly clear that we are not com-
We will lend for the construction of needed business
peting with the banks, but want to cooperate with them in
buildings, where the project seems sound and credit is not
providing credit where there is a demand which for any
otherwise available.
reason the banks cannot meet.
5
Regraded Uclassified
We would like for banks to go into the problems of such
depositors with H. view to ascertaining whether they are en-
The loans might run for a longer time than bankers ordi-
titled to credit, even though the loan be one which the
narily wish to make, but our banking laws permit long-
bank would not feel justified in making.
time loans, and they are eligible for borrowing at the Fed-
Where the bank finds that the loan can be so secured as
eral Reserve should the bank need to borrow.
reasonably to assure its repayment, but is of n character
We at the RFC very often find that by requiring a
the bank feels it should not make, we would like for the
borrower to secure standby agreements and subordination
bank to take the borrower's application and forward it to
of liens from existing creditors, or the conversion of either
the RFC agency of its district, with such comments or
or both of these into the capital stock of the borrower, we
recommendations as the bank may feel justified in making,
are able to make well-seoured loans that result in setting a
(hur application blanks will be mailed to the banks as soon
business on its feet again.
85 they are ready.
We greatly prefec that the bank take a participation in
It frequently takes careful and painstaking study of an
the loan, sharing proportionately with the RFC in the
applicant's situation to help him rearrange his affairs, but
security and in repayments.
his banker should be as interested in doing this да his
Government.
We will, where the bank wishes us to do so, allow it to
carry the entire loan with a definite commitment from the
I am aware that banks do not like to make slow loans,
RFC to take over, without recourse on the bank, that part
or loans which the bank examiners soon class as slow, but
of the loun which the RFC underwrites, The underwritten
the fact that a borrower needs money which he cannot pay
portion of the loan will be taken up at such time or date as
back except over a period of five or ten years is no reason
why a bank should not make is real effort to assist him.
may be agreed upon when the loan is made. For this
Long-time loans should always be amortized in accordance
commitment the RFC will accept a part of the interest,
without additional charge to the borrower. This will afford
with the borrower's projected ability to pay, and there is no
the bank a profitable investment for its loanable funds con-
reason why a bank should not carry in its assets a proper
vertible into cash at any time.
amount of loans of thie character. Banks carry bonds which
I am convinced from our experience that if the banks
in theory they expect to sell when they need the money,
would go into the problems of more of their potential
but which in practice, when the need arises, they usually
borrowers, they would be able to work out many good
cannot sell except at a loss which they can ill afford to sus-
loans, loans that would be profitable to them and to the
tain, So why should they discriminate against a well-
borrower-lonns that would create employment and stimu-
acured, smortized industrial or real estate loan that is 15.
late business.
cound legal bank investment?
6
7
Regraded Uclassified
In speaking of bank examinations, the Comptroller of the
Currency, the State banking commissioners, Lhe Federal
The recent meeting of "little business" in Washington
Deposit Insurance Corporation, and the Federal Reserve
with Secretary of Commerce Roper served to create the
Board, each of which is charged with the responsibility
impression that "little business" is being denied credit, The
of examining banks, should agree upon a uniform ex-
line of demarcation between little business and big business
amination. Their examiners should be instructed not to
is not easy to determine, 80 the term "little" can only be
criticize, or call particular attention to loans that are
treated ns relative.
qualified investments under the law, if the loan is sound,
With the exception of a few large loans, the average
or properly secured, unless the examiner finds that the
bank has too large a percentage of its assets in B particular
amount of our industrial loans has been $54,760.1 Thirty-
character of loan. Calling special attention to a loan by the
one per cent of all our industrial loans have been for
examiner usually has the same effect on bank management
$10,000, or less, 21% range from $10,000 to $25,000. Four
as if the loan were criticized.
out of every five of the banks in which the RFC has cap-
If these agencies are unable to agree and to cooperate
ital are little banks. In more than 2,500 of these banks
in the examination of banks, they should be required to
our investment is $25,000, or less, In another thousand it
do 80 by legislative action.
ranges between $25,000 and $100,000. In only 250 banks
In fairness to bank examinations, it is proper to say that
do we have HS much as $500,000 invested.
entirely too many bankers tell their applicants for loans
I mention this because some people feel that an applica-
they cannot make the loan because the examiner will criti-
tion for a small loan does not get the same attention that
cize it, instead of being frank with the applicant and
an application for a large one gets, when, as a matter of
explaining why he is not entitled to the loan, and trying to
help him work out his problem. Frankness is a virtue too
fact, it gets much more, but the press does not regard a
seldom employed.
small loan of sufficient news value to publish.
With our very liberal banking laws and the fact that
The same principles apply to business, regardless of size,
deposits are insured, making extreme liquidity unnecessary,
and the employment problem is the same, The little bor-
there should be ample credit for every legitimate purpose.
rower employs relatively the same number of people ns the
Banks are bulging with loanable funds.
big borrower, no more and no less. We give special con-
I am well aware that banks want to lend, and suggest
sideration to the smaller units in business and industry that
they try to fit their lending policies to the credit require-
need to borrow, and would appreciate the cooperation of
ments of today, rather than yesterday.
banks in this effort.
8
9
Regraded Uclassified
So much has been said about fear that we have all become
imbued with the idea that something is wrong with the
country, when, as a matter of fact, we have never had a
greater abundance of everything needed for a really high
standard of living than we have now. The basis of pros-
perity is confidence. We must have confidence in our coun-
try and confidence in our Government, and if we demon-
strate that confidence by action, better business will follow.
10
Regraded Uclassifie
167
WORKS PROGRESS ADMINISTRATION
WALKER-JOHNSON BUILDING
1734 NEW YORK AVENUE NW.
WASHINGTON, D. c.
HARRY L. HOPKINS
ADMINISTRATOR
April 27, 1938
Mrs. Henrietta S. Klotz
Assistant to the Secretary
U. S. Treasury Department
Washington, D. C.
Dear Mrs. Klotz:
Attached is the weekly memorandum on
employment and relief.
Sincerely yours,
Eurous Ron
Emerson Ross, Director
Division of Research,
Statistics, & Records
of thes
they of sent today me.
2/28/38
Regraded Uclassified
168
WORKS PROGRESS ADMINISTRATION
WALKER-JOHNSON BUILDING
1734 NEW YORK AVENUE NW,
WASHINGTON, D. C.
HARMY L HOPKINE
ADMINISTRATOR
April 27, 1938
MEMORANDUM
TO:
Mr. Morgenthau, Secretary of the Treasury
FROM:
Emeryson Ross, Director
Division of Research,
Statistics, & Records
WPA employment for the week ending April 23 amounted
to 2,545,000 persons, an increase of 150,000 since the week
ending March 26 and 41,000 since April 9.
The local relief rolls appear to be leveling off or
declining slightly in an increasing number of localities partly
because of the transfer of relief cases to WPA and partly as
a result of seasonal influences which permit the closing of
many partial or supplementary cases with the advent of warmer
weather. In some localities where seasonal industries are
important a pick-up in private employment is also helping the
relief situation.
The industrial areas, however, are not experiencing
any widespread improvement in private employment. An estimated
decline of 50,000 in non-agricultural employment occurred
between February and March according to the Bureau of Labor
Statistics. Normally B. seasonal increase of 200,000 - 300,000
would be expected during this period.
It is estimated that currently about 800,000 persons
are receiving unemployment compensation benefits. The completion
of benefit periods, which have a maximum duration of 16 weeks,
is a factor in the relief outlook for the coming months.
Regraded Uclassified
169
April 27, 1938.
Dr. Feis came in to see the Secretary to-day at
12:30. He asked whether the Treasury Department would not
arrange to have Congressional hearings on the Hungarian Debt.
Mr. Morgenthau promised to see Mr. Doughton and
suggest that hearings be held and also tell him that he
would be willing to come up and testify favorably.
Regraded Uclassified
170
GROUP MEETING
April 28, 1938.
9:45 A. M.
Present:
Mr. Magill
Mr. Oliphant
Mr. Gaston
Mr. Haas
Mr. Taylor
Mr. Gibbons
Mr. Lochhead
Mr. White
Mr. Upham
Mr. Bell
Mr. McReynolds
Mrs. Klotz
H.M.Jr:
Where's Danny Bell? I'll do this first. (Over
telephone:) Congressman Woodrum, of Virginia,
please. Cliff Woodrum.
We can do this other. Magill?
Magill:
I've got this.
H.M.Jr:
Well, you follow the Chinese. We have the Chinese
coming in at three. White, you - is there a
commitment running out?
Lochhead:
Yes, on Saturday we make our difficult last slide.
I have a cable from Nicholson - rather interesting
at this time, but it's probably just one of his
cables.
H.M.Jr:
You never did answer me about the Russian thing.
(Reading cable.)
Bell:
(Enters the room.)
H.M.Jr:
Hello, Dan.
Bell:
Good morning.
H.M.Jr:
I had another check - I checked on the 'phone
last night. I want you to listen to this, Dan.
(Telephone conversation with Congressman Woodrum
at 9:48 a. m. is attached.)
Regraded Uclassified
171
April 28, 1938.
9:48 a. m.
H.M.Jr:
Hello.
Operator:
Congressman Woodrum.
H.M.Jr:
Hello.
Congressman
Clifton
Woodrum:
Yes, Mr. Secretary.
H.M.Jr:
How are you?
W:
Fine, thank you, sir.
H.M.Jr:
Ah - Wood - Mr. Woodrum, I'm calling up on a
matter in regard to your relief bill.
W:
Yes sir.
H.M.Jr:
In which I happen to have a, ah, particular
interest.
W:
Yeah.
H.M.Jr:
Ah, that is to do with, ah, so-called Self-Help
movement.
W:
Yes.
H.M.Jr:
Are you familiar with the one in Richmond?
W:
Not very.
H.M.Jr:
Well.....
W:
Not very familiar with it.
H.M.Jr:
Well, you know there's one there, and we have one
here in Washington, and what we'd like to get is
about fifteen words in the bill which would read
something as follows:
W:
Uh-huh.
Regraded Uclassified
172
- 2 -
H.M.Jr:
Ah, I mean - ah - "Funds made available by this
Act may be used for aiding Self-Help and cooperative
associations for the benefit of the unemployed or
the under employed persons."
W:
Yes.
H.M.Jr:
Now, how do I go about, ah....
W:
Well, I think what we should do, we should have
somebody, ah, present that idea, and give just a
little brief statement on what it is.
H.M.Jr:
Uh-huh.
W:
We ought to have, ah - that hasn't been gone into
so far, in the hearings at all.
H.M.Jr:
Well how about if we have, ah, Miss Amy Guy come
up from Richmond.
W:
Sure.
H.M.Jr:
How would that feel?
W:
Sure - ah - of course, Richmond is in my District,
and that puts a personal
H.M.Jr:
Oh.
W:
....
touch on it. I'd rather divorce it from
anything that I'm personally interested in.
H.M.Jr:
Well, ah
W:
But, you see, if - it looks like I'm putting -
they'll say that I'm putting language in there
to help something in my own state.
H.M.Jr:
Well, how about if we have somebody from the
District?
W:
I think that would be very much better - somebody
that could just speak on the thing from a national
aspect.
H.M.Jr:
All right.
Regraded Uclassified
173
- 3 -
W:
Give us a little brief information about what it
is and the purpose of it. Now what does Hopkins
say about that?
H.M.Jr:
Well, ah, - uh - Mr. Oliphant called up Aubrey
Williams.
W:
Uh-huh.
H.M.Jr:
And he's enthusiastic for it.
W:
He is?
H.M.Jr:
Yes.
W:
Well, why don't you get, ah - get Mr. Oliphant to
arrange to have Aubrey Williams and somebody -
whoever you pick upon, come over and give us about
ten or fifteen minutes on it?
H.M.Jr:
Ah, when would you like that?
W:
Well, - ah, our hearings are set up pretty close -
I expect it would have to be Monday sometime.
H.M.Jr:
Well.
W:
Ah, if - if whoever has charge of arranging it
would call the clerk of the Committee he would
set a time for them. We've got a pretty close
schedule but we'll fix it in all right.
H.M.Jr:
Would you?
W:
Yes, indeed.
H.M.Jr:
You know they're doing awfully good work, and - ah,
ah - I think it's an economical way to take care
of, ah
W:
Well I, I think - I think it is too, and I - just
from what I know about it, which isn't as much as
I'd like to know, I think it's very very desirable.
Well, I'd be glad to have it, but we ought to have
something to base our action on, you see.
H.M.Jr:
All right. Well that's - I tell you what we'll do.
Ah - I'll ask somebody from the Hopkins office
Regraded Uclassified
174
- 4 -
W:
Yeah.
H.M.Jr:
.....
to get in touch.
W:
To get in touch and
......
H.M.Jr:
With the right party.
W:
.....
if you'll arrange to have someone come down
with them
.....
H.M.Jr:
Fine.
W:
....
and, ah, if they'll take it up with the
clerk - they know how to do that - then arrange
for a little short hearing.
H.M.Jr:
Fine.
W:
Glad to do it, sir.
H.M.Jr:
Thank you, boy.
W:
All right, sir.
H.M.Jr:
Thanks.
Regraded Uclassified
- 2 -
175
H.M.Jr:
Better call Aubrey, hadn't I, myself?
Oliphant:
And just give him the ball, yes sir.
H.M.Jr:
Does that sound all right to you?
Bell:
Uh-huh.
H.M.Jr:
(Over telephone:) Aubrey Williams, please.
They can take somebody from the Washington
Self-Help to go up there.
Oliphant:
He'll be satisfied when you report your talk to
him - his attitude.
H.M.Jr:
(To Mrs. Klotz:) If you have that retyped for
me I'll (inaudible)
Klotz:
Omitting those.
H.M.Jr:
Copy one for me, one for Mr. Bell, one for Mr.
Oliphant.
(Over telephone:) Hello.
Operator: They expect Mr. Williams in a few
minutes. He hasn't come in yet.
H.M.Jr: Thanks. As soon as he comes in.
Operator: All right.
H.M.Jr:
Now, we (Mr. Bell) go up on the Hill at eleven
o'clock. We have an appointment with - eleven
fifteen - with Doughton.
Bell:
Eleven fifteen.
H.M.Jr:
Did they tell you?
Bell:
They probably couldn't find me.
H.M.Jr:
(To Operator:) Remember, I told you to tell
Mr. Bell we were going to go up on the Hill this
morning. Mr. Taylor and Mr. Bell - I said tell
them when I got that appointment from Doughton's
office. No, when I got the appointment I said,
"Notify Mr. Taylor's and Mr. Bell's office."
Regraded Uclassified
M I 1
176
Quite sure. All right. Check - maybe it was
Miss Carr. All right.
Ah, Mr. Feis came in yesterday to see me and he
wants - there's a feeling back and forth they'd
like us to have a hearing on the Hungarian debt
thing, and I agreed that I would take it up, so
will you have something in hand about it?
Bell:
Today?
H.M.Jr:
In case they ask us, see, when we see Doughton.
It has to start, you see. So I told them - I
mean back and forth, back and forth, and so forth.
It reminded me I'd read that story. somewhere,
Herbert, about the editor of the New York World.
Gaston:
Yes. Kintner used it the other day about
H.M.Jr:
Fellow kicked this reporter out, and down the
stairs. Chapin said, "I refuse to be intimidated
that way. You go back and interview that fellow
again." So the State Department refuses to be
intimidated - they are going to send me back up
again. Feis didn't think it was funny. (Laughter.)
So I - I thought it was very affable.
Bell:
Anyway, I saw in the paper where they decided to
enter into a treaty with Nicaragua to settle that
little item of five thousand dollars, Anybody in
the Treasury been in touch with that?
Ollphant:
Yeah. It was in the hearing of the Committee.
The effect of the treaty would be to supercede the
law that controls
No objection if they want
to get a treaty.
H.M.Jr:
Well, what'll we do about it?
Bell:
What shall we do about it?
H.M.Jr:
Yeah.
Bell:
I don't know - don't know what is being done. It
was just a little paragraph in the paper.
Oliphant:
It will go to the Foreign Relations in the Senate
I think.
Regraded Uclassified
- 4 -
177
H.M.Jr:
Well, anyway you raise the question - Taylor's
responsible for all the State Department has to
do with finance, customs, and all trains going
West, so will you look it up?
Taylor:
This is that weekly collective income tax of
Nicaragua.
Bell:
Offset against the foreign debt of Nicaragua
to this Government.
H.M.Jr:
(To Mr. Magill:) You're coming in - you're
following the Chinese.
Magill:
Yes sir.
H.M.Jr:
All right. What else.
Magill:
Do you want these figures on the British-American
income tax? (Hands H.M.Jr. sheets - 2.) That
first sheet shows the amount of tax; the second,
the amount of percentages.
H.M.Jr:
Well now - ah - we had a discussion last night -
what about all the other state taxes and all that?
Magill:
That's covered on the second page.
H.M.Jr:
I think I'll take my time in looking at that.
Magill:
No, I wouldn't do it now.
H.M.Jr:
I'd like to read it carefully.
Magill:
Mr. Doughton called up this morning and wanted to
know what you were coming up about.
H.M.Jr:
Will he have other people there?
Magill:
I don't know. He didn't say.
H.M.Jr:
But he knows?
Magill:
He knows.
H.M.Jr:
Swell. Anything else?
Magill:
No. I'm working on that matter we will talk about
this afternoon.
Regraded Uclassified
178
- 5 -
H.M.Jr:
(Over telephone:) Hello. Ask Chief Wilson to
send me up the time the President leaves, or tell
me on the phone what time the President leaves
tomorrow. 0. K.
(Conversation with Mr. Aubrey Williams at 9:57 a.m.
attached.)
Regraded Uclassified
179
April 28, 1938.
9:57 a. m.
Operator: Mr. Williams.
Aubrey
Williams:
Hello.
H.M.Jr:
Aubrey.
W:
Yes.
H.M.Jr:
Henry Morgenthau.
W:
Yes, Mr. Secretary.
H.M.Jr:
How are you?
W:
I'm fine, thank you, sir.
H.M.Jr:
Aubrey, Herman Oliphant told me he talked to you
about that little amendment on the Self-Help.
W:
Yeah.
H.M.Jr:
And I gather that you'd like to see that in?
W:
Very much, I think.
H.M.Jr:
Good. Now, I called up Cliff Woodrum and spoke
to him a few minutes ago, and he said that it's
fine; he'd like to see it in.
W:
Good.
H.M.Jr:
But, he said he'd like to have it presented by
your organization, plus someone, ah, from the
Washington Self-Help rather than from the
Richmond, because he says that's his District,
and he doesn't want to make it so personal.
W:
Yeah.
H.M.Jr:
And he said if you people - now that I've called
him - would ask his clerk to put it on for
Monday, you would - you'd have it - give it ten
or fifteen minutes on Monday.
W:
Yeah.
Regraded Uclassified
180
- 2 -
H.M.Jr:
But inasmuch as you're handling the bill, I got
the distinct impression he'd like you people to
ask for it.
W:
Well, that's all right.
H.M.Jr:
Now I've - he knows I'm for it; he said he's for
it.
W:
Good.
H.M.Jr:
Ah ....
W:
That's fine.
H.M.Jr:
Now, ah.....
W:
Well, now, who would come up from the Washington
Co-op? Could Mrs. Morgenthau come?
H.M.Jr:
I don't think so. I don't want her
W:
You'd rather not - well, who else?
H.M.Jr:
Well, I - I'll check with them.
W:
You - you'll let me know - you, ah, you'll let
him know, will you?
H.M.Jr:
I'll let you know, because
....
W:
All right.
H.M.Jr:
you're going to ask - you will ask for the
appointment?
W:
Yes, I will.
H.M.Jr:
Because you're handling the bill, aren't you?
W:
Yes.
H.M.Jr:
And, I'll get in touch, and before noon today -
ah, oh - sometime during the day I'll either
phone you or drop you a note.
W:
Well, that'll be fine.
Regraded Uclassified
181
- 3 -
H.M.Jr:
But - but can I leave the rest to you now?
W:
Yes. And, ah, if I want anything more - if
Cliff thinks anything more - ah - you ought
to be in it, I'll call you.
H.M.Jr:
That's right. Well, I - I've expressed my
interest - told them I thought it was good;
I'd like to see it.
W:
Yep.
H.M.Jr:
Ah, and he says he's for it; he thinks it's good.
W:
Well that - that's grand.
H.M.Jr:
But he said he'd - he'd put it on for Monday
if you people ask for it.
W:
Yeah.
H.M.Jr:
And, we - we'll furnish somebody who is familiar.
W:
All right. Thank ....
H.M.Jr:
How's that?
W:
Thanks very much, Henry.
H.M.Jr:
Thank you.
W:
Goodbye.
Regraded Uclassified
- 6 -
182
H.M.Jr:
Now -
(Telephone rings.) Hello. Thank you. Eight
o'clock tomorrow night.
(Side conversation with Mrs. Klotz.)
(Nods to Mr. Oliphant.)
Oliphant:
I sent to Bell my memorandum on the status of
Ickes' legislation. (To Mr. Bell:) Did it
come to you?
Bell:
I haven't seen it yet; it's probably upstairs on
my desk - in my basket.
H.M.Jr:
Well, now, in that - you don't know?
Bell:
Not yet.
H.M.Jr:
You can tell me when we go up together.
Bell:
Yes.
H.M.Jr:
I see in the paper - I'm rather surprised - that
Admiral Peoples is on the Hill asking for sixty
million dollars for two or three post offices for
every Congressman.
Gaston:
Two for every district.
Bell:
That includes sixty million on the banks. I knew
that was coming; I think they had a conference
yesterday at the White House with Admiral Peoples,
Woodrum, Harry Hopkins, and Ickes. I think
the sixty million was discussed.
H.M.Jr:
Will you have Ickes tell you
Bell:
I'll find out.
H.M.Jr:
Will you?
McReynolds: (Inaudible:) My understanding - the President -
they merely called him.
Bell:
The Chairman of the Committee didn't think they had
a chance in bringing out a twenty-five million
dollar public building bill and getting by with it
on election year.
Regraded Uclassified
- 7 -
183
E.M.Jr:
(Side conversation with Mrs. Klotz.)
Herman?
Oliphant:
That's all, I think.
H.M.Jr:
(Nods to Mr. Gaston.)
Gaston:
I
H.M.Jr:
(To Mr. Oliphant:) I think when they go up you
might have Hester go with them, just to
Oliphant:
When they go Monday?
B.M.Jr:
Monday.
Oliphant:
Yes, I'll have him watch it; then he can keep
his eye on it.
H.M.Jr:
Please.
Gaston:
I talked to Mr. Magill and Oliphant yesterday
about this question of tax exempts. Paul Betters
has put out a statement indicating our position,
to the Conference of Mayors, in regard to removal
of the exemptions on local securities, so I got
a hold of Paul Betters and arranged to have him
come in tomorrow morning and Oliphant and some of
the rest of the boys are going to give him a
lesson on tax exempts and their affect on the
financial picture - state and local.
H.M.Jr:
What else?
Gaston:
Fortune magazine has been approaching us, both
directly and indirectly on two different proposi-
tions. One is for some work in the Bureau of
Internal Revenue - statistics of income - of
tracing fortunes of three hundred - or incomes of
three hundred thousand a year in some given year,
and tracing it forward and backward and see what
happens to large incomes. It is - I heard later
it is something Tommy Corcoran is very greatly
interested in. I've had some talks with editors
of Fortune magazine since, and they are going to
have some articles on the distribution of wealth.
It seems like a worthy action to take. I've been
talking to Magill about it.
Regraded Uclassified
- 8 -
184
H.M.Jr:
What do you say about it?
Magill:
It's a good idea, from our point of view.
H.M.Jr:
Well, will you and Oliphant and - you, I mean,
and Gaston and - I'll appoint a committee of you
and Gaston and Commissioner Helvering, and whatever
the three of you decide - you, Helvering, and
Gaston. I'll let you handle it. Okie doke.
Gaston:
We've already been looking into it the last week.
H.M.Jr.
The three of you handle it.
Magill:
I think we ought to do it for our own purposes.
For our own purposes, we couldn't do it immediately.
If, for our own purposes it is given out at all,
it would be given out for everybody's benefit.
Corrington Gill, who is one of Fortune's
intermediaries here, said he would be very glad
to give a W. P. A. allottment for that, or any other
worthy research projects that we might have in
mind here.
H.M.Jr:
Well, I still say
Oliphant:
Isn't it a white collar project?
H.M.Jr:
Oh no; they've cut them right and left throughout
the country - they've cut them right and left.
How many have we given up, Mac?
McReynolds: We haven't actually given them up by revenue
processes. As a matter of fact they've called
them of their own volition, so the only one's
we've given up are the ones being completed.
Gaston:
The other thing which was the other project of
Fortune, which came to me, through Corrington
Gill, was that they'd like to have a special
story on the stabilization fund - the same thing
they tried with us a year ago, and I told them of
our previous experience with them and told them
there was nothing in it; if they wanted to write
a story on the basis of what was in the newspapers,
all right, but I didn't see how they could get
anything more.
H.M.Jr:
How does Corrington Gill get into this?
Regraded Uclassified
- 9 -
185
Gaston:
Some of the editors of the Fortune had asked him
to
.....
Taylor:
On a retainer basis, is he?
H.M.Jr:
Better make something click up here. All right,
what else, Herbert?
Gaston:
That's all,
H.M.Jr:
Thank you. George?
Haas:
(Hands H.M.Jr. black book.) Most important
figure is another week in the right direction.
H.M.Jr:
What else?
Haas:
Well, do you - Jones put out a preliminary estimate
on railroad carloadings.
H.M.Jr:
Yeah.
Haas:
But you can't use that in connection with the
times index, because we don't get a breakdown.
H.M.Jr:
What do we indicate this week?
Haas:
It was down. That is the total.
H.M.Jr:
It's down.
Haas:
Yes.
H.M.Jr:
Well, on that basis, the New York Times business
index this week will strike an all-time low.
That's always borne out on Friday afternoon.
Haas:
In the total, but the miscellaneous is weighted
nineteen, where the total is only weighted eight.
Gaston:
You mean an all-time low?
H.M.Jr:
I mean, going back to
.....
Gaston:
135.
H.M.Jr:
This present - for this period.
Gaston:
Since the peak.
Regraded Uclassified
188
- 10 -
H.M.Jr:
Yeah. That's wrong! (Picks up newspaper.)
Twenty-nine seven. George, this is wrong. See,
this says eighty-nine seven, but the previous week
here - I thought it was wrong - as against
ninety-one. It's 2.3.
Haas:
They revised that.
H.M.Jr:
2.3.
Haas:
Yes, it should be that, according to the paper.
H.M.Jr:
I've got kind of a funny brain.
Haas:
Pretty good, I think. They frequently revise
that from one week to another. I'll check it.
H.M.Jr:
Which makes it much worse. I mean, that makes the
power index, which is forty-nine per cent of the
whole index, off two point three.
Haas:
That also
H.M.Jr:
All right.
Taylor:
We've got a letter from John Fahey, wondering
H.M.Jr:
With or without cigars?
Taylor:
This is without cigars. And what he wants to
know is whether he can have the comments that are
made by the other agencies. I talked to Dan
about it, and Dan, in his capacity as Director of
the Budget is going to pass that information on
to him.
H.M.Jr:
Well, that's up to Dan.
Taylor:
Yeah, and I thought we could say that we under-
stand that the Acting Director of the Budget is
passing on the comments so as to clear up the loose
ends.
H.M.Jr:
0. K. 0. K.?
Taylor:
(Nods "Yes.")
H.M.Jr:
(Side conversation with Mrs. Klotz: I won't
commit myself on charities, and I won't be on any
committees.)
Regraded Uclassified
187
- 11 -
I don't know whether any of you people saw the
story written on the Ford interview yesterday -
one written by the Detroit fellow?
Gaston:
Jay Hayden - yeah.
H.M.Jr:
You've seen it?
Taylor:
It's in the Times.
H.M.Jr:
No, no. The one in the Times
.....
(Detroit)
Upham:
One of the papers quotes from the/Free Press -
says so forth and so forth - written by Prevost.
Gaston:
This story is signed by Jay Hayden.
H.M.Jr:
The one I mean is in the Washington Past, about
Eccles. Well, get the Detroit paper; I'd like
to see the whole thing.
Oliphant:
I didn't see that in the Times.
Upham:
Herbert, I think they referred to Prevost's
story.
H.M.Jr:
Which is the one in the Post. See if it's in
here (several news clippings) while we're on
it, will you (Gaston)?
.....
that Ford and
Eccles got into an argument.
McReynolds: That was on the air this morning, that Eccles
and Ford had an argument, Ford thinking that it
wasn't a good idea to spend.
H.M.Jr:
(Side conversation with Mrs. Klotz)
Anything else?
Taylor:
(Nods "No.")
H.M.Jr:
(Nods to Mr. Gibbons.)
Gibbons:
No. You're not going to do anything with the
Judge's letter that you got?
H.M.Jr:
I'm going to answer it, personally.
Gibbons:
I'd like to see a copy of it.
Regraded Uclassified
188
- 12 -
Lochhead:
The French continues to support the franc -
let it slip out a little bit - breaks it down to
307 - still costing them plenty of money to do
it. I imagine they'll have to do it. Loans
continue.
That's all I have.
H.M.Jr:
I want the original story out of the Detroit
paper. I want the original.
Gaston:
I can get it quicker by calling up Cliff Prevost
and getting him to send a copy of his story over.
H.M.Jr:
(Points to Mr. White) =:.
White:
We're collecting - still collecting figures
Japanese and Chinese trade on our own. I was
wondering whether you thought the interest
has died down a little and we can stop. We have
two men in New York on the payroll. It's becoming
a little less significant so far as our Chinese
trade is concerned.
H.M.Jr:
Yeah. Yes, I'd - suppose you stop it as of when?
White:
End of the month.
H.M.Jr:
First of May.
White:
First of May. We'll make a survey of the analysis
of the trend of the trade, and indicate we're
dropping it.
H.M.Jr:
Anything else?
White:
No.
Gaston:
Here's John O'Brien's story. Of course, he got
that from Prevost.
H.M.Jr:
Yeah. Anything else for you?
White:
No.
H.M.Jr:
Mac, after - before I leave tomorrow - and I may
be able to do it in the afternoon - I want to sit
down with you and White and fix him up on the people
he needs, see?
Regraded Uclassified
189
- 13 -
McReynolds: Yeah.
H.M.Jr:
I mean, before I leave town tomorrow.
(Nods to Mr. Upham.)
Upham:
I have nothing.
H.M.Jr:
Are you making any progress?
Upham:
We reached a definite and final disagreement on
one of the two problems yesterday, and we'll
probably reach an agreement today on the other.
H.M.Jr:
Well, now, I'm going to follow my own technique
I've always followed - we're going to get ready
on it whether you disagree or not. I want to
call in a half dozen people I have in mind. It
takes time to get these fellows in town. I can
invite them, say for next Wednesday; you think
it will be safe?
Upham:
Yes, I think so. I think we'll finish up today
or tomorrow, so we can report back just what these
three men
....
H.M.Jr:
Wednesday morning, you say.
Upham:
I think so, unless you want to give more time, say
to Eccles and Crowley, and Diggs, to decide whether
they want to over-rule these.
H.M.Jr:
Well, I'd see them Tuesday - those people. Why
not let's say we'll have a meeting with those
people - the bosses, so to speak - at ten-thirty
Tuesday.
Upham:
All right.
H.M.Jr:
That would be the people that met here the other
day. Will you make those appointments?
Upham:
Surely.
H.M.Jr:
You know who was here?
Upham:
Yes.
H.M.Jr:
And then let's say ten-thirty Wednesday, with the
people. I'd like to do it right now. I want
Regraded Uclassified
- 14 -
190
Tom Smith, Jeff Coolidge, White, who is the head
of the bank examinations of the State of New
York, isn't it?
Upham:
Yes. You mentioned Broderick the other day.
H.M.Jr:
Yeah, Broderick. Would you? I think he's a
good man.
Upham:
Well, I thought the Federal Reserve people have a
reservation on that; perhaps they haven't.
H.M.Jr:
Well, I haven't. He's satisfactory to me. And
would you have a New York City man?
Upham:
I think it might be more important to have a small
banker.
H.M.Jr:
Well, who?
Upham:
I don't know, other than someone like Smythe.
Maybe he'll do for that.
H.M.Jr:
Yes, I think he will. Anybody know
Upham:
I know lots of small bankers, but
Taylor:
What about Mr. Adams?
Upham:
No. He's not so small.
Gaston:
You can get White or Broderick to pick one or two -
to bring them down.
H.M.Jr:
All right. Tell White -
Klotz:
Which one, this White?
H.M.Jr:
Yeah. Would he bring - I mean, these people I
know, I think - take a man like Tom Smith.
Upham:
Tom will be here in the morning.
H.M.Jr:
Can you clear with Tom and let Mrs. Klotz know?
Upham:
You want to see him?
H.M.Jr:
Yes. Then we can ask him.
Upham:
We can pick up a banker locally, perhaps. They
are coming in all the time.
Regraded Uclassified
191
15 I I
H.M.Jr:
Between now and nine-thirty tomorrow, think about
it, will you? But those are the people I'd like
to have.
(Side conversation with Mrs. Klotz:) ... that I
want them to come down here ten-thirty Wednesday;
that we're going to have some new regulations on
bank examinations, and I'd like to show them
to them and get their advice.
Upham:
There was a small Pennsylvania banker in to see
Diggs, a friend of his - but he's got the worst
bank in the United States.
H.M.Jr:
I know Commissioner White, of the Bank of New
York is an able fellow, and I know that Broderick
is a fine fellow; we've got Smith, Coolidge,
Broderick, and Commissioner White. That's all.
Gibbons:
You don't need any more. Harvey Gibson is friendly
to the Administration.
H.M.Jr:
Yeah.
Gibbons:
Of course, he's a big banker.
McReynolds: Take a small banker from Washington.
Upham:
We can find one.
Gibbons:
It's purely a mechanical process.
McReynolds: You can take Tom Groom, who is head of the local
Bankers' Association. He runs a small bank, but
it's the best run bank here in town.
H.M.Jr:
Is he a good man?
McReynolds: He's head of the local Bankers' Association - local
Chapter.
H.M.Jr:
You know him?
Bell:
Not very well, but he's got a good reputation.
McReynolds: I know him personally. I know he'd qualify in
that field.
H.M.Jr:
All right, let's have him up here.
Regraded Uclassified
192
- 16 -
McReynolds: I only know one thing that is wrong with him.
Upham:
He slices?
McReynolds: No, he doesn't refuse to pay my checks.
H.M.Jr:
By all means, have him come in. And if
anybody between now and tomorrow has any
suggestions - I don't want a town meeting, but I
am not going to get out a lot of rules and
regulations without checking with some people
other than the people here. When we begin
to talk about removing the name "slow" from all
things, I just want to be about a thousand
per cent sure.
(Nods to Mr. Upham.)
Upham:
That's all.
H.M.Jr:
Huh? Dan?
Bell:
I have nothing.
H.M.Jr:
Mac?
McReynolds: (Nods "No.")
H.M.Jr:
Mac, I'm just going to say hello to Mrs. Campbell -
can she come in now?
00000
Regraded Uclassified
193
April 28, 1938.
11:00 A. M.
H.M.Jr:
Hello.
Operator:
Mr. Williams' secretary.
H.M.Jr:
Thanks.
Operator:
Go ahead.
H.M.Jr:
Hello.
Aubrey Williams'
Secy Miss Smith: Secretary Morgenthau, this is Miss Smith,
Mr. Williams' secretary.
H.M.Jr:
Good. Tell Mr. Williams-I've talked to him this
morning about getting this clause in to take care
of the Self-Help Co-ops.
S:
Yes, I heard that.
H.M.Jr:
Good. Now, Miss Edna Lonigan, of the Treasury ....
S:
Who is that?
H.M.Jr:
Miss Edna Lonigan.
S:
Yes.
H.M.Jr:
She'll go up to - to represent - to explain the
Self-Help thing.
S:
Yes. And that'll be on Monday, won't it?
H.M.Jr:
Yes. Now after Mr. Williams has gotten the time
that, ah, Mr. Woodrum's going to allocate for
that, would you let Miss Lonigan know direct?
S:
Indeed I will, Secretary - Mr. Secretary.
H.M.Jr:
Can I forget about it?
S:
Ah, yes, you can. I'll - I'll call it to Mr.
WillIams' attention and call you right back.
H.M.Jr:
Well, you needn't call me - you call Miss Lonigan.
Regraded Uclassified
- 2 -
194
S:
Well, I'll call Miss Lonigan.
H.M.Jr:
Edna Lonigan.
S:
Yes.
H.M.Jr:
Thank you so much.
S:
All right, sir.
H.M.Jr:
Thank you.
Regraded Uclassified
195
April 28, 1938
3 p. m.
Present:
Chinese Ambassador
Mr. Taylor
Mr. Lochhead
HM,Jr: How's the war? Maybe I shouldn't ask.
Ambassador: I hope you are getting the bulletins.
HM,Jr: Yes.
Ambassador: That we receive from Hankow from time to
time.
HM,Jr: I see by the paper that they may flood the Yellow
River Valley there.
Ambassador: I suppose that's the last resort. They
are very unwilling to do it. For the farmers it will be ter-
rible.
HM,Jr: You were going to give me another map. You
made one up.
Ambassador: Do you want another one?
HM,Jr: If you could.
Ambassador: Sure.
HM,Jr: Make a new one showing the various groups.
Ambassador: I will give you one where the fighting 18
going on.
HM,Jr: How they got the material in.
Ambassador: Giving the Northwest, the whole Eastern
area from Canton up omitting the Western City.
HM,Jr: Yes, but how they got that stuff in there. For
Regraded Uclassified
196
-2-
instance, have they finished that road? The Burma. Would
you ask?
Ambassador: Yes, I will.
HM,Jr: I think the last time it was 15 or 20 miles.
Ambassador: Yes. We were told it would be ready
about the middle of April. Now it 18 about the end. I
wonder whether it 1s ready. I will certainly ask them.
Dr. Kung has Just wired me again asking me to convey
to you and your Government our appreciation of the way our
silver is being accepted here and I think the last arrange-
ment will be
Mr. Lochhead: Saturday.
Ambassador: Tomorrow, 1sn't it?
HM,Jr: We take 10,000,000 Saturday.
Mr. Lochhead: That clears up the last arrangement
we had.
Ambassador: And we still have some left.
HM,Jr: How much?
Ambassador: Which we would like to dispose of. I
think from 50 to 100 million ounces.
HM,Jr: You still have that much?
Ambassador: Yes. And I wonder whether it would be
possible to make arrangements.
HM,Jr: Well, I am seeing the President tomorrow and
I will ask him. I don't think I will have an answer for
you before Tuesday.
Ambassador: Before Tuesday? I will be away on
Saturday.
HM,Jr: Well, I won't be here either.
Ambassador: I will be back by the end of next week,
I have to go to Detroit.
197
-3-
HM,Jr: Will you be back next week?
Ambassador: Yes.
HM,Jr: When you get back will you give me a ring?
Ambassador: Yes. Surely. I will.
HM,Jr: I will have an answer for you then.
A mbassador: I think we are going to have, say,
50 million and instead of bi-monthly if it could be weekly?
HM,Jr: 5 million a week?
Ambassador: I mean 10 million a week for five weeks.
HM,Jr: I don't know. God! We have bought a lot
of silver! I don't know what we are going to do with it
all.
Ambassador: Well, anyhow, we will leave it in your
hands and await your word.
HM,Jr: I heard Madam Chiang Kai-Shek on the radio
last night.
Ambassador: Not so clear. I could not catch all
the sentence.
HM,Jr: She spoke too fast.
Ambassador: Yes, she spoke too fast.
HM,Jr: It was at a quarter of seven.
Ambassador: That's right.
HM,Jr: But if she had just talked a little slower.
Some of the words came so fast.
Ambassador: Yes. I only got about a dozen complete
sentences.
HM,Jr: She talked awfully fast. What time of
night was that?
Ambassador: That would be morning. I think that
would be about eight o' clock in the morning, BO she was
Regraded Uclassified
198
-4-
talking the next day an hour early.
HM,Jr: Well, Mr. Ambassador, we will get that
and then when you come down next time if you would have
a map for me?
Ambassador: I will.
HM,Jr: I suppose the State Department knows, but
do you have a sort of buying machine here?
Ambassador: We have several organizations. I think
the one that is buying the most 18
HM,Jr: Is that Government owned?
Ambassador: No. It's privately owned. The Pres-
ident or Chairman, K. C. Lee, has very good connections at
home and he has been buying quite a good deal of our ammuni-
tion and planes.
HM,Jr: What proportion of your buying do you do in
the United States. Have you any idea?
Ambassador: You mean as compared with what we buy
elsewhere?
HM,Jr: Yes.
A mbassador: I think we have been buying a good
deal.
HM,Jr; You wouldn't know?
Ambassador: I don't know the exact amount.
HM,Jr: Just curious.
Ambassador: I would imagine we buy a lot in Europe.
There are so many countries -- England, France and Germany,
Italy. Even nowadays we get things from Germany, and
Russia, BO I would imagine the amount compared with Europe
would be higher than the amount bought here.
And now, Mr. Secretary, if I may have a few minutes
with you, off the record.
(Mr. Taylor, Mr. Lochhead and Miss Chauncey left
the Secretary's office, the Ambassador remaining with HM,Jr.)
o0o-o0o
Regraded Uclassified
199
April 28, 1938
3:30 pm
Present:
Mr. Taylor
Mr. Lochhead
Dr. White
The Chinese Ambassador care in and he wanted to
talk to me on a very confidential matter. He said that
be seen Mr. Sumner Welles yesterday and had asked
him if he had heard any rumors that the Japanese were
approaching or would approach President Roosevelt to
mediate between Japan and China; that Mr. Welles had
informed him that he had heard of no such move on the
part of the Japanese.
The Chinese Ambassador then went on to say that
if such an approach were to De made that he felt that
the Chinese, having such great confidence in President
Roosevelt, would be interested provided that the Japan-
msedid not try to drive too hard a bargain and that they
would like to go back to the situation in China as it was
on July 7th, last year.
I got the distinct feeling that the Chinese Am-
bassador was sounding me out with the hope that I would
communicate his conversation to President Roosevelt and
that they, the Chinese, would be pleased to have the
President act as mediator between the Chinese and Japanese.
He then went on to tell me that they had only
100 million oundes of silver left and that they had enough
ammunition and supplies to last them the balance of this
calendar year, but after that they would have to get
credits and wanted to know what the chances were of
floating a $50,000,000 Chinese Liberty Loan in this
country. I told him the chances of getting anyone to
buy it were slim. He furthermore asked me whether we
would buy another 50,000,000 ounces of silver as our
present agreement expires this week and that this time
would we please buy at the rate of 10,000,000 ounces A
week. I told him I would talk to the President about
it tomorrow and would let him know next week.
Regraded Uclassified
20D
-2-
I then called up Sumner Welles and told him that
the Chinese Ambassador had been in to see me and that I
had got the distinct feeling that he was trying to ad-
vance the 1dea that President Roosevelt act as mediator
between China and Japan. Sumner Welles said that this
was most interesting as he had gotten distinctly the
opposite viewpoint. I promised Sumner Welles that I
would send him a memorandum of my conversation with the
Chinese Ambassador and he said that he would send me a
copy of his memorandum.
Regraded Uclassified
, 201
April 28, 1938
My dear Mr. Welles:
In accordance with my tele-
phone conversation of today I am
sending you herewith a memorandum
of my conversation today with the
Chinese Ambassador.
Sincerely,
The Honorable,
The Undersecretary of State.
Regraded Uclassified
202
April 28, 1938
My dear Mr. Welles:
In accordance with my tele-
phone conversation of today I am
sending you herewith a memorandum
of my conversation today with the
Chinese Ambassador.
Sincerely,
The Honorable,
The Undersecretary of State.
Regraded Uclassified
203
April 28, 1938
My dear Mr. Wellest
In accordance with my tele-
phone conversation of today I an
sending you herewith a memorandum
of my conversation today with the
Chinese Ambassador.
Sincerely,
The Honorable,
The Undersecretary of State.
Regraded Uclassifie
204
COPY
April 28, 1938
The Chinese Ambassador came in and he wanted to
talk to me on a very confidential matter. He said that
he had seen Mr. Sumner Welles yesterday and had asked
him if he had heard any rumors that the Japanese were
approaching or would approach President Roosevelt to
mediate between Japan and China; that Mr. Welles had
informed him that he had heard of no such move on the
part of the Japanese.
The Chinese Ambassador then went on to say that
if such an approach were to be made that he felt that
the Chinese, having such great confidence in President
Roosevelt, would be interested provided that the Japan-
ese did not try to drive too hard a bargain and that they
would like to go back to the situation in China as it was
on July 7th, last year.
I got the distinct feeling that the Chinese Am-
bassador was sounding me out with the hope that I would
communicate his conversation to President Roosevelt and
that they, the Chinese, would be pleased to have the
President act as mediator between the Chinese and Japanese.
He then went on to tell me that they had only
100 million ounces of silver left and that they had enough
ammunition and supplies to last them the balance of this
calendar year, but after that they would have to get
credits and wanted to know what the chances were of
floating a $50,000,000 Chinese Liberty Loan in this
country. I told him the chances of getting anyone to
buy it were slim. He furthermore asked me whether we
would buy another 50,000,000 ounces of silver as our
present agreement expires this week and that this time
would we please buy at the rate of 10,000,000 ounces a
week. I told him I would talk to the President about
it tomorrow and would let him know next week.
Regraded Uclassified
TREASURY DEPARTMENT
205
Washington
FOR IMMEDIATE RELEASE,
Pross Service
Thursday, April 28, 1938.
No. 13-15
Secretary Morgenthau announced today that the following proclanation,
orders. and regulations relating to silver were revoked today, April 28, 1938:
(1) Executive Order No. 6814 dated August 9, 1934, and
the anendment thereto, Executive Order No. 6895A,
dated November 2, 1934,
(2) Proclamation No. 2092 of August 9, 1934 (except
certain provisions relative to sottlement for newly-
ninod donestic silver received by United States coinage
nints under Proclanation No. 2067 of December 21. 1933,
as nodified),
(3) The Orders of the Secretary of the Treasury of Juno 28,
1934, and May 20, 1935,
(4) The Silver Regulations of August 17. 1934, as anended.
The revoked Executive Order and Proclemation required the delivery to,
and directed the receipt by, the United States nints of silver situated in the
United States on August 9, 1934.
The revocation of the Orders of the Secretary of the Treasury eliminates
the restrictions imposed by such orders upon the importation and exportation of
silver.
The revoked regulations were issued under, and implemented, the revoked
proclamation and orders and prescribed the required reports and records relative
to silver holdings and transactions.
The revocations in no way affect the application of the tax on silver
transfers under subdivision 10 of schedule A of titlo VIII of the Revenue Act of
1926, as added by section 8 of the Silver Purchase Act of 1934.
Likowise, the revocations do not in any way affect the continued receipt
of newly-mined donestic silver under the Proclamation by the Prosident of
December 21, 1933, as nodified.
o0o
Regraded Uclassified
206
April 28, 1938
My dear Mr. Delano:
Thank you for your letter of
April 27th with its inclosure. I
appreciate your courtesy in sugmit-
ting this to me.
The memorandum is entirely
agreeable to me and I have nothing
to add to it.
Sincerely yours,
Mr. Frederic A. Delano,
Chairman, Advisory Committee,
National Resources Committee,
Washington, D. C.
Regraded Uclassifie
207
April 28, 1938
My dear Mr. Delanos
Thank you for your letter of
April 27th with its inclosure. I
appreciate your courtesy in sugmit-
ting this to me.
The memorandum is entirely
agreeable to me and I have nothing
to add to it.
Sincerely yours,
Mr. Frederic 4. Delano,
Chairman, Advisory Committee,
National Resources Committee,
Washington, D. C.
I
Regraded/Uclassified
208
April 28, 1938
My dear Mr. Delanos
Thank you for your letter of
April 27th with its inclosure. I
appreciate your courtesy in submit-
ting this to me.
The memorandum is entirely
agreeable to the and I have nothing
to add to it.
Sincerely yours,
Hr. Frederic 4. Delano,
Chairman, Advisory Committee,
National Resources Committee,
Washington, D. C.
Regraded Uclassified
209
NATIONAL RESOURCES COMMITTEE
NORTH INTERIOR BUILDING
WASHINGTON
April 27, 1938.
The Honorable,
The Secretary of the Treasury.
My dear Mr. Secretary:
In order not to violate any confidence I have
stated in writing what I got out of our conference
yesterday no that I could give it to RV colleagues
on the Advisory Committee of the Resources Commit-
tee. But I would like to have you look it over and
correct or elide anything that you do not like.
I appreciate more than I can tell you your
courteous and friendly reception.
Sincerely yours,
Frederic A. Delano,
encl.
Chairman, Advisory Committee.
Regraded Uclassified
210
NATIONAL RESOURCES COMMITTEE
NORTH INTERIOR BUILDING
WASHINGTON
April 27, 1938.
MEMORANIUM POR:
Dr. Charles 1. Merriam, Chicago, I11.
Mr. Beardaley Buml, Now York City.
Mr. Henry 3. Dennison, Framingham, Mass.
I called on the Secretary of the Treasury by appointment yester-
day afternoon and was with him for about forty-five minutes, He
received me very cordially, and when I presented a copy of our
Public Works Planning Report, which came out in December, 1936, he
admitted that he had never seen it before, and in the course of the
conversation be indicated that he knew very little about the work
we were doing. Be thought of us as e committee that was set up to
plan for spending and he had never heard of our recommendations for
a Fiscal Policy Committee. Although he said he was exceedingly
busy, he promised to look over the report and give it his considera-
tion. 1 judged from the fact that be is busy and that the President
is leaving in two days for the South that he will not be able to
talk to the President about it before be goes.
I asked the Secretary if be had received the Industrial Commit-
toe's report that I left with him, entitled "Where Are No", and he
sawthat he had only acknowledged it that very day. Although he
did not say BG in so many words, I got the impression that be either
was not such impressed with the Blaisdell report or else had not got
its meaning, because he spoice of the fact that be was greatly inter-
ested in timing and the timeliness of action, and the implication
was that he felt recent happenings shows a lack of appreciation of
timeliness and strategy. Be spoke of having lost two of his best
mon, - Mr. Reifler and Mr. Viason. He did not say 80 in so many words,
but the implication was that they had left not because they were
unfriendly to him or to the Administration, but because they were
discouraged.
One thing the Secretary spoke of with a. good deal of apparent
sincerity and that USA that be not only wanted to be loyal to the
President but santed to be loyal to all of his min objectives. Es
spoke of the terribly difficult job before ne of finding work for
ten or twelve million man, and he said that there cught to be some
commission whose duty It was to plan for our human resources. To
Regraded
211
this I said that I not only entirely agreed with him but that wa were
well of the fact that the President wished us to consider our
human resources as well as other natural resources, but that we had
not dealt with the problem of Just how twelve million idle men should
be handled because there were others to whom that Job had been given.
However, I assured him that our committee was very appreciative of
the importance of that job and wanted to be helpful and that perhaps
this idea of a fiscal advisory council was one of the ways of accomplish-
ing that undertaking, or determining its timeliness, if not actually
deciding how the work should be done, - & job which Mr. Harry Hopkins
and his staff had been struggling with for some months.
I will close by saying that I could not have been more kindly
received than I was by Mr. Morgenthan, and while he was not ready to
accept our recommendations he did say that be had been working very
closely with the Director of the Dudget and the Chairman of the
Federal Reserve Board. I pointed out to him that these represented
three of the committee of five of the proposed council. I all
convinced that the Secretary will give our suggestions careful
thought and that if he thinks the suggestion is useful he will recom-
mend it to the President, either in the shape we have indicated or
in some other form. He fully appreciates his great responsibility
as the fiscal head of the Government and would accept helpful data
and advice if be was sure it was useful and helpful rather than con-
fusing. Though our report of more than & year ago has lain dormant
a good many months, I think W can well afford to let this matter
rest with the Secretary for his consideration.
Frederic A. Delano,
Chairman, Advisory Committee.
CC-Chas T Eliot 3nd, Executive Officer.
Regraded
212
NATIONAL RESOURCES COMMITTEE
FAIR DJ
NORTH INTERIOR BUILDING
WASHINGTON
April 27, 1938.
THE
The Honorable,
The Secretary of the Treasury.
My dear Mr. Secretary:
In order net to violate say confidence I have
stated in writing what I got out of our conference
yesterday so that I could give it to w colleagues
on the Advisory Committee of the Resources Commit-
tes. But I would like to have you look it over and
correct or elide anything that you do not like.
I approciate more then I can tell you your
courteens and friendly reception.
Sincerely yours,
Frederic A. Delame,
&
Chairman, Advicery Connittee.
Regraded Uclassified
Regraded Uclassified
NATIONAL RESOURCES COMMITTEE
FADIDS
NORTH INTERIOR BUILDING
WASHINGTON
April 27, 1938.
MMMORANIUM FOR:
Dr. Charles 1. Morrism, Chicago, 111.
Mr. Neardsley Rual, New York City.
Mr. Heary S. Demnison, Framingham, Mass.
I called on the Secretary of the Treasury by appointment yester-
day aftermoon and TM with his for about forty-five simutes. He
received me very cerdially, and when I presented & copy of our
Public Works Planning Report, which case out in December, 1936, he
admitted that he bad never seen it before, and in the course of the
conversation be indicated that be know very little about the work
we were doing. He thought of us as a committee that was net up to
plan for spending and be had never heard of our recommendations for
& Fiscal Policy Committee. Although he said he was exceedingly
busy, he promised to look over the report and give it his considers-
tion. I judged from the fact that he is busy and that the President
is leaving is two days for the South that he will not be able to
talk to the President about it before he goes.
I asked the Secretary If he had received the Industrial Commit-
too's report that I left with him, entitled "Where Are 16°, and he
said that be had only acknowledged it that very day. Although he
did not say so in so may words, I got the impression that be either
vas not much impressed with the Blaiedell report or clse had not got
its meaning, because he spoice of the fact that he was greatly inter-
ested in timing and the timeliness of action, and the implication
was that he felt recent happenings shows 8 lack of appreciation of
timeliness and strategy. Be spoke of having lost two of his best
man, - Mr. Reifler and Mr. Vinson. No did not say so in se many words,
but the implication was that they had left not because they 9070
unfriendly to his or to the Administration, but becames they was
discouraged.
One thing the Secretary spoke of with a good doal of opparent
sincerity and that was that be not only wanted to be loyal to the
President but wanted to be loyal to all of his mix objectives. Be
spoke of the terribly difficult job before us of finding wirk for
ten or twelve million men, and he said that there reght so be solte
commission where daty 11 was to plan for (or hame researces. to
214
Regraded Uclassified
+
this I said that I not only entirely agreed with his but that ve VITA
well sware of the fast that the Prosident wished us to consider our
buman resources as well as other natural resources, but that # had
not dealt with the problem of just how twelve million idle ⑉ should
be handled because there were others to whom that job had been gives.
However, I assured his that our committee nos very appreciative of
the importance of that job and wanted to be helpful and that perhaps
this idea of a fiscal advisory council me one of the ways of accomplish-
ing that undertaking, or determining its timeliness, If not actually
deciding how the work should be done, - a job which Mr. Harry Hopkins
and his staff had been struggling with for some months.
I will close by saying that I could not have been more kindly
received than I vas by Mr. Morgentham, and while he was not ready to
accept our recommendations he did say that be had been working very
closely with the Director of the Budget and the Chairman of the
Federal Receive Board. I pointed out to his that these represented
three of the committee of five of the proposed council. I all
convinced that the Secretary will give our suggestions careful
thought and that If be thinks the suggestion is useful be will recom-
mind it to the President, either in the shape VI have indicated or
in some other form. de fully appreciates his great responsibility
as the fiscal head of the Government and would accept helpful data
and advice if he was sure it vas useful and helpful rather than con-
fusing. Though our report of more than a year Ago has lain dormant
a good many months, I think V6 can well afford to let this matter
rest with the Secretary for his consideration.
Fredaric A. Delamo,
Chairman, Advisory Committee.
CC-Chas 1 Ellet 2nd, Inscritive Officer.
215
April 28, 1938
Present:
Admiral Peoples
Mr. McReynolds
Mrs. Klotz
HM,Jr: Admiral, I would like to issue you some
instructions. I want, not later than Monday, new bids
epared by Procurement on cement. I want it Monday.
I won't take any 'if and or but'. If I can't have it
by Monday I will write it myself, because I think Pro-
curement Division did not have good faith with me when
they wrote those oids. I do not think that they played
fair with me. No cement manufacturer that had any com-
don sense would have bid on that bid. Way should any-
body bid on that basis? It was an impossible thing to
bid with and I have to sit here with everybody and take
the criticism. I mean, they certainly -- somebody over
there, some place -- I haven't got the time: I haven't
rot the energy, but somewhere along the line someone in
Procurement made it impossible, and made me the laughine
stock.
Admiral Peoples: Mr. Secretary, that's impossible.
ни, Jr: That's the way I think. I am not going
to argue. But nobody could make me feel differently
and I want Monday, I want it prepared, and if you can't
30 it I will write it on B. sheet of paper. Somebody
wants some cement. He knows what kind of cement and
how much. And I will write the b1d. Il Please bid on
this." And why it takes one week to prepare that kind
of contract, I don't know. Somebody in the United States
Government must want a definite amount of cement.
Admiral Peoples: They have the quantities now.
Just got definite quantities, but they could not get them
from the Departments concerned
HM,Jr: Well, Admiral, please, not later than Monday
morning for my approval -- I mean, McReynolds and the Gen-
eral Counsel should act for me, and I want them to review
those bids and in the mail Monday night.
Admiral Peoples: Let me make a short statement
about that original proposal. The conditions of the bide,
Regraded
216
-2-
of the specifications and all, were thoroughly cleared and
discussed with the General Counsel's Office before they
were issued.
HM,Jr: He says not.
Admiral Peoples: Mr. Secretary, or Connell was in my
office for two hours and I turned this thing over to him
later and he took it up to Manning and it was up there for
possibly about an hour. They all agreed, under the condi-
tions, to meet the needs that was the best effort that
could be made to invite bids f.o.b. mills throughout the
country and that was done, with the result that all the
bids were submitted but the facts were not attractive.
Some were responsive and 80 forth and in many places they
did not bid, BO I think under the circumstances
HM,Jr: Mr. Oliphant says not over his signature
and I gave it to you (MacReynolds). Mr. Oliphant has
filed definite complaints that he had no opportunity to
see the certain bid which went out and he has put it in
writing.
Mr. McReynolds: I have got it.
HM,Jr: You have had it two days. And give Admiral
Peoples a chance to answer it. He has written me -- a
certain bid went out for cement and it went out before any-
body in the General Counsel's Office -- it's in writing
and please give it to the Admiral. And Admiral, not later
than Monday night, in the mail, please get out a bid for
cement.
Admiral Peoples: That's what we are working on now,
trying to make it in a way -- they have the quantity. Just
got it day before yesterday. Definite quantities. A good
deal less than the original amount.
HM,Jr: How much?
Admiral Peoples: 600,000 barrels.
HM,Jr: Will you see that your organization functions
80 that by Monday night those things are in the mail?
Admiral Peoples: Let us finish our conference
217
-3-
HM,Jr: They have got to be in the mail. I don't
care whether they have to work tomorrow night and Saturday
night and Sunday night. They have to be in the mail Mon-
day night and I just won't accept any excuse. I don't
care if you ask for 10,000 barrels, Just 80 you get out one
offer.
Admiral Peoples: Bless your heart, it will be done.
HM,Jr: One on the new pattern for & new contract.
Not the whole. One. Is that asking an impossibility?
Admiral Peoples: No. No. Not at all.
HM, Jr: I want one bid for one contract, if it's
only 10,000 barrels. I want it to go out.
Admiral Peoples: Late yesterday afternoon, Basil
Connor of New York Tphoned me in behalf of a former
classmate of his, down at Atlanta, the Portland Southern
States Company, and he asked that before we take any
further action about new bids would we please give him &
chance to get in on it.
HM, Jr: I made a statement and he (MoReynolds) 16
here representing me and if any statement I have made 18
unfair, you try to tell McReynolds. But I want McReynolds
to give you the letter, the definite complaint, that I have
in writing.
Admiral Peoples: That's wrong, Mr. Secretary.
HM,Jr: I have got it in writing. I can't help it,
I think I was sold down the river.
Admiral Peoples: No, sir:
HM,Jr: O. K.
Admiral Peoples: On the contrary, it's Procurement
Division which has taken the rap on this thing, Sir. The
protests that have come in, over 400 of them, Sir, telephone
messages to me personally, telephone messages to Collins
from senators and congressmen on the hill, telegrams, letters
of protest on the ground that we were eliminating the small
dealer and the protest is nation-wide, Sir.
Mr. McReynolds: I can tell you on one thing 100
Regraded Uclassified
218
+
HM,Jr: Well, Mac, this 18 Just the kind of thing
that burns me up and I have to save my energy and I have
to have people who will protect me.
Whoever put their
initials on this thing, just as common sense, just as a
business man, to let a thing like that go out, I wouldn't
bid if I was in the cement business if it was all the
business in the world, I wouldn't bid. I think it was
unfair too.
Admiral Peoples: Look at the bids they got. Some-
thing like 24 firms from all over the country.
HM,Jr: I know. But if I was in the dement busi-
ness and I was one of the Board of Directors and the Presi-
dent of the company bid on that, I would fire him.
Admiral Peoples: There is only one clean-cut,
definite way to bid, by putting un to the buyer & definite
quantity for delivery at a certain place in a certain time.
Then you get real competition.
HM,Jr: I only make one point: I say a definite
amount at his own factory.
Mr. McReynolds: That's what we are working on.
H.,Jr: A definite amount at the man's factory.
Whether it's at his factory or definite site shouldn t
make any difference, should it If we are willing to
take it at his factory, and the reason it's being out that
"ay 1s because the President of the United States wants it.
What he wants. A definite amount at the factory. I
asked him alternative site or factory and he said no.
Admiral Peoples: Not at site.
HM,Jr: No. He said f.o.b. mill.
Admiral Peoples: That's what we are trying to get
the thing around in such 8. way as to eliminate site.
HM,Jr: I can eliminate it. I can write it. I
want 10,000 barrels of cement, 1.0.b. mill.
Mr. McReynolds: A conference was going on in my
office at the moment with that information as to quantity.
HM,Jr: I have been stalling around here and every-
body wanted to Bee me and I don't know how many letters I
have received.
Uclassified
219
-5-
Admiral Peoples: Procurement has been a mad-house.
HM,Jr: Now, Admiral, between now and Monday, if it
is only 10,000 barrels, please, because then we can say this
is the pattern and we can do it on a horse sense basis.
Admiral Peoples: That's what we are trying to do.
o0o-o0o
Regraded Uclassified
220
April 28, 1938.
To: The Secretary
At
From: Mr. Shoup
British and American Income Taxes in Dollars (not Rates of Tax).
This memorandum supplements mine of April 27. It shows the actual
income tax payable at various levels by individuals, under the United
States (Federal) tax and the proposed British rates. The figures are for
a. married person with two children, and assuming income up to $14,000 to
be "earned income".
Income
United States
British tax
$ 3,000
0
$ 118.12
10,000
$ 343.00
1,795.63
25,000
2,327.00
7,605.00
50,000
8,621.00
20,392.50
100,000
31,997.00
49,955.00
500,000
303,568.00
319,455.00
1,000,000
678,436.00
663,205.00
ds
FEDERAL RESERVE BANK
22:
OF NEW YORK
FFICE CORRESPONDENCE
DATE April 28, 1938,
COMFIORNTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
J. W, McKeon
BANK OF ENGLAND.
WOM
Mr. Knoke called Mr. Bolton at 10:15 a.m. and asked his
what he knew about the French situation as the franc appeared rather
wesk, not only for spot, but also for forward delivery. Bolton
thought that the main difficulty continued internal with the Cabinet
reported split as to future policies. Without question Deladier was
for the Tripartite Agreement and apperently was going to stick to his
guns. Last Saturday when francs went to 167 to the pound rumours
spread all over the continent that the franc was due to go to 180.
There was also talk of an Angle-French bargain to devalue the pound
against the dollar by letting the London gold prices go up to 150
shillings (1.0. 7%). Support of the franc had been very costly
around the present level, Cariguel losing the equivalent of about
£2,000,000 in exchange daily. The pressure against the franc was
purely speculative with the same group operating. However, with this
present drive against the franc it appeared that the Bwiss Bank
Corporation was the largest operator. At the present moment Deladier
and Bonnet were in London conferring with Chamberlain end Helifex and
naturally all were anxiously sweiting the result of this meeting.
There would be very little change in the French situation until the
return of Deladier and Bonnet and that all Europe will be watching
Paris for any new developments such as decrees, etc.
Bolton stated that there was an increase in the activity
of the gold market with the demand running about £500,000 a day.
Some hoarding was also noticeable. Mr. Knoke asked him about the
Regraded
Uclassified
FEDERAL RESERVE BANK
OF NEW YORK
222
FFICE CORRESPONDENCE
DATE April 29, 1958.
CONFIDERTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
J.W. McXeon
BANK OF ENGLAND.
ROM
- 2 -
premium on gold coins and Bolton said that the market was firmer at
about 2% premium
The Russian supply was increasing with that country now
shipping regularly about £750,000 per week which is immediately sold
in the market. There were no Russian stocks on hand in London.
Mr. Knoke inquired as to the reason for the break in the
rupee rate down to 1sh 5 7/8d per rupee. Bolton gave various reasons.
The main one he thought was due to the decline in Indien exports, both
merchandise and gold. He felt that there was a short position in both
silver and bar gold in Bombay. Again, the change-over in administra-
tion to a native provincial federation did not impress him as working
out very favorably.
As to the situation with Csechoalovakia, there was nothing
new to report. The situation in Hungary was rather unfevorable and
within A month things might take a turn for the worse.
Bolton asked about the effect of the recent efforts to
widen our credit base and Mr. Knoke answered that it was 8 little
too early to tell to what extent they would succeed.
Mr. Knoke asked Bolton about the weakness of the Belgian
franc. Bolton replied that the Belgian franc had been offered heavily
in the London market this moming and for the first time in two works
the Belgians had to give up gold, in the amount of about £400,000.
Be thought that the weakness was partly due to the French situation and
Regraded Uclassified
FEDERAL RESERVE BANK
OF NEW YORK
223
FFICE CORRESPONDENCE
DATE April 28, 1938.
D
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
ROM
J. 1. McKson
BANK OF ENGLAND.
- 3 -
partly to the political situation in Europe. Bolton thought that by
Monday or Tuesday he would have a clearer picture of the entire
Buropean situation at which time he would communicate with us.
JWMcKtLWK/KW
2-99A
allow
Regraded Uclassified
224
REB
PLAIN
At
London
Dated April 28, 1938.
Rec'd 2:45 p. m.
Secretary of State,
Washington.
349, April 28, 7 P. m.
FOR TREASURY FROM BUTTERWORTH,
Comment on the budget has for the most part stressed
what are widely considered its desirable points, namely,
the orthodoxy of the "pay-as-you-go" method of meeting
Expenditure; its simplicity and avoidance of new Experi-
ments such as the national defence contribution tax of
last year and on the long range view of rearmament
liabilities in relation to the national income.
Apart from one outspokenly critical Editorial in
last night's STANDARD, and a milder reference in today's
FINANCIAL NEWS, on the deflationary Effect of increased
taxation at a time of declining economic activity, this
aspect of the budget has received little comment.
As Emphasized in previous telegrams the general
trend of Economic activity is definitely though not
sharply downward.
Today's
225
REB
2-#349, From London, Apr.28,7p.m.
Today's announcement of the unemployment count which
was made on April 4th again confirms this fact, the
decline in unemployment since March 14th being one of
less than 2,000, the seasonal improvement to bE Expected
being one of 75,000 or 100,000.
Railway traffics and bankers clearings are also
again WEll below those of a year ago, further indications
that no turn is yet discernable in the trend which has
been Evident since last September.
The comparative silence on this aspect of the
budget's influence is no doubt due largely to a desire
not to render its Effects more potent.
The hope of an inflationary recovery in the United
States which will reverse the downward trend here is
undoubtedly in the back of most minds.
If this occurs it may mean that the deflationary
Effect of Simon's budget will bE counteracted.
If by virtue of such salvation British industry and
trade "can-take-it" the budget with its stern pay-as-you-
go demands will bE looked upon as a blessing when future
liabilities have to be faced.
If
Regraded
226
REB
3-#349, From London, Apr.28,7p.m.
If on the other hand nothing occurs to temper the
pressure of increased taxation on a declining market,
in due course more may bE heard of the "shock" which
the Chancellor of the Exchequer has inflicted at a time
when a fillip to trade is needed.
HOWEVER, security prices were well maintained today
on the London stock market and in some cases advanced
on a fairly thin market.
The franc has been weak again today.
It opened at 160-1/4, shortly thereafterwards
moved to 161 where the French control hEld it for some-
time and in the process lost a good deal of sterling.
It later went to 163 moving a franc at a time.
The market has continued nervous throughout the day
but pressure in the "afternoon was less than in the
morning.
KENNEDY
HPD
227
April 28, 1938
3:30 p.m.
(This meeting recorded separately from the one following
when Secretary related his talk with the Chinese Ambassador)
Present:
Mr. Taylor
Mr. Lochhead
Dr. White
HM,Jr: Have you fellows seen this 664, Strictly
Confidential? (Exhibit A )
.r. Taylor: (Handing Secretary Exhibit B). Bewley
brought that in and said there was 80 little news in it
he did not want to bother you with it.
HM,Jr: That's an important cable, that one (664).
In this Patenotre opens up, which checks with what Bullitt
told me. Bullitt has the 1dea of Reynaud that the franc
should float. I had to give Bullitt the reasons why we,
the Treasury, were absolutely opposed to letting the franc
float. I gave him a lot of reasons, that it is up to
these people. He said, Why? So I used the example:
the Italians went into Ethiopia and bombed civilian popu-
lation. Nobody protested and since then everybody takes
it as a matter of course. I said, You let the French
franc float and get on that basis and everybody will have
it and one thing the stabilization fund has stopped -- I
mean, the Tripartite -- 18 competitive devaluation. I
said, You let the French get away with it and somebody else
is going to try it and the first thing we know we will be
right back where we were. We will have competitive de-
valuation. He said, I understand now. I thought Reynaud
had a pretty good idea to let it go to the vanishing point
and then the French would say, let's repatriate and capital
will some back. I said, For three years they have been
letting money go out and if you think you are going to get
it back on that theory, you are cock-eyed. He came in
and could only spare me ten minutes to get this thing and
I had to do it awfully fast.
000-000
(Exhala)
228
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: April 27, 1938, 7 p.m.
NO.: 664
FOR THE SECRETARY AND THE UNDER SECRETARY.
STRICTLY CONFIDENTIAL.
This forenoon I had a talk with the Minister of Na-
tional Economy, Patenotre. I asked Patenotre whether he
could tell me anything about the economic and financial
program of the Government. He told me that in absolute
confidence he would do 80.
In the Minister's opinion, it had been a great mis-
take to lose the time that had been lost in announcing
the program of the Government; had they been able to do
DO right after the Government was formed they could have
taken advantage of the favorable atmosphere surrounding
it at that time. The Government had undoubtedly been
injured by the delays and rumors of dissension. Neverthe-
less, in his view the ground which was lost could be re-
covered and & favorable atmosphere could be reestablished.
Patenotre said that he himself and other advisers of
Daladier had for over a year been working on a program
to be used by Daladier at such time as he might head &
Government. On April 10 at the time the Daladier Govern-
ment was formed this program was practically ready to be
put into effect; however, Daladier had thought it necessary
to
228
- 2 -
to request the Finance Minister, Marchandeau, to submit
for discussion another program which was prepared in the
Ministry of Finance. To get this program drafted took
about ten days, and it was found to be unsamiefactory when
it was examined. The Finance Ministry experts had drafted
this program and it did not at all satisfy the Government's
requirements. In his talk with me Patenotre spoke most
critically of the French bureaucracy. He said that while
it had many good qualities, its ideas were antiquated and
it seemed to believe that the days of the Second Empire
were here again in France.
Because of the delay in formulation of the projects
of the Ministry of Finance, and the unfavorable develop-
ments which this delay caused, it had become absolutely
necessary to announce at once the general lines of the
program to be followed by the Government. On the twenty-
fifth of April, therefore, 8 list of "chapter headings"
was announced by the Government. Drafting of the specific
decrees to put the program into effect is taking longer
than it had been thought would be necessary. Certain
of the decrees may be published on or about the third of
May, but others will not appear until later. Also, before
going ahead with many of the projects it will be necessary
to Bee how the London conversations turn out.
The
Uclassified
230
- 3 -
The Minister of National Economy insisted that
there had been no divergence of views among the ministere
personally. He said that confiding the preparation of a
program to the experts of the Finance Minister had been
the cause of the difficulties.
He named two essential needs of French economy and
finance today - the first one being stabilization, and
the second one, production should have a broad and thorough-
going increase. In the period preceding franc devaluation
to about 125 to the pound, he said, world prices had not
been as high as French prices. This situation in France
had been corrected for the time being by devaluation of
the franc to 125 to the pound. The balance had been upset
again by the burden of increased social charges and the
great cost of rearmament. In his opinion, the present
rate of "about" 160-165 to the pound, the French would be
able to meet the costs of social reforms and armament
oosts and keep her prices in line with those on world
markets on the condition that there would be & production
increase and a restoration of confidence to the point
where there would be 8. return of French capital from abroad
which could be put to productive uses.
I asked Patenotre just what he meant by stabilization.
His reply was that he meant de facto stabilization - keeping
the
Uclassified
231
- 4
the frano at about the level it is on now to be followed
later by de jure stabilisation, in agreement with Great
Britain and the United States. I referred to his remark
that the franc should be held at "about" its present
level of 160-165 to the pound. He said that while he
had mentioned this figure he did not mean to say that
it might not be necessary to go as far as 170, or even
to 175 "for round numbers". [These remarks of Patenotre
seem to confirm the stories which have been going around
that Patenotre, Reynaud and possibly others would like
to see a 175 to the pound rate.]
As for production, Patenotre said that they intended
to get such modifications in the application of the forty-
hour week as would make it possible to work 45 hours instead
of 40. It would be possible in some branches of industry
to get a flat 45-hour week, as had been done with the
airplane factories run by the Government. As for the
seasonal industries, they could apply the scheme of "two
thousand hours 8. year" - working many hours in the busy
season and a less number of hours in the slack season.
Another way to bring about repatriation of French funds
and restore the necessary confidence would be to offer
a national defense loan with very favorable features to
the
Regraded Uclassified
232
- 5 -
the investor, such as examption from inheritance and
and
other taxes,/exchange guarantee. He expressed the hope
that the French Government would offer & loan along these
lines. If they could successfully float & loan increased
credit facilities would follow, and it would be possible to
renovate and reorganize many branches of French industries
which needed new plants and machinery. Increased production
would in turn result from such developments.
I brought up the visit to London of the French min-
isters, and mentioned reports that one subject to be dis-
cussed was the organization of B. "common pool" of raw
materials for war industries, and the organization of a
common purchasing agency for munitions and airplanes.
Patenotre told me that some such idea would in fact be
discussed but that the French Ministers did not expect
much to come from the discussion. Patenotre said that it
should be possible for France to do her own purchasing and
to make arrangements for financing such purchases,
Patenotre told me that 8. much more important subject
to be discussed in London was the question of assistance
to the French equalization fund by the British equaliza-
tion fund. I supposed that this would be a proposal
that france be purchased by the British fund and that the
British
233
- B -
British fund should refrain from converting them; he said
that this was about what they meant.
I then asked Patenotre whether discussion of assistance
in exchange matters might lead to discussion of the possi-
bility of getting a loan from the British; his reply was
that this would certainly be the case. An effort would be
made by Daladier to get a credit similar to the British
credit of $40,000,000 recently obtained. If the British
would give them an even larger credit, this would be BO
much the better, Patenotre said, and it would be a guarantee
that it would never have to be used by the French. In
his opinion, there would be an important psychological
reaction from the mere announcement that the British had
granted 8. large credit to France, and there would be started
a return flow of capital to France.
I feel that I must call to your attention, in report-
ing the above statements to me by Patenotre, that while
the statements of course represent the personal views of
Patenotre and doubtless the views of other Cabinet members,
they do not necessarily represent the views of the Govern-
ment as such.
END MESSAGE.
WILSON.
EA:LWW
(Exthiest B)
234
The Chancellor wished to thank Mr. Morgenthau
for his message about the French situation;
the information given by Mr. Morgenthau was
supplemented by Butterworth who called at the
Treasury on the 25th April and outlined the
information given by the French Ministry of
Finance to Mr. Cochran.
Since the weakness of the franc at
the end of last week seemed to be due to rumours
about dissension in the French cabinet rather
than to any genuine economic trend, the
Treasury asked Monick what had happened. Beyond
reciting the terms of the recent communique
( issued over the week-end) he stated that the
French Government had no intention of arbitrary
devaluation. Beyond that the British Treasury
have no information at present.
April 28th, 1938.
Regraded Uclassified
235
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: April 28, 1938, 6 p.m.
NO.: 667
FROM COCHRAN.
Pressure on franc has been heavy again today. After
opening at 160.35 the rate went to 163 and control had
an expensive time bringing it back to 162-1/2. Premium
on three months sterling went ag high 8.8 5-1/2 france.
Belga also much offered against sterling and reached the
export point for both London and New York. Bank of
France statement as of April 21 showed no new advances
to the state and no other significant changes.
French shares and rentes improved but Paris exchange
market is gloomy awaiting outcome of London negotiations.
Unless some financial help 18 obtained operators are
expecting the franc to be around 175 to the pound on
Monday since they realize that the control's costly
efforts this week to drive back the rate have not in-
spired any real confidence in the currency at around 161
and cannot be continued indefinitely. The market is
already gossiping about the probability of opening an
internal national defense loan next week at 4-1/2% with
exchange guarantee, for 8 or 10 billion france. On the
other hand this evening's press carries a denial from
Marchandesu
Regraded Uclassified
236
- 2 -
Marchandeau that the terms of the new loan have been
determined, and a warning against sensational stories in
regard to French finances that are now circulating.
This afternoon I had a talk with a Paris Morgan
partner. This friend believes an exchange guarantee loan
would have a very discouraging local effect. Personally
he would prefer to 800 the French get a. loan from the
British. He does not think 8. short term credit there
would be genuinely helpful in aiding a permanent recovery,
however, and he does not think it will be possible to
get a long term loan of the proportions required to restore
confidence in the frano until the French on their own
initiative have made some progress.
At a quarter of six I had a talk with the Bank of
France. Reference - my telegram No. 661 of April 27 -
the final total of exchange losses of the control yes-
terday reached almost 3,000,000 pounds; losses for today
will be a little more than one-half that figure. This
forenoon the pressure on the franc was very heavy but
this afternoon it slackened. In the opinion of my
friend, speculation is the cause of almost all of the
present movement.
WILSON.
EA:LW
Regraded Uclassified
237
PARAPHRASE OF TELEGRAM RECEIVED
In
FROM: American Embasey, London, England
DATE: April 28, 1938, 7 p.m.
NO.: 350
FROM BUTTERWORTH. FOR TREASURY.
During the course of a conversation this afternoon
between the Ambassador and Sir Horace Wilson, the chief
industrial advisor to the British Government, the latter
said that Daladier had asked for a loan of 50,000,000
pounds and that this had not been granted. Sir Horace
said that in any case the British Government is not
prepared to make any loan to anyone unless new and ade-
quate means of repayment can be devised. In addition,
he implied that the British were talking frankly to the
French about the economic measures which are necessary
to put in order the French affairs.
The conversations between the French and the British
are now in the middle stage and it 18, naturally, too
soon to predict their ultimate outcome. In fact, there
1s every likelihood that until Monday authoritative in-
formation will not be fully available.
KENNEDY.
EA:LW
238
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE,
Press Service
Friday, April 29, 1938.
No. 13-16
The Secretary of the Treasury today announced the subscription
figures and the basis of allotment for the offering of $200,000,000,
or thereabouts, of 3/4 percent notes of Sories C of the Commodity Crodit
Corporation.
Reports received from the Federal Roserve banks show that cash
subscriptions for the new notes aggrogate $1,839,000,000. Such sub-
scriptions were allotted 8 percent, but not less than $1,000 on any
one subscription.
In addition to the cash allotment, preliminary reports indicate
that more than $58,000,000 of the $60,000,000 Serios B Collateral Trust
Notes of the Corporation maturing May 2, 1938, have been tendered in
exchange for the now notes.
Further details as to subscriptions and allotments will be
announced when final reports are received from the Federal Reserve
banks.
100-1
Regraded Uclassified
239
April 29, 1938.
10:27 A. M.
Operator:
Operator.
H.M.Jr:
They - they haven't got
....
New York
Operator: Hello. Hello.
Treasury
Operator: Hello.
New York
Operator:
You weren't through talking, were you?
Treasury
Operator:
Just a minute.
H.M.Jr:
Hello.
Treasury
Operator: Mr. Greenbaum.
H.M.Jr:
Thank you.
Greenbaum:
We're both on.
H.M.Jr:
Hello.
G:
Yes, Henry.
H.M.Jr:
Can you hear me all right?
G:
0. K.
H.M.Jr:
Is Morris there?
Morris
Ernst:
Yes, right here.
H.M.Jr:
Well, what I'm calling up about this morning is
this article by Arthur Krock on the Treasury. I
don't know whether you fellows have read it or
not.
Morris
Ernst:
I read it.
G:
I didn't see it yet.
Regraded Uclassified
240
- 2 -
H.M.Jr:
Morris?
E:
I read it.
H.M.Jr:
Well, here's the point - I've gone over it very
carefully with Magill, and the article is full of
misstatements, and what happened on the Hill,
there was such a proposal - a special amendment,
ah, that they tried to get through on behalf of
the Associated Gas and Electric, which is our big
case down here. They've been doing everything
that they can, ah, to get some way from paying the
fifty million dollars that we owe.
E:
Yeah.
H.M.Jr:
Now this statement is so wrong, and, ah, frankly,
both Magill and I are fed up - right up to our
gills, and, ah, ....
E:
Fed to the Magills.
H.M.Jr:
What?
E:
Fed up to the Magills.
H.M.Jr:
The Magills - fed up to the Magills.
E:
Yeah.
H.M.Jr:
And the reason I wanted particularly Morris on was
because he spoke the other day about a technique
which I'm not familiar with. Now, ah, ah, we could
write a letter, pointing out the mistakes. Ah - I
hate to put in writing that it's the Associated
Gas and Electric. I don't know whether I can or
not, legally. But, ah, ah - frankly, I mean - I -
I want to answer it. I could write a letter and
give it to all the newspapers, or I could write a
letter and just give it to the Times, or I could
talk to them, which has never done any good before.
But both Magill and I feel that - that this is so
vicious, and so unfair, and 50 untruthful that we
want to answer it.
E:
Well, there's - Henry, there's two phases to the
Krock article.
H.M.Jr:
Yeah.
Regraded Uclassified
- 3 -
241
E:
The one phase related to the - which we now
name, the company,
H.M.Jr:
Yes.
E:
And the jeopardy assessment point.
H.M.Jr:
Yes.
E:
The more serious thing that Krock did
.....
H.M.Jr:
Yes.
E:
.....
from the public point of view - because
most of them won't understand
H.M.Jr:
Yes.
E:
the jeopardy assessment point at all.
H.M.Jr:
Yes.
E:
From the way he wrote it.
H.M.Jr:
Yeah.
E:
But, what this - what he did do
H.M.Jr:
Yeah.
E:
is come out in the open and say that the
business people of the country is tired of being
harrassed
H.M.Jr:
Yeah.
E:
by Government agencies.
H.M.Jr:
Yeah.
E:
Now, I think that - that your move - and I haven't
any thought to it.
H.M.Jr:
No.
E:
Is to, not in public, but to get Krock over to your
office and say, "For Christ's sake, tell me the
names of the people on whom you rely."
Regraded Uclassified
- 4 -
242
H.M.Jr:
Yeah.
E:
You see?
H.M.Jr:
Well, that ...
E:
He'll say - he'll say, "I can't do it."
H.M.Jr:
Yeah.
E:
He'll say that's privileged.
H.M.Jr:
Yeah.
is
You see?
H.M.Jr:
Yeah.
E:
Well, now, as a matter of fact, it isn't privileged.
H.M.Jr:
Yeah.
E:
You know?
H.M.Jr:
It is not?
E:
Oh, no.
H.M.Jr:
No.
E:
After all, he's got no right to keep on saying.
H.M.Jr:
Yeah.
E:
And mind you, I think there's some truth in it.
H.M.Jr:
Yeah.
E:
But you never can cope with the problem
.....
H.M.Jr:
Yeah.
E:
.....
of the agencies harassing taxpayers
H.M.Jr:
Yeah.
E:
.....
if nobody will tell you the name of the
taxpayer.
Regraded Uclassified
- 5 -
243
H.M.Jr:
Correct.
E:
Because you can't locate the agencies.
H.M.Jr:
Yeah.
E:
You see?
H.M.Jr:
Yeah.
E:
Now I think that you can't handle this column of
Krock's
H.M.Jr:
Yeah.
E:
I want to read it over again, and get it more
carefully in mind, but I don't think you can
handle it solely on the jeopardy point alone.
And I think, on the other point, is really more
vulnerable.
H.M.Jr:
On - on the Associated Gas?
E:
I ah - more vulnerable on his point about harassment.
H.M.Jr:
Oh.
E:
Than he is on the jeopardy itself.
H.M.Jr:
Well, he criticizes, and uses, without naming names -
and that's all the thing that he's criticizing the
President for.
E:
That's right.
H.M.Jr:
I mean, he had a whole article - why not name the
names of the people that come down and tell him
this and that and the other things.
E:
That's right. And that's what I think - that's
where I think you ought to rub it into Krock.
H.M.Jr:
Well, Morris, it does absolutely no good - it
E:
No ...
H.M.Jr:
It just - it just takes Magill, Helvering's, and
my time, and Kent, - four people - and He'll just
sit here and sneer at us. Now what's the sense
Regraded Uclassified
- 6 -
244
of - of our having him here privately? See?
He does it publicly - why can't I do it publicly?
E:
Well, now let me - let me suggest some other ways
of doing it.
H.M.Jr:
All right.
E:
Let me think over and see whether we can't get
some newspaper to pick it up, and, ah, just
answer it. Now, ah, I know of only, ah - Scripps
you can't play with anymore - but certainly we
can get the Philadelphia Record, Post, and the
bunch to pick it up directly.
H.M.Jr:
Well - I don't like to dirty my hands.
E:
Well, we can - he's the boy that's at the White
House all the time.
H.M.Jr:
What?
E:
He's at the White House.
H.M.Jr:
Who?
E:
Davie.
H.M.Jr:
He is?
E:
Oh, lots.
H.M.Jr:
What?
E:
He's lots, at the White House.
H.M.Jr:
Is he?
E:
You bet you. And, ah, I don't know what other
pap' - papers you can use. I think you might be
able to use Colonel Patterson. The
is infinitely more important than the Times.
H.M.Jr:
Well, I - I thought .....
E:
They took an awful crack at the Times, you know,
a month ago.
Regraded Uclassified
245
- 7 -
H.M.Jr:
Well, I thought I would do it just openly - I
mean at a regular press conference.
E:
I don't see any harm in doing it at the press
conference.
H.M.Jr:
I'm not awful good at doing this stuff, ah,
secretly.
E:
Get him at a press conference, and I'd just, ah,
ah, raise hello on it.
Greenbaum:
I like the press conference idea the best. When's
your next, Henry?
H.M.Jr:
Well, unfortunately, there - I won't be here
Monday, so I wouldn't have one till Tuesday, but
I could call a special one.
You could do that, ah, this afternoon or tomorrow.
H.M.Jr:
Well, I'd - I'd do it today - at noon.
E:
Yeah.
H.M.Jr:
And tell Krock I'm going to do it and let him
come over here.
E:
Ahhhhhh, I can get you, off the record, ah, advice
from the newspaper boys as to which is the best
way to handle it. I mean, I can get Lyle Wilson,
of the U. P.
H.M.Jr:
Yeah.
E:
You see? And say, "Look here, here's the situation,"
and ....
H.M.Jr:
Yeah.
IT
E:
"Hell of a lot of misstatements, etc., and ah, ah -
if to press conference the thing, or a blast, or
what.
H.M.Jr:
Well, I'd like to have it. Now I asked Steve Early,
....
E:
Yeah.
H.M.Jr:
and he was against the press conference.
....
Regraded Uclassified
- 8 -
246
E:
Yes.
H.M.Jr:
He said that - ah - ah - amongst the newspapermen
they wouldn't handle a criticism of a misstatement
by another paper.
E;
That's what I'm afraid of.
H.M.Jr:
But if
What?
E:
I think the Press Conference will be the best.
H:M.Jr:
No, but Steve Early said he wouldn't do it - he
said, "Now let's
E:
I don't think the boys at the Press Conference will
ever mention Krock's article - Krock's name in the
Times.
H.M.Jr:
What Steve Early suggested was that I write a
letter to Krock
E:
Yes.
H.M.Jr:
....and then the minute I've delivered it to him
release it to all the other newspapers - that was
Steve Early's suggestion.
E:
Ah - Henry can I call you back in 20 minutes?
H.M.Jr:
I'll tell you what you do - I'm going up on the
Hill
E:
Yes.
H.M.Jr:
I've got to be there at 11 - I'll be back about
quarter to twelve which is quarter to one your
E:
I'll call you at 12 o'clock.
H.M.Jr:
I'll call you a quarter of one your time.
E:
You'll call me?
H.M.Jr:
Yes.
E:
All right.
Regraded Uclassified
- 9 -
247
H.M.Jr:
And I don't mind Eddie's talking to Arthur
Sulzberger a bit.
E:
Yes, well let's read it over again because I
H.M.Jr:
Because I - I can't - ah - ah - I'm just not built
this way - for instance, I could call in Bob Allen
and tell him the whole thing.
Greenbaum: Morris and I will talk it over and you'll be back
a quarter of one your time.
H.M.Jr:
No, quarter to one your time.
G:
Quarter of one our time.
E:
Look Henry
H.M.Jr:
Yes.
F:
ah - ah - will you be at liberty to name
the specific company that is primarily involved.
H.M.Jr:
Ah - Magill thinks so.
E:
But you're not sure of.
H.M.Jr:
Well he's going to find out but - ah - he thinks
its a matter of public record
E:
Yes.
H.M.Jr:
and he's sent for Kent, who knows the whole
story.
E:
Fine.
H.M.Jr:
See? I - I'll tell you what - Magill goes much
further than I do.
R:
Yes.
H.M.Jr:
He says the publicity man for Associated Gas and
Electric has just gotten to Krock.
E:
I wouldn't be at all surprised.
H.M.Jr:
And that that's the way the story burst.
Regraded Uclassified
- 10 -
248
E:
I wouldn't be at all surprised.
H.M.Jr:
And - ah - ah - that he just got to him and he -
he's tied up this other business.
E:
Yes. Well let me read the article again anyway.
H.M.Jr:
Because
G:
Are you going to call us up or are we going
H.M.Jr:
I'm going to call you at 12:45.
G:
All right, Henry.
H.M.Jr:
Now just let me drop this to you in Eddie's name.
Ah - you know I've been waiting for some move -
a new move, you see, against me?
G:
Yes.
H.M.Jr:
Well I think this is the opening gun.
G:
I see. Well call us back then.
H.M.Jr:
O.K.
Regraded Uclassified
249
April 29, 1938.
11:49 a.m.
H.M.Jr:
Hello
0:
Mr. Greenbaum. Go ahead.
H.M.Jr:
Hello
Greenbaum: Henry.
H.M.Jr:
Yes, Eddie.
G:
First I want to - Morris is on too - first I want
to ask you one or two facts.
H.M.Jr:
Yes.
G:
Ah - is it a fact that the Treasury opposed a
retroactive - ah - thing on this thing - ah -
deputy assessment.
H.M.Jr:
The retroactive?
G:
Yes, because that Is the point that Krock is
making - that the Treasury refuses to allow this
to be retroactive.
H.M.Jr:
Well as I - I'd have to send for Magill.
G:
Yes.
H.M.Jr:
If that's important I could get him in a minute.
G:
Yes, it is important
H.M.Jr.
Well wait a minute.
G:
because the Associated Gas thing comes in,
as I understand it, on that and only on that.
H.M.Jr:
Yes.
G:
In other words, how the hell could you get that -
that - there's no story without that.
H.M.Jr:
(Aside to someone: "Ask Magill to come right in.")
H.M.Jr:
I've sent for Magill.
Regraded Uclassified
250
- 2 -
G:
Allright, well now let's go on,
H.M.Jr:
Yes.
G:
Now it seems to me - ah - that the big question is
do you want to make something out of this or do you
want just tocorrect the record on the Arthur Krock
business. If you want to make something out of 'it
you can really draft a good letter. Then I like the
thought that Morris has - ah - writing a letter to
the Conference Committee or someone other than the
Times. If, on the other hand, its just to correct
the record to show that Arthur Krock stuck his neck
out and painted a goldbrick, then I think the method
of procedure should be a - not a Press Conference but
a letter to the New York Times and not mentioning
Krock by name at all; don't give him any build-up,
just give your issue of Friday and so forth. Now
Morris agrees with both of them; he rather favors
the idea on the Hill - the letter to the Hill pro-
vided that you want to make something out of it,
so to speak, and after the letter is on paper it
looks like something.
H.H.Jr:
Well Magill is here. You ask him the question now.
Mogill:
Hello Eddie.
G:
Hello.
V:
Yes.
G:
Ah - first I asked Henry this - ah - is it a fact
that Treasury opposed making - ah - this - ah -
provision retroactive insofar as deputy assessments
go?
in
Yes.
0:
And was that on account of this Associated Gas
business primarily?
M:
Primarily, yes - ah - the - ah - situation is this.
Ah - ah - these jeobardy assessments that - ah - in
other than bankruptcy cases - ah - there's - ah -
there's an average of about 1280 or some such amount
a year
G:
Yes.
Regraded Iclassified
251
S
ah - out of all the mass of 4% million various
cases which we have. Now - ah - Associated Gas and
Electric - h - ah - I - I can't go into the whole
thing with you because it takes too long but at any
rate the fact is they've had plenty of hearings on
this thing and - and the point at which its arrived
is whether - whether they are going to pay this
assessment or whether they are not - ah - or rather
pay some part of it. Now what they wanted to do,
in substance was to get a provision in here which
would enable them to have a series of further hear-
ings with respect to the jeopardy assessment, you
see. As the thing was originally proposed by the
Associated Gas and Electric people - ah - the pro-
vision was - ah - to have a review by the Board of
Tax Appeals on their refinding of the Commission
that there was jeopardy.
Exactly, and that allows them to drag it on and
everything else,
5
Exactly. Now the thing was put up and discussed
very fully before the Finance Committee and I don't
remember - I probably can find out from my people -
but they're busy on other things - ah - the Finance
Committee said, "Well this thing ought not apply to
outstanding jeopardy assessments. Its all right to
apply it in the future". And after full discussion
before the Committee they decided that was what
they'd do.
Yes, well now here's the thing from, you might say,
a public relations standpoint.
Yes.
On the face of it Krock's point has validity. In
other words, ah - the Commissioner should have power,
where jeopardy assessment has been unfairly slapped
on to
that and, since that is so, if
Treasury agrees with that it would seem to me that if
a jeopardy assessment has unfairly been put on in the
past - ah - you shouldn't object to legislation per-
mitting that unfairness to be corrected. Now if,
therefore, unless you have some good
stuff show-
ing why you did that
mention Gas and Electric
by name with some facts
that could be done
properly then there's a damn good reason to make a
story out of this.
Ah
Regraded Uclassified
- 4 -
252
G:
In other words, that's the way I think this becomes
important - whether you can bring that in.
M:
Of course as you appreciate one difficulty with
any kind of a tax question is you get into so many
technicalities about 1t. Now - ah - what Krock
says here - ah - the sentence that is striking is -
is one which must have been written by a lawyer
because what he says is that once a jeopardy
assessment has been asserted the Commissioner
cannot legally lift withdraw or modify the claim
before settlement. Well now, of course, what nobody
would think but you and me is that the - before
settlement is the main point there. In other words,
the Commissioner can settle these eases just like he
can settle any other kind of cases
G:
Yes.
M:
and does so all the time.
G:
(Mumbles something - indistinctly)
M:
I can hear you Eddie.
B:
I say it would be comparatively easy where the
so-called unfairness - something that's improper -
the Commissioner can immediately clean it up.
M:
That's right.
G:
And remove any evidence.
M:
That's right.
Ernst:
Let me ask something, Ros - this is Morris. Hello
M:
Hello
E:
Ros - this is Morris, I want to ask something.
Assuming that they had made the provision retroactive,
it still would have left in your hands the discretion
as to whether or not you want to waive the jeopardy
assessment.
M:
Well it - it isn't a matter - it isn't a matter
of waiving the jeopardy. I don't think anybody
contends except the Associated Gas and Electric
that there ought to be a review of the question
of jeopardy
E:
Yes.
Regraded Uclassified
- 5 -
253
M:
which the Courts have decided time and again
is a matter that - for the Commissioner to decide.
E:
The flexibility in the future
M:
Now the reason as far as - ah - the contention is
that if a jeopardy assessment 1s made that there
ought to be power in the Commissioner to reduce
the amount of the assessment.
B:
All right, now let's assume they were made
retroactively
M:
Yes.
E:
you would have the power to reduce and you
would, even though you had the power, not reduce.
Now wouldn't that leave you in the same position?
M:
Well what it means is - now I notice in the last
fis - in the last three fiscal years - ah - the
Commissioner has made about 3800 - ah - 3600
jeopardy assessments.
E:
Yes.
M:
What it needs is - if the bill is passed with that
kind of a provision in the Commissioner at once has
to start hearings in 3600 cases because they'll all
seek to try to get them reduced. Huh?
E:
To decide whether or not he'll exercise the power
of reducing the assessment.
M:
That's right.
E:
I get it - I just want to clear it up. Now let
me think of something a minute - ah - I don't know
whether Henry is listening but I spoke
H.M.Jr:
Yes, I'm listening. I'm listening.
E:
....we're through.
H.M.Jr:
What's that? Go ahead.
E:
Two things in the first place that nothing you
could do that Krock would like better is to write
a letter or make a statement that mentions his name.
H.M.Jr:
I see.
Regraded Uclassified
6
254
He would Just gloat on it and capitalize it.
E.M.Jr:
Yes.
In the second place, he says that very few
people, except the Cabinet, read that kind of a
column in the Times.
E.M.Jrs
Ah-ha.
T:
And so you will not get a general public interest
among people who know anything about it - ah - by
a Press Conference
L.K.Jr:
Yes.
you see, except by capitalizing and mentioning
the whole Krock story.
E.V.Jr:
Yes.
That he thought that you might just write a letter
to the Times and not to any one person - just to
the Editor of the Times
M.M.Jr:
Yes.
and not mention Krock's name and say, "There was
reported in your issue of such and such a date the
following. The facts are incorrect in this respect
and in regard to the statement made the taxpayers
are a rag. Go at 'em and say for Christ's sake how
can we correct it unless American citizens whether
they're reporters or not feel it their social duties
to tell us about the facts.
R.X.Jr:
That's good.
Now I suggest you to do that it might be much better
than writing to the Times - limited circulation,
wouldn't be picked up elsewhere - ah - it means that
Krock loves it even if you don't mention his name.
Work out a letter and see what it sounds like after
you've worked it out which you could send to the
Chairman of the Committee and say, "The following -
an item has appeared in the Times, setting forth
the following facts on the jeopardy assessment stuff
and the following mistakes were nade in the article.
No.
Regraded Uclassified
255
- 7 -
E:
If the - whatever the mistakes are, you see? You
said there were some factual mistakes; that if he
made inquiry at the Treasury or with you he would
have known that they were factually correct. In
regard to his other statement about harrassed tax-
payers, your Committees have worried about the
problem as I have for years and I don't know what
the answer is but what the hell do you do when
reputable reporters mention a fact and don't mention
the name. Now Drew also indicated he thought it
would not be advisable to have a Press Conference.
The thing wald get pretty vague and indefinite and
it would go into all kinds of questions. Moreover,
he is afraid it might give the appearance in this
thing that he doesn't think is very important to you
H.M.Jr:
Yes.
E:
that - give the impression of your just being
a belly-acher
H.M.Jr:
Ah-ha.
E:
do you see?
H.M.Jr:
I see.
E:
He thought that if there was a little of that im-
pression around anywhere in a Press Conference on
this kind of an issue didn't seem like an important
enough thing to him to call a Special Press Conference.
H.M.Jr:
I see.
M
And moreover it would signify Krock too much and the
rest of it. He inclined to the letter to the Times
without mentioning Krock's name.
H.M.Jr:
I see.
2:
Just to the Editor.
H.M.Jr:
Ah-ha.
E:
He says it won't do much good because that's only
the Times' readers; wouldn't be picked up elsewhere -
ah - if you really want to make a real issue out of
it then you have to do something different and there
you would then incline to your trying to draft a
letter and see what it looks like after you draft
Regraded Uclassified
D I I
256
it which you would send to the Chairman of the
Committee and either you release the letter or
call up Pat Harrison or Doughton and tell them to
release it. That's the impression that he
H.M.Jr:
Well neither Magill or I like the idea of the
letter to Harrison or Doughton.
E:
What? What do you say?
H.M.Jr:
I say neither Magill or I like the letter to
Harrison or Doughton.
6:
There's no special occasion for it otherwise is there?
H.M.Jr:
No - no.
M:
No, I think you're very apt to stir yourself up some
trouble that way.
You are - well I don't know enough of the background
but I was looking for some way by which you would get
national circular of your position in regard to a
matter that only had a limited circulation in one
paper, without putting that paper in a position where
they start stirring it up and capitalizing it and do
things that - that Krock will like nothing better,
than if you'd ever write him a letter.
11.M.Jr:
Well you didn't suggest that we give it tohim?
E:
No, but I didn't suggest it to him, but it can be
done that way.
B.M.Jr:
Well
I:
Now I don't know whether Drew is the best person to
give it to,
H.K.Jr:
Yes.
B:
Do you see? Whether there isn't some other
columnist that might not do a better job for you
with more dignity on the whole thing.
R.M.Jr:
Yes.
0:
I - I don't like that method of approach. I think
that if any newspaper says something there that can
Regraded Uclassified
- 9 -
257
:
be answered you should answer it not through any
of other one or what not - you should
it directly to them or something along the line
that Morris has told you about with the Hill.
H.M.Jrt
I see.
B:
Now my feeling is that if that letter - if that
technique is out you could find some other way in
which it could be made widespread news and that
case depends upon whether you can - whether you
really want this publicized - in other words
whether you can send it around so that you can
tell something that is very helpful to the Treasury.
H.M.Jr:
Ah-ha.
G:
And I think you probably can on the first thought,
that is, credit it to those people to talk of com-
plaints they've got and I doubt whether you can
on the jeopardy assessment because it would probably
become too technical. The only way in which you
could do anything on that would be if you could
mention Associated Gas and Electric.
R.M.Jr:
(Aside to Magill: "Can we mention Associated Gas
and Electric"?)
G:
That's the way I feel.
E:
Henry.
H.M.Jr:
What?
E:
I think if you send for Drew I think he quietly
might come through and be able to prove that the
Associated Gas publicity guy handed it to Krock
H.M.Jr:
Ah-ha.
E:
which is worth something in a way too.
G:
Well, of course, that possibility comes in later.
If you were to adopt a formula of sending this to
the Times without anything too much on it - ah -
I mean it would be limited then to the Times, that
is, the people who read the Krock thing, then its
open to Drew or anyone to work up a story and they
can make something out of it if they can dig out
that other stuff. In other words, then they can
mention Associated Gas and you wouldn't.
- 10 -
258
H.M.Jr:
Well my inclination right now is - ah - a letter
to the Times - ah - ah - doesn't mean anything -
I mean as far - except their own readers are con-
cerned and they're not going to
E:
Krock's been reached.
H.M.Jr:
What?
E:
That's the only people that Krock's thing has reached.
H.M.Jr:
And - ah - ah - I've never planted a story against
any Presidential appointee and never will as long as
I'm here but to give it to Drew as' against another
columnist that comes within the rules of my game.
F:
Well -
G:
Well what you do then, Henry?
H.M.Jr:
I tell you what I'm going to do - I'm going to
ask Magill to write it out
G:
That's what I think.
H.M.Jr:
.....and mail it up to you two guys and let you
take a look at it.
G:
That's what I think; let's take a look at this
paper and then you can decide how
H.M.Jr:
And then we can decide afterwards.
E:
As to which method.
H.M.Jr:
See how - how you fellows react.
G:
Well that's just what I think. When its on paper
then you can see which usage to make of it.
H.M.Jr:
What?
G:
After its on paper
H.M.Jr:
Yes.
G:
....then you can determine what usage you can make
of it.
Regraded Uclassified
- 10 -
259
H.M.Jr:
I think that's the best way.
G:
All right. O.K. fine.
E:
Fine, Henry.
H.M.Jr:
Ever so much obliged.
G:
O.K.
E:
Goodbye.
Uclassified
260
April 29, 1938.
1:07 P.M.
Altmeyer: This is Altmeyer.
H.M.Jr:
Yes.
At
I wanted to tell you - ah - about this letter
that the President wrote us. Did you see 1t?
H.M.Jr:
No.
A:
Well we saw him a couple of days ago about this
Old Age Insurance problem. Vandenberg from time
to time gets out in front on the thing and this
Advisory Council that we have is likely to make
some recommendations most any day.
R.M.Jr:
Yes.
3:
And we've got them under control, that is, they
seem to be thinking along the lines we'd like to
have them think.
II.M.Jr:
Yes.
A:
And - however, we felt that the President ought to,
in some way, indicate that he is interested in this
problem so that if we do develop something that is
sound the Administration rather than that Vandenberg
group will get the credit for it.
H.V.Jr:
Well what I'm more interested (laughs) in than who
gets the credit is what's it all about?
A:
Oh. Well
H.M.Jr:
But I can't do it now because I've got Jesse Jones
outside for ten minutes.
Allright, well I just wanted to tell you that this
letter that the President wrote me merely instructed
us to study the thing that you and I talked about
several months ago.
H.M.Jr:
Yes, well let's - let's get down and let's make
sure that it's for the interest of the country.
Regraded Uclassified
261
- 2 -
A:
That's right, sure.
H.M.Jr:
And then - then let's worry (laughs) about the
credit afterwards.
A:
Well then - we started out with the - what's good
for the country and we're still on that basis
H.M.Jr:
Well then you and I won't have any trouble.
A:
Yes, all right, but I wanted to tell him what the
immediate situation was so that - ah - when we - we
won't get in - when we do have something that the
legitimate credit goes where it belongs.
H.M.Jr:
Well when - when do you want to sit down with me?
A:
Anytime that you're ready or
H.M.Jr:
Well let's say 3 o'clock Tuesday.
A:
All right, fine. Thank you so much.
H.M.Jr:
Thank you.
A:
Goodbye.
Regraded
262
Monday
May 2, 1938
4:58 p.m.
HMJr:
Hello.
Operator: Mr. Welles can't be reached for about twenty
minutes.
HMJr:
Well, if I'm still here -
does that mean he's
in or out?
Operator: He's in but he can't be reached.
HMJr:
Who said that?
Operator: At. - the girl on the line - I don't know whether
it was his secretary or not.
HMJr:
Well, he left word with his secretary - any time
I - you get his secretary and tell her that I
want to talk to him and see if she gives you the
same answer.
Operator: All right.
Regraded Uclassified
263
Monday
May 2, 1938
5:01 p.m.
HMJr:
Hello.
Operator:
No one answers in Mr. Moffett's office.
HMJr:
Well, look.
0:
Yes, sir.
HMJr:
I'm going to do this through - ah - is there
anybody in the office of the Secretary of State?
0:
I'll find out.
HMJr:
See if there's anybody in the office of the
Secretary; I don't care if it's the char woman -
I'll talk to her.
0:
All right.
HMJr:
-
if there is anybody in the office of the
Secretary of State.
0:
All right. I'll get you some one.
Regraded
264
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, paris, France
DATE: April 29, 1938, 5 p.m.
NO.: 670
FROM COCHRAN.
Paris exchange market has been less active today
giving the impression of being over-bought on foreign
currencies. While atmosphere this morning was brighter
as a result of Franco-British communiques at conclusion of
first day's conversations in London sentiment this after-
noon 18 less optimistic following reports from London
that British are increasingly perturbed over international
political situation. This fear also reflected on Paris
security market. Guaranty bought another 7,000,000 belgas
for French railway repayment.
At a quarter of four this afternoon I had a talk with
Rueff, who said the first reports from London of conversa-
tions on political topics were encouraging; he added that
London had not communicated anything of immediate interest
to his Department. There has been nothing further in
regard to the Treasury plans.
I had 8. talk with the Bank of France at five o'clock
this afternoon. Today the control's intervention wag
very slight. & small amount of foreign exchange was gained
from such balance, but purchases of sterling the control
had to make for the French railways more than wiped out
this gain. According to my contact there was & hardening
of
, 265
- 2 -
of the sterling rate at 162-1/2 late this evening which
development he did not like. My friend said he is aware
that from Monday operators are expecting & cheaper franc.
Market operators gossiping for next week: move to
175; revalue Bank of France gold; issue domestic loan
with exchange guarantee; obtain simultaneously some sort
of assi stance or gesture in that direction from London
to create the atmosphere for the loan.
At 5:30 market trader telephoned that rate had moved
to 163 with control giving larger amounts of sterling.
WILSON.
EA:LWW
Regraded Uclassified
April 29. 1938
266
My dear win:
I have postposed acknowledging receipt
of your letter of resignation of April 21st
because I found it so difficult to answer.
I was extremely sorry to learn from your
letter that you found 11 necessary at this time
to withdraw as an Advisor to the Treasury. with
regret I accept your resignation.
I want to take this opportunity to thank
you for the loyal support which you have given
se in the past. My deep regard and admiration
for you nake it all the more difficult for no to
find myself without the benefit of your counsel
in this mest trying period.
I hope that whenever you do come to
Washington you will continue to drop in and see
me as I should like to feel that our personal
friendship will continue in the future as it
has in the past.
Sincerely yours,
(Signed) H Morgenthan, Jr.
Dr. #infield V. Riefler,
Battle Court Road,
Princeton, New Jersey.
Regraded Uclassified
or 267
SECRETARY'S OFFICE - OFFICIAL
APRIL 28, 1938
DR WINFIELD RIEFLER
BATTLE COURT ROAD
PRINCETON NEWJERSEY
PLEASE ACCEPT MY APOLOGY FOR NOT ANSWERING YOUR LETTER
DUE TO MY BEING SNOWED UNDER WITH WORK STOP YOU WILL HEAR
FROM ME WITHIN THE NEXT TWENTY FOUR HOURS BEST REGARDS
HENRY MORGENTHAU JR
Regraded Uclassified
THE INSTITUTE FOR ADVANCED STUDY
SCHOOL or FLONOMICS AND POLITICS
" Alexander Street
Priscrio, New Jersey
April 21, 1838
Honorable Kenry W. Morgenthau, JT.
Secretary of the Treasury
Washington, D. C.
Dear Mr. Secretary:
The recent complete reversal of fiscal and monetary poli-
cies has left me in A decidedly unhavey state of mind. Through-
out the nest week, in consequence, I have been trying to phrase
A note to you that would convey at one and the PATE time (a) a
deep sense of that unhappiness together with my reasons there-
fore, (b) my deen eympathy, affectionnte admiration and respect
for you, and (c) my desire, under the new circumstances for
relief from any official or semi-official resnonsibilities
which I may have. I have decided finally to convey my resction
to the new program in the accompanying separate memorandum and
to confine this note to more personal considerations.
First of all, I should like to feel relieved of any responsi-
bilities I may have as an official or semi-official consultant of
the Stabilization Fund. I really do not see how I can be of any
help to you whatever in the execution of the program that 1s now
underway. I imagine that you must feel similarly, Please do not
take this to mean, however, that I RD seeking in any sense to
withdraw myself from giving you any help that 1E in my power. If
you should ever demire to get my slant on any problem, I shall
always be available. As an economist I should own this in any
case to my government. As an individual I owe it particularly
to you,
Secondly, 1 have decided to resign as alternate member of
the Finance Committee of the League of Nations and also P.B 8.
member of the Special Delegation of the League of Nations which
Regraded Uclassified
Honorable Henry 1, Vorgenthau, Jr.
-2-
April 21, 1938
is meeting this June to formulate An inquiry into policies that
have been adopted by the various governments to mitigate fluctua-
tions in business activity. Although my activities at Geneva are
entirely unofficial, I would find mynelf -- 1f I participated -
in the distasteful position of representing before an official
group of foreign experts a point of view with respect to American
conditions that would be critical in a very basic sense of the
policies now being nursued by my own government. The present
world 16 much too nationalistic for - to be anything but miser-
able in a role of that kind.
Finally, I would ask you to take this in the spirit in which
it is written, In All our relations you have been extraordinarily
considerate to me. I should feel greatly depressed 15 I thought
that any action of mine seemed to indicate B. lack of appreciation
on my part for the genuine friendliness and understanding you have
shown for me.
Sincerely,
WinfuldRuffer Winfield W. Rieflér
Regraded Uclassified
Notes on the Recent Fiscal and Vonetary Proprem
I recognize certain aprits in the new fiscal end monetary program, but
general line of attack Laken, considered AS - whole, fills ne with misgivings
5. variety of reasons.
Among the adventages of the program I would list the following RE the
este relevant consideratione:-
First, it is fairly well timed. If pump prizing is to be adopted a.6
the way through and out of this depression, the reriod beginning around the
middle of February of this year angeare to me to have been the most feverably
calculated for the initiation of such a program. Although April may subse-
evently appear to have been a little late, it still comes fairly close to the
period when action along these lines might be considered to DOSBBBE a maximum
K
effectiveness.-
Secondly, the huge increase in excess reserves comes at a time when
14 immediate effects will be wholly favorable.
Thirdly, the spending program provides a maximum of current pump prim-
145 with a minimum of disturbance to the Treasury bond market. Some new bond
Cotations will be necessary, but not to the full amount of the excenditures.
will not, furthermore, come on the market until the presumably expenionist
effect of much of the spending will have been given a chance to exert its in-
fluence on the side of a rising volume of business activity.
Finally, although I se somewhat appalled by the magnitude of the ex-
p=oditures contemplated, they have the merit at least of not being inadequate
La the task in hand.
Regraded Uclassified
Mgr risgivings arite : that seen to me more fondamental considers-
1008 than these:
The current ore represents extremely dicturbed =eriod, interna-
tionally, economicily, and velitically. Many normal markets for
commodi ties and outlets for capital are stut off for reasons that
are political rather than economic in character. It 1 ᵉ extremely
difficult for 9 society such RE curs, based on political democracy,
on the one hand, and individual enterprise and risk, on the other,
to function smoothly under these circumstances and it may well be
true that it cannot do so at all without fairly frequent reliance
in A great variety of sectors upon Treasury backing. If so, it is
especially incumbent unon us to limit such reliance to those fronts
where it is indispensable, for, from all present appearances, this
era of disturbance is likely to last for a very long time. The chances
are that even under the most fortunate of conditions and with the
greatest economy in the use of Treasury resources, the era will end
with the Treasury under serious strain 25 2 result of the risks that
it will have been forced to undertake during the interval. It is
against this background that one must evaluate B renewal of pump-
priming BE the orimary mode of attack in the current crisis,
We have already had en enormous excansion in the Federal debt over
the past five years, an expansion much larger than the most erdent
pump-primer in 1933 would have envisaged as necessary to lift the
general level of national income to 70 billions of dollars, or the
volume of industrial production back to the levele of 1923, Even on
the basis of a complete acceptance of the theory of deficit financing
as the sole or mein device available to governments to combat debres-
sione, therefore, our actual emerience with its use indicates the
continued existence of serious maladjustnents in our economy, malad-
justments that are sufficiently serious, in fact, to make the use of
pump priming an exceedingly costly device in the long run. Many of
these malad justuents have been most courageously tackled by the Admin-
ietration to its eternal credit, some, such RE the railroad problem,
have been fumbled, and some, partly inadvertently, have been accen-
tusted. I acpreciate fully, I think, the very real difficulties in
the way of dealing with these problems, but I feel that they must be
dealt with fully and adequately, before we dare to experiment further
with the device of deficit-spending as 8. major reliance in the mitl-
gation of depressions.
4 That part of the program which envieages a large scale exansion of
public works either under the PWA or the WPA seems to me to be ser-
tously misdirected with respect to certain features of the current
depression. For example, I doubt the wisdom of directing public ex-
penditure down construction channels during a depression that was
brought about in an important measure by an utterly excessive rise in
construction costs. Furthernore, partly as à result of the President's
Regraded Uclassified
housing program, which constitutes by far the most effective action
taken to date, we appear to be again at the start of a real residen-
tial building revival. It is extremely important that this revival
be allowed to gather heedway without again being choked by rising
costs. There is some danger than an overly large public works oro-
gram will tend to exert effects in this direction, since mublic works
projecte, while not completely competitive with private residential
construction, do, neverthelees, bid for much of the same labor and ma-
terials.
3. Along this same line of reasoning. but from A somewhat broeder point
of view, our economy as a whole today needs productive carital eouin
ment of the type calculated to increase its productive ficlency
more then it needs public works. From the suring of 1936 to the autum
of 1937 our economy was subjected to a sharr cut in average hours worked
and to an extraordinarily rapid rise in real labor costs, more rapid,
as subsequent events have shown, than it could absorb without serious
reaction. In some CASER, notably the railroads, I feel that a direct
reduction of these costs will prove inevitable. In others, however,
it is possible that they may be absorbed through increased technical
efficiency. Such absorption is certainly the outcome more ideally to
be desired. In this particular emergency, consequently, it is supremely
important that our huge army of unemployed be given productive employ-
ment in so far as possible along lines that will make a maximum contri-
bution to an increase in the productive efficiency of our economy as a
whole. This meane that mensures adopted to combat the current deprès-
sion should place their major reliance unon policies, for example,
such R.S. would facilitate the opening of the canital markets to equity
financing, or make more available productive loans to industry, on the
one hand, and only minor reliance upon projects such R.B. public works.
It is true that both of the above elements are contained in the new
program recently announced. I feel, however, that the willic works
angle is over-stressed in that program. Because it offers less diffi-
culties in execution, the chances are that it will be even more over-
stressed in the final result.
I feel that the desterlisation of all of the inactive cold and the
simultaneous drovoing of member bank reserve requirements has nonin
produced an unmanageably and unnecessarily large volume of excess TP-
serves. If the emerience of the sering of 1937 taught anything, it
was the danger of permitting excess reserves to become 80 large that
the Treasury and the Federal Reserve Board combined, after the most
serious consideration, were completely unable to where then with
finesse. Nobody intended to exert & restrictive pressure on the
credit situation last service The intention, ruther. to alisorb n.
Regraded Uclassified
sufficient amount of the unduly large volume of excess reserves then
existing to put the authorities in B. position to manage the credit
situation without major chock, should conditions warrant. Instead,
the action actually taken produced severe pressures that had not been
contemplated or desired by any of those who participated in the action.
It would seem to me the height of windom to avoid falling again into
the same pitfall. In BO far as the current credit situation is con-
cerned, the present huge increase in excess reserves was not necessary
to produce expansion. A fundamental approach to the railroad problem
that removed the deflating effect of the current panic in the railroad
bond market would be fully as effective in the immediate juncture as
an additional two billions of excess reserves, and much more effective
in the long run, since it would not leave us in a future position
which experience has already shown we may have the courage to attack
but not the finesse to manage.
WR
&pril 21, 1938
Regraded Uclassified
274
April 29, 1938
My dear Jakes
I have postponed acknowledging receipt
of your letter of resignation of April 14th
because I found it no difficult to answer.
You and I have gone through & most try-
ing period in the country's history and I had
hoped that you would stand by se as long as I
remained in the Treasury. People with your
training and qualifications in international
finance are extremely rare in the United States
and, quite frankly, I don't know how I will go
about replacing you.
1 want to take this opportunity to thank
you from the bottom of my heart for the loyal
support you have given me while acting as Ad-
visor to the Treasury and I hope that we will
meet again some day and travel the same road
side by side.
with deep regret I accept your resigna -
tion.
Sincerely yours,
(Signed) EL Morgenthau, Jr.
Dr. Jacob Viner,
5554 Kenwood Avenue,
Chicago, Illinois.
Regraded Uclassified
275
COPY
SECRETARY'S OFFICE - OFFICIAL
APRIL 28, 1938
DR JACOB VINER
5554 KENWOOD AVENUE
CHICAGO ILLINOIS
PLEASE ACCEPT MY APOLOGY FOR NOT ANSWERING YOUR LETTER
DUE TO MY BEING SNOWED UNDER WITH WORK STOP YOU WILL HEAR
FROM ME WITHIN THE NEXT TWENTY FOUR HOURS BEST REGARDS
HENRY MORGENTHAU JR
Regraded
TREASURY DEPARTMENT
Washington.
My dear Mr. Secretary:
It is with the deepest regret and distress that
I find myself impelled to submit to you my resignation
as a member of the Treasury staff to take effect in-
mediately.
The opportunity which you have given me to work
with you has been for me L great privilege, one which I
shall cherich for the rest of my life. I have watched
with growing admiration your steadfast and uncompromis-
ing devotion to the country's interests as you saw them,
and, as you know, there has been close agreement between
us on questions of major policy. I have for a long time,
however, had serious missivings as to aspects of the
Administration's financial _nd economic policies which
have not been under your control, and what I have just
learned as to the financial program of the President for
the coming fiscal year convinces me that these misgivings
were more than justified.
I believe that heavy deficit spending, at this
time, if unaccompanied by genuine and courageous effort
to eliminate the factors which made our recovery only a
halting and incomplete one, and which now have forced us
into a renewal of severe depression, and if unaccompanied
also by willingness on the part of the President to
acknowledge the existence and importance of these factors,
will involve serious dungers for the political L.S well us
the economic health of our democracy.
Under the circumstances I see no reason to believe
that my continuance as di member of your staff would be of
genuine service to you or to the country. I, therefore,
hereby tender you my resignation to tike effect to-day.
Very sincerely,
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury,
goods JacobViner April
14, 1938
Washington, L. C.
Regraded Uclassified
277
April 29, 1938.
MEMORANDUM FOR DR. PEIS:
This morning the Bear tary of the Treasury, the
Acting Director of the Budget and I oslled on Mr. Robert
Doughton, Chairman of the Ways and Meens Committee, and
Measrs. Vinson and Cooper. Among other things, the Secre-
tery discussed the possibility and desirability of the
Bays and Means Committee holding hearings on the debt
settlement offer shich had been submitted to Congress by
the President in his message of March 28, 1938.
The three members of the Consittee were unealmous
in their opinion that it sould be insuvisable to hold
hearings at this seasion of Congress and recommended that
the President, the Secretary of State and the Secretary
of the Treasury arrange to have & meeting with the party
leaders 10 both the Sense and the House with to view of
thoroughly discussing the situstion, its political
implications, precedents which might be established, etc.
The Chairmen and the Members of the Bays and Heans Cox -
aittee caid they would hold themselves in realiness for
such a discussion but would take no further steps toward
holding n hearing until such 3. meeting had been hold.
Wayne Tay
Regraded Uclassified
New m Snock This decided abur
278
April 29, 1958.
-
tab
Mr. Bhard Six Greenbaum,
285 Madison Avenue,
New York, I. T.
Dear Eddies
In response to your telephone request, I an writing to give you
- information en the criticism of Secretary Morgenthau and the
Treasury Department contained in Arthur Krock's column in the Nov York
Times of this day.
About & third of the column consists of generalities. The No
mainder is e criticism of the Treasury's attitude in the matter of
jeeparty assessments, especially its reported opposition to an amend-
ment permitting retroactive review of jeopardy assesments new out-
standing. In the fore part of his article Mr. Krock assorts that
Treasury practices in collecting taxes are enong the administration atti-
tudes toward business which "many persons feel have tended to destroy
confidense." The adds that Secretary Morgenthau "takes personal responsi-
bility" for the methods followed by the Bureau of Internal Revenue and
he notes that the Secretary has publicly invited tempsyers, who believe
they have been unjustly treated, to submit their complaints to him,
and has premised to dismiss any officers guilty of of -
payers or improper dealings with them, but, has allo, complaints embluee
to be heard that the Treasury 1a "destructive and unfair."
Regraded Uclassified
PARK 279
Regraded Uclassified
- 2 -
It is guite true that the Secretary has invited taxpayers who
believe themselves to be unjustly treated to submit their claims to
him. Be has done 60 repeatedly. In doing 60 be has not assumed any
responsibility that the lew and his oath of office did not already 1
pose upon him, but he has by this offer given evidence of his desire to
perform his duties fairly and conseientiously. Be has asked the ocoper-
ation of taxpayers. Be has welcomed specific critisism. the has
recognised that taxpayers can be generally helpful in the correction of
administrative abuses if they will report to him instances of "high-
handedness, inconsideratemess and often insulting demeanors in going
about their collections" of which Mr. Krook says he has heard. Obviously
the Secretary can not deal with instances of this sort unless he knows
about them. Where he has had evidence of this sort, he has taken prompt
action. One such complaint that came to the personal attention of the
Secretary resulted in breaking up & ring of tax racksteers and sending
an employee of the Bureau of Internal Revenue and his outside associates
to the penitentiary.
It should be equally obvious that the sort of vague, general
charges which Mr. Krock retails in his article are somewhat less than
/
helpful in reforming tax practices. Instead they are meraly a libel
against the great body of loyal, devoted and honest employees of the
Government who are conseientiously endeavoring to do their full duty.
It is difficult to understand what Mr. Krock is talking about
when be says complaints of this character "while not accepted by Mr.
280
- 3 -
Morganthan and his aides are fully audible to them." If be is speak-
Inc of complaints of the character which he is uttering, they are of
course audible but they tell nothing. The Secretary has never reseived
a complaint that be has not accepted and investigated thoroughly when
any basis me afforded for investigation, which neens, when specific
charges were mde or facts stated that could be investigated, The
Treasury is not unomacious of the fact that there are many complaints
against Treasury agents, their actions or conversations, which, for
one reason or another, the complainants do not choose to present formally
to the Secretary, or to the Bureau of Internal Revenue. The Treasury
also knows by examination of its records that the Adudest and most
frequent complaints are uttered by those whose cases have no nerits
whatever and who in most instances are the most persistent tax chiselers.
10 is realized also in the Treasury Department that no tax law
is popular and the law end its administration nearly always become ⑉
pecially unpopular with the nen who have been persistently under-stating
their tax liability and eventually meet a day of reckoning.
Dut se far as Mr. Krook's article is specific it does not relate
st all to cases of high-handedness or insulting demanner of agents of
the Treasury Department. It relates instead to the attitude of the De-
partment toward jeopardy assessments. Mr. Krock admits that this is
a highly technical netter; therefore, be may have rade - "unintentional
errers" in talking about it. He may also have committed an unintentional
orrer by failing to examine carefully into the source of the attitude
Regraded Uclassified
281
- 4 -
be is expressing. The Treasury, be says correctly, objected to
writing into the law a provision that jeopardy assesments now out-
standing could be reconsidered by the Comissioner and abated. The
Treasury's position was not solely that this provision would impose
an undus burden on the Commissioner of Internal Revenue by compelling
him to resonsider all outstanding jeopardy assessments, but also that
relief of this kind was unnecessary since there had been no substantial
demand for 1t. The entire agitation in favor of this proposal, 00
for as it has - to the Treasury's attention, originated with just
- large taxpayer, the Associated Gas and Electric Company, and its
attorneys. It is perhaps a pure coincidence, or an unintentional
error on Mr. Krook's part, that the latter two-thirds of his column
reads M if it were a brief written by the attorneys of the Associated
Gas and Electric Company.
In the year 1936 the Bureen exercised its authority to lovy
jespardy assessments in 1,409 cases and the total amount of the assect-
ments VIAS something over eightymeight millions of dollars) but of this
eighty-eight milliams, fifty-four millions was assessed against the
Associated Gas and Electric. The remaining thirty-four millions -
assessed against 1,408 taxpayers, In no other - year since Junuary,
1935, has the amount of jespardy assessments in any year exessed
treaty-three milliom dollars; certainly not as impressive amount when
sensidered in connection with the two billions or mm of revenue
produced by the income tax statutes annually.
Regraded Uclassified
282
- 5 -
The jeopardy assossment 1a, as Mr. Krook states, a provision in
tended to protect Government revenues. It is used sparingly by the
Dureen and only in those instances where it appears unequivesally that
there is roal and probable danger that the assets of a tax delinguest
will cocops before the Government can mis sollection under other forms
of procedure. Those cases are insolvency or action on the part of a
texpayer which appears to indicate & purpose to sequester or dispose
of his properties in order to defeat the Government's efforts to collect
taxas. the vast majority of assessments of this type have been against
beotleggers, illicit distillers, gamblers and other individuals of this
type. Cases of jeopardy assessments against legitimate business enter-
prises are run indeed when the whole emount of jeopardy accossments is
equaldered.
One of m. Kresk's univtentional errors is in assuning that the
taxpayer Iss no I of lifting the jeopardy assessment until the 00.00
has - through the long prosess of hearing and decision by the Board
of far Appeals. The fast is that a solvent taxpayer can have his
jespardy assessment lifted at any time by a conference with officers
of the Bureen, in which he lays his cards on the table and furnishes
assurance that be will pay the amount of the tax which be lawfully
- the Occurrement. In the sace of the taxpayer mustimal above,
against de - assessment of fifty-four million dollars is outstanding,
the case which has furnished the sole basis for the agitation in favor
of change in the - the Buyeau has employed the time of approximately
Uclassified
283
Regraded Uclassified
- 6 -
- hundred revenue agents for - entire year in an effort to determine
the correct tax liability and there continues upon the assignment a
large group of representatives of the Bureen and of the Office of the
Chief Coursel, whose in working out the true liability met
depend in large neasure upon the cooperation it receives from the tax-
payer and his sounsel. This particular corporate taxpayer has already
agreed to and has paid taxes in addition to those reported in & total
- of more than four million dollars.
The extent of the response to the Secretary's request that 0 00
plaints be submitted to him would - to have some bearing on the
matter of high-handed and oppressive action by agents of the Treasury.
Less than fifty complaints were received. Every one of than was care-
fully investigated. There nomed to be some merit in half a dosen of
them. In the remainder the action of the Treasury's representatives
was that required by the statutes. In one asse the taxpayer, an elderly
woman, we found to have been paying more taxes than she should. The
fault vas originally here, in failing to report depreciation on her
property, but those who emained her returns were found to have been
negligent in failing to advise her that she should be taking the de-
preciation the lew permitted. They were reprimended. In m case vas
there found sufficient eulpability an the part of any employee of the
Treasury Department to merit dismissal. Considered in connection
with the fast that DE loss than 500,000 tax adjustments are made in
the course of & single year, it must be concluded that there is not as
284
- 7 -
mush fire as there is make behind the charges of high-handed revenue
agents and disregard of the interests of the taxpayer.
But the decire of the Secretary of the Treasury to give all
taxpayers prospt, fair and courteous treatment has not been limited
to the passive attitude of receiving complaints and - -
Great progress has been made in speeding up the disposition of tax
cases. Continued studies have been carried en as to improved -
for giving all taxpayers with tax questions to adjust prompt, -
1ent and Lanexpensive hearing. The authority of field agents has
been increased in several districts and in one district, Los Angeles,
California, there has been set up a complete branch of the Bureen &
Internal Sevenue, equipped to bring to the taxpayer in his have die-
trict all the machinery of the Bureau and to carry his case right up
to the point of the hearing of an appeal by the Board of Tax Appeals,
if the case should 80 so far.
The Secretary has not withdrawn his offer to give careful
commination to say are where there is complaint of injustice. If
crities of the Bureen and the Treasury Department really wish to be
helpful in inproving tax sollection methods they will give the Bee-
retary the benefit of my specific knowledge that they my peasess
of injustice to texpayers and will advise their friends and their
readers to do the - instead of giving voice to criticisms which
by their very nature - be of no value and only to thurder
Regraded Uclassified
285
- 8 -
undeserved odium upon tax collecting efficers and thus to increase
the difficulty of their work.
Very truly yours,
Herbert E. Gaston
Assistant to the Secretary.
In The Nation
New Deal Methods 286 of Tax
Collection 29 1938
& ARTITUM SPOCE
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287
April 29. 1938
MINORANDOM FOR THE PRESIDENT:
Purcuant to your request, I - submitting & statement of the
objections to the corporation tax and to the tax on capital gains,
as contained in the Revenue Bill of 1938.
RM100
The Secretary and Mr. Magill took the original of this
statement to the White House conference 4/29/38- 9:20 A.M.
and left it with the President.
Regraded Uclassified
Mildraft 1/28/38 (Final)
# 288
Regraded Uclassified
in w meezage of April 20, 1937, I waggested that Gengrase should
undertake "a careful survey of the present tax structure* for the -
poss of slocing roch leepholes M wight exist in the reverne laws and
of maintaining w improving their reverme-producing power. A others-
sittee of the Committee on Wagre and Means began its work on revenue 10-
vision last November and the subject has been given close attention w
the appropriate congressional consittees and w the Congress orer since.
the Revenue Mill of 1938 10 the result.
It 10 cosential that the revenue-producing power of the tax stree-
tare be maintained. It 10 entirely possible to do this, and at the
- time to correct existing proven insquities. Consequently, too nain
tests should be applied to the present wills (1) will it preduce nt
stentially as sub TOTOGRA at the existing laws and (2) is the tax by
den mare justly distributed under the ser bill than under the existing
law?
The present law val outimated to produce $5,330 million of internal
revenue for the ficeal year 1939. M the name levels of business nativ-
ity the Revenue DALL of 1935 is estimated to produce $5,266 million of
internal reverse.
the new corporation tax itself will produce about $30 million nore
then the existing 100, but much more than this ament of the mil-
lica, will be lest in individual surtaxes due to deareased dividend de-
tributions. the privilege granted to corporations to reteslere the value
of their capital stock is cotimated to met $13 million. Other steesl-
laneons aljustments favorable to corporations will .... $13 million 5070,
- I -
289
M compared to existing 1m. the MV treatment of capital gains and
leases will cost the Treasury around $8 million - this in a year in
which stock market transactions are at a statum. The repeals of every
excise tasse are in part offect w M increase in the tax an distilled
spirite, bet the not loss to the Treasury is approximately $12 million.
Thus, the MII as a whole will produce perhaps 065 million less than the
existing internal revenue laws at current levels of business activity.
In years of normal business activity the bill 10 estimated to produce from
$100 million to $230 million loss than the existing revenue eyetem.
The Mill maines s large number of changes in the revenue laws, may
of which are wholly meritorious and come of which are open to serious
question. The to changes to which met attention has been dram are the
w the corporation taxes and to thetax on capital gains. I
have previously pointed out that fondamental principles of taxaties are
involved is both cases,
The Federal Government has always taxed capital gaine since the
introduction of the codern income tax in 1913. The Supreme Court has
may times approved the taxation of such profits on legal grounds. During
the first nine years of the Income tax, capital gains ware taxed is exactly
the same my as other Income from salariss, from dividends, of from 10-
torest. In 1921 a new nothed for texing expital gains use adopted, whereby
these profite at the option of the taxpayer vers subjected to a flat rate
of 12) pareent, although incomes from other were was still subjected
to progressive suptakes ranging up to 50 percent. This nethod of taxation
m saintained for a little over a decade - a desade marked 1987 its close
w the greatest speculative activity in the stock nerket which the country
- 3 -
290
has 0712 In 1934, after schemative staty by congressional -
mitteen, 11 M desided that 11 MM unfair to give capital online the
preferential treatment of a flat rate tax, so long as Income from other
more - subjected to progressive surtaxes. Consequently, a plan the
atopted shareby the rate of tax on capital gains depended upon the tap-
payer's other Income end the length of time be had held the property w
fors the sale. In this my profite realised on sales of property vare to
a considerable extent, though not fully, subjected to the processive no-
taxes applicable to the wages of cepital received in the form of dividents
or interest.
The present MII atendens this plan as applied to profits as sales
of preyerty hold over too years in favor of a return to the plan in foree
during the 20's. There are some modifications of that plan, the principal
ones being that the flat rate of the tax on these profits is to be 15 per
east instend of 12/ percents and & somethat more liberal treatment is
granted to espital gains realized by taxpayers with small incomes.
Progressive wartex rates have been an accepted part of our income
tax eystem free the beginning. It has always been thought that the -
with all income of $100,000 should pay taxes at a higher rate than a -
with an tasse of $10,000 If $2,000. It is firaly established in this
country that profite free sales of property are income. The tar laws my
properly take into associat the fast that these profite my have account
over several years' time and hance my be entitled to someshed Lesser
progressive rates of tax then those applied to income with has assured
in & single year. Dut there is small justification for cheltering espital
gains under a flat rate of tax of 15 percent when exrued Incomer wat 100
- in other forms from the use of expital are subjected to progressive
- 4 .
291
certes rates reaging free 20 to 75 percent.
Regraded Uclassified
4, for example, invests in stocks at bonde which rield Ma a
surter not Income of $75,000. Re Federal income tax is $20,038. 3 18-
voste in stocks and bonds which yield his a vertaz net income of $50,000
and he selle other securities, held for over too years, at a profit of
$25,000 additional. His Federal income tax is $13,438, or one-third less
that A's. Norosver, If 3's profits from selling securities are a million
dollars instead of $25,000, the tax rate would still be 15 percent. It
is not equitable to discriminate is this way between different forms of
apply progressive rates to come kinds of Income and mt
upply them to other kinds. If taxes are to be reduced, they should be
reduced evenly.
In w Julguar, the proposed reduction in the taxes on profite from
sale of property is rather an encouragement to speculation in stocks and
in commodities, than M incentive to nov investment in needed business
notivities. Indeed, we know that approximately 85 persent of all capital
gains AFC produced by transactions on the stock unrket.
I have not referred to the details of the proposed treatment of
empital leases OF of short-term guins or losses. In some respects the
now treatment le an improvement, but in its najor aeports the proposed
plan is a return to a discredited method which violates fundamental prin-
ciples of progressive income teration.
The bill very properly lightens the tax burden of the small corpora-
tion, as I recomended last Sevember. In the case of corporations with
income in excess of $25,000. the bill procerves a skred of the undir-
tributed profite tax, but Largely deprives 10 of my revenue effect. The
- 5 -
292
principle of the undistributed profite tax has been widely diseased
but generally misundersteed. The basic reason for 11 is simple and
plain. If & corporation distributes dividends. its stockholders pay
normal taxes and surtaxes therean. If the corporation retains the money,
its individual stockholders pay no taxes on the accumulations however
mach their realth MAT increase. Many a corporation controlled w realthy
stockholders regularly accumlated the greater part of its earnings hering
the 20's and than freed them from the taxes which would have been payable
had the profits been distributed.
The great reduction in the tax on large capital gains and the similar
great reduction is tax on undistributed corporate carnings combine to
affort the strongest tax incentive for the accumulation of corporation
saraings. 4a I have already indicated. it 10 estimated that the Treasury's
receipts from surtaxes on dividends will decrease from als to $200 million
as a result of this MII, due to changes in the corporate policy of divi-
dend distribution. the surtaxes will decrease because the individual
shareholders will receive very such smaller incomes from their investments
is corporate stocks that has been the case during the lest few years. I
- meet concerned, however, with the fast that retained corporate earnings
vill again be granted tax preference over distributed corporate carnings:
and that w the case taken, inscrporated enterprises will receive a far
advantage over enterprises monducted by individuals or w partners. the
retention is the MII of the undistributed profits tax principle is salu-
tary, but 11 is regrettable that the tax itself has been reduced to s
shakew.
Fisally, 11 10 unfortmete that Congress are not ⑉ fit to accept
the opportunity of simplifying the estate tax and of increasing its yield.
- 6 -
293
Many of the administrative changes in the bill are Improvements
over the present 10m. the prevision for destaratory valings in tax
@@@@@ and for adjustments to provent double deductions or deable -
tion in income tax ..... are important advances. Finally, the repeal
of come of the less decirable taxes to a start in the right
direction, although it 10 unfortunate that the lost revenue vid not
nade up in other places.
In general, then, the chief virtue of the Mil is that 19 reserves
every conselvable ann for criticies, on the grounds, of hardship of the
undistributed profits tax and the tax on espital gains. No cas - pos-
sitiy my that its provisions on these points will check the exployment
of capital. In w for as the relief applies to small Vusiness conserns,
11 is especially meritorious. The serious question is whether the 74-
lief does not - se far, is the case of large corporations sat large in-
vestors, that - under turden of making up the lost revenue will seces-
earily be imposed on all other texpayers.
Second draft-4/28/38-
Regraded Uclassified
TREASURY DEPARTMENT
294
INTER OFFICE COMMUNICATION
DATE April 29, 1938
to
Secretary Morgenthau
FROM
Mr. Haas
Subject: Current United States Trade with Japan and China
(Preliminary data)
A. United States trade 'with Japan during the first two weeks
of April 1938.
1. United States exports to Japan increased 35 percent
in the first two weeks of April 1938 8.8 compared with the
same period in March 1938, and were 71 percent greater
than in February 1938.
2. Exports of raw cotton increased $1,595,000 or 95 per-
cent over the first two weeks of March 1938. Exports of
petroleum, iron and steel manufactures, copper, and hides
and skins increased markedly over the same period of March
1938.
3. United States imports from Japan decreased 8 percent
in the first two weeks of April 1938 as compared with the
same period of March and February 1938 and were 43 percent
less than in the first two weeks of January 1938.
4. The decrease of $139,000 in imports of raw silk ao-
counted for almost half the decrease; other items showing
decreases were pyrethrum flowers, hats and hat materials,
and nonmetallic mineral products, such as glassware, atone-
ware, porcelain, and chinaware.
B. United States trade with China during the first two weeks of
Aoril 1938.
1. United States exports to China and Manchuria increased
5 percent in the first two weeks of April 1938 as compared
with the same period of March 1938.
2. United States imports from China and Manchuria increased
23 percent in the first two weeks of April 1938 88 compared
with the first two weeks of March 1938.
295
Secretary Morgenthau - 2
3. Statistics showing United States trade with North
China and Manchuria and South China and Hong Kong are
attached at the end of this report. This grouping of
the trade figures will be discontinued at the end of
April in favor of the new classification as outlined
below.
C. United States trade with China has been reclassified in
April 1938 to determine the extent of:
1, United States trade with Chinese-controlled areas.
2. United States trade with Japanese-controlled areas.
1. United States trade with Chinese-controlled areas.
of the sixteen ports and cities in China to which goods are
most commonly shipped only six are definitely under Chinese con-
trol-Canton, Hankow, Swatow, Amoy, Foochow, and Yunnanfu.
United States exports to these aix ports amounted to
$141,276 in the first two weeks of April 1938. or only 4.5 per-
cent of the total exporte to China.
United States imports from these six ports amounted to
$170,104, or only 11.6 percent of the total imports from China.
2. United States trade with Japanese-controlled areas.
Seven ports in China are definitely under Japanese control.
of these, four--Chefoo, Teingtao, Tientsin, and Pelping are in
recently-conquered North China and three-Dairen, Mukden, and
Harbin are in Manchuokuo.
United States exports to these seven ports amounted to
first two weeks of April. Of these $53,224 were shipped to the
1,214,502, or 38.7 percent of the total exports to China in the
North China ports end $1,161,278 to the Manchuokuo ports.
United States importe from these seven ports amounted to
8400,233, or 27. 4 percent of the total imports from China. China of
ports and $145,812 represents imports from the Manchuokuo ports.
this amount $254,421 represents imports from the North
Secretary Morgenthau - 3
296
3. United States trade with Shanghai, Nanking, and Hong
Kong.
Shanghai and Nanking are now under Japanese control, but
it is by no means clear that goods shipped to these cities are
actually destined for them because
1. Many Shanghai firms have moved to Chinese cities,
particularly Hankow, Yunnanfu, and Hong Kong, but their orders
Are still filled to Shanghai via European porte (where they re-
delve changed orders for delivery) or via Hong Kong.
2. Goode labelled "Nanking" may be either for the
former Chinese Government or for the newer Japanese-puppet
Government at Nanking. At present, it 1s impossible to deter-
mine whether these goods actually reach Nanking,
Hong Kong 18 still a free port. Although it le presumed
that the majority of Hong Kong trade 16 with Chinese-controlled
areas, it is nevertheless rumored that Japanese coastal vessels
are now picking up goods at Hong Kong for transshipment to
Shanghai and northern ports.
United States exports to Shanghai and Nanking amounted to
1,253,070, or 40 percent of the total exports to China in the
first two weeks of April 1938.
United States imports from Shanghat and Nanking amounted
to $241,186, or 16.5 percent of the total importe from China in
the first two weeks of April 1938.
United States exports to Hong Kong amounted to $492,831, or
15.7 percent of the total exports, and United States imports
from Hong Kong amounted to $230,301, or 15.8 percent of the total
imports during the first two weeks of April.
4. United States trade with unclassified Chinese ports and
cities.
Exports and imports are frequently labelled simply "China."
It is impossible to determine whether this trade 18 with
Chinese-controlled areas or with those under Japanese control,
Unclassified exports to China amounted to $34,329 in the
first two weeks of April, or 1.1 percent of the total, and un-
classified imports amounted to $419,337, or 28.7 percent of the
total.
Secretary Morgenthau - 4
297
Statistics
A. Current Trade with Japan (Preliminary Data).
I. United States Exports to Japan - Total Value
First two weeks of
April 1938
$10,463,000
March 1938
7,727,000
February 1938
6,112,000
January 1938
6,485,000
December 1937
6,912,000
November 1937
5,993,000
IL
United States Exports to Japan by Commodities
Commodities
First two weeks of -
showing increases:
April 1938
March 1938
February 1938
Cotton, unmanufactured
$3,276,000
$1,681,000
$1,116,000
Petroleum and products
2,402,000
1,397,000
547,000
Iron, steel and
manufactures
1,905,000
1,266,000
1,173,000
Copper and manufactures
1,158,000
52,000
214,000
Hides and skins, raw
331,000
83,000
60,000
Commodities
showing decreases:
Automobiles, parts
and accessories
410,000
597,000
494,000
Chemicals and related
products
228,000
251,000
300,000
Industrial machinery
211,000
1,505,000
985,000
Paper base stocks
99,000
622,000
201,000
Aircraft and parts
45,000
77,000
128,000
Total
$10,065,000-96%
$7,531,000-98%
$5,218,000-85%
All other
398,000- 4%
196,000- 2%
894,000-15%
Grand total
$10,463,000
$7,727,000
$6,112,000
III. United States Imports from Japan - Total Value
First two weeks of
April 1938
$3,564,000
March 1938
3,883,000
February 1938
3,880,000
January 1938
6,218,000
December 1937
5,565,000
November 1937
6,893,000
Secretary Morgenthau - 5
298
IV. United States Imports from Japan by Commodities
Commodities
showing increases:
April 1938
March 1938
February 1938
Cotton manufactures
$ 128,000
Fish and fish
s 102,000
$ 323,000
products
107,000
Wood, paper, and
84,000
45,000
manufactures
78,000
Furs and manu-
45,000
57,000
factures
65,000
Fertilizer and fer-
60,000
14,000
tilizer materials
52,000
nil
1,000
Commodities
showing decreases:
Silk, unmanufactured
2,410,000
Chemicals and re-
2,549,000
2,468,000
lated products
101,000
103,000
Vegetable products,
88,000
edible
92,000
101,000
Nonmetallic mineral
74,000
products
86,000
126,000
Silk manufactures
162,000
77,000
84,000
Fish scrap and fish
29,000
meal
62,000
75,000
3,000
Pyrethrum flowers
34,000
66,000
52,000
Hate and hat materials
26,000
134,000
87,000
Total
$3,318,000-93%
$3,529,000-91%
$3,403,000-88%
All other
246,000- 7%
354,000- 9%
477,000-12%
Grand total
$3,564,000
$3,883,000
$3,880,000
B. Current Trade with China (Preliminary Data).
I. United States Exports to China - Total Value
First two weeks of
Total
April 1938
$3,136,000
March 1938
2,993,000
February 1938
2,399,000
January 1938
3,230,000
December 1937
3,131,000
Whole month of April
1937
$6,990,000
Regraded Uclassified
- 299
Secretary Morgenthau - 6
Table II. United States Exports to China by Ports
:
Value
:
Percent
:
:
of total
Exports to Chinese ports:
Canton, Hankow, Swatow
Foochow, Amoy, Yunnanfu
$141,276
4.5
Exports to Japanese-controlled ports:
Chefoo, Tsingtao, Tientsin, Peiping
53,224
1.7
Dairen, Mukden, Harbin
1,161,278
37.0
Subtotal
1,214,502
38.7
Exports to doubtful ports (ultimate
goods - destination unknown):
Hong Kong
492,831
15.7
Shanghai
642,419
20.5
Nanking
610,651
19.5
China - misc.
34,329
1.1
Subtotal
1,780,230
56.8
Total
$3,136,008
100 %
Regraded Uclassified
Table III. United States Exports to China by Ports and Principal Commodities
:
Chinese:
Japanese Ports
:
:
:
:
:
Commodity
:
ports
1/:
North
Manchukuo
Hong Kong : Shanghai : Nanking : China-misc. : Total
:
: China 2/:
:
:
:
:
:
Aircraft and parts
$130,210 $
- $
-
$ 35,875
$
- $ 10,344$
-
$176,429
Automobiles, parts and
accessories
220
19,511
245,163
107,672
76,443
-
-
449,009
Copper and manufactures
-
-
-
43,005
-
-
-
43,005
Secretary Morgenthau -
Cotton, unmanufactured
-
-
352,962
-
135,748
- 19,952
508,662
Electrical machinery
and apparatus
1
9,729
-
15,866
19,468
-
921
45,984
Firearms and ammunition
10,231
-
-
-
- 600,307
-
610,538
Industrial machinery
310
-
18,220
29,104
2,310
- 9,628
59,572
Iron and steel and
manufactures
I
538
144,535
46,012
9,512
-
I
200,597
Paper and manufactures
#
11,079
2,000
35,806
47,737
1
-
96,622
Petroleum and products
-
2,337
260,484
18,988
17,129
-
I
298,938
Tobacco and manufactures
-
1,924
58,650
8,372
216,006
1
-
284,952
All Other
305
8,106
79,264
152,131
118,066
- 3,828
361,700
Total
$141,276
$53,224
$1,161,278
$492,831
$642,419
$610,651
$34,329
$3,136,008
1
Canton, Hankow, Swatow, Foochow, Amoy, Yunnanfu.
2/
Chefoo, Tsingtao, Tientain, Peiping.
Dairen, Mukden, Harbin.
Regraded Uclassified
301
Secretary Morgenthau - 8
Table IV. United States Imports from China - Total Value
First two
weeks of
Total
April 1938
$1,461,000
March 1938
1,183,000
February 1938
1,033,000
January 1938
2,188,000
December 1937
2,446,000
Whole month of April 1937
$12,173,000
Table V. United States Imports from China by Ports
:
Value
:
Percent of
:
:
total
Imports from Chinese ports:
Canton, Hankow, Swatow
Foochow, Amoy, Yunnanfu
$170,104
11.6
Imports from Japanese-controlled
ports:
Chefoo, Tsingtao, Tientsin, Peiping 254,421
17.4
Dairen, Mukden, Harbin
145,812
10.0
Subtotal
400,233
27.4
Imports from doubtful ports (origin
of goods unknown):
Hong Kong
230,301
15.8
Shanghai
241,186
16.5
-
Nanking
-
419,337
28.7
China, misc.
890,824
61.0
Subtotal
$1,461,161
100 se
Total
Uclassified
Table VI. United States Imports from China by Ports and Principal Commodities 20
302
:
Chinese:
Japanese Ports
:
:
:
:
Commodity
:
ports 1/
:
North
Manchukuo
Hong Kong : Shanghai : Nanking China-misc.
Total
:
China 2/:
3/
:
:
:
:
Bristles
$ 9,949
$ 46,026
$ 29,993
$
-
$ 28,381 $
-
$ 2,694
$117,043
Cotton manufacture
8,347
4,413
2,362
2,568
34,284
-
-
51,974
Fireworks
37,898
-
-
38,926
-
-
-
76,824
Flax, hemp and ramie
94,711
9,373
-
5,957
14,307
-
-
124,348
Secretary Morgenthau - 9
Furs and manufactures
- 31,203
74,532
4,796
42,737
-
4,300
157,568
Hair and manufactures
- 30,753
22,091
15,983
4,489
-
3,504
76,820
.
Hats and manufactures
- 1,677
-
-
53,952
-
3,683
59,312
Tin, ore, etc.
-
-
-
31,804
-
I
21,930
53,734
Tung (wood) oil
4,825
I
-
13,794
38,568
- 368,142
425,329
Vegetable products, edible3,313
11,831
1,928
35,767
-
-
2,270
55,109
All Other
11,061
119,145
14,906
80,706
24,468
-
12,814
263,100
Total
$170,104 $254,421 $145,812
$230,301
$241,186
- $419,337
$1,461,161
[W[N]
1
Canton, Hankow, Swatow, Foochow, Amoy, Yunnanfu.
2
Chefoo, Tsingtao, Tientsin, Peiping.
Dairen, Mukden, Harbin.
303
Secretary Morgenthau - 10
United States Exports to China by Commodities
PTO)
(a) To North China and Manchuria
April 1938
March 1938
Cotton, unmanufactured
$ 366,000
$ 77,000
Automobiles, parts and
accessories
265,000
193,000
Petroleum and products
263,000
117,000
Iron, steel and manu-
factures
145,000
51,000
Tobacco and manufactures
61,000
134,000
Total
$1,100,000-90%
$572,000-78%
All other
125,000-10%
164,000-22%
Grand total
$1,225,000
$736,000
(b) To Shanghai, South China and Hong Kong
April 1938
March 1938
Firearms and ammunition
$ 611,000
$ 387,000
Tobacco and manufactures
224,000
528,000
Automobiles, parts and
accessories
184,000
443,000
Aircraft and parts
176,000
52,000
Cotton, unmanufactured
143,000
26,000
Paper and manufactures
86,000
21,000
Chemicals and related
products
71,000
75,000
Vegetable products, edible
56,000
32,000
Iron, steel and manufac-
tures
56,000
92,000
Copper and manufactures
43,000
167,000
Industrial machinery
41,000
30,000
Petroleum and products
36,000
49,000
Total
$1,727,000-90%
$1,902,000-84%
All other
184,000-10%
355,000-16%
Grand total
$1,911,000
$2,257,000
...304
Secretary Morgenthau - 11
United States Imports from China by Commodities
(Old Classification)
(a) From North China and Manchuria
Anril 1938
March 1938
Textile fibres and manu-
factures
$161,000
$ 62,000
Fure and manufactures
106,000
78,000
Bristles
76,000
5,000
Animal products, edible
25,000
32,000
Nonmetallic mineral prod-
uots
3,000
55,000
Perilla oil
nil
48,000
Total
$371,000-92%
$280,000-86%
All other
31,000- 8%
44,000-14%
Grand total
$402,000
$324,000
(b) From Shanghai, South China and Hong Kong
April 1938
March 1938
Tung (wood) oil
$ 425,000
$325,000
Flax, hemp, ramie and
manufactures
115,000
74,000
Hate and hat materials
58,000
47,000
Tin ore, bars, blocks,
etc.
54,000
35,000
Furs and manufactures
52,000
14,000
Bristles
41,000
52,000
Vegetable products, edible
41,000
82,000
Fireworks
77,000
14,000
Total
8 863,000-82%
$643,000-75%
All other
196,000-18%
216,000-25%
Grand total
$1,059,000
$859,000
Regraded Uclassified!
HOLD FOR RELEASE
HOLD FOR RELEASE
HOLD FOR RELEASE
April 29, 1938
CONFIDENTIAL: To be held in STRICT CONFIDENCE
and no portion, synopsis, or intimation to be
305
published or given out until the READING of the
President's Message has begun in the Senate or
the House of Representatives. Extreme care rust
therefore he exercised to avoid premature pub-
lication.
STEPHEN EARLY
Secretary to the President
TO THE CONGRESS or THE UNITED STATE3:
Unhappy events abroad have retaught us two simple truths about
the liberty of B. democratic people.
The first truth is that the liberty of a democracy is not safe
if the people tolerate the growth of private power to a point where it
becomes stronger than their democratic state itself. That, in its essence,
is Fascism -- ownership of Government by an individual, by a group, or by any
other controlling private power.
The second truth is that the liberty of 8. democracy is not safe
if its business system does not provide employment and produce and dis-
tribute goods in such a WAV BG to sustain an acceptable standard of living.
Both lessons hit home.
Among as today a concentration of private power without equal
in history is growing.
This concentration is scriously impairing the economic effective-
ness of private enterprise as a way of providing employment for labor and
capital and as a way of assuring 5. more equitable distribution of income and
earnings among the people of the nation 00 a whole.
1. The Growing Concentration of Economic Power
Statistics of the Bureau of Internal Revenue reveal the following
amazing figures for 1935:
Ownership of corporate assets:
or all corporations reporting from every part
of the nation, one-tenth of 1% of them owned
52% of the assets of all of them;
and to clinch the point:
or all corporations reporting, less than 5%
of them owned B7% of all the assets of all of
them.
Income and profite of corporations:
of all the corporations reporting from every
ourt of the country, one-tenth of 1% of them
earned 50% of the net income of all of them;
and to clinch the point:
of all the manufacturing corporations reporting,
loss than % of them earned 84% of all the net
profits of all of them.
Regraded Uclassified
The statistical history of modern times proves that in times
of depression concentration of business speeds up. Bigger business then
301
has larger opportunity to grow still bigger at the expense of smaller
competitors who are weakened by financial adversity.
The danger of this centralization in a handful of huge corpora-
tions is not reduced or eliminated, as is sometimes urged, by the wide
public distribution of their securities. The mere number of security-
holders gives little clue to the size of their individual holdings or to
their actual ability to have a voice in the management. In fact the
concentration of stock ownership of corporations in the hands of a tiny
minority of the population matches the concentration of corporate assets.
1929 was M. banner year for distribution of stock ownership-
But in that year
three-tenths of 1 per cent of our population
received 78% of the dividends reported by
individuals. This has roughly the same effect
as if, out of every 300 persons in our popula-
tion, one person received 78 cants out of every
dollar of corporate dividends while the other
299 persons divided up the other 22 cents between
them.
The effect of this concentration is reflected in the distribu-
tion of national income.
A recent study by the National Resources Committee shows that
in 1985-36:
47% of all American families and single
individuals living alone had incomes of less
than $1,000 for the year;
and at the other end of the ladder B. little
less than 12% of the nation's families
received incomes which in dollars and cents
reached the same total 85 the incomes of
the 47% at the bottom;
Furthermore, to drive the point home, the Bureau of Internal
Revenue reports that estate tax returns in 1936, show that:
33% of the property which was passed by
inheritance W&S found in only 4% of all the
reporting estates. (And the figures of con-
centration would be far more impressive, if
we included all the smaller estates which,
under the law, do not have to report.)
We believe in G. way of living in which political democracy
and free private enterprise for profit should serve and protect each
other - to ensure a maximum of human liberty not for & few but for all.
It has been well said that "The freest government, if it
could exist, would not be long acceptable, if the tendency of the
lows were to create e rapid accumulation of property in few hands,
and to render the great mass of the population dependent and penniless."
- 3
Today many Americans ask the unensy question: Is
307
the vociferation that our liberties are in danger justified
by the facts?
Today's answer on the part of average non and women
in every part of the country is far more occurate than it would
have been 1:1 1989 -- for the very simple reason that during
the part nine years we have been doing a Jot of common sense
thinking. Their onsver 1s that if there is that danger it comes
from that concentrated orivute economic power which is struggling
90 ward to muster our democratic government. It will not como
as some (by no me ns nll) or the possessors of that private power
would make the puople Deline -- from our democratic government
itsulf.
II
Filancial Control over Industry.
Even thise statistics I have cited do not measure
the actual 20gree of concentration of control over American
industry.
Cicao Financial control, through interlocking sphores
of influnner car charges of investment, und through the use
of devised 25 hulding companies and strategic
minority insurant:, close control of the business
policies of envirprions which musquorade 99 independent units,
Tast heary Faur of integrated financial and manage-
ment control 1108 upon 19r3" and strategic urous of American
industry, The smill buriness man 13 unfortunately being driven
into a less and Iess independent position in American life.
You and I must udmit that.
Private enterprise is cousing to be free enterprise
and is bucoming a cluster of privato collectivisms: masking
itself as 1 system of TRUE onterprise after the American model,
it is la fact becoming a concedled cartul system ufter the
Europen model.
Sie all want officient industri d growth .nd the
edventages of mass production. No one suggests that we return
to the hand Icon or hand forge. A series of processos involved
in turning out a given munifectured product may well require
one or more huge nuch production plants, Modern efficiency
may all for this. But nodern efficient 7158 production is
not furthered by a central control which destroys competition
between industrial plants e-ch capable of ifici int must
production willi operating ns deparate waits. Industrial
efficiency dous no. Duve to mean industrial unpire building.
And industrial emplo building, unfortunately, has
evolved into bunker control of industry. We oppose that.
Such control does not 05505 alrety for the investing
public. Investment judgmost requires the disinterested distorted appraisal
of other poople's monagement. It becomer sturred and
if it is combined with the conflicting duty of controlling the
management It is supposed to judge.
Interloc'ing financial controls have taken from
American business Laich of its traditional virility, independence,
adoptability and durtug -- without compensation vivantages.
They have not given the stubility they promisude
Business entorprise nooda new vitality and the
flexibility that comes from the divorsified offorts, independent of
judgmonts and vibrant onergies of thousands upon thousands
Independent business men.
Regraded Uclassified
308
The individual must be encouraged to exercise his own
judgment and to venture his own small savings, not in stock
gambling but in new enterprise investment. Men will dare to com-
pete against men but not against giants.
III. The Decline of Competition and its Effects on Employment:
In output per man or machine, we are the most efficient
nation on earth.
In the matter of complete mutual employment of capital and
labor we are among the least efficient.
Our difficulties of employing labor and capital are not new.
We have had them since good free land gave out in the West at the turn
of the century. They were old before we undertook changes in our tax
policy or in our labor and social legislation. They were caused not
by this legislation but by the same forces which caused the legisla-
tion. The problem of bringing idle men and idle money together will
not be solved by abandoning the forward steps we have taken to adjust
the burdens of taxation more fairly and to attain social justice
and security.
If you believe with me in private initiative, you must
acknowledge the right of well-managed small business to expect to
make reasonable profite. You must admit that the destruction of
this opportunity follows concentration of control of any given
industry into 8 small number of dominating corporations.
One of the primary causes of our present difficulties
lics in the disappearance of price competition in many industrial
fields, particularly in basic manufacture where concentrated
economic power is most evident - and where rigid prices and
fluctuating payrolls are general.
Managed industrial prices mean fewer jobs. It is no
accident that, in industries like cement and steel where prices
have remained firm in-the face of a falling demand payrolla
have shrunk as much as 40 and 50 per cent in recent months.
Nor is it mere chance that in nost competitive industries
where prices adjust themselves quickly to falling demand, pay-
rolls and employment have been far better maintained. By prices
we mean, of course, the prices of the finished articles and not
the wages paid to workers.
When prices are privately managed at levels above
those which would be determined by free competition, everybody
pays.
The contractor pays more for materials; the home-
builder pays more for his house; the tenant pays more rent;
and the worker pays in lost work.
Even the Government itself is unable, in a large
range of materials, to obtain competitive bids. It is repeat-
edly confronted with bids identical to the last cent.
Our housing shortage is a perfect example of how
ability to control prices interferes with the ability of private
enterprise to fill the needs of the community and provide or
309
ployment for capital and Inbor.
On the other hand we have some lines of business, large
and small, which are genuinely competitive. Often these com-
petitive industries must buy their basic products from monopolistic
industry, thus losing, and causing the public to lose, a large
part of the benefit of their own competitive policy. Further-
more, in times of recession, the practices of monopolistic
industries make it difficult for business or agriculture which
is competitive and which does not curtail production below normal
needs, to find a market for its goods even at reduced prices.
For at such times a large number of customers of agriculture
and competitive industry are being thrown out of worl: by those
non-competitive industrion which choose to hold their prices
rather than to move their goods and to employ their workers.
If private entexprise left to its own devicos becomes
half-regimented and half-compotitive, half-siave and half-free,
as it is today, it obvious cannot adjust itself to meet the
needs and the demands of the country.
Most complaints for violations of the anti-trust laws
zrc made by business men against other business mon. Even the
most monopolistic business man disapproves of all monopolies but
his own. We may smile at this as boing just an example of human
nature, but we cannot laugh away the fact that the combined effect
of the monopolistic controls which onch business group innoses
for Its own benefit, incvitably destroys the buying power of the
nation as a whole,
IV. Competition Does Not Mean Exploitation.
Competition, of course, like all other good things,
can be carried to excess, Competition should not extend to
fields where it has domonstrably bad social and economic con-
sequences. The exploitation of child labor, the chisoling of
workers' wages, the stretolding of workers' hours, are not
necessary, fair or proper mothods of competition. I have com-
sistently urgod"a federal wago and hours bill to take the
minimum decencies of lifo for the working man and woman out of
the field of compotition.
It is of course necossary to operate the competitive
system of free enterprise intelligently. In sauging the market
for their wares businessmen, like the farmors, should be given
all possible information by government and by their own associa-
tions so that they may act with knowledge and not on impulse.
Serious problems of temporary overproduction can and should be
avoided by disseminating information that will discourage the
production of more goods than the current markets can possibly
absorb or the accumulation of dangerously large inventories for
which there is no obvious need.
It is, of course, necessary to encourage rises in the
level of those competitive prices, such as agricultural prices,
which must rise to put OUT price stricture into more workable
balance and make the debt burden nore tolerable. Many such com-
petitive prices are now too low.
Regraded
6 # #
310
It may at times be necessary to give special treat-
ment to chronically sick industries which have deteriorated too
far for natural revival, especially those which have a public
or quasi-public character.
But generally over the field of industry and finance
we must revive and strengthen competition if we wish to preserve
and make workable our traditional system of free private enter-
prise.
The justification of private profit is private risk.
We cannot safely make America safe for the businessman who does
not want to take the burdens and risks of being a businessman.
V. The Choice Before Us.
Examination of methods of conducting and controlling
private enterprise which keep it from furnishing jobs or in-
come or opportunity for one-third of the population is long
overdue on the part of those who sincerely vant to preserve the
system of private enterprise for profit.
No people, least of all a democratic people, will be
content to go without work or to accept some standard of living
which obviously and woefully falls short of their capacity to
produce. No people, least of all a people with our traditions
of personal liberty, will endure the slow erosion of opportunity
for the common man, the oppressive sense of helplessness under
the domination of B. fow, which are overshadowing our whole
sconomic life,
A discerning magazine of business nas editorially
pointed out that big business collectivium in industry compels
an ultimate collectivism in government.
The power of a few to manage the economic life of
the nation mist be diffused among the many or be transferred
to the public and its democratically responsible government.
If prices are to be managed and administered, if the nation's
business is to be allotted by plan and not by competition, that
power should not be vested in any private group or cartel, how-
ever benevolent its professions profess to be.
Those people, in and out of the halle of government,
who encourage the growing restriction of competition either by
active efforts or by passive resistance to sincere attempts to
change the trend, are shouldering a terrific responsibility.
Consciously, or unconsciously, they are working for contralized
business and financial control. Consciously or unconsclously,
they are therefore either working for control of the government
itself by business and finance or the other alternative -- 8
growing concentration of public power in the government to cope
with such concentration of private power.
The enforcement of free competition in the least
regulation business can aspect.
Regraded
VI. A Program.
The traditional approach to the problems I have discussed
311
has been through the anti-trust laws. That approach we do not
propose to abandon. On the contrary, although WO must recognize
the inadequacies of the existing laws, We seek to enforco them 30
that the public shall not be deprived of such protection 18 they
afford. To enforce them properly requires thorough investigation
not only to discover such violations us may exist but to avoid hit
and miss prosecutions harmful to business and government aliko.
To provide for the proper and fair enforcement of the cristing unti-
trust laws I shall submit, through the budgot, recommendations for e
deficiency appropriation of $200,000 for the Department of Justice.
But the existing unti-trust 1 IWS :/ro inadequoto -- most
importantly because of now Financial economic conditions with which
they are powerless to dope.
The Sherman Act was passed neirly forty years ago, The
Clayton and Federal Trade Commission Acts were passed over twenty
years ago. We have had considerable experience under those nots,
In the meantime We have had a chance to observe the proctical opora-
tion of lorgo-soale industry und to learn many things about the
competitive system which we did not know in those duys.
We have witnessed the merging-out of effectivo competition
in many fields of enterprise, We have learned that the so-called
competitive system works differently in an industry where there are
many independent units, from the way it works in an industry where
B
few large producers dominite the market.
We have niso learned that a realistic system of business
regulation has to reach more than consciously immoral acts.
The community is interested in economic results. It must be
protected from economic 08 well as moral wrongs. The must find
practical controls over blind oconomic forces 0.5 well us over
blindly solfish mun.
Government call dent and should dout with blindly selfish
mon. But that is El comperatively smill part -- the ensier part --
of our problem. The larger, more important and more difficult
part of our problem is to dod with men who ore not selfish and
who are good citizens, but who cunnot sen the social and economic
consequences of thoir actions in a modern economically inter-
dependent community. They fail to grasp the significance of some
of our most vital social and economic problems because they see
them only in the light of thoir own personal experience und not in
perspective with the experience of other non und other industries.
They, therefore, fail to seu these problems for the nation as n
whole.
To meet the situation I have described, there should be a
thorough study of the concentration of economic power in American
industry and the effect of that concentration upon the decline
of competition. There should be an examination of the exist-
ing price system and the price policies of industry to determine
their effect upon the general level of trudo, upon employm nt,
upon long-term profits und upon consumption. The study should
not be confined to the traditional anti-trust field. The
effects of tax, patent and other government policios cannot be
ignored.
The staily should De comprehensive and adequately
financed. 1 recommend in appropriation of not less than $600,000
3/2
for the conduct 05 such comprehensive study by the Federal trade
Commission, the Department of Justice, the Securities and Exchange
Commission, and such other agencies of government as have special
experience in various phases of the inquiry.
I enumerate some of the Items that should be embraced
in the proposed study. The items are not intended to be all in-
clusive. One or two of the items, such as bank holding companies
and investment trusts, have already been the subject of special
study, and legislation concerning these need not be delayed.
(1) Improvement of Anti-Trust Procedure. A revision of
the existing anti-trust laws should make them succeptible of
practical enforcement by casting upon those charged with violations
the burden of proving facts peculiarly within their knowledge.
Froof by the Government of identical bide, uniform price increases,
price leadership, higher domestic than export prices, or other
specified price rigidities might be accepted as prima facio evi-
dence of unlawful actions.
The Department of Justice und the Federal Trade Commis-
sion should be given more adequate and offective Lower to investi-
gate whenever there is reason to believe that conditions exist or
practices prevail which violate the provisions or defeat the
objectives of the anti-trust laws. If investigation reveals
border-line cases where legitimate cooperative efforts to eliminate
socially and economically hurmful methods of competition in
particular industries are thwarted by fear of possible technical
violations of the anti-trust Iews, remedial legislation should be
considered,
As B. really effective deterrent to persone) wrong-doing,
I would suggest that where a corporation is enjoined from violating
the law, the court might be empowered to enjoin the corporation
for " specified period of time from giving any remunerative employ-
ment or any official position to any person who nus been found to
bear - responsibility for the wrongful corporate action.
As EL further deterrent to corporate wrong-doing the
Government might well be authorized to withhold government purchases
from companies guilty of unfair or monopolistic practice.
(2) Worgers and interlocking relationship. More rigió
scrutiny through the Federal Trade Commission and the Securities
and Exchange Commission of corporate mergers, consolidations and
acquisitions than that now provided by the Clayton Act to provent
their consummation when not clearly in the public interest; more
effective methods for breaking wp interlocking relationships and
like devices for bestowing business by Payor.
(3) Financial controls. The operations of financial
institutions should be directed to serve the interests of independent
business and restricted against abuses which promote concentrations
of power over American industry.
(a) Investment trusts, Investment trusts should
be brought under strict control to insure their opera-
tions in the interests of their investors rather than
their managers. The Securities and Exchange Commission
is to make a report to Congress on the results of B
comprehensive study of investment trusta and their
operations which it has carried on for nearly two years.
The investment trust, like the holding company, puts
huge aggregations of the capital of the public at the
direction of a few managers. Unless properly restricted,
it has potentialities of abuse second only to the holding
company as a device for the further centralization of
control over American industry and American finance.
Regraded Uclassified
The tremendous invostment funds controlled by
our Argat insurance commanies have n certein kinship to
313
investment trusts. T) tigt these commanies invest NS
trusteas the NOV of -lions of our people. The Jecuri-
tiee and Excenses Commission should to subhorized to make an
investigat'on of the fucts relating to these investments
with particular relation to their use no nn instrument of
economic power.
(b) Bunk dolding Compunies.
It. to w.rdly necessury to point out the gront
economic powe that might be wislded by 13 group which may
succeed in soquiring domination over banking resources in any
considerable area or the country. That power becomes particu-
larly dangorous when it is excrcised from a distance and
notably BO when effective control is maintained without the
responsibilities of complete ownership.
is ware scon the multiplied evils which have urisen
from the holding company systom in the caso of public utili-
tles, where a small minority ownership has been able to
dominate 11 for-flung system.
We do not want those ovils repeated In the banking
field, und We should take stups now to see that they are not.
It 10 not 11 sufficient assurance against the future
to any that no grant evil has yet resulted from holding
company operations in this field. The possibilities of great
harm nro inherent in the situation.
I recommend that the Congross annot at this session
legislation that will offectively control the operation of
bank holding commanies; prevent holding companies from acquir-
ing control of any more banks, directly or indirectly; prevent
banks controlled by holding companies from establishing any
more branches; and make it illegn' for 0 holding company, or
any corporation or enterprise in which it is financially
interested, to borrow from or sell securities to a bank in
which it colds stock.
E recommend that this bank legislation make provision
for the gr.ducl separation of banks from holding company con-
trol or ownership, allowing reasonable time for this BC-
complishment - time enough for it to be done in an orderly
manner and without causing inconvenience to communities served
by holding compuny banks.
(4) Trade associations. Supervision and effective publicity
of the activities of trade associations, and a clarification and delinon-
tion of their legitimate sphores of activity which will enable them to
combut unfoir mothods of competition but which will guard against their
interforence with legitimate competitive practicos.
(5) Patent lows. Amendment of the patent laws to prevent
their use to suppross inventions, and to create industrial monopolies.
or course such umendment should not deprive the inventor of his royalty
rights, but generally speaking, future patents might be made evailable
for use by any one upon payment of appropriate royalties. Open patent
pools have voluntarily been put into effect in B. number of important
industries with wholesome results.
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10
(6) Tax correctiven. Tax policies should be devised
to -Ive affirmative encourapement to competitive enterprise.
Attention might be directed to increasing the inter-
corporate dividend tax to discourage holding companies and to
further graduating the corporation income tax according to
sinc. The graduated tax need not bu so high as to make bigness
impracticable, but might bo high enough to make higness
demonstrato ito allogod superior officiency,
We have heard much about the undistributed profits
tree When it was chacted two years ABO, 1ts objective was
known to be closoly related to the problem of concentrated
conceric power and a froo capital market,
Ita purpose was not only to prevent individuals whose
incomes were tarable in the higher curtax brackets from cocaping
personal income taxes by letting their profits be accumilated as
corporate surplus, Its purpose was also to encouraço the dis-
tribution of corporate profits so that the individual recipients
could freely datermine There they would reinvest in B. free
capital market.
It is true that the form of the 1936 box worked a hard-
ship on many of the smaller corporations. Many months cgo I
recommended that these inequities be removed.
But in the process of the removal of inequitios, we
mist not lose sight of original objectives. Obviously the
nation must have como deterrent against special privilegon on-
Joyed by an exceedingly smill group of individuals under the
form of the lows prior to 1936, whether such deterrent take the
form of an undistributed profits tax or some other equally or
moro efficient mothod. And obviously an undistributed profits
tax has a roal valito in working against a further concentration
of economic power and in favor of a fréor capital market.
(7) Burean of Industrial Economics, Creation of e
Bireau of Industrial Beonomics which should be endowed with
adequate powers to supplement and superviso the collection of
industrial statistics by trado nenociations. Such a Burceu
should perform for business non functions sir ilar to those
performed for the famore by the Bureau of Agricultural Economics.
It should disseminate current statistical and other
information regarding market conditions and be in a position to
warn against the dangers of temporary over-production and excessive
inventorios ns well as against the dangors of shortages and
bottleneck conditions and to encourage the maintenance of orderly
markets. It should study trade fluctuations, credit facilities
and other conditions which affect the welfare of the average
business man. It should be able to help small business mon to
koop themselves as well=informed about trado conditions AS their
big compotitors.
No man of good faith will misinterpret these proposals,
They derive from the oldest American traditions, Concentration of
economic power in tho for and the resulting unemployment of labor
prise" democracy. I do not believe that we are so looking in
and capital are incocapable problems for 2. modern "private enter-
because T.O seok to find out how to make that may of living work
stability that we will lose faith in our own way of living just
more effectively.
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315
= ! I
This program should uppoal to the honest common
sense of every independent business man interested primarily
in running his own business at a profit rather than in
controlling the business of other mon.
It is not intended as the beginning of any ill-
considered "trust-busting" activity which lacks proper considers-
tion for economic results.
It is a program to preserve private enterprise for
profit by keeping it free encugh to be uble to utilizo all our
resources of capital and lubor at a profit.
It is a program whose bnsic purpose is to stop the
progress of collectivism in business and turn business back to
the democratic competitive order.
It is a program whose busic thesis is not that the
system of free private enterprise for profit has fulled in this
generation, but that it has not yet been tried.
Once it is realized that business monopoly in America
parulyzes the system of free unterprise on which it is grafted,
and is 18 futal to those who minipulate it 18 to the people who
suffer beneath its impositions, action by the government to
eliminate these artificial restraints will be welcomed by
industry throughout the nation.
For idle factories and idle workers profit no man.
FRANKLIN D. ROOSEVELT
The White House,
April 29, 1938.
316
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE April 30, 1938.
To
Secretary Morgenthau
FROM
A. Lochhead
356
(1) As there 18 no pouch being sent from the White
House to the President before Tuesday, I have requested the
White House to send this message by wirelees to the President
in secret code.
(2) Dr. Feis informs me that they have not as yet
received information from London as to the conversations held
by the British and French. The London Embassy has advised the
State Department that they are refraining from cabling them
until they receive complete and authoritative news of these
conversations, as they prefer not to send cables which would
contain merely rumors or conjectures. Dr. Feis states that
they expect a cable on Monday containing authoritative informa-
tion and has promised to let you have whatever they receive
immediately.
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317
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embasey, London, England
DATE: April 29, 1938, 9 p.m.
NO.: 356
STRICTLY CONFIDENTIAL FOR THE SECRETARY OF THE TREASURY
FROM BUTTERWORTH.
British Treasury sent for me this afternoon to give
me the following information to be passed on to you. Bonnet
called to see the Chancellor of the Exchequer this morning
and put forward on behalf of the French Government four ex-
ploratory suggestions:
One. As to whether the British Government would come
to the assi stance of France by means of the British equal-
ization fund buying and holding france. Phillips said that
the answer had been to point out that any such action would
be contrary to the provisions under which Parliament had set
up the equalization fund and contrary to the assurances given
by the British Government to Parliament when the fund was
asked for; the fund was set up to iron out fluctuations of
the pound not of the frano.
Two. As to whether the British Government would give
permission for the raising by the French Government of &
short term credit (1.e. for & year or less) from the London
banks. Phillips waid that in answer it had been pointed
out (A) that the Chancellor of the Exchequer had set forth
publicly that no foreign short term credit would be permitted
Regraded Uclassified
318
- a -
for non-commercial purposes; (B) that the London banks were
granting extensive advances to British industry for the pur-
poses of the arms program; (c) that the British Treasury's
advisere (1.e. the Bank of England) felt that the French
Government could not obtain such an accommodation on terms
which would be favorable and would reflect favorably on the
French situation.
Three. As to whether a longer term loan (1.e. from
three to five years) would be subscribed by the London banks
and British public. Phillips said in the answer given it
has been pointed out that it W8.8 contrary to the practice
of English banking for banks to participate in such a venture
but as far as the public issuance was concerned the reply
as given in (o) above applied. However, Phillips went
out of his way to point out to me that the door had not been
completely closed and bolted.
Four. Then Bonnet went on to give 8. brief description
of the prospects of the French Government, and the diffi-
culties of carrying on with things as they are. Bonnet
indicated that within the French Cabinet there were two
schools of thought - One group preferred to seek help along
the lines indicated in the first three questions given above;
Bonnet implied that he himself was a member of this group.
The members of the other group were pressing for a deprec-
iation of the franc to 190-300 in the hope or belief that
French
319
- 3 -
French capital would be induced to return and some of it
quickly in anticipation of franc strengthening. Should
there be such depreciation an undue advantage was not
desired, and when the final rate was fixed, such advantage
would not be sought. I was told by Phillips that this ques-
ti on had been answered somewhat as follows: under the
Tripartite Agreement, even a temporary currency deprecia-
tion was excluded, and Phillips told no that he was skeptical
about any such depreciation proving to be only temporary;
second, Bonnet was told that even taking 8 most liberal
view, the terms of real economic trends held nothing to
justify any such rate.
As for the fourth question, Phillips said that the
Chancellor of the Exchequer had been of two minds. What
the Chancellor would have liked to have done was to say that
until he had consulted the other party to the Tripartite
he could not give an answer. Bonnet on the other hand might
have got the impression that he was giving due consideration
to the merits or demerits of his proposal! In sending you
the above account of the interview with Bonnet, the Chanceller
asked that you be good enough to give him, early next week,
your reactions to the French proposals.
I told Phillips that in reporting the conversation
I had with him and in passing on the request of the Chan-
caller, I did not BOO how I could explain the relevance of
the
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Uclassified
320
- 4 -
the suggestion that you comment on the second and third
proposals, which concern the money and investment markets
in London. With reference to the first proposal, I asked
Phillips did he remember the discussions of last September
in Washington. He immediately recalled that you had then
said that the American stabilization fund would not be
prepared to purchase francs.
It would seem obvious that your views particularly
on the fourth proposal are being sought in order that it
can be determined what action if any can be taken jointly
by the British and American Governments if the French
resort to such depreciation.
The franc opened at 161 1/4 and remained bid throughout
the morning due to the favorable press reports of the trend
of yesterday's Anglo-French conversations. For contrary
reasons it weakened in the afternoon and French control then
began to operate holding the rate around 162 3/4. It is
interesting that the one month's future rate did not move
in during the morning but remained around three and
the three months' around four.
END MESSAGE.
KENNEDY.
EA: LWW
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Jclassified
321
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: April 30, 1938, noon
NO.: 674
FROM COCHRAN.
At eleven o'olock this morning I had & talk with the
Bank of France. The frano in very quiet trading in London
was firm around 162 5/8 to 7/8, and closed at 163 in Paris
last night. There had been no intervention by the French
control. According to my friend, on the French official
visit to London the subject of financial assistance was
rather awkwardly suggested from this side but the British
did not take it up.
I had 8. conversation with Couve de Murville of the
Finance Ministry at & quarter of twelve. He told me that
he did not yet have the full story of the London visit.
However it is his understanding that no positive results
came from the advances on financial matters it was expected
would be made by Bonnet.
There is no mention in today's press in Paris of any
financial phase of the visit; this confirms the impression
of bankers with whom I have spoken that there was no direct
accomplishment in this field. Over this weekend French
officials are working on the preparation of financial decrees
which are to be approved/the by Council of Ministers on Monday
and which will be promulgated on Tuesday.
An effort 16 being made by a few Paris journale to
play
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322
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play up Simon's Parliamentary answer indicating constant
contact between British and French authorities within the
framework of the Tripartite, as a helpful assurance of
British interest in the financial situation in France.
WILSON.
03913038
6031
EA: LWW
YOUR
- license
MI -
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