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    "title": "Volume 121, April 26 – April 30, 1938",
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        "Henry Morgenthau, Jr. Papers",
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    "ocrText": "DIARY\nBook 121\nApril 26 - April 30, 1938\nRegraded Uclassified\n- B -\nBook Page\nBank Examinations\nConference; present: HMJr, Taylor, Upham, Gaston, Smythe,\nDavis, MoKee, and Crowley - 4/26/38\nCXXI\n36\na) HMJr describes Crowley's displeasure at\ninclusion of Smythe (Comptroller of Currency\noffice)\n111\nCopy of address by Jones (Reconstruction Finance\nCorporation)\n164\nBusiness Conditions\nEccles' recovery plan left at White House after\nconference between HMJr and Eccles with FDR -\n4/27/38\n148\nDelano memorandum on utilization of national resources:\nHMJr approves - 4/28/38\n206\nProgram, Administrative (Future): FDR's message to\nCongress - 4/29/38\n305\n- C -\nCement\nSee Housing\nChina\nLoan discussed by Chinese Ambassador and Welles -\n4/27/38\n158\nCurrent United States trade with Japan and China:\nreports to end 4/30/38\n188,294\nConference; present: Chinese Ambassador, HMJr, Taylor,\nand Lochhead - 4/28/38\n195\na) HMJr, Taylor, Lochhead, and White confer\n199,227\nb) Memorandum of conversation sent to Welles\n201\nCommodity Credit Corporation\nSee Financing, Government\nCustoms, Bureau of\nLauer smuggling case discussed at 9:30 meeting - 4/27/38\n105\n- D -\nDebts, Foreign\nHungary:\nFeis asks HMJr whether Treasury will not arrange to have\nCongressional hearings - - 4/27/38\n169\n- E -\nEcoles, Marriner 8.\nFor recovery plan, see Business Conditions\nEthiopia\nRecognition of conquest discussed by Chinese Ambassador\nand Welles - 4/27/38\n158\nRegraded Uclassified\n- F -\nBook Page\nFinancing, Government\nCommodity Credit Corporation offering: Subscription\nbooks closed 4/25/38\nCXXI\n1\na) HMJr congratulates Jones - 4/26/38\n29\nb) Subscription figures, et cetera - 4/29/38\n238\nLimitations on bond issues: request for legislation:\nWhite memorandum suggesting postponement - 4/26/38\n27\na) Bell statement at Harrison conference - 4/27/38.\n142\nRate on obligations of United States Housing Authority\nwhich Treasury will purchase on April 28th in the\namount of $1 million to be à of 1% - 4/27/38\n141\nFrance\nSee Stabilization\nFranklin, P.A.S.\nSee Panama Railway Company\n- G -\nGovernment Bond Market\nSee Panama Railway Company\nGreat Britain\nArmament expenditures: report by Butterworth - 4/26/38\n2\nIncome tax increase discussed by Butterworth - 4/27/38\n81\nBritish and American tax comparisons: Shoup memorandum -\n4/27/38\n146\n- H -\nHousing\nCement: HMJr confers with Peoples concerning new bids - -\n4/28/38\n215\nHungary\nSee Debts, Foreign\n- J -\nJapan\nCurrent United States trade with Japan and China:\nreports to end 4/30/38\n188,294\n- K -\nKrock, Arthur (New York Times)\nArticle in New York Times dated 4/29/38 discussed with\nGreenbaum\n239,249,278\nRegraded Uclassified\n- L -\nBook Page\nLauer, Edgar J. (Justice)\nSee Customs, Bureau of\nLiquor\nSee Taxation\n- N -\nNational Resources\nSee Business Conditions\n- P -\nPanama Railway Company\nHMJr confers further with P.A.S. Franklin - 4/26/38.\nCXXI\n52\nHMJr also consults Louis Johnson (War Department) -\n4/26/38\n54,58\nHMJr discusses situation with FDR - 4/26/38\n69\nDiscussion at 9:30 meeting - - 4/27/38\n90\nHMJr-Woodring conversation - 4/27/38\n93\nConference with Rossbottom and Smith; Bell present -\n4/27/38\n118\na) HMJr asks Burgess for details on sale\n115\nb) Bell memorandum on conference - 4/27/38\n139\nProgram, Administrative (Future)\nFDR's message to Congress - 4/29/38\n305\n- R -\nRevenue Revision\nLiquor: Rosensteel and Sack, representatives of Schenley's,\nconfer with HMJr, requesting that Treasury propose the\nimposition of a larger increase in lieu of the 254 a\ngallon increase in taxes on distilled spirits now\nincluded in proposed tax bill - 4/26/38\n26\na) HMJr asks Jones to see representatives concerning\nloan for $20 million - 4/26/38\n34\nBritish and American tax comparisons: Shoup memorandum -\n4/27/38\n146,220\nCopy of statement of objections to the corporation tax\nand capital gains tax to be used by FDR taken to\nWhite House by HMJr and Magill - 4/29/38\n287\nRhinebeck, New York, Post Office\nPeoples tells HMJr stone from old Kip-Beekman House and\nvarious old fence walls is to be used for facing building\n4/26/38\n79 A-B\nRiefler, \"infield W.\nLetter of resignation as adviser of Treasury and\nacknowledgment - 4/29/38\n266\na) Riefler notes on recent fiscal and monetary\nprogram\n270\nRegraded Uclassified\n- S -\nBook Page\nSchenley Distillers Corporation\nSee Revenue Revision\nSelf-Help\nHMJr consults Woodrum concerning bill making additional\nfunds available - 4/28/38\nCXXI 171\na) HMJr-Aubrey Williams conversation\n179,193\nSilver\nHMJr announces revocation of certain orders, regulations,\net cetera, as of 4/28/38\n205\nStabilization\nFrance:\nExchange market movements resume - 4/26/38\n5,75,84,\n86,235,264\nBullitt-HMJr conference on United States attitude\ntoward French franc - 4/26/38\n78\nBonnet conversation with Chancellor of Exchequer\nreported on by Butterworth - 4/29/38\n317\nIf # If Cochran\n321\n- T - -\nTaxation\nSee Revenue Revision\nTransportation, Department of\nHMJr consults Jones about possibilities - 4/27/38\n136\n- U -\nUnemployment Relief\nWorks Progress Administration employment for week ending\n4/23/38\n168\nUnited States Housing Authority\nSee Financing, Government\n- V -\nViner, Jacob\nLetter of resignation as adviser of Treasury and\nacknowledgment - 4/29/38\n274\n- W -\nWar Debts\nSee Debts, Foreign\nWorks Progress Administration\nSee Unemployment Relief\n1\nTREASURY DEPARTMENT\nWashington\nFOR RELEASE, MORNING NEWSPAPERS,\nPross Service\nTuesday, April 26, 1938.\nNo. 13-10\n4-25-38\nSecretary of the Treasury Morgenthau announced last night that the sub-\nscription books for the current offering of 3/4 percent notes of Sorios C of\nthe Commodity Credit Corporation closed at the close of businoss Monday, April 25,\nfor the receipt of cash subscriptions.\nCash subscriptions placed in the nail before 12 o'clock nidnight, Monday,\nApril 25, will be considered as having boon entored bofore the close of the sub-\nscription books.\nThe subscription books will close at the close of business Wednesday,\nApril 27, for the receipt of subscriptions in payment of which Series B Collateral\nTrust Notos of the Commodity Credit Corporation, naturing May 2, 1938, are ton-\ndored. Any such subscriptions placed in the mail before 12 o'clock nidnight,\nWednesday, April 27, will be considered as having been entered before the close of\nthe subscription books.\nAnnouncement of the amount of cash subscriptions and the basis of allotment\nwill probably be nade on Friday, April 29.\no0o\nRegraded Uclassified\n2\nREB\nPLAIN\nLondon\nDated April 26, 1938\nREC'd 4:15 P. m.\nSecretary of State,\nWashington.\nRUSH\n341, April 26, 8 P. m.\nFOR TREASURY FROM BUTTERWORTH:\nArmament Expenditure hung like a pall over the\nHouse of Commons throughout the Chancellor of the\nExchequer's budget speech this afternoon.\nWar preparations will require 343 million pounds\nof which 253 million pounds will bE raised by taxation\nand 90 millions by borrowing under the defence loans act\n(my 58, February 11, 1937). The total Expenditure of\n1003 million pounds for the fiscal year which began\nApril 1st is larger by 81 million pounds than last year.\nSince income tax is collected a year late and surtax\ntwo years late the natural Expansion in revenue will\nmake up 51 of the required 81 million. Simon decided to\nobtain the remaining 30 million by doubling the duty on\ntea, which hits All sections of the population\nparticularly\nRegraded Uclassified\n3\nREB\n2-#341, From London, Apr.26,Sp.m.\nparticularly the poor; increasing the already high\nduties on light oils and gasoline; and raising the\nincome tax rate from 5 shillings to 5 shillings and\nsixpence in the pound, a rate Equivalent to 27-1/2%.\nHOWEVER, industry (repeat industry) 18 to bE virtually\nunaffected by the rise through an offsetting adjustment\nof the wear and tear allowance. Likewise the tax rate\non the first taxable pounds 135 will remain the same\nthus leaving unaffected, for Example, a single man with\nan income up to pounds 290 and 8. married man with one\nchild with an income up to pounds 460, In announcing\nhis decision to increase taxation Simon emphasized that\nthe total armament Expenditure for the five-year period\nwill bE \"a good deal more\" than anticipated; that more\nsupplementary estimates of Expenditure for the fighting\nSERVICES will have to bE made during the year; that the\npeak of armament Expenditure will not come until \"next\nyear or perhaps the year after\"; and that having regard\nfor the future hE \"would not bE doing his duty by taking\nthe easier course\" of borrowing instead of increasing\ntaxation. Incidentally I had a word with Montagu Norman\nafter the speech who said that he was \"devilish glad\nthat\nRegraded Uclassified\n4\nREB\n3-#341, From London, Apr.26,8p.m.\nthat Simon had done the right thing and taxed instead\nof borrowed\". However, the House of Commons did not\nsem altogether to share the Governor's sense of grim\nsatisfaction. Simon gave the impression of carefully\navoiding any prognostications as to the course of\nEconomic activity and his Estimates of revenue returns\nfrom such sources as stamp duties pre-suppose a\nmaintenance of the present lEVEL. Simon repeated the\nformula used in recent budget speeches that the Equali-\nzation fund continues to show a profit.\"\nSimon also revealed that for war storage purposes\npurchases of wheat, sugar and whale-oil have already been\nmade. The quantities were not revealed but 10 million\npounds is to bE voted for these and \"other purchases\nduring the year where secrecy is less Essential\" and\nfor certain other measures. Incidentally the Governor\nof the Bank of England also commented caustically on\nthe recent depreciation of the franc and Expressed\nindignation at \"this ramp\".\nKENNEDY\nCSB\nRegraded Uclassified\n5\nPARTIAL PARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Imbassy, paris, France\nDATE: April 26, 1938, 5 p.m.\nM\nNO.: 653\nRUSH\nFROM COCHRAN.\nReference my 651, April 26, noon.\nMarket continued to take a good amount of sterling\nfrom the control with latter very gradually strengthening\nthe franc rate (160.20 at 5:00 p.m.). Forward franc more\noffered. French rentes and shares irregular. Balga\nstronger with Guaranty trying to acquire the last three\nmillion required for the fifty million belga French Rail-\nway repayment (see my 636, April 23, 4 p.m.). Swiss\nbuying sterling, presumably to use on Argentine loan\ntransaction (see my 636, April 22, 4 p.m.)\nAt noon today I had a brief talk with Marchandeau\nand Rueff. This afternoon by telephone I also spoke with\nRueff again. Both of these officials state that their\nobjectives are \"to improve economic activity and to\nachieve Treasury equilibrium\". However, at the present\ntime, they can give no details to supplement the general\nlines of the communiques which they have already given\nout. Continuous sessions of governmental officials\ncharged with working out those details are held, at\nwhich Marchandeau and Rueff are present, and they have\nnot\nRegraded Uclassified\n6\n- 2 -\nnot completed their task. Today they are laboring under\nvery heavy pressure preparing for the departure on Wed-\nnesday afternoon of Daladier and Bonnet on their visit\nto London.\nRe the last sentence of my telegram No. 652 of\nApril 26, I repeat my belief that the French Government\nwill try to get financial assistance (?) through the\nequalization fund (reference: my 645 of April\nthrough financing by London of French purchases of war\nmaterials to be repaid over a certain period of time.\nIt is not to be expected that any further announcement\nor even any final conclusion of the general plans of the\nGovernment will be forthcoming until the Government sees\nthe accomplishments of the London visit.\nWilson.\n07V19030\n6881 US 89A\nEA:LWW\nadam - -\nRegraded Uclassified\n#: 7\nPARTIAL paraphrase OF TELEGRAM RECEIVED\nFROM: American paris, France\nDATE: April 26, 1938, a p.m.\nNO.: 653\nRUSH\nFROM OCCHRAN.\nReference my 851, April 25, noon.\nMarket continued to take a good amount of sterling\nfrom the control with latter very gradually strengthening\nthe frane rate (160.20 at 5:00 p.m.). Forward franc more\noffered. French rentes and shares irregular. Belga\nstronger with Quaranty trying to acquire the last three\nmillion required for the fifty million belga French Rail-\nway repayment (see my 636, April 23, 4 p.m.). Swiss\nbuying sterling, presumably to use on Argentine loan\ntransaction (see my 636, April 22, 4 p.m.)\nAt noon today I had a brief talk with Marchandeau\nand Rueff. This afternoon by telephone I also spoke with\nRueff again. Both of these officials state that their\nobjectives are \"to improve economic activity and to\nachieve Treasury equilibrium\". Newever, at the present\ntime, they can give no details to supplement the general\nlines of the communiques which they have already given\nout. Continuous sessions of governmental officials\ncharged with working out those details are held, at\nwhich Marchandeau and Rueff are present, and they have\nnot\nRegraded Uclassified\nDec\n8\n- 2 -\nnot completed their task. Today they are laboring under\nvery heavy pressure preparing for the departure on Wed-\nneeday afternoon of Daladier and Bonnet on their visit\nto London.\nRe the last sentence of my telegram No. 652 of\nApril 26, I repeat my belief that the French Government\nwill try to get financial assistance (1) through the\nequalization fund (reference: my 645 of April 25) or\nthrough financing by London of French purchases of war\nmaterials to be repaid over a certain period of time.\nIt is not to be expected that any further announcement\nor even any final conclusion of the general plans of the\nGovernment will be forthooming until the Government ....\nthe accomplishments of the London visit.\nWilson.\nBECEINED\n8338 as ЯЧА\nEA:LBW\nTHENTRA930 YRUSA397\ninstruct adt to solil0\n1 1 18 1 I\nRegraded Uclassified\n9\nGROUP MEETING\nApril 26, 1938.\n9245 A. M.\nPresent:\nMr. Oliphant\nMr. Gaston\nMr. White\nMr. Haas\nMr. Taylor\nMr. Gibbons\nMr. Lochhead\nMr. Bell\nMr. Upham\nMr. McReynolds\nMrs. Klotz\nH.M.Jr:\nGood morning, stranger.\nGibbons:\nAm I a stranger?\nH.M.Jr:\nYou weren't here yesterday.\nGibbons:\nI wasn't here yesterday; I was in New York yesterday.\nH.M.Jr:\nHerman?\nOliphant:\nNothing.\nH.M.Jr:\nGood. Herbert?\nOliphant:\n(Inaudible - something about Mr. Cox.)\nH.M.Jr:\nKeep right on it.\nOliphant:\nMention it every day.\nH.M.Jr:\n(To Mr. Gaston:) Go ahead.\nGaston:\nThe Association of Business Paper Correspondents\nhere are very insistent that they have a press\nconference with somebody on the subject of cement\nand the rejected cement bids. They either want\na conference or they want an outright refusal to\nhold a conference. I don't believe there is much\nwe can tell them about the cement situation.\nRegraded Uclassified\n- 2 -\n10\nH.M.Jr:\nWell, I simply would tell them this: That we're\nin the process - we've just rejected these bids\nand we're in the process of formulating new bids,\nand that there isn't anything to tell - that is\nall.\nGaston:\nThe Iron Age wants to ask a series of questions.\nI haven't seen them yet, but I think what they want\nto know is just what was the reason for rejecting\nthe bids.\nH.M.Jr:\nWell, let Peoples see them.\nGaston:\nYou want to let Peoples hold a conference with\nthem?\nOliphant:\nHold a press conference on the stabilization\nfund - on negotiating that agreement.\nH.M.Jr:\nWell, that's hard. That's hard. What do you\nthink, Herbert?\nGaston:\nI just don't know whether there's anything to tell\nthem or not.\nH.M.Jr:\nThere isn't.\nGaston:\nI don't believe we ought to hold any conference.\nH.M.Jr:\nAll right. Supposing the Iron Age says I'm a\nso-and-so - then what?\nOliphant:\nIt's still Iron Age, speaking for the Steel Institute.\nH.M.Jr:\nI think we'll have to sit it through and hope when\nwe come out we'll come out on the right end.\nMcReynolds: Harry Collins is on his way over here to tell me\nwhat he has - the details - definite information.\nH.M.Jr:\n(Over telephone:) Admiral Peoples, three thirty.\nWhat else, Herbert?\nGaston:\nNothing else. Our bill seems to have been a record\nyesterday on price.\nH.M.Jr:\nYeah. Harry, I was told yesterday by George\nHarrison that one Eccles thinks there is going to\nbe a big flood of gold coming this way. What do\nyou think?\nRegraded Uclassified\n- 3 -\n:\n11\nWhite:\nI think so.\nH.M.Jr:\nYou think so too?\nWhite:\nSometime within the next six months.\nH.M.Jr:\nGive me a memo, please.\nWhite:\nYes sir.\nH.M.Jr:\nHave you any social engagements tonight?\nWhite:\nNo sir.\nH.M.Jr:\nI may work with you on this. Will you keep\nthese (printed sheets) please, until later.\nMrs. Morgenthau's work - and I'll take the\nwork - and if she doesn't I'll have you at\neight thirty. I'd go over your plans for your\norganization.\nWhite:\nSomething that's a little out of the immediate\nresponsibility, but I'm mentioning it in case it\nhasn't been brought to your attention. I under-\nstand you're going forward with some investiga-\ntion of steel prices, and it's come to my atten-\ntion and knowledge, from other sources that\nthere is - although that is a rumor; it's not a\nfact - that there is an arrangement which has\nalready been made between the President and John\nLewis that nothing be done about steel prices\n.....\nH.M.Jr:\nThe President and what?\nWhite:\nJohn Lewis.\nH.M.Jr:\nThat he\nWhite:\nNothing will be done about steel prices - that it\nwas under those conditions that United States\nSteel signed up with the C. I. 0. Now I can't\nverify the facts of that at all; I'm merely\npassing it on as gossip.\nH.M.Jr:\nWell, these committees are working on the stuff,\nand I am perfectly willing, frankly - going to\nlet them slide for the time being - for the next\nten days, because I've got stuff to do that's\nTreasury responsibility, and I when I get & chance\none of these days, I'm going to ask the President\nRegraded Uclassified\n4 -\n12\nif he wants a Price Board and let him appoint\nsomebody to take it. I just haven't got the time\nto do it. I mean, I don't consider it as\nimportant as when we started. Maybe it's much\nmore important for the President to decide if a\nmillion dollars is going to run up the prices -\ngoing to again squeeze off the housing program\nthe way it did last time. I mean, it was our\nown Government in competition which ran the\nprices up so on lumber, that we are partly\nresponsible for squeezing this thing. We are\ngoing to do it all over again. What's the sense\nof running up competition when we're going to be\nin direct competition with people like Stewart\nMcDonald and Nathan Straus. You're going to have\nIckes and others-fooling around with one item.\nWhite:\nIn other words, you're going to shift the item to\na committee?\nH.M.Jr:\nYes, because somebody gave us those figures on\nthe price of lumber - running the price of lumber\nup, and what's the use of fooling around with\nindividual items if you have in mind two big pro-\ngrams developing, which are going to come out in\na headon collision? That's the way I feel. But\nI mean, if those committees are working, let them\nwork - see if we can find a berth for them.\nHaas:\nThey are making pretty good progress.\nH.M.Jr:\nThat's all right. Let them work.\nGeorge?\nHaas:\nI have nothing this morning.\nH.M.Jr:\nGeorge, have you got anybody in your place that\nknows anything about bank examinations?\nHaas:\nAh, the best man I've got is Henry Murphy.\nH.M.Jr:\nWhat does he know about it?\nHaas:\nHe knows something about it\nH.M.Jr:\nWhat?\nHaas:\nWell, he has the general theoretical background of\nbanking; he's worked in a bank and managed the\nportfolio in one of the largest banks in Detroit\nbefore he came down here.\nRegraded Uclassified\n- 5 -\n13\nH.M.Jr:\nThink he could contribute anything on 1t?\nTaylor:\nI think he would be useful\nH.M.Jr:\nThen let him come in at ten thirty, will you,\nGeorge?\nHaas:\nUh-huh.\nTaylor:\n.....\nparticularly from the standpoint of the\nportfolio standpoint, which they are going to\ndiscuss.\nH.M.Jr:\nAnd George, just a general impression - I thought\nyour weekly business review was more bullish than\nthe material in it justified. That is my\nimpression.\nHaas:\nWell, I think in listing the tables there were\nmore favorable than were unfavorable. The unfavor-\nable - there may be enough to overshadow the\nother one. I think you're right, in reading the\nthing through. That's the difficulty in preparing\na case. I'll look it over again.\nH.M.Jr:\nI just wanted to give you my feeling, for what it's\nworth. I thought it was more bullish than the\nfacts in it justify. Take another look at it, will\nyou?\nHaas:\nYes.\nH.M.Jr:\nWayne?\nTaylor:\nThis is the suggested agenda Mr. Upham and I\nprepared. There are really only two things they\nconcentrate on. They want to talk about it for\nany length of time, you may get some\n(inaudible)\n:\n.... other aspects.\nH.M.Jr:\n(Over telephone:) Have Berkshire here at ten\nfifteen. Berkshire.\nAll right. We'll just kind of ease our way into\nit.\n(Side conversation with Mrs. Klotz.)\n(Nods to Mr. Gibbons.)\nRegraded Uclassified\n14\n- 6 -\nGibbons:\nDid McIntyre speak to you about Senator Hughes of\nDelaware wanting to change the Collector of\nInternal Revenue? He finally went in to see the\nPresident, after talking to Jim Farley and Jim\nHalloway. Mac (McIntyre) wanted me to talk to\nyou about it. I'm going up to see the old Senator.\nThe President, I suppose, told him, \"I'll go along\nwith you.\nH.M.Jr:\nCustoms?\nGibbons:\nNo, Collector of Internal Revenue. He's been\ntalking about it for a year. I told him just\nto send in another name and if the President\nwanted to appoint him\nBut we can't remove\nhim unless we prefer charges.\nH.M.Jr:\nEverything else all right?\nGibbons:\nDid you see Oliphant's opinion on inviting\nSenator Copeland to go up to Alaska on one of\nour Coast Guard boats?\nH.M.Jr:\nI haven't seen it.\nGibbons:\nWe're justified in doing it.\nH.M.Jr:\nWe've already done it.\nGibbons:\nWell, the invitation is to be signed by you.\nH.M.Jr:\nIt's legal?\nGibbons:\nSo Herman says.\nMcReynolds: I sent it along. I guess Miss Chauncey's got it.\nTaylor:\nDid you give him a one-way ticket?\nOliphant:\nLet him down - we let him down.\nH.M.Jr:\nWhat are you going to do, feed him to the white\nbears up there?\nBell:\nHe'll have to find out about red salmon so next\nyear when he speaks in the Senate he can talk more\ngenerally about it.\nH.M.Jr:\n0. K. All right. (Nods to Mr. Lochhead.)\nRegraded Uclassified\n- 7 -\n15\nLochhead:\nThe french franc continues to be steady at 3.11 -\nworking on both sides - sold in the markets, but\nnot very much activity. Sir John Simon is making\nhis budget speech this morning. It's going to\ntake about two hours, they say, and don't know\njust how they're going to get the money. With\nregard to gold, Japan is shipping another five\nmillion dollars in gold, shipment to start\nimmediately - makes about thirty-five million\ndollars total, they have shipped.\nH.M.Jr:\n(Nods to Mr. Bell.)\nBell:\nI again want to bring to your attention the\nlimitations on the kind of public debt you can\nissue. We can issue March 31, a billion seven\nhundred thirty-one million dollars of bonds, and\ntaking out about four hundred million to assign\nthe United States Savings bonds between now and\nnext March will leave you a billion three hundred\nmillion dollars of additional bonds that you can\nissue between now and next Congress, and you have\nup to December 15, a billion seven hundred million\ndollars of notes maturing, and you may want as\nmuch as a billion dollars in cash, so that all you\ncan put of that total in bonds is a billion three.\nH.M.Jr:\nWhat is the total of bonds?\nBell:\nYou've got plenty of note issues.\nH.M.Jr:\nHow much are the total bonds?\nBell:\nTwenty-three billion dollars outstanding, and you\nhave an authority of twenty-five billion dollars -\ntwenty-three billion, two hundred sixty-three\nH.M.Jr:\nHow much?\nBell:\nTwenty-five billion dollars. Then you have\nauthority of twenty billion of notes, certificates,\nand bills - six billion balance left on that.\nH.M.Jr:\nHow much did I ask additional, five or ten?\nBell:\nHow much should you ask for? Last time I brought\nit up you said you didn't want to ask this Congress\nfor anything. You thought it would scare everybody.\nRegraded Uclassified\n- 8 -\n16\nI think if you're going to ask for additional\nauthority, the thing to do is to combine the bonds\nand notes, making a forty-five billion total,\nrather than separating the bonds and notes. I\nthink if you ask for an additional five billion,\nwhich will run it up to fifty, everybody will say\nyou're anticipating the debt to go to fifty.\nH.M.Jr:\nWill we have to fix up a bill?\nOliphant:\nYes, a bill.\nWhite:\nDoes that include\nBell:\nThere are six billion dollars of additional notes\nthat can be issued, and I've taken off, say, oh,\neight hundred million dollars between now and\nMarch would give you a total of five billion\nthree hundred million dollars of additional note\nissues - eight hundred million dollars covering\nthe unemployment compensation and old age reserve.\nH.M.Jr:\nWell, Dan, fix me up a note and statement; I'll\ngo up on the Hill. You - have you got a statement\nthere?\nBell:\nNo. I'll have to make up something.\nH.M.Jr:\nWell, fix it up. That ought to be very easy.\nOliphant:\nWe can have it by tomorrow.\nH.M.Jr:\nWell, fix it up and Dan and I will go up on the\nHill and I'll see.\nBell:\nIt's Ways and Means and Senate Finance Committees.\nH.M.Jr:\nWell, I'd better see. That's Pat Harrison, isn't\nit?\nBell:\nYeah - and Doughton are the leaders.\nH.M.Jr:\nThose two.\nBell:\nAnd if you want to add any other leaders, I don't\nknow.\nOliphant:\nIt does go to Senate Finance?\nRegraded Uclassified\n1\n- 9 -\n17\nBell:\nYes.\nH.M.Jr:\nWell, we could ask for five minutes to go up to\nthe meeting on this tax bill tomorrow if we want\nto get something through. When they meet tomorrow\nmorning at 9:30 \"would they see us for five\nminutes?\"\nBell:\nYou mean the full Committee?\nOliphant:\nThat would be the Conference Committee.\nMcReynolds: Of both Houses?\nH.M.Jr:\nOf both Houses.\nBell:\nWell, that is just the Conference Committee.\nH.M.Jr:\nWell, you see, both the Republican and Democratic\nleaders of the Senate and House is the easiest\nway for us. With Pat Harrison and Doughton it is\nall right, and explain it to the Republican\nmembers and they'll shoot it through. Anybody got\na better way of handling it?\nTaylor:\nI think the question of whether that Conference\nCommittee can talk about anything except\n.....\nH.M.Jr:\nWell, I'll ask them. I'll ask Magill to ask\nthem, 1f you'll be ready tomorrow morning. Can\nyou be ready?\nOliphant:\nOh yes.\nH.M.Jr:\nI'll ask Harrison. Who's Chairman of that Committee,\nHarrison or Doughton?\nBell:\nI don't know.\nH.M.Jr:\nI'll find out.\nBell:\nI should think the first conference might take place\nbetween you and Doughton and Harrison.\nH.M.Jr:\nThat's what I'll ask them. I'll ask them, but it\nought to be done fast.\nBell:\nYes. Well, any time, just so we get it through\nbefore the end of the session.\nRegraded Uclassified\n18\n- 10 -\nH.M.Jr:\nWell, you haven't got much time. You have it\nready today and I'll ask them.\nBell:\nAll right.\nH.M.Jr:\nBut I want a memorandum explaining it.\nBell:\nAll right.\nH.M.Jr:\n0. K.?\nBell:\nIt's all I have.\nH.M.Jr:\nGlad you brought it up.\n(Nods to Mr. Upham.)\nUpham:\nThere's nothing. Smythe seems to be fully in\nover there\n....\nH.M.Jr:\nIs Smythe\n.....\nUpham:\n.... and working full steam, yes.\nH.M.Jr:\nMac?\nMcReynolds: (Nods \"No.\")\nH.M.Jr:\nAny after thoughts?\nOliphant:\nI probably should have mentioned that Lee Liquor\nbill that in effect puts us back in the prohibi-\ntion\n.....\nH.M.Jr:\nI thought that was called the Oliphant bill.\nOliphant:\nThat was the Oliphant opinion. Lee put it in the\nSenate tax bill and Magill was going to undertake\nto get it out, but apparently it's going out on\nthe understanding that we pass a separate bill.\nH.M.Jr:\nWhat did you rule that's got them all upset?\nOliphant:\nJust what it said.\nH.M.Jr:\nWhat's that?\nOliphant:\nThat we wouldn't undertake to go in\n.....\nRegraded Uclassified\n- 11 -\n19\nH.M.Jr:\nExcuse me.\n(Over telephone:) Hello. Hello Randolph. What's\nworrying you? Go ahead. Oh. Ohhhhhh. Well,\nthat's a horse of & different color - entirely.\nYeah. Yeah. Yeah. Yeah, and ask them to make\nbids on these bonds at one thirty.\n(Remaining portion of conversation with Mr.\nBurgess at 10:05 a. m. attached hereto.)\n20\nApril 26, 1938.\n10:05 a.m.\nW. R.\nBurgess:\nHello, Henry.\nH.M.Jr:\nGood morning.\nB:\nI think we've finally got this - this bond sale on\nFriday straightened out.\nH.M.Jr:\nGo ahead.\nB:\nWell, I'm embarrassed, for one thing, because I find\none of these fellows reported the name to me erroneously.\nH.M.Jr:\nOh.\nB:\nIt was the Panama Railway Company.\nH.M.Jr:\nOh!\nB:\nJust as bad, but it's ....\nH.M.Jr:\nWell, that's a horse of a different color.\nB:\nYes, although it's - it's wholly owned by the\nGovernment.\nH.M.Jr:\nEntirely. Yes.\nB:\nWell, I'm terribly sorry about getting the name\nwrong.\nH.M.Jr:\nYes.\nB:\nBut I relied on - on one of the most reliable dealers,\nbut he got it from - from a security house.\nH.M.Jr:\nYes.\nB:\nIn transit the name got twisted.\nH.M.Jr:\nYes.\nB:\nNow, what happened was that about lunch time they called\nup a number of dealers. It was at least four - and asked\nthem to make bids on these bonds at 1:30.\nH.M.Jr:\nYes.\n21\n-2-\nB:\nAnd then they got the various bids of those who -\nwho bid; some of the dealers wouldn't bid under\nthose circumstances. Of course, it went throughout\nthe country, these fellows trying to get firm - firm\nbids from their customers, so that they could bid\nfor the block with the steamship - with the railroad\ncompany. And then quite late, after getting firm bids\nfor 15 or 20 minutes, and so on - after 40 minutes or\nso, these fellows called the dealers back and - and\ntold one dealer that he'd bought them; well, he said\nhe hadn't bought them, because he only gave them to\nhim firm for 15 minutes.\nH.M.Jr:\nI see.\nB:\nWell, then they shopped around and kept on the wire\nand - and made a pretty terrible mess of it for a\ncouple of hours, and finally sold all the direct\nGovernments to Childs, and the Federal Land Bank\nbonds to Solomon. So ....\nH.M.Jr:\nHow many directs did they have?\nB:\nThey had - just a minute, I've got the whole list\nhere - six, seven, eight, nine, - about nine and a\nhalf million.\nH.M.Jr:\nNine and a half\n....\nB:\nYes.\nH.M.Jr:\n... Governments.\nB:\nAnd about one and a half of Federal Land Banks.\nH.M.Jr:\nYes.\nB:\nNow, I've got their statement.\nH.M.Jr:\nYes.\nB:\nThey were listed in their statement, evidently, under -\nunder two headings: a fund for the construction of\nvessels, a reserve fund; and a fund for taking care of\ndepreciation and depletion and worn-out equipment ...\nH.M.Jr:\nYes.\n22\n-3-\nB:\n... and so on. And evidently in those two funds they\nhad these Governments. Some of these actual ones are\nlisted in Poor's Manual - in Poor's Manual on the thing.\nSo they had the bonds all right, and they have sold\nthem.\nH.M.Jr:\nYes.\nB:\nBut they - they did it like you would work with a\nhacksaw.\nH.M.Jr:\nWell, you don't know who was giving the orders for\nthe Panama Railway?\nB:\nYes. It was Newton, who was the Treasurer, and\nRossbottom, who's the - the Vice President in charge\nof this office.\nH.M.Jr:\nRoss - ?\nB:\nWrigley, the fellow who - the President, is, I under-\nstand, in the Canal Zone.\nH.M.Jr:\nYes, but who was giving the orders?\nB:\nNewton.\nH.M.Jr:\nNewton. N-e-w-t-o-n?\nB:\nYes. Mr. Victor M. Newton is the Treasurer.\nH.M.Jr:\nVictor M.\nB:\nYes.\nH.M.Jr:\nAnd he was giving - he was handling the orders.\nB:\nYes.\nH.M.Jr:\nVictor Newton.\nB:\nNow, also, Rossbottom, the - the first Vice President.\nH.M.Jr:\nYes.\nB:\nThomas H. Rossbottom.\nH.M.Jr:\nYes.\n23\nB:\nWho is evidently his superior, - talked with some\nof the dealers himself.\nH.M.Jr:\nFirst Vice President.\nB:\nYes. Now, I gather that Wrigley, the President,\nis in the Canal Zone ordinarily.\nH.M.Jr:\nWell, this is Army, isn't it?\nB:\nThis is Army, yes. Woodring is on the Board.\nHe's one of the directors.\nH.M.Jr:\nYes. Well, now - well, this gives me a lead, and I'll\ncall up Woodring and tell him what I think.\nB:\nI think that's the - the procedure.\nH.M.Jr:\nYes.\nB:\nI told these dealers I'd protect them individually\nH.M.Jp:\nThat's right.\nB:\n... and I haven't told you any names of dealers.\nH.M.Jr:\nNo, I don't know anything.\nB:\nSo you just got it from the air.\nH.M.Jr:\nThat's right.\nB:\n(Laughs)\nH.M.Jr:\nGot it through the Communications Commission.\nB:\nThat's right. Through your mysterious sources.\nH.M.Jr:\nRight.\nB:\nWell, I'm sorry we got it wrong the first time.\nH.M.Jr:\nThat's all right.\nB:\nBut it really wasn't our fault on that.\nH.M.Jr:\nSomething tells me - the ring in your voice, now that\nyou know it's a Government agency, sounds entirely\ndifferent.\n24\n-5-\nB:\n(Laughs) Well, I'm a little relieved myself.\nH.M.Jr:\nHel Hat Hal\n%\nB:\nIt sounded awful funny to me.\nH.M.Jr:\nYes.\nAll right.\nB:\nAll right, Henry.\nH.M.Jr:\nGood-bye.\nB:\nGood-bye.\n25\n- 12 -\nOliphant: It isn't funny since it's a Government agency.\nH.M.Jr:\nWell, we'll talk about that some other time.\nMcReynolds: Rossbottomis their New York man.\nH.M.Jr: - Thank you all.\n26\nMEMORANDUM\nApril 26th, 1938.\nMessrs. Rosensteel and Sack, of Shenleys, called on the\nSecretary at 10:20 a. m., to request that the Treasury\npropose the imposition of a larger increase in lieu of the\n25¢ a gallon increase in taxes on distilled spirits, now\nincluded in the Tax Bill about to be reported out of conference.\nThe reason given was that 80 small an increase could not be\npassed on to the consumer. It would, therefore, have to be\nabsorbed by the industry; as a result of which the weaker\nsections would be unable to continue to operate at a profit.\nThe Secretary stated that the Treasury had done all it\ncould to prevent the imposition of the additional 25# a gallon\ntax and he could not, therefore, consistently propose a higher\ntax. Consequently, he declined to make any effort to comply\nwith Mr. Rosensteel's request.\nMr. Rosensteel also pointed out the serious results to\nthe price structure in the liquor industry if the additional\n25# & gallon tax is permitted to be imposed without at the\nsame time imposing a similar floor tax on stocks already\ndistilled. The Secretary suggested that he take that matter\nup with Stewart Berkshire and attempt to get the necessary\nadjustment made in Congress.\nMr. McReynolds and Mr. Berkshire were present at the\nconference.\nAM\napril 26\n27\nRequest for Legislation Regarding Limitation\non Bond Issues\nWith reference to the contemplated request to Congress for\nlegislation eliminating the limitations on the proportion of bonds\nto notes that oan be outstanding, I am wondering whether it may\nnot be wise to postpone the matter at least until next year.\nThe only justification for requesting the legislative change\nseems to be that it would give the Secretary greater flexibility\nin his financing program. The Secretary may wish to take advan-\ntage of the low interest rates now prevailing and undertake to\nfinance next year's requirements with bonds rather than notes.\nBut the amount of bonds that can be issued under present limita-\ntions is only about 21 billions, one half billion of which must be\nreserved for savings bonds. It may be felt that 2 billions do\nnot provide sufficient leeway and therefore removal of the 25\nbillion limit is called for.\nAgainst this consideration must be weighed the following:\n1. The action might have a bearish influence on Government bond\nprices.\nRealizing that the statutory limit permits issues of approx-\nimately 68 billions of notes and bills, but only 2 billions of\nbonds, the market would conclude that the Treasury intends to ac-\ncomplish its new financing (or a portion of its re-financing)\nthrough bond issues rather than through notes or bills. The ex-\npectation of increased bond issues in preference to note and bill\nissues may be a depressing factor on Government bond prices.\n2. It may stir up criticism against the Treasury financing policy.\nThe request may give opportunity for the numerous critics of\nTreasury financing to air their criticism in Congress. They may\nrepeat and elaborate upon the theme that the Treasury is \"whipsawing\"\nthe bond market by driving up bond prices, etc, The critics might\nsay that the reason the Secretary of the Treasury is asking for\nnew legislation is because he anticipates a weakening of Govern-\nment credit in the near future and wants to issue bonds before it\nis too late. The expression of such views with Congress as a\nsounding board can do no good at this time.\n3. Is it necessary to obtain new legislation now?\nThe only justification for requesting a change now in the\nlegal limitation of bonds versus notes and bills would be the in-\ntention of the Treasury to issue more bonds within the next year.\nBut it would seem that during the next year the financing were\nbetter done with bills and notes then bonds,\n9a) The Treasury oan, of course, borrow at B. lower rate of\ninterest if bills (or notes) are used.\nUclassified\n28\n(b) Short-term financing helps to promote a low cost of\nborrowing for private industry. Bills tap the liquid resources\nof banks. Notes do so likewise thoughhto a lesser degree. The\nTreasury (and the Federal Reserve Board) have ample powers for\nmaintaining those liquid resources at a high level, and there-\nfore increased issues of bills and notes need not greatly increase\nthe interest rate.\nOn the other hand, a larger proportion of the invest-\nments in bonds comes from private individuals, insurance companies,\netc. The Government has no direct control over the volume of their\nsavings; it cannot increase them as easily as, inot as much as it\ncan excess reserves. The smaller the investments of these insti-\ntutions and private individuals in Government securities, the more\nare they forced to seek investment in private enterprise and in\nthe construction of capital goods.\n(c) It may be claimed that it is desirable to take advantage\nof the present favorable bond market and issue bonds this year\neven though bills can be sold at extremely low rates. If bills\nor notes were sold now, the Treasury might be confronted two or\nthree years from now with interest rates which are much higher\nthan the present ones on bonds as well as bills.\nThe validity of that position in my opinion is open to\nquestion. Unfortunately the subject can be treated adequately\nonly in a longer memorandum (which we shall be glad to prepare if\nyou are interested). At this point I would merely like to suggest\nthat the decision to request new legislation be postponed until\nyou are satisfied that the advantages outweigh the disadvantages.\nHowhit\nRegraded Uclassified\n29\nApril 26, 1938\n10:16 a.m.\nH.M.Jr:\nHello.\nOperator:\nGo ahead.\nH.M.Jr:\nHello.\nJesse\nJones:\nHello.\nH.M.Jr:\nJesse?\nJ:\nGood morning.\nH.M.Jr:\nHow are you?\nJ:\nSwell. You made a good sale of Commodity Credit bonds.\nH.M.Jr:\nIt wasn't bad.\nJ:\nIt was fine.\nH.M.Jr:\nIt's good merchandise.\nJ:\nYes.\nH.M.Jr:\nThat's the way to sell them, Jesse.\nJ:\nThat's right. Well, that's fine.\nH.M.Jr:\nYou know - got to go through the regular machinery ...\nJ:\nYep.\nH.M.Jr:\n... that's been perfected over years.\nJ:\nWell, that's fine.\nH.M.Jr:\nAn - Jesse.\nJ:\nYes.\nH.M.Jr:\nI'm glad you called, because I don't know what you've\ngot in your strong box over at R.F.C., but if you've\ngot any of those bridge bonds or anything else\n....\nJ:\nI'm working awfully hard to get 'em.\nH.M.Jr:\n... I'd put 'em - I'd put the pressure on to sell\nthem.\nRegraded Uclassified\n30\n-2-\nJ:\nYes, I'm trying awfully hard to get them, but\nwe haven't got them yet; we've got to refund the\nissue.\nH.M.Jr:\nWell, because the first to 15th of June - I want\nto keep that for the Treasury.\nJ:\nFirst to the 15th of June.\nH.M.Jr:\nYes.\nJ:\nAll right, fine.\nH.M.Jr:\nSee? I want to keep that for ....\nJ:\nWell, I've got - I'll bear that in mind.\nH.M.Jr:\nSo you've got the rest of this month.\nJ:\nAll right.\nH.M.Jr:\nSee?\nJ:\nFirst to the 15th of June.\nH.M.Jr:\nWell, I'll put it - I mean I wouldn't - I - I -\nI never gave a look at the calendar - I mean I\nwouldn't want you fellows to come out on the\n15th. Well, let's say - I'll put it this way\nto you. I'll - I'll keep from the 6th to the\n20th of June inclusive.\nJ:\nAll right, and if I do anything big I'll call you\nfirst anyway.\nH.M.Jr:\nI mean - yes - but from the 6th to the 20th\ninclusive.\nJ:\nAll right, 6th to the 20th of June.\nH.M.Jr:\nAnd then we'll - we'd - we'll do our offering on\nthe 6th.\nJ:\nThe.6th. Did you\n....\nH.M.Jr:\nWait, I'll change that - let's see - 6th to the\n18th inclusive.\nRegraded Uclassified\n31\n-3-\nJ:\n6th to the 18th.\nH.M.Jr:\n6th to the 18th, you see.\nJ:\nAll right.\nH.M.Jr:\nThat gives me two weeks.\nJ:\nYes.\nH.M.Jr:\nThat gives me two weeks.\nJ:\nDid you see the President yesterday?\nH.M.Jr:\nYes.\nJ:\nAnything mentioned about railroads?\nH.M.Jr:\nNot a word.\nJ:\nUh-huh.\nH.M.Jr:\nWhat do you know about railroads?\nJ:\nWell, I had a meeting with Wheeler on Saturday and\nI'm going to have another one today at noon - at\ntwo o'clock.\nH.M.Jr:\nUh-huh.\nJ:\nwith him and - and Lea, of the House Committee, and\nH.M.Jr:\nAh ...\nJ:\n...\njust to talk about seeing what we can do at this\nsession; if anything, in the way of - Idon't think\nanything big can be done, but we may get some little\nsomething. And I just wondered whether\n....\nH.M.Jr:\nWell, are you - have you given up any idea of a bill?\nJ:\nWell, I want to talk; that's what I want to talk\nabout with these fellows.\nH.M.Jr:\nI see.\nJ:\nSee, Lea is Chairman of the Committee in the House.\nRegraded Uclassified\n32\n-4-\nH.M.Jr:\nGosh, I - you know, Jesse, if this Congress goes\nhome without doing something about railroads, I'm\njust going to be sick about it.\nJ:\nYes.\nH.M.Jr:\nAnd so's the country.\nJ:\nAll right, I'll - I'll - I'll use that as my cue.\nH.M.Jr:\nI mean the country is just going to be sick a bout\nit. I mean we can sit around here and talk About\npump-priming and all the rest of that stuff.\nJ:\nYes.\nH.V.Jr:\nAnd - but the railroad transportation and the\nallied industries that go with it\nJ:\nYes.\nH.M.Jr:\nif they don't see some silver lining, I think\nit's going to be one of the most discouraging things\nto the country I know of.\nJ:\nYes.\nH.M.Jr:\nThat's the way I feel.\nJ:\nWell, I'll - I'll\n....\nH.M.Jr:\nAnd I'll tell you something; by God, we've got to\nhave something like it, because - an - ah - just\nbetween us, I - I haven't got any good news, ...\nJ:\nYes.\nH.M.Jp:\n... Jesse.\nJ:\nI see.\nH.M.Jr:\nBut if we could do something so the people knew\nwhere we were going on this railroad thing, I think\nit would make the difference - I really do - of day\nand night. Now, that's the way I feel.\nJ:\nYes. Well, I'll talk with you after I've had this\nmeeting.\nRegraded Uclassifie\n33\n-5-\nH.M.Jr:\nBecause I - as I say, there's - if there's something\nin sight which can cheer me up ....\nJ:\nYes.\nH.M.Jr:\nBut if - if we could - if we could get this thing ....\nJ:\nThat would be a definite step.\nH.M.Jr:\nWhat?\nJ:\nThat would be a definite step.\nH.M.Jr:\nMost important.\nJ:\nYes. I'll use - I'll use that as my cue.\nH.M.Jr:\nO.K.\nJ:\nI'll call you later.\nH.M.Jr:\nI wish you would.\nJ:\nThank you.\nH.M.Jr:\nGood-bye.\nRegraded Uclassified\n34\nApril 26, 1938.\n10:30 a.m.\nH.M.Jr:\nHello.\nOperator:\nMr. Jones.\nGo ahead.\nH.M.Jr:\nHello.\nJesse\nJones:\nHello, Henry.\nH.M.Jr:\nJesse.\nJ:\nYes.\nH.M.Jr:\nMr. Rosenstiel is in my office - of Schenley's,\nDistillers.\nJ:\nYes.\nH.M.Jr:\nAnd he came down on this question of increase in\ntaxes on liquor, see?\nJ:\nYes.\nH.M.Jr:\nAnd in his conversation he said that the industry\ncan't borrow any money.\nJ:\nYes.\nH.M.Jr:\nAnd he wants to borrow 20 million dollars.\nJ:\nUh-huh.\nH.M.Jr:\nI said, well, if he wants to borrow 20 million\ndollars, he can go over to see you and you've got\nit and if he's got a solvent business he can borrow\nit.\nJ:\nYes.\nH.M.Jr:\nIs that right?\nJ:\nAh - in - in part.\nH.M.Jr:\nWell ...\nJ:\nI'll be glad to see him, Henry.\nH.M.Jr:\nAll right.\nRegraded Uclassified\n35\n-2-\nJ:\nAnd then I'll talk to you about it.\nH.M.Jr:\nNow, what time do you want to see him?\nJ:\nWell, I think it will be about four o'clock.\nH.M.Jr:\nJust a minute.\n(Aside:) Four o'clock?\nHe'll be at your office at four o'clock.\nJ:\nFine. Rosenstiel.\nH.M.Jr:\nYes, President of Schenley's.\nJ:\nFine.\nH.M.Jr:\nBut I'm going on the theory that anybody that's got\na legitimate business,\nJ:\nYes.\nH.M.Jr:\n... a solvent business - I don't want him to say\nhe can't borrow money.\nJ:\nFine. Send him over.\nH.M.Jr:\nIs that right?\nJ:\nYes.\nH.M.Jr:\nO.K.\nJ:\nFine.\nRegraded Uclassified\n36\nRE BANK EXAMINATION POLICY\nApril 26, 1938.\n10:30 a.m.\nPresent:\nMr. Taylor\nMr. Upham\nMr. Gaston\nMr. Smyth\nMr. Davis\nMr. McKee\nMr. Crowley\nH.M.Jr:\nAll right, Wayne, where are we?\nTaylor:\nWell, I described to you very briefly what the two\npoints were that I thought you could start discussion\non. One was this classification end the other is how\nto handle your bond account.\nH.M.Jr:\nAnd you kept all the experts out?\nTaylor:\nYes, temporarily. Thought we would make a little\nfaster progress if you listened to the heads of the\nagencies, and so on, and then went on from there,\nbecause their feeling is that it is going to be\ncomparatively easy for them to come to an agreement\nin principle, and then they can tell the heads of\ntheir staffs what those agreements are and say,\n\"Go ahead and work it out.\" Isn't that about right?\nH.M.Jr:\nAll right. Let's go around the room, start with Mr.\nCrowley.\nCrowley:\nI always seem to get myself in the wrong location.\nWell, as far as we're concerned were perfectly willing\nto sit down with the other two agencies and work out\nany determination of the \"slow\" item, but to do it with\nthe understanding that that item is not to be criti-\ncized and not give these bankers any, reason for using\nthat as an excuse for forcing liquidation. We are\nopposed to changing the policy of bank examinations.\nIn other words, we don't want to go backwards on bank\nexamination, we think we should go forward. And\npersonally I don't believe that there is any justi-\nfication to a lot of the complaint and the criticism\non bank examinations. Now, these bankers have always\nused the bank examiners as the Tribune used the tax law\nthis morning, as an excuse, More or less - kind of\non a sit-down strike. I don't believe that there is\n37\n-2-\nany great difference of opinion between the three\nFederal agencies on what should be done in that\nparticular matter.\nOn the bond depreciation, we are willing to go along\nand ignore bond depreciation in the higher bracket\nsecurities, providing that we can have a constant\nimprovement in the type of securities that are in\nthese banks and that these banks are not permitted\nto speculate in and out of the market. Where a bank\nis speculating in and out of a market, we don't feel\nthat they should be given the benefit of their loss\non securities. In other words, they should be penalized\nand the market should be followed down. Where a bank\nis in a good position, has good liquidity and- good\nmanagement, and has bought their securities for invest-\nment, I think we are substantially in accord. We do\nfeel that on the matter of profits on securities, where\nthey are sold at a profit, it is nothing more than\nwriting up inventory, and that those profits should be\nearmarked to take care of depreciation; otherwise,\nthere is no way in the world that you are going to\ndiscourage bond speculation.\nThat's substantially our position in the matter, and\nwe're glad to let our technical men sit down with the\nother fellows and work out a program.\nH.M.Jr:\nAll right. Federal Reserve?\nDavis:\nShall I?\nMcKee:\nYou speak your piece, or do you want me to speak my\npiece?\nDavis:\nI'll speak mine. It's coming this way, John.\nMcKee:\nAll right.\nDavis:\nWe have talked this over for some time on the Board.\nIn general we favor meeting with the other agencies\nas soon as possible and working out the technical\npoints of agreement. I believe, like Leo, that on\ngeneral principles it isn't so difficult to get an\nagreement as it may be when we come to working out\nthe point in words.\nRegraded Jclassified\n38\n-3-\nIn our general discussion the Board members have\nindicated they are in favor of eliminating the\n\"slow\" classification in examination reports and\nworking out a method of providing special comment\non loans that need special comment.\nOn bond depreciation, the Board has indicated\ninformally that it believes the practices should\nbe uniform among the three agencies, that they\nshould put less stress on current market quotations\nin the high grade bonds, elways provided that you're\nnot sacrificing safety in your examination policy\nfor 8. change.\nNow, we're just talking about examination policy,\nand Wayne, you didn't refer to or raise the third\npoint that we mentioned yesterday; that is, the\nComptroller's regulations as to investment in\nsecurities, so I'll not raise that at all.\nTaylor:\nI was including that in how you handled your bond\naccount, or intended to.\nDavis:\nThat's all I want to say.\nH.M.Jr:\nAll right. McKee?\nMcKee:\nMr. Secretary, I have felt for many years - and I\nam not predicating my statement or thoughts on so\nmuch present-day conditions as the effect the type\nof examination that has continued by the various\nagencies has had in accelerating a depression. I\narrive at that deduction by - the first evidence of\na depression is always the market. The first evidence\nof losses in the bank usually come through market\ndepreciation. And when it appears in abnormal\namounts, it excites the bank, the directors, and\nhas a tendency to restrain them from continuing\ncredit as well as making available additional credit.\nAnd as it goes along, as the history of that for the\nvarious depressions has gone, it appears to have made\nits impressions on these bankers to the extent that\nthey ultimately force liquidation at the worst time\nfor the good of the public.\nNow, my approach to this thing is that it is something\nI think should have been corrected years ago, and we\nRegraded Uclassified\n39\n-4-\nhave always missed the boat because the time to do\nit is when you're on a level that you can do it with\nimprovement. We appear to be there now.\nAnd the point that I'm interested in most is the type\nof an examination that classifies all assets - not\nappraise just the notes and price the bonds, but\nthat treats all assets in the same fashion. What I\nmean by that is that if you're going to classify notes\nyou should classify bonds.\nThey'll tell you that the ordinary examiner is not\nequipped to classify bonds. I say that he is just\nas well equipped to classify bonds based on statements\nthat the banks should have in their files on those\nbonds, as he is to pass on a line of credit of a local\nmerchant based on a financial statement.\nNow, if you'd take that system of examination you would\neliminate all bond depreciation except those that are\nin default, and I think we'd all agree that that\nshould be charged off - the difference between book\nand market. Now, that is just exactly what you do\nwith a fellow that is in receivership. And a note -\nin classifying the asset you try to arrive at the\nrecovery value of the note and put the balance of it\nin the loss.\nNow, I'm satisfied that, by the right kind of direction\nby the supervising heads, that kind of 8 method can be\ninstalled in the examinations of the banks of this\ncountry, and I only recommend it if and when you give\nthat opportunity to a banker to consider his securities\nalways at book, unless they are in default, with the\nproviso that he sets up an earmarked reserve for a\nstated percentage - we'll say, for the sake of\nargument, 20 percent, and maintain that account at\nall times, if he wants to use his non-recurring bond\nprofits for other expenses, bonuses, dividends,\nsalaries. Now, if he will reserve those as they\naccrue until he has built up that kind of B. reserve,\nwe'll have something in this country that we have\nnever had before, and that is adequate reserves for\nbond depreciation without the impairment of capital.\nNow, it is with that approach that I think, Mr.\nSecretary, unless - you go into the history of this\n40\n-5-\nthing and there have been attempts at times like\nthis to try to adjust the medium of bank examination,\nand they haven't been satisfactory, and unless we\nhave a program of & change, I think it is dynamite\nto play with it now, because you're going to attract\nthe attention of smart money to banks and they are\nnot going to believe what enybody says about how good\nthe banks are; they're just going to use their own\njudgment and they're going to run that money from\none institution to another, and God knows what kind\nof 8 situation we might arrive at - a lot worse than\nwe've got today.\nH.M.Jr:\nYou think we're on the right foot in what we're\ntrying to do here?\nMcKee:\nMy approach is to change this examination for the\nfuture on 8 classified basis. I mean as long as\nthey're good, they're good; if they're in default,\nthey ought to be taken out. And you ought to maintain\nyour profit from bond sales as a reserve for just such\nlosses when they occur.\nTaylor:\nWhich must be earmarked and out of which no dividends\nor anything else can be paid. That's the\n....\nH.M.Jr:\nWell, I don't know whether everybody's in agreement.\nBut that's what you feel.\nMcKee:\nThat's right.\nH.M.Jr:\nYou feel evidently very strongly.\nMcKee:\nThat's right.\nH.M.Jr:\nAnything else?\nMcKee:\nNo.\nH.M.Jr:\nNow shall we go to the Comptroller's office?\nDiggs:\nMr. Secretary, we of course are for uniformity in\nexaminations. We think that would be very desirable -\nif all the banks could be examined with the same\nyardstick.\nWe very definitely do not believe that the \"slow\"\n41\n-6-\ncolumn should be abandoned. It might be changed\nin name. But we feel that the banks of the\ncountry want to know the condition of their banks,\nand National Bank Examiners place into that column\nnow loans which are questionable - \"additional\ncollateral,\" \"further information desired, and\nmany other things which they are instructed to do.\nWe believe the bank wants to know about those loans.\nWe do not think it would be desirable to take it out.\nWe have no objection to changing the name, if a better\nname can be found. If it isn't changed or even is\nleft as it is, we think that all examiners in all\ndepartments should have the same regulations as to\nwhat is placed in that column.\nWe do not believe that the examiners have been too\nsevere in their examinations. You probably know the\nfigures for 1934. At that time we showed 27 percent\nof the loans in the \"slow\" column, and after our\nregulations were changed, following the meeting of\n'34 here, which you opened, that dropped in 135 to\n16 percent in the \"slow\" column. In the last half\nof '37 it dropped to under 10 percent in the \"slow\"\ncolumn. So we do not believe they have been too\nsevere. It comes down pretty well, 28 we see it,\nto the human equation in the examiner. Some of them\nare probably a little hard and others may not be hard\nenough.\nOn the question of investments, we do not think that\nany greater latitude should be given to the banks in\nthe purchase of securities than they now have. I\nthink what's happened during the past few months has\nshown that, if anything is needed, probably they\nshould buy higher grade bonds, because the banks that\nare in trouble are those that have bought the ones that\nare not in the upper brackets.\nOn the writing off of depreciation, we of course\nthink that should be done on all defaulted bonds.\nAnd the question of setting up a reserve - it seems\nto me that that might be a policy, but as for making\na rule, we doubt if it could be enforced - how we can\ndo it. It's a policy as to what the banks can do with\ntheir profits on bonds and other profits; I think it is\nRegraded Uclassif\n42\n-7-\npurely a policy matter.\nCrowley:\nMay I ask a question?\nH.M.Jr:\nSure.\nCrowley:\nCertainly, Marshell, if you allow them the\ndepreciation you've got a right to say what they're\ngoing to do in the way of building reserves, so\nthat you can make them build a reserve. Now, they\ncan put it in the profit account if they wish, but\nyou can make them transfer it right back to a\nreserve account before you allow them to take\nthis depreciation. You don't under your law; you've\ngot the right to specify the manner and the type of\nexamination and your way of arriving at a valuation\nof the security or of an asset.\nDiggs:\nBut my thought is that you can't tell the bank\neverything they're going to do, that you can't run\nit for them.\nCrowley:\nNo, but I think you can do this. You certainly can\nstop these fellows - they're making more damn money\nnow on security profits than they're making off their\nloan and discount account. And if you analyze your\nbig banks, you'll find that to be correct. And that\nwas never the intention of an investment fund.\nH.M.Jr:\nWell, I gather this is where we get down to a differ-\nence of opinion, and that's the point we're trying\nto iron out, aren't we?\nAre you through?\nDiggs:\nYes, sir.\nH.M.Jr:\nSmyth, got anything?\nSmyth:\nNo, sir.\nH.M.Jr:\nCy?\nUpham:\nNo.\nTaylor:\n(Nods nothing)\nRegraded Uclassified\n43\n-8-\nH.M.Jr:\nWell, there is still this difference of\nUpham's given me this agenda here, which looks\ngood.\nI mean we study the \"slow\" classification of loans:\n\"A. Should the 'slow' column be abandoned?\n\"B. Should the 'slow' column be renamed, and if\nso, what title should it be given?\n\"C. If renamed, should the type of loans listed\nbe the same as now? If not, how changed?\n\"D. Are bank examiners too severe in their\nclassification of loans as slow?\n\"III. The treatment of investment securities by\nexaminers.\n\"A. Should banks be given a greater latitude in\nthe securities they may purchase?\n\"B. How should securities be valued by the\nexaminer -- cost or market price or what?\n\"C. How should market appreciation and depreciation\nbe treated?\n\"D. Should any special restrictions be placed on\nprofits from the sale of securities?\"\nWell, I gather from what Taylor told me that you\nfellows wanted to see me, some of you, alone without\nyour staff. As the agenda - we haven't come to an\nagreement; I don't want to force one. But if you -\nwhat I would suggest is, you people have all got\nable people; let's lock them up in a room and let's\nhave them come in with a ma jority and minority report.\nMaybe it'll be a unanimous opinion. Let's lock them\nup.\nDavis:\nThat's what you'll have to do.\nCrowley:\nThat's right.\nRegraded\nUclassifie\n44\n-9-\nH.M.Jr:\nNow, I would say this, that when they're ready I'm\nready. But let's lock these boys up and\n....\nWho would you (Diggs) designate?\nDiggs:\nMr. Folger.\nH.M.Jr:\nFolger. He's all right. And the Fed?\nMcKee:\nPaulger.\nH.M.Jr:\nP-0-1- ?\nMcKee:\nP-a-u-1-\nH.M.Jr:\nF.D.I.C.?\nCrowley:\nJohn Nichols.\nH.M.Jr:\nI'd say just lock them up. And they can use this\nagenda. Cy can go in every once in a while and give\nthem spirits of ammonia.\nCrowley:\nI think that's the way to do it.\nH.M.Jr:\nI'd lock them up.\nI tell you, I'm going to ask - as chairman I'm not\ngoing to express any opinion; the only thought I had\nwas this: when you get something I thought I'd\ninvite a few bankers in, big and little, that I have\nconfidence in, and show them this before we shoot it.\nNow, take a fellow like Tom Smith, a fellow like\nJeff Coolidge, maybe a fellow from New York, say, \"Here\nis this plan.\" I can show it to them in confidence.\n\"What do you think?\" I mean they're all interested\nand they're all good sound fellows. I don't know,\nI've never asked them how they feel on this thing.\nBut they have shown their interest in the Government.\nAnd just bring them in and say, \"Now here's the\nprogram; what do you think of the thing?\" I mean\nbecause I don't pretend to be an expert on banking\nregulations. But those fellows are making their\nliving at it.\nCrowley:\nThey operate good banks.\nRegraded Uclassified\n45\n-10-\nMcKee:\nMr. Secretary, do you disagree to the fact that\nthis thing should be kept just as quiet as it can,\nbecause if it does get much publicity it's going to\nmake everybody conscious that we're sitting down\nhere worried about banks.\nH.M.Jr:\nI don't think - that doesn't start that way.\nMcKee:\nwhat?\nH.M.Jr:\nYou see, all we're sticking to is, first, what the\nPresident said in his message. Just trying to carry\nout the spirit of what he said in his message, and\nthat's all. I was very careful of what I said\nyesterday. I have a press conference twice & week.\nBut I think what I said was all right. Did you (McKee)\nsee it, did you think so?\nMcKee:\nI haven't seen it. I looked at the headline in the\nWall Street Journal, but I didn't read it carefully.\nH.M.Jr:\nWell, I simply said that we were going to study this\nthing. But nobody said anything about being worried\nabout banks.\nMcKee:\nWell, the interpretation - the erroneous interpretation\nplaced on everything at this time is the thing that\nworries me a little.\nH.M.Jr:\nI think if you people would be willing to let Gaston\ndo the talking - I think he could handle the Treasury\npress men so that it wouldn't get out. I mean we're\npretty successful in getting out the sort of thing\nwe want - do it openly, tell all the regular men what\nit is.\nMcKee:\nAs far as I'm concerned, I'll do no talking about it\nbecause I'm afraid of it.\nH.M.Jr:\nAll right. Well, I don't have to see them again until\nThursday morning. I don't see them in between.\nI think that would be the thing to do. But hell, all\nI'm going to insist on as chairman - I don't want - I'm\nnot just going to sit back and say, \"Well, we can't get\nthem together.\" They've got to get together. Somebody's\nRegraded Uclassified\n46\n-11-\ngot to give way. Now, I'm not pretending to say\nwhat's the right way.\nCrowley:\nI don't think, Mr. Secretary, that when you get these\ntechnical men together there's going to be any great\ndifference of opinion. I think they'll come back\nhere with a report. And what you want - we don't\ncare about the language you use - what you want is\nthe thing carried out, and what the President wants\nis a unification of spirit.\nH.M.Jr:\nThat's right.\nCrowley:\nI don't doubt but what they can get together. And\nthey'll get together better themselves than if we\nsit around with them, and they sit around with their\ntongues in their cheeks and not express themselves.\nWe can keep out of it, let them bring B report back,\nand then we can take it afterwards.\nH.M.Jr:\nWell, they can go wherever there is a nice good room\nand plenty of sunlight.\nTaylor:\nI think they'd work better in the dark.\nH.M.Jr:\nWant to say something, Weyne?\nTaylor:\nYes.\nH.M.Jr:\nWhat?\nTaylor:\nThere was one point brought out yesterday - also some\ndifference of opinion - that had to do with the\nquestion of marketable securities and so on. The\nComptroller's office takes the position that that is\na question of law and that cannot be changed without\nan amendment of the law. I get the impression that the\nFederal Reserve Board didn't entirely agree with that.\nIs that right, Chester?\nDavis:\nWell, in our - we think that is a point which hould be\nthoroughly explored. I wouldn't go so far as to say\nwe disagree with the legal opinion, because I've had\nno legal opinion. However, it's been studied from the\nlegal standpoint, but we have never approached it from\nthat angle before. The thing that should be examined\non that is this question: Do the Comptroller's regula-\ntions force the investing banker into too close a\nRegraded Uclassified\n47\n-12-\ndependence on and relation to the stock market\nticker in handling his bond account? Now, that -\nI wouldn't express an opinion; I think it should\nbe examined.\nH.M.Jr:\nWhy not put that on the agenda?\nTaylor:\nIt should be in there.\nDavis:\n1 think it is in there. I think you've got it in\nthere.\nH.M.Jr:\nWell, Cy, you're going to ride herd on these fellows\nfor all of us. It's your responsibility to see that\nthey meet, see that they get plenty of water and food,\nbut that they keep going,\nUpham:\nWell, of course, they have other things to do. They\ncan't just - Folger, for instance, couldn't go in a -\nwhen you say \"lock him in a room,\" you don't mean that.\nH.M.Jr:\nI mean this. They could devote exclusively to this\nproblem half a day.\nUpham:\nMight do that,\nH.M.Jr:\nCouldn't they?\nDiggs:\nYes.\nMcKee:\nWe can urnish our representative as many days and\nmany half-days as you want, because I think it's\nimportant.\nH.M.Jr:\nWell, why not say this, that they meet every a fternoon\nat two o'clock and work as long as they can. That\ngives them their morning free for routine.\nDavis:\nThat's right.\nCrowley:\nThat's a good arrangement.\nH.M.Jr:\nLet them work from two on as long as they can stick\nit out. How's that, huh?\nDavis:\nI think this morning that will give a little time for\neach agency here to talk - sit down and talk with their\n48\n-13-\nmen before they go into the meeting. I think they\nshould do that.\nH.M.Jr:\nAny other suggestions, Cy?\nUpham:\nNo.\nH.M.Jr:\nAs you represent us, if they get into any trouble,\nwe'll expect you to step right in, do & public\nservice.\nUpham:\nThanks.\nH.M.Jr:\nWhen they do come to an agreement, I want to show the\nthing to some fellows that have got to make their\nliving by it.\nDavis:\nI think, Mr. Secretary, that when you're getting your\nbank advice, don't confine it altogether to the large\nbanker, who has a method of handling his bonds and\ninvestments.\nH.M.Jr:\nWell, maybe you can give me the names of a couple\nfellows.\nDavis:\nI think, John, it would be a good idea to take a\ncross-section and get some men who are really\nfamiliar with the little country bank problem\nand what he's got to do.\nH.M.Jr:\nWell, you can give me the names of a couple fellows.\nCrowley:\nI'd like to suggest that when you get ready for your\nconference with the bankers, call B111 White, of New\nYork, who is President of the State Bank Supervisors.\nH.M.Jr:\nGood idea. White's a good man. And I thought I'd\nbring down Broderick too, because Broderick's been\nall through the mill on this. What? He'd have a\nkind of savings - no, you don't examine savings banks,\ndo you? He's a good fellow.\nCrowley:\nWe have savings banks.\nH.M.Jr:\nWe can keep it down, not get it too big; but I think\nget half a dozen to ten fellows. Because 1 don't\nwant to shoot on this, and I think it's always good\n49\n-14-\nto show these fellows what you're going to do anyway\nin advance; then if they like it, they'll sell it\nfor you. So I think White - that's a good idea.\nAll right, gentlemen. Thank you.\nDavis:\nThank you.\nRegraded Uclassified\n50\nAgenda for Meeting of Banking Agency Heads April 26, 1938\nwith Secretary Morgenthau\nI. Why this meeting is being held.\nA. The President's message of April 14, 1938.\nB. The long-recognized necessity for coordina-\ntion of banking agencies on examination\npolicy.\nII. The \"slow\" classification of loans.\nA. Should the \"slow\" column be abandoned?\nB. Should the \"slow\" column be renamed, and\nif so, what title should it be given?\nC. If renamed, should the type of loans\nlisted be the same as now? If not, how\nchanged?\nD. Are bank examiners too severe in their\nclassification of loans as slow?\nIII. The treatment of investment securities by examiners.\nA. Should banks be given a greater latitude\nin the securities they may purchase?\nB. How should securities be valued by the\nexaminer -- cost or market price or what?\nC. How should market appreciation and depre-\nciation be treated?\nD. Should any special restrictions be placed\non profits from the sale of securities?\nRegraded\n51\nApril 26, 1938.\n11:24 a.m.\nH.M.Jr:\nHello.\nOperator:\nMr. Franklin is at lunch until one o'clock our time.\nThey said they might be able to reach him at lunch.\nH.M.Jr:\nI'll talk afterwards. Get the Secretary of War.\nI'll take it afterwards.\nOperator: All right.\n11:25 a.m.\nH.M.Jr:\nHello.\nOperator:\nSecretary Woodring will not be in his office today.\nH.M.Jr:\nWell, leave word I want to talk to him when he gets\nback.\nOperator:\nThey say we might reach him at home.\nH.M.Jr:\nNo.\nOperator: All right.\nH.M.Jr:\nAh - let me see - get me General Craig, will you?\nOperator: All right.\nH.M.Jr:\nGeneral Craig.\nOperator:\nRight.\n11:26 a.m.\nH.M.Jr:\nHello.\nOperator:\nGeneral Craig is away for the week.\nH.M.Jr:\nGosh. All right. Well, leave word I'll talk to\nWoodring tomorrow.\nOperator: All right.\nRegraded Uclassifie\n52\nApril 26, 1938.\n2:13 p.m.\nH.M.Jr:\nHello.\nOperator:\nMr. Franklin.\nH.M.Jr:\nHello.\nOperator:\nGo ahead.\nH.M.Jr:\nHello.\nP.A.S.\nFranklin:\nHello, is this Mr. Morgenthau?\na.M.Jr:\nTalking. Mr. Franklin.\nF:\nYes.\nH.M.Jr:\nOn third investigation, we find that we had one third\nof the name right; that it's the Panama Railway Company.\nF:\nOh, Panama Railway Company.\nH.M.Jr:\nYes.\nF:\nOh.\nH.M.Jr:\nAnd the people up in New York - Federal Reserve was\nvery much embarrassed to think that they told me it\nwas the Panama Pacific Steamship.\nF:\nYes.\nH.M.Jr:\nIt was the Panama Railway Company.\nF:\nI don't see how they got them mixed up.\nH.M.Jr:\nI don't either, but they did. And that was the concern,\nand I've now got to get in touch with the Governor of\nthe Panama Canal Zone, ....\nF:\nYes.\nH.M.Jr:\n:. who is President of that railway.\nF:\nYes.\nH.M.Jr:\nAnd find out what the hell he was doing.\n53\n-2-\nF:\nAre they - are they keen about selling their bonds?\nH.M.Jr:\nI don't know. They must have been awful keen to do\nit the way they did it.\nF:\nWell, they were very keen and very short in their\nsale.\nH.M.Jr:\nAnd very stupid.\nF:\nWell, that was too bad.\nH.M.Jr:\nBut thank you for your cooperation.\nF:\nWell, I'm very much obliged to you and I'm sorry I\ncouldn't be of any assistance.\nH.M.Jr:\nWell - and you're sorry you didn't own the bonds.\nF:\nYes, I'm very sorry I didn't own the bonds or anything\nelse.\nH.M.Jr:\nAll right. Thank you, Mr. Franklin.\nF:\nThey could last forever.\nH.M.Jr:\nAll right.\nF:\nAll right, much obliged to you.\nH.M.Jr:\nGood-bye.\nRegraded Uclassified\n54\nApril 26, 1938.\n2:19 p.m.\nH.M.Jr:\nHello.\nLouis\nJohnson:\nHello, Mr. Secretary.\nH.M.Jr:\nHow are you?\nJ:\nJust fine. How are you, sir?\nH.M.Jr:\nI'm alive.\nJ:\nSorry I don't see you more frequently.\nI.M.Jr:\nThat's mutual. Mr. Johnson, the reason I'm calling is\nthis. Something happened on Friday which disturbed me\nvery much, and that was an action taken by the Panama\nRailway Company, which, as far as I can tell, is more\nor less under the War Department. Is that right?\nJ:\nIts stock is all owned in the name of the War Department.\nMr. Woodring votes it. He's President of it.\nH.W.Jr:\nRight. Well now, let me tell you what they did. Friday,\nabout one o'clock, they offered to five different brokers\neleven million dollars worth of Governments.\nJ:\nGood Lord!\nH.M.Jr:\nAnd asked for bids, and said that they had to have bids\nin five minutes. An - eleven multiplied by five - that\nmade 55 million. And that went all over the country\nand it just knocked the bottom out of our Government\nbona market. And of all the stupid things that I've\never seen in my life, that is the stupidest. Now, the\nman that they tell me was in charge is a man by the name\nof Victor Newton - was Treasurer; and a man by the name\nof Rossbottom, the first Vice President. And they say\nthat those two men handled this thing. Now, it seems to\nme if a subsidisry, so to speak, of the War Department\nis going to sell eleven million dollars worth of\nGovernments, they might ask the Secretary of the Treasury,\n\"is this a good time to sell it?\" See?\nJ:\nMay I be just utterly frank with you and off the record\na minute?\nH.M.Jr:\nI'm being very frank and off the record with you. You\ncan call a spade a spade.\nRegraded Uclassified\n55\n-2-\nJ:\nAbout last August, the White House got an anonymous\nletter about the letting of contracts there for\nstevedoring, and it was referred directly, either\nby the President or Jimmy at his direction, to me.\nH.M.Jr:\nYes.\nJ:\nI investigated it, found that this had been going on\nwith some sort of a preference for a number of years.\nH.N.Jr:\nYes.\nJ:\nI wrote the President a memorandum in which I called\nattention to the un-American spirit of that and the\nlack of proper safeguarding of the Government's interest\nin the method of handling it; then told him that in the\ncourse of the checking I had found four or five other\nthings.\nH.M.Jr:\nYes.\nJ:\nThat was el direct communication and request to me.\nI handled it as that.\nH.M.Jr:\nYes.\nJ:\nIt came back to - it came back to the War Department,\nto the Secretary, with a letter I was sent E blind\ncopy of, directing that the situation be changed, ...\nH.M.Jr:\nYes.\nJ:\nsaying there was E vacancy on the Board, and a\nWhite House suggestion that I be put in in the vacancy.\nH.N.Jr:\nYes.\nJ:\nThat letter W&S very much resented over here, got me in\nbad with the Secretary; he's never mentioned Panama\nReilroad in my presence since. I'm not on the Board.\nAnd 50 with that background - I agree with you thoroughly\nthat this is the craziest thing here to do, but I don't\nknow anything I can do about it under the present set-up,\nMr. Secretary.\nH.W.Jr:\nWell, the reson I'm calling you is - I asked for the\nSecretary or the Acting Secretary.\nRegraded Uclassified\n:\n56\n-3-\nJ:\nWell, I - I am the Acting Secretary.\nH.M.Jr:\nWell then, I\nJ:\nAll right, then, we'll talk upon that basis.\nH.M.Jr:\nWell, now I'm going to talk official.\nJ:\nAll right, sir.\nH.M.Jr:\nI'm saying as Secretary of the Treasury that I protest\nvigorously the method that the Government bonds were\nhandled by an agency of the United States Government,\nand that I am asking that an investigation be made and\nfind out why Mr. Newton and Mr. Rossbottom handled it\nin that way; and I think they should be sent for, and\nI'd be glad to tell them face to face what I think of\nthem.\nJ:\nWell, I think you're right and I'll start that now.\nH.M.Jr:\nThat - that I'm asking you as Acting Secretary of War.\nJ:\nAll right, sir. That - that will be checked into now.\nH.M.Jr:\nAnd if they come down and they will be brought over here,\nI would like to see them and ask them what they mean by\nhandling Governments in that way. And we haven't\nrecovered from it yet. And incidentally, it may again\ngive the people in Wall Street a chance to give the\nGovernment the laugh, and we'll be made the laughing\nstock in Wall Street.\nJ:\nOh, well, that ...\nB.M.Jr:\nAnd I - I told - I told the President about it.\nJ:\nOh, you have done that?\nH.M.Jr:\nE didn't know who it was at that time.\nJ:\nWell, I tell you what I - if the President would say to\nme, \"You investigate this,\" believe me, you'll get the\nstory.\nH.M.Jr:\nWell, all right, I will\n....\nJ:\nYou aren't - you aren't going to get the actual story,\nRegraded Uclassified\n57\n-4-\nyou're going to get a whitewash, if/is it otherwise\nhandled.\nH.M.Jr:\nAll right, I'll call the President and ask him to\ndirect you.\nJ:\nAll right, sir.\nH.M.Jr:\nHow's that?\nJ:\nAll right, sir. Then we'll get to the bottom of it.\nI agree with you off record now on your indignation.\nYou're entitled to it. I'd have a lot more than you're\nshowing.\nH.M.Jr:\nYes. Well, I don't want to - not - no use getting\nburned up. I mean people like that, if they haven't\ngot a good explanation, should be fired.\nJ:\nWell, sir, if - will you do that? Then I'll get this -\nthis full story and let the chips fall where they will.\nH.M.Jr:\nRight.\nJ:\nYes, sir.\nH.M.Jr:\nThank you.\nJ:\nThank you, Mr. Secretary. Good-bye.\nRegraded\n58\nApril 26, 1938.\n3:56 p.m.\nH.M.Jr:\nHello.\nOperator:\nMr. Johnson.\nH.M.Jr:\nThanks. Hello.\nLouis\nJohnson:\nMr. Secretary.\nH.M.Jr:\nTalking.\nJ:\nThe President called me. This is Louis Johnson.\nH.M.Jr:\nYes.\nis\nJ:\nI called New York and immediately got my ears knocked\ndown by their telling me that the War Department as such\nhad nothing to do with this, it was Mr. Woodring personally\nwho held the stock.\nH.M.Jr:\nOh for Heaven's sakes.\nJ:\nI told them then that in the name of the President\nI ordered Mr. Newton and Mr. Rossbottom, one or the\nother, to communicate with you on the phone and fix\nan hour to come down.\nH.M.Jr:\nYes.\nJ:\nI called over about ten minutes, fifteen minutes ago to\nsee if they had called you; they had not.\nH.M.Jr:\nWell, they\n...\nJ:\nThen I took the call from Wayne Johnson, their attorney.\nMr. Rossbottom went to the office of the $16,000-a-year\ncounsel of this company.\nH.M.Jr:\nWho is - who?\nJ:\nWayne Johnson.\nH.M.Jr:\nWayne Johnson. I know the name.\nJ:\nHe called me and tried to give me an argument that they\nwere responsible for this money, that they had these\nRegraded Uclassified\n59\n-2-\ncommitments of a million four, I think ne said, per\nmonth to pay on these ships; that they made about\n$800,000 by selling them the way they did; that it was\ntheir responsibility, they would have been held\nresponsible if they had held them and the bonds had\ngone down, they'd have to have. taken 1-loss.\nH.M.Jr:\nYes.\nJ:\nI wanted to give you their story. Wayne Johnson wanted\nto call you or come to see you in lieu of these two, and\nI told him that the orders of the President were that Mr.\nNewton and Mr. Rossbottom should report and I saw no\noccasion for his, Mr. Johnson, being there.\nH.M.Jr:\nYes.\nJ:\nAnd I hope you'll talx to them pretty frankly.\nH.M.Jr:\nWell - an\n...\nJ:\nBecause they ignore - they ignore the country as a\nwhole in arriving at their own little petty problem.\nH.M.Jr:\nWell, I frankly - I just - I mean I'm not running the\nWar Department, but if I held a - the stocklofa cor-\nporation and - I'd wonder what\n.....\nJ:\nWell, frankly, that's just exactly what they told me.\nI was afraid of that when I was talking to you, because\nof\nH.M.Jr:\nWell, why should I call them down? It's up to the\nSecretary of War.\nJ:\nThe President wants you to tell them.\nH.M.Jr:\nWhat should 1\n....\nJ:\nWants you to dress them down. That's what he said.\nH.M.Jr:\nI can do it.\nJ:\nAnd so I've ordered them to report to you on the\ntelephone making a\n....\nH.M.Jr:\nAll right.\n60\n-3-\nJ:\n... an appointment to come down.\nH.M.Jr:\nI'll - I'll take care of it.\nJ:\nAll right, sir.\nH.M.Jr:\nI got right to the President.\nJ:\nYes, you certainly did. He called me personally.\nH.M.Jr:\nAll right.\nJ:\nAll right, sir, I think you'll get some action over\nhere on those\n.....\nH.M.Jr:\nLet's see, that's Rossbottom and what's the other?\nJ:\nNewton.\nH.M.Jr:\nAnd Newton.\nJ:\nVictor Newton and Rossbottom.\nH.M.Jr:\nO.K.\nJ:\nAll right, sir. Good-bye.\nH.M.Jr:\nThank you.\nRegraded Uclassified\n61\nApril 26, 1938\nThe Secretary had as luncheon guests today Mr. Eccles,\nMr. Davis, Mr. Taylor and Mr. Upham.\nMr. Eccles stated that the Open Market Committee is\ncoming for a meeting this week-end and that prior thereto\nhe would like to go to the White House and ask the Presi-\ndent about letting the Federal Reserve portfolio of Govern-\nments decline. Mr. Eccles thinks it would be a mistake for\nthem to let the portfolio decline at this time and Mr.\nMorgenthau agreed. Later, Mr. Eccles modified that posi-\ntion by stating that they can't let their portfolio decline\nunless they find that to maintain it will require paying\na premium on securities acquired.\nMr. Morgenthau agreed with him that if the Open Market\nCommittee found it necessary to pay a premium for bills and\nnotes, it might give them an excuse for letting the total\ndecline. Mr. Eccles said that so far they have been re-\nplacing their maturities but on almost a no-yield basis.\nThey have sold more than $100 million in bonds the last few\nweeks.\nUclassified\n62\n- 2 -\nMr. Eccles said that he is disturbed by the necessity\nof making all of their purchases through five New York\ndealers who profit magnificently thereby. He said that if\nthere is to be banking legislation this year, he may want\nto ask Congress to permit the Federal Reserve to have\ndirect dealings with and buy securities directly from the\nTreasury. He said that the New York dealers are building\nup their portfolios at this time when, as a matter of fact,\nthey profess to find it difficult to fill the orders that\nthey receive. He said they always buy when the market is\ngoing up and sell when it is going down, thus emphasizing\nthe movement in both directions. They do not cooperate\nwith the Government in the regulation of the market for\nstability. Mr. Morgenthau and Mr. Taylor ventured the\nopinion that the dealers were only engaged in operating\ntheir business as a business and for profit. Mr. Taylor\npointed out that the Federal Reserve had made about $5\nmillion of profit this year on their portfolio and suggested\nthat this was a good deal more than the dealers had made\nprobably. Mr. Eccles said that he found it very nice to\nhave a profit on their portfolio but, after all, that was\nnot their motive in managing the open market fund. Mr.\nTaylor pointed out that the dealers have suffered losses\nalso,\nRegraded Uclassified\n63\n- 3 -\nMr. Morgenthau told Mr. Eccles and Mr. Davis the\nstory of the market operations of the Panama Railway\nlast Friday, which they had not heard. He explained that\nthe Panama Railway, & wholly Government-owned corporation\nin the War Department, had, without consultation with any-\none in the Treasury, offered in the most unbusinesslike\nway possible some $11 million of Government securities to\nthe market. They telephoned five dealers asking for bids\nand the resulting market activity was on the basis of an\noffering of 555 million instead of $11 million. They\nfinally disposed of the bonds and \"took the bloom\" off\nthe market. Fortunately, on this particular day the\nmarket could stand and indeed needed some knocking off,\nbut if the action had been taken on almost any other day,\nit would have been disastrous to the Government market.\nMr. Eccles spoke of the action of the Treasury in\nletting $50 million of bills run off last week and agreed\nthat things had run along pretty smoothly and the Govern-\nment bond market had not gotten out of control and that the\nproblem was not 30 desperate by reason of the first\nweek's activity but would become increasingly so as the\nweeks went on. He said that he did not really oppose the\nRegraded Uclassifie\n64\n- 4 -\nTreasury proposal to let $50 million run off weekly but had\njust seen the problem ahead and had wanted to bring it into\nthe open. He said the New York bank felt much more keenly\nthan he did.\nThe Secretary suggested the possibility of issuing on\nMay 15th a $200 to $300 million block of three or five-year\nRFC notes: Mr. Eccles and Mr. Davis both thought that\n-\nlooked good at first blush and would help their position\nand offset the $50 million weekly bill run-off. They thought\nit might be done without attracting too much. public attention\nto that feature of it also.\nMr. Morgenthau said that he had told the President this\nweek that business indices do not look so good and he sees\nnothing in the immediate future to help the situation. Mr.\nEccles said that inflation is not catching on and that it\nwill not. The spending is not proceeding speedily enough.\nHe stated that what brought him to approve the spending\nprogram was the fact that he saw the President was not going\nto do anything about wages and fixed costs. To remedy the\ndiscrepancies and lack of balance of farm prices, the pur-\nchasing power of the farmer, and unorganized labor, he thought\nit was necessary \"to put something in at the bottom.\" He\nhad urged WPA help be made available to the railroads and\nRegraded Uclassified\n65\n- 5 -\nto house builders. That would put people to work faster\nand bring expenditures more quickly. He also urged that\nWPA abandon the means test and take on 8 greater number\nof clients.\nMr. Morgenthau said that he had urged the President\nto revive the CWA under Hopkins rather than renew the PWA\nunder Ickes. He said that they can start faster and can\nstop any time. The President's reply was that he would\nnot go back to raking leaves.\nMr. Eccles said that when he and Mr. Morgenthau see\nthe President, he would like to take up this subject as\nwell as the Federal Reserve portfolio. Mr. Morgenthau\nsaid that he would be very glad to have Mr. Eccles and\nthe President discuss it but that he wouldn't do anything\nbut listen. He said he had done all that any human being\nor friend could do in the three days before the President\nsent his message to Congress. Mr. Eccles said that he had\nfavored the third barrel when all other proposals had failed.\nMr. Morgenthau asked Mr. Davis why he thought the prices\nof commodities continued downward even after the President's\nannouncement. Mr. Davis replied that he did not think the\nsituation in commodities could be cured by monetary means.\nRegraded Uclassified\n66\n- 6 -\nHe pointed out that as he had said before when the $300\nmillion was desterilized, he did not expect very much from\nthat action. It might hold the line until the psychological\neffect could be translated into real catching on of infla-\ntion. He predicted that 1f things continued 8.8 they are\nnow, we would have 60¢ wheat in the fall. Mr. Morgenthau\nreferred to visits he had had with a dean of an agricultural\ncollege who has travelled up and down the Atlantic coast\nand who finds among the farmers a good deal of criticism\nin the AAA. Mr. Davis said that is partly the fault of\nCongress because of amendments they insisted on putting in.\nMr. Eccles supplemented Mr. Davis' statement by pointing out\nthat it is important to recognize that manipulation of mone-\ntary factors is not enough, and that he has taken that posi-\ntion probably for a year and more.\nMr. Morgenthau spoke skeptically of the Ickes' testimony\non the Hill this morning that he is now ready to go ahead\nwith 2900 PWA projects. Mr. Morgenthau compared them to\ntwo-year old orders on the books of B business man. He said\nthat there will be no spending on the public works until fall\nand that people now recognize it.\nRegraded Uclassified\n67\n- 7 -\nMr. Davis and Mr. Eccles agreed that the market for\nGovernments has been well taken care of and any appre-\nhensions they might have had with respect to the retire-\nment of $50 million of bills weekly have disappeared.\nMr. Eccles said that the Open Market Committee expects\nhim to sound out the President on their portfolio before\nthe meeting on Friday. He and Mr. Morgenthau went to the\nSecretary's office at the conclusion of the luncheon to\ntelephone Mr. McIntyre for an appointment with the\nPresident.\nUpm\nRegraded Uclassified\n68\n12981\nConfidential\nWeekly WPA Employment\nNot for Publication\nSeries - Table 1\nEMPLOYMENT ON WPA PROJECTS, BY STATE\nUNITED STATES AND TERRITORIES\nWeeks Ending April 23 and April 1938\n(Partly Estimated - Subject to Revision)\nNumber of Persons Employed\nIncrease (+)\nState\nWook Ending\nWeek Ending\nor\nApr. 23, 1938\nApr. 16, 1938\nDecroese (-)\nGRAND TOTAL\n2,545,124\n2,532,448\n+\n12,676\nCONTINENTAL UNITED STATES\n2,542,978\n2,530,255\n- 12,723\nAlabama\n39,149\n36,380\n+\n769\nArizona\n9,378\n9,267\n+\n111\nArkansas\n35.394\n35,553\n-\n159\nCalifornia - Total\n95,141\n95,706\n.\n625\nNorthern\n50,485\n51,113\n-\n628\nSouthern\n44,656\n44,653\n+\n3\nColorado\n26,133\n27.732\n+\n401\nConnectiout\n21,889\n21,776\n.\n113\nDelaware\n3,297\n3,324\n-\n27\nDistrict of Columbia\n8,146\n8,133\n-\n13\nFlorida\n32,595\n32,511\n+\nBL\nGeorria\n42,155\n42,398\n-\n243\nIdaho\n10,898\n11,198\n-\n300\nIllinois\n199,134\n199,572\n-\n438\nIndiana\n92,535\n92,013\n+\n522\nI owe\n32,978\n32.597\n+\n381\nKenses\n35,925\n35,863\n+\n&\nKentucky\n54,407\n52,920\n+ 1,487\nLouisiana\n31,808\n31,636\n+\n172\nMaine\n7,922\n7,307\n+\n115\nMaryland\n12,196\n12,090\n+\n106\nMossechusetts\n100,351\n100,007\n+\n344\nMichigan\n130,191\n132,848\n+ 3,343\nMinnosota\n00,220\n59,479\n+\n741\nMississippi\n31,136\n31,116\n+\n20\nMissouri\n91,067\n90,636\n+\n431\nMontana\n19,148\n10,850\n-\n298\nNebruska\n28,816\n26,316\n+\n498\nNevada\n2,476\n2,523\n-\n147\nNew Hampshire\n8,503\n8,708\n,\n145\nNew Jersey\n91,538\n91,732\n-\n194\nNew Mexico\n9,986\n10,015\n-\n27\nNew York City\n157,842\n157,947\n-\n105\nNew York (Excl, N.Y.C.)\n54,499\n53,690\n-\n809\nNorth Caroline\n33,049\n32,712\n+\n337\nNorth Dakote\n13,610\n13,888\n-\n278\nOhio\n223,532\n219,859\n+ 5,673\nOklahoma\n62,343\n61,470\n+\n873\nOregon\n16,764\n16,720\n+\nWe\nPennsylvania\n226,553\n228,642\n- 2,089\nRhode Island\n13,672\n13,356\n-\n316\nSouth Carolina\n32,159\n31,613\n-\n546\nSouth Dakota\n15,496\n15,871\n-\n375\nTennessee\n32,063\n31,739\n+\n324\nTexas\n80,712\n79,663\n+ 1,049\nUtah\n10,205\n10,190\n+\n15\nVermont\n5,089\n5,066\n-\n23\nVirginia\n23,098\n23,172\n-\n74\nWashington\n45,931\n46,726\n-\n795\nMost Virginia\n42,906\n42,748\n+\n158\nWisconsin\n70,236\n69,627\n.\n409\nWyoming\n4,645\n4,588\n+\n57\nHawaii\n2,146\n2,193\n-\n47\nWORKS PROGRESS ADMINISTRATION\nDivision of\nResearch, Statistics and Records\nRegraded Oclassified\n69\nApril 26, 1938\n2:45\nHM, Jr spoke to the President over the phone and\nsaid \"The Panama Railway Company sold the bonds and the\nman in New York is Fisher Newton, Treasurer, and I called\nup Louis Johnson, who is Acting Secretary of War, and he\nsaid he would be delighted to have them down and ask them.\nSo if you would tell them to do it. He thought he would\nlike to have word from the President. And it was even\nworse -- they offered it to five brokers 80 it looked as\nthough they were selling $55,000,000 and it went all over\nthe country and in New York it's gotten out and they are\ngiving the Government the horse-laugh.\" The President\nasked who Newton was and the Secretary said, \"He 1s Treas-\nurer of the Panama Railway Company with office in New\nYork. The President said, \"I have never heard of him.\nI will find out about him. à The President's next com-\nment was \"I am glad it was the Army and not the Navy.\nRegraded Uclassified\nTO\nApril 26, 1938\nSMALL HOME MORTGAGE INSURANCE\nDuring the week ending April 23, mortgages selected for appraisal\nnumbered 5,076 and amounted to $22,994,647. For the correspond-\ning week of 1937, 3,796 mortgages were selected for appreisal in\nthe amount of $16,017,136.\nof the nortgages selected for the week, 2,551, or 50.3 per cent, cov-\nsred new homes to be constructed and during the week construction\nwas started on 1,355 now small homes.\nLARGE SCALE PROJECTS\nThe attached table gives as of April 23, the name and location of\nthe 16 projects valued at $15,300,000 in operation as of that date,\nthe additional 22 projects valued at $17,300,000 under construction,\nand the 22 projects for $24,800,000 on which financing had been ar-\nranged as of that date. Financing arrangements were completed on\n4 of these projects totalling $4,000,000 during the week ending\nApril 23.\nApplications for insurance were received the past week on 25 projects\nin the amount of $7,500,000.\nPROPERTY IMPROVEMENT LOANS\nMore than 1,900 lending institutions are now reporting notes cover-\ning advances made for improvement to existing properties or for\nnew construction, end during the week ending April 23, 6,705 notes\nwere accepted for insurance totalling $3,160,958.\nRegraded Uclassified\nm. - 71\nFEDERAL HOUSING ADMINISTRATION\nWASHINGTON, D.C.\nWESKLY VOLUME OF FEA INSURING OPERATION\nPer 1980 and corresponding Period of 1937\nHOME MORTGAGES SELECTED FOR APPRAISAL\n1930\n1937\nWeek Ending:\nNo.\nil\nNo.\nil.\nJan. 6\n1,256\n$ 5,483,184\n1,967\n8 8,895,680\n15\n1,506\n6,851,200\n8,286\n9,568,860\n9\n22\n1,711\n7,299,975\n2,167\n9,447,127\n.\n29\n2,888\n8,150,040\n2,272\n10,091,713\nFeb. 8\n1,902\n8,571,895\n2,306\n9,721,165\n.\n18\n1,980\n8,787,105\n2,701\n11,068,000\n.\n19\n2,219\n10,085,800\n2,765\n11,764,009\n.\n26\n2,775\n13,100,280\n2,835\n11,747,954\nMr.\n8\n8,899\n17,618,40€\n3,844\n13,685,500\n.\n12\n4,470\n20,586,711\n5,405\n14,176,580\n#\n19\n4,697\n21,293,061\n4,095\n16,879,710\n-\n26\n4,065\n22,588,219\n3,476\n14,970,845\nApr.\n1\n4,722\n81,414,849\n5,627\n18,366,435\n9\n5,057\n23,248,102\n3,520\n15,414,083\n.\n18\n4,483\n20,388,490\n3,481\n15,234,425\n.\nas\n5,076\n22,994,667\n5,796\n16,017,158\nRegraded Uclassified\n72\nFEDERAL HOUSING ADMINISTRATION\nWASHINGTON, D.C.\nWEEKLY VOLUME OF NORTGAGES ACCEPTED FOR INSURANCE\n1938\n1937\nYeek Ending:\nNumber\nAmount\nNumber\nAmount\nJan. 8\n943\n$4,035,500\n1,462\n$5,821,275\n15\n1,101\n4,542,900\n1,756\n7,241,815\n22\n1,058\n4,445,500\n1,767\n7,438,500\n29\n1,329\n5,501,500\n1,880\n7,860,250\nFeb. 5\n1,099\n4,431,000\n1,811\n7,424,100\n12\n1,172\n4,649,900\n1,778\n7,410,850\n19\n1,194\n4,837,100\n1,869\n7,702,650\n26\n1,033\n4,350,200\n1,867\n7,524,500\nMar. 5\n1,589\n6,905,400\n2,291\n9,092,500\n12\n1,705\n7,601,400\n2,135\n8,947,600\n19\n1,883\n8,288,400\n2,388\n9,781,500\n26\n2,290\n9,990,900\n2,497\n10,298,380\nApr. 2\n2,642\n11,601,700\n2,602\n10,856,395\n9\n2,947\n12,703,400\n2,598\n10,661,655\n16\n3,256\n14,330,625\n2,660\n10,919,110\n23\n3,751\n16,514,000\n2,922\n12,089,160\nE\nRegraded Uclassified\n73\nWEEKLY VOLUME OF HOME MORTGAGES SELECTED FOR APPRAISAL\nAMOUNT REPORTED BY INSURING OFFICES AT END OF EACH week\nMILLIONS OF DOLLARS\nMILLIONS OF DOLLARS\n30\n30\n1938\n1937\n25\n25\n20\n20\n15\n15\n10\n10\n5\n5\nO\no\n30\nG\noz\n27\n3\niD\n17\n24\n1\n6\n15\n22\n29\n5\n12\n19\n26\n3\n5\n17\n24\n31\n-\n15\n22\na\n5\n12\n=\n26\n5\n12\na\n26\n2\ne\n16\n23\n30\n7\n14\n21\n20\n4\nII\n18\n25\n2\n9\n16.\n23\n6.\nJAN\nFEB\nMAR\nAPR\nMAY\nJUN\nJUL\nAUG\nSEP\nOCT\nNOV\nDEC\nRegraded Uclassified\n74\nEXPTAL 0000100 MONTGAGE COMMITTED\nCamsistive through April 11. 1084\nD. OF\nPAIMI or PROJECT\nLOCATION OF PROJUCT\nFAMILY\nAMOUNT OF MORTGAGE\n-\nIn Operation - Projects Completed\nCity\n2\n000-00001\nColonial Fillape, 2ade\nArlingion\nTo.\nB76\n# 1,180,000\nI #TE,000\n000-0000\nColumial Village,\nArlingica\n1s.\n463\n1,880,800\n1,480,000\n000-00003\nFalkiand Properties, Inc.\nfilmr Spring\nM.\n178\n1,100,000\n$40,000\n000-00004\nColonial Village Million\nArlington\nTs.\n2M\n105,800\nTAB,000\n000-00008\nVillage\nWashington\nD.C.\n401\n2,090,000\n1,480,000\n000-00008\nAddition\nfilmer Spring\nm.\n801\n1,919,000\n1,888,000\n052-00002\nBuring Do. of Dumalk\nBultimers\nm.\nEYE\n1,000,480\n600,000\n023-00002\nFalls Imploy Carp.\nFalls\nThat\n1.00\n$77,000\n100,000\n160-00002\nCheeter Crest\nFleebrood\nN.T.\nETS\n1,802,340\n1,180,000\n034-00001\nSix Termes\nTork\nè\n48\n168,564\n141,000\n038-00001\nMadville Souring\nMostrille\nè\n202\n1,008,000\n800,000\n058-00001\nCountry Club Apartmento\nN.C.\n44\n471,000\n$68,000\n058-00002\nUniversity Apartamate\nDurban\nN.C.\n114\n655,000\n900,000\n073-00001\nColonial\nInitenapolia\nInd.\nas\n$20,000\n189,000\n068-00001\nGreen True Memor\nLouieville\ná\n265\n1,397,000\n1,000,000\n002-00001\nCrossett Insing\nCrossells\nArt.\n199\n440,134\n880,000\n16\n5,666\n$16,948,18\n$15,820,000\nLoans Closed . *inder Construction\n000-00007\nSecond Buskingham Community\nArlington\nVa.\n160\n* $48,635\n# $88,000\n000-00000\nFirst Bankington Commity\nArlington\nTo.\nGLC\n2,250,000\n1,888,000\n000-00010\nThird Baskingham Comunity\narlingion\nTa.\n200\n$41,000\n650,000\n052-00002\nLanding\nAmapolis\nNO.\n66\n$50,000\n$80,000\n052-00008\nBorthmod\nBeltimore\nM.\n-\n1,007,000\n1,880,000\n051-00001\nMachroy Court\nleart\nI.J.\n210\n1,813,000\n1,088,000\n180-00003\nGarth Limited No.\nN.T.\n140\n1,010,000\nTTB,000\n180-00004\nGrayrosk ligited Div.\nN.T.\n188\nTET,000\n620,000\n018-00001\nSecond Gamine My\nJackson Beights\nN.T.\n110\n1,081,000\n60,000\n038-00002\nMarberth Apartments\nè\n114\n049,000\n480,000\n061-00001\nLimited Divident Beusing\nAhlanta\nOs.\n174\n806,000\n$40,000\n053-00003\nMyrtle Apartments\nCharlette\nN.C.\nT2\n406,000\n800,000\n083-00007\nSalsigh Apartmento\nMalaigh\nN.C.\n114\nT25,700\n975,000\n053-00004\nTwin Casties\nN.C.\n124\n660,000\n600,000\n053-00008\nCourte\nMaleigh\nN.C.\n147\nTOS,000\n$60,000\n051-00002\ndilmer Courts\nRichard\nThe\n155\n$20,800\n$80,000\n071-00001\nn.\n196\n197,700\n190,000\n073-00008\nin Alloway Knusing\nlive Alleng\n2d.\n40\n180,000\n130,000\n073-00003\nSmith Celegial\nIndianapelis\nInd.\nas\n226,250\n$80,780\n095-00001\nVillage\nit. Louis\nNo.\n284\n2,018,000\n1,800,000\n112-00001\nCala's Manor\nDallas\nfax.\n96\n451,771\n800,000\n114-00001\nliver Only\nSourton\n184\nTEO,000\n$11,000\n12\n8,671\n$18,344,606\n$14,984,750\nTOTAL PREMIUM PATING\n14 Projects\n$87,144,760\nFinancing Arranged\n017-00001\nfrom Corporation\nBarkfurd\nCas.\na\n4 188,600\nI\n99,000\n*000-00009\n*Parthelt\nDrembelt\nil\n10\n48,780\n$0,000\n031-00008\nGeneral Increasy\nBerry\nI.d.\n100\n649,000\n$10,000\n051-00008\nMuglish Village\nCreations\nE.J.\n80\nme,000\n676,000\n051-00004\nLinden Brunking\nLindon\nI.J.\n194\n1,200,000\n190,000\n031-00006\nHeleigh Carp.\nAtlentic City\nI.J.\nto\n$90,000\n180,000\n014-00001\nOrandy's Village\nBaffalo\nI.T.\n100\n1,676,000\n1,480,000\n1128-00008\nfaird Garden bay\nJustices Beights\nN.Y.\nETO\n1,803,000\n1,300,000\n018-00008\n- Bolloward\nLoss Island\nN.Y.\nBIO\n1,998,000\n3,200,000\n*160-00002\nApartments\nTadore\nN.Y.\nSWT\n1,768,000\n1,350,000\n160-00005\nCardons\nN.Y.\n584\n1,176,000\n1,880,000\n034-00008\n19th Street Corporation\nOpper Party\n7.\n450\n1,900,000\n1,480,000\n056-00004\nPark Plass\nBarrisharg\né\n137\n695,000\n$50,000\n054-00005\nfail las Byers Corp.\nPhiladelyhia\nÉ\n133\n666,000\n400,000\n034-00008\nliergate Housing\nTyper Darly\né\nso\n180,975\n101,000\nUS3-00009\nEncymed\nEight Point\nN.C.\nso\n908,000\n255,000\n061-00002\nLardment\nBerfolk\nè\n178\n$16,000\n$35,000\n051-00008\nDescription Court\nDate\nè\n-\n411,000\n$98,000\n051-00006\nFaberview Apertando\né\nTO\n808,800\n$40,000\n043-00001\nLevega Olastange Village\nColumina\ndida\nsio\n1,888,000\n1,800,000\n122-00001\nles\nLos Imples\nDalif.\n1,000\n$,800,000\n8,800,000\n127-00001\nMedicane Park touring\nSextile\n1\nBOS\n1,960,000\n1,080,000\n22\n0,200\n$19,847,000\nMillirmal Consitents Ortatending\n19\n3,600,000\nTOTAL INSURED\nre Projects\n. Construction - in process.\n1/Includes 1 project for $1,100,000 reflamed.\nDivision of Commission not Relictive\nQuesking Mustistion Sention\nNo. DE Special\n21769\nRegraded-Uclassified\nH\n75\nPARTIAL PARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Paris, France\nDATE: April 26, 1938, noon\nNO.: 652\nFROM COCHRAN.\nRUSH.\nThis morning at half-past eleven I called at the\nBank of France. This morning at 160.50 to the pound\ntrading began in the franc. Instructions had been given\nby the French Treasury to the control that by noon the rate\nshould be brought near 160.30. At the time I taken called\nat the Bank, half-past eleven, the rate had been moved\nto 160.40, 175,000 pounds having been taken by the market.\nThe control lost 225,000,000 france through the\noperations of the stabilization fund yesterday when it\nbrought the franc from around 166 to 160.50. Most of this\namount was spent after reaching 8 level of 161. From\nstatistics it was apparent tim t the market had been & com-\nparatively narrow one and that last week firm opposition\nby the control could probably have stopped the speculative\ndrop in the franc without it having cost too much.\nDaladier's written declaration mentioned my 649,\nApril 25, 6 p.m. as given out after the Cabinet meeting\nat noon was followed by only a brief comminique after the\nmeeting of the Council of Ministers in the evening to the\neffect that the latter had, after explanations by Daladier,\nunanimously ratified the plan for economic and financial\nrecovery\nRegraded Uclassified\n76\n- 2 -\nrecovery which had been examined during the forenoon by\nthe Cabinet. It had been anticipated in some circles and\ncertain journals that 8. more definite elaboration of the\nprogram would be made on this occasion or appear this\nmorning. So far nothing else has been communicated.\nEND SECTION ONE.\nWILSON.\nDECEIAED\nseer 88 FA\nTHINTHARE\n-\n- - at - Line\nEA: LWW\nRegraded Uclassified\n77\nPARAPHRASE OF SECTION TWO, NO. 652 OF APRIL 26\n1938 FROM PARIS.\nYesterday's recovery on the market 18 attributed to\nDaladier's statement in part of the prese; however, the\ngeneral opinion is that this in itself was too indefinite\nto be of much help except to give some assurance that there\nwas no dissension in the Cabinet and that the stabiliza-\ntion fund had been responsible for the real improvement\nin the franc. From observation of the market this morning,\noperators seem to have been convinced by the movement of\nthe French franc in recent days that at a quotation of\naround 160.50 sterling is & good buy.\nMost confidentially I have been given to understand\nthat the decision to push back the franc energetically\nyesterday was entirely the Minister of Finance's, Mar-\nchandeau. It appears that no Government official wants\nto advocate depreciation of the franc to 175 to the pound\nsince they obtained very specific information about cer-\ntain bankers spreading the report that there would be\nsuch depreciation; the Government officials do not want\nthe risk of appearing as defending such bankers.\nEND MESSAGE.\nWILSON.\nEA; LWW\nRegraded Uclassified\n78\nApril 36, 1938\n3 P. m.\nAmbassador Bullitt was here. Wanted me to explain\nthat our sttitude was towards the French franc. He tried\nhis best to get me to take the position that Paul Reynaud\ndoes: that the franc should be permitted to float, seek\nits own level, and that Paul Reynaud believes that if that\nhappens that, after it seeks its own level, capital will\nreturn to France.\nI said, I am very sorry; that neither the Treas-\nury, the Federal Reserve Bank of New York or the State\nDepartment agreed with that theory and we believe that the\nbest thing for France and for the United States would be\nto have them put on the same kind of rules and regulations\nthat we have, which would stop the flight of capital from\nFrance; that if they followed the theory of Paul Reynaud\nand allow the franc to float, he asked me what I would do\nand I said I believed I would have to tell the French\nthat they had broken the agreement of the Tripartite and\nthat the English would take the same position. He said,\nWell, do you want the French to continue to lose gold? I\nsaid, No: it's bad for them and it's bad for us, but I\nJust can't understand why the French don't put on rules\nwhich would stop the flight of capital.\nIt was quite evident that Bullitt was impressed\nwith the so-called Reynaud theory of letting the franc\nseek its own level. He said, Suppose it does go to 200\nfrance to the pound-sterling. I said, Well, we just\ncan't sit here and permit it. And he said, Why? and I\nsaid, What the Tripartite has done, it has stopped countries\nfrom using competitive devaluation as a weapon with which\nto get trade. I said, The Italians got away with bomb-\ning civilian populations in Ethiopa and they set the style.\nThey are bombing, now, civilian populations in Spain and\nChina. If we permit France to get away with permitting\nher franc to continue down to nothing, it will set a style\nand other countries will follow suit and we just cannot\npermit that.\nBullitt said he was convinced and that he had got\nthe information that he wanted.\nHe then said, Tell me about Bonnet's speculating\nin the franc. I said, All I know is that the Indo-Chin\nkeeps an account with a bank in New York and this bank\nRegraded Uclassified\n79\n-2-\ninforms us that they were always right in their operation\nin the franc and this only took place while Bonnet was\nMinister of Finance, 80 the natural inference is that\nBonnet was interested in this account, although we can't\nprove it. He said, That's all that I want because, he\nsaid, sometime when Bonnet is riding on his high horse,\nBullitt said, \"I can hint that I know about this and it\nwill be useful to me for trading purposes.' So I said,\nIf you want to use high-class blackmail, it's up to you.\nHe said, 1 'I have used it before and it's proved to be very\nuseful.\no0o-o0o\nRegraded\nUclassifie\n270\nApril 26, 1938\n79A\nMy dear Mr. President:\nI am inclosing herewith a\nphotostat of memorandum I have re-\nceived from Admiral Peoples which\nis self-explanatory.\nFaithfully yours,\nThe President,\nThe White House.\nRegraded Uclassified\nRHINEBECK, N. Y. P. 0. (NEW)\n#\nTREASURY DEPARTMENT\n79B\nPROCUREMENT DIVISION\nPUBLIC BUILDINGS BRANCH\nWASHINGTON\nBUILDING. AND THESE LETTERS\nLYING. QUOTE THE ABOVE SUB- PB- SA\nApril 25, 1938\nMEMORANDUM:\nTo:\nSecretary of the Treasury\nFrom: Director of Procurement\nReference is made to your telephone call regarding\nthe stone to be used for facing the proposed new Post\nOffice building at Rhinebeck.\nAs previously arranged, stone from the old Kip-\nBeekman House is to be used for the Post Office 80 far\nas the condition of that old stone would permit. For\nthe remainder of the facing of the building it is proposed\nto get stone from the various fence walls, etc., that\nexist in great quantities all over Dutchess County.\nNo new stone whatever 1s to be used for facing on\nthe new Rhinebeck Post Office.\nDirector of Procurement\nRegraded\n4.1f\nFEDERAL RESERVE BANK\n80\nOF NEW YORK\nFFICE CORRESPONDENCE\nDATE April 87, 1958.\nCONFIDENTIAL FILES\nSUBJECT: TELEPHONE CONVERSATION WITH\nJ. W. McKeon\nBANK OF FRANCE\nGM\nMr. Knoke called Mr. Cariguel at noon today to advise\nhim that francs were steady here at around 311 and the market\nvery quiet. Futures, however, seemed to be under pressure. He\nhad heard of one 30-day transaction going through this morning\nat 6 points discount for the equivalent of 23% per annum. 90-day\nfrancs were quoted 10 points discount for the equivalent of about\n13% per annum,\nCariguel reported that he had had a bad day end lost\nabout £2,000,000 in exchange today after losing £1,500,000 yester-\nday. Under present conditions no technique would be of avail; all\nhe could do was to stand up or retreat. He did not look for any-\nthing to happen one way or the other until after the London Conference,\nand the promised decrees began to come out early in May.\nJWMcK:LWK:KW\nRegraded Uclassified\n81\nM\nMB\nPLAIN\nLondon\nDated April 27, 1938\nRec'd 2:31 p.m.\nSecretary of State,\nWashington.\n345, April 27, 6 p.m.\nFOR TREASURY FROM BUTTERWORTH,\nThe increase in the British income tax to 4 shillings\nC\n6 pence in the pound came as/painful surprise to the City\nwhich had Expected the income tax st least to remain un-\nchanged. Despite declines in over the counter tradings\nlast Evening and at the opening this morning security\nmarkets have not been unduly weak. In fact towards the\nclose & general rise occurred and prices ended the day at\nabout pre-budget levels. There is being manifest Else-\nwhere a characteristic acceptance of the necessities of\nthe situation. This feeling is accurately protrayed in\nthe opening paragraph of the Editorial in the NEWS-CHRONICLE\n\"A school boy was once asked what he thought of his head-\nmaster. HE replied that he was la beast, but a just beast'.\nThat will Exactly Express the feelings of the British\npublic about Sir John Simon's budget.\" The titles of the\nEditorials tell their tale: \"Facing the cost\" \"Paying\nwhile\nRegraded Uclassified\n82\n2- No. 345, April 27, from London.\nwhile WE can\" Et cetera. Even the Socialist DAILY HERALD\nstates \"In face of Enormous pressure to put all the deficit\nupon the shoulders of the future Sir John Simon has however\nhad the courage to call at least a partial halt. HE has\ndecided that since ninety million pounds of the deficit\nincurred as a direct consequence of armament Expenditure\nhas been financed out of loan and since future supplemen-\ntary charges are to bE financed in the same way the balance\nof thirty million pounds shall bE not out of taxation.\nThat is a wise decision.\"\nThe MANCHESTER GUARDIAN: \"the financial picture the\nChancellor presents is a desperate one and calls for\ndesperate remedies. WE cannot have rearmament without\ntears and with the prospect of EVEn worse years to come --\nworse both in the scale of Expenditure and in the capacity\nto pay taxes -- the Chancellor was WISE not to resort to\nsuberfuge to rabbits from the Treasury's hat. WE may need\nthose later. What should give us pause is not the present\nmeasures but the outlook ahead and where the Ever-mounting\nExpenditure will lead when the capacity to pay charfully\nhas gone from us.\"\nThe TIMES: \"This will not bE a popular solution but\nit may at any rate claim the virtue of courage. If it\nETTS\nRegraded Uclassified\n83\n3- No. 345, April 27, from London.\nerrs it Errs on the side of candor. It certainly does more\nthan would DE achieved by a more Extensive recourse to\nborrowing to make the country realize the truths of rearma-\nment. The cost of it is not greater than the country can\nbear and it will bE born without flinching so long as the\nnecessity persists. Sir John Simon has been influenced\nby the desire to keep as large a proportion as possible\nof his borrowing power in reserve to meet the still higher\ndemands of next year and the year after when the Expenditure\non defence is EXPECTED to reach its peak.\"\nKENNEDY\nCSB:\nRegraded Uclassified\n84\nMb\nGRAY\nParis\nDated April 27, 1938\nREc'd 2:35 pame\nSECRETARY of State,\nWashington.\n661, April 27, 6 p.m.\nFROM COCHRAN.\nFranc was first traded today at 160.20. Losing fair\namount at this rate control let it slide to 161 and then\nintervened to bring it back to 160,15. Forward frano\nweakened to discount of 3 1/8 for one month sterling and\n5 for three months. Swiss still buying sterling and sElling\nFrench francs. Paris market atmosphere is not good.\nOperators fEEl that control is purposely keeping franc\nstrady pending visit of Daladier and Bonnet in London where\nit is Expected they will Explain difficulty of holding\nfranc in view of heavy armament costs and will SEEK aid\ntherefore.\nLocal press repeats without comment stories from\nLondon nEwspapers to the Effect that French MOVE in\nstrengthening the franc resulted from representations\nmade to French by British authorities on the ground that\nlast week's decline in the franc contravened the tripar-\ntite\nRegraded Uclassified\n85\n2- No. 661, April 27, from Paris.\ntite agrEEMENT. Financial news criticises British for\ndictating advice on the franc rate unless they are able\nthrough a loan to hElp France maintain the present lEVEl.\nLocal observers look for heavy pressure on the franc if\nnegotiators return empty handed financially from London.\nSentiment perturbed further by request of Government\nEmployees for more pay because of increased cost of\nliving which may lead to renewed labor unrest or heavier\nburden on the Treasury.\n(END SECTION ONE).\nWILSON\nCSB:\nDECEIVED\nSECT is\nRegraded Uclassified\n88\nPARAPHRASE OF SECTION TWO OF TELEGRAM NO. 661\nOF APRIL 27, 1938, FROM PARIS.\nAt half-past five I called at the Bank of France;\nthe French control by that time had yielded in foreign\nexchange 320,000,000 francs. On Tuesday a total of\n255,000,000 francs was spent in defense of the franc.\nMy Bank contact had told the Bank's Governor that there\nwas no technical measure which could be used by the\nstabilization fund in the present circumstancesto over-\ncome the franc's present weakness. In the last conversa-\ntion which Fournier had with Daladier before he left\nfor London this afternoon he passed on this information.\nThe Prime Minister asked what would be recommended by\nFournier, and the latter advised that the budget be\nbalanced. Daladier told Fournier that he personally\nwas in favor of increasing the country's production\nrather than have the taxes increased. Fournier emphasized\nthe possibility of raising the 20 or 30 billion francs\nrequired by the Treasury this year through industrial\nexpansion.\nConstant recommendations have been made by Daladier's\nadvisers against his endeavoring to get financial assistance\nin London on this visit. However it is not yet certain\nwhether Daladier will take this advice. Those who feel\nthat\nRegraded Uclassified\n87\n- 2 -\nthat it will not be possible to get financial aid from\nthe British at this time are convinced that if the French\nGovernment itself would only show more initiative and\nconfidence inspiring ability in rectifying the situation,\nthe British would be quick to give the French Government\na loan.\nEND MESSAGE.\nWILSON.\nBECEIAED\nEA:LWW\nBRN BS 99A\nTHEMTHA930 YRURAIRT\na y mill\nremo - at Instructions now\nRegraded Uclassifie\n88\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, London, England\nDATE: April 27, 1938, 6 p.m.\nAA\nNO.: 346\nFROM BUTTERWORTH.\nFOR TREASURY.\nIn accordance with instruction, I passed on a discreet\nversion of the pertinent parts of telegrame No. 645 and\n653 of April 26 from Cochran to Waley. The latter said\nhe appreciated being informed. Waley expressed the hope\nthat the visit of the French Prime Minister and the\nFrench Foreign Secretary would be primarily a diplomatic\noccasion and not a financial one. He said that the Chan-\ncellor of the Exchequer would not participate actively in\nthe discussions since he was still engaged with the debate\non the budget. Financial questions will be discussed,\nof course. It was hardly appropriate to have Bonnet\nto carry on any such conversations, as these would have to\nbe primarily between the two Prime Ministers. While\nWaley could not say definitely, it was certainly likely\nthat they would be connected with other matters. It would\nprobably be e a horse deal\" as a. matter of fact. Waley\ntold me that for his part he was just as glad that the\nresponsible negotiator would not be Simon because he had\nRegraded Uclassified\n89\n- 2 -\na great deal more confidence in the ability of Chamber-\nlain to. horse trade with Daladier or anyone else than\nhe did in Simon.\nThe French control has given decided support to the\nfranc today and kept the rate between 160 and 16h. It\nlost a considerable amount of sterling. Furthemore, the\nfutures moved out, one month being bid at 3 3/8, three\nmonths at 5 1/2. The demand for coin also increased.\nKENNEDY.\n03V13038\n8681 is Я9А\nTM3MT8A930 YRUZA3RT\nEA: LWW M st ,\" - la willo wast\nRegraded\nUclassifie\n90\nGROUP MEETING\nApril 27, 1938.\n9:30 A. M.\nPresent:\nMr. Magill\nMr. Oliphant\nMr. Gaston\nMr. White\nMr. Haas\nMr. Gibbons\nMr. Lochhead\nMr. Bell\nMr. Upham\nMr. McReynolds\nMrs. Klotz\nH.M.Jr:\nMac, what about the Panama Pacific Railway thing?\nMcReynolds: It's a corporation, totally Government owned.\nH.M.Jr:\nA little louder.\nMcReynolds: It's a corporation, totally Government owned -\nstock all held by the Secretary of War. He\nappoints the Directors to operate it - officers\nand directors. He, ah - then one share - qualify-\ning share is held by each director by assignment\nwhen they are appointed, and they operate not\nonly the railroad and the steamship company, but\nvarious concessions on the Canal Zone. But it\nis just an operating corporation for the business\nof the Panama Canal.\nH.M.Jr:\nHow much money do we supply them with?\nMcReynolds: We only supply them with money on subscription to\nstock. Of course, they take in- - through their\noperations, revenue they take in they spend and\nturn over profits to the Panama Canal.\nH.M.Jr:\nAre there any profits?\nMcReynolds: Sometimes there have been.\nH.M.Jr:\nSupposing there is a deficit?\nMcReynolds: The Government would subscribe to more stock.\nH.M.Jr:\nHow much have they subscribed to?\nRegraded Uclassified\n- 2 -\n\"\n91\nMcReynolds: I'm getting an estimate upstairs. Danny's place\nupstairs is making up a statement.\nH.M.Jr:\n(Over telephone:) Secretary of War Woodring.\nNo one else will do, please.\nAll right, Mac, what else?\nMcReynolds: I have nothing but just this list of - revised\nlist of buildings that\ngave me last night -\nsaid he had assigned everything, - signed by the\nAssistant Postmaster. It's up to date. It's the\nup-to-date list prepared by the Post Office and\nProcurement.\nH.M.Jr:\nWho's Ramsey Black? I never heard of him.\nMcReynolds: I never heard of him either.\nGaston:\nRamsey Black? He's Third Assistant Postmaster,\nsucceeding the man that died.\nH.M.Jr:\n(Nods to Mr. Upham.)\nUpham:\nYou asked me to bring in this memo from Herman\nthis morning on the U. S. H. A.\nH.M.Jr:\n(To Mr. Oliphant:) Now what's the purpose of\nsending me a memorandum like that? What am I going\nto do with it? What am I going to do with a thing\nlike that?\nOliphant:\n(Reads memo - remark inaudible.)\nH.M.Jr:\nYeah, but sometimes the information is very\nembarrassing. I mean, you give it to me - what\nam I going to do with it?\nOliphant:\nWell, I thought you were raising a question on it.\nH.M.Jr:\nI didn't raise a question. The President of the\nUnited States writes the Comptroller that he should\ndo this, and you write me and I don't - after\nreading 1t twice, I don't get - are you saying\nthat\nOliphant:\nThe ruling is sound.\nH.M.Jr:\nYeah.\nRegraded Uclassified\n- 3 -\n92\nOliphant:\nThe ruling is sound.\nH.M.Jr:\nBut I mean - you've never given me an opinion\nbefore on any action taken - on the action of\nthe Comptroller of the Currency. It's out of the\nordinary. I was just wondering why.\nOliphant:\nI thought you had raised a question. But it was\nmentioned here in the staff meeting - a question\nwas raised about it.\nUpham:\nI think the other morning you did refer to having\nseen something about it in the paper.\nOliphant:\nAnd asked about it.\nH.M.Jr:\n(Telephone conversation with Secretary of War\nWoodring at 9:34 A. M. is attached hereto.)\nRegraded Uclassified\n93\nApril 27, 1938.\n9:34 a.m.\nH.M.Jr:\nHello.\nOperator:\nSecretary woodring.\nH.M.Jr:\nHello.\nHarry\nwoodring: Hello.\nH.M.Jr:\nHarry?\n#:\nYes.\nH.M.Jr:\nHenry Morgenthau.\nM:\nYes.\nH.W.Jr:\nHerry, I don't know whether Louie Johnson had a chance\nto tell you about my conversation with him and the\nPresident yesterday.\nW:\nNo, I just got in this morning.\nH.M.Jr:\nWell, I - 1 wanted to take a minute to tell you.\nW:\nYes.\nH.E.Jr:\nOn Friday the Panama Railway dumped on the market\n11 million dollars worth of Government securities.\nW:\nYes.\nH.M.Jr:\nAnd completely disturbed the Government market, and\nknocked it down, due to the asinine way in which they\nhandled it. They offered it to five brokers, and each\nbroker thought he had an order for 11 million dollars.\nN:\nAh-ha.\nH.M.Jr:\nI find that you're the sole stockholder.\nA:\nYes.\nH.M.Jr:\nI asked for you yesterday; you weren't there. I spoke\nto Johnson and Johnson said that he couldn't do anything\nabout it without the President, so I called the President\nand the President called Johnson and told nim that he\nRegraded Uclassified\n94\n-2-\nwanted Rossbottom, the Vice President, who handled\nthis thing, to come down and see me, He's going to\nbe here at 10:30 this morning. Hello - hello -\nhello.\nOperator:\nOperator.\nH.A.Jp:\nWe were cut off.\nOperator:\nOh, I'll get him right back.\nH.M.Jr:\nHello.\n%:\nHello.\nH.M.Jr:\nlie were cut off.\nA:\nYes. Yes.\nH.M.Jr:\nWell now, I was simply bringing it to the attention\nof the Acting Secretary of Mar, and I don't particularly\nenjoy calling down one of your subordinates.\nW:\nYes.\nH.M.Jr:\nBut this was the orders of the President, and I wanted\nto let you know that this man is going to be here at\n10:30, and if you cared to send a representative here\nat this time I'd be very much pleased to have you do\n50,\nW:\nRossbottom is coming to your office at 10:30?\nH.N.Jr:\nAt 10:30 this morning.\nNo, I think that's all right.\nH.M.Jr:\nBut I'd be glad - I'd be more than pleased to have you\nhave a representative here.\nN:\nNo. No, I think that's all right.\nH.M.Jr:\nWhat?\nI think that's all right.\nH.M.Jr:\nYes,\nRegraded Uclassified\n95\n-3-\nN:\nWell, what you want to do is to find out, don't you,\nabout what - how it was handled.\nH.M.Jr:\nI want to know why - how it was handled, and why he\nhandled it in that most unusual ...\n⑉:\nYes.\nH.H.Jr:\n... manner.\nW:\nNow, all I know about it - I got a report from them.\nR.M.Jr:\nYes.\nn:\nThat is, we have a committee - a Finance Committee.\nH.M.Jr:\nYes.\n#:\nAt the last directors' meeting there was nothing said\nabout selling Government bonds,\nH.M.Jr:\nYes.\nW:\nAnd I had no knowledge of it; only I got a report after\nit was done, saying that the Finance Committee had voted\nto sell these bonds. We have to pay for these three\nships\nH.M.Jr:\nYes.\n... in the course of, perhaps - well, we have a payment\ndue now and - about four hundred and fifty thousand, and\nthen a couple of weeks or a week later we have the same\namount all now through up until August.\nH.M.Jr:\nYes.\nW:\nAnd this report that came to me said that the Finance\nCommittee had decided that they had better sell those\nbonds now because of the high profit in it, of course.\nNow, I didn't know in which way - in any way that they\nhad offered them, only that they told me that they had\noffered them to one broker rather than - I got the\nimpression - rather than putting them on the market.\nH.M.Jr:\nNo, they handled them in - in - according to our fiscal\nagents, the Federal Reserve of New York - that they don't\nRegraded Uclassified\n98\n-4-\nknow when anything has been handled in B.S stupid\n& way or in B way that disturbed the market 88 much\nas they did it.\nHmmai\nH.M.Jr:\nFive different brokers had an order, were asked to\nbid on 11 million dollars worth of bonds, and they\nwired all over the country for bids, so it looked\n...\nN:\nYes.\nH.M.Jr:\nas though they were selling 55 million.\nYes, I see. Well now\nE.V.Jr:\nAnd it - and - and it disturbed the market. It so\nhappened that that day they could take them, but they -\nmost any other day of this year they couldn't have.\nYes. what - what did it do to the market?\nH.M.Jr:\nwell, it just knocked the top off and it hesn't\nrecovered yet.\nHramm!\nH.M.Jr:\nAnd ...\nNow, I know this, that they had offered it to the\nBethlehem Shipbuilding Company, tried to get them to\ntake the bonds in exchange - instead of cash, you know.\nH.M.Jr:\nYes.\nN:\nTried to offer them to them. But - but just what the\nstory was on that I'm not certain. I think maybe they -\nthe Bethlehem said that they would accept the bonds at\nprices quoted on the exchange the day before, and I\nthink these other people, Childs, took them, didn't\nthey? - do you know who it was took them?\nH.M.Jr:\nChilds.\nChilds - I think Childs took them at a higher price.\nH.M.Jr:\nBut they offered them, I believe,\n....\nRegraded\nUclassif\n97\n-5-\n#:\nWell, that's the bad part, offering them to five\ndifferent brokers. I see the point.\nH.K.Jr:\nAS a matter of fact, since the Russians offered a\nmillion pounds sterling the day after the tripartite, -\nthis was the second most stupid way any money has been\nhandled since the Russians handled that thing about\nthree years ago.\nW:\nYes. You\nS.N.Jr:\nBut the bad part about it is, the Street all knows\nthat it's an agency of the Government and we're all\ngetting the horse laugh.\nYes.\nH.S.Jr:\nJust gives them something else to roll along their\ntongues.\nYes. You'll see Rossbottom at 10:30.\nH.M.Jr:\nI'm seeing him, but I - I dian't - I wanted to give\nyou a chance to send your own person here.\n.7:\nNo, I think that's all right, because\nd.M.Jr:\nI mean I thought\nW:\nI didn't have any knowledge of it before it was\ndone, 30 I think that's all r ight, just to\nH.M.Jr:\nWell, the normal way was, I would have filed my\ncomplaint with you and let you handle it.\nThat's - yes.\nH.M.Jr:\nBut this is the President's order, ...\nX:\nYes.\nH.M.Jr:\nthat he should come to see me.\n#:\nWell, that's all right.\nH.N.Jr:\nI wented to make it - be sure that you understood.\nW:\nYes. Quite all right.\nH.M.Jp:\nThank you, Harry.\nW:\nGood-bye.\nRegraded Uclassified\n- 4 -\n98\nH.M.Jr:\nHe didn't know about it.\nMcReynolds: He doesn't even mind.\nH.M.Jr:\nWhat?\nMcReynolds: I say, apparently he doesn't even mind.\nH.M.Jr:\nAt least I've cleared myself. Herman, let me -\nmay I have that.\n(Mr. Oliphant hands H.M.Jr. memo, which he\nreads for a minute.)\nH.M.Jr:\nYou see, Herman, you - you - in this thing, you\nare criticizing the Comptroller of the Currency -\nand maybe you're right. You say, \"I understand\nthat bonds of local housing authorities are the\nonly ones singled out for special treatment by the\nComptroller of the Currency.\" The natural question\nis \"Why were they singled out?\" The answer is,\n\"Because the President of the United States\ndirected that he do so.\"\n\"In all other cases the standards provided in the\nRegulations of February 15, 1936, are applied by\nthe bank examiners to the securities included in\nthe banks' portfolios.\" In other words, this is\nbeing treated a special way. The natural inference\nis, why?\nOliphant:\nThat is for your personal information, and I under-\nstood you made the inquiry.\nH.M.Jr:\nNo. You know nothing here is personal - I mean,\nit just can't be.\nOliphant:\npart of the process of keeping you fully\ninformed.\nH.M.Jr:\n\"The ruling makes no mention of the eligibility of\nthe balance of the issue. As a matter of fact, 90%\nof the issue ordinarily would be purchased by the\nUSHA and offered eventually for sale to the public.\nIf these bonds are to enjoy the same market advantages\nas the 10% of the issue included in the Comptroller's\nruling, it would appear necessary for the Comptroller\nto broaden his ruling when such an offering is made.\"\nRegraded Uclassified\n99\n- 5 -\nWell now, the point that I raise - what I got from\nthis was that if this ruling could apply to ten\nit should also apply to the ninety. Is that your\nopinion? Huh?\nOliphant:\nThat's as good a reason for it, yes.\nH.M.Jr:\nNow, on that, \"New Deal Experts act to stimulate\nhousing - remove ten per cent borrowing restriction.\"\nAre you (Bell) familiar with it?\nBell:\nIn a general way only.\nH.M.Jr:\nWhat I'm trying to get at is this: In this room -\nwe're all here. I think that Straus was very much\nin error when he got the President to write this\nletter which he did.\nOliphant:\nI didn't know about it.\nH.M.Jr:\nCy, am I correct?\nUpham:\nRight.\nH.M.Jr:\nNow Straus got him to write this letter, and if the\nten per cent is removed. and I want to get - at\nleast, I'm thinking about it - to get the Comptroller\nto reverse himself and withdraw the rule, and then\nit's up to him to decide, and should he rule that\nlocalities can buy a hundred per cent of the\nsecurities of the U. S. H. A. - or can they buy\nnothing.\nUpham:\nBanks can buy it.\nH.M.Jr:\nBanks. See what I'm getting at? The thing that -\nsince I have this thing, should I say to the\nPresident, \"Should I withdraw this letter?\" Then\nthe Comptroller will say, \"No, I made that ruling.\"\nUpham:\nHe thought, in addition to the President's request,\nthat they were eligible for purchase, but he didn't\ndo it just because the President requested it. He\nthought they were all right. In addition to that.\nH.M.Jr:\nThat may or may not, but I mean - Oliphant makes\nan excellent point, but it's embarrassing to me,\nknowing that the President wrote this letter, and\nI think it's a very stupid ruling. I mean, what\nyou say 18, the banks can't buy on the ninety per\nRegraded Uclassified\n100\n- 6 -\ncent but they can buy the last ten.\nUpham:\nWell, the U. S. H. A. only asks for a ruling on\nthe ten per cent. They didn't ask\nH.M.Jr:\nThat's like you say a man pleads guilty - he is\ncommitted for ten years, and asks to have it\nrecommitted - he says, \"I only want to have my\nsentence recommitted for one year.\" \"If you\ndidn't do the crime, why do you ask to be let\noff only for the last year?\"\nUpham:\nThey didn't feel the ninety per cent bond would\nbe marketable, and they asked the Comptroller to\nrule that this ten per cent would be marketable.\nThe ten per cent bond seemed better than the ninety.\nH.M.Jr:\nWe're in it now - I'm going to ask, as long as we're\nin it, and I'm going to keep Mr. Oliphant's\nmemorandum because if this thing - if we have to\nadvance a hundred per cent, see, then I'm going\nto have you (Upham) informally tell the Acting\nComptroller I want him to re-examine this whole\nquestion, and should he tell the banks that they\ncan buy a hundred per cent of the securities or\nnot. See?\nUpham:\n(Nods \"Yes.\")\nH.M.Jr:\nAnd keep both Mr. Oliphant and me informed because\nI - I think that\n.....\nOliphant:\nLike Foley to sit in?\nH.M.Jr:\nYes.\nMcReynolds: Foley's entirely familiar with the whole background\non that because Foley and I spent hours with the\nadministrator over there on this question of that\nten per cent, and its relationship and its position\nwith respect to the ninety.\nH.M.Jr:\nYou see my position, Herman?\nOliphant:\nWell, I\n----\nH.M.Jr:\nGo ahead and talk to me.\nRegraded Uclassified\n101\n- 7 -\nOliphant:\nI don't know any other basis on which to operate\nexcept to keep you fully informed. I think the\nrecords being made up in the Treasury will never\nneed to be apologized for.\nH.M.Jr:\nQuite true, but I think if you look up your records\nyou'll find that this is most likely the first\ntime that you've written an opinion on a ruling\nof the Comptroller.\nOliphant:\nBut there's been no other occasion.\nH.M.Jr:\nYeah. There might be if we looked at them. Might\nfind plenty.\nOliphant:\nWell, no other occasions on which you made\ninquiry.\nH.M.Jr:\nWell, I don't remember, but evidently I must have -\nbased on that. Evidently I did, but I have no\nrecollection of it, because I just can't -\n(to Mrs. Klotz) I wish you'd, just to satisfy my\ncuriosity, look through, will you, and see what\nI did or didn't say. It must be within the last\nten days.\nOliphant:\nFirst or second day after you got back.\nH.M.Jr:\nHuh?\nOliphant:\nFirst or second day after you got back.\nH.M.Jr:\nSo, well now - how are we going to leave it. You\nare going to look into this bill.\nUpham:\n(Nods \"Yes.\")\nH.M.Jr:\nAnd see where we're at.\nMcReynolds: And find the legislative history on it.\nH.M.Jr:\nAnd I also would like a copy of the letter that\nthe President wrote. And who's going to find out\nabout this bill?\nUpham:\nI'd be glad to.\nH.M.Jr:\nWell, does Foley know about this bill?\nRegraded Uclassified\n- 8 -\n102\nOllphant:\nI think he does.\nH.M.Jrt\nClear through you?\nBell:\nNo, it did not. I was a little surprised at that\nbill on a hundred per cent. I thought that the\nten per cent they were talking about that the\nUnited States would advance that ten per cent and\nthen allow the localities to reimburse it later\non or at the end of the construction period.\nH.M.Jr:\nAnd in discussing it with Straus I said, \"That's\nperfectly silly.\" I said, \"We'll advance it;\nwe'll never get it back. Why not give them the\nwhole thing?\" That's an impossible plan. The\nway to do it is waive the ten per tent. \"We\nwon't turn the stuff over to the community until\nwe get the last ten per cent, and that is the\nway I want it.\" I said, \"Well, that makes sense\nto you, but if you really want to get' it, give\nthem the whole thing.\nNow, while we're on bills, who knows the status of\nIckes' bill - Public Works?\nBell:\nI only know that it's - there's a draft in the hands\nof the Appropriation Committee. They had a hearing\nMonday, I think, with Ickes and Woodrum. They told\nme it went off very well, and they thought they\nwere going to get the bill through without any\nearmarking, but he advised me that there was a\nprovision in that bill that would permit these\nloans without interest, and I expressed surprise\nand he said, \"Oh, I'm sure it's there.\"\nH.M.Jr:\nWho's your informer?\nBell:\nCliff Woodrum, Chairman of the Committee.\nOliphant:\nThat was the discussion we had between - Ben Cohen\netc., was in there - that it was no use - no\npoint in its being in, and\nH.M.Jr:\nNow, did the President mention it in his message?\nBell:\nYes.\nOliphant:\nWell, it's harmless, and nobody will take advantage\nof it.\nRegraded Uclassified\n- 9 -\n203\nBell:\nWell, I think Woodrum would like to have it out\nof the bill. He says it's there now, and he's going\nto talk to the President about it.\nH.W.Jr:\nWell, you say it's harmless. I disagree with you,\nand I pointed out to Jimmy Roosevelt that if you're\ngoing to do business, why not let's go to Thomas\nCurrency.\nBell:\nIt's a bad principle.\nOliphant:\nThat's the way it stands; nobody would use it,\nbut it's open to the charge that you're trying to\nabolish it.\nH.M.Jr:\nI think it's fraught with danger - I think 1t's\nfull of danger.\nMcReynolds: There's a public statement from Woodrum about it\nin which he mentioned the interest on loans and\nIn which he said it is confined to forty years.\nH.M.Jr:\nWill you find out. And the reason I didn't know\nabout it - the particular reason I'm bringing it\nup, it isn't the way the bill was explained to me\nlast, that four fifty for grants and five fifty\nfor loans. It's now the way it was before you and\nI argued with the President. It now stands, a\nbillion loans and four fifty, grants. There's\nnothing in there that the aggregate should not\nexceed a billion dollars. In other words, we\ndidn't get a thing.\nBell:\nI didn't know that.\nH.M.Jr:\nThe way I saw it somewhere - billion dollars for\nloans, four fifty, grants, and not the way the\nPresident agreed with you and me, that the aggregate\nshould not exceed a billion.\nBell:\nMake any difference what form it went out, it\nshould not exceed a billion.\nOliphant:\nIt didn't?\nBell:\nHe allocated it in his message.\nH.M.Jr:\nA billion for loans and four fifty for grants, and\nin the aggregate it should not exceed a billion,\nand I think that's the way it was in his message.\nRegraded Uclassified\n104\n- 10 -\nIn the bill I don't think it is limited to a billion.\nAnd if the bill is that way, I thought Bell and I\nmight write the President a note calling his\nattention to it. Today.\nBell:\nAll right.\nH.M.Jr:\nWhat?\nBell:\nAll right.\n61iphant:\nSo it's to be five fifty for loans and four\nfifty for grants.\nH.M.Jr:\nNo, no. According to the understanding that\nBell and I had, it would be a billion for loans\nand four fifty for grants, but in the aggregate\nthey could not do more than a billion dollars\nworth of business.\nBell:\nIn other words, if they made grants at four fifty\nGaston:\nIt's all in the President's message.\nH.M.Jr:\nNow, the last time I saw Foley he said they couldn't\ndo that for legal reasons, and, therefore, they\nwere drawing it four fifty for grants and five\nfifty for loans. I said, \"That isn't the way the\nPresident meant, but if that's the way it stands,\nit's a little better for the Treasury.\" He\nsaid, \"No, for legal reasons they can't get it that\nway,\" and therefore, they are going to have four\nfifty and five fifty, but instead of that, I see\nit's going to be a billion and four fifty. I'd\njust like to know. We're talking a lot of money.\nAre we together now?\nBell:\nWell, I thought that Mr. Ickes, in talking to me\nyesterday morning, indicated that the billion was\nin his mind because he was a little worried about\nthem earmarking a part of the billion dollars for\nRural Electrification loans.\nH.M.Jr:\nHow much?\nBell:\nHe said, I think, \"If we don't do something before\nthis bill is Housed, that they will earmark part\nof this billion dollars for Rural Electrification\nloans. There's quite a drive on it for that, and\nRegraded Uclassified\n- 11 -\n105\nhe wanted to know whether Jones could make those\nloans, or allocations for the loans. He talked\nabout a billion dollars.\nH.M.Jr:\nBetween you and Oliphant, will you see where\nwe're at? Ed Foley\nOliphant:\nI'll get it and give it to Dan.\nH.M.Jr:\nI don't know whether I spoke to you about it\nbefore, but this is for Bell and Oliphant too.\nI would very, very much like to get into the\nHopkins bill the following paragraph:\n\"Funds made available by this act may be used,\nin the discretion of the President, for aiding\nself-help and cooperative associations for the\nbenefit of unemployed and under employed in the\nproduction of goods and services.\"\nBell:\nWell, I haven't seen any bill since the President's\nmessage, authorizing direct relief which is a\nprovision under which the present self-help\norganization is carried out.\nH.M.Jr:\nWell, what I wanted to make sure, myself, is the\nself-help here in Washington and the self-help in\nBaltimore, Richmond, or any place else, can get\nmoney.\nOliphant:\nOr concede to that little Montana thing, or any-\nthing of that sort.\nH.M.Jr:\nWill you\nOliphant:\nI'll take care of it.\nH.M.Jr:\nI'm very much interested in that.\nOliphant:\nI'll see that it gets in there.\nH.M.Jr:\nJust to break the tension a minute, I got a letter\nfrom a Judge of the Supreme Court by the name of\none Mr. Lauer, and he says here that, \"We contemplate\na trip to Europe again this summer. Mrs. Lauer is\nfearsome and nervous that her last year's experience\nmay be repeated this year, even though I shall be\nmost careful that a full declaration is made of all\npurchases from abroad. Were we subjected on our arrival\nto treatment similar to last year's, all benefit which\nI hope will accrue to Mrs. Lauer from her 'cure' while\nRegraded Uclassified\n- 12 -\n106\nabroad will be lost. How can we be assured that our\nexperience of last year will not be repeated, and\nbecause of what happened last year her return to this\ncountry this year be made the more unpleasant? A\ncontemplation such as this, harbored over the summer,\nwould go far to undo any possible benefit from the\nsummer's vacation. Is it not possible that when we\nreturn from our European trip this summer the\ngovernment's interests may be safeguarded by some\nmore considerate and gentlemanly representatives than\nthose we encountered last year?\"\nMagill:\nSuch as Gibbons.\nGaston:\nI've got a better scheme - let Mrs. Klotz go with\nthem and save the expense sheets.\nKlotz:\nThank you.\nH.M.Jr:\nAnd all they did last year was to pay a $10,000.00\nfine on arrival. Mrs. Lauer had a $1500.00 watch\nunder her glove that she forgot all about.\nKlotz:\nYou know how it was discovered? An informer sent a\npicture of the watch and they showed her the picture\nand out came the watch.\nGibbons:\nYou know how she goes on the bench with him and tells\nhim what to do. You know that the higher courts have\nreversed him several times. She sits on the bench\nwith him and tells him what to do.\nOliphant:\nHe's a nice old fellow. He's one of the nicest\nfellows in New York.\nKlotz:\nIs he, really?\nOliphant:\nOh, surely. He's fine.\nGibbons:\nBut he's just under her thumb - it's a very pathetic\ncase, on his part.\nH.M.Jr:\nYou (Gibbons) say it's pathetic, and you (Oliphant)\nsay he's a grand guy.\nOliphant:\nHe's one of the most important influences in law\nreform in New York.\nH.M.Jr:\nBut it doesn't begin with the customs.\nOliphant:\nIt doesn't begin at home.\nGibbons:\nHe had a case reversed and she wrote a lot of notes\non the edge of the case.\nOliphant:\nI admit, I knew him before he was married.\nRegraded Uclassified\n- 13 -\n107\nH.M.Jr:\nNow, Mr. Gaston, you talk on Thomas Currency.\nGaston:\nThere have been some rumors going around - we had\none letter from a man up in Boston that he'd seen\nan item in the paper that we were - a reporter\ncalled up Al Hall from a Congressman's office and\ncross questioned him about the thirteen hundred\ntons of currency paper that they were ordering.\nHe had a very firm idea that was being ordered\nso we could print greenbacks on it.\nBell:\nCongressman Taylor made a speech on that.\nshall\nH.M.Jr:\nWell, I/refer those matters to the President's\neconomic advisors. I'm having lunch with them\ntoday.\nGibbons:\nWho's that?\nH.M.Jr:\nWhat? Well, you read the papers. The President's\nhaving lunch with Mr. Ford and his economic\nadvisors.\nUpham:\nMr. Ford's or his.\nH.M.Jr:\nThe President's economic advisors. Is everybody\ngoing to rush for papers, like when they complained\nabout Ken magazine? Five Cabinet members tripped\nover each other rushing to the news stand to get\na copy.\nMcReynolds: In the Post this morning, under this Coffee Cup\ncolumn they've got a predicted interview\nH.M.Jr:\nWill you (Gaston) see that I get my \"coffee\"\nserved.\nGaston:\nYes sir.\nGibbons:\nMr. Secretary, on this housing thing, I read\ncoming down on the train day before yesterday,\nsomebody, before the Housing Committee said that\nsixty-seven per cent of all the property between\nfourteenth street and Brooklyn Bridge, east -\nfrom the East River and Madison Avenue, were in\ntax arrears, and thirty six per cent of the people\nare on relief. Most desperate thing you've ever\nread, in this testimony.\nH.M.Jr:\nHarry?\nRegraded Uclassified\n108\n- 14 -\nWhite:\nMight be of interest to comment on the British\ndeficit which, as you know, is planned to be about\nsix hundred million dollars. But if you make\nthe figure comparable on the basis of population\nit would equal about a billion six, with the United\nStates, and that billion six must be regarded in\nthe light of the fact that they don't anticipate\nin the figures any reduction in business activity\nand that they are in no sense in a depression, so\nhere you have a country that's undertaking a\ndeficit - a very large deficit - without a reces-\nsion, in the hope possibly of postponing one.\nH.M.Jr:\nAnd the moral?\nWhite:\nThe moral is that probably a balanced budget isn't\nas angelic as it is usually considered. \"If you\ncan only copy the British you will be perfect.\"\nH.M.Jr:\nI am raising Mr. Chamberlain by at least three\nmillion dollars.\nWhite:\nI think you're doing well.\nH.M.Jr:\nI mean, I'm just raising him at least by three\nmillion dollars. The question is, can he see me?\nWhite:\nNot for a while.\nH.M.Jr:\nI am just - our deficit on that basis - on the\npopulation - is just three times Chamberlain's.\nWhite:\nYes, but we are not in a state of prosperity\nin the first place, and in the second place we've\ngot 2.8 times the population.\nH.M.Jr:\nBut still based on the population, if their's is\na billion six ours is just three times that.\nBell:\nThird place, we haven't got a gun at our head.\nH.M.Jr:\nWhat do you mean, \"gun at our head?\"\nBell:\nWell, I mean\nH.M.Jr:\nIt's interesting - I mean, it just shows I'm three\ntimes as good as Mr. Chamberlain on that basis.\n(Nods to Mr. Lochhead.)\nRegraded Uclassified\n- 15 -\n109\nLochhead:\nThe British bond market went down this morning\none to two points on the news of that budget.\nH.M.Jr:\nHow much worse off are we on that?\nWhite:\nWell, they're at the highest point in their\nhistory in physical production.\nH.M.Jr:\nOn a physical production basis.\nWhite:\nThere is no way of comparing it. Their national\nincome this year will be probably around - well,\nlast year, about thirty-seven billion dollars.\nH.M.Jr:\nHow many per population? Do a little figuring -\nyou translate it.\nWhite:\nYou want me to do it now? I'll give it to you on\nthe other figures.\nH.M.Jr:\nMagill's going to do the other tax bill - they're\ngoing to\n.....\nWhite:\nWell, all right. I can do some quick figuring.\nMagill:\nYou may be interested - I was just looking at it\nthis morning. A man with ten thousand dollar\nincome, married and no dependents, our total Federal\ntax is four hundred fifty-eight dollars. The\nBritish is nineteen hundred sixty, under this new\nWhite:\nOf course, that isn't the only significant figure.\nEven that fact in it needs to be supplemented by\na control tax.\nH.M.Jr:\nI want something - if Magill\nWhite:\nI'll give him what I've got.\nH.M.Jr:\nTalk to Sharp 3 direct. I'd like to have something\non it.\nWhat other good news you got?\nWhite:\nI thought that would fill the day.\nH.M.Jr:\nAll right. George?\nHaas:\nI have nothing.\nRegraded Uclassified\n16 I I\n110\nH.M.Jr:\n(Nods to Mr. Gibbons.)\nGibbons:\n(Nods \"No.\")\nLochhead:\nNothing for me.\nOliphant:\nGroups made some of those comparisons on taxes.-\nthey were publicized yesterday - between England\nand America.\nH.M.Jr:\nDan. Dan, would you mind just looking up here a\nminute please. When we talk about gold we can\nuse - you've got twenty-nine there and twenty-\nseven here.\nBell:\nThere is a difference in dates, see - one day behind.\nWe can use this.\nH.M.Jr:\nWhich is the one? I mean, supposing five million\ncomes in from Japan - is that where it is added\nin?\nBell:\nYes, and it will go down in here when this date\ncomes along.\nH.M.Jr:\nWhy will it go down?\nBell:\nIt will go both places. This is a current thing\nand this is the date of the clearance - one day\nbehind.\nH.M.Jr:\nThis is anticipated and this is actual. Couldn't\nthat come off? But this means, as of the twenty-\nfifth we've got twenty-seven, and this one, twenty-\nsix, would be a day later than the twenty-nine.\nBell:\nYou see, this is put on as of the same date as\nthe Federal Reserve balance.\nH.M.Jr:\nThe point is, we've got around thirty million\ndollars. Will you stay behind a minute? I\ndidn't know this would last so long.\n(Nods to Mr. Upham.)\nUpham:\nPerhaps I should have told you we sat until six\nlast night behind locked doors.\nH.M.Jr:\nFine. Make any progress?\nRegraded Uclassified\n- 17 -\n111\nUpham:\nYes, I think the heads - the supervisors are\nprobably farther apart than the heads of the agencies\nso in that sense we aren't as far along as we are\nin the morning.\nH.M.Jr:\nWhen will you meet again?\nUpham:\nToday. Two o'clock.\nH.M.Jr:\nHonestly, all I could do was control myself with\nCrowley yesterday. He was just furious that Smythe\nwas pressed in; that is, he said, \"How can I keep\nup the morale of my office; my people aren't\nallowed to come in, but Diggs can bring in Smythe.\"\nI said, \"Well, Smythe 1s here at my request.\"\nThen he walked up and down the room - \"I'm going\nto resign in July.\" All I could say was \"Whoopie.\"\nMcReynolds: Why didn't you say, \"Why wait until July?\"\nH.M.Jr:\nNo, all I could keep from saying was \"Whoopie.\"\nThis is what I thought maybe somebody could do.\nHe was counting on filling the vacancy of O'Connor,\nand did he expect to have that job?\nUpham:\nI don't know.\nH.M.Jr:\nHe's furious that Diggs is here. See, I mean, for\nsome reason or other, he figured that the O'Connor\ninfluence was through and that he could do whatever\nhe wanted to do; and then he made the most amazing\nstatement. He said the Smathers bill was partly\nwritten by his General Counsel in cooperation with\nsome of the people in O'Connor's crowd without his\nknowledge.\nOliphant:\nWell?\nH.M.Jr:\nI'm just passing\nOliphant:\nWho is his General Counsel?\nUpham:\nBirdzell.\nH.M.Jr:\nOh.\nOliphant:\nThat's the reasom I. couldn't understand the other\nday. You said there was no contact between Jefty's\noffice.\nRegraded Uclassified\n112\n18 I I\nH.M.Jr:\nAnd he's wild that Diggs is still here and that\nwe put a strong fellow like Smythe as his assistant,\nand we've just gummed his whole game. I'm giving\nit to you for what it's worth.\nUpham:\nI think he'd like to see the Comptroller's\noffice in the F. D. I. C, both the Comptroller's\noffice and the Treasury, and him the head of it.\nH.M.Jr:\nWell I - I'm afraid he's going to resign.\nUpham:\nYou'll be interested to know, because of that,\nthree men - Folger, Bulger, and Nichols - just\nthe three heads - and they asked me to sit with\nthem\n.....\nH.M.Jr:\nWho?\nUpham:\nFolger, Bulger, and Nichols.\nBell:\nI thought you said Folger, Folger, and Nichols.\nH.M.Jr:\nSounds like Kelly, Kelly, Kelly,\n>\na law firm in New York City.\nGibbons:\nYou've got two bachelors - want to get rid of\none.\nH.M.Jr:\nThis is very serious for Cy.\nUpham:\nWell, I don't know whether I can remember the rest\nof this sentence or not. There was a fourth person,\none of Mr. Crowley's braintrusters that came along\nwith Nichols, so he packed our meeting yesterday\nmorning.\nH.M.Jr:\nWho was the braintruster?\nUpham:\nHis name is Tucker. He's a smart boy - he's all\nright. But if we start a \"town meeting\" of that\nkind and each one brings one or two with him\nwe'll never get through. There's too much talk\neven with three, but I think it will be all right.\nH.M.Jr:\nWell, as they say, gradually get little pieces here\nand there.\nUpham:\nTom Smith will be here Friday morning between\ntrains if you are interested.\nH.M.Jr:\nI think not.\nThank you all.\nRegraded Uclassified\n113\nApril 27, 1938.\n10:21 a.m.\nH.M.Jr:\nHello.\nClifton\nWoodrum:\nYes, Henry, how are you?\nH.M.Jr:\noh, I'm all right, how are you?\nWell, I'm better since We got this baby out of our\nlaps.\nH.M.Jr:\nI see. You had quite a lot of little things, didn't\nyou?\nT:\noh, a lot of them, yes. Henry, Magill told me that you'd\nlike to talk to me about a matter and\n...\nR.M.Jr:\nYes.\nW:\nWhen do you want to see me?\nH.M.Jp:\nWell, I just want - can I chin a minute with you over\nthe phone?\n2.\nYes.\nM.M.Jr:\nI want to get your advice if you think We ought to\nintroduce this this year, see? We'll need it pretty\nbadly.\nWell, I don't know enough about it to say.\nH.1.Jp:\nYes. Well, what would be your convenience? I'll do\nI can see you now, I can see you when you want to. I\nwon't be here tomorrow, I'm going\nH.V.Jr:\nWell, Igot an appointment at 10:30 and after that I'm\nfree.\nW:\nWell, how long will it take you on that appointment?\nR.M.Jr:\nOh, fifteen minutes.\nW:\nWell, why don't you get through - when you're through\nwith that appointment, you all come down.\nH.M.Jr:\nAll right.\n#:\nYou want me to go up there or do you want me to\nRegraded Uclassified\n114\n-2-\nH.M.Jr:\nNo. No, we'll come up and\n...\nW:\nI'll be in 186.\nH.M.Jr:\nWell ...\nW:\nI mean I'll be at my main office.\nH.M.Jr:\n186.\nW:\nYes - well, my main office is 217.\nH.M.Jr:\n217. Well, supposing we say we'll be there sharp 11:15.\nW:\nAll right.\nH.M.Jr:\nSharp 11:15.\nW:\nYes, I'll be glad to see you.\nH.M.Jr:\nHow's that?\nW:\nAll right.\nH.M.Jr:\nThank you.\n%:\nYes.\nRegraded Uclassified\n115\nApril 27, 1938.\n10:30 R.M.\nH.M.Jr:\nHello\n0:\nDr. Burgess.\nH.M.Jr:\nHello\nBurgess:\nHello Henry.\nH.M.Jr:\nRandolph\nB:\nYes.\nH.M.Jr:\nWould you refresh my memory on that deal with\nPanama.\nB:\nYes.\nH.M.Jr:\nI'm going to see the fellow in two minutes.\nB:\nYes.\nH.M.Jr:\nand I just want to refresh my memory.\nB:\nYes.\nH.M.Jr:\nGo ahead, will you?\nB:\nAh ell - it was on Friday last\nH.M.Jr:\nYes.\nB:\n....ah - at 1:30 Friday afternoon.\nH.M.Jr:\nYes.\nI\nB:\nAh - they asked - ah - at least four dealers\nto submit bids to them for a list of 11 million\nof government and Land Bank bonds.\nH.M.Jr:\nYes.\nB:\nAh - then the dealers promptly began to get bids\nfrom their customers so they had a basis on which\nto make bids.\nH.M.Jr:\nDid they give them any time limits?\nRegraded Uclassified\n- 2 -\n116\nRd.\nAh - they wanted it at 1:30 and they didn't call\nthem until - ah - about lunch time. Some of them\ngot calls at quarter past one, some at one\nH.M.Jr:\nI see.\nB:\n....end some at 12:30 - along in there.\nB.M.Jr:\nI see.\nB:\nNow the whole market sagged a bit. Ah - they got\nin a number of bids; some of them refused to bid -\nDiscount, for example, refused to bid on that\nH.M.Jr:\nI see.\nB:\non that basis, because it was a foolish thing\nto do.\nH.M.Jr:\nYes.\nB:\nAnd - ah - but they did get bids from a number of\ndealers.\nH.N.Jr:\nI see.\nB:\nThey went into a meeting apparently and about forty\nminutes later began calling up dealers saying,\n\"You bought so and so\"; the dealers said, \"Oh no\nwe haven't - we gave you bids from 15 minutes\".\n(Laughs).\nH.V.Jr:\nI see.\nB:\n(Laughs) Well then they - they get the number\nof wires going and finally sold the bonds to\nChilds and to Solomon.\nH.M.Jr:\nYes.\nB:\nBut the whole thing, of course, - ah - upset the\nmarket a good deal; I wouldn't say seriously but\nit - but it was a foolish way to do it.\nH.M.Jr:\nI see. Well thank you.\nB:\nAll right.\nRegraded Uclassified\n- 3 -\n117\nH.M.Jr:\nHow are the bonds to-day?\nB:\nThey're a little firm to-day - they're up two\nor three four thirty-seconds.\nH.M.Jr:\nGood. Thank you.\nB:\nThere'll be a little buying I think.\nH.M.Jr:\nThank you.\nB:\nYep.\nH.M.Jr:\nGoodbye.\nRegraded Uclassified\n118\nRE PANAMA RAILWAY SALE OF GOVERNMENTS\nApril 27, 1938.\n10:30 a.m.\nPresent:\nMr. Bell\nMr. Rossbottom\nMr. Smith\nH.N.Jr:\nMr. Rossbottom, being held responsible by the\nPresident and Congress for the Government bond\nmarket, I WBS very much disturbed the way your\norganization went about selling $11, ,000,000\nworth of Government securities on Friday. And\nI 30 reported to the Acting Secretary of War, and\nhe asked me to take it up with the President, which\nhe did, and the President sent word to me that he\nwanted me to see you. I told Mr. Woodring this\nmorning that I don't like to see people of other\nagencies and I felt that if I was displeased end\n1 let the Secretary of War know that, it was up\nto him to do as he saw fit. But this is the way\nthe President wanted it done, so on that basis,\nwhy, you're here.\nAnd if you are 50 inclined to tell Mr. Bell and me\nwhy you handled those 11 million dollars worth of\nbonds the way you did, why, I'd like to know about\nit.\nRossb'm:\nWell, I'll be very glad to tell you. Our company\nstarted about 25 years ago to create E fund for the\nconstruction of ships. At that time we purchased\nrailroad bonds that were legal for investment savings\nof New York, Connecticut, end Messachusetts, which\nwere the highest type of bonds; we made purchases from\nyear to year. Those securities were in the hands of\n01 Committee on Securities of the Board of Directors.\nThe present Committee on Securities consists of Mr.\nFrederick Osborn, Chairman, Mr. Wayne Johnson, and Mr.\nF. Bayard Reeves. With the approval of the President,\nwe entered into a contract with the Bethlehem Ship-\nbuilding Company last April, 8 year ago, for the\nconstruction of three ships which would cost us about\n$14,000,000. The payments were to be made after the\nships were started, on the basis of 8 million and a\nhalf dollars every four or five weeks, depending on\nthe progress of construction of the ships. We have\nmade payments of approximately two million dollars\nout of our cash to take care of those payments, and\nfrom now on we will need at least three times $440,000\nRegraded Uclassified\n119\n-2-\nevery four or five weeks.\nWe didn't figure at the time that we made the\ncontracts that we would be called upon to make\npayments ES rapidly as that. But the Bethlehem\nCompany, because of failure to agree with the Nevy\nDepartment HS to the date of construction of some\ntorpedo bombs and cruisers, put their entire force\non our three ships, so they're just going like\nwild fire.\nAt the last meeting of our Board of Directors, at\nwhich the Secretary of War was present, I advised\nthe Board that we had about reached the limit where\nwe could make these payments out of our cash and\nthat it would be necessary for the Committee on\nSecurities, or the Directors, to take action on it\nin the direction of selling some securities. Just\nlast Wednesday I wrote to each member of the\nCommittee on Securities giving them the list of the\nsecurities that we have, the Treasurys aná the\nFederal wand Bank bonás, and asked them to arrange\nfor a meeting at which they would determine what they\nwanted to do. In that memorandum I told them that the\nBethlehem Shipbuilding Company had stated at one time\nthat they might take over some of the bonds in lieu\nof cash and sell them for our account. That, of\ncourse, would be on the basis of the bid price\ninstead of the asked price. They weren't anxious to\ndo that at all; they wanted the cash.\nSo, at a meeting of the Committee on Securities, held\non Friday in Mr. Wayne Johnson's office, the Committee\ndecided to authorize the officers to dispose of this\n$11,000,000 of Treasury bonds and Federal Land bank\nbonds. I got back to the office shortly before 12\no'clock and had our treasurer cell up Childs and\nDevine, both specialists in Government securities,\nand Solomon Brothers & Hutzler, end asked them to give\nus the prices at which they would be willing to take\nall or any part of the different securities we had.\nAbout half past two the bids were submitted to me and\nthe bid of Childs WSS the highest - 1/32 and 1/64 in\neach instance, except in those cases where it was\nexactly the same as the others.\nAnd under the authority given me by the Committee on\nSecurities, I sold the securities to Childs, except the\nFederal Land Bank 4'5, which we sold to Solomon Brothers\nRegraded Uclassified\n120\n-3-\n& Hutzler.\nH.M.Jr:\nWell, of course, the method that you used was so out\nof the ordinary - and I was told by the Federal\nReserve that you asked four dealers to bid.\nRossb'm:\nNo, three.\nH.M.Jr:\nWell, they told me four.\nRossb'm:\nNo, three.\nH.m.Jr:\nAnd as a result of that they sent out wires all over\nthe country - well, if you say three - so they were\nasking for bids on $33,000,000 worth.\nRossb'm:\nYes, we got bids from only three of them.\nH.M.Jr:\nAnd it looked as though suddenly somebody wanted to\nsell an awful lot of\nnossb'm:\nWovernment securities.\nH.M.Jr:\nGovernment securities. And it just so happened\nthat that was the day that we announced we were only\ngoing to sell $50,000,000 worth of bills instead of\na hundred, so we had a very strong market; but if you\nhad picked almost any other day and used that method\nof selling them, you might have even disturbed the\nmarket more than what you did. And there were all\nkinds of rumors around and it just knocked the bloom\noff the Government market. And I've seen a lot of\nboners pulled in Government agencies, but since the\nRussian Government dumped a million pounds sterling\non the market the day after we agreed to the\ntripartite agreement, I haven't seen anything equal\nto what you people did, and\nRossb'm:\nWell, we - the Committee on Securities felt they had\nthis definite dollar obligation to the Bethlehem\nShipbuilding Company, and the thing was to get cash,\nand the only cash\nH.M.Jr:\nWell, you didn't need the $11,000,000 on Friday.\nBell:\nTell me why you didn't sell the bonds as and when\nyou had to make your cash payments.\nRossb'm:\nWell, we thought of that also. In the first place, I\nRegraded Uclassified\n121\n-4-\ncalled up Devine three or four days before, to find\nout if this was a good time to sell Government bonds.\nHe said his idea was that the Government bond market\nwould remain at its present level for the time, and\nhe then expected B drop. I told that to the Committee\non Securities. The Committee then felt, \"Well now,\nif we just sell a million and & half dollars today\nand then a million and 8 half dollars next month,\nwhy, our company will suffer the loss, if there is any\nloss, and depreciation between the high prices of that\nday and the prices that we get afterwards.\"\nH.M.Jr:\nBut supposing the prices go up a point.\nRossb'm:\nWell, we don't lose anything; we haven't lost\nanything.\nBell:\nSuppose you'd sold them in January, on the same\ntheory.\nRossb'm:\nIt wasn't a question of speculating.\nH.d.Jr:\nBut supposing two months from now they're selling\ntwo points nigher.\nRossb'm:\nWell, you never can get the highest, can you?\nNever get the highest price.\nI.M.Jr:\nBut you sold them on the theory that you were getting\nthe highest prices.\nRossb'm:\nNo, because they'd been higher than that.\nH.M.Jr:\nBut instead of asking & dealer - the advice of a\ndealer who has to make his money out of dealing in\nGovernments, why didn't it occur to you that you\nmight ask the United States Treasury or our fiscal\nagents, the Federal Reserve of New York, and ask their\nadvice?\nRossbim:\nWell, as a matter of fact, I don't believe that ever\noccurred to any of us.\nH.M.Jr:\nWell, that's my complaint. My complaint 1s, here's a\nwholly-owned subsidiary of the United States Government,\nand they want to sell $11,000,000 worth of United States\nGovernments, or guaranteed Governments, and they don't\nRegraded Uclassified\n122\n-5-\nask the advice of either the Treasury or our fiscal\nagent, and they ask the advice of some dealers in\nGovernment bonds, and then they handle it in a way\nthat it goes all over and it makes - and that all\nof these things have to be sold. I've never, since\nI've been here, for four years - I've never known\nof a transaction handled by a Government agency or a\nprivately owned agency - handled in this way. Never\nknown that they asked it. Unknown as far as I know.\nMr. Burgess tells me he never heard of a transaction\nbeing held in that way. and if you had done it a\nweek before that way and handled the thing, you might\nhave knocked the market off one and two points.\nAnd as 1 say, I don't - I simply filed my complaint\nwith the Secretary of War, but the President wanted\nme to tell you this direct, so I'm doing it. And\nthat's that.\nBut my own feeling is, I think we ought to look\naround - and how many more agencies have got a lot\nof these Government bonds? And I think they should\ntrustee them with us, because I don't think - if\nthat's the way they're going to handle them, how do\nwe know\nBell:\nGot any more?\nRossb'm:\nNo.\nBell:\nThat's all you got.\nRossb'm:\nThey were purchased by the same Committee on Securities.\nWhenever we have any excess of cash, we put the cash\nin Government securities.\nBell:\nwho are the gentlemen on this committee? What's their\nconnection?\nRossb'm:\nWell, Mr. Wayne Johnson, also General Counsel of the\ncompany; Mr. Frederick Osborn - he was selected by\nthe Secretary of War as a director.\nBell:\nDut what is his business outside of the \"company?\nRossb'm:\nI think he's handling his own personal affairs. Very\nwealthy man, interested in conservation.\nRegraded Uclassified\n123\n-6-\nH.M.Jr:\nSon of William Church Osborn.\nRossb'm:\nAnd Mr. F. Bayard Reeves, selected by the Secretary\nof War, He's the Counsel for the All-America Cables,\nor was at the time he was selected.\nH.M.Jr:\nBut here's the Treasury and the Federal Reserve of\nNew York, and our advice wasn't asked.\nhossbim:\nWell, these three members decided - they have always\ndecided what to buy and what to sell.\nBell:\nThat's the reason I asked the question as to connec-\ntions of these gentlemen. I wonder why a Federally-\nowned corporation needs to go outside of its own\nbailiwick to get advice on the investment of really\nGovernment funds? Why shouldn't the Federal Reserve\nBank at least\nG.M.Jr:\nStupidest thing I ever heard of.\nBell:\ngive that advice as to how to invest Government\nfunds?\nH.S.Jr:\nWhy do they need three outsiders and 8 couple\nGovernment bond dealers to tell them how to handle\nour own securities by a corporation owned by the\nUnited States Government?\nRossb'm:\nWell, I'm sure it never occurred to any of the members\nof the Committee on Securities to take it to the\nFederal Reserve Bank or the Treasury.\nH.M.Jr:\nBut Mr. Bell makes a very good point. Why should a\nwholly-owned corporation need an advisory committee\non how to invest your securities? Is that a\nstatutory committee?\nRossb'm:\nNo, that's a direct action of the Board of Directors,\nThe Board of Directors 1s responsible. This is a\ncommittee.\nBell:\nWe handle about three billion dollars of Government\nfunds through Government trust funds, do our investing\nwithout outside advice. But I think if you had taken\nthat to the Federal Reserve Bank, the advice you would\nhave gotten would have been to sell those securities\n124\n-7-\nover a period of a week at a million dollars or two\nmillion dollars a day, and you would have gotten\nmuch better prices than you did. The market was\nsurging up; you stopped it right in its tracks when\nyou offered them all.\nH.M.Jr:\nYou killed the market.\nBell:\nI think you lost several points by offering them all\nat once.\nRossb'm:\nThat was the action of this Committee on Securities,\nand we just obeyed their orders.\nBell:\nI don't think you got very good advice, if you're\npaying them for it.\nH.M.Jr:\nPardon me?\nBell:\nI said they didn't get very good advice, and if\nthey're paying for it it's not very good.\nH.M.Jr:\nWell, they're paying Wayne Johnson.\nRossb'm:\nYes.\nH.M.Jr:\nHow much does he get as General Counsel?\nRossb'm:\n$10,000 a year.\nH.M.Jr:\nWell, that's how I feel. I think you people ....\nRossb'm:\nYes. I'll tell the Committee just the way you feel\nabout it. Don't know what can be done now.\nH.M.Jr:\nWell, that's the way I feel, and as I say - and I\nthink you agree with me, don't you (Bell)?\nBell:\nYes, I\n....\nH.M.Jr:\nYou've been in the Government how long?\nBell:\n27 years.\nH.M.Jr:\nEver know one that happened like this in 27 years?\nBell:\nNo, sir.\nRegraded Uclassified\n125\n-8-\nH.M.Jr:\nIt's unique, isn't it?\nbell:\nYes, sir.\nH.M.Jr:\nThere you are. As I say, the last time - and the\nonly other time something like this happened was\nwhen the Russian Government did it; they dumped a\nmillion pounds sterling on us, and that's a - just\nlike that we were offered a million pounds sterling.\nBell:\nI think the Panama and possibly the Waterways\nCorporation - they're the only corporations in the\nGovernment that don't operate through the Treasury.\nThe other agencies are Bill Myers'\nH.M.Jr:\nWell, the whole set-up, Dan, is most unusual. I\nmean this whole - I wish as Director of the Budget\nyou'd look into it.\nBell:\nvuite an old organization.\nH.M.Jr:\nI know, but I think it's a most unusual set-up.\nBell:\nDon't even have the money on our books. The Treasury\ndoesn't keep the cash.\nH.M.Jr:\nAnd why all the casn shouldn't come in to us and\nshouldn't be resppropriated every year the way\neverything else is\n....\nRossb'm:\nWe never get any appropriation from Congress.\nBell:\nThey're operating on revenue, paying us a dividend.\nYou haven't this year, have you? You're going to\nuse your earnings this year on your ships.\nRossb'm:\nI hope SO. No, we expect to pay a dividend - part\nof the dividend anyway.\nSmith:\nThis fiscal year - this next fiscal year.\nBell:\nWhat is it, five percent?\nRossb'm:\nYes.\nH.M.Jr:\nAll right, sir, thank you for coming down.\nRegraded Uclassified\n126\nApril 27, 1938.\n12:06 p.m.\nH.M.Jr:\nHello\n0:\nGovernor Harrison\nH.M.Jr:\nHello\nGov.\nHarrison:\nHello Henry?\nH.M.Jr:\nYes, George?\nH:\nYes sir, how are you?\nH.M.Jr:\nI'm wonderful.\nH:\nGood. Good, fine. Henry, I got a Personal and\nConfidential cable from my friend Norman\nH.M.Jr:\nOh yes.\nH:\nthat I'm\nH.M.Jr:\nOh good old Bobby?\nH:\n(Laughs) Yes, that I thought I would just tell\nyou privately because I don't suppose Jesse will\nbelieve me but he refers to the recent protest\nof the British Government against the expropriation\nof oil fields in Mexico.\nH.M.Jr:\nYes.\nH:\nAnd then goes on to say that he has the banks and\nother financial houses in London to make sure that\nthe facility for the purchase of Mexican oil are\nnot granted by the London market.\nH.M.Jr:\nOh.\nH:\nIn other words, - ah - the government having taken\na firm stand on the expropriation\nH.M.Jr:\nI see.\nH:\nhe's asked the banks not to finance the\nimportation of Mexican oil, see?\nH.M.Jr:\nAh-ha.\nRegraded Uclassified\n127\n- 2 -\nH:\nBut after all I just want to let you know that.\nH.M.Jr:\nGosh.\nH:\nAnd I've got a call in for Sumner Welles. I\nthought I'd just tell him.\nH.M.Jr:\nOh you're going to tell Sumner.\nH:\nYes.\nH.M.Jr: O.K.\nH:\nYes sir.\nH.M.Jr:\nThank you very much.\nH:\nFirst rate.\nRegraded Uclassified\n128\nApril 27, 1938.\n12:23 p.m.\nH.M.Jr:\nabout ten minutes past ten to ask when the\nTax Bill would be out.\nMarvin H.\nMcIntyre:\nYes.\nH.M.Jr:\nWell Magill said definitely it won't get out\nuntil the middle of the week.\nM:\nOf this week.\nH.M.Jr:\nNext week.\nM:\nWell they just - ah - Fred Vinson just called me\na minute ago and said they were going to have it\nall out of the way before Friday.\nH.M.Jr:\nAh - the - ah - we've got to do a little helping\non the drafting, see.\nM:\nAh-ha.\nH.M.Jr:\nWhat?\nM:\nI see.\nH.M.Jr:\nAnd it's kind of difficult.\nM:\nI imagine so.\nH.M.Jr:\nAnd so I don't think that we can help giving\nthem the figures because the President said he\ndidn't want it out.\nM:\nAh-ha.\nH.M.Jr:\nDo you get it?\nM:\nYep.\nH.M.Jr:\nNow if there's any change, let me know.\nM:\nO.K.\nH.M.Jr:\nBut the way the thing stands, the bill-drafting\nand the Treasury experts - ah - have such a\ndifficult job it's doubtful whether it will be\nout until the middle of next week.\nRegraded Uclassified\n129\n- 2 -\nM:\nI get you exactly, Henry.\nH.M.Jr:\nDo you see what I mean?\nM:\nYes.\nH.M.Jr:\nAnd if there's any change why let me know.\nM:\nYes. Yes.\nH.M.Jr:\nO.K.?\nM:\nI'll let you know this afternoon.\nH.M.Jr:\nAll right.\nM:\nThank you.\nRegraded Uclassified\n130\nApril 27, 1938.\n12:26 p.m.\nH.M.Jr:\nHello.\nOperator:\nGordon Rentschler.\nH.M.Jr:\nRight.\nOperator:\nGo ahead.\nH.M.Jr:\nHello.\nGordon\nRentschler: Hello there, Henry. How are you?\nH.M.Jr:\nAll right. You sound as though you were in\nEurope.\nR:\nNo. Pretty nearly. I'm sitting right up here\nin New York.\nH.M.Jr:\nWell, I mean, I don't hear you very well.\nR:\nYou don't?\nH.M.Jr:\nYeah.\nR:\nAh, wait, I've got ah - wait until I see if we\ncan get a better connection. I can hear you\nperfectly.\nH.M.Jr:\nWell, go ahead, I hear you better now.\nR:\nAh, all right now?\nH.M.Jr:\nYeah.\nR:\nAh, how've you been?\nH.M.Jr:\nWonderful.\nR:\nNot too good?\nH.M.Jr:\nNo, I said wonderful.\nR:\nOh, wonderful, oh, well that's fine.\nH.M.Jr:\nSure.\nRegraded Uclassified\n131\nN I I\nR:\nI ran out on you.\nI went down South and picked\nup a couple of kidney stones; then took a month\nor two to get over it.\nH.M.Jr:\nYou picked up what?\nR:\nA couple of kidney stones.\nH.M.Jr:\nOh, for heaven's sake! Where'd you find those?\nR:\nWell, I found them down in Cuba.\nI just, ah\n....\nH.MJr:\nOh.\nR:\nAnd after I got rid of-that, why I took a while\nto get over it.\nH.M.Jr:\nI wondered what had happened to you because I hadn't\nheard from you.\nabout\nR:\nThat's exactly it, but I just -/the first of this\nlast week is the first time that I've even been\nback on the telephone.\nH.M.Jr:\nOh, for heaven's sakes.\nR:\nGot a couple of \"docs\" bossing me and so that\nisn't so easy.\nH.M.Jr:\nYeah.\nR:\nBut, ah, we never got to finish all our talks on\nour friend, the tax bill, and I guess you're damned\nglad we didn't.\nH.M.Jr:\nWell, ah, I\nR:\nBut there's one - one matter that's come up this\nmorning that I understand that the Conference\npeople have now agreed again to this duplication\non the transfer tax.\nH.M.Jr:\nI don't know a thing about it.\nR:\nWell, they, ah I don't - I imagine that that must\ncome along with Treasury regulations in the tax\nbill, doesn't it? Why don't you take a look at it?\nH.M.Jr:\nWell, I can.\n132\n- 3 -\nR:\nAh, what that does, Henry, in a nut shell, is\nthis: We have a customer who probably travels all\nover the world, or may be a, a ah, woman, or may\nbe an older man, or may be anybody. It might be\na fellow like yourself.\nH.M.Jr:\nYeah. May be a child in arms.\nR:\nYeah, but he says, \"Now here, ah, I want to buy\na thousand shares of steel.\"\nH.M.Jr:\nYeah.\nR:\nAnd instead of putting that in the name of the\nindividual customer, we put that in the name of\nour nominee.\nH.M.Jr:\nI see.\nR:\nNow, as long as that - ah, and of course, in the\nface of that change of ownership the tax is paid.\nH.M.Jr:\nUh-huh.\nR:\nNow, ah, when that stock is actually sold by that\nowner .....\nH.M.Jr:\nYeah.\nR:\n....\nof course, the tax is paid.\nH.M.Jr:\nUh-huh.\nR:\nBut we don't want to pay a tax when it goes from\nthe name of, ah, Mr. Jones, to our nominee company.\nH.M.Jr:\nI see.\nR:\nAnd then when it's sold again, because there's been\nno real change in ownership.\nH.M.Jr:\nWell, I'll ask Magill what he ...\nR:\nWhat it really means to us is that it is a facility\nthat we can give to a great number of our customers,\nand if there's any question whatsoever\nH.M.Jr:\nYeah.\nR:\n.....as to people hiding their identity by using a\nnominee .....\nRegraded Uclassifie\n133\n- 4 -\nH.M.Jr:\nYeah.\nR:\nAh, then by all means we ought to be will' - well,\nwe are not only willing, but we'd be glad to be\nrequired\nH.M.Jr:\n0. K.\nR:\nto give the name of the actual\nH.M.Jr:\nI - I understand. I know what it is now.\nR:\nas we now have to do it.\nH.M.Jr:\nI know what it is now.\nR:\nWe just don't want to pay that double tax - if\nyou will be good enough to take a look at it.\nH.M.Jr:\n0. K.\nR:\nI think that they rather feel, ah, as nearly as\nI can get it, that this is something that the\nTreasury wants.\nH.M.Jr:\nWell, I don't know, but I'll find out.\nR:\nWell, if you can do that, it'd be very very.\nhelpful.\nH.M.Jr:\nWell, I'm making no promises.\nR:\nWell, I don't want any promise from you, young\nfellow; all I want to do is get your eyes on it.\nH.M.Jr:\nAll right.\nR:\nI'm very much interested in seeing what you did on\ngold while I was loafing.\nH.M.Jr:\nYeah. Well, we'll talk\n.....\nR:\nRight now - say fellow, we're getting back now to\nwhere we ought to have been in the first place.\nH.M.Jr:\nWell, we'll talk about it sometime.\nR:\nAll right. Well, that's a good job.\nRegraded Uclassified\n134\n- 5 -\nH.M.Jr:\nTake care of yourself.\nR:\nWell, all right. When are - when you coming to\nNew York?\nH.M.Jr:\nI don't know.\nR:\nLet me know the next time. They won't let me out\nfor a while, but if you let me know when you come\nup we'll sit down together.\nH.M.Jr:\nFine.\nR:\nAll right. Good luck to you.\nH.M.Jr:\nFine.\nR:\nBye bye.\nH.M.Jr:\nBye.\nRegraded Uclassified\n135\nApril 27, 1938.\n12:45 p. m.\nJesse\nJones:\nWell, how are you?\nH.M.Jr:\nWill you sell me a railroad?\nJ;\nI will - what? Yeah. Are you dated up for\nlunch.\nH.M.Jr:\nUnfortunately, I am, Jesse.\nJ:\nI wanted to come over and - ah - chat.\nH.M.Jr:\nI'd like to - I'm free tomorrow.\nJ:\nWell, I'll be in New York tomorrow.\nH.M.Jr:\nOh.\nJ:\nThe, ah\n....\nH.M.Jr:\nOh.\nJ:\nYou going to have any time this afternoon?\nH.M.Jr:\nWell, ...\nJ:\nFew minutes. I'm not so particular, except I\nwanted to talk to you about the railroads a\nlittle bit, and\nH.M.Jr:\nUh-huh.\nJ:\nAnd ah, not - maybe I can do it Friday just as\nwell.\nH.M.Jr:\nUh-huh. Kind of a bad day for me. Ah, if - if\nit's pressing, I can do it; if it's not pressing\nah .....\nJ:\nWell, it is not pressing.\nH.M.Jr:\nIt's not?\nJ;\nNo. It is not pressing.\nH.M.Jr:\nIt's ah\n....\nRegraded Uclassified\n136\n- 2 -\nJ:\nJust - what I was going to say now - I can say\nthis much now\nH.M.Jr:\nWell, say - say it now.\nJ:\nAh, I had, ah, a pretty harmonious meeting\nH.M.Jr:\nYeah.\nJ:\n.... and when I got into things that we couldn't, ah\n...\nH.M.Jr:\nYeah.\nJ:\nah, obviously couldn't solve, why, ah, I just\ncast those aside for the time being. See?\nH.M.Jr:\nYeah.\nJ:\nAnd we got them to agree on some of these things,\nand, ah, there's no disposition not to go along\nand do the things that we did - we agreed to do.\nH.M.Jr:\nUh-huh.\nJ:\nAnd, ah, my thought was - ah - get what we could\nget and then, button up the belts and, ah, try for\nsomething else a little later.\nH.M.Jr:\nAny chance for a Transportation Department?\nJ:\nThey don't - there's no objection by Wheeler or\nLee.\nH.M.Jr:\n(Coughs.) Pardon me.\nJ:\nSam Rayburn's opposed to it.\nH.M.Jr:\nOh, really?\nJ:\nYeah. Sam, ah - he didn't come to this meeting;\nhe didn't think he ought to.\nH.M.Jr:\nYeah.\nJ:\nBecause Lee is Chairman of the Committee.\nH.M.Jr:\nYeah.\nJ:\nAnd, ah, I thought he was probably right about it.\nRegraded Uclassified\n137\n- 3 -\nH.M.Jr:\nUh-huh.\nJ:\nBut I've talked to him about this thing, and he -\nahhh - he's against it - I've never just sat down\nand gone to the mat with him - but, ah, I'll have\nplenty of time to do that.\nH.M.Jr:\nHave you still got time before they go home?\nJ:\nFor that - for that Department?\nH.M.Jr:\nBefore Congress goes home?\nJ:\nI doubt if that could be created before Congress\ngoes home.\nH.M.Jr:\nI see.\nJ:\nAhhhh, I doubt if it could. Ahhh, if we could get -\nah, enthusiasm on Sam's part, and, ah - ah, Wheeler's\npart we might do it.\nH.M.Jr:\nUh-huh.\nJ:\nBut, that, we didn't go into much actually, because\nI don't believe the Commission would like it.\nH.M.Jr:\nUh-huh.\nJ:\nI don't believe that the railroads would like it,\nand, ah\n....\nH.M.Jr:\nWell.\nJ:\nBut anyway, I'll talk with you maybe Friday?\nH.M.Jr:\nYeah - what time? I\n....\nJ;\nWhatever time suits you.\nH.M.Jr:\nWell, you, ah - how, how\n....\nJ:\nIf you're open for lunch, I'll come for lunch.\nH.M.Jr:\nAh - 0. K.\nJ:\nThat - that's 8. - a convenient time, and besides\nI would like to have you to lunch.\nRegraded Uclassified\n138\n- 4 -\nH.M.Jr:\nAll right. All right.\nJ:\nAll rightie.\nH.M.Jr:\nAh ...\nJ:\nHow's the market today?\nH.M.Jr:\nOhhh, a little bit better.\nJ:\nUh-huh.\nH.M.Jr:\nAh - one o'clock?\nJ:\nOne o'clock, Friday.\nH.M.Jr:\nYeah.\nJ:\nFine.\nH.M.Jr:\nAllright.\nJ:\nThanks.\nH.M.Jr:\nThank you, Jesse.\nJ:\nAll right.\nRegraded Uclassified\nApril 27, 1938.\nMEMORANDUM FOR\n139\nThe Secretary of the Treasury\nSubject: Panama Railroad Company\nThe Panama Railroad Company was incorporated in 1849 under the laws\nof the State of New York for the purpose of building and operating a rail-\nroad across the Isthmus of Panama. Its incorporators were American citi-\nzens. It was later sold to a French Company, concerned with the building\nof a canal across the Isthmus. In 1904, before actual construction work\non the Panama Canal was started by the United States, our Government se-\ncured control of the capital stock of the railroad company, which it now\nowns completely. The capital stock amounts to $7,000,000 and is held in\nthe name of the Secretary of War, except one qualifying share held by each\nmember of the board of directors, numbering 13, including the Secretary of\nWar. All directors are officers of the Government except five. The Gover-\nnor of the Panama Canal is President and the railroad is operated as an\nadjunct to the Canal; at the same time carrying on its operations as a com-\nmon carrier.\nThe railroad operates on its revenues. No appropriations whatever are\nmade for it by Congress. It declares annual dividends, which are deposited\nin the Treasury of the United States. For many years such annual dividends\nhave amounted to around $700,000.\nThe railroad owns and operates the Panama Steampship Company and its\nother enterprises include commissaries, quarters, cargo handling activi-\nties at harbor terminals, hotels, fueling plants, and telephone system\non the Canal Zone and certain real estate in the Republic of Panama.\nThe gross revenue of the railroad (exclusive of subsidiary business\nactivities) during the fiscal year 1937 amounted to $1,609,7441 operat-\ning expenses were $1,333,404; net revenue, $276,340 - an increase of\n70,941 over the previous year.\nBusiness operations on the Isthmus, carried on by the railroad com-\npany, yielded a profit of $1,358,595 for the fiscal year 1937.\nThe steamship line operates at a loss, the deficit for 1937 being\n$212,206. However, this steamship line carries freight and passengers\nfor account of the Panama Canal and other departments of the Government\nat material reductions from tariff rates, which reductions, it is re-\nported, amounted to $533,262 in 1937.\nAWB\nBureau of the Budget,\nApril 27, 1938.\nRegraded Uclassified\n140\nThe Panama Railroad Company was incorporated in 1849 under\nthe laws of the State of New York for the purpose of building and\noperating 8 railroad across the Isthmus. In 1904, before actual\nconstruction work on the Panama Canal was started, the United\nStates Government secured control of the capital stock of the\nPanama Railroad Company which it now owne completely and has\noperated the company eince that date through & board of directors\nappointed by the Secretary of War, who holds all the stock of the\ncompany except the qualifying shares of the directors. By\nExecutive order of May 9, 1904, the President of the United States\ndirected that the general policy of the railroad be controlled by\nthe United States and that the road be made an adjunct to the\nPanama Canal, at the same time carrying on its operations as a\ncommon carrier. Since that time the corporation has established\nand operates various business activities upon the Isthmus incidental\nto the construction. operation, and maintenance of the Canal. Thus\nthe United States Government is conducting the business activities\nrelating to the Canal enterprise under two distinct organizations:\nfirst, the Panama Canal, which is a direct branch of the Govern-\nment; and second, the Panama Railroad Company, which is a Govern-\nment-owned corporation.\nRegraded Uclassified\nMrs. Klotz\nTREASURY DEPARTMENT\n- 141\nWASHINGTON\nApril 27, 1938\nTO THE SECRETARY:\nIn order to complete the records it\nwas determined today by Mr. Taylor, and\ncleared by you, that the rate to be applied\non the obligations of the United States Hous-\ning Authority which the Treasury will purchase\non April 28 in the amount of $1,000,000, will\nbe 1/2 of one per cent.\nDWB\nRegraded Uclassified\n142\nTREASURY DEPARTMENT\nWASHINGTON\nApril 27, 1938.\nMEMORANDUM TO THE SECRETARY:\nIn compliance with your request there 10 attached & copy\nof the statement which was read this morning by Senator Harrison\nin his conference with you on the matter of amending the Second\nLiberty Bond Act 80 as to combine the limitations of 25 billion\ndollars on the authority to issue bonds and 20 billion dollars on\nthe authority to issue Treasury notes, Certificates of Indebtedness,\nand Treasury bills.\nSenator Harrison called Senator Glass while we were there\nand explained the matter to him. Senator Glass said he saw no or\njection to the Treasury's policy and thought it should have the all-\nthority requested.\nSenator Harrison then told the Secretary he thought he\nshould discuss the matter wi th Congressman Doughton, on his return\nto the city, and start the legislation in the House and he saw no\ndifficulty except that the Republicans would naturally take this\nopportunity to ask a great many questions on fiscal policies.\nDWB\nRegraded Uclassified\n143*\nPRACE\nApril %, 1938\nthe son of February no 1935. uniting the Second Liberty\nBond sot, as enended, limited the amount of bonds to be outstanding at\nany one time under the provisions of that доб, to an aggregate of\n$25,000,000,000 and the amount of Treasury notes, certificates of indebted-\nness and Treasury bills to be outstanding at any one time to an aggregate\nof $20,000,000,000.\nThe following statement shows the ment of public dobt obliger\ntions issued under the Becond Liberty Bond 400, as anmied, and outstand-\ning as of March 31, 1938 and the additional amounts which the Secretary\nof the Treasury my Same under the authority of that Act:\nBondas\nTotal mount that my be outstanding\nat my cae time\n$25,000,000,000\nOutstanding as of March 31. 1938:\nTreasury bonds\n$20,927,262.250\nU. 8. Sevings Bonde\n(matority value)\n......\n1,503,900,000\nVeterans Missted Service\nbonds\n$32,455,906.710\nTotal additional mont of bonds\nwhich my be issued under present\nlimitation\n2,736,350,043.60\nTaken. certificates of infortations and Treasury bills\nTotal amount that my be outstanding\nat any one time\n$20,000,000,000\nOutstanding as of March 31, 1938:\nTreasury notes\n$11,322,211,050\nCertificates of indebted-\nnass\n772,565,000\nTreasury bills\n$2,534.000\n13.096.330,050\nTotal additional - which my\nbe 1ssued under present limitation.\n$6,103,600.00\nRegraded Uclassified\n144\n- 2 -\nRespitalation\nTotal public are obligations which my be\nissued wis the seesed Liberty Bond sot,\nas entried, má be achetending at my cas\ntime\n$45,000,000,000.00\nTotal outstanding as of March 31, 1938\n37,150,959,206.40\nTotal amount which my be termed under\npresent limitation\n7,840,040,793.60\nThe total combined amounts that my be issued under the two limite-\ntions are, I believe, sufficient for the present but the division as between\nbonds and notes and certificates of indebtedness and Treasury bills should be\nadjusted in order to give the Treasury more latitude as to the kind of w\ncurities 10 can tome. In the months of June, September, and December, 1938,\nthe Treasury has naturities of Treasury notes aggregating more than\n$1,600,000,000 fate amount and it will probly be accessary during this period\nto raise additional cash between $500,000,000 and $2,000,000,000. midag\nthe total financing during the next eight months period, emlusive of\nbill operations, of nove them $2,600,000,000. It may be highly deskrable,\nfrom the standpeint of the public debt program in the Government security\nmarket, for the Treasury to meet the naturing notes and to raise whatever\nadditional dash 10 accessary off a major partion thereof through the\nof additional Treasury bonds, rether then through the Lesumes of Treasury\nnotes. the recerving $236,000,000 to neet the and Somes of U. a.\nServings bonds, only $1,500,000,000 would be available to father bend son\ncase under the present limitation. This night not w sufficient to neet\nRegraded Uclassified\n: 145\n- 3 -\nthe Treasury notes is this respect.\nI should to emphasise that we are not asking for - intrease\nin the total limitation on the aggregate of the public debt obligations which\nmay be outstanding at my one time under authority of the Second Liberty Bend\nлев, - assended, but to are addas only for a consolidation of the present\nlimitations on the two classes of securities montioned in that met w as to\ngive the Treasury greater flexibility in its financing operations.\nRegraded Uclassified\n246\nApril 27, 1956.\nAAt\nTo:The Secretary\nFrom:Mr. Shoup.\nBritish and American Tax Comparisons.\nAt Mr. Magill's suggestion, I submit herewith some comparative\ndata on British and American taxes (chiefly income taxes),\nThe individual income tax payable by a married person with\ntwo children under the British rates proposed by the Chancellor\nof the Exchequer in his recent budget speech is compared below\nwith the individual income tax payable under the present United\nStates law. The comparison is in terms of effective rates (that\nis, the amount of tax, divided by the amount of not income)\nNet Income\nBritish\nUnited States\neffective\neffective rate\nrate\n%\n3,000\n3.9%\n0\n10,000\n18.0%\n3.4%\n25,000\n30.4%\n9.3%\n50,000\n40.8%\n17.2%\n100,000\n50.0%\n32.0%\n500,000\n63.9%\n60.7%\n1,000,000\n66.3%\n67.8%\nThe United States figures do not include any State income\ntax. From 2 to 5 per cent must be added to include the net\nadditional burden imposed by the individual income tax of NOW\nYork State, for example (after allowing for the deduction from\ngross income that the Federal Government grants for State income\ntaxes paid), except that no New York tax at all is due at the\n$3,000 level in this illustration.\nRegraded Uclassified\n147\n- 2 -\nComparisons such as these, however, can give only a rough idea\nof the relative burden of the two systems. A true comparison would\nrequire elaborate research. The chief difficulty is that what the\nBritish call taxable income is not the same as what the United States\nor New York State oall taxable income. The British exclude certain\nitems that we include; and they differ from us in the deductions\nthat they allow. Differences in price levels also complicate the\ncomparison.\nSome comparisons--also necessarily rough--with respect to taxes,\ndebt, and national income follows\n1. If Americans paid in taxes to the Federal Government the same\nproportion of the national income as the British will pay to their\nnational government in the coming fiscal year, they would pay over\n$10 billion (instead of $6 billion, as they will pay according to the\nlast published budget estimates).\n2. Even if all national and local taxes are taken into con-\nsideration, the Americans pay about the same percentage of their\nnational income in taxes as do the British - at least no greater.\nThe percentage is about 23.\n3. The interest on the national debt in the United States amounts\nto 1.5 per cent of our national income while the interest on the\nBritish national debt amounts to 4.3 per cont of their national income.\nCAS\nRegraded Uclassified\nM-148 4/27/35\nEccles Recovery plan, left at the White House when\nHM,Jr and Ecoles saw the President.\nRegraded Uclassified\n21. 149\nApril 27, 1950.\nOUTLINE OF MEXT STEPS X THE RECOVERY FROGRAM\nThe Outlook for the Boxt Six Months\n1. No eign of an early upturn. When production was last is ourrent\nlevels (in 1931 and 1934) industrial maintenance and new plant and equip-\nment expenditures were nearly $5 billion less than in 1937. No reason\nto expect upturn in reilroed and utility expenditures.\nMildly favorable factors,\n(a) Residential housing increasing but small and below last year.\nContracts awarded in the first half of April 38 por cont below 'BT\ncorresponding period;building permits outside E. Y. in March\n28 per cent below last year.\n(b) Moderate increase in deficit but not substantial, W.P.A., C.O.O.,\nroads, P.W.A., U.S.H.A., revenues.\nUnfavorable,\n(a) Inventories 05 billion higher at year end than in 1935,\n(b) Dwindling backlege of unfilled orders and uncompleted projects.\n(c) Consumer credit liquidation\n(a) Agricultural and foreign prospects\n(o) Stock prices high in relation to probable earnings.\nNecessary to speed up expenditures in next six months to prevent further\ndeterioration.\n1. R. 1. c. Leans for R. R. equipment-- no legislation required,\n(a) Up to January 1, 1959, equipment delivered before June or\nSeptember 1939.\n(b) 100 por cent of cost\n(c) Long muturities \" safe\n(a) I per cent\n#\n(o) Interest beginning one year after date of loan.\nRegraded Uclassified\n*94150\n4\n2. Further Stimulation of Residential Construction.\nV. 7. A. common labor contribution to private builders --\nrequires legislation.\n(a) 10 per cent of appraised value of new construction\n(b) On housing units appraised at $5,000 or less\n(o) Limited to contracts let this calender year and\nstarted after May lst\nSocially beneficial, powerful stimulent, no cost to Government.\nS, R. F. c. Leans for New Utility Expenditures - No logislation No\nquired\n1. Favorable terms\n2. Limited period\nS. Assist in lowering rates for private financing and refunding.\n4. No lean to municipal power plants\n4. Speeding Up of Ordinary Government Spending after New Fiscal Year\nStarts\n(1) Supplies\n(2) Public buildings\n(5) Armements\nDesirable because of critical business situation ia summer and because\nother parts of program will be well laumched in second half of fiscal year.\nRegraded Uclassified\nApril 27,\nNEXT TYPS IN THE RECOVERY PROGRAM\nThe Outlook for the Next Bix Months\n1. On belance the probabilities favor no significant upturn\nin the noxt six months. Unemployment 10 still increasing and retail\n00100 are declining. The Index of production remains below 80 as\ncontrasted with the 1939 average of 110. When the index was last\naround 80, in 1931 and 1934, the yearly volume of maintenance and\nnow plant and equipment expenditures of mining and memurecturing\namounted to $3 billion, or $2.7 billion less than in 1937. Utility\nand railroad expenditures are being cortailed.\nMesidential housing expenditures Are increasing but the magnitude\n10 mall. 7. W. Dodge residential building contracts awarded in the\nfirst helf of April were 38 por cent bolow the first half of April 1937.\nThe volume of Dew residential building permits outside of New York in\nMarch was 28 per cent below March 1937.\nNo significant increase under the present progress in Government\nexpenditures can be reasonably expected, W. P. À. bes about reached\nits penk; C, C. C. and public roads expenditures will be mointained;\nP, W. A., depending us it does upon local initiative, will be alow\nin gotting under ways the Blue 18 true of U. 8, E. A. On the other\nhand, revenues will continue to fall off 60 that not expenditures will\nincrease moderately, though not to the levels of 1934-1935.\nAs against the mildly favorable Postors of housing and HOTOTO-\nment expenditures must be offset the atrong deflationary effects of\nRegraded Uclassified\n404152\nthe process of working off inventories, of the completion of orders\nfor heavy durable goods carried over from last year, of the liquide-\ntion of consumer credit. The agricultural outlook is depressing.\nThe foreign economic situation 10 dateriorating.\nMasufacturers, wholesalers and retailers entered the year with\n16 billion more inventory than they had two years previously. Then\nsales were increasing) now they are declining. It will be months\nbefore inventories are worked down to comfortable levole for industry\nIf 8 whole. Witness the automobile industry with its still large bank\nof parts. The process of working off inventories involves losses,\ninvolves a feilure to pass along money received from consumers, and\ninvolves a stoppage of production and DAY buying by producers. The\nworking off of a billion dollars of inventories subtracts AS much from\nthe money stream as is added by 9 billion dollars of new construction,\nthe most we can expect this year.\nUnder the stimulus of reduced down payments and longer terms there\nis evidence that consumer credit reached a high level in late 1937.\nThe process of working this off will be a drag throughout the year.\nStock prices are high in relation to probable earnings in 1938,\nThis is € potentially dangerous situation \" 8 further fall in stocks\nwould have depressing psychological repercussions.\nA survey of various important elements in the current and immed-\nintely prospective situation yields, therefore, no basis for easy\noptimism for prospects in the next half year.\n8. In the light of the above considerations every effort should\nbe made to increase the total volume of public and private expenditures\nin the next six months to prevent a further deterioration in the buel-\nnose situation.\nRegraded Uclassified\n153\n-$-\nHow Additional Expenditures May be Made\n1. R, F. C, lease for reilreed equipment. The R, 7. C. has the\npower to purchase adequately-escured equipment trust certificates upon\nauch terms and conditions as it may determine. Louns made for mainten-\nance or purchase of equipment need the approval of the I. c. C. as regards\nmaturity, but do not require a certification by the I. C. c. that the\nreilroad in question, on the basis of present and prospective sernings,\nany reasonably be expected to neet its fixed charges, as do loans to rail-\nroads for other purposes.\nIt is maggested that for a limited period the B, F. c. announce\nitself prepared to purchase Dev equipment trust certificates:\n(a) covering 100 por cont of the cost of new equipment,\n(b) naturing in twenty years in the case of freight cars, fifteen\nyears in the of steam locomotives and passenger care, and\nten years in the case of complete streamlined trains and Diesel\nelectric engines,\n(o) et a 2 per cent interest rate,\n(a) interest beginning one year after date of loan.\nArguments in Depport of Proposal\n(a) An offer on less favorable terms would not interest the better\nrailroads that can DOW sell equipment trust certificates on . 4 por cent\nbasis or better. Oa an offer such \" outlined above, they could hardly\nafford not to anticipate part of their future requirements.\nRegraded Uclassified\n154\n+\n(b) In the present conditions of railroad finances, equipment\ntrust certificates constitute the most secure type of loon that can\nbe made to the roads,\n(c) In no other way could the Ocvernment induce as much total\nexpenditure and employment at as little cost to itself. It has been\ncarefully estimated that to handle the volume of traffic consequent\nupon full recovery in three years' time would necessitate the purchase\nof st billion dollars worth of equipment.\n(a) Any amticipation of these requirements would provide both\nemployment and buying power now, and help mitigato the almost inevit-\nable bottlemecks in the future.\n(o) It is important to limit this offer to equipment purchased\nin the comparatively near future, as otherwise roads will hold back.\nThe stipulation that the equipment must be contracted for in this\ncalendar year to be delivered before June 30, 1959, in the case of\nfreight cars, and September so, 1939 is the case of locomotives and\nstreenlined trains, appears to be reasonable. This type of work could\nbe begus almost immediately, as contrasted with some other elements\nof the recovery program,\n1, Further Stimulation of Residential Construction\nThe volume of private 100-00st residential construction continues\ndisappointingly low. If 10 10 to grow to become a significant force\nRegraded Uclassified\n155\nmaking for . sustained revival, additional stimulus appears necessary.\nThis could be provided by an amendment to the Relief Appropriation\nempowering W. P. A. to supply W. P. A. common labor equal to 10 per cent\nof the appraised value of new low-cost residential building from to\nthe builder. This offer should apply only to units appraised at $5,000\nor loss, the contracts for which are awarded between, say, May 1st and\nDecember 31st of this year.\nThis proposal would\n(a) stimulate a socially desirable type of activity\n(b) give a substantial fillip to private residential building\nexpenditures this year, when they are most needed\n(c) not involve any cost to the Government\nThe possibilities of siding in reilroad maintemance through the use of\nW. P. A. labor might be studied. A precedent exists in Canada.\n3. R, Fa C, Louns for Now Utility Expenditures,\nAs in the case of the railroads, the R. F. 0. could make loans for\nnew expenditures for a limited period on very favorable terms. Although\nit is true that may operating companies are heavily bonded and that\nthey are not now in need of new capacity, still an offer on favorable\nterms for a limited period should induce many companies to anticipate\ntheir future requirements and modernise or replace old equipment. More-\nover, the offer by the 2. 7. C. to lean for such purposes at lower rates\nthan you provail should have the offect of bringing about a reduction is\nRegraded Uclassified\n156\nthe open market rates and honce permit private borrowing and refunding\non more favorable terms. Befunding at lower rates reduces the burden\nof fixed costa, enhances the outlook for profits, and brightens the\nprospect for securing equity money, the greatest need of the utilition.\nIn addition to the considerations mentioned above an offer by the\nR, F. c. to loan money for Ber equipment for reilroads and utilities\non very fevorable terms for a limited period would permit the replacement\nof obsolete and high cost equipment by modern low cost equipment. Psycho-\nlogically, it should have the effect of strengthening the confidence of\ninvestors and of adding billions of dollars to the market valuation of\nthe securities of railroads and utilities.\nAs 1 supplement to this program it would be helpful if 1t were\nannounced that the P. W. A. would make no gore loans for the construe-\ntion of municipal power plants.\n4. Speeding up of ordinary Government spending at the beginning\nof the now fiscal year\nMach can be done through the Director of the Budget, the Procure-\nment Division of the Treasury, and the various Government departments\nto vary the rate of current expenditures and to anticipate the purchases\nof necessary supplies. Work on public buildings can be speeded 4.\nThere should be come possibility of consentrating a larger part of the\nprogram TO in the first half of the fiscal year.\nAnything that could be done to throw ordinary expenditures into\nthe first half of the fiscal year would be extremely worthwhile both\nbecause or the business situation in the numer may be critical and because\nRegraded Uclassified\nMais 157\nthe other elements of the program will result in a stepping up of ex-\npenditures in the second half of the fiscal year.\nRegraded Uclassifie\n158\nDEPARTMENT OF STATE\nMemorandum of Conversation\nJ INFIDENTIAL\nDATE:\nApril 27, 1938.\nSUBJECT:\nRecognition of the conquest of Ethiopia;\nloan to China.\nPARTICIPANTS:\nThe Chinese Ambassador, Dr. Chengting T. wang:\nthe Under Secretary.\nCOPIES TO:\ns, A-B, FE, PA/H, PA/D, Eu, EA\nare 1-1493\nThe Chinese Ambassador called to see me this\nmorning.\nThe Ambassador stated that he had received a\nconfidential telegram from his Foreign Minister in\nwhich Dr. Wan requested him to ascertain if this Govern-\nment would give informally and confidentially to the\nChinese Government its views as to the attitude which\nChina should assume at the meeting of the Council of\nthe League of Nations on May 9 in regard to the recog-\nnition of the conquest of Ethiopia by Italy. I replied\nto the Ambassador that this Government of course ap-\npreciated the friendship and the confidence which was\nRegraded Uclassified\n159\nrequest for our advice, but that I felt that the question\nwas one which had such far-reaching implications and which\ncas of much importance that only the Chinese Government and\nthe responsible authorities of that Government could pos-\nsibly determine such a question and that, consequently, it\nwould seem to me impossible for this Government to give any\nadvice in the matter. The Ambassador seemed to expect this\nreply and made no comment.\nThe Ambassador then went on to say that, as he had\ntold the President, the Chinese Government had ample suni-\ntions and military supplies to last until the end of this\nyear: that the friendly policy adopted by the United States\nTreasury with regard to the purchase of Chinese silver had\nmade it possible for the Chinese Government to obtain suf-\nficient United States exchange to pay for the military sup-\nplies which they urchased here, but that this situation\nof course could not continue after the first of the year\nand they were therefore considering ways and means of ob-\ntaining financial assistance in the American market. The\nAmbassador told me trat negotiations were under way and\nwould probably shortly be concluded for & loan to the\nChinese Government by American banking interests of from\nten to twenty millione of dollars, which summ would be\nexpended for the purchase of military supplies in this\ncountry. The Ambassander did not advance the names of\nRegraded Uclassified\n160\n-30\nthese banking institutions, nor aid I question him.\nThe Ambassador then went on to say that his Foreign\nMinister had also informed him confidentially that the\nChinese Government was informed that the Government of\nJapan was considering in the near future requesting\nPresident Reosevelt to offer his good offices with a view\nto bringing about peace between Japan and China. The\nAmbassador inquired whether any such approach had been\nmade to this Government. I answered that no approach\nof any kind along these lines had been made by Japan to\nthis Government, nor by any responsible or authorized\nagency or representative of the Government of Japan. I\nsaid that of course, as the Ambassador know, there were\na great many individual Japanese both in this country and\nelsewhere who apparently on their own initiative had ad-\nvanced such a suggestion, but that the Government of Japan\nitself had never indicated any such desire on its part.\nThe Ambassador then inquired what the attitude of this\nGovernment would be if Japan did make such an approach.\nI said that necessarily the President would inquire of\nthe Government of China what its views might be. The\nAmbassador stated that he believed that if this question\narose and if in inquiry was then made of the Government\nof China, the Government of China would refuse to discuss\nthe possibility of any peace negotiations unloss Japan\nwithdrew all of her military forces from Chinese territory.\nRegraded Uclassified\n161\nand this, the Ambassador felt, was not possible for nome\ntime to come. He gave no clearly to understand that except\non some such prerequisite as this, China was so.sneouraged\nby the military situation that she would be unwilling to\nconsider the discussion of peace terms.\nBefore he left the Ambassador said that he himself -\nnot his Government - had been considering the possibility\nof \"capitalising American sympathy for China\" by the flota-\ntion in the United States of a so-called liberty loan for\nChina in the amount of fifty million dollars in issues\nranging from twenty-five to one thousand dollars, at a\nlow rate of interest and with as collateral the Chinese\nouetoms and the salt tax. He inquired, in the event that\nthe Government of China wanted to go ahead on this plan,\nwhether the Government of the United States would have any\nobjection. I told the Ambassador that this was a matter\nconcerning which I would desire to consult nome of the high\nofficials of this Government before expressing any opinion.\nI told his that I assumed that he had considered the\nprobability that if the Government of China took such\naction as this, a very large section of American public\nopinion would feel that this was counter to the spirit,\nif not to the letter, of existing neutrality legislation\nand that pressure would be brought in order to have the\nneutrality legislation invoked. I inquired also, telling\nRegraded Uclassified\n162\n-5-\nhim that this was simply a snap judgment, whether he asd\nnot think it likely that if this action were taken\nthe Government of Japan would declare that a state of war\nexisted in order to bring about the automatic operation\nof our existing neutrality legislation no as to shut the\ndoors to such financing in this country on the part of\nChina. The Ambassador said that these ideas had not really\noccurred to him, but that he felt the sympathy of the\npeople of the United States for China was 80 great as not\nto make this danger a very real one. He mentioned in passing\nthat the Government of China had received altogether\n$10,000,000 in cash from the United States for the proseou-\ntion of the war through individual contributions and that\nof this amount he estimated $2,000,000 came from purely\nAmerican and not Chinese sources. I told the Ambassador\nthat I would be happy to see him again within a few days\nand give him a more considered reply to the last inquiry\nhe had made of me.\nUsewill\nRegraded Uclassified\n163\nApril m. 1988.\nMy dear Mr. Jones:\nThe Secretary has asked - to M-\nknowledge the copy of your letter of\nApril 25rd, which encloses & reprint of\nan address recently delivered w you over\nthe radio. He has noted this, and the\ncopy of your letter to State Banking\nCommissioners, etc.\nSincerely yours.\nH.S. Kets,\nPrivate Secretary.\nNonerable Jesse H. Jenes,\nChairman of the Board,\nReconstruction Finance Corporation,\nVashington, D. c.\nGEF/dbs\nRegraded Uclassified\nVOOPI\n184\nREGONSTRUCTION FINANCE CORPORATION\nWASHINGTON\nJeane H. JONES\nApril 23, 1938\nHAIRMAN OF THE BOARD\nGentlemen:\nI enclose copy of an address that I recently\ndelivered over the radio in which I spoke about bank\nlending, bank examinations, examiner criticism, etc.;\nalso copy of a letter which I am today sending to the\nvarious State Banking Commissioners.\nI em aware of your respective responsibilities\nwith reference to bank supervision, and it is my well-\nconsidered opinion that B uniform examination by your\nseveral agencies, and where possible state banking\nauthorities, will contribute materially to releasing\ncredit.\nI know something of the effect on bank manage-\nment of examiner criticism with respect to items criticized,\nor to which special attention is called by the examiner.\nI appreciate that criticism 1a often necessary,\nbut where a bank has ample capital funds, and is not in-\nclined to over-extend its lending, criticism of its loans\nand investments should be avoided where possible.\nThe RFC is prepared to cooperate in any construc-\ntive program with respect to bank examinations.\nSincerely yours,\n(signed) Jesse H. Jones\nChairman\nHonorable Marriner S. Eccles\nChairman, Board of Governors\nFederal Reserve System\nWashington, D. C.\nHonorable Leo T. Crowley, Chairman\nFederal Deposit Insurance Corporation\nWashington, D. C.\nHonorable Marshall R. Diggs\nActing Comptroller of the Currency\nTreasury Building\nWashington, D. C.\nRegraded Uclassified\nVOOPY\nRECONSTRUCTION FINANCE CORPORATION\n165\nWASHINGTON\nJESSE H. JONES\nBIAIRMAN OF THE BOARD\nApril 23, 1938\nDear Mr. White:\nI enclose copy of an address that I recently\ndelivered over the radio in which I spoke about bank\nlending, bank examinations, examiner criticism, etc.\nI em aware of the respective responsibilities\nof all bank supervising authorities, and it is my well-\nconsidered opinion that a uniform examination by all\nauthorities will contribute materially to releasing credit.\nI know something of the effect on bank management\nof examiner criticiem with respect to items criticized, or\nto which special attention is called by the examiner.\nI appreciate that criticiem is often necessary.\nbut where a bank has ample capital funds, and is not in-\nclined to over-extend its lending. criticism of its loans\nand investments should be avoided where possible.\nThe RFC is prepared to cooperate in any construc-\ntive program with respect to bank examinations.\nThis letter is being sent to all State Banking\nCommissioners and to the Federal Reserve Board, the Federal\nDeposit Insurance Corporation and the Acting Comptroller of\nthe Currency.\nSincerely yours,\n(Signed) Jesse H. Jones\nChairman\nMr. William R. White\nSuperintendent of Banks\nState of New York\nAlbany, New York\nRegraded Uclassified\n166\nSPEECH\nof\nJESSE H. JONES\nChairman, Reconstruction Finance Corporation\nArranged by\nThe Washington Star\nBroadcast Over\nThe Blue Network\nof\nThe National Broadcasting Company\nMonday Evening, April 18, 1938\nWashington, D.C.\nRegraded Uclassified\nI wish to discuss business and credit. The decline in the\npurchase of consumers' goods-the things we need and\nuse every day-caused an accumulation of inventories by\nthe merchant and the manufacturer that has resulted in\nwidespread unemployment. The manufacturer cannot con-\nlinue to produce what be cannot sell, nor can the merchant\nbuy unless he sells. So until these inventories are reduced,\nemployment will not likely pick up.\nIn discussing credit I have in mind credit for all pur-\nposes-for business, for industry, for agriculture, and for\nbuilding. As you know, the Reconstruction Finance Cor-\nporation was created in 1932 for the purpose of lending to\nbanks, insurance companies, mortgage loan companies, Fed-\neral land banks, joint-stock land banks, agriculture,\nrailroads, etc. March 9, 1933, just five days after Presi-\ndent Roosevelt was inaugurated, our law was supplemented,\nand has been amended and supplemented many times since\nthen, expanding the scope of RFC operations to meet vary-\niug conditions. The March 9, 1933, law was the most\nimportant of all. It made it possible for us to save the\nbanks by buying their preferred stock, capital notes, or\ndebentures.\nAside from advances to other governmental agencies by\ndirection of Congress, we have authorized $9,404,000,000 in\nloans and investments, including bank capital. $1,760,000,-\n000 of these authorizations were later cancelled, the appli-\ncante finding they did not need the money, or that they\ncould get it elsewhere. $6,900,000,000 has actually been\ndisbursed, and $4,934,000,000, or more than 71%, repaid.\nThis vast sum of money went directly or indirectly to\nevery class of our citizenship and represents hundreds of\nthousands of individual loans.\n1\nRegraded Uclassified\nIndustry was aided by direct loans and through aid to\nbanks that enabled them to extend credit and to grunt EX-\nWith the approval of the President, Congress has just\namended our Act again by passing the Glass Bill which\ntensions to their borrowers. Agriculture was aided through\nempowers us to lend to public bodies, States, municipalities\nloans on commodities-cotton, corn, wool, mohair, tobacco,\nand political subdivisions, for the construction of useful\npeanuts. prunes, dates, figs, raisine, and naval stores. More\npublic works projects. This is a restoration of authority\nthan 3 million separate loans have been made to the pro-\nwhich we had prior to the establishment of PWA, und\nducers of farm commodities, These loans have been largely\nunder which we have loaned $300,000,000 in addition to\nthrough the Commodity Credit Corporation, and average\nbuying $600,000,000 of such loans from PWA.\nThe Glass Bill also broadened our powers so that we may\nless than $500 to each borrower. Several hundred million\nlend on longer maturities. This authority will be particu-\ndollars was loaned through Federal land banks, joint-\nlarly helpful in industrial loans for plant construction and\nstock land banks and regional agricultural credit cor-\nnew equipment-in other words, in extending long-time\nporations. Probably 20 million depositors in closed banks\ncredit to industry.\nThe objective of the law and of the President and Con-\nwere aided through RFC loans, Almost every line of busi-\ngress is to aid business through increasing employment,\nness has been helped by the RFC and we were getting along\nand our loans will be made with that in view. The law\nfine unfil last Autumn.\nrequires that loans must be secured, but may be upon such\nOur collections in 1936 and 1937 exceeded our disburse-\nterms and conditions and for such length of time as, in the\nments by almost a billion dollars, so by the latter part of\nopinion of our board of directors, are appropriate to the\nparticular application.\n1937 it looked as though we could withdraw from the lend-\nWhile our purpose will be to make business and industrial\ning field. Accordingly, on the 18th of last October Presi-\nloans that will maintain or create work, we will not feel\ndent Roosevelt directed that we accept no more loan\nauthorized to make such loans unless in our opinion the\napplications.\nborrower will be able to pay the money back, Too much\nBut due to the continued recession in business, the Presi-\ndebt and inflation of values were the principal causes of\nthe 1929 collapse, and prudent borrowing is just as essen-\ndent authorized us to start lending again February 18th of\ntial as prudent lending. It does no good to lend a man or\nthis year. Since that time we have approved $12,191,716 in\na business money which be will lose. It merely postpones\nindustrial loans, and have applications, definite and tenta-\nthe inevitable readjustment of his affairs. This does not\ntive, for approximately $70,000,000 more of this character\nmean that we are not making every effort to lend to deserv-\nof loans.\ning borrowers, particularly where employment will be main-\ntained or increased. We try to find a way to authorize\n2\nevery such loan for which we have an application.\n3\nRegraded Uclassified\nApparently many people believe the Glass-Steagall\namendment to our Act permits us to lend on a different\nThe Securities and Exchange Commission Saturday,\nbusis of security than heretofore, and that a billion and a\nApril 16th, issued new regulations intended to simplify the\nhalf dollars has been especially allocated by the Congress\nregistration and distribution of securities, particularly small\nfor this purpose. The facts are that this amendment did\nissues of established enterprises. The Commission stated\nnot change the security provisions in our Act, nor did il\nthat these regulations will tend to reduce the registration\nincrease our available credit for lending.\nexpenses and save time for the registrant.\nOurs is a revolving fund and fluctuates daily with our\nTo aid in the legitimate distribution of such securities\nreceipts and disbursements. At present our unused borrow-\nwhere they appear to be sound and will increase employ-\ning authority is $1,416,000,000 for all purposes, and this is a\nment, we will consider lending to private bankers and\ngreat deal of money, 80 don't be afraid it will give out. We\nunderwriting bankers when the loans can be properly\nhave more than a billion and a half dollars of sound assets,\nsecured. We will not buy the stock of any private business.\nand collections from these may also be loaned. The great-\nUsually when there is a demand for investment capital that\nest amount we have ever had outstanding at any one time\npromises a fair return, it is forthcoming, and no doubt this\nwas $2,700,000,000.\nwill be true again as business improves.\nIn addition to lending for all other purposes, we will lend\nThere is B widespread impression that many who are\nfor earrying inventories, thus enabling manufacturers to\nentitled to credit cannot get credit from banks and other\nanticipate trade requirements with the assurance that they\nprivate lending institutions. No one knows the extent to\nwill not be forced to sacrifice their products to pay for the\nwhich this situation actually exists: but whatever legitimate\ncost of production. We will bring to the manufacturer the\ndemand there may be for credit, the RFC is prepared to\nsame assistance and same assurance in this respect that We\nfurnish, preferably in cooperation with banks and bankers.\ngive to the producers of farm commodities through com-\nIn this effort we would like for every bank in the United\nmodity loans. Loans on inventories, like loans on com-\nStates either for the account of the RFC, or for the joint\nmodities, will necessarily require the inventories to be ware-\naccount of the bank and the RFC, to make its lending\nhoused, or so segregated as to permit an enforceable lien,\nfacilities available to those of its customer-depositora who\nunless of course the borrower is able to give other acceptable\nfeel they are being deprived of credit.\nsecurity.\nWe want to make it perfectly clear that we are not com-\nWe will lend for the construction of needed business\npeting with the banks, but want to cooperate with them in\nbuildings, where the project seems sound and credit is not\nproviding credit where there is a demand which for any\notherwise available.\nreason the banks cannot meet.\n5\nRegraded Uclassified\nWe would like for banks to go into the problems of such\ndepositors with H. view to ascertaining whether they are en-\nThe loans might run for a longer time than bankers ordi-\ntitled to credit, even though the loan be one which the\nnarily wish to make, but our banking laws permit long-\nbank would not feel justified in making.\ntime loans, and they are eligible for borrowing at the Fed-\nWhere the bank finds that the loan can be so secured as\neral Reserve should the bank need to borrow.\nreasonably to assure its repayment, but is of n character\nWe at the RFC very often find that by requiring a\nthe bank feels it should not make, we would like for the\nborrower to secure standby agreements and subordination\nbank to take the borrower's application and forward it to\nof liens from existing creditors, or the conversion of either\nthe RFC agency of its district, with such comments or\nor both of these into the capital stock of the borrower, we\nrecommendations as the bank may feel justified in making,\nare able to make well-seoured loans that result in setting a\n(hur application blanks will be mailed to the banks as soon\nbusiness on its feet again.\n85 they are ready.\nWe greatly prefec that the bank take a participation in\nIt frequently takes careful and painstaking study of an\nthe loan, sharing proportionately with the RFC in the\napplicant's situation to help him rearrange his affairs, but\nsecurity and in repayments.\nhis banker should be as interested in doing this да his\nGovernment.\nWe will, where the bank wishes us to do so, allow it to\ncarry the entire loan with a definite commitment from the\nI am aware that banks do not like to make slow loans,\nRFC to take over, without recourse on the bank, that part\nor loans which the bank examiners soon class as slow, but\nof the loun which the RFC underwrites, The underwritten\nthe fact that a borrower needs money which he cannot pay\nportion of the loan will be taken up at such time or date as\nback except over a period of five or ten years is no reason\nwhy a bank should not make is real effort to assist him.\nmay be agreed upon when the loan is made. For this\nLong-time loans should always be amortized in accordance\ncommitment the RFC will accept a part of the interest,\nwithout additional charge to the borrower. This will afford\nwith the borrower's projected ability to pay, and there is no\nthe bank a profitable investment for its loanable funds con-\nreason why a bank should not carry in its assets a proper\nvertible into cash at any time.\namount of loans of thie character. Banks carry bonds which\nI am convinced from our experience that if the banks\nin theory they expect to sell when they need the money,\nwould go into the problems of more of their potential\nbut which in practice, when the need arises, they usually\nborrowers, they would be able to work out many good\ncannot sell except at a loss which they can ill afford to sus-\nloans, loans that would be profitable to them and to the\ntain, So why should they discriminate against a well-\nborrower-lonns that would create employment and stimu-\nacured, smortized industrial or real estate loan that is 15.\nlate business.\ncound legal bank investment?\n6\n7\nRegraded Uclassified\nIn speaking of bank examinations, the Comptroller of the\nCurrency, the State banking commissioners, Lhe Federal\nThe recent meeting of \"little business\" in Washington\nDeposit Insurance Corporation, and the Federal Reserve\nwith Secretary of Commerce Roper served to create the\nBoard, each of which is charged with the responsibility\nimpression that \"little business\" is being denied credit, The\nof examining banks, should agree upon a uniform ex-\nline of demarcation between little business and big business\namination. Their examiners should be instructed not to\nis not easy to determine, 80 the term \"little\" can only be\ncriticize, or call particular attention to loans that are\ntreated ns relative.\nqualified investments under the law, if the loan is sound,\nWith the exception of a few large loans, the average\nor properly secured, unless the examiner finds that the\nbank has too large a percentage of its assets in B particular\namount of our industrial loans has been $54,760.1 Thirty-\ncharacter of loan. Calling special attention to a loan by the\none per cent of all our industrial loans have been for\nexaminer usually has the same effect on bank management\n$10,000, or less, 21% range from $10,000 to $25,000. Four\nas if the loan were criticized.\nout of every five of the banks in which the RFC has cap-\nIf these agencies are unable to agree and to cooperate\nital are little banks. In more than 2,500 of these banks\nin the examination of banks, they should be required to\nour investment is $25,000, or less, In another thousand it\ndo 80 by legislative action.\nranges between $25,000 and $100,000. In only 250 banks\nIn fairness to bank examinations, it is proper to say that\ndo we have HS much as $500,000 invested.\nentirely too many bankers tell their applicants for loans\nI mention this because some people feel that an applica-\nthey cannot make the loan because the examiner will criti-\ntion for a small loan does not get the same attention that\ncize it, instead of being frank with the applicant and\nan application for a large one gets, when, as a matter of\nexplaining why he is not entitled to the loan, and trying to\nhelp him work out his problem. Frankness is a virtue too\nfact, it gets much more, but the press does not regard a\nseldom employed.\nsmall loan of sufficient news value to publish.\nWith our very liberal banking laws and the fact that\nThe same principles apply to business, regardless of size,\ndeposits are insured, making extreme liquidity unnecessary,\nand the employment problem is the same, The little bor-\nthere should be ample credit for every legitimate purpose.\nrower employs relatively the same number of people ns the\nBanks are bulging with loanable funds.\nbig borrower, no more and no less. We give special con-\nI am well aware that banks want to lend, and suggest\nsideration to the smaller units in business and industry that\nthey try to fit their lending policies to the credit require-\nneed to borrow, and would appreciate the cooperation of\nments of today, rather than yesterday.\nbanks in this effort.\n8\n9\nRegraded Uclassified\nSo much has been said about fear that we have all become\nimbued with the idea that something is wrong with the\ncountry, when, as a matter of fact, we have never had a\ngreater abundance of everything needed for a really high\nstandard of living than we have now. The basis of pros-\nperity is confidence. We must have confidence in our coun-\ntry and confidence in our Government, and if we demon-\nstrate that confidence by action, better business will follow.\n10\nRegraded Uclassifie\n167\nWORKS PROGRESS ADMINISTRATION\nWALKER-JOHNSON BUILDING\n1734 NEW YORK AVENUE NW.\nWASHINGTON, D. c.\nHARRY L. HOPKINS\nADMINISTRATOR\nApril 27, 1938\nMrs. Henrietta S. Klotz\nAssistant to the Secretary\nU. S. Treasury Department\nWashington, D. C.\nDear Mrs. Klotz:\nAttached is the weekly memorandum on\nemployment and relief.\nSincerely yours,\nEurous Ron\nEmerson Ross, Director\nDivision of Research,\nStatistics, & Records\nof thes\nthey of sent today me.\n2/28/38\nRegraded Uclassified\n168\nWORKS PROGRESS ADMINISTRATION\nWALKER-JOHNSON BUILDING\n1734 NEW YORK AVENUE NW,\nWASHINGTON, D. C.\nHARMY L HOPKINE\nADMINISTRATOR\nApril 27, 1938\nMEMORANDUM\nTO:\nMr. Morgenthau, Secretary of the Treasury\nFROM:\nEmeryson Ross, Director\nDivision of Research,\nStatistics, & Records\nWPA employment for the week ending April 23 amounted\nto 2,545,000 persons, an increase of 150,000 since the week\nending March 26 and 41,000 since April 9.\nThe local relief rolls appear to be leveling off or\ndeclining slightly in an increasing number of localities partly\nbecause of the transfer of relief cases to WPA and partly as\na result of seasonal influences which permit the closing of\nmany partial or supplementary cases with the advent of warmer\nweather. In some localities where seasonal industries are\nimportant a pick-up in private employment is also helping the\nrelief situation.\nThe industrial areas, however, are not experiencing\nany widespread improvement in private employment. An estimated\ndecline of 50,000 in non-agricultural employment occurred\nbetween February and March according to the Bureau of Labor\nStatistics. Normally B. seasonal increase of 200,000 - 300,000\nwould be expected during this period.\nIt is estimated that currently about 800,000 persons\nare receiving unemployment compensation benefits. The completion\nof benefit periods, which have a maximum duration of 16 weeks,\nis a factor in the relief outlook for the coming months.\nRegraded Uclassified\n169\nApril 27, 1938.\nDr. Feis came in to see the Secretary to-day at\n12:30. He asked whether the Treasury Department would not\narrange to have Congressional hearings on the Hungarian Debt.\nMr. Morgenthau promised to see Mr. Doughton and\nsuggest that hearings be held and also tell him that he\nwould be willing to come up and testify favorably.\nRegraded Uclassified\n170\nGROUP MEETING\nApril 28, 1938.\n9:45 A. M.\nPresent:\nMr. Magill\nMr. Oliphant\nMr. Gaston\nMr. Haas\nMr. Taylor\nMr. Gibbons\nMr. Lochhead\nMr. White\nMr. Upham\nMr. Bell\nMr. McReynolds\nMrs. Klotz\nH.M.Jr:\nWhere's Danny Bell? I'll do this first. (Over\ntelephone:) Congressman Woodrum, of Virginia,\nplease. Cliff Woodrum.\nWe can do this other. Magill?\nMagill:\nI've got this.\nH.M.Jr:\nWell, you follow the Chinese. We have the Chinese\ncoming in at three. White, you - is there a\ncommitment running out?\nLochhead:\nYes, on Saturday we make our difficult last slide.\nI have a cable from Nicholson - rather interesting\nat this time, but it's probably just one of his\ncables.\nH.M.Jr:\nYou never did answer me about the Russian thing.\n(Reading cable.)\nBell:\n(Enters the room.)\nH.M.Jr:\nHello, Dan.\nBell:\nGood morning.\nH.M.Jr:\nI had another check - I checked on the 'phone\nlast night. I want you to listen to this, Dan.\n(Telephone conversation with Congressman Woodrum\nat 9:48 a. m. is attached.)\nRegraded Uclassified\n171\nApril 28, 1938.\n9:48 a. m.\nH.M.Jr:\nHello.\nOperator:\nCongressman Woodrum.\nH.M.Jr:\nHello.\nCongressman\nClifton\nWoodrum:\nYes, Mr. Secretary.\nH.M.Jr:\nHow are you?\nW:\nFine, thank you, sir.\nH.M.Jr:\nAh - Wood - Mr. Woodrum, I'm calling up on a\nmatter in regard to your relief bill.\nW:\nYes sir.\nH.M.Jr:\nIn which I happen to have a, ah, particular\ninterest.\nW:\nYeah.\nH.M.Jr:\nAh, that is to do with, ah, so-called Self-Help\nmovement.\nW:\nYes.\nH.M.Jr:\nAre you familiar with the one in Richmond?\nW:\nNot very.\nH.M.Jr:\nWell.....\nW:\nNot very familiar with it.\nH.M.Jr:\nWell, you know there's one there, and we have one\nhere in Washington, and what we'd like to get is\nabout fifteen words in the bill which would read\nsomething as follows:\nW:\nUh-huh.\nRegraded Uclassified\n172\n- 2 -\nH.M.Jr:\nAh, I mean - ah - \"Funds made available by this\nAct may be used for aiding Self-Help and cooperative\nassociations for the benefit of the unemployed or\nthe under employed persons.\"\nW:\nYes.\nH.M.Jr:\nNow, how do I go about, ah....\nW:\nWell, I think what we should do, we should have\nsomebody, ah, present that idea, and give just a\nlittle brief statement on what it is.\nH.M.Jr:\nUh-huh.\nW:\nWe ought to have, ah - that hasn't been gone into\nso far, in the hearings at all.\nH.M.Jr:\nWell how about if we have, ah, Miss Amy Guy come\nup from Richmond.\nW:\nSure.\nH.M.Jr:\nHow would that feel?\nW:\nSure - ah - of course, Richmond is in my District,\nand that puts a personal\nH.M.Jr:\nOh.\nW:\n....\ntouch on it. I'd rather divorce it from\nanything that I'm personally interested in.\nH.M.Jr:\nWell, ah\nW:\nBut, you see, if - it looks like I'm putting -\nthey'll say that I'm putting language in there\nto help something in my own state.\nH.M.Jr:\nWell, how about if we have somebody from the\nDistrict?\nW:\nI think that would be very much better - somebody\nthat could just speak on the thing from a national\naspect.\nH.M.Jr:\nAll right.\nRegraded Uclassified\n173\n- 3 -\nW:\nGive us a little brief information about what it\nis and the purpose of it. Now what does Hopkins\nsay about that?\nH.M.Jr:\nWell, ah, - uh - Mr. Oliphant called up Aubrey\nWilliams.\nW:\nUh-huh.\nH.M.Jr:\nAnd he's enthusiastic for it.\nW:\nHe is?\nH.M.Jr:\nYes.\nW:\nWell, why don't you get, ah - get Mr. Oliphant to\narrange to have Aubrey Williams and somebody -\nwhoever you pick upon, come over and give us about\nten or fifteen minutes on it?\nH.M.Jr:\nAh, when would you like that?\nW:\nWell, - ah, our hearings are set up pretty close -\nI expect it would have to be Monday sometime.\nH.M.Jr:\nWell.\nW:\nAh, if - if whoever has charge of arranging it\nwould call the clerk of the Committee he would\nset a time for them. We've got a pretty close\nschedule but we'll fix it in all right.\nH.M.Jr:\nWould you?\nW:\nYes, indeed.\nH.M.Jr:\nYou know they're doing awfully good work, and - ah,\nah - I think it's an economical way to take care\nof, ah\nW:\nWell I, I think - I think it is too, and I - just\nfrom what I know about it, which isn't as much as\nI'd like to know, I think it's very very desirable.\nWell, I'd be glad to have it, but we ought to have\nsomething to base our action on, you see.\nH.M.Jr:\nAll right. Well that's - I tell you what we'll do.\nAh - I'll ask somebody from the Hopkins office\nRegraded Uclassified\n174\n- 4 -\nW:\nYeah.\nH.M.Jr:\n.....\nto get in touch.\nW:\nTo get in touch and\n......\nH.M.Jr:\nWith the right party.\nW:\n.....\nif you'll arrange to have someone come down\nwith them\n.....\nH.M.Jr:\nFine.\nW:\n....\nand, ah, if they'll take it up with the\nclerk - they know how to do that - then arrange\nfor a little short hearing.\nH.M.Jr:\nFine.\nW:\nGlad to do it, sir.\nH.M.Jr:\nThank you, boy.\nW:\nAll right, sir.\nH.M.Jr:\nThanks.\nRegraded Uclassified\n- 2 -\n175\nH.M.Jr:\nBetter call Aubrey, hadn't I, myself?\nOliphant:\nAnd just give him the ball, yes sir.\nH.M.Jr:\nDoes that sound all right to you?\nBell:\nUh-huh.\nH.M.Jr:\n(Over telephone:) Aubrey Williams, please.\nThey can take somebody from the Washington\nSelf-Help to go up there.\nOliphant:\nHe'll be satisfied when you report your talk to\nhim - his attitude.\nH.M.Jr:\n(To Mrs. Klotz:) If you have that retyped for\nme I'll (inaudible)\nKlotz:\nOmitting those.\nH.M.Jr:\nCopy one for me, one for Mr. Bell, one for Mr.\nOliphant.\n(Over telephone:) Hello.\nOperator: They expect Mr. Williams in a few\nminutes. He hasn't come in yet.\nH.M.Jr: Thanks. As soon as he comes in.\nOperator: All right.\nH.M.Jr:\nNow, we (Mr. Bell) go up on the Hill at eleven\no'clock. We have an appointment with - eleven\nfifteen - with Doughton.\nBell:\nEleven fifteen.\nH.M.Jr:\nDid they tell you?\nBell:\nThey probably couldn't find me.\nH.M.Jr:\n(To Operator:) Remember, I told you to tell\nMr. Bell we were going to go up on the Hill this\nmorning. Mr. Taylor and Mr. Bell - I said tell\nthem when I got that appointment from Doughton's\noffice. No, when I got the appointment I said,\n\"Notify Mr. Taylor's and Mr. Bell's office.\"\nRegraded Uclassified\nM I 1\n176\nQuite sure. All right. Check - maybe it was\nMiss Carr. All right.\nAh, Mr. Feis came in yesterday to see me and he\nwants - there's a feeling back and forth they'd\nlike us to have a hearing on the Hungarian debt\nthing, and I agreed that I would take it up, so\nwill you have something in hand about it?\nBell:\nToday?\nH.M.Jr:\nIn case they ask us, see, when we see Doughton.\nIt has to start, you see. So I told them - I\nmean back and forth, back and forth, and so forth.\nIt reminded me I'd read that story. somewhere,\nHerbert, about the editor of the New York World.\nGaston:\nYes. Kintner used it the other day about\nH.M.Jr:\nFellow kicked this reporter out, and down the\nstairs. Chapin said, \"I refuse to be intimidated\nthat way. You go back and interview that fellow\nagain.\" So the State Department refuses to be\nintimidated - they are going to send me back up\nagain. Feis didn't think it was funny. (Laughter.)\nSo I - I thought it was very affable.\nBell:\nAnyway, I saw in the paper where they decided to\nenter into a treaty with Nicaragua to settle that\nlittle item of five thousand dollars, Anybody in\nthe Treasury been in touch with that?\nOllphant:\nYeah. It was in the hearing of the Committee.\nThe effect of the treaty would be to supercede the\nlaw that controls\nNo objection if they want\nto get a treaty.\nH.M.Jr:\nWell, what'll we do about it?\nBell:\nWhat shall we do about it?\nH.M.Jr:\nYeah.\nBell:\nI don't know - don't know what is being done. It\nwas just a little paragraph in the paper.\nOliphant:\nIt will go to the Foreign Relations in the Senate\nI think.\nRegraded Uclassified\n- 4 -\n177\nH.M.Jr:\nWell, anyway you raise the question - Taylor's\nresponsible for all the State Department has to\ndo with finance, customs, and all trains going\nWest, so will you look it up?\nTaylor:\nThis is that weekly collective income tax of\nNicaragua.\nBell:\nOffset against the foreign debt of Nicaragua\nto this Government.\nH.M.Jr:\n(To Mr. Magill:) You're coming in - you're\nfollowing the Chinese.\nMagill:\nYes sir.\nH.M.Jr:\nAll right. What else.\nMagill:\nDo you want these figures on the British-American\nincome tax? (Hands H.M.Jr. sheets - 2.) That\nfirst sheet shows the amount of tax; the second,\nthe amount of percentages.\nH.M.Jr:\nWell now - ah - we had a discussion last night -\nwhat about all the other state taxes and all that?\nMagill:\nThat's covered on the second page.\nH.M.Jr:\nI think I'll take my time in looking at that.\nMagill:\nNo, I wouldn't do it now.\nH.M.Jr:\nI'd like to read it carefully.\nMagill:\nMr. Doughton called up this morning and wanted to\nknow what you were coming up about.\nH.M.Jr:\nWill he have other people there?\nMagill:\nI don't know. He didn't say.\nH.M.Jr:\nBut he knows?\nMagill:\nHe knows.\nH.M.Jr:\nSwell. Anything else?\nMagill:\nNo. I'm working on that matter we will talk about\nthis afternoon.\nRegraded Uclassified\n178\n- 5 -\nH.M.Jr:\n(Over telephone:) Hello. Ask Chief Wilson to\nsend me up the time the President leaves, or tell\nme on the phone what time the President leaves\ntomorrow. 0. K.\n(Conversation with Mr. Aubrey Williams at 9:57 a.m.\nattached.)\nRegraded Uclassified\n179\nApril 28, 1938.\n9:57 a. m.\nOperator: Mr. Williams.\nAubrey\nWilliams:\nHello.\nH.M.Jr:\nAubrey.\nW:\nYes.\nH.M.Jr:\nHenry Morgenthau.\nW:\nYes, Mr. Secretary.\nH.M.Jr:\nHow are you?\nW:\nI'm fine, thank you, sir.\nH.M.Jr:\nAubrey, Herman Oliphant told me he talked to you\nabout that little amendment on the Self-Help.\nW:\nYeah.\nH.M.Jr:\nAnd I gather that you'd like to see that in?\nW:\nVery much, I think.\nH.M.Jr:\nGood. Now, I called up Cliff Woodrum and spoke\nto him a few minutes ago, and he said that it's\nfine; he'd like to see it in.\nW:\nGood.\nH.M.Jr:\nBut, he said he'd like to have it presented by\nyour organization, plus someone, ah, from the\nWashington Self-Help rather than from the\nRichmond, because he says that's his District,\nand he doesn't want to make it so personal.\nW:\nYeah.\nH.M.Jr:\nAnd he said if you people - now that I've called\nhim - would ask his clerk to put it on for\nMonday, you would - you'd have it - give it ten\nor fifteen minutes on Monday.\nW:\nYeah.\nRegraded Uclassified\n180\n- 2 -\nH.M.Jr:\nBut inasmuch as you're handling the bill, I got\nthe distinct impression he'd like you people to\nask for it.\nW:\nWell, that's all right.\nH.M.Jr:\nNow I've - he knows I'm for it; he said he's for\nit.\nW:\nGood.\nH.M.Jr:\nAh ....\nW:\nThat's fine.\nH.M.Jr:\nNow, ah.....\nW:\nWell, now, who would come up from the Washington\nCo-op? Could Mrs. Morgenthau come?\nH.M.Jr:\nI don't think so. I don't want her\nW:\nYou'd rather not - well, who else?\nH.M.Jr:\nWell, I - I'll check with them.\nW:\nYou - you'll let me know - you, ah, you'll let\nhim know, will you?\nH.M.Jr:\nI'll let you know, because\n....\nW:\nAll right.\nH.M.Jr:\nyou're going to ask - you will ask for the\nappointment?\nW:\nYes, I will.\nH.M.Jr:\nBecause you're handling the bill, aren't you?\nW:\nYes.\nH.M.Jr:\nAnd, I'll get in touch, and before noon today -\nah, oh - sometime during the day I'll either\nphone you or drop you a note.\nW:\nWell, that'll be fine.\nRegraded Uclassified\n181\n- 3 -\nH.M.Jr:\nBut - but can I leave the rest to you now?\nW:\nYes. And, ah, if I want anything more - if\nCliff thinks anything more - ah - you ought\nto be in it, I'll call you.\nH.M.Jr:\nThat's right. Well, I - I've expressed my\ninterest - told them I thought it was good;\nI'd like to see it.\nW:\nYep.\nH.M.Jr:\nAh, and he says he's for it; he thinks it's good.\nW:\nWell that - that's grand.\nH.M.Jr:\nBut he said he'd - he'd put it on for Monday\nif you people ask for it.\nW:\nYeah.\nH.M.Jr:\nAnd, we - we'll furnish somebody who is familiar.\nW:\nAll right. Thank ....\nH.M.Jr:\nHow's that?\nW:\nThanks very much, Henry.\nH.M.Jr:\nThank you.\nW:\nGoodbye.\nRegraded Uclassified\n- 6 -\n182\nH.M.Jr:\nNow -\n(Telephone rings.) Hello. Thank you. Eight\no'clock tomorrow night.\n(Side conversation with Mrs. Klotz.)\n(Nods to Mr. Oliphant.)\nOliphant:\nI sent to Bell my memorandum on the status of\nIckes' legislation. (To Mr. Bell:) Did it\ncome to you?\nBell:\nI haven't seen it yet; it's probably upstairs on\nmy desk - in my basket.\nH.M.Jr:\nWell, now, in that - you don't know?\nBell:\nNot yet.\nH.M.Jr:\nYou can tell me when we go up together.\nBell:\nYes.\nH.M.Jr:\nI see in the paper - I'm rather surprised - that\nAdmiral Peoples is on the Hill asking for sixty\nmillion dollars for two or three post offices for\nevery Congressman.\nGaston:\nTwo for every district.\nBell:\nThat includes sixty million on the banks. I knew\nthat was coming; I think they had a conference\nyesterday at the White House with Admiral Peoples,\nWoodrum, Harry Hopkins, and Ickes. I think\nthe sixty million was discussed.\nH.M.Jr:\nWill you have Ickes tell you\nBell:\nI'll find out.\nH.M.Jr:\nWill you?\nMcReynolds: (Inaudible:) My understanding - the President -\nthey merely called him.\nBell:\nThe Chairman of the Committee didn't think they had\na chance in bringing out a twenty-five million\ndollar public building bill and getting by with it\non election year.\nRegraded Uclassified\n- 7 -\n183\nE.M.Jr:\n(Side conversation with Mrs. Klotz.)\nHerman?\nOliphant:\nThat's all, I think.\nH.M.Jr:\n(Nods to Mr. Gaston.)\nGaston:\nI\nH.M.Jr:\n(To Mr. Oliphant:) I think when they go up you\nmight have Hester go with them, just to\nOliphant:\nWhen they go Monday?\nB.M.Jr:\nMonday.\nOliphant:\nYes, I'll have him watch it; then he can keep\nhis eye on it.\nH.M.Jr:\nPlease.\nGaston:\nI talked to Mr. Magill and Oliphant yesterday\nabout this question of tax exempts. Paul Betters\nhas put out a statement indicating our position,\nto the Conference of Mayors, in regard to removal\nof the exemptions on local securities, so I got\na hold of Paul Betters and arranged to have him\ncome in tomorrow morning and Oliphant and some of\nthe rest of the boys are going to give him a\nlesson on tax exempts and their affect on the\nfinancial picture - state and local.\nH.M.Jr:\nWhat else?\nGaston:\nFortune magazine has been approaching us, both\ndirectly and indirectly on two different proposi-\ntions. One is for some work in the Bureau of\nInternal Revenue - statistics of income - of\ntracing fortunes of three hundred - or incomes of\nthree hundred thousand a year in some given year,\nand tracing it forward and backward and see what\nhappens to large incomes. It is - I heard later\nit is something Tommy Corcoran is very greatly\ninterested in. I've had some talks with editors\nof Fortune magazine since, and they are going to\nhave some articles on the distribution of wealth.\nIt seems like a worthy action to take. I've been\ntalking to Magill about it.\nRegraded Uclassified\n- 8 -\n184\nH.M.Jr:\nWhat do you say about it?\nMagill:\nIt's a good idea, from our point of view.\nH.M.Jr:\nWell, will you and Oliphant and - you, I mean,\nand Gaston and - I'll appoint a committee of you\nand Gaston and Commissioner Helvering, and whatever\nthe three of you decide - you, Helvering, and\nGaston. I'll let you handle it. Okie doke.\nGaston:\nWe've already been looking into it the last week.\nH.M.Jr.\nThe three of you handle it.\nMagill:\nI think we ought to do it for our own purposes.\nFor our own purposes, we couldn't do it immediately.\nIf, for our own purposes it is given out at all,\nit would be given out for everybody's benefit.\nCorrington Gill, who is one of Fortune's\nintermediaries here, said he would be very glad\nto give a W. P. A. allottment for that, or any other\nworthy research projects that we might have in\nmind here.\nH.M.Jr:\nWell, I still say\nOliphant:\nIsn't it a white collar project?\nH.M.Jr:\nOh no; they've cut them right and left throughout\nthe country - they've cut them right and left.\nHow many have we given up, Mac?\nMcReynolds: We haven't actually given them up by revenue\nprocesses. As a matter of fact they've called\nthem of their own volition, so the only one's\nwe've given up are the ones being completed.\nGaston:\nThe other thing which was the other project of\nFortune, which came to me, through Corrington\nGill, was that they'd like to have a special\nstory on the stabilization fund - the same thing\nthey tried with us a year ago, and I told them of\nour previous experience with them and told them\nthere was nothing in it; if they wanted to write\na story on the basis of what was in the newspapers,\nall right, but I didn't see how they could get\nanything more.\nH.M.Jr:\nHow does Corrington Gill get into this?\nRegraded Uclassified\n- 9 -\n185\nGaston:\nSome of the editors of the Fortune had asked him\nto\n.....\nTaylor:\nOn a retainer basis, is he?\nH.M.Jr:\nBetter make something click up here. All right,\nwhat else, Herbert?\nGaston:\nThat's all,\nH.M.Jr:\nThank you. George?\nHaas:\n(Hands H.M.Jr. black book.) Most important\nfigure is another week in the right direction.\nH.M.Jr:\nWhat else?\nHaas:\nWell, do you - Jones put out a preliminary estimate\non railroad carloadings.\nH.M.Jr:\nYeah.\nHaas:\nBut you can't use that in connection with the\ntimes index, because we don't get a breakdown.\nH.M.Jr:\nWhat do we indicate this week?\nHaas:\nIt was down. That is the total.\nH.M.Jr:\nIt's down.\nHaas:\nYes.\nH.M.Jr:\nWell, on that basis, the New York Times business\nindex this week will strike an all-time low.\nThat's always borne out on Friday afternoon.\nHaas:\nIn the total, but the miscellaneous is weighted\nnineteen, where the total is only weighted eight.\nGaston:\nYou mean an all-time low?\nH.M.Jr:\nI mean, going back to\n.....\nGaston:\n135.\nH.M.Jr:\nThis present - for this period.\nGaston:\nSince the peak.\nRegraded Uclassified\n188\n- 10 -\nH.M.Jr:\nYeah. That's wrong! (Picks up newspaper.)\nTwenty-nine seven. George, this is wrong. See,\nthis says eighty-nine seven, but the previous week\nhere - I thought it was wrong - as against\nninety-one. It's 2.3.\nHaas:\nThey revised that.\nH.M.Jr:\n2.3.\nHaas:\nYes, it should be that, according to the paper.\nH.M.Jr:\nI've got kind of a funny brain.\nHaas:\nPretty good, I think. They frequently revise\nthat from one week to another. I'll check it.\nH.M.Jr:\nWhich makes it much worse. I mean, that makes the\npower index, which is forty-nine per cent of the\nwhole index, off two point three.\nHaas:\nThat also\nH.M.Jr:\nAll right.\nTaylor:\nWe've got a letter from John Fahey, wondering\nH.M.Jr:\nWith or without cigars?\nTaylor:\nThis is without cigars. And what he wants to\nknow is whether he can have the comments that are\nmade by the other agencies. I talked to Dan\nabout it, and Dan, in his capacity as Director of\nthe Budget is going to pass that information on\nto him.\nH.M.Jr:\nWell, that's up to Dan.\nTaylor:\nYeah, and I thought we could say that we under-\nstand that the Acting Director of the Budget is\npassing on the comments so as to clear up the loose\nends.\nH.M.Jr:\n0. K. 0. K.?\nTaylor:\n(Nods \"Yes.\")\nH.M.Jr:\n(Side conversation with Mrs. Klotz: I won't\ncommit myself on charities, and I won't be on any\ncommittees.)\nRegraded Uclassified\n187\n- 11 -\nI don't know whether any of you people saw the\nstory written on the Ford interview yesterday -\none written by the Detroit fellow?\nGaston:\nJay Hayden - yeah.\nH.M.Jr:\nYou've seen it?\nTaylor:\nIt's in the Times.\nH.M.Jr:\nNo, no. The one in the Times\n.....\n(Detroit)\nUpham:\nOne of the papers quotes from the/Free Press -\nsays so forth and so forth - written by Prevost.\nGaston:\nThis story is signed by Jay Hayden.\nH.M.Jr:\nThe one I mean is in the Washington Past, about\nEccles. Well, get the Detroit paper; I'd like\nto see the whole thing.\nOliphant:\nI didn't see that in the Times.\nUpham:\nHerbert, I think they referred to Prevost's\nstory.\nH.M.Jr:\nWhich is the one in the Post. See if it's in\nhere (several news clippings) while we're on\nit, will you (Gaston)?\n.....\nthat Ford and\nEccles got into an argument.\nMcReynolds: That was on the air this morning, that Eccles\nand Ford had an argument, Ford thinking that it\nwasn't a good idea to spend.\nH.M.Jr:\n(Side conversation with Mrs. Klotz)\nAnything else?\nTaylor:\n(Nods \"No.\")\nH.M.Jr:\n(Nods to Mr. Gibbons.)\nGibbons:\nNo. You're not going to do anything with the\nJudge's letter that you got?\nH.M.Jr:\nI'm going to answer it, personally.\nGibbons:\nI'd like to see a copy of it.\nRegraded Uclassified\n188\n- 12 -\nLochhead:\nThe French continues to support the franc -\nlet it slip out a little bit - breaks it down to\n307 - still costing them plenty of money to do\nit. I imagine they'll have to do it. Loans\ncontinue.\nThat's all I have.\nH.M.Jr:\nI want the original story out of the Detroit\npaper. I want the original.\nGaston:\nI can get it quicker by calling up Cliff Prevost\nand getting him to send a copy of his story over.\nH.M.Jr:\n(Points to Mr. White) =:.\nWhite:\nWe're collecting - still collecting figures\nJapanese and Chinese trade on our own. I was\nwondering whether you thought the interest\nhas died down a little and we can stop. We have\ntwo men in New York on the payroll. It's becoming\na little less significant so far as our Chinese\ntrade is concerned.\nH.M.Jr:\nYeah. Yes, I'd - suppose you stop it as of when?\nWhite:\nEnd of the month.\nH.M.Jr:\nFirst of May.\nWhite:\nFirst of May. We'll make a survey of the analysis\nof the trend of the trade, and indicate we're\ndropping it.\nH.M.Jr:\nAnything else?\nWhite:\nNo.\nGaston:\nHere's John O'Brien's story. Of course, he got\nthat from Prevost.\nH.M.Jr:\nYeah. Anything else for you?\nWhite:\nNo.\nH.M.Jr:\nMac, after - before I leave tomorrow - and I may\nbe able to do it in the afternoon - I want to sit\ndown with you and White and fix him up on the people\nhe needs, see?\nRegraded Uclassified\n189\n- 13 -\nMcReynolds: Yeah.\nH.M.Jr:\nI mean, before I leave town tomorrow.\n(Nods to Mr. Upham.)\nUpham:\nI have nothing.\nH.M.Jr:\nAre you making any progress?\nUpham:\nWe reached a definite and final disagreement on\none of the two problems yesterday, and we'll\nprobably reach an agreement today on the other.\nH.M.Jr:\nWell, now, I'm going to follow my own technique\nI've always followed - we're going to get ready\non it whether you disagree or not. I want to\ncall in a half dozen people I have in mind. It\ntakes time to get these fellows in town. I can\ninvite them, say for next Wednesday; you think\nit will be safe?\nUpham:\nYes, I think so. I think we'll finish up today\nor tomorrow, so we can report back just what these\nthree men\n....\nH.M.Jr:\nWednesday morning, you say.\nUpham:\nI think so, unless you want to give more time, say\nto Eccles and Crowley, and Diggs, to decide whether\nthey want to over-rule these.\nH.M.Jr:\nWell, I'd see them Tuesday - those people. Why\nnot let's say we'll have a meeting with those\npeople - the bosses, so to speak - at ten-thirty\nTuesday.\nUpham:\nAll right.\nH.M.Jr:\nThat would be the people that met here the other\nday. Will you make those appointments?\nUpham:\nSurely.\nH.M.Jr:\nYou know who was here?\nUpham:\nYes.\nH.M.Jr:\nAnd then let's say ten-thirty Wednesday, with the\npeople. I'd like to do it right now. I want\nRegraded Uclassified\n- 14 -\n190\nTom Smith, Jeff Coolidge, White, who is the head\nof the bank examinations of the State of New\nYork, isn't it?\nUpham:\nYes. You mentioned Broderick the other day.\nH.M.Jr:\nYeah, Broderick. Would you? I think he's a\ngood man.\nUpham:\nWell, I thought the Federal Reserve people have a\nreservation on that; perhaps they haven't.\nH.M.Jr:\nWell, I haven't. He's satisfactory to me. And\nwould you have a New York City man?\nUpham:\nI think it might be more important to have a small\nbanker.\nH.M.Jr:\nWell, who?\nUpham:\nI don't know, other than someone like Smythe.\nMaybe he'll do for that.\nH.M.Jr:\nYes, I think he will. Anybody know\nUpham:\nI know lots of small bankers, but\nTaylor:\nWhat about Mr. Adams?\nUpham:\nNo. He's not so small.\nGaston:\nYou can get White or Broderick to pick one or two -\nto bring them down.\nH.M.Jr:\nAll right. Tell White -\nKlotz:\nWhich one, this White?\nH.M.Jr:\nYeah. Would he bring - I mean, these people I\nknow, I think - take a man like Tom Smith.\nUpham:\nTom will be here in the morning.\nH.M.Jr:\nCan you clear with Tom and let Mrs. Klotz know?\nUpham:\nYou want to see him?\nH.M.Jr:\nYes. Then we can ask him.\nUpham:\nWe can pick up a banker locally, perhaps. They\nare coming in all the time.\nRegraded Uclassified\n191\n15 I I\nH.M.Jr:\nBetween now and nine-thirty tomorrow, think about\nit, will you? But those are the people I'd like\nto have.\n(Side conversation with Mrs. Klotz:) ... that I\nwant them to come down here ten-thirty Wednesday;\nthat we're going to have some new regulations on\nbank examinations, and I'd like to show them\nto them and get their advice.\nUpham:\nThere was a small Pennsylvania banker in to see\nDiggs, a friend of his - but he's got the worst\nbank in the United States.\nH.M.Jr:\nI know Commissioner White, of the Bank of New\nYork is an able fellow, and I know that Broderick\nis a fine fellow; we've got Smith, Coolidge,\nBroderick, and Commissioner White. That's all.\nGibbons:\nYou don't need any more. Harvey Gibson is friendly\nto the Administration.\nH.M.Jr:\nYeah.\nGibbons:\nOf course, he's a big banker.\nMcReynolds: Take a small banker from Washington.\nUpham:\nWe can find one.\nGibbons:\nIt's purely a mechanical process.\nMcReynolds: You can take Tom Groom, who is head of the local\nBankers' Association. He runs a small bank, but\nit's the best run bank here in town.\nH.M.Jr:\nIs he a good man?\nMcReynolds: He's head of the local Bankers' Association - local\nChapter.\nH.M.Jr:\nYou know him?\nBell:\nNot very well, but he's got a good reputation.\nMcReynolds: I know him personally. I know he'd qualify in\nthat field.\nH.M.Jr:\nAll right, let's have him up here.\nRegraded Uclassified\n192\n- 16 -\nMcReynolds: I only know one thing that is wrong with him.\nUpham:\nHe slices?\nMcReynolds: No, he doesn't refuse to pay my checks.\nH.M.Jr:\nBy all means, have him come in. And if\nanybody between now and tomorrow has any\nsuggestions - I don't want a town meeting, but I\nam not going to get out a lot of rules and\nregulations without checking with some people\nother than the people here. When we begin\nto talk about removing the name \"slow\" from all\nthings, I just want to be about a thousand\nper cent sure.\n(Nods to Mr. Upham.)\nUpham:\nThat's all.\nH.M.Jr:\nHuh? Dan?\nBell:\nI have nothing.\nH.M.Jr:\nMac?\nMcReynolds: (Nods \"No.\")\nH.M.Jr:\nMac, I'm just going to say hello to Mrs. Campbell -\ncan she come in now?\n00000\nRegraded Uclassified\n193\nApril 28, 1938.\n11:00 A. M.\nH.M.Jr:\nHello.\nOperator:\nMr. Williams' secretary.\nH.M.Jr:\nThanks.\nOperator:\nGo ahead.\nH.M.Jr:\nHello.\nAubrey Williams'\nSecy Miss Smith: Secretary Morgenthau, this is Miss Smith,\nMr. Williams' secretary.\nH.M.Jr:\nGood. Tell Mr. Williams-I've talked to him this\nmorning about getting this clause in to take care\nof the Self-Help Co-ops.\nS:\nYes, I heard that.\nH.M.Jr:\nGood. Now, Miss Edna Lonigan, of the Treasury ....\nS:\nWho is that?\nH.M.Jr:\nMiss Edna Lonigan.\nS:\nYes.\nH.M.Jr:\nShe'll go up to - to represent - to explain the\nSelf-Help thing.\nS:\nYes. And that'll be on Monday, won't it?\nH.M.Jr:\nYes. Now after Mr. Williams has gotten the time\nthat, ah, Mr. Woodrum's going to allocate for\nthat, would you let Miss Lonigan know direct?\nS:\nIndeed I will, Secretary - Mr. Secretary.\nH.M.Jr:\nCan I forget about it?\nS:\nAh, yes, you can. I'll - I'll call it to Mr.\nWillIams' attention and call you right back.\nH.M.Jr:\nWell, you needn't call me - you call Miss Lonigan.\nRegraded Uclassified\n- 2 -\n194\nS:\nWell, I'll call Miss Lonigan.\nH.M.Jr:\nEdna Lonigan.\nS:\nYes.\nH.M.Jr:\nThank you so much.\nS:\nAll right, sir.\nH.M.Jr:\nThank you.\nRegraded Uclassified\n195\nApril 28, 1938\n3 p. m.\nPresent:\nChinese Ambassador\nMr. Taylor\nMr. Lochhead\nHM,Jr: How's the war? Maybe I shouldn't ask.\nAmbassador: I hope you are getting the bulletins.\nHM,Jr: Yes.\nAmbassador: That we receive from Hankow from time to\ntime.\nHM,Jr: I see by the paper that they may flood the Yellow\nRiver Valley there.\nAmbassador: I suppose that's the last resort. They\nare very unwilling to do it. For the farmers it will be ter-\nrible.\nHM,Jr: You were going to give me another map. You\nmade one up.\nAmbassador: Do you want another one?\nHM,Jr: If you could.\nAmbassador: Sure.\nHM,Jr: Make a new one showing the various groups.\nAmbassador: I will give you one where the fighting 18\ngoing on.\nHM,Jr: How they got the material in.\nAmbassador: Giving the Northwest, the whole Eastern\narea from Canton up omitting the Western City.\nHM,Jr: Yes, but how they got that stuff in there. For\nRegraded Uclassified\n196\n-2-\ninstance, have they finished that road? The Burma. Would\nyou ask?\nAmbassador: Yes, I will.\nHM,Jr: I think the last time it was 15 or 20 miles.\nAmbassador: Yes. We were told it would be ready\nabout the middle of April. Now it 18 about the end. I\nwonder whether it 1s ready. I will certainly ask them.\nDr. Kung has Just wired me again asking me to convey\nto you and your Government our appreciation of the way our\nsilver is being accepted here and I think the last arrange-\nment will be\nMr. Lochhead: Saturday.\nAmbassador: Tomorrow, 1sn't it?\nHM,Jr: We take 10,000,000 Saturday.\nMr. Lochhead: That clears up the last arrangement\nwe had.\nAmbassador: And we still have some left.\nHM,Jr: How much?\nAmbassador: Which we would like to dispose of. I\nthink from 50 to 100 million ounces.\nHM,Jr: You still have that much?\nAmbassador: Yes. And I wonder whether it would be\npossible to make arrangements.\nHM,Jr: Well, I am seeing the President tomorrow and\nI will ask him. I don't think I will have an answer for\nyou before Tuesday.\nAmbassador: Before Tuesday? I will be away on\nSaturday.\nHM,Jr: Well, I won't be here either.\nAmbassador: I will be back by the end of next week,\nI have to go to Detroit.\n197\n-3-\nHM,Jr: Will you be back next week?\nAmbassador: Yes.\nHM,Jr: When you get back will you give me a ring?\nAmbassador: Yes. Surely. I will.\nHM,Jr: I will have an answer for you then.\nA mbassador: I think we are going to have, say,\n50 million and instead of bi-monthly if it could be weekly?\nHM,Jr: 5 million a week?\nAmbassador: I mean 10 million a week for five weeks.\nHM,Jr: I don't know. God! We have bought a lot\nof silver! I don't know what we are going to do with it\nall.\nAmbassador: Well, anyhow, we will leave it in your\nhands and await your word.\nHM,Jr: I heard Madam Chiang Kai-Shek on the radio\nlast night.\nAmbassador: Not so clear. I could not catch all\nthe sentence.\nHM,Jr: She spoke too fast.\nAmbassador: Yes, she spoke too fast.\nHM,Jr: It was at a quarter of seven.\nAmbassador: That's right.\nHM,Jr: But if she had just talked a little slower.\nSome of the words came so fast.\nAmbassador: Yes. I only got about a dozen complete\nsentences.\nHM,Jr: She talked awfully fast. What time of\nnight was that?\nAmbassador: That would be morning. I think that\nwould be about eight o' clock in the morning, BO she was\nRegraded Uclassified\n198\n-4-\ntalking the next day an hour early.\nHM,Jr: Well, Mr. Ambassador, we will get that\nand then when you come down next time if you would have\na map for me?\nAmbassador: I will.\nHM,Jr: I suppose the State Department knows, but\ndo you have a sort of buying machine here?\nAmbassador: We have several organizations. I think\nthe one that is buying the most 18\nHM,Jr: Is that Government owned?\nAmbassador: No. It's privately owned. The Pres-\nident or Chairman, K. C. Lee, has very good connections at\nhome and he has been buying quite a good deal of our ammuni-\ntion and planes.\nHM,Jr: What proportion of your buying do you do in\nthe United States. Have you any idea?\nAmbassador: You mean as compared with what we buy\nelsewhere?\nHM,Jr: Yes.\nA mbassador: I think we have been buying a good\ndeal.\nHM,Jr; You wouldn't know?\nAmbassador: I don't know the exact amount.\nHM,Jr: Just curious.\nAmbassador: I would imagine we buy a lot in Europe.\nThere are so many countries -- England, France and Germany,\nItaly. Even nowadays we get things from Germany, and\nRussia, BO I would imagine the amount compared with Europe\nwould be higher than the amount bought here.\nAnd now, Mr. Secretary, if I may have a few minutes\nwith you, off the record.\n(Mr. Taylor, Mr. Lochhead and Miss Chauncey left\nthe Secretary's office, the Ambassador remaining with HM,Jr.)\no0o-o0o\nRegraded Uclassified\n199\nApril 28, 1938\n3:30 pm\nPresent:\nMr. Taylor\nMr. Lochhead\nDr. White\nThe Chinese Ambassador care in and he wanted to\ntalk to me on a very confidential matter. He said that\nbe seen Mr. Sumner Welles yesterday and had asked\nhim if he had heard any rumors that the Japanese were\napproaching or would approach President Roosevelt to\nmediate between Japan and China; that Mr. Welles had\ninformed him that he had heard of no such move on the\npart of the Japanese.\nThe Chinese Ambassador then went on to say that\nif such an approach were to De made that he felt that\nthe Chinese, having such great confidence in President\nRoosevelt, would be interested provided that the Japan-\nmsedid not try to drive too hard a bargain and that they\nwould like to go back to the situation in China as it was\non July 7th, last year.\nI got the distinct feeling that the Chinese Am-\nbassador was sounding me out with the hope that I would\ncommunicate his conversation to President Roosevelt and\nthat they, the Chinese, would be pleased to have the\nPresident act as mediator between the Chinese and Japanese.\nHe then went on to tell me that they had only\n100 million oundes of silver left and that they had enough\nammunition and supplies to last them the balance of this\ncalendar year, but after that they would have to get\ncredits and wanted to know what the chances were of\nfloating a $50,000,000 Chinese Liberty Loan in this\ncountry. I told him the chances of getting anyone to\nbuy it were slim. He furthermore asked me whether we\nwould buy another 50,000,000 ounces of silver as our\npresent agreement expires this week and that this time\nwould we please buy at the rate of 10,000,000 ounces A\nweek. I told him I would talk to the President about\nit tomorrow and would let him know next week.\nRegraded Uclassified\n20D\n-2-\nI then called up Sumner Welles and told him that\nthe Chinese Ambassador had been in to see me and that I\nhad got the distinct feeling that he was trying to ad-\nvance the 1dea that President Roosevelt act as mediator\nbetween China and Japan. Sumner Welles said that this\nwas most interesting as he had gotten distinctly the\nopposite viewpoint. I promised Sumner Welles that I\nwould send him a memorandum of my conversation with the\nChinese Ambassador and he said that he would send me a\ncopy of his memorandum.\nRegraded Uclassified\n, 201\nApril 28, 1938\nMy dear Mr. Welles:\nIn accordance with my tele-\nphone conversation of today I am\nsending you herewith a memorandum\nof my conversation today with the\nChinese Ambassador.\nSincerely,\nThe Honorable,\nThe Undersecretary of State.\nRegraded Uclassified\n202\nApril 28, 1938\nMy dear Mr. Welles:\nIn accordance with my tele-\nphone conversation of today I am\nsending you herewith a memorandum\nof my conversation today with the\nChinese Ambassador.\nSincerely,\nThe Honorable,\nThe Undersecretary of State.\nRegraded Uclassified\n203\nApril 28, 1938\nMy dear Mr. Wellest\nIn accordance with my tele-\nphone conversation of today I an\nsending you herewith a memorandum\nof my conversation today with the\nChinese Ambassador.\nSincerely,\nThe Honorable,\nThe Undersecretary of State.\nRegraded Uclassifie\n204\nCOPY\nApril 28, 1938\nThe Chinese Ambassador came in and he wanted to\ntalk to me on a very confidential matter. He said that\nhe had seen Mr. Sumner Welles yesterday and had asked\nhim if he had heard any rumors that the Japanese were\napproaching or would approach President Roosevelt to\nmediate between Japan and China; that Mr. Welles had\ninformed him that he had heard of no such move on the\npart of the Japanese.\nThe Chinese Ambassador then went on to say that\nif such an approach were to be made that he felt that\nthe Chinese, having such great confidence in President\nRoosevelt, would be interested provided that the Japan-\nese did not try to drive too hard a bargain and that they\nwould like to go back to the situation in China as it was\non July 7th, last year.\nI got the distinct feeling that the Chinese Am-\nbassador was sounding me out with the hope that I would\ncommunicate his conversation to President Roosevelt and\nthat they, the Chinese, would be pleased to have the\nPresident act as mediator between the Chinese and Japanese.\nHe then went on to tell me that they had only\n100 million ounces of silver left and that they had enough\nammunition and supplies to last them the balance of this\ncalendar year, but after that they would have to get\ncredits and wanted to know what the chances were of\nfloating a $50,000,000 Chinese Liberty Loan in this\ncountry. I told him the chances of getting anyone to\nbuy it were slim. He furthermore asked me whether we\nwould buy another 50,000,000 ounces of silver as our\npresent agreement expires this week and that this time\nwould we please buy at the rate of 10,000,000 ounces a\nweek. I told him I would talk to the President about\nit tomorrow and would let him know next week.\nRegraded Uclassified\nTREASURY DEPARTMENT\n205\nWashington\nFOR IMMEDIATE RELEASE,\nPross Service\nThursday, April 28, 1938.\nNo. 13-15\nSecretary Morgenthau announced today that the following proclanation,\norders. and regulations relating to silver were revoked today, April 28, 1938:\n(1) Executive Order No. 6814 dated August 9, 1934, and\nthe anendment thereto, Executive Order No. 6895A,\ndated November 2, 1934,\n(2) Proclamation No. 2092 of August 9, 1934 (except\ncertain provisions relative to sottlement for newly-\nninod donestic silver received by United States coinage\nnints under Proclanation No. 2067 of December 21. 1933,\nas nodified),\n(3) The Orders of the Secretary of the Treasury of Juno 28,\n1934, and May 20, 1935,\n(4) The Silver Regulations of August 17. 1934, as anended.\nThe revoked Executive Order and Proclemation required the delivery to,\nand directed the receipt by, the United States nints of silver situated in the\nUnited States on August 9, 1934.\nThe revocation of the Orders of the Secretary of the Treasury eliminates\nthe restrictions imposed by such orders upon the importation and exportation of\nsilver.\nThe revoked regulations were issued under, and implemented, the revoked\nproclamation and orders and prescribed the required reports and records relative\nto silver holdings and transactions.\nThe revocations in no way affect the application of the tax on silver\ntransfers under subdivision 10 of schedule A of titlo VIII of the Revenue Act of\n1926, as added by section 8 of the Silver Purchase Act of 1934.\nLikowise, the revocations do not in any way affect the continued receipt\nof newly-mined donestic silver under the Proclamation by the Prosident of\nDecember 21, 1933, as nodified.\no0o\nRegraded Uclassified\n206\nApril 28, 1938\nMy dear Mr. Delano:\nThank you for your letter of\nApril 27th with its inclosure. I\nappreciate your courtesy in sugmit-\nting this to me.\nThe memorandum is entirely\nagreeable to me and I have nothing\nto add to it.\nSincerely yours,\nMr. Frederic A. Delano,\nChairman, Advisory Committee,\nNational Resources Committee,\nWashington, D. C.\nRegraded Uclassifie\n207\nApril 28, 1938\nMy dear Mr. Delanos\nThank you for your letter of\nApril 27th with its inclosure. I\nappreciate your courtesy in sugmit-\nting this to me.\nThe memorandum is entirely\nagreeable to me and I have nothing\nto add to it.\nSincerely yours,\nMr. Frederic 4. Delano,\nChairman, Advisory Committee,\nNational Resources Committee,\nWashington, D. C.\nI\nRegraded/Uclassified\n208\nApril 28, 1938\nMy dear Mr. Delanos\nThank you for your letter of\nApril 27th with its inclosure. I\nappreciate your courtesy in submit-\nting this to me.\nThe memorandum is entirely\nagreeable to the and I have nothing\nto add to it.\nSincerely yours,\nHr. Frederic 4. Delano,\nChairman, Advisory Committee,\nNational Resources Committee,\nWashington, D. C.\nRegraded Uclassified\n209\nNATIONAL RESOURCES COMMITTEE\nNORTH INTERIOR BUILDING\nWASHINGTON\nApril 27, 1938.\nThe Honorable,\nThe Secretary of the Treasury.\nMy dear Mr. Secretary:\nIn order not to violate any confidence I have\nstated in writing what I got out of our conference\nyesterday no that I could give it to RV colleagues\non the Advisory Committee of the Resources Commit-\ntee. But I would like to have you look it over and\ncorrect or elide anything that you do not like.\nI appreciate more than I can tell you your\ncourteous and friendly reception.\nSincerely yours,\nFrederic A. Delano,\nencl.\nChairman, Advisory Committee.\nRegraded Uclassified\n210\nNATIONAL RESOURCES COMMITTEE\nNORTH INTERIOR BUILDING\nWASHINGTON\nApril 27, 1938.\nMEMORANIUM POR:\nDr. Charles 1. Merriam, Chicago, I11.\nMr. Beardaley Buml, Now York City.\nMr. Henry 3. Dennison, Framingham, Mass.\nI called on the Secretary of the Treasury by appointment yester-\nday afternoon and was with him for about forty-five minutes, He\nreceived me very cordially, and when I presented a copy of our\nPublic Works Planning Report, which came out in December, 1936, he\nadmitted that he had never seen it before, and in the course of the\nconversation be indicated that he knew very little about the work\nwe were doing. Be thought of us as e committee that was set up to\nplan for spending and he had never heard of our recommendations for\na Fiscal Policy Committee. Although he said he was exceedingly\nbusy, he promised to look over the report and give it his considera-\ntion. 1 judged from the fact that be is busy and that the President\nis leaving in two days for the South that he will not be able to\ntalk to the President about it before be goes.\nI asked the Secretary if be had received the Industrial Commit-\ntoe's report that I left with him, entitled \"Where Are No\", and he\nsawthat he had only acknowledged it that very day. Although he\ndid not say BG in so many words, I got the impression that be either\nwas not such impressed with the Blaisdell report or else had not got\nits meaning, because he spoice of the fact that be was greatly inter-\nested in timing and the timeliness of action, and the implication\nwas that he felt recent happenings shows a lack of appreciation of\ntimeliness and strategy. Be spoke of having lost two of his best\nmon, - Mr. Reifler and Mr. Viason. He did not say 80 in so many words,\nbut the implication was that they had left not because they were\nunfriendly to him or to the Administration, but because they were\ndiscouraged.\nOne thing the Secretary spoke of with a. good deal of apparent\nsincerity and that USA that be not only wanted to be loyal to the\nPresident but santed to be loyal to all of his min objectives. Es\nspoke of the terribly difficult job before ne of finding work for\nten or twelve million man, and he said that there cught to be some\ncommission whose duty It was to plan for our human resources. To\nRegraded\n211\nthis I said that I not only entirely agreed with him but that wa were\nwell of the fact that the President wished us to consider our\nhuman resources as well as other natural resources, but that we had\nnot dealt with the problem of Just how twelve million idle men should\nbe handled because there were others to whom that Job had been given.\nHowever, I assured him that our committee was very appreciative of\nthe importance of that job and wanted to be helpful and that perhaps\nthis idea of a fiscal advisory council was one of the ways of accomplish-\ning that undertaking, or determining its timeliness, if not actually\ndeciding how the work should be done, - & job which Mr. Harry Hopkins\nand his staff had been struggling with for some months.\nI will close by saying that I could not have been more kindly\nreceived than I was by Mr. Morgenthan, and while he was not ready to\naccept our recommendations he did say that be had been working very\nclosely with the Director of the Dudget and the Chairman of the\nFederal Reserve Board. I pointed out to him that these represented\nthree of the committee of five of the proposed council. I all\nconvinced that the Secretary will give our suggestions careful\nthought and that if he thinks the suggestion is useful he will recom-\nmend it to the President, either in the shape we have indicated or\nin some other form. He fully appreciates his great responsibility\nas the fiscal head of the Government and would accept helpful data\nand advice if be was sure it was useful and helpful rather than con-\nfusing. Though our report of more than & year ago has lain dormant\na good many months, I think W can well afford to let this matter\nrest with the Secretary for his consideration.\nFrederic A. Delano,\nChairman, Advisory Committee.\nCC-Chas T Eliot 3nd, Executive Officer.\nRegraded\n212\nNATIONAL RESOURCES COMMITTEE\nFAIR DJ\nNORTH INTERIOR BUILDING\nWASHINGTON\nApril 27, 1938.\nTHE\nThe Honorable,\nThe Secretary of the Treasury.\nMy dear Mr. Secretary:\nIn order net to violate say confidence I have\nstated in writing what I got out of our conference\nyesterday so that I could give it to w colleagues\non the Advisory Committee of the Resources Commit-\ntes. But I would like to have you look it over and\ncorrect or elide anything that you do not like.\nI approciate more then I can tell you your\ncourteens and friendly reception.\nSincerely yours,\nFrederic A. Delame,\n&\nChairman, Advicery Connittee.\nRegraded Uclassified\nRegraded Uclassified\nNATIONAL RESOURCES COMMITTEE\nFADIDS\nNORTH INTERIOR BUILDING\nWASHINGTON\nApril 27, 1938.\nMMMORANIUM FOR:\nDr. Charles 1. Morrism, Chicago, 111.\nMr. Neardsley Rual, New York City.\nMr. Heary S. Demnison, Framingham, Mass.\nI called on the Secretary of the Treasury by appointment yester-\nday aftermoon and TM with his for about forty-five simutes. He\nreceived me very cerdially, and when I presented & copy of our\nPublic Works Planning Report, which case out in December, 1936, he\nadmitted that he bad never seen it before, and in the course of the\nconversation be indicated that be know very little about the work\nwe were doing. He thought of us as a committee that was net up to\nplan for spending and be had never heard of our recommendations for\n& Fiscal Policy Committee. Although he said he was exceedingly\nbusy, he promised to look over the report and give it his considers-\ntion. I judged from the fact that he is busy and that the President\nis leaving is two days for the South that he will not be able to\ntalk to the President about it before he goes.\nI asked the Secretary If he had received the Industrial Commit-\ntoo's report that I left with him, entitled \"Where Are 16°, and he\nsaid that be had only acknowledged it that very day. Although he\ndid not say so in so may words, I got the impression that be either\nvas not much impressed with the Blaiedell report or clse had not got\nits meaning, because he spoice of the fact that he was greatly inter-\nested in timing and the timeliness of action, and the implication\nwas that he felt recent happenings shows 8 lack of appreciation of\ntimeliness and strategy. Be spoke of having lost two of his best\nman, - Mr. Reifler and Mr. Vinson. No did not say so in se many words,\nbut the implication was that they had left not because they 9070\nunfriendly to his or to the Administration, but becames they was\ndiscouraged.\nOne thing the Secretary spoke of with a good doal of opparent\nsincerity and that was that be not only wanted to be loyal to the\nPresident but wanted to be loyal to all of his mix objectives. Be\nspoke of the terribly difficult job before us of finding wirk for\nten or twelve million men, and he said that there reght so be solte\ncommission where daty 11 was to plan for (or hame researces. to\n214\nRegraded Uclassified\n+\nthis I said that I not only entirely agreed with his but that ve VITA\nwell sware of the fast that the Prosident wished us to consider our\nbuman resources as well as other natural resources, but that # had\nnot dealt with the problem of just how twelve million idle ⑉ should\nbe handled because there were others to whom that job had been gives.\nHowever, I assured his that our committee nos very appreciative of\nthe importance of that job and wanted to be helpful and that perhaps\nthis idea of a fiscal advisory council me one of the ways of accomplish-\ning that undertaking, or determining its timeliness, If not actually\ndeciding how the work should be done, - a job which Mr. Harry Hopkins\nand his staff had been struggling with for some months.\nI will close by saying that I could not have been more kindly\nreceived than I vas by Mr. Morgentham, and while he was not ready to\naccept our recommendations he did say that be had been working very\nclosely with the Director of the Budget and the Chairman of the\nFederal Receive Board. I pointed out to his that these represented\nthree of the committee of five of the proposed council. I all\nconvinced that the Secretary will give our suggestions careful\nthought and that If be thinks the suggestion is useful be will recom-\nmind it to the President, either in the shape VI have indicated or\nin some other form. de fully appreciates his great responsibility\nas the fiscal head of the Government and would accept helpful data\nand advice if he was sure it vas useful and helpful rather than con-\nfusing. Though our report of more than a year Ago has lain dormant\na good many months, I think V6 can well afford to let this matter\nrest with the Secretary for his consideration.\nFredaric A. Delamo,\nChairman, Advisory Committee.\nCC-Chas 1 Ellet 2nd, Inscritive Officer.\n215\nApril 28, 1938\nPresent:\nAdmiral Peoples\nMr. McReynolds\nMrs. Klotz\nHM,Jr: Admiral, I would like to issue you some\ninstructions. I want, not later than Monday, new bids\nepared by Procurement on cement. I want it Monday.\nI won't take any 'if and or but'. If I can't have it\nby Monday I will write it myself, because I think Pro-\ncurement Division did not have good faith with me when\nthey wrote those oids. I do not think that they played\nfair with me. No cement manufacturer that had any com-\ndon sense would have bid on that bid. Way should any-\nbody bid on that basis? It was an impossible thing to\nbid with and I have to sit here with everybody and take\nthe criticism. I mean, they certainly -- somebody over\nthere, some place -- I haven't got the time: I haven't\nrot the energy, but somewhere along the line someone in\nProcurement made it impossible, and made me the laughine\nstock.\nAdmiral Peoples: Mr. Secretary, that's impossible.\nни, Jr: That's the way I think. I am not going\nto argue. But nobody could make me feel differently\nand I want Monday, I want it prepared, and if you can't\n30 it I will write it on B. sheet of paper. Somebody\nwants some cement. He knows what kind of cement and\nhow much. And I will write the b1d. Il Please bid on\nthis.\" And why it takes one week to prepare that kind\nof contract, I don't know. Somebody in the United States\nGovernment must want a definite amount of cement.\nAdmiral Peoples: They have the quantities now.\nJust got definite quantities, but they could not get them\nfrom the Departments concerned\nHM,Jr: Well, Admiral, please, not later than Monday\nmorning for my approval -- I mean, McReynolds and the Gen-\neral Counsel should act for me, and I want them to review\nthose bids and in the mail Monday night.\nAdmiral Peoples: Let me make a short statement\nabout that original proposal. The conditions of the bide,\nRegraded\n216\n-2-\nof the specifications and all, were thoroughly cleared and\ndiscussed with the General Counsel's Office before they\nwere issued.\nHM,Jr: He says not.\nAdmiral Peoples: Mr. Secretary, or Connell was in my\noffice for two hours and I turned this thing over to him\nlater and he took it up to Manning and it was up there for\npossibly about an hour. They all agreed, under the condi-\ntions, to meet the needs that was the best effort that\ncould be made to invite bids f.o.b. mills throughout the\ncountry and that was done, with the result that all the\nbids were submitted but the facts were not attractive.\nSome were responsive and 80 forth and in many places they\ndid not bid, BO I think under the circumstances\nHM,Jr: Mr. Oliphant says not over his signature\nand I gave it to you (MacReynolds). Mr. Oliphant has\nfiled definite complaints that he had no opportunity to\nsee the certain bid which went out and he has put it in\nwriting.\nMr. McReynolds: I have got it.\nHM,Jr: You have had it two days. And give Admiral\nPeoples a chance to answer it. He has written me -- a\ncertain bid went out for cement and it went out before any-\nbody in the General Counsel's Office -- it's in writing\nand please give it to the Admiral. And Admiral, not later\nthan Monday night, in the mail, please get out a bid for\ncement.\nAdmiral Peoples: That's what we are working on now,\ntrying to make it in a way -- they have the quantity. Just\ngot it day before yesterday. Definite quantities. A good\ndeal less than the original amount.\nHM,Jr: How much?\nAdmiral Peoples: 600,000 barrels.\nHM,Jr: Will you see that your organization functions\n80 that by Monday night those things are in the mail?\nAdmiral Peoples: Let us finish our conference\n217\n-3-\nHM,Jr: They have got to be in the mail. I don't\ncare whether they have to work tomorrow night and Saturday\nnight and Sunday night. They have to be in the mail Mon-\nday night and I just won't accept any excuse. I don't\ncare if you ask for 10,000 barrels, Just 80 you get out one\noffer.\nAdmiral Peoples: Bless your heart, it will be done.\nHM,Jr: One on the new pattern for & new contract.\nNot the whole. One. Is that asking an impossibility?\nAdmiral Peoples: No. No. Not at all.\nHM, Jr: I want one bid for one contract, if it's\nonly 10,000 barrels. I want it to go out.\nAdmiral Peoples: Late yesterday afternoon, Basil\nConnor of New York Tphoned me in behalf of a former\nclassmate of his, down at Atlanta, the Portland Southern\nStates Company, and he asked that before we take any\nfurther action about new bids would we please give him &\nchance to get in on it.\nHM, Jr: I made a statement and he (MoReynolds) 16\nhere representing me and if any statement I have made 18\nunfair, you try to tell McReynolds. But I want McReynolds\nto give you the letter, the definite complaint, that I have\nin writing.\nAdmiral Peoples: That's wrong, Mr. Secretary.\nHM,Jr: I have got it in writing. I can't help it,\nI think I was sold down the river.\nAdmiral Peoples: No, sir:\nHM,Jr: O. K.\nAdmiral Peoples: On the contrary, it's Procurement\nDivision which has taken the rap on this thing, Sir. The\nprotests that have come in, over 400 of them, Sir, telephone\nmessages to me personally, telephone messages to Collins\nfrom senators and congressmen on the hill, telegrams, letters\nof protest on the ground that we were eliminating the small\ndealer and the protest is nation-wide, Sir.\nMr. McReynolds: I can tell you on one thing 100\nRegraded Uclassified\n218\n+\nHM,Jr: Well, Mac, this 18 Just the kind of thing\nthat burns me up and I have to save my energy and I have\nto have people who will protect me.\nWhoever put their\ninitials on this thing, just as common sense, just as a\nbusiness man, to let a thing like that go out, I wouldn't\nbid if I was in the cement business if it was all the\nbusiness in the world, I wouldn't bid. I think it was\nunfair too.\nAdmiral Peoples: Look at the bids they got. Some-\nthing like 24 firms from all over the country.\nHM,Jr: I know. But if I was in the dement busi-\nness and I was one of the Board of Directors and the Presi-\ndent of the company bid on that, I would fire him.\nAdmiral Peoples: There is only one clean-cut,\ndefinite way to bid, by putting un to the buyer & definite\nquantity for delivery at a certain place in a certain time.\nThen you get real competition.\nHM,Jr: I only make one point: I say a definite\namount at his own factory.\nMr. McReynolds: That's what we are working on.\nH.,Jr: A definite amount at the man's factory.\nWhether it's at his factory or definite site shouldn t\nmake any difference, should it If we are willing to\ntake it at his factory, and the reason it's being out that\n\"ay 1s because the President of the United States wants it.\nWhat he wants. A definite amount at the factory. I\nasked him alternative site or factory and he said no.\nAdmiral Peoples: Not at site.\nHM,Jr: No. He said f.o.b. mill.\nAdmiral Peoples: That's what we are trying to get\nthe thing around in such 8. way as to eliminate site.\nHM,Jr: I can eliminate it. I can write it. I\nwant 10,000 barrels of cement, 1.0.b. mill.\nMr. McReynolds: A conference was going on in my\noffice at the moment with that information as to quantity.\nHM,Jr: I have been stalling around here and every-\nbody wanted to Bee me and I don't know how many letters I\nhave received.\nUclassified\n219\n-5-\nAdmiral Peoples: Procurement has been a mad-house.\nHM,Jr: Now, Admiral, between now and Monday, if it\nis only 10,000 barrels, please, because then we can say this\nis the pattern and we can do it on a horse sense basis.\nAdmiral Peoples: That's what we are trying to do.\no0o-o0o\nRegraded Uclassified\n220\nApril 28, 1938.\nTo: The Secretary\nAt\nFrom: Mr. Shoup\nBritish and American Income Taxes in Dollars (not Rates of Tax).\nThis memorandum supplements mine of April 27. It shows the actual\nincome tax payable at various levels by individuals, under the United\nStates (Federal) tax and the proposed British rates. The figures are for\na. married person with two children, and assuming income up to $14,000 to\nbe \"earned income\".\nIncome\nUnited States\nBritish tax\n$ 3,000\n0\n$ 118.12\n10,000\n$ 343.00\n1,795.63\n25,000\n2,327.00\n7,605.00\n50,000\n8,621.00\n20,392.50\n100,000\n31,997.00\n49,955.00\n500,000\n303,568.00\n319,455.00\n1,000,000\n678,436.00\n663,205.00\nds\nFEDERAL RESERVE BANK\n22:\nOF NEW YORK\nFFICE CORRESPONDENCE\nDATE April 28, 1938,\nCOMFIORNTIAL FILES\nSUBJECT: TELEPHONE CONVERSATION WITH\nJ. W, McKeon\nBANK OF ENGLAND.\nWOM\nMr. Knoke called Mr. Bolton at 10:15 a.m. and asked his\nwhat he knew about the French situation as the franc appeared rather\nwesk, not only for spot, but also for forward delivery. Bolton\nthought that the main difficulty continued internal with the Cabinet\nreported split as to future policies. Without question Deladier was\nfor the Tripartite Agreement and apperently was going to stick to his\nguns. Last Saturday when francs went to 167 to the pound rumours\nspread all over the continent that the franc was due to go to 180.\nThere was also talk of an Angle-French bargain to devalue the pound\nagainst the dollar by letting the London gold prices go up to 150\nshillings (1.0. 7%). Support of the franc had been very costly\naround the present level, Cariguel losing the equivalent of about\n£2,000,000 in exchange daily. The pressure against the franc was\npurely speculative with the same group operating. However, with this\npresent drive against the franc it appeared that the Bwiss Bank\nCorporation was the largest operator. At the present moment Deladier\nand Bonnet were in London conferring with Chamberlain end Helifex and\nnaturally all were anxiously sweiting the result of this meeting.\nThere would be very little change in the French situation until the\nreturn of Deladier and Bonnet and that all Europe will be watching\nParis for any new developments such as decrees, etc.\nBolton stated that there was an increase in the activity\nof the gold market with the demand running about £500,000 a day.\nSome hoarding was also noticeable. Mr. Knoke asked him about the\nRegraded\nUclassified\nFEDERAL RESERVE BANK\nOF NEW YORK\n222\nFFICE CORRESPONDENCE\nDATE April 29, 1958.\nCONFIDERTIAL FILES\nSUBJECT: TELEPHONE CONVERSATION WITH\nJ.W. McXeon\nBANK OF ENGLAND.\nROM\n- 2 -\npremium on gold coins and Bolton said that the market was firmer at\nabout 2% premium\nThe Russian supply was increasing with that country now\nshipping regularly about £750,000 per week which is immediately sold\nin the market. There were no Russian stocks on hand in London.\nMr. Knoke inquired as to the reason for the break in the\nrupee rate down to 1sh 5 7/8d per rupee. Bolton gave various reasons.\nThe main one he thought was due to the decline in Indien exports, both\nmerchandise and gold. He felt that there was a short position in both\nsilver and bar gold in Bombay. Again, the change-over in administra-\ntion to a native provincial federation did not impress him as working\nout very favorably.\nAs to the situation with Csechoalovakia, there was nothing\nnew to report. The situation in Hungary was rather unfevorable and\nwithin A month things might take a turn for the worse.\nBolton asked about the effect of the recent efforts to\nwiden our credit base and Mr. Knoke answered that it was 8 little\ntoo early to tell to what extent they would succeed.\nMr. Knoke asked Bolton about the weakness of the Belgian\nfranc. Bolton replied that the Belgian franc had been offered heavily\nin the London market this moming and for the first time in two works\nthe Belgians had to give up gold, in the amount of about £400,000.\nBe thought that the weakness was partly due to the French situation and\nRegraded Uclassified\nFEDERAL RESERVE BANK\nOF NEW YORK\n223\nFFICE CORRESPONDENCE\nDATE April 28, 1938.\nD\nCONFIDENTIAL FILES\nSUBJECT: TELEPHONE CONVERSATION WITH\nROM\nJ. 1. McKson\nBANK OF ENGLAND.\n- 3 -\npartly to the political situation in Europe. Bolton thought that by\nMonday or Tuesday he would have a clearer picture of the entire\nBuropean situation at which time he would communicate with us.\nJWMcKtLWK/KW\n2-99A\nallow\nRegraded Uclassified\n224\nREB\nPLAIN\nAt\nLondon\nDated April 28, 1938.\nRec'd 2:45 p. m.\nSecretary of State,\nWashington.\n349, April 28, 7 P. m.\nFOR TREASURY FROM BUTTERWORTH,\nComment on the budget has for the most part stressed\nwhat are widely considered its desirable points, namely,\nthe orthodoxy of the \"pay-as-you-go\" method of meeting\nExpenditure; its simplicity and avoidance of new Experi-\nments such as the national defence contribution tax of\nlast year and on the long range view of rearmament\nliabilities in relation to the national income.\nApart from one outspokenly critical Editorial in\nlast night's STANDARD, and a milder reference in today's\nFINANCIAL NEWS, on the deflationary Effect of increased\ntaxation at a time of declining economic activity, this\naspect of the budget has received little comment.\nAs Emphasized in previous telegrams the general\ntrend of Economic activity is definitely though not\nsharply downward.\nToday's\n225\nREB\n2-#349, From London, Apr.28,7p.m.\nToday's announcement of the unemployment count which\nwas made on April 4th again confirms this fact, the\ndecline in unemployment since March 14th being one of\nless than 2,000, the seasonal improvement to bE Expected\nbeing one of 75,000 or 100,000.\nRailway traffics and bankers clearings are also\nagain WEll below those of a year ago, further indications\nthat no turn is yet discernable in the trend which has\nbeen Evident since last September.\nThe comparative silence on this aspect of the\nbudget's influence is no doubt due largely to a desire\nnot to render its Effects more potent.\nThe hope of an inflationary recovery in the United\nStates which will reverse the downward trend here is\nundoubtedly in the back of most minds.\nIf this occurs it may mean that the deflationary\nEffect of Simon's budget will bE counteracted.\nIf by virtue of such salvation British industry and\ntrade \"can-take-it\" the budget with its stern pay-as-you-\ngo demands will bE looked upon as a blessing when future\nliabilities have to be faced.\nIf\nRegraded\n226\nREB\n3-#349, From London, Apr.28,7p.m.\nIf on the other hand nothing occurs to temper the\npressure of increased taxation on a declining market,\nin due course more may bE heard of the \"shock\" which\nthe Chancellor of the Exchequer has inflicted at a time\nwhen a fillip to trade is needed.\nHOWEVER, security prices were well maintained today\non the London stock market and in some cases advanced\non a fairly thin market.\nThe franc has been weak again today.\nIt opened at 160-1/4, shortly thereafterwards\nmoved to 161 where the French control hEld it for some-\ntime and in the process lost a good deal of sterling.\nIt later went to 163 moving a franc at a time.\nThe market has continued nervous throughout the day\nbut pressure in the \"afternoon was less than in the\nmorning.\nKENNEDY\nHPD\n227\nApril 28, 1938\n3:30 p.m.\n(This meeting recorded separately from the one following\nwhen Secretary related his talk with the Chinese Ambassador)\nPresent:\nMr. Taylor\nMr. Lochhead\nDr. White\nHM,Jr: Have you fellows seen this 664, Strictly\nConfidential? (Exhibit A )\n.r. Taylor: (Handing Secretary Exhibit B). Bewley\nbrought that in and said there was 80 little news in it\nhe did not want to bother you with it.\nHM,Jr: That's an important cable, that one (664).\nIn this Patenotre opens up, which checks with what Bullitt\ntold me. Bullitt has the 1dea of Reynaud that the franc\nshould float. I had to give Bullitt the reasons why we,\nthe Treasury, were absolutely opposed to letting the franc\nfloat. I gave him a lot of reasons, that it is up to\nthese people. He said, Why? So I used the example:\nthe Italians went into Ethiopia and bombed civilian popu-\nlation. Nobody protested and since then everybody takes\nit as a matter of course. I said, You let the French\nfranc float and get on that basis and everybody will have\nit and one thing the stabilization fund has stopped -- I\nmean, the Tripartite -- 18 competitive devaluation. I\nsaid, You let the French get away with it and somebody else\nis going to try it and the first thing we know we will be\nright back where we were. We will have competitive de-\nvaluation. He said, I understand now. I thought Reynaud\nhad a pretty good idea to let it go to the vanishing point\nand then the French would say, let's repatriate and capital\nwill some back. I said, For three years they have been\nletting money go out and if you think you are going to get\nit back on that theory, you are cock-eyed. He came in\nand could only spare me ten minutes to get this thing and\nI had to do it awfully fast.\n000-000\n(Exhala)\n228\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Paris, France\nDATE: April 27, 1938, 7 p.m.\nNO.: 664\nFOR THE SECRETARY AND THE UNDER SECRETARY.\nSTRICTLY CONFIDENTIAL.\nThis forenoon I had a talk with the Minister of Na-\ntional Economy, Patenotre. I asked Patenotre whether he\ncould tell me anything about the economic and financial\nprogram of the Government. He told me that in absolute\nconfidence he would do 80.\nIn the Minister's opinion, it had been a great mis-\ntake to lose the time that had been lost in announcing\nthe program of the Government; had they been able to do\nDO right after the Government was formed they could have\ntaken advantage of the favorable atmosphere surrounding\nit at that time. The Government had undoubtedly been\ninjured by the delays and rumors of dissension. Neverthe-\nless, in his view the ground which was lost could be re-\ncovered and & favorable atmosphere could be reestablished.\nPatenotre said that he himself and other advisers of\nDaladier had for over a year been working on a program\nto be used by Daladier at such time as he might head &\nGovernment. On April 10 at the time the Daladier Govern-\nment was formed this program was practically ready to be\nput into effect; however, Daladier had thought it necessary\nto\n228\n- 2 -\nto request the Finance Minister, Marchandeau, to submit\nfor discussion another program which was prepared in the\nMinistry of Finance. To get this program drafted took\nabout ten days, and it was found to be unsamiefactory when\nit was examined. The Finance Ministry experts had drafted\nthis program and it did not at all satisfy the Government's\nrequirements. In his talk with me Patenotre spoke most\ncritically of the French bureaucracy. He said that while\nit had many good qualities, its ideas were antiquated and\nit seemed to believe that the days of the Second Empire\nwere here again in France.\nBecause of the delay in formulation of the projects\nof the Ministry of Finance, and the unfavorable develop-\nments which this delay caused, it had become absolutely\nnecessary to announce at once the general lines of the\nprogram to be followed by the Government. On the twenty-\nfifth of April, therefore, 8 list of \"chapter headings\"\nwas announced by the Government. Drafting of the specific\ndecrees to put the program into effect is taking longer\nthan it had been thought would be necessary. Certain\nof the decrees may be published on or about the third of\nMay, but others will not appear until later. Also, before\ngoing ahead with many of the projects it will be necessary\nto Bee how the London conversations turn out.\nThe\nUclassified\n230\n- 3 -\nThe Minister of National Economy insisted that\nthere had been no divergence of views among the ministere\npersonally. He said that confiding the preparation of a\nprogram to the experts of the Finance Minister had been\nthe cause of the difficulties.\nHe named two essential needs of French economy and\nfinance today - the first one being stabilization, and\nthe second one, production should have a broad and thorough-\ngoing increase. In the period preceding franc devaluation\nto about 125 to the pound, he said, world prices had not\nbeen as high as French prices. This situation in France\nhad been corrected for the time being by devaluation of\nthe franc to 125 to the pound. The balance had been upset\nagain by the burden of increased social charges and the\ngreat cost of rearmament. In his opinion, the present\nrate of \"about\" 160-165 to the pound, the French would be\nable to meet the costs of social reforms and armament\noosts and keep her prices in line with those on world\nmarkets on the condition that there would be & production\nincrease and a restoration of confidence to the point\nwhere there would be 8. return of French capital from abroad\nwhich could be put to productive uses.\nI asked Patenotre just what he meant by stabilization.\nHis reply was that he meant de facto stabilization - keeping\nthe\nUclassified\n231\n- 4\nthe frano at about the level it is on now to be followed\nlater by de jure stabilisation, in agreement with Great\nBritain and the United States. I referred to his remark\nthat the franc should be held at \"about\" its present\nlevel of 160-165 to the pound. He said that while he\nhad mentioned this figure he did not mean to say that\nit might not be necessary to go as far as 170, or even\nto 175 \"for round numbers\". [These remarks of Patenotre\nseem to confirm the stories which have been going around\nthat Patenotre, Reynaud and possibly others would like\nto see a 175 to the pound rate.]\nAs for production, Patenotre said that they intended\nto get such modifications in the application of the forty-\nhour week as would make it possible to work 45 hours instead\nof 40. It would be possible in some branches of industry\nto get a flat 45-hour week, as had been done with the\nairplane factories run by the Government. As for the\nseasonal industries, they could apply the scheme of \"two\nthousand hours 8. year\" - working many hours in the busy\nseason and a less number of hours in the slack season.\nAnother way to bring about repatriation of French funds\nand restore the necessary confidence would be to offer\na national defense loan with very favorable features to\nthe\nRegraded Uclassified\n232\n- 5 -\nthe investor, such as examption from inheritance and\nand\nother taxes,/exchange guarantee. He expressed the hope\nthat the French Government would offer & loan along these\nlines. If they could successfully float & loan increased\ncredit facilities would follow, and it would be possible to\nrenovate and reorganize many branches of French industries\nwhich needed new plants and machinery. Increased production\nwould in turn result from such developments.\nI brought up the visit to London of the French min-\nisters, and mentioned reports that one subject to be dis-\ncussed was the organization of B. \"common pool\" of raw\nmaterials for war industries, and the organization of a\ncommon purchasing agency for munitions and airplanes.\nPatenotre told me that some such idea would in fact be\ndiscussed but that the French Ministers did not expect\nmuch to come from the discussion. Patenotre said that it\nshould be possible for France to do her own purchasing and\nto make arrangements for financing such purchases,\nPatenotre told me that 8. much more important subject\nto be discussed in London was the question of assistance\nto the French equalization fund by the British equaliza-\ntion fund. I supposed that this would be a proposal\nthat france be purchased by the British fund and that the\nBritish\n233\n- B -\nBritish fund should refrain from converting them; he said\nthat this was about what they meant.\nI then asked Patenotre whether discussion of assistance\nin exchange matters might lead to discussion of the possi-\nbility of getting a loan from the British; his reply was\nthat this would certainly be the case. An effort would be\nmade by Daladier to get a credit similar to the British\ncredit of $40,000,000 recently obtained. If the British\nwould give them an even larger credit, this would be BO\nmuch the better, Patenotre said, and it would be a guarantee\nthat it would never have to be used by the French. In\nhis opinion, there would be an important psychological\nreaction from the mere announcement that the British had\ngranted 8. large credit to France, and there would be started\na return flow of capital to France.\nI feel that I must call to your attention, in report-\ning the above statements to me by Patenotre, that while\nthe statements of course represent the personal views of\nPatenotre and doubtless the views of other Cabinet members,\nthey do not necessarily represent the views of the Govern-\nment as such.\nEND MESSAGE.\nWILSON.\nEA:LWW\n(Exthiest B)\n234\nThe Chancellor wished to thank Mr. Morgenthau\nfor his message about the French situation;\nthe information given by Mr. Morgenthau was\nsupplemented by Butterworth who called at the\nTreasury on the 25th April and outlined the\ninformation given by the French Ministry of\nFinance to Mr. Cochran.\nSince the weakness of the franc at\nthe end of last week seemed to be due to rumours\nabout dissension in the French cabinet rather\nthan to any genuine economic trend, the\nTreasury asked Monick what had happened. Beyond\nreciting the terms of the recent communique\n( issued over the week-end) he stated that the\nFrench Government had no intention of arbitrary\ndevaluation. Beyond that the British Treasury\nhave no information at present.\nApril 28th, 1938.\nRegraded Uclassified\n235\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Paris, France\nDATE: April 28, 1938, 6 p.m.\nNO.: 667\nFROM COCHRAN.\nPressure on franc has been heavy again today. After\nopening at 160.35 the rate went to 163 and control had\nan expensive time bringing it back to 162-1/2. Premium\non three months sterling went ag high 8.8 5-1/2 france.\nBelga also much offered against sterling and reached the\nexport point for both London and New York. Bank of\nFrance statement as of April 21 showed no new advances\nto the state and no other significant changes.\nFrench shares and rentes improved but Paris exchange\nmarket is gloomy awaiting outcome of London negotiations.\nUnless some financial help 18 obtained operators are\nexpecting the franc to be around 175 to the pound on\nMonday since they realize that the control's costly\nefforts this week to drive back the rate have not in-\nspired any real confidence in the currency at around 161\nand cannot be continued indefinitely. The market is\nalready gossiping about the probability of opening an\ninternal national defense loan next week at 4-1/2% with\nexchange guarantee, for 8 or 10 billion france. On the\nother hand this evening's press carries a denial from\nMarchandesu\nRegraded Uclassified\n236\n- 2 -\nMarchandeau that the terms of the new loan have been\ndetermined, and a warning against sensational stories in\nregard to French finances that are now circulating.\nThis afternoon I had a talk with a Paris Morgan\npartner. This friend believes an exchange guarantee loan\nwould have a very discouraging local effect. Personally\nhe would prefer to 800 the French get a. loan from the\nBritish. He does not think 8. short term credit there\nwould be genuinely helpful in aiding a permanent recovery,\nhowever, and he does not think it will be possible to\nget a long term loan of the proportions required to restore\nconfidence in the frano until the French on their own\ninitiative have made some progress.\nAt a quarter of six I had a talk with the Bank of\nFrance. Reference - my telegram No. 661 of April 27 -\nthe final total of exchange losses of the control yes-\nterday reached almost 3,000,000 pounds; losses for today\nwill be a little more than one-half that figure. This\nforenoon the pressure on the franc was very heavy but\nthis afternoon it slackened. In the opinion of my\nfriend, speculation is the cause of almost all of the\npresent movement.\nWILSON.\nEA:LW\nRegraded Uclassified\n237\nPARAPHRASE OF TELEGRAM RECEIVED\nIn\nFROM: American Embasey, London, England\nDATE: April 28, 1938, 7 p.m.\nNO.: 350\nFROM BUTTERWORTH. FOR TREASURY.\nDuring the course of a conversation this afternoon\nbetween the Ambassador and Sir Horace Wilson, the chief\nindustrial advisor to the British Government, the latter\nsaid that Daladier had asked for a loan of 50,000,000\npounds and that this had not been granted. Sir Horace\nsaid that in any case the British Government is not\nprepared to make any loan to anyone unless new and ade-\nquate means of repayment can be devised. In addition,\nhe implied that the British were talking frankly to the\nFrench about the economic measures which are necessary\nto put in order the French affairs.\nThe conversations between the French and the British\nare now in the middle stage and it 18, naturally, too\nsoon to predict their ultimate outcome. In fact, there\n1s every likelihood that until Monday authoritative in-\nformation will not be fully available.\nKENNEDY.\nEA:LW\n238\nTREASURY DEPARTMENT\nWashington\nFOR IMMEDIATE RELEASE,\nPress Service\nFriday, April 29, 1938.\nNo. 13-16\nThe Secretary of the Treasury today announced the subscription\nfigures and the basis of allotment for the offering of $200,000,000,\nor thereabouts, of 3/4 percent notes of Sories C of the Commodity Crodit\nCorporation.\nReports received from the Federal Roserve banks show that cash\nsubscriptions for the new notes aggrogate $1,839,000,000. Such sub-\nscriptions were allotted 8 percent, but not less than $1,000 on any\none subscription.\nIn addition to the cash allotment, preliminary reports indicate\nthat more than $58,000,000 of the $60,000,000 Serios B Collateral Trust\nNotes of the Corporation maturing May 2, 1938, have been tendered in\nexchange for the now notes.\nFurther details as to subscriptions and allotments will be\nannounced when final reports are received from the Federal Reserve\nbanks.\n100-1\nRegraded Uclassified\n239\nApril 29, 1938.\n10:27 A. M.\nOperator:\nOperator.\nH.M.Jr:\nThey - they haven't got\n....\nNew York\nOperator: Hello. Hello.\nTreasury\nOperator: Hello.\nNew York\nOperator:\nYou weren't through talking, were you?\nTreasury\nOperator:\nJust a minute.\nH.M.Jr:\nHello.\nTreasury\nOperator: Mr. Greenbaum.\nH.M.Jr:\nThank you.\nGreenbaum:\nWe're both on.\nH.M.Jr:\nHello.\nG:\nYes, Henry.\nH.M.Jr:\nCan you hear me all right?\nG:\n0. K.\nH.M.Jr:\nIs Morris there?\nMorris\nErnst:\nYes, right here.\nH.M.Jr:\nWell, what I'm calling up about this morning is\nthis article by Arthur Krock on the Treasury. I\ndon't know whether you fellows have read it or\nnot.\nMorris\nErnst:\nI read it.\nG:\nI didn't see it yet.\nRegraded Uclassified\n240\n- 2 -\nH.M.Jr:\nMorris?\nE:\nI read it.\nH.M.Jr:\nWell, here's the point - I've gone over it very\ncarefully with Magill, and the article is full of\nmisstatements, and what happened on the Hill,\nthere was such a proposal - a special amendment,\nah, that they tried to get through on behalf of\nthe Associated Gas and Electric, which is our big\ncase down here. They've been doing everything\nthat they can, ah, to get some way from paying the\nfifty million dollars that we owe.\nE:\nYeah.\nH.M.Jr:\nNow this statement is so wrong, and, ah, frankly,\nboth Magill and I are fed up - right up to our\ngills, and, ah, ....\nE:\nFed to the Magills.\nH.M.Jr:\nWhat?\nE:\nFed up to the Magills.\nH.M.Jr:\nThe Magills - fed up to the Magills.\nE:\nYeah.\nH.M.Jr:\nAnd the reason I wanted particularly Morris on was\nbecause he spoke the other day about a technique\nwhich I'm not familiar with. Now, ah, ah, we could\nwrite a letter, pointing out the mistakes. Ah - I\nhate to put in writing that it's the Associated\nGas and Electric. I don't know whether I can or\nnot, legally. But, ah, ah - frankly, I mean - I -\nI want to answer it. I could write a letter and\ngive it to all the newspapers, or I could write a\nletter and just give it to the Times, or I could\ntalk to them, which has never done any good before.\nBut both Magill and I feel that - that this is so\nvicious, and so unfair, and 50 untruthful that we\nwant to answer it.\nE:\nWell, there's - Henry, there's two phases to the\nKrock article.\nH.M.Jr:\nYeah.\nRegraded Uclassified\n- 3 -\n241\nE:\nThe one phase related to the - which we now\nname, the company,\nH.M.Jr:\nYes.\nE:\nAnd the jeopardy assessment point.\nH.M.Jr:\nYes.\nE:\nThe more serious thing that Krock did\n.....\nH.M.Jr:\nYes.\nE:\n.....\nfrom the public point of view - because\nmost of them won't understand\nH.M.Jr:\nYes.\nE:\nthe jeopardy assessment point at all.\nH.M.Jr:\nYes.\nE:\nFrom the way he wrote it.\nH.M.Jr:\nYeah.\nE:\nBut, what this - what he did do\nH.M.Jr:\nYeah.\nE:\nis come out in the open and say that the\nbusiness people of the country is tired of being\nharrassed\nH.M.Jr:\nYeah.\nE:\nby Government agencies.\nH.M.Jr:\nYeah.\nE:\nNow, I think that - that your move - and I haven't\nany thought to it.\nH.M.Jr:\nNo.\nE:\nIs to, not in public, but to get Krock over to your\noffice and say, \"For Christ's sake, tell me the\nnames of the people on whom you rely.\"\nRegraded Uclassified\n- 4 -\n242\nH.M.Jr:\nYeah.\nE:\nYou see?\nH.M.Jr:\nWell, that ...\nE:\nHe'll say - he'll say, \"I can't do it.\"\nH.M.Jr:\nYeah.\nE:\nHe'll say that's privileged.\nH.M.Jr:\nYeah.\nis\nYou see?\nH.M.Jr:\nYeah.\nE:\nWell, now, as a matter of fact, it isn't privileged.\nH.M.Jr:\nYeah.\nE:\nYou know?\nH.M.Jr:\nIt is not?\nE:\nOh, no.\nH.M.Jr:\nNo.\nE:\nAfter all, he's got no right to keep on saying.\nH.M.Jr:\nYeah.\nE:\nAnd mind you, I think there's some truth in it.\nH.M.Jr:\nYeah.\nE:\nBut you never can cope with the problem\n.....\nH.M.Jr:\nYeah.\nE:\n.....\nof the agencies harassing taxpayers\nH.M.Jr:\nYeah.\nE:\n.....\nif nobody will tell you the name of the\ntaxpayer.\nRegraded Uclassified\n- 5 -\n243\nH.M.Jr:\nCorrect.\nE:\nBecause you can't locate the agencies.\nH.M.Jr:\nYeah.\nE:\nYou see?\nH.M.Jr:\nYeah.\nE:\nNow I think that you can't handle this column of\nKrock's\nH.M.Jr:\nYeah.\nE:\nI want to read it over again, and get it more\ncarefully in mind, but I don't think you can\nhandle it solely on the jeopardy point alone.\nAnd I think, on the other point, is really more\nvulnerable.\nH.M.Jr:\nOn - on the Associated Gas?\nE:\nI ah - more vulnerable on his point about harassment.\nH.M.Jr:\nOh.\nE:\nThan he is on the jeopardy itself.\nH.M.Jr:\nWell, he criticizes, and uses, without naming names -\nand that's all the thing that he's criticizing the\nPresident for.\nE:\nThat's right.\nH.M.Jr:\nI mean, he had a whole article - why not name the\nnames of the people that come down and tell him\nthis and that and the other things.\nE:\nThat's right. And that's what I think - that's\nwhere I think you ought to rub it into Krock.\nH.M.Jr:\nWell, Morris, it does absolutely no good - it\nE:\nNo ...\nH.M.Jr:\nIt just - it just takes Magill, Helvering's, and\nmy time, and Kent, - four people - and He'll just\nsit here and sneer at us. Now what's the sense\nRegraded Uclassified\n- 6 -\n244\nof - of our having him here privately? See?\nHe does it publicly - why can't I do it publicly?\nE:\nWell, now let me - let me suggest some other ways\nof doing it.\nH.M.Jr:\nAll right.\nE:\nLet me think over and see whether we can't get\nsome newspaper to pick it up, and, ah, just\nanswer it. Now, ah, I know of only, ah - Scripps\nyou can't play with anymore - but certainly we\ncan get the Philadelphia Record, Post, and the\nbunch to pick it up directly.\nH.M.Jr:\nWell - I don't like to dirty my hands.\nE:\nWell, we can - he's the boy that's at the White\nHouse all the time.\nH.M.Jr:\nWhat?\nE:\nHe's at the White House.\nH.M.Jr:\nWho?\nE:\nDavie.\nH.M.Jr:\nHe is?\nE:\nOh, lots.\nH.M.Jr:\nWhat?\nE:\nHe's lots, at the White House.\nH.M.Jr:\nIs he?\nE:\nYou bet you. And, ah, I don't know what other\npap' - papers you can use. I think you might be\nable to use Colonel Patterson. The\nis infinitely more important than the Times.\nH.M.Jr:\nWell, I - I thought .....\nE:\nThey took an awful crack at the Times, you know,\na month ago.\nRegraded Uclassified\n245\n- 7 -\nH.M.Jr:\nWell, I thought I would do it just openly - I\nmean at a regular press conference.\nE:\nI don't see any harm in doing it at the press\nconference.\nH.M.Jr:\nI'm not awful good at doing this stuff, ah,\nsecretly.\nE:\nGet him at a press conference, and I'd just, ah,\nah, raise hello on it.\nGreenbaum:\nI like the press conference idea the best. When's\nyour next, Henry?\nH.M.Jr:\nWell, unfortunately, there - I won't be here\nMonday, so I wouldn't have one till Tuesday, but\nI could call a special one.\nYou could do that, ah, this afternoon or tomorrow.\nH.M.Jr:\nWell, I'd - I'd do it today - at noon.\nE:\nYeah.\nH.M.Jr:\nAnd tell Krock I'm going to do it and let him\ncome over here.\nE:\nAhhhhhh, I can get you, off the record, ah, advice\nfrom the newspaper boys as to which is the best\nway to handle it. I mean, I can get Lyle Wilson,\nof the U. P.\nH.M.Jr:\nYeah.\nE:\nYou see? And say, \"Look here, here's the situation,\"\nand ....\nH.M.Jr:\nYeah.\nIT\nE:\n\"Hell of a lot of misstatements, etc., and ah, ah -\nif to press conference the thing, or a blast, or\nwhat.\nH.M.Jr:\nWell, I'd like to have it. Now I asked Steve Early,\n....\nE:\nYeah.\nH.M.Jr:\nand he was against the press conference.\n....\nRegraded Uclassified\n- 8 -\n246\nE:\nYes.\nH.M.Jr:\nHe said that - ah - ah - amongst the newspapermen\nthey wouldn't handle a criticism of a misstatement\nby another paper.\nE;\nThat's what I'm afraid of.\nH.M.Jr:\nBut if\nWhat?\nE:\nI think the Press Conference will be the best.\nH:M.Jr:\nNo, but Steve Early said he wouldn't do it - he\nsaid, \"Now let's\nE:\nI don't think the boys at the Press Conference will\never mention Krock's article - Krock's name in the\nTimes.\nH.M.Jr:\nWhat Steve Early suggested was that I write a\nletter to Krock\nE:\nYes.\nH.M.Jr:\n....and then the minute I've delivered it to him\nrelease it to all the other newspapers - that was\nSteve Early's suggestion.\nE:\nAh - Henry can I call you back in 20 minutes?\nH.M.Jr:\nI'll tell you what you do - I'm going up on the\nHill\nE:\nYes.\nH.M.Jr:\nI've got to be there at 11 - I'll be back about\nquarter to twelve which is quarter to one your\nE:\nI'll call you at 12 o'clock.\nH.M.Jr:\nI'll call you a quarter of one your time.\nE:\nYou'll call me?\nH.M.Jr:\nYes.\nE:\nAll right.\nRegraded Uclassified\n- 9 -\n247\nH.M.Jr:\nAnd I don't mind Eddie's talking to Arthur\nSulzberger a bit.\nE:\nYes, well let's read it over again because I\nH.M.Jr:\nBecause I - I can't - ah - ah - I'm just not built\nthis way - for instance, I could call in Bob Allen\nand tell him the whole thing.\nGreenbaum: Morris and I will talk it over and you'll be back\na quarter of one your time.\nH.M.Jr:\nNo, quarter to one your time.\nG:\nQuarter of one our time.\nE:\nLook Henry\nH.M.Jr:\nYes.\nF:\nah - ah - will you be at liberty to name\nthe specific company that is primarily involved.\nH.M.Jr:\nAh - Magill thinks so.\nE:\nBut you're not sure of.\nH.M.Jr:\nWell he's going to find out but - ah - he thinks\nits a matter of public record\nE:\nYes.\nH.M.Jr:\nand he's sent for Kent, who knows the whole\nstory.\nE:\nFine.\nH.M.Jr:\nSee? I - I'll tell you what - Magill goes much\nfurther than I do.\nR:\nYes.\nH.M.Jr:\nHe says the publicity man for Associated Gas and\nElectric has just gotten to Krock.\nE:\nI wouldn't be at all surprised.\nH.M.Jr:\nAnd that that's the way the story burst.\nRegraded Uclassified\n- 10 -\n248\nE:\nI wouldn't be at all surprised.\nH.M.Jr:\nAnd - ah - ah - that he just got to him and he -\nhe's tied up this other business.\nE:\nYes. Well let me read the article again anyway.\nH.M.Jr:\nBecause\nG:\nAre you going to call us up or are we going\nH.M.Jr:\nI'm going to call you at 12:45.\nG:\nAll right, Henry.\nH.M.Jr:\nNow just let me drop this to you in Eddie's name.\nAh - you know I've been waiting for some move -\na new move, you see, against me?\nG:\nYes.\nH.M.Jr:\nWell I think this is the opening gun.\nG:\nI see. Well call us back then.\nH.M.Jr:\nO.K.\nRegraded Uclassified\n249\nApril 29, 1938.\n11:49 a.m.\nH.M.Jr:\nHello\n0:\nMr. Greenbaum. Go ahead.\nH.M.Jr:\nHello\nGreenbaum: Henry.\nH.M.Jr:\nYes, Eddie.\nG:\nFirst I want to - Morris is on too - first I want\nto ask you one or two facts.\nH.M.Jr:\nYes.\nG:\nAh - is it a fact that the Treasury opposed a\nretroactive - ah - thing on this thing - ah -\ndeputy assessment.\nH.M.Jr:\nThe retroactive?\nG:\nYes, because that Is the point that Krock is\nmaking - that the Treasury refuses to allow this\nto be retroactive.\nH.M.Jr:\nWell as I - I'd have to send for Magill.\nG:\nYes.\nH.M.Jr:\nIf that's important I could get him in a minute.\nG:\nYes, it is important\nH.M.Jr.\nWell wait a minute.\nG:\nbecause the Associated Gas thing comes in,\nas I understand it, on that and only on that.\nH.M.Jr:\nYes.\nG:\nIn other words, how the hell could you get that -\nthat - there's no story without that.\nH.M.Jr:\n(Aside to someone: \"Ask Magill to come right in.\")\nH.M.Jr:\nI've sent for Magill.\nRegraded Uclassified\n250\n- 2 -\nG:\nAllright, well now let's go on,\nH.M.Jr:\nYes.\nG:\nNow it seems to me - ah - that the big question is\ndo you want to make something out of this or do you\nwant just tocorrect the record on the Arthur Krock\nbusiness. If you want to make something out of 'it\nyou can really draft a good letter. Then I like the\nthought that Morris has - ah - writing a letter to\nthe Conference Committee or someone other than the\nTimes. If, on the other hand, its just to correct\nthe record to show that Arthur Krock stuck his neck\nout and painted a goldbrick, then I think the method\nof procedure should be a - not a Press Conference but\na letter to the New York Times and not mentioning\nKrock by name at all; don't give him any build-up,\njust give your issue of Friday and so forth. Now\nMorris agrees with both of them; he rather favors\nthe idea on the Hill - the letter to the Hill pro-\nvided that you want to make something out of it,\nso to speak, and after the letter is on paper it\nlooks like something.\nH.H.Jr:\nWell Magill is here. You ask him the question now.\nMogill:\nHello Eddie.\nG:\nHello.\nV:\nYes.\nG:\nAh - first I asked Henry this - ah - is it a fact\nthat Treasury opposed making - ah - this - ah -\nprovision retroactive insofar as deputy assessments\ngo?\nin\nYes.\n0:\nAnd was that on account of this Associated Gas\nbusiness primarily?\nM:\nPrimarily, yes - ah - the - ah - situation is this.\nAh - ah - these jeobardy assessments that - ah - in\nother than bankruptcy cases - ah - there's - ah -\nthere's an average of about 1280 or some such amount\na year\nG:\nYes.\nRegraded Iclassified\n251\nS\nah - out of all the mass of 4% million various\ncases which we have. Now - ah - Associated Gas and\nElectric - h - ah - I - I can't go into the whole\nthing with you because it takes too long but at any\nrate the fact is they've had plenty of hearings on\nthis thing and - and the point at which its arrived\nis whether - whether they are going to pay this\nassessment or whether they are not - ah - or rather\npay some part of it. Now what they wanted to do,\nin substance was to get a provision in here which\nwould enable them to have a series of further hear-\nings with respect to the jeopardy assessment, you\nsee. As the thing was originally proposed by the\nAssociated Gas and Electric people - ah - the pro-\nvision was - ah - to have a review by the Board of\nTax Appeals on their refinding of the Commission\nthat there was jeopardy.\nExactly, and that allows them to drag it on and\neverything else,\n5\nExactly. Now the thing was put up and discussed\nvery fully before the Finance Committee and I don't\nremember - I probably can find out from my people -\nbut they're busy on other things - ah - the Finance\nCommittee said, \"Well this thing ought not apply to\noutstanding jeopardy assessments. Its all right to\napply it in the future\". And after full discussion\nbefore the Committee they decided that was what\nthey'd do.\nYes, well now here's the thing from, you might say,\na public relations standpoint.\nYes.\nOn the face of it Krock's point has validity. In\nother words, ah - the Commissioner should have power,\nwhere jeopardy assessment has been unfairly slapped\non to\nthat and, since that is so, if\nTreasury agrees with that it would seem to me that if\na jeopardy assessment has unfairly been put on in the\npast - ah - you shouldn't object to legislation per-\nmitting that unfairness to be corrected. Now if,\ntherefore, unless you have some good\nstuff show-\ning why you did that\nmention Gas and Electric\nby name with some facts\nthat could be done\nproperly then there's a damn good reason to make a\nstory out of this.\nAh\nRegraded Uclassified\n- 4 -\n252\nG:\nIn other words, that's the way I think this becomes\nimportant - whether you can bring that in.\nM:\nOf course as you appreciate one difficulty with\nany kind of a tax question is you get into so many\ntechnicalities about 1t. Now - ah - what Krock\nsays here - ah - the sentence that is striking is -\nis one which must have been written by a lawyer\nbecause what he says is that once a jeopardy\nassessment has been asserted the Commissioner\ncannot legally lift withdraw or modify the claim\nbefore settlement. Well now, of course, what nobody\nwould think but you and me is that the - before\nsettlement is the main point there. In other words,\nthe Commissioner can settle these eases just like he\ncan settle any other kind of cases\nG:\nYes.\nM:\nand does so all the time.\nG:\n(Mumbles something - indistinctly)\nM:\nI can hear you Eddie.\nB:\nI say it would be comparatively easy where the\nso-called unfairness - something that's improper -\nthe Commissioner can immediately clean it up.\nM:\nThat's right.\nG:\nAnd remove any evidence.\nM:\nThat's right.\nErnst:\nLet me ask something, Ros - this is Morris. Hello\nM:\nHello\nE:\nRos - this is Morris, I want to ask something.\nAssuming that they had made the provision retroactive,\nit still would have left in your hands the discretion\nas to whether or not you want to waive the jeopardy\nassessment.\nM:\nWell it - it isn't a matter - it isn't a matter\nof waiving the jeopardy. I don't think anybody\ncontends except the Associated Gas and Electric\nthat there ought to be a review of the question\nof jeopardy\nE:\nYes.\nRegraded Uclassified\n- 5 -\n253\nM:\nwhich the Courts have decided time and again\nis a matter that - for the Commissioner to decide.\nE:\nThe flexibility in the future\nM:\nNow the reason as far as - ah - the contention is\nthat if a jeopardy assessment 1s made that there\nought to be power in the Commissioner to reduce\nthe amount of the assessment.\nB:\nAll right, now let's assume they were made\nretroactively\nM:\nYes.\nE:\nyou would have the power to reduce and you\nwould, even though you had the power, not reduce.\nNow wouldn't that leave you in the same position?\nM:\nWell what it means is - now I notice in the last\nfis - in the last three fiscal years - ah - the\nCommissioner has made about 3800 - ah - 3600\njeopardy assessments.\nE:\nYes.\nM:\nWhat it needs is - if the bill is passed with that\nkind of a provision in the Commissioner at once has\nto start hearings in 3600 cases because they'll all\nseek to try to get them reduced. Huh?\nE:\nTo decide whether or not he'll exercise the power\nof reducing the assessment.\nM:\nThat's right.\nE:\nI get it - I just want to clear it up. Now let\nme think of something a minute - ah - I don't know\nwhether Henry is listening but I spoke\nH.M.Jr:\nYes, I'm listening. I'm listening.\nE:\n....we're through.\nH.M.Jr:\nWhat's that? Go ahead.\nE:\nTwo things in the first place that nothing you\ncould do that Krock would like better is to write\na letter or make a statement that mentions his name.\nH.M.Jr:\nI see.\nRegraded Uclassified\n6\n254\nHe would Just gloat on it and capitalize it.\nE.M.Jr:\nYes.\nIn the second place, he says that very few\npeople, except the Cabinet, read that kind of a\ncolumn in the Times.\nE.M.Jrs\nAh-ha.\nT:\nAnd so you will not get a general public interest\namong people who know anything about it - ah - by\na Press Conference\nL.K.Jr:\nYes.\nyou see, except by capitalizing and mentioning\nthe whole Krock story.\nE.V.Jr:\nYes.\nThat he thought that you might just write a letter\nto the Times and not to any one person - just to\nthe Editor of the Times\nM.M.Jr:\nYes.\nand not mention Krock's name and say, \"There was\nreported in your issue of such and such a date the\nfollowing. The facts are incorrect in this respect\nand in regard to the statement made the taxpayers\nare a rag. Go at 'em and say for Christ's sake how\ncan we correct it unless American citizens whether\nthey're reporters or not feel it their social duties\nto tell us about the facts.\nR.X.Jr:\nThat's good.\nNow I suggest you to do that it might be much better\nthan writing to the Times - limited circulation,\nwouldn't be picked up elsewhere - ah - it means that\nKrock loves it even if you don't mention his name.\nWork out a letter and see what it sounds like after\nyou've worked it out which you could send to the\nChairman of the Committee and say, \"The following -\nan item has appeared in the Times, setting forth\nthe following facts on the jeopardy assessment stuff\nand the following mistakes were nade in the article.\nNo.\nRegraded Uclassified\n255\n- 7 -\nE:\nIf the - whatever the mistakes are, you see? You\nsaid there were some factual mistakes; that if he\nmade inquiry at the Treasury or with you he would\nhave known that they were factually correct. In\nregard to his other statement about harrassed tax-\npayers, your Committees have worried about the\nproblem as I have for years and I don't know what\nthe answer is but what the hell do you do when\nreputable reporters mention a fact and don't mention\nthe name. Now Drew also indicated he thought it\nwould not be advisable to have a Press Conference.\nThe thing wald get pretty vague and indefinite and\nit would go into all kinds of questions. Moreover,\nhe is afraid it might give the appearance in this\nthing that he doesn't think is very important to you\nH.M.Jr:\nYes.\nE:\nthat - give the impression of your just being\na belly-acher\nH.M.Jr:\nAh-ha.\nE:\ndo you see?\nH.M.Jr:\nI see.\nE:\nHe thought that if there was a little of that im-\npression around anywhere in a Press Conference on\nthis kind of an issue didn't seem like an important\nenough thing to him to call a Special Press Conference.\nH.M.Jr:\nI see.\nM\nAnd moreover it would signify Krock too much and the\nrest of it. He inclined to the letter to the Times\nwithout mentioning Krock's name.\nH.M.Jr:\nI see.\n2:\nJust to the Editor.\nH.M.Jr:\nAh-ha.\nE:\nHe says it won't do much good because that's only\nthe Times' readers; wouldn't be picked up elsewhere -\nah - if you really want to make a real issue out of\nit then you have to do something different and there\nyou would then incline to your trying to draft a\nletter and see what it looks like after you draft\nRegraded Uclassified\nD I I\n256\nit which you would send to the Chairman of the\nCommittee and either you release the letter or\ncall up Pat Harrison or Doughton and tell them to\nrelease it. That's the impression that he\nH.M.Jr:\nWell neither Magill or I like the idea of the\nletter to Harrison or Doughton.\nE:\nWhat? What do you say?\nH.M.Jr:\nI say neither Magill or I like the letter to\nHarrison or Doughton.\n6:\nThere's no special occasion for it otherwise is there?\nH.M.Jr:\nNo - no.\nM:\nNo, I think you're very apt to stir yourself up some\ntrouble that way.\nYou are - well I don't know enough of the background\nbut I was looking for some way by which you would get\nnational circular of your position in regard to a\nmatter that only had a limited circulation in one\npaper, without putting that paper in a position where\nthey start stirring it up and capitalizing it and do\nthings that - that Krock will like nothing better,\nthan if you'd ever write him a letter.\n11.M.Jr:\nWell you didn't suggest that we give it tohim?\nE:\nNo, but I didn't suggest it to him, but it can be\ndone that way.\nB.M.Jr:\nWell\nI:\nNow I don't know whether Drew is the best person to\ngive it to,\nH.K.Jr:\nYes.\nB:\nDo you see? Whether there isn't some other\ncolumnist that might not do a better job for you\nwith more dignity on the whole thing.\nR.M.Jr:\nYes.\n0:\nI - I don't like that method of approach. I think\nthat if any newspaper says something there that can\nRegraded Uclassified\n- 9 -\n257\n:\nbe answered you should answer it not through any\nof other one or what not - you should\nit directly to them or something along the line\nthat Morris has told you about with the Hill.\nH.M.Jrt\nI see.\nB:\nNow my feeling is that if that letter - if that\ntechnique is out you could find some other way in\nwhich it could be made widespread news and that\ncase depends upon whether you can - whether you\nreally want this publicized - in other words\nwhether you can send it around so that you can\ntell something that is very helpful to the Treasury.\nH.M.Jr:\nAh-ha.\nG:\nAnd I think you probably can on the first thought,\nthat is, credit it to those people to talk of com-\nplaints they've got and I doubt whether you can\non the jeopardy assessment because it would probably\nbecome too technical. The only way in which you\ncould do anything on that would be if you could\nmention Associated Gas and Electric.\nR.M.Jr:\n(Aside to Magill: \"Can we mention Associated Gas\nand Electric\"?)\nG:\nThat's the way I feel.\nE:\nHenry.\nH.M.Jr:\nWhat?\nE:\nI think if you send for Drew I think he quietly\nmight come through and be able to prove that the\nAssociated Gas publicity guy handed it to Krock\nH.M.Jr:\nAh-ha.\nE:\nwhich is worth something in a way too.\nG:\nWell, of course, that possibility comes in later.\nIf you were to adopt a formula of sending this to\nthe Times without anything too much on it - ah -\nI mean it would be limited then to the Times, that\nis, the people who read the Krock thing, then its\nopen to Drew or anyone to work up a story and they\ncan make something out of it if they can dig out\nthat other stuff. In other words, then they can\nmention Associated Gas and you wouldn't.\n- 10 -\n258\nH.M.Jr:\nWell my inclination right now is - ah - a letter\nto the Times - ah - ah - doesn't mean anything -\nI mean as far - except their own readers are con-\ncerned and they're not going to\nE:\nKrock's been reached.\nH.M.Jr:\nWhat?\nE:\nThat's the only people that Krock's thing has reached.\nH.M.Jr:\nAnd - ah - ah - I've never planted a story against\nany Presidential appointee and never will as long as\nI'm here but to give it to Drew as' against another\ncolumnist that comes within the rules of my game.\nF:\nWell -\nG:\nWell what you do then, Henry?\nH.M.Jr:\nI tell you what I'm going to do - I'm going to\nask Magill to write it out\nG:\nThat's what I think.\nH.M.Jr:\n.....and mail it up to you two guys and let you\ntake a look at it.\nG:\nThat's what I think; let's take a look at this\npaper and then you can decide how\nH.M.Jr:\nAnd then we can decide afterwards.\nE:\nAs to which method.\nH.M.Jr:\nSee how - how you fellows react.\nG:\nWell that's just what I think. When its on paper\nthen you can see which usage to make of it.\nH.M.Jr:\nWhat?\nG:\nAfter its on paper\nH.M.Jr:\nYes.\nG:\n....then you can determine what usage you can make\nof it.\nRegraded Uclassified\n- 10 -\n259\nH.M.Jr:\nI think that's the best way.\nG:\nAll right. O.K. fine.\nE:\nFine, Henry.\nH.M.Jr:\nEver so much obliged.\nG:\nO.K.\nE:\nGoodbye.\nUclassified\n260\nApril 29, 1938.\n1:07 P.M.\nAltmeyer: This is Altmeyer.\nH.M.Jr:\nYes.\nAt\nI wanted to tell you - ah - about this letter\nthat the President wrote us. Did you see 1t?\nH.M.Jr:\nNo.\nA:\nWell we saw him a couple of days ago about this\nOld Age Insurance problem. Vandenberg from time\nto time gets out in front on the thing and this\nAdvisory Council that we have is likely to make\nsome recommendations most any day.\nR.M.Jr:\nYes.\n3:\nAnd we've got them under control, that is, they\nseem to be thinking along the lines we'd like to\nhave them think.\nII.M.Jr:\nYes.\nA:\nAnd - however, we felt that the President ought to,\nin some way, indicate that he is interested in this\nproblem so that if we do develop something that is\nsound the Administration rather than that Vandenberg\ngroup will get the credit for it.\nH.V.Jr:\nWell what I'm more interested (laughs) in than who\ngets the credit is what's it all about?\nA:\nOh. Well\nH.M.Jr:\nBut I can't do it now because I've got Jesse Jones\noutside for ten minutes.\nAllright, well I just wanted to tell you that this\nletter that the President wrote me merely instructed\nus to study the thing that you and I talked about\nseveral months ago.\nH.M.Jr:\nYes, well let's - let's get down and let's make\nsure that it's for the interest of the country.\nRegraded Uclassified\n261\n- 2 -\nA:\nThat's right, sure.\nH.M.Jr:\nAnd then - then let's worry (laughs) about the\ncredit afterwards.\nA:\nWell then - we started out with the - what's good\nfor the country and we're still on that basis\nH.M.Jr:\nWell then you and I won't have any trouble.\nA:\nYes, all right, but I wanted to tell him what the\nimmediate situation was so that - ah - when we - we\nwon't get in - when we do have something that the\nlegitimate credit goes where it belongs.\nH.M.Jr:\nWell when - when do you want to sit down with me?\nA:\nAnytime that you're ready or\nH.M.Jr:\nWell let's say 3 o'clock Tuesday.\nA:\nAll right, fine. Thank you so much.\nH.M.Jr:\nThank you.\nA:\nGoodbye.\nRegraded\n262\nMonday\nMay 2, 1938\n4:58 p.m.\nHMJr:\nHello.\nOperator: Mr. Welles can't be reached for about twenty\nminutes.\nHMJr:\nWell, if I'm still here -\ndoes that mean he's\nin or out?\nOperator: He's in but he can't be reached.\nHMJr:\nWho said that?\nOperator: At. - the girl on the line - I don't know whether\nit was his secretary or not.\nHMJr:\nWell, he left word with his secretary - any time\nI - you get his secretary and tell her that I\nwant to talk to him and see if she gives you the\nsame answer.\nOperator: All right.\nRegraded Uclassified\n263\nMonday\nMay 2, 1938\n5:01 p.m.\nHMJr:\nHello.\nOperator:\nNo one answers in Mr. Moffett's office.\nHMJr:\nWell, look.\n0:\nYes, sir.\nHMJr:\nI'm going to do this through - ah - is there\nanybody in the office of the Secretary of State?\n0:\nI'll find out.\nHMJr:\nSee if there's anybody in the office of the\nSecretary; I don't care if it's the char woman -\nI'll talk to her.\n0:\nAll right.\nHMJr:\n-\nif there is anybody in the office of the\nSecretary of State.\n0:\nAll right. I'll get you some one.\nRegraded\n264\nPARTIAL PARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, paris, France\nDATE: April 29, 1938, 5 p.m.\nNO.: 670\nFROM COCHRAN.\nParis exchange market has been less active today\ngiving the impression of being over-bought on foreign\ncurrencies. While atmosphere this morning was brighter\nas a result of Franco-British communiques at conclusion of\nfirst day's conversations in London sentiment this after-\nnoon 18 less optimistic following reports from London\nthat British are increasingly perturbed over international\npolitical situation. This fear also reflected on Paris\nsecurity market. Guaranty bought another 7,000,000 belgas\nfor French railway repayment.\nAt a quarter of four this afternoon I had a talk with\nRueff, who said the first reports from London of conversa-\ntions on political topics were encouraging; he added that\nLondon had not communicated anything of immediate interest\nto his Department. There has been nothing further in\nregard to the Treasury plans.\nI had 8. talk with the Bank of France at five o'clock\nthis afternoon. Today the control's intervention wag\nvery slight. & small amount of foreign exchange was gained\nfrom such balance, but purchases of sterling the control\nhad to make for the French railways more than wiped out\nthis gain. According to my contact there was & hardening\nof\n, 265\n- 2 -\nof the sterling rate at 162-1/2 late this evening which\ndevelopment he did not like. My friend said he is aware\nthat from Monday operators are expecting & cheaper franc.\nMarket operators gossiping for next week: move to\n175; revalue Bank of France gold; issue domestic loan\nwith exchange guarantee; obtain simultaneously some sort\nof assi stance or gesture in that direction from London\nto create the atmosphere for the loan.\nAt 5:30 market trader telephoned that rate had moved\nto 163 with control giving larger amounts of sterling.\nWILSON.\nEA:LWW\nRegraded Uclassified\nApril 29. 1938\n266\nMy dear win:\nI have postposed acknowledging receipt\nof your letter of resignation of April 21st\nbecause I found it so difficult to answer.\nI was extremely sorry to learn from your\nletter that you found 11 necessary at this time\nto withdraw as an Advisor to the Treasury. with\nregret I accept your resignation.\nI want to take this opportunity to thank\nyou for the loyal support which you have given\nse in the past. My deep regard and admiration\nfor you nake it all the more difficult for no to\nfind myself without the benefit of your counsel\nin this mest trying period.\nI hope that whenever you do come to\nWashington you will continue to drop in and see\nme as I should like to feel that our personal\nfriendship will continue in the future as it\nhas in the past.\nSincerely yours,\n(Signed) H Morgenthan, Jr.\nDr. #infield V. Riefler,\nBattle Court Road,\nPrinceton, New Jersey.\nRegraded Uclassified\nor 267\nSECRETARY'S OFFICE - OFFICIAL\nAPRIL 28, 1938\nDR WINFIELD RIEFLER\nBATTLE COURT ROAD\nPRINCETON NEWJERSEY\nPLEASE ACCEPT MY APOLOGY FOR NOT ANSWERING YOUR LETTER\nDUE TO MY BEING SNOWED UNDER WITH WORK STOP YOU WILL HEAR\nFROM ME WITHIN THE NEXT TWENTY FOUR HOURS BEST REGARDS\nHENRY MORGENTHAU JR\nRegraded Uclassified\nTHE INSTITUTE FOR ADVANCED STUDY\nSCHOOL or FLONOMICS AND POLITICS\n\" Alexander Street\nPriscrio, New Jersey\nApril 21, 1838\nHonorable Kenry W. Morgenthau, JT.\nSecretary of the Treasury\nWashington, D. C.\nDear Mr. Secretary:\nThe recent complete reversal of fiscal and monetary poli-\ncies has left me in A decidedly unhavey state of mind. Through-\nout the nest week, in consequence, I have been trying to phrase\nA note to you that would convey at one and the PATE time (a) a\ndeep sense of that unhappiness together with my reasons there-\nfore, (b) my deen eympathy, affectionnte admiration and respect\nfor you, and (c) my desire, under the new circumstances for\nrelief from any official or semi-official resnonsibilities\nwhich I may have. I have decided finally to convey my resction\nto the new program in the accompanying separate memorandum and\nto confine this note to more personal considerations.\nFirst of all, I should like to feel relieved of any responsi-\nbilities I may have as an official or semi-official consultant of\nthe Stabilization Fund. I really do not see how I can be of any\nhelp to you whatever in the execution of the program that 1s now\nunderway. I imagine that you must feel similarly, Please do not\ntake this to mean, however, that I RD seeking in any sense to\nwithdraw myself from giving you any help that 1E in my power. If\nyou should ever demire to get my slant on any problem, I shall\nalways be available. As an economist I should own this in any\ncase to my government. As an individual I owe it particularly\nto you,\nSecondly, 1 have decided to resign as alternate member of\nthe Finance Committee of the League of Nations and also P.B 8.\nmember of the Special Delegation of the League of Nations which\nRegraded Uclassified\nHonorable Henry 1, Vorgenthau, Jr.\n-2-\nApril 21, 1938\nis meeting this June to formulate An inquiry into policies that\nhave been adopted by the various governments to mitigate fluctua-\ntions in business activity. Although my activities at Geneva are\nentirely unofficial, I would find mynelf -- 1f I participated -\nin the distasteful position of representing before an official\ngroup of foreign experts a point of view with respect to American\nconditions that would be critical in a very basic sense of the\npolicies now being nursued by my own government. The present\nworld 16 much too nationalistic for - to be anything but miser-\nable in a role of that kind.\nFinally, I would ask you to take this in the spirit in which\nit is written, In All our relations you have been extraordinarily\nconsiderate to me. I should feel greatly depressed 15 I thought\nthat any action of mine seemed to indicate B. lack of appreciation\non my part for the genuine friendliness and understanding you have\nshown for me.\nSincerely,\nWinfuldRuffer Winfield W. Rieflér\nRegraded Uclassified\nNotes on the Recent Fiscal and Vonetary Proprem\nI recognize certain aprits in the new fiscal end monetary program, but\ngeneral line of attack Laken, considered AS - whole, fills ne with misgivings\n5. variety of reasons.\nAmong the adventages of the program I would list the following RE the\neste relevant consideratione:-\nFirst, it is fairly well timed. If pump prizing is to be adopted a.6\nthe way through and out of this depression, the reriod beginning around the\nmiddle of February of this year angeare to me to have been the most feverably\ncalculated for the initiation of such a program. Although April may subse-\nevently appear to have been a little late, it still comes fairly close to the\nperiod when action along these lines might be considered to DOSBBBE a maximum\nK\neffectiveness.-\nSecondly, the huge increase in excess reserves comes at a time when\n14 immediate effects will be wholly favorable.\nThirdly, the spending program provides a maximum of current pump prim-\n145 with a minimum of disturbance to the Treasury bond market. Some new bond\nCotations will be necessary, but not to the full amount of the excenditures.\nwill not, furthermore, come on the market until the presumably expenionist\neffect of much of the spending will have been given a chance to exert its in-\nfluence on the side of a rising volume of business activity.\nFinally, although I se somewhat appalled by the magnitude of the ex-\np=oditures contemplated, they have the merit at least of not being inadequate\nLa the task in hand.\nRegraded Uclassified\nMgr risgivings arite : that seen to me more fondamental considers-\n1008 than these:\nThe current ore represents extremely dicturbed =eriod, interna-\ntionally, economicily, and velitically. Many normal markets for\ncommodi ties and outlets for capital are stut off for reasons that\nare political rather than economic in character. It 1 ᵉ extremely\ndifficult for 9 society such RE curs, based on political democracy,\non the one hand, and individual enterprise and risk, on the other,\nto function smoothly under these circumstances and it may well be\ntrue that it cannot do so at all without fairly frequent reliance\nin A great variety of sectors upon Treasury backing. If so, it is\nespecially incumbent unon us to limit such reliance to those fronts\nwhere it is indispensable, for, from all present appearances, this\nera of disturbance is likely to last for a very long time. The chances\nare that even under the most fortunate of conditions and with the\ngreatest economy in the use of Treasury resources, the era will end\nwith the Treasury under serious strain 25 2 result of the risks that\nit will have been forced to undertake during the interval. It is\nagainst this background that one must evaluate B renewal of pump-\npriming BE the orimary mode of attack in the current crisis,\nWe have already had en enormous excansion in the Federal debt over\nthe past five years, an expansion much larger than the most erdent\npump-primer in 1933 would have envisaged as necessary to lift the\ngeneral level of national income to 70 billions of dollars, or the\nvolume of industrial production back to the levele of 1923, Even on\nthe basis of a complete acceptance of the theory of deficit financing\nas the sole or mein device available to governments to combat debres-\nsione, therefore, our actual emerience with its use indicates the\ncontinued existence of serious maladjustnents in our economy, malad-\njustments that are sufficiently serious, in fact, to make the use of\npump priming an exceedingly costly device in the long run. Many of\nthese malad justuents have been most courageously tackled by the Admin-\nietration to its eternal credit, some, such RE the railroad problem,\nhave been fumbled, and some, partly inadvertently, have been accen-\ntusted. I acpreciate fully, I think, the very real difficulties in\nthe way of dealing with these problems, but I feel that they must be\ndealt with fully and adequately, before we dare to experiment further\nwith the device of deficit-spending as 8. major reliance in the mitl-\ngation of depressions.\n4 That part of the program which envieages a large scale exansion of\npublic works either under the PWA or the WPA seems to me to be ser-\ntously misdirected with respect to certain features of the current\ndepression. For example, I doubt the wisdom of directing public ex-\npenditure down construction channels during a depression that was\nbrought about in an important measure by an utterly excessive rise in\nconstruction costs. Furthernore, partly as à result of the President's\nRegraded Uclassified\nhousing program, which constitutes by far the most effective action\ntaken to date, we appear to be again at the start of a real residen-\ntial building revival. It is extremely important that this revival\nbe allowed to gather heedway without again being choked by rising\ncosts. There is some danger than an overly large public works oro-\ngram will tend to exert effects in this direction, since mublic works\nprojecte, while not completely competitive with private residential\nconstruction, do, neverthelees, bid for much of the same labor and ma-\nterials.\n3. Along this same line of reasoning. but from A somewhat broeder point\nof view, our economy as a whole today needs productive carital eouin\nment of the type calculated to increase its productive ficlency\nmore then it needs public works. From the suring of 1936 to the autum\nof 1937 our economy was subjected to a sharr cut in average hours worked\nand to an extraordinarily rapid rise in real labor costs, more rapid,\nas subsequent events have shown, than it could absorb without serious\nreaction. In some CASER, notably the railroads, I feel that a direct\nreduction of these costs will prove inevitable. In others, however,\nit is possible that they may be absorbed through increased technical\nefficiency. Such absorption is certainly the outcome more ideally to\nbe desired. In this particular emergency, consequently, it is supremely\nimportant that our huge army of unemployed be given productive employ-\nment in so far as possible along lines that will make a maximum contri-\nbution to an increase in the productive efficiency of our economy as a\nwhole. This meane that mensures adopted to combat the current deprès-\nsion should place their major reliance unon policies, for example,\nsuch R.S. would facilitate the opening of the canital markets to equity\nfinancing, or make more available productive loans to industry, on the\none hand, and only minor reliance upon projects such R.B. public works.\nIt is true that both of the above elements are contained in the new\nprogram recently announced. I feel, however, that the willic works\nangle is over-stressed in that program. Because it offers less diffi-\nculties in execution, the chances are that it will be even more over-\nstressed in the final result.\nI feel that the desterlisation of all of the inactive cold and the\nsimultaneous drovoing of member bank reserve requirements has nonin\nproduced an unmanageably and unnecessarily large volume of excess TP-\nserves. If the emerience of the sering of 1937 taught anything, it\nwas the danger of permitting excess reserves to become 80 large that\nthe Treasury and the Federal Reserve Board combined, after the most\nserious consideration, were completely unable to where then with\nfinesse. Nobody intended to exert & restrictive pressure on the\ncredit situation last service The intention, ruther. to alisorb n.\nRegraded Uclassified\nsufficient amount of the unduly large volume of excess reserves then\nexisting to put the authorities in B. position to manage the credit\nsituation without major chock, should conditions warrant. Instead,\nthe action actually taken produced severe pressures that had not been\ncontemplated or desired by any of those who participated in the action.\nIt would seem to me the height of windom to avoid falling again into\nthe same pitfall. In BO far as the current credit situation is con-\ncerned, the present huge increase in excess reserves was not necessary\nto produce expansion. A fundamental approach to the railroad problem\nthat removed the deflating effect of the current panic in the railroad\nbond market would be fully as effective in the immediate juncture as\nan additional two billions of excess reserves, and much more effective\nin the long run, since it would not leave us in a future position\nwhich experience has already shown we may have the courage to attack\nbut not the finesse to manage.\nWR\n&pril 21, 1938\nRegraded Uclassified\n274\nApril 29, 1938\nMy dear Jakes\nI have postponed acknowledging receipt\nof your letter of resignation of April 14th\nbecause I found it no difficult to answer.\nYou and I have gone through & most try-\ning period in the country's history and I had\nhoped that you would stand by se as long as I\nremained in the Treasury. People with your\ntraining and qualifications in international\nfinance are extremely rare in the United States\nand, quite frankly, I don't know how I will go\nabout replacing you.\n1 want to take this opportunity to thank\nyou from the bottom of my heart for the loyal\nsupport you have given me while acting as Ad-\nvisor to the Treasury and I hope that we will\nmeet again some day and travel the same road\nside by side.\nwith deep regret I accept your resigna -\ntion.\nSincerely yours,\n(Signed) EL Morgenthau, Jr.\nDr. Jacob Viner,\n5554 Kenwood Avenue,\nChicago, Illinois.\nRegraded Uclassified\n275\nCOPY\nSECRETARY'S OFFICE - OFFICIAL\nAPRIL 28, 1938\nDR JACOB VINER\n5554 KENWOOD AVENUE\nCHICAGO ILLINOIS\nPLEASE ACCEPT MY APOLOGY FOR NOT ANSWERING YOUR LETTER\nDUE TO MY BEING SNOWED UNDER WITH WORK STOP YOU WILL HEAR\nFROM ME WITHIN THE NEXT TWENTY FOUR HOURS BEST REGARDS\nHENRY MORGENTHAU JR\nRegraded\nTREASURY DEPARTMENT\nWashington.\nMy dear Mr. Secretary:\nIt is with the deepest regret and distress that\nI find myself impelled to submit to you my resignation\nas a member of the Treasury staff to take effect in-\nmediately.\nThe opportunity which you have given me to work\nwith you has been for me L great privilege, one which I\nshall cherich for the rest of my life. I have watched\nwith growing admiration your steadfast and uncompromis-\ning devotion to the country's interests as you saw them,\nand, as you know, there has been close agreement between\nus on questions of major policy. I have for a long time,\nhowever, had serious missivings as to aspects of the\nAdministration's financial _nd economic policies which\nhave not been under your control, and what I have just\nlearned as to the financial program of the President for\nthe coming fiscal year convinces me that these misgivings\nwere more than justified.\nI believe that heavy deficit spending, at this\ntime, if unaccompanied by genuine and courageous effort\nto eliminate the factors which made our recovery only a\nhalting and incomplete one, and which now have forced us\ninto a renewal of severe depression, and if unaccompanied\nalso by willingness on the part of the President to\nacknowledge the existence and importance of these factors,\nwill involve serious dungers for the political L.S well us\nthe economic health of our democracy.\nUnder the circumstances I see no reason to believe\nthat my continuance as di member of your staff would be of\ngenuine service to you or to the country. I, therefore,\nhereby tender you my resignation to tike effect to-day.\nVery sincerely,\nHonorable Henry Morgenthau, Jr.\nSecretary of the Treasury,\ngoods JacobViner April\n14, 1938\nWashington, L. C.\nRegraded Uclassified\n277\nApril 29, 1938.\nMEMORANDUM FOR DR. PEIS:\nThis morning the Bear tary of the Treasury, the\nActing Director of the Budget and I oslled on Mr. Robert\nDoughton, Chairman of the Ways and Meens Committee, and\nMeasrs. Vinson and Cooper. Among other things, the Secre-\ntery discussed the possibility and desirability of the\nBays and Means Committee holding hearings on the debt\nsettlement offer shich had been submitted to Congress by\nthe President in his message of March 28, 1938.\nThe three members of the Consittee were unealmous\nin their opinion that it sould be insuvisable to hold\nhearings at this seasion of Congress and recommended that\nthe President, the Secretary of State and the Secretary\nof the Treasury arrange to have & meeting with the party\nleaders 10 both the Sense and the House with to view of\nthoroughly discussing the situstion, its political\nimplications, precedents which might be established, etc.\nThe Chairmen and the Members of the Bays and Heans Cox -\naittee caid they would hold themselves in realiness for\nsuch a discussion but would take no further steps toward\nholding n hearing until such 3. meeting had been hold.\nWayne Tay\nRegraded Uclassified\nNew m Snock This decided abur\n278\nApril 29, 1958.\n-\ntab\nMr. Bhard Six Greenbaum,\n285 Madison Avenue,\nNew York, I. T.\nDear Eddies\nIn response to your telephone request, I an writing to give you\n- information en the criticism of Secretary Morgenthau and the\nTreasury Department contained in Arthur Krock's column in the Nov York\nTimes of this day.\nAbout & third of the column consists of generalities. The No\nmainder is e criticism of the Treasury's attitude in the matter of\njeeparty assessments, especially its reported opposition to an amend-\nment permitting retroactive review of jeopardy assesments new out-\nstanding. In the fore part of his article Mr. Krock assorts that\nTreasury practices in collecting taxes are enong the administration atti-\ntudes toward business which \"many persons feel have tended to destroy\nconfidense.\" The adds that Secretary Morgenthau \"takes personal responsi-\nbility\" for the methods followed by the Bureau of Internal Revenue and\nhe notes that the Secretary has publicly invited tempsyers, who believe\nthey have been unjustly treated, to submit their complaints to him,\nand has premised to dismiss any officers guilty of of -\npayers or improper dealings with them, but, has allo, complaints embluee\nto be heard that the Treasury 1a \"destructive and unfair.\"\nRegraded Uclassified\nPARK 279\nRegraded Uclassified\n- 2 -\nIt is guite true that the Secretary has invited taxpayers who\nbelieve themselves to be unjustly treated to submit their claims to\nhim. Be has done 60 repeatedly. In doing 60 be has not assumed any\nresponsibility that the lew and his oath of office did not already 1\npose upon him, but he has by this offer given evidence of his desire to\nperform his duties fairly and conseientiously. Be has asked the ocoper-\nation of taxpayers. Be has welcomed specific critisism. the has\nrecognised that taxpayers can be generally helpful in the correction of\nadministrative abuses if they will report to him instances of \"high-\nhandedness, inconsideratemess and often insulting demeanors in going\nabout their collections\" of which Mr. Krook says he has heard. Obviously\nthe Secretary can not deal with instances of this sort unless he knows\nabout them. Where he has had evidence of this sort, he has taken prompt\naction. One such complaint that came to the personal attention of the\nSecretary resulted in breaking up & ring of tax racksteers and sending\nan employee of the Bureau of Internal Revenue and his outside associates\nto the penitentiary.\nIt should be equally obvious that the sort of vague, general\ncharges which Mr. Krock retails in his article are somewhat less than\n/\nhelpful in reforming tax practices. Instead they are meraly a libel\nagainst the great body of loyal, devoted and honest employees of the\nGovernment who are conseientiously endeavoring to do their full duty.\nIt is difficult to understand what Mr. Krock is talking about\nwhen be says complaints of this character \"while not accepted by Mr.\n280\n- 3 -\nMorganthan and his aides are fully audible to them.\" If be is speak-\nInc of complaints of the character which he is uttering, they are of\ncourse audible but they tell nothing. The Secretary has never reseived\na complaint that be has not accepted and investigated thoroughly when\nany basis me afforded for investigation, which neens, when specific\ncharges were mde or facts stated that could be investigated, The\nTreasury is not unomacious of the fact that there are many complaints\nagainst Treasury agents, their actions or conversations, which, for\none reason or another, the complainants do not choose to present formally\nto the Secretary, or to the Bureau of Internal Revenue. The Treasury\nalso knows by examination of its records that the Adudest and most\nfrequent complaints are uttered by those whose cases have no nerits\nwhatever and who in most instances are the most persistent tax chiselers.\n10 is realized also in the Treasury Department that no tax law\nis popular and the law end its administration nearly always become ⑉\npecially unpopular with the nen who have been persistently under-stating\ntheir tax liability and eventually meet a day of reckoning.\nDut se far as Mr. Krook's article is specific it does not relate\nst all to cases of high-handedness or insulting demanner of agents of\nthe Treasury Department. It relates instead to the attitude of the De-\npartment toward jeopardy assessments. Mr. Krock admits that this is\na highly technical netter; therefore, be may have rade - \"unintentional\nerrers\" in talking about it. He may also have committed an unintentional\norrer by failing to examine carefully into the source of the attitude\nRegraded Uclassified\n281\n- 4 -\nbe is expressing. The Treasury, be says correctly, objected to\nwriting into the law a provision that jeopardy assesments now out-\nstanding could be reconsidered by the Comissioner and abated. The\nTreasury's position was not solely that this provision would impose\nan undus burden on the Commissioner of Internal Revenue by compelling\nhim to resonsider all outstanding jeopardy assessments, but also that\nrelief of this kind was unnecessary since there had been no substantial\ndemand for 1t. The entire agitation in favor of this proposal, 00\nfor as it has - to the Treasury's attention, originated with just\n- large taxpayer, the Associated Gas and Electric Company, and its\nattorneys. It is perhaps a pure coincidence, or an unintentional\nerror on Mr. Krook's part, that the latter two-thirds of his column\nreads M if it were a brief written by the attorneys of the Associated\nGas and Electric Company.\nIn the year 1936 the Bureen exercised its authority to lovy\njespardy assessments in 1,409 cases and the total amount of the assect-\nments VIAS something over eightymeight millions of dollars) but of this\neighty-eight milliams, fifty-four millions was assessed against the\nAssociated Gas and Electric. The remaining thirty-four millions -\nassessed against 1,408 taxpayers, In no other - year since Junuary,\n1935, has the amount of jespardy assessments in any year exessed\ntreaty-three milliom dollars; certainly not as impressive amount when\nsensidered in connection with the two billions or mm of revenue\nproduced by the income tax statutes annually.\nRegraded Uclassified\n282\n- 5 -\nThe jeopardy assossment 1a, as Mr. Krook states, a provision in\ntended to protect Government revenues. It is used sparingly by the\nDureen and only in those instances where it appears unequivesally that\nthere is roal and probable danger that the assets of a tax delinguest\nwill cocops before the Government can mis sollection under other forms\nof procedure. Those cases are insolvency or action on the part of a\ntexpayer which appears to indicate & purpose to sequester or dispose\nof his properties in order to defeat the Government's efforts to collect\ntaxas. the vast majority of assessments of this type have been against\nbeotleggers, illicit distillers, gamblers and other individuals of this\ntype. Cases of jeopardy assessments against legitimate business enter-\nprises are run indeed when the whole emount of jeopardy accossments is\nequaldered.\nOne of m. Kresk's univtentional errors is in assuning that the\ntaxpayer Iss no I of lifting the jeopardy assessment until the 00.00\nhas - through the long prosess of hearing and decision by the Board\nof far Appeals. The fast is that a solvent taxpayer can have his\njespardy assessment lifted at any time by a conference with officers\nof the Bureen, in which he lays his cards on the table and furnishes\nassurance that be will pay the amount of the tax which be lawfully\n- the Occurrement. In the sace of the taxpayer mustimal above,\nagainst de - assessment of fifty-four million dollars is outstanding,\nthe case which has furnished the sole basis for the agitation in favor\nof change in the - the Buyeau has employed the time of approximately\nUclassified\n283\nRegraded Uclassified\n- 6 -\n- hundred revenue agents for - entire year in an effort to determine\nthe correct tax liability and there continues upon the assignment a\nlarge group of representatives of the Bureen and of the Office of the\nChief Coursel, whose in working out the true liability met\ndepend in large neasure upon the cooperation it receives from the tax-\npayer and his sounsel. This particular corporate taxpayer has already\nagreed to and has paid taxes in addition to those reported in & total\n- of more than four million dollars.\nThe extent of the response to the Secretary's request that 0 00\nplaints be submitted to him would - to have some bearing on the\nmatter of high-handed and oppressive action by agents of the Treasury.\nLess than fifty complaints were received. Every one of than was care-\nfully investigated. There nomed to be some merit in half a dosen of\nthem. In the remainder the action of the Treasury's representatives\nwas that required by the statutes. In one asse the taxpayer, an elderly\nwoman, we found to have been paying more taxes than she should. The\nfault vas originally here, in failing to report depreciation on her\nproperty, but those who emained her returns were found to have been\nnegligent in failing to advise her that she should be taking the de-\npreciation the lew permitted. They were reprimended. In m case vas\nthere found sufficient eulpability an the part of any employee of the\nTreasury Department to merit dismissal. Considered in connection\nwith the fast that DE loss than 500,000 tax adjustments are made in\nthe course of & single year, it must be concluded that there is not as\n284\n- 7 -\nmush fire as there is make behind the charges of high-handed revenue\nagents and disregard of the interests of the taxpayer.\nBut the decire of the Secretary of the Treasury to give all\ntaxpayers prospt, fair and courteous treatment has not been limited\nto the passive attitude of receiving complaints and - -\nGreat progress has been made in speeding up the disposition of tax\ncases. Continued studies have been carried en as to improved -\nfor giving all taxpayers with tax questions to adjust prompt, -\n1ent and Lanexpensive hearing. The authority of field agents has\nbeen increased in several districts and in one district, Los Angeles,\nCalifornia, there has been set up a complete branch of the Bureen &\nInternal Sevenue, equipped to bring to the taxpayer in his have die-\ntrict all the machinery of the Bureau and to carry his case right up\nto the point of the hearing of an appeal by the Board of Tax Appeals,\nif the case should 80 so far.\nThe Secretary has not withdrawn his offer to give careful\ncommination to say are where there is complaint of injustice. If\ncrities of the Bureen and the Treasury Department really wish to be\nhelpful in inproving tax sollection methods they will give the Bee-\nretary the benefit of my specific knowledge that they my peasess\nof injustice to texpayers and will advise their friends and their\nreaders to do the - instead of giving voice to criticisms which\nby their very nature - be of no value and only to thurder\nRegraded Uclassified\n285\n- 8 -\nundeserved odium upon tax collecting efficers and thus to increase\nthe difficulty of their work.\nVery truly yours,\nHerbert E. Gaston\nAssistant to the Secretary.\nIn The Nation\nNew Deal Methods 286 of Tax\nCollection 29 1938\n& ARTITUM SPOCE\nWARMHOTON April Mi-Amang\n- - -\n- - may - bin\nI 5 Diver I $ 1\n- Themosy produce - inlasting\ninsure Thrus Animary Margative\nfalions plental represently for the\nof the Remune\nTAIL - Ma pullicity - to\nany sites pay of -\n- - - If the famile -\nrepursed la Man, - \"\n- but last the Transity . desirio-\nthe 4AD -\nThem - - - anneysed\nin Mr. MM Me -\nhilly authie a them, M arrord -\nis the Receivery I\nBefore the Andemy of Policial\n- in November, Mr. Mary\ngivilles set - - - M\nthe tax equilably -\nis - the invise VICA - - -\n- - punille - the rela-payers.\nThe filewing - - - -\n| is investigata personally MY\ncharge and take delivery\nThis - - - -\nwhat committies tax resilied -\nthat pindge. - to - - -\nwritting and epilion restinizing at many\n- - abo - 1 reputa-\nthat Transury Aganta - -\ncharged wills -\nallimations and - means be\n- in - - Their -\n- This medical - this attitude\nand min ingurtate - with -\n- government agencia - in -\nMill that promints the that Die\nadministration M - insperative will\n-\n.\n1 - - pay\n- - - cultured targarent\nDAN - fational - by the -\n- - -\nThérrien 4d: The afterna visi MT\nnational Dollar\nDe mature -\nof Internal Receive - the per\n- - - - Class line. -\ndistorate - DM alenta at age -\ntime and treater la se Ben at the\nmay de - Igini the - - of\n. tall is Wyo the\nIMMIT - a and du - -\npaintes - = The -\n- \" to protect governized -\n- and Its - with a Le the\nTimesry's position VIAL - & Imparty\n- tax - the Duimle-\ndain - MIT. within .\nmaily the state additional\nThe Passe Committee del\nall M - the - by -\n- authorizing the Commisser -\nstate - - or any -\nLimit be la estant Be later\n- \" - numbers. It address an\nunigning which the\n- - - propertionslely result\n- the - requirity at -\nTreasury's belance their unite in az-\nother - This - - the\n- of the Commission - prom\nMA? party - mede - M\nthe attentive MM of - Designation-\nVarines ML\nThe said - - bur-\nis wast BUT nn Due Commissioner\n- the - This\nImplies that - isonge - at -\nname MIP restanding. with -\nIMP il - mist - The - -\npers for - -\neval with - Even M Due -\n- - be - - the M\n- - - noved \"\nPlant of the Taxpayer\nAll of - - as-\npaym. prem atter - mini memore w\nwill - Quantity 5 this el-\nsalem) They DATE - west the\nemailer . - The -\n- SAA rejunted . - wind a\nadding - larger than Line -\npayer 14 and - DATE Besert to lbs\nBeard of Two Applials - for tead is\n- Are - the -\nand - - NEW - compliated\nthat - - tefore they an\nready fur crisi - - maria The\ntaspicyer's - - . de\nat - qualition - a -\n- afferied. The Commissioner\nesto - propose . entited and if\nthe Suppayer - of will - and\n- the . - - -\n4 to - - of the - MA -\nsummer - - w/se the Date\n- was Beil - dent\nThat - - - 19 - etair .\n- - signature -\n- - - e -\n- - at - to ested un - #\nMy - yisign of No.\n- LAST is - sp. of that -\n- - expedied the -\n- 14. RATE - the -\nattend to the - Frank -\nAM TM report - of\n- - - and el . -\n- to - - - of -\n-\n- If - - MI -\n- - - - - a - is -\npoun, - - - the\nof - - -\n- - - un - -\nthe as painty a quit a\nssif\n287\nApril 29. 1938\nMINORANDOM FOR THE PRESIDENT:\nPurcuant to your request, I - submitting & statement of the\nobjections to the corporation tax and to the tax on capital gains,\nas contained in the Revenue Bill of 1938.\nRM100\nThe Secretary and Mr. Magill took the original of this\nstatement to the White House conference 4/29/38- 9:20 A.M.\nand left it with the President.\nRegraded Uclassified\nMildraft 1/28/38 (Final)\n# 288\nRegraded Uclassified\nin w meezage of April 20, 1937, I waggested that Gengrase should\nundertake \"a careful survey of the present tax structure* for the -\nposs of slocing roch leepholes M wight exist in the reverne laws and\nof maintaining w improving their reverme-producing power. A others-\nsittee of the Committee on Wagre and Means began its work on revenue 10-\nvision last November and the subject has been given close attention w\nthe appropriate congressional consittees and w the Congress orer since.\nthe Revenue Mill of 1938 10 the result.\nIt 10 cosential that the revenue-producing power of the tax stree-\ntare be maintained. It 10 entirely possible to do this, and at the\n- time to correct existing proven insquities. Consequently, too nain\ntests should be applied to the present wills (1) will it preduce nt\nstentially as sub TOTOGRA at the existing laws and (2) is the tax by\nden mare justly distributed under the ser bill than under the existing\nlaw?\nThe present law val outimated to produce $5,330 million of internal\nrevenue for the ficeal year 1939. M the name levels of business nativ-\nity the Revenue DALL of 1935 is estimated to produce $5,266 million of\ninternal reverse.\nthe new corporation tax itself will produce about $30 million nore\nthen the existing 100, but much more than this ament of the mil-\nlica, will be lest in individual surtaxes due to deareased dividend de-\ntributions. the privilege granted to corporations to reteslere the value\nof their capital stock is cotimated to met $13 million. Other steesl-\nlaneons aljustments favorable to corporations will .... $13 million 5070,\n- I -\n289\nM compared to existing 1m. the MV treatment of capital gains and\nleases will cost the Treasury around $8 million - this in a year in\nwhich stock market transactions are at a statum. The repeals of every\nexcise tasse are in part offect w M increase in the tax an distilled\nspirite, bet the not loss to the Treasury is approximately $12 million.\nThus, the MII as a whole will produce perhaps 065 million less than the\nexisting internal revenue laws at current levels of business activity.\nIn years of normal business activity the bill 10 estimated to produce from\n$100 million to $230 million loss than the existing revenue eyetem.\nThe Mill maines s large number of changes in the revenue laws, may\nof which are wholly meritorious and come of which are open to serious\nquestion. The to changes to which met attention has been dram are the\nw the corporation taxes and to thetax on capital gains. I\nhave previously pointed out that fondamental principles of taxaties are\ninvolved is both cases,\nThe Federal Government has always taxed capital gaine since the\nintroduction of the codern income tax in 1913. The Supreme Court has\nmay times approved the taxation of such profits on legal grounds. During\nthe first nine years of the Income tax, capital gains ware taxed is exactly\nthe same my as other Income from salariss, from dividends, of from 10-\ntorest. In 1921 a new nothed for texing expital gains use adopted, whereby\nthese profite at the option of the taxpayer vers subjected to a flat rate\nof 12) pareent, although incomes from other were was still subjected\nto progressive suptakes ranging up to 50 percent. This nethod of taxation\nm saintained for a little over a decade - a desade marked 1987 its close\nw the greatest speculative activity in the stock nerket which the country\n- 3 -\n290\nhas 0712 In 1934, after schemative staty by congressional -\nmitteen, 11 M desided that 11 MM unfair to give capital online the\npreferential treatment of a flat rate tax, so long as Income from other\nmore - subjected to progressive surtaxes. Consequently, a plan the\natopted shareby the rate of tax on capital gains depended upon the tap-\npayer's other Income end the length of time be had held the property w\nfors the sale. In this my profite realised on sales of property vare to\na considerable extent, though not fully, subjected to the processive no-\ntaxes applicable to the wages of cepital received in the form of dividents\nor interest.\nThe present MII atendens this plan as applied to profits as sales\nof preyerty hold over too years in favor of a return to the plan in foree\nduring the 20's. There are some modifications of that plan, the principal\nones being that the flat rate of the tax on these profits is to be 15 per\neast instend of 12/ percents and & somethat more liberal treatment is\ngranted to espital gains realized by taxpayers with small incomes.\nProgressive wartex rates have been an accepted part of our income\ntax eystem free the beginning. It has always been thought that the -\nwith all income of $100,000 should pay taxes at a higher rate than a -\nwith an tasse of $10,000 If $2,000. It is firaly established in this\ncountry that profite free sales of property are income. The tar laws my\nproperly take into associat the fast that these profite my have account\nover several years' time and hance my be entitled to someshed Lesser\nprogressive rates of tax then those applied to income with has assured\nin & single year. Dut there is small justification for cheltering espital\ngains under a flat rate of tax of 15 percent when exrued Incomer wat 100\n- in other forms from the use of expital are subjected to progressive\n- 4 .\n291\ncertes rates reaging free 20 to 75 percent.\nRegraded Uclassified\n4, for example, invests in stocks at bonde which rield Ma a\nsurter not Income of $75,000. Re Federal income tax is $20,038. 3 18-\nvoste in stocks and bonds which yield his a vertaz net income of $50,000\nand he selle other securities, held for over too years, at a profit of\n$25,000 additional. His Federal income tax is $13,438, or one-third less\nthat A's. Norosver, If 3's profits from selling securities are a million\ndollars instead of $25,000, the tax rate would still be 15 percent. It\nis not equitable to discriminate is this way between different forms of\napply progressive rates to come kinds of Income and mt\nupply them to other kinds. If taxes are to be reduced, they should be\nreduced evenly.\nIn w Julguar, the proposed reduction in the taxes on profite from\nsale of property is rather an encouragement to speculation in stocks and\nin commodities, than M incentive to nov investment in needed business\nnotivities. Indeed, we know that approximately 85 persent of all capital\ngains AFC produced by transactions on the stock unrket.\nI have not referred to the details of the proposed treatment of\nempital leases OF of short-term guins or losses. In some respects the\nnow treatment le an improvement, but in its najor aeports the proposed\nplan is a return to a discredited method which violates fundamental prin-\nciples of progressive income teration.\nThe bill very properly lightens the tax burden of the small corpora-\ntion, as I recomended last Sevember. In the case of corporations with\nincome in excess of $25,000. the bill procerves a skred of the undir-\ntributed profite tax, but Largely deprives 10 of my revenue effect. The\n- 5 -\n292\nprinciple of the undistributed profite tax has been widely diseased\nbut generally misundersteed. The basic reason for 11 is simple and\nplain. If & corporation distributes dividends. its stockholders pay\nnormal taxes and surtaxes therean. If the corporation retains the money,\nits individual stockholders pay no taxes on the accumulations however\nmach their realth MAT increase. Many a corporation controlled w realthy\nstockholders regularly accumlated the greater part of its earnings hering\nthe 20's and than freed them from the taxes which would have been payable\nhad the profits been distributed.\nThe great reduction in the tax on large capital gains and the similar\ngreat reduction is tax on undistributed corporate carnings combine to\naffort the strongest tax incentive for the accumulation of corporation\nsaraings. 4a I have already indicated. it 10 estimated that the Treasury's\nreceipts from surtaxes on dividends will decrease from als to $200 million\nas a result of this MII, due to changes in the corporate policy of divi-\ndend distribution. the surtaxes will decrease because the individual\nshareholders will receive very such smaller incomes from their investments\nis corporate stocks that has been the case during the lest few years. I\n- meet concerned, however, with the fast that retained corporate earnings\nvill again be granted tax preference over distributed corporate carnings:\nand that w the case taken, inscrporated enterprises will receive a far\nadvantage over enterprises monducted by individuals or w partners. the\nretention is the MII of the undistributed profits tax principle is salu-\ntary, but 11 is regrettable that the tax itself has been reduced to s\nshakew.\nFisally, 11 10 unfortmete that Congress are not ⑉ fit to accept\nthe opportunity of simplifying the estate tax and of increasing its yield.\n- 6 -\n293\nMany of the administrative changes in the bill are Improvements\nover the present 10m. the prevision for destaratory valings in tax\n@@@@@ and for adjustments to provent double deductions or deable -\ntion in income tax ..... are important advances. Finally, the repeal\nof come of the less decirable taxes to a start in the right\ndirection, although it 10 unfortunate that the lost revenue vid not\nnade up in other places.\nIn general, then, the chief virtue of the Mil is that 19 reserves\nevery conselvable ann for criticies, on the grounds, of hardship of the\nundistributed profits tax and the tax on espital gains. No cas - pos-\nsitiy my that its provisions on these points will check the exployment\nof capital. In w for as the relief applies to small Vusiness conserns,\n11 is especially meritorious. The serious question is whether the 74-\nlief does not - se far, is the case of large corporations sat large in-\nvestors, that - under turden of making up the lost revenue will seces-\nearily be imposed on all other texpayers.\nSecond draft-4/28/38-\nRegraded Uclassified\nTREASURY DEPARTMENT\n294\nINTER OFFICE COMMUNICATION\nDATE April 29, 1938\nto\nSecretary Morgenthau\nFROM\nMr. Haas\nSubject: Current United States Trade with Japan and China\n(Preliminary data)\nA. United States trade 'with Japan during the first two weeks\nof April 1938.\n1. United States exports to Japan increased 35 percent\nin the first two weeks of April 1938 8.8 compared with the\nsame period in March 1938, and were 71 percent greater\nthan in February 1938.\n2. Exports of raw cotton increased $1,595,000 or 95 per-\ncent over the first two weeks of March 1938. Exports of\npetroleum, iron and steel manufactures, copper, and hides\nand skins increased markedly over the same period of March\n1938.\n3. United States imports from Japan decreased 8 percent\nin the first two weeks of April 1938 as compared with the\nsame period of March and February 1938 and were 43 percent\nless than in the first two weeks of January 1938.\n4. The decrease of $139,000 in imports of raw silk ao-\ncounted for almost half the decrease; other items showing\ndecreases were pyrethrum flowers, hats and hat materials,\nand nonmetallic mineral products, such as glassware, atone-\nware, porcelain, and chinaware.\nB. United States trade with China during the first two weeks of\nAoril 1938.\n1. United States exports to China and Manchuria increased\n5 percent in the first two weeks of April 1938 as compared\nwith the same period of March 1938.\n2. United States imports from China and Manchuria increased\n23 percent in the first two weeks of April 1938 88 compared\nwith the first two weeks of March 1938.\n295\nSecretary Morgenthau - 2\n3. Statistics showing United States trade with North\nChina and Manchuria and South China and Hong Kong are\nattached at the end of this report. This grouping of\nthe trade figures will be discontinued at the end of\nApril in favor of the new classification as outlined\nbelow.\nC. United States trade with China has been reclassified in\nApril 1938 to determine the extent of:\n1, United States trade with Chinese-controlled areas.\n2. United States trade with Japanese-controlled areas.\n1. United States trade with Chinese-controlled areas.\nof the sixteen ports and cities in China to which goods are\nmost commonly shipped only six are definitely under Chinese con-\ntrol-Canton, Hankow, Swatow, Amoy, Foochow, and Yunnanfu.\nUnited States exports to these aix ports amounted to\n$141,276 in the first two weeks of April 1938. or only 4.5 per-\ncent of the total exporte to China.\nUnited States imports from these six ports amounted to\n$170,104, or only 11.6 percent of the total imports from China.\n2. United States trade with Japanese-controlled areas.\nSeven ports in China are definitely under Japanese control.\nof these, four--Chefoo, Teingtao, Tientsin, and Pelping are in\nrecently-conquered North China and three-Dairen, Mukden, and\nHarbin are in Manchuokuo.\nUnited States exports to these seven ports amounted to\nfirst two weeks of April. Of these $53,224 were shipped to the\n1,214,502, or 38.7 percent of the total exports to China in the\nNorth China ports end $1,161,278 to the Manchuokuo ports.\nUnited States importe from these seven ports amounted to\n8400,233, or 27. 4 percent of the total imports from China. China of\nports and $145,812 represents imports from the Manchuokuo ports.\nthis amount $254,421 represents imports from the North\nSecretary Morgenthau - 3\n296\n3. United States trade with Shanghai, Nanking, and Hong\nKong.\nShanghai and Nanking are now under Japanese control, but\nit is by no means clear that goods shipped to these cities are\nactually destined for them because\n1. Many Shanghai firms have moved to Chinese cities,\nparticularly Hankow, Yunnanfu, and Hong Kong, but their orders\nAre still filled to Shanghai via European porte (where they re-\ndelve changed orders for delivery) or via Hong Kong.\n2. Goode labelled \"Nanking\" may be either for the\nformer Chinese Government or for the newer Japanese-puppet\nGovernment at Nanking. At present, it 1s impossible to deter-\nmine whether these goods actually reach Nanking,\nHong Kong 18 still a free port. Although it le presumed\nthat the majority of Hong Kong trade 16 with Chinese-controlled\nareas, it is nevertheless rumored that Japanese coastal vessels\nare now picking up goods at Hong Kong for transshipment to\nShanghai and northern ports.\nUnited States exports to Shanghai and Nanking amounted to\n1,253,070, or 40 percent of the total exports to China in the\nfirst two weeks of April 1938.\nUnited States imports from Shanghat and Nanking amounted\nto $241,186, or 16.5 percent of the total importe from China in\nthe first two weeks of April 1938.\nUnited States exports to Hong Kong amounted to $492,831, or\n15.7 percent of the total exports, and United States imports\nfrom Hong Kong amounted to $230,301, or 15.8 percent of the total\nimports during the first two weeks of April.\n4. United States trade with unclassified Chinese ports and\ncities.\nExports and imports are frequently labelled simply \"China.\"\nIt is impossible to determine whether this trade 18 with\nChinese-controlled areas or with those under Japanese control,\nUnclassified exports to China amounted to $34,329 in the\nfirst two weeks of April, or 1.1 percent of the total, and un-\nclassified imports amounted to $419,337, or 28.7 percent of the\ntotal.\nSecretary Morgenthau - 4\n297\nStatistics\nA. Current Trade with Japan (Preliminary Data).\nI. United States Exports to Japan - Total Value\nFirst two weeks of\nApril 1938\n$10,463,000\nMarch 1938\n7,727,000\nFebruary 1938\n6,112,000\nJanuary 1938\n6,485,000\nDecember 1937\n6,912,000\nNovember 1937\n5,993,000\nIL\nUnited States Exports to Japan by Commodities\nCommodities\nFirst two weeks of -\nshowing increases:\nApril 1938\nMarch 1938\nFebruary 1938\nCotton, unmanufactured\n$3,276,000\n$1,681,000\n$1,116,000\nPetroleum and products\n2,402,000\n1,397,000\n547,000\nIron, steel and\nmanufactures\n1,905,000\n1,266,000\n1,173,000\nCopper and manufactures\n1,158,000\n52,000\n214,000\nHides and skins, raw\n331,000\n83,000\n60,000\nCommodities\nshowing decreases:\nAutomobiles, parts\nand accessories\n410,000\n597,000\n494,000\nChemicals and related\nproducts\n228,000\n251,000\n300,000\nIndustrial machinery\n211,000\n1,505,000\n985,000\nPaper base stocks\n99,000\n622,000\n201,000\nAircraft and parts\n45,000\n77,000\n128,000\nTotal\n$10,065,000-96%\n$7,531,000-98%\n$5,218,000-85%\nAll other\n398,000- 4%\n196,000- 2%\n894,000-15%\nGrand total\n$10,463,000\n$7,727,000\n$6,112,000\nIII. United States Imports from Japan - Total Value\nFirst two weeks of\nApril 1938\n$3,564,000\nMarch 1938\n3,883,000\nFebruary 1938\n3,880,000\nJanuary 1938\n6,218,000\nDecember 1937\n5,565,000\nNovember 1937\n6,893,000\nSecretary Morgenthau - 5\n298\nIV. United States Imports from Japan by Commodities\nCommodities\nshowing increases:\nApril 1938\nMarch 1938\nFebruary 1938\nCotton manufactures\n$ 128,000\nFish and fish\ns 102,000\n$ 323,000\nproducts\n107,000\nWood, paper, and\n84,000\n45,000\nmanufactures\n78,000\nFurs and manu-\n45,000\n57,000\nfactures\n65,000\nFertilizer and fer-\n60,000\n14,000\ntilizer materials\n52,000\nnil\n1,000\nCommodities\nshowing decreases:\nSilk, unmanufactured\n2,410,000\nChemicals and re-\n2,549,000\n2,468,000\nlated products\n101,000\n103,000\nVegetable products,\n88,000\nedible\n92,000\n101,000\nNonmetallic mineral\n74,000\nproducts\n86,000\n126,000\nSilk manufactures\n162,000\n77,000\n84,000\nFish scrap and fish\n29,000\nmeal\n62,000\n75,000\n3,000\nPyrethrum flowers\n34,000\n66,000\n52,000\nHate and hat materials\n26,000\n134,000\n87,000\nTotal\n$3,318,000-93%\n$3,529,000-91%\n$3,403,000-88%\nAll other\n246,000- 7%\n354,000- 9%\n477,000-12%\nGrand total\n$3,564,000\n$3,883,000\n$3,880,000\nB. Current Trade with China (Preliminary Data).\nI. United States Exports to China - Total Value\nFirst two weeks of\nTotal\nApril 1938\n$3,136,000\nMarch 1938\n2,993,000\nFebruary 1938\n2,399,000\nJanuary 1938\n3,230,000\nDecember 1937\n3,131,000\nWhole month of April\n1937\n$6,990,000\nRegraded Uclassified\n- 299\nSecretary Morgenthau - 6\nTable II. United States Exports to China by Ports\n:\nValue\n:\nPercent\n:\n:\nof total\nExports to Chinese ports:\nCanton, Hankow, Swatow\nFoochow, Amoy, Yunnanfu\n$141,276\n4.5\nExports to Japanese-controlled ports:\nChefoo, Tsingtao, Tientsin, Peiping\n53,224\n1.7\nDairen, Mukden, Harbin\n1,161,278\n37.0\nSubtotal\n1,214,502\n38.7\nExports to doubtful ports (ultimate\ngoods - destination unknown):\nHong Kong\n492,831\n15.7\nShanghai\n642,419\n20.5\nNanking\n610,651\n19.5\nChina - misc.\n34,329\n1.1\nSubtotal\n1,780,230\n56.8\nTotal\n$3,136,008\n100 %\nRegraded Uclassified\nTable III. United States Exports to China by Ports and Principal Commodities\n:\nChinese:\nJapanese Ports\n:\n:\n:\n:\n:\nCommodity\n:\nports\n1/:\nNorth\nManchukuo\nHong Kong : Shanghai : Nanking : China-misc. : Total\n:\n: China 2/:\n:\n:\n:\n:\n:\nAircraft and parts\n$130,210 $\n- $\n-\n$ 35,875\n$\n- $ 10,344$\n-\n$176,429\nAutomobiles, parts and\naccessories\n220\n19,511\n245,163\n107,672\n76,443\n-\n-\n449,009\nCopper and manufactures\n-\n-\n-\n43,005\n-\n-\n-\n43,005\nSecretary Morgenthau -\nCotton, unmanufactured\n-\n-\n352,962\n-\n135,748\n- 19,952\n508,662\nElectrical machinery\nand apparatus\n1\n9,729\n-\n15,866\n19,468\n-\n921\n45,984\nFirearms and ammunition\n10,231\n-\n-\n-\n- 600,307\n-\n610,538\nIndustrial machinery\n310\n-\n18,220\n29,104\n2,310\n- 9,628\n59,572\nIron and steel and\nmanufactures\nI\n538\n144,535\n46,012\n9,512\n-\nI\n200,597\nPaper and manufactures\n#\n11,079\n2,000\n35,806\n47,737\n1\n-\n96,622\nPetroleum and products\n-\n2,337\n260,484\n18,988\n17,129\n-\nI\n298,938\nTobacco and manufactures\n-\n1,924\n58,650\n8,372\n216,006\n1\n-\n284,952\nAll Other\n305\n8,106\n79,264\n152,131\n118,066\n- 3,828\n361,700\nTotal\n$141,276\n$53,224\n$1,161,278\n$492,831\n$642,419\n$610,651\n$34,329\n$3,136,008\n1\nCanton, Hankow, Swatow, Foochow, Amoy, Yunnanfu.\n2/\nChefoo, Tsingtao, Tientain, Peiping.\nDairen, Mukden, Harbin.\nRegraded Uclassified\n301\nSecretary Morgenthau - 8\nTable IV. United States Imports from China - Total Value\nFirst two\nweeks of\nTotal\nApril 1938\n$1,461,000\nMarch 1938\n1,183,000\nFebruary 1938\n1,033,000\nJanuary 1938\n2,188,000\nDecember 1937\n2,446,000\nWhole month of April 1937\n$12,173,000\nTable V. United States Imports from China by Ports\n:\nValue\n:\nPercent of\n:\n:\ntotal\nImports from Chinese ports:\nCanton, Hankow, Swatow\nFoochow, Amoy, Yunnanfu\n$170,104\n11.6\nImports from Japanese-controlled\nports:\nChefoo, Tsingtao, Tientsin, Peiping 254,421\n17.4\nDairen, Mukden, Harbin\n145,812\n10.0\nSubtotal\n400,233\n27.4\nImports from doubtful ports (origin\nof goods unknown):\nHong Kong\n230,301\n15.8\nShanghai\n241,186\n16.5\n-\nNanking\n-\n419,337\n28.7\nChina, misc.\n890,824\n61.0\nSubtotal\n$1,461,161\n100 se\nTotal\nUclassified\nTable VI. United States Imports from China by Ports and Principal Commodities 20\n302\n:\nChinese:\nJapanese Ports\n:\n:\n:\n:\nCommodity\n:\nports 1/\n:\nNorth\nManchukuo\nHong Kong : Shanghai : Nanking China-misc.\nTotal\n:\nChina 2/:\n3/\n:\n:\n:\n:\nBristles\n$ 9,949\n$ 46,026\n$ 29,993\n$\n-\n$ 28,381 $\n-\n$ 2,694\n$117,043\nCotton manufacture\n8,347\n4,413\n2,362\n2,568\n34,284\n-\n-\n51,974\nFireworks\n37,898\n-\n-\n38,926\n-\n-\n-\n76,824\nFlax, hemp and ramie\n94,711\n9,373\n-\n5,957\n14,307\n-\n-\n124,348\nSecretary Morgenthau - 9\nFurs and manufactures\n- 31,203\n74,532\n4,796\n42,737\n-\n4,300\n157,568\nHair and manufactures\n- 30,753\n22,091\n15,983\n4,489\n-\n3,504\n76,820\n.\nHats and manufactures\n- 1,677\n-\n-\n53,952\n-\n3,683\n59,312\nTin, ore, etc.\n-\n-\n-\n31,804\n-\nI\n21,930\n53,734\nTung (wood) oil\n4,825\nI\n-\n13,794\n38,568\n- 368,142\n425,329\nVegetable products, edible3,313\n11,831\n1,928\n35,767\n-\n-\n2,270\n55,109\nAll Other\n11,061\n119,145\n14,906\n80,706\n24,468\n-\n12,814\n263,100\nTotal\n$170,104 $254,421 $145,812\n$230,301\n$241,186\n- $419,337\n$1,461,161\n[W[N]\n1\nCanton, Hankow, Swatow, Foochow, Amoy, Yunnanfu.\n2\nChefoo, Tsingtao, Tientsin, Peiping.\nDairen, Mukden, Harbin.\n303\nSecretary Morgenthau - 10\nUnited States Exports to China by Commodities\nPTO)\n(a) To North China and Manchuria\nApril 1938\nMarch 1938\nCotton, unmanufactured\n$ 366,000\n$ 77,000\nAutomobiles, parts and\naccessories\n265,000\n193,000\nPetroleum and products\n263,000\n117,000\nIron, steel and manu-\nfactures\n145,000\n51,000\nTobacco and manufactures\n61,000\n134,000\nTotal\n$1,100,000-90%\n$572,000-78%\nAll other\n125,000-10%\n164,000-22%\nGrand total\n$1,225,000\n$736,000\n(b) To Shanghai, South China and Hong Kong\nApril 1938\nMarch 1938\nFirearms and ammunition\n$ 611,000\n$ 387,000\nTobacco and manufactures\n224,000\n528,000\nAutomobiles, parts and\naccessories\n184,000\n443,000\nAircraft and parts\n176,000\n52,000\nCotton, unmanufactured\n143,000\n26,000\nPaper and manufactures\n86,000\n21,000\nChemicals and related\nproducts\n71,000\n75,000\nVegetable products, edible\n56,000\n32,000\nIron, steel and manufac-\ntures\n56,000\n92,000\nCopper and manufactures\n43,000\n167,000\nIndustrial machinery\n41,000\n30,000\nPetroleum and products\n36,000\n49,000\nTotal\n$1,727,000-90%\n$1,902,000-84%\nAll other\n184,000-10%\n355,000-16%\nGrand total\n$1,911,000\n$2,257,000\n...304\nSecretary Morgenthau - 11\nUnited States Imports from China by Commodities\n(Old Classification)\n(a) From North China and Manchuria\nAnril 1938\nMarch 1938\nTextile fibres and manu-\nfactures\n$161,000\n$ 62,000\nFure and manufactures\n106,000\n78,000\nBristles\n76,000\n5,000\nAnimal products, edible\n25,000\n32,000\nNonmetallic mineral prod-\nuots\n3,000\n55,000\nPerilla oil\nnil\n48,000\nTotal\n$371,000-92%\n$280,000-86%\nAll other\n31,000- 8%\n44,000-14%\nGrand total\n$402,000\n$324,000\n(b) From Shanghai, South China and Hong Kong\nApril 1938\nMarch 1938\nTung (wood) oil\n$ 425,000\n$325,000\nFlax, hemp, ramie and\nmanufactures\n115,000\n74,000\nHate and hat materials\n58,000\n47,000\nTin ore, bars, blocks,\netc.\n54,000\n35,000\nFurs and manufactures\n52,000\n14,000\nBristles\n41,000\n52,000\nVegetable products, edible\n41,000\n82,000\nFireworks\n77,000\n14,000\nTotal\n8 863,000-82%\n$643,000-75%\nAll other\n196,000-18%\n216,000-25%\nGrand total\n$1,059,000\n$859,000\nRegraded Uclassified!\nHOLD FOR RELEASE\nHOLD FOR RELEASE\nHOLD FOR RELEASE\nApril 29, 1938\nCONFIDENTIAL: To be held in STRICT CONFIDENCE\nand no portion, synopsis, or intimation to be\n305\npublished or given out until the READING of the\nPresident's Message has begun in the Senate or\nthe House of Representatives. Extreme care rust\ntherefore he exercised to avoid premature pub-\nlication.\nSTEPHEN EARLY\nSecretary to the President\nTO THE CONGRESS or THE UNITED STATE3:\nUnhappy events abroad have retaught us two simple truths about\nthe liberty of B. democratic people.\nThe first truth is that the liberty of a democracy is not safe\nif the people tolerate the growth of private power to a point where it\nbecomes stronger than their democratic state itself. That, in its essence,\nis Fascism -- ownership of Government by an individual, by a group, or by any\nother controlling private power.\nThe second truth is that the liberty of 8. democracy is not safe\nif its business system does not provide employment and produce and dis-\ntribute goods in such a WAV BG to sustain an acceptable standard of living.\nBoth lessons hit home.\nAmong as today a concentration of private power without equal\nin history is growing.\nThis concentration is scriously impairing the economic effective-\nness of private enterprise as a way of providing employment for labor and\ncapital and as a way of assuring 5. more equitable distribution of income and\nearnings among the people of the nation 00 a whole.\n1. The Growing Concentration of Economic Power\nStatistics of the Bureau of Internal Revenue reveal the following\namazing figures for 1935:\nOwnership of corporate assets:\nor all corporations reporting from every part\nof the nation, one-tenth of 1% of them owned\n52% of the assets of all of them;\nand to clinch the point:\nor all corporations reporting, less than 5%\nof them owned B7% of all the assets of all of\nthem.\nIncome and profite of corporations:\nof all the corporations reporting from every\nourt of the country, one-tenth of 1% of them\nearned 50% of the net income of all of them;\nand to clinch the point:\nof all the manufacturing corporations reporting,\nloss than % of them earned 84% of all the net\nprofits of all of them.\nRegraded Uclassified\nThe statistical history of modern times proves that in times\nof depression concentration of business speeds up. Bigger business then\n301\nhas larger opportunity to grow still bigger at the expense of smaller\ncompetitors who are weakened by financial adversity.\nThe danger of this centralization in a handful of huge corpora-\ntions is not reduced or eliminated, as is sometimes urged, by the wide\npublic distribution of their securities. The mere number of security-\nholders gives little clue to the size of their individual holdings or to\ntheir actual ability to have a voice in the management. In fact the\nconcentration of stock ownership of corporations in the hands of a tiny\nminority of the population matches the concentration of corporate assets.\n1929 was M. banner year for distribution of stock ownership-\nBut in that year\nthree-tenths of 1 per cent of our population\nreceived 78% of the dividends reported by\nindividuals. This has roughly the same effect\nas if, out of every 300 persons in our popula-\ntion, one person received 78 cants out of every\ndollar of corporate dividends while the other\n299 persons divided up the other 22 cents between\nthem.\nThe effect of this concentration is reflected in the distribu-\ntion of national income.\nA recent study by the National Resources Committee shows that\nin 1985-36:\n47% of all American families and single\nindividuals living alone had incomes of less\nthan $1,000 for the year;\nand at the other end of the ladder B. little\nless than 12% of the nation's families\nreceived incomes which in dollars and cents\nreached the same total 85 the incomes of\nthe 47% at the bottom;\nFurthermore, to drive the point home, the Bureau of Internal\nRevenue reports that estate tax returns in 1936, show that:\n33% of the property which was passed by\ninheritance W&S found in only 4% of all the\nreporting estates. (And the figures of con-\ncentration would be far more impressive, if\nwe included all the smaller estates which,\nunder the law, do not have to report.)\nWe believe in G. way of living in which political democracy\nand free private enterprise for profit should serve and protect each\nother - to ensure a maximum of human liberty not for & few but for all.\nIt has been well said that \"The freest government, if it\ncould exist, would not be long acceptable, if the tendency of the\nlows were to create e rapid accumulation of property in few hands,\nand to render the great mass of the population dependent and penniless.\"\n- 3\nToday many Americans ask the unensy question: Is\n307\nthe vociferation that our liberties are in danger justified\nby the facts?\nToday's answer on the part of average non and women\nin every part of the country is far more occurate than it would\nhave been 1:1 1989 -- for the very simple reason that during\nthe part nine years we have been doing a Jot of common sense\nthinking. Their onsver 1s that if there is that danger it comes\nfrom that concentrated orivute economic power which is struggling\n90 ward to muster our democratic government. It will not como\nas some (by no me ns nll) or the possessors of that private power\nwould make the puople Deline -- from our democratic government\nitsulf.\nII\nFilancial Control over Industry.\nEven thise statistics I have cited do not measure\nthe actual 20gree of concentration of control over American\nindustry.\nCicao Financial control, through interlocking sphores\nof influnner car charges of investment, und through the use\nof devised 25 hulding companies and strategic\nminority insurant:, close control of the business\npolicies of envirprions which musquorade 99 independent units,\nTast heary Faur of integrated financial and manage-\nment control 1108 upon 19r3\" and strategic urous of American\nindustry, The smill buriness man 13 unfortunately being driven\ninto a less and Iess independent position in American life.\nYou and I must udmit that.\nPrivate enterprise is cousing to be free enterprise\nand is bucoming a cluster of privato collectivisms: masking\nitself as 1 system of TRUE onterprise after the American model,\nit is la fact becoming a concedled cartul system ufter the\nEuropen model.\nSie all want officient industri d growth .nd the\nedventages of mass production. No one suggests that we return\nto the hand Icon or hand forge. A series of processos involved\nin turning out a given munifectured product may well require\none or more huge nuch production plants, Modern efficiency\nmay all for this. But nodern efficient 7158 production is\nnot furthered by a central control which destroys competition\nbetween industrial plants e-ch capable of ifici int must\nproduction willi operating ns deparate waits. Industrial\nefficiency dous no. Duve to mean industrial unpire building.\nAnd industrial emplo building, unfortunately, has\nevolved into bunker control of industry. We oppose that.\nSuch control does not 05505 alrety for the investing\npublic. Investment judgmost requires the disinterested distorted appraisal\nof other poople's monagement. It becomer sturred and\nif it is combined with the conflicting duty of controlling the\nmanagement It is supposed to judge.\nInterloc'ing financial controls have taken from\nAmerican business Laich of its traditional virility, independence,\nadoptability and durtug -- without compensation vivantages.\nThey have not given the stubility they promisude\nBusiness entorprise nooda new vitality and the\nflexibility that comes from the divorsified offorts, independent of\njudgmonts and vibrant onergies of thousands upon thousands\nIndependent business men.\nRegraded Uclassified\n308\nThe individual must be encouraged to exercise his own\njudgment and to venture his own small savings, not in stock\ngambling but in new enterprise investment. Men will dare to com-\npete against men but not against giants.\nIII. The Decline of Competition and its Effects on Employment:\nIn output per man or machine, we are the most efficient\nnation on earth.\nIn the matter of complete mutual employment of capital and\nlabor we are among the least efficient.\nOur difficulties of employing labor and capital are not new.\nWe have had them since good free land gave out in the West at the turn\nof the century. They were old before we undertook changes in our tax\npolicy or in our labor and social legislation. They were caused not\nby this legislation but by the same forces which caused the legisla-\ntion. The problem of bringing idle men and idle money together will\nnot be solved by abandoning the forward steps we have taken to adjust\nthe burdens of taxation more fairly and to attain social justice\nand security.\nIf you believe with me in private initiative, you must\nacknowledge the right of well-managed small business to expect to\nmake reasonable profite. You must admit that the destruction of\nthis opportunity follows concentration of control of any given\nindustry into 8 small number of dominating corporations.\nOne of the primary causes of our present difficulties\nlics in the disappearance of price competition in many industrial\nfields, particularly in basic manufacture where concentrated\neconomic power is most evident - and where rigid prices and\nfluctuating payrolls are general.\nManaged industrial prices mean fewer jobs. It is no\naccident that, in industries like cement and steel where prices\nhave remained firm in-the face of a falling demand payrolla\nhave shrunk as much as 40 and 50 per cent in recent months.\nNor is it mere chance that in nost competitive industries\nwhere prices adjust themselves quickly to falling demand, pay-\nrolls and employment have been far better maintained. By prices\nwe mean, of course, the prices of the finished articles and not\nthe wages paid to workers.\nWhen prices are privately managed at levels above\nthose which would be determined by free competition, everybody\npays.\nThe contractor pays more for materials; the home-\nbuilder pays more for his house; the tenant pays more rent;\nand the worker pays in lost work.\nEven the Government itself is unable, in a large\nrange of materials, to obtain competitive bids. It is repeat-\nedly confronted with bids identical to the last cent.\nOur housing shortage is a perfect example of how\nability to control prices interferes with the ability of private\nenterprise to fill the needs of the community and provide or\n309\nployment for capital and Inbor.\nOn the other hand we have some lines of business, large\nand small, which are genuinely competitive. Often these com-\npetitive industries must buy their basic products from monopolistic\nindustry, thus losing, and causing the public to lose, a large\npart of the benefit of their own competitive policy. Further-\nmore, in times of recession, the practices of monopolistic\nindustries make it difficult for business or agriculture which\nis competitive and which does not curtail production below normal\nneeds, to find a market for its goods even at reduced prices.\nFor at such times a large number of customers of agriculture\nand competitive industry are being thrown out of worl: by those\nnon-competitive industrion which choose to hold their prices\nrather than to move their goods and to employ their workers.\nIf private entexprise left to its own devicos becomes\nhalf-regimented and half-compotitive, half-siave and half-free,\nas it is today, it obvious cannot adjust itself to meet the\nneeds and the demands of the country.\nMost complaints for violations of the anti-trust laws\nzrc made by business men against other business mon. Even the\nmost monopolistic business man disapproves of all monopolies but\nhis own. We may smile at this as boing just an example of human\nnature, but we cannot laugh away the fact that the combined effect\nof the monopolistic controls which onch business group innoses\nfor Its own benefit, incvitably destroys the buying power of the\nnation as a whole,\nIV. Competition Does Not Mean Exploitation.\nCompetition, of course, like all other good things,\ncan be carried to excess, Competition should not extend to\nfields where it has domonstrably bad social and economic con-\nsequences. The exploitation of child labor, the chisoling of\nworkers' wages, the stretolding of workers' hours, are not\nnecessary, fair or proper mothods of competition. I have com-\nsistently urgod\"a federal wago and hours bill to take the\nminimum decencies of lifo for the working man and woman out of\nthe field of compotition.\nIt is of course necossary to operate the competitive\nsystem of free enterprise intelligently. In sauging the market\nfor their wares businessmen, like the farmors, should be given\nall possible information by government and by their own associa-\ntions so that they may act with knowledge and not on impulse.\nSerious problems of temporary overproduction can and should be\navoided by disseminating information that will discourage the\nproduction of more goods than the current markets can possibly\nabsorb or the accumulation of dangerously large inventories for\nwhich there is no obvious need.\nIt is, of course, necessary to encourage rises in the\nlevel of those competitive prices, such as agricultural prices,\nwhich must rise to put OUT price stricture into more workable\nbalance and make the debt burden nore tolerable. Many such com-\npetitive prices are now too low.\nRegraded\n6 # #\n310\nIt may at times be necessary to give special treat-\nment to chronically sick industries which have deteriorated too\nfar for natural revival, especially those which have a public\nor quasi-public character.\nBut generally over the field of industry and finance\nwe must revive and strengthen competition if we wish to preserve\nand make workable our traditional system of free private enter-\nprise.\nThe justification of private profit is private risk.\nWe cannot safely make America safe for the businessman who does\nnot want to take the burdens and risks of being a businessman.\nV. The Choice Before Us.\nExamination of methods of conducting and controlling\nprivate enterprise which keep it from furnishing jobs or in-\ncome or opportunity for one-third of the population is long\noverdue on the part of those who sincerely vant to preserve the\nsystem of private enterprise for profit.\nNo people, least of all a democratic people, will be\ncontent to go without work or to accept some standard of living\nwhich obviously and woefully falls short of their capacity to\nproduce. No people, least of all a people with our traditions\nof personal liberty, will endure the slow erosion of opportunity\nfor the common man, the oppressive sense of helplessness under\nthe domination of B. fow, which are overshadowing our whole\nsconomic life,\nA discerning magazine of business nas editorially\npointed out that big business collectivium in industry compels\nan ultimate collectivism in government.\nThe power of a few to manage the economic life of\nthe nation mist be diffused among the many or be transferred\nto the public and its democratically responsible government.\nIf prices are to be managed and administered, if the nation's\nbusiness is to be allotted by plan and not by competition, that\npower should not be vested in any private group or cartel, how-\never benevolent its professions profess to be.\nThose people, in and out of the halle of government,\nwho encourage the growing restriction of competition either by\nactive efforts or by passive resistance to sincere attempts to\nchange the trend, are shouldering a terrific responsibility.\nConsciously, or unconsciously, they are working for contralized\nbusiness and financial control. Consciously or unconsclously,\nthey are therefore either working for control of the government\nitself by business and finance or the other alternative -- 8\ngrowing concentration of public power in the government to cope\nwith such concentration of private power.\nThe enforcement of free competition in the least\nregulation business can aspect.\nRegraded\nVI. A Program.\nThe traditional approach to the problems I have discussed\n311\nhas been through the anti-trust laws. That approach we do not\npropose to abandon. On the contrary, although WO must recognize\nthe inadequacies of the existing laws, We seek to enforco them 30\nthat the public shall not be deprived of such protection 18 they\nafford. To enforce them properly requires thorough investigation\nnot only to discover such violations us may exist but to avoid hit\nand miss prosecutions harmful to business and government aliko.\nTo provide for the proper and fair enforcement of the cristing unti-\ntrust laws I shall submit, through the budgot, recommendations for e\ndeficiency appropriation of $200,000 for the Department of Justice.\nBut the existing unti-trust 1 IWS :/ro inadequoto -- most\nimportantly because of now Financial economic conditions with which\nthey are powerless to dope.\nThe Sherman Act was passed neirly forty years ago, The\nClayton and Federal Trade Commission Acts were passed over twenty\nyears ago. We have had considerable experience under those nots,\nIn the meantime We have had a chance to observe the proctical opora-\ntion of lorgo-soale industry und to learn many things about the\ncompetitive system which we did not know in those duys.\nWe have witnessed the merging-out of effectivo competition\nin many fields of enterprise, We have learned that the so-called\ncompetitive system works differently in an industry where there are\nmany independent units, from the way it works in an industry where\nB\nfew large producers dominite the market.\nWe have niso learned that a realistic system of business\nregulation has to reach more than consciously immoral acts.\nThe community is interested in economic results. It must be\nprotected from economic 08 well as moral wrongs. The must find\npractical controls over blind oconomic forces 0.5 well us over\nblindly solfish mun.\nGovernment call dent and should dout with blindly selfish\nmon. But that is El comperatively smill part -- the ensier part --\nof our problem. The larger, more important and more difficult\npart of our problem is to dod with men who ore not selfish and\nwho are good citizens, but who cunnot sen the social and economic\nconsequences of thoir actions in a modern economically inter-\ndependent community. They fail to grasp the significance of some\nof our most vital social and economic problems because they see\nthem only in the light of thoir own personal experience und not in\nperspective with the experience of other non und other industries.\nThey, therefore, fail to seu these problems for the nation as n\nwhole.\nTo meet the situation I have described, there should be a\nthorough study of the concentration of economic power in American\nindustry and the effect of that concentration upon the decline\nof competition. There should be an examination of the exist-\ning price system and the price policies of industry to determine\ntheir effect upon the general level of trudo, upon employm nt,\nupon long-term profits und upon consumption. The study should\nnot be confined to the traditional anti-trust field. The\neffects of tax, patent and other government policios cannot be\nignored.\nThe staily should De comprehensive and adequately\nfinanced. 1 recommend in appropriation of not less than $600,000\n3/2\nfor the conduct 05 such comprehensive study by the Federal trade\nCommission, the Department of Justice, the Securities and Exchange\nCommission, and such other agencies of government as have special\nexperience in various phases of the inquiry.\nI enumerate some of the Items that should be embraced\nin the proposed study. The items are not intended to be all in-\nclusive. One or two of the items, such as bank holding companies\nand investment trusts, have already been the subject of special\nstudy, and legislation concerning these need not be delayed.\n(1) Improvement of Anti-Trust Procedure. A revision of\nthe existing anti-trust laws should make them succeptible of\npractical enforcement by casting upon those charged with violations\nthe burden of proving facts peculiarly within their knowledge.\nFroof by the Government of identical bide, uniform price increases,\nprice leadership, higher domestic than export prices, or other\nspecified price rigidities might be accepted as prima facio evi-\ndence of unlawful actions.\nThe Department of Justice und the Federal Trade Commis-\nsion should be given more adequate and offective Lower to investi-\ngate whenever there is reason to believe that conditions exist or\npractices prevail which violate the provisions or defeat the\nobjectives of the anti-trust laws. If investigation reveals\nborder-line cases where legitimate cooperative efforts to eliminate\nsocially and economically hurmful methods of competition in\nparticular industries are thwarted by fear of possible technical\nviolations of the anti-trust Iews, remedial legislation should be\nconsidered,\nAs B. really effective deterrent to persone) wrong-doing,\nI would suggest that where a corporation is enjoined from violating\nthe law, the court might be empowered to enjoin the corporation\nfor \" specified period of time from giving any remunerative employ-\nment or any official position to any person who nus been found to\nbear - responsibility for the wrongful corporate action.\nAs EL further deterrent to corporate wrong-doing the\nGovernment might well be authorized to withhold government purchases\nfrom companies guilty of unfair or monopolistic practice.\n(2) Worgers and interlocking relationship. More rigió\nscrutiny through the Federal Trade Commission and the Securities\nand Exchange Commission of corporate mergers, consolidations and\nacquisitions than that now provided by the Clayton Act to provent\ntheir consummation when not clearly in the public interest; more\neffective methods for breaking wp interlocking relationships and\nlike devices for bestowing business by Payor.\n(3) Financial controls. The operations of financial\ninstitutions should be directed to serve the interests of independent\nbusiness and restricted against abuses which promote concentrations\nof power over American industry.\n(a) Investment trusts, Investment trusts should\nbe brought under strict control to insure their opera-\ntions in the interests of their investors rather than\ntheir managers. The Securities and Exchange Commission\nis to make a report to Congress on the results of B\ncomprehensive study of investment trusta and their\noperations which it has carried on for nearly two years.\nThe investment trust, like the holding company, puts\nhuge aggregations of the capital of the public at the\ndirection of a few managers. Unless properly restricted,\nit has potentialities of abuse second only to the holding\ncompany as a device for the further centralization of\ncontrol over American industry and American finance.\nRegraded Uclassified\nThe tremendous invostment funds controlled by\nour Argat insurance commanies have n certein kinship to\n313\ninvestment trusts. T) tigt these commanies invest NS\ntrusteas the NOV of -lions of our people. The Jecuri-\ntiee and Excenses Commission should to subhorized to make an\ninvestigat'on of the fucts relating to these investments\nwith particular relation to their use no nn instrument of\neconomic power.\n(b) Bunk dolding Compunies.\nIt. to w.rdly necessury to point out the gront\neconomic powe that might be wislded by 13 group which may\nsucceed in soquiring domination over banking resources in any\nconsiderable area or the country. That power becomes particu-\nlarly dangorous when it is excrcised from a distance and\nnotably BO when effective control is maintained without the\nresponsibilities of complete ownership.\nis ware scon the multiplied evils which have urisen\nfrom the holding company systom in the caso of public utili-\ntles, where a small minority ownership has been able to\ndominate 11 for-flung system.\nWe do not want those ovils repeated In the banking\nfield, und We should take stups now to see that they are not.\nIt 10 not 11 sufficient assurance against the future\nto any that no grant evil has yet resulted from holding\ncompany operations in this field. The possibilities of great\nharm nro inherent in the situation.\nI recommend that the Congross annot at this session\nlegislation that will offectively control the operation of\nbank holding commanies; prevent holding companies from acquir-\ning control of any more banks, directly or indirectly; prevent\nbanks controlled by holding companies from establishing any\nmore branches; and make it illegn' for 0 holding company, or\nany corporation or enterprise in which it is financially\ninterested, to borrow from or sell securities to a bank in\nwhich it colds stock.\nE recommend that this bank legislation make provision\nfor the gr.ducl separation of banks from holding company con-\ntrol or ownership, allowing reasonable time for this BC-\ncomplishment - time enough for it to be done in an orderly\nmanner and without causing inconvenience to communities served\nby holding compuny banks.\n(4) Trade associations. Supervision and effective publicity\nof the activities of trade associations, and a clarification and delinon-\ntion of their legitimate sphores of activity which will enable them to\ncombut unfoir mothods of competition but which will guard against their\ninterforence with legitimate competitive practicos.\n(5) Patent lows. Amendment of the patent laws to prevent\ntheir use to suppross inventions, and to create industrial monopolies.\nor course such umendment should not deprive the inventor of his royalty\nrights, but generally speaking, future patents might be made evailable\nfor use by any one upon payment of appropriate royalties. Open patent\npools have voluntarily been put into effect in B. number of important\nindustries with wholesome results.\nRegraded Ucl\n10\n(6) Tax correctiven. Tax policies should be devised\nto -Ive affirmative encourapement to competitive enterprise.\nAttention might be directed to increasing the inter-\ncorporate dividend tax to discourage holding companies and to\nfurther graduating the corporation income tax according to\nsinc. The graduated tax need not bu so high as to make bigness\nimpracticable, but might bo high enough to make higness\ndemonstrato ito allogod superior officiency,\nWe have heard much about the undistributed profits\ntree When it was chacted two years ABO, 1ts objective was\nknown to be closoly related to the problem of concentrated\nconceric power and a froo capital market,\nIta purpose was not only to prevent individuals whose\nincomes were tarable in the higher curtax brackets from cocaping\npersonal income taxes by letting their profits be accumilated as\ncorporate surplus, Its purpose was also to encouraço the dis-\ntribution of corporate profits so that the individual recipients\ncould freely datermine There they would reinvest in B. free\ncapital market.\nIt is true that the form of the 1936 box worked a hard-\nship on many of the smaller corporations. Many months cgo I\nrecommended that these inequities be removed.\nBut in the process of the removal of inequitios, we\nmist not lose sight of original objectives. Obviously the\nnation must have como deterrent against special privilegon on-\nJoyed by an exceedingly smill group of individuals under the\nform of the lows prior to 1936, whether such deterrent take the\nform of an undistributed profits tax or some other equally or\nmoro efficient mothod. And obviously an undistributed profits\ntax has a roal valito in working against a further concentration\nof economic power and in favor of a fréor capital market.\n(7) Burean of Industrial Economics, Creation of e\nBireau of Industrial Beonomics which should be endowed with\nadequate powers to supplement and superviso the collection of\nindustrial statistics by trado nenociations. Such a Burceu\nshould perform for business non functions sir ilar to those\nperformed for the famore by the Bureau of Agricultural Economics.\nIt should disseminate current statistical and other\ninformation regarding market conditions and be in a position to\nwarn against the dangers of temporary over-production and excessive\ninventorios ns well as against the dangors of shortages and\nbottleneck conditions and to encourage the maintenance of orderly\nmarkets. It should study trade fluctuations, credit facilities\nand other conditions which affect the welfare of the average\nbusiness man. It should be able to help small business mon to\nkoop themselves as well=informed about trado conditions AS their\nbig compotitors.\nNo man of good faith will misinterpret these proposals,\nThey derive from the oldest American traditions, Concentration of\neconomic power in tho for and the resulting unemployment of labor\nprise\" democracy. I do not believe that we are so looking in\nand capital are incocapable problems for 2. modern \"private enter-\nbecause T.O seok to find out how to make that may of living work\nstability that we will lose faith in our own way of living just\nmore effectively.\nRegraded Uclassified\n315\n= ! I\nThis program should uppoal to the honest common\nsense of every independent business man interested primarily\nin running his own business at a profit rather than in\ncontrolling the business of other mon.\nIt is not intended as the beginning of any ill-\nconsidered \"trust-busting\" activity which lacks proper considers-\ntion for economic results.\nIt is a program to preserve private enterprise for\nprofit by keeping it free encugh to be uble to utilizo all our\nresources of capital and lubor at a profit.\nIt is a program whose bnsic purpose is to stop the\nprogress of collectivism in business and turn business back to\nthe democratic competitive order.\nIt is a program whose busic thesis is not that the\nsystem of free private enterprise for profit has fulled in this\ngeneration, but that it has not yet been tried.\nOnce it is realized that business monopoly in America\nparulyzes the system of free unterprise on which it is grafted,\nand is 18 futal to those who minipulate it 18 to the people who\nsuffer beneath its impositions, action by the government to\neliminate these artificial restraints will be welcomed by\nindustry throughout the nation.\nFor idle factories and idle workers profit no man.\nFRANKLIN D. ROOSEVELT\nThe White House,\nApril 29, 1938.\n316\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE April 30, 1938.\nTo\nSecretary Morgenthau\nFROM\nA. Lochhead\n356\n(1) As there 18 no pouch being sent from the White\nHouse to the President before Tuesday, I have requested the\nWhite House to send this message by wirelees to the President\nin secret code.\n(2) Dr. Feis informs me that they have not as yet\nreceived information from London as to the conversations held\nby the British and French. The London Embassy has advised the\nState Department that they are refraining from cabling them\nuntil they receive complete and authoritative news of these\nconversations, as they prefer not to send cables which would\ncontain merely rumors or conjectures. Dr. Feis states that\nthey expect a cable on Monday containing authoritative informa-\ntion and has promised to let you have whatever they receive\nimmediately.\nRegraded Uclassified\n317\nPARTIAL PARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embasey, London, England\nDATE: April 29, 1938, 9 p.m.\nNO.: 356\nSTRICTLY CONFIDENTIAL FOR THE SECRETARY OF THE TREASURY\nFROM BUTTERWORTH.\nBritish Treasury sent for me this afternoon to give\nme the following information to be passed on to you. Bonnet\ncalled to see the Chancellor of the Exchequer this morning\nand put forward on behalf of the French Government four ex-\nploratory suggestions:\nOne. As to whether the British Government would come\nto the assi stance of France by means of the British equal-\nization fund buying and holding france. Phillips said that\nthe answer had been to point out that any such action would\nbe contrary to the provisions under which Parliament had set\nup the equalization fund and contrary to the assurances given\nby the British Government to Parliament when the fund was\nasked for; the fund was set up to iron out fluctuations of\nthe pound not of the frano.\nTwo. As to whether the British Government would give\npermission for the raising by the French Government of &\nshort term credit (1.e. for & year or less) from the London\nbanks. Phillips waid that in answer it had been pointed\nout (A) that the Chancellor of the Exchequer had set forth\npublicly that no foreign short term credit would be permitted\nRegraded Uclassified\n318\n- a -\nfor non-commercial purposes; (B) that the London banks were\ngranting extensive advances to British industry for the pur-\nposes of the arms program; (c) that the British Treasury's\nadvisere (1.e. the Bank of England) felt that the French\nGovernment could not obtain such an accommodation on terms\nwhich would be favorable and would reflect favorably on the\nFrench situation.\nThree. As to whether a longer term loan (1.e. from\nthree to five years) would be subscribed by the London banks\nand British public. Phillips said in the answer given it\nhas been pointed out that it W8.8 contrary to the practice\nof English banking for banks to participate in such a venture\nbut as far as the public issuance was concerned the reply\nas given in (o) above applied. However, Phillips went\nout of his way to point out to me that the door had not been\ncompletely closed and bolted.\nFour. Then Bonnet went on to give 8. brief description\nof the prospects of the French Government, and the diffi-\nculties of carrying on with things as they are. Bonnet\nindicated that within the French Cabinet there were two\nschools of thought - One group preferred to seek help along\nthe lines indicated in the first three questions given above;\nBonnet implied that he himself was a member of this group.\nThe members of the other group were pressing for a deprec-\niation of the franc to 190-300 in the hope or belief that\nFrench\n319\n- 3 -\nFrench capital would be induced to return and some of it\nquickly in anticipation of franc strengthening. Should\nthere be such depreciation an undue advantage was not\ndesired, and when the final rate was fixed, such advantage\nwould not be sought. I was told by Phillips that this ques-\nti on had been answered somewhat as follows: under the\nTripartite Agreement, even a temporary currency deprecia-\ntion was excluded, and Phillips told no that he was skeptical\nabout any such depreciation proving to be only temporary;\nsecond, Bonnet was told that even taking 8 most liberal\nview, the terms of real economic trends held nothing to\njustify any such rate.\nAs for the fourth question, Phillips said that the\nChancellor of the Exchequer had been of two minds. What\nthe Chancellor would have liked to have done was to say that\nuntil he had consulted the other party to the Tripartite\nhe could not give an answer. Bonnet on the other hand might\nhave got the impression that he was giving due consideration\nto the merits or demerits of his proposal! In sending you\nthe above account of the interview with Bonnet, the Chanceller\nasked that you be good enough to give him, early next week,\nyour reactions to the French proposals.\nI told Phillips that in reporting the conversation\nI had with him and in passing on the request of the Chan-\ncaller, I did not BOO how I could explain the relevance of\nthe\nRegraded\nUclassified\n320\n- 4 -\nthe suggestion that you comment on the second and third\nproposals, which concern the money and investment markets\nin London. With reference to the first proposal, I asked\nPhillips did he remember the discussions of last September\nin Washington. He immediately recalled that you had then\nsaid that the American stabilization fund would not be\nprepared to purchase francs.\nIt would seem obvious that your views particularly\non the fourth proposal are being sought in order that it\ncan be determined what action if any can be taken jointly\nby the British and American Governments if the French\nresort to such depreciation.\nThe franc opened at 161 1/4 and remained bid throughout\nthe morning due to the favorable press reports of the trend\nof yesterday's Anglo-French conversations. For contrary\nreasons it weakened in the afternoon and French control then\nbegan to operate holding the rate around 162 3/4. It is\ninteresting that the one month's future rate did not move\nin during the morning but remained around three and\nthe three months' around four.\nEND MESSAGE.\nKENNEDY.\nEA: LWW\nRegraded\nJclassified\n321\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Paris, France\nDATE: April 30, 1938, noon\nNO.: 674\nFROM COCHRAN.\nAt eleven o'olock this morning I had & talk with the\nBank of France. The frano in very quiet trading in London\nwas firm around 162 5/8 to 7/8, and closed at 163 in Paris\nlast night. There had been no intervention by the French\ncontrol. According to my friend, on the French official\nvisit to London the subject of financial assistance was\nrather awkwardly suggested from this side but the British\ndid not take it up.\nI had 8. conversation with Couve de Murville of the\nFinance Ministry at & quarter of twelve. He told me that\nhe did not yet have the full story of the London visit.\nHowever it is his understanding that no positive results\ncame from the advances on financial matters it was expected\nwould be made by Bonnet.\nThere is no mention in today's press in Paris of any\nfinancial phase of the visit; this confirms the impression\nof bankers with whom I have spoken that there was no direct\naccomplishment in this field. Over this weekend French\nofficials are working on the preparation of financial decrees\nwhich are to be approved/the by Council of Ministers on Monday\nand which will be promulgated on Tuesday.\nAn effort 16 being made by a few Paris journale to\nplay\nRegraded Uclassified\n322\n- 2 -\nplay up Simon's Parliamentary answer indicating constant\ncontact between British and French authorities within the\nframework of the Tripartite, as a helpful assurance of\nBritish interest in the financial situation in France.\nWILSON.\n03913038\n6031\nEA: LWW\nYOUR\n- license\nMI -\nRegraded Uclassified"
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