Full text of Charles S. Hamlin Papers : Writings -- "Memoranda Concerning the Federal Reserve Board...," Diary Vol. 3, 17 Jan. 1915-30 Aug. 1916 (pp. 84-129) (3 of 19), Box 356, Folder 17

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The Papers of Charles Hamlin (mss24661)
356 17 001-




Hamlin, Charles S., Miscellany, Writings,"Memoranda Concerning The
Federal Research Board...," Diary Vol. 2, 15 Mar. 1913 — 15 Jan. 1915(PP.
84-129(3 of 19)

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CHARLES HAMLIN
PAPERS

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Miscellany

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84.
january 17. Williams told
me the other day that Secy. McAdoo had deci
ded to is.
sue some more Aldrich-Vreelan
d notes to a Texas bank. Williams said
he thought
this a great mistake. I agre
ed. To my mind it is a torpedo fired at
the Federal
Reserve Act and will encourage Congress
to extend this Act again which would be
tantamount to a repudiation
of the Federal Reserve Act.
February. NOthig especial
to write about except that Secy. McAdoo
at one tint
wanted to force Richmond to make
a lower rate. The other members took the
ground
that although the power was
cleartit should only be exercised afte
r careful consideration with the bank.
Prior to this,the Governors at their conference,protested against any rate
fixing by the Board.

They claimed to have the right to initiate rates and that

our power was confined to approving or disapproving that particular
rate.
Even Warburg combatted this view and told them that alth
o the power might
never have to be exercised yet it was clearly Tested
in the Board.
February 26. Board discussed the matter of fixi
ng rates for rediscount between
Federal Reserve Banks. Warburg & Hard
ing said rate should be i%; below the discount
rate of the bank for which the rediscounts
were made. I satisfied them that this
would be unworkable and that if any diff
erential were fixed it should be a differential below rate of the discount
ing bank.
At a previous meeting,Secy.
McAdoo took position that rate should be as low
as rate for acceptances but it
was pointed out that the acceptances rate was
fixed in competition with the
whole world.
During the month the Board
seriously objected to opinion of Atty. Gen.
that
monies received by the Board from
Bank assesments were public monies to
be accounted for through the auditor for
State Dept. and appointed a committee to
consult
with Atty. Gen. to seek to obta
in a reconsideration of this opinion.
I thought this a bad policy;
think it better for Board to account with
the U.S.
than with 12 Reserve Banks
and 7500 National banks.
March 3. Amendment to
Federal Reserve Act passed both Houses.
President sent
it over to Treasury. Sent
to me. I told Secy. McAdoo I
would write President ap


85,
proving bill.

He said he would write as Secy. and as Chairman of the Board.

He

seemed to be eager to do it himself altho I,as Gov., should have writte
n the let.
ter.

GOT. Strong told me today that he furnished Senator Root with the materia

for his speech to prove possibility of tremendous inflation under lowered reserve
requirements of Federal Reserve Act.
Larch 4.

Discussed rediscount rates again.

Harding said Col Brown of Atlanta--

a director of the Reserve Bank and a cousin of President Wilson,had just
had a
long interview with Secy. McAdoo and had talked like a mild man.

Said Atlanta

had forced banks to rediscount gren when they did not want to; that
Atlanta
could use all the money N.Y. had--wanted a rate of 2i% etc. Harding said
he
feared the banks there were over-extending at existing rate of 4%;
that a 2%
rate tif it did not result in lower rates to customers would be a
pure gift to
the member banks. I asked him if he had any evidence that
the 4% rate had resulted in lover commercial rates.

He said /To and pointed out that the Federal

Reserve agent in his reports showed rate had not changed.
South of all kinds,paid from 3 to 6% on deposits.
should be the Y.Y. rate or a fraction below it.
N.Y. had agreed to rediscount at 2i%.

He said Banks in

He thought rediscount rate
We were told unofficially that

Gov. Strong told me he mould give than a

very low rate in order to demonstrate the harm it would do
to Southern banks.
I believe that if 17,Y. Ms offered such a low rate
it was dame to embarrass
the Reserve Board.

It was pointed out that the spirit of the Reserve Act pointed

to high rates for rediscount,e.g.an early draft
of Act provided that compulsory
rediscounts should carry a rate of from one to
35 above highest rate of the two
banks interested. Harding also said that any rate
below 4% would encourage spec.
ulation and would result in another enormous cotton
crop to the great injury of
the South.
March 9, Tuesday.

Secy. McAdoo called ne up at 6.30 P.M. and said Board was

equally divided on a 4% rediscount
rate for Atlanta and would come up again to.
morrow when he hoped I could be presen
t. He said they had a bitter fight.
told him I feared the Southern
banks would get this noney at a low rate and loan



86.
it at existing high rates & the people would not be benefitted.

He seemed very

angry with the conference of Governors which,' understand,had advised a 4% rate.
I said I would go over the matter carefully and would come to the meeting to.
morrow,

Secy. McAdoo said the President also felt strongly that the Governors

were arrogating to themselves the functions of a central bank and that it should
be stopped and I agreed with him.
'larch 10--Wednesday.

Willis called and went over whole matter with ma.

He

thought a rate of 2-4% would be right; that if the rate were 4% the Atlanta bank
would have to raise its rates and then would give N.Y. member banks a chance to
raise their rates to South.
3 P.M.

Full meeting of Board.

Long discussion as to rates of rediscount.

I

asked if it was not true that N.Y. had offered to rediscount for Atlanta at WA
Ur Harding said Federal Reserve Agent Wellborn of Atlanta had written him that
he had written to Reserve Agent Jay who replied by letter that they would redis.
count at 2i%.

I said GOT. Strong had also told me that,when Delano rather brus-

quely said--tell All he said.

I asked him to do so & he said Gov. Strong said--

"They want a low rate--I'd give it to them to break their necks" or words to
that effect.

This made Secy. McAdoo very angry.

Then Warburg said something

indicating that I ought not to have used this rate as I must have known it was
not made in good faith.

I told him I had not so construed Strong's remarks and

asked him to explain this rate.

He said in a rather low voice,so the Secy.

could not hear--"They felt he was so insistent on low rates that they would make
one and put it up to him".

They ought not to have done it." meaning that the

Bank had put an absurdly low rate purely to embarrass the Secretary.

I said to

UrIcarburg--"If that was their motive,' would cheerfully vote to remove every officer and director participating in this scheme,
' Warburg has from time to time
intimated that some of his colleagues were guided by political motives in their
actions (e.g. in appointing Wolf a Govt
rates for Richmond & Atlanta

directortin offering to approve lower

tc.) yet here we have an instance of his own pet

bank deliberately playing politics and endeavoring to embarrass the Federal
Re.
serve Bosrd.



March 11 --25.

At home with severe attack of grippe.

While away,questigi,

arose whether acceptances under Sec. 13 included import and export trade between
foreign countries.

Harding,Warburg and Delano said Yes.

said NO and it was referred to me.

Williams and Miller

I wrote a letter to Williams stating that

even admitting as matter of law that the term did include such trade,yet under
Sec. 13 we had right to impose restrictions and limitations and th.a for present
at least such acceptances should be confihed to foreign trade with the U.S. altho
if a case should arise in which one of the parties

was an American

--I should be glad carefully to consider the matter.
ing.

Williams read this at meet-

Warburg was very angry and said he desired to have recorded his protest

as refusing to banks and bankers rights given under Federal Reserve Act.
said he ought to do this and he would file my letter.

William

The matter was then drop-

ped.
Larch 26 to May 2,

Left with Bertie & Anna for California. Went to Los Angeles,

San Diego,San Francisco where we stayed about two weeks.

Eade four addresses in

San Francisco and then visited every Reserve City in that district;then went
hame tvisiting other Reserve Banks.
In San Francisco.

Speeches on Federal Reserve Act.

Harvard Club.

In San Francisco district.

Bakers Lunch.

Seattle.

Also Denver.

Dinner at Exposition.

Tacoma.

Kansas City.

Commonwealth Club.

Spokane.

Eisskogee (2)

Chamber of Commerce.

Portland.

Dallas.

Los Angeles (2)

St. Luis (2)

Salt Lake City.
May 2.

Sunday.

Arrived home.

Talked with Secy. MoAdooffound him up

but very

weak and much worried over Riggs Bank suit.
May 7, Thursday.

Have had several talks with Secy. McAdoo.

weak and I think is worrying about Riggs Bank matter.

He is still very

I have advised him strong-

ly against trying the case and said if a compromise were suggested
to surely arrange it.



I also strongly advised him to think of himself in this
matter and to

drop Williams.

88.
I think he would like to do this but his loyalty to Williams

prevents.
Today Brandeis asked for an interview at the Gordon.

We were together an hour

He said he was satisfied Williams was absolutely in the wrong & that the Presid.
ent should suggest his approval of a letter by the Govt. counsel
vising him that he should remit all penalties

etc.

to Williams ad.

He said this would take

away all the equity of the Bill & do away with a trial.

That this course would

save McAdoo's reputation which would be seriously injured if a trial took place;
that he had told McAdoo this & he seemed rather pleased with it but had done
nothing.

Such course would leave all the allegations of the Bill met by licAdoo

answer and would end the matter; that if a trial took place the Ballinger case
would be mild in comparison.

He asked me just what connection I had had with

the case & I told him I had not approved the tax deposit plan.

He said I ought

instantly to see the President & tell him all I knew and advise him to adopt
course favored by him

le said the Atty. Gen• had suggested that he should see

MR & ask me to see the President & tha2 all the lawyers agreed the case was
an
ugly one & ± should not be

tried as Williams would in all probability be beaten.

I then vent to the White House & had a half hour talk with the Rresident
--he seemed to think it was merely a local fight between Williams & the Bank
which should go to a finish; that there was no possibility of involving the Ad.
ministration but that if Williams were beatentme should not hesitate to take
proper action.
and injured.

I told him I felt certain the Adninistration would be involved

I said --suppose it appeared that the withdrawal of the 2 million

deposits were considered and approved by the Cabinet & by himself--he replied
quickly it had not been.

He further said he could not turn Williams down with,.

out a hearing altho he said the letters written by him were clearly improper & he
agreed with me that on this subject Williams was not of sound mind.

He aitio

thought that McAdoo's evidence as to what Alice said would turn the
trial against
the l'ank.

He seemed absolutely confident & serene.

I finally told hilt that he

was in error & that I feared a trial would seriously injure the
Administration.
He said the Atty. Gene agreed with him.



89.
I then saw Brandeis again & told him I was satisfied that the President did not
understand the case.

Brandeis said the Atty. Gen. in his (the President's)

presence had told him that he agreed with what Brandeis said.
Sherman Allen told me Glover told him that he had been "carrying" one of
present Cabinet officers since beginning of Administration.
Brandeis of this but kept source confidential.

I told Warren &-

Have not told Secy. McAdoo of my

talk with President as I felt he.-because of loyalty to Williams -could not
consent to putting in his own defense wholly apart from Williams.

I think Secy.

McAdoo feels that he has encouraged Williams & is really responsible for his
queer actions.
May 11--Tuesday„

Called up McAdoo 6.30 P.M.

He said he was sorry I had talked

so frankly with Brandeis who had told him of our talk.
MA

to read his affidavit.

I went right over.

He also said he wanted

He seemed very displeased at my

talking with Brandeis 'specially with my statement that I might have to testify
Ts.

Williams on the tax loan matter.

I told him that I felt it my duty to tell

Brandeis all I knew about the matter—that it mas hardly necessary to say I had
no desire to testify at all but tht in the unlikely event of being summoned,'
should testify to the actual facts,but that it would be like tearing out my ton..1
gue to have to say anything in the matter.

I also told him that Brandeis told

me--before I said a word to him—that in morals & equity Williams' conduct was
not justified.

I again strongly advised an honorable settlement of the natter,

as a trial--however it might result technically—would inevitably drag in and injure the President,the Administration & him also.
to a fair settlement & I assured him that the

He said he would not object
mustsee that many of his

& Williams' allegations—even if not relevant to the Bank would greatly injure thi
Bank & I felt sure they mould make some offer of settlement.
He asked me to read his affidavit & let him know by 9.30 how it struck me.
I took it with me. Brandeis dined with me & said again..-whatever the legal
decision.-the trial mould ruin McAdoo & Williams & irretrievably injure the Ad.
ministration & the President.




90.
I called him up at 9.30 and told him the affidavit put his case in the strong.
est possible manner & that if this were filed & the case settled,it would put
him in a strong position4
At ay interview,I had explained to him that some of the reasons given in the
tax deposits would be claimed to be reasons which he did not know till later.
He said Williams had verbally told him these reasons before May
6--on the record
4owever,it appears the Examiner only discovered them May 18 when he examined
the bank & reported it officially May 28. How Williams could
have known the
facts or anything more than rumor--I sant understand.
McAdoo also said his
decision of May 6 was only a tentative decision subject
to consideration & was
finally determined only in his letter to Glover of June 9 or 11.

He saidl how.

ever,he did not tell me of this when he directed me to tell nattier
his bank
could have none of the deposits.
Thuriday May 13.

Stopped in at Warren's office.

He said at the hearing yester.

day,suggestious of settlement were made & that the postponement was to enable
these to be worked out.

At about 11 A.M. Williams came in and asked me square.

ly if I did not think his affidivit was complete answer to the Bill--he had pre.
viously sent it in to

MA

and I had read it.

I told him he had greatly streng.

thened his case by specifically waiving all penalties except that for .415.000
for refusing to give list of all loans back to 1896; that I felt sure he would
have lost on this question.

I added,in presence of Dr. e
.11er--that the ,i5.000

was to my mind a question of law on which much could be said on both sides ea
that there was at least a fighting chance that the Govt. would lose.

I further

said if the other side suggested a settlement,he ought to try in every way to
reach an honorable one pas a trial might injure the Secy. & the Administration
seriously even if it van the case on legal points.

He did not agree with me

& he even fought the suggestion of abandoning the penalties imposed
for failure
to give a list of securities available for Aldrich.Vreeland notesowhich I
told
him he clearly could not lawfully impose or collect.

hA91

As a matter of fact,he

already waived this as his affidavit specifically stated but he a)uld
not




see the propriety of it.

91,
He seemed absolutely blind & could not see how any of

his wts could even be criticized.

He was very bitter with Brandeis but I told

him Brandeis' judgment was good & he did not fear to take risks.
May 14.

Friday.

Asst. Secy. Newton said there was a rumor that Brandeis was

trying to queer Williams so as to rehabilitate himself with the financial inter.
eats.

What rubbish I

Am sorry Brandeis told Secy. McAdoo all I said to him;

I expressly stAted that what I said was in absolute confidence merely for his
information in making up his mind as how best to handle the Govt. case.
May 16.

Sunday.

Mr McAdoo called.

Bank case to be argued tomorrow.
ise.

Seemed in very good spirits as to Riggs

I asked him as to newspaper rumor of comprom.

He passed it over very lightly & said all talk of compromise was nonsense

or something to that
Charles Warren took supper with us.

He said that there had been efforts on

both sides to compromise; that the Riggs Bank was perfectly willing & that they
had offered to comply with all information which Comptroller had demanded and
for which the

5.000 fine was imposed if Williams would waive the fine & further

that they would dismiss their Bill against both McAdoo & Williams;their only
condition was tIA

neither McAdoo or Williams should file their affidavits as

if BIll was dismissed there would be nothing left to answer;that he thought this
a vise settlement but neither McAdoo nor Williams would agree as both insisted
the affidavits must be filed and—the litigation would go on.
Warren said McAdoo made a great mistake in putting his letter to Attyi Gene
in his affidavit asking Counsel for Williams & saying he did not wish to do any
injustice to Riggs Bank as it would probably make relevant the advice the law6
yers gave Williams & which he disregarded.

Brandeis,Warren saidtadvised William!

the charter of the link could not be forfeited tor the alleged offenses of the
Bank as all of these had been discontinued.
At the trial of Motion to dismiss and for petition

injunction

the Judge

declined to give any injunction except as to the )5.000 fine and said that was
purely a question of laws

Also said no malice in Williams nor conspiracy on

part of McAdoo--that they were justified in what they did & should not have done
otherwise.




92.
May 23-30. 2an.American Financial Congress.

See official programme.

May 25—Tuesday. I gave an address on the Federal Reserve Act to the Convention.
Received with great applause and is to be printed in Spanish & English.
May 29. Saturday.

Dinner Jo

the delegates given by Secy. of Treasury.

The Secy.

gave a copy of my Index.Digett handsomely bound to each delegate,saying that it
was prepared by Gov. Hamlin who "made such a wonderful address before the Conven.
tion on the Federal Reserve Act".
May 28. Friday.

Asst. Secy. Rome asked me for Mr McAdoo if I would serve on a

secret committee to go over the reports of the various committees & see that thep
was nothing in them to injure the results hoped for by the Conference.

The Com.

mittee consisted of myself,Frank Vanderlip.Mr Fahey & John Bassett Moore.

We

met this evening & went over the reports and suggested the immediate appointment
of a Secretary of the proposed Joint High Commission.
funds pending appropriation by Congress.

The question arose as to

Vanderlip said he wouldgive 40.000

for this either directly or to the Chamber of Commerce of the U.S.

He also said

he would undertake to raise all money necessary to send the U.S. delegates to
S. America.
May 29. Saturday.

Moore and I saw Secy. McAdoo; he said there might be something

left over from the appropriation which would be available for the Secy.'s salary
so tiakt it would not be necessary to attempt to raise any outside funds & he doub
.ted its propriety anyway.
Commerce of the U.S.

I explained this to Fahey4President of the Chamber of

He said the Chamber had the necessary funds without any

subscription & would be glad to defray expense of a Secy. if we in the future
should call upon him.
May 30. Monday. Saw the delegates off for Annapolis.

Andrew Peters told

M4

Secy.

McAdoo thought the Federal Reserve Board ought themselves to pay for the tea the
Board gave to the delegates.

Before sending out the invitations,I saw Peters and

he said this tea was a proper charge against the appropriation of Congress and
that his committee would send out all the invitations,

As a matter of fact

the Board iferely lens its name and the Committee invited whomsoever it pleased.




93.
I called Secy. McAdoo on the telephone and he said the Board had better pay
it as otherwise there might be a political attack & I told him I would arrange
the
it. I do not see any reason for this feeling on part of/Secy. It would be just
as proper to charge the expense of thedinner he gave the delegates Saturday
evening in his own name.

Evidently the Secy. hardly considers the Reserve

Board as a part of the Administration—I am fearful there will be friction in
the future as to our status.
June 5. Saturday.

Palmer io director of N.Y. Federal Reserve Bank and Starek,Depu.

ty Reserve Agent came down complaining of Gov. Strong for not appointing a
ca8.
hier as authorized by Board of Directors.

Secy. McAdoo told me the President

would be very much incensed if we were to remove Starek.

Gov. Strong complai.

ned that Starek went to Er Sailortthe proposed cashier and told
him to hold out
for 42,000 salarA, We had an informal hearing and Hardin
g & 7/Ian° were appointed a committee informally to look into whole matter
Stopped in at Charles
.
Warrent s office. In speaking of Atty. Gene ts opinion as
to status of Reserve
Board the said there was one sentence in
it whidh the Atty. Gen, struck out be.
cause Secy. McAdoo objected so vigorously to
ittand that this was done over his
--Warrents—protest. This shows that Secy. McAdoo—unknown
to Reserve Board
had been shown this opinion before it was sent
to us and had had it changed—an
extraordinary thing.LxxXx.
June 20-4uesdaY.

Had conference withYSday. EcAdoo,Atty. Gen. Gregory & Post-

master Gen. Burleson 41( Secy.'s office as to
Petitioll of Fowler against issue
of Federal Reserve notes which later might be used
for purchase of War Munitions
Drafted letter to Atty. Gen. asking opinio
n as to law. Atty. Gen. said Res.
erve Board could not ask opinion from
him. Finally said Secy. of Treasury
could ask his advice as to law to enable
him to vote on eny proposition in Reserve Board as Secy. of Treasury.
Said clear that officers of Reserve Banks
were not officers of U.S. and that Reserv
e banks were not Govt. Banks. As the
Petition said the collateral offered for
Reserve notes were legitimate notes
not based on War munition purch
ases—Atty. General said clearly we could not
refuse to issue Federal Reserve
notes nor look to future use when
offered.



94.
Also sad if Reserve Banks were
asked to discount acceptances bond on War
munitions purchases he might,if asked
,give opinion to Secy. of the Treasury to
guide him as to his vote in Board. Al].
3 favoured taking no action on the Petit.
ion but I said Board must take actio
n.
They all agreed that Board should ask
Fowler to name the Federal Reserve
Bnnk directors who were charged by him to
have received personal profit from
discounts by Federal Reserve Banks"
The general consensus of opini
on was that the Federal Reserve Banks had right to
discount any acceptances which the
Member Banks mere authorized to make under
Sec. 13oand that me ought to go
ahead relying upon opinions of our Counsel which
I told them about.
Fowler called on me Monday,June 28 and explained his contention; I told him to
put what he had to say in writing to which he agreed.

Gov. Strong was before

Board Wednesday,June 30 but the subject of Fowler t s claim was not considered
ex..
cept that I told of my talk with him adding there 'was nothi
ng to do until his
petition vas received.
Gov. Strong on Wednesday June 28--spoke of a plan
by which French banks were to draw on American banks
against exports of cotton,
boots & shoes,clothing etc. if American banks could
agree to give them a line of
acceptances credits; Brown Bros. were to repre
sent the foreign banks and the
acceptances when discounted by some other Ameri
can bank were to be placed to their
-.Brown Bros.--credit. They would pay each
seller by check taking the Bill of
lading & docyments which they would send
to the French bank. Security in shape
of French Mveasury notes were to be furnished
the accepting banks and Strong said
French Govt agreed no moratorium shoul
d affect obligation of the Foreign banks
to pay acceptances & that the prohibition
of exportation of gold from France,
should not apply to gold shipped by the drawe
rs.
We discussed with Comptroller whether a Natio
nal Bank could agree to give a
line of acceptance credits & we all
agreed it could if each draft drawh complied
with Federal Reserve Act.
We also agreed that National banks could not
enter
into a contract to give a new
acceptance or ally renewal of old acceptances
if it
trought the limit beyond 6 months.
A letter was sent to Strong as above July
15.




July 16--Friday.
While in conference at Reserve bank in F.Y. Strong said he had tol
the bankers as to our opinion but that he wished we would omit the reference
as to when such acceptances would be rediscounted by Federal Reserve Bank—we
had said in the letter that while in law presumably they could,a question of
policy aloomight be involved gmeaning a question on which the Reserve Board would
have to be consulted.

W%acburg made several suggested changes in the letter and

struck out reference to rediscount by Federal Reserve Banks.
Strong said this matter was an open door to settle when it should arise.that he had not been asked such a question & of course had not told the bankers
that such acceptances could be rediscounted by Federal Reserve 'anks.

OR

returning to Washington took up the matter. I had all along felt that
/a
Board had right to have something to say as to the policy & tel.bt,assuming the
legality,which I did not doubt,the banks should be most careful about investing
Federal Reserve funds in exported war material.
Finally our Counsel %rrison,advised us that we had no power to say that munitions of War should not be discounted--that such a power,even if given express
.ly by Congressprould be unconstitutional & void;that all exports

legal;

that while we might limit total amount to be invested in export & import acceptances,our power ebded there & the question of policy was to be previously determined & finally determined by the Federal Reserve Banks.

Later he gave us

this opinion in writing.
July 28--Wednesday.
At meeting we agreed on a supplemental letter to that of July 15
amplifying these views.
This morning,in train from Boston,Delano told me that yesterday July 27,he
went with Gov. Strong to see Morgan who was on his yacht at Marblehead to talk
over the matter of arranging credits to Foreign countries to pay for our exports
to them.

Gov. Strong suggested that plan be arranged by which exporters of cot.

ton draw on American banks & Foreign banks agree to indorse these.

Morgan told

Strong to go ahead & that he would be responsible for from 25 to 50 millions.
I had intended to leave Hattapoisett on Monday but Delano wired
Saturday



94.
that "unforeseen circumstances" would bring him to Boston Tuesday & as there
would be no quorum of Board in Washington,I might want to stay over until Tues.
day.

I wired I would do so.

Delano has lot his head on this question & is

very much worried especially as he sails for Panama Saturday.

He ought to have

asked me to go to ergan with him but he did not.
July 29. Thursday.
Sent letter to Fowler dismissing his petition.

Sent letter to

Strong on accept, lines of credit,dated July 23.
July 29.

Secy. of T easury sent letter from Tumulty saying President Wilson
•••

wants McAdoo to make special effort to appoint Er Ogilvie a Princeton man.
McAdoo asked us to appoint him to place in Federal Reserve Board. We declined to
waive age limit.
Aug. 4.

Hg later got job under Dept, of Ldoor.

Wednesday.
Gov,
. Strong came over from N.Y.

Said letter of July 28 forbidding

renewals of drafts under revolving letters of credit made it impossible for the
banks to enter into such arrangements.

Read us a long memo, on necessity of

providing credit arrangements here to take care of our exports.

Presented also

a memo, on the law to show renewals or rather rew drafts--as between drawer and
acceptor--were not prohibited provided acceptor paid draft to holder at maturity
.
On Aug. 2,1 had received letter from Warburg stating that our letter to Strong
of Jly 28 was in error in refusing such remewals--that they were merely cash
advances as between drawer and acceptor and if the new draft was within 6 months
limitation--it was perfectly good.
of Warburg's letter.

Dr. Miller was present and was given a copy

He--MIller--vigorously objected to either Member banks or

Federal Reserve Banks giving or discounting acceptances based on War materials;
he contended that they could not discount notes or accept Bills when the goods
were to be consumed or destroyed by ultimate purchaser--under existing regulations.

I pointed out tht if I bought e.g. large quantity of flour from a manufac.

turer to consume myself or if I bought a gun from a manufacturer to shoot birds
or men,the note given by me to Manufacturer would be eligible for
discount under
our Regulations. Then he claimed that there was no
authority to accept wh*e
goods ultimately were to be used
by a foreign nation.



I pointed out there was nothing in the law preventing anybody--individual or
.Lt
ation--from buying goods from our agriculturalists or Manufacturers; that whil
we did not authorize a foreign Ambassador to draw on our banks (Russian)--that
was because under proposed arrangement he was to be given credit on discount
and could diaw his own checks and use proceeds for goods or any other purpose
he saw fit--there being no tying down of proceeds to exportation of goods.
Then he claimed these acceptances were not liquid & I pointed out that they
would all be drawn (under Brown Bros. plan) by a French bank which would be
this
responsible & that Wilts was the best form of liquidity known to banking.
Also that French Treasury notes were to br deposited with accepting bank as
collateral & that Bank had obtained assurance from French Govt. that no Moratorium would ever be applied to these acceptances and further that existing prohibition of export of gold from France should not apply to theme

be then

claimed they were Practically loans to a foreign Govt. & that adjustment for
renewal turned them into long term loans.

I replied that the privilege of

renewal or substitution did not differ from the ordinary loan of credit to an
individual & that no directors would be foolish enough to let them be extended
indefinitely.

He then said these loans might be repudiated but I pointed out

that there was no more danger here than in case of any individual foreign
purchaser & that it was absurd to think a foreign bank would think of repudiating its obligationsospecially when Acceptfon held security.
all these exports should be sold for cash.

He also said

I replied that the domestic manu-

facturers would get cash from Brown Brothers without any liability on the Bille
as they would not draw or sign in any way.

That in essence our banks gave the

cash to our Manufacturers and looked to their pay to funds to be furnished by
the drawer,--the foreign bank; that if our foreign trade were to be relegated
to a cash basis & our banks forbidden to lend them credit in moving exportstit
would effectually put an embargo on our export tradepas credit not cash is its
underlying structure just as in domestic trade.

HardiT added that if Miller'f

views were published as those of Reserve Board,credit would quickly cease and
we sho -Ild have a financial panic.



98
Above meeting was on Thursday Aug. 5.
On Wednesday Aug. 4. took up matter with Harrison our Counsel,Elliott being
away.

H. wrote us that our letter of July 28 (founded on Elliott's opinion of

July 9) vas not warranted by said opinion of July 9; that that opinion merely
was intended to say that banks could not contract to give renewal or substitute
acceptances when the holder v.-'s bound to rener,but if holder was paid at maturity the bank could give new acceptances to drawer.

I then prepared a new draft

of letter to Gov. StrongOaller vehemently fought it,but Board voted for me to
put it in shape with help of Counsel for meeting
FTidaY.
Aug. 6. Friday.
Read tentative letter—Miller objected vigorously--said Warburg &
S cy. should be called back to consider it.
e

Finally we voted to send a copy

tentatively to Warburg & Secy. & call meeting later,..M.I ller objecting.

I sug.

gested sendig draft of tentative letter to Gov. Strong & H. opinionIto be sure
it met the exact question raised by him but 1411er objected.
I had told 1---

Later I remembered

tc444-- Harrison he could seni his opinion to him. Then told him

to get back from P.O. or wire Strong to return it unopened.

Finally we all..

even Miller—agreed thpt I could write Strong the exact legal question as
we
understood it,to be sure we were making no mistake & I drafted & Harding signed
& sent this letter.

Later Harding said Miller was very angry & even intimated

that we would keep away from our meetings to break a quorum. Finally Harding
and I agreed that a meeting should be called for Monday Aug. 16 to finally settle question & I so ordered and went to Nattapoisett.
Aug. 10. Monday0

larding called me from N.Y.--said he went over to meet Secy.

McAdoo who was there; said McAdoo was very angry with Miller and fully approve
d
of our proposed letter to Gov. Strong; that if necessary,-he.the Secy. --would
advise Comptroller to sign and send the letter alone--as it 'was
really wholly
within his jurisdiction;he said Secy. would call me on telepho
ne at 12.30. I as.
ked Harding what we had better do in view of Gov, Strongt
s statement that matter
could not wait until Mo nday and asked if he would
favor calling a meeting in N.Y,
tomorrow. He said Yes & advised me
to ask the Secy. I called up Secy. McAdoo



99
at Sub-Treasuryt N.Y. He fully
meeting in N.Y. tomorrow.

approved tentative letter and strongly favored

Said

he probably could not attend but write a stro

letter favoring our tentative letter to Gov. Strong.

He was very bitter with

Miller & said he understood fully what was behind his attitude.

I told him

what Harding told me & he said he wished Miller would try to break a quorum by
staying from meetings--implying that he would know what to do in such event.
I then wired Compt. Williams (put in call for Willis and if he not there,then
for Comptroller) he said he would have Willis call the meeting for N.Y. & would
ask Miller to be there.
be there.

Later he telephoned that Willis & Miller & he would

Later Allen wired meeting would be in Sub-Treasury instead of at

Reserve Bank,
Took Fall River line to N.Y.
Tuesday Aug. 10.
Went to Federal Reserve '?ank & had talk with Gov. Stronglhe said acceptance matter must be decided one way or the other that day as Brown Bros.
must cable tht night.
Then went to Sub. Treasury.

Williams was there & said darburg,Harding,

Miller & Willis were across the street & insisted on having the meeting at Federal Reserve Bank.

We decided that meeting should be in Sub-Treasury as fi-

nally called but if they positively refused to come it would be better for us
to go to Bank as matter was so urgent.
burg &

rding.

I telephoned Bank and taikeaoulthWar-

The latter said he would meet anywhere but the 2 former positi-

vely declined to meet at Sub-Treasury uhless I would agree to immediately adjourn to the Bank.

They said Secy, had no right ta change place of meeting &

that to meet at Sub
'
TIleasury would expose them more to newspaper reporters and
would make it seem as if the Board was part of Treasury Dept.

I saidothat as

our meeting was in a sense adverse to the Banks it would be better to meet else.
where as it might seem as if the Bank were dominating us.

Theythowever trefused,

so Williams & I went over to the link ad I opened the
meeting.

Harding had pre.

pared a draft of letter differing from mine which
all had read ari to which all




100.
agreed,including GOT4 Strong. I rai
sed point that it did not specifically say
new acceptances could be given in substi
tution for old—within the limits of the
letter of credit. Warburg p how
ever,said it plainly necessarily implied thi
s and
that it was all right. I sai
d on this understanding I would accept
it.
I then added a clause that
as related to the precise question submit
ted by GoT.
Strong,the letter should be
considered as a modification of our letter
to Strong
of July 28 and this was agreed
to.
Warburg made a strenuous effort to repeal
whole letter of July 28,especi
ally that part relating to discounts
of such acceptances by Federal Reserve Ban
ks where we said it was Rrimarilyfor determination by Federal Reserve Banks. I strenuously object
ed to this & no vote was taken
on it. Finally it was voted to send the
letter with my addition to Gov. Strong
.
We then attended to Miscellaneous business,
and Secy. McAdoo called me from
North Haven.

I told him about Warburg and also that War
burg said the Board should
receive some advice from him as rep
resenting the Administration as to the pol
icy _
of -National & Federal Reserv
411
e Banks in giving & discounting acceptanc
es covering
War munitions. Secy. McAdoo
said he personally favored the letter to
Strong & felt
that our letter to him of Jul
y 28 as to policy of Federal Reserve Ban
ks etc. was
absolutely right,but as our
Counsel had advised us that we could
not legally for-,
bid a Member of Federal
Reserve Bank from issuing ar dis
counting such acceptances
there was no occasion for
discussion as to policy with the
Administration,a11 of
which I told the member
s. Warburg objected to certai
n conferences held with Col.
House--evidently referr
ing to Dglano and said we
ought to trust one another.
He then went into
question of neutrality and sai
d while he admitted Reserve
Banks were not Govt
institutions,they were so near
to it that we ought at least
to intimate to them not
to discount acceptances cle
arly relating to War
munitions.
After the vote Dr. Mil
ler read a short memo, exp
ressing personal opinion
that
Federal Reserve Banks
should not discount War
material acceptances altho he admitted that so far as
Member banks were concerned
,we could not legally int
erfere
with them, He voted
for the letter to Gov. Str
ong as did also Warburg.
We than
adjourned and lunched
with Warburg at Mid-day
Club. Dr. Miller asked Gov
. Strong
to talk to us in the
P.M. as to credit
operations generally.



PM

Gov. Strong came in--he was not at morning meeting.

101.
He said there were

probably 1100 millions in War contracts mostly involving munistios of War and he
to
said continent could pay us only /limited extent in gold and would have to send us
securities or establish credits here.

He figured that about 500 millions in secu-

rities would have to be sent to discharge our obligations & he said some hundreds
of millions had already been sent us & sold.

Referring to the French loanthe said

he had impressed on Brown.(Bros.) that he could not in any my be responsible for
the contract but could only lay down general principles applicable to this or any
other contract.

He said.however v incidentally he knew many details of their con..

tract & told us about it.
1., The French banks draw on the American banks pay, to their order & indorse to
Brown Bros. as syndicate Agent.
2, Brown Bros. discount it & proceeds deposited to their credit.
3. When a foreign purchaser wants to pay for e.g. American cottono he goes to
French bank.
4. The French bank or the Govt. of France draws check on Brown Brothers for amt.
not to be paid except on presentation of the documents.
the
5, Brown Bros. pay/check & send documents to French bank or the Bank of France
if it drew the check,
6. The accepting banks hold Treasury notes as collateral throughout whole transaction.
'
4arburg at once said agreement of banks was that no War munitions were to be thus
financed.

Gov. Strong said no such agreement-that it

as not made specifically

to finance War materials but general exports from U.S. but that very likely War
munitions might be among the transactions to be financed but only incidentally.
Warburg then claimed that it was a loan to the French Govt.

Strong said absolu-

tely No.-that French Govt. or rather Bank of Francepif it drew checks would do so
not as purchaser but merely to keep control of the situation as it had guaranty
of French Govt, that no Moratorium would be applied and that the existing prohi.
bition against export of gold from France would not apply to it.




In addition

102.
Gov. Strong said the Bank of France had agre
ed to ship gold,if necessary,to pay
the acceptors. Gov. S. added that the contract was made
not for French Govt.
as a purchaser but for individu
als who had bought Americah goods.
Finally
"Warburg agreedit was not a loan to
French Govt. & was legal if based upon exportation.
Dr. 11,11er then claimed that these acce
ptances would not be liquid & I
asked Warburg if he agreed with
this; he said To and admitted that a draft drawn
by a French bank was in every ray
a first class liquid transaction. Finally
Warburg raised the point that no bank could renew or substitute other acceptances
after the goods were delivered to purchaser under Regulation
3. which imposed the
limitation on drafts drawn by Banks.
Gov. Strong pointed out that this regulation merely covered eligibility for rediscou
nt by Federal Reserve Banks and had
nothing to do with 'Dover of Member banks--w
hich was only question now before us.
He also said tht this regulation even
as to Federal Reserve Banks was an absurd
one and should be revoked as it seem
ed to imply that Banks could only draw docu..
mentary drafts which however Warb
urg strenuously denied. I said it plainly refe
rred to drafts drawn by banks in this
countu on exports but Warburg denied this.
(This clause of J. was added whil
e I VIPS in West)
Herding & Williams had left
before

this talk took place.

Finally 7rburg claimed that no
National bank had power to renew or substitu
te
a draft after the goods were
delivered. 7e said our letter to Gov.
Strong of this
A.L. settled this. Warburg
said Compt6 never intended to make any such
ruling.
The matter was discussed and
Dr. 1411er and Willis said Yarding had
talked over
this with him & clearly inte
nded that our letter should bear that inte
rpretation,
I begged Warburg to hurry
the discussion as I had to leave at 5
for the boat.
He persisted however in goin
g over it again and again in most
leisurely fashion
evidently hoping that I would
leave at 5 and the meeting would break
up without
determining what the letter
to Strong really meant. GOT. Strong
said on Warburg's
interpretation of Regulation J.
no draft could even be renewedfor
in vast majority
of cases a documentary bill
is accepted in its earliest stages
and the documents
stripped by the Acceptor
who then gives up the document
s taking either a past
receipt,some other coll
ateral or if he wishes--and
what
#91f -He -1.Tithout



103.
taking any receipt or security but
simply trusting the purchaser. On War
burg's
theory also even if col
lateral were taken,the Bill could
not be renewed.
Finally I became convin
ced thet Warburg was fighting agains
t time,relying
on Williams not being there
and on my leaving at 5 ara as
Gov. Strong said Brown
must cable today,
' gave up any idea of taking the boa
t & dismissed the taxicab
waiting for me.
I then announced that the questi
on of interpretation of our
letter was a vital one & tha
t Gov. Strong could give no answer to Bro
wn until
we seAled what the letter rea
lly meant; that if any member differed as to
its
meaning I should call a meetin
g of the Board Friday in Washington, Warbur
g at
once flared up & said this
was a threat. I said No—merely a statement
of fact.
further
After some/discussion Warbur
g would not yield his opinion but sai
d he had no objection to our fixing the
interpretation by majority vote. I
said this would not
do--there was no majority
present. Harding & Comptroller not
being there.
I added that I was
prepared to return to Washingto
n at night and take up matter at a meeting & sta
y there until settled. I the
n asked Willis to call up Sub.
Treasury & see if Wil
liams was there. He found him
there and he came over. He
said he intended square
ly to rule that such substitut
ion acceptances could be
made altho goods had bee
n delivered. Finally after
another long discussion,Warburg said he thought
the interpretation was a pos
sible one under the law and late
he said he was satisfied
that under the law such substi
tution was legal and he
withdrew all objection
s. He added,however,that suc
h acceptances could not be re4;.
'
discounted by Federal
Reserve Bank under Regulatio
n J. after delivery of goods
and that if such
acceptances were offered the
y must be refused unless h until
we
abolished that part of
Regulation J. intimating he
would fight such abolishment.
Gov. Strong then
said that--acting under our
permission--he had read our
letter
to him to B,.ovn who
was satisfied with it but tha
t he had specifically told him
that he could give no
assurance whatever as to whe
ther these acceptances would be
eligible for redisc
ount or would in fact be
rediscounted by Federal Res
erve Banks;
that that question
could not be settled unt
il raised.
Er Harding during the
morn
ing session spoke of
interviews between himself
& Sir Richard Crawford
on the sub..




ject of possible purchases of cotton by Great 14itain. 14 said from his

104.

talks with Sir Richardthe had no doubt Gt. Britain would make cotton contraband
--the only question being at just what time.

He said he told Sir Richard if it

must be done,it should be done before the cotton crop began to move and then Gt.
Britain by buying could steady the market.

Some allusion was made to fact that

Harding had these conferences as a member of the Cotton Committee of the Board.
To my recollection,however,no such authority was ever given to the Cotton Comm.
nor was the matter ever officially --or unofficially--acted upon by the Board,
and Er Herding was acting purely in his own individual capacity.

My only know-

ledge of this matter grew fvom a talk with the Comptroller of Currency--perhaps
a month ago when he said,' think,that Er Price of IT.Y. was taking matter up with
British Embassy.

Williams asked me to meet Sir Richard & Harding at lunch but I

declined saying their interview's were purely personal and not in any way official with the Board.

Er Harding also said that the State Dept, had asked him to

confer Unofficially with Sir Richard.
I forgot to mention that Er "Warburg relied on Bryan's statement of August 151914,disapproving the proposed French loan by American bankers as violative of
the splLit of neutrality--(see 91 Scrap book p. 1) -as tending to show that the
same spirit of neutrality was violated by Federal Reserve Banks rediscounting War
acceptances.

Er Harding also told Board of an interview with Secy. McAdoo in

which the latter expressed fear that U.S. was in immediate danger of a rupture
with Germany in connection with the English Orders in Council.

Harding gave me

the impression that some agreement might be entered into with Gt. Bitainv in
.04

connection with the purchase of cotton,which Germany would regard as a direct
breach of neutrality.

Perhaps,however,I misunderstood him.

Sent Secy. McAdoo full account of meeting. Williams did also,sending me a cop:
Aug. Sent additional letters to Secy.
August 16.

Secy. sends me proposed letter to Harding,Warburg & Miller.

he had called meeting at Sub„Treasury after consulting with me.

Said

I wired tib

strike this out as I did not remember any consultation with me as to place
--if
he had said Sub...Treasury,I would have called meeting for
there.



Proposed let..

ter call them for explanation.

105.
Also wired suggesting holding back letter until

minutes of meeting approved by full Board,Wednesday Aug. 18.
August 17.

Found telegram fat U,iversity Club N.Y. from Secy. --said he had
cut

out reference to me before receiving my telegram.
protest at meeting on the R—cords.
tan Club _N.Y.

Advised Williams & me to ente

Dined with GOT's Strong & Curtis at Letropoli

Talked over proposed modification of Acceptance Regulation J so

as to remove any doubt but that acceptances under revol
ving letters of credit
with renewals as between drawer and acceptor are
eligible for rediscount. Told
him to prepare statement in writing e,c: send
it to Board. Said nothing as to dispute as to place of meeting.
Aug. 18. Wednesday.

William gave me a copy of a letter he sent to Warburg.

Said that he noticed his criticism
of Delano & C.S.Hf.for talking with Col House
& he asked him if he had not
talked with German Ambassador & other German agents
in U.S. as to neutrality of credi
t arrangements.
Settled minutes of E.Y. meeting.
Williams filed statement of call etc. & protest vs meeting at Sub-T;easury, I
also filed statement concurring with Williams
etc. Miller also filed state
ment. Dr. Miller & Harding said Willis was aloe
opposed to meeting at Sub-Treasury.
Williams said Willis told me in morning meet.
ing should have been at Sub-Trea
sury. As a fact Willis did not come to Sub-Treas
ury but stayed at Bank with Hardi
ng, her & iarburg.
August 19. Thursday. At
meeting Wednesday,Harrison Asst. Cognsel came in and as.
ked if I had any objection to
his being present,. I said No and he remained takin
notes of our talk in Y.Y. meeti
ng altho he heard only latter part of our talk.
This P.L". Harrison came in and
I asked him as to power of Chairman to call a meet
mg. He said he was looking
it up but was about convinced chairman of Board
could not call a meeting as that
was duty of Gov.,the active exec. officer.
I
said my opinion was j!..61t and
asked him if any Member had asked him to look natte
r
up. He said Harding had asked
him. As a matter of fact the legality of a call
ordered by Secy. of Treasury
was not questioned in 'N.Y. either before or
during
meeting. Only ground given
was danger from newspaper reporters at Sub
-Treasury.
At meeting Wednesday dug. 18.
1 Miller for first time suggested that Secy. coul



106•
not change a call ordered by the GOT, but I expressed a contrary opinion very
strongly.

At meeting Wednesday Dr. Yiller read a statement to be placed on

files explaining that no discourtesy to Secy. McAdoo was intended; that if he had
been present at meeting thfy would have attended at Sub.Treasury but in absence
of Secy. he felt they had a right to consult their own convenience.

rot a word

was said by him in his memo. as to it being illegal for Secy. of Treasury to
change call issued or order of Governor.
peared that Miller had withdrawn his memo.

When minutes finally approved vit ap.
In afternoon,late,Harding & Miller

had Secy. send out notices of n meeting the next A.E.

as Warburg had wired he

would be here.
Fridayt August 201

-Alliams wrote letter objecting to such short notice 8-r- said

he had had to give up an important engagement to attend.
informal conference with Se nator Smith as to cotton.
did not after all come down.

We had meeting after

It appeared that Warburg

After Williams had left,Harding

Miller said it

was evident that matters had come to such a pass that the powers and
authority
of the Board must be definitely defined lespecially in view of the letter
from the
Secy, of the Treasury calling them to account for their action
in Mew York.

Har.

ding said we ought to prepare by laws definitely settling as
to special meetings.
I said this would be agreeable to me.

Harding said that if Richard Olney had

been Gov.,Secy. McAdoo would not have changed the call implying thLat
he would
not dare to attempt such a thing. He added that he and his associates
,meaning
LA
.11er & Warburg l realized how intimate Mr EcAdoo and I were and felt
that for tha.

reason--he McAdoo--did not sufficiently bear in mind the powers
of chairman & Gov,
I replied that Secy. McAdoo ad not in any sense over-rule
me in changing
the call--that in my opinion as chairman,he had that right
but if the Board had
come together at the place he mentioned,it could then
by a majority vote have ad.
journed to the Bank or any other place favored by a
majority of its members.
I
added further,that if any member had wired me suggest
ing some other place for the
meeting,' would have gladly myself amended the
call naming that place. Harding
said the Secy's letter calling them to
account made it imperative to fix the aut.




107
status of the Board and if this were not done there would be a change

hority aid

in the personnel of the Board or a movement in Congress to radically ameit the
Act.

Later I was in Williams' office when

rdim came in.

He repeated his re.

marks as to Richard Olney and also as to possible changes in the personnel of
the Board(meaning as I understood it the resignation of himselfXiller & Warburg)
and the possibility of Congressional action if the authority and status of the
Board were not fixed,

He said a new draft of by.laws should be enacted covering

all disputed questions,

I said again as did also Williams that this was agreeabl

to me & asked him whether he would vote for a by.law giving the chairman,Gov..()authority)
vice.Gov. or my 2 or 3 members/to call a special meeting at any time. He said
he would vote for this and that Miller & Warburg also would. I said I doubted
this as I believed they were against giving any power to the Secy. of the T easury
to call a meeting.

Dr. Hiller down in the Board room after Williams had left,

said it was evident the members were not giving one another the mutual trust and
confidence -which they ought and that it was—imperative to have rules laid down
covering our power (1 authority.UPstairs when with Williams,Harding said that this
was a Democratic Board each member having as much power as the Secy, of the Treas1
ury and tht he had written the Secy. that he would discuss his action only in a
full Board meeting.

He seemed very indignant that the Secy, should assume the

right to call him to account.

From a remark made by Harding to Miller about an

appointment,I gather that they are to meet Warburg tonight or tomorrow.

This is a

mere suspicion on my part however. (Their contention that the chairman of Board
cannot call a meeting is made almost ridiculous by fact that Miller & Harding
themselves called the meeting for this morning to meet Warburg
Aug, 21, Saturday.

)

Sent a long letter to Secy. McAdoo stating as fairly as I

could,the position of Hardinglaller & Warburg.
Aug, 24. Tuesday.

Harding called at my house 9 A.M. on way to train going South.

Said he had had a long talk with Pres. Wilson going into detail as to his confer.
ences in behalf of State Dept. with British Ambassador & Sir Richard Crawford as
to buying of cotton by British Govt. to sustain price.
proved.

Said the Press fully ap.

Said Taller had changed his views as to policy of
rediscounting War




acceptances.

108.
Said Secy. had no right to call of fix place of meeting—that he

did not care personally where meeting should have
been held in N.Y. but felt
it was vise to keep with Varburg & /lin
er to head off any agreement together
they might make as Pro-Germans.
Aug. 25, Wednesday.

Several letters from McAdoo.

Asst, Secy. Allen said Har.

ding once said he very decidedly objected
to the members of Reserve Board risi.
when Secy. McAdoo came in to attend meet
ings of Board. Had long talk with lalla
ler. To my amazement he said he
had no doubt ald never had any against proprie.
ty of our sending abroad munitions
of War; also thb he had no doubt that acceptances for war exports were eligible for rediscou
nt by Federal Reserve Banks.
This seems to be absolutely reve
rse of his position at Y.Y. meeting &
thereto as shown by my telegram to
Delano

ii,:6010' to N.Y. meeting which telegr

was shown to Miller & assented to
by him before sending. He also attacked mili.
taristic class in Germany--related expe
riences of discourtesy by Army officers-attacked the Junkers—the landed gent
ry—said the militaristic classes & the in..
dustrial magnates had joined hand
s. Said his sympathies were more with France
than with Germany. I ras perfectly
amazed at this talk.
Aug. 28, Saturday,

Had long talk with Col. House—he said McAdoo had
consulted
him about row over N.Y. meeting
of Board--he had strongly advised him to considel
it as a trivial incident--as if
pressed too far might injure Federal Reserve Sys.
tem. I said real underlying
trouble arose from failure to give definite status
to Federal Reserve Board—that
they felt degraded and humiliated.-that whil
e Sec3
McAdoo treated them delightfully
personally yet they felt that officially he
rat.
her looked down on them; that
if President would give them the status they real
l:
deserved--say--just after Congress
and ahead of Asst. Secretariessin my opinion
matters would go perfectly smoo
thly; that there were many important questkon
s
looming up & if the members
individually felt humiliated,it would
in long run injure the whold
system.
in
Sept, 1. Wednesday.
Great dissatisfactionpaRes?rve Board over
Secy. UcAdoots
statement that he will deposit 30
millions in Reserve Banks at Atlanta,Rich
mond &
Dallas without interest to be
used in rediscounting cotton
paper, We all fgrt



109
that the Federal Reserve Banks by rediscounting can take care of every possible
demand (7: that such deposits will make it harder than ever for some
of the Reserve
Banks to pay expenses at this time. Furthermore the Secy. can
not deposit money
in Reserv Banks in trust for rediscount of any special kind
of paper. The money
when received must be used for rediscounting of all
kinds. This A.M. l!arding
said Secy. wanted us in framing regulation
s for lower rates in commod. paper to
provide that banks can get the lower rate on
Commod. paper only when they do not
charge their customers more than 2x the rate
of rediscount0
warburg objected to
this as it apparently fixed rates to le charg
ed by membbr banks and that too over
the heads of the Federal Reserve Banks. Finally
Warburg suggested that in the
circular we suggest to banks to issue appropriat
e regulations as to rediscount of
such paper to ensure the customers of
member banks the benefit of their specially
low rates. I talked with Secy. & said
I was not as yet certain we could in this
way fix rates for Member banks but in
any event we should not attempt it except
in some great emergency which was not
now before us as the Me mber banks were rotten with money. He finally agreed to
accept l'iarburgts suggestion. Harding daid
to re there was no need of any such depos
it but that he did not intend by objecting to be held up as a Judas by the
people of the Sbuth.
He agreed that 4arburgls
plan was the best way to put it through.
I am satisfied this is purely a political
move of the Secy. and am fearful it will
injure the Federal Reserve System.
Talked with Secy. as to 1T.Y.
meeting dispute. He seemed to want to have - fight
with the Board but I urged him to treat
the whole matter lightly. I told him frankly the whole underlying troub
le was in not giving the Board as official status
commensurate with what they believed
to be the importance and dignity of their
office. I said that while this quest
ion did not appeal to me at allt yet I could
see how the members felt. He
was very bitter about the matter and finally said
the trouble was with the Presi
dent who did not believe this Board should be placed
above the Interstate Commerce
& Civil Service Commission. I said the fact that
it
was a Bo2rd of which a Cabine
t officer was a member clearly differentiated it
from
any Commission. He said the
President was perfectly willing to put the Board
on a




parity with "sst. Secys.

110.
This was my first intimation of this; if the Presiden

was willing to do this,Secy. McAdoo had never told us of it.

I said,however,

that the Board would not be satisfied with this; that it seemed to them anomal.
ous to have the Secy. preside at a meeting of a Board .of which the members ran.
ked only a high as Asst. Secys.; that the very fact of disparity in rank of it.
self tended to magnify the importance of the Secy. as a member and to minimiz
e
the importance of the other members.

I told him frankly that the Board should

be given a status just below a member of Congress and above the Counsellor
of
State Dept, & the Solicitor General o as well as above Asst.
Secys.
He said this would make the Board more obstructive than ever as it would
swell their heads. I differed with him. I I told him -what Harding said

PS

to the

possibility of changes in the personnel of the Boardor in thelaw by Congress.
He said thqy might resign if they wanted to--he seemed rather to welcome this &
intimated that if the President were to see the correspondence he might take
someof them by the scrough of the neck. He said he was tempted to show the col'.
respondence to the President--but I believe he has already_pone this.

Secy.

McAdoo can not see the other side of this question--he cannot comprehend "what
the other fellow is thinking of".

On the other hand the 3 members and perhaps

also Delano do not quite understand or appreciate the Secy.'s position.

Each

side is destructively jealous and unappreciative of the other and I am fearful
it bodes trouble for the Board in the future.

I am inclined now to the belief

tht it would have been better not to have had the Secy. made chairman of the
Board but to have merely given him a seat on the Board,or even not to have him
on the Board at all.

His presence means and I am afraid must necessarily mean

jealousy and friction.
ler on the Board.

Nor can I see any good reason for putting the Comptrol.

He is merely the head of a Treasury Bureau under theOntrol

of the Secy. as to everything except examination of banks,possibly,and call of
Federal Reserve notes for which he is directly under the Federal Reserve
Board.
Am inclined to think the Comptroller should be taken entirely from
control of
Secy. & put directly under Federal Reserve Board,ceasing to be a member
of said
Board. Certainly he would not have been
put on Board were it not for his friend.



1.

ship with the Secy
Sept. 2. Thursday.

Secy. McAdoo decided to pay no more attention to N.Y. row

& so told Board,accepting their explanatiom.
y low rate on
We voted today to give Reserve banks right to make a speciall
Warburg agreed
commodity paper where the maker pays 6% or less to member bank.
max. rate
to the principle but wanted to allow banks in first instance to fix a
on original discount as a condition to getting the special rate; he also agreed
Drew amendment

to fix this condition at 6% if the banks fixed any higher rate.
expressing "arburgts views for purpose of discussion.

Warburg offered it later,

voted against it because of Hardingts statement of exigency.

I thought his way

of doing it was better than for us infirst instance to fix the condition but
ie.yrding said this would cause del- y & urged us to fix it at once.
decided to vote for fixing it at once.

I finally

Warburg & Miller voted No.

Voted to amend Regulation J. on acceptances so as to authorize drawing of
Ili)...
bills by seller or purchaser whoever he may be vi.e even a Foreign Govt.
ler & Wbrburg vigorously objected.

Warburg agreed,hov4ever,to let a Banker draw

for a Foreign Govt.
Sept. 3.

regulat.
Gov. Strong was present and earnestly asked us to broaden the

ionstas no one could forsee what might happen. He said the banks had ample furidE
to finance domestic business,rediscounts & foreign business.

Eiller,I think

yesterday,got very mad--said he drew the original of Regulation J.--said he
Noard
thought he had about reached the end of his usefulness as a member of the
--that we had surrendered to \Val]. St. etc.

The

SeAcy. asked him if he meant to
-s

impute any misconduct to his associates and he somewhat grudgingly said No.
Sept. 71

Wednesday.

Mr Harding said Yiller was bitterly offended because Har-

ding & McAdoo slightly changed

a press interview prepared by Miller & Harding.

The only objection he apparently had was to the statement that the Secy. was to
make deposits in the Federal Reserve Bnnks,as he thought this statement was an
implied approval of such action.

Harding explained that he thought that McAdoo'

suggestions of change were good e(!: he desired to make them & went with thou to
Miller's office but he had gone ec he--gave out the statement.



He said Mil-

ler told him he should give out a personal statement shoving his disapproval

112

of such deposits but finally he did not do this but instead wrote Harding a let.
ter which he said he could show to Warburg.

Harding sdid he was in doubt whether

he ought to open this letter at all but would consult Warburg.
me today how the members would feel if the President

The Secy a asked

ere to suggest to hiller

that his resignation would be for the best interests of the country.

I said I

thought there was no present occasion for this;-that Miller had no practical sens
nor experience but had a fairly good theoretical knowledge of Politicbal Economy
etc

and that perhaps it was wise to have one such man on the Board.

In my opin.

ion,Yiller is getting ready to resign.-his wife has been ill all summer & I know
he hates Washington at least in summer.

I believe he wants to go out in a blaze

of glory & is setting the scenery for the occasion.
Wednesday. Sept. 15.

Discussed commodity rate of 35. Secy. McAdoo felt that

those Federal Reserve Banks which declined to put in such a rate,--ansas
City,
Linnesota,Boston etc. should be forced to do so by Board.

Warburg vigorously

opposed this e: Harding veered from one side to the other.

Finally we agreed to

call on such banks for their reasons in detail and take up matter later.

Also

discussed question of open market regulations for domestic Bills of Exchange.
Warburg also vigorously opposed this;said our money was Reserve money and should
not be used in competition with ''''ember banks;that it made no difference whether
the Federal Reserve barks made their expenses & dividends or not.

Secy. EcAdoo

said he had had many talks with prominent people who said the Member

Banks with.

held rediscounts from federal Reserve Banks in order to prevent their making ex.
penses & dividends.
& San Francisco.

I said I had alsOobserved same tendency e.g. in E;nnesota

I added that Congress clearly intended that Federal Reserve

-arks should preserve themselves & that open market powers were given them
for
this & other purposes; if the member banks would not give them food,we
must give
them power to buy food in open market. Warburg said they
did not ask for this po.
were I said it was our Intyto frame regulations & give it to them
even if they
did not use it.

Warburg scoffed at this.

He forgot,however,thBt in March he too]
the opposite position when he asked that acceptance regulations should authorize



Federal Reserve barks to rediscount acceptances based on sales from one faagn
country to another, (See Sec4pd, 8)

Finally Warburg c C.S.H. were appointed a

committee to draft open market regulations covering domestic bills of Exchange.
P.L. I drafted such regulations & gave other members a copy; I included also ban
kers domestic acceptances.
3.30 P.M. Warburg & Harding came in with a report against giving any open market
powers even for domestic bills.

Warburg gave me a draft however,providing for

purchase of trade acceptances altho he said he would vote against it.

They both

objected to including domestic bankers acceptances in same draft and. I said
mould q) lit them up.

"Warburg said he diould openly fight giving any open mar-

ket power as to domestic bills to Federal Reserve banks--he said they were not
regular banks & should not be allowed to compete with Member banks using the
Reserve money paid in by the banks. He was very ugly.
yarding as usual,said
with
that altho he had joined/Warburg against sudi powerlhe was open to conviction.
I then made a 2nd draft of regulation for purchase of domestic bills and another
for purchase of domestic bankers acceptances and also wrote a dissenting report.
6.30 P.M.

Took a drive with Secy. McAdoo--he asked me what I thought of his

asking the President to call for EAllerts resignation--that he had lost all confidence in him--that he was an ultra conservative and had only sympathy for the
banks and none for their customers; he added that he thought Delano also was
tending to ultra conservatism but tliA
very obstinate.

he believed him absolutely honest altho

I depr4cated nny such action as to riller--I said the trouble

with him was that he had no practical knowledge of affairs and --distrusted his
own opinions and was inclined to accept those of the bankers; that he did less
work on the Board than any other member and that much of his apparent obstinacy
was due to lack of careful study which the other members gave to all important
questions, II could not deny his vanity and conceit but thought it not a bad
policy to have one pure theorist on the Board.

I pointed out that DRlano

worm

Iced very hard,that he was absolutely honest and hadaken advanced and very radi.
cal ground as to Clearings and Acceptances.

Secy. McAdoo was very bitter

against .larding who,he said,wanted to run with the hares and Course with the



with thei-4ettn4.e on every subject.

114.
I impressed on him the necessity of over.ru.

ling Williams as to examiners reports--I said the
Board ftembers were plainly rich
and that such an issue would injure Williams.
I said I had prepared a statement
which he asked me to give him. He said he thought
the Banks should have copies
of all reports.
September 16. Thursday.

This 4.,14 the Comm. of Governors came to talk with Mr

Glass (7: spent morning with him.

While in conference there came a letter from

Er Cotton,giving the opinion that
a Federal Reserve Bank could not receive a
check on a State Dank from a Member Bank
for ay purpose except collection. Also
an opinion that the Federal Reserve Bond
could not require Member banks to permit
their checks to be paid by Feder['l Reser
ve Banks out of their reserve depo3its
or to keep a balsnce with them for this purpo
se. I sent this down to
rburg
who showed it to Glass & the Comm. The
Comm. said progress was being made
thought in time the voluntary syste
m would work satisfactorily. Warburg cane in
while I had the opinion; I said nothing about
it as I suspected he knew about it
but he did not mention it. Later Willis
said Warburg told him that he had a copy.
He evidently thought I would conce
al it from the Glass conference. Later William
asked if anyone had a copy & Warburg
did not respond. We also unanimously voted
to defer the open market regulation
s until Delano returned. I have laid before
Board my minority report and draft
s of regulations. Warburg then insisted on in,
viting the Governors to our meeting—I
demurred but Harding joined in the request
and we invited them.
I the afternoon they came in--Gov. Ee)ougal-and Pancher.
After some discussion of the Commo
dity scheduls which thEy both opposedt me asked
them about earning their expenses.
McDougall said Chicago was about meeting it's
expenses & Pancher said Cleveland
was not. Secy. McAdoo asked 4ncher why this
did not show that Cleveland did not
need a separate bank and this seemed to trou,
ble him. I then asked Pancher if
the Banks in his district would like to be ass.
esses for the deficit & he said
No. I then asked if we gave him open market
powers to buy domestic bills if that
might not help earn his expenses. Pe
said Yes
and that he favored such
regulations. Gov. McDougall said the large
banks might
not object to an assessment but the
small banks would. He said purch, in open



market would antagonize the member banks.

They both agreed however,that 10.1-A•pov

-er should be given to the banks by appropriate regulations.

Warburg seemed

distressed at their remarks and told me we would hear from the banks shortly.
Both offered for approval a

al 5 commodity

rate & same for trade acceptances.

On my motion the conimodity rate was held up to await report from San Francisco.
Warburg fought this.

Harding said we had put through the Vo rate in the South

and we had better drop the matter,implying that our course could not be defended
This was tantamount to saying he had deceived us into voting for the 3

rate.

He evidently does not rant to interfere with the Member bank rates except to
please his own constituents.
Sept. 21. Tuesday.

At meeting of Federal Advisory Council4Mr Forgan said that

the executive committee held it's meeting in N.Y. in the library of ris Morgan,
one of it's members; that Ebrgan,referring to their coming down to Washington
to attend full meetinglsaid they ought to have a private car and turned to an
officer or director of the B.& O. R.R. and asked him to arrange it which he did
and the members came to Washington in a private car furnished by the B.& O. R.R.
Sept. 22. Zednesday.,Secy. McAdoo said yesterdu,President was very much
distur.
bed over Miller--felt he added nothing to Board and was considering calling for
his resignation.

McAdoo said he

VMS

tempted to ask him to do this.

I begged

him not to do it as it would be claimed it was done to control the Board.

He said

Miller ha d written a nasty letter to ff2rdirg.
Sept. 23. Thursday.

I told Secy. McAdoo,in my opinion would be most unwise to

call for Miller's resignation or to remove him; that the other three Elppoint.
nundr..sx .ted members Delano0h7burg & Harding would line up with Miner,

"But

Miller would be out of the Board" he said. I then said I feared they would
also
resign. "et them resign„.I dont care" he said.

He really seemed to have lost

his head,altho Tuesday he told me that it would be very bad,politically,to have
any split in the Board prior to the coming election.

I told him the Board would

in all probability recommend amendnents to the Federal
Reserve Act to Congress.
This seemed to infuriate him,he seemed to
think they had no right to do this.
I said they clearly have a
right in their report to Congress to make any recom.




116.
they saw fit by a majority vote and that rii:
“If the members could of
course lfile a dissenting report
. He said the President would make diort wor
k of
any amendments he did not fav
or. Secy. McAdoo seems to feel that the
Board is
subordinate to the Administr
ation as represented by him..his attitu
de will lead
to trouble in the near future.
mendation

Today,Hardirig gave me a copy of a memora
ndum written by Warburg--his initials
were at the top--but signed by Warbur
g & Hardirg ,in reply to my minority report
favoring giving open market powers for dom
estic bills i.e. trade acceptances and
banking acceptances. It was most sar
castic and almost insulting in terms. It
said that the question of earnin
gs was more important to me than the future and
safety of the system. It was als
o very sarcastic as to my statements of desire
to prevent the banks from lan
guishing. I shall answer it. It spo
ke of the danger
of low rates but Harding did
not see thtisdanger when pleading for
a 3% commodity
rate for the cotton growers
of the South. Harding t the meeting tod
ay,explained
Secy. McAdoo's deposit
in the Fede-ra Reserve Banks as a
shrewd political stroke
of the Administration to
curry favor with the South--saying
this was the idea of
Secy. McAdoo in doing it.
Warburg &: Harding evidently thi
nk that the Federal
Reserve Board is simply
a representative of the Banks and
that the public have
no interest--unlessl as
in Harding's case,cotton is inv
olved. The unit with them
is the Bank & what is
good for the banks,the public
must be satisfied with.
The Bank of England,of
France & the Reichsbank all hav
e power to loan directly
to the individual & the
Federal Reserve Board,thro open
market operations should
have and will have--when
we make the regulations—hav
e a similar right.
Sept. 24. Friday, After
the meeting,Compt. Williams
asked 'Harding & myself if we
saw any impropriety in
his buying some cotton, ")e
both said Yes as he had infvr.
mation as to action of
British Govt. which the public
did not have. He then asked if it mould not be
all right for Mrs Williams
to buy some. We gave same ans
.
wer,
Sept. 24 Friday to Monday
Oct. 4 at hattapoisett.
Oct. 4. Monday. Federa
l Reserve Agent il.rtiss
in Boston told me Warburg had
written him a letter on
subject of open market
purchases setting forth the
arguments



117.
pro & con.

Warburg never told any of the members as
to this

in hands of Comm.

PS

matter is still

I consider this action treacherous.

October 6. Wednesday.

Delano showed me a draft of report signed by
him as one

of comm. on Rediscounts (7. Govt

denositspseverely condemning Secy. UcA
doo--stat.

ing it was a purely political
move to make this deposit—that it was dont wit
h,.
out any consultation with Res
erve Board and—they were not responsib
le for it
and suggesting that Congre
ss amend the law as it enabled Secy. to fru
strate all
plans of Reserve Board.
I told Secy. of this and he was furiou
s. Delano said
he vas inclined to think
matter had better be dropped. I told him
the Secy. was
given right to do this by
Congress (7%: that if we interfered in a pol
itical fight
such as thistit would destro
y influence of Board & perhaps the Boa
rd itself.
Willis told me Warburg had
shown him a draft of histrky of Accept
ance regulations
which severely criticized
me for changing my views. I wrote War
burg asking him
to let me see it. Delano
told me Warburg had shown it to him
.
October 7. Thursday.

Representative Glass called E. said
at Warburgls request he
had had an interview wit
h him at his house last evening Oct
. 6. Said from what
Warburg told him there was
evidently a serious condition of div
ision in the Board.
He said he warned War
burg that if open market purcha
ses not authorized by Board
by regulationt the Board
youIl be severely attacked in Congre
ss & he also would
attack it. He said he
failed to convince "Warburg howeve
r. I told him p confiden.
tiallytof the status
of the metter,& spoke of my minori
ty report. Glass said
there would be a strong
movement in Congress to displace Ml
iams as a Member of
the Reserve Board—that
he felt that the office of Com
pt should be represented
on Board but that the
trouble was with the Le_rsonality
of Williams. I told him
of the examination
controversy & he said it was clearl
y the intentEk of Congress
that the Reserve Board
and the Reserve Banks should
have copies of all reports.
I gave him a copy
of my analysis of the law
(7- brief. He also said there was
no
possible doubt of the
right of Reserve Banks to go
into open market to secure
revenue for expenses &
dividends.
2riday,Oct. 8. At 1
minute before 11 this k.E.,H
arding brought in a letter to



118.
Feder- Reserve Agents on open market purchases which he said the majority of
the Comm.(Comm.

c.s.H.--W.arburg & Harding) had voted to present to Board in

lieu of open market regulations.

I thought it rather strange that I was not noti

fled of such meeting,especially as yesterday I told them I was engage
d on an answer to their 2nd1 report,attacking my position.

The matter was called up by

Warburg at the full meeting this A.M. & I very quietly stated
my dissatisfaction
with the Comm.'s action.

Warburg said there were no reports ever given official.

-ly to Comm.--they were merely exchanges of views.

I demurred to this statement.

Finally the proposed letter vasread,I said that itundoubtedl
y gave the Banks
certain open market powers but was really a regulation in the
form of a letter to
Federal Reserve Agents and that I should vote agains
t it. I then gave copies of
my minority report to Warburg & :Barding.

Finally on Williamst motion,we referred

whole matter back to Comm, to report at an adjourned meetin
g and I gave 'Alija=
a copy of my report.

I told the Members that Mr Glass srid yesterday a letter

would not be satisfactory; Delano said Glass told him that
he thought it would
be satisfactory & Wraxburg said Glass told him he recognized
the danger of a regu.
lation at the present time & thought a letter was a good idea
as it could be tur.
ned into a regulation at any time.

Harding made a characteristic speech saying

he vas sick of votiriE to please this man or that man
& he served notice that
henceforth he should vote as his oath of office dictated.
all of us had done this & would continue.

I replied that I assumel

Finally we met as a comm. & Warburg

& Parding voted to report in favor of sending the
letter instead of regulations
& I voted against this & in favor of regulations.
We then had a full meeting of the Board(Except McAdoo &
report & my minority report laid before the meeting.

& the majority

I moved to substittte the

minority report--thpt it was the duty of
the Board to frame regulations & that
we should do this at once. On my motion
to substitutA,Williams & I voted aye &
Delano o'4rburg & Parding,ro. On the
majority report s we all voted in favor--I
stating that the letter was better than
nothing ° was all I could get and--I
zhould vote for it. William told
me Warburg wanted very much to be Gov. of the
Board a that was why he was so
irritable; that he had tried to have the GOT, go
by



119
Delano told me he & the other

rotation,but Williams said this was absurd.

members were very angry at Secy. McAdoo's action in publishing the President's
letter to him favoring establishment of branch banks in South America by
Reserve B- nks--as an attempt to force the hand of the Board.

eder,s31

Warburg oat Secy's

request had prepare,' a report on this & had reported against it--this report was
referred
zorfurrdftto a comm. of which Delano was one and they will shortly report on it
;1I fear there will be a row.

Today the Comm. .-Warburg &

arding & I think

Delano reported in favor of waiving the Municipal warrant regulations so as to
permit the Federal Reserve Bank of Boston to purchase Municipal warrants altho
the Municipality was under 100GM population.

Federal Reserve Agent Curtiss spok

to me of this in Boston and later Gov. Aiken wrote me officially.

At first the

whole Board were in favor of it except that j'a.rding said we might be embarrassed
by applications from Southern States where the Eunicipalities were not sound.
I said I favored the exception but as it involved my State I should much prefer
having it carefully studied by a Comm.

The Comm. reported unanimously in favor

where the Town notes were registeredPiAldf),Ithe Mass law & it was so voted.
Oct.12.. Xuaddyy.

Left for Indianapolis.

Oct. 13. Wednesday, Addressed Indiana State bankers J. ss. Splendid meeting.
Secy. McAdoo told me that the - eserve Board Comm. reported against his & the
President's plan for branches in South America
the report was discourteous & he

WPS

of -lederal ;serve Banks--said

evidently much troubled about it.

It was

suggested that it be recommitted to the Comm. to report back a plan for amending
law to permit- Municipal Banks to own stock in a corporation abroad.

Miller ob-

jected to any recommittal--said country was stirred up at attempt to thus influence the Board.

Finally it was recommitted but an interview or rather a

statement was given to Press that the Secy, & President's recommendations were
not approved.

I was informed that Secy. McAdoo finally agreed to this statement

being given out altho he did not approve it's contents.
The statement should not have gone

out--it was a direct slap At McAdoo & the

President & vas so construed by the papers editorially--the N.Y. evening Post
Phila. Ledger,N.Y. Sun. (See Scrap-book)



EcAdoo told me he gave out the President's letter merely
to please the South
Americans & that Cooksey published it without
his knowledge;that he never though
even of antagonizing the Board. This is another instance
of lack of tact on his
part--he should not have published
it--but on the other hand,the Board should
not thus publicly turn down the Secretar
y & President.
At the meeting in Indiana,FederaI Rese
rve Agent Bosworth in his speech advocat
ed--amending law. 1. To limit
capital stock of Federal Reserve Banks to amount
paid in -1 ; 2. To abolish Comptrol
ler & put his function under Reserve Board;
3. To prevert Secy making any depo
sits in Federal Reserve Banks except with
consent of and in manner prescrib
ed by Federal Reserve Board.
He met me at
breakfast & said what he intended
to say would make me very mad. I told him I
was not mad at all but that I did
not agree with him as to 2 & 3; that it was a
question of good taste whether he
cared publicly to attack the Comptroller & Secy
but that I believed in free speech
& it was for him to decide. I am satisfied
from his mannekthat he has been
put up to do this by other influences.
Oct. 14. Thursday.
Delano & Harley gave dinner to Reserve Board
& Federal Trade
Corission. Afterwards I told
Williams of Bosrorth's attack & that undoubtedly
there would be a strong movement
in Congress to remove him from Federal Reserve
Boards I advised him strongly
to meet the attack by showing that under exis
ting
law he was under general cont
rol of F.R. Board & begged him to yield on matt
er of
reports of examiners. I advised
to take ground tht if the P.R. Board passed a.
resolution that the P.R. banks
should report to Board as to condition of all member banks & should then ask
him to give copies of his reports to the F.R.
Agents
to say he would do so--leaving
the responsibility for use of the reports to the
Board. He said he would think
this over.
October 19. Monday,

Willis told me that while I vas away,he
ras called on telephone by
rburg & asked to come right
over to his house. On going there,he foun4
WarburgOaller,Harding & Cotton our
N.Y. attorney. Warburg had prepared
a bitter
attack on the Secy. in conn
ection with the joint agencies of F.Rq
anks which he
had shown
that 77illis expressed himself
against it cic said if anythin4



121.
were needed Warburg should put it in form of a resolution deliberately attacking
censuring the Secy. and then fight it out; that liarburg that evening had a ser.
les of resolutions & was auite t7ngry when Willis said said they were better than
the original report but he did not believe in them.
took his vier.

Finally at 12 at night,Willis left.

Willis said Cotton rather
The next day,he said,EcAdoo

called him in the morning to his house & seemed greatly disturbed;that Willis ad.
vised him to make every concession to keep harmony.

That whe Sc,cy. went to the

meeting C.; tried to have the whole matter postponed until his return by reference
to a comm

which would make a unanimous report to which,Secy. said,he would agree

--favoring amending the lay to permit Yember Banks to unite to form corporations
in foreign countries

e said tie Board absolutely insisted as a condition of

doing this--upon giving out as immediate statement to the public; that a Comm.
was appointed to prepare one and later Secy. McActoo loafter some minor changes,agree
to it. Willis said he was sorry McAdoo conceded so much as he had agreed to
a
statement in effect that,where there was any Uational Bank in a foreign country
F.R. J;iarks would not establish agencies there—which to his mind was a fatal mistake.

Willis, also said that Cotton told them at Warburg's house lthat the 'whole

country was laughing at the F.R. Board,it vas so dominated by the Secy,
This afternoon,' sent Harding a letter with regard to the petition
of Ifew Orleans branch bank for authority to purchase in open market State Bank accepta
nces,
arding,by letter had replied intimating that it might be possible to amen0, the
Acceptance regulation to permit this.(Exactly the reverse of his position
in his
majority report)

I favored such an amendment & accordingly wrote so to .PardirE

who replied rather equivocally but not at all against
it. Later,Warburg,to whom
I sent a copy,wrote a rather offensive
letter asking how I could have written
such a letter,exciting as it Tpould,dissension among the
Member Banks. He evidentl3
. inks onlyof the

ember Banks aril I will reply to him tomorrow.

To show absur-

dity of Harding's & ,arburg's majority report
that the Reserve Banks do not want
power to purchase domestic bills in open market
--Atlanta has asked to have rate
fixed & Cleveland & Phila. I thirik,have
said they favored it;also Gov. Strong
wrote he approved but that it should have been in form
of a„...liillajblatt=1.



This p.m.

1241,
arburg also Eave me a copy of his history of the Acceptance regulations

in 7hich he bitterly attacks Williams & myself for our sudden change of views.
He alrefully refrains from attacking Harding,who has constantly changed on this
and every other question but he says in effect that Harding knew he knew little
or nothing bout Acceptances & was 'willing to abide by his,Wafourgts,judgment
After that,I confess any attacks on us must be considered mild!
He lets Miller off very lightly altho he has acted like a weather vane upon the
whS le subject.

Pe is evidently very mad 'with Williams & myself and faintly implie

that we were influenced by some improper motive.

fie utterly ignores the opinions

of Counsel as to War acceptances &, drafts vhich have been or may be used for ima.
portations or exportations; also the opinion of Counsel that F.R. banks are not
Govt. institutions & that vle have no Power to forbid or restrict War acceptances.
I shall make an extended reply,that will cause him to take notice'
."
.11410.41'..
An opinion from Elliott handed in,that F.R. Board had no juri

$410. •

Oct. 21, Wednesday.

V.1•41110.

je

--sdon over Comptroller except

•,474...s.
11110444.:11114.4: ..4111 4....e.40:„.

aS tO

F.B.notes but that Comptroller was bound to

furnish examinAtion- reports or copies to aid Board in fixing salaries of exa
ers; further that Comptroller could legally give Board such reports to assist
Board in determining condition of member Banks Ec that Act contemplated but did not
require such action.

Delano was angry at this opon which he said sl]ould have

been given to the Comm. of Board & not sent direct to Board--also said he yianted
to go over matter with Elliott before he

it.
IIM

ilater it appeared that the

Comptroller--the Chairman of the Comm.—had asked Elliott to give the opinion
'
The Comm. had been directed to give Elliott my opinion but it did not appear that
he had used it.

Pter I asked Elliott J, he said,while he had seen a copy of my

opinion,he had not read it as he preferred to reach his own independent conclusions
(I that he thought it more courteous not to seem to over-rule me.
was thromn avay.

Thus all my work

Yesterday Varburg told me he had sent my opinion to Cotton who

had replied that while he had not gone into the matter carefully,he at first blush
was inclined to differ with me.

The Comptroller was not present until we had

about finished our meeting,& D'lano reported that the Comm. had made no progress



with Comptroller as to examiners reports.

123.
Later the Comptroller came in & an-

nounced that ; in accordance with a suggestion of the Board made long since.he
had decided to instruct examiners or at least,to provide that examiners reports
should hereafter be shown to the banks examined; that he hould divide the Reports
into 2 parts;that part 1. should be given to the banks examined &a copy also to
the Federal Reserve Agent.

We had already,before Williams came in,passed a vote

to urite F.R.Agents asking what in their opinion should be contained in Partl,
Delano saying the Comptroller & Comm. agreed upon this.

Delano however did not

tell us that Comptroller had agreed that Part 1 as finally determined upon,should
be given to P.R. Agents & further that Part 2 should be shown F.R.Agents upon
request of Agents or Govrs. in case any bank had rediscounted or asked to rediscountor if forLaLa_Qthar..-r.eason

such information was desired.

It seemed to me

that this indicated a desire on part of Comptroller to come over to our position--of course tit all depended on what was ultimately determined upon that Part 1.
contain.

Warburg,however,instead of waiting to find this outIbegan to fuss &

fight,apparently taking the position that there was nothinR which should not be
communicated to F.R.Agents.

He really seemed much annoyed at the Comptrollerts

seeming readiness to meet our position & to want a fight.
feel the same ray.

Delano also seemed to

I explained to Board that we had better wait until Part 1.

as determined upon as that might meet all desires.

Taller moved that the Comm.

at once obtain an opinion from Cotton; I replied that the matter was in the hands
of the Comm. & that they had full power to do this.
time 8, I thought

We discussed this for some

rburg would have the fairness to disclose fact that he already

had consulted Cotton but he remained silent,
admitted that he also knew of this.

Later I spoke of this to Delano & he

I felt this was not fair to Williams & later

I told him of the reference to Cotton & what he had said.
At the meeting on Tuesday,Comms0 were appointed tp consider all pending redistricting & red signation matters.

I pointed out that we had officially announced

long ago that we should not make any more changes in the work of the Reserve
Bank Pt t/q)

but that each case must depend on the working of experience.

DR, hiller found this announcement & after some discussion,all agreed that this



124.
A Comm. --/as also appointed to consider amendm
nts to the Act--they
were willing to put me on
this Comm. but I felt that it would be bett
er to put en.
tire responsibility on them &I
suggested that Delano had given much consider
ation
to this & should serve on it &
this was adopted. I am satisfied that they inte
nd
to recommend cutting down the
Districts to 8 & that they have banded together
for
this & other purposes. At meet
ing today they also dropped Williams off of one Corn
--I think Comm. on admissio
n or State Banks--on ground that Williams coul
d not giv
the necessary time to the work
.
I said I thought this not expedient but Hard
ing
insisted with much earnestn
ess (3; it was so voted. Warburg was very indignan
t at
being called to account by
Secy. McAdoo for his action in refusing to attend the
r.y. 'eeting at the Sub-Treasury,but he did
not hesitate to call me to account for
my daring to Trite Harding favo
ring giving to N. Orleans branch bank power to
buy
State Bank acceptances. I repl
ied to him civilly explaining my reasons but
would
have been justified in writing pret
ty sharply. (See page 78) He also called us
to account in his 16.emo1 on hist
ory of acceptance regulation.
October 29. PT:iday.
Eprly this week the Board voted to drop Will
iams from Chairmanship of Corm1 of
on ground that he never called meetings & did
not attend
to his work. I advised consulti
ng Williams first but was over-ruled. Later Will
i.
ams came in & Liller told him
nothing had been done not in docket--a mistake
but
made unintentionally. Then
Williams wrote two hot letters to Board.
Finally
at next meeting,Board decided
to drop all reference to removal as Williams had
written letter resigning from
Chairmanchip and later another resigning from
2 Comms
but said nothing about State Bank
Comm. of which he is still 9 member. Wr9rburg
es
Harding linid if Williams wished
to retain these letters on the files,they would also file memo, of their °Tn.
I asked Williams and he said he wished them reta
ined
on the files in response to
a letter from me. -L ater he wrote MB a letter
very
equivocal & I rote another
asking him directly wIA his -wishes were.
Last -iednesday,Wellbu
rn of Atlanta B9nk,nired for authorit
y to buy Georgia warrants in excess of amount
allowed by our Regulations.
.rding was decidedly ad.
verse--said it would open
door for Alabama & other States
who would take all the
money we had; said he did
not think there was any tax fund
or money receivable
was correct.




against which warrants could be issued—thnt the law permitted issue of 125.
warrant
in anticipation of appropriations to be made in
future by the State; also thong
the maturities were beyond 6 months; expre
ssed opinion also that amount already
bought vas illegal.

We wired 7/ellborn for full particulars & said Board did

not favor waiving regulations even assuming--(v
hich vie d)ubted) law had been
complied with. Said however,other P.R.
Banks might possibly buy some. At an
earlied date Harding had read to us
a newspaper clipping saying Secy. NcAdoo
had approved such purchases. I said I
did not believe this. Above telegram
shown all members & approved by them
. Williams especially indignant at this
action and at statement in press as
tp approval by EcAdoo. 'de all felt LcAdoo
made Govt. deposit to help move
crops & not to furnish Atlanta -bank with funds
for investment. I felt that it --oul stul
d
tify McAdoo to have this money used
for investments. As a fact, disregardi
ng the Govt. deposits,Atlanta Bank has
still a margin for further loans
are. the critical period is about over and loans
are beginning to fall off.
Oct. 30. Saturday.

7d1lis said Comm. on redistricting—Delano,warburg,Eardi
ng

called him in and laid before him plan
of redistricting;
1. Atlanta & Richmond consolidat
ed with Bank at Richmond.
2. ST. Louis & Kansas City cons
olidated.
0'
3. Einnb

merged in Chicago.

Said also Warburg wanted to annex:Boston to

LY. but Miller objected.
4. Think he said Connecticut was
added to Y.Y.
Willis was furious about it; said
Reserve Bank reorganization Comm. plan,to his
mind was faulty but proposed plan
made it worse.
1. Consolidating two paying
barks—Atlanta & Richmond.
24,

unit nit II II II II II II II II II II II II
II II II

two weak Bi
c.nks,St. Louis &

ansas City.

bald Comm. only reason was
to make clearance system easier;trouble was,h
e said,
--we had never established
clearing system; said Comm. clamed would save
ex.
pense.but would destroy P.R.
14otes—a much greater loss than any gain
in expens
as Comm. kept Branches in all
cities discontinued.
Intimated that Comm. had
consulted banks—e.g. Chica
go & Decker in Minn. as to this.
Delano leaves to.



126•
he has gone to consult with Burke, He told me he
suspec/
was going but did not say why. Willis thinks only reason for change is to dlow
-night for Chicago--I

Board is independent of Treasury.

Board voted

that no more changes in

Reserve Board re-organization Comm. plan--each chang
e must rest upon experience.
There has been no experience warranting this & in my
opinion will be hailed an
announcement that P.R. System is a failure as at prese
nt constructed. lb one ha
asked for R. change. rio one has applied for a
Rediscount. Everything has gone
smoothly. As Willis said,from all we have seen--sy
stem has worked perfect14
Changing Minnesota will be hailed as
vindication of Gov. Burke's attack on lann.
bank.
Elliott in January gave opinion banks could not
be cut down save by
Congressional action. Will Warburg follow this opini
on ? He criticizes me for
not following opinion as to Acceptances betwe
en foreign countries.
Wednesday. Ilbv. 3.

luestion arose of permitting P.R. Agent Rich to appear be-

fore Board with relation to Mosher 2ppointmen
t as his assistant. Warburg very
ugly--said had been referred to
yarding & himself as Comm. & had not yet been
reported. 1 said they had reported
generally and this report circularized & we
did not know the, had any further
report to make. Finally I was added to Comm.
(
& instructed toil him--Rich,at
7 Pel
'
a
Also on notion of Tilliamspit 'as voted
to take no action until 7-?ich had been
heard by Board. This made Warbu
rg even more ugly.
He seems to think that the
full Board could not hear anyone
without reflecting on the Comm. Miller had just
said matter might involve wipin
g out of 'Kinn. Bank--I added tht if of that
importance,Rich surely had a right to
be heard by full Board & Miller agreed to
this.
At 3 P.M. none of the Comm. appea
red--it seems they are lunching at the
Metropolitan Club--they had not
returned at 3.45 so I asked Rich & Williams to
dire with me. Later Delano
explained he did not come in order to give me
a chanel
to see Rich alone. Miller
evidently is going to use this as a pretext
for voting
to destroy Minn. iallk,
Miller also said Broderick's report
on the Atlanta Bank
showed irregularities warra
nting abolishing that Bank—another
excuse for so vot.
ing.
I read Broderick's repor
t & while it did disclose a number of irreg
ularities,' could find nothing not
curable by a simple order C,'.
I wrote asking Miller



127.
what he relied upon in the Report to warrant his conclusion that the Bank should
be abolished.
Later Delano said he hoped the Administration would not seek to make political capital out of the success of the F.R.System o the others--Williams had left
seemed cordially to agree with

Delano said the Republicans would denounce

the Act if credit for it was claimed by the Administration.
Comm. on redistricting not yet ready to report.

Delano reported

Williams later read me a letter

from $rding in which he said he would oppose putting Comptroller under F.ROBoard
intimated Comm. might decide to postpone redistricting for a year.

H. is

evidently weakening.
Nov. 4. Thursday.

This A.M. at meeting,Harding wrote on a slip of paper "you

have stumped DR. M4 11er by your letter"--referring to my letter of yesterday
of
asking him to tell me what facts in the report/nrodariEk
on Atlanta . anko he
relied upon to justify his statement tht report proved the necessity of abolish,.
ing the Atlanta Bank.

Delano also said--"The fool to blurt this out while it was

still pending in our Comm.":

Later I vrrote Dr. 411er another letter asking

him what the facts were in the dispute between Rich ," the Minn. Pank warranting
his statement of yesterday to the Board that the issue in his opinion might warrant the abolishing of the Minn. Bank.

While I

was

in Indianapoliso the Board

issued a statement that the transfer of Minn. Bank to Chicago was not under consideration by it.

This was an attack on Gov. Burke,but was not true as evident-

ly the matter was then being discussed by the Comm.

Asst. Secy. Allen told me

todaytthat Willis had told Warburg I had obtained from Elliott his opinion given
in January that Board could not cut down P.R.Banks; that Warburg et als had sum.
moned Elliott before them; that he said he could not change his opinion but was
more then ever convinced of its correctness when it vas considered that the Bank
were chartered for 20 years; that the Comm. had determined to ask an opinion of
Cotton.
Noy. 5. Friday.

Conference with F.R.Agents.

They voted unanimously that all
of
examiners reports should be given to P.R.Agents & Govrs.. Much/discussion was
on question of paying back to Banks part of capital stock already paid in.



At

128
dinner in eveningohole time given to this & all taken down by stenographer.
The F.R.Agents were divided in opinion.-Eaxtin—Tennison—Ingle—Curtiss were
strongly against it.
to favor it,

Wellborn strongly for it—Jay not certain--Perrin inclined

likrburg positive for it.

After long talk decrying any necessity

for making expenses,he used fact of deficits

as

imperative argument in favor of

lowering capital on which dividends must be earned.

His argument based on fact

that whole success of system depended on good will of l'ember Banks--if they were
irritated they would make no voluntary deposits of gold and we could not amass
It so that in future large demands for export would leave us helpless.
dent purpose is to clip wings of F.R.Banks & prevent them from

my

with Member 13anks.
rn

His evi.

competition
•

Ingle showed this up--said we are asked not to go into open market for fear
Banks would be offended—now we are asked to buy back paid in capital for same
reason--where will it end ?
Miller spoke well—pointed out that for Reserve Board to ask for amendment to
law would be admission that Present abnormal_ conditions were usual hormal con.
ditions

2
that Reserve Banks were purely emergency Banks—to rest,

ing for emergencies.
.ment.
anks.

while rait.

Even Perrin agreed would be folly now to ask for such amend

Warburg is evidently willing to cripple whole system to please Member
At morning session,we voted to permit N. Orleans Bunch Bank to buy State

Bank Acceptances in open market—Warburg alone voting against it,
done,should be in form of a general regulation open to all.

fte said if

I agreed to this &

moved such a Regulation.(Uhich Warburg of course did not rant)
Finally we decided for present to try matterout by giving permission to
Orleans

reWao

later consider question of a general Regulation.

Warburg seemed furious with Harding for changing his views,and,I thinks with
good reason.

Every word Harding said was directly contra to the majority report

he & Warburg signed against my minority report.
Nov. 6. Saturday.

At meeting voted unanimously to issue Regulations covering

open market purch, of State Sank Acceptances secured by CommodV. :ven?rbcarg




129.
voted for it altho absolutely in opposition to his majority report,supra.
Think Warburg realizes that his talk at dinner of F.R.Agents in favor of repaying large part of capital paid in
to F.R.Banks and harking on fact that whole
System depends on good will of"
-ember Banks--all takeh down by stenographer--has
put him at last on record P.,; he is scared.
YOVa

8. Monday.

Williams told me Harding told him that Comm. on Redistricting

could not agree--that Warburg wanted to annx 7orth Alabama to Cleveland district
and iliarding opposed this.
Gave EcAdoo letters & plans of IT.Y.PPnk for new quarters--McAdoo said would be
very sorry to have Bank give up quarters now rented from his frien
d Pliny Fisk.
Williams who agreed with all of us the other day
as to advisibility of change-this P.M. said to me Mceoo--other things being equal--h
oped no change would be
4
madelbecause of his cordial relPtions with Pliny
Fiske.
Nov. 10. Wednesday.

Willie told me this A.M. that there had been a consultation

between redistricting Comm. 1,c Miller
(not on Coum.) with Ex Cotton; that Cotton
advised them that he thought flowe
r to create new districts up to 12.--carried
with it power to reduce existing
districts dom. to 8; that argument vs it because
banks have charters for 20 years was
P pin prick argument but that clearly the
Courts could be appealed to & it
would be 3 years before Supreme Court could fi.
nally settle the matter; he also
said that in his opinion the grounds stated by
Comm. for redistricting were very
weak and inconclusive v and that it would be folly
to attempt to change districts
unless Board was practically unanimous in the matter.
Thus it appears that a majority
of the Board has had practically a caucus with
Cotton -without letting the other
3 members know anything about it. While the
Comm. could clearly consult with
Counsel--to call in Miller also was a most extra
ordinary proceeding. I asked Williams
he said he did not know of any such cau.
cue nor was I ever notified
or given opportunity to consult with Cotton.
Yesterday we sent a stiff
letter to the Atlanta Bank based on Broderick'
s repor
Today Willis said Brode
rick told him he did not consider anything
in report neces-arily indicated a serious
condition,as the paper might be liquidating
& if so