Full text of Charles S. Hamlin Papers : Writings -- "Memoranda Concerning the Federal Reserve Board...," Diary Vol. 6, 29 Mar. 1920-12 Oct. 1922 (pp. 412-483) (9 of 19), Box 357, Folder 5

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

The Papers of Charles Hamlin (mss24661)
357 05 001-




Hamlin, Charles S., Miscellany, Writings,"Memoranda Concerning The
Federal Research Board...," Diary Vol. 6,29 Mar. 1920— 12 Oct. 1922(PP.
412 -483)(9 of 19)

CHARLES HAMLIN
PAPERS
Box 357 Folder




Miscellany

-r-I /4G.SZ, - —
"IM-morzfr-i-L A
a0 1-,1
1,%.) 1Z.

1)--t Cia

--r-44

0 rA
u 0 Ls,
(i›p, Li I

ca9a.)fr_. IQ
-

g

—
(

CF

1 9\

1

41_2.
VOLUME VI

March 29, Monday
Secretary of Treasury said he wanted to obtain advice and
assistance of Board, as he was authorized to do, under Railroad Act,
to pass upon adequacy of securities offered by railroads for advances
under the guaranty and loans from Revolving fund, we decided it was
necessary to appoint a committee to assist Board:

we sent for Comptroller

of Treasury who said that the Board could pay and assess vs any Reserve
Banks any expenses necessitated by anything Congress ordered Board to do.
We voted to appoint Warburg, Delano and Bradley Palmer a
committee of three to assist us.

Dr. Miller proposed Delano's name.

November
The Board is being beseiged by farmers--cotton and wheat growing-to give instructions to Federal Reserve banks to advise member banks to
Increase loans to farmers, that our alleged policy of deflation had nearly
ruined them.

Governor Harding and Houston gave out figures to show that

loans to farmers since Armistice had increased enormously.
A strong effort is being made to revive War Finance Corporation
Act.

Harding and Houston opposed this before Harding and Senate Committee.

While it would doubtless cause an increase of inflation yet I am not at
all sure it might not relieve the situation although from the Treasury
point of view it would increase the many exciting perplexities.
Anderson pointed out that probably a material part of the

3 or

4 billions of credit granted to foreign purchasers by our exporters were
carried out by rediscounts of war obligations and commercial paper and
that the Federal Reserve System was really carrying the load.




I feel that

413.

the revival of War Finance Corporation Act might reduce this burden at
least in the future Inflation is an almost inevitable result of War and
I am not sure nut that to some degree it is essential to restore peace
conditions.
The Senate passed a resolution recommending that the Federal
Reserve Board 'pursue a more liberal policy in granting rediscounts to
farmers.

Also amendment offered fixing

as maximum discount rates of

Federal Reserve banks.
Harding told some Senators that if this 5(;70 amendment became
law, he and a number of members of the Board would resign.

This may be

his own view but I doubt whether any other member would resign.
The H.R. struck out this resolution and yesterday, December 20,
the War Finance Bill passed both Houses but with the Resolution eliminated,
it now goes to the President.
A few weeks ago a Bill was introduced making cotton factors
paper eligible for rediscount.

All the Board agreed if passed, the paper

should be secured by warehouse receipts covering readily marketable
staples and that the word cotton should be stricken out making Bill apply
to all Factors and commission merchants paper.

Williams and I voted

for it and the rest of the Board voted against it.
Harding should say a majority

I insisted that

of the Board opposed it.

Platt said he

thought the bill would do no harm but he joined the majority against it.
I pointed out that in New York certain commission merchants paper was
being taken for rediscount which was same in principle as Factors paper.
At my request I was appointed a committee of one to look into
this.




414.

December
On December 18 Board voted to annul all restrictions on
Exchange dealings with Bolshevik Russia.

We had, a few days before,

a conference with Under Secretary Davis at which a number of State
Department officials, including Mr. Morris, the Ambassador to Japan,
were present, also Davis, the Director of the Mint.
Under Secretary Davis said the State Department last July
had announced that trade with Bolshevik Russia could be carried on,
but at risk of all traders, that this could not be done while our
restrictions continued and he said his Department would take all responsibility.. He said we must act as President had delegated all power
over the matter to the Secretary of Treasury and Federal Reserve Board-that the President wished us to act in the matter.
Apparently the matter came to a head through the application
of a jewish Relief Society to send money to Russia through the Bank of
North America (I think that was the name) of New York.
We had turned down this application--Wills said the bank had
an unsavory record.
At the conference Wells and I pointed out that to abolish all
restrictions would permit Russian Rubles to be imported and sold speculately to our people and also Russian gold to be used in United States
to overthrow Government.
Under Secretary Davis said no one would buy Roubles and
specifically

said

his Department wanted these restrictions removed.

He also said anyone could now gamble in Roubles by getting a bank to
buy them through some foreign bank to hold them.




1+15.

He also said Bolshevik gold was now being brought in
Indirectly.

I pointed out that that was hardly an argument for releas-

ing all restrictions.
Discussion was also had as to the Mint receiving gold of
doubtful origin.

We all agreed that releasing restrictions would not

affect power of Mint to refuse it.
At the discussion in Board I expressed opinion that the Board
had no discussion as by proclamation the President delegated all power
to Secretary of Treasury with power to appoint Agents and that he had
appointed the Federal Reserve Board to act simply as his Agent and subject
to his approval.

I reminded the Board that originally we did not want to

accept this work as Agent of the Secretary of Treasury but that he had
insisted.

It was pointed out that the President by proclamation in doing

away with restrictions had empowered the Secretary of Treasury and Board
to keep up restrictions in Bolshevik Russia as they might deem advisable,
and, therefore, the Board must now affirmatively vote whether or not the
restrictions should be removed.
I stated that this reference was to the Board as Agent of the
Secretary of Treasury and that if he deemed it advisable the Board must
concur.
A large majority of the Board thought it most inadvisable.
Finally, a resolution was agreed to making it clear that

OUT

action and that of Secretary of Treasury rested solely on recommendation
and request of State Department.
I voted for this, explaining that in my opinion it was the pldn
duty of the Board to carry out the policy of the State Department in




416.

reopening trade with Bolshevik Russia, as requested by the President
through the State Department and that the vote was not to be in any way
considered as an expression of opinion as to its advisability by the
Board.
I said it was exactly like the question of rates on Liberty
Bonds.

The Secretary of Treasury fixed those rates wholly apart from

Board and that then it became duty of the Board to protect these rates
through proper discount rates on paper secured by the bonds.
I said further that, from the evidence before me, I was not
at all sure of the advisability of throwing all restrictions aside
and cited to some of the Board the decision of the Department of Labor
to deport Martins, in which it was stated that the Bolshevik Government
was trying to overthrow our Government and was sending men and gold here
for that purpose.
I said I voted for the throwing off of restrictions on ground
that it was purely an administrative duty in which we had no discretion
but were boundto carry out the policy of the President as declared to us
by the State Department.
I

EDI

amazed at action of State Department and believe it will

be severely criticized.
February 11
Sometime ago the Comptroller sent Harding a long letter to
effect that the Federal Reserve Bank of New York was loaning enormous
sums to its member banks which were using the money for call loans,
stock speculation, immediate loans to the bank officer's families, etc;
the the New York bank was continuously rediscounting with other Iederal




417.

Reserve banks and selling them its acceptances to obtain money for
their purchase; that the rest of the country was drained of necessary
funds for this purpose; that the discounts of the New York bank were
greater than many other Federal Reserve banks added together; that all
rates should be reduced to 6%; that the Atlanta plan ofloweringrates to
4-1/2

on loans secured by U.S. bonds owned by banks and acquired since

April 1, 1917 should be put into force; that all progressive rates be
abolished.
There were in all three or four letters which bitterly attacked
the Federal Reserve Bank of New York and by necessary implication the
The letters were evidently written for publication:
er
newspaperreport/told Harding the Comptroller told him he

Federal Reserve Board.
in fact, a

was preparing such a letter before even Harding had received it, although
the Comptroller substantially denied he had said this.
I begged the Comptroller to withdraw this letter and go into
the Board and make any motions based on it which he might desire to make.
I said the letter would be construed

as

a bitter, partisan attack on the

New York bank and the Board and seemed to imply that the Board deliberately
favored the New York bank; that the Comptroller had never offered any
motions in the Board along the lines of his letters.

He was obstinate,

however, and said he would not withdraw the letter (this was the 1st
letter).

A few days later, Ball, a North Dakota Congressman, moved to

investigate the Board in a resolution setting forth the substantial facts
of the Comptroller's letter.
The Board questioned the Comptroller and he finally admitted
he had sent the letter marked confidential to a number of people.
gave the names of some but refused to give us a complete list.




He

Governor Narding replied to his first two letters showing up
various inaccuracies in his figures and conclusions.

We then moved that

i-D,.rt
1„:,te'"
e 21"
I moved that thC:Il
aft_
whole matter be tabled until the Comptroller presented in writing any
his first letter be adopted as the

A

of the Board.

motions he cared to make based on the letters.

This was passed much to

his indignation.
Later he made several motions which the Board voted down as to
the L-1/2% bond rate, it appeared that he did not even know what the
Atlanta resolution was.

In fact Atlanta wanted to put in a 4-1/2570 rate

for the benefit of banks who had acquiredbonds after April 1, 1917, even
though they had bought them below par as a price speculation, and this
rate was not to be applied to such bonds taken as collateral for customerst
loans,--in other words the banks alone were to be given this benefit and
the individuals who had originally subscribed got no relief.
This appeared to confound him end he modified his notion so that
it would include these latter bonds.

Governor Harding pointed out that

he originally favored a plan something like this but our counsel said it
could not lawfully be done.

This, of course, did not please Williams an

iota and we finally voted him down.

Williams then wrote another bitter

letter and moved that all progressive rates be abolished and that all rates
be reduced to 6/ i.e. 90 day paper and member bank call notes.
We nointed out that he originally voted for progressive rates,
thet all districts hod abolished them except St. Louis and Kansas City; that
the

Board hoped ultimately to wipe them out but wished to give St. Louis

and Kansas City time to do this in an orderly way; that no progressive
rate had made the general rates as high as 7%.

He was, of course, obdurate

and we voted not to abolish these rates at present.




419.

On his motion to reduce rates to

V, we pointed out that only

Boston, New York and Dallas had a 7% rate and that New York said that
lowering the rate would encourage wild speculation while Dallas had just
put up its rate to 7% to save its reserve situation.

Finally we voted

not to reduce these rates at present.
Saturday, February 26
Williams wrote another bitter letter attacking the Federal
Reserve Bank of New York and inferentially the Board.
in session all day up to 6:45 P.M.

The Board remained

Governor Strong was present.

Governor Strong pointed out that, as regards the Chase bank,
which was the principal point of attack of the Comptroller, the examination of October 1919 was sent to the Reserve bank some months later
but not the yellow sheet which was never sent:

that the examiner stated

generally in the report that the bank was in good condition the criticisms
being only minor ones; that there was nothing in the report to put the
bank on notice that there was anything wrong as to its credit standing;
that the Comptroller if he found any practices as to internal management
open to criticism should have placed the bank on the special list; that
he did not even make two examinations during 1920 and made no examination
between October 19 and August 1920, although his yellow sheet which he
never gave to the bank put him on notice; that he had examined only a
portion of the New York banks twice during 1919, and that he was not
advised of any examination of any hew York bank made twice during 1920.
The Executive Committee then made a tentative report placing the responsibility on the Comptroller for the serious condition of the Chase bank,
because of his violation of law as to a 2nd examination.




This was finally

4.20.

referred back to the Committee to consider whether they desired to
change their report in view of his letter.
The Comptroller refused to state whether he would reveal
the names of those to whom he had sent his letter, but said he would
answer in writing later.
Monday, February 28
Hearing continued.

Comptroller was asked if he desired to

present charges vs New York Bank but gave equivocal answer.
I asked him if he considered the Board or the New York Bank
responsible for the Durant loan of 2004, which had long ago been paid
off and which Comptroller himself said he did not know of until
after examiner's report filed.

5 months

He gave an equivocal answer.

Governor Strong asked him if an examination early in 1920
would not have resulted in a correction of the serious conditions in the
Chase bank and he gave an equivocal answer.
At the meeting of Saturday Wills begged the Comptroller to admit
he was mistaken in his criticisms and to withdraw his letter and I joined
in this request but he would not do it.
Wednesdly
Meeting at 10:30.

The Comptroller presented a new letter on

subject of Guaranty Trust Company which he said he would not rend but
asked to be put in record.

He then produced the yellow sheet of examina-

tion of October, 1919,of Chase National Bank and read part of it.

He

said this was afresh copy obtained from the examiner by telephone as one
of the sheets of the original, in his possession, had been torn.

He

read part of it and it disclosed that the examiner reported that the
management was safe and its condition sound.




He explained thPt this

421.

was merely the opinion of the examiner under the conditions then existing
and it was difficult to know what part of the answers was the examiners
and what part the Comptroller's explanation.
Yet he had the effrontery to claim that the abstract sent
to the bank put it on notice of conditions concerning which the examiner
stated were soundt
He then offered a letter from Senator Owen explaining why he
had not been confirmed together with some report submitted by Owen.

I

objected on the ground that the issue before us was not the confirmation
of the Cmotroller.

It was finally decided that as a,matter of personal

privilege he could introduce it.
He then read a letter in which he refused to give the names
of those to whom he had sent his letters, as he did not wish to put them
in the hands of a partisan body which might say things in criticism of
him which he oould not know about.

It was a gratuitously insulting letter.

He had not hesitated to send out his letter attacking us and the New York
Federal Reserve Bank behind our backst

The report of the Executive Com-

mittee was then read severely attacking the Comptroller for not having
d
examined the Chase bank during the early part of 1920 as he was require
comby law to do, pointing out that if he had examined it the conditions
the
plained of would have been at once corrected, and putting upon him
entire responsibility for these conditions.

It also pointed out that he

had examined twice in 1919 only a part of the 28 national banks in New
d
York City and that the Federal Reserve bank'stated that it had receive
no report of a 2nd examination of any New York bank in 1920.
The Comptroller was evidently much disturbed by the report;
he called it a bitter attack on himself and squirmed and wriggled with
evident embarassment.



422.

Finally Governor Harding asked what disposition should be made
of the report.

Dr. Miller said he wanted to confer with me before making

a motion and suggested adjournment.

Governor Harding suggested that such

conference be open in presence of the Board, and asked me to presentmy
views.
The Comptroller started to leave the room but I said I wished
him to hear what I should say, so he, evidently reluctantly, remained.
I said that my cordial and even close relationship with the
Comptroller wes well known; that I had many times defended him, publicly
and privately; but that on this issue he was wrong.

I said that this

was not an attack on the Comptroller, on the contrary, it was an answer
to his attack on the Board and the Federal Reserve Bank of hew York.
I pointed out that the Comptroller had never made any formal
charges against either the Board or the Federal Reserve Bank, although
repeatedly during the hearing he had been asked to do so if he had any
charges to make; that his letters were really merely motions to reduce
rates and abolish progressive rates but that he incidentally attacked
the Board and the Federal Reserve Bank of New York for giving excessive
discounts to New York banks and especially to the Chase Bank, which had
been loaning high sums to tts officers and directors and affiliated interests;
that he charged the Federal Reserve Bank with responsibility for not putting
an end to these practices.

I added that in view of these charges it was

incumbent on the Board to examine into the matter; that I was satisfied
that the serious conditions in the Chase Bank would have been at once
corrected if the Comptroller had made an examination in early part of
1920 as the law commanded him to do; that, whether or not he had an
excuse for not doing this it was his omission which caused the serious
conditions And thnt he was not justified in shifting the responsibility
from his shoulders to the Federal Reserve Bank.




1

423.

I added that if a motion were made to accept the Report I should
feel bound to vote for it.
Dr. Miller then moved to accept the report and it was passed
unanimously except that the Comptroller did not vote and the Secretary
of the Treasury was not present.
I kept the Secretary as did also Governor Harding informed
every day as to what transpired and he fully concurred in our action,
although he said some times he thought we were dignifying him too much
in making any answer to him at all.
February 28
Comptroller Williams' resignation took effect at close of
business today.
March

4, 1921

- Inauguration day

Secretary Houston, who came to stay with us after Mrs. Houston
left Washington, went early to the Department.
Bertie and I went up at 12:30 to the Wilson home to welcome
him back but when we got there we found he had already returned so we
left our cards.
Houston came back to lunch after the inaugural.

He said

Hardingts speech was almost menacing with its platitudinous meaningless;
that he received scanty applause; that he met Mellon there, who seamed
very shy and frightened; that he was almost in a perspiration; that he
said that a number of Pennsylvanians had Come down with him and that
he should like to be sworn in this P.M. and that he reminded him that
he had not yet been confirmed and that probably he would not be before
late in the afternoon at least.
with




Later he went to Senator Knox's office

Houston and was sworn in by Chief Tustice White.

424.
I told Houston the Chief ;ustice had no authority to administer
oaths in the District of Columbia and that Mellon should be sworn in
again.
March 5, Saturday
Mellon was privately sworn in again.

The Board was introduced

to him and he made a very favorable impression, said he should consult
the Board as to pending appointment of a Comptroller and a Board member,
etc.
Houston said Mellon made a very good impression on him; he
modestly disavowed knowing anything about the Treasury, wanted old
officials to remain, etc.

He seemed almost aghast when Harding told

him that the terms of Assistant Secretary Kelly and Gilbert expired by
limitation on March 4 as their appointments were only necessary ones;
he asked Harding to ind ce them to remain even if only for a short
time and said he would ask the President to send in their names at once.
March 7, Monday
Governor Harding said he had had a talk with Mellon as to
sending Houston abroad to examine into foreign operations of State banks
and trust companies working abroad under Sec. 25 and 25A of Federal Reserve
Act, they being under general supervision of Federal Reserve Board; that
he, Mellon, strongly approved of this and said it ought to be done and
that Houston was the best man to send; that he asked if matter must be
settled at once and Governor Harding said No; he then said he knew that
Houston was going South for a few days and he thought he ought to speak
to the President about it, although he personally strongly favored it, so
it was left that way.




The compensation suggested by Governor Harding was

425.

§2,000 per month to include all expenses and Mellon said this was
perfectly satisfactory.
The Federal Reserve Bank of New York sometime ago passed
a unanimous vote asking permission to send Houston abroad to examine
for it into conditions in foreign countries.

Dr. Miller objected on

ground that if any one were sent they should be sent by the Board.
The Federal Advisory Council at its meeting two weeks ago
urged the necessity of sending someone abroad for this purpose but
mentioned no names.

Warburg I think put this through having Houston

in mind.
The salary suggested for Houston was a little less than that
voted by the Board for Sherrill Smith, the Chief National Bank Examiner
at New York„when he was sent last June to South America to examine into
operation of branch banks there.
Houston said today that he thought Hoover would object to his
being sent abroad and would claim that he, Hoover, knew all about conditions abroad.
March 10, Thursday
Governor Harding said he had just had a talk with ,viellon; that
he said he was satisfied that Houston was the best man to send abroad but
that he should prefer to have the matter postponed for a day or two in
order to speak to the President about it.

Dr. Miller was very mad and

said it was scandalous to refer a business matter of the Board to the
President for amproval.

i pointed out that the Secretary was a member

of the Board and before voting on any matter he had a clear right to consult the President or anyone else; that Secretary McAdoo certainly freely
exei.cised this right.




426.
I fear we are going to have trouble in this matter and pointed
out to the Board that we should carefully limit Houstonts work abroad to
banking, credit, and economic matters.
Governor Harding said, relating to the nomination of Crissinger
for Comptroller of Currency,-- that Mellon said he had never even heard
of him until the President sent him a note asking thnt his commission.be
made out.
This action of the President is a hard blow at Mellon.

Governor

Platt said that if Secretary, he would instantly resign on such an affront.
I fear it means that the Treasury will be run from the White House and
that Mellon is to be merely a figure head.

If he, with all his financial

power, had auietly offered his resignation to the President he would have
"come down" quickly.

The President's action has humiliated Mellon before

the Board as he told us he would consult us before making any recommendation and that the office would not be filled for the present.
Governor Harding told me he had talked with McFadden, Chairmen
of the Banking and Currency Committee in a guarded way about the Williams'
letters and that he had given him a copy of his first letter and of his
reply to Senator Fletcher.

He also admitted that he had said somethinf

about our report, but said it should not be made public as it would cause
great uneasiness on the part of the -public end perhaps worse.

Governor

Harding should not have done this.
March 12, Sat14.day
Called up Brookings--he said Houston's matter /ooked well but
would not be settled before next Wednesday, March 16:




I understood

427.
him to say that he had written Mellon and, I think, the President about
it.

sorry he did
This puts the Board in a very queer position and I am

it.
March 17, Thursday
The new Comptroller of the Currency was sworn in this A.M.
Mellon.
Governor Harding remained in the room to talk with Secretary

Later

was
at lunch he told me that Mellon said that while he thought Houston
encroach on
the best man to send abroad we should be very careful not to
ives; that
the jurisdiction of Hoover who was very jealous of his perogat
the posihe thought that Houston could not go abroad without being put in
confusion.
tion of representing the Administration which might cause

He

to be
ended by making the naive suggestion that we send someone abroad
!
picked out by the President,--someone whom he wished to reward!
Before speaking to me, Governor Harding went over to Brookings
above, which
and when he came back he said he had told Brookings all of the
was part of
I think he ought not to have done, as what Mellon said to him
the official business of the Board.
Later Brookings joined us.

He said at Dr. Miller's request he

dichad written Houston some days before about the matter,--Dr. Miller
tating the letter.

Governor Harding finally said it was best to drop the

whole matter to which we all agred.

I suggested that he--Brookings at

it could
once write Houston saying that the matter was in such shape that
had better
not be worked out satisfactorily and suggesting that perhaps he
come down.

down,
I said I would telegraph him and tell him that if he came

to come to my house.

The more I think of it, the more I am coming to

d that
feel that Houston could not go over there without its being believe
he represented the Administration which might cause confusion.




Of course,

428.

tIis could be avoided lo,r sendinghim over merely to examine the foreign
branches of American banks which were not national banks (the national
bank branches being urder jurisdiction of the Comptroller), but Governor
Harding said Houston would not care to be limited in this way.
Governor Harding said the action of the Federal Advisory Council
in advising the Board that someone should be sent abroad was brought about
by himself and Dr. Miller.
March 21, Monday
Governor Harding said Crissinger, Comptroller of the Currency,
hnd just told him that the President had sent word to him that he desired
to have all insurance taken out by Federal Reserve banks on money shipments
tC ken away from the present agents and given to a man whom he sent over to
the Comptroller, whose name I I.

remember.

Governor Harding said he

told the Comptroller this could not be done es the matter was in the hands
of the Federal Reserve banks, and he advised him to drop it.

fhis insurance

is in hands of Delanoy who was in Treasury during war.
Governor HardinF showed me a copy of the amendments to Federal
Reserve Act which were to be made an administrative measure.

It redrafts

Section 10 striking out entirely the 2 year limitation and provides for

6

appointive members and one of officio member to consist of an Assistant

Secretary of Treasury.
made 12 years.

The terms except as to present incumbents, are

The office of Comptroller of Currency is abolished and

its duties are to be performed by Federal Reserve Board through the
Governor or such other member as the Board may select, subject to its
supervision and oontrol.

Another provision states that the Board is to

be absolutely independent of the Secretary of Treasury.




The accourts of

429.

the Boarq are to be audited by a public auditor and not by the Government
auditors and provision is made for the purchase of a building for use of
Board.
March 22, Tuesqty.
Governor Herding explained further about the President's
request to Crissinger referred to on preceding page.

He said that

Crissinger told him that the President of United States telephoned him
that the men in question was his cousin and that he wished Crissinger
to arrange to have all insurance teken out by Federal Reserve banks or
currency shipments, etc. turned of er to him, but that, of course, he
should expect to give as good or better terms than the present insurance
agentst

Evidently public office is a "private" trust to the Presidentt

March 26, Saturday
Wing of 1st National, Boston, wrote Governor Harding asking
permission to buy' 15,000 shares at par--100 pqr share--in Warburg's
His capital

foreign acceptance.corporation under Section 25 (not 25A).
end surplus was

33 millions; lOg of this is 3.3 millions which is all he

cnn subscribe under Section 25 (1054.
Limit - $3,300,000.

Has already subscribed to 1 million (1st

National Corporation) and 625,000 (French American Corporation)--total
of ?1,625,000 which deducted from

3.3 millions leaves $1,675,000 still

Pvailable.
15,00 shares of Warburg's corporation at par--100 = q,5r)0,000,
so on the face

of his letter he was entitled to subscribe.

What Wing's

letter did not show, however, was that although the par was A.00 each
subscriber




WRS

bound to pay when and if called, an extra

50 to be carried

430.

as surplus, so that the real subscription was lc,000 shares at

1.50.00

or 82,250,000 being t575,000 more than the limit of investment, or il„675,000.
Logan, General Counsel, in memorandum took ground that was illegal as "investment" under Section 25 meant really "subscription".
agreed with Logan and so reported to Board.

I put it on ground that

case was same as if stock had no par value but was sold for 150 per share,
e certain amount down and balance on call.
Governor Harding took position that all the Bank had to pay down
was

l00 per share and that balance of 850 might never be called; that

payment of 100 was within limit of banks right and that if in future 4- 50
more was called the Bank would have to sell some of its holdings of this
or its other shares, or add to its capital or surplus, to keep within its
limit.

He treated it as if the liability to psy the extra $50 were con-

tingent, like double liability of member banks on Federal Reserve stock
or double liability of National bank stockholders; or like a corporation
giving acceptances in excess of 104 which are permitted when issued vs
actual existing value, and subsequent buying them, hence being an excess
loan.
I could not agree to this as the liability to pay the z150 was
absolute, the only contingency being the call for payment and this was not
contingent in ordinary use of term.
The Board voted to grant the application--T, only, voting against
it.
The Comptroller Krissinger agreed with me that the liability was
absolute to Day 150 per share and yet he voted with the majority to approve
the purchase!




431.

March 29, Tuesday
Governor Harding said he had an hour's talk with Secretary
Mellon yesterday.

The Secretary said the Administration was to take

up the McFadden Fold subsidy bW and make it an Administration measure;
that he believed the time had nearly come for a reduction in Federal
Reserve rates from 7 to Vo.

Governor Harding said he told him he

feared it might revive speculative activity. in the stock market and
the secretary replied that a little speculation activity in stocks would
not be harmful.

Governor Harding then asked him whether a differential

should be mentioned in favor of loans on Government securities bonds, etc.
He said no, these rates should be uniform with the rates for commercial
paper.

If the Administration comes out for the McFadden gold subsidy

bill it will cause bitter criticism from economists as it will amount
to a gift to mine operators just as much as was the sugar bounty which
was repealed by the Democrats in the Tariff of 1894, and will stamp the
Administration as a soft money party.

Gold subsidy was condemned by the

British Commission during the war, by the Treasury commission under Strauss
and by the Interior Department Commission.
The Question of Federal Reserve rates is slightly different.
The Federal Reserve reserves are piling up, so

that Governor Strong wants

to earmark gold in the Bank of England to keep it out of our reserves.
Dr. Miller wants to deposit new gold with the Federal Reserve Agents to
reduce liability on Federal Reserve Notes.

I think this latter is the

best plan but Secretary Mellon said he was against it.




Governor Harding and I

talked the matter over.

Mellon

432.

suggestion was not a new one as we had talked the matter over before.
Governor Harding pointed out that there was to be a farmers convention
in Washington on or about April 14, just before Congress comes together;
the farmers of West and Southwest will control Congress and Governor
Harding said if anything was to be done inway of reduced rates it would
be better to announce some plan before this convention so that our hand
would not appear to be forced.
The matter of approving the plans of Federal Reserve Bank of
New York for its building came up to day.

It involved the foundation

and eome steel work; also architects commissions which amounted to over
one million dollars out of which engineering cammissions were to be
deducted, leaving a net fee of about $850,000.

This was based Si a

64

commission; the rate Si the Chicago Federal Reserve 3ank building was
only 54.

Our consulting architect reported that this fee was all

right and in strict accordance with the rules of the New York Architects
Association.

The Board of directors of NEM York bank, including our

three Government directors were unanimous in approving this fee.
thought it very high and Dr. Miller raised the is
bound to psss Si the matter.
to approve them.

We

whether we were

He said if we were, he would never agree

We consulted with our coursel and he said we were

not bound to approve the fees/affirmatively as the directors had the
right under the Federal Reserve Act to make contracts and nothing was
said as to approval by the Board; that our only power was that of
general supervon and control and the power of removal of directors
for malfeasance in office; that while undoubtedly we could investigate
into any transaction the mere fact th3t we differea fr5m the New York




433.

Bank directors gave us no right to disapprove.

He thought the best

course would be merely to say we interposed no objection.
Governor Harding said Secretary Mellon told him he knew
perfectly well the fees of New York architects and thought these
fees were not extortionate and that if he could be at the meeting he
should vote to approve them.
March 30
Ex-Comptroller Williams has written another savage letter
to Board.

I believe the man is insane.
Dined with George Kustis Corcoran and met Secretary Mellon

there.

He was very bitter against Williams.

March 31
At Board meeting Crissinger said he had told President
Harding about Williams' attacks and the President said:

Why don't

you tell him to go to hellt

Comptroller of Currency Crissinger reported that Williams
before leaving ordered Miss Piper, his clerk, to cut out of his letter
book, marked "official" all letters relating to his dispute with the
Board as to rates, Chase .1,ational Bank, etc.

Yet in his letter to

Governor Harding dated March 26, he stated that all these letters were
written by him in his official capacity as Comptroller of Currency, that
he also cut out all correspondence with Board as to amendment of Federal
Reserve Act Providing for discount of paper secured by stock and bond
collateral. Harrison pointed out that mutilation of official records was
punishable by fine or imprisonment or botht




434.

Harrison completed a draft of reply to billiams.

I softened

it somewhat and the Board adopted most of my suggestions.
Secretary Mellon at 9:30 had his first meeting with Board.
He favored an immediate slight reduction of rates--he thought the
banks charging 7% should go down to 6%; he did not advocate any reduction from the 6% rate where banks were now charging 6%.
Governor Harding pointed out that this might result in a
great expansion of loans, but he replied that this would in all
probability not follow and that loans were now at a maximum; that he
thought commercial rates were sagging and would fail in any event
and that a slight decrease in all rates would have a good psychological
effect.
Dr. Miller took ground that such a recession would accomplish
more if we waited until conditions improved more than now.
We finally agreed that we should do nothing before the
Governors Conference of next week, unless, e.g. the Federal Reserve
Bank of New York should ask for lower rates.

Governor Harding advised

Secretary Mellon to telephone Alexander in New York and ask his opinion
and he said he would.
I suggested advisability of letting Boston reduce to 6% if
it wished to, but Governor Harding said Boston did not want to go
down until New York did, except that Governor Morse alone did favor
this.

Platt said after the meeting that Governor Harding did not

fairly state position of the Boston bank and I think he is right as
to this.




435.
Secretary Mellon made a good impression and seemed to know
the situation fairly well.
Governor Harding said if we did anything we should do it
before Congress convened so it would not appear that we acted under
pressure.
April 5
On March 31 I sent a letter to Secretary Mellon on subject
of customs duties.

I suggested that a joint resolution be passed

providing that the customs duties finally enacted should be made to
relate back to all imports after April 15; that this would prevent
a long debate over the preliminary tariff and enable Congress promptly
to take up auestion of internal tax reforms.
ledgment from him.

Have received no acknow-

(See scrap book for letter.)

We sent the letter to Williams today.

The other day Governor

Harding said Harrison had met Cotten, Attorney (with McAdoo) for Chase
bank and that Cotten said we will kill all future correspondence regarding Williams' quarrel with Federal Reserve Board.
April

9
Boston asked leave to put in a 6% rate.

was decided to await Governors

I favored it but it

onference next week.

I called up

Federal Reserve Agent Curtiss and he said every director was present
and the vote was unanimous; that the conditions in the District had
so improved that this move was deemed absolutely necessary and they
did not want to delay it a day; that 6-1/2% would not be satisfactory
that Beal was strongly in favor of

61, while Ripley was opposed; that

they had not consulted with Aiken and Wing as they assumed they would




436.
oppose it being very heavy borrowers from the Reserve bank, and I
presume (Curtiss did not say this) they feared it would necessitate
lowering these rates to their customers.

Curtis also said a 6% rate

with New York at 75 would drive many customers to the Boston banks and
thence to the Reserve bank, but they could take care of this.
I feel it is a serious responsibility to deny this, especially
as wages have been materially reduced in New England.
We spent all day, practically, in reading the stenographic
minutes of the two days during the row with Williams and formally
approved them.

Wills came on from Cleveland and was present.

Governor Strong said the Guaranty Trust Co. was perfectly
solvent; it had charged off about ten millions for bad debts; it had
concealed profits of nearly that much and its capital and surplus
would be intact; that his credit examiner thought from extra precaution,
it would be advisable to establish a new fund of 7 or 8 millions and
to increase the capital but he did not think the Federal Reserve Bank
directors would think it necessary to advise this.
Governor Strong violently opposed lowering Boston rates;
he said that if they were lowered public opinion would force the New
York Reserve Bank to do the same and this would cause a violent speculation boom in stocks; that the stock market was swept clean and only
a little encouragement was needed to start a violent speculative move.
He said the curve of wages was practically a straight line;
that deposits had fallen off considerably; that retail prices had
fallen moderately; that wholesale prices had fallen percipitously;
that lower rates would force up wholesale prices and prices and wages




437.
would be stabulized at too high a level, that we should wait until
wages were lower and the curve of wages, deposits, whithasale and retail
ces were more nearly together at a much lower basis.
Governor Harding said if we lowered rates now and a speculative boom set in we could never raise them again as public opinion would
be so strongly against such a move.
Miller rather favored some recession but feared this was not
the psychological time to do it.
I felt and said that if conditions in Boston were ready for
lower rates I did not see how we could forbid Boston taking such
action because of conditions in other districts, that Boston was an
independent bank and nothing but strongest reasons of public policy
would justify our refusal.
April 12, Tuesday
I moved approval of Boston application to reduce rates on
commercial paper from 7 to 64.
6-1/2%.

Platt moved to amend by substituting

Amendment lost, Platt end Miller voting for it and Governor

Harding, Crissinger and C.S.H. against.

Dr. Miller then moved to

raise rates on Treasury certificates at Boston from 5-1/2 to 6%.
This was carried all voting aye except Crissinger and myself who
voted No.

I pointed out that while we had the power to do this it

had never been exercised except where Bank refused to put in rate
desired and that it would be better for us to approve the 6(90 rate
and express earnest desire for bank to increase certificate rate and
if it did not we could then act.

his increase affected only PSG/0 of

the total paper held by the Boston bank so it did not amount to much.




438.
Conference of Governors began today.
heard reports as to rate situation.

Secretary Mellon came over and

Every Governor opposed any decrease

except Boston and Atlanta; the latter earnestly desired lower rates.
Governor Harding reported that Governor Seay said

Ex-Comptroller

Williams had called on him at Richmond and had shown him his letters attacking Board; also that Governors Norris, VanZandt and Miller had received
letters from him stating what he had done, the letter to Van Zandt stating
that the Board wished to abolish the Dallas Bank.
The Board voted that on receipt of a letter from them to this
effect the Governors could give them copies of the entire correspondence,
reports, etc.
April 14
TWO days ago the Washington Times had an editorial stating that
Governor Harling would be retained as Governor by Republicans and that
so far as was compatible with his office he had done everything in his
power to help secure election of President Hardingt (See Scrap Book)
Governor Harding said Secretary Mellon had just told him that
as regards Administration bill--he had made up his mind that Comptroller
of Currency should be abolished but that he had made up his mind also that
the Secretary of Treasury should remain as Chairman of Federal Reserve
Board.
Originally Mellon was positive that the Secretary should be
taken off Board and Comptroller abolished.

McFadden drew a bill to ac-

complish this and Secretary Mellon said it would be pressed as an
Administintion Bill.
give up any power.




This shows how hard it is for a cabinet officer to
I think the Secretary is right and that he should

439.

remain Chairman, but his sudden change is amusing.
I predict the next step will be to decide that the office of
Comptroller shall not be abolished!

Considering the Republican demands

that this be done during last Administration, such a result would be
amusing to say the least.
April 16
Governor Harding said Mellon had again changed his mind and
wanted an Under Secretary appointed to sit on Reserve Board.
appoints Aldridge, Collector of Port of New York.

President

Newton told me sometime

ago that Senator Calder told him President wanted his resignation although
his four year term did not expire until October 1921; that he had at
once called on Mellon who said he knew nothing about it.

Evidently

President Harding is working behind back of Mellon.
Aldridge appointment is scandalous; in 1910 he was defeated
for Congress by Havens in one of strongest Republican districts in
New York.

Be, however, voted in National Convention solidly for Harding!

April 25,
President Harding called Governor Harding to White House; asked
if John Mitchell of St. Paul would be food man for Federal Reserve Board;
to Senate
Governor Harding said yes and President said would send his name
tomorrow.

appointThis is first time board has ever been consulted about an

ment by President!
President Harding said Mellon is a fine man but doesn't know
praises
a damn about politics; you Democrats run evertything and Mellon
each of you by name every day and wants me to retain you all.
whether he alluded to Board or to Treasury.)




(Not sure

2,40•

Also said would be glad if possible to have slight reduction of
rates but he hoped Board would do nothing which would cause any more
Inflation; reminded Governor Harding of his talk with him at Marion and
said his views had not changed.
April 26, Tuesday
Governor Harding reported talk with President subject of New York
rates was taken up.

Governor Harding, Crissinger and I said if Naw York

tomorrow at its directors' meeting voted to lower rates even to &A, we
would vote to approve it.

Miller and Platt said might approve 6-1/2:4

hut Platt thought that ought to wait until at least next week.

Governor

Harding will be in New York tomorrow and will see directors.
Afternoon Eddy, Secretary of Governor Harding, came in and
said newspaper representatives were then saying that the President had
just told them the Federal Reserve Board was to lower rates generally
and help the farmers.

- ew York and I said
Governor Harding had gone to K

I could not be interviewed.
April 27
Morning papers, especially Washington Post and Yew York Times
annourced that by direction of President harding, the ±ederal Reserve
Board was to make a special inquiry into problem of deflating industrial
values without serious injury to agricultural interests and that it is
"understood" some steps to aid agriculture may be taken by the board in
the near future.

(See Scrap Book)

Evidentaly the President is playing politics.
action will be resented by the Board.




I fear his

1441.

April 2, Thursday
Dr. Miller threw a bomb shell into the meeting by moving
th,
)t we fix the New York rate at 6-1/2°A; as he had always opposed lowering of retes

it WRS 8

before Crissinger.

complete surprise to us.

He was evidently "acting"

Be never mentioned the statement in papers that

Board, by direction of President, was to reduce rates, although under
Wilson Administration any suggestion of influence from McAdoo made him
fairly howl with rage.

He evidently wants to be reappointedt

(7overnor

Harding reported that at meeting of New York directors, all were opposed
to any reduction except Palmers and Peabody.

Peabody wanted to go down

to 6% but said in view of statement in papers of Presidential influence
he should oppose any decrease.

They all seemed to feel it might be wise

to reduce rates at other 7% banks.

Mr. Mellon after a talk over telephone

with Governor Strong said that while he believed New York rates should go
dawn, and such decrease would not cause speculative activity, yet he was
inclined to defer to feeling of directors to wait a few weeks.
I moved to amend Miller's motion so as to consider rates at
^

all banks when we took up New York.

This seemed to trouble Dr. Miller,

as he evidently hoped the Chicago rate would not be reduced.

He ad-

mitted, however, that reduction in New York would necessitate a reduction
in Chicago, but did not want it done simultaneously.
The Board was informed the mai*

6-1/25.
May 1

of England has reduced to

This may influence Governor Strong.

5
Board voted to approve Atlanta application to reduce rates to

61.




Willer voted for it and answered Platt's objections!

241,2.

May

6
Board voted to approve Chicago application to reduce to 6-1./20%

Platt said it was result of political pressure brought by Cabinet following alleged interview of President; said he would like to tell

ellon

that he bitterly resented this.
May 25, Wednesdev
At Board meeting we considered two bills providing that the
amounts paid Treasury for franchise taxes should be used to advance money
to cattle raisers.
of the Treasury

as

We had already suggested to Platt to talk with Gilbert
to drawin7 a bill providing that a certain percentage

of the funds now held by Federal Reserve Banks as "reserved for franchise
tax" should be paid at once into Treasury and that Secretary would utilize
it in loaning to cattle raiser

through the Federal Reserve

banks, Federal land banks or War Finance Corporation.
Suddently Dr. I- vAller moved that the Board prepare and send to
Congress an amendment to Section 11 M to effect that by a vote of

5,

effirratively, the Board could permit Federal Reserve banks to rediscount
agricultural or cattle paper having maturity of not more than two years!
We were all amazed and riddled Dr. Miller with questions.

He

said he knew such legislation would be bad, from point of view of liquidity,
but if we did not do something to help he feared the administration might
act and act quickly.

he did not say whnt the Administration would do

but he admitted having discussed the matter with Secretary Hoover several
times.
Irinally he agreed that it miFht be better to wait for the result
of Plnttts talks with Gilbert as to the other bill above mentioned.




443.
Hoover does not like the Federal Reserve Board according to
Dr. Miller; he thinks no bankers should be on it, citing the Bank of
England.
The Bank of England directorate, however, contains many
"merchant bankers", i.e. Acceptance houses.

Miller evidently made this

motion so he could tell Hoover he was working hard for the cattle raisers.
He evidently wants very much to be reappointed, and has changed his
views radically--he is now a rate reducer with a vengeance although
recently when Boston wanted to reduce from 7 to 6% he vigorously fought
it and voted against it, saying that we should pattern by Bank of England
and never go dawn or up more than 1/2% at a time.

Yet a year or more ago

he voted to increase the New York rate from 4-3/4 to 6%!
Tune 1
Some two weeks ago an advertisement of bonds of North Dakotq
appeared in papers and in it a certificate signed by White, Treasurer of
United States, that the bonds were all right and would be paid at
maturityl

Instead of removing White the Treasury issued a short state-

ment that White's signature had not been authorized by the Treasury
Department.

This is scandalous--and attempt to win the support of the

crazy populists of North Dakota.
Mr. Mitchell read to Board yesterday a protest of a prominent
Republican demanding White's removal.
June 6
Board and Secretary of Treasury announced approval of plan
to permit secretary to loan 50 millions to War Finance Corporation to
assist cattle raisers.




444.

Tune 7
Conference, Board, Secretary Mellon and Senators Meyer and
Governor Strong said better to form a bank pool which he thought he
could do.

Suggested a committee of western bankers to get up plan

in conference with New York bankers.
this.

Whole meeting switched over to

Meantime Governor Harding has gone west to boom first plan!

July 8
Harding says Mitchell's appointment to Board was held up by
Upham, Treasurer of National Republican Committee because Mitchell was
called in for a $2,000 subscription and would not pay that amount as he
says Republicans would use it in Minnesota solely to defeat Non-Partisan
League.

Harding said he believes Mitchell is a red hot Republican poli-

tican, as shown by his feeling towards Ramsey in Texas and Miller in
Kansas City, and that we are going to have trouble from him.
Harding and I went over matter and found that 7 Federal Reserve
Agents and 8 Governors were now Republicans.
Harding said the Cabinet is knocking him hard and that Weeks
is his only supporter.

Said he told Mellon that he was getting tired of

criticism and would be glad to resign at any time.

He was rather bitter

towards Hoover--said he knew of conditions abroad but very little of
conditions in United States.
July 13
Met Secretary McAdoo in corridor and asked him to drop in and
see me; later he came in.

I told him about Williams row with the Board

and his various letters and our report.

Mentioned causally that Williams

had said he, McAdoo, was counsel of Chase Bank.




445.
McAdoo said he had only read one printed speech of Williams—I
cannot believe this.
discuss the matter.

He was very evasive and appeared not to want to
He said, however, that Williams lacked tact and was

too impulsive but he was a man of high character and standards.
Tuly 22
Lunched with Mitchell, Crissinger and Dr. Wilmot of Texas,
formerly of Federal Advisory Council.

Dr. Wilmot was asked by Mitchell

to talk over the Texas Federal Reserve Bank situation.
Dr. Wilmot said VanZandt the Governor was a good man but had
not received loyal cooperation of his subordinates; that he thought
he should be backed up and his force strengthened; that Ramsey dominated
the entire bank; that Ramsay was a fine man of keen mentality and that
he wouldbminate any situation unless faced by very strong men.

We asked

him if he knew any good men in case Ramsey should not be appointed and
he gave us. some names.

He saidrone of these men would accept Governorship

as the Federal Reserve Agent was the dominating position in Texas, differing, as I pointed out, from the other Districts.
"Q.LIV

,)• I

9-,

He said he thought

might be induced to come back and said it would be the best

appointment which could possibly be made.

He said Ramseyts reputation

was that of a very able politican but he was a man of high standing
and character and an eminent citizen.
He seemed very well informed and sincere and made a good impression.
At the outset, however, he said that as he understood it, the
Administration having changed it was fair, other things being equal, to
put Republicans into these bank positions.




41+6.

I at once said we never had considered politics in Reserve bank
appointments and that, while personally I was glad if both Parties happened to be represented, we never even considered politics in our appointments.

I told him that as a fact 7 out of the 12 Federal Reserve Agents

and Governors happened to be Republicans but were not elected as such.
also spoke of our appointment of Provost Harrison at Philadelphia and
our appointments at Boston.

I told him the Board's action in abolishing

exchange charges had angered the Democratic Party of the whole South and
Southwest.
He said a number of bankers had said they wanted him as Federal
Reserve Agent in place of Ramsey.

I finally asked him if he would con-

sider the Federal Reserve Agency if Board were to offer it to him and he
said No, but I fancied there was a possibility he might accept.
Walking home, he said he firmly believed the Board should be
absolutely kept out of politics or the banking system would be ruined.
He said he had never observed that Ramsey played politics in
Federal Reserve bank matters.
I believe him to be a fine, sincere man, but that he came here
somewhat with the impression, prhaps given by Mitchell, that a change
for political reasons was the proper thing.
He said Ramsey had had some banking experience as President
banking
of a small bank years ago, but that he had not sufficient
he
experience to dominate the affairs of a Federal Reserve Bank and
emphasized that the Federal Reserve Agent should exercise this
domination.




447.

October 6
Governor Harding told the Board that Secretary Mellon had asked
him for a list of Class C directors whose terms expired at the end of
the year, and also asked as to the political affiliations of each onet
Governor Harding fears trouble may come.
October 21
Governor Harding said while in New York yesterday he called
on McAdoo.

He spoke abotibthe attacks on the Federal Reserve Board by

Democratic Senators and Williams; said that the quartet was Heflin,
Watson, Senator Simmons and Williams; that they all claimed to be his
friends; that they took the position that the Federal Reserve
Board were all criminals and crooks; that the Republican Administration
was responsible for their continuance in office; that the Republicans
were restive and that the danger was that might be goaded into removing
all Democrats from the Board and capture it and use it as a political
machine; that at the beginning they inquired into the personnel but
found there were 70 Republican directors and only 38 Democratic directors;
that 7 out of the 12 Governors were Republicans and about the same ratio
in the Federal Reserve Agents; that thereupon they dropped the matter but
that there was grave danger of its being revived; that if the

ystem were

run as a political machine it would be all powerful and could absolutely
prevent McAdoo's nomination in the future; that his strong card was that
he had practically created the System and had kept it as a non-partisan




448.
System, etc., etc.
He said McAdoo was terribly stirred up and said he would send
for Williams and tell him his attacks were injuring him and must be stopped.
He said he was able to control Williams when he was a subordinate but doubted
whether he could now.

He said Williamt attacks were most extreme and he

implied, unfair,--that Williams never could stop when he had got started,
etc, etc.

Governor Harding explained about Strong's salary and said Board

was obliged to make public the fact that he had urged it and voted for it,
as did also Williams.
Governor Harding urged me to call on McAdoo and point out the
danger of political control of Federal Reserve System by the Republicans.
October 25
Conference of Governors and Federal Reserve Agents with Federal
Reserve Board.

Lasted through week.

Governor Harding suggested a rate

reduction—New York, Philadelphia, and Boston 4-1/2%--Cleveland, Chicago,
etc. 5%—and the borrowing districts 5-1/2%.
Was told they were almost unanimous against this at meeting
among themselves but at conference Friday, October 28, they all seemed
to favor it or at least to agree that it would do no harm, except
Governor Mores and Governor of Chicago, who were bitterly opposed.
C.S.H. spoke favoring Harding's suggestion.

Miller spoke

In favor--said in view of what had occurred as to prices, he now was
ashamed he had voted to increase rates to 7% in 1920.
On Saturday, Governor Harding told Miller that his vacillation
was such that he had about made up his mind to resign.

Miller finally

said he would strike out of his address all allusion to the 74 reite.




449.

December 3, Saturday
Special Board meeting to act on redesignation for year 1923
of Federal Reserve Agents.

The matter was referred last week to a

special committee—Platt, Mitchell and Crissinger to report as to
We appointed this committee because

appointment of Class C directors.

we wanted fresh blood and not because they were all Republicans; in
any event they were fairly divided as Platt was appointed by Wilson.
We had absolute confidence in their judgment.

The only controversial

question arose from the desire of a man named Comstock to be appointed
Class C director at Kansas City.

Although it was said his real aim was

to be designated Federal Reserve Agent in place of Ramsay.

Be had had

but limited banking experience having been Secretary of Mr. Flower in
his bank in Kansas City, but when this bank was consolidated he was
dropped,—not a favorable recommendation as to his ability.

Mr. Flower

wrote a very eulogistic letter saying that he and Comstock had run his
bank for, I think, some 20 years.

This letter was disingenuous as he

was only private secretary.
Comstock, until very recently, never came near the Board but
went direct to President Harding asking for the office as an original
Harding man.

In fact, Governor Harding said Comstock told Mr. Swing

of Kansas City that he did not give a damn for the Board, but would
get the office from the President!

While he had a few good letters

from bank presidents he was plainly not fitted for Federal Reserve
Agent or even for a Class C director.




450.

President Harding, however, wrote two letters (C.S.H. personally
saw these letters, and for some time they were in the official files.
C.S.H. tried to see them again on April 10, 1922, but they were not to
be foundI) to Crissinger asking him to see that Comstock was appointed
Federal Reserve Agent.

The President acted as if the appointment was part

of the spoils which he could distribute as he wished.

Governor Harding

wrote a very courageous and able letter to Secretary Mellon, asking him
to show it to the President, pointing out the importance of the position
and that it was entirely in the hands of the Board.

This availed nothing,

however, and the President insisted on appointment of Comstock, although
this involved dropping Ramsay, who altho not a great Federal Reserve Agent
yet was well up to the average.
To avoid further controversy the special committee had a special
meeting called, and, at the meeting said they were not yet ready to report
a list of Class C directors, but Mr. Mitchell moved that all of the
present Federal Reserve Agents be redesignated.

Ramsay's term as Class

C director had not expired so only his designation was an issue.

After

a long discussion the Board voted to redesignate all of the Federal Reserve
Agent, Crissinger alone voting No, although he said he had no other
candidates to suggest.

Be took the ground that many of the Federal Reserve

agents were mediocre men and should not be reappointed and that all salaries
should be fixed before notice sent of any redesignations.

Dr. Miller

attacked all of the Federal Reserve agents saying they were good enough
to take care of Federal Reserve Note issues but were utterly unfit as
chairmen of the boards, and said he should move radically to reduce their
salaries, in which Crissinger backed him up.




Miller said he should

451.
advocate an amendment to the law separating the functions of chairman
and Federal Reserve Agent.

We all said we should be glad to consider

this without committing ourselves, and we voted that the special committee should consider and report what, if any, changes in salaries
should now be made, irrespective of the amendment.

Miller moved that the

action of the Board in redesignating the Federal Reserve agent be laid on
It was a tie vote, C.S.H. voting in negative and Governor

the table.

Harding finally voted against it.

Mitchell voted Aye, apparently being

confused as to the issue as he strongly advocated redesignating all of
the Federal Reserve Agents, including Ramsay.

Dr. Miller bitterly

attacked Tay saying his remarks at meeting of agents and governors that
Federal Reserve banks should lead

on discount rates but should follow

dawn after changes in market rates was puerile, childish and sophomoric,
and that such a man was not fit for Federal Reserve Agent.
It was also agreed not to notify any Federal Reserve Agent
until salaries were fixed.

There were several names before the com-

mittee for Class C director of Kansas City, other than Comstock.

The

most prominent was a Mr. Hood of Nebraska who had large cattle interests
in Wyoming and was splendidly endorsed.

The whole Nebraska delegation

was for him, although he was their original choice; also the editor
and owner of the Omaha Bee, the leading Republican paper and Senator
Hitchcock.

It was a truly non-partisan recommendation although Hood

was a Republican.
Undoubtedly the committee would report in favor of Hood.
The Board has thus thrown down the gauntlet to President
Harding and I fear he will be furious.

To have given in, however, would

have been to drag the Federal Reserve System into the mire of cheap




452.

gutter politics.

I think the President may well hesitate, however, when

he realizes the Board will appoint a man Class C director who will greatly
please the whole District, and especially the Farmers bloc, while if the
President has his way the appointee will be a politician, whose chief
distinction is that he was an original Harding man!
Governor Harding said it was rumored that Christian, President
Hardingts secretary, told him that he--President Harding--made this appointment.

He was disabused of this idea, however, by Governor Hardingts letter

to Secretary Mellon, but he still persisted that Comstock must be
December

appointed.

6, Tuesday
Committee reported at Board meeting unanimously against changing

the salaries of any Federal Reserve Agents at present time and Board
accepted it and voted to send to each Federal Reserve Agent notice of his
designation.

Crissinger was not present but joined in committee report.

Dr. Miller, who had threatened dire things as to salaries meekly voted
with the rest of us.

Governor Harding said Mondell of H.R. had said

he would at once see the Attorney General and tell him to advise the
President to keep his hands off in the future as the Board should not
be interfered with politically.
Governor Harding told me Platt saw Secretary Weeks who said
the Board was absolutely right in turning down Comstock, that the President
had been deceived and that he would, if necessary, back up the Board.
December 21, Tuesday
Mitchell told the Board that, notwithstanding his letter,
President Harding was very angry with the Board for not appointing
Comstock.




453.

- 1922 January 11
Governor Harding told me this A.M. he went to Crissinger and
told him to tell President Harding that he was sorry he could not vote
for Comstock, but that if the President wished his resignation he would
give it at once; he asked Crissinger also to tell the President that the
statement made in the Senate that he (Governor Harding) had voted for
Harding as President was not true.
He said Crissinger said he thought it would relieve the President
if he should resign now.

He added that Crissinger saw the President who

said that Governor Harding should stick to his job.
February 28
Governor Harding called a special conference to consider a letter
from the Carborundum Company, Niagara Falls, N.Y. (Mr. Wine, President) and
the American Abrasive Metals

Co., Mr. Mowery, President, complaining that

Trowbridge, an architect, was advising banks in United States and Canada
to take his specifications for vault walls as the result of the Sandy Book
tests; that their companies processes were tested at these tests but that
the tests had not been fairly conducted.

The companies asked for a

hearing.
. We advised Governor Harding to write Trowbridge we should give
a hearing next week and asked him to fix a date when he could come dawn.
The letter of protest was given to Governor Barding by Secretary
Mellon who said he was interested in the companies.
I am surprised that Secretary Mellon sent in this letter to the
Board; the companies should have sent it direct; by sending it through
Secretary theiion, they are evidently trying to use his influence with
the Board and he should have refused to send it to us, but should have
made the companies do it themselves.



454.

May 22.
During the week prior to tharch 20, a committee of New York
bankers came before Board and asked to have the Bankers Acceptance regulations liberalized as to import and export trade.

Mr. Kenzel of the

Federal Reserve Bank of New York came down with them.

They pointed out

that customers were gradually turning to sterling bills because of the
harshness of our Regulations. They saidfbreign bankers looked askance
at our bankers bills because they never could tell whether they were
eligible under our Regulations.
statements.

Mr. Kenzel agreed

entirely with their

The committee consisted of Messrs. Warburg, Broderick and

Kent.
After the hearing, The Board considered the whole matter,
especially a proposed draft of new regulations prepared by our counsel,
Mr. Logan.

The chief change was as to Bankers Acceptances not in excess

of the 10% limitation.

Under the law no security is required for such

import and export acceptances while under our Regulations security is
required.
The Board were unanimous in feeling that the question of
security--up to the 10% limitation, should be left to the judgment
and experience of the member bank and Federal Reserve bank (es to
rediscounting).
C.S.H. agreed fully but said that the tentative draft should
be sent to all Federal Reserve banks for examination and criticism,
which yes ordered done.
C.S.H. also insisted that the Federal Advisory Council or
its Executive Committee should be consulted, which was done.




455.

The Governor also asked opinion. of Wing of Boston which was
very favorable.

Everyone consulted approved except Governor of Lederal

Reserve Bank of Chicago, who was in doubt and said the leading bank
in Chicago doubted its advisability.
April 2, Sundaz
Eliot Wadsworth, Assistant Secretary of the Treasury, calls
at apartment--1155 - 16th of C.S.R. and H.P.H.

After some general con-

versation he began to speak of Mr. Wilmeth, the Chief of the Bureau of
Engraving and Printing, who a -day or two ago had been summarily removed,
with 30 others, from the Bureau, without any charges, as required by
the Civil Service law.
April 5
Governor Harding and Crissinger conferred all the morning
with the Texas District Attorney and the Chairman of the Grand Jury
(State) which has been investigation the failure of the Clayborn Bank.
Board met at 3:15 P.M. and Governor Harding said these men told him that
the Federal Reserve Bank had held Notes discounted by the Clayborn bank
sometimes for 2 or 3 months after maturity without forwarding them for
collection; that in some of these the makers had given Norwood, the
defaulting President, checks in payment of these Notes which he had held
and were found in his desk after his departure for Mexico.

Governor

Harding said if these and other statements were found to be true, he had
lost all confidence in Federal Reserve Agent Ramsay.
The Board decided to have our Chief Examiner, Person, go to
Dallas and carefully investigate all relations between the Federal
Reserve Bank and the Clayborn bank.




We called Person in and he said

456.

he would finish at Kansas City in time to be in Dallas on Saturday,
April 15, and we said this would do.
Governor Harding was directed to write Ramsay and tell him
the Board wished to see him here next Thursday April 13.
We thought it advisable to have him here away from the Bank
while Berson was examining it.
Herson said the Notes in question might have been excess collateral but still should have been presented.
Ramsayts relations with Norwood have always been very intimate
and the night Norwood decamped his auto was found abandoned near Ramsayts
house, giving rise to the suspicion that he had been at Ramsayts house,
giviag-rise-te-the-ettep4ete*-40set-he-ked-beett-Remet-honsey

The

Board had also received or seen an anonymous letter attacking Ramsay.
Sometime ago the Board appointed a committee to investigate
Ramsay,--of Governor Harding, Crissinger and, I think, Mitchell.

The

Committee has been waiting to hear from the men whom Governor Harding and
Crissinger saw this morning.
Sometime in the winter one of the directors of the Federal
Peserve Bank of Texas, Mr

, came before Board and said that

it

was Ramsay who induced the Texas Board to displace Van Zandt and
elect McKinney as Governor.
When the Board redesignated Ramsay, it assumed that no change
would be made in the Governor; if they had known such a change was to
be made they never would have redesignated Ramsay.
April 13
Federal Reserve Agent Ramsey of Dallas came before the Board
to answer charges against him in matter of the Claybarn National bank.




457.

A stenographer was present.
The hearing left me in a very mixed up condition. The Board,
it seems to me, has no evidence warranting the summary removal of Ramsey for
improper action in the Bank matter and yet I cannot avoid the feeling that
Ramsay went farther than he ought, through friendship or whatnot for the
defaulting President Norwood.

It was also clear that Ramsay did not

carry out his duties with regard to collateral for Federal Reserve Notes,-he should have known that Notes delivered up to the bank for collection
were never paid but held as overdue paper.
Nor were his answers as to complicity in the dropping of
Van Zandt the Governor, satisfactory.

There is no doubt in my mind that

he engineered this.
Governor Harding said this P.M. that Ramsay had just told him
he had received an offer of $20,000 per year for some bank or other
institution, and that he though he might resign as Federal Reserve Agent.
Governor Harding said

he advised Ramsay that it might be well for them

to do this.
April 24
Van Zandt called.

After consultation with Governor Harding,

I read him from Ramsayts testimoney every reference to him made by
Ramsay but did not let him see the test imoney.
April 25
Van Zandt came before Board.
and C.S.H. present.

Only Governor Harding, Platt,

He made a long statement; claimed that Ramsay tried

to dominate the whole Bank:

cited an instance of increase of pay of a

woman clerk, working in operative department, done without his knowledge




458.
or consent by Ramsay going to one of his under officers.
Said that Ramsay was too much of a politician; admitted that
the bank never inquired of the maker of a note pledged for Federal Reserve
Notes and given to bank for collection even though the member bank did
not pay it; admitted that in case of the Clayborn bank, an inquiry

of

the maker would have shown that in several cases the makers had given
Norwood, the President, their checks in payment, which Norwood had not
entered because he did not want to have the banks deposits drawn dawn.
VanZandt said he had told Ramsay that Norwood was a crook long before he
decamped; that Ramsay had a report of the national bank examiner made
long before which showed that Norwood had issued a fictitious draft to
make it appear that a certain peanut draft had been paid; that Ramsay
never showed this report

to him.

On the whole, I feel that it would be for the best interest
of the bank to have an injection of new blood.

VanZandt has gone, and

Governor atrding says Ramsay is to resign, which is most desirable.
While I do not feel that specific charges against Ramsay have
been proved, yet I cannot resist the conclusion that he has dominated
the bank not only on his own but on the operating Department; that his
mind is so "political" that he is always manuvering and trying to dominate
In one way or another,--not in partisan politics but in banking politics;
that he has been too lenient with Norwoodts bank, perhaps unconsciously-VanZandt also said Ramsay had had the salary of Gregory, a Federal Reserve
Bank examiner increased.

Gregory isspn of Ex-Attorney General Gregory, but

this Van Zandt said was after his father had left office.




459.

April 27
Governor Harding in addressing the Federal Advisory Council
referred to opinion of Logan, our Counsel, that Federal Reserve banks
couldrey dividends out of surplus and to fact that Secretary Mellon had
asked opinion of Attorney General.

Governor Harding said the Attorney

General had said that he wished to "cooperate" in every way, and, therefore, wanted to know just what opinion Mellon and the Federal Reserve
Board wanted, and that he would endeavor to furnish a "satisfactory" one.
An extraordinary thing for the Attorney General to say!
April 28
Returning from the lunch with Mr. SWeng of Kansas City, a member
of the Federal Advisory Council, I asked him as to qualifications of Mr.
Comstock whom President Harding asked the Board to appoint as Class C
director of the Federal Reserve Bank of Kansas City.

He replied that

he had absolutely no qualifications for such a position:

that he was

utterly unfitted and that it would have been monstrous to appoint him a
Class C director, much more as Chairman of the Board and Federal Reserve
Agent.

Be said he had been Secretary of the board of directors of the

Prudential Trust Company—Flower's bank,--that that he got the place
solely through his brother-in-law, Mr. Hayerman, one of the directors;
that after the consolidation Heyerman wnet off the Board and Comstock
was immediately dropped from his position, and had no job when Harding
(President) asked the Board to appoint him; that he did not believe a
single bank or banker in Kansas City would or could conscientiously indorse him for such a position; that it was incomprehensible to him how
President Herding could have pressed him upon our Board for any appointment.




460.

May 1_
Attorney General writes Mellon that Federal Reserve banks
can pay dividends out of surplus.
Ma

2
Cables between Bank of England and Federal Reserve Bank

of New York read, as to invitation to send representative to conference
of central banks to be called by Bank of England on suggestion of the
Genoa conference.

The cables showed that originally the invitation was

to Governor Strong personally, but later (at Governor Hardingts suggestion to Strong) it was changed to the Federal Reserve Board.
Governor Harding said the Administration felt that no member
of the Board should go as they were officers of the United States and
he intimated that the Administration would like to have a committee of

3e0.

It was suggested by Governor Harding or Mitchell that the committee

should be Strong, Warburg, and Watts of St. Louis, later the name of Wing
of Boston was suggested.

C.S.H. said a committee consisting of Strong,

Warburg and Watts might be criticized as being composed of bankers of the
extreme, so-called, reactionary group, and that Festus Wade might make a
good member, as being a broader, more democratic banker.
Watts and Wade were both democrats.

Mitchell said

C.S.H. said he did not refer to

politics in using the word "democratic".
May 3
In afternoon, Board had conference with Governor Strong as
to invitation of Bank of England to attend a conference of central banks
In London.

Governor Strong, after listening to a reading of Governor

Hardingts address to be delivered in New York Friday, before American




461.

Acceptance Council dinner, said that the Governor's reference to the
meeting in London ought to be omitted.

Governor Harding did not

specifically mention the meeting but pointed out the limitations of
the Federal Reserve Act and specially stressed the fact that nothing
could be done by any bank without the approval of the Board.

Strong

said it would be strange to put this out just before Governor Norman
arrived and that we should at least hear what he had to say, if anything, on the subject.

Strong also said that the President had told

the Press he was interested in the matter and that, presumably, he
had some plan in his mind and that Governor Harding's reference would
be construed as a slap at the President.

Strong said he had good

authority for stating that President Harding was very angry with the
Federal Reserve Board for "voting him down" on the matter of Comstock
for Class C director at Kansas City, and he added that theyhad authority
for saying that a statement such as that proposed by Governor Harding
would be resented by the President.
I am inclined to think that Governor Harding made this
reference more as a hit vs Strong than anyone else, and that Strong
was using the President's name for his own purposes.
Strong spoke rather contemptuously of the President.

He said

Mellon told the President that he approved of accepting the invitation
but thoulght that three ought to go, but forgot to enjoin secrecy, with
the result that President Harding at once told the Reporters about it.
Strong intimated that the President knew nothing about banking
matters and even if--as suggested by C.S.H.--Governor Harding read it
to him and obtained his consent to use it--the President would be mad
if the critics should say that Governor Harding was hitting at him.




I took the position that Governor Harding should not allude
to this, at least until hearing what Norman had to say, and unless
President Harding consented.

I pointed out that a hostile critic

might say this was an attack both on Strong and the President, and that
it savorad of our warning to banks as to over-investment in British
Exchange Notes in 1916, and of the round robin in the Senate when
President Wilson went abroad to Versailles.
Finally, Governor Harding rewrote the paragraph to the satisfaction of Strong, as he told me later, but he did not show it to me.
Strong said he thought Norman was coming over merely to talk
to Mellon about payment of interest on the British debt.
Strong said the only way to stabilize was (a) to establish
a frae gold market in Great Britain; (b) to establish a gold exchange
standard, i.e., the lumping standard; (c) to pay exchange.
Strong said (b) would never be adopted in Great Britain; that
(c) was not a good method.
Strong added that Great Britain had been buying dollars which
had depressed British Exchange, and that it was a bad thing for a
foreign govarnment to manipulate exchange.
C.S.F. asked Strong if Graat Britain would not at once have
a free gold market providing she could be released from paying her
interest on our debt for, say, a year or two.
Strong gave an evasive answer.

C.S.H. believes this is

Norman's purpose.
C.S.H. believes Strong has some plan which he has worked out
with Norman but which he is unwilling to state to the Board.

All he

said to us was that we must adhere to the gold standard, to which,




463.
of course, we all agree.
Mhy- 8, Monday,
Board discussed auestion of accepting the invitation of
Bank of England all day.

C.S.E. not present.

Finally voted to accept

but later voted to exchange whole matter from Record.
May

9
Board meets with Governor Norman.

Governor Strong said

whole question of gold stabilization depends on some adjustment of
the debt question.

Gov. Norman said the Bankers of Europe would pro-

bably agree that the central banks should protect the weaker central
banks continuously; that probably they would advise central banks for
all countries; that also they would favor low rate policies for banks
having high reserves.
C.S.F. raised point that this might involve a vote by
Governor Strong of want of confidence in the Federal Reserve System
which is not strictly a central bank; end in the rate policy of the
Federal Reserve System which might keep in relatively high rates or
even increase them, even while holding high reserves.
Governor Strong said he could avoid this.
Governor Strong and Governor Norman both said that if the
central banks' suggestion of another monetary conference were adopted
it would necessarily involve the question of debt adjustment.

They

both seemed to favor a general holiday for some period of time during
which interest should not acctue.
The Board felt that this was clearly a matter for the
Administration to settle, as it was not strictly a banking question.




464.
Governor Strong suggested that the United States should call
a Mbnetary Conference and that the suggestion of a general holiday should
be boldly made then just as Hughes did in the 5 Power Treaty.
Finally we all agreed to C.S.F.Is motion that the Secretary
be asked to set with the Board and thrash out the matter.
C.S.H. asked Governor Norman if Great Britain could declare
a free gold market in the near future, if interest payments were postpored.

He said he thought not.
Crissinger said the Cabinet had been discussing the matter

and they seemed not to know just what to do.

Platt said he had just

asked Mellor to meet with the Board and he said. he would decide after
he had seen Governor Norman.

Platt said Mellon thought that Governor

Strong was to go the the conference merely representin8: the Federal
Reserve bank of New Ybrk.

We all agreed he should represent the 12

Federal Reserve banks--otherwise the charge would be made that the
Board

had abdicated to Wall Street.
C.S.H. stated that he favored Governor Strong going to

the conference but that there would be undoubtedly many matters that
would come outside of the jurisdiction of the Board and that on these
the Administration should tell the Board how to instruct Strong.
C.S.H. is perfectly satisfied that the real purpose of
Governor Norman, out of the conference, is to secure a postponement
of interest payments for a considerable period of time.
May 10 - Wednesday
"ecretary Mellon told Board through Crissinger that he
would not come to the Board meeting until he had consulted with Hughes




465.

and Hoover.

Governor Norman and Strong kicked their heels together

all day waiting to hear from Secretary Mellon.
Strong said be was sure the President would not approve of
his going, end in any event he would not go unless and until

the Admis-

tration told him its attitude as to possible postponement of interest
payments and as to calling an International Monetary Conference to be
held in United States.
C.S.H. told Strong he feared that if such a conference were
called the whole subject of International Bimetallism would be brought
up, and pointed out that in 1896 the RepublicanNational platform declared
for the gold standard only until a Bimetallic Conference could be
arranged for and that Lodge insisted on adding the words "which we
pledge ourselves to bring about."
May 11
Mitchell told me that Hoover told Norman that Greet Britain
should certainly pay her interest when due, and then they could both
decide as to the other countries.
MAY 12
Governor horman end Governor Strong have been having conferences
with Miller and Mitchell for the past two days.

Some I have been asked

to and others not.
This P.M. I tried to find Governor Norris to tell him where
we lived as he is to dine with us tonight.
and Miller had Mitchell with him.

I found him in Miller's room

They asked me to stay.

They were

going over a memorandum presented by Governor Norman outlining a plan
for calling a conference by Bank of England, stipulating certain things




466.
each particular member was to be asked to agree to along lines of
cooperatiorl, etc. of central banks,restoration of gold standard, etc.
I had never seen this before.

Several changes were suggested.

Governor Strong also had a form for his instructions, at
the end of which it was recognized that the conference might declare that
the gold standard could not be attained unless a final arrangement
covering all International debts was made as a condition precedent.
Governor Strong said the President, Mellon, Hoover all agreed the
invitation when given should be accepted, but they favored it at a
later date,--say September.

They had not, however, definitely agreed

as to his instructions.
I shall have to know much more about the whole matter than
I know now before I can vote intelligently on it.
7:30 P.M.
Governor Norman dined with us, and we had a very pleasant
talk.

He reiterated his view that nothing can be done to get Europe

beck to the gold standard until the debt question is settled.

He said

that if Greet Britain began paying interest it would create a very bitter
feeling among the Allies, and while he did not say so directly, I have
no doubt of his conviction that Great Britain is in no position to begin
interest payments next fall.

He said the payment of interest was a greater

crisis than payment of the debt for the latter, of course, would be funded.
He asked me whether I thought it for the best interest of Great
Britain to have the interest question decided now or to wait.
I was not familiar with the details and could not advise him.




I told him

467.

]Tay 19
Platt read to Board a letter from Governor Seay as to issue
of national bank charter in April to the Commercial National Bank of
Wilmington, North Carolina, Seay said:
This bank was originally the American Bank & Trust Company
and applied for admission to Federal Reserve System.

The Federal Reserve

bank examined it and declined to admit it as its condition was so bad;
it then applied to Crissinger; the national bank examiner reported against
it on account of its condition; Crissirger Eave it a charter on understanding that t1.00,000 be put up; only a small part put up in cash and
balance in doubtful paper; the condition, therefore, was not complied
with; that the bank's capital was wiped out and it was insolvent.
Voted to call this letter immediately to attention of
Crissinger.
The President is W. B. Cooper, a brother of Wade Cooper of
Washington who opposed William's confirmation.

Another brother is Robert

A. Cooper, formerly Lt. Governor of North Carolina and recently appointed
on Farm Loan Board.

Seay inclosed copy of letter from another brother,

T. E. Cooper to Bethea, Vice President of Commerdial National Bank , telling
him to rush discounts into the Federal Reserve Bank and not to be too
particular; that no credit inquiry was necessary if a note did not exceed
4,999; that if a note was that of a. cashier of a bank, and the cashier
owned a farm, he should be put down as a farmer, etc., etc.
It is astounding that Crissinger should have given a charter
to such a bank.

I fear it will turn out that politics are involved,

and that it will be like the Max Mitchell case.




468.

We asked Hoxton to find whether Crissinger ever asked Federal
reserve bank for an opinion.
May 21
Hoxton says he called up Seay who says Crissinger never consulted Federal Reserve Bank of Richmond as to charter to Commercial
National Bank of Wilmington, Yorth Carolina.
May 22
Herson, Chief Examiner, made a report by letter to effect that
the Federal Reserve Bank of Dallas had acted, as to collection of Notes,
in the same way towards all banks as it did to the Clayborn National
Bank,--so this absolves Ramsay and the Bank as to this particular charge.
May 23
Miller moved that it was

of Board that discount rat'es of

Federal Peserve Bank of New York could with advantage be reduced.

His

reasons were the high reserves-and the psychological effect of reduction
on market rates.
C.S.H. said he was not prepared to vote on this without hearing
from the Federal Reserve bank as to conditions affecting rates.
C.S.F. moves to amend by requesting the Federal Reserve Bank
of New York to report et once upon rate conditiors and whether or not
changes were advisable, giving reasons in full.
C.S.H. said if we adopted Mi1lerts motion the Foard would seem
to be found to make good its Resolution and initiate lower rates; that
while the Board had this power, it ought not to exercise it except under
extraordinary or at least unusual conditiors, and that he (C.S.F.) wished
to learn, before voting, just what the Few York conditions were.




469.

Miller admitted, in answer to C.S.F.'s question that business
Was

not being hampered by the existing 4-1/2% rate.
C.S.P. said he thought this 1/2/c margin over 44 could better

be met later.
Platt said that later we might have to raise rates and that
it would be easier to raise from

4 than from 4-1/M.

C.S.F. believes that if that time comes there will be a demand
to lower rates under 45.
C.S.R. met Secretary Mellon last evening at dinrer of Mimes
Patten and he told C.S.H. he saw no reason for lowering rates at the
present time.

The Board then voted down C.S.F.'s motion.

On Miller's motion the Board voted in favor by
Herding not voting.

4 to 1, Governor

C.S.F. voted No.

Yesterday Governor Harding and Mitchell were strongly opposed
to Miller's motion, and I do not understand their vote.
Although Governor Harding did not vote, be intimated that if
voting it would be Aye.
May 24
H.R. passed Bill yesterday adding 1 member to Federal Reserve
Board.

Governor Harding told me that Mellon

told McFadden to let it

go through as President Harding said he could not appoint Governor
Harding unless it did but if it passed he would reappoint him.

Governor

Harding said he told Mellon, he should prefer tot to be reappointed.
I told Governor Harding he would be free to decline if he wished but
he feared this would not be fair to the bankers who were working for
his reappointment.




470.

May 25
Federal Reserve Bank of New York asked Governor Harding to
ask Board to give its reasons for favoring lower rates.

Point well

taken, as Board should give reasons for the opinion expressed to
Federal Reserve Bank over C.S.H.'s adverse vote.
Miller talked at great length and became quite excited-said rates were out of line but did not say how; said merchants
were entitled to

lower rates; said it was wrong to keep up rates

for fear of speculation in call loan market.
C.S.H. replied that was not his reason for keeping rates
at present level; that business seemed to be moving satisfactorily
towards better conditions and frozen credits were

being liauidated,

and there was no demand for lower rates.
Governor Harding said Case of New York Federal Reserve Bank
said he would agree to lower rates if the Federal Reserve Banks would
throw 500 millions of Government bonds into the market to keep money
off the stock exchange.
Tune 29
The private Secretary of Senator Watson of Indiana telephoned
the Board's office, stating that the Senator desired to know the
politics of each member of the Board.

Mitchell at once moved ironically

that he be told it was none of his business.

Finally it was agreed

that the operator who took the message reply that he did not know.
On inquiry we found this was just whet he had said.
took it as an insult.




The whole Board

471.

August 7
Governor Harding's term expires Tuesday night, August 9, at
midnight.

Some months ago, Secretary Mellon told Harding it was settled

that he was to be reappointed.

This was just after the passage of the

Act adding a new member to the Federal Reserve Board.

From time to time

Secretary Mellon told Harding he was trying to have the President send
in the name of the new man and Harding's together.

Senator McLane told

Harding that this ought to be done and that he would see that the two
names were acted on together and would hold up the new name until both
were considered.

Senator Heflin, inspiredl as we believe, by John Skelton

Williams, has been attacking Harding almost every day.

About two reeks

ago Secretary Mellon told Harding the new name had been agreed upon and
that both would go in soon.

Last week Secretary Mellon gave out an inter-

view or rather an impersonal dispatch saying Harding would be reappointed.
Meantime nothing had happened.
surely be made last week.

Secretary Mellon told Harding it would

On Saturday Under Secretary Gilbert told

Harding that Secretary Mellon spoke to the President but that he threw
up his hands and said he was too busy with the railroad and coal strike
to think of anything else.

Secretary Mellon's daughter told Margaret

Harding her father was very angry with the President.

Secretary Mellon

said about the same to Governor Harding and added that it would make
the public believe he had little influence with the President.

It is

evident to me that President Harding wants to appoint some good Republican,
treating our Board as part of the Spoils System, but that he does not
quite dare to do it.

Meantime he is allowing Harding's term to lapse

and watching Senator Heflin's attack in the hope something may turn up
to relieve him, of the necessity of reappointing Governor Harding.




472.

It is a shocking case of weakness--the Press is almost unanimous for Governor Harding.
August 7
Ten days ego Senator Ramsdell wrote in

and, I believe, the

other Board members askirg for lower rates on Farmers paper, i.e. rates
as low as were in effect at New York (4-1/2), the rates being 4-1/2 at
some banks and

5 at others. He also thought that even 3-1/2% would

be just.
At the Board meeting Tuesday August 1, I moved that a commodetion rate of 3.-1/2% be established on loans secured by wharehose receipts
covering staple agricultural products where the member bank has not
charged its customer over

6cri, on such paper. Finally, on Governor Harding's

earnest suggestion it was decided to frame such a regulation but in first
instance to send the draft to the Federal Reserve barks for comment and
suggestions.

This was sent out August 2.

(See Scrap books)

On Saturday Senator Heflin in a speech in Senate stated that he
believed Governor Harding speculated in cotton during the period of deThis A.M. Governor Herding sent Senator VeLean a letter deny-

flation.
ing this.

Secretary "ellon this P.Y. went to White House to ask for apppintment of Governor Herding.
August 8
Governor Harding says Mitchell saw

Mellon yesterday P.M. and

he said had seen President who said he would rot commit himself, but
added, "I think Governor Harding will be reappointed."
Governor Harding just told me that Adams and Upham, Chairman
and Treasurer of Republican National Committee all to meet President
today and Strongly urge Governor Hardingts reaDpointment.



47')

Mitchell has just come in; he rend to me President Farding's
letter to him of December 9, thanking him for keeping politics out of
the Federal Reserve Board (alluding to the Comstock appointment) an
then said he knows that President Harding wrote it in a sarcastic sense
and that he is satisfied that the President is still very ugly about
Comstock and that this is the reason he does not want to reappoint
Governor Harding.

He added thet Republican pressure was so strong

that he thought Harding would yield and he believed he would send in
his name today.

He said Harding was surrounded by very poor political

advisors.
Governor Herding said this P.M. he was satisfied that President
Harding wants to put in Crissinger as Governor and Welliver or Comstock
as Comptroller and then turn the Federal Reserve Board into a political
machine using all offices as spoils.
5.P.M.

Governor Harding says Mellon just told him the President has

surrendered and said his only doubt was whether the fight over his confirmation might last two or three months and block business in the
Senate; that he wished Senator Underwood would see him about this; that
he told Mellon he had an appointment with Underwood this evening and
he would have Underwood see the President early tomorrow morning.
Governor Herding said Mellon said his name would be sent to senate
tomorrow if Underwood's interview with President was satisfactory.
Crissinger then spoke of Governor Herding and said it was
pathetic to see him, evidently measuring to see him want reappointment
so badly.

I asked when the new appointment would go in.

He said he

,had no idea, that he had not seen the President for three weeks.




He

474.

seemed to think it strange that Governor Harding so wanted it, for
he said sometime ago Governor Harding asked him to tell the President
he would be glad to resign; that he did so but the President told him
to tell Governor Harding to stick; that later, Governor Harding said he
did not want to resign under fire.
I rather gatherec that Crissinger felt the President would not
reappoint Governor Harding and that he was trying to sound me on it.
I told him that, even from the basis of practical politics, it
In my opinion would be a fatal mistake not to reappoint Governor Harding;
that it would be interpreted throughout the country as a blow at the
Federal Reserve System and as an, erpression of confidence in Senator
Heflin and John Skelton Williams and of

condemnation of the Board;

that Governor Harding had made a splendid record; that not to reappoint
him would injure Senator Lodge in his campaign as he was originally
bitterly opposed to the Federal Reserve System and had attacked the bill
In the Senate; that I feared there would be a determined effort to induce
the Democratic Party to come out for an "easy credit" policy, condemning
the Federal Reserve Board and that President Hardingls failure to reappoint Governor Harding would be cited as an approval of "easy credits"
by President /larding which would be difficult to answer.
I am convinced Crissinger was sounding me for the President.
Governor Harding told me he saw Senator Underwood last nite;
that he was pessimistic about his confirmation; that if Heflin could
get 15 democrats, he could stave off confirmation until March 4 next,;
that he felt that

senatorial courtesy was involved , although he had

told Feflin he should vote for him; that he said he must r.alize that
he had to live with Heflin which made it hard to fight him, etc., etc.




475.
The Governor said he told Underwood that the Farm Bureau
Corporation was for him and Howard and that this made Underwood seem
less despondent.

Governor Harding also reminded him that an extra

member was put on Federal Reserve Board on a kind of gentlemen's agreement that Harding also should be appointed and this would be sufficient
justification for his insisting that the two names should stand or fall
together.

Finally, Underwood seemed to feel better about it and said

he would sea the President this A.M.
Platt, Mitchell and I sat with Governor Harding between
hoping to hear from White House but nothing came.

3 and 4

At about 5 Governor

Harding went into Mellon's office and told him his desk was cleared
and he was going to New York tonight.

Governor Harding came in and told

me of this; he said Mellon said he was utterly at -I loss to understand
why the President had not sent in Harding's name this day.
Governor Harding then told Mellon that if President Harding
should send in his name and it should be held up, he certainly, after
three or four w-eks would ask the President to withdraw it.

Mellon

said that was good suggestion and he would communicate this.

I think

Governor Harding made a mistake in saying this for the President would
send in his name and easily could arrange to have it held up.
At ten P.M. I called up Governor Harding at his house but there
w-ls no answer,--he had evidently gone to the train for New York.
Auust 10
Mitchell told Platt that Senator Underwood told President
Harding that Governor Harding should be reappointed and that he would
certainly be confirmed.




476.

Platt just told me that Senator McLean said the failure to
send in Harding's name was a damned outrage.
August 11
Washington Post says President so busy with railroad strike
he will probably make no appointment for several weekst
August 16
Asked Governor Harding to lunch at Cosmos Club.

He showed

me a letter from Federal Reserve Agent Wills enclosing a copy of an
answer by President Harding to a prominent Ohio Representative (Carmi
Thompson) strongly indorsing Governor Harding for reappointment.

The

letter said he ( President Harding) fully appreciated the strong indorsements for Governor Harding but that there were two sides to the question
and he would give the matter most careful consideration.
Governor Harding said that his nomination had been signed by
President Harding, but at last minute had been held up.

He said Under

Secretary Gilbert told him that last Friday Secretary "'ellon had sent
President Harding another letter for Governor Harding—almost mandatory
in its terms.
Governor Harding said the President was getting even with him
for the refusal to appoint Comstock in Federal Reserve Bank of Kansas
City.

Also said he had several good offers under consideration but

should wait until President Harding had definitely settled the question.
Also said that if nomination and confirmation went through, he would not
accept the office unless given the assurance that he would be redesignated
as Governor.




477.

I think Governor Harding goes too far here.

An assurance of

designation as Governor for ten more years—eighteen in all--is more than
any President could properly give.

All that Governor Harding has a right

to expect is reappointment as a member for 10 years.

He seems to think

such a designation is necessary for his vindication.

On that theory I

should have accepted the redesignation of Wilson which he said he would
Governor Harding said he had suggested to Platt to write

give me.

Rettig of Birminham and ask him to show what good reason there was for
continuing the Federal Reserve Bank branch there; that this would
stir things up and the bankers would bring great pressure on Senator
Heflinfs brother and force him to drop his opposition.
I told Governor Harding this would not do at all and, if done,
would surely injure him as everyone would see through it and it would
put the Board in the position of political manoevering--which it never
had done and never

should do; that it would give Senator Heflin a

real cause for greivance--of which he had none now—nnd that it would be
disasterous to Governor Harding.
Later, I told Platt the same.

Be said he rather agreed with

me, but thought he might write Kettig that he had heard some Insurance
Company wanted to buy the building occupied by the Branch and that he
wanted to know whether it would be advisable to sell and give up the
Branch.
I told him I should never agree to this and that it would be
crazy to do it.
August 21
Mitchell said this A.M. that Carmi Thompson, during a dinner
with President Harding, last week, strongly urged Governor Harding's




478.

appointment and said it was a great opportunity for a Republican President to demonstrate that the Federal Reserve Board was absolutely disconnected with politics, but that the President said this did not
impress him at all, showing his desire to make the Board a part of the
spoils system!
August 25
Boston Transcript severely criticises President Harding for
not reappointing Governor Harding, says reason is anger because Governor
Harding would not appoint a politician to office under Federal Reserve
Board. (Evidently refers to Comstock but does not mention his name
specifically.)
September 15
Governor Harding tells

C.S.H. that Mellon sent for him yesterday

and said he was still confident President Harding would reappoint him,
and would give him a recess appointment after Congress adjourned--within
a few weeks.

Governor Harding told Mellon not to push him too persistently

and not to hesitate to drop his name at any time, but that Mellon said he
certainly would not drop his name.

Mellon also said Mr. Edward McLean

had told the President it would be political folly not to reappoint him
and that the President seemed very much impressed.
Platt shows me a copy of a letter to Senator Smoot in reply to
a letter from him asking as to certain of statements of Williams quoted
by Senator Heflin in an attack on Governor Hsrding and the Board delivered
in Senate last Tuesday, September 12.
not official.

In it, he said that Williams was guilty of deliberate false-

hood in some of his statements.




Platt's letter was personal and

I suggested softening this somewhat by

479.

saying intentionally misleading or something to that effect.
September 16
Platt said he had sent his letter to Smoot but did not say
whether he had adopted my suggestion.
September 20
A day or two ago, Senator Owen who was with Mr. Quick, former
member of the Farm Loan Board, told me that if Governor Harding was nominated
he would vote against his confirmation and would do his best to defeat him.
He added, however, that if nominated he would undoubtedly be confirmed.
I told him of Senator Heflints recent speech in the Senate claiming that the Bill, permitting Federal Reserve banks to accumulate a surplus
up to the subscribed capital, had been sneaked through Congress at the
last minute with the help of Republican votes, and reminded him that the
House and Senate were then Democratic and that he had charge of this bill
in the Senate Committee and reported it.

I urged him to set the matter

straight in the Senate, as Senator Heflin had really impugned his good
faith, but he said few read Heflintstveeches and seemed to take no
interest in the matter.
Later Platt wrote him fully about this.
On looking up the Record Platt said Heflin himself had voted
for this bill, being, at the time,a member of the House of Representatives.
September 23
H.P.H. and I motored to Cohassot and lunched with GovertOr
and Mrs. Morse.
Governor Morse said that Crissinger positively promised to
give a charter to Max Mitchell and finally was so impressed with the




480.
protests that he wrote Matt Hallowell, Comisel for Mitchell that he
would give no charter unless the Federal Reserve bank favored it.
Hallowell told Governor Morse this really relieved him very much.
September 29
In Boston attending group conference of Federal Reserve
banks of Atlanta, Richmond, Philadelphia and Boston,

Sat with meeting

all day.
In evening we dined at Union Club with Governor Morss and Curtiss.
Governor Seay of Richmond spoke of Comptroller Crissinger and First National
of Wilmington, North Carolina.

He intimated very clearly that politics

were at the bottom of the matter and said that Crissinger

was

very angry

because the Federal Reserve bank had informed the Board as to its totter
condition.

He said Crissinger had taken away the Chief National Bank

Examiner from Richmond and had brought him to Washington, so that Richmond
was now the only Federal Reserve City which did not have a chief examiner.
Governor Strong also said that it was rumored that Crissinger
was to arrange to have the Federal Reserve Act amended so as to take away
the power of Federal Reserve Banks to examine member banks!
Governor Morse spoke about the acquisition of the Park Trust
Company of Worcester by the Merchants National Bank.

This bank had ac-

quired the assets of the Trust Company at a very extravagant figure.
Federal Reserve Agent Curtiss was on a committee to look into this and
reported that the Trust Company was in rotten condition.

Notwithstanding

this, the Comptroller allowed the purchase to stand, but later Curtiss
said the directors had to put up a large sum of money to make good the
condition of the national bark.




481.
Governor Morse intimated that this also was a question of
politics like the Max Mitchell case.
Governor Morse also spoke of the petition for admission of
the Federal Trust Co., which had absorbed the Cosmopolitan Trust Company
and the Back Bay ratioral Bank and had arranged to have Maloney, former
rational Bank Examiner, and now clearing house examiner, as its President;
that Maloney came to him mlth a plan of reorganization which provided only
one million of capital against twanty millions of deposits; that he told
Maloney the Federal Reserve bank would never approve this; that finally
Maloney provided 1-1/2 millions of capital which left the deposits about
20:1-1/2 or about 13:to 1.
Governor Morse said this ratio was too high but all of three
of these banks were in a very weak, extended condition End if something
were not done they would all fail which would be a serious blow to Boston
banking already injured by the other Trust Company failure; that the clearing house committee had examined the three bamks and that Wing and Ripley
had reported to him that the clearing house committee unanimously requested
him to approve this consolidation to protect the banking situation in
Boston which could not stand three more bank failures; that this recommendation put the responsibility on the clearing house to see the consolidation through and protect it, and that he should advise the Board to approve
it.

Federal Reserve Agent Curtiss told C.S.H. he hoped the Board would

act quickly and favorably.
October

4
Governor HardinE called; saie President Harding sent for him

last week; had a long talk

with him.

had no idea of appointing him.




President Harding said:

At first

Then the pressure became very strong.

482.

Mellon was 150% for him, also Senator Reed (Pennsylvania), etc., etc.
Also much pressure against him.

Felt that attacks of Heflin and Williams

would put him in position of agruing with them if he failed to reappoint
him.

Represented to him that reappointment would take situation out of

politics, but he felt to appoint him before the coming election would
plunge whole matter into politics.
matter.

After the election wdll take up the

President Harding gave no assurance, however, that he would

reappoint him.
October 10
Board voted to refuse to amend regulations to admit special
savings accounts in California State banks as "savings accounts" under
Federal Reserve Act, but held they were demand deposits carrying necessary
of reserve as such.

The Board's definition of savings accounts required

not only reservation of 30 days notice but also presentation of pass book
and prohibited checking on such accounts.
Under California law the special accounts we segregated and were
a prior lien over demand deposits, but the law did not require presentation of pass book and permitted checking.

The law further provided that

if the 30 days notice was put in and the bank could not pay the deposits
at the end of 30 days, that it could make no more loans and discounts
until paid.
Chairman Perrin strongly advised changing the regulations so as
to give these special savings accounts the benefit of the 3% reserve.
Be said these deposits did not draw down the ordinary demand deposits
of the California banks, and that they should have the benefit of the
3 reserves, especially under Section
State banks going into the System.




9, as to statutory powers of

pr

483.

Perrin favored keeping the higher reserves,--as demand deposits
against national banks as their deposits were not segregated, and, moreover, if a bank put in the 30 day rule and then could not be it would
be insolvent, while under California law such a result did not mean
insolvency at all.
C.S.F. said that under Federal Reserve Act where a bank gives
notice of right to reserve 30 days notice, that deposit is not a demand
deposit, but a savings deposit, and that while he thought the regulation
was right as to national banks, it should be amended as to State bank
savings accounts provided by the law of any State, where segregation was
C.S.H. moved to amend the regulations and was defeated, or

required.

rather, Dr. Miller moved not to amend the regulations in manner suggested
by Perrin.

The motion not to amend was carried:

Platt, Miller and Crissinger, Aye.
C.S.H. and Mitchell, NO.
Later Perrin told Platt this might mean the withdrawal of
Sartorets bank, the

Trust and Savings bank of Los Angeles and

other large State banks. Platt seams rather to favor reconsideration
and the matter will probably come up again.
October 12
Federal Reserve Agent Rich called and spoke of three new charters
to notional banks in his district granted by the Comptroller, Crissinger,
in spite of an adverse report of the national bank examiner and the
Federal Reserve Bank.
Be said there was absolutely no necessity for these banks and
the charters were given by the Comptroller purely because of political
influence.

He said also the matter was discussed by the other Federal Reserve

Agents and that every Agent spoke of similar action of Crissinger in their
Districts.




(End of Vol.ir'6)