Full text of Diaries of Henry Morgenthau, Jr. : Volume 149 : Part 2

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197
(NOT FOR PUBLICATION)

NOTES ON A VISIT TO JAPAN - AUGUST 1938

M. S. Bates

Visits to three summer resorts and two larger cities gave me opportunities for speaking in small groups to more than 300 missionaries and to a

fair number of Japanese. The purpose of such contacts was to give needed
information and answer eager enquiries which poured in from every corner; likewise to learn as much as possible about the attitudes and problems of the

Christian movement, particularly in relation to the war and the intensification
of military nationalism. It was not so easy as formerly to get in touch with
Japanese or to have them speak freely. Nevertheless old friends and a few new
ones made through trusted intermedieries, were willing to say exactly what they
thought and felt.

The general sentiment of the people is that of willingness to follow
the Government's program, but with less enthusiasm than in earlier months.
The original slogan, "Hail to the Punitive Expedition!" has given way to the
widespread army advertisement, "Support the New Military Enterprise for the
Long Struggle". In general people are the creatures of nationalist education
and of comprehensive propaganda. They believe that their army is performing a
necessary task and that proper effort and sacrifice will secure a result beneficial not only to Japan but to the Chinese people and even to the world.
Some groups even in Christian circles go much beyond this position and

warmly cherish an ideal of e holy war by a righteous nation against evil influences. They are generally thinking of Communism and white man's Imperialism

as greater enemies in China than is anything specifically Chinese. On the other
hand, there is a considerable minority of the people who feel that something is
wrong but are not very clear as to what it is and certainly see no way to remedy

the difficulty. Within Christian circles there are some finely sensitive spirits

who are greatly distressed for the evil that has been done and for the consequences to China and to their own nation. These persons are under great strain
and often are unable to work out a steady philosophy of expression or of action.

Missionary attitudes have developed very well by comparison with those
of 1931 and 1932. Although some are influenced by incessant propaganda and all

are rightly trying to maintain sympathy with the best elements in Japanese life
past and present, the missionaries in Japan are practically unanimous in their
opposition to the present war. Indeed, three or four leading missionaries in-

formed me that they could name at most two missionaries who supported the war
in any considerable degree. Although the reports I had given were extremely
painful to those who have made the love of the Japanese people the major interest

of their lives, I was nevertheless received with hearty interest and was given
active cooperation in every place. Missionaries have helped a great deal in the

198
2

circulating of information received either directly from Chine or through
foreign countries. Many of the best Japanese depend upon them for facts

and for spiritual support in their own tribulation.

Now let us insert a few factual items regarding the general conditions in Japan as they relate to the war and to our expectations for the

coming years. In the first place I find no indications of a shortage of

men-power. The experience of the world war should enable us to realise that
the nation of nearly eighty million people must experience prolonged and in-

tensive military losses in order to feel any real shortage of men. As a

matter of fact the unemployment of large numbers of able-bodied men is charac-

teristic of the present situation. (Most of these have been displaced from
ordinary industries closed because of the diversion of materials and foreign
exchange to war purposes.) Furthermore, a number of divisions have recently

been returned to Japan and set free for civil life. I was able to trace four
of these in detail. The program seems to be to give field experience to as
many of the soldiers and reservists as possible by putting them through the
China experience in series. Only within the last two months has there been
8 noticeable direction of new calls to the army toward young men, say 18-25.

Again, if we consider the probable casualties in China, we confirm
the impression that there is no shortage of material for soldiers. If we

assume that the total casualties were about 500,000, that might mean 300,000

killed and seriously wounded. Each year the surplus of births over deaths in
Japan is 950,000. If we eliminate females and those males who do live till
military age, we would have a figure not greatly different from the 300,000
put out of action. In other words, military men-power stands today at about
the same point 85 at the beginning of the war.
On the economic side my information is not secured from inside
sources, but rather from a careful reading of financial and industrial passages of the newspapers checked by enquiries among foreign friends of many
types. On the whole there has been no serious economic pressure up to the
present time. Just now shortages in coal, cotton, leather, some types ofThe
metal goods, paper, etc., are touching the general life of the people.
stores and warehouses seem as full of goods as usual and irritations arise
rather from the bureaucratic control and the methods of its exercise than
from actual want of necessaries. Sharp actions were taken this summer by
government authorities to reduce the use of cotton and of leather, but within
B short time most of the restrictions were removed or modified because of
populer protests on the one hand, and on the other hand the bringing forth of
evidence that supplies were greater than at first estimated. There is 8
special economic police which is already encountering many difficulties in
enforcing the regulations. The newspapers admitted that in Osaka one ring
of cotton operators alone diverted fifty million yen of cotton goods to uses

199
3

contrary to their licenses and to the public regulations. All in all the

economic problem cannot be considered critical at this stage.

Despite minor leaks through travellers, the Government has been
able to maintain its official exchange rates between the yen and western

currencies. Internal bonds are reported as selling above par, which is of

course in a market maintained by government pressure upon banks, insurance
companies and industrial corporations. Japanese bonds in New York and London

yield from 11 per cent upwards on the basis of current prices at half their
per value or less. Even this low valuation of Japanese credit is higher than
it should be because the Japanese Government has mobilised the foreign securities held by Japanese interests abroad and has used them to buy in London
and New York all types of Japanese bonds. This procedure has supported the
price of the bonds and at the same time has reduced the foreign-held obligations of the Japanese Government and of semi-official industrial concerns.
The common currency shows war-time changes of minor importance. The 50 sen
paper note is being extended and new coins apparently without nickel are replacing the familiar 10 sen and 5 sen pieces.

Special mention should be made of the intensification and speeding
up of a Japanisation program in Korea and Formose. In the latter the changes

of recent months are so rapid as to be startling. No publication in the

Chinese language is permitted. All Chinese teachers have been forced out from
middle schools and higher schools. In the primary schools Japanese applicants

for teaching positions are given such preference that they are swiftly displacing the former Chinese teachers. In the two large normel schools of the

northern part of Formosa only five Chinese students were admitted in this
year's entering class as against more than a hundred Japanese. Local police
are required to report on the language used in every home. Those families
which are listed as using Japanese only, receive preference in the granting
of business licenses and in educational opportunities for their children.
School administrators and teachers are held responsible for the displacing
of Chinese idols from the pupils' homes and for the introduction of Shinto
god-shelves. The weering of Chinese costume has been forbidden, but this
decree is not yet enforced. The churches are being pressed to use the Japanese
language and a first definite step is made this autumn with the requirement
that on one Sunday of each month everything read, spoken and sung in the
church service must be in the Japanese language. The Government radio has
repeatedly broadcast the statement that all foreigners are spies, especially
missionaries. At one time the radio announced that two missionaries had been
imprisoned and one missionary executed for espionage, reports which of course
were false.

The many forms of nationalist pressure upon Japanese Christians has and

missionaries in Japan cannot be detailed here. No missionary group
acceded to the many requests that they issue statements supporting the

upon

200
4

Japanese Government and Japanese cause. Missionaries are therefore subject to

suspicion as an alien element unsympathetic in time of crisis. Some of the
nationalistic Christian leaders oppose and criticize the missionaries very
severely for their quiet but steady witness against the war. Among the Japanese,
responses to the pressure are mixed. Some submit because they do not know any

effective way to resist. Some are led to take a strongly nationalistic stand
in order to demonstrate that Christianity is compatible with the national spirit
in time of emergency and also to lessen distrust of themselves and of the Christian organizations in which they work. The methods of the police at times are
seriously embarrassing and even oppressive upon pastors and active Christian

workers. In scores of cases Christians have been required to declare inner
beliefs and attitudes upon crucial questions such as the relative status of God
and the Emperor, the attitude of Christianity toward the mythical divine spirits
from which Japan is supposed to have sprung, the relations of Christianity with
Shinto as the national religion of Japan, etc. There are tragic cases of conformity and surrender to the demands of absolute nationalism. There are also
examples of earnest heroism in maintaining Christian attitudes and in presenting
a genuine Christian message in the midst of this situation.
A word must be said about the efforts of Japanese Christians to do
something in China at this time. Here the persons, their information and their

attitudes vary widely. Not a few are fully sincere in their intention to do

some good as an offset to the suffering resulting from the war. They find
themselves unable to do much in Japan itself and they hope that they will be
able to make some atonement or some contribution in Christian service to China.
Others are more politically inclined and wish to see the displacement of a
Christianity having western connections by the introduction of Christianity
under Japanese auspices in direct fellowship with the Chinese. Many specific
enterprises or visits that are undertaken are based upon inadequate information
or even upon serious misinformation. In general I recommend that Japanese
Christians concerned with such enterprises be met with frank friendliness,
accepting their motives as good but helping them to see the actual facts and the

tremendous spiritual difficulties in their way. Already a number of important

contributions to Japanese facing of the problem have been made by such visitors
to China who have been fairly received among missionaries and Chinese Christians.
Our motto should be, "Speaking the Truth in Love" and we should be sure that we

honestly fulfil the last term of that motto. Japan so desperately needs right
Christian attitudes and the Christian appreciation of the situation in China

that we must not throw away any opportunity for gentine fellowship with Japanese
of good intentions, even though they are imperfect like ourselves and are often

misled or put in a false position by their military.

Finally it must be said that present conditions and present attitudes
in Japan as a whole do not provide hope for an early change of policy or for
the consideration of a fair and reasonable peace. That day seems far off, yet
may come a little nearer and a little sooner if there are persons ready in
knowledge and in attitudes and convictions to take advantage of all opportunities

201

5

which may come from military or economic difficulties. The direct relations

with China may possibly be affected by the obvious Japanese determination to
fight Russia at some time. However the summer's experience seems to indicate

the desire of Japanese military leaders for more time to solve the Chinese
problem as completely as they can and likewise to prepare more specifically
in transportation and other technical lines for the struggle with Russia.

For obvious reasons the real life behind this report, that is, the
names of persons and the details of difficult stands made by heroic spirits,
cannot be presented here. The facts justify the use of sympathetic imagina-

tion to fill in this dry outline.

SSG 330

- -YRUSA3HT

-

sds to some

at

RECEIAED vs
CONTRABONDENCE DIAISION

COPY:FE:DT

STRICTLY CONFIDENTIAL

AMERICAN CONSULATE

Yunnanfu, China, November 3, 1938

SUBJECT:

Preliminary Report on the

YUnnan-Burma Highway.
The Honorable

The Secretary of State
Washington.
Sin

I have the honor to state that the Yunnan-Burma

highway will soon be open to traffic. Latest reports
are to the effect that the surfacing of the highway on
the Yunnan side has been completed as have also prac-

tically all bridges. Where stone bridges have not yet
been completed satisfactory temporary bridges of wood

have been built. Trucks and busses have been reported

on all sections of the road but thus far through traffic
has not yet commenced. It is stated that the section of
the highway in Burma is still not completed, and thus

the highway will probably not be open for through traffic
on a large scale until January 1938.
The necessary arrangements for the operation of

fleets of trucks and busses on this highway do not
appear to have been made as yet. No adequate prepara-

tions have been made for the repairing and servicing
of motor vehicles at terminals and at places along the

route. Supply depots of gasoline and oil have not
yet been established, It would thus appear that maximum
use of the road cannot be made in the beginning because

of delay in this regard.

202

--

203

A basic report on this road will be submitted
later but the following facts may be of interest:
ROUTE: The highway follows a westerly direction
) a distance of
from Yunnanfu to Siakwan (
425 kilometers, via Tsuyung (

). This part

of the road has been open to traffic for three or four
years but the part from Tsuyung to Siakwan has only
been surfaced this year.
From Siakwan the highway follows a northwesterly
) then a southwesterly
direction to Yangpi (
Lungling (

) Mangshih (

small border town of Wangti (

), Paoshan (

)

direction through Yungping (

) to the
). At Muse on

the Burma side the road branches, one route going
northwest to Bhamo, the head of steam navigation on
the Irrawady River, via Namkham and the other south

to Lashia, the railhead, via Kuthai. The distance from
Siakwan to Lashia is reported to be 784 kilometers
and the total distance from Yunnanfu to Lashia 1209

kilometers, or approximately 750 miles. The distance
from Yunnanfu to Bhamo is approximately the same.
GEOGRAPHY: Along the route from Yunnanfu to

Siakwan no great engineering problems were encountered

in the building of the highway although landslides
and washouts have been frequent. There are four passes

of between 9,000 and 10,000 feet in this part but since
the country is all above 6,000 feet these passes are
not high. Along the route west of Siakwan the engineering problems were more difficult. The Yangpi, Mekong
and Salween Rivers, all of which lie in deep narrow
gorges had to be crossed and considerable rook work
was necessary at certain places. The bridging of the

204

-3 rivers has been successfully accomplished. There has
for some years been a suspension bridge across the
Salween River for the caravan (pack mule) traffic, and
this has been strengthened to carry a load of 18 tons.
The bridge over the Mekong River, which is also a suspension bridge, was purchased in Burma where it was in-

tended for another river. It is reported to have fitted
perfectly into the bridge site for the Mekong River crossing. This bridge is stated to have a load capacity of
15 tons.

CLIMATE: The rainy season at Yunnanfu has now ended

and for the next six months dry weather may be expected
between here and Siakwan. However, nearer Burma the

dry season is reported to be shorter. I am informed that
the dry season on the border consists of the months of
January, February and March only. Presumably in the

case of a surfaced road the question of rains would not

enter into consideration, but in this instance traffic
will doubtless be often interrupted by landslides and
the destruction of small bridges caused by heavy rains.
Constant attention to the road will be required during

most of the year if the route is to be kept open, and
this will require the employment of thousands of people.
An American has just left for Bhamo by private
motor oar over the new road and expects to be back in

Yunnanfu in about a fortnight. Upon his return ad-

ditional information will be available as to the condition
of the road and the preparations which have been made

for traffic over it.
Respectfully yours,
PAUL W. MEYER,

American Consul

205

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE November 3, 1938.

Secretary Morgenthau

TO

John Hanes
FROM

A conference was held in my office at 11 o'clock this morning to discuss
the cut-back practice in connection with your requests for the RFC to purchase
preferred bank stock. The conference was attended by Messrs. Taylor, Oliphant,
Upham, Duffield, Foley and myself.

The specific question was whether you should request the FFC, in line
with their recent proposal, to purchase preferred stock of the Patchogue Citizens
Bank and Trust Company, Patchogue, New York, in an aggregate par value of $200,000

the subscription price, however, to be $500,000. After much discussion, it was
decided by the conference that you should make the request provided the sub-

scription to the preferred stock is conditioned upon an undertaking by the bank

to reveal in its financial statements the true condition of affairs, i.e., that
following the preferred stock item in all of its financial statements a brief
explanation is made showing that the subscription price upon which dividends

will be based and repayment made in the event of retirement or liquidation is
$500,000 instead of $200,000. Even though the cut-back practice is permissible
under section 345 of the Banking Act of 1935, it was the sense of the meeting

that you should exercise your statutory functions in such a way as to protect
the public from being misled in a situation such as this where full disclosure

is in the interest of the public as well as the stockholders and depositors.

206

-2-

If this recommendation meets with your approval, the request to the

RFC in the Patchogue as well as in all future cases involving the cut-back
will be conditioned in this manner.

John WHave

Recommendation approved:

Secretary of the Treasury

207
PARAPHRASE OF TELEGRAM SENT

TO: American Embassy, Paris, France
DATE:

November 3, 1938, 6 p.m.

NO.: 831
FROM THE SECRETARY OF THE TREASURY.
FOR COCHRAN.

The following is strictly confidential:
This is to inform you, for your guidance, that the
Bank of England has advised the Federal Reserve Bank of

New York that they still do not have sufficient exchange
for forward deliveries against sales made the latter part
of September; they lack approximately one hundred million
dollars. The Bank of England has not yet decided whether
these sales will be liquidated by further shipments of
gold to the United States, or whether they will swap these

contracts into later future deliveries.
You are requested to mail to Butterworth a copy of
this telegram.
HULL (FL)

EA:HF:LWW

208
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France
DATE: November 3, 1938, 6 p.m.
NO.: 1861
FROM COCHRAN.

The October 27 Bank of France statement showed no

important changes. Coveraged moved only from 40.47 to
40.69.

At a quarter of six when I talked with the Bank of
France I was told that today the exchange market had been

inactive and nothing had been done by the French stabilization fund until late this evening when at 178-79 a very

little sterling was sold. There was a little more bidding
in the forward frano. Yesterday's gains in French rentes
and shares were not held. The belga is remaining steady
as short covering is continued from London.
Governor Fournier of the Bank of France was consulted

by Reynaud, as well as the experts in the Finance Ministry,
but he has issued no new statement. All sorts of prediotions and rumors as to the prospective plans of Reynaud

are being circulated on the market and in the press.

In this connection you may find it of interest to refer
to my telegram No. 860 of June 1, 4 p.m., in which I
reported a confidential talk which I had with Reynaud on
that day. He had given me five points which he favored
then -

First. A Government of a large majority.
Second. That there be lower duties on raw materials.

209

-2Third. At least six days work per week, and more
work.

Fourth. A currency sufficiently depreciated - and
his remarks upon accepting the new post of Minister of
Finance would indicate that he believes this point has
been reached.

Fifth. That the Tripartite Agreement should be revised
to attain currency rates which are bearable.
Forced conversaion of rentes was opposed by Renaud, as well

as exchange control. At that time he said that exchange
control was "undesirable and unworkable for France as well

as distasteful to the other members of the tripartite".
I refer to my telegram of October 27, No. 1828.
In that telegram I mentioned the market report that so
much difficulty was being experienced by Marchandeau that

Reyaaud or Patenotre might shortly succeed him. In the

telegram of June 1, No. 860, I reported that Reynaud anticipated a crisis for the Government in November because of

the futility of the policies of the Government.
END MESSAGE.
WILSON.

EA:LWW

210

GRAY

RE3

London

Dated November 4, 1938

Rec'd 3:52 p. m.

Secretary of State,
Washington.

1286, November 4, 6 p. m.
FOR TREASURY FROM BUTTERNORTH.

The foreign Exchange market has continued inactive.
The dollar has remained comparatively stable around 4.76

and only 79 bars WERE sold at gold fixing at 146 shillings
one penny of which the British fund supplied about a

dozen. There was a tendency to sell francs on fears of
further personal changes in the Daladier Cabinet but the
amount of sterling lost by the French fund was small.
KENNEDY
HPD

211
PARAPHRASE OF TELEGRAM SENT

TO:

American Embassy, Paris

DATE: November 4, 5 p.m., 1938

NO.: 836
FOR COCHRAN FROM SECRETARY OF THE TREASURY.

brief
In a/telephone conversation today with the Secretary

Paul Reynaud said that he will remain loyal to the principles
of the Tripartite Agreement and that nothing would be done
to jeopardize this Agreement. The Secretary replied he was
very glad to hear that and hoped that Reynaud would have

great success and added that if he could be of any assistance
to call on him. Mr. Reynaud made no other comments other
than asking regarding the health of Mrs. Morgenthau and
the President.
HULL

EA:DJW

212
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris

DATE: November 4, 5 p.m., 1938
NO.:

1864

FROM COCHRAN

The stabilization fund had sold a few pounds at 178.81

by noon when I talked with the Bank of France. In his first
talk as Minister of Finance with Governor Fournier of the
Bank of France, Reynaud had positively reaffirmed his deter-

mination not to let the franc depreciate below 179.
I was informed this evening by a market trader that
throughout the day exchange dealing had been light. Forward

discount on the franc was slightly wider.
Lower quotation for rentes. The atmosphere is clouded
with doubt and deception awaiting Government action with

constant rumors with respect to dissention within the

Cabinet and to political problems. Lazard is the principal
seller of dollars and the Bank of Indo-China the principal
buyer. Some dollars were also acquired by the National Bank
of Belgium.

rates

Interest/on eighteen months national defense fund bonds
and on two-year national defense bonds have been reduced

from 4.50 to 4.25 percent.
WILSON

EA:DJW

213
November 4, 1938.
9:45 a.m.
Operator:
HMJr:

Go ahead.

Hello.

Archie
Lochhead:
HMWr

Good morning, Mr. Morgenthau.
Who is this?

This is Lochhead speaking. Taylor and White, let's
see Bell,
- wellMr.
everybody
is coming
Mr.
Oliphant,
etc. in now. Mr. Hanes,

L:

HMJr:

Give me the bond market first.

L:

The exchange markets are still steady, but very

quiet. Sterling 4.76 and francs 2.66 - a very
small turn over, only seventy-nine bars this
morning,
so - and it doesn't look like any action
here.

HMJr:

No.

No further news from abroad. The one thing you
asked me about Buck - we found from Hongkong that
he left for Chengtu on October 28, and expects to
return to Chungting in about three weeks time.
We have his Chengtu address in case we have to
get in touch with him.
HMJr:

Well try to contact him.

L:

Well - do you - is there any special question you
want to ask him.

HMJr:

Well, just ask him - try to establish communication

L:

I see. Well of course the communicationyou
hassee.
to go

with him.

by way of Hongkong, through
HMJr:

Well, try it, just to see if you can get -

L:

All right, we'll just simply send some simple
message to get a reply and see how we come.

HMJr:
L:

HMJr:

That's right.
All right, sir. Now everybody else is here. Do
you wish to speak to Mr. Hanes first.

Yes. Hello.

214

-2John
Hanes:

Good morning. Hello.

HMJr:

John?
Yes.

H:

HMJr:

I read the letter to Giannini and Mrs. Morgenthau
made this comment. The sentence, 'I have not

seen the Wilcox letter referred to in your

telegram", she says "Might be interpreted -

sometimes politicians, when you ask them a question,

say 'Oh, I haven't seen the letter' ", see?
Yes.

H:

HMJr:

It isn't strong enough. So I thought I'd put on
this P.S. Just write it in my own handwriting, if

you people agreed.
H:

HMJr:

H:

HMJr:

H:

HMJr:
H:

HMJr:

H:

HMJr:
H:

HMJr:

H:

Yes.

P.S. "Up to the time I received your telegram
I did not know that such a thing as the Wilcox
letter existed."
Do you want that - do you went -

I could write it on if you people thought all right
of
it.
"Up to the time I received "Up to the time - If your telegram

- " I received your telegram I did not know that
such a thing as the Wilcox letter existed."
Well, we could put that - we could substitute that What?

We could substitute that for the sentence, "I have

not seen the Wilcox matter and send you another
copy tonight."
Well, maybe that would be better. They could send

it air mail to get it Monday.

Yes.

215

3HMJr:

You
see, if you
that doesn't
- read it "I have not read it a

HMJr:

"I have not seen the Wilcox letter".
It isn't strong enough.

H:

Yes.

HMJr:

The fact remains, I never heard - I never heard -

H:

seen the letter - I didn't know it existed.

Yes. Wait a minute, Herbert Gaston has got a
suggestion. Herbert says, he could say "I have
not seen the Wilcox letter referred to in your
telegram, and did not know of its existence. If

H:

HMJr:

H:

HMJ:

Yes. Well, maybe it'd be better to rewrite it

rather than have me write it in my handwriting.
I don't know, what do you think about it. The
rest of them all say it's much better. We'd
better send you another copy tonight.
That'11 be time enough.

Yes. And if we - suppose we put an airmail stamp

on it.

HMJr:

What?

HMJr:

I say if you want to hurry it back out there, we
could put an airmail stamp on it.
No, that wouldn't help any at all. I mean airmail
up here doesn't help any.

H:

It doesn't.

HMJr:

No, if you send it the way it does,

H:

HMJr:

I get it by eight-thirty.
All right. Now - aside from that is the letter
all right?

Oh, I think it's fine.
Well everyone here has seen it. I think everybody
here has seen it.

HMJr:

Oh, I think it's fine. I just didn't think that one
sentence was strong enough.

216

-4Yes.
All right. Well, we'11 fix that up and
put it in the bag tonight.

H:

HMJ:

Number Two. That table that you sent me, see?

Yes, sir.
HMJr:

I don't want to show the President a table with
a correction, so I'd rather wait and see him
tomorrow afternoon and have a corrected table.

Well, I'll tell you this. You notice those

H:

HMJr:

corrections were only in four of them, five sets,
six sets, seven sets I know, but he might use it.
Yes.

H1Wr:

I have time, BO it could be retyped today.
Yes.

I want another column in there anyway. Hello.
Yes. What - what HMJr:

I went a column starting thirty - thirty thousand

dollars and then showing how much is deducted how much capital you have left at the end of each
year.

I see. You want the subtraction
- the that
HMJr:

Showing the net amount/you'd have - capital invested
each year.

I see. That's right HMJr:

HMJr:

All right. That'11 put - in other words we just
subtract the amount paid back and get the total
left.
That's right.
Each year.

HMJr:

All right.

-5 H:

HMJr:

217

I don't know if I've got another copy of that
thing here, or not, I can make those Well, our boys - my God, if Harris can't make
one he isn't the man I think he is.
Oh, they can make it all right. It's a shame to

do all that work. It's a lot of work, so if we
had that copy here we could save a lot of time.

Maybe
I can get it over at the other place, I'll
send over and see.
HMJr:

H:

HMJr:
H:

HMJr:

Any way, let him do it, but I want the other
column. I know that that was one of the points
the President wanted, was how much money he'd
have left at the end of
Have you got that thing before you? I haven't
got a copy here. Have you got it before you?
Yee.

Tell me what the headings were, I forget. It was first was - down one column was eighteen hundred
dollars a year, straight, wasn't it?
Total payment. Yes, third column, eighteen hundred as payment to interest four per cent.

H:

Yes.

HMJ:

Twelve hundred.

H:

HMJr:

H:

Payment to interest is it?
With the principal six hundred, balance due - well
they've got the balance.
Balance due - that's what I thought. They've got
the balance due each year subtracted already on
that last column.

HMJr:

They got - well I won't bother you then.

H:

All right.

HMJr:

I won't bother you, because the corrections are so
small.

218

-6 The corrections - they amount to about four to

H:

seven cents, but we - I told them - I think they
decimal point, but we did.

just ran it - they just didn't run it out to the
HMJr:

Well, this is all right, then I didn't - the balance
- I've got just what I wanted.

All right. Fine.
HMWr
H:

HMJr:

I'm glad you didn't know how to figure it either.
(laughter)

It took us an hour to do that.
Well, it - it took these boys here about two hours
and a half to check those figures, so it wasn't
so simple.

scheme.

HMJr:

Yes. Now, as to your

H:

Yes.

HMJr:

I don't like your solution. You fellows are going
to have*to argue with me on that.

Well, what's - what's your criticism of that.
sent you on that -

You're talking now about the memorandum that we
HMJr:

Yes.

H:

Cut-back.

HMJr:

Yes. I don't - I don't see that - it's a half

way thing, I don't - I don't see why we can't
do it the way - truth in advertising.

H:

Well -

HMJr:

I don't see why we should buy a million dollars

worth of preferred stock - call it half a million.
Well, you - if you spell that thing out, if you
spell it out to the final language and put the

language as - 8.8 you would on the face of a statement

which you are selling securities, corporate

securities under the Securities Act, if you'd

spell that out, you would simply say any purchase

-

219

of the common stock of this company must bear in

mind that whereas the capital liability is
figured at three million dollars, the real liability
is seven million dollars, say, and that is represented by so many shares of preferred stock
which is retirable at so many dollars.

HMJr:

Yes.

And the common stock, under the circumstances,
has no value until that amount of money has been
back into the company through earnings.

Well, John in the -

HMJr:

H:

HMJr:

Now, that's the - that's what it would, that would
be a hard thing to spell out, maybe, in a statement,
but that would be telling the truth.
Well, no - nobody reads that.
No, they can put that in fine type and you've got
to have young eyes to read it.
But nobody reads that. Now, in the case of this
Long Island bank, if by my holding it up until
Wednesday, I'm going to embarrass anybody, I'll
let that one go.
Well now, wait a minute, let me find out. Herman
says we've got another small one in the shop too,
now. A small Pennsylvania bank, he says.

Well if - if by my holding it up until Wednesday
- I'm not going to stand in the way, but as to

H:

principle I'm not sold at all.
You don't like it. Well, we - we'll talk some

HMJr:

Now I got a long memorandum from Upham on it,

more about it, see if we can get a better solution.
justifying the present way of doing it and I'm not
sold.

H:

Well, we'll wait until you come back.

HMJr:

John, the way I feel is this. It's like selling a
fellow, saying this thing is pure wool, but half

of the wool was used before it was rennovated.
H:

Forty per cent cotton.

220
-8
Yes.

And the correct name for that is "shoddy".
Yes.

Now, it's all wool, there's no question, there's
all wool in it, but half of it is reused, and
you call it reused instead of calling it shoddy.
Yes. I believe - I believe we can - I don't know,
I believe we can show you on - if we get - if we'd
get up a form and say, in substance, just what
- I've been talking here for the last two minutes
just saying that this - there's a truth about
this statement, here's the value of this stock,
then you're not fooling anybody, because you're
not kidding the depositors, and even -

I can't get through my head why the truth isn't
the simplest.

Well I can't either. I don't see any And I - I just can't see it, and here where we're
telling the rest of the world how to run their
business and be so damned honest, I think we
should lean over backwards.

Well, it isn't - you know, if - if Congress did

this, Congress gave them the right to do it.
Congress also wrote the silver purchase Act.
Well, I didn't know that.
(laughter)

I wasn't here then. But Henry, I think that,
as a matter of fact, I think this thing, from a

standpoint of the banks, there's a question of
whether or not the banks can stay in business
unless - unless these means are adopted. Now

I'm not - I'm not thoroughly sold that - that
it's necessary in all these case because I don't

know enough about it.
HMJr:

Well, as I say, if by my taking this position, I'm
jeopardizing any bank or anything else then close
on it, but if you can hold it up until Wednesday,

I'd like you to do it.

H:

Righto.

221
9-

HMJr:

Now, that's fair enough.
Yes. Wait - wait just a minute now, Herman -

(aside) Is it going to hurt anything if we just
Well, we'll - we'll just hold it all up until you
hold it up until Wednesday?

come back unless - unless we have to goshead with

HMJr:

this one, in which case we'll call you back and
talk to you about it.
No, you needn't call me back. You fellows there
can use your own bean.
Righto.

HMJ:

H:

HilJr:

H1Jr:

HMJr:

And if you've got to go ahead, there won't be any I won't say anything, I - I'll just leave it, if
you feel you people have to go ahead that's all
right.
Yes.

But I thought Well, we won't do it unless we do have to.
That's right, but I'm not sold as yet.
All right. Fine. Well we won't do it unless we
get - unless we're pushed into it.
And I'd like to consult a couple of fellows like
Tom Smith and a few other fellows.

Yes. All right. ID Fine.
HMJr:

H:

HMJr:

But I'm not going to do anything about it until
I get back.

O.K. Now do you want anybody else here? Do you
want to talk to somebody else?

Well, I - I want to settle this thing about Bell
whosso generous with our fifteen or twenty

bookkeepers.

Well Herman is not sure that he can do it legally.
That we have any legal right to do it except to that is to make a public announcement of it.
HMJr:

My God, fellows. What's the matter with you

222

- 10 -

fellows. We can do it, but not do it legally, uh.
Well,
but - that's - you've already done it in one case,

H:

HMJr:

I know.

-not
suresaid
that- you had any legal authority to do it.
Herman

H:

H:

If you get caught at it.
Yes. You didn't get caught the last time.

HMJr:

Well, how -

HMJr:

Herman - why don't you talk to Herman about that?

He's - he's looking What?

Why don't you talk to Herman about it, he's looking
up the law on it, or Danny Bell. Do you want any
message from Dan?

HMJr:

Well, have you fellows talked?
Yes, we have. We want to do it.

HMJr:

Well then, go ahead and do it.

H:

No. Herman says no.

HMJr:

What?

HMJ:

Herman says no, you can't do it.
Oh let me talk to him.

H:

Until you have time. Do you want to speak to
Herman now?

HMJr:
H:

Herman

Yes.

(aside) Come on Herman. (laughter)

Oliphant:

Hello.

HMW:

Hello, Herman. Why you - what's the matter with you,
this morning, anyway?

- 11 -

223

Well, I - I'm stalling for time. No, if I had to

0:

give a quick answer, I'd say there was no authority.
There is one line of inquiry that I'm on now.

HMJ:

Yes.

HMJ:

It looks promising. I want a little more time on it.
You want a little more time on it.

0:

Yes.

HMJr:

Well that's - all right. I - I want to be fair.

O:

0:

All right.
- fair.
All right.

HMJr:

You want more time. What do you want, until Monday?

0:

No, until to - this afternoon or in the morning.

HMJr:

Well you -

0:

This afternoon or in the morning.

0:

HMJr:

HMJr:

Well you won't be in this afternoon - tomorrow,
so you can do it this afternoon.

0:

That's right. (laughter) I'll have it by this

HMJr:

Did Chauncey tell you that I want -

0:

Yes.

afternoon.

0:

- Straus' office called up every day?
Yes. I'm going to make a record.

HMJr:

We're waiting?

O:

That's right. I'll make a record.

HMJr:

And all right. How about taking care of them those

HMJr:

WPA - accident cases or do we have to turn over
to the ambulances?

O:

I'm on to that now.

- 12 -

224

HMJ:

Yes.

0:

Working on that case. All right, do you want to

HMJr:

You fellows got me all bewildered with your legality

0:

Well, we go noble when you go away.

HMJr:
0:

HMJ:

O:

HMJr:
0:

HMJr:
0:

HMJr:
0:

talk to anybody else?

and your morals and everything else.

Yes. Except on this preferred stock.
Well, I - we can talk about that when you get back.
I'm a simple minded country boy. A hundred dollars
worth of preferred stock to me is a hundred dollars
worth of preferred stock.
Well, let's take R look at it when you get back.
I just can't get it through my bean any other way.
You got my news that there's - there's another little
case in the shop, to use as a test case.
What?

You got my news, did you, that there's another little
case in the shop, to use as a test case?
No.

There is. A little pest bank in Penneylvania just
came in, so if there is any rush on the - the Long

Island bank, we.cen go ahead with it and then use -

HMJr:

0:

No, I still say a hundred dollars worth of preferred
stock to me is a hundred dollars.
Yes. But you got that other case 80 that if there is
any rush on the Long Island case we can go ahead on
it and then use -

HMJr:

All right.

0:

And use the Pennsylvania case as a guines pig.

HMJ:

All right, what else do you know?

O:

I don't know a thing except it's going to rain. I

- 13 -

225

drove in from the bay this morning.
HMJr:
0:

HMJr:

It's beautiful up here.
It's beautiful driving in from the bay, but it
looks rain - have you got sunshine?

In case you fellows don't know it. The President
goes on the air at seven-thirty tonight.

0:

Seven-thirty. All right. Do you want to talk to

HMJr:

I'm - I'm available.

anybody else?

0:

Aside (He's available if anybody wants to - speak
now or hold your peace forever).

HMJr:

What?

0:

I told them to speak now or hold your pesce forever.
Steve's got his hand up.

HMJr:

Who?

0:

Steve. Steve's got his hand up. Not out.

HMJr:

Who has his hand up?

0:

Steve.

HMJr:

Who?

O:

Steve Gibbons.

HMJr:

Gibbons?

0:

Yes.

HMJr:

What's on his - what's on his mind?

0:

He wents the country boy to read the life of

Daniel Rue.
HMJr:

I have tell him.

O:

Laughter.

HMJr:

But tell him we don't make money the way he did.

226

- 14 (Laughter.) O.K.

0:

HMJr:

I read it. It's a good story.
All right. Bring me an apple.

HMJr:

Well, I'll call up between three and four. Say,
listen, - bring you an apple - go up and see Eve
Robbins, he's the one who distributes the applee.
(laughter) Between three and four?

:

0:

HMJr:

Yes.

Well, we'll have the answer on the Wages and Hour

0:

HMJr:

thing, by that time.
Yes
I - I - you - well you - you'll have some

thoughts by then.

0:

Yes. O.K.

HMJr:

Did we break the law when we let Social Security

0:

Well, I didn't know about that.

HMJr:

That's a good answer.

have those men?

O:

I didn't know about that.

H1/Jr:

All right.

0:

O.K.

HMJr:

All right.

0:

Goodbye.

HMJr;

Goodbye.

227

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

NOV 4 1938
Secretary Morgenthau

TO

FROM

Mr. Oliphant

Re: Detailing Treasury employees to other departments
or agencies.
QUESTION: Has the Secretary of the Treasury legal power to detail some

of the accountants on the pay roll of the Treasury Department
to the Wage and Hour Division of the Department of Labor to

assist in the administration and enforcement of the Fair Labor
Standards Act of 1938 by checking private pay rolls to ascertain whether there has been compliance with the Act?
ANSWER: No.

Legal Discussion

Section 166 of the Revised Statutes, as amended (U.S.C. title

5, sec. 38), is the general statute on the question of detailing Government employees. It relates, however, only to intradepartmental details
and provides that the head of a department may, by written order, for a
specified limited time and under stated conditions, detail an employee
from one bureau or office to another bureau or office within the department.

The reasonable inference from these statutory provisions is that
by stating the conditions under which an intradepartmental detail may be

made the Congress intended to prohibit interdepartmental details. As a
rational matter, it cannot be assumed that Congress would have intended

-2to set up more stringent requirements for intradepartmental details than
for interdepartmental details.

The available opinions on this subject support this conclusion.
The ordinary definition of a detail in the Government service
is a loan of an employee by one department, bureau, office, or establishment to another, the employee receiving his compensation from the department, bureau, office, or establishment by which loaned while performing

service for and under the direction of the other. (1914) 21 Comp. Dec.
66.

The Attorney General has passed on a similar question: Would

the Postmaster General have legal authority to detail a registry clerk
from the Washington post office to detached duty at the White House? The
Attorney General answered the question in the negative (1904, 25 Op. Atty.

Gen. 301). In support of his answer he said:

"This specific authority to distribute and detail clerks and other employees is restricted,

as will be observed, to the Department in which
they are regularly employed. I am unable to
discover any other express authority for such
service details.
"On the other hand, section 3678, Revised

Statutes [U.S.C. title 31, sec. 628 7, lays down
a fundamental rule in the public service, namely,
'All sums appropriated for the various branches
of expenditures in the public service shall be
applied solely to the objects for which they are
respectively made, and for no others'.

* * it seems clear that Congress by those
various laws has strictly limited the power and
discretion of a head of Department in this matter
of employment and detail, to cases falling within
amended section 166. (Underscoring supplied)

228

-3-

229

"Amended section 166* [of the Revised Statutes is the general
detail statute referred to above. It has not been amended since the Attorney General's opinion.

The Attorney General in (1905) 25 Op. Atty. Gen. 379 adhered
to his former opinion.

The decisions of the Comptroller of the Treasury and of the
Comptroller General on this problem should also be noted. The Comptroller

of the Treasury has held that the Secretary of the Treasury could not appoint an employee to be paid from the appropriation "Wages of Workmen,

Mint at Denver, 1921" and then detail him to the Civil Service Commission,

because section 3678 of the Rev. Stat. of 1873 (U.S.C. title 31, sec. 628)*
directs money to be used for purposes for which appropriated. (1920) 27
Comp. Dec. 409.

I have several times had occasion to consider the legality of
proposed details of Treasury personnel. I have rendered an opinion that

you could not detail a stenographer, carried on the rolls of the Bureau of
Internal Revenue, to the Senate Committee on Interstate Commerce. G. C.

Op. No. 283 (Oct. 6, 1937). Similarly, I have also given an opinion that
you could not detail Treasury employees to the so-called Civil Liberties
Committee of the Senate despite a provision in the Senate resolution au-

* This Section which is referred to in the quotation from the Attorney
General's opinion is still in effect and reads as follows: "Except as
otherwise provided by law, SUMB appropriated for the various branches

of expenditures in the public service shall be applied solely to the
objects for which they are respectively made, and for no others."

-4-

230

thorizing the Committee "to call upon the executive departments for

clerical and other assistants". G. C. Op. No. 285 (Oct. 12, 1937).
Specific statutory provisions, of course, could authorize such
a detail as is here under consideration. I have been unable, however,

to find any statutory authority for the detail in question either in the
Fair Labor Standards Act of 1938 or elsewhere, Indeed, it would appear

that the Fair Labor Standards Act of 1938 prohibits such a detail. Section 11 of that Act provides that "except as provided in section 12 and

in subsection (b) of this section [neither of which has any bearing on
the present question 7, the Administrator shall utilise the bureaus and

divisions of the Department of Labor for all the investigations and
inspections necessary under this section". The "investigations and
inspections" which the section refers to are, among others, those "necessary or appropriate to determine whether any person has violated any

provision of the Act". It is understood that this is the type of work
which Treasury personnel would do if detailed to the Wage and Hour
Division.

My conclusion is also supported by the numerous specific statutes
providing for details of Government personnel. The United States Code

contains more than sixty separate provisions relating to the detail of
Army officers and men and more than forty relating to the detail of Navy
and Marine officers and men. In addition, there are numerous detail
provisions relating to the other executive departments, several of which

authorise details of Treasury personnel. See, for example, U.S.C. title
5, sections 40, 41, and 253.

231

-5In this connection, no reliance is placed on U.S.C. title 31,
section 673 since that section deals merely with details to commissions,
councils, boards, or other similar bodies whose creation has not been
authorised by law.

daman Olivials

232
COPY
USS Tulsa
(Hongkong)

November 4 & 5 1938
NICHOLSON

Spagent

Washn DC

Today had confidential talk with Dr. Kan Chia Hou former

Vice-Minister foreign affairs zectint(?) member peoples political
assembly and personal representative of Generals Pei Chung Hsi

and Li Chung Jen on military and political matters. The true
story of Canton's fall is that General Yu Han Mou retreated because of his unpreparedness abetted by confusion in belief that
Japanese would not attack South China - Chiang did not order retreat. Fifteen thousand Chinese troops at Bias Bay were unable
to cope with twenty thousand troops landed by Japanese. General
Yu had six divisions of ten thousand each at his command. Five
thousand were annihilated in defense of Walchow; five thousand now
surrounded near Tamshui by superior Japanese forces face annihilation; five thousand are unaccounted for; and balance of about
forty thousand have followed Yu to undisclosed destination north
of Canton. General Yu's stupidity caused Chiang to change plans
for defense of Hankow. Two months ago Minister of War Ho Ying
Chin told Dr. Kan of preparations including best troops and mechanized units to defend Hankow. When Canton fell Hankow's defense
was weakened, as Japanese could then attack from south along Hankow
Canton Railway. This caused Chiang to withdraw from Hankow. Wang

Ching Wei's peace overture made to press after Canton's fall caused

great consternation in military and political quarters, who felt he

had no authority for such move without jhipmts (Chiang's?) permission.

According to Dr. Kan, Wang Ching Wei is definitely pro-Jap; his
position in Chinese Government is due to backing of his three political cliques: The Independent Critics Association; Modern Critics
Association; and Literal and Cultural Association. He also has behind him the powerful political science group, including 75% of bankers, mayors of towns, and heads of small political divisions throughout China. All these groups are behind peace movement.

Critics of Chiang's retention of Wang are calmed with explanation that it is best to keep Wang close to Government and thereby
under control. Wang's dismissal would cause disintegration of his
political backers, which would cause political unrest. Wang has
played with Japanese conservative military elements for some time.

He is not trusted by Stalin of U. S. S. R. and his only hope is to

join Japanese peace propagandists which, in event of Chiang's defeat, would make Wang head of China. If communists gain control he
would have to go abroad to escape assassination.

233
-2After fall of Canton General Taki approached Wang Ching Wei

with proposal that he use his influence to get Chiang's resignation

so that China could have peace. Wang advised Taki that Chiang would
never resign, but that peace plan based on Chinag's remaining at the
head of nation might be received. This proposal put before Japanese
officers of young military group was flatly turned down and General
Taki advised Wang that peace overture would only be promulgated on
assumption that Chiang would retire. Therefore, peace overture did
not materialize.

At this time, just after fall of Canton, Wang made his peculiar
peace statement to press hoping to force Chiang into peace negotiations. Dr. Kan states Chiang allowed Wang to circulate peace rumors

in order to get time to move ten divisions totalling one hundred thous-

and men to Canton area to prevent Japanese from moving north and north-

east. These troops have already left for Canton under General Sih Yao
and Vice-General L1 Hoa Wen, to join Yu's men in Canton area, thus

bringing total of one hundred forty thousand troops to prevent Japanese
movement northward.

In cable to Yu, Chiang accepted full responsibility of Canton
failure as Chiang feels if Yu is punished now his junior officers

would become frightened of like fate and troops would probably disband.
The fourth military stage is now approaching and Chiang has left for
defense of China: (1) Communistic forces situated north of Yellow
River; (2) Kwangsi troops under General L1 now retired to area bounded
on north by Yellow River, on east by railway, and on south by Yangtze,
in almost impregnable position due to natural barriers. General Pei
has assumed governorship of Hunan. Kwangsi will be dominated by representative of Generals Pei and Li, and the hundred forty thousand troops
in Canton area will be used for defense of north and western invasion
in Kwangtung, as Japanese now control Hankow and railway from Hankow to

Yonnin(?) and from Kukiang to Tehan. Chinese troops formerly along
this line in Tehan area are being moved toward Canton. Troops now at
Changsha will remain for defense of that area.
Peace groups associated with Wang are mentioned above. Political
groups in Government who advocate fighting to finish are: (1) Whampoa
Academy group, including Chiang's own troops; (2) Kwangsi group under
Generals L1 and Pei; (3) Communist group under Chu Teh; (&) Mixed
group, including T. V. Soong and others. Semi-political or progressive
groups comprise: (1) Kuo Min Tang; (2) Communistic party; (3) People's
Front; (4) Kwangsi group. Another is Fukien group, including Eugene
Chen and followers. All groups except Wang's are against peace. Dr.
Kan says Chiang's future policy is continued resistance while Wang's

political future rests on peace favorable to Japan.
CAMPBELL

Ho 2 - 234
TREASURY DEPARTMENT

itn.

INTER OFFICE COMMUNICATION

DATE November 4, 1938

Secretary Morgenthau

Mr. Oliphant

For your information:
On October 22 the Bureau of Internal Revenue referred the
case of William Fox to the Department of Justice, recommending that

the United States Attorney for the Southern District of New York be
authorized and directed to commence a criminal prosecution of Fox for

wilfully attempting to evade his individual income tax for the year
1930, joining Herbert Leitstein as an aider and abettor.
Under date of October 31, Justice addressed a letter to the
Commissioner advising that it had reached the conclusion that it would
not institute criminal proceedings because there was not a reasonable
chance of conviction.

to
7/85/10 Slan

235

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

TO

FROM

Secretary Morgenthau

Mr. Taylor

M

DATE November 4, 1938.

Randolph Burgess called me this morning to warn us,

as a friend of the Treasury, against the Straus plan of
financing Housing Authorities. The point which he particularly
emphasized was the one which you made in the last part of your

proposed letter to the President. He felt that it would be
very unfortunate for the Government if these securities were

distributed privately. I thanked him for his interest and
told him that we too were very cognizant of the dangers
involved in the plan, and that we had come to about the

same conclusions. I think that you would be interested
in knowing that he felt that the tax-exemption feature,
while important, was really of secondary importance as

compared to the other difficulties which would attend the
proposed method of financing.

well.

Friday
November 4, 1938
1:28 p.m.
Archie
Lochhead:

Lochhead speaking. Ah - White -

HMJr:

Can you hear me all right?

236

I can are
hearhere.
you all right. Mr. Taylor and Mr.
White

L:

HMJr:

All right.
Also
Miss Chauncey in case we need anything else
on notes.

L:

HMJr:

L:

Ah - the overseas operator says Paul Reynaud is
calling me.
I see.

HMJr:

And Mr. Hanes - ah - Mr. Taylor can tell you what

L:

He seems to have a knowing glance.

HMJr:

Well anyway, it's coming through and I've worked

a Reynaud is.

it out this way - could they let you people listen,

see?
L:

Right.

HMJr:

And then look, for heavens sakes don't hiccough.

L:

HMJr:
L:

HMJr:

(Laughs) All right, we'll - (Laughs) Mr. Taylor
says it's too early for that.
All right.
All right. Well then, we'11 stand by and when they When I'm through talking to him I'll call you fellows
up.

L:

I see. All right. Well then when the flash comes
on we'll just lift it off and listen and then hang

up again and wait to hear from you.
HMJr:

Thank you.

L:

0. K.

237

-21:35 p.m.
Paul

Reynaud:

HMJr:
R:

HMJr:

Hello. I shall do nothing in my decree laws
which might jeopardize our most ardent cooperation.
That's what I wanted to tell you, Mr. Morgenthau.
I see. Well, ah - I'm very glad to hear that.
And how is Mrs. Morgenthau?
Hello.
How is Mrs. Morgenthau?

R:

R:

She's very well, thank you.
I'm glad to hear that.

HMJr:

Well I hope you have great success.

HMJr:

R:

Thank you very much indeed.

HMJr:

And ah - if I can be of any assistance why, call
on me.

R:

Thank you very much indeed.

HMJr:

Yes.

R:

How is the President?

HMJr:

He is very well.

R:

Fine.

HMJr:

Yes.

R:

HMJr:

Well, thank you so much for calling.

R:

Goodbye, sir. Thank you very much.

HMJr:

Goodbye.

1:37 p.m.
Archie
Lochhead:

Hello.

238

-3Operator:

Is Miss Chauncey there?
Yes.

L:

The Secretary wants her to go into her own office.

0:

L:

Right.

0:

Please.

HMJr:

Hello.

L:

Yes, Mr. Morgenthau.

HMJr:

I apologize. (Laughs)

Well, I was-just want to remark that Mr. Taylor
and I left a good fish there ten minutes ago
for
that and I think the fish was better than
the fox.

L:

HMJr:

Well, that's the damnedest call I ever had.
Well, we sat here watching each other and waiting
for what was going to come next and it didn't come.

L:

HMJr:
L:

Well, you noticed I didn't offer anything.
No. No. As I say, I suppose maybe that's what he
was feeling out for, to see if you'd come across
with something.

HMJr:
L:

Well, I didn't think it was up to me to say anything.
Well, I certainly didn't think so. But somehow or
other it looked like an awful miss there somewhere whether he was expecting to say something for lead
or whether he changed his mind, but to call and ask
how you were and then Mrs. Morgenthau and how the

President were - that's - that's a great telephone
call.

HMJr:

(Laughs)

L:

That - I think this is a prize one.

HMJr:

(Laughs)

L:

(Laughs)

239

-4Honestly, sometimes this job is fun. (Laughingly)

Well, it's all right. I - apparently this one,

L:

though,
looks like ante-climax - this call to me.
(Laughs)

HMJr:

Well, I don't know what he expected but - but

certainly I didn't fall into the trap.

HMJr:

No. No. Appar - I don't know whether he was
expecting you to come out and say something and
feeding him - it would appear that way. I can't
see otherwise why he'd be calling.
Sure. It was a trap.

L:

Yes. - (Laughs)

L:

HMJr:

L:

And he doesn't know anything - he was trying to

do a little fishing.

(Laughs) Well, (Laughs), evidently the bait

wasn't sufficient. In fact, I didn't think he
even had a hook on the line.

HMJr:
L:

HMJr:
L:

He had a hook but no bait.

(Laughs) Well, -

It was the silliest call I ever listened to.
Ah - it certainly - it certainly was. By the

way, Mr. Hanes and Mr. Gaston have just in just
this moment.

HMJr:

Did you get Harry White?

L:

Why, yes, Harry White is here. Mr. Taylor, Harry
White, Mr. Gaston and Mr. Hanes.

HMJr:

Well what do you make of it all?
Well, ah - the - Mr. Gaston and Mr.Hanes only just
came in this moment so they don't know about it.

HMJr:

Well, let me talk to Taylor a minute please.

L:

All right. (Laughingly)

240

-5Wayne

Taylor:

Hello.

HMJr:

Wayne, you spell that one out.

T:

Well, I think it's about like this - that -

you'll remember that you had various conversa-

tions with ah - on the telephone with Auriol and
ah - with - with one of the other boys.

HMJr:

Yes.

And that their predecessors, I mean those particular
people that might apparently take ah - oh - let's
say - ah - prestige of their own out of their having
talked to you on the telephone.

T:

HMJr:
T:

HMJr:

T:

HMJr:

I see.

And this man is just doing the same thing.
Maybe we ought to capitalize it and sell stock

against it.

Well, it's ah - I think that that's probably the

only thing you can put on it. And that he called
you up to tell you that he was loyal to the Tripartite.
Well, I sounded perfectly friendly, didn't I?

T:

Yeah.

HMJr:

What?

T:

Very much.

HMJr:
T:

Well, it's the silliest thing I ever heard.
Well, the only - I think he did want to give

you a chance to say anything that you wanted to.

HMJr:

Yeah.

T:

But I think that the other thing is not impossible.

HMJr:

Yeah.

T:

You see?

-6HMJr:

HMJr:

241

Well, we'll see what the next move is.
Right. (Laughs)

He paid for that call.
Yeah. (Laughs) Well, that's (Laughingly)
well
that's paid
- thefor.
ones that have been longer
why we've

T:

HMJr:

of course he may call in the newspaper men and just

say, "I had a call with the Secretary of the Treasury."
Who'11 tell him that we were loyal to the Tri-partite.

T:

HMJr:
T:

HMJr:

T:

Yes.

And ah - that might be the right answer to it.
Yes. Well, the next thing we know he'll get in
an aeroplane and fly over here.

Yeah.

HMJr:

All right. I'm awfully sorry to have spoiled your

T:

Yeah. Well, we'll go back and see what's left of

HMJr:

Tell me - was/there?- is the market up or down?

Lochhead:

lunch but he spoiled my also.

that fish. (Laughs)
Archie

(Speaking to Taylor: Tell him it's practically up

a/small volume.)
very

T:

Practically up a small volume.

HMJr:

Well. It's a good one.

T:

Right. Ah - Johhny and Herbert are here too.
Do you want - while we're here do you want to
talk to them?

HMJr:
T:

Not unless they want to talk to me.
Yeah. 0. K.

HMJr:

Goodbye.

T:

Right.

Operator:

Operator.

242

OFFICIAL COMMUNICATIONS TO

SECRETARY OF STATE

- D.C.

DEPARTMENT OF STATE
WASHINGTON

November 4, 1938.

Dear Henry:

I hope you will be having both a good rest and an
enjoyable time these next few days on the farm. Will
you forgive my interrupting them with this line? There
is considerable disappointment in the Department over

your note of the first discouraging the idea of a proposal for periodic conferences between representatives
of the treasuries of the American Republics, and I was
asked to see whether you might not be willing to reconsider.

I enclose a copy of a memorandum from Welles which

gives the background of his thinking.

I think there is substantial possibility in the idea.
While such meetings would not, as you say, be the most

effective way of negotiating specific financial arrangements, I do think they might afford an opportunity for
exercising real influence in the proper direction, and
of creating the personal associations on the basis
of
which
The Honorable

Henry Morgenthau, Jr.,

Secretary of the Treasury.

243

-2which policy can be built.

The delegation sails on the twenty-fourth, and it is
the shortness of the remaining period which must be my

excuse for bringing this up while you are away from Washington.

You probably understand that in the event you would

be willing to carry forward with the general idea, the
question of the exact substance and wording of any proposal

put forward would be entirely for your decision.
I would appreciate a line from you to enable me to
report further.
Sincerely yours,
worbert Feis

Herbert Feis,

Adviser on International
Economic Affairs.

Enclosure:
Memorandum of November 4

from Mr. Welles to
Mr. Feis.

COPY

244

Department of State
THE UNDER SECRETARY

November 4, 1938

EA - Dr. Feis:

I still think this is desirable, but of course without the approval of the Secretary of the Treasury it
would seem to me very difficult for our delegation to
suggest any resolution such as that which you have in
mind. Would it not be worth while for you to talk personally with the Secretary of the Treasury and try to
impress him with the feeling that while at an initial
conference such as this suggested nothing very practical
might be developed and even certain proposals which were

embarrassing might be brought up, nevertheless, such a

conference would afford the best possible opportunity
of talking practical common sense to our neighbors on

the continent with regard to matters of financial policy
as well as currency problems, and that a better opportunity
will be afforded in this way than any other that can now
be thought of. Furthermore, these meetings would result
in a far greater identification between the American governments with regard to financial problems than could
otherwise exist.
S.W.

U SW: IJ

245

COPY

November 1, 1938

My dear Mr. Secretary:

This will acknowledge receipt of your
letter of October 24, 1938 (your reference EA),
with respect to the possibilities of developing
periodic meetings with representatives of Treasuries and central banks of the American States.
Although I do agree with you that cooperation among Treasuries is desirable, I have doubts
as to the form which such cooperation should take.
After careful consideration of the suggestion you

make in your letter, I am of the opinion that
periodic conferences are not, at this time, efficacious instruments for achieving the improvement of
financial relationships. Cooperation is most
effective and practicable, it seems to me, when
it is centered on specific problems, specific
situations, and between specific Treasuries. When
such problems arise we shall, of course, be glad
to confer with the Treasuries concerned.
Sincerely,
(Signed) H. MORGENTHAU, JR.

The Honorable

The Secretary of State.

246
C

o
P

Y

DEPARTMENT OF STATE

Washington

In reply refer to

October 24, 1938

EA

My dear Mr. Secretary:

We are giving preliminary thought to the possible

field of useful action at the Eighth International Conference of American States, to be held at Lima early in
December.

It has been suggested that it might serve a useful
purpose if arrangements could be made for periodic meet-

ings of representatives of Treasury and central banks
of the American States. I have penned a preliminary

draft of what could be either just a resolution or an
actual project for an agreement in this field. Do
kindly consider it and inform me as to whether the
Treasury would be disposed to favor any initiative on

the part of the American Delegation in behalf of this
proposal

The Honorable

Henry Morgenthau, Jr.,

Secretary of the Treasury.

247
-2-

proposal and, if so, whether the Treasury would care
to undertake any drafting amendments.

Mr. Feis is at the disposal of the Treasury for
further discussion on the subject.
Sincerely yours,

(Signed) Cordell Hull

Enclosure:

Draft.

COPY

DRAFT RESOLUTION ON TREASURY COOPERATION.

The Eighth International Conference of American
States
Recommends:

(1) That the Treasuries and Central Banks of the
American States arrange for periodic meetings of repre-

sentatives for the informal discussion of subjects of
mutual interest, with a view to improving all aspects
of financial relationships between the member states.

(2) That such meetings be held at least annually
and whenever problems of special and immediate importance
arise.

(3) That the first meeting be held in Washington
not later than June 1, 1939.

248

249

C

0

November 1, 1938.

P

Y

My dear Mr. Secretary:

This will acknowledge receipt of your letter of
October 24, 1938 (your reference EA), with respect to
the possibilities of developing periodic meetings with
representatives of Treasuries and central banks of the
American States.

Although I do agree with you that cooperation among

Treasuries is desirable, I have doubts as to the form
which such cooperation should take. After careful consideration of the suggestion you make in your letter, I
- of the opinion that periodic conferences are not, at
this time, efficacious instruments for achieving the improvement of financial relationships. Cooperation is
most effective and practicable, it seems to me, when it
is centered on specific problems, specific situations,
and between specific Treasuries. When such problems

arise we shall, of course, be glad to confer with the
Treasuries concerned.

Sincerely,
(signed) H. MORGENTHAU, JR.

The Honorable,

The Secretary of State.

HO:SAsah

10/28/38

250

C

0

November 1, 1938.

P

Y

My dear Mr. Secretary:

This will acknowledge receipt of your letter of

October 24, 1938 (your reference EA), with respect to
the possibilities of developing periodic meetings with
representatives of Treasuries and central banks of the
American States.

Although I do agree with you that cooperation among

Treasuries is desirable, I have doubts as to the form
which such cooperation should take. After careful consideration of the suggestion you make in your letter, I
am of the opinion that periodic conferences are not, at
this time, efficacious instruments for achieving the improvement of financial relationships. Cooperation is
most effective and practicable, it seems to me, when it
is centered on specific problems, specific situations,
and between specific Treasuries. When such problems

arise we shall, of course, be glad to confer with the
Treasuries concerned.

Sincerely,
(signed) H. MORGENTHAU, JR.

The Honorable,

The Secretary of State.

HG:SA:mh

10/28/38

251

Copy

DEPARTMENT OF STATE

Washington

In reply refer to
EA

October 24, 1938

My dear Mr. Secretary:

We are giving preliminary thought to the possible

field of useful action at the Eighth International Conference of American States, to be held at Lima early in
December.

It has been suggested that it might serve a useful
purpose if arrangements could be made for periodic meet-

ings of representatives of Treasury and central banks
of the American States. I have penned a preliminary

draft of what could be either just a resolution or an
actual project for an agreement in this field. Do
kindly consider it and inform me as to whether the
Treasury would be disposed to favor any initiative on
the part of the American Delegation in behalf of this
proposal
The Honorable

Henry Morgenthau, Jr.,

Secretary of the Treasury.

252
-2-

proposal and, if so, whether the Treasury would care
to undertake any drafting amendments.

Mr. Feis is at the disposal of the Treasury for
further discussion on the subject.
Sincerely yours,

(Signed) Cordell Hull

Enclosure:

Draft.

253
COPY

DRAFT RESOLUTION ON TREASURY COOPERATION.

The Eighth International Conference of American
States

Rec mends:

(1) That the Treasuries and Central Banks of the
American States arrange for periodic meetings of repre-

sentatives for the informal discussion of subjects of
mutual interest, with a view to improving all aspects
of financial relationships between the member states.

(2) That such meetings be held at least annually
and whenever problems of special and immediate importance
arise.

(3) That the first meeting be held in Washington
not later than June 1, 1939.

254
TO Ba

TREASURY DEPARTMENT
UNITED STATES COAST GUARD
HEADQUARTERS

SECRET
From:

To $

WASHINGTON

4 November, 1938.

Spagent, Hongkong, China.

Secretary of the Treasury.
Message from Mr. Campbell.

Buck making short visit Sian and Lanchow.

SECRET

has been

255

ackid
FEDERAL RESERVE BANK
OF NEW YORK
November 4, 1938.

Dear Mr. Secretary:

The offering of $25,000,000 Argentine Republic 4 1/2 per cent sinking fund
bonds of 1948 was the one sizable piece of open-market financing this week. Four corporate issues, totaling about $17,500,000, were sold privately to insurance companies,
and there was an offering of about $1,000,000 of stock in American Export Lines, to
finance, in part, an airplane service to the Mediterranean.

ury

The Argentine bonds, supposedly withdrawn from sale by the Argentine Treaslast August because the price was thought too low, were priced at 95 1/2, only

half a point higher than was expected in August. The net price to Argentina is
1/2. At 95 1/2 the yield to maturity is about 5.08 per cent, practically the same
yield as on the outstanding 48 of 1972. The sinking fund, moreover, is arranged to
retire the entire issue by maturity, so that the average maturity is considerably
under 10 years. Rated A by Moody's, the issue is the first new capital borrowing in
this market by a foreign government, other than Canada, since 1930. The reception of
the issue is still somewhat uncertain; a substantial amount of it is believed to have
been sold, but the market is quoting it at a discount of about half a point. This may
be a justification of the liberal terms of the issue, which seemed quite steep for
a country with the recent debt record of the Argentine, or it may be that the issue
was not set up in a way to derive the most benefit from this debt record and from the
provisions of retirement over the period of the loan. It cannot be said, however,
that this issue offers convincing evidence of the receptivity of the market to foreign
loans.

The prospective dearth of large corporate public offerings was somewhat relieved yesterday by the placing in registration of another $25,300,000 of 3 1/2% con-

vertible debentures (maturing in 1958) of the Commonwealth Edison Company, for refunding. The Company also registered $34,000,000 additional 3 1/2% first mortgage bonds of

1968 for private sale to insurance companies, partly for new capital. It is reported
that these bonds are going to seven large insurance companies at a price of 104. Plans de-

for several other corporate flotations are said to be nearing completion, and the

mand for both public and private issues continues unabated.

Municipal bond awards this week amounted to about $13,000,000.

Yours faithfully,

2 M 8 21
Hon. Henry Morgenthau, Jr.,

Secretary of the Treasury,
Treasury Department,
Washington, D.C.

OLLICE

Moma
Adgan Sproul,

First Vice President.

H

256

FEDERAL RESERVE BANK
OF NEW YORK
November 4, 1938.

CONFIDENTIAL

Dear Mr. Secretary:

There is enclosed a copy of the usual weekly report
of Open Market Operations and Money Market Conditions for the
period from October 27, 1938 to November 2, 1938 inclusive.

Yours faithfully,

Allan/Sproul

First Vice President

Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,
Washington, D. C.

03V13038
8801 VOW

Enc.

YAH2A39T

W

2

OE

a 02

LEEVENBA

257

REPORT OF OPEN MARKET OPERATIONS AND MONEY MARKET CONDITIONS
FOR THE WEEK ENDED NOVEMBER 2, 1938

PREPARED BY FEDERAL RESERVE BANK OF NEW YORK

MONEY MARKET

Excess reserves of the Central Reserve New York City banks declined during the past week to $1,635,000,000, or $65,000,000 below the record high reached
8 week ago. Actual reserve balances of the New York banks receded $82,000,000 during the week ended November 2, but part of this loss was offset by a reduction in
reserve requirements coincident with a large decline in deposits.
A sizable outward movement of commercial and financial funds from Now

York to other parts of the country together with a small decline in out-of-town

bank balances in New York accounted for a large part of the $82,000,000 reduction
in reserves during the past week. There was also a considerable absorption of
New York money market funds as the result of the certification by the Reserve
Bank of a check for $45,000,000 drawn by a New York City bank against its reserve
balance. This transaction represented the segregation, in the trust department
of the Now York City bank, of the procoods of a recont now security issue which
are being held pending their use in redeeming a called bond issue of the borrowing
corporation. A net withdrawal of currency from the Reserve Bank also caused some

loss to reserves. The combined effect of these losses of funds was only partially
offset by gains of funds through foreign account operations, payments for Treasury
acquisitions of gold, and other Treasury disbursements, chiefly for the net redemption of Treasury bills hold in this market.
Inasmuch as reserve balances of momber banks outsido Now York roso
$28,000,000 during the past wook while the New York banks lost $82,000,000 of reserves, resorvo balancos of all member banks in the country doclined $54,000,000.
Thore was a slight increase in the amount of required reservos of all mombor banks
(contrasted with the roduction for Now York banks alone), and consequently excess
reserves of all member banks declined $60,000,000 during the past week to
$3,220,000,000. The chief factors of decline in member bank reserves were a

$52,000,000 increase in money in circulation and a rise of $51,000,000 in non-

member deposits and other Federal Reserve accounts (including the above mentioned
$45,000,000 certified check drawn against the reserve balance of a New York City

bank). Only partially offsetting gains resulted from a further rise of $20,000,000

in the gold stock and other Treasury disbursements amounting to $24,000,000. (Treasury deposits with the Reserve Banks declined $8,000,000 during the past week, and
there was a reduction of $16,000,000 in "Treasury Cash" due to transfers from the
general fund of the Treasury to the gold certificate fund of the Reserve Banks,
which exceeded by that amount the Treasury's acquisitions of gold.)

258
2

For the week ending November 9, excess reserves of all member banks
show some further slight reduction chiefly as a result of seasonal expansion in may the
volume of money in circulation. Treasury transactions are indicated as not

to
have any on bank reserves,
as
security
quarterly
expected to material be about offset effect by
memberand
socialrailroad
ordinary retirement
disbursements
likely are

tax receipts. If further certification of checks against reserve balances of New

York City banks should occur during the week, the reduction in excess reserves
would be larger.

Excess Reserves of Member Banks
Wednesday Series

(In millions of dollars)

Central Reserve New York City

High

1,480
3,300

banks

All member banks in U. S.

Oct.26,

Nov. 2,

1938

1938

410

1,700

1,270

3,280

1,635
3,220

1938

1937

1935
High

High

Low

910

45

2,190

700

1,700
3,280

Low

Yields on Treasury securities held relatively steady during the past week.

The November 2 issue of 91 day Treasury bills was awarded at an average rate of
0.027 per cent, as against 0.026 per cent on the issue sold in the previous week.
The average yield on 3 to 5 year Treasury notes continued at 0.69 per cent, and the
average yield on Treasury bonds due or callable after 8 years closed the week at
2.28 per cent, compared with 2.27 per cont a week ago. Some reduction, however,
occurred in yields on domostic corporate bonds during the past wook; Moody's average
yield on Aaa issues receded 0.03 per cent to 3.11 per cent, as compared with the low
of 3.07 per cent in January, 1937, and the Baa bond average yield declined 0.05 per

cent to 5.27 per cent. Yields on high grade municipal bonds declined to a level
equaling the 1937 low.

Security Yields (per cent)

(3 to 5 year maturity)

1938

Nov. 2,
1938

High

Low

High

1.13

1.70

0.62

1.23

0.69

0.69

2.27*
3.07
4.46
2.73

2.78
3.58
6.08
3.30

2.25
3.11
5.27
2.73

2.52
3.34
6.98

2.27
3.14
5.32
2.76

2.28
3.11
5.27
2.73

Low

U. S. Treasury notes

Oct. 26,

1938

1937

U. S. Treasury bonds

(due or callable
after 8 years)
Aaa corporation bonds
Bea corporation bonds
High grade municipal bonds

3.09

*Record low yield on Treasury bonds 2.22 in December, 1936.

259
3

GOVERNMENT SECURITY MARKET

Trading activity in the government security market has lessened further

bonds demand has been as

during the statement week ended November 2; prices of both Treasury notes and

investors
market at current price levels, while
the general money market have tended to limit

Treasury continue drifted reluctant lower. to Outright enter the lacking, institutional

conditionstohave
existing largely
confined
in theand
offerings.
Transactions
thebeen
execution
of small
orders,
to
switching operations carried on by dealers and by a few of the larger commercial

banks in New York and other cities.

Prices of Treasury bonds eased 1/32 to 3/32 on Wednesday, November 2, the
last day of the week, and generally closed the week with net losses ranging from
1/32 to 5/32. Prices of the Treasury notes due March 15, 1939 and June 15, 1939 de-

clined 2/32 and 3/32 respectively, while the other issues tended to be slightly
easier. Prices of government guaranteed obligations also declined 1/32 to 5/32.

Banks and dealers in New York City were awarded the greater part of this
week's issue of Treasury bills, but there was still some successful bidding by

other bank and corporate bidders.

Treasury Bill Market Rates (per cent)
October 26,

1936 (bid)
Maturity
month

2 months

3"

1937-38 (bid)

Low

High

Low

High

Bid

0.10
0.10
0.10

0.20
0.20
0.20

0.03
0.03
0.04

0.60
0.60
0.70

0.04
0.04
0.04

1938
Asked

100 1/64
100 1/64
100

November 2,
1938
Bid

Asked

0.04
0.04
0.04

100 1/64
100 1/64
100

NEW SECURITY ISSUES

Corporate financing in the week ended Wednesday, November 2, consisted
of small bond issues sold privately to insurance companies by the Washington Gas
Light and Okonite Companies and a small stock offering. Almost all of the funds
were for refunding. On Thursday, November $25,000,000 4 1/2 per cent sinking
fund bonds of the Argentine Republic were marketed at 95 1/2. The bonds are rated
A by Moody's and are the first new capital borrowing by a foreign government other

per
as to ofhowever,
about per onis
bonds

than Canada in on bonds held to maturity in 1948 is about

all

5.08 cent, several against years. a yield The yield maturity 5.10 cent outstanding

current so that the actual

Argentine of the issue due in by 1972. maturity, The sinking fund, yield is scheduled indeterminate; to retire it may

be higher than the yield to maturity. The offering, according to report, met with
a

an uncertain reception; the market quotation on Friday morning, November 4, was

discount of about half a point below the issue price.

On Thursday the Commonwealth Edison Company placed in registration a

third block of bonds and convertible debentures - $34,000,000 of the former to be
sold to insurance companies and $25,300,000 convertible debentures to be offered
to stockholders. Several other private sales are reported to have been or about
to be completed.

4

260
DOMESTIC CORPORATE AND MUNICIPAL NEW SECURITY ISSUES

Issues for ovor ono year only (In millions of dollars)
New Refund-

Total Corporate

Municipal 2

Domestic Corporate 1
New

Refund-

Capital

ing

Municipal, etc.

ing

Total

25.6
32.4
17.4
10.4

51.0
25.6
13.2
7.3

76.6
58.0
30.6
17.7

17.6
15.7
11.2
11.7

6.2
3.3
3.1
1.0

23.8
19.0
14.3
12.7

9.9
3.4
12.1
3.8
7.8
39.2

1.2
22.4
11.2
15.5

11.1
25.8
23.3
19.3
13.9
69.0
41.2
75.2
25.7

9.3
10.3
21.1
10.5
19.7
31.0
10.0
12.5
11.9

1.7
5.6
3.7
1.0
0.9
3.2
0.7
2.4
5.0

37.5
50.1
122.8
164.2

11.1
20.7
12.5
17.4
11.4

7.6
7.9
0.8

Capital

Total

New Refund- Grand

Capital

ing

Total

43.2
48.1
28.6
24.0

57.5
29.3
16.3
8.4

100.7
77.4
44.9
32.4

11.0
15.9
24.8
11.5
20.6
34.2
10.7
14.9
16.9

19.2

2.9
28.6

26.2

20.2
16.6
7.0
33.0
12.7
53.4
16.4

22.1
42.3
53.4
30.9
41.3
103.2
51.9
90.1
42.6

18.7
28.6
13.3
17.4
11.4

11.1
23.8
37.1
58.8
11.8

45.1
54.9
99.0
122.8
10.1

56.2
78.7
136.1
181.6
21.9

1937

Teekly average
by quarters:
I

II

III
IV

1938

Weekly average
by months:
January

February
March

April
May

June

July
August

September

29.2
24.2
14.3

6.1

29.8
12.0
51.0
11.4

13.7
33.2

14.3
34.3
70.2
39.2
36.7

Weeks ended

Wednesday: 4

Oct. 5
12
19
26

Nov. 2

0

3.1

24.6
41.4
0.4

37.5
47.0
98.2
122.8
10.1

10.5

0

0

1/ Quarterly and monthly data are Commercial and Financial Chronicle figures reclassified to some extent as between new capital and refunding and in some
cases increased by the inclusion of parts of issues which the Chronicle did
not classify as new financing.
2/ State, county, and local governments, special districts, and U. S. Possessions.
Chronicle figures.
3/ In addition to amounts shown in six preceding columns, figures in these three
columns include issues of Joint Stock Land Banks, Federal Home Loan Banks, the

and Federal National Mortgage Association, which are not guaranteed by

U. S. Government.

4/ Weekly data compiled in the Federal Reserve Bank of New York. Corporate totals issues

generally closely approximate monthly Chronicle totals, but municipal by

usually about $3,000,000 loss per week than Chronicle totals,

reason of average the latter's inclusion of issues under $100,000, which are usually

not reported in the daily newspapers.

261

5

OPERATIONS IN GOVERNMENT SECURITIES

System Open Market Account

The total amount of government securities in the System Open Market
Account at the close of the statement week ended November 2, 1938, remained unchanged from the previous week at $2,564,014,850.
The only transaction in the System Open Market Account during the week
was the replacement of maturing bills as follows:
Redemption

Replacement Purchases in the Market

$42,700,000-Tr.bills due 11/2/38 $42,700,000=Tr.bills due 2/1/39 o 0.017% disc.

262

6

Summary of Open Market Authorizations Given to
Federal Reserve Bank of New York
by Executive Committee of Federal Open Market Committee
and Operations Thereunder
(Reflects Operations and Commitments Through November 2, 1938)
Meeting September 21

Authority

(1) TO replace maturing securities by purchases

of like amounts of Treasury bills or

Treasury notes, provided such purchases can
be made without paying a premium above a
no-yield basis.

$276,285,000

(2) To make such other shifts (which may be accomplished when desirable through replacement of maturing securities) as may be

necessary in the practical administration

of the Account up to an aggregate of
$200,000,000 of purchases and a like amount

of sales or redemptions, provided that the
total amount of bonds held in the Account
be not reduced below $700,000,000 and that

the total amount of bonds in the Account
having maturities over five years be not

54,138,000 (*)

increased over $850,000,000.

(3) To permit temporary fluctuations between

weekly statement dates in the total

Account by not more than $50,000,000 when

September 22-25 -10,250,000
26
- 9,700,000
"

"
"

"

October

27

+ 862,000

29

+ 4,635,000

30 to(. 1,500,000
2

3-4

(

necessary in making replacements or shifts
pursuant to above authorizations.

+

500,000

"

(4) Upon approval by a majority of the members
of the executive committee to make such

other shifts or such purchases or sales
(which would include authority to allow
maturities to run off without replacement)
as may be found to be desirable within the

limits of the authority granted to the

executive committee by the Federal Open

Market Committee.

(*) Includes purchases of $10,250,000, executed
September 24 and 26, which replaced a
corresponding amount of sales which were
executed September 20 and included under

authority (2) of the September 15 meeting.

0

263
7

For Account of the Treasury and Treasury Agencies

Purchases of $304,000 - 2 3/4% Treasury Bonds of 1958-63 for account of
the District of Columbia Teachers' Retirement Fund were the only transactions in
government securities executed under Treasury authorization for delivery during the
statement week.

INCOME FROM SECURITIES
HELD IN SYSTEM OPEN MARKET ACCOUNT*
Amount

Held

Week Ended

November 30, 1933

7, 1934
6, 1935
4, 1936
3, 1937

November

Average Rate
for Week

Income on an
Annual Basis

1.72%
1.84%
1.52%
1.45%
1.611%

$38,238,171
40,905,950
33,791,864
35,238,289
40,696,918

$2,223,149,500
2,223,149,500

2,223,149,000
2,430,226,850
2,526,189,850

"

1938

2,564,014,850
2,564,014,850
2,564,014,850

October 12
19
26

2,564,014,850

.

November 2

1.286%
1.286%
1.285%
1.285%**

32,973,231
32,973,231
32,947,590
32,947,590

*Exclusive of profit or loss on sales of securities which for the year 1937
amounted to a net profit of $2,413,428 and for 1938 to date to a net profit of
$8,275,898.

**Actual rate close of business November 2, 1938 - 1.284%.

APPRECIATION (+) OR DEPRECIATION (-) ON TREASURY NOTES AND TREASURY BONDS
HELD IN SYSTEM ACCOUNT AS REPRESENTED BY THE DIFFERENCE
BETWEEN MARKET PRICES BID AND BOOK VALUES

U. S. Treasury Notes
U. S. Treasury Bonds
Total

October 26, 1938

November 2, 1938

+$21,709,526
28,929,233

+$21,582,705

+$50,638,759

28,482,404
+$50,065,109

264

8

CLASSIFICATION OF GOVERNMENT SECURITY HOLDINGS, MATURITY DISTRIBUTION,
AND PARTICIPATION BY FEDERAL RESERVE
BANKS
IN SYSTEM OPEN MARKET ACCOUNT
NOVEMBER
2, 1938

(In thousands of dollars)
MATURITY DISTRIBUTION OF HOLDINGS

CLASSIFICATION OF HOLDINGS

Net Changes

Treasury Bills

Due in 1 month

1-2 months

.

2-3 "

Total Bills

From

204,078
177,688
230,357

Oct.26,1938

Within 6 months
1 year

"

612,123

12/15/39
in 1940

" 1941
" 1942
1943

"

Total Notes

83,566
85,197
70,466
102,676
388,250
165,760
168,935
99,715

1,250,096

" 2 to 5 years

607,337

Bonds 5-10 yrs.

232,493

over 10 yrs.

474,089

1941-43
1941

1943-47
1943-45
1944-46
1944-54
1945-47
1945

1946-56
1946-48
1946-49
1947-52
1948-51
1948

1949-52
1949-53
1950-52
1951-54
1951-55
1955-60
1956-59
1958-63

"

-

-

-

-

-

-

1,164,565
PARTICIPATION IN SYSTEM ACCOUNT

Treasury Bonds
1940-43

851,352

2 years

"

Treasury Notes

Due 3/15/39
6/15/39
9/15/39

695,689

10,297
14,123
56,325
27,678
41,202
45,195
28,455
41,443
19,820
15,331
53,972
11,671
1,927
54,502
3,183
31,404
49,142
36,558
57,173
31,295
48,606
53,435
54,590

Total Bonds

787,327

Total Holdings

2,564,015

Net Changes
From

Oct.26,1938
Boston
New York

Philadelphia
Cleveland
Richmond

Atlanta
Chicago

St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total

192,971
815,422
222,761
257,819
120,321
104,522
276,389
106,791
56,815
113,249
94,258
202,697

2,564,015

-

-

-

-

-

-

-

-

-

-

-

-

-

265
9

cent

Per

3.0

2.5

Treasury Bonds
2.0

Earning Rate on System Account
1.5

1,0

Treasury Notes

.5

1938

0

1937

1936

Average Yield on Outstanding Treasury Notes and Bonds and Average Earning Rate on
Holdings of Government Securities in System Open Market Account

(Average of all Treasury Bonds due or callable after 8 years; average of all
Treasury Notes maturing from 3 to 5 years)

RATES ON BANKERS ACCEPTANCES AND BILL MARKET CONDITIONS

Dealers' offering rates on prime bankers acceptances remained unchanged

during the current week as follows: 1-90 day maturities 7/16 per cent, 91-120 day
maturities 1/2 per cent and 121-180 day maturities 9/16 per cent.
Although there was a slight increase in New York in the volume of acceptances handled by dealers during the week as compared with the past four weeks,
the market continued quiet. Dealors' purchases and sales were about equal and at
the close of the woek aggregate portfolios amounted to approximately $38,000.
OPERATIONS IN BANKERS ACCEPTANCES AND OTHER BILLS

There were no transactions in bankers acceptances reported at the Federal
Reserve Bank of New York. The System continues to hold no domestic bills in
portfolio.

Foreign currency bill holdings of the System remained unchanged, amounting

to $541,000 on November 2.

Allan Sproul
First Vice President

266
Saturday,
November 5, 1938,
9:23 A. M.

Fine morning.
Archie

L:

I'm the only one in here just yet.
Go ahead; let me talk fast, will you.
Right, sir.

H.M.Jr:

Got a record on?

Lochhead:

H.M.Jr:

L:

H.M.Jr:

I've got the record on.
All right. Now, ah - ah - Mr. Daladier himself
just called and talked in French, and all I could
get was "How do you do?" And then he put Reynaud
on, and the gist of the conversation was that
they were making progress, and did I have confidence in Cochran, and could they talk to Cochran?

L:

Right.

H.M.Jr:

And I said "Yes." Now, I wish you'd get a call
through to Cochran and tell him what happened,
see?

L:

Yes.

H.M.Jr:

I don't want to do it from here.

L:

Right.

H.M.Jr:

Now, the other thing, if you and Miss Spangler
could work this out, I have arranged with the
Overseas Telephone Company that any call comes

in here should be tied into District 2626.

L:

H.M.Jr:

L:

Yes.

And - and you tell her I'm through - you better

work this out with Lieutenant McKay, that from
one o'clock today, until nine o'clock Monday morning, I want a man on duty at my office continuously.
Yes.

267

-2H.M.Jr:

So that if a call comes in they can tie it in

L:

Fine; I'll do that.

and make a record of it.

H.M.Jr:

See?

L:

Yes. I'll check with both Miss Spangler and - ah -

H.M.Jr:

One o'clock today

L:

From one o'clock today till nine o'clock Monday

Lieutenant McKay on that.

....

morning.

H.M.Jr:

And somebody will have to be there to change
those records, you see?

L:

Yes, well I'll take - we will fix that up with

H.M.Jr:

Will you?

L:

Yes. All right. Well, now then I'll get through

your office.

to Cochran and tell him that he may be approached.

H.M.Jr:

That's - that's it; that Daladier and the other

L:

Right.

fellow called me

and was it all right to talk to

H.M.Jr:
L:

Yes.

him, and I said "Yes."

H.M.Jr:
L:

And that all they said there - did - did

H.M.Jr:

They're making progress.

L:

They are making progress?

H.M.Jr:

Yeah.

L:

And then Paul Reynaud himself was in on this?

H.M.Jr:

Reynaud.

268

-3L:

H.M.Jr:
L:

Reynaud, rather. Well, that's interestThey both got on the phone.
I see.

H.M.Jr:

Now the other thing, will you call Cochran

L:

Yes.

H.M.Jr:

L:

and tell him that I expect to leave here, at - ah twelve-thirty today to go up to be with the
President, and I'll be out for several hours.
Ihours.
see. This afternoon you'll be out for several

H.M.Jr:

I won't be back until four.

L:

Not till four?

H.M.Jr:

Yeah.

L:

All right, sir.

H.M.Jr:
L:

H.M.Jr:

But you can tell - tell this to Hanes, White, and and - ah - and Taylor.
Hanes, White, Taylor; right.
And I explained to Taylor; I called him up and
explained to him what - that Bonnet was a - first
I put it this way, that Bonnet was a personal
representative of Daladier, and was over here with
the President, talked to the President and myself
and he took back a memorandum from Oliphant.

L:

I see.

H.M.Jr:

That the State Department did not know anything

L:

about it, and this was the business of the President
of the United States.

I see. Well that - that makes - then we can tie
in;from now on we can tie things in in the regular
way.

H.M.Jr:

That's right.

269

-4L:

All right, sir. There's nothing - there's nothing

H.M.Jr:

Well, all right.

L:

All right, sir.

H.M.Jr:

Thank you.

L:

Goodbye.

of news in the rates or anything this morning; everything is coming in the same.

270
Saturday,
November 5, 1938,
9:44 A. M.
Archie
Lochhead:

Hello.

Operator:

He'll be right on, Mr. Lochhead.

Lochhead:

Thank you.

Overseas

Operator:
H. Merle

Go ahead, please.

Cochran:

Hello.

Lochhead:

Hello, Merle.

C:

What?

Lochhead:

This is Archie.

C:

Oh, hello, Archie. How are you?

Lochhead:

Fine. Ah, Merle, I'm calling you at the request
of the Secretary, to let you know that he had a a telephone call.

C:

He had a what?

Lochhead:

He had a telephone call.

C:

Yes.

Lochhead:

About half an hour ago.

C:

Yes.

Lochhead:

From Daladier.

C:

From ....?

Lochhead:

From the - ah - Daladier.

C:

Yes.

Lochhead:

Ah - the com- - ah - Daladier spoke mostly in
French, and the only thing the Secretary got was
"Good Morning."

C:

Yes.

271

-2Lochhead:

But he did have with him - ah - Reynaud.
Reynaud.

C:

Lochhead:

C:

Paul
- was with Daladier when they - they
calledReynaud
the Secretary.
I see.

Lochhead:

Ah - they are apparently interested ....

C:

They what?

Lochhead:

They are interested

C:

Yes.

Lochhead:

And the thing they asked, was, that if they had
anything to communicate - ah - or had to work
through anybody over on their side, would it be
all right to work - communicate with you.

C:

I see.

Lochhead:

The Secretary told them "Yes." That it would be

all right, if they had anything that they wanted
to communicate, they could do it through you.

C:

I see.

Lochhead:

So, therefore, I wanted to notify you in case

C:

anything comes up that you know that the Secretary
has talked to them and given them permission to
contact you, if necessary.

I see. I'm - I'm awfully glad you telephoned,
because, yesterday when - ah - the men called me,
you know, ah, about possibly putting a call in
for you.

Lochhead:

Yes.

C:

Ah, I mean, call for the Secretary.

Lochhead:

Yes.

C:

They wanted me to come there, to see Powell at

Lochhead:

Yes.

twelve o'clock today.

i

272

-3wanted me to be able to tell where I could
find the Secretary.

C:

Lochhead:

Yes.

Now when, ah, this thing came up - I mean when I
phoned
talked you and found out they al- - had already

C:

Lochhead:

Yes.

Then I found out that - ah - the messenger was
going to see him this noon.

C:

Lochhead:

Yes.

To go to that meeting, you see.
Lochhead: Yes.

C:

C:

And, ah, then, ah, the man I talked to first, called
me back at twelve-thirty and said they had expected
me, but I didn't want to go in before Powell had
this message, you see.

Lochhead:

Yes, well now, the message is there; as they
discussed this in general terms, to say that ev- they're interested.

C:

Yes.

Lochhead:

And so, they've asked - have asked if they can't

C:

Yes.

Lochhead:

And so the Secretary said "Yes," so the channels

C:

Lochhead:
C:

Lochhead:

communicate through you.

are all set now.

They asked - he asked me at twelve-thirty to - to
come to see them at six-thirty tonight.
I see.

And I don't know whether that was before or after
he had talked with - with you people.

Well, if it was twelve - if it was twelve-thirty,

ah, your time, ah, it might have been just after
they spoke, because, ah, the Sec- - well no, it's

273

-4just a guess whether he did or not, of course.

Yes. Well, anyway, that's it.

C:

Lochhead:

But it's all right to go and see him now, you see.

What
time is it with you now? Is it five or six
hours difference?

C:

Lochhead:

Six - ah five hours; you see, ah, there's no day-

light saving, you see; it's a five-hour time; it's it's - it's now a quarter of ten o'clock here.

C:

Well,
time. the messenger phoned me just about that same

Lochhead:

Yes.

C:

But had no word from them yet. The idea was to call

Lochhead:
C:

me in if they did talk by telephone.
I see. Well, that's probably what they're going to
do.
Well, I don't know, now that they've talked this
once.

Lochhead:

Well, the only thing they called, was, ah - just
simply, I think, to let him know that they got the
message and they're interested, you see.

C:

That's as far as it went.

Lochhead:

And also to assure themselves that they could com-

C:

I see.

Lochhead:

In other words, the setting is made in case they

municate through you.

C:

want to do anything.
I see.

Lochhead:

Now, ah, the Secretary will be up on the farm,

C:

Yes.

still.

274

-5Lochhead:

C:

Lochhead:

C:

Lochhead:

C:

Ah, incidentally, between twelve-thirty, our time,
and, ah, say about six o'clock, or seven, he will
be
with the President, so, ah, you can't get in
touch with him during those hours.
Cannot get in touch.
No, time. not between twelve-thirty and, say, six, our
Uh huh.

But otherwise, if you have anything, you can call
and don't hesitate, if you want to call, to call
up
to - up at the farm, because that's where he'll
be.

Well, I'll - I'm to see this man at six-thirty,
unless I hear something different.

Lochhead:

Yes.

C:

That would be a pretty close connection; you see,
that would be seven when I got out.

Lochhead:

Well, that, as I say, you wouldn't be able to get
in touch with the Secretary, ah, for the - ah - for
that time; I mean, there will be a blank spot in
there.

C:

Ah - I say, that would be too late, wouldn't it?

Lochhead:

That would be too late, yes.

C:

Yeah. Well, I'll call later in the night then.

Lochhead:

I would say so, because, ah, I wouldn't say that
they'd try to get him much before six o'clock,
because he told me he - about twelve-thirty, he'd
be away about four or five hours.

I see; I see. From twelve-thirty to six or seven.
Lochhead: Yes.

C:

C:

I see.

Lochhead:

That's our time, of course.

275

-6Yes, yes.

C:

Lochhead:

So that's the way the thing stands - where it is;
I don't believe there's anything for us to do
here but to stand by.

Yes.

C:

Lochhead:

And wait to find out what the developments are

C:

Ah, was the messenger with them when they spoke?

Lochhead:

Ah, ah - there was no mention made of him.
I see.

C:

Lochhead:

there and what they may ask us.

That is, the Secretary made no mention to me with just those two gentlemen.

C:

With just the two; and which one spoke?

Lochhead:

Well, ah - the first one, ah, started the conversa-

C:

Yeah.

Lochhead:

tion,

but, ah, he apparently, ah, didn't have any

great command of English and the only thing the

Secretary could get was the greeting.
C:

Oh.

Lochhead:

And then the second man came on and apparently he

C:

And he seemed interested.

Lochhead:

Yes, that was the interesting part; he was with him;

C:

And, ah

was the one that did the talking, in English.

you see, they were both together
and, ah,

Lochhead:
C:

when the call came through.

I see; I see. Well, I'll - I'll stand by, and, ah,
and ah, keep this appointment at six-thirty.

Lochhead: Yes.

-7-

276

And ah - then I'm not going to wire - ah even through that unusual channel.

C:

Lochhead:

No. I tell you, I think you'd better wait and

report
by
mail.by phone, and keep a record to be sent over

Yes. Yes. I - I think that's it; I - I won't

C:

send
any cable
substance
of it. until I've told the Secretary the

Lochhead:

C:

That's right. And then the - unless he asks you
to confirm by cable, I think you better just
send over by mail.

Well, yes. All right. Well, I'll - I'll be right

here, and unless something comes up I'll go to the
six-thirty appointment.

Lochhead:

That's right.

Lochhead:

And then I would report late at night.
That's right.

C:

Then

Lochhead:

All right, then. Well, now that's a six-thirty

C:

meeting that you've been called for already?

C:

Yes, yes.

Lochhead:

All right, then. Well, I'll let the Secretary

C:

All right, fine.

Lochhead:

All right, Cochran.

C:

And -

Lochhead:

Yes?

C:

Thanks a lot. Ah, look - ..

Lochhead:

How's that?

C:

Ahh - no - no hurry; I'd better not ask you.

know when I speak to him on that.

277

-8Lochhead:

(Laughs) I see.

Lochhead:

All right.
All right then.

C:

Goodbye.

Lochhead:

Goodbye.

C:

278
November 5, 1938.
12:04 p.m.
Operator:

Go ahead.

L:

Hello.

HMJr:

Hello.

L:

Yes, Mr. Morgenthau.

HMJr:

How is the market today?

The markets are very quiet. The stock market is
practically unchanged, a shade up but just

L:

fractional changes.

HMJr:

Yes.

L:

Commodity index is off a fraction .05.

HMJr:

Yes.

L:

Government bonds very quiet, and exchanges very

quiet at 476 and 2/66ths and a 1/4.

HMJr:

Yes.

L:

Now, acting under your instructions I got hold
of Cochran.

HMJr:
L:

Yes.

And told them that he might be approached and told
them of the conversation you had had.

HMJr:

Yes.

L:

He was glad to know that because he said that he had

HMJr:
L:

HMJr:
L:

had an invitation to go over there at six-thirty.
Six-thirty today?
That's right.
Yes.

And he said that he didn't know whether he should
have gone or not, you see, but now getting the
message he'd go over.

HMJr:

Yes.

279

-2L:

HMJr:

He can't quite figure out before they asked about him
seeing them this morning - but not having any instructions, he didn't go over Now, wait a minute. Say that again.
They
had spoken to him about seeing them this morning.

HMJr:

Who's they?

The
wayMonet.
I understand on that, he got that message
through
Yes.

To go over and see, probably either,Daladier or

Paul Renot.
H15Jr:

Reno please.
Reno.

HMJr:

HMJr:
L:

HMJr:

HMJr:

Look up the spelling.
So he didn't - he didn't go over at that time because

they - then they postponed it until half past six.
But he can't tell quite piecing up the time whether
that was before they had spoken to you or after.
Now, that's all he said. He has nothing further.
That he's going to wait and then he's going to report.
I told him that you would be out between twelve-thirty
and for the next four or five hours after that.
That's right.
So not to try and get in touch with you until after
that time.

Well, I'm not English but I'm going to be with my President of the United States at that time.
Well, I should think you'd be entitled to be away from
your desk for five hours.
What?

I say I think you would be entitled to be away from
your desk for five hours on a Saturday afternoon,

and the other arrangements have all been made about

any calls coming in.

280

-3HMJr:

Yes. Well - because we've got to make a record
of these things.

Yes. Well, that's - that's being taken care of,
the records will be made.

HMJr:

Right.

Mr. McKay has been down here and they've checked
up with Miss Chauncey 9.8 to how everything should be
operated.

HMJr:

Yes.

L:

And they're going to have somebody down here at all
times.

HMJr:

L:

HMJr:
L:

Well make sure though that whoever they send is
discreet.

Oh, yes. Yes. Absolutely. They - Mr. MoKey is
taking care of that.
Right. Now, is Hanes there?
Yes, Mr. Henes is here, I'll put him right on.

John
Hanes:

Good morning.

HMJr:

Hello, John.

H:

Yes, sir.

HMJr:

You've never been through one of these French crisis.
Not yet.

HMJr:

But - we have them about four times a year. Now what I was running through my brain was this. If

this thing breaks - well, what they said this morning
end. - Hello.
Yes. Yes, I get you.

was that they' '11 want me to handle the English

Hillr:

Which meane that we've got to handle it through
Bewley
Bewley

but I didn't think, I sent word to
because that isn't - that puts his tail

up and he wonders what it's all about.

281

-.4 Sure.

H:

HMJr:

So, I think we'll just have to sit tight, but I've

had this thought, it was running through my mind,

that if - I've got my plane standing by -

Yes.

H:

HMJ:

And if this thing breaks and they want a note, why
I'M going to ask some/ these men to come up here.

Yes.
HMJr:

See?

Yes.

HilJr:

And - but I wasn't quite clear - I know that

Oliphant gave Monet a memorandum. Did anybody

else give him one? D1d White give him one?

H:

Yes, White gave him one.

H1JJr:

What?

White gave him - three - he got three memorandums.
HMJr:

Right. Well I never - I know he gave them, but I
don't think I've ever seen them. Is White there
now?

H:

He's here now, yes.

HMJr:

Is Bernstein there?

H:

Yes, he's here too.

HMJr:

Well, this is what I thought, that if this thing
broke, I'd have Lochhead and White come up here,
and if Oliphant wants to come, all right, if not
Bernstein.

H:

HMJr:

Yes. Yes.

And I was going to ask - I didn't know whether you
or Taylor wanted to come up or not. Use your own
judgment.

H:

Well, we will. Either one of us you want. I'd be
delighted to come up if you want me.

282

-5HMJr:

HMJ:

Well, are you going to be down in Virginia tomorrow?

I was, but I don't have to be, I can come Well, that's all right. As long as you leave word.

H:

They know where to get me.

HMJr:

- operator where you are.

I can get in in forty minutes.

Well, that's fast enough. I can't get the plane

down there in forty minutes.

Well, if - I can leave there any time and get here
in forty minutes, so HMJr:

This is the way I.feel. When Renot got on the
first five minutes of the talk was in French -

wire he sounded very enthusiastic - you see the

I couldn't get a thing out of it.

Yes.
HMJr:

And - except that he was being pleasant.
Yes.

And then Renot got on and he sounded very happy he must know what's going on and they wanted to

know whether it was all right to talk to Cochran.

H:

HMJr:

Yes.

Of course, if this thing goes through, it's just
too good to believe, and if we take all the - I
think the pressure off on both sterling and the
franc we'd see some gold go out of here.

H:

Yes.

HMJr:

And I've thought it over and I want to stey up here
80 that I can be near the President and contact him.

H:

Sure.

HMJr:

So I think that - I've thought it over whether I

should go down there and meet with the group or ask
the group to come up here, but on account of the

President being here I think - I've weighed it all

283

-6 and
I think it's a little more important that I
stay here.
Yes, I do too.
And be within forty minutes of the President.
Sure.
HMJr:

What?

I think so too.
HMJr:

Don't you think so?

I do think so, yes.

So I think the thing to do is that - I told - well,
they know now that I'm going out at twelve-thirty.

Yes.

As a matter of fact I'm leaving at sharp one-fifteen
to meet the President too.
H:

Yes.

HMJr:

And I don't expect to get back until four or five,
and if anything happens, why we could - what I what was running through my mind was that I'd ask
the people maybe to come up on the midnight.

Yes.
HMJr:

And bring Bewley with you, you see?
Yes.

HMJr:

I mean so - that's what I was thinking about, now but - that gives you people some idea what I had
in mind.

H:

Sure. Well, we'll - you want me - now which do

you want - you want Oliphant or Bernie Bernstein 7
HMJr:

Well, I - I want Oliphant and it's up to Oliphant

H:

Oh, all right -

whether he wants to bring Bernstein with him or not.

284
-7HMJr:

I imagine that he would.
Lochhead,
White, Oliphant, Bernstein, Hanes
and Bewley you want -

HMJr:

Who?

H:

Bewley

HMW:

did you say?

Well, that's - if - that depends upon if they put
it up to me to contact the English, then I'll want
Bewley.

H:

Yes.

HMJr:

And I'll want Taylor.
Send Taylor.

HMJr:

You see, I think this 1e one of the most important
things outside of America that's happened - well
since the Munich conference.

H:

Yes.
put

HMJr:

And if we could/Frence on its feet, it would be just just too good to believe.
Yes. Well, were they going to call you back this
afternoon, I didn't hear your conversation this
morning?

HMJr:

H:

HMJr:
H:

HMJr:
H:

HMJr:

H:

Well they know. I take it that Archie told
Cochran that I will be out.
Yes.

Until four. Is that what Taylor - Archie told them?
Wait a minute. - Yes, he told them that you'd be
away until four-thirty.
Well -

About four hours after twelve-thirty.
If we have a conference I can't get you fellows
up here tonight. My thought was to get you up
on the midnight - come up here in the morning,
then we'd talk it over.
Yes.

-8HMJr:

285

See?

Yes.

Now, has anybody got any better idea than that?
H:

HMJr:

Aside - (Have you got any other thoughts on it?)
Archie says there's no guarantee that we'll hear
anything from Cochran, because they're not haven't given him any assurance that they were
going to tell him anything. It's only in the
event that he does get some information that we we'll have to act, I assume.

I - I understand that, but the point is that -

last night they called ,me up - Monnet called me
up at twenty minutes past one in the morning.
Yes.

HMJr:

At his time, but he called me.
Yes.

And he had just left a long Yes.

- conference with the Prime Minister.
Yes.
he

And/left the Prime Minister very enthusiastic.
Yes.

But it was twenty minutes past one Paris time.
Yes.
HMJr:

Now - eight o'clock here Yes.

HMJr:

And so my guess is that I'll hear again, late
tonight, and then the thing will be for us to
maybe have a conference tomorrow at - they're very
definitely going to ask me to handle the British
end.

Yes.

286

-9HMJr:

And I'm glad to have a chance to see the President,
because I would much rather work through the British
Embassy here than I would through our own Embassy.

H:

HMJr:

Yes.

Now, maybe that's indiscreet to say that, but that's
the way I feel, but I'm going to ask the President
whether he feels that way.

H:

Yes.

HMJr:

See?

Yes, I see. Well, now Henry, we'll - why don't we
just have everybody that you mentioned there available and ready to take the midnight tonight if we

all get the word. The operator here will know - we'll
keep the operator posted as to our whereabouts.

H:

That's right.
And - so that they can round us up in A short time

and we can all get up to New York tomorrow morning.

HilJr:

Yes. And Bernstein should call up Oliphant and

tell him what's in the wind.

Yes, he will I don't want to put Bewley on notice because I
don't want him to get his wind up.

That's right. Well, we won't bother him until we
hear later from you.
Yes, because then he might cable right back what's
going on.

Well, when you call the Treasury - I assume you'll
call the Treasury and give the word here to round
us up.
HMJr:
H:

HMJr:

That's right.
But when you call them you'd better be sure and
leave word where to get Bewley.

Any call that I make is going to be recorded in the
Treasury.

287

- 10 Yes.

And
then
if I get a call
and they put up a
definite
proposition
to me.
Yes.

That I've got to give a yes or no, then I'm going

to ask you fellows to come on up.

All right. Fine. Well, I'll tell the operator

here to get in touch with everybody and find out
where
they're going to be all this afternoon and
tonight.

HMJr:

Where is Wayne?

Wayne 18 down in Virginia. Isn't it No, I thought he went to a football game.
Wait a minute - wait a minute - (aside - where)
He's at Baltimore at the football game.
HilJr:

Well, he'll be back by tonight.
Yes. Wait a minute - He'll be back about eight
o'clock tonight.
Well, that's - eight o'clock tonight.
Yes.

H:

Wasn't he in at all today?
He was here until about half-past ten.

HMJr:

Oh! What?

H:

He was here up until about half-past ten, this
morning.

HMJr:

H:

H11Jr:

I see. Well, I don't see anything else, but to
do it that way.

All right, fine.
I - when I talked to Monnet, he was very enthusiestic
and he seemed to think - but he said he - that he
felt - thought he was successful.

288
-11-

Yes. He thought he had been successful.

Yes, definitely.
Yes. Well, that looks like you'll hear something
more then today, during the course of the day, and
we'll have to come tonight.
HMJr:

Now,
whatcould
does mention?
anybody know that I should know,
that they

Well, I - answering for myself, I don't think I
know anything that you ought to know, that you
don't already know, and the othere are sheking

their heads, they don't seem to think there's
anything here of very great interest.

H1LJr:

Well, they might be interested in knowing that

Dr.Beardsley.Rummell was here for five hours
yesterday afternoon.

He was there for five - uh?
Beardsley Rummell was here for about five hours.

Yes. Harry White says you must be all in.
I a.m. Rummell told me what kind of medicine he
takes to give him pep.
Yes (laughter)

I told him that I had to take triple bromides
to hold myself down.

H:

HMJr:

H:

HMJr:

(laughter) Well, he's 9 bell of energy all right,

isn't he?

Well, we just - you've never been through one of
these - they happen three or four times S year,

but I hope this is going to be the last one.
Well, we'll be ready. We'll be ready, and if you'll
just call the Treasury, we'll be on tep.
Now, you turned down this fellow on wages and hours.

I think Oliphant said that that was illegal, we
couldn't do it.

289

- 12 HMJr:
H:

HMJr:

No.

So I hope - I don't think he's found any new
way yet, that I know of.

All right. Well then you have - fix it up with
the switchboard, and we'll let you know.

H:

HMJr:

That's right. We will, and we'll be ready whenever

you holler.

And if these fellows come up here, tell them to
bring their memorandi with them.

H:

I will. I will.

H1Wr:

Because I might like to look at them.

H.M.Jr:

All right. Fine.
All right.
Thank you, sir.
Goodbye.

Goodbye.

290

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Rio de Janeiro

DATE: November 5, 1 p.m., 1938
254

NO.:

My 250 of October 29, noon.

I am informed by the Director of Exchange that the
Bank of Brazil will, during the week of November 7, close
exchange for daily quotas and maturities from the 22nd
of September to the 30th of September, inclusive.
CONFIDENTIAL. The Director of Exchange states that,

due to the rise in coffee prices as well as to more efficient administration of exchange policy, there is improvement in the exchange position of the bank. The Director
adds that it will probably be possible for the bank to
allocate increased amounts of exchange in the near future,
unless unforeseen developments occur. However, the bank

officials consider it prudent before doing this, to accumulate a sufficient reserve 80 that when additional allotments are made they may be continued.

Will you please inform Commerce.
SCOTTEN

EA:DJW

291
Saturday
November 5, 1938

6:08 p.m.

Operator:

All right. We're ready.

Overseas

Operator:
0:

0.0.:

Yes. Are you ready?
All ready.

All
Thank
you.Mr.
519Cochran.
is ready. Ready,
Mr.right.
Cochran.
Hello,

H. Merle
Cochran:

Waiting.

0.0.:
HMJr:

Thank you. Go ahead, please.
Hello.

Cochran:

Hello.

HMJr:

Cochran -

C:

HMJr:

Well, Henry, I was just getting ready to put in
a call for you.
Oh. Because I've got a lot of people tied up and
I want to know whether I should hold them tonight
or not.

C:

HMJr:
C:

Ah - I didn't think I could get you before eleven it's just come now. So I have everything here that
I can give you.
Well, go ahead. I'm listening.
All right. Archie telephoned me this afternoon
giving a report of the conversation which these
people had with you.

HMJr:

That's right.

C:

And then ah - the messenger who came across came

up to my house and gave me the story of his being

present at the - when the two talked this over.

HMJr:

When the - when the two?

C:

Yes.

292

-2HMJr:
C:

HMJr:
C:

HMJr:
C:

HMJr:
C:

Yes.

Saying he was not in all the time but he was
there part of the time and he was there when
they talked with you.
Yes.

Then I went over at 6:45 and saw the second one.
Yes.

And he was very nice;- - he said that he had talked
with you and you had told him that he could
communicate through me if he wanted to.

That's right.
And I showed him I wanted to be of any assistance
to him and he asked me to reiterate to you his

interest in and gratitude for the message.

HMJr:

Yes.

C:

And - I told him we wanted to help all we could
and it looked like some real cooperation seemed

possible.
HMJr:

That what?

C:

That some really / cooperation seemed possible

assistive

from our side.

HMJr:

Seemed possible?

C:

Seemed - seemed possible.

HMJr:

Yes.

C:

HMJr:
C:

And ah - he said however, that he had been sworn
to such secrecy here Yes.

-that he did not feel free to consult his technical
assistants on these ideas.

HMJr:

Yes.

-3 C:

And he said that his - his number one,- his Chief,
was
"hot", as he put it, for the idea.

HMJr:

Was "hot" for the idea?

C:

Yes.

HMJr:

Yes.

C:

293

And he says it's up to him however, to study
the technical phases of it.

HMJr:

Yes.

C:

And he said that he is now in the midst of pre-

paring this whole series of financial affairs,

you know.
HMJr:
C:

- Yes.
And he asked if we would approve his consulting

his two leading technical experts.
HMJr:

Who are they?

C:

Fournier and Roueff.

HMJr:

Fournier?

C:

Yes.

HMJr:

And Roueff?

C:

That's right.

HMJr:

What do you think?

C:

Well, let - let me go ahead. I - I t h ink it's
reasonable.

HMJr:

Yes.

C:

Because he's so rushed with this thing you see.

HMJr:

He's so what?

C:

He's so rushed with these decrees which he's

try ing to get out.

HMJr:

Yes.

294

-4C:

- by Saturday - that he says that he can't give
absolute full attention to this and he says that
he has to talk with someone of his people almost
to see what's been going on and so on.

HMJr:
C:

Yes.

He said of course he has the general idea but he
said that for drafting and so on he must depend
upon some assistance.

HMJr:
C:

HMJr:
C:

Well, does he feel that I've limited him?
He thought that ah - from his conversation with
this gentleman who has talked with him Yes.

- that he couldn't talk with anyone. And I said,
"Well, I think you can talk with your two ah assistants whom you trust entirely." But I said,
"I'11 check up with my friend on the other side

tonight." And he said, well, if I would call

him back in the morning or come and see him and

tell that that's 0. K. that he would get them both
started on it tomorrow.

HMJr:

Yes.

C:

He said otherwise he was afraid there would be a
delay.

HMJr:

Well, if - I'm satisfied if they're satisfied
over there.

C:

Why, I - I don't see much way out of it.

HMJr:

Ah - well I - it seems to me like a reasonable
request.

C:

Oh, absolutely. I think so.

HMJr:

Ah - Fournier and Roueff?

C:

Yes. Those two.

HMJr:

But nobody else?

C:

Oh no. No. Certainly it'd stop there and if we
insisted on only one he would limit to one. But
it's almost impossible to talk with one of them
without the other.

-5HMJr:
C:

No. I - I'm satisfied if they are.
Good. Well, I thought you would be but I - I
told him I'd have to speak with you first.

HMJr:

No. I mean it's must as though somebody said

C:

Yes. Absolutely.

HMJr:

What?

C:

HMJr:

295

well I couldn't consult ah - Archie.

Yes.
That is just the comparison
I had Absolutely.
in mind.

No, I don't - and anyway, ah - they've got to
know who they can trust over there.

C:

HMJr:

C:

HMJr:
C:

HMJr:
C:

HMJr:
C:

Sure. Well, I mean it had been put up the other
way a little bit - that noone was to know outside
of four or five of us you see.
Oh. Well, the answer on those two - I know them
both and I personally trust them.
Absolutely. I do too.
Don't you?

I do, absolutely.
Yes. I mean I've found them very honorable people.
Yes. No, no question.
Yes.

Well, if I can get that word to him then - he said
he'd be at the office at 8 o'clock -

HMJr:

Yes.

C:

He'll get one or both of them -

HMJr:

Yes.

C:

HMJr:

- right away.
Well, how do you feel the second man feels about it?

296

-6C:

HMJr:

Ah - not quite as enthusiastic as this gentleman
lead me to think this afternoon.
I see.

C:

Now, I don't say that there - there are reserva-

HMJr:

Uh huh.

C:

But the story is just this. He - he's going ahead

tions.

on a series of decrees which he hopes to get out

next Saturday.
HMJr:

Oh, next Saturday?

C:

Yes.

HMJr:

Uh huh.

C:

From appearance here they're entirely orthodox.

HMJr:

What's that?

C:

I say they are entirely orthodox.

HMJr:

Good.

C:

And he gave out a statement yesterday to the press.

HMJr:

Yes.

denying again that any measures of

C:

constraint would be taken HMJr:
C:

Yes.

And so he was revolving this thing is his mind not deciding one way or the other - it interests
him tremendously.

HMJr:
C:

HMJr:
C:

It does what?

I say it interests him tremendously.
I should think it would.
Yes. But his only point was that, "Should we
accept this

-

"

297

-7HMJr:

Hello?

C:

Hello.

HMJr:

Should they what?

C:

He said, "Should we take up this idea or should
we wait, issue the decrees and follow this up

very shortly - follow the decrees up with this

plan?"
HMJr:

Yes.

C:

And he said, "That's what I wanted to talk to my
experts about."

HMJr:

C:

No. This - this thing's got to come - if it
comes at all it has to come first.

Yes. I said, "Well, hadn't you thought of making
it a part - coming right along at the same time?"

I-

HMJr:

Yes. This should be a part of the - whatever -

the first announcement he makes this should be a

part of it.
C:

Uh huh. Well he had one other scheme in mind.

HMJr:

Yes.

C:

Someone had drawn up for him.

HMJr:

Who?

C:

I say someone - some financial man - I don't know
who it was, had given him a draft today of a
straight Tri-Partite Agreement just on-along

general lines - a little bit like some of those
we've seen before.

HMJr:

Well, I - I've spent -

C:

I beg pardon.

HMJr:

I've been at this now for five years.

C:

Yes. Well, he asked what I thought of that and

I said, "No." I said, "The people are waiting
for you to do something." And I said, "They want

298

-8-

your decrees." And I said, "If this thing is
to come
out you ought to get it - go into it
very
shortly."
HMJr:

Well, if - if they don't take this why ah I'll be more than disappointed.

C:

Now I - I don't mean to - to give you any
reason to think that they won't.

HMJr:

Yes.

C:

But what I do mean is that this man wants to go
into it early with the two men most competent to

help him with it.

HMJr:

Well, I - I- I - in the first place I have no

right to object and in the second place I have no
reason to object.

C:

Fine.

HMJr:

Now, there's one thing - I - well, I won't hear

C:

anything more tonight then, will I?
No. Nothing more tonight.

HMJr:

Right.

C:

Because I'm not to call him back until in the
morning.

HMJr:

Well, of course you gain a day by speaking to me
now.

C:

HMJr:

Yes. Yes. Well, then I'm to call him between at nine o'clock in the morning - he said even at
eight if I wanted to.
Yes. Inasmuch as we're on such a confidential

basis see if you can't find out what it was that
Marchandeau wanted to do.

C:

Right.

HMJr:

See? Hello.

C:

Yes.

-9HMJr:

Ah what - what was Marchandeau's program -

see if you can't get that tomorrow.

C:

All right.

HMJr:

See?

C:

Yes.

MJr:

C:

And
if you can get that I might put that into
a cable.

All right.

HMJr:

Via the State Department.

C:

Via the State Department.

HMJr:

299

Because if I could tell what Marchandeau had
and what the Cabinet voted down it would give

me a little bit more a feel of the situation -

C:

HMJr:

Yes, yes.
You see what I mean?
Yes.

HMJr:

And ah - if they were so inclined I would con-

sider it helpful if they would tell me what plans

he had.
C:

HMJr:

All right.
But ah - Cochran, ah - we spent so much time with
the messenger that I can't on the telephone do any
pleading, you see what I mean?

C:

Absolutely. Yes.

HMJr:

Ah - that messenger - nobody ever got more con-

sideration or more attention - or more technical

assistance than he did. Hello.
C:

HMJr:

Hello.

And I hope they're not going to put it up to me
to plead their case, you see, over the telephone.

300

- 10 C:

Yes. Yes.

HMJr:

Because I can't do it.

C:

No, no, no. I'11 see that that doesn't come up.

HMJr:

You see what I mean?

C:

Yes. Yes. And I was disappointed a little that

HMJr:
C:

they called you yesterday because Well -

- they got in touch with me first and wanted me
to come today and they said they weren't going

HMJr:

to call until today, you see.
It's all right. But now, the other thing ah they - I know they're going to ask me to sell
the third party. See?

C:

Yes.

HMJr:
C:

HMJr:

C:

HMJr:
C:

HMJr:

And I'm perfectly willing to do it.
Yes.

But ah - if they think that I - I would be helpful as I told them - I'll do anything to be helpful.
Well, that - that's the impression this man had
from his talk with - with the messenger, you see.
What?

That you would be willing to Yes. But / I know - I think I know what's going to happen.
I think the third party is go ing to say, "Well,
can't they talk for themselves?"

C:

Yes. Yes.

HMJr:

But I said I would and I will.

C:

Yes.

HMJr:

See?

301

- 11 C:

Surely.

HMJr:

I'11 make the effort.

C:

I didn't get that ah -

HMJr:

Hello.

C:

Hello.

HMJr:
C:

HMJr:

I'11 make the effort.
You'll make the effort?

But I don't want to be put in the position that

number one calls me up to plead with number two.

C:

HMJr:
C:

Oh, no, no. And there's one thing which ah our friend spoke from my house here last night
you know - we talked together with you.
Yes.

He said where he envisaged the possibility of
number two being thrown out if he wouldn't
follow number one -

HMJr:

I see.

C:

Now that's not ideal by any means.

HMJr:

That's not what?

C:

That's not the ideal result.

HMJr:

No.

C:

Because each one needs the other.

HMJr:

Each one what?

C:

Each one needs the other.

HMJr:

Yes. Well, but you get the point - all I - I

mean I hope that number one doesn't call me up
to plead with number two.

C:

That what?

302

- 12 HMJr:

C:

HMJr:

That number one won't try to ask me to sell
this to number two.

Absolutely. Yes. Yes.

In other words, ah - I don't want to be in a
position of trying to sell this over the

telephone.
C:

HMJr:
C:

No. No. The only question that's in my mind
now - if I say when - if and when I see him Yes.

- that I indicate any ah - ah - suggestion
that if this thing comes out it must come out

first.

HMJr:

Well, I would say - I would say ah - no, I - I -

C:

Well, let's let them go and give us some sort of

Well, I would say "simultaneous". I don't know
what they have in their mind.
an answer the next day or two.

HMJr:

I don't think I would suggest that, Cochran. I

think that - let's - they've got the thing.

C:

Yes. Yes.

HMJr:

Now let's see what they goingToto do with it.

C:

Yes, that's - that's my idea. /Tell them to
consult their technical experts, then let us
know.

HMJr:

I mean, it's - it's like ah - ah - the world

expects them to give - (Laughs) birth tg an
elephant and they give birth to a - ah -/rabbit.

Hello.
C:

HMJr:

C:

Yes.

I mean I can't imagine ah - not doing the most

important thing first.
You see, he still has some desire to - on this
confidence business to get it to come back if
possible, you see.

303

- 13 HMJr:

C:

HMJr:
C:

Well,
all over that with the messenger
and heI went
and I agree.

Well, all right. Fine.
He and I agree that that ah - well, too late.
Yes. Yes. Yes.

HMJr:

What?

C:

Yes.

HMJr:

I mean
that's the stuff they've been talking for
four
years.

C:

Since you've been in - five years almost.

HMJr:

Five years.

C:

Yes.

HMJr:

For five years they've been talking that.

C:

And the money's been going out all the time.

HMJr:

Exactly. Now, ah - I just - I suppose they're
listening but that's - but if they're going to

do the confidence act why then - that's just
going to follow what's been going on for five
years and - I should think they could read
history by now.

C:

Yes. Yes. Well, I'll get in touch with him
the first thing in the morning.

HMJr:

And that messenger - believe me, he's a realist.

C:

What's that?

HMJr:

He's a realist.

C:

Yes. Yes. No question about it.

HMJr:

What?

C:

That's true - very true.

HMJr:

And ah - I mean he had a week to soak this thing
up.

304

- 14 C:

Yes.

C:

Did he present a letter to you?
No. He said he had one but I haven't see it yet.

C:

Yes. Well, that's nothing.
I had a talk with him. He's not with me now - he's

HMJr:

Well, that's all right.

C:

Ah - but I phoned him after I came back from this

HMJr:

at home.

visit tonight.

But the only thing on now is - well you've got you've made note that if you can find out what
the Marchandeau plan was and if you can, put that.
in a cable.

C:

All right.

HMJr:

Tomorrow.

C:

All right.

HMJr:

And ah - let's hope for the best.

C:

HMJr:

All
right, sir. I'll try and get that off in a
cable tomorrow.
Ah - what - well, what are the chan - what do

you think the chances are?
C:

I don't know. You see this is the first time I've
talked with any of them since the change.

HMJr:

I see.

C:

I purposely refrained from any visits -

HMJr:

Well -

C:

- during this period of waiting, you see.

HMJr:

I see.

C:

This is the first talk I've had with this new man.

305

- 15 HMJr:
C:

HMJr:
C:

Yes.

And
I haven't even been talking with my usual
fellows.
Yes.

And just now I think I could get a little more
idea when I'm trying around for this information
as to what the old program was.

HMJr:
C:

HMJr:

Well, I - I - I - Secrecy is most important.
Yes. Yes. Absolutely.
All right.

C:

Fine.

HMJr:

All right.

C:

You'll be at the farm tomorrow?

HMJr:

Yes. I'll be here until Tuesday afternoon.

C:

Until Tuesday?

HMJr:

Yes.

C:

Good.

HMJr:

All right.

C:

Fine.

HMJr:

Goodbye.

C:

I'm not cabling any of this, of course.

HMJr:

No - no.

C:

Not even in that special way. I'm keeping notes

on it and my friend here promised to give me notes
of what he had had.

HMJr:

Good.

C:

When I wasn't present.

HMJr:

All right.

306

- 16 C:

Goodbye.

HMJr:

Goodbye.

C:

Goodbye, sir.

307

11-5-08
Federal Surplus Commodities Corporation
Sunsary of Commodities Procured

Fiscal Year 1938 and Fiscal Year 1939 to date
(Figures in thousands)
Total
Commodity

Unit

fiscal

17/1/38:7/7/38

year

7/14/38

ending

7/21/38:7/28/38:8/4/38 :10/13/38:10/20/38:10/27/38: fiscal
Total

year

6/30/38

1939

to date

14,557
5,625

spoles (Fresh)

Bushels

Apricote (Dried)

Pounds

2,990

Beans (Dried)

Pounds

Brans (Snap)

Bushels

56,800

Beets (Fresh)

Bushels

3

Apples (Dried)

Pounds

33

5

11

110

166

198

547

70

6

38

Bushels

Ceuliflower

Crates

Celery

Bunches
Backs

1,174

Cereal (Whole wheat)
Cheese

Pounds

3,446

Corn

Backs

Cotton

Bales
Yards

Labels

Labels

Mattress Ticking
Milk (Dry skim)
Kilk (Fluid)

Yards
Pounds

Quart:

Onions

Pounds

Oranges

Boxes

Paper Bage

Bage

Peaches (Dried)

Pounds

Prachea (Fresh

Bushels

Pears (Fresh)

Boxes

Peas (Canned)

Cases
Founds

Peas (Dried)
Peas (Fresh)

45

62

36

17

65

408

20

67

30

66

51

134

163

3.37

5,109

3,504

3.783

216

134

370

719

194

2,469

23,072

133

2,274

10

12

16

15

17

107

(10)

146

(11)

39

15

183

13

(15)
(16)

1,133
9,780

25 (17)

10

203

29

(18)
(19)

270

(20)

3,677
2,699

(21)
279

279

(22)

(23)

401
84

464

552

214

769

(24)
(25)

15,560 (26)

15,560
2,681

21,520
12,497
3,000

497

1,932

515

523

528

300

25

48
59

57

525

538
11

46

38

530
22

49

531
229
10

55

522

2,550

5,960

320
524

515

509

12

39

50

50

21,825

53

66

55

534

415
181

78

54

64

551

153

47

580

631

44

35

31

12

2,550 (27)
8,961 (28)
9,620 (29)
979

(30)

831

(31)

9,075
1,223

318

652

74

9,075

2,534
96

4,791

2,300
17

73

1,873

913

11,100
229

12

Potato Starch & Flour

Founds

2,562

?runes (Dried)

Tons

Irunes (Fresh)
Alains

Bushel

Rice (Milled)

Pounds

73,190

Tobacco

Pounds
Cases

3,500

(35)
(36)

862

6,000
4,315

(38)
204

440
466

483

120

167

266

142

219

108

232

42

12

45

122
19

30

378 (32)

2,367 (40)

(41)
42)

(43)

55
5

Tomatoes (Fresh)

46

19

Bushels
Bushels
Bushels

Tomatoes (Canned)

11

11

Potatoes (Sweet)
Potatoes (White)

Tons

31

2,343

(44)

3

Tons

107

138

3

Grapes

237

40

7

Grapefruit Juice

26

6

Barrels
Boxes
Cases

990

7

Flour

Grapefruit

130

5

Pounds

Fish

7

Cerrots

Eggs (Shell)

9

Gallons

Pounds
Cases

5

Cane eyrup

Cottonseed 012

6

Bushels

65

39

325

50

15,035

Cabbage

Cotton fabrie

5

Cases
Pounds

13

5

Bleckberries (Canned)
Butter

18

11

15

(45)
(46)

Bushels

282

145
130

18

15
22

treasury Department, Division of Research and Statistics.
Weekly Fiscal figures reported by Federal Burplus Commodities Corporation are based on telegraphic reports and are unrevised.

year totals have been revised to include all contract cancellations and ther adjustments.

(47)

114 (48)
22

16

20

November 5. 1938

308
TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NEWSPAPERS,

Sunday, November 6, 1938.

Press Service
No. 15-22

11/5/38.

The Treasury Department released today revised monthly and annual

averages of the yields of long-term Treasury bonds from 1926 to date. The
revised averages, prepared by the Treasury Department's Division of Research

and Statistics, are based upon the daily yields of all outstanding Treasury
bonds not due or callable for twelve years or more. The new averages will
replace those previously in use which were basod upon Treasury bonds not

due or callable for eight years or more.

Prior to 1935, there was very little difference between the yields
of Treasury obligations of medium- and longer-term maturities. Since then,
however, significant differences have appeared, thereby impairing the uso-

fulness of the earlier averages as representative of the yields of long-term
Treasury bonds.

The most striking aspect of the table of average yields presented

on the following page is the substantial decline in long-term interest
rates that is reflected even with the exclusion of the medium-term bonds.
The average yield in January, 1926, was 3.77 percent. In October, 1938,
it was 2.48 percent.

The monthly and yearly averages of the daily yields of all Treasury
bonds not due or callable for twelve years or more, from January, 1926,

through October, 1938, are presented in Table I attached hereto. The
differences between the old and the new averages are shown in Table II.
The two averages were based upon the identical bonds botween January 1,
1926, and July 16, 1928.

309

Table I

Average Yields of all Treasury Bonds not Due or Callable
for Twelve Years or More
(Percent)

Average of daily figures. Yield to earliest call date
if market price is above par; to final
maturity date if below par.

1931

3.18

3.52

3.19

: 3.62
: 3.74
: 3.64

3.43
3.41
3.29
3.37

3.20
3.30

: 3.29
: 3.42
: 3.48

: 3.64
: 3.69
: 3.64
: 3.71

3.31
3.25
3.25
3.26

3.16
3.13
3.15
3.18

: 3.70
: 3.61
: 3.35
: 3.36

3.24
3.21
3.19

3.25
3.63
3.63
3.93

3.60

:

:

June

July
August

: 3.45

:

2.80

: 2.66

: 2.76
: 2.76

: 2.72
: 2.72

3.21

3.03

: 3.42 : 3.19 : 3.20 : 2.85
2.85
3.10
3.07
3.01

:

:

:

:
:

3.45
3.35

3.22
3.46
3.53

:

3.43

:

:
:
:

November
December

2.74

: 3.58 : 3.20 : 2.92 : :2.69
2.76
:

September
October

: 2.77

: 2.46
: 2.60

2.83
2.83

: 2.66
: 2.65
: 2.61

: 2.72
: 2.72

: 2.60

: 2.77

:

3.02
2.98

: 2.47

: 2.79

2.80
2.77
2.71
2.68

:

3.30
3.21

: 3.76
: 3.76

May

:

April

:

March

3.32
3.20
3.11

2.88

:

: 3.50

: 1937

2.62
2.53
2.51

: 2.76

: 2.65

2.68

:

:

Year

: 3.68

3.31

3.12

2.79

: 2.71
: 2.67

1938

2.65
2.64
2.64
2.62

:

3.22
3.31
3.42
3.42

: 1936

:

: 4.26
: 4.11
: 3.92
: 3.68

:

January
February

1935

:

: 1934

:

: 1933

:

: 1932

3.34

3.29

:

3.33

: 3.22

:

3.34

:

3.68

Year

3.29

:

: 3.23
: 3.17

: 3.46
: 3.47
: 3.38
: 3.45

:

: 3.30

:

November
December

: 3.70
: 3.68
: 3.62
: 3.56

:

September
October

: 3.70

:

July
August

:

3.67
3.68

June

3.24

:

May

:

3.31
3.34
3.36
3.32

3.27
3.26

:

3.67

3.17
3.20

:

3.51
3.48
3.37
3.35

:

3.77
3.71
3.71
3.70

:

April

1930

:

March

1929

:

January
February

1928

1927

1926

2.51
2.52
2.52
2.51

2.58
2.48

310
Table II
Comparison of New and Old Averages of Yields
of Long-Term Treasury Bonds
(Percent)

average

Difference

Old

New

average 2/

1

:

:
:

:

3.68

3.68

:

:
:

1926

3.33

-

3.60

-

3.29

3.28

.01

3.34

3.31

.03

1931

3.68

3.65

.03

1932

3.31

3.31

-

1933

3.12

3.10

.02

1934

2.79

2.70

.09

1935

2.47

.18

1936

2.65

1937

2.68

2.57

1938

2.57 3

2.38 3

:

3.34

1928

3.33

1929

3.60

1930

3.34

:

1927

:
:

:

.11

.19 3

:

:

:

:
1
2

3/

Based upon daily yields of all Treasury bonds not due or
callable for twelve years or more.
Based upon daily yields of all Treasury bonds not due or
callable for eight years or more.
First ten months of 1938.
600

311
Sunday

November 6, 1938
5:38 p.m.
H. Merle
Cochran:

I just now came away. They decided to wait

until 9:30 in the morning. They're going to
see what the condition is and if it isn't
that they'11 operate then.

HMJr:

Cochran:

HMJr:

C:

Well, I hope everything turns out all right.
Thank you so much. He's suffered a lot of pain
the last three days so I've been here with him
quite a bit.
And I told them not to disturb you at the hospital that I could wait until you got back.
Well, that's awfully good of you. Because when I
went out I didn't know how long I'd be there. I
just had my maid stay so she could tell anyone

where I was, you see.
HMJr:
C:

Yes.

But they were going to decide in the morning at
nine-thirty. They have a very good doctor and

the condition is just one of those things - it - if

it gets to the eyes you see and they will have to
be pretty careful. But anyway, my friend here, the
messenger, called while I was out too.
HMJr:

Yes.

C:

Have you spoken with him - or not?

HMJr:

No.

C:

Because I don't know what he wants. I don't think
he has anything because I called back as soon as
I came in; I found that two calls had come - and

they said he was out. So then I put in a call for
you.

HMJr:

Well, you think - you don't know what - what I
was calling up to find out whether there was any

news.
C:

HMJr:

I have nothing. What I'm quite anxious to do now

is to telephone my red haired friend and see if I
can see him yet tonight about that question which
you raised last night.

Oh - I wouldn't rush it. What is it, eleven
o'clock over there?

312

-2-

It's a quarter till.

C:

urgently you want it.

HMJr:

I mean it depends on how

No,
no,that.
no. Monday'11 be - I'm in no such hurry
as all

Oh, I see. All right.

C:

HMJr:

C:

HMJr:
C:

HMJr:
C:

HMJr:
C:

No.
If you saw him tonight that would just excite
him too much.
I'm afraid it might. And I could have gone there
this noon but I thought I'd give his chief time
to let him know about this proposition, you see.

No. I think I'd wait.
Fine. Well, I'll get over there after I leave

the hospital in the morning. I'll be
and I'll get in touch with him without

too much obvious effort, you see.
Yes. But you haven't heard anything else?
I haven't heard a thing because when I telephoned
number two this morning Yes.

I called him at 9 o'clock; he was already on the
job, and I gave him your message and he said,
"Fine. Than I'll go ahead and get in touch with
him."

HMJr:
C:

Fine.

You see? And he'11 - that's all - we just talked
very briefly over the phone; - he was very nice.
And when I talked to the messenger last night he
thought it was rather hopeful that this man was

calling on his assistants.

HMJr:

Yes. I see.

C:

And ah - I haven't seen him today. He was a

HMJr:

He was what?

C:

He was sick last night.

little ill last night you see.

313

-3HMJr:

The messenger?

C:

Yes.

HMJr:

Oh.

C:

And this morning when I talked to him he said
he was feeling better and was up and around.
Oh. Anything serious?
No, no, no. No - just a stomach upset.

HMJr:

Uh huh.

C:

So don't think this staff is going to pieces

HMJr:

Right.

C:

No, no. I can work this thing in all right
and I'll see the red haired fellow -

HMJr:

Yes.

C:

HMJr:

C:

over here.

- tomorrow, oh by noon or shortly after noon,
to get any message through.

HMJr:

Yes.

C:

But I- I purposely didn't go today when I
had planned -

HMJr:
C:

Yes.

- I phoned this man that I didn't have a chance
to speak with him you see.

HMJr:

Well, ah - so far no Rist.

C:

No. And I told the man this morning when I

spoke to him, number two, I said, "Here's my

home telephone number. When you have any

message for my chief you give me a ring."

He said, "That's understood;" he said, "that's
the way we'll work it."

HMJr:

That's right.

C:

So I know he - I'm absolutely sure he was going

to put those men on it today. He told me

-4-

314

yesterday, he said, "I'm going over this."
He
he said, "with
that said, "I'm retrenching,"
to develop in France if
it brought things back, you see."
HMJr:

Yes.

C:

He said, "I want you to think of that - if I

HMJr:

Yes.

C:

HMJr:
C:

HMJr:

got it here what could I do?"

I mean he was really seriously thinking it.
Yes.

The only thing was - I felt him out - sort of
colder perhaps. I didn't want to be too eneverything
thusiastic
was fine and it's all right too.
Well, I think that's enough. And we'11 - I'll
wait until tomorrow.

C:

Fine.

HMJr:

See, what I want to do is to release my people now.

C:

You want to what?

HMJr:

I've got a lot of people standing by and I want

to release them.

C:

Yes. Surely.

HMJr:

See?

C:

Well, fine. Well, I'll see this man some time

tomorrow surely and get anything he'11 give me,

you see.
HMJr:

All right.

C:

And then I'11 always leave word - so - the number

that you can get me on short notice if there's

anything.
HMJr:

All right.

C:

Goodbye.

315

-5HMJr:

That's all.

C:

Goodnight, sir.

Goodbye.

316
November 7, 1938.
9:19 a.m.
Archie
Lochhead:

Hello.

HMJr:

Archie?

L:

Goodmorning.

HMJr:

How are you?

L:

Very well, thank you. Do you want me to start

HMJr:

Yes, please.

L:

Sterling - sterling is 4.75 and 7/8ths.

HMJr:

Yes.

L:

off - just give you the markets first?

The francs are 2.66 and 1/4. The france apparently
are stronger than the sterling this morning.

HMJr:

Yes.

L:

But not enough to say anything about.

HMJr:

Yes.

L:

No special comments. The market was about a
moderate market on the other side. No comments of
any type.

HMJr:

Yes.

L:

No - no further cables in. The securities on
Sat - well there were some small sales over purchases.

HMJr:

Well, the stuff that I said yesterday is on the

L:

Nothing happened.

HMJr:

record. Nothing happened.

Nothing happened and we just sit and wait. I mean
there's no use my even discussing it, because
there's nothing there, and I talked to Cochran

last night, and that
he's just
waiting
heen't
heard.
I told
him- he
was
- was
if
tell him what
The they only wouldn't thing Marchandeau's that background, to plan see
was,
which he lost on to give us

and I said if he got that information to put it in
a cable.

317

-2 L:

I see. for
That'11
watch
that. come by cable. Well then, I'll

HMJr:

If they give -

L:

If he gets it. Yes, if he gets it.

HMJr:

But Cochran, in his usual very mysterious manner,
said, "I will ask my red headed friend for that.
Nobody listening could ever guess he meant Roueff

L:

(laughter) Like our friends across the channel.

HMAr:

Yes.

Cochran 18 marvelous on his codes.

Well now, I don't know if there's anything anything further - anybody here wants, in regard
to that. Let's see Mr. Gaston, Mr. Oliphant,

L:

Mr. White and Mr. McReynolds are here.

HMJr:

I wish that - they may have this - that on page 26
of today's Tribune, is a chart showing the back log
of the cases on Labor RelationsBoard Is Hass
there or Oliphant?

L:

Mr. Oliphant's here.

HMJr:

And I'd like them to do one like that for me on the
Board of Tax Appeals and see what it looks like.
Right. Aside: Mr. Oliphant take a note of that.
It's on page 26, of the Tribune.

L:

Right.

HMJr:

And it's very interesting. It's done by a

HMJr:

L:

Mr. Gustaal.

L:

Gustaal.

HMJr:

I've never seen it done showing just the thing in

L:

Quite. Well, Mr. Oliphent said he would take care
of that.

HMJr:

that way.

And Haas can do it.

318

L:

Yes.

HMJr:

Now, is Mac there?

L:

Yes. Just a second and I'll put him right on.

McReynolds: Good morning, Mr. Secretary.
Hello, Mac.
HMJr:
Yes.

M:

HMJr:

Mac, I wish you'd get together with whoever it is
necessary and put down on a piece of paper, very
simply, for me, consider yourself a million dollar
housing authority in New York.

M:

HMJr:

Yes, sir.
And you were going to go ahead and finance. Now,
how - what you get from the Federal Government just the money - and then when you come down to

a place where you can go two routes, I'd split the
page in half and put on the one side - you could
follow route A and sell your things locally and
what you'd have to do. On the other side you'd

follow route B and you have the Federal Government
guarantee them and sell them, see?

M.

Yes.

HMJr:

But do it, - oh, in a very simple way, you see?

M:

Yes.

HWJr:

Now and then in that say - I'd point out when they

follow the local thing that it - about ninety per

cent mortgage on the property and there's no
guarantee and what proportion - I mean that - of
the interest has to be raised each year by Congress,

you see?
M:

Yes.

HMJr:

Hello.

M:

Yes.

HMJr:

I mean - in other words I'd try it several ways,
but - my thought was splitting the page in half
when they come to that place where it could go
either way.

-4-

319

Yes.
HMJr:

Because I'd like to have it worked out as I have
it in my mind - it's a ninety per cent mortgage
on a property, and if they rent, say five dollars
a room, they can only earn about one-third of
the interest requirement.

M:

Yes.

HMJr:

The other two-thirds will have to come from
Congress on an annual appropriation basis.

Yes, I get the idea.

M:

HMJr:

And I want to do it as simply as that. I want
to see what it looks like and I'd like to have
the President understand it once.

M:

All right.

HMJr:

I'm sure he doesn't.

O.K. We'll work it out.
HMJr:

I'd like to have that Wednesday, but just on the
straight financial and try it on two or three
different patterns and let anybody help you that
needs to.

M:

HMJr:

M:

O.K. I will.
But I went to get it down - to get it into his
head that if you sell this thing - and I was
thinking - I wonder if I'm not right that these
bonds would have somewhat the same status in the
minds of the public if - as a joint stock land
bank to be correct - whether they are or are not
instrumentalities and all the rest of that stuff.
Yes.

HMJr:

And ask Oliphant if I'm right on that.
He says they're not as good as a joint stock.
Well it - then it'd be perfectly fair to compare

M:

Yes.

HMJr:

them to a joint stock.

320

-5HMJr:

What?

Yes.
HMJr:

And after all, personally, the only reason I can
see 8 fellow would buy them/because they were
tax exempt.

Yes, undoubtedly.
HMJr:

What?

Undoubtedly.
HMJr:

And then the other point is, I don't know whether
the law limits what you can charge per month, per
room, but I mean - I think it would be interesting
show to make them carry themselves - how much
you'd have to increase the price per room in order
to make them carry themselves, if Congress didn't
vote the subsidy.

M:

Yes.

HMJr:

You see what I'm thinking?

Yes, I get the idea.
HMJr:

In other words, I - I don't - you'll have to try
it two or three different ways, but I'd like to

say - "All rightie go a way this way and Congress
doesn't vote, then what happens to this housing

outfit."

M:

HMJr:

M:

HMJr:

M:

HMJr:

Yes, I get the idea.
Well, then, the people would have to jack up the
price. How high can they go?
Uhhuh.

And what have you got if you put a hundred dollars
into one of these bonds, what have you got?

Yes, I get the idea.
I don't - I'm not sure that I understand it myself.
I think I do.

321

-6Well I - I think you do.
HMJr:

You know you and I made that

I - I think you do too.
HMJr:

You and I sweated

M:

Yes.

HMJr:

hours.

that fellow for six

And I think we understand it, but the President,
in a half kidding way, the other day, on the
train, he said that - he said, "Wasn't I good
with Lambert considering I didn't know what I
was talking about. II And I said, "You're
wonderful. "

Well, we'll have this worked out for you.
HMJr:

But he understands that Lambert thing thoroughly
now.

M:

Uhhuh.

HMJr:

And I'd like him to understand the other thing

M:

O.K.

HMJr:

Because to have eight hundred or five hundred

8.6 well.

or a billion dollars worth of these bonds flopping
around on the market I think would drag down all
the other guaranteed bonds like Farm Credit,
the Home Owners' Loan and all the rest of them.

M:

Yes.

HMJr:

Or anybridge authority.

M:

HMJr:

I think so.
And I'd like to sell some good bonds in the

future, and not have these flopping around and
discrediting anything else we might want to do

in the future.

M:

All right, we'll work it out.

HMJr:

Anybody disagree with me?

322

-7 I haven't seen anybody shaking a head. You
haven't heard anything more about that Boyd
thing?

HMAr

The which?
The Boyd.

HMJr:

No, have you?

Yes, he - they've suspended him.
HMJr:

They did what?

They suspended him Friday night.
HMJr:

Justice?
Yes.

HMJr:

Yes.

And they had him on the grill before they - well,
our boys had him until they got through with him,

and then the Grand Jury took him over. He admitted
borrowing money from these fellows that he had
supposed to pick graft from.

HMJr:

Yes.

So, it looked like the boys were on the way.
HMJr:

Uhhuh.

And the Justice people - well Irey had a little
run in with them on Friday because their Assistant
United States Attorney were trying to butt in on
their conferences with him.

HMJr:

Yes.

Well, Homer Cummings cleared that.
HMJr:

Yes.

So that they weren't bothered until they finished,

and then the boys turned him over to their Grand

Jury. There's nothing specific come up on the
other end of it yet, although the boys are running
down the angles of it.

323

8HMJr:

Good. Now, what else?

- I have nothing
HMJr:

While we're on that put Oliphant on. I want to
tell him something that I did.

M:

Right.

HMJr:

Please.

M:

He's on the way.

Herman

Oliphant:

Hello.

HMJr:

Hello Herman.

0:

How are you?

HMJr:

Fine.

HMJr:

Herman, the other day when I had lunch with
Harold Ickes -

0:

Yes.

HMJr:

He got on to Moe Annenberg because he's going to

0:

Yes.

HMJr:

And Harold said, "No matter how bad I am on

make his favorite speech tonight I think.

Annenberg can I libelhim?" I said, "No, go the
limit, you can't libelhim". Then I got, what
may be, one of my sudden steams of light, and
partly after talking with Irey, and that is if
we could get the President now, right after
election, to appoint a special United States
District Attorney to handle this Annenberg
case and work with Irey and advise us just the
way Stimson advises us on the Spanish thing - I

think it would be terrifically helpful.

O:

Uhhuh.

HMWr

And I asked Harold Ickes to be thinking of who -

O:

Yes.

in the Middle West stood as high as Stimson does
in the East.

324

-9HMJr:

And he's been thinking, and I think he said

0:

Yes.

HMJr:

I think was the man he said - a Republican.

0:

Uhhuh.

HMJr:

Hello.

O:

Hello.

HMJr:

O:

former Judge Clark.

But right after election I'm going to ask him
for that name or names again, and I want you to
be thinking about it, too.
Well, in the meantime I'm going to look up our
previous experiences in appointing special -

HMJr:

Yes.

O:

That is I want - find out what -

HMJr:

Well get the idea because if we could get an
outstanding man - I mean who - all through the
middle West, who could be advising Irey from
now on and familiarize himself with the case -

0:

Uhhuh.

HMJr:

Then have it recognized he superseded Igoe.

0:

With no publicity at this time of course.
No. Just have him there to assist Irey.
Yes. Assist Irey.

HMJr:

Irey.

0:

Yes.

HMJr:

I think it would be most helpful.

O:

Yes. All right.

O:

HMJr:

HMJr:

And I think - I'm quite sure that I could geu
the President to do it.

325

- 10 0:

Yes.

HMJr:

And - after all - if it's correct that Bruce

Kremer is familiarizing himself with the case
in behalf of Mr.
-

0:

Uhhuh.

HMJr:

Annanberg, why shouldn't we -

0:

Yes.

HMJr:

At least be permitted to do as much.

O:

Yes. All right.

HMJr:

Think about it.

O:

I'll turn that over in my mind.

HMJr:

See?

O:

Yes.

HMJr:
0:

And then -

It has two angles, first, the right man and
second, one under the statutes to whom he'd
have to report what his responsibility would be.

HMJr:

Yes. All right. Is Duffield there?

O:

Yes, he's here. Just a minute.

Eugene

Duffield:

Good morning, Mr. Secretary.

HMJr:

Your report on your conversation with those men
over at the Fed was so - such good reporting that

I couldn't tell how you felt about it yourself.

D:

You mean about - how I feel about them or about the
situation?

HMJr:

Oh, you don't have to do on the phone.
Mrs. Morgenthau read it and when she got through

she said, "Well Duffield is 80 good,' she said,
"I can't tell whether - where - how he feels himself."

I said, "That shows how good he is."
D:

Yes. Well I didn't think you were interested in
how I felt about it. I thought you wanted to

326

- 11 know how they felt about it.
HMJr:

I do. I'm trying you in a procedure
(laughter) Thank you.

HMJr:

That's all.
Yes.

HMJr:

This is a good report and tell the group about it.

D:

Yes.

HMJr:

It shows what a problem we've got.

D:

It certainly does.

HMJr:

And -

The first problem - the first problem is to educate
those people down there about what this thing
contains. I think only McKee understands it very
well.

HMJr:

D:

HMJr:

Well, from your report I'd say he was our only hope,

but I think there are some first class fellows over
there and that if they did understand it that they
might be as interested and as shocked as I am and
the rest of the fellows.
I think - think it's only natural though that they hope if it ever gets into their hands they'11
realize how nesty it is.
thing
Well, this - this bank subsidiary / what are they
called Banks of - Banks America?

D:

Yes.

HMJr:

Well, there's a good example. If Mr. Giannini wants

D:

That's right. That's right.

HMJr:

What.

D:

That's right.

to reform why doesn't he come clean on this.

327

- 12 -

D:

And if they think that you can sit down and
argue with them, and talk with his son and wife,
why don't they do it on that case?
(laughter) -

HMr:

Unimportant one.

D:

Right.

HMJr:

What?

HMJr:

Right. Absolutely.
HMJr:

D:

And keep the people that are following that, in
my office, informed as you go along.

All right, I will do so. I - I want to see the

HMJr:

rest of the Board members, particularly Chester
Davis, but I didn't have time that day.
Right. Now may I talk to Taylor a minute?

D:

Uhhuh.

Wayne C.

Taylor:

H11Jr:

Good morning.

Hello, Wayne. Wayne, I have a very passionate
note from Herbert Feis pleading with me that I
change my position on a - what
Hello.they should take

up with LeMar

T:

Yes.

HMJr:

I wish you'd talk it over with him and - and

think about it yourself and be ready to recommend
something to me on Wednesday.

T:

HMJ:

All right. I'll get a copy of what you said from
who - Miss Chauncey?

Yes. Yes, she'd have it. They sent me a complete
copy of everything that happened so that Feis has

it.

T:

Yes.

HMJr:

Miss Chauncey will give it to you, and the point is
this, I am opposed to conferences at a fixed time,

when you don't know - you haven't got a program, see?

328

- 13 Yes.

T:

HMJr:

And to have a conference in the summer of '39
in Washington with all the Treasuries of South
America - Central America, when we don't know

what we want. Well, it just scares me to death.

T:

Uhhuh.

HMJr:

Now if we had 8 program and we knew what we wanted

I'd be delighted to sit down with them. I wouldn't
mind getting indigestion from all the banquets, but
we haven't got any program. Now that's my position,
and I think it's unreasonable and unfair to ask us
to have a meeting next summer of all the Treasuries
of South and Central America when we can't get
together as to a program with the State Department

What do you think?
T:

HMJr:

Well, I think - just sit around and talk about

love and whatever it might be, why it would be kind
of a waste of time.

Well that might be fun, but it wouldn't get
us anywhere.
Uhhuh.

HMJr:

Hello.
Yes.

It wouldn't get us anywhere, and we have no
program on finances with South America.
We - we might have one by then but h11Jr:

Well if we did then we could invite these fellows

T:

Right.

HMJr:

But also, I'd like to invite them to come up one
by one, because I can't - I can't work with more

to come up.

than one country.
Uhhuh.

HMJr:

Or two at the most. The way I feel -

329

- 14 What?

T:

HMJr:

- if they still think I'm wrong why it's not a it's a vital matter but I don't want to sit down
with those fellows next summer with no program.

Well, I'll - I'll talk to Herbert and be prepared

T:

to talk to you on Wednesday about it.

HMJr:

And the other thing - as soon as - the first
breathing spell I'd like to see whether we
couldn't use Brazil as a model and try to work
out a program with Brazil and then get the
President's permission to work with them direct on finances.

T:

Yes.

HMJr:

See?

Yes.
HMJr:

I wish you'd be thinking about that.
Right.

They've got - I mean, just say - well, now, let's
try it with Brazil and we'll work with them and
see if we can't work out a program.
T:

Right.

HMJr:

And concentrate on Brazil.

T:

Check.

HMJr:

So if you'd be thinking about that.

T:

Right.

HMJr:

And - no news from abroad. I mean they - they're
working over there and RE soon as I hear I'll let

you fellows know.
T:

Right.

HMJr:

All right.

T:

Right. Anybody else?

330

- 15 HMJr:
T:

No, I'll be on the phone again this afternoon.
Wait. Just a minute. Harry White wants to say
something.

HMJr:

Right. Would somebody look at the Daily News,
on my desk, and see what - it's usually on page 2,
what they say about the New York State election.

Harry
White:

Hello.

HMJr:

Hello Harry.

W:

HMJr:
W:

HMJr:

This is in reference to something else. You said
that you were going to have that group come down
here on the 10th Yes.

To discuss the situation. I didn't know whether,
at the time, you realized that the 10th was the
day before the holiday Yes.

And that you might have some difficulty in getting

many of them down.
HMJr:

They've all been invited over ten days ago.
Oh, they have.

HMJr:

Miss Chauncey knows which are coming. I think they
all accepted -

W:

I see.

HMJr:

Except Walter Stewart.

HMJr:

I see. I didn't know that's been taken care of.
Well, this is what happened. Riefler most urgently

W:

I see.

W:

HMJr:

asked me to get them together because he's sailing
on the 12th for Europe.

And he said to go over there and not know where
stood would be a terrific handicap, and he would
we consider it a great favor if we could get together
and give him something of where we did stand.

331

- 16 Then if we had something we wanted to use him,

he'd be available.
I sec.

W:

HMJr:

So the reason - the real reason for the date is as as a service to Win Riefler.

W:

I see.

HMJr:

See?

I see.
HMJr:

"I'm going to sit around", he said, "In Geneva for

a month, and not to know where my own Treasury stands"

he said, "It's just too terrible. If

W:

HMJr:

I see.

"Now won't you get these fellows together, so I can
know, and as I could be of some service". I
thought that was very reasonable.

All right. Second matter - Mr. Oliphent and myself
have prepared a statement on Letin American assistance
and a special case on Brazil.
HMJr:

Yes.

HMJr:

Now, if you want that examined here before you get
it, by everybody I do.
Yes.

HMJr:

I wish - I wish that Taylor could collaborate.

W:

Yes.

Then we'll send around and get the various views

and changes and comments and have it ready for you

when you come back.
HMJr;

All right

W:

O.K. You wigh to speak with Herbert. He's looking
at the news.

332

- 17 Herbert
Gaston:

Hello.

HMJr:

Hello.

G:

The news this morning says that Dewey is in the

lead, that he is going to win barring rain,
official straw poll indicates the District Attorney
will get 51.12 - 51. 12 of the total two party

HMJr:
G:

HMJr:
G:

vote and that Lehmann will get 48.88.
That he'11 win
barring what?

Barring rain. But the prediction of the Times
says very close. Of course I suppose you noticed
that.
Yes, we -

And they carried the pre- then the Tribune carries
the opposing prediction - each about two hundred
and fifty thousand. Frank Waltman told Duffield
that about this News poll, this morning, that
some adjustments would have to be made, I presume

on account of the Farmer Labor party vote, and
that after making those adjustments it looked
unlikely that Dewey would win.
HMJr:

Unlikely.

G:

Uh!

HMJr:

Unlikely.

G:

It looked unlikely. In other words Frank Waltman
of the Republican National Committee is inclined
to think that Lehmann will be elected notwithstanding
this News poll. The weather generally fair,
continued warm today, rain tonight or tomorrow,
much colder tomorrow afternoon. Herman Oliphant

points that out - they may get a heavy rain in the
morning, in the country.

HMJr:

Well, all right. This is the first day I've felt

G:

Fine.

HMJr:

And I hope this French thing stays quiet, and I
won't have to see you fellows.

normal since I've been up here.

333

- 18 G:

Well, from what Archie says it looks 8.6 if it
will stay quiet for some days.

HMJr:

Well Archie - Archie is a speculator, you can't go

G:

All right. Anybody else?

HMJr:

No thank you.

G:

Right. Goodbye.

by him. All right.

334
Monday,

November 7, 1938.

9:51 A. M.

Operator:

Go ahead.

H.M.Jr:

Hello.

H.Merle
Cochran:

Hello.

H.M.Jr:

Hello.

C:

Hello, Mr. Secretary.

H.M.Jr:

Ah - How - how is Mrs. Cochran today?

C:

Ah - they did not operate this morning; the
definite decision will be at five-thirty, and I
think they will operate then.

H.M.Jr:

Well, I hope everything will be all right.

C:

Thank you so much. Well, I'm - I'm at home now,

H.M.Jr:

Yeah.

C:

But this morning I went to see my red-haired friend.

and I'll go out there again after the call.

H.M.Jr:

(Laughs)

C:

And I found out that his chief had talked to him
about this matter.

H.M.Jr:

Yes.

C:

He asked for more details; I told him that ah -

that I had notified Number One that a messenger

was coming.

H.M.Jr:
C:

Yes.

But then, ah, Red Head asked me the source of the
idea, and I told him that the messenger had communicated everything, and my remark was, ah - well,
first, Red Head suspected this man, at London, you
know.

H.M.Jr:

Yes.

335

-2C:

And at London, of having something to do with it,
because these two are good friends.

H.M.Jr:

Yeah.

C:

H.M.Jr:

And I said, "Well, can't say anything about that;
it's my understanding that this man is not even
to be used in this affair."
That's right.

C:

I says, "It's quite the contrary impression.

H.M.Jr:

Yeah.

C:

And, ah, I said, "Irrespective anyway of the ideas,
I was pressed by the limit to which I understood
my people were willing to go. If the people here
found these ideas of interest, as they had already
indicated " and then they told us that they
were disposed to act thereon. And I told him that
this was much wider cooperation than they would
ever have ventured to ask from us.

H.M.Jr:

Yes.

C:

And he's been struck with it - I mean, he's

H.M.Jr:
C:

H.M.Jr:
C:

just a little overcome.
Yeah. Well now - hello.
He was to lunch today with his chief,
to discuss this matter.

Well, ah, hadn't they already taken him into their
confidence?

Yes. Oh yes. I didn't say anything till - till he
started talking, you see.

H.M.Jr:

Oh, he knew about it?

C:

oh yes, he knew all about it.

H.M.Jr:

What?

C:

He knew/everything. He'd already been taken in;

nearly

that's the first thing he said.

336

-3HMJr:

Oh yes.

C:

He said, "My Chief told me about your talk."

Then he wanted to know if I knew anything more,

you see. And he brought up this point as to
the origin of the idea, but I - I told him what
a big idea it was; that it went much further
than anything I'd - ah - ever contemplated.
HMJr:

C:

I'm sorry - I'm sorry. Would you mind repeating

your last sentence?

I say, I told him that this went much further

than anything I had ever contemplated in agreement.

HMJr:

Yes.

C:

And - ah - he said, well what are they to do? And

HMJr:

Yeah.

I said, "Well, you've indicated your interest in
this."

C:

"You indicated directly to my chief."

HMJr:

Yeah.

C:

HMJr:
C:

HMJr:
C:

But I said, "Now, we want you to tell us whether
you are going ahead on it, and on what line."
Yeah.

Communicate this, through me, to you, and we'll
see if we are in agreement.
Yes.

If what they say would be enough to inspire us to

do what we could.

HMJr:

Yeah.

C:

And I said, "Then

HMJr:

Hello.

C:

Hello.

....

337

-4H.M.Jr:

Yes.

I saidour
that
then you were willing to make the record
with
cousin.

C:

H.M.Jr:

Yeah.

C:

If necessary.

H.M.Jr:

That's right.

C:

And then he asked me to call him back this evening
sometime after four o'clock.

H.M.Jr:

Yes.

C:

Ah - to see whether they want to see me late this
evening.

H.M.Jr:

Well now, is this fellow trying to block this?
No, no, no; not at all.
Well, what does he think of it?

C:

Well he - he wanted more information from me.

H.M.Jr:

Oh.

H.M.Jr:
C:

C:

And I said, "This is all; you have the whole
proposition put there."

H.M.Jr:

Yeah.

C:

And he addressed - had the one talk with his
chief, and they were to meet again today at noon

at lunch and/go
over it.
t8

H.M.Jr:

I see.

C:

And he wanted me - us to say (what) we're supposed

to do. I said, "Well, it's up to you to make the
next move."

H.M.Jr:

Sure.

C:

And so that's/going to
him at four.

- he's

--

he wants me to phone

338

-5H.M.Jr:

Yes.

C:

To see whether or not they are ready to make a move.

H.M.Jr:

Well, let me just give you this thought, and this
describes
what I consider my relation to this situation. Hello.
Yes.

C:

H.M.Jr:

C:

H.M.Jr:

And I - inasmuch as you've been seeing doctors,
you
Hello.will find that this is a very pointed comparison.
Yes.

Ah
- after all, you call in a consultant, to diagnose
the case.

C:

Yes.

H.M.Jr:

And I've been called in as a consultant.

C:

Yes.

H.M.Jr:

And, in this particular case, I consider it a life

C:

Yes.

H.M.Jr:

But I'm not a surgeon.

C:

Yes.

H.M.Jr:

I'm simply a consultant.

C:

Yes.

H.M.Jr:

And they've got a - a - they can take my advice or

C:

Yes.

H.M.Jr:

But - but they're the surgeons, and there, a major

C:

Yes.

H.M.Jr:

Now the rest is up to them.

and death matter, and I recommend an operation.

they can reject it.

operation.

339

-6 Well,
I - I - I put it up strongly to them that
the move is to them.

C:

H.M.Jr:

Now - but you - you get the comparison.

C:

Yes,
I - I get it, and I'll repeat it this afternoon when he calls me.

H.M.Jr:

But that - that's the whole thing, and I'm not
going to go - I'm not going - I'm not going to
operate.

H.M.Jr:

No, no, certainly not.
I'm not - I'm simply a consultant.

C:

Yes.

H.M.Jr:

And, ah, I spent one week - ah - in transmitting

C:

my advice, and I have nothing more to add.

H.M.Jr:

And I can say definitely that this is your advice.
Oh well, the fellow knows that.

C:

Yes, yes.

C:

H.M.Jr:

I mean, the man was over here; he knows all -

yes - yes it is, and, and I - I went much further
in my diagnosis

C:

H.M.Jr:

Yes.

...

as far as being frank is concerned; I've

never been as frank as I was with this man.

(Operator):

(Six minutes.)

H.M.Jr:

Hello.

C:

H.M.Jr:
C:

Hello.

I say I've never been so frank. I - I can't add
anything to it.
Oh no. Well, I - I just wanted to let you know
that, and then I - I - he's to call me. The next
move is to come from them absolutely.

340

-7H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

NowI this
fellow that was over here
knows just where
stand.
Yes.

And he - he - he knows how - how seriously I

feel about it, and everything else.
That's right.

But when it comes to operating, they'11 have to
use a French surgeon.

C:

Right.

H.M.Jr:

See?

C:

Well, there's - there's nothing more then until

they - they call me, and I - I'll - I'll make the

move come from them.
H.M.Jr:

Right.

C:

But I - I put up as my purpose in doing all this
as between him, and talk about the market and about the
the old plan,
Well, did you get that.
I asked him - he was a little hesitant.
He said, "Well, they really wanted - ah - you
couldn't call it a plan because it'd never
approved by the Government," but I said, "He had
ideas." And he said, "Yes," that there were
several pieces of individual drafting. It would
him assorted control, without calling
give
it such. He said this scheme, as outlined, would

H.M.Jr:
C:

have been entirely unworkable.

H.M.Jr:

What scheme?

C:

There's a scheme that was outlined by this draftsman,

H.M.Jr:

Oh yes.

C:

.... which he didn't see until just two days before

this man went out of office.
H.M.Jr:

Yeah.

341

-8C:

Would have been unworkable.

H.M.Jr:

Yeah.

C:

And then, this noon, after I left there, I dropped
by my other friend, at the other place, you know.

H.M.Jr:

Yeah.

C:

I mean on the exchange matter.

H.M.Jr:

Yes.

C:

I just asked him how the market was going;

it's very quiet; everyone's waiting the decree.

H.M.Jr:

Yeah.

C:

And expecting to come out on Friday night, or
Saturday.

H.M.Jr:

Yeah.

C:

He didn't wish to make any knowledge of this, so

H.M.Jr:

No.

C:

But I did say, "Oh, what was that program which
this fellow had who went out?"

H.M.Jr:

Yeah.

C:

And he said, "Well, very briefly, it was this:"

H.M.Jr:

We-

C:

And ah, I can com- - just two lines here.

H.M.Jr:

What's that?

C:

It's - six - only a couple of lines.

H.M.Jr:

Yes.

C:

of course I didn't suggest the slightest change.

It's requisition of gold that has gone in bank

balances.

342

-9H.M.Jr:

Yeah.

C:

But not as security.

H.M.Jr:

Uh huh.

C:

And he said it would involve, behind that screen,

H.M.Jr:

Uh huh.

C:

And therefore that no Government economies were

H.M.Jr:

Well, now, Cochran, while I have you on the wire,

C:

Yes.

ah, inflation of about fifty billion francs.
ah, anticipated.

H.M.Jr:

I sent you a copy of that United Press Dispatch,

C:

didn't I?
I - yes, I have that.

H.M.Jr:

The one which said that they were going to consult

C:

Yes, yes.

H.M.Jr:

Well, we're very curious to know where that came

us in all acts.

from.

(Operator):

(Nine minutes.)

C:

Oh.

H.M.Jr:

Hello.

C:

Yes.

H:M.Jr:

So if you get the chance you might find out sometime
about that.

C:

All right, I'll do that, just as soon as things
quiet down a little bit.

H.M.Jr:

Yes; there's no hurry.

C:

I mean, I - I hesitate to bring it up while there's
a live question.

H.M.Jr:

No, I'd wait until after the fifteenth. I'd - I'd
wait until after the fifteenth.

- 10 -

343

Oh, and - ah - one moment, sir. When I was

C:

talking with the red haired fellow.

H.M.Jr:

Yeah.

C:

I said, "We've, ah - ah - have even - ah - cited -

ah - and - ah - the law - and decided which would
permit us to do so and so.
H.M.Jr:

What's that?

C:

I say we even - I told the red headed fellow

H.M.Jr:

Uhh.

that we had even looked up the law which

C:

would give us the privilege of doing this thing.
H.M.Jr:

Yeah.

C:

Then I said, "Have you the law?"

H.M.Jr:

Yeah.

C:

"...that - ah ..."

H.M.Jr:

Yeah.

C:

And he said, "Well, we have,

H.M.Jr:

Yeah.

C:

And I said, "Well, to make the local people think
it necessary," I said, "you'd have to use your
present authority."

H.M.Jr:

Yes.

C:

He said, "Yes, we'd have to do that before it
expired."

H.M.Jr:

Yeah.

C:

So I was pressing him for time a little bit there.

H.M.Jr:

Yeah.

344

- 11 And since talking with him, I - I dropped by

C:

also and saw the messenger.

H.M.Jr:

Yeah.

C:

And he had seen Number One yesterday,

H.M.Jr:

Yeah.

C:

....

.... at his own request; that is, the messenger's

request.
H.M.Jr:
C:

Yes.

And - and Number One is a little vexed because
the second man is taking so much time to retrench.

C:

Is a little bit what?
Ah - a little bit upset; a little bit annoyed.

H.M.Jr:

Yes.

C:

Because Number Two is taking so much time to retrench.

H.M.Jr:

Yes.

C:

And - ah - the messenger said, "Well - well, be

H.M.Jr:

patient; let him think it over and let it work up
somewhat as his idea.

H.M.Jr:

Yeah.

C:

And - ah - that is just about all.

H.M.Jr:

Now this call didn't come through London, did it?

C:

No, I put it in the other way.

H.M.Jr:

That's right. All right - ah.

C:

Now, Henry, I'm going out to the hospital now in a

H.M.Jr:
C:

little while, and I'll send the rest at - ah - a
little after four, you see.
All right.

And I'll get a message to you - it will be probably
late tonight because I don't think they'd want me
to come over now.

345

- 12 H.M.Jr:

No.

C:

Ifthis
they
do want me to come, I - I'll go, after
other matter.

H.M.Jr:

Well, just remember what I said, though, in

C:

It may be between ten and midnight sometime.

H.M.Jr:

All right.

C:

But - ah - I'm sure you wouldn't hear from me

H.M.Jr:

Well now you remember what my capacity is.

C:

Yes.

H.M.Jr:

All right. All right.

C:

Well, I think that's all then before long late,
and I'll only call then.if:I - if they have

before unless it's very urgent.

consulted me.

H.M.Jr:

C:

H.M.Jr:

All - well - ah 17 call me in any event - ah not later than -/you can - say - six o'clock
our time, which is eleven, yours.
Eleven, mine.

Call me - yeah - call me, not later than eleven
o'clock, your time.

C:

Yes, but you don't want me to call if - if they

H.M.Jr:

Yes, call anyway.

C:

Call anyway?

H.M.Jr:

Yeah.

have nothing.

H.M.Jr:

All right; fine.
All right.

C:

The only - ah - thing at all would be if my - if

C:

there's something serious at the hospital.

346

- 13 H.M.Jr:

Well

(Operator)

(Twelve minutes.)

H.M.Jr:

All right.

C:

That would be over by that time.

H.M.Jr:

All right.

C:

Fine.

H.M.Jr:

Thank you.

C:

Goodbye, sir.

Treas. Operator:

Hello. Hello.

Overseas Operator:

Finished?

Treas. Operator:

All through.
All through? Thank you.

Overseas Operator:

347

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE 11-7-38.
Secretary Morgenthau

TO

FROM

Wm. H. McReynolds

The following table has been prepared for the purpose of comparing the

capital financing of a typical housing project under (1) a plan whereby a
loan of 90% would be made by the United States Housing Authority, the other

10% to be furnished locally, and (2) a plan proposed by Mr. Straus and now
under consideration whereby 90% of the cost of the project would be raised

by the sale of bonds of the local housing authority to private investors,
the remaining 10% to be sold to the United States Housing Authority.
The computations are based upon a project assumed to cost $1,000,000

which, in a typical city such as Poughkeepsie, would contain 800 rooms. This
assumes a per room cost of $1,250 ($250 for land and $1,000 for construction).
The further assumption is made under plan (1) that the bonds of the local housing authority purchased by the United States Housing Authority would bear 3%

interest, while under plan (2) the local housing authority would be able to

dispose of 90% of its obligations to local investors on a 2-3/45 basis. The
3% interest rate assumed on bonds of the local housing authority sold to the

United States Housing Authority under plan (1) is based on the fact that the
interest rate on all such bonds, under the provisions of the United States
Housing Act of 1937, is determined by the rate at which the Federal government

borrows its money, i.e., not less than the rate specified in the most recent
issue of bonds of the Federal government at the time the loan is made having a
maturity of 10 years or more, plus 1/2 of 1%. Under present circumstances, the
rate for such local housing authority bonds cannot be less than 3% per annum.
The 2-3/48 interest rate assumed on bonds of the local housing authority sold

348
-2-

to local investors under plan (2) is based upon the fact that proponents of
the plan represent that such bonds can be disposed of on this basis.
(1) Annual debt service and subsidy where 90% is borrowed from the USHA
and 10% is borrowed locally.

$1,000,000.00 = project cost - $900,000 of which is a Federal loan,
the other 10% being borrowed locally.
$ 36,355.93 = annual debt service on $1,000,000 loan at 3% to be
amortized in 59 equal payments. While the rate for
the 10% of the issue to be sold locally will not be
affected by the provision restricting the rate on

local housing authority bonds purchased by the USHA
to 3% under present circumstances, as a practical
matter no dealers would purchase them at an interest

rate less favorable than the rate for the balance of

the issue unless the USHA would agree not to sell the
bonds purchased by it.

$ 35,000.00 - maximum annual Federal contribution authorized, i.e.,
3% of project cost.
7,000.00 = minimum required annual local subsidy, i.e., 20% of
Federal annual contribution.

$

3.79 = debt service per room per month.

$

(2) Annual debt service and subsidy where 90% is borrowed locally and 10%

is borrowed from USHA.

$1,000,000.00 - project cost - $900,000 of which is a loan from sources
other than the Federal government, the other 10% being
borrowed from the USHA.

$ 34,641.97 - annual debt service on $900,000 at 2-3/15 and on $100,000 has

at 3%, to be amortized in 59 equal installments. As
been indicated, it is assumed that the local housing
authority will be able to sell 90% of its bonds locally

with a 2-3/48 coupon and, under present circumstances,
the local housing authority bonds purchased by the USHA

will bear 3% interest.

$ 35,000.00 - maximum annual Federal contribution authorized, i.e., 3%
of project cost.
$

$

7,000.00 - minimum required annual local subsidy, i.e., 20% of
Federal annual contribution.
3.61 = debt service per room per month on $900,000 at 2-3/4
and $100,000 at 3%

349
-3-

It will be noted that the difference in debt service per room per month
between the two plans is only $.18. Against the lower rentals thus achieved
and other advantages claimed by Mr. Straus for his proposal must be weighed the

possible dangers inherent in his plan. The bonds of the local housing author-

ity maturing serially from one to sixty years could be sold to the public with
a 2-3/4% coupon only if prospective purchasers thought that the credit and good

faith of the United States was pledged to the payment of the bonds, i.e., that
Congress would every year, for the full term of the bonds, make an annual appro-

priation of the subsidy involved, and that it would be used to pay principal
and interest on the bonds of the local housing authority. This becomes apparent
when it is observed that the maximum annual Federal contribution is more than

sufficient, under Mr. Straus' proposal, to service the bonds of the local housing
authority and that the subsidy is required to be pledged to the payment of principal and interest on the bonds.
Having purchased the bonds upon a representation that Congress was obligated

to make annual appropriations over the life of the issue sufficient to service
bonds of the local housing authority, if a particular Congress failed to make
such an appropriation; or if the United States Housing Authority for good cause

withheld payment of the subsidy; or if the local housing authority failed to use

the subsidy to pay principal and interest on its bonds, it is not difficult to
see that the holders of these bonds would regard the ensuing default by the

local housing authority as a default by the government of the United States. No
present administrative or legal determination can remove this uncertainty.
Future Congressional and administrative action is, and will be, conditioned upon
satisfactory performance of numerous future acts by the local housing authority.

It is the future withholding of the subsidy by the United States Housing Author-

ity, not its position as a minority bondholder, that was intended as the sanction

350

to compel the local housing authority to act in the future as it should. Thus
the obligation to make future appropriations and payments is subject to substantial conditions, and hence the bonds of the local housing authority are not
the equivalent of government guaranteed bonds, although the public would buy

them on such terms and on such a low yield on no other basis.

351

Hopkins Gives Rosy Vote Report;

Murphy 'In,' He Tells President
Back From Trip Across Nation, WPA Head
Predicts Wide New Deal Victories-Says
Democrats Will Win on Coast 1938
New York Times

By FELIX BELAIR JR.

Special to THE New YORK TIMES

HYDE PARK. N. Y., Nov. 6.Confident of a Democratic victory
in his own State. President Roosevelt received assurances today from

Harry L. Hopkins, Works Progress

Administrator, just back from a
trip to the West Coast, that New
Deal candidates would be elected
in Western States through which
he passed.

Mr. Hopkins was most definite in
predicting victories for Governor
Frank Murphy in Michigan and for

Culbert Olson and Sheridan
Downey, Democratic Governorship

and Senatorial candidates in Callfornia. He predicted also that the

voters of California would reject
the "ham and eggs" pension plan.
President Roosevelt has publicly
endorsed Governor Murphy and the
two California candidates, and in
his radio address of Friday night
he included an additional specific
appeal in behalf of Governor Murphy.

"You can take my word for it
that Murphy is in." Mr. Hopkins

declared today. "If there had been
any doubt about the outcome that

was removed by the President's

espousal of his candidacy the other
night."

Mr. Hopkins was equally confident of a Democratic victory in
New York State. but was less inclined to predict the party's majori-

ty then when he last visited the

President here several weeks ago.

He predicted then that Governor
Lehman would win by at least 500.000. He would not talk about Thomas E. Dewey, to whom he previously

referred as "Sir Galahad.'
In California Mr. Hopkins spent a
fortnight visiting James Roosevelt,
the President's son, who is recuper-

ating from an operation. He made
stops on this trip to address WPA
field agents and to size up the political and economic picture. Among
States in which he made special
observations were Illinois, Michigan, Colorado and Utah.

He said today that he found evi-

dences of a business upturn wher-

ever he went, adding that this
would not only aid Democratic election prospects but would make pos-

sible a reduction in relief rolls.
President Roosevelt passed a quiet
Continued on Page Six

NEW YORK HERALD TRIBUNE - November 7, 1938.
35

Hopkins Is Sure
Democrats Will

Win California
Assures Roosevelt Downey
and Olson Will Go In but
Not 'Ham and Egg Plan
By Staff Correspondent

HYDE PARK N. Y. Nov. 6.After a swing around the country
Harry L. Hopkins, Works Progress
Administrator and close friend of
President Roosevelt, arrived at the
President's Hudson River home to
day to report not only on W. P. A
matters but the political situation
as well.

He assured the President that
from his observations in California
where he spent most of his time.
that the Democratic candidates for
Senator and Governor, Sheridan
Downey and Culbert Olson, would
be elected. The "ham and eggs" pro-

gram which they espoused in the
primary campaign. but which they
have sought to soft-pedal in the

election campaign, will be defeated

Mr. Hopkins was also able to tell
the President "AL2

"You can take my word for it.
Mr. Hopkins told the press later
"that Downey is in. If there had

been any doubt of the outcome before, that is removed by the President's espousal of his candidacy the
other night."

Mr. Hopkins expressed himself as
equally confident of a Democratic
victory in New York, although be
would make no prediction of the
size of the plurality As to the close
contests in the Mid-West and Middie Atlantic States, he let nothing
out to the press

Mr. Hopkins reported to the
conditions were to be observed

President that improving business
throughout the parts of the country

he traversed He thought the im-

provement would be reflected soon

in. a cut W. P.A spending. he
sald.

Mr. Hopkins was with the Prestdent a large part of the afternoon
and is expected to remain at Hyde
Park until he returns to New York
to cast his ballot on Tuesday. It is
possible that he will return to Hyde

Park that night to receive election
returns with his chief.
The President attended services
this morning at St. James's Episcopal Church. He was accompanied
by his mother. Mrs. James Roosevelt. After the church services he
took a short drive about the countryside.

353

TREASURY DEPARTMENT
CONFIDENTIAL

INTER OFFICE COMMUNICATION
DATE

TO

FROM

November 7, 1938

Secretary Morgenthau
Mr. Haas

Subject: The Business Situation,

Week ending November 5, 1938.
Conclusions
(1)

Business activity continues to improve. Steel operations, stimulated by a heavy volume of orders from the automobile industry for delivery before the end of December,
have risen above last year's level. Automobile production
has expanded further, and the weekly output has almost

reached last year's figures. The outlook for cotton mill

activity has been improved by a heavy volume of orders at
the end of October. Steel scrap prices have turned stronger.
Retail sales have been stimulated by the approach of cooler
weather. Industrial production to date has recovered about

one-half of its loss since the early summer of 1937, and in
November will probably exceed for the first time the corresponding 1937 level.

(2)

While various factors favor a continuation of the rising

business trend, the recovery cannot be considered "safe"

without a definite upward turn in commodity prices. Sensitive

commodity prices have shown no more than a slight rising
tendency since the recovery began, and during the past week
have again tended downward. Deflationary foreign factors,
which appear to have been largely responsible for the failure

of prices to rise actively with improving business, apparently
continue operative. Their influence is shown by a declining
trend of prices in Great Britain since the middle of October,
as measured by Reuter's index, as well as by recent weakness
in sterling exchange.

354

Secretary Morgenthau - 2

The steel situation

The effect of recent temporary price outs in stimulating

steel orders is apparent in the new orders reported this week
by the U. S. Steel Corporation (probably representing orders
actually received by the various branch offices a week or 80
previously) which jumped to 220,000 tons, or the equivalent of

about 64 per cent of capacity. (See Chart 1.) Orders during
the previous two weeks had been at the rate of 45 and 46 per
cent. For the industry as a whole, the Iron Age estimates that
steel bookings during October were at least 20 or 25 per cent

over September, most orders on the books being for automobile

makers.

Responding to the sharp rise in orders, which doubtless

was even more pronounced among the independent steel companies,

steel operations this week increased 3.1 points to 56.8 per
cent of capacity, exceeding for the second time the corresponding rate in 1937, as shown in Chart 1. A further abrupt rise
to 61.0 per cent of capacity has been reported this morning
by the American Iron and Steel Institute for the week beginning
today.

The fact that steel orders taken at recent price concessions were contingent upon delivery being specified before the

end of December has been a factor in the recent upturn in

steel activity. Mills are urging their customers to specify
delivery early, owing to the possibility that a tight delivery
situation may develop at the end of the year, and are themselves speeding up production of the required materials. At
Detroit the Great Lakes Steel Corporation is operating at
100 per cent of capacity, and some finishing mills on auto-

mobile steels are operating close to that level.

The speeding up of production on these concentrated
orders during November and December, while strengthening the
immediate business trend, may result in some let-down in the

steel operating rate during the first quarter of next year,

unless a marked improvement in other orders should occur.

Heavy buying of steel scrap this week, both for domestic

consumption and for export to Japan, has strengthened scrap
prices somewhat at Chicago and Youngstown, raising the Iron
Age composite price for No. 1 heavy melting scrap to $14.42 a
ton. This compares with $14.17 last week and with $14.25 a
month ago.

355

Secretary Morgenthau - 3

Automobile production increases

The output of automobiles increased this week to an
estimated 80,000 units, which compares with 73,300 units
produced last week. Production last year during the
corresponding week declined slightly to 89,800 units.
Another increase in production equal to this week's
gain would carry the total above the 85,400 units produced
during the week ended November 12 last year. Trade re-

ports indicate that further increases are likely, since

some companies are just getting under way in the production
of 1939 models. Some trade observers are now talking of a

possible total production of 1,000,000 cars and trucks
during the fourth quarter, which compares with estimates
a few weeks ago centering around 850,000 units.

The rapid recovery in the automobile industry has
undoubtedly been one of the most powerful factors in the
recent extension of the business recovery, and has contributed greatly to the general feeling of optimism which
now prevails. There appears some slight danger in this
situation, however, since the rapidly built up optimism
may stimulate production during the fourth quarter to a
level in excess of the current level of consumer demand.
For this reason, the trends of automobile and steel production during the fourth quarter, in relation to our
estimates of basic demand in these industries, will bear
close watching.

New orders improve further

Increased orders for steel and textiles during the

last week of October has raised our weekly index to a new
high for the year (See Chart 2), and strengthened the
immediate production outlook in these two leading industries.
Our monthly index of new orders, which is more representative and covers more industries than our weekly index,
continued its upward trend during September, and seems
likely to show a substantial gain in October on the basis
of information now available. In Chart 3 we show the monthly
index through September in comparison with the FRB index of

factory output. This chart tends to confirm our basic
demand study in indicating that the level of demand, as
measured by the dollar value of new orders, remains somewhat above the current level of factory production.

356

Secretary Morgenthau - 4

In the lower part of the chart we show a breakdown of
new orders through September by industries, with estimates
for the month of October wherever data are available. The

upturn in recent months in orders for steel, textiles, and
building materials 18 especially noticeable. Textile
orders, which expanded sharply during July, but fell off
in August have recently shown renewed improvement. Automobile orders showed a seasonal decline in September.

The price situation
A disappointing feature in an otherwise favorable series

of business developments 18 a sagging trend of commodity

prices over the past week or more. Industrial raw materials
as well as agricultural products have shared in the declining
tendency, though the former have shown somewhat greater

stability. The strong influence of increased industrial

demand, plus the effect of the monetary expansion program,

have so far not been sufficient to raise commodity prices

in the face of outside deflationary influences.
Increasing supplies, principally for agricultural
products, were a depressing price factor earlier in the
year, but in the majority of cases the supply trends during
the past month or more have been in the opposite direction.
Foreign deflationary influences growing out of weakened

monetary and business situations and political difficulties
abroad, particularly with reference to Great Britain and
France, apparently continue the principal depressing factor
in the price situation. Reflecting these influences,
Reuter's index of prices in Great Britain has been slowly
declining since the middle of October.
Sterling exchange, likewise reflecting deflationary
influences, has remained at a relatively low level throughout the past month (See Chart 4), though recently showing a
tendency to stabilize around the $4.76 level. In view of
the fact that sensitive commodity prices during the past
year have been somewhat alower than sterling in reflecting
foreign deflationary influences, the downturn in the DowJones futures index during the past week, as shown in
Chart 4, may represent a delayed reaction to the forces
which caused the decline in sterling during October.

357

Secretary Morgenthau - 5
Current business news

The New York Times business index for the week ended

October 29 rose 1.3 points to 89.0, a new high since the

week ended November 13, 1937. Increases in automobile pro-

duction, steel production, electric power production, and
"all other" carloadings were partly offset by a decline in

lumber production, with other components showing minor
changes. Data available on automobile and steel production

indicate the probability of a further rise in the combined

index for the following week.

Department store sales during the week ended October 29,
aided by more favorable shopping weather, rose to a level
only 5 per cent below that of the corresponding week last
year. During the previous week they had been 9 per cent

below last year's level.
A compilation of corporation sales data by the National
City Bank of New York, covering the first nine months of
1938, tends to confirm our studies indicating a relatively
high level of basic demand as compared with industrial production, and reflects the influence of inventory liquidation
on manufacturers' sales. The compilation shows that the
total sales of a group of representative merchandizing concerns during the first nine months of the year declined to
$2,340,000,000, as compared with a total of $2,506,000,000
for the same period last year, or less than 7 per cent.
Total sales of a group of manufacturing concerns, on the
other hand, declined from $3,401,000,000 to $2,490,000,000,
or 27 per cent.
The FRB index of industrial production has recovered in

five months approximately one-half of the amount lost during
the 12-month period from May 1937 to May 1938. The rise of
19 points in the index from 76 in May to approximately 95 in
October compares with a total decline of 42 points. Present
indications are that the FRB index in November will equal or
exceed the October figure, and will exceed the figure of 88
for November 1937. While factors in the longer outlook
appear generally favorable, the business prospect would be
immensely clarified by a definite upward turn in commodity
prices.

TOTAL STEEL INGOT PRODUCTION AND U.S. STEEL CORPORATION ORDERS
Expressed in Percent of Capacity

muu

PER JAN.
CENT

MAR.

1937
MAY

JULY

SEPT

TTT

TTT

1938
NOV.

JAN.

MAR

MAY

JULY

SEPT

NOV.

PER

CENT

140
140

120
120

100
100

TOTAL STEEL OUTPUT

80
80

60
60

40

ORDERS. U.S. STEEL CORPORATION

IN TERMS OF U.S. STEEL CAPACITY

40

20
20

0

JAN.

MAR.

MAY

JULY

1937

SEPT.

NOV.

JAN.

MAR.

MAY

JULY

1938

SEPT.

0

NOV.

Office of the Secretary of the Treasury

Dividen of - -

-48

INDICES OF NEW ORDERS
Combined Index of New Orders and Selected Components
1938
JAN.

MAR.

1939
JULY

SEPT.

NOV.

PERCENTAGE TTU
POINTS

THE

JAN.

MAR.

MAY

TT PERCENTAGE
POINTS

100

100

90

90

TOTAL (CONSINED INDEX)

1936 100
80

80

70

70

60
60

50

50

TOTAL EXCLUDING STEEL AND TEXTILES
40
40

30
30

STEEL ORDERS

20
20

10
10

TEXTILE ORDERS

1111

0

MAR.

MAY

JULY

1938

- of - - -

Office of the Secustary of the Treasury

SEPT.

NOV.

0

JAN.

JAN.

MAR.

MAY

1939

2

I 85 A

NEW ORDERS AND FACTORY OUTPUT
PER
CENT

PER

(NEW ORDERS)

CENT

(FACTORY OUTPUT)

160

135

140

125

Factory Output
1923 - 15 = 100

120

115

100

105

80

95

New Orders Monthly
1936=100

60

85

40

75

11

20

1936

65

937

.

Net Orders Grouped by Industries
WEIGHTED ACCORDING TO RELATIVE IMPORTANCE

1936

1938

T

PERCENTAGE

1937

1936

POINTS

PERCENTAGE

IRON AND STEEL

1937

1938

POINTS

PERCENTISE

65

TOXTILES

POINTS

65
25

25

60

20

55
IS

50

50
10

45

45

5
40

40

um mm

20

15

10

1
I 936

1937

0
30

35

1938

0

60

55

30
35

BUILDING MATERIALS
25
30

25
30

20

25

20
25

15

20

IS

20

10
15

10

15

5

10

5

10

936

1937

0

I

5
5

TUUUUUTTUT

15

0

ELECTRICAL EQUIPMENT

1937

1938

0

1936
25

1938

0

15

10

MM

10

25

AUTOMOBILES

1936
15

15

1937

1938
15

PAPER AND PAPERBOARD
10

10

10

5

1938

0

-

5
0

IS
IS

RAILROAD EQUIPMENT

936
TEE

1937

1938

0

0

1937

0

1936

15

20

0

10

5

15

$

20

IS
10

MISCELLANEOUS
10

10

0

1938

0

----

1937

1936

.

1936

1937

1934

INCLUDES MACHINE TOOLS, AGRICULTURAL EQUIPMENT AND OTHERS

0

Office of the Secretary of the Treasury
53.1

361

STERLING EXCHANGE AND PRICES OF COMMODITY FUTURES
NOVEMBER

DECEMBER

31 28 4 11 18 25 2 so 6 13 20 4 12 PER
SEPTEMBER

APRIL

OCTOBER

DOLLARS

STERLING

56

5.06

5.04

W

5.02

53

5.00
52

Sterling Exchange

4.98

M

with

4.96

51

50

4.94

4.92

WM

48

WM
4.90

4.88

Doe-Jones Futures
1924 25 - 100

4.86

4.04

4.82

43

WILL
4.80

42

A

4.78

2

JANUARY

---

Office of the Secretary of the Treasury

FEBRUARY

3

to

MARCH

17

APRIL

24

a

15
MAY

12

26

10

17

3

in

4.76

10

22

JULY

JUNE

1938

21

20

4

14

10

au

7

24

31

AUGUST

SEPTEMBER

OCTOBER

4 in 18 25
NOVEMBER DECEMBER

41

362
Monday,

November 7, 1938,
5:04 P. M.
H.M.Jr:
H. Merle

Hello Cochran.

Cochran:

Mr. Secretary, I want to let you know that this
afternoon I talked by telephone with our red
haired friend, at the appointed hour.

H.M.Jr:

Yes.

C:

And I gave him that simile of a consulting doctor
and the operating surgeon.

H.M.Jr:

Yes.

C:

Gave it to him in his own language; he understood

H.M.Jr:

Yes.

C:

And he asked me to come and see him tomorrow

it, perfectly.

morning at twelve-thirty.

H.M.Jr:

Yes.

C:

I offered to come tonight, and he said, "No, come

H.M.Jr:

Yes.

C:

tomorrow noon."

So I'm going by at eleven forty-five to check up
with our messenger then to see if he knows anything
before that time.

H.M.Jr:

I see.

C:

This evening's press carries the following communiques from the Ministry of Finance.

H.M.Jr:
C:

Yes.

It says, ah - "The delay of five days, which Paul
Reynaud asked for - ah - asked for striking a
balance

H.M.Jr:

Yes.

"

363

-2".... expires today. The balance is struck.

C:

This evening the

in princip will be

taken. The days which follow will be given over
which will involve
to establishing the
technical conversations, particularly with the
Premier and the colleagues of the Minister of

Finance, "
H.M.Jr:

I see.

C:

".... as well as with specialists in different
fields."

H.M.Jr:

Yes.

C:

"The decree laws will appear in a Journal

H.M.Jr:

Yeah.

C:

"... at the end of the week, as announced from

H.M.Jr:

Yes.

"

the first day."

"The date for the Cabinet meeting has not yet
been fixed." Now that wasthe/ communique. The
third one:

C:

"It was felt that the Minister
ofwould
Finance
-before
ah ah
come
ah - would - ah the meeting of the Cabinet - ah - today - ah -

to present, or at least tomorrow - tomorrow to
present the things which he was to finish in those
five days.

H.M.Jr:
C:

H.M.Jr:

Yes.

But you see this indicates that there's no date
now fixed.

I see.

C:

The procedure will be in the balance. But I evidently they're thinking over something.

H.M.Jr:

What?

-3-

364

They - they're evidently thinking over something
before calling a Cabinet meeting.

C:

H.M.Jr:

I see. Well, I would say that was encouraging.

C:

Yes. And today the market was calm; French

securities were up, ah, but there's not much

trading in any of the - of the currencies.
They're all waiting the - the - ah - the laws,
you see, decree laws.

H.M.Jr:

Uh huh.

C:

And ah, the press attributes the - ah - the good
market to - ah - confidence in the Minister of
Finance and in another place they suspect some
open market

H.M.Jr:

Uh huh.

C:

.... operations.

H.M.Jr:

Well sterling was strong here today.

C:

Sterling was strong there?

H.M.Sr:

Yes.

C:

Is that so?

H.M.Jr:

Yeah.

C:

And - ah - I want to let you know they had
operation on my wife this afternoon at seven-

thirty.

H.M.Jr:

Yes.

C:

And she came through in very good shape.

H.M.Jr:

Oh, I'm delighted.

C:

They - they found an abscess right in the corner -

H.M.Jr:

Oh, my1

between the nose and the eye, you see.

365

-4C:

So it's - ah - very painful; and she'll have a

H.M.Jr:

But she's all right?

C:

But - ah - the doctor said it was successful,

and it ought to go all right.

H.M.Jr:

Oh, I'm very glad.

C:

And she's still sleeping now.

H.M.Jr:

Well, there'll be nothing more tonight, then?
No, nothing more tonight. I - I offered to come
over, I told my friend I could easily come, and

C:

he said, no - he said - ah - ah - come tomorrow

at - at - ah - that fixed hour. I offered to
come any time at all. So that's that.

H.M.Jr:

I see.

C:

Well, best of luck to you and your neighbor

H.M.Jr:

Thank you.

C:

Things look very good, of course?

H.M.Jr:

Very good.

C:

Goodbye.

H.M.Jr:

Goodbye.

C:

Then this - tomorrow; see, I'll be seeing this man

H.M.Jr:

Yes.

C:

Then - ah - could you accept a call, say around ah - one o'clock - between - ah - about two o'clock,

tomorrow.

at twelve-thirty.

my time; that is - ah - nine o'clock your time?
H.M.Jr:

Nine o'clock would be perfect for me.

C:

Fine; I'll try to get it through at - at two sharply
then.

-5H.M.Jr:
C:

H.M.Jr:

At nine o'clock would be perfect.

Fine; I'll try and get it through at that time.
All right, then.
Goodbye.

Operator:
Overseas

Hello.

Operator:

Hello.

Operator:

Hello.

366

367

OFFICIAL COMMUNICATIONS TO

SECRETARY OF STATE
WASHINGTON, D.C.

DEPARTMENT OF STATE
WASHINGTON

November 7, 1938.

My dear Mr. Secretary:

I enclose for your information a paraphrase of
telegram No. 1866, November 5, noon, 1938, received
from the American Embassy at Paris, concerning a

statement issued from the Premier's office in answer

to certain political rumors afloat.
Sincerely yours,

Herbert heis
Herbert Feis,

Adviser on International
Economic Affairs.

Enclosure:

As stated.

The Honorable

Henry Morgenthau, Jr.,
Secretary of the Treasury.

368
PARAPHRASE OF TELEGRAM RECEIVED

FROM:

American Embassy, Paris

DATE:

November 5, noon, 1938

NO.:

1866

A statement was issued last night from Daladier's

office, in answer to yesterday's crop of rumors of continued disagreement in the Cabinet with respect to financial policy; of formulating a recovery plan without recourse to some of the proposals advocated by Marchandeau;

of alleged difficulties now apparent to Reynaud; of
intrigue within the Cabinet against Daladier looking to
a Reynaud Cabinet with socialist participation; of a possible request under the circumstances for the extension

of full powers, to the effect that the Prime Minister's
view of the necessity to apply liberal methods for recovery has not changed; that the Prime Minister continues

resolutely opposed to the establishment ofrestraint and
of exchange control.
The charges leveled against the Prime Minister by a

large section of the press of unnecessary delay in the
elaboration of the decree laws are refuted by Daladier's
statement which asserts that the text of these laws will
be studied in a Cabinet meeting next week and will be promulgated before November 15; that the Prime Minister hasno

369
-2-

no intention of requesting an extension of the full powers
and that the rumors of a Cabinet reorganization and possible
enlargement "are based upon nothing concrete" and that
Parliament will be convened at the beginning of December

as originally planned.
" "Taking note of information published as coming from

an official source that measures of restraint are for the
moment shelved", the Ministry of Finance issued a statement

yesterday that such measures are "definitively shelved".
It now seems probable that when it materializes,
Reynaud's plan may prove of such a nature as to require

wide political support if it is to be successful. Therefore,
the foregoing statements have not put to rest all rumors
of possible important political changes in the near future.
WILSON

EA:DJW

370

REB
GRAY

London

Dated November 7, 1938

Rec'd 5 P. II.

Secretary of State,
Washington.

1295, November 7, 6 p. m.
FOR TREASURY FROM BUTTERWORTH.

The city is Eagerly awaiting the full statement on
"defence" which the Prime Minister promised would be made

in the House of Commons in the near future (paragraph two,

No. 1272, November 1, 6 p. m.) in the Expectation that it will
(a) give SOME indication of the magnitude of coming EXPENDI-

ture and (b) SOME assurance that EVEN without a Ministry of

Supply with certain powers of compulsion the production of
instruments of war can neverthEless be expanded sufficiently

rapidly. It is recognized that the policy of the Prime
Minister, which has been accepted by Parliament, is directed
towards a rapprochement with Germany and Italy; that an
Emergency national concentration on arnament production is

not now being undertaken in the hope that his promised "active

and positive steps" will lead to the desired negotiated
settlement of outstanding differences, sealed by an agreement upon the stabilization of armaments.

Needless

371

REB

2-#1295, From London, Nov. 7, 6p.m.

Needless to say there are not a few in the city who
have the gravest doubts as to whether under present arrangements production of armaments can DE sufficiently accelerated

so that Great Britain can meet with Germany in negotiation

or otherwise on anything like terms of Equality. They point
for Example to the Minister of War's public statement of
October 21 in which hE admitted that "to obtain an appreciable acceleration or an appreciable Enlargement within
the given time of our armament program it would be necessary
to revive the war time method under which EVERY other con-

sideration is subordinated to this." However, he and others
are being led or made to toe the dominant party line.
The effect of the recent past and the uncertain outlook for the future have not conspired to produce a feeling
of confidence in any real SENSE: the mood of the city is
very mixed and ranges from bewilderment to belligerency.
ThE foreign Exchange market has again been relatively

inactive. The dollar has remained steady around 4.75 3/4,
as has the franc around 178.72. of the 208 bars sold at
gold fixing at 146 shillings one PENCE SOME 175 WERE

supplied by the British fund. With the belge remaining on
parity it SEEMS evident that SOME of this steady gold demand

is for that market.
KENNEDY

NPL-EMB

372
JR

GRAY

Paris

Dated November 8, 1938

Rec'd 9:20 a.m.

Secretary of State,
Washington.

1878, November 8, 10 a.m.
FROM COCHRAN.

The following semi-official statement was published
in LE TEMPS November 5 with introductory explanation:

"We have been able to obtain the following information

from authorized quarters with respect to the various
stories which have been published on the failure of
the Daladier Government to publish the decree laws:
'It will be remembered that as soon as Parliament

authorized the Government to issue decree laws to restore

the financial and Economic situation the Premier directed

the interested Ministries and principally his collaborate
or, the Minister of Finance to submit proposal.
In the course of time opposite conceptions becoming
of VIEW of the President

apparent in the point

of the Council and of his collaborator, . Daladier
requested the latter, after the Marseille Congress,
to bring to him modified proposals along the lines
which the Premier personally desired.
WILSON

KLP:DDM

373

GRAY

EG

Paris
Dated November 8, 1938

Rec'd 9:35 a.m.

Secretary of State,
Washington.

1878, November 8, 10 a.m. (SECTION TWO)

HOWEVER, during the two meetings of the Cabinet
which WERE held at the commencement of the present WEEK

Marchandeau declared that the measures which he En-

visaged WERE alone susceptible of securing the desired

results.
As the President of the Council held a different
opinion, Daladier then requested Paul Reynaud to prepare

a policy of financial restoration which was more in
agreement with the personal views of Daladier. As a
matter of fact the new Minister of Finance had already
EXPRESSED himself in agreement with the President of

the Council.
It was indicated that the Government will now play

the liberalism "card" in the matter of financial and
Economic policy. Measures of constraint have for the
moment at least been set aside. It may be stated finally

that the President of the Council is not likely to ask
new powers from Parliament.

Furthermore,

374

-2- #1878, November 8, 10 a.m. (SECTION TWO)

Furthermore, rumors of a change in the Cabinet
are without foundation.
The decree laws will be published and adopted in
the Journal Official before November 15. Cabinet meet-

ings, followed by a Council of Ministers, will be held
during the coming WEEK to discuss and to decide upon the

new rEconstruction program'".
WILSON
WWC:RR

375

GRAY

EG

Paris

Dated November 8, 1938
REC'D 9:45 a.m.

Secretary of State,
Washington.
1878, November 8, 10 a.m. (SECTION THREE)

The next announcement of an official character was

given to the press by the Ministry of Finance yesterday.
As published in LE TEMPS of November 8 it reads as follows:

"The time limit of five days which Paul Reynaud allotted to him for the establishment of a balance sheet EXpires this EVENING.
The balance sheet has been completed.

This EVENING the decisions of principle will be
agreed upon.

The next few days will be devoted to the drafting of
the texts which will require conversations of a technical
order principally with Premier Daladier colleagues of the

Minister of Finance and the specialists in different fields.
The decree laws will appear in the Journal Official
at the End of the WEEK as indicated at the outset. The

date of the meeting of the cabinet has not yet been fixed."
LE TEMPS

376

-2- #1878, November 8, 10 a.m.

(SECTION THREE)

LE TEMPS adds that it learned from sources close

to the Minister of Finance that certain rumors relating
to the intentions or to decisions of the Minister are
purely fantastic and without any basis. END MESSAGE.
WILSON
WWC:RR

377

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France

DATE: November 8, 1938, 11 a.m.

NO.: 1879
FROM COCHRAN.

This morning at half-past eleven I had a talk with
the Bank of France. The French stabilization fund by
that hour had gained one million pounds sterling around
176.70. Through the Chase bank it was acquiring some

dollars.
The French fund gained one-quarter million pounds

yesterday. According to my friend, this movement is still
mainly by professionals who anticipate that Reynaud in

his decree laws will follow an orthodox and liberal

policy. In the press yesterday's rise in French shares
and rentes is attributed to the same belief prevailing
on the market.

This morning Lazard has been selling dollars, and
has begun covering through sterling which for the moment

at least is slackening the intake of sterling by the
control.
WILSON.

EA:LWW

378

REB

PLAIN

London

Dated November 8, 1938

Rec'd 3:30 p. m.

Secretary of State,
Washington.

1300, November 8, 6 p. M.
FOR TREASURY FROM BUTTERYORTH.

Answering the leader of the opposition's comments on

the King's address the Prime Minister referred to "the
enormous" British armament programs "the full cost of

which WE are not yet in a position to estimate".
HE also stated "of course, WE know there has been a

certain recession in trade during the course of the present
year but I SEE no reason to take a gloomy view of the

future. The figures that have been published today indicate
that there is a revival of Employment to SOME EXtEnt and

there are other favorable factors which may I think be
taken into consideration such as the indications of a
revival of business in the United States of America which

must always vitally and powerfully affect the rest of the
world.

I have on more than one occasion Expressed the view

that the principle and proper function of the Government
in

379

REB

2-#1300, From London, Nov. 8, 6p.m.

in relation to trade and Employment is to try and create
conditions under which industry itself could carry on its
enterprise with confidence and SUCCESS and it is to that End

that the policy of the Government has been consistently

directed." After referring to the efficacy of the Ottawa
and other trade agreements past and pending he continued:

"If WE look forward WE notice this interesting fact -- that
the fall in primary commodity prices which perhaps is the
main cause of the recession WE have EXPERIENCED, because

it immediately reduces the purchasing power of the agricultural countries which are our best customers, has been

arrested and with the general Easing of political conditions I do not SEE why WE should not hope that during the
coming year the recession which WE have had to face this
year will pass away and be SUCCEEDED by another upward

turn. I am sure that our industrialists who have in
recent times 30 enormously improved their organization

will take EVERY opportunity which may present itself to
them to increase their Enterprise and to restore if
possible that international trade to which WE must look
which
forward in the future largely for the resources with

380

REB

3-#1300, From London, Nov. 8,6p.m.

which to meet the demands that will be made on us by
our defence programmes."

The foreign Exchange market has been more active and

erratic today. The dollar which opened at 4.76 3/8 remained
steady until the early afternoon when speculative rumors

apparently originating in Paris began circulating on the
Continent and in London to the Effect that the Lond on gold

price would be changed to bring about a 4.50 sterling rate.
As a result the dollar moved to 4.75 3/4. Holland and
Switzerland were strong buyers of dollars.
Of the 195 bars sold at gold fixing at 145S 11 1/2D
only a small number were supplied by the British fund which
gave gold somewhat reluctantly at higher prices after

fixing.
The French fund on balance acquired a moderate amount

of sterling.
KENNEDY

HPD

381
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France

DATE: November 8, 1938, 6 p.m.

NO.: 1881
FROM COCHRAN.

A big demand for gold mining shares developed at

half-past one today on some rather intangible rumor from

London about changing the price of gold there. There

was bidding for dollars, and the impression here is that

they had to be sold by the British control. The tide
turned against the franc in Paris after it had had a good
forenoon of acquiring sterling and dollars. The rate
moved to 178.78, and the French control was selling sterling
when I talked with the Bank of France at 5:00 o'clock.
Today the belga weakened, with the Belgian Prime Minister

experiencing difficulties in his Government and opposition

to his deflationary policies developing. Today there is
a report in the press of an Italian decree imposing a
new 7 1/2 percent levy on the capital value of commercial
and industrial concerns whose net yearly profits amount

to more than 10,000 lire.
At noon today at the Ministry of Finance I had a talk
with Rueff. Rueff told me that the new decree laws which
are to be issued over the weekend shown to (omission) and

courageous constitute the best program possible
in the
circumstances

382

-2circumstances and there should be a good reception of them.

This afternoon at half-past five the French control
had sold 300,000 pounds of the sterling which was acquired

this morning; professionals are responsible for the whole
movement.
END MESSAGE.
WILSON.

EA:LWW

383
Tuesday

November 8, 1938
9:14 a.m.
Overseas
HMJr:

Hello, Mr. Morgenthau.
Hello.

0.0.:

Go ahead.

HMJr:

Hello.

Operator:

H. Merle
Cochran:

Hello. Hello, Mr. Morgenthau.

HMJr:

Hello.

C:

Hello, Mr. Secretary.

HMJr:

Good morning.

C:

Can you hear me all right?

C:

Yes. I hear you.
I saw the red haired friend at 12:45.

HMJr:

Yes.

C:

Just before I saw him I had a visit with the

HMJr:

messenger.
HMJr:

Yes.

C:

Ah - the red haired one had nothing definite to
say.

HMJr:
C:

HMJr:
C:

Yes.

They welcomed the idea. He personally appreciated
the magnitude thereof.
Yes.

They would be interested in an arrangement of that
involving exchange of fiscal information.

HMJr:

He would what?

C:

They would be interested in a simple arrangement

involving exchange of fiscal - that is party
information, -

384

-2HMJr:

Yes.

C:

- the present number two plan

HMJr:

Well now look, Cochran, I wouldn't go into

C:

Yes.

HMJr:
C:

HMJr:

this over the phone. Hello? Hello?

I'm afraid to discuss it on the phone.
Well, then, let me just - I won't go much further
than that.
Than what?

C:

The point is - I said he was not definite.
They would like just that one feature

HMJr:

They'd like what?

C:

They'd like to have that one feature and nothing
else.

HMJr:

I'm sorry. You'll have - I don't get it.

They'd like what?

C:

To have some arrangement for the exchange in

HMJr:

Yes.

party information.

C:

I said, "Well, that's a negotiation or a treaty

HMJr:

I'm sorry. I - you'll have to repeat. I don't

anytime."

think they - we haven't got such a good connection
today.

C:

HMJr:
C:

HMJr:
C:

I told him Yes.

- a treaty in regard to reciprocal party information Yes.

- could be negotiated any time.

385

-3HMJr:

I see.

That we had really discussed that in the past -

C:

HMJr:

Yes.

HMJr:

- and had decided in that direction.
And it had been favorable.

C:

Beg pardon?

HMJr:

That we were favorable.

C:

Yes.

HMJr:

Yes.

C:

I said that that could be handled separately.

C:

HMJr:
C:

HMJr:
C:

That's right.
This thing is urgent.
That's right.
I said if we vote on this present idea it would
cover that in a grand way.

HMJr:
C:

HMJr:
C:

HMJr:
C:

Yes.

And he said, yes, this was much more than they
had ever asked of us.
I see.

And I told him then it was necessary for them to
give us something definite.

That's right.
But particularly if they want us to talk to anyone
else they would have to do it soon.

C:

That's right.
I told him that I had talked to number two and

HMJr:

Yes. They - they - yes.

HMJr:

that the answer had come from him.

386

*4C:

So he is going to see him this afternoon.

HMJr:

Yes.

C:

And will get a memorandum - would be preferable -

or at least reasoning - giving both their ideas.
(Strange voice interrupts - not understandable)

HMJr:

Well - ah And he said that number two would probably have
to see number one before that.

C:

HMJr:
C:

HMJr:

Uh huh.

And I said, "Well, naturally
Yes. Well then you really have nothing have I mean, they haven't told you anything?

C:

Except that - well, that much, that they'd like
the one feature of it.

HMJr:

Well, that's unimportant.

C:

What's that?

HMJr:

That is very unimportant.

C:

Yes. That's just what I said. I said that we

HMJr:

Yes.

C:

I said

HMJr:

Yes.

C:

I said, "That part is separate, isn't it?" That'd

HMJr:

Yes.

C:

have been interested in and you can get any time.

this will be another party.

leave us out of the loophole.

I said it was just new. And he said, "Well, the
other things are being drawn up." He said, "They
are a fine bunch of documents - orthodox, and it'11
have a good effect."

387

-5HMJr:

It'11 have what?

C:

Will have a good reception.

HMJr:

Yes. Well now, what I'm much more interested
in is - when you saw the messenger - is he how does he feel that the thing is progressing?

C:

I didn't hear you then.

HMJr:

You said you saw the messenger this morning.

C:

Yes.

HMJr:

How does he feel the thing is progressing?

C:

Well he hasn't done anything since I talked with
him yesterday.

HMJr:

I see. So he's -

C:

And I haven't seen him since I went there be-

HMJr:

Oh.

C:

And -

cause I was afraid if I sat around that I
wouldn't get out in time to phone you.

C:

Did you - did you see him today?
I have agreed that I shall press him for Sunday.

HMJr:

Yes.

HMJr:

C:

HMJr:

French

And he thought that idea which I mentioned the
other day has probably been defeated by number (line became disconnected.)

Hello. Hello.

Operator:

Hello. Sorry.

HMJr:

Hello.

London

Operator:

One moment, please.

388

- -6 Overseas

Operator:
London

What's happened, London? Hello, London.

Operator:

Just a moment, please. I've got my party.

0.0.:

Righto.
(Long pause)

L.O.:

I' m ready again now, New York. Go ahead, please.

H. Merle
Cochran:

Hello. Hello. - Hello.

London:

Hello, New York.

0.0.:

Yes, London.

London:

I'm waiting again

0.0.:

Thank you.

Cochran:

Hello.
(Long pause)

0.0.:

Just a minute, London, we're getting the party.

London:

Go ahead.

Cochran:

Hello.

HMJr:

Are we going through London?

C:

Ah - it's sem-private; I asked for the other way.

HMJr:

I'm afraid we're through London.

C:

Well, listen, perhaps I had better see my

Go ahead, London.

messenger.

HMJr:

Now look, Cochran, will you - look, will you

C:

Yes.

HMJr:

Now, Cochran, I - we'd better wait until we

listen please. Hello.

have something formal, you see?

389

-7C:

Yes.

HMJr:

When you have it - I mean something definite, see?

C:

Yes.

HMJr:

I will be in Washington tomorrow.

C:

Yes.

HMJr:

And if you get anything formal I would put it in

C:

Yes.

a regular cable. Hello.

HMJr:

I mean a regular State Department cable.

C:

You would?

HMJr:

Yes.

C:

Yes.

HMJr:

I mean if anything comes now which is formal which puts up a formal proposition I don't want

to take it on the phone - I would take it in a
regular formal cable.

C:

HMJr:

I mean, it's - it will be informal in a way - I doubt if they hand it to me I think it will just be oral.
Well, whatever it is - I mean, because I'm leaving
here at noon - I'm going down to New York and I'll
get to Washington tomorrow morning.

HMJr:

Well, would you prefer that I put it 'in that other
special - the way they
No. Only - ah -

C:

Because I've kept everything away from the other

C:

people here.

HMJr:

I see.

C:

It'11 be a little difficult.
the thing you
- see.
is a littleBut
embarrassing

HMJr:

I see.

390

-8-

Well, ah - if it's positive then we'll probably

C:

get all of one message and we might as well
send this the other way.

HMJr:

Uh huh.

C:

What do you think?

HMJr:

Well, I was just thinking - ah - because we're
on the London phone now.

C:

Gosh, what a dummy. I asked for the other direct.

HMJr:

Yes.

C:

But there are certain hours they won't put you on.

HMJr:

Uh huh. Well - ah - I tell you; I - I think in

view of that, what I would do is, I'll be in the
Treasury tomorrow morning by nine o'clock.

C:

Yeah.

HMJr:

And if - if you have anything definite from them,

C:

call me on the phone.

Ah - call you tomorrow morning - ah - that is your
time; that will be the same time as I called today two o'clock, my time.

HMJr:

Yeah.

C:

From the Treasury.

HMJr:

If you have something definite. Ah - but there's
definite.
no use calling me until you have something

C:

All right. Fine.

HMJr:

See?

C:

But I wanted to get this much to you before

HMJr:

you left up there.
Well, it really doesn't - it doesn't help any.
Hello.

391

-9C:

Yes.

HMJr:

I mean - ah - ah -

C:

No, it - it is not final. That - that - it

certainly is an indication as to how they'r

feeling.
HMJr:

Yes. Well, I gather that - that they're really

C:

And, ah, it - it may seem that - ah - when - when
the one goes to consult the other this afternoon,

HMJr:

working.

that there'll be a change, but we can't tell.
Well, I - I'll have to wait now, but they - or
rather they'11 have to wait till I get to the
Treasury tomorrow morning.

C:

All right.

HMJr:

Ah - we'll be leaving here - I'll leave the farm,

C:

in case you want to get me - I'm here until three
o'clock.
I couldn't do anything then, because he won't

H.M.Jr:

Plenty of time. Well, then, we'll let it go until

C:

Fine.

HMJr:

C:

see me before, ah, between seven and eight tonight.
tomorrow morning.

And - ah - you can call me up and let me know, and ah - ah - how is Mrs. Cochran?

She's getting on very well; she - she stood it
remarkably well.

H.M.Jr:

Good.

C:

I was out at nine o'clock. I haven't seen her since

HMJr:

then; I've been back since noon.
Just one more question. Is the messenger nervous,
or how does he feel?

392

- 10 -

Ah, no, he's not nervous, only he felt that I

C:

ought to press

(Operator)

(Nine minutes.)

C:

.... for something definite, you see?

HMJr:

I see.

And - ah - ah - we talked about this idea; he
brought it up.

C:

HMJr:

Yeah.

As I'd mentioned the other day as having been
interested by

C:

HMJr:

Yeah.

C:

That is as his story's going out, and then this

HMJr:

Yeah.

C:

And - ah - this - and the messenger thought that

HMJr:

Yeah.

thing coming.

we should not - ah - rule that out.

C:

But - ah - it is pretty hard for them to do this
other thing right now. I mean, with the politics

. and so on.
HMJr:
C:

Yeah.

He said he didn't think we ought to rule this - take
that out.

HMJr:

Uh huh. Well, I'll wait now until I hear from

C:

But even if I should run into something definite

HMJr:

you tomorrow morning.

tonight, you don't want me to go ahead and cable
it?

I - yes, I think so, because I think it would save
a lot of time.

393

- 11 C:

HMJr:
C:

HMJr:
C:

HMJr:
C:

HMJr:

0. K. If I get something definite tonight I
can put it in that special code.
All right.
Then I could call you in - at the sixth hour.
I - I think I would do it that way, yes.
I-- I think so. Ah - if I don't have anything
definite I'll just call you. If I get something
definite I'll send it in that special code.
Yeah; that saves time.

Yes, that's easy.
And - and the man at your end is obliging, is he?
and absolutely dependable.

C:

HMJr:

And obliging?

HMJr:

Oh yes. A good friend of mine.
Ah - there's just one person there?

C:

Ah - just one - well, his - his superior officer -

HMJr:

Yeah.

C:

C:

HMJr:
C:

HMJr:

the two of them.

Ah - it's the second man who does it.
But he does it himself?

He does it himself; he's the best
And - and - ah - I take it that he rather enjoys
it - what?

C:

Well, he's only had the two, but he's been tickled

HMJr:

Yes. All right.

C:

So - very anxious to help us.

to death to get in on it.

394

- 12 HMJr:

All right.

C:

So - then I shan't call until tomorrow.

HMJr:

Right.

C:

Even though I have something definite.

HMJr:

All right.

C:

Ah - the man is here, and he's pretty good.

HMJr:

What's that?

C:

I sent two cablegrams just before noon.

HMJr:

Yes.

C:

Giving the text of the couple of communiques which
I had already mentioned to you.

HMJr:

Yes.

C:

And the other, telling that the market was

fairly strong.

HMJr:

Good.

C:

And then we've taken in that million pounds by
eleven o'clock.

HMJr:

Fine.

C:

All right.

HMJr:

Right.

C:

Well, all right, sir.

HMJr:

Goodbye.

C:

Goodbye.

thinks they!11 go far.

Operator:

Hello. Hello.

Operator:

Through, Mr. Lochhead?

Operator:

Ah, I think yes; the I'll Secretary hang up will here. probably be calling us now.

Lochhead:

All right.

Lochhead:

Lochhead:

Operator:

Hello.

Fine; well, I'll go back to my own office.

395

November 8, 1938

For the Secretary:
Attached are summaries of telephone conversations

with Randolph Burgess, John Williams, Jacob Viner,
Winfield Rieffler and Tom K. Smith with respect to the

possible appointment of Lauchlin Currie as economist
in the Office of the Comptroller of Currency.
It does not seem feasible to me to appoint Mr.
Currie as a Deputy Comptroller of the Currency. That

is an administrative position. I have thought it desirable, as you know, to establish an Economic or
Research Division in the Comptroller's Office. Two

considerations make it difficult: One is the expense
involved, and the other is a question of space for
housing such a division.
If we are to have only one person on an economic

staff, it would not seem to me that Mr. Currie would be
the one to give us the maximum help of the kind we need.

If we had a staff of four or more, I think it might be
well enough to have him as one of them.

Upm lepan
Enclosure

396

November 5, 1938

TO THE SECRETARY:

I talked to Randolph Burgess about the possibility of

Currie for Director of Research and Statistics in the office of the
Comptroller.

Mr. Burgess said that while he regards Currie as a

good statistician he thinks he has a terrific bias and thinks up a
lot of crazy things. He said he thought he could see some value
in getting him out of the Federal Reserve Board staff. On the
whole, he regards him as academic and theoretical and an economic

recluse. He is a little bit afraid of him. Mr. Burgess says
that he is able and that we could do worse.

He suggested a man

named B. B. Smith, now with the New York Stock Exchange.

I talked to John Williams about the same matter. He said
that he has a very high opinion of Currie and regards him as awfully
good on money and banking statistics and how to improve statistics

in this field. He has no reservations about his fitness and regards him as a competent technician. He thinks, however, that we
ought to ask a few bankers what they think.

397

-2-

Dr. Viner said that it would be grand if we could get
him.

He is full of ideas and brilliant. His brilliance is

rated higher by Viner than his judgment. Dr. Viner thinks
that he would have to have one or two or three assistants if
he came and that it would mean an outlay of probably $40,000
for the Department.

I talked to Mr. Rieffler about the same thing. He
was inclined to doubt that Currie would be interested. He
says that the Comptroller's office has always been interested in banking problems as such, rather than in monetary
does not

problems which are Currie's main interest. He
think that Currie would be happy in the Comptroller's office
unless he were working on very much the same sort of thing
And that

that Harry White works on for the Treasury.

would mean that the Comptroller's office is going in for

a quite different function than it ever has before.

UPM lypn

398

November 7, 1938

I talked to Tom K. Smith in St. Louis and asked him what
he and other bankers would think about the employment of Lauchlin

Currie as economist for the Comptroller's office. Mr. Smith said
that he would think that Chairman Eccles is getting a finger in the
Comptroller's office. Another Member of the Federal Reserve Board

tells Tom that Currie is responsible for most of Eccles' funny notions.
Three Members of the Board told him so recently when they were in St.
Louis.

Every one will think, according to Tom, that the Comptroller's
office has gone completely haywire. He says he can understand why Currie
might want to get away from the Federal Reserve Board because Mr. Smith

understands that the Eccles influence is distinctly on the down-grade

and that there are even those who are predicting that he will not be
there much longer.

Tom strongly recommended that we get somebody

else if we get anybody at all.
In addition Mr. Smith told me that Chairman Eccles is now

denying that he ever took the position that the Federal Reserve Board
could not reduce reserve requirements because of their need for

earnings and that he denies ever having said that in the event reserve
requirements were reduced the Board might have to ask Congress for an

appropriation for expenses.

UPM lyou

399
PARAPHRASE OF TELEGRAM RECEIVED

FROM:

American Embassy, Rio de Janeiro

DATE:

November 8, noon, 1938

NO.:

255.

With respect to the telegram of October 19 which the

Federal Reserve Bank sent directly to the Bank of Brazil,
regarding the gold plan, reported in my despatch No. 971
of October 24, the Embassy is now in receipt of a letter
from the Bank of Brazil, dated November 4, acknowledging

receipt of the telegram referred to. The letter contains
a statement that this matter is now being studied by the
Minister of Finance. I am informed by the Director of
Exchange that the bank would prefer to have all further
correspondence on this matter routed through this Embassy

or by telegraph.
I am informed by the Director of Exchange that, in

anticipation of the final approval of the plan by the
Government of Brazil, the bank has accumulated approximately

a ton of gold for eventual shipment to the Federal Reserve
Bank of New York.

Will you please inform Federal Reserve Bank of New
York.
SCOTTEN

EA:DJW

400
ADDRESS THE COMMANDANT.U.S.COASTGUARD
TO NO.

TREASURY DEPARTMENT
UNITED STATES COAST GUARD
HEADQUARTERS

WASHINGTON

8 November, 1938.

SECRET
From:

To :

Spagent, Shanghai, China.

Secretary of the Treasury.

Message from Miss Jacobson.

Following is statement of Central Bank with Federal
Reserve Bank in an account entitled, "The Central Bank of China,
for account the Currency Reserve Board.": Gold ounces,
1,427,012.249 equivalent to $50,070,292.29. Ordinary account,
$4, 847, 849.81, or total of $54,918,142.10 less due Federal
Reserve Bank, New York. Chinese dollars 165,000,000, equivalent
to $48,487,500, or a balance of $6,430,642.10, close of business
November 5. Local Central Bank officials unable to give an
accurate statement of their overbought position in all currencies.