Full text of Diaries of Henry Morgenthau, Jr. : Volume 206 : Part 3

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August 25, 1939.
6 p.m.

Operator:

There you are.

Hanes:

Hello

Harry

Durning:

Hello

H:

Harry?

D:

Yes.

H

This is John Hanes.

D:

Oh yes, Johnny.

On this question of the NEW YORK.

H

D:

Yes.

Now the President is anxious not to have that

H.

boat go out.

It won't go out.
He's writing me a letter directing me to direct
you that - any of these boats that want to get away
on a fast clearance of this kind to make a thorough
inspection. He's got evidence or he's got suspicion

D

H

that they are carrying some sort of armament.

I can - ah - you needn't go any further than that
John. She won't - she'll not go out.

D

H:

She won't go out.

D:

I'll be right here. I was going down there tonight

H:

myself. I just came up here for dinner and I'm going
right down there after dinner.
Well that's fine and you'd better notify the Coast

D:

I'll take care of that - I'll have them standing

Guard to be ready too.

by but I'll go down there.

-2H:

357

Well that's fine, Harry, I just want to make sure.
He's very much interested in this thing and he
doesn't want it to get away.

D:

All right, fine and I'll take care of that. She'll

have
to sail in the regular way after a complete
examination.
H:

That's right and he said the examination ought to
take a minimum of 48 hours.

D:

Yes, all right, John, I get you.

H:

Thank you very much Harry.

D:

How are you?

H:

I'm fine, thank you.

D:

H:

D:
H:

When does it look like it would break, John?
Well it looks blacker every minute to us.

I see he's called off that speech.
Yes, and they've ordered all ships to come back

we understand.
D:

He's got the EUROPA and the BREMEN out.

H:

Yes, that was too bad.

D:

H:
D:
H:

D:

Well I know but either one or the other is in the
sea now; she'd get in - she might put in in Maine
or someplace like that; I was figuring that out to-day.
Yes, well this other one is coming in, isn't it?
Yes, that's coming in; that's due in on Monday.
Yes, well they'11 probably turn her around.
Good God, they'd have a hell of a job turning her
around. I have turned to my family in Fhorence

last night and they are on their way up to get into
Ireland. The only thing I'm hoping is that he doesn't
start it before Monday; they'11 be in Ireland tomorrow

night.

-3-

358

H:

I see. Well it looks pretty black, Harry, it doesn't

D:

No, it don't look good to me either.

H:

Right.

D:

All right, fine, John, I'11 be right on the job there.

H:

Thank you so much. Goodbye.

D:

Goodbye.

look a bit good to us here.

359

August 25, 1939.
6:05 p.m.
Attorney
General's

office:

Hello John.

Hanes:

Hello

s

The Attorney General says O.K.
Fine.

H:

So you go ahead, unless you've had orders.
H:

Yes sir, well I've already done that.

All right.
H:

I got Harry Durning on the telephone and he

assures me that she will not be allowed to sail
tonight.

That's right and the search can't be started

H:

until tomorrow, do you see?
I see.

Because we simply haven't got the men available

to make that search tonight and just to keep the

search going until - oh hell - all day tomorrow.
In other words, I want the search kept up for
48 hours.

H:

All right, fine.
(Laughs)

H:

Fine.

And maybe the Health People may find something on

boardx that's bad with the health of the crew.

H:

H:

All right, we'll find something anyway.
Yes, I want them held 48 hours and I'll send this
letter over to you as soon as it's typewritten
so that you'll get your definite authority under
which you will have already taken action.
That's right - fine thank you. Goodbye.

360

August 25, 1939.
6:10 p.m.

Hanes:

Hello

Frank
Murphy:

Hello John.

H:

Hello Frank.

M:

Did you get the letter from the President?

H:

Yes, I did - I've just gotten it. He dictated it
to me over the telephone.

I think it's all right but we don't want to let him
make any mistake. I think you ought to look over
it carefully. It looks - it sounds discriminating

M:

to me - in sound.

Yes.

H:

But I don't want him to make any mistake about it.
Well it seems to me that he's pretty well covered.

M:

H:

X:
M:

I thought maybe you'd written that letter yourself,
because he seems to be pretty well covered in that
letter.
Yes, I think so too where he says - "If you have
good reasons to believe" and then you can take this
action.

H:

Yes.

M:

I wondered if - ah - when are you going to take any
action or when will it become public.

H:

Well I'm not going to let it become public at all.

M:

Ah-ha.

H:

I don't see any sense in letting a document like

M:

this get out at all.

That's right - no - but - ah - when are you going to -

when are you going to act under it?

-2-

361

Well I've already acted. I called Harry Durnning

H:

in New York and told him to be sure that we had
reason to believe that boat might be carrying some
contraband and for him to be sure and make a thorough
inspection. She wanted to get out tonight and he's
not going to let her go out tonight until he has made
a thorough inspection of her.

M:

I see.

H:

And I told him to take plenty of time to make that
inspection.

M:

H:

M:

H:

M:

John could you get a copy to me so I could study it
a little in my room here and, if necessary, we could

patch it up the little it has to be.
Yes, all right.
I think it's all right. He read it to me and we just
talked it over and I told him that I thought it was
all right.
Where are you now, Frank?

I'm in my Washington Hotel. Now if you send it over
by a confidential messenger I could look it over during
the supper period and then if I thought anything ought
to be done about it tonight I could call you back,
you see.

H:

Yes, well now Frank I'll have it over there - where are
you - in your room?

M:

Yes.

H:

I'll send it over there and have it there inside of

M:
H:

four minutes.

All right, I think it's all right but
And, Frank, if you should want me tonight just call
District 2626 - that's the Treasury - Secretary's
operator and she'll get me.

M:

Just a minute - District 2626. All right, John.
Thank you very much John.

H:

Thank you very much fair Frank. Goodbye.

362

August 25, 1939.
6:15 p.m.
Hanes:

Hello - who's this George?

George

Harrison:

Yes.

Hanes:

Hold on just a second George.

H:

All right.

Hanes:

Hello George, how are you?

H:

First rate, thank you. John I had nothing particularly.
Since I started to call you this afternoon - there
was a difference in the market generally - it's much
improved in every way and then I wanted you to know,

in addition to the meeting I had yesterday afternoon,
I had a meeting this morning with the private bankers
and the investment bankers and went over the whole

situation with them - largely giving them figures
to show that mathematically there is nothing for anyone
to be concerned about; trying to crystalize and bolster
morale.

Hanes:
H:

Right.

And then I went into the whole question of my having
an exchange committee and an over-all committee that
I'm going to form Monday and then I had the Savings

Bankers in in the afternoon and went over it all and

I finally got - maybe the market got a little too
bully

Hanes:
H:

You oversold yourself.
whether that was due to

or naturally
the fact that there was a reaction I don't know and I
don't care but what I want you to know is that the whole
outfit here - that is the Commercial Banks, Investment
Bankers, Savings Banks and all the rest are generally

all definitely set now to sit tight and if we can
relieve the market of their offering and then get the
benefit of what they've agreed to do to tell all
correspondent banks what they are doing I think we'll
get a minimum of pressure.

Hanes:

Well, George, I thought the market gave a damn good

account of itself to-day.

2-

003

Oh it did a good job.

H:

Hanes:

Yes,
all. we're all satisfied here. We can't complain at

But I wanted to get you earlier and now it's a little
late to do it but as long as I had to call in I thought
I'd talk to you.

H:

Hanes:

Well I'm delighted you did. Now George I'll be here
early in the morning so if you want me just holler.
Well New York is supposed to have a holiday tomorrow;

H:

we'll be open and I'11 be down to the bank and we'll
have our Security Department open.

Hanes:

The over the counter market will be open in government

H:

Yes, but very inactive - very inactive.

Hanes:
H:

Hanes:

bonds tomorrow.

You don't look for any excitement then?
No I do not.
Well Ronald Ransom told me this afternoon that he's
going on down to Hot Springs tonight so we can get
him on the phone if we have to.

H:

Yes, well I think that's all right.

Hanes:

Yes.

H:

Now there's one more thing that I've spoken to you or
somebody about. I've organized a foreign exchange
committee here not to preempt any of the rights of the
Treasury but I've got to have an organization here
through which I can work in order to keep this thing
orderly.

Hanes:
H:

Yes.

They've never had a foreign exchange committee in New

York. We've always wanted it and this 18 a chance to

get it.

Hanes:

Yes. You mean the foreign exchange committee -

364
-3-

I hope to be able to maintain contact with the market
if there's anything that you or we feel they ought to
be told about, and there's also an opportunity for
the market to communicate to us or to you in an
orderly fashion.

H:

Hanes:

You mean a committee, a foreign exchange committee drawn
from the bankers.

H:

That's right. The bankers -

Hanes:

Somebody that you can head up and talk with.

H:

Yes. Headed up so that when Henry tells me he wants
me to do so and 80 with the New York banks and bankers

and the foreign exchange, I won't have to call up
twenty-two people myself.

Hanes:
H:

Right.

And I got the commercial bankers to appoint their own
representative, the private bank can appoint those,
the foreign bankers to appoint a representative and
then I got Bill Martin, the Stock Exchange, to appoint
a representative from the Exchange.

Hanes:
H:

Right.

And I've got a very good committee as a result. We
had a meeting this afternoon.

Hanes:

Yes.

H:

They made Loree of the Guaranty, chairman.

Hanes:

Yes.

H:

And the only thing they decided to do is right away to
corral all the New York Exchange people to do two
things, make it very definitely easy or possible for
a man who's got a commercial transaction to execute
to be able to get the Exchange Board whether it's back

or forward, but at the same time to make it impossible
for anybody who's trying to speculate to execute
anything.

Hanes:
H:

Right.

And they're on the right track. It's a good crowd,
and if there's anything about it, at all, in the papers
tomorrow, I think the reaction will be good rather than
bad.

Hanes:

Yes. Well it strikes me that way George. I think that's

H:

Well, it so often happens that the Treasury has got in a

an excellent move.

pinch, that they've got some news they want to convey to
the market and this 18 the only way we can do it 11 an
effective manner.

Hanes:
H:

Right.

It will also enable these fellows, for the first time
in the history to get together on the things that they

are doing.
Hanes:

Yes.

H:

So they're all delighted and we're delighted and I think
today's been a good one, 80 far.

Hanes:

Yes. Well, let's cross our fingers for tomorrow.

H:

You haven't got any dope have you?

Hanes:

No I haven't George, I just - things do look blacker than
I've seen before, I just don't - I've been trying to
get optimistic here for the last ten minutes, but I'm
damned - if I know all my colleagues around here, they've
got their thumbs down on me.

H:

I'm still optimistic.

Hanes:

Are you?

H:

Oh, I've been from the beginning.

Hanes:

Well, it's like -

H:

I admit that it's hunch now, yet I don't see the way out,

but I'm still -

Omission of numbers due to
famity

numbering machine.

3BG

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE August 25, 1939.

TO

FROM

Secretary Morgenthau

Miss Michener awne

In accordance with your request to Mr. Haas, there are
transmitted herewith two memoranda as follows:
1. Current developments in capital movements,
gold, and foreign exchange, prepared in the
Division of Monetary Research.

2. Notes on the Business Situation as of Friday,
August 25, together with accompanying charts,
prepared in the Division of Research and

Statistics.

TREASURY DEPARTMENT

387

INTER OFFICE COMMUNICATION

DATE August 25, 1939

TO

FROM

Mr. Haas

Mr. Glasser

Subject: Current Devel opments in Capital Movements, Gold
and Foreign Exchange

1. The inflow of capital into the United States was $43 mil-

lion in the week ended August 16, 1939.

Foreign short-term banking funds in this country increased
$42 million, of which $16 million was reported from England,
$15 million from "Other Europe", $11 million from Far East and
$8 million from France. Funds held here for Swiss account were
reduced $8 million. American short-term banking funds held
abroad declined $11 million reflecting primarily the liquidation of $9 million of loans extended by four New York banks to

Mendelssohn and Company.

There were net foreign sales of domestic securities during
the week of $12 million, of which $10 million was for Dutch
account. The sales for Dutch account represented the sale of
domestic securities held as collateral against the loans to

Mendelssohn.

2. Net gold imports including changes in earmarking dur-

ing the week ending August 23, 1939 amounted to 77.5 million,
of which $68 million was for account of England.

3. Total gold held under earmark for foreign account declined $24 million in the week ending August 23, 1939; the
amount held for the Bank of England declined $24 million and
England's holdings as of that date were reduced to $71 million.
On August 24, 1939 the Bank of England sold the remaining
$71 million.
4. On August 25, 1939, sterling and other currencies
broke sharply against the dollar. Sterling opened at $4.39,
a decline of 29 cents, or 6 percent, from the previous close.
Late in the afternoon it had recovered to $4.49

388

Mr. Haas - 2

The only major currencies which dropped proportionately
with sterling were the Japanese yen and the nominal German

Reichsmark. This is the first time that the German Reichsmark
has depreciated since its establishment in 1924 and may
represent a major change in Germany's financial policy. The
French franc followed sterling only part-way, while the other
members of the former gold bloc were firm against the dollar.
The Canadian dollar dropped 2-1/2 cents at the opening
and then recovered to 98-1/2 at 3:10 P.M.
Foreign Exchange Rates
Aug. 24
close

Sterling
Francs
Canadian dollar
Dutch guilder
Swiss franc
Belga

Reichsmarks
Yen

Lira

$4.68-1/8
.0264-7/8
.9925
.5382
.2253
.1695
.4001
.2730

.0526-3/8

Aug. 25
3:10
$4.49
.0258
.9863
.5375
.2270
.1695
.3850
.2625

.0526-3/8.

Percent change

from previous
close

- 4.0%

- 2.7
- 0.9
- 0.1
t 0.8
- 3.8
- 3.9
-

-

389
CONFIDENTIAL

Notes on the Business Situation
as of Friday, August 25, 1939
Commodity Prices

Both spot and futures commodity prices in the United
States moved upward this week, with the rising tendency most
evident after Tuesday, when the news of the Russo-German pact
first affected the market. Sensitive prices in the United
Kingdom have shown a very pronounced upturn. (See Chart 1.)
Important individual commodities whose futures price movements differed from the average were cotton, which tended down-

ward, and copper, which held relatively steady. (See Charts la
and 1b.)

Wheat prices showed marked gains. The Federal Surplus
Commodities Corporation reported the purchase of 1,000,000
bushels of Canadian wheat by England on Tuesday, for which
five boats have been chartered in Montreal for September ship-

ment. On the previous day, sales of nearly 3,000,000 bushels
of Canadian wheat had been reported, the largest day's business
in some time.

Security Prices

Stock prices in the United States continued last week's
decline on Monday, rose somewhat after the report of the RussoGerman treaty on Tuesday, and then fell considerably on Wednesday
and Thursday. (See Chart 2.) The volume of trading was not
heavy, however, and the low point reached for industrials,
though below the June low, did not reach the bottom touched in

April of this year.

In the United Kingdom and France stock prices this week

have declined sharply. (See Chart 2.)

The yield on long term Government bonds (on inverted scale)

showed pronounced downward movements this week in the United

States, United Kingdom, and France. (See Chart 3.) In the
United States a sharp decline on Thursday and Friday carried

prices of many issues down considerably more than a point.

-2-

390

Trading by foreigners in United States stocks showed no
definite tendency for the week as a whole. (See Chart 4.)
On Saturday, Monday, and Tuesday, the balance was toward net
sales, especially on Tuesday when the volume of sales increased
and the United Kingdom was the biggest seller. On no day have
thelast
netmonth.
sales equalled those of the two heaviest sales days
of

The discount rate of 4 per cent established by the Bank of
England on Thursday raises the rate to a level not equalled
since 1932. The decline of the pound sterling on Friday from
$4.68 to a low of around $4.42 was accompanied by a decline in
the franc from 2.64-7/8 cents to a low of around 2.51 cents.
Business Activity
The New York Times Index for the week of August 19,

estimated from all components except cotton mill activity,
was up 0.2. (See Chart 5.)
In spite of a sharp decline in automobile production and

a slight falling off in "miscellaneous carloadings", the
increase in other components was sufficient to raise the index
slightly. The seasonally-corrected index for electric power

production was higher than it had been since 1938. (The actual
figure shown on Chart 5 is, according to the New York Times,

an all-time high.) For the week of August 19 "all other car-

loadings" increased somewhat; lumber production and steel ingot
production increased notably.

For the week of August 26, steel ingot production has
shown a slight further increase. Automobile production
increased to 17,465 units from 12,955 the previous week. The
Automobile Manufacturers' Association expects that most plants
will have nearly complete forces at work on new models within
a week or 80.

Apart from components of the New York Times Index, petroleum

production declined steeply for the week of August 19, reflecting
the closing of wells mentioned last week. Engineering contract
awards were again off sharply. F. W. Dodge daily average figures
for total construction contracts and for residential contracts,
however, registered an increase during the first half of August
as compared with the first half of July and with the month of

July.

COMMODITY PRICE INDEXES

STATE

392

PRICES OF SELECTED DOMESTIC COMMODITIES

940

1939
MAY

MAR

TTL

AUGUST

23

27

20

30

GENTS

-

HPT,

MAR.

JAN

NOV.

TTT

TTT

PER
POUND

1939

JAY
11

-

CENTS

Daily Putures

1939

Weekly Averages (Futures)

CENTS

CENTS

PLA

PER

FOUND

FOUND

PER

POUND

Cotton

9.5

"

Cotton

9.5

11

10

9.0

10

9.0

9
9

8.5

8.5
8
a
8.0

8.0

7

7

CENTS

CENTS
PER

6

PER

BUSHE

6

BUSIC

Wheat

CENTS

CENTS

Wheat

PER

PER
70

BUSHEL

BUSNES

70

80

w
65

65

70
70

60

60
60
60

55
so

55
so

GENTS

as

40

CENTS

40

PER
PER

POUND

FOUND
CENTS

CENTS

Lard

PER

Lard

PER

6.5

FOUND

6.5

FOUND

7

mm

6.0

6
6

5.5

6.0

N

5.5

5
s

5.0

5.0

4

.
13

13
is

Hides

is

Hides

v

13
12

to

11

"
11

"

9
9

10
10

.
a
7.4

Cottonseed 011

7.0

7

Cottonsoed 011

6.5

7

6.5

6

6.0

.

6.0

5.5

5
5.5

5

5.0

5.0

.

4.1

Copper

4.5
12

10.0
12

-

10.0

Copper
9.5
10

10

9.0

9.5

9.0

8.5

8.5
a

8.0

.

8.0

MAR.

MAY FUTURES

MAY

-

JAY

SEPT.

939
SEPT. FUTURES

(HIDES, JUNE FUTURE) (GOTTON, OCT. FUTURE)

DEC. FUTURES

NOV.

JAN.

MAR.

941

MAY FUTURES

IIII
6

LIII

ULL

23

IIII

IIII

IIII

m

FILLER

7.5

27
20
13

7.5

6

-

III

III

30

AUGUST

16

JAY

1939

39

*SEPT. FUTURES
OCT, FUTURE.)

(MIDES, JUNE FUTURE)

la

6

-

PRICES OF SELECTED IMPORT COMMODITIES

MAR.

JULY

MAY

SEPT.

Daily Futures*

1939

1939

Weekly Averages (Futures)
1939

1940
TTT

CENTS

CENTS

27

TITTIT

TTTT

CENTS

x

23

MAR.

JAN

20

13
16

NOV.

AUGUST

MAY

CENTS
PER

PER

PER

PER
POUND

POUND

FOUND

Rubber

POUND

Rubber

20

20

18
18

18

17

18
17

16

16

16

16

14

14

IS

IS

12

12

7.0
7.0

Coffee

Coffee

.
6.6

n

a

6.6

7

6.2

6

5.8

n2

6.2

5.0

5

5.4

s

5.4

2.1

2.1

Sugar

4
4

Sugar

2.4

2.4

2.0

2.2

1.9

2.2

2.0

2.0

s

1.9

1.8

1.8

2.0

1.0
1.8

1.7
1.7

DOLLARS

DOLLARS

PER

1.6

FOUND

POUND

1.6

2.90

2.90

Bilk

1.4
1.4

DOLLARS
DOLLARS

2.80

2.80

2.70

2.70

PER

PER

POUND

POUND

2.80

Bilk

2.80

2.60

LINY

2.60

2.60

2.40

2.40

2.50

2.60

2.50

V

2.20

2.40

2.20

2.00
2.00

2.40

2.30

2.30

1.80
1.00

2.20

2.20

1.60
1.60

CENTS

CENTS
PER

PER

POUND

POUND

CENTS

Tin

PER

CENTS

POUND

Tin

PER

52

52

POUND
56

54
50
50

52

52

48
48

48

48

46

46
44

44

44

44
40

40

36

m
JAN.

LLLL

direi
MAR.

36

11111 IIIII 11111 11111 III

42

20

MAY

JULY

NOV.

19 39

JAN.

30

6

MAR.

940

JAY

1939

AUGUST

393

*SEPT. FUTURES.
MAY FUTURES

42

27

13

23
16

SEPT.

SEPT. FUTURES

- DEC. FUTURES

MAY FUTURES

(SUGAR, JAN. FUTURE)

P.M.S.A.
Chart 1b.

was
Methor Lands

Britaarised
Builseriand

Office of the Secretary of the Treasury

- of Research and States

GENERAL BUSINESS
Weekly
SENSITIVE COMMODITY PRICES

BUSINESS ACTIVITY
PFR

Seasonally Adjusted

CENT

Eat Normal

1936-100

RER
CENT

7100

120

110

-37

110
100

100
40

90
80

>
80
70

Times
60

STEEL INGOT PRODUCTION
Per Cent of Capacity

PER
CENT

70

MAR

JAN

JAN MAR MAY JULY SEPT NOV
THOUSANDS

NOV

ELECTRIC POWER PRODUCTION

AUTOMOBILE PRODUCTION
U.S and Canada

CARE

SEPT

JULY

MAY

KW HRS

BILLIONS
2.4

150

23

80

125

22

100mg

100

60

2.1

many

75

40

so

20
25

w

20

19
vae

.

- (tax -

Were's Eat

American -

0 JAN MAR MAY JULY SEPT NOV

0 JAN MAR MAY JULY SEPT NOV

JAN MAS MAY JUL: TEST NOV

17

CONSTRUCTION CONTRACTS AWARDED DAILY AVERAGE DOLLARS
DOLLARS

Total Dodge

DOLLARS
MILLIONS

DOLLARS
MILLIONS

Heavy Engineering
the News Rec

MILLIONS

Residential F Dodge

I'm
.

MV

10

MMW
The

PER
CENT

0

COTTON MILL ACTIVITY
Est Normal 00 Adjusted

JAN MAR MAY JULY SEPT NOV

BITUMINOUS COAL PRODUCTION

LUMBER PRODUCTION

SHORT TONE
MILLIONS

1029-31-100 Adjusted

PER
CENT

JAN MAS MAY JULY SEPT NOV

2

JAN MAS MAY JULY SEPT NOV

I.B

100

100

40
80

N
120

60

00

WMV

12

40

-

80

as Coal -

.. Times
60

JAN MAR MAY JULY SEPT NOV
PETROLEUM PRODUCTION

PER

1923-25-100

CENT

20

MAR 3019 UT NOV

JAN

JAN MAR MAY JULY SEPT NOV

FREIGHT CAR LOADINGS
THOUSANDS

LCL and Miss

THOUSANDS

CARS

Total

400

190

500

180

800

170

700

160

ADD

180

500
140

Dear Comm

130 JAN MAR MAV JULY SEPT NOV

mmr

novem
market

400

400

300

.. date

200 JAN WY MAY 3019 EYET NOV

397

August 25. 1939
To:

398

The Secretary

From: Mr. Hanes

At the suggestion of Mr. Edward R. Stettinius, Dr. Harold Moulton,
Brookings Institution. came in to acquaint us with the program which is
in the process of formation by the National War Resources Board, consisting
of Mr. Edward R. Stettinius, Dr. Karl T. Compton. Mr. Walter S. Gifford,
Dr. Harold G. Moulton, Mr. John Lee Pratt, General Robert E. Wood, and

Mr. John Hancock.

He stated that it was the opinion of the Board that upon the outbreak
of war a certain price rise was unavoidable, and in the case of some farm
products, would be highly desirable, so that they had no idea of recommending any price fixing at the outset in the event that we were remaining

neutral. They did not anitcipate any rapid general rise in prices.

However, in case this country should become involved in a war, a program
had been worked out with the aid of the Army laying down its specific

schedule of the growth in our national forces, together with the constant
demand for materials and supplies, including foodstuffs, clothing, arm-

aments, and ammunition. Such schedule calls for 400,000 men in the
Army mobilized in the first 30 days: 1,000,000 men mobilized at the end
of 90 days; 4,000,000 men mobilized at the end of the tenth month. In
the interim all necessary equipment, supplies, etc., would be secured
on a well-ordered and planned basis.

In order to effect such a mobilization the War Resources Board assumes
some responsibility for recommending control of prices on the basis that a

general rise in the price level would not aid this country in prosecuting
a war. On the other hand, with the increased volume which would be obtained by enormous war purchases, they are inclined to recommend lower

prices with increased volume. In this recommendation it is their plan
to ask key men enrolled in all kinds of industry to agree. In other words,
they are going to try to sell the business people the idea which they
firmly believe that after the war is over a tremendous inflation in
prices represents (1) an enormous liability to the country and calls for
a process of deflation which at the end causes everyone in the country
untold suffering, (2) that in operating industry in this country during
the war emergency at full capacity, no rise in the general price level
would be allowed either for war materials or supplies, (3) this would
make the problem of industry very much more simple in working with certain
labor and the labor organizations, and they do not contemplate any rise

in labor rates beyond a generally comfortable and satisfactory level. It
is their opinion that some commodity price rise in farm products should
be allowed and even encouraged. but in the case of no other supplies. In

conclusion, in case this country should become involved in war, the emergency
powers would have to be given by Congress to control the price level and
keep it within reasonable bounds.

Query: Would this program as outlined above make it difficult for
the Treasury to finance itself during war? Also, in the opinion of the
Treasury, would such a program have any material effect upon the Federal
revenue? I told Dr. Moulton we would give this matter immediate study.

J.W.H.

August 25, 1939.

99
NEWORANDUM TO THE FILES,

At the suggestion of M Stettinins, Dr. Maroli Moulton, Brooking
Institute, case in to requaint us with the program which is in the
process of formation by the National for Resources Toord, consisting of
Mr. Edward R. Stettinius, Jr., Dr. Zarl T. Compton. Mr. Malter 5. Diffort,
Dr. Marold G. Moulton, Mr. John line Fratt, General Robort E. "food. No
stated that it - the opinion of the Board that upon the outbreak of
- = certain price rise this unavoidable, and in the are of some farm
products, would be highly desirable, an that they had no Men of reconsending any price fixing at the outset in the event that - were remainin neutral. They 414 not anticipate any rep14 memoral rise in prices.
However, in case this country should become involved in a Mr. A progress
and been worked out with the aid of the Army laving down its specific
schedule schedule of the growth in our national forces, together with

the constant Aerna for mtarials and supplies. including foodstuffs,

alothing, armanents, and ammition. funh schedule calls for 100,000 men
in the Army mobilized in the first 30 days: 1,000,000 nen robil ized at
the and of 90 days: 4,000,000 non mobilised at the and of the tenth month.
In the interin all necessary equipment, supplies, etc., would be segured
on n well-ordered and planned basis. In order to effect such a mobiliaction the for Resources Poard namues some responsibility for recommend-

the control of prices on the basis that a general rise in the price level
would not aid in this country in prosecuring n mar. on the other hand,
with the increased volume which would be obtained by anormous war pur-

chases, they are inclined to recoment var prices with increased volume.
In this recommendation it is their plan to ask key mon enrolled in all

kinds of Industry to agree. In other words, they are going to try to
sell the business people the idea which they firmly believe after the

Mr. is OVER a tremendous inflation in prices represents (1) an enormous

liability to the country and calls for a process of definition whichin at

the and causes everyone in the country untold suffering. (2) that
operating industry in this country during the mr emergency nt full
capacity. no rise in the general price level would be allowed either for
war materials or supplies, (3) this would make the problem of industry
very much more simple in working certain labor and the labor organismtions, and they do not contemplate any rise in labor rates beyond .

generally comfortable and antisfactory level. It is their opinion that

some commodity price rise in farm products should be allowed and even

encouraged, but in the ease of no other supplies. In conclusion. in

once this country should become involved in mr. the emergency powers
would have to to given be Congress to control the price level and keep
it within reasonable bounds.

%ould this program na outlined above make It difficult for
Treasury Query: to finance itself during mr? Also, in the opinion of Federal the

Treasury. the would such n program Have any material effect upon the study.

revenue? I told Dr. Moulton are would give this matter immediate

JWHICE

for Seen
Cabinet meeting - Friday, August 25th - two o'clock

400

The President instructed the Treasury to emmine the question of
whether we had a right in the protection of the property and lives of
the crows of belligerent vessels in the absence of a declaration of war
by this country, to assume command of such vessels, put our own crew of
senmen aboard, and take off the foreign crows. Since it is up to us to
assume responsibility for their safety. the only way we can assume this
responsi ulity would be that - actually put our own nen aboard to watch
them. I have taken this matter up with Hantington Cairna, who in turn
is working with the Department of Justice and is finding out exactly
what we could do in the absence of the declaration by the President of
a national emergency. The President called attention to n method of
handling and stopping boats that try to leave our harbors without
clearance papers. According to his instructions, I have discussed the
following memorandum addressed to Herbert Caston, and we have an opinion

from Frank Murphy (photostated copy attached hereto). The opinion was
communicated to Collectors of Customs throughout the United States on
Saturday morning, August 26th. The President requested State, Treasury.

and Justice to cooperate in producing a list of things (1) which the
President could do in the absence of a declaration of national emergency
and also (2) which should be done which would require the declaration
of A national emergency. This has been attended to. Huntington Cairns
has had several meetings with the Department of Justice and State offinials, and we are now in the process of making up n complete program
in accordance with the President's wishes.
The President advised me that someone in the Securities Exchange
Commission had called him up to complain about the manner in which the
Government bond market had been handled. I took quite n good deal of
time explaining to the President the care with which we have been

handling this situation and the absolute agreement of all experts in
the Treasury and the Federal Reserve that the Government bond market

was too high and that we did not see any reason to PO in and try to protest the profit of the private banks which bought bonds much lower down that the decline in the Government bond market had been very orderly,
with no panic selling in evidence from any quarter. On the contrary,
in the absence of selling by the large institutions and in several
instances, notably the Guaranty Trust and the National City Bank were
large purchasers on R scale down. I reported to hin that we had not
bought any bonds up to the close of Friday for Government account. and
that we did not intend to buy any except a very moderate amount, just
enough to provide an orderly decline If they wanted to CO down. Then
I had finished, the President remarked he and told the Secretary the
bond market ma too high and that the manner in which we had handled it
seemed sensible to him and he was completely satisfied.
The Cabinet meet ing ended with the President advising the Commerce
Department to work in close cooperation with the State Department in

the matter of working out a program of operations in the event of the

-2-

401

declaration of war in which we were not a participant, so that we could
operate under the Neutrality Act and continue to sell certain types of
war supplies to friendly nations without violating the Act. He cited
as an example the selling of airplane motors to private firm in Canada
for motor boat use.

The balance of the meeting was taken up with a discussion by the
President in general terms of his movements toward peace in connection
with the latter note he had directed to Italy, Poland, and Germany.
The President handed me back the memorandum which was dated

August 24th regarding Mr. Allan D. Jones as Collector of Internal Revenue
at Richmond, Virginia, and he save ne instruct ions to proceed with this
appointment. He also instructed ne to proceed with the appointment of

Mr. Elliott Health as Collector of the Port at Norfolk, Virginia.
Attachments:

(1) Memorandum to Gaston.

(2) Opinion - Justice Department.

JWH18

402

August 26, 1939.

Memorandum to the files:
Conversation between Ronald Ranson of the Federal Reserve Board and

Under Secretary Ranes. Time 9:23.

Mr. Ranson: Johnny, I have the four members of the Executive Committee
of the Open Market Committee in the room here now with the
loud speaker. I just talked with George Harrison, and we
thought it advisable to talk to you just a moment and see
if you felt if the market became very active today and

stayed up even as far as it did yesterday it would be a
good policy to put in any selling orders.

Mr. Hanes:

Danny Bell and I had a discussion about this yesterday, and
we thought it would be a good time to do it.
concluded from our own standpoint that since we were dealing primarily, wholly with trust funds, ve would not be
selling and buying, especially since the market has gone
down a little bit, so we just stayed out, but we thought
If the market could take it
it was a good time.
We

without injury.

Mr. Ransom: I haven't changed my opinion about that
Mr. Hanes:

and I don't think we should be taking what might be considered a speculative action with the public trust funds.

Mr. Ransom: No.
Mr. Hanes:

But in your position. I don't see any objection to it

because we are not through with this thing yet by any means.

Mr. Ransomi of course. if in the last few days we had had to buy anything, we would have done it on the up side if it was strong
and the market was adequate to take it, but in view of the

fact that the market is taking care of itself, thought we
might take the position that we will let it take care of
itself for the time being as long as the volume isn't very
substantial either way. Volume is a very important factor.
I think that our purchases could be proportionately large.

If the upturn is disorderly and wholly out of line. we
could very well afford to ease that situation by doing
something about it. What I would like to see in the market
myself is a good deal of stability and not so much fluctuation. I think it is just as unhealthy to have a runaway
market on the up side as on the down side.

403

Mr.

Trying to keep 18 stendy and stable Father than one Jumping

a point and a half OF a point and a quarter or . point cres.
that is what makes people nervous.

-

Mr. Ransons These sulder Jumps seem to be largely in just one issue
shan somebody's trying to got a buyer or seller, but 19
doesn's affect the whole average.
Mr. Hance:

So we will watch it during the day, and if something develope

on the up side which is a bit disorderly, we will try and
do something about 10.

1g

August 26. 1939.

Memorandum to the Files:

Conversation between George Harrison of the New York Federal Reserve
Bank and Un IT Secretary Hanes. Time 9:11 until 9:16.

Mr. Harrison: I just want you to know that we are standing by here in
New York if you were wondering about the banks being

open. Ve are open as far as bond market is open. I
don't think there is going to be such activity. Our
plan would be to start same as yesterday. Now, in the
absence of any news I question very much whether there
will be much doing.

Mr. Hanen:

Yes.

Mr. Harrison:

But if there is I just wondered if you had any slant on
things to give no.

Mr. Hanes:

I haven't, George. The situation doesn't look very different down here than it did last night. I believe the
feeling in the market will be bad. I just have a hunch
that something's going to happen in the next twentyfour hours. We ought to know the answer of this thing

by then.

Mr. Harrison: I heard there was some criticism of our handling the market?

Mr. Hanes:

I traced that down and I don't think it was nearly as
serious as it sounded. I think it was just a comment
more than a criticism.

Mr. Harrison:

Thank you for what I heard you did.

Mr. Hanes:

I am sure it turned out all right because he told another

member of the Cabinet after the meeting he was entirely

satisfied, he thought that was a great job. As a matter
of fact. he said the dann things were too high anyhow.
I didn't mean to start any rumpus.

Mr. Harrison: I did not think that it was. You know, when you are in
the thick of a fight you want to be sure you are not out

on a limb. I think we made only one mistake, and that was
that we did not let some bonds go yesterday around
1 o'clock.

Mr. Hanes:

Well. you know the funny thing is Danny and I sat down
and talked about that very thing, and we decided that
we couldn't because we are dealing with trust funds and
we don't think we can take a chance with them.

404

405

-2Mr. Harrison: If I had been operating it all alone and could have
gotten on the telephone to check it with you. - but by
that time it would have been too late.
Mr. Hanes:

We all had the same feeling.

Mr. Harrison: I don't think it made any difference. I say that was
possibly a mistake.

Mr. Hanes:

Yes.

Mr. Harrison: I am not sorry that we did not do it.
Mr. Hanes:

Well, I don't think we need worry about that one. If we
make no worse ones than that, I'11 be very happy.

Mr. Harrison: Even at that, it followed the markets yesterday. Stock
market went up pretty high, and dropped off at close be
low the high. Foreign exchange did exactly the same thing
sterling did. It followed generally the markets yesterday.
Bolstered things up very, very rapidly. Things eased off
a little bit. On the whole I thought the performance yesterday was very satisfactory and a good lesson.
Mr. Hanes:

Right. Well, George, Archie Lochhead is here. Let me see
if he's got anything - - I thought maybe he had something
on his mind, but he hasn't.

Mr. Harrisons Now if you have got any suggestions, even if it is somelet me have it, because I
thing short of
like to assume that we are playing hand in hand on things.
Mr. Hanes:

You are absolutely right. We have confidence in you fellows.

Mr. Harrison: Righto.
Mr. Hanes:

Thank you, George.

1g

For Sein
406

Office of the Attorney General

S OF SECURITY

Washington D.C.

a

August 26, 1939

The Honorable

The Secretary of the Treasury.
My dear Mr. Secretary:

Reference is made to your informal request for my opinion
concerning the authority of the Commandant of the Coast Guard

to issue the following instructions:

Collectors of customs have been advised to enforce

strictly all laws and regulations concerning the
clearance and departure of foreign vessels. You are
instructed to cooperate fully with collectors and are
authorized to use all necessary force within
territorial waters and on the high seas to compel
compliance with such laws and regulations.
The proposed instructions have my approval as to form

and legality.
Respectfully,

Attorney General

407

August 26, 1939

Mr. Henes

Mr. Classer

Subject: United States Action in the Field of Foreign Exchange During
the Great War

The following is the action which was taken by the United States
in the field of foreign exchange and security markets during the Great
Yars

During the Period of Neutrality
1. The New York Stock Exchange voluntarily closed on July 31,

1914. Although the sales of large bloos of stocks were thus halted,
unofficial trading between individuals on Wall Street sidewalks began

after a few weeks and continued until the Stock Exchange WRS opened.
On November 28, the exchange was partially opened for trading in bonds
at fixed minimum prices. On December 12, 1914, trading in stocks was

resumed on a restricted basis, subject also to minimum prices. These
restrictions were gradually relaxed and were finally removed on April 1,
1915. The Stock Exchange did not close in April 1917 when the United
States entered the war.
2. The Treasury made available to banks during August and October,
1914, a large amount of emergency currency to take care of extraordinary
demands for currency resulting from the withdrawal and hoarding of lawful money by banks and individuals. The Federal Reserve Banks opened
on November 16, 1914, and currency requirements were subsequently funnished by such banks.
3. The Treasury (August 1914) called a conference of bankers and
business men for the purpose of restoring the foreign exchange markets
(and the commodity export trade) which had been disrupted by the outbreak of war. This conference adopted resolutions and committees were
set up to work out the best means of solving the problem in ocoperation with the government.
4. The Secretary of the Treasury and Federal Reserve Board approved
on September 21, 1914, a plan for setting up a gold fund of $100 millions
the gold was contributed by banks and trust companies and the fund was
administered by a committee of bankers in New York. The establishment

cc. judge Townsend Justine
Woodling Thomas. F.R.Bd
Leon Henderson. SEG.

00
Mr. Hanes - 2

of this fund is supposed to have had a salutary effect on exchange
although there is no information readily available as to its operations. Only a comparatively small percentage of the amount subscribed
was actually called for (about 25 percent), and not more than $10,000,000
was actually exported to furnish a basis for selling foreign exchange.
On January 22, 1915, the managers of the gold pool decided to return
to subscribers the balance of their payments.
5. The Federal Reserve Board discouraged the purchase of new foreign securities for a time. The Federal Reserve Board in a statement
to the press on November 28, 1916, advised the banks of the country

that it does not regard it in the interest of the country at this

time that they invest in foreign tressury bills". The Board modified
its attitude through a statement on March 8 in which it said: Since

the 28th of November the country's gold reserve has been further eaterially strengthened and supplies a broad basis for additional credit.
The Board considere that banks may perform a useful service in facilitating distribution of investments and in carrying out this process
they may with advantage invest a reasonable amount of their resources

in foreign securities."

6. Two months before the United States declared war the President

stated that property of resident aliens would not be touched if the
United States were to enter the war. On February 8, 1917 the President
stated, "The Government of the United States will in no circumstances
take advantage of the state of war to take possession of property to
which international understandings and the recognized law of the land

give it no just claim or title. It will scrupulously respect all

private rights alike of its own citisens and foreign subjects." The

President made this statement in answer to widespread withdrawals of
currency and fear of confiscation of bank deposits belonging to alien

residents in this country.

After Our Entrance into the far
1. on September 7, 1917, five months after the United States
entered the war the President, under authority of the Act of June 15,
1917, issued a proclamation prohibiting the exportation of coin, bullion and currency on and after the 10th of September, 1917, except
under Presidential regulations.
on September 7, 1917 the Federal Reserve Board in conjunction with

the Presidential Proclamation imposing restrictions upon the exportation
of coin, bullion and currency, informed the member banks that the earmarking of gold from foreign individuals, firms, corporations or governments being equivalent to the exportation of gold, that in the public
interest it requests that no more gold be earmarked for foreign account
except upon approval of the Board.

109
Mr. Hanes - 3

Previously, on August 13, 1917, the Federal Reserve Board addressed

a letter to all Federal reserve banks calling their attention to the
question of shipments of gold and all remittances to foreign countries.
The Board called attention to a letter received from the Secretary of
the Treasury in which it was stated that: "It seems important that close
attention to given to shipments of gold and to remittances to foreign

countries and I am therefore requesting the Federal Reserve Board conmunicate with the Federal reserve banks urging that they keep in touch

as closely as possible with transactions of this character and report
them to the Board for my information as well as for the use of the Board."
2. The Treasury Department initiated a series of negotiations
with foreign countries for the purpose of stabilising the exchange rates
between the United States and neutral countries.

Secretary Melddo announced on January 7, 1918 the Treasury had
concluded through the State Department arrangement with the Argentine
Government to stabilize exchange between the two countries.

on May 13, 1918 the Secretary of the Treasury, in a letter to
the Senate in reply to an inquiry put before him with respect to for

eign exchange, stated: "Agreements have been made with certain neutral
countries in Europe and with countries in South America and elsewhere

involving financial considerations and tending to protect the value
of the American dollar. Agreements involving like considerations are
in process of negotiation in other countries and in certain neutral
countries steps have been taken to provide for payments required therein

preliminary to the institution of negotiations.

The United States Government permitted, by the use of its loans
and credits, the support of the exchanges of Great Britain, Canada,
France and Italy upon the United States exchange markets during the
period we were in the war.

3. Foreign exchange control during the war

(a) The first step towards control of foreign exchange was
advisory only, and related to exchange transactions for enery

aliens.

On May 10, 1917, the Federal Reserve Board acting upon ad-

vices received from the Department of state, transmitted to the
Federal reserve banks for re-transmission to member and other

banks in the several districts for their guidance a letter re-

lating to transactions of American banks which involve dealings
with alien enemies. 'The Board is advised that the state Depart-

ment is andious that bankers throughout the country should be warned
that they should serutinise most carefully every application made
to them involving the transfers of funds to neutral European

countries, which transfers seen intended to give aid to the

410
Mr. Hanes - 4

enemies of this country either directly or indirectly. The

Board is further advised that the State Department is interested
in banking transactions between this country and Mexico or other
Latin American countries."
(b) From the time we entered the war until January 28, 1918,
there had been nothing to prevent banks from making remittances
according to their own discretion and judgment except in cases
where there was reason to suppose that the transactions proposed

to them are for account or benefit, direct or indirect, of an

enemy alien in which event it was necessary to bring the matter

before the War Traile Board.

(e) In January 1918 the Federal Reserve Board, acting for
the Secretary of the Treasury, established supervision over all
foreign exchange transactions and prohibited transactions which

directly or indirectly were for the benefit of enemy countries.

By terms of the circular issued to the public on January 28 under
the authority of the executive orders of October 12, 1917 and
January 26, 1918 and the order of the Secretary or the Treasury
of November 23, 1917, which provided for definite regulation of
foreign exchange transactions, the Federal Reserve Board put into
practical operation supervision over foreign exchange. The supervision called for the creation under the direction of the Federal
Reserve Board of a system of regular reports submitted by all
persons engaged in foreign exchange business of every description
and enabled the Board to maintain a careful oversight or check
upon practically the whole exchange business of the country.
Licenses for foreign exchange were regularly issued to applicants
under provision of the new order.

4. On July 9, 1917 the President issued a proclamation under the
authority of the Act of June 15, 1917, imposing restrictions on certain
exports and providing for licensing of exports from the United States.
The licensing of exports was under the jurisdiction of the Department
of Commerce.

5. Capital Issues Committee was created early in 1918 to pass
upon proposals for the issuance of new securities to determine whether
or not the issuance of such securities was compatible with public
interest.
On January 27, 1918 the Secretary of the Treasury issued a statement "In the pending action by Congress I have requested the Federal
Reserve Poard to pass upon such new issues of securities as may be
submitted to them or referred to them by me and advise whether or not
such expenditures or capital on such issues of new securities should
be made." To carry out this work the Federal Reserve Board created
a Capital Issues Committee which passed upon cases voluntarily submitted

to it.

41
Mr. Hapes - 5

In order to give this plan the sanction of law a Capital Issues
Committee was created by Title II of the War Finance Corporation Act,
the committee consisting of 7 members appointed by the President. The
legislation suggested by the Secretary of the Treasury provided penel-

ties for the sale of any such securities without first obtaining the
approval of the committee. During the progress of the bill through

Congress, however, the power of the committee through these penal provisions to compel compliance with its determination was eliminated.
While the committee was given power to investigate proposed sales
of recurities and to determine whether or not such sales were compute

ible with the public interest no penalites were prescribed for failure

to submit to the committee proposed new security issues. In carrying
on its work the committee was therefore forced to rely upon the patriotism of persons proposing to issue securities to submit such securities
to the committee and also upon what moral pressure the committee could
bring to bear to induce the submission to it of proposed security issues.
The committee examined nearly 2,000 applications from May 17,

date of its organisation, down to October 2, 1918, and these applica-

ions covered proposals of security issues aggregating approximately
$2,300,000,000. About 20 percent of these applications were disapproved
and these were mostly of a character involving new extensions which
would not be contributory to the winning of the WAT.

HO:JSH:1rs
8/26/39

411-A

PLAIN

CJ

LONDON

Dated August 26, 1939

Rec'd 7:40 a.m.

Secretary of State,
Washington.

1266, August 26, 1 p.m.
FOR TREASURY FROM BUTTERWORTH.

The Emergency Powers Act which was passed cn Thursday

night authorized the Government to commandeer and requisition

property of all kinds, to enter and search any premises,
to delegate powers to any person or organization and to
conduct legal actions in camera. It also gives the Government blanket powers to do anything which may be "necessary

or Expedient for securing the public safety, the defence
of the realm, the maintenance of order and the Efficient
prosecution of any war" the only EXCEPTION being the power

to conscript men for military and industrial purposes. It
is under this act that Emergency financial measures can be

taken by issuing orders in council which will go into force
at ONCE and will be ratified by Parliament within 28 days
and prolonged on expiration by Parliamentary resolution.
Phillips said today that for the moment nothing was being
done and that he would KEEP in touch with ME. The press
comment

411-B

-2- #1266, August 26, 1 p.m., from London

comment this morning on the withdrawal of official support
to sterling indicates that the move was a surprise to the City
which had Expected further measures of exchange control to

protect the gold resources but most financial writers allege
that for SOME time sterling has been "overvalued in terms

of the dollar" and the fact that yesterday's net movement
resulted in a fall of only about 41 percent was taken

as an indication of relative strength, one financial daily
notes that there was SOME heartburning OVER the T ofits

which must have accrued to bears of sterling while those
who had observed the Government's request to refrain from

unnecessary purchases of foreign currency suffered losses,
but in general the move has been received as more desirable

than Exchange control so long as a state of war does not

actually Exist. All financial writers Emphasize that the
parties to the Tripartite Agreement gave their approval to
the move. With yesterday afternoon's optimism considerably
lessened the foreign exchange market has been fairly active
this morning, deals being mumerous but the individual amounts

small, the rate fluctuating between 4.36 and 4.41 with
most of the business done at around 4.40 and sterling

closing 41-42, 65 bars of gold WERE sold at the fixing,
the prices of 155s giving a discount of about ES.8d market
buyers and sellers accounting for the whole turnc/Er. After
fixing

411-C

-3- #1266, August 26, 1 p.m., from London

fixing transactions were small and done at around the

fixing price.
KENNEDY
WWC

411 - D
PAP

GRAY

PARIS

Dated August 26, 1939

Rec'd 9:45 a.m.

Secretary of State
Washington

1605, August 26, noon
FOR THE TREASURY

Extremely active Exchange transactions between banks

this morning showed considerable but nothing
approaching a panic. The pound was quoted at 4.40 to

the dollar in early trading, dropped to 4.36 and closed at
4.38 The French fund was a buyer of sterling in considerable
quantities at 175.24. The franc against the dollar was
quoted at 39.75 and closed at 40.05. By way of C verting
part of its sterling into dollars the fund purchased 2,700,000
through the Guaranty Trust. There WERE no forward quotations

and no arbitrage operations, the money market was practically

nonexistent. The belga, Swiss franc and florin contined to

follow the dollar.
An official announcement was published this morning to

the Effect that the Minister of Finance does not envisage,
"under the circumstances", the introduction of moratorium

measures or the limitation of withdrawals of deposits in
banks or savings banks.
BULLITT

411-E
PARAPHRASE OF TELEGRAM SENT

TO: American Embassy, Paris, France

DATE: August 26, 1939, noon
NO.:

655

FROM ACTING SECRETARY HANES FOR AMBASSADOR BULLITT.

Reference is made to your telegram No. 1591. Such
payments from the Stabilization Fund are made only in
accordance with personal arrangements by Secretary Morgenthau.

I prefer that this matter be held up until his return in
view of the circumstances.
HULL

EA:LWW

411-F
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France

DATE: August 26, 1939, 10 p.m.

NO.: 1609
FOR THE TREASURY.

Bearing in mind the telegram of April 12 from the
Department, No. 261, we called on Rueff this afternoon.
We asked whether any plan of action had been formulated by

the French with respect to possible requisition or liquidation of American securities under French ownership, French
bank balances, and other investments in the United States.

A firm negative reply was made by Rueff. He said that the Briti
had drawn up certain specific plans last year, and he was
of the opinion that in Great Britain the knowledge of their
existence had had a bad psychological effect.

It is the opinion of the Embassy that this "unsuccessful
precedent" has been a determining factor in influencing
the French against adopting any similar course of action

at the present time, or even of admitting that the matter
is being considered.
We told Rueff that this subject was one which naturally
held considerable interest to the United States Government.

We hoped and felt confident that we would be fully consulted

prior to any action in this connection, in view of the
clost financial relations existing between the United States
and France. We were assured by Rueff that should the

adoption

411-G

-2adoption of such measures be made necessary by subsequent

events, he would bear very much in mind our desire for

prior consultation.
Rueff mentioned that France today is in a comparatively

strong financial position. It is our belief that nothing
has happened to change the viewpoint of Reynaud and other

French financial officials as set forth in the Emgassy's
telegrams No. 620 of April 3 and No. 722 of April 12.
It seemed to us that Rueff was quite satisfied with the

financial situation since the British decision of the
night before last. He said that in trading yesterday and
today France had gained about 350,000,000 francs in gold.

However, as to the international outlook, he seemed to be

obviously pessimistic, possibly because the printing office
had just informed him that three more classes - an additional
700,000 men - were being called to the colors.

At the French Finance Ministry, the corridors were filled
with small groups of serious-faced employees, some of them

being in uniform, who glumly discussed the situation. Their
air of quiet determination impressed us. Ardant and some
of his banking associates were there, waiting to see Rueff;
Ardant said that the Societe Generale (he is the Managing

Director) plans to go ahead with its idea of setting up a
branch in New York - reference telegram No. 1403 of July 28
from the Embassy. Ardant said that Chadenet would probably
go

411-H

-3go to the United States in a few days "unless of course he

is mobilized"; if he does go, herplans to call at the Treasury
in Washington.
END OF MESSAGE.

BULLITT.

EA:LWW

411-I
PARAPHRASE OF EXCERPT OF TELEGRAM RECEIVED
FROM:

American Legation, Stockholm, Sweden

DATE:

August 26, 4 p.m.

NO.:

59

The Rike Bank, pursuant to the action of the Bank

of England yesterday, is not authorizing purchases of
foreign exchange except in the case of an emergency.

Foreign exchange sales are still at the same rate as
of August 24th.

The Legation has been confidentially informed by

the Governor of the Riks Bank that he will call a committee meeting for tomorrow. At the meeting he intends
to recommend that there be no increase in the rate of

discount in this country.

EA:MSG

411-J

GRAY

ML

Berlin
Dated August 26, 1939

Rec'd 4:30 p.m.

Secretary of State
Washington

925, August 26, 5 p.m.
Number 57. HEATH FOR TREASURY.

In spite of the presumable
increase in Government outlay
quasi

loans as the result of the/mobilization of the German army
the Reischbank statement for the third WEEK of August shows

no increase in currency circulation the total being 10,889
million marks as compared with 10,895 million marks at the
middle of the month. Normally, however, the third WEEK

should show a considerable decline in circulation. The
Government, however, indulged in considerable direct borrowing from the Reichsbank the item "miscEllaneous assets",
which COVERS the Government's operating credits, showing an

increase of 318 million marks OVEr the position of August
15th.
KIRK

HPM:GW

21(f)
MISC

412

FEDERAL RESERVE BANK
OF NEW YORK

DATE August 28, 1939.

OFFICE CORRESPONDENCE
TO

FROM

CONFIDENTIAL FILES

L. W. Knoke

SUBJECT: TELEPHONE CONVERSATION WITH

BANK OF FRANCE.

Mr. Cariguel called at 1:07 p.m. Owing to the French

censorship, he could not get a cable through to us in time, so
would we please take his instructions over the telephone as follows:

"Sell francs against dollars for our
Account S on the basis of 175.22 to the pound net

to us. Buy francs against dollars for our Account
S on the basis of 175.23 to the pound net to us.
We are today buyers of fine gold at 45,834 per

kilo, sellers at 46,057 delivery Paris.
He added that they were now trying to arrange with the censors

for prompt dispatch of their cables in the future.
There was absolutely nothing new that he could tell me.
He had spoken to London a few minutes ago and they also knew nothing.

LWK:KW

413

Saturday, August 26, 1939

Mr. Lochhead called Mr. Brigge, of the State Department, to
inform him of a telephone call he had received from Mr. Alonzo
Irigoyen, Financial Counselor of the Argentina Embassy, at 10:25
A.M. August 26, 1939. from Argentina. Mr. Hanes was present during
the conversation.

Mr. Lochhead told Mr. Briggs that Mr. Irigoyen called in behalf

of the Finance Minister to inquire as to what we intended to do in
the financial markets in the event of the outbreak of war.
Mr. Irigoyen said they were wondering what they should do declare a holiday or close the markets and wanted to know if we

had decided to close our markets or declare a holiday in the event
of war.

Mr. Lochhead told Mr. Irigoyen that we had studied the various
plans and had canvassed the situation thoroughly, but action would
depend on what the circumstances were in our market if war did break

out. He also told him that as far as possible we were going to try
to keep business going as usual. Mr. Irigoyen seemed to be satisfied
with that.
Mr. Irigoyen asked how things were here. Mr. Lochhead said

that all be could tell him was news of a more or less general nature
and as far as real political news, he was unable to advise him.
Mr. Lochhead said there was a little bit less pessimism this morning
than last night and that was about as far as he could go.
Mr. Lochhead said he knew they had sold 250,000 pounds yesterday

and had been trying to buy gold with it in London.

414
-2-

Mr. Irigoyen wanted to know Mr. Lochhead's opinion as to what
would happen to sterling, and Mr. Lochhead said that was something

only the British could say, and it would depend on whether or not
a war broke out.

Mr. Irigoyen was inclined to be possimistic, but said they did
have some fair balances for awhile.
Mr. Irigoyen said he was also communicating with the Argentine
Ambassador and Mr. Lochhead told him he thought it was very wise
to communicate with the Ambassador and let him advise them along

European or political developments.

Mr. Irigoyen said all he wanted to inquire of Mr. Lochhead was

on strict financial details.
Mr. Lochhead told him we would be glad to discuss any strictly

financial questions with him.

AL

Respectfully Referred to
Commissioner of Customs
For

415

Office of the Secretary

m. R. hishwarm

Shanghai, August 26, 1939.

U.S. TREASURY ATTACHE

SHANGHAI. CHINA

JAPANESE RENEWING PEACE CAMPAIGN WITH CHINA

In negotiating peace with China, Japan should not deal with

any party other than Gen. Chiang Kai-shek, according to the opinion of
Gen. Chuchihashi ( ), Commander of Japanese Army in the Shanghai-

Hangchow area. The above is the gist of his conferences with Mr. Chai

Chang-jen a leading Formosan politician in the past few days
during the latter's visit to his headquarters in Hangehow.
Mr. Chai returned from Hangchow on August 23rd and is planning

to go to Tokyo by way of Formosa in a few days. He expects to confer
with various government leaders there concerning the question of peace
with

China. In view of the Russo-German r approachment, Mr. Chai be-

lieves that Japan is now ready to negotiate peace with China. Many
drastic measures planned by the Army and Navy to harass the International Settlement and French Concession have been cancelled on account

of the change of German stand. Wang Ching-wei is losing ground. It
was originally planned by the Army and Wang's group for Mr. Wang Ching-

wei to issue an important pro-Japenese declaration to the nation on Septem-

ber 1st as a preparatory step for the convention of the proposed people's
assembly and the organization of his federated government, but it is be-

lieved tho step will be postponed, if not given up, pending further international developments.
The Japanese Special Service leaders are holding a conference

this morning to discuss further peace terms to offer Chungking. They
are exchanging views and awaiting instructions from Tokyo. In a day or

two, they will approach Col. Sun Li-ping (33.) ), Chungking's Waichiao-to
pu representative in Shanghai, and request him to convey their
proposals
03/13338
Gen. Chiang Kai-shek.

our 072

416

August 26, 1939.
12:23 p.m.

H.M.JF:

I'm ever so much obliged for all the reservations

Hanes:

Yes, well those reservations will be in the hands

H.M.Jr:

Hello

H:

Hello

H.M.Jr:

I don't think I'll use them but it's nice to

H:

Well they are there and they will be in his

you got.

of Joe Kennedy personally.

have them.

hands personally and you can let me know Monday
or Tuesday

H.M.Jr:

That's right.

H:

just what you're going to do and then I'11
instruct Joe what to do with them.

H.M.Jr:

Oh, they're in Joe's hands.

That's right. He 's got the actual tickets and

H:

nobody knows that except you and me and Joe.

H.M.Jr:
H:

H.M.Jr:

O.K. - wonderful.

And if you'll let me know Monday or Tuesday if
you don't want them then I can tell Joe what
to do with them.

I'll let you know in plenty of time.

H:

Righto. Now everything here is a good deal
easier this morning.

H.M.Jr:

Yes.

H:

H.M.Jr:

Government bond market is strong and our stock

market is up $5.00 yesterday and to-day.

What's that?

-2-

417

H:

The stock market I say is up $5.00 yesterday and

H.M.Jr:

Gone up.

to-day.

Yes, it's up two to two and a half points to-day
and it was up about two and a half points yesterday.

H:

H.M.Jr:

Yes.

So the conditions here look very much easier and
there are a good many more signs of hope to-day
than there were last night.

H:

H.M.Jr:
H:

Well I'm delighted.
The last thing we heard broadcast from Berlin
just about a minute ago was that Henderson is on
his way back to Berlin but he won't get there
until late tonight and probably the conference
won't take place until tomorrow morning.

H.M.Jr:

I see.

H:

Now we haven't had any other news of any other

H.M.Jr:

there anything specific you want to ask either
Archie or Danny Bell or Herbert - we're all here.
Well the only thing I know is this that four heads

H:

Yes.

significance. Things are very quiet here. Is

H.M.Jr:

of the Central Banks in Scandanavia are meeting
secretly in Stockholm tomorrow.

And it's just what they're going to do about
their relationship to the pound.

H:

Right.

H.M.Jr:

And naturally they're very much worried about it.

H:

Yes.

H.M.Jr:

You can't get any money here.

H:

Is that so?

-3H.M.Jr:

418

No - they've just cut down. I got a - I didn't
get a hundred dollars cashed but I'm all right but you can't get any money here.

H:

Is that so?

H.M.Jr:

Otherwise, I don't know anything.

Well if you decide to go to London if you want
any money or anything of that kind done for you
just let us know and we'll have it arranged so

H:

that Joe will have it in hand.

H.M.Jr:

Oh well I - they just pass it from one hand to

H:

I see (Laughs)

another. They like me here.

H:

And I don't - ah - I'm just traveling on my face.
I get you - well that's a good way to go. (Laughs)

H.M.Jr:

Here are the plans - unless something changes -

H:

Right.

H.M.Jr:

The family will go on this ship the BERGENSFJORD

H:

Right.

H.M.Jr:

H.M.Jr:

so that you'll know.

and I expect to go up on the cutter, see?

And that's what I have in mind but I figure when
we get up somewhere around Nova Scotia they can
take me off and I can make it in five days.

H.M.Jr:

That's right.
The other way I wouldn't get there until about

H:

Yes.

H.M.Jr:

And Jake Viner is here with me.

H:

Oh good.

H:

September 9th.

-4419
H.M.Jr:

And he's coming with me on the cutter.

H:

Fine.

H.M.Jr:

So I'11 have company.

H:

That's fine. Well I think all arrangements there -

I'm going to ask Herbert to talk with you about that

because he's been in touch with them this morning and
he knows exactly where the cutter is and what the
plans are so unless you want me - I think we're going

to have a quiet time here for the next two or three

days, Henry.
H.M.Jr:

Yes.

H:

It doesn't - I talked with Feis, over at the State

Department, and they feel that way too; they think
the thing is delayed now at any event;for the next
two or three days we'11 just be in suspense but

there'll be nothing exciting.

H.M.Jr:

Well it's been a comfort to me to have you there
John and I think you've done everything fine, as

far as I can tell.

H:

Well I think everything is going along as smoothly
as it could be. I'm keeping a good record for you
so you'll have everything before you when you get
back.

H.M.Jr:

Well that's fine.

H:

And here's Herbert now and he'll tell you about the
CAMPBELL.

H.M.Jr:

Thank you.

Gaston:

I think, Henry, you probably know all I know about
it. The last report I got was that the CAMPBELL
would probably make Bergen on Monday afternoon.

H.M.Jr:

No, I didn't know that; they didn't let me know that.

Gaston:

Well that's the expectation and they said they were
cabling you in response to your cable that it would
take about two hours for her to refuel and provision
and - if prior notice had been given there - and
they were going to communicate directly with the Consul
to make arrangements.

-5H.M.Jr:

420

No I didn't know when she was going to get in. They
think they can make it Monday afternoon.

Yes, be promised to give me a later position but I
haven't got it yet but Covell told me this morning

G:

that they hoped to make it Monday afternoon.

H.M.Jr:

All right.

G:

My own impression has been that it would be late

H.M.Jr:

G:

Monday evening. If I get a later position and time
I'll either cable or have them cable you.
Well if you could get off something - if they could
get off something up until midnight tonight, if
they had anything, I'd like it.
Yes and then you'd get it the first thing in the
morning.

H.M.Jr:

Yes. Now would you do something for me, Herbert?

G:

Yes.

H.M.Jr:

Will you send a telegram to my parents at Bar

G:

Yes.

H.M.Jr:
G:

And something to Mrs. Josten, Falmouth, Massachusetts the same thing.
What's the address - Massachusetts?

H.M.Jr:

West Falmouth.

G:

West Falmouth. West Malmouth, Massachusetts Mrs. Werner Josten.

H.M.Jr:

Harbor, telling them that the family is coming
home by the BERGENSFJORD - don't say - just say
family and that we're all well.

Yes. I don't think I'd say anything to anybody
outside the Treasury about my coming home on the
cutter until I'm actually on board her.

G:

Right.

H.M.Jr:

Don't you think so?

-6-

G:

H.M.Jr:

421

Yes - I think so - that's the idea we've had.
Now I've made inquiries - you'd better know this -

I've asked the Legation here and I've asked the
head of the Travel Bureau if there are any Americans
who can't get accommodations and want to go home
and everybody that wants to go home is being taken
care of.

G:

Everybody is being taken care of - ah-ha.

H.M.Jr:

Butterworth said that he thought I might be criticized

G:

Ah-ha - yes, well I don't think so.

H.M.Jr:

The situation here is quite different than it is in

going home on a cutter.

England. In England they have a thousand Americans

that want to get on board ship and can't.

G:

H.M.Jr:

Yes.

He said there's nobody that wants to get on board a
ship that can't get passage.

G:

In Norway, you mean.

H.M.Jr:

In Norway.

G:

Yes - ah-ha.

H.M.Jr:

Anybody that wants to get passage - the boat is here

that can take them. Furthermore - after all - I'm

not - it isn't as though I was going home on a

G:

H.M.Jr:
G:

H.M.Jr:

pleasure jaunt.
No - no.

It's lousy - I'm a lousy sailor and I expec to be
sick all the way.
Yes (laughs) well The only person who raised it was Butterworth so I
took trouble to inquire and there's nobody around
here who can't get on a boat - who has the price that can't get accommodations.

G:

Yes.

-7H.M.Jr:

So
I don't see why anybody should criticize me,
do you?

G:

I don't think so - none of us think so.

H.M.Jr:

Quite the contrary - I think I ought to get Secret

G:

422

Service costs for being seasick for three days.
Yes, I think so; we might be able to arrange it.

H.M.Jr:

All right.

G:

Johnny wants to speak to you again.

Hanes:

Henry?

H.M.Jr:

Yes.

H:

I just wanted to make sure that you understand, on

this financing business, we're doing nothing until

we communicate with you in any event but since you're
going to leave there - say on Monday we'11 proably
be in touch with you on Monday; we might call you what if we arrange to call you say Monday at noon.
H.M.Jr:

I don't think you'l be able to get me - hello.

H:

Yes.

H.M.Jr:

And I think that we'd better use - I'll be on the

H:

We use Coast Guard - radio - I mean regular radio

H.M.Jr:

Coast Guard radio.

H:

Right.

H.M.Jr:

And I talked to Bell about timing - did he tell you?

H:

Yes.

H.M.Jr:

cutter.

service.

And I thought we ought to handle it the way we did
last year.

-8-

423

All right, that suits us and Danny says that's

H:

fine. I'il let you talk with Danny just for a

minute, if you will, because he may want to add
something to what I said but, in the meantime,

we'll communicate with you before we do anything.
H.M.Jr:

Yes I'd like to be - hello - Johnny.

H:

Yes.

H.M.Jr:
H:

Hello - Johnny.
Yes. Yes - hello

H.M.Jr:

Johnny - is this Johnny?

aH:

Yes that's right, Henry, go ahead.

H.M.Jr:

If you handled it the way we did last year you

wouldn't have to make up your mind until the day
after Labor Day.

H:

That's right.

H.M.Jr:

And I ought to be back by then.

H:

Why, yes certainly - you ought to be back by the
week end - Saturday or Sunday anyway.

H.M.Jr:

Sure.

H:

So that will be all right. We'11 be in touch with

you by radio and if any situation changes at all

here we'll keep you posted.
H.M.Jr:
H:

H.M.Jr:

I'll tell you now a two and a half year 30-35 is a

hell of a long bond at 21%.
Yes (laughs) we agree with that.
While it might sell at a premium it would be awfully
easy for it to go below par.
Right, we agree with that.

H:

H.M.Jr:

Yes.

-9-

42

H:

Well now then you won't hear from us; unless
there's something drastic why we'11 call you - I
mean we'll cable you but everything else is fine
and I hope you have a nice trip home.

H.M.Jr:

Are the people - you say they're much quieter and

the market being up is the best answer, isn't it?

H=

That's right and everybody around this morning
seems to be a little bit more comfortable. Now
that goes for the State Department too.

H.M.Jr:

Do they know what Henderson brought back?

H:

No.

H.M.Jr:

They don't.

H:

No, we've had no word from them on that yet. He
hasn't gotten back yet, Henry.

H.M.Jr:

Oh.

H:

We just heard a broadcast from Berlin a minute

ago and he is not due in Berlin until late tonight
so that the conference probably won't take place
until early tomorrow morning.

H.M.Jr:

Well I just thank everybody in the Treasury for

H:

Well, Henry, you're going to cable me definite

H.M.Jr:

Well I figure this way, Johnny, if I cabled you

what they've done.

instructions on the Southampton business.

Monday evening

H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:

That's right.
Hello
Yes.

you'd get that Monday.

That's right.
So they'd have plenty of time to give that to
somebody on Monday and whoever gets it would be
delighted to get it.

- 10 -

42$

Right. That's giving us plenty of time so you

H:

justtime.
let me know. Even Tuesday gives us plenty
of

H.M.Jr:

Well I'd let you know so you'd know Monday but

I'm sure that anybody would be tickled to death
to get those twotickets.

H:

That's fine. I'11 take care of it then.

H.M.Jr:

What we arranged here with the British Government

H:

I see.

H.M.Jr:

But the way I felt and I'll just take a minute

was that if I wanted to go to London they were
going to fly me over. That was the way - I was
going to go right to Southampton.

H:

for me to check - I thought for me to go to London
with all this trouble with the pound and only knowing part of the story would be a great mistake.
Well I agree with that.

H.M.Jr:

See?

H:

I agree with that perfectly.

H.M.Jr:

I mean I'd drop in there and Sir John Simon would
grab hold of me and I don't know what's happened.

H:

That's right. Well I'd stay out if you can.

H.M.Jr:

Righto.

H:

Now when does the BERGENSFJORD sail?

H.M.Jr:

She sails on the 31st from Bergen.

H:

On what? 31st from Bergen.

H.M.Jr:

And arrives on the 9th.

H:

All right fine.

H.M.Jr:

The family has good accommodations; they are well

taken care of and - it's a little bit of a boat
but she's all right.

- 11 H:

That's fine. Now I haven't anything more. I

think everybody is thru here so we'11 wish you a

happy journey home.
H.M.Jr:

Righto.

H:

Goodbye.

H.M.Jr:

Goodbye.

428

426-A
PLAIN

VM

London

Dated August 27, 1939.

Rec'd 3:05 p.m.
Secretary of State
Washington.

1279, Aujust 27, 8 p.m.
OR INVEDIATE DELIVERY TO THE ACTING SECRETARY OF THE
TREASURY FROM BUTTERWORTH.

"British Treasury has decided, in view of movement of

Events, to require British residents to declare certain
foreign securities and not to dispose of such holdings without permission. British Treasury states there is no present
(repeat present) intention to actually acquire them from
holders or to dispose of them. BECAUSE of the importance

of this step to us I am cabling both the regulation made
under the Emergency DEFENCE Act and the related Treasury

order. These will be in Effect when the city opens tomorrow
morning; they are being postdated to August 25. His
Majesty, in pursuance of section one of the Emergency powers

(DEfEnCE) Act, 1939, and of all other powers enabling him

in that behalf, is pleased, by and with the advice of his
Priv Council, to order, and it is hereby ordered, that the
following regulations shall have Effect:
1. - (1) The Treasury may by order direct (A) that,
subject

426-B

VM -2- 1279, August 27, 8 p.m., from London.
subject to any Ed Emptions for which provision may be made

by the order, no person shall, EXCEPT with permission

granted by or on behalf of the Treasury, sell, transfer or
do anything which involves the creation of a charge on
securities of any such class as may be specified in the

order, being a class of securities which, in the opinion
of the Treasury, are likely to be marketable outside the
United Kingdom, and I repeat United Kinddom, and

(B) That the owner of any securities of the said class
shall, in such manner and within such period as may be

specified in the order, make a return to the Bank of England

giving such particulars with respect to those securities as
may be so specified.

For the purposes of this paragraph a person who mortgages or pledges a security shall be deemed thereby to

create a charge on the security.
(2) At any time while an order made under the pre-

ceding paragraph with respect to securities of any class is

in force, the Treasury, if they are of the opinion that it
is expedient so to do for the purpose of strengthening the
financial position of the United Kin dom, may, by an order
made generally with respect to any specified securities of
that class, or by directions given with respect to any secur-

ities of that class of which any particular person is the
owner

426-C
VM

-3-

1279, August 27, 8 p.m., from London.

owner, transfer to themselves the securities to which the

order or directions relates or relate, at a price specified
in the order or directions being a price which, in the
opinion of the Treasury, is nottheless than the market value of
the securities on the date of /making of the order or the

giving of the directions.
(3) Where any order is made, or any directions are
given, under the last preceding paragraph with respect to
any securities.
(A) Those securities shall forthwith VEST in the
Treasury free from any mortgage, pledge or charge, and the

Treasury may deal with the securities as they think fit;
(B) The owner of any of those securities, and any
person who is responsible for keeping any register or book
in which any of those securities is registered or inscribed
or who is otherwise concerned with the registration or in-

scription of any of those securities, shall do all such
things as are necessary or as the Treasury or the bank of
England on their behalf may direct to be done for the purpose
of securing that the security and any document of title re-

lating thereto will be delivered to the Treasury or to such
person as the Treasury may direct and, in the CASE of any

registered or inscribed security, that the security will be
registered or inscribed in the name of the Treasury orperson
such

426-D

VM

-4-

1279, August 27, 8 p.m., from London.

person as the Treasury may direct.

(4) The duty to deliver any security under the last
preceding paragraph shall include a duty to do all such
things as are necessary to secure that any dividends or
interest on that security becoming payable on or after
the date of the making of the order or the giving of the
directions will be paid to the Treasury; and where, in the
case of any security payable to bearer which is delivered in
pursuance of the said paragraph, any coupons representing

any such dividends or interest are not delivered with the

security, such reduction in the price payable therefor shall
be made as the Treasury think fit:
Provided that, where the price specified in the order

or directions in relation to any securities is EX any dividend or EX any interest, this paragraph shall not apply to
that dividend or interest or to any coupon representing it.
(5) A certificate signed by any person authorized in
that behalf by the Treasury that any specified securities
are securities
/transferred to the Treasury under this regulation shall be
treated by all persons responsible for keeping any registers
or books in which the securities are registered or inscribed.
or who are otherwise concerned with the registration or inscription of thous securi ties, 03 conclusive EVIDENCE that
the securities have been 30 transferred.

(6) This

426-E
VM

-5- 1279, August 27, 8 p.m., from London.

(6) This regulation shall not apply to any security
if th: Treasury are satisfied that at all times since the
beginning of the twenty-sixth day of August, Nineteen
hundred and thirty-nine, all the persons interested in the
security, other than persons interested therein merely as
trustees or merely by virtue of any mortgage, pledge or
charge created before the said day, but including any
persons beneficially interested therein under a trust, WERE
not resident in the United Kingdom.
2.- (1) Stamp duty shall not be chargeable on any

security by reason only of the assignment, transfer or

negotiation thereof to the Treasury, and shall not be
chargeable-.

(A) On any instrument whereby any security is assignEd or transferred to the Treasury (whether on sale or
otherwise), or

(B) on any contract note for, or relating to, any
sale of securities to the Treasury.
(2) This regulation applies only in relation to
assignments, transfers, negotiations or sales of securities
Effected during the continuance in force of this regulation,
whether in compliance with these regulations or otherwise.
(3) In this regulation the expression "Contract Note"
has the meaning assigned to that Expression by subsection
(3) of

426-F

VM -6- 1279, August 27, 8 p.m., from London.
(3) of section seventy-seven of the Finance (1909-10) Act,
1910.

3. The provisions of Part V of the defence regulations,
1939, shall apply for the purpose of the Enforcement of
these regulations, and otherwise in relation thereto, as if
any reference in the said Part V to those regulations include a reference to these regulations.
4. In these regulations, unless the context otherwise
requires, the following Expressions have the meaning hereby

respectively assigned to them, that is to sey:"Owner," in relation to any security, includes any
person who has power to sell or transfer a security, or who
has the custody thereof, or who receives, whether on his
own behalf or on behalf of any other person, dividends or

interest thereon, or who has any other interest therein;
and

"Security" includes shares, stock, bonds, debentures,

debenture stock and treasury bills, but does not include a
bill of Exchange or promissory note.
5. These regulations may be cited as the DEfEnCE

(Finance) Regulations, 1939. Butterworth.
KENNEDY

DDM

426- G

PLAIN

VM

LONDON

Dated

August 27, 1939

REC'D

4:10PM

Secretary of State
Washington.

1279, August 27, 8 p.m. (SECTION TWO).

"reasury Order.

Whereas it is provided by paragraph (1) of regulation Q.
of the DEfEnCE (Finance) Regulations 1939 that the Treasury

may by order give directions prohibiting, EXCEPT with

permission, dealings with securities which in the opinion of
the Treasury are likely to be marketable outside the United
Kingdom and requiring owners of such securities to make a
return to the Bank of England, and whereas the Treasury are

of opinion that securities of the classes to which this
order applies are likely to be marketable outside the United
Kingdom.

Now, therefore, the Lords Commissioners of His Majesty's
Treasury in pursuance of the said paragraph hereby make the

following order1. No person being an owner of securities of any of th

classies to which this order applies shall on or after the
date of this order, unless permission has previously been
granted

426-H

VM -2- 1279, August 27, 8 p.m. (SECTION TWO), from London.

granted by or on behalf of the Treasury, sell transfer or do
anything which involves the creation of a charge on any
securities of the said classes.
2. The owners of any securities of the said classes
shall before the expiration of one month from the date of
this order make a return to the Bank of England (on a form
which may be obtained from any branch of a bank or any

stockbroker in the United Kingdom) giving the following particulars with respect to those securities, that is to say.
(A) The full name and address of the owner by whom or

on whos behalf the return is made.

(B) A description of the security in full.
(c) The nominal amount of the security.
(D) The place where the security is deposited
(E) The full name and address of the person for whose

account the security is held (if other than the owner mak-

ing the return).
3. The classes of securities to which this order ap-

plica are the following, that is to say,
Securities in respect of which the principal, interest
of dividends are payable in the currency of any of the

following countries:Argentina
Belgium

Canada

426-I

VM -3- 1279, August 27, 8 p.m. (SECTION TWO), from London.
Canada

France

Holland and the Dutch East Indies
Norway
Sweden

Switzerland

United States of America

Or in respect of which the holder has an option to

require the payment of principal, interest or dividends
in the currency of any of those countries.
4. This order may be cited as the securities (Restrictions and Returns) Order 1939. Butterworth.
KENNEDY

CSB

426-J

PLAIN

VM

London

Dated August 27, 1939
REC'D 4:20 p.m.

Secretary of State
Washington.

1279, August 27, 8 p.m., (SECTION TFREE).

The following paragraphs from the press handout are of
interest:

"Permission will, however, be granted until further
notice for the transfer of securities of these classes to
persons resident in the United Kingdom, provided that an

application has, prior to the transfer, been made to and
approved by the Bank of England. Such applications must
be made to the Bank of England by a bank or stockbroker.

Securities affected by the order will not be good delivery
on the stock Exchange unless accompanied by a form bearing

the Bank of England's certificate that the name of the new .
owner of the securities has been registered.

If it is desired to transfer securities affected by the
order to a person not resident in the United Kingdom, special
application must be made to the Bank of England by a bank or
stockbroker.

Definition of owner
Special attention is drawn to the fact that the DEFENCE
(Finance)

426- - K

VM 2- 1279, August 27, 8 p.m., (SECTION THREE).

(Finance) Regulations 1939 define the term "Owner" in

relation to any security to include any person who has

power to SEI or transfer the security, or who has the
custody thereof, or who receives, whether on his own be-

half or on behalf of any other person, dividends or interEST thereon, or who has any other interest therein.
Non-resident owners.

The order referred to above does not apply to any

security if the Treasury are satisfied that at all times
since the beginning of the 26th day of August, 1939, all
the persons interested in the security, other than persons
interested therein merely as trustees or merely by virtue
of any mortgage, pledge or charge created before the said

day, but including any persons beneficially interested
therein under a trust, WERE not resident in the United
Kingdom. Accordingly, no action has to be taken by such

noner sident owners. (Butterworth)
KENNEDY

Conf. news
426-L
PLAIN

NC

LONDON

Dated August 28, 1939

Rec'd 1:38 p.m.

Secretary of State
Washington
RUSH

1297 August 28, 7 p.m.
FOR TREASURY FROM BUTTERWORTH.

The pound opened at 4.36 and hit a low in the morning

of 4.12. In the afternoon it hovered around 4.25 and
closed 4.27. There have been fairly substantial offerings
of dollars from NEW York due I believe at least in part
to reports which the Bank of Manhattan's Berlin agent has
been sending to both NEW York and London. HE is a former

German army officer who is a naturalized American citizen
and is supposed to have good Gestapo and other connections

in Barlin. The purport of his plea is that a political
compromise is possible and that at 4.12 sterling was probably

at its low. BE that as it may or may not it has had
the Effect of giving SOME support today.
On the other hand I had lunch with Clay at the Bank

of England. HE doubts whEthEr the rise in the bank rate
in prevailing circumstances can dynamically affect the EXchange position and he thinks that sterling will go lower

if the crisis is prolonged.
Incidentally

426-M
NC -2- #1297 from London, August 28, 1939

Incidentally Clay confirmed (SEE section 3 my 645,
May 9, 6 p.m.) that in the EVENT of war Great Britain would
bECOME economically and financially a totalitarian state as
rapidly as possible and problems would be regarded in the
light of manpower, tons and tonnage rather than pounds

shillings and PENCE. Clay felt that their plans WERE

sufficiently developed so they would start off at well into
the 1917 stage.

Preparations for a war are far advanced in the city,
The clearing banks have already transferred their head

offices to the country where the section of the Bank of
England with which they deal is also now located. All
financial institutions have during the past year duplicated
their records and have made arrangements to continue as

much of their operations as possible in places of comparative
safety. The hard nucleus of the Bank of England and the

Treasury are remaining in London. Even now the city is half
deserted, a considerable portion of the staffs of the
various institutions having Either moved to the country or

been called up to their territorial or reserve units. In
fact London itself presents a half deserted aspect. A
general Exodus by train and car especially of people with
children was evident OVER the WEEKEnd while Germans leaving

the country crowded the railway stations concerned.

Military

NC -3- #1297 from London, August 28, 1939

426-N

Military preparations adorn the countryside Especially the
placing and camouflaging of air defence apparatus.
Considerable retail food purchases are being made and SOME

stores are restricting saleable amounts of certain

foodstuffs. In fact the hectic improvisations of last
September are notably absent--at least for the moment.
There has been a forward market in dollars today,

though business was very difficult to transact. The 3
months premium was around 4 to 3 points. Business in spot
was heavy though not as heavy as Friday. A feature the

latter part of the day was the fact that deals WERE for
larger amounts than on previous days. Paris was a buyer

of dollars, with the France rate 175. After 5.30 P.M. the
Bank of France again bought sterling when the rate went to
1751.

The gold fixing took half an hour today, the price
finally fixed being 161S which represented a discount on the
dollar shipping parity of about 4S 6D, the dollar being about
4.20 at the time. 230 bars were sold, most of the selling
by dishoarders, and buying by speculators. The British fund
gave or took a small amount to balance the deals. Afterfixing deals were done at 160S.
The first deals with Stockholm today were at 17.75 (as

compared with the pre-crisis rate of 19.40) no quotations
were forthcoming from Copenhagen or Helsingfors. The fin
mark was dealt in in Stockholm however on the pre-crisis basi
but no business in this currency was beingKENNEDY
done in London.
CSB

426- 0
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Legation, Stockholm, Sweden

DATE: August 28, 5 p.m.
NO.:

62

RUSH.

The peg on sterling was dropped by the Swedish
Riksbank today. The Legation has been informed by
the Governor of the Swedi sh Riksbank that this was

done in order that too sharp a rise in prices would be
prevented. The same action has been taken by Finland.
However, no decision has yet been made by Norway and

Denmark. The selling rate today was 4.20 crowns to

the dollar, which is five ore lower than when the crown
was pegged to the pound. The restrictions on the sale

of foreign exchange, reported last week in our telegram no. 59, dated August 26, 1939, 4 p.m., have been
withdrawn.

EA:MSG

427

August 28, 1939

MEMORANDUM FOR THE PRESIDENT:

The attached letter has been addressed to the
Acting Secretary of Commerce instead of the Acting
Secretary of the Treasury. since Collectors of Customs
are exclusively under the jurisdiction of Commerce

with respect to clearance of vessels.

Acting Secretary

MAILED 8.28
BY SPEC.
FILE TO
COPY TO

HO: ce

1939

MESSENGER Furner 1:07 P.M

428

August 25, 1939.

Dear Mr. Secretary:

I have reason to believe that there is & possibility
that merchant ships belonging to European governments,
which may become involved in war, or belonging to their
citizens, are carrying armanents capable of being mounted
on the high sees for offensive purposes, thus converting
them into armed vessels of war. This raises immediately
the question of American responsibility for giving clearance
papers to such ships unless this government is wholly certain
that such ernaments are not being carried.

You will, therefore, withhold clearance papers from all
ships suspected of carrying such arnaments until a complete
search has been made and you are satisfied that no such arza-

ments are on board.

Very sincerely yours,

The Honorable

The Acting Secretary of Commerce
Washington, D. C.

NO/OP

8-28-39

423

Ar. 5:15 P.M.

resident:

P

Hello, Johnnie.

H.

Hello, Mr. President

President:

How about our German ships?

H.

President:
H.

Well, Mr. President, we just had notice that the
Bremen has passed Sandy Hook and is on her way
up to the pier.

Yes, I just got that.
And she wants to go out again as soon as she can
get her papers cleared.

President: Yes.
H.

Now, we have given the instructions in accordance

with your message to us to take all the time they
possibly could take in the examination of all ships,

but particularly this one. We have just finished
talking with Harry Durning a few moments ago and
cautioned him to take adequate time because it

would require a lot of exploration to find whether
ot not this ship was equipped with offensive
armaments.

President:

Yes, I don't want it to go out - what's today Monday?

H.

President:

H.

President:

Yes, sir - today is Monday.

I think if we hold her until Wednesday - until all
day tomorrow and all day the next day - she won't
dock now until late tonight.
I haven't heard the exact time of her docking
Well it will be a few hours from now - seven or eight.

President:

Yes, sir.
And I think we ought to hold her forty-eight hours

H.

Well, we will certainly try, Mr. President.

President:

How about the other two fellows - the New York and

H.

H.

minimum.

the other one?

Well, the New York and the other one - we made a
most thorough examination that we could

430
H.

President:
H.

and Durning said he did not have another excuse

to hold her so he had to let her go.
Uhuh - Uhuh - well, it took us nearly 48 hours.

That's right - we were busy with her Saturday and
Sunday - she did not get out until Monday.

President:
H.

President:
H.

Yes, I think that's all right.
Yes, sir.
Well, I think you had better hold the Bremen 48
hours - this is just the psychological moment Yes, sir.

President: (laughs)
H.

We will do everything in our power to hold her as

long as possible - and make the most minute examina-

tion, because I do think that being a new (?)
ship we ought to take all the trouble we can

President:

-

Yes, absolutely , because she is a dangerous ship
to have loose -

H.

Yed, indeed.

President:

She is very fast.

H.

Yes, sir.

President:

All right.

H.

Thank you, Mr. President, we will take care of it.

President:

Fine.

H.

Goodbye, sir.

President: All right.

for Sicy
Copy

431
DEPARTMENT OF STATE

Assistant Secretary
August 28, 1939

MEMORANDUM TO ACTING SECRETARY OF THE TREASURY

I acknowledge, with thanks, receipt of your letter and one copy
of the memorandum to the President relating to foreign exchange:

likewise, two files covering respectively "Control of Vessels in
Territorial Waters of the United States and of Shipment of Arms'
and "Foreign Exchange. The original has been transmitted to the
White House. The copy has been kept with the complete file of these
documents here in the Department of State.

For the Inter-Departmental
Committee on Neutrality:

/s/ A. A. Berle Jr.

432

COPY
August 28, 1939
Memorandum For The President:

I. Foreign Exchange
The Interdepartmental Committee agreed to recommend the

following action in regard to foreign exchange, in the absence of
emergency of such extreme character as to require otherwise:

(1) On outbreak of hostilities, take no immediate action.
(2) If conditions require action, revoke the Regulations
of the Secretary of the Treasury of November 12, 1934. The affect
of such action would be to reimpose the restrictions on transactions
in foreign exchange, transfers of credit and the export of coin and
currency contained in Executive Order No. 6560 of January 15, 1934,
which restrictions had in effect been suspended by such Regulations.
Such Executive Order exempts from the licensing requirements foreign
exchange transactions and transfers of credit for normal commercial
or business requirements, and reasonable traveling and other personal
requirements. Transmitted herewith is such an Order of Revocation,
marked "Document A".

(3) If conditions require further action, take action to require
licenses for all transactions in foreign exchange, transfers of credit
between banking institutions in the United States and those outside
of the United States and for the export of any currency or silver coin
or bullion, except for reasonable traveling and other personal require-

ments. Transmitted herewith is an Executive order, marked "Document B*
which amends the Executive Order of January 15, 1934 so as to effectuate
such purpose. This document has not been cleared with the Attorney

General, but on the basis of the Attorney General's letter to you in
April, 1939. with respect to the order referred to in (4) below, there
is felt to be no legal objection thereto.

(4) If conditions further require, issue the Executive order which
the Secretary of the Treasury cleared with the Attorney General in April,

1939. and which was returned by you to the Secretary "ready to be signed
at any time". or some modification thereof. Transmitted herewith is such
an Executive order, marked "Document C". the affect of which would be to

require licenses for
(a) transactions in foreign exchange;

(b) transfers of credit between banking institutions within

the United States and those outside of the United States:

2 sets to Berle -

(received from Cairns - we

have no attachments - only

this transmittal memo)

433

-2(c) the export of any currency or silver coin or
bullion; and

(a) transfers of credit between any banking institutions within the United States, and payments
by any banking institutions within the United
States, in which transfers or payments any
foreign country or a national thereof has any
interest whatsoever.

Such Executive order contains an exception covering reasonable traveling
and other personal requirements. Such order would also require detailed

ports of foreign property interests in the United States.
THAN

II. Control of Vessels in Territorial Waters of the United States
and of Shipments of Arms.

There are transmitted herewith alternative proclamations by the
President and anchorage regulations, for the signature of the Acting
Secretary of the Treasury and the President, relating to this subject.
Both are designed to operate under the so-called Espionage Act of
June 15. 1917. but the papers numbered Plan I - 1 are based on the
assumption that a proclamation under the Neutrality Act has not been
issued, whereas the papers numbered Plan I - 2 are on the assumption
that a procelamation uhder the Neutrality Act has been issued.
Accompanying each set of papers are appropriate telegrams to enforcement

officers directing the action contemplated by the proclamation and
anchorage regulations.

There are also transmitted herewith appropriate telegrams relating
to enforcement of the customs regulations which deal with the matter of
shipments of arms and the regulations governing international traffic
in arms issued by the State Department. These papers are designated
as Plan II.

Another paper, designated as Plan III, consists of general instructions to the Coast Guard, in connection with the above and related
matters.
(signed) John W. Hanes

2 sets to Berle - State Dept.
(1 orig. and 1 carbon - with
attachments) - no attachments

for this office - copy in
General Counsel's office

August 28, 1939.
12:35 P.M.

John
Hanes:

Ronald

434

How are you?

Ransom:

Can you talk to me a minute?

H:

Yes, sir.

R:

We seem to have bought four million nine hundred and

seven of which about three million are notes. The

market appears to be down average of about a half a

point from the close Saturday. The offering at the
moment appears to be somewhat from a speculative

group with some question as to whether they've got

them or just trying to sell something that they might
get. We seem to have pretty well taken the smaller
bona fide offers, perhaps some of the others but we
are unable to determine at the moment just how much

of the offering such as it 18 is from bone fide
sellers or as I see it people who may be selling
to replace later on.
H:

R:

Yes.

Now there's this question for decision, it's one of
policy as to whether our efforts should be to go
ahead and take what 10 offered from now on without
regard to the nature of the seller with a view 1f
possible of getting the market closed today as good
or a shade better than it closed on Saturday. Now
there can be two opinions about that, one that you
would simply be taking not a very large amount but
a certain amount of speculative bonds, the other
would be that the general effect doing that might
offset some of the disadvantage inherent in buying

that type of offering.

H:

What does George Harrison think about it?

R:

I haven't talked to George in the last hour or so.

John McKee, a member of the Board, has been up on

the Jersey coast, he went over to New York today,

yet hasn't - he's off on his vacation as a matter
of fact, he was in the New York Bank talking to us
and he and George Harrison are going to lunch
together now and he said he'd call be back about

one-thirty, our time.

H:

Yes.

R:

And at that time he and George would canvas the

situation. I just wanted to see if you people over

-2-

435

there had any definite thought of that problem.
H:

I'm away from my desk right now Ronald, and what I

will do is to get Danny Bell and Herbert and myself

will sit down together and I'll run it over with them
and then I'll call you back.

R:

H:

R:

Will you do that?

I'll do that. How long are you going - are you going
to be in your office during lunch hour?
Yes, I'll be right at a telephone while I'm having
lunch so you can call me at any time and I'll tell
the operator that when you are calling me to get me

on the phone.
H:

We're having lunch inside so we'll call you during

R:

At your convenience. Righto, fine.

H:

Thank you very much.

the lunch hour.

August 28, 1939.
1:16 P. M.
Ronald
Ransom:
John
Hanes:

436
Yes Johnny.

Ronald, with Danny and I sitting here together - we've
been discussing this matter of the market.

R:

Yes.

H:

We haven't got any concrete suggestions to make, but

we both sort of feel like we'd like to go along just
about as outlined but we're just offering that as a
suggestion that the way we feel not at all as being
in a - any different than you fellows feel over there.

R:

You mean as we have been going.

H:

That's right. Yes, in other words, I understood what
you were interested in was whether or not you thought

it would be good policy to straighten the thing up
just before the close.

R:

That's right.

H:

Just mainly for appearance sake.

R:

Largely.

Yes. Well, so far as we're concerned we don't care,
we just offer this as a suggestion of our own feeling

that we're just - we'd like to go along just like

you are, but if you and George Harrison, we recognize

that he's got a much closer feel on that situation
than we have and if he thinks it's advisable why

we certainly shan't make any objection.
R:

Well, I think that George would prefer to go just as
we have been going which is to be very selective in
what we take, that is who we take it from, so that
we wouldn't be just taking everything that's offered
for the purpose of getting a price up at the close.

H:

Yes. Well, you understand our position now, so far

R:

You': re satisfied to go on through the day as we have

as we're concerned, whatever you and George decide been going.

H:

R:

That's right.
Which is not in any sense trying to achieve any
particular closing price but let it close at the level
which it would find for itself with us following the

-2-

437

policy of being highly selective in what we pick so
that we won't just take the speculator's position
away from it.

H:

R:

H:

That's exactly our position.
Well that's satisfactory to you.
Yes. Wait a minute, wait a minute now, see if Dan
wants to add - oh, Danny was just saying that in
his opinion, we were trying to find out what the
market is actually and we didn't want any - to feel

that it was an artificial market. In other words

we'd be better able to guide ourselves if we know
exactly what the market consists of.
R:

That's all right. I'll report that to the other

H:

You understand we're not trying to dictate -

R:

Oh no, not at all, we're asking your views of it

members of the Committee. We're to meet now in just
a few minutes.

because we want to work in the closest cooperation
with you.
Righto .

R:

All right.

H:

Fine. Thank you Ronald.

August 28, 1939.
1:20 P. M.
John
Hanes:
George

Hello.

Harrison:

Hello.

Hanes:

Hello George.

H:

Hello John.

Hanes:

How are you?

H:

Well, I'm all right. How are you?

Hanes:

Wait just a minute.

H:

What'd you say?

Hanes:

How are you.

H:

I'm fine. Thank you.

Hanes:

I was just talking to Ronald Ransom.

H:

Yes.

Hanes:

And he was asking how we felt about giving this

438

market a little bit of a jiggle at the end of the
day.

H:

Hanes:

A whirl. Better close up a little bit stronger.
Danny and I both feel that we'd like to go along
just about like we have been going but we told
Ronald that if you and they decide differently that
we would go along with you that - you're on the
buying line and you know a good deal more about it
than we do, closer in contact with it and so we'd
go along with you if that was what you decided you

wanted to do.
H:

Well, I personally think it's a great mistake.

Hanes:

I mean I'm in favor of going along as we've been
going as you are.
Well, we - that was frankly our opinion George.

H:

I think to artificially bid up the prices at the end

of the day will cause a great deal of criticism,

we've heard some of it already.
Hanes:

Yes.

-2-

439

H:

And it would be wholly artificial.

Hanes:

Yes.

H:

And all you do then, these fellows could get out, and
all
you do is to have a flood of offerings to put in
the Federal's basket.

Hanes:

Yes. That was our opinion but we wanted you to have

the greatest freedom of action, do you see? Just
as we agreed this morning that we weren't going to
try to interfere with you in the operation of the
thing there.

Well it isn't a question of that, it's just a question

H:

of being consistent and doing the best job that can
be done. Now it's a question of judgment which is the
best job.

Hanes:
H:

Yes.

I think when you consider that here you're on the
threshhold of a war and your bond market has gone off
even at the worst only three quarters of a point now,
that you can say it's been a very good - account of

itself.

Hanes:

I should say so.

H:

And I think to artificially step in in the last

Hanes:

H:

fifteen or twenty minutes and bid up prices won't be
understood, it'11 be known who's doing it.

It'll be understood in the street all right, don't
worry about that, and the worst interpretation will
be put on it.
Yes, and the only criticism we've had yet by anybody
in the way we've handled the account up here, is one
of these who come in and they want to know what we're

trying to do, wreck this market for the financing.

Hanes:

Yes.

H:

In other words it got out that we were pretty generous
with some of the bids and that as a result, the

dealers instead of trying to find the market,
he'd come straight to us.

Hanes:

Yes.

H:

I think it's better to put some pressure on it.

-3-

440

To give

still in the market. There's never been a time when

Hanes:

Yes.

H:

And I don't want to compete with those healthy buyers

with - where their bids are anything in line at all.
But if there is no bid then, or if there is some need
to bail somebody out or try to unload something why

then I think we ought to step in.

Hanes:

Yes.

H:

But I think, artificially, at the end of the day, to
push it up would be a great mistake.

Hanes:

Did any criticism come from any responsible dealers
George?

H:

No, Rouse told me, I must say, that comment that I just
mentioned to you was one of the least responsible ones.

Hanes:

Yes.

H:

So I don't worry about them.

Hanes:

No, no. I sec. Well, you know how we feel about it.
I guess Ronald will be calling you in a few minutes
because I just got through talking with him when you
rang.

H:

Yes, well I understood we're to have a hook up with
him at two-thirty and I didn't know he was going to
talk, so I wanted to find out what you were thinking

first.

Hanes:

Yes.

Hanes:

You would just prefer to go on rather than jiggle this
thing up at the end.
That's the way we feel. Yes.

H:

All right.

Hanes:

Thank you George.

H:

I agree with you.

Hanes:

Thank you sir.

H:

First rate. Goodbye.

Hanes:

Goodbye.

H:

August 28, 1939.
10:45 A.M.

441

Walton

Butterworth: They
opened up at four thirty-six to a low of fourtwelve.
Lochhead:

Four thirty-six to a low of four-twelve. Yes.
business of four-twelve, and it's now
hovering around four twenty-five.
Around four twenty-five. Yes.

B:

L:

Now there's been some selling of dollars from New

B:

York.

L:

Selling of dollars from New York.

B:

Yes.

L:

Yes.

B:

And as far as I can straighten it out I think this

L:

is the reason, I'm not quite sure.
You think this is the what?

B:

The reason.

L:

Yes.

B:

The Bank of Manhattan Berlin agent -

L:

Yes.

B:

Is a naturalized American
and is supposed
connections
in Berlin.to have a

L:

Yes.

B:

lot of good

He has telephoned London about three times today
and I presume has telephoned New York the same way,
more or less implying that a compromise was possible

and telling of the sterling
figure.

L:

I see.

B:

And as soon as that word got around why we began to

L:

I see.

have some dollar selling on this in New York.

-2-

442

I mean that's about the way the thing is. Now as
far as the stock exchange is concerned here, there's
no dealing in America at all.

B:

Yes. No dealings at all, that's right.

L:

The only terms that they can deal if they can match
a buying and selling order from a non-resident.

B:

L:

They can only deal a dispatching of buying and

B:

Yes.

L:

Yes.

B:

That's practically impossible.

L:

Right.

B:

And these forms that you have to fill out if you
want permission to dispose of your securities - I've

selling order for a non-resident.

checked up with five English brokers that I know.
They've each one of them got their share of these
bonds. None of them have had a client who's
applied for them.

L:
B:

Right.

So that you can see it's more or less inactivity.
As far as the British market is concerned the only
thing that's proving a gold chest they're going
up.

L:

They're going up. Yes, the terms of sterling.

B:

Yes.

L:

Right.

B:

Well that's about the condition as it is I don't

L:

I see.

B:

Henderson is leaving this afternoon, just about now

think things are any better or any worse.

to fly to Berlin, he is supposed to see Hitler
tonight with the British answer.

L:

I see.

-3-

443

B:

And I think it will be denied in the hope that there

L:

Yes.

B:

And Parliament has been called to meet tomorrow.

L:

Parliament has been called to meet tomorrow. Right.

B:

Yes.

will be an answer back from Hitler.

Well now, there's nothing very much, speaking of our
market, at the beginning it went off on a market
volume, it went off about two and a quarter points,
our stock market.

L:

B:

Yes.

L:

It's turned around now and it's up about one point
from the low. Our Government bond market is quiet,

it's off about a half to three quarters of a point.

B:

Yes.

L:

But there's no particular activity in the markets
here at all.

B:

Right.

L:

Exchange of course, we're just simply following the
London quotes. There's no transactions that we can
find.

B:

L:

No.

And of course the other angle will be these various
other currencies. I notice Finland has meant to
cut away from sterling.

B:

Yes.

L:

And Sweden 1s meant to be creating a new rate but we

haven't got the terms yet, I can't understand, the
flashes that are coming look as if they were depreciating more than sterling which I don't think is

right. I think it's a mistaken report we have, but
those are the ones we are watching of course, are
the outside currency ones. But there's no dealings

at all here in the currency, the exchange, it is

more or less a nominal market and everybody talking.

-4B:

44%

Yes, that's right.

L:

Now just one second. (aside)
I don't think there's really very much to cover as I
say thinge are very quiet here, and it's more or less
sitting down waiting for the turn of events.

B:

You got my telegram of last night.

L:

The telegram of last night containing the orders.

B:

The orders.

L:
B:

That's right. Yes, we have those they're all in.
Because I thought I'd better give you the full text,
even though it was a long telegram because it's so
important to us.

L:

Yes, we wanted it because of course we also wanted the

SEC to be fully aware of the different forms.

B:

Now, as I told you in my other telegram I read to them
exactly what I had said in those two paragraphs, and
they con -

L:

I see

B:

So that I think that makes it clear beyond a doubt.

L:

Right. Well all right, thank you very much Walton.

B:

L:

Right, Archie.
And you'll keep us posted on anything that comes
along.

B:

I will. .

L:

Fine, thank you. Goodbye.

445

Department of State
Washington

August 28, 1939

Re: Inter-Departmental Committee

on Neutrality.

My dear Mr. Hanes:

In accordance with our understanding, I am sending herewith

a complete set of documents relating to neutrality as approved
by the Inter-Departmental Committee. This set of documents is

being held in the Department of State for use in case of
necessity.

Very truly yours,
For the Inter-Departmental
Committee:

/s/ A. B. Berle, Jr.
A. A. Berle, Jr.
Assistant Secretary of State

Enclosures - 13
The Honorable John W. Hanes - Acting Secretary

CE gave to Mrs. Poole for Cairns - FLG stated that Mr. Hanes had told
Cairns over the telephone 8-30-39 that he might keep these in his
safe.

Address the Commandant, U. S. Coast Guard

and refer to No. 10F 601

"C

TREASURY DEPARTMENT

0

P

46

United States Coast Guard

Y*

CONFIDENTIAL

Washington

28 August, 1939.

SPECIAL MEMORANDUM FOR ASSISTANT SECRETARY CASTON:

At 12:24 p.m., 28 August, 1939, a message was transmitted from the

German Norddeigh station to an unlisted station HPTA. All call signals
between HO and HP- are in the call range assigned to Panamanian sta-

tions. The message was signed DEBEG. which is the registered cable address of a commercial wireless company in Berlin. The message instructs
the station HPTA to remove from on board telegraph equipment and service
appliances when this vessel is changed into a man-of-war, and states

that traffic will no longer be transmitted by the commercial wireless
company.

In this connection, you are referred to the report from this office
to Mr. Lochhead under date of 12 May, 1939, in which it was reported
from a most reliable source that approximately thirty-five German vessels are under Panamanian registry and are commanded by German officers

and manned by German crows. Through the intervening months it has been
observed that these vessels constantly received orders from the German
Norddeich station in the German language and in German government code.

Other transmissions of peouliar significance which have been noted

have been to a series of unlisted calls in the range assigned to Iranian stations and another series to unlisted calls in the range assigned
to Luxembourg stations. In the list of stations issued by the Berne

Bureau there are no Luxembourg stations whatever and only about twenty-

five Iranian stations. The messages transmitted, although as yet unread, bear every indication of being identical in meaning. They are
believed to be enciphered code, the basic code being the same, but each
station being enciphered in a different manner. Each me essage begins
with a series of numerals in plain language German followed by the enoiphered code text, and in every case, is followed by the signature
"TRANSLEIT BLN" which, it will be recalled was mentioned in an earlier
report today as the signature attached to several dosen messages to
German ships directing them to act according to their special instruc- call

tions. All evidence points to the conclusion that the foregoing

signals are spurious and the stations intended are really German
stations.
Messages identical in nature to the foregoing have also other been un- transmitted to the CHARLOTTE SCHLIRMANN, mary FRIEDRICH, AND two

listed German stations.

orig to the President

44%
10F 802

28 August, 1939.

CONFIDENTIAL

Latest information on ship movements received by this office reports that the German $8 CONSUL HORN arrived Port-au-Primos, Haiti,

on August 28th and will remain there for orders. The German SS ST.
LOUIS cancelled her equise to Bermada and headed bask to Remburg,
Germany on August 27th. The German ss HENRY HORN, which was due at

San Juan, Puerto Rico, on August 26th has not arrived. The German
SS WINGAND, which cleared Philadelphia, Pa. for Horfolk, Yes on
August 26th, has not arrived. The German ss BRIDON, off Sandy Hook,

will deek at 6:00 D.M. to unload passengers and will sail tomorrow
morning for Germany with no passengers.

F. E. POLLIO,

Lieutenant, U. S. Coast Guard,

Acting Chief Intelligence Officer.

Original and 2 copies made
Incoming original to White House 8/28/39
FLG

-2-

48
IOF 601
CONFIDENTIAL

28 August, 1939.

The foregoing message in every case ended with the following:

"TRANSLEIT HLN." It is believed that this is the signature for a

Barlin government maritime bureau and that possibly the complete
signature is TRANSPORTLEITUNG, BERLIN.

Italian vessels receiving orders from the Italian radio station
at Coltano during the last forty-eight hours are as follows:
Proceed to Bremen instead of Stettin; acknowl-

NITA

-

NITA

-

POMONOA

-

ALABAMA

-

edge.

(Change in orders two hours later) Go to Cux-

haven instead of Bremen
Get into communication when you arrive Venice

Re-enter port; await orders; acknowledge

SUN LUIGI -

Proceed Bari; await orders; acknowledge

MARIA ROSA -

Await instructions from Rome; acknowledge

MONBALDO -

If impossible to arrive in time at Fermo, procood as soon as possible to port indicated
on August 25th; acknowledge

In consideration of the affair that is being

CAPONALI

-

FELCE

-

VILDA

-

Proceed Genoa; avoid other landing places;

ORESTE

-

Proceed at top speed

MAGGIO

-

transacted, go immediately to Las Palmas.

Wait there for instructions
Depart from port; await our instructions; acknowledge; confirm
acknowledge

SAN MARCO

Proceed to Assab or Massana; await our orders;
confirm

Go to Vigo; await orders

-

If you have passed Gibraltar, proceed to Cadiz;

CASTEL VERDE

otherwise proceed to Palermo
Proceed to Rotterdam or Bremen; await orders;

ETIOPA

-

TUSCANIA

-

DELIA

-

RAPALLO

-

VIGOR

acknowledge

Proceed to Teneriffe; await orders; acknowledge

Stop first at Teneriffe; await orders; confirm

Call in at Teneriffe; await instructions; acknowledge

-

In eventuality, take refuge in a friendly or

neutral port in Colombia. (VIGOR acknowledged message)

449
IOF 601

CONFIDENTIAL

28 August, 1939,

PIAVE

-

ANTEO

-

Cancel our telegram of August 24th about transshipment to CONTE VERDE

Go to Arubaj remain there for orders; acknowledge

The following vessels cleared from United States ports over the

week-end:

German

PORTLAND

German

HELGOLAND

German
German

Italian
Italian
Japanese
Japanese
Japanese
Japanese
Japanese
Japanese

Everett

for

ANTILIA
ST. LOUIS

Mobile
Galveston
Galveston
New York

WINGAND

Philadelphia

LEMS

Los Angeles

RHEIN

Portland
Buenos Aires
?

?

?

Norfolk
?

MARINA 0

Norfolk

Genos

HIE MARU
TOSEI MARU

Seattle
Abderdeen

Japan
Japan

ASAMA MARU

Les Angeles
Los Angeles
Honolulu

YAMAGARI MARU

New York

KANO MARU
KAGU MARU

New York
Kobe

San Francisco
?

German
German

from

The following vessels were listed as being in United States ports
on August 27th:

Arrival

In Bostons
Japanese

Italian

AKAGI MARU
MONOIOIA

Aug. 27
Aug. 27

NEW YORK

Aug. 26
Aug. 24
Aug. 26
Aug. 26
Aug. 27

In New York
German

Italian
Italian
Italian

ROMA

LIVENZA
BIRMANIA
TUYAMA MARU

Japanese

In Philadelphia:
Japanese
Japanese
Japanese

KYUSYU MARU

Aug. 24
Aug. 26
Aug. 26

IDARWALD

Aug. 26

KINKA MARU
KURAMA MARU

In Booa Grands:
German

Bee page one

-3-

450
IOF 601

28 August, 1939.

Is Galvesters

Italian
Italian

TESEO

Aug. 27
Aug. 27

LAURA 0

In Los Angeles:
Japanese KIYOKANA MARU

Aug. 24

In San Francisco
Japanese
Japanese
Japanese

Aug. 21
Aug. 24
Aug. 25

MORNAY MARU

KURI080 MARU
YAMAZATO MARU

In Baltimores

Italian AMSTERDAM

Aug. 28

In New Orleans

Italian IDA
Italian

Aug. 22
Aug. 25

MONFIORE

The following vessels are due to arrive in United States ports
in the near future from foreign parts:
German
German
Garman
German
German

HAVELLAND

Les Angeles

FRIESLAND
PHRYOIA

New York
Houston

Japanese
Japanese
Japanese
Japanese
Japanese

HOLLAND MARU
TAXYO MARU

ODNEWWALD

Baltimore

BRIGON

New York

Seattle

DAINI OGURA MARU
HOTO MARU

AKATUKI MARU

San Francisco
San Francisco
Les Angeles
Los Angeles

In addition to the foregoing, there are approximately ten
Japanese vessels on which we have current positions.

F. E. POLLTO,

Lieutenant, U. S. Coast Guard,

Asting Chief Intelligence officer.
-

for Sicy
IOF 601

451
CONFIDENTIAL

28 August, 1939.

MEMORANDUM FOR ASSISTANT SECRETARY GASTON:

According to reliable information received by this office, the
German SS COLUMBUS put in at Curacao, Dutch West Indies, to discharge

eight hundred American passengers after being ordered back to Germany,
but was refused permission to enter. The COLUMBUS headed for New York

but if she is unable to reach that port, will attempt to land passengers at San Juan, Puerto Rico.

From information received this morning, the German SS BREMEN is
due to arrive in New York tomorrow, August 29th. The German as NEW
YORK departed New York for Hamburg, Germany, on August 28th before
schedule. The German SS EUROPA, which is en route from New York to

Germany did not stop at Cowes, England, to discharge passengers, but
continued on to Germany. Forty German passengers were awaiting the
EUROPA at Cowes.

All British shipping has been ordered out of the Baltie Sea, and
no British shipping may leave British ports without the authority of
the Admiralty, which is now in charge of all British shipping.
An identical message reading, "ACT ACCORDING TO YOUR SPECIAL
INSTRUCTIONS" was sent to numerous German vessels, transmission be-

ginning at approximately midnight, August 27th and still continuing.
Vessels called up to 3:00 a.m. were as follows:
ADOLF LEONHARDT
HAVELLAND
SPREEWALD

RHEIN
HELGOLAND
NORDERNEY

31

ASKARI
HAMM

ROSTOCK

MARIE FERDINAND
MARBURG

CARL VINNEN
FERONIA
HANS ARP
LEESEE

STETTINER GREIF

REINBECK
GOSLAR
BORKUM

ANATOLIA
WOLFFBURG

LEIPZIO
WINNETOU

MAX ALFRECHT
CHRISTOPH V DOORNUM
GILLHAUSEN
AEGINA
OPTIMA

LINA FRISSER
LUCY ESSERGER
RUDOLF ALBRECHT

For Siny
August 28. 1939.
NORANDUM TO THE FILES,

452

inversation between Mr. Rouse of the Federal Reserve Bank of New York and Mr.

11. Time 12:09 to 12:15.

Rousel This thing's quite quiet. There are a few offerings, come in in the
last ten minutes, but the market's pretty steady. I think the boys
aren't looking quite as hard to place stocks.
(working?)

Bell: Have the offerings been taken?
Rouse: Yes, they are being taken. A boy asked for bid on some 49 to 53s.

He had a higher bid from a dealer. I just bought a few of the
last - - quarter of a million. But since we have shown our face in
this thing I don't think the boys are working quite as hard.

Bell: How many bonds and notes have you bought?

Rouse: Four million nine hundred.
Bell:

Four million nine hundred. of which (1) 3 million notes? Ronald
Ranson asked if we wanted to go fifty-fifty. I told him that was
our arrangement the other day. but I knew you had bought notes and I

did not think we should buy trust accounts. We had to look after

the trust interests. I said we would go fifty-fifty on the bonds.

We might take hold of the bonds and might take hold of the notes.

Rouse: You haven't any ideas about putting it up or putting it down?

Bell: No. I would rather go up if 11 is on motion. MaKee is satisfied?
Rouse: I judge so, but he will be reporting in to the Board directly. He

nosed around on the 65 60a. We bought half a million from one fellow
and he promptly put his market down from 8 - 10 or 6 - 10 to 4 - 8.
hoping to buy the bonds, of course. Everybody knew we were interested

and I (he) was forced to put 11 right back again. but that is just
a trade trick.

Bell:

I don't think you ought to try to put it up. There might be a little
question here as to whether it's gone down far enough.

Rouses Ny only concern is the boys don't go trying to look.- There are some
bargain hunters.

-2Mr.
Mr.

453

Bell: I feel the thing is handled - We do have that situation.
Rouse: We have these offers. I don't know. We try to do as intelligent
a job as we can. There is a home for them. There are people buying.

Mr. Bell:

Well, I think we ought to let those people buy. I think that a

million dollars backed by some New York bank has a much better offeet than some Federal Reserve bank. Doesn't have the same effect

if we buy, and I much prefer that it go the other way. I think
the thing is very satisfactory from our standpoint. You say the

market is about the same as it vas.
Mr. Rouse:

Down to 10 bid on the last bond offering. couple of thirty-seconds
from Friday morning.

Mr. Bell:

So they are down to 10 now.

Mr. Rouse: Yes. Ten bid, and we just bought a quarter of a million. Little
better than Friday night. They are about 6 and 8 bid on Friday
night and two or three thirty-seconds above.
He was buying
this short guaranteed stuff.

Mr. Bell: He thinks there is a bargain there.
Mr. Rouse: Yes. He offered them to us at par. I said, "You had better read
the papers." He was just looking for more buying power. and I know
it is a western bank and they have got a good deal of excess.

Mr. Bell: Rentschler is tickled at the way the market's acting. No offerings
and money still coming this way very fast. Lot of money to be invested when this thing is over.

1g

45 4
August 28. 1939.
NEXORANDUM TO THE FILES:

Conversation between Mr. Gordon Rentachler of the National City Bank of New York
and Mr. Hanes. Time 11:27 to 11:35.
Mr. Hanes:

Hello, Gordon.

Mr. Rentachler: John. this thing is going along very comfortably this morning
so far. There is a certain amount of nervousness that I suppose
you know more about than we do.

Mr. Hanes:

It is subsiding.

Mr. Rentschler: I talked to a good many fellows. Why, I think they have got it
in pretty good shape - . Market seems to have picked up a little
since it opened. There is nothing that we have got here. We
have not been able to get in to France. on account of their being
out off between France and the United States in the telephone
service.
Mr. Hanes:

I heard that early this morning.

Mr. Rentschler: We can't talk to our fellows there, but we get nothing further
out of London today than you get in the newspapers. Have you

had anything?
Mr. Hones:

Only what VO have heard on the radio.

Mr. Rentachler:

The foreign exchange market - - the fellows on the other side.
- - Stockholm. They were buying sterling, but in Copenhagen
they exchange it. (expect it?) His hunch was that Copenhagen
would be off. so that is the only thing we have been able to
get. and that is this one man's hunch from Stockholm.

Mr. Hanes:

Funds still flowing

Mr.

Rentschler: Yes. Our net - - is 2,103,000,000. That is 436,000,000 up
on the year.

Mr. Hanes:

Your excess reserves must be well up. too.

Mr. Rentachler: Three hundred forty-two million.
Mr. Hanes:

Well. that is worse than the other day.

-2Mr. Rentachlers We are in a position to do a lot of business if anybody wants
it, unless there is some untoward thing.
Mr. Hando:

Mr. Rentschler:

We had a report here from the outside from the dealers that
some of the banks were in the market this morning.
We picked up a couple of million over at the - - Company
Desides what we picked up here at the bank.

Mr. Hanes:

Well, I think that's been extremely helpful to have the banks
take a constructive attitude.

Mr. Rentschler:

You will hear all about this afternoon from George (Harrison).
If they can just let us keep on buying, because none of us
are fool enough to think we can make money.

Mr. Hanes:

If anything happens here, I will call you and tell you. Henry.

just confidentially, is sailing today.

Mr. Rentschler: Not coming by airplane? I was concerned because it isn't
necessary.

Mr. Hanes:

No. he is coming by boat.

1g

459

456
August 28, 1939.
MEMORANDUM TO THE FILES:

Conversation between Mr. Ronald Ranson of the Federal Reserve Board and Mr. Hanes.

Time 11:13 to 11:16.

Hello. I suppose you have got the same. They tell me we bought

3,657,000. That is notes and bonds both, isn't it?

Yes.

I got 3,000,000 notes.
Three million six hundred fifty-seven thousand, of which 2,000,000
are notes.

Oh, I got 11 wrong, then.
Doesn't really make much difference.
Hanes:

They seen to have steadied down. More bids probably than offers
coming in at the present time.

Ransom:

Stock market has picked up -

Seems to be some report from Berlin

.

that the situation looks more hopeful; looks like the Germans are
going to negotiate.
Hanes:

That is all right. They have my permission.

Ransom: Well, it is giving a good account of itself. - We are operating
on a fifty-fifty basis if you people want to do that.
r. Hanes:
Rouse:

Better confine 11 to the bonds. though Resald. We are operating on
trust funds.

If you want to do it, we might take all the bonds and you can hold
the notes.

Hanes:

I think 11 is entirely satisfactory to us to operate fifty-fifty on
the bonds. We will take the notes.

Ranson: If there as en't any more than this, it won't make such difference.

Hanes: We will leave 11 at that if that is satisfactory. Thank you, Ronald.
1g

457
4

August 28. 1939.
MEMORANDON TO THE FILES:

Conversation between Mr. Rouse of the Federal Reserve Bank of New York and

Mr. D. W. Bell. Time 11:10 to 11:15.

Mr. Rouse: Hello, Dan. We haven't had any offerings since I talked to you last.
Prices are higher. Thirteen is bid, I understand on the last bond.

Mr. Bell: It was 8 a while ago.
Mr. Rouse: That is right.
Mr. Bell: No. 11 was 12.
Mr. Rouse: It was 8. 12. and now we have heard of some 13 bids. Twelve, I think,

is bid pretty generally.

Mr.

Bell:

Absolutely no offers.

Mr. Rouse: We cleared up that note situation that I spoke to you of. It took
3,000,000. Fellow said he was short a quarter of a million and would

I let him off the hook. I didn't do 18. I told him it was too late
to do anything.

Mr. Bell:

well. that is good. He may have to go out and buy then.

Mr. Rouse: I don't know, but it seems to me healthier to do it that way. I did
another trade of $1,000,000 store notes, and those two things are the

only things I did in the note market. There is not real strength,
but prices are a little better in the notes. too. Any suggestions?
Mr.

Bell: Net a thing. Everything is quiet here. We are not hearing a thing.

Mr. Rouse: Any never

Bell: No news here at all.
1g

August 28. 1939.

458

HENORANDUM TO THE FILES:

Conversation between Mr. Summer Welles and Mr. Hanes. Time 10:55 to 10:59.

Mr. Velles: Good morning, John. Johnny, with regard to that written instruc-

tion that the President sent to you on Friday, you remember the
one I mean. On Saturday we had an urgent inquiry from the British
Government that 11 was on the point of arming some of its merchant
ships defensively, and it assumed that there would be no objection

to - defensively on such ships. I took the matter up with the

President and pointed out that he had complete discretion under

the terms of the Neutrality Act. The only hitch night be the text
of the instruction he gave you. He authorised no to tell the

British Government that he had no objection, and asked me to
speak to you about 11. When he dictated that to you he thought
that he remembered that he had only said "armanent" and not "of-

fensive armanent." It is important. I think that the word "offensive" is not included. You ought to get him to rewrite the

instructions as of the same date but including the word "offensive"

before the word "armament."
Mr. Hanes:

Here's what it sayes (See letter of August 25 from the President.)
That would seen to indicate "offensive."

Mr. Welles: Well, that sound (isn't?) suggestion Mr. Hanes:

Mr. Welles:
Mr. Hanes:

You think it should be "carrying offensive arnaments."
"Carrying armanents capable of being used for offensive purposes."

The word "offensive" ought to be in that.

I will read the rest of it and see if it covered anywhere. (See

letter of August 25 from the President.)

Mr. Wellest Well. that makes 18 all the more clear that the word "offensive"
ought to be in in every case where "armament" is used. Otherwise,
you see, we go right against the principles of international law
and right against what the President has in mind. I think it ought
to be rewritten on White House stationery.

Mr. Hanes: In all three places.
Mr. Welles: Yes.
1g

August 28, 1939.
ICHMORANDUM TO THE FILES:

59

Conversation between Mr. Rouse of the Federal Reserve Bank of New York and

Mr. D. W. Bell. Time about 10:45.

Mr. Rouse: Practically unchanged except it is a shade better. Quite dull. We
picked out an issue that is relatively quite cheap. the 44
and asked for an offering.

Mr. Bell: Did you give any price or just ask for it?
Mr.

Rouse: We asked for offerings. We did not mention the price. Good number
of the dealers had some. but they wanted to keep them.

Mr. Bell: Well, that is encouraging, isn't it?
Mr. Rouse: Yes. Sixty 65e are 8 in 72. and what we get from the dealers. Still.

there is a little better buying than selling. - He didn't tell

us

who it was for, but I would like to find out. It is the only plug

of notes in the market that hasn't found a home. Shorter, they are
December 40 and March 41. Two million or half. and at the prices

that we have formerly bid, I think the yields are fairly attractive.
This is all relative, of course, crazy as it is. I think they worked
out 24/100s of 1 percent and 44/100s of 1 percent.

Mr. Bell:

You are in. - - I was going to ask you if you are interested in any
of those.

Mr. Rouse: Not if I can help it. I haven't been able to conclude the check, so I have
no recommendation to make at the moment. Have you any good ideas for

no?

Mr. Bell:

No. I think things here are about the same. We haven't any special
news. I was going to ask you - - this note thing night be same as
some of that other stuff. holding the stocks abroad, mightn't it?

Mr. Rouse: Well, it might be. I don't know.
Mr. Bell: Well. what I was going to ask is about your bills today.
Mr. Rouse: Well, there is no question but you'11 have plenty of bids.

Mr. Bell: They are going to let some of - - run off.

460
Mr. Houses I don's know what the Board has decided about that. But there is no
question about there being plenty of bids on them. One called me and

said he was going to be in. I don't know where it will go. but I

should think the FDIC rate would stop them out without any question.
Mr. Bell:

The reason I ask about the bills, I thought if you are interested in
substitutions, maybe these note things would be a good substitution.
of course, let me know. 11 looks pretty good.

Mr. Rouse: Thank you, Dan.
1g

8/28/39

August 28, 1939.

463

MEMORANDUM TO THE FILES:

Conversation between Mr. Rouse of the Federal Reserve Bank of New York and Mr. Bell.
Time 10:09 to 10:12.

Rouse: There is no change in prices.

Bell: Really?
Rouse: Quotations, that is.
Bell: Down?
Rouse:

Both the bankers and

as dealers tell me now there is no offers to

make, and they are getting some savings banks and some small people out

of town nibbling. Nothing to offer to us. We have bought altogether
less than one million and & quarter, and we are shopping around a little
bit for 65 60s. - We are not getting anything. - Prices are about the
same. - - and the bankers and the Guaranty are apparently willing to buy.

Quaranty having difficulty buying stuff.
Bell:

Well, that ought to sort of stabilise it.

Rouse:

I think it will. We have shown an interest in the market and have invited offers. We had one funny case. Bank in North Carolina, they made
an offering to us, and we bought 300,000 of the 48 issue. Then he offered
some 2-7/8a and 51 4s. We made him a bid on the 2-7/88 and he turned it
down. Then I said we are not interested under those circumstances. We
know the name of the bank. We won't pay any attention to it. - - - We
bought some 60 65a. some 3s of 55. and some 30 of 48. It doesn't seen to
have changed since I talked to you last. We found one dealer offering (1)
to another. He offered them to us. We said we were not interested.

Mr. Bell: Why did he do that?
Rouse: Just curiosity, to see if we would take them. He sold half of them to a
customer at a good profit to himself.

Bell: Well, that is pretty good.
Rouse: It is a small market, Dan.

Bell: OX.
1g

482
August 26, 1939.
KENORANDUM TO THE FILES:

Conversation between Mr. Ranson of the Federal Reserve Board and Mr. Hanes.

Time 9:53 to 9:56
Mr. Ransons They have bought 750,000.

Mr. Hanes: Danny Bell is on the other phone. Renald. He has just been talking
with Rouse in the New York office. I don't know if he's got anything you haven't got. One issue was offered on about 16/32. but
in response to the general feeling of the other members of the

Executive Committee he's bought some bonds, 750,000, but as of this

time that seems to be all right to you.
Ar.

Ranson:

Well, I think it is all right. There is nothing in the market, I

understand, in the way of offerings. When offerings do come in they
are prepared to buy bonds. They have a feeling that some New York
banks have bought bonds. - - Oh, that is the New York banks. They
told us that both the banks and the dealers were probably buyers

this morning. I don't want to keep so far away from that market

that we buy nothing and the offering price starts sliding off. Well, I think you (they?) are on top of the situation.

Mr. Hanes:

Thank you, Ronald, and if we hear anything we will call you back.
1g

August 28. 1939.
MEMORANDUM TO THE FILES:

83

Conversation between Mr. Rouse of the Federal Reserve Bank of New York and Mr. D. W.
Bell.
Time 9145.

Rouse: Hello, Dan.

Bell: Hello, Bob.
Rouse: This thing is not very bad.

Bell: Really?
Rouse: So far it seems to be mostly very small stuff. - There is nothing going
on in the floor. There have been no
I think there was one transaction only. There seem to be no offers on the floor of the Exchange.
Mr. Bell: I see. You are talking now about the bonds.
Rouse: I am talking about the bonds. Biggest offering I have had has been a
million of short notes, and I haven't done anything about that, naturally.

Bell: You haven't had any bids in?
Rouse: No. We have been waiting for offers. We had one misunderstanding and
bought a few bonds, long bonds, about 700.

Bell: Had no effect?
Rouse: It was a position situation.

well: I sec.
Rouse: And it left this fellow open so we could make - Bell: It's gone down, I understand from Hadley.

Rouse: Well. it is a little more than that, but there is a real market on the
long bonds one and three quarters down, and there is a real market there

and pays our trade on them. - - - Little below Friday night.

Bell:

Well, your Saturday's was above Friday about half a point. so that you
are down below Saturday and a little (lot?) below Friday's close.

-2

484

Rouses You still think that we should just still watch the situation?
Bell: Well, we are prepared Rouse: If 10 is offered.

Bell: I see.
Rouse: And we are showing interest to some of these fellows and we will probably

be buying stuff if that is agreeable.

Bell: well. that is agreeable.
Rouse: All right. sir, but you are not in there with any bids of any kind, and
you will take offers when they come in. - - That is right. We are in
that position. It's been very small. I want to emphasise that. Some
of the dealers are makin real market.

Bell:

They are?

Rouse:

Yes, sir.

Bell: 0. K. Any indication that some of the large banks might come in there?
Rouse: I understand there has been some buying by the banks in town. I think
we might take a shot at this.
Bell:

All right, Bob. keep me advised. will you? Thanks a lot.
1g

August 29, 1939.
9:55 A. M.
John W.
Hanes:
Ambrose

465

Yet there's a matter - of course the
I'm not interested of course.

ought to,

O'Connell: Yes.

H:

Financially, in the company.

O:

Well I think it ought to go on the Harding myself.

H:

But I would think, just looking at it perfectly
impartially, if I could be impartial, it's hard to

be impartial sometimes when you're so close to people
and so intimate.

O:

Yes.

H:

Such intimate friends with them.

O:

Well now, Mr. Farley had planned to return on the
Harding and he's coming back on the Manhattan.

H:

O:

Yes.

Well I think if the Postmaster General transfers we
ought to transfer the mail too.

H:

Well -

O:

For the same reason.

H:

It would certainly strike me that - in looking at it

as an outsider, outsider of the Government circle,
when the Government is trying to do everything they
can to force the American shipping it would certainly

seem to me to be fair for them to ask that if the

Government.
O:

H:

Yes

There's not a great deal of difference in time and
they're sailing the same day and also the fact that
we might - there might be trouble before either boat
gets there.

O:

That's right.

H:

The American mails I should think would be subject to

a lot of criticism if the American mails got captured

by Germany.
O:

Yes. Well now, let me get into that right away, I

2

466

didn't know that that situation developed. Suppose
getout.
a hold of our people and see if I can't work
that
I

H:

O:

Well, it's got to be done before one o'clock today

I understand, or it will be too late.
Well, I'll get on top of it right away.

Well you're very kind and I don't want you to misunderstand my position, but I tell you everything
that I know, I'm being perfectly frank with you, and O:

I think it's perfectly fine you called, I'm glad you

H:

I'm prejudiced naturally, I would be, as I was with

called.

that company for ten years.

0:

Yes.

And I've been awfully interested in the development
of the American Merchant Marine, especially through
the United States Lines.
O:

H:

Yes, well I have been too But I'm not financially connected because the Secretary
asked me to sell out when I came to the Treasury.

O:

Yes.

H:

So I'm not financially connected but I am terribly
prejudiced and I'm terribly devoted to everybody in
the company.

O:

Yes, well I -

H:

So I want to warn you of my interest. (laughs)

0:

All right. I'll try to get a hold of it right away.

H:

You're very kind and I appreciate it Mr. O'Connell
very much.

O:

All right, fine.

H:

Goodbye.

about 8129

Pá grunn av luftvernevelsene i aften anmodes gjestene om
à holde vinduer og dorer lukket og trekke gardiner og portierer

for - fra kl. 19 til kl. 5 om morgenen.
Hvis vinduer eller dorer holdes ápne, ma alt lys slukkes.

On account of the air raid precaution exercises which are
to take place tonight the guests are requested to have the win-

dows and doors closed and the curtains and portières shut
from 7 o'clock P.M. until 5 o'clock in the morning.
If doors or windows are kept open no lights must be used.

467

467A

CRAY

VM

PARIS

Dated August 28, 1939
REC'd 6:30 p.m.

Secretary of State
Washington.

1637, Aujust 28, 7 p.m.
FOR THE TREAS RY

The Exchange market today was in a state of considerable
bewilderment. Accustomed to standardized quotations which

vary but a fraction per mill it was compelled to deal today
with a spread of 1, 2, and EVEN 3% between offers. The
confusion was augmented of course when all telephone commun-

ication other than official bEtwEEn France and the outside
world including London was stopped at noon. Also all cables
must now be sent in clear and require approval by the
authorities. Dollars WERE in heavy demand against the pound

and the rate fluctuated from 4.40 to 4.12. It is now quoted
at 4.23. The franc dollar rate ranged from 39.50 to 42.70
and is now around 41.50. The franc pound rate was held at
175.25 to 175.35 and the French fund lost SOME sterling. The

Swiss franc, belga, and florin again followed the dollar.
There WERE no forward quotations and no arbitrage business.
(END SECTION ONE).
BULLITT

NPL

461B

VM

GRAY

PARIS

Dated August 28, 1939

Rec'd 6:57 p.m.

Secretary of State
Washington.

1637, August 28, 7 p.m. (SECTION TWO).

There is still no indication that the French contemplate any such steps as those contained in yesterday's order

of the British Treasury regarding dealings in and holding of
foreign securities. That order does not appcar greatly to
hardly

have affected the Paris market though it/served to Encourage

it. The securities market was well sustained considering
the rapid and accumulative preparations for war in Europe.
Rentes were not too weak SOME issues losing about a franc; the
Exchange guaranty issue (41% of 1937). gained 2 francs.
The demand for both French and American banknotes

contines but tapered off today as most preparations for the
Emergency were made last WEEK. It is the general feeling of

the financial community here that the crisis will "break"
within the next three days and while SOME Elements bEliEVE

that at the last moment Hitler may "lose his nerve" that is
hardly the majority viewpoint. Frence in contrast to a year
ago

467C

VM

-2- 1637, Au just 28, 7 p.m. (SECTION TWO) from Paris.

ago is united in its determination to SEE it through. As
the Poles and the British are apparently similarly resolved
the only ESCAPE from an armed conflict would be Hitler's
yielding. (END SECTION TWO).
BULLITT

HTM:NPL

4678

EJ

GRAY

PARIS

Dated August 28, 1939
Recd. 5.35 p.m.

Secretary of State
Washington

1637, August 28, 7 p.m. (SECTION THREE).

HobbE in this morning's FIGARO says in Express-

ing approval of French monstary policy in permitting the
franc to follow the pound: "Furthermore this

Example of Franco-British/olidarity is of a nature to
lead the United States to join us in reenforcing the
tripartite monstary agreement which would be an

important trump for the small but sincere PEACE front."
The Belgian MONITEUR publishes a decree extending

the authority for open market operations of the
National Bank of Belgium: the limit on such operations
has been raised to 5,000,000,000 francs. The Belgian
National Bank statement for August 24 shows gold
holdings increased during the WEEK by 244,405,000

francs. Foreign Exchange holdings were up about
2,000,000 francs.
This morning's JOURNAL OFFICIAL publishes the

decree law granting to Poland the 430,000,000 franc

credit for purchases of war materials in France. The
credit

467E

-2No. 1637 from Paris August 28, 7 p.m.

credit carries 5% interest and is not reimbursable over
a maximum period of 18 years beginning January 1, 1940.

The Swiss Government has prohibited for the time

being the exportation of certain foodstuffs, fuels,
metals, textiles, and rolling stock in order to prevent
depletion of stocks in case of war. Holland has taken
similar measures.
(END OF MESSAGE).
BULLITT
NPL

LEGATION OF THE
UNITED STATES OF AMERICA

Oslo, August 29, 1939.

Dear Mr. Secretary:

This Legation today sent the following cable to
the State Department:
"The Bank of Norway has announced that as of today

Norwegian crown is not linked to pound sterling.
The dollar rate has been fixed at 4.40.
Sincerely yours,

Flarence
I.
Florence J. Harriman
American Minister.

The Honorable

Henry Morgenthau, Jr.,
c/o American Consul,
Bergen, Norway

468

BONE US

YOUR POSTMASTER

m.p.w -

753964
SEP15

G-3M

Cix 2TUR30.8.39.

to was

m. magan theu, formanded

ly order I as mm. regular mail hingins

Received after depar time of

TEEM

2TUR30.8.39

,6861 W
O.

E
x

2TURK 0.89

And

Add

AUG 30 1939
BERGEN,NORWAY

ME RKER
BOWLENGE

URGENT

FORCION SERVICE

Br.

OSLO
UNITED STATUS SAA ANDER CA 8.39.16-19

BRUK

MERKER

DRONNING MAUD

c to American Consul,

Hon. Henry Morgenthau, Jr.,

Br.

( See other side)
American Consulate,

29.8.39.16-19

Bergen, Norway

DRONNING

MERKE

Treas Dept
Washington D.C.

BRUK

60(e)
FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
CONFIDENTIAL FILES

To
FROM

470
DATE August 29, 1939.

SUBJECT TELEPHONE CONVERSATION WITH

L. W. Knoke

BANK OF ENGLAND.

I called Mr. Bolton at 10:35 a.m. I referred to his shipment
of $14,000,000 of gold on the Aquitania which was now being unloaded.

What were his instructions? He wanted to sell it, he said, and would
confirm by cable shortly. We would probably be getting, from time to
time, odd amounts of dollars from various people in New York. These

dollars were the result of permission granted to sell some American

securities with the understanding that the dollars would be paid to us
for Bank of England account. Would we be good enough to cable him these

amounts as they were received? He could give us no preliminary advice to
receive because in some cases the securities were in New York and in

others had to be shipped to us first. I replied that we would do, with
pleasure, as requested and cable on these odd payments as received.

There was very little that he could tell me about the situation in Europe. The exchange market on the whole was steadier than
one had expected, the dollar fluctuating today between 4.30 and 4.38.

The Premier had just finished his speech in Parliament. The British
position was unchanged. They did not intend to go back on their pledge
to Poland and the defense forces were ready. Now they were waiting

for Hitler's reply. In Europe one seemed to hear from time to time
a very general suggestion to the effect that Mussolini might go against

Hitler and this feeling, Bolton thought, might be the reason for a
somewhat more optimistic atmosphere at the moment.

Was he getting some of the gold that was now being offered from

/

3 to 2 1/2% discount from gold parity, I asked. They had bought about

MISC 5-39
FEDERAL RESERVE BANK

471

OF NEW YORK

OFFICE CORRESPONDENCE
TO

DATE August 29, 1939.

CONFIDENTIAL FILES

SUBJECT TELEPHONE CONVERSATION WITH

L. W. Knoke

FROM

BANK OF ENGLAND.
2

£1,000,000 in the last few days. Their activity in the exchange
market was nil except for orders which they were getting from other
central banks. I mentioned that the only matter of interest in our
exchange market was the appearance of selling orders from Buenos Aires

for fairly substantial amounts of sterling. So far the market had
taken all of these offers without a ripple.

LWK:KW

471A

NC

GRAY

PARIS

Dated August 29, 1939
REC'D 3:40 p.m.

Secretary of State
Washington

1641, August 29, noon.
FOR THE TREASURY.

The volune of trading in for rign exchange this morning

was of course greatly restricted b7 the inability 5
communicating either by telegraph cr telephone with other
centers and by the telephone restrictions EVEN on Paris calls.
There has been C. strong demand for collars and the dollarpound rate has ranged from 4.07 to 4.27 with business done

at both figures. At 11:30 it : 3 quosed ct 4.20. The franc
continues tied to the pound and is held at 175., the French

fund acquiring considerable sterling this morning at that
figure.
After standing at two per cent since DECEMBER 1936 the

Netherlands National Bank has roised its discount rate to
three per cent.
This morning's Journal Official publishes C Long list

of articles of which the export is prohibited (Exceptions
may be authorized by the Minister of COMMERCE). They

include hides and skins, wool, horses, silk, cersals,

sugar, cotton, linen, petroleum, and its derivatives,
metals

471B

NC -2- #1641 from Paris, August 29, 1939

metals, chemical products, cellulose, surgical and

scientific instruments, radios, tank ccrs and trucks.
Sentiment on the political outlook is slightly better
in the financial community this morning and there is general

satisfaction with the reported tenor of the British reply to
Hitler, Resignation announced this morning of several
Communist deputies is concrete indication of the disintegration of the French Communist party following the RussoGerman pact. The mony restrictions on Everyday life imposed
by the war measures of the past two days are being cheerfully
and philosophically accepted.
It has been reported that the Swedish and Finnish
currencies have been "detached from the pound".
BULLITT
CSB

411C

EDA

PLAIN
LONDON

Dated August 29 1939
Received 12:32 p.m.

Secretary of State
Washington

1310, August 23, 6 p.m.
FOR TREASURY FROM BUTTERWORTH.

With reference to my 1279 of August 27, 8 p.m.,
the Bank of England has issued a notice explaining the

procedure for carrying out the Treasury order. This

notice is lengthy and I will not cable it in full
unless instructed. The important points are as
follows:

(1) United Kingdom residents will be granted

until further notice permission to transfer securities
of the specified classes to persons resident in the
United Kingdom provided an application has, prior to
the transfer, been made to and approved by the Bank
of England.

(2) Transfers By United Kingdom residents of the

securities affected by the order to a person not resident
in the United Kingdom can only be made on approval of a
special application to the Bank of England by a bank
or stockbroker.

(3) The order does not apply to a security if the
Treasury

471 W

EDA - 2 - #1310, August 29, 6 p.m. from London

Treasury are satisfied that at all times since the
beginning of August 26 the owner as defined in the
above mentioned cable was a non-resident of the United
Kingdom.

Incidentally an American banker who is a British
resident under these regulations inquired of the
Bank of England in regard to permission to sell American
securitios and it was intimated to him that permission
would be granted provided he turned over the dollars to
the British monetary authorities and accept sterling

in return.
KENNEDY
DDM

472

PAP

PLAIN
LONDON

Dated August 29, 1939
REC'D 7:22 a.m.

Secretary of State
Washington
RUSH

130s, August 29, 1 p.m.
FOR TREASURY FROM BUTTER VORTH

The Exchange market and the City generally are

surfeited with rumors. Sterling opened 4.26 nd
irregularly moved to 4.38 bid. The amount of business
has been very small and this movement merely represents

covering actions by a few individuals who are hazarding
on a compromise solution. Most firms and individuals have
Either made their arrangements or fear a quick turn in
the situation. All but official telephone communication
with the Continent is virtually suspended which has, of
course, had the Effect of multiplying the rumors.
KENNEDY

ALC

473
PLAIN

CJ

LONDON

Dated August 29, 1939

Rec'd 12:26 p.m.

Secretary of State,
Washington.

1309, August 29, 6 p.m.
FOR TREASURY FROM BUTTERWORTF.

The City, rightly or wr ongly, did not pay particular
heed to the Prime Minister's speech and merely regarded it

as a description of the situation and a re-affirmation of
the British Government's determination to stand firm. The
pound remained at 4.36-37, but the market was active and

individual deals took rlace in fairly large amounts with
Paris buying and NEW York selling dollars.

The British fund took 140 bars of gold at the fixing
when 266 bars WERE dealt in, 42 of which were married. The

price of 137s. represented C. discount on a shipping parity
of 3s. 6d.
Stockholm has been quoting krone ct a fixed dollar
rate of 4.20 but there have been only nominal quotations
from Oslo and Copenhagen.

The stock Exchange has been fairly firm with SOME deal-

ings in gilt-edged at olightly above the fixed minimum prices
KENNEDY

DDM

474
PLAIN

MA

LONDON

Dated August 29, 1939
REC'D 7:57 a.m.

Secretary of State
Washington

1303, August 29, 1 p.m.
FOR TREASURY FROM BUTTERWORTH.

With reference to the cutting loose of the Swedish

currency from starling, reported in the last (#) of my
Number 1297 of August 28, 7 p.m., the Stockholm correspondent
of the LONDON TIMES today states "the manager of the Riksbank

H. R. Rooth explained that the step should be SEEN as part of

the general policy of maintaining a stable domestic price

level, it is emphasized in financial circles that the new
parity must be considered. As tentative both as regards

sterling and dollars the situation allowing no definite stand
to be taken as long as the rate of the pound to dollars is
not stabilized undoubtedly the new pound rate will mean a

strain on Swedish Export industry. Especially the timber
industry which appeared not to have covered thEmsElves to

any considerable extent but it is also pointed out that in
case of Emergency it becomes increasingly important to have

a rate of Exchange which permits imports at reasonable
prices".
KLP

(#) Apparent omission.

KENNEDY

474A
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France

DATE: August 29, 1939, 6 p.m.

NO.: 1657
FOR THE TREASURY.

The exchange market continued to operate under diffi-

culties but is hopeful of some slight relaxation of
communication restrictions tomorrow. London was a seller

of dollars this morning but the latter weakened this afternoon and it gained one and one half million dollars. The
British control likewise acquired 100,000 pounds of gold.
The pound is now at 4.35.

A substantial amount of sterling was gained by the

French fund today, Rueff tells me. The franc rate was again
175.25 after having touched 175.18. Around two million
dollars were also acquired by the French fund, which
used Morgana for buying about five hundred thousand dollars
of this amount.

The belga, florin and Swiss franc are continuing to
follow the dollar, though in a somewhat disorderly way.
There was brief quotation of forward rates for one month
with the franc at a premium of 30 centimes against the pound.
There was continued optimism, as reported this morning,

mainly because Hitler has not broken off conversations with
the British, and also because of a growing impression, which

has no tangible basis, that Hitler will not dare to let loose
a war at the last moment. There was a very strong securities
market

474B
-2market and rentes finished up two to three france.
Amsterdam Civil Court has declared bankruptoy for
the personal estate of Mannheimer.

EA:LWW

OF

475

Office of the Attorney General
Washington D.C.
August 29, 1939
J.

The Honorable,
The Secretary of Commerce.

My dear Mr. Secretary:
Reference is made to your informal request for my opinion

concerning your authority to issue proposed instructions to Collec-

tors of Customs of all seaboard districts reading as follows:

"There is a possibility that foreign flag
merchant ships whose governments may become in-

volved in war are carrying armaments capable of
being mounted for offensive purposes stop Clear-

ance for such ships will be withheld until this

Government is certain that no such armament is

being carried stop You will withhold clearance
papers from all ships suspected of carrying such
armament until detail report is made to this De-

partment and until specific instructions are
issued stop Take all precautions to prevent
disclosure these instructions."

Section 91, title 46, U. S. C., requires all vessels to secure
clearance from Collectors of Customs before departure from an American

port, and section 1581, title 19, U. S. C., authorizes officers of
Customs to go on board any vessel at any place in the United States
for the purpose of making examination to determine whether it appears

that a breach of the laws of the United States is being or has been
committed.

-2

Sections 23 and 29, title 18, U. S. C., read as follows:
#823. (Criminal Code, section 11.) Arming
vessels against friendly powers; forfeiture of
vessel. Whoever, within the territory or jurisdiction of the United States, fits out and arms,
or attempts to fit out and arm, or procures to
be fitted out and armed, or knowingly is concern-

ed in the furnishing, fitting out, or arming of

any vessel, with intent that such vessel shall
be employed in the service of any foreign prince,
or state, or of any colony, district, or people,
to cruise, or commit hostilities against the subjects, citizens, or property of any foreign prince
or state, or of any colony, district, or people,

with whom the United States are at peace, or whoever issues or delivers a commission within the

territory or jurisdiction of the United States

for any vessel, to the intent that she may be 80

employed, shall be fined not more than $10,000 and
imprisoned not more than three years. And every
such vessel, her tackle, apparel, and furniture,
together with all materials, arms, ammunition,
and stores which may have been procured for the
building and equipment thereof, shall be forfeited;
one half to the use of the informer and the other

half to the use of the United States. (R.S. a 5283;
Mar. 4, 1909, C. 321, a 11, 35 Stat. 1090.)*
"829. (Criminal Code, section 17.) Deteation
by collectors of customs. The several collectors of
the customs shall detain any vessel manifestly built
for warlike purposes, and about to depart the United

States, or any place subject to the juriodiction thereof, the cargo of which principally consists of arms
and munitions of war, when the number of men shipped

on board, or other circumstances, render it probable
that such vessel is intended to be employed by the
owners to cruise or commit hostilities upon the sub-

jects, citizens, or property of any foreign prince
or state, or of any colony, district, or people with
whom the United States are at peace, until the de-

cision of the President is had thereon, or until the

owner gives such bond and security as is required of
the owners of armed vessels by the preceding section.
(R.S. 85290; Mar. 4, 1909, C. 321, a 17, 35 Stat. 1091.)"

476

477
-3Construing section 23 above-quoted the Court in The Meteor,

17 Fed. Cas. 178, said in part:
"The mischief against which the statute intended
to guard was not merely preventing the departure
from the United States of an armed vessel, but
the departure of any vessel intended to be employed in the service of any foreign power, to

cruise or commit hostilities against any foreign

power with whom the United States are at peace."

Under the above-quoted statute, read in the light of the de-

cision of the Court in the Meteor case, it is believed that authority exists to withhold clearance of a vessel until it can be determined whether the vessel has on board armanents capable of being

mounted for offensive purposes. Whether clearance could be refused after such examination even though such armanents were found

on board would depend upon all of the facts disclosed by the examination. It is doubtful whether the more possession of such

arms would of itself authorize refusal of clearance, but this
fact together with other facts disclosed might be sufficient to

justify the conclusion that it was the intention of those in
charge of the vessel to use it after its departure as an armed
vessel to commit hostilities against a foreign state with which
the United States are at peace, in which event I am of the opinion

that you would be justified in holding the vessel under the statute.
Respectfully,

Attorney General.

477 A

sams
Notes Regarding the Bremen
August 29, 1939.

The Bremen after docking and discharging the passengers
yesterday wanted to turn around and sail without passengers

or cargo at 8:00 P.M. last night. Her request for clearance

papers was refused. Whereupon she said she would sail without the necessary papers. However, as the Collector at the
Port of New York had made arrangements whereby neither tugs

nor pilots would be available, the Bremen did not leave
illegally as she had threatened.

In addition, Coast Guard cutters were stationed in the
North River close by, which would in the event of necessity

at least partially block her if she attempted to leave the

pier.

As the result of these measures, the Bremen asked for
clearance at 8:00 A.M. today, but clearance papers were
withheld by the Collector until an exhaustive examination
could be made. This examination disclosed nothing unusual,
no ammunition, and no guns. There were only two items found;
a Zeiss camera, and a 3-inch gun emplacement on the after deck.
During the day the Treasury Was notified that the Bremen
had taken aboard approximately thirty physicians and technicians
who were signed on as crew. These persons were later put back
on the dock presumably to avoid any further complications or
investigations.
The Department of Commerce cooperated and made a complete

inspection of the Bremen lifeboats and conducted a lifeboat

drill. All of the investigations made with respect to the

Bremen were also carried out with respect to the Normandie.
Tonight Harry Durning says that there is no longer any
excuse for holding up issuance of the Bremen clearance papers.

August 29, 1939.
MEMORANDOM TO THE FILES,

478

Conversation between Mr. Durning, Collector of the Port of New York, and Mr. Nanes.

Time 5:36 to 5:50. (Mr. Gaston was listening in on this conversation.)
Hanes:

To haven't got anything more to offer.

Durning: I was going to give you till 7 o'clock and then call you. Would you
want to drop this call, I don't like it coming through here, and come
through Bowling Green 947651

I didn't think you would because we had exhausted ourselves on that -

We got hold of tug boat people: they will not supply a boat pilot
tonight. Theywon't get a pilot from the association. We are all right
for tomorrow morning. Now to get through tomorrow morning, I think
I have got to hold up for 8 hours the Normandie and for 6 hours the

Aquitania. We are in a ridiculous position. Here are boats going

out with passengers and cargo, and here we are holding a boat that is

just going out with a crew alone. We get ourselves in a ridiculous
position. We haven't finished our search and we're going to search
all three boats tomorrow morning. I can get hold of Gamy on the
Ounard Line and I think the French people will see the point.

Hanes:

I think it is very important that you get some word to them, and I
would go ahead and do it on that base. It seems to me to be reasonable
and I think it would save an awful lot of embarrassment.

Durning: I am thinking more of that than of anything. I can say I have called
off the examination on the one tonight. I was going to do it tonight,
and put them all to work tomorrow and delay the three of them. Would
that be understood across the street?
Hanes:

Yes. Wait a minute. I reported over there that we were treating the

Normandie and the other ships in every way the same. Also that we had
even delayed the clearance of some American flag ships, so I think we

are all right on that one.

Durning: You said you were speeding the Normandial
Hanes:

Durning:

Ranes:

No. I said we were delaying here, treating her the same.
We are in a fairly good spot if we have a French boat, an English boat,
and German boat all delayed together. The Transylvania doesn't mean
anything. a Then I would continue the search on all three boats tomorrow
and then give them all clearance at the dock at the same time.

I certainly think there could be no criticism on that one. The only
trouble would be with the other people, the other two.

-2-

79

Durning: They know we were giving them the same treatment. But the press isn't

paying any attention to it.

Hanes)

Maybe they will when they see you mean business on all three alike.

Durning: What I was going to do was clear them all tomorrow morning.
Hanes:

That makes dam good sense to no, Harry, and unless you have some dif-

ference, I will talk about this some more tonight, and I would think
that unless you hear any differently from no tonight, I would just
stand on that.

Durnings

We have got n break on the weather here tonight. We have got a northeast
storm blowing right down the River, and I don't think that one boat could
get out in any event. She would muss herself up terrible. Now, we can
keep off the tugs and everything else, so that she would have to go out
herself. To might be able to hold the lines there. Now, you got the
one thing. of course, that we talked to the Coast Guard last night about,

that is if she started out. I have a cutter up the River all set -7

come down and block her out. Tou got a big question there. It didn't
come up today and I don't think it will come up tonight, but maybe tomorrow.
Hanes:

Harry, Herbert and M Foley had a talk with Covell and cautioned him

that it wasimportant not to let her get out into the stream in the slip.

Durning:

That is the last thing I want. The only point would be, it is all in

our favor tonight and against her; without tugs pulling out of a slip,

she would be faced right up the River, because as she came out this
breese would probably swing her around. The wind would come down the
River and she would come out. That would push her bow right into the
pier. To get out she would have to have assistance to hold her firm

and then swing. I don't hesitate a bit to take the Coast Guard and shoo off the
tug fellows because she has no clearance, and they have no right to help

a boat without clearance. (If she tries to go out?) shall we stop her
at that time. We have got to (pull?) down the outter that we have north
got
and put her across the stern. That almost gets down to a - act. To
all set when she starts out. I got a boat right across the River.
Another one right up Seventy-ninth Street, and she would come right

down. That end is all taken care of. Now, I might probably be safe
tonight long as I CAN hold her with this breese and she not able to get

any tugs. Once she starts down she will go down 15. 18, 20 knots an

hour. Anything that got in front of her, boat of that sise, plough
right through it.
Banes:

We have to try to keep her from getting out of the pier if she tries.

Durning: To hold that Normandie up tomorrow and hold up the Aquitania and give, is
the Transylvania is only an hour, and see that the search tomorrow

going to continue on all three boats.
Hanes:

I think so, Harry.

480
3

urning! I think that is the only thing to do, because that will save our faces,
and I think the only (thing?) to do is let then know that - - they all
can go out at the same time.
Ines:
Durning:

lanes:

I think that is all right unless you hear differently from us tonight.
Where are you going to be tonight?

I think I might want to get hold of Oamy of the Ounard Line. I can get

both - or someone else (int). - - I will stay right on the job.

What is a telephone that we could oa211there that you could keep posted
as to your whereaboute?

Durning: White House 44300.
lanes:

I don't expect to call you any more tonight unless some different instructions should be necessary. You can't do anything tonight anyway.

Durning: I will get in touch with both the French line and also the British line.
If they start raising hell down there through the State Department, just
give them a little appeasement. The only way. You fellows (agree?)

Chorus: Absolutely.
Hanest

I will take care of the State Department if any squark conos there.
1g

1 original and 2 carbons made.

482
August 29, 1939.

4

MEMORANDUM TO THE FILES,

Conversation between Mr. Feis of the State Department and Mr. Nanes. Time 5:12
to 5:16.

Hanes: I reported thatmatter across the street just as I reported it to you, and
we now have different instructions than that. They are not going to let
her go. So I have got to change my story that I told you.
Feis: Those are your orders. How were you told to explain it?
Hanes: I wasn't.

Feis: It's going to be a mess, isn't it?
Hanes: I understand that the President discoursed on the subject for a long time.

Feis: Did you see the ticker?
Hanes: No, I was told about it. He told quite a long story about it.
Feis: Where did he get the stuff from?
Hanes: Me.

Feis: Is there any groundsin it for explaining why it inn't to FO?
Hanes: The only thing we can say is, "Harry Durning, just say that your inspec-

tion is not complete.

Feis:

Is there anything in the press conference of the President today that
would explain it?

Hanes: He was explaining why the American Government must protect itself. He
said today that the United States has adopted a policy of searching merchant

vessels of nations (of anyt) big belligerents so as to avoid the possi-

bility of this country becoming liability.
Feis:

What I am afraid of is that by doing this he prejudices something about
the Neutrality Act.

Banes: I see what you mean. I am afraid he is unwise, but hell.

Feis: I don't know. You want to sit down and talk with us?
Hanes: I don't believe so.

-2482

Feis:(?) The last time I spoke to you I was right in Welles' office, and
there was a definite feeling thatwhile we are glad of the opportunity
we are going to keep up. But with the - news you give me we may turn

around again.

Hanes: I think this a more serious one because they are getting restless. The
only news in New York today is the Bremen and the English note.

Feis:

Well, there may be more news before morning. I will report this down-

stairs right aws.

Hanes: If they want me, Herbert, call no back right away. I will run over there
if they want to talk about it, and I want to do the right thing and yet
I want to carry out instructions. We got them over from the telephone
personally. directly from him, through no intermediary.
Feist

I will report at once, John, and let you know.
1g

1 original and 2 carbons made.

R

August 29. 1939.

483
MEMORANDOM TO THE FILES,

Conversation between Mr. Durning, Collector of the Port of New York, Mr. Hanes, and

Mr. Cairns. Time 4:50 to 4:57.
Hanes:

Now, I just discussed that situation with that gentleman, and he doesn't

want that thing to get out tonight, and he said, "Tell Harry that I said
I wanted that boat held 4g hours, and last night at 6 o'clock was when
she got here, that would be tomorrow night at 6 o'clock." I am just repeating to you what he said.

Durning:

'anes:

That is all right. That is the orders. We got to contemplate difficulties.

You going to have some trouble?

Durning:

I think so. They are waiting for the (tider). We will just tell them

Hanes:

Maybe some of those doctors and technicians, maybe they should have a
going over by the FBI. Has she got passenger clearance? She has no
passengers. Here's Huntington Cairns.

Cairns:

Did she surrender her passenger certificates?

Durning:

No. We have her official papers. To cleared those last night. The

there is no clearance. I don't know what the dickens we can do now.

point here would be that she did probably through the day, we kept
going on. We picked up one Zeiss camera.
Cairns: Now, suppose you held that these 30 technicians were passengers and
not members of the crew?

Durning: They took them off. That bagange all came off. They are ahead of us
on that.
Hanes: (1) They took the 30 men off. Have you given it a shakedown?
Hanes:

Durning:

Well, listen. The idea is to find something with some way to comply

with this order and not get us in trouble.

We can just say we refuse clearance. You see, you have that Normandie

in here. To went along pretty well (too?). The same to her as to the
Bremon. of course, the newspapers didn't take that at all. So we followed that out. We have pictures here on the front of the New York Sun

-2-

48th

of lowering the life boats. Now the only thing I can see is just we find all these things last night. But you know - the Germans have
been very punctilious, and we are goming in and going out of port. I
expected that we would have - we are really on the spot on it. I will

have to be on the spot, that is all. Next to Hitler's answer to

London, they think it is the biggest thing we have here (the Bromon's
being held up). I am going to see what we can try to work out and
keep our face clean. But what the dickens reason I can think of there.
I can put then back there again tomorrow.

Hanes:

Harry, you stand by and we will put our heads together here and see
what we can figure out.

Durning:

The only thing we can do is say it is not complete. In the meantime

Hanes:

If you could hold her up the same time, well so much the better.

we have to clear the Hormandie.

Durning: Well, we can hold both of them up and give it to them. It would be
the easiest thing to do.
Banes:

Wel will explore that possibility and and you back.

Durning: I will stay right here.
1g

1 original and 2 carbons made.

August 29. 1939.
SYMORANDUM TO THE FILES:

485
Conversation between Mr. Gairns and Mr. Hanes. Time 4:01.

Eanes: The State just called and said that everything to do with these pro-

fessional and technical men on the Bromen 80 far asthey know was under
the Department of Commerce, that Immigration or State had nothing to
do with it.ofThey
this suggestion: Is the FBI satisfied with the
departure
thosemade
people?
1g

1 original and 2 carbons made.

August 29. 1939.

488
MEMORANDUM TO THE FILES,

Conversation between Mr. Irving F. Wixon, Deputy Commissioner of Field

Service, labor, and Mr. Hanes. Time 3:30 to 3:32.

nest I was calling Mr. Houghtling to talk alittle bit about these, some members

of the crew signed on the Brenon in New York. I wonder if the Department
of Immigration my interest in the signing on the Brenon as members of the
crew, about 30 technical men and physicians. I an assuming they are all
American citisens.

ixon: Are they in excess of the regular crew, do you know?
lanes: No.

mont No. I don't think that we would be particularly interested at this time.

Innest All right. Fine.
Vixon: I can't conceive of any control that we would have. If they were coming in

with excess crew members, then we would have some control, but not on seamer
departing unless we wanted to hold them for some reason, and we wouldn't

have any authority to hold them.

1g

1 original and 2 carbonsmade.

487
August 29, 1939.
MEMORANDUM TO THE FILES,

Conversation between Mr. Feis of the State Department and Mr. Hanes. Time 3:54
to 4:00.

Feis: John, the Secretary and Welles are deep in a conference over an important
communication and they will be for a while, and I can't get to them. Meanwhile we have talked to our legal staff. They say that the laws applicable
in the administrative responsibility of the Bureau of - over at Commerce.
They talked with Sweet, who is extremely interested. The assume that you
are in touch with him.

Hanes: Yes, our legal staff is.
Feis:

There doesn't seen to be anything in our jurisdiction on the matter.

Hanes:

Our impression was that if we wanted to pay any attention to it we might
delay and explore, but I don't think any good will P.O. I think we have
gone about the limit.

Feis:

This is a personal angle, not State Department: There wouldn't be anybody

in that list of interest to the FBI.

Hanes: I know that is being taken care of. That part of it is all right.
Feis:

That is about all I can say to you in the absence of Welles and the
Secretary.

Hanes: You haven't got any news on the new war?
Feis:

Again I am a couple of hours behind. The last impression is still that it
is up to Hitler. This note of Chamberlain was very firm, and it is Hitler's
big decision as to whether he wants to talk with the Poles or march.

Three choices: Talk to Poles, march, or talk to the British. Another
message to the British. If that takes a sensational turn I will telephone
you.
1g

1 original and 2 carbons made.

Memorandum to the Files:
489

Conversation of Mr. Banes with Dr. Harbert Feis of the
State Department on August 29, 1939 at 4:30 P. M.

Yeist

Eanes:

Feist

Hello, John. Just wanted to let you know, as I promised you, that
things look very black tonight.

Is that sof
What Hitler said - incidents last night - seems very bad business.
Information just coming in that Poles charging Slovakian Germans
threatening her independence, and this comes pretty close to what
her statement with England calls for help in. Few disturbing
things in Germany.

Hanest

Any hope at all!

/eist

Tonight there looks as though there could not be any hope. Hitler's
terms - if agreed to - worse than Munich.

Hanest

Any thought as to time schedule?

Feist

No. Just thought you would like to know. We're not talking here

about it - although newspapermen probably know all about it. Keep=

ing still about it - private.

Hanest

Thanks Herbert.

*End

FLG

Memorandum to the Files:

489

Conversation of Mr. Hanes with Dr. Herbert Feis on August

29, 1939 at 4120 to 4:22 P. M.

feist

Hello, John.

lanest

Herbert, this will be the last time I will call you. Am trying

to get the President now but he is in a press conference. Durning
says we have done everything and will only look rediculous if we
keep it up.

feist

nest

I'm here in the Under Secretary's office now. Have arranged to have
you check with Gommerce, etc. Wait until I tell him what you just
told me. (Repeats above to Welles). No comment here - up to
President.
Okaj, thanks.

*nnd

FLO

Hemorandum to the Files:

Conversation of Mr. Herbert Gaston with Mr. Harry Durning,
Collector
the P.
Port
at 4:06 toof4:09
m.of the City of New York on August 29, 1939
urning
astent

urning:

Well, Herbert, I think we have just about reached the end of our
rope on this thing now.
You have just about examined her, have your

Yes. (Then read from New York Sun, apparently a very critical
article about how they were needlessly holding up the Bremen).
We have to stop examining sometime.

aston:

Well, what do you suggest?

urning

They wanted to get away at five o'clock. Thought we could make a
deal with them.

stoni

You can give them clearance tonight?

arning!

Well, there's a tide tonight; otherwise tomorrow morning. That 0.KT
Then Mr. Hanes came on.

nest

Hello, Harry, how are your I don't see that we can do anything else.
I think we have done everything. My suggestion is that you say yes
but I want to first make one call - you understand? Get final O. K.

and will call you back in fifteen minutes.

arningt

Okay, I'll wait here.
"End"

FLG

490

Memorandum to the Files:

491
Dr. Herbert Feis on August
29th,Conversation
1939 at 3:24ofP.Mr.
m.Banes
to 3:28with
p. m.

John,
am-told
the noon
papers carried this story. Seventeen fellows
takenI off
to Ellie
Island?

Just talked to Coast Guard on that. Understand it was thirty technical

or professional men - 30 on board. Where did story come front

Wait until I see (aside to someone in his office - Where, etct)
Then - the story came over the air, John.
I did not hear that - although we've been listening off and on. Wait
until I ask Herbert here - (then asked Mr. Gaston and Huntington Catres).
Herbert Gaston tells me that they took off 17 people this morning but
it has nothing to do with us; number crew on as passengers. Sent to

Ellis Island.

eist

That seems to straighten it out - going ahead with legal opinion; meanshile,
you getting in touch with Department of Labor?
Understand Houghteling not in town. Who is acting in his place? (Feis
asked someone in his office this question but received no answer).

eis:

I don't know.

Okay, I'll call Houghteling's office and find out.

- End -

FLO

492
August 29. 1939.
MEMORANDUM TO THE FILES:

Conversation
3:20.

between Mr. Feis of the State Department and Mr. Hanes. Time 3:16 to

Hanes: Bremen again. I just want to keep you posted. The last thing we had from
Durning that the Bremen has taken aboard a lot, quite a few. technical men
and physicians and signed them on as crew.

Feis:

Is that legal?

Hanes: I guess that is legal. I don't know, I don't know as there is any objection to that. They can carry as many physicians as they want. Herbert
says. German reservists.

Feis: There is a fellow over here. Can he leave without notice?
Hanes: I don't know(?) whether we can stop them from leaving or not.
Feis:

Can't get Jack Worth 80 I will have to take that up later. They have

taken aboard quite a group of physicians and technicians which they have
signed on as crew. What about the status of their clearance papers?

Hanes: They have found nothing. They are still in the process of making a very
thorough examination, including their medical supplies. They have found
no ammunition no guns, just an implacement for carrying a three-inch
gun and an ammunition hoist just underneath. That is something ve can't
complain about. The Department of Commerce through the Marine Inspection
Bureau has ordered the life boats lowered and is making a thorough inspection of the large boats of the Bremen, Ye have also, they have
ordered the same inspection of life boats on the Normandie
Feis:

How long are we going to keep the Normandie here?

Hanes: She will go out tomorrow. just at the time she wants to go out. We are
going through a lot of inspection.

Feis: All right. I will report that and see that the information regarding
these fellows is brought to the attention of our legal officers and if
we have any comment or objection we will telephone you back. Are you letting the Department of Labor know?

Hanes: I don't know it was concerned.
Feis:

I don't either. They are in charge of aliens in this country. individuals. I have an
idea that you would find they may want to check up on these as

Hanes: Maybe we had better call Mr. Houghtling.
1g

original and 2 carbons made.

August 29. 1939.

493
MEMORANDUM TO THE FILES:

Conversation between Mr. Ronald Ranson of the Federal Reserve Board and Mr. Hanes.

Time 3:10 to 3:14.

Ransomi I don't think the bond market needs much comment today.

Hanes: I thought it did beautifully.
Ransom: Stock market was optimistic about the outcome also.
Hanes:

Situation look any different to you?

Ranson: Well, no. I can't see that there is any difference here. I just read

on the ticker that Hitler had demanded the return of Upper Silesia.
First thing you know he will ask for everything that isn't nailed down.

Hanes:

It doesn't look bright to me. As far as immediate peace is concerned
I have a very definite suspicion they will give him a good deal in order
to keep peace.

Ranson: I don't know as I like that tune.
Hanes:

I don't like it at all. But from my own immediate point of view. peace
is peace.

Ransom:

But in terms of a few years it looks like a very tragic solution. I

Hanes:

Well. I guess he's got strength on his side for the moment.

don't know how he does it.

Ransoms Yet he seems to me to be gaining strength all the time.
Hanes:

It is always possible the old Napoleon story may be retold. That is a
long range view to take of this thing. I would have thought when they I
appeared to have his back to the wall they might have bluffed him.
can't imagine anyone on earth with an unhappier job than Chamberlain.

But I think our market situation is as good as we can expect.

Ransom: I don't think we have anything to complain of there at all.
1g

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Memorandum for the filest

494
Conversation
at 11:50 a. m.of Mr. Hanes with Jerone Frank on August 29, 1939

ank

It looks pretty good today - from here as far as the market is

concerned.
nest

ank
neat

nki
knos:

ank

Everything quiet over here today too.
They opened up you know - wheat is off, which I think is bullish.
Shows the boys don't expect a war. Talking to Berle?

Haven't talked to Adolf since last night - they have no information
whatever. With the French onbles out, they have no news at all.
Nothing from the British either - no text of their note, and of
course then no reply from Hitler.
You saw the ticker on Chamberlain's speech!

Yes - looks like the British are coming around.
If I were Chamberlain and had the responsibility of whether or not
London would be bombed in a few hours, I'd do everything in my power

to prevent it too.

ines:

I suppose so - the State Department just can't get any information
that's worth a darm except news over the radio.
You know, Johnnie, I told you my crasy idea of this whole thing, didn't

If I think it's a deal and Chamberlain has been in on it all along.

No, you didn't tell me.

*

Thought I did. (not exact wording here) If you were running British

Empire, you'd think it was more important than Europe, wouldn't your
If you got Russia and Japan and worked out some settlement of European
policy for decade - with them laying off British concessions in China,

laying off India, with Russia laying off Siberia, etc. - work out a
peace treaty. Perhaps it sounds crasy - maybe I an - but I believe

-

Chamberlain has been in all along on the Russian-German deal - then a
loan to Germany, etc. The whole thing just squashes Japan to nothing.

It certainly would be to the British advantage, and I don't think it's
so crasy - that's very sensible thinking to my mind.
The rest of the talk pertained to the Reynolds Investing matter. Frank
said he talked to Abner - wants to talk to Eddie. Thinks he didn't know
about 18. Perhaps someone else made it up and it got out with'Sdili
knowing about it. Go to Gerdes to straighten it out. If not that way,
up to SEC, through Reorganization Division, to write the Court and explain how it's all wrong. JWH thanked him. said even facts were cookeyed - sorry he missed him at Mayflower last night after radio FLG address.

Frank to see Midie as soon as present crisis lets up.

August 29. 1939.
MEMORANDOM TO THE FILES:

95

Conversation
between General Watson of the White House and Mr. Hanes. Time 11:20
to 11:23.
Hanes:

This is a matter, I am just trying to keep the President posted on what

is happening to the German ships in New York. The Bremen asked for
clearance last night at eight o'clock and was refused because we had

not had sufficient time to make inspection. One of her officers an-

nounced to the Customs people that she was going to sail without clear-

ing. Durning arranged for no tugs and no pilots, so she could'nt sail.

All that passed without incident; there wasn't any unpleasantness about
it. Harry said we had to make the inspection under the laws; she would
just have to wait until we could get to them. We also refused clearance
to the Normandie, which puts us in a much better position. We refused

her on the same grounds, identical. So there is no question of favoritism.
Watson: The Bremen is waiting? (1)
Hanes:

Yes. We are inspecting it now. Inspection probably be completed this
afternoon or tomorrow morning.

Watson: Didn't you say Morgenthau back Friday?
Hanes:

I hoped so, but no chance. The Campbell has been delayed. He won't
get back now perhaps before Sunday.

Watson: You said he was going to start. sail Monday and get here Friday. He

said he could not do it. Boat could not get there that fast.

Hanes:

We figures five days and a few hours into Boston harbor. but ve planned
to take him off with a Coast Guard plane and beat the schedule by
24 hours. He is in Bergen now. we know, and supposed to sail tonight.

Watsons I will tell him.
Hanes: Thank you.
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August 29, 1939.
KENORANDUM TO THE FILES:

496

Conversation between Dr. Feis, Economic Adviser, State Department, Mr. Hanes. and

Mr. Gaston. Time 11:12 to 11:18.
Feis:

I have spoken with Mr. Wellee on this. He said no comment on what's go-

ing on as to the handling of it. Apparently Herbert Gaston told the

press this was being done to make sure that they weren't carrying arms
and for particulars go see the State Department.
Hanes:

I don't think he told them that.

Feis:

That is what the newspaper men are telling us.

Gastons Hello.
Feis:

Thomas is right here. He says that the newspaper men tell him that you
said the Brenon was being held for thorough customs inspection looking
for armaight that might be used to prey on shipping in the event of war.

Gaston: I didn't say that. I am reading it: (Press release that came through
from UP).

Feis:

That is all right.

Gaston: UP is all right. They pressed me on this question of privateering. I
told them I wouldn't make any comment on that. They wanted to know

whether any question of armanents entered into it. I said it may be;
I didn't know. They asked me are there any laws. I thought so, but I
wasn't able to give them any details. I told him that the State
Department would have information about the treaty.
Feis:

That is where the State Department came in.

Gastons That is right. If they wanted to know what our obligations vere with

respect to armed vessels, etc., I said the State Department would have
the information.

Feis:

On the handling of this thing, both Hull and Welles say that the administration of these laws is certainly Treasury and Commerce, and we
have got to be careful to avoid confusion, and therefore we will not say
anything about 18. I doubt whether we will even comment on this treaty
angle. It may be that if newspaper man same in solely for background
information as to what our treaty says about merchant ships carrying
arms, I don't know. But certainly on any active ways we are going to

-2-

497

say not. Mr. Hull asked me to suggest to you that certainly you and
Commerce want to get together and keep in close touch. As to the
sage. transmission, of this to the White House, I am perfectly agreeable. pasMr. Hull said, to pass this on to Pa Watson right away, but we can to 18.1)
and do. for the sake of simplicity, why doesn't the Treasury do it directly?

Hanes: We will.
Feis:

I will gladly do it, John.

Hanes:

I don't want to be calling the President every five minutes and have the
Secretary of State doing the same thing.
(the?)

Feis:

We will leave the transmission of/information to the Treasury.

Hanes:

That will be fine. That will suit us first rate, but I called the

President yesterday, and he said, "Oh, yes, Cordell has told us that."

Feis:

The Secretary did that entirely on his own, but from now on we will
have that understanding, that the information goes directly from
Treasury. We assume that you are passing it on to the White House.
The last thing is both Secretary and Welles say ve find these reports
very helpful and please keep shooting them along just for our information.

Hanes:

I can never get Welles on the phone. All I am passing on to you is for

your information because
Feis:

I spoke to both the Secretary and Welles and they both say please let
us know what is happening. But we won't pass it on to the White House.

Gaston(?) They wanted to know what our obligations were under treaties. That
is something the State Department would know.

1g

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August 29. 1939.
MEMORANDUM TO THE FILES:

98

Conversation
Time
10:38 to between
10:50. Dr. Feis, Economic Adviser, State Department. and Mr. Hanes.

Feis: We are so dissy it is impossible to know what is going on.

Hanes: I am just calling you to post you. I couldn't get Summer, so if you will
pass it on to him in due course - This is about the Brenen. You undoubtedly saw the newspapers, and just to keep you posted, she asked for

clearance, we didn't give it. She then said she was going to sail without clearance. but she didn't do it. Couldn't get any tugs and no pilot.
Said she wanted to sail this morning at eight o'clock. Durning hadn't
completed his inspection.

Feis: will you dictate this?
Hanes: The Bremen asked the Collector of the Port of New York Harry Durning for

clearance last night at eight o'clock. Clearance was refused on the

grounds that they had not had sufficient time to make a complete inspection. We were informed that the statement was made that they were going

to sail without clearance. However, no tugs nor a pilot were available.
so she could not carry out the threat to sail without clearance. She
then asked to be cleared at eight o'clock this morning, and Collector Durning
informed her that he would complete the inspection at the earliest possible

moment. She has not cleared yet.

eis: You mean she has not received clearance papers yet.

anes: That is right. An interesting thing there. There are a great many

foreign vessels asking immediate clearance. and we have already refused
clearance to Normandie and we are doing the same thing with her. Well
say the Normandie applied for immediate clearance. I should say she

asked for clearance papers to be issued to sail at her regular sailing

time. She made no request for hasty departure, but we refused the
granting of clearance in advance of inspection. The Collector states
that he's got all of his available men on duty and the clearance work
is going to be slowed up in the normal course of events as there are a
great many foreign flag vessels that are asking clearance papers simultaneously.

is:

All right.

nest Let me see if I have got anything else here. I believe that is all I
have got.

-2-

199

Feis: First I want to ask you when you anticipate the - to be finished.
Hanes:

We can't tell, but it would appear that her examination will be completed
some time in the forenoon. and she will probably sail in the afternoon.

Feis:

IS may be that you will find something, but I suppose if they are notified
in advance they would get rid of anything they wouldn't vant you to find.

Have you a force watching them? Suppose they had area on board and
tried to dispose of them?
Hanes: I understand the men are on board now.

Feis: If last night Hanes: We wouldn't have had any way of knowing it.

Teis: But if they are really heavy guns they are not easily disposed of. You
are reporting the main points of this directly to the White House?
Hanes: No.

Feis: I think the Secretary would probably want to pass that on. Do you want
him to?

Haries: I would be delighted. Say we are going to instruct Durning after he is
satisfied. there is no legitimate reason for holding her further. We will
instruct him to notify us ten or fifteen minutes before clearance, and
we will notify the President that we haven't any reason to hold her further.
Feis:

(Distating) Acting Secretary Hanes said that he had not transmitted the
above information to the President and would be glad if the State Department
undertook to do so.
He stated that he anticipated that the inspection would be completed some
time this forenoon and that he had arranged with Inspector of the Port
Durning

Hanes: Collector of the Port.

Feis: Collector of the Port Durning to notify him. say fifteen minutes before Hanes: Before actual issuance of clearance papers.
Feis:

Before the issuance of clearance papers, and Mr. Hanes planned on receiving

such notice from Mr. Durning to inform the President so that if the
President had any further suggestions at that moment, time would still be
available.

-3-

500

Hanest I think 11 is an important matter that we are acting the same in the case
of the other shipe. I thought maybe you would be having calls from the
German Enbasay or somebody, and I wanted to get this news to you.

Feis:

I haven't heard of any. I think the Embassy is in such a susmoil. As
to the whole situation. 11 is the most pressing. because here are the

British talking to Hiller. We haven't got the text of what he is saying.
Neither have the Poles. We have got a summary. They have get IS is not even certain that the summaries are identical, so what the hell
the British Cabinet and Germany (chairment) are up to nobody knows, and

it is a very troublesome situation.

Hanes: They are not communicating with either the French or the Poles?
Feis:

They give us summaries. There is reason to believe the summaries are not

identical. Not necessarily a fact. They de not even give 11 to the

House of Commons. There is a chance of a breach arising between the
French and the British. Anything can happen.

Hanes: It is a perfect situation. 1
Feis: This is completely confidential. Don't tell 11 to the press. They would
give their eye teeth to have that.
1g

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505
August 29, 1939.
MONORANDUM TO THE FILES:

Conversation between Mr. Harry Durning, Collector of the Port of New York, and
Mr. Gaston. Time 9:44 to 9:11.

Durning: Herbert, how are things? Yell, she got out. We have got about 35 men on
her. We have the navigation inspected, we have the check of the crew.
For an amendment of their application clearance, I guess she figures she
had better not go out without clearance.

Gaston: It will take till tonight sometime to finish, won't it?
Durning: I think so. We are checking grocery stores, everything else.
Gaston:

Now, Harry, we are saying here that careful examination is being made of

all ships in foreign trade, regardless of nationality, to insure compliance with the laws. We are not saying anything about - of privateers.
One of the press associations attributes something like that to you or
one of your men.

Durning: That was not so good.

Gaston: I would be careful about that. Did you say that or did one of your
boys say that?

Durning: Yes. That was here. We just got to talking generally. That is all
right.

Gaston:

Well, we had better stick to the general compliance with all the regulations.

Durning:

That is what we are sticking to - - That wasn't said by me. but I didn't

Gaston:

Well, we are just checking for - . We are doing it to all foreign ships

think it would even go into the newspapers.
alike.

Durning: Foreign ships are being shipped right in here. There is no question
about it.
Gaston:

Did the Normandie ask for clearance?

Durning: We refused it.
Gastons When did she want to got

Durning: Oh, she is going tomorrow morning at ten o'clock.

-2502

Gastons Is that her regular schedule?
Durning: That is what she scheduled in the newspapers.

Gastons She asked for clearance and you refused it until you made the check.
Durning: Yes.
Gaston:

That is very fine. It won't do any harm to mention that. It will help
us quite a bit.

Durning: Additional men there. We are checking on the Mauretania.

Gaston: They are doing the same thing on that. That is fine.
Durning: The Transylvania. We worked on the De Grasse all last night. That

is going out this morning. Not a boat is getting clearance.

Gaston: Be sure that gets out to the papers.
Durning:

Sure thing. We are getting it. They were getting it all last night.
and they wouldn't touch it. They hardly mentioned about the Bremen
and the De Grasse.

Gastons The thing doesn't look any worse today.
Durning: They won't go out now. We have got a slack tide.
Gastons

When's your next flood?

Durning:

Coming down the River. They won't go out - . I mean all had
We raised our plans. We got the - started. If she proceeded to get
out in the River I would then let her go Father than start anything
going. with so many men on her she would not take a chance on going.
-

So that thing is all taken care of. I will know when I get my reports

back - . Next tide will be about six hours.
Gastons

If she sails tomorrow morning. I think it would be antisfactory.

Durning: I will try to do that, have her clearance and sail tomorrow. You'll
probably do more after you hear from the State Department. We got
through at 2:30. back at 7:30.
1g

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503
August 29, 1939.
MEMORANDUM TO THE FILES:

Conversation between Mr. Harris (Basil), Vice President of the United
States Lines. and Mr. Hanes. Time 9:26 to 9:30.
Harris: Now, on that thing you phoned me about, Rumbold set sail the day before

yesterday. It is definite now. I was just trying to get George Messeremith
but he is busy. I understand it is not considered wise for the people to
travel on foreign ships at the moment.

Hanes: I think that is correct.
Harris: The State Department has issued a statement. The Post Office Department

is planning to put all this week's mail on the Normandie. If for any rea-

son war is declared, no telling where that mail would go. They may come
back, go to South America, or get sunk. If there is any time mail should
be on American ships. it's now.
Hanes: When is the Roosevelt turning around?

Harris: President Harding. rather. versus the Normandie.
Hanes: Where did the instructions come from?

Harris: O'Connell or House. either one could do it. This thing will be about

$10,000. will be settled today. I wish you would give me more jobs to do.

Hanes: You haven't heard anything about that other thing yet.

Harris: Mrs. Mitchell will come back safely.
nes:

If you could get some word to that captain of that Roosevelt (1)
to look after that wife and baby, it would be a great help.

Harris: I will do that.
Hanes: I will let you know if you can be any help to me.
Harris: We are going to Newport News.

Hanes: I wish I could go with you.
Harris: Well. good luck.
Hanes: Thank you. Good-bye.
1g

1 original and 2 carbons made.

504

Mestrandum to the Files:
Conversation of Mr. Hanes with Mr. Ronald Ranson on
August 29, 1939 at 8:38 a. m.

Ransomi

Just before we go into our meeting here, I would like to check
with you and see if there are any developments that might influence things.

Hanes:

Nothing new at all and we don't know a thing. Just waiting for
British reply. Checked with State Department - with their cables
out - all they know is what they read in the newspapers. Just
have no information that could be helpful.

Ransont

George Harrison reports that IN reports foreign currencies

up - sterling 4:35. Don't expect much today but apparently no
news that would affect market unduly. All we can do is watch
developments of news and market. Marriner back in town but just
getting the feel of things before he does anything. If you need
either of us, we are both available.
Hanest

Okay and thanks. At the moment we have nothing here - Danny Bell

says he has nothing either. We will call you if we do.

*Find

FLG

505

Memorandum to the filest

Conversation of Mr. Hanes with Mr. Harry Durning, Collector
of the Port of the City of New York on August 29, 1939 at 6:17 to
6:18 P. m.
inest

ngt

Hello, Harry!

Yes. Both French and English going along with us. Just waiting for
Germane now and will tell them that.

That's swell. Do they understand 187 Make any complaints?
ningt

Well, it's O. K. They didn't like is such but - good of the service.

Only thing now to hold her in.
nest

Thanks Harry.

*)nd"
Note:

Mr. Hanes then called Under Secretary Welles' secretary to
repeat above and Mr. Hanes told her in addition the French and
English were cooperating beautifully.

FLO

606

Notes Regarding the Bronen
August 29, 1939.

The Tremen after looking and discharging the passengers
yeaterday wanted to turn around and sail without passengers

or car go at 8:00 P.M. last night. Her request for clearance
papers was refused. Whereunon she said she would sail without the necessary papers. However, IS the Collector at the
Fort of New York had made arrangements whereby neither tags
not pilots would be available, the Bromen did not leave
illegally as she had threatened.

In addition, Coast Guard cutters were stationed in the
North River close by. which would in the event of necessity

at least partially block her if she attempted to leave the

pier.

As the result of these measures, the Bresso asked for
clearance at 8:00 A.M. today, but clearance papers were

withheld by the Collector until on exhanative examination

could be nade. This examination disclosed nothing unusual,
no ammunition, and no gana. There were only two items found:
. Telas onners, and n 3-inch gun emplacement on the after deck.

During the day the Treasury was notified that the Bremen
had taken aboard approximately thirty physicians and technicians
who were signed on as crow. These persons were later put back
on the dock presunably to avoid any further complications or
investigations.
The Department of Commerce cooperated and made n complete

inspection of the Bremen lifeboats and conducted a lifeboat

drill. All of the investigations ande with respect to the

Bremen vere also carried out with respect to the Normandie.

Tonight Harry Durning says that there is no longer any
excuse for holding up issuance of the Eremen clearance papers.

IOF 601

507
CONFIDENTIAL

29 August, 1939.

MEMORANDUM FOR ASSISTANT SECRETARY GASTON:

From information received this morning, the German SS COLUMBUS

is now at Curacao, Dutch West Indies, to stay indefinitely.

Italian vessels receiving orders from the Italian radio station
at Coltano during the last twenty-four hours are as follows:
ALABAMA

-

Reenter port for loading; await orders; ac-

ARCOLA

-

Set course for Canary Islands; slow speed;

knowledge

listen for instructions

(tanker)

Call in at Bermuda; await orders; acknowl-

ANTERO

-

MONTOVANI

-

MARIA ROSA

-

LUCIANA

-

NITA

-

We repeat go to Cuxhaven; confirm

LUISIANO

-

Proceed to Venice

VELOCE

-

Follow charterer's orders precise position

VIGOR

-

Go first to Saint Thomas; await orders;

TALE FOSSIO

-

edge

Remain Aruba; await orders; acknowledge

Depart at once; direct your course towards
Genoa: telegraph Coltano your destination
Wire Italian Ministry Marine

confirm

Answer telegram sent 26th; go to Curacao

for loading; if necessary bunker at Trinidad; acknowledge

A machinist's mate on the Italian tanker ALBARO was notified his
presence was required in Venice on September 1st.
The message transmitted by the German Norddeich station, "ACT
ACCORDING TO SPECIAL INSTRUCTIONS* as mentioned in yesterday's report

has been repeatedly sent, the German station thus making certain that
the vessels will receive the message. The only additional vessel not
mentioned in yesterday's report as receiving this message is the
AMIBIS. This message has been followed in almost every case by an
official code message, as yet unread, to each vessel.

508
IOF 601
CONFIDENTIAL

29 August, 1939.

The following vessels cleared from United States ports yesterday,

August 28th:

Italian
Japanese
Japanese
Japanese
Japanese
Japanese
Japanese
Japanese
Japanese

from

ADA 0

Norfolk

HOYO MARU

Los Angeles

KURAMA MARU
KYUSYU MARU

Philadelphia
Philadelphia

YAMAGARI MARU

New York

ATAGO MARU

Honolulu
San Francisco
San Francisco
San Francisco

YAMAZATO MARU
NORWAY MARU

KURIOSO MARU

for

Baltimore
Estero Bay
Baltimore
Baltimore
Baltimore
San Francisco
Yokohama
Yokohama
Japan

The following vessels were listed as being in United States ports
on August 28th:

Arrival

In New York:
German

Aug. 20
Aug. 24
Aug. 26
Aug. 26
Aug. 27

BREMEN

Italian
Italian
Italian

LIVENZA
BIRMANIA

Japanese

TUYAMA MARU

ROMA

In Boston:

Italian

MONDIOIA

Japanese
Japanese

KINKA MARU
AKAGI MARU

Aug. 27
Aug. 28
Aug. 27

HAMELN

Aug. 25

In Houstons
German

In Corpus Christi:
Japanese

KIMIKAWA MARU

Aug. 26

PORTLAND

Aug. 28

In Everett:
German

In Los Angeles:
Japanese
Japanese

HOKUROKO MARU

KIYOKAWA MARU

-2-

Aug. 28
Aug. 24

509
IOF 601
CONFIDENTIAL

29 August, 1939.

In Galveston:

Italian TESEO
Italian LAURA c

Aug. 27
Aug. 27

In New Orleans:

Italian IDA
Italian

MONFIORE

Aug. 22
Aug. 25

AMSTERDAM

Aug. 22

In Baltimore:

Italian

In San Francisco:

Italian LEME

Aug. 25 (Departure cancelled)

Japanese TAIYO MARU
Japanese DAINI OGURA MARU

Aug. 27
Aug. 27

The German as MUKNSTERLAND was reported to be in the visinity of

the Philippine Islands.
The following vessels are due to arrive in United States ports
in the near future from foreign parts:
German
German
German
German

HAVELLAND
FRIESLAND

Japanese

Lee Angeles

PHRYGIA

New York
Houston

ODEWWALD

Baltimore

HOLLAND MARU

Seattle

In addition to the foregoing, there are approximately ten Japanese vessels on which we have current positions.

F. E. POLLIO,

Lieutenant, U. S. Coast Guard,

Acting Chief Intelligence officer.

-3-

10

August 30. 1939

MEMORANDUM FOR THE PRESIDENT:

I attach hereto report from Coast Guard on
shipping matters.
(Signed) John W. Hanes

Acting Secretary

JWH:PY:ce

orig. to White House with confidential memo from C. Guard to
Gaston dated 8-30-39

511

Memorandum to the files:

Conversation of Mr. Hanes with Col. Monroe Johnson of the
Conserce Department on August 30, 1939 at 9:08 to 9:10 a. M.
Johnson:

anest

Hello Hanes. Have a bad night.

Well, just fair. I was up late and got up at 5:30 a. m. - so had
little sleep.

Johnson:

Well now, about this situation. Theoretically, I am the man holding
on now. I think I should get some word directly.

lanes:

You mean from across the street - the boes?

Johnson:

Yes, I think so.

981

You got the letter of instructions - copy of Attorney General's
opinion?

Johnsons

Yes - but I wanted something directly. Now the point is that all
are cleared up - just sitting tight and Collector waiting
(the
on me for specific instructions. Should I ring Watson and tell him?

anes:

I spoke to the President last night at 5 o'clock last night.

Johnson:

Yes, I know.

anes:

And told him we were following out his specific instructions. I would
either walk over there to see the President or call him and say you
just wanted to hear it from his lips that he wants you to hold this
ship.

nson!

Should I put the call through to Watson?

anest

Just ring White House operator and ask for the President.

Johnsont

Will he be there by alone o'clook?

anest

Oh yes - be there by ten o'clock I think.
*End"

FLO

Memorandum to the files:

512
Committee of Mr. Names with Col. Mumree Johnson on August
30, 1939 at 3145 P. m.
Johnson!

How are you feeling! Everything going along O. KT

lanesi

Yes sir.

Johnson:

I see where they released the boat.

anest

I haven't seen anything. I believe Harry Durning is going on the
dock personally at six o'clock and tailk deliver all clearance papers

to all three boats at that time.
Johnson:

nest

When did you hear that?

That's the last I had on it. Don't know but believe Herbert Gaston

had that.
ohnsont

Quees the emergency is over then -glad this is over.

anest

I think so: however, if I hear anything different, will let you know.

*Had

FLG

Memorandum to the filest

513

Conversation of Mr. Hanes with Mr. Basil Harris on August
30, 1939 at 11:47 to 11:49 a. m.

arrist

John, it's just as I suspected. The mail is in the Normandie and
the Harding has alrelity left. Now they are going to take it off
the Normandie and put 11 on the Acquitania sailing tonight - nothing
we can do. I think that's pretty bad. Sometimes it looks as though
they go out of their way - purposely. State Department asics us to
cancel plans - get Manhattaa back to Europe - we do it - then they
do a thing like that.

I can't understand it. Want to find out just what is going on over
there. Going to call O'Connell, and will tell the President about

this.
rist

I think the President should say that no mail goes on a foreign
ship at a time like this. Excuse me, Mr. Under Secretary for talking

so plain like this to you, but it's not right. At a time like this,

few days faster ship shouldn't make any difference. If they're in
a hurry, there's the Clipper.
anest

Will call this to his attention - an outrageous performance.

arrist

Don't think Ambrose did it - he doesn't know enough about it. Believe
it's Lemoni.

anest

I will do something on this - here's Herbert Gaston coming in now.

trist

Okay John.

Note: Lemoul name - must be Laniell, Director in office of 2nd Aest. Postmaster
General.
*End"

FLG

Memorandum to the files

Conversation of Mr. Names with Mr. Basil Harris on August
30, 1939 at 11:14 to 11:16 a. m.

514

I talked to O'Connell and was wondering if everything went along
O. K.

No, they didn't do a dann thing. John.
I understood they were going to.
Understand they put five thousand bags on the Normandie - now they're

not going to sail at all. That's the lousiest crowd.
Who did you deal with?
ist

Lemini - he dislikes me very such because I bumped him a couple of times.
I think he is the one who massed things up.

I'11 find out.
Harding sailing today.
Go yet?

rrist

Will find out - don't think there's time. But don't think they did.

anest

If they didn't, we should make a hell of a stink about it.

arrist

I should think so.

Don't do anything - find out - call back.

*End

FLO

515
August 30, 1939.
MEMORANDUM TO THE FILES:

Conversation between Mr. Adolph Berle, Assistant Secretary of State, with Mr. Hanes.

Time 10:50 to 10:52.

Berles The press will be on our necks in a few minutes about this Thompson conversation. Do you have any objection (to our saying?) we understand from

the Treasury that all of the vessels under inspection that wish to sail
are having clearance this afternoon! This is the inquiry that the German
embassy made to the Department last night.

Hanes: That isn't quite the case. You could say it is anticipated that all inspections will be completed this afternoon and clearance granted in time

for the high tide of this afternoon.

Berler All right. I will say that if you agree. Thank you very such.
1g

1 original and 2 carbons made.

COPY

In reply refer to: 37

fice of the Collector

CWS/kd

District No. 27

TREASURY DEPARTMENT

51$

United States Customs Service
Los Angeles, Calif.
August 30, 1939

Honorable J. M. Johnson
Assistant Secretary of Commerce
Washington, D. C.

Airmail

Sir:

Permit me to acknowledge receipt, through the Commanding Officer
of the Coast Guard at Los Angeles, of your telegram dated August 29th,
directing that foreign flag merchant vessels whose governments might
become involved in war be thoroughly examined to determine whether or

not such vessels are carrying armaments, and if found to be, or suspected of carrying such armaments, clearance be withheld until detailed report is made to your department, and until specific instructions
have been issued. In connection therewith may I not respectfully ask
that you advise this office concerning the following:
It is commonly reported on this Coast that a number of Japanese
vessels have been so constructed that they may be equipped with naval

guns. In fact, some of them are referred to as "auxiliary naval
cruisers". Up to the present time there has been no suspicion that
these vessels had aboard any guns to be mounted. It is the opinion
of the office of the Collector of Customs in San Francisco that the
presence of what might be called re-enforced gun placements aboard

vessels would be sufficient to warrant delaying the clearance of such

vessels until report could be received from the Department of Commerce.

This idea is questioned by this office. Therefore, it is respectfully

requested that you advise whether or not in such cases clearance should
be delayed until specific instructions may be obtained from your department.

Information has also come to this office to the effect that
British vessels plying between Europe and Great Britain and Pacific
Coast ports which touch at Los Angeles first, thence proceed northward
to Vancouver, B.C. in the Dominion of Canada, are to be equipped with
guns, while in the port of Vancouver. Should this be accomplished,
and such vessels on the return trip put in at Los Angeles Harbor, it
seems to this office that clearly, clearance should be delayed pending
receipt of advices from you.
Another question which has arisen. As you are probably aware,
many vessels put in at Los Angeles Harbor for bunkers without entering

and without clearing. Is it your desire that vessels putting in at

Los Angeles under these conditions shall be searched, and if equipped

orig Gaston 9/2/39

COPY

Hon. J. M. Johnson, #2

517

with armaments, be detained pending advices? You will understand that
in connection with these ships there is no necessity for the entrance
or clearance of same.

Another question which is respectfully submitted. In your tele-

gram above referred to it is stated: "there is a possibility that
foreign flag merchant vessels whose governments may become involved in
war --- In the opinion of this office this clearly includes Japanese vessels. Do you concur in this opinion?

You will understand please that practically all vessels entering

(

Los Angeles Harbor excepting, of course, tankers, are heavily laden
with cargo, being caused no doubt by reason of the fact particularly
that European vessels touch Los Angeles as the first port of call on
the North bound trip and the last port of call on the South bound
trip, the ships having taken on added cargo at Seattle, Portland,
San Francisco, or other ports at which they may stop in the North
Pacific. Also there is an exceedingly limited force of employees

available for the examination of the vessels. This latter fact
coupled with the fact that the ship is practically loaded full when

arriving here either North bound or South bound, makes it almost impossible to give any attention to the cargo, and practically precludes
the examination of cargo hatches with any degree of satisfaction. For
this reason it is not believed that other than an examination of the
manifests can be had with a view to ascertaining the character of
cargo aboard such ships. If, however, you have desires that cargo
should be examined, please advise and we will make every possible offort to comply with such desires.

In this connection it may be stated that this office is working

in very close conjunction with the U. S. Coast Guard Service, and is
effecting an arrangement as between the Immigration Service and Customs to aid whenever possible in carrying out this work.
Another question upon which we would like an expression of
opinion refers to the so-called Japanese naval tankers. These ships
are a part of the Imperial Japanese Navy and are equipped with certain types of guns, and under the appropriate provisions of the Re-

gulations have not been required to enter or clear. What action, if
any, is desired to be taken with respect to these vessels? It may
be stated that, while previously such ships called at Los Angeles
frequently, during the past two or three months only one such vessel

has been here.

This communication is being forwarded to you by airmail, and

it is respectfully requested, in order that we may carry out your in-

structions, that response thereto be given by telegraph.
Respectfully,

s/ Wm. Jennings Bryan, Jr.
Collector of Customs

for Secin
518

AUG 30 1939

Dear Mr. Eccles:

Thank you for your letter of August 29th,

enclosing a copy of your letter to the Attorney
General, dated August 29th, and its accompanying
memorandum.

I appreciate your cooperation and that of
the Board in this matter.
Sincerely yours,
(Signed) John W. Hanos
John W. Hanes

Under Secretary of the Treasury

Honorable M. S. Secles, Chairman,
Federal Reserve System,
Washington, D. C.

PY:bj

8/30/39

R4.

BOARD OF GOVERNORS
OF THE

519

FEDERAL RESERVE SYSTEM
WASHINGTON

OFFICE OF THE CHAIRMAN

August 29, 1939

Honorable John W. Hanes,

Under Secretary of the Treasury,

Washington, D. C.
Dear Mr. Hanes:

At the request of the Board, I am sending you
herewith for your information a copy of a self-explanatory

letter of this date addressed to the Attorney General,
together with a copy of a confidential memorandum enclosed

therewith containing a brief statement of means available
through the Federal Reserve System to protect the public

interest in the event of a European war.
Very truly yours,

McCulie
M. S. Eccles,
Chairman.

Enclosures 2

520
AUG 29 1939

The Honorable,

The Attorney General,
Washington, D. C.
Sir:

In accordance with the request made on your behalf
in a telephone conversation yesterday between Mr. Townsend of
your Department and Mr. Wyatt, the Board's General Counsel,

there is enclosed for your information and for the use of the

President a concise statement of the more important means available through the Board of Governors of the Federal Reserve
System, the Federal Open Market Committee and the Federal Re-

serve banks to protect the public interest in the event of

armed conflict abroad.

The statements regarding the action which the Federal Open Market Committee and its Executive Committee are
prepared to take and regarding the fact that the Federal
Reserve banks are prepared at this time to make advances to
member and nonmember banks on Government securities at par

are strictly confidential and should not be released unless

and until an announcement with reference thereto is made by
the Board of Governors.

It is hoped that this will give you the information
which you desire.

Very truly yours,

M. S. Eccles,
Chairman.

Enclosure

Wisemjdjk
(Copy for Mr. Hanes)

CONFIDENTIAL

MEANS AVAILABLE THROUGH FEDERAL RESERVE SYSTEM
TO PROTECT PUBLIC INTEREST IN EVENT OF EUROPEAN WAR

521

1. Anticipating the possibility that developments abroad might result in

serious disturbance to our security markets, the Federal Open Market Committee
has given its executive committee ample power to buy and sell Government securities through the Federal Reserve Bank of New York, and the executive committee

is in constant touch with the situation.

2. Federal Reserve banks have adequate resources to provide all currency
and credit which member banks may need to meet public demands. They are prepared to make advances to member banks on any sound assets.

3. If disturbed conditions abroad make it advisable, the Board of Gover-

nor s is prepared to announce that Federal Reserve banks stand ready at the

present time to make advances to member and nonmember banks on United States

Government obligations at par at the rates then prevailing for member banks.
4. Federal Reserve banks may make loans to individuals, partnerships and
corporations on direct obligations of the Government; make loans to furnish working capital to established businesses; and discount eligible commercial paper
for any individual, partnership or corporation which is unable to secure adequate
credit accommodations.

5. Federal Reserve banks may buy and sell, at home or abroad, eligible
bankers' acceptances and bills of exchange.
6. Discount rates of Federal Reserve banks (which are now the lowest on
record) may be lowered or raised, as conditions require.

7. Federal Reserve authorities are charged with the responsibility of
discouraging undue use of bank credit for speculative purposes; and the Board
of Governors can ease conditions in the stock market or discourage excessive
speculation by adjusting margin requirements in connection with loans on secur-

ities by banks, brokers or dealers.

8. Through their nation-wide organization with offices located in 37 cities,

Federal Reserve banks act as depositaries, fiscal agents and custodians for the
Government; they facilitate issuance and retirement of Government obligations
and transfer and disbursement of Government funds; they collect information relating to banking and other financial developments; they have in previous emergencies administered foreign exchange regulations and are in position to do so
atany time; and they furnish ready means of quickly reaching all banking institutions.

9. Federal Reserve banks, subject to the special supervision of the Board
of Governors, have established correspondent relationships with most foreign
central banks and are in position to serve the Government in international financial transactions.
These are the more important means which would be useful to ease the initial effects of the shock of a European war. The System's powers to deal with
a harmful speculative or inflationary development, such as experience has indicated might occur later, are wholly inadequate.

521A
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France

DATE: August 30, 1939, 8 p.m.

NO.: 1672
FOR THE TREASURY.

At half-past six we visited Governor Fournier at the
Bank of France. We saw, while we were waiting, eleven

vans being loaded with gold for removal out of Paris; several
of the vans had been requisitioned from the Samaritaine
department stores. When we saw the Governor we jokingly

mentioned this, and he replied with a smile and a shrug that
they had to take their precautions. The trucks were well
protected by gardes mobiles who had full equipment, and
even had gas masks with them.

The Governor confirmed what we had been told by Reynaud

and Rueff - reference: telegrams 1609 of August 26 and

1666 of August 30. He said that at the moment they are
positively not envisaging any measures or restrictions on
operations in foreign exchange, nor the requisition of French
owned foreign securities nor balances or similar steps.
END SECTION ONE.

BULLITT.

521B
PARAPHRASE SECTIONS THREE AND FOUR. TELEGRAM NO.

1672 OF AUGUST 30, 1939, FROM THE AMERICAN EMBASSY, PARIS

He said that it was not possible to operate on more
than a day to day or even hour to hour basis, in view of
the fact that markets these days are completely dominated

by the rapidly moving political scene and normal rules are
quite inapplicable. Therefore it was not possible for him
to express any opinion as to what should be a "sound"

level for the pound, he could not say whether 4.20 was too low

or 4.50 too high a level. It is merely his desire to keep
the franc at a proper price ratio without in any way speculating to take advantage of the British Government.
The question of plans for government financing in case
of war was brought up, and we asked what plans were being

considered; he replied that to make any definite plans

was very difficult. During the last few days withdrawals
of bank deposits had been of very considerable size - and
his peace of mind was obviously not being helped thereby but such withdrawals were less than they had been in
September of last year, and this year were not in unexpected

proportion; there had in fact been a considerable diminishing

in amount. He is hopeful that, if this withdrawal trend
ceases, resumption of subscriptions to armament bonds on

a large scale will ensue and that in the early days the
government will be able to carry on through purchases of
three months treasury notes plus higher taxes. He added

with a smile that he hoped they could then count on help
from

521 C

-2from the United States later on.
It seemed to us that he was his usual calm self, but the
strain of the past week showed on him; we asked him whether

he was still as optimistic as he had been when we saw him

on the twenty-second of August at the (omission). He said
that his optimism has been somewhat diminished by recent

events, particularly since the people with whom he is in
contact seem to be anything but optimistic about the situation.
END OF MESSAGE.

BULLITT.

EA:LWW

521 D
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France

DATE: August 30, 1939, 4 p.m.

NO.: 1666
FOR THE TREASURY.

We have just been informed by Reynaud that he does

not contemplate taking any extraordinary measures, at

least not for the moment. Gold in the amount of 122 million francs was gained by France yesterday, despite the

fact the situation was critical.
According to Reynaud there had been very large

(omission) from the government savings banks, but that
these withdrawals had been expected since every man who

was mobilized drew out a certain amount of money to give
to members of his family. There had already been a decrease in the volume of these withdrawals from the
Caisse d'Espargne. He expected that there would be

a further decrease, as French families already had
enough money on hand to meet their September bills

as a result of these withdrawals.
Reynaud made the strictly confidential comment

that he thought the British were handling the matter
of the pound as stupidly as they possibly coulde-they
were doing all they could to decrease confidence in
the pound. In his opinion Sir John Simon was proving
himself cowardly as well as ignorant. END SECTIONS
ONE AND TWO.

SHIE
-2-

The exchange market was again erratic today

and the turnover small most traders remaining in the

side lines in the absence of any concrete political
developments. The fund gained a small amount of

sterling this morning and is losing a little this
afternoon the rate fluctuating from 175.18 to 175.28.

521F

GRAY

Paris

Dated August 30, 1939

Rec'd 12:55 p. m.
Secretary of State,
Washington.

1666, August 30, 4 p. m. (SECTION THREE)

The dollar pound cross rate ranged from 432 to 442

and the franc dollar rate from 3962 to 4006. Both the
Swiss franc and belga were strong against the aclinr
improving about 1%. The florin remained the same at
187. The securities market was likewise inactive and
Erratic. The 3% rente issue was down 1% and the others

about unchanged on very small trading. The decision of
the Norwegian and Danish authorities to permit their
currencies to follow the dollar along with the Swedish
crown occasioned no surprise to the market here. The

Yugoslav dinar is likewise now being based on the dollar.
TELEPHONE communication between banks with London and

NEW York was permitted this morning with restrictions,

however, on discussion of political news.
WE are seeing Fournier this EVENING.
(END OF MESSAGE)
DDM

BULLITT

521G
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Legation, Athens, Greece

DATE: August 30, 1939, 3 p.m.

NO.: 151
Confirmation has been received of lifting of foreign
exchange embargo effective as of today, and covering sus-

pended transactions. Thus conditions as they were prior
to August 25 were restored, with the exception that

they prohibit opening letters of credit until further notice,
except for essential foodstuffs, government supplies, and
fuels.

The exportation of foodstuffs and fuels 18 prohibited
by a government order of August 29 effective today. This
order includes transit goods in customs warehouses and free
zones of Salonika and Piraeus. However, the Legation is

informed by the Ministry of National Economy that this does
not apply to foodstuffs destined to free exchange countries,
and of which Greece has an exportable surplus, including

fresh fruits, olives, figs, olive oil, peppers, currants,
and raisins.
MACVEAGH

EA:LWW

521 H

PLAIN

CJ

LONDON

Dated August 30, 1939
REC'D 1:35 p.m.

Secretary of State,
Washington.

1323, August 30, 6 p.m.
FOR TREASURY FROM BUTTERWORTH.

The City has been hopeful practically all day, not
because it had or has any reliable information about the
Anglo-German interchanges but on the general supposition

that delay means hesitation by Hitler, indicatin that the
forces in Germany making for PEACE were gaining ground and

consequently the leverage of Great Britain and France WC.S

increasing, HOWEVER, a report just before 5 p.M. that the
Poles had ordered a general mobilization came as a shock

and caused a reaction to set in since it emphasized the difficulties inherent in the situation EVEN though negotiations
be agreed to.
The London Stock Exchange has been firm and the amount

of business has been not inconsiderable. Both Equities and
British Government securities have risen decidedly, the
latter being well above the minimum prices, war loan for
Example, closing at 90 3/4, 1 3/4 above the minimum.
The

5210

-2- #1323, August 30, 6 p.m., from London

The dollar opened at 4.37 bid and gradually but Erratically moved to 4.42 with considerable offerings coming
from NEW York. When the Polish mobilization report appeared
the rate moved back to a round 4.39.

150 bars were sold at gold fixing at 158s. 6d. which
was only a 2d. discount. After fixing, gold was offered as
low as 157s. with but few dealings.
A summary of the behavior since the break in sterling
of the currencies which have been tied to the pound in the
past may be of interest. The Danish currency, though quotations are nominal, has remained in line with sterling
as has also the Latvian and Estonian currencies. Finlend,
Norway and Sweden, however, have allowed their currencies

to move with the dollar rather than the pound. The
Helsingfors rate which was about 2.27 on August 23 being
quoted nominally at 2.10 to 2.15 and having touched 208.9
on August 28. Oslo quotations which stood at about 19,90
on August 23 were about 19 yesterday and are quoted nominally
today at 19.35. The Swedish krona which was about 19.40
on August 23 is now quoted at about 18.50 having touched
171 on August 28. The Portuguese Escudo has dropped

from 110 to 1091, while the currencies of such other countrics in the sterling area C.S Japan, Egypt and GREECE have

remained in line with sterling. The Argentine free Exchange,
however,

521J

-3- #1323, August 30, 6 p.m., from London
however, which stood at 20.10 to 20.14 on August 23 was

quoted yesterday at 18.70 to 18.90.
An Exchange telegraph message from Copenhagen indi-

cates that the agricultural interests in that country are
urging the Government not to allow the Danish currency

to appreciate in terms of sterling. The policy of Sweden
was indicated in my No. 1303 of August 29, 1 p.m.
KENNEDY

ALC

521K

PLAIN

NC

LONDON

Dated August 30, 1939

Rec'd 1:25 p.m.

Secretary of State
Washington

1322, August 30, 6 p.m.
FOR TREASURY FROM BUTTERWORTH.

British Treasury confirms the informati on contained

in the last paragraph of my 1310, August 29, 6 p.m., and

states that sales of securities by British residents to
non-residents will be permitted, provided the foreign
exchange is turned over to the British monetary authorities

in return for sterling at the going rate. The British
Treasury is, of course, aware that there is nothing to
prevent the recipient of such sterling from converting it
back into say dollars and having those dollars placed in
another name, but it is at the present time content to
rely on the "general trustworthiness and patriotism of
the man-in-the-street" not to make use of such loopholes.

Furthermore, the Treasury points out that to close such
loopholes would necessitate a complete exchange ontrol
system. The Bank of England has been besieged with

requests for rulings covering unanticipated contingencies.
It will obviously take a few days for the mechanism to
operate reasonably effectively but in the meantime the
market

521L

NC

-2- #1322 from London, August 30, 1939

market in American securities in London has revived and

considerable business is being done, particularly where

both the seller and buyer are British residents.
KENNEDY
ALC

522
William 3. Campbell
United States Attorney
I.S. Court Nouer

.

Chicago

August 31, 1939.

Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
My dear Mr. Secretary:

I want to thank you for making available to
me during the course of the Annenberg investigation the services of your Mr. Samuel Klaus.
As you know, he was appointed Special Assistant
to me at the time this investigation commenced
and he has rendered splendid service during

its entire progress. In fact, his ingenuity,
resourcefulness and never failing willingness
to work contributed materially in the results

thus far achieved. I trust you will permit him
to remain with me until after the trial of these
cases.

I want you to know how deeply I appreciate the
service Mr. Klaus has rendered.
Sincerely and respectfully yours,

WILLIAM J. CAMPBELL
WJC ELB

UNITED STATES ATTORNEY

523
COPY

August 31, 1939

To:

Mr. Hanes

From:

Mr. Gaston

If the State Department has no objection we propose to send to
all Collectors of Customs and to District Commanders of the Coast
Guard telegrams, which have already been prepared, instructing them
to familiarize themselves with Article 178 of the Customs Regulations,
which has reference to observance of neutrality and exportation of
arms and ammunitions and also to familiarize themselves with the

regulations with respect to munitions control, issued by the State

Department.

It seems to us desirable that the Collectors and District officers
of the Coast Guard should familiarize themselves thoroughly with these
regulations in advance of the outbreak of war. The instructions can be
sent in a confidential manner with instructions against revealing them.

Mr. Hanes wrote on n carbon copy:

Took up with Fein - he says Secretary State says O. K. - his
suggestion is that only the most important posts be sent at this time.

See memorandum to the filem for above conversation between Fein of
State Department and Under Secretary Banes - 9-1-39 - 5:25 - 5:30 A.M.

Conversation between Undersecretary of the Treasury
Hanes and Governor Harrison of the New York Federal
Reserve - August 31. 1939 - 8:20-8:40 A.M.

JWH:

Harrison:

524

I was wondering 1f you have anything on your mind.

I think the news is not as good as yesterday in spite
of the fact that the lapse of time means more hope. I
am still an optimist - maybe God will step in and help.
Have you talked to Marriner?

JWH:

No.

Harrisons

Well, Marriner called last night with his whole Board
listening, and advised that we should support the
market is anything happened. I think that he and I
may differ because you can't go in until you find out
where your level is. Our bids were over the market.
They did not expect me to put in bids tomorrow morning
at the opening. At some point we ought to be willing

to let other investors get in.

JWH:

Maybe Marriner talked to the White House yesterday.

Harrison:

I am positive that happened. Whenever things go badly
there is always a febling that we hold back. We are

doing a better job by holding back. You think it over.

JWH:

What do you think Marriner told the President?

Harrison:

I don't know, but he gave me a pep talk.

JWH:

The President has asked me to come over today. Eccles

Harrison:

is critical of our efforts.

While I was talking to E cles about this thing I asked

him if he thought we should have bought bonds last Thursday.

Eccles said, "I certainly do". - then I said "now wait a
sinate". - then he retracted. There hasn't been a variation
in the market of more than a point and a half. I think the
market has behaved remarkably. We have got the banks in
an attitude of complete complacency regarding their port-

folios. I then told Marriner to read the minutes of the

discussion we held some months ago in the Secretary's office.

I said that we should go into this thing slowly. If we

open up tomorrow how vigorous should we be? There is no

point in buying over the level for that day.

2525
JWH:

I believe in keeping the markets orderly. and I don't
want to keep private buyers out of the market.

Harrison:

I don't think the thing will be so bad.

JWH:

I think I'11 call Seales and tell him that I've had a

chat with you.
Harrison:

The banks are buying bonds and not unloading. The

market is acting OK. I will go in and buy aggressively if
var comes, but I don't want to bail out the big banks unless
18 breaks the market.

JWH:

OK - I'll call Eecles and see what's on his mind.

Harrisons

Ransom called me and said that everyone is back of me - I
think the results speak for themselves.

THE WHITE HOUSE

526

WASHINGTON

August 31, 1939.
MEMORANDUM FOR

THE ACTING SECRETARY OF THE TREASURY

I heartily approve using

this silver bullion to meet
coinage needs. Coin and put

out into circulation all the
country can stand -- up to the
saturation point!
F. D. R.

THE SECRETARY OF THE TREASURY
WASHINGTON

:

527

1934

My dear Mr. President:

On November 11, 1935 you indicated your approval of the use for

subsidiary coinage, to the extent necessary, of silver bullion acquired
pursuant to section 7 of the Silver Purchase Act of 1934, and which is

not held as security for silver certificates. (See attached copy of
letter dated November 8, 1935 to you.)

The stocks of silver bullion available for subsidiary coinage
(including the silver allocated to that purpose pursuant to your
approval above mentioned) are running low and should be replenished.

It seems to the Treasury now, as it did in November 1935, that it
would be preferable to use for subsidiary silver coinage bullion now
held by the Treasury rather than to purchase for this purpose silver
in the open market by means of advertisement.

The Treasury is holding a large stock of silver bullion which was
received pursuant to the Proclamation by the President of December 21,
1933, and the proclamations modifying it, which has not been coined and

which is not held as security for silver certificates. Such silver may,
subject to your approval, be used for subsidiary coinage.

Accordingly, it is intended, with your approval, to authorize the
of the Mint to use, to the extent necessary, silver bullion

to the Proclamation by the
Director received pursuant President has not of been December coined 21,

1933, and the proclamations modifying it, which and

which is not held as security for silver certificates. If the foregoing
meets with your approval it will be appreciated if you will so indicate
by signing the notation at the foot hereof.
Faithfully yours,

John WHAME
Actim Secretary of the Treasury.
Approved:

The White House.

JWH

527A

August 31, 1939

4:13 P. N.
To:

Hanes and Bell

From:

Secretary Morgenthan

The following from Coast Guard - cable What have you in mind regarding to next Tuesday financing?
Have you made any arrangements as to whom I am to see in Washington

in regard to financing? What is deadline for announcing to Press
the terms? Where will Hanes, Gaston, Bell, Lochhead, Haas and White
be Sunday and Monday?

CE

cc to Bell - 4:18 P.M.

28

August 31, 1939

RADIO MESSAGE - CODE

FROM ACTING SECRETARY HANES TO SECRETARY OF THE TREASURY
ABOARD COAST GUARD CUTTER CAMPBELL:

All will be available on Sunday and Monday except White
who will not arrive here until Wednesday. Have made no
definite plans for Tuesday financing and have made no arrangements for you to see any one from New York in Washington on
Tuesday. Have planned to go ahead with Open Market Committee

meeting tomorrow after which I intend communicating with you.

If after receiving this report and recommendation it is
necessary for you to confer with someone from New York I can
make arrangements on Saturday. If situation grows worse between
now and Tuesday you may deem it advisable to abandon plans for

September financing. We could delay final decision until Wednesday,
announcing Friday the eighth. This would only leave two days
if you brought in December notes, assuming you would not want
to let exchange offering remain open over weekend.

29

August 31, 1939
1:45 P.M.

Mr. Hanes

(Daylight Saving Time)

W. H. Hadley

Government Bond Market

Today the market opened slightly easier, about unchanged

from late trading last night, but with losses of about 1/4
point from 3:00 o'clock During the first hour the market
moved about 1/8 point lower and after recovering slightly turned

easier again on news of English mobilisation. At 1:30 o'clock
the losses were 2/32nds to 14/32nds from yesterday's 3:00 o'clock
closing.

Since last Friday the market has moved through a range

of about 1 1/4 points and stands at the present time about
1 point above the low reached last Thursday. Activity has
been very light and during the morning there was a small amount

of buying reported. Dealers' Treasury bond holdings
continue at minimum levels but holdings of short term issues
have increased considerably.
Purchases is the Market by Federal Reserve and Treasury:

August 28 - $ 2,867,000 Bonds
3,000,000 Notes

August 31 - $ 1,000,000 Bonds (To 2:00 P.M.)

Rite Houseoug sent
to JWHKirth)

for Sech
IOF 601

530

CONFIDENTIAL

31 August, 1939.

MEMORANDUM FOR ASSISTANT SECRETARY GASTON,

Information received from the Commander, New York District, Coast

Guard, indicates the following:

German ss BREMEN granted formal clearance late yesterday
afternoon, and sailed from New York about 6:00 p.m. same day.
At 6:30 p.m. she passed Quarantime Station in New York Harbor.

and at 7:51 p.m. she passed Ambrose Lightvessel. At this
point she settled an course 115° true, which should take her
about 60 miles south of Mantucket Lightvessel. on route probably to Europe. Except for her running lights, the BREMEN
ran dark. She carried no passengers or cargo.

The German SS SIMON VON UTRECHT which was due in Boston on

August 29th has not arrived and no information has been received of
her whereabouts.

Italian vessels receiving orders from the Italian station at

Coltano during the last twentyfour hours are as follows:

0. ARRIVABEER - Continue at maximum speed to Laspesia;
confirm

TITANIA

- Proceed slowly; await our orders; confirm

TUSGANI

- Shipowner (thinks) bunkering at Teneriffe

difficult. We wish to continue direct
to Messina. Authorise move if believe
Your
necessary and opportunity --

fuel sufficient to reach Messina. Tele-

BEATRICE 0

graph quickly
- Your owner wishes you to proceed to Tone-

riffe and await further disposition.

Confirm date

The Italian vessel LIVENZA cleared from New York on August 30th
for Baltimore.

The following vessels were listed as being in United States ports

on August 30th:

In Boston:

Italian

MONGIOIA

Aug. 27

IOF 601

COMPIREMPIAL

31 August, 1939.

Arrival

In Norfelks

Italian

IDA E 0

Aug. 30

In New Teste

Italian
Italian

ROMA

BIRMANIA

Aug. 24
Aug. 26

LAURA 0

Aug. 27

REBIN

Aug. 29
Aug. 25

In Galvesteas

Italian
In Houstons
German
German

NAMELN

In Bultimores

Italian
Italian
Italian

ANSYERDAM

ADA 0
MARINA 0

Aug. 22
Aug. 29
Aug. 29

PORTLAND

Aug. 28

In Ivereito
German

Is San Francisco:

Italian LIME

ing. 25

In New Orleans:

Italian IDA
Italian

Ang. 22
Ang. 25

The following vessels are due to arrive is United States ports
is the near future from foreign porter
Goreas

KAVELLAND

Les Angeles

German

FRIESLAND
ONEWALD

New York

PERTOIA

Houston

Germa

Corm

Bultimore

P. B. POLLIO,

Lieutement. U. S. Coast Goard,

Acting Chief Intelligence officer.

531

for begin
August 31, 1939.
MEMORANDUM TO THE FILES,

32

Conversation
between Gordon Rentschler, President of National City Bank, and Mr. Hanes.
Time
2:28 to 2:38.
Rentachlor: You got any news?
Nanes:

I don't know as there is anything that hasn't been on the ticker that

re know.

Rentschler: That is about our position, too. Our fellows there still any no war.
Hanes:

I have been saying that right along. but they not out a little bit

beyond my optimism.

Rentschler: I an calling you for this reason, John. No asked the Federal Reserve
this morning a question which will eventually be referred to somebody
in the Treasury(?). It will come down through Knoke of the Federal.
Te have for years been doing business with the Royal Treasury of Siam.
The word that will come down to you is THIR. At the present time they
carry 9. 10, 12 million dollars. About three months ago they trans=
ferred that to sterling and just before the drop the other day they
brought it back into dollars at $4.68, or whatever the rate was at
that time. They want - without paying interest on their money. of
course we won't do that. They say, "Well, now, then, why don't we
have this to buy gold and put it in the Federal and have it earmarked for our account." We say, "Entirely agreeable to us," but
they say, *The want to borrow it from time to time." We say, "You
keep cash here or we shall try to arrange loans against your gold."
Now, the Treasury's policy, as I understand it, has been probably
without exception, there may be only one exception in the South
American commodities situation, not to permit any bank or any other
individual other than a foreign treasury or a reserve bank to have
interest whatsoever in gold here. We are wondering whether it is
not practicable and possible for us to have the gold, let it belong
to the Treasury of Sian. in the Federal, but let Sinn give a letter
to the Federal authorizing them to sell gold and remit proceeds to
us if we can show that they have not paid their obligation in nocordance with the trust. The reason I am interested in trying to
work this out is that we are going to have more and more of this
sort of stuff come in from other banks, too. - Doing business with
these small countries, and of course a good deal of this will come
back from London. In our capacity now as a more important factor
as a world money center, I would like to facilitate doing for these
people what they want done. I want to be in a position to indicate
clearly to them that we don't care about their deposits because I
don't think it is good, sound business for us to have these deposits kicking around and have some of these small banks offering
to pay interest on them, because you and I know that is how we got

into trouble some ten years Ago. It is perfectly a and good

-2-

533

for them to own gold, and our willingness is just an indication of

the strength of this market at the present time. But still I want

to be in a position to loan them one or two million dollars.
They reimbursed - pay off against. I don't know who the Federal
shows that up to in the Treasury, but when it comes in, give it a
little study as an example of other situations that might develop.
-

and we ought to make this now a real sound international money
market where people could not only come but be welcome.

Hanes:

I will send for it.

Rentschleri I think it means enough to the general situation to make it worthwhile watching.

Hanes:

You will hear from me right back as soon as I get it.

Tentschler: You are giving us to darn much excess reserve.
Hanes:

I would rather have it that way, though, than the other my.

Rentschler: Deposits are at an all-time peak.
Hanes:

Are you exceptional or are all the banks the same way?

Rentschler: Quaranty, Bankers Trust, and ourselves are making the roundup together, but Chase's percentage is not as good, but in dollars about
the same as ours. The rest of then will probably run (n?) about
10 percent beyond what we are doing.
Hanes:

I just saw the President and told him you had been very helpful to

us working in the Government bond market.
Rentschler:

We tried to nibble at this corporate market unsuccessfully. Yesterday
we were ready to buy, that is the Consolidated oil. They were at
105). They dropped down to 102. We tried to buy at 102 and we were
offered one bond. Prices don't mean much, and the good stuff is

just not coming in. Shells. There isn't so much of that standing
around. We tried 25 issues in the last couple of days just to get
the feel, and they are pretty well clean. The undertone of this

market is excellent. Of course, we are keeping a few bids in there
on some of this corporate. No use for them to get too far out of

line. Walter Gummings is sitting absolutely tight. I'm sure he
won't mind my quoting him. I have talked to fellows like Walter
MaLucas(?) Detroit. I think that is a good healthy way to have it.
of course, we won't try to take anything. If we just gently back
but be willing to buy a few things and keep the hose out, we
away will be rather surprised to see how soon we can get it on an evan

keel even if there is a crackup over there.
1g

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Seen
534
August 31, 1939.
MEMORANDUM TO THE FILES,

Conversation between Mr. William Martin, President of the Stock Exchange, and
Mr. Hanes. Time 11:47 to 11:50.
Hanes:

I was just checking around. I haven't anything on my mind other than this
crisis. And we just got word over the ticker that the stock exchange in
London is going to be closed tomorrow. Had you given any thought to your
own situation? Has it affected your thinking?

Martin No. it hasn't. I watched it very carefully, the reaction, and the community is taking it very quietly, and I don't anticipate any trouble as

a result of it.

anes:

I was going over to see the President. I know he would ask me about it.
You haven't given any thought to following them, of course?

Martin: No, we would rather believe, and that is the general impression here in
the community, that their move was largely a matter of convenience

rather than of necessity. As long as that impression holds it isn't m
ing to have any repercussion on the market.

Hanes: Your markets have been very steady, haven't they?

Martini Very steady and quiet, and under the market there looks like when the
break does come, if it does, it looks like there will be some - buying.
We are worried principally about the first impact. Outside of that we
haven't any great worries. We are open on Saturday and so are the banks.
The banks will be open, too, I understand, this weekend. I haven't got
anything to pass on to the President except for the - I told Henderson
that in the event of a serious breakdown and that we might like to ask
then for a moratorium on officers' and directors' trade. During that

stabilising period we think that would be very helpful. I don't know

how you feel on that.
Hanes:

If at any time you want to get no, I am always here, and any message you

want to get over, I will do what I can to help you.
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for Secin

535

August 31, 1939.
MEMORANDUM TO THE FILES,

Conversation between Admiral Anderson, Chief of Naval Intelligence, and Mr. Nanes.
Time 11:02 to 11:06.

Anderson: Mr. Hanes, I had the pleasure of calling on Mr. Morgenthan, and I regret
that I didn't call on you at the same time. I have some information
here which Secretary Edison desired me to pass on to you. This is a
message which we received from the District Intelligence Officer in New
York. Information has been received from New York to the effect that
a report has been received from a source believed reliable that the
London stock exchange will close tomorrow indefinitely. Reason is
evacuation of women and children from ten points from the British Isles.
lines:

We have only got a rumor, that is all. It was on the ticker here this
morning that the stock exchange whs going to close, and the reason assigned as you give.

Anderson: How good this is I don't know, but my man in New York thinks his source
is reliable. Another message from same source that England is com-

pleting mobilisation of both army and navy. That is in the press

flashes. We have a dispatch here from my attache in London: Eight
or ten German submarines are at sea and others are departing.

Hanes:

I am very grateful to you for that information. That last one doesn't

look good, does it?

Anderson: To are all guessing as to what this particular German poker player is
going to do, but my optimism is diminishing some. I considered when
the Poles began to call additional men that that was rather an ominous
indication. It was to me. However, no one knows.
snes:

We'll keep a stiff upper lip.
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original and 2 carbons made.

for Secin
August 31, 1939.

538

MEMORANDUM TO THE FILES:

Conversation between Dr. Feis of the State Department and Mr. Hanes. Time 10:371
Feist

Flash unconfirmed: British have virtually complete mobilisation. Poland
wanted to mobilise last night, were persuaded not to. Ought not to be

provocative. They say that the German demands they reject 40 times over

as pending Polish - . Our best guess that -

Hanes: His last minute move? Well, it doesn't look good(i).
Feis:

If you get further worried about this mobilisation will you let me know?
will you please?

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original and 2 carbons.

for Seain
August 31, 1939.
MEMORANDUM TO THE FILES,

537
Conversation between Governor Harrison and Mr. Hanes. Time 9:52 to 9:54.

Harrison: I want to straighten you out. Checking up my notes, I find that the
(statement?) that Eccles made about the, our Thursday business, which
he immediately retracted, was made day before yesterday, (before he?)
saw the other gentleman. Ranson said after he made that statement

Eccles took it back and practically agreed that the job had been done
in good shape. Ranson thinks without any question that this matter
when't even discussed with the President. He (IT) thought you might
be worried.

Hanes:

arrison:

I am glad you did, because that may not be what he wants ne for.

Ranson is confident he(?) didn't make any criticism and he didn't
think he made any - about it. There have been no offerings made to

us at all, but having all these things in mind, I told Rouse to look
around the market and see if there was anything pressing to account

for - . There was a block of 200,000 which he took up. Since then
the market stayed steady and quiet. - I just wanted to let you know
that.

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In Sech
August 31, 1939.
MEMORANDUM TO THE FILES,

538

Conversation between Dr. Feis of the State Department and Mr. Hanes. Time 9:42.

Feis: That letter of yours about that fellow. Yas just started a new unit to
handle such things, and I shot it right down to the head of it, and he will
see what he can do. Those are pouring in.

Hanes: I was thinking more about our market in Government bonds than anything else.

I felt
A little jittery
a
thirty-second
off. myself. The market is just holding stendy. about

Feist I have been surprised at the amount of steadiness it's shown. How is the
Government bond market moved over the last few weeks?

Hanes: It is three points below the high for all times (June or July, somewhere
last Spring), and five points above the prices reached in the Munich crisis.
Whole points. They have gone down very gradually. That three points below
the high is five points above your average for Munich. There hasn't been
any great wave of liquidation or panicky selling. I wondered if you had
anything on tap.

Feis: You will have to give me another hour. Our cable service upstairs is on
its nose. And it will be another hour or shorter.
Hanes: When you get time, you call me, and I won't bother you.

Feis: I was going to call you anyway and ask you if you would eat with me tonight.
Hanes: I would like for you to come and eat with me. I have a friend from North
Carolina. Good friend, I would like to have you meet him. Quarter of
eight.

list I will call you back within an hour.
1g

original and 2 carbons made.

or

In Seces
August 31, 1939.

MEMORANDUM TO THE FILES:
3.9

Conversation between Mr. Ransom of the Federal Reserve Board and Mr. Hanes.
Time 9:24 to 9:30.

Ransomi I have nothing. I just wanted to see if you had anything.
Hanes:

I got Marriner, and had a talk with him. I felt n little bit more nervous
this morning than yesterday. I didn't think the news looked very good.

Ransom: I think we are all thinking alike.
Hanes:

It seems so. I got the impression from Marriner that perhaps he thought

we were not vigorous enough in purchasing the bonds last week.

Ranson: Marriner did make the remark that he thought we night have bought more

vigorously last Thursday, so I had a long talk with him and reviewed the
whole situation. He made the unqualified statement that he couldn't say

that the action last week was Undoubtedly there was some criticism
around here and that it might get itself back again to rather high places,
and I didn't want you to be at all positive in your statements about that

unless that is the way you felt, and he said it wasn't. He seemed to me
to say almost exactly what you had said to me, that you said at a
Cabinet meeting last week. As a matter of fact, he was pretty well advised during the whole progress of the situation last week. I think his
thinking at the moment is more concerned with what would be the conduct

of the management of the portfolio if there is a war, and that, I think,
is an awfully difficult thing to put into words. I have my own ideas,

and, listening to a conversation between George and Marriner, I was satisfied that there was no fundamental disagreement between them as to the

policy. - Marriner did feel, and I did(Y) too, as I said yesterday,

that we ought to have some bids stuck into that market somewhere along

the line. We ought not (i) to just abandon it - some purchases are made.
Of course, the execution of policy in a market operation of that kind

is a very difficult matter. You can't say positively what should be

done, but if you understand what your point of view is, we ought not to
have any difficulty with it. So I have been with Marriner almost continuously since he got back and I feel absolutely confident that being

critical, he (IT) would be quite otherwise. If you get any differing
feeling, you give us a ring, will you? We are watching it very closely

and we want to act harmoniously if we can. Couldn't get State Department

yet. Berle suggested that I call him, and they didn't have anything,
same general feeling of pessimism. I haven't heard anything this morn-

ing. He didn't leave until some time after 1 'clock, so I thourht that

was probably as late as we had anything. In the absence of developments I hope very much to be able to get away myself tonight and get up to

Hot Springs, Virginia If I do get away, I will be calling in to-

morrow, and I would like to have the call put onto your phone through
the Fed., but I don't talk as freely over the phones with as much distance between them as that. I can get back from there in about two hours
if necessary. I have simply got to net the family reorganized here.
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For Sec:
August 31, 1939.
MEMORANDUM TO THE FILES,

540
Conversation between Mr. Jerome Frank and Mr. Hanes. Time 9:30 to 9:35.

Frank: I an a little disturbed at the item in the paper that the British have
modified their ruling on selling American securities.

Hanes: They modified it to the extent that they have bought British exchange
with the proceeds(?) they would allow them to sell.
Frank: (Reading) Permission, however, must first be obtained from the Treasury The Treasury will grant permission only in cases where a broker's claim

that an alteration of price has unduly - his margin is upheld. - If

there is a drop in the market, then they will be on the margin and they

can sell. Tribune. It is column 2 in my copy of the financial page.

Its heading is "Governments rise sharply on - market." Page 29. second

column from the left, third paragraph.

danes: (Reading) Commissions sell Frank: Now drop down two more paragraphs: you will find it stated again, item 1.
(Reading) - Now that's going back square on.-

Hanes: That does change it a little bit. It says in effect, if the fellow is
squeezed in on margin he can sell.

Frank: Are you still conducting negotiations with them?
Hanes: That goes through the State Department, but we have asked them. You know
we sent a cable after that meeting with Leon Henderson. We sent a cable

to Butterworth to pursue this discussion with the bank over there ns to

any changes and keep us posted. We haven't been advised of any change

in that. This has a London date line on it. It was in last night's

paper. Let me check up on it through the State Department, and if we
haven't a cable I think it would be a good plan to send A cable through

to Butterworth. - First of all I will get the cables and see what the details are and if we haven't got them I will

1g

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Memorandum to the filest

Conversation of Mr. Hanes with Dr. Herbert Feis of State
Department on August 31, 1939 at 11:32 to 11:25 a. M.
Feist

Hello, John.

Hanesi

Hello, Herbert.

Feis:

You got direct word I believe - report from Anderson?

Hanest

Yes.

Feis:

anest

541

I suppose we all knew for a long time this would happen - talked

about last April.

Yes, in event of war - they said last April - would do it. I assume

a cable will come in sometime today. Report stated closed indefinit ely,
although we don't know what that means. Might mean a day or week, etc.

Perhaps the cable will give the details.

Feist

More word from Butterworth today. Did you hear about the submarines?

Hanest

It certainly doesn't look at all well.

Feis:

Those submarines in the Channel will be watched by the fleet like havks.
How about your securities markets - anything for Hull?

Rather quiet. For your information, up to eleven o'clock this morning,

Federal Reserve bought seven hundred millies bonds - which is not much thousand
going very well.
feis:

You know, the American people don't seem to think that war is certain

and are not taking it too seriously.
anest

Encouraging up to moment - market fallen slightly all through the list.

eist

You're still speaking of government bonde?
Stock

anest

Yes. Market shows some weakness but there is no volume. Right now
volume I think is more important than price. Seems to be no pressure

OF haste. People Herbert, remember the last time. First shock it
went off - then on up for the next five years. After that is when
it would be trying.
ist

I'm glad to hear you say that John. Few days ago I sort of went out
on a limb over here - saying the same thing.

inea:

I have a call in to Bill Martin now.

ist

Believe most Americans have concluded that war or no war, the prices
are worth what they are now.

542
Kaneat

They've had long enough to put their house in order, and there should
be no reason for panielcy selling is any event.

Peier

Okay - won't hold you on the phone any longer - if I have any sensational
news - will call you again.

In any event, if I don't hear from you before, will see you tonight.

*End

FLG

543
Memorandum to the filest
Conversation of Mr. Hanes with Col. Munroe Johnson of the
Commerce Department on August 30, 1939 at 9:20 a. m.
hnsont

I just talked to Watson - he said the President was handling that
matter through you and, - I understand that I told him, but in

theory, matter up to me and I wanted some direct communication from

him. He said he would talk to the President, but it was being
handled through you. Will you give me a note on 187

ines:

Yes. I expect to step over there in a few minutes and will talk
to him.

hnson:

You will? Thanks.

*End

FLG

,

544

Helsinki, August 31, 1939.

Dear Mr. Morgenthau:

In accordance with your request when you

left Helsinki, I am pleased to enclose a list
of the guests at the dinner given in your honor
on August 20 and at the luncheon on the following day.

Very truly yours,

Enclosures:

Two lists.
The Honorable
Henry Morgenthau, Jr.

Secretary of the Treasury,
Washington.

545

DINNER

August 20, 1939.

at Esplanadgatan 6, official residence of
the Minister of Foreign Affairs
Mr. Vaino Tanner, Minister of Finance (host)
Hon. Henry Morgenthau, Jr.
Prime minister A. K. Cajander

Mr. Eljas Erkko, Minister of Foreign Affairs

Mr. Axel Solitander, Managing Director of Central
Association of Finnish Woodworking Industries
Mr. Risto Ryti, Governor of the Bank of Finland
Mr. Rainer von Fieandt, Managing Director of
Nordiska Foreningsbanken
Mr. Eero Ilves, Director of Kansallis-0sake-Pankki

Mr. Jaakko Kahma, Managing Director of Finnish
Foreign Trade Association
Mr. Rafael Hakkarainen, Chef de Protocol

Mr. S. von Numers, Ministry of Foreign Affairs

Mr. Henry Morgenthau III
Lieutenant McKay
Mr. Harold Shantz
Mr. L. Randolph Higgs

546

LUNCHEON

August 21, 1939.
At the Savoy Restaurant.

Mr. Risto Ryti, Governor of the Bank of Finland, (host)
Hon. Henry Morgenthau, Jr.
Field Marshal Baron Mannerheim

Mr. Eljas erkko, Minister of Foreign Affairs

Mr. Vaino Tanner, Minister of Finance
Mr. August
Ramsay, prominent business man in semiretirement
Sir Henrik Ramsay, Managing Director of Finnish
Steamship Company
Mr. Gosta Serlachius, prominent manufacturer
Mr. Axel Solitander, Managing Director of Central
Association of Finnish Woodworking Industries

Professor K. T. Jutila, Director of Bank of Finland

Mr. Rainer von Fieandt, Managing Director of Nordiska
Foreningsbanken

Mr. Walter Gräsbeck, Managing Director of Finnish
Woodpulp and Board Union
Mr. Rafael Hakkarainen, Chef de Protocol

Mr. Urho Toivola, Director of the Press, Ministry
of Foreign Affairs
Mr. S. von Numers, Ministry of Foreign Affairs

Mr. Henry Morgenthau III
Lieutenant McKay
Mr. Harold Shantz
Mr. L. Randolph Higgs

TREASURY DEPARTMENT

547

INTER OFFICE COMMUNICATION

DATE August 31, 1939.

TO

Mr. Hanes

FROM

Mr. Haas OF
Subject: Setting for the September Financing
SUMMARY

(1) United States securities have suffered a relatively small net decline during the crisis period. Through Tuesday, August 29, their
decline amounted to a little less than the net

amount of their gradual decline between the
June 5 high and the onset of the severe stage
of the crisis on August 19 (Chart I). These
two drops together cancelled only about 42
percent, on the average, of the rise which had
occurred between January and June of this year.
The greatest weakness during the crisis period
has been in medium-term bonds (Charts II and III).
(2) High-grade corporate bonds, which had been firm
during the two and one-half months preceding
the middle of August, have followed the same
pattern as Treasury bonds during the crisis pe-

riod (Chart I). The crisis has brought about
a practical cessation of offerings of new cor-

porate bonds.

(3) Bank holdings of United States securities have

increased somewhat during the three months ended
August 23, and have probably shown no appreci-

able decline during the crisis period (Chart IV).

(4) British Government securities have been consistently weak during the past three months, but
have declined little more than United States

securities during the crisis period itself

(Chart V). French Government securities have
been persistently weak since the beginning of
the year, but declined somewhat less than either

British or American securities during the ourrent crisis period, and -- unlike either of
these -- had recovered their entire crisis loss

as of the Tuesday close.

548

Mr. Hanes - 2

I. United States Government Securities
The development of the present international crisis
caused a sharp drop in the prices of United States securities beginning Monday, August 21, and ending Thursday,
August 24. Since Thursday there has been a considerable
recovery.
The course of the average yield on all Treasury bonds

with twelve years or more to run until maturity or earliest
call date is shown on Chart I. The long-term yield reached
a record low of 2.07 percent on June 5. After June 5, and

up to the close on August 19, the last market day before the
beginning of the severe phase of the crisis, the average
yield showed a net increase of 0.12 percent. The drop from
Monday to Thursday last week caused a further increase in

the average yield of 0.15 percent, raising it to 2.34 per-

cent. The recovery since Thursday has brought the yield

down again to 2.28 percent as of Tuesday, August 29.

Chart II compares the position of the market on June 5,

August 19, and August 29. It indicates that the increases
in yields for the period since June 5 have been greatest in
the short and medium maturities of bonds and the least in
the longer maturities.
The net drop resulting from the current crisis plus the
previous gradual reaction from the June peak amounts in all
to a cancellation of about 42 percent, on the average, of

the rise which had occurred between January and June of this
year. Medium-term issues have lost a somewhat larger per-

centage of their gain.

The yield changes between January 26, the (price) low

for the year; June 5, the peak of the spring rise, and
August 29, for three bond issues of different maturities
are shown in the following table:

549

Mr. Hanes - 3

Changes in the Yields of Three Selected Treasury Bonds

(One Short, One Medium, and One Long)
Between Jan. 26 and June 5, and Between June 5 and Aug. 29
(Percent)

Net change :Percent
of
:Jan. 26:June 5
to
to
: gain
:June
29:
lost
5:Aug.

29

:

Aug.

:

:

5

:

: June

:

:

26

Yield as of

:

Jan.

:

:
:

:

2's 1947

1.76

1.25

1.45

-0.51

+0.20

39

2-1/2's 1949-53

2.24

1.71

1.96

-0.53

+0.25

47

2-3/4's 1960-65

2.59

2.26

2.39

-0.33

+0.13

39

Chart III shows the day-to-day fluctuations since July 1,
of the prices and yields of four securities -- the three bonds

included in the above table and the longest note. The mediumterm bond has shown the greatest weakness during the crisis in

terms of both price and yield.

II. High-Grade Corporate Bonds
High-grade corporate bonds, which had continued firm while
Treasury bonds were gradually receding during the two and onehalf months preceding the onset of the crisis, have suffered
approximately the same decline as Treasury bonds during the

crisis period itself. Our average of the yields of long-term

high-grade corporate bonds, which had declined by .04 percent
between June 5 and August 16 (while the yield on Treasury
bonds was moving in the opposite direction) subsequently rose
by 0.11 percent to 2.87 percent as of Tuesday, August 29.
The spread between the yield of long-term Treasury and highgrade corporate bonds on August 29 was 0.59 percent, the same

as on August 16 before the onset of the severe stage of the

crisis (Chart I).

The orisis has brought about a practical cessation of
offerings of new corporate bonds, only one issue of about a
million dollars being brought on the market last week. On

Wednesday the $45 millions issue of the Northern Indiana Publie Service Company scheduled to reach the market on the following day was postponed indefinitely.

550

Mr. Hanes - 4

III. Bank Holdings of United States Securities
Weekly reporting member banks increased their portfolios
of direct and guaranteed Government securities by nearly
$500 millions in the three months ended August 23. This in-

crease consisted principally of short-term obligations -including a large share (70 percent) of the run-off of the
Federal Reserve banks' portfolio of Treasury bills occurring

during the period, some short-term guaranteed issues (partly
the CCC note issue of August 1) and some short-term Treasury
notes.

More than half of the total increase was accounted for

(

by the reporting member banks in New York City alone. On net

balance, these banks put the major portion of their purchases
into guaranteed issues and Treasury notes. Since the middle
of July, however, they have been slowly but steadily reducing
their holdings of Treasury bonds, replacing them with bills.
The latest data available on bank holdings of Government
securities, reported above and shown on Chart IV, are for
August 23, and give effect only to transactions made on or
before August 22. The sharpest single day of decline in the
Government bond market occurred two days later on Thursday,
August 24. It is improbable, however, that this decline was
due in any substantial part to bank liquidation, for we are
advised that the price declines on Thursday and Friday were
due principally to a scarcity of bids, rather than to large
offerings. The Federal Reserve Bank of New York reports that
there was some increase in the number of small offerings
on those days, and that the selling came principally from
smaller institutions throughout the country.
IV. British and French Government Securities

During the whole of the last three months, the course of
British Government security prices has been downward. The
price of 2-1/2 percent consols, which during May had staged
a moderate recovery, receded steadily during June, July and
August. The present crisis has caused a further steep decline in prices to levels not touched since 1932. The yield
on 2-1/2 percent consols rose to a high of 4.00 percent on
August 22. On Tuesday, August 29, it stood at 3.91 percent
(Chart V). This figure represents a recovery from a yield

OF 3.98 percent on Monday.

551

Mr. Hanes - 5
The spread between the yields on United States and

British Government securities has continued its upward trend
and has widened steadily in the last three months, in spite
of the decline in United States Government securities during
this period. The crisis itself, however, has had a surprisingly small effect upon the spread. At the beginning of June,
itonwas
1.5029,
percent;
on August 16, it was 1.60 percent; and
August
1.63 percent.
The foregoing comparisons are subject to the reservation
that the London Stock Exchange is not a free market at the

moment. Action was taken by the Exchange on Thursday,

August 24, to prevent any further drop in gilt-edged prices.
Minimum prices were instituted for all British, Dominion
and colonial Government securities, such minima being the
lows of August 23. The fixation of minimum prices can hardly
be responsible, however, for the rise in British Government
securities which took place on Monday and Tuesday.

The prices of French Government securities have declined

more or less steadily since the beginning of the year. The
yield on 3 percent perpetual rentes, which stood at 3.37 per-

cent on December 21, 1938 (its lowest level in some years)
had risen to 4.01 percent on August 18, and stood at the same
level on Tuesday, August 29, having recovered from a yield
of 4.14 percent on the preceding day.
Attachments.

Chart I
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY

AND AVERAGE OF HIGH GRADE CORPORATE BONDS
Yields Based on Wednesday Quotations

JAN

Inverted Scale

"

1939

1938
MAR

APR

MAY

JUNE

se

JULY

AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUNE JULY AUG. SEPT OCT NOV DEC
Inverted Scale

PER CENT

PER CENT

2.2

2.2

2.4

2.4

Long Term Treasury" (12 years or more to earliest call date)

2.6

2.6

28

2.8

3.0

3.0

32

3.2

Corporate
3.4

3.4

PER
CENT

PER
CENT

80

80

Spread Between Long Term
Treasury and Corporate*
60

60

40

40

20

20

.

o
"

19

-

-

T

"

----

Office af the Secretary of the Treatment

1939

-

o

-

.. JAN . FEB . MAR APR MAY JUNE1938
JULY AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY 5.5 JUNE JULY

AUG SEPT OCT NOV DEC

"Bread - - indicates change of Long Form Treasury average

Note Latest figures shown are for Aug "

F-SA-D-I

Chart II

1944

1942

1940

YIELDS OF TREASURY
BONDS AND NOTES
Based on Closing Prices
1946

1948

1950

1982

1984

1956

168

1960

1962

1964

1968

1966

1970

PER

PER

CENT

CENT

2.75

275

250

250

August 29
225

225

200

200

Note:

August 19
1.75

175

150

50

125

25
Notes

100

100

June 5

Bands with no call period
75

75

Bonds with call period

50

negative yveid

Arrows to are line indicate

50

Bonds

25

25

0

0

DOLLARS

Millions

DOLLARS

Millions

Amount Outstanding

3500

3,500

As of Aug 29. 1939

3,000

Notes

3000

Bonds
2500

2500

2000
2000
1,500

500
1,000

500

0

1940

1942

1946

1944

Note

1948

1950

1952

1954

1956

1958

1960

1962

1964

if the bond . selling above por.

For callable bonds prefair are computed to and issues plotted or of the The . " mooth coll curves date are fitted by eye
and as of the final maturity date if the bond . selling in millions below par
excluded

amounts shown in descriptions of issues are

Dollar Issues for which on exchange offer has been made and how expired

1966

1968

1970

-

Chart III
PRICES AND YIELDS OF SELECTED GOVERNMENT SECURITIES
Daily

Prices

Tields

AUGUST

SEPTEMBER

DOLLARS

JAY
23

THIS

AUGUST

SEPTEMBER

22

DOLLARS

PERCENT

(INVERTED)
is NOTES

Jane 13. 1944

100

100

.6

PERMENT

(INVERTED)

.4

is NOTES

99

Jane 15, 1944

99

.7

,7

100
106

a-

105

.8

.

105

Dec. 15. 1947
104

1.3

1.3

104

a BORDS

Des. 1947

103
103

1.4
1.4

102
102

1.5
1.5

107

1.6

No Bones
ICE

1.4

Dec. 15. 1949-133

106

1.0
105

1.0

M Boans

105

Dec. 15, 1949-133
104

1.9
1.9

104

103
103

2.0
2.0

108
108

2.1
2.1

107
107

NO Boards
2.3

DEC. 15. 1960-'65

2.3

106
106

20% Rouns

Dec. 15. 1960-'65

N
2.4
105

103

29

$

23

12

19

AURUST

939

24

2

ART

.

2.4

16

23

x

.

-is

.

SEPTEMBER

15

MAY

22

29

12

....
AUGUST

"

-

2.5

26

2

103

2.5
104

,

104

2.4

V

105

- 23 30 2.4
SEPTEMBER

5

Office of the Beardary of the Treasury

F-17

555

Chart IV
U.S. GOVERNMENT SECURITY HOLDINGS

WEEKLY REPORTING MEMBER BANKS
Cumulative Net Change From Feb 21, 1939
Feb

Mar

Age

May

DOLLARS

June

July

Millions

Aug

Sept

DOLLARS

New York City

Millions

+600
+600

400

400

Bands

Total

+200

+200

Bills

o
0

200

-100

Notes
-400
Feb

-400

Mar

Age

1000

May

June

July

Aug

Sept
+1000

All Other
400

+400

Bonds
+200

+200

0

0

Bills

-200

-200
Total

-400

-400

Notes
400

-600
Fab

Mar

May

Apr

*1000

June

July

Aug

Sept

1000

All Cities
.800

800

.600

Bonds

.600

+400

+400

200
+200

Total
.
.

100
Bille

200

400

400
Notes
400

-600
800

000
Feb

Mar

Apr

May

June

1939

-

July

Aug

Sept

COMPARATIVE YIELDS OF AVERAGE OF ALL LONG IERM U.S TREASURY

BONDS AND U.K. 21/2% CONSOLS
Yields Based on Wednesday Quotations

1939

1938
JAN

FEB MAR APR MAY JUNE JULY AUG SEPT OCT NOV. DEC - - JAN FEB MAR APR " MAY n JUNE JULY AUG SEPT M OCT. " NOV. DEC
"

M

inverted Scale
PER CENT

Inverted Scale
PER CENT

2.2

2.2

2.4

Long Term Treasury" (12 years or more to earliest cell date)

2.4

26

2.6

28

2.8

30

3.0

3.2

3.2

U.K.21/2 % Consols
3.4

3.4

3.6

3.6

3.8

3.8

4.0

4.0

4.2

4.2

PER

PER

CENT

CENT

1.6

1.6

14

1.4

1.2
1.2

1.0
1.0

Differential
8

8

6
6
4

2
2
"

-

APR

-

,

MAR

MAY

..

...

as

.

FEB

JUNE

JULY

AUG

o

1938

(Part
- the - I

"grant

SEPT

-

OCT

educates

NOV

change

DEC

.

JAN

-

JAN

Note intest figures Aug24

o

...

at

"

FEB

MAR
Term

APR

MAY

JUNE

1934
Treasury

average

557
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Eegation, Stockholm, Sweden

DATE: August 31, 1939, 3 p.m.

NO.: 64
The crown rate will be controlled by the Riksbank

at 4.20 to the dollar for several (omission; the Riksbank
sold $2,000,000 yesterday in order to do this. It may be
necessary, according to the Governor, to permit the crown

rate to drop to 4.22 or 4.23 to the dollar in four or five
days. Accordingly, there is a provisional pegging of the
krona to the dollar. The Governor hopes that later on
he may be able to establish a more or less permanent peg

in the belief that it will help to maintain confidence.

STERLING.

EA:LWW

558
REB
GRAY

Paris

Dated August 31, 1939
REC'D 4:10 p. m.

Secretary of State,
Washington.

1684, August 31, 6 p. m. (SECTION ONE)
FOR THE TREASURY.

The exchange market WC.S rather quiet today while

traders maintaining an attitude of watchful waiting. The
French fund was a buyer of sterling at 175.20 and a seller
at 17 .35. The dollar was stronger with franc dollar
rate now at 40.40 and the pound dollar cross rate has
ranged from 4.33 to 4.38. The fund was about EVEN on

balance for the day. There was light trading and
in the
forward
85 CENTIMES
market where the premium on one month francs was 40 centimes/

for three months. The belga was strong against the dollar
at 5.84 and the 3wiss franc and florin followed our
currency. The atmosphere was somewhat depressed in the

absence of constructive news, the closing of the London
stock Exchange tomorrow and the Evacuation of children
from London. Rentes WERE down 50 to 60 centimes. There

was again no activity on the money market.
BULLITT
CSB

559
REB
GRAY

Paris

Dated August 31, 1939

Rec'd 5:05 p. m.

Secretary of State,
Washington.

1684, August 31, 6 p. m. (SECTION TWO)

The interest rate on 75-day to 100-day treasury notes
which since April 22 has been 1.75% was today raised to
2% an indication that purchases of short term government
paper has been slackening in view of currency requirements
in the present Emergency.
The wholesale price index for August 26 has dropped

from 871 to 675 owing principally to lower foodstuffs
prices. The work WEEK in the coal mines has been increased

from five days to six days.
The Bank of France statement published today for the
WEEK Ending August 24 reflects only the beginning of the
crisis developments. Commercial advances are up 3,850,000,000

and 30-day advances 1,344,000,000 francs. Note circulation
shows an increase of 6,844,000,000 and deposits were down

377,000,000. Gold coverage dropped from 65.36 to 62.64%
(END OF MESSAGE)
BULLITT
NPL

560
CJ

PLAIN
LONDON

Dated August 31, 1939

Rec'd 2 p.m.

Secretary of State,
Washington.

1339, August 31, 6 p.m.
FOR TREASURY FROM BUTTERWORTH.

The following rather detailed story of the day shows
the hectic atmosphere which prevails. The City arrived
at work under the shadow of the further Polish mobilization
but reports from Switzerland and Holland soon came through

interpreting the constitution of the German National
DEFENCE Council as a result of a showdown within the Nazi

Party and attaching importance to the fact that it does not
include Ribbentrop, Himler and GoEbbEls which WERE con-

sidered as hopeful signs. Consequently, the dollar was
very steady during the morning around 4.34-6. Just before
lunch the announcement that the Evacuation of children
would start tomorrow dashed such hopes though it included

a statement that this move did not mean that war is inEvitable and that since the Evacuation will take two or

three days it was considered wise to start in view of the
prolongation of tension. About three o'clock the announcement

561

-2- #1339, August 31, 6 p.m., from London
ment that the Stock Exchange would be closed tomorrow had

a further depressing Effect. It had been pre-arranged that
the Stock Exchange would close "in the EVENT of a national
emergency" for a short time, and yesterday it WgS announced
that quarters had been obtained in Denham in CASE it became
necessary to house the Stock Exchange outside London.

Open positions will be suspended and during the period the
Exchange is closed members are not obliged to open their

offices.
Enter in the afternoon the announcement of the full

mobilization of the British fleet and the calling up of
the remainder of Army and Air Force RESERVES brought a

sharp break and the pound went to 4.27 with dollars strongly
bid, especially from NEW York. These measures have been

accepted calmly because the realization is fairly general
in the City that whether the issue is to End in PEACE or war
such steps had to be taken before its termination.
Gold was fixed at 159s which gave a 3d discount at
4.36-1/2. 135 bars WERE sold, 45 of which WERE married and

the market was pro-rated.
The Bank of England return for yesterday shows a record

increase in the note circulation of 621 million, making the
total 6529 million. Public deposits WERE up 68.7 million
and bankers' deposits down about 12 million.
KENNEDY