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DIARY
Book 209
September 1 - September 6, 1939
A-
Book Page
signations
B.:
gration - 9/1/39
209
swer - 9/6/39
367
363
ins: Latin America
B-
ns: Latin America
dum as of 9/1/39, see Financing, Government
-ECommittee on
he will continue to serve - 9/6/39
376
-Fnt
"Business Situation" - 9/1/39
re Board recommendations - 9/1/39
ditions: Financing, Government
28-A
28-L
-G-
and Resignations
-W-
on for week ending 9/2/39 in light of
Haas memorandum
70
Conditions - Neutrality Proclamation
special patrol assistance - 9/4/39
equest from Navy - 9/4/39
answer - 9/4/39
outlines assignments - 9/5/39
141
180
181
233
rease and fact that orders in future will
and not executive discussed by Treasury
/39
154
randum - 9/5/39
328
in scientific expeditions:
Guard instructed to cancel projected
Sea scientific cruise of cutter
DER HAMILTON - 9/6/39
346,358
in view of existing situation and in view
as which may later arise: Gaston and
buss - 9/6/39
380
- W - (Continued)
Book
Page
209
378
War Conditions - (Continued)
Credits to Belligerents (Section 3 of Neutrality Act) regulation concerning - 9/6/39
Customs, Bureau of: See also War Conditions Neutrality Proclamation;
Ship Movements
Harris (Basil) asked to take over Customs - 9/5/39
Moyle (James H.) assures HMJr of excellent health;
plans to stay on as Commissioner - 9/5/39
Financial developments during crisis: Haas memorandum 9/2/39
Financing, Government
221
224
70
See also War Conditions - Government Bond Market
9/15/39:
Open Market Committee meeting - 9/1/39
Sproul, Hanes, and Bell confer - 9/1/39
a) Sproul thinks no unfavorable effects on market
14
35,41,45,285
will result from lack of information about
Open Market Committee meeting
Treasury announcement: "No borrowing of new money
at this time" - 9/1/39
FDR suggests that financing be confined to bills
and notes; bonds to be saved for patriotic appeal 9/4/39
War Plans: Bryan memorandum on Liberty Loan plans
during last war - 9/6/39
Operations September 1 - December 31, 1939: Bell
memorandum
Foreign Exchange Committee: One similar to that in
London set up and Knoke so informed Bolton, Bank of
England - 9/1/39
51
156
343
348
57
France:
War-time decrees, financial and otherwise - 9/2/39
a) Plans to move part of Bank of France to Loire
Valley with other main banking institutions
Exchange market resume - 9/4/39
In spite of British exchange control, Reynaud plans
no extraordinary measures - 9/4/39
62,207
69
114,405
116
Germany:
State Department asks Treasury to lend staff; request
granted - 9/4/39
139,245
Reichsbank so strongly organized no special measures
need be taken at this time - report from American
Embassy, Berlin - 9/4/39
Reich defense council issues comprehensive "war
economy decree" - 9/5/39
Financing of war planned - 9/6/39
200
336,342
397
- W - (Continued)
Book
Page
War Conditions - (Continued)
Government Bond Market:
See also War Conditions - Financing, Government
Resume given Hanes by Rentschler - 9/1/39
Harrison and Hanes confer
Hadley resume prepared for Cabinet meeting - 9/1/39
Conference on handling of; present: HMJr, Hanes,
Bell, Burgess and Ransom - 9/5/39
209
Great Britain:
Resume of financial legislation under consideration by
Parliament - 9/1/39
37
44,99
55
264
58,103,104
203
a) American owners of balances in England, if
application is made through their banks for
transfer in dollars, to be allowed by Bank of
England to effect such transfers
1) Ante-war balances meant
b) Plans of Dominion and Colonial Governments
reported on - 9/3/39
Exchange control to be established today - 9/4/39
Foreign resources to be concentrated in one reserve:
Plan of British Treasury and Bank of England - 9/6/39
Latin America:
Financial agreement with twenty-one countries
discussed by HMJr and Welles - 9/6/39
Argentina:
Tendency to dissociate peso from pound and assume
fixed relationship to dollar - 9/5/39
Brazil:
Director of Exchange endeavoring to liquidate Bank of
Brazil's position in German compensation marks
(approximately 6,500,000) - 9/4/39
Director of Exchange planning emergency economic and
exchange measures - 9/4/39
Neutrality Act: Credits to Belligerents (Section 3 of
Neutrality Act) regulation concerning - 9/6/39
Neutrality Proclamation:
Feis tells Hanes FDR will probably hold up three or
four days; asks that only customs inspectors at
important points, i.e., New York, Boston, Baltimore,
San Francisco, et cetera, be confidentially prepared 9/1/39
Treasury functions after promulgation: Foley memorandum 9/5/39
Customs and Coast Guard duties under proclamation
discussed by Treasury group - 9/6/39
News resume concerning telephone conversations from
Hanes to HMJr - 9/1/39
SS NORMANDIE and QUEEN MARY: See War Conditions Ship Movements
60
102
111
115
407
354
331
137
138
378
39
234
384
1
- W - (Continued)
Book
Page
Passports:
State Department issues new regulations - 9/4/39
a) Collectors of Customs so informed
209
Ship France Collins assume 9/5/39
242
241
318 A
FDR asks Welles to advise Hanes to suggest to Cuba
that SS COLUMBUS be searched thoroughly upon docking
there today - 9/1/39
Resume of Italian, German, et cetera, ships - 9/1/39
SS BREMEN: "Fueling indicates merely high-speed run to
a home port" - 9/1/39
Germany orders all merchant ships now in Pacific
or Caribbean ports to proceed immediately to
Mexican ports - 9/2/39
Customs, Bureau of:
46
47
54
100
Instructions to Collectors, stressing particularly
differentiation between merchant vessels armed
solely for defensive purposes and armed for
offensive purposes - 9/3/39
107
SS NORMANDIE and QUEEN MARY:
HMJr asks Hull for assistance in handling purchase of
(to be charged against war debt)
a) Moore, Hackworth, and Feis suggested;
Hackworth chosen - 9/4/39
119
149
Foley memorandum: Panama Rail Road Company suggested
as alternative to American President Lines,
Incorporated, as purchaser of SS NORMANDIE - 9/4/39
Purchase discussed by HMJr with Hanes, Gaston, Foley,
McReynolds, and Tietjens - 9/4/39
a) Purchase discussed with Admiral Land
(Maritime Commission)
121
140
145
b) HMJr gives Hull's evaluation of Bullitt and
Kennedy in this connection and strongly advises
use of Ambassadors in Washington
148
1) For Kennedy's later reaction, see Book 210,
pages 14, 41, 43
Conference; present: representatives of Treasury,
State, Maritime Commission, and Coast Guard - 9/4/39
a) British and French Ambassadors join group
1) No credit for purchase of materials
involved
b) FDR informed of meeting - 9/5/39
Foley memorandum setting up procedure for handling
purchase - 9/5/39
SS ATHENIA: Coast Guard asked for assistance in bringing
home American survivors - 9/5/39
a) Report of survivors on board SS CITY OF FLINT 9/6/39
German tanker PAULINE FRIEDERICH:
FDR asks Treasury to investigate - now in Boston Harbor
with cargo of lubricating oil - 9/5/39
165
176
177
249
215
237
396
257
- W - (Continued)
Book
War Conditions - (Continued)
Special Advisers: appointment of - 9/1/39
a) Burgess, W. Randolph; Riefler, Winfield W.;
Smith, Tom K.; Stewart, Walter W.
b) Forrestal, James: FDR suggests that Forrestal head
Treasury list
Bailie, HMJr, and Hanes confer - 9/5/39
Harris, HMJr, and Hanes confer - 9/5/39
Strategic War Materials: Quinine, tin, and quartz
crystals: Procurement memorandum - 9/6/39
209
Page
29
319
325
370
Taxation:
War contracts with the Government: Depreciation
policy discussed at conference with Hanes - 9/5/39.
Weather Control (Atlantic): Pan-American Airways asks
for assistance in maintaining - 9/5/39
255
247
Wilson, Hugh
FDR announces resignation as Ambassador to Germany 9/1/39
52
2:30
1
September 1, 1939.
TO: Chief Wilson
From: Acting Secretary Hanea - 2:00 Peme
NOTE: For transmission to Secretary Morgenthau through
Coast Guard radio station at Fort Hunt, Va.
Washington - Warned by Berlin to keep ships and planes out of Dansig
and Poland.period
London - british and French instruct Berlin ambassadore to request
passports unless Germany quit Poland period
London - Chanberlain announces bill to make military age 18 to 41 period
Paris - Considers ultimation to Germany period
Grain - All Winnipeg grain main futures up the limit period Chicago
all wheat and rye futures up the limit period
Markets - 215 daylight
Stockmarket higher after 2:00 with tape running late period tape
clear at 2:25
30 industrials 128.92 off 5.49
25.05 off 1.05
23.15 off 1.39
Volume 1,200,000 vs. 330,000 yesterday
Commodities - 2:45
20 R. R's
20 utilities
All futures up
limit up 5 to 8 cente
Dec. wheat 73 1/2 B up 5 points
Dec. corn 48 1/8 B up 4 points
Oct. cotton 8.41 unchanged
Range up 4 to 6 1/4
{
Coppers and steels lead market period buying breaderie to encire
lists with in the comperied Totals up sharply period
London - House of Commons approves war credit 500 million pounds period
London - Chimberlain declares that while Nasi government exists and
continues methods there can be no peace in Europe period
155
2
September 1, 1939.
To: Lt. F. E. Pollio
Acting Chief, Intelligence Unit
Coast Guard
From: Acting Secretary Henes
NOTE: Confirming telephone conversations
This is confirming wire, given to you over telephone
this morning at 11:30 a.m. from Acting Secretary Hanes
to Secretary Morgenthans
Paris
French Cabinet rejects Italian invitation to five-power conference
period
Warsaw
German notor advance slows down before Pole cavalry period
Rome
Hitler tells Mussolini he does not need Italian aid now period
London
Paris
Germany using gas in posen air attacks period
Bonet receives Bullit and pledges to comply with Roosevelt plea
period
Washington
Hull attends President's conference period President announces
Wilson has resigned as Ambassador to Germany and returns to State
Department duties period President denies general order issued to
clear United States merchantment from foreign waters period
Washington
Possibility of large scale writch in Latin American trading from
Europe understudieds by State Department period
New York
Stocks at new low since May 17 period break widest since January 17
period Sugar soared one to ten points period shipping stocks up period
Dow Jones Index of 40 bonds 86.74 off .97
Cotton seed oil market closed Saturday period
12/15 tape prices
Am Tel 156 1/2 off 4 3/8
Beth Steel 56 1/4 off 1 1/2
Chary 73 1/8 off 5
Gen Not 42 5/8 off 1 7/8
Song 38 1/2 off 1
U S Steel 44 1/4 off 1 7/8
N.Y. 00008 exchange remains open Saturday period
Markets 12:15
Stocks
30 industrials 129.68 off 4.73
3
20 railroads 25.30 off .80
20 utilities 23.32 off 1.22
Commodities
Dec. wheat 73 182 up 5
Doc. dorn 48 1/8 up 4
Oct. cotton 8.36 off 5
Com. index 51.07 up 3.23
Washington
George L. Harrison says he has never seen the New York financial
community work together any better period
New York Stock Volume 10-12 8.60
US
220 yesterday
London
King motors to 10 Downing Street to see Chamberlain period
Copenhagan
Dublin
Danos close stock exchange and call men to colors period
Stock exchange closed period
Berlin
Foreign correspondents not allowed with armies period
50
I
4
September 1, 1939.
Tos Chief Wilson
From: Acting Secretary Hanca
NOTE: For transmission to Secretary Morgenthau through
Coast Guard radio station at Fort Hunt, Va.
Berlin - Reports troops well on way to objectives on all fronts period
Ottown - Prime Minister says Canada to stand by England in war period
Washington - Hitler reply to Roosevelt received by State Department period
Hanes refuses to discuss Treasury financing. Federal Reserve active
buying government obligations period
11 lam
5
September 1, 1939.
Lt. F. E. Pollio,
Acting Chief, Intelligence Unit,
Coast Guard
To:
From: Acting Secretary Hanes
NOTE: Confirming telephone conversation.
This is confirming wire, given to you over telephone
this morning at 11:00 a.m., from Acting Secretary
Hanes to Secretary Morgenthau
Rone
R
Italy will not start military operations.
New York
Stocks
rally to .1/2 in active trading following Rome
announcement.
New York
Perlin Brasil suspends exchange dealings Friday and Saturday.
Paris Pole artillery bombards German railroad at Beuthen.
LeTemps says Poles shoot down German bomber near Narsaw.
The Hague
Holland moves troops to frontier.
Washington
President says meeting of Congress and invoking Neutrality
Law must await developments.
Warsaw
Reports that Odynia blockaded by Germany.
Markets - 11:30 A.M.
Dec. wheat 73 up 5 cents
Dec. corn 48 1/8 up 4 cents
Oct. cotton 8.34 off 7
11:30 tape prices:
AM/Tel. 154 5/8 off 6 1/4
Beth Steel 55 1/4 off 2 1/2
Chry. 73 off 5 1/8
Gen. Not. 41 7/8 off 2 5/8
Sonj. 39 off 1 1/2
U.S.Steel 43 1/2 off 2 5/8
Washington
State Department trade experts expect immediate temporary
disruption of U.S. trading with European countries, as result of
war, to be followed by a boom after effect of shock wears off and
needs of warring nations become known.
Barter deal between U.S. and Britain for exchange of surplus
cotton for British rubber expected not to be affected.
10: 30
6
September 1, 1939.
To:
Lt. F. E. Pollio
Acting Chief, Intelligence Unit,
Coast Guard
From: Acting Secretary Hanes
NOTE: Confirming telephone conversation
This is confirming wire, given to you over telephone
this morning at 10:30 a.m., from Agting Secretary Hanes
to Secretary Morgenthaus
UP ticker,
Polish Ambassador holde prees conference at 3:00 p.m.
Saw Hull. Praises Roosevelt appeal.
Berlin
German forbids merchantment from Dansig and Polish ports.
London
Admiralty knows nothing of report that British warship
intercepts Bromen.
Washington
Swies recall residents in U.S. in broad mobilization
order, Legation announces.
Radio - London
British prepares reply to Polish appeal pledging assistance.
Markets
Commodity Index at 11:00 a.m. - figures 50.72 up 2.88.
Secretary Wallace ready for emergency steps to prevent
speculation in food prices.
War situation may change crop control program for next year.
11:00 a.m. Dow Jones stock averages.
30 industrials 129.20 off 5.21
20 railroads 25.18 off .92
20 utilities 23.14 off 1.40
Stock Volume 10:-11
5.40
US
120 yesterday
Wheat at 11:15
December 73 up 5 cents the limit
December corn 48 1/8 up 4 cents
October cotton 8.35 off 6
September 1, 1939
O
7
To:
Lt. F. B. Pellio,
Acting Chief, Intelligence Unit,
Coast Guard
From: Acting Secretary Hanes
NOTE: Confirming telephone conversation!
This is confirming wire. given to you over telephone
this morning at 10:15 a. m., from Acting Secretary Hanes to
Secretary Morgenthaus
Germans reported nine thirty attaching Poland from three
fronts East Prussia, Pomerania and Brealau. Also reported bombing
Odynia. Poland formally asks aid from France, England.
French council of ministers announce general mobilisation
of all land, sea and air arms of entire French territory beginning
Saturday also convoking parliament for Saturday. Mussolini
transmits to France proposal for five-power European conference.
Polish embassy staff leaves Berlin. Our cabinet meets two this
afternoon.
New York selling continued leading issues down two to four
points. Chicago wheat up five cent limit. Gotton off eleven to
thirteen. Copper up five points. SEC says after opening market
acting well under circumstances and if present base continues no
need Commission action or closing. New York Exchange Governing
Board scheduled meet now eleven morning there for report Magill's
public - examining board but expected take up outbreak
war. Federal Reserve now meeting survey credit structure. Delano
says national banks able withstand any conseivable shocks.
MAILED
9-1
BY SPEC. MESSENGER
FILE TO
con TO
. 19 39
9 am
8
September 1, 1939
To:
LA. F. E. Pellic,
Acting Chief, Intelligence Unit
Coast Guard
Front
Acting Secretary Hanes
will you please send the following message-PLAIN-to
Secretary Morgentheus
President appealed four thirty Germany. Poland, France,
England, Italy refrain civilian bombing. Poland officially
notified France five eleven of invasion. Second air vaid
Warsaw eleven their time. London reports government will
ask Parliament grant quote extraordinary was credits unquote.
Parliament summoned for six tonight noon here. White House
says no immediate action by President special session or
application neutrality laws expected. Treasury officials in
early meeting in contact Secretary Morgenthau. New York
stocks opened moderately active. Mentreal markets will open
as usual no restrictions. Toronto open with short selling
prohibited.
Sam
9
September 1. 1939
To:
LO. F. B. Pollie
Acting Ohiof, Intelligence Unit
Coast Guard
From:
Acting Secretary Hanes
will you please send the following message in com
to Secretary Morgenthams
Answer your message. will be in constant communication with
you from now on on all important matters where time permits.
will you please send the following message - PLAIN to Secretary Morgenthans
How such general news are you able to pick up and how complete
do you wish reports from us on general news items? London Stock
Exchange closed today. Have not heard but assume same will be true
is other foreign markets. General feeling is that 11 will not be
necessary to close our markets. Announced from London that not
officially at var yet. However, radio report this morning says that
alliance has been invoked by Poland and
recognised by high British authorities. Hitler announced over radio
before Reichstag that he would go to the front and named his successors
in case of his death - (1) Geering, (2) Endolph Neen. (3) Supreme War
Council the would choose leader from monged their number. The French
SIEGE
Government declared state of saigo throughout grance and Algieria and orders
- mobilisation. Delation baid quote is started, we have done everything
we could to would 19 unquete.
From Secretary Unguistion 7:50 am
10
Gastin Please assign
Duffield to send me
herely news bulletins
Thangeuthan
attached message sent to Ch 7.40
Porencts added m bums unlian
in get 5:11 right untiped consoring
and will warraw 11.0.00
11
September 1, 1939.
To: Chief Wilson
From: Acting Secretary Hanes - 4:00 P.M.
NOTE: For transmission to Secretary Morgenthau through
Coast Guard radio station at Fort Hunt, Va.
Rome - Italy announces neutrality period
Paris - To send ultimature to Berlin demanding that Germane
leave Poland period
New York - Foreign exchange committee meet at call of Loree but
took no action on foreign market period
London - Chancellor Simon likely to introduce new budget but no
]
date period
Paris - Poland radio reports sixteen German planer shot down period
London - Censorship imposed on foreign mail period
Paris - Expects bourse to open Monday period
Chicago - Board of Trade clearing corporation raises margin requirements - an average of 2 cents per bushel on wheat, corn, barley and sey;
1 cent on oats, 20 cents per cwt. provisions, and up to $1.75 per lot of
50 bales of cotton period
London - Summary of Chamberlain's speech period While the Nasi government
exists and continues.its methods there can be no peace in Europe period
Quote The responsibility for this terrific catastrophe lies on the shoulders
of one man period Yo must pursue our task with determination and see it
through to the end # # * with moral approval of the greater part of the
world unquote Greenwood Labor Party Leader said quote There can be no
withdrawal Hitler has become the arch enemy of mankind unquote
Washington - For the first time trading in United States Treasury bonds
on the New York stock exchange was continued after the usual closing time
period
12
Dow Jones Index of 40 bonds 86.51 off 1.20
Stock transactions - 1,970,000 shares vs. 460,000 yesterday
Closing stocks
Alld Chem 164 up 4
Am Smelt 46 1 up 4 1/4
Am T & T 158 1/2 off 2 3/8
Beth Steel 65 up 7 1/4
Chrysler 78 1/8 Unch
Du Pont 163 up 3
Gen Klee 35 3/4 up 3/4
Texas Corp 37 1/4 up 3/4
United Airo 36 1/2 up 2 3/4
U 8 Street 52 up 5 7/8
Gen Motore 44 7/8 up 3/8
Goodyr 26 up 7/8
Inter Nick 48 3/8 up 2 3/8
Johns-M 62 off 3
Loew-S 35 5/8 off 3 7/8
Sears 75 Unch
Sonj 41 1/4 up 3/4
Atchison 22 1/2 off 1/2
Balt & Ohio 4 1/4 unch
Ches & Ohio 31 1/2 off 1/2
N Y Cent 12 1/2 unch
Penna RR 15 1/4 off 7/8
Distates
74520
13
To:
Lt. F. E. Pollio
September 1, 1939.
Acting Chief, Intelligence Unit
Coast Guard
From Acting Secretary Hanes - 5:30 P.M.
NOTE: Confirming telephone conversation:
This is confirming wire, given to you over telephone
at 5:30 P.M., from Acting Secretary Hanes to Secretary
Morgenthaus
London - Today's food and commodity prices fixed as stand-still prices.
Government takes over all railroads period
Washington - Presi dent Roosevelt announces radio address for Sunday at
9:00 P.M. period
SEC - Officials gratified at manner stock market withstood first shock
of war. Expect securities market will open Saturday period
Wallace on radio urges American farmers to plan as though there is no
crisis in Europe period
Dr. Thomaen delivers reply to President's appeal to State Department
period Reich thanks him for message and says quote The German Fuehrer
has left nothing untried for the purpose of settling the dispute *
in a friendly manner unquote
14
OPEN MARKET MEETING
Present:
Mr. Hanes (presiding)
September 1, 1939.
11:00 a.m.
Mr. Bell
Mr. Lochhead
Mr. Haas
Mr. Murphy
Mr. Eccles
Mr. Harrison
Mr. Szymczak
Mr. Draper
Mr. Piser
Mr. Leach
Mr. Williams
Hanes:
Gentlemen, I guess everybody here is as familiar
with the situation in the market as we are, more
so perhaps; but we thought we'd have this meeting
anyway, in spite of the war and everything else, to
get the general concensus of opinion. The Secretary
will get back, I hope, Sunday night; he might not be
back until Monday morning. But in the meantime I
thought I'd get as much done and as much behind us
as we possibly could, and get as good a concensus of
opinion of this group as we could.
I guess there are two questions before us now.
Heretofore the question has been what type of
security we were going to issue, and how much.
Now another question enters into it, which is
"whether or not," as well as "what kind." So
with your permission I'd like to go around and
just get some indication of how all of you, each
one of you individually, and collectively - how
we all feel about it.
Marriner, could we start with you?
Eccles:
Johnny, I had a written statement that I'd like to
read here, and I would suggest that you let George
talk on the subject first. I expect - it's just
being finished, typed up. I'd just like to wait
until I have that here.
Hanes:
Harrison:
Fine. George, do you want to start, then, give
us your slant on the present situation?
I think in view of the emergency and the condition
of the markets and the large balance that the
15
-2-
Treasury already has, that it would be folly to
try to raise any new money right now - and
unnecessary.
As to the refunding of the December maturities, I
can't give you any sound advice until next week,
because then will be the last minute that you have
to decide. There are various arguments that can
be advanced one way or another on the wisdom of
making a refunding issue. But if the market should
for any reason quiet down to a point where you could
determine and fix a fair price for a note, either a
new one or preferably an old - opening up an old
issue - I thought you ought to favorably consider
offering an exchange next week for the December
maturities.
I say that for two reasons: First, that has been
your policy now for a year or more; and as long
as it has and the Government has tried to give the
impression that it wants all markets to stay open
and as nearly normal as possible, I think it would
be favorably rather than unfavorably interpreted
if you offered the exchange. But I wouldn't want
to advise you whether you should do that today, as
long as we've got three or four days of grace, because
the state of the market might make it unwise to make
the offer. But if the state of the market is such
that it looks as though you could reasonably expect
a fair offering at a fair price and a fair exchange,
I certainly would do it. You don't know what may
happen before December. You don't - we hope we won't
get into war. I don't think we will - certainly not
by then anyway. But, contemplating possibilities,
if you can make your exchange next week on a fair
basis, why run the chance of December: is about the
way I feel. But whether you should make the exchange
next week I think ought to be determined only after
you got the latest dope.
Hanes:
Is that all, George?
Harrison:
Yes.
Hanes:
"e'll skip the Treasury boys.
Williams:
My opinion is the same.
16
-3Hanes:
You concur in what Mr. Harrison said?
Williams:
Yes.
Piser:
I concur essentially in the same thing. It seems to
this exceptionally large balance is for just such a
period as we are in now, and I feel rather strongly
that no cash should be raised at this time. As far
as refunding is concerned, that can go over for several
me that one reason why the Treasury has been carrying
days before any decision is made.
Hanes:
You say "exceptionally large balances." "hat have
you in mind as a normal balance? What would you say
is a reasonable balance for the Treasury?
Hanes:
Well, I should think they could get along on a much
smaller balance than they have now, perhaps five
hundred million dollars on the average, say.
You haven't anything else to add to what he said?
Piser:
No.
Leach:
I've talked to several bankers and one insurance
company in our district, and they all say the same
thing: make no cash offering now, and that if things
Piser:
looked good enough next week, why, offer a refunding
in the form of a note. Of course, I think you couldn't
consider a long bond under the circumstances.
Harrison:
May I add one thing to what I said - not that it's
important, because so much has happened in the
interval - but I was having a talk with this group
that is now on this committee of mine in New York
Draper:
*ith whom, George?
Harrison:
With this group of bankers.
Draper:
on yes.
Harrison:
yesterday afternoon, and I mentioned what was
already in the press, that I was coming down here
today to discuss financing and that I wasn't going
to take the trouble of asking them their views,
because I presumed they wouldn't want to formulate
17
-4-
any views before they had to, and virtually asked
for no comments at all. I was rather interested
that they all spoke up, said, if I didn't mind,
they'd like to say that they thought that if it
were possible at all, that you should make the
refunding issue next week, for some of the reasons
that I have mentioned. First, you don't know what
might happen in December; and, more particularly,
they thought that it would be a sign of encouragement rather than discouragement to the market if
you felt that you could go ahead as usual. Now,
they might all change their opinion today and would
want to reserve their opinion until thelast minute,
as we all do. But I was interested; that was their
reaction yesterday: they were on the favorable side
rather than the unfavorable side.
Hanes:
Uh-huh.
Draper:
My views are in the statement, Mr. Secretary - in
Hanes:
All right.
Szymczak:
I might say that the Board members present in Washington this morning have agreed upon a certain statement which the Chairman will make.
Hanes:
I see. Fine.
That doesn't - in saying that, I want to say that
Eccles:
the statement of the Chairman.
doesn't mean there's any disagreement necessarily
so far as you - George and you are concerned, because
it's a matter that we've been discussing, oh, for a
month, I suppose, and they didn't have an opportunity
to give the consideration to the matter and - that
is, the matter of filing the statement; so it wasn't
even suggested that they do so, and in filing it, it
isn't a statement that would indicate any necessary
disagreement at all, and neither does it indicate any
disagreement among the Board members, because it
merely says that it expresses the views of the four
who were present, who had had an opportunity to
consider it, Mr. McKee being on a vacation and Ronald
being down to the Springs. I just wanted to make
that as a preliminary.
I don't know where that statement is. I'm waiting
for it now.
18
-5Hanes:
Want to telephone?
Szymczak:
It was supposed to be on the way.
Eccles:
They were practically just going to send it.
(Eccles goes out to phone)
Hanes:
They say bonds are still coming in rapidly from
out-of-town sources - mostly small lots being
offered. Largest, one or two million. Total
purchases, roughly, 22 million. Federal Reserve
market bids is the only market. Down three-eighths
from last night.
Harrison:
Three-eighths.
Bell:
That means they've dropped twice since you started,
an eighth each time. They've dropped a quarter
since the opening.
Szymczak:
We're in the market alone at this point.
Hanes:
That's what this says. The boy says "Federal Reserve
bids is the only market."
Draper:
Bell:
Does it give the total purchases?
22 over the board.
Draper:
22 over the board.
Harrison:
Szymczak:
Not 22 over the board, Danny.
Board and counter.
Draper:
Exclusive of dealers.
Bell:
Harrison:
Exclusive of dealers, yes.
And what are they off from last night's close?
Bell:
Three-eighths.
Hanes:
Three-eighths.
Harrison:
That's not bad.
19
-6Hanes:
Not so bad. They got a pretty nasty break in the
stock market. Chrysler's off five dollars, and
General Motors is off about three - two and a half
to three. Telephone is down six dollars. Canada
is only off a dollar. Steel is off two dollars.
Bethlehem is off two and a half.
(Becles returns)
Eccles:
In the rush of the damn thing, they made a mistake
or two, and they started to rewrite it. Sorry to
keep you waiting like this.
Szymczak: why can't you make the statement verbally?
Eccles:
Hanes:
I can give it verbally. We'11 leave it here.
Why don't you (reporter) just leave that off.
(Eccles gives impromptu summary of
portion of statement)
Eccles:
I'd like to say - and this isn't part of the state-
ment - that the purpose, as I understood it, of
anticipating the maturities, which was begun here
last year - I think it was done, as I understood
it, for the purpose of having a date at which all
financing could be passed up, if need be: both
refunding and new financing; and it was in antici-
pation of some unusual emergency situation, just
such a situation as happens to have developed at
this time. Therefore, to pass up the refunding
certainly could not be considered, it seems to me,
in any way as anything extraordinary, in view of
the fact that you are now taking advantage of a
situation that you contemplated.
George has expressed one point of view, and I don't
say that I differ, but I do think there may also be should be some thought given to another consideration,
which is that if it is generally known by the public
and the banking community that the Treasury can pass
up all financing at this time, that to many people
may indicate that that is an evidence of strength.
So that there are the two sides to it.
Szymczak: That part of it, of course, we don't agree on. It
-7-
20
is my opinion, the same as George's, that
Eccles:
I don't say that I disagree with George. All I'm
saying is that there will be certainly some - the
majority may be on the other side, but there are
certainly same that might well say that the Treasury Government financing must be in very excellent condition because they can go without doing any financing
whatever during a period when they are making very
large expenditures.
(Eccles proceeds with further
summarization of formal
statement)
(Mr. Hanes talks with President
on White House phone, reporting
condition of stock market
and Govt. bond market)
Eccles:
I was just going to suggest, Johnny, that you
tell the President that we bought 70 million,
because in taking
Szymczak: 72.
Eccles:
because in taking 50 million from the dealers,
it certainly is taking off the market possibly the
weakest bonds that would be on the market.
Eccles:
They'd be the first to come on.
And I think it is the most effective support we
Hanes:
Well, he asked, what have we bought in the open
Szymczak:
Eccles:
could possibly give to it.
market, so I told him. I guess I
That's where we buy most of them from: from the
dealers.
Szymczak:
In fact, we bought them from them before the market
opened. Had them in there this morning at 8:30.
Bell:
Before the market opened. where did they get these
bonds? They were pretty well cleaned up yesterday.
21
-8-
Szymezak: Don't know where they got them.
(Hanes again talks to
President, reporting on
complete Federal Reserve
bond purchases, on commodity
prices, and sterling and
franc rates)
Eccles:
Well, this is - I'll just read this. I've got it
now. If you want to take time - it's a couple
pages here.
"The members of the Board of Governors present
today, Governors accles, Szymezak, Davis and
Draper, after carefully considering the question
of the September financing in relation both to
immediate and prospective requirements of the
Government, as well as to the present and probable
future condition of the investment market, desire
to make the following suggestions:
"1. It is not advisable to do any new financing
at this time, because of the present uncertainty
in the security markets, due to conditions abroad,
and in view of the Treasury's large working
balances, receipts from United States Savings
Donds, Social Security trust funds, and the possibility of repaying the Treasury through outside
financing of the $400 million owed to it by the
Reconstruction Finance Corporation, the Commodity
Credit Corporation and the United States Housing
Authority. If, however, new financing should be
decided upon, it would be preferable to offer
short-term rather than intermediate or long-term
obligations.
"2. If subsequent developments indicate the
desirability of maintaining Treasury balances at
approximately their present levels, this could be
brought about by offering additional bills or other
short-term obligations.
"3. That consideration be given to the advisability
of deferring until next week the question of refunding
the December maturities.
22
-9-
"Cash financing.
"On the basis of estimates received from the
Treasury it is unnecessary to raise any new money
at this time, thus avoiding a further increase in
the public debt. Should a contingency arise at any
time during the next year, however, making it difficult to refund or raise new money through the
offering of intermediate or long-term securities,
the situation could readily be met by issuance of
bills or other short-term obligations, taking
advantage of the favorable conditions in the money
market. As a result of developments over the past
few years, excess reserves are now nearly five
billions, and there is every reason to expect a
continued growth. Bank deposits and currency are,
likewise, at an all time high level. There is no
prospect that either public or private demand for
credit would materially reduce the unprecedentedly
large volume of funds available at low interest
rates for any probable amount of short-term financing.
"Under these circumstances, it is considered desirable
to avoid increasing the public debt for the purpose
of carrying working balances greatly in excess of
current requirements.
"Short-term Financing.
"If it should be decided otherwise, however, it is
felt that it would be preferable to offer short-
term obligations and to increase the proportion of
the Government's debt which is financed through
such short-term obligations. This view is prompted
not only by the conditions prevailing in the money
market, but also by longer-range considerations of
Government policy. Under present conditions, when
the Government is pursuing a policy of deficit
financing and of monetary ease, it would have the
benefit of borrowing at very low rates on short-term
obligations. Looking to the future, however, it may
at some time become necessary to adopt a policy of
restraint. Under boom conditions the problem would
not be one of deficit financing but largely one of
refunding Government obligations. Under certain
conditions it might be advisable to apply restraint
through increased interest rates of the long-term
obligations, which had been issued when an opposite
23
-10-
policy prevailed, would then undergo substantial
depreciation. From the standpoint of averaging
the cost of Government financing over periods of
business cycles, a higher rate could well be paid
in boom times when revenues would be large and
deficit financing would no longer be necessary.
"It is felt that the effects of wide fluctuations
in interest rates, which are inevitable when monetary policy changes from one of ease to one of
restraint, would be lessened by financing a larger
proportion of the public debt in the short-term
offerings at this stage."
Szymczak:
Eccles:
danes:
Decles:
Now, that is
This has the whole situation.
It's something - we would want to file this, with
maybe very slight modification, if it hadn't been with this war development we've added this as another
factor in the situation.
That's brought up to date with the war in view.
That, as you'll notice, in no way conflicts with the
other members of the Committee with reference to the
policy to be adopted today regarding both refunding
and new financing.
Hanes:
I take it that the sentiment is unanimous that we
should say nothing today at all, beyond that we're.
going to wait and - I expect all of us can be
happy
Accles:
Be no new financing.
Hanes:
Huh?
Eccles:
No new financing.
Szymczak:
You can say that.
Hanes:
I don't know whether we want to say anything at all;
we don't want - not knowing what our opinion will be
next week. We'd better not make any final opinion,
because it's obvious to anyone that you couldn't tell
today what's going to happen next week, when we're
24
-11-
ready to make some announcement. So it would be
my hunch that we just say there is no announcement
to be made until next Wednesday.
Bell:
Tuesday.
Hanes:
Would you say Tuesday?
Bell:
Well, not before Tuesday.
Hanes:
Not before Tuesday.
Bell:
Yes.
Eccles:
While we're buying heavily in the market today, and
we may again be tomorrow - may be Monday - if there
was knowledge there was to be no new financing, that
would seem to me to be favorable. It would seem that
when the Treasury does not - balances are such that
the Treasury does not need to finance now, to give
a market securities when, in order to hold a market,
we are buying heavily of existing securities, that
it would certainly be inadvisable from every point
of view.
Hanes:
I am wondering if the market - if the uncertainty
as to whether or not there is going to be any financing,
any new financing - George would know better than I
would - would you feel that that would be adverse?
Don't you think, Marriner, or do you think - let me
ask before George answers your question there - do
you think that the market has already had a pretty
good indication that there is not going to be any
new financing?
Eccles:
I would think the market would hardly expect it.
Put the question is, the market knew there was this
meeting today; now we meet and we say nothing about
the matter. Does it leave the thing still uncertain,
Hanes:
that we haven't decided whether or not there will be
new financing? In other words, there might be
That's the only question.
Would you think it advisable for us to say that
the Open Market Committee has recommended to the
Secretary of the Treasury that there be no
25
-12-
Eccles:
Be no new financing - that the matter of refunding
be deferred until next week.
Szymczak:
That would be quite a departure, though, Mr.
Secretary, because I don't think you've ever the Secretary has ever made a statement of what
the Open Market Committee has recommended to the
Treasury.
danes:
I know; that never has been done before, but I'm
Szymczak:
I think it's - we're
Hanes:
We're sort of in the dark here.
Szymczak:
The question is whether you want to tie in new
financing with the present conditions or whether
you were considering new financing as if the con-
just wondering if - I'm asking for advice.
ditions didn't exist. My position - I couldn't
recommend new financing even if these conditions
didn't exist.
Hanes:
You couldn't.
Szymczak:
No, I'm not - not at this time; I'm speaking of the
Bell:
European conditions.
Szymczak:
You've had the same conditions prevailing for the
last three years.
Not the last month. Not three years.
Bell:
We've had big balances all the way through this
Eccles:
But you didn't have big excess reserves.
Been pretty large.
No, they were down to - until the - you had a very
different money market situation until, oh, about a
year and a half ago, when the Treasury desterilized
its gold and we decreased reserve requirements. The
reserves from that point have been building up from
Bell:
Eccles:
period.
around a billion dollars to nearly five billion
dollars, so that the situation has been very rapidly
26
-13-
changing.
Bell:
Well, even before that you had three billion
Eccles:
Well, for a short time - I mean, and they worked
up with gold imports rapidly, but they were not -
dollars before you cut them down.
there was no permanency to the amount of the
excess reserves, because we had used none of the
power that we had to decrease excess reserves.
Szymczak:
John, it does seem to me that unless you feel you
ought to wait until the Secretary returns before
you say anything, and unless you still have in mind
the possibility of raising some new cash, there
might be advantage in saying now that there will
be no new financing for cash.
And just stop there.
Just stop there.
That's right; say nothing more.
Hanes:
No more today.
Szymczak:
That's right.
That means that - of course, it's implied then that
you haven't decided on the other. You don't have to
say it. You can say, "There will be no new financing.'
Harrison:
Szymczak:
Hanes:
Eccles:
+hey'11 say, "Well, what about the refunding?"
Harrison:
"Well, that hasn't been settled."
That's all.
I think I would even go that far and say it hasn't
been settled; that we don't have any announcement to
make on that before Tuesday.
Bell:
You'll have to say something, because that will be
the next question.
Eccles:
Be no new financing, and you'll have nothing to say
on the other before Tuesday.
27
-14Szymczak:
That's normal procedure.
Eccles:
That would certainly be better - if the Treasury
could do that, I would much prefer that to saying
that the Committee has made such recommendations.
Harrison:
Hanes:
I'd hate to have you say that: I'd hate to have you
overrule us publicly.
Yes, I think that's bad; I don't think that would
be fair.
Harrison:
I think the other is very much better. And that
would help, I think, to give a certain ...
But it wouldn't hurt any; so far as it had any
effect, it would help.
Do you think that this feeling in the market that
there is not going to be any new financing, which
there certainly exists - I've had a half dozen people
tell me - you think that's pretty well discounted?
I think it is definitely assumed that there will be
Decles:
On long term. There's no assurance on the other,
Harrison:
Draper:
Well, I don't think anybody thinks you're going
for cash in this market,
George, isn't that in New York, though?
Harrison:
knowing what your balance is.
Draper:
Isn't that more in New York and not out in the
Eccles:
Harrison:
Hanes:
no new money raised.
is there?
country?
Harrison:
Maybe.
Eccles:
I think so.
Szymczak:
There was a statement in the press to that effect -
Eccles:
Some banks wanted it.
when was it, today?
28
-15-
Harrison:
Unless you still want to keep an open mind on it,
I think, as the Secretary has often done - he's
made that kind of statement before, as I remember,
Danny: that there wouldn't be any new financing.
Bell:
on yes, when he's made up his mind, that has been
Harrison:
Having announced it several days before on previous
occasions, I think there is some advantage now in
announced several days before the formal announcement.
confirming the impression that prevails certainly
in my part of the world, that there won't be any
new financing. of course, if you want to still keep
an open mind on it, if you don't want to commit
yourself
Szymczak:
That may help the market, too.
Dell:
10 keep an open mind?
Pzymczak: No, no, to say there won't be any new financing.
I think it would be favorable.
Eccles:
Hanes:
Has anyone else got any suggestions?
Eccles:
I haven't any more.
Hanes:
Sorry we have to meet under such gloomy circumstances.
28A
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
CONFIDENTIAL
DATE
September 1, 1939
TO
Mr. Hanes
FROM
Subject:
Mr. Haas BA
The Business Situation.
Conclusions
(1) Some further improvement in industrial activity
appears in prospect over the next several months, largely
because of an expected strong expansion in automobile production, together with increased operations in related
industries. In the event of war, this would tend to cushion
the initial shock and to tide business over the early period
of industrial uncertainty.
(2) Since the recent upturn has carried industrial production about to the current level of consumption, any further
substantial business improvement must come about either as a
result of increased consumption or through a movement to
accumulate inventories. The cautious buying policy which
industry has followed for nearly two years has strengthened
the general prospect for a steady recovery. By preventing
inventory maladjustments, it has made conditions favorable
for a general buying movement in the event of a rise in commodity prices.
(3) An outbreak of war might cause but a minor shock to
serious unsettlement of international trade, and consequent
readjustments in various industries, the many months of war
uncertainty have already done much to put industry in a state
of preparedness. A heavy export demand for American steel
products within a few months after the outbreak of war is
anticipated by steel companies.
(4) Commodity prices have recently been stimulated by
business in the United States. While it would result in a
war demands, particularly in Great Britain, where the
depreciation of sterling has been an additional inflationary
factor. Were it not for the present heavy stocks of agricultural products, a general rise in world commodity prices
would probably already be under way.
28B
Mr. Hanes - 2
The general business outlook
Since the outcome of the European political conflict is
not predictable at this time, an appraisal of the business
prospect must be confined chiefly to a study of domestic
business factors.
The economic background continues generally favorable
for a further business recovery during the remainder of the
year. Industrial production throughout the world, influenced
largely but not entirely by the armament race, 18 in a sharply
rising trend. The New York Times-Annalist composite index of
foreign industrial production in June established another alltime peak, further exceeding the high levels of late 1937. The
accompanying increase in world demand for commodities and
materials 18 evidenced by a rising trend in the volume of international trade. The physical quantity of world trade during the
second quarter of this year, according to Times-Annalist data,
increased to the highest level since the last quarter of 1937.
In the United States, industrial production during the
past two months has been rapidly recovering from its earlier
setback. The FRB index reached 102 in July, a gain of 10 points
in two months, which carries it to within 2 points of the
December 1938 high. It is possible that some alight further
gain has been made during August, in view of the strong upturn
in steel activity, despite the shutdown of automobile plants
in that month for an early change-over. The prospect of a
rapid expansion of new-model automobile production during
September and October, the earliest fall increase on record,
together with an accompanying expansion in the output of the
steel industry and other related industries, suggests a further
rise in the FRB index over the next few months.
Any shock of adverse European developments this fall
would therefore be cushioned by the business stimulus soon
to be provided by the automobile industry. The rise in auto-
mobile output 18 already under way, with all companies now
beginning production on 1940 models. The urgent competitive
need for a rapid building up of dealer stocks during the early
months of the model season would tend to minimize, for the time
being, the effect of any war shock.
286
Mr. Hanes - 3
Basic conditions stable
Our calculated basic business indices, which provide
measures of the underlying trend of business, and of the
extent to which industrial production may be out of line with
basic conditions, remained during July at approximately the
levels held during the previous three months. (See Chart 1. )
Ordinarily, a rise in industrial production such as that of
the past two months, however, would have been accompanied by
some improvement in basic demand, in new orders, and (after
some lag) in the sales of manufactured goods. The levelling
out of the basic indices probably reflects in some degree
the depressing influence of foreign uncertainties.
While the outlook for the automobile industry points to
industrial production is now about equal to the current level
of consumption means that any substantial further rise must
come about either as a result of increased consumption, or
because of a movement to accumulate inventories. Nearly two
years of cautious buying policies have reduced inventories
generally to rather low levels, and developed conditions favorable for a general buying movement in the event of a decisive
further gains in industrial activity this fall, the fact that
upturn in commodity prices.
New orders well maintained
Our index of new orders (shown in the lower section of
Chart 1) declined somewhat in July, but slightly less than
seasonally. So far during August the volume of new orders has
held steady, and apparently remains in a favorable relationship to the level of business activity as measured by the New
York Times business index. (See Chart 2.)
There is no definite evidence that the European news has
caused any curtailment of new buying. Steel orders during
August have averaged higher than in July. Textile orders held
generally steady until last week, when they turned sharply
upward to the highest level since early March. Other orders
declined during June and July, but have strengthened slightly
in recent weeks.
280
Mr. Hanes - 4
The steel industry
Steel output has continued to increase gradually during
August, following a pattern almost identical with that of
last year but at a 50 per cent higher level. Steel operations
during the last week of August were at 63 per cent of capacity,
the highest in nearly two years. (See Chart 3.)
The present rate of operations, as indicated on the chart,
is in excess of the new orders rate reported by the U. S. Steel
Corporation. As was the case last August, however, the more
rapid increase in operations of the independent companies (see
lower section of chart) apparently indicates that they are
receiving a heavier volume of orders than U. S. Steel.
Sentiment in the steel industry is reported as strongly
optimistic, war or no war. August bookings of steel orders,
according to the Iron Age, are likely to range from 2 to 10 per
cent above July, with a brighter outlook for September due to
an imminent stepping-up of specifications from the automobile
industry. Steel scrap prices have made new highs for the
year, and a general firming of prices on finished steel products
is under way.
Steel producers, according to the Iron Age, believe that
an early settlement of the European crisis would lead to an
increased steel demand from domestic consumers. In the event
of war, on the other hand, an intense export demand for American
steel products is looked for. There has recently been reported
a sharp increase in the number of inquiries from potentially
belligerent countries, and from neutrals who would be forced
to shift their orders to the United States in the event of war.
The automobile industry, as in 1938, will provide a
strong source of demand for steel this fall. With their fall
requirements contracted for at bargain prices last spring,
and steel prices starting to rise, the automobile companies
may take an unusual volume of steel during the next few months.
The upturn in new-model production now under way may carry
automobile output close to 100,000 units a week by the end
of September, barring labor troubles or war, according to
Ward's Reports. This would approximate the peak established
in December 1938. The basic demand for automobiles, according
to our calculations, remains well above the production of
any recent month.
28E
Mr. Hanes - 5
The commodity price situation
The movements of commodity prices over the past two
months have been featured by a further weakening of agricul-
tural prices under the pressure of large stocks of various
farm commodities, and by a well-maintained level of prices
of industrial raw materials. (See Chart 4.) Deflationary
influences apparently continue to affect prices in some
degree, preventing a rising price trend that could normally
be expected in view of the marked improvement in world
industrial activity.
In recent weeks, war fears have been a factor in the
commodity markets, particularly for strategic war materials.
In the United States, this has brought some upturn in the DowJones and Moody's indices of sensitive commodity prices,
though not extending beyond the limits of previous temporary
movements. (See Chart 5.) Severe weakness in sterling and
associated currencies has been an unfavorable factor on our
prices, preventing a greater response to the increased demand.
Reuter's index of British prices, on the other hand, shows
a decided upturn, reflecting the combined influence of war
fears and sterling depreciation. Some observers believe that
England may be facing a general price rise, particularly in
the event of war, since production in many industries is near the
limit of capacity. Such a development would doubtless have an
influence on price trends in the United States.
INDICES OF BASIC BUSINESS TRENDS COMPARED
WITH INDUSTRIAL PRODUCTION
1923 - 25 . 100, SEASONALLY ADJUSTED
PER
PER
CENT
CENT
120
120
INDUSTRIAL PRODUCTION F.R.B.
110
110
ESTIMATED BASIC DEMAND
100
100
90
90
80
80
70
1935
1938
1937
1936
70
1939
PER
PER
CENT
CENT
120
120
INDUSTRIAL PRODUCTION.
F.R.B.
110
110
1
100
INDEX OF SALES
100
90
90
80
80
70
70
1935
1938
1937
1936
1939
PER CENT
PER CENT
IND. PROD.)
(NEW ORDERS
135
160
NEW ORDERS
1936 100. UNADJUSTED
125
140
115
120
105
100
95
80
INDUSTRIAL PRODUCTION F.R.B.
85
60
75
40
1935
1936
1937
1938
939
*EXCEPT NEW ORDERS
REPRESENTS "OFF TAKE" of MANUFACTURER GOODS. IN PHYSICAL VOLUME
Office of the Secretary of the Treasury
Division of Research and States
Chart 1
Confidential
C - 245
NEW ORDERS AND BUSINESS ACTIVITY
JAN
MAR
JULY
MAY
SEPT.
NOV.
THE
PERCENT
III
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
1151
PERCENTAGE
POINTS
(N.Y.TIMES)
(NEW ORDERS)
120
105
105
100
NCW ORDERS
90
95
90
85
80
75
70
iI
JAN.
MAR.
MAY
75
60
BUSINESS ACTIVITY
NEW YORK TIMES
(EST. NORMAL . 100)
45
30
Hills
JULY
1938
111
11.1
SEPT.
NOV.
11111111
JAN.
III
MAR.
and
MAY
1111
JULY
SEPT.
15
NOV.
1939
Office of the Secretary of the Treasury
Dividen of Research - Statistics
I-96
STEEL INGOT PRODUCTION AND U.S. STEEL CORPORATION ORDERS
Expressed in Percent of Capacity
1938
PER
MAR
JAN.
MAY
1939
SEPT
JULY
NOV.
YOU,
JAN.
MAY
MAR.
JULY
SEPT.
NOV.
PER
CENT
CENT
U.S. Steel Orders and Total Steel Output
110
110
100
100
90
90
80
80
ORDERS, U.S. STEEL CORPORATION
TOTAL STELL OUTPUT
IN TERMS OF U.S. STEEL CAPACITY
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
JAN.
111
MAR.
III
....
MAY
JULY
SEPT.
NOV.
JAN.
MAR.
0
III
MAY
JULY
1938
SEPT.
NOV.
1939
110
110
Steel Output
100
100
90
90
80
80
70
70
INDEPENDENT COMPANIES
60
60
50
50
40
40
,
U.S. STEEL CORPORATION
30
30
20
20
10
10
0
JAN.
111
MAR.
MAY
JULY
1938
Office of the Secretary of the Treasury
- of - - Stated
SEPT.
0
..........
NOV.
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
1939
1-48 A-1
Chart 3
Confidential
Chart 5 280
COMMODITY PRICE INDEXES IN U.S. AND U.E.
Weekly
MILY)
234
228
222
216
210
204
196
192
106
174
168
162
156
150
144
IN
132
126
120
114
100
102
-
Daily
PRICES
OF
INDUSR
AND
PRODUCTS
1926=100
1938
1939
o
PER
PER
CENT
CENT
80
80
75
75
Farm Products
70
70
65
65
60
60
55
55
Industrial Materials
50
50
45
45
A
F
D
N
o
J
$
1938
1939
F
SOURCE: BUREAU OF LABOR STATISTICS
Office of the Secretary of the Treasury
Division of Research and Statistics
P 171 A
285
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE August 31, 1939.
TO
FROM
Mr. Hanes
Mr. Haas IBA
Subject: September Financing
We recommend -- unless there is a material change in
the international situation -- that the September financing
be omitted entirely. Our reasons for this view may be
summarized as follows:
(1) The Treasury is under no necessity of conducting a
financing operation at this time, unless market conditions
appear favorable. The operation, if conducted, would be
merely for the purpose of anticipating a note issue not due
until December and adding to an already adequate working
balance. There 18 no reason to do either of these things
unless conditions are favorable. For sometime a large working balance has been maintained and maturing obligations
anticipated three months in advance, in order to be prepared
to skip a quarterly financing should a crisis or other
emergency render such a step advisable. The emergency has
now occurred, and it is time to reap the advantage of this
foresight.
(A) As far as new money is concerned, the
Treasury is well prepared to wait until December.
Mr. Bell estimates that if no new money at all is
raised between now and December the working bal-
ance will not fall below $500 millions. If unforeseen developments should cause a change in
this estimate, the balance could easily be main-
tained by bill issues.
(2) Omitting a new money financing at the present time
would not throw an excessive burden upon future financing
dates. It is estimated that the total amount of new money
financing (excluding guaranteed issues) which the Treasury
will have to do during the current fiscal year is between
$1.5 and $2.0 billions, or an average of from $500 to
$700 millions each during the remaining three quarters. This
estimate may be subject to a considerable margin of error,
but not enough to increase the amount of financing required
28K
Mr. Hanes - 2
during subsequent quarters beyond the probable absorptive
capacity of the market. If the volume of bills should be in-
creased, the amount of financing required at the regular
quarter dates would, of course, be correspondingly reduced.
(3) Despite the fact that the net recession in the price
of United States securities has been remarkably small, considering the gravity of the international crisis, the market
has been very thin. It would, consequently, be very hazardous to price a new money issue. The smallness of the decline
appears to have been due more to a lack of panicky liquidation than to the presence of important bids.
(4) A financing operation confined to an exchange offering for the December notes would avoid in part the difficulty
of asking purchasers to make new commitments at this time,
but has the special difficulty that, according to precedent,
it would have to be held open two or three days with a correspondingly greater exposure to changes in the international
situation than would be the case with a new money issue.
(5) The effect upon general financial sentiment of omitting a Treasury financing operation would probably be favorable rather than the reverse. It would demonstrate the
strength of the Treasury position and its lack of necessity
to resort to the money market, except at times convenient to
it. It would also avoid the establishment of a baseline upon
which new offerings of corporate securities might be measured.
If, for example, the Treasury financing operation in the crisis
period should be confined to refunding the December notes into
new 2- or 3-year notes, the reaction of the corporate securities market might be "If that's the best that the Treasury can
do, how can we expect to do any better?" In the absence of
such a baseline, the corporate market might be expected to re-
vive more rapidly with a real liquidation of the crisis.
(6) Finally, should the orisis develop instead into war
and the war cause a general deoline in Government bond prices,
it is true that we may have to pay more later for money than
we would at the present time. Under such circumstances, however, this interest saving would have been purchased at the
expense of seeing a new Treasury issue fall immediately to a
substantial discount. If the orisis is to develop into war,
it would be better to do our borrowing later on the basis of
the new facts after they become known. Borrowing at the
present time is on a half-peace and half-war basis, and is
likely to be unfair to either the Treasury or the purchasers,
whichever eventually develops.
28L
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
September 1, 1939.
Government Financing
The members of the Board of Governors, present today,
Governors Eccles, Szymczak, Davis and Draper, after carefully
considering the question of the September financing in relation
both to immediate and prospective requirements of the Government,
as well as to the present and probable future condition of the
investment market, desire to make the following suggestions:
1. It is not advisable to do any new financing at
this time, because of the present uncertainty in
the security markets, due to conditions abroad,
and in view of the Treasury's large working
balances, receipts from U. S. savings bonds, social
security trust funds and the possibility of repaying
the Treasury through outside financing of the $400
millions owed to it by the Reconstruction Finance
Corporation, the Commodity Credit Corporation and the
U. S. Housing Authority. If, however, new financing
should be decided upon, it would be preferable to
offer short-term rather than intermediate or longterm obligations.
2. If subsequent developments indicate the desirability
of maintaining Treasury balances at approximately
their present levels, this could be brought about by
offering additional bills or other short-term
obligations.
3. That consideration be given to the advisability of
deferring until next week the question of refunding
the December maturities.
Cash Financing.
On the basis of estimates received from the Treasury it
is unnecessary to raise any new money at this time, thus avoiding
a further increase in the public debt. Should a contingency arise
at any time during the next year, however, making it difficult to
refund or raise new money through the offering of intermediate or
long-term securities, the situation could readily be met by issuance
28m
2-
of bills or other short-term obligations, taking advantage of the
favorable conditions in the money market. As a result of developments over the past few years, excess reserves are now nearly $5
billions and there is every reason to expect a continued growth.
Bank deposits and currency are, likewise, at an all time high level.
There is no prospect that either public or private demand for credit
would materially reduce the unprecedentedly large volume of funds
available at low interest rates for any probable amount of short-term
financing.
Under these circumstances, it is considered desirable to
avoid increasing the public debt for the purpose of carrying working
balances greatly in excess of current requirements.
Short-Term Financing.
If it should be decided otherwise, however, it is felt
that it would be preferable to offer short-term obligations and to
increase the proportion of the Government's debt which is financed
through such short-term obligations. This view is prompted not
only by the conditions prevailing in the money market but also by
longer range considerations of Government policy. Under present
conditions, when the Government is pursuing a policy of deficit
financing and of monetary ease, it would have the benefit of borrowing at very low rates on short-term obligations. Looking to the
future, however, it may at some time become necessary to adopt a
policy of restraint. Under boom conditions the problem would not
be one of deficit financing but largely one of refunding Government
obligations. Under certain conditions it might be advisable to
apply restraint through increased interest rates. Long-term
obligations, which had been issued when an opposite policy prevailed, would then undergo substantial depreciation. From the standpoint of averaging the cost of Government financing over periods of
business cycles, a higher rate could well be paid in boom times
when revenues would be large and deficit financing would no longer
be necessary.
It is felt that the effects of wide fluctuations in
interest rates which are inevitable when monetary policy changes
from one of ease to one of restraint would be lessened by financing
a larger proportion of the public debt in the short-term offerings
at this stage.
(Note in Mr. Hanes' handwriting:)
On Sept. 1 - '39, This statement was
read into the record by Marriner Eccles
at the meeting in Sec. Morgenthau's
office with the Open Market Committee J. W. H.
Sept Financing 28.77
TREASURY DEPARTMENT
Washington
Press Service
No. 18-59
FOR IMMEDIATE RELEASE
Friday, September 1, 1939
Acting Secretary Hanes today issued the following statement:
We will not borrow any new money at this time. Secretary Morgenthau's
policy of maintaining substantial cash balances at all times makes unnecessary any cash financing now. The question of refunding in advance
the 1 3/8% notes maturing December 15 will not be considered finally
until next Tuesday or Wednesday.
-000-
ou Sept 1-39 This statement was 280
read into the record
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE
By Warrines Eccles
SYSTEM at the meeting in
see the orgenthan
September 1, 1939. office with
Government Financing
the open market
committee
The members of the Board of Governors, present today,
Governors Eccles, Szymczak, Davis and Draper, after carefully
J.W.H
considering the question of the September financing in relation
both to immediate and prospective requirements of the Government,
as well as to the present and probable future condition of the
investment market, desire to make the following suggestions:
1. It is not advisable to do any new financing at
this time, because of the present uncertainty in
the security markets, due to conditions abroad,
and in view of the Treasury's large working
balances, receipts from U. S. savings bonds, social
security trust funds and the possibility of repaying
the Treasury through outside financing of the $400
millions owed to it by the Reconstruction Finance
Corporation, the Commodity Credit Corporation and the
U. S. Housing Authority. If, however, new financing
should be decided upon, it would be preferable to
offer short-term rather than intermediate or longterm obligations.
2. If subsequent developments indicate the desirability
of maintaining Treasury balances at approximately
their present levels, this could be brought about by
offering additional bills or other short-term
obligations.
3. That consideration be given to the advisability of
deferring until next week the question of refunding
the December maturities.
Cash Financing.
On the basis of estimates received from the Treasury it
is unnecessary to raise any new money at this time, thus avoiding
a further increase in the public debt. Should a contingency arise
at any time during the next year, however, making it difficult to
refund or raise new money through the offering of intermediate or
long-term securities, the situation could readily be met by issuance
28P
-2of bills or other short-term obligations, taking advantage of the
favorable conditions in the money market. As a result of develop-
ments over the past few years, excess reserves are now nearly $5
billions and there is every reason to expect a continued growth.
Bank deposits and currency are, likewise, at an all time high level.
There is no prospect that either public or private demand for credit
would materially reduce the unprecedentedly large volume of funds
available at low interest rates for any probable amount of short-term
financing.
Under these circumstances, it is considered desirable to
avoid increasing the public debt for the purpose of carrying working
balances greatly in excess of current requirements.
Short-Term Financing.
If it should be decided otherwise, however, it is felt
that it would be preferable to offer short-term obligations and to
increase the proportion of the Government's debt which is financed
through such short-term obligations. This view is prompted not
only by the conditions prevailing in the money market but also by
longer range considerations of Government policy. Under present
conditions, when the Government is pursuing a policy of deficit
financing and of monetary ease, it would have the benefit of borrowing at very low rates on short-term obligations. Looking to the
future, however, it may at some time become necessary to adopt a
policy of restraint. Under boom conditions the problem would not
be one of deficit financing but largely one of refunding Government
obligations. Under certain conditions it might be advisable to
apply restraint through increased interest rates. Long-term
obligations, which had been issued when an opposite policy prevailed, would then undergo substantial depreciation. From the standpoint of averaging the cost of Government financing over periods of
business cycles, 8 higher rate could well be paid in boom times
when revenues would be large and deficit financing would no longer
be necessary.
It is felt that the effects of wide fluctuations in
interest rates which are inevitable when monetary policy changes
from one of ease to one of restraint would be lessened by financing
a larger proportion of the public debt in the short-term offerings
at this stage.
29
THE SECRETARY OF THE TREASURY
WASHINGTON
September 1, 1939
Sir:
You are hereby appointed a Special Assistant and
Consulting Expert to the Secretary of the Treasury with headquarters at New York, New York. For such services as you may
perform during the period of your appointment, which is not
to extend beyond June 30, 1940, you will be paid the sum of
$1.00.
In connection with your employment as a Special
Assistant and Consulting Expert, you are hereby authorised to
make such travel between your post of duty at New York, New
York, and Washington, D. C., and between any other points in
the continental United States as may be necessary for the purpose of conducting official business for this Department.
In making the above-mentioned travel, the Government
will pay your transportation expenses and allow you $7.00 per
dien in lieu of subsistence, such allowance for subsistance to
be payable for all time you are in a travel status or while on
duty in Washington, D.C.
Your compensation, transportation, and subsistence
expenses will be paid from the Exchange Stabilisation Fund.
A copy of this travel authorisation should accompany
each voucher making claim for expenses incurred thereunder.
Very truly yours,
Secretary of the Treasury.
Hon. W. Randolph Burgess,
55 Wall Street,
New York, New York
30
THE SECRETARY OF THE TREASURY
WASHINGTON
September 1, 1939
Sir:
You are hereby appointed a Special Assistant and
Consulting Expert to the Secretary of the Treasury with headquarters at Princeton, New Jersey. For such services as you
my perform during the period of your appointment, which is
not to extend beyond June 30, 1940, you will be paid the sum
of $1.00.
In connection with your employment as a Special
Assistant and Consulting Expert, you are hereby authorised to
make such travel between your post of duty at Princeton, New
Jersey, and Washington, D. C., and between any other points in
the continental United States as may be necessary for the purpose of conducting official business for this Department.
In making the above-mentioned travel, the Government
will pay your transportation expenses and allow you $7.00 per
diem in lieu of subsistence, such allowance for subsistence to
be payable for all time you are in a travel status or while on
duty in Washington, D. C.
Your compensation, transportation, and subsistence
expenses will be paid from the Exchange Stabilization Fund.
A copy of this travel authorization should accompany
each voucher making claim for expenses incurred thereunder.
Very truly yours,
Monthear
Secretary of the Treasury.
Dr. Winfield W. Riefler,
Princeton,
New Jersey.
31
OFFICE OF
TREASURY DEPARTMENT
WASHINGTON
SECRETARY
Sir:
You are hereby appointed a Special Assistant and
Consulting Expert to the Secretary of the Treasury with respect to matters pertaining to national banks, with headquarters at St. Louis, Missouri. For such services as you may
perform during the period of your appointment, which is not to
extend beyond June 30, 1940, you will be paid the sum of $1.00.
In connection with your employment as a Special
Assistant and Consulting Expert, you are hereby authorized to
make such travel between your post of duty at St. Louis, Missouri
and Washington, D. C., and between any other points in the continental United States as may be necessary for the purpose of con-
ducting official business for this Department.
In making the above-mentioned travel, the Government
will pay your actual transportation expenses and will also pay
your actual subsistence expenses for all time you are in a travel
status or while on duty in Washington, D. C. Your compensation,
transportation and subsistence expenses will be paid from "Salaries and Expenses, National Bank Examiners, Comptroller of the
Currency".
A copy of this travel authorization should accompany
each voucher making claim for expenses incurred thereunder.
Very truly yours,
Secretary of the Treasury.
Hon. Tom K. Smith,
Office of the Secretary of the Treasury,
Washington, D. C.
ATM
32
TREASURY DEPARTMENT
COMPTROLLER OF THE CURRENCY
WASHINGTON
ADDRESS REPLY TO
COMPTROLLER OF THE CURRENCY"
September 1, 1939
Mr. Tom K. Smith
Special Advisor to the Secretary
Treasury Department
Washington, D. C.
Dear Mr. Smith:
You are hereby authorized and directed during
the fiscal year 1940 or any portion thereof, to perform
official travel, including travel by air lines when, in
your opinion, the interests of the service demand it.
Such air travel is hereby approved and administratively
determined to be a necessity for the expedient and proper
conduct of official business.
Reimbursement for all travel and subsistence
expenses while on official business will be made on an
actual expense basis and payment of same from "Salaries
and Expenses, National Bank Examiners Special Fund", is
hereby authorised.
Yours very truly,
Othellow
C. B. Upham
Acting Comptroller of the Currency
APPROVED: September 1,1939.
without
W. N. Thompson
Administrative Assistant
to the Secretary
33
THE SECRETARY OF THE TREASURY
WASHINGTON
September 1, 1939
Sir:
You are hereby appointed a Special Assistant and
Consulting Expert to the Secretary of the Treasury with headquarters at Princeton, New Jersey. For such services as you
may perform during the period of your appointment, which is
not to extend beyond June 30, 1940, you will be paid the sum
of $1.00.
In connection with your employment as a Special
Assistant and Consulting Expert, you are hereby authorized to
make such travel between your post of duty at Princeton, New
Jersey, and Washington, D. C., and between any other points in
the continental United States as may be necessary for the purpose of conducting official business for this Department.
In making the above-mentioned travel, the Government
will pay your transportation expenses and allow you $7.00 per
diem in lieu of subsistence, such allowance for subsistence to
be payable for all time you are in a travel status or while on
duty in Washington, D. C.
Your compensation, transportation, and subsistence
expenses will be paid from the Exchange Stabilization Fund.
A copy of this travel authorisation should accompany
each voucher making claim for expenses incurred thereunder.
Very truly yours,
Monthearth
Secretary of the Treasury.
Hon. Walter W. Stewart,
Princeton,
New Jersey.
34
GRAY
PAP
RIO DE JANEIRO
Dated SEptEmbEr 1, 1939
Rec'd 11:30 a.m.
Secretary of State
Washington
281, SEptEmbEr 1, noon.
The bank of Brazil has just declared a bank holiday
for today, Saturday and Monday. All banks are now
closed.
CAFFERY
DDM
35
September 1, 1939
P
12:22 A. M.
Conversation between Mr. Sproul of the Federal Reserve in New York and
Under Secretary Hanes and also Mr. D. W. Bell Bell:
Just wondered what the situation is.
Going along about the same. Offerings not quite so heavy
at noon hour. In addition to cleaning out dealers we have
bought $36 million, a total of $86 million. Lond bonds
S:
off 5/8's from last night's close: long notes 1/4 short
notes 1/8 off and we are still getting offerings, but
still offerings from small banks, small institutions and
individuals - no big selling that we are seeing.
Bell:
Even these have dried up some, haven't they?
S:
Diminished a little. Think we are getting a little this
afternoon.
Bell:
Prepared to drop 1/87 Any criticism from the New York
banks?
I
S:
No, we haven't had. We have one - has got in touch
with him and told him that we were the only buyers in the
market.
Bell:
S:
Announcing on this financing - do you think that we ought
to announce that there will be no cash financing - do you
that would express the sentiment in the market?
I do. and it would clear up another point about which there
might be some doubt. They would know pretty well how
things stood and what they would have to do in the next few
days.
Bell:
That doesn't necessarily go for the December notes.
S:
Refinancing?
Bell:
Suppose cash finanancing is scrapped, but December note is
put off until Tuesday?
St
I don't think there is any need to put that out - let them
wait until you have finally decided on the other before you
say anything.
9-1-39 - 12:22 P.M.
Conversation between Sproul, Bell, and Hanescontinued
Bell:
Having had a meeting and saying nothing - how will that be
interpreted by the Press?
Interpreted to the effect that you are making no statement
until you learn what the developments are over the week-end.
St
Bell:
No unfavorable effects on the market?
St
I don't think so.
Bell:
If you were prepared to say that -
S:
By saying there will be no cash to pay in the refunding will
create some doubt rather than I given.
Hanest
All right, that is about what we want.
Bell:
Yes, Allen.
CE
36
37
September 1, 1939.
MORANDUM TO THE FILES,
inversation between Mr. Gordon Rentschler of the National City Bank in New York
d Mr. Hanes. Time 10:22.
ntschler: I just wanted to check with you and see what was going on, if anything.
nes:
All the markets seem to be in good shape.
mtschler: I think they are doing a perfectly good job. I imagine all they can
do is retreat in orderly fashion. The country has an idea
-
It is a long week-end. Between now and Tuesday morning they will have
a chance to think. We picked up only a million dollars worth of
things yesterday. The Federal) is doing a pretty good job. Their
bids apparently are in all along the line, so there is really no reason for us to try to supply any buying power when it is in that shape.
Whole thing in pretty orderly fashion ns far as the Government is concerned. - There is a great deal of buying power available when
these corporates get to where people think they are right. If we
can get to a return that looks like it is good, TO have not a couple
of funds in a position to spend money - individuals who are looking for corporates. They will use that money to buy corporates if
they become attractive. You see, the long-time telephone 3rd yesterday broke par. That is 7 points off. Three and a quarter telephone
the Governments on a 262 basis even with tax involved is attractive.
There were some pretty wide open breaks yesterday. Just for yourself
until it comes out in the city, we got the Comptroller here who has
some money in the sinking fund, and I think it is smart for him to
spend a few dollars as he goes along. City issues under par gives
him a great opportunity. Dropped from 98 to 91. That is just a
bargin for him, but I think that the rest of the municipal market.
there is not over about $20,000,000 kicking around in week-ends
At these prices it looks to me like it is not out of hand and it is
not bad and it ought not to be fooled with.
anes:
I think the Government market ought to be allowed to get down to
where it won't be attractive to switch out of the Governments into
the corporates.
entschler: Exactly right. It should be allowed to take its own level.
anes:
Thank you, Gordon, ever so much. Henry probably won't get back before Monday.
entschler: We don't see anything else here. of course, our news from the other
side is just unbelievable. I don't know what this whole thing is about.
38
-2 anes:
We are just as much confused as everybody else. There is nobody
here who has anything except what is on the tickers and the radio.
Nobody knows what France or Great Britain are going to do. They
have issued ultimatume to Germany, and Germany hasn't made a reply.
entschler!
Anes:
I see that the French say that if Germany will stop fighting there
is still a chance to patch the thing m. That sounds like weakness.
The exchanges stayed absolutely firm this morning. Wouldn't indicate
anything. If anything turns up let me know.
All right, I will.
1g
1 original and 2 carbons made.
/
3:
Memorandum to the filest
Conversation of Mr. Hanes with Dr. Harbert Feis of the State
Department on September 1, 1939 at 5:36 to 5:30 a. m.
I an such obliged to you for trying to awaken me this morning. The
telephone - off or I would have gotten your message sooner.
Well, it looks as though it were here, John. All reports so far
primarily from Paris - fighting actually begun which confirms the
tenor of Hitler's speech.
No declaration of wart
No. British Cabinet in session now - Parliament later.
(had to leave telephone here for minute.)
said he would be willing to go to the front-lines - isn't
that narvelous? (meaning Hitler). The Secretary has asked me what
you had covering these aspects. Whole idea was to hold over until
we saw how it went; as to securities exchanges, foreign exchanges,
etc. Just wait - be guided by developments. As far as we can tell President will hold up natrality proclamation three or four days,
and others. (Also said something here ret Custome Inspectors).
est
I judged - he would hold it up from what he said yesterday.
How many inspectors do you have!
est
About 38 I believe.
Hard to keep it quiet or confidential if it gets in that many hands.
Could you pick out five or six from that number - important ones?
Think 38 too many.
Sure.
Say New York, Boston, Baltimore, San Francisco, for instance.
best
at
That's what we will do.
Anything you have for us?
Do what we can here - getting to that. Before we do anything. we're
supposed to come badis to the Committee - that your understandingl
Oh, of course.
will call you in any event.
40
And is there is anything we can do for you, please just let us know.
That's grant.
Sorry last sight's meeting had such a and sequel. Didn't Arthur Kreek am I not correct in remembering last thing he said was there wouldn't
be a wart
Yes, he has been saying that all along. Even mentioned 11 in his column
once or twice.
Well, O. K. Wait - we're getting more news now - never mind, it's
nothing. Johnnie.
O. K. thanks.
"End"
Original and two carbon copies made.
(Carbon paper then burned)
FLO
for Sie
September 1, 1939.
MORANDUM TO THE FILES,
versation between Mr. Sproul, Federal Reserve Bank of New York, Mr. D. W. Bell,
Mr. Hanes. Time 10:12 to 10:15.
11:
John Hanes on too. We just want to know what the situation is.
roul: We are gett ing scattered small selling from all around the country, but
no big lots coming in. A one-eighth below last night's - Taking
practically everything that is offered to us and we have only done about
16,000,000 so far.
11:
They are coming from out of town?
roul: Yes, they are coming from small banks here, some of the uptown banks,
and out of town banks in various parts of the country, and small insurance companies. Some customers of banks.
11,
Any buying by New York banks?
roul: No, there hasn't been yet. We are practically the only buyers. I have
only talked to the market. I haven't talked to any of the banks and I
don't think willing and ready to step in at these prices, but I think
they would be if prices slipped off.
nest Don't see anything unusual in the markets.
roul: Market not coming at me too fast. So far we are able to take what's
coming at us and keep steady.
11:
No faster - Are you inclined to hold at these prices?
roul: Yes, we are inclined to hold at these prices if 11: What would it have to do if prices slip offt
nest I think that is all right.
rouls Volume get too heavy, slip down another eighth, but with this volume we
are holding steady. I will keep you posted if I get anything special.
1g
original and 2 carbons made.
41
42
September 1. 1939.
EMORANDUM TO THE FILES,
conversation between Colonel Johnson of Connerge and Mr. Names. Time 10:16 to 10:18.
ohnson I heard Gaston was with you. I got a letter dated the thirtieth from
William Jennings Bryan, Jr., Collector of Oustons at Los Angeles.
anes:
No, we have had nothing.
Johnson: He wants a telegraphic reply. It involves more than us. Re wants to
know whether we consider the Japanese as imminently faced by war. State
said the other day they weren't ready yet to include the Japanese. Asks
some other pertinent questions. Have conference to your convenience and
have somebody from State there. He wants a telegraphic reply. We will
send the letter over and let you be looking at it. I will send a copy
to Gaston immediately. We will make it at your convenience as you get
somebody from State over. This man wants to know what to do about the
Japanese. A few days ago Barle said they weren't ready yet to include
the Japanese.
1g
original and 2 carbons made.
43
September 1, 1939.
EMORANDUM TO THE FILES:
conversation between Mr. Jerone Frank, Chairman, SEC, and Mr. Nanes. Time 10:26
to 10:27.
frank: Hello, John. George Harrison called me yesterday and told me committee
was formed solely for purpose - and transmit to banks. More particularly
the Fed was concerned with quotations of the Government bond market. He
said they had no intention of doing anything that would in any way enter
the province of the so. I understand(?) he is in Washington today and I
wonder, you might suggest to him that he confirm that to ne some way in
writing.
Honest He will be here to an open market committee meeting on the bond question.
my don't I just tell him to call you up when he cones? You going to be
in?
1g
1 original and 2 carbons made.
44
September 1, 1939.
REMORANDUM TO THE FILES:
Conversation between Governor Harrison, Federal Reserve Bank, New York, and Mr. Hanes.
Governor Harrison talked from Board Room at Federal Reserve, Washington. Time 10:29
to 10:31.
lanes:
It looks like this Government bond market is getting pretty bad because
they are throwing this thing at you a mile a minute.
Harrison: We just reduced the rate. We reduced it one thirty-second only. We will
reduce it another thirty-second if it gets too heavy.
lanes:
We may have held it a little (?) too long as it was.
Harrison: We took 2,000,000 over the board and 73 over the counter. He's reduced
the rate just about ten minutes ago.
Hanes:
Danny and I feel that the thing to do is to be alert and let it go down
a little.
Harrison: Do you think we ought to reduce it more than a thirty-second right away?
Banes:
- I would g at it fairly -
Harrison: Sproul doesn't have to come back and get our approval every tine he re-
duces the rate, but I want it to go down by thirty-seconds, though.
1g
1 original and 2 carbons made.
45
September 1, 1939.
EMORANDUM TO THE FILES,
Conversation between Mr. Sproul, Federal Reserve Bank of New York, and Mr. Ranes,
/and Mr. Bell.
Time 10:32 to 10:35.
Sproul: offerings are picking up. All we have done now . we took out the dealers
and it looks as if that will involve about 50,000,000. That we have
bought along the board and over the counter is another 20,000,000 so far,
making a total of 70,000,000. Volume all off, picking up. The word we
get from the banks is they are standing by and if prices go down the big
banks may be ready to step in, but not while the market's held up. I
think we will have to begin feeling our way down to begin looking where
we will get some natural support. Go at it very slowly.
We called Harrison, and he agrees. I understood you dropped about one
thirty-second.
proul:
lanes:
I think we are going to have to drop more than a thirty-second because they are not really naming prices, and I think we had better drop a quarter.
George Harrison told us that he would like to have it go down by thirty-
seconds, but I guess in this case - He said you had authority to
act and not to be calling him to make a change in the price.
ell:
Is it right you have 50 you took over from dealers and 20,000,000 over
the counter, which clears it up coming in at volume?
roul:
The volume is beginning to pick up.
You think the big banks will come in if the rate is left if the price
gets a little lower?
ell:
I agree with that.
Innes:
of course.
1g
original and 2 carbons.
made.
46
September 1, 1939.
MORANDUM TO THE FILES:
inversation between Mr. Summer Welles of the State Department and Mr. Names.
me 11:35.
nest The President just asked me to suggest to you that it might be a good
idea if you diplomatically told the Oubana that when the Columbus docks
there at 4:30 this afternoon to make a rather thorough search for any
arms or ammunition she night have on board.
ellest Yes, John. I will do it immediately.
1g
1 original and 2 carbons made.
do
IOF 601
CONFIDENTIAL
1 September, 1939.
MEMORANDUM FOR ASSISTANT SECRETARY GASTON:
Many messages appear in Italian traffic from members of the
family of Italian officers on ships informing these officers of the
family's departure free the city of residence but ending with the re-
assurance that matters are cala and tranquil.
German traffic continues to carry numerous messages in cryptegraphic form which can now be recognised as a var-time maritime
cipher, the messages being identical in general composition and appearance.
Italian vessels receiving orders from the Italian radio station
at Coltano during the last twenty-four hours are as follows:
ARCOZA
-
Proceed all possible speed to Teneriffe:
repair
(tanker)
LAGONIA
-
Direct your course to Persanbuco; confirm
NUMIDIA
-
Proceed Maples instead of Genoa; confirm
MARIA ROSA
-
Proceed Anoons where avait events: advise
FULGOR
-
ALBERTA
-
arrival Anoona; telegraph position
Proceed to Genoa maximus speed with precautions: confirm
Direct your course to Malaga where you
will find instructions
Direct course to Genoas confirm
ANTONIO
LIMONOELLI -
Telegraph probable date arrival Naples and
CASTEL BIANCO
if possibility of leading petroleum
VULGANIA
-
Give us date and place of embarkation
SAGITTA
-
In case of general trouble, call at port of
PAGAO
-
Spagneli
Use all possible speed
The following vessels cleared from United States ports yesterday,
August 31sts
Italian
AMSTERDAM
German
PORTLAND
from
Baltimore for Genea
Sverett
Portland
47
48
IOF 601
1 September, 1939.
The following vessels were listed as being in United States perte
on August 31sts
Arrival
In Berfells
Italian
IDA z. O.
hug. 30
BOMA
ing. 24
BIRMANIA
Aug. 26
MONGIOIA
Aug. 27
VIGOR
A ug. 31
LAURA 0
Aug. 27
REBIN
NAMELS
Aug. 29
Aug. 25
ADA 0
MARINA 0
Aug. 29
Aug. 29
In New Testo
Italian
Italian
In Bestees
Italian
In so. Thomas
Italian
In Galvesteal
Italian
In Houstons
German
Gorman
Bultimores
Italian
Italian
In Sea Transises
ing. 25
Italian LIME
In New Orleanel
Italian IDA
Italian
Ing. 22
Aug. 25
MONFIONE
.2.
49
IOF 601
1 September. 1939.
YEAR
the following vessels are & to arrive is United States parts is
the near future from foreign partes
German
KAVELLAND
PRINSLAND
PHRYGIA
Gorman
GRANWALD
Cosmes
German
Italian FELLA
Les Angeles
New York
Houston
Bultimore
See Angelee
F. a. FOLLOW,
Minutenant, U. s. Goast Guard.
Asting Chief Intelligence Officer.
50
September 1, 1939
To:
Lt. F. E. Pollie
Acting Chief, Intelligence Unit
Coast Guard
From
Acting Secretary Hanes
will you please send the following message in CODE
to Secretary Morgenthant
Answer your message. will be in constant communication with
you from now on on all important matters where time permits.
will you please send the following message - PLAIN to Secretary Morgenthaus
How such general news are you able to pick up and how complete
do you wish reports from us on general news items? London Stock
Exchange closed today. Have not heard but assume same will be true
in other foreign markets. General feeling is that it will not be
necessary to close our markets. Announced from London that not
officially at war yet. However, radio report this morning says that
Polish-Mnglish-French alliance has been invoiced by Poland and
recognised by high British authorities. Kitler announced over radio
before Reichstag that he would go to the front and named his successors
in case of his death - (1) Geering, (2) Rudolph Ress, (3) Supreme War
Council who would choose leader from amongst their number. The French
Government declared state of seige throughout France and Algieria and orders
general mobilisation. Daladier said quote it started, we have done everything
we could to avoid 18 unquote.
for Secin
51
TREASURY DEPARTMENT
Washington
Press Service
No. 18-59
FOR IMMEDIATE RELEASE
Friday, September 1, 1939
Acting Secretary Hanes today issued the following statement:
We will not borrow any new money at this time. Secretary Morgenthau's
policy of maintaining substantial cash balances at all times makes unnecessary any cash financing now. The question of refunding in advance
the 1 3/8% notes maturing December 15 will not be considered finally
until next Tuesday or Wednesday.
<000-
for Sec's
52
September 1, 1939.
MEMORANDUM
TO:
FROM:
Acting Secretary Hanes
Mr. Schwarz @
SUBJECT: President's Press Conference, Friday, September 1, 10:30 a.m.
WAR - In reply to the direct question "Can we stay out?"
President Roosevelt said today, "I not only sincerely hope so but
I believe we can and that every effort will be made by the Administration 80 to do. At the request of the correspondents, he said
they might quote him directly.
The President announced the resignation of Hugh Wilson as
Ambassador to Germany, said that the resignation had been accepted
and that Wilson had been assigned to special duty in the State De-
partment. He said he couldn't answer a question as to whether he
had anyone in mind to fill Wilson's place and passed over a question
as to the nature of Wilson's new duties.
DOMESTIC - As to local questions such as possible special session
of Congress and application of neutrality legislation, the President
said discussion of these must await developments on the other side
today and tomorrow, that happenings overseas would be important
factors in considering American angle. Asked whether he would convene Congress, he said he did not know when Congress would meet
but that it would be sometime between now and January 2nd. Asked
1f any changes in the Bloom Neutrality Bill are contemplated, the
President said that he had heard of nothing along that line in the
last twenty-four hours. With respect to his meeting this morning
with Secretary Hull, the President answered that they had studied
the usual batch of dispatches but that now they were coming in
every five minutes instead of every ten minutes.
PRESS - The President asked the full cooperation of the Press
throughout the country in "sticking as closely as possible* to facts,
which he said would be in the best interests of our own nation and
civilization. He said he hoped that there won't be unsubstantiated
rumors sent out from here or elsewhere. He reminded the correspondente
that it is a simple thing to check with the State Department or
White House. He objected to a reported "general order for all United
States merchantmen to return to their home ports. He said thathe
hoped American reporting would stick to the facts because in the
long run the people get the facts anyway and that he believes strongly in the common sense of the American people.
-2-
53
FOREIGN SERVICE - The President opened the conference by saying
that he thought a good many of us had spent a somewhat sleepless
night," . that he had very great praise for our diplomatic service
which had kept this Government advised as thoroughly as was any outside nation. He said that Ambassador Biddle at Warsaw had gotten
through to Bullitt in Paris at 2:35 a.m. our time on a poor connection
and that Bullitt had begun to connect with Washington at 2:40 and
was actually in conversation at 2:50. He said that Bill Hassett had
picked up France on the short-wave radio and thus obtained their
information. The President was in shirtsleeves and was surrounded,
aside from the usual participants, by Secretary Hull and John and
Anne Clark Roosevelt.
-000-
For Secin
54
September 1, 1939
MEMORANDUM TO THE PRESIDENT:
The Bremen took aboard in New York 5.531 tons. or
35.953 barrels of fuel oil. She had asked and had been
granted permission to take 50,000 barrels. I am informed
that the amount she took is a comfortably adequate supply
for a high speed run to Bremerhaven. On her former trip
to Hamburg she used 880 tons per day to develop 28.5 knots.
A normal fuel supply for an eastward crossing is 4700 to
4900 tons. She has bunker capacity for 6,616 tons or
between 42,000 and 43,000 barrels. So far as can be judged
from the bunker data. therefore, the Master of the Bremen
planned merely a high speed run to a home port.
(Signed) John W. Hanes
55
September 1, 1939
1:45 P.M.
Mr. Hanes
W. H. Hadley
GOVERNMENT BOND MARKET
The government market opened east or and Federal Reserve established
bids 1/8th under yesterday's close. Moving the bids progressively
downward as the day moved forward, prices are now down 7/8ths of a
point for Treasury bonds and guaranteed bonds. Treasury notes and
guaranteed notes are down 4 to 8/32nds. Volume in the morning was
quite heavy in small lots, about $30 million purchases absorbed
by the Federal Reserve by 12:30. During the last two hours further
purchases of about $13 million have been made for a total so far
today of $43 million. This is exclusive of about $50 million
dealers' holdings which the Federal took over first thing in the
morning. The activity has slackened considerably this afternoon.
The offerings came entirely from outside of New York sources and
were mostly in small lots, maximum being about $1 or $2 million.
Prices are now at about the same level attained Thursday, August 24,
which was the recent low, six longest bonds averaging 105 3/4 at
that time and now about 105 7/8. This is four points above the
Munich low and four points below the all-time high.
CORPORATE BOND MARKET
Corporate bond market was off substantially. High grade issues
showed losses of 1 to 3 points on nominal quotations but were
not very active. Second grade issues were moderately active,
moving down 1 to 4 points. Recent corporate offerings have shown
declines of as much as 5 and 6 points.
STOCK MARKET
In the stock market losses amounted to as much as 4 points in the
morning. There was a slight recovery but by 2:00 o'clock the lows
of the day were attained, with an average decline of 5 1/2 points.
Since that time, however, an unusually sharp rise, led by coppers
and steel, has taken place in the market and reports are now that
the market stands about unchanged from last night's close and
volume was considerable. At 2:30 some steel and copper shares were
up as much as 3 points from yesterday. At 2:00 o'clock volume
totaled 1,200,000 shares compared with 330,000 shares at 2:00 yesterday.
61(e)
FEDERAL RESERVE BANK
OF NEW YORK
ICE CORRESPONDENCE
CONFIDENTIAL FILES
L. W. Knoke
56
DATE September 1, 1939.
SUBJECT TELEPHONE CONVERSATION WITH
BANK OF ENGLAND.
I called Mr. Bolton at 10 o'clock this morning to get his
instructions as to the gold coming in on the Queen Mary. I explained
that the inrush of gold over the weekend was on such a scale that we
had to make preparations before hand. The Queen Mary, Bolton said,
might be diverted en route but when she came in we were to sell the
gold; likewise the $12,000,000 on the Samaria.
I asked whether he had received our three cables of last
night and it appeared that they had all safely gotten there. They
had made arrangements, Bolton continued, by which their cables could
O out in code and they likewise could receive cables in code. I
informed him that we had obtained assurance from Western Union here
that they would accept our cables to the Bank of England in code also.
Bolton referred to a cable he had sent us today to make a
payment of $20,000 to the British Commercial Counsellor in Washington
who had his account at Riggs National Bank. Could I be sure that the
payment was made today? I asked him to give me the number and the
test, which he said was 880 for the number and 316 for the test.
(He could not give me the name of the British Commercial Counsellor
in Washington and I have since asked Lochhead in Washington to try
nd check up whether this payment was in order.) I told Bolton I
ould do the best I could in the matter.
I asked him to please arrange to let me have automatically
WO copies of all published decrees and instructions on foreign exchange
57
FEDERAL RESERVE BANK
OF NEW YORK
DATE September 1, 1939.
FICE CORRESPONDENCE
SUBJECT TELEPHONE CONVERSATION WITH
CONFIDENTIAL FILES
BANK OF ENGLAND.
L. W. Knoke
2
dealings, securities, etc. We were frequently asked for details and
found it difficult to an swer such questions. Bolton promised that
that would be done.
I informed him of the formation here of a foreign exchange
committee similar to that in London and of its purpose.
I asked whether I could bank on reaching him on the telephone
whenever I thought it necessary and he replied that I could get through
but would find it simpler if I asked for him, Hawker, Tong or Siepman
by name. In that case there would be no difficulty. He referred to
the Cabinet meeting now on, the summoning of Parliament for 6 o'clock
and to the recent events in Poland but had nothing that had not
appeared on the ticker. I inquired whether he could tell me anything
as to what the present status was of sales by Britishers of American
securities. Bolton replied that there was nothing he could say. So
far they had permitted about $1,000,000. I asked whether these
transactions were likely to be on a large scale and he replied "No".
LWK:KW
57A
PLAIN
CJ
BERLIN
Dated September 1, 1939
Rec'd 2:20 p.m.
Secretary of State,
Washington.
993, First.
Inquiry at the Rgichsbank Elicited the information
that the German stock markets were open as usual today
without restriction. It was stated that no restrictions
of any kind are in force in the field of banking. Repeat
to Treasury.
KIRK
DDM
51B
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Berlin, Germany
DATE: September 1, 1939, 8 p.m.
NO.: 998
According to good authority there has been no run on
German savings banks. The present rate of withdrawal is
stated to be less than during September 1938 when withdrawals exceeded deposits in savings banks by 156 million
marks.
One point of particular interest is that the main withdrawals from savings accounts were in the western part of
Germany. There was not much call on the savings banks in
Berlin and central Germany, and it is reported that deposits
exceed withdrawals in East Prussia. According to reports
reaching us, individual savings banks have taken about
350,000,000 marks from their balances which they carry with
the provincial savings bank clearing institutions (which
usually total about four billion marks) not because this
figure represents the net withdrawals, but 80 that the banks
will be in a position to take care of a run of that size
in case it should take place. The local banks have been
informed by the savings bank central organization of restrictive measures which are to be applied in case of development of a sudden run of panic size.
KIRK.
END SECTIONS ONE AND TWO.
51C
PLAIN.
PAP
BERLIN
Dated SEptEmbEr 1, 1939
Rec'd 4:50 p.m.
Secretary of State
Washington
RUSH
998, SEPTEMBER 1, 10 p.m. (SECTION THREE)
While no formal measures of moratorium effect have yet
been applied on commercial bank deposits, well informed
bankers tell ME that there has been a tendency on the part
of commercial and industrial firms to withdraw funds in
order not to be "caught short" should a moratorium be
decreed. The banks, I am informed) have so far met this situation successfully merely by "persuad ng" their clients to
limit their withdrawals to "normal" amounts.
at there has been a considerable increase in currency
circulation as would be EXPECTED in view of the intensified
mobilization measures is indicated by the fact that in SOME
places 5 mark notes of the 1926 rentenmark issues are re-
appearing in circulation after an absence of several years
during which only silver has been used for this denomination,
REPEAT TO TREASURY AS NUMBER 58 FROM HEATH.
KIRK
ALC
58
PLAIN
AC
London
Dated SEptEmbEr 1, 1939
REC'd 7 p.m.
Secretary of State
Washington
1367, September 1, midnight.
STRICTLY CONFIDENTIAL.
FOR THE ACTING SECRETARY OF THE TREASURY FROM BUTTERWORTH.
1. Parliament is tonight passing a bill respecting the EXchange Equalization account the substantive provisions of
which is to increase its capital to an unlimited amount
and widen its powers; and a bill authorizing borrowing
of 6500,000,000 at not more than 5%
2. The British Treasury states that it is preparing
to issue a number of financial regulations and Treasury
orders including those war measures which I dispatched
to Washington last March. These will be in Effect before
war is declared during the WEEKEnd and consequently the
Treasury hopes and anticipates that the banks will be able
to open and carry on on Monday but there is still SOME discussion taking place bEtwEEn the British Treasury and the
Bank of England as to whether a moratorium for Monday may
not bE necessary. Discussions are also still taking place
as to what the rate for sterling will be when the official
Exchange
59
- 2 - #1367, September 1, midnight, from London
Exchange controls COME into operation.
(END SECTION ONE).
KENNEDY
HTM
60
GRAY
AC
London
Dated September 1, 1939
REC'D 7:07 p.m.
Secretary of State
Washington
1367, September 1. (SECTION TWO). .
Three. I am informed in the strictest confidence
that one of the Treasury orders which will affect the
transfer from London of foreign balances owned by non-
residents will be so framed as to discriminate in favor
of Americans, that is, if American owners of balances
in England apply through their bank to have these trans-
firred in dollars, the Bank of England will, at least
for th time being, authorize such transfers. In case
of France, French citizens with London balances will also
be given the option of keeping them here or transferring
them into francs at the official rate. As regards other
countries, although the order will be the same, namely
that application bE made to the Bank of England, the
practice will be to "wait and SEE". In discussing this
with the British Treasury they Emphasized particularly the
confidential character of this information and the fact
that if it got out that Americans were being unduly favored
they would be placed in an awlward position.
Four
61
- 2 - #1367, September 1, (SECTION TWO) from London
Four. As previously reported the Treasury at the
moment plans to attempt to stay in London. It has alternate plans for moving Elsewhere, the destination of which
is still being kept a secret EVEN from its highest officials.
If and when the move COMES I shall advise you.
(END OF MESSAGE).
KENNEDY
PEG
61/ A
REB
GRAY
Paris
Dated September 1, 1939
Rec'd 5:22 p. m.
Secretary of State,
Washington.
1712, September 1, 7 p. m. (SECTION ONE)
FOR THE TREASURY.
The Bourse opened as usual but with the news that
general mobilisation had been ordered trading practically
came to a standstill. Securities showed sizeable losses
but not as much as might have been expected. Rentes were
down two francs on the average. WE understand that the
Bourse is in a very sound technical position and is
pretty well liquidated with short interest amounting to
but 300,000,000 francs and the long position totaling
around 700,000,000 francs. Yesterday's fortnightly
liquidation passed off very easily. Most of the Exchange
trading personnel under the age of 48 have been mobilized
and at the Bourse's next normal opening on Monday there will
be few familiar faces present.
BULLITT
CSB
618
PARTIAL PARAPHRASE OF SECTION TWO,
TELEGRAM NO. 1712, SEPTEMBER 1, 1939,
FROM AMERICAN EMBASSY, PARIS, FRANCE.
Quotations this afternoon are purely nominal
with banks quoting the dollar between 41.50 and 42
and the pound (sterling) at 175.75. There was
some increase in currency demands this afternoon
but not on a serious scale.
We were informed by Rueff that the fund had
a good day. The financial situation is quite satisfactory from the technical point of view. Positively
no restrictive measures are under contemplation for
the present.
BULLITT
EA:MSH
61C
GRAY
lw
Paris
Dated September 1, 1939
Rec'd 5:20 p.m.
Secretary of State
Washington
1712, September 1, 7 p.m. (SECTION THREE)
A decree published in the JOURNAL OFFICIAL of
today authorizes the Minister of Finance "to convert
Treasury loans issued in foreign markets into loans or
issues expressed in French francs". It is understood
that this proposed operation relates to the Treasury
issues made last May through Mendelssohn and that
they will be converted into shorter issues to facilitate
their orderly liquidation by present Mendelssohn
creditors.
The admirable calm which the French have so far
maintained has continued and there is not the least
sign of panic or hysteria. Parliament meets tomorrow
afternoon to take the decisive step. In spite of the
state of siege declared this noon WE are able to USE
the telephone for local calls with a minimum of delay or
interference and banks have been able to telephone NEW York.
(END OF MESSAGE)
BULLITT
HPD:NPL
61
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE:
September 1, 1939, noon
NO: 1697
FOR THE TREASURY.
Very little business was done in the way of exchange
transactions this morning and there were no signs of
panic though war developments were known by 9 a.m. The
pound opened here at 175.75, United States dollar at
42.75 and the pound dollar cross rate at 4.15. New transactions ranged all the way from 4.03 to 4.25.
From the Bank of France we learned that a few dollars
at 4.20 were gained by the British control. In Paris the
Bank was a seller of dollars to cover purchases from the
United States for war needs.
The London bullion market was inactive and will be
closed tomorrow. The Paris Pourse will open this afternoon
as usual.
BULLITT.
EA:LWW
61E
PLAIN
NC
LONDON
Dated September 1, 1939
Rec'd 10:45 a.m.
Secretary of State
Washington
1350, September 1, 4 p.m.
FOR TREASURY FROM BUTTERWORTH.
The city fatalistically awaits the zero hour and in
the meantime is completing its EVACUATION and safety
preparations. The dollar which opened at 4.27 has
slithered down to 4.18 but there is only a small market.
Nevertheless, the foreign Exchange market is now being
closed. . This is in consonance with other measures
military and civil in anticipation of war time conditions.
KENNEDY
KLP
6IF
PLAIN
NC
LONDON
Dated Sept. 1, 1939
Rec'd 6:50 a.m.
Secretary of State
Washington
1344, September 1, noon.
FOR TREASURY AND STATE FROM BUTTERWORTH.
At my request Bewley has written ME regarding the
regulation and Treasury order providing for registration
of certain securities by British residents (my 1279
August 27 8 p.m. )
"The principal points which have since arisen which
you might like to know are I think as follows:
Permits are given freely for transfers between
residents in the United Kingdom.
Permission has been given for SOME sales abroad
when the resulting foreign currency has been handed OVER
to the Bank of England.
As regards residence of companies difficulties
probably arise in individual cases but WE are inclined
to take the general line that residence is wherever
the control is situated.
I have spoken to the Bank of England about the
question of the definition of "residence" of individuals.
The question of the legal definition of the word "residence"
is
61G
NC -2- #1344 from London, September 1, 1939
is,as you know, a difficult one and the Bank have not
committed themselves to a precise definition. As a rough
test they are taking the question whether income tax is
paid in this country as EVIDENCE of residence but this
is not final and the question is a technical one which has
to bE decided in accordance with the facts of ach case.
I might perhaps add that as regards the making of a return
it is, of course, the case that the making of such a
return doss not in any way prejudice decisions which may
be taken later on as regards the actual acquisition of
the securities.
In the case of E. G. unit trusts where the subunits are denominated in sterling without an Exchange
option, then sterling sub-units are not affected by the
order EVEN though the underlying securities may be
denominated in foreign currencies.
The regulation and order do not prevent free Encashment of coupons and drawn bonds".
The manner in which the British monetary authorities
interpret and administer 3 and 4 will obviously affect
American interests. As regards 3 no doubt great difficulties will arise in determining where "the control is
situated". As regards 4, not only will the definition
of the word residence cause difficulties but cases will
arise
61 H
NC -3- #1344 from London, September 1, 1939
arise where, say, an individual who has been resident
in ..is country for only a year or two being liable to turn
over his life savings located in the United States.
Instructions in the premises will be appreciated.
The HERALD TRIBUNE report conveyed in your 738,
August 31, 4 p.m., is incorrect. Individuals can obtain
permission to pay off loans or cover positions but no
general authorityhas been accorded brokers to take action.
It should bE noted that the telegraph and mail
censorship which came into Effect last night can be
Employed effectively to enforce these and other British
Treasury regulations.
KENNEDY
ALC
62
GRAY
NC
PARIS
Dated September 2, 1939
REC'D 11 a.m.
Secretary of State
Washington
1727, September 2, 2 p.m.
FOR THE TREASURY.
Journal Official today publishes about twenty war
time decrees. They include besides the order for general
mobilization, the approval of conventions concluded between
the state and the Bank of France and bEtwEEN the state and
the Bank of Algeria the withdrawal from circulation of CERtain silver and nickel coins and measures concerning the
provisioning of the nation in time of war.
Under the convention with the Bank of France -(which is
dated September 29, 1938) - the latter agrees to make pro-
visional advances to the Treasury up to a total of 25
billion francs against 3 months Treasury bills renewable
until reimbursement of the said advances.
BULLITT
CSB
(END SECTION ONE).
63
GRAY
CSA
PARIS
Dated September 2, 1939
Rec'd 11:18 a.m.
Secretary of State,
Washington.
1727, September 2, 2 p.m. , (SECTION TWO)
Under the convention with the Bank of Algeria
(which is dated May 11, 1939) the latter agrees to
make provisional advances to the government up to
a maximum amount of one billion francs. This arrange-
ment also provides for an increase of one billion
francs in the note circulation of the Bank of
Algeria bringing the total to 5,000,000,000.
The decree approving these two conventions
also contains an important provision suspending the
application of the first paragraph of Article 4 of
the monetary law of June 25, 1928 which reads as
follows:
"The Bank of France shall be obligated to KEEP
a cash balance in gold bullion and coin Equal to not
less than 35% (35%) of the total sum of the bearer
notes in circulation and the current credit accounts. "
BULLITT
CSB
64
GRAY
MJD
Paris
Dated September 2, 1939.
Rec'd. 1:05 p. m.
Secretary of State,
Washington.
1727, September 2, 2 D. M. (SECTION THREE).
A further decree authorizes the transfer of the
seat of the Security and Commodity Exchanges and EM-
bodies other measures relating to negotiable securities.
WhEthEr this authorization utilized will of course depend on developments.
The principal Paris banks will remain open throughout the day but so far withdrawals have not been substantial.
Today again there has been very little trading in
foreign Exchange. In the transactions bEtwEEn banks
(now operating with skelston staffs) the pound has been
quoted at 175.75, the dollar at 41.75 and the pound
dollar cross rate at 4.22. There is of course no
arbitrage business. The Bank of France is buying
sterling at 175.60 and has acquired a small amount at
that rate; its dollar rate is 41.75. Trading SEEMS quiet
in Belgium with the dollar quoted at 5.84. Switzerland
is
65
MJD -2- No. 1727,
September 2, 2 P. m. (SECTION
THREE) from PARIS.
is quoting the dollar bill at 4.46 and Holland at 1.88.
Paris banks have been able to telephone those Continental
centers but have found it difficult to communicate with
London owing to pressure on existing lines for official
communications. Civilian Evacuation of the City of
Paris continues in orderly fashion and the stations
are crowded with patient families and their hastily
collected belongings awaiting departure of the numerous
Extra trains.
BULLITT
HPD
86
GRAY
MJD
Paris
Dated September 2, 1939.
Rec'd. 12:25 p. m.
Secretary of State,
Washington.
1727, September 2, 2 P. m. (SECTION FOUR).
AGENCE ECONOMIQUE ET FINANCIERE publishes a despatch
from its NEW York correspondent this morning quoting Mr.
Jones as stating, following a conference at the White
house, that neither the Export-Import Bank nor the Reconstruction Finance Corporation are subject to the provisions of the Johnson Law; that "through the ExportImport Bank credits could be supplied for the export of
merchandise to interested exporters but that he did not
know when the Bank could, in case of war, Extend credits
to foreign governments since no rule has been established
for federal agencies". The despatch adds that "In no
CASE could credits be Extended for armaments or muni-
ticas and up to the present no such credit has been rEquested by foreign governments." Rueff asked us this
morning "whether WE had any news concerning the Export-
Import Bank" in connection with the foregoing report.
(END OF MESSAGE).
BULLITT
67
GRAY
Paris
Dated September 2, 1939
REC'd 4:35 p.m.
Secretary of State
Washington
1742, September 2, 7 p.m.
FOR THE TREASURY
COUVE de Murville informs us that the Chamber of
Deputies and Senate have just voted the war credits
requested by Daladier this afternoon in the amount of
44 billion francs for "Early payment" for national
defense and have also authorized the national defense
services to contract future expenditures in an additional amount of 24 billions. It was explained that
the aforesaid 44 billions are Expected to COVER the
requirements of approximately the first two months
of the war.
The JOURNAL OFFICIAL of today likewise publishes
a decree providing that during the period of "political
tension" the paying offices of the Treasury are authorized to settle certain specified military expenditures
EVEN in the absence of authorized credits.
(END SECTION ONE).
BULLITT
ROW:GW
68
GRAY
Paris
Dated September 2, 1939
Rec'd 4:40 p.m.
Secretary of State
Washington
1742, September 2, 7 p.m. (SECTION TWO). .
Furthermore such offices are given authority to
pay for a period of one month from the general mobilization dECPEE all supply bills for the account of the
national defense ministries OVER and above allotted
credits.
An additional decree prohibits the importation
into France and Algeria of foreign merchandise other
than gold unless specifically authorized under a procedure therein set up (for full details SEE Embassy's
telegrams numbers 1722, September 2, 7 p.m., 1720
September 2, 4 p.m.).
Paris banks report no unusual volume of withdrewals this afternoon. The dollar was quoted at
41.75, the pound at 175.55 and the dollar-pound cross
rate at 4.20.
BULLITT
ROW:GW
PARAPHRASE OF TELEGRAN RECEIVED
FROM:
American Embassy, Paris.
DATE:
September 2, 7 p.m.
NO.: 1742.
SECTION THREE.
Dollars and sterling were gained by the
French fund.
We have confidential information from a Morgan
partner that the Bank of France requested his to
(omission) on a paper plan for installing the
main banking institutions somewhere in the Loire
Valley in central France, a part, at least, of the
Bank of France to be included. Effectuation of the
plan would take place only if necessity arose.
END MESSAGE
BULLITT
89
TREASURY DEPARTMENT
fill
70
INTER OFFICE COMMUNICATION
DATE Sept. 2, 1939.
TO
Secretary Mergenthau
FROM
Mr. Haas DA.
Attached are two memoranda which were prepared on the
basis of information available after the close of the markets
on Saturday, September 2:
(1) "The Business Situation, Week Ending Sept. 2, 1939";
(2) "Financial Developments During the Crisis".
The memorandum on "September Financing", also attached,
was prepared on Thursday, August 31, 1939, prior to the
meeting of the Open Market Committee on Friday, September 1.
71
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
CONFIDENTIAL
DATE
September 2, 1939
TO
Secretary Morgenthau
FROM
Mr. Haag IOA
Subject: The Business Situation,
Week ending September 2, 1939.
Conclusions
(1) War possibility is the most important business
influence. If war occurs, it will result in a serious
unsettlement of international trade, and consequent readjustments in various industries, but the many months of war
uncertainty have already done much to put industry in a
state of preparedness. The possibility of making additional
sales as a result of war demand, and of gaining markets previously supplied by belligerents, has evidently led business
men in the United States to expect a prompt advantage from
war in Europe.
(2) Should this new demand come at the present time
when inventories are low and when industrial activity is in
a rising phase, industrial production in the United States
will increase sharply.
(3) A heavy export demand for American steel products
within a few months after the outbreak of war is anticipated
by steel companies.
(4) Commodity prices, as well as selected stock prices,
showed pronounced upward tendencies on receipt of war news.
Sensitive commodity prices in the United States advanced
more than Reuter's index of British prices.
(5) Because industrial production is now about equal
come as a result of increased domestic consumption or
increased exports on the one hand or because of a movement
to accumulate inventories on the other.
to the current level of consumption, any further rise must
Secretary Morgenthau - 2
72
The general business outlook
War is of course the predominant business news. If it
comes, it will mean serious unsettlement in international
trade and consequent readjustments in various industries
but the many months of war uncertainty have already done much
to put industry in a state of preparedness.
A sharp rise in most commodity prices on Friday, while
stocks declined, was followed by substantial increases in
stock prices of industries especially important in war. The
rise in selected stocks was BO great that it carried the DowJones average for industrials up to 135.25, an advance of .84
for the day. The fact that the increase in stock prices came
80 soon means, doubtless, that traders believe the United
States will secure immediate trade benefit from war in Europe.
Increased sales of United States products may well
result from war demand and the inability of warring nations
to supply their former customers. Increased sales are the
more likely to cause pronounced expansion of business in the
United States when they come at a time of rising tendencies
in industrial production, low inventories of manufactured
goods, and low supplies of some raw materials. An increase
in commodity prices will doubtless cause immediate building
up of inventories and so provide additional influence in the
direction of increased production.
Industrial production
Industrial production throughout the world, influenced
largely but not entirely by the armament race, is in a sharply
rising trend. The New York Times-Annalist composite index of
foreign industrial production in June established another alltime peak, further exceeding the high levels of late 1937.
The accompanying increase in world demand for commodities and
materials is evidenced by a rising trend in the volume of
international trade. The physical quantity of world trade
during the second quarter of this year, according to TimesAnnalist data, increased to the highest level since the last
quarter of 1937.
In the United States, industrial production during the
past two months has been rapidly recovering from its earlier
setback. The FRB index reached 102 in July, a gain of 10
points in two months, which carries it to within 2 points of
73
Secretary Morgenthau - 3
the December 1938 high. It is possible that some slight
further gain has been made during August, in view of the
strong upturn in steel activity, despite the shutdown of
automobile plants in that month for an early change-over.
The prospect of an expansion in the steel industry and other
related industries this fall suggests a further rise in the
FRB index, war or no war.
Rapid expansion of new-model automobile production
which is expected during September and October, the earliest
fall increase on record, strengthens the chances for an
increase in the FRB index. Even if domestic orders for
automobiles are less than they might have been, there is an
urgent competitive need for a rapid building up of dealer
stocks during the early months of the model season.
The steel industry
Steel producers, according to the Iron Age, have been
looking for an intense export demand for American steel
products within a few months after the actual breaking out
of general war. There has recently been reported a sharp
increase in the number of inquiries from potentially
belligerent countries, and from neutrals who would be forced
to shift their orders to the United States in the event of war.
Sentiment in the steel industry is reported as strongly
optimistic, whether or not war develops. August bookings of
steel orders, according to the Iron Age, are likely to range
from 2 to 10 per cent above July, with a brighter outlook
for September due to an imminent stepping-up of specifications from the automobile industry. Steel scrap prices have
made new highs for the year, and a general firming of prices
on finished steel products is under way.
Steel output has continued to increase gradually during
August, following a pattern almost identical with that of
last year but at a 50 per cent higher level. Steel operations
during the last week of August were at 63 per cent of capacity,
the highest in nearly two years. (See Chart 1.)
The present rate of operations, as indicated on the chart,
is in excess of the new orders rate reported by the U. S. Steel
Corporation. As was the case last August, however, the more
rapid increase in operations of the independent companies (see
lower section of chart) apparently indicates that they are
receiving a heavier volume of orders than U. S. Steel.
74
Secretary Morgenthau - 4
Stock prices
Stocks declined at first after the receipt of war news
but selected issues especially related to war industries
rose 80 considerably on Friday that the Dow-Jones average
for industrials for the day closed at 135.25, up .84. The
volume for the day was 1,970,000 shares, the record since
March 31, 1939. The companies whose issues showed greatest
price advances for the day were those connected with sugar,
wool, shipping, chemicals, copper, steel, aviation, machinery,
metals, and rail equipment. Dow-Jones averages for rails and
utilities for the day closed down. On Saturday the average
for industrials increased by 2.84 with a volume of transactions for the half day that almost equalled a whole day
on Friday. Though many of the stocks that advanced most on
Friday advanced again, the gains were diminished somewhat
toward the close of trading.
The commodity price situation
The Dow-Jones commodity futures index and Moody's spot
price index each closed on Friday with the largest single
gain in the history of either. (See Chart 2.) Among the
individual commodity futures that were up on Friday to the
limit allowed in one day's trading were wheat, lard, sugar
and rubber. Other futures up strongly were hides, cottonseed oil, and copper. Most of the "war commodities" opened
strong on Saturday but closed below their highs for the day.
(See Charts 3 and 4.)
Before the recent news that hostilities had broken out,
Reuter's index of British prices showed a decided upturn
reflecting the combined influences of war expectation and
sterling depreciation. On Friday, however, both Moody's and
Dow-Jones advanced more sharply than Reuter's.
Basic conditions balanced
Our calculated basic business indices, which provide
measures of the underlying trend of business, and of the
extent to which industrial production may be out of line with
basic conditions, remained during July at approximately the
levels held during the previous three months. (See Chart 5.)
75
Secretary Morgenthau - 5
Ordinarily, a rise in industrial production such as that of
the past two months, however, would have been accompanied by
some improvement in basic demand, in new orders, and (after
some lag) in the sales of manufactured goods. The levelling
out of the basic indices probably reflects in some degree
the depressing influence of foreign uncertainties. If war
takes place, however, all three of our indices, basic demand,
new orders, and sales of manufactured goods may be expected
to increase.
While the outlook for the steel and automobile industries
points to further gains in industrial activity this fall, the
fact that industrial production 18 now about equal to the
current level of consumption means that any substantial further
rise must come about either as a result of increased domestic
consumption or increased exports on the one hand, or because
of a movement to accumulate inventories on the other. Nearly
two years of cautious buying policies have reduced inventories
generally to rather low levels, and developed conditions
favorable for a general buying movement once sustained commodity price increases occur.
New orders previously well maintained.
Our index of new orders (shown in the lower section of
Chart 5) declined somewhat in July, but slightly less than
seasonally. So far during August the volume of new orders
has held steady, and apparently remains in a favorable relationship to the level of business activity as measured by the
New York Times business index. (See Chart 6.)
There is no definite evidence that the European news
before outbreak of hostilities had caused any curtailment of
new buying. Steel orders during August averaged higher than
in July. Textile orders held generally steady until last
week, when they turned sharply upward to the highest level
since early March. Other orders declined during June and July,
but have strengthened slightly in recent weeks.
STEEL INGOT PRODUCTION AND U.S. STEEL CORPORATION ORDERS
Expressed in Percent of Capacity
1939
1938
PER
JAN.
MAR.
TTT
TTT
JULY
MAY
IIIIIIIIIIII
SEPT.
NOV.
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
PER
TO
CENT
CENT
U.S. Steel Orders and Total Steel Output
110
110
100
100
90
90
80
80
ORDERS, U.S. STEEL CORPORATION
TOTAL STEEL OUTPUT
IN TERMS OF U.S. STEEL CAPACITY
70
70
60
60
50
50
40
40
30
30
20
20
10
10
with
0
0
JAN.
MAR.
JULY
MAY
SEPT.
NOV.
JAN.
MAR.
JULY
MAY
SEPT.
NOV.
1939
1938
110
110
Steel Output
100
100
90
90
80
80
70
70
INDEPENDENT COMPANIES
60
60
50
50
40
40
,
U.S. STEEL CORPORATION
30
30
20
20
10
10
1111
0
0
JAN.
MAR.
JULY
MAY
1938
SEPT.
NOV.
JAN.
MAR.
JULY
MAY
SEPT.
NOV.
1939
76
Chart 1
of the Secretary of the Treatury
COMMODITY PRICE
-
PRICES OF SELECTED DOMESTIC COMMODITIES
Daily Putures
Weekly Averages (Putures)
SEPTEMBLE
JAY
MAR.
CENTS
PER
FOUND
Cotton
CENTS
CENTS
PLA
FOUND
PER
FOUND
Cotton
9.5
9.5
9.0
9.0
w
8.5
8.5
8.0
8.0
CENTE
CENTS
PER
PER
BUSICE
6
.
BUSING
Wheat
CENTS
CENTS
Wheat
PER
PER
70
BUSHER
BUSMEL
70
60
80
65
65
70
70
60
60
60
60
55
50
55
so
40
40
-
GENTS
GENTS
PER
PER
FOUND
CENTS
CENTS
Lard
PER
Lard
PER
FOUND
POUND
6.5
6.5
,
7
6.0
6.0
6
5.5
5.5
s
5.0
5.0
4
4
13
13
Hides
15
IS
Hides
12
V
13
12
13
N
11
11
"
"
9
10
10
a
Cottonsoed 011
7.0
7.0
Cottonseed 011
6.5
6.5
6
6.0
\
s
5.5
6.0
A
5.5
5.0
4
5.0
Copper
4.5
4.5
12
12
10.0
10.0
Copper
9.5
9.5
9.0
9.0
8.5
8.5
10
MAY
SEPT.
ART
-
NOV.
939
6
MAR.
MAR.
1940
7.5
............ ...........
20 27 3 10 "
23
16
MAY
30
6
--
8.0
7.5
13
8.0
1939
AUGUST
SEPTEMBER
6
7
MPT. FUTURE
- EXTRACT
- (HIDES, - FUTURE) (COTTOR OCT. FUTURE)
-I--
Office of the Secretary of the Treasury
-
DEC. FUTURES
-
MAY FUTURES
(MIDES JUNE FUTURE)
*SEPT. FUTURES
(COTTON, OCT. FUTURE.)
Chart 3
PRICES OF SELECTED IMPORT COMMODITIES
Weekly Averages (Putures)
-
AUGUST
JULY
MAR.
23
16
SEPT.
Daily Futures
1939
CENTS
PER
PER
POUND
FOUND
Rubber
CENTS
CENTS
PER
POUND
Rubber
20
18
18
10
is
17
17
16
16
16
16
14
14
15
IS
12
12
7.0
7.0
Coffee
Coffee
6.6
6.6
6.2
6.2
5.8
5.8
2.2
2.2
8
s
5
2.1
4
4
2.4
Sugar
2.4
2.2
2.2
2.0
2.1
Sugar
2.0
2.0
1.9
1.9
1.8
1.8
2.0
1.8
1.8
1.6
1.6
1.7
1.7
DOLLARS
HOLLARS
PER
PER
POUND
2.90
2.90
1.4
1.4
DOLLARS
DOLLARS
Bilk
2.80
2.80
PER
PER
FOUND
POUND
Bilk
2.80
2.70
2.70
2.60
2.60
2.80
2.60
2.60
2.40
2.40
2.50
2.50
V1
2.20
2.20
2.00
2.00
1.80
2.40
2.40
2.30
2.30
1.80
2.20
2.20
L60
1.60
DENTS
CENTS
PER
PER
CENTS
CENTS
Tis
PER
FOUND
Tis
PER
FOUND
FOUND
52
52
so
so
48
48
46
46
56
56
52
52
48
48
44
44
36
+-
-
........
MAY FUTURES
---
Office of the Secretary of the Treasury
III
+++
MAY
MAY
19 "
SEPT. FUTURES
SEPT.
JAN.
NOV.
- DEC. FUTURES
(SINAR, JAN. FUTURE)
-
LLLL
36
44
44
IIIII IIIII
42
MAR.
23
16
940
MAY FUTURES
JAY
IIII
1111
30
1939
mill
un
20
13
6
40
INDUST
a
LIIII
11111
27
3
40
10
17
SEPTEMEN
"SEPT. FUTURES.
Chart
4
INDICES OF BASIC BUSINESS TRENDS COMPARED
WITH INDUSTRIAL PRODUCTION
1923 - 125 . 100. SEASONALLY ADJUSTED*
PER
PK
CENT
CENT
120
120
INDUSTRIAL PRODUCTION, F.R.B.
110
110
ESTIMATED BASIC DEMAND
100
100
90
90
80
80
70
1935
1937
1936
1938
70
1939
PER
PER
CENT
CENT
120
120
INDUSTRIAL PRODUCTION.
F.R.B.
110
110
t
100
INDEX OF SALES
100
90
90
80
80
70
1935
1936
1937
1938
70
1939
PER CENT
PER CENT
(NEW ORDERS)
IND. PROD.)
135
160
NEW ORDERS
1936 100. UNADJUSTED
140
125
120
115
105
100
95
80
INDUSTRIAL PRODUCTION F.R.B.
85
60
40
1935
1936
1937
1938
75
1939
*EXCEPT NEW ORDERS
REPRESENTS "OFFTAKE" or MANUFACTURED GOODS, IN PHYSICAL VOLUME
Office of the Secretary of the Treasury
of Research and Statistics
C.
245 Chart 5
confidential
WEEKLY NEW ORDERS AND BUSINESS ACTIVITY
JAN
PERCENT
MAR
III
MAY
JULY
UII
SEPT.
NOV.
JAN.
111
1111
MAR.
JULY
MAY
SEPT.
NOV.
PERCENTAGE
(N.Y.TIMES)
POINTS
(NEW ORDERS)
105
120
100
105
NEW ORDERS
95
90
M
90
75
85
60
BUSINESS ACTIVITY
NEW YORK TIMES
IV
(EST. NORMAL . 100)
80
45
75
30
70
JAN.
IIIIII
MAR.
BILL
MAY
....
JULY
1938
- of - - -
SEPT.
HILL
NOV.
JAN.
MAR.
MAY
III
JULY
15
SEPT.
NOV.
1939
Office of the Secretary of the Treasury
I-96
8
1
Prepared by: H. C. Murphy
Wesley Lindow
S. G. Tickton
0
TREASURY DEPARTMENT
CONFIDENTIAL
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
FROM
Mr. Haas
9-2-39
Subject: Financial Developments During the Crisis
SUMMARY
(1) Despite official support, the yield on long-term
United States securities has risen during the
crisis period from 2.19 percent to 2.40 percent,
the highest point since the end of February
(Chart I). The greatest weakness has been in
shorter-term bonds (Charts II and III).
(2) Official moves to support the Government bond
market have been made by the Federal Reserve System and the Treasury. On Friday and Saturday
open market purchases were made by the Federal
Reserve banks ($126 millions) and the Treasury
($13 millions). An informal agreement not to
sell Governments during the crisis was made
among New York City banks. The latest figures
available on the Government security holdings
of weekly reporting member banks are shown in
Chart IV.
(3) High-grade corporate bonds have followed the
same pattern as Treasury bonds during the crisis
period (Chart I). There has been a cessation of
new corporate bond offerings.
(4) The London Stock Exchange announced that it
would be closed on Friday and until further no-
tice. Previously, the yield on British 2-1/2
percent consols rose to 4.00 percent (Chart V)
a level not touched since 1932. The French
Bourse remained open. French Government seou-
rities had dropped to new lows for the year at
the week-end.
82
83
Secretary Mcrgenthau - 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. By September 2, the
average yield on long-term Treasury bonds was at its highest point since the end of February, in spite of substantial
official support and informal agreements among large New
York banking holders not to reduce their portfolios during
the crisis period.
The course of the average yield on all Treasury bonds
with twelve years or more to run until maturity or nearest
call date is shown in Chart I. On September 2, the longterm yield stood at 2.40 percent, as compared with 2.19 percent on August 19, the last market day before the beginning
of the severe phase of the crisis; and 2.07 percent on
June 5, the all-time low. About half of the change in yield
during the crisis period occurred on Friday and Saturday of
this week.
Chart II compares the position of the market on June 5,
August 19, and September 2. It indicates that the increases
in yields for the period since June 5 have been greatest in
the shorter 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 three-quarters, on the average,
of the rise which had occurred between January and June of
this year. Shorter 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 September 2,
for three bond issues of different maturities are shown in
the following table:
84
Secretary Morgenthau - 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 Sept.
(Percent)
Sept.
to
:
June
:
Jan.
Net change
Jan. 26: June 5
to
:
Yield as of
2
Percent
of gain
lost
:
26
5
2's 1947
1.76
1.25
1.67
-0.51
+0.42
82
2-1/2's 1949-53
2.24
1.71
2.13
-0.53
+0.42
79
2-3/4's 1960-65
2.59
2.26
2.49
-0.33
+0.23
70
2
June 5 :Sept.2
:
Chart III shows the day-to-day fluctuations since July 1,
of the prices and yields of four securities -- the three The
bonds included in the above table and the longest note.
shorter issues have shown the greatest weakness during the
orisis in terms of both price and yield.
The regular weekly issue of 91-day Treasury bills sold
Friday (moved up because of the Labor Day holiday) sold at
an average interest rate of 0.11 percent, as compared with
.08 percent for the issue sold last Monday. This compares
with .03 percent on August 14, the last Monday preceding the
severe stage of the orisis.
II. Official Support Given the
Government Bond Market
With the development of the serious phase of the crisis,
several official moves were made to support the Government
bond market. The Federal Reserve Bank of New York negotiated an informal agreement with the New York banks not to
liquidate their Government holdings during the erisis, and
it was reported that these banks were advising their correspondent banks to do likewise.
85
Secretary Morgenthau - 4
In the week ended August 30, weekly reporting member
banks in New York City reduced their holdings of Treasury
bonds by only $24 millions and of bills by $14 millions,
but increased their holdings of Treasury notes and guaran-
teed obligations by $6 millions each. It is understood
that there was a relatively small amount of scattered sell-
ing by smaller banks outside of New York City.
The latest figures available on the holdings of all
weekly reporting member banks are shown in Chart IV, which
shows the changes in their holdings since February 21.
After news was received on Friday morning that Germany
had invaded Poland, the Federal Reserve banks began open
market purchases of Government securities to make up for
the almost complete lack of bide in the market.
On Friday and Saturday, the Federal Reserve banks purchased $126 millions of Government securities -- $57 millions
of Treasury bonds, $30 millions of Treasury notes, and $39
millions of guaranteed obligations. There was no change
in bill holdings. Meanwhile, the Treasury made purchases
for its investment accounts aggregating about $13 millions
for the two days.
On Friday, the Federal Reserve Board announced that
Federal Reserve banks would make advances to non-member
banks, as well as to member banks, on Government securities
at par at the prevailing discount rates.
III. High-Grade Corporate Bonds
In spite of the fact that the Treasury bond market was
receiving official support while the corporate bond market
was not, high-grade corporate bonds have suffered only
slightly more than Treasury bonds during the crisis. Our
average of the yields of long-term high-grade corporate bonds
increased by 0.21 percent from August 19, the last market day
before the beginning of the severe phase of the crisis, to
3.01 percent at the close on Saturday, September 2. The
spread between the yield of long-term Treasury and high-grade
corporate bonds on September 2 was 0.61 percent, as compared
with 0.58 percent on August 19 (Chart I).
The weakness in high-grade corporate bonds, however,
may not be fully brought out by our average, inasmuch as four
out of the five bonds used in the average did not trade on
Saturday, and two of them have not traded since Thursday.
86
Secretary Morgenthau - 5
The crisis has brought about a complete cessation of
offerings of new corporate bonds. On August 23, a large issue -- the $45 millions refunding of the Northern Indiana
Public Service Company -- scheduled to reach the market on
the following day, was postponed indefinitely.
IV. British and French Government Securities
The London Stock Exchange announced on Thursday,
August 31, that it would remain closed on the following day,
and until further notice. The announcement said that the
plan for the evacuation of children and others would disrupt
railroad transportation, and make it impossible for members
of many staffs vital to the Exchange to reach the city. The
announcement brought business virtually to a standstill. All
prices, where mentioned, were quoted nominally lower, but
selling pressure was negligible.
Prior to the closing of the London Stock Exchange, action had been taken to prevent any further drop in giltedged prices. On Thursday, August 24, minimum prices had
been institute for all British, Dominion and colonial Government securities, such minima being the lows of August 23.
The crisis has brought British security prices, which
have been receding steadily since June, down to levels not
touched since 1932. The yield on the British 2-1/2 percent
consols rose to a high of 4.00 percent on August 22, and
stood at 3.86 percent on Thursday, August 31, when the Exchange closed (Chart V).
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, it was 1.50 percent; on August 16, it was 1.60 percent;
and on August 31, it was 1.56 percent. These comparisons,
however, are subject to the reservation that since August 24
the London Stock Exchange has not been a free market. The
fixation of minimum prices, however, could hardly have been
responsible for the rise in British Government securities
which took place the first part of this week.
Short-term yields rose sharply in London, following the
increase in the Bank of England's discount rate from 2 percent to 4 percent. The yield on weekly offerings of British
Treasury bills increased from 0.8 percent on August 18 to
3.7 percent on August 25 and September 1.
87
Secretary Morgenthau - 6
No action similar to that taken in Great Britain had
rity prices at the week-end. The prices of French Government securities, which had been declining more or less
steadily since the beginning of the year, had dropped to
new lows at the close of the week. The yield on the 3 per-
been taken by the French Bourse with respect to French secu-
cent perpetual rentes stood at 4.20 percent on Friday,
September 1, as compared with 3.37 percent on December 21,
1938, the lowest yield reached in some years.
Attachments
Chart I
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM US TREASURY
AND AVERAGE OF HIGH GRADE CORPORATE BONDS
Yields Based on Wednesday Quotations
JAN
MAR
FEB
MAY
JUNE
1939
AUG SEPT OCT NOV DEC
JULY
to
BY
1938
APR
..
Inverted Scale
PER CENT
inverted Scale
PER CENT
2.2
2.2
2.4
Long Term Treasury" (12 years or more to earliest call date)
2.4
2.6
26
28
28
3.0
3.0
3.2
3.2
Corporate
3.4
3.4
PER
CENT
PER
CENT
80
80
Spread Between Long Term
Treasury and Corporate
MW
60
60
40
40
20
20
/--
0
Office a the Secretary of the Treasury
BY
in
May's
MAY
-
JUNE
JULY
.
MAR
.
FEB
AUG
M."
SEPT
OCT.
NOV
DEC
-
JAN
"
FEB
MAR
a
APR
5.5
14
JAN
o
...
MAY
1938
"Break - line indicates change - compention of Long Term Treasury average
Note Lotest figures shown are for Sept 2
JUNE
JULY
AUG - SEPT OCT. NOV DEC
1939
F-58-D-1
89
Chart II
YIELDS OF TREASURY BONDS AND NOTES
1940
1942
1944
Based on Closing Prices
1946
1948
1950
1952
1954
1956
1958
1960
PER
1962
1964
1944
1948
1970
PER
CENT
CENT
2.75
2.75
250
September 2
250
225
225
August 19
200
2.00
Note:
1.75
1.75
.
:
1.50
1.50
125
1.25
Notes
0.00
1.00
June 5
Bands with no cell period
75
75
o Bonds with call period
Arrows to are line indicate
50
50
negative yield
Bonds
25
25
o
0
DOLLARS
DOLLARS
Millions
Millions
Amount
Outstanding
As of Sept 2. 1939
3500
3000
3500
3,000
Bonds
Notes
2500
2,500
2000
2,000
1.500
1,500
1.000
1,000
500
500
0
0
1940
1942
1944
1944
Note
1950
1948
1952
1954
1956
1958
1960
1962
1964
For callable bonds are computed to. and issues plotted or of. the earliest call date if the bond . cellingeyeabove pen
millions
shown
descriptions
Dollar amounts
and or of the
final maturity
date if theissues
bend are
is selling
below por The smooth surves are fitted by
Issues for which on exchange offer has been made and hos expired are excluded
in
of
in
1966
1968
1970
PRICES AND YIELDS OF SELECTED GOVERNMENT SECURITIES
Daily
Tields
Prices
SEPTEMBER
PERCENT
PERCENT
(INVERTED)
(INVESTED)
NOTES
June 1944
a BONDS
Dec. 1947
1.3
Des. 15. 1947
1.4
1.5
1.4
1.0
in
Dec. 15. 1949-15
is
2.0
2.0
2.1
2.1
2.3
2.3
Dec.
15.
2.4
2.3
-
1939
2.4
23
SEPTEMBER
1939
Office Transary
90
91
Chart IV
U.S. GOVERNMENT SECURITY HOLDINGS
WEEKLY REPORTING MEMBER BANKS
Cumulative Net Change From Feb 21, 1939
Mar
ab
Age
June
May
July
Sept
Aug
DOLLARS
DOLLARS
New York City
Millions
+600
+600
.400
+400
Total
-200
*200
Bills
0
0
200
-200
Notes
400
Mar
Feb
000
May
Apr
J
June
-400
Aug
Sept
*1000
All Other
+400
400
Bonds
200
+200
0
Bills
0
700
200
Total
400
-400
Notes
.00
Feb
1000
Mar
Apr
May
June
-600
July
Sept.
*1000
All Cities
800
.800
-800
Bonds
600
*400
400
200
200
Total
.
Bills
200
-400
Notes
-600
Mar
Apr
May
...
June
1939
July
Aug
Sept
Ohar
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM US TREASURY
BONDS AND U.K. 21/2% CONSOLS
Yields Based on Wednesday Quotations
1938
1939
OCT
NOV
DEC
MAR
APR
2.2
2.2
2.4
Long Term Treasury" . (12 years or more .
2.4
2.6
2.6
2.8
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
40
4.0
4.2
4.2
PER
PER
CENT
CENT
1.6
1.6
1.4
1.4
1.2
1.2
1.0
1.0
Differential
a
8
.
6
4
4
2
2
1939
"Break - Ane nécetes change - compension of Long Term Treasury average
Office the Secretary a the Treatury
Note latest figures shown are for Aug 3r Bridge Market CODE Sept
AUG SEPT OCT NOV DEC
-
1938
..
"
. . JAN FEB MAR . APR MAY JUNE JUNE JULY
o
o
TREASURY DEPARTMENT
93
INTER OFFICE COMMUNICATION
DATE August 31, 1939.
Secretary Morgenthau
TO
FROM
Mr. Haas HDA
Subject: September Financing
We recommend -- unless there is a material change in
the international situation -- that the September financing
be omitted entirely. Our reasons for this view may be
summarized as follows:
(1) The Treasury is under no necessity of conducting a
financing operation at this time, unless market conditions
appear favorable. The operation, if conducted, would be
merely for the purpose of anticipating a note issue not due
until December and adding to an already adequate working
balance. There is no reason to do either of these things
unless conditions are favorable. For sometime a large working balance has been maintained and maturing obligations
anticipated three months in advance, in order to be prepared
to skip a quarterly financing should a orisis or other
emergency render such a step advisable. The emergency has
now occurred, and it is time to reap the advantage of this
foresight.
(A) As far as new money is concerned, the
Treasury 18 well prepared to wait until December.
Mr. Bell estimates that if no new money at all is
raised between now and December the working bal-
ance will not fall below $500 millions. If unforeseen developments should cause a change in
this estimate, the balance could easily be main-
tained by bill issues.
(2) Omitting a new money financing at the present time
would not throw an excessive burden upon future financing
dates. It is estimated that the total amount of new money
financing (excluding guaranteed issues) which the Treasury
will have to do during the current fiscal year is between
$1.5 and $2.0 billions, or an average of from $500 to
$700 millions each during the remaining three quarters. This
estimate may be subject to a considerable margin of error,
but not enough to increase the amount of financing required
94
Secretary Morgenthau - 2
during subsequent quarters beyond the probable absorptive
capacity of the market. If the volume of bills should be in-
creased, the amount of financing required at the regular
quarter dates would, of course, be correspondingly reduced.
(3) Despite the fact that the net recession in the price
of United States securities has been remarkably small, oonsidering the gravity of the international crisis, the market
has been very thin. It would, consequently, be very hazardous to price a new money issue. The smallness of the decline
appears to have been due more to a lack of panicky liquidation than to the presence of important bids.
(4) A financing operation confined to an exchange offering for the December notes would avoid in part the difficulty
of asking purchasers to make new commitments at this time,
but has the special difficulty that, according to precedent,
it would have to be held open two or three days with a correspondingly greater exposure to changes in the international
situation than would be the case with a new money issue.
(5) The effect upon general financial sentiment of omitting a Treasury financing operation would probably be favorable rather than the reverse. It would demonstrate the
strength of the Treasury position and its lack of necessity
to resort to the money market, except at times convenient to
it. It would also avoid the establishment of a baseline upon
which new offerings of corporate securities might be measured.
If, for example, the Treasury financing operation in the crisis
period should be confined to refunding the December notes into
new 2- and 3-year notes, the reaction of the corporate seourities market might be "If that's the best that the Treasury can
do, how can we expect to do any better?" In the absence of
such a baseline, the corporate market might be expected to re-
vive more rapidly with a real liquidation of the crisis.
(6) Finally, should the orisis develop instead into war
and the war cause a general decline in Government bond prices,
it is true that we may have to pay more later for money than
we would at the present time. Under such circumstances, however, this interest saving would have been purchased at the
expense of seeing a new Treasury issue fall immediately to a
substantial discount. If the orisis is to develop into war,
it would be better to do our borrowing later on the basis of
the new facts after they become known. Borrowing at the
present time is on a half-peace and half-war basis, and is
likely to be unfair to either the Treasury or the purchasers,
whichever eventually develops.
915
95
September 2, 1939.
To:
Lt. F. E. Pollio
Acting Chief, Intelligence Unit
Coast Guard
From: Acting Secretary Hanes
NOTE:
Confirming telephone conversations
This is confirming wire, given to you over telephone
this morning at 9:00 a.m., from Acting Secretary
Fance to Secretary Morgenthaus
London - Although British and French ambassadore presented their
ultimatum for withdrawal of German troops from Poland by
midnight last night there has not as yet been any announce-
nont of their departure from Berlin after expiration of
the time limit or any explanation of the delay in their
departure period
London and Paris - Parliaments meet period Chamberlain to speak later
period
Narsaw - Authorities claim army is holding Germany at border points period
Berlin - official news agency announces submarine fleet has put to sea
and that Germany is ready for ten-year war with Britain period
Army claims to have reached Teachen consum Klobuck comma Wieruszow
comm and Schildberg period
Amsterdam - American stocks strong period
20
September 2, 1939.
To:
Chief Wilson
FROM Acting Secretary Hanes - 10:00 A. M.
NOTE: For transmission to Secretary Morgenthau through
Coast Guard radio station at Fort Hunt, Va.
London - All British Cabinet ministers placed portfolios at
Chamberlain's disposal period
Rome - Italy adds one thousand pilots to air force period
London - Enbargo on grain conna flour come milk comma meats
comma sugar corma fish by board of trade period Labor
representative introduces in house bill to conscript
men between eighteen and forty-one period
Paris - official Polish reports thirty-four planes shot down
first day period
Colo - Norway comm Sweden comma Denmark comma Finland and
Iceland declare neutrality in joint statement period
Chicago - Wheat up five cents period same at Minneapolis and
Winnipeg period Lard up 50 point limit period
New York - War stock rush continues period
Commodities Opening
Dec. Wheat up 4 1/2 to 5 cents
Now
78 3/8 up 4 7/8
Dec. Corn up 3 1/8 to 3 3/8 cents 51 up 2 7/8
Oct. Cotton up 10
10:45 A.M. tape prices
song
42 1/8 up 7/8
Kern
1/2 up 1 1/4
U.S.Steel
54 3/8 up 2 3/8
Beth Steel
69 1/8 up 4 1/8
Anac.
30 5/8 up 2 1/2
U.S.Rubber 41 3/4 up 1
Art. Tel. 158 1/2 unch
Chry. 78 1/2 up 3/8
Repub. Steel 20 up 1 3/4
Mrs. Klots now at office period
8.44 up 2 points
SS
September 2, 1939.
Chief Wilson
To:
97
From: Acting Secretary Hanes - 11:00 A.M.
NOTE: For transmission to Secretary Morgenthau through
Coast Guard radio station at Fort Hunt, Va.
France ready for consiliation if fighting between Germans
and Poles ceases Daladier tells Chamber of Deputies period
Paris -
New York - Rubber futures drop thirty-five to fifty-seven points from
days best levels period Hides off forty-five points from
days best period Copper off fifty to fifty-five points
period Stock market trading slows somewhat but brokers
believe public seems confident of future marketwise period
Trading dulls near noon with price movement irregular period
Postmaster suspends first class air mail period
London Under eleven oclock ourfew period
Paris Washington-President begins daily conferences with army and navy period
Polish resistance successful period farthest German peneParis tration reported three miles period General mobilisation
in effect period
11:45 Daylight
Stock market at 11:30 was quieter after brief setback leaders
steadied and recovered fractionally period
30 Industrials 137.97 up 2.72
Markets:
20 R. R's. 26.27 upera34m
26 Utilities 23.42/off 1172
11:00 averages
}
Transactions 10-11 1,020,000 vs. 540,000 yesterday
Commodities
Dec. Wheat
Dec. Corn
Oct. Cotton
up 3 1/2 cents
77
50 2/4
8.42
up 1/3 cents
unchanged
11:30 A. M. tape prices
Beth. Steel
Chry.
Sonj.
68 3/8 up 3 3/8
19 1/2 up 1 1/4
30 up 1 7/8
49 up 5/8
78 1/2 up 3/8
42 5/8 up 1 3/8
Gen. Not.
U.S. Rubber
46 up 1 1/8
41 5/8 up 7/8
Rep. Steel
Anac.
Int. Nick.
U.S. Steel
54 up 2
Nar Cisis
September 2, 1939.
To:
Chief Wilson
From:
Acting Secretary Hanes - 3:00 P.M.
98
NOTE: For transmission to Secretary Morgenthau through
Coast Guard radio station at Fort Hunt, Va.
London -
Chamberlain tells House Commons Britain and France
not weakening but would avoid catastrophe even at
this last moment and would extend same opportunity
to our adversaries even though I anticipate the
reply we will receive. Says will not recognize
validity of Danzig seizure or enter discussions
while German armies remain in Poland. Promises
definite statement to Parliament tomorrow after
Labor leader asks why England has delayed action.
Chamberlain says French and British not yet agreed
on time limit they will set for German reply to
their demand that armies withdraw from Poland but
press reports deadline is noon tomorrow. Commons
adjourns until that time.
Berlin -
Troops from Pomerania on west and East Prussia have
met
north.in the corridor isolating Polish troops in the
99
September 2, 1939.
MEMORANDUS TO THE FILES:
Conversation between Governor Harrison, President of the Federal Reserve Bank
of New York, Mr. D. W. Bell, and Mr. Hanes. Time 9:08.
Harrison: John, George Harrison.
Bell:
This is Bell.
Harrison: Have you not anything you want to tell us at all?
Hones:
Harrison:
I haven't got a thing in the world. Let me nak Danny. George, I
don't know what you plan to do today. - I guess to do what you
have to and that is about all.
Short of further instructions Sproul is going to open un with bids
across the board one-eighth down from the four o'clock closing on
the long bonds, long notes, one-sixteenth down on the shorter
stuff. - At four o'clock the market was off for a further -
off one-eighth so that it was down for the whole day just exactly
one point. He is opening up an eighth under now, and there is
some feeling us there that the corporates have gone down out of
proportion to Governments, and there is a good arbitrage. From
the Governments to corporates. I think that is bad. Marriner
raised the question whether you should eliminate the differential
by letting the corporates down - or so far as - is concerned
at the figures I have just given you. - Now the total, you have
not the total figures. We bought $115,505 thousand, of which 61
was for dealers and 54 and a fraction from the market. Over 6 of
that we took in the last hour after the market closed. There is
no evidence yet up there at a quarter before 9 our tine that there
is any drying up of offerings. Expect a busy day.
Hanes:
Where are you in Washington?
Harrison: I am sitting over here at the Reserve Board.
1g
1 original and 2 carbons made.
For Secin
IOF 601
100
CONFIDENTIAL
2 September, 1939.
MEMORANDUM FOR ASSISTANT SEGRETARY GASTON:
Information has reached this office direct from Mexico from an
authoritative source that the German government has directed all norchant ships now in Pacific OF Caribbean ports of Central America, Oube.
and the United States, to proceed immediately to Mexican ports. German
ships having arrived in Mexico area
Passenger ship
ORINOOO
in
Tampiee
Freighter
NAMELY
Vera Grus
Tanker
Tanker
Tanker
IDARWALD
Tampiee
Tampiee
Tampice
EMMY FREIDRICK
RHEIN
Italian vessels receiving orders from the Italian radio station at
Coltano during the last twenty-four hours are as follows
CASTEL BIANCO - Telegraph probable date your arrival Maples
PIER LUIGI
- Dunker at Port Said; use maximum speed
PIER LUIGI
- Use all possible speed to arrive port
The Italian station also sent a call in the Italian language to the Jugoslavian vessel PLAYNIK to telegraph her present position.
Instructions are being broadcast by the Supreme Marine Command of
the German government to all German ships with routine orders concerning
running lights, blacking out of lights, not entering mouths of German
rivers or harbors without pilete and the like.
It should be noted that present reports indicate that there are no
GERMAN vessels in the United States territorial waters.
The following vessels were listed as being in United States ports on
September 1st:
Arrival
In Boston:
Italian
MONGIOIA
Aug. 27
BONA
Aug. 24
Aug. 26
In New York
Italian
Italian
Italian
BIRMANIA
AMSTERDAM
Sept. 1
101
IOF 601
2 September, 1939.
REAL
Arrival
In Norfelki
Italian
IDA $ 0
Aug. 30
In St. Thomas
Italian VIGOR
Aug. 31
In Galvesters
Italian
LAURA 0
Aug. 27
ADA 0
MARINA 0
Aug. 29
Aug. 29
In Maltimores
Italian
Italian
In San Transisco:
Italian LINE
Aug. 25
Is New Orleanes
Italian IDA
Italian
Aug. 22
Aug. 25
MONFIORS
In Les Angeles:
Italian FELLA
Sept. 1
In Houstons
Italian
Sept. 1
AEQUITAS
The following vessels cleared United States ports on September 1st:
Italian
LIVENSA
Pelish
POLSUK
from
Baltimore for Houston
Gleveland
Chicago
(Day Secut 56 first ketch)
F. B. POLLIO.
Lieutement, U. s. Coast Guard,
Asting Chief Intelligence Officer.
.2-
102
GRAY
NC
LONDON
Dated September 2, 1939
Rec'd 7:48 a.m.
Secretary of State
Washington
1372, September 2, 1 p.m.
FC THE ACTING SECRETARY OF THE TREASURY FROM
BUTTERWORTH.
With reference to the third paragraph ox' my strictly
confidential telegram 167, September 1, midnight, the
British Treasury telephoned this morning "In order to avoid
any possible misunderstanding" to point out that by foreign
balances of non-residents they meant ante-war balances, not
thos E acquired as a result of war activities. Naturally
American Exporters to the United Kingdom will feel it
advisable to obtain assurances of payment in dollars before
shipment. In this general connection the Ambassador asked
ME to Emphasize both the confidential nature of the informa-
tion in paragraph three of last night's telegram and that
it is important that no word leak out that discrimination in
favor of Americans will take place through the administrative
machinery.
KENNEDY
HPD
103
PLAIN
MRE
London
Dated September 3, 1939
Rec'd 9:10 a.m.
Secretary of State,
Washington.
RUSH.
1395, September 3, 3 p.m.
FOR THE ACTING SECRETARY OF THE TREASURY FROM
BUTTERWORTH.
The financial regulations and Treasury orders referred
to in paragraph 2 my 1367 of September 1 - midnight are
being promulgated. The British Treasury states that all
banks will be closed on Monday but it is their intention
to open them on Tuesday. There will be no general mora-
torium but under the new Treasury powers debtors in particu-
lar difficult circumstances can apply for special consideration and their cases will be treated by the British
monetary aurhorities on their individual merits.
The British Treasury states it has not yet been decided
as to what the official rate for sterling in terms of dollars
will be when the banks open on Tuesday.
KENNEDY
CSB
104
PLAIN
PAP
BERLIN
Dated September 3, 1939
REC'D 10:15 p.m.
Secretary of State
Washington
1042, September 3, 5 p.m.
59. FO. TREASURY FROM HEATH.
No public loans or special financial measures of importance have so far been announced. The latest figures for
the disclosed government debt are for the quarter ended
June thirty. Separate figures for the month of June
alone have not yet been made public but the quarterly
figures indicate that government borrowing was not as
great during June as was thought.
Figures for the single month of June are only available as regards the short term debt which increased but
410 million marks, the smallest monthly increase in recent
months. A total of 829 million marks of the new finance
plan tax certificates was issued during June but the
increase from this source was offset by the retirement
of about 149 million of short term Treasury paper.
The quarterly figures show an increase of 724 million
marks in long term debt (mainly further Emissions of bonds
of
105
PAP -2- 1042, September 3, 5 p.m. from Berlin
of the January 1939 issue to supply the investment needs
of the savings banks and insurance companies) is during
the three months ended June thirty. This increase occur-
red during the last two months of the quarter. In April
there had been & decrease in long term debt through amor-
tization of 21 million marks. The total reported debt of
the REich long and short term WCS thirty four thousand
five hundred SEVENTEEN million marks on June 30 as com-
pared with thirty thousand Eight hundred fifty one million
marks on March 31. (This last figure is slightly higher
than that reported in my number 41 of June 23, 6 p.m.,
due to the inclusion of old style tax certificates issued
during the Earlier years of the regime which WERE not pre-
viously included in the Reich debt totals. (The net inCREASE in the published debt during the quarter was there-
fore three thousand six hundred sixty six million marks
instead of the four billion mark increase anticipated).
with the publication of the debt figures for June
30 a better approximation of recent government Expenditures
can now be made than that given in my number 56 of August
15, 5 p.m. Tax revenues of five thousand two hundred twenty
one million, net borrowings of three thousand six hundred
sixty six million marks and an estimated two hundred fifty
million marks of miscellaneous revenues make a total of
nine
106
PAP -3-
1042, September 3, 5 p.m. from Berlin
nine thousand one hundred thirty SEVEN million marks for
the June quarter. From this must be deducted the share
of the municipalities and provinces in the Reich tax
revenues, estimated to be around SEVEN hundred million
marks C. quarter. It is assumed, therefore, that government expenditures totalled at least Eight thousand four
hundred thirty SEVEN million marks during the June
quarter, indicating an annual rate of between 33 and 34
billion marks as compared with an Estimated 27 billion
during the fiscal year Ended March 31 last.
KIRK
KLP
107
TREASURY DEPARTMENT
WASHINGTON
office of
The Secretary
SEP 3 1939
The Collector of Customs,
Sir:
Strictly Confidential
In your application of pertinent laws, regulations, and instructions,
N distinction should be recognited between merchant vessels armed solely
for defensive purposes and merchant vessels armed for offensive purposes.
Merchant vessels armed only for defense shall be treated in the same
manner as unarmed merchant vessels. Merchant vessels armed for offense
are to be regarded as vessels of war and subject to treatment as such.
Any control necessary to be exercised with respect to vessels of
war in territorial waters or ports of the United States will be exercised by the United States Navy, to which the full cooperation of
the Customs Service shall be extended.
Primary responsibility for examining vessels represented to be
merchant vessels to determine whether they are armed for offense rests
with collectors of customs. If a merchant vessel carries armament
which is mounted or may be mounted thereon and there is any doubt
whatsoever whether such armament is for defensive or offensive pur-
poses, you should consult with the nearest principal officer of the
Coast Guard and be guided by his advice.
If an armed merchant vessel of a belligerent carries a commission
or orders issued by a belligerent government directing it under penalty
to conduct aggressive operations, or if it is conclusively shown to
have conducted such operations, it should be regarded and treated as a
vessel of war.
For the guidance of Customs and Coast Guard officers concerned
the Department, in consultation with other departments of our Government,
has prepared a list of some of the conditions and circumstances which
will tend to indicate that armanent found on a vessel is for defensive purposes only. All these conditions and circumstances should
be considered in conjunction with each other, together with any
other facts or attendant circumstances which might aid in determining whether the voyage which the vessel proposes to undertake will
in fact be solely for the purpose of normal, legitimate, and peaceful
-2108
trade. For instance, the fact that a vessel does not carry more
than four guns and that none of the guns is of a greater caliber
than six inches does not of itself indicate conclusively that the
armament is defensive. Other attendant circumstances may reveal that
the armanent is for offense and that the vessel is to be regarded as
a vessel of war.
The list above mentioned is as follows:
Indications that armament will not be used offensively are:
1. That the caliber of the guns carried does not exceed six
inches and that the number of the guns carried does not
exceed four.
2. That the small arms carried are few in number.
3. That the quantity of ammunition carried is small.
4. That the vessel is manned by its customary personnel supplemented only by a reasonable number of personnel to operate
the defensive armament.
5. That the vessel intends to and actually does clear for a port
lying in its usual trade route, or a port indicating its
purpose to continue in the same trade in which it was engaged
before war was declared.
6. That the vessel takes on board fuel and supplies sufficient
only to carry it to its port of destination, or the same quantity substantially which it has been accustomed to take for
a similar vayage before war was declared.
7. That the cargo of the vessel consists of articles of commerce
unsuited for the use of a ship of war in operations against an
enemy.
8. That the vessel carries passengers who are as a whole unfitted
to enter the military or naval service of the belligerent whose
flag the vessel flies, or of any of its allies, and particularly
if the passenger list includes women and children.
Very truly yours,
(Signed) JOHN W. HANES
Acting Secretary of the Treasury.
109
September 3, 1939.
4 P.M.
Mr. Secretary?
Hanes:
Yes.
H:
This is Lieutenant Field.
Yes - hello.
F:
I have a - I sent a message to Secretary Morgenthau and I'11 read you the message I sent
which is as follows: "Mr. Hanes desires to
know whether you expect to come through from
Boston tonight on V-151 or will you stay in
Boston tonight?" I just got a message back
which isn't a direct answer to that but may
be intended as an answer. It says: "For
Treasury Switchboard. Please have two cars
meet me at airport when we arrive in Washington.
When we leave Boston will notify of time my
arrival. Signed Morgenthau. I imagine that
that would indicate he is coming through tonight.
H:
Yes I should imagine so. Well if you get any
direct answer to my telegram let me know, you
see because I want to meet him.
F:
Yes sir, I'll do that.
H:
And if he doesn't answer it then check him up a
little later in the afternoon and say I want to
have a definite answer. I don't want to say to
him that I want to know whether he's coming or
not because I want to go to bed if he is not
coming. That's the idea.
F:
H:
Yes sir. Well I'11 check it up a little later
on and tell him that you expect to meet him when
he arrives. Is that correct?
Yes, that's correct but don't say that in the
telegram.
F:
All right.
-2-
H:
110
Just keep checking up on the ship to make sure
that he is coming through tonight. That's all I
want to know.
F:
Oh, all right sir. You don't want me to send
H:
No, just wait a little while. If he thinks
another message and ask
this is an answer to my message - I would judge
that it is an answer but not directly to my
message. They may send you back a message saying
he will come through tonight and that's what I
want to know.
F:
H:
F:
Yes sir. All right sir, I'11 keep informed about
that.
O.K., thank you very much.
You're welcome sir.
111
GRAY
MRE
London
Dated September 3, 1939
Rec'd 2:08 p.m.
Secretary of State,
Washington.
RUSH.
1407, September 3, 7 p.m.
FOR ACTING SECRETARY OF TREASURY FROM BUTTERWORTH.
I inquired as to plans of the Dominion and Colonial
Governments and was informed by Phillips that with the
exception of Canada, Newfoundland and such entrapot places
as Hong Kong, they were all putting into effect arrangements similar to those promulgated by the British Government.
Phillips again explained that it had not yet been
decided what would be the official rate of the pound on
Tuesday, but for our guidance he indicated that he was
practically certain that it would not be below four dollars.
He felt it should be just a few cents above four dollars;
drastic depreciation he feared would have too inflationary
an effect.
KENNEDY
NPL
112
McC
LONDON
Dated Sept. 3, 1939
REC'D. 3:30 p.m.
Secretary of State,
Washington.
1411, September 3, 9 p.m.
Embassy's 1383, September 2, 5p.m.
Following is Board of Trade announcement dated
SEptEmbEr 3.
"The Board of Trade announce that they have made
an order under the Imports Exports and Customs Powers
(DEfEnCE) Act 1939 which was passed into law on
Friday last prohibiting imports of certain goods
EXCEPT under licence. The object of the order is to
limit with Effect from the 5th SEptEmbEr imports of
luxuries and of goods of which there are sufficient
home supplies in order to conserve Exchange for the
additional purchases of other products required in war
time. The main categories of goods COVERED by the order
are pottery and glass, cutlery, clocks and watches,
textile goods and apparel (including footwear), certain
chemicals and paints, soap, office machinery (including
typewriters)
113
McC
-2- Telegram #1411, Sept. 3, 9p.m. from London
typewriters), motor cars, musical instruments,
perfumery and toilet requisites, toys and games and
luxury foodstuffs.
Enquiries should be addressed to the Import
Licensing Department 25 Southampton Buildings,
Chancery Lane , London,WCZ".
I have received a proof copy of the order and
two related schedules which are not to be published
before tomorrow. As they COVER Eight fine print pages
they will not be telegraphed unless requested.
KENNEDY
CSB
114
REB
GRAY
Paris
Dated SEptEmbEr 4, 1939
Rec'd 10 :49 a. m.
Secretary of State,
Washington.
RUSH
1765, September 4, 11 a. m.
FOR THE TREASURY.
Bank of France quotes a buying rate for dollars
this morning of 41.75 and for pounds of 175.55. Up to
this hour of 11, however, there have been practically no
Exchange transactions.
It is EXPECTED that the Bourse will open this afternoon as usual handicapped, of course, by greatly reduced
personnel. The Journal Official carries a decree closing
the commodity Exchange at Havre.
BULLITT
RR
CSB
115
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE:
September 4, 1939, 3 p.m.
NO.:
1768
RUSH.
FOR TREASURY.
We have just been informed by Reynaud that this
morning the British Government stated to him that today
the British Government intended to establish exchange
control. Reynaud added that he had been asked to state
the figure at which the French would like to have the
franc fixed, and he had told them that they could take
the figure 175.55, which was the latest closing quotation.
As for the dollar, Reynaud said he had been informed
by the British that it was their intention to fix the
dollar price at four naught four.
END SECTION ONE.
BULLITT.
EA:LWW
116
PARAPHRASE, SECTION TWO, TELEGRAM NO. 1768
OF SEPTEMBER 4, 1939, FROM THE AMERICAN EMBASSY,
PARIS.
For the moment, Reynaud said, in spite of the measures
which the British were taking, he did not intend to take
extraordinary measures for the "protection" of the French
franc.
In addition, Reynaud said he thought the British in
fixing the pound at (omission) four naught four were
"exceedingly optimistic". The pound would be driven considerably lower than that by war of any considerable length.
We were told by Reynaud that he had already sent to
the neighborhood of Tours approximately 4000 employees of
the Finance Ministry. He said that for himself he expected
to stay in Paris with about 400 Ministry employees, 100
of them being firemen and guards.
END MESSAGE.
BULLITT .
EA:LWW
117
September 4, 1939
4:47 p.m.
HMJr:
Operator:
Admiral H.R.
Hello.
Go ahead.
Stark:
Hello.
HMJr:
Yes?
S:
Mr. Secretary?
HMJr:
Talking.
S:
This is Stark.
HMJr:
How are you?
S:
I'm first-rate, sir, and I've been intending calling
on you but you -- since you've gotten back, but we' ve
been so busy I just haven't gotten over, but I did
appreciate your note.
HMJr:
Well that's fine.
S:
Well, what I called you for right now was Mr. Edison
HMJr:
Yes.
has sent you a letter.
S:
HMJr:
Yes.
S:
And he asked me to tell you
HMJr:
Yes.
that in his judgment it would be well to say
nothing about this patrol until we had it -- we are
ready to establish it. In other words, keep the
thing secret, or confidential, for the present.
HMJr:
Well, I've already told Waesche to get two cutters
ready.
S:
Yes.
HMJr:
Ah
-2S:
118
Well, what I -- I don't mean that part of it, but I
mean as far as giving anything out to the press.
HMJr:
S:
Oh, we never do that.
Yes, sir. All right. Well, he
No.
S:
HMJr:
S:
HMJr:
he's giving out nothing and he just wanted
to make sure that
No.
you knew what he was doing.
No leaks in the Treasury.
All right, sir.
No, we're assigning -- as I understand it, we're
assigning those two cutters to you and then it's
your show and you do the talking.
S:
All right, thank you ever so much, sir.
Thank you.
All right. Goodbye.
Sept 4, 1939
119
r
be of I/ Moore of
Hackussite
Feis
his note from full
fun to my asking for
thiname to help me in
mandie and Them Marie
Sept 4,
1939
120
I will go to work on
this right after cabinet
who will you assign
me to this job
the Normandie and
queen many Henry
I will - phone you
he often I reach
office -
121
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
September 4, 1939
TO
Secretary Morgenthau
FROM
E. H. Foley, Jr.
For your information
Supplementing my memorandum of this afternoon, it is suggested
that as an alternative to the use of the American President Lines Inc.
there might be employed in the Normandie transaction as purchaser the
Panama Rail Road Company.
The Panama Rail Road Company is a New York corporation created by
Chapter 284 of the Laws of 1849. That Act authorizedcertain individuals
to form a corporation "for the purpose of constructing and maintaining
a railroad, with one or more tracks, and all convenient buildings, fixtures,
machinery and appurtenances, across the Isthmus of Panama, in the Republic
of New Granada * * and of purchasing and navigating such steam or
sailing vessels as may be proper and convenient to be used in connection
with the said road." By Chapter 364 of the Laws of 1855 the corporation
was granted certain additional powers and permitted to increase its
capitalization to an amount not to exceed $7,000,000.
In 1904, the United States acquired the entire capital stock of
the corporation and ever since has been the sole owner thereof. In an
opinion of the Supreme Court of the United States in 1937, the Court noted
that "the company operates a railroad across the Isthaus, conducts a
commissary establishment for the benefit of the personnel of the Panama
2-
122
Canal, the railroad company, and the armed forces of the United States upon the
Isthmus, and operates a dairy and two hotels in connection therewith. It also
operates a line of steamships between New York and the Canal Zone * ** Since
the acquisition of the railroad company by the government, the directors, thirteen
in number, have been elected by the Secretary of War, as sole stockholder of record
of the corporate stock with the exception of thirteen qualifying shares held by
the directors."
Under New York law power is conferred upon every railroad corporation "from
time to time to borrow such sums of money as may be necessary for completing and
finishing or operating or improving its railroad, or for any other of its lawful purposes and to issue and dispose of its bonds, secured or unsecured, for any amount so
borrowed; and to mortgage its property and franchises to secure the payment of any
debts contracted by the company for the purposes aforesaid, notwithstanding any
limitation on such power contained in any general or special law." (Railroad Law I 8,
Subd. 10, underlining mine).
It would seem, therefore, that the Panama Rail Road Company has authority
to borrow money and issue its obligations for the purpose of financing the purchase
of the Normandie even though the Normandie might cost in excess of $7,000,000.
See N.Y., N.H., & H. R.R. Co. V. Welsh, 143 N. Y. 411, 415.
The purchase of the Normandie would be effected in the same manner as outlined
in my memorandum of this afternoon dealing with the powers of the American President
Lines Inc. Section 55 of the Public Service Law of the State of New York may require that the approval of the Public Service Commission be obtained prior to the
issuance of the securities of the Panama Rail Road Company.
A typewritten copy of the charter and by-laws of the company is attached.
123
CHARTER
and
AMENDED BY-LAWS
of the
PANAMA RAIL ROAD
COMPANY
New York
1907
124
AN ACT
TO INCORPORATE THE
PANAMA RAIL ROAD COMPANY
Passed April 7, 1849.
The People of the State of New York, represented in Senate and
Assembly, do enact as follows:
SECTION 1. - WILLIAM H. ASPINWALL, JOHN L. STEPHENS, HENRY CHAUNCEY,
JAMES BROWN, CORNELIUS W. LAWRENCE, GOUVERNEUR KEMBLE, THOMAS W. LUDLOW,
DAVID THOMPSON, JOSEPH B. VARNUM, SAMUKL S. HOWLAND, PROSPER M. WETMORE,
EDWIN BARTLETT, HORATIO ALLEN, and their associates, successors and assigns,
are hereby constituted a body corporate, by the name of the "PANAMA RAILROAD COMPANY," for the purpose of constructing and maintaining a railroad,
with one or more tracks, and all convenient buildings, fixtures, machinery
and appurtenances, across the Isthmus of Panama, in the Republic of New
Granada, under the grant made by the said Republic to the said WILLIAM H.
ASPINWALL, JOHN L. STEPHENS, and HENRY CHAUNCEY, and of purchasing and navi-
gating such steam or sailing vessels as may be proper and convenient to be
used in connection with the said road; and for such purposes all the necessary
and incidental power is hereby granted to the said corporation.
SEC. 2.- The capital stock of the said corporation shall be fixed by
the directors at a sum not less than one million of dollars, with liberty to
increase the same at any time to a sum not exceeding five millions of dollars. Said stock shall be divided into shares of one hundred dollars each,
and shall be deemed personal property, transferable in such manner as the bylaws of the said corporation shall direct. The said corporation may commence
operations when five hundred thousand dollars shall have been subscribed,
and twenty per cent. on each share subscribed for, paid in. The said
WILLIAM H. ASPINWALL, JOHN L. STEPHENS, AND HENRY CHAUNCEY, shall be com-
missioners to receive subscriptions for the said capital stock, and if the
whole capital stock shall not be subscribed at the time first appointed,
other subscriptions may be at any time received, until the whole amount
shall be subscribed, at such times and under such rules and regulations as
they shall prescribe.
SEC. 3.- The concerns of the said corporation shall be managed by
thirteen directors, who shall be stockholders, and who (except the first
directors hereby appointed) shall hold their offices for one year, and until
others are chosen in their places. The persons named in the first section
of this act shall be the first directors, and shall hold their offices until
the first Monday of April, in the year one thousand eight hundred and fiftyone, and until others are chosen in their places. The directors, except for
the first two years, shall be annually chosen at such time and place in the
City of New York, and on such notice, as shall be directed by the by-laws
of the said corporation. In all meetings of the stockholders each share
shall entitle the holder to one vote, to be given in person or by proxy.
In case it should at any time happen that an election of directors shall not
-2-
125
be made on the day appointed by the by-laws of the said corporation,
the said corporation shall not for that cause be deemed to be dissolved,
but such election shall be held on any other day which shall be appointed
by the directors of said association.
SEC. 4.- The directors (of whom five shall constitute a quorum for
the transaction of business) shall appoint one of their number to be presi-
dent, and may appoint such other officers and agents as they shall deem
necessary, and they may make and establish such by-laws, rules and regula-
tions as they shall think proper and expedient, touching the disposition
and management of the property, estate and effects of the said corpora-
tion; the transfer of shares, the duties and conduct of their officers and
servants, the election and meeting of the directors, and all matters whatsoever which may appertain to the concerns of said corporation. When any
vacancy shall happen among the directors, it may be filled by the remaining directors; and the directors may remove all officers appointed by them,
and appoint others in their place, and fill all vacancies in the offices.
SEC. 5.- The directors may require payments of subscriptions to the
stock at such times and in such proportions as they may deem proper under
the penalty of forfeiting all stock and previous payments made thereon,
and may sue for and recover all such subscriptions. Notice of the time
and place of such payments shall be published for four weeks previous
to such time, at least once in each week, in two newspapers published in
the City of New York.
SEC. 6.- The said corporation may have a common seal, and the same
may alter or renew at pleasure; and all contracts made may be either verbal
or under the signature of the president, secretary, or other officer or
agent of the said corporation, and with or without the corporate seal.
SEC. 7.- - It shall be lawful for the said corporation to contract
with the said WILLIAM H. ASPINWALL, JOHN L. STEPHENS, AND HENRY CHAUNCEY,
for the purchase of all the rights, privileges and immunities granted to
them by the said Republic of New Granada, and for the purchase of the lands
granted to them by the said Republic, and to receive a conveyance of and
hold the same in like manner as the said WILLIAM H. ASPINWALL, JOHN L.
STEPHENS AND HENRY CHAUNCEY now do or can do; and to lease, or sell and
convey any of such lands which the said corporation shall not deem it
necessary to retain, and to build and construct all such buildings, piers,
docks, basins and harbors on the said lands as the said corporation may
deem expedient, in like manner as the said WILLIAM H. ASPINWALL, JOHN L.
STEPHENS AND HENRY CHAUNCEY can do under the said grant.
SEC. 8. - The said corporation may borrow from time to time such sum
or sums of money as may be necessary to complete said road, and for the
other purposes authorized by this act, in the whole not exceeding the amount
126
-
of the capital stock actually paid in, and may issue and dispose of their
bonds for any amount so borrowed; and are hereby authorized to mortgage
any part of their corporate property and privileges to secure the payment of
such bonds; and the said directors may confer on the holder of any bond
they may issue, for any money so borrowed, the right to convert the principal
due thereon into stock of the said corporation at any time not exceeding
five years from the date of said bond, under such regulations as the directors may see fit to adopt; and for such purpose, the said corporation
are authorized to increase its capital stock to the amount so borrowed, whenever the persons, or any of them, to whom such money is due, shall elect to
convert the same into stock; but nothing herein contained shall be construed to authorize an increase of the capital stock of said company beyond
the sum of five millions of dollars.
SEC. 9.- Each and every stockholder shall be individually liable to
the creditors of said corporation, for all debts that may be due and owing
by said corporation, to their laborers and servants for services performed,
and for all other debts and liabilities of the said corporation, to an
amount equal to the amount of stock held by him, until he shall have paid
in full the amount of such stock so held. But no stockholder shall be personally liable for the payment of any debt contracted by the said corporation which is not to be paid within one year from the time the debt is contracted, nor unless a suit for the collection of such debt shall be brought
against said corporation within one year after the debt shall become due;
and no suit shall be brought against any stockholder in said corporation for
any debt so contracted, unless the same shall be commenced within two years
from the time he shall have ceased to be a stockholder in said corporation,
nor until an execution against the corporation shall have been returned un-
satisfied in whole or in part. No person holding stock in said company as
executor, administrator, guardian or trustee, and no person holding such
stock as collateral security, shall be personally subject to any liability
as a stockholder of said company, but the person pledging such stock shall
be considered as holding the same, and shall be liable as a stockholder
accordingly, and the estate and funds in the hands of such executor, admin-
istrator, guardian or trustee, shall be liable in like manner and to the
same extent as the testator, or intestate, or the ward, or person interested
in such fund, would have been if he had been living and competent to act,
and held the stock in his own name. Every such executor, administrator,
guardian or trustee, shall represent the shares of stock owned by him as
such administrator, guardian or trustee, at all meetings of the company, and
may vote as a stockholder, and every person pledging his stock as aforesaid
may in like manner represent the same and vote accordingly.
SEC. 10. - This act shall take effect immediately.
-4AN ACT to amend the Act entitled "An Act to incorporate the Panama Railroad Company,"
passed April 7, 1849.
Passed April 12, 1855.
The People of the State of New York, represented in
Senate and Assembly do enact as follows:
1.- It shall be lawful for the Panama Railroad Company
to borrow, from time to time, in addition to the amount
limited by the act to incorporate said Company, passed
April 7, 1849, such sum or sums of money as may be necessary
to complete their road, and for other purposes authorized by said
act; to issue and dispose of their bonds for the reimburse-
ment of any amount to be borrowed, or which may have been
borrowed by them, and to mortgage any part of their corporate
property and privileges to secure the payment of said bonds;
and they may confer upon the holder of any bond which they
may so issue the right to convert the principal represented
thereby into the stock of said corporation, at any time
not exceeding five years from the date of said bond, under
such regulations as the directors may see fit to adopt, whenever any person or persons holding any such bond shall elect
to convert the same into stock; and for such purpose, the said
incorporation are hereby authorized to increase their capital
stock from time to time; so, however, that the whole capital
of said Company shall not exceed the sum of seven millions of
dollars, anything in said act to the contrary notwithstanding.
can 2.- This act shall take effect immediately.
127
-PANAMA RAIL ROAD
COMPANY
AMENDED
BY-LAWS
Corrected to January 21, 1927.
ARTICLE I
The election for Directors of this Company shall
be held at the office of the Company, in the City of New York,
on the first Monday of April in each year.
Three stockholders shall be chosen by the Board, at a
preceding meeting, to act as Inspectors. The polls shall be
opened at noon, and continue open until two o'clock in the
afternoon.
The Board of Directors shall consist of thirteen stockholders, five of whom shall constitute a quorum for the transaction of business at the meetings of the Board.
ARTICLE II
The Officers of this Company shall consist of a President,
a Vice-President, a Second Vice-President, a Secretary and a
Treasurer.
The President, the Vice-President, and the Second VicePresident shall always be members of the Board of Directors,
and the said officers shall be elected by the Board annually
within eight days after the election of the Directors. The vote
shall be by ballot, and a majority of all the members of the
Board shall be necessary to a choice.
In addition to the Officers before named, the Board may from
time to time appoint additional officers, engineers and agents
as the business of the Company may require, and define their
duties.
The salaries of the several officers shall be fixed by the
Board and no extra allowance or compensation shall be made, ex-
cept with the approbation of the Board.
In case of any failure to hold any election for officers,
those in office shall hold their places and be legally qualified
to act, until an election shall be held.
128
129
(6)
ARTICLE III.
The duties of the President shall be, to preside at the
meetings, and to exercise a general supervision over the affairs
of the Company. He shall have power to call meetings of the Directors at such time or times as he shall think proper, and it
shall be his duty to call such meetings upon the written requisition
of two or more of the Directors, stating the object for which
they wish such meetings convened.
The Vice-President shall, in the absence of the President,
exercise all of the powers and functions which may in any way be
delegated to the President.
The Second Vice-President shall reside on the Isthmus, and,
in the absence of the President from the Isthmus, shall exercise
such duties of the President as relate to the operations of the
Company at the Isthmus.
ARTICLE IV.
It shall be the duty of the Secretary to be present at the
meetings of the Board, to keep a record of all its proceedings,
and to enter the same in the minute book; to send notices to the
Directors of all meetings which are to be held, and to attend
to such other duties as may be directed by the President, or the
Vice-President.
ARTICLE V.
It shall be the duty of the Treasurer to receive and dis-
burse under the direction of the Board, all moneys belonging
to the Company, and to keep regular and systematic accounts of
all such receipts and disbursements, and to make detailed reports
of such receipts and disbursements to the Directors at each
stated meeting of the Board. He shall cause to be deposited
all moneys received by him for or on account of the Company, in
such bank or banks as the Board may select, or to make such disposition of the funds as the Board of Directors may direct; and
all deposits in banks shall be entered in a book in the usual way,
to the credit of the Company.
All checks and orders upon the funds of the Company shall be
drawn on the bank or institution in which the money of the Company
may be deposited, and such checks and orders shall be signed by the
130
(7)
President, the Vice-President, or in their absence the Assistant
to Vice-President, and the Treasurer; or by the President, or VicePresident, or in their absence the Assistant to Vice-President, and
the Auditor; or in the absence of the President, Vice-President and
the Assistant to Vice-President by the Treasurer and the Auditor; and
be drawn to the order of the party to whom the payment is made.
However, in cases of payment for wages due persons in the employ of the Company, the checks drawn upon a special deposit in bank,
called the Isthmus Draft Account, shall be signed by either one of
the following persons: The President, the Vice-President or the
Treasurer.
The Treasurer shall register all transfers of stocks, and for
this purpose he shall keep the account of the stock registered and
transferred, in such form and manner, and under such regulations as
the Board of Directors may from time to time prescribe, and he shall
attend to such other duties as may be designated by the President
or Vice-President.
The Treasurer shall also keep the dividend books and record of
bonds, attend to the payment of dividends and interest money.
It shall be the duty of the General Auditor to have charge of
and audit all accounts of the Company.
ARTICLE VI. - Repealed.
ARTICLE VII
All transfers of stock shall be made in the usual form, by
the stockholders signing in proper person or by attorney, in a book
to be prepared and kept by the Treasurer for that purpose, a declaration of sale or transfer, setting forth the number of shares transferred, the person to whom, and the time when, the same are so trans-
ferred; and at the time of such transfer, the old certificates of the
shares so transferred shall in all cases be surrendered and cancelled,
and a new certificate shall be issued in lieu thereof.
All certificates issued shall be signed by the President or the
Vice-President, and the Secretary.
131
(8)
ARTICLE VIII
There shall be held quarterly meetings of the Board of Directors, on the second Monday in the months of February, May,
August and November in each year.
A full and complete statement of the affairs of the Company,
showing the result of operations for the preceding fiscal year
ending June 30th, shall be submitted to the Board of Directors at
any regular or special meeting held after August first.
Dividends may be declared at any meeting of the Board of
Directors, stated or otherwise, payable at such times as the Board
may appoint.
ARTICLE IX
All books and papers of the Company shall be at all times
open to the inspection of the Board, or any member thereof.
ARTICLE X
The order of proceedings at the meetings of the Board shall
be:
First - Reading of the Minutes.
Second- Reports of the Standing Committee.
Third - Reports of Select Committees.
Fourth- Miscellaneous Business.
ARTICLE XI.
These By-Laws may be amended at any meeting of the Board,
provided such amendment shall have been previously handed to the
President or Vice-President in writing, and that a majority of all
the members of the Board consent thereto.
132
133
WAR DEPARTMENT
WASHINGTON
SEP 8 1938
*the following is a brief history of the Panama Railroad Company:
The Panama Railroad Company was incorporated under the laws
of the State of New York by an Act passed on April 7, 1849, that gave
it permission to construct and maintain a railroad across the Isthmus
of Panama, with all convenient buildings, fixtures, machinery, etc.,
under the grant made by the Republic of New Granada to William H. Aspinwall,
John L. Stephens, and Henry Chauncey; to purchase and navigate steam
or sailing vessels in connection with the Road; and to purchase all the
rights, privileges, and immunities that had been granted by the Republic
.
of New Granada to said Aspinwall, Stephens, and Chauncey.
Purchase of this concession was effected, and a contract was
entered into between the Panama Railroad Company and the Republic of
New Granada by which the Company was given the exclusive right to
134
-2construct and operate a railroad across the Isthmus of Panama. The
construction was begun in 1850 and completed in 1855. The French
Canal Company secured control of the Panama Railroad Company in 1881,
and ownership of the railroad and all of its rights and holdings came
into the hands of the United States Government in 1904 as part of the
purchase of the Panama Canal route and associated property. The Com-
pany is operated by a board of directors appointed by the Secretary
of War, who holds all the stock except the qualifying shares of the
directors. The Governor of The Panana Canal is President of the
Panama Railroad Company.
In 1851 the Company began the operation of a line of sailing
vessels between New York and its Atlantic terminal, then called Aspinwall, and also between its Pacific terminal to Central America and
Mexico and later to California. It has since operated ocean service on
the Atlantic and Pacific coasts in connection with its railroad terminals,
or provided for such service by contracts with other companies. The
present steamship service of the Company between New York and the Canal
Zone was inaugurated in 1893 with vessels of American registry, and
has been in continuous existence for forty-five years.
The Company is now operating two steamers of approximately
9,600 gross tons and two of 2,600 gross tons between New York and
Cristobal, via Port au Prince, Haiti; the two larger vessels carry
passengers as well as cargo. Commercial cargo is handled at conference
-3-
tariff rates but the principal utility of the line is in the carriage
of supplies to the Panama Canal and Panama Railroad activities on the
Isthmus and in transporting employees of the two organizations between
the Canal Zone and the United States; in fact, the line is considered
& necessary adjunct to the Canal operations through its furnishing
economical and reliable transportation for the Government and its employees. Three new passenger-cargo vessels are being constructed at
Quincy, Massachusetts, to replace the steamers now in service.
The Panama Railroad Company has operated a commissary divi-
sion for its employees since 1849 and when the United States Government
acquired the Canal Zone the division was enlarged to include the sale
of foodstuffs, clothing, household supplies, etc., to the Canal employees
and to other United States Government forces on the Isthmus. A further
extension was later made to permit the furnishing of necessary supplies
to vessels transiting the Canal or calling at its ports. This division
now embraces the operation of so-called wholesale warehouses, bakery,
sausage factory, abattoir, ice cream plant, industrial laboratory, etc.,
and distribution and sale through retail stores in the principal Canal
Zone towns.
The Panama Canal Act of August 24, 1912, authorized the
President to "establish, maintain, and operate, through the Panama
Railroad Company or otherwise, dry docks, repair shops, yards, docks,
wharves, warehouses, storehouses, and other necessary facilities and
135
136
-4appurtenances for the purpose of providing coal and other materials,
labor, repairs and supplies for vessels of the Government of the United
States and, incidentally, for supplying such at reasonable prices to
passing vessels." Under this provision, and due to the ownership of
all land in the Canal Zone by the United States with the resultant lack
of reliable private organizations, the Panama Railroad Company operates
various activities which would be conducted by private companies in the
usual residential and business communities.
In addition to the operation of the railroad proper, the
steamship line, and the Commissary Division, the business activities
of the Panama Railroad Company include the operation and maintenance
of harbor terminals with the transfer and stevedoring of cargo; baggage transfer; coaling plants; Canal Zone telephone system; hotels
Tivoli and Washington; plantations; cattle industry; dairy; and the
leasing of lots and rental of buildings on land owned by the railroad
in the cities of Panama and Colon.
137
R1o de Janeiro
Dated September 4, 1939
Rec'd 12:45 p.m.
Secretary of State,
Washington.
294, September 4, noon.
The Director of Exchange 18 taking steps to liquidate
the Bank of Brazil's position in German compensation
marks which amounts to approximately 6,500,000 com-
pensation marks. The director states that unpaid
German import obligations amount to 14,000,000,000
compensation marks. He will inform German Commercial
Attache today of the decision of the Bank of Brazil.
CAFFERY
PARAPHRASE OF TELEGRAM RECEIVED
138
FROM: American Embassy, Rio de Janeiro
DATE:
September 4, 1 p.m.
NO.: 295
Emergency economic and exchange measures to be
submitted today to the Minister of Finance have been
drafted by the Director of Exchange. The latter's
recommendations include: the establishment of an export and import commission to regulate foreign trade;
subjecting all imports to prior permits, to be issued
by the fiscalization department of the Bank of Brazil;
establishing import classifications which the Bank is
now preparing and which would favor importation of
"essential products" and raw materials; authorizing
the Bank of Brazil to exercise complete control over
exchange operations. The Director of Exchange eontem-
plates a plan which would permit the Bank of Brazil to
allocate exchange in accord with the classifications of
imports. Permission would be granted to the commercial
banks to buy export bills and to sell exchange for their
own collections at rates which the Bank of Brazil would
establish for both.
CAFFERY
EA:FL:MSG
this Chauren
Telephone bonversation between Mr. Hanes
and Assistant Secretary of State, George
Messersmith - September 4, 1939 - 12:15 P.M.
Messersmith:
Mr. Secretary I an wondering if it would be possible
for our Charge d'Affairs in Berlin to borrow the
services of the Treasury staff stationed there.
In view of the fact that your staff has very little
to do at present. and in light of our increased duties
helping to clear British and French affairs there. we
would certainly appreciate your help very much.
I think it sounds like a very fine idea. and I will
Hanes:
clear it with the Secretary at once and call you
back. How many men do we have stationed there?
lessersmith:
You have five or six men - May, Fox, Wolfe, Griebel,
Brown, etc. Of course. we would be perfectly
willing to release these men back to you at any
time.
Note:-Mr. Hanes cleared this request with the Secretary around
5:45 P.M. and advised Messersmith that it would be OK.
provided there were no objections from the Bureau of
Customs
Internal Revenue. which has jurisdiction over the staff
in Berlin. JR ckd with Rose , Johnson - to te a
total of abouth 14 men, including alino.
139
BK 209
140
RE STEPS TO MEET SITUATIONS
CREATED BY EUROPEAN WAR
Present:
September 4, 1939.
4:10 p. m.
Mr. Hanes
Mr. Gaston
Mr. Foley
Mrs Klotz
Mr. McReynolds
Mr. Bell
Mr. Tietjens (a short while)
H.M.Jr:
The first thing that we're going to do is,
we're going to buy the Normandie and the
Queen Mary.
Gaston:
I heard of that idea.
H.M.Jr:
Did you hear it? When did you hear about it?
I heard it up in Salem.
Gaston:
H.M.Jr:
(On phone) Hello. (Conversation with Admiral
Waesche follows:)
Bx 209
September 4, 1939
4:10 p.m.
HMJr:
Hello.
Operator:
Admiral Waesche. Go ahead.
HMJr:
Hello.
Admiral
Waesche:
Hello, Mr. Secretary.
HMJr:
Admiral
W:
Yes, sir.
ah -- two things. This is advance notice.
HMJr:
The President wants two of the Campbell transcutters to accompany the Navy on special patrol
to leave in about twenty-four hours. I'm giving
you notice. They -- they'11 be going up to cover
the ocean lanes.
Ah -- that's -- that's, of course, here on the east
coast, the ocean lane between here and
and Europe.
HMJr:
north Atlantic coast lane.
They are to accompany two destroyers.
They are to accompany two destroyers.
Yeah.
On the north Atlantic lanes.
Yeah.
Ah -- who -- who will they report to?
HMJr:
Well, you'll get -- I'm getting a letter from the
Acting Secretary of the Navy-it will come through.
Yes, sir.
HMJr:
And I'll send it to you. They report to the Navy.
Yes, sir.
141
-2HMJr:
142
This 18 the way they are going to work for the time
being. I mean, they'11 get a special request and
you 11 work for the Navy on special assignment.
W:
HDJr:
I see.
And then get -- I mean, have your cutters ready.
And then be here at five o'clock. And -- with this
in mind, we may buy the Normandie and the Queen
Mary, and if we do we -- we may want Coast Guard
to man them.
I see.
HMJr:
But don't talk about that to anybody, just be
turning it over in your own mind, unless there's
in your office that you want to discuss
itsomebody
with.
Yeah.
All right, sir. I'll be in your office at
five o'clock?
HMJr:
Please.
W:
All right, sir.
HMJr:
Thank you.
143
-2H.M.Jr:
You know, the amusing thing - when I made the
suggestion, the President said, "That's the
funniest
thing." He said, "I thought of that
two days ago.
Gaston:
I call that funny, too.
Klots:
That's lovely.
H.M.Jr:
He said, "You know, it's the queerest thing,
Henry and I got simultaneously the same idea
two thousand miles apart." He was in good form.
They may not like the kind of money we offer.
Gaston:
H.M.Jr:
Well, we're going to have them come in here.
I haven't had a chance to read this (memorandum
from Foley). I'm just taking it for granted
we can do it. Have you shown it to the Attorney
General, or isn't that necessary?
Foley:
H.M.Jr:
No. I suppose it would be - we'll have to start
to bring the RFC into it for financing.
with the Maritime Commission and then we may have
Well, what I'm planning, Johnny - and everybody
talk up; I'll feed this stuff to you - at 5:00
o'clock. I asked Secretary Hull whom I should
work with, and he gave me three names, starting
with Judge Moore. So I'm asking Judge Moore to
be here - and Land - at five, which gives us
half an hour to talk about it. Then at five thirty
I'll have Lord Lothian and this fellow - what's his
name - the French Ambassador.
Caston:
Saint-Quentin.
Hanes:
Saint-Quentin.
H.M.Jr:
Yes. So we've got half an hour. Now, have you
got any suggestions who else should be here? I've
got Waesche here at five, Judge Moore here at five,
and Admiral Land here at five.
Foley:
The Admiral might want to bring his General Counsel,
Carl Farbach.
.44
-3H.M.Jr:
Pardon?
Foley:
Carl Farbach is his name.
H.M.Jr:
All right.
McR:
Can't Maritime Commission buy them?
Poley:
No, not direct. They can only buy under certain
circumstances vessels of American citizens, so we've
got to get this title to an American corporation
before they could requisition to purchase the ship.
(On phone) Hello. - - Where is he? - - No, I can't
wait at all. The same on Judge Moore.
We could use the old Dollar Line, which is now
H.M.Jr:
Foley:
the American Presidents Line, and RFC could give
them credit, you see, and they could purchase the
boat under an arrangement whereby a purchase price
would be applied on account of the war debt of
the French Government, and then the RFC would take
a mortgage on the boat as security for its loan.
McR:
Foley:
Swell.
And then when the President proclaims as a national
defense measure that it is necessary to take over
vessels of our citizens, the Maritime Commission
would buy the boat from the American Presidents
Line and we'd pay the RFC.
McR:
Swell. Sounds perfect to me.
Gaston:
Will the law permit us to change registry on the
ship bought in that way?
Metjens:
I think so.
Foloy:
I don't know why not.
H.M.Jr:
(On phone) Hello. (Conversation with Admiral Land
follows:)
145
September 4, 1939
4:16 p.m.
HMJr:
Hello.
Operator:
Admiral Land.
HMJr:
Hello.
Admiral
Emory S.
Land:
Hello. This is Land, Mr. Secretary.
HMJr:
How are you?
L:
Fine, thank you.
HMJr:
Good !
L:
As much as you can be.
HMJr:
Jerry Land
L:
Yes, sir.
triple secret -- ah -- in having lunch with
HMJr:
the President, I made the suggestion that we buy
the Normandie and the Queen Mary and he likes the
idea.
L:
HMJr:
So do I.
So if you'll be here at five -- I'm having Judge
got a plan how to do it.
Moore, who Mr. Hull assigned to this, and we've
L:
Yes, sir.
HMJr:
And I'll -- I'll send it over with a messenger to
you 1f you want me to so you can read it in advance.
L:
Well that's all right; I'd come over there a little
early.
HMJr:
Well
L:
Over at your office?
HMJr:
Well, the trouble is -- ah -- I -- I won't be ready.
L:
Oh, I see.
-2HMJr:
146
Well, I'm allowing a half an hour from the time
that youdcome and the time the two Ambassadors
come.
Yes.
Or if -- if you want to come earlier you can go to
Herbert Gaston's office.
Gaston's?
Herbert Gaston.
Yes.
Assistant Secretary.
Yes.
See? We've got a plan.
All right.
HMJr:
O. K.?
At five o'clock
Yeah.
at your office and at Gaston's a little earlier.
Yes.
O. K.
Righto.
I'll be there.
And listen
Yes.
You better -- you might -- it's pretty legal. Do
you want to bring your General Counsel or are you a
sea-going lawyer?
L:
No, I think I'd better bring -- I'd better bring my
General Counsel or somebody with -- I'll bring Max
Truitt probably because he was General Counsel and
he's also -- knows all about this show.
-3HMJr:
147
Well,
I --that
I'myou
using
lawyers
the hint
might
need and
one.I'm just dropping
L:
O. K.
HMJr:
Thank you.
L:
Thank you very much.
HMJr:
Good bye.
L:
Good bye, sir.
148
-4Gaston:
Good stuff.
H.M.Jr:
Strictly in the room here, amongst the family,
I said to Mr. Hull, "Now, Cordell, would you
mindshould
" advising
me...."
You'll enjoy Now,
this. this
I call
up Bullitt
Bullitt on
is very much in the family.
the phone, and Kennedy, and ask them to do this
thing?"
He said - I oughtn't to say it - well, I'll
repeat it - "Well, Bullitt will get a couple of
drinks in him and he'll tell everybody, and
Kennedy will claim all the credit. If you want
to keep it all in your own hands, I'd use the
Ambassadors in Washington."
So I said, "Cordell, on foreign affairs I always
follow your advice.
Don't you love it! The old foxl What?
(Hearty laughter)
Foley:
Dan, do you know how much money the Maritime
Commission has got now to purchase ships? They
may have to have an additional appropriation
finally to get the title over into the Maritime
Commission and take the last step; but I suppose
that's one of the things they'11 ask Congress to
do if they're called in session to revise the
Neutrality Law.
Bell:
As I recall, they had about 80 million last year
and they got another 110 million this year.
Feley:
Well, they've got plenty of money.
Sell:
But that may be all obligated; that's the trouble.
Foley:
Well, they may be able to freeze those encumbrances
Bell:
Might be able to go ahead and buy this and then
for a thing like this.
get more money, when Congress comes in, for their
other obligations.
H.M.Jr:
(On phone) Hello. - - Oh, gosh! Well, if he isn't
there, give me Mr. Gray in Mr. Hull's office. Gray.
Give me Gray.
149
-5Hanes:
Isn't Judge Moore in?
H.M.Jr:
He isn't in his office. He had a list on the
thing - gave me a list: Moore, Hackworth, Feis.
So I asked for Hackworth.
Foley:
Hackworth is over there.
H.M.Jr:
This is fun. But the President - they've got
nothing to do to help these people - the Americans.
Then I made the suggestion that when we get through
with this, go down - put it on a South American
Line run.
(On phone) Hello. (Conversation with Mr. Gray,
of Mr. Hull's office, follows:)
September 4, 1939
4:21 p.m.
HMJr:
Hello.
Operator:
Mr. Gray.
(Jr:
0:
Decil W.
150
Hello.
Go ahead.
Gray:
Hello, Mr. Secretary. It's very nice to hear your
voice there again, sir
HMJr:
Fine, how are you?
and know you're back.
G:
Mr. Gray, I want a little help.
Yes, sir.
At Cabinet the question came up about taking up a
certain matter in regard to the Normandie.
G:
Yes, sir.
And Mr. Hull -- I asked him to assign somebody to
me and he put on a piece of paper the names of
Moore, Hackworth and Feis. I can't reach Moore,
so if -- we're having a meeting at the office at
five
At five.
It's largely legal so if Mr. Hackworth could be
here it would be fine.
0:
Right, sir.
Now, at five thirty I'd like you to call up -- and
I -- I'd like to have the British Ambassador and
the French Ambassador come to my office.
G:
All right, sir.
HMJr:
And I'll tell you what this is about so that you know.
G:
Yes, sir. I don't know.
-2HMJr:
151
Well, I'm going to tell you and Mr. Hull can confirm
it. We're talking about buying the Normandie and
the Queen Mary.
Yes, sir.
G:
And it's against -- credited against war debts and
that's why I'm handling it.
All
right,
sir.
to say nothing to them, naturally,
about
what
it'sI'm
about.
G:
Jr:
G:
HMJr:
I think not.
Right, sir. I'll
I'd like -- I'd like Moore or Hackworth here at five
and the British and French Ambassadors at five thirty
o'clock.
10/Jr:
G:
That's this afternoon?
This after
Right, sir. I'll call your office back and confirm
all these appointments.
Will you call Kieley?
I'll do that, sir.
Thank you.
You're welcome, sir.
152
-6Hanes:
Anything else?
H.M.Jr:
Yes.
Hanes:
Got any other ideas?
H.M.Jr:
Yes. Now, that takes care of you (Tietjens),
young fellow. We'll excuse you.
Tietjens:
All right, sir.
(Tietjens leaves)
H.M.Jr:
Well, in the first place, the President said he
was very much pleased the way you (Hanes) carried
on.
Hanes:
Thanks.
H.M.Jr:
And he said the Treasury was in fine shape and
there was nothing to worry about so far as the
Treasury was concerned.
Now, he said he wants the list of powers under the
National Emergency Proclamation, and told the
AG to get busy and consult with Hull and me. He
turned to me and said, "Well, Henry ought to know
most about this, because so much of it is financial."
Now, let me just see here - I take it you people
have got that ready, haven't you?
Foley:
Most of it, yes.
H.M.Jr:
Huh?
Foley:
Yes.
H.M.Jr:
Well, what I'd like to have is what part concerns
me.
Foley:
That's largely the message, John, that you and
Hull and the AG submitted to the President.
H.M.Jr:
In regard to the Normandie, the President said
he had the same idea two days ago, but he thought
of paying in cash in order that they could use
the money in turn to buy munitions. And I said,
153
-7-
Foley:
H.M.Jr:
well, that wasn't my idea, because I thought of
doing it on a credit basis, and if we paid them if they got the cash from the Government, they'd
have to pay us anyway right back on the war debt.
There was a lot of discussion about the thing
and everybody agreed it would be a swell idea if
we could do it. Then I made the suggestion that
when we were through we could either use it on the
South American run or, if worst came to worst
Just tie her up.
Foley:
No, if worst came to worst, as a transport.
Well, that would be later.
H.M.Jr:
The President said that the Leviathan paid for
Caston:
H.M.Jr:
As a transport.
As a transport.
Foley:
I was thinking she might be quite a liability to
itself ten times over.
the American Presidents Line until such time as
she was requisitioned. She's awfully expensive to
run.
H.M.Jr:
Well, and then the other thing which I don't quite
understand - it seems that Summer Welles had an
idea of a Tripartite Agreement for the twenty-one
Latin American countries. Do you know anything
about that, John?
Hanes:
No.
H.M.Jr:
And the President suggested that the Treasury
should get busy and head the Committee and should
also consult State, Agriculture and Commerce.
Klotz:
And who?
H.M.Jr:
Commerce Department.
Klotz:
Commerce.
H.M.Jr:
Now, I want a memorandum on that. I don't think
we'll do anything on that today.
154
-8Hanes:
That didn't have anything to do with the Guatemala
conference, did it?
H.M.Jr:
No.
Eanes:
Something totally different?
H.M.Jr:
Yes.
Who's looking after Coast Guard?
Gaston:
Well, I have been more or less.
H.M.Jr:
Well, will you tell them that it's all right for
H.M.Jr:
them to bring their - Waesche said he could put
on another thousand men if he got the authority.
Yes, that's what I suppose
The President said, "Do it at once."
Gaston:
I'll tell him right away.
H.M.Jr:
"Do it at once."
Caston:
And in the future, Mac, any orders for Coast Guard
shall not be executive orders but shall be military
orders - that you want the President to sign.
McR:
O. K.
H.M.Jr:
That goes for the Army and Navy, too. If you're
over at the White House, you'll want to know that.
Military orders.
McR:
H.M.Jr:
For Army, Navy and Coast Guard.
Caston:
They're not trying to move in on us and have Navy
take over Coast Guard, are they?
H.M.Jr:
Oh, Herbert, I wouldn't worry about it. For the
time being he wants two cutters - he asked for
two cutters; and they're detailed to cooperate
with two destroyers.
Caston:
Yes.
155
-9H.M.Jr:
I honestly don't feel it's important.
Caston:
No.
H.M.Jr:
I mean it's one of those things which - I just
don't think it's important. I mean in times
like this. I mean he's asking me for two cutters
Caston:
to be assigned to the Navy; I give them to him,
and they then go under Navy orders. And that's
the way he's going to work.
Perfect, yes.
H.M.Jr:
I mean they're going to control the passenger
lanes.
Gaston:
Well, I think that's sensible.
H.M.Jr:
That's sensible.
McR:
Normal thing for Coast Goard to do. Much better
to do it that way, by special detail, than to
take them all over.
Caston:
I think that's the simple answer. When they're
called on to cooperate with Navy on Navy functions,
then they're under Navy orders.
H.M.Jr:
I'm not going to fight for Coast Guard. I think
it's - on a thing like this, it's perfectly
sensible.
And, Mac, I'd like to get out an executive order
by the Treasury putting Secret Service under
Gaston.
McR:
Secret Service.
H.M.Jr:
Yes.
McR:
O. K.
H.M.Jr:
It's under nobody now. Don't you think so, Johnny?
Hanes:
Uh-huh.
H.M.Jr:
What? It's a loose end.
156
- 10 McR:
H.M.Jr:
Fine.
And then the President said, "Take a tip from me:
don't let anybody put you on the Council for
National Defense." He said, "That's just a study
group."
Foley:
We're not on it anyway.
H.K.J.:
That's what I told him.
And then he said for the time being we ought to
confine our financing to bills and notes, and save
bonds for a patriotic appeal. Well, I didn't
argue. I told you I wouldn't. He said - well,
he said, "I'll tell you how good I've been. I've
even consulted Tom Lamont on it."
I didn't make any comment. I mean there wasn't -
as far as I knew, the matter isn't up now. We've
got all the money we need, and for one year we've
been in shape to skip any three months we wanted
to. The Treasury is in shape. The question isn't
up.
McR:
H.M.Jr:
I don't think you'd have any trouble about subscrip-
tions to (several words not understood).
It's not up, but - I mean, we'll see.
I wish, Mac, I really - God, I could use you in a
million ways - I wish we could find out whether
you're going to be here or not.
McR:
I don't know. I'll know tomorrow. I talked to
them today.
H.M.Jr:
And, oh, they talked a lot about how the war was
going on, and Army claims that France, England and
Poland have more, considerably more first-line
planes than Germany has. The President questioned
them, but the Army said they were quite sure about
it.
Caston:
I see the Germans and British were feeling each other
out last night, with British flights into German
territory and German flights across the Channel apparently reconnaissance flights.
157
- 11 H.M.Jr:
And I found the President in excellent mental
condition. He's got a terrible cold. He's
suffering terribly from sinus. But he seems
to have a - he's got a whole organization chart
on the group that he wants to have work. And
as near as I remember it, what he's going to
have, for instance, is a man to see that there
is enough labor for industry, a man to see that
there is enough labor for agriculture, a man to
watch prices, that sort of thing, a man to watch
transportation. Incidentally, I showed him this
list and he okayed it. I've asked the people
to come down tomorrow morning to talk things
over, at nine thirty. So will you (Hanes) hold
nine thirty.
Hanes:
Yes.
H.M.Jr:
You, too, Herbert.
And he talked the thing over and then he said
there is this fellow Forrestal and he said, "If
you're going to bring the group down, I'd like
Hanes:
H.M.Jr:
to have you have Forrester. What for? Well,
just to have him down there with you.'
I haven't been able to get him yet. I've been
trying to get him on the phone.
But the way I feel, for the benefit of all of you I'm going to try to do this - I want to live through
this thing, if I can, and I'm going to have more
help than I need at the beginning. And even if
these fellows have just got to sit around and
twirl their thumbs - but take the thing like lining
up twenty-one South American republics; well, one
of these fellows can take hold of that. There
are all these extra things that will be thrown
at us which have nothing to do with the regular
Treasury work. But I'm just not - I can't do it.
I mean I'm going to - I've been at it for seven
years, and four years in Albany; I can't do it.
(Kieley hands note to Secretary)
Thank you. Hackworth, is it?
158
- 12 McR:
Hackworth.
Kieley:
Hackworth?
McR:
Yes, Hackworth.
H.M.Jr:
And as I say, the idea that I have as far as
Riefler and Stewart and Viner are concerned Have you
I'm going to put them in a room
got these rooms, Mac?
McR:
The Budget Bureau is still in them.
H.M.Jr:
What?
McR:
The Budget Bureau is still in them.
H.M.Jr:
Mac, I don't care about the Budget.
Bell:
They're moving.
MCR:
They're moving.
Fell:
They were moving this week-end.
H.M.Jr:
Well
McR:
The stuff has been over there.
H.M.Jr:
McR:
Well, get these people out.
I promised the White House today that I'd see the
move was completed tomorrow.
H.M.Jr:
Well, get these people out. You take Viner and
Riefer and Stewart; I want to give them each a
room, and they're just there to think. Now - for
instance, what does it mean that the Scandinavians
are detaching from sterling? I mean anything that
big movements- I mean they 11 have no executive
responsibility of any kind, but just feed stuff
to me and the President. You know?
MCR:
Did Jake come back with you?
H.M.Jr:
Yes.
Gaston:
The world economic situation - they've got quite
a job to just follow the world economic situation.
-
159
- 13 H.M.Jr:
I don't know how you feel about it. I think
That's the way I feel. I mean just running
the Treasury is a big job and I just want plenty
we're terrifically undermanned in our brains.
of help. And I don't know how you (Hanes) feel
after a couple of weeks of
Hanes:
Very smart.
H.M.Jr:
What?
Hanes:
A smart thing to do. What should I tell this shall I tell Forrestal just to come down?
H.M.Jr:
Just to come down.
Hanes:
He's going to call me.
H.M.Jr:
I don't know where he'll fit in with us, but the
President seems to want to just have him in.
Talking in the room here, when you get at these
things - I mean I can say this without being mis-
understood - after all, take the SEC; on a really
big thing - well, I don't think that they have any
really big financial brain over there. Just call
spade a spade. There's a lot of people that have
got a lot of ideas, but there isn't any first-class
a
financial brain, and we're up against the biggest
show in the world. So he calls on us; I want to
be ready.
Caston:
And there's a difference between police work and
operation.
H.M.Jr:
on yes.
And, Mac, either you or the other fellow - they've
just got to - and Bell - they've just got to be what I want to do is, I want to be just as free
as possible from the regular Treasury detail.
And Hanes will be here knowing every move that I
make and advising me, so forth and so on, so if
I'm taken sick or anything, why, you know everything
that I do, see? I mean I've got to have an understudy. I mean if something - I mean the show's got
to go on whether I'm sick or well. Huh?
160
- 14 Hanes:
(Nods affirmatively).
H.M.Jr:
And I'd like to have a smooth running organization
if I happen to be taken sick for a couple weeks;
the show goes on just the same.
McR:
You didn't say anything over there about
H.M.Jr:
Mac, I haven't got the nerve to. I did it three
times. But, for instance
I'll talk to him tomorrow; I've got a date
I just haven't got the nerve to tell the President
McR:
H.M.Jr:
of the United States, with a world war on - say
to the President, "You want an assistant, but you
can't have him because I need him more than you
do." I just can't say that.
McR:
I'll find out tomorrow.
I do think for his sake, your sake, and mine, you
ought to fish or cut bait; you ought to be in the
White House or you ought to be in the Treasury.
McR:
All I got from him - he indicated he expected me
over there. All I got from the White House this
morning was that he expected me over there.
(On phone) Hello.
(Conversation with Earle Bailie, not
recorded. )
All that Earle wanted to make sure was, was he
staying with me or not? He said, "I wouldn't
think of imposing on you. II
Names:
"But I'm staying with you."
N.M.Jr:
What?
161
- 15 -
Hanes:
"But I'm staying with you."
H.M.Jr:
He asked me if I had my regular apartment at the
hotel.
Gaston:
That reminds me of a telegram I saw yesterday.
Klotz:
Yes, Mr. Gaston is thinking of a particular telegram.
H.M.Jr:
No, I was delighted with the attitude of the
Hanes:
Did anybody get in touch with all these people?
I told Miss Spangler, the operator; that's what
H.M.Jr:
President.
she's doing now.
Hanes:
H.M.Jr:
Swell. I just wondered what Harris said. He's
been home sick with a sinus.
(On phone) How about Basil Harris? - - Any of
them - if they ask to talk to me, with the
exception that I'm going to see the press at
a quarter of five - but with that exception
Well, you' re handling it all right. Anybody
turn you down yet? - - - Thank you.
Now, Mac, between you and your assistant, you've
got to house these people when they come, and
I'm not going to worry about it. I don't care
who you move out. Each of these people has got
to have a room, and has got to have a room for
a secretary. I wanted a study room. I told you
just before I left. I was not going to worry I told you once, and either you or Thompson was
going to do it. You've got to do it. I thought
everything would be fixed down here.
Klotz:
Where?
162
- 16 H.M.Jr:
We were going to have a conference room below
me, with the elevator going down, so I can go
Klotz:
down and not have all the newspaper men see me.
Well, who sees you?
H.M.Jr:
Nellie Tayloe Ross is down there. The whole
Bell:
The Budget was delayed in getting out because of
a State Department mix-up, and they lost some
space because of this war situation; State Department got some of it back.
H.M.Jr:
Incidentally, I had a chance to talk to Edison -
thing was to be done.
I don't know who handled it - and he was simply
delighted the way we handled that depreciation
business. And Johnny, is that committee in
Internal Revenue that handled that depreciation?
Hanes:
Yes.
Foley:
Yes.
McR:
Yes.
H.M.Jr:
Have you called them, for instance, on how they
handled that order for Allison Motors and the
rest of that stuff?
Hanes:
I haven't, no.
H.M.Jr:
I wish you'd make a note of that. Would you take
that as your personal one - because if we could
do the same thing - I don't know how it worked
out, for instance, but if we could get these war
orders going and let these fellows increase their
plant and write off 50 percent then at the end of
the time that the model is worked out, it might
make just the difference of day and night to these
concerns. That's - if you sort of personally go
Hanes:
H.M.Jr:
into that - will you?
I'll go into it, find out, give you a report on
it, yes.
And see that the War Department and the other
people - if they need increased plants. You let them
163
- 17 -
write off 50 percent, didn't you (Foley)?
Foley:
(Nods yes).
H.M.Jr:
And then at the end of the contract, which was
four years, our engineers go in
Foley:
and determine what the value would be.
H.M.J.:
And on the basis of that, the steel companies
invested six millions?
Foley:
I think that was the figure.
Hanes:
Foley:
H.M.Jr:
McR:
Have you got a memorandum on how they did it
for the Navy, Ed?
I think that we have a memo in the file of that
conference, yes. I'll get it for you.
That might very well be a bottleneck. That's
Internal Revenue. If you could get into it, you
might be able to do not only the countries but,
as a matter of fact - do a great service. Johnny,
take that as your baby. Do it right away.
You see, we had Edison over here, and Johnny was
here.
H.M.Jr:
Oh, Johnny was here.
McR:
No, no, Johnny wasn't here. No, he wasn't.
Foley:
He was on vacation.
H.M.Jr:
The story briefly - I'm sorry - the story briefly
Hanes:
I know what's involved. But I don't know exactly
what the point is. We talked about it. I haven't
the memorandum in your files.
H.M.Jr:
Our people turned them down and I got mad and said,
"Don't tell me how not to do it, tell me how to do
it." Ed thought up a new way. They put it up,
and it went through, and these companies have invested six million dollars. They allowed a
depreciation of 50 percent. You ought to take a
look at it, and I think for all these war orders
going through, people wanting to expand plants,
164
- 18 -
all
the rest of that - it's a terrifically important spot.
Hanes:
That committee - you mean down in the Bureau.
Kieley:
The press are waiting now.
H.M.Jr:
All right.
Well, John, will you be back at five, please?
Hanes:
H.M.Jr:
I'll be right here. I'll be right here.
I mean I want you to sit in on this Normandie
business. And who else will sit in on that?
Foley, Gaston.
Gaston:
Yes.
185
September 4, 1939
5 p. m.
Present:
Mr. Hackworth, State Department
Admiral Land, Maritime Commission
Mr. Truitt, Maritime Commission
Admiral Waesche
Mr. Gaston
Mr. McReynolds
Mr. Hanes
Mr. Foley
HM,Jr: Well, Admiral Land, at lunch today
talking with the President, I raised the question
of buying the NORMANDIE, and he said that's strange;
he had the same idea two days ago and he asked me
to handle it for him, working in some way with the war
debts.
At Cabinet he discussed it and got approval of
the Cabinet and he also said, "We will make an offer
to buy the QUEEN MARY.
The two Ambassadors are coming at 5:30 -- the
British and French.
Between now and then -- have you
had a chance to look at Foley's memo?
Admiral Land: Yes.
HM,Jr: Mr. Hackworth has not. Will somebody
give
Mr. Hackworth a copy. Will somebody give Waesche
a copy.
Mr. Truitt: John Franklin called from New York
early this morning and said he had been approached by
representatives of the company who owned the NORMANDIE
and that they had offered the NORMANDIE to the United
States Lines for sale and I was in Secretary Hull's
office at the time and we discussed it there.
HM,Jr: Mr. Hull reported that at Cabinet and
166
-2-
the unanimous opinion was this was a much better way
to do it. He did not say who it was, but described
this case and Mr. Hull said he would much rather have
it done this way -- the way we are talking, than to
have some private person buy it because the thought
was to turn it over to the Maritime Commission to
operate and when we got through a South American line,
but Mr. Hull reported that and they did not like that.
They said they liked this better.
Mr. Truitt: of course the answer to that is
the United States Line does not have money to buy the
ship.
Mr. Foley: Why don't they borrow it?
Mr. Truitt: Where?
Mr. Foley: From R. F. C.
Mr. Truitt: You could not borrow $25,000,000
from Mr. Jones for that ship.
Mr. Foley: I am assuming the Government wants
to do it not as a business venture, but to get the
ship.
HM,Jr: Admiral, have you had time to turn it
over in your mind?
Admiral Land: Oh, yes. I don't say I know
all the case, and the things that bother Truitt and me
are more legal than financial. The main point is if
war having been declared, if this were purchased after
war were declared, she might be treated as belonging
to her former owners and therefore they would not respect the flag. If we want to assume that responsibility, that would clear it. But that responsibility
exists under international law.
Mr. Truitt: Mr. Hackworth 18 here and whatever
he says is the law is the law so far as I am concerned.
Mr. Hackworth: I did not know what we were
going to talk about, but as I recall the situation,
the law is that if the sale is made bona fide and not
for the purpose of evading capture, then it is a good
187
-3-
sale. I don't know how you would ever prove it
was
for the purpose of evading capture or that it
was not.
Mr. Truitt: The vessel has been in the port
of New York since two or three days before hostil-
ities opened.
HM,Jr: The feeling of the President and of
the Attorney General, who discussed it, I suppose
was that well, it was a good buy and a good bet.
Mr. Truitt: Yes.
HM,Jr: And they would be two very useful
boats to have.
law.
That's got nothing to do with the
Admiral Land: It's a good buy if you are
looking several chapters ahead. It's not a good
buy economically at the present time, because 85%
of the capital, or income, from those two ships
comes from American tourists at any time.
HM,Jr: To answer you: what the President
said -- he brought up the question of the LEVIATHAN.
The President said the LEVIATHAN paid for itself ten
times over during the World War, but when we tried
it afterwards, no. We are looking ahead.
Admiral Land: As.I say, then that's all right.
HM,Jr: But the thing we were talking about,
I was talking about, was credit on our war loans.
Admiral Land: I don't want to inject any sour
notes on this of what I wanted or what the Maritime
Commission wanted. I would darn sight rather have
the BREMEN.
HM,Jr: You may get that too.
Admiral, I don't want to get too confused, but
all I am going to say, unless Mr. Hackworth advises
me against it, is to ask these two gentlemen when they
come in at 5:30, would they find out from their Govern-
S8
-4-
ments would they care to sell the NORMANDIE and
QUEEN MARY to the United States. And that's all
I am going to say.
That's all right, isn't it?
Mr. Hackworth: That's all right. That
could not do any harm.
Admiral Land: Under the present law there
is an interesting sideline. Under the present
law we could not subsidize that vessel, either one
of them, because they are built abroad. So if we
handled them -- we could not do anything for some
private line to operate -- we would have to operate
them ourselves under the managing agency agreement.
That's not a great hurdle, but that happens to be
the law. The American Lines or any other line
could not take these ships over with any help from
us.
Mr. Hanes: Could you operate them and farm
out the actual operations on a commercial basis?
Admiral Land: We could farm it out, but under
the managing agency agreement we would operate them
ourselves.
Mr. Truitt: The plain truth is there is no
place to operate the ships at the present moment.
Admiral Land: No. Under present conditions.
Because that's their job, 85% of it, carrying American
tourists.
Mr. Truitt: No other place except the Northern
Atlantic to get people back. No other place where
you have that on a consistent basis.
HM,Jr: Ed. just sketch the method 80 we all
understand it. Just sketch the method of how to
handle it. See if we all understand it.
Admiral Land: I don't see anything wrong with
the method Mr. Foley has worked out from a legal point
except the thing I first raised which I don't think ...
Mr. Truitt: I would go awfully slow by working
169
-5-
through the American Presidents Lines. I think it
would be a mistake. We are supposed to be very
frank about this. I think that situation 18 none
too wholesome in its entirety anyway.
Mr. Foley: The one reason, Max, I picked the
American Presidents Line was out of a hat; was because I had no direct power to acquire title to these
boats in the United States. We have to go around the
barn. The only line that's almost entirely controlled
by the United States or an agency of the United States
is the American Presidents Line. You own 90% of the
stock. Therefore you control the Company, and it's
much easier to operate that way than through the United
States Lines or some private line where the United
States has no controlling interest.
Mr. Truitt: Suppose you do that and the Amer1can Presidents Line borrows money from R. F. C.
Where will it ever get the money to pay the interest
on that note? It can't operate the ship to earn
money to pay the note. It does not have any cushion
in its capital to carry any more than it has. So
where would it get the money to pay the note? Very
soon you would have the R. F. C. with the note by a
subsidized operator that would be in default which
would make it illegal to pay the operator the normal
subsidy and therefore the other 13 lines which the
Company runs would be out of operation and you would
have an essential service to the Orient wiped out and
a service around the world.
Mr. Hanes: Any way you can have the American
Presidents Line avoid paying any charge on the debt?
Admiral Land: I raised the point of the Man-
aging Operators Agreement and I don't say you can
necessarily pin that on the American President. You
could do that on anybody.
Mr. Hanes: Suppose the Navy had the money.
Mr. Truitt: What about the Panama Railroad?
Mr. Foley: Navy can't do it, John. They
haven't the money.
170
-6-
Hanes: If they had the money
Mr. Foley:
and the power. We have not
Mr.
got it.
The Navy has not. That's why. We have
to go this indirect way.
Mr. Truitt: I don't think anybody in the
Government has the power to step out and buy a ship.
HM,Jr: You can't do it as a credit on the
war debt?
Mr. Foley:
Sure you can, 1f the British and
French will do it.
That's the scheme right here.
I don't know whether they will do it.
HM,Jr: The only thing I say to these two people
is "We are ready to take the NORMANDIE and QUEEN MARY
for 'x' millions of dollars and just give you credit
on the war debt for that much. None of this stuff
in this memorandum.
Mr. Gaston: I think that would be a good idea.
They might want all cash paid. Might do with half
Then they would come back with a dickering proposition.
cash.
HM,Jr: That's your negotiation.
Mr. Gaston: That's your dickering with them.
Whether you give them credit on the war debt orto give
do
them something on account. That has nothing
with the mechanism of getting title in the American
Corporation.
HM,Jr: But for me, talking to them, 80 they
can't say "You talked one thing that sounded
like
want to
money and then talk credit". If I say
know (one) would you be interested in selling these
we
two ships to the American Government on a basis whereby
we would give you a credit on the debt that you owe,
say for a value that would be arrived at.
Mr. Truitt: And we get the title.
HM,Jr: And we get the title. Does that sound
all right?
171
-7-
Mr. Hackworth: It does. Have you studied
the question of whether you can take something other
than money on the debt?
Mr. Foley: Yes, we have. We can't.
Mr. Gaston: But you have a plan for taking
itin money there.
HM,Jr: There are two kinds of debt, war debt
and debt for materiel. Have you looked that one up?
We sold them $400,000,000 worth of supplies. In
France.
Mr. Foley: I was thinking primarily of the
war debt.
back.
HM,Jr: Well, suppose we take a little junk
Mr. Foley: I think the opinion would be the
same, but I will check it.
HM,Jr: But as far as the Treasury is concerned,
I want to be careful I state it to them we take title
to these ships and give them credit on their war debts.
Mr. Truitt: If you can work that, work the one
with the Germans too.
HM,Jr: What's that?
Mr. Truitt: The BREMEN and the EUROPA.
Mr. Foley: Great Britain might want to give
us the EUROPA.
Mr. Truitt: We might trade it to her for cotton!
HM,Jr: Jerry (Admiral Land), the other thing,
I did not know whether you want Coast Guard to man
this ship.
Admiral Land: How far ahead are you looking
to use her?
172
-8-
HM,Jr: When mentioning Coast Guard I had
in mind sending over to clear all American refugees
out of Europe. Now.
Mr. Truitt: Before I would ever go that far
I would want to have the best advice Mr. Hackworth
has on whether the Germans would respect our title
to the vessel.
HM,Jr: I am just raising the question. To
crew and man. He would man it. Because their engine is the same as Coast Guard's. I want to give
you that.
Admiral Land: If it does not involve any
legal complications I know not of, that would be a
good way to handle it. I would like to couple that
with the need for getting refugees back from Europe.
HM,Jr: We are talking in terms of hours, that
these fellows will give us an answer and maybe we will
take over the NORMANDIE in the next 24 hours, repaint
it, American flag, repaint the tunnels and man her and
send her over.
Admiral Land: Do you think conditions are so
serious as to justify that? If title is clear and
the Germans respect you and not treat her as a French
ship, why swell!
HM,Jr; Well, all I can answer is we discussed
it at great length at Cabinet and the opinion was
unanimous that if we could get her we would take a
chance. After all, the President tomorrow morning
and Mr. Hull may feel differently, but at 4 o' clock
this afternoon we discussed it for half an hour and
the Attorney General agreed it was a good bet.
Mr. Hackworth: We had two cases in the World
War of ships that were tied up in Galveston. I think
both in the same Port. And an American citizen
bought them. He bought the DACHE and started out
with a load of cotton to Frankfort and the ship was
seized by France and condemned. They paid for the
cotton. The SIGARANZA was held up by the British
173
-9-
and taken into port, but, as I remember, it was
released; did not question the title; ship was
released, but the goods were held.
Admiral Land: Were they purchased before
war was declared or after?
Mr. Hackworth: No, after. They said this
was a fictitious transfer and we were never able
to shake them loose on that proposition. So France
still owes the claim for the ship. We have doubts
whether it's a good claim or not.
HM,Jr: Mr. Hackworth, all of that does not,
in your opinion, does not prevent me from asking
these people
Mr. Hackworth:
HM,Jr:
Not at all
to speak to their Government and
that gives us at least 12 or 18 hours to explore the
thing and inasmuch as -- well, everybody here is
available and we don't step on each other's toes,
Admiral Land, Mr. Hackworth, Mr. Foley, kind of get
together, and whenever you people are ready, if you
were satisfied, we could have another meeting here.
Admiral Land: Yes. I would like to go over
with Waesche the question of manning her.
HM,Jr: Everybody here 18 available. Will
you (Admiral Land) take the initiative after we have
seen the Ambassadors 80 that we keep working?
Admiral Land: Oh, yes!
HM,Jr: Itwant you all to stay when they come.
Don't you think so?
Admiral Land: All right with me.
Mr. Hackworth: I think it would be fine, but
I think they might talk more freely just to you.
Admiral Land: I think 80 too. I think it
would be better 1f you handled it.
174
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HM,Jr: I would like you (Hackworth) to stay.
Mr. Truitt: Only one question, who is going
to pay the bill? On this question of repatriation
we have not felt that the circumstances abroad justified sending any extra services over there and at the
last meeting where I was with Mr. Breckenridge Long
we understood that was true. Our plan had been ap-
proved right straight along. Maybe that situation
has changed.
HM,Jr: I did not get, the way the President
was talking, he had a message from Kennedy and Bullitt
Mr. Truitt: I know. He has been getting these
messages right along.
Admiral Land: That's why I ask is the emergency
President on Saturday I gave him the information that
with the present facilities we would be able to vacate
all American citizens who were willing to come home by
the 4th of October.
great enough to justify it. When I talked to the
HM,Jr: I can only repeat, Admiral, we must
have discussed it for half an hour. I don't think
they are just looking ahead for weeks.
Admiral Land: As I say, Saturday and Monday
are two different days and there are a lot of them
don't want to come home and are not coming. We sent
383 over there Saturday on the MANHATTAN, at 120' clock
Saturday afternoon, for the War Zone or any place they
wanted.
Mr. Hanes: Ought to disallow them to come back.
Admiral Land: Those are facts because you
can't estimate the movement either way because it's
coming both ways still.
Mr. Truitt: I think I might also say that
the State Department and the Committee working under
Mr. Hull and under-Secretary Welles have taken the
position, and it's a traditional position, that there
175
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is no obligation on the Government to bring any of
these people home. First. And the second, it's
a private situation between traveler and the transportation company and that the only thing thus far
to be done is coordination.
HM,Jr: That's one thing. I have got a
mission. I am going to try to buy these two boats.
Mr. Truitt: My remark 18 only directed to
your statement that the Coast Guard would man it.
HM,Jr: Do you (to Admiral Land) want to take
Waesche into Gaston's office to talk to him. Foley
will work on the legal thing.
Admiral Land: Yes, sir.
HM,Jr: Leave it this way: that when you are
ready give me a ring and 1f I get an answer I will
give you a ring.
Admiral Land: Yes, sir.
HM,Jr:
And I would like you (Hackworth) to
stay.
(All left except Mr. Hackworth who remained
for the meeting with the Ambassadors, which followed
immediately.)
176
September 4, 1939
5:30 p. m.
Present:
British Ambassador
French Ambassador
Mr. Hanes
Mr. Hackworth
French Ambassador: You just got back, Mr.
Secretary?
HM,Jr: At five o'clock this morning.
British Ambassador: Was your trip very rough?
HM,Jr: Oh, terribly! It was a 2,000 ton
boat. She makes 20 knots an hour. We left Bergen
Tuesday evening. I was at St. John's yesterday at
one o'clock.
British Ambassador: Are you a good sailor?
HM,Jr: Not too good.
French Ambassador: Was Mrs. Morgenthau with
you?
HM,Jr: No; she's on the Bergensfjord.
British Ambassador: You are almost as heroic
Pilgrim Fathers.
HM,Jr: That's what I thought. We have to
for two hours. We had very rough weather.
I hope you don't mind my making notes. I make
only one copy and it is kept in my safe. If you have
any objections I won't do it.
177
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British Ambassador: None whatever.
HM,Jr: Gentlemen, the reason I asked you to
come down -- of course, whatever we say is confiden-
tial -- at Cabinet the President authorized me to
speak to you two gentlemen to.inquire from your Government whether you would care to dispose of the
NORMANDIE and the QUEEN MARY to the United States
Government for credit on the war debt. And if you
would care to inquire from your Government we would
like to know whether it would interest you. That
is the whole story.
British Ambassador: Yes.
HM,Jr: I don't know whether you care to ask
me any questions.
French Ambassador: One question. Idon't
quite get the technical meaning of the credit on the
war debt.
HM,Jr: Let's say -- I don't way to name a
figure; let's use $1,000,000 or $1.00 whatever the
value we arrive at, and if we can get (and that's what
Mr. Hackworth is here for) a good title to the NORMANDIE, we then would credit you with having paid
$1,000,000 on your debt to the United States Government. No money would pass. We would just credit
you with that amount of money.
British Ambassador: That would not involve
equivalent credits for purchases on this side?
HM,Jr: No, it would not. Very definitely,
Mr. Ambassador. It would not.
French Ambassador: That would be payment on
our debt.
HM,Jr: On your debt. But it would not involve credit for purchase of material. I would like
to make that clear. But we are here and we feel at
this time if you people aren't going to use these
steamers we can make good use of them and I don't know
178
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whether it would interest your Government, but "nothing
ventured, nothing gained".
British Ambassador: I don't feel in position
to express any opinion.
HM,Jr: I would not expect you to, but I am
authorized, and the reason I am doing it rather than
some other Department 18 because it does come in with
the war debt question.
British Ambassador: Yes; certainly.
French Ambassador: Of course I will notify my
Government. I feel we must take into account opinion
in France and England would think of it and I feel it
would be a good thing to create (?) what will be im-
pression on the opinion here, because as you know the
NORMANDIE for us is really kind of National treasure
and our people would probably believe that our Government should explain to them why that has more interest.
HM,Jr: You have been in America long enough to
know a little American slang. I am not going to try
to "sell you this proposition". You understand that?
French Ambassador: Yes.
HM,Jr: I am just offering it as a suggestion,
but I am not going to try to argue for it.
French Ambassador: Uhm.
British Ambassador: We will just
HM,Jr: If you will communicate, and when you
are ready would you mind giving me a ring?
British Ambassador: As soon as I get an answer.
French Ambassador: I will communicate at once.
000-000
TREASURY DEPARTMENT
179
INTER OFFICE COMMUNICATION
DATE September 4, 1939.
TO
FROM
125
Secretary Morgenthan
Mr. Gaston
A Proclamation of Neutrality will impose some additional duties
on the Coast Guard since Coast Guard officers will be required to
cooperate with collectors of customs in examining ships to determine
whether they are armed and whether the armament is defensive or offensive.
The Coast Guard might be able to take care of this additional responsi-
bility without any very substantial increase in force, but if the
Neutrality Act should be amended so as to permit the export of arms
and ammunition, the Coast Guard would then have the duty of supervising
the export of explosives. This would take about a thousand additional
men.
In view of the probability that this action may be taken, Waesche
would like to begin immediately to recruit men, to do which it would be
necessary to get permission of the Bureau of the Budget and no doubt
permission of the President to increase current expenditures within
the annual appropriation looking to a deficiency appropriation.
Bir209
Thoughts
teprepare
THE SECRETARY OF THE NAVY
WASHINGTON
ne interest
4 Septemger 1939
Wassets
9-5-39
hude date of
9.5.19)
Dear Mr. Secretary:
The President has directed that two destroyers be despatched to a position on the TransAtlantic ship lanes to the southard of the Grand Banks
and in longitude approximately fifty-five.
It is understood that he has also directed
that two Coast Guard cutters are likewise to be assigned to this same duty.
The purpose of the above is to render assistance to ships in case of need in this area.
It would be appreciated if you would designate some one to act as liaison with the Navy Department
to coordinate this joint effort. As you may know,
Captain W.H.Shea of the Coast Guard has an office in the
Navy Department as your regular liaison officer with us.
I have designated Captain R.M.Brainard of
the Navy to act for us.
Cordially yours,
Challen
Honorable Henry Morgenthau,
Secretary of the Treasury,
Washington, D.C.
180
CO-OP-63-651-601
181
SEP 5 1930
My dear Mr. Secretary:
I have your letter of 4 September, 1939, relative
the dispatching, at the direction of the President, of two
Navy destroyers and two Coast Guard cutters to & position on
the Trans-Atlantic ship lanes in longitude approximately
fifty-five for the purpose of rendering assistance to ships
in case of need.
The Coast Guard cutters BIBB and CAMPBELL are being
assigned to this duty today.
Captain W. H. Shea of the Coast Guard, who has an
office in the Navy Department, will continue to act as liaison
officer.
Cerdially yours,
(Signed) H Morgenthau, Jr.
Secretary of the Treasury.
The Honorable
The Secretary of the Navy,
Washington, D.C.
File to Mr. Thompang
By hand
182
September 4, 1939
Secretary Morgenthau
E. H. Foley, Jr.
For your information
Supplementing my memorandum of this afternoon, it is suggested
that as an alternative to the use of the American President Lines Inc.
there might be employed in the Normandie transaction as purchaser the
Panama Rail Road Company.
The Panama Rail Road Company is a New York corporation created by
Chapter 284 of the Laws of 1849. That Act authorizedoertain individuals
to form a corporation #for the purpose of constructing and maintaining
a railroad, with one or more tracks, and all convenient buildings, fixtures,
machinery and appurtenances, across the Isthmus of Panama, in the Republic
of New Granada
and of purchasing and navigating cuch steam or
sailing vessels as may be proper and convenient to be used in connection
with the said road." By Chapter 364 of the Lawe of 1855 the corporation
was granted certain additional powers and permitted to increase its
capitalisation to an amount not to exceed $7,000,000.
In 1904, the United States acquired the entire capital stock of
the corporation and ever since has been the sole owner thereof. In an
opinion of the Supreme Court of the United States in 1937, the Court sated
that "the company operates a railroad across the Isthmus, conducts a
commissary establishment for the benefit of the personnel of the Panama
-2-
183
Canal, the railroad company, and the armed forces of the United States upon the
Isthmus, and operates a dairy and two hotels in connection therewith. It also
operates a line of steamships between New York and the Canal Zone ... Since
the acquisition of the railroad company by the government, the directors, thirteen
in number, have been elected by the Secretary of War, as sole stockholder of record
of the corporate stock with the exception of thirteen qualifying shares held by
the directors."
Under New York law power is conferred upon every railroad corporation "from
time to time to borrow such sums of money as may be necessary for completing and
finishing or operating or improving its railroad, or for any other of its lawful purposes and to issue and dispose of its bonds, secured or unsecured, for any amount so
borrowed; and to mortgage its property and franchises to secure the payment of any
debts contracted by the company for the purposes aforesaid, notwithstanding any
limitation on such power contained in any general or special law." (Railroad Law I B.
Subd. 10, underlining mine).
It would seem, therefore, that the Panama Rail Road Company has authority
to borrow money and issue its obligations for the purpose of financing the purchase
of the Normandie even though the Normandie might cost in excess of $7,000,000.
See N.I.. N.H. & H. R.R. Co. V. Welch, 143 N. Y. 411, 415.
The purchase of the Normandie would be effected in the same manner as outlined
in my memorandum of this afternoon dealing with the powers of the American President
Lines Inc. Section 55 of the Public Service Law of the State of New York say require that the approval of the Public Service Commission be obtained prior to the
issuance of the securities of the Panama Rail Road Company.
A typewritten copy of the charter and by-laws of the company is attached.
(Signed) E. H. Foley, Jr.
CLK:s Typed 9/4/39