Full text of Diaries of Henry Morgenthau, Jr. : Volume 262 : Part 2

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COPY

PLAIN
STOCKHOLM

CK

Dated May 14, 1940

Rec'd 9:45 p.m.

Secretary of State
Washington

503, Fourteenth.
FROM COMMERCIAL ATTACHE

Request cable advice conditions under which Norwegians
resident Sweden having dollar balances New York banks can

remove also would their future deposits be frozen.
STERLING

EMB

216

217

May 16. 1940

Dr. Feis
Mr. Jochrea

will you kindly send the following cablegrams
*AMERICAN LEGATION STOCKHOLM.

Reference your 503 May 14.

Cannot answer inquiry re renoval of dollar balances
New York banks in absence of applications for licenses

filed through regular channels making full disclosure of

facts. Future deposits will be subject to control of
Executive Order 8405 of May 10. 1940.

MmP.

218
COPY

CK

PLAIN

Stockholm

Dated May 14, 1940
Rec' d 9:45 p.m.

Secretary of State
Washington

507, Fourteenth.
FROM COMMERCIAL ATTACHE

Please cable immediately can dollar account of
Danes in Central Hanover Bank Trust Company be trans-

ferred to Stockholms Enskilda Bank's account in same
institution and be drawn upon by Enskilda Banken,

Stockholm, for transaction of depositors business in
Sweden.
STERLING

EMB

219

May 16, 1940

Dr. Feis
Mr. Geohrea

will you kindly send the following emblograms
*AMERICAN LOGATION STOCKHOLM.

Reference your 507 May 14.

License required before funds can be treasferred from
Danish account in Central Hanover Bank Trust Company to account

Stockhola Enskilda Bank is same institution. Applications should
be filed through regular channels making full disclosure of the

facts.

pm?

220

TELEGRAL SENT

P.IP

GRAY

May 14, 1940
4 p.m.
AMERICAN EMBASSY
PARIS

365

Your 603, May 10, 11 a.m.

Treasury advises that it is contemplated that licenses
will be issued authorizing the payment of all checks drawn
against the accounts in question.
HULL
(HF)

840.51 Frozen Credits/74
EA:FL:MSC EU

(CONF IDENTIAL)

PARAPHRASE

CONFIDENTIAL

221

A telegram of May 14, 1940, from the American Con-

sulate General at Shanghai reads substantially as follows:
In accordance with instructions from the Department,
the heads of the National City Bank, the Chase Bank and
the American Express Company were informed of the Depart-

ment's position in regard to the establishment of a new
"central bank" and the issuance of a new currency in
central China. The heads of each of the above-mentioned
organizations agreed that from his own respective view-

point it was desirable that a solid front should be
maintained against the proposed new bank and each ex-

pressed willingness to cooperate along such lines. That
there would be any effort at an early date to issue a
new currency or set up a bank is thought by the several
banks to be unlikely unless there should be another
considerable drop in the Chinese dollar's exchange value.

A similar opinion in regard to the situation is held by
the head of the Hong Kong and Shanghai Bank, according

to information received from a British official. The
estimate of an informed Chinese banker also supports this

opinion. It was found, also, that this was the point of
view of an informed Japanese who came back a short time
ago from Nanking where he was in contact with well-known

political personages - Chinese and Japanese. It is thought
that the moves in Central China are opposed by conservative
Japanese

222
-2-

CONFIDENTIAL

Japanese businessmen.

It would appear that informed persons agree that at
least six months would be necessary for preparatory work

on account of technical difficulties which exist. It is
reported that the Preparatory Committee has been operating;

however, as yet no formal plan for controlling a new currency and the financial situation has been worked out, 80

far as is known. There is no information in regard to the
relation of customs funds to the proposed new bank and

issuance of new currency. Although the purport of a
recent news report was that some funds for the projected
new bank had been obtained already by the concerned

authorities, the news item was ambiguous, probably

deliberately so.

It might be reasonable to anticipate that until Japan's
economic position improves and/or the situation in Europe

is clarified Japan's policies will follow a conservative
course. Naturally, if the present medium of exchange
should collapse completely, this would of course have a
tendency to force the Japanese authorities to look about
for new means of control and might presumably give impetus

to the carrying out of plans which are at present in
undeveloped form.

(CONFIDENTIAL)

PARAPHRASE
1003

CONFIDENTIAL

A telegram of May 18, 1940, from the American Am

bassador at Chungking transmits a message from the

Commercial Attaché which reads substantially as follows:
w
w

By way of comment on the statement contained in an

article in the May 8 issue of Finance and Commerce (see
telegram no. 402 of May 9, from Shanghai) the Financial
Adviser to the Chinese Government (Dr. Young) con-

fidentially informed the American Commercial Attach

that it was not until the evening of May 1, after the
strain on exchange which had existed that day, that the
decision was made by the fund temporarily to withdraw
support.

223

224

May 14, 1940
3:41 p.m.

H.M.Jr:

Hello.

Operator:

Senator Wagner.

H.M.Jr:

Hello.

0:

Go ahead, please.

H.M.Jr:

Hello.

Robert
Wagner:

Yes.

H.M.Jr:

How's my favorite Senator?

Yeah, you go chase yourself.
H.M.Jr:

What do you mean?

W:

You go chase yourself.

H.M.Jr:

Now, what's the matter, Bob?
Huh?

H.M.Jr:

What's the matter?

Why, yesterday I -- I didn't like that at all,

Henry, when you said, "I didn't know how you stood
80 I went to somebody else."

H.M.Jr:

No, I didn't say that.
Now, God -- yes, you did. Now, God damn it, every
time that anything has come before my committee

I've always stood with you and I -- I don't know
of any reason that I'll ever change.
H.M.Jr:

I -- I don't
Well, anyhow, I've got that off my chest.

H.M.Jr:

(Laughs)

Everything went very nicely today. I'll tell you,
the only thing I didn't like. Jesse made some
unfortunate statesmen -- statements and now that

225

-2-

H.M.Jr:
W:

we're in executive session we could wipe it out,
but you can't. The newspaper boys got it and
chances are they'11 use it. One of those things
like -- well, if the Treasury and the Federal
Reserve are against it, why that's a good thing -reason for being for -- you know.
Well, he made a lot of

It's very unfortunate, I mean, to have that out in

public, to make those statements as 1f they were
a real conflict between the different departments.
H.M.Jr:
W:

Yeah.

And the boys didn't like it either 80 that there
wasn't much -- of course the -- you know, all that
we report to the full committee 18 just those two
things.

H.M.Jr:

Yeah. No, I think

H.M.Jr:

You've got the report.
Well, Ed told me, yes.

W:

Yeah.

W:

H.M.Jr:
W:

H.M.Jr:
W:

And I appreciate what you did, and I thought you
were glad that I had gone to Glass.
What's that?

I thought that you were glad that I had gone to see

Glass.

Well, no -- I'll tell you what I didn't like about
that whole -- now, he's a little peeved at me -but you'd be surprised how little I care a damn
whether anybody's peeved if I think I'm right.

H.M.Jr:

Well, I didn't say anything.

W:

Outside?

H.M.Jr:

Hello?

-3-

226

I was just told that Governor Herbert Lehman is

outside.

W:

H.M.Jr:

Oh, I see.

So I can't keep him waiting too long. No, what I
didn't like, he went behind my back. Now, that

W:

isn't nice to do.

H.M.Jr:
V:

What did he do?

Well, I mean he ran to Glass and got him to introduce
that bill and I didn't know a thing about it, until
the next day when I -- when I was asked about it.

H.M.Jr:

That's -- you mean Jesse?

W:

Yeah.

H.M.Jr:

Well, that

W:

H.M.Jr:
W:

H.M.Jr:
W:

I say I don't like that and
Well, neither
so this morning I guess he noticed my attitude

on the whole thing, and I don't like it.
Well, I called up to say thank you.

Say, I'm going to bring Herbert in and have him
say hello to you. Have you seen him down here?

H.M.Jr:

He's coming to have supper with me tonight.

W:

Oh, is he?

H.M.Jr:

Yeah. I saw him at noon today.
Oh, did you?

W:

Yeah.

H.M.Jr:

Yeah.

W:

I see. He's outside there.

H.M.Jr:

Well anyway, thank you very much.

227

4-

W:

Yeah.

H.M.Jr:

And if you never can

W:

H.M.Jr:
W:

(Aside: Don't have the Governor wait -- oh,
come in.)

O. K., Bob.

(Aside: I was just talking to a friend of yours,

Henry Morgenthau.) All right, Henry, the Governor

just walked in on me here.
H.M.Jr:

Well, give me

W:

I might get something. I can't get anything from

up there in New York. He's as bad as you are, you

know.

H.M.Jr:

(Hearty laughter)

W:

Can't get anything out of you fellows.

H.M.Jr:

O. K.

W:

All right. You're satisfied, aren't you?

H.M.Jr:

Very well satisfied.

W:

Fine.

H.M.Jr:

Thank you.

W:

All right. Goodbye.

H.M.Jr:

Goodbye.

228

May 14, 1940
3:46 p.m.

H.M.Jr:
George

Hello.

Harrison:

Hello, Henry?

H.M.Jr:

Yes, George.

H:

I just thought you might be interested to know that

the Chairman of the Bond Committee of the Stock
Exchange
of times has been in touch with us today a couple
H.M.Jr:

Yeah.

saying that they've been going over all of

H:

their various plans for emergency such as they

worked on last September
H.M.Jr:
H:

H.M.Jr:
H:

Yeah.

just to check up and see whether they're all
geared up all ri ght.
Yeah.

Not contemplating any action, but nevertheless
wanting to be prepared.

H.M.Jr:

Yeah.

H:

One of the things that they discussed 18 what was

discussed before in your office, the possibility

of putting on minimum declines in any one day.
H.M.Jr:

Yeah.

They have gotten to a point where if they should do

it, and they're not contemplating doing it now,
they would put on certain percentage declines
for certain priced stocks and also for bonds.

H.M.Jr:
H:

Yeah.

They said obviously they didn't want to put on any
restrictions about government bonds. We told them

229

-2we thought that would be a great mistake and they
agreed. Therefore, in any schedule they'11 put
out they'11 say fluctuations in bonds over 100 --

say, 10 per cent and then with clear indication

that that -- that that limitation applies to only

corporate bonds.
H.M.Jr:

Yeah.

H:

So without mentioning government bonds it makes it

H.M.Jr:

Right.

H:

And I thought you would be interested to know what

clear that it doesn't apply to them.

is in their minds as a purely preparatory step in
the event of an emergency.

H.M.Jr:
H:

H.M.Jr:

It does not include government bonds?
It does not, and I wanted you to know that we took

the position that it shouldn't.

Right. Well, we're in agreement again.

(Laughs) All right.
H.M.Jr:

Now let me ask you this. I haven't had a chance -what did you fellows do today in the way of buying?
Well, I'm glad you asked me because I was just

going to tell you. You know when I talked to

you two days ago -- three days ago, I told you
I'd let you know if anything happened.
H.M.Jr:

Yeah.

I didn't yesterday because in the morning when I
was talking to Marriner he said that he thought
there should be no conflict or crossing or wires

between the Open Market Committee and the Treasury.

H.M.Jr:

Yeah.

H:

And that therefore he would take the responsibility
of advising you if we bought anything, and when we

bought and how much.

230

-3H.M.Jr:

Right.

I said, "That's all right, but if the Secretary

of Danny Bell or anybody else asks me about the

market or what we've done I'm going to tell them."
H.V.Jr:

Yeah.

And he said, "Well that's all right too." So I

wanted to explain personally that the reason I
didn't call you was that he asked me not to. He
said he would do it.
H.M.Jr:

Well, that's all right. Dan will be back tomorrow
and

But I hope you will feel just as free to call me or
H.M.Jr:
H:

H.M.Jr:

Danny will as any time in the past.
I understand. Let me ask you this - how much did
you do today?

We bought today, Henry, six and three-quarters
million. We bought yesterday six hundred thousand.
Those are our total purchases.
What was the -- how would you say the health of

the market when you talk -- this evening at the

close, what was the

Well, it wasn't too good. Offerings all round, not
many buyers, no very heavy offerings of any kind.
The only really heavy offering was one issue of

four million dollars in the intermediate bond which
was taken up in the market itself. We didn't have
to do anything with it.
H.M.Jr:

O.K.

And -- but it doesn't look good. However, we are
all convinced that the government bond market
behaved better today than any other market that
we know of - stocks or commodities or anything
else.

H.M.Jr:

Well, that's good.

231
- -4- -

H:

And on -- considering the jitters that are up here
about everything, I think the bond market, the

government bond market is behaving extraordinarily
well.

H.M.Jr:

H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:

Come down to Washington. Everybody's happy down

here.

Well, we're
That's the
not unhappy except about this damn war.

That's slightly exaggerated, but
(Laughs)

All right, George.

All right.
Listen, George, I still -- if something goes bad
tomorrow I expect you to call me or Dan.

I shall do 80.
If you please. Now, I'm going to
I consider that a request.

It's a definite request.
Yeah, all right.
If something goes bad any time while this is on, I'd
like a call from you for myself or Dan.

All right, I'll do it.
And I'm not going to wait -- they may be in a Board
meeting over there having a discussion on the
excess reserves.

H:

Well, I told them that it was silly, because as a

matter of fact when you talk to the market you want
to know first-hand about what's really going on in
the market.

232

-5H.M.Jr:
H:

That's right.
And that we had a perfect right to tell you and
they admitted that, but they just thought that if
we bought or stopped buying that it was up to them
to tell and not us, except that you have requested
it and now you have.

H.M.Jr:
H:

H.M.Jr:

Well, after all I don't expect to tell Kintner and
Alsop.

(Hearty laughter) All right, Henry. I'm glad to

hear you're feeling so well.
All right. Goodbye.

233

May 14, 1940
3:55 p.m.

H.M.Jr:
Robert
Doughton:

H.M.Jr:

The President would like to have it

I never did -- it's too abstruse for me, this

whole question of finance.
You

Silver and gold -- buy silver at more than it's

D:

worth and buy gold that is buried out here some-

where in the ground and keep paying out good money

-- it's all been too deep for me. But you all

understand why it is and we're just supposed to
try to go along the best wecan.

H.M.Jr:

Well, between you and Jere Cooper and me, the
President would just as leave see that bill die
in the House.

Well, are you especially anxious -- interested in

D:

seeing it die?

H.M.Jr:
D:

H.M.Jr:
D:

Oh, I'm not especially anxiou 8, no, but if
Anxious is one thing and desire is another.

But if you could let it die kind of easy-like.
Oh, we could send it back. We could just let it
lie here and not take any action on it at all.

If it came to our committee I suppose we could
just be too busy on something else, or we could
send it back on the account that it violates
prerogatives of the House and it should originated -should have originated at all in our committee
and in the House.

M.Jr:

D:

Well, I -- I wouldn't know which way was best, but
in discussing it the other day with the President
I think he'd be quite pleased if the bill was
buried and died at this session.

Well, my thought 18 this about it that if we could
send back we'd have -- if we didn't have a fight -if we could send it back by a majority vote or
unanimously that would be the better thing, but

234

2-

if they bring it up and have a motion to send it
than to let it go before our committee and just

back and then be defeated why we'd be worse off

let it take a quiet sleep there.

H.M.Jr:

D:

Well, I don't know, Bob, but whichever way you

think is best I'm sure is right.
No, I wouldn't be certain of that, but I'll tell
you what I will do.

H.M.Jr:

Yeah.

D:

I'll confer with Jere Cooper our parliamentarian

and the parliamentarian of the House and the
Speaker and the Majority Leader
H.M.Jr:
D:

Yeah.

and we'll decide what's the -- wiser course

to pursue and do that if it will be agreeable with
you.

H.M.Jr:

Absolutely, and you let me know and I'll come up
and see you gentlemen.

D:

I want to see you about another matter some of
these days.

H.M.Jr:
D:

Well, any time. I'm always at your service.
How long have you -- are you going to be in the city
now most of the time?

H.M.Jr:
D:

What do you mean, I'm here always. Don't you ever
read about me in the papers?

Yeah, I read about you in the papers but I -- that's
all right. I might run down and see you tomorrow

a little while.

H.M.Jr:
D:

H.M.Jr:
D:

Any time you say. What time do you want to come?

Let's see, in the morning at ten o'clock?
Wonderful I'll be here and waiting for you.

Well, if anything comes that I -- turn up that I
don't know now I'll call you, but if you don't
hear from me I'll be there at ten o'clock.

235

-3H.M.Jr:
D:

H.M.Jr:
D:

As I remember, mint julep is your favorite drink.
Mint julep?
Yea.

Well, if you haven't got anything stronger than that.

H.M.Jr:

(Laughs)

D:

I drink it straight. I don't dilute it any.

H.M.Jr:

D:

(Hearty laughter) Do you remember the day that
we sent out for three quarts of whiskey for five
dollars and passed it around up at the Committee?
Yeah, I remember that very well.

H.M.Jr:

Yeah.

D:

You proved your case too.

H.M.Jr:

Absolutely.

H.M.Jr:

All right.
All right.

H.M.Jr:

0. K.

D:

Listen now, Henry, then we understand that the

D:

Administration does not want this bill passed of
course.

and four mint juleps.

H.M.Jr:
Jere
Cooper:

Yeah, and -- so it's all right for Bob and Bankhead
and Rayburn and myself to get together and pick
whatever course we think best to see that it does
not pass.

H.M.Jr:

That's right.

C:

All right.

H.M.Jr:

Don't be so serious, Jere.

236

-4-

C:

(Laughs) All right.
When's that girl -- hello?
All right.

H.M.Jr:

When's that girl going to bring up those straw-

C:

H.M.Jr:

C:

berries again?

Well, I'm going to try -- try to see about that.

H.M.Jr:

O. K.

C:

All right.

H.M.Jr:

Don't be selfish now.

C:

Well, fine. Much obliged.

H.M.Jr:

All right.

C:

All right. Thank you. Goodbye.

237
May 14, 1940
4:58 p.m.

H.M.Jr:
Carter

Hello.

Glass:

Hello, Mr. Secretary.

H.M.Jr:

Hello. Hello.

G:

This is Glass.

H.M.Jr:

Henry Morgenthau.

G:

Yes.

H.M.Jr:

I'm ever SO much obliged to you, Senator.

G:

Yes, , we got by that mess.

H.M.Jr:

It was terribly nice of you and I'll have a good

H.M.Jr:

night's rest now.
I tried to induce Jess to withdraw the thing, but
he wouldn't do it.
He wouldn't do it?

G:

No.

H.M.Jr:

Well

G:

G:

H.M.Jr:
G:

H.M.Jr:

The Committee will meet next Tuesday to hear the
report of the sub-Committee.

I see. And they'11 accept it, won't they?
Oh, I think 80.
Yes. But Jesse wouldn't withdraw those two amendments, huh?

G:

No.

H.M.Jr:

Uh-huh.

G:

I tried to induce him to but he wouldn't.

H.M.Jr:

Well, thanks for your support. I'm ever 80 much
obliged.

238

-2

G:

All right.

H.M.Jr:

Hope to see you soon.

G:

Thank you. Goodbye.

H.M.Jr:

Goodnight.

239

May 14, 1940
5:02 p.m.

Operator: Go ahead.
H.M.Jr:
Gerard

Hello.

Swope:

Hello. Is this Mr. Morgenthau?

H.M.Jr:

Talking.

S:

This is Gerard Swope.

H.V.Jr:

Yes, Mr. Swope.

S:

H.M.Jr:
S:

I'm in Washington. I hadn't expected to call you

and bother you
No bother.

but I just left Nathan Straus and he was

anxious that I talk to you about a matter that I'm
going to talk -- I'm going to see the President
at luncheon tomorrow.

H.M.Jr:

Yes.

S:

And I wondered if you would have a few spare five

or ten minutes that I could unfold this thing to
you. I do it at request -- I mean, at Nathan
Straus' request.

H.M.Jr:

Oh, I'd love to see you even though he told you

:

Thank you. I saw your father and mother Sunday

H.M.Jr:

Fine.

S:

not to see me.

and also your sister.

And had a very pleasant time. Your father 18 perfect and your mother -- are perfectly remarkable.

E.M.Jr:

Fine.

S:

I think if you and I can grow old like that we'll

be very fortunate.

240

-2H.M.Jr:

Well, that's nice.

S:

Now when are you

H.M.Jr:

How about eleven-fifteen?

S:

Eleven-fifteen tomorrow?

H.M.Jr:

Morning.

S:

Eleven-fifteen will suit me first plass.

H.M.Jr:

Be delighted to see you.

S:

I'll be at your office.

H.M.Jr:

Thank you.

S:

Thank you.

H.M.Jr:

Goodbye.

STRICTLY CONFIDEN IAL
TREASURY DEPARTMENT

241

INTER-OFFICE COMMUNICATION

DATE May 14, 1940
TO

Secretary Morgenthau

FROM Mr. Cochran

Mr. Knoke told me by telephone this morning that his bank had discussed
Mr. Catterns' attached cablegram with the Federal Reserve Board in Washington
and had decided that there were three possibilities:

1. The lawyers advise that the Federal Reserve Bank
of New York cannot open an account for a foreign government
under existing legislation. Congressional action would be
required to get around this point. When I mentioned the
Siamese exception, Knoke pointed out that this was an earmarked account, as apart from a banking account.
2. A governmental account could be opened with the
Federal Reserve Bank acting as fiscal agent of the United
States.

3. Is the actual desire of the British to transfer the

account to the market? This could be accomplished.

The Federal Reserve Bank has cabled the Bank of England yesterday that
they were discussing this matter with Washington and hoped to be able to cable

a reply today. So far nothing further has been sent. The Federal believes that
it is up to Washington to pass judgment on the above listed alternatives. The
lawyers of the Federal are somewhat sympathetic with the British desire to get
more security for their funds.
Chairman Eccles telephoned me at 11:30 in regard to the British matter, which
Harrison had talked over with him. Eccles said the Board wanted to facilitate the
matter anyway that could be done within the law. He had asked Messrs. Wyatt,
Goldenweiser and Gardner of his staff to study the question and they were available
for consultation with us. He was not ready to commit the Board, but felt that the
decision of the Federal Reserve Bank in New York to the effect that the law prohibited them from accepting a foreign government account was narrow. He thought ob-

there was no prohibition in the law against opening such account. He thought

jections would only be raised if some congressman was unhappy, and that Congress

would then have to pass legislation before the Federal could be stopped from accepting such an account. If we are not willing that the Federal Reserve Bank be instructed by the Board that the latter feels that the law does not prohibit such an
account, and that it should be opened, then Eccles thought something might be done
under our emergency powers. Mr. Eccles hoped we would discuss the policy involved
before giving any definite answer to Knoke. Our Treasury committee thought we
ought to await some word from the British Embassy before we take any decision here.
I informed Knoke to this effect late this evening. If the Bank of England telephones
him tomorrow he will state that the British Embassy here has not yet approached the
Treasury, and that such step is being awaited before a decision is taken.

PMP

RESERVE

INFORMATION COPY FOR

BANK

YORK

242
3278

INCOMING CABLEGRAM-SERIAL NO

May 13, 1940

RECEIVED ON

the Coderam

London, May 13, 1940
Federal Reserve Bank of New York
New York

No. 436/40 PERSONAL AND CONFIDENTIAL FOR ALLAN B. SPROUL
ONE

is have been considering possible steps which night need to
be taken to protect British Government exchanges/ gold/

security holdings in the United States at present held in
names of verious British banks including ourselves against
the risk of attachment at the instance of enemy interests
TWO

B " O's legal advisers in Washington have expressed the view

that complete protection against attachment can only be ab
tained by

A Transferring such assets into the name of a clearly
identifiable nonimee of H M 3
B Notifying the holding bank that such assets are held
on behalf of H y 0
C The British Ambassador to acquaint the United States
State Department of the designation of the accounts

held and that the funds in question are owned by H M G

THREE

So far as the holdings in our name with you are concerned we

fully appreciate that it is contrary to your policy to opening
accounts in the name of a foreign government
POUR

But both H M a and ourselves feel it is essential to take
every precaution and I understand to this and H . a's diglomatic representative in Washington will inform Mr. Mergenthaw

DIVISION

INFORMATION COPY FOR

243

RAL RESERVE BANK
OF NEW YORK

INCOMING CABLEGRAM-SERIAL NO

3278

RECEIVED ONLay 13, 1960

of the necessity to protest our position as in No. a above.
We felt that you would like to know before any such move is
FIVE

made in order that you may be aware of the back ground
If we could have your reactions by cable we could then

telephone you if that would be helpful.

Catterns
Bank of England

EA

Postal 204 Code
No Test

DIVISION

STRICTLY CONFIDENTIAL

244

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE May 14, 1940
TO

Secretary Morgenthau

FROM Mr. Cochran

Official sales of British owned dollar securities under the vesting

order effective February 19:
No. of Shares
Sold

Shares Sold

6,350
21,180
40,191
34,945
17,850
1,170

235,891
788,904

1,810,863
1,316,741

121,686

May
6

7
8

9

10
11

TOTAL FOR WEEK

$ Proceeds of

Nominal Value
of Bonds Sold

$ Proceeds of
Bonds Sold

5,000
93,000
369,500
238,000
9,000

3,420
80,944
258,155
224,713
7,027

Nil

Nil

5,020,381

714,500

574,259

39,900,382

495,000

477,061

44,920,763

1,209,500

1,051,320

795,993
71,989

Sales from

February 22 to

May 4, incl. 1,178,160
TOTAL FEBRUARY 22

TO MAY 11, INCL.

1,299,846

Mr. Pinsent stated that a cablegram had been received by Mr. Gifford in
New York to the effect that sales of non-vested securities during the preceding week (that is, the week ended May 5) amounted to $2,000,000.

Km.R.

245

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE May 14, 1940
TO

FROM

Secretary Morgenthau
Mr. Cochran

CONFIDENTIAL

Despite reports of further German gains in the Low Countries, sterling
had a firmer tone in today's foreign exchange market. After opening at 3.14,
it advanced to a high of 3.20-1/2 at noontime. The rate was steady in the
afternoon, and it closed at 3.20-1/2.
The improvement may have reflected a market belief that the supply of
sterling in the open market would be reduced by yesterday's British regu-

lation prohibiting non-residents from selling securities in London unless
granted a license to do so by the British Treasury. The leading New York
banks, however, now feel that the sterling supply will not be greatly affected

by the new measure, since cable advices received by them from London assert

that licenses can be readily obtained so long as it can be shown that no
enemy interest has been connected with the securities since September 2.

Mr. Pinsent of the British Embassy telephoned me this morning, indicating
his surprise at what he considers an erroneous interpretation by the New York
market of the British licensing regulation. He is cabling London to report
this and to ascertain whether any explanation should be given to the Press.

Sales of spot sterling by the six reporting banks totaled 4466,000,

from the following sources:

By commercial concerns

By foreign banks (Europe, South America and Far East)
Total

1275,000
L191,000
4466,000

Purchases of spot sterling amounted to 443,000. as indicated below:
By commercial concerns

By foreign banks (Far East, Europe and South America)
Total

1280,000
1163,000
$443,000

The following reporting banks sold cotton bills totaling 110,000 to the
British Control on the basis of the official rate of 4.02-1/2:
6,000 by the Irving Trust Company
2,000 by the Chase National Bank
2,000 by the National City Bank
110,000 Total

246

-2The Bankers Trust Company reported that it had purchased 15,000 for

spot delivery from the British Control at the official rate of 4.03-1/2.

The funds will be used to pay for a shipment of whisky.

Developments in the other important currencies were as follows:
The French franc moved with sterling on the basis of a cross
rate of 176.40 france per pound. It closed at .0181-3/4.
Since trading in Dutch guilders and belgas has been suspended,
the New York market offers no quotations for those currencies.

Although a nominal quotation of .2242 was received from Zurich
early this morning, the Swiss franc had a weaker tone in the New
York market. Late in the afternoon that currency moved off rapidly
to a low of .2190 at the close.
The Canadian dollar closed at a discount of 18%
The reichmark was steady and closed at .4005.

The yuan was firmer in Shanghai today. Against sterling, it was
quoted at 3-3/4a, up 1/4d, and the rate against the dollar was 4-15/16
up 1/8 From cable advice received from Shanghai, it is learned that
financial circles there believe that the Shanghai Control will allow the

yuan to reach a natural level and then stabilize it at that point. It
is further believed that the level is likely to be between 3d and 3-1/2d.
There were no gold transactions consummated by us today.

The Federal Reserve Bank of New York reported that the South African
Reserve Bank was shipping $5,023,000 in gold from South Africa to the
Federal, to be earmarked for account of the Netherlands Bank.

The Bombay spot silver quotation advanced the equivalent of 1/2 to
43.77

In London, the prices fixed for spot and forward silver both rose
1-5/16d, to 22-1/2d and 22-3/88 respectively. The U. S. equivalents were
32.00 and 31.36 The rise in the London prices was attributed to speculative and Indian buying.
Handy and Harman's settlement price for foreign silver was unchanged
at 34-3/44. The Treasury's purchase price for foreign silver was also unchanged
at 35$.

We made five purchases of silver totaling 715,000 ounces under the
Silver Purchase Act. Of this amount 140,000 ounces represented sales from
inventory, and the remaining 575,000 ounces consisted of new production

from foreign countries for forward delivery.

CONFIDENTIAL

TREASURY DEPARTMENT

247
Office of the Secretary
Technical Assistant to the Secretary

$

Date 5/14/40

TO: The Secretary

230

Room

At 2.40 p.m.
the System is
purchases today
were.
From: MR. COCHRAM B.MR.

248

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE May 14, 1940
TO

FROM

Secretary Morgenthau
Mr Cochran

STRICTLY CONFIDENTIAL

Chairman Eccles telephoned me at 11:30 a.m. He said that with so much
bad news, the Bond market was pretty weak. Buyers were fewer and sellers

more numerous than yesterday. The result is that in the first 2 1/2 hours
today the market was down 27/32 from last night, calculating on basis of
60 - 65 Bonds. The Open Market System is still decided against giving out
any information to the effect that it is in the market. This would be too

much of an invitation to sell. For today at least it is desirable to keep
this news from the market. Mr. Eccles said that the System was purchasing

on a scale down. During the first 2 hours they had purchased 2 1/2 million
dollars of securities. The policy is to increase the amount gradually but
to permit the decline for the day not to go further than 1 1/2 points. The
preference is to keep the decline between 1 1/4 and 1 1/2 points. Towards
this end the System would be ready to purchase from 20 to 25 million dollars,
hoping this would avoid the market breaking wide open.

KM.P.

249

May 14, 1940
10:08 a.m.

H.M.Jr:

Hello.

Operator:

Mr.
Hoover is out of the city until the last of
the week.

H.M.Jr:

Oh. Well, who 18 his assistant there?

0:

I'll see.

250

May 14, 1940
10:11 a.m.

H.M.Jr:

Hello.

Operator:

Mr. Tamm.

H.M.Jr:

Thank you.

H.M.Jr:

Hello.

Edward A.
Tamm:

Good morning.

H.M.Jr:

Henry Morgenthau, Jr. Good morning.

T:

Yes, Mr. Morgenthau.

H.M.Jr:

Mr. Tamm, I have a letter before me Mr. Hoover dated

May 8th in regard to alleged contribution of Mr.
A. P. Giannini. I don't know whether you're familiar

with it or not.

T:

Yes, I am.

H.M.Jr:

And in the end, the last paragraph, Mr. Hoover says

T:

Yes.

H.M.Jr:

that there's no violation within the investigated
juriediction of this bureau.

Well, in view of the -- first place, I appreciate
very much his bringing it to my attention, but

this controversy between Giannini and the Treasury

has been going on for three or four years and this
interests me very much.

Yes.

H.M.Jr:

And as long as you people feel it isn't within your

jurisdiction I'd like to turn it over to Chief

Wilson.
T:

Yes, sir. We have absolutely no objection to that

H.M.Jr:

Now, could you give the whole -- would you be willing
to give a copy of the file to Wilson so he could get
into the matter?

at all.

251

-2Yes, we'll furnish him with a copy of anything we
have on it.
Wellnow, how can he get that?

I'd suggest that he call me here this -- oh, any
time after twelve o'clock and we'll arrange to
have him come over and get it.

w.v.Jr:

Fine. Will you tell Mr. Hoover I appreciate very
much his letting me know about this but it -in view of the big fight that the Treasury has

had with Bank of America and A.P.Giannini, which
has been raging for three years
Yes.

I am interested.

H.V.Jr:

Righto.
I.M.Jr:

Well, I'll have Mr. Wilson
You have Mr. Wilson call any time after twelve
o'clock and we'll arrange to give him a copy of
anything we have.

Thank you so much.
You're welcome.

252

May 14, 1940
9 am

Present:

Mr. McReynolds

Mrs. Klotz

HM,Jr: Mac, two things. Number 1 1s a
thing you can answer easily, but this is not what

I sent for you. We are all worried here about

Norman Thompson. Do you suppose that -- I don't
know how you are fixed -- I could borrow you for
a week 80 Norman could get away and get a little
rest and health?
,MoReynolds: I don't know any reason why

it could not be done. The President is so tied

up I am not getting at him very much.

HM,Jr: Do you want me to ask him?

Mr. McReynolds: I think you ought to ask him.
HM,Jr: Is it agreeable to you?
Mr. McReynolds: Entirely agreeable to me. I

would be delighted.
HM,Jr: Your other work would not get bogged
down?

Mr. McReynolds: They could call me whenever

they wanted anything. You see, I see the Civil Service
Commission every Tuesday. I don't want to break that
up, because everything that happens down there comes
up for review at that time.
HM,Jr: And you could take every Saturday afterWell, I will ask the President
noon off for golf.

253

-2-

when I go over this morning.

The other thing: I have two ideas. I am

working with the President on this War Department
budget, and he has come up again with the idea which
nobody is ready for -- he wants 50,000 planes a year,

just like that, which means, according to the War
Department's first figures, building 30 plants of
1,000,000 square feet each. Well, nobody knows.
That's the least of it, because the rest of the
trouble is powder, guns, anti-aircraft searchlights,
all those things are just as important and just as
far behind.

Now, I've got two thoughts. I wanted to try

them out on you. One, that he appoint a Committee:
Assistant Secretary of the Navy, with alternates Admiral Towers and I think Krause because he's Procurement; Assistant Secretary of War, with alternates of
General Arnold and Brett, who has charge of the thing,
and then Hinckley, who's coming in at 9:15, head of
C.A.A., and whoever his technical man is -- I don't
know who he is -- and then my thought was in order to
see that the Allies, who have put $60,000,000 into the
American aviation industry, don't get lost sight of
for the time being to make me Chairman.

Now, this Committee could do it for aviation,
or if he takes my other suggestion and asks for
$100,000,000 to be given by Congress to him with
which he should build up or assist the plants to
build extensions or build shadow factories in those
industries where we can't get what we want in twelve
months, this thing to do the two.

It has this effect, if you say to the machine

tool people, who are as independent as they can be

and won't put up any plant expansion, "all right,

gentlemen, before you build airplanes you have to

have machine tools. We will help you. We will
build a factory for you, but 1f you won't then the

Government is going to go into busines. Now you
have your choice," and with that weapon I think
nine out of ton would KO ahead and let the Government
build plants for them, the way they do in England.

254

-3-

Now, Mac, it could be either one Committee
or it could be two Committees.
The Allies are scared to death and so am I

that they will be sidetracked, which they shouldn't

be. After all, they are our advance line. They

are fighting and we are not and I go back to my
original thing, as long as they are spending their
cash we ought to give them the best tools we can
give them and if you know what I know of the condition of the American Army. The Chief of Staff,
General Marshall -- I have spent four hours with him

in the last three days -- if he was given an order
today to put the Army in the field, fully equipped,

how many men do you think he has?

Mr. McReynolds: A couple hundred thousand?

75,000. And we haven' got one airplane today that has got the things they need if they
went up against a German plane. Not one. Guns are
of such small caliber that they can't pierce the armor
HM,Jr:

of the Germans. We have not got one bomber flying
that has a gun in the tail to defend itself. To show
you how badly off they are, they are asking $18, 000,000
to remake our present air force of which only 250, they

claim, is modern. It's terrible, Mac! I have never
seen such a mess. And then, hell! to sit down with

Woodring and Johnson and neither talks to each other
and neither shows each other the memorandum. Then he
argues with the President and he gets me to get them
in the Cabinet room and knock their heads together.

Mr. McReynolds: I don't see how he can let that

continue.

HM,Jr: Would you have one committee or two?
Mr. McReynolds: I would have one committee.

HM,Jr: I tell you what I would like you to do.

You go into Norman Thompson's room and draw me up a

memorandum for the President and just leave it behind

with Mrs. Klotz as a suggestion for me to sign.

255

Mr.

McReynolds: Army and Navy and C.A.A.

HM,Jr: Yes.
Mr. McReynolds: On the question of procurement,

of expansion of plant in
aviation.
HM,Jr:

Mr. McReynolds: Aviation.

HM,Jr: And where it 1s other than aviation,

C.A.A. would not sit in. Firstit's a question of
expansion of plant and production of guns, powder.

What I am thinking is I would like a committee, if
he wants a committee, and he needs somebody as an
It just isn't aviation.
arbitrator.
Mr. McReynolds: You have got an aviation

problem primarily and expansion of plant for the production of military type of plane and the armor for
the planes that are to be used in that line and then

there is, in addition to that, there is the planning
for the expansion of general Army equipment and
HM,Jr:

and Navy.

Mr. McReynolds: Army and Navy both.
HM,Jr: And you could have two committees and
on the committee which has to do with non-aviation
it would be the same personnel except the alternates
would be different. You would not have General Arnold
when you are talking about powder. You would have the
head of Ordnance, Colonel Burns, and in the Navy, Admiral Towers.

Hr. McReynolds: It's a question of ammunition
and equipment on one side and the question of -- and

not only that, as I see it, it's a question of Army
ordnance.

HM,Jr: Maybe I am stupid. Maybe I had better

let the Army and Navy act by themselves and not offer

256
-5-

myself as Chairman. Be frank.
Mr. McReynolds: You know, if you had the
right kind of man at the head of the War Department
HM,Jr: Which he hasn't.
Mr. McReynolds:

we might have some pros-

pects of getting it done. It's a crime for you to

take the burden, but on the aviation development I
don't think you can duck it with any hope that they

will get anything done at all.

HM,Jr: Let me give you an example. Powder.
I got an order from the President for the Navy that
they should release 2,500,000 pounds of powder from
Du Pont and put on a second shift at Indian Head.
The Allies go to see Du Pont and they say, "Sorry.
We need this for the Army.! Finally Colonel Burna
hits the ceiling and he tells the Du Pont man, "God
damn it (if the ladies will excuse me) you do what

I tell you," and that ends it, but I don't know how

long it took and the Army and Navy acts like one is
in Canada and the other in the United States. General
Marshall told me he has not been able to get a joint
maneuver of the Army and Navy on the Atlantic Coast
and they have never had one, and the only way he got
it in Hawaii was to go to Hawaii himself because he
outranked by several times the Admiral in Hawaii and

he said he went to call on him instead of waiting for
him to call which flattered him, but if he had not
gone to Hawaii he never would have got the joint
maneuver.

Mr. McReynolds: The Army has a pretty good

man in charge out in Hawaii. The Navy man is one
of the old fellows.
for me.

HM,Jr: Mac, go in there and play with this
Have you got my idea?

Mr. McReynolds: Yes, I think I do. I will

give you a memorandum as far as I can see the thing.

257

-6-

HM,Jr: Don't forget my idea of $100,000,000
crate the manufacture of those items which takes

for the President to use at his discretion to accel-

more than twelve months and where they are lacking
plant expansion.

Mr. McReynolds: Of course, you have to have

I will give you something.
HM,Jr: Give me something for the President
and then I can take a look at it. And Miss Chauncey
is available.
that.

Mr. McReynolds: O. K. I will do it.
HM,Jr: I am going to ask him to lend you
back to me so Norman can take a rest. Bell is away

and Norman is shot.

000-000

258
May 14, 1940
9:30 a.m.

GROUP MEETING

Present:

Mr. Young
Mr. Thompson
Mr. Haas
Mr. Gaston

Mr. Stewart
Mr. White
Mr. Schwarz

Mr. Foley
Mrs Klotz

Mr. Cochran

H.M.Jr:

Norman, do you know when Dan Bell is going to

Thompson:

He was planning to be here Monday. I think
he is in town.

H.M.Jr:

He is in town? He had better report for duty

be back?

Friday morning.

Merle, I like those piercing eyes of yours in
this photograph.

Cochran:

That is fine. Nothing worries me at all.

H.M.Jr:

Herbert?

Gaston:

Well, I don't think we have anything pending on
the exchange line except the possibility of
granting a general license also to the Belgian

offices, which you may find advisable. It is
practically a government institution, Bernie
tells me, and they have heretofore made that

request. Otherwise, things are moving pretty
smoothly.

H.M.Jr:

Tell Bell to be here Friday.

Gaston:

We talked to Cy Upham last night about getting
some officers from the Comptroller of the Currency
to replace some of the men we are losing.

H.M.Jr:

Are you losing some men?

Gaston:

Yes, two of the New York men, Edmunds and Lewis.

They had an opportunity to take permanent jobs
in New York and one of them is leaving next

Monday and the other next Wednesday.

259

-2H.M.Jr:

Those are clearing house fellows?

Gaston:

I believe so and we can take care of that.
During the time I am at the White House - I
go over there at 10:30 today - I would like
Mr. Stewart to sit in on the conferences that
have to do with this foreign exchange.

H.M.Jr:

Gaston:

Yes.

H.M.Jr:

I would like him to sit in, so if there are

any meetings going on that have to do with the

foreign stuff, I would like him in on them.

Gaston:

We can very readily have a meeting.

H.M.Jr:

Can you sort of stage a meeting for him?

Gaston:

Yes. We might as well have it sooner as later.
Walter Lippmann is well worth considering this
morning.

Schwarz:

Mark Sullivan, also.

H.M.Jr:

I didn't see that. I didn't know who put on

the silk duty thing. I took it off. Whoever
did it, the Romans are very much pleased over
it.

Gaston:

If they are pleased, maybe I did it.

H.M.Jr:

Did you?

Gaston:

I don't know whether it came to me for signature
or not.

Schwarz:

You signed it.
Mr. Welles takes the trouble to write a special

H.M.Jr:

Gaston:

letter. Today is the day we are nice to the
Italians.
Bill Johnson did it, I guess.

280

-3H.M.Jr:

Ed?

Foley:

We are getting ready to go down at half past

H.M.Jr:

You are going, aren't you?

Foley:

Yes.

H.M.Jr:

None of this appeasement stuff.

Foley:

O. K.

H.M.Jr:

What is the matter with Leo?

Foley:

I told him what you said and he said okay. He
is going to be back before half past nine or

ten.

a quarter of ten and will call us and tell us

what he said.

Foley:

I said I had heard you tell someone -He told me and I didn't call him.

Klotz:

I said you would.

Foley:

I will call him.

H.M.Jr:

Yes, Foley, will you?

Klotz:

Foley:

Yes. I think maybe, Mr. Secretary, I ought to
take Bill Hefflefinger with me when I go down
this morning. He is Dan's assistant and he is
the fellow that would know if they - how much
further borrowing there is.

H.M.Jr:

Is Hefflefinger --

Foley:

Yes, he knows it. Don't you think so, Norman?

Thorpson:

Yes, he has worked on that.

H.M.Jr:

Have him go down.

Thompson:

He is supposed to be in a Budget meeting, but

he can sidestep that all right.

261

-4H.M.Jr:

Who else is going up with you?

Foley:

Delano and Murphy, Henry Murphy.

H.M.Jr:

Henry Murphy? George Haas' Henry Murphy?

Foley:

Delano wants to take him, because he knows more

about the requests for preferred stock in the
situations where we have refused to go along
with the RFC and why we didn't go along with
them, more about that than anybody else.

H.M.Jr:

Fine. He will give them that baby stare and

knock them over.

Foley:

He is all right.

H.M.Jr:

Yes, he is a smart boy. Now, go on up there,
Ed, and as I said last night, we have got the
votes, why should we appease them? We have got
the guns. We are not like Chamberlain.

Foley:

Sure. We are liable to kill the bill, because
the Republicans will all vote against the bill.

H.M.Jr:

Well, they would anyway.

Foley:

They would as long as it involves the debt limit

H.M.Jr:

Sullivan:

problem.

It goes on as a rider to the war thing, anyway.
Sandy Klein was in yesterday. He said he had
talked with you about post-war tax legislation
and he wanted to know - he said that he had
gotten the impression from you that there was

a continuing study that went on all types of
taxes and I said that is right and he said, "What
I want to know is whether there is any abnormal

activity," and I said, "Not that I know of."
"I think so." He said, I would like to find
out from you the objects of additional taxation,"
and I said, "Well, I just haven't been in touch
with that at all. And he said, "Will you look
it up and tell me tomorrow?" And I said, "I

He said, "You would know, wouldn't you?" I said,

think I would have to discuss that with the boss."

282

-5I don't think we have gotten that far, have we?
H.M.Jr:

No,
any moreAct.
than we have on doing anything about
the Johnson

Gaston:

Alcohol.

H.M.Jr:

Sandy knows it. I don't think anybody has got any
idea of putting on a new tax. We want to fatten
them up before election.

Sullivan:

Pass the carving knife, pappy.

H.M.Jr:

What else?

Sullivan:

That is all, sir.

H.M.Jr:

Chick?

Schwarz:

Roy Blough called me on the same thing wi th the
same kind of a query and we agreed on the same
kind of an answer.

H.M.Jr:

Wonderful. That is teamwork. Anything else?

Schwarz:

That is all.

H.M.Jr:
Young:

Phillip?
I haven't any problems. George and I may want
to talk to you a minute sometime later after

we find out what happened in New York yesterday.
H.M.Jr:

Well, I am going to ask George to tell us about
it. Incidentally, you are going over with me
at 10:30 to Cabinet.

Young:

If I can borrow that list of figures you have,
I might be able to correct it.

H.M.Jr:

Aren't you fussy?

Young:

H.M.Jr:

I don't think it does you any good the way it is.
I don't care particularly about having it corrected.
I would rather wait until we get the new figures

263

6-

Haas:

and then underline in ink - but you can hang
onto that, just to show the differences.
George, tell us about your trip to New York?
Well, I went over to see the Anglo-French
Purchasing Board, I think that is what they

call it --

H.M.Jr:

That is the part I want to know about.

Enas:

I didn't have time for anything else. I spent
two nights on the train, so I might have to
sleep now.

H.M.Jr:
Haas:

Would you rather tell it to us lying down?

I am afraid I would stop talking if I got

horizontal. Purvis and Bloch-Laine seemed
to be very cooperative. They really had some

difficulty, not only up there but requests

coming from Washington and I spent a day with
them and they had some good men up there, by
the way. Purvis' first assistant is Vice
President of the Canadian Bell Telephone Com-

pany and they have the Chief Statistician of
the Bell Telephone Company. I don't know how
long he has been there, but I worked out a
system of the type of material I thought you
needed and they are going to take that and

use it in turn, because that is the type of

thing they need, too, and they are going to
use those reports to report to the Canadian
Board on, so it is a question of working it
out with them and they are very cooperative.
There are a good many things that I don't think

we will get for a long time, items like air-

planes and engines and munitions proper. They
have the whole business coming through them,

but other things like steel and so on, they

don't know whether they are getting ten percent of the orders coming through there or

whether it is fifty or what it is, but they
are trying to build up that information by
reports from London and elsewhere.

H.M.Jr:

Well, what does this statistician do, prepare
data for Mr. Purvis?

264

-7Haas:

Yes. You see, they have got 300 people up
there and it grew just like a mushroom and
they were glad that I came up there. Now,
they have got to go ahead because you are

asking for it to set this thing up and get
it done and their results - the fact that
they are in the shape they are is just labor
pains from rapid growth, I think that is all
it is. They have good men there.

H.M.Jr:

They have?

Haas:

Yes.

H.M.Jr:

Why didn't you go up Sunday afternoon? Why

Haas:

did you take a train up Sunday night?
I went up Sunday night.

H.M.Jr:

Why didn't you go up earlier?

Haas:

Oh, I don't know. I can tell you why I came

H.M.Jr:

down on the sleeper, to be here this morning.
Well now, George, this man that keeps bothering
them over there in Procurement, do you want me

to kill him off?
Haas:

I will tell you something humorous about that.
I had a meeting of these different officials,
Air Mission and several others, and I was explaining what you wanted and I explained, too,
that it would be channelized through one source.
While I was in the midst of that, the telephone
rang asking for their statistician who was in
the meeting, and it was Mr. Bowens on the telephone asking for something down here.
(Telephone conversation with Captain Collins
follows:)

265
May 14, 1940
9:45 a.m.

H.M.Jr:

Hello.

Operator:

Captain Collins.

H.M.Jr:

Hello.

Harry

Collins:

Good morning, sir.

H.M.Jr:

Hello, Harry.
Yes, sir.
From now on I don't want Bones or anybody in your
office bothering the Allied Purchasing Mission.
No, that won't happen -- that won't happen, sir,

C:

H.M.Jr:
C:

any more.

H.M.Jr:

Well, it happened as yesterday.

C:

Yes, sir.

H.M.Jr:

It happened yesterday.

C:

H.M.Jr:

Yes, sir.
Give Bone something else to do, and if you want to

C:

know anything -- why does Bone want to know anything about gasoline?
That was a breakdown we started on last week, sir.

H.M.Jr:

For whom?

0:

For our records here.

H.M.Jr:

Well, why gasoline?

C:

H.M.Jr:

Well, the quantity of it was included in with --

with the miscellaneous item there and it was rather
large for a miscellaneous item.
Well, if you want anything from now on from the
Allied Purchasing Mission, ask George Haas, will you?

266

-2-

C:

Yes, I shall.

C:

And tell Bones to go buying pencils, or something.
Yes, sir.

H.M.Jr:

Please.

C:

Aye, aye, sir.

H.M.Jr:

H.M.Jr:
c:

But take him off this thing.
Yes, I shall.

C:

Because he's just got them nuts up there.
Yes, sir.

".m.Jr:

Anything that you want you ask Haas and he'11 get

H.M.Jr:

C:

it.

I'll do that, sir.

H.M.Jr:

That has to do with statistics.

C:

Yes, sir.

H.M.Jr:

If Haas can't get it nobody can. Thank you.

C:

Thank you, sir. Goodbye.

267

-8Haas:

H.M.Jr:
Haas:

I talked to him on the phone. I took the

phone.

I don' know anything about gasoline. I

never heard why they are interested.

The reason for it - well, I am responsible
for it because he was working on this other we are trying to get all the items that they

were buying and we had them classified in
certain groups. Gasoline was one rather large
item in a monetary way.
H.M.Jr:

I had the British Ambassador last night for
supper and explained to him why I wanted Sir
Frederick Phillips to come over here and he
said, "Is it because you want to get the net
position of what they sell and spend?" and I

said, "Well, that is part of it.' "Or do you
really want to talk to him?" I said, "I want
to talk to him, that is really what I want,

and I want to tell him some of my difficulties,"

but he was quite worried - and his coming over
here would be interpreted that they were coming
over to arrange for loans and I said I would
take care of that and as long as I wasn't
worried, I didn't see why they should be worried,
so he got off the message last night saying I
wanted Sir Frederick Phillips and I think we
can help them on this business and they can
help us and help themselves. The thing is just
at sixes and sevens. Steel is a good example,

isn't it?

Haas:

That is right. There must be somebody over
there that has this whole picture.

H.M.Jr:

I don't know, George.

Haas:

Maybe not.

H.M.Jr:

No, take food for example. Do they know anything
about food up there?

Haas:

Yes, they have some information but they don't

know whether it represents five percent or fifty
percent or what.

268

-9H.M.Jr:

Walter, you don't think that they really know?

Stewart:

No, I don't think they do. I am perfectly sure
Purvis doesn't know and I don't think anybody
in London does. I don't think you will find
out by getting Phillips over here, either.
No, but Phillips will get the picture and go

H.M.Jr:

back and he is a powerful enough man, I think if I can get a Cabinet member over here - that

Phillips is powerful enough that he will put
his teeth into it, wouldn't he? He certainly
can give me a net position on the expenditures
and receipts on a fortnightly basis, which I
can't get, which certainly is a British Treasury
matter.

White:

of course, we get it on their exports, but that

is a month or two or three later, but we know
exactly what they are exporting to them so there

is a lag, but --

H.M.Jr:

You know, Bell was to give me the form which
they used during the World War. He said once
a week they got such a thing here in the Treasury.
Will you (Thompson) look that up?

White:

He showed it to us. It is much like the weekly
statement, but a little bit more comprehensive.
Excuse me, Harry, I would like to talk to somebody in the British Treasury that I know and

H.M.Jr:

is certainly intelligent and we will let him
get the picture. If their buying is at all
illustrative of the rest of their ways, it is
terrible. All right, George?

Haas:

I have this - I brought in this map you asked

H.M.Jr:

You might circulate it. I had him do the black

for.

spots for the blast furnaces which are working
and the white ones are the blast furnaces which

are not, pig iron. Strategically, they are
located very well. Anything else, George?

269

- 10 Haas:

That is all.

H.M.Jr:

Harry?

White:

Senator Russell called you, I take it, and you
said you were going to give him figures with
respect to the holdings of all countries that
are fighting Germany. Is it your intention to
give him figures that are not published?

H.M.Jr:

No.

White:

Then we will give him just published data.

H.M.Jr:

Right.

White:

Secretary Wallace sent Ezekiel and Mr. Robbins

over with a proposal that they are going to
present to you at Cabinet meeting.

H.M.Jr:

Wednesday at lunch.

White:

Wednesday at lunch, and we went over it and
suggested some changes and they asked that if
you could familiarize yourself with it sometime before he comes --

H.M.Jr:

Impossible.

White:

It would only take ten or fifteen minutes.
I haven't got that, Harry. I never was pressed
so in my life. Just what is the subject?
It is a proposal to sell agricultural commodities
on credit, the credit to be paid back with certain strategic materials. The nearest thing to
it is the plan that you worked out with China.
There is some important difference, namely that
the basis for the credit is supposed to be gold,
a portion of the gold in the stabilization fund,

H.M.Jr:
White:

until the raw materials are imported here instead

of it being, in other words, just a credit of

the borrowing government, they would pay for it
with the gold that we lend them and they are to

use that gold in the purchase of agricultural
commodities.

270

- 11 H.M.Jr:

Secretary Wallace called up and said Ezekiel
had been away for a week and he had just come
back and he found there was a war and he was
quite excited about it and wanted to talk to
me about it.

White:

Well, that isn't fair to Ezekiel. They have
been excited about it for some time. There
is some merit in this plan. After some discussion they agreed to change it in this important characteristic. They allocated the
funds to be used in the purchase of agricultural commodities and I insisted that if it
had any merit at all it ought to be agricultural
commodities in addition to what they are buying

now so they changed that.
H.M.Jr:

Didn't they go through with a cotton and corn

White:

Cotton and rubber deal.

H.M.Jr:

Cotton and corn, giving the corn --

White:

H.M.Jr:

deal?

I don't think they went through with that. I

haven't heard anything more about that.

That was a suggestion for Italy, you know, to

sell them the cotton at the full price and give
them the corn as a bonus.

White:

Haas:

H.M.Jr:

Because they can take the loss on the corn and

they can't on the cotton. They also - incidentally,

were you interested or did you already receive information of how much rubber we received in return
for how much cotton? You asked that question and
they have the information.
They told me yesterday there was a lot of trouble
with Americans rejecting large quantities of
rubber. The British have rubber on their hands.
George, when you walk through this place do you

get the impression it is a very well run place

or is it helter-skelter?

271

- 12 Haas:

Oh, they have pushed 300 people into an organi-

zation and they are just beginning to settle

down, that is the way it is, but individually

they have some good men around, as soon as they
get going.

White:

H.M.Jr:

Well, I will leave this copy. It is a carbon

copy of a memo which is a very brief one which

they are going to present to the President.
In the first place, I won't read a carbon copy
and in the second place, I haven't got the time
to read anything.

White:

Well, that is the gist of it. There are about

990 million dollars worth of imported commodities

which they feel they could buy, rubber, tin,

metal, manganese, chromium, tungsten, et cetera.
H.M.Jr:

I will go over it with them. After all, in 45

White:

minutes, they can tell me.
Yes. Here is a report of the foreign economic

H.M.Jr:

All right.

White:

This is something that may interest you.

H.M.Jr:

Anything else?

White:

I still would like a couple of minutes to clear

developments.

up two letters sometime today and that is all.

H.M.Jr:

Merle?

Cochran:

Bonds were off 12/32nds. Federal Reserve purchased 200,000 in the same type of operations
that occurred yesterday.

H.M.Jr:

The Federal bought about four million dollars,
didn't they?

Cochran:

No, it was 600,000.

H.M.Jr:

I thought it was four million. Do you mind if
I check on that?

272

- 13 Cochran:

No.

White:

I said I still would like a couple of minutes.

Klotz:

I put your name down, Harry.

H.M.Jr:

You have got your answer.

Cochran:

That is all.

H.M.Jr:

Norman?

Thompson:

I am not sure I heard your answer.

I have prepared a little tabulation on the appropriations for strategic materials which shows
that the total estimates were 127 million sub-

mitted to the Budget. The President approved
52 million and Congress appropriated 22 million
500 thousand.

H.M.Jr:

Submitted by the departments, 127 million. I

Thompson:

Yes.

H.M.Jr:

I thought I did.

Thompson:

The War Department submitted the 25 million dollar

H.M.Jr:

I upped them 90.

Thompson:

signed the one for 90 million, didn't I?

estimate.

And then just last week we submitted an estimate
for 12 million 500 thousand, which has been
approved by the President and sent to Congress.

H.M.Jr:

What else?

Thompson:

Here is a report that Mr. Wilmerding has given

H.M.Jr:

You stay behind a minute and I will talk to you
about it.

to Mr. Bartelt.

Do you (Stewart) think you can amuse yourself
from now until 1:00 o'clock, Walter?

273

- 14 Stewart:
H.M.Jr:

I think with this company I will be very happy,
Mr. Secretary.

I am going over to the White House at 10:30

and I doubt if I get back before lunch time.
All right?
Ed, feeling fighting?

Foley:

Sure.

H.M.Jr:

Want me to take care of Cox today?

Foley:

That is his (Sullivan's) problem.

Sullivan:

I didn't get the name.

H.M.Jr:

How are all the collectors up in New Hampshire?

Sullivan:

Boy, I have been waiting for that for a long
time. We will get Cox and take care of that

Shall we change any?

guy.

H.M.Jr:

O.K.

274
GRAY

JR

Milan
Dated May 14, 1940

Rec'd 1:45 p.m.

Secretary of State,
Washington.

28, May 14, 5 p.M.
For Treasury Department.

Today's prices C.O follows: 193; 337; 506.50; not
listed; 975; 201; 1639; 62.25; 221, Volume 172,535.

Market very active. Increased selling due to
runors of war forced prices steadily downward until near

close of market when they rallied slightly.
SHOLES
RR

275

CORRECTED COPY

MA

PLAIN

London

Dated May 14, 1940
REC'D 1:30 p.m.

Secretary of State
Washington

1210, fourteenth.
FOR TREASURY FROM BUTTERWORTH.

The rapidity of the German advance in Holland

and Belgium has depressed the city and all British
security markets WERE down with noticeable liquidation
in British Government securities.
KENNEDY
ALC

276

GRAY
HSM

The Hague

Dated May 14, 1940

REC'D 8:23 a. m.

Secretary of State,
Washington.
RUSH

8, May 14, 11 a. M.
Foreign Office has just requested mE to ask you

with utmost urgency if, as it hopes, under the Credit
Freezing Emergency Act as Extended the Netherlands it

is necessary to obtain a license to Effect a valid
transfer of Either principal or interest of the frozen
asset. ForEign Office further inquires if the answer
to the foregoing is in the affirmative whether or not
that constitutes as Effective protection as the destruction of securities under the conditions outlined in
Department's 86, May 13, 1 p. M.
GORDON

RR

Answered today by Stile
Dept offer consolting Trop

277
TELEGRAN SENT

PAP

GRAY

May 14, 1940
3 p.m.
AMERICAN LEGATION

THE HAGUE (NETHERLANDS)
97.

Your 8, May 14, 11 a.m.
Under credit freezing Emergency act as extended, it

is necessary to obtain a license to Effect a valid transfer
of either principal or interest 02 securities registered
in the name of a !nown Dutch national or Datch resident.

It is impractical by this means to block transfer of bearer
obligations or certificates, as such securities may appEar
in other markets.
WE cannot undertake to say that this/constitutes as

effective protection as destruction of securities, since
the problem remains as to how the holder of these SECURI-

ties may later be able to prove his ownership, and there is
always the possibility that an apparently valid transfer
made under compulsion might appear, and it is possible that
such a transfer might be licensed. However, in the EVENT

of Dutch governmental action transferring title to the
Dutch government or SOME specified agency, the Dutch would
be

278

PAP -2- 97, May 14, 3 p.m. to the Hague

be in a bEttEr position both from the point of view of
blocking transfer and of realization. This, of course,
does not apply to bearer securities unless the securities
themsElves, or proofs of their destruction, are in the
possession of the Dutch government.
HULL

(AAB)

840.51 Frozen CrEdits/85
A-B:AAB:ES EA

279
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France
DATE:

May 14, 1940, 4 p.m.

NO.:

656

FOR THE TREASURY DEPARTMENT.

This afternoon the Brussels Embassy telephoned to ask

that the Paris Embassy furnish them with dollar bank notes.

They stated it is impossible for them to obtain sufficient
Belgian france from the Brussels banks in order to meet
their current expenditures because withdrawals from deposits

are limited. The Embassy also stated that shopkeepers
were not willing to accept payment for purchases in French
banknotes.
END SECTION ONE.
BULLITT.

EA:LWW

280
GRAY
JR

Paris
Dated May 14, 1940

Rec'd 2:29 p.m.

Secretary of State,
Washington.

656, May 14, 4 p.m. (SECTION TWO)

Barrett of the Guaranty Trust has just telephoned

a member of my staff to say that all bourses in Switzerland have been closed until further notice.
Both Barrett and Pearce of the National City Bank
said that they had received instructions from the Bank

of France to convert into francs at the official rate
all Belgion bank notes offered for sale to them by
refugees. Pearce called on Rueff this afternoon and
ascertained from him that the Bank of France WC.S preparing

instructions regarding the clearance of checks drawn on
Dutch and Belgion banks.

PEARCE said that the activities of his bank had
been entirely normal today and yesterday and that there
had been no movement on the part of depositors to

withdraw their funds. Barrett confirmed this information
as regards the Guaranty Trust.
BULLITT
DDR

281
COPY FOR SECRETARY

Miss behavency

GRAY

PARIS

Dated May 14, 1940

Rec'd 4:32 p.m.

Secretary of State,
Washington.

656, May 14, (SECTION THREE)

The securities market which was closed yesterday for
Whitsuntide tended downward today but losses WERE consider-

ably less than those experienced in Friday's session,
RENTES lost on an average of one franc. Shares of enter-

prises in northern France particularly those of coal mines
dropped about 105 The average losses in other French
securities as well as in internationals did not EXCEED
3% The belga and the florin WERE again unquoted.
(END OF MESSAGE)
BULLITT
NPL

282

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Legation, The Hague.

DATE: May 14, 1940, midnight.

NO.: 207.
RUSH.

Refer to Legation's no. 206 of May 14, 1940, 8 p.m.
It has just been announced by British transoceanic

radio that Dutch and Belgian credits in the U.S., which
were frozen by our action on last Friday, have been released now. Considering the developments of this afternoon,
it is presumed that the freezing will be reimposed
at once.
GORDON

EA:MSG

283

INCOMING

CABLEGRAM
Rec'd.: May 14, 1940
Dated: Amsterdam
May 14, 1940

To: Federal Reserve Bank of New York.
#171.

*Zenyt

(Signed) De Nederlandsche Bank

*Zenyt - Netherlands, means:
In accordance with Netherlands cable #163 May 10:

"We request you after receipt of that message (message

containing word "Zenyt") no longer to execute any instructions sent to you on our behalf if and when such
instructions are dispatched to you from the Netherlands."

284

United States Steel Corporation
HAIRMAN

71 Broadway, New York.

OF DIRECTORS

May 14, 1940

The Honorable Henry Morgenthau

Secretary of the Treasury
Washington, D. C.

Dear Mr. Secretary,

Upon my return to New York this morning I

find your letter of May 8. I am indeed glad to

know that some of the information given you has
been helpful.

I will do everything possible to be of

further assistance in the matter this week, and
as I contemplate being in Washington next week,

I shall drop in on you at that time, in the hope
of having an opportunity of reviewing the facts
with you personally.
With best wishes,

Sincerely yours,

That
Stettinius, Jr

0

May 14, 1940.

Dear Summor:

Thank you for your note of Mary 13th, which

encloses a copy of the telogram you have received

from Rome. I appreciate your sentine this to me

so promptly. and I - most interested in reading
the Ambesandor's comment on the Treasury decision.
1th ware regards,
Sincerely,

Henry
Monorable summer Welles,

The Under Secretary of State,
Mashington, 7. C.

GEF/dbs

285

286

May 14g 1940,

Dear Summors

Thank you for your note of Hay 13th, which
encloses a any of the telegram you have received

from Remo. I appreciate your senting this to so promptly. and I - most interested in reading

the comment on the Treasury decision.
with - regards,
Sincerely,

Henry
Honorable - velloo,

The Under Segretary of state,
Mashington, no C.

GEF/dbs

May 14 1940.

near Thank you for your note of New 15th. which

encloses a - of the telegran you have received

from - I appreciate your senting this to 8 promptly. and I on most Interested in reading
the rebesender's commons on the Treasury desision,

sigh - regards,
sincerely,

Henry
Honorable - million,

the Under - of State
Mashington To a

OKF/dbs

287
THE UNDER SECRETARY OF STATE
WASHINGTON

May 13, 1940

Personal and

Confidential
Dear Henry:

I believe the attached telegram from our
Embassy in Rome will be of interest to you.
Under present conditions and unless the situa-

n

tion changes, this kind of thing, I believe,
is highly useful.
Believe me

Yours very sincerely

Enc.

The Honorable

Henry Morgenthau, Jr.,
Secretary of the Treasury.

the

288
PARAPHRASE OF TELEGRAM FROM ROME, MAY 10, 1940

Secretary of State,
Washington.

There is contained in this evening's Geornale
D'ITALIA the only press comment of interest that has
come to our attention regarding the Treasury Depart-

ment's recent action in rescinding countervailing

duties on certain Italian silk products. This paper
states, after briefly explaining without (?) the background of the question, that the Treasury's decision
arouses deep satisfaction here and 18 regarded as proof

of the cordiality of the relations in the commercial
as well as the political sphere between our country and
North America. This paper also states that the measure
facilitates Italian exports to America and that the hope

that this will lead also to a general intensification of
trade between the two countries 18 warranted.
PHILLIPS

289

May 14, 1940

My dear Mr. Hoovers

I appreciate your sending on to
me the information which you have recolved from Max Rosan and Heary Unsehuld

and would be glad to have any further

information in connection with this matter.

Thank you so much for your interest.
Yours sincerely,
(Signed) H. Morgeathau, Jr.

Mr. J. Edgar Hoover, Director
Federal Bureau of Investigation,
Department of Justice,
Fashington, D. C.

290

May 14, 1940

My dear Mr. Hoovers

I appreciate your sending on to
me the information which you have recoived from Max Rosan and Henry Unschuld

and would be glad to have any further

information in connection with this matter.

Thank you so such for your interest.
Yours sincerely,
(begned) H. Morgenthan Jr.

Mr. J. Edgar Hoover, Director
Federal Bureau of Investigation,
Department of Justice,

Washington, D. C.

291

(
May 14, 1940

My dear Mr. Hoovers

I appreciate your sending on to

no the information which you have colved from Max Rosan and Henry Unsehuld

and would be glad to have any further

information in connection with this matter.

Thank you so such for your interest.
Youre sincerely,

Mr. 3. Edgar Hoover, Director
Federal Bureau of Investigation,
Department of Justice,
Washington, D. C.

JOHN EDGAR HOOVER

292

DIRECTOR

Federal Bureau of Investigation
United States Department of Justice
Washington, D.C.
May 8, 1940

PERSONAL AND

CONFIDENTIAL

The Honorable

The Secretary of the Treasury
Washington, D. C.

My dear Mr. Secretary:

On April 6, 1940, Mr. Max Rozan, who identified himself as
an independent oil operator, residing at 1100 Monroe Boulevard, South
Haven, Michigan, called at this Bureau and related the following information, which I am bringing to your attention at this time for
reasons hereinafter apparent:

Mr. Rozan advised that he became acquainted with one Henry
Unschuld a year or so ago through an introduction arranged by one Jake
Finkelstein, whom he described as an oilman and former friend of the

deceased President Warren G. Harding. At the time of this introduction
Unschuld was endeavoring to obtain capital to finance the development of
a gasoline substitute which he demonstrated to Mr. Rozan and in which
the latter immediately became interested. According to Mr. Rozan,
Unschuld is a native of Germany, of partly Jewish extraction and was a
German U-boat Commander during the World Har. Mr. Rozan further stated

that because of Unschuld's German nativity he suspected that the latter

might be in some way connected with the present Nazi regime and as a

result of this suspicion, in addition to the fact that he, Rozan,

thought the United States Government should have the first opportunity
to obtain Unschuld's gasoline substitute, he arranged to have Unschuld
demonstrate his substitute at a plant on the North Side of Chicago,

Illinois. At this demonstration by prearrangement officers, believed
to be connected with the Office of Naval Intelligence, were present in
the guise of ordinary mechanics and employees of the plant. In this
connection Mr. Rozan stated that he had inquired at the Post Office
Department in Chicago relative to the location of an Intelligence
Service of the United States in that city and had been directed to an
office on Dearborn Street, which he believes to have been the Office of
Naval Intelligence, where the arrangements were perfected for the above
demonstration. Mr. Rozan was subsequently advised by the officers
attending this demonstration that they did not believe Unschuld's
gasoline substitute had any possibilities and were, therefore, no
longer interested therein.
Mr. Rozan further stated Unschuld, with whom he has now become

293

The Secretary of the Treasury

2.

quite friendly, informed him that he recently had occasion to go to
Los Angeles, California, where while stopping at the Clark Hotel he

made the acquaintance of a German alien, who after some conversation
with Unschuld, during which their respective backgrounds were discussed

to some extent, took Unschuld to be a member of the Nazi Party or at
least in sympathy with that organization. This individual informed

Unschuld of a plan, allegedly sponsored by German agents presently in
Mexico, whereby certain wealthy residents of Los Angeles and vicinity
are to subscribe $5,000 each to a fund to be used "to get Morgenthau."

After leaving this Bureau, Mr. Rozan telephoned several hours
later to advise that he had just encountered Unschuld at the Mayflower
Hotel in Washington, D. C. and that the latter was available for an

interview in connection with this matter. Special Agents of this

Bureau were immediately designated to interview Mr. Unschuld, at which

time the latter stated, in connection with the incident at the Clark
Hotel in Los Angeles, California, that the individual he met there
was one Captain Kitsbel. He further advised that Kitzbel introduced
him to one Carl Myer alias Carl Myers, who intimated that he was a
leader of the German-American Bund in that area and made frequent
mention of the names of Herman Schwinn and Fritz Wiedemann, who is,
of course, the German Consul General at San Francisco, California.

Unschuld further advised that on one occasion Myer or Myers
stated A. P. Giannini, head of the Bank of America, was contributing

to the Bund on the West Coast in an effort to assist that organization
in "getting Morgenthau." Unschuld was unable to furnish any additional

information as to what Myer meant by this expression and could not
advise whether it implied possible physical injury or a propaganda campaign. Unschuld further stated that Myer suggested he should join the
Bund organization in Los Angeles for the purpose of assisting that
organization in its work, but the subject was dropped when he indicated

no interest in this group.

It is noted that Mr. Rozan was present during the time the
Special Agents of this Bureau were interviewing Mr. Unschuld and from
statements made by the former he implied Unschuld had previously told
him that the Nazis on the West Coast had in mind a plan involving
physical injury to you. Unschuld, however, denied that he had knowledge
of such a plan but did state that A. P. Giannini, the banker above mentioned, was undoubtedly opposed to you.

234

The Secretary of the Treasury

3.

As of possible interest, it is further noted that during

the interview with Unschuld Mr. Rozan asked him to furnish information concerning the "gold situation in Mexico." Unschuld, however,
refused to furnish such information as he may have had on this matter
and stated that it had nothing whatsoever to do with the Nazi movement on the Pacific Coast. Mr. Rozan subsequently advised the Special
Agents of this Bureau that he had previously been informed by Unschuld
the Nazi group, headed by Carl Myer on the West Coast, had a quantity
of gold bullion in Mexico which they were endeavoring to bring

secretly into this country for the purpose of selling it to the United

States Treasury, and that he, Rozan, had been approached by Unschuld

for the purpose of obtaining his assistance in financing this particu-

lar endeavor.

While the interview with Unschuld failed to indicate he had

evidence of any violation within the investigative jurisdiction of

this Bureau, he was nevertheless questioned in detail primarily because
of the references made to you, as set forth hereinbefore. I wanted
to acquaint you with these facts as soon as possible and you will be
promptly advised should any further information in connection with
this matter come to my attention.
Sincerely yours,

Director
I John you
Edgar Hoover Hoover

235

May 14, 1940

MEMORANDUM FOR THE SECRETARY:

Pacific Coast Situation

The Pacific Coast freight and charter market, after
having adjusted to some extent to the Scandinavian blitskrieg,

was last week again thrown into complete confusionby the German
march on The Netherlands, Belgium, and Luxembourg, last Friday.

If anything, it made all owners sit tight, also shippers, until
they could find out just what trend the market would take.

This latest war move practically finished, with a couple
of exceptions, all neutral carrier operations to Europe, thus
it was impossible to secure any valid information on the situation.
The trade to the Orient evidenced no change from the week
before. Space generally was tight, and scrap offerings were neither

good nor bad. Scrap rates on the berth were still quoted at $12
for rails, $14 for melting. Apparently there was no charters for
scrap, the last rate being reported at $14 f.i.o. Lumber was

not active with $18 quoted to Japan, between $20 and $21 to China.
The trans-Pacific charter market showed strength on salt, however,
when it was reported that a vessel had been fixed from San Francisco
Bay to Japan at $14.75, as compared with the previous high of about

$11.

Intercoastal business was alightly easier on the passage of
the Buck Bill releasing 116 sterilized Government-owned vessels

for sale or charter in foreign or domestic trades. Lumber space
continued quite scarce.

Basil barrio.

290

ITALIAN STOCK PRICES
(Milan)

Dec. 31, 1927 = 100
Daily*

OCT.

NOV.

DEC.

JAN.

FEB.

MAR.

APRIL

MAY

25

MAY

JUNE

JULY

PER

CENT

2

SEPT.

9

AUG.

MARCH
PER

PER

CENT

CENT

30

23

16

6

JULY

1940

1 40

1939

20

13

27

18

11

4

Weekly

PER

CENT

210

210

185

185

200

200

180
180

190
190

175
175

180

180

170
170

170

170

165
160
160

165

150

150

160

160

SHARES
140

140

SHARES
THOUSANDS

THOUSANDS

1557

Volume

200

200
130
130

100

100
120

1939

NOV.

DEC.

JAN.

FCB.

MAR.

APR.

MAY

JUNE

w

110

JULY

1940

0

OCT.

18

11

2

SEPT.

9

AUG.

16

MARCH

23

30

6

JULY

13

APRIL

20

27

25

4

110

0

120

MAY

1940

"DAILY FOR LATEST WEEK ONLY

FO 14)
Office of the Secretary of the Treasury
Dates Research and Statistics

CIVIL AERONAUTICS AUTHORITY
WASHINGTON

May 15, 1940

My

1mm Rind Was A-A
Wonday

dear Mr. President:
I

- pleased to transmit herewith the Report of the Interdepart-

mental Committee on Mechanics Training for the Aircraft Industry,
which was established by you on March 27, 1939. For your convenience
this-Report is briefly summarized.

Since your approval of the Committee's initial recommendations,
the various Federal agencies involved have made considerable progress

in-ooordinating their activities and in cooperating with the Aircraft

management and labor in accordance with the approved program. During
this period the Committee has held conferences with representatives

of the Aircraft Industry, its subcontractors and with representatives
of organised labor. As a result of these conferences, much of the
previously existing misunderstanding regarding the participation of
the Government in the training of skilled labor has been eliminated.
During the past year the Aircraft Industry has been greatly ex-

panded, due to large domestic and foreign orders. The number of
exployees has increased approximately three times and now totals
100,000 factory workers. Production has increased from twelve mil-

Lion dollars per month in 1938 to fifty million dollars per month at
the present time. Subcontracting has increased materially. Prospective foreign orders will necessitate a doubling of the existing

production schedules.

The need for aircraft workers in the event of our involvement
in war is expected to be three times the number now employed. The
corresponding demands upon other essential war industries would
preclude the Aircraft Industry from drawing upon the akilled workers

of other industries as it has done in the recent past.

To a large extent the Aircraft Industry develops skilled workers
through plant training programs, including indentured apprenticeship
systems, supplemented with trade extension courses in public vocational

schools. Sami-skilled workers are obtained through plant training prograns and from graduates of Federally-aided vocational schools which
give pre-employment courses.

The Committee, in its Report, recommends the enlargement of ex-

isting programs of training in the aircraft plants and in public
educational institutions. This calls for the development of three

-2classes of workers: (1) skilled workers within the industry through
apprenticeship programs to qualify craftsmen and through plant training supplemented with extension courses in Federally-aided vocational
schools to enable semi-skilled workers to extend their knowledge and

the range of their skill; (2) semi-skilled workers to be developed by

plant training for employed unskilled workers and by pre-employment
courses in Federally-aided vocational schools; (3) green hands to be

trained directly in the plant.

In order that the Federal agencies may adequately play their part
in the training of aircraft personnel, your Committee recommends that
$500,000 additional funds be provided the Federal Committee on Apprenticeship, U. S. Department of Labor, for more field personnel, and
that $5,200,000 additional funds be provided the Vocational Education

Division, Office of Education, F.S.A., for allocation in support of

local vocational schools.

Respectfully yours,

OSWALD RYAN

Member, Civil Aeronautics Authority

Chairman, Interdepartmental Committee

on Mechanics Training for the

Aircraft Industry

The President,
The White House,

Washington, D. C.

May 15, 1940

FOR THE PRESIDENT

Subjects Report of Interdepartmental Committee on

Mechanics Training for the Aircraft Industry.

Your Interdepartmental Committee on Mechanics Training for the

Aircraft Industry began its work about one year ago at a time when

his industry was clearly not prepared, either in plant capacity or
performal, to most the needs of the nation in case of war or serious
exergency. Your Committee submitted an initial report on May 9,
1939, which contained recommendations for action which the respective
Federal agencies should take to help solve the problem. These recom--

tendations received your approval in directives which you issued on
17, 1939, to the agencies concerned and as a result, these agencies

are coordinating their activities to the fullest extent, and are COoperating with management and with labor in the aircraft industry.
Exhibit " hereto attached, shows what these agencies have done to
CERTY out your directives.
Your Committee has held numerous meetings, has conferred frequently

with the aircraft industry and some of its subcontractors, and has had
two formal meetings with representatives of the A.F. of L. and the C.I.O.
It was determined during these conferences that the necessary personnel

for expansion of the aircraft industry can and will be produced or procured from the ranks of the unemployed and by training the unskilled or

less skilled to become better skilled. Also that the necessary Federal

-2
agencies are already available and capable of rendering advice and

assistance subject only to the limitation of appropriated funds.
These conferences have been perhaps the most important work of the

Committee in that they have greatly reduced a previously existing
misunderstanding regarding the participation of Government in the

training of skilled labor. With but few reservations, your Committee
believes that there has been established a feeling of mutual confidence and interdependence which will go far to insure that any future
expansion of the aircraft industry may be made without serious difficulty.

Recent Expansion of the Aircraft Industry
As you are aware, the aircraft industry has undergone an enormous

expansion during the past twelve months as a combined result of orders
placed by this Government and by foreign governments. Employment in

the aircraft manufacturing plants in the nation has increased approx-

inately one hundred and fifty percent, so that it is safe to assume
that the number of employees connected with the production of aircraft

is about two and one-half times what it was a year ago. Plant facilities
have been greatly increased in a number of cases. As against an average

rate of production of about $12,000,000 per month during 1938, it is
estimated that the aggregate production of the industry has now attained

a rate of $50,000,000 a month. Further prospective orders for foreign
delivery ($600,000,000 to $1,000,000,000) will call for a substantial

3

901

the production rate, probably doubling the current output
made year.

w the Sairence in production has been accomplished with

- a proportionate increase in the amount of labor directly
C admonest industry propare There has been an increase

the of parts of aircraft being entrusted in

/ that had previously had_no activic
and - of factory workson compaged in aircraft alient 200,000, as against less than one-third that

... To date the industry stooLf has been able to find or

the workers for that expension, in
14 Istue explained

and prospective foreign orders will nearly double

1 oz Costory curtory in the aircraft industry (from

(you) A national would require at loast
w number of factory burkers (from 100,000 to

2 is to provide the I addited and seed
the be the industry to mot these conditions.

Creat of - in L the decands of other
S Industrial would Impresse the requirements for the various
adidas Labor needed Love adreraft work, and it would be impos

airwraft industry to drow, do st has to a considerable

in the recent past, upon skilled workers with previous training
in other industries which would themselves be essential to the war
effort. There would of course be a certain compensating opportunity

to drea labor into the aircraft industry and other essential industries
from those which, being non-essential under wartime conditions, might

expected to diminish their production and their labor requirements.
It is also necessary at the present time to consider the expansion
requirements of a great many specialised subcontracting plants as an

essential part of the requirements of the aircraft industry as commonly
defined. Production in companies directly concerned in aircraft work
may be endangered because of bottle-necks created through the lack of

workers in skilled trades in companies either supplying machine tools,
THE materials or companies engaged in subcontracting.

It has been impracticable for your Committee to classify the aldill
requirements of workers in aircraft manufacturing plants in terms of

the length of the training period necessary for qualification. Some
work requires many years of training and experience, superimposed on

special aptitude, for its competent performance. Other workers, also
quiring special training, can be trained from a group much less narrotly

ected in terms of natural ability, and in a much shorter time. Although
skilled craftsman is typically the graduate of a four-year apprentice
LP, there are many other workers whom the aircraft industry classes as

filed in their particular departments who have received no such extensive
raining. The increased degree of specialisation and of line assembly

Y

For

By increased production tends to a constant reduction in

of skilled crafterm, and an increase in the relative
the

seed-skilled and unskilled, as the total number of

played increases,
Complete Training

hope
See

designed to train labor for the aircraft industry should

as possible, directly sponsored by that industry.

training should proceed both in the industry's plants and in edu

institutions. Training in the plants includes: (a) the mainten
of formal apprenticeship systems, and (b) the maintenance of programs

permitting selected workers of all grades to quality them-

for positions better than those currently held, and to fit themfor the assumption of enlarged responsibility in the event of an
requiring further plant expansion. The educational instituinvolved are vocational schools, which offer pre-employment courses

future workers; cooperate with industry by giving instruction in the
necessary related subjects in connection with apprenticeship or other

training received in the plant itself, and cooperate also in the estab
Hahmont of courses to qualify plant workers for supervisory positions.
thods of Training
The development of skilled workers within the industry, as opposed

their recruitment from among those already trained in other industries,
accomplished through apprenticeship programs to qualify craftsmen and

La

304

-6
through plant training to enable semi-skilled workers to extend their
knowledge and the range of their skill.

Somi-skilled workers are obtained primarily by (a) training in
the plant, of such soope and duration as the particular Job classification concerned may dictate, for employed unskilled workers, and (b)
pre-employment courses in Federally-aided vocational schools. This

report omits consideration of the private schools for aircraft mechanic

training approved by the Civil Aeronautics Authority, due to the fact
that the Committee's assignment under the President's order was confined
to recommendations for coordination of functions of agencies conoerned
with Federally-aided vocational schools.

Green hands are trained directly in the plant for the work which

does not require particular knowledge or skill. For those with & fair
degree of general manual facility, although without previous specialised
mechanical experience, such training can be very brief for most Jobs.

The preparation of this class of labor does not appear to present any
serious problem.

As above pointed out, the problem of training for further expansion

will be most grave, or will first become critical, in connection with the
skilled worker. For certain skilled occupations the necessary training

should, as is generally customary, be provided in the plant. It is difficult for either the aircraft industry or the Government to foretell the
extent of the demands upon that industry; however, it would be desirable

if the initial training program for additional craftsmen would be such

-7m

daste sufficient apprentices each year to meet foreseen peaceModifications of the program should be made to meet
ditions as they become necessary.

Consumer to Regreitment and Training
The agencies of Government concerned in this matter fall into

togories - those which can assist directly in the training pro
and

those which can assist in recruitment either of men already

specialized qualifications or of promising material for
In the former category are the Federal Committee on Appron-

V. s. Department of Labor, and the Division of Vocational Eduin

the Office of Education. In the second category are the

of Employment Security, the National Youth Administration and
Villam Conservation Corps.

The Federa1 Committee on Apprenticeship can put its vast exper
in

the planning and organisation of apprenticeship systems, the
of apprenticeship agreements to meet the requirements of
plants, and the development of standards for such systems,

disposal of the aircraft industry. To make it possible for the
Committee on Apprenticeship to supply this assistance on a scale

rate with the extent to which it is to be hoped that the aircraft

will find it practicable to extend its provision for apprentica
more field representatives will be required. This point is further
dised in the succeeding section of the present outline.
The services of the Vocational Education Division of the office of

La

-8-mm

Education include the giving of counsel and the administration of
Federal aid funds for vocational education. The personnel of the

Division are in a position to advise local educational authorities
on the measures that they can best take in adapting their training

courses to the requirements of the aircraft industry, and to assist
them in establishing direct relations with neighboring units of the
industry. The further extensions of vocational educational facilities designed especially for the training of aeronautical personnel
is desirable, but in most cases it appears that such extension will
be practicable only through an increase in Federal aid funds for
the establishment and maintenance of new courses, in accordance with
the provisions of the Smith-Hughes and George-Deen Acts. This also

is further discussed in the next section of the outline.
The federal Bureau of Employment Security can increase the value

of its placement facilities to the aircraft industry by ascertaining,
in conference with the employment directors of representative plants

of various types within the industry, the special qualifications and
experience that particularly fit various classes of labor for aeronautical work, and by taking special measures to ascertain the possession
of those qualifications by individuals seeking employment.
The National Youth Administration and The Civilian Conservation
Corps can increase their programs of preparatory work experience and

-9-

aircraft industry and public employment agencies with the
qualifications of men who have shown special aptitudes for
Mar

types of mechanical training.
to make Government Aid Effective

indicated in the previous section, the special requirements
agencies, in order that they may be adequately prepared to

their part in connection with the recruitment and training of
for the immediate expansion of the aircraft industry, are
for

more field personnel for the Federal Committee on Apprenticeship,

and for more funds for allocation in support of local vocational educa-

Mion in the aircraft and supporting industries. As far as the Interdepartmental Committee on Mechanics Training can foresee, for the coming

fiscal year beginning July 1, 1940, the estimated amounts required are:
Federal Committee on Apprenticeship

$ 500,000

Office of Education

$5,200,000

(These agencies should submit their budgetary estimates promptly upon

approval of this report by the President.)
We recommend for your approval the foregoing specific measures for

dealing with the problem of labor supply for the aircraft industry. The
Committee believes the proposals are in such form as to be equally adapt-

able for use in dealing with the same problem in other essential or crit
Loal industries, such as machine tools, munitions, and explosives. For
your convenience in the event of your approval of the proposed measures,
the Committee has prepared and attached hereto drafts of directives for

DE

-10-

Secretary of Labor and the Administrator, Federal Security Agency,

taining pertinent instructions for effectively carrying out the
Unless otherwise instructed by you, the Committee, as such, will

hold no further meetings. The individual agencies represented will
continue cooperating to carry out the program as approved; at the same

time the Committee holds itself subject to your call.

Oswald Ryan

Member, Civil Aeronautics Authority
Chairman

Johnson
Louis Johnson

Assistant Secretary of War
Member

C.
Y. MeLaughten
Charles
V. McLaughlin

Assistant Secretary of Labor
Vice Chairman

Mrish

Captain C. W. Fisher (c.c.) U.S.N.
Navy Department
Member

Vocational
Education
John Assistant John
Commissioner
Weight C. Wright for

Office of Education

Federal Security Agency

Ow R William
David Williams

Assistant Administrator
tional Youth Administration
Federal Security Agency

Chasles
Jafor
Charles H.He
Taylor
Assistant Director
Civilian Conservation Corps
Federal Security Agency

THE WHITE HOUSE
WASHINGTON

The Honorable

Administrator, Federal Security Agency
Washington, D. C.

My

dear Mr. Administrator:

There has been submitted to me a report by the Interdepart
mental Committee on Mechanics Training for the Aircraft Industry,
on which your Agency is represented. This report includes proposed measures for dealing with the problem of labor supply for

the aircraft industry.

One of the recommendations contained in this report was that
an estimated amount of $5,200,000 for the fiscal year beginning
July 1, 1940, would be necessary for allocation in support of
local vocational education in order to adequately carry out the

general plan recommended by the committee. Your Agency is directed to take the necessary steps to obtain a supplemental approp-

riation for the purpose of providing adequate vocational educa-

tional facilities necessary for the training of labor for the
aircraft industry for the current expansion of the aircraft

industry and the industries upon which it is dependent.

Further, I direct the Bureau of Employment Security to con-

fer with directors of employment in representative aircraft lants
to secure information covering essential qualifications for the

aircraft workers and to set up measures for ascertaining the
possession of these assets by those seeking employment in arcraft

work.

The President

THE WHITE HOUSE
WASHINGTON

The Honorable,

The Sécretary of Labor,
Washington, D. C.

My dear Madam Secretary:

I have received from the Interdepartmental Committee on

Mechanics Training for the Aircraft Industry, on which your Do
partment is represented, a report which includes proposed measures

for dealing with the problem of labor supply for the aircraft industry. One of the recommendations in the report is that for the
fiscal year beginning July 1, 1940, an estimated amount of
$500,000 be provided to your Department for additional field
personnel for apprenticeship.
Your Department is directed to take the necessary steps to
obtain a supplemental appropriation for the purpose of adequately

doing your part in connection with the training of skilled crafts
men for the current expansion of the aircraft industry and the
industries upon which it is dependent.

The President

0

R

INTERDEPARTMENTAL COMMITTEE ON MECHA
April

940
ADDRESS

Orders

sture.

seening

or

of

peresolage

Googerste public

312

May 15, 1940

(Dictated May 16, 1940)

Purvis came to my house at 5 o'clock and the
President of the United States left word he wanted

to talk to him.

It seemed the President had gotten a cablegram
from Winston Churchill asking whether they could buy,
for immediate delivery, some of our transport planes
and some of our privately owned planes and wanted to

send an aircraft carrier over here to get them. Some

mention was also made by the President of possibly giving the Allies some more of our own planes now being
built for the Army and the Navy, but Mr. Purvis said
they would not be of much use because they did not
have the proper armor or leakproof gasoline tanks.

Much to Mr. Purvis' surprise, the President said that
they should do it through Mr. Bloom in charge of their
purchases. Purvis was surprised that the President
knew that such a man as Bloom existed.

I made the suggestion that we get hold of Bob
Hinckley of Civil Aeronautics rather than do what
Purvis suggested, namely, that he was going to let

Stettinius handle it.

Hinckley came around after supper and dictated
a memorandum, and I sent a copy of it to the President,

which shows that the Churchill suggestion 18 ridicu-

lous. Furthermore, to take any of our transport planes
out of service at this time, I think, would have a very
bad reaction in this country. Furthermore, I think
that Hinckley's idea, namely, to build up our transport
service so that we can increase the production of our
airplane factories, our pilots and our ground crews by

possibly using the transport service for all mail and
express, is a good one.

I was shocked to find out that they have only
about 300 transports in the whole United States and
not more than 50 to 75 privately owned transports and
the rest of the planes carry from 2 to 4 people, again
indicating how really badly off we are.

313
-2-

I had Bob McHugh take a letter down to the
White House before ten o'clock to the President.

Incidentally, the more I see of Bob Hinckley

the better impression he makes on me.

The particular thing that Purvis wanted to
United States was going to interfere with their purchasing and I assured him that it wasn't.
know was whether this new armament program in the

He then made an excellent suggestion, namely,
that in the President's armament program should be included a provision which would give us the power to

prevent the export and re-export of critical materiel.
I called up Grace Tully and Mrs. Morgenthau
wrote down what I said, as follows:

"HM, Jr spoke to Tully at 6:30 and told her to
tell F.D.R. that Purvis, as he knew, was with him and
they thought F.D.R. should include in his message to
Congress that we should have the right to control the

export and re-export of all essential war materiel.
While HM,Jr was speaking to Grace, F.D.R. passed in
his chair and Grace told him. He said that was a
good suggestion and to call Bob Jackson and tell him
to include it. HM,Jr asked Grace to call Jackson at
once.

Purvis told me that they will clean up the

engine situation this week and the reason they had
to delay on the airplanes was because they could not
let any more contracts for airplanes until they cleaned
up the engine situation.

I read him both of Bullitt's cables and while

he was at the house he got word that he was to do the
buying of all steel from now on, and was very much
pleased.

He also told me that Sir Henry Self had been

recalled and I told him I thought I had something to

do with that. I also told him that I thought they
were going to call back Bloch-Laine.

314

-3-

Purvis was going to go this morning to see
Du Pont as he wants to go places on this powder

and they are prepared to let contracts for a plant
to produce 20,000 tons in the U.S.A. and one for
12,000 tons in Canada.

(Phil Young will write a memorandum giving

more details of this meeting at my house.)

315

refer to Initials

NAVY DEPARTMENT

and No.

OFFICE OF THE CHIEF OFNAVAL OPERATIONS

WASHINGTON
SECRET.

14 MAY 1940
THE HONORABLE SECRETARY OF THE TREASURY
MR. HENRY MORGENTHAU, JR.

I HAVE SEVERAL TIMES TAKEN UP WITH THE FRENCH AND BRITISH
GOVERNMENTS THE QUESTION OF PLACING ORDERS FOR IRON AND STEEL
THROUGH THE IRON AND STEEL FOUNDATION IN LONDON INSTEAD OF
THROUGH PURVIS AND BLOCH LAINE AND I HAVE BEEN PROMISED SATIS-

FACTION. HOWEVER, THIS AFTERNOON MR. NATHAN, ASSISTANT TO
THE MINISTER FOR ARMAMENTS, CALLED AT MY OFFICE. HE WAS ACCOMPANIED BY MR. FOULD AND THEY STATED THAT THE FRENCH GOVERNMENT
HAD HAD GREAT DIFFICULTY IN GETTING PROMPT ACTION ON IRON AND
STEEL ORDERS PLACED THROUGH BLOCH LAINE AND THEREFORE THOUGHT

THAT THERE WAS MERIT IN THE BRITISH SUGGESTION. NATHAN ADDED
THAT FOULD WOULD VISIT THE UNITED STATES TO DISCUSS THIS MATTER
WI TH YOU.

I REPLIED THAT I FELT IT QUITE CERTAIN THAT YOU WOULD NOT
RECEIVE MR. FOULD. I ALSO STATED THAT PURVIS WAS A MOST ADMIRABLE AND EFFICIENT EXECUTIVE AND THAT THE PURCHASING ARRANGEMENTS
ESTABLISHED BY HIM WERE FUNCTIONING ADMIRABLY. I ADDED THAT
THE UNITED STATES GOVERNMENT COULD HAVE NO OBJECTION TO THE
FRENCH STRENGTHENING THE STAFF OF BLOCH LAINE IF HE SHOULD BE
INCOMPETENT TO HANDLE THE QUESTIONS OF IRON AND STEEL, BUT THAT
THE AMERICAN GOVERNMENT HAB A PROFOUND INTEREST IN THE ORDERLY

HANDLING OF PURCHASES AND THAT IT CONSIDERED IT UNWISE TO PLACE
IN JEOPARDY AN EFFICIENT MECHANISM BECAUSE OF DEFICIENCIES OF

AN INDIVIDUAL.
I WAS so LOTTLE SATISFIED BY MY CONVERSATION WITH NATHAN
AND FOULD THAT I SPOKE TO PAUL REYNAUD IMMEDIATELY AFTER THEY
LEFT ME AND HE PROMISED THAT HE WOULD INSIST ON ACCEPTANCE OF

YOUR POINT OF VIEW BY THE BRITISH GOVERNMENT. I SENT THE FORE1.

316

refer to Initials
No.

NAVY DEPARTMENT
OFFICE OF THE CHIMP OFNAVAL OPERATION

WASHINGTON

GOING TO MONNET AND I TRUST THAT THE MATTER WILL BE SETTLED
SHORTLY IN ACCORDANCE WITH YOUR WISHES.
THE REPRECUSSIONS OF THE GERMAN ATTACKS HAVE PREVENTED MY
OBTAINING MORE RAPID ACTION.

WITH EVERY GOOD WISH,

BULLITT.

317

NAVY DEPARTMENT

after to Initials

OFFICE OF THE CHIEF OFNAVAL OPERATIONS

WASHINGTON

14 MAY , 1940

SECRET

THE HONORABLE SECRETARY OF THE TREASURY
MR. HENRY MORGENTHAU, JR

AFTER A MOST CAREFUL INVESTIGATION OF THE QUESTION OF
ENGINES FOR THE BLOCH BOMBERS IN WHICH I HAVE CHECKED AND DOUBLE
CHECKED THE STATEMENTS MADE TO ME BY THE MINISTER OF AIR, THE

FORMER MINISTER FOR AIR, THE CHIEF OF STAFF OF THE AIR FORCE,
AND THE UNDER SECRETARY FOR AIR, I AM SATISFIED THAT PROVIDED
THE P AND W COMPANY FULFILL WITHOUT DELAYS THE SCHEDULED DELIVERIES OF MOTORS TO BE PLACED IN FRENCH PLANES THERE WILL BE NO
SHORTAGE OF MOTORS FOR THE BLOCH BOMBERS.

WHEN I WAS ASSURED IN THE FIRST INSTANCE BY THE MINISTRY OF
AIR THAT THERE WOULD BE NO SHORTAGE PROVIDED DELIVERIES SHOULD
CONTINUE ACCORDING TO SCHEDULE I DOUBTED THE ACCURACY OF THE
INFORMATION AND HAVE THEREFORE RECHECKED IT. THERE HAS BEEN

APPARENTLY A SLIGHT DELAY IN DELIVERY OF PRATT AND WHITNEY MOTORS
EARMARKED FOR BLOCH BOMBERS, BUT NO INFORMATION HERE INDICATES

THAT THIS DELAY IS OR WILL BE SERIOUS.
ON THIS POINT COLONEL JACQUIG CAN INFORM YOU BETTER THAN
ANYONE ELSE.

WITH GOOD WISHES,

BULLITT.

318

9 P.M.

May 15, 1940.

My dear Mr. President:

As a result of your telephone conversation
to Mr. Purvis he and I have been meeting this
evening with Mr. Hinckley, Chairman of Civil
Aeronautics, and Mr. Hinckley has outlined to

us what the air transport plane situation is
and what the private plane situation is and I
am enclosing herewith a memorandum which has

been distated by Mr. Hinckley.

Faithfully,

The President,
The White House.

Enclosure.

319
MEMORANDUM

The air transport lines of our country at the present

time are operating approximately 300 planes. About two thirds
of these planes are of the Douglas DC-3 type. The balance is
made up of Lockheeds and the old Boeing 247 D's.

Every air transport operator in the country today has
unfilled orders' of manufacturers for additional equipment in
order to meet the present traffic needs. If all of these
300 transport planes were taken out of use it would stop

immediately all air transportation in this country. It is

questionable how valuable they would be in the present emergency.

In the private plane field, there are from 50 to 75

private planes principal y of the Lockheed type, owned and
operated in the main by oil companies. These planes are the
ten passenger type. These as well as the air transport planes

would be useful only for transport purposes. In addition to
this number of planes in the private fields that could be used
for transport purposes there are probably an additional 50
planes grouped generally as Beachcraft, Vultees, Grumman and
Stinsons that have a passenger capacity of from two to six
passengers, none of them with enough speed to be of any military
value and of such general characteristics that the hazard to
the manpower that would be necessary to operate them would be

too great to give them any serious consideration.
The air transport operators that have orders with
manufacturers that are not now delivered might be prevailed
upon to waive these deliveries, if these planes would be of
any great value at this time.

As an estimate, there will be delivered to air trans-

port operators within the next 90 days 30 to 40 Douglas DC-3's

and other types of Lockheeds.

320

9 P.M.

May 15, 1940.

My dear Mr. President:

As a result of your telephone conversation
to Mr. Purvis he and I have been meeting this

evening with Mr. Hinckley, Chairman of Civil
Aeronautics, and Mr. Hinckley has outlined to

us what the air transport plane situation is
and what the private plane situation is and I
am enclosing herewith a memorandum which has

been dietated by Mr. Hinekley.

Faithfully,

The President,
The White House.
Enclosure.

321

MEMORANDUM

The air transport lines of our country at the present

time are operating approximately 300 planes. About two thirds
of these planes are of the Douglas DC-3 type. The balance is

made up of Lockheeds and the old Beeing 247 D's.

Every air transport operator in the country today has
unfilled orders or manufacturers for additional equipment in
order to meet the present traffic needs. If all of these
300 transport planes were taken out of use it would stop

immediately all air transportation in this country. It is

questionable how valuable they would be in the present emer-

geney.

In the private plane field, there are from 50 to 75

private planes principally of the Lockheed type, owned and
operated in the main by oil companies. These planes are the
ten passenger type. These as well as the air transport planes

would be useful only for transport purposes. In addition to
this number of planes in the private fields that could be used
for transport purposes there are probably an additional 50
planes grouped generally as Beacheraft, Vultees, Grumman and

Stinsons that have a passenger capacity of from two to six
passengers, none of them with enough speed to be of any military
value and of such general characteristics that the hasard to
the manpower that would be necessary to operate them would be

too great to give them any serious consideration.
The air transport operators that have orders with
manufacturers that are not now delivered might be prevailed
upon to waive these deliveries, if these planes would be of

any great value at this time.
As an estimate, there will be delivered to air trans-

port operators within the next 90 days 30 to 40 Douglas DC-3's

and other types of Lockheeds.

not sent 322

see revision sent
May 15, 1940. 5/16.
Cable for Ambassador Bullies
Dear Bills
ALL ALLIED PURCHASES OF STEEL WILL CLEAR
THROUGH PURVIS MANY MANY THANKS

HENRY MORGENTHAU, Jr.

323

May 15, 1940.

Cable for Ambanaador Bullitt
Dear Bills
ALL ALLIED PURCHASES OF STEEL WILL CLEAR
THROUGH PURVIS MANY MANY THANKS
1

HENRY MORGENTHAU, Jr.

<

:

324

May 15, 1940.

Cable for Ambassader Bollitt
Dear Bills
ALL ALLIED PURCHASES OF STEEL WILL CLEAR
THROUGH PURVIS MANY MANY THANKS

HENRY MORGENTHAU, Jr.

325

May 15, 1940.

Cable for Ambassador Bullitt
Dear Bills
ALL ALLIED PURCHASES OF STEEL WILL CLEAR
THROUGH PURVIS MANY MANY THANKS

HENRY MORGENTHAU, Jr.

to 326

OH.M. JR 1 spike to

Tully at 6-Jo &
told have to Rum
tall 70R
nhen.
that Purvis as she ^ was w.

and Thus that 7 A.R
should include in his
was to Concess that
0

he should have the

Right to contRol The

4x pnt and Re-axput
rall assential was
mateRial While Ha JR
was Sprakery to greer

7DR paned culus
chan & Grace to ld him,

H3 sand That was a
Good suggestion to
call Bob Jackson and
tall him to included

Hih JR ashed you to
call Jackson at once

327

9 P.M.

May 15, 1940.

My dear Mr. President:

As a result of your telephone conversation
to Mr. Purvis he and I have been meeting this
evening with Mr. Hinekley, Chairman of Civil
Aeronautics, and Mr. Sinckley has outlined to

us what the air transport plane situation is
and what the private plane situation is and I
as enclosing herewith & memorandum which has

been distated by Mr. Hinekley.

Faithfully,

The President,
The White House.
Enclosure.

328
MEMORANDUM

The air transport lines of our country at the present
time are operating approximately 300 planes. About two thirds
of these planes are of the Douglas DC-3 type. The balance is
made up of Lockheeds and the old Boeing 247 D's.

Every air transport operator in the country today has
unfilled orders of manufacturers for additional equipment in
order to meet the present traffic needs. If all of these
300 transport planes were taken out of use it would stop

immediately all air transportation in this country. It is

questionable how valuable they would be in the present emer-

gency.

In the private plane field, there are from 50 to 75

private planes principal y of the Lockheed type, owned and
operated in the main by oil companies. These planes are the
ten passenger type. These as well as the air transport planes

would be useful only for transport purposes. In addition to
this number of planes in the private fields that could be used
for transport purposes there are probably an additional 50
planes grouped generally as Beachcraft, Vultees, Grumman and

Stinsons that have & passenger capacity of from two to six
passengers, none of them with enough speed to be of any military
value and of such general characteristics that the hazard to
the manpower that would be necessary to operate them would be
too great to give them any serious consideration.

The air transport operators that have orders with
manufacturers that are not now delivered might be prevailed
upon to waive these deliveries, if these planes would be of
any great value at this time.

As an estimate, there will be delivered to air trans-

port operators within the next 90 days 30 to 40 Douglas DC-3's

and other types of Lockheeds.

329

May 15, 1940

My dear Mr. President:

In view of my experience with
the Army during the last couple of

days, I am taking the liberty of mak-

ing a suggestion.
Let General Marshall, and only

General Marshall, do all the testifying in connection with the Bill which

you are about to send up for additional
appropriations for the Army.
Yours sincerely,

The President,
The White House.

May 15, 1940

My dear Mr. President:

In view of - experience with
the Army during the last couple of
days, I - taking the liberty of mak-

ing a mygestion.

Let General Marshall, and only

General Marshall, do all the testifying in connection with the Bill which

you are about to send up for additional
appropriations for the Army.
Youre sincerely,

The President,
The White House.

330

May 15, 1940

331

my dear Mr. Presidents

In view of - experience with

the Anna during the last emple of

days,
I - taking the liberty of ing a suggestion.
Let General Marshall, and only

:
1

Youre sincerely,

:

General Marshall, do all the testifying in connection with the Bill which
you are about to send up for additional
appropriations for the Aray.

1
<

The President,
à

::
-

I
.

The White House.

332

Note for Mr. Morgenthau

Considerations underlying selection of U.S.A. aircraft
types ordered by the U.K. Government.

BOMBER TYPES

(1) United Kingdom production is already in process of
development to keep step with the increasing requirements of bomber types of the heavy and medium categories.

(2) Owing to the late introduction of conscription in
the United Kingdom, the production of army support medium-

range light bombers was not initiated early enough to
avoid a temporary shortage. Purchases in the U.S.A. are

accordingly being restricted to this category, i.e., of
Douglas A20 and Glenn Martin 187 type aircraft.

(3) The Lockheed Type 37 is being purchased primarily
for general reconnaissance work - e.g., North Sea patrols,

convoy protection etc. - but has also the advantage of
being suitable for army support work in supplementation
of the Douglas and Glenn Martin types mentioned in (2).

Received from mr. Puris 10:00 P.M., 5/15/40
P.4.

y.
TREASURY DEPARTMENT

333

PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

May 15, 1940

MEMORANDUM FOR THE SECRETARY

Mr. Ballantyne, Secretary-General of the Anglo-French Purchasing Board, called
this morning concerning the release of capacity of approximately 2,500,000 pounds
of smokeless powder per year by the Navy from the DuPont Company.

Mr. Ballantyne stated that in their negotiations with DuPont it now develops
that deliveries of the powder cannot be commenced until October 1, 1940, and
that Mr. Purvis had understood delivery would commence immediately.

Colonel Burns was contacted by phone and stated that at a meeting held in the
War Department on May 9th at which were present representatives of the AngloFrench Purchasing Board and the War Department, together with a representative
of the DuPont Company, this date of October 1st was definitely established and
was understood by the ordnance representative of the Anglo-French Purchasing
Board. He suggested that, while they would be very glad to do anything that

they could to help in this matter, he felt that the question of delivery dates

was a matter to be arranged as between the Anglo-French Purchasing Board and
the DuPont Company.

Agencia

Phil what is last

award m this ??

M

Answerd day any amemo of may By

334

May 15, 1940
11:44 a.m.
H.M.Jr:

Hello.

Operator:

Harold Smith.

H.M.Jr:

Hello.

Harold
SmitH:

Secretary Morgenthau?

H.M.Jr:

In person. In the flesh.

S;

H.M.Jr:

I was just going to check with you and see if you
had talked with the President about the financing
of this program of a billion dollars from the
standpoint of raising the debt limit or what not.
I haven't talked to him, no.

S:

I was -- I had in mind that possibly I might suggest
abouttoit.him that he get us over there and talk

H.M.Jr:

Well

S:

H.M.Jr:
S:

H.M.Jr:
S:

H.M.Jr:

S:

And I didn't want to do that without talking to
you first.
No.

I thought maybe you ought to make the suggestion
rather
No.

than for me to do it.
No. I've made so many in the last four or five

days I'm weak, so if you would make it and -I'd be delighted to come over.
It seems to me it would have to be dealt with in

his message and
H.M.Jr:

I agree with you.

335

-2S:

.....it ought to be thought of rather carefully,

and I -- there was no opportunity and that was
not the crowd yesterday to discuss it.
H.M.Jr:

If you -- no, I've done -- I don't want to wear

out my welcome. So if you'll make the suggestion
we'll be ready.
S:

Fine.

H.M.Jr:

And I -- Dan got back this morning and I told him
it was number one and to be ready in case we were
invited.

S:

Yeah.

H.M.Jr:

But I was waiting, I didn't know whether you or

S:

Yeah. Well, I -- I have said nothing to him about

the President wanted us.

it. I didn't especially consider it my business,

but I thought maybe
H.M.Jr:

No, it's your

S:

on it
H.M.Jr;
S:

you and I ought to take a little initiative

It is your business if you don't
to see that he doesn't get the worst advice

that we can give him.
H.M.Jr:

Harold, it 18 your business you know.

S:

All right.

H.M.Jr:

Under the law.

S:

All right.

H.M.Jr:

And under our friend from Chicago.

S:

(Laughs) All right.

H.M.Jr:

But I -- Dan and I'11 be ready.

336

-3 S:

H.M.Jr:

O.
K., I'll go ahead then. I wanted to check with
you.
Right.

337

May 15, 1940
11:48 a.m.
H.M.Jr:

Hello.

Operator:

Mr. Purvis calling from New York.

H.M.Jr:

Right.

0:

Go ahead.

Arthur
Purvis:

Hello.

H.M.Jr:

Hello, Purvis.

P:

Mr. Secretary, do you think by any chance if I

came
down to Washington you would see me late. this
afternoon?

H.M.Jr:

Is it important?

P:

I think 80. It -- I wanted to raise a fairly large

issue on this question of supplies.
H.M.Jr:
P:

Well, if you say it's important we'll do it.
Now, if you're very -- you're very rushed too, I
take it, because of this thing that's coming -it was really to get the chance of having a few

minutes with you before anything broke on the
general program that you may have in mind.
H.M.Jr:

Well, I tell you what you do.

P:

Yeah.

H.M.Jr:

Could you come to my house at five o'clock.

P:

Seven o'clock?

H.M.Jr:

Five.

P:

Five o'clock.

H.M.Jr:
P:

Now, you may have to wait, Mr. Purvis.

I don't mind.

338

-2H.M.Jr:

Because -- but I think it would be better to come
to the house because we have a Veterans' party
at the White House, which is the one thing that
the President always likes me to come to.

P:

Exactly.

H.M.Jr:

And

P:

I'll go to your house and please don't -- I mean,
I don't mind how long I wait.

H.M.Jr:

Well, you know where I live.

P:

H.M.Jr:

I do, sir.
And if you'll be there at five.

P:

I will.

H.M.Jr:

And -- is it agreeable to you 1f I have Philip
Young there?

P:

Perfectly all right.

H.M.Jr:

Or would you rather see me alone?

P:

Well, it's -- it's very -- I might want to talk
with you frankly. I don't think it will be any
detailed matters. It will be purely a broad
consideration.

H.M.Jr:

Well, we'll give you a cup of tea around five
o' lock.

P:

Thank you 80 much, sir.

H.M.Jr:

At my house.

P:

I'm much obliged.

H.M.Jr:

And you know we're on standard time.
Yes. Thank you very much.

H.M.Jr:

All right.

339
May 15, 1940
3:57 p.m.
Harold
Smith:

estimates, you know.

H.M.Jr:

Yeah.

S:

That was handled rather quickly.
I thought so, yes.

H.M.Jr:
S:

And there were some items that were left out. And

at that -- at the close of that conference I

asked the President how he was proposing to handle

the debt situation and he said he didn't know.

I told him you and I had talked about it a little;
I didn't know that -- I didn't have any ideas on

the subject. I thought probably you might have,
and he was in -- at the end of his message it was

left -- more or less -- well, he didn't say, "Well,
I'll get in touch with the Secretary of the Treasury
or I'll get you together." He said, "I may send
-- suggest that the debt limit be raised to cover
this -- these items plus some defense items in the

present budget." He seemed to be very vague about

it. I think he was thinking about it in connection with his message but hadn't quite gotten down
to that point yet.

H.M.Jr:

Well

S:

So I really haven't got anything to report to you

H.M.Jr:

0. K.

except that he might -- that I mentioned it

S:

to the President but he didn't say what he wanted
to do one way or the other, and he may be getting

in touch with you. I suspect he's going to.
H.M.Jr:
S:

Does the message go up at noon tomorrow?

He didn't say as to the timing, but I rather think
so. He's got most of it written.

H.M.Jr:

O. K.

S:

Yeah. All right.

H.M.Jr:

Thank you.

340

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE May 15. 1940
TO

FROM

Secretary Morgenthau
Mr. Cochran

CONFIDENTIAL

In fairly light trading, sterling experienced a substantial improvement

in the morning session, which was partly offeet by a downward movement during
the afternoon. The opening quotation was 3.18-1/2, and sterling moved steadily
upward to a high of 3.28-3/4 at noontime. The decline which subsequently set

in carried the rate back to 3.24 at the close.

In addition to the turnover figures given below, we learned that fair
amounts of sterling were purchased this morning by a non-reporting bank. It
appears that the latter bank was executing orders received from the Bank of
Indochina.

Sales of spot sterling by the six reporting banks totaled 1373,000,

from the following sources:

By commercial concerns

By foreign banks (Europe and South America)
Total

1252,000
1121,000
1373,000

Purchases of spot sterling amounted to 4488,000, as indicated below:
By commercial concerns

By foreign banks (Far East and Europe)
Total

1236,000
L202,000
4488,000

The Guaranty Trust Company reported that it had sold cotton bills total-

ing 16,000 to the British Control on the basis of the official rate of 4.02-1/2.
Developments in the other important currencies were as follows:
The French franc moved with sterling on the basis of a cross rate
of 176. 40 france per pound. It closed at .0183-3/4. We understand that
the New York banks, when effecting any transactions in French france,

immediately execute a counterpart in sterling - e.g., a sale of france
is offset by a purchase of sterling. The New York banks then undo both
sides of the transaction with authorized banks located in France at the
official cross rate of 176.50 france per pound. Making allowances for
the French authorized bank's commission of .05 france in the cross rate
and the New York bank's profit of .05 francs, the result of the above

operations is that the franc is effectively pegged to sterling in the

open market at the cross rate of 176.40 france per pound.

-2-

341

The Swiss franc continued to decline, reaching a seven-year low of
.2136 at the close. No quotations were sent from Zurich this morning, and
we received a cable advice stating that all bourses in Switzerland had been
closed until further notice.

The Canadian dollar had a slightly weaker tone today. It closed at a

discount of 18-3/8%.

The final quotation for the reichsmark was 4000.
Q ustations received from Shanghai this morning showed that the yuan
sustained a further improvement today. Against sterling, that currency advanced

3/16d to 3-15/16d. In terms of dollars, it was quoted at 5-1/44, up 5/16

We sold $2,000,000 in gold to the Central Bank of the Argentine Republic,
to be added to its earmarked account.
gold:

The Federal Reserve Bank of New York reported the following shipments of

$118,181,000 from Canada, shipped by the Bank of Canada, Ottawa, to the Federal
Reserve Bank of New York, to be earmarked for the account of the
Bank of France.

2,618,000 from Canada, shipped by the Bank of Canada, Ottawa, for its own
account, to the Federal Reserve Bank of New York, for sale to the
U. S. Assay Office.
1,742,000 from Switzerland, shipped by the B.I.S.. to the Federal Reserve
Bank of New York, to be earmarked for its account.
35,000 from Ceylon, shipped by the Eastern Bank, Colombo, to the Guaranty
Trust Company, New York, for sale to the U. S. Assay Office.
23,000 from England, shipped by the Guaranty Trust Company, London, to its

head office at New York, for sale to the U. S. Assay Office.

$122,599,000 Total

The State Department forwarded to us cables stating that the following gold

shipments would be made:

$207,000 from Hong Kong, shipped by the Chartered bank of India, Australia and
China, Hong Kong, to the Bank of California, N.A., San Francisco.
56,000 from England, shipped by the Chase National Bank, London, to its head
office at New York.
14,000 from England, shipped by the Westminster Bank, London, to the National
City Bank, New York.
$277,000 Total

The shipment being sent from Hong Kong will be sold to the U. S. mint at San
Francisco, and the two coming from England will be sold to the U. S. Assay
Office at New York.

CONFIDENTIAL

CONFIDENTIAL

342

-3-

On the report of May 8 received from the Federal Reserve Bank of New

York giving the foreign exchange positions of banks and bankers in its district,
the total position of all currencies was short the equivalent of $16,588,000,
a decrease
of $2,762,000 in the short position. The net changes in the positions
are
as follows:
SHORT POSITION
COUNTRY

MAY 1

England
Europe

$7,591,000
7,203,000
34,000 (Long)

Canada

Latin America
Japan

Other Asia

All Others
Total

585,000

$4,515,000
7,993,000
177,000 (Long)
567,000

3,299,000

3,480,000

708,000

2,000 (Long)

$19,350,000

SHORT POSITION
MAY 8

209,000
1,000

$16,588,000

DECREASE IN

SHORT POSITION

$3,076,000

790,000 (Increase)

143,000 (Increase in
18,000

Long Position)

181,000 (Increase)
499,000

3,000 (Increase)
$2,762,000

The outstanding feature of the above figures is the $3,076,000 reduction

in sterling commitments. It will be recalled that the sterling rate moved off

from 3.50 to 3.32 in the week under review.

A New York bank which receives daily from India a price expressed in
dollars for gold in the Bombay market informed the Federal Reserve Bank that

today's quotation was $36.46 per fine ounce. It stated that prior to May 13,
the Indian price had remained below $35.00 for some time back. On the latter
date, it moved up to $35.05 and yesterday it was quoted at $35.75. (Comparison
of these dollar quotations with the rupee gold prices which we have received
by cable from Bombay reveals that the dollar equivalents are worked out on the
basis of the official dollar-rupee exchange rate.) We understand that recent
European war developments have been mainly responsible for the up-surge in
prices in the Indian metal markets.
The Bombay spot silver quotation rose sharply to an equivalent of 44.92
an advance of 1-1/84. The Federal Reserve Bank was informed that, for the first
time since the beginning of the year, Bombay silver operators were attempting
to obtain firm offers here of 35-1/84, the silver to be delivered to them in
New York. It appears that the Indian operators are compelled to seek offerings
rather than to make actual bids, owing to the fact that they have to obtain
from the Indian Government a license to import the silver into India. The
offerings would have to be firm for a few days in order that the buyer might
ascertain from the Indian Government that an import license would be granted
According to several leading New York banks, American interests were disinclined

to offer silver because it is expected here that a further rise in Indian silver
prices will take place, especially since there is a growing feeling that the
Townsend silver bill will not be passed by the House during the present session.

Handy and Harman's settlement price for foreign silver was unchanged at
34-3/44. The Treasury's purchase price for foreign silver was also unchanged

at 35

We made no purchases of silver under the Silver Purchase Act today. The

m.s.

absence of offerings is in all probability the result of the same factors which
have brought about the silver market's disinclination, to make sales to Indian
buyers at the present time.

Prepared by:

Mr. Murphy

Mr. Tickton
Mr. Turner

343

ASURY DEPARTMENT

Mr. Haas

CONFIDENTIAL

-OFFICE COMMUNICATION
DATE

May 15, 1940

Secretary Morgenthau

TO

FROM

Mr. Haas IDA

Subject: Current Developments in the High-grade Securities Markets
SUMMARY

(1) The invasion of Belgium and the Netherlands precipitated
sharp declines in the prices of all high-grade securities.
Treasury bonds are now back to the levels of last November
(Charts I and II). High-grade corporate and municipal se-

curities have also lost heavily (Charts II and III). The

Federal Reserve Open Market Account increased its Treasury
bond holdings by $7.3 millions on Monday and Tuesday of
this week.

(2) British and French Government internal securities declined

in the latest crisis, but the former are still above the
low following the Norwegian invasion (Chart IV). Dollar

bonds of foreign governments have suffered large price
losses since last Thursday (Chart V).

(3) The latest crisis has unsettled the market for new security issues more than the Scandinavian invasion did. Nevertheless, several new offerings, including $75 millions of

debentures of the United States Steel Corporation, are going
forward as planned.

I. Domestic High-grade Securities
The principal developments in the securities markets in the
Countries. Prices of all classes of securities declined sharply
beginning on Friday, May 10. Declines in the longest-term Treasury bonds averaged almost a point a day except in the short trading session Saturday. Press reports indicate that price reductions were large but that liquidation of holdings was not
past week were connected with the German invasion of the Low

extensive.

The declines of last week plus those of the preceding four
weeks have brought the prices of United States Government securities down to the levels which obtained last November (Chart I).

344

Secretary Morgenthau - 2

The price movements of Treasury securities since the close
last Thursday are shown, by maturity classes, in Chart I. and
in the following table:
Average price change
May 9 - May 14

(Decimals are thirty-seconds)
Notes

1 - 3 years
3 - 5 years

Bonds

5 - 15 years to call

Over 15 years to call

-

.13
.30

- 2.16
- 2.31

Offerings of Treasury securities in the latest crisis came
in small lots, principally from small scattered banks. Several

large commercial banks, and two insurance companies were the
chief purchasers. The Federal Reserve Open Market Account in-

creased its holdings of Treasury bonds by $0.6 millions on Monday and by another $6.7 millions yesterday.
The average yield of long-term Treasury bonds stood at
2.45 percent at yesterday's close as compared with 2.25 percent
on Thursday, the day before the invasion of Belgium and the

Netherlands (Chart II). The increase was fairly evenly divided
of high-grade corporate bonds fared similarly, closing yesterday
at 2.89 percent as compared with 2.70 percent on Thursday. Six
basis points of this increase occurred on Friday, and nine on

between Friday, Monday and Tuesday. Our average of the yields
Monday.

Municipal bonds have also declined in price since Friday,

as may be seen from Chart III which shows the daily movements
of New York City 3's of 1979 and New York State 3's of 1971.

Secretary Morgenthau - 3

II. Foreign Government Securities
The internal bonds of foreign governments have also fallen in

price as a result of the latest crisis in the European war. British 2-1/2 percent consols, which closed on Wednesday, May 8, at

76-1/8, the highest price since the middle of 1938, broke sharply
on Friday to 73-1/2. At the close yesterday, May 14, their price
was 72-5/8, equivalent to a yield of 3.47 percent (Chart IV).
This price, however, is still more than 1-1/2 points above the
low following the Scandinavian invasion. French 3 percent rentes
declined 1.60 points to 73.00 on Friday and closed yeaterday at
72.50 to yield 4.18 percent.
The dollar securities of foreign governments also broke
sharply last Friday and have continued weak. This is indicated
in Chart V, which shows the prices in New York of selected foreign

dollar bonds. The chart covers the period since the first of
April, 80 that it 18 possible to compare the effects of the latest

phase of the war with those of the Scandinavian invasion.

III. The Market for New Securities
The invasion of Belgium and the Netherlands has resulted in
some unsettlement in the market for new securities. This is in
contrast to the reaction to the Norwegian invasion, when, it will

be recalled, the market continued to absorb new issues almost as

if nothing had happened. It is reported that several bids on new

municipal offerings made since last Thursday were withdrawn and
that the number of bidders for these issues was smaller than usual.
The State of New Hampshire yesterday rejected all bids on an issue

of $8 millions. On the other hand, the United States Steel Corpo-

ration is going a head with its offering of $75 millions of serial

debentures today; and yesterday an $8 millions issue of the City

of Detroit was awarded.

The volume of new security issues last week was quite small.

The largest issue consisted of $10 millions of equipment trust
certificates of the New York Central Railroad, due serially from
1941 to 1950, which were sold privately at a net interest cost
of about 1.80 percent. This is said to be one of the lowest
rates obtained on offerings of this type.
Another interesting current development is the sale on May 7
and May 14 of an aggregate of $126 millions of local housing
authority temporary notes. of this sum, slightly more than
$48 millions represents, in effect, refunding of the greater
part of the $50 millions of six-month notes sold last November.

315

Secretary Morgenthau - 4

It is anticipated that, as the projects are completed, the several
local authorities will issue long-term bonds and repay their
temporary borrowings. It is with this in mind that $8 millions
of the notes just issued are made to fall due in August rather
than in November, as is the case with the remainder. Yesterday's
sale gives an indication of the firmer tendency of money rates in
that the interest cost on the bulk of the notes is about .55 percent as compared with .44 percent on the principal blook of those
sold the preceding week.

Also of interest 18 the application by the Carolina Power
and Light Company to the SEC for approval of a refunding issue of
$46 millions of 3-3/4 percent, 25-year bonds. Arrangements have
been made for the private sale of the bonds to a group of eleven
life insurance companies at 103-1/2 to yield 3.53 percent. Proceeds of the loan will be used to call or to pay at maturity an
equal amount of outstanding bonds.

The proposed transaction highlights the growing institution-

alization of investment discussed in our memorandum of May 7.
Whereas the entire amount of the new issue will be held by
eleven life insurance companies, only about $16 millions, or
35 percent of the bonds to be redeemed were held by financial institutions of all classes as of December 31, 1938. Insurance
companies accounted for about $15 millions of this sum. Hence
it appears that there will be a net disinvestment of more than
$30 millions by investors other than insurance companies as a

result of this refunding.

It should be noted, however, that the Wall Street Journal
reports the proportion of all corporate issues which has been
privately placed since the beginning of the year to be lagging
behind the proportion so placed in 1939.

Attachments

346

Chart I
CHANGES IN THE PRICES OF U.S. SECURITIES
Points Plotted Represent the Difference from June 5. 1930 Price of Each Maturity Class
1940

1939
POINTS

(NET -

TTT

-

MATE

NET

-

1940

MARCH

APRIL

MAY

POINTS

MAY

so

23

"

27

Saturday Quotations

18

25

(NET CHANGE)

IT POINTS

Daily

-14

(NET CHANGE)

.3

-16
as

.1

.1

2

2
+

.

,
of

+

of

NOTES, 3-5 Yes.

NOTES.

.

3-3 Yes

+

0
0

0

NOTES

0

1-3 Yes.

NOTES. 1-3 Yes.
+

+

-1

-1

+
+

2
-2

+
-4

-1

-1

-3
-3

BONDS.
-12

5-15 Ym

-18

TO CALL

M

+

-12

Bones

OVER S Yrs.
TO CALL

-1

BONDS, 5-15 Yes.

-11

TO CALL

-11

-s

-5

-2
-2

BONDS, Over 15 Yes.
CALL
-6

-26

-6

-24

-2)
-24
-7
-7

-24

-6

-

-24

-3

-3

-

-34

->>

->>

-34

-34

-9

+

-10

-10

-

THE
I

Office of the Secretary of the Treasury

Dividen - and Statistics

11
SEPT.

939

NOV.

JAN.

MAR

UU

1940

MAY

-12

JILL

4
2

11
JULY

9

LILL

16

NAMON

23

30

6

-12

-

-11

13

APRIL

20

27

18

"

4

-11

+

25

MAY

1940

F 153 A-1

347

Chart II
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM US TREASURY

AND AVERAGE OF HIGH GRADE CORPORATE BONDS

FEB MAR APR MAY

JAN

1939
JUNE

JULY

AUG

SEPT

OCT

NOV

DEC

invested Stele

JAN

FEB

MAR

APR

MAY

940
JUNE

JULY

DER
CENT
PER CENT

AUG

SEPT

1940
NOV.

OCT

MAR

DEC

APR

MAY

.

Inverted Scale
PER CENT

WEEKLY. Saturday Quotations

inverted Scale
PER CENT

DAILY

20
2.0

20

Long Term

22

Treasury

2.2

22

withing

24
2.4

Long Term Treasury

112 years - more . sontest cell date)
26

2.4

2.6

26

2.8
2.8
28

Corporate
3.0
3.0
30

Corporate
3.2
3.2
3.2

3.4
3.4

34

3.6

36

3.8

38

3.6

3.8

PER
PER

PER
CENT

CENT

100

80

CENT

100

100

80

80

Spread Between Long Term

Treasury and Corporate

simmer
Spread

60

40

40

20

20

0

OCT

NOV

. oic - in . its MAR APE MAY JUNE

AILY

1940

is

AUG SEPT OCT NOV DEC

0

SEPY

-

MAR

.

AUS"

"

JULY

10

JUNE

11

MAY

APR
1940

1

"

-

"

any the licensary did Treatury

APR

.

MAS

20

.

-FEB

40

A

-

JAN

60

0

60

MAY

1939

"Bread - And indicates change Long Farm Treasury average

....

Une 1.1
COMPARATIVE YIELDS OF A LONG TERM TREASURY,
N. Y. STATE

AND N. Y. CITY BOND
I 940

APRIL

JUNE

MAY
20

13

6

27

18

11

4

25

TTTT

PERCENT

15

8

TTLT

22

TTTT

29

PERCENT

(INVERTED)

(INVERTED)

Daily
2.0

2.0

NEW YORK STATE 3's, 1971
2.2

2.2

2.4

2.4

24 % TREASURY BONDS, 1960 - '65
2.6

2.6

2.8

2.8

New YORK CITY 3's, 1979
3.0

3.0

3.2

3.2

3.4

3.4

3.6

3.6

3.8

3.8
27

4

APRIL

20

18

11

MAY

1940

25

I

13

8

6

15

22

29

JUNE

348
CO

Office of the Secretary of the Treasury

Dividen of - - Statutes

F 124 - A

349

Chart IV
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S TREASURY

BONDS AND U.K. 21/2% CONSOLS

1939
MAY

JULY

SEPT

1940

NOV

1941

1940

SEPT

Scale

MAR

PER CENT

Inverted Scale

WEEKLY Friday Quotations

verted Scale

PER CENT

PER CENT

Daily

2.2

2.2

22

2.4

2.4

24

Long Term Treasury
2.6
2.6

26

2.8

28

3.0

30

Long Term Treasury

2.0

(12 years more contract coll date)

30

3.2
3.2

22

U.R. 2%% Consols
3.4
3.4

34

U.K. 2%% Consols
3.6

Fee /

3.6

14

Minimum

3.0

..

3.8

4.0

Press

4.0

40

4.2

42

of

4.2

PER

PER

PER
PAR
CENT

CENT

CENT

1.4

14

1.6

1.4

14

1.4

n
12

1.2

12

\Differential

Differential

10

1.0

1.0

a

6
4

2

2

o

0

MAY

JULY

1939

/ - Transart

SEPT

NOV

JAN

MAR

JULY

MAY

1940

SEPT

NOV

MAR

JAN

1941

MAR

MAY

APR

JUNE

1940

"Break - And indicates change - comparties of long Term Treasury average
FO-126-C

Chart V

PRICES OF DOLLAR BONDS OF SELECTED FOREIGN GOVERNMENTS
1940

APRIL
4

6

TITT

THE

TTT

IIII

JUNE
25

18

11

THE

TTTT

1

THE

TT

27

THE

15

8

DOLLARS

MAY
20

13

22

THE TTT THE III DOLLARS

110
110

CANADA

5's OF 1952

100
100

BELGIUM

6's OF 1955
90
90

80
80

AUSTRALIA

5's OF 1957
JAPAN

5t's OF 1965
70
70

60
60

50
50

ITALY

7's OF 1951
40
40

NORWAY

41' OF 1965

30
30

20
20

DENMARK

4j OF 1962
10

10

MAY

4

0
6

1940

/ of - - -

Office of the Secretary of the Treasury

III

III
18

11

25

I

27

1111
0

APP

20

8

............ UIII III
13

15

JUNE

22

29

351

May 15, 1940
9:30 a.m.

GROUP MEETING

Present:

Mr. Young

Mr. Harris
Mr. Foley

Mr. Graves

Mr. Stewart

Mr. Bell

Mr. Gaston

Mr. Cotton
Mr. White

Mr. Schwarz
Mr. Co chran
Mr. Haas

Mr. Sullivan
Mr. Thompson

Mrs Klotz
Mr. Upham

Mr. McReynolds

H.M.Jr:

Daniel?

Bell:

Did you get all of the information you wanted
on the Finnish debt, or did you get anything?

H.M.Jr:

Bell:

I got nothing. I will nail it on you, unless

you can nail it on a lawyer.

Well, I don't know what you wanted done, except

the last time I discussed it at staff meeting

we were going to cover that money in the Treasury,

which I gave instructions to be covered.

H.M.Jr:

And never did.

Bell:

That was right, it was just a little delay.

H.M.Jr:

Yes, but you never did what the President wanted

about canceling that debt and I would feel lots

happier if we wrote a letter direct to the
Budget and suggested legislation and also on
that check, at least let the President decide

Bell:

it. We have done our end if we do that.
Didn't we assume at the time we discussed it
that the loan of 30 million dollars took care
of the situation and. we would not be justified
in recommending the cancellation?

H.M.Jr:

I don't think you ever discussed it with me,
Dan.

352

-2Bell:

Yes, it is in the record. At a staff meeting
one morning you said - that really was discussed with the President.

H.M.Jr:

The covering in part of the check?

Bell:

Yes.

H.M.Jr:

Yes,
but nothing on legislation and nothing
on the debt.

Thompson:

The legislation was drafted -Let's do two things. Let's send over a sugges-

H.M.Jr:

tion how to give them back that check the way
he said and also go through the cancellation

on the debt and let's lay it in his lap and

Bell:

at least I will feel better.
All right.

H.M.Jr:

That is all prepared and Foley has it.
Then I will feel better, Dan. O. K.P

Bell:

It was never discussed with the President, I am

Thompson:

H.M.Jr:

sure of that.

There was something that happened when I came

back once. Anyway, let's do it. We will put

it in his lap and he can do what he wants. O. K.?

Bell:

All right.

H.M.Jr:

What else?

Bell:

Bonds are a little off this morning, not much,

only 4/32nds from last night. The Fed has bought
about 700,000 long bonds.

H.M.Jr:

Good old Fed.

Bell:

Yes; that is all I have.

H.M.Jr:

Norman, are you all set?

353

-3Thompson:

Yes, sir.

H.M.Jr:

You go today, get your paycheck, and come back

Thompson:

That is perfect.

H.M.Jr:

You get paid today, don't you?

Thompson:

Yes. I have heard of some of our field officers doing that, but I had never done it myself.

H.M.Jr:

Bell:

on next paycheck day. How is that?

The first of June is a Saturday and you can't
cash a check on a Saturday, so you had better
be back on the third of June, which is Monday.
Mac's golf is going to suffer badly, but he
will make up for it anyhow.
It is always off, anyhow.

McReynolds: I haven't got a thing today. Somebody is going
to be surprised.
H.M.Jr:

Well, that is fine. I appreciate that very much.
Don't do any calling up at the office.
Harold, everything all right?

Graves:

Yes.

H.M.Jr:

Are you going down the Swanee River way?

Graves:

Yes, this evening.

H.M.Jr:

That isn't in Indiana, is it? It is the Wabash.

Thompson:

Harry?
White:

No.

H.M.Jr:

Basil?

Harris:

The State Department issued a very momentous

decision yesterday on this army of ships, protective devices, ruling that those were okay,

so it has relieved a very difficult situation

354

-4and everything is all right now.
H.M.Jr:

George?

Haas:

Here are those figures on the exports.
What, they are off?

H.M.Jr:
Haas:

They are off a little, yes. There are nine
other ports in the North Atlantic, outside of

New York, which increased.
H.M.Jr:

Chick?

Schwarz:

Nothing.

H.M.Jr:

How is my foreign exchange expert?

Upham:

I have been going to school a couple of days.
When are you going to be able to teach?

H.M.Jr:
Upham:

Well, I have a pretty good instructional staff.
I am getting a start.

H.M.Jr:

Well, keep in touch with Honorable Daniel Bell.
Walter, you walked out on me last night.

Stewart:

I had to get caught up.

H.M.Jr:

When are you going to see me?

Stewart:

Whenever I may.

H.M.Jr:

Well, I have tied myself up into a knot this

morning. How about 3:00 o'clock, is that good
for you?

Stewart:

Yes.

H.M.Jr:

Mr. Co chran?

Cochran:

I haven't very much. Did you receive that message
from George Harrison last night in regard to

B.I.S.?

355

-5H.M.Jr:

12:30, via General Watson. He got me out of

a sound sleep.

H.M.Jr:

They told me about it this morning. They didn't
tell me last night.
Kittrick, is that the fellow's name?

Cochran:

Yes.

H.M.Jr:

He got the jitters.

Cochran:

And the State Department has two messages in this

Cochran:

morning in regard to Netherlands freezing, one
from Gordon, and they are going to send them

both over and I will bring them up to Mr. Bell

when they get here. I showed you those last
night. They have come in in the last two days
in regard to the Netherlands account.
H.M.Jr:

I, for once in my life, was right, that the

cable on the six million dollars from Holland
did not say that it only became effective when

Amsterdam had fallen.
Gaston:

Our authority was the Minister, who said the
instructions to the Bank did not make a condition
on Amsterdam falling, but he told us it was.

H.M.Jr:

I only go by the instructions.
We hadn't seen the instructions to the Bank until

Gaston:

yesterday.
H.M.Jr:

You hadn't?

Gaston:

I hadn't seen them, no. Had you seen them, Merle?

Co chran:

No, sir.

H.M.Jr:

What?

Cochran:

They telephoned me about the instructions, but
they hadn't sent them down.

H.M.Jr:

I got them over the telephone.

356

-6Cochran:

They told me by telephone.

H.M.Jr:
Cochran:

But you got them too, the same say I did.
I got them by telephone, yes, sir.

H.M.Jr:

Well, there had better be a little liaison work.

Gaston:

Yes, we hadn't had word from the Bank.

H.M.Jr:

Those --

Gaston:

Not that it matters.

H.M.Jr:

No, but I just wanted to check my own memory.

Gaston:

Yes. Well, you got it from the Bank, but we
got it from the Minister, who told a different
story.

H.M.Jr:

Which is the one you would act on?

Gaston:

Well, the instructions to the Bank, of course.
The account is at his disposal right now and
has been for several days.

H.M.Jr:
Foley:

Well, Merle, these cables -Unless he had instructions not to use it.

H.M.Jr:

Anything that I get from Harrison, I will let
Merle know. Your contact is directly with
Knoke, isn't it?

Cochran:

Yes, sir.

H.M.Jr:

It is up to you to service these fellows that

Cochran:

are doing the foreign exchange.
I do.

Gaston:

Yes, he has.

H.M.Jr:

And also I am going to look to you if any cables
or messages come in from any government, that
you ride herd on the gang to see that somebody
answers them.

357

-7Cochran:

All right, sir.

D.M.Jr:

will you, please?

Cochran:

Sure.

H.M.Jr:

Cochran:

If there is a message comes in and needs an

answer, it is up to you to keep after everybody to answer it, including myself.

All right, sir. The Federal had a wire this

morning from the Bank of England telling them
not to communicate by wireless unless speed
was more important than secrecy. They were
afraid of interception of messages. They suggested they send messages through Montreal

now.

H.M.Jr:

Now that Mr. Bell is back, in behalf of Mr. Bell
and myself, I thank Mr. Gaston for carrying the
ball the last four days, which he did very
efficiently. I am being serious. As soon as

Cy can catch on, we will shove more and more on
him, because both Mr. Bell and Mr. Gaston have
got more than they can do. But you (Upham) look

to Bell as your superior, will you please?

Upham:

Sure.

Cochran:

That is all.

Sullivan:

Mr. Doughton is coming at 10:00, is he? I
think in addition to Hathcock, he may want to

discuss some estimates he had requested on the
General Welfare Act. Mr. Blough and Mr. Haas

are in accord.

H.M. Jr:

Well, you be here at 10:00.

Sullivan:
H.M.Jr:

Yes. I just wanted to suggest to you that we
are not anxious to give any figures. They are
difficult to obtain and cannot be helpful.
You and Phillip Young stay behind a minute. I

Sullivan:

Yes, sir.

want you to do something for me.

358

-8Foley:

You wanted to be reminded about that collector.

H.M.Jr:

Oh, yes.
What
is it?I have got to do it for Pa Watson.

Gaston:

Well, the situation is that Pa called me and
told me that the President definitely wanted
us to appoint Guffey's man, notwithstanding the
fact that the present man, Ivory, has been a

very satisfactory collector, Mr. Harris tells

me.

H.M.Jr:

Is Guffey's man a good man?

Gaston:

Guffey's man's record is perfectly all right.

Thompson:

as Ivory. He has been in small-time business,
salaried jobs mainly, but has a perfectly good
record. There is nothing against him shown in
the investigation.
The investigation has been carried out.

H.M.Jr:

All right, then let's -- What?

Foley:

I asked him what his name was.

Gaston:

His name is Dennis Phelan, a Czechoslovakian.

H.M.Jr:

A Czechoslovakian?

Sullivan:

That sounds Yugoslavian.

Harris:

Mr. Secretary, did you see the report about the

He is about the same class of man, apparently,

German Consul in San Francisco withdrawing the

money?

H.M.Jr:

Weidemann?

Harris:

Yes. His brother is the buyer for R. H. Macy

H.M.Jr:

Is that right? Weidemann is supposed to be the
head of the Gestapo in America, that is gossip.
There are three brothers. I know two of them.

Harris:

in New York.

359

-9I don't know this one.
H.M.Jr:

Well, fix it up.

Gaston:

You want it put through?

H.M.Jr:

Sure. It is one of these things, but this has

nothing to do - no precedent as far as the
collectors in any other state, in New Hampshire
or any place else is concerned.

McReynolds: It follows the precedent they have followed in
a number of cases. They have done that same
thing.

H.M.Jr:

I have been ordered to do it.

Gaston:

It is the only thing to do when we have to.

H.M.Jr:

Just as soon as McReynolds comes over here we

go political, but Watson has made an issue of it

and I would like to do it today, please.

Gaston:

Sure.

H.M.Jr:

I am not happy about it, but I have just got to
do it.
O. K., gentlemen.

STRICTLY CONFIDENTIAL
TREASURY DEPARTMENT

360

INTER-OFFICE COMMUNICATION
DATE May 15, 1940
TO

Secretary Morgenthau

FROM

Mr. Cochran

At 9 o'clock this morning Mr. Knoke telephoned me to the effect that the
following message, received at 9:36 p.m., May 14, from President McKittrick
of the B.I.S. at Basle, had been telephoned last night to the Secretary by

President Harrison of the Federal Reserve Bank of New York:

"In case of emergency hold everything until you can
clear personally with me elsewhere."
From a Basle telegraphic report in the New York press yesterday, I noted
that the B.I.S. had been transferred from Basle to Chateau 'd Oex, near Gstaad,
in the Bernese Oberland. This is a quiet part of the mountains near Bern
which most likely would not be on the route of any invasion of Switzerland leading to France.

KMP.

361

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE May 15. 1940
TO

Secretary Morgenthau

FROM

Mr. Cochran

STRICTLY CONFIDENTIAL

At 9 a.m. this morning Mr. Knoke told me that the Federal Reserve Bank of
New York had this morning received the following message from the Bank of
England at London:

"Owing to possibility of interception Bank of England will
transmit by cable instead of wireless all messages where secrecy
is more important than speed. Suggest you consider similar
action. Radio Corporation of America will provide special service
if messages for cable transmission are marked via Montreal Imperial.

PMR.

362

PLAIN

HSM

London

Dated May 15, 1940

Rec'd 6:20 a. M.

Secretary of State,
Washington.

1212, May 15, 11 a. 11.
FOR TREASURY FROM BUTTERWORTH.

1. The British Treasury announces that the Belgian
Finance Minister, the ChancEllor of the Exchequer and

the French Finance Minister have concluded a tripartite

financial agreement whereby reciprocal financial facilities for the settlement of their expenditure are granted
as between Belgium and France on the one hand and Belgium

and the United Kingdom on the other. It is indicated
that this agreement is a token of the financial and
monetary solidarity of the three countries "with a
view to their common victory".

2. The British financial press carries this morning
inspired denials of rumors that the official quotation
for sterling is on the point of being adjusted downwards.
KENNEDY

DDM

STRICTLY CONFIDENTIAL
TREASURY DEPARTMENT

363

INTER-OFFICE COMMUNICATION

DATE May 15. 1940

TO Secretary Morgenthau
FROM Mr. Cochran

At 9:15 this morning Mr. Livesey telephoned to me that the Department
of State had received a cablegram from our Minister Gordon at The Hague
in regard to our freezing of Dutch credits. There was also a message from
Shanghai. I mentioned these two matters at the group meeting, stating
that I had sent to the State Department for copies of the messages.
At 10:45 Mr. Livesey telephoned me again wanting to know about a reply
to The Hague, saying that Mr. Berle's office had just spoken to him about
this. I told him that our group would communicate with him as soon as

possible.

At 11:30 I talked with Dr. Feis on this subject, with Messrs. Stewart
and Bernstein present in my office. We submitted a draft reply, and Dr.
Feis also gave us a State Department draft. We agreed to a part of the State
Department draft and it was understood that our recommendations would be sub-

mitted to Assistant Secretary of State Berle who was particularly interested
in the matter. Shortly afterwards, Mr. Livesey told me that the State Department cable office had word that there was no telegraphic connection possible
with the Netherlands.

Upon checking up at 5:20 this evening with Mr. Livesey I found that he
still had on his desk a draft of the State Department's message as approved

by Mr. Berle. It had not been possible to dispatch it because of the interruption in the cable service. Mr. Livesey will keep me informed as to
whether any action is taken. There is nothing further for the Treasury De-

partment to do at present.

The State Department draft was agreeable to us insofar as it quoted our
own documents. We thought that certain suggestions to the effect that we were
reviewing the matter and that Gordon should submit further observations were
not perhaps necessary, since we are already so closely in contact with the
Dutch Legation in the premises.

Kmp

364

RDS
GRAY

Milan

Dated May 15, 1940

Rec'd 2:10 p.m.

Secretary of State,
Washington.

29, May 15, 5 p.m.
FOR TREASURY DETARTMENT.

Today's prices as follows: 193.25; 333; 506; not
listed; 972; 200.25; 1628; 61; 220. Volume 131,430.
Active selling further reduced most quotations but
prices rallied at and after close of exchange apparently
rumors of more favorable political developments.
SHOLES
IIPD

365
COPY

BRITISH EMBASSY,

WASHINGTON, D.C.

15th May 1940.
Dear Merle,

Gifford sends me the following extract from a letter which he
has received from the Bank of England:
"When the Vesting Orders have been made only those

holdings which have been registered at the time the Order
was made have been acquired by the Treasury. Somewhere

about 800 fresh registrations have been received in respect
of the securities covered by the first Vesting Order since
the Order was made. The amount involved is not large - only

1500,000. It has been difficult to decide how to deal with
these and the problem is being solved by an amendment to
the Regulations which will be made by Order in Council on

April 30th permitting the Treasury to take over these late
registrations at a price not lower than the original vesting
price or the market price at the time the new Order was made,
whichever is lower. This will bring in a few more holdings

of practically all the securities vested under the first Order:
particulars of them will be sent to you without delay."
Gifford points out that this will delay his being able to report

to the Secretary the completion of the sale of any individual security: or
rather, as it seems to me, it will mean that while he may report the completion

of the sale of any individual security, it is possible that a triddle of
further securities of the same kind may come in thereafter.
I might add by way of explanation that we have been very lenient

with people who did not register their securities at the proper time (9th
October 1939, if I remember right), and have not used our powers to apply
penalties to them.
Yours ever,

(Signed) Jerry Pinsent
Mr. H. Merle Cochran,
United States Treasury,
Washington, D. C.

366

TREASURY DEPARTMENT
WASHINGTON

May 15, 1940.

MEMORANDUM FOR THE SECRETARY:

S.S. FORTUNATA (Italian) arriving New York May 13th,

entered May 14th, carrying 4,000,000 kilos low grade pyrites
from Spain.

Presently unloading at Edgewater, New Jersey.

Contemplated 2/3 days more required for unloading.

Had filed export declaration for 4,000 drums toluene,
to be shipped by Tonerde, 67 Broad Street, New York. Vessel

will load at Pier 16, Hoboken. Destination, Genoa.

Basil Manis

to

this 4&M

TREASURY DEPARTMENT

367

PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR

WASHINGTON

May 15, 1940

MEMORANDUM FOR THE SECRETARY

This morning Captain J. E. Meijer Ranneft, Naval Attache of the Netherlands
Legations, accompanied by Captain E. J. G. Te Roller of the Aviation Corps

of the East Indian Army, called concerning the possibility of acquiring
54 P-40 Curtiss pursuits.

Captain Ranneft was advised of the procedure that had to be followed, and

this afternoon he submitted a formal letter requesting assistance in getting,
if possible, a release by the Army of the engines necessary to equip these
planes. He submitted an alternate proposition of acquiring 54 Brewster pursuits but pointed out that the complete delivery of these being January, 1941,
did not make that proposition as desirable as the delivery of the Curtiss
pursuits which could be completed in October, 1940, provided engines could

be obtained.

At a meeting of the Liaison Committee this afternoon this matter was presented
to the Army and Navy representatives, and it is presently being studied by
both departments.

The fact was pointed out to the representatives of the Army and Navy that
these planes are desired for use in the Dutch East Indies.

TREASURY DEPARTMENT

368

Office of the Secretary
Technical Assistant to the Secretary
Date

May 15, 1940

TO:

SECRETARY MORGENTHAU

The State Dept. telephoned me at 5:15 this
evening that Dr. Feis would discuss the

subject of this

telegram with Under

Sec. Welles on Thurs. morning. Did we have

any comment to make

I have read the message to Mr. Bernstein.
I believe he agrees with me that the Govt.

should not take an official position on
this matter to the extent of giving an
official warning. On the other hand Basil

found to-

Harris might be able to suggest a way for
passing on some word informally to the
American insurance companies, if this is
morrow

From:
MR.We
COCHRAN
desirable.
morning.
you could discuss this

OFFICIAL TO
THE SECRETARY OF STATE
WASHINGTON c

369
DEPARTMENT OF STATE
WASHINGTON

May 15, 1940.

The Secretary of State presents his compliments

to the Honorable the Secretary of the Treasury, and
encloses one copy of paraphrase of telegram No. 686
of May 15 from Paris.

of

370
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Paris, France

DATE: May 15, 1940, 6 p.m.

NO. : 686
RUSH.

The following is strictly confidential.
For the President, the Secretary of State and the
Secretary of the Treasury.

I have just been told by Charveriat that the Italians
are making transfer of all the insurance on their ships from
London to the United States. The object of the Italians
is to be paid in good American dollars in case of war losses.
It is my belief that the United States Government
discreetly should issue a warning to all U.S. insurance
companies to refuse to issue any marine insurance to

the Italians. In addition, I believe that they should be
advised to cancel any outstanding insurance of this

nature. It might have some influence if this act should
become known tonight in Italy - it 1s a good club at any
rate.
BULLITT.

EA:LWW

371

May 15. 1940

Dr. Feis
Mr. Cochree

The following message is suggested as a reply to cablegram No. 414
dated May 13 from the American Consulate General at Shanghai:
"American Consulate General, Shanghai

Reference your 414 May 13 6 p.m.

On May 13 the Treasury issued the following general

license under the freesing control:

"A general license is hereby granted authorising beaking institutions within the United States

to make all payments, transfers and withdrawals
from accounts in the name of any of the following:
Javasche Bank, Federiandsche Handel-Mastechappij,
Nederlandech Indischo Handelsbeak and Hederlandech-

Indische Escoupte Mantechappij.

Banking institutions within the United States
making such payments, transfers, or withdravals shall
file promptly with the appropriate Federal Reserve
Bank weekly reports shoving the details of the treasactions during such period.
.

some

HMC/30/1 5/15/40

TREASURY DEPARTMENT

372

INTER-OFFICE COMMUNICATION

DATE May 15, 1940
TO

FROM

Secretary Margenthau
Mr. Haae

DA.

Subject: Railroad freight movement for export.
Export freight receipts lower
A downturn in receipts of export freight at New York is
noted in the figures for the week ended May 11, offset in part
by a slight increase in receipts at 9 other North Atlantic
ports. The net decline of 365 cars in export freight receipts

carries the total for the North Atlantic area to 5,412 cars in

that
lower
than in any other week since January 6.
(Seeweek,
Chartwhich
1 and 18
table
attached)
Exports from New York decline

The volume of freight exported from New York, as indicated
by reported figures, was rather sharply reduced during the week
ended May 11, but the total for the week remained within the

range of the weekly exports in April. (See Chart 2)

Lighterage freight in storage and on hand for unloading

in New York harbor continues practically unchanged, as shown
in Chart 3.

373
RECEIPTS OF FREIGHT FOR EXPORT AT NEW YORK
AND AT 9 OTHER NORTH ATLANTIC PORTS
Week ended
1939-40

New York 1

9 other North

Atlantic ports 2

Total
5,470

5,746
6,450
4,960

In carloads

(

December 2
December 9
December 16
December 23
December 30

4,848
3,856

1,548
1,658
1,602
1,104

January 6
January 13
January 20
January 27

4,000
4,056
4,060
4,389

1,251
1,433
1,557
1,825

5,251
5,489
5,617
6,214

February 3
February 10
February 17
FORM 24
February

4,274
4,550

1,498
1,590
1,637
1,667

5,772
6,207
5,611
6,217

March 2
March 9
March 16
March 23
March 30

4,577
4,059
4,072
4,424
4,150

2,388
2,448
1,845
2,033
1,492

6,965
6,507
5,917
6,457
5,642

April 6

3,979
3,957
4,133

1,551
1,866
1,557
1,248

5,530
5,823
5,690
5,594

1,522
1,619

5,777
5,412

May 4
May 11

3,922
4,088

4,617
3,974

4,346
4,255
3,793

)

April 13
April 20
April 27

3,435

1 Source: General Managers' Association of New York, Daily

Report of Operating Conditions in New York Harbor.

2 Source: Association of American Railroads, Car Service
Division, Report of Carload Freight for Export
and Coastal Vessel Movement. Includes Searsport,
Portland, Boston, Providence, Philadelphia,
Chester, Wilmington, Del., Baltimore, and Norfolk
(or Hampton Roads)

NEL

AT

AND AT o OTHER NORTH ATLANTIC PORTS
1939
NOV.

DEC.

1940

JAN.

CARLOADS
THOUSANDS

YORK

FEB.

MAR.

APR.

MAY

JUNE

CARLOADS
THOUSANDS

5.5
5.5

5.0
5.0

4.5
4.5
4.0

4.0
NEW YORK

3.5
3.5

3.0
3.0

2.5

2.5
9 OTHER PORTS
2.0
2.0

1.5
1.5

1.0
1.0

.5
.5

I
11

25

23

9

28

20

6

0

3

17
2

NOV.

1939

DEC.

JAN.

FEB.

16

30

MAR.

1940

0

13

APR.

27

25

11

MAY

22

8

JUNE

Office of the Secretary of the Treasury
Dividen of Research - India

c 304

CARLOADS OF FREIGHT EXPORTED FROM NEW YORK
1939
NOV,

CARLOADS
THOUSANDS

DEC.

JAN.

940

FEB.

MAR.

T

APR.

MAY

JUNE

CARLOADS
THOUSANDS

5.5
5.5

5.0
5.0

4.5
4.5

4.0
4.0

3.5
3.5

3.0
3.0

2.5
11

25

23

9

2.5
20

6

28

3

17
2

NOV.

DEC.

1939

JAN.

FEB.

16

30

MAR.

13

27

APR.

1940

25

11

MAY

22

8

JUNE

.

Office of the Secretary of the Treasury

AS ESTIMATED FROM DATA OF GENERAL MANAGERS' ASSOCIATION OF NEW YORK.

2

Dividen of Research and Stated

c - 308

LIGHTERAGE FREIGHT IN STORAGE

AND ON HAND FOR UNLOADING IN NEW YORK HARBOR
1939
NOV.

DEC.

CARLOADS
THOUSANDS

1940

JAN.

FEB,

MAR.

APR,

MAY

JUNE

1

T

CARLOADS
THOUSANDS

10
10

9

9

8
7

8

7
6
6

5
5
4
4

1939

20

JAN.

DEC.

3

NOV.

23

9

25

11

6

28

17

FEB.

2

16

MAR.

30

1940

13

27

APR.

25

11

MAY

22

8

JUNE

.

LARGELY EXPORT FREIGHT, BUT ABOUT 10% REPRESENTS FREIGHT FOR LOCAL
AND COASTAL SHIPMENT. FIGURES EXCLUDE GRAIN.
Office of the Secretary of the Treasury

- of - - Statistics

c 303

(CONFIDENTIAL)

377

PARAPHRASE

STRICTLY CONFIDENTIAL

confidential
A/telegram (no. 217) of May 15, 1940, from the
American Ambassador at Chungking reads substantially as
follows:

On the evening of May 14, the Ambassador called by
request on General Chiang Kai-shek. The Generalissimo
pointed out that the Chinese Government is now faced with

a very serious economic situation. He expressed himself as
being more concerned over this situation than over the

military situation. He called attention to the fact that
on account of the European war France and England could not

give much more assistance and, expressing China's apprecia-

tion for all of the assistance which had been given in
China's time of need, he said that he hoped that some action

to assist China in supporting its national currency could
be taken by the United States which is the sole great nation
now not involved in war. The Generalissimo used the

strongest of terms in urging that, for the purpose of making

it possible for China to face the serious economic situation now existing, assistance in support of the currency
be extended within two months. He asked the Ambassador

to stress the gravity of China's needs and he said that he
was addressing President Roosevelt on the subject directly.
The Ambassador assumes that this message is to be sent
through Ambassador Hu at Washington. General Chiang added

that if the United States was prepared to assist he was
prepared

378
-2-

STRICTLY CONFIDENTIAL

prepared to send some one to talk over matters. The Chinese

Minister of Finance and Minister of Foreign Affairs, Mr. Peck,
Counselor of the American Embassy, and Mr. Arnold, American

Commercial Attache were present during this conversation.
The only comment which the Ambassador made was to the

effect that he would gladly send forward the Generalissimo's
message.

The Ambassador expresses the opinion that the present

stabilization fund and the present operation thereof
gives an opportunity of furnishing help before the fund is
forced to cease operation after which it would be necessary
to work out some special mechanism involving larger

responsibilities on our part. He feels that in order to
assist American objectives and commerce in China some means

should be found to contribute to the existing stabilization
fund. The Ambassador adds as his personal belief that the

situation warrants the extension of aid.

379

to

ITALIAN STOCK PRICES
(Milan)

Dec. 31, 1927 - 100
NOV.

pcc.

JAN,

FEB.

MAR.

APR.

1 940

MARCH
MAY

JUNE

JULY

CENT

2

OCT

PER

PER

CENT

CENT

9

SEPT.

APRIL
23

16

30

6

aug.

1 940

MAY
20

13

4

JULY
PER

Daily

Weekly

1939

27

11

11

18

25
PER

CENT
210

210
185
185

200

200
180
190

180

190

175
180

175

180

170

170

160

170

170

160
165

150

165

150
160

140

160

SHARES

the

#

SEPT.

OCT.

1939

NOV.

DEC.

JAN.

FEB.

MAR.

APR.

1940

MAY

JUNE

-

110

JULY

0

$
AUG.

100

2

JULY

100
120

9

110 -

200

130

16

MARCH

23

30

6

120

THOUSANDS

200

0

130

SHARES

154

Volume

THOUSANDS

13

APRIL

1940

20

27

4

140

18

25

MAY

"DAILY FOR LATEST WEEK ONLY
Office of the Secretary of the Treasury
Oreision Research and Statistics

FO 141

380

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE May 15, 1940

FROM

Secretary Morgenthau
Mr. White

Subject:

Shipments of Aluminum to Rumania

TO

Exports of aluminum to Rumania on ships scheduled to
sail May 16 amount to $21,800.

Following are details of these shipments.
SHIP:

SAILING:
DESTINATION:

S. S. Exmouth (American)
From New York, May 16, 1940
Bucharest, Rumania

CARGO:

Virgin Aluminum, 25,314 lbs., $5,500

SHIP:

S. S. Exchange (American)
From New York, May 16, 1940

SAILING:
DESTINATION:
CARGO:

CO: Mr. Gaston

Constanza, Rumania

Pure aluminum ingots, 70,029 lbs., $16,300

Mr. Basil Harris

Mr. Cochran
Mr. Young

May 15, 1940
9:01 a.m.

381

Hello.
George

Harrison:

Good morning, Henry.

H.W.Jr:

General Watson called me at 12:30 last night, got
me out of bed, to tell me your message.

H:

(Laughs) Well, I'm sorry he did that.

M.M.Jr:

Yeah, I

And I told him not to do it.
Well, he did it. I thought it could weit until
this morning.

It could just as well have waited.
H.M.Jr:

Yeah.

I tell you, I tried to zet you and I heard you were
at a concert.

That's right.
So I thought I'd let him know just in case somebody

-- in case it might fit into the picture of something else that might have been important.

Well, that's all right. One never knows.
And I didn't want to sit on it overnight.
IN.Jr:

No.

That was all.
You haven't heard from the head of the B.I.S.,

have you?

No, I -- not other -- nothing other then that
telegram.

H.M.Jr:

Right. Right.
And

382

-2H.M.Jr:

Now, George, Dan Bell is back.

H:

Yes.

H.M.Jr:

And will you talk to him if it were necessary on
the bond market to keep us posted?

H:

I'll be very glad to.

H.M.Jr:

Because he's back.

H:

H.M.Jr:

Yeah, I'll do that, and I think it's the best way
to do it, and then if there's anything important
he can call you in or I'll let you know.
I mean -- you're our fiscal agents and if and when
and how I want to deal with you I'm going to deal
with you, and in these times I haven't got time
to have any more rows.

H:

I agree, Henry, and I told Eccles that if you asked

me I would of course tell you and now you've done

it and I just feel that I'll just go right ahead

regardless.
H.M.Jr:

I had to take time out to have a row with Jesse.

H:

No.

H.M.Jr:

The Trib has a story on it on the first page of
their financial news.

Did you see that?

H:

Oh, the Tribune?

H.M.Jr:

Yes.

H:

I must read it.

H.M.Jr:

Carter Glass introduced a bill that Jones asked him
to and when I explained to him why we didn't want
certain provisions, Jones -- Senator Glass yesterday
said -- he lost his temper in a hearing and said

the first time in forty years he's going to have
to vote against a bill he'd introduced himself.

H:

Who, Glass said that?

383

-3-

H.M.Jr:

Yeah. And he struck out the two provisions which
I objected to and which Jones wanted.

H:

Good.

H.M.Jr:

One was to extend real estate loans from ten years

H:

Yeah.

H.M.Jr:

to fifteen.

And the other was to give him joint authority with
us on preferred stock.
Yes.

H:

H.M.Jr:

Which was simply a public slap at me because I did
my duty on the Bank of America, and I wasn't going

to take it. And Glass took my side after he had
introduced the bill.

H:

Good work.

H.M.Jr:

Which was a very handsome thing for him to do.

H:

Very nice.

H.M.Jr:

Because he's great friends with Jesse.

H:

Yes.

H.M.Jr:
H:

But he said the first time in forty years he had to
vote against a bill he had introduced.
(Laughs) Certainly interesting. He's a grand -he's a grand old man.

H.M.Jr:

I've always thought SO.

H:

Yeah.

H.M.Jr:
H:

H.M.Jr:

But on this business, I just haven't got time to
fight with the Board.

Well, I haven't either, frankly.
And things are too serious and if I want to talk to
the head of the Federal Reserve, I'm going to talk
to them.

384

-4H:

Allwe
right.
as
have.And

H.M.Jr:

Just the same.

H:

All right.

H.M.Jr:

Please.

H:

Fine. Goodbye.

I go on as your fiscal agent just

385
May 15, 1940
9:14 a.m.
H.M.Jr:

Iyesterday.
just thought I'd do a little crowing with you

Gene

Duffield:

Well, I think you deserve it all right.

H.M.Jr:

We're coming all right, aren't we?

D:

H.M.Jr:

You bet you are ! There are very few people who
could have gotten away with that in those committees
against Jesse Jones, by golly.

Well, old Carter came to my rescue, didn't he?

D:

He certainly did.

H.M.Jr:

I hear he was good.

D:

Leo Crowley saye he lost the play. He forgot that

he introduced it. (Laughs)
H.M.Jr:

But Jones was terrible, wasn't he?

D:

Well, I think he was your best witness though. He
-- one of the people here at the Securities and
Exchange Commission saw Wagner after that hearing
and he said Wagner was just as red in the face
as he could be, and he said, "Jesse made us 80

mad we gave Henry everything he wanted."
H.M.Jr:

Well, of course, I -- between us, I couldn't count
on Wagner.

D:

H.M.Jr:

Well, I don't -- yeah, I know that.
I didn't -- my ace in the hole was Carter.

D:

Yeah. Yeah.

H.M.Jr:

What?

D:

Yeah, I think you're right.

H.M.Jr:

I mean, earlier in the week Wagner practically
served notice on me that the President wanted this
and that's what Jesse said and so forth and so on.

386

-2D:

H.M.Jr:
D:

H.M.Jr:

For heaven's sake !

Oh, yeah. No, my -- my friend was Carter.

Well,
I'll be darned. You just can't count on
that fellow.
You cannot count on Wagner.

D:

That's right.

H.M.Jr:

No.

D:

Well, I think Jesse helped you out an enormous lot.

H.M.Jr:

Well, he's made some terrible statements. I thought
this, Gene, I didn't think -- I thought I -- in
the press or anywhere else that I'd say anything.

D:

Yeah.

H.M.Jr:

Huh?

D:

H.M.Jr:

I think that's probably wise, because Jesse said
too much and that's what got him in trouble.
What I'd love to say or get it to somebody -- after
all once a Hoovercrat always a Hoovercrat.

D:

(Hearty laughter)

H.M.Jr:

That's not copyright.

D:

O. K.

H.M.Jr:

What?

D:

Fine.

H.M.Jr:

All right?

D:

O. K.

H.M.Jr:

I thought of that this morning and I said to Mrs.
Morgenthau, -- I said could I use it. She said,
"No", but she said, "There's no harm telling it
to somebody."

387

-3D:

(More laughter) Well, good.

H.M.Jr:

What?

D:

That's fine.

H.M.Jr:
D:

H.M.Jr:
D:

H.M.Jr:

It's true, you know.
You bet it 18.
It sums up the whole thing.

You bet, you're right. You're absolutely right.
-- I was prepared, and I told this to Carter,
to go up on the Hill and tell the story of Bank
of America -- it would have taken me a week and
I was prepared to do it.
I

D:

Yeah.

H.M.Jr:

And I was not going to be slapped down by that

D:

H.M.Jr:

bastard.

Yeah, I agree with you.
They tell me -- I don't know who was up there from

your office, but they said he just completely

went haywire.
D:

Well, I heard that at noon, that he had said all

sorts of mean things, of course, about government
bonds and about Preston Delano. Cy Upham said

if Preston Delano is just a clerk for Henry

Morgenthau, what's Emil Schramm?
H.M.Jr:
D:

H.M.Jr:
D:

Yeah; well, Emil Schramm made some damn fool statements too.

I didn't see that.
Oh, he -- he was -- well
Yeah. Well, I think they hurt themselves and helped
you an enormous lot.

H.M.Jr:

Yeah, this is the first time Mr. Jones has been
slapped down.

388

4-

D:

And is he mad about it!

H.M.Jr:

What?

D:

He's very sore about it.

H.M.Jr:

Oh, yeah.

D:

Yeah.

H.M.Jr:

Well, of course you know, it's an accummulation of
seven years and he wasn't made Secretary of the
Treasury.

D:

Yeah, I suppose that's true.

H.M.Jr:

What?

D:

H.M.Jr:

I suppose that's true. I hadn't thought of that
but I guess that's right.
And that -- I think is a lot of Johnnie Hanes'
spleen.

D:

H.M.Jr:

Well, I guess probably 80.

The story has never been written but I think you'll
find that he and Johnnie together were the original
fellows who cooked up the Associated Gas thing.

D:

Oh, really?

H.M.Jr:

Oh, sure. That -- that 25 million up-stream loan.

D:

Well, I --

H.M.Jr:

Last December.

D:

H.M.Jr:
D:

H.M.Jr:

Well, I'11 be darned.
That's when that whole thing started.

I guess you're right.
And when all of this came out the boys weren't smart
enough, but that was the whole thing and I'm convinced I can't proove it that Johnnie was to go in
with Jesse back of him.

389

-5D:

H.M.Jr:
D:

H.M.J5:
D:

H.M.Jr:
D:

H.M.Jr:
D:

H.M.Jr:

Well, I'll be darned!
Well, just think that one over.

I will. I will.
And I think that that's when the whole thing started.
Well, victory 16 on the right side anyway.
Well, I just thought that inasmuch as you had 80
much to do with the Bank of America that I

Yeah. Well, I.

......I'd crow with you.
Well, I think you deserve to crow.
And just remember, once a Hoovercrat always a
Hoovercrat.

D:

I'll remember. (Laughs)

H.M.Jr:

O. K.

D:

O. K.

H.M.Jr:

Goodbye.

D:

Goodbve.

390

May 15, 1940
9:19 a.m.
H.M.Jr:

J. J.

Hello.

Pelly:

Hello.

H.M.Jr:

Hello, Mr. Pelly.
Yes, sir.

P:

H.M.Jr:

How are the railroads?

P:

Well, we're all right.

H.M.Jr:

Mr. Pelly, I'm counting on you, if you get into any
congestion or any shortage of cars of equipment or
storage space to give me a ring and come over and

see me.
P:

I certainly will do that.

H.M.Jr:

And if there are any troubles anywhere on the railroads will you come over and see me?

P:

Yes, sir, and if you hear of anything

H.M.Jr:

I'll call you.

P:

that concerns me, will you let me know?

H.M.Jr:

I'll call you at once.

P:

You betcha, I'll be delighted to do that, Mr. Secretary.

H.M.Jr:
P:

H.M.Jr:

But the railroads have been doing a swell job, and
keep it up.
Well that's bully. Thank you very much.

All right.

391

May 15, 1940
10:00 a.m.
H.M.Jr:

Hello.

Operator:

Congressman Ford.

Thomas F.
Ford:

Hello.

H.M.Jr:

Hello.

F:

Good morning.

H.M.Jr:

Mr. Ford

F:

Yeah.

H.M.Jr:

Henry Morgenthau, Jr.

F:

How are you this morning?

H.M.Jr:

Oh, I'm fine!

F:

'Atta boy.

H.M.Jr:

I'm getting a great kick out of this fight.

F:

(Laughs) So am I.

H.M.Jr:
F:

And I'm learning who are my friends and who are not.
I see.

H.M.Jr:

And I'm counting you as one of my real friends.

F:

Well, thank you. I never go back on anybody who
does anything for me.

H.M.Jr:

And good old Tia Juana is all right, what?

F:

(Laughs) Yeah.

H.M.Jr:

No, I appreciate what you're doing and old Carter
Glass yesterday, you know, kicked Jesse Jones in
the pants.

F:

He did, eh?

H.M.Jr:

Oh, yeah.

392

-2F:

H.M.Jr:
F:

Well, I kicked him in the pants yesterday myself.
I know you did. And
Then he came around. He wanted to have a talk with
me and explain what was what and I said, "Well

now, Jesse, let me tell you this. Ag long as the
Treasury of the United States is ultimately responsible for these -- for this money, you can't
talk me into letting them out of the picture."
H.M.Jr:
F:

Yeah. Well, I think he and Schramm just kind of

went a little crazy, didn't they, with the heat?
Well, I don't know what it's all about. Now, they
-- they want that ten to fifteen years. Well, 18
that 60 terribly vital? I tell you what I might be
able to do. I haven't got a hell of a lot of support from the committee but I've got some. I might
swap that for the other.

H.M.Jr:

Oh, I'd take them both out.

F:

Well, I'm going to try -- I'm going to shoot to

strike them both, but in the end I might have to

do that.
H.M.Jr:
F:

Well, what's his name -- Glass threw both of those
amendments out.

Well that's fine, and of course Williams 18 all for
that fifteen-year thing.

H.M.Jr:

Oh. Well, Glass -- Glass threw them both out and

F:

No, I didn't get it.

H.M.Jr:
F:

you know the statement he made yesterday.

For the first time in forty years he had to vote
against his own bill.
(Hearty laughter) Well, the old boy has got lots
of guts. You've got to say that for him.

H.M.Jr:

Well, what's the matter with yours?

F:

What?

393

-3H.M.Jr:

There's nothing the matter with yours.

F:

Well, I never knew of anything -- but I admire the
old fellow anyhow. He's a fighter from hell to

H.M.Jr:

Oh,
don't an
think
-- I don't think we ought to give
in to IJesse
inch.

F:

Well, I'm not giving in an inch to him and he can't
talk me out of it. Now, for instance, yesterday

they -- we questioned him on the question of whether
or not when he wanted to make a railroad loan he

H.M.Jr:
F:

had to go to the I.C.C.
Yeah, I -- that was a swell point.

Well now, what the hell, if he wants to make a bank

loan why can't he go to you? I don't see a particle
of difference.

H.M.Jr:
F:

Well

And -- and that's the ground I'm making my battle on

and I -- I don't -- and in the first place -- and

then he said, for instance, I said, "Well now, you
fellows say that you know -- you've been handling
banks for eight years. All right, the Treasury

Department has been handling them for 100 years.
H.M.Jr:

Well, what did Emil Schram do except grow corn down

F:

Well, I don't know what the hell he did and I don't

in Illinois?

care.

H.M.Jr:

Well, he's a corn-grower.

Yeah. Well, that's all right, but then he talks

about loans. My God! Good God, Henry, I've been
down there forty times for loans and I've never
been able to get a dollar out of that damned

institution.

H.M.Jr:
F:

H.M.Jr:

You, nor any other person that has a small business.
Well that's been my experience with him.

The big boys can get it.

394

-4F:

H.M.Jr:
F:

H.M.Jr:

F:

H.M.Jr:

Oh, sure.

The big boys can get it.
Oh, sure.

No, I tell you, I -- I didn't know where Carter

Glass
would be, but he backed me up a hundred
per
cent.
I see.

And I think you're going to find Steagall is all
right, too, because he got a call from the White

House on this.
F:

Oh, he did. Well

H.M.Jr:

On -- on both provisions.

F:

That's good.

H.M.Jr:

The President sent word to Steagall that both of

F:

Out the -- well that's all -- then we'll be all right.

those provisions out the window.

H.M.Jr:

So Stea -- Steagall got a telephone call from the
White House the night before last.

F:

Yeah. Well, Henry tried to talk me into it but
I wouldn't listen. Hell, I said, "No, Henry, your're
up a tree now. I'm going to fight hell out of you

if I have to go to the floor."

H.M.Jr:

Well listen, try him out today since the White House
talked to him.

F:

All right.

H.M.Jr:

And see if he hasn't changed.

F:

All right.

H.M.Jr:

Ever 80 much obliged.

F:

Thanks for calling, Henry.

H.M.Jr:

I'll see you at Tia Juana.

F:

Goodbye. (Laughs)

395

May 15, 1940
10:21 a.m.
H.M.Jr:

Hello.

Operator:

Stettinius.

H.M.Jr:

Thank you.

H.M.Jr:

Hello.

Edward R.

Stettinius:

Hello, Mr. Secretary.

H.M.Jr:

How are you?

S:

How are you this morning?

H.M.Jr:

I'm all right. Mr. Stettinius, you know I asked
you some information about tungsten, see?

S:

Yeah.

H.M.Jr:

And I didn't get what I wanted and I wrote you a

S:

H.M.Jr:

S:

H.M.Jr:

letter.

Yeah, I understood that from the letter.
Now look, is your -- is the head of the steel

institute a fellow that I can sit down and talk
with and get information. I mean -- is he or
isn't he a fellow?
Ah.....
I don't mean just tungsten. I mean on the question
of increased production for the Allies and so forth

and so on on steel. Does he know production and
where the plants
S:

Tower of the institute.

H.M.Jr:

What?

S:

Bid you say Tower?

H.M.Jr:

Well, whoever the man is; I don't know.

S:

Well, Tower is the -- Walter Tower 18 the executive

secretary up there, and he's a statistical fellow.

396

-2H.M.Jr:

Oh.

S:

Not -- not a production man, and I don't think that
he -- any information that you asked him to get he'd
have to go out and get in -- in the form of a

H.M.Jr:
S:

questionnaire.
I see.

Now, on this -- on this tungsten thing, I wrote you
a note yesterday that I was coming in to see you
next week. I found that the consumers of tungsten
are reluctant as the mischief to discuss this thing,
with a -- with a fellow in business without a
government representative.

H.M.Jr:

I get you.

S:

And I really think, Mr. Secretary, to get exactly

what you want now that you're going to have to send
out a questionnaire to each list of companies and
ask them what their consumption is and what their

inventory 18. They just won't give it to a private
citizen.

H.M.Jr:

Well now look, why don't you come down Tuesday and
have lunch with me?

S:

Tuesday

H.M.Jr:

The 21st.

S:

Let me look at that. I've got Finance Committee
here that -- on Tuesday, Mr. Secretary.

H.M.Jr:

What kind of a committee?

S:

Finance Committee of the Steel Corporation.

H.M.Jr:

You're borrowing 75 million a day, what do you

S:

have to have a committee meeting for?

(Laughs) Say, by the way, that's going very well

this morning.
H.M.Jr:

Good.

S:

There's 90 per cent of it sold already and it took
a good deal of courage yesterday afternoon to
proceed with it.

397

-3H.M.Jr:

Yeah.

S:

But it's gone very, very well. Now, I'm scheduled
to be in Washington on Thursday.

H.M.Jr:

Oh, that's too damn far off.

S:

Thursday, the 23rd. Next Thursday. IS that too
long?

H.M.Jr:
S:

H.M.Jr:

Well, it isn't unless things get worse.
Well now, if things get worse you call me and I'll
come.
All right. Now, do you want to have lunch on
Thursday?

H.M.Jr:

I can, 1f it's convenient to you.
It 18.

S:

Fine.

H.M.Jr:

If things get worse I'm going to call you.

S:

If things get worse you call me and I'll -- I'11

S:

jump on an airplane and come any time, or I can --

I can
H.M.Jr:

I'm asking you to come. If things get worse I'm
going to call you.

S:

Maybe

H.M.Jr:

Let me ask you this. Are there any particular

S:

H.M.Jr:
S:

orders coming in from the Allies?

Yes, -- yes, there are. And they're coming in in
great quantity and it's surprising how fast they're
coming. Yesterday several hundred thousand tons
of increase and with indications that we get
specifications in another thirty days.
Are they coming from London or from -- or now from
Purvis in New York.

still from London.

398

-4H.M.Jr:
S:

Still from London.

Yeah. That -- that thing hasn't been coordinated

at all. Well, I think, as I indicated before
H.M.Jr:

No, I think it's going to be changed. I got word
it's going to be changed.

S:

Good. Well now, Mr. Secretary, if you'd like to -ifI'llyou'd
do like
it. me to drop down on Friday or Monday

H.M.Jr:

Well, I'll see how things go and 1f I really want
you I'm going to ask you to come.

S:

I can come easily this Friday or next Monday and

1f I don't hear from you by wire I'll see you

Thursday.
H.M.Jr:

Okey-doke.

S:

Thank you.

H.M.Jr:

Thank you.

399

May 15, 1940
10:36 a.m.
H.M.Jr:

Hello.

Operator:

Mr. Foley for you.

H.M.Jr:

Yeah. Do you want it in here. Yeah, put him on.

O:

Go ahead.

H.M.Jr:

Hello.

Ed

Foley:

Yes, Mr. Secretary.

H.M.Jr:

Listen, is this Mr. Ed Foley?

F:

Yes, suh. (Laughs)

H.M.Jr:

Well, this is just one of these southern boys.

F:

(Hearty laughter)

H.M.Jr:

Now listen, Mr. Foley, I had a talk with this fellow
from Tia Juana, see?

Fi

Yeah, I just saw him.

H.M.Jr:

Down South American way.

F:

Yes, sir.

H.M.Jr:
F:

Yeah.

H.M.Jr:

And he kind of -- Jones has been after him, see, and
he kind of thought that maybe he'd have to have a
bargain and give Jones that fifteen-year loan.

F:

Yeah.

H.M.Jr:

And I said, "No, sir," I said, "You just fight, man,

F:

H.M.Jr:

you just fight. So

He just told me that he finishes what he starts.
So he said, "Well, I don't know whether I got the
votes." I said, "Well, you know brother Steagall

400
2--

got a message from the Big White Father." So he

said, Oh, did he?" He said, "I didn't know that."
I said,
"I think you'll find he's all right on
both
fronts."
F:

(Laughter)

H.M.Jr:

So he said -- well, I said, "Go around and see
both fronts," He said, "Man, I'm on my way."
Yeah, he's in there now. I just came out.
I thought that after he had seen brother Steagall
you might see if brother Steagall needs any

brother Steagall and see if he isn't all right on

F:

H.M.Jr:

freshening up.

F:

O. K.

H.M.Jr:

See?

F:

O. K. I think he's -- he's representing Mr. Williams'
point of view.

H.M.Jr:

Yeah, but when I fight, boy, I want both legs, both

eyes and all teeth. I don't want nothing -- no
compromise, no umbrellas.

F:

O. K., no umbrellas.

H.M.Jr:

No umbrellas. See?

F:

(Laughter) All right.

H.M.Jr:

F:

And I've got -- I've got hob-nails in my shoes and
I'm just going to jump onto you. Now, 1f there's
any question, see, and brother Steagall is weakening

I'll just have to freshen up a little bit.
O. K. I'll let you know.

H.M.Jr:

Goodbye.

F:

Goodbye.

401

May 15, 1940
10:40 a.m.
H.M.Jr:

Hello.

Adolf
Berle:

Henry

H.M.Jr:

My you looked beautiful sitting in the front of the
box with a white tie and boiled shirt and everything else.

B:

Henry

H.M.Jr:

Yeah.

look here

B:

H.M.Jr:
B:

H.M.Jr:
B:

You looked so impressive and everything.

That's sweet of you. I didn't take my boiled shirt
off but I toddeled out after that and worked down
here until two o'clock for a variety of reasons.
I see.

And I was sorry to do it because I had planned to
be down here working on the -- Secretary Hull's
that he wanted to turn in. As a matter of
fact he did work down here and I found it out
about half way through.

Henry, this is quick-action stuff, I'm sorry. The

British Embassy wishes its name kept out of it, but
the fact 18 they've just come down here and said
that the Italian steamship "FORTUNATA" is about
to leave New York any moment now with 3500 tons

of toluol destined for the Italian Government
for the Italian armed forces. That's about enough
to make 3 million shells.
H.M.Jr:
B:

Yeah.

They say that they are unable to interfere with
this shipment on contraband grounds. I don't know
exactly why. I presume some agreement they reached
at some time or other with the Italian Government
which they are not yet in a position to do anything
about, and they've asked us whether we would impede

402

-2by administrative action the sailing of this
vessel, but they do not wish this government
implicated in it in any way.
Now, I haven't had any time -- this came in this
minute and the boat might sail at any time.
H.M.Jr:

That's all right.

B:

I've taken it up with Gaston. I'd be prepared to
support a move if you felt like it to inspect the
darn boat and buy ourselves at least a few hours
to think this -- more to think this over.

H.M.Jr:

That's all right. Now, give me the name of the

boat. Spell it slowly.

B:

F-o-r

H.M.Jr:

F-0-1

B:

t-u-

H.M.Jr:

t-u

B:

n-a

H.M.Jr:

n-a

B:

t-a

H.M.Jr:

t-a

B:

Fortunata -- n-a-t-a.

H.M.Jr:

"N" like in nobody?

B:

"N" like in nobody.

H.M.Jr:
B:

H.M.Jr:
B:

F-0-r-t-u-n-a-t-a.
That's right.
r-t-u-n-a-t-a.
Now, I've talked to Gaston -- just -- he's the only
other person who knows anything about this, but I've
given him confidentially the drift of it.

-3H.M.Jr:
B:

H.M.Jr:

403

3500 tons.

3500 tons of toluol.
I know what toluol is.

3:

Well, you know more about it than I do -- but except
that when you mix it with trinitrol something happens.
I sew that in the World War.

H.M.Jr:

That's right.

B:

All right, sir.

....Jr:
B:

Well now, we'll hold the damn thing, and you're

all right over at the State -- with your boss,
Hull, on this?
I will -- I haven't had a chance to get through
to him because I don't have any time, but I will
arrange that we are.

H.M.Jr:
B:

H.M.Jr:

O. K.

I mean, I'll give you assurance that I will cover
that end of it.
Well, we'll begin to look at the radio et cetera,
et cetera.

B:

All right.

H.M.Jr:

0. K. Goodbye.

B:

Goodbye.

404
May 15, 1940
2:22 p.m.

H.M.Jr:

Hello.

Operator:

Mr.

H.M.Jr:

Dan

Bell. Go ahead.

Dan

Bell:

Yes.

H.M.Jr:

I had lunch with Henry Wallace.

B:

Uh-huh.

H.M.Jr:

His brother-in-law is the Swiss Minister and he
wanted to know what they could do and I told
him if he'd call you you'd give him plenty of
time. Now, there are certain things that they
ought to do which we've learned, like giving
them the money to take care of their Legation
and all that kind of stuff, you know?

B:

Yeah.

H.M.Jr:

And theburning of securities if -- American
securities, inside of Switzerland. And get
Bernie to make up a list of the things which

we have learned now in the last two weeks
B:

Yeah.

H.M.Jr:
B:

Yeah.

H.M.Jr:

And then if you'd receive the Swiss Minister
when you get ready, but make up a list of the
things that we've learned through the mistakes
in these other countries.

B:

All right.

H.M.Jr:

Will you do that.

B:

Yeah, right away.

H.M.Jr:

Thank you.

B:

Right.

405
May 15, 1940
2:35 p.m.

Operator: There you are.
Davis'

Secretary: Hello.

H.M.Jr:

Hello.

Sec:

Mr.
Norman Davis would like to speak to the Secretary
please.

H.M.Jr:

Well, you've got me on the wire.

Sec:

All right, sir.

Norman

Davis:

Hello.

H.M.Jr:

Hello.

D:

This 18 Norman Davis.

H.M.Jr:

Yes, Norman.

D:

Henry, during the World War they got -- when the
Red Cross was having a drive they got a special
act through Congress -- you probably remember,

authorizing the national banks to contribute

to the Red Cross. It was a special act. Well
now, there's nothing in the Act, of course,
that prohibits them from doing it, but since the

war, since that emergency was over, the Comptroller

of the Treasury has always taken the position that
the national banks should not contribute to charities.

H.M.Jr:
D:

Yeah.

Well now, we're getting the state banks to contribute and in this ten million drive we've got to
get some contributions of that kind if we're
going to raise our money. And we've been talking
with Bob Jackson about it and he approves the plan

now we've devised, the legality of corporations,
but he suggested as to the banks -- he thought there
were two things that could be done if it met with
your approval. One would be to ask Congress to do
something now, both sides; or the other would be

if the Comptroller would merely write to the banks

406

-2-

and say that if they felt it was in their interest

now to contribute to the Red Cross in this crisis
that they would offer no objections to their doing
it.
H.M.Jr:
D:

H.M.Jr:
D:

Well,
Norman,
me take it up with the Comptroller
and see
how he let
feels.

Yes, that's what I thought.
And I'll have him get in touch with you direct.
Well, fine.

H.M.Jr:

Thank you, Norman.

D:

Thank you. Goodbye.

407
EH

PLAIN

London

Dated May 15, 1940

Rec'd 3:08 p.m.

Secretary of State,
Washington.
1218, May 15
FOR TREASURY FROM BUTTERWORTH

1. British Treasury states that its announcement of
the conclusion of an Anglo-French-BElgium tripartite
financial agreement, reported in my 1212, May 15, 11 a.m.

is not strictly accurate in that a Franco-Belgium agreement has been signed but no British-Belgium arrangement

has been definitely concluded, although it has been
agreed to agree upon one.

2. Where there isn't unconsciousness there is

gloom in the city.
KLP

KENNEDY

408
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Consulate General, Shanghai.
DATE: May 15, 1940, 1 p.m.

NO.: 418.
With reference to my No. 414, May 13, 6 p.m.,
I have learned from the same source that both of these
banks have German deposits of substantial United States
dollar amounts. I am also informed that the German
commercial counselor this morning attempted to interview
one of the banks and was referred to the Netherlands

Consul General. If he approaches the latter he will not
be received, the attitude being that such approach will
have to be through a willing neutral colleague "if he
can find one. . If approached, which is unlikely, I
shall decline to act as intermediary unless the Department wishes me to refer the matter for instructions.
I am informed by the same source confidentially that
though the Government of the Netherlands takes the attitude

that it hasn't any objection to the paying off of local
German depositors at the banks' discretion, the banks'
head office has given them orders not to pay off these

accounts, and it is presumed that these deposits will be
kept perhaps to balance sums which are owed be the
Netherlands banks by Germans or German banks. This
telegram has been repeated to Peiping and Chungking.
BUTRICK

EA:MSG And by state Dental

409
PARAPHRASE OF TELEGRAM RECEIVED
FROM:

DATE:

American Embassy, Paris, France
May 15, 1940, 4 p.m.

NO.: 687
FOR THE TREASURY DEPARTMENT.

Because of the fact that there will probably be a
heavy increase in the demand for dollar bank notes on
the part of American citizens who want to leave France,
an Embassy staff member consulted with the four Paris-American

banks to see how much dollar currency they are holding.
These four banks hold a combined total of approximately

170,000. They state that they are in a position to
issue dollar travelers checks for several times this amount.
They also state that they are prepared to accept france
from clients and cable their offices in New York to

deposit dollars with the shipping lines to pay for return
passage on ships.
END SECTION ONE.
BULLITT.

EA:LNW

410
JT
GRAY

PARIS

Dated May 15, 1940
REC'D 4:12 p.M.

Secretary of State,
Washington.

687, May 15, 4 p.m. (SECTION TWO)

The Ministry of Finance issued the following communi-

que this morning: "The Minister of Finance of Belgium,
the Chancellor of the Exchequer, and the Minister of
Finance of France have concluded a tripartite financial
agreement by which Belgium and France on the one hand and

Belgium and the United Kingdom on the other have agreed to

grant reciprocal financial facilities for the settlement of
their expenditures. This is the first act by which the
financial and monetary solidarity of the three countries
taken with a view to the common victory has shown itself." "
It has been ascErtainEd that the agreement was signed in
Paris yesterday Evening.
The Bank of France has directed that all withdrawals

from Dutch accounts be suspended until further notice.
BULLITT
LMS:NPL

411

EH

GRAY

Paris

Dated May 15, 1940

Rec'd 5:05 p.m.

Secretary of State,
Washington.

687, May 15, 4 p.m. (SECTION THREE)

With a VIEW to curbing to SOME extent the current
decline in the market the curb market committee has sent

a letter to its members calling their attention to the
instructions given at the outbreak of the war forbidding
them to EXECUTE short selling orders EXCEPT against the

immediate delivery of securities. Similarly the Stock
Exchange Committee has instructed its members to refrain
as much as possible from Executing "speculative" short
selling orders. Despite these measures the market dropped

again today. Rentes declined from one to two points. The
average loss of other French securities was five per cent.
Stocks of certain concerns situated in Northern France
WERE not quoted. Internationals were also depressed Suez

losing 710 points.
The Stock Exchange Committee has advised its members

not to accept orders to sell securities received from
persons not known to them. This precaution has been
taken

412

-2- 687, May 15, 4 p.m. from Paris (SECTION THREE)

taken in order to prevent the sale of securities of a
"doubtful" origin.
(END OF MESSAGE)

NPL

BULLITT

413
No. 530.

Chungking, May 15, 1940

Subject: Appeal from the Chinese Government
for American Assistance in maintaining Chinese currency.
AIR MAIL

Strictly Confidential

The Honorable

The Secretary of State,
Washington, D. C.

Sir:
I have the honor to refer to my despatch no. 529
of May 15, 1940 reporting an interview with Dr. H. H.
Kung, Minister of Finance, during which he informed
me of the hope of the Chinese Government that the
American Government would assist China financially

in its effort to support Chinese currency.
In

414

-2In this connection I have the honor to report that General
Chiang Kai-shek, President of the Executive Yuan, asked me to call
on him on May 14, 1940 and on that occasion reiterated this hope in

terms of a definite request for such assistance. He repeatedly emphasized that the major threat to China from Japanese attack is now

in the economic field rather than the military and that if American
aid in support of Chinese currency were given within two months'
time, its effectiveness in withstanding Japan's economic attack would
1/

be many times greater than if it were deferred. A memorandum of the

interview is enclosed.
Summary of interview:
General Chiang inquired whether Mr. Johnson thought the

United States would enter the war on the side of the Allies.
Mr. Johnson did not think the United States would enter the
war. General Chiang said that the outcome of the struggle
with Japan would be influenced by the economic phase, as

opposed to the military phase, in the proportion of seventhtenths to three-tenths. Great Britain and France could no
longer extend effective aid to China in support of its economic
structure and of its currency; therefore, American assistance
in these directions, especially support of the currency, had
now become a crucial factor in determining the outcome of the
struggle between China and Japan. General Chiang asked that
Mr. Johnson telegraph his Government the view of General Chiang
that the economic phase of the Japanese attack on China had
become the dominant one and conveying the earnest hope of the
Chinese Government that the American Government would extend

financial assistance in some form to China in its effort to

maintain Chinese currency. He asked that Mr. Johnson emphasize
the extreme importance of promptness in extending this assist-

ance, if the economic structure of the nation were not to be
placed in a situation of great peril. Mr. Johnson said he

would be glad to transmit General Chiang's message, but he
supposed the Chinese Government would take up the matter with

interested authorities in the United States through some qualified
representative.

415

-3representative. General Chiang said that, of course, the

Government would send a special representative to the

United States to conduct negotiations, if the American
Government indicated its readiness in principle to extend
some form of financial assistance to China in maintaining
the Chinese currency.

General Chiang's manner and tone throughout this interview gave

clear evidence that he believes that the present moment is one of
grave importance in China's resistance to Japan. He spoke with his
customary terseness and precision, choosing his words carefully.
He used no rhetorical devices, nor did he make any appeal to the

emotions. His presentation of China's request for assistance in its
effort to support China's currency was that of a soldier dealing with
a military problem. He described the problem and the objective, and
the means, as he conceived them, to achieve that objective, and he
asked for the assistance of the American Government. It was evident
that he spoke on the assumption that the American Government desires

that China shall succeed in maintaining its independence against
Japanese aggression and he devoted no attention whatever to that
point.
Respectfully yours,

Nelson Trusler Johnson
Enclosure:

1/ Memorandum of interview between
General Chiang Kai-shek and
Ambassador Johnson on May 14, 1940.

Original and four copies to Department
by air mail to Hong Kong
Copy to Embassy, Peiping
Copy to Embassy Tokyo.

851/710 True copy of

WRP:MCL signed original

416
Enclosure no. 1 to despatch no. 530 dated May 15, 1940, from American
Embassy at Chungking on subject: "Appeal from the Chinese Government
for American Assistance in maintaining Chinese currency."
Memorandum of Conversation.
May 14, 1940.

Subject: Hope of the Chinese Government that the American Government

will extend financial assistance in support of Chinese
currency.

General Chiang Kai-shek, President of the Executive Yuan
Mr. Johnson, American Ambassador
Present:
Madame Chiang

Dr. H. H. Kung, Minister of Finance and
Vice President of the Executive Yuan
Dr. Wang Chung-hui, Minister for Foreign Affairs

Mr. Arnold, American Commercial Attache
Mr. Peck, Counselor

Mr. Johnson called on General Chiang, at the latter's request, at
6 p.m. He was conducted to the residence of the Generalissimo by
Dr. Wang Chung-hui, who acted as interpreter during the interview.
General Chiang and Mr. Johnson discussed in general terms the
current military developments in Europe and then General Chiang said

that in his opinion the entrance of the European war on its new phase
would bring changes in the Far East. He inquired whether Mr. Johnson
would care to express any views on the subject.
Mr. Johnson replied that he wondered whether changes in Europe

would produce corresponding changes in the Far East; he was inclined

to think there would be no changes in the Orient consequent on
European events.

General Chiang inquired whether Mr. Johnson thought the Allies

would win the war; he, himself, thought that the position of Belgium
was

417

-2was exceedingly serious. Mr. Johnson expressed the opinion that the
Allies would be victorious. General Chiang asked whether this meant
that Mr. Johnson thought the United States would intervene on the

side of the Allies if the war seemed to be going against them.
Mr. Johnson said he could make no prophecy, but he did not think the
United States would enter the war.
General Chiang remarked that China's resistance to Japan was on

two fronts, the military and the economic. China had displayed such
military strength that Japan was now concentrating on an economic

attack on China. The result was that the relative weight of the two
factors in determining the outcome of the struggle was military threetenths and economic seven-tenths. China could continue military

resistance, provided it could resist the economic attack. China was
grateful for the past friendship of the Governments and people of

the United States, Great Britain and France and for their assistance,
which had been received in considerable amounts from Great Britain
and the United States and in lesser amount from France. However,
Great Britain and France, because of the demands imposed on them by

the intensified struggle in Europe, would no longer be able to extend
financial assistance to China against Japan and the willingness of
the United States to assist China financially had become, therefore,

a crucial factor in the outcome of the hostilities. General Chiang
stated that China's ability to continue armed resistance depended in

a vital way on the internal economic stability of the country, which,
in turn, rested on China's currency. He would appreciate it, therefore, if Mr. Johnson cared to express an opinion whether the American
Government

418

-3Government would be disposed to extend to China some form of finan-

cial assistance in its effort to support Chinese currency.
Mr. Johnson said that, again, he could not assume to make any

prophecy, but he would point out that requests for financial assistance in the support of currencies in the world were likely to be
presented to the American Government by various countries.

General Chiang said that it was his intention to address a
message to the President of the United States, but he would be grateful if, in the meantime, Mr. Johnson would telegraph to the American
Government, reporting his conversation with General Chiang and dwell-

ing especially on the fact that the economic phase of the Japanese
attack on China had now become the dominant one, and on the earnest
hope of the Chinese Government that the American Government would

extend assistance to China in its effort to maintain Chinese currency.
General Chiang asked Mr. Johnson to emphasize, also, that it was

critically necessary that such assistance, if rendered, should be given
at the earliest possible date; he said that any given sum advanced
promptly would be ten times more valuable than the same sum placed at

China's disposal at a later date, and he could not but feel that unless China received the indicated financial assistance within a period
of two months, the economic structure of the nation would be placed in

a situation of great peril.
Mr. Johnson replied that General Chiang had described the situa-

tion with great clarity and force and that he would be glad to accede
to the General's request and report the conversation to Washington by
telegraph

419

-4telegraph. He supposed, however, that the Chinese Government would

want to have some qualified representative discuss the matter personally with the interested authorities of the American Government.
General Chiang replied that if the American Government were to indi-

cate that it was prepared, in principle, to consider giving financial
assistance to China, with especial view to the support of the currency,
the Chinese Government would, of course, send a representative to the

United States to take up negotiations.

W.R.P.

HHK

TREASURY DEPARTMENT
WASHINGTON

May 15, 1940.

MEMORANDUM FOR THE SECRETARY:

Responding to your inquiry of yesterday, we
have ascertained that of a total of 396 emergencyrelief employees dropped from the Procurement Division, 208 have so far found other employment.
I am advising Mr. Schwarz.

GRAVES.

420

421

May 15, 1940
Present:

Mr. Sullivan

Mr. McReynolds

(Immediately following Congressman Doughton's

call on HM,Jr.)

HM,Jr: (To Mr. Sullivan) You noticed the old
boy went up to you and said, "Good-bye". I didn't
want you to think I did not want you, but he distinctly
did not want you.

Mr. Sullivan: I wondered. That's why I looked

at you that way.
HM,Jr: This is what he came down for and I want

you two fellows to take care of it. He said, "You know
I announced I wasn't going to run and when I announced

I wasn't going to run, a fellow by the name of Jim
Rivers announced to run." He said, "Well, of course,
But
can always get elected. Sweep my district.
I

it's annoying and Jim Rivers, of Boone, North Carolina,
is on the Coal Commission and has been let out and I
want you to fix him up with a job at $3,000 or $3,600
and if he does not make good, after the election let

him out." So sometime after the first of June, he's
going to walk him in here. He's telling him he has
a job. He said, "He's a newspaper man. He can go
out and help Helvering get the fellow who hasn't paid
his taxes.
We can put him on in place of Hathcock.

Mr. McReynolds: That's perfect!
HM,Jr: He does not want anything until June.

Mr. Sullivan: He won't take that. He wants

a congressional investigation. He says Schwartz can't
stand the heat.

422

-2-

HM,Jr: He has a primary on the 25th and
this fellow has been bothering him and he's going

to tell him -- I guess what he will tell him "If

he's a good boy he will get a job"and he will not
give him a job until after the primaries. "If
you lay off, I will fix it up with Morgenthau and
you get a job."
000-000

423

May 15, 1940

My dear Mr. President:

I as sending you, in strietest
confidence, a review of the Bowman
Elder ease.

You will note that he has paid
us approximately $84,000 in settlement

of his tax delinquencies.
Yours sincerely,

The President,
The White House.

424

May 15, 1940

My dear Mr. President:

I am sending you, in strietest
confidence, a review of the Bowman
Elder ease.

You will note that he has paid
us approximately $84,000 in settlement

of his tax delinquencies.
Yours sincerely,

The President,
The White House.

425

May se, 1960

w - m. Products
z - emiting you, a strictest

- a sovious of the - mm.

- will note that be has paid

I

- 804,000 in extitlement
of Me -

Years sincerely,

m
m I House

426
MEMORANDUM

In re: Bowman Elder,
Indianapolis, Indiana.

Proposed Liabilities as shown by thirty-day letter:
Additional Taxes
Fraud Penalties
Interest (approximate)
Total

$156,937.22
78,468.63
16,000.00
$251,405.85

Agreed Liabilities as the result of conferences:
Additional Taxes
Fraud Penalties

Interest

Total

$74,921.02
none

8,860.60
$83,781.62

The additional taxes proposed for assessment in the

thirty-day letter were based upon the inclusion in income

of the following items:

1. Funds totaling $126,789.52 collected ostensibly
for the Hoosier Democratic Club as a "Slush Fund"

from various holders of permits from the State of
Indiana which amounts were not entered on the books
of the club nor accounted for by the club in any
manner. Elder admitted the receipt of such amounts
but could not or would not state what disposition

he had made of the money other than it had been
spent "for the general good of the Democratic Party."
2. A total of $117,500.00 withdrawn from the club

by means of false entries indicating that the

amounts in question had been paid to the Democratic
State Central Committee. The checks in payment of
such amounts were endorsed by the Treasurer of the
Committee and such checks or the proceeds of them
were turned over to Elder who admits the receipts
of such amounts. His explanation of these items
is the same as his explanation of the items covered
in the preceeding paragraph.

3. Items totaling $125,000.00 during the years 1936,
1937 and 1938 representing the best estimate of
funds collected by Elder for the "Slush Fund" under
the same circumstances as under/above except that

he did not admit them nor are they suceptible of
proof. In other words, Elder admitted that the
collections for the "Slush Fund" were $125,000.00,

2

and it was thought that the actual collections

were probably twice as much as he admitted. The
amount of $125,000.00 was included to cover such
amounts as he had collected but not admitted.

As the result of the conferences, the third item above
has been eliminated because it could not be established by
proof acceptable to the Board of Tax Appeals or the courts.
The fraud penalty has been eliminated because the
Bureau was unable to prove that Elder used any of the funds

in question for his personal benefit. without such proof,

the Government was placed in the position of having to
sustain the assertion of the fraud penalties on the ground
that Elder had failed and refused to explain the disposition
made by him of the money coming into his hands. Under such
circumstances the prospects of success in the assertion of
the penalties were quite remote.
Assessment of additional taxes for the years prior to
1936 was barred unless fraud could be established, and for
the reasons given above the Government could not prevail on
the fraud issue; consequently, the additional taxes totaling
$9,006.88 for the years prior to 1936 have been eliminated.