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COPY 176 May 30, 1940 Kweiyang, China Mr. J. L. Keeshin 221 W. Roosevelt Road Chicago, Illinois U.S.A. Dear Mr. Keeshin: I returned to kweiyang on the 21st of this month with a definite assignment from Minister Chiang Kia Gnau authorizing me to direct all maintenance activity in this division, and to also assist in solving any other problems that may arise in the China Transport Corporation. In the past we have acted only in an advisory capacity to both the Ministry and China Transport with the result that many of our recommendations have not been enforced due to personnel politics. The Minister and Mr. Y. C. Chen, managing director of C.T.C. are very anxious to get speedy action in order that the transportation organizations will receive all the benefits of our past experience. They are also concerned that we establish in the organizations enough basic principles to assure their long existence after we leave China on the 28th of July. We have expressed our willingness to do everything possible in a supervisory capacity that will bring about efficiency and co-ordination throughout the Ministry andC.T.C. transportation system. The past experience of the Chinese in highway transportation has been very limited and even then to only a very few so, therefore, many problems arise that is beyond their comprehension. However, it should be mentioned that in spite of all the handicaps created by war, inexperience and political reasons within the organizations, that they are doing a fairly good job. I think one of their greatest faults is that they can sit idly by and permit a very minute affair to develop into a serious situation. wi th the exception of a few items all of the shop and mainteance equipment that was purchased on the original 7.5.3/4. order has been transported into Kunming, and redistributed to the various shops and garages along the highway system of free China. The second purchase has arrived at Haiphong and Rangoon respectively, but to date we have been unable to transport but a very small portion of it into China, due tothe fact that the space on the new trucks that are coming in had to be utilized for gasoline and other materials that are necessary to conduct warfare. However, the parts situation is still very acute and I fear it will be for some time to come. The supply coming into China, in the past has been fifteen to twenty percent less than the demand. During the past month we have seen a great increase in the bombing activities of the Japanese, particularly in and around the vincinities of Chungking, I talked to Bassi last night before last and he at that time informed me that the Hwa Lung Chia (a suburb of Chungking) B-shop had been bombed during that day, inflicting considerable damage to the buildings and part of the equipment. 177 -2- Mr. J. L. Keeshin Kweiyang, China May 30, 1940 with the quantity of the gasoline imports increased during the past few weeks the operating problems have become less tense and they were very optimistic at Chungking, in that they would be able to despatch fifteen hundred tons of wood oil from that city during this month. I have not heard whether or not that they attained that quota. with my very kindest regards to you all, I am Sincerely yours, C. W. Van Patter (Signed) avo is bW OF s IV 178 THE COMMANDANT. COAST GLAND TO M TREASURY DEPARTMENT UNITED STATES COAST GUARD HEADQUARTERS From: To : SECRET WASHINGTON 17 June, 1940. Spagent, Shanghai, China. Secretary of the Treasury. Message from Mr. Nicholson. T. V. Soong is proceeding to Washington as Chiang Kai - Shek's special representative with full power to act in his behalf, leaving Hongkong via the Clipper Wednesday, June 19th. American Ambassador Johnson will be informed by the Chinese Foreign Office after T. V. Soong leaves Hongkong Wednesday. In the meantime, the matter is being kept very quiet, and this is intended for your advance information. FORBUSH, G. E. 178-A MEMORANDUM TO THE SECRETARY ON MAIL. June 17, 1940. During the past two weeks the general mail has indicated that individual citizens conform in their opinion in the trend of newspaper and radio sentiment. In other words, more than 95% of our mail is strongly pro-ally, and the remainder, although some of it is exceedingly nasty in tone, is almost entirely anonymous. Offers of cooperation of every type come in daily. We receive concrete gifts both in the Treasury and by reference from the White House. These are usually gifts of money, the highest being, I think, a $500 check. We have also had gifts of jewelry, two wedding rings,etc. Offers of services either on an unpaid basis or for very low salary are frequent. We keep a card index of such individual offers under both the name of the writers and the type of work for which they volunteer. There are many suggestions in regard to ways of raising additional taxes, and in almost every case the writer states that he will be glad to pay more taxation money himself. One telegram received this morning from a New York businessman states that he paid about $75 income tax last year and could triple it for the purpose of national defense, especially if he could pay it in monthly installments. Another small merchant endorses an increase in the cigarette tax and suggests that it be made immediately to prevent storekeepers from stocking their shelves to avoid its payment. 178-B -2Memorandum to the Secretary on Mail. June 17, 1940. There are many suggestions as to defense bonds like the Liberty Loan Bonds of the World War, and a surprising number of writers wish to have a definite distinction between the funds raised by taxation or bond selling for the present emergency and the normal taxation for Government expenses. They seem to feel they would contribute more in the campaign for national defense if they knew how much of their money vent to this and was separated from ordinary running expenses of the Government. There is a definite campaign for the contribution of a week's salary, and men of all ranks are writing in to add their names to the list of those who volunteer this as a gift. As opposed to those who urge the sending of airplanes and all pos- sible material to help the Allies, there is a small but steady portion of complaints about the nonpayment of loans at the time of the last War, and refers to the President as a'war-Monger" who is pushing us into war on the side of the British. It is this group who continue to urge that the British possessions in this hemisphere be turned over to the United States in payment of back debts, and also to keep the Americas "American". These come from substantial citizens who write intelligently, as opposed to the froth of the anonymous and abusive writers mentioned above. A man who simply signs himself "Your Cornell friend" has been send- ing in clippings on the Annenberg case, others from Pegler's column, and some on the war situation. He says, "You are doing very valuable work following up racketeers who cheat on income tax": and in another memorandum, "You continue to prove yourself fearless and honestin your administration of your office". -3Memorandum to the Secretary on Mail. 178-C June 17, 1940. There were several protests from banks in regard to the calling of the 3 3/8% bonds. The Federal Reserve circular letter was dated June 11th, while the date of the closing of the offer was June 12th. That was protested as being entirely too short notice and unfair to the holders of these bonds. OFFICIAL TO THE SECRETARY OF STATE 179 WASHINGTON DEPARTMENT OF STATE WASHINGTON June 18, 1940. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses for his information a paraphrase of strictly confidential telegram No. 264 of June 12 from Bucharest. 180 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Legation, Bucharest, Rumania DATE: June 12, 1940, 1 p.m. Rec'd 9:40 a.m., 13th NO.: 264 Reference is made to telegram of June 11, 2 p.m., No. 260 from the Legation. On the authority of a friend close to the Governor of the National Bank, I learn indirectly that Constantinescru himself was responsible for the delay which has resulted in missing the opportunity of sending to the United States the gold reserve of Rumania plus the Polish gold. The same authority states that the Government for some time has been in favor of this shipment, but it was the belief of Constantinescru that Rumania's chances of obtaining the much desired credit in the United States might be prejudiced if such a large quantity of gold should be sent there. It is still hoped here that such a credit may be given to Rumania. There are reports in the press that even "Germany's handmaiden Hungary' was granted a small credit. According to this same source, it appears surprisingly enough that the National Bank Governor was even somewhat fearful lest the United States Government, once paxixaf this gold were actually there, might detain part of it for -2- 181 for Rumanian loan and bond service. GUNTHER EA:LWW TREASURY DEPARTMENT 182 INTER-OFFICE COMMUNICATION DATE TO June 18, 1940. Secretary Morgenthau FROM E.H. Foley, Jr. Re: Townsend Amendment Larry Bernard just telephoned me from the Hill that the Townsend Amendment to repeal our power to purchase foreign silver was defeated on a roll call vote. The vote was 45-35: 45 against the amendment and 35 for the amendment. E.H.F. Jr. Hm 183 only city P.4. ANGLO-FRENCH PURCHASING BOARD opy has NEW YORK: 725 15th ST., N. W. 15 BROAD STREET 6/20/40 WASHINGTON photoent mm young This letter from Washington, D. C., June 18, 1940. William S. Knudsen, Esq. The Advisory Commission to the Council of National Defense, Washington, D. C. Dear Mr. Knudsen: With reference to my letter of June 15th in which I stated that the French portion of the RollsRoyce engine order which you are placing with the Ford Motor Company would be 2,700 engines, developments have since occurred which rule out this possibility. Word has been received, however, from Lord Beaverbrook authorising advice to you that the British Government will take up the 2,700 portion of the order, making 6,000 engines in all for British account. Yours very truly, (Signed) Arthur B. Purvis ABP:MAV OAE OS MUL - presenT your - to will 184 June 18, 1940 9:43 a.m. H.M.Jr: Secretary Yes. Woodring: Harry Woodring. H.M.Jr: Good morning. W: Good morning. Say, Young is here and Arnold and it's our understanding that in your letter of yesterday that Baker of the Purchasing Board has advised us that there's no objection to releasing these drawings necessary to produce them on 3's and the 10's and the 20's. H.M.Jr: That's right. Now, I had no --you see, I'd never dealt and never seen any of this Purchasing Board in any way, I've just dealt through you. I wondered if you should send me over a letter instructing me to -- requesting me to turn them over to W: Knudsen. H.M.Jr: W: I'm perfectly willing to. Well, all I just want to know is that -- just to keep the record straight. I'm -- just say that -- if you want to put it -- I'm not dodging responsibility, all I want -- you can say that according to our agreement or decision or something that way. H.M.Jr: W: H.M.Jr: W: Well, let me put it this way. In the first place I turned all the plans over to you. Yes. Now, in the second place, as I understand it, they're going to place -- the U. S. Government and the English are going to place a joint order with Ford. Yes. -2H.M.Jr: Now, the plans are in your hands. Now, actually the buying -- isn't the buying done by you? It isn't done by Knudsen, he just does the negotiating. W: H.M.Jr: Yeah, that works all right. I mean, having turned them over to you isn't it up to you to turn them over to whichever company is going to manufacture it. If it's Ford, then you turn them over to Ford. W: Well, I think maybe that's all right -- that suggestion. H.M.Jr: W: H.M.Jr: W: I mean, I think that you ought to talk to your lawyer, but thinking outloud I should think it would flow from you to the manufacturer, then you would hold the manufacturer responsible. I mean, Mr. Knudsen is simply in an advisory capacity. Uh-huh. I mean, he has no legal responsibility. That's why I turned them over to you. Uh-huh. Well, now I tell you what you do then. Why don't you send me a letter saying that according to our decision that youre confirming that this should be turned over, that Ford is going to manufacture these and -I suppose we know that, do we? H.M.Jr: I think you' re making it a little extra, Harry. I don't think it's really necessary. I mean, my first letter I turned the plans over and you signed for them, 60 they're yours. I simply asked you to hold them up until I found out what the English Government wanted. Now it's agreeable to them to release those plans to whoever the Army wants, so that the decision is yours -- it's no longer mine. W: O. K. Now -- all right. I'll make the decision. 185 -3H.M.Jr: W: Yes. And I'll handle it. Now let me ask you then if you don't think that in each instance, not having dealt with this Board, that you ought to -- and I'll not release any further ones until I get letters from you saying that the Board releases them. H.M.Jr: That I would like very much. W: O. K. H.M.Jr: And I furthermore would like, as I told Young to say, that what you now have in your custody you'd guard just the way you guard your bomb sight. W: That's right and we've got them out there under guard and everything and nobody, not even our own people only certain ones, are seeing them. H.M.Jr: W: H.M.Jr: Well, I think that the people who are doing your experimental work ought to see them. Well, that's limited to certain people. Surely. Are you satisfied? W: Yeah. Now one other thing. H.M.Jr: Please. W: General Arnold's sitting right here and could you tell him so he would be prepared anything about the 11:30 meeting? H.M.Jr: Well, I have another cable offering us some additional plans and some additional planes, and I wanted to show it to him and Admiral Towers and ask them if these things which are in the secret cable from Kennedy -whether they want them. W: All right. H.M.Jr: So there's nothing to prepare. 186 -4W: Nothing to be prepared. H.M.Jr: No. W: O. K. All right, thanks, Henry. Good-bye. 187 2 photostate to WAR DEPARTMENT WASHINGTON on then for + one form Baker CONFIDENTIAL JUN 18 1940 6/20/40 photostat to m young fallen The Honorable, The Secretary of the Treasury. file 61 22 Dear Mr. Secretary: I have indicated my agreement on your letter of June 13th, relating to the Rolls Royce engine. I have caused the following action to be taken: the shipment of data and parts has been forwarded to Wright Field, Dayton, Ohio. Inventory is being made of the contents of the shipment by two commissioned officers of the Army, under the supervision of a representative of the Treasury Department. The officer in command at Wright Field has been di- rected not to disclose the nature of the contents of this ship- ment to any other persons except those enumerated above. Upon receipt of the detailed inventory of the contents of this shipment, I shall consult with you as to further action to be taken in this matter. Sincerely yours, HARRY H. WOODRING, 1 Incl. Letter, 6/13/40. Secretary of War. CONFIDENTIAL 189 CONFIDENTIAL JUN 18 1940 The Henorable, The Secretary of the Treasury. Dear Mr. Secretary: I have indicated my agreement on your letter of June 13th, relating to the Rells Reyes engine. I have caused the following action to be takens the shipment of data and parts has been remarded to Bright Field, Dayton, Chie. Insurance is being made of the contents of the shippent by two co-missioned officers of the Anny, under the supervision of a representative of the Treasury Department. The officer in command at wright Field has been dis rested not to disclose the nature of the contents of this ohiy ment to any other persons escept those ammunited above. Upon receipt or the detailed investory of the tosts of this shipment, I shall consult with you as to further action to be takes in this matter. Sincerely yours, (8gd.) Harry H. Woodring MARRY H. WORDING 1 Incl. Letter, 6/13/40. Secretary of Ware CONFIDENTIAL 190 THE SECRETARY OF THE TREASURY LOS WASHINGTON June 13, 1940 Dear Mr. Secretary: The British Government, through Ambassador Joseph J. Kennedy, has shipped to me, as the representative of the United States Government, certain patents, drawings, operation sheets, manufacturing and assembly specifications and working models covering one or more of the Rolls-Royce airplane engines and parts. The shipment, I am informed, is now at the Railway Express office in Washington. It is my thought, in order not to lose time, that the consignment be turned over to you at once. Since the material has been sent to me, I should appreciate receiving as soon as possible a complete inventory. There remains to be agreed upon between the British and ourselves the terms upon which the patents are to be made available to this Government. Any licensing arrangements affected by the Army or the Navy will necessarily have a bearing on such settlement. Therefore, prior to the consummation of any negotiations for licensing the manufacture of the engines in this country, I should like to be consulted. 191 -2- If this arrangement is satisfactory, I should appreciate your indicating your agreement at the end of this letter. Very truly yours, My mittanh Secretary of the Treasury. The Honorable The Secretary of War. Approved: Secretary of War June 13 , 1940 192 June 18, 1940. 10:00 a.m. RE TRANSFER OF FRENCH GOLD TO BRITISH Present: Mr. Ballantyne Mr. Purvis Mr. Cochran Mr. White Mr. Bernstein Mr. Viner Mr. Bell Mr. Nelson Mr. Foley Mr. Young Mr. Bloch-Laine Mr. Leroy-Beaulieu H.M.Jr: Well, I thought I would have everybody here to be helpful in this very important discussion. Purvis: Quite. H.M.Jr: Would you like to -- Purvis: Well, all that we have to say, I think, is that on Sunday Mr. Bloch-Laine and I got together with a view to seeing what was an appropriate step in connection with the orders that have been carried on more or less on an Anglo-French basis throughout and which we have in many cases had one Government sign something that was used in both our programs. That is right, isn't it, Mr. Bloch-Laine? For instance, an engine contract might serve two contracts for planes and 80 on. It was very important to us that we should get an assignment of that, we felt, at that time, and we therefore - therefore there were assignment agreements, documents, signed with which - whether they will come into force or not may depend upon the status of the French Government's situation 86 it -2develops. They are there as documents whereby we have bought or have obtained an assignment 193 of French quotas for aircraft, machine tools, munitions in general. Does that about describe it? H.M.Jr: The reason I asked these gentlemen in is, I need their technical assistance in handling of the gold and that is why I asked LeroyBeaulieu to be here, you see. Purvis: Well now, Mr. Bloch-Laine, is there any reason why I shouldn't speak of that letter? Bloch-Laine: There is no reason, Mr. Purvis. It is an agreement which we will enforce if we can and we will not enforce it if we can't. I don't think that is in my jurisdiction. We simply tried to do something -- Purvis: If it could be done, yes. That was in the form of a letter addressed by the British Purchasing Commission to the French State setting out that a payment might be made by the French State to the British equivalent to the unpaid balance for orders outstanding in the United States 80 that the British could make the necessary completion of those con- tracts with the contractors and that, in turn, the credit would be established in Canada equivalent to the amounts already paid by the French and such further amounts as were paid in such a way. Now that, as Mr. Bloch-Laine says, is a document that lies there. It could have force 1f it was wise from all viewpoints that it should have force. It need not have force if there 18 any feeling on the part of the vital parties concerned that it should not have force. Bloch-Laine: And we even went as far as seeing that it was enforceable, because I don't know whether anybody has the power to take that money in such amounts and transfer it - our friend Leroy-Benulieu has seen it and I think he has a say on this subject. It is really in his jurisdiction. Purvis: We tried to reach him and we couldn't, as a matter of fact. 194 -3Leroy-Beaulieu: I know. Purvis: H.M.Jr: We didn't have many hours to work this out and it was mostly done in the middle of the night, of course. Let me talk in terms of figures. As I understand it, letters have passed between you gentlemen addressed - the part, I take it, of the British -- Purvis: Purchasing Commission to the French State, H.M.Jr: In which you say, "Well, by _" for round figures we will say, "we will assume your outstanding contracts for munitions for 500 million dollars," just to use a round figure. "We also will pay you or reimburse which is the normal -- you for money advanced on these contracts. Purvis: Perhaps I haven't - in trying to state the steps I haven't perhaps shown the documents. May I reduce the steps to the documents and then - before we get to the comments that Mr. Leroy-Beaulieu will have on the gold side of it. There are two assignment agreements. First, whereby the French State agrees to assign to the British or the French Purchasing Commission agrees to assign, in that case, to the British Purchasing Commission, Ordnance contracts. One of those agreements was entirely on aircraft because the complications of the new aircraft program indicated that it was wise to have one agreement on aircraft alone. Then the second assignment, which is very similar in form and only details - only changes in detailed wording which is of no importance to this discussion, covers we put in aircraft again. Then we mentioned machine tools and munitions generally. That is the second document. Those are two parallel assignment agreements, however, simply covering different lines of orders. - 195 Then the third document is this letter which endeavored to create an obligation on the part of the French State to pay to the British Purchasing Commission a sufficient sum to take care of the balance of payments under the contracts, 80 that if it was possible for the gold, French gold, to be sold to take care of that obligation, we could give a credit corresponding in Canada if it suited everybody concerned. H.M.Jr: Purvis: That is the part I don't understand. I didn't get this last night and I don't get it now. Well now, let's - would you (Leroy-Beaulieu) like to put this -- H.M.Jr: I don't get it now, why the French sell their gold when you are buying something from them. That is the part I can't get. Bloch-Laine: Beg your pardon? H.M.Jr: What I can't understand, the English are buying something from the French and they have got to pay you, and they are going to pay you "X" hundreds of millions of dollars and give you a credit in Canada for that. That I can understand. Bloch-Laine: H.M.Jr: That would stop there. But what I can't understand is why, when they are buying something from you (Bloch-Laine), the French Government, Mr. Leroy-Beaulieu, should sell his gold. Purvis: Well, he hasn't sold it, of course, but the technicality was really this, that the people who had the power to sign for France in regard to the gold could only sell it to the extent that it was needed for purchases. Therefore, if it was needed for a purchase, because they were going to pay us a sum the next day to enable us to clear up the outstanding balances, theoretically -5- H.M.Jr: it was possible for them to sell the gold. But I still - you are buying and they are Purvis: It is a separate transaction. H.M.Jr: I mean you are buying something that they have got and you have got to pay them for it, I take it, and you are going to give them a credit in Canada. Now, I can understand that. Purvis: Well, we didn't put that in the original selling. document. That is merely an assignment document. The agreements are two assignment documents which don't speak of where we pay it. H.M.Jr: Well, I take it you will pay them somewhere. Purvis: Oh yes. Bloch-Laine: You are perfectly right. Purvis: In the United States. H.M.Jr: And where does the French gold come in? I mean, if they sell it - why does it enter into it at this time, that is what I can't understand. Bloch-Laine: Mr. Secretary, it doesn't have to come in. The gold is only in it in that it is used to make payments. H.M.Jr: But if you have sold all your contracts and you are relieved of your contracts -- Bloch-Laine: Those payments have got to go on. Yesterday I gave checks, but I didn't pay because the assets are frozen, but today there probably are installments due. Those contracts we can agree together to sell them. That was, as I said Sunday night, but it will take some time. Besides, we are not sure we will put that in force immediately. It depends very much on the trend of events. 196 -6197 H.M.Jr: But if you come to me today or Leroy- Beaulieu comes to me today or comes to Mr. Bell and says, "We have 80 many pay- ments, we want to get a license to pay for outstanding payments in America, I take it those things would go through the same day, wouldn't they? Bell: Foley: H.M.Jr: Bell: Or shortly thereafter. We cleared 7 million dollars worth of airplane payments for the French yesterday. You have got to draw me a picture. I think this 18 a means of getting this gold over. May I ask you if this is the case? I may use figures which are not right. Supposing the French have in this country 500 million dollars in contracts which are 50% complete and on which they have paid 250 million dollars. They owe 250 million dollars on those contracts Purvis: in theory. Now, I take it what you are the French will pay you in gold 250 million dollars of that unpaid part. In effect, yes. Bell: And you will give them a credit in Canada Purvis: Correct. Bell: You see he uses it as a means -- Purvis: It provides a structure so that can be doing is trying to draw up a means whereby for the 500 million, is that right? Bloch-Laine: done if it is desirable. And to the extent that it is desirable. H.M.Jr: I can understand that when you make it that simple. But let me ask you this. Would you (Bell) grant a license of that kind? Bell: Yes, I think 80. I wouldn't see any objection to that. 198 -7Purvis: That is a perfectly legal transaction. H.M.Jr: Ed? Foley: Sure. H.M.Jr: But that sort of thing, if it was going Foley: Right. H.M.Jr: They oughtn't to fool around with it, Foley: No, I shouldn't think so. The longer they H.M.Jr: Merle? Cochran: I think it should be done before there 18 H.M.Jr: Viner? Viner: It seems to me that the same authority that they have now can be withdrawn from them almost any day and that you (LeroyBeaulieu) can't have an assignment that will hold water after some changes are made in the French situation, 80 it seems to happen, the sooner the better. ought they? delay the more difficulty there may be about accomplishing it. any formal agreement on the other side. to me that the whole virtue of this arrangement would be lost of it isn't carried through. Leroy-Beaulieu: May I say something, Mr. Secretary? Please. It 1s your money. Leroy-Beaulieu: I think Mr. Purvis and Mr. Bloch-Laine were extremely wise in doing this on these contracts, and I appreciate very much what they both did. After having H.M.Jr: talked over with my Ambassador this morning and yesterday about this situation, I think that we have to separate the question of the contracts and the gold question. I think the Ambassador's idea -gis, as you have just stated, Mr. Secretary, that he doesn't seem to understand very well why if we sell something to the British we shall have to give them the money also. He is quite prepared, and we are also quite prepared, to make an agreement with them by which we send them our stuff and they credit us in Canada for the payments which we have already made, but as far as the gold which we have here in the Bank of France is concerned, we think - we must speak it once more, because we haven't concluded the examination, but I think the first reaction is that this is another question. We understand that what is underneath is to help the British as much as we can. H.M.Jr: I don't get it that way, but that is -- Leroy-Beaulieu: We think that the question of the gold in the Bank of France, gold here, and the question of the contracts are two different questions. We are quite prepared to make the payments under all contracts until they have been delivered to the British. We are willing to send them to the British but this scheme outlined in the second letter has not yet met the approval of the Ambassador. Purvis: And they are so drawn, as a matter of fact, so that that is perhaps one reason, Mr. Leroy-Beaulieu, in your absence yesterday, why we had the two assignment agreements on the one hand and a letter on the other because we realized we were moving into a field which invoked a separate and different transaction. I our angle as to its importance, but neverremain more convinced than ever, from theless I can see completely and absolutely that our angle may be a smaller angle than the French angle in the matter of their gold. Bloch-Laine: But I must say that personal ly, all I did was something which would make it feasible, 199 200 -9if it was thought advisable, because I haven't the power to do it and that was all really clear. Our arrangement is drawn in such a way that if we don't get the British - all the money necessary to pay for all those contracts, it still 18 just the same. Purvis: It is just the same as an assignment of goods. But the question of the gold thing has an importance of its own, and I do think that you expressed the view correctly when you said that the sands are running out in which a decision can be made. There is very short time in which the value of this third document can be made good. H.M.Jr: Well, the point is this: Granted that the two things had nothing to do with each other, but this gives a means of your placing this money in Canada. Foley: Purvis: H.M.Jr: That is the thing. That is the thing. And I hope the Ambassador sees it. Under the method through which we are handling it, here it 18 frozen and in Canada you CAN make whatever deal you want to and this 18 just A formula to get it out of here, which we are saying 1f you come today and say, "We would like to use this formula," I take it, Bell, and from what the lawyers and everybody say, they will release it, but you have got to move very much faster and it is just the thing that your people here have got - "Where is 250 million dollars more useful to us, in Montreal or in New York?" White: Or whether you are converting the gold asset into a British credit. The British gold asset might be subject to all sorts of pressure. Foley: Seizures. 201 - 10 White: Whereas - pressures in any case, whereas H.M.Jr: the money, it is a different story. Well, it 18 clear to me now. Purvis: We created the document. H.M.Jr: White: It is clear to me and I think it is damned smart from the standpoint of the Allies. It is very smart and it is a device that 18 vague enough to get out of a seizable asset a credit that can't be attached. In a rather legitimate proceeding. Foley: In a way that is related enough to what Foley: if the Canadian British Government holds we are trying to do 80 that it is obscured. Leroy-Beaulieu: May I ask some questions 80 that nothing remains in the dark? Is there a danger if the gold remains here that the German Government can seize it? H.M.Jr: I don't know. Viner: No, the danger would be that the German Bernstein: turn it over. That is right. That is the point. White: Government would have the French Government Leroy-Beaulieu: In that case you think you would have to -Well, they would put pressure on you. Foley: You have no excuse for not doing it. Purvis: Viner: You have got to protect that 80 that an order can't come from the Bank of France itself turning it over to the Germans. Leroy-Beaulieu: I think that would give a sequel to this order. - 11 Foley: Whether we would or wouldn't, we might Viner: You ought to protect yourself against us, not be able to do anything about it. We might be tied up in port. as well as against the Germans. Leroy-Beaulieu: But I thought the idea of freezing these assets was that Mr. Morgenthau was the trustee of these assets and wanted to prevent them from going to the Germans. Foley: That is the theory, but if an order was issued under duress by the Bank of France and an interest was asserted in this gold here, you might not be able to accomplish this because a suit might be started. The whole thing might be tied White: H.M.Jr: up in court and it would be too late. Well, there 18 that difference. The assumption is that -- May I make a suggestion? This conversation is getting to be full of dynamite. I think that Leroy-Beaulieu ought to go and talk with some of these people in another part of the Treasury. Leroy-Beaulieu: Yes. H.M.Jr: Because it is, and I may say - well, talk it over with them in some other part of the Treasury, see, than this room. Leroy-Beaulieu: Yes, I see. Because I think that we have gone about H.M.Jr: as far as we can in pointing out to you. that this can be done and if you people We have gone 100% in pointing out to you don't see it, it is just too bad. Leroy-Beaulieu: Yes. H.M.Jr: If the Ambassador doesn't see it, it is just too damn bad, but he has got to make up his mind today. 202 - 12 Leroy-Beaulieu: We will have a talk with this new light thrown on the subject. H.M.Jr: Yes, because all I can say is, you once asked me what I would do if I were the Minister of Finance of France. I told you what I would do in September. I wouldn't hesitate now, either. This is a very nice little way out that these gentlemen have worked, and as of today, it is perfectly legal and proper. White: How much is involved, Mr. Secretary, approximately? H.M.Jr: I don't know. Leroy-Beaulieu: Five hundred million. White: Half a billion? Leroy-Beaulieu: Yes. H.M.Jr: So why don't we - I tell you, why doesn't Leroy-Beaulieu and - where should they meet? Bell: He can come in my office, if he wants to. H.M.Jr: That is fine. Why don't they go into your office? Do you (Bloch-Laine) want to go with him? Bloch-Laine: Do you want me in? Leroy-Beaulieu: I would love to have you. H.M.Jr: Purvis: I can talk a little bit with Mr. Purvis about regular business. Not the Bank of France. 203 204 June 18, 1940 10:30 a.m. RE ALLIED PURCHASING PROGRAM Present: Mr. Purvis Mr. Nelson Mr. Ballantyne Mr. Young H.M.Jr: Is there any other business we have? Purvis: The only other thing that 18 worrying me at all, I understood that we have under request of all people on the other side, as you know, under this assignment agreement, acquired the right to the machine tools of France, too. Now, we had always presumed in our own minds that we would look through these contracts with a view to seeing where they can be used, but on the other hand we are up against action on the part of - there is a letter which has been handed to me as I entered the room which would indicate that Mr. Vance may have moved H.M.Jr: Who is Vance? Purvis: Knudsen's machine tool man, isn't he? Nelson: He 18 the man from Studebaker. He is handling machine tools for Knudsen. Purvis: I think they haven't realized, you see we couldn't publish this yet. We thought that -I told him, "Why didn't you tell me just Nelson: exactly what you were going to do?" Purvis: I think it is just a question of getting it to the ports. -2H.M.Jr: Nelson: Purvis: 205 Well, it is a stupid telegram, damn stupid. Stupid as Hell. It may create - the only thing I am worried about is this, that if France tells those people that the French Government now - that they have got no orders, that atmosphere may be given out to a lot of other contractors for other articles and products in United States. Now, that might cause a breakdown of the Allied situation. H.M.Jr: I think it is important enough that I had better call up Knudsen myself and ask him to see you, Nelson, and right away. Nelson: All right. Purvis: It has a broader field than machine tools. One of the machine tool presidents is in the building now. I had dinner with him Nelson: last night. He is in Sullivan's office. H.M.Jr: Who, Vance? Nelson: No, I say the president of this association, H.M.Jr: Nelson: Bill Kelly. I had dinner with him last night. I think it is a stupid telegram. I will take care of it. H.M.Jr: I just want to impress the importance of the thing. Purvis: It might also create a general feeling in the minds of the contractors here which might be very dangerous. Nelson: Knudsen called me this morning, and I told him that until we got official confirmation from you we were to assume that you would take them over. Purvis: That is the common sense point of view. As you see, the documents have alrendy been made. 206 -3Nelson: That 18 right. H.M.Jr: He is out for a few minutes. I want to keep this and then I will shoot it in to you. (Nelson). I want of this.to impress on him the broad importance Purvis: There is one other thing before you speak with Mr. Knudsen. The Ford contract for engines. We have visualized, of course, the question, because of the reports in the newspapers of Ford also making airplane frames. I don't know whether it 18 a practical matter or not. H.M.Jr: Purvis: I don't either. I just wanted to tell you that when the question was raised by the British Government through reading in the papers that this was coming along, they asked us whether we shouldn't approach immediately the Ford Company. I took the stand that we should not, that this was a case of a cooperative thing with the United States. I am not going to move under any circumstances with Ford except under the direction of the United States Administration. Nelson: That is perfectly right. Purvis: They have cabled back agreeing to my stand, but nevertheless they asked me whether I wouldn't approach you with a view to your doing anything that you think 18 wise in regard to this aircraft frame matter with Ford, or, I suppose, anyone else. Nelson: I will handle that. The aircraft frame matter will be handled. It was necessary to get the engines going first because of the machine tools. Purvis: And I was glad to be able to tell them last night - I had Lord Beaverbrook send a message saying that we would take the French portion also. That brings it up to six thousand. 4- 207 Iofthink we have done a good and quick job work. Nelson: You certainly have, splendid. Mr. Knudsen H.M.Jr: I talked to him last night. Nelson: Because that was a question he asked me yesterday. H.M.Jr: I spoke to him about nine o'clock last night. Nelson: Good. H.M.Jr: Well, if that is all, I just want to have Nelson: All right, sir. H.M.Jr: And I will send this to you. has been notified, I think you said. a minute with Mr. Purvis alone. 208 WALLACE CLARK & COMPANY 15 Broad Street, New York. June 17, 1940. The French Purchasing Commission, 15 Broad Street, New York, N. Y. Attention: Capt. J. Maillet. Dear Capt. Maillet: We have information from a reliable machine tool builder that his company received the following telegram from the National Machine Tool Builders' Association: "VANCE ADVISES FRENCH CAPITULATION WILL UNDOUBTEDLY RESULT CANCELLATION ALL FRENCH ORDERS BUT REQUESTS THAT MACHINE TOOL PRODUCTION CONTINUE FULL SPEED. HE RECOMMENDS THAT IF FRENCH ORDERS NOT YET ON ASSEMBLY FLOOR GIVE PREFERENCE TO DOMESTIC ORDERS IF ON ASSEMBLY OR FINISHED SEND QUOTATION OR COMPLETE DESCRIPTION AIRMAIL H.S. VANCE MACHINE TOOL CO-ORDINATING COMMITTEE FEDERAL RESERVE BUILDING WASHINGTON MENTIONING DELIVERY DATES ALSO SPECIAL FEATURES VANCE WILL SEE IF MACHINES CAN BE USED ON GOVERNMENT PROGRAM WILL SEND FURTHER ADVICES AFTER HIS COMMITTEE MEETS ON WEDNESDAY". We believe it 18 safe to assume that if this telegram was sent to one member of the Association, it was sent to all members. Sincerely yours, WALLACE CLARK & COMPANY RAW/m given me by 209 12, , 1919YO. magnitimith Jane from June 18, 1940. MEMORANDUM for the Secretary of Bars Subjects Transfer to British of 12 Flying Fortress type planes (B-17) On hand today Due for delivery this summer 52 2 Time required to replace 12 planes - December 1940 This is the only efficient bomber we now possess. Our B-18's have a speed under 200 miles, and are poorly armed. Our secret bonbsight is built into the plane. The next most efficient sight, - the Sperry, would require four months for installation. The Estoppay - an inferior sight - would require two months to install. We have recognised the urgent necessity for locating a few of these planes in Hamuii, but have not done so because of the small number available. They must also be held available for the defense of the Canal Zone and the Caribbean areas. Recommendation It is the unanimous opinion of the Bar Department officers concerned, that it would be seriously prejudicial to our own defensive situation to release any of these ships. Chief of Staff. 210 June 18, 1940 11:30 a.m. Present: General Arnold Admiral Towers Mr. Young Mrs. Klotz HM? JR: I have a confidential cable from Kennedy which reads as follows: "I talked with Beaverbrook last night if he were able to arrange it would United States be interested in jigs and tools for construction of Baker Dash one three nine, an improved bomber Albemarle, wood frame fast day bomber, and Tornado, fast fighter X due present conditions we might be able get large supply jigs and tools which would expedite production these units x Before pressing matter should like to make sure of your interest. Does that mean anything to you? Gen. Arnold: Yes, I understand it. He is offering us the Albemarle, the Tornado, and jigs and tools. There would have to be an additional source found somewhere. I am afraid it would muddy the water. HM, Jr: Knudsen and I agreed that we would not try to put anything into production for the Allies that we ourselves could not use. What harm would there be to ask for the plans? Gen. Arnold: If there are no strings tied to it, I should think that we could ask for the plans and look them over. If we try to put these in our existing industry HM, Jr.: Out at Dayton you have plans for the Merlin and the engines for 1942. I take it that your people are studying them. You also have the Halifax bomber. We may learn something from that. Gen. Arnold: If there are no strings at- tached to the Albemarle, I should think we could learn something from it. HM, Jr.: But not the jigs and tools? of course, you understand I am not trying to force anything on you. -2- 211 Gen. Arnold: No, I understand. Our people are learning a great deal already from the Rolls Royce. HM, Jr.: I will send a cable asking for the plans on the Albemarle bomber, but not the jigs and tools. "After talking with Gen. Arnold and Admiral Towers we would be glad to receive detailed drawings for both airplanes mentioned your cable June seventeenth. Doubt if we can use jigs and tools in United States, but they might be glad to receive them for use in Canada. I asked for the Hispano Suiza engine and I received the following cable: "with regard to Bullitt's earlier telegrams concerning the Hispana Suiza motors, I am now informed that the two complete engines with superchargers were sent by Mat Ford on June 14 on the S.S. Ile de Re addressed to the Ford Company and due in New York about the twenty-ninth of June. The engines are accompanied by two Mat Ford reps. Please have War and Treas. Depts. notified.' We will have to wrangle those out of the Ford Co. These two engines will go out to Dayton. 212 June 18, 1940 My dear Admiral Noyes: I would appreciate it if you would send, in secret Navy code, the following message to Ambassador Kennedy: QUOTE After talking with General Arnold and Admiral Towers we would be glad to receive detailed drawings for both airDoubt if we can use jigs and tools in United States, but they might be glad to receive planes mentioned your cable June seventeenth. them for use in Canada UNQUOTE Yours sincerely, Rear Admiral Leigh Noyes, U.S.N., Director of Naval Communications, Room 2622 Navy Building, 18th and Constitution Avenue. 213 June 18, 1940 My dear Admiral Noyes: I would appreciate it if you would send,in secret Navy code, the following message to Ambassador Kennedy: QUOTE After talking with General Arnold and Admiral Towers we would be glad to receive detailed drawings for both air. planes mentioned your cable June seventeenth. Doubt if we can use jige and tools in United States, but they might be glad to receive them for use in Canada UNQUOTE Yours sincerely, Rear Admiral Leigh Noyes, U.S.N., Director of Naval Communications, Room 2622 Navy Building, 18th and Constitution Avenue. 214 June 18, 1940 My dear Admiral Noyes: I would appreciate it if you would send,in secret Navy code, the following message to Ambassador Kennedy: QUOTE After talking with General Arnold and Admiral Towers we would be glad to receive detailed drawings for both air planes mentioned your cable June seventeenth. Doubt if we can use Jige and tools in United States, but they might be glad to receive them for use in Canada UNQUOTE Yours sincerely, Rear Admiral Leigh Noyes, U.S.N., Director of Naval Communications, Room 2622 Navy Building, 18th and Constitution Avenue. 215 CECRET WASHINGTON D.C. 17 JUNE 1940 FOR THE HONORABLE SECRETARY OF TREASURY FROMO MR KENNEDY I TALKED WITH BEAVERBROOK LAST NIGHT IF HE WERE ABLE TO ARRANGE IT WOULD UNITED STATES BE INTERESTED IN JIGS AND TOOLS FOR CONSTRUCTION ALBEMARLE OF BAKER DASH ONE THREE NINE AN IMPROVED BOMBER ALBERMARLE WOOD FRAME FAST DAY BOMBER AND TORNADO FAST FIGHTER X DUE PRESENT CONDITIONS WE MIGHT BE ABLE GET LARGE SURRL SUPPLY JIGS AND TOOLS WHICH WOULD EXPEDITE PRODUCTION THESE UNITS X BEFORE PRESSING MATTER SHOULD LIKE TO MAKE SURE OF YOUR INTEREST TOR CODEROOM 1330 SECRET ANGLO-FRENCH PURCHASING BOARD NEW YORK: 15 BROAD STREET WASHINGTON 725 15th ST., N. W. This letter from Washington, D.C., June 18, 1940. The Honourable Henry Morgenthau Jr., Secretary of the Treasury, Washington, D.C. My dear Mr. Morgenthau: Thank you for your letter of June 7, 1940 in which you indicate to us the possibility of obtaining the services of Professor A. Gaudin of the Department of Metallurgy, Massachusetts Institute of Technology. Our chances of taking advantage of his services have been considerably diminished due to recent circumstances, but I will endeavour to find out if there is some way in which we can use him. Sincerely, arthur Hine ABP:AEI 216 TREASURY DEPARTMENT 217 INTER-OFFICE COMMUNICATION DATE June 18, 1940. Secretary Morgenthau TO FROM Mr. Foley There is attached hereto a revised form of agreement intended to carry into effect the plan of financing plant extensions in connection with the national defense program as proposed by Mr. Knudsen last Thursday, June 13, with the modifications suggested in your office on Friday, June 14. The tentative draft agreement contemplates that a corporation called the "Defense Finance Corporation", created by the Reconstruction Finance Corporation pursuant to Senator Glass' bill (S. 3938), if enacted into law, will finance a corporation, deemed for purpose of the agreement to be an aircraft engine manufacturer, in acquiring land, constructing a plant upon the land, and purchasing machinery and equipment for the plant. To finance this project, the Defense Finance Corporation makes the manufacturer a loan bearing interest at 3%, secured by a direct first mortgage upon the project. This mortgage is the sole security for the loan, it being expressly agreed that the credit of the manufacturer is not to be pledged to the payment of the loan. The amount of the loan would be spread over the total engines produced so that the sales price of each engine would include its pro rata share of the loan. The loan would then be repaid in quarterly installments according to the number of engines produced and sold either to the United States or to a foreign government. For example, if a manufacturer borrowed $1,000,000 to purchase machinery for his plant to produce 1,000 planes, the sum of $1,000 would be added to the normal sales price of each plane. If in the first 3 months 100 planes were produced, then the manufacturer would repay $100,000 on his loan. If only machinery or other personal property is acquired, the loan will be secured by a chattel mortgage, the purpose of the plan being to vest title in the manufacturer but to permit the Government corporation to take over the machinery and equipment in the event of a default. Under the draft agreement if the Government of the United States, or of a foreign country, should cancel its contracts with the manufacturer and the engines covered by such contracts are not sold at the same price within 6 months, then, if the manufacturer warrants that it will discard the buildings or machinery from use in its business, the Defense Finance Corporation will forgive the payment of that proportion of the loan which is allocable to the unmanufactured or unpaid for engines. -2- 218 For example, in the case given above, if after 500 of the 1,000 engines contracted for had been delivered, the order was cancelled and neither the United States nor anyone else assumed the order, then the manufacturer could discard his plant or machinery and assuming this is done and the plant has no value, the unpaid balance of $500,000 would be forgiven. Since only half of the engines were delivered, only half of the loan would have to be repaid. Of course, to the extent the plant or machinery had a residual or salvage value, the debt would have to be repaid, or the Government could foreclose and take over the abandoned property. Under Mr. Knudsen's plan, manufacturers could borrow money only for standard types of equipment which could be used in the manufacture of planes or other armament for the War and Navy Departments, and this is covered also in the draft agreement. It may be well to point out that the amount of the debt forgiven, if the contracts should be cancelled, would be taxable income. However, if the plant or equipment were permanently discarded, there would be an offsetting allowance for loss of useful value equal to the difference between the cost of the plant and its salvage value. Depreciation and obsolescence under the income tax law and under the Vinson-Trannell Act are treated in accordance with existing regulations. The above provisions are all contained in Part 1 of the draft agreement. The procedure for financing the acquisition of the land, buildings and machinery is covered by Part 2 which provides that from time to time after the execution of the agreement the engine manufacturer will file requisitions with the Defense Finance Corporation requesting advances on account of the loan, each of which will be accompanied by a signed statement of purposes showing the use to which such advances will be put. If the requisition is satisfactory in form and substance, sufficient funds for the carrying out of the project for a reasonable period will be advanced. The engine manufacturer will deposit the money so received in a separate account in a bank which is a member of the Federal Reserve system and the Federal Deposit Insurance Corporation and which is satisfactory to the Defense Finance Corporation. The manufacturer agrees to expend such moneys only for the purposes specified in a requisition and approved by the Defense Finance Corporation, the purpose being to safeguard adequately the use of funds loaned without the delay incident to preaudits. Part 3 of the draft agreement relates to working capital. It provides that while the engines are being manufactured the Defense Finance Corporation will stand ready to provide working capital by purchasing from the engine manufacturer at par negotiable general obligation unsecured notes payable in 6 months and bearing interest at the rate of 2% per annum payable semi-annually. The maximum amount of such notes will be a specified percentage of the estimated cost of the labor and materials employed by the manufacturer in producing the engines. 21S -3- The agreement provides that if the engine manufacturer receives any other funds from the Government for working capital, such as, for example, advances by the War and Navy Departments, the amount of working capital notes agreed to be purchased by the Defense Finance Corporation shall be reduced or retired accordingly. The suggestions which you made requiring manufacturers financed under this plan to comply with the Walsh-Healey Act in producing engines, irrespective whether such engines are manufactured and sold to the United States or to foreign governments, are included in Part 4 of the draft agreement. This Part also incorporates your suggestion limiting to 12% of the contract prices profits of manufacturers for all contracts to manufacture engines irrespective whether such engines are sold to the United States or to foreign governments. The manufacturer also agrees to secure from foreign governments agreements saving the Defense Finance Corporation harmless from loss of all or any part of funds advanced under the agreement, due to the cancellation by any foreign government of any contracts with the manufacturer. In this way the same draft agreement can be used whether manufacturers are building engines for the War and Navy Departments or for the British government but the Defense Finance Corporation would be protected against loss, even though it agrees to forgive the indebtedness of the engine manufacturer to it to the extent of any such cancellation. Mr. Nelson's suggestion giving the Government the option to purchase for $1 any gauges, dies, jigs, tools, fixtures and patterns, the cost of which has been included in the sales prices of the engines is included as $13 on page 13 of the draft agreement. Part 5 of the agreement contains special conditions requiring the manufacturer to furnish certain information, providing that the Defense Finance Corporation shall not be obligated to pay expenses incurred by the manufacturer in performing its duties under the agreement, prohibiting the admission of any members of Congress in the benefits of the agreement, giving the Defense Finance Corporation the right to cancel the agreement if the manufacturer delays unreasonably in proceeding with the expansion of his plant, requiring the manufacturer to carry insurance upon the plant, listing the conditions precedent to the obligations of the Defense Finance Corporation to make any loan or purchase working capital notes, containing the representations and warranties of the engine manufacturer and providing how the agreement shall be construed. Although the agreement is, of course, still in a very preliminary stage, I think it is now sufficiently rounded out to furnish the basis for initial discussion with the various agencies concerned and possibly also with the two leading aircraft engine manufacturers. Draft of June 17, 1940 AGREEMENT dated as of June 30, 1940, between the DEFENSE FINANCE CORPORATION, 1 220 (herein called the "Lender") a corporation created by the Reconstruction 2 3 Finance Corporation and the 4 (herein called the "Borrower"), a corporation organized under the laws of the 5 6 State of . 7 8 PART ONE. 9 General Provisions 10 11 1. Preliminary. With a view to increasing its capacity for 12 the production of aircraft engines and facilitating the delivery 13 thereof at an accelerated rate of production, the Borrower con- 14 templates (a) the acquisition of a title in fee to a tract of vacant 15 land, of approximately 16 bounded by 18 19 20 21 , 17 acres, included within that area (b) the construction upon said tract of a manufacturing plant, consisting substantially of , and (c) the purchase of standard and special machinery, including but not limited to jigs, tools, dies, fixtures, and patterns, for the production of said engines, but exclud- 22 ing machinery not usable for the production of said engines of types 23 and models approved for purchase by the United States of America or 24 any department, agency or instrumentality thereof (herein called the "Government"). The acquisition of said land, the construction of said --26 manufacturing plant, and the purchase of said machinery are herein 221 27 collectively called the Project. In order to carry out the Project 28 the Borrower has made application to the Lender to aid in financing 29 the Project as a part of the national defense program. Said ap- 30 31 plication has been approved by the Lender, and to aid the Borrower in carrying out the Project the Lender agrees to lend to the Bor- 32 rower, and the Borrower agrees to borrow from the Lender, an amount 33 equal to the cost of the Project as approved by the Lender but in 34 no event to exceed the sum of $ 35 the "Loan"). 36 (herein called 2. The Loan. and the Mortgage. The Loan shall be secured by 37 a mortgage which shall constitute a direct first mortgage upon the 38 Project and any property hereafter acquired for reconstructing, 39 replacing, or repairing the Project or any part thereof. The mort- 40 gage shall be the sole security for the Loan, it being expressly 41 agreed and understood that the full faith and credit of the Borrower 42 shall not be deemed pledged to the payment of the Loan. The mortgage 43 shall be substantially in the form of Exhibit A hereto annexed, with 44 such changes as the Lender shall approve. Except as expressly pro- 45 vided to the contrary, all of the covenants and agreements of the - 46 3 Borrower, as set forth in the mortgage, shall be considered a part 222 47 of this Agreement and shall constitute covenants and agreements by 48 the Borrower with the Lender. A prorated portion of the Loan has 49 been included by the Borrower in the sales prices of the aircraft 50 engines which the Government has agreed to purchase, or has an 51 option to purchase from the Borrower under the contracts identified 52 in the schedules contained in Exhibit B hereto annexed, plus the 53 aircraft enginee which the governments of 54 (herein called "Foreign governments") have agreed to purchase, or 55 have options to purchase under the contracts identified in the 56 schedules contained in Exhibit C hereto annexed according to the 57 aggregate number of all such aircraft engines. The aircraft engines 58 covered by the contracts identified in such schedules in Exhibit B 59 and Exhibit C, are herein called "Engines". The Borrower hereby 60 covenants and agrees to pay or cause to be paid to the Lender within 61 one month after the close of each quarterly period of three months, 62 beginning with the quarter ending September 30, 1940, on account of 63 the Loan a sum equal to the prorated portion of the Loan included in 64 the sales price of each of the Engines multiplied by the number of 65 Engines delivered by the Borrower to the Government or Foreign --66 67 governments during each such quarterly period, together with interest thereon, at the rate of three per centur per annun, payable quarterly, 223 68 in accordance with the payments on account of the Loan, until either 69 (a) the amounts so paid on account of the Loan shall equal the sum 70 of (1) the aggregate principal amount thereof as provided in para- 71 graph 1 hereof, and (2) the interest thereon as provided in this 72 paragraph 2 plus interest at the same rate on any unpaid install- 73 ments of interest, or (b) the Lender shall forgive the payment of 74 75 all or any part of the Loan as provided in paragraph 3 hereof. 3. Forgiveness upon Cancellation. The Lender hereby covenants 76 and agrees to forgivo the payment of all or any part of the Loan which 77 shall be outstanding and unpaid but not due or in default if: 78 (a) The Government or Foreign governments should cancel 79 any contract or contracts with the Borrower for the 80 manufacture and sale of Engines for any reason other 81 than a material breach of such contract by the Borrower; 82 (b) The Engines covered by such contract or contracts 83 should not be sold or a contract or contracts for the 84 sale thereof entered into by the Borrower at the sales 85 price payable by the Government or Foreign governments under the contract or contracts 80 cancelled 86 87 88 89 within a period of six months after such cancellation; and (c) The Borrower should submit to the Government a 90 resolution of its board of directors determining 91 that the use of the Project will no longer be re- 92 93 94 quired by the Borrower and warranting that the Borrower will promptly and permanently abandon the Project and discard it from use in its business; 95 on the basis of the proportion which the number of the Engines 96 covered by the contract or contracts 80 cancelled which have not 97 been sold or agreed to be sold as provided in clause (b) of this 98 paragraph 3 bears to the sum of (1) the number of the Engines 99 covered by said cancelled contract or contracts plus (2) the number 100 of the Engines covered by the contracts with the Government and 101 Foreign governments which are performed and not so cancelled, less 102 the fair market value of the Project BO abandoned and discarded. 103 PART TWO. 104 105 106 224 Carrying Out the Project. 4. Time of Essence. When this Agreement has been executed, the Borrower (unless it has already done so) shall promptly take 6- 107 all proceedings necessary to acquire the lands, construct the buildings, 108 purchase the machinery, and otherwise start the Project, and shall 109 continue the Project to completion with all practicable dispatch in 110 an efficient and economical manner. The Borrower hereby covenante 111 and agrees that time is of the essence of this Agreement and repre- 112 sents that it is ready, willing and able to perform its duties and 113 obligations hereunder expeditiously. 114 5. Requisitions. From time to time after the execution of 115 this Agreement, the Borrower shall file a requisition with the Lender 116 requesting the Lender to make an advance on account of the Loan. 117 Each requisition shall be accompanied by such documents as may be 118 requested by the Lender (a requisition together with such documents 119 being herein collectively called a "Requisition"). If a Requisition 120 requesting the Lender to make such payment is satisfactory in form 121 and substance to the Lender, the Lender within a reasonable time after 122 the receipt of such Requisition, will make an advance in such amount 123 - as will provide, in the judgment of the Lender, sufficient funds for 124 125 126 the carrying out of the Project for a reasonable period. Every request for an advance on account of the Loan must be accompanied by a signed statement of purposes in which the Borrower must certify in 225 --127 reasonable detail the purposes for which the advance requested will 128 be used, and by other documents supporting the request. A schedule 129 of such other documents to be submitted by the Borrower to the Londer 130 at the time that the first such advance on account of the Loan is 131 requested is contained in Exhibit D annexed hereto. A schedule of 132 such other documents to be submitted by the Borrower to the Lender at 133 the tine that the second and subsequent advances on account of the 134 Loan are requested is contained in Exhibit E annexed hereto. All 135 advances on account of the Loan shall be made at a Federal Reserve 136 Bank to be designated by the Lender or at such other place or places 137 as the Lender may designate, against delivery by the Borrower of such 138 additional documents as may be requested by the Lender. The Lender 139 shall be under no obligation to make any advance on account of the 140 Loan beyond the amount which in the judgment of the Lender is needed 141 by the Borrower to carry out the Project. '142 226 6. Project Accounts. The Borrower shall deposit all moneye 143 received from the Lender pursuant to paragraph 5 hereof promptly upon 144 the receipt thereof in a separate account or accounts in a bank or 145 banks which are members of the Federal Reserve System and of the 146 Federal Deposit Insurance Corporation and which shall be satisfactory 147 at all times to the Lender. Each of such accounts is herein a 148 "Project Account". The Borrower shall expend the moneys in a Pro- 149 ject Account only for such purposes as shall have been previously 150 specified in a Requisition filed with the Lender and as shall have 151 been approved by the Lender. Payments for carrying out the Project 152 shall be made only from a Project Account. Any moneys remaining un- 153 expended in a Project Account after the completion of the Project 154 which are not required to meet obligations incurred by the Borrower 155 in carrying out the Project shall be applied to the payment of the 156 Loan. 15 158 159 227 PART THREE Working Capital. 7. Working Capital Notes. During the period in which the 160 Project is being carried out and the Engines are being manufactured, 161 and subject to the terms and conditions of this Agreement, the Lender 162 will, in addition to the Loan, aid the Borrower in financing the 163 manufacture, assembly, and testing of the Engines for delivery to 164 the Government and to Foreign governments by providing working capital, 165 and for that purpose the Lender will purchase at par, and the Borrower 166 will sell at par, negotiable, general obligation, unsecured notes -9- 167 (herein called "Working Capital Notes"), in a principal amount not percent of the estimated cost of 168 exceeding in the aggregate 169 the labor and materials to be employed by the Borrower in the manu- 170 facture, assembly and testing of the Engines. The determination by 171 the Lender of the estimated cost of such labor and materials shall 172 be conclusive. The Working Capital Notes shall be payable six months 173 from the date thereof, shall bear interest at the rate of 2 per centure 174 per annum, payable semi-annually, and shall substantially in such form 175 as set forth in Exhibit F annexed hereto. 176 228 8. Requisition for Purchase of Notes. At any tine after the 177 execution of this Agreement the Borrower may file a Requisition with 178 the Lender requesting the Lender to purchase Working Capital Notes. 179 If such Requisition is satisfactory in form and substance to the 180 Lender, the Lender within a reasonable tine after the receipt of such 181 Requisition, will purchase Working Capital Notes in such amount as 182 will provide, in the judgment of the Lender, sufficient funds for the 183 purposes for which the proceeds from the sale thereof will be used for 184 a reasonable period, but not to exceed the percentage of the estimated 185 cost of the labor and materials to be employed in the manufacture, 186 assembly and testing of the Engines stated in paragraph 7 hereof. 187 The payment for the Working Capital Notes will be cade at a Federal 188 Reserve Bank to be designated by the Lender, or at such other place 189 or places as the Lender may designate, against delivery by the Bor- 190 rower of the Working Capital Notes, together with such documents as 191 may be requested by the Lender. 192 229 9. Other Working Capital from the Government. If the Borrower 193 shall receive any funds from the Government, other than from the sale 194 to the Lender of Working Capital Notes, to aid the Borrower in financ- 195 ing the manufacture, assembly, and testing of the Enginee for delivery 196 to the Government or to Foreign governments by providing working capital, 197 to the extent that such funds are so received, the aggregate principal 198 amount of the Working Capital Notes agreed to be purchased by the Lender 199 in paragraph 7 hereof shall be reduced, or, if already purchased by 200 the Lender in the maximum amount, to the extent that such funds are 201 80 received, the Borrower will apply the same to the redemption of 202 Working Capital Notes. 203 204 205 206 PART FOUR Provisions as to Engine Contracts. 10. Wage and Hour Provisions. The Borrower hereby covenants and agrees that in the manufacture, assembly and testing of the Engines - 11 207 it will comply with all laws and all orders, rules and regulations 208 issued pursuant thereto to which the Borrower would be subject if the 209 Engines were manufactured under contracts made and entered into by 210 the Government or to which the Government is a party, requiring, 211 involving or relating to (a) the employment of persons in the manu- 212 facture or furnishing of materials, supplies, articles, and equip- 213 ment used in the performance of such contracts, OF (b) the service 214 or employment of laborers or mechanics upon a public work of the 215 Government, irrespective of whether the Engines art manufactured for 216 or sold to the Government or are manufactured for CC sold to Foreign 217 governments; and all such laws, orders, rules and regulations shall 218 be equally applicable to the contracts identified in the schedules 219 contained in Exhibit C hereto annexed as to the contracts identified 220 in the schedules contained in Exhibit B hereto annexed. and the Borrower 230 221 hereby covenants and agrees to comply therewith as if : laws, orders, 222 rules and regulations had been set forth in full as a covenant by the 223 Borrower in this paragraph 10 of this Agreement. 224 11. Profit Limitation. The Borrower hereby covenants and agrees 225 to pay to Foreign governments with which it has entered into the con- 226 tracts identified in the schedules contained in Exhibit C hereto 227 annexed, all profit in excess of the percentage of the total contract 228 prices for the Enginee which the Borrower would have been required to 231 229 pay into the Treasury of the United States as excess profit under the 230 Act of May 27, 1934 (48 United States Statutes at Large 505), as 231 amended, if such contracts had been made by the Secretary of the Navy 232 for the construction and/or manufacture of any complete aircraft, or 233 any portion thereof, and the method of ascertaining the amount of such 234 excess profit to be paid to Foreign governments shall be determined 235 in the same way as it would have been determined if the contracts 236 identified in the schedules contained in Exhibit C hereto annexed had 237 been entered into with the Secretary of the Navy; and all the provisions 238 of section 3 of said Act, as amended, shall be equally applicable with 239 respect to contracts for the Engines, irrespective whether the Enginee 240 are manufactured for or sold to the Government or are manufactured or 241 sold to Foreign governments, and the Borrower hereby covenants and 242 agrees to comply therewith as if such section had been set forth in 243 full as a covenant by the Borrower in this paragraph 11 of this Agree- 244 nent; it being the intention of this paragraph 11 to limit the profit 245 of the Borrower to 12 percent of the total contract prices for all 246 Engines covered by the contracts identified in the schedules contained 247 in Exhibit D and Exhibit C hereto annexed. 13 248 12. Indennification. The Borrower hereby covenants and agrees 249 that it will obtain binding and legal agreements from each of the 250 Foreign governments with which it has contracts identified in the 251 schedules included in Exhibit C annexed hereto, said agreements to be 252 in formsand substance satisfactory to the Lender, under which such 253 Foreign government - grees to indennify and save the Lender harnless 254 from loss of all or any part of the Loan, or arising from the making 255 thereof or from the purchase of the Working Capital Notes, due to the 256 cancellation by such Foreign government of any of such contracts 257 for any reason other than the caterial breach thereof by the Borrower. 258 13. Option as to Dies. The Borrower hereby covenants and agrees 232 259 that it will sell to the Government and that the Government may, at the 260 option of the Government, at any time purchase or otherwise procure for 261 the sum of one dollar, payable at the principal place of business of 262 the Borrower, and that the Borrower will convey to the Government good 263 title to such gauges, dies, jigs, tools, fixtures, and patterns as may 264 be used or usable in the manufacture, assembly, or testing of the 265 Engines: Provided, That an amount equal to the cost of such guages, 266 dies, jige, tools, fixtures, and patterns has been included by the 267 Borrower in the sales prices of the Engines. The Borrower hereby 268 further covenants and agrees that it will not include any part of the 269 cost of such guages, dies, jigs, tools, fixtures and patterns in the 270 sales prices of the Engines unless the state of the title of the 271 Borrower in said guages, dies, jigs, tools, fixtures, and patterns, 272 is and will be such that the Borrower will always have and maintain 273 good right and lawful authority to comply with this paragraph 13 of 274 this Agreement. 275 276 277 233 PART FIVE Special Conditions. 14. Information. During the carrying out of the Project, the 278 Borrower will furnish to the Lender all such information and data as 279 the Lender may request as to the carrying out, cost, progress, and 280 disposition thereof. The Borrower shall report, or cause to be reported, 281 to the United States Department of Labor monthly, within five days after 282 the close of each calendar month upon forms to be prescribed, and in 283 accordance with instructions to be furnished, by the United States 284 Department of Labor, covering the number of persons on payrolls directly 285 connected with the Project, the aggregate amount of such payrolls and 286 the nan-hours worked, and an itemized statement of the total expenditures 287 for materials. The Borrower shall also furnish, or cause to be furnished, - 15 - 288 at the earliest date practicable, to the United States Department of 289 Labor all the names, and addresses of all contractors and subcontractors 234 290 engaged in carrying out the Project. 291 15. Expenses. The Lender shall be under no obligation to pay any 292 costs, charges or expenses incident to compliance with any of the duties 293 or obligations of the Borrower hereunder including, without liniting 294 the generality of the foregoing, any legal, engineering or accounting 295 costs, charges or expenses incurred by the Borrower. 296 16. Interest of Members of Congress. No member of or delegate to 297 the Congress of the United States of America shall be admitted to any 298 share or part of this Agreement, or to any benefits arising therefron. 299 17. Undue Delay by the Borrower. The Lender shall have the right 300 to cancel this Agreement and annul any obligation to nake the Loan or 301 purchase Working Capital Notes if the Borrower shall delay for an un- 302 reasonable time in carrying out any of the duties or obligations to be 303 performed by the Borrower hereunder, or unless the Borrower shall 304 within a reasonable tine (a) file Requisitions with the Lender in ac- 305 306 cordance with the provisions hereof and (b) commence or cause to be commenced, and carried on with due expedition, the entire Project. - 16 - 307 18. Insurance. The Borrower hereby covenants and agrees to carry 308 insurance of such types and in such amounts upon the Project or any 309 part thereof as the Lender pay request. 310 19. Conditions Precedent to the Lender's Obligations. The Lender 311 shall be under no obligation to make the Loan or purchase Working 312 Capital Notes: 313 (a) If in the judgment of the Lender the financial condition 314 of the Borrower shall have changed unfavorably in a 315 material degree from the condition as theretofore 316 represented to the Lender; 317 (b) If the Lender shall not be satisfied that the Borrower 318 will be able to carry out completely the Project for the 319 sur of $ 320 to obtain in a manner satisfactory to the Lender. any ad- 321 ditional funds which the Lender shall estimate to be , 322 or that the Borrower will be able necessary to carry out completely the Project: - 323 324 325 235 (c) If the Lender shall not be satisfied that the Borrower has complied with all the provisions contained in this Agreement; - 17 - 326 (d) If the Lender shall not be satisfied as to all legal 327 matters and proceedings affecting the Project and the 328 repayment of any funds advanced hereunder; 329 (e) If any representation made by the Borrower in any 330 document submitted to the Lender shall be found by the 331 Lender to be incorrect or incomplete in any material 332 respect. 333 334 335 20. Representations and Warranties. The Borrower represents and warrants as follows: (a) No litigation or other proceedings are pending or 336 threatened on the day and year first above written which 337 might adversely affect the Loan, the mortgage, the Working 338 Capital Notes, the carrying out of the Project, or the 339 financial condition of the Borrower; 340 (b) The Borrower has not paid, nor does it intend to pay, any 341 bonus, fee or commission in order to secure the Loan or to 342 sell the Working-Capital Notes hereunder; 343 (c) Every statement contained in this Agreement and in any 344 other documents submitted to the Lender or to the Govern- 345 Dent are correct and complete, and no relevant fact 236 - 18 - 346 materially affecting the Loan, the Working Capital 347 Notes, the Project, any of the schedules contained in 348 the Exhibits annexed to this Agreement, or any of the 349 duties or obligations of the Borrower under this Agree- 350 nent, has been omitted therefrom. 237 351 21. Construction of Agreement. This Agreement shall be binding 352 upon the parties hereto when copies thereof, duly executed by the Borrower 353 and the Lender, shall have been received by the parties hereto. This 354 Agreement shall be governed by and construed in accordance with the laws as 355 of the District of Columbia. 356 IN WITNESS WHEREOF, The Lender and the Borrower have respectively 357 caused this Agreement to be duly executed as of the day and year first 358 above written, but actually on . DEFENSE FINANCE CORPORATION 359 360 By CORPORATION 361 362 ATTEST: By 238 Secretary Morgenthan JUN 1940 Mr. Polay There is attached hereto a revised form of agreement intended to carry into effect the plan of financing plant extensions in connection with the national defense program as proposed by Mr. Knudsen last Thursday, June 13, with the modifications suggested in your office on Friday, June 14. The tentative draft agreement contemplates that a corporation called the Defense Finance Corporation", created by the Reconstruction Finance Corporation pursuant to Senator Glass' will (S. 3938), if enacted into 1 will finance a corporation, deemed for purpose of the agreement to be an aircraft engine manufacturer, in acquiring land, constructing a plant upon the land, and purchasing machinery and equipment for the plant. To finance this project, the Defense Finance Corporation mains the facturer a loan bearing interest at 35, secured by a direct first mortgage upon the project. This mortgage is the sole security for the loan, is being expressly agreed that the credit of the manufacturer is not to be pledged to the payment of the loan. The amount of the loan would be spread over the total enginee produced so that the sales price of each engine would include its pro rats share of the loan. The loan would then be repaid in quarterly installments according to the number of engines produced and sold either to the United States or to a foreign government. For example, if a manufacturer berrowed $1,000,000 to purchase a for his plant to produce 1,000 planes, the sua of 81,000 would be added to the normal sales price of each plane. If in the first 3 months 100 planes were produced, then the manufacturer would repay $300,000 on his loan. If only anchimery or other personal property is acquired, the loan will be secured by a chattel martgage, the purpose of the plan being to vest title in the manufasturer but to permit the Government corporation to take over the machinery and equipment in the event of a default. Under the draft agreement if the Government of the United States, or of a foreign country, should cancel its contracts with the manufacturer and the enginee covered by such contracts are not seld at the same price within 6 months, then, if the manufacturer warrants that it will diseard the building or machinery from use in its business, the Defense Finance Corporation will for give the payment of that proportion of the loan which is allocable to the - manufactured or unpaid for enginee. 238 -2 For example, in the case given above, if after 500 of the 1,000 enginee contracted for had been delivered, the order was cancelled and neither the United States nor anyone else assumed the order, then the manufacturer could discard his plant or anchinery and assuming this 10 done and the plant has no value, the unpaid balance of $500,000 would be forgiven. Since only half of the enginee were delivered, only half of the loan would have to be repaid. of course, to the extent the plant OF machinery had a residual OF salvage value, the debt would have to be repaid, or the Government could foreclose and take over the abandoned property. Under Mr. Knudeen's plan, manufacturers could borrow money only for standard types of equipment which could be used in the manufacture of planes or other armanent for the Nar and Navy Departments, and this is covered also in the draft agreement. It may be well to point out that the amount of the debt forgiven, if the contracts should be cancelled, would be tamble income. However, if the plant or equipment were permanently discarded, there would be an offsetting allowance for less of useful value equal to the difference between the cost of the plant and its salvage value. Depreciation and obselescence under the income tax law and under the Vinson-fromall Act are treated in accordance with existing regulations. The above provisions are all contained in Part 1 of the draft agreement. The procedure for financing the acquisition of the land, building and machinery is covered by Part 2 which provides that from time to time after tea execution of the agreement the engine manufacturer will file requisitions with the Defense Finance Corporation requesting advances on account of the loan, each of which will be accompanied by a signed statement of purposes showing the use to which such advances will be put. If the requisition is satisfactory in form and substance, sufficient funds for the carrying out of the project for a reasonable period will be advanced. The engine manufacturer will deposit the money so received in a separate account in a bank which is a member of the Federal Reserve system and the Federal Deposit Insurance Corporation and which is satisfactory to the Defense Finance Corporation. The manufasturer agrees to expend such monsys only for the purposes specified in a requisition and approved by the Defense Finance Corporation, the purpose being to safeguard adequately the use of funds leanned without the delay insident to presudite. Part , of the draft agreement relates to working capital. IS provides that while the enginee are being manufactured the Defense Finance Corporation will stand ready to provide working capital by purchasing from the engine manufacturer at par negotiable general obligation assessed notes payable in 6 months and bearing interest at the rate of 2% per annua payable The maximum the amount of such notes will be a specified percentage of the estimated cost of labor and materials employed by the manufacturer in producing the enginee. 240 The agreement provides that 1f the engine manfacturer receives any other funds from the Government for working capital, such as, for example, advances by the War and Revy Departments, the amount of working capital notes agreed to be purchased by the Defense Finance Corporation shall be reduced or retired accordingly. The suggestions which you made requiring assurance financed under this plan to comply with the Walsh-Realay Act in producing enginee, irrespective ahother such engines are manufactured and sold to the United States or to foreign governments, are included in Part 4 of the draft agreement. This Part also incorporates your suggestion limiting to 125 of the contract prices profits of manufacturers for all contracts to manufacture engines irrespective whether such engines are sold to the United States or to foreign governments. The manufacturer also agrees to secure from foreign governments agreements saving the Defense Finance Corporation hardless free loss of all or any part of funds advanced under the agreement, due to the cancellation by any foreign government of any contracts with the manufacturer. In this my the same draft agreement can be used whether manufacturers are building enginee for the War and lavy Departments or for the British government but the Defense Finance Corporation would be protected against less, even though it agrees to forgive the indebtedness of the engine manufacturer to it to the extent of any such cancellation. Mr. Nelson's suggestion giving the Government the option to purchase for $1 any ganges, dies, jigs, tools, fixtures and patterns, the cost of which has been included in the sales prices of the engines is included as a on page 13 of the draft agreement. Part 5 of the agreement contains special conditions requiring the - facturer to furnish certain information, providing that the Defense Finance Corporation shall not be obligated to pay expenses incurred by the manufacturer in performing its daties under the agreement, prohibiting the admission of any members of Congress in the benefits of the agreement, giving the Defense Finance Corporation the right to cancel the agreement if the manufacturer delays reasonably in proceeding with the expension of his plant, requiring the facturer to earry insurance upon the plant, listing the conditions presedant to the obligations of the Defense Finance Corporation to make any loan or perchase working capital notes, containing the representations and warranties of the engine manufacturer and providing how the agreement shall be construed. Although the agreement 10, of course, still in a very preliminary stage, I think is is now sufficiently rounded out to furnish the basis for initial discussion with the various agencies concerned and possibly also with the two leading aircraft engine manufacturers, (Initialed) E. H. F., Jr. CLK: 6-17-40 Draft of June 17, 1940 AGREEMENT dated as of June 30, 1940, 1 between the DEFENSE FINANCE CORPORATION, 2 (herein called the "Lender") a corporation created by the Reconstruction 3 4 Finance Corporation and the 5 (herein called the "Borrower"), a corporation organized under the laws of the 6 7 State of . 8 PART ONE. 9 General Provisions 10 11 1. Preliminary. With a view to increasing its capacity for 12 the production of aircraft engines and facilitating the delivery 13 thereof at an accelerated rate of production, the Borrower con- 14 templates (a) the acquisition of a title in fee to a tract of vacant 15 land, of approximately 16 bounded by 19 20 (b) the construction upon said tract of a manufacturing plant, consisting substantially of , 18 , 17 acres, included within that area and (c) the purchase of standard and special machinery, including but not limited to jigs, tools, dies, 21 fixtures, and patterns, for the production of said engines, but exclud- 22 ing machinery not usable for the production of said engines of types 23 and models approved for purchase by the United States of America or 24 any department, agency or instrumentality thereof (herein called the 25 "Government"). The acquisition of said land, the construction of said 241 -2- 26 27 28 29 manufacturing plant, and the purchase of said machinery are herein collectively called the Project. In order to carry out the Project the Borrower has made application to the Lender to aid in financing the Project as a part of the national defense program. Said ap- 30 plication has been approved by the Lender, and to aid the Borrower 31 in carrying out the Project the Lender agrees to lend to the Bor- 32 rower, and the Borrower agrees to borrow from the Lender, an amount 33 equal to the cost of the Project as approved by the Lender but in 34 no event to exceed the sum of $ 35 the "Loan"). 36 242 (herein called 2. The Loan: and the Mortgage. The Loan shall be secured by 37 a mortgage which shall constitute a direct first mortgage upon the 38 Project and any property hereafter acquired for reconstructing, 39 replacing, or repairing the Project or any part thereof. The mort- 40 gage shall be the sole security for the Loan, it being expressly 41 agreed and understood that the full faith and credit of the Borrower 42 shall not be deemed pledged to the payment of the Loan. The mortgage 43 shall be substantially in the form of Exhibit A hereto annexed, with 44 such changes as the Lender shall approve. Except as expressly pre- 45 vided to the contrary, all of the covenants and agreements of the -3- 46 Borrower, as set forth in the mortgage, shall be considered a part 243 47 48 of this Agreement and shall constitute covenants and agreements by the Borrower with the Lender. A prorated portion of the Loan has 49 been included by the Borrower in the sales prices of the aircraft 50 engines which the Government has agreed to purchase, or has an 51 option to purchase from the Borrower under the contracts identified 52 in the schedules contained in Exhibit B hereto annexed, plus the 53 aircraft engines which the governments of 54 (herein called "Foreign governments") have agreed to purchase, or 55 have options to purchase under the contracts identified in the 56 schedules contained in Exhibit C hereto annexed according to the 57 aggregate number of all such aircraft engines. The aircraft engines 58 covered by the contracts identified in such schedules in Exhibit B 59 and Exhibit C, are herein called "Engines". The Borrower hereby 60 covenants and agrees to pay or cause to be paid to the Lender within 61 one month after the close of each quarterly period of three months, 62 beginning with the quarter ending September 30, 1940, on account of 63 the Loan a sum equal to the prorated portion of the Loan included in 64 the sales price of each of the Engines multiplied by the number of 65 Engines delivered by the Borrower to the Government or Foreign -4- - 66 governments during each such quarterly period, together with interest 67 thereon, at the rate of three per centum per annun, payable quarterly, 68 in accordance with the payments on account of the Loan, until either 69 (a) the amounts so paid on account of the Loan shall equal the sum 70 of (1) the aggregate principal amount thereof as provided in para- 71 graph 1 hereof, and (2) the interest thereon as provided in this 72 paragraph 2 plus interest at the same rate on any unpaid install- 73 ments of interest, or (b) the Lender shall forgive the payment of 74 all or any part of the Loan as provided in paragraph 3 hereof. 75 3. Forgiveness upon Cancellation. The Lender hereby covenants 76 and agrees to forgivo the payment of all or any part of the Loan which 77 shall be outstanding and unpaid but not due or in default if: 78 (a) The Government or Foreign governments should cancel 79 any contract or contracts with the Borrower for the 80 manufacture and sale of Engines for any reason other 81 than a material breach of such contract by the Borrower; 82 (b) The Engines covered by such contract or contracts 83 should not be sold or a contract or contracts for the 84 sale thereof entered into by the Borrower at the sales 85 price payable by the Government or Foreign governments 244 -5 under the contract or contracts 80 cancelled 86 245 87 88 89 90 within a period of six months after such cancellation; and (c) The Borrower should submit to the Government a resolution of its board of directors determining 91 that the use of the Project will no longer be re- 92 quired by the Borrower and warranting that the 93 Borrower will promptly and permanently abandon the 94 Project and discard it from use in its business; 95 on the basis of the proportion which the number of the Engines 96 covered by the contract or contracts so cancelled which have not 97 been sold or agreed to be sold as provided in clause (b) of this 98 99 paragraph 3 bears to the sum of (1) the number of the Engines covered by said cancelled contract or contracts plus (2) the number 100 of the Engines covered by the contracts with the Government and 101 Foreign governments which are performed and not so cancelled, less 102 the fair market value of the Project 80 abandoned and discarded. 103 PART TWO. 104 105 106 Carrying Out the Project. 4. Time of Essence. When this Agreement has been executed, the Borrower (unless it has already done so) shall promptly take -6- 107 all proceedings necessary to acquire the lands, construct the buildings, 108 purchase the machinery, and otherwise start the Project, and shall 109 continue the Project to completion with all practicable dispatch in 110 an efficient and economical manner. The Borrower hereby covenants 111 and agrees that time is of the essence of this Agreement and repre- 112 sents that it is ready, willing and able to perform its duties and 113 obligations hereunder expeditiously. 114 246 5. Requisitions. From time to time after the execution of 115 this Agreement, the Borrower shall file a requisition with the Lender 116 requesting the Lender to make an advance on account of the Loan. 117 Each requisition shall be accompanied by such documents as may be 118 requested by the Lender (a requisition together with such documents 119 being herein collectively called a "Requisition"). If a Requisition 120 requesting the Lender to make such payment is satisfactory in form 121 and substance to the Lender, the Lender within a reasonable time after 122 the receipt of such Requisition, will make an advance in such amount 123 as will provide, in the judgement of the Lender, sufficient funds for 124 the carrying out of the Project for a reasonable period. Every re- 125 quest for an advance on account of the Loan must be accompanied by 126 a signed statement of purposes in which the Borrower must certify in -7127 reasonable detail the purposes for which the advance requested will 247 128 be used, and by other documents supporting the request. A schedule 129 of such other documents to be submitted by the Borrower to the Lender 130 at the time that the first such advance on account of the Loan is 131 requested is contained in Exhibit D annexed hereto. A schedule of 132 such other documents to be submitted by the Borrower to the Lender at 133 the time that the second and subsequent advances on account of the 134 Loan are requested is contained in Exhibit E annexed hereto. All 135 advances on account of the Loan shall be made at a Federal Reserve 136 Bank to be designated by the Lender or at such other place or places 137 as the Lender may designate, against delivery by the Borrower of such 138 additional documents as may be requested by the Lender. The Lender 139 shall be under no obligation to make any advance on account of the 140 Loan beyond the amount which in the judgment of the Lender is needed 141 by the Borrower to carry out the Project. 142 6. Project Accounts. The Borrower shall deposit all moneys 143 received from the Lender pursuant to paragraph 5 hereof promptly upon 144 the receipt thereof in a separate account or accounts in a bank or 145 banks which are members of the Federal Reserve System and of the 146 Federal Deposit Insurance Corporation and which shall be satisfactory 147 at all times to the Lender. Each of such accounts is herein a 148 "Project Account". The Borrower shall expend the moneys in a Pro- 149 ject Account only for such purposes as shall have been previously 150 specified in a Requisition filed with the Lender and as shall have 151 been approved by the Lender. Payments for carrying out the Project 152 shall be made only from a Project Account. Any moneys remaining un- 153 expended in a Project Account after the completion of the Project 154 which are not required to meet obligations incurred by the Borrower 155 in carrying out the Project shall be applied to the payment of the 156 Loan. 15 158 159 248 PART THREE Working Capital. 7. Working Capital Notes. During the period in which the 160 Project is being carried out and the Engines are being manufactured, 161 and subject to the terms and conditions of this Agreement, the Lender 162 will, in addition to the Loan, aid the Borrower in financing the 163 manufacture, assembly, and testing of the Engines for delivery to 164 the Government and to Foreign governments by providing working capital, 165 and for that purpose the Lender will purchase at par, and the Borrower 166 will sell at par, negotiable, general obligation, unsecured notes 167 168 - (herein called "Working Capital Notes"), in a principal amount not exceeding in the aggregate percent of the estimated cost of 249 169 the labor and materials to be employed by the Borrower in the manu- 170 facture, assembly and testing of the Engines. The determination by 171 the Lender of the estimated cost of such labor and materials shall 172 be conclusive. The Working Capital Notes shall be payable six months 173 from the date thereof, shall bear interest at the rate of 2 per centur 174 per annum, payable semi-annually, and shall substantially in such form 175 as set forth in Exhibit F annexed hereto. 176 8. Requisition for Purchase of Notes. At any time after the 177 execution of this Agreement the Borrower may file a Requisition with 178 the Lender requesting the Lender to purchase Working Capital Notes. 179 If such -Requisition is satisfactory in form and substance to the 180 Lender, the Lender within a reasonable tine after the receipt of such 181 Requisition, will purchase Working Capital Notes in such amount as 182 will provide, in the judgement of the Lender, sufficient funds for the 183 purposes for which the proceeds from the sale thereof will be used for 184 a reasonable period, but not to exceed the percentage of the estimated 185 cost of the labor and materials to be employed in the manufacture, 186 assembly and testing of the Engines stated in paragraph 7 hereof. 187 The payment for the Working Capital Notes will be made at a Federal 188 Reserve Bank to be designated by the Lender, or at such other place 189 or places as the Lender may designate, against delivery by the Bor- 190 rower of the Working Capital Notes, together with such documents as 191 may be requested by the Lender. 250 9. Other Working Capital from the Government. If the Borrower 192 193 shall receive any funds from the Government, other than from the sale 194 to the Lender of Working Capital Notes, to aid the Borrower in financ- 195 ing the manufacture, assembly, and testing of the Engines for delivery 196 to the Government or to Foreign governments by providing working capital, 197 to the extent that such funds are so received, the aggregate principal 198 amount of the Working Capital Notes agreed to be purchased by the Lender 199 in paragraph 7 hereof shall be reduced, or, if already purchased by 200 the Lender in the maximum amount, to the extent that such funds are 201 so received, the Borrower will apply the same to the redemption of 202 Working Capital Notes. 203 204 205 206 PART FOUR Provisions as to Engine Contracts. 10. Wage and Hour Provisions. The Borrower hereby covenants and agrees that in the manufacture, assembly and testing of the Engines 11 207 it will comply with all laws and all orders, rules and regulations 251 208 issued pursuant thereto to which the Borrower would be subject if the 209 Engines were manufactured under contracts made and entered into by 210 the Government or to which the Government is a party, requiring, 211 involving or relating to (a) the employment of persons in the manu- 212 facture or furnishing of materials, supplies, articles, and equip- 213 ment used in the performance of such contracts, or (b) the service 214 or employment of laborers or mechanics upon a public work of the 215 Government, irrespective of whether the Engines are manufactured for 216 or sold to the Government or are manufactured for or sold to Foreign 217 governments; and all such laws, orders, rules and regulations shall 218 be equally applicable to the contracts identified in the schedules 219 contained in Exhibit C hereto annexed as to the contracts identified 220 in the schedules contained in Exhibit B hereto annexed, and the Borrower 221 hereby covenants and agrees to comply therewith as if such laws, orders, 222 rules and regulations had been set forth in full as a covenant by the 223 Borrower in this paragraph 10 of this Agreement. 224 11. Profit Limitation. The Borrower hereby covenants and agrees 225 to pay to Foreign governments with which it has entered into the con- 226 tracts identified in the schedules contained in Exhibit C hereto annexed, all profit in excess of the percentage of the total contract 227 252 prices for the Enginee which the Borrower would have been required to 228 pay into the Treasury of the United States as excess profit under the 229 Act of May 27, 1934 (48 United States Statutes at Large 505), as 230 amended, if such contracts had been made by the Secretary of the Navy 231 232 for the construction and/or manufacture of any complete aircraft, or 233 any portion thereof, and the method of ascertaining the amount of such 234 excess profit to be paid to Foreign governments shall be determined 235 in the same way as it would have been determined if the contracts 236 identified in the schedules contained in Exhibit C hereto annexed had 237 been entered into with the Secretary of the Navy: and all the provisions 238 of section 3 of said Act, as amended, shall be equally applicable with 239 respect to contracts for the Engines, irrespective whether the Enginee 240 are manufactured for or sold to the Government or are manufactured or 241 sold to Foreign governments, and the Borrower hereby covenants and 242 agrees to comply therewith as if such section had been set forth in 243 full as a covenant by the Borrower in this paragraph 11 of this Agree- 244 ment; it being the intention of this paragraph 11 to limit the profit 245 of the Borrower to 12 percent of the total contract prices for all 246 Engines covered by the contracts identified in the schedules contained 247 in Exhibit B and Exhibit C hereto annexed. - 13 - 248 12. Indennification. The Borrower hereby covenants and agrees 249 that it will obtain binding and legal agreements from each of the 250 Foreign governments with which it has contracts identified in the 251 schedules included in Exhibit C annexed hereto, said agreements to be 252 in formsand substance satisfactory to the Lender, under which such 253 Foreign governmentragrees to indemnify and save the Lender harnless 254 from loss of all or any part of the Loan, or arising from the making 255 thereof or from the purchase of the Working Capital Notes, due to the 256 cancellation by such Foreign government of any of such contracts 257 for any reason other than the material breach thereof by the Borrower. 258 13. Option as to Dies. The Borrower hereby covenants and agrees 259 that it will sell to the Government and that the Government pay, at the 260 option of the Government, at any time purchase or otherwise procure for 261 the sum of one dollar, payable at the principal place of business of 262 the Borrower, and that the Borrower will convey to the Government good 263 title to such gauges, dies, jigs, tools, fixtures, and patterns as may 264 be used or usable in the manufacture, assembly, or testing of the 265 Enginee: Provided, That an amount equal to the cost of such guages, 266 dies, jigs, tools, fixtures, and patterns has been included by the 267 Borrower in the sales prices of the Engines. The Borrower hereby 253 268 further covenants and agrees that it will not include any part of the 269 cost of such guages, dies, jige, tools, fixtures and patterns in the 270 sales prices of the Enginee unless the state of the title of the 271 Borrower in said guages, dies, jigs, tools, fixtures, and patterns, 272 is and will be such that the Borrower will always have and maintain 273 good right and lawful authority to comply with this paragraph 13 of 274 this Agreement. 275 276 277 254 PART FIVE Special Conditions. 14. Information. During the carrying out of the Project, the 278 Borrower will furnish to the Lender all such information and data as 279 the Lender may request as to the carrying out, cost, progress, and 280 disposition thereof. The Borrower shall report, or cause to be reported, 281 to the United States Department of Labor monthly, within five days after 282 the close of each calendar month upon forms to be prescribed, and in 283 accordance with instructions to be furnished, by the United States 284 Department of Labor, covering the number of persons on payrolls directly 285 connected with the Project, the aggregate amount of such payrolls and 286 the nan-hours worked, and an itemized statement of the total expenditures 287 for materials. The Borrower shall also furnish, or cause to be furnished, - 15 - 288 at the earliest date practicable, to the United States Department of 289 Labor all the names, and addresses of all contractors and subcontractors 290 engaged in carrying out the Project. 291 15. Expenses. The Lender shall be under no obligation to pay any 292 costs, charges or expenses incident to compliance with any of the duties 293 or obligations of the Borrower hereunder including, without limiting 294 the generality of the foregoing, any legal, engineering or accounting 295 costs, charges or expenses incurred by the Borrower. 296 16. Interest of Members of Congress. No member of or delegate to 297 the Congress of the United States of America shall be admitted to any 298 share or part of this Agreement, or to any benefits arising therefrom. 299 17. Undue Delay by the Borrower. The Lender shall have the right 300 to cancel this Agreement and annul any obligation to nake the Loan or 301 purchase Working Capital Notes if the Borrower shall delay for an un- 302 reasonable time in carrying out any of the duties or obligations to be 303 performed by the Borrower hereunder, or unless the Borrower shall 304 within a reasonable tine (a) file Requisitions with the Lender in ac- 305 cordance with the provisions hereof and (b) connence or cause to be 306 commenced, and carried on with due expedition, the entire Project. 255 - 16 - 307 18. Insurance. The Borrower hereby covenants and agrees to carry 308 insurance of such types and in such amounts upon the Project or any 309 part thereof as the Lender may request. 310 19. Conditions Precedent to the Lender's Obligations. The Lender 311 shall be under no obligation to make the Loan or purchase Working 312 Capital Notes: 313 (a) If in the judgment of the Lender the financial condition 314 of the Borrower shall have changed unfavorably in a 315 material degree from the condition as theretofore 316 represented to the Lender; 317 (b) If the Lender shall not be satisfied that the Borrower 318 will be able to carry out completely the Project for the 319 sun of $ 320 to obtain in a manner satisfactory to the Lender, any ad- 321 ditional funds which the Lender shall estimate to be , 322 or that the Borrower will be able necessary to carry out completely the Project; 323 (c) If the Lender shall not be satisfied that the Borrower 324 has complied with all the provisions contained in this 325 256 Agreement; 326 (d) If the Lender shall not be satisfied as to all legal 327 matters and proceedings affecting the Project and the 328 repayment of any funds advanced hereunder; 329 (e) If any representation made by the Borrower in any 330 document submitted to the Lender shall be found by the 331 Lender to be incorrect or incomplete in any material 332 respect. 333 334 335 20. Representations and Warranties. The Borrower represents and warrants as follows: (a) No litigation or other proceedings are pending or 336 threatened on the day and year first above written which 337 might adversely affect the Loan, the mortgage, the Working 338 Capital Notes, the carrying out of the Project, or the 339 financial condition of the Borrower; 340 (b) The Borrower has not paid, nor does it intend to pay, any 341 bonus, fee or commission in order to secure the Loan or to 342 sell the Working Capital Notes hereunder; 343 344 345 (c) Every statement contained in this Agreement and in any other documents submitted to the Lender or to the Govern- ment are correct and complete, and no relevant fact 257 - 18 - 346 materially affecting the Loan, the Working Capital 347 Notes, the Project, any of the schedules contained in 348 the Exhibits annexed to this Agreement, or any of the 349 duties or obligations of the Borrower under this Agree- 350 nent, has been omitted therefrom. 351 258 21. Construction of Agreement. This Agreement shall be binding 352 upon the parties hereto when copies thereof, duly executed by the Borrower 353 and the Lender, shall have been received by the parties hereto. This 354 Agreement shall be governed by and construed in accordance with the laws as 355 of the District of Columbia. 356 IN WITNESS WHEREOF, The Lender and the Borrower have respectively 357 caused this Agreement to be duly executed as of the day and year first 358 above written, but actually on . DEFENSE FINANCE CORPORATION 359 360 By CORPORATION 361 362 ATTEST: By Copy of m Knudsend pencelled notes & at meeting with Foley Kades 6 /18/40 June 19, 1940 On a whole new structure with equipment, the unpaid portion of the plant will be subject to sale or other disposal by the R. F. C. However, upon cancellation of the contract before completion the Government will agree to cancel the balance of the indebtedness if -- there be no new Government orders placed within six months of the date of cancellation of order and the manufacture by resolution of his Board of Directors certifies that there is no further use for the property, and promptly and permanently abandons the project and turns it back to the R. F. C. On a partial investment in a plant, the unpaid portion of the investment will be subject to appraisal by representatives of the borrower and the lender and a sale negotiated, or the equipment will be subject to such other disposal as the R. F. C. may elect, but in case of additions to present building sale to owner or demolition is mandatory. 259 260 JUN 18 1940 June 4. 1940 Dear Dr. Heads In the accossitating year resignation to take effect June no 1940, namely, year association with the Advisery Commission to the Counsil for National Defence, there is nothing I - do bus regretfully accept your resign tion in the best interest of the national defense program. In accepting the same I cannot overlook the opportunity to express my approciation for your valued services and coursel while a number of my staff. Be assured that you have my heartiest good wishes in your new undertaking. uses personal regards, I am, Sincerely, (Signed) H. Morganthau,Jr Benerable George 3. Mead, Assistant to the Secretary, treasury Department, Washington, 3. 6. File to Mr. Thompson 6/17/40 By Messenger 1° on 6/18 TREASURY DEPARTMENT Office of the Secretary 261 Technical Assistant to the Secretary Date 6/18/90 The TO: Secretary Room I am quarting your ins fruiting in French Gold HMS From: MR. COCHRAN 262 PARAPHRASE OF TELEGRAM RECEIVED London June 18, 1940 Secretary of State, Washington. RUSH PRIORITY 1710, June 18. PERSONAL AND SECRET FOR SECRETARY HULL. In reply to your telegram no. 1246 of June 17. I have seen Kingsley-Wood and he tells me that the French have between 60 and 70 million pounds here now and that except for two shiploads about which they are worried all the gold should have left France before June 15. All the British gold will have been dispatched OBLIGATED from here by June 30 but they are still obliged to send whatever French, Belgian, and certain private gold re- maining in England, which will start to move in July. KENNEDY B:JFB:DMZ 283 COPY OF MEMORANDUM HANDED BY MR. PINSENT OF BRITISH EMBASSY TO MR. COCHRAN IN TREASURY AT 6:45 p.m., JUNE 17. 1940 AND AS CORRECTED BY TELEPHONE CONVERSATION WITH MR. PINSENT AT 12:15 NOON, JUNE 18 Secret. Please inform United States Government that in view of obscurity of position and uncertainty whether French offer of armistice will be accepted we did not to-day take steps to block French gold I ? balances 7 before banks closed. We shall consider what will be appropriate steps to take tomorrow. 2. We should be glad to know what steps would be con- templated by U. S. Government to prevent French gold held in U. S. A. by French Government or Bank of France or gold in transit being handed over to Germany and French balances being used for benefit of Germany. COPY 264 TREASURY DEPARTMENT ANDARD APPROVED BY FORM THE PRESIDENT NO. 14A MARCH 10. 1926 TELEGRAM OFFICIAL BUSINESS-GOVERNMENT RATES WASHINGTON CHARGE TREASURY DEPARTMENT. APPROPRIATION FOR - Official (The appropriation from which payable must be stated on above line) 14117 JUNE 18 1940 B M BARUCH 597 MADISON AVENUE NEW YORK NEW YORK SORRY I HAVE NO CONFIDENTIAL INFORMATION IN REGARD TO PROFESSOR VON KARMAN STOP I USED HIM FOR ONLY TWO DAYS ON THE RECOMMENDATION OF MR. MILLIKEN OF CALIFORNIA INSTITUTE OF TECHNOLOGY HENRY MORGENTHAU JR. 265 TANDARD FORM No. 14A APPROVED BY THE PRESIDENT MARCH 10. 1926 TELEGRAM OFFICIAL BUSINESS-GOVERNMENT RATES TREASURY DEPARTMENT WASHINGTON CHARGE TREASURY DEPARTMENT. APPROPRIATION FOR Official a- (The appropriation from which payable must be stated on above line) 3-14117 JUNE 18 1940 B M BARUCH 597 MADISON AVENUE NEW YORK NEW YORK SORRY I HAVE NO CONFIDENTIAL INFORMATION IN REGARD TO PROFESSOR VON KARMAN STOP I USED HIM FOR ONLY TWO DAYS ON THE RECOMMENDATION OF MR. MILLIKEN OF CALIFORNIA INSTITUTE OF TECHNOLOGY HBNRY MORGENTHAU JR. 236 Treasury Department TELEGRAPH OFFICE 20w 1940 JUN 18 AM 11 20 WAE11 M 25 NBN NEWYORK NY JUN 18 1940 1019A HON HENRY MORGENTHAU JR SECRETARY OF THE TREASURY CAN YOU SEND ME CONFIDENTIAL INFORMATION YOU HAVE REGARDING PROFESSOR VON KARMAN WHO IS SUPPOSED TO HAVE BEEN EMPLOYED BY YOU IN CONNECTION WITH AIRPLANES B M BARUCH 1118A copy 287 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Consulate, Casablanca, Morocco DATE: June 18, 1940, 10 p.m. NO.: 30 Hostilities will be continued by the French Navy, the Air Force and the Army of North Africa. The Director General of Finance informed me of the above this evening. He asked me to cable you to ask that credits of Morocco in the United States not be frozen 80 that rifles, machine guns and cartridges can be purchased therewith. A detailed statement as to the arms and munitions desired for which immediate shipment would be asked by the Protectorate Government will be cabled upon receipt of reply that the United States will not freeze the above mentioned credits. Due to heavy shipments to France, there is a shortage of small arms here. GOOLD. EA:LWW 268 OFFICIAL THE SECRETARY STATE WASHINGTON DEPARTMENT OF STATE WASHINGTON June 19, 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. 21 of June 18 from Bordeaux. 269 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, (Paris) Bordeaux, France DATE: June 18, 1940, 4 p.m. Rec'd 2:30 a.m. 19th. NO.: 21 TRIPLE PRIORITY. FOR THE TREASURY DEPARTMENT FROM MATTHEWS. The Bank of France Governor has asked that I cable you most urgently to say that no confirmation has yet been received from the Federal Reserve that the Bank of France has been credited with the amount of the gold shipment which was arranged through the exchange of cables with Ambassador Bullitt. Fournier said that it 18 vital that such notification be cabled immediately to the Bank of France. I told the Governor that I felt sure that at least the 95 percent had already been credited to the Bank of France, in accordance with the cabled agreement. However, he insists that some formal notification be given him. The Governor confirmed the statement to me by Rueff to the effect that the rest of the French gold reserves had been sent out - but the Governor modified the statement importantly by saying that a part of it was still in French ports on board ships, "awaiting the signal to go. There will remain in France only some "three or four hundred million francs* when all of this has gone. Gold 270 -2Gold belonging to the Belgians and Poles has been gotten out also. It is the opinion of the Governor that it 18 "too late" to do anything about foreign securities in the way of listing and destroying them, saying that they have about a thousand sacks of such securities and that such an operation would take several weeks to carry out. He said that for them it was only a question of days or possibly hours. However, efforts are being made by Cariguel to get private banks to go along as fast as they can with the destruction of securities, in the presence of responsible bank officers. BIDDLE. EA:LWW 271 NUMBER OF BLAST FURNACES IN THE U.S. Distribution by Districts - N DAA MINN - WYO MUCH DANG NEW Buffalo IOWA UTAH NESS as Chicago Cleveland COLO MO KANS ARIZ N MEX OKLA TEXAS ARE se LA FLA Furnoce in blost Furnace iolle Furnace blown in since lost report o - LEGEND Furnace blown out since lost report Each dot represents one furnace As of June 18,1940 Total Furnaces in Blast - 182 Total Furnaces Idle - 50 Preliminary Treasury C-322 272 June 18, 1940 10:45 a.m. Operator: Go ahead. H.M.Jr: Hello. Wm. S. Knudsen: Yes. H.M.Jr: Morgenthau. K: Good morning, sir. H.M.Jr: How are you? K: Fine. H.M.Jr: Knudsen, I think that your fellow, Vance, if you don't mind my saying it, sent out a very silly telegram yesterday to all these machine tool fellows. I've got a copy of it here. Can I read it to you, or maybe you've seen it. K: H.M.Jr: No, go ahead and read it. This is addressed to the National Machine Tool Builders' Association. K: Yes. H.M.Jr: Vance advises French capitulation will undoubtedly result cancellation all French orders, but requests that machine tool production continue full speed. He recommends that if French orders not yet on assembly floor, give preference to domestic orders if on assembly or finish them. "A complete description airmail, H. S. Vance, Machine Tool Coordinating Committee, Federal Reserve Building, Washington, sending delivery dates also special features. Vance will see if machines can be used on Government program. Will send further advices after Committee meets on Wednesday." K: Yes. H.M.Jr: Now, here's the point. I went over to see the President last night and he wants us to give 273 -2the English all the cooperation that we can, and they are in the middle of taking over all of the French orders. See? K: H.M.Jr: Yes. And what they're worried about is that if this goes out all over the country, maybe they can't get the airplanes or the airplane engines. K: Oh, yes, they can. H.M.Jr: See? K: Yes. H.M.Jr: And they want those parts of the machine tools K: Will you say that again? H.M.Jr: They want whatever machine tools they need K: Yes, I see. H.M.Jr: K: H.M.Jr: which will be helpful in getting their program going in this country. You see? to carry on and fight. You see? Now, -- and the President has asked me to give them all the help we can. Yeah, well, we will. And I don't want to out them off on -- begin to cut off the end of the dog's tail, you see. K: Well, they're not being cut off, sir. H.M.Jr: They're not. K: I got a memorandum yesterday from you for Mr. Nelson saying that he expected to get me information some time today that the English would take over all the French orders. H.M.Jr: That's right. 274 -3K: And I instructed Vance to see that everybody kept right on working. H.M.Jr: Well, that's swell. That's what you told me last not to take the tools away fromnight, these but fellows. K: We're not taking any tools away, sir, yet. We're standing right by until we hear from you. H.M.Jr: Well, when could you see Nelson. K: I can see Nelson any time. H.M.Jr: Well, tell me and I'll have him come over. X: Yeah. H.M.Jr: What time? (Pause) Hello, what time? K: Yes, 11:00 o'clock. H.M.Jr: When? K: 11:00 o'clock. H.M.Jr: 11:00 o'clock. Yeah. H.M.Jr: You're a quick worker. Well, I think this is important enough so that H.M.Jr: K: I ought to take care of it. I think it's very important and Mr. Purvis But don't get the idea, Mr. Secretary, that anybody has stopped working or anything. H.M.Jr: Well, from this telegram you couldn't blame me from -- and the English now. The English are thinking that they're going to lose some of the French order, that's what they're worrying 275 4 K: H.M.Jr: K: H.M.Jr: They're not going to lose anything, sir. They're not going to lose anything. No, sir. Thank you. Hello? Yes. K: H.M.Jr: How would you like to have some pot cheese K: Tomorrow? H.M.Jr: at lunch tomorrow at 1:00 o'clock? Yeah. K: All right, sir. H.M.Jr: 1:00 o'clock. H.M.Jr: Yeah. Is Mr. Nelson coming over here? He'11 be there at 11:00. K: All right. Now you haven't heard from the H.M.Jr: As to what? K: As to these engines. H.M.Jr: As I told you, as of last night the English K: French yet have you sir? are prepared to place an order for 6,000 Rolls Royoe. K: H.M.Jr: I got Purvis' letter which you sent me, but he put a proviso in there. Well, that now -- he's given me his word and he'll out it in the form of a letter, he'll take 6,000. K: All right, sir. H.M.Jr: You can count on it and he hasn't had time to write a letter. 276 -5K: All right, sir. H.M.Jr: But you can take my word and his word it's all right. You can count on an order for 6,000 Rolls Royoe from the English Government. K: All right, sir. H.M.Jr: And Nelson will be right over there. K: Thank you. 277 June 18, 1940 11:20 a.m. H.M.Jr: Hello. Operator: General Watson. H.M.Jr: Hello. General Edwin Watson: Hello. H.M.Jr: How are you? W: H.M.Jr: Pretty good. Fine. W: H.M.Jr: Do you want to talk to me or can I shoot W: You go ahead, I haven't got a thing. H.M.Jr: Well, I talked to the President when I first. went in there, when you forced me to go in to see him yesterday. W: Yeah. H.M.Jr: And after my talk with him, he wants me to go ahead and help the English all I can -- the limit. W: H.M.Jr: Yeah. Therefore, I think that we definitely should release those 500 .75 millimeter guns. W: H.M.Jr: W: To the English? Yes, sir. Now you understand, don't you, that they can't shoot anything but French-made ammunition. 278 -2H.M.Jr: Yeah, but they want them. W: How? H.M.Jr: They want them. W: Yeah. H.M.Jr: And under the President's orders we are to give them every help we can. W: Yeah, all right. H.M.Jr: But you oan check it with him. W: Well, I'll speak to him. I'm with you. H.M.Jr: Now, those are my sailing orders. W: Yeah. H.M.Jr: Now, the other thing 18 and I've talked them -- there're two things that they want the most. One is destroyers, which I'm going to talk to him about W: Yeah. H.M.Jr: Hello. W: Yeah. H.M.Jr: And the other thing 18 these 4-engine bombers. Now he said he would like to consider, or have us consider, taking the ten oldest 4-engine bombers that we have -Boeings, you know. W: Yeah. H.M.Jr: The four first ones that we got -- with the possibility of swapping them in and getting something new and turn over ten to them. W: Yeah. H.M.Jr: Now will you mention that to him, too? 279 -3W: All right. What do you want him to do about that? H.M.Jr: W: H.M.Jr: Well, if he says yes, we'll just go ahead and do it, that's all. All right, I'll mention both to him. Yeah. Now, on the destroyers, sometime later today I may want some help. W: H.M.Jr: The destroyers. W: Yeah. H.M.Jr: No, I'm not going to ask him, but these two, will you help me? W: Yeah, I'll do those. H.M.Jr: Thank you, sir. W: All right, sir. H.M.Jr: Good-bye, sir, Private Morgenthau. 280 June 18, 1940 12:52 p.m. H.M.Jr: Hello. Operator: Yes. H.M.Jr: General Watson said he'd go on another Operator: Oh, all right. Wait a minute. (Pause) General Watson: Hello. H.M.Jr: Hello. W: He says O. K. about the .75's ...... H.M.Jr: phone. There you are. Yeah. for me to give them orders to do it. W: Now he said, now, how would it check up, and see what the Army said about those 10 bombers. of course, I don't know whether they'd say their surplus or not. Have you H.M.Jr: No. W: Have you done anything about that? H.M.Jr; No, I just W: Well, have we got the authority, Henry, to give them unless they said that. H.M.Jr: We have the authority. W: How? H.M.Jr: We have the authority. W: We have? H.M.Jr: But do you want to kind of sound them out? 281 -2W: H.M.Jr: W: Well, I thought maybe I'd better ask the Army if they really wanted to do it. Yeah. He thought I ought to do that, but he said, if you and Henry think they ought to do it, go ahead. H.M.Jr: W: H.M.Jr: Well, you sound out the Army and, of course, they're going to yell, but let's sort of take their temperature and see how Yeah, that's what I thought. The other -I've given direct orders on the other. Well, let's take their temperature on these 4-engine bombers. W: H.M.Jr: W: Yeah, that's what I thought. All right. All right, I'll do it and let you know later on. H.M.Jr: Right- O. W: All right. How're you coming on? H.M.Jr: oh W: Are you on that Committee that -- Welles and all of them? H.M.Jr: Yeah. You mean the one of yesterday? W: No, about the one that Marshall and Stark H.M.Jr: No. W: About South America -- I don't think you are either. H.M.Jr: About South America? 282 -3W: Yeah. H.M.Jr: You mean on this W: Yeah. H.M.Jr: What? W: Brazil business -- that country. H.M.Jr: Buying up the surplus W: No, no. I don't think you're in on this. H.M.Jr: No. W: It's a little one. They wouldn't have you chairman of it and you on it. H.M.Jr: W: H.M.Jr: Oh. of course, he -- Welles couldn't be. He could try. (Laughs) W: Well, all right. H.M.Jr: O. K. W: Good-bye. . if 283 June 18, 1940 My dear Mr. Hoover: I wish to acknowledge receipt from you of the following communications: June 11 - Wright Aeronautical Corporation, Paterson, New Jersey, June 12 - Newport News Shipbuilding and Dry Dock Company, Newport News, Virginia, June 13 - Presence of Germans in Mexico City, June 15 - War supplies awaiting shipment to Russia. I read these with much interest and appreciate your sending them to me. Yours sincerely, H Mr. J. Edgar Hoover, Director, Federal Bureau of Investigation, Washington, D.C. Morgenthes, tr. 284 June 18, 1940 My dear Mr. Hoover: I wish to acknowledge receipt from you of the following communications: June 11 - Wright Aeronautical Corporation, Paterson, New Jersey, June 12 - Newport News Shipbuilding and Dry Dock Company, Newport News, Virginia, June 13 - Presence of Germans in Mexico City, June 15 - War supplies awaiting shipment to Russia. I read these with much interest and appreciate your sending them to me. Yours sincerely, Jr. Mr. J. Edgar Hoover, Director, Federal Bureau of Investigation, Washington, D.C. 285 June 18, 1940 My dear Mr. Hoover: I wish to acknowledge receipt from you of the following communications: June 11 - Wright Aeronautical Corporation, Paterson, New Jersey, June 12 - Newport News Shipbuilding and Dry Dock Company, Newport News, Virginia, June 13 - Presence of Germans in Mexico City, June 15 - War supplies awaiting shipment to Russia. I read these with much interest and appreciate your sending them to me. Yours sincerely, (Signed) H. Jr. Mr. J. Edgar Hoover, Director Federal Bureau of Investigation, Washington, D.C. 286 OHN EDGAR HOOVER DIRECTOR Federal Surran of Investigation United States Department of Justice Washington, B. C. June 11, 1940 PERSONAL AND CONFIDENTIAL The Honorable The Secretary of the Treasury Washington, D. C. My dear Mr. Secretary: The Federal Bureau of Investigation has conducted a plant survey of the Wright Aeronautical Corporation, Paterson, New Jersey, and has submitted certain recommendations to the Management of this plant for its consideration. The Wright Aeronautical Corporation is engaged in the production of airplane engines and is one of the few large producers of such equipment. Recently, during a contact with the Management of this plant, it was pointed out to a Special Agent of this Bureau that the plant at present has a large number of employees who are known to possess strong nationalistic tendencies. Some of these employees are reported to have positions in the plant which afford them access to a great deal of confidential information and others of these persons are said to be in positions which enable them to easily com- mit acts of sabotage if they were so inclined. The officials of the plant expressed a desire to discharge those employees who are known to possess nationalistic tendencies of the type mentioned. However, they state that it is impossible for them to do so at the present time because of existing legis- lation. The plant officials directed attention particularly to the Wagner Act and the Walsh-Healy Act, which, they state, prohibit them from discharging employees on the basis of their nationalistic tendencies. The plant officials of the Wright Aeronautical Corpo- ration have expressed considerable concern because of this situation, pointing out that it is their belief the plant is seriously endangered by the presence of employees possessed of 287 -2- such strong nationalistic tendencies. They state that they do not believe the plant can occupy an effective place in the scheme for national defense under existing conditions. I thought that you would be interested in the viewpoint expressed by the officials of the Wright Aeronautical Corporation, particularly in view of the present program for the production of national defense materials. Sincerely yours, Le. Hoover J NH EDGAR HOOVER 288 DIRECTOR Federal Surran, of Investigation Mutted States Department of Justice Washington, B. C. PERSONAL AND CONFIDENTIAL June 12, 1940 The Honorable The Secretary of the Treasury Washington, D. C. My dear Mr. Secretary: I am transmitting herewith, as of possible interest, a copy of a statement dated June 11, 1940, containing information with regard to alleged sabotage activities at the Newport News Shipbuilding and Dry Dock Com- pany, Newport News, Virginia. I have instructed that an investigation be conducted concerning this matter, for the purpose of determining whether sabotage activities within the jurisdiction of the Federal Bureau of Investigation may be involved. Sincerely yours, J.2.down Hoover Inclosure JOHN EDGAR HOOVER DIRECTOR Federal E ran of Im tigation 289 United States Department of Justice Washington, D.C. June 11, 1940 MEMORANDUM Information has been received from officials of the Newport News Shipbuilding and Dry Dock Company, Newport News, Virginia, that on June 10, 1940, approximately two hundred steel clippings and two portions of metal welding rods were discovered in one of the low-pressure turbines being constructed for the S.S. President Jackson, which vessel is under construction for the United States Maritime Commission. The steel clippings and metal rod portions were discovered in the inner barrel of the upper half of the turbine. The turbine in question was designed for use in the operation of the ship's steering rudder. Officials of the Newport News Shipbuilding and Dry Dock Company have in- dicated positively that the steel clippings and metal rod portions were absolutely foreign to the area in which the turbine was located, it being . ted that 1 se clippings and welding rod portions could not have resulted from work being carried on in the vicinity in whi the turbir was located. Additional information has been furnished to the effect that the Newport News Shipbuilding and Dry Dock Company presently possesses United States Government contracts of the total value of approximately $113,000,000, including a battleship now being constructed for the United States Navy at a total cost of about $50,000,000, as well as an aircraft carrier presently being constructed for the United States Navy, namely, the U. S. S. Hornet. Information has been furnished to the effect that turbines being constructed for the U. S. S. Hornet are located in the immediate vicinity of the turbine in which the above described foreign material was found. It has been stated that this foreign material undoubtedly would have caused serious injury to, if not complete destruction of, the turbine in question, if the turbine had been placed in actual operation before the discovery. The discovery, according to available information, took place while steam pressure was being applied to the turbine before it was actually placed into operation. JOHN EDGAR HOOVER DIRECTOR 290 Federal Surran of Investigation Anited States Department of Justice Washington, B. C. June 13, 1940 PERSONAL AND CONFIDENTIAL The Honorable The Secretary of the Treasury Washington, D. C. My dear Mr. Secretary: As of possible interest to you, I am trans- mitting herewith a memorandum incorporating informa- tion received from a source heretofore found reliable relative to the presence of Germans in Mexico City, Mexico. Sincerely yours, Enclosure J . Ea Hoover 291 June 13, 1940 MEMORANDUM The Chief of the Highway Patrol Unit of Mexico City, who is now visiting in Los Angeles, California, reportedly stated that approximately 11,000 Germans between the ages of twenty-one and twenty-seven, and con- stituting a fully equipped fighting unit, have suddenly appeared in Mexico City. The Chief is also alleged to have stated the police in Mexico City are presently conducting an investigation to determine the place from which these Germans came. JOHN EDGAR HOOVER 292 DIRECTOR Federal Surran of Investigation United States Department of Justice Washington, B. C. June 15, 1940 PERSONAL AND CONFIDENTIAL The Honorable The Secretary of the Treasury Washington, D. C. My dear Mr. Secretary: I am transmitting herewith for your information a copy of the report of Special Agent Keith E. Angell, dated at Seattle, Washington, May 31, 1940, in the matter entitled "Fifty Carloads of War Supplies Reported to be Waiting Shipment to Russia; Neutrality Act." A copy of the above report is also being furnished to Assistant Secretary of State Adolf A. Berle and to the Offices of Military and Naval Intelligence. Sincerely yours, Enclosure J. Le . Hower 293 FEDERAL BUREAU OF INVESTIGATION Form No.1 THIS CASE ORIGINATED AT SEATTLE, WASHINGTON FILE NO. DATE WHEN MADE REPORT MADE AT PERIOD FOR WHICH MADE 5/31/40 Seattle, Washington 50 CARLOADS OF WAR SUPPLIES REPORTED TO BE WAITING SHIPMENT TO RUSSIA. SYNOPSIS OF FACTS: REPORT MADEBY 5/22/40 TITLE 54-3 KEITH E. ANGELL HL CHARACTER OF CASE NEUTRALITY ACT 50 carloads, alleged to consist of war materials, reported to be at Tacoma, Wn., awaiting shipment to Vladivostock, Russia. Greek Steamer "Aurora" under Panamaian registry, put in at Shaoffer Dock No. 1, Tacoma, on May 17, 1940. No indication that Federal violations are being committed. -CETAILS: This case is predicated upon a call made by MR. ALBERT H. HOCKER, JR., of the Hooker Electrochemical Company, Taooma, who advised that he had information regarding a possible violation of the U. S. Neutrality Laws. MR. HOCKER stated that he had received word from CASKY DAVISON, reporter for the Tacoma Times newspaper, to the effect that on May 21, 1940 the American Legion Post in Seattle, Washington, had adopted the resolution, "To embargo the shipment of 50 carloads of war materials consisting of machinery, dies, and precision tools, which were presently standing on a pier at Taooma, ready for shipment to a Russian Port." This resolution was introduced by STEPHEN S. CHADWICK, who is a past National Commander of the American Legion. CHADWICK had declared the materials were needed in the United States for this nation's rearmament program, and in addition, such a shipment would be un-neutral. MR. HOOKER stated further that the American Legion Post in Tacoma was cognizent of the action taken by the Legion at Seattle, and its executive board was holding a meeting on the night of May 22, 1940, for the purpose of taking acti on with regard to the proposed shipment; that he had informed HENRY WARD, local Legion Commander, that the proper Government APPROVED AND FORWARDED SPECIAL AGENT DO NOT WRITE IN THESE SPACES IN CHARGE COPIES OF THIS REPORT 8 Bureau 1 G-2, Presidio of San Francisco 1 G-2 Fort Lewis, in. 1 ONI, Seattle, 2 Seattle GOVERNMENT PRINTING OFFICE T-0004 294 agencies would be apprised of all known facts, and that those agencies would no doubt make an investigation 1f same were advisable. At a conference attendedby Captain CARTER B. MAGRUDER, representative of the G-2 Officer No. A1, Fort Lewis, Washington, CASEY DAVISON, of the Tacoma Times, ALBERT HOOKER, Major of the Chemical Harfare Supplies Division of the Reserve Officers, and reporting Agent, DAVISON gave the following information: "On April 18th the S.S. WILDWOOD, American-Foreign Line of New York, had docked and unloaded its cargo at the Commercial Pier, l'acona. This ship had sailed from New York City for Vladivostock, Russia, and had gone as far as the 180th meridian before turning back and docking at Tacoma. Its 7,800 ton cargo consisted, according to the U. S. Customs Manifesto, of three and one-half million dollars worth of airplane motors, stainless steel plates, stripped brass and one million dollars worth of copper bars. This ship was reported to have returned to an American port because of orders from the State Department. "On May 16, 1940, 50 carloads of machinery, dies, and precision instruments had arrived in Tacoma, having been sent to the West Coast in one train load. These carloads were placed on a siding near the Commercial dock. The packing cases in which these war materials were packed, bore the same marks as the Wildwood shipment, indicating that they were for the "Antorg", Soviet Purchasing Agencies at Vladivostock, Russia. On May 17, 1940, the Greek Tramp Steamer "Aurora" flying the Panamaian flag, indicating Republic of Panama registry, arrived at Tacoma without cargo and put in at the Shaeffer No. 1 dock, which is one pier away from the Commercial Dock. The crow of this ship consisted of Greeks except for two Chinese crow members, who were observed to be wearing Chinese Nationalist hats." DAVISON stated that he had obtained most of the above information through personal observation and through interviews with U. S. Customs officials and with CHAUNCEY LINGERMAN, manager of the Baker Dock, Tacoma, lessee of the Commercial Dock, Tacoma. He stated that he had learned the nature of the contents of the 50 carloads through a Legionnaire in Tacoma. He believed that STEPHEN CHADWICK was the person who had sent this information to the Tacoma Legionnaire. Inasmuch as there is no indication that any Federal violation has been committed or will be committed, no further action is being taken. CLOSED -2- - 10, 1940. w - Mr. Heavers % have received from m. Rebert P. Penderpool, Financial miltor of the Chicago Revaid - the enclosed buttetta which - to his Manager the mil. No believes that Subject to a Yarm columniate, and states that to - a forma centidate for the senate ea the Father Googhifs times. I have informed m. that $ - formating the - lease to you see - action you my care to Manualy. (Signed) Morganthan. Jr. Renerable s. Mg Director, Federal - of Investigation, Department of Section, Weekington, a a Inclume GEF/dbs By Message 130 f JUSTICE - FBI 295 296 - 18, 1940. Dear Mr. Thank you for your letter of June 12th, which enclosed . - of a bullette - - w Novies Jenkins of Change I feel that J. Mg Hourse should - this release, I - taking the liberty of forwarding 28 to him. I also appreciate your offer of - service and shall receive ss in - opportunity offers to will express of 10. Hearty, (Signed) H. Morgenthan, fr Mr. Rebort P. Tenterpool, Financial miller, Chicago Revald merium, - Vest Hollow sweet, alamy Illinois GEF/dbs HERALD CHICAGO SIGAGO 1111 AMERICAN EVENINGANDSUNDAY of 297 JHoney 326 W MADISON ST C CHICAGO TELEPHONE ANDOVER 1234 June 12, 1940 7 nigh IVI Honorable Henry Morgenthau, Jr., Secretary of the Treasury Washington, D.C. Dear Secretary Norgenthau: Enclosed is a bulletin received by me through the mail today. Jenkins is a former candidate for the United States Senate on, I believe, the Father Coughlin ticket. Obviously he is a fifth columnist. It is probably just as well for the government to know men of this type. If I can be of any service to the country in the serious times that lie ahead, please feel free to call upon me. Sincerely yours, Robert P. Vanderpoel Financial Editor RPV.J Bio VW H SA or June 11, 1940 Bulletin AMERICAN BUSINESS and THE NEW PEACE by Newton Jenkins 32 S. Clark Street, Chicago Telephone: Dearborn 1852 wide awake American business men are beginning to ask each other the peace terms are going to look like and what their effect will be on business. Whatever the terms are, it is likely that their influence in the field of world business will be even more far reaching what than are the changes of national boundary lines. e Hitler believes that the war on him and his country was engineered and carried out by the powerful Jewish influences in world business and politics. He knows, and they know, that he won at every turn in this contest of boycotts, blockades, and blitzkriegs. The cost of the war therefore will in all probability be levied against world Jewry. That will be the first of the peace terms. Hitler will send the bill to Jewry. The vast world monoplies built up by England and France in close intimate collaboration with powerful Jewish families are in for close scrutiny and will probably be reallocated by Hitler under the peace terms. Germany is of course likely to benefit from many of these changes for she will, in so far as Europe is concerned be in the driver's seat. Other nations, friendly to Germany, will likewise participate and many nations including our own might get substantial con- sideration in the gigantic reshuffling likely to take place. Indeed American business men might become the chief beneficiaries, if they wake up, for they are in better position by reason of the magnitude of their enterprises and resources to take advantage of the far reaching changes, which the Hitler peace is bound to effect. The big monopolies radiating out of the far flung British and French empires into which powerful Jewish influence has penetrated over wide field of activity. The Rothschild fortunes built up in international finance and the Sassoon billions accumulated in the beginning through dope peddling throughout India, China and the rest of the world and later through many other lines of business are two instances of the far reaching Jewish power. These and numerous other important Jewish families will find their accumulations considered, unravelled and perhaps partly distributed around the conference tables at the peace meeting. The big Jewish world monopoly in money and its manipulation will come in for early dissolution at the peace conference. These rights and privileges will go back to the productive energies of the various nations and their peoples. Whether Hitler will seek to set up a new gold standard or extend his barter system which has already worked extensively between the totalitarian powers will be one of the most important decisions to be reached at the peace conference. American business men should seek at the earliest possible moment to determine what this decision is to be, and gear their plans and actions to the decision as soon as it is arrived at and made known. The effect of the peace terms on farm prices throughout the world is likely to make for price levels that will be higher and much more stable. The grain and commodity markets of the world have been controlled to a high degree by European Jewish market manipulators. This racial monopoly over the world markets will be thoroughly broken. Farmers in all countries may confidently look for higher priceb for their efforts and a much more potent voice in the national economy of all countries than they now enjoy. The producer of the farm commodity instead of the market manipulator will be the one to be considered henceforth in the economic picture. Well known monopolies in which Jewish influence are substantial or dominant are likely to receive careful attention. The big diamond monopoly operating from Holland and South Africa is one of these. The metal operations in gold, silver, copper, lead, zinc, nickel, tin and other precious and non-precious lines will be extensively affected. These will all afford attractive fields for American capital and ingenuity to explore and penetrate. The distribution of tea, rubber, coffee, sugar and wheat are all likely to be given minute attention. -2- The cable lines are apt to be given careful attention by Hitler. is quite likely that the cables will be opened up on some fair basis It peoples of the world. Linked closely to the cables are other the agencies to of communication such as the telephone, the telegraph and the radio. The trend in all of these vast enterprises will be definitely way from Jewish influence. world shipping is bound to be S big question at the peace conference. freedom of the seas is apt to be an important agreement arrived at. gibraltar, the Suez Canal, Singapore, South Africa and other strategic portsthe andship passages will bethe gone over and reallocated. The ports extentand to companies, shipping lanes, the important which channels as well as maritime insurance have responded to Jewish influence True 1 I has been tremendous. When some other squeeze play could not be invoked by Britain, she could usually rely on her control over insurance rates to compel shipment in British bottoms in competion with the ships of other countries. Germany, Italy and Japan will undoubtedly move in for a substantial share in world shipping. Hamburg will likely become, for sea- I board commerce, one of the largest ports in the world. Whether American shipping interests can get further into this lucrative trade is not 1 certain. American industry with heavy foreign exports like steel, motors meat packing, etc., should be quick to encourage for their own good the expansion of American shipping as a protective measure against future discrimination in ratee favoring those foreign countries in which their main competion exists. The American steel industry must expect to face a real run for its money with the growing steel industry of Germany. One of the peace terms is likely to provide for the establishment of a comprehensive Jewish state on a scale never before contemplated. While Jews generally have been bitter in their condemnation of Hitler, it might remain to him, to do what Jews for generations have talked about, argued over and tried without much success to achieve. While Jewish leaders like Herzl and others have tried to establish the Jewish state in Palestine, Hitler knows as many practical Jews have pointed out that the poverty stricken area of Palestine can't support a Jewish state or any other substantial nation. He knows that the Christians and the Mohammedans are equally as firm as the Jews, in claiming Palestine as the birthplace of their-religions. It would not be surprising if Hitler should carve out new Jewish nation, on dimensions that will be far more elaborate and extensive than anything they have ever planned for themselves. That certain of their leaders will reject the proposal, whatever it may be, is inevitable. The press of the world, having made such a miserable spectacle of itself with falsifications, which have misled and befuddled the peoples in all lands, is recognized by Hitler as largely subject to Jewish inspiration. As an industry newspapers and magazines are likely to receive a heavy blow at the coming peace conference. Mergers and mortality among American newspapers and magazines are likely to be heavy in the months ahead. Having been consistently doing either the wrong thing at the right time or the right thing at the wrong time our Washington Administration which bank now leaps to a big defense program. The defense industries, frantically emtoo heavily upon the sudden spurt of building for defense, likely to be disbraced by the leaders of both parties in Washington, are vast armaappointed. with the vast armaments of all countries which have in a position ments, in his hands at the close of the war, Hitler will be an under- to impose a disarmament program on the whole of Europe. In in such opposition taking our country is quite as apt to acquiesce, as to run to the then general trend away from swords toward plowshares. world with the totalitarian nations industries looming ever larger in the togear inwhich are quickest dustrial operations, those American world scene will make the most their own respective pictures to fit the new so conspicuous on the progress. It is an old saying that Jews are not but the Hitler peace battle fields as they are at the conferences, Thepeace nation or the industry that is quickest conference will be different. is likely to be the one that to shear itself of its Jewish implications conference. American goes forward the most surely after the coming peace political parties business enterprises, financial institutions and even in the new with even remote Jewish domination will be under suspicion concluded world, which we enter after the important peace conference has It has its deliberations. Sound genuine purely American business, has nothing which to fear. it had been chance to escape from the dog eat dog impasse, into now move out a over more deeply drawn over the past decade or two, and may on a higher plane of world fair play. 300 PLAIN JT BERLIN Dated June 18, 1940 Rec'd 5 p.m. Secretary of State, Washington. 1916, Eighteenth. My number 1345, May 16, noon, lost paragraph. FOR TREASURY FROM HEATE, and also I or the informa- tion cf the Department. According to press reports the Reich on June 15, resumed issuance of 4 per cent Treasury certificates which had been discontinued since the beginning of liny. The new series however has a ten year maturity whereas the four SEPIES which preceded it had a maturity of at first five later live and one half years. The new series is being sold at 99 3/4 which is one quarter below the present market price of the first series but three quarters above their original selling price. They may be used as collateral at the Reichabank and will later be dealt in on the market. The new series vas announced in the press in contrast to the first series three months ago which was not EVEN mentioned 301 -2- #1916, JunE 18, from Berlin mentioned until SOME time after it was introduced. Although these loans may be subscribed to by the public they can hardly be called a public loan in the usual SENSE of the term since the amount to be issued has not been announced. The consortium for REich loans is not Entering into action and no time limit for subscriptions has been set. It is apparent that it is desired to Escape the odium associated in Germany with war loans. It is emphasized in the press that the issuance of the new Treasury certificates does not mean that the Rei ch will discontinue its previous policy of financing war Expenditures mainly through sales of short term paper no consolidation of which is yet planned. Consolidation the press states, will presunably not occur until later, possibly not until war financing is terminated and the transition to a PEACE tine Economy begins and the form and extent of the consolidation will then depend on how great demands on the capital market will be made by industries resuming peacetine production. HEATH CSB 302 GRAY JT LONDON Dated June 18, 1940 REC' d 6:24 p.m. Secretary of State, Washington. 1713, June 13, 6 p.m. FOR TREASURY FROI BUTTERYORTE. STRICTLY CONFIDENTIAL. One. As a smokescreen the Bank of England last night gave notice to financial institutions and to newspapers for publication this morning that permission XXX granted to transfer "controlled securities" under S. R. and 0. 1939, No. 966 (SEE pages 12 to 17 of the Embassy's memorandum on British Exchange Control Regula- tions) whether between residents or from residents to non- residents will be withheld until further notice and that dealings in such securities should accordingly be discontinued. Permits for such sales abroad not already acted upon are no longer valid and must DE lodged with the Bank of England for concallation. This notice is a smoke screen in the SENSE that steps are being taken to send these securities to Canada for purposes of safety and therefore of course, dealings could not take place, but the fact of 303 JT-2- #1713, June 18, 6 p.m., from London of transfer to Canada is not being made public. The first step now being taken is a voluntary one, namely, requesting the joint stock banks and certain other in- stitutions to take the requisite action. The British Treasury states that at a later stage a new defence (finance) regulation will be promulgated and then foreign and other financial houses in London will be requested to follow suit. Two. The British Treasury also states that SOME stocks of diamonds are being moved to Canada. French Three. The British Treasury indicated that *********** balances are being blooked today, but inasmuch as mail and telegraph communications are cut with France this action is mainly regarded as a response to public opinion that such a precautionary measure should be taken. KENNEDY NPL TREASURY 14599 av 303-A GRAY and PLAIN MA Bogota Dated June 18, 1940 Rec'd 11:47 p.m. Secretary of State Washington 163, June 18, 9 p.m. As the Minister of Finance advised ME on June 14 the Council of Ministers in Extraordinary session today approved measures proposed by the Ministry of Finance for reorganizing the national Economy and decrees promulgated under authority of Extraordinary powers act will be issued and Effective as of tomorrow. The measures involve modifications in existent banking legislation and comprehend the following subjects: Refunding and consolidation of internal public debt which will be serviced by contract with the Bank of the Republic at reduced interest rates of 4 and 6 %. The Bank of the Republic will make a loan to the nation of 20,000,000 pesos largely from proceeds derived from Export and Import Bank loan. A new section will be created in the Agricultural Credit Bank with a capital of 5,000,000 pesos derived from the above funds for the purpose of making short and long 303.B MA -2- tel # 163 from Bogota dated June 18. long term loans to agriculturalists and livestockmen. The nation will subscribe 2,000,000 additional capital to other sections of the Agricultural Bank and this bank will be able to make twenty year mortgage loans and six year agricultural or industrial security loans. It can accept as security for agricultural loans future crops from permanent plantations. Commercial banks will be permitted to buy unlimited amounts of the Agricultural Bank's bonds maturing in less than Eighteen months and permitted to buy amounts of the longer term bonds up to 40% of their capital and reserve the bonds to be rediscountablE. BRADEN EMB 304 THE WHITE HOUSE WASHINGTON June 18, 1940. My dear Mr. Secretary: The President on June fourteenth signed an Executive order entitled "Directing the Secretary of the Treasury to Assemble Annually a Coast Guard Personnel Board", as recommended by you. Very sincerely yours, STEPHEN EARLY President Secretary to the Supplementary The Honorable, The Secretary of the Treasury, Washington, D. C. 303 June 18, 1940 MEMORANDUN The President FROM: Secretary Morgenthan TO: The State Department has requested that we send a cutter with Consul Penfield as a passenger up the east coast of Greenland to two ports, Angaagasalik and Secresby Sound, which are respectively 400 and 860 miles north of Gape Farewell. Ice conditions will not permit any cutter to get in to either of those ports until about the middle of August, and conditions even then make is inadvisable to send any outter other than one especially built for Arotic work. The only vessel of this type we have is the NORTHLAND, now at San Francisco. The NORTHLAND is being ordered to proceed to New York as soon as possible and should arrive about the middle of July. The only armanent on the NORTHLAND at present is a single 4-inch gun. It seems to me highly desirable that for this mission the NORTHLAND be equipped with armanent generally similar to that with which the GEORGE W. GAMPBELL was equipped for her veyage to the west coast of Greenland. Since the time schedule will permit only about a week's delay, if we are to equip the NORTHLAND in this manner it will be necessary that you direct the Navy Department to give the job priority at whatever yard they may select for the work. The matter will be most urgent if Navy should deside that the work should be done at Mare Island. HEG/r (Signed) H. Morgenthau,Jr. By Messenger 110 306 June 18, 1940 MEMORANDUN TO: The President FROM: Secretary Morgenthan The State Department has requested that we send a outter with Gensul Penfield as a passenger up the east coast of Greenland to two ports, Angmagsanlik and Secresby Sound, which are respectively 400 and 860 miles north of Cape Farewell. Ice conditions will not permit any cutter to get in to either of those ports until about the middle of August, and conditions even then make 11 inadvisable to send any cutter other than one especially built for Arotic work. The only vessel of this type we have is the NORTHLAND, now at San Francisco. The NORTHLAND is being ordered to proceed to New York as soon as possible and should arrive about the middle of July. The only armanent on the NORTHLAND at present is a single 4-inch sun. It seems to me highly desirable that for this mission the NORTHLAND be equipped with armanent generally similar to that with which the GEORGE W. GAMPBELL was equipped for her voyage to the west coast of Greenland. Since the time schedule will permit only about a week's delay, if we are to equip the NORTHLAND in this manner to it will be necessary that you direct the Nevy Department give the job priority at whatever yard they may select for the work. The matter will be most urgent if Navy should decide that the work should be done at Mare Island. (Signed) H. Morgenthau. Jr. HEG/r was By Messenger 307 June 18, 1940 9:50 a.m. H.M.Jr: Hello. Operator: Go ahead. H.M.Jr: Hello. Sen. Pat Harrison: Henry, how are you? H.M.Jr: Oh, I'm fine. How are you all coming up H: there? Well, we're getting along pretty well. of course, we got through practically with all the Senate amendments yesterday except this Townsend proposition which I'm going to try to strike out today and the Byrd amendment will be taken up today and I'm just leaving it to them. I'm going to vote for it. H:M.Jr: Yeah. H: But I think we'll get through maybe today. H.M.Jr: Wonderful. H: Certainly by tomorrow. of course, we've H.M.Jr: H: H.M.Jr: H: H.M.Jr: got this excess profits and all that stuff's got to be offered. They're going to offer it. But I think they'11 probably be defeated. Yeah. Well, you're handling it We're getting along pretty well. Well, you're handling it in your usual masterful way. Well, I think we're getting along pretty well if we don't adjourn here now Saturday. We've got to get to work on this -- on real excess profi ts stuff. I'm with you a hundred percent. 308 -2H: Oh, Henry. H.M.Jr: Yes, sir. H: Tell me something, now. I've got a delegation here from Mississippi -- from Mississippi, one of our biggest cities. H.M.Jr: Yeah. H: They' ve got a fine airport there and 80 forth. Now, of course, they want to get something out of the Government on it and want to present their matters. H.M.Jr: Yeah. H: Are you having anything to do with that? H.M.Jr: No, I don't Pat, they've taken it all away H: Well, now, where is it lodged? H.M.Jr: You mean airports? H: Well, the whole thing with reference to from me. making airplanes and the airports and everything else. H.M.Jr: Well, I would say that I'd tackle Woodring H: You think Louis Johnson. H.M.Jr: Yeah, or Woodring, whoever you know best. H: It's all in the War Department then. H.M.Jr: Well, the final say is, yes. H: Yeah, the CAA doesn't have much to do with it. H.M.Jr: H: or Johnson. Well, they have something too but the money is with the War Department. With the War Department. 309 -3H.M.Jr: That's where the money 18. H.M.Jr: Well, I don't want to put any burden on you if you haven't got anything to do with it. I have nothing to do with it. The money is H: All right, Henry. Much obliged to you. H.M.Jr: Thank you. H: Thank you. H: in the hands of the War Department. 310 June 18, 1940 11:47 a.m. Admiral McIntire: Hello, Henry. H.M.Jr: Gosh, what a friend you are! McI: What's the matter now? H.M.Jr: I haven't got anything from you. For God's Bake, you mean to tell me -- McI: hasn't McGee gotten hold of you yet? H.M.Jr: McI: I haven't heard a thing. Well, that's a funny thing. He was going to get hold of you and he should have talked to you long before now. H.M.Jr: Well, I was to get a memo or something McI: Well, all right, we'll stimulate him H.M.Jr: If somebody would just take three minutes to write on a piece of paper what I should do when I talk to him McI: that I could go to Woodring on. That's the last we said, I think, on Friday. I haven't had a word since. again right now. O. K. I'll write it down and send it over to you myself. He'11 talk to you though without question, but I'll shoot it over to you now. I'11 write down - tell you what the dope is, but I did want him to explain to you, 80 you'd have a little bit better - I thought you wanted to write those people a letter. H.M.Jr: I do. McI: O.K. I'11 send this over to you, you'll have it in five minutes. I'11 send it right on over in that time. H.M.Jr: Right. McI; All right. H.M.Jr: Thank you. 311 June 18, 1940 1:00 p.m. H.M.Jr: Hello. Admiral Noyes: Hello, Mr. Secretary? H.M.Jr: Yeah. N: Could I come to see you for about five minutes? H.M.Jr: I don't know. I'm very exclusive today, Admiral. Is it on that Thursday business? Yes, sir, on our original proposition. That stuff gets in Thursday, doesn't it? N: Sir? H.M.Jr: Thursday, it comes in, doesn't it? N: Thursday. H.M.Jr: That load. N: Yes. H.M.Jr: Yeah. H.M.Jr: N: N: H.M.Jr: N: You got the time, didn't you? Yeah, Admiral Stark gave it to me. But we got a despatch that I had to ask you about from the other side we'll have to answer, you see. H.M.Jr: N: H.M.Jr: I see. It won't take but a minute to look at it. Yeah. Could you be here a little bit before two? N: Yes, sir. Any time you say. 312 -2H.M.Jr: Quarter of two. N: At a quarter of two. H.M.Jr: N: Yeah. You may have to wait a few minutes, if quarter you don't mind, but I'11 try to make it a of two. All right, sir. This is a despatch that was sent to us and we've got to answer it or, that is, we don't want to answer it, and we want to see what you think about it. H.M.Jr: Ought I to have Cochran there? N: Sir? H.M.Jr: Do I need Merle Cochran? N: H.M.Jr: That would be all right. I mean, is it Navy or financial? N: It comes from the Embassy, that's the reason. H.M.Jr: Oh, I'll have Cochran standing by. N: All right. H.M.Jr: Thank you. N: Thank you, sir. Quarter to two I'll be there. H.M.Jr: If you please. 313 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE June 18, 1940 Secretary Morgenthan FROM Mr. Cochran STRICTLY CONFIDENTIAL At 6:45 yesterday evening Mr. Pinsent, Financial Counselor of the British Embassy called on me and showed me a copy of a cablegram which had come to his Enbessy. I made a copy thereof. Today noon Mr. Pinsent telephoned me certain corrections in the message, so that it reads as follows: "Secret. Please inform United States Government that in view of obscurity of position and uncertainty whether French offer of armistice will be accepted we did not to-day take steps to block French gold [ balances before banks closed. We shall consider what will be appropriate steps to take tomorrow. 2. We should be glad to know what steps would be contemplated by U. S. Government to prevent French gold hold in U. S. A. by French Government or Bank of France or gold in transit being handed over to Germany and French balances being used for benefit of Germany." With reference to the first paragraph of the message, I told Mr. Pinsent that the Treasury Department had shortly after noon yesterday issued orders "freezing" French assets in this country, and I gave him the documents pertaining to this operation. I told Pinsent that I could not give a definite answer to the second paragraph. I reminded him that one of the basic purposes of our "freezing" policy was to see that foreign funds in this country were held by their rightful owners, and that I was sure that every proper effort would be made toward achieving this end. At the same time, I pointed out that in the event of an armistice or of a to capitulation on the part of France there would be many factors which would have be considered, such as the terms of the armistice or surrender. our general governmental policy in the premises, and the legal questions that would arise. On these points the State Department particularly would have to pass. In this connection Mr. Pinsent told me that the above message would be transmitted by the British Embassy to the Department of State. He asked if I know of any objection to the Embassy raising with the Department of State at the same time the question of blocking German assets in this country, which had been one of the suggestions made by Lord Lothian in a Letter to the President. I saw no objection to this. I reminded Pinsent that I had told him sometime ago that a 314 definitive reply to the letter could not be given by the Treasury Department, since the letter was addressed to the President, but I let him know that it had been the consensus of opinion of the officials of the State and Treasury Departments who had discussed the matter that we should not in present circum- stances proceed with the blocking of German assets in this country. Incidentally, Under Secretary Bell and I had reaffirmed this position to Mr. Pinsent, in the presence of Mr. Leroy-Beaulieu, the French Financial Attache, who had called on us and revived the question after Italy had entered the war. Dr. Feis, of the State Department, telephoned me this afternoon to the effect that a communication had now been received by the State Department containing the above quoted message. In order that Dr. Feis might know the Treasury's position, I am forwarding to him a copy of this memorandum. At 5:45 this evening Mr. Pinsent telephoned me and referred to the final sentence of the first paragraph of yesterday's message. He stated that he had now received a message from his Government to the effect that French assets had been blocked. BMR. 315 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE June 18, 1940. TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL Mr. Leroy-Beaulieu, Financial Attache of the French Embassy, telephoned me at 5:00 this afternoon in regard to some applications received through French diplomatic channels for the release of French assets blocked in this country by the Treasury's order of yesterday. I placed Mr. Leroy-Beaulieu directly in touch with Mr. Pehle on this subject. While we were on the telephone, Mr. Leroy-Beaulieu referred to his conversations in the Treasury Department this forenoon. He said that after leaving the Treasury he had consulted with his Ambassador and that the decision had been taken not to transfer any French assets at present from New York to Ottawa. The Ambassador saw no reason for taking any immediate steps towards changing the situation of French funds in New York as it presently obtains. The Bank of France has followed the policy of dividing its reserves, having about as much in Canada as in the United States. The balance of the reserves is either on the water en route to America or, to a smaller extent, in England. In the second place, the French Ambassador cannot conceive that the United States, particularly after instituting its freezing operations, would release French funds to Germany while Great Britain has not made a separate peace. Mr. Leroy-Beaulieu points out that it may be very much to the advantage of France to have funds in the United States with which corn and other supplies could be bought here and shipped to France to relieve needs and suffering in that country within the next few months, even with France under German domination. Mr. LeroyBemulieu insisted that the above decision should not be interpreted to indicate the slightest break in solidarity between France and Great Britain. In closing, Mr. Leroy-Beaulieu told me that he had been a little reluctant to talk too much about French gold and financial policies in the large meeting this morning, but would be very pleased to give any further details or explanations to Secretary Morgenthau if and when the latter may desire them. Aml TREASURY DEPARTMENT 316 INTER OFFICE COMMUNICATION DATE June 18, 1940 TO Mr. Thompson FROM Mr. Haag 904 In response to your request of December 26, 1939, there is submitted herewith for the Division of Research and Statis- tics a memorandum listing, with brief descriptions, the studies or projects completed or under way, and the names of persons working on each, for the month of May 1940. 317 DIVISION OF RESEARCH AND STATISTICS Report of Studies or Projects Completed or Under Way, and the Names of Persons Working on Each, for the month of May 1940 For convenience of reference, the studies listed are grouped under general subject heads. The names shown for persons working on each project include only those who participated fairly directly, as explained in the introductory note to the corresponding report submitted on December 28, 1939. No attempt has been made to cover also persons whose responsibility in each particular case was mainly in planning, supervising, or consulting. Financial Analysis I. Projects or studies completed 1. Reviews of current developments in the high-grade securities markets were prepared, and memoranda were trans- mitted to the Secretary on the following dates; May 2, 7, 15, and 23. - Mr. Haas, Mr. Murphy, Mr. Tickton, Mr. Turner, Mrs. Wadleigh, Miss Eyre These reviews contained, in addition to analysis of the current situation, special studies, as follows: (1) British Government finance (Review of May 2, page 3). - Mrs. Wadleigh (2) The institutionalization of investment (Review of May 7, page 3). - Mr. Tickton (3) The value of "rights" to purchase Treasury securities (Review of May 23, page 4). - Mr. Turner 2. Memorandum on the setting for the June financing was prepared, and was transmitted to the Secretary on May 29. Mr. Haas, Mr. Murphy, Mr. Tickton, Mr. Turner, Miss Eyre 3. Yield rates on United States securities, direct and guaranteed, on the basis of over-the-counter closing quotations were calculated daily. These were summarized each day in a table showing for each issue the closing price and yield that day, the change in price and yield from the 2- 318 preceding day, and the price range since date of issue and also for the years 1939 and 1940 to date. A chart for each issue was kept up to date showing recent daily price and yield figures together with comparative monthly data since 1933 or since date of issue. Mr. Brown, Mr. Moody, Mr. Kroll 4. At the request of the Secretary, arrangements have been made to secure periodically from the Anglo-French Purchasing Board certain information regarding purchases by the Allied governments in the United States. Weekly statements are received covering in dollar volume itemized purchases through the Board by England, France, Canada, and Australia, itemized purchases made by these governments with the knowledge of the Board but not through its facilities, and inquiries made by the Board or with its knowledge for future purchases. In these reports all Allied orders and deliveries are being classified in some twenty-five commodity groups designed especially for the purpose of this project. Arrangements have been made also to secure from the same source periodic statements showing commitments and actual payments made by the Allied governments for the purpose of providing capital assistance to American companies in order to expedite deliveries. These commitments are listed in four groups - (a) expansion of plant capacity, (b) personnel training, (c) income tax contributions, and (d) United States development costs. Special attention is being directed toward the aircraft industry, both as to the effect of capital assistance and as to output. Weekly statements are prepared showing by airplane and airplane engine companies the physical volume of orders placed, deliveries made, and estimated deliveries on unfilled orders and on options. These statements give detail by type of airplane or type of engine. It is expected that similar statements will be prepared covering physical volume of Allied purchases from certain other industries. - Mr. Haas, Mr. Lindow, Mr. Tickton In carrying on this project, reports were prepared and transmitted during May as follows: May 8, 1940 - A folder was transmitted to the Secretary containing charts and tables showing the estimated value of airplanes and airplane engines purchased by England and France, and estimated deliveries thereon as of the -- 319 end of February, during March and during tables showed the number of airplanes and airplane purchased and delivered as of theengines same dates. April. In addition, similar charts and May 9, 1940 - A table was transmitted to Mr. Young for the Secretary showing the British and French purchases of airplanes and airplane engines during April 1940, classified by companies. May 10, 1940- A table was transmitted to Mr. Young for the Secretary showing expenditures incurred by the British and French Governments for expansion of capacity of the aircraft industry, classified by companies. This report showed expenditures incurred through March 31 during April, and through April 30, 1940. May 16, 1940- A report was transmitted to the Secretary giving information concerning capital com- mitments of the British and French Governments in the aircraft industry, This report showed capital commitments for (1) expansion of plant capacity, (2) personnel training, (3) income tax contributions, (4) development costs incurred by the United States Government, and (5) undesignated purposes. Details were given by companies for the period up to and including March 31, 1940, during April, from May 1 to May 15, and the totals through May 15. A supplementary schedule showed payments on these capital commitments as of the same dates. May 17, 1940- Reports were transmitted to the Secretary showing the scheduled deliveries, by months, of airplane orders and airplane engine orders of the British and French Governments, classified by manufacturer and by type of plane or engine, as of April 30. Supplementary tables showed the number of airplanes and number of airplane engines delivered to the British and sified by manufacturer and by type of plane French Governments from May 1 to May 15, clas- or engine. May 20, 1940- Reports were transmitted to the Secretary showing scheduled deliveries, by months, of airplane orders and airplane engine orders of the British and French Governments, classified by manufacturer and by type of plane or engine, as of May 15, 1940. - 320 May 24, 1940 - Reports were transmitted to the Secretary showing scheduled deliveries, by months, of airplane orders and airplane engine orders of the British and French Governments, classified by manufacturer and by type of plane or engine, as of May 22, 1940. Supplementary tables showed the number of airplanes and airplane engines ordered by the British and French governments and delivered to them from May 16 to May 22, 1940, classified by manufacturer and by type of plane or engine. May 27, 1940 - Analyses made of capital commitments, and payments thereon, of the British and French governments other than in the aircraft industry. These schedules showed commitments and payments by companies for the period through March 31, 1940, during April, from May 1 to May 15, and through May 15, 1940. 5. At the request of the Secretary on May 23, arrangements were made for securing each week from more than forty airplane and airplane engine manufacturers data on deliveries, new orders, unfilled orders, and estimated deliveries by months on the unfilled orders. Analytical tables are prepared each week showing this information by type of plane or engine and by class of purchaser. The first weekly report WAS transmitted to the Secretary on May 28. - Mr. Haas, Mr. Reagh, Mr. Brown, Mr. Tickton 6. Analysis of the Lee bill (s. 1650) for drafting capital in time of war, was prepared in response to a request from Under Secretary Bell, and was transmitted to him on May 25. Mr. Murphy, Mr. Lindow, Mr. Conrad 7. Tabulation of holdings of Government securities by principal life insurance companies as of December 31, 1939, was prepared, in response to a request from Dr E. A. Goldenweiser in the office of the Board of Governors of the Federal Reserve System, and was forwarded on May 2. Mr. Tickton 8. Analysis of proposed legislation to amend Section 1(a) of the District of Columbia Alley Dwelling Act, as amended, was prepared at the request of the Legal Division. The report was incorporated in a letter to the Bureau of the Budget for signature of the Secretary. - Mr. Lindow, Mr. Tickton, Miss Eyre 321 -5- 9. Analysis of the financial strength of the corporation involved, in relation to proposed compromise in an income tax case, was prepared at the request of the General Counsel, and was transmitted to him in a memorandum of May 3. - Mr. Murphy, Mr. Conrad 10. Memorandum on the financial status of the Hudson County National Bank, Jersey City, New Jersey, prepared at the request of Under Secretary Bell, was forwarded to him on May 31. - Mr. Murphy, Mr. Conrad 11. Data on bank preferred stock purchases were prepared for use in testimony by Comptroller of the Currency Delano before the House Banking and Currency Committee. At the request of the Comptroller's Office, Mr. Murphy appeared at the hearing. Transcript of the testimony was reviewed. - Mr. Murphy, Miss Eyre 12. Analysis of the proposed Farm Credit Act of 1940 was undertaken at the request of Under Secretary Bell in anticipation of possible statement before the Senate Committee on Agriculture. When it was determined that no statement would be made, the work was discontinued. Mr. Murphy, Mr. Tickton 13. Report on S. 3878, a bill, "Authorizing adjustment of the mortgage indebtedness of certain borrowers from the Federal Land Banks, prepared in the Legal Division, at the request of Under Secretary Bell was reviewed and then forwarded to him on May 16. - Mr. Tickton 14. Report on S. 3867, a bill, "To establish a ratio within which banks may expand their deposit liabilities based upon their capital, surplus, and undivided profits, and for other purposes," prepared in the Legal Division, at the request of Under Secretary Bell was reviewed and then forwarded to him on May 23. - Mr. Murphy 15. A report prepared by the office of the Under Secretary relative to the amendment of the existing agreements between the Public Works Administration and the District of Columbia so as to provide for a reduction in the rate of interest which the District of Columbia will be required to pay on the sum of $9,982,500 which was borrowed from the Public Works Administration under authority of an Act approved May 25, 1938, at the request of Under Secretary Bell was reviewed, and forwarded to Mr. Hadley on May 6. Mr. Murphy 322 -6II. Projects or studies under way 1. Chart comparing yields on long-term Treasury bonds and over-the-counter volume depends for completion upon arrangements to secure the necessary data. - Miss Eyre 2. Statistical (graphic correlation) analysis of factors affecting high-grade interest rates has been completed except for graphic work. - Mr. Turner 3. Study of the relationship between the yields and maturities of high-grade securities immediately preceding prior major bear markets in such securities. - Mr. Turner, Mr. Conrad 4. Comparison of relative amplitude of price fluctuations of long-term and short-term securities. - Mr. Lindow, Mr. Conrad 5. Study of the effect of the size of the issue on the prices and yields of U. S. securities. - Mr. Lindow, Mr. Conrad 6. Chart and annotations with respect to the factors influencing the movement of interest rates during the last World War have been completed except for the graphic work. - Mr. Turner 7. Discussion of various problems encountered and solutions devised in connection with war borrowing. - Mr. Murphy 8. Memorandum comparing and contrasting war and depression deficit-financing. - Mr. Murphy 9. Review of war-financing measures in the United Kingdom and the British Dominions, France, and Germany in the present war. - Mr. Murphy 10. Preparation of data for the Secretary of Commerce re amount of interest-bearing securities of Federal corporations and agencies outstanding December 1929-1939, as part of a report being prepared jointly with the Office of the Commissioner of Accounts and Deposits and the Division of Tax Research. - Mr. Lindow, Mr. Conrad 11. United States Savings Bonds - An analysis of factors affecting redemptions of United States Savings bonds, as a guide to future experience. - Mr. Conrad 12. Analysis of plan by State Senator Esquirol of New York for stimulating recovery by means of increased expendi tures 323 -7on housing, is being prepared at the request of Under Secretary Bell. - Mr. Murphy Revenue Estimates I. Projects or studies completed 1. The regular monthly statement was prepared for the Office of the Commissioner of Accounts and Deposits showing the latest revised estimates of receipts, by months and by principal sources of revenues, for the period April through June 1940, and for the fiscal year 1941, and was transmitted on May 6. - Mrs. Stanley 2. The regular monthly summary comparison of estimated receipts and actual receipts in April and in the first ten months of fiscal year 1940, on the daily Treasury statement basis, Was prepared, May 4. - Mrs. Stanley 3. The regular monthly detailed comparison of estimated and actual receipts in April 1940 and in the first ten months of the fiscal year 1940, based on the collections classification, was prepared, May 31. - Mrs. Stanley 4. Estimate was prepared for and transmitted on May 11, to the Division of Tax Research, of the revenue effects for the years 1940, 1945, 1950 and 1960 of the following changes in the treatment of tax-exempt securities: (1) If the interest from outstanding and future issues of State and local Government obligations were to become taxable immediately, and (2) If the interest from future issues of Federal obligations were taxable from the same date onward and outstanding obligations were called at their earliest callable dates. - Mr. Driver, Mr. Leahey 5. An estimate was prepared for the Division of Tax Research of the revenue effects on the basis of calendar year 1940 business levels of increasing the individual surtax and normal tax rates in accordance with a schedule attached to Mr. Blough's memorandum of April 24, 1940, in combination with increases in the corporation income tax rate of 2 percent and 1à percent. The estimate was transmitted to Mr. Blough on May 9. - Mr. Driver, Mr. Leahey 6. An analysis was made for the Division of Tax Research, in connection with possible revenue effects, of H. R. 8264. 324 8- a bill "To provide for national recovery by raising revenue and retiring citizens past sixty years of age from gainful employment and provide for the general welfare of all the people of the United States, and for other purposes. A letter for signature of Assistant Secretary Sullivan to the Committee on Ways and Means incorporating an estimate of the revenue effects was transmitted Mr. Wilson to Mr. Blough on May 31. - Mrs. Stanley, II. Projects or studies under way 1. An estimate of the revenue effects of the bill H. R. 1, 76th Congress, First Session (a bill providing for an excise tax on retail stores) is in process of preparation for the Division of Tax Research. - Mr. Leahey 2. In connection with the proposed Revenue Act of 1940, a number of revenue estimates were prepared for use of the Secretary and Assistant Secretary Sullivan, as follows: (1) Tentative revenue estimates under the proposed Special National Defense Tax provisions were transmitted to the Secretary on May 27 in a table showing by major sources amounts estimated to be received during the period from July 1 through December 31, 1940, and during the fiscal year 1941. (2) Tentative revenue estimates anticipating enactment of the proposed legislation were transmitted to Assistant Secretary Sullivan on May 27 in a table showing by major sources revenue expected for full- year collections, for the fiscal year 1941, and for July 1, 1940, to February 1, 1941, together with a schedule showing for the various amounts of surtax net income, by the proposed rate of tax, the amount of surtax on higher amount of surtax net income. (3) Tentative revenue estimates anticipating enactment of proposed legislation were transmitted to Assistant Secretary Sullivan on May 27, showing by all major sources revenue expected for full-year collections, for the fiscal year 1941, and for July 1, 1940, to February 15, 1941, together with a schedule showing for the various amounts of surtax net income by the present rate of tax and by the proposed rate of tax, the present and proposed amounts of surtax on higher amount of surtax net income. -9- 325 (4) Tentative revenue estimates anticipating enactment of proposed legislation were transmitted to Assistant Secretary Sullivan on May 29, in a table showing by major sources amounts to be received on full-year collection basis. (5) Revenue estimates transmitted to Assistant Secretary Sullivan on May 30, in table showing itemized detail of additional revenue attributable to the proposed Revenue Act of 1940, for fiscal year 1941, and for the first full year, from corporate and individual income, capital stock and excess-profits, estate, and gift taxes; alcoholic beverage taxes, tobacco taxes, stamp taxes, manufacturers' excise taxes, and miscellaneous taxes. Additional estimates are being prepared for use during the consideration of the bill by the Committee on Ways and Means. - Mr. O'Donnell, Mr. Driver, Mr. Leahey, Mrs. Stanley, Mr. Wilson 3. An analysis of preliminary estimates of income tax receipts for the calendar year 1940 from individuals classified by net income and marital status, is in preparation for the Division of Tax Research, and has been nearly completed. Mr. Driver 4. Studies are being made for refining and improving the methods of estimating revenues from the following taxes: M188 Rastall, Mr. Smith (1) Lubricating oil (2) Wines, domestic and imported (3) Transportation of oil by pipeline (4) Tires and inner tubes Economic Conditions Related to Fiscal and Revenue Matters I. Projects or studies completed 1. Memoranda on the business and price situation were prepared and transmitted to the Secretary on the following dates: May 6, 11, 20, and 27. - Mr. Haas, Mr. Daggit, Mrs. May, Mr. Chevraux, Mr. Smith 326 - 10 A comparison of farm income and rural sales of general merchandise was shown in a chart in business memorandum of May 6. - Mr. Daggit, Miss Rastall A study of General Motors retail sales of care during the model years 1938-40 and their stocks of new and used cars, in relation to sales, was included in two charts in business memorandum of May 20. - Mr. Daggit, Miss Rastall 2. Memoranda on employment under the Work Projects Adminis- tration were prepared and transmitted to the Secretary on the following dates: April 29, May 8, 20, and 27. Miss Rastall 3. Memoranda on the movement of export freight from North Atlantic ports were prepared and transmitted to the Secretary on May 2, 8, 15, 22, and 29. - Mr. Daggit, Mrs. May, Miss Rastall 4. At the request of the Secretary, a new study was made to determine the location of blast furnaces in the United States, grouped by districts. Arrangements were made to receive currently reports as to which plants are active and which idle. A chart was prepared and sub- mitted with a memorandum to the Secretary on May 14; revisions were submitted May 24 and May 31. - Mr. Daggit, Mrs. May, Mi : Rastall, Mr. Smith 5. Compilations were made of daily quotations on selected commodities and daily and weekly figures on selected business indices, foreign and domestic security transactions, security prices, exchange rates, etc., as well as other data for the Secretary's chart book. - Mr. Chevraux 6. Stock prices at Milan, Italy, compiled daily on the basis of cable reports, together with market comments, are transmitted to the Secretary each day. - Mr. Chevraux 7. A study was made of the relationship between sales of industrial gases by the Air Reduction Company and steel ingot production, in an attempt to determine the significance of these sales as a measure of steel consumption activity. On basis of the showing of the preliminary work the project was discontinued. - Mr. Daggit, Mrs. May 8. At the request of Under Secretary Bell, a study was made of the capacity of the steel industry for producing the principal finished steel products, and was transmitted to him on May 3. - Mr. Daggit 327 - 11 - II. Projects or studies under way 1. Index of unfilled orders. An attempt is being made to improve our information on the volume of unfilled orders by working out a composite index based on data from individual industries. Work on the U. S. Steel Corporation, a large and representative segment of the steel industry, has been completed. Mr. Daggit, Miss Rastall 2. Indications of business maladjustment. Various indications of business maladjustments, shown in graphic form, are being brought together for convenient reference. This project is practically completed. - Mr. Daggit 3. Forces determining trends of basic commodity prices. This project involves individual price studies for various basic commodities, a number of which have been completed, which are intended eventually to be combined into a general index representing the basic price trend, after allowance for the effect of supplies, industrial demand, and other separable factors. During May preliminary work on hides, butter, and flaxseed was completed and work was started on cottonseed oil. - Mr. Daggit, Mrs. May 4. Trends of individual commodity prices and price factors during the World War period. This project is patterned after the general study of prices and price factors, 1913 to 1922, made in October, but deals with six individual basic commodities - wheat, cotton, hogs, steel, copper, and zinc. The project is designed to determine the principal price factors associated with the wartime rise and subsequent collapse of prices of these commodities. - Mr. Daggit, Mrs. May 5. Index of commodity stocks. This project is designed to develop a composite index of basic commodity stocks as a measure of one important factor in the general price level. Stocks of 16 important industrial materials, expressed in terms of their net effect on prices, are being compiled for this index. - Mrs. May - 12 - 328 6. Index of goods inventories. A better index of inventories of finished goods is needed as an indication of business maladjustments, with a breakdown as between inventories of finished goods held by manufacturers and those held by others. An attempt to develop Miss Rastallsuch an index is under way. - Mr. Daggit, 7. Index of buying on deferred payments. A study of the volume of installment buying and consumer credit has nearly been completed. This study is designed eventually to provide a monthly index of the volume of buying on deferred payments, which at times is an important business factor. It 18 in abeyance at present, pending publication of a new study by the Department of Commerce. Mrs. May 8. Weekly approximations of the FRB index of industrial production. Project was started during March and will be completed after the release of the new FRB monthly index (now in process of revision by the Federal Reserve Board and expected out in one to three months). This project is designed to develop an index of industrial production that will indicate week by week the approximate level of the FRB index. It will include a larger number of weekly series than are included in any current business indices, with weightings and seasonal adjustments approximating those in the FRB index. - Mr. Daggit, Miss Rastall, Mr. Smith 9. Relationship between New York Times index and FRB index. A study of the relationship between the New York Times index and the FRB index in an attempt to estimate the weekly level of the FRB index from the New York Times index. This estimate will be superseded by one based on components comparable to those in the FRB index as soon as pending revisions in the FRB index are completed. Chart was included with business memorandum of May 11. - Mr. Daggit, Mrs. May 10. Measures of consumer buying. A project is under way with the object of developing (1) an index to measure the buying power of consumers in terms of physical volume of purchases, after correcting for the effect of changes in price on the apparent demand; - 13 - 329 and (2) an index to measure changes in total consumer expenditures, in dollar volume. These two indices will supplement our present "index of sales," which is designed to measure the "offtake" of manufactured goods into various consumption channels. Substantial progress Miss Rastall, Mr. Smith has been made during the month. - Mr. Daggit, Mrs. May, Actuarial Problems I. Projects or studies completed 1. Sale of annuity bonds by the Treasury; proposed amendment to the Second Liberty Bond Act, as amended. A report made at the request of Under Secretary Bell, on a draft of a proposed bill which would authorize the sale of annuity bonds by the Treasury, was forwarded, with an alternative plan, to the Under Secretary on May 20. Mr. Reagh 2. Study of horse race results. This study was undertaken at the request of the Legal Division, for use in connection with the Annenberg case. The results of some thirteen thousand horse races have been recorded on punch cards and tabulated to show the financial results of betting under various systems and of following the selections of different expert handi- cappers. A memorandum embodying the results of the study was forwarded to Mr. Foley on May 3. i Mr. Reagh, Mr. Brown 3. Yield to maturity on savings bonds. At the request of the Division of Savings Bonds a table showing "Yield to maturity of United States savings bonds for each six months' period computed with and without current increment in redemption value" was prepared, and transmitted to Mr. Sloan on May 9. - Mr. Reagh 4. Review of report on S. 3855. A report on this bill, "To amend title X of the Social Security Act, as amended, to provide for additional aid to the blind," prepared in the Office of the Commissioner of Accounts and Deposits, at the request of the Office of the Commissioner of Accounts and Deposits was reviewed 330 - 14 and then forwarded to the Legal Division on May 8. - Mr. Reagh 5. Review of report on S. 3924. A report on this bill, "Amending the Social Security Act so as to provide insurance benefits for wage earners permanently and totally disabled for causes not arising out of their employment," prepared in the Office of the Commissioner of Accounts and Deposits, at the request of Mr. Heffelfinger was reviewed and then forwarded to Under Secretary Bell on May 24. - Mr. Reagh 6. Proposed wage reports to Social Security Board, by industries, by localities. At the request of the Central Statistical Board draft of statement providing background information on proposal of Social Security Board to obtain the quarterly wage reports on Form SS-1a by industries, by localities, was reviewed and reply was forwarded to the Central Statistical Board on May 21. - Mr. Reagh II. Projects or studies under way 1. Board of Actuaries of the Civil Service Retirement and Disability Fund. There is pending before the Board of Actuaries the matter of approving regulations with respect to the optional benefits payable under the Civil Service Retirement Act. At the present time the Board 18 awaiting the decision of the Comptroller General as to whether a cash refund of voluntary contributions would be permissible under the Act. - Mr. Reagh 2. Board of Actuaries of the Civil Service Retirement and Disability Fund. The Board has in process of preparation its Nineteenth Annual Report. A draft has been returned to the Chairman with suggestions for its revision. Work on the final report is in process. - Mr. Reagh 3. Report of the Civil Service Assembly of the United States and Canada on "The Retirement of Government Employees. A first draft of the chapter on "Financing the Plan" is in process of preparation. - Mr. Reagh 331 - 15 4. Actuarial ment Act.Advisory Committee under the Railroad RetireAt a meeting of the Actuarial Advisory Committee held on May 7, 1940, the proposed plan of procedure for a valuation of the Railroad Retirement plan was approved tentatively. The actuary of the Railroad Retirement Board was asked to make several minor changes in his valuation formulae and submit copies to the members of the Committee. These additional data have not yet been received. - Mr. Reagh 5. Retirement system for Haitian Government employees. The State Department 1s preparing data with respect to the employees included under a proposed retirement plan, and informal request has been received that when the data are submitted cost estimates be prepared and plans be suggested for financing the system. - Mr. Reagh 6. Federal Communications Commission. A request from the Federal Communications Commission was received on May 18 to review an actuarial report of the American Telephone and Telegraph Company regarding recent changes which they have made in the valuation of their pension plan. Members of the Division's staff will serve in an advisory capacity. The actuarial report has been submitted to the Division for study. - Mr. Reagh, Mr. Brown Other Projects or Studies 1. Treasury Bulletin. Data were prepared or reviewed for the May issue of the Bulletin, as follows: Prepared - Average yields of long-term Treasury bonds and highgrade corporate bonds. - Mr. Lindow, Miss Eyre Reviewed - Amount of interest-bearing debt outstanding, the computed annual interest charge and the computed rate of interest. - Mr. Lindow Estimated customs duties and taxes, and value of dutiable and taxable imports, by tariff schedules. - Mr. Lindow, Mr. Wilson - 16 - 332 Estimated receipts from taxes imposed by various revenue acts on imports. - Mr. Lindow, Mr. Wilson Computed Mr. Wilson duties collected, by countries. - Mr. Lindow, Treasury criminal cases. - Miss Michener, Mr. Lindow 2. Correspondence. Replies were prepared to letters of inquiry on subjects relating to the work of the Division, and letters drafted elsewhere and submitted to the Division for that purpose were reviewed. - Miss Michener, Miss Ziegler, and other members of the staff in appropriate fields of work. During May 274 letters were received in the Division and 274 were handled as required. 3. Charts. Charts are prepared and continually brought up to date for use in memoranda and in chart books on special subjects, and corresponding photographic, photostatic, and multilith work 18 carried on. This is done in the Graphic Section under the supervision of Mr. Banyas. A statistical report on the work of the Graphic Section for the month of May is attached. 333 Work completed in the Graphic Section, Division of Research and Statistics, May 1 to May 31. Type of work For Division of R & 8 For Others Total Iraphic: New Charts: Charts brought up to date: 3 bond chart books brought up to date All other charts brought up to date 46 27 26 (times) - Total cherts completed 73 26 (times) 651 49 700 16 12 28 39 45 84 104 112 216 30 166 196 213 145 358 139 44 183 440 980 498 938 1,589 2,569 Miscellaneous: Total jebs hotographic: Photographs: Total jobs Number of- Negatives Contact prints Enlargements Photostats: Total jobs Number of- Lettersize copies All other copies Multilith: Total jobs 5 4 1 Number of- Zinc plates 73 74 1 Miscellaneous: Tetal jobs B:wlt -1-40 6 3 3 Statistical Report on Work Completed by the Graphic Section, Division of Research and Statistics, by months, beginning January 1940. # # Miscellaneous jobs completed $ Bond book charts completed Bond books brought up to date Apr. 41 52 52 50 773 678 713 713 57 - - 49 # Charts brought up to date Feb. : Mar. May $ A. Graphic New charts completed Jan. June $ Type of Work Total 78 700 - - 24(times) 25 (t) 26(t) 26 (t) 11 38 32 28 73 98 84 216 B. Photographic Photographs: Total jobs Number ofNegatives 69 89 179 145 Contact prints 137 170 192 947 369 370 196 Enlargements 604 226 141 214 358 137 101 165 181 183 2,361 464 938 868 2,522 1,589 780 781 1,014 2,569 Photostats: Total jobs Number of- Lettersise copies All other copies Multilith: Total jobs 2 4 Number of- Zine plates 8 65 66 89 14 81 5 74 Miscellaneous: Total jobs 6 3 9 14 6 334 LBiwlt 16385 REQUIRED weekly by instr. of May 27, 1939 from Bureau of F. & D. Commerce. 6-18-40 RI. 335 FINANCIAL SITUATION IN BELGIUM AS OF JUNE 10, 1940. Note: The last financial weekly report from Brussels reported conditions up to May 18. Communications have been interrupted since the middle of May, but the financial situation has been static. A summary of conditions at present is given below. From: Edward A. Dow, Jr., American Vice Consul American Embassy, Brussels, Belgium. Date of completion: June 10, 1940. Date of mailing: June 18, 1940. Approved: K. L. Rankin, Commercial Attache The Belgian Government and the National Bank of Belgium manage- ment left Brussels on May 17. reportedly with all of the gold and foreign exchange reserves still held by the Bank in Belgium. The following day German troops occupied Brussels. There had been no foreign exchange transactions since May 10 and withdrawals from banks had been sharply limited since May 14. Bankers and depositors waited to see the attitude which would be taken by the occupying authorities with regard to foreign exchange, safe-deposits, Belgian franc accounts and foreign currency, including dollar, accounts. -2- 336 The German military authorities at first appeared to take no interest in financial questions and until the arrival in Brussels of a section of the German Deviezenschutzkommando during the week ending May 25, no action whatever was taken. After the latter date a few instructions were issued by the German authorities, often verbally, and the situation was approximately as follows up to and including June 10: Foreign Exchange. The general prohibition against dealing in foreign exchange was maintained in force, except that a rate of 10 francs to the mark was officially established. Reichsmarks themselves, however, were not allowed to circulate in Belgium. Reichskreditkassenbons in Reichamark denominations began to come into circulation due chiefly to purchases by soldiers, and the 10 franc rate applied. A rate of 15 francs to the guilder was also established, but remained virtually nominal as there were practically no buyers of guilders. Up to June 10, no rate had been set for dollars or any other foreign currency, although German officials stated that a rate would be established shortly. Belgian franc accounts in banks. The provisions of the Belgian decree-law of May 13, limiting withdrawals to 5,000 france per account per fortnight, remained in effect. The 5,000 franc limitation could be waived in cases where payrolls had to be met or in other special instances. Franc accounts opened after May 10 were not subject to limitation, but few such -- 337 accounts were opened. Transfers of accounts from bank to bank were authorized. Dollar and other foreign exchange accounts. These accounts were blocked by order of the Deviezenschutzkommando if they were the property of "enemy" citizens. The term "enemy" was to apply to British, French, Belgian and Netherlands citizens. The Deviezenschutsiommando did not publish this order, but comunicated it verbally to banks, some of whom requested and received a written order to the foregoing effect. Dollar accounts were not blocked if they were the property of American or other neutral citizens. In effect, however, they were of little use to their owners, as withdrawals could not be converted into francs and drafts could not be sent out of the country owing to the lack of communications which still prevailed on June 10. Safe-Deposits. All property in safe-deposit vaults was blocked by the Deviezenschutzkommando, which required that safe-deposit boxes could only be opened in the presence of a German official. It was reported that in practice such officers were allowing Americans and other neutrals to remove their property without hindrance, but Belgians and other enemy citizens were reported to be required to hand over-gold and foreign exchange against a receipt. As a result few Belgians opened their safe-deposit boxes and it was believed possible that an order would be issued requiring their opening. No such step had been taken, however, up to June 10. Circulating medium. The Belgian franc continued to circulate freely and a considerable amount of Reichskreditkassenbons began to come into circulation, the -4. - 338 latter being accepted as legal tender at the rate of 10 france to the mark. The German authorities announced that this currency was legal and tender in occupied territory only, at the same time, that ordinary Reichsmarks were not legal tender in occupied territory. Reichapfennigs, however, were offered and accepted in the absence of any official statement concerning them. Bankers reported a serious shortage of Belgian francs, large supplies of which were reported to have been taken away by the National Bank of Belgium. It was pointed out that the Societe Generale de Belgique, one of the largest Belgian banks, had power, under Belgian law, to issue banknotes, but the approval of the German authorities would naturally be required. The latter stated that a decision would be taken in the near future and were understood to believe that enough Reichskreditkassenbons could be put into circulation to meet immediate needs. There was also some discussion of a *Central Bank of Belgium" being formed as a bank of issue, but up to the middle of June no decision had been taken regarding the alleviation of the shortage of paper in circulation. File No. 851 cad/d1h COPY 339 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE June 18, 1940 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL When Mr. Pinsent, Financial Counsellor of the British Embassy. called on me late yesterday evening, he said that he would transmit to me today a message based upon instructions which he had received from his Government in regard to disposition of Tientain silver. The attached communication has been received on this subject this afternoon. Almost simultaneously, I received a telephone call from Mr. Hamilton, Chief of the Far Eastern Division of the Department of State, who told me that his Department had heard from the British Embassy that the question of the United States Treasury purchasing from the British a part of the silver had been raised. Mr. Hamilton said that the State Department was interested in this, since various complicated issues were involved. I told Mr. Hamilton that I was aware that the Treasury had refused to buy this silver from the Chinese, and that I would look into the records and circumstances carefully before recommending any action now. Furthermore, I would naturally welcome any suggestions from him. Mr. Hamilton made the point that the Chinese themselves have not given us any word that they are willing that the silver should now be sold. He thought 8 clearance from the Chinese should be obtained before we took any step toward purchasing it. Furthermore, his Department would be interested to know who would eventually get the foreign exchange proceeds from the silver sale, and particularly as to whether this might go to Japan or for purchases in the United States, etc. 340 British Embassy, Washington, D. C. 18th June 1940. Dear Merle, I think you are acquainted with the outline of the agreement recently reached between the British and Japanese Governments over the Tientain dispute. The State Department have been kept informed on the matter. One of the provisions of the agreement is that 1100,000 worth of silver should be taken from the deposit in Tientsin (which has been one of the matters in dispute) and sold with the object of raising funds for relief purposes in occupied China. We now have instructions to enquire whether the United States Treasury would be in a position to purchase this amount of silver. The actual amount as at present proposed would be silver to produce the gross amount of 1100,000 without deduction for costs of shipping, insurance and assay: nevertheless, /in Mr. H. Merle Cochran, United States Treasury, Washington, D. C. 341 -2in case it should be desired to increase the amount slightly in order to cover these costs we should be grateful, supposing that the United States Treasury is in principle prepared to purchase this silver, if you could express your agreement to take up to, say, 110,000 or L120,000 worth. From the particulars which have reached us it seems that the proposal would be to ship the silver direct from Tientain to San Francisco for delivery at the mint there. The details of delivery, etc., could be settled as soon as you are in a position to say whether the proposal is, in principle, acceptable to you. Yours sincerely, (Signed) Jerry Pinsent. P.T.O. (COPY) 342 P.S. As I explained yesterday, the reason why we should particularly appreciate the purchase of the silver by the United States Treasury is that this would give the Relief Fund managers a free hand to make purchases in the United States. If, on the other hand, the silver had to be purchased by the British Government we should have to confine the expendi- ture of the Relief Fund to the sterling area as far as we possibly could. 342-A BRITISH EMBASSY, WASHINGTON, D.C. Secret June 18th, 1940. Dear Mr. Secretary, In Lord Lothian's absence I enclose herein a copy of the latest report on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Wark Buther The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D.C. Telegram despatched from London in the evening of June 17th, 1940 French Army has been ordered to cease fighting. Before this order French 10th Army was reported in full retreat south west towards Laval and Rennes. Army of Paris was withdrawing on axis of Paris, Dexis. B.E.F. is moving to coast and evacuation is proceeding from Cherbourg, Breat and Leire in th face of enemy air attack. As a result of bombing S.S. "Lancastria" (16,243 tons) with 3,000 troops on board has been sunk and S.S. "Oronsay" (20,043 tons) has been damaged. to further details yet available. 3. No major operations by R.A.F. reported during period under review. Wellington aircraft sent to France returned today to United Kingdom. On June 16th long range bomber force 4. employed mainly against ground forces along the River Loire and to the south of it. No information regarding activities of dive beebers or fighters but there are indications that both light and heavy fighters are now based on aerodromes to the south of Paris. Transport aircraft mainly engaged in taking supplies to advance positions. 5. Sporadic air raids continued at Malta but apparently caused little damage and few casualties. 342 - C BRITISH EMBASSY, WASHINGTON, D.C. June 18th, 1940. Secret. Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 342 D Telegram despatched from London on the evening of June 17th. Situation East and South of Paris obscure, but reported that German forces may have crossed Loire near Orleans. West of Paris, line held by French 10th Army yesterday morning was Northeast edge of Forest de Longai (Seat of Montagne) - St. Avroult Morteagen - River Dives to the sea. Between Forest de Longni and Tours, appeared to be only isolated detachments of French troops. General Marshall Cornwell's force (now Norman force) is continuing to fight under the command of French 10th Army, and comprises Besuman force, one infentry brigade 58ad division, one amouned brigade and one field artillery regiment. Kenet section in general line given above held by this force is not known. s. Owing to the unfavourable weather, no bombing operations carried out yesterday by Reyel Air Force though certain mise laying operations were performed. Fighter patrole reconneitered near Cherbourg and aerodromes in northern France, but encountered no enemy aircraft. Six squadrons of Battles arrived back in United Kingdom yesterday from France. 3./ 342-E s. German aircraft bombed shipping in the mou sh of Loire for the first time yesterday, and laid magnetic mines. No damage caused to shipping. 4. Three German aircruft reported over England yesterday, and considerable activity, probably mine laying, from Downs to Start Point last night. Fighters failed to make contact owing to bad weather. 5. Malta raided twice by aircraft yesterday; five of these aircraft appeared to be German. slight damage and no casualties. Italian bombers were for first time escorted by fighters. Royal Air Force from Malta bombed Tobruch (Libya) and aerodromes in the vicinity causing explosions and some damage to aircraft on the ground. 6. Enemy aircraft yesterday bombed Sollum. sidi, Barroni, and Matruh, causing very slight Egyptian casualties and some damage to barracks and stores at Sollum. Three enery aircraft shot down. 7. On June 14th and 15th Italian aircraft bombed two posts in Sudan southwest of Suskin and railway station south of Kassals. Very slight damage caused. 8. Wajir and Moyale in northern frontier district of Kenya Colony bombed by Italian aircraft on June 15th. South African aircraft bombed enemy troops at Mega (northwest Moyale). Direct hits obtained/ 342-F -3- obtained on wireless station and barracks. Aerodrones in Southern Abyssinia at Neghelli and Yavelmas also successfully bombed, and Southern Rhodesian aircraft successfully bombed Italian troops and armoured care north of Moyale. Military patrols from Moyale successfully raided six Italian frontier posts last night. 9. Nothing to report from Gibralter, Palestine or British Somaliland. 10. One British ship not in convey sunk in home waters yesterday. One Greek ship not in convey sunk in home waters on June 14th. Norwegian tanker sunk off Aden yesterday. 11. Canadian troops have arrived at Keykjavik, Iceland. 18. Corrigendum. Australian troop convey referred to in my immediately preceding telegram should read Australian and New Zealand treep convey. 343 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE June 18, 1940 TO FROM Secretary Morgenthau CONFIDENTIA 1 Mr. Cochran In light trading, sterling opened at 3.61-1/2 and moved within a narrow range all day. The final quotation was 3.61-3/4. about 3$ lower than yester- day's close. Sales of spot sterling by the six reporting banks totaled L199,000, from the following sources: By commercial concerns By foreign banks (Europe, South America and Far East) Total L 57,000 L142,000 6199,000 Purchases of spot sterling amounted to L158,000. as indicated below: By commercial concerns L129,000 By foreign banks (Far East and South America) L 29,000 Total 6158,000 The Guaranty Trust Company reported that it had sold cotton bills totaling 11,000 to the British Control on the basis of the official rate of 4.02-1/2. Sterling in the amount of 19,000 was purchased from the British Control at the official rate of 4.03-1/2 by the following banks: L8,000 by the Guaranty Trust Company (for rubber) 1,000 by the Bank of Manhattan (for whisky) 49,000 Total The other currencies closed as follows: Swiss franc .2242 Canadian dollar 19-3/4% discount Lira .0505 .4000 Reichsmark Cuban peso Mexican peso 10-1/16% discount .1818 bid, .2000 offered. CONFIDENTIAL 344 -2- We sold the following amounts of gold, to be added to the earmarked accounts of the banks indicated: $ 700,000 to the Bank of Portugal 300,000 to the Lithuanian Bank $1,000,000 Total The Federal Reserve Bank of New York reported that the following shipments of gold were being consigned to it: $ 8,225,000account. from England, shipped by the Bank of England, to be earmarked for its 2,110,000 from Colombia, shipped by the Central Bank of the Colombian Republic for its account, disposition unknown. $10,335,000 Total India's precious metal prices, which have been moving downward during the past few days, continued to decline today. The Bombay gold price fell the equivalent of 51$ to $34.79. Spot silver in Bombay worked out to the equivalent of 42.87 off 1-7/16 In London, spot silver rose 1/4d to 23-1/4d, while the forward price moved off 3/16d to 21-1/2d. The advance in the spot quotation probably reflects a shortage of silver for immediate delivery. The U. S. equivalents were 42.27 and 39.09#, respectively. 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 There were no purchases of silver made by us today. In all probability, the absence of silver offerings reflects the New York market's reaction to the news that the Senate voted down Senator Townsend's amendment to the $1,007,000,000 defense tax bill which would have terminated the Government's purchases of foreign silver. 16m/2. 345 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE June 18, 1940 TO FROM Secretary Morgenthau Mr. Cochran STRICTLY CONFIDENTIAL At 4:30 this afternoon, Mr. Irigoyen. of the Argentine Ministry of Finance, telephoned me from Buenos Aires. I gave him the latest political news from Europe, as recorded on our tickers, and also summarized operations on the American securities and stock markets today. This noon, I had spoken with the Secretary in regard to my conversation of yesterday with Mr. Irigoyen concerning Argentine's request for a credit of some twenty or twenty-five million dollars. Shortly before Mr. Irigoyen spoke with me this afternoon, I telephoned Mr. Jesse Jones. I reminded him that some weeks ago I had introduced Mr. Irigoyen to him and that the possibility of a loan had been discussed. I explained to Mr. Jones the situation which Mr. Irigoyen had described to me yesterday, and Mr. Jones was quite agreeable to the idea of talking directly with Mr. Irigoyen when the latter might call me. Consequently, I passed Mr. Irigoyen's call on to Mr. Jones this afternoon. 346 June 18, 1940. 9:00 a.m. GROUP MEETING Present: Bell Thompson White Cochran Graves Gaston Foley Young Nelson Schwarz Harris Sullivan Viner Klotz Harris: Well, I have got some news that will make up for what you had on me last night. They sunk that ship at sea, four thousand five hundred tons of her. H.M.Jr: Did they? Where? Harris: off the Canary Islands, a British destroyer. Gaston: Your arrangements were all right then, were they, Basil? Harris: Well, you wanted me to produce so I pro- H.M.Jr: duced. I thought you were going to produce through a strike. How did you hear that? Harris: It came over the Associated Press wires. White: They reported to him at once. H.M.Jr: Sir Ashley and I had a good talk last night. Harris: You know, I checked back after you called me and the rumor was in New York late last night that the Queen Mary was going out before dawn, but Harry didn't think it was so. 347 -2Foley: The Queen Elizabeth. Harris: The Queen Elizabeth, I mean. H.M.Jr: Harry, unless I change, and I don't think I will, you and Bell are invited to have supper with me at seven-thirty tonight. It will be the first time I can talk about this bank. White: I may not be able to come, but I will see if I can arrange it. H.M.Jr: Going to the British Embassy? White: Well no, I will pay my respects to that place with a floral wreath later on. H.M.Jr: Well, if you have got something -- White: I will let you know later if I may. H.M.Jr: Because Bell says he wants to talk to me about this. White: I would like to have an opportunity to talk to you about it this morning. H.M.Jr: That is just the point, it is impossible. White: It is impossible? H.M.Jr: The first time will be tonight. White: All right. H.M.Jr: It is impossible. Thompson: Dr. Mead has asked that we put on our pay roll for about a week Theodore Wright, vice president of Curtiss-Wright. H.M.Jr: Thompson: My God, I thought he went off that pay roll. Mead has left us and will go on the defense pay roll as soon as funds are avail- able. 348 -3H.M.Jr: Whose pay roll is he on now? Thompson: His pay roll until the defense funds are own available. H.M.Jr: How about the other people? Thompson: We still have one man at sixty-five hundred. H.M.Jr: Taylor? I am to put Wright on my pay roll? Thompson: He is asking us as an accommodation to do it. He went off the Curtiss-Wright pay roll June 5th. It is just an accommodation. I think we need not do it, as he should stay on the Curtiss-Wright pay roll until defense funds are available, which will be in the next few days. H.M.Jr: Let him stay on the Curtiss-Wright pay roll. Mead is coming in at a quarter of ten. Have you got a memo on it? Thompson: I just have this memorandum. H.M.Jr: Why does he take a man he can't pay for? I wouldn't give him a nickel. Let him stay wi th Curtiss-Wright. That is the craziest thing I ever heard of. Don't you think so? He can stay on their pay roll for two weeks longer. Klotz: Thompson: But he is off their pay roll, he is not on it, is that it? Yes, that is true but I think he could easily arrange to go back on the CurtissWri ght pay roll for the few days involved. H.M.Jr: What else? Thompson: That is all. H.M.Jr: Dan? Harold? Harry? 348 -3H.M.Jr: Whose pay roll is he on now? Thompson: His own pay roll until the defense funds are available. H.M.Jr: How about the other people? Thompson: We still have one man at sixty-five hundred. H.M.Jr: Taylor? I am to put Wright on my pay roll? Thompson: He is asking us as an accommodation to do it. He went off the Curtiss-Wright pay roll June 5th. It is just an accommodation. I think we need not do it, as he should stay on the Curtiss-Wright pay roll until defense funds are available, which will be in the next few days. H.M.Jr: Let him stay on the Curtiss-Wright pay roll. Mead is coming in at a quarter of ten. Have you got a memo on it? Thompson: I just have this memorandum. H.M.Jr: Why does he take a man he can't pay for? I wouldn't give him a nickel. Let him stay with Curtiss-Wright. That is the craziest thing I ever heard of. Don't you think so? He can stay on their pay roll for two weeks longer. Klotz: Thompson: But he is off their pay roll, he is not on it, is that it? Yes, that is true but I think he could easily arrange to go back on the CurtissWri ght pay roll for the few days involved. H.M.Jr: What else? Thompson: That is all. H.M.Jr: Dan? Harold? Harry? 349 -4White: Townsend has attached his silver bill on to one of the other bills and Senator Wagner day -- asked us for some material yesterH.M.Jr: Talk louder, please. White: Senator Wagner is going to oppose it on grounds of international political policy; so we prepared something for him that he H.M.Jr: is going to use this afternoon. will you (Thompson) let Sullivan read that and give it back to me? White: This morning at ten o'clock I am supposed to participate in a small committee -H.M.Jr: Talk up, Harry. There is something the matter with my ears. White: This morning at ten o'clock I am supposed H.M.Jr: to participate with a small group to draft a proposal which is to be brought to a meeting tomorrow at which - it will be a repetition of the meeting held yesterday, so far as attendance is concerned. I take it Herbert will tell you about that. I tell you what let's do. Let's go on and see how much time I have got and then I will come back to you, see. White: All right. H.M.Jr: Maybe we can do a little business here. White: Okay. Sullivan: Who are you giving that Townsend stuff to, Harry? White: Wagner. Sullivan: Left this morning? White: Yes, he got it yesterday afternoon. Sullivan: May I have a copy of it? 350 - 5White: Surely. H.M.Jr: Why didn't you tell me you worked for Nelson Rockefeller on the memorandum for the President? White: Why didn't I tell you that I did? H.M.Jr: Yes. White: That is one of those, "When did you stop beating your wife?" questions. In the first place, I didn't. The second and third place don't matter. H.M.Jr: You mean to say my pipe line is wrong? White: Your pipe line is cracked. H.M.Jr: Them are fighting words. I will let him defend himself. All right. White: Ruml was in to see me about several days ago and he talked over some of the things and I know that Ruml has been working or talking with -- H.M.Jr: And if Ruml wrote it for Nelson Rockefeller and you talked to Ruml -- White: That is very likely. We talked on some of the things, not all of them. That was about ten days ago. H.M.Jr: White: My pipe line isn't so bad after all. I didn't say it was broken, I said cracked. But Welles didn't like it very much, so I wouldn't want to claim authorship in any case. H.M.Jr: Any movement on ships today, I would like know of, Herbert. Everybody is very, very anxious to know what the French do with their ships. George? Haas: That is all I have. (Handing report to Secretary.) 351 -6H.M.Jr: Does anybody during the week ever see any- body from either Kiplinger or Harry Eaton? Gaston: Now and then Ryerson has come in to see me. Schwarz: I see Ryerson about once a week. H.M.Jr: Who is he. Schwarz: He is the tax letter man for Kiplinger. H.M.Jr: I understand Harry Eaton says he can't get any contacts with the Treasury. Sullivan: Harry Eaton comes in to see me. Schwarz: He talks to me regularly and talks to Haas: Shelton comes in to see me sometimes. H.M.Jr: Well, it sounded particularly unfriendly. Give it a thought, will you? Mr. Purvis is coming in at ten and I want Herbert. Mr. Nelson, Mr. Philip Young, Mr. Merle Co chran, Foley, Bernstein and Harry White and Bell attend. It is this question of their contracts and this whole question of French gold and everything will be settled at that time. Will you get word, please, now to Leroy-Beaulieu? I sent word to him last night to be here at ten. Do it now. Co chran: H.M.Jr: Yes, sir. Bell, White, Cochran, Nelson, Young, Foley and Bernstein, please, at ten o'clock. It is very important. He has done a magnificent job. We have got to sew it up now on the transfer of these French - and how they get paid. I mean, he has done a magnificent job. Bell: I didn't know last night how they were going to do this. The French financial attache -- 352 7H.M.Jr: He was at the house last night and he can go one of two ways, wi th our help, and he is a little hesitant about asking the French for their gold, you see, but the thing that they have worked out is a way that they will buy the French gold and then give them a credit in Canada, you see. It is terribly important, this thing is, and if the thing is done today it will pass because in exchange for that they will get all the outstanding orders from American manufacturers. I looked up the plane orders and the engine orders and they are tremendous and from the standpoint of our own American manufacturers, I have talked to Mr. Knudsen last night. They have all gotten together and he said he didn't know but he just told them, "Don't worry and go on manufacturing. They have all got the jitters. Incidentally, I told Mr. Knudsen last night the English are ready to place an order for six thousand engines. Purvis has done a beautiful job. Young: Do I still have a nine-thirty date this morning with Mr. Woodring? H.M.Jr: Yes, haven't you? Young: As far as I know. Did he talk with you this morning on the telephone? H.M.Jr: No, but I have asked Towers and Arnold to come and see me this morning. You had better keep your appointment. Young: Yes. Foley: H.M.Jr: We drafted that agreement for Knudsen that will incorporate the suggestions made when we got together last week. He told me Jones has agreed to it. Foley: He did? 353 -8H.M.Jr: Well now, he is going to go ahead as we understand each other with the Curtiss- Wright people and jobs agreed to, forty- Foley: nine million dollars. Is that the one? I don't know. I hadn't heard that. H.M.Jr: And he says the Foley memorandum stands. Foley: Well, there is the revised one for your H.M.Jr: He says based on the Foley memorandum. Foley: Eaton over there called me yesterday and he said that Biggers wanted to know what we were doing about special concessions in the way of obsolescence and depreciation for manufacturers engaged in the National Defense Program. We told them we weren't doing anything. H.M.Jr: Who is Mr. Eaton? Foley: He is the lawyer from Cotton and Franklin files with the changes we made. that Smith brought down supposedly to police Mr. Knudsen, but so far as I can find out Knudsen doesn't pay any attention to him. So Mr. Biggers, who is Knudsen's assistant, apparently wanted this informa- tion. I was quite short with him. I told him Knudsen and Stettinius had been over here and we had told them there wasn't any- thing we could do. We had to treat all manufacturers alike and under the law we had no discretion. H.M.Jr: And Mr. Knudsen said Jones accepted the theory that we had worked out over here and he is going ahead with a contract with Curtiss-Wright tomorrow, I think. I don't know whether it is Edsel Ford today and Curtiss-Wright tomorrow or vice versa and it is about forty-nine million dollars, half plant and half working capital, based entirely on your memorandum. Foley: I had better get that revised draft over, then. 354 -9H.M.Jr: Yes. Foley: We had it ready, but I didn't have a chance to talk to him about it. On the plane business, flying the planes to Canada, Gates of the Civil Aeronautics Authority told the Purchasing Commission that they couldn't fly them, they had to push them across the line again and I called Bob Hinckley and Bob got hold of Gates and put Gates on. H.M.Jr: Who is Gates? Foley: Gates is the head of the foreign division of the Civil Aeronautics Authority and he has to give them a schedule for routes and time and when they can take off and all that sort of stuff. We are not going to get that cleared up until the State Department revises their regulations. They have got outstanding regulations that say that these things can't be flown across and I told Bob Hinckley I would get hold of Berle again and see if he wouldn't follow through on it. H.M.Jr: Want me to do it? Foley: Yes. H.M.Jr: (The Secretary placed a call for Mr. Berle.) While we are waiting for Berle, you two birds (Foley and Sullivan) sent me that radio when I was going home. Let me get this Foley: thing straight. He sent the radio, I didn't. He signed my name to it and came around and told me. Sullivan: He gave me a copy of the law that has been changed since he had given it to me. Foley: I will take back my power of attorney. H.M.Jr: Well, as we were, so to speak. Let me get this thing straight. At Cabinet I gave the impression to the President that Mr. Woodring - that there was no change in the War Department, 355 - 10 - that the War Department still had to go through the Treasury as far as VinsonTrammell is concerned. Sullivan: That impression was wrong. H.M.Jr: Well, Mr. Woodring said I was right. Sullivan He was wrong, too. H.M.Jr: That puts me and Woodring on the same basis. Now, after you fellows sent me this message, do I understand that both War and Navy - that the thing is no longer - no longer has to clear through us first? Sullivan: The law, at the time, as we understood it, was phrased to say, "with the approval of the President," and we were going to pre- pare a memorandum from the President to the Secretary of War and the Secretary of the Navy saying that he was delegating his power of approval to the Treasury, to you, and then we got a revised edition of the bill and it said the subject of the regulations made by the President and we found out that the bill had not passed, so we sent the memorandum -- H.M.Jr: You did send it? Sullivan: We sent a memo to the President. H.M.Jr: That is the first I knew of it. You said you weren't going to send it. You did send it? Sullivan: Oh yes. Foley: John said in the wire to you, Mr. Secretary, that he would send the memorandum over but he would tell the President to hold it until the bill became law. What we did was to change it and say that when the bill became law he was going to issue regulations which would require those things to be passed upon by the Treasury before -- H.M.Jr: Did you send the memorandum over? 356 - 11 - Sullivan: Yes, sir. H.M.Jr: Did you give Mrs. Klotz a copy of it? Thompson: Yes, I gave it to Miss Chauncey. H.M.Jr: Now, where do we stand? What does the memorandum say to the President? Foley: The memorandum to the President said that when the bill became law he was going to issue regulations which would require costs under the Vinson-Trammell Act to be approved by the Treasury Department, even though the law placed the first approval in the War and Navy Departments. H.M.Jr: Well, has the Army bill passed? Sullivan: No. H.M.Jr: Why couldn't he get it changed? Foley: Well, he could get it changed if he Sullivan: The whole bill is changed now. Yesterday wanted to. it was put in that every order for both the Army and Navy is subject to a profit limitation of 7.53 percent, everything. H.M.Jr: Who is behind that? Sullivan: Well, it started in the Naval Affairs Committee in the House and Vinson toyed with it and then dropped it and then they got going over in the Senate and then Vinson asked us to draft a bill eliminating deficiency of profit and then the next thing we knew Walsh was interested again and then Walsh introduced this bill yesterday. Yesterday morning he added an exception in favor of food, clothing and medicine. I couldn't see any sense in that and that was a limitation -H.M.Jr: But the thing was entirely from the Hill or -- - 12 Sullivan: All the push from here was sometime ago when we were trying to fight against the raising of the percentage on naval vessels and hence called for lowering the percentage on airplanes. H.M.Jr: If that is the status, why couldn't we get the thing changed, send another memorandum to the President and say, "If you want the thing changed and if you okay this thing, we will just carry it up on the introduced. Foley: Hill," and try and get it You can do it that way. This is an effective way and it doesn't cause any trouble, if he will sign the memo. I don't know whether he will sign the memo. H.M.Jr: Foley: H.M.Jr: Foley: He asked for it, it wasn't my suggestion. But I don't know whether he signed it or not after he got it. You told him to wait, didn't you, until the bill passed? No, we didn't, that was where we sent the telegram to you. Then we changed the memorandum we sent in and instead of say- ing, "Hold it until the bill passes," we said in memos for his signature to War and Navy, "When the bill becomes law I intend to issue regulations placing approval of your conclusions as to costs in the Treasury Department before the manufacturer is notified and the contract is awarded." H.M.Jr: Foley: H.M.Jr: Think that is all right? Yes, that is all right. Supposing you (Thompson) call up Forster and find out what happened to that. What would happen today? 357 - 13 Foley: The Vinson-Trammell Act hasn't been changed. Sullivan: Not yet, but I would suggest if he does want that changed we have got to find out, because I very strongly suspect that Walsh is going to throw this right in the middle of this tax bill business with the excess- profits bill. .Jr: You asked me if the President signed thosegentlemen memos. Sullivan: That is right. Wouldn't it be stronger to have it in the bill White: rather than subject to regulations which may be changed for one reason or another? Foley: If it is going to be changed for one reason or another, Harry, of course it wouldn't be so good but if the regulations will be issued along the lines we indicated to the President and he won't change them, then it is just as effective as if we had the law changed. White: But he is less likely to change them if it is in the bill. He can't change them. I was thinking there might be pressure brought to bear later if there are any difficulties in delay. H.M.Jr: No. Foley: We will avoid a fight if we do it this way. H.M.Jr: Anything else? Foley: No. Gaston: The cutter Northland is leaving for an expedition to the east coast of Alaska - I mean the east coast of Greenland. She is the only cutter suited for that work up there and she has no armaments. If we were to put a few guns on her, say a couple of three inch antiaircraft and some fifty caliber, we have to, in order to get it done in time, have an order from the President to the Navy to give it priority at one of the Navy yards. 358 - 14H.M.Jr: Well, we have the Camel up there, haven't we? Gaston: But the Camel is on the west coast of Greenland. What they want is a cutter to go to Angmagsalik which is on the east coast of Greenland and on up north from there and it is a real Artic expedition. They won't be able to get in until the latter part of August and then ice conditions there will be such that a cutter can get in. We will have to use the Northland. She could be fitted out in time and get around the Pacific Coast and up there in time to get in by the time the ice opens but we would need a priority order from the Navy to get any guns on the ship. H.M.Jr: I want her armed just the way the Camel is armed. Gaston: We will need, then, to have the President direct the Navy Department to give us priority. H.M.Jr: Fix me up a memorandum that I can write to the President. Gaston: Right. I called Lowell Mellett and he told me that that letter as to cooperation with the F.B.I. was just something that was being sent out as a routine matter to several of the departments and we could send it out or not, just as we pleased, and he said there was no element of criticism of our men but rather a coincidence is that when I got out of here yesterday I found a call from Clegg of F.B.I. and Clegg told me a story that one of our men who didn't wish his name known had told one of his men that we had sent out a general order that reports on espionage and so on, unless it were an emergency character, should be sent first to our - to the Treasury in Washington before being communicated to F.B.I and he pointed out that that was not the understanding and I agreed with him that it was not and I would find out whether there was such a letter. There wasn't any such a letter 359 360 - 15 - so it is rather queer coincidence. It looks as if F.B.I. was needling us from two different points of view, but anyway, I am going to talk to Clegg about it again today. H.M.Jr: Okay. Gaston: Basil Harris and I attended a meeting with Colonel Maxwell and people from State and Commerce over at the Munitions Building yesterday. It is on this matter of setting up regulations for the control of exports and machine tools and a lot of essential supplies and we are going to hold another meeting today. Do you want to go into this meeting yesterday? H.M.Jr: Yes. Caston: I think Harry can tell you as well as I or better, but you probably saw this letter from the President which went to you and other heads of departments concerned and including a memorandum from some one, the authorship not stated, which it said was one of several on this subject and this memorandum was read by Secretary Hull at the meeting yesterday. The first recommendation of it is some method of acquiring under a single management the surplus crops of the South and Central American countries and disposing of them and it make s various other recommendations. While this letter was being read and there was some comment by Welles and others that as to where it came from, Harry Hopkins volunteered that it came from Nelson Rockefeller. After that was read, Pasvolski, who has been a member of the committee on which Harry White has served, working on this same problem of how to solidify our commercial relations with South America and Central America and protect them against Nazis domination, presented their preliminary report cartels and an over all corporation to control the disposition of various South and Central American products, particularly the surplus, which suggests the formation of commodity 361 - 16 and there was some discussion as to what that might cost the United States and various estimates which I see the news- papers reported pretty fully, that it might cost us as much as - I think Harry estimated as much as five hundred million a year. You first estimated -- White: From a quarter to a half. Viner: Was Jerry at that meeting, too? White: I was going to say Jerry was not at that meeting. Gaston: Anyway, the thing came out rather fully in the papers this morning and an incident of it was that Summer Welles -- White: I thought I answered your question fully, Dr. Viner. Viner: Ask Ed Foley. Gaston: Summer Welles took occasion to say that he thought the letter by Nelson Rockefeller showed a lamentable ignorance of what the Government was doing. White: Since there have been at least a half dozen glances in my direction, let me state categorically that though Nelson and I are like that (crossing fingers), Rockefeller and I, and you know I buy his oil and gasoline every day, but he must have talked to at least a thousand people and Ruml talked to another thousand and I take it that that memorandum is some ideas which he has gleaned from here and there. It is a better memo than Welles indicated. Gaston: Very much. Viner: I had it two weeks ago. White: Then at least let's share the authorship. Gaston: Harry Hopkins was particularly enraged and I think rightly, because I think Summer Welles' remarks on this letter were directed 362 - 17 - at Harry. The other thing was the concerted action toward the gold policy by the Department of Agriculture, beginning with Ezekiel and he passed the ball Mordecai to -- White: Secretary Wallace upon leaving said that he thought possibly he was wrong and I was right and he would like to talk to me more about it and Ezekiel called up since and said he thought he had spoken too hastily. Gaston: They have been carrying on quite a little propaganda on gold over there in the Department of Agriculture. It is a departmental policy. I happened to pick that up from other sources. H.M.Jr: Well, it is interesting on that gold thing. From the time I made that little talk on gold to date, all newspaper criticisms and editorials practically stopped. Schwarz: The Herald Tribune is on your side this morning. H.M.Jr: They have been right along, but you saw Mordecai Ezekiel said he was wrong. White: He said he thought he spoke too hastily and there were other angles and I am sure we will be able to clear it up. Gaston: Harry made the suggestion that it would be desirable if we went into this vast project of attempting to control American surpluses, that it would be desirable to put it on an exchange basis and that would be desirable from the standpoint of the preservation of gold as the medium of international exchange and then Mordecai Ezekiel commented that as he understood it, that meant -White: Gold standards versus democracy. Gaston: The gold standard was more important than our South American relations. 363 - 18 White: He said it was more important than democracy and I stopped him right there - he said he spoke too hastily. H.M.Jr: As usual. Gaston: What I noticed was that concerted feeling apparently of the Department of Agriculture on gold. White: He speaks rapidly but not always hastily. Gaston: There is another meeting for Wednesday. White: Let's do him justice. Viner: Harry is doing a little justice. White: I need some support. I have no support this morning. H.M.Jr: You are all right, Harry. Gaston: They are proposing to put this before the are attempting to move pretty rapidly on a tremendously important thing and I don't Pan American Conference on Thursday. They think they realize - I didn't get an opportunity to say that yesterday but I don't think they realize the necessity for building up both Congressional and popular support without which they will not get to first base with any of these things. H.M.Jr: Well, let me just put it this way. At onefifteen yesterday was the first time that I got any notice of this meeting when Mr. Welles called me himself and he said, "Hasn't Mr. Hull spoken about it?" and he said, "I told him to," and I said, "He didn't." He said, "I know he didn't. I am very much annoyed." So he said, "I am sorry." And that was the first - and then shortly after that a letter from the President covering the thing came. Now, if anybody thinks that on a thing as important as this I am just going to jump into it, they are crazy and I am sure the people who work with me 364 - 19 - would agree with me. This is something that if somebody else has been thinking about it I am not being personal, Harry - if somebody else has had a couple of weeks or a month's thought on this thing and they think I am going to commit the Treasury on an over night basis do it. on a thing like that, I am not going to White: I don't think there has been that much preparation, Mr. Secretary. H.M.Jr: I am just not going to do it. Caston: A suggestion of Herbert Feis' - I don't know whether it was intended in a facetious manner or not -H.M.Jr: I am not going to do it and I am going to freeze everything as far as the Treasury is concerned until I can assimilate that thing thoroughly. White: Right, and I think it -- H.M.Jr: I don't want anybody, please, in any way to commit the Treasury until I have ample time -- Gaston: To show the tremendous scope of this thing, Herbert Feis made a suggestion - I don't know whether it was facetious or not - that we form a corporation to consolidate all sales of - foreign sales in the United States. White: Well, a good many of those remarks were exploratory in nature and preliminary and I think unquestionably the matter is very important and it assumed that degree of significance and imminence only by virtue of this President's letter that we had had a couple of meetings which I indicated to you about a week apart in which a good deal of work was done but it was all of a very preliminary and exploratory nature and we were going to prepare a final report sometime next week, at which we were going to bring to the various departments, thinking that this thing would not emerge until several months, at least. My first information that there was any such imminence or 365 - 20 - pressure was at this meeting, so that I sus- pect that many of those who have been work- ing on it didn't know that it was going to be given that degree of attention by the President so soon, but now that it has, I think that the matter is important enough so that if possible you could devote some time to it and I don't think it would take very long to bring you up to date. At what point after that you want -H.M.Jr: If it can arranged forit.tonight, that is the first be time I can do White: Would you want me to participate -Do you (Gaston) want to continue to follow this thing through? I would be glad to. H.M.Jr: Gaston: H.M.Jr: I am going to take it on. I just had you Gaston: pinch hit for me yesterday. I would be glad to be in contact with it and go along with it. H.M.Jr: Supposing you come also tonight. Gaston: Tonight at eight-thirty? H.M.Jr: No, seven-thirty. Mr. Secretary, let me understand you perfectly. You do or do not wish me to participate in the morning? Do you prefer I step out of the picture until you have had a chance to talk it over? White: H.M.Jr: White: H.M.Jr: No, Harry, this thing that we are doing here this morning is terrifically important. This other thing will probably drag over for hours. If you will stay behind for two or three minutes, I will talk to you and I would like you here, Dr. Viner, at ten o'clock. I 366 - 21 mean, the whole question of how England and France are going to handle their gold and money is going to be settled here between ten and eleven and it is an enormously important meeting. Viner: I will be here. H.M.Jr: And I think that on that thing that -This other thing is important, too, and I Viner: hope you don't stop White from participating as a technician. H.M.Jr: Oh, not at all. Viner: Without committing the Treasury in any way, because it ought to move, if it is going anywhere, it ought to move and they need him. H.M.Jr: Well, I agree with you but it is a question of - I mean, I am not going to - my policy, as far as the, Treasury is concerned, I will do anything possible to help the people the President appoints to come down here to make a success but on the other hand I am not going to dilute the Treasury and weaken it in order to help somebody else. Now, I have got this thing, which is fully my responsibility, the whole question of whether the English can take over the orders, what is going to happen to the French gold. That is all going to be settled here between ten and eleven. That is my responsibility and I am not going to dilute my strength in order to do something else which is not my responsi- bility. But I mean, it is just on the basis - I mean, the - you go from the sublime to the ridiculous, any more than I am going to let McReynolds take seven chauffeurs from me to give one chauffeur to each of his council for the defense. I am not going to do it, that is all. Never have I permitted myself to be rushed off my feet knowingly. I am not going to now. All right.