Full text of Diaries of Henry Morgenthau, Jr. : Volume 355 : Bank of America : Part 2

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12

Return to Room 985

February 16, 1938.

GROUP :MEETING

Present:

Mr. Magill

9:30 a.m.

Mr. Taylor
Mr. Oliphant
Mrs Klotz
Mr. Upham

Mr. Haas

Mr. Gaston
Mr. McReynolds

Mr. Bell

Mr. Foley (last ten minutes)
Jr:

Do you (Upham) want to take this? This was given

me by Mr. Jesse Jones - quite confidential. That's
the study that he made of the banks in the bank
holding companies - their position, you see.
Now, what 1 wanted to talk to you about was this, Cy.
I gave you a job to do, to S tudy these various rules
and regulations of the various organizations that have
to do with banks. You gave me a chart.
/

Upham:

H.M.Jr:

That's right.
And I asked you to check it. Is that ready?

Upham:

That's being made up now in better form. I checked
it back with the three agencies and it's being revised.

H.M.Jr:

When will it be ready?

Upham:

I can have it ready today.

H.M.Jr:
Upham:

H.M.Jr:

Now, what I wish you'd be ready - I may want you and
Gus Folger - is the Chief Examiner?

That's right.
I may want you to come up and spend Monday on the

farm with me, and possibly Tuesday - the two of
you. Don't want it advertised. I just want to go
to school on this whole question of bank examina-

tions. I can do it up there. Bank holding companies. And you talk to - between you and Mac,

fix it up so
Upham:

So it's done.

H.M.Jr:

I want Gus Folger. Monday and Tuesday. Stay at

-2-

Poughkeepsie over night, if necessary. I want to
take enough time to study that thing, and this question of examinations and question of bringing

everything together - the suggestions which Burgess
made, and what we might or mightn't do to get banks

to help in this question of new money. I mean
people keep shooting things; I just haven't been
able to assimilate it. I figured if I worked at it
up there I could assimilate it, see?
Upham:

Yes.

H.M.Jr:

I mean this whole question, are there rulings making

Upham:

Yes indeed.

H.M.Jr:

What?

McR:

Nobody can tell you better than he.

H.M.Jr:

The two of you - I'd be prepared to go up to New
York Sunday. There's a train leaves New York

it difficult for the banks to - the kind of securities
they have to buy. I take it Folger has that stuff.

Central 9 o'clock, gets up to Beacon 10:30. But

I'll talk to you before I go.

Upham:

Yes, sir.

H.M.Jr:

But if I had you up there for a couple days, on tap,
so I could work a couple hours at a time, I could
assimilate it. I can't do it - I can't do it and
do the other things, see?

Upham:

Surely.

H.M.Jr:

Now, who's going to give me a progress report on
what I see in the papers is going on in Morgenthau's

office? I'm sort of curious. What's it all about?

Haas:

I thought we made good progress.

Gaston:

We got good publicity, don't you think?
Yes, if you can deliver. What? Come on, somebody.

H.M.Jr:
Haas:

Well, I can tell. We left here about 1:30 last night,
but I'm not sure we have anything.

-3H.M.Jr:

That's what you told Mrs. Haas.

Haas:

Bell:

She believed it, and I thought you would.
Now he wants to put it in the record.

H.M.Jr:

Well, anyway, when I came home there was Mr. and

Taylor:

Car drives up; I was just about to turn in the

Klotz:

You met one man sure.

Haas:

We've got something; will have at 11 o'clock. We

Mrs. Taylor checking me in at my front doorstep.
"All right, he went home.' They checked me off.
They were at the Tydingses next door.
driveway to back around so I

had a draft last night. Made a few changes in it
this morning. But frankly, I am not enthusiastic
about what we have got and I think that what he's
already said is nearly the whole story, afraid
almost anything will be anti-climax on Friday. That's
my fear. But we'll have something for you at 11
o'clock. But I don't want to work up your hopes
very much.

Gaston:

May I supplement that? George doesn't know about

this, but + wrote some sort of a general synopsis

of the thing, several pages, last night. Then I

was working up a short summary, just a review of
the thing.
H.M.Jr:

What time did you tell Mrs. Gaston you left the

Treasury?
Gaston:

She knew. I was at home.

H.M.Jr:

All right. And I knew that Oliphant was having
supper with Ed Bruce.

Oliphant:

That's a good story.

Haas:

Well, here last night when we left were Jake and
Lubin and Ezekiel and Harry and Currie and Hinrichs.
They all left the same time - 1:30 - around then.

H.M.Jr:

There's no use going into it now, then, is there?

-4Haas:

No, I don't think so.

H.M.Jr:

You'll have something?

Haas:

Yes, sir.

H.M.Jr:

.

Upham:

Now, who in the office has been talking to Duffield?
Don't all raise your hands at one time.
"hy, I have.

Gaston:

I've been.

Upham:

Not about anything of importance.

H.M.Jr:

Well, where did he get all this stuff, that "revela-

Upham:

That isn't me.

tion in high official circles

H.M.Jr:

that Treasury's virtual abandonment of gold

sterilization was primarily undertaken in hope that
it might buoy commodity quotations."

Gaston:

I think that's Duffield's own deduction.

H.M.Jr:

I see.

Gaston:

He attacked the thing early yesterday morning, he

told me, from the price angle. He thought that was
the proper point of view. Went over and talked to

somebody at Federal Reserve and came back here

pursuing that theory, and saw this group coming

out of the office and he said, "Ah-ha! What they're

talking about is just that very thing - prices."

Just because Lubin was here, and so on.
Upham:

Gaston:

Well, he told them
So then he wrote this story that went on the ticker.
hen the rest of the group, Sandy Kline and Friedheim
and somebody else, came rushing up to Cy's office and
said, "Now, tell us what you told Duffield," and that
worried Duffield.

H.M.Jr:

That worried Cy.

Upham:

No.

-5Gaston:

Upham:

No, Duffield came in; he was worried about it.
Duffield came in to tell me that he thought that
was unfair to Cy; that every time he got a story,
Cy was held to blame. But it was his own dope.
Sounds too good, doesn't it?

Gaston:

I'm telling you only what Duffield told me yesterday.

Upham:

You throw me down too.

H.M.Jr:

Well,
one more question and then we'll stop playing
"truths."
"Secretary Morgenthau was represented as more than

willing to see an improvement in raw material
quotations as a result of the Treasury action, to

Gaston:

let 'gold have its normal effect on prices'" - end
quote. In quotations: "gold to have its normal
effect on prices."
Well, I think that's based on something I said to

him.

Taylor:

My only contribution was saying "counter-deflationary,"
and I don't know that he used that one.

H.M.Jr:

"Gold to have its normal effect." I've said it in

this room; didn't say it to them.
Haas:

One paper spelled gold wrong, had it "god."

H.M.Jr:

I sent for Duffield. I said, "Now the plan has to
work." I said, "As long as it's Eccles and Treasury
and God, it's all right." So he said, "That was as
good as Landon getting on the bank wagon."

Klotz:

Bank wagon!

H.M.Jr:

Well, that's all right.
Now, the thing that I'm really worried about, and

I'll have - well, I'll wait and I'll have Foley in
on this. I want to get this first-hand thing. I'll

have him in on this thing that's going on across the
street on the housing. There's another meeting this

-6-

morning between Jimmy Roosevelt and Stewart
McDonald and Straus.

H.M.Jr:

Who is Mr. Edward Livingston?
I don't know.

Taylor:

White House called up, wanted me to see him yesterday,

Taylor:

and then did it again this morning, and this is - has
something to do with slum clearance, apparently.

H.M.Jr:

Well, I'll get into that when Foley comes.
Now, Mr. Magill and Mr. Gaston, I had Mr. Harold

Graves at 8:30 this morning, and I told him to
see you (Gaston).

Gaston:

He did.

H.M.Jr:

Subject to your veto or approval or lack of it or
not, my suggestion is that I'd have Mr. Harold

Graves and Mr. Helvering at 10:30 tomorrow, at
which time I thought that we could explain why
Harold is going out West.
McR:

You mean to the press.

Magill:

Oh, to the press.

H.M.Jr:

So will you talk that over with Gaston?
Yes, sir.

Magill:
H.M.Jr:

Because I'd frankly like to explain it. I think it's
correct that it happens to be my thought, and I'm
particularly interested in it, and I'd like to give it
as good a send-off as possible.

Magill:

I think that's a good idea.

H.M.Jr:

What?

Magill:

I think that's a good idea.

H.M.Jr:

Do you (Gaston) see any reason why not?

-7Gaston:

No, I think that's the right idea. I think that

probably we ought to have - in addition to your
talking it to the boys here, that we also ought to
have a release which we can send out and which we
can give to them at the time of the press conference
and send out, because a good many papers will miss
the press conference story.

H.M.Jr:

Well, you work it out. I lay great importance on it.
I want it done well and I'd like to do it.

Gaston:

You'd like to have me ask Helvering to come over?

H.M.Jr:

I want - yes; I mean - well, you and Magill fix it
up, that's all.

Gaston:

Right.

H.M.Jr:

You and Magill. So we have a smooth working thing
for 10:30 tomorrow. See, Herbert?

Gaston:

Yes.

H.M.Jr:

Don't have me read a four-page thing and then say,
"You can't quote me." I mean have it all smooth and
ready.

Gaston:

Yes, all right. I was going to let them quote you,
though.

H.M.Jr:

And the only other thing that I got is, I called up
Bell this morning and - first place, I wanted to
deposit those silver certificates now just as rapidly
as we can. That's Number One. And then Number Two,
very much in the room, is, I've thought right straight
along that the Federal Reserve should lower their
reserve requirements in country banks. Well, they're
not going to do it, so we've done this gold business.

All right, that still doesn't get to the country banks.
So during the night - I didn't sleep awful well - I
got an idea, which may not be awful good, but you

fellows can chew on it; and that is that possibly

we can do one of two things. If and when we have to
call for money, we only call for new money from New
York, instead - don't call from the other 11 districts
at all, just call on New York, draw our account down

there. The other is the possibility of transferring

-8-

our account money on deposit with the Federal

to the country banks, increase our deposits - just
deposit the money in the country.

Now, I don't expect it, but it's a thought. The
fact it's never been done doesn't bother me a bit.
But I - you can't - no one is going to be able to
tell me that - we fellows know that for the next

year they're not going to have - how much of the
money locked up, is it? - the country banks. What
proportion is locked up in excess reserves? What
proportion? I mean that they have to keep?
Bell:

It's 7 percent.

H.M.Jr:

What's the percentage?

in

Upham:

14 percent on demand deposits / country banks.

H.M.Jr:

How much?

Bell:

That's right.

Upham:

14.

H.M.Jr:

All right, they know that - if they knew that our

Upham:

H.M.Jr:

policy was going to be that we take money out
What's the matter, Cy?

I just didn't catch you, that's all; 14 is right.

I was slow in thinking of it.

That's right, you were.
I mean I think they ought to cut that thing right

in half so these fellows would know where they are.

I don't think they're going to do it. All right,

maybe I can shame them into it. See?

Now, I want some of you fellows to do a little
original thinking. We got 150, 200 million dollars
on deposit with the Federal. Let's just take a
hundred million out, put it right in the country.

Then the people say, "Well, why doesn't the Federal
Reserve do it?" the more they keep asking, "Why
does the Treasury have to do this?" Maybe after
a

while they will do it.

-9-

Now, I'm not asking for an answer today.
Does that shock you, Wayne?
Bell:

About 350 million dollars excess reserves in the

Upham:

That's the figure I thought you were interested in.

Bell:

country banks.

Opposed to a billion four for the total; 450, 460
million in the reserve city banks; about 550 million
in New York and Chicago.

H.M.Jr:

Could I take a hundred million dollars and deposit
it in these country banks?

Bell:

Well, that's a little difficult. The law is

peculiarly worded. We can deposit in the banks
proceeds from the sale of Government securities
and we can deposit income tax payments. That's

H.M.Jr:

Bell:

the extent of our authority.
well, income tax period isn't so far off.
That's right. You can do that during March. It

is a question whether you could take other tax
receipts or call money from the banks as a whole
and redeposit it. Might conceivably work that out.
H.M.Jr:

Well, supposing you people think about it seriously,

will you? And when I come back right after - let's
say

Bell:

Wednesday.

H.M.Jr:

the 23d, let's have an answer.

Oliphant:

Wednesday.

H.M.Jr:

Yes. I think it's worth thinking about.

Oliphant:

I'll go into the law on it.

H.M.Jr:

What?

Oliphant:

I'll go into the law on it.

-10H.M.Jr:

George, does it shock you?

Haas:

No, and I think the idea might be very good. I
think before letting you do it, they'd do something.
Well, I frankly - I'm not going to do anything behind
Eccles' back. I mean I'm not going up on the Hill
or anything like that and get things started to have
them called. But I think I can shame them into it,
see? Because - I mean I don't care if Eccles - now,

H.M.Jr:

for instance, he made a statement at lunch yesterday
and I just was amazed. I said that as the Government

bonds went higher and higher, I felt that with this

big spread between Governments and non-Governments

it would have a tendency to pull the non-Government
bonds up, which it always has. Eccles made a flat
statement: "Nothing will pull them up except earnings."
So Jake Viner said, "Well, on that basis, we'd never
Haas:

get out of the depression."
That's right.

H.M.Jr:

What?

Haas:

That's right.
I mean I just can't follow him these days.
Put I'm just going to throw that out. After you
have all thought it over, maybe you'll say I'm all
wrong, but it's - I think we've just got to do
original thinking around here, that's all. I mean
we can't just sit here. And frankly, I don't think
the Fed's doing their job, and in the meantime they're

H.M.Jr:

just scaring me to death.

Now, does anybody, before I have Foley come in - I
want foley to give us the word-of-mouth tone of what
happened over at the White House. He was present
at that meeting. You (Magill) all right? Anybody
want to shoot at me?
Oliphant:

One thing. Farm Credit - Peyton Evans - calls up and
says they have a report ready to go down to the Senate,
investigating those old cotton loans.

H.M.Jr:

Yes.

-11-

Oliphant:

And Mac and I talked it over. They wanted to send it
over to us for us to look over. We talked it over,
decided the best thing to do is let it go down, and
then if - remember, involves what you and I did in
connection with the seed loans - let it go down and

if any question arises we'd go into it.

H.M.Jr:

ACCA?

Oliphant:

ACCA and the seed loans.

H.M.Jr:

That's all right.

Oliphant:

But I didn't want to do that without mentioning it

H.M.Jr:

That's right. All right.

Oliphant:
H.M.Jr:

It's the old fight - ACCA.
They still fighting that?

McR:

They had a Senate resolution.

to you.

Oliphant: Yes.
H.M.Jr:

That's all right.
What else? Anybody else got anything special?

Oh, incidentally, I saw Senator Guffey last night at
the Mexican Embassy and I asked him please to get
hold of Barkley and tell him the longer he waited the
more difficult he was making the thing for himself,
and it was perfectly ridiculous holding it up.
Gaston:

You saw Alsop and Kintner last night?

H.M.Jr:

I did.

Upham:

(To Kieley) Mr. Foley - ask him to come in.
I talked to Kintner yesterday too.

H.M.Jr:

Did you? Like a Dutch uncle?

Upham:

I was trying to take the blame for that story.
(Foley comes in)

-12H.M.Jr:

Hello, Foley. Foley, give us the word-of-mouth I read your two pages on what took place at the
White House in that meeting. I just - I mean

frankly I'm terribly worried about it, and I
wondered whether I was worrying too much or too
little or what.

Foley:

Mr. Secretary, there was a very wide difference of
opinion as to what could be done or what should be
done. I gathered that Colonel Roosevelt was merely
throwing out ideas to see how different groups that
were represented there would respond. He was trying
to grasp at something that would get this building

program started quickly and would create employment.
I thought from the way Aubrey Williams and Colonel
Harrington r esponded that he was leaning more toward
the direct construction and spending side than he

was toward the private financing side, but he didn't
commit himself definitely, and the thing was left

that Williams and Harrington and the group from the
Farm Security Administration would get together and
make a survey of costs and the number of men that
might be employed and possibly needs of small housing
construction, and have a further meeting possibly

Friday of this week.

H.M.Jr:

Well, this statement, for instance, that if they

didn't do something like this they'd have to spend

two billion dollars for relief - was that said in a

sort of flip way, or did you get - was that a kind
of a - I mean I want to get the tone. See what I
mean?

Foley:

Yes. The conversation, as I remember it, was between
Colonel Roosevelt and Mr. Jones, and it was rather
obvious that Mr. Jones wasn't very receptive to
Colonel Roosevelt's suggestion, and his reply was

that if this didn't take, if the people weren't

employed, the only alternative, as he saw it, was to
go down to Congress and ask for an appropriation of
two billion dollars for relief, and, faced with that,
he thought that the idea should be given a little more
sympathetic consideration. I gather that was the

spirit in which it was said.

H.M.Jr:

Kind of a blackjack?

-13Foley:

Kind of a blackjack.

H.M.Jr:

Did Jesse Jones stand up at all against this?

Foley:

Well, I had the very definite impression, watching
the play that went on there in the room, being
entirely disinterested, that both Jones and McDonald
were opposed to anything like this on the ground that
they thought that it would hamper and interfere with
their program.

H.M.Jr:

What about Straus?

Foley:

"ell, I couldn't tell how he stood. I gathered that
he thought (a) that it wasn't necessary, and (b) it
didn't sound very practical to him. But I didn't
talk to him after the meeting and he didn't have an
awful lot to say.

H.M.Jr:

Well, I've done a lot of figuring and I think I've
got to the bottom of the thing, finally. I called
Jimmy last night and told him how I felt about it.

I mean I'm a hundred percent opposed, I'm going to do
everything possible to see that Stewart McDonald at
least gets a chance to show what they can or cannot

do, which he is entitled to. I mean why try to undermine the fellow before he's even got started? It's
perfectly outrageous. And I finally got to the bottom
of the thing, and that is that Harry Hopkins is having
cat fits down at Palm Beach because he doesn't think
they'v got enough projects, you see, to put the
people to work, and that Harry Hopkins is back of
this whole thing. Jimmy said so. We're talking very
confidentially here. So I had previously sent for

Harrington, see, and asked him point-blank did he
have enough projects to put people to work up to the
amount of two and a half million people, without
going into the housing business, and he says,
"Absolutely" - that he doesn't need any selfliquidating projects, doesn't need anything he
hasn't got now. He can put the people to work and
put them to work promptly, so there isn't any

excuse for this, see? Just isn't any excuse for
this.

And after all, here - I want you (Foley) to get

-14-

this - the policy in the Treasury is to try and

encourage private capital to go to work. Now, that's
what this whole bill is. I had nothing to do with
the - I mean all this crowd that's over there and

sitting around and carrying on like a lot of fighting

children. They wrote this bill. This is their bill.
Why not give it a chance? They don't even give the
thing a chance.

The only thing that would interest me would be if
Harrington said, "I can't put these people to work."
Now, he assured me definitely he can, see? And all
of these modifications - I mean anywhere from the

Government building the houses, from the Government
subsidizing a builder by giving him so much unemployed

labor free, and all of these various wrinkles - I mean

it's just - well, I'm just going to use all the
influence I've got to stop it and give this fellow
McDonald a chance.

I wanted you (Foley) to get it straight from me, see?
And I've told this to Jimmy Roosevelt, so he knows
how I feel. And they've got a new wrinkle which - oh,
this morning he sent for Straus and Stewart McDonald

alone. Well, by this afternoon I'll know what that
is. But I really think - I mean if what McDonald
says is true, and he's been very much down - see, he
started to get low last April - I mean his stuff got
kicked last April; he said it's just beginning to come
back now. And he said, "If you want to kill it, just
let any of this stuff leak out that the Government is
going to have a little TVA in housing."

I mean just - "Well, we'll just limit it to 750,000

houses, we'll just build that to get out" or something
like that, see? Now, it's time enough if McDonald
falls down and fails, but he hasn't - which he hasn't
shown any signs of doing yet. The man is almost
hysterical because they've hounded him so. He ought
to be tending to his work and everybody ought to
leave him alone. But instead
Inasmuch as you represent me over there, I want you

to know how I feel, and if you get anything
want to talk to Jesse at 10:30. I want to do everything I can in order - I mean I have not reached the
point now - got nothing to do with the state of
I

-15-

business - that a thing like Stewart McDonald's
organization
can't go to work through private
capital.
And Eccles has completely flopped - I mean around.
He used to say the way to put people to work was to
start housing. Now he says that as long as we've
got a depression we can't get any housing. He's

completely reversed himself. Told us this twice

now.

So
don't hesitate to get it to me fast if you hear
anything.
Foley:

H.M.Jr:

Well, I'll give you, Mr. Secretary, everything I hear.
That's right, and I'm giving you most confidentially
what I'm hearing.

Oliphant:

The basis on which he is over there - he is over
there to give them any information about the law land involved, so forth. I take it for granted that
he is not there for an expression of departmental
policy.

H.M.Jr:

No, but he wants to know where I stand.

Oliphant: For his own background, yes.
Foley:

I didn't think that the group over there had the

impression that I was representing the Treasury in
to say that he had asked me to sit in because I knew
something about the laws in the different states.

any way, because Jimmy Roosevelt was quite careful
H.M.Jr:

I got all that. I still say, you've been in other

fights like this, and you can keep your ears open
and let me know. I'm not saying that you should take
part in the fight, but, after all, you must have
seen the fights of Mr. Hopkins and Mr. Ickes and all
that, and all I want to know - I want information so
I can work fast. And I'm telling anybody that hears
anything to let me know, because I think if the - that
the President would be making a terrible mistake I can't over-emphasize it - at this time, and he'd
have to ask Bell and I to lie down and let them roll

over us before we'll give in. Is that right?

-16-

Bell:

Yes, sir.

H.M.Jr:

So that I just want to let everybody know that they

can listen. Because this is the first time that

Stewart McDonald thinks - said he thinks he can
make this work, and he's showed me figures yesterday constantly increasing business; now he's beginning to

go places. And if you kill this, I don't know now

you're going to explain anything.

The only other thing that Taylor wants to add - he
attended a meeting yesterday and we've got a new -

using Taylor's language - a new "unbalancer" joining

the group over at Mr. Eccles' office, and I give
who joined this group. You can't guess, so I'll

anybody a guess who the man was, unless you know,
Oliphant:

M.Jr:

Bell:

save time - Mr. Homer Cummings.
An unbalancer.

He's an unbalancer. Now, try and figure that one out.
But I swear, if you didn't laugh it would make you cry.
Not
afraid of going to jail, are they, or something
like that?

Taylor:

That wasn't brought up.

Bell:

That's the only purpose he could be there for, to
keep them out of jail.
Alcatraz isn't any too pleasant a place.

H.M.Jr:

Will you (Upham) see the Chief Examiner, have him get
himself ready?
Upham:

Yes indeed.

H.M.Jr:

end in that thing - if you can stop a minute behind,
I'll tell you particularly what I want. And you be
ready for me and Bell and Taylor be here at 10:30.

Haas:

When's this meeting?

H.M.Jr:

Eleven.

GROUP BANKS

(000 omitted)

NO.

SOUND VALUE

COMMON

COMMON

P

PAR VAL.

R

BANKS

E

LOCATION

R

E

NAME OF BANK

F

OF

D

SOUND

B

Kansas City
Minneapolis

79

Boston
Chicago

14

Louisville

Ogden

Syraouse
Chattanooga

94
6

San Francisco
Minneapolis
Atlanta

18

7

Boston

18

7

Hartford
Seattle
Buffalo

12

Pittsburgh

24

Milwaukee

18

7,440

6,200
6,700
19,185

36,293
32,400
2,450
1,860
2,543
3,745

12,878
4,840
11,232
10,086
12,020
41,282
106,481
73,165

282,589

46
-

-

1,000
396

-

837,234

6,590,235

15

7,471

1,172

7,410

100

7,825
675

-

52018

6,463
53,938

-

1,920

29,045
109,905
30,226

790,807

-

-

398(R)
5,784

22,872
225,278
14,769

29,492
110,355
39,243
22,872
226,793
25,931

4,840
11,232
10,132
12,020
41,282
107,481
73,561
7,427

-

225

6,463

17,878

-

-

1,290
6,636
1,941

2,625

49,722
57,284
218,875
51,506
108,227
109,595
180,384
390,447
643,786
945,449
43,555
67,503
64,071
75,797
5,424
73,952
399,635
185,439
1,499,042
394,363
38,520
726,136
261,523

8,244

-

6,166

675

4,669

-

-

7,202

325

22,800
10,925
56,300
17,563
3,850
20,675
8,005

4,095
5,000

-

297

450

9,017
-

7

4

3

Trust Co. of Ga. Associates
Union Tr. Co. & MellbankCorp.
Misconsin Bank Shares Corp.

16

5

Marine Bancorporation
Marine Midland, Inc.
National Shawnut Bank
Transamerica Corporation
Northwest Bancorporation

Columbus
Savannah

-

-

First National Bank Trustees
First Security Corporation
First Trust & Deposi Co
Hamilton National Assoc. Inc.
Eartford-Connectiout Tr. Co

3,650

7

DEPOSITS

-

-

First National Bank

Jacksonville

5

First Bank Stock Corp

old Colony Trust Associates

9

4,669
4,149

-

Commerce Trust Co.

San Francisco

7

citizens & Souther n H_ldingCo

8

6

Banoohio Corporation

2,550
3,430
11,075

9

-

Almours Securities, Inc.
American National Bank
Anglo-Natl. Corporation
Atlantic National Bank

Jacksonville
Nashville

TOTAL

A

150
-

-

-

1,415

11,162
44,890

100
-

1,537

Report made
by

Mr

to

secretary Morgenthan
9.30

Jease Jones

referred

to

group meeting feb. 16, 1938.

C
0
P

Y

March 8, 1938

My dear Mr. Chairman:

I have before me your letter of February 16th
enclosing a copy of your letter of the same date to the
Central Bank of Oakland, California, which you were kind
enough to send me voluntarily for my information.

In the letter to the Oakland bank, you state with
respect to the bank's application for approval of the
establishment of branches in Alvarado, Niles, and Irvington, California, "We feel, therefore, that action by us
upon your current application should be postponed until
public policy on this point has been clarified. When the
current uncertainty concerning public policy on this
matter has been settled, we shall give consideration to
your application."
I am writing to inquire whether there has been any
change in the policy of the corporation on this matter
since February 16th.

Sincerely yours,

(Signed)

H. Morgenthau, Jr.

Secretary of the Treasury.
Hon. Leo T. Crowley,
Chairman, Federal Deposit
Insurance Corporation,
Washington, D. C.
CBU:pm

Return to Room 200

March 9, 1938.
9:30 A. M.

GROUP MEETING

Present:

13

Mr. Magill
Mr. Oliphant
Mr. Gaston
Mr. Gibbons

Mr. Haas

Mr. Taylor

Mr. Lochhead
Mr. Upham

Mr. Bell

Mr. McReynolds
Miss Chauncey

H.M.Jr:

The French Ambassador is not coming this morning

at eleven-thirty.
(Telephone rings.) Hello. Thank you. Put in a
call for him.
(Looking at newspaper cliping Mr. Upham submitted.)

I don't get this. Do you?
Upham:

Yes.

H.M.Jr:

Shall I read the whole editorial from him?

Upham:

Yes. The last paragraph particularly.

H.M.Jr:

I'll read the whole thing.

Upham:

H.M.Jr:

It's a very intelligent defense of the New Deal.
I'll read it. You haven't heard from across the
way? Wayne, I thought this - that before Mr.
O'Connor left I thought you might see if we can't
fix up a meeting on banking for 11:00 tomorrow,
see.

Taylor:
H.M.Jr:

(Shakes his head "Yes.")

(To Mr. Upham.) You want to get them around for

the banking committee at 11:00 tomorrow?
Upham:

Surely.

-2H.M.Jr:

Jones,
O'Connor - Eccles is going today, isn't
he?

Upham:

I think so.

H.M.Jr:

Well, let Eccles send someone.

Upham:

To do specifically what?

H.M.Jr:

Discuss bank holdings. The President definitely the President is going to send a message before
March 20, and he is - it's part of his message on
monopoly, and I think we've got to do something.
And then I want to particularly discuss the bill

as how, if at all, it affects the

Upham:

H.M.Jr:

Trans-America.

No. Trans-America, yes. (Mr. Oliphant, I'd like
your people to examine Mr. Glass' bill from the
standpoint "does it control Trans-America?" Will
you please, also, Mr. Oliphant, find out what, if
anything, S. E. C. is doing in regard to TransAmerica, see? Does it do anything on TransAmerica?)

Upham:

The S. E. C. started an investigation from the
standpoint of investment trusts. I haven't seen
anything except that report they sent over here.

Taylor:

You mean the bill?

H.M.Jr:

Does the Glass bill do anything to Trans-America?

Upham:

Oh yes, it stops any bank in the group from adding

H.M.Jr:

How about regulations?

Upham:

H.M.Jr:

a branch.

It subjects Trans-America to all regulations.
What about the S. E. C. - they don't keep their
word.

Upham:

H.M.Jr:

They are given plenty power under this bill.
But what is the use of giving an organization power
if they don't keep their word?

-3Oliphant:

You want to know what S. E. C. is doing?

H.M.Jr:

I'd like to know what they are doing. I'd like

Oliphant:

to have this meeting at 11:00 in the morning.)
Eleven o'clock.

H.M.Jr:

And I want you at it, Herman.

Oliphant:

That's bank holding companies?

H.M.Jr:

Yes, and this is - this message I've got here,
who wrote this message?

Upham:

Gaston:

H.M.Jr:

Gaston, I think.
I wrote an original, and I think it was revised
a good deal. (Looks at reference memorandum)
Yes, this is the one I wrote.
All right, you'd better be here at 11:00 tomorrow
too.

(To Mr. Oliphant) Do you want to take a look at

it? Want to see it?

Oliphant: Yes, please.
H.M.Jr:
Ask Robert Jackson if he is working on the President's
monopoly message. You see, time's getting short
and he wants this before the twentieth.
Oliphant:

And he says "yes" ---

H.M.Jr:

Excuse me. Well, let's get together. When is

Bob Jackson going to be ready?
Oliphant:

Ready?

H.M.Jr:

I think we'd better clean this up inasmuch as the
President said two or three times he wants it before
the twentieth.

Oliphant:

Bob has a big case to argue tomorrow and then he

H.M.Jr:

said he'd be free. I'll talk to him today.

(To Mr. Magill) I see you did all right except on

your salaries

-4Magill:

Yes.

H.M.Jr:

--Didn't you? No change, as I read it,
except on salaries.

Oliphant:

They are going to find out what Magill and I

H.M.Jr:

Will they find that out?

Magill:

Oh yes - and Upham's.

Upham:

That's a change in the bill.

H.M.Jr:

Everything was voted down except that.

Magill:

The Committee agreed on some amendments yesterday

are earning.

that they would put in, but I think there were

no amendments from the floor.
H.M.Jr:

What else have you got?

Magill:

Nothing more. They seem to feel reasonably confident on 1-B which is coming up today.

H.M.Jr:

If things don't get any worse than they are I
expect I can go up to Amherst this week end.

Herman?

Oliphant:

Homer was wrong on his Post Office figure by a

million and a third. You are right. The amount
on the contract is, roughly, four and a third
million.

H.M.Jr:

That hasn't been changed?

Oliphant:

No.

H.M.Jr:

The question of the price - that is the whole question.
There is no change in that at all. He's wrong

Oliphant:

on his figure - a million and a third. He said
three million and it is exactly four million,

three hundred fifty-four thousand. I can give you

a memorandum on it.
H.M.Jr:

No. Anything else? How about that personal
matter that Homer drew my attention to?

-5Oliphant:

Our man involved is trying some important cases
in Florida and they agreed he should not be disturbed
until he finishes those cases and then he is coming
back.

I have a letter here to Dr. Abbot which you may

want to sign. We made a number of suggestions

about fixing their by-laws, all of which they
have adopted, and ---

H.M.Jr:

What else?

Oliphant:

And I have a draft of a letter to Morrison Shafroth.

H.M.Jr:

Will you two gents (Mr. Magill and Mr. Oliphant)

Oliphant:

stay behind a minute?

I'll just step out and have it (draft of letter to

Morrison Shafroth) sent down to me.

H.M.Jr:

Herbert?

Gaston:

I haven't anything.

H.M.Jr:

Well, that meeting will be this afternoon at
three on prices. Did you (Haas) let Mr. Stewart
McDonald know?

Haas:

I didn't, but I will.

H.M.Jr:
Gaston:

Will you. And you be here.
Two visitors.

H.M.Jr:

Three o'clock?

Gaston:

One o'clock - two visitors.

H.M.Jr:

What else?

Gaston:

Nothing I think of.

H.M.Jr:

Steve?

Gibbons:

Nothing.

H.M.Jr:

Did you clean up your Baltimore stuff you called
me on yesterday?

-6Gibbons:

I'll clean up on that this morning. I still

don't know where it originated.

H.M.Jr:

When you get that report from Samoa I want to
see that myself.

Gibbons:

The one they are on now?

H.M.Jr:

The one Gruening went on.

Gibbons:

I've got that on my desk and I am going to send
it in to you. If we are to continue this thing
the Coast Guards are short of a lot of information
to do a good job, and I am making some suggestions
that may be helpful.

McReynolds: I thought they were going to write a letter to

Interior.

H.M.Jr:

I don't want a letter to go to Interior without
it going across my desk, please.

Gibbons:

At the same time I'd suggest a lot of improvements.
For instance, they started out apparently without
an itinerary. They were about out of gasoline and
they tried to get more from a ship of the Mattson
line and a naval base.

H.M.Jr:

One of these blind dates, huh?

Gibbons:

It looks very very stupid.

McReynolds: I thought the boss suggested they write a letter
Gibbons:
That is coming through, but I wanted to analyze
this thing and - it will be on your desk tomorrow.
H.M.Jr:

George?

Heas:

I had a long talk with Walker and he told me to

tell you he's sorry but he can't talk before a

large group, because of his connections. He
doesn't know everybody. He's got some ideas I
think we should have.
H.M.Jr:

(Over telephone) Tell Mr. Walker I'll see him at

ten o'clock.

-7Haas:

H.M.Jr:
Haas:

Particularly on organization.
I'll see him alone.
There's one figure came in this morning, but it's
a good one. (Hands Secretary book.)

H.M.Jr:

Just one?

Heas:

It's so good I had it checked, but I guess it is
all
right.
All right.

H.M.Jr:
Hans:

There are some construction figures here. You
want to take a look at those?

H.M.Jr:

Please.

Haas:

Total construction figure is off; the residential

H.M.Jr:

Stewart McDonald's figures are perfectly amazing
figures.

is up more than seasonable. The total is down.

Oliphant: Are they?
H.M.Jr:
Perfectly tremendous. It looks as though continued a week or so this spring - there will be
Oliphant:

considerably more business than last spring.
That's the best news I've heard.

H.M.Jr:

Well, his approved basis was seventeen million,

which is better than anything before. He only
finished his application blanks on February 15. It
They really haven't yet begun to get the kick.
is bigger than - if it continues for another I would say that he will do more business this

spring than he did last. That's the way it looks
now. And he really hasn't got rolling yet. And
he hasn't yet approved any big projects. This is
all small homes; none of these are big stuff.

Oliphant:
H.M.Jr:

He's got a lot of small stuff, has he?
It's all small stuff. On the renovation Sears

Roebuck said last year on Title One they had the
biggest week they have ever had. It is almost
unbelievable.

-8Gibbons:

Does anybody follow this used car proposition?
They've got a big campaign on it now.

Gaston:

The story is they are going to cut prices on
new cars as soon as they finish sale of used cars.

Gibbons:

They're going to revamp the whole thing.

Haas:

There are rumors about changing ---

Gibbons:

It's all on the radio and in the newspapers.

Haas:

They are ---

H.M.Jr:

Wayne?

Taylor:

Nothing.

H.M.Jr:

(Looks at Lochhead.)

Lochhead:

The French lost about four million dollars in
gold yesterday, - but the pressure is probably
just strong.

H.M.Jr:

(Looks at Mr. Upham.)

H.M.Jr:

I've nothing.
(Looks at Mr. Bell.)

Bell:

You want to give an hour this morning to discuss

H.M.Jr:

An hour?

Bell:

Well, I meant an appointment.

H.M.Jr:

Well, I'm holding some time for Bullitt depending on that - it may be after lunch.

Bell:

Whenever you are ready.

H.M.Jr:

Bell:

I'd like you here when Jesse Jones --- He's
going to take up more legislation.
More legislation?

H.M.Jr:

That is just exactly what I said. He will be here

Upham:

that Comptroller's ---

at ten-thirty.

-9Oliphant: What is the legislation about?
H.M.Jr:

I don't know.

Taylor:

Broadening powers.

Oliphant:

We'll get some warning on it?

Taylor:

I guess so.

H.M.Jr:

We will after we hear what he is going to do after
he tells us what he's going to do, we'll
tell you.

Oliphant:

After it's been done, huh?

H.M.Jr:

Yes.

Oliphant:

We want to be sure it doesn't affect some of our

H.M.Jr:

(To Mr. Bell) Will you come in at ten-thirty?

Bell:

Yes.

H.M.Jr:

Mac, what have you got there?

stuff.

McReynolds: Survey reports on projects.
H.M.Jr:

I'll fool you - I'll take it. I'll keep this on

my desk until I get a chance to look at it. This

is the first time I've seen it.

McReynolds: I've had it on my desk in approximately that form
for about a year and a half. We broadened it since
you made the request before. We broadened it to

cover the other shops - that last section. We
started of course just on the emergency projects.

The white sheets are on regular appropriations
and the colored ones are on the emergency.
H.M.Jr:

What's that, Mac?

McReynolds: The white sheets are on the regular appropriations
and the colored ones are on emergency.
H.M.Jr:

All right, if Mr. Oliphant and Mr. Magill stay.

13

Mr. Oliphant
Mr. Folay

Re: Effect of S. 3575 (Glass-McAdoo Bank
Holding Company Bill), if enacted, upon
Transamerica Corporation. (Giannini HoldAng System.)

SUMMARY OF 8. 3575.

The Glass-McAdoo Bank Holding Company Bill (s. 35751 H.R. 9702) may be
briefly summarised as follows:

The Bill defines "control" as the ownership of more than 10 per centus

of the outstanding shares of capital stock or voting rights for electing directors, or the domination of the election of a majority of electors, of sn
insured bank or any other company.

A "holding company" of an insured bank is (1) any company which "controls"
the insured bank, (2) any company which "controls" any other company which in
turn "controls" the insured bank, and, (3) every company in a system of "controlling" companies in which any company or combination of companies *control"
the insured bank.

An "affiliate" of an insured bank is (1) any holding company of the insured bank, (2) any company in a system of *controlling companies in which
any company is "controlled" by the insured bank or by such holding company
or by any company or combination of companies in such system, and, (3) any
company having one or more shareholders who own more than 50 per centus of

the outstanding capital stock or voting rights of both the company and insured
bank.

The following restrictions are placed upon the operation of an insured
bank with respect to #holding companies* or "affiliates" of such banks

(1) The insured bank may not make loans or extend credit to its "affiliates" or invest its funds in securities issued or guaranteed by any of its

"affiliates.")

(2) The insured bank may not purchase any securities from any of its

"affiliates";

-2(3) The insured bank may not make & loan or extend credit to any
person, secured by securities issued or guaranteed by any of its "affiliates." (Such loans, extensions of credit, and investments now held
must be disposed of within three years after enactment of the Act.),
(4) An insured bank controlled by a "holding company may not establish new or additional branches; and
(5) An insured bank may not pay dividends on any of its capital
stock to any "holding company" 80 long as that "holding company holds
any capital stock or voting rights of such insured bank, or of any company which is & "holding company" of such bank, in violation of the Act.

The Bill places the following further restrictions upon the operation of "holding companies":

(1) No company may acquire capital stock or voting rights of an
insured bank or of any "holding company" of an insured bank if such company is, or by such acquisition would become a "holding company" of any
insured bank. (This proviso would prevent the extension of holding company activities with reference to insured banks but would not prevent fur-

ther extension of their activities with reference to non-insured banks.)

(2) Under existing legislation no holding company which controls a
majority of the capital stock of a member bank of the Federal Reserve
System or more than 50 per centus of the shares voted at the last directors' election may vote such stock without a voting permit issued by the
Federal Reserve Board. Under S. 3575, such permits could only be issued

after the additional approval of the Board of Directors of the Federal

Deposit Insurance Corporation.

Summarising S. 3575 very generally, it may be said that it provides
that an insured bank, 10 per cent of the capital stock of which is controlled by a "holding company", may not make loans to or purchase securities from "affiliates" in the holding company system, or establish now or
additional branches; and further prohibits any company in the future from
acquiring 10 per centus or more of the capital stock of any incured bank.
or any "holding company of any insured bank from acquiring any additional

capital stock of any insured bank. Accordingly, the Bill prohibits the extension of operation of holding commes with respect to insured banks, but
does not liquidate the existing situation except in 80 far as that night
be induced by the prohibitions upon the establishment of new branches by

controlled insured banks, the making of loans to "affiliates" by insured
banks, and the purchasing of securities from "affiliates" by insured banks.

-3EFFECT OF S. 3575 UPON TRANSAMERICA CORPORATION.

The banking operations of the Transamerica Corporation being conducted

largely through insured banks (for example, the Bank of America National
Trust and Savings Association, which represents more than 60 per cent of the
total net assets of Transamerica, is & member of the Federal Reserve System
and of the Federal Deposit Insurance Corporation), the entire system would

appear to be subject to the restrictions contained in 8. 3575. It is inconceivable that the banks in the Transamerica System could withdraw from the

Federal Deposit Insurance Corporation and thereby remove themselves from the

operation of the Act. The effect of the restrictions contained in S. 3575
upon the operations of the Transamerica Corporation may be briefly summarised
as follows:

(1) Transamerica and its affiliates would be under no legal compulsion
to dispose of any capital stock which they now hold in any bank insured or
non-insured.

(2) Transamerica and its affiliates could not acquire any additional
capital stock of any insured bank although stock in non-insured banks, out-

side the Transamerica System, might be acquired. (Approximately 10 per cent
of the operating banks in the United States are non-insured.)
(3) No insured bank in the Transamerica System (which would appear to
include the great majority of the banks in the system since most of the banks
are either insured or branches of insured banks) could establish any new or
additional branches. (Thus the growth of the Transamerica System would be
greatly checked since the method of growth has been by the process of first that

getting control of a bank through stock ownership and then converting
bank into a branch of one of the top banks. For example, as of December 31,
1936, the Bank of America N.T. & S.A. operated 466 branches in 285 communities. should

The effect of this restriction upon the National City Bank of New York

of

also be noted. The Transamerica System owns slightly aore than 10 per Bank cent

the stock of the National City Bank. Accordingly, the National City
could establish no new or additional branches either in the United States or
in any foreign country. Of course, this obstacle could readily be overcome
if the Transamerica System gave up control of sufficient of its stock to reduce its holdings in the National City Bank below 10 per cent.)
(4) No insured bank in the Transamerica System (which would include
most banks in the system) could make a loan to or invest in securities restric- issued or guaranteed by any company in the Transamerica System. (This below

tion would be somewhat enbarrassing to the System, but as indicated the
there would still remain methods of evasion. On pages 13 and 14 of the con- Sefidential summary of the investigation of Transamerica Corporation by the Corpora-

curities and Exchange Commission it is pointed out that at present cash
tion is in somewhat unliquidated position and because of its depleted
position it a may be necessary for it to borrow from its various affiliated banks.)

4

(5) No insured bank in the System could purchase any securities from

any of its affiliates in the System.

(6) No insured bank in the System could make any loan to any person

secured by any securities issued or guaranteed by any of its effiliates in
the System.

(7) The restrictions contained in (4), (5), and (6) above would tend
to obstruct somewhat the siphoning of funds from local banks in the System.
However, the restriction could be rather readily evaded. For example, a
loan could be made by an insured bank in the System to come officer in the
System or to a dussy outside the System and the loan then diverted to the do-

sired use, such as facilitating manipulative trading in stock of the Trans-

america Corporation. Such loans outside the System night be secured merely
by the personal guaranty of some officer in the System. The effecting of

this type of loan could be made more difficult if a provision were put into
the Bill to the effect that no insured bank in the System could make a loan

to, or guaranteed by, or induced by, any officer or director of any affiliate

of such insured bank, regardless of the security for such loan.

(8) One of the easiest methods by which a holding company could siphon
funds out of a local bank would be by a service contract entered into between
the holding company, or one of its affiliates, and the board of directors of
the local bank, controlled by the holding company. Under this type of contract the local bank would pay an exorbitant fee for service rendered, such as
advice in matters of management or investment. Such contracts could probably

be controlled if a provision were put into the Bill to the effect that the rates

paid by insured banks for services rendered under such contracts would have to
be in accord with a schedule of rates prepared by the Federal Deposit Insurance
Corporation, or that the contracts would be subject to revocation by the Federal
Deposit Insurance Corporation which could determine reasonable compensation for
such services.

(9) With reference to the permit, issued under existing legislation, authorising a holding company of a member bank of the Federal Reserve System to vote

stock of that bank, under S. 3575 such permit could only be issued by the Board
of Governors of the Federal Reserve System with the consent of the Board of Directors of the Federal Deposit Insurance Corporation. This provision does not
appear very restrictive with reference to Transamerica Corporation since the
Bank of America N.T. & S.A. does not control the subordinate banks by stock
ownership but by converting then into branches which obviates the necessity for
voting the stock of such banks.

(10) 8. 3575 would undoubtedly facilitate the obtaining of more accurate
information with reference to the operations of the Transamerica System since
it gives the Federal Deposit Insurance Corporation rather broad powers to investigate the relation between insured banks and their holding companies or of-

filiates. In addition, every insured bank, holding company, and affiliate would
have to file with the Federal Deposit Insurance Corporation such reports, answers
to questions, and minutes of meetings, as the Corporation might prescribe as
necessary for a preper supervision of the deposit insurance system.
NSBe typed 3.10.30

17.

March 18, 1938,
9:40 A. M.

GROUP MEETING

Present:

Mr. Magill
Mr. Oliphant
Mr. Gaston
Mr. Haas

Mr. Taylor

Mr. Gibbons

Mr. Bell

Mr. Upham

Mr. McReynolds

Mrs. Klotz

H.M.Jr:

I just told Harry White I am on A twenty-four
hour basis - all the arguments are going to be
with me from now until Saturday - I can't take
any today. (To Mr. Upham) Give this (a letter)
to Gibbons, will you?

Upham:

Gibbons?

H.M.Jr:

Yes.

Upham:

Surely.

H.M.Jr:

I think I'd give that to Mr. Gruening - I was

going to give it to Mr. Ickes but I'd give it to

Gruening.
Gibbons:

All right.

H.M.Jr:

Waesche is coming in at ten-forty-five; I think
you (Gibbons) and Mac had better both be here.

(To Mr. Magill) The President has that letter

by now, asking for an appointment.
Mngill:

Good.

H.M.Jr:

What's on your mind?

Magill:

I don't know that it's worth bringing this up

here. One rather odd item in connection with my

appearing before the Finance Committee Monday at

the public hearing on this tax matter, and that is

-2Senator Vandenberg and Senator Harrison agreed

between them, at that public session, I am to
present the Treasury's estimates on all these
various hypothetical changes in the revenue laws
which they have been suggesting. As you know

usually these estimates are presented in
executive sessions. I don't know how much difference
it makes because if you present them in the executive
session in the Senate they are out on the streets
five minutes after you present them anyhow, but

I thought I would note it for the record. They
also want us to present Monday - Senator Vandenberg the complete reconcilliation of the estimates
given by the Treasury in 1936 on the undistributed
profits tax and what we actually got, which I
presume will give Senator Vandenberg the opportunity

he craves.
H.M.Jr:

Any other pleasantries?

Magill:

Oh, I could give you a few more, but I think I'll

H.M.Jr:

pause this morning.

Just to check around, Mr. Douglas sent me yester-

day, a draft which he said he hadn't read, of

this proposed industrial bank. I shot it back to

Mr. Oliphant. Mr. Oliphant's handing me something
now.

Oliphant:

(Handing Secretary letter) That is just a formal

acknowledgment of it.
(Mr. Gaston sneezes.)

H.M.Jr:

God bless you, Herbert.

(To Mr. Oliphant) I think that the people who
ought to see that, Herman, in this shop are Mr.
Taylor, Mr. Haas, Mr. Bell, and Mr. Upham, see?

So those people could all take a look at it.
What I thought I was going - would do - I'll call
Doughlas now and find out what he's doing about
Mr. Jones. (Over telephone) Mr. Douglas, at S. E. C.
please.

The newspapers are sore because he went out of this
office and said he'd see me about the bank holdings.

-3Gaston:

H.M.Jr:

He could have made a perfectly truthful statement
that wouldn't have told them anything.
It's been done.

Oliphant:

Don't think he'd talked to Jesse about it up
until yesterday - I caught him
I can tell from the Internal Revenue there was
one section drafted in Jones' shop, or they
drafted Jones' legislation - phrasing rather.

H.M.Jr:

From what I gathered I don't think he has shown
this to Jones.

Oliphant:

They may have copied Jones' letter. I might
say that preliminary examination indicates it
is a very good job.

H.M.Jr:

Good.

Oliphant:

It's an important question to be discussed.

H.M.Jr:

Good. While waiting on that - anything else?

Oliphant:

No. The Rearmament in the House and Reorganiza-

H.M.Jr:

Anything else?

Oliphant:

No.

H.M.Jr:

Herbert?

Gaston:

I don't think I have anything.

Oliphant:

You're getting those reports on bills involving

H.M.Jr:

Yes, occasionally I see one on my desk. They

Taylor:

tion in the Senate.

sort of come in, and I look at it.

I find the way for me to get a story in the Times
is to be the official Administration spokesman

and a big piece is in the front - they put it on
page seven, but if Henry Morgenthau, Jr., says
something they put it in the back. It's the
truth - they've got a wonderful story up in the

front of the Times - "Administration spokesman
---"
it's
and
but "Henry Morgenthau said so-and-so ---"

back in the classified.

-4Gaston:

That's the kind of reputation you have. If
you say it that way it's really hot news - if
you say ft for the record it can't amount to
anything.

H.M.Jr:

Mrs. Morgenthau told me "Remember, if you ever

Gibbons:

You haven't been after her have you?

H.M.Jr:

Well, as much as anybody else.

Oliphant:

Barton is seeing you, as a result of his talk
with me. If you see him, I'd like to see him.

H.M.Jr:

He hasn't asked to see me.

Oliphant:

He asked, tentatively, at eleven.

Klotz:

Who?

H.M.Jr:

Barton.

Klotz:

want to run for office - which you don't _"
she said, "think of all the people who have
income tax trouble who would vote against you.
Just don't forget that."

(Nods "No.")

H.M.Jr:

Blaisdell's coming in at ten-thirty - but they

Oliphant:

It would be worthwhile for you to see him.

H.M.Jr:

If he asks I'll see him, but he won't get in
this morning, I'll promise you that.

are not on the same committee.

George?
Haas:

I have nothing. (Hands Secretary notebook)

The first figures here are the most important
ones.

H.M.Jr:

What's that?

Haas:

The first figure is the most important.

H.M.Jr:

Don't you get the whole automobile picture today?

Haas:

I didn't think of the automobile figure. Yes, we
get them.

H.M.Jr:

(Telephone conversation with Chairman Douglas of

S. E. C. follows:)

March 18, 1938.
9:50 A. M.
Operator:

Chairman Douglas.

H.M.Jr:

Hello.

Douglas:

Morning Mr. Secretary.

H.M.Jr:

How are you?

Douglas:

Fine.

H.M.Jr:
Douglas:

Ah, Douglas, I got your report on that
That's pretty crude.

H.M.Jr:

What?

Douglas:

That's a pretty crude

H.M.Jr:

Ah, well

job, but it's a, it's a starter.

Douglas:
H.M.Jr:

I understand. Well, Oliphant took a look at it
last night and he said at first blush it looked
pretty good.

Douglas:

Yeah - well what I mean by pretty crude is that
there - it has to be fixed up and safeguards and
what nots put in, running through the thing and
I've just been so busy I haven't had a chance to

do it myself, and - ah - I thought that - ah, ah,
ah - in your hands it would - ah - your staff
would, ah, put a lot of analysis on it and we
could polish it up later. I'm having one of my
boys - ah, ah - go through it for the same
objective.

H.M.Jr:

Thank you. Now let me ask you - ah, ah - are you
going to let Jones see this - Jesse?

Douglas:

Well - I don't know. Now, ah, I was about to, ah I had completed the, ah, the ah, errand, so to
speak, that I was running for the boss.

H.M.Jr:

Yeah.

Douglas:

He asked me to see you and Marriner and Jesse.

-2H.M.Jr;
Douglas:

I see.

I have now seen, ah, ah, the three of you and I

was just going to report back on that. Now, I
didn't, ah - I hesitated to, to send it to Jesse,
ah, for the reason that, ah, as I talked to him this is strictly
resistance
to it.confidentially- I felt considerable

H.M.Jr:

I see.

Douglas:

Ahh

H.M.Jr:

Yeah.

Douglas:

Therefore, I didn't think it would be very

H.M.Jr:

Supposing we do this then. Ah, when we're
through, and understand it, and adjusted, let's
just S. E. C. and the Treasury get together

productive.

Douglas:

first.
All right.

H.M.Jr:

How would that be?

Douglas:

That'd be swell.

H.M.Jr:

See?

Douglas:

Fine.

H.M.Jr:
Douglas:

Then we can decide after that - would that be all
right.
That'd be swell.

H.M.Jr:

But I didn't want to, ah, talk to anybody inasmuch

Douglas:

Well now, you can just, ah, you can just cut me

as it's your work, without first talking to you.
out of it completely because this is, ah - I, I

was, ah, just reviewing - going over with the
President as a part of the Administration, the, the
problem that lies ahead of us, and passing on
such ideas as, ah, as occurred to me. There's no -

nothing in this thing that - ah - officially
affects us or should officially affect us at all.

-3H.M.Jr:

Well, I understand

Douglas:

It's not my "baby" in that sense.

H.M.Jr:

Well, but anyway, as long as you feel that way
it's, it's - we'll sit down with you first before
we discuss it with anybody else.

Douglas:

Well we - I'd be very happy - you just call on me
day or night and I - we'11 give you all the time
and, and, ah, what not that needs to - needs for

H.M.Jr:

Douglas:

polishing this thing out.
Fine. Now one other thing. Ah, if it would be

agreeable to you, I'd like my Mr. Upham to contact,
in your shop, whoever is doing the investigation
of, ah, Trans-America.)
Yeah. The man for him to see is, ah, David
Schenker. )

H.M.Jr:

Well, would you send him a little note

Douglas:

I'll do it.

H.M.Jr:

that he should open up and let Upham have
whatever he could, because Upham is contacting

the Comptroller's office for me.

Douglas:
Douglas:

Yep.

H.M.Jr:

See?

Douglas:

Yep.

H.M.Jr:

And, ah, these cross transactions

Douglas:

Yeah.

H.M.Jr:

and if we could get available, ah, what
you're doing there, then I'd have the whole
picture.

Douglas:

H.M.Jr:

Fine, That's U - p - h - a - m?
U - p - h - a - m.

Douglas:

Yep. O. K.

-4H.M.Jr:

Thank you

Douglas:

I'll handle that.

H.M.Jr:

Thank you.

Douglas:

Good bye.

-5H.M.Jr:

(Points to Mr. Upham.)

Upham:

(Nods "Yes.")

(To Mr. Oliphant) I want you to assign some very
sary, to advise him - advise me - on this particular
thing, see? Somebody - will you? I want somebody
who'd do this and the Comptroller's office - someone person, see, so it would be just between

(H.M.Jr:

good lawyer that Upham could call on when neces-

you (Mr. Upham) and one person - so that nobody
but you and one person

mut

(Brief conversation with Mrs. Morgenthau over

telephone.)

H.M.Jr:

All right, Cy?

Upham:

Yes, fine.

H.M.Jr:

I want you to tie this thing together and then

as we go along you keep Mr. Taylor and myself

advised what you are doing, see, but that is a
big enough job for anybody - I mean the Comptroller's

end plus the S. E. C. end, and tie the thing
together. I am not at all satisfied with what's
going on. I mean I'm not going to wait until
we have a potential T. V. A. on our hands, or
something like that. I mean, it is just every
time I take a nibble at it, it gets worse - smells

worse - so if you can get what those boys are

doing over there, then the thought - I've got an
idea besides that. )

Oliphant:

The last word I had from Bill was they had made
that report they had given me and then quit
work on it.

H.M.Jr:

Pardon me.

Oliphant:

The last I heard they had made that report they
gave me and then quit work on it.

H.M.Jr:

I think you're wrong. The last I heard, it would

Oliphant:

That's news.

take them six weeks. They have started an entirely
new investigation.

-6H.M.Jr:

What?

Upham:

I don't know.

H.M.Jr:

Yes, they've gone into it - I can't remember the
man's name - Spennelli - something like that it's the Half-Moon Produce Company this fellow
owns and he was financed by fourteen thousand
shares of Trans-America - by Trans-America - a

subsidiary of Trans-America, and they gave him
around one hundred eighty thousand dollars to

buy this stuff. They are going to find out
how many more fellows like that they have financed
to go in and buy this stock, and they said it

would take about six weeks to do that.

Triple confidentially, the thing I had in mind
was this: This thing is sour as it is and the
New York Stock Exchange - if we could hit the

New York Stock Exchange, "Here's the Trans-America

listed, and if you fellows want to do something have you got the guts to go after Trans-America
and kick them off?" That's what I've got on my
mind. "Have you got the guts to do that?" That
is their job. "Have you got the guts to go and
investigate Trans-America, and if it's as sour

as I know it is, to give them a delisting?" J
There would be nothing better for us, but for

God's sake don't mention it. It is the interest

of the country to have the New York Stock Exchange

in good order. It doesn't do us anything - I
mean, as far as I'm concerned, I can sit back it isn't one of our boys, but it doesn't help -

and that is what I've got in the back of my mind.

What do you think?
Magill:

Good.

H.M.Jr:

And I think right now if somebody tipped them

off to this thing they'd go after it and do it,

knowing that the Government would back them up.
What do you think, Wayne?
Taylor:

Oh, I think they would come running.

H.M.Jr:

Don't you think it's a swell thing?

Taylor:

If they don't .....

-7H.M.Jr:

If they don't they should be simply taken
apart and put out of business.

Gibbons:

One fellow you could talk to is a member of this

H.M.Jr:

I'd rather do it through Mr. Gay, who is at

exchange. It's a swell idea.

the head of the New York Stock Exchange.

Gibbons:

I mean let it be his idea - but somebody do it.

H.M.Jr:

If I do it through Harry Durning that gives it

a political flavor. I'd rather do it officially

through Mr. Gay or let Mr. Douglas do it through

Mr. Gay.

Oliphant:

It will be official through Douglas and the exchange.

Gibbons:

It's a great idea.

Taylor:

H.M.Jr:

And it might be they!d save it for their new
President, or whatever it may be. They are in
process of reorganizing at the present time.
Like it?

Gaston:

Fine.

Oliphant:

Very interesting.

Gipbons:

Douglas might get the credit of the thing.
I don't care

H.M.Jr:
Gibbons:

H.M.Jr:

I know you don't care.
The reason fellows like these are made to pat
themselves on the back - the reason they work with
me, they know their shop gets the credit and that
is why Douglas and all the rest of them will
throw the stuff in my lap - Jesse Jones - and

they - all the rest know now, after five years, that is why they all come here. After all, the

control we have over these boys is purely a mental

one. I mean it's --Gibbons:

You haven't any official ---

-8H.M.Jr:

The only reason they keep coming here all the time
is because they know I am square with them.

Haas:

You mentioned the automobile figures, Mr. Secretary.
Ward's figures usually are here before noon today.
This is old, huh?

H.M.Jr:
Haas:

Yes,
that is old - that isn't any good. That's
old.
I've nothing additional.

H.M.Jr:

Wayne?

Taylor:

This letter to Fahey. You'd better read it.

H.M.Jr:

I'd
better read it. We've been doing things
this week.
"Dear John: On Tuesday when you were in my office
in connection with the proposed amendments to
the Federal Home Loan Bank Act, you stated that
there were three questions upon which you were

primarily interested in obtaining my views.
"These questions were as follows:

"Shall the Treasury guarantee Home Loan bank

debentures? Shall the Treasury be authorized,
but not required, to purchase Home Loan bank

debentures?

"Shall the premium rate charged by Federal Savings and Loan Insurance Corporation be reduced

from 1/8 to 1/12 of one per cent?

"Shall Federal Savings and Loan shares be given
complete exemption from local taxes?

"At that time I agreed to ask my people to consider these questions and to have an answer for
you by Friday. Full consideration has now been
given to these questions and I regret to advise
you that we are of the opinion that all of them
must, from the Treasury's standpoint, be answered

in the negative. I am enclosing, for your

information, a memorandum setting forth these three

-9questions and a summary statement of the
reasons for the negative answer.

"I realize that you have serious problems in work-

ing out a long range program for the Home Loan
bank system and I assure you that my opposition
to your three proposals should not be taken as

an indication of any unwillingness on my part to
give further consideration to these problems.
"It occurs to me that, pending a working out of

such a program, the $93,000,000.00 which, I
understand is approximately what the Home Owners'

Loan Corporation has available for purchase of
shares of member institutions and for purchase
of banks debentures, now might be set aside and
maintained as a fund for the purchase of bank
debentures should an emergency arise making it
necessary to provide a market for debentures of
Home Loan banks."

H.M.Jr:

Now I have just one objection - instead of saying
$93,000,000.00 I would say $75,000,000.00 of
that.

Taylor:

Bell:

I think I'd start with the ninety-three and then

let him say the other one. The way that's worded
you are just suggesting - as it occurred to you
rather than putting it as a requirement.
As a matter of fact that ought to stop purchasing
shares completely.

H.M.Jr:

(Signing letter.) All right; that's a good job.

Taylor:

Hungary.

H.M.Jr:

I'm not. (Laughter)

Taylor:

You will.

H.M.Jr:

Are you?

Taylor:

Most important thing is the last paragraph, which
reads as follows:
"I believe the proposal of the Hungarian Government
should receive the most careful consideration of
the Congress. They represent a noteworthy wish
and effort of the Hungarian Government to meet

its obligations to this Government."

- 10 H.M.Jr:

Who wrote that?

Taylor:

This is written in the State Department.

H.M.Jr:

All
I'll sign it. Have you (Bell)
seenright,
it?

Bell:

You don't sign it.

Taylor:

They sent it over to us to look it over. We have
a couple of rather minor suggestions in the wording. Dan and I went over it last night. You -

with your permission
H.M.Jr:

Right.

Taylor:

We think it ought to go back to them and
say we have no objections.

H.M.Jr:

All right.

Taylor:

But making the notations

H.M.Jr:

All right, get it back today to the State Department. Swell. Fine. What else?
That's all.

Taylor:
H.M.Jr:
Gibbons:

All right, Gibbons?
I told Ros I was up with the issue last night, and
Old Man King came around in the crowd - and I'11

have to agree with him - telling me what a swell

fellow Ros was and that everybody in the Finance
Committee - and said everybody had such great

confidence in him. I don't know whether it was a
compliment or not.

Magill:

They have such confidence that they do exactly
the opposite things.

H.M.Jr:

I don't want Ros to get a swell head - they told
me too - I don't want Ros to get a swell head
though.

Magill:
Gibbons:

We are all great guys.

I want to talk to you - to thank you for Walter

Doyle.

- 11 Magill:

Now we're getting down to earth.

Bell:

Mine is in the Congressiona1 Record - his reference
to me is in the Congressional Record last week.

H.M.Jr:

What else Mr. Gibbons:

Gibbons:

H.M.Jr:

I got a request from Secretary Ickes, on the

Coast Guard, and I sent a letter - I couldn't
get ahold of you - as Acting Secretary, granting permission to fly
To fly?

to fly some fellow in the National Park

Gibbons:

Service down along the Border, and I told him
what we had the Coast Guard down there for - to
patrol - law enforcement.
H.M.Jr:

Did you see

Gibbons:

Yes.

H.M.Jr:

Let Ickes go to the Army and Navy. I'm fed up
with the Department of the Interior - you can't

please him. We're not going to do it - it
isn't convenient. I'm serious. You can't do

anything for those people.
Gibbons:

That would be my inclination - not to do it,
but I couldn't get to you.

H.M.Jr:

You'd better have Mac check with

McReynolds: Herman?

H.M.Jr:

No, with Forster - look up the President's Executive
Order on flying and you will find that the Department of Interiror is assigned - and they can't do
it without getting the approval of the White House.
Now why should Ickes go around and come here to

us and - you look it up, will you, for me, Mac?

McReynolds: (Nods "Yes.")
H.M.Jr

And if this is in conflict with the President's
order, write a letter and say that this is in
conflict with the President's order and you are
very sorry to have to withdraw it. Will you do
that, Steve?

- 12 Gibbons:

Yes.

McReynolds: In that letter - fly to -- (inaudible)
H.M.Jr:

I know, I know. I am just ....

McReynolds: (Inaudible.)
H.M.Jr:

All right - even then if it is in conflict with

the Executive order - please. I read this thing

about Gruening and the rest of the thing, and I
am just mad - believe me before Gruening gets
a ride for a month in one of our Coast Guard
boats he will have to wait about three years.
The Captain of this boat, out of his own money,

bought Gruening a mattress and a pillow so he could

lie in the shade on this boat in his shorts.

Gibbons:

And then he turns around and says there is no

discipline.

McReynolds: I wasn't willing to lay down - it was terrible.
H.M.Jr:

I'm glad you told me.
Mr. Bell?

Bell:

The newspaper boys are trying to find out how

much gold has been deposited under this hundred

million dollar order. Well, they can figure it

out pretty accurately on the daily statement.
I should think it might be better to let Herbert
give it to them once in a while rather than have

them figuring it out.

Gaston:

Bell:
Gaston:

H.M.Jr:
Gaston:

They haven't been asking me - they've been

asking Bartelt instead of you (Bell).
We wouldn't give it to them, but they have a
way of figuring it out which is pretty accurate.
(Inaudible)

Did you get that "burrrr" Mr. Gaston?
That "burrr" was directed at the newspaper men
and not at Dan Bell.

- 13 H.M.Jr:

Somebody is outside. Tell him I'll be with him
in a couple minutes. Wayne, what do I call him -

do I call him something?
Taylor:

No, I'd just call him Trentham.

H.M.Jr:

I'll be with
minutes.

him in a couple minutes - just two

All right. Well, you got your answer?
Bell:

No.

Gaston:

Yes, yes, I'd like to have it.
Talk to him (Bell) if you will.

H.M.Jr:

Bell:

I really think that Herbert ought to have it so

he can give it out - it is just like the old

scheme of depositing gold - only you don't give
them any information.

H.M.Jr:

Talk it over with Archie Lochhead.

Gaston:

We'll give it to them the first day.

H.M.Jr:

You and Archie talk it over.
Anything else, Dan?

Bell:

No.

H.M.Jr:

(Looks at Mr. Upham)

Upham:

I have nothing.

H.M.Jr:

You've got plenty of what I gave you.

Upham:

Yes. I have some emergency banking matters too.

H.M.Jr:

(To Mrs. Klotz) Everything we have on Home Owners'

Loan is in there (large brown envelope) - (inaudible)

file it.

Klotz:

All right.

H.M.Jr:

Mac?

Bell:

Filed but not read.

- 14 McReynolds: (Points to charts on lap.)
H.M.Jr:

You keep that on your desk and I'11 do that sometime
today.

McReynolds: I've got some rooms marked.
H.M.Jr:

I'll get around to that today. I won't do it

now.

Well, Mrs. Klotz is standing up

16.

(COPY)

GC:CTL

Feb. 11, 1938

X

Inamic

William H. Neblett, Esq.,

McAdoo, Neblett & Warner,
Transamerica Building,

Los Angeles, California.
Dear Mr. Neblett:

This will refer to your letter of February 4, 1938,

advising this Commission of the proposal of Transamerica

Corporation to file a registration statement under the
Securities Act of 1933, as amended, covering its outstanding stock. It appears from this letter that certain questions
may arise as to the number of shares which may be covered
by such statement and as to the financial data to be included therein. When the facts upon which such questions
arise have been fully gathered by Transamerica Corporation,
I shall be glad, through Mr. Judy, to arrange a conference
thereon between representatives of Transamerica and the appropriate members of the Commission's staff.

Your letter further indicates that pending the effect-

iveness of such a registration statement Transamerica Corporation, which you represent, and its subsidiary, Bank of
America, are extremely anxious that H. R. Baker & Co. shall
proceed with the sale over-the-counter of 18,000 shares of
Transamerica stock originally purchased in the name of
A.H. Paganucci and held as collateral security for certain
loans made to him and to Half Moon Fruit & Produce Co. by

Bank of America, Transamerica Service Corporation and Trans-

america General Holding Corporation. As the discussion in
your letter of the legality of such a sale without registration under the Securities Act indicates some misconception
of the views which have been expressed to you by Mr. Lane
and myself at our several conferences on this matter during

the past few days, I should like to take this opportunity
to recapitulate our understanding of the facts and of the
application of the relevant statutory provisions.
At the outset it should be clearly understood that no
"stop order" or similar legal restriction has been imposed
by this Commission upon the proposed sale of Transamerica

-2-

@

stock by H. R. Baker & Co. The fact is that on January 17,
1938, Mr. Baker, who had on previous occasions discussed
of Transamerica stock, approached Mr. Howard Judy, this
Commission's Regional Administrator in San Francisco, and

with this office the legality of contemplated distributions
asked Mr. Judy whether in his opinion a sale of 18,000
shares of Transamerica stock pledged by A. H. Paganucci
could be effected over-the-counter by his sales organization
without violation of law. Mr. Judy explained that whether

such a distribution could legally be effected without prior

registration under the Securities Act would depend upon the
manner in which the shares had been acquired, the relation-

ship between the seller and the issuer and its affiliates,

and the purposes for which the sale was to be effected. In
order to be in a position to answer Mr. Baker's question,
Mr. Judy undertook an informal inquiry into the circumstances of the proposed distribution, following which he
informed Mr. Baker that many of the facts elicited by him
in his inquiry pointed to the conclusion that the sale, if
made, would be one instigated and carried out for Bank of
America and its affiliates, rather than for Paganucci.
Mr. Judy further pointed out that, if this were the case,
Baker, in selling the shares for Bank of America, a person
controlled by Transamerica Corporation, would be an underwriter" of the shares sold, within the meaning of that term
as defined in Section 2(11) of the Securities Act, and that
sales by him would be in violation of the Act unless the
stock sold were first registered thereunder. Accordingly,
Mr. Judy stated that he could not give Mr. Baker any opinion
that his proposed transaction would not involve any violation
of law.

As you know, the facts elicited by Mr. Judy have been

thoroughly reviewed in this office, and I concur entirely
in the conclusions reached by Mr. Judy. At the risk of unnecessary repetition I think it may be desirable to restate
the more significant of these facts, and the reasoning upon

which my conclusions have been based.

As I understand the situation, Paganucci has for many
years maintained continuous banking relations with Bank of
America, and in the early part of 1933 was indebted (together with Half Moon Fruit & Produce Co., the corporation
through which his business is carried out) to the Bank in

-3-

the amount of approximately $125,000, such indebtedness

being secured by the pledge of certain securities (fincluding Transamerica stock) having a then market value
substantially less than the face amount of the loan. At

the same time Paganueci was also indebted to Transamerica

General Holding Corporation-- wholly owned subsidiary of
Transamerica corporation--in the amount of approximately
$250,000, and had pledged to secure that loan an additional
15,000 shares of Transamerica stock. The loan from the
Bank being insufficiently secured, Paganucci, in about
March 1933, at the request of the Bank and Transamerica
Corporation, executed an agreement by which the 15,00
shares pledged with Transamerica General Holding Corporation were subordinated to the loan from the Bank. Shortly
thereafter an additional 10,000 shares were purchased for
Paganucci's account and pledged as security for the Bank
and Transamerica General Holding Corporation loans. These
loans, and the collateral therefor, remained substantially
undisturbed until the middle of 1937; and it appears that
on August 30, 1937, the indebtedness of Paganucci to Bank
of America and to Transamerica General Holding Corporation
and/or Transamerica Service Corporation (another wholly
owned subsidiary of Transamerica Corporation) aggregated

$478,525.29, and was secured by collateral (consisting
principally of 12,010 shares of Transamerica new stock-1.0. stock issued following the recapitalization of Transamerica effected in June, 1937) having a then aggregate
market value of $327,932.00.
I further understand that between October and December, 1937, the aggregate amount of Paganucci's indebtedness
was increased by the sum of $181,661.97, consisting of advances from Transamerica General Holding Corporation and
Transamerica Service Corporation for the purchase of 14,000
additional shares of Transamerica stock purchased in Pag-

anucci's name by Transamerica Service Corporation through
brokers on the San Francisco, Los Angeles, and possibly New
York, exchanges. The shares thus purchased were pledged as
security for notes executed by Paganucci for the amount of
the purchase price plus brokerage commissions and taxes.
Certain of these advances were made at or about the time

that Bank of America, on the basis of a specially prepared
credit report, was refusing to grant an application by Paganucci for a loan of an additional $10,000 for use in his
business, such loan apparently to be evidenced by notes
endorsed or guaranteed by Paganucci personally.

-4-

The proposal which has been made is that H. R. Baker

should sell over-the-counter 18,000 of the shares of Transamerica stock held as above set forth, the proceeds of such
sale to be applied to the reduction of the loans of the Bank
and, to the extent of any surplus, the loans of Transamerica
General Holding Corporation and Transamerica Service Corporation. Such distribution is proposed to be effected without

prior registration under the Securities Act.

In my opinion it is not possible for this office to

advise you, upon the basis of the facts now known, that such

a distribution would not involve a violation of the Securities

Act.

In reaching the foregoing conclusion I have not disregarded the fact that the Transamerica stock was issued in
1937 upon reclassification of Transamerica stock which was
outstanding prior to 1933, and that the new stock itself
may therefore be claimed to have been "sold or disposed of
by the issuer or bona fide offered to the public" prior to
the effective date of the registration requirements of the
Securities Act. However, the exemption prima facie afforded
by Section 3(a) (1) of the Act is by express terms made inapplicable to 'any new offering of any such security by an
issuer or underwriter" subsequent to July 27, 1933. As
Baker's proposed offering, never having been made before,

is clearly a "new offering", the sole question at issue is
whether Baker, in making such offering, is acting as an
"underwriter" of the stock offered.
The term "underwriter" is defined in Section 2 (11)
of the Securities Act as including "any person who

sells for an issuer in connection with, the distribution of
any security". As used in this clause, the term "issuer"
includes "any person directly or indirectly controlling or
controlled by the issuer, or any person under direct or
indirect common control with the issuer". I do not under-

stand you to question the validity of my assumption that
for all practical purposes Transamerica, the issuer of the
stock in question, controls not only Transamerica General
Holding Corporation and Transamerica Service Corporation,
but also Bank of America. Those three institutions, then,
are "issuers" of Transamerica stock for the purpose of determining whether Baker is an underwriter thereof. And I believe that the facts so far as they are now known compel the

-5-

inference that in effecting the proposed distribution Baker
would be selling the shares involved "for" one or more of
these institutions, and would therefore be an underwriter
of such shares.

The factors which lead me to this conclusion are

various. I recognize that the transaction is in form one

for the account of Paganucci, and that least some of the
shares involved are shares which have long been pledged to
secure loans apparently made in the course of bona fide
banking transactions. However, I do not think it reasonable to disregard the further fact that Paganucci's loans
have long been in bad condition, that the loans are represented
by demand notes and have as collateral therefor securities
with a market value at the present time of little more than
60% of the face amount of the loans, and that at least some
of the shares involved have been recently acquired with funds

of and by use of facilities of Bank of America or its affiliates. Under such circumstances it is clear that the creditor institutions, including the Bank of America, are in a
position of complete practical domination over the securities involved and also that the proceeds of any such sale

will inure directly to the benefit of such institutions.
If the creditors were first to reduce the collateral to

possession, and were then to offer it to the public through
H. R. Baker & Co., it is obvious that the latter would be an
"underwriter" as defined in the Act; and I fail to see that
any material distinction arises from the fact that in this
instance the transaction is to be permitted by the creditors
to take the form of a transaction by H. R. Baker & Co. for
the account of Paganucci.

Although I have laid some emphasis upon the manner
in which the recent purchases of 14,000 Transamerica shares

were effected, the principal significance of this factor
lies merely in the light which it casts upon the general
relationship existing at this time between Bank of America
and its affiliates and Paganucci. So far as the necessity
for registration under the Securities Act is concerned, I

do not believe that any distinction can be taken between the
shares purchased in 1937 and those which have been held in

Paganucci's account for a longer period of time.

-6-

I must therefore reiterate my opinion that upon the
facts disclosed this office cannot render any opinion that
the proposed distribution may legally be effected without
prior registration under the Securities Act.
Very truly yours,
Allen E. Throop,

General Counsel.

C.C. to A.J. Scampini

CTLane:vhl

Return to Room 280

GROUP MEETING

Present:

March 21, 1938.
9:30 A. M.

Mr. Magill
Mr. Oliphant
Mr. Gaston

Mr. Haas

Mr. Gibbons

Mr. Viner

Mr. Lochhead
Mr. Upham

Mr. Bell

Mr. McReynolds

Mrs. Klotz

H.M.Jr:

(To Mr. Magill) Yes sir.

Magill:

Good morning.

H.M.Jr:

What do you know?

Magill:

Should I get some assistance around here on the

H.M.Jr:

Well, that's number one. (Hands news clipping

subject of this increase in the liquor tax?

to Mr. Magill.) Mr. McReynolds ..... (Reading
paper received from Mr. McReynolds.) All right.
McReynolds: That's all.
H.M.Jr:

Fine

The person who knows the most about that and can

give you some help on it in an hour or two - he

could give you more than anybody else - would be

Harold Graves.

McReynolds: He's in Newark.
H.M.Jr:

Well, he'11 be back. Next would be Berkshire.
Gaston feels very strongly, next, from statements
in the New York Herald. (To Mr. Gaston) Can you
get emotional on it?

Gaston:

Not very. I can though. (Laughter)

-2H.M.Jr:

All right. Well, between this fellow and

Berkshire - does that answer your question?
Magill:

Have
we got anybody that could appear before the
Committee?

H.M.Jr:

Yes. Berkshire.

Magill:

Would he be good?

H.M.Jr:

Yes.

Magill:

He would? Well, I'll get him over this morning.

All I can say is that I'm opposed to it.

H.M.Jr:

Well, you and Gaston stay out of it - or do you

Magill:

No.

H.M.Jr:

Well, get Berkshire. What else?

Magill:

If you are agreeable, after I see him then what

like the liquor tax?

I had contemplated would be getting him set and
getting him before the Committee, because I think

that the increase will, in all reasonable
probabilities, go through unless we put up a
pretty tough battle on it.

H.M.Jr.

Let's put Berkshire on that; I am strongly opposed
to the two dollar tax. You know the Rockefellers -

no matter how much they spent, said two dollars
was too high, and they hired people and everything

else, and had the greatest difficulty to keep it
if they raised it, but Berkshire should do a good

at two dollars, and I'd be very much discouraged
job.

Magill:

Then second, do you understand that we have any

instructions at all in regard to this Phillipine

situation?
H.M.Jr:

No. I'd say use your judgment. What else?

Magill:

That's all. I'm completing the preparation of a
statement to give the Committee. I'd like you to
go over it as soon as I can get it typed, and I

wish you (Mr. Haas) would have one of your people

check it over pretty carefully, George, because

I've got some figures in it.

-3Gaston:

I have two tables from George.

H.M.Jr:

Have you seen it?

Magill:

No, not yet. I've seen the form but I haven't

H.M.Jr:

Did you get the stuff over to the President

seen the figures.

Saturday?

Magill:

Yes.

H.M.Jr:

Did the boys get it out all right?

Magill:

Well, this boy (Hickman) gave us quite a bit of

H.M.Jr:

What about Bob McHugh?

Magill:

Well, he helped proof-read and assemble it.

H.M.Jr:

I am getting awfully fed up on Morris Tremaine
(handing Mr. Magill news clipping) and "Why

help in typing it, and the girls in my office

don't we do the way New York State does?" and

I'd like somebody to take a look at New York
State taxes.

Magill:

I'd like to see somebody take a look at Morris

Tremaine.

the

H.M.Jr:

Would you have somebody take a look at/New York

Magill:

I'll see if we can't. I think I know what the
New York State situation is. I'd like to train

H.M.Jr:

State situation.

a couple big guns on this fellow if we could.
You and me both - English anti-aircraft and
six inch guns.

(Handing Mr. Magill news clipping) What about

David Cushman Coyle, is he a help?
Gaston:

In this situation, I'd say "Yes."

Magill:

Well, I'd say "Neither pro nor con." He intends
to be a help but he is pretty pale, it seems to
me, as an assistant in this particular fracas.

-4H.M.Jr:

I see they are not going to have any processing
tax. How are they going to pay for this program?

Magill:

Well, their story is that - Doughton's story is

H.M.Jr:

Will I get a little notice before the due

they must keep within the five hundred million.
That's enough. Too much money's being spent in
North Carolina already.
processing tax?

Magill:

I think so.

H.M.Jr:

Mr. Bell, how much will that cost you and me?

Magill:

If the Senate won't do processing taxes I don't
think the House will. The Ways and Means don't
want to touch it, and the Finance Committee don't

want to touch it either.

H.M.Jr:

I'm going to get rid of my stuff first. Did that
fix you up?

Magill:

Yes.

H.M.Jr:

George, just look over my shoulder once, will you?

It's a matter of simplifying this thing. It says,
"Net outflows were recorded for Switzerland,

Canada," etc., and then it gives the money. If

they say "Net outflows of Switzerland was
twenty-two million; Canada was seven million," -

it's impossible - it would be two, three, four,

five figures, and the same thing here:
"For Latin America it was two million; for France
was this."
Haas:

The construction is bad.

H.M.Jr:

See what I mean? I want to take it over to the
White House. It's just impossible the way it is
now.

And George, this stuff that you are trying to

help Miss Lonegin on, I get this every Tuesday,

I get it every Tuesday; I get that from Mr. Ross.

Haas:

Uh huh. 0. K., it's the same stuff.

-5H.M.Jr:

Now the interesting thing, if you are going to
do anything on this sort of thing; for instance,
the New York papers carry the fact that the allotment under the two hundred fifty million dollars
has put twenty thousand people to work, and up
to date they've only put five thousand five
hundred people to work, and still have vacancies
for fourteen thousand five hundred. They haven't
furnished them the people. Now what Mr. Bell
and I'd like to know is how many other places

are like that? It would be most useful in
considering the next appropriation. I mean, are

they going to fill it or aren't they? Is that

right?
Bell:

Well, the next appropriation will be a billion

H.M.Jr:

I'd like to know what is the matter. Here they
give twenty thousand jobs to New York and only
filled five thousand five hundred of them. -But just to give me a chart like that.
Incidentally, you'd better send it out tonight

dollars.

to Chicago.

Haas:

Go out tonight to Chicago?

H.M.Jr:

Well, tomorrow.

Viner:

I think I'm right in saying there the newspapers

H.M.Jr:

have been talking "too many assigned to work."
They've gone over their allotment.

Bell:

Particularly I'd like to find out about that, George.
Tom Smith says that the situation in St. Louis -

H.M.Jr:

They insisted on fifteen thousand people, so he
said they gave them to them.
What does that mean about the C. C. C.?

they gave them more people than they needed.

Bell:

This is the same hundred thirty million dollars
been talking about all the time. Sixty-five
million dollars taken from the year 138-139,

taken from the Customs money. The only thing this
does, as I understand it, is advance the payment
date about two months.

-6H.M.Jr:

Is this what Senator Smith wanted and Mac's
couldn't be done.

friend, the Comptroller General, ruled it
Bell:

Yes.

H.M.Jr:

And now they are doing it another way.

Bell:

Wallace objected to the Smith Amendment, and I
don't know whether they accepted his proposal

or not, but he submitted one.

H.M.Jr:

Can you find out.

Bell:

I'll find out about it this morning.

H.M.Jr:

He advanced it?

Bell:

Instead of going out in June it will go out in

July and August.
H.M.Jr:

Dan, my tax figures as of Saturday ran fifteen
million behind the sheet that comes down with

your initials on it, which are contrary to the
figures that Mr. Gaston gave out.

Bell:

Well, I think the figures that Mr. Gaston gave
out, he got from Mr. Helvering. They were
based on collection figures up to the sixteenth,

many of which were estimated, and certainly the
subsequent figures were estimated, and I think
they are way high.

H.M.Jr:

I was very much surprised to see Gaston take the

Bell:

quite surprised. Huh?
I am afraid even of the lower figure now - seven

H.M.Jr:

Well, the President asked us and I said there

chance to give that out. I didn't know he was

so flighty, but when I read it in the paper I was

forty-six.

was a divergence between the two figures, and

we said we were somewhere between seven hundred

and seven-fifty - that's as near as I could make
it. That's what we told him Saturday. Somewhere
between seven hundred and seven-fifty.

Magill:

I've been trying to hold down the Finance Committee.
They've got the idea from the press release that

we are

-7 H.M.Jr:

Have Gaston

Magill:

They
think we have more income taxes than we had
estimated.

H.M.Jr:

Weren't you surprised?

Magill:

I was worse than that. I have been doing all I
can to hold them down, with respect to figures.

I told them I'd give them only official stuff
that the Treasury has which was prepared by
Mr. Bell, and give them that today. I won't
give it to them until tomorrow now.

H.M.Jr:

Gaston and Guy Helvering must have been going

around kicking these mail bags, and depending on

the echo of it, they estimate it.

Magill:

That is what I told the Committee.

Viner:

They ought to use the Sears Roebuck technique.
At nine-ten each morning they weigh the bags as
they come in and that tells them how much they

will sell that day and how they will set their

machinery.

Magill:

That's about the way the Finance Committee suggested

H.M.Jr:

You and I don't have to make up our minds until
Thursday what we are going to do with the next

too. I know it doesn't work.

bill issue.
Bell:

Well, it ought to be Wednesday afternoon so we
can send it out Thursday morning. We can
Thursday morning.

H.M.Jr:

We'll see. Herman?

Oliphant:

I'd like to see you a moment after the meeting on
that matter the Attorney General spoke to you
about at the Cabinet. Personal matter.

H.M.Jr:

Oliphant:

Guilty or not guilty?
Not guilty.

H.M.Jr:

Who? The Attorney General?

-8Oliphant:

Me.

H.M.Jr:

All right. Well, the Attorney General was in
Miami at that time. Anything else?
Oliphant: No, nothing.
H.M.Jr:

(Nods to Mr. Gaston.)

Gaston:

You asked me to clear that memo for the President

on Self-Help and Production for Use. I cleared

it by sending it to McIntyre and by telling him

H.M.Jr:

"This memo was prepared by Miss Lonegin."
What else?

Gaston:

I think that's all.

H.M.Jr:

I read about my statement on baby bonds this

monring. I give you, as a suggestion only to
think about, the possibility of getting out a
letter to every holder of the baby bond thing,
if this propaganda continues. If it continues

only.
Gaston:

Yes, I think that will probably stop it. You

notice we have had two pretty good stories on
baby bonds - one yesterday morning and this

morning.

Gaston:

If it continues - anything else?
That's all.

H.M.Jr:

How's your golf?

Gaston:

Not bad.

H.M.Jr:

George?

Haas:

A letter from Crocker Brown.

H.M.Jr:
Haas:

He says you have been all over that.
If other comments are as accurate as I think

H.M.Jr:

Write me a memo and say that the scheme either is

H.M.Jr;

about the whole letter, it is out.

or isn't worth my while.

9Haas:

H.M.Jr:

He misquoted me.

I haven't
time to do it now. I just
haven't
gotgot
time.
You, Herman, and Barton have been trying to see
me,
should I see anybody before our tenthirtybut
meeting?

Oliphant:

It's not necessary.

H.M.Jr:

Will you stay behind and tell me what it's all
about? Is this in shape for the President to sign?

Transporting the purchases of cement over?
McReynolds: I presume it is.
Haas:

I was assembling it Saturday afternoon with

Blaisdell. I think we have it all together.
H.M.Jr:
Haas:

In order for the President to sign?
I think so.

H.M.Jr:

Has McReynolds seen it?

Haas:

think so, unless Oliphant's shop showed
itI don't
to him.

Oliphant:

Blaisdell has it all, and it will be in Haas'

H.M.Jr:

(Points to Mr. Haas)

Haas:

Cement meeting at ten o'clock. Are you going to

office by ten o'clock.

have a business meeting this morning?

H.M.Jr:

I doubt it.

Haas:

There are some developments there I'd like to
talk to you about.

H.M.Jr:

Come in at ten-fifteen; just come in yourself.

Haas:

0. K.

H.M.Jr:

Come in yourself. (Points to Mr. Gibbons)

Gibbons:

(Nods "No.")

- 10 H.M.Jr:

(Nods to Mr. Viner)

Viner:

(Nods "No.")

H.M.Jr:

(To Mr. Viner) I'd like you to sit in on the

ten-thirty meeting.

Mac, have you got that to take to the White House?

McReynolds: I told the boys to have it out this morning.

I haven't seen it yet. I've no doubt it will be

up.

H.M.Jr:

(Nods to Mr. Lochhead)

Lochhead:

Butterworth has assembled more data on building.

It just arrived this morning. Incidentally,

he said those weekly reports of business are very
helpful.
H.M.Jr:

Anything else?

Viner:

May I ask a question? Is the Treasury represented
on that Interdepartmental meeting that is discuss-

ing the question of state price-fixing legislation -

starting the big survey?
Oliphant:

I never heard of it.

H.M.Jr:

I never heard of it. The Federal Government?

Viner:

This was given to me. I came down with one of
my colleagues and I asked him where he was going.
He said he's been retained for, he thinks, three
to six months to work on that. He thought it was
Justice, and he mentioned Justice and Agriculture
and Commerce and Labor.

Gibbons:

Retained and doesn't know where he's going?

H.M.Jr:

What's he going to do?

Viner:

He is going to study - his job at least in that
general picture was to study state price-fixing
legislation.

Oliphant:

Millard Tydings.

H.M.Jr:

Millard Tydings - well

.....

- 11 wondering. It seems to me that the

as some interests there too.

ing it up at the ten-thirty?
re
ought
to it?
know about it. Do you
know
about
I know. He didn't know much about it as coming with his trunks. He was

unks. (Laughter)
t's funny; he's coming down here and
W where he's going.

know who invited him?

k him. I asked him a couple questions

't giving me much information. I
was on his guard.

am) Did you get the report on the
panies?

about noon Saturday.

ng to go to work today?

ng of the principle of their report.
of the Trans-America?

g firm puts in so many exceptions idn't see this and they didn't see
n the basis of what was presented to

oks all right.
a got it?

tion the holding companies of Trans-

esn't it list those?

- 12 H.M.Jr:

You could check that against the bank.

Upham:

Surely.

H.M.Jr:

Dan?

Bell:

There are the Saturday figures.

H.M.Jr:

Does it include Saturday?

Bell:

Yes sir - twenty-five million behind.

H.M.Jr:

We are losing ground.

Bell:
H.M.Jr:

Bell:

Yes. We lost ten million dollars Saturday.
Fourteen million - thirteen million.
Fifteen million behind Saturday, and we are now
twenty-five.

H.M.Jr:

Well, fifty-two from sixty-five is thirteen.

Bell:

We picked up some in the mail reports. Last
year we picked up a hundred and forty-four million
dollars from this point out. If we collect
a hundred forty-four million from here out we'll

get about five thirty - I mean seven thirty.

But I don't believe we've got as much uncollected
now as we had this time last year, so that probably
will come down somewhere near seven twenty.

H.M.Jr:

Well, will you, Wednesday after you get this, have
an estimate of our financial needs from now on until

the first of July?

Bell:

Yes sir.

H.M.Jr:

Will you have it on Wednesday, Dan?

Bell:

That is the main thing I want to get.

H.M.Jr:

(Points to Mr. McReynolds)

McReynolds: Well, I didn't lose ten million dollars Saturday,

but I don't owe a million at all. I have nothing.

H.M.Jr:

All right. That's all I've got.

20.

0

0

Non. Leo T. Crowley. Chairman,

Y

Federal Deposit Insurance Corporation,
National Press Building.
Washington, D. c.
Dear Mr. Growley:

I have been advised of the action of your Board
on March 5th, 1938 requiring additional capital in the Central Bank
of Oakland, California as a condition to establishing branch offices
at Alvarado, Miles, Irvington and Marysville, California.
In view of the fast that negotiations have gone
so far with reference to these small wait basics, all of which are
already insured by your Corporation, and there is no additional
liability therefor created. I would appreciate it if you would advise me
that 18 will be satisfactory to the Corporation to establish those
branches, and I will be glad to discuss with you in May. when you
come to the California State Bankers Association meeting. the ques-

tion of additional capital.

California Statutes fix a ratio to capita al structure
which is more liberal than that suggested by the national banking

agencies. It is difficult to discuss this question except in a

personal interview.

If the above meets with your approval, would you
be good enough to wire me so that negotiations can be completed.
Cordially yours,

4. P. Gissaini

21.

c

0

P

Y

April 1, 1938

Mr. A. P. Giamini

Chairman of the Board,
Bank of America

San Francisco. California.
Dear Mr. Gianninis

In response to your letter of April 1st regarding
the application of the Central Bank of Oakland, California,
for branch offices at Alvarado, Files, Irvington and Maryeville, California, in order that we may not embaress you in
this situation we will agree to permit you to proceed with
your program of taking over these four banks and making them
branches of the Central Bank of Oakland with the understanding
that this bank does not acquire any more banks without first

getting the permission of this office further. that the

capital readjustment will be discussed with 199 when I - in
California for the bankers convention in May as our analysis
of this bank shows its capital ratio to be much below the
desired ratio.
Sincerely yours,

(Signed)

Leo T. Growley
Chairman

July 8, 1938

At 10:30 a.m. Mr. Taylor, Mr. Diggs and Mr. Upham

met with Mr. Morgenthau in his office.
Mr. Diggs broached the subject of the Bank of
America, N.T. & S.A. of San Francisco and mentioned the

fact that a number of applications for branches have
been pending for some time and that Mr. Giannini is

intermittently pressing for action. He stated that
he has been trying to get the Giannini interests to put
additional capital into the Bank and that it looks now
as if he could secure another $25 million, which would

bring the ratio up to 1:10. He stated that they were
paying dividends at a higher rate than they should but
that if his Office could have success in having them

charge off certain assets and increase their capital by
$25 million, he thought there would be some improvement.

Mr. Diggs was of the opinion that the Bank of America is
charging off the amount insisted upon by the Comptroller
in so far as German credits are concerned, and he stated
that that is the most important of the items which have
been in controversy between them.

-2(

Mr. Morgenthau said that he was sick and tired of

hearing about Giannini and the German credits and the
fact that he wouldn't do what the Comptroller wanted

him to do and said that he thought the Comptroller's

Office ought to handle it without bringing it to him.
He expressed the opinion that the people in the Comp-

troller's Office and the FDIC as well were "sissies,"
or they would do something about it. He said that he
felt that Mr. Giannini was awfully smart from his own
standpoint but he thought the bank supervisors ought to
be equally as smart. Mr. Morgenthau gave as his off-hand

opinion that the Bank ought either to increase its capi-

tal or cut its dividends in half. ) Mr. Diggs said he had
been working along that line for some time. Mr. Taylor
expressed the view that there might be some difficulty

in insisting on the 1:10 ratio, and he regarded the key
to the whole situation as being the insistence upon
charging off estimated losses. Mr. Upham thought that

an increase in their capital was not enough in itself,
particularly in view of the fact that they expected to
borrow the money from the RFC to finance the capital

increase. He thought that the Bank should be required

-3to take the actions insisted upon by the examining forces,
including a substantial reduction in the dividends.
1 Mr. Morgenthau said on second thought that he was

inclined to the view that the Comptroller ought to insist
on the Bank taking whatever house-cleaning steps were

felt to be necessary and that if they do, he would then
treat them just like any other bank and agree to RFC
money going into the Bank on the same basis that they

put it into other institutions. If not, he said he
would personally be inclined to "sit still until Hell
freezes over" before doing anything in the way of permitting additional branches. In any event, he said he
would make no promises on branches but let them come to

see us when they have complied with our requirements.
Mr. Upham reminded Mr. Morgenthau that he had re-

quested the Comptroller's Office to bring in a program
of minimums that they would insist upon. Mr. Diggs said
that this program was not ready but that it would be in
three or four weeks when the latest report of examination
comes in.
)

-4Mr. Diggs brought up the matter of a research division
for the Comptroller's Office and expressed the view that
they ought to begin operations at once with an eye to the
next session of Congress. He said that Mr. Folger and
Mr. Kelly, one a bank examiner and the other a lawyer,
have to do the economist's work for the bureau, and neither

of them is trained in that line. Mr. Morgenthau said that
he would prefer to let that go until after the California
primaries and after his return from France but that he

would be willing to go into it seriously right after Labor
Day. He told Mr. Diggs that Mr. Taylor is conducting a
study of banking and banking agencies during the summer

months. Mr. Taylor said that it was not so much for making
recommendations as to catalogue the various alternatives

of things that can be done.
Mr. Morgenthau gave to Mr. Diggs a copy of a letter
and accompanying memorandum sent by L. K. Roberts, chief

national bank examiner for the New York district, to
other chief examiners and bankers asking that they urge
with the President and with the Secretary and with members

-5of Congress the appointment of Mr. Diggs as Comptroller
of the Currency. Mr. Morgenthau asked Mr. Diggs what

he thought of the propriety of a bank examiner doing
that, and Mr. Diggs said that he thought it was improper.
He said that he had not seen the letter or the memorandum
before. Mr. Morgenthau said that he hoped Mr. Diggs would

tell Mr. Roberts that he, the Secretary of the Treasury,
was greatly displeased by it. Mr. Diggs said that when
he came back from Texas, Mr. Roberts told him that a
Comptroller was going to be appointed within a few days
and that he planned to contact a few people with the sug-

gestion that they urge the appointment of Mr. Diggs,
because he felt it important that someone who was familiar
with the problems of the Office should have the job,

particularly at this time when it is of importance in the

fight for the life of the Office itself. Mr. Diggs said
that he told Mr. Roberts that it was a matter for him to
decide for himself--that he wouldn't tell him that he
couldn't do it but that he expressed some doubts about
the value of the bankers' endorsements, and that he said,

moreover, he was not sure that he would take the office

-6if it were offered to him. He further expressed the
opinion to Mr. Morgenthau that Mr. Roberts wants the
job himself and was urging the name of Mr. Diggs to

get him out in front where he could be eliminated

from the race. The internal evidence of this, Mr.
Diggs said, is the build-up in the memorandum about

the necessity for a career man. Mr. Roberts, he said,

thinks that he would be next in line if Mr. Diggs were
eliminated.

Mr. Diggs reported on the latest poll in the
California gubernatorial primaries, and indicated that
Jefty is now running second.

Upm

O

P

Y

The fact that no successor has been appointed to succeed

Honorable J. F. T. O'Connor who resigned April 18, 1938 as
Comptroller of the Currency has caused unusual anxiety among

national bankers, not by reason of any failure of the Comp-

troller's organization to function properly as heretofore,
but because of expressed concern over the possible designa-

tion of a successor who may not be equal to the task of

meeting the responsibilities of that office in the face of
existing economic and financial conditions, proposed changes

in the policies of the office also other current problems
with which it is daily confronted.
Several months ago when Mr. O'Connor expressed his

intention of resigning as Comptroller, rumors and speculation become rife as to his probable successor.
Since his resignation became effective, such rumors and

speculation have crystallized into extensive activities resulting no doubt from aggressive solicitation on the part of
certain ambitious aspirants to the office.
No one of the agressive aspirants publicly mentioned,

according to reliable expressions of opinion, is recognized

or regarded as being qualified to fill properly the important
office in question and these opinions have been particularly
emphatic because of existing circumstances and conditions well
known.

-Many national bankers of high standing ave expressed
definite apprehension over the possible appointment of a

new Comptroller without the capacity or understanding to

administer properly the affairs of the office.
Bankers and others have uniformly expressed the belief

that with economic and financial conditions unsettled, sound
but sane supervision of banks also cereful yet practical
administration of banking laws and regulations are both
important and imperative, and that no man with evon good
training and successful experience in a given locality who

is unfamiliar with the nation-wide operations of the
Comptroller's Bureau am the Federal Deposit Insurance Corpo-

ration could be as well qualified to discharge the duties
devolvin upon these offices as would a competent man with
complete knowledge and understanding of the two agencies

gained from actual association and experience with them.
Close observing and well. informed national bankers have

voluntarily expressed the unqualified belief that the National
Banking System and the interests of all concerned therein
would be best preserved and protected by the nomination and

confirmation of Acting Comptroller, Honorable Marshall R.
Diggs, as the next Comptroller of the Currency

-3-

Mr. Diggs is in the prime of life and is blessed with
good health and superior intelligence. He was born in
Tennessee, however, his youth was spent in Texas and Oklahoma
He graduated from Enworth University, now Oklahoma City

University, and from Yale Law School. He practiced law
both in Chicago and in Kinneaoolis and after discharge from

the Army, he established himself in business at Dallas,
Texas, where he remained for several years.

For nearly five years he served as Executive Assistant

to the Comptroller of the Currency in the Bureau of the
Comptrollerand in the Federal Deposit Insurance Corporation.

In this capacity he pained both executive experience and
intigate knowledge of the operations of these agencies.
Subsequently, with the approval of the Secretary of the
Treasury, he was selected and appointed First Deputy Como-

troller of the Currency. Prior to and since Comptroller
O'Connor resigned, he has served as icting Comptroller and
as a member of the Board of the Federal Deposit Insurance
Corporation.

Mr. DAES has been successful in both orivate and public

life and has displayed exceptional understanding and rare

ability in the performance of his duties with the Bureau of
the Comptroller and the Federal Deposit Insurance Corporation.

May 23, 1938

There is enclosed herewith & memorendum dealing with the
fact that no successor has been appointed to succeed former
Comptroller J. F. T. O'Connor, discussing the anxiety or appre-

hension prevailing in that connection, also referring to S. well

established conclusion on the part of prominent national bar ers
and otherd that Honorable Karshall R. Diges would be perhaps the
safest,
best unlified and otherwise most desirable person
available to succeed Mr. O'Connor.

It is needless to suggest that what might be considered
by conservativo bankers as vitally important to the National
Banking System m1 ht well be considered by the national bank
examining staff as equally important to it.

Because of continued activities on the part of certain

persons ambitious for appointment as Comptroller but not known

or bel ieved to be qualified for the place also because of the

possibility of some such person being nominated for the pla ce
before the present session of Congress/adjourns, it is believed
to be of extreme importance to the Bureuu of the Comptroller,
its examining staff and to the National Banking System, for the
reasons indicated by the enclosed memorandum, that action along
the lines hereinafter suggested be taken will th a minimum of delay.
A communication similar to this and a copy of the enclosed memo
randwn are being sent to each District Chief Examiner by Air

Mail and a few extra copies will follow by regular mail. For
your strictly confidential information and satisfaction, this

communication and the enclosed memorandum are not being sent you

without the knowledge of Mr. Liggs.

It is believed that 1f each District Chief Examiner will

induce from a half dozen to 9 dozen representative and responsible

national bankers of each state embraced in his district to ire

immediately Honorable Franklin D. Roosevelt, President, also
Honorable Henry Morgenthau, Secretary of the Treasury, reconsending the nomination of Mr. Diggs ane at the same time wire their
two United States Senators requesting them to recommend to
President Roosevelt and Secretary Morgenthau the nomination of

Mr. Diggs, that his nomination and confirmation will be pronotly
and definitely assured, otherwise, some other person less cualified

and less desirable for the place may be nominated.
Allow me to state that my own impressions of and confidence
in Mr. Diggs, based on my contacts with him, convinces me that he
is the best man available to serve the interests which have prompted
me to address you thusly.
Sincerely yours,
L. K. ROBERTS

September 21, 1938
MEMORANDUM
TO:

Mr. Oliphant

FROM:

Mr. Upham

Attention: Mr. Foley

Mr. Sherbondy

I think the chronology of incidents indicating the
continuous interest of the Secretary in the Bank of
America situation over the last several months should
include this statement by me:
There have been many occasions between March,

1938, and September, 1938, when Secretary Morgenthau

has asked me to inquire about one or another aspect

of the situation and has requested me to press for
action based on examination reports. There have been
many occasions upon which I have brought to the atten-

tion of the Comptroller's Office these requests.