Full text of Diaries of Henry Morgenthau, Jr. : Volume 377 : Part 1

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229
COPY

February 15, 1941.

Mr. Mathews

TO:

FROM:

Mr. Gaston

William Driscoll was appointed collector of internal
revenue at Pittsburgh (23rd Pennsylvania District) in February
1936 on recommendation of Senator Guffey. Terms of collectors
of internal revenue are indeterminate; that is, at the pleasure
of the President. Mr. Driscoll entered the internal revenue
service as deputy collector on December 27, 1917 (Wilson administration) and continued in the service until November 22, 1928,
when he resigned and reentered the contracting business. We are
informed that he had attained such intimate knowledge of the
work of the office and displayed such ability that he would have
been chief deputy under a Republican administration except for
the fact that he was an acknowledged and outspoken Democrat.

Mr. Driscoll reentered the internal revenue service on August 3,

1933, as chief of the field division in the collector's office
at Pittsburgh.

I stated to Mr. Flynn when I saw him several days ago
our point of view with respect to the replacement of competent
officers. Mr. Driscoll is regarded by the Commissioner as competent.

There is the further consideration that the filing date
for income tax returns is only four weeks away. It would be very

unwise to make any change in this important office prior to and
for some weeks following March 15, and I am sure that the Secretary
would resist any proposed change strongly.

HEG:ds

Enclosure: Copy of letter to the Secretary, dated 2-3-41 from
Sherman Minton.

Copy to:

Miss Chauncey

Mr. Sullivan

DIARY

Book 377

February 28, 1941

Book

Page

377

138

Arguntina
See Latin America

Blair, John L. (President, New Process Company,

Warren, Pennsylvania)
See Financing, Government (Defense Savings Bonds,

United States)

-cChina

See War Conditions
Coast Guard

For discussion of cutters, see War Conditions:
Lend-Lease Legislation
Cox, Oscar S.

See War Conditions: Lend-Lease Legislation

-DDefense, National

State tax issunity to defense contractors discussed
by Treasury and Justice groups: Foley memorandum2/28/41

Defense Savings Bonds, United States
See Financing, Government

-I-

Eire
See War Conditions

--Financing, Government

Defense Savings Bonds, United States:
Blair, John L. (President, New Process Company,
Warren, Pennsylvania): To be member of advisory
group - 2/28/41
"Check-off system" advocated by Knudsen but frowned
upon by HMJr - 2/28/41
Aluminum for addressograph system: Graves to get
seyen tons a month for ten months
Type of bond discussed with Federal Reserve Board
and conference reported to Haas, Murphy, Bell, and
Newcomb - 2/28/41

a) Comparison of present plan with plan for
reduced intermediate yields
b) Comparison of proposed 2% and 21% income plans.

c) Memorandum mailed to presidents of Federal
Reserve Banks asking for advice

8,36

-HBook

Page

377

222,224

Haas, George L.

See War Conditions: Lend-Lease Legislation

-IIrish Free State

See War Conditions: Eire

-JJapan

See War Conditions

-LLatin America

Foreign Funds Control: Rockefeller discusses

extension of regulations to include Central

and South America - 2/28/41
Argentina:

Flaxseed concession considered by Trade
Agreements Committee - 2/28/41

225

-TTax Research, Division of
Report of projects during February 1941

236

Taxation

State tax immunity to defense contractors discussed
by Treasury and Justice groups: Foley
memorandum - 2/28/41

138

-UUnited Kingdom

See War Conditions: Military Planning; United Kingdom

- WVar Conditions
Airplanes:
Shipments to United Kingdom and overseas commands:

Report sent to FDR - 2/28/41

210

China:

Stabilisation arrangement: State Department
views - 2/28/41

107

Rumored attempt to obtain a loan in United States
discussed by Pinsent and Cochran - 2/28/41

203

Eire (Irish Free State):

Exchange market resume' - 2/28/41

234

- W - (Continued)
Book

Page

377

222,224

War Conditions (Continued)
Foreign Funds Control:

Latin America: Rockefeller discusses extension
of regulations to include Central and South
America - 2/28/41
Japan:

Monetary gold stocks estimated by Grew - 2/28/41.
Lend-Lease Legislation:
Coast Guard cutters for convoy work: Report to
FDR - 2/28/41

228

92,97

a) Conference; present: HMJr, Gaston, and
Waesche,

Byrd-Taft proposed amendment: No defense articles
procured out of appropriations made to War and
Navy Departments ***** can be transferred
without consent of Congress ***: HMJr, Stimson,
and Forrestal consult FDR concerning - 2/28/41.
a) Hull and HMJr discuss.
b) Stimson-HMJr conversation

116,158

100,106
191

200

c) Hull calls meeting: Stimson, Barkley,

Byrnes, and George to be present; suggested
that Cox accompany HMJr but HMJr sticks by
Foley - 3/1/41: See Book 378, page 1

1) Discouraging report of meeting given
Hopkins: Book 378, page 33

d) Memorandum for Forrestal - 3/1/41:
Book 378, page 9

e) HMJr plans with Stimson and Forrestal for
talk with Budget Bureau - 3/3/41:
Book 378, pages 89 and 91

1) Hopkins and HMJr discuss:
Book 378, page 95

f) Conference of HMJr, etc: Stimson and McCloy;
Forrestal and Lockwood; Harold Smith and
Cox - 3/4/41: Book 378, page 264

Barth resume' on editorial opinion - 2/28/41
Hopkins asks for Cox and use of Haas' statistical
organization - 2/28/41
Military Planning:
Reports from London transmitted by Halifax 2/28/41

186,188
197

246,250

Purchasing Mission

British Financial Position:
Securities, Sale of: Discussion between HMJr.
Cochran, White, Quinn, and Schenker 2/28/41

149

Requests for clearance pending in War Department:

List sent to Stimson - 2/28/41
Gold and dollar exchange assets - changes in 2/28/41

215

220

United Kingdom:

Gold and dollar exchange assets - changes in 2/28/41

220

Wheeler-Nicholson, Malcolm

Biographical sketch - 2/28/41

233

February 28, 1941
9:03 a.m.
H.M.Jr:
Harry

How are you, Harry?

Hopkins:

I'm pretty good.

H.M.Jr:

Harry, the President said last night he wasn't
going to have any Cabinet today, which I don't
blame him for seeing how he feels but I did

hope that he would see the Lend-Lease Board

and you and not let another day go by, and I'm
just making that suggestion.

H.M.Jr:
H:

H.M.Jr:

Well, I'11 go in there in a minute and urge
him very strongly to do that.

Will you because I think it's
If he can't - I'm thinking about this last

night - a counter-proposal would be to get him
to write a letter to the Navy and War Departments
and to Land telling them to - you know - step
on this, but preferably a meeting today.
And to give you an idea of what can be done
where there is a will, he mentioned 10 cutters
to me. Do you remember?

H.M.Jr:
H:

H.M.Jr:

Yeah, you told me about that.

Did I tell you what we've done?
You told me he hasn't done it.

Well, we're in touch with - through the Navy with the British Naval Attache, asked them
what kind of guns they want and those things
are going to be ready on the 15th of March.
Yeah.

Now everybody else can do the same thing and

he should use us - I'm doing it largely so he
can use us as Example A.

That's right. I'd like to have that put right
on the table.

H.M.Jr:

See?

Right.

H.M.Jr:

Well, we'll have it.
All right, old boy.

H.M.Jr:

Thank you.

February 28, 1941
9:30 a.m.

GROUP MEETING

Present:

Mr. Gaston
Mr. White

Mr. Foley

Mr. Haas
Mr. Schwarz

Mr. Sullivan

Mr. Thompson
Mr. Young

Mr. Graves
Mr. Pehle
Mr. Cochran

Mr. Bell
Mrs. Klotz

H.M.Jr:

On these memoranda that you get, you see,

from me, like Graves got two this morning,

Mrs. Klotz is going to run a file on you

so that when you do answer me, you will have

to someway give it to me in writing so that

she will know that you have answered me, and

she will cross it off. Otherwise, she will

be after you in a day or two, you see.

You (Graves) have got two this morning. Some

people are very good, and others let it slip

by, and I know how I do at the White House.
If they ever checked up on me, my record
wouldn't be so good; so I am going to - we

will give you forty-eight hours.

(Mr. Gaston entered the conference.)
Good morning, Herbert. Mrs. Klotz or somebody

from her office will be after you. But if

-2you give me an answer like the one on the
aluminum, you will have to come through
with a written answer.
Graves:

So it will be in the record.

H.M.Jr:

Yes.

Thompson:

Here is the order on the Personnel Division.

H.M.Jr:

That is right.

Thompson:

It is already to sign. The Civil Service
Commission are throwing a monkey wrench in
the classification of the personnel director's job which may, if they lower the
grade, make it impossible for us to get Ted
Wilson. I want to fight this out with the

Commission before we give up on Ted. He will

not be interested unless we get the grade for

him.

H.M.Jr:

Why are they in it at this stage at all?

Thompson:

Well, I have to send a sheet down to get the

H.M.Jr:

Well, how did the other man fill it?

Thompson:

He was filling it in his old position as a

H.M.Jr:

place classified.

technical assistant.

I thought he took an examination and was the

only one that could pass it.
Thompson:

That part is all right, but this is another

branch of Civil Service. They are setting up
the job as a Grade.

Bell:

Well, you have also lowered the importance of
the job now in the organization from what it

was set up as originally; so every time you
put a man on a new job, classify him,
they go over this job sheet again so they
are going over this now and seeing it was

much reduced from what was originally contemplated.

Thompson:

But I didn't want to do it. We would avoid

it if we could. I would like to get this

man, Ted Wilson, and we can't do it on any

other basis; but I will give you another
recommendation if we can't get him.

H.M.Jr:

Is Harold Graves' organization getting out

of hand?

Bell:

Getting out of the building.

H.M.Jr:

You have got to watch those fellows. They

are spenders. Bell, is that where Foreign

Funds is? Are they in the Washington Building, too?

Graves:

No; they are in the Raleigh Hotel.

H.M.Jr:

I see. Have they got nice offices over there?

Graves:

At the Raleigh? I have never seen them.

Pehle:

You have got a standing invitation.

H.M.Jr:

All right, we will get over there and inspect

Klotz:

And not by appointment, either.

Pehle:

I was afraid of that.

H.M.Jr:

I hear you have got an excess of bathrooms.

Pehle:

I think they locked some of them up.

it.

Bell:
H.M.Jr:

This is an amendment to the Treasury Bill
circulated effective March 1st.
see.

Bell:

Are you going to see us sometime today?

H.M.Jr:

I will tell you what I am doing. Mr. Henry

Bruere and other people representing the
savings banks of America are coming in and
I would like you here when they come, and I
would like Harold Graves here, and then

immediately after that, we will continue on

what kind of bonds and so forth and so on.
Bell:

We have a number of things, and George has

a letter which I think we might take up at
that time.

H.M.Jr:

Well, right after that I have got all the time
you want.

Bell:

What time is it?

H.M.Jr:

Well, Bruere comes at 10:15, and I would like
you and Graves here, and then immediately

after that, I will keep on.

Bell:

All right, that is fine.

H.M.Jr:

Right after that. I am in wonderful shape

today, because we have no Cabinet. The Presi-

dent isn't feeling well. He has got a bad

cold. All right, Dan?

Bell:

Yes, sir.

H.M.Jr:

Harold?

Graves:

The Attorney General's friend that you asked

me to get in touch with turns out to be
Mr. John L. Blair , who is the president
of the New Process Company of Warren,
Pennsylvania.
H.M.Jr:

That is right.

Graves:

When we attempted to reach him there, we

found that he was driving to Florida. We

have - we know where he is going, and we
have sent him a wire down there at Lake
Worth, Florida, to phone us when he gets

there, and if it is not too inconvenient
for him, I thought we would invite him to

come up here for a day or two. He has, as
a matter of fact, cooperated already with
our people on the literature for the Savings

Bond.

H.M.Jr:

Did they like it?

Graves:

He is a very fine man. Everybody likes him.
He has before offered - I mean in connection
with this campaign, offered to help us in any

way he can.
H.M.Jr:

Well, you can't get a better man on direct
mail.

Graves:

H.M.Jr:

Everybody agrees with that.

Good, and I think you ought to have a direct

mail.
Graves:

I was talking about him with Odegarde and Kuhn,
and they suggested that when we get around to

designating an advisory group, that it might
be nice to designate Mr. Blair as a member of
that group on that particular kind of advertising.

H.M.Jr:

Because he has been working with you?

Graves:

That is right, and I think he would enjoy
being a member of that group.

H.M.Jr:

Good. He is quite a fellow.

Graves:

We may not be able to get him on this particular thing we were discussing.

H.M.Jr:

On general?

Graves:

I mean this particular letter.

H.M.Jr:

But I mean on direct mail. Good.

Graves:

Now, about the aluminum, the people at the
OPM had told us, I guess it was day before

yesterday, that if we insisted we could have
that aluminum. They said, however, that that for us to take it would simply by that
much cut down the aluminum available for airplane production. Mr. Young has helped me

on this, and he advises that they have overstated the case, so I asked Mr. Mack yesterday
to go ahead and insist upon our having the
aluminum, and we are getting it.

H.M.Jr:

Good. Without sending the Treasury trucks

Graves:

That is right.

H.M.Jr:

Well, I mean the 70 tons that you need, how

for it?

many do you take a week?
Graves:

It will be about 7 tons a month.

H.M.Jr:

Seven tons a month for 10 months?

Graves:

Yes.

-7H.M.Jr:

That is perfectly ridiculous.

Graves:

Mr. Young thought so, so we have asked Mr.

Mack to tell them that we insist upon it.
H.M.Jr:

See if you can't close it up between now and

noon tomorrow.
Graves:

It will be, I am sure. Mr. Mack is over
there now.

H.M.Jr:

But they are going to let us have it?

Graves:

That is right.

H.M.Jr:

Who decides that over there?

Graves:

A man named Hopkins, I believe.

Young:

He is the head of the Metals division in
OPM.

H.M.Jr:

You know, every time you look at Young another
Hopkins turns up.

Graves:

This man is --

H.M.Jr:

He has gone Hopkins in a big way.
(Laughter.)

Graves:

He is the president of Dartmouth College that
is down here.

H.M.Jr:

Oh, that Hopkins.

Graves:

It is a patriotic matter. Am I right about
that, Phil?

Young:

That is right.

-8Sullivan:

He was here during the last war, too,
doing the same thing.

Graves:

Another man who has helped us up there is

Mr. Blackwellsmith whom I think Mr. Foley
knows.

(Mr. Foley entered the conference.)
Graves:

Now, your other inquiry about the A.F. of L.

and C.I.O. I will tell you what I had suggested

already to Mr. Gail Johnston, that as soon as
we are able to make a blue print of what we
intend to do generally on this program of ours,
he should go to the Department of Labor to
see - I suggested Mr. Lubin, and seek his

advice as to this very matter. I thought

it best if we could find a person who would

be satisfactory to both groups, that is, with
the advice of the people in the Department
of Labor, to get one person on Mr. Gail
Johnston's staff who could serve as a labor
consultant and help on such matters as you

had in mind here.

(Mr. Schwarz entered the conference.)
H.M.Jr:

Well, how about on the advisory group?

Graves:

That is involved, too. I think we should

make that contact with the Department of

Labor. At least, that was my thinking on
the subject.

H.M.Jr:

My own - I don't think - think it over again.
I would rather go to the ---

Graves:

To the organizations direct?

H.M.Jr:

Direct. I think they would feel much more
complimented.

9Graves:

You would have to see the Railroad Brother

hood, I suppose. They are not affiliated

with either of these groups. I think
are going to be in trouble if we are not
careful about it.
H.M.Jr:

Lubin is a good man.

Graves:

Yes, I thought so. I thought he could at

H.M.Jr:

I will tell you another good man who is down
here, is Grady. Grady is a very good man.

Bell:

He has the confidence of all of them.

H.M.Jr:

Yes. Get Grady's advice. He is a very

least advise us what to do.

good man.
Graves:

Yes. We certainly had this in mind already,
with a slightly different approach from the
one you suggested.

H.M.Jr:

Well, the main thing is, in the room here,
what brought it to my mind, to illustrate

the thing, I mean to show you how people's
minds are working, Mr. Knudsen was here
and he is very enthusiastic on what we are

doing on the savings, so he said, "I hope

you will put in a check-off system. I

said, "I don't know what that is, Mr. Knudsen."

He said, "Well, you ask the company to dock
from every man's pay so much, and make him

put it in savings bonds. And I said, "That
is just exactly what we are not going to
do. We want to go to the men and make it
as easy as possible. We are not going to
the owners of the business and have them

forced into it."

- 10 -

His face fell, and he thinks I am a little
crazy. That is what - last night I got
this idea, let's go to the Labor Unions

and have them right with us from the beginning. If you go to Lubin and Grady, you
will be getting good contacts.
Graves:

We are going to have difficulty in - with

any course we pursue. I was talking the
other day with the Public Relations man for
Douglas. He said that he employs 22,000

people at their Glendale plant, and it is
not unionized. There is no organization.
H.M.Jr:

Well, but that - I still think that if on the
advisory committee, publicly, we can have

Union representation, it would help.
Graves:

That is right, and we had supposed that our

approach to the problem should be both ways,

that we should try and get the cooperation of
the Labor group and with their sponsorship

and approval, I know of no reason why an
employer should not attend to the mechanics
of withholding installment payments and ac-

counting for them at the request of the

employee. You know, that is being done now
by perhaps a dozen large -H.M.Jr:

Telephone and Telegraph.

Graves:

Yes, and Armour and a few others are already

doing that. Of course, it is entirely voluntary. The employers ask to have that deduction made and the funds accumulated and in-

vested in bonds and the bonds delivered. It
is just a convenience that is afforded by
the company. There is certainly no coercion
or pressure.

- 11 H.M.Jr:

All right.

Graves:

That is all I have.

H.M.Jr:

Well, I am going to give - I am going to try,
with t he help of Bell and Haas, to make up

my mind today - try to do it today - I mean,
I am saving this morning and this afternoon.

I am going to try to settle it, so if we do
that today, that will be a big step toward
this thing.

Graves:

Yes. Of course there is one suggestion on

that that I think you have in your mind.

We are running pretty close to the income

tax period, and I feel very strongly, and
Mr. Sullivan spoke to me about it - he, too,
feels the same way - that we ought to let
our announcement go over until after the
income taxes have been paid.

H.M.Jr:

Sullivan and I are one hundred per cent in
disagreement on that, and he tried it on
Bell and on Foley, and he can't get any
agreement. It was in connection with

another matter.
Graves:

Well, I just doubt whether that is the best
time we could pick in the next few days, to
come out with our announcement.

H.M.Jr:

Well, my answer to you is, I am going to
push everybody, myself first, and the minute
we are ready, we go, irrespective of anything else.

Bell:

I question it for another reason, whether

we should have our publicity before we have
our merchandise to sell, or very much before.
H.M.Jr:

Oh, well, that is another question.

- 12 Bell:

Well, you were talking about a publicity
campaign.

Graves:

Yes.

H.M.Jr:

Let's settle what the merchandise is going
to be today, whether it is going to be a
black shoe or a tan shoe, or whether it is
going to be a sandal, but let's decide on
the merchandise; but this is the first day
I have had my decks clear so I can concentrate.

Bell:

In connection with the--

H.M.Jr:

You know, it is funny about these fellows.

You go to the Army, you know, and talk about

a few guns, and the British. You talk to
Sullivan - he is always thinking about his
customers. They are all the same.

Sullivan:

I am thinking about my collections.

Graves:

I don't think we would be interfering with
John's customers, but I am afraid that might

interfere with ours a little bit.

Sullivan:

Yes, that is the way that would work, because
they have to pay me, and they don't have to
pay you.

Bell:

It is compulsory.

H.M.Jr:

Well, I will be thinking about it Tuesday

when I make out my income tax. Maybe I will
come around and agree with John. Don't talk
to me Tuesday. Dan and I know the day not
to go to see the President is beginning with
noon on the 14th. That is when he begins to
work on his income tax. We have seen him a
couple of times.

- 13 Bell:

Never put up a tax program to him then.

Sullivan:

I think that would be a good day to do it.
About three o'clock on the afternoon of the
14th, the President begins to bust, where is
this and where is that.

H.M.Jr:

Bell:

In connection with this campaign, could
George Allen be of any help in view of his

experience on the infantile paralysis, the

March of Dimes, the Mile of Dimes, and

birthday balls?

H.M.Jr:

You suggested that once.

Bell:

He has had a lot of experience, and he has

offered to help, but I don't know enough
about him and his work.

H.M.Jr:

Well, talk to my general manager, Harold
Graves.

Bell:

The President apparently has confidence in
him when he puts him on those committees. And

he has worked in it all his life, you know.
H.M.Jr:

Talk to my general manager.

Bell:

He has offered to - not come over and work but

sit in on the conferences and try to find any

bugs in what you are going to do.
H.M.Jr:

I am not terribly impressed with him.

Bell:

I can't advise you, because I don't know
enough about him. The campaigns that he has

been in on, whether he is responsible for
them or not, have been pretty much of a
success.

14 -

Foley:

He hasn't made much in the insurance business. They gave him a job in New York and

had to take it back. Jesse had an insurance
company up in New York that put him in there

as vice president at a pretty good salary,
and they asked the government to take him
back, and that is why they put him on the

Commission again. I don't think he is a
heavy weight at all, Dan, and I think he is
a pretty good friend of Steve Early's, and
that is why he gets on all these committees

and so on. I am talking about the time

when he came back as a District Commissioner
about a year ago.
Bell:

But he went back to the job. He is still
in the insurance company.

Foley:

Has he gone back?

Bell:

Yes.

Foley:

Well, that was the story at the time he came
back and was District Commissioner again.

H.M.Jr:

Bell:

He isn't a high-grade fellow?

I don't know. As I say, I don't know him

well enough.
H.M.Jr:

Well, it is the kind of group in Washington
that --

Bell:

He has that experience in campaign work. He
did it before he came here, and he has done

a lot of it since he has been here. I don't

know whether he is the type that can do us
any good. I don't know.
H.M.Jr:

I don't think, Dan, he is up to the grade of

people that we have got. For instance,

- 15 -

he doesn't begin to compare with the

Metropolitan Life man, he just isn't in
the same class. He just isn't. I mean,
he just isn't one, two, three. I know
George Allen, and I know who he plays with

and what he does.

Bell:

Well, I don't.

H.M.Jr:

Well, I do, and he isn't in your class either.

Bell:

Well, that may be a compliment.

H.M.Jr:

No, but I mean I - but George Allen made his
reputation and his money, he makes no bones

about it - in Congressional years he takes a
car and an adding machine and a couple of

fellows and he goes out into the unusual
districts and then he bets, and he makes a
business of it, and he averages - he doesn't

do it usually in presidential years, just in
Congressional years. He will go in a district where there is no money, and he will

have a trailer, and he will stay there long

enough - and he will have a statistician and
an adding machine, and he will work the thing

out and test that district and place a

thousand dollars there or two thousand, and
he says he has averaged doing that in Congressional years about ten thousand a year,

betting. He is a betting man, a horse-race
man, and that is his business and that is

where he has made his money.

Bell:

He ought to be good on a lottery.

H.M.Jr:

Right, but that is -(Laughter.)

But George Allen makes no bones about it, and

- 16 -

that is the way he makes his money. He
says about every two years he makes ten

thousand. Now, I don't think that is the

kind of fellow we want.
Bell:

I agree with you.

H.M.Jr:

Harold?

Graves:

Nothing more.

Schwarz:

I have nothing.

H.M.Jr:

Chick, I haven't cleared it yet, but -(Mr. White entered the conference.)

What is the matter, Harry?
Sullivan:

He has been interviewing those lady accountants.

White:

I thought everybody would be out.
(Laughter.)

H.M.Jr:

Did you hear what John said?

White:

No, did he say I ran out of gas?

H.M.Jr:

No, he said you were interviewing those lady

accountants.

Sullivan:

Earl Carroll called him yesterday and offered

him three redheads, a blonde, and two brunettes.
(Laughter.)
Schwarz:

With Ph.D.'s?

H.M.Jr:

They talked to you about this publicity man?

- 17 Schwarz:

Yes.

H.M.Jr:

That is all right with you?

Schwarz:

Surely.
It will be necessary, as a matter of
fact.

Graves:

Mr. Gaston has talked about that, too. I am
talking about Mr. Irvin.

Gaston:

Yes. He is a very interesting fellow. He is
a good man.

H.M.Jr:

I just wanted to make sure it is all right with

Chick.
Schwarz:

I have talked with this new man, too.

H.M.Jr:

Now, you will know what their releases are? Will
their releases go through you?

Schwarz:

We will coordinate them.

H.M.Jr:

They will create them but--

Graves:

That is exactly right, they will create them but
I think they all ought to clear through Mr.

Schwarz.
H.M.Jr:

That is what I mean.

Graves:

We haven't done any very detail thinking about
the exact routine, but it seems to me that should
be done.

Schwarz:

We will want to integrate them with our entire
program. The one phase of it.

H.M.Jr:

All right?

Schwarz:

All right.

- 18 H.M.Jr:

Harry?

White:

I have nothing, sir.

H.M.Jr:

How are your snowshoes?

White:

I haven't got any, but we should have had some

H.M.Jr:
White:

H.M.Jr:

on the car. It really took me an hour and a
half to get in this morning.
Is it so bad out in the country?
It is slippery. We were going about three

miles an hour.

George, I have been thinking over last evening
and this morning this thing of sending somebody
to England, see, and the more I think of it the
more I think that in view of what happened at

lunch yesterday with Knudsen and Mead and Meigs,

they want now to do this statistics on airplanes
and they have got the organization, and I said,
"Well, if they can convince me they can do as

good a job, we are willing to drop out of it,

but I don't see why we should start something

new and send a man over to England and that Mr.

Harriman ought to look, I think, to the OPM."
I don't know how many people there are over

there, but out of that crowd they should be
able to do it. Unless you tell me you would

very much like to send somebody over there, I
would rather not.

Haas:

No. I have had one other possibility that I
was going to look into today, but I haven't

found any enthusiasm among the men, and it would

certainly deplete our staff somewhat, but if

you want to, I think we can find a man and a
good man.

H.M.Jr:

No, I don't want it, and I am going the other
way.

- 19 Haas:

H.M.Jr:

I think you are right on that.
I think as they are setting up another organization to handle the Lend-Lease Bill, I would

like to gradually get out instead of into it

more, you see. How much we get out, I don!

know, but to take on new responsibilities, I
think Harriman - he is going over as a representative of OPM, not of Treasury.

Haas:

They have got a big staff over there.

H.M.Jr:

An
staff. All right, I will phone him
andenormous
tell him that.

Haas:

All right, thanks.

H.M.Jr:

Are you all right?

Haas:

On your note with regard to the price of imported
commodities, Leon Henderson is still away.

H.M.Jr:

I know that. You see, Leon doesn't want me to

write the President. He said take it up with
him first and give him a chance.

Haas:

Well, I talked to Hamm and I told him what you
wanted, and you wanted to know what they were
doing about it and so on, and they have done
something about it. He sent this memorandum

which I got this morning. I told him you wanted
a very short memorandum. He didn't answer one

of the important questions. You wanted to know
whether he wanted you to take it up with the
President or whether he wanted to take it up.

I didn't get a chance to call him. I ran right
in here after I got in this morning. I will

make that other inquiry.
H.M.Jr:

Will you?

- 20
Heast

H.M.Jr

Yes. That is all I have.
Tell Harry what I said, how I wanted these
memos answered that you get in the morning.

Young:

Are you still interested in the arrival of
British planes at foreign ports?

H.M.Jr:

What is that?

Young:

Arrival of British planes at foreign ports.

H.M.Jr:

Have you got it?

Young:

Yes.

H.M.Jr:.

Yes.

Young:

And last night I O.K.'d for the British 600

thousand dollars in contracts for powder boxes,
and this morning they are looking for 14 million
7.
H.M.Jr:

How much this week?

Young:

Which makes about 29. It is 14, 6 so far.

H.M.Jr:
Young:

What is the big item in the 14 million?
Seven million dollars for .303 rifles.

H.M.Jr:

Rifles?

Young:

.303 Enfield rifles, of which a certain amount is

capital.
H.M.Jr:

O.K.

Young:

I will give you a memorandum on that. Here is

the same
more
detail.table that you got last week in a little

- 21 H.M.Jr:

What is the difference between the Hudson 3 and

Young:

I don't know.

H.M.Jr:

That is what it is.

the Hudson 4?

We will send this to the President and put on
it a stamp which says, "Please Destroy.

All right, Philip?
Young:

Yes, sir.

Bell:

Did Senator Byrnes proposed amendment have the

approval of the Administration?
H.M.Jr:

I don't know what it is.

Foley:

It is a very bad amendment, and I wanted to get

to talk to you (Secretary) about it yesterday,
but I didn't get a chance. McCloy called up

from the War Department, and he was very excited

about it. Byrnes has talked to Oscar a couple
of times, and I told Oscar to refuse to draw

the amendment for him, and he told him that yesterday and he said it would mean separate buying

for the British and it would cut right across

the whole program we discussed out at your house,

and it fixes a flat limit on the amount that can

be made available, not only from funds heretofore
appropriated, but any funds that are appropriated
for the Army or the Navy in the future, and would

require any appropriation for the carrying out
of the Lease-Lend Bill to be specifically desig-

nated for that purpose.
H.M.Jr:

I will tell you what you do, Mr. Foley.

- 22 Foley:

And I think maybe we ought to talk to--

H.M.Jr:

May I make a suggestion?

Foley:

Yes, sir.

H.M.Jr:

Write a memorandum on what the amendment is and

our objections, get McCloy to collaborate, I will
sign it and get Stimson to sign it, and we will

get it over to the President before lunch. I

don't know what you did the whole time I went up

in the car to the capitol, why you couldn't talk
to me about it. (Laughter)

Foley:

I did pretty good in the time I had.

Bell:

You had at least half a minute.

Foley:

I got the bum's rush as soon as I got back.

Gaston:

Were they your stories?

Foley:

You and Greta Garbo have been the same the last

few days. You want to be alone. (Laughter)
You haven't had any time for me - she either.
(Laughter)

Sullivan:

Nice going, Ed.

Gaston:

He always tells us about his failures and nothing

H.M.Jr:

Greta and I have our moments.

Foley:

I would like to get one. (Laughter)

H.M.Jr:

The point of this story is that I have found a

about his successes.

formula how to get a lawyer to say yes. Take
him in a car and take him for a ride, say between
the time now and the destination you have to
get your story over, and between the time we

- 23 -

went from here to the capitol, we settled a
very, very important thing that he wanted a day

to discuss. So from now on any lawyer that
wants me, I am going to get in the car and we
will ride around the park and by the time we
get back, he has to get the story out.
Sullivan:
H.M.Jr:

It takes a long while to go around the park
today in this weather.

I think if you could take that up with Beany

Baldwin, I think he would know as much about

itit since
as anybody.
Haven't I talked to you about
I came back?
Foley:

Sure. We did a little work on that, and we

talked to one of Harry's men. It is primarily

an economic problem, setting aside of the sugar
tax down in Puerto Rico, Harry, to enforce the

500 acre law.
White:

It is a very complicated matter as to its effect

down there and my understanding is that the
Farm Credit - the Resettlement has done a lot of
work on that.
H.M.Jr:

I said Beany Baldwin. I said to take it up with

Beany Baldwin.
White:

H.M.Jr:

Yes, they have done a lot of work on that.

I told the President all about this, and yester-

day he completely forgot that I had; and he
said, "Sometime when you have got a little time
and you want to do something for me, take this
on." And then he tells me the whole stuff that
I told him.
White:

Our men made a preliminary survey, but it got

very involved, and I think--

26
- 24 H.M.Jr:

Well, he is interested and I am interested,
and as we get odd moments--

Foley:

Somebody
said that Rex Tugwell was working
on it.

H.M.Jr:

Possibly. Just in odd moments. It is an

interesting problem. I never did know how
the sugar benefit money to the Phillippines
was set up. I know that goes into a fund
to buy land. You know that.
Foley:

Yes, we looked at that.

Bell:

I don't think it helps very much.

Foley:

It doesn't help an awful lot. The real trouble
is this sugar quota. If they allow the sugar
to come in here without a duty, it would probably
be all right.

H.M.Jr:

Let's keep poking at it.

Pehle:

The Export Managers' Club has asked that somebody

from the Treasury talk on Foreign Funds Control
at a luncheon they are giving March 25. Do
you have any feelings about that?
H.M.Jr:

I would like you to talk to them.

Pehle:

All right. That is all I have.

Cochran:

Mr. Clark is arriving from Ottawa this noon.

Could you give us an hour on Monday for a

meeting?

H.M.Jr:

Well, I have got Walter Stewart coming in at

eleven on Monday. Why not say Clark at three

o'clock Monday?
Cochran:

Do you want the British in at the same time?

27
- 25 H.M.Jr:
Cochran:

You see, they have asked me now for it.

H.M.Jr:
Cochran:

Three 'clock. I will save three to four.
All right, sir.

H.M.Jr:

Harry, will you be in on it too?

Cochran:

Then have you any feeling on Gifford giving

out lists as of the first of March of securities
completely liquidated? He did it the first
of January and the first of February. He is
a little nervous lest it gets to be every

month that they might press him at the end
where they could identify by a process of

elimination what securities he has left.

H.M.Jr:

I don't know how much he would have. I am

in favor of it unless it wouldn't make a good
showing now.

Cochran:

Well, they sold a fair amount the last few

days, just two days, and then there were
several days when they didn't sell very many.

H.M.Jr:

It doesn't have to - when is the first?

Schwarz:

Tomorrow.

H.M.Jr:

The thing to do is to do it for the Monday

morning papers.
Cochran:

Yes, sir, but whether you think he ought to
continue doing it monthly, that is the question.

H.M.Jr:

Well, he can skip until the middle of the month
so as to get away from a fixed date if he
wants to. I think this month would be good.
My heavens, it would show some activity on

their part. I think I would tell him that

26 -

this month he should do it, so we will get some
idea in the financial community that they are

doing something. My recommendation this time
is yes, for Monday morning's papers.
Cochran:

All right sir. Then you asked the British for
a copy of the statement which was given out by

Kingsley-Wood.
H.M.Jr:

Yes.

Cochran:

I have a cablegram today, and they have the text

today. It is just the same as the cablegram.
This is a clear copy.
H.M.Jr:

Did that come through one of those morning messages to you or not?

Cochran:

No, sir. You spoke about it - you told me the

other day you had asked them, and I told you I

thought we had the copy in our own files. I

had Miss Chauncey look it up.
H.M.Jr:

Anything else?

Cochran:

No.

Sullivan:

I have a memorandum on yesterday's meeting, and

I gave a copy to Mr. Bell and Mr. Foley this
morning. I didn't know whether you wanted it
now or wait until they go over and supplement

it.

H.M.Jr:

That is right, and then let it come to my office.

Sullivan:

And I called Mr. Kuhn when I got back as you suggested, and he wasn't in town. As soon as he

gets back, I will go over that with him. Did

I understand you to say Dr. Stewart is coming
in town Monday?

- 27 H.M.Jr:

Yes.

Sullivan:

I would like very much to see him. I will leave

word with Stephens.

H.M.Jr:

O.K.

Sullivan:

On this matter in which you and I are in a hundred
and ten percent disagreement, I was wondering
whether I could talk with Herb and Chick and
Ferdie about sealing the newspapers up editor-

ially on the week after the returns are filed.

H.M.Jr:

I don't know.

Sullivan:

Well, after all, these people pay their income
taxes and file their returns and it might be
a pretty good time for an editorial comment on

H.M.Jr:

this special privilege class that is set up
because of the continuation of tax exempt securities.
I am for it.

Sullivan:

All right, I will do it.

H.M.Jr:

We have got to put some heat on these people.

Foley:

If we can get a court decision, we will have

H.M.Jr:

That was the automobile decision.

Foley:

Right.

Sullivan:

There is another matter.

H.M.Jr:

I am all set up to be put in the same class with

We have got to go to the country on it. We
have got to go to the country on it.
them behind the eight ball.

- 28 -

Greta. That makes me feel good. As long as

it isn't Marlene Dietrich.

Sullivan:

She is no economist. Harry can tell you that.

White:

I don't know what John is talking about. It
makes it very difficult to employ the young
lady we are considering. (Laughter)

H.M.Jr:

All right.
Ed?

Foley:

We are going to see Bob today sometime on that

and at the same time I think John had better go
with me because we want to talk not only about
that problem but also about certain state
excise taxes on Federal activities in connection
with the defense program. Now, you can't go
two ways before this court on the question of

the elimination of the exemptions. If we are
going to reach out for additional taxing power,
we have also got to let the states come in and

tax our activities. You can't say that the

states can't do what we say we want to do in
so far as they are concerned and over there in
the Department of Justice, Francis Shea is taking the attitude that the Department ought to

go in and resist before the court certain inroads
by the different state taxing authorities and
fellows like Sam Clark and Francis Biddle and
the others over there that are interested on
the Federal side toward extending the tax basis

are a little bit upset about it, and they want
to get the Treasury views. So I think this

is a good opportunity for John and I to discuss

the whole subject, if that is all right with

you.

H.M.Jr:

Sure.

- 29 Foley:

I think Bob sees the thing the same way we do.

I think we ought to get the thing out in the

open and talk about it.
Bell:

Are you going to allow the states to tax some

Foley:

Yes.

Bell:

Are you going to offset the subsidies we give

of our activities?

them and grants for roads and old age?

Foley:

No.

Bell:

You know, there was quite a report made on that
question a few years ago.

Foley:

Yes, I know there was, Dan, but I think it is

not a question of revenue so much as it is tax
philosophy. I think we have got to have a tax
philosophy that works both ways. I don't think

we can be one way for ourselves and another way

in so far as the local taxing authorities are

concerned.

Sullivan:

That comes up largely on the taxing of contrac-

tors who are building new facilities for the

Army and Navy, Dan.

(Messenger lit fire in fireplace.)
H.M.Jr:

Lighting the fire under you, Harold, has no

significance. (Laughter.)

Foley:

That memorandum on the freeze control that you

sent around yesterday was very interesting.
H.M.Jr:

We will get together, but on freeze control, I
told Harry last night, it comes - it will have
to wait until I get this savings bond thing
straightened out.

- 30 Foley:

Bob may mention that because he apparently has
gotten a copy of that memorandum.

H.M.Jr:

Yes. But that has got to wait. The savings
bond thing comes first,

All right?
Foley:

Yes. One other thing.

H.M.Jr:

I am going to ask those that got the memorandum

for advice as to who should be secretary of that
committee. They might be thinking about it.
I thought it was good of the President to ask

us to name a secretary.
Foley:

Sure, that memorandum was weighted very much

in our favor, I thought, and it ought to have a

pretty wholesome effect.
H.M.Jr:

Are you all right now?

Foley:

Yes.

Hanson, the Chief Counsel up in New York, is

resigning to take a position with one of the oil

companies as tax council, Standard Oil of Indiana;

and we have to fill that place and it is a pretty
important place. It is the most important field
office in so far as the legal division is con-

cerned. About 24 percent of the cases come

through there. That is the largest staff we have
in
the field.

H.M.Jr:

Give me a recommendation.

Foley:

I will give you a recommendation.

H.M.Jr:

How about Sammy Klaus?

- 31 -

Foley:
H.M.Jr:

No, not that job.
I was being funny. No, give me a recommendation.

Herbert, if you would come in at a quarter of
12 today with a letter to the President on the
Coast Guard matter.

Gaston:

Yes.

H.M.Jr:

And finish that one.
Will you have Admiral Waesche with you?

Gaston:

I will have Admiral Waesche at a quarter to 12.

I wasn't able to see Barkley yesterday. I got

his secretary on the phone on that Pennsylvania

matter, but he was tied up in committee. I
don't believe I need to do anything about it

except to let him know I am ready to see him when

he wants to see me.
H.M.Jr:

Or tell him--

Gaston:

I can tell his secretary the facts.

H.M.Jr:

Who is his secretary?

Gaston:

I don't know his name.

H.M.Jr:

If you can get the man who is the secretary to
the leader - what is his name?

Foley:

Biffle.

H.M.Jr:

You can talk to Biffle all right, because he

Gaston:

I will tell Biffle the story.

looks after those things.

General Maxwell's so-called policy committee

- 32 -

yesterday met. I went over.
H.M.Jr:

Is he a general now?

Gaston:

He is a brigadier general now. That adds to
the importance of the committee. (Laughter)
But this so-called policy committee did the
same yesterday as it does at the other meetings.
There is no policy determined at any meeting.

They have done one other thing. The licenses

for the plans and specifications which they are
putting under the controls are to be issued
direct by General Maxwell's office instead of
by the Division of Export Controls in the State

Department. They seem to have agreed on that

with the State Department, so it splits the

issuance of the licenses on materials that come
out of the State Department and on the plans
and specifications that come out of the Ad-

ministrator's office.
H.M.Jr:

Well, I think you will find this committee of

four that the President set up and the remarks
that he has made, that all of those things are
going to be given to them to decide on.

Gaston:

Dean Acheson was there yesterday by the way. He

H.M.Jr:

was trying to find out what it was all about.
All right, Herbert?

Gaston:

All right.

H.M.Jr:

O.K.

February #8, 1963
Harold Graves

Secretary Morgenthan

Have you been successful in getting alminum necessary
to make additional plates for our addressograph system?
Please let me know today.

TREASURY DEPARTMENT
WASHINGTON

February 28, 1941.

MEMORANDUM FOR THE SECRETARY:

Re: Your memorandum of this date regarding
aluminum.

Satisfactory arrangements have now been made by

the Procurement Division to make available the neces-

sary supply of this metal.

GRAVES.

Suales 9:30 meeting

on this date.

February 28, 1941
Harold Graves

Secretary Morgenthan

I wish you would think over and talk to me about

getting a representative of the A. P. of L. and the C.I.O.
to work with us on the selling of these savings certificates.

TREASURY DEPARTMENT
WASHINGTON

February 28, 1941.

MEMORANDUM FOR THE SECRETARY:

Re:

Your memorandum of this date regarding

the A. F. of L. and the C. I. 0.

This is a matter which we will take up promptly,
probably, as you agreed, through Mr. Isador Lubin of
the Labor Department.

GRAVES.

See also 9:30 meeting
2/05/41 when this was
discussed.

us. 1986
Filee

Mr. federal

as the staff mosting this serving I benefit to Secretary Hongection she oviginal
of - letter received from Mr. Placest, enter date of February BY. and see

consisting of the test of the - published is the Register press January 31. 1941. 1 told the Secretary that this some. which be had requested

through Mr. Purvis a for days age. to secations with the test of the quoted is cablegree No. 376 of Junery 32 from the as Boston. . copy whereof
I had provided the Sepretery.

TM.P.

NC:lap-2/28/41

COPY
BRITISH EMBASSY,
WASHINGTON, D. C.

27th February 1941.

Dear Merle,

At a recent interview which Mr. Purvis had
with the Secretary, the latter asked to be supplied
with a copy of the announcement which was published

by the British Government on the subject of our direct
investments and of Sir Edward Peaceck's visit to the
United States. I enclose copies herewith of the
announcement as actually issued in the British press.
Yours ever,

(Signed) Jerry Pinsent

Mr. H. Merle Cochran,
U. S. Treasury,
Washington.

TEXT OF ANNOUNCEMENT PUBLISHED IN THE ENGLISH PRESS

ON 31st JANUARY, 1941.

In the light of material assistance
already supplied and contemplated by the U.S.A.,
it may now be freely published that H.M. Government

have realised and disposed of a very great proportion

of their gold holdings and are steadily realising
the American securities owned by their nationals at

every opportunity. A more difficult problem is
presented by investments such as businesses in the
United States and United States companies controlled
by companies in this country whose shares are not
quoted on the Stock Exchange. The Government are

resolved to make the best possible use of these
investments and with this end in view they have requested Sir Edward Peacock who has great experience

in such matters to go over to the United States and

examine the possibilities on the spot. Sir Edward
Peacock will reach America very shortly.

8EB

ear

British Embassy,

Washington.

27th February 1941.

42
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE February 28, 1941
TO

Secretary Morgenthan

FROM Mr. Ceohras

At the Staff meeting this morning I reported that Deputy Minister of Finance
Clark of Canada would arrive from Ottawa at 12 neen today. I asked the Secretary

at what hour the meeting with the British and Canadian Treasury officials should be
fixed on Monday. He said that he was receiving Dr. Walter Stewart at 11 a.s. on

Monday and desired the joint meeting at 3 p.m. I gave this information to Mr. Payfair
by telephone at 10:40 this morning.

43
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

For Miss and
TO

DATE February 28, 1941

Secretary Morgenthan

FROM Mr. Cochran

At the Staff meeting this morning I told the Secretary that Mr. Gifford had
inquired as to how the Treasury felt as to his issuing on March 1 a statement of the
American securities which the British had liquidated during the month of February.
I told the Secretary that the British desired to meet our wishes, and had issued lists
as of January 3 and February 1, but they were a little hesitant about establishing a
precedent for the regular monthly release of such statements, lost embarrasement
night be experienced when a point is reached where a market could tell about what

securities remain unseld in the British portfelio.

In accordance with the Secretary's instructions I telephoned Mr. Gifferd's office
at 10:30 this morning and, in the absence of Mr. Gifferd, told his assistant that
Secretary Morgenthau would prefer that a statement for the month of February be given

out on Monday. In our conversation it was brought out that the list would be a representative one but, due to the fewer business days in the month and the dullness of
the market for a good part of February, the member of securities disposed of would
considerably shorter than the list for January. Nevertheless, I told Mr. Gifferd's
assistant that we thought it would be a good thing if Congress and the public could
see that there had continued through February a definite sale and liquidation of the
securities. Mr. Gifford's office stated that this opinion would be passed on to
Mr. Gifford as soon as he returned to the office, and would be carried out on Monday,
unless we had some word directly from Mr. Gifford himself.

AMP

February 28, 1941
10:45 a.m.
RE FINANCING

Mrs. Klotz

Present:

Mr. Haas
Mr. Murphy

Mr. Bell

Mr. Newcomb

H.M.Jr:

At your service.

Bell:

Well, we had a conference the other day
with the Federal Reserve people, Eccles

and Ransom and John McKee of the Board,

and Piser and Edmiston of the Staff.

Szymczak had gone to Chicago. They had
been over George's memorandum and his tables

and they have agreed that the present type
of savings bond should be changed so that

the step-ups would be more in line, or at

least under the current money, and the
longer they held it would be inducement

for them to hold it to maturity.

That was in line with George's memorandum,

that the limit of $10,000 should be reduced
and they didn't seem to care whether it was

three or five, and they suggested that it

might be five, because it was half way down
and that that was quite a reduction after

all, and that this was the time that we

were wanting money.
H.M.Jr:

That is right.

Bell:

And they thought maybe the 5,000 would be a

little better, although they weren't very

strong for it. You see, we suggested three
in our memorandum. They were in favor of

continuing to restrict sales to natural

persons; but John McKee, I think, because

We wanted money, said he questioned whether

we ought to reduce it at all from the 10,000,
but just on that basis alone. He had to
agree with our argument that a man who had

$10,000 a year to invest was not a small

investor, and we had no justification for

paying him the subsidy. The proposal might
reduce the annual proceeds of our present
bond down to somewhere between four and 600

million dollars.
H.M.Jr:

What do you mean, "annual proceeds"?

Bell:

From the sales. We are now getting close

H.M.Jr:

On what?

Bell:

Of the present savings bonds. The reduction
in the limit may reduce the annual proceeds

to a billion dollars.

just based on the present drive down somewhere

between four and 600 million dollars.

Now, maybe we can increase that some by this

intense drive. We don't know.

H.M.Jr:

Well, I haven't agreed to the reduction yet.

Bell:

I know you haven't, but I am telling you

H.M.Jr:

All right.

Bell:

Now, this new type of savings bond proposal
is for two, and would be along the general

what we were agreed to in this committee.

-3lines of the present savings bond, that is,
it would be a discount bond, except that

the return would be more closely to the
market rates, say either a two per cent or
a two and a quarter per cent yield over
to maturity. That would be sold to individuals
and trusts, trust accounts, pension funds
and so forth, but try to keep out the
commercial banks.

Then there is another type of savings bond
or just a bond which would be sold at par

with a current return - we would either give
it in the form of a coupon or give them a
check on a registered security, but if that
bond is redeemed before that maturity, we

pull back some of that current return by
redeeming it at some figure below par.

H.M.Jr:

Is that the one that drops to 93?

Haas:

Yes.

Bell:

Well, that was the one that you had in Haas'
memorandum where we sold it for $95.50 and

then we pull it back and redeem it at $92.50,

but we have come around to the other proposition

of selling it at par and then redeem it at
less than par. We think maybe it will have

a little better appeal than to sell it at

par..
H.M.Jr:

How much would you pull it down to?

Bell:

It would come down to --

H.M.Jr:

Well, I will get the whole picture.

Murphy:

$94.90, about.

Bell:

Now, on these last two new proposed bonds,
we would have some limitations as to the
amount that a person could acquire in any
given year. We have suggested 50,000.
Some one in the Board suggested it might
be a hundred thousand.

Now, that 50,000 we thought would be about

the right figure, and we think that the

redemptions ought to be made on an interest
payment date with 30 days advance notice,

that that ought to be in the picture right

from the start and that if anybody comes
in and wants to redeem or gives notice that
they are going to redeem, they ought to be
held to it, no change, they can't go back
and forth.
Then there is a third type which Eccles
brought in and -H.M.Jr:

I thought you have given me three types now.

Bell:

Well, A and B are of the same type. This is
really the fourth type, which Eccles brought
in and which may get a large sum of money.

I don't know. It is for the purpose of
attracting the idle balances of individuals,

corporations, and possibly insurance companies,
and that would be where you would sell, say,
a two-year note is what he suggested, registered

and non-transferable, with interest at a
quarter of a per cent for the first six months,
a half per cent for the second, three fourths
for the third, and one per cent for the fourth.
In other words, a graduated interest, which
would be an average of about five eighths
over the two-year period, and I - you put
in a provision that that could be redeemed
on any interest payment date with 30 days

-5advance notice, and it would not be available
to commercial banks, but only to those types

of individuals. There are large balances in

these corporations such as General Motors and
so forth, and insurance companies have large
cash balances which they probably would like

to put to work where they could get within
say six months, a year and so forth.

H.M.Jr:

Well now, could we leave that until the last?

Bell:

Yes.

H.M.Jr:

And that would not have to be in the popular --

Haas:

H.M.Jr:

I would like to do a lot of studying on that

last one.

I would like to leave that until the last.
Let me see if I have this thing clear. In
the first place, I take it we are going to

stick to the United States Savings Bond, but

we are going to make it less attractive in
the early years and more attractive at the
end, but keep it 2.9 just the same.
Murphy:

That is right.

H.M.Jr:

Could I see the schedule on that?

Murphy:

This is the schedule we worked out, and there
are certain modifications that Mr. Broughton
suggested. (See attachment 1.)

Bell:

I would leave out the modifications. They
are details, and you don't have to worry
about them.

H.M.Jr:

Let ine see. The President planned 75.
It goes up to a hundred.

-6 Bell:

You see the difference in the yields, the
starting of the yield during the period
held, you see, the first column representing
the present and the second column what we
proposed, 133 as compared to 67/100ths.

H.M.Jr:

Is this the way it was written originally?

Murphy:

Yes.

H.M.Jr:

Has anybody made any change?

Bell:

There has been no change in the present
savings bonds.

Haast

Piser didn't like the thing at the end,

H.M.Jr:
Haas:

Is Piser against it?
He doesn't like that --

H.M.Jr:

I am for it. (Laughter)

Haas:

Well, we thought it was all right.
You notice in the last column, the last
figure in the last column, Mr. Secretary,
that you have a yield in the last year of
ten and a half per cent. That is the reason

Bell:

that $5.00 that made it jump sharply.

for the jump. He didn't like that. Well,
he didn't - I won't say he didn't like it,
he said that it might look bad.

H.M.Jr:

You have showed it to other people, haven't
you, besides the Federal crowd?

Bell:

Yes, you talked to some of those people that
came around to see you (Haas) the other day,
and I talked to George Harrison about it

the day he was in here, and we have had Rouse

on it and Rouse was in on the Federal
Reserve Board conference when they talked
about it.
H.M.Jr:

Any suggestions?

Haas:

Rouse had a good one. You know this
discount, the bond we had with a coupon

on that started at less than par? By
doing that, you tell the public you are
paying one and a half, say, on it - the

coupon is one and a half and you get part

in appreciation. It has got a greater
sales value if you can say it is a two per

cent coupon bond.
H.M.Jr:

But it has nothing to do with this.

Bell:

He had no suggestions on that.

Murphy:

We really have adopted his suggestion in

H.M.Jr:

But don't confuse me. Let's just stick to
this thing that I have got in my hand.

Murphy:

He was in perfect agreement with it.

H.M.Jr:

Do you think we ought to show it to any

Plan 2.

more people?

Bell:

Well, you said the other day that you thought
we might want to get some people down and

show this whole thing to them.

Haas:

H.M.Jr:

I showed it to Park. You asked me to. That
is the man from Manufacturers Trust. He
thought it was excellent.
The only suggestion I have is, when we get

through with this morning, is the possibility
of putting it airmail and sending it to the
president of each - of the 12 Federal Reserve

Banks and give them one day so they would
have it Monday morning, you see, and say

that they should discuss this with their

staffs and we would like to have an answer
from them Tuesday. That would go out to the
12 banks, and you would get the geographical they would know how the thing - and tell them
that they can call in anybody that they want to.
Show it to their own staff and anybody they
want to consult, that we would like to have
them give us an answer by telegram so we would

have it back Tuesday. Is that good enough?
Bell:

Tuesday is all right.

H.M.Jr:

Have it back Tuesday.

Bell:

Yes.

H.M.Jr:

Now, I think that that would be helpful. I
would word the telegram, "We would like you

to get reaction of your staff and anybody
that you wish to call in from the outside
to show this to, but please get us off a

telegram Monday night so we could have your
answer Tuesday morning.

Bell:

We would get it out tonight - I don't know
about the air. They could get it tomorrow
by air if the airmail goes.

H.M.Jr:

Well, I mean --

Bell:

Otherwise, they wouldn't get it until Tuesday
morning.

H.M.Jr:

Well, that exception can't be helped. If

it is in the mail this afternoon, if the

plane left Saturday afternoon, Saturday

-9- night, they would still have it Monday night.
If the plane left Sunday morning, they would

still get it - there would certainly be a

plane out of here between now and Sunday noon.
Bell:

Oh yes, sure there will.

H.M.Jr:

It would reach everywhere except Frisco, and

then tell them to send us a telegraphic
answer. Is it slowing it up too much?

Bell:

Oh no.

H.M.Jr:

And tell them to have an answer in here?
But you won't be back here until Wednesday.
Why not give them until Wednesday morning?

Bell:

It is all right. It will give them an extra

day.

H.M.Jr:

Tell them we want an answer by Wednesday
morning, Dan.

Bell:

How about this group here this morning?
Would you want to discuss it with them.

H.M.Jr:

Yes, if you could. But I don't want to
interrupt myself.

Bell:

Well, if they are still here, I think we can

get them. This Savings Bank group is here
this morning, George.

Haas:

They would be very good on it.

H.M.Jr:

What are you doing this afternoon?

Bell:

Not a thing that I can't shift, but I could
probably see them before twelve.

Now, you are contemplating having an

- 10 -

advisory group on this other program. I

don't know whether you would get any

suggestions out of that group if they were
available say early next week to discuss

not only the program, but this type of
plan.

H.M.Jr:

The trouble is, Dan, I think that if we

can get this, show it to 12 Federal Reserve

Districts, ask them to see their own staffs

plus any other people, that covers the
country pretty well and on this advisory
thing, once you ask a man on, you can't

get a man off. And I want to pick that
advisory group very, very carefully. I won't

have my -Bell:

You won't do that then within time for this.

That is all right then.

H.M.Jr:

I will not.

Bell:

Will you have decided on any?

H.M.Jr:

Excuse me?

Bell:

Will you have decided say by the middle of
next week, any of the people who will be
on it?

H.M.Jr:

Dan, this is the first time I am putting
my mind on this thing. I don't know.

Bell:

If you have and if they are people other than
advertising people, then it might be well

to let them have a look at it.

H.M.Jr:

Check, particularly if they have the labor
people. Well look, if you people are satis-

fied with this, I am satisfied with it because everybody has been over it - subject

- 11 to again doing this thing Wednesday.
Bell:

Yes.

Haas:

What do you think about the amount?

H.M.Jr:

Well, now on the amount, what are our
sales now? How are they running?

Bell:

Well, they are up now because it is a lag
from Christmas, you see, but they ran anywhere from 35 to 50 million dollars a month
last fall and will probably run about 70

million dollars this month, and they will

drop down next month to 50 or 60 and stay
along in there.

H.M.Jr:

I don't see at the beginning why we should
change it from 10,000.

Haas:

Well, one reason, Mr. Secretary, is, you
are putting out these two other types to
meet another type of investor, you see, the
large investor. I would think 5,000 would

be all right. It is for the small man, and
you can hardly argue it is for the small
man if you leave it at 10,000.

Bell:

But you could prevent the big man from

taking 5,000 and then shifting over the
other part of his funds into the other two

or one. But it is pretty hard to argue

you are putting out this 10,000 to subsidize
and at the same time put out two others for
the purpose of meeting the large holder,
meeting the requirements of the large holder.
H.M.Jr:

I see. Of course, I am arguing with you.
If you make it five and then if I ever need
the money and it goes up to ten, that
doesn't look so good; but if you kept it

- 12 at ten and then the thing began to swamp,
you could always drop it back to 7,500 or
cut it down.
Bell:

Well, it seems to me the thing to do is

if you need the money and you have to get
it through this process, where you ought

Haas:

to get it is raise one of the others.
That is right.

Bell:

Rather than tampering with the small one.

Raise the other more nearly to 291. It is

a little closer.

Haas:

I think, Mr. Secretary, if you need money
your regular financing --

H.M.Jr:

You don't say "if".
your regular financing would still

Haas:

be your big source.
H.M.Jr:

"As" is the word. I suppose so. Do you
have a little doubts, Henry, about dropping
it?

Murphy:

I think five is quite satisfactory. I see

your qualms and I have had them myself.

On the other hand, if we are going to offer
these new securities, we have to give them
some elbow room.

H.M.Jr:

Who?

Murphy:

And I am inclined to drop it.

H.M.Jr:

Have to give who some elbow room?

Murphy:

The potential market for the new securities.
We are putting the new securities out at say

13 -

a $50,000 limit, and if we have a $10,000
limit on the outstanding ones, we are going
up awfully high on our market on the heavily
subsidized issue.

H.M.Jr:

Say that again, Henry.

Murphy:

We are putting out a new security, and we

want to make a market for it. That market

is supposed to be intermediate between the
market for the small investors and the

market for the regular marketable securities.

We ought to give it a wide enough bend to
operate in, and if we go up as high as $10,000

on the heavily subsidized security, it would
seem that we have not left a very wide

market, or at least a wide enough market,

for the --

H.M.Jr:

But what about - just let's say for argument
it is going to be 5,000. Take $5,000, not
5,000 face amount.

Bell:

Five thousand face amount.

H.M.Jr:

All right, then that is three quarters of

Murphy:

Thirty-seven hundred fifty, or 7,500 for a
married couple. They can buy five for the
husband and five for the wife, and one for

that. That is how much?

each child.

H.M.Jr:

Now, are we satisfied that this is the best
thing for the little fellow, no coupon at
all? Are we satisfied?

Murphy:

I am.

Haas:

Yes, I think so.

- 14 H.M.Jr:

You don't want a coupon?

Bell:

It has been going awfully well.

Haas:

He could buy the other one with a coupon
if he wanted to.

Murphy:

It seems to me that the little fellow is
interested in saving money. The amounts

that he deals with are so small they can't
produce any worthwhile income. I think he

would prefer to have his interest compounded
for him by us.
H.M.Jr:

Do you know what the English have done on

Murphy:

They just made their quota.

H.M.Jr:

No, no, I mean what do they do?

Murphy:

They have one of each. They have coupons
and appreciation security and coupon security.

H.M.Jr:

Do you know what the rates are?

Bell:

Aren't they three and a half?

Murphy:

I think it is about three and a half on

that?

the appreciation and the coupon which is

offered to the larger investors, as a

coupon, and they redeem it at a one point

premium when itefinally matures so it is a
very split combination of coupon and
appreciation, but almost all coupon.
H.M.Jr:

But you think for the working man this is
the answer?

Murphy:

r think so, Mr. Secretary.

- 15 -

Well, he if he interested in a coupon, he
can shift over into the other one. And he

Bell:

gets a return, which is a little higher
than anything he can get in the market.

Haas:

Yes.

Vurphy:

Do you feel that there would be a demand

for a coupon security corresponding to

this?
Bell:

No.

H.M.Jr:

You know, for instance, you take a person
like Mrs. Scheider, who is Mrs. Roosevelt's

secretary. She tells me she puts all her
money into this. She was all mixed up on
the tax business. She didn't understand

about taxation and how this thing was taxed,
so I explained it to her and she pays a
tax where she gets the income. They didn't

understand it at all. There is a woman

that is certainly intelligent, and she is

all worried about what is going to happen

to savings bonds. I don't think it is

clear to the people who buy previous to
March 1 that their status doesn't change.
Bell:

I am not so sure that our policy on taxing

these securities is correct. I think it

is something that we want to have John

Sullivan go into very carefully. These

people are going to be hit - they may be

hit pretty hard in the tenth year, whereas
if they have been allowed to spread it over
in which it accrues,
the current rates of taxation as
get
the
years
their
they in
income would well
as having
it fall
down
brackets at that time.

- 16 H.M.Jr:

The way it is now, you pay the tax in the

Bell:

Yes.

H.M.Jr:

On the whole amount.

Haas:

But you can do it the other way if you
want under the present regulations. If

tenth year

you keep your books on an accrual basis --

Murphy:

But you have to report your whole income

H.M.Jr:

I am just raising the point I don't think
the tax is understood. I don't have to

on an accrual basis then, and that is pretty
tough for an individual.

cross that today, do I?
Bell:

No, but it is in the picture and it is also

in the picture on our regular coupon securities.
Take a bank that buys our securities at 107.
As I understand it, the Internal Revenue

makes them pay taxes on the two and three

quarters per cent coupon, not on the effective
yield or rate of two and a quarter, so that
when they get to the end and - if they redeem
it at a hundred, they are allowed to write

off the $7.00 as a loss in capital. I

think the effective rate is the proper way.
Around in the Comptroller's office they have
regulations that make the bank amortize
that premium over the period so they have
really got to keep two sets of books, one
for the income tax and one for the Comp-

troller's office; and I think it is terrible.

It just complicates it.
H.M.Jr:

Well, you are beyond me right now.

- 17 Bell:

I think it ought to be looked into.

H.M.Jr:

Let's be ready to make up our mind Wednesday

Haas:

We have already done some work on that thing

Bell:

I am glad of that. Well, that is No. 1

H.M.Jr:

And I think in the telegram, you can say
if they want to ask any questions, they

on this stuff.

you (Bell) are talking about.

should call up George Haas. He would be

glad to answer any questions if they don't
understand the telegram. In the telegram
to the Federal Reserve.

Bell:
H.M.Jr:

Murphy:

We sent it out by letter, you see.
If it is something they don't understand

or want to talk to anybody on Monday or
Tuesday, they can call George.

There is one more question, Mr. Secretary,

about this first type of security. Governor

McKee suggested that we make it eligible
for - broaden the type of persons who are

eligible to buy it, to include fraternal

associations and trusts and so forth, other
than natural persons, and I think that you
ought to at least give consideration to

what you want to do about that.
H.M.Jr:

I think we ought to do it on something
else, but not this one.

Murphy:

We recommend natural persons only, but I
wanted to bring it out because Governor
McKee mentioned it.

- 18 H.M.Jr:

What does natural persons include?

Bell:

Individuals, no corporations or trust

H.M.Jr:

No, this is for individuals.

Bell:

Just the regulations as they now stand as

funds.

we amended them last March.
H.M.Jr:

I am satisfied on that as it is, subject
to sending this out to the 12 Districts,
letting them talk to their own staffs and
calling in people to have an answer

Wednesday, and I will make an appointment
now for three o'clock Wednesday afternoon,

at which time these fellows will have had
a chance to assimilate the suggestions and
we will make up our mind. How is that?

Bell:

All right. We want to change our memo to
the banks to say a $5,000 limitation instead
of ten.

Haas:

To bring it up to the date of this conference.

Bell:

Yes.

H.M.Jr:

I will put down "Bell, savings bonds," and
I am going to put you down from three to

four and at that time you will have it

assimilated, Dan, and we will work from
three to four Wednesday and settle it. You
see, there are certain geographical differences
and the thing in Dallas, Texas, there may be

certain things there that are entirely

different than up in Minnesota.
Haas:

In addition to that, Mr. Secretary, they
will start working for you then if you
take them in on it.

- 19 H.M.Jr:

And I want them to pull the people in and
we just don't use this organization enough
and we will see where they are short and
they are on their toes.

Now, I spoke to Allen Sproul and I said,

"You haven't got a good enough organization

and I want a better organization, and he

is working on a memorandum for me, you see.

Bell:

Well, they are going to have to be in this

more as we go along and the program gets

so big. It is just almost like the last

war.

H.M.Jr:

THIS is the way to bring them in.

Bell:

I think so.

H.M.Jr:

Bell:

They all have a feeling on it.
And I think that our contacts ought to be
direct, not through the Board.

H.M.Jr:

Yes. I am going to - if they don't like it -

you remember I asked you and you didn't

give me an answer, how much money we pay

these birds.

Bell:

I haven't got it. You see, there are

H.M.Jr:

It is arou a four million dollars. I pay

several t isn't all centralized.

these fellows and I can not go through these

people. If r. Eccles doesn't like it, I
will say, right, we will set up our

own fiscal agents. We will pay four million
dollars to somebody else."

He doesn't like it. He wants to keep track
of everything. Let me just get one thing

- 20 -

off my mind while I can. Just let me stop
this one second. This is going as fast as

we can.

Bell:

Yes, sir. We haven't lost any time. We are

now working on the borders. You see, all
the borders and the portraits have to be

engraved, and we have been working on that

some time. It is just the type and the
context of the thing that have to be settled.
H.M.Jr:

And as we go along today this thing will
look clearer to you.

Bell:

Yes.

(Discussion off the record.)
H.M.Jr:

All right, gents, we will go a little further.

Bell:

Well, the next one is a somewhat similar
bond (see attachment 2) except that it would
be on either a two or a two and a quarter per
cent basis instead of the 291 basis, and I

think we are pretty well agreed that it ought
to be a two and a quarter instead of the two,
because it ought to be a little above the

market; and it ought to have some cushion

to take care of the dips and valleys in the

market, and it would be a small step-up in

the beginning just like the other one with

a hump at the end. I don't know how much
that hump is worth. How much is it, Henry?

Four and a half per cent in the last year.

Now, this one would be sold to individuals
and trust accounts and pension funds and
institutions, probably endowment funds,
practically everybody, I would say, except
commercial banks and possibly insurance
companies.

- 21 H.M.Jr:

You are going to do it - where is that
other sheet that you gave me that I was
jus working from?

Haas:

That
of it. may be it. At least that is & copy

Murphy:

This is the one from the present plan?

H.M.Jr:

Yes.

Murphy:

They are both identical.

H.M.Jr:

Well, we are not going to do the two per cent,

Bell:

We recommend the two and a quarter.

H.M.Jr:

Now, if I want to buy this it costs me

is that right?

$80.00?

Bell:

Yes, sir.

H.M.Jr:

Do you have a coupon with this?

Bell:

No; sir, you do not, this is the same type
of bond except with a lower return and a

wider distribution.
Haas:

And a higher limit?

Bell:

Yes, and possibly a higher limit.

H.M.Jr:

Well, who would this appeal to rather than
the other?

Bell:

Well, this would appeal to the fellow who
has got more than $5,000, just an individual.
He can take $5,000, I take it, in the other
bond and then if he wanted more of this

type of bond, he would step over into this

one.

- 22 H.M.Jr:

Who could buy this?

Bell:

It might appeal to banking institutions
that have trust accounts, individual trust
accounts, where they are not 60 much

interested in the income but they want

something that will give them a fai return.
It might appeal to pension funds. You
remember we had a lot of pension funds

coming in the last time, a year ago in

January, and we ruled that our regulations
permitted it, because they are not interested
in current return, they are not interested
until some time off in the future when they
have to meet their liabilities to exceed
their current receipts.
H.M.Jr:

I agree with you. I would go on this thing
direct to the presidents of the banks. I
would tell them I am doing it, and insist
that we go direct to them. How much would
you let anybody buy of this?

Bell:

Well, we thought this might be tied in

with the Texas plan and you ought to say
that he can have $50,000 of one or the
other, or he can have an aggregate of
$50,000 of the two, and we have to admit

that that is quite an arbitrary figure.

I think someone in the Federal, probably

John McKee again, suggested a hundred thousand

because we would get a little more money.
Murphy:

He wouldn't put any limit on it at all.

Bell:

Oh, that was it. Eccles would put a hundred
thousand, I think, and John would put no

limit at all. If you do that, you are really

getting into our regular program.

- 23 Haas:

They will sell the other securities and

Bell:

That is the trouble.

Murphy:

Rouse was a little disturbed with a 50.

buy this.

I thought that might be high. It was a
couple of weeks ago. So there is criticism
both ways.

H.M.Jr:

Why don't you fix an amount at the beginning
of 25,000 rather than an aggregate of 50 of
each? Why not say 25 of this and 25 of that?

Bell:

Well, you might scare somebody away.

H.M.Jr:

Is it going to be a lot of bookkeeping to

Haas:

We talked to Broughton about this, and he

see how much a man owns?

would call this like bond two, A and B or

B and C, and they would keep their records
that way. This would be bond two, and you
would have B and C as divisions under it.

Bell:

But you have to keep close references. It
does make a little more extensive record
keeping.

Haas:

Is it worth it?
I think it is worth it.

Murphy:

I think there is a good reason for a combined

H.M.Jr:

limit, Mr. Secretary.
You fellows would like it that way?

Murphy:

Yes.

- 24 H.M.Jr:

I am not going to argue about it.

Bell:

You may find that a fellow with $50,000
wants this type of bond, and you are shoving
him into another security he doesn't want
if you put 25 on each.

Murphy:

The reason for a limit at all is to prevent
the outstanding bonds being sold. These

apply to quite different types of persons.
H.M.Jr:

Supposing he takes the 5,000 of Plan 1.

Can he have these too?

Bell:

Yes. He can have 5,000 of that and 50,000
of these.

H.M.Jr:

What is Plan 3?

Bell:

Plan 3 is planned to be issued at par, and
he will have current returns of two and a
quarter per cent if he holds to maturity.
If he redeems it at any time before maturity,
he will redeem it at less than what he paid

for it. That is shown in the -- (See attachment 3.)

H.M.Jr:

Excuse me. This - the two per cent is out.

Bell:

That is right.
that right?

H.M.Jr:
Murphy:

H.M.Jr:

An in this case the two per cent is out.

Bell:

That is right.

H.M.Jr:

Now --

- 25 Bell:

And the third column, you see, two and a

quarter per cent plan, he starts off and

puts down a hundred and he gets a current

return, which is equivalent to two and a

quarter per cent if he holds it to maturity.

He gets his current return anyhow.
H.M.Jr:

Does it pay regularly two and a quarter?

Bell:

Yes. Every six months we give him a check.

Murphy:

That isn't on the table, since that is

H.M.Jr:

How does he go to four and a half? Oh,

just the same. He is getting two and a
quarter per cent regularly.

on the redemption?

Bell:

If he redeems it any time before maturity

you see in the third column what he redeems

it at. The first year he gets $98.90, so

we draw back from the money we paid him in

interest $1.10, and each time down - it
goes down to a low of $94.80 in the ninth
period, which is four and a half years,
and then it begins to go back up until when
gets to the tenth year he gets his hundred
back and he has received two and a quarter

interest, current return.
H.M.Jr:

I think this is better than the way you

Bell:

I think it is probably easier to sell.

H.M.Jr:

You (Murphy) made this suggestion?

Murphy:

Bob Rouse. The supposed advantage of the

started.

other way is you don't have to cut down
so deep, but since it seems they are willing
to cut down deep, this is much better.

- 26 H.M.Jr:

Would you make a note, Dan, if we are going

to send this letter, I would send them a

telegram and say, There is an important
communication coming by airmail from the

Treasury. Please be lookin for it," you
see.

Bell:

Maybe we can just give them the nature of
the thing.

H.M.Jr:

I think I would send them a telegram and

Bell:

O.K.

H.M.Jr:

Well, I will tell you gentlemen. I have
had this thing before. I think this is
all right subject to a two day check in
the field.

Bell:

That is all right.

H.M.Jr:

I think this is all right.

Murphy:

Could I remark, Mr. Secretary, that the
thing to determine the amount is that the

a letter.

yield in any --

H.M.Jr:

I see.

Murphy:

Either one of the bonds, you get about
the same return on one bond as the other.

Bell:

Well, this is all we --

Murphy:

There is a problem, Mr. Secretary, with
respect to trusts which have a tendency
to remain there, where the trustee may

feel that they are not justified in buying

this coupon bond because if their client

dies, they lose it. And yet, aside from

- 27 -

this these bonds are ideal for that type
of trust, because they give the life tenant
the income.

It has been suggested that in order to make

the bonds attractive for that type of trust

and more generally attractive, that we
provide in the event of death of the original
purchaser of the bond, his successor in
interest should have the right to either take
the bonds in kind or secure the original
purchase price back. Mr. Wright, our actuary,
says the cost to the Government would be

very little.
H.M.Jr:

I think so. In other words, if a man has
this thing and he paid a hundred and he

kept it five years, it normally would be
worth what, $95?

Murphy:

$94.80.

H.M.Jr:

If he dies, his estate can cash in and get

Haas:

That is right.

Bell:

If he cashes in under the regular scheme,

a hundred?

he has lost $5.00, and then they kick the

life tenant.

H.M.Jr:

I am for that.

Bell:

That is a little in the form of insurance.

H.M.Jr:

Every estate will take it to the maximum,
that has the money.

Haas:

It is not a big enough thing that a man would
commit suicide to get the advantage of it.

H.M.Jr:

Every estate would take that.

- 28 Murphy:

H.M.Jr:

It makes it ideal for that type of trust.
There
isn't
a won'
trust take
in theIt.country that has
$50,000
that

Bell:

I talked to Wakefield, is it, or Wakeman,
your friend out in Minneapolis.

H.M.Jr:

Wakefield.

Bell:

They have a lot of small trusts. I talk
about the current return bond, and he says
it is a good idea. But he raised this
question. He says, "I think we can work
that out without that."

H.M.Jr:

Well, I would put it in. It pays to show

these things around, Dan. I would send a
telegram saying what is coming so they can
have it and then they have two days; and we

want the answer Wednesday morning and it
comes in here Wednesday morning and in each

case if you say, "If you have a teletype,
please send it in on No. 168," which is our
teletype
upstairs.
much
better
service.I think you could get
Bell:
H.M.Jr:

Yes.
too. We are looking into that other thing,
If they have teletypes, have it come in
that way; because these night letters

until you get them and get them delivered,

they are terrible. Just ask the fellow

to come down. I am going to. I am just
curious.
Bell:

You see, we have enough wires to the banks

that we don't have much trouble in getting
a wire. We have direct wires. We go through
the board and we have a direct system from
here to the board.

- 29 H.M.Jr:

I just wanted to ask him. There are a lot
of night letters coming in. Do they use
night letters? They don't do they? I
don't think --

Bell:

There is a night letter used, yes, but we
never allow the wire man to leave until he
gets a clearance from the Treasury, particularly when we have anything important.

H.M.Jr:

You mean over at the Federal?

Bell:

Yes, they never leave until we clear them.

If we stayed here until twelve o'clock,

there would be an operator on all during
the time.

(Mrs. Klotz entered the conference.)
Murphy:

Are you settled, Mr. Secretary, on the
matter of the classes of persons eligible
to purchase these?

H.M.Jr:

Yes.

Murphy:

Would insurance companies be in or out?

H.M.Jr:

Well, they won't on type one.

Murphy

They are out on type one?

H.M.Jr:

That is natural persons.

Murphy:

On type two you would have everybody in
except commercial banks?

H.M.Jr:

Yes.

Murphy:

That was our original suggestion.

H.M.Jr:

Yes, keep the commercial banks out. But

- 30 what about insurance companies?
Murphy:

That question was raised at the meeting as
to whether insurance companies should be in
or out. Eccles and Ransom were inclined to
bar insurance companies in order to hold
them for the open market, and I just wanted

to get your opinion.

Bell:

For the other type of securities?

Murphy:

Make sure that we had that right.

H.M.Jr:

It would make bad feeling and I don't think

Haas:

That is right, you would keep the banks out

H.M.Jr:

They have got one thing which interests me

it is worth it.

because of increased deposits.

very much, Mrs. Klotz. They are going to

a
at
two
and
a
per
cent
if cash it in years, you
They want to make

you see. Then if you keep
goes back to a hundred. But if you take it
for an estate and you have it five years
and you die, it would pay $100.00. So every

get sell and $95.00. you security five it quarter longer, it deductible, only it

estate in the United States will want it.

Klotz:

Oh yes, that is very good.

H.M.Jr:

Who thought of that, Wakefield from
Minneapolis?

Bell:

Wakefield brought it to me.

Haas:

Several people brought that in.

H.M.Jr:

What we are doing now, we have cleared this

- 31 -

thing and my suggestion is to send it to

the twelve Federal Reserve Bank presidents

and tell them to invite people in to see it.

They have two days, Monday and Tuesday, and

then Wednesday it comes in and they will

assimilate what it says and at three o'clock
we will settle it. That means that maybe
500 people can see this shing. A couple of
hundred people will see it.
Bell:

Not more than that, I would think.

H.M.Jr:

Several hundred people.
(Mr. Newcomb entered the conference.)

H.M.Jr:

Mr. Newcomb, if I was expecting a flock of
telegrams from twelve Federal Reserve

Districts to come in, say, some time Tuesday

night, what is the best way to get that. I

mean, what is the best system to get telegraphic replies from Federal Reserve Banks

in the field, twelve banks.

Newcomb:

To follow the system Mr. Kilby does, if
you are going to ask them certain questions,
ask them to reply immediately or to state
a time, and I will send a note to each of
the twelve banks to keep operators on duty

to cover the situation until it is cleared
up.

H.M.Jr:

I see. Now, is having them come in by teletype an improvement over telegraph?

Newcomb:

Well, we have a new telegraph - you might

call a system, which was installed the first

of August, the Federal Reserve System. It
is an automatic printer system, and I think
it is probably the best telegraph system
for speed and accuracy that I have seen.

- 32 H.M.Jr:

They have that over at the Federal Reserve?

Newcomb:

Yes, sir.

H.M.Jr:

That is the way they receive them?

Newcomb:

Yes.

Bell:

Our messages come through that.

H.M.Jr:

How do you get them from the Federal Reserve

Newcomb:

It comes through an automatic teletype

over here?

system.
H.M.Jr:

You mean if it comes on their thing and it
is for the Treasury --

Newcomb:

They divert it by means of a plug or jack
to a new perforator, which connects with

our printer; and it is automatically shot
up here.

Bell:

Just like a telephone system.

Newcomb:

Yes. We have been handling Mr. Kilby's

H.M.Jr:

But we don't have that kind of a printer

business on that now since the first of
last August, and I believe to his complete
satisfaction.

upstairs ourselves?
Newcomb:

No, sir. The kind that you probably have

in mind is the telephone company teletype

which is - operates, you might say, like a
long-distance telephone; but it would not
have the speed that this does, because it
is hand operated. That is, the speed at

- 33 which we would get them in would depend

upon the ability of the sending operator
to move his fingers, whereas this automatic
system we have is automatic in that the
tape is run through at the maximum speed

without any pauses for the operator to shift
line spaces or to look at his copy or anything else.
H.M.Jr:

Well, how do you get that - how do you
make the original impact?

Newcomb:

Well, it is purely a keyboard affair like
a typewriter.

H.M.Jr:

What do you do, cut a tape or something?

Newcomb:

No, sir, not here.

H.M.Jr:

I mean where they send it.

Newcomb:

No, it is sent out on a continuous blank
form and then it goes to the next relay
point, which in most cases is in Washington,
and it appears there on a perforated tape;
and that perforated tape in turn, as I
said before, is shot through by means of

these jacks to the next office, office of

destination, which would be this office.
H.M.Jr:

But that doesn't go - it comes - if it is

Western Union, they turn it over to the
Federal Reserve, I think, and then from the
Federal it comes here?

Newcomb:

No, sir.

H.M.Jr:

It comes from Western Union direct?

Newcomb:

If it comes direct, but I don't think they
could handle it as fast as the Federal

Reserve.

- 34 H.M.Jr:

And they have telegraph with all twelve

Newcomb:

With all branches, I believe, except Helena.
That works all right?
Yes, sir.

H.M.Jr:

This sounds like the same way the Navy sends

H.M.Jr:

banks?

radio. messages.

Murphy:

Somewhat the same, yes.

H.M.Jr:

And no operator can pick it up?

Newcomb:

It doesn't get outside this system at all.

No operator can pick it up. The operator
at relay point would, of course. He has

to know what it is in order to send it to
the right point, but the employees are all
in the system and there is nobody outside
who can interfere with it.
H.M.Jr:

All right, I won't interfere. Thank you.

Bell:

Do they still have a relay station in Chicago?
Yes. That would be about the only bottleneck
that we would run into.

Newcomb:

Will that be all?
H.M.Jr:

Thank you. Are you all clear now?

Haas:

Well, this letter, Mr. Secretary, you remember
I spoke to you about getting this information
from the insurance companies and so on, and
that is the letter which we propose to send
out over your signature. It is on the wrong
letterhead there, but if we can get approval
on that, we can move right away on that. Bell
has looked at that.

- 35 H.M.Jr:

What does Bell say?

Bell:

I think it is all right. We thought that
Kuhn ought to look at it, but he is out
O town over the weekend.

H.M.Jr:

Oh no, it is not necessary. This goes to
whom?

Haas:

It goes to a thousand insurance companies.

We are trying to get all of these investors

so we will know each month what they are
holding.
Bell:

And about 7,000 banks.

H.M.Jr:

And you are going to accumulate this stuff?

Haas:

Yes and put it on machines.

H.M.Jr:

Instead of the Federal doing it?

Haas:

The Federal has only member banks.

H.M.Jr:

Can you do it for FDIC?

Haas:

A large part of these banks will be insured

banks.

Bell:

This will be direct, and we will put it

on cards in our accounting section and run
it through a tabulating machine.

H.M.Jr:
Haas:

Murphy:

And you are really going to know?
Yes, sir.

It would have been nice to have gotten the

rights this time.

H.M.Jr:

I'll say. Wonderful.