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DIARY Book 388 April 11 - 14, 1941 -AAfrica, French North See Var Conditions: Foreign Funds Control (French North Africa) Africa, South See Var Conditions: Gold Book Page American Friends Service Committee See War Conditions: Foreign Funds Control (France) American Viscose Corporation See War Conditions: Purchasing Mission Appointments and Resignations Banyas, Lawrence: Maps praised by HMJr, Cox, and Young: Mrs. Klots takes credit for transfer from Farm Credit - 388 4/11/41 25 -BBank Holding Company Legislation HMJr's testimony before Congress discussed by representatives of offices of Secretary, General Counsel, and Comptroller of Currency - 4/11/41. a) Draft 77 95 Banyas, Lawrence See Appointments and Resignations Belgium See War Conditions Brown and Williamson Tobacco Corporation See War Conditions: Purchasing Mission Business Conditions Hass memorandum on situation for week ending April 12, 1941 365 -0Canada See War Conditions China See War Conditions Coast Guard See also Var Conditions: Greenland Navy provided with copy of General Counsel, Treasury Department, opinion with regard to transfer of portion of Coast Guard to Navy - 4/11/41 a) FDR asks HMJr to settle transfer with 69 301 Knox - 4/14/41 1) HMJr's memorandum to FDR. a) HMJr tells 9:30 group of conversation with FDR - complete transfer only when war is declared; Knox agrees 4/15/41: See Book 389, page 2 (Gaston's memorandum: Book 389, page 30) 1) "Shoe"to fit over ordinary steamer for ice-breaking purposes discussed also Corcoran, Thos. G. See War Conditions: China 304 -DDefense, National Morale discussed by Ickee and HMJr - 4/11/41 Book Page 388 112 Bill to extend to all Government agencies authority to enter into contracts without advertising or competitive bidding transmitted to Budget Bureau for Congress by Treasury - 4/14/41 286 --F- Fats and Oils See War Conditions: Price Control Financing, Government Tenders invited for $100 million 91-day Treasury bills to be issued on discount basis and to mature July 16, 1941 - 4/11/41 Reconstruction Finance Corporation: Subscription figures and bases of allotment of 7/8% notes of Series U and 1-1/8% notes of Series V 4/14/41 118 213 (See also Book 389, page 187 - 4/16/41) Defense Savings Bonds: HMJr thinks of phrase at press conference March 3, 1941 - 4/14/41 Talk used by HMJr in newsreel pictures 4/14/41 France See War Conditions: Foreign Funds Control (American Friends Service Committee) French North Africa See War Conditions: Foreign Funds Control -GGermany See War Conditions Gold See War Conditions: Belgium; Gold Greenland See War Conditions -IIndo-China See War Conditions: Foreign Funds Control Inflation See Revenue Revision 314 317 -LBook Page 388 120 Lever Brothers See War Conditions: Purchasing Mission Liaison Committee See War Conditions Lovett, Robert A. Congratulated as Assistant Secretary of War for Air by HMJr - 4/11/41 -M- Maps See War Conditions: Lend-Lease McCley, John J. Congratulated as Assistant Secretary of War by HMJr - 4/11/41 121 a) In reply, McCloy comments on HMJr's "insight and persistence in connection with issues we face" 122 Morale See Defense, National -0Office of Price Administration and Civilian Supply Created by Executive Order - 4/11/41 a) Henderson congratulated as Administrator.. Jones and HMJr discuss first meeting and alternates they may appoint later - 4/14/41 a) J.J. O'Connell appointed alternate; Haas and White to assist - 4/18/41: 138 114 214 See Book 389, page 436 Stabilisation discussed by HMJr, Jones, Wickard, Knudsen, Hillman, Henderson, etc. - 4/14/41 Oils and Fats See War Conditions: Price Control -PPrice Control See Office of Price Administration and Civilian Supply . War Conditions: Price Control 227 -R-Book Page Reconstruction Finance Corporation See Financing, Government War Conditions: Purchasing Mission (Brown-Williamson loan) Revenue Revision 2/3 of current expenditures to be met by current revenue and 1/3 financed through borrowing will necessitate tax bill yielding an additional $3.5 billion per year: Memorandum for FDR discussed by HMJr, Sullivan, and Blough - 4/11/41..388 a) Conference with FDR; present: HMJr and Sullivan 1) Henderson, Eccles, and Currie to be contacted at request of FDR a) Eccles-HMJr conversation - 4/11/41.. 1 20 21 52 2) Currie-Sullivan discussion - 4/15/41: See Book 389, page 63 b) Conference at HMJr's home; present: Sullivan, Senator George, Congressmen Doughton, Cullen, and Cooper - 4/16/41: Book 389, page 188 Inflation: Possible check by use of taxation discussed in Merillat memorandum - 4/11/41 142 4/14/41 323 Obsolescence: "Treasury's severely criticized position that congressional legislation was necessary to authorize amortization allowances sustained by judiciary" - Foley memorandum - -Shell Union Corporation of Delaware See War Conditions: Purchasing Mission Sian See War Conditions: Thailand South Africa See War Conditions: Gold Spencer, Herbert (Doctor) See War Conditions: Germany Statements by HMJr Defense Savings Bonds: Talk used by HMJr in newsreel pictures - 4/14/41 -TTaxation See Revenue Revision Thailand See War Conditions 317 UBook Page 388 361 Unemployment Relief Work Projects Administration report for week ending April 2, 1941 -VViscose Corporation See War Conditions: Purchasing Mission -WWar Conditions Airplanes: Airframes and Engines: Disposition of those inspected by British Empire, week ending April 8, 1941 173,176 Belgium: Action against Bank of France for failure to conserve gold entrusted to it discussed by Belgian representatives and HMJr: Cochran memorandum - 4/11/41 44 Canada: Foreign exchange position: White memorandum 4/14/41 388 China: Corcoran and HMJr discuss FDR's possible aid-to-China plan - 4/14/41 Exchange market resume' - 4/11/41, etc. Export Control: Exports of petroleum products, scrap iron, and scrap steel from United States to Japan, Russia, Spain, and Great Britain, week ending April 12, 1941 220 145,172,359 360 Foreign Funds Control: France: Velles refuses to recommend transfer of $50,000 from frozen French Government funds to American Friends Service Committee 4/11/41 French North Africa: State Department agrees to permit purchase of certain specified commodities in United States - 4/12/41 123 193 Indo-China: Question of transfer of certain military equipment imported from France for purpose of fitting such equipment to American-built aircraft ordered by French discussed in memoranda from Pehle and State Department - 4/11/41 126 - W - (Continued) Book Page 388 186 War Conditions (Continued) Germany: German diet, effect of air raids, etc., discussed by Dr. Herbert Spencer, of Public Health Service - 4/12/41 Economic (recent) developments: American Embassy, Berlin, report - 4/14/41 341 Gold: See also War Conditions: Belgium South African shipment due at Tompkinsville: Cochran memorandum - 4/14/41 279 (See also Book 389, pages 60, 61, 204, 205, 206, 327, and 328 - 4/15/41) a) Press release discussion - 4/17/41: Book 389, pages 324 and 326 Greenland: Stimson asks for Coast Guard assistance in examination of possible steps to be taken by United States - 4/11/41 a) Germans already threatening East Coast b) HMJr, Vaesche, Gaston, Lovett, and Sherman discuss possible air base and Coast Guard assistance - 4/11/41 47 57 Lend-Lease: For weekly report, see War Conditions: Purchasing Mission Map showing effect of Neutrality Act on shipping discussed by HMJr, Cox, and Young - 4/11/41 Exiled Governments: Aid for suggested by Greenbaum 4/14/41 Liaison Committee: FDR congratulates HMJr as work ceases on signing of Lend-Lease Act - 4/14/41 a) Press releases: See Book 389, page 58 Military Planning: Army strength in Balkans, etc., discussed in Kamarck memorandum - 4/11/41 Reports from London transmitted by Halifax 4/11/41, etc. War Department bulletins: German Army - notes on - 4/11/41 German administrative services - 4/14/41 Price Control: See also Office of Price Administration and Civilian Supply Fats and Oils - price situation for: Haas memorandum - 4/14/41 22 280 281 149 151,196,380 154 384 263 - W - (Continued) Book Page War Conditions (Continued) Purchasing Mission: See also War Conditions: Lend-Lease Vesting Order: Substantial vesting of American securities on April 19 contemplated; Playfair (British Treasury Mission) consults Cochran and Purcell (Securities and Exchange Commission) concerning formalities in disposing of shares since two or three lots will constitute 15- or 20% of outstanding voting stock of the issuing concerns - 4/11/41 388 117 American Viscose Corporation, Lever Brothers and Unilever, and Shell Union Corporation of Delaware discussed in Peacock memorandum to Cochran - 4/11/41 Brown and Williamson Tobacco Corporation: Jones memorandum - 4/14/41 a) Cochran memorandum on conversation 133 276 with Phillips suggesting "circumventing" of Reconstruction Finance Corporation 4/15/41: See Book 389, page 68 1) HMJr-Jones conversation - 4/15/41: Book 389, page 69 2) Jones agrees to $40 million loan: Book 389, page 223 a) British press comment 4/18/41: Book 389, page 463 3) Bureau of Internal Revenue withdraws request for rulings and closing agreements - 4/21/41: Book 390, page 167 First shipment of supplies for British Purchasing Commission concluded: HMJr gives FDR Mack's memorandum - 4/14/41 Federal Reserve Bank of New York statement showing dollar disbursements, week ending April 2, 1941 - 4/14/41 283 355 Thailand: State Department discusses with British possible joint financial assistance - 4/11/41 Work Projects Administration See Unemployment Relief 43 1 April 11, 1941 9:30 a.m. RE TAX LEGISLATION Present: Mr. Sullivan Sullivan: I will have to change one figure there. (See Attachment No. 1.) It should be two Mr. Blough hundred. H.M.Jr: What should be two hundred? Sullivan: Instead of 9,280, it should be 9,200. H.M.Jr: Now, what is the thing that goes with this? (See Attachment No. 2.) Clocks and watches, that is a new one. How much does the $25 license fee for a place to sell liquor produce, do you know? Sullivan: We can get that. I don't know offhand. A great deal of those occupational licenses we are not able to collect because of lack of personnel. H.M.Jr: Sullivan: You ought to go after that. I spoke to Helvering yesterday about it. I discussed it with him, too. 2 -2- H.M.Jr: I don't know what it produces, but if it produced any real amount, I wouldn't mind, for instance, making it fifty dollars. Sullivan: There are a number of those occupational H.M.Jr: Would you look at those? Sullivan: Yes. I have gone over that with Berkshire, licenses that we can increase. and I have quite a memorandum on it. H.M.Jr: Would you digest it, and we can talk about it? Sullivan: Yes, sir. H.M.Jr: This is good enough. What does that mean, "a related tax basis?" Sullivan: Well, because of these various corporation taxes, there will be less in dividends, you see. H.M.Jr: I see, this is the break-down here? (See second page of Attachment No. 2.) Sullivan: Yes. Blough: The second page is the description. H.M.Jr: And the next one is the individual rates. Sullivan: And that one is your estates. H.M.Jr: What is this? Sullivan: The upper line, the red line, shows the -- H.M.Jr: Where does it go? Sullivan: .... the new tax, and the black line is the 1940 3 -3tax, and the upper line there is the new tax - new surtaxes without the defense taxes. H.M.Jr: I see. Sullivan: I don't know whether you want these charts to go to the President. H.M.Jr: Yes, they are interesting. We might as well. This is all right. Now, what I would suggest is this. I think you could fix two little books, you see, with covers and holes through it so it would be flat, you see, and I can give him this in a book and have one for me. I think this is fine. Sullivan: Let me do that over so there won't be any corrections. Are we going to see him today? H.M.Jr: It is supposed to be at eleven o'clock. The Sullivan: I don't recall that it did last year. H.M.Jr: What time did you go to Mass? Sullivan: I didn't go. H.M.Jr: Can you go later? Sullivan: Twelve-thirty. H.M.Jr: What if you miss it then? Sullivan: It isn't a Holy Day obligation. H.M.Jr: If you miss it is it another one? Sullivan: No. Treasury doesn't close today, does it? - -4- H.M.Jr: I think we are in good shape to go over there. Sullivan: Yes, I think so. I had a very interesting luncheon with Senator LaFollette yesterday. 4 April 11, 1941. MEMORANDUM FOR THE PRESIDENT: Testifying before the Senate Picence Committee on the Public Debt Act of 1941, I expressed the hope that too-thirds of - eurose expenditures be - by current revenue and the other and-third be Pleased through beswerings. If this is to be accomplished 18 will be - to enect at this socialism of Gongress a tax bill yielding - additional $3.5 billion per year. Estimated expenditures for fissal 1948 two-thirds of expenditures . 819,000 million 218 12,667 million 146 Estimated not revenue fiscal 1942 9,223 million 9.4 Balance to be reised by new tesses 3,444 million The attached schedule presente a suggested plan for raising approximately 13.5 billion. This amount represents - tax Liabilities which would assess during the fiscal year of 1942. Renever, because of the lag in collections in the ease of incons, - prefite and estate tense, the actual collections is fiscal 1948 will be substantially less them the total of $3.5 billion. 5.2 attachment no / 6 April 11, 1941. NEMORANDUM FOR THE PRESIDENT: festifying before the Senate Finance Committee on the Public Debt Ast of 1941 I expressed the hope that two-thirds of our current expenditures be not by current revenue and the other one-third be financed through berroriage. If this is to be accomplished it will be Lecousary to emart at this session of Congress a tax bill yielding an additional 83.5 billion per year. Estimated expenditures for fiscal 1948 the-thirds of expenditures $19,000 million 12,667 million Estimated not revenue fiscal 1942 9,260 million Balance to be raised by now taxes 3,467 million The attached schedule presents a suggested plan for raising approximately $3.5 billion. This amount represente new tax liabilities which would accrue during the fiscal year of 1942. Revever, because of the lag in collections in the esse of incoue - prefits and estate temse, the actual collections in fiscal 1942 will be substantially less than the total of 83.5 billion. Jts.bb suggest April 11, 1941. MEMORANDRM FOR THE PRESIDENT: Testifying before the Senate Finance Committee on the Public Debt Act of 1941, I expressed the hope that two-thirds of our exrent expenditures be not by current revenue and the other one-third be financed through berrowings. If this is to be accomplished 18 will be necessary to enact at this session of Congress a tax bill yielding an additional 83.5 billion per year. Estimated expenditures for fiscal 1942 Too-thirds of expenditures $19,000 million 12,667 million Estimated net revenue fiscal 1942 9,223 million Balance to be raised by new taxes 3,444 million The attached behedule presents a suggested plan for raising apprexiantely $3.5 billion. This amount represents new tax liabilities which would accrue during the fiscal year of 1942. However, because of the lag in collections in the case of income, excess prefite and estate taxes, the actual collections in fissai 1942 will be substantially less than the total of $3.5 billion. Attachment No.2 843-5 Tax changes aggregating approximately an additional 83,600 million of revenue a Distincted increase Source $1,517.1 dividual income texts Increase surbax rates, adopting attached schedule (with defense tax) hate and an team 363.0 state tax changers (2) reduce exception to $25,000; (2) adopt attached estate tax rate schedule (with defense tax) (3) reduce insurance exclusion to $25,000 sift tax changes (1) reduce exception to $25,000, (2) increase the gift tax rates to three-fourths the rates in the estate tax schedule 933.5 operation texas (2) 68 normal tax not income. 68 (2) profite text Recuse the avenage earnings credit from 95 to 75 pareent and the invested capital eredis from 6 to 6 percent 533.5 400.0 200.8 gerettest Additional 75 cante per 1,000 Bigars, tobacco and maff: Double rates 125.2 75.6 Issolino, 2 conts per gollon additional left drinks, 1 cont a bettle and equivalents 400.0 132.5 excise texts automobiles, parts and accessories. double rates heak tax, 2 cents per cheek Admissions (reduce exemptions from 20 esate to 9 cente) 10 percent of retail sale price .... and subes, increase rates from a and w cents to 5 and 9 esate Telephone, telegraph, eable, etc., lover exceptions and increase rates alliephone bill, 5 percent assenger transportation, 5 percent of amount paid andy, showing ( 5 persent are. 10 persent of retail sale price Photographic apparatus, etc., 10 percent Poilet preparations, revise basis Blocke. watches, etc., 10 parent Blub dues, initiation fees, lower assemptions and redafine bace Nechanical refrigerators, increase Fate from 5) to 10 percent Natahos, 2 cents per 1,000 Gabgrets, change base and impose occupational tax milistees, toilet soap, etc., 5 percent Sporting goods, 10 persons Radio sats and parts, increase rate from * to 10 parent Musical instruments, 10 payeent Bouling alleys, $15 per alley, billiard OF peol table Trunks suitences and other 10 percent Playing cards, increase rate from 11 to 15 cente Safe homes, increase from 11 to 20 percent Phonographs and phonegraph records, 10 percent Sunnation of items Issa: Allowance for interrelated tax Daess (approximate) 1,056.0 78.3 96.0 55.0 50.0 43.5 37.0 30.0 30.0 20.0 15.0 13.0 12.0 11.0 9.5 9.0 8.0 7.5 7.2 6.5 5.0 5.0 5.0 4.0 2.0 2.0 2.0 4,000.4 460.4 3,600.0 April 10. 1941 anay Department, Division of Tax Research Estimates for individual Insome taxes are on basis of calendar year 1941 levels of Total income all other estimates are as business levels estimated for the fiscal year 1942. 9 other excise taxes Estimated increase (In millions) Gassiine soft drinks Autocabiles Increase rate 2 deate per gallon additional 1 cent per bettle with equivalent taxes ea unbottled drinks and fountain syrups Increase rates on automobiles, etc., from to 7 percent and on parts or accesso ries from a to 5 percent Re-enact the 2-cent tax, Act of 1932 100.0 132.5 76.3 10 percent of retail sale price 56.0 55.0 50.0 5 and 9 easts 43.5 Lover exampliess and increase rates Impose 5% tax ea amount paid 10 persent of retail sale price 37.0 30.0 30.0 20.0 15.0 apparatus, etc. Poilet preparations 10 percent 13.0 sale price Blocks, watches, etc. 10 percent 12.0 11.0 Chees tax Admissions Jevelry Tires and tubes Telephone, telegraph, cable, etc. Telephone bill Passenger transportation Centry, Chaving gun Fare Photographic Blue does, initiation fees Mechanical refrigerators Matches Cabarate Reduce exemption free 20 easte to 9 conts Increase rates from 20 sad 4) cente to 5 percent of the assess paid 5 percent Increase rate sad revise basis for 9.5 fax amounts in excess of 810 per year and extend scope of ton Increase rate free % to 10 percent 2 conte per 1,000 Change rate to 4 percent of amount paid for refreshments, etc., and impose tax 9.0 s.o 7.5 on operators Dentifyings, teilet seap. etc. Sporting goods 5 percent 10 percent Radio sets and parts Increase rate from 5b to 10 percent Medical instruments Deeling alleye 10 percent 625 for each alley, billiars or peel table freeks, suiteases and other Imprage Playing cards Safe deposit bones 10 percent Increase rate from 11 to 15 conte Increase rate from 11 to 20 percent 7.2 6.5 5.0 5.0 5.0 4.0 2.0 2.0 Phonographs and phanograph records 10 percent Total Treasury Department, Division of Tax Research 1,056.0 April 10, 1932 10441-5 Individual surtax rate schedule $ : 6 2 11 4 14 6 16 8 19 10 21 10 12 23 12 14 25 8 14 16 18 20 22 26 - 16 27 18 29 20 31 22 33 26 36 32 39 32 - 38 42 38 44 50 60 70 80 90 - 44 45 50 48 60 51 70 54 80 57 90 59 100 61 100 - 150 150 - 200 200 - 250 250 - 300 300 - 400 400 - 500 500 - 1,000 1,000 - 2,000 2,000 - 5,000 Over - 5,000 Total surtax cumulative : 024- : $ : of dollars) Bracket rate (percent) : Surtax net income (In thousands 62 63 64 66 68 70 72 73 74 $ 220 500 820 1,200 1,620 2,080 2,580 3,120 3.700 4,320 4,980 6,420 8,760 11,280 13,980 16,860 21,960 27,360 33,060 38,960 45,060 76,060 107,560 139.560 172,560 240,560 310,560 670.560 1,400,560 3,620,560 75 Treasury Department, Division of Tax Research March 31, 1941 11 441-5 Comparison of surtax rate schedules under present lax and proposal Total surtax : cumulative : : income : ($000) Bracket rate (percent) Present law : Proposal : Surtax net Present law $ Proposal 220 : - 11 - 4 - 14 - 6 4 16 80 820 19 200 21 360 23 560 800 1,200 1,620 2,080 2,580 3,120 3.700 4,320 0 2 $ $ 2 468 10 12 14 16 18 20 22 26 32 38 44 50 60 70 80 90 - 8 10 12 6 8 10 14 12 25 16 15 27 18 18 29 20 21 31 22 24 33 26 27 36 32 30 39 38 33 42 44 36 45 50 40 48 60 44 51 70 47 54 80 50 57 90 53 59 100 56 61 100 - 150 150 - 200 200 - 250 250 - 300 300 - 400 400 - 500 500 - 750 58 62 60 63 62 64 64 66 66 68 68 70 70 72 750 - 1,000 1,000 - 2,000 2,000 - 5,000 72 72 73 73 74 74 Over - 5,000 75 75 500 1,100 1,460 1,880 2,360 3,440 5.240 7.220 9.380 11,780 16,180 20,880 25,880 31,180 36,780 65.780 95,780 126,780 158,780 224,780 292,780 467,780 647,780 1,377,780 3,597,780 Treasury Department, Division of Tax Research 4,980 6,420 8.760 11,280 13,980 16,860 21,960 27,360 33,060 38,960 45,060 76,060 107,560 139,560 172,560 240,560 310,560 490,560 670,560 1,400,560 3,620,560 - March 31, 1941 12 441-5 Comparison of present and proposed individual income taxes on net incomes of selected sizes 1 Married person - no dependents : 72 $ 152 31 312 506 700 70 110 150 317 528 858 1,258 2,336 3.843 14,128 27.768 43,476 330,156 717,584 3,916,548 1,131 1,628 2,316 3,073 4,800 6,824 19,540 35,127 52,474 346,122 738,086 3,937,050 : : 11 : : : $ Present law : .4% 1.0 1,8 2.2 2.5 4.0 5.3 6.9 8.4 11.7 15.4 28.3 37.0 43.5 66.0 71.8 78.3 Treasury Department, Division of Tax Research Proposal 2.9% 5.1 7.8 10.1 11.7 14.1 16.3 18.5 20.5 24.0 27.3 39.1 46.8 52.5 69.2 73.8 78.7 : Proposal Increase in tax under proposal Amount 61 121 242 396 550 814 1,100 1,458 1,815 2,464 2,981 5,412 7.359 8.998 15,966 20,502 20,502 : : law : 100,000 500,000 1,000,000 5,000,000 : Present : 2,500 3,000 4,000 5,000 6,000 8,000 10,000 12,500 15,000 20,000 25,000 50,000 75,000 Amount of tax 3 Effective rates : Net income before personal exemption 2/ Percent 554.5% 390.3 345.7 360.0 366.7 256.8 208.3 169.9 144.3 105.5 77.6 38.3 26.5 20.7 4.8 2.9 .5 April 9. 1941 1 Under the proposal the attached surtax rate schedule is substituted for the present schedule. 2 Maximum earned income assumed. 3 Includes 10 percent defense tax. 13 441-5 Estate tax rate schedule 0$ $ $ tax on higher amount : : of dollars) (Percent) Cumulative : (in thousands Bracket rate : : specific exemption : : Net estato after 200 4 $ 5 10 600 8 5 47 1,800 3,400 5,400 10,000 15,200 21,000 37,000 54,500 73.500 94,000 182,000 417,000 49 907,000 10 20 12 20 30 16 30 40 20 40 60 23 60 80 26 80 100 29 100 150 32 150 200 200 35 250 38 250 300 41 300 500 44 500 - 1,000 1,000 2,000 3,000 4,000 5,000 6,000 7,000 - 2,000 3,000 4,000 5.000 6,000 7,000 8,000 8,000 - 9.000 9,000 - 10,000 10,000 - 20,000 20,000 - 50,000 Over - 50,000 51 53 55 57 59 61 63 65 67 69 1,417,000 1,947,000 2,497,000 3,067,000 3,657,000 4,267,000 4,897,000 5,547,000 12,247,000 32,947,000 - 70 Treasury Department, Division of Tax Research April 9. 1941 441-5 Proposed estate tax rates compared with present estate tax rates Present rates 1 : Oumulative Bracket rate tax on higher: (percent) tax on higher : 5- : 0$ $ 5 (percent) 4 10 10 12 20 30 40 - 30 16 40 20 60 23 60 80 26 80 100 29 100 150 - 150 32 200 35 200 250 38 250 - 300 41 300 500 44 1,000 2,000 3,000 4,000 5,000 6,000 - 2,000 3,000 4,000 5,000 6,000 7,000 7,000 - 8,000 8,000 - 9,000 9,000 - 10,000 10,000 - 20,000 20,000 - 50,000 Over 50,000 47 49 51 53 55 57 59 61 63 65 67 69 amount 200 $ 1,800 3,400 5,400 10,000 15,200 21,000 37,000 54,500 73,500 94,000 182,000 417,000 907,000 1,417,000 1,947,000 2,497,000 3,067,000 3,657,000 4,267,000 4,897,000 5,547,000 12,247,000 32,947,000 70 - Treasury Department, Division of Tax Research 1 2 600 8 20 500 - 1,000 amount 1 of dollars) : (in thousands : Proposed rates 1/ specific exemption: Bracket rate : Oumulative Net estate after : Exclusive of temporary defense tax. 100 $ 2 200 4 600 17 1,200 2,000 4,200 6,800 9,600 18,100 26,600 20 36, 600 20 46,600 89,600 222,600 557,600 952,600 6 8 10 12 12 14 14 17 20 23 23 29 32 35 38 41 44 47 50 53 56 59 61 63 65 67 69 70 1,407,600 1,922,600 2,482,600 3,072,600 3,682,600 4,312,600 4,962,600 11,662,600 32,362,600 - April 9, 1941 14 441-5 Comparison of proposed estate tax with present estate tax on net estates (before exemption) of selected sizes 1/ : : : 100 200 400 600 1,000 2,000 4,000 6,000 10,000 20,000 40,000 60,000 100,000 : 2,200 4,620 21,780 64,460 80 113,740 232,100 597,960 1,527,680 2,706,220 5,430,260 12,799,380 27,978,500 43,268,060 74,068,060 1 660 60 2,860 4,840 9,735 15,290 50,325 law Proposal 5.7% 8.1 0.4% 1.1 2.8 4.6 10.9 139,700 16.1 238,975 19.0 445,775 23.2 984,225 29.9 2,127,125 3,358,025 6,083,825 13,453,275 28,632,725 43,922,450 74,722,450 : 220 $ $ : 50 :Present: 38.2 45.1 54.3 64.0 69.9 72.1 74.1 12.2 15.3 25.2 34.9 39.8 44.6 49.2 53.2 56.0 60.8 67.3 71.6 73.2 74.7 Treasury Department, Division of Tax Research Increase in tax : : $ law Effective rate : (000) Amount of tax 2 Present : Proposal : before exemption : Net estate: $ Amount Percent 2,640 4,180 7,535 10,670 28,545 75,240 125,235 213,675 386,265 599,445 651,805 653,565 653,895 654,225 654,390 654,390 1,200.0% 633.3 342.5 231.0 131.1 116.7 110.1 92.1 64.6 39.2 24.1 12.0 5.1 2.3 1.5 .9 April 9, 1941 1 Under the proposal the attached rate schedule is substituted for the present schedule and the specific exemption is reduced from $40,000 to $25,000. 2 Includes 10 percent defense tax. 15 INDIVIDUAL INCOME TAX RATES 1940 AND PROPOSAL Combined Normal and Surtax Rates PERCENT PERCENT 90 90 80 80 70 70 Proposal Excluding Defense Tax 60 60 50 50 40 40 30 1940 30 Excluding Defense Tax 20 20 10 10 10 20 40 60 100 200 400 600 1000 2000 4000 6000 0 0 4 6 SURTAX NET INCOME IN THOUSANDS OF DOLLARS -- Office of the Secretary of the Treasury B-217-2 EFFECTIVE INDIVIDUAL INCOME TAX RATES WITH DEFENSE TAX Married Person. No Dependents PERCENT PERCENT 90 90 80 80 70 70 60 60 50 50 1940 40 40 30 30 Proposal 20 20 10 10 0 0 10 4 I 2 Office of the Secretary of the Treasury Owner for - 20 40 60 100 200 400 600 1000 2000 4000 6000 6 NET INCOME IN THOUSANDS OF DOLLARS B-220-2 ESTATE WITHOUT DEFENSE TAX Bracket Rates PERCENT PERCENT 90 90 80 80 70 70 60 60 Proposal 50 50 40 40 30 30 Present Law (1935 Act) 20 20 10 10 0 0 4 Office of the Secretary of the Treasury - Tax have 10 20 40 100 200 400 1000 2,000 4,000 10,000 20,000 40,000 100,000 NET ESTATES IN THOUSANDS OF DOLLARS B-219-1 EFFECTIVE ESTATE RATES. WITH DEFENSE Proposal Computed on Basis of $25,000 Exemption PERCENT TAX PERCENT 90 90 80 80 70 70 60 60 50 50 Proposal 40 40 30 30 Present Low (1935 Act) 20 20 10 10 o 10 20 40 100 200 400 1,000 2,000 4000 10,000 20,000 NET ESTATES BEFORE EXEMPTION IN THOUSANDS OF DOLLARS 40,000 o 100,000 Office of the Secretary of the Treasury 8 Design of for Research 5-223-2 20 MEMORANDUM April 11, 1941. TO: Secretary Morgenthau FROM: Mr. Sullivan SUBJECT: Conference with the President. Present: Secretary and Mr. Morgenthau Sullivan. This conference immediately followed the press conference and the President spent some time reviewing the announcements he had made at the press conference. Before looking at the memorandum and schedules submitted to him he said he wished us to regard taxes from the point of view of their impact upon the impending upward spiral of prices. He then discussed at some length the situation in the steel industry and referred to his conference with Leon Henderson in regard to the proposed ten cents an hour raise for steel workers. Secretary Morgenthau advised him that we were making some studies on the 1939 and 1940 comparative distribution of profits and wages and that as far as we had gone the increase in wages seemed to be lagging behind the increase in profits. He then said, "I am sure that what you are submitting to me is already approved in principle but I would like to have you discuss it with Messrs. Henderson, Eccles and Currie and get their views." Addressing himself to the memorandum he asked but one question in regard to it. He inquired if the estimated receipts for fiscal 1942 was the same figure he had sent to Congress in the Budget and I replied that this estimate had been revised upward almost a billion dollars over the figure he sent to Congress. The amount of $3.5 billion did not seem to disturb him. He said it might be a good idea to ask for more than we hoped to get. He further commented that he would like to have an absolute minimum of $2.5 billion, a probable goal of $3 billion, and a possible goal of $3.5 billion. He then addressed himself to the first page of the attached schedules showing the taxes through which additional revenue was to be raised. He made some inquiry about estate taxes and then approved our making the increase on corporations a surtax rather than a normal tax. He said he thought the excess profits tax increase looked like the old undistributed profits tax. I told him they were altogether different but that there was a surprising support in Congress last summer for the undistributed profits tax as a substitute for the excess profits tax. 21 -2- He suggested that we work out a revised undistributed profits tax bill to have as an alternative for the excess profits tax.increase. The increase in excise on gasoline and automobiles he suggested we discuss with Leon Henderson, and he seemed to approve the increased tax on gasoline as one means of reducing consumption of automobiles. He questioned the increase in tax on refrigerators and I advised him the reason we had done this was because the plants manufacturing refrigerators appeared to be particularly adaptable to defense projects. He then said, Yes, that's the way to go at this". After we arose to leave, he said he had talked with a friend of his from Aiken who said he was the only liberal in Aiken. This gentleman advised the President there were between two and three hundred families in Aiken with net incomes of $200,000 and the President asked this gentleman how those families would get along if the tax law were to take from them everything over $100,000, and this gentleman said they would get along all right. Secretary Morgenthau said that we would go to work upon his idea. As we left the President again asked us to get in touch with Henderson, Eccles and Currie and returning to the Treasury the Secretary asked me to see each of these three gentlemen on Monday and show then the schedules we had prepared. Ths 22 April 11, 1941 9:50 a.m. RE AID TO BRITAIN Present: Mr. Young Mr. Cox Mrs. Klotz Cox: Would you like to take a look at this? (Referring to large map) H.M.Jr: Oh, I love maps. Cox: This was an attempt to make this understand- able in terms of that complicated Neutrality Act. H.M.Jr: This is your interpretation of it? Cox: Yes. Green is where you can go anywhere with anything in a private American vessel. I see. H.M.Jr: Cox: Red is where you can't go unless the President issues a proclamation. (Mrs. Klotz entered the conference.) Cox: Red and Green is where you can carry on 23 -2private American vessels oil and trucks and tractors except machine guns and so forth. Broken red is where you can go with Presidential permission. That was Banyas' idea of where you can get a loophole. H.M.Jr: Who is he? Cox: He is George Haas' man. H.M.Jr: You will be amused at this meeting yesterday. The President said, "It is wonderful that Harry Hopkins discovered a loophole in this thing that even the Attorney General doesn't know about." I just grinned a sarcastic grin at Harry thinking he would drop his eyes and say bashfully, "Of course, Mr. President, it really wasn't me. It was given me by Oscar Cox," but he sat there. Cox: That doesn't bother me. I notice they are going to use those ships for transporting stuff to the bases and relieve the load on the others. H.M.Jr: But he never said boo on it. Young: Do you see this sort of peculiar thing around Montreal? You can ship arms into Montreal and Quebec but not into Newfoundland. H.M.Jr: That is that big place. That is where the CPR handles all this stuff. You know Sir Edward Beatty is the man who handles it. Cox: Yes. est-- The Neutrality Act is one of the crazi- 24 -3H.M.Jr: They can go into Montreal? Cox: But they can't stop at Halifax. You can take either the inland way or the ocean way. H.M.Jr: Is this for Hopkins? Cox: Yes. I guess he wants to give it to the President. H.M.Jr: Have you got on there any where that the Treasury has done it? Cox: We really ought to put a big label on there somewhere. Klotz: I would. Cox: We will get some binder strip and put it on. H.M.Jr: Why not put it right up here? Klotz: So they can't rub it off. H.M.Jr: I would put in, "Prepared by,"whatever Haas' office is called. Cox: Traffic Section of the Division of Research. Klotz: That is a wonderful map. H.M.Jr: But I would put it right up there. Cox: Look at what we do down here. (Indicating) Those are the two people in the War College who did it. But they only did the basic map. They didn't do the classifying. H.M.Jr: Where would the President be apt to look at it? 25 4Cox: I would think down there. H.M.Jr: Why not here? (Near legend) Klotz: That part was prepared by the Treasury. H.M.Jr: Why not put it here? Cox: That is right. H.M.Jr: I think I would put it right here, right across the bottom. The other day when I took over that map that - was it done in the Treasury? Somebody gave it to me. Oh, yes, it was Kamarck. The President said, "What does the Treasury know about this sort of thing?" Cox: Well, this fellow Banyas is good. Klotz: He must be. I brought him into the Treasury. H.M.Jr: Did you? Klotz: Sure. Cox: He is as smart as can be. Klotz: And Haas didn't want him. Cox: He is good. Klotz: H.M.Jr: Brought him over from Farm Credit. He was there. Oh! Cox: He is an engineer by trade. H.M.Jr: Was he in Farm Credit? 26 -5Klotz: I brought him into Farm Credit and then brought him over here. He is marvelous. Haas didn't want him. H.M.Jr: He must be good. Klotz: I am sure he is. That is the man. H.M.Jr: I remember sort of vaguely something about him. Causing a lot of trouble, wasn't he? Klotz: That is right. Haas didn't want him. Cox: We did one other mapping job here, but it is mostly Phil's handiwork. (See Attachment) H.M.Jr: What is that? Cox: That is mostly Phil's handiwork. Young: This is a joint effort to serve as a point for discussion. H.M.Jr: What are you, the Executive Assistant? (Young) Cox: Yes. Young: I guess so. H.M.Jr: Very good. Has Hopkins accepted this? Cox: He hasn't seen it. Young: He hasn't seen it. H.M.Jr: Yesterday the President asked - Hopkins after he got through with everything else brought up 27 -6the discussion of six ships of sixteen knots each. The Maritime Commission turned him down. Cox: That was the one I told you about the fight in Land's office. H.M.Jr: He said unhesitatingly to give it. I wondered what happened. Would you hear very soon? Cox: H.M.Jr: Yes. Oh, I wouldn't go out of the way. Do you what to bring up anything? Cox: Yes. Still on this shipping thing, as you know, the Greenland thing has gone through and - the Greenland bases. It seems to me that the next thing of political signifi- cance would be a constant harping on this Western Hemisphere thing because that has a lot of implications. One is in terms of patrolling in that area generally, which means that the British convoy work is much less. And I think publicly you can say that any German raider or submarine that is in there will just be cleaned out or that there should be no fighting there and make it apply to the British as well as to the Germans on the surface so that their convoy route will be shortened to the point from where the Western Hemisphere ends to their North Atlantic ports. The other second implication to that might very well be that you actually convoy to the Western Hemisphere point and the British pick up. That is looking of it. to the future on the practical end H.M.Jr: It has been settled. I can't discuss it, but the President is going to announce it 28 -7either Monday night or Tuesday morning, and I am entirely satisfied. As far as I know, it is a brilliant conception. The thing would jell. Cox: Well, we have been sort of talking about it ahead of the game, and I didn't know how far it had gone. H.M.Jr: It has been jelled, and it is all right. Were you in on the Greenland base thing? Cox: Yes. H.M.Jr: You were? Cox: You know what happened. State and Justice had been looking up the law, apparently, for weeks as to how to do it, and then Hopkins I had mentioned to him that it was bogged down. H.M.Jr: Was what? Cox: Was bogged down, and thought he ought to give it a push, and then he called up one afternoon and said, "Can you in 15 minutes tell me legally how to do this thing?" H.M.Jr: I don't think you told me about that, did you? Cox: Yes, I did. H.M.Jr: Did you? Cox: So we called them back and told them how it could be done, and he wrote a short memo for the President, and the President added in his own handwriting, "All right to go ahead, 29 -8if the consent of the Greenland Government is obtained." The way it is done is, the President is allocating five million dollars from his emergency fund for defense to the War Department to start immediate construction of bases. H.M.Jr: Did you tell me about that? Cox: Yes. H.M.Jr: Funny I have no recollection of it. Cox: Well, now, the next thing which may be-- Young: That was quite a while ago. Cox: It was about a week ago. Young: A week or 10 days ago. Cox: The other thing which may not be a practical possibility but which I think ought to be explored is the extent to which aircraft, as I mentioned before, can be integrated in the convoy job. H.M.Jr: Yes, going over. Cox: Yes, going over, and that raises the next question which is going to come up, and that is the allocations of things like the North American B-25 and the Glenn Martin medium bombers, of which the British are getting none as the schedules now stand. H.M.Jr: Well, I looked up the Martin production thing, and the British are getting most of their production, and the Army is getting very little in the bomber. 30 9Cox: That is so in one bomber-- Young: On the B-26? H.M.Jr: Almost no B-26's have been produced. Young: They are just beginning to come over the line. The schedules don't make any provi- sion for the British. H.M.Jr: But look what they are getting from the Glenn Martin factory. It is almost four to one coming off the line. Cox: That is right. H.M.Jr: The English are getting, my guess is almost four to one. Cox: I think that is roughly correct. H.M.Jr: It is the B-26 which the Army gets, of which the English gets nothing. But they are get- ting - I say, out of the factory, I think you will find it is about four to one. I don't understand it. Cox: I don't think they are getting any of the North American B-25's, either. H.M.Jr: I am rusty on this stuff. I used to know this. I happened to look up the other day to see what they were getting out of Glenn Martin, and what they were getting out of Consolidated, and what they were getting out of Boeing and Curtiss, and they are getting more than 50 percent of it. Of course they are not on the trainers. Cox: And also not on certain types. On the new B-17-D and -B, I don't think they are getting any. 31 - 10 H.M.Jr: But they have their own ship coming out. Cox: That is right. H.M.Jr: Incidentally, that memo which finally came through which was a good order, one of the last ones you sent me, I wrote you a memo- randum on. If it comes through - I would like a similar memo within 10 days. Young: I have arranged for it every week. H.M.Jr: Well, this stuff that you are talking about is something that I am not in on any more. Klotz: Well, I think, from time to time, as these meetings go along, you will be in. H.M.Jr: I would like to know about it. I like to know about them. What else? Cox: H.M.Jr: That is all. No, the patrol area thing is fixed up beautifully. How about you (Young)? Young: We are just moseying along on our procedures, getting that all worked out, the mechanical details and so on. We are handling requisitions at about the rate of a hundred a week to start off for the British. That is what it has been for the last two weeks. It is going along fairly smoothly. We have got 17 offices in Federal Reserve. H.M.Jr: How many offices? 32 - 11 Young: Seventeen, which I am going down and look at this morning. I think that it - we ought to move in this weekend. H.M.Jr: Well, I told you the other day that was your decision, yours and Cox'. Young: Because we have got files now scattered all over the darn place. There are some in the Budget and some in the War Department and some here. H.M.Jr: But you realize once you move off, you no longer are on Treasury soil. That is what you want to get off from. Cox: Well, I raised the question-- H.M.Jr: Philip said he - he wasn't on neutral soil when he was here. Once you leave here, you have left. I mean, it is no longer a Treasury organization. Young: That is right. H.M.Jr: You appreciate that? You must. It is one of the reasons why. You said you wanted to get off on a neutral soil. Young: I think it will be better for that particular organization. I don't think it can operate this way. H.M.Jr: I told you it was your decision. But we won't have these meetings any more when you are over at the Federal. Cox: I was going to raise another question with Phil. That is this. Certainly until the first of July on the Budget end, it is going 33 - 12 to be handled on an allotment basis. I mean, a request is now in to transfer monies to the Treasury to reimburse the Treasury for Philip's pay, so to speak. To that extent there is a degree of connection. He is a Treasury man, and he has been assigned on an allotment basis to the Lease-Lend, which raises the question of whether you ought to break the contact completely in the sense that he has no office here at all, because I think you have got this thing - it is go- ing to come more and more into the picture, and it seems to me for informational and other purposes the more you know about it the more of that objective is going to be achieved, and with a parking space here, so to speak, I should think, and spending a certain amount of time here, I should think it would be useful on the over-all picture. That is my offhand reaction on it. H.M.Jr: What are you going to do? Cox: I am only a lawyer. These are the fellows that get to the guts of this job. H.M.Jr: That doesn't answer me. Where are you going to have your office? Cox: Well, I understand they are making some space over there, but I would like to keep a two- by-four space here, if it is all right with you, in terms of law books and whatnot. H.M.Jr: It is all right with me, if it is all right with Foley. Cox: Yes. H.M.Jr: Well, you are all of age, and you will just have to make up your own minds, that is all. 34 - 13 Young: As far as I am concerned, of course I would rather be here, no doubt about that. At the same time, I don't think it is going to be as effective, and I don't think it is going to get over this psychological barrier with the other Departments, Budget and so on, as long as you have got it operating within the Department or even if it is physically in a departmental building with no connection technically with the Depart- ment. I still think you have got a psychological hurdle to get over. Maybe I am crazy. H.M.Jr: You see, one of the things that they don't do, Harry doesn't attempt in any way to service this committee of four. Cox: That was one of the reasons I think they should get more and more into these policy questions and the committee in terms of servicing and in terms of effectiveness is going to be conditioned by the information and the facts it has, and if you just walk in cold and don't know the background and the factual picture, it is pretty hard to advise on policy. Young: We ought to have a series of weekly reports, H.M.Jr: Do I understand that after the first of July I think, for the committee for one thing and special reports of different things that come up, something of that sort. I think it ought to be a regular service. this group will be completely detached? Cox: I don't think so. Budget would like to see it, but I don't think opkins wants to see it that way. I think he wants to be in a position to resist job seekers and to say 35 - 14 - that he hasn't got a big staff and is using 10 million dollars a year to run it. H.M.Jr: How does Budget want it? You say they want-- Cox: They would like to have a separate organization with a separate fund for it instead of on the allotment basis. (Telephone conversation with Mr. Mack follows:) 36 April 11, 1941 10:15 a.m. H.M.Jr: Clifton Mack? H.M.Jr: Yes, sir. Is your operator on there? M: Hello. Mack: H.M.Jr: M: H.M.Jr: M: H.M.Jr: M: Are you on all right now? Yes, sir. Anything new in regard to foreign purchasing? This. We will complete today the War Department list and that will be over with. Good. Now, on the new materiel we have certain requisitions that have come through that we're waiting for clearances on from O.P.M. and they're all timely. None of them have been delayed beyond any reasonable time, and we have one expedite shipment we're working on now that they want on the boat tomorrow morning - oh, let's see, Sunday morning. H.M.Jr: M: H.M.Jr: M: What's that? That's 1,000 rolls of mosquito proof gauze for West Africa. It has to be on the boat leaving here Sunday morning in order to get there in time for use. Can you do it? I think we can get substantially what they want. H.M.Jr: M: How do you transport it? It's going by boat. It's being shipped in or trucked in from the various manufacturers. H.M.Jr: Coming in by truck. 37 -2M: H.M.Jr: By truck to New York and the Shipping Commission up there 18 taking it over from that point. Now, Mack, when this present thing is completed - the buying - give me a little report on it. Will you? H.M.Jr: Yes, sir. On the first group. See? M: Yes, sir. I'll do that. H.M.Jr: Get it to me fairly promptly. M: I'll do that today. H.M.Jr: Got enough help over there on this? M: Yes, but we are now working on an outline M: of what additional help will be needed, depending on the increased flow of these requisitions. H.M.Jr: O.K. M: All right. H.M.Jr: Anything else? M: There 18 just one other thing that I'm taking up with Young today and I think perhaps you ought to know about it. Some of these requisitions are coming through asking for materiels that seem to be much too expensive for the indicated use, but I'm taking it up with him and I'm sure he can straighten it out. H.M.Jr: In other words, you mean they're charging too much? M: H.M.Jr: Well, they're asking for things that are altogether too expensive. For instance, what? 38 -3M: Well, for example, on this 1,000 rolls of mosquito gauze that they want Monel Metal. Well, now Monel Metal costs $28.50 a roll and it's a commodity that is not available only in small quantities. H.M.Jr: M: H.M.Jr: Have you a substitute? And the substitutes, yes - bronze and copper, that's what we're working on, and they cost about half the amount. Monel screen. Is this mosquito screening? H.M.Jr: Yeah. That's it. And you'll get it in copper? M: Yeah, we can get it in copper and we get M: it in bronze and it costs just about half the $28.50 price. H.M.Jr: Seems silly. M: Well, it does, and I'm taking that up with Young this morning. M: I'm glad you're watching that. Yes, sir. H.M.Jr: Thank you. M: Yes, sir. H.M.Jr: 39 - 15 H.M.Jr: My original purpose was to give Hopkins the people necessary to make this thing work. You people are on this thing and after all, if you didn't do it, I don't think it would work nearly as well, but it will be different. I mean, I am conscious of it. I want the thing to work. So wherever it can be most effective, I have got only one objective and have had on this thing. I want the English to get the stuff and get it as fast as possible. But as to what my own arrangements will be and where I will get my information, I will just have to think that over. Cox: Well, just thinking out loud, would it be wise for us to combine the whole thing in terms of obtaining one room here and report in to you at a set time every day for a while for 10 or 15 minutes a day? H.M.Jr: Well, think it over. Cox: The main objective-- H.M.Jr: I am going to get my information somewhere, I don't know how. Cox: Well, it is more than information, because you are doing an effective job in moving these things on on the basis of that informa- tion so if it works the end result, it is better from the all around standpoint if we can supply you with that information. Young: H.M.Jr: You don't want as much the information as you want the feel of it. That is right. 40 - 16 Young: H.M.Jr: And you can't get that unless you talk to us. Handling that thing on the Danish ships, I was able to dynamite that out. I made no contribution on the Greenland thing. A little on the patrol, not much. Some on the six ships. I helped some in getting Donovan to go after the shipping. At least I know where the things are blocked. Cox: I think there will be a lot of those from day to day where, if they are pushed by you, you can probably put them over the hump. H.M.Jr: All right. Cox: Would it be asking you too much sometime to give Banyas a vote of thanks through Haas. H.M.Jr: Sure. Klotz: He works day and night. He works all hours. H.M.Jr: You write the letter and send it to Mrs. Klotz and I will sign it. Cox: O.K., thanks. 42 4-11-40 4/11/91 DEFENSE AID ORGANIZATION President BUREAU OF THE BUDGET CABINET COMMITTEE Allotments State Treasury SECRETARY OF War DEFENSE AID Reimbursements Estimates Administrative Navy Procedures Records Agriculture Maritime, etc. Other EXECUTIVE ASSISTANT LEGAL ADVISER DEPARTMENTAL LIABON TECHNICAL ADVISER State Military office Manager Treasury Naval Statistics Advice Agreements Directives Patents and Royalties Executive Orders Shipping Agriculture Maritime R.F.C. War Navy, etc. Regulations Legislation, etc. SUPPLY Divisions for Army. Navy, Agriculture, Maritime and Treasury Procurement. Follow up controls, TRANSPORTATION BUDGET AND FINANCIAL Rail and Accounting Reports Budget Estimates Ooran Shipping Requests for Allotments, etc. etc. 1-153 DEFENSE AID ORGANIZATION President CABINET COMMITTEE BUREAU OF THE BUDGET State Treasury War SECRETARY OF Navy DEFENSE AID Allotments Reimbursements Estimates Administrative Agriculture Maritime, etc. Procedures Records Other LEGAL ADVISER TECHNICAL ADVISER EXECUTIVE ASSISTANT Military Office Manager Advice Agreements Directives Patents and Royalties Executive Orders Regulations Naval DEPARTMENTAL LIABON State Treasury Agriculture Statistics Shipping Maritime R.F.C. Legislation, etc. War Navy, etc. SUPPLY TRANSPORTATION BUDGET AND FINANCIAL Divisions for Army. Navy, Agri- Rail and and Treasury Pro- Oopan Shipping culture. Maritime ourement. Follow up controls, etc. Accounting Reports Budget Estimates Requests for Allotments, etc. 1-153 43 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE April 11, 1941 Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL At 9:50 this morning Mr. Jones of the Far Eastern Division of the Department of State telephoned me, and I called him back at 10 o'clock. He asked me what balances the Thailand Government had with the Federal Reserve Bank. I asked him why he was seeking this confidential information. He said that the question was up as to whether this country should consider a loan to Thailand. I reminded him that this same question had arisen several months ago and that it had been the understanding of the Treasury that the State Department desired no such assistance to be given. I asked why this question is now again up. Jones replied that everything was still in a very uncertain state, but that the British had approached the State Department with the idea of a possible joint financial assistance to Thailand. Jones said that this Government, therefore, might be called upon to make a loan. When I asked him what branch of the Government he was talking about, he thought the Export-Import Bank would be the most likely source. I reminded Jones that when the matter was up before it had been agreed that the Treasury should not recommend that in this instance a practice heretofore not followed be now instituted through which a foreign government or central bank could borrow from a private American institution on gold held under earmark with the Federal Reserve Bank of New York. The Treasury would desire very much to be consulted before any plan toward such an end be carried forward by the Department of State. Mr. Jones promised faithfully to keep us informed of any developments. I told him in strictest confidence, and with the request that the figure should not appear in any memorandum and should not be communicated to any British or other foreign officials, that the Thai land Government at present has $9,000,000 of gold under earmark with the Federal Reserve Bank at New York. I.M.P. 44 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE April 11, 1941 For TO FROM Secretary Morgenthau Mr. Cochran STRICTLY CONFIDENTIAL At 10:15 this morning Secretary Morgenthau received Mesers. Gutt. Theunis and van der Straten-Ponthos. Mr. Gutt arrived in New York a few days ago from London where he is serving as Minister of Finance, War and Commerce in the Belgian Refugee Government in England. Mr. Theunis is the special Belgian Ambassador who has been in this country for over a year attending to purchases and certain financial matters. Mr. van der Straten-Ponthor is the resident Belgian Ambassador in Washington. Mesers. White and Cochran also were present. Mr. Gutt explained to the Secretary that he had come over from England to look after the case of his Government against the Bank of France based upon the failure of the latter properly to conserve gold entrusted to it by the Bank of Belgium. The Secretary stated that he was familiar with the proceedings which had been instituted. but that there was an uncertainty in our minds as to the correct figures of Belgian gold holdings. Messrs. Gutt and Theunis insisted that all calculations made on this side of the water by Mr. Theunis, upon checking just a day or two ago, had been found to be within $30,000 of the latest figures of the National Bank of Belgium. In newer to Mr. White's questions on this point, Mr. Gutt promised to give us a memorandum on their gold position. He made the point that the sum which Belgium is asking from the Bank of France includes not only the gold taken to Dakar, but also covers the sums alleged to be due the National Bank of Belgium for transactions in Belgian france carried out through the Bank of France. Mr. Gutt is returning to New York tomorrow, and will probably remain there ten days. Before entering the Secretary's office, I had a brief conversation with Mr. Gutt, whom I have known for many years. He told me that the British had tried very hard to "bamboosle" the Belgian Government in London into selling their gold to the British against sterling. The Belgians had not agreed to this and have only made an arrangement with the British which involves a loan of gold until after the war. During the conversation Mr. Theunis remarked that legislation had been before our Congress which would give Secretary Hull the authority to decide who was entitled to National Bank of Belgium gold held under earmark in this country. It was explained to the Belgian group that the bill which they presumably referred to had actually been signed by the President a few days ago. AMP 45 April 11, 1941 12:02 p.m. Jerome Frank: Yes, Henry. H.M.Jr: Hello, Jerry. F: I just called to ask whether you had any other talk with the President Saturday about that Departmental Committee. H.M.Jr: F: I did and he said he liked it very much. I left the memorandum with him and told him when he was ready he should talk to me. I haven't pressed him on it again. I see. Well, now, I'm going to be shoving off shortly - I don't know just when. Ed Eicher is the new Chairman and he knows all about it. H.M.Jr: Good. Well, I hope to see you before you go. F: I'11 drop over sure if I may. H.M.Jr: Will you do that? F: Yes, indeed. H.M.Jr: Thank you. 46 April 11, 1941 12:04 p.m. H.M.Jr: Hello. Operator: Mr. Stettinius. Edward Stettinius: Hello, Henry. H.M.Jr: How are you? S: I'm fine. I just wanted to tell you that H.M.Jr: this Netherlands thing did not look so bad and we've already taken care of a large quantity of it and everyone seems happy and I think we'll be able to do the necessary. Well, I'm delighted. S: You might have to be a little patient on H.M.Jr: Thank you so much. S: Right-o, Henry. some of the deliveries but I wanted to report progress to you. 47 April 11, 1941 12:08 p.m. Henry L. Stimson: Hello, Henry. H.M.Jr: Hello, Harry. S: How's your cold. It sounds rather bad. H.M.Jr: S: Well, it's a little better, thank you. Well, I hope that it will clear up. You don't want one this fine weather. H.M.Jr: No, that's right. It's much better today, S: Yes. I called you up just on this point. thank you. The Coast Guard is still in your hands, and the President asked me as you may have heard yesterday in that meeting to fly into the question of Greenland, and I've been working on it ever since almost. H.M.Jr: S: Yes. It's a grim problem - that coast, and I'm looking for all the help in the way of ice breakers that I can get, and the Coast Guard is the only group that has any ships that could be called that at all. H.M.Jr: That's correct. S: Now, you see, the Germans are already threatening the East Coast of Greenland and that's right within range of the Norwegian and this Ruesian-Siberian coast along there where the Russians have been using those exceptionally big ice-breakers that keep that - they've been able to go all the way along between the two oceans between the Atlantic and the Pacific. Now, the Germans have got access to them, too, 80 we've got to take all of that into our consideration, and I've been talking with Frank and he told me that you had the only ice-breakers or anything of that nature except possibly the Bear, which is down 48 -2- with Byrd's party, I think, still coming up. H.M.Jr: S: Yeah. And he also told me - he gave me the impression that the best ones you had were in the Pacific. H.M.Jr: No, I don't think that is correct. We have one up there now, you know. S: Only one? H.M.Jr: No, up at Green]and. H.M.Jr: Oh. Which one is that? I don't know the name of it. S: Who has it? S: H.M.Jr: Well, it's there as I understand it - well, it's up there and I think it's under Navy orders. S: H.M.Jr: Well, that was what I was going to ask you. It's under the Navy. I'm not sure but I think so. I know there is one there now. Tell me what you want and I'll see if I can get it for you. S: I want an ice breaking ship, practically, or at least one of that type to carry up the men who are going to do the work. We've got a survey party now up on the West Coast of Greenland, but it is only a survey party. They've just arrived and they're up at Godhavn. H.M.Jr: S: Now, you And I have this memorandum that we want in addition to that - I'm just looking over the list here - a boat that will serve to carry the construction party up to Greenland. 49 -3H.M.Jr: S: H.M.Jr: Yeah. Well, now these boats are not terribly big, you know. No, I suppose not. The ones that are the best ice breakers are 165 feet long and they've got this 44-foot beam. I don t know how many people they would hold, but how soon would you want this, Harry? S: H.M.Jr: Well, just as soon as we can get up there. I mean - well, let's put it this way. How S: I think it will depend a little on the weather. One party - I mean somebody was saying - the Navy or somebody was saying that we couldn't get up there now, but it isn't so. We've got the party up there already. H.M.Jr: Now, which part of Greenland - there's quite a difference. Which part of Greenland do you want to go to? S: Well, we want to go to both sides. of course, the easy side, comparatively, the one where we're probably going to be limited to is the Western side. H.M.Jr: Now, would you hold the wire just a minute. I just sent for Mr. Gaston. Would you mind holding one second. S: Sure. H.M.Jr: (Talks aside). Harry. S: Yes. H.M.Jr: We think we have one - the Northland which is either leaving today or tomorrow for Greenland. I'll find out. Hello. S: Yes, but that's on its regular duty. 50 -4H.M.Jr: No, going up there specially to replace another one - the one up there. I'll have all the facts and figures at my finger-tipe and I can How'11 that call be? you a little bit before 3:00. S: Well, you'll catch me where I H.M.Jr: Are you going S: I was going away this afternoon but H.M.Jr: S: H.M.Jr: Well, who were you going to leave this in charge of? Well, I can leave it in charge of Lovett. I've been telling him about it. Well, I tell you what you do. Fill Lovett up with this thing, you see, and if he'll be at my office at quarter of 3:00, I'11 have the necessary people here. See? And I'11 ask the Navy to send somebody over too because we're sort of in the midst of transferring S: H.M.Jr: S: All right. At what time 2:45 my office, and if the boat isn't full, we '11 hold it 80 that you can put some people on her. I see. Where is it now - Northland? H.M.Jr: The S: Where in the devil is Northland? Northland. I don't know where H.M.Jr: No, that's the name of the boat. S: Oh, that's the name of the boat. But you don't know where - it's down here then somewhere. H.M.Jr: It's here somewhere, but I'11 have everything a quarter of 3:00 and I can assure you that if you want to send a party up there, Frank Knox being willing, we'll send them up. 51 -5S: H.M.Jr: S: Frank is willing; I've talked with him. Well, consider it done. We'11 do it. All right. Thank you very much. S: We'11 do it; we'11 find a way. You have your people that know about it That's the way to talk. H.M.Jr: What? S: That's the way I like to hear a friend H.M.Jr: You forget about it and it'11 be done and H.M.Jr: talk. we'11 have the boat ready before your men are ready. S: I've no doubt you will. H.M.Jr: Yeah. S: All right. Thank you very much. H.M.Jr: Have a good time. S: Thanks. 52 April 11, 1941 2:27 p.m. H.M.Jr: Hello. Operator: Chairman Eccles. Marriner Eccles: Hello, Henry. H.M.Jr: Marriner, we went in today and saw the President for the first time on the tax bill and we gave him kind of an outline, and he said that he'd like us to keep you posted, et cetera, which I'm delighted to do and I said I had expected to do it anyway. E: H.M.Jr: E: Yes. Now, what I'd like to do on Monday is to in strictest confidence and then get the benefit of your advice. have John Sullivan show you what we have What happened, I didn't go over to talk to the President on the tax question at all yesterday and when I was away the week before he had sent over word by Watson that he wanted to see me next week and set a tentative date, which was Tuesday. Then he later put it off until Wednesday. I suppose it was a result - prior to his going away I had sent him a letter with reference to the vacancy on the Board here - primarily that, and there was that matter that I wanted to talk to him about. He had sent me a memorandum over in his own handwriting with reference to a vacancy on the New York Board, which he wanted me to talk to him about. There was the annex to the building which I discussed with him last fall and which he wanted us to go ahead with because they were going to need space anyway - if we didn't use it for banking purposes we'd need it anyway, and he had a memorandum on H.M.Jr: taxes that he had discussed with Currie, that he had gotten from Currie. Currie never showed it to me. 53 -.2 E: Well, of course, Currie being Assistant to the President I suppose he was driving him with reference to that just as he would other matters, and it was dealing more or less, I understand, with just general things. And I was discussing with him also the inflationary deposit developments and also the - some of the price developments, and he asked me what I thought about a tax program. I mean, we just got into the subject and he said that he had this from Currie and wanted to know what views I might have with reference to the matter. So that's how the tax thing came up. of course I was very glad to get into the situation and to have an opportunity to express views which I haven't expressed because I hadn't had I didn't go into any discussion of the details of taxes at all, and he said that he hadn't made up his mind with reference to the tax program or the tax question and that was one of the things that he had to a matter he'd have to consider. Now, I've given you the entire story and 80 as far as a tax program is concerned, I didn't discuss any tax program at all and Well, Sullivan will get in touch with you. Well, I'11 be delighted to do it because, do, and he was going away Monday and it was H.M.Jr: E: as I expressed myself to you once before, H.M.Jr: E: Well, we only were ready today that the tax thing is of course closely related to this whole question of budget and inflation and everything else. H.M.Jr: E: That's right. And from that standpoint I certainly would be delighted to H.M.Jr: We'11 be glad - the only thing is we hope to be able to keep it quiet until the leaders on the Hill want to get it out. 54 -3E: Oh, sure. Well, any discussion that I have on it I can assure you - it isn't a matter that requires any Board action at all; it isn't anything of that sort. H.M.Jr: Well, you have a tax man over there haven't you? E: Well, we have a couple of men who have been working on the whole tax field with the idea - in connection with its financial H.M.Jr: and its economic implications, and your people over there I'm sure they know both these men, Krost and Defpref. Well, I'm sure you could make constructive suggestions and after you've had a look at it, I'd like to get together with you myself. E: What you'd like me to do then is to meet with Sullivan on Monday? H.M.Jr: That's right. e'11 call you and he'11 make an appointment and we'll show you just where we are and the initial suggestion. You see, this is just a rough suggestion something to start from. E: Yes, I'll be very glad to do it and anything that we can contribute, I'11 be glad to have our staff work with you on the thing. H.M.Jr: For once we took the President's breath away. E: You did. H.M.Jr: Sure. E: In other words you went farther than he would. H.M.Jr: Oh, way. E: Well, I'm delighted to hear that because if I had had a tax program to discuss with him, I think I would have taken his breath away too. 55 4H.M.Jr: We did. We're away above him. E: Well, I'm delighted because I feel the thing awfully strongly H.M.Jr: E: We left him breathless, which is difficult. Uh-huh. Well, from that it looks like we'll be in the same boat on this tax picture. H.M.Jr: That'11 be pleasant. E: O.K. H.M.Jr: Thank you. E: Good-bye. TO: - 4-11-41 The Secretary - The Northland sailed last Monday, April 7th. Departure was speeded up so that she could relieve the Cayuga, which is to be transferred to the British. The Modoc can be used, or one of the 165-foot ice-breakers. Waesche will bring details and be here at 2:45. The Cayuga is the only one there now. From: MR. GASTON 57 April 11, 1941 2:40 p.m. RE GREENLAND AIR BASE Present: Captain Sherman Mr. Gaston Mr. Waesche Mr. Lovett H.M.Jr: What is in Greenland now? Of the Coast Guard. Waesche: Cayuga. H.M.Jr: Is she staying there? Waesche: Until the Northland arrives, and then she starts back to be made ready for transfer to the British. H.M.Jr: And the Northland has left? Waesche: This morning she was a hundred miles southwest of St. Johns. H.M.Jr: Where does the Northland go to? Waesche: She goes up and makes contact with the Cayuga. She went on up to Godthaab and is there now. The Cayuga is here in Godthaab. Julianehaab still has ice in it. We have a little coasting vessel that can work its way down behind the ice and it is in Julianehaab and its people are making a survey now. The Northland's point of position was here. 58 -2H.M.Jr: Where is she going? Waesche: To Godthaab and relieve the Cayuga, and then she will come down to Julianehaab. H.M.Jr: What armed forces are there in Julianehaab now, what service? Waesche: These representatives of the Army. H.M.Jr: Army representatives? Waesche: Yes. H.M.Jr: And we took them up? Waesche: Yes, up on the Cayuga. H.M.Jr: And they are at Julianehaab? Waesche: Yes, making a survey of this proposed air field back of Julianehaab. H.M.Jr: The Army wants to send more people up there, Which one of these boats can you send up? Waesche: My suggestion would be if they are in a hurry to get them up there, would be to stop and let the Northland come back to Halifax and let them jump on a train here and go up to Halifax and go get on the Northland. H.M.Jr: I wouldn't do that. Haven't you got people on board there? They are not ready. They won't have their people ready. Gaston: The Comanche can leave New York any time they are ready. 59 -3H.M.Jr: What about the Comanche? Waesche: She is a hundred and sixty-five footer and is ready to leave any time today or tomorrow or a week from now. She is a hundred and sixty-five footer, and if there are only eight or ten in the party, they can be crowded aboard there and sleep on cots. If it is a party of twenty or twenty-five, then it would be rather difficult to pile them in there. H.M.Jr: But you could? Waesche: But we could. Now, if they are not going to leave for a week or ten days, in ten days we can have the Tampa up, which is on patrol down here in the Gulf, and in ten days she can be up here at New York. She is a two hundred forty footer. H.M.Jr: Has she got any ice breaking equipment? Waesche: She is almost as good as the Cayuga. She is a good ship. She can go right in there. As a matter of fact, the sister ship of the Tampa is slated to go up there on May 5. H.M.Jr: Who is going up on May 5? Waesche: She is going up there in accordance with the plans of the State Department. I don't know right now who is slated to go. 60 -4H.M.Jr: What is the boat? Waesche: Modoc. H.M.Jr: She is going on May 5 to Greenland? Waesche: Yes, sir. H.M.Jr: That is the State Department wants her to go up? Waesche: Yes, sir, State and War. H.M.Jr: Now, have you got another one? Waesche: Now, the Tampa, which is a sister ship of the Modoc - the Modoc can't go now because the Modoc is down in New Orleans shipyard getting guns put on. But the Tampa is now off Mobile, and she is a sister ship of the Modoc, and she is available to go to Greenland now. We can start her North. It will take about ten days before she will get her supplies. H.M.Jr: Waesche: Well, it is just a question of how many people and how soon, is that right? Yes, sir. How many people and how soon they want to go. (Mr. Lovett and Mr. Sherman entered the conference.) 61 -5H.M.Jr: You are not breaking any champaigne bottles until you get confirmed? Lovett: My wife telephoned from New York and said on the basis of the pictures she saw in the papers, she didn't think there was a chance. H.M.Jr: I see. Well, if you could tell us how many men and how soon you want them to go, if Lovett: it is agreeable to the Navy, we are ready. Mr. Secretary, I have found since the Secretary spoke to me at about noon today on this that there are two parts to this plan which I think perhaps we ought to separate in considering it here. The first is the projThat is the ferry stop, landing field, that ect on which we have been working so far. is, the West Coast base to permit the ferrying of the medium range bombers. H.M.Jr: Is that the one back of Julianehaab? Lovett: There is a survey up there now, sir, which you took up on the Cayuga, and I think the Waesche: Northland left the seventh to spell it. That is correct. Lovett: The Canadians think that there is land along the Julianehaab part. This large scale Danish map shows it fairly clearly here. Our men who have been up there flying with the Coast Guard officers-- H.M.Jr: Do you want to show it to me? Lovett: Yes, sir. (Exhibiting large map) H.M.Jr: Everybody has to have a map these days. It 62 -6is no good unless you have a map. Lovett: There is only one name in this that I can pronounce, so it is kind of difficult. H.M.Jr: I see. Lovett: The Julianehaab section, which is here, was surveyed with the Coast Guard pilot working with Lacey, the Air Corps man, and then they went all the way up to here. (Indicating) There is a possible strip in there, but the only adequate place, both from the point of view of transportation and reasonable freedom from fog and ice is this district here. Now, the survey party, the Army survey party which we took up there, is in this district now and is going to move on up there later. This is the Holstenborg district. H.M.Jr: You have learned a lot since noon, haven't you? Lovett: Yes, sir. I haven't done anything except look at this. This Holstenborg district would make the best flight conditions from over here as regards weather and everything else. But the Canadians say that this Baffin Island section over here is almost impossible from the point of view of terrain for landing fields, and they, therefore, have asked us to inspect by survey this section so that we can make a direct hop from Newfoundland. H.M.Jr: That is where they are now. Lovett: Yes. The odds are somewhat against it, for really hot aircraft that lands fast. Here we can get a four thousand foot runway. So that dividing the problem into two parts, 63 -7Our West Coast survey is under way. The Coast Guard is going to carry us on up when the Northland replaces the Cayuga. We have one remaining problem there and that is to get 340 engineers and three thousand tons of equipment and a 20-ton crane up there. That is to establish the base when the point is determined where it should be. H.M.Jr: Lovett: But you are not ready for that. No, sir. H.M.Jr: I mean, you are not ready for that. You won't be ready this month. Lovett: We can be ready this month if they estab- lish the fact that there is no place here. H.M.Jr: You are not ready to say, "Give me a ship today"? Lovett: No, sir. H.M.Jr: We are ready to give you one today. Lovett: That is what they told me. I wanted to find out what it was for. There is nothing we can use a ship for today. H.M.Jr: The other thing that you are talking about, we have nothing in Coast Guard that could move anything like that. Lovett: No, sir, I was sure you didn't have. That is problem number one. Problem number two-- H.M.Jr: I mean the thing that you are describing, the 340 engineers-- 64 -8Lovett: And three thousand tons-- H.M.Jr: And a move 20-ton crane, we have got nothing that would that. Lovett: No, sir. I was confident there wasn't. H.M.Jr: We have nothing, so that is out. Lovett: You have been my Father Confessor. I thought I had better come over and tell you the whole works. H.M.Jr: Even on Good Friday? 65 -9- Lovett: Yes, sir, even on Good Friday. (Laughter.) Now we have got the second problem. That is the East Coast, which is his problem. There have been German meteorological expeditions in here (indicating). Apparently the British took them out. But there have been recently four-motored and two-motored German planes over there on reconnaissance. It is a rela- tively easy hop from northwest Norway. Our own men, Colonel Bissell, surveyed all of this land in connection with round-the-world flight and this - I won't even pronounce that, but it sounds like Angmagsalik. This district here has to carry two years' food supply because occasionally a year goes by when they can't get in because of the ice. The ice conditions here apparently are such that you couldn't get a ship in there until July or somewhere along around July even in a good year. Therefore, our second problem is to get an East Coast survey up there, and that was the survey that we understood someone, some department here, had suggested that Byrd's ship, the Bear, would be back and available and -H.M.Jr: We have got a boat scheduled to sail on the fifth of May at the request of the State Depart- ment to do that. What is her name? Waesche: Well, the Northland - the Modoc will go up here on the West Coast to relieve the Northland and make available the Northland to go around there. In regard to the Bear, I have been pressing Byrd for the Bear -- H.M.Jr: Waesche: She isn't here. No, she won't get up to Boston until May 20. 66 - 10 - H.M.Jr: What was going on the fifth? Waesche: The Modoc. H.M.Jr: Where is she going? Waesche: She is going to relieve the Northland and let the Northland go around to do the ice work over here. H.M.Jr: What ship is sailing the fifth of May? Waesche: Modoc. H.M.Jr: Does she have to go there? Couldn't the Modoc go right up on the -Waesche: No, because the Northland is an ice ship. Lovett: This is all heavy ice. H.M.Jr: Would that help you any, a ship sailing on the fifth of May? Lovett: We can't get in there until sometime - what, June or July? Waesche: Not before the first of July and probably not until August. From the middle of August until the middle of September is the best time to go in there. I don't think anybody has ever gotten in before the first of July, so when this ship goes up May 5 she will have plenty of time to relieve the Northland, and the Northland can get around here by the first of July and will simply have to work her way in and get in when she can through the ice. H.M.Jr: Have you got that? Lovett: Yes, sir. The second part of the problem is at 67 - 11 - least for a month time that. off, so we have got plenty of H.M.Jr: And you know there is a ship scheduled the Lovett: Well, the War Department had been working with the Coast Guard and the State Department on fifth of May. I don't know who the State Department is going to put on. I don't know how many it canout. take, but you have got plenty of time to find this, and we were perfectly content until this new element was injected, which is Plan 3, and that is that heretofore we have only been talking about getting refueling stops for the mediumsized stuff, and if possible, to find some way to get the single-seater jobs over; and we had hoped to find something there and then fly them up into this district and then across, but that is the worst mountain section up here. Those are all the high mountains. It is very doubtful whether there is anything in there that we can use as a field. Consequently, we will have to rely on the medium-sized stuff coming right across Greenland and going into Iceland. H.M.Jr: I am going to have to interrupt you. Just tell me this. Do you want anything in the next ten days? Lovett: I don't see how we could use it, sir. H.M.Jr: Then I will ask you to excuse me. Lovett: Unless we can get a great big thing the size of the St. Mihiel to take in the construction stuff. H.M.Jr: If you don't want anything in ten days, there is nothing I can do today, and if you do want anything, contact Herbert Gaston. 68 - 12 - Lovett: Fine. H.M.Jr: Just remember, we have a ship that can go today. Lovett: I don't know what we could use it for. I am confident that the major problem behind all of this is how to protect these fellows, and it isn't something to be settled this way. H.M.Jr: I would love to listen to it some other day. Lovett: My story is told, sir. I don't see what we can do. H.M.Jr: If you don't want anything for ten days, that Lovett: Much obliged to you, sir. is a life time. 69 April 11, 1941 My dear Mr. Secretary: Supplementing our conversation of this morning, I am enclosing an opinion from the General Counsel for the Department of the Treasury, ruling that the plan for transfer of a portion of the Coast Guard to the Navy is legally authorised. The plan is set forth in the proposed memorandum which is attached to the opinion. I might add that on September 5 and 6, 1933, the President orally directed that certain Coast Guard vessels and their personnel be placed under the military control of certain naval officers, in connection with the internal Cuban disturbances at that time. Very truly yours, (Signed) H. Morgenthau, 32. The Honorable Frank Knox, Secretary of the Navy. By Messages 70 C 0 P April 11, 1941 Y TO: The Secretary of the Treasury FROM: General Counsel, Attached is a copy of a proposed memorandum from you to the President which is intended, if it is approved by the President, to effect a transfer of part of the Coast Guard to the Navy. More particularly, approval of the memorandum is intended to cause the entire sea-going fleet of the Coast Guard, will 1th certain exceptions, together with the necessary personnel to man it, to operate as a part of the Navy under the Chief of Naval Operations. Together with the operation of the present sea-going fleet of the Coast Guard the Navy will take OVEP responsibility for (1) off-shere ressue and assistance work) (2) weather observation patrol; (3) Bering sea and ATaskan patrol; (4) international ice patrol; (5) Greenland patrol; (6) transport and supply service to Pacific equatorial islands; (7) off-shore neutrality patrol. My opinion has been requested whether the President has authority so to transfer part of the 71 -2Coast Guard and its functions to the Navy. It is my opinion that the President has such power. Section 1 of the Ast of January 28, 1915, 88 Stat. 800 (U.S.C. title 14, sec. 1), provides as follows: "That there shall be estab- lished in lieu of the existing Revenue-Cutter Service and the LifeSaving Service, to be composed of those two existing organisations, with the existing offices and posi- tions and the incumbent officers and mon of those two services, the Coast Guard, which shall constitute a part of the military forces of the United States and which shall operate under the Treasury Department in time of peace and operate as a part of the Navy, subject to the orders of the Secretary of the Navy, in time of war OF when the President shall se direct. When subject to the Secretary of the Navy in time of war the expense of the Coast Guard shall be paid by the Navy Depart- ment: Provided, That no provision of this Act shall be construed as giving any officer of either the Coast Guard or the Navy, military OF other control at any time over any vessel, officer, or man of the other service except by direction of the President." Beyond question, the President may direct that the entire Coast Guard shall operate as a part of the Naty. 3- It is submitted that the provise at the end of the section clearly indicates that by the direstion of the President, officers of the Navy may be given military OF other control at any time over any Coast Guard vessel, officer, or man. It is obvious that the President may exercise that authority with respect to some vessels, officers, and men and not with respect to others. On May 2, 1916, President Wilson issued Executive Order No. 2378. That order provided as follows: By virtue of the authority vested in the President by the act approved January 28, 1915, entitled 'An Act to create the Coast Guard e', it is hereby directed that whenever the Coast Guard or any part of it shall in time of peace operate as a part of the Navy, in accordance with law, the personnel of the Coast Guard shall be subject to the regulations of the Coast Guard service ex- sept in so far as relates to military requirements which have to do solely with the movements or operations of ships, concerning which they shall be subject to the orders of the senior naval officer to whom they are directed by proper authority to report. It is further directed that whenever the whole OF any part of the personnel of the Coast Guard is operating with 72 73 the personnel of the Navy, officers and men of each service shall have the same authority and control over officers and men of the other service as that to which their rank OF rating en- titles them in their respective services." (Underscoring supplied.) It is apparent, therefore, that President Wilson was of the opinion that under the organic law establishing the Coast Guard, part of that organisation could in time of peace operate as part of the Havy. President Wilson, of course, signed the Act of January 20, 1915 which established the Coast Guard. He participated equally with the Houses of the Congress in enacting the law, and his view on the meaning of the words am- ployed in it is of great significance. (1984) 87 Op. Atty. Gen. 505, 510. Some months later there was enacted the Appropriation Act of August 29, 1916, 89 Stat. 556. The Act contained the following provision (at page 600): "Whenever the personnel of the Coast Guard, OF any part thereof, is operating with the personnel of the Navy in accordance with law, prece- dence between commissioned officers 74 - of corresponding grades in the two services shall be determined by the date of commissions in those grades." That provision has been covered into the United States Code as Title 14, section 7. It is an unequiviteal recognition by the Congress that part of the personnel of the Coast Guard may operate with the personnel of the Havy. In view of the foregoing considerations, I have concluded that the President has authority to transfer part of the Coast Guard vessels and personnel and part of the Coast Guard functions to the Havy at the present time. (Signed) E. H. Foley, Jr. General Counsel. was 4/1+1+ and dated day what the Pres the peine April 10, 1941. TO: The President FROM: The Secretary of the Treasury. The following embodies my understanding of your verbal instructions of this day with respect to the assignment of certain equipment and functions of the Coast Guard to the Navy: With the exception of those vessels which are especially adapted to use as ice-breakers, and with the exception of cutters needed for operations on the Great Lakes, the entire seagoing fleet of the Coast Guard together with the necessary personnel to man it will hereafter operate as a part of the Nevy under the Chief of Naval Operations. The normal operation and maintenance costs of the vessels of the Coast Guard which are to operate as a part of the Navy will be defrayed from Coast Guard appropri- ations. All major alterations and other unusual costs to fit the above ships for Navy service will be defrayed from Navy appropriations. If necessary, legislation is to be obtained to authorise this. Together with the operation of the present seagoing fleet of the Coast Guard the Navy will take over responsibility for (1) off-shore rescue and assistance work; (2) weather observation patrol; (3) Bering see and Alaskan patrol; (4) international ice patrol; (5) Greenland patrol; (6) transport and supply service to Pacific equatorial islands; (7) off-shore neutrality patrol. With the above exceptions the Coast Guard will retain its present organisation, functions and equipment. 75 76 2- The functions which the Coast Guard will continue to perform include the following: (1) All in-shore assistance work. (2) All merchant ship control and other duties performed by Captains of the Ports. (3) Operation, maintenance, repair, construction and development of lighthouses and other aids to navigation. (4) All duties on the Great Lakes normally falling within the scope of operation of the Coast Guard. (5) Ice-breaking in interior and coastal waters of the United States, including the Great Lakes. (B) Training of merchant marine and Coast Guard personnel. Equipment to be retained by the Coast Guard will include: (1) All present Coast Guard shore establishments. (2) All Coast Guard aircraft. (3) All other floating and shore equipment necessary to the performance of the functions listed above. "Seagoing fleet" as used above, is understood to include the following: Seven 327-foot cutters; four 240-foot sutters; seventeen 166-foot patrol boats; tucaty 125-foot patrol boats, and the following unclassified seagoing outters: UNALGA, TALLAPOOSA, NORTHLAND, REDWING, SHAUNEE. APPROVED: April , 1941. inth. prim 77 April 11, 1941 3:00 p.m. RE BANK HOLDING COMPANY LEGISLATION Present: Mr. Delano Mr. O'Connell Mr. Upham Mr. Williams Mr. Sherbondy Mr. Duffield Mr. Foley Mr. Bell Mrs. Klotz Mr. Kuhn H.M.Jr: Where is one Foley? O'Connell: He had to stop in Mr. Bell's office. I think they will both be in in a minute. Kuhn: This is mostly a rearrangement, Mr. Secretary, rather than any new stuff. There is only one really new passage in it. (see attach- ment No. 1) H.M.Jr: You don't think I am apologizing a little bit for coming up there, too much? Upham: Yes. H.M.Jr: That is what I think. I mean, I say it twice. Upham: You mean the sentence, "That is my chief justification for being here"? 78 -2H.M.Jr: Yes, and "You may well ask why the Secretary of the Treasury chooses this" - I mean, why put that in their minds? I personally just wonder if that last paragraph - "The best of all moments to remove abuses and make improvements is the time when our boat is on an even keel." "Our banking structure is stronger today than it has ever been." Just make it, "The worst of all moments," and leave out the rest. "The best of all moments to remove abuses and to make improvements is the time when our banking structure is as strong today as it ever has been. (Mr. Bell and Mr. Foley entered the conference.) H.M.Jr: You see? Then I would leave out that thing, "That, gentlemen, is my chief justification. Has Mr. Bell got a copy? Bell: Yes, sir. I have a copy. H.M.Jr: On the top of page four, you might get the impression - "The bill under consideration simply carries out the President's recommendations. That was almost three years ago. If Does that mean the President's recommendation was almost three years ago? Kuhn: Yes. H.M.Jr: It wasn't, was it? 79 -3Foley: April '38, and this is April '41. H.M.Jr: Then that is right. Foley: Time passes. H.M.Jr: At the bottom of page four, last sentence, "which has been strengthened during the past eight years by the patient efforts of the Government and the bankers. Who the hell keeps putting the bankers first all the time? (Laughter) It sounds like the Association of Manufacturers. Delano: The Comptroller's office didn't do that. Foley: He caught that before. Upham: Government should have a capital "G," also. H.M.Jr: As long as the Government is in Washington. This is another one. You had bankers and depositors before. Kuhn: That is on the next page. Bell: They cut both of them out. H.M.Jr: That is all right. Foley: It doesn't read very well now, though. "Protect bank depositors and help bankers, H.M.Jr: especially in the small local banks." You don't mean in small local banks. You mean in -Bell: Small communities. H.M.Jr: That is right. 80 -4Kuhn: Small communities? H.M.Jr: Yes. Banks in small communities. What? Foley: Yes. H.M.Jr: A lot of this which is new has to be smoothed up. From now on, is it the same? Kuhn: The new stuff is on page seven. O'Connell: All of page seven is new. H.M.Jr: None of these reads smooth. Have you been Kuhn: Not a good one yet. H.M.Jr: You had better sharpen it. Foley: Ferdie did it. H.M.Jr: He did? Foley: Yes. It is his product. That is a swell paragraph. I like that. H.M.Jr: on this with a planer, Ferdie? Kuhn: Ed did that. H.M.Jr: Who did this one? Foley: The lawyers. (Laughter) If it is good, the lawyers did it. H.M.Jr: It is a damn good paragraph. That is a swell paragraph. "No legitimate local enterprise should lack necessary credit at a rate made reasonable by free competition among free banks." 81 -5- I don't quite get that. Sherbondy: Reasonableness resulting from competition. without competition the rate would not be reasonable. H.M.Jr: There is an awful lot packed into that. Do you think that is quite clear, Dan, at a rate made reasonable? Bell: Well, I think I know what the meaning is. Sherbondy: Reasonable credit resulting from free competition among free banks. H.M.Jr: Oh, reasonable rate of credit. Sherbondy: Reasonable rate of credit resulting from H.M.Jr: Something like that. What you mean is a Sherbondy: Credit at a reasonable rate of interest. H.M.Jr: It is a little bit -- Foley: At a fair rate of interest resulting from free competition among free banks. reasonable rate of interest, don't you? free competition among free banks. H.M.Jr: That is a swell page. Bell: I don't know how far you can go with that, but I suppose it is a little Inconsistent with the policy of the Comptroller's office of not granting charters and branches in communities where the community is already well banked, maybe with one bank and that is sufficient, but you wouldn't put another bank there if you couldn't make a go of it. Delano: I think the word "locality" is sufficiently 82 - -6- broad to cover the point. You see, if you had just a little bit of a small area and had only one bank in it, that would be one condition, but the locality gives you a chance to get competition. Bell: You are not afraid of that? Delano: The Comptroller's office does not deny competition in localities. It only denies it where it would ruin both banks, and that is in very small communities. Where a locality is sufficiently wide - we debated that question. Upham: Delano: We hope that doesn't mean two banks in Podunk. We don't think it does. We think the size and dimensions of the locality is sufficiently general. Bell: To carry this out to its conclusion might Delano: We think the word is sufficiently broad Foley: Where is the next new place, Jo? Kuhn: At the very end. Sherbondy: Last page. H.M.Jr: Page eight is not new? mean over-banked. to cover it. O'Connell: No. H.M.Jr: That page seven is a swell page. It packs 83 -7a lot of stuff in it. You know who will love this page is Bob Jackson. That is his whole theme song. He makes these speeches about local enterprises. Now where do we go to? Kuhn: Page sixteen, middle of page sixteen. H.M.Jr: I am not watching the clock without watching a certain gentleman's (Foley's) suit. The two things go together. Foley: Both fast, are they? (Laughter) H.M.Jr: The two things have a correlation. You don't get it? Look around the room. Foley: I told the Secretary this meant the orders were "shoreward march." Bell: It seems to have been lengthened a little, Kuhn: There is a whole page added, at least. Foley: hasn't it? It was fourteen before. It is sixteen now. O'Connell: About two more pages. H.M.Jr: Now, what you haven't said anywhere is this. A fellow by the name of Cyril Upham came to see me and said, "Mr. Morgenthau, here is a very dangerous situation. We insure the 84 -8- deposits of one institution for eight hundred million dollars, which is just twice the reserves of the Federal Deposit Insurance. Now, I want it for this paragraph. Potentially dangerous. The thing that originally made it evident was that the danger was that in one institution we insured the depositor for twice the amount of the reserves of the Federal Deposit Insurance. I don't know whether those figures are true any more, but they were true a few years ago. I wonder if you don't want to work that in? Foley: Gene is outside. H.M.Jr: Tell him to come in. You don't want to Upham: I wouldn't. put it in? (Mr. Duffield entered the conference.) O 85 -9- H.M.Jr: Do you want a breath of fresh air? What page O'Connell: Seven. H.M.Jr: Read that for a breath of fresh air. That will is this, eight? cleanse you from the Wall Street grime. (Laughter.) I want to watch his face when he sees it. Duffield: Yes, I saw this yesterday. This is good. H.M.Jr: Did you see it yesterday? Duffield: Yes. It is all right. H.M.Jr: Isn't that good? Duffield: You bet. H.M.Jr: I like that page. What was the decision, do you want to put in something about the large banks? Do you want to put in that one bank has twice the amount of insurance - insured deposits repre- sent twice the total reserve of FDIC. Delano: We have many banks that do that, big banks, that are way over the resources. It would be a ques- tion of policy. It is undoubtedly true in the case of a great many of those big institutions. H.M.Jr: How many do have eight million dollars worth of insured deposits? How many? Delano: I would say - how many? Upham: Not very many. 86 - 10 - Bell: Chase and National City and Guaranty, would they carry deposits of that much insured? Delano: Yes. Well, the Chase certainly would, and the National City would. Bell: The National City carries small deposits. Foley: Well, the Bank of America has more deposits Bell: Oh, no. Foley: I don't mean in volume -- Upham: More small depositors. Foley: than any other bank, doesn't it? That is what I mean, separate deposits that are insured, even though in volume, in amount they might not be first. But they are probably first insofar as number is concerned. H.M.Jr: Take a look at it. Delano: All right. H.M.Jr: It is just a suggestion. It may not be any good. But it is what started the whole thing. That is what started it. Take a look at it. Upham: That bank is first in volume of insured deposits, there is no question about that. Sherbondy: It has about eighty percent, doesn't it? It has a different class. Upham: H.M.Jr: Take a look at it just for fear somebody may not realize I have got the Bank of America in mind, just to make a hundred percent sure. I am not saying to put it in, you know. 87 - 11 - Now, in the middle of page 16, at the end of the first paragraph, I just wonder if you don't want to add this, "And we do not have that necessary authority today. Hence the bill. Hence the need of legislation. Hence the urgent need for legislation. What do you think? "We haven't got that authority. That is why I am up here. That is why I am pleading this case." What? This will only be the second time saying that I want this legislation. I only say it the once. I say it again now at the end. That last, "I should like to urge you all in earnestness and sincerity." That is a little bit strong. Delano: Wonder if we couldn't change that word, elementary, to fundamental. H.M.Jr: Fundamental? Bell: Just say "this precaution." Foley: Take out the adjective. Delano: I don't like elementary there. H.M.Jr: "I should like to urge you __" "...to remove." Upham: Foley: "....to remove the menace of bank holding com- panies and to do it now." Strike out that whole clause. Strike out "with all the earnestness and sincerity at my command, just put, "I should like to urge you to remove and so forth." H.M.Jr: The other is like a prayer. Foley: They will begin calling you Senator, if you do that. 88 - 12 - H.M.Jr: Upham: Isuit. will have to buy myself a different kind of That is a Good Friday influence. (Laughter.) H.M.Jr: I think it still needs a little polishing, a word here and a word there. What do you think, Dan? Bell: A very good statement. H.M.Jr: Have you seen it in its present form? Duffield: Yes, sir. H.M.Jr: What do you think would be the reaction on the Hill after I gave this? Duffield: Well, I don't know. It is awfully hard up there now to get them interested in anything that isn't defense. H.M.Jr: I know. Duffield: That it - is really true. I think if you keep after (Mrs. Klotz entered the conference.) ....I think that is why it is important. H.M.Jr: Is there one chance in three of getting the bill through? Duffield: Yes, about that. H.M.Jr: Which is this page, eight? Upham: Seven. 89 - 13 - H.M.Jr: This is a magnificent page. One in three? Duffield: Yes. H.M.Jr: Well, that is good enough. Now let me ask you this, Gene. Will we make the papers at all on this? Duffield: Yes. It depends a little bit, of course, on the kind of world we have today and what else happens on that particular day. I would say on an ordinary news day, yes, very definitely. H.M.Jr: How will the majority of the bank directors Duffield: Well, I don't know as I know enough to answer H.M.Jr: Do you think it will make them sore? Duffield: I look around here at all these people who see the bankers every day, and I think they ought to feel? that. know. I don't. Delano: I don't think so. H.M.Jr: Do you think it is a mistake for me to do this? Duffield: No, sir. H.M.Jr: Would you like to see me do it? Duffield: Yes, sir. Bell: I just wonder what effect it might have on our cooperation with the banks in our financing. I suppose you have thought of that. I wondered if you might want to discuss it with somebody outside. H.M.Jr: Oh, I think that - if I did it with anybody I 90 - 14 - would do it with the people who advise me, those three bankers. Bell: I thought you might want to. Foley: Charley Spencer is affected, isn't he? H.M.Jr: No. Upham: He has a holding company group. Duffield: Isn't that the answer, that those bankers who will be affected won't like it, and won't it go well with the others? Delano: That is right. As a matter of fact, Charley Spencer is antagonistic to it because it strikes him. H.M.Jr: I will tell you, gentlemen, every so often I have got to do something for the good of my soul, and right now my soul needs it. Delano: I don't think it will go too bad. H.M.Jr: I need something distinctly New Deal-ish. (Laughter.) I think the fellows that elected Mr. Roosevelt will like it, all of them. Delano: H.M.Jr: I think the small banks will be much in favor of this. I am just afraid it will leak out and Willkie will get to it first. (Laughter.) Is that good? 91 - 15 - Bell: It ought to help it. H.M.Jr: Gene, your paper is getting so good these days I told somebody the other day that you can't be in the financial business and not read the Wall Street Journal, especially the Washington news. Duffield: I am glad to hear that. I hope they all feel that way. 92 - 16 H.M.Jr: I told that to Lauch Currie and he said he has it on his desk now regularly. Duffield: So he told me. H.M.Jr: It is getting very good. Duffield: We are working. H.M.Jr: I don't think there is anything - I don't think that they will go on a sit-down strike on us or something like that. Foley: They can't. H.M.Jr: Well, as far as I am concerned, it needs a little polishing. We will hear from Senator Glass Monday. When am I going up? Delano: We have it in rough, and we would like to H.M.Jr: How are you going to get it on the fairway? polish it a little bit. (Laughter) Delano: We will be all teed up by Monday. H.M.Jr: All right. You don't know how appreciative I am that I don't have to do it this after- noon, for Ed's sake. We have got to get Ed and that suit on the floor (of Congress). Delano: I would like to-- Bell: I might as well read it this afternoon. It won't spoil my golf game. Delano: The Undersecretary and I had a golf game and that is the reason why we are feeling a little bit-- 93 - 17 Bell: A little low. H.M.Jr: How about tomorrow morning? Bell: I think it can be arranged. H.M.Jr: I will promise not to bother you. Well, gentlemen, I know you have helped a lot. I am ever so much obliged. Duffield: I didn't help so much. Bell: One other thing on it. Are we going to in any way discuss this program with the benking group, interdepartmental banking group? H.M.Jr: No, Jones didn't want to come to the meeting and Eccles wanted to write his own bill-- Foley: He was going to write us a letter and give us the Board views, which we never received. Bell: There was a little feeling, you remember, last time we met because of the fact that the bill was introduced without sort of-- Foley: But he didn't do what he said he would when he was here last, Dan. Bell: I figured he hasn't got the Board views yet. H.M.Jr: I will tell you what we will do. I will take an hour off, and I will call up Eccles (Laughter) and tell him that I am going up on the Hill, and he had better start in. We will wait until we get the green light from Glass, and I will call him up the night before. The same with Jones. But you remind me again. I will do it. I will call him up. 94 - 18 - Bell: Iraised don't it. know if it is necessary. I just H.M.Jr: I think we should. Thanks for everybody's help. 95 April 10, 1941 I have come here today to discuss with you a problem which is essentially domostic but which seems to me to be a potential threat to our national strength. This is the problem of the domination of banks by bank holding companies - a form of domination which, to my mind, is in some respects just as undemecratic and appressive as domination by a totaliteries government, Sveats abroad have made it all too clear that a nation is as likely to collapse from internal weaknesses as from external forces. The survival of the democratic form of government depends to & large degree upon its ability, during national and International erises, to continue to protest the lives, the rights and the interests of its citimens, net only against oppossion from abread, but against oppression from within, You my well ask why the Secretary of the Treasury this, of all time, to come before the Congress on such a mitter. the Peases this is a good time is because our booking structure is stronger today than st has ever become The beet of all - to move abages and to make improvements is the time-when - best is ⑉ as oven keal. The worst of all I in is time of economic strein and trouble. It is our 96 2 duty now to prepare for the day when there may be peace, when we shall not be spending these billions for the national defense, and when the strain of a readjustment period will again be weighing on our banking system. That, gentleuon, is my chief justification for being here now. I have another reason for waning before you today on the bank holding company problem. Seven years have gone by since your committee made its exhaustive inquiry into the stock exchanges, the se-called Pecors investigation. The mommental repert that followed your investigation called attention, among other things, to the abuses and the dangers inherent in the domination of banks by bank holding companies. The Banking Act of 1935 conferred some power upon the Federal Reserve Board with respect to bank holding companies. That power has proved wholly ineffective. No additional legislation has been enacted to deal with the problem, Admittedly, as Secretary of the Treasury, I must assume part of the blamo, If there is to be any blame, for the failure to prese for further legiclation, Three years after the passage of the 1935 Banking set, as interdepartmental committee composed of representatives of the Board of Governors of the Federal Reserve system, the Federal Deposit Insurance Corporation, the 97 Finance Corporation, and the Treasury Department gave considerable attention to the bank holding company problem and reached the unanimous conclusion that the operations of bank holding companios should not be allowed to expand, that the principle of bank holding companies is not is the best interests of the country and that something should be done about them. The opinion of that committee was consumicated to the President. Shortly, thereafter, in his message to Congress, on April 29, 1938, the President recommended the enastment of bank holding company legislation in the following languages "We have seen the miliplied evils which have arison from the holding company system in the case of public utilities, where a small minerity ownership has been able to dominate a far-flung system. "No do not want those evils repeated in the banking field, and we should take steps new to see that they are not. It is not a sufficient assurance against the future to say that no great evil has yet resulted from holding company operations in this field. The possibilities of great harm are inherent in the situation. "I recommend that the Congress enset at this session legislation that will effectively control the operation of bank holding companies; prevent holding companios from acquiring control of any more banks, directly OF indirectly) prevent banks controlled by holding companies from establish- ing any more branches; and make it illegal for a holding company, or any corporation OF enterprise in which it is financially interested, to borrow from OF sell securities to a bank la which it holds stock, "I recommend that this bank legislation make provision for the gradual separation of banks from holding company control OF ownership allowing a reasonable time for this accomplishment - time enough for it to be done in an orderly manner and without causing inconvenience to communities served by holding company banks. 98 That was almost three years age. Congress has not yet taken any action to deal with the problem. The bill under consideration simply carries out the President's recommendations. It is a bill designed to curb the extent to which banks insured by the Federal Deposit Insurance Corporation may be controlled by holding companies. At present the activities of such holding companies are almost whelly mrstricted In brief the bill, which would be administered by the Federal Deposit Insurance Corporation, would make it unlanful, after June so, 1944, for any company to om OF control more than 10 percent of the voting stock of any bank insured by the Federal Deposit Insurance Corporation, OF to control in any manner the management OF policies of an insured bank. The bill also would confer upon the Comptroller of the Currency, with respect to national banks, and the Federal Deposit Insure ance Corporation, with respect to other insured banks, the authority to vote the payment of excessive dividends by insured banks. I favor the enactment of the measure. Its purpose is to protect and safeguard the banking structure which has been strengthened during the past eight years by the patient efforts of bankers and government alike, Today 99 -5. bankers are cooperating wholeheartedly in the national defense prégram. It is because I want to protect bank do positors and help bankers, especially in the small local banks, that I favor legislation to deal with the bank holding company problem. To my mind, holding company domination is 8 serious manage to our banking structure. I do not intend to burden you with an involved discussion of the evils inherent in holding company control of banks. A substantial part of the very excellent report of your committee at the close of its stock exchange investigation was devoted to the bank holding problem. This morning, I want to discuss briefly soma of the abuses in the operations of bank holding companies as dis- closed by that report and, perhaps, bring to your attention further abuses not taken up at that time. One of the greatest dangers involved is the expansion of bank holding companies is the resulting monopolistic trent in the banking field. Monopoly in banking is just as visious and just as antagonistic to our free democratic order as it is in other fields. The small unit banker needs 100 protection against monopoly just as such as the small manufacturer. Our records disclose several instances in which a holding company has threatened to establish a branch of one of its captive banks to compete with a small, into pendent institution, unless the independent bank sold out to the holding company. In this connection the statement of the president of a small independent bank, taken from our files, is paper tinent. He said, "ass it new appears that a move is being nade to attempt to seare us into selling out against our om wishes, or the alternative, to be obliged to compete with this bank in a branch to be established here if a charter can be procured." A manufacturer in the same commity mots, "There is a feeling in all classes that the petition of the Large branch banking institution for a branch in this city is 8 'squeese' play calculated to force the sale of our our independent bank." 101 Moreover, the absorption of a locally-owned bank by an outside holding company brings with it all the recognised evils inherent in absentee ownership of local enterprises. Such ownership can mean that banking and credit policies are distated by persons ignorant of the needs of the community that local citisons are unable to make direct contact with those ultimately responsible for the granting OF denying of loans. Credit can be drained from the local commity where credit may be needed, and turned to other sections where the return to the bank and the holding company is greater. The bank portfolio may be loaded with investments in enterprises wholly unrelated to the community, and bank officers and employees imported to direct the local banks' affairs. Such absentee ownership of banks amounts to financial domination without representation. Free locally-ganed banks are essential to a healthy banking structure. Even that is not enough. There must be competition among & number of such free locally-owned banks in a given locality if credit needs are to be not on a basis equitable to lender and borrower. No legitimate local enter prise should lack necessary credit at a rate made reasonable by free competition emong free banks. 102 After a bank has been absorbed into a holding company system, it is exposed to the danger of intragroup deals at fictitious values. This is self-deeling. It is the typical holding company practice with which the public because familiar in the Insull and Associated Gas and Kleatrie eases. It is particularly important that banks amt their depositors be protected against it. When a bank is in a holding company system it is frequently used to heep afleat the weak affiliated enterprises of the holding company. This is done by damping into the captive bank depreciated real estate or other assets of affiliates. The bank is forced by the holding company to pay fictitious prices for these assets in order to bail out the affiliates. The bank holding company tends to drain the resources of the banks in the system in order to mintain the dividend policy of the holding company. The mintenance of the market value of its stock is fundamental to the continued prestige and growth of a bank holding company. The value of that stock depends primarily upon the dividends 103 paid by the holding company, which in turn are made up from dividends paid to the holding company by its sub- sidiary banks. The result is that the bank holding company is frequently so much concerned with maintaining an undiainished flow of dividends from its controlled banks that it is wwilling to recegnize the dangerous effect of an excessive dividind policy upon the soundness of the banks. The investigation of your Committee disclosed documentary evidence of the strong pressure by-holding companies in Detroit to compel controlled banks to pay dividends in excess of the amounts deemed advisable by the bank directors. Ever since 1933 the office of the Comptroller of the Currency has endeavered to persuade one large national bank controlled by a holding company group to reduce its dividend rate. Instead the dividend rate has steadily increased from 6% to approximately 20% at the present time. The complicated structure of a bank holding company system is a constant temptation to evenion and circum vention of the banking laws. Several years age the m tional bank examiners directed a large national bank can- 104 - 10 trolled by a holding company to charge off some $85,000,000 of bad assets. Such a charge off by the bank would have accessitated suspension of dividends by the bank to the holding company. To avoid any such possibility the bank entered into a series of inter-company deals. Instead of charging off the $85,000,000 of assets the bank turned them ever to an affiliated company which promised to pay the bank $85,000,000. Had the $85,000,000 contracts been carried out in good faith the deal perhaps would not have been subject to criticism. But the deal laft the affiliated company holding the bag. To ressue the affiliated company, the bank deliberately wrote up the value of its bonds by $34,000,000 - a purely paper transaction. The bank them credited this $14,000,000 paper profit against the 885,000,000 and by the affiliate, in effect excusing that such of the debt. Thus the bank's assets were juggled and divorted to SEVO the holding company affiliate from a heavy loss and to permit the holding company to continue draining the bank through dividends. Your Committee reported that certain of the bank holding companies investigated deliberately prepared 105 - 11 . their statements and reports is such a form as to misrepresent the real condition of their controlled banks. The experience of the office of the Comptroller of the Currency has shown that the structure of some bank holding companies is so confusing that adequate examination and supervision of the actional banks controlled by such companies is at times all but in possible. One of the provalent methods of misusing the funds of a bank controlled by a holding company is to force the bank to land money to the holding company or to make loans on stock of the holding company. One of the easiest ways for the holding company to main tain the market price of its stock is to have the bank lend money to friendly persons se that they buy the holding company's stock. For example, the former National Bank of Kentucky leaned approximately $5,800,000 of its funds ea stock of the holding company which controlled the bask When the holding company collapsed the bank suffered a less of almost $2,000,000 on such loans. 106 - 12 Although existing law restricts loans by member banks of the Federal Reserve System to executive officers of such banks, the spirit of the law is frequently eiremonted by loans made to officers and directors of bank holding companies OF affiliated interests. 1 have in mind an officer of a corporation affiliated with a beak helding company who had inadequately secured loans of OVER $7,000,000 outstanding at one time from a bank controlled by the holding company, The fast that bank holding companies list their stocks on national exchanges is an over-present menace to the banks controlled by the holding companies. Deelines in the market price of the holding company stock affect the public confidence, not only in the holding company, "as a distinet entity but in each and every banking unit of the whole, regardless of its can inherent soundness." (page 884) Strong beaks in a holding company group are often enlangered by weak banks. As your Committee assetiselly expressed this criticisms 107 - 18 "This most patent deficiency in group banking is that the group is only as strong as its weakest unit. When the sheek of adversity # dislodges confidence in any one of the units, the entire structure is destined to collapse. Unit banks which might otherwise have survived are doomed be- cause of their affiliation is the public mind with the weaker units. (page 294) After its eareful investigation this Connittee comsinded thats " . . Little justification, economic or social, exists for the holding company as presently constituted and conducted. Holding companies, whether employed is the banking, public utility OF railroad field, have been catastrophic to the Amer- lean public. (page 388) The intensive investigation made by this Committee in 1994 and the very positive conformation of holding panies by your Committee in its monumental report, show that legislation is needed to end the domination of in sured banks by holding companies. And nothing has happened to dintaish the need. Is fast our experience is more ⑉ eat years will, I believe, lend additional support to that proposition. 108 - 14 The impelling necessity for bank holding company legislation was made increasingly clear as a result of recent difficulties which the office of the Comptroller of the Currency, in cooperation with the other Federal bank supervising agencies, encountered in the examina- tion and supervision of one of the largest national banks, which is a unit in a complicated holding company system. In that case, the value of the holding company stock depended to a maked degree upon the dividends paid by the bank to the holding company and many of the financial transactions of the holding company group involved the questionable use of funds obtained from the bank. The bank, under the domination of the helding pain group, refused to follow recommendations and direa- tions of the Comptroller of the Currency to polnce its excessive dividend rate, improve its capital position, charge off certain lesses set up by the national beak examiners, drastically reduce excessive lease to the holding company and affiliated and allied interests, eliminate excessive real estate holdings, and take other steps considered by the Comptroller of the Currency 109 . 15 as necessary to protect the soundness and stability of the bank. Some of the sanctions given the Comptroller of the Currency under existing legislation are so weak that their use would have been ineffective, while others are so drestic that their use night have done excessive injury to the bank. Consequently, for approximately three years a tug of war went on between the beak on the one hand and the office of the Comptroller of the Currency and the other regulatory agencies on the other. Finally, as a result of constant pressure over those three yours, the bank agreed to make a number of the changes insisted upon by the Comptroller of the Currency, although st did not agree to any reduction is its dividend rate. Thus for the bank has cooperated in carrying out most of the sgreed changes with resulting benefits to the bank and its depositors. But it should not be necessary for the supervising agencies to struggle for years with a helding company dominated bank to obtain the adoption of sound banking practices which most free banks follow without argument. 110 - 16 It is potentially dangerous, when the future of some of the largest banks in the country, as well as numerous small banks, is tiod to the career of a for holding companies. Banks are established, not to nurture holding companies, but to serve the depositors and the general public. The Federal Government, as changeses, emainer, and supervisor of banks, has the responsibility of taking every possible step to assure the sominess of such banks. The various agencies intrusted by Congress with that responsibility cannot function effectively unless Congress essets legislation conferring adequate powers upon such agencies. I - convinced that this evil of bank holding companies needs to be corrected without delay. It my not look like a major problem if we judge it by the seals of the Immense evils and dangers that are sweeping across the world. But it is a major problem, to my mind, If - judge it by what happened in this country before 1988, No shall never have a better opportunity to settle it then - have at this month We have it in - to safeguard our leaking structure and these to strengthen - of the founder tions of American democracy. We may yet represch ourselves i11 if the next financial storm blows down upon us without our having taken this elementary precaution. I should like to urge you, with all the earnestness and sincerity at my command, to remove the manage of bank holding come panies, and to do it now. 112 April 11, 1941 4:00 p.m. Harold Ickes: Say, Henry. H.M.Jr: Yes. I: H.M.Jr: I: You've heard us at Cabinet once or twice discuss this morale stuff. Have you any idea where the block is coming on that? No, I never discussed it with the President. He never mentioned it to me. Well, now, I just talked with Frank Knox a while ago and he went to bat on it again the last day or two and the President H.M.Jr: apparently hasn't the least interest in it. Well, I think he's wrong. I: Frank tried to arrange for a committee from New York, headed by Marshall Field, to come down and see him and you know of the obligations he's under to Field. "Oh," he said, "sometime later! H.M.Jr: I don't know. I can't tell you because I: This home defense thing - seem to think that they've shunted it off into that. Now, that'11 just kill it. Why, Henry, this is of tremendous importance. H.M.Jr: I: I agree with you. You know and he knows himself that that's what licked France, and Belgium and all the rest, that it wasn't the armies of the Germans, it was Goebbel's propaganda. We're doing nothing to meet it. H.M.Jr: Absolutely nothing. I just don't know. You remember I asked you to send me something on it and you were kind enough I: of course, Mellett has been against it. 113 -2H.M.Jr: oh, has he? Now I hear that apparently he had Wayne McCoy on it. and Bill Bullitt or somebody working I: H.M.Jr: I: I think that was on home defense. Well, I know that was home defense but they also sent over here for some papers on the other while I was away on that trip. Burlew tells me that; he gave them the papers. Well, if you get any chance put in a few words. H.M.Jr: I'll do that cheerfully. I: Thanks, Henry. H.M.Jr: Thank you. 114 April 11, 1941 4:06 p.m. H.M.Jr: Hello. Operator: Leon Henderson. H.M.Jr: Hello, Leon. Leon Henderson: Hello, Henry. H.M.Jr: My congratulations. H: H.M.Jr: H: Thank you very, very much. All power to you. I heard the thing was over there on the Boss' desk and I was going to call you and then I heard it was getting along all right and nobody interfering and it seemed to have gone through pretty well. H.M.Jr: Wonderful. H: And on this civilian supply thing, we've got authorization to suggest programs and 80 forth. What I'd like - you notice that they put you and Jesse and 80 forth on an advisory committee. H.M.Jr: Didn't see that. H: Yeah, that's right, and that's in line with a suggestion that Baruch made to me about the last war, seeing that the agencies directly concerned had an access, you know, and had a status. What I'd like to do is next week ask the committee if we couldn't have one meeting with the top boys, like yourself and Jesse, and then make sure that we've got somebody that would work pretty much full-time on it representing you. We've got this kind of a situation, Henry. Here's this steel wage question, and if they get what they're bargaining for now, it means an increase in steel prices. I talked to the Boss today and I went down and talked to Miss Perkins about it. Well, that's a very delicate situation. 115 -2H.M.Jr: H: H.M.Jr: Yeah. And I'm going to work on it over the weekend, but it's something that I'd like a little advice from the rest of you about. Well, whenever you want it. Now, I talked to the President today - I was over there on taxes - and he said he'd like us to keep you posted and get your advice. H: H.M.Jr: H: H.M.Jr: Yeah. So John Sullivan is going to get in touch with you Monday. All right, swell. So that's that. H: We need to go right down the line. H.M.Jr: O.K. H: All right. I've had my boys studying this British thing, by the way, and trying to keep up with your fellows and we'll be ready. H.M.Jr: Fine. Good luck. H: All right. Thanks for calling, Henry. H.M.Jr: Right. 116 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE April 11, 1941 100 Secretary Morgenthau For Mr. Cochran Sir Frederick Phillips telephoned me at 3:45 this afternoon. He asked how the Brown and Williamson deal was coming along. He also stated that he would like an appointment with the Secretary to talk over some of his matters before the Canadians come down next week. I brought the foregoing to the Secretary's attention at 4:10. He told me to let Sir Frederick know that Mr. Jones, with whom he had talked in regard to the Brown and Williamson transaction. would not be able to give us a report until Monday or Tuesday next. Mr. Jones did not come to the Treasury today as anticipated, since the Secretary was obliged to go to the White House. The Secretary asked me to take up with Lieutenant Stevens the question of an appointment for Sir Frederick, I telephoned the foregoing message to Sir Frederick at 4:20. I then indicated to Lieutenant Stevens the preference of Sir Frederick for a Tuesday morning appointment. Stevens will take this up with the Secretary and call me back. N M.S. 117 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE April 11, 1941 Chaunoey Secretary Morgenthau FOR Mr. Cochran At 2:45 p.m. yesterday Mr. Playfair of the British Treasury Mission called on no. He stated that Mr. Gifford contemplated a substantial vesting of on there may be two or securities15 April 20 19. of Among such securities lots which constitute or percent outstanding voting stockthree of theAmerican issuing concerns. He asked my advice about complying with S. E. C. formalities in disposing of shares in which there is such an extensive interest concentrated in one seller. The British would like to have freedom to dispose of such securities up to a 30 percent interest without going through S. E. C. formalities. In agreement with Mr. Playfair I telephoned Mr. Ganson Purcell at the S. E. C. and explained the question. Mr. Purcell said it would be impossible to fix any general limit such as 30 percent, since the test is that as to whether there is factual ability to control. It was the suggestion of Mr. Purcell that Mr. Playfair obtain such information as may be readily available with Mr. Gifford, and without calling upon the people from whom the securities were obtained, and then visit Mr. Purcell at the S.E.O. The latter would put Mr. Playfair in touch with the office of the General Counsel of the S. E. C. if this proved advisable. Mr. Purcell offered to be of all possible assistance. I recommended to Mr. Playfair that he follow Mr. Purcell's advice and call in the near future, since S. E. C. regulations are involved and it would be preferable to obtain a clear understanding at once rather than to go ahead without a definite knowledge of what should and can be done. I promised Mr. Playfair that I would bring this matter to the attention of the Secretary if any difficulties were experienced by the British in their negotiations with the S. E. C. Mr. Playfair seemed quite satisfied and promised to keep me informed. m.g. 118 TREASURY DEPARTMENT FOR RELEASE, MORNING PAPERS Friday, April 11, 1941. The Secretary of the Treasury, by this public notice invites tenders for $100,000,000, or thereabouts, of 91-day Treasury bills, to be issued on a discount basis under competitive bidding. The bills of this series will be dated April 16, 1941, and will mature July 16, 1941, when the face amount will be payable without interes They will be issued in bearer form only, and in denominations of $1,000, $5,000, $10,000, $100,000, $500,000, and $1,000,000 (maturity value). Tenders 'will be received at Federal Reserve Banks and Branches up to the closing hour, two o'clock p. m., Eastern Standard time, Monday, April 14, 1941. Tenders will not be received at the Treasury Department, Washington. Each tender must be for an even multiple of $1,000, and the price offered must be expressed on the basis of 100, with not more than three decimals, e. g., 99.925. Fractions may not be used. It is urged that tenders be made on the printed forms and forwarded in the special envelopes which will be supplied by Federal Reserve Banks or Branches on application therefor. Tenders will be received without deposit from incorporated banks and trust companies and from responsible and recognized dealers in investment securities. Tenders from others must be accomornied by payment of 10 percent of the face amount of Treasury bills Applied for, unless the tenders are accompanied by an express guaranty of payment by an incorporated bank or trust company. 24-54 -2- 119 Immediately after the closing hour, tenders will be opened at the Federal Reserve Banks and Branches, following which public ennouncement will be made by the Secretary of the Treasury of the amount and price range of accepted bids. Those submitting tenders will be advised of the acceptance or rejection thereof. The Secretary of the Treasury expressly reserves the right to accept or reject any or all tenders, in whole or in part, and his action in any such respect shall be final. Payment of accepted tenders at the prices offered must be made or completed at the Federal Reserve Bank in cash or other immediately available funds on April 16, 1941. The income derived from Treasury bills, whether interest or gain from the sale or other disposition of the bills, shall not have any exemption, as such, and loss from the sale or other dis- position of Treasury bills shall not have any special treatment, AS such, under Federal tax Acts now or hereafter enacted. The bills shall be subject to estate, inheritance, gift, or other excise taxes, whether Federal or State, but shall be exempt from all taxation now or herenfter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. For purposes of taxation the Amount of discount at which Treasury bills are originally sold by the United States shall be considered to be interest. Trepsury Department Circuler No. 418, AS amended, and this notice, prescribe the terms of the Treasury bills and govern the conditions of their issue. Copies of the circular may be obtained from any Federal Reserve Bank or Branch. -000- 120 April 11, 1943 Dear Mr. Lovetti It was with the greatest pleasure that I heard of your assignment to the Separtant post of Assistant Secretary of For for Air. 1 know that when you watertake the mony reopensibilities of this poot the work will to is the best possible health for elte and efficient administration. If and whos this office eas be of viee to you, I hope you will not hositate to call upon m. with w congratulations and all good visites, Sincerely, (Signed) H. Morgeathes, 29. Senerable Robert A. Revers, Assistant Secretary of Bar for ALF, Unchington, 3. e. GEF/Jba 121 April 11, 1942 Just Mr. I thisk I nood not sell you how pleased 1 was to learn of your appointment 60 Assistant Secretary of Var. 1 and you - bearticet - gratulations and good vishoe as you assume the dation of this difficult and important your. Is looking forward to our further associa- tion during the days that are to come. 1 hope that you vill call upon this office 11 my be of service to you. with certifil personal regists, Sincerely, (Signed) H. Morgenthes, The Benorable John 3. Assistant Secretary of Mar, Feehington, D. C. exc/go 122 WAR DEPARTMENT WASHINGTON April 14, 1941 Dear Mr. Secretary: I cannot tell you how much I appreciate your thoughtfulness in sending me your note. I know of no one whose esteem and good wishes I would rather have. I feel that you and those who work with you have shown more insight and persistence in connection with the issues we face than any other group I have so far met in Washington. If ever I can be of the slightest help, I hope you will feel that you can call upon me any where and at any time. Sincerely, The Honorable The Secretary of the Treasury 123 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 11, 1941 Secretary Morgenthau Mr. Pehle I think you will be interested in the attached letter from Summer Welles refusing to recommend the transfer of $50,000 from frozen French Government funds to the American Friends Service Committee. ON 124 DEPARTMENT OF STATE WASHINGTON April 9, 1941 I In reply refer to Bill 840.51 Frosen Credits/1456 My dear Mr. Secretary: The receipt is acknowledged of your letter of March 21, 1941, with particular regard to the pending application No. NY 103767 permitting the transfer of $50,000 from frosen French Government funds to the American Friends Service Committee. The Committee states that the funds will be used for the purchase in Portugal of supplies to be shipped to France and distributed to French children. Inasmuch as the French Government has available in Portugal deposits amounting to a minimum of $600,000 and inasmuch as the French Purchasing Commission is at present in Liabon en- deavoring to raise transportation of supplies to France, the Friends Service Committee has been informed that they should, in the first instance, communicate with this Commission to determine whether it would be possible to make use The Honorable Henry Morgenthau, Jr., Secretary of the Treasury 125 -2use of its facilities in connection with the purchase of these supplies. It is further understood from the British Embassy that the British authorities are reluctant to grant a navicert if these supplies are to be purchased from blocked accounts in this country as long as ample funds exist in Portugal for this purpose. Under these circumstances, this Department is not at the present time prepared to recommend this transfer. Sincerely yours, For the Secretary of State: (Signed) Summer Welles Under Secretary 126 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Secretary Morgenthau APR 11 1941 - Mr. Pehle On January 30, 1941, the French Government filed with the Foreign Funds Control an application to export to Indo-China certain military equipment which had been imported from France to the United States during 1939 and 1940 for the purpose of fitting such equipment to American built aircraft ordered by the French. Included in this military equipment, which is still in the United States, are 79 machine guns (7.5 mm) and ammunition, torpedos, bomb racks, bomb sights, etc., a list of which is attached. The application was discussed at a meeting held at the State Department on March 6, 1941, at which time Mr. Acheson expressed the view that under no conditions should this material be allowed to go to Indo-China. Later the same day Acheson called me to say that he had discovered that the State Department had made a firm commitment that the armaments be allowed to be shipped to Indo-China in exchange for some quid which he did not specify. Subsequently we wrote to the State Department asking for its views and the attached letter from Dean Acheson was received in which he states: 127 -2- "When the French Government decided to export to Indochina the arms listed in the application enclosed with Mr. Bell's letter, the matter was taken up with the Department by the French Embassy. It was decided in the light of all the circumstances that the proposed exportation should be permitted, and export licenses were issued accordingly. The Department has not altered its views in regard to this proposed shipment." If you agree, I will tell Dean Acheson orally that the Treasury Department is not prepared to license the export of this material to Indo-China in the absence of a written request to that effect from the Secretary of State. got 128 DEPARTMENT OF STATE WASHINGTON March 28, 1941 reply refer to My dear Mr. Secretary: The receipt is acknowledged of Mr. Bell's letter of March 13, 1941, in regard to an application filed by the French Government in connection with a proposed exportation of certain listed arms, ammunition, and accessories to Indochina. In reply, I have to inform you that the items listed in the application of the French Government were imported into the United States by that Government in connection with the manufacture of arms ordered by the French Government before the conclusion of the Franco-German Armistice. When the French Government decided to export to Indochina the arms listed in the application enclosed with Mr. Bell's letter, the matter was taken up with the Department by the French Embassy. It was decided in the light of all the circumstances that the proposed exportation should be permitted, and export licenses were issued accordingly. The Department has not altered its views in regard to this proposed shipment. Sincerely yours, For the Secretary of State; /s/ Dean Acheson The Honorable Assistant Secretary Henry Morgenthau Jr., Secretary of the Treasury. 129 LIST OF EQUIPMENT 20 Machine guns 7.5 HIM 1 Machine gun 7.5. IIIIII & access. 2 Machine guns 7.5 mm 2 Machine guns 7.5 mm 4 Machine guns 7.5 mm 2 Machine guns 7.5 mm Machine gun (mockup) & Access. 2 Machine guns 7.5 mm & access. 2 Machine guns 7.5 HIM 2 Machine guns 7.5 mm 2 Machine guns 7.5 mm 2 Machine guns 7.5 mm 2 Machine guns 7.5 mm 346 cartridges 1 Machine gun & access. 1980 cartridges 2 Machine guns 7.5 mm 1980 cartridges 2 Machine guns 7.5 mm 1980 cartridges 2 Machine guns 7.5 mm 1040 cartridges 2 Machine guns 7.5 mm 50 cartridges & links 8 Machine guns 7.5 nun 1980 cartridges 8 Machine guns 7.5 mm 1235 cartridges & links 2 Machine guns 7.5 mm 1200 cartridges & links 2 Machine guns 7.5 mm 1980 cartridges each 2 Machine guns 7.5 mm (40 cases) 2 Machine guns 7.5 mm 2025 cartridges each ( 4 cases) 2 Machine guns 7.5 mm 780 cartridges 130 -21100 Cartridges Radio remote control (mockup) 1000 Cartridges 3 Parachutes 1500 Cartridges 2 Machine gun mounts 2000 Cartridges Antenna support 1900 links Gun sight (mockup) Gauges for torpedos 7 Lamps for radio Gauges for torpedos Battery Gauges for torpedos Bomb hoist Torpedo Bomb rack Cone for torpedo Access. for bomb rack 16 air containers for torpedos 3 Intervalometres 17 liquid containers for torpedos 2 Bomb sight Gauges for mines 4 Machine gun mounts Gauges for mines 7 ammunition boxes 27 Electric storage batteries Oxygen equipment 2 Parachutes 1 Electric Plug 1 Gun mount Gauge for machine gun support 2 Camera remote control Ammunition box 9 Oxygen containers 4 bomb racks Access. for bomb racks 15 Gun sights 1 gun sight Bomb rack access. 1 gun sight Bomb rack 131 -38 Batteries Battery Access. for bomb racks Actuating mechanism for bomb racks 7 Ammunition boxes 4 Oxygen containers 8 Bomb racks Bomb hoist & access. 2 Parachutes 1 Safety Belt 1 Parachute (mockup) Bomb hoist gears & access. 132 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL TO DATE April 11, 1941 Secretary Morgenthau FROM Mr. Wiley ONI reports: March 14 - Guatemala. The owner and operator of the leading tourist organisation in Guatemala has deposited between January 2 and March 8, 1941, only $200 in American money although his receipts for the period were $34,567.60 in cash and $14,435.42 in checks. (This would indicate that he is disposing of his currency elsewhere, and from prior reports it would seem that the Germans are buying up American dollars.) Guatemala has permitted Christian Zinsser, Charge d'Affaires at Honduras, who was expelled by the Honduran Government, to stay in Guatemala. FBI reports: April 7. Officials of the German Legation in Costa Rica called on the Secretary of the Treasury of Costa Rica, offering Costa Rica the German market for coffee and adding that Germany would be able to receive deliveries by July 1, 1941 (adding that the present war was already won by Germany). April 8. Fritz Mandl, the Austrian munitions magnate, is said to be acting a go-between for the Nazis in organizing a revolution in Argentina. The lead- or of the Argentine group in question, whom Mandl is reported to have supplied with motions and money, is an Argentine general who, in 1934, was a member of a military commission sent from Argentina to purchase arms from Mandl's factory in Holland. - First husband of Hedy Lamarr and 133 Telephone Hanover 3-2460 15 Broad Street, New York BRITISH PURCHASING COMMISSION April 11, 1941 Dear Cochran, After our talk last Wednesday I promised to send a note on the various points touched upon, and I am enclosing it herewith. I hope you will find that it meets your requirements. Gifford and I enjoyed our lunchson party very much and we both thought that the discussion was most helpful. I look forward to having further talks from time to time, Yours sincerely, /s/ E.R. Peacock Sir Edward Peacock Mr. H. Morle Cochran Treasury Department Washington, D. 0. 134 MEMORANDUM FOR MR. COCHRAN NOTES OF DISCUSSION ON APRIL 9th, 1941. April 11, 1941 The details of the sale of Viscose Corporation were explained and the position of the negotiations of Brown & Williamson. The following matters were then discussed:1. I asked whether I might assume, in dealing with direct investments, that the first principle should be to raise as large a sum of dollars as I reasonably could and that I might do this in the way that would do the least damage to the British and American companies. 2. I asked if we could agree that companies that would produce less than some settled figure, say $500,000, should not be further considered, at least for the present. These small companies have been much disturbed by my inquiries and are worried about what is to happen to their business, their staffs, etc. We would be relieved of much fruitless labor because each company, though small, requires a good deal of attention. Crosse & Blackwell was given as an illustration where Mr. Gifford had come to the conclusion that we could not raise $50,000 by the sale. 3. There are many companies which are mere agencies or dependent on the activities of one or two people acting on behalf of an English company. They really have nothing salable. I gave as an illustration Charles Tennent Co., which deals in non-ferrous metals. It's success is dependent on the personal activities of Mr. Van Sinderen and his being able to maintain his connection with the British Metals Co. Others could not be sold because their business is dependent upon their parent company securing substantial Sterling credits to provide the goods which they sell - Hecht, Levis & Kahn is a case in point. 4. There are companies like Burroughs Wellcome whose income is devoted entirely to scientific research under a charitable trust; the Oxford Press which is a company devoted to cultural activities. 135 -2- 5. Many of the companies present special problems because they have grown up as part of a larger whole, never intended to be separated. As a result, most cases must be dealt with in the light of their special circumstances. The most important are those which are a link in a worldwide system where the breaking of the link would cause confusion, and where the use of a special name and trademark would raise difficulties and doubts. In some of these cases it would be extremely difficult to find a buyer even at a price far below anything reasonable, and a larger amount could be raised by way of loan. 6. A number of companies depend upon the use of a secret formula. The separate exploitation of this would be difficult to arrange without endangering the existence of the parent company. Control of the American company would probably be secured by one of the big combines and sales ruthlessly pushed everythere. Examples are Yardleys, Gordons Gin and Lea & Perrins. 7. I enclose notes regarding the position of Levers and the Shell Union. COPYing 136 LEVER BROTHERS & UNILEVER April 11, 1941 There are two parent companies, one British and one Dutch, referred 1. to hereafter as Limited and N. V. respectively. For the purpose of this memorandum the subsidiaries formed for trading or holding purposes can be ignored. Limited holds no shares in N. V. 2. Shareholders of Limited are preponderatingly British, those of N. V. 3. principally Dutch and Continental. Lever Brothers, Boston, was a wholly owned subsidiary of Limited until 4. 1935. In that year 25% of the American company was sold to N. V. in order to increase the earnings of that company which had fallen owing to the situation in Germany. 5. In 1936 it was proposed to rearrange the interests of Limited and N. V. as to give Limited the whole of the British Empire as its sphere and N. V. the rest of the world. This was accomplished in 1937. 6. As part of the arrangement to achieve this, Limited sold to N. V. its remaining 75% interest in Lever Brothers. The American company thus became a wholly owned subsidiary of N. V. 7. In the Spring of 1940, alarmed at the German progress on the Continent, and to prevent possible seizure, N. V. registered a private company at Durban, South Africa, called Overseas Holdings (Proprietary) Ltd. To this company N. V. transferred the shares in Lever Brothers, Boston, and certain other subsidiaries as an emergency war measure with a view ultimately to re-transfer to the Dutch company. The position today, therefore, is that Lever, Boston, is owned by Overseas, a South African company, which in turn is wholly owned by N.V. 137 THE SHELL UNION INC. OF DELAWARE April 11, 1941 The Batavian Petroleum Company, a Dutch company incorporated in The Netherlands, holds 64% of the shares of the Shell Union. The remaining 36% are held by the public. The control of the Batavian Petroleum Company is held by the Royal Dutch company, which owns 60% of the stock. Neither the Shell Transport nor the British Government has power to deal with the properties of the Royal Dutch or Shell Union in the U.S.A. United Kingdom residents hold a certain number of shares of the Shell Union and these will be vested and sold in the ordinary way. ng EXECUTIVE ORDER ESTABLISHING THE OFFICE OF PRICE ADMINISTRATION AND CIVILIAN SUPPLY IN THE EXECUTIVE OFFICE OF THE PRESIDENT AND DEFINING ITS FUNCTIONS AND DUTIES By virtue of the authority vested in me by the Constitution and the statutes, and in order to define further the functions and duties of the Office for Emergency Management with respect to the national emergency as declared by the President on September 8, 1939, for the purpose of avoiding profiteering and unwarranted price rises, and of facilitating an adequate supply and the equitable distribution of materials and commodities for civilian use, and finding that the stabilization of prices is in the interest of national defense and that this Order is necessary to increase the efficiency of the defense program, it is hereby ordered: 1. There shall be in the Office for Emergency Management of the Executive Office of the President an Office of Price Administration and Civilian Supply, at the head of which shall be an Administrator appointed by the President. The Administrator shall receive compensation at such rate as the President shall determine and, in addition, shall be entitled to actual and necessary transportation, subsistence, and other expenses incidental to the performance of his duties. 2. Subject to such policies, regulations, and directions as the President may from time to time prescribe, and with such advice and assistance as may be necessary from the other departments and agencies of the Federal Government, and utilizing the services and facilities of sucn other departments and agencies to the fullest extent compatible with efficiency, the Administrator shall: a. Take all lawful steps necessary or appropriate in order (1) to prevent price spiraling, rising costs of living, profiteering, and inflation resulting from market conditions caused by the diversion of large segments of the Nation's resources to the defense program, by interruptions to normal sources of supply, or by other influences growing out of the emergency; (2) to prevent speculative accumulation withholding, and hoarding of materials and commodities; (3) to stimulate provision of the necessary supply of materials and commodities required for civilian use, in such mannor as not to conflict with the requirements of the War, Navy, and other departments and agencies of the Government, and of foreign governments, for materials, articles, and equipment needed for defense (such require- ments are heroinafter referred to as "military defense noods"); and (4) after the satisfaction of military defense needs to provide, through the determination of policies and the formulation of plans and programs, for the equitable distribution of the residual supply of such materials and commodities among competing civilien demands. 138 139 b. Make studies of the Nation's civilian re- quirements for materials and commodities, the supply of goods and services, the status and trend of prices and factors thereof, and the impact of the defense program upon civilian living standards; exercise the powers of the President in requesting such studies pursuant to Section 336(a) of Title III of the Tariff Act of 1930 (Title 19, U.S.C., Sec. 1336(a)); and conduct such investigations, hold such hearings, and obtain such reports as may be necessary or desirable to carry out this Order. C. Determine and publish, after proper investigation, such maximum prices, consissions, margins, fees, charges, or other elements of cost or price of materials or commodities, as the Administrator may from time to time deem fair and reasonable; and take all lawful and appropriate steps to facilitate their observance. d. Advise and make recommendations to other departments and agencies, whenever the Adminis- trator deems it appropriate, in respect to the purchase or acquisition of materials and commodities by the Government, the prices to be paid therefor, and in respect to such of their other activities as may affect the price of materials and commodities. e. Inform the Office of Production Management of the amount, character, and relative importance of materials and commodities needed for civilian use; and advise and consult with the Office of Production Management with reference to its procurement, production planning, priority, and other actions the effect of which may be to diminish the supply of materials and commodities available for civilian use. f. Establish and maintain liaison with such departments and agencies of the Government and with such other public or private agencies and persons as the Administrator May deem necessary or desirable to carry out the provisions of this Order. g. Formulate programs designed to assure adequate standards for, and the most effective use of, consumer goods; stimulate the utilization of substitutes by civilians for consumer goods and commodities of limited supply; develop programs with the object of stabilizing rents; and promote civilian activities which will contribute to the purposes of this Order. h. Recommend to the President the exercise of the authority vested in him by the following named Acts, whenever, in the opinion of the Administrator, such action by the President will enable the Administrator to carry out and secure compliance with the provisions of Section 2a and 2c of this Order: 140 (1) Section 9 of the Selective Training and Service Act of 1940 (Public No. 783, 76th Congress). (2) Section 120 of the National Defense Act (Title 50, U.S.C., Sec. 80). (3) Section 1 (15) of Title 49, U.S.C. (4) The Act of October 10, 1940 (Public No. 829, 76th Congress). i. Perform the functions and exercise the authority vostod in the President by the following nained Acts, in so far as and only to the extent that the authority conferred by such Acts will, in the opinion of the Administrator, enable him to carry out and secure compliance with the provisions of Section 2a and 2c of this Order: Section 713(a)-7 of Title 15, U.S.C., Supp. V: Section 4 of the Aot approved June 7, 1939 (Title 50, U.S.C., Supp. V., Sec. 980); and Section 5 of the Reconstruction Finance Corporation Act, as amended by the Act approved June 25, 1940 (Public No. 664, 76th Congress): subject to the disapproval by the Secretary of war or the Secretary of the Navy of each proposed action therounder. j. Adviso upon proposed or oxisting legislation, and recommend such additional legislation as may be necessary or desirable, relating to prices, ronts, or the increase in supply and the equitablo distribution of materials and commodities for civilian use. k. Koop the President informed in respect to progress made in carrying out this Order; and perform such other related duties as the Prosident may from time to time assign or delegate to him. 3. The Administrator may provide for the intornal organization and mane.goment of the Office of Price Administration and Civilian Supply, and may appoint such advisory committees as he finds necessary to the performance of his dutios and responsibilities. The Administrator shall obtain the Prosidont's approval for the establishment of tha principal subdivisions of the Office and the appointment of the heads thereof. 4. Thoro shall be in the Office of Price Administration and Civilian Supply a Price Administration Committee consisting of the Administrator as Chairman, the Secretary of the Troasury, the Secretary of Agriculture, the Federal Loan Administrator, the Chairman of the Tariff Commission, the Chairnan of the Fedoral Trade Commission, the Director Goneral and Associato Director Genoral of the Office of Production Management, or such alternate as oach may designate, and such other members E.S the President may subscouently appoint. The Cormittoo shall from time to timo, upon request by the Administrator, nako findings and submit recommondations to the Administrator in respect to 141 -the establishment of maximum prices, commissions, margins, fees, charges, and other elements of cost or price of materials or commodities as provided under paragraph 2c above. 5. Within the limits of such funds as may be approi priated to the Office of Price Administration and Civilian Supply or as may be allocated to it by the President through the Bureau of the Budget, the Administrator may employ necessary personnel and make provision for necessary supplies, facilities, and services. However, the Office of Price Administration and Civilian Supply shall use such statistical, informational, fiscal, personnel, and other general business services and facilities as may be made available to it through the Office for Emergency Management or other agencies of the Government. FRANKLIN D. ROOSEVELT THE WHITE HOUSE April 11, 1941 142 hist who get the TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 11, 1941 Secretary Morgenthau Herbert Merillat TAXES AND INFLATION The upward trend of prices, demands of labor for increased wages, and the accelerated rate of government spending for defense have given rise to widespread talk of the dangers of inflation. Last month the savings bond program was applauded as a check on in- flationary tendencies; now taxation is getting increased attention as a complementary method of fighting inflation. The newspapers carry stories of a four-point anti-inflation program calling for increased taxes, sale of bonds to tap private savings, price controls, and curbs on installment sales. Mr. Donald M. Nelson of the 0. P. M., Dr. E. A. Goldenweiser, Director of the Federal Reserve Board's Division of Research and Statistics, Dr. L. R. Robinson of Columbia University, Dr. Edwin Kemmerer of Princeton University, and Mr. H. H. Heimann, Executive Manager of the National Association of Credit Men, are among the public figures and economists who have recently urged the use of taxation to check possible inflation. The emphasis by the press in all parts of the country on the importance of taxation as an anti-inflation measure has doubtless helped to prepare people to accept greater tax burdens. The statement of the 143 -2British Chancellor of the Exchequer that the proposed tax increases in Britain are designed to cut purchasing power as well as to raise revenue has also helped to focus attention on the inflation-checking aspect of taxation. Reaction to the British Budget To date, the reaction of only a few Eastern papers to the new British budget is available. Already the proposal of a modified form of the Keynes compulsory savings plan has produced a crop of rumors that similar proposals will soon be forthcoming in this country. "Such a plan will be proposed," John T. Flynn predicts, "not merely for war effort, but as part of what is sometimes called the 'new order' in America." The Wall Street Journal, shocked at Keynes' suggestion of a capital levy at the end of the war to provide funds for repayment of the forced loans, concludes that the borrowed savings can be returned only by imposing additional taxes in the future and warns taxpayers not to believe that they can "save" anything under the Keynes plan. The New York Times also is skeptical about the repayment feature, but regards the check on the public's purchasing power through increased taxes as a measure vitally neces- sary to prevent inflation. Tax Predictions Although the press still reports that the Administration favors increases in existing taxes rather than new untried taxes, 144 3- it is predicted that Congressional sentiment will be strong for a general manufacturers' excise tax, particularly if the Treasury insists on a revenue increase of more than 1à billions. Senators George and Taft are reported as agreed that it may be necessary to increase the individual normal tax rate to 8 per cent and the corpor- ation tax rate to 30 per cent. The Wall Street Journal predicts that individual specific exemptions and credits for dependents will be disallowed in computing surtax net income. Some papers report that the Treasury is still plugging for elimination of the average earnings credit under the excess profits tax law, but stiff Congressional opposition to any such proposal is predicted. 145 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 11, 1941 TO Secretary Morgenthau CONFIDENTIAL FROM Mr. Cochran Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £35,000 Purchased from commercial concerns £38,000 Open market sterling was quoted at 4.03-1/4. Transactions of the reporting banks were as follows: -On Sold to commercial concerns Purchased from commercial concerns 23,000 In New York, the closing rates for the foreign currencies listed below were follows: Canadian dollar Swiss franc (commercial) 12-11/16% discount .2321-1/2 Swedish krona .2384 .4005 .0505 .2325 .0505 Reichsmark Lira Argentine peso (free) Brazilian milreis (free) There was a holiday in Shanghai today, and no quotations were received from that center. There were no gold transactions consummated by us today. No new gold engagements were reported. In London, spot silver was unchanged at 23-1/2d. The forward quotation was also 23-1/24, up 1/16d. The U.S. equivalent of this price is 42.674. Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44. the Treasury's purchase price for foreign silver was also unchanged at 35 We made no purchases of silver today. 76. M.P. M. 146 0 Hoted H. COMPIDENTAIL PARAPHRASE A telegram (no. 49) of April 11. 1941 from General Reed at Hanoi reads substantially as follows: Information received from persons is Hanei indicates that in general under the economic agreement between Indo- china and Japan, Japan is to receive is 1946 700,000 tone of rice at 12.30 pinsters per hundred kilees that payment will be made into a special account for monthly deliveries of this rice: that as equal payment will be sedo only is the corresponding month of 1942 into the general clearing account from this special accounts that, except perhape for rubber for which the French are trying to got American dollars, payment for other articles delivered to Japan and for deliveries to Indochina will to made to the general clearing account operated w and between the Teleshana Specie Beak and the Beak of Indeshines that at the end of each month settlement is theoretically to be made of the general clearing account is gold currency or is other currency selected w the creditor beak, but only the assest which exceeds five million piestore or yea, depending on the balance of trade, is to so sottled is this way. It 10 understood that the operation of the general alearing account is stailar to the agreement of December last between the 147 the Tekehans Specie Bank and the Java Bank. According to information which Gensal Reed has been able to obtain, Japan will take 25,000 tens of rubber. The Consul has not been able to learn whether any rubber will be designated for Germany, all of the production, one-half and sine-teaths respectively, of the tis and sine production and 600,000 tens of coal at least. AS first the Japanese asked for 800,000 tens of coal a year. The Japanese will be permitted to take part is the exploite ties of such minerals as phosphates irea and manganese which in the past have played a prominent part is trade with the Far East. The general bolief is that discussion of colomisation rights as well as special treatment of Japanose merchants will be postponed until later and under a supplementary agreement, although there has been some talk of the Japanese making decands along those lines. 02 9207 TREASURY GRAY EH Bucharest Dated April 11, 1941 Rec'd 2:35 p.m., 12th. Secretary of State, Washington. 336, April 11, 8 p.m. A circular published in the official MONITOR by the Ministry of Finance on April 3 announces that the Rumanian Government has been compelled because of the disturbance of international Economic relations and the decrease in its territory to suspend all foreign payments on the Rumanian public debt. The circular adds that the Rumanian Government is prepared to initiate negotiations with the interested governments concerning the resumption of foreign debt service as soon as the stability of the external situation permits. GUNTHER FMR 148 149 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 11, 1941 Secretary Morgenthau TO FROM Mr. Kamarck Subject: Weekly Military Report 1. Summary of information on army strengths in the Balkans (as of approximately April 6) Germany had a total of 45 - 59 divisions or about 1,000,000 men. 10 - 12 divisions On the Austrian-Yugoslav frontier 3 - 6 divisions Hungarian-Yugoslav frontier 9 divisions Romanian-Yugoslav frontier 12 divisions Bulgarian-Yugoslay frontier 6 divisions Bulgarian-Greek frontier In reserve in Bulgaria Total 7 - 14 divisions 45 - 59 divisions Italy had 28 divisions or 450,000 men in Albania. Yugoslavia had 30 divisions or 800,000 men. Greece had 15 divisions (my estimate) or 400,000 - 450,000 men (my estimate). Great Britain had parts of 3-1/2 divisions or perhaps 75,000 men. The Germans at the beginning of hostilities on April 6, had, ready for the Yugoslav invasion, roughly the same number of men as the Yugoalav army at peak war strength (about 800,000 men). Back of this well-equipped striking force, the Germans have practically unlimited reserves (1.e., about 4 million men more under arms) so far as the needs of this campaign are concerned. 150 -2- Division of Monetary Research Against the approximately 500,000 Greeks and English, there were 450,000 Italians and 120,000 Germans originally allotted. In addition, some of the 150,000 to 300,000 immediate German reserves in Bulgaria have been probably thrown in against the Allies. 2. Summary of information on air strengths in the Balkans, at about April 6 780 planes German: Total in the Balkans (plus an unknown number in Austria) Bombers Pursuit 350 430 Italian: No estimate available. Yugoslavs: 400 - 500 combat planes (mostly obsolete). Greeks: No estimate available, probably a negligible number. English: Less than 100. No comment is necessary on the overwhelming German air superiority indicated by the above figures. 3. Bulgaria is experiencing a shortage of food due to German military demands (March 28, Sofia report). Hungary cannot carry out an extensive mobilization due to a food shortage (April 7. Budapest report) This information is a small indication of the supply difficulties the German Balkan army is going to experience if the Balkan war is prolonged. Even more important, it underscores the defeat Germany suffers from war going on in the Balkans, an important German source of food supplies. 151 BRITISH EMBASSY, WASHINGTON, D.C. April 11th, 1941. Personal and Secret. Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Halifax The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 152 Telegram from London dated April 9th. 1. Naval. Red Sea: morning of the 8th. About 11 ships left Massawa including a small warship. Swordfish aircraft were operating, a small destroyer was bombed in the harbour without definite result. Massawa occupied 1.00 D.M. harbour found blocked and extensive demolitions. His Majesty's armed merchant cruiser Worcestershire torpedood on the 3rd in port. 2. 3. Military. Libya. Our forces concentrating in R1 Gazala - Tobruk area. 4. Yugoalavia. Germans occupied Skoplje, whenee columns moving north towards Belgrade and west on Tetovo following the Yugoslav division advancing into Albania from Prison. They have also occupied Veles and are advancing towards Prilep Bitolj. Armoured division advancing on Pirot. At noon April 7th Yugoalava holding Koshirino Pass south of Strumica but later reported driven back. 5. of seven Yugoslav armies only the 3rd advancing into Albania was fully mobilised and concentrated. The first army partly in Pirot area and the rest driven west of Skoplie. The second army reported in reserve Sarajevo area or distributed amongst other armies. The remaining four armies are in north. 6. Greece. Reports up to noon April 7th stated that the Greeks holding from the sea at the mouth of the Nestos River to Yugoslav-Bulgarian and Greek boundary (Metaxas Line); they were evacuating Alexandroupolis by sea. Their covering troops X area had withdrawn unmolested to the Metaxas Line but some forts near the frontier still holding out. The Germane attacked with tanks south of Nevrokop and suffered heavy casualties, Perithorion changing hands twice. Greek/ The 153 -2- Greek forts east of Rupel Pass twice attacked without success but west of the Pass Greeks forced back to east bank of the Struma, although some mountain forts still holding out. The Greeks and Serbs in touch in Lake Doiran area. 7. Air Ministry signal received early April 9th states that German forces entered Salonika at 4 p.m. April 8th. 8. Royal Air Force. Night of April 8th/9th. 100 military aircraft sent to Kiel (160) Bremenhafen, Hotterdam. The primary targete attacked in clear weather and very large fires started in Kiel. 5 aircraft missing. Balkans. Night of April 6th/7th, heavy bombers machine gunned transport attacked Sofia railway 9. in the Struma Valley where Blenheime also bombed Petrich Railway at Simitli, Gorna, Djukaya. 10. German Air Force. N1 ght of April 8th/9th. About 180 operated against Coventry and a large attack on Ports- mouth. Night fighters shot down six enemy aircraft (five in Coventry area) probably damaged one and damaged two more. 11. Home Security. Night of April 7th/8th. Casualties estimated at 72 killed and 428 seriously wounded throughout the country. 12. Night of April 8th/9th. Coventry. Owing to interrupted communications accurate estimate not yet possible. The attack was heavy but not to be compared with One serious fire Daimler the one on November 14th/15th. factory other industrial premises and key point factories damaged. 154 CONFIDENTIAL TENTATIVE LESSONS BULLETIN MILITARY INTELLIGENCE DIVISION No. 90 G-2/2657-235 WAR DEPARTMENT Washington, April 11, 1941 NOTICE The information contained in this series of bulletins will be restricted to items from official sources which are reasonably confirmed. The lessons necessarily are tentative and in no sense mature studies. This document is being given an approved distribution, and no additional copies are available in the Military Intelligence Division. For provisions governing its reproduction, see Letter TAG 350.05 (9-19-40) M-B-M, MISCELLANEOUS NOTES ON THE GERMAN ARMY SOURCE Sections 1, 2, and 3 of these notes are based upon information compiled by a high British official source late in 1940. Section 4 is based upon information recently received from the intelligence division of a European army and Section 5 upon a recent report of an American official observer in France, CONTENTS 1. METHOD OF ATTACK UPON A PORT 2. EFFECT OF REFUGEES UPON MILITARY OPERATIONS 3. DOGS IN THE GERMAN ARMY 4. ADDITIONAL NOTE ON REORGANIZATION OF PANZER DIVISIONS 5. COMMENT BY GENERAL RICARD CONFIDENTIAL -1- 155 CONFIDENTIAL MISCELLANEOUS NOTES ON THE GERMAN ARMY 1. METHOD OF ATTACK UPON A PORT A competent observer who was in Norway at the time of the German invasion and who personally witnessed two German landings has given a description of the methods adopted. These methods were peculiarly successful against Norway, where no attack was expected and where the defense was not properly organized. At each landing witnessed, the methods used and the sequence of events were precisely the same. Open beaches were never used except as a diversion, for in each case landings were made at a quay. The time chosen was between 2:00 and 2:30 A.M., the darkest part of the night. The first intimation of landing was provided by a series of magnesium flares dropped from aircraft over permanent defenses. This action was followed within 20 or 30 seconds by heavy and accurate bombing of gun defenses, and simultaneously the first sea-borne flight arrived. This invariably consisted of light vessels of about the size of large fishing craft. No attempt was made to neutralize gun defenses by landing; complete reliance seemed to be placed upon neutralizing them by aircraft during the passage of the first and subsequent flights of ships. The next event was the lighting of the quays of the port by magnesium flares. Immediately afterwards there were very heavy and accurate attacks by many dive bombing planes on the extremities of the quays, where machine gun posts would normally be located. Then the first ships arrived at the quay and made fast. The first ship contained soldiers armed with grenades. These men jumped ashore, flinging their grenades in all directions and clearing a passage for the men disembarking from the vessels which followed. Subsequent vessels landed machine guns, light antiaircraft guns, and light tanks; these last were chocked up so as to be at the correct quay level for the state of the tide. The object was to put the quay defenses out of action before material was landed. Reliance seems to have been placed in- almost entirely on the very heavy bombing and prolific and discriminate use of hand grenades by the first men ashore. Having got men and material ashore, the Germans seemed content to advance into the town and wait for further reinforcements in heavier ships. They relied upon the presence of the CONFIDENTIAL -2- 156 CONFIDENTIAL civilian population all around them to prevent air retaliation. As these phases of action developed, it was the usual practice to organize diversions in the shape of beach landings on the immediate flanks and parachutists' descents behind the ports. From the time the quays were first lit up by the flares it was reckoned that within 30 minutes the Germans would expect to land about 1,600 men. 2. EFFECTS OF REFUGEES UPON MILITARY OPERATIONS Detailed reports have been received regarding evacua- tion of a large proportion of the population of Paris and the consequent effect upon the roads. The exodus en masse began upon the sight of a vast pall of smoke upon the horizon heralding the approach of the Germans. Rumors also set in motion streams of refugees in quite remote back areas, with the result that when military traffic finally should have got clear of the refugees it encountered all the refugee difficulties over again. The refugees had such an effect on the roads that one military car took 14 hours to cover 25 miles. Refugees paid no attention to black-out orders at night, and their lights attracted enemy bombing. This in turn increased the confusion, for even if no hits were registered, the refugees, upon the commencement of bombing, left their driverless cars to block the road and hid in the ditches. On one occasion a direct hit on a road caused a delay of 21/2 hours while wounded and debris were moved. It was not possible to provide ambulances for refugee casualties as, coming from the rear, they were moving against the stream of traffic. Two hundred miles from Paris another form of traffic jam set in; it was caused by refugees' running out of gasoline. These people simply abandoned their cars and continued their flight on foot. In general, refugee traffic could be kept in motion and in some form of control only by a certain degree of ruthlessness and disregard of sentimental considerations. Any vehicle which broke down had to be got off the road at once. Any relaxation led to jams and attracted enemy aircraft. It was fatal to delay any pre-arranged scheme of dem- olitions out of consideration for the refugees. CONFIDENTIAL -3- 157 CONFIDENTIAL 3. DOGS IN THE GERMAN ARMY Two kinds of dogs are used in the German Army messenger dogs and tracking dogs. The two breeds best suited are the German sheepdog and the Dobermann. These notes deal with the training of tracking dogs. After a period of training at Dessau or Berlin, the dog is taken to its allotted company by its trainer. The trainer remains with the company for about three weeks until the dog has become familiar with its new master, who is chosen from volunteers that are dog lovers. During this period the dog is also accustomed to all the men of the reconnaissance party with which he will have to work later. The period of adoption being over, the dog obeys its new master and takes part in the work of the reconnaissance party under his direction. The dog is considered satisfactory and sufficiently trained when it is able to work under the following conditions: Precede the patrol silently at a distance of about 30 to 40 yards, assuring itself by turning its head that the rest of the patrol is following. When he scents the presence of people, strangers to the reconnaissance party, at a distance of 30 to 40 yards away, the dog must warn the reconnaissance party by returning silently to its master's side. A dog which barks or growls at any moment during a patrol is sent back as unsuitable. At the end of every reconnaissance, the dog returns with its master to company headquarters. It must never stay in the front line. One company belonging to a regiment in the line on the Saar front had three of these dogs. 4. ADDITIONAL NOTE ON REORGANIZATION OF PANZER DIVISIONS The reorganization of German Panzer divisions was out- lined in TENTATIVE LESSONS BULLETIN No. 86. The following points may be added: a. The Class VII tank is reported to weigh 90 tons and to have armament consisting of one 105-mm. gun, two 47-mm. guns, and four machine guns. b. The Class VI tank is reported to weigh 45 tons and to have armament consisting of one 75-mm. gun and four machine guns. CONFIDENTIAL -4- 158 CONFIDENTIAL C. The Class V tank is reported to weigh 36 tons and to have armament of one 75-mm. gun and four machine guns. d. The antiaircraft battalion, equipped with dualpurpose 15-mm., 20-mm., and 37-mm. antiaircraft and antitank guns, is reported using largely multiple mountings on its guns. e. The armament of the divisional antitank regiment is said to consist of thirty-six 47-mm. antitank guns and eighteen 75-mm. or 88-mm. antitank guns. 5. COMMENT BY GENERAL RICARD In a recent interview, General Ricard, French G-1 and G-3, admitted that the difference in the numbers of Allied and German divisions was not of great importance and stated the belief that, had this been the only factor to consider, the French and the English could have withstood the German attack. General Ricard is convinced that one reason for the complete collapse of the French Army was the overwhelming support given German ground forces by bombing planes. Almost all the preparations made by France for the War of 1939-40, General Ricard said, were based upon the 1914-1918 principles of infantry supported by artillery. Germany, with a more modern conception of war, prepared and trained a striking force of motorized and armored units closely supported by a strong air force. CONFIDENTIAL -5- 159 RESTRICTED M.I.D., W.D., April 11, 1941 G-2/2657-220 No. 363 12,00 M. SITUATION REPORT I. Western Theater of War. Air: German, Normal night activity over England, particularly in the Midlands, where concentrations were made on Coventry and Birmingham. British. Normal night attacks on the Ruhr, partiou- larly on Dusseldorf. The "Scharnhorst" and "Gneisengu" were again attacked at Brest. II. Balkan Theater of War. Greek Front, German columns advancing from Skoplje and Salonika have reached Monastir and Jannitza, Fighting has begun between German and British troops, Yugoslav Front. A German column moving northwest from Skoplje has captured Urosevac and is moving on Pristina, The strong German mechanized army under General Oberst von Kleist which captured Nish on April 8, continues to advance in a northwesterly direction and has taken Cuprija and Paracin. This group has also taken Prokuplje to the southwest of Nish. Northern Yugoslavia is being invaded at six points, including a Hungarian thrust, Szeged--Novi Said, and an Italian advance on Laibach. The Italians also claim to be on the offensive on the Albanian frontier. Albania, Minor activity. Air: German. Close support continued. Monastir area. British. Attacks were made on troop columns in the III. Mediterranean and African Theaters of War. Ground: Libya. The British are hard pressed at Tobruk and their situation east of the town is difficult. RESTRICTED 160 RESTRICTED Air: Considerable air fighting. The Germans bombed Tobruk, The R.A.F. attacked German formations. Note: This military situation report is issued by the Military Intelligence Division, General Staff. In view of the occasional inclusion of political information and of opinion it is classified as Restricted. RESTRICTED -2- 161 Paraphrase of Code Cablegram Received at the War Department at 10:30, April 11, 1941 SECRET By authority A. C. of s., 0-2 Date APR 12 1944 BPIT , Initials Cairo, filed 12:15, April 10, 1941. 1. It is probable that British forces in Greece will soon see action as it is reported that an armored German force is anving on the city of Monastir from Veles. British plans were to establish a defensive line southeast of Monastir. 2. A second armored German force has left Skopl je in a northerly direction. 3. If German bombers attack Athens the Royal Air Force is planning to retaliate with attacks on Rome. The Vatican City will not be raided. 4. Salonika has fallen to two German armored divisions. 5. Three divisions of the Yugoslav Army have been captured by the German. FELLERS Distributions Secretary of War State Department Secretary of Treasury Under Secretary of War War Plans Division Office of Naval Intelligence Collection Section Assistant Chief of Staff, 0-3 Air Corps SECRET CONFIDENTIAL 162 Pasaphruss of Cate Cablegram Received as the Year Department as 9:85, Apoth 12, 1942. Sention, filed 24156, Agent 10, 1042. 1. British Air Autivity - the a. AMERICA the flighte of British persons shipe were is operation over Compted Strease off the Never Straite. - freighter we I in attachs - ecoboma off Boologic - La - - reported when a single please busbed and wroop structures - the Swisim telenta. B Large seals - - " a void w sta Natural busbers against the similas please as Hoysenger Bermpt). the General - a his - - Acts ohig, - - five - observed after estacte w a please is Bertin, and 36 on Indea - shipbuilding plants as Bream me also claimed in wide over Northern Trease where buildings his. a. the email of Bustich attache on Etal was yes please. Sea drapped sorte 1,000 1b. busbe in addition to - Three beneficed and to I of high explosive - othersed - - them 90,000 Seven busing weighting 2,000 the., as of 1,900 the. and 91 of 1,000 like. - included in the high explosives - a. - Activity - s Actuals as the millanta airfields in Hottinghamphire, Torbshire - Linesleehire were heavier CONFIDENTIAL CONFIDENTIAL 163 - has been the - recently, with office on the seath coest from sections to the Miami suffering - though as definite reports have been received. b - activity was largely limited to - patrole although he please suited island over Real. there were attestes - Characters Bervich, - Bolders. s Bight of Awell 9-M Important Industrial plants as Steningham - shipbuilding youta along the - sulturel constinable lange. 3. s. (2) Daylight, April 10; (a) Eight of April 9-20, eight please failed to notes after veida over Commany. A. - (1) Eight of Agents 10-33, sign presents please accounted for six (instating - abot - a Deegine Autillary five bought down a seventh. (a) Daylight, April 10, two, - probably three, please destroyed w persuits shipe and two I 4. Restritte is made Seet States & Regented operations against noter - sistiable ml - wrooge took place is the a Agentia, m Neebill - Desca sectors. During the - period Lee-flying parents chipe Increased weep colores - sixfields with makino - fire. CONFIDENTIAL CONFIDENTIAL % 164 Asia Ate Activity made That Shake a. operations were Limited to support of mechanised weege. (inita) During the - period same activity took place over mile. 6. Ate middle Test Theatre a (Mines) British aircraft destroyed 16 Asis please is night - , - the & (xtaller Bash Africal the British took of 31 destroyed w damaged Italian please at the Addition Ababa staffeld. T. Committee is the booking of Coventry were unier 190 with - servery injured. Forty-eis fissa were reported. 8. IS is reported w the British that in the with. trusal from West of Denta a few assistants vehicles were eat off w the German and have not been heard from stace. Britten with retreated from Hechill - April a. there is ovidense that the advence is lesing force - that their attention is register to supplies is serious. Distributions Secretary of Year State Department Secretary of Treasury Union Secretary of Yes Oklef of Staff New Please Division office of Reval Intelligence Air Gerge 6-3 CONFIDENTIAL 165 CONFIDENTIAL Paraphrase of Code Radiogram Received at the Var Department at 10:25, April 11. 1941 Rone, filed 21:14, April 11. 1941. IS is reported that in Italian East Africa the Dake of hesta who is at Descie is trying to rally what remains of his troops but not with the idea of continuing to vesist. A movement is in progress of British troops to Beyt from Hasters Africa. In order to provide quarters for German weeps. the estimated strength of which it is estimated will be 260,000. hurrests are being built in Italy. FISKE Distributions Secretary of Mar State Department Secretary of treasury Under Secretary of Mar Chief of Staff Assistant Chief of Staff. G-3 War Plans Division Office of Naval Intelligence CONFIDENTIAL CONFIDENTIAL 166 Persphrase of Code Radiogram Received at the Tax Department at 20:44, April 22, 1941 Ankara, filed 20:11, April 11, 1941. 1. Reference is made to sable No. 96 dated the 22th of April sent by the Enbessy. 2. The Turks are being assured by Ven Paper that they are not threatened and that the Delgire will attack neither Yagoalavia nor Greese. 3. Although not confirmed, is is reported that in the near future & nonaggression pact or some secret understanding will be suggested to the Theres w 4. Unsuccessful attempte have been made w Togester Army representatives here for Turking to enter the was. IS is expected they will leave tomorrow. KLUSS Distributions Secretary of Year State Department Secretary of Treasury Under Secretary of War Chief of Staff War Plans Division Office of Neval Intelligence Collection Section CONFIDENTIAL 167 CONFIDENTIAL Paraphrase of Code Radiogram Received at the War Department 10:00, April 11, 1941. Bofia, filed 18:30, April 10, 1941. I had a talk in Italian for half aa hour, alone with the Minister of War today. He stated the following ideas: The Yugoalava can last only 3 days. Greece will fall within a week. The Bulgarians will get a small section of Yugoalav territory and (Alexandropolis). The sector of Skoplje (Uskab) was captured by motorcycle troops followed by armored troops. The number of Tugoelav prisoners is 40,000. In Eastern Greece 6 divisions of the Greek army were taken prisoner. The Tugoslavs had received assurances that they would get Salomika if they were willing to let the Gereans through. Today and yesterday a great deal antitank equipment has been going through the Bulgarian capital, moving in a westerly direction. Reply to my cable No. 7 is requested. JANWIN Distribution: Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Var Plans Division Office of Naval Intelligence CONFIDENTIAL CONFIDENTIAL 168 Purpose of Code Cablegram Received as the War Department as 11:59, April 11, 1941. Lossion, filed 17:10, April 11, 1941. The following information was released by the British War office as of 7 A.M. today: 1. It is estimated that four Greek divisions were est off in Three by the capture of Salemike. 2. German long range aircraft is assisting the supply of forward elements in the Mechili area of Milaga. British are going tate defensive positions boood - the Italian lines about Tobacch. 3. A wireless communication purporting to be - enter from Scarral Simovitah was intercepted directing all Yegualav ers to act on their our responsibility. 4. Contact was gained between the Greeks and German motor- syste troop at Messa and wall Germin forward elements advensing through the Monestir - Similarly light - advence foress attached the British at Vese in the Florina area. In Northern You slavia German solmma advancing from Visorities reached Direvar. There are four principal column operating in South Togoslavia as follows: a. From Stinije sombioust - Prisron. s. Mish northwest - Bolgrade. a. Wish northeast - (s). a. vest - Bitelf. (Monatis) BOAHLON CONFIDENTIAL CONFIDENTIAL Distributions Secretary of Mar State Departm Secretary of Treasury Mater Secretary of Chief of Staff Mar Pime Division Office of Neval Intelligence Air Garge 6-3 CONFIDENTIAL 169 170 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION Champers Senfitary Morgenthau TO For FROM DATE April 12, 1941 Mr. Cochran At 4:25 yesterday afternoon Mr. Loy Henderson telephoned me from the Department of State. He reminded me that our Government is now requisitioning certain equipment purchased by Antorg for shipment to Russia. Amtorg has heretofore refused to accept refunds from the American suppliers. Within the past two days, however, Amtorg has not only indicated to suppliers a willingness to accept refunds of advance payments, etc., which they have made for goods which are now requisitioned by the United States, but have been pressing these manufacturers to give them everything by April 14. Mr. Henderson, as head of the Russian Section in the Department of State, had discassed this with Under Secretary Welles. The latter had asked that the Treasury Department be consulted, lest the Russians might conceivably have in mind some move on or after April 14 which might be construed as cause for our freesing their assets in the United States. I called the Federal Reserve Bank at New York at 4:30 yesterday evening. In Mr. Knoke's absence, I asked Mr. Cameron to let me know the status of the Russian scount with the Federal, and also to ascertain from the Chase Bank whether there had seen any unusual activity in the Russian accounts the past few days. Mr. Cameron told no that for the past year the Russian State Bank had maintained its dollar account at close to the present figure of $3,200,000. The State Bank has no gold with the Federal. The dollar account has been fed by credits coming from Sweden, Switzerland and other countries and out payments have been made to Yugoslavia and other foreign countries, although principally to the account of the Russian State Bank with the Chase in New York. Within the past few days there had been no important changes in the Russian account with the Federal. At 5:20 last night Mr. Cameron telephoned me back to let me know that there was no one available at the Chase to give the desired information. At 5:30 I telephoned Mr. Henderson and summarized the above report. At 9:30 this morning I telephoned Mr. Knoke in the Federal and explained my call to Mr. Cameron of last night. Mr. Knoke promised to look into the matter personally with the Chase and give me a report this morning. Just before I Mr. Knoke, Mr. Henderson had called to see if I had anything further to he was then seeing Mr. give him, since to Velles. information. I replied that Yesterday New York had not yet given megot anything supplement last night's evening I had mentioned this matter to Under Secretary Bell, and this morning I reported it to Secretary Morgenthau when he called me at 9:45 a.m. I had also informed Mr. Pehle in the premises at 9:15 this morning. At 11 o'clock Mr. Knoke telephoned me from New York. He said he had been in conversation with the Chase Bank. No one there had attached any importance to the date of April 14 in connection with Russian affairs. The Chase has no knowledge of Russia having any immediate need for dollars. The Amtorg account with the Chase was $2,900,000 at the beginning of 1941 and is now at the figure of $2,200,000, and has been maintained 171 -2between these limits the past three months. The Russian State Bank account with the Chase has been going up rather steadily, starting at $4,000,000 at the beginning of the year, reaching as high as $13,000,000 during the quarter, and now being at $10,000,000. The letter of credit account of the State Bank of Russia with the Federal was around $14,000,000 at the beginning of the year, until up to $25,000,000 in March and is now at $20,600,000. This is the account to which funds are transferred from the regular Russian account with the Chase when credits are opened to cover purchases from American suppliers. The slight diminution of the past two or three weeks might indicate expedited deliveries or cancellation of orders. The gains in the Russian State Bank account with the Chase resulted principally from imports of Russian gold. In summary, New York knows nothing as to April 14 being a significant date: on their face the Russian accounts show no unusual transactions. I gave the foregoing information to Mr. Henderson by telephone at 11:35 a.m. 172 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION Miss DATE April 12, 1941 For TO FROM Secretary Morgenthau CONFIDENTIAL Mr. Cochran Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £ 3,000 Purchased from commercial concerns £11,000 Open market sterling was quoted at 4.03-1/4, and there were no reported transactions. In New York, the closing rates for the foreign currencies listed below were as follows: Canadian dollar Swiss franc (commercial) Swedish krona Reichsmark Lira Argentine peso (free) 12-5/8% discount .2321-1/2 .2384 .4005 .0505 Mexican peso .2325 .0505 .2066 Cuban peso 4-11/16% discount Brazilian milreis (free) There was a holiday in Shanghai today, and we received no quotations. There were no gold transactions consummated by us today. No new gold engagements were reported. The Bureau of Foreign and Domestic Commerce reported on April 11 an import of 410,000 ounces of refined silver bullion from Canada, consigned to the Chartered Bank of India, Australia and China, San Francisco, for trans-shipment to the Chartered Bank in Bombay, India. Including the above shipment, a total of 2,813,000 ounces of refined silver is now consigned to Bombay. 173 who AIRPLANE ENGINES Table 1. Disposition of Enginee Inspected by the British Empire 1/ Week ended April 8. 1941 STRICTLY CONFIDENTIAL Week ended April 8. 1941 Inspected Engine company and enginee type of engine on hand beginning of week 2/ Total to date Experts during week Enginee inspected during week Regines for American airfrance Enginee for British Total airfrenes Installed Spare enginee enginee Company and type of airfrene involved Inspected enginee on hand end of week Exports to date 2/ Enginee Enginee inspected to date Total for Enginee for American airfrance British Installed Spare airfranes enginee enginee Allison Division, General Motors Corp. Curtiss-Wright Havk 814 pursuit 10 10 36 10 37 10 241 1,172 931 - . 12 12 - 12 20 12 E - 40 & Total Jacoba - 12 40 Cesama T-50 2-engine trainer 32 - 225 h.p. 330 h.p. 931 755 176 755 176 32 108 140 106 310 310 310 450 418 310 509 509 509 104 - - L-600 1,168 - - 1 214 Jacobs Aircraft Engine Co. Line 237 3 - Total Allison 211 - T-1710-F32 1000 h.p. 1150 h.p. 1150 h.p. - T-1710-015 T-1710-24 Ilaner Motors, Inc. - - - 125 h.p. - - - 3-5. Lycoming Division, Aviation Manufacturing Corp. 3 , 3 - 300 h.p. - - - R 680-K3 Menasco Manufacturing Co. - - 20 20 20 182 182 182 - 125 h.p. - - D4 Pratt Whitney Aircraft 14 2 - 2 - - - 4 - - 2 2 - - - - - - 1.590 6,009 10 92 - 4 - 145 14 2,170 1,844 4,419 - - 2 Varger Aircraft Corp. - - 788 47 175 149 139 10 827 499 475 24 328 986 2,514 194 30 - - - - Mineted to allow for revisions is records, 5 - Excludes spare parts but includes spare complete engines: excludes secondhand engines 171 2 253 - - . 426 1 & 259 6 3,381 173 8 TOTAL ALL COMPANIES 181 Searces British Air Commission 1,304 1,528 2 - 5 119 Boeing B-170 4-engine bomber 1 - - 1,403 173 1 - Total Wright 173 - - - 86 49 8 - - - 20 306 Office of the Secretary of the Treasury Division of Research and Statistics. 1/ 835 - 21 1,073 GR3350-3 168 835 26 1100 h.p. 1200 h.p. 1200 h.p. 1600 h.p. 2200 h.p. 119 168 - GR2600-A53 1100 h.p. 2 GR1820-0205A GR1620-73. 300 h.p. 450 h.p. 2 1975-33. GR1820-0102A GR1820-0105A 2 8760-31 - 1 9 Fright Aeronantical Corp. 82 62 - - 165 h.p. - 165-D 405 - 14 138 20 2 20 - 8 - 48 195 Consolidated LB 30 4-engine bomber 1,032 1,597 28 10 - - - 62 2,607 1,010 66 427 - - 1,723 Grummas G-363 Navy fighter 77 42 100 - - 1850 h.p. 73 305 260 364 - - - 12 4g 228 102 $ - 2 - 121 50 Martia 1673 2-engine bomber Consolidated 25-5KX 2-engine bomber Lookheed 414-13 2-engine recon. bomber 128 524 10 - 16 60 1 2 18 10 3 - 20 115 - 20 1,005 752 752 3 26 - 3 810 16 50 - - - - 82800-314-0 (16:9) 12 1,061 1200 h.p. 1200 h.p. 1850 h.p. Total Prait & hitney - 12800-8144-0 (5:2) - 21630-82. - 21630-33 (2:1) 1200 h.p. 80 234 1,120 58 Lockheed 18 Lodestar transport 26 26 50 1,262 2 R1830-8304-0 - R1830-803-0 (3:2) R1830-803-0 (16:9) 21630-8103-0 (16:9) 18 142 2 R1830-80-0 58 North American KA 66 trainer 30 30 50 2 R1690-S1N3-0 - E1535-534-0. 172 6 21340-83H1-0 46 40 to 2 R1340-83H1. 450 h.p. 600 h.p. 600 h.p. 600 h.p. 525 h.p. 875 h.p. 1050 h.p. 1050 h.p. 1050 h.p. 1200 h.p. a 2985-832, R1340-S1H1-0 1,341 4,531 3,190 1,307 1,723 160 3,214 12,948 9.73 4,237 4,756 741 Prepared April 12, 1941. 174 AIRPLANS REGIENS Table 21 Status of Inspected Engines of the British Empire on Hand is the United States y As of April 8. 1941 STRICTLY CONFIDENTIAL Analysis of inspected engines on hand Total Airfram company and type of airfrane involved Engine company and type of engine enginee on head Total: Enginee Engines for Enginee for British Total: Installed Spare enginee engines DOICIA Regines for assigned airfrance Enginee at airfrance factory saroute thereio) Enginee at engine factory Enginee awaiting export inspected American airfreeds ciency ****** enginee months' lengines: is Assigned to Reason for Dati- Excess two British for is- 188 spare: sairframesistallation: enginee require. les hand :engines: 108 hand ments Allison Division. Curtise-Wright Eavk 874 pursuit 15 2 - 21 319 110 38 41 12 15 #6 7 a Y 40 Airfree deliveries 2 mos. late so Airfree deliveries 2 mos. late 40 a - 35 106 14 - - 14 to 2 65 35 2 28 104 Airfram deliveries 6 see. late 196 Airfree deliveries . late - bonber 970 Airfree deliveries 2 mos. late 125 113 109 15 , dive " 3 140 . Brewster 7 Boeing Douglas DB-73 2-eagine bomber - Orannas 0-364 Havy fighter Fultee 72 dive bonber Martin 167 2-endine reces. bonber - 1600 19 109 80 so 302 - Cartiso-Vright Hawk 754-4 persuit 21 26 - Broveter 339 pursuit Lockhaed 414-36 2-engine recon. bomber - 1100 h.p. 1200 h.p. 1,179 56 56 59 Airfrees deliveries 3 mos. late 75 100 - Fright Asromantical Corp. 10 10 10 Separate engines 296 355 M 155 38 116 61 498 111 38 193 . 165 h.p. 197 496 - 115 16 16 30 , 702 174 6 201 - Varner Aircraft Corp. 26 56 12 228 1,590 Total Prett Whitney 082600-458 26 56 - Lockheed 37 2-engise bonber 26 60 - 1850 10 - R2800-5144-0 (16:9) Airfrane deliveries 2 ase. late 33 2 Consolidated La 30 4-engine bomber 108 22 10 16 . Martin 1678 2-engine bonber Consolidated 25-90 2-eagine bomber Lookheed 414-13 2-engine reces. bonber Orannan 0-368 Mary fighter " - Lookheed 414-08 2-engine recea. bomber Consolidated is 30 4-engine bonber OR1820-02014 40 58 . Lockheed 18 Lodestar transport 1200 GR1820-01054 68 217 109 , Tought-Sikoraky V-156 dive bomber R1830-33 165-D. 100 33 33 2 North American MA 66 trainer 40 142 2 1200 Grumma 0-21A amphibian bomber 101 32 40 450 h.p. 600 h.p. 625 h.p. 875 h.p. 1050 h.p. 1050 h.p. 1200 h.p. - 11830-8304-0 237 32 - R1830-503-0 (16:9) 11830-8103-0 (16:9) 168 36 19 6 21830-503-0 (3:2) 32 - 81535-534-0 11690-8183-0 12 25 - 21340-8381 77 - 8985-832 25 - Pratt Whitaey Aircraft Cessas T-50 2-engine trainer 32 20 4g - 330 h.p. 12 3 Line 125 so 241 Jacobs Aircraft Engine Co. 120 36 as Bell P-39 Airecobra persuit Total Allison 12 48 25 25 all 1 1150 h.p. 1150 h.p. 193 - Curtise-Fright Revit 814 pursuit Lockheed 322 2-engine persuit - T-1710-24 T-1710-F38 1000 h.p. 3 T-1710-015 , General Motors Corp. 120 61 63 - 1 1 - - 3,214 602 86 the Office of the Secretary of the Treasury. of Research and 1/ Excludes spare parte but instates spare complete engines: excludes engines. - * TO 65 high - 74 139 29 408 50 1,688 759 329 1.688 759 329 739 381 2.118 2,118 63 366 - 1 442 298 63 61 366 - - - TOTAL ALL ENGINES 442 - Subtotal enginee assigned as spares for American airframes the 2,926 - 61 Subtotal: engines assigned to British airfrance Subtotal: enginee assigned for installation is American airfrance - 86 390 15 - 86 121 - 76 - 212 - 1,341 63 - Total Wright 75 160 556 74 63 - 2200 h.p. 75 138 14 58 16 20 - GR3350-3 Separate enginee Separate enginee 66 a - Northrop 72 dive bomber Douglas DB-7 2-engine beaber 366 BOUROES AIR Commission 6 6 Prepared April 12. 1041. AIRPLANE ENGINES 1/ Table 3: Location of Separate Engines Awaiting Export by the British Repire 2/ As of April 8. 1941 175 STRICTLY CONFIDENTIAL export Analysis of engines awaiting export by location At engine factory In At port of embarkation transit Paterson. N. J. : : awaiting : type of engine : Engines Engine company and Port of New York : : Enginee for British airframes Varner Aircraft Corp. 165-D. 165 h.p. 10 - - 10 Wright Aeronautical Corp. GR2600-A5B GR3350-B 1600 h.p. 2200 h.p. 75 18 2 55 1 1 - Total Wright 76 19 2 55 Total engines for British airfranes 86 19 2 65 Spare engines for American airframes Pratt & Whitney R1830-SC3-0 (3:2) R1830-5103- a (16.9) R1830-5304-0 (16:9) 1050 h.p. 1200 h.p. 1200 h.p. 26 - 26 - 3 - 3 30 - 30 Total Pratt & Whitney 59 - 59 Wright Aeronautical Corp. GR1820-0205A GB2600-A5B 1200 h.p. 1600 h.p. Total Wright Total spare engines for American airfrance TOTAL SEPARATE ENGINES AWAITING EXPORT 11 3 8 4 - 4 15 - 74 160 12 3 - 3 22 Office of the Secretary of the Treasury, Division of Research and Statistics. 71 2 136 Prepared April 12, 190. Source: British Air Commission. Excludes spare parts but includes spare complete engines; excludes secondhand engines. Excludes enginee installed in American airfrance, which are covered in Airframes Table 3. 176 4/10 AIRFRAMES Table 1: Disposition of Airfrance Inspected by the British Impire 1/ Week ended April 8. 1941 STRICTLY CONFIDENTIAL Vesk ended April 8. 1941 on hand beginning of week Airfrance inspected during week Total to date Inspected: airframes! Exports during week Manber on hand Engine company and type of and of of engine involved airfrance Airframes : Airfrane company and type of airframe Inspected airfrance Airframes exported inspected week Bell Aircraft Corp. P-39 Airacobra pursuit 1 - - 1 1 Boeing Aircraft Co., Inc. 1200 h.p. 1 - 2 3 13 GR1820-73 3 8 - 13 8 - 21 4 Jacoba 4 Cessas Aircraft Co., Inc. T=50 2-engine trainer - - - Juo 106 127 21 - - Browster Aeronautical Corp. 339 pursuit 339 B fighter Total Browster Wright 2 B-170 4-ongine bember 225 h.p. - 33 33 160 139 54 54 46 40 Consolidated Aircraft Corp. 3 - 35 Total Curtise-Wright 35 10 11 9 Allison 10 T-1710-015 1000 h.p. 10 - 56 45 - 204 204 25 780 755 25 984 959 - - - Hawk 81A pursuit 6 1200 h.p. 5 10 R1830-5103-0 (16:9) 1200 h.p. R1830-33 5 7 7 10 Curtise-Wright Corp. Hawk 75A- pursuit 1 3 Pratt & Whitney Pratt & Whitney 8 26-5MB 2-engine bember LB 30 4-engine bomber Total Consolidated Douglas Aircraft Co., Inc. - - 24 - - - - - - - 24 138 136 97 97 - - - - - 8 DB-7 2-engine bomber DB-7A 2-engine bomber DB-73 2-engine bomber Total Douglas - s 8 267 - - 8 BIGA 2-engine bomber 259 8 Granman Aircraft Engineering Corp. - - 5 1200 h.p. R1830-8304-0 61 81 - Pratt & Whitney 9 4 - - - - 5 9 4 Total Greeman - 2 G-36A Navy fighter G-363 Navy fighter 2 0-21A amphibian bomber 9 92 88 100 100 30 30 5 - - - Pratt & Whitney R1830-8304-0 34 23 - 87 6 20 40 135 95 350 350 - 875 h.p. 3 - 1 - 1 3 35 73 20 8 30 Pratt & Whitney R1690-8183-0 160 - - 34 135 1200 h.p. - 98 5 - - Total Lockhood - - - Lockhood Aircraft Corp. 214.40 2-engine recon. bomber 414-08 2-engine recon. bomber 414-13 2-engine recon. bomber 414-40 2-engine recon. bomber 414-56 2-eagine recon. bomber 3-14 2-engine recon. bomber 18 Lodestar transport 130 803 673 28 210 182 430 430 119 119 608 575 Glenn L. Martin Co. Pratt & Whitney 30 R1340-83H1 600 h.p. 33 1 & - - 1 56 1050 h.p. - 55 (16:9) 1 - - R1830-803-0 8 EA 66 trainer EA 73 pursuit Total North American 3 - North American Aviation, Inc. KA 49 trainer EA 64 trainer Pratt & Whitney 10 35 - 1678 2-engine bomber 1,158 34 30 1,124 Tought-Sikoraky Aircraft - V-156 dive bomber 3 3 - - TOTAL ALL COMPANIES 3 297 74 105 Source: British Air Commission. Office of the Secretary of the Treasury Division of Research and Statistics. 1/ Excludes spare parts and secondard airfrance. 2/ Includes 29 airfrance without engines. 266 3.791 3,525 Prepared April 12, 1941. AIRPRAXES Table 2: Status of Inspected Airframes of the British Repire on Hand in the United States As of April 5. 1941 STRICTLY CONFIDENTIAL Analysis of inspected airfrance on hand Airframe company and Total Engine company and type type of airfrane of engine involved inspected airfranes on hand Airframes at factory Airfrance awaiting Enginee being Total export Awaiting - - R1830-8103-0 (16:9).1200 h.p. - Pratt & Whitney Pratt & Whitney - 1100 h.p. - GR1820-0105A - Wright - 1200 h.p. - GR1820-73 1 Wright - 1150 h.p. 1 V-1710-34 - Allison tests - Bell Aircraft Corp. P-39 Airacobra pursuit Awaiting enginee installed 1 Boeing Aircraft Co. Inc. 21 21 - 1 Drowster Aeronautical Corp. 339 pursuit 1 B-17C 4-engine bomber Consolidated Aircraft Corp. - - - 25 - 25 - 5 5 11 - 6 6 11 - Total Consolidated - - 1200 h.p. - R1830-33 - 28-5MB 2-engine bember LB 30 4-engine bomber Curties-Wright Corp. V-1710-015 1000 h.p. Wright GR2600-A5B 1600 h.p. Pratt & Whitney R1830-8304-G 1200 h.p. Pratt & Whitney R1830-8304-0 Wright GR1820-0205A Pratt & Whitney R1690-8183-0 1200 h.p. 1200 h.p. 875 h.p. - Allison - Hawk 81A pursuit Douglas Aircraft Co. - - 1 - - - - - - - - - - 1 - - - - 4 39 - 8 8 87 40 - 1 3 130 129 1 3 Total Lockheed 87 - lockheed Aircraft Corp. 414-13 2-engine recen. bomber 414-56 2-engine recon. bomber 18 Lodestar transport 4 - Trussan Aircraft Engineering Corp. G-368 Havy fighter - DB-73 2-engine bomber lean L. Martin Co. R1340-8381 33 33 - - 1 Total North American 1 - - T-1710-F3R 600 h.p. 1150 h.p. - Pratt & Whitney Allison 1 28 - 28 - 33 - 34 1 1 KA 73 pursuit R1830-803-0 (16:9) 1050 h.p. - brth American Aviation, Inc. KA 66 trainer Pratt & Whitney - 1678 2-engine bomber Tought-Sikorsky Aircraft - 263 1 266 2 3 Excludes spare parts and secondhand airfrance, 3 Office of the Secretary of the Treasury. Division of Research and Statistics. - TOTAL ALL COMPANIES 825 h.p. - R1535-884-0 - Pratt & Whitney - T-156 dive bomber 3 Source: British Air Commission. Prepared April 12, 1941. 178 AIRFRAMBS Table 3: Location of Airfrance with Installed Enginee Awaiting Export by the British Empire 1/ As of April 8. 1941 STRICTLY CONFIDENTIAL Hold at Airfrane company and type of airfram Airfranes awaiting export At port of embarkation airframe factory Total Los Angelee Baltimore In Stratford transit (Conn.) Total New York New Orleans Los Angelee Boeing Aircraft Co., Inc. B-170 4-engine bomber 1 - - - - - - 5 - - 11 - - - - - - 11 - 6 - - - - - - - - - - - - Total Consolidated - - 5 21 - 6 LB 30 4-engine bomber 21 - - Consolidated Aircraft Corp. 28-5K 2-engine bomber 1 21 - Breveter Aeronautical Corp. 339 pursuit Curtiso-Wright Corp. 25 25 - - 25 - - - Havik 814 pursuit Douglas Aircraft Co. 8 - 4 - DB-73 2-engine bomber 3 5 5 16 10 - 1 - - 5 - - 1 - - - - 1 1 15 52 79 53 24 24 - - 1 35 68 10 - 35 14 - 29 - - - 129 - 3 - 5 29 39 - Total Lockhood 87 - Lockhood Aircraft Corp. 414-13 2-engise recon. bomber 414-56 2-engine recon. bonber 18 Lodestar transport 4 4 - Grummer Aircraft Engineering Corp. 0-368 Navy fighter 16 10. Glenn L. Martin Co. 4 6 4 - 26 - - - - - - 1678 2-engine bomber North American Aviation. Inc. 2 - 6 - 33 - MA 66 trainer 27 27 Tought-Sikoraky Aircraft - - Excludes spare parts and secondhand airfrance. 2 Office of the Secretary of the Treasury Division of Research and Statistics. 4 - 41 1 47 30 186 1 263 - TOTAL ALL COMPANIES 2 3 - V-156 dive bomber 133 Source: Briting Air Commission. 16 37 Prepared April 12. 1941. 179 histo who gets this TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 12, 1941. FROM Secretary Morgenthau Alan Barth BATTLE SMOKE The Mediterranean The rapidity of the week's events has blurred their imprint on American opinion. With each new bulletin from the Balkans, the editorial analysts waver in their judgments, uncertain still as to the outcome of the battle. The early news of a setback to British fortunes undoubtedly dealt a stunning blow to American hopes. How exalted, and perhaps unfounded, these hopes were is revealed in the degree of disappointment which has been felt. But the reaction has been one only of disappointment, not one of despair. It has been possible thus far to examine only a limited number of editorial comments on the Balkan battle -- and these, for the most part, in the eastern metropolitan press; the smaller newspapers of the middle west may prove less resilient in their responses. Judging from those editorials now available, however, it may be said that the commentators have rolled with the punch and have hardened in their determination to hit back. The British victories during March, in Africa and in the Ionian Sea, together with the Yugoslavian revolt, gave rise here to a buoyant 180 -2feeling that the war had reached a turning point. While they were restrained in the expression of their optimism, many commentators, as well as a large segment of the general public, permitted themselves the private hope that the Nazi war machine might crumble as readily as had the Italian. They clung tenaciously to the notion that the panzer divisions were no more than a papier-mache nightmare conjured up by Nazi bluff and bluster; and they daydreamed of popular uprisings inspired by the magic of America's Lend-Lease law. In a sense, the dashing of these illusions has been healthful. It has brought home more effectively than anything that has gone be- fore the reality and urgency of the dangers confronting the United States. It has shattered the American tendency to rely on mere legislation as a panacea. There is now genuine recognition that the LendLease law must be powerfully implemented in order to make it meaning- ful. One moral commonly drawn in editorial comments is that the good will of the United States was of small avail to the Yugoslavs; real aid must be delivered to be of value. Undoubtedly some degree of defeatism has been engendered by the Balkan reversal. The Scripps-Howard chain observed editorially . that If it may turn out that the German armies are literally invincible, however inhospitable the terrain and the people." The isolationists can be counted upon to spread this "wave of the future" doctrine. But the tone of most comments suggests that it is a doctrine unlikely to sit well with the American temperament. 181 -3The Atlantic Three main fears haunt the editorial writers analyzing the trend of the war: (1) That the crushing of Yugoslavia will crush the morals of other weak nations which might have been encouraged to resist aggression; (2) That the Japanese may be sufficiently convinced of German strength to move against Dutch and British possessions in the Pacific; (3) That the German advance in Africa may succeed, not only in closing the Suez Canal, but also in securing Dakar and the west coast of Africa for German use in the Battle of the Atlantic. The dismay over these possibilities is not because they are held to presage an ultimate Axis triumph, but because they seem to make Aerican involvement more probable. A high percentage of commentators take it for granted that the United States Navy must thwart Japanese attempts to move farther to the south and that it must convoy aid to Britain if German sea raiding is intensified in the Atlantic. There has been singularly slight consideration of methods other than convoying to overcome German sea power. The alternative which has received the liveliest attention is the transfer of additional units of the United States Navy to Britain; but this is held to have almost equal disadvantages. Rumors that the United States may convoy merchant vessels part way to England have been criticized as a subter- fuge embracing most of the dangers of full convoying. Redefinition of the zones of belligerency to permit American ships to make deliveries 182 -4 to Red Sea ports occasioned very little comment during the period since the President intimated that it might be done; it is regarded as a palliative at best. Extension of American protection to Greenland has been welcomed as a defensive measure, but it is not con- sidered a solution to the main issue. The main issue now taking shape in the American mind is one of peace or war. Hope is waning that a British victory can be purchased without full American participation. Events are prodding Americans to a grim choice which they have been reluotant, until now, to face But the impression is beginning to prevail that the choice can no longer be evaded. 183 MEMORANDUM April 12, 1941 To: Mr. Harry Hopkins From: Oscar Cox Subject: Neutrality Act Opinion I think that it might be unwise, as a matter of both law and policy, to cover too much ground in one opinion. In this fast-changing situation, no one can predict with certainty just what problems are likely to arise. About the best thing that can be done is to put up a well-thought-out specific question at a time in such a way that the future will not be blocked. On the basis of an opinion in answer to one specific question, it is also likely that the President will get the best public reaction as well as be on the firmest legal ground. At this time, orally OF in writing, the President might ask for an opinion someuhat along the fellowing lines: 184 -2"By agreement with the British Government, the United States has acquired the right to lease and construct naval and air bases in Nowfoundland and British Guiana and in the islands of Bernuda, the Bahamas, Jamaica, St. Lucia, Trinidad, and Antigua. By agreement with the Danish Government, the United States has ac- quired the right to lease and construct military bases in Greenland. To effectuate these agreements, it is necessary to ship arms, mmnitions and implements of war, as well as non-arms such as lumber, oil and food to these places. It is also necessary to send American citizens to work on the construction of those bases. If it is legally proper to do so, it is desired to transport these men and supplies by public vessels of the United States. I would appreciate your opinion on this question." An opinion on this question might well cover the transfer of all kinds of articles to all ports of the world in public vessels: Because the Neutrality Act of 1939 does not apply to public vessels, they can go to any 185 port with anything, and, therefore, a public vessel can be used to transfer supplies and personnel to our bases. (Sga) Cay 186 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 12, 1941 TO Secretary Morgenthau FROM Mr. Kamarck Subject: Interview with Dr. Spencer Summary Observations on the German Diet. 1. The German army is well fed in every respect. 2. The German civil population receives an adequate quantity of food but the diet is not well balanced in that there is a shortage of fats and some vitamins. 3. The diet of the German civil population, while it does not result in serious 111 effects, does affect the people somewhat adversely. The unbalanced diet causes lassitude, lack of ambition, increased susceptability to disease, decreased vitality and stamina, and insomnia. Other Observations 1. The civil population of Germany is very much afraid of air raids. 2. If the bombing by the Royal Air Force of important secret German installations is any criterion, the British Secret Service is most efficient. 187 -2- Division of Monetary Research Dr. Herbert Spencer is a senior surgeon at Ellis Island, New York. He has had considerable experience with war, having been in Spain during the Spanish Civil War and in Finland during the Russo-Finnish War. Dr. Spencer was sent to Germany in May, 1940 to inspect war prisoner camps and remained in Germany until February, 1941. In this work he was in close contact with the German army and its diet. He was also able to make some observations on the German civilian rations. The following summarizes his conclusions on the subject of the diet of the German population. 1. The German army is well fed in every respect. The military messes receive food which cannot be bought for any price by the civilian population. The ration is well balanced and there is enough of it. The blockade has not affected the German army at all in this vital matter. 2. The German civil population receives an adequate quantity of food but the diet is not well balanced. The diet does not include a sufficient amount of fat and, Dr. Spencer suspects, some of the vitamins are also lacking. 3. The unbalanced diet does not have any serious ill effects but it does decrease the efficiency of the population. Even though an individual may look perfectly healthy he will be deficient in vitality and stamina. Susceptability to disease is increased. In general, there results a feeling of lassitude and of lack of ambition. (This may partly account for the general impression of apathy some observers notice in Germany.) Dr. Spencer told a personal story illustrating the character of the diet. He would often eat in a restaurant and would order as much food as he wanted to eat. At the end of the meal a most peculiar feeling would be experienced: even though he was full and could not eat anymore, he still felt hungry. Dr. Spencer had a number of observations on other features of life in Germany which might be of interest. 1. The German civil population is very frightened by air raids. Dr. Spencer said that one had to be very quick to beat a Berliner to the air raid shelter when the alarm sounded. Last June when the first British air raid occurred, 188 -3 - Division of Monetary Research the Berlin population was shocked because, as they remarked, Goering had promised that no British bombers could get through. 2. The efficiency of the British Secret Service was most impressive. For example, a new barracks was being erected in one town. On the second day after it had been built and was occupied by troops, the British came over and bombed it. Dr. Spencer saw a power line bottleneck that the British had knocked out of commission for some while. It was very plain to see that the British were after this power line, as a stick of bombs had been laid perpendicular to the line extending several hundred yards on both sides. 3. The Germans always attempt to conceal rapidly the results of the air raids. Repairs are made hurriedly. If the repair cannot be completed at once, the damage is hidden in some manner. Dr. Spencer told of a house which had been badly struck a few hundred yards from where he lived. The front of the house had been repaired and new windows put in, making the building appear completely normal from the street, whereas inside it was a shambles. 189 CORRECTED COPY GRAY DES BERLIN Dated April 12, 1941 REC'D 7:04 p.m. Secretary of State, Washington. 1404, April 12, 1 p.m. FROM HEATH FOR TREASURY AND DEPARTMENT'S INFORMATION. Official German news service states that the April 15 coupons of the American tranche of the Dawes loan which have been stamped "United States of America domicile October 1, 1935" will be bought in the same manner as the coupons which fell due on October 15, 1940. MORRIS EMB 190 C 0 P Y PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Moscow, U.S.S.R. DATE: April 12, 1941, 6 p.m. NO. : 755 The following is strictly confidential. I have received the following information from the General Manager of the Swiss Bank Corporation of Basle, Albert Mussbaumer. He arrived here yesterday for the purpose of arranging to finance the recent trade agreement between Switzerland and the U.S.S.R. He said that at the moment Swiss banks are probably in a better position than any other agencies in the world to observe the amount of dollars being sold by the German Reichabank; according to careful estimates of the Swiss banks, the Germans are selling to New York and Swiss banks from $200,000 to $300,000 each day. South America he said was the source of most of these dollars, which are being converted into Swiss francs for the most part. Swiss banks, he said, refuse to purchase the securities which the Reichabank had obtained from the occupied countries but dollars which the Reichabank presented to the Swiss banks were readily converted into Swiss francs. With these funds, he said, it is possible for the Germans to finance their purchases outside Germany and the occupied countries, and they have besides & substantial surplus. - 191 -2- With this surplus Germany is buying up its dollar bonds in the United States at their depreciated value, and bonds of the French Government at from 40 to 60 percent of face value. I asked why the Germane should be buying bonds of the French Government, and he replied that bonds bought in this manner were tendered at their par value to the French holders of shares in important industries in France. In this way the Reichabank is getting control of many of France's most important industrial concerns. Furthermore, according to Mussbaumer, the Reichsbank is pursuing this course in other countries too. He said he knows of instances in South American countries where with Swiss francs the Reichabank is purchasing control of important companies. I asked Mussbaumer whether it was possible for him to give me an estimate of the war's cost to Germany, and whether he know how the war is being financed by Germany. He replied that there is substantial agreement on the part of the best-informed Swiss banks that the monthly expenses of the German Government amount to about 2,500,000,000 marks. Current income of the German Government takes care of about 45 percent of this amount, and loans, short term notes, etc., finance the remainder of about 55 percent. My informant remarked that the standard of living of the German people 192 -3- has fallen commensurately with the mounting deficit over such a considerable period of time. He said that the purchasing power in Germany has become only a fraction of what it was before the war. It is the opinion of Mussbaumer and his associates in Switzerland that until the German standard of living has reached the irreducible minimum there will not be any serious inflation in Germany; and that it will be "one or two years more" before this happens, in the opinion of Swiss bankers. STEINHARDT. EA:LWW COPY:mg/bj:4/21/41