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DIARY
Book 66
April 23 - April 30, 1937
-ABook
Agriculture
Farm Tenancy Bill:
Conference after Cabinet between FDR, HMJr, Wallace,
and Bell - 4/23/37
a) Wallace suggests cutting his road appropriation
($30 million)
Altschul, Frank
See Stabilization
Page
LXVI
9
Anderson, Benjamin M.
See Chase National Bank
Appointments and Resignations
Wolfe, Joe:
Gibbons reports investigation is completed: cancelled
checks showing money deposited to personal account;
HMJr will recommend to FDR dismissal of Landy and
turning over to Department of Justice all remaining
material - 4/28/37
Memorandum for FDR
217
377
-BBudget
Garner tells FDR people on Hill are right behind him in
perfecting the budget - 4/23/37
FDR explains to HMJr that Housing Bill should function
as follows:
- 4/26/37
27
71
1) $1 million project: city should provide out of
its own budget $200,000; Federal Government will
give grant of 45%, or $360,000; Federal Government
will give 10% of relief labor, or $80,000;
balance of $360,000 should be raised on first
mortgage
2) FDR also tells HMJr he will either send a message
to Congress or letter to Harrison and Doughton
going into detail concerning the shortage of
$600 million in revenue; wants to emphasize that
Treasury estimate and method of estimating are
correct but that taxpayers find too many loopholes
Garner tells HMJr time may come when he will have to
resign if he does not get the cooperation of FDR on
spending; Garner tells HMJr, "Frankly, I am talking to
the President through you" - 4/27/37
88
Business Conditions
Daggit memorandum: "The Business and Price Situation" 4/29/37
292
-CBook
Page
LXVI
231
Chase National Bank
Aldrich and Anderson (Benjamin M. - Economist) going to
Europe; Anderson is seeing Hull and wishes to see HMJr
also before sailing - 4/28/37
a) HMJr discusses interview with Aldrich; tells
Aldrich, Anderson "rubbed him wrong way" and he
(HMJr) thinks interview was most unfortunate -
4/30/37
Haas memorandum on conference
340
372
-E- England
See Great Britain
Engraving and Printing, Bureau of
HMJr asks that Major Berry be informed that his request
for the 15% differential for night workers has been
approved - 4/27/37
103
-F.-
Famous Brands Ohio, Incorporated
See Investigations, Treasury Personnel
Farm Tenancy Bill
See Agriculture
Federal Trade Commission
HMJr's letter to FDR, which was referred to Federal Trade
Commission; Federal Trade Commission's reply to FDR;
FDR's proposed letter transmitting this reply to the
Speaker and to Senator Robinson; and the letter from
Federal Trade Commission approving this use of its
letter; together with Oliphant resume of case - 4/23/37
HMJr tells Oliphant matter was cleared at Cabinet - 4/26/37..
17
63
Financing, Government
Taylor memorandum on gross amounts of bills which banking
system can properly handle, the proper maturities,
maximum amount which should mature on quarterly dates,
et cetera - 4/28/37
260
-GGermany
White reports on conversation with Dr. Otto Jeidels, one of
the owners of the largest wholly privately-owned bank in
Germany, the Berliner Handelsgesellschaft - 4/29/37
306
- G - (Continued)
Book
Page
LXVI
49
Government Bond Market
Eccles explains Federal Reserve action to HMJr when
"the market went off pretty badly" - 4/26/37
a) See Burgess memorandum.
Harrison tells HMJr he is going to have a series of talks
with principal banks to find out, if possible, what is
worrying them - 4/27/37
HMJr asks Butterworth to ask American brokers in London
why people are selling American stocks - 4/27/37
a) Butterworth reply
HMJr asks Cochran also to make inquiries - 4/27/37
Knoke tells HMJr, Bolton reports whispering campaign
mostly in academic circles, the so-called "semi-
intelligentsia" - 4/27/37
Great Britain
See also Stabilization
HMJr reports discussions that Cabinet is having concerning
talks Bingham and Davis are having with Chamberlain;
Garner thoroughly displeased and wants to know subject
of discussions - 4/29/37
HMJr-Arthur Krock conversation - 4/29/37
a) Ferdinand Coons' article "Stocks Fall in London"
46
91
104
133
117
124,129,131
280
284
discussed
1) HM&r suggests article: due to FDR's constant
warnings, investigation shows United States
banks have not made commodity loans, brokerage
houses are in good shape, et cetera
Butterworth reports that Clay (Economic Adviser to Bank of
England) has emphasized that decline in London Stock
Exchange prices has reached panic proportions - 4/29/37..
324
-H-
Harper, William G. (Secret Service Operative in Charge)
See Investigations, Treasury Personnel
Housing
See Budget
-Investigations, Treasury Personnel
Yellowley-Igoe case: See also Books LIX, LX, and LXIV
Treasury Department's reply to Igoe's charges transmitted
to Department of Justice - 4/27/37
Yellowley and his chief assistant, Levi Z. Baker, ordered
cited for contempt of court because of conversations
with a Federal Grand Jury foreman - 4/29/37
a) HMJr discusses with Oliphant - 4/29/37
139
283
286
- I - (Continued)
Book Page
Investigations, Treasury Personnel (Continued)
McReynolds memorandum to HMJr reporting further on
alleged participation of Collector of Internal Revenue
Carl E. Moore, Assistant Collector of Customs C. W.
Pollock, and Secret Service Operative in Charge
William G. Harper, of Cleveland, Ohio, in a liquor
sales agency - 4/27/37
LXVI
188
a) For Oliphant memorandum on above, 4/27/37,
see page 192
b) Oliphant reports at 9:30 meeting that nothing
has ever been turned over to charity and they
have taken at least three more checks - 4/28/37
Harper-Moore-Pollock case discussed by HMJr, Oliphant,
McReynolds, Manning, and Helvering - 4/28/37
Second conference; present: HMJr, Oliphant, Helvering,
and McReynolds - 4/28/37
a) HMJr reports on conference with Senator Bulkley
1) Bulkley seems stunned that nothing has been
222
234 .
245
done
-J Japan
American Embassy, London, reports unsatisfactory
conversations with Arakawa; thinks Arakawa has no
instructions to do anything specific - 4/23/37
32
4/20/37
65
Resume of financial and economic policy as explained in
a speech delivered by Japanese Minister of Finance at
the Conference of Clearing Houses held in Tokio on
Telegram from American Embassy, Tokio, quotes Minister
of Foreign Affairs as saying that a check should be
placed on trend toward extreme trade protection and
that Japan should participate in movement with Europe
and America; in spite of this, Ministry of Finance has
decided to retain in force after July 1st measures
adopted on January 8th for import exchange control and
to expand the scope of the measures in order gradually
to restrict imports into Japan of luxury goods and nonessential materials - 4/23/37
96
American Embassy, Tokio, reports on foreign policies of
Sato, recently appointed Minister for Foreign Affairs -
4/28/37
Jeidels, Otto (one of the owners of the largest wholly
privately-owned bank in Germany, the Berliner
Handelsgesellschaft)
See Germany
249
K-
Book Page
Krock, Arthur
HMJr decides to talk to Krock - 4/26/37
See also Great Britain
Stabilization
LXVI
57
"
-MMellon, Andrew W.
Tax case discussed at Cabinet - 4/26/37
64
Methodists
HMJr tells 9:30 group of plan for shrine at Oglethorpe,
Georgia, where Wesley landed, where, in time, they
will have a national home and national cemetery for
preachers - 4/23/37
1
Moore, Carl E. (Collector of Internal Revenue - Cleveland, Ohio)
See Investigations, Treasury Personnel
-NNarcotics
Strike at Parke-Davis plant in Detroit reported at 9:30
meeting; $1 million worth of narcotics there;
HMJr tells McReynolds to watch situation very closely 4/29/37
Article in North China Daily News, Shanghai, on Taybank
case - 4/30/37
274
380
-P-
Pollock, C. W. (Assistant Collector of Customs - Cleveland, Ohio)
See Investigations, Treasury Personnel
Public Health
Dispensary:
HMJr asks Miss Roche, McReynolds, and representative of
Secretary Ickes to investigate - 4/28/37
221
McReynolds reports on space available in Loans and
Currency Building; will cost very much to put it in
shape - 4/30/37
RRussia
See U.S.S.R.
360
S-
Book Page
Smith Company, E. M.
Conference in Cummings' office; present: Cummings,
Assistant Attorney General Morris, Oliphant, and
Magill - 4/23/37
LXVI
14
a) Following conference, HMJr writes Cummings:
"In view of unusual character of these cases,
***** any consideration of settlement of
civil liabilities at present is untimely
and these criminal cases should be pressed
to trial ******* thereafter the collection
or settlement of the tax liability can be
taken up" - 4/27/37
138
Stabilization
See also Government Bond Market
American Embassy, London (Butterworth), reports further
exchange of information: Phillips reports complete
understanding of United States point of view; thinks
it desirable to keep matter in the back of one's mind
for it is not pressing at this time
a) HMJr also asks Cochran to make inquiries
French situation also discussed in above conversation;
Phillips thinks a crisis point may be approaching
a) Cochran resume of situation in France 4/23/37 and 4/24/37
1) Cochran reports Minister of Finance
bitterly complained before Chamber of
Finance Committee yesterday against
circulation of stories of imminent
peril in finance situation and suggests
that campaign is the work of political
enemies - 4/29/37
Frank Altschul writes HMJr at length concerning "hot money" 4/26/37
Knoke reports to HMJr on conversation with de Jong, of
De Nederlandsche Bank, concerning change in instructions
with regard to sale of guilders - 4/27/37
Four principal causes of present uneasiness on exchange,
security, and commodity markets in Europe reported by
Cochran - 4/28/37
1) American gold scare
2) French situation
33
117
33
35,43
331
83
110
200
3) Remarks by FDR on commodity prices
4) Taxation by Great Britain and borrowing for rearmament
HMJr-Arthur Krock conversation - 4/29/37
284
a) Ferdinand Coons' article: "Stocks Fall in London"
discussed
1) HMJr suggests article: due to FDR's constant warnings,
investigation shows United States banks have not made
commodity loans, brokerage houses are in good shape,
et cetera
Butterworth reports that Clay (Economic Adviser to Bank of
England) has emphasized that decline in London Stock Exchange
prices has reached panic proportions - 4/29/37
324
-TBook
Page
LXVI
315
Taxation
For FDR's request that HMJr investigate loopholes in
tax system, see page 72
Conference in HMJr's office; present: Magill, Oliphant,
Helvering, and McReynolds - 4/29/37
a) Reorganization of Bureau of Internal Revenue
discussed so that number of places for review
of additional tax cases before reaching Board
of Tax Appeals may be lessened
-UU.S.S.R.
For resume of conferences on gold, 4/11/37-7/17/37,
see Book LXIV, page 79
Federal Reserve Bank of New York reports cable from
U.S.S.R. State Bank indicating desire to open an
account - 4/28/37
a) HMJr discusses with Eccles, who hopes Board
will approve request this morning; HMJr asks
Eccles to take personal interest because he
fears a little resistance in New York -
4/29/37
Taylor reports on luncheon conversation he and
Lochhead had with Oumansky - 4/29/37
Haas digest of two articles on Russian foreign trade
written by A. Rosenholz, People's Commisser for
Foreign Trade - 4/30/37
United States Savings Bonds
McReynolds reports on conference with Comptroller
General to discuss Treasury's proposal to designate
depository banks as fiscal agents of the Treasury
to sell "baby bonds" - 4/27/37
HMJr tells Sloan and Bryan he wants to "pep up" sale
between now and July 1st - 4/29/37
213
266
263
368
191
289
-VVeto Messages
Oliphant calls HMJr's attention to necessity of accurate
records at White House and at Senate of exact time at
which bills are returned to the Senate with the veto
message of FDR - 4/26/37
47
Book
Page
LXVI
328
Wallace, Henry A. (Secretary of Agriculture)
Doughton-HMJr conversation concerning Wallace speech
"Boom Feared Behind New Deal Fiscal Policy"
delivered at University of North Carolina 4/29/37
a) Doughton feels only HMJr should represent
Administration on fiscal and tax policies
Wolfe, Joe (Democratic National Committeeman, Minnesota)
See Appointments and Resignations
1
April 23, 1937
9:30 group meeting.
Present:
H. S. Klotz
Mr. Magill
Mr. Oliphant
Mr. Gaston
Mr. Taylor
Miss Roche
Mr. Haas
Dr. Viner
Mr. Upham
Mr. Lochhead
Mr. McReynolds
Mr. Bell
HM,Jr: Mac, there is a Mr. Jones coming in at ten
o'clock and I would like to have you here. He wants
to know how they can go about making a national park of
a place down at Sea Island where this British gentleman
landed in 1770. He's got a very interesting idea. You
will be interested. The secretary of this general was
the man who founded the Methodist Church. Who founded
the Methodist church?
Dr. Haas: Wesley.
HM,Jr: There were two Wesley brothers. What was the
name of the place?
Mr. Magill: Oglethorpe.
HM,Jr: I thank you. They are trying to do two things.
One, is to get a national park where Wesley landed, at
Oglethorpe, and next to at they want to have a shrine for
the Methodists, combined, in 1940, and have a national
home and national cemetery for Methodist preachers. On
account of their moving around, they don't have a home.
Very interesting idea.
Dr. Haas: The cemetery part is all right.
HM,Jr: What he wants to know is does the National Park
Service buy land or does Georgia have to buy the land. Who
2
-2-
can he see and how can he go about to buy Fort Oglethorpe.
The Methodists will take care of their part.
Mr. Bell: Act of Congress on the books which authorizes
the National Park Service to establish historical points
and make national monuments or shrines.
HM,Jr: Personally I am tremendously impressed with this.
I think he has a marvelous idea.
Mr. McReynolds: All the Methodists would have to do
would be to furnish the money.
HM,Jr: They will take care of themselves, but the two
things will be next to each other. What he is interested
in 16 having Fort Oglethorpe made a national park. The
other thing is next to it. They are not asking for any
money, only to have Fort Oglethorpe as a national park.
Mr. Bell: The general policy is that somebody furnishes
the ground.
HM,Jr: I want to put him in touch with the right party.
Personally I think it is a good idea -- the combining of
the two -- and put the whole business where Wesley first
preached. The oak is still there. Evidently I am more
religious than some of the people in the room. of course
he was not a Methodist when he arrived here. That's the
point. But out of that came the Methodist Church.
Mr. Upham: Jake Viner has read a very scurrilous history of Wesley's life.
Dr. Viner: I don't think the book stressed the Georgia
The Congressman from that district comes from Sea Island.
part of his lift. It was his life in England that it
stressed.
Mr. Bell: I am in favor of it if it does not cost money
that and the Jefferson Memorial.
HM,Jr: I thought we might take this out of Soil Conser-
vation!
Mr. Bell: I am in favor of that too.
Mr. Magill: Can't you put a three-strand barbed wire
3
-3-
fence around it?
HM,Jr: It only needs to be a three-strand wire fence.
I want you to write a letter to Henry Wallace and ask if
I get more if the wire is barbed? For an hour and a half
Henry Wallace explained it and Bell said he understood it
perfectly!
Mr. Bell: I had a lesson in agriculture.
HM,Jr: The trouble was the President was sleeping so
he did not stop anybody from talking.
Mac?
Anything?
Mr. McReynolds: No. Graves is back this morning.
Mr. Bell: I haven't anything.
HM,Jr: You and I, what do we do? Just sit tight until
we get a call from the White House?
Mr. Bell: I think that's the best thing? You mean on
the agricultural thing?
HM,Jr: Yes,
Mr. Bell: They have had a rule and they were holding
it up in Committee -- the Agricultural Bill. Does it come
up for vote today?
Mr. Oliphant: That's what they said.
Mr. Bell: I thought it was being held until the Speaker
heard something from the White House.
Mr. Oliphant: Has word gone to the Speaker to hold it?
HM,Jr: Yes. But no word from this shop. Please get that
straight. We haven't done a thing. We just sit tight.
Mr. Bell: I don't know what else to do. We suggested
way to get the money and no one agrees with us, 80 they
ought to suggest something.
a
HM,Jr: O. K. Would you make a note, Dan. In view of
4
-4-
the fact that Mr. Wallace throws down his own statement
as the thing is written, how much cash he would draw on
the Treasury. You see? He throw down his own statement.
This 18 the only copy I have. You might give me one to
take to Cabinet.
Mr. Bell: You mean based on Budget figures?
HM,Jr: Yes.
Mr. Bell: Get figures from our standpoint.
HM,Jr: Yes. Ezekiel fixed up figures on how much they
are going to spend and I use the figures and they show that
on a cash withdrawal basis that Wallace gets one dollar out
of every six. Then yesterday he throws down his own figures.
Mr. Oliphant: Ezekiel wasn't there?
HM,Jr: Oh, no.
Mr. Upham: I have nothing.
HM,Jr: The figures are right. Jump said they were right.
Dr. Viner: Is that the Department or all agricultural
programs.
HM,Jr: Everything that goes through Wallace.
Dr. Viner: I would throw in any agricultural expenses -Farm Credit -- all agricultural expenses.
HM,Jr: Supposing you have someone do that, Dan.
Dr. Viner: You ought to make a functional analysis.
Mr. Lochhead: Nothing.
Dr. Viner: Nothing.
HM,Jr: Eleven o'clock, Jake, will you come in?
Dr. Viner: What's this investigation they are making of
the Alcohol Tax Unit in Chicago. The papers are full of
a
Grand Jury investigation.
Mr. Oliphant: We heard of that.
5
-5-
HM,Jr: Did that just reach you? What do you read? The
Chicago Herald, one month late?
Dr. Viner: Chicago Tribune.
McReynolds: Yesterday evening they had it, only the other
side of it. April Grand Jury bawls out the United States
Attorney's Office andthrows bouquets at Alcohol Tax."
HM,Jr: God! Has it taken us that long to get it across?
Are you interested in it?
Dr. Viner: Yes.
HM,Jr: Send for Harold Graves 1f you are interested. It's
a long story, but he can give it to you.
Did you (Viner) notice somebody just returned from Chicago?
Dr. Haas: Nothing.
HM,Jr: will you (Haas) get in touch with Professor Merriam?
He's the fellow with National Resources and he wants us to put
on a show for them. You see, the President has these meetings
supposedly once a week, but he will not have one next week because he will be away, and what Merriam wants is to look at
the picture from the Treasury's angle. Talk to him and see
just what he wants. Find out what he wants. He whispered
to me and said that the next time they would like me to read
a paper on it from the Treasury angle. I don't want to do
it unless it's absolutely top-notch, unless we have something
to say. Anything else, George?
Dr. Haas: No.
HM,Jr: (To Miss Roche) Denver still there?
Miss Roche: Very much, sir.
HM,Jr: After you have read the report on that hospital
I would like to talk to you about it.
Miss Roche: I would like to talk to you, too, Sir, but
would want first to talk to some other people about it.
Mr. Taylor: Nothing.
I
6
-6-
Mr. Gaston: Magill, do you have any objection to my doing
what MacKellar wants?
Mr. Magill: No. Fine. Unless Mac objects.
Mr. Gaston: Might get Mac to write it.
The President has no press conference this morning.
HM,Jr: Why?
Mr. Gaston: On account of Forbes Morgan's funeral. What
other reason, I don't know.
HM,Jr: You notice I wasn't asked to be a pallbearer. Also,
my picture wasn't among those in the advertising book. You
know. I felt hurt!
Was there anything more about my nice side remarks about
the New York Times and their gold story? Krock didn't call
me up.
Mr. Gaston: No. No. Both Rodney Bean and Bob Thornburgh
told
acted kind of guilty and shamefaced about it. Rodney was
to ask and then Rodney wished it off on to Bob Thornburgh.
HM,Jr: Lucky for me, after Walter Lippmann had been in to
see me he went up to see Bell and Bell told him word for word
what I had told him without any preliminaries. But he walked
in just the same to Bell and said, What I want to know is do
they mean what they say?
Mr. Oliphant: I sent you the files and record of what we
did in connection with the 80-called joker in the liquor bill.
It's just for your records.
HM,Jr: Not for action?
No. You remember we communicated with the
Commission and I will have before you go to Cabinet meeting
a one-page summary of the Federal Trade Commission's bill.
Mr.
Oliphant:
HM,Jr: May I say to you people that on account of the
work Bell and I have been doing, I am just three weeks behind
and if anybody wants any action on anything, don't send it to
wantselse
me; handit personally to Mrs. Klotz because everything
is just piling up for a rainy day. But if anybody
7
-7-
anything done, you had better actually hand it to her because I am three weeks behind on my reading. I have never
been so badly off.
Mr. Magill: Nothing.
HM,Jr: You fellows are going over at 11 o'clock?
Mr. Magill: Yes.
HM,Jr: Who do you take with you?
Mr. Magill: Secret Service!
Mr. Oliphant: A couple of machine guns!
HM,Jr: I want to say, if all of you could keep your ears
open, because I think the Treasury 18 going to come in for
sabotage from now on, the like of which we have never had
before. Bell and I are always in a tough spot, but I think
we will be in an even more difficult spot because as the
President turns to us and says, If Wallace wants a Farm
Tenancy Bill, find the money for him, and then Wallace during
the day, I give this as an example, knowing we found the money
but it has to come out of some existing appropriation, has a
press conference and says, 'Too bad. Economy is the order
so we will just give yp all the programs, and then today
comes a long statement from Ed O'Neal attacking the thing.
It clicks just like that (gestures).
Mr. Bell: There 18 going to be a conference here in ten
days, I understand.
HM,Jr: I think it's terrible, but, as I say, I think
Bell and I will come in for this kind of thing within the
Administration. It has been bad enough up to now, but I
don't think anything we have had will equal what we are going
to get in the next two or three months, and anything you
people pick up or hear -- but it will come from within the
Administration. Wallace will attack and sit back and say,
"We want to do everything" and then put various pressure
groups to work on us. I think it's terrible. Money is
available for Farm Tenancy, for ever-normal granary, for
Housing -- it's all there, but they have to give up something.
So if you hear anything that 18 helpful to Bell and me, I
wish you would get it. Bell, I think you and I are going
to have the worst time because it's going to come from within.
Herbert, you might get O'Neal's release for me. Just how
8
-8-
much of it the President 18 going to stand, I don't know.
But I just thought I would let you know. But I think it's
worth taking -- quite worth while.
Mr. Bell: By the way, Wal ter Lippmann sensed that. He
noticed a story in the paper on Wallace and he said, 'I think
unless the President stands behind the Treasury that you
won't be able to go through with this program. I think
it's unfair to put the Treasury on the spot that way and
alone.' He said, 'I can see it coming.
000-000
9
April 23, 1937
After Cabinet the President asked to see Wallace,
Bell and me. At the end of a half hour discussing the
Farm Tenant Bill Wallace suggested that we cut his road
appropriation from 150 million dollars to 120 million
dollars - the 30 million dollars to go towards starting
the Farm Tenancy Bill. This is, of course, what I hoped
and prayed for, namely, that they would cut appropriations
to find the necessary money to start anything new with.
On Crop Insurance they decided that they would limit
it to wheat and that they would only need about three million
dollars for administrative purposes until August, 1938, and
Wallace said that he would consult with his people to see
whether he could find the three million.
The meeting started very tense but ended on a very
amicable basis. I am tremendously encouraged.
10
CONFERENCE AT THE WHITE HOUSE, APRIL 23rd.
The President discussed with Secretary Morgenthau, Secretary Wallace,
and myself, the question of funds to finance, during the fiscal year 1937,
the provisions of the Farm Tenancy Bill and the Crop Insurance Bill. He
asked Secretary Wallace as to whether or not he had been able to find any
funds in the Agriculture Department to finance the Farm Tenancy program.
The Secretary replied that they had discussed the matter at some length
with the heads of the various bureaus of the Department of Agriculture
concerned and they had come to the conclusion that the most that would be
needed for the fiscal year 1938 to start this program on an experimental
basis and maintain only a nucleus of an organization would be about
$25,000,000. He said he did not think they should spend more than
$15,000,000 on Farm Tenancy and he hoped that the Department might get
by with as much as $5,000,000 for the fiscal year. Under the land-buying
program he thought that $5,000,000 would be sufficient but officials
in charge of that program would prefer to have $10,000,000.
As to the source of the funds, he thought that the best place would
be good roads. He asked me to explain the situation with respect to good
roads. I stated that the Secretary of Agriculture, prior to January 1,
1937, apportioned for the fiscal year 1938 about $200,000,000 among the
several States for Federal aid highways and grade crossings, and that
there will be a similar amount available for apportionment on January 1, 1938.
The Budget for 1938 contains an item of appropriation of $150,000,000 to
pay the States for Federal share of this program for the fiscal year 1938.
11
-2 I explained that when the Secretary of Agriculture apportioned these funds
to the various states it becomes under the law an obligation of the
Federal Government and does not require a contract to construct the roads
in order to incur that obligation. I said that I felt some money could be
saved out of good roads by two methods (1) for the Appropriations Committee to reduce the $150,000,000 to $130,000,000 after which the Secretary
should instruct Mr. MacDonald to advise the States that while the authorization for roads had been apportioned among the several States there
was only available for expenditure during that fiscal year the sum of
$130,000,000 and therefore projects would not be approved in excess of
or
that sum, and (2) for the Secretary to instruct Mr. MacDonald to delay
the approving of projects so that some part of the program, to the extent
of $20,000,000 or $30,000,000 will be thrown over into the fiscal year
1939. Of the two, I prefer number (1) because Congress would be a party
to the changed program. In either case, I think there will be some
repercussions from the road organizations.
The President instructed me to confer with Mr. Jump and Mr. MacDonald
of the Agriculture Department to work out the necessary steps and then
confer with the Chairman of the Appropriations Committee so that the
reduction might be made in the estimate pending in Congress.
Secretary Morgenthau then brought up the question of the participation in
this program of Governor Myers' organization. He said that he felt that Governor Myers already had the Federal Farm Mortgage Corporation a set up which
12
-3-
is prepared to assist in this land-buying program, particularly in
the appraisal end. He thought it advisable that the Secretary of
Agriculture not set up a duplicate organization but be required to
use the organization already in existence with, of course, full
authority in the Secretary of Agriculture to determine the type of
projects and the places where they should be located. Secretary
Wallace agreed that this had a great deal of merit and he would be
glad to look into that phase of the matter.
Secretary Wallace then brought up the Crop Insurance Bill which
has passed the Senate. He said that he thought the President ought
to get behind it or it would not get through as a great deal of
objection has developed in the House. The President asked the
Secretary how much money was involved and he replied that there was
$10,000,000 for administrative expenses and $100,000,000 for capital
stock but that he did not feel the full amount indicated would be
needed for the fiscal year 1938. I asked the Secretary if he did not
feel that the inourring of obligations under the Crop Insurance program
could be confined for the fiscal year to wheat and the liquidation of
any obligation so incurred could be confined to the fiscal year 1939
and that the administrative expenses might very well be kept within
a limit of not more than $3,000,000. He said that it was his thought
that the bill now pending in the House should eliminate every grain
except wheat and that the experiment should be confined to that grain,
and that the matter of the liquidation of the obligations under this
program would not be presented until about August 1938 which would be
13
-in the fiscal year 1939, and that certainly it was his thought that
$3,000,000 for administrative expenses would be ample and he hoped
that they might turn out to be a great deal less than this sum. He
also said that he saw no reason why the funds required in 1938 for
this purpose should not also be taken out of roads.
awis
14
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
FROM
Mr. Magill
April 23,1937
Subject: Conference regarding the case of E. M. Smith, in
Attorney General Cummings' office, attended by
the Attorney General, Assistant Attorney General Morris,
Mr. Oliphant, and myself.
The Attorney General asked for our views regarding the case.
Mr. Oliphant told him that in our opinion it was a particularly
flagrant case, since there had not only been gross fraud by the taxpayer, but the taxpayer had induced twenty-five or thirty clerks,
cashiers and the like to participate in his attempts to defraud the
Government. Mr. Oliphant gave the Attorney General the names of
several of these individuals with salaries ranging from $1,800. to
$2,500. a year, who were dependent in some way upon Mr. Smith and
who, at his request, reported dividends of around $15,000. to $25,000.
each, which did not belong to them. Mr. Oliphant said that we regarded the case as one of the worst which we had ever seen and that
it was extremely important to the morale of the taxpayers on the
Pacific Coast that the criminal prosecution be actively carried through.
The Attorney General then made a long statement to the effect that
the difference between the Treasury Department and the Department of
Justice was that his men had had greater experience with Judges and
juries and that in many cases in which his attorneys would agree with
the Treasury that the fraud wa.s flagrant, nevertheless a conviction
had not been secured. He mentioned particularly the Mitchell case
and the "Dutch" Schultz case. Mr. Morris stated that there were a
number of legal questions regarding some aspects of the tax liability
so that we might not be able to recover the full tax. Further,
Mr. Smith would explain the fraud on the grounds that his wife, from
whom he was separated, was causing him a great deal of difficulty, and
he did not want her to know the actual extent of his fortune.
Mr. Oliphant reminded the Attorney General that Justice's success
in fraud cases ran about 70 percent and that this case was of a sort
where success is likely, owing to the fact that there would be many
witnesses who would testify to Smith's fraudulent schemes. He said
that this case offered the same opportunity to the Attorney General as
the Mellon case to instill new standards of uprightness in taxpayers.
15
The Secretary - 4/23/37 - 2
The Attorney General said that so far as the civil liability
was concerned, the taxpayer is now offering $1 million in cash,
$500,000. payable at the end of the year, with the understanding
that he will waive the statute of limitations and permit the case
to be tried before the Board of Tax Appeals to determine his exact
liability. The understanding will be, further, that no part of the
$1 millions is to be returned even if the Board finds his liability
is less than that amount. The Attorney General said that he thought
this offer was about all that could be expected, since the taxpayer's total assets were around $4 millions. He could hardly be
expected to offer the full amount of the tax, penalties and interest,
since to do so would undoubtedly ruin him and cause him to lose control of his business. The Attorney General felt that the taxpayer
would agree to enter a plea of "guilty" to one of the counts of
the indictment, and that it would then be up to the Judge to determine the sentence. The Attorney General did not seem disposed to
undertake that his attorneys would make a vigorous attempt to secure
a substantial jail sentence.
I pointed out to the Attorney General that although we had lost
the Mitchell case, the net effect has been to put a stop to husband
and wife transactions for tax purposes, hence our loss was really a
great victory. Furthermore, whether we win or lose the Mellon case,
no one is apt again to create an educational trust out of pictures
hanging on the walls of his own house. Both Mr. Oliphant and I complimented the Attorney General upon his persistence in prosecuting
the Mellon case, and told him that the case had been extremely helpful to the Treasury.
The Attorney General finally suggested at the end of a con-
ference of 13 hours, that we take a little more time to think over
the offer. Mr. Morris stated that the criminal case was now set
for trial in the June term. The Attorney General thought that we
ought to make up our minds regarding the offer in compromise at an
early date. He suggested in conclusion that the very fact that the
offer had been made would make it difficult for us to succeed in the
criminal case.
After this conference I saw Robert H. Jackson. He told me in
confidence that while he was head of the Tax Division he had strongly
recommended to the Attorney General that the criminal case be actively
prosecuted. He said he had told the Attorney General that the
$1} millions offer was ridiculous since it involved us in the necessity of trying out the fraud case. So far as the entry of the plea
of guilty was concerned, he said he felt no doubt that a suspended
sentence would be given. He added that Mr. Bruce Kramer had been
very angry at him and at you for refusing to accept the offers in
16
The Secretary - 4/23/37 - 3
compromise and that he (Jackson) had been told that his transfer
to the Anti-trust Division might be connected with his
attitude in this matter.
Run
17:
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE April 23, 1937
Secretary Morgenthau
TO
FROM
Herman Oliphant
There are attached your letter to the President, which he
referred to the Federal Trade Commission, the Federal Trade
Commission's reply to him, his proposed letter transmitting
this reply to the Speaker and to Senator Robinson, and the
letter from the Federal Trade Commission approving this use of
its letter.
This, briefly, is the situation: It now violates Federal
law for a manufacturer to bind retailers to keep up the price
of his product. This Tydings-Miller Bill would make this lawful in interstate commerce involving States which have legalized contracts for resale price maintenance.
This change in the Federal law would facilitate a rise in
the price of many commodities and thus raise the cost of living.
If they say this Bill is aimed to prevent a retailer from
selling something below cost to get customers into his store,
the answer is that that is a different unfair method of compe-
tition, namely, predatory price study. We should prohibit it,
but not legalize resale price maintenance.
The five cases in the Federal Trade Commission against the
liquor interests charged them with violating Federal law by
binding retailers with contracts to maintain their monopoly
prices. If the Tydings-Miller Bill passes, these cases fall,
and you can expect a rise in the price of liquor which will
accentuate the "bootlegging" problem.
Attachments
mus Kerty:
4-27-37
Brought this subject at Cabinet
President agreed
the two attached
to sign
letters 11m2
18
FEDERAL TRADE COMMISSION
WASHINGTON
AYRES
April 23, 1937.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Weshington, D. C.
Dear Mr. Secretary:
In response to your inquiry about
the letter of April 14 addressed to the President
by myself as Chairman of the Federal Trade
Commission, and discussing the probable effect of
the Tydings-Miller bill, you are advised that the
letter was for the use of the President in any
way he may wish.
Very truly yours,
W.G aye
W. A. Ayres,
Chairman.
19
Sirt
My attention was called to S. 100, which would render
legal certain contracts for the maintenance of resale prices
now illegal under Federal law. I requested the Chairmen of the
Federal Trade Commission to give me a recommendation on this Bill,
and I attach his reply on behalf of the Commission.
The present hazard of undue advances in prices, with a
resultant rise in the cost of living, makes it most untimely to
legalise any competitive or marketing practice calculated to
facilitate increases in the cost of numerous and important articles
which American householders, and consumers generally, buy. You will
note that the Federal Trade Commission has made no study of the
effect of resale price maintenance on consumers since 1929, but the
Commission does mention a reputable body of informed opinion to
the effect that such control of regale prices would be harmful
to the consuming public. Indeed, the Commission says: "There is
great probability that manufacturers and dealers may abuse the
power to arbitrarily fix resale prices by unduly increasing prices,
resulting in bitter resentment on the part of the consuming public,
especially in this period of rising prices."
Since we are in a period of rising prices, this Bill should
not, in ay judgment, receive the consideration of the Congress until
the whole matter can be more fully explored. Conceivably, the Con-
greas might approve having the Commission bring down to date the
study which it made eight years ago by examining the economic effects
of regale price saintenance under the novel and rapidly changing
conditions now attending business in this country.
Faithfully yours,
FNR
Honorable Joe T. Robinson
United States Senate
Enclosure
HO:besa Typed 4/22/37
20
Sirs
My attention was called to H.R. 1611, which would render
legal certain contracts for the maintenance of resale prices now
illegal under Federal law. I requested the Chairman of the Federal
Trade Commission to give me a recommendation on this Bill,
and I attach his reply on behalf of the Commission.
The present hazard of undue advances in prices, with a
resultant rise in the cost of living, makes it most untimely to
legalize any competitive or marketing practice calculated to
facilitate increases in the cost of numerous and important articles
which American householders, and consumers generally, buy. You will
note that the Federal Trade Commission has made no study of the
effect of resale price maintenance on consumers since 1929, but the
Commission does mention a reputable body of informed opinion to the
effect that such control of resale prices would be harmful to the
consusing public. Indeed, the Commission sayes "There is great
probability that manufacturers and dealers may abuse the power to
arbitrarily fix resale prices by unduly increasing prices, result-
ing in bitter resentment on the part of the consuming public, eape-
cially in this period of rising prices."
Since we are in C period of rising prices, this Bill should
not, in my judgment, receive the consideration of the Congress until
the whole matter can be more fully explored. Conceivably, the Con-
gress might approve having the Commission bring down to date the
study which it made eight years ago by examining the economic effects
of resale price maintenance under the novel and rapidly changing
conditions now attending business in this country.
Faithfully yours,
FOR
The Speaker,
House of Representatives.
Enclosure.
FEDERAL TRADE COMMISSION
WASHINGTON
April 14, 1937
The President,
The White House,
Washington, D. C.
Dear Mr. President:
Receipt is hereby acknowledged of your memorandum
of April 7. 1937, transmitting Secretary Morgenthau's
letter of April 6. 1937, and requesting a recommendation
on the Tydings-Willer Bill. The Commission has not
heretofore expressed an opinion as to the merits of
this bill for the reason that it deemed it to be a
matter of legislative policy for determination by
yourself and the Congress.
The Tydings-Miller Bill would amend the antitrust laws so as to legalize contracts and agreements
fixing minimum resale prices for goods sold in
interstate commerce and resold within the jurisdiction
of any state where such contracts or agreements as
to intrastate commerce have been legalized. A number
of states now have such statutes.
Many of these state laws and the Tydings-Miller
Bill are directly and irreconcilably in conflict with
the present Federal law on resale price maintenance.
Public policy since the passage of the Sherman AntiTrust Act in 1890 has been opposed to resale price
maintenance. Numerous court decrees have been entered
under the Sherman Act and numerous orders to cease and
desist have been issued by this Commission and affirmed
by the courts in conformity with the public policy
expressed in the Sherman Act and in the Federal Trade
Commission Act. Enactment of the Tydings-Miller Bill
would in its practical effect void such decrees and
orders and constitute a reversal of what has been
public policy for many years.
The President
-2-
April 14, 1937
Since state laws, legalizing resale price
maintenance, differ in the various states, and since,
under the proposed Federal legislation, Federal
exemption from the anti-trust laws would be
conditioned upon the legality of similar contracts
in intrastate transactions, the Tydings-Miller Bill
would modify the anti-trust laws in differing degrees
in different states. Thus, not only would it leave
the Federal anti-trust laws in full force and effect
as to those states which do not legalize resale price
maintenance, but there would be divergent policies as
to those states which legalize resale price maintenance,
because of the differing terms of the different
statutes in the respective states. Thus, the Federal
Government would be under the necessity of attempting
to enforce divergent regulatory policies toward
shipments made by the same manufacturer to dealers
located in different states, because of the differences in the respective state statutes.
A peculiar feature of many of the state laws
which would, under a recent decision of the Supreme
Court, speaking through Mr. Justice Sutherland
(57 S. Ct. 147), thus be made binding upon interstate
commerce is that they require wholesalers and retailers
to conform to the provisions of private resale price
maintenance contracts to which they are not parties.
Thus, a private contract, the provisions of which are
determined without public hearing and apart from any
public supervision as to reasonableness, is made
binding upon all dealers and the consuming public.
With respect to the economic phase of this matter,
the Commission has not made a recent study of resale
price maintenance. However, in 1929, the Commission
did undertake such a study, reporting to the Congress
thereon in 1931 (H.R. 546, 70th Congress, 2nd Session).
In that report the Commission said:
"The position taken by both proponents and
opponents of resale price maintenance are
based on the belief that such maintenance
-3-
The President
April 14, 1937
of prices will limit retail competition
The real crux of the question, therefore, is
whether injury done to the consumers
interests through the elimination of dealer
competition with respect to price-maintained
articles would be greater than the damage
now alleged to be done to the interests of
manufacturers and distributors of trademarked, nationally advertised brands when
they are used as leaders. Neither injury
is capable of exact measurement, but, in the
opinion of the Commission, the potential
damage to consumers through price fixing
would be much greater than any existing
damage to producers through this form of
price cutting."
11
The general opposition of economists and consumers
to this type of legislation is noteworthy. A question-
naire sent to members of the American Economic
Association some years ago, by Carroll W. Doten,
Professor at the iassachusetts Institute of Technology,
resulted in a vote of 401 to 87 that the manufacturer
should not have the legal right to control the retail
prices of his products.
There is great probability that manufacturers
and dealers may abuse the power to arbitrarily fix
resale prices by unduly increasing prices, resulting
in bitter resentment on the part of the consuming
public, especially in this period of rising prices.
Replying to your inquiry as to the five complaints
issued against certain distillers by this Commission,
referred to by Secretary Morgenthau, there are
enclosed herewith, for your information, copies of
those complaints. In substance, these dealers are
charged with maintaining uniform minimum resale prices
in interstate commerce and with enforcing agreements
with respect thereto by unlawful methods, such as
The President
-4-
April 14, 1937
the use of blacklists, boycott, threats of boycott,
ment of their resale price policies.
and other coercive methods incidental to the enforceWith great respect, I am
Very truly yours,
WaGaes
W. A. Ayres,
Chairman.
277
THE WHITE HOUSE
WASHINGTON
April 7, 1937.
MEMORANDUM FOR
HON. W. A. AYRES
<100
Would you give me a
recommendation on this Tydings-
Miller Bill to which the Secretary
of the Treasury refers?
F. D. R.
761
Letter from the Secretary of the Treasury,
4/6/37 to the President. States the five
CASES cending before the Federal Trade Com-
mission against some of the largest distilling
companies which he mentioned to President in-
13r7
volve thir monopolistic practice of fixing
retail prices in violation of Federal law
TO "inst redule price maintenance. States if
Tydings-Miller Bill, reported out in both
Houses, is to be enucted, the liquor industry
should be excepted.
26
SECRETARY OF THE TREASURY
Washington
C
0
P
Y
April 6, 1957.
by dear Mr. Presidents
The five cases pending before the Federal Trade
Commission against some of the largest distilling companies
which I mentioned to you invoive their monopolistic
practice of fixing retail prices in violation of Federal
law against resale price maintenance.
The Tydings-Miller Bill has been reported out in
both Houses. It would legalise the monopolistic practices
on which these Federal Trade Commission cases rest.
This Bill applies to all commodities and would
tend to raise prices generally, particularly in the lines
of business where monopolistic conditions prevail. It
should not pass at all, but, if it is to be enacted,
the liquor industry should be excepted because a rise in
prices in that industry would have the additional social
disadvantage of accentuating the problem of #bottlegging."
Faithfully yours,
(Signed) H. Morgenthau, Jr.
The President
The White House.
27
April 23, 1937.
11:34 a.m.
H.M.Jr:
Hello.
Operator:
Vice-President.
H.M.Jr:
Hello
Garner:
Hello Henry.
H.M.Jr:
This is your old friend, "Money-Bags".
G:
Yes, that's all right - I'm for you; I'm doing my
damnest to protect you.
H.M.Jr:
G:
Well I just wanted before I went to Cabinet I wanted
to kind of - how things - how are they feeling up
there.
Well by God there all for this reduction now I'11
tell you that.
T
H.M.Jr:
G:
They are.
Bet your damn life they're all for Secretary of the
Treasury
H.M.Jr:
Well that's - ah
G:
That's - that's fine ain't it?
H.M.Jr:
Couldn't be better.
G:
Well now I'm just going to tell you. You've been up
there about three years haven't you?
H.M.Jr:
G:
Yes.
And by God this is the first time that you've ever said
you wanted anything done.
H.M.Jr:
G:
That's right.
Well now - ah - nobody's to blame but you fellows if
the thing's overloaded but we're ready to help now
down and say
and help like hell unless you
no - no - no - no - no
28
-2H.M.Jr:
Well we'11 go the limit. Of course, the way - the
trouble right this week is that the newspapers don't
believe we mean what we're saying.
G:
I know they don't and that's all right they may not we may not be able to do it. I don't know what the
boss is going to say; I believe he's going to balk
on this 10 percent.
H.M.Jr:
On the what?
G:
Is he going to balk?
H.M.Jr:
No.
G:
H.M.Jr:
When he finds out what it is by God he's going to say,
"Well wait a minute".
Well you know this reminds me of the way - when the
world war and they wouldn't believe that the American
soldiers were coming because they kept telling them
each month they were coming next month.
G:
Yes, I know - well we've been doing that you know the
last two years.
H.M.Jr:
And if there was some little bill that he could veto.
G:
Yes by God with a ringing message.
H.M.Jr:
I mean some little bill for a million dollars or
something
G:
H.M.Jr:
G:
H.M.Jr:
Yes.
and say at least
I just hope to God he can; I'll do everything I can
to persuade him to do it and fix it on the hill.
If you could think of some little bill that didn't
mean much and we could get him to veto it and then
G:
Well you find out one of them and by God I'll do it.
H.M.Jr:
All right.
-3G:
All right, I'll see you there at 2 o'clock.
H.M.Jr:
Thank you.
G:
All right.
29
30
April 23, 1937.
11:35 a.m.
Bell:
Hello
H.M.Jr:
Dan
B:
Yes.
H.M.Jr:
If we could only find some bill that comes down
B:
Yes.
H.M.Jr:
for 500 thousand or a million dollars that - and
get the President to veto it soon, see?
And then give a good stiff message and let it - it
would need something like that for these people to
believe that he's going to do it, see?
Ah-ha.
B:
H.M.Jr:
B:
H.M.Jr:
B:
Now these bills that come down have to go across
your desk, don't they?
Oh yes - oh yes.
Well now see if you can't find some bill that we can
get them to veto that carries an appropriation
Well I've been looking for some but there's been hasn't been any bills going through that amount to
anything. There's a lot of private claims and things
like that - about all.
H.M.Jr:
No but something that he could sound off on, you see?
B:
Yes.
H.M.Jr:
Make a
B:
Ah -
- a noble speech about, see?
H.M.Jr:
B:
What I'd like to see him veto is some appropriation
H.M.Jr:
That's what I mean.
bill.
31
-2B:
That's never been done - I mean big one
H.M.Jr:
Oh.
B:
take the Interior Department bill which T they
from three to fourteen which is eleven million dollars
increase and if they do it - just hop right on it and
veto the thing; he's opposed to it; he said he was at
the time and that - ah - and then call attention to the
fact that it's a shame that he has to veto a whole
appropriation bill with 500 items in it to get at one
and then ask for a Constitutional Amendment bfore he
can veto individual items. One at a time, see?
Yes, well let's get something like that, see?
Yes. Well I think that if he could take a whole
appropriation bill which is something - ah - well I
are now talking about increasing that Vocation Education
H.M.Jr:
B:
don't know - remember when one was ever vetoed.
H.M.Jr:
Well we've got to do something to make these people
believe.
B:
That's right. I know they don't believe it.
H.M.Jr:
Yes.
And I talked about doing a little work here on some
letters
B:
H.M.Jr:
B:
H.M.Jr:
Yes.
to go out to - about this next June and impress
upon these people that the President did mean to save
money in the next three months.
Yes but we need - what we need is a very very strong
veto message.
B:
That's right - that's right. Well I've been looking
for something but there hasn't anything come along
that's worth much.
H.M.Jr:
Well - ah - when you get it give me - come running in.
B:
Allright, fine, I will.
H.M.Jr:
Thank you.
B:
Goodbye.
32
GRAY
LMS
London
Dated April 23, 1937
Rec'd 2:45 p. m.
Secretary of State,
Washington.
241, April 23, 6 p. m.
STRICTLY CONFIDENTIAL.
FOR TREASURY FROM BUTTERYORTH.
At the weekly meeting at the British Treasury today,
I conveyed the information which was given me in the telephone conversation of April 19th on Japanese financial
approaches in Washington, and Phillips stated in reply that
he had seen Arakawa since the latter's conversation with
Waley and that he had found him very vague. Arakawa had
made no mention of the tripartite monetary agreement and
asked a number of questions and had given no information
in return. Philipps said he could only conclude that
Arakawa had nc instructions to do anything specific and
was merely "nosing around for information on the price of
gold".
I also mentioned that I had heard that the views which
he had been good to make known in last Friday's meeting
had been read with interest in Washington, particularly
his offer to exchange at any time views on the general
situation
33
LMS 2-No. 241, April 23, 6 P. m., from London.
situation created by the increase in the quantity and value
of gold. The American Treasury was, of course, also willing
to exchange views at any time; however, the important question of ways and means immediately arose since the related
problems were so complicated that they did not lend themselves to cabled instructions. Philipps said that he understood that point of view; that it was desirable to keep the
matter in the back of one's mind for it WOS not pressing there was no need of precipitate action.
He then changed the conversation by saying that the
French situation seemed to have become more complicated
since our last talk and was perhaps approaching a crisis
point. This time it was not due to a treasury deficiency
for the French Treasury had enough money with which to carry
on for the time being but it was a currency matter, which
WC.S to say a political matter. His feeling for which he
emphasized he had no factual basis was that "once again
we will be approached by the French for advice". . Asked,
whether there was anything in the monetary realm which Blum
could do Phillips said that he did not believe there was
any definitive action he could take and therefore he had no
advice to offer them should they come for advice. At bottom
the trouble seemed to be one of political and social in
discipline;
34
LMS 3-No. 241, April 23, 6 p. m., from London
discipline; for example in some extraordinary way it has
become C. highly important political question involving
whether the Blum Government WC.S to reverse its policy and
provide a public works program merely to please the 30,000
workmen who were now reluctantly and intermittently putting
up the exhibition buildings.
BINGHAM
NC
35
Page 3
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris
DATE:
April 23, 4 p.m.
NO. 523
FROM COCHRAN
Paris exchange market much quieter today. French
control had up to 3.30 p.m. intervened only slightly
selling sterling between 111.29 and .15. Lazard is selling dollars importantly against sterling or francs (then
converting francs into sterling). Dollars were fairly
well bid until New York opened seller. Rentes up; 4 1/2
1937 bonds unchanged; shares about even.
I made a call this forenoon at the Bank of France.
The French control had not intervened in the market up
until 11:30 but it was still too early to make any forecasts as to market trends. I was told most confidentially
by Cariguel that since I last called on April 16th (refer
to my telegram No. 491 of April 17, 9 a.m.) the control had
been steadily losing gold and had difficulty between
two credit days. Cariguel let me know that the net balance
of gold and foreign exchange in the control fund had
declined from approximately (end Section one)
36
PARAPEASE OF SECTION TWO. No. 523 from Paris April 23.
4,500,000,000 francs to 3,650,000,000 france.
I questioned Cariguel as to whether during the past
few days any other means had been discussed of raising
money for the Government to supplement the Treasury's funds
which still remain from the new loan. The balance of
the Treasury, incidentally, (as I mentioned in my telegram
of yesterday) with the Bank of France has declined as
of the last statement. This confirms the prediction that
this account would not be increased through the receipt of
late payments on subscriptions to the loan, but the fund
was rather drawn upon. Reference was made by Cariguel to
the City of Paris loan - see my telegram No. 482 of April 14,
6 p.m. - the proceeds of which will undoubtedly be used
by the Treasury. Government or semiofficial loans which
are issued on the local market usually result in a flood
of applications being received by the Bank of France. How-
ever during the first few days that the City of Paris issue
was open, at the Bank of France not a single bond was sold.
I was informed by Cariguel that there is now some dis-
cussion of the possibility of issuing 2,000,000,000 france
of bonds of the Caissides Pensions, offering the same terms
as the last loan. Taking into consideration the present
(omission) market, he doubts whether such an issue would
be feasible.
Cariguel could not confirm the rumor that recently
an attempt to borrow in the Netherlands had been made by
the Treasury. END SECTION TWO.
BULLITT.
37
PARAPHRASE OF SECTION 3. No. 523 from Paris April 23
The recent weakness of the franc Cariguel attributes
to fears over the political and social structure in France.
This consisted of a flight from the franc, he said, and not
a filling of commercial demands for currencies of other
countries. During the last speculative attack on the franc,
he said, the situation was not favorable as long and short
term money rates are high on the French market, with practically no foreign funds here and bank deposits are low.
He said that nevertheless, if big holders of capital see
fit to leave the franc irrespective of money rates, this
currency can be put under such pressure that the foreign
exchange resources and gold of the French control might
not last long. Presumably the control had already started
drawing out gold from the Bank of France.
Cariguel said that, with reference to the situation
in the Netherlands, President Trip of the Netherlands Bank
had recently released from the Dutch stabilization fund
a considerable amount of gold.
END SECTION THREE.
BULLITT.
EA: LWW
38
PARAPHRASE OF SECTIONS FOUR AND FIVE, No. 523, April 23
from Paris.
He had given this gold to the Netherlands Bank of the Indies
against florins, to reconstitute the gold resources of that
Bank.
At noon today I had a visit from Maurice Frere, the
representative of Prime Minister Van Zeeland, charged with
preliminary international economic investigations. I have
known Frere several years, and he talked rather frankly
about his mission. The job keenly interests Frere, although
he realizes that nothing could be accomplished very quickly
and that there are many obstacles to be overcome and much
groundwork to do. Frere said he saw no early opportunity
to hold a world conference on these matters. He has no
preconceived plans about it, but is obtaining the views
of the appropriate officials in the various countries and
he then hopes to see if they can develop some common formula.
Frere had seen Spinasse, the French Minister of National
Economy, before he called on me this morning. He found that
Spinasse, as well as Auriol and other officials of the Blum
Government, were interested in the undertaking of Van Zee-
land, and anxious to do what they could to assist it. However, he understands that the French Government is not in
a position to take the initiative but will await the results
of the explorations which Frere is making to see whether
then can fit into a general plan. If some broad international program is achieved, Frere thought there would be
39
-2an especial opportunity for replacing quotas by customs
tariffs in France. The German situation, he knows, would
present difficulties in the achievement of such a plan.
Any big program, he believes, must envisage a devaluation
and stabilization of the Reichsmark, for which outside
financial assistance would have to be given to Germany.
France, he believed, would be unwilling to extend such
assistance to Germany without some political guarantee
from her. When Spinasse and other French officials urgently
requested Frere's views as to the French situation, he
said he expressed them frankly. The Blum Government, he
told them, should at once take definite and forceful action
to quiet the labor situation, and demand the Extreme Left's
full cooperation. Frere asked them why they were letting
such a situation develop for some other government to take
in hand. If a strong policy of public order and relaxation
of the forty-hour week, etc., would be followed by the
Blum Government, Frere said he thought it could win suffic-
ient confidence on the part of the capitalist classes to
bring about a repatriation of funds and a business patkep
BE pickup which might
END SECTIONS FOUR AND FIVE.
BULLITT.
EA:LWW
40
SECTION SIX
save the situation. Nevertheless, he realizes that
the time for such action is near to passing and that if
a crisis is to be avoided, something must be done soon.
He would regret seeing a government which in most matters
meets the current policical thought in France fall on a
financial difficulty. He is convinced that his banking
friends in Paris, although skeptical of the present Government, would help the Government through a crisis rather
than see it fall in circumstances where the banks might
conceivably be blamed therefor.
Frere is returning to Brussels tonight and will proceed
to Berlin on Monday where he has been urged to stay a week
by Schacht. A favorable impression was made by Schacht
in Brussels where Frere attended the meetings between Van
Zeeland and Schacht. After leaving Berlin Frere will go
to Rome but will not stop off in Basel where he has
attended regularly the B.I.S. annual meetings heretofore
as a representative of the Austrian National Bank. He
considers that it is highly important that he obtain the
support of the Government of Italy to the present under-
taking and that the dictators find no reason to take
offense at Van Zeeland's procedure and no basis for
41
PARAPHRASE OF SECTION SEVEN. No. 523 of April 23 from Paris.
terming this plan a "democratic" maneuver. It is Frere's
plan to see the appropriate officials as soon as he can.
He does not want to expose himself to the general questioning which he might experience if he stopped over at Basel,
where at the annual meeting so many central banks will be
represented.
I questioned Frere as to whether on Van Zeeland's
trip to the United States he would be with him. His reply
was that Van Zeeland's trip to Washington is still considered
as a purely personal call, and that as long as this is the
situation, he does not want to give evidence of actual
investigation or negotiation through taking his technical
assistant with him.
I gave to Frere a document on the American Government
1938 budget, and two publications of the Treasury Department on capital movements. As yet Frere has not got together
any sort of a staff, but he said he might call upon me
later for further documentation with respect to our country.
Material on France had been given him by Rist.
END MESSAGE.
BULLITT.
EA: LWW
42
GRAY
MM
BOMBAY
Dated April 24, 1937
Rec'd. 6am.
Secretary of State
Washington, D.C.
April 24, 11am.
FOR THE SECRETARY OF THE TREASURY.
Silver market continued quiet durint the WEEK;
ready opened at rupees 53-5 per hundred tolas and after
touching 53-10 closed at 52-12. Stocks on hand continued
heavy at about 34,000 bars and daily offtake improved to
about 85 bars. A shipment valued at 20,000 pounds
reported from London.
Gold declined; ready opened at rupees 34-14-3
per tola, touched 34-11-6, closed at 34-13-6. There was
SOME nervousness early in the WEEK concerning American
Treasury policy but confidence returned.
WATERMAN
WVC
KLP
43
PARAPHRASE OF TELEGRAM RECEIVED
FROM:
American Embassy, Paris
DATE:
April 24, noon
NO.:
527
FROM COCHRAN
There is no exchange news as Paris banks are closed
for the day.
This morning I talked by telephone with Jacobsson
at Basel. From Jacobsson's conversations with Van Zeeland,
Marcel and other officials of the B.I.S. and contacts, he
thinks Paul Van Zeeland is principally playing for time,
through Freres investigational trips to European capitals,
until he can come to Washington.
I talked yesterday with the senior partner in a
Paris-American banking concern. He told me that franc
deposits in his bank were not increasing and that the
deposits in foreign currencies, namely, sterling, dollars
and Swiss francs, amounted to twenty-four percent of his
total deposits. The firm of Sulzer Freres, one of his
clients which has manufacturing plants for engines, et
cetera, in France and Switzerland, informs hii that due
to inefficiency of French labor and to social legislation,
their cost of production in France is at present thirty
percent higher than that in the Swiss plant despite the
fact that higher per capita wages are paid Swiss laborers.
He
44
-2-
He said that another American client of the bank requiring
large quantities of manufactured material finds that it
can get goods it had ordered cheaper in Switzerland than
in France and can get a guarantee as to fulfillment of
the contract and delivery for a specified date from the
Swiss while no guarantee will be given by the French
factories. These two examples were offered by my contact
to show the unfavorable financial situation which has
developed under the present political and social regime in
France and the unsound business.
03V13038
got
as
EA:IJW
THE
TH3MTRA930
Fin
All
45
The Government Security Market
Week ended April 24,1937
Treasury bonds recorded a net decrease of about 1/2 of a
point in the average during the past week, thereby cancelling
practically all of the advance in the preceding week. Prices
turned upward on Monday and Saturday but in the other four days
the movement was toward lower levels. Trading continued at a
moderate rate, principally in small lots, but as there was
little buying interest shown in the market a small amount of
selling at times resulted in sizeable losses. The long issues
were the most active and suffered the largest losses. The five
longest maturities lost about 3/4 of a point, the three
shortest issues were about unchanged, while declines by the
other issues ranged from about 1/4 to 1/2 of a point. Guaranteed issues declined about 5/8ths of a point in the average.
The trend to the Treasury note market for the week as a
whole was toward slightly lower levels but at no time was there
any real weakness in the market as individual changes on any
one day were confined to small fractions. Losses ranged from
1 to 6/32nds compared to gains that ranged up to 23/32nds in
the previous week.
MoHavis
46
MEMORANDUM
April 23, 1937
To:
Secretary Morgenthau
From:
Dr. Burgess
Treasury bond market opened moderately lower today and
prices sagged steadily in quiet trading up to the close. The
long Treasury bonds finished 10/32 to 16/32 down from yesterday, the intermediate maturities were down 4/32 to 12/32, and
the three shortest bonds were down 2/32 to 6/32. Losses in
the guaranteed bonds ranged from 1/4 up to about 1/2 point.
Volume was $1,572,000, most of which consisted of small lot
transactions. The note market was easier and closing quota-
tions were at the lows of the day, 1/32 to 4/32 off from
yesterday.
Domestic bonds were dull but there was a little activity
toward the latter part of the day when some selling appeared.
Second grade bonds showed losses of up to 1/2 point and high
grades were off, on the average, about 1/4 point.
Foreigns were generally quiet with prices unchanged.
German bonds showed gains of fractions to about a point and
a number of Latin-American issues were fractionally off.
No purchases for Treasury today.
DEPARTMENTCOUNSEL sheak to me
Please TREASURY
GENERAL
WASHINGTON
APR 26 1937
My dear Mr. Secretary:
Reference is made to the letter. under date of March
5, 1937, to the Secretary of the Treasury from G. Mallet Prevost,
administrator of the estate of Teresa de Prevost, in which application and demand is made for payment under the provisions of
Bill S. 1360, 74th Congress, 2d Session, entitled "AN ACT For the
relief of the estate of Teresa de Prevost". The letter states
that the Bill "became a law by reason of the failure of the President to return the same with his objections thereto to the House
of Congress in which it originated in the time and manner prescribed and required by the Constitution and Law of the United
States". The amount involved is $25,000.
It appears from an investigation by members of my
staff that no record was kept either at the White House or at
the Senate of the exact time or even the day upon which the
Bill was returned to the Senate with the Veto Message of the
President.
Article 1, Section 7, Clause 2 of the Constitution pro-
vides, in part, as follows:
"Every Bill which shall have passed the
House of Representatives and the Senate, shall,
before it become a Law, be presented to the
President of the United States; If he approve
48
-2he shall sign it, but if not he shall return it,
with his Objections to that House in which it
shall have originated, who shall enter the Objections at large on their Journal, and proceed
to reconsider it.
If any Bill shall not
be returned by the President within ten Days
(Sundays excepted) after it shall have been presented to him, the Same shall be a Law, in like
Manner as if he had signed it, unless the Congress by their Adjournment prevent its Return,
in which Case it shall not be a Law." (Underscoring supplied.)
The nature of the return and record thereof contemplated
by the Constitution was indicated by the Supreme Court in The
Pocket Veto Case, (1929) 279 U.S. 655 (at pages 684-685) :
"In short, it was plainly the object of the constitutional provision that there should be a
timely return of the bill, which should not only
be a matter of official record definitely shown
by the journal of the House itself, giving public, certain and prompt knowledge as to the
status of the bill, but should enable Congress
to proceed immediately with its reconsideration;
and that the return of the bill should be an actual and public return to the House itself, and
not a fictitious return by a delivery of the
bill to some individual which could be given a
retroactive effect at a later date when the time
for the return of the bill to the House had expired."
It is obvious that the lack of records in the instant
case illustrates an undesirable situation which should be remedied.
You may wish to call the matter to the attention of those concerned
or to present it in Cabinet meeting.
Very truly yours,
General Counsel.
The Honorable
The Secretary of the Treasury.
49
*pril 26, 1937.
9:25 a.m.
H.M.Jr:
Hello
Operator:
Chairman Eccles.
H.M.Jr:
Hello.
Eccles:
Hello.
H.M.Jr:
Marriner.
Eccles:
Yes sir.
H.M.Jr:
I think I better go away every Saturday.
E:
Why?
H.M.Jr:
Well look what happened to the bond market. What
E:
H.M.Jr:
E:
H.M.Jr:
E:
did you fellows do to it?
Well we put a few orders in.
I see. Do you want to tell me? We've heard one
side of it; we haven't heard yours.
Well this is what happened - ah - on Friday, of
course, the market went off pretty badly
Yes.
and - ah - so I had a meeting Friday a fternoon
in the office and we got ahold of George and decided
what to do on Saturday morning.
H.M.Jr:
Yes.
E:
Told them that they ought to change their tactics
and put some orders in
H.M.Jr:
E:
Yes.
and that's what they did.
-2H.M.Jr:
E:
50
Well they must have changed their tactics about
putting in orders of five bonds under the market and then
when he hits it why withdraw the orders of five bonds.
Well they got a - they got quite a lot of them on
Saturday.
H.M.Jr:
E:
But they must have followed the market up, didn't they?
Well I wouldn't say that they put orders in - not under
the market - they put orders in with the dealers for
two million each.
H.M.Jr:
Two million each?
E:
Yes.
H.M.Jr:
Of what?
E:
Well two million - two million to each dealer.
H.M.Jr:
Oh I see.
E:
Two million dollars.
H.M.Jr:
E:
H.M.Jr:
E:
H.M.Jr:
E:
H.M.Jr:
Yes, to use at his discretion?
What is it?
To use at his discretion?
No - no - to - to use them to buy any bonds that were
on the market - being offered at the market.
I see.
You know they weren't to follow it up but they weren't
necessarily to follow it down but if there were bonds
hanging over the market
I see.
E:
You see? To pick them up
H.M.Jr:
Yes.
E:
and on the board they put orders in for - ah - well
I think they picked up close to five million.
51
-3- H.M.Jr:
Well -
At
leastmillion
they - we got - we got Saturday morning
fifteen
E:
H.M.Jr:
Yes.
and - ah - I - I argued that that market ought to
E:
show some strength over the week-end.
H.M.Jr:
Yes.
E:
That they had bill financing to do to-day
H.M.Jr:
Yes.
E:
and that the job to-day would be just that much
more if we didn't change that trend of the end of the
week.
H.M. Jr:
Yes. Of course, I'm simply delighted. Taylor and
Lochhead and I walked home Friday night and we talked
it all over and - because we felt terribly blue at
the way they were handling it but I kept saying it's
the Federal reserve's money - it's not mine and then
you fellows did Saturday what we were praying that
you'd do.
E:
(Laughs) Well -
H.M.JF:
I mean you did what we'd have done if it was our money.
E:
Well I felt that - that the - an - Open Market Committee
had authorized - we fought that thing through as you
know
H.M.Jr:
E:
H.M.Jr:
E:
Yes.
and I said, "Well what the devil do they mean
now?" I said, "We've got this money to be spent and
it's true we can't take the market and there may be
more offerings than we can take but certainly we can
get in there and do a darned sight more than we did do."
Yes.
I said, "We've proven by putting a statement - see George
is always arguing and some of the others on the Committee
52
4-
were arguing very strongly that if we could show a
statement where we hadn't bought any bonds for a week
H.M.Jr:
E:
H.M.Jr:
D:
That would be bullish.
that that would be bullish because it wouldn't
be a supported market.
Well they got
And I said, "Well I - I'm not sure that's the case at
all. If I was sitting out in the country and saw that
condition I'd say that the Federal Reserve's got cold
feet and they're withdrawing."
H.M.Jr:
Well, of course, George Harrison has been saying all
the time the best news - they did nothing - well your
statement came out and showed that they'd done nothing
E:
H.M.Jr:
That's right.
and the country's reacted - "Well if the
Federal Reserve System hasn't got confidence in the
bonds why should we?"
E:
Well it - ah - I don't know what - I don't know what
reason George will give for that now. He'll have S ome
other reason I guess; something else will have happened.
H.M.Jr:
Oh, I - I haven't talked to him but Taylor has and from
the way he was sputtering I gathered that you fellows
must have done something and naturally we were curious.
E:
Well we bought - ah - we bought fifteen million on
Saturday.
H.M.Jr:
E:
H.M.Jr:
E:
H.M.Jr:
Yes, well all I can say is more power to you.
And we're going to meet in about a half hour - George
is down - I had him come down and Sinclair is down....
Yes.
so that we can watch the market this morning and -
ah - so as to make that bill offering successful. AS
I understand it though the bill market has acted pretty
good and the market is entirely cleaned of bills
Yes.
53
-5which is a good thing.
E:
H.M.Jr:
E:
Yes.
And - ah - as you know, we took some of the bills last
week
H.M.Jr:
E:
I know.
but the dealers then during the rest of the week,
in spite of the bond market being weak, had a strong a pretty strong demand for the bills and they even got
rid of all the nine months bills.
H.M.Jr:
Good.
E:
So the bill market looks better.
H.M.Jr:
E:
Well I think that having a strong market Saturday you're absolutely right - it makes it much easier to-day.
Well I figured it would cost less to-day if we did that
than if we let that market continue to go down.
H.M.Jr:
Even the New York Times had a kind word to say for the
E:
Did they? (Laughs)
bond market
which is something.
H.M.Jr:
E:
H.M.Jr:
E:
Well I hope - I hope it will get off all right.
Well I'm simply tickled to death but we made up our
mind that it wasn't our money and we were going to
grit our teeth and go through this week and take it
on the chin.
Well I - an - I told you I was going to do what I could
and I've been fighting like hell to keep the thing
going and
H.M.Jr:
E:
Well -
we've got another week to get through and
54
-6H.M.Jr:
Well I'm - I'm more pleased to-day than I've been
any time since the 15th of March.
E:
Well that's fine. I'm - I'm glad you are.
H.M.Jr:
Yes. Well let me know later on, will you?
E:
I will. I'll call you.
H.M.Jr:
Now that it - I - you see with Burgess away I don't
get as good information as when Burgess is there.
E:
You know that's a terrible loss to us. Now if we an - ah - those fellows don't run that market like
Burgess.
H.M.Jr:
Oh no.
E:
And - and - and
H.M.Jr:
And they've insisted that Harrison - ah - what the
E:
He doesn't know anything.
H.M.Jr:
And when you call up Harrison he insists on referring
to this man - what's his name?
hell does he know about the bond market?
E:
Ah - Allan Sproul.
H.M.Jr:
And not only that but he's the boy that sees the
newspapermen every afternoon.
E:
Well it's just unfortunate. It's just one of those
damn breaks because I'm - I'm sure that if we'd had
Burgess - ah - the situation would have been handled
far much better than it has; the results would have
been better.
H.M.Jr:
E:
Oh sure.
Burgess was in favor of - of this action you know when this crowd was down here although he didn't
say much about it - I knew he was pretty much in
sympathy with what I wanted to do.
55
-7 H.M.Jr:
E:
H.M.Jr:
E:
H.M.Jr:
well
to do.even if he wasn't he'd do what you want him
He'd not only do that but he knows what to do. .
Yes. on I've felt his loss tremendously.
Yes, well it's been a fright for us.
Well let - talk to me a little later will you Marriner?
E:
All right.
H.M.Jr:
Thank you.
E:
Goodbye.
56
April 26, 1937
9:30 Group Meeting.
Present:
Mrs. Klotz
Mr. Oliphant
Mr. Magill
Mr. Upham
Mr. Gibbons
Mr. Taylor
Mr. McReynolds
Mr. Bell
HM,Jr: Steve, what about this J. L. Matthews, related
to the Vice President, who came in to see you?
Mr. Gibbons: He came in and said you had talked to the
Vice President. Just a young chap.
HM,Jr: I don't know who he 18.
Mr. Gibbons: He said the Vice President had spoken to
you about it.
HM,Jr: No. Well, I have to see the Vice President myself.
I will go up the first thing tomorrow morning. The Vice
President is more temperamental than at any time over the
spending thing. All this stuff that the Vice President is
working against Roosevelt is not true, because I have seen
him in action and he always said, 'Now, Chief, what do you
want? Is it all right for me to do it?' Don't for
a
moent, want anybody in this room to think he is working
against Roosevelt.
Mr. Gibbons: I think he would come right out in the open
and tell you what he is doing.
HM,Jr: Herbert?
Mr. Gaston: (Gave the Secretary Kiplinger's 'Washington
Letter'.)
HM,Jr: I got this over to Kiplinger anyway. I had
57
-2-
better luck than with Lippmann. (Reading) "How sincere
is the President? We have reason to believe that he is
sincere NOW despite fact that in past he has TALKED economy
and then proceeded to spend more than ever. He may change
his mind, as he has in the past, but just now he has reason
to be very earnest in working toward budget balance."
Herbert, I am inclined to send for Arthur Krock. I haven't
done it for a long time. And talk to him about the editorial
on gold in the Times. They ran that rumor the other day and
in order to justify themselves, instead of being good sports
and coming out and saying we are a bunch of old wash-women,
I kind of thought I might send for Arthur Krock and in view
also -- if you would get yesterday's Editorial Section of the
Times -- make a note -- a story by Turner Catledge. In the
body of his story is a straight factual story, but the headings are 'Due to Treasury's Blunders we are Having Budget
Troubles'. Then you read the Turner Catledge story and
there is nothing in it, but the heading -- something about
'Treasury Blunders Makes Budget Balance Difficult -- but the
story does not say anything about it and there 18 no use
calling up -- I would much rather have it out with Krock.
What do you think?
Mr. Gaston: of course, Krock would not have anything to
do with the heading of that story.
HM,Jr: No. No. But I have nothing to lose and a little
to gain. Shall I call him up and see if I can get him?
Mr. Gaston: Yes.
HM,Jr: (To Operator) See if Mr. Krock could come in to
see me between 11 and 11:30. Let me know which.
Mr. McReynolds: Nothing.
Mr. Bell: Nothing.
HM,Jr: Danny, on this thing
now did you keep your
word with me?
Mr. Bell: Oh, yes!
Mr. McReynolds: Yes, he did. I went around to his office
about eleven o'clock and the girl said, 'He isn't here. The
Secretary made him promise to stay nome.'
58
-3-
HM,Jr: Could you get hold of Clarence Opper and this
fellow Ihlder and sort of sit down and see if they can sketch
something along the line the President told us. What he
said is, we take part of Ickes' revolving fund and then we
set up housing on a basis of, first, the community would
have to buy the land. Isn't that what he said?
Mr. Bell: He said he would insist on it.
HM,Jr: Then he said, two, we will give a 45% grant, and
three, all the unemployed labor that they could use.
Mr. Bell: Did he say 45% grant?
HM,Jr: Yes.
Mr. Bell:
And in addition
all the unemployed labor that they could use.
What they are doing now is they are giving them
relief labor.
Mr. Bell:
HM,Jr:
HM,Jr: Well, aren't they giving them -- we are buying
the land.
We just give them a 45% grant.
Mr. Bell: Ickes is constructing some himself.
Mr. McReynolds: All that he is doing is he's doing it
all, but he is giving them 45%
HM,Jr: Mac is in on this and we are not getting anywhere.
Mr. McReynolds: Ihlder has a draft, but everytime it
comes back, something new is thrown into it.
HM,Jr: You have been thinking about it and if I get a
breathing spell in the next two or three days, I would like
to sit in on it, but I am afraid the President will send for
us.
For ty-five percent grant, he limited it to materials,
(I had better get him to give it to me at noon) and then give
them all the relief labor they could use. But I thought he
said 45% on materials.
Mr. Bell: I thought he said a 45% grant including all
the labor.
59
-4-
HM,Jr: Anything for me on the overhead of the various
agencies? Remember?
Mr. Bell: I have forgotten it if you did.
HM,Jr: I will tell you again. You were going to take
a sheet and go back to July 1
Mr. Bell: Oh, yes!
HM,Jr:
and have the various number of people employed
in the several emergency agencies and as the money goes down,
is personnel coming down.
Mr. Bell: We had to send to the field for some of that.
HM,Jr: What else?
Mr.
Bell: That's all. There is a little concern on the
Hill about this economy program.
HM,Jr: Which way?
Mr. Bell: Cannon called me up last night and said -Cannon is pinch-hitting for Taylor.
HM,Jr; What State does he come from?
Mr. Bell: Missouri. He says the Tabor stuff is going
out all over the country and all of these Democrats are
getting letters from their constituents criticising them
for not cooperating with the Republicans in this economy
drive.
HM,Jr: Swell!
Mr. Bell: To show the absurdity of the situation: one
of his men -- one of the letters he got was from a man who
said he was on WPA and he wanted more money from WPA --
wanted higher wages and at the same time insisted that he
cooperate with the Republicans on the economy drive.
HM,Jr: In other words, the heat is being turned on them.
him
Mr. Bell: Yes. But he says the thing that is worrying
-- two points in the President's message, as to how he
60
-5-
is going to meet the deficit in 1938 has not gotten across
at all and I told him you and I talked about it and said
if we could get some bill which he could veto we might bring
this home. He sai d, 'That's a good idea'. And he said,
'I hope you can get one', but he wants to attach to the
present deficiency bill the 10% cut. I am to ask the President this morning if he is agreeable to having that go
through.
HM,Jr: Dan and I have been watching for a nice juicy
bill for the President to veto and then with a big speech
give them a veto message 80 it will let them know he means
what he says. How about Gibbons' request for an appropriation for the New York Fair?
Mr. Bell: That Fair and Exposition thing is just a
plain racket. Every city in the country is trying tooutdo the other. We are paying all the administrative expenses for these Fairs.
HM,Jr: Anything on your desk?
Mr. Bell: No.
HM,Jr: You know, they just won't believe it. I use
the same example -- the Allies kept saying, 'You keep telling
us the American troops are coming. We don't believe it.
Each month is going to be next month. And they wouldn't
believe it until they actually saw the list of killed. It's
the same way with this. They are not going to know until
the President publishes the first casualty list and then they
are going to believe it. It's true. They won't believe it.
Mr. Bell: I would like to see it happen to an appropria-
tion bill.
HM.JR: I bet I know which one. You are out for blood
in a big way!
Mr. Bell: I want to shoot a whole battalion all at once.
Mr. McReynolds: You want one of these large Department
bills.
HM,Jr: He has his eyes on a departmental bill and if he
kills that -- Mac, where is our Treasury bill?
61
-6-
Mr. McReynolds: That was ruined before it ever got to
the Committee?
HM,Jr: How far along is it?
Mr. McReynolds: Conference.
HM,Jr: You had better watch it. This fellow Bell is on
the warpath.
Mr. McReynolds: I am watching it, but Danny ruined that
before it ever went up.
Mr. Lochhead: I haven't those other figures yet.
Mr. Taylor: Nothing.
Mr. Gibbons: I would like to tell you something I heard
Saturday night.
HM,Jr: Stay right behind.
Mr. Upham: You said you might want to see me before
HM,Jr: I think you had better start out just like I said.
I would not only see the banker fellows. I would see the
Farm Credit, the HOLC and the Federal Housing, 80 you get
all around the thing. I suggested to Cy that he start and
swing down through Richmond, Atlanta, Texas, New Orleans,
San Francisco and Seattle and take a plane back, and send
in a letter and let us know what's going on.
Mr. Upham: Mr. Gaston has already asked if he can go in
my place.
HM,Jr: Better get a little dope on the farm stuff. The
President got a letter from an orange grower in Florida sending a check for $101.00 and he said he thought the President
could use it better than he because he's getting paid for
something he had done all his life. Said, Why should he take
money for that? I thought I would take my check -- I can't
say 'disabled' -- but Iwant to use a very carefully chosen
word -- the children at Warm Springs in use it a great deal
better than I could and send it to the Warm Springs Foundation for the children down there.
Mr. Gibbons: Physically underprivileged.
62
-7-
HM,Jr: Something -- not underprivileged.
Mr. Gaston: You spoke about the Wagner Housing Bill.
The only thing the President has said in his press conferences is that this would be pretty much of a blue-print
plan and also he said that he is firmly convinced that
the whole cost should be the grant and then he also said
this other thing about using the Public Works revolving
fund.
Mr. Bell: The decision for the locality to buy the land
is the most important decision he has made.
Mr. McReynolds: All the housing people tell me when it
goes in that way you do n't have to worry about financing,
because there won't be any program.
Mr. Gaston: I fixed up something for MacKellar, but the
man on the air tonight is Cummings.
HM,Jr: That's your worry.
Mr. Oliphant: I would like to tell you, before lunch,
about my talk with Wallace Saturday. It will take four
or five minutes.
Mr. Bell: (To Mr. Oliphant) Herman, may I ask what 18
the condition of the refund to the Philippines?
Mr. Oliphant: There has been sent to Quezon a draft of
a letter which he 18 going to reply to us, asking us not to
pay it for the present. For the time being, not to pay to
the Philippines the $46,000,000.
HM,Jr: I think it's a "gyp". I swear it 18. I know
the Army does not want it, but I still think
Mr. Oliphant: The Army would like to have it for an
arsenal.
HM,Jr: But not for the Philippines.
Mr. Oliphant: An arsenal in the Philippines. They did
not want the political government to have it, but they would
like to have it for an arsenal.
HM,Jr: I listened to it last year and if ever a Government
63
-8-
was entitled to it, they are. I mean, a moral obligation
that they are entitled to it.
Mr. Oliphant: Absolutely.
Mr. Gaston: It's their gold reserve.
Mr. Oliphant: No. This is the other thing -- this is
the cocoanut oil.
Mr. McReynolds: Processing tax collected.
HM,Jr: on, I thought you were talking about the other
matter.
Mr. Magill: The Railroad Retirement is taking its normal
course before the Ways and Means and I notice that this
Doughton bill for repealing that provision for reporting
corporate officers' salaries is going to be taken up under
a rule, I suppose to be passed.
HM,Jr: I haven't read your letter yet on your talk with
the Attorney General, but when he sat down ne said, 'I had
a fine conference'
Mr. Magill: When did he say this to you?
HM,Jr: At Cabinet. 'And I don't think there is any
(Mr. Magill laughed aloud
at this remark.) I said, 'I am sorry, Homer, I haven't
talked to either of the men.' So he said, 'Well, we are
practically together. I had better see both of you this
real difference between us.'
morning.
Mr. Oliphant: Did the Federal Trade Commission thing
clear at Cabinet?
HM,Jr: It cleared. Wallace raised one objection. He
said something about rice in prices and he changed it to
put in the word the "seeming" rise of retail prices. Put
in the word "seeming" and the word "retail".
Mr. Oliphant: And the White House will send it?
HM,Jr; will send it. The thing that surprises me on
prices -- food prices are 10 points lower today than they
64
-9-
they were a year ago, which is surprising. It is all
cleared.
Mr. Oliphant: That's a good piece of work.
HM,Jr: The Attorney General handed it to me and wanted
me to present it. He did not want to present it. (Mr.
Oliphant laughed aloud at this remark.) But you certainly
would have gotten a big kick to hear him(General
talking about
'his
laughter
brief' against the Aluminum Company.
from the group.) 'You can't imagine the work it takes to
go
into a thing like this. I was feeling devilish and
I
said, By the way, do the people's names who work on this
ever appear on the brief? 'Oh, yes, and he showed me Homer
Cummings and switched over to the other list and it mentioned
Robert Jackson last.
Mr. Oliphant: I just happen to know how much time he put
on it!
HM,Jr: 'God! The time it takes!' And he did say one
thing and I gave him a pat on the back. He turned and said,
'Mr. President, another thing against Mr. Mellon -- Aluminum -and you might get another art gallery out of it. So I gave
him a pat on the back and I said, 'Homer, that's pretty good
coming from you. I got the idea that a certain fellow by
the name of Robert Jackson, who spent about nine months working on the Mellon income tax case, somehow or other got the
idea that the Board of Tax Appeals thought the Administration
had lost interest and, purely by accident, before the Board
of Tax Appeals hand down the decision, he wants to show that
the Administration has not lost interest and, therefore, he
files another claim against Mr. Mellon and the Aluminum Company to show that the Administration 18 interested. The
fact that it came down before the Board of Tax Appeals de-
cision is pure accident or coincidence. Just an accident
on the part of Robert Jackson! Am I right? He's a smart he
boy. He's got his whole reputation in that thing. So
files this other thing and everything is fine and shows
Mr. Mellon is still Mr. Mellon and the Board of Tax Appeals
read it and now I say that Mr. Jackson's chances of winning
it are increased about 1,000 percent. Never occurred to
Bob!
Mr. Oliphant: No!
Hell, no!
Mr. Magill:
000-000
Noted
65
FEDERAL RESERVE BANK
OF NEW YORK
April 26, 1937.
ATTENTION: Mr. Lochhead
Sir:
There is enclosed herewith copy of the summary
of a speech delivered by the Japanese Minister of Finance
at the Conference of Clearing Houses held in Tokyo on
April 20, 1937.
Respectfully
L.`w. Knoke,
Vice President.
The Honorable,
The Secretary of the Treasury,
Washington, D. C.
Enc.
03V13038
99A
The Summary of the Speech
of the Minister of Finance
Delivered at the Conference
of Clearing Houses Held in
Tokyo on April 20, 1937.
1.
The purpose of our financial and economic policy is to promote
the welfare of the country. In view of our poor natural resources
and increasing population, the expansion of our foreign trade must
be the guiding principle. Accordingly it is necessary to promote
trade with other countries, to develop shipping and fishing industries and to encourage emigration. To attain these purposes it is
advisable to make reciprocal arrangements with foreign countries by
peaceful and gradual means.
Economic nationalism is still prevailing in the world and is
impairing foreign trade and jeopardizing the peace of the world.
Therefore if an international economic conference is held in the
future, we will gladly participate in the conference with a view
to clarifying the situation and to making foreign countries better
understand our country.
The urgent necessity for the present is to improve the producing
power of industry, to develop industries as a whole and to promote
foreign trade so as to enable the Government to meet the increased
expenditures. The increase of national expenditures ought to be
2.
limited within the producing power of industry.
The Government is prepared to carry out taxation reform in the
near future. The increase of taxes, however, should not retard the
3.
development of industries. In revising custom duties, the Government
intends to protect industries which require protection from the view
point of national policy and to give careful consideration to the
balance of payment.
66
by
(
(
68
2.
4.
It is important not to make drastic changes in financial
matters and not to take radical measures which affect financial
institutions. However, in view of the great responsibility of
financial institutions with respect to the development of the producing power of industry, the consumption of national loans, the
encouragement of savings and investment within Manchuria and China,
it is desirable that they collaborate and cooperate among themselves, and also discourage speculative employment of funds. As
to monetary policy, neither the expansion of currencies to the ex-
tent of exceeding the economic need of the country nor the stringency of money inimical to the smooth operation of the financial
world is advisable. The amount of currencies should be appropriate
to the situation.
5. The balance of payment is reflecting all aspects of finance
and economics and should be taken into consideration by the entire
nation. The Government has decided to send gold abroad and increase
funds for the purpose of maintaining the present rate of yen exchange. However, we can not rely simply on gold shipments. The
urgent necessity of today is fundamentally to improve the balance
of payment so as not to impair the foundation of the currency system.
When the producing power of the industry develops favorably, the
maintenance of the yen exchange rate at the present level will not
be a difficult task.
its
to
soleiving
03/13/33
TH3MTHA936 YAUSA3HT
sitt to ssitto
and at - annual
69
GRAY
LMS
London
Dated April 26, 1937
Rec'd 2:50 p. m.
Secretary of State,
Washington.
247, April 26, 7 p. m.
FOR TREASURY FROM BUTTERWORTH.
Replying to a question (*) House of Commons this afternoon Chancellor of the Exchequer announced that he had
decided in the general interest of local authorities and
other borrowers to acquaint the market with his intention
to "advertise on Wednesday morning details of an issue to be
made on Thursday of two and a half per cent national defense
bonds to the amount of 100,000,000 pounds at 99 and one-
half. This will be a short to medium term security redeembefore
able /
the end of 1948 by annual drawings at par of not
less than 20% of the amount of the loan, the first drawing
being in the autumn of 1944; subscriptions will be payable
by installments over three months and the first dividend
will be 13 shillings per cent on the 15th September 1937.
In order that small investors may have an opportunity of
participating I have arranged for a separate issue of registered bonds in amounts of five pounds and multiples of
five
70
LMS 2-No. 247, April 26, 7 p. m., from London.
five pounds up to a maximum of one thousand pounds to be
made through the Post Office Savings Bank and Trustee Savings Bank".
Mr. Chamberlain also indicated that "the proceeds of
the issue until required for financing the defense program
will be available for reducing the floating debt and will
in any case cover the estimated expenditure of eighty million
pounds to be made this year from borrowed monies".
The London Stock Exchange was decidedly weak again today
but the amount of business transacted bore no relation to the
price declines; inasmuch as no brokerage firm can advise its
clients how any particular stock is to be taxed under the
new. national defense contribution there are no buyers, while
at the same time there are both nervous sellers and forced
sellers. Thus far there is no reflection in the House of
Commons, aside from a numerically small die-hard Tory group,
of the somewhat bitterly critical reaction now current in
the City.
The foreign exchange market was also active today as
well-informed dealers report that the Bank of France will
have lost as much as two million pounds today.
BINGHAM
HPD:WVC
(*) Apparent omission.
71
April 26, 1937
3:15 p.m.
Present:
Mrs. Klotz
Mr. Magill
Mr. Oliphant
Mr. Taylor
Mr. Seltzer
Mr. McReynolds
Mr. Bell
Mr. White
HM,Jr: Bell, I don't like to bring up these unpleasant
things, but I thought after having lunched with the President
you might as well have the worst.
This is on the Housing bill. The President said on a
million dollar project that the city should buy, out of its
own budget, $200,000. That leaves $800,000. The Federal
Government will give a grant of 45%, which is $360,000.
Then, he said, we will give 10% of relief labor, which 18
$80,000 -- 10% of the $800,000 -- leaving a contribution of
$440,000. Now on re-cap, the city puts up $200,000; the
United States Government puts up $440,000; the balance of
$360,000 should be raised on first mortgage, and I said, And
'What else do we contribute?" and he said, 'Nothing.'
he said, 'Why?' and I said, 'They won't like it.' He said,
'If they don't like it, they're crazy!' I said, 'Is that
really all you are going to give them?' So he said, 'WHAT!
Henry, you and I could build on that basis and if they can't,
they're crazy.
Mr. Bell: You didn't have a Senator present.
HM,Jr: No, but I have it in his own handwriting.
Mr. Bell: I don't see any initials!
HM,Jr: That's the President's last. And when I said,
'Mr. President, this won't do; they won't like it,' he said,
'Anybody that don't like that is crazy.' Well, they are
asking for 100% And he said, 'Well, if they don't like
that, they don't get anything. They can take it and like
it.'
72
-2-
Mr. Bell: This 18 56 - 44.
HM,Jr: It's 44% grant by the Government and 50% by
the local community.
want volunteers. Who is going to break it
Senator Wagner? I'11 tell you what we'11 do. If
Now,
to
I
Mac does not come through with that memo that I am wait-
ing for in 24 hours, he's the candidate to see Senator
Wagner.
Well, anyway, there it 18. I'11 move on.
Isn't
that good news?
Mr. Bell: O.
K.
That's fine.
HM,Jr: Now, the other thing 18 this, and you can
carry the ball on this, Magill. The President wants,
when he comes back, to send either a message to Congress
or a letter to Pat Harrison and Doughton in which he 18
going to go into detail as to what the $600,000,000 is
that we are short of revenue -- possibly use Professor
Crum's letter -- but anyway, he wants to say flatly that
our estimates and our method of estimating were correct,
but the citizens -- that's the word he used -- found
trick way of finding loopholes. And then he wants us
to go into considerable detail as to what those loopholes
are, particularly elaborating on his friend Colonel Schick.
He's got that fellow on his mind. (Shick razor.)
a
And here's what 18 new. He wants to make a recommendation to Congress, now, the 12th of May, that these
loopholes be closed and that they be retroactive. And
he said he does not want to wait until next fall and he
wants to particularly, where it 18 true, to show the items
which are held up by Court action and go into a description
of just what the Court has done. And this thing -- somebody he read -- Ray Tucker or somebody said that the President and the Secretary of the Treasury did not know how
to estimate taxes and it's gotten terribly under his skin.
So I told him the one in the Times on Turner Catledge, who
wrote a perfectly straight story, but the headings were
'Treasury's Blunders Make Budget Balance Difficult. That's
in the Times editorial section. But he wants to hit this
and he said, "Don't wait until I come back. If you get
any good stories on how people evade taxes, send them down
to me by radio. He said, "I have been telling the Colonel
73
-3-
Schick story to everybody who comes to the house. People
get awfully angry about it and incensed to think that a
United States army officer would become a Canadian citizen
and move his fortune to the Bahama Islands.
Now I did not argue with him that his message wasn't
dry yet that he would make recommendations in November as
to loopholes, but he is very much excited about it and he
wants to have those loopholes closed now and retroactive.
He thinks it's too late. I didn't argue with him because
he was all steamed up. He had just seen some congressman
about flood relief. He's turning him down on a flood re-
lief bill.
So I thought, Ros, if you would carry it and work with
Herman Oliphant and with Haas -- joint cooperation, but
somebody has to carry the ball. But I wanted to do the
two things and so I thought it was a pretty good meeting.
Mr. Bell: Fine!
Mr. Magill: Of course, it's mostly a matter of getting
information from these field investigations.
HM,Jr: Then he asked me something which I could not
answer and did not attempt to answer, and that was that he
saw some ruling about Internal Revenue on foreign corpora-
tions and he said, "Are you sure that will stick?".
said, "I don't know. Something he saw. But I don't
know whether everybody has seen Crum's report or not, but
I am giving you the stuff. This means no housing bill -I
at least no money.
Mr. Bell: You don't have to go below the second line.
No housing.
HM,Jr: I said to him, "I didn't get all of this kidding
when I came into the room the other day." I said, "What
was it all about." I said, "I didn't get it." He said,
"Didn't you understand?" and I said, "No." So he said,
"I was getting back at Wallace at the statement he had made
that he wasn't going to get any money and I thought the way
to do it was to take it out on you and Bell, and Wallace
would get it." I said, "I wish you would give me a signal
next time." But did you get it, Bell?
Mr. Bell: No.
74
-4-
HM,Jr: I couldn't get it.
Mr. Bell: I thought he wanted to let us know we were
licked before we started.
HM,Jr: He turned to Wallace and said, "I don't want to
do anything to hurt Wallace." I just saw Wallace and he's
going along with us on everything. Even now he's talking
about taking some out of his $500, ,000,000, 80 I have nothing
to complain of and I thought you fellows would like to know.
Mr. Bell: I intended to call them over this afternoon,
and go over it, but I have not had a chance.
000-000
A hit
#
1,000
Land
Zuo umo
600 me
Briance
360, 000
M ginnet 25%
and pay wagin
of will online into
7 10%/on
= so, "NO
Iv ('sutrib = H 440, wao
Linening : Coly fax
200,000
11.5 pays minish 440,000
360,000
Balmes AG timmed
1,way. was
76
April 26, 1937.
3:35 p.m.
H.M.Jr:
Hello
Operator:
Chairman Eccles. Go ahead.
H.M.Jr:
Hello Marriner?
Eccles:
Yes sir.
H.M.Jr:
How are you to-day?
E:
Well I'm all right. (Laughs) How are you by now?
Oh I'm all right. What did you spend?
Well now - ah - I guess you got the report on the
bill market.
No I haven't.
The - ah - well the - I got a preliminary report.
H.M.Jr:
Yes I've got it before me - I didn't realize it.
E:
Well it was - the preliminary in New York was 72
H.M.Jr:
Yes.
E:
H.M.Jr:
E:
H.M.Jr:
E:
H.M.Jr:
on the nine months and 63 on the short bills - it
was a little less than last week on the short and
slightly over on the long
so that the average would be just about the
same or maybe slightly less than last week
Yes.
so that we're over that hump.
E:
H.M.Jr:
A:
Yes.
Ah - the - an - we - we told the dealers this morning indicated to them that if they found that they were
long on long bills and were having - have any difficulty
in disposing of them - marketing them during the week
that we would be prepared to help out.
H.M.Jr:
Yes.
77
-2en - we don't know how many bills they bought but we
assume, of course, they did - they were in the market
and did subscribe to some extent.
E:
H.M.Jr:
Yes.
E:
Now - ah - what we would do then tomorrow and Wednesday
and Thursday during the week would be to, if they found
that they were having difficulty distributing their
long bills, we would either take some off their hands
for cash or on an exchange for short bills. In other
words, if they found that they could readily sell
short bills
H.M.Jr:
Yes.
E:
and they - they - in that case they would, of
course, sooner have short bills than cash.
H.M.Jr:
Yes.
E:
We would then switch - give them some short bills and -
H.M.J.:
Yes.
E:
H.M.Jr:
E:
H.M.Jr:
in exchange for the long bills.
And - and that - that apparently was helpful, of
course, in the situation.
Well you fellows got your teeth into this thing
Saturday. How much weight has George Harrison lost
the last 48 hours.
(Laughs) Oh he looked all right this morning.
Is he sitting next to you now?
E:
No he's gone back.
H.M.Jr:
Could he hear me this morning?
E:
No.
H.M.Jr:
Oh.
E:
No.
H.M.Jr:
All right.
E:
No he didn't hear you. Nobody heard you.
78
-3H.M.Jr:
All right.
E:
The - ah - the - ah - the bonds to-day were - they
were just selling all over the lot.
H.M.Jr:
Yes.
Ah - we bought 17 million.
E:
H.M.Jr:
Good.
E:
Of bonds.
H.M.Jr:
Swell.
And the - the - an - market was off - ah - in the
short bonds from two and - up to as high as, I think,
7 or 8/32d's in the longest ones.
E:
H.M.Jr:
Boy you're watching this bond market these days,
aren't you?
E:
(Laughs)
H.M.Jr:
Remember when I used to call you up and you'd
E:
Well hell I know but
E:
give me a three day old quotation.
we had no occasion to do anything about it.
We were so far removed from it that there was nothing
else to do.
H.M.Jr:
Yes, that was my money in those days.
E:
It wasn't anybody's money.
H.M.Jr:
Sure.
E:
Wasn't any money going in.
H.M.Jr:
Yeah.
E:
What?
H.M.Jr:
The days I used to put in 40-50 million in a day and
I'd call you up and you say "Huh."
H.M.Jr:
79
-4E:
H.M.Jr:
Well I know but you - ah - you didn't want us in at
that time. We went in on a partnership basis feeling
you got interested in it.
I love to hear you talk quotations.
Well anyway
E:
H.M.Jr:
It warms the coccles of my heart.
E:
Now - ah - you'll be interested in this - I - I think
H.M.Jr:
Yes.
that the bond market will possibly continue to go down.
Ah - maybe I'm wrong but it's - it's just my hunch
that it will be put down and - because they've everybody's talked this 3%.
E:
H.M.Jr:
Yes.
The - there's a sit-down trike. (Laughs) That's what
it amounts to on the part of the insurance companies
and the big investors and they've put out - and I talked
E:
to - Walter Cummings called me from Chicago this
morning
H.M.Jr:
E:
H.M.Jr:
E:
Yes.
and Walter said - ah - ah - the banks throughout
the middle west and customers were talk - talked to
him during the last week and again this morning and
it was their general feeling - because of the propaganda
that had been put out from New York, he said - that the
bond market is going to 3% and he said there wasn't any
of the banks that he knew of that were required to sell
at all to meet any reserves. He said they all had ample
reserves and practically all of them had excess reserves.
Yes.
So that the only reason they would sell the bonds would
not be because they had any other place in the world to
put their money but would be merely because they thought
they could buy them cheaper.
H.M.Jr:
E:
Yes.
Because they could sell them on a - on a 2-3/4 yield
and buy them later on a 3% yield - of course that -
80
-5in other words they were speculating to that extent.
E:
Now he said the insurance companies - ah - and, of
course, we know that - and the big institutional
investors who had wanted 3% right along are just
sitting back and are anxious to have the country
in general help them get that rate.
H.M.Jr:
Yes.
E:
Now - ah - so I said they may go to 3%
H.M.Jr:
Yes.
E:
However, the minute they start their buying they
can't any more keep them at 3% than they can fly
because there just isn't enough places to put the
money they've got - ah - and, of course, they'11
go back up again.
H.M.Jr:
Yes.
E:
Now - ah - I - we decided this morning here - the
Committee - that during the balance of the week
we would just continue to operate like we did to-day.
H.M.Jr:
Swell.
E:
We wouldn't - we couldn't take the market and, of
course, we wouldn't try but that we would be in the
market and - ah - buy S ecurities and undertake to
keep it orderly.
P.M.Jr:
Good.
E:
Ah - so I say if it should go down there
H.M.Jr:
Yes.
E:
it's my hunch that we'll - we'll see a darned
good - a - a much better bond market a little later
on.
H.M.Jr:
Yes.
E:
That it's just one of those periods that - ah -
the propaganda has caused everybody to feel that
they're going to make profit by selling now and
buying later. Somebody is going to get fooled.
H.M.Jr:
Yes.
81
-6E:
Now - ah - the - this was an interesting phase and I've heard it before and possibly you have that - ah - the Treasury was going to have to do
some long-term financing in June.
H.M.Jr:
Yes.
E:
And - ah - therefore that they - and they'd likely
have to pay 3%
H.M.Jr:
E:
Yes.
because the investors that know wouldn't come
in for less than three now - that no one would take
less than 3%
H.M.Jr:
E:
Yes.
and - ah - the tendency, therefore, would be
to wait with the expectation that they could get a
higher rate when the Treasury's financing had to be
done in June.
H.M.Jr:
E:
Yes.
Now - ah - of course, I think that to do any
long-term financing at all in June - at least unless
the situation was - was entirely different - ah would be a mistake and let the bill market - after
the first of June there will be a lot of excess
reserves.
H.M.Jr:
Marriner, listen, old man, let's wait till the first
E:
Oh yes.
H.M.Jr:
Then we'll begin worrying. Let's get through this
week. I think this is going to be your hardest week
and if you keep plugging the way you did to-day -
of May and then we'll begin worrying.
Saturday, see
E:
Yes.
H.M.Jr:
......ah - let's see where we are next Monday on the
first but don't let's worry about our 15th of June
because - don't let anybody tell you I've made up my
mind about anything.
82
-7 E:
Oh well I knew that. I was - I was merely telling
you the - of some of the propaganda that they're
putting out with an effort to knock down the bond
market.
H.M.Jr:
E:
H.M.Jr:
And don't forget that Walter Cummings was the first
banker to sell a big block of bonds that we knew of.
Yes.
That he sold 25 million along - between the first
and seventh of March and it's the fact that he'd sold
it and I'd heard about it is the reason that I stiffened
my price on the exchanges for the 15th of March.
Burgess told me that Walter Cummings had dumped 25
million and he was the first fellow to do it.
E:
H.M.Jr:
Ah-ha. Ah-ha.
And when he went down to Warm Springs to see the
President complaining about the bond market I said,
"You
ask Walter Cummings why he sold before anybody
else did."
E:
Ah-ha.
H.M.Jr:
Don't forget it either.
E:
Well I knew that he'd done that.
H.M.Jr:
Yes.
E:
And I'm not - Walter Cummings' report was merely and I don't know whether it was New York or not -
maybe
H.M.Jr:
You're coming over for lunch tomorrow.
E:
Well I'd like to.
H.M.Jr:
O.K.
E:
All right - one o'clock.
H.M.Jr:
Righto.
E:
All right. Goodbye.
83
LAZARD FRERES
120 BROADWAY
-
NEW YORK
LAZARD FRERES & CIE
PARIS
-
LAZARD BROTHERS & Co.LTD.
NEW YORK April 26, 1937.
LONDON
TELEGRAPHIC ADDRESS
LAZARD.NEW YORK
Hon. Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D.C.
Dear Henry,
In view of the friendly and open-minded manner
in which you received me on the occasion of my last visit
to Washington, I feel warranted in writing to you at some
length on the subject that we discussed. I do this the more
readily in that I was much impressed with your approach to
the problem, which seemed to me entirely without pre-conceptions
and purely based upon a desire to find a sound solution of
present difficulties.
My impression was that, among your other concerns,
you were extremely interested in the subject of "hot money".
I think that the great flow of gold to this country is in measure
due to a movement of capital in our direction which is the result of political and economic uncertainties in other parts of
the world. Because of the removal for the time being of the
imminent danger of a European war, I would expect this cause to
gradually assume diminishing importance.
Beyond this, however, there is another factor
difficult to appraise but which I consider of great moment.
That is the fact that the American price level has never anything
like fully adjusted itself to the revaluation of the dollar that
has already taken place. In my opinion, a gradual rise in the
commodity price level to accomplish such a readjustment should
not only be welcomed, but should be facilitated. Until this re-
adjustment takes place, there will be no stopping the flow of gold,
barring a new gold,policy.
-2-
84
For the reasons stated when I was with you, I
consider a change in the price of gold as a brake on gold imports
an unsound conception and one which you will be extremely reluctant
to adopt. Now that we, for a long time, have had de facto stabilization on the basis of $35. per fine ounce, I feel that any tampering
with the gold price would introduce an element of the greatest confusion and uncertainty into the world and the domestic economy; and such
a step would be fraught with the greatest danger. I can see the
pressure under which the constant influx of gold must be placing you,
and yet I am satisfied in my own mind that to yield to this pressure,
either through refusing to buy gold, through attempting to place an
import tax on its importation, or through excessive handling charges,
would be in fact jumping from the frying pan in'to an extremely hot fire.
I would hesitate to predict how much of our recovery would be jeopardized
by such a fire once it was lit. I know how much considerations of this
sort weigh with you, and I am hopeful that your thinking will not take
you in this direction.
Since I last spoke to you, there has been a further
and material drop in commodity prices. This has now reached a point
where, as you know, it is creating a considerable nervousness and
hesitancy in the business world. Furthermore, the Government bond
market has become as much a matter of concern to outside observers
like myself as it must be to the Treasury Department. I am told by
banking friends in New York that they have many orders to sell Governments and that there are few bona fide bids other than from the Federal.
This, taken in connection with your new program of selling Treasury
Notes weekly, creates a situation of some tension and one that I think
is getting near the point of requiring drastic action on your part. It
is so much easier to revive confidence when it has had merely a little
setback than after it has turned into pessimism and despondency, the
face of a declining business activity and a tendency towards growing
unemployment. I would consider neither of these latter possibilities as
extremely remote, barring action by Washington.
My feeling is that this situation could be readily
turned about if you would abandon the policy of gold sterilization and
deposit in gold certificates with the Federal the equivalent of the
gold now sterilized. This would have an immediate and an electric effect
on the bond market, both for Government and corporate issues, and would
go a long way towards throwing into reverse the feeling of apprehension
that has been growing all too rapidly in the last few weeks. It would
be reflected in the commodity market by substantial advances. Washington
has been critical of advances in the commodity market until quite recently; yet I cannot avoid the feeling that they should now be concerned
rather about further declines than about a new recovery. While I quite
sympathize with their desire to react from to time against speculative
excesses wherever they may appear, I feel that in the long run we will
only reach a sound position if gradually the price level is allowed to readjust itself to the present price of gold. Such a readjustment in itself
would correct many of the disequilibria in our system.
85
-3-
There will always be a lag between a rising
cost of living and the rate of wages and salaries. Somethimes
one will out-run the other and at other times vice versa. But
having in mind the extent to which there is a tendency to redistribute through wages, salaries and dividends to an everincreasing number of individuals a constantly larger share of
the annual productivity, I would expect this to gradually take
care ot itself in the general upsurge of an economy which is
turned towards increasing activity based upon an enormous amount
of necessary work throughout the country waiting still to be
done. Such an upsurge will do more than anything else to solve
the problem of "hot money, and at the same time it will do more
than any other thing to bring about budgetary equilibrium. It is
obvious that anything which causes a material setback in this tendency
will have immediate and unpleasant implications for the budget.
This letter, as you see, is addressed to other
phases of the problem than those which I went into with you in some
detail when I was in Washington. I have not changed my view about
the question of the free coinage of gold, but I agree with you that
the phases of the problem touched upon in this letter are of more immediate importance. In the end, they all have some points of inderdependence.
I am at your disposal at any time to discuss this
or any other questions with you, should you so desire.
With kindest regards, I am,
Yours sincerely,
Feat are he
FA/B.
86
Gray
JS
PARIS
Dated April 26, 1937
Rec'd 4:09 p.m.
Secretary of State,
Washington, D.C.
530, April 26, 6 p.m.
FROM COCHRAN.
French control sold fair amount of sterling at 111.15.
Dollar has become a little more offered. The control sold
a few at 02.55. Rentes declined about 1.70 francs and the
new 1937 four and one half national defense bonds sank
to 94.31. Stock market bad.
is
Today's market nervousness/due in part to week-end
political developments and most particularly to insistent
and recurring demand of Jouhaux and his laborers that ten
billion france be borrowed by the Government to finance
public works and especially to take care of the twenty
odd thousand employed in finishing the Paris Exposition
structures. The idea of "work bills" after the German
example which could be discounted by contractors with
the bank and later rediscounted at the Bank of France is
being pushed while earlier ideas of capital levies and
nationalization of insurance and other business are
reviving.
with French Parliament assembling tomorrow, Govern-
ment may soon face a bitter debate on general policies.
The Minister
87
-2From Paris #530
The Minister of Finance will undoubtedly be required to
advertise the Finance Committee's detailed information with
respect to the state of the Treasury, disposition made of
funds recently borrowed, etc.
BULLITT
SMS:RGC
April 27, 1937.
H. M. Jr. called to see the Vice-President this
morning. The Vice-President told H. M. Jr., that as
Secretary of the Treasury he has the responsibility
of the budget and the time may come when he may have
to resign if he does not get the co-operation of the
President on "spending". H. M. Jr. told him that he
does not threaten but if the President does not carry
out his promise to stop spending, he will resign.
The V.P. told H. M. Jr., that for two months he has
laid the ground work for the curtailing of spending but
that the President would not listen. He also said, "Henry,
frankly, I am talking to the President through you".
H. M. Jr. replied that he understood.
H. M. Jr. asked the V.P. whether he had confidence in
him and the Vice-President answered, "Henry, I am your
friend and I am proud of you. You can always count on me".
89
April 27, 1937.
9:58 a.m.
H.M.Jr:
Hello
Operator:
Governor Harrison - go ahead.
H.M.Jr:
Hello
Harrison:
Hello Henry?
H.M.Jr:
Good morning George.
H:
I was disappointed not to see you yesterday. On
account of this daylight saving thing I had to rush
off as soon as my meeting was over.
H.M.Jr:
I see. What were you - afraid to get caught in the
dark.
H:
Well I'll tell you. It gets me home so late. I
H.M.Jr:
I see.
H:
didn't get home as it was till pretty near 11.
And I - it cuts an hour off on the night train so
I have to skip that if I can.
H.M.Jr:
Yes.
H:
Ah - I - everything is about the same as last night's
closing.
H.M.Jr:
well I haven't. I haven't - I don't watch the bond
H:
I see.
H.M.Jr:
I let Marriner and you do that.
H:
And -
H.M.Jri
Seriously.
H:
What's that?
H.M.Jr:
I'm serious.
H:
Well I think that's right.
H.M.Jr:
Yes.
market as closely as I used to.
90
-2H:
The - ah - and I'm glad you don't bother about it.
H.M.Jr:
Yes.
H:
Ah - the - ah - ah - - the difficulty is there's
there - that I wanted to mention to
you there - judging by the evidence of the last three
-
a
or four days
H.M.Jr:
H:
H.M.Jr:
Yes.
there's a good deal of liquidation coming from
the middle west and far west
I see.
for the first time.
H:
H.M.Jr:
H:
Ah-ha.
Ah - that's the reason that - usually quiet in the
mornings - it's been quiet in the mornings for three
days now and then there's - ah - the west wakes up ah - we get soaked and it's been quiet again to-day
but we're fearful that we will get soaked again this
afternoon the same as we did yesterday. Of course,
yesterday was a bad day in everything.
H.M.Jr:
Ah-ha.
H:
And a good deal of rumor or talk has been around town
about collapse of prices and securities in London.
H.M.Jr:
Ah-ha.
H:
Ah - which some people rumored I guess - we've had
H.M.Jr:
Yes.
H:
That somebody's commission in - ah - houses - were in
H.M.Jr:
A h-ha.
H:
no evidence of any justification to the rumor.
trouble over there.
Now whether that's had anything to do with added
pressure I don't know.
91
-3H.M.Jr:
Well I wanted to ask you just what the various
worries were in New York - if you could - tell
me what are some of the financial people worrying
about in New York?
":
H.M.Jr:
H:
Well I don't know but I'll tell you what I've done I've just started to-day having a series of well I began as a matter of fact on Friday before
I went down there and they had only one then but
I'm having now a series of talks with the principal
banks just to find out - because I can get a collection
of that.
I'd like to know
And I'm having two or three of them come in to-day
again and after get a better cross-section of it
I'll sum it up for you but I just wanted to know
myself.
H.M.Jr:
H:
Because I - I - all I keep, hearing is they're worried
but I don't know what they re worrying about.
Well I'll tell you - one man - and I think it's better
from your standpoint than mine not to ask me who it is some day I'll tell you came - came on Friday and I spent
an hour with him and, frankly, his only worry was the
general one - fundamental one - of what the world and and the U. S. too but the world was a whole was going
to do about gold because he thinks we're getting into
an awful jam on it.
H.M.Jr:
Ah-ha.
H:
And he says that with America and England being forced
to buy gold at prices that are not justified in
relation to other world prices - gold that we don't
want - and the way he figured it out - that it will
either continue to come here and increase excess reserves or increase government debt and he just thinks
and expresses damnfoolishness for the world - for England
and this country to have to go on at that rate buying
gold that they don't want and all the rest of the world
is dumping on these two countries. Now he says fundamentally he thinks that's the most dangerous thing in
the situation and that thoughtful people are getting
more
at
the
cautious about it and getting more
President.
H.M.Jr:
Well that - would that mean there would be more or
less gold come this way?
92
-4H:
You mean his feeling that way?
H.M.Jr:
Well I mean if they're are enough people feel that way.
H:
Well I'll - I'll try to puzzle that out. I don't think
so because you see most of it is coming not because
people here are attracting it but rather because people
in the other parts of the world that don't want it are
selling it to us because they think they're getting a
very good price.
H.M.Jr:
H:
H.M.Jr:
H:
Well I'd be very much interested after you talk to the
people - an - ah - if you - if there's any general
ideas as to what's the matter I'd like to have them.
Yes, well I'll - I'll - well I thought I'd just make
this survey just to see what's itching them all.
Of course, from the standpoint of the United States
Treasury - ah - I'm not worried
Yes.
H.M.Jr:
us.
H:
H.M.Jr:
H:
H.M.Jr:
H:
H.M.Jr:
H:
H.M.Jr:
because the things that are happening don't affect
Yes.
So there's nothing - ah - for me to worry about unless
the worries get sufficient that it slows up business.
Yes.
And, of course; that hasn't happened.
No I don't think it's happened and to the extent we've
had any slowing up I think it's been
So - an - ah
But I do think from - ah - evidence that you get
everywhere that there is a trend of firmer interest
rates all over the world.
Well - ah - that - that may be so although I see the
British are selling a 1948 - 2-1/2% bond so that don't
look as though interest rates were so firm.
93
-5H:
1948.
H.M.Jr:
That's what they - that's what they offered yesterday -
H:
Yes, that's 11 years.
H.M.Jr:
At 99-1/2.
H:
Yes.
H.M.Jr:
1948 - 2-1/2%.
Well let's see what happens beginning next Monday
when - when - after we've passed the famous May 1st date.
H.M.Jr:
Yes, well I think that we're seeing that now. I think
that we're closer to that.
All right George if you get anything give me a ring,
H:
Yes, I will.
H.M.Jr:
Thank you.
H:
Goodbye.
H:
will you?
94
MEMORANDUM
April 27, 1937
To:
Secretary Morgenthau
From: Dr. Burgess
Treasury bonds were quiet today with little change in
prices. Volume of trading on the board was small and there
was not a great deal of activity in the over-the-counter
market. Opening bids on the board were 1/32 under yesterday's
close and there was little variation from this level throughout the session. The long bonds closed unchanged to 2/32 off
and the rest of the list was unchanged to 1/32 off. The
guaranteed group was also quiet but showed fairly large price
changes; the F.F.M.C. bonds were mixed and the H.O.L.C. bonds
were down 5/32 to 7/32 on sales. Government bond turnover on
the board was $691,000 compared with $3,643,000 yesterday.
The note market was quiet and steady with few changes in quota-
tions. Several middle maturities closed 1/32 down on the day,
the two longest issues 1/32 better and the rest of the list
was unchanged.
Domestic bonds were dull apart from a little activity in
the second grade rails, and price changes were generally small.
In the second grade group rails were small fractions better on
the day, industrials were firm to last night's closing level,
and utilities were small fractions off. High grades were
rather mixed with a firmer tendency.
There was moderate and general activity in the foreigns with
few price changes of consequence. Argentine 418 were off 1/2
point; Canadian bonds were unchanged to a shade lower, while
Australian and Japanese issues firmed slightly.
No purchases for Treasury today.
OFFICIAL TO
95
THE SECRETARY OF STATE
WASHINGTON D.C.
t
1804
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
FE - 694.006/8.
April 27. . 1937
CONFIDENTIAL.
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses
for his confidential information a paraphrase of a telegram (No. 119) of April 23, 1937, from the American Ambas-
sador at Tokyo in regard to trade policies of Japan.
Enclosure:
Paraphrase.
03V13038
as SCA
int
TH2MTHA930 FOOD VRITERINT acitio
Noted
A. Lochhead
(nex
96
DEPARTMENT OF STATE
BUREAU- DIVISION { FE
ENCLOSURE
TO
LETTER DRAFTED
ADDRESSED TO
Secretary of the Treasury
96
(CONFIDENTIAL)
PARAPHRASE
A telegram (No. 119) of April 23, 1937, from the
American Ambassador at Tokyo reads substantially as follows:
On April 21 the Minister for Foreign Affairs remarked
at a farewell dinner given in honor of the Kadono Economic
Mission that, although it may not be possible to restore com-
pletely international free trade as it existed in the past,
a check should be put on the trend toward extreme trade protec-
tion. The Foreign Minister said also that Japan should take
part in the movement in Europe and America for freer trade
between the nations.
According to reports in the press of April 22 the
Ministry of Finance has decided to retain in force after
July 1 the measures adopted on January 8 for import exchange
control and to expand the scope of the measures in order to
restrict gradually imports into Japan of luxury goods and
non-essential materials.
The attention of the Department is invited to the
inconsistency between the two policies above mentioned
in case the Department should have occasion to have con-
versations with the mission while it is in the United
States.
694.006/8
Noted A. Lochhead
April 27, 1937.
10:25 a. m.
H.M.Jr:
Hello.
Operator: Mr. Knoke.
H.M.Jr:
Hello.
L. W.
Knoke:
H.M.Jr:
K:
H.M.Jr:
Good morning, Mr. Secretary.
Hello Knoke. How are you?
Quite well, thanks.
Ah -to
Knoke,
have you talked recently to England or
Holland.
K:
Well I'm expecting a call from Holland now.
H.M.Jr:
Good.
K:
They put it in for ten minutes after eleven.
H.M.Jr:
Are they calling you?
K:
Yes, they're calling me.
H.M.Jr:
K:
Good and are you going to talk to England today?
H.M.Jr:
Ah - well if you think I ought to.
Well I - I'd like to know what they're all worrying
about. If you can find out, you know.
K:
Yes.
H.M.Jr:
K:
If there's anything particular that's gone wrong or
is there - ah - what's all the shooting for, you
know?
Yes, well I'll - surely I'll ask that question. I'm
afraid that (laughs) this situation will last for a
while, Mr. Secretary.
H.M.Jr:
K:
Why?
Well because - ah - ah - you see the - it will probably the rumors will come up and the rumors
will call for a denial and the more rumors and
the more denials probably gradually the more
hard-boiled the market will get.
97
-2H.M.Jr:
K:
H.M.Jr:
98
Yes.
And that, after all, is the experience that has that anybody always has had. The first denial
is the most effective; the second is - is not
quite
as effective and so it will - and so it
continues.
Well do you think these rumors that they're going
to drop the price of gold are coming from abroad?
K:
From where?
H.M.Jr:
From abroad.
K:
Oh I'm sure they are not coming from here.
H.M.Jr:
Yes.
K:
Well that I'm sure of because - ah - at least I
have no reason to assume that anybody here is
spreading those.
H.M.Jr:
K
H.M.Jr:
Well that's what I think.
Well at least .....
Some of the people here in the Treasury don't agree
with me. I think that they're being manufactured
abroad.
K:
They what?
H.M.Jr:
I think the rumors are coming mostly from abroad.
K:
Well that's what I think.
H.M.Jr:
Yes.
K:
That's what I said. I don't think they come from here.
H.M.Jr:
No.
K:
H.M.Jr:
They at least - ah - let me put it this way. I have
no reason whatever to assume that they come from here.
I have no indication of any kind.
Well this is the way I feel and I told this to Governor
Harrison a little while ago. While these rumors are
bothersome and they upset the markets and so forth and
so on - but as far as the United States Treasury is
concerned they really don't affect us.
99
-3K:
H.M.Jr:
K:
H.M.Jr:
Yes.
And while - what I'm trying to do as Secretary is
to be - to help keep the market stable see, and orderly.
In the final analysis all of this - what's going on
here for the last couple of weeks really doesn't touch
us. I mean there's nothing really to worry us.
Well no - I guess.
I mean the stock market falls four or five points;
it doesn't affect us and always - because it hasn't
slowed up business, you see?
K:
Yes, well, of course, the one thing - ah - one
respect in which it seems to me it does affect us
is the - the - ah - continued increasing amount of
gold coming over.
K:
Well why worry about it, Knoke?
Well - ah
H.M.Jr:
Supposing we get a billion dollars of gold - what of
K:
Well - (Laughs)
H.M.Jr:
No I want to get that over to you. What of it?
K:
Yes.
H.M.Jr:
We're spending seven billion dollars next year - seven
K:
Yes.
H.M.Jr:
Supposing I have to spend seven million dollars on
interest to sterilize a billion dollars worth of gold.
What of it? Why should I worry?
K:
Quite so, Mr. Secretary, but I'm not
No but I want to get that over to you. I mean I want
H.M.Jr:
it?
Now look -
billion three hundred million dollars.
.
H.M.Jr:
to get it over to you
K:
H.M.Jr:
Yes.
so that you can get it over.
-4- K:
H.M.Jr:
100
Yes.
There's nothing in this situation which gives me any
cause for worry. If I get a billion dollars worth of
gold and sterilize and it costs me seven million dol-
lars in order to insure the financial structure that
this gold doesn't go into our blood-stream, see?
K:
Yes.
H.M.Jr:
Keep it out of our blood-stream.
K:
Yes.
H.M.Jr:
What is there to worry about?
K:
Well - ah - may I - ah - say how I think the market
is
H.M.Jr:
K:
Please, always tell me and then tell me what you think.
Ah - the way the market argues is that as the sterilized
gold mounts up someday there will be a kick from up in
the Capitol and the same old argument. They say, "Well
this is nothing but a bonus to the banker" and - ah in Patman's language and in Coughlin's language - a
bonus to the banker.
H.M.Jr:
Well all right - let me take care of that. I took care
of it in 133, '34, and 135.
K:
(Laughs)
H.M.Jr:
No, but I'm telling you.
K:
Yes.
H.M.Jr:
I mean I want to get this over to you that neither
the President nor I are worried about the present
situation because there's nothing in the fundamental
economic structure of this country which it harms.
We're going ahead; we have our strikes, yes; we have
our labor troubles, yes; but the business moves forward.
Ah - the New York Times business index constantly goes
up. I mean what is there fundamentally for me to worry
about? That's what I'd like to have some New York
financier tell me, because I can't see anything.
K:
That isn't I think
H.M.Jr:
Pardon me?
101
-5K:
H.M.Jr:
K:
That isn't what you want to worry about - it's - ah
Well I can't worry because they worry.
Well that is just it - the - quite so you can't but
the effect of the - the accumulated effect of their
worrying is what worries me.
H.M.Jr:
K:
True but what you want to know is - there's only two
people in the United States that can change the price
of
gold, and I'm one of them.
Mr. Secretary, I said to the Chase yesterday I was
willing to bet there would be no change this year and
I was willing to bet there would be no change next
year,
furtherand
thanI said,
that." "Politically I can't think any
H.M.Jr:
K:
H.M.Jr:
K:
H.M.Jr:
Well what I'm getting at is - ah - I want you to
know that I'm not worried about five hundred million;
I'm not worried about a billion dollars worth of gold
coming over here, see?
Yes.
And
- but I can't worry because some fellow down
thereI worries.
Yes.
Now the only thing that Archie brought up is whether
we
ought to step in and buy some gold in London
ourselves.
K:
Yes.
H.M.Jr:
I don't know whether that would help or not.
K:
Well I - I think it - ah - yes, I think it would
help because it seems to me the continued discount
of the London price indicates that supply - that
is not up to supply.
Well, think that over.
although demands has picked up considerably yet it
H.M.Jr:
K:
Well we - he and I discussed it yesterday afternoon
and
then I thought it would be - expressed the feeling
-6H.M.Jr:
Well you talk to London; you talk to Holland, will you?
K:
Yes.
H.M.Jr:
And - and talk to Cariguel too.
K:
Yes.
H.M.Jr:
H.M.Jr:
And after you've talked to them give me a ring.
Am I at liberty to indicate what you told me?
Are you at liberty?
K:
Yes.
H.M.Jr:
Absolutely.
K:
All right, sir.
H.M.Jr:
I mean absolutely.
K:
All right.
K:
102
H.M.Jr:
I mean I - I wouldn't give that to very many people
but I give it to you. You mean abroad and at home?
K:
Abroad.
H.M.Jr:
Yes, you can use it - you can use it anywhere where
K:
All right, sir, and I'll call you later on.
H.M.Jr:
you think it's necessary.
Yes, because that's the way I feel. I mean - the
point is I can't worry because some other fellows
are worrying and there's - there's nothing that
I can see that I should worry about.
K:
Well I shall do my darndest to get that across.
H.M.Jr:
0. K.
K:
All right, sir.
H.M.Jr:
All right, thank you.
103
April 27, 1937.
10:57 a.m.
Hello
H.M.Jr:
Henry Morgenthau, Jr.
Yes.
H.M.Jr:
You tell Major Berry, when he comes back, that I have
approved his request for the 15% differential for the
men in the Bureau of Engraving.
H.M.Jr:
Approved his request - I beg your pardon?
On the 15% differential - he knows what I mean.
Yes.
H.M.Jr:
In the Bureau of Engraving - night workers. Question
of unions.
All right I surely will. Allright I surely will.
H.M. r:
I have approved it.
You've approved it.
H.M.Jr:
Yes.
All right I'll tell him when he comes in.
104
April 27, 1937.
10:58 a.m.
Hello
Operator: Just a minute please.
H.M.Jr:
Put him on.
0:
He's on.
H.M.Jr:
(Aside to Miss Roche: "Thanks Miss Roche")
Hello
H.M.Jr:
Hello Butterworth.
B:
Good afternoon Mr. Secretary.
H.M.Jr:
Can you hear me.
B:
Absolutely.
H.M.Jr:
All right. Butterworth - what I want you to do if
you have the contacts - I wish you could talk to
either to some of the American
B:
I can't hear you sir.
H.M."r:
Can you hear me now?
B:
A little bit better, yes.
H.M.Jr:
If you know any of the American brokers in London brokerage offices - do you know any of them?
H.M.Jr:
Yes - yes I do.
I wondered if you could sort of talk to them
B:
Yes.
B:
H.M.Jr:
and find out why they think the people are selling
American stocks, see?
B:
Why they're selling American stocks?
H.M.Jr:
Yes, if they have any reason.
105
-2-
B:
H.M.Jr:
B:
Yes, well I - I know that there's been a spilling
over of the liquidation here.
Yes.
I'll tell youhere
what
mean
brokers took the position which
occurred
in Ithe
last -week.
H.M.Jr:
Yes.
B:
And then from
H.M.Jr:
speculators and investors
found themselves in a position where they had to
undertake some forced liquidation.
I see.
B:
Now they - if they liquidated their English
H.M.Jr:
Yes.
B:
Those were several reasons that I reported you know.
H.M.Jr:
Yes.
B:
They would have to do so at a great sacrifice
H.M.Jr:
Yes.
B:
H.M.Jr:
which had declined considerably in value -
stock
and so they were inclined to liquidate some
of their American holdings
I see.
particularly the sort of well known market
leaders such as U. S. Steel and New York
Central
and International Nickel.
B:
H.M.Jr:
Yes.
B:
The - particularly / national stocks which are
those
quoted in large amounts both here and in New York
H.M.Jr:
I see.
which is an active market in both places.
B:
H.M.Jr:
I see.
106
-3-
H.M.Jr:
B:
H.M.Jr:
And that I know has been going on.
hhh.
I don't think they've been liquidating their American
stocks from - in the last few days on the basis of
Ah-ha.
H.M.Jr:
I think it was temporary rather than a permanent thing
Well the thing that I wanted was: What was their
particular worry - not only American stocks but what
are they worrying about, see?
B:
Oh I see.
B:
H.M.Jr:
I mean - what are the people in the markets - what
are they worrying about abroad and in the United
States, see? I mean if - if you could find out - I
mean - ah - I know they are worrying about a lot of
things but I - I can't find out what their particular
worries are.
B:
I don't think they're particularly worred about the
American scene. I think their worry has been internal
matters here.
H.M.Jr:
B:
Well could you find out more about it and send me a
cable on it?
I could indeed. Would you like - like me to tell you
a little bit about the atmosphere at the present
moment?
H.M.°r:
Yes.
B:
Ah - in brief the English market has improved to-day.
H.M.Jr:
Good.
B:
And people are feeling better in anticipation of the
statement which Mr. Chamberlain is making to the House
of Commons to-day
H.M.Jr:
I see.
.
B:
-4-
B:
107
regarding the national contribution pact.
arrangements of this pact
has - ah - hit the market so hard is because it's
connected in the peoples minds with the wartime
of
financing.
H.M.Jr:
Yes.
B:
This
H.M.Jr:
Ah-ha.
B:
And it's going to hit people
H.M.Jr:
Yes.
B:
For instance, if they come here on 1933, 134 and 135.
H.M.Jr:
Yes.
B:
A good many of the heavy incomes have been - and so
pact.
on were very depressed during those - so that if that
they will
is true it would carry the
have to pay a rather large tax.
H.M.Jr: I see.
is that the - the whole
A very good
on the basis
position is somewhat clearing up
which
was
on the
of the assessment
that
three million pounds
twenty - twenty-five million pounds
as to how it is going to be
but the particulars
B:
worked out has not been made clear.
H.M.Jr:
B:
I see.
If those were cleared up I think that they will be
likewise clearing up the
H.M.Jr:
Ah-ha. Well if you don't mind - I don't quite get it
B:
I certainly will.
very well over the telephone. I wish you'd sit down
and write me a cable on it.
108
-5H.M.Jr:
Now we here, as far as the Treasury goes, we have no
B:
Yes.
H.M.Jr:
particular worries but there are an awful lot of other
people who are worrying and I'm trying, by calling up
you, calling up Cochran and New York, I'm trying to
find out what are people worrying about in the various
financial centers
and see if any of it makes any sense and - so
if you just talk and see - I mean if you can pin them
down, see?
B:
H.M.Jr:
B:
H.M.Jr:
B:
Yes.
And if you can and never mind how foolish it sounds why just send it along.
Yes I will.
And we're trying to pick it up from the different
centers.
Allright. Well I'll see if I can it get you off a
cablegram tonight.
H.M.Jr:
Thank you very much.
B:
On this - Mr. Secretary.
H.M.Jr:
Yes.
B:
You got my report of the conversation on Friday?
H.M.Jr:
On what?
B:
On Friday.
H.M.Jr:
Yes.
B:
Was that satisfactory the way it was put?
H.M.Jr:
Yes quite.
B:
It was.
H.M.Jr:
Yes.
B:
Well thank you so much.
109
-6H.M.Jr:
Yes, it was all right.
B:
Thank you very much.
H.M.Jr:
Goodbye.
B:
Goodbye.
FEDERAL RESERVE BANK
OF NEW YORK
FICE CORRESPONDENCE
CONFIDENTIAL FILES
L. N. Knoke
2)
DATE April w. 1937.
110
SUBJECT: TELEPHONE CONVERSATION WITH
DE NEDERLARDSCHE BANK.
Mr. de Jong called me at 11:51 and referred to his cablegram of today, by which he had canceled his previous instructions to
sell guilders at 5476 or better, and gave us a new order to sell for
their account further guilders 25,000,000 at 5484 less charges, that
is 54831 in cases where we sell through agents. If we made sales
without paying brokerage or commission to agents, he would be satis-
fied to receive 54831 also. de Jong was at great pains to point out
that changing the price did not mean a fundamental change in their
policy. All they intended to do was to follow the market rather than
stick to one rate irrespective of demand or supply. That being so,
they were quite likely to change their rate again in the near future
or, for that matter, to change it a number of times. In that case,
they would send us a telegram quoting us the new rate. I asked how
the dollar was behaving and de Jong said it was very much offered.
I asked how he explained the weakness of the dollar and he ascribed
it to the same old remors.
I took this opportunity to refer to our telephone conversetion of April 9, when I had repeated to him what the Secretary of
the Treasury had told me over the telephone, namely that neither the
President nor he contemplated a change in the gold price. I mentioned
had
that I had a similar call from the Secretary this morning, repeating
the same statement and I added that, personally, I was very considerably impressed with what the Secretary had told me. de Jong thanked
me.
He then sectioned that he wated me to know that in all
111
FEDERAL RESERVE BANK
OF NEW YORK
DATE April 27, 1937.
FICE CORRESPONDENCE
SUBJECT
CONFIDENTIAL FILES
L. W. Knoke
TELEPHONE CONVERSATION
WITH DE KEDEBLANDSCHE BANK.
-2-
probability we would receive substantial amounts of dollars for their
account, which they were not going to ask us to convert into gold.
This, however, did not apply to dollars with which we might credit
them against our sales of guilders in this market. The latter, we
were to continue to convert into gold as heretofore. I pointed out
that if he accumulated dollars without at once converting them into
gold, conversion under the present arrangement could not take place
at a future date. de Jong assured me that he fully understood the
situation.
LEX:KMC
03V13038
TEE:
&
YOU
VRU2A3N7
112
April 27, 1937.
10:58 a. m.
Hello.
Operator: Just a minute please.
H.M.Jr:
Put him on.
Operator: He's on.
H.M.Jr:
(Aside to Miss Roche: "Thanks Miss Roche.")
Hello.
H.M.Jr:
Hello Butterworth.
B:
Good afternoon, Mr. Secretary.
H.M.Jr:
Can you hear me?
B:
Absolutely.
H.M.Jr:
All right. Butterworth - what I want you to do if
you have the contacts - I wish you could talk to
either to some of the American
B:
I can't hear you sir.
H.M.Jr:
Can you hear me now?
B:
A little bit better, yes.
H.M.Jr:
If you know: any of the American brokers in London brokerage offices - do you know any of them?
H.M.Jr:
Yes - yes I do.
I wondered if you could sort of talk to them
B:
Yes.
B:
H.M.Jr:
and find out why they think the people are selling American stocks, see?
B:
Why they're selling American stocks?
H.M.Jr:
Yes, if they have any reason.
-2B:
H.M.Jr:
B:
113
Yes, well I - I know that there's been a spilling
over of the liquidation here.
Yes.
I'll tell you what I mean - brokers took the position
which occurred here in the last week.
H.M.Jr:
Yes.
B:
And then from
H.M.Jr:
I see.
B:
Now they - if they liquidated their English stock
speculators and investors
found themselves in a position where they had to
undertake some forced liquidation.
which had declined considerably in value H.M.Jr:
Yes.
B:
Those were several reasons that I reported you know.
H.M.Jr:
Yes.
B:
They would have to do so at a great sacrifice
H.M.Jr:
Yes.
B:
.... and so they were inclined to liquidate some
of their American holdings
H.M.Jr:
B:
I see.
particularly the sort of well known market
and International Nickel.
leaders such as U. S. Steel and New York Central
H.M.Jr!
Yes.
B:
The - particularly those national stocks which are
H.M.Jr:
quoted in large amounts both here and in New York
I see.
which is an active market in both places.
B:
H.M.Jr:
I see.
114
-3B:
And that I know has been going on.
H.M.Jr:
Ah-ha.
B:
H.M.Jr:
B:
H.M.Jr:
I don't think they've been liquidating their American
stocks from - in the last few days on the basis of
Ah-ha.
I think it was temporary rather than a permanent thing.
Well the thing that I wanted was: What was their
particular worry - not only American stocks but what
are they worrying about, see?
B:
H.M.Jr:
B:
H.M.Jr:
B:
Oh, I see.
I mean - what are the people in the markets - what are
they worrying about abroad and in the United States,
see? I mean if - if you could find out - I mean - ah I know they are worrying about a lot of things but I I can't find out what their particular worries are.
I don't think they're particularly worried about the American
scene. I think their worry has been internal matters here.
Well could you find out more about it and send me a cable
on it?
I could indeed. Would you like - like me to tell you a
little bit about the atmosphere at the present moment?
H.M.Jr:
Yes.
B:
Ah - in brief the English market has improved today.
H.M.Jr:
Good.
B:
And people are feeling better in anticipation of the
statement which Mr. Chamberlain is making to the House
of Commons today
H.M.Jr:
I see.
regarding the national contribution pact. of
arrangements of this pact has - ah - hit the
B:
market so hard is because it's connected in the
people's minds with the wartime financing.
H.M.Jr: Yes
B:
This
pact.
115
-4H.M.Jr:
Ah-ha.
B:
And it's going to hit people
H.M.Jr:
Yes.
B:
For instance, if they come here on 1933, '34 and 135.
H.M.Jr:
Yes.
B:
A good many of the heavy incomes have been - and so on
were very depressed during those a so that if that is
they will have to pay a
true it would carry the
rather large tax.
H.M.Jr:
I see.
is that the - the whole position is
A very good
on the basis of the assessment
somewhat clearing up
that
B:
which was on the three million pounds
twenty - twenty-five million pounds
as to how it is going to be
but the particulars
worked out has not been made clear.
H.M.Jr:
B:
H.M.Jr:
I see.
If those were cleared up I think that they will be
likewise clearing up the
Ah-ha. Well if you don't mind - I don't quite get it
very well over the telephone. I wish you'd sit down
and write me a cable on it.
B:
I certainly will.
H.M.Jr:
Now we here, as far as the Treasury goes, we have no
B:
Yes.
H.M.Jr:
particular worries but there are an awful lot of other
people who are worrying and I'm trying, by calling up
you, calling up Cochran and New York, I'm trying to
find out what are people worrying about in the
various financial centers
and see if any of it makes any sense and - so
if you just talk and see - I mean if you can pin them
down, see?
B:
Yes.
116
-5H.M.Jr:
B:
H.M.Jr:
B:
And if you can and never mind how foolish it sounds why just send it along.
Yes I will.
And
we're trying to pick it up from the different
centers.
All right. Well I'll see if I can't get you off a
cablegram tonight.
H.M.Jr:
Thank you very much.
B:
On this - Mr. Secretary.
H.M.Jr:
Yes.
B:
You got my report of the conversation on Friday?
H.M.Jr:
On what?
B:
On Friday.
H.M.Jr:
Yes.
B:
Was that satisfactory the way it was put?
H.M.Jr:
Yes quite.
B:
It was.
H.M.Jr:
Yes.
B:
Well thank you so much.
H.M.Jr:
Yes, it was all right.
B:
Thank you very much.
H.M.Jr:
Goodbye.
B:
Goodbye.
117
April 27, 1937.
11:54 a. m.
H.M.Jr:
Hello.
H.Merle
Cochran:
Hello Mr. Morgenthau.
H.M.Jr:
Hello Cochran. How are you?
C:
H.M.Jr:
C:
H.M.Jr:
All right, thank you, how are you?
Oh pretty well.
Haven't heard your voice for some time.
No. Cochran why I'm calling up is I wonder if you
could make a few inquiries as to what people are
worrying about as far as the finances of the world
are concerned, see?
C:
Yes.
H.M.Jr:
We're getting all kinds of rumors; some of them
credited; some of them London - I mean I wondered,
for instance - I mean what are the New York banking,
representatives of the New York Stock Exchange people
in Paris - what are they worrying about, see?
C:
Yes.
H.M.Jr:
What are the French people worrying about?
C:
Yes.
H.M.Jr:
In other words, I'm trying to collect the various
worries and then see if they make a picture, see?
C:
H.M.Jr:
Yes yes.
Now, of course, I know about the gold and all that
and every day we deny it
C:
Yes.
H.M.Jr:
C:
and we'll keep on denying it.
Yes.
-2-
118
C:
But I wondered if you could visit around in the next
day or two and then send me a cable and give me what
the people are worrying about.
Surely, I can do that.
H.M.Jr:
Even though they may sound foolish.
C:
Surely.
H.M.Jr:
C:
Have you got any ideas of your own what - or have
you got any worries.
Well I haven't any particularly, no. But when I was
in Basle, for instance, on the gold proposition -
H.M.Jr:
Yes.
C:
At that time your
H.M.Jr:
Yes.
C:
.
H.M.Jr:
They were afraid that it left the door open to something and they thought that it might necessarily
H.M.Jr:
Yes.
C:
And since then it's been the market collapse more than
anything to the effect of the President's statement
on commodities.
H.M.Jr:
I see.
C:
And, of course, London had such a bad day yesterday
and they've had this
proposition put on to
them and
H.M.Jr:
C:
budget.
Yes.
It's just given them the worst move they've had in
a long while.
H.M.Jr:
Yes.
C:
Then the loans coming out yesterday at a fairly low
rate - this - it's all upset them.
119
-3H.M.Jr:
Yes.
C:
And then - then they in
fear
that
themarket.
American operators
their
own
might
H.M.Jr: Yes.
They think that if they had a little more
- a little more confidence that it would
C:
spread over here.
H.M.Jr:
You mean the stock market? Are you talking about
the stock market?
C:
That's it.
H.M.Jr:
Yes.
C:
That if the American operators had more faith in
H.M.Jr:
Yes.
their own market
C:
that the confidence would be reflected on
this side.
H.M.Jr:
I see.
C:
H.M.Jr:
I'll - I'll get in touch with some of the Treasurers
here tonight or certainly in the morning.
Yes.
H.M.Jr:
And, of course, after this week-end I could give
you quite a lot when I'm down at Basle.
Ah-ha. Well -
C:
You remember I go there on Saturday night.
H.M.Jr:
That's right.
C:
C:
That ought to leave Monday and Thursday - then I have no - Sunday and Monday. Then I had your wire yesterday Sunday rather
H.M.Jr:
Yes.
120
-4for me.
saying that you approve
C:
H.M.Jr:
That's right.
I have no inkling of that at all but there's a good
C:
man on that Committee.
H.M.Jr:
Yes.
by him
C:
so I'd only
be there two or three days.
H.M.Jr:
Yes.
C:
And I expect to get the Annual Report out by
H.M.Jr:
Good.
C:
And they're going to have a very expansive chapter
H.M.Jr:
Yes.
C:
On that I think there's probably some recommendations.
H.M.Jr:
All right, well send anything along - along those
C:
I'll send you one from Paris before I go
H.M.Jr:
Right.
before I go down.
on gold.
I can cable a summary of that before I go then I'll
get a cable off by airmail from Basle to Paris before
I leave there for
lines.
H.M.Jr:
along this line.
And you'll be interested to know that we've practically
C:
Oh is that so.
H.M.Jr:
Yes.
C:
I just sent you another bunch of booklets this time
C:
made up our minds to go to Hawaii this summer.
on
121
-5H.M.Jr:
Well -
C:
H.M.Jr:
Hawaii has no troubles just now and we think it looks
C:
Fine.
H.M.Jr:
Yes.
C:
Well I mean this summer is not going to be pleasant
H.M.Jr:
No we think that Hawaii looks very nice.
C:
I think personally you're headed in the right direction
but I'm sorry you're not going to be here in person.
H.M.Jr:
Yes.
C:
But for a holiday this is not going to be the place.
H.M.Jr:
No that's what we thought.
pretty good.
over here.
C:
H.M.Jr:
When would you go then - July or August?
We'd be there the month of August.
C:
There the month of August.
H.M.Jr:
Yes. I thought you'd like to know it on account of
C:
Then what I should do - I should stay here for the
summer, I think, then later get the holiday
H.M.Jr:
Good.
your own plans.
at
C:
H.M.Jr:
Good.
for some rest probably.
C:
H.M.Jr:
All right.
122
-6C:
But I'll get off this cable in the next day or two.
H.M.Jr:
Fine.
C:
And one thing - I can speak
with the French.
C:
I wouldn't take very much - I mean if - if any government could hear it all right.
Oh well that doesn't matter. I meant personally.
H.M.Jr:
What's that?
H.M.Jr:
C:
H.M.Jr:
C:
My friend here is giving a dinner on Thursday night.
Giving a dinner Thursday night.
And which I hope by this time
because
and he's invited him and Auriol and, I think, all the
members of this Control Committee.
H.M.Jr:
Yes.
C:
And he's been good enough to invite me along too.
H.M.Jr:
Yes.
C:
So I may hear some interesting things:
H.M.Jr:
Well you might drop me a letter.
C:
H.M.Jr:
C:
H.M.Jr:
C:
What's that?
it might be for some speculation.
Well you might drop me a letter.
this Thursday night.
H.M.Jr:
I say after it you might just write me a personal letter.
C:
Yes.
123
-7 H.M.Jr:
Did you hear what I say?
C:
Yes.
H.M.Jr:
You might write me a letter.
C:
Surely.
H.M.Jr:
Yes.
C:
All right I'll
H.M.Jr:
O. K.
C:
There's nothing else here. .Everything is going
H.M.Jr:
Thank you.
C:
Goodbye.
H.M.Jr:
Goodbye.
all right.
124
April 27, 1937.
12:57 p. m.
H.M.Jr:
Knoke?
L. W.
Knoke:
I had all three on the 'phone.
H.M.Jr:
Yes.
K:
And in each case I referred to our telephone conversation the 9th of April when I'd spoken to them
about what you had told me at that time and I - I
mentioned that I had again this morning discussed that you had discussed the situation with me
H.M.Jr:
Yes.
K:
.... and that you - ah - that I heard very strongly
that there was nothing - ah - there's no change
contemplated anywhere.
H.M.Jr:
Yes.
K:
Ah - I then asked - ah - I suggested to Bolton that
he let me know just - along what lines people argue
in Europe
H.M.Jr:
K:
H.M.Jr:
Yes.
and I asked the same question of Cariguel and
they both promised they'd let me know if they heard
any new arguments. Meanwhile, this is what Bolton
said. It was a kind of a whispering campaign
Yes.
mostly among academic circles
K:
H.M.Jr:
Yes.
K:
(Laughs) What he called the "Semi-intelligentsia,"
H.M.Jr:
Yes.
economists
K;
H.M.Jr:
Yes.
125
-2K:
ah - who - ah - based their argument primarily
on rising tendency of commodity prices.
H.M.Jr:
Yes.
K:
H.M.Jr:
K:
Ah - Cariguel said while there was very little in - in ah - Paris - the hotbed for all this talk was London
Yes.
and - ah - ah - as far as the Bank of France was
concerned, of course, they had never and were not taking
it serious now - that's the way he put it.
H.M.Jr:
I - you talked to Amsterdam?
K:
I talked to Amsterdam also and repeated the same thing.
H.M.Jr:
Yes. And they - what did they say?
K:
Ah - well they didn't - ah - I didn't go into full
length
H.M.Jr:
Yes.
K:
because Amsterdam would probably give me what
London was giving.
H.M.Jr:
Well everything that I've heard this morning; I talked
to Butterworth in London and to - ah - Cochran - and
it all heads up in London as near as I can make out.
Yes, that's what Cariguel said too.
Yes. Well if they give you anything - let you know
K:
H.M.Jr:
K:
Well they both promised that they'd let me know and I
explained to them of how much value it was to us to
understand the psychology of the fellows abroad and
to know how they were arguing - would they please bear
me in mind and they both promised it.
H.M.Jr:
Of course, I feel that the shoe is pinching in England
and - ah - all these arguments about changing the price
of gold would help their situation and I've thought so
now for some time.
126
-3K:
Well I just wonder which, of course, would mean a
H?M.Jr:
Yes.
K:
I just wonder whether, with the present expenditure
lower sterling rate, wouldn't it?
for armaments,
H.M.Jr:
K:
H.M.Jr:
K:
H.M.Jr:
K:
Yes.
ah - sterling rate at this level isn't really
one that fits into the whole picture.
I don't know. Well evidently it doesn't - otherwise
all this rumor wouldn't be coming out. I don't
Well of course, there is - that rumor I think - there's
always the speculative element Well there's more than
He spoke of private banks - I'm sure he had in mind
Lazard Freres - ah - Cariguel denied that he thought
what happened of Lazard Freres business it was not
at the moment at least of a particularly speculative
nature.
H.M.Jr:
Ah-ha. Well - ah - what did they think - Lazard Freres
was doing something?
K:
Well that is a - ah - what's his name - Bolton didn't
mention him by name.
H.M.Jr:
Yes.
K:
He spoke of private banks in Paris and in London.
H.M.Jr:
I see.
K:
And Cariguel furnished the name
H.M.Jr:
Yes.
K:
and said that he didn't think it was Lazard -
Lazard was doing that business just now.
H.M.Jr:
No - ah
-4K:
He rather protected Lazard on that.
H.M.Jr:
I see. - ah - well thank you very much.
K:
I'm dictating a brief report on the talk.
H.M.Jr:
Yes. Well I don't think it's - I don't think it's
K:
H.M.Jr:
127
Lazard because as a matter of fact Mr. Altsheul was
down here the other day for the first time since
I've been here - asked to see me.
Yes.
And - ah - he - ah I gather very strongly that he
thinks it would be a mistake to change the price of
gold.
K:
H.M.Jr:
K:
Yes, I see.
And - ah - ah I - ah - I didn't get anywhere the
idea that - that - that he thought we ought to change
it. I mean I listened to him. I didn't talk - I
just listened.
Yes, well I had the impression that of the two
Cariguel probably knew more about Cari - about Lazard
business than Bolton.
H.M.Jr:
Yes, well I got the very distinct impression from
Mr. Altschul that - that - ah - I was just reading I've got a letter here from him. I'll just read you
what he says.
K:
Yes.
H.M.Jr:
"Now that we for a long time have had defacto stabiliza-
tion on the basis of $35 per fine ounce I feel that
any tampering with the gold price will introduce
element of the greatest confusion and uncertainty to
the world and the domestic economy and any such step
will be fraught with the greatest danger."
K:
Yes.
H.M.Jr:
And that's in writing.
K:
Yes, I see.
128
-5H.M.Jr:
So that's how they feel.
K:
Yes.
H.M.Jr:
Couldn't put it any stronger than that.
K:
No.
H.M.Jr:
What?
K:
No - no.
H.M.Jr:
I mean this is a summary of what he told me.
K:
Yes.
H.M.Jr:
I don't think
K:
I have the highest respect for Mr. Altschul's opinion.
I think he's extremely intelligent and
H.M.Jr:
Well - so he put it all in writing and - ah - so - ah he - ah - whatever the rumor is I don't think it's
coming from that source.
K:
Yes - yes.
H.M.Jr:
All right.
K:
Right, sir.
H.M.Jr:
Thank you.
K:
Goodbye.
129
FEDERAL RESERVE BANK
OF NEW YORK
DATE April 27, 1937.
FICE CORRESPONDENCE
CONFIDENTIAL FILES
L. W. Knoke
SUBJECT:
TELEPHONE CONVERSATION
WITH BANK OF ENGLAND.
I called Mr. Bolton at 12:24 to ask how things looked
over there now. He expressed the opinion that in London and on the
continent stock and commodity markets were beginning to look a
little bit steadier and that the principal liquidation seemed to be
over. A lot, however, depended upon statements by the Chancellor
in the budget situation, which were expected some time during this
week. Business in dollars had been tremendous this morning, stock
brokers and Japanese banks being the principal sellers. The supply
of gold resulted from dishoarding and from the sale of newly-sined
gold. Sellers continued to believe that we would lower our gold
price. I asked Bolton whether he could explain to me along what
line these arguments ran. If we had a better understanding on this
point, maybe something could be done about it. Bolton then explained
that it looked to him like a kind of a whispering campaign carried
on by intellectual and academic circles, with a good deal of talk about
commodity prices on the part of some economists who insisted that sooner
or later commodity prices would have to be lowered and that this could
be best accomplished by means of a oust in the gold price. I referred
to our telephone conversation of April 9, when I had spoken to him
about a telephone call I had just received from the Secretary of the
Treasury, in which the latter had repeated to me most exphatically
that neither the President nor he contemplated a change in the gold
TRINTRANTO V802A19T
price. I continued to say that I had this morning had a similar comversation with the Secretary of the Treasury and that the Secretary
had repeated his previous statements, which had personally impressed
130
FEDERAL RESERVE BANK
OF NEW YORK
FFICE CORRESPONDENCE
DATE April 27, 1937.
CONFIDENTIAL FILES
SUBJECT TELEPHONE CONVERSATION
L. W. Knoke
WITHBANK OF ERGLAND.
-2me very considerably, with the result that I felt very strongly that
the Secretary was not worrying about the gold inflow nor about the
present or future size of the amount sterilized, nor about the interest charge thus incurred, which was certainly of no consequence com-
pared with the fact that he had to find $7,000,000,000 next year.
The Secretary had added that the President was equally as determined
as he was, that there should be no change in the price. Bolton thought
that the difficulty was that a great many people (and nobody knew exactly who they were nor from where they got their information) were
sure that something was going to happen, feeling that where there was
so much smoke there must be some fire. It was a very difficult kind
of argument to fight, he thought, but he would do his best to keep me
posted and particularly to let me know if any new arguments made their
appearance.
LEK:KMC
03V13038
1001
131
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
CONFIDENTIAL FILES
L. W. Knoke
DATE April 27, 1937.
SUBJECT TELEPHONE CONVERSATION
WITH BANK OF FRANCE.
I called Mr. Cariguel at 12:50. They had had a busy
morning, he said, with the franc around 444 1/2 and further fluctustions depended on what would happen here and what official statements
might be made. In Europe, and particularly in London, remors were
circulating that we would interfere with the gold contents of the
dollar; so far Paris had not joined in this talk. I referred him
to our telephone conversation of April 9, when I had discussed with
him a telephone call received from the Secretary of the Treasury in
Washington, in which the latter had repeated to me most emphatically
that neither the President nor he contemplated a change in our gold
price. I continued that I had this morning had a similar conversation
with Mr. Morgenthau and that Mr. Morgenthau had repeated his previous
statements, which had personally impressed me considerably, with the
result that I felt very strongly that he was not worrying about the
gold inflow nor about the present or future sise or amount of the
gold sterilised, nor about the interest charge thus incurred, which,
be
he said, was certainly of no consequence compared with the fact that
he had to find 7 billion dollars next year. The Secretary added that
the President was equally determined that there should be no change
in the price of gold. Cariguel said that he had originally thought
that these various rumors had come from America but now he began to
wonder whether they did not originate in London. The public was very
credulous and prone to pay a good deal of attention to this talk about
lower prices.
I suggested to Cariguel that, if we had a better understanding
132
FEDERAL RESERVE BANK
OF NEW YORK
DATE April 27, 1937.
OFFICE CORRESPONDENCE
SUBJECT TELEPHONE CONVERSATION
CONFIGENTIAL FILES
FROM
L. W. Knoke
WITH BANK OF FRANCE.
2
of just what these arguments in favor of price changes were, we sight
be able to do something about it. Would he, therefore, help me and
give me a ring next time he came across a new argument or rumor and
there was new. He promised that he would do so but warned
me that it was a hard job to trace these remors. At the Bank of
France they had never taken them seriously.
LWK:KMC
-
Tear
YAM
133
PLAIN
KLP
London
Dated April 27, 1937.
Rec'd. 2:42 p.m.
Secretary of State,
Washington.
RUSH
248, April 27, 8 p.m.
FOR THE SECRETARY OF TREASURY FROM BUTTERWORTH
Your telephone call came during my daily market
inquiries here which I have since completed but there is
little to add to what I then said.
Briefly the present position must be regarded in the
light of its antecedents, viz, the initial nervousness
engendered by the "commodity price scare" which was further
augmented by the "gold price scare" brought to a head by
Professor Sprague's speech in Paris. As reported in
my 224, April 17, 2 p.m., gold mining shares were seriously
affected and since then two small failures have occurred in
Johannesburg, the only market where there has been no
attempt to control speculation, and there have been rumors
of further difficulties. As also reported in that telegram
the downward movement in commodities aroused in its course
a number of other bear factors such as the effects of stock
loss
134
-2#248 from London - April 27, 8 p.m.
loss orders and hedge selling which caused much forced
liquidation. On top of this and just after the diffidult
Stock Exchange settlement account terminating on April 15
had been arranged came the impact of Chamberlain's budget
speech with its national defense contribution tax, the exact
incidence of which the City was not then able and is not yet
able fully to asses. Its imprecision, its resemblance to the
hated war time excess profit tax, its apparent inequalities
(the severity with which it would fall on recently recovered
industries such as shipping, steel and engineering) and the
fact that it hits primarily common stocks caused an immediate
decline on the London Stock Exchange. In the given
circumstances each decline in turn brought about further
forced liquidation culminating yesterday in a "buyers
strike", Therefore those who had to raise cash were forced
to turn to the active New York market. As I mentioned on
the telephone London's repatriation of funds by the sale of
New York stocks has no connection with the American scene
as such but is entirely due to technical causes arising out
of the recent declines in commodities and stocks in London.
None of the American brokers consulted here reports sales
of American stocks by British insurance companies or investment trusts and on the contrary several have received buying
orders today at certain price limits. However it is to
be
135
-3#248 from London - April 27, 8 p.m.
be expected that in view of the recent past and the
growing nervousness about the French situation London
brokers may take occasion to improve their clients'
marginal positions which in some cases will doubtless
necessitate further sales in New York. Conditions in
the London Stock Exchange were better today and prices
advanced and there is a general feeling that the "worst
is passed." "
The demand for dollars in the late afternoon was due
13038
(1) to buying by Holland as a result of purchases of American
common stocks (2) recurrence of the runors in the gold market
that something might be done in the United States to affect
the price of gold.
BINGHAM
HPD
136
GRAY
RB
Paris
Dated April 27, 1937
Rec'd 3 p. m.
Secretary of State
Washington.
540, April 27, 5 p. m.
FROM CO CHRAN.
French control yielded some sterling today. Dollars
were a little casier due to their being offered against
sterling. French rentes up 35 to 70 centimes without much
business being done. Rest of market quiet.
Today witnessed a lull permitting some recovery from
yesterday's unsctisfactory situation. Last evening
following a Cabinet meeting Minister of Finance stated that
the Government is maintaining its position of rejecting
the idea of a new long term loan. He also denied rumors
that there were to be resignations from his stabilization
fund committee (Rist, Rueff and Baudoin had each been
reported as resigning). The press says that Auriol also
said that the French financial situation was witnessing some
improvement rather than deteriorating as some alleged.
Auriol will be heard tomorrow by the Finance Committee
of the Chamber, on Thursday by the Finance Committee of the
Senate
.
:
-2-#540,
April 27, 5 p. m. from
Paris
RB
Senate and on Friday there will be general parliamentary
debate on Government's policies.
BULLITT
CSB
03V13031
189
is
SSA
137
138
April 27, 1937
My dear Mr. Attorney General:
Mr. Magill and Mr. Oliphant have reported to me fully
on the extended conference which you had with them last
Friday concerning the possibility of the settlement of the
tax cases against E. M. Smith, E. M. Smith Company, and
Malter G. L. Smith of Los Angeles. They outlined to me
fully the suggestions as to a settlement, which are now being
made to you on behalf of the taxpayers. In view of the unusual character of these cases, it seems to me that, as in
former tax cases of like seriousness, any consideration of
the settlement of oivil liabilities at present is untimely
and that these criminal cases should be pressed to trial or
plea and sentence. Thereafter the collection or settlement
of the tax liability can be taken up.
I hope that you will conour in this view, in the light
of the additional information which Mr. Magill and Mr. Oliphant
gave you, but if you do not, I should like for us to discuss
these cases with the President, as indicated in my letter of
April 15, 1937.
Sincerely yours,
The Honorable
The Attorney General of the United States
RM/agh
nm
FILE COPY
139
April 27, 1937
The Honorable,
The Attorney General,
Washington, D. C.
My dear Mr. Attorney General:
I am returning herewith a number of letters addreased to Mr. Keenan by Mr. M.L. Igoe, United States
Attorney for the Northern Judicial District of Illinois,
containing criticisms directed at certain officers of
the Treasury Department. With these I enclose a memorandum given my by the responsible officers of this Department commenting upon Mr. Igoe's charges. I believe
that you will agree with me, after examining this memo-
randum, that there is no basis for Mr. Igoe's suggestions
of improper conduct on the part of officers of this De-
partment.
Sincerely,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury
HNG/mff
Initiated: Graves, McReynolds, Helvering and Oliphant
140
April 26, 1937.
MEMORANDUM FOR THE SECRETARY:
The Department has received from the Department of Justice a
number of letters addressed to Hon. Joseph B. Keenan, Assistant to
the Attorney General, by Michael L. Igos, United States Attorney
for the Northern District of Illinois, containing complaints
against the Treasury Department, more especially against certain
of the Department's officials headquartered at Chicago.
These letters have been sent here informally pursuant to an
understanding reached some time ago between Mr. Keenan and Meears.
Cliphant and Helvering, to the effect that Mr. Igoe would submit
in writing whatever grounds he might have for complaining of the
activities of Treasury agencies at Chicago.
In accordance with your request, a synopsis of the complaints
contained in Mr. Igoe's letters, with the Department's comment
with respect to each specific criticism, is submitted below.
Allered Unfriendly Attitude on the Part of
Treasury Officials at Fashington.
Mr. Igoe begins his first letter, which is dated March 25, by
indicating that it is his distinct impression that the officials of
the Treasury Department in Washington feel that at all hasards they
must uphold their subordinates in the field regardless of the merits
of any controversy which may arise. He bases this, he says, upon
his experience in two specific instances; namely, the case of Ralph
H. Oyler and the so-called Barney Franklin case. After discussing
these two cases at some length, he has the following to say:
"From the statements above made, I believe you will
agree with me that all of the difficultion between the
Treasury Department and myself could have been ended
long ago if there had been a disposition on the part of
the officials of the Treasury Department to deal expediently and fairly with such difficulties when they
arose. It is because they did not do so that we find
ourselves in the situation which now confronts us."
141
-2Instract as Mr. Igos evidently feels that the attitude of the
officials of the Treasury Department toward the two cases mentioned
has had much to do with the strained relations between his office
and this Department, they will be dealt with here in some detail.
the cylor Case.
Ralph H. Cylor, now District Supervisor, Bureau of Haractics,
at Detroit, Mich. was fornerly on duty in the same espacity at
Chicago. Mr. Igne states that he consuminated to Mr. Gibbons cartain information pointing to improper conduct on Oyler's part. Ho
says further that if the facts which he submitted to Mr. Dibbons
were proven, as he understands they were, Oylor should have been
summarily opporated from the Service. He calls attention to the
fact that Cylar still retains his position, to his (Igoe's) ombar-
reasonant. Mr. Igoo obviously fools that the officials of the
Treasury Department in Washington were not warranted in retaining
Cylor in the face of his (Igoa's) representations.
COMICING
on July 31, 1933, the Surena of Narostics at Chicago submitted
four reports to the United States Attorney for the Northern Juliotal District of Illinois, charging the following persons with
violations of the Federal Maraotic Draws Laws: (1) Benjanin Creach,
Ivan H. Paris, and William Payno: (a) Jack Howard and Charles
Porter Mitchell; (3) Mal Price Headley and Marvin Harding and (4)
A. A. Barroni and Janes Namban. The reports vere based upon investigations made during June and July, 1933, at the Arlington
Park race truck, Chicago, by agents of the Bureau of Maraotics THE
der the direction of Mr. Cylor. then District Supervisor at Chicago,
and the violations charged aross out of the alleged "doping" of
rade horses.
Mr. cylor was transferred from Chicago to Detroit on November
1, 1933, but before his transfor, on August 10, 1933, all the persons named above ware indicted in the Federal District Court at
Chicago. The indictments were secured by Mr. Lealie E. Salter,
Special Assistant to the Attorney General, who had charge of these
dases for the Government from their inception and who, as will be
seen, finally secured convictions against Howard and Mitchell.
142
-3
The defentants in the Toward case muro Jack Howard, OWNET and
trainer. and Charles P. Mitchell, his stable foroman. In the
course of their investigations. Federal Marantic agents observed on
memora instances that Just before reeing horses of the Howard
stable were given an injection from a notal arringe. They finally
acised the wringe on one occasion just as its contents were about
to be administrat, and at the same time they anised seven bottles
from boxos in the Howard etable. The ayringe and the bottles wore
all found to contain heroin. On the precendings in court, a sion to ress the evidence was filed and overruled. On the trial,
both defendants were found mailty on June 30, 1934, and on July 3.
1934, Howard was fined $300 and sentenced so ton days in jail, and
Mitchell me fined $100 and santenced to five days in jail. The jail
sentances were suspended and the defendants placed on probation for
one your. Both defendants appealed, and the Sircuit Court of Appeals
for the Seventh Circuit affirmed the judgement of conviction January
39. 1935. They petitioned the United States Suprone Court for car-
tiorril, which was denied April 20, 1935. As has been said, this
case was tried w Mr. Salter, Special Assistant to the Attorney Ganoral, who liberise argand the Government's case before the Circuit
Court of Apponle.
On June 20, 1934, the adidas against the other persons above
named were continued for trial until the September, 1934, term of
court, the United States Attorney's office advising that action
would be deferred in those aases until the Howard and and been
finally adjudicated. As has been seen, this case was disposed of
on April 29, 1935. Mr. Igos succeeded so the office of District
Attorney in June, 1935, and those three cases were pending at that
time, with no obstacle now in the way of their prosecution.
The defendants in the no-called Gronah aasa sera Bonjarin
Grooch, whose wife and the owner of a stable of horses, Ivan H.
Parko, Creach's con-in-law and trainor of the stable, and William
Payme. a colored stable boy. During their investigations, Federal
Marcotin agents on fourteen oscasions observed she administration
to horeon of the Groach stable, just prior to racing, of the don-
tente of a motal syringo. This SM usually by with Payne's
assistance. Suit on at least one occasion Greach also was observed
to participate. A search of the stables me made on July 38, 1933,
and 130 grains of heroin and 16 grains of degaine found thereon.
After the final disposition of the Howard case, this case were set
for trink on January G, 1936. However, on November 36, 1935,
Park and Payne withdrew their previous pleas of not guilty, and
entered pleas of guilty. Parks was fined $500 and Payne $250. On
the same day, on motion of the United States Attorney. the case was
dismissed as to defendant Gronah. This disposition was made with-
out consultation with the Narmotics Bureau or its District Super-
visor at Chicago. and the latter officer did not learn of the tarnination of the case until January 3. 1936, when she was informally atvised by Assistant United States Attorney Bailey.
143
-4In the Barroni and Hexhem case, it had been observed on two 00casions that a stableman entered a horse's stall with a syringe and
later came out and rinsed the syringe with water. The officers did
not actually see anyone use the syriage and there is no evidence to
show what was contained therein. The officers did, however, seise
from the tack room of the Barroni stable, a number of bottles of a
liquid which proved, upon analysis, to contain heroin.
In the Headley and Bardin case, the officers observed the contents of a metal syringe administered to horses in some five instances and a number of bottles were seised in the tack room of
Headley's etable of a liquid which proved, upon analysis, to contain
heroin.
The Barroni and Hexhem case and the Headley and Hardin case
were set for trial on November 30, 1936, the Barroni-Hexher case
to be tried first. Barroni and Hexhem filed motions to suppress
as evidence certain property seized in the tack room, on the ground
that the search and seisure were unlawful. Upon hearing arguments,
Judge Woodward rendered a memorandum opinion granting the motions of
Barroni and Hexhem and when the case was actually called for trial,
it was dismissed on December 2, 1936, for want of prosecution. Because of the ruling on the admission of the evidence as to Barroni
and Hexhem, the case of Headley and Hardin was also dismissed on
the same date for want of prosecution.
The Creech case was undoubtedly the strongest of the three
cases remaining after the disposition of the Howard case, and it was
the opinion of the Commissioner of Marcotics that a vigorous proseoution of this case by the Government would have resulted in the
conviction of all three of the defendants named therein. Early in
January, 1936, the Commissioner called the disposition of this case,
as above described, specially to the attention of Assistant Secretary
Gibbons, stating, among other things, that there had been rumors that
a great deal of money had been reported ready to secure the closing
of the case without prosecution. Mr. Igoe happened to be in
Washington about this time, and the dissatisfaction of the Conniesioner of Narcotics with regard to this matter was communicated
personally to him by Mr. Gibbons in a conference at the latter's
office in the Treasury Department, which was attended also by the
Assistant Commissioner of Narcotics in the Commissioner's absence.
144
-5There is no record of what transpired at this conference.
It is apparent, however, although Mr. Gibbons now has no such
recollection. that Mr. Igeo on this occasion must have conveyed
to Mr. Gibbons certain information pointing to misconduct on the
part of District Supervisor Oyler in connection with one of the
horse-doping cases here referred to. It is apparent also that
some agreement was reached by Mr. Igoe and Mr. Gibbons to the offeet that Oyler's supposed misconduct would be made the subject
of an investigation by the Intelligence Unit. On January 31,
1936, Mr. Gibbons made a formal recommendation to this effect,
to the Secretary, from which the following is quoted:
*District Attorney Igoe advised se that he had
heard that the Narcotic District Supervisor at Detroit,
Mr. Oyler. had advised the Chief of Police of Lexington
or Louisville, Kentucky, over the telephone that he did
not think that one of the defendants in question could
be convicted, notwithstanding, he protested the final
action taken by the District Attorney.
Pursuant to Mr. Gibbons' recommendation, the Intelligence Unit
of the Bureau of Internal Revenue was directed to make an investiga-
tion of Mr. Oyler's alleged misconduct, and a final report of the
investigation was delivered to the Department on May 14, 1936. This
report, which was signed by Special Agent J. A. Jordan, contains the
following:
*In compliance with request of Assistant Secretary
Gibbons, the closing of the Benjamin Greech heree doping'
race track case at Chicago, Ill., and alleged questionable
activities of Mr. Oyler with reference to the Barroni and
Headley rade track cases, were taken up with United States
.......
Attorney Michael L. Igoe at Chicago, Ill.
"U. 3. District Attorney Michael F. Igoe informed me
that Attorney T. B. McGrath, who represented Benjania
Creech, Ivan H. Parke, and William Payne in the Creach
race track case, had called at his office on January 6,
1936, and inquired as to whether Mr. Oyler, the Maraotic
Agent in Charge of the rade track investigation, had been
to Mr. Igoe's office that day to advise his that Mr. Oyler
did not think there was sufficient evidence to secure a
conviction in either the Barroni or Headley cases; that
Mr. McGrath did not represent either of the parties, but
was down in behalf of a autual friend of theirs and his,
145
-6namely, William N. Schmidt, a business man of Chicago,
undertailer, and also engaged in the moing gans, who had
boon very friendly with both Mr. Hoadley and Mr. Barroni
for a period of years, and who had been a client of ittorney NoGrath's for twenty years. The U. 3. Attorney
advined Attorney MeGrath that has did not know Mr. Cyler
and that the latter had never called on him.
Attorney T. 3. McGreth informed no that on January
17, 1936, Mr. William E. Sahnidt CHANGE into his office,
accorpanied w Hal Price Hondley. defendant in one of the
mos track ansea, and introduced the latter. During the
conversation, Mr. NoGrath inquired how they were informed
that Mr. Oylor was doning to Chlongo and why he was going
to suggest diaminial of the Headley and Barroni cases to
the U. S. Attorney. Thoroupon, Mr. Hal Price Hondley
told Mr. McGrath the following story
"on Saturiar. January 4. 1036, Oyler called the
Chief of Police at Laxington and asicad the Chief to are
range a meeting between Cyler and Handley. The Chief saw
Handley and Headley advised him that he was not interested
in meeting Oylor at any time or any place, insisting that
Cylor had done him a great injustice in involving him in
the narcotic picture because he had navor permitted the
use of narcotics on any of his horses accept as night have
been prescribed in a medicine by a licensed voterinarian.
The Chief of Police called Oylor at Detroit and so advised
him. Oylar than wanted to know if the Chief would not como
to Detroit AS he wanted to tell him something. The Chief
then told Cylar he could not 20 back to Handley because
Bandlay would not talk about the case and that If the Chief
wanted to talk about the once he would have to see Wallace
Huir, attorney for Hendley. Mr. their told the Chief he
could 8 to Detroit and see what Oylar and to any. The
Chief arrived in Detroit January 5th, not Oylor and it was
at that time that Cylor said he did not think there was
sufficient evidence to try the Barroni and Houllay dassa
and that he was going to Chicago to so advise the United
States District Attorney in this District and he wanted
Mr. Handley to know that he was doing this so that Headley
would appreciate his friendliness in the matter. Chief of
Police left for Lexington on Sunday, January 5th and Cylor
supposedly left for Chicago on Sunday, January 5th.
146
-7"Cylor, some time during the week of January 6th,
advised the Chief that just before he got on the train
to & to Chicago, he received a telogram to done to
Washington which accounted for the reason of not doing
what he had advised them he was going to do.
*This statement of Attorney NoGrath's was corroborated
by William M. Schmidt. Attorney MoGrath went on to say that
he know there was no fix in the Grooch case: that Mr.
Sahmidt is on Hendley's and Barroni's bond, and that neither
he nor Mr. Schmidt have ever heard about any attempt on the
part of Nondley or Barroni to fix their case; that the
above statement of facts is accurate and can be relied upon
100% and that he received $1,250 as his fee in the Greach
case."
It is a that the foregoing statements made to Special
Agent Jordan by Mr. Igoe and Attorney McGrath substantially comprise
the information conveyed to Mr. Ofbbons by Mr. Igoo at their earlior
interviews. AS any rate, the investigation made by Special Agent
Jordan proceeded along the line of developing whether Headley's
statement, as reported by Attorney McGreath, appearing to implicate
Cyler in an attempt to effect a settlement of the ariminal case at
the time panding against Headley, could be substantially COTTO-
hornted.
Corroboration for this statement could not be had. Chief of
Police Thompson of Lexington, Kentualy, was interviewed by Special
Agent Jordan on March 17. 1936, at Lexington, and in the course of
the interview made the following statements
"I have known Ralph Cylor for years and Harry
Analinger, the Commissioner, is an old-time friend of
mino. I never talled with Oylor over the phone about
the Hondley case, and Oylor never called me on the
telephone from Detroit. I don't know where you got
this story, but whoever told it is a cook-eyed linr."
Upon being informad that his statement was at variance with
statements attributed to him by Mr. Headlay, and in the course of
the same day. Chief Thompson gave the following signed statement to
Special Agent Jordant
147
-8*About three years ago when Mr. Handley was indicted
for having narcotics in his stable, he asked no to help
him to investigate to find out the facts in the case, as
to his knowledge he never had any narcotics around his
rading stables and all his employees assured him there
mas none found around his barns.
"I have known Mr. Headley all - life and he and I
have been personal friends all our lives, and knowing
his standing in this community, I was sure what he was
saying was the truth.
"I made several trips to Chicago. talked to several
city detectives and a lot of other people I know, to -
if I could find out what they found around Mr. Hondley's
stables, as Mr. Headley was annious to find out whether
his employees were telling the truth or not.
"AS different times when this case was net in Chicago,
I was there and ready to testify as a character witness for
Mr. Hendley, but every time it was set, it was always don-
timed: and $ also intended to take several of the best
citisons of this city to also testify as character witnesses
for him.
"Along about the Christmas holidays of last year, I
made a trip to look over the traffic conditions in other
cities; I went to Cincinnati, Tolado, Detroit, Chicago.
and Louisville. Just before I started
this trip. I called Mr. Headley and Mr. Muir and told
them I was going by Detroit and Chicago both, and I
would try and find out whether the case was going to be
tried OF continued, so that we would know whether to
take the character witnesses or not. So I just in a call
for Mr. Oylar and asked him is he was going to be in
Chicago or Detroit about that time, and I think he said
in Detroit; and when I arrived in Detroit, I - him and
asked him whether the aaso was going to be tried or cantimed again, as I wanted to notify Mr. Mair so was could
get our character witnesses up there. No told - that he
did not know and wouldn't know until he got to Chicago
and consulted the District Attorney's office whether it
was going to be tried or continued.
"I don't know anything more about it now than I did
three years ago, as to what they found in Mr. Hondley's
stable, as Mr. Cyler and no one also has given no any
information on the subject."
-9-
148
It will be noted that Mr. Hondley was said to have told Mr.
MoGrett that Oyler had called Chief Thoupson from Detroit on Janmany 4. But in his signed statement, Chief Thompson says that it
was he who called Oylar, and not Opler who called him. Apparently
having this discrepancy in mind, Special Agent Jordan said to
Thorpson when the latter give him his signed statement: "You
state here that you 414 talk with Mr. Cyler over the phone from
Detroit." To this Thoupson replied: "Yes, I called him up to
maloo A date to see him there, but he never called 130 from Detroit
any time."
On March 24, Special Agent Jordan also accured signed statemanta with regard to this matter from Mr. Hoadley and Mr. Hendley's
attorney. Mr. Wallace Muir. Mr. Hondley's statement rends as followst
*About the first of the year 1936, Ernest Thompson,
Chief of Police of Lazington, Ky., called and told no
he was going to several cities, including Detroit, on
some police business, and wanted to know If I wanted him
to see Mr. Oyler while he was in Detroit, and I referred
him to my attorney. Mr. Muir. I an advised that he did
call Mr. Mair and Mr. Mair told him that 10 would be all
right for him to see Mr. Oyler, and to find out whether
my case was going to be disposed of on January 9 or not.
my recollection is that Chief Thompson returned to
Lexington the following Monday and communicated with Mr.
Mair, and that I called Mr. Mair and Mr. Huir told no
that the ense would not be tried on the 9th, and that
he understood Mr. Cyler was going to Chicago and that
everything was all right. I took from this statement
of Mr. Mair to mean that my case would be disposed. of
in the same way as the Creach and
"A short time after that I rent to Chicago on some
other business, and while there I called Mr. William E.
Schmidt, whom I have Imount for a long time, and who is
my personal friend and who voluntarily signed IV bont at
the time I was indicted. I did not and Schmidt with
reference to the are but just to talk with him. Schmidt
not - down torm about noon for lunch and magnested that
before lunch I 8 with him to see Attorney T. B. McGrath,
who was his layer and friend, and who had represented
Greach.
149
-10"I went with Schmidt to 800 Mr. MeGrath and did not
talk to him as my attornoy and have never employed Mr.
McGrath to represent 139 in any way. In the course of
the conversation. Mr. MaGrath told no that he know Mr.
Kiriland and Mr. Rooves, by Chicago attorneys, and also
know Mr. Nash, who represented Barroni, and that the
ethics of profession prevented him from saying anything
concerning another layer's case, but he would be very
rlad to advise with eithor of those gontlenon, if they
called upon him.
"I told Mr. NoGrath that I was not guilty in this
case, had never at any time permitted the use of nar
antion on my horses, and had never permitted narootics
in any form to be in my stable. I told him that Chief
Thompson was a life-long friend, and had tried to find
out that the Government was claiming as against no, but
had never been able to get any information. I also told
him about Thompson's trip to Detroit, and that Thompson
before leaving and been in communication with Mr. Muir,
and wanted to know about him seeing Oyler while in Detroit,
and whon Thompson dare back he said Cylor was going to be
in Chicago in a day or two. I did tell Mr. McGrath that
Thompson had said that Oylor would 300 the District At
torney and recommend the diamissal of my case, but after
wards I talked with Mr. Muir and I found out that I had
evidently misunderstood the meaning of Mr. Muir's conversation with me when he told me OVOT the phone that
'the case would not be tried, and everything would be
all right', taking from this that I aasa was going to
be dismissed, having in mind the diamissal of the Greach
case, but I misunderstood Mr. Mair, and Mr. Muir says
what he mont to tell no mas that everything would be all
right, so that I would not worry about my case at that
time."
Mr. Mutr's statement is as follows:
"As the time Chief Thorpson was going to Detroit,
he called no up and told na he was going to several
cities on nona business, including Detroit, and wanted
to know If I thought it would be well for him to 100
Mr. Cylor while in Detroit. I told him 10 would be
entirely all right for him to 000 Mr. Oylor and to ascertain, is he could, whether the case was going to be
tried on January 9 or not.
11 -
150
"In a day or two Thompson returned to Laxington,
called to and told me he and seen Oylar, best that he did
not find out from him whether the case would be tried on
the 9th, but that Oylar was going to Chicago and would
be at the District Attorney's office.
Receiving this information, I telephoned to our
attorneys in Chicago and told than that Mr. Oylar was
going to be at the District Attorney's office and for
them to got in touch with the District Attorney and see
if our case could not be disposed of along the linos of
the Groach aase.
"I told Mr. Handley, over the telephone. that the
case would not be tried on the 9th, but that everything
would be all right. After telling him this, be was in
Chicago on nome business and he tells 139 that be had a
talk with Mr. Schmidt and Mr. NoGrath. in which he told
Mr. MoGrath and Mr. Schmidt to the effect that Oylor was
supposed to come to Chicago, and that he was going to
request the District Attorney to dismiss the case. Mr.
Hondley was supposed to have gotten this information from
no, but Mr. Handley was mistalcan about this and misintorproted my saying to him that the case would not be tried,
but everything would be all right."
Attention is particularly invited to the fast that while Mr.
Headley states he did indicate to Mr. MoGrath that Cyler planned
to have the case against him dismissed, he now saye that this was
a misstatement. Both Mr. Hoadley and Mr. Mair now state in write
ing that the former misusderstood the latter, who had not intended
to convey any such impression as that received be Mr. Handley and
passed on to Mr. McGrath. there is clearly no avidance to support
the statement that Mr. Oylor promised to take action looking to
the disminsal of this and or that he had expressed himself as
feeling that the case was a weak one.
In considering the statements which have been made with
respect to the Handley and it is well to ronall that this case
was made in July, 1933, and that during the course of the investication a Special Assistant to the Attorney General was assigned to
hanile it. He obtained the initiate and afterwards tried and
convicted Jack Howard, one of the defendants in another area made
at the same time as the Headley case. The latter case remained
pending in the office of the United States Attorney at Chicago from August,
1033 to December 3. 1936, when it was called and dismissed. During
this entire period the and mas called for trial several times, and
on ne occasion was postponement requested or suggested by Mr. Oylor.
- 12 -
There is, moreover, considerable room for doubt whether the
statements originally attributed to Mr. Headley by Attorney McGrath
would have afforded grounds for the dismissal of Cyler even if they
could have been corroborated by substantial evidence, since they
seen to imply only that Oyler had become convinced that there was
not sufficient evidence to try the case pending against Headley,
and that it was his intention so to advise the United States Attorney who had the case in charge. Had these statements been substantiated, there, of course, would have been a question whether
Mr. Oyler's alleged action was judicious and discreet, but even if
true, on their face they certainly do not imply corrupt misconduct.
However, the stories finally told by Thompson, Hendley, and Muir,
as represented by their written statements now in the Department's
files, as the result of questioning by Special Agent Jordan, are in
an entirely different version from the account given by Attorney
McGrnth, and they do not corroborate in any particular the statements alleged by Attorney McGrath to have been made to him by
Headley in so far as those statements may be said to reflect on
Mr. Oyler. In these circumstances, and upon the recommendation of
Special Agent Jordan and the Chief of the Intelligence Unit of the
Bureau of Internal Revenue, the Department reached the conclusion
that it had no basis for taking action of any kind against Mr.
Oyler.
The Barney Franklin Gase.
Mr. Igoe repeats the complaint which he has previously made
with respect to this case, based on the fact alleged by him that
Mr. Yellowley deliberately and knowingly transmitted to the
Chicago DAILY NEWS a letter which he (Igoo) had written to Yellowley
recommending the acceptance of an offer in compromise submitted by
the defendant in the case of United States vs. Barney Franklin.
Again Mr. Igoe criticises the officials of the Treasury Department
at Washington for their failure to discipline Yellowley for making
this letter public.
COMMENT
Although the facts in this motorious case are well known. it
is believed that they should be reviewed briefly here. On June 19,
1934, the defendant, Barney Franklin, the proprietor of a rathskeller
in the Loop district in Chicago, was arrested in possession of an
illicit rectifying plant in the basement of his barroom premises.
At the time of his arrest, certain quantities of untaxpaid spirits,
counterfeit strip stamps, fraudulent labels, etc., were found on
the premises. It was evident that Franklin was not only defrauding
the Government of its revenue, but was also cheating his patrons by
selling them spurious liquor.
151
152
-13Between June 19 and September 35, 1934, eight adjournments were
obtained from the United States Commissioner before the defondant
was held for the Grand Jury. On November 3, 1934, the defendant was
indicted. On December 10. 1934, a demirror was filed to the indict-
mant. The demurrer was overruled on January 16. 1935, at which time
a plas of not guilty was entered and a motion made to suppress the
evidence. This motion was denied on April 35, 1935. Between April
25, 1935, and September 30. 1935, the trial of this case was asjourned five times. On October 15, 1935, the United States Attorney
recomended to the Texas and Fenalties Unit of the Department of
Justice the acceptance of an offer in compromise in the stam of
$1,630 nade by the defendant, Franklin, in antisfaction of all civil
and oriminal liability. This offer was rejected by the Taxes and
Penalties Unit on the recommendation of the Alcohol Tax Unit of the
Treasury Department. The case WIS adjourned from time to time from
February 13, 1936, to November 30, 1936, at the request of Assistant
United States Attorney Classer, who assigned as the reason for his
request the fact that an offer in compronise submitted by the dofendant was under consideration.
The 0300 was finally called for trial before Judge Sullivan in
the District Court on November 30, 1936. At this time the defendant
withdrew his plan of not guilty and pleaded guilty to one count in
the indictment upon the understanding that a suspended sentence should
be given on all other counts and that there should be a fine of
$1,650 on this one dount. This arrangement was recommended in open
court by Assistant United States Attorney Glassor. It is a conspieu-
our fast that the amount of the fine so reconsended was the same as
the amount offered in compromise of the matter, which had been jeeted by the Department of Justice.
Then this recommendation was ando by Assistant United States At
torney Glasser, the Court, of its own motion, took the matter under
advisement and adjourned the day of sentence until December 10, 1936.
On December 9, 1936, the Secretary of the Treasury protested
personally to the Attorney General against Glasser's recommendation
for the disposition of this case by a fine, and it is understood
that the Secretary's protest was promptly conveyed to United States
Attorney Igoe. Notwithstanding this fact, when the case case up for
sentence on December 10, Assistant United States Attorney Glasser renewed his earlier recommendation, and the Court imposed a fine of
$1,650 against the defendant in accordance therewith.
153
- 14 -
As will be seen from the foregoing. the Barney Franklin case
WAS pending in Chicago from June, 1934, until December. 1936. In
connection with the offer in corpronise above referred to, Mr.
Igoo, on October 15, 1935, addressed the following letter to Mr.
Yellowleys
#Please find enclosed a check in the
amount of $1,650, which has been submitted to m by
the above-named defentant (Franklin) as an offer in
compronise of the above entitled ame
"I have accepted this check from the defendant with
the distinct understanding that 11 is his liability only
and not as to his codefondant.
*I redeament the acceptance of this offer for the
reason that I think it is substantial and in view of the
past record of the defendant it is probably a better
settlement than - could receive through the courts.
"Respectfully,
(Signed) #11. I.. Igoe."
In response to this letter. Mr. Tellowley advised Mr. Igoe, on
November 13, 1935, that he could not concur in the acceptance of
this offer, and recommended that Franklin be prosecuted.
In an article which appeared in the Chicago DAILY NEWS of May
15. 1936, the above letter was quoted, and it was Mr. Igoe's assesption that a doy of the letter had been furnished the NEWS by Mr.
Yellowley. Acting on this assumption, Mr. Igos addressed the follow
ing letter to Mr. Yellowley under date of May 16, 1936:
"I will thank you to advise me at your earliest
convenience, your authority for giving to the press
my letter to you of October 15, 1935, which appeared
in the Chicago Daily News of May 15th, 1936.
#Respectfully,
(Signed) "Highnal L. Igos
*United States Attorney.
154
- 15 -
To this, Mr. Yellowley replied as follows, on May 10:
"In reply to your inquiry by letter of May 16th, I
desire to advise that no part of the article referred
to, which appeared in the Chicago Daily Nows of October
15, 1936, was given out by no or by any member of IN
force.
"Very truly yours,
(Signed) us. 0. Tellowley
"District Supervisor."
On May 19, Mr. Igos responded to Mr. Tellowley's letter as follows:
#A further examination of the article appearing
in the Chicago Daily News of May 15. 1936, together
with investigations made by this office, cause no to
conclude that the statements in your communication of
May 18, 1936, are not truthful. I shall govern myself
accordingly.
*Respectfully,
(Signad) Michael L. Igoe
United States Attorney."
Mr. Igos promptly reported this incident to the Attorney General,
and a conference was arranged for Mr. Igoe with officials of the
Treasury Department at Washington, in the course of which Mr. Igoo
insisted upon Yellowlay's renoval for his supposed action in miding
Mr. Igoo's letter public.
Mr. Igos's present complaint is, of course, a more roiteration of
his former charge. but it is to be noted that although he indicated in
his second letter to Mr. Tellowley that he had made certain investion
tions in the promises, he has furnished no information or evidence
whatsoover tending to above that the letter published by the DAILY NEWS
was in fact rade public by Mr. Tollowley or by anyone in Mr. Tellowlay's
organization. In his present letter as in his previous complaint,
Mr. Igoo plainly states that his belief that Mr. Tellowley made his
letter public rosts solely upon the fact that the non article in which
the letter was quoted was uncomplimentory to him (Imp). coupled with
the further fact that at the time of the incident a formar reporter
of the MNSS, Mr. Charlos Sahmars, was on duty in Chicago as the
155
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Treasury Department's #publicity agent." Mr. Yellowley categorically
denied having given the letter to the NEWS, and such investigation
as this Department was able to make at the time afforded no basis for
the conclusion that he had any part in the transaction complained of.
A representative of the Department who called on the City Editor of
the Chicago DAILY NEWS for information as to the source of the letter
in question, was net with a declination to give out the source from
which the letter dane but was positively told that it did not emante
from anyone in the Treasury Department.
Under the foregoing circumstances. the Department did not feel
at the time of Mr. Igoe's original complaint and does not now feel
that it had any basis for action against Mr. Yellowley in connection
with the matter.
Allered Inafficiency of
the Algohol Tax Unit at Chicago
Mr. Igoo moites certain complaints of inofficiency on the part
of the Alcohol Tax Unit at Chicago. Those complaints are somewhat
indefinite, but they my fairly be classified as follows:
Operators of large stills are seldon If ever apprehanded; only minor defendants are arrested.
Investigations are too long delayed.
Cases are frequently spoiled by illegal entry upon
the pronises of the violators.
Occupational-tax stamps are sold to vendors of was
taxpaid spirits.
Character of defendants in limor enses.
Mr. Igoe anyet *The record indicates that operators of large
stills in this district are soldes if over apprehended. In practi-
onlly every case in which a large still is involved, only minor dofondants are arrested. This situation has been commented upon by
all of the judges in this district." No says also that this situation
was commented upon by both the February and March, 1937. Grand Jurios,
and refers to letters which he received from the foremen of those
Grand Jurios containing such comment. No then goes on to support
this complaint by citing three particular cases called for trial in
March, 1937, in which he says, or implies, that there was adverse
comment by the Court upon the cases as presented by the Alcohol Tax
Unit.
- 17 -
COMMENT.
Mr. Igoe's reference to the criticisms of the February and
March Grand Juries need scarcely be taken seriously. It is known
to the Department that the letter signed by the foreman of the
February Grand Jury was written by Assistant United States Attorney
Glasser, and signed by the foreman at his (Glasser's) solicitation,
and it is reasonable to presume that the March letter originated
in this same way. it is of course obvious that the members of a
Grand Jury sitting for a one-month's term, and dealing only with
such few selected cases as the District Attorney chooses to bring
before it, would hardly be in a position to say of their own knowledge that the Alcohol Tax Unit apprehends only the smaller violators
and overlooks the principal defendants.
As to Mr. Igoe's statement to the effect that all of the
judges in the Chicago district have commented on the failure of
the Alcohol Tax Unit to apprehend important violators, the Department knows of three cases only in connection with which the Court
made comment which might be construed as in any way reflecting
upon that Unit. These are the three cases referred to in Mr.
Igoe's letter, which were called for trial, respectively, on
March 1, March 2. and March 3, 1937, as follows: U. S. vs.
Frank Schaeffer, et al.: U. 3. vs. Frank Sidote, et al.: and
U. S. vs. Elmer F. Soltwedel. These cases will be discussed below,
with particular reference to such comments as were made from the
bench at the time of trial.
U. S. vs. Frank Schneffer. et 1.--This case originated with
the seisure, on January 1, 1936, of an illicit distillery on the
farm of George Subin, near Hinedale, Illinois. As the result of
a subsequent open investigation, the Alcohol Tax Unit was able to
connect eight defendants with the violation, all of whom, including
the defendant Schaeffer, were indicted on December 10. 1936. On
the trial of this case on March 1, 1937, two Government witnesses,
namely, Falter and Steve Subin, sons of the owner of the fare on
which the still was seised, failed to identify the defendant
Schaeffer when called to the stand for this purpose. Upon this
development, which came as a surprise to the Government, Judge
Wilkerson made the remark, as Mr. Igoo says, that there was evidently
something wrong with the Government's case. It is not seen how this
comment from the bench can be construed either as reflecting upon
the Alcohol Tax Unit, or as bearing particularly upon Mr. Igoe's
contention that the Alcohol Tax Unit apprehends only minor defendants. This was no more than the not uncommon occurrence of
156
157
- 18 -
Government witnesses changing their testimony. Following the
seizure of the still in this case, the witnesses Walter and Steve
Subin had made sworn statements to revenue officers connecting the
defendant Schaeffer with its operation, and they had identified
two different pictures of this defendant. It is not supposed that
Judge Wilkerson's remark was intended to impute neglect to anybody
for the witnesses' repudiation of their testimony at the trial,
but it might well be observed that it was no less the duty of the
United States Attorney than of the Alcohol Tax Unit to anticipate
this event. Had Mr. Igoe called these witnesses and made their
statements of record before the Grand Jury at the time of the indictment, they would undoubtedly, under fear of prosecution for
perjury, have adhered to their original testimony when the case
went to trial.
U. S. vs. Frank Sidote. et This case had its inception in
the seizure of a large alcohol distillery on December 17, 1936, and
the arrest, at the time of the seisure, of four defendants, namely,
Frank Sidote, Joe Cicero, Mike Ponicki, and Sando Rose. One additional defendant, John Tenuti, was connected by subsequent investigation. All five defendants were indicted on December 10, 1936.
On March 2, 1937, the defendants Sidote, Cicero, and Ponicki en-
tered pleas of guilty before Federal Judge Sullivan. Mr. Igoe
states that the Court at this time expressed doubt, in view of the
youthfulness of the defendants, that they had any real responsibility
for the operation of the distillery, and that he postponed sentence
until March 19, 1937, with instructions to the defendants that they
should assist the Government in identifying the actual owners of the
still. A subsequent investigation prompted by the Court's remarks
developed the fact that the actual owner of the still was one
Francesco Ruggeri, now in Italy, and that the defendant Ponicki was
likewise financially interested. These facts were given to Judge
Sullivan when the case game up for sentence on March 19, at which
time he again continued the case with a remark to the effect that
the people he was after were the ones who profited from the illicit
operations.
U. 8. vs. Elmer F. Soltwedel. -- This is one of several substan-
tive cases that grow out of the supervision by officers of the
Alcohol Tax Unit of the telephone of one Pete Hodorowics, a wellknown alcohol distributor in the Chicago area. The case jacketed
against Hodorowics was not successfully concluded due to the fact
that the wire supervision was discovered by the telephone company
and had to be abandoned before sufficient evidence could be obtained
158
- 19 -
to incriminate him. The defendant Soltwedel, however, was arrested
on January 24, 1936, while transporting 75 gallons of alcohol, as
the result of information secured from supervising Hodorovies's
telephone. This case was called for trial on March 3, 1937, at
which time, after a motion to suppress the evidence had been denied,
the defendant entered a plea of guilty. After the plea of guilty
had been entered, it appears that counsel for the defendant advised
Assistant United States Attorney Glasser that his client, the defendant Soltwodel, was of the opinion that the Hodorowies case had
been "fixed," supposedly by an Alcohol Tax investigator by the name
of Coleman. This information was conveyed by Mr. Glasser to Federal
Judge Barnes, who after a conference in chambers called the Alcohol
Tax officers to the stand and asked them why Hoderowics had not been
brought in as a defendant. As these officers were not familiar with
the Hoderowies matter, and were therefore not able to answer the
Judge's questions to his satisfaction, a conference was arranged in
chambers by Judge Barnes with the head of the enforcement branch of
the Alcohol Tax Unit in Chicago, who advised the Court that it had
so far been found impossible to develop sufficient evidence to justify the submission of a conspiracy case involving Hodorowies and his
associates. He also advised the Court that the case against
Hodorowies had originally been handled by Investigator Coleman, who,
prior to the conclusion of the investigation, had been dropped from
the service as the result of a routine character examination made by
the Civil Service Commission, and that the statement of the defendant
Soltwedel was the first intimation which officers of the Alcohol Tax
Unit had had of any alleged attempt to "fix" the case. After this
conference, Judge Barnes expressed himself as fully satisfied with
the explanation made.
It thus appears that in the three instances cited by Mr. Igoe
in support of his statement to the effect that the Federal Judges
have all commented adversely upon the alleged failure of the Alcohol
Tax Unit to bring in important defendants, the supposed adverse
comment had to do only with the cases instantly before the Court
and had no reference to the general situation which, according to
Mr. Igoe, exists in the Chicago district.
The personnel of the Alcohol Tax Unit assigned to duty in the
Northern Judicial District of Illinois comprises 42 investigators or
enforcement agents. In addition to this personnel, special investigators, to the average number of about 12, are assigned to duty in
this judicial district, charged specially with the investigation of
important syndicated operations in violation of the revenue laws
relating to distilled spirits, wine and beer. A fair indication of
the volune of the work done by this force of non can be gleaned from
the following statistics showing results of their operations against
persons involved in the illicit manufacture, transportation, and
sale of distilled spirits during the calendar years 1935 and 1936:
159
-20-
Still Seimuros. etc., in the
Northern Julicial District of Illinois
:
:
:
Average still cannoity, gallons
Gallons of mash noised
Gallons of distilled spirits soised
Number of automobiles seized
:
Value of property soised
1936
:
Number of persons arrested
1935
:
Number of still soised
Calondar year
1
Item
330:
563:
308:
174
1,020,624
35,348:
678,304
20,840
50:
36
417
354
$354,813: $325,017
:
Those statistics are given here not sue having any direct bear
ins upon Mr. Igoo's charge that the Alcohol Tax Unit has mile no
headway against important operators, but simply to give some fair
idea of the extent of the problem which has confronted the Alcohol
That Unit in the Chicago area. In the Chicago district, as in all
other districts, the operations of the Alcohol Tax Unit must largely
be based upon complaints and information from public-spiritod citisons, and from police and other local pence officers. It is mainly
by investigating such complainte and by following up such information
that the revenue officers are enabled to locate and seise illicit
stills and to apprehend those attending the plants, as well as those
engaged in the complementary operations of unlawful transportation
and sale. It is well known that, particularly in metropolitan areas
1110 Chicago, the persons apprehended while directly involved in
these operations are ofton paid employees of the real proprietors
and managers of the illicit enterprison; and a proper ultimate objective of the Bureau of Internal Revenue is to determine by investigation who these proprietors and managers are and to obtain legal
evidence of their complicity. This is not and to do, and the Dopartment miles no claim that in the Chicago area or any other area
it is completely successful in ranching this ultimate objective.
There will always be instances, as fairly Illustrated by the three
cases which have been cited by Mr. Igos, in which the Department will
fall to reach the principal defendants. It night of course be said
that such cases should be more thoroughly investigated and never
presented for prosecution until the real persons in interest have
been implicated. But to follow such a course would be to tie up the
relatively small force which is available on a limited number of
cases, and this would be to allow other violators to run ranpant
while the investigation of this limited number of cases was nationlously pursued. The Department's deliberate policy in this respect
160
-21is to seise all illicit distilleries and to apprehend all violators
of which it has knowledge, regardless of their rank and status, with
the greatest possible dispatch; and to employ its limited force of
special investigators upon investigations calculated to develop evi-
dance against the members of those rings and arndicates whose mark-
facturing and selling operations are the most widespread and, therefore, the most damaging to the Federal revenues.
This policy is followed in all districts, and with the result
that in most metropolitan centers like Chicago, the illicit traffic
is kept at a minimum by the sheer physical process of destroying 11legal plants as they are found and prosecuting those who operate them,
and by the constant pressure which is applied through conspiracy cases
ando against important manufacturers and distributors of the syndicated type.
In the nature of things. however, a large proportion of those
apprehended by the Bureau of Internal Revenue in pursuing this policy
will be in the antegory referred to by Mr. Igos as minor defendantsnot only persons who are the employees of large violators but persons
who operate on their own account in a small way, whether as name-
facturors, transporters, OF vendors. Considering the country as a
whole, it is probably correct to any that minor defendants of this
type involved in alcohol-tm: cases probably outmenter the so-called
anjor defendants in the ratio of at least ten to one.
It is of course not intended by the foragoing to leave the in
pression that the Department has any choice in the matter of approhanding minor defendants and reporting thos to district attorneys
with a view to their prosecution. The applicable statute requires
every fraudulent violation of the revenue laws, regardless of its
importance, to be so reported. The language of the statute is as
follows:
Title 26. sec. 1645(a). U.S.C.I. shall be the duty
of every collector of internal revenue having knowledge
of any willful violation of any law of the United States
relating to the revenue, within thirty days after coning
into precession of such knowledge. to file with the dis-
trict attorney of the district in which any fine, penalty,
or forfeiture my be incurred, a statement of all the facts
and circumstances of the case within his knowledge, together
with the names of the witnesses, setting forth the provisions of law believed to be so violated on which reliance
my be had for confernation or conviction. (R.S. sec. 3164;
Feb. 36, 1919, C. 18, sec. 1317, 40 Stat. 1146; Feb. 26, 1936;
C. 27, sec. 1115, 44 Stat. 117.)
Now district supervisor, Alcohol Tax Unit, Bureau of Internal
Revenue in case of violations of liquor-taxing lawn. (Act of March
3, 1927, 44 Stat. 1382, and regulations issued thereunder.)
161
-28Before leaving this phase of the matter, it should be said that
one of the most valuable instruments which the Government has at its
command in dealing with major violators of the Federal liquor laws,
is the vigorous prosecution, conviction, and imprisonment of ninor
defendants who are connected with these major violators, whether as
employers or as customers. If the attitude of the prosecuting offi-
cars and the courts toward those minor figures is one of undue
leminnay. the Government has no pressure which it can bring to bear
upon those persons wit a view to forcing a disclosure of their
principals or their sources of supply. This point is well illustrated
by the Sahaeffer and Sidoto aases referred to above, where it is
evident that a threat of severe punishment against the minor defendants
who had been apprehended, eithor by the District Attorney or by the
Court, would have brought to light the identity of the real principals.
It should be obvious that in any district where minor defendants can
normally expect to be discharged without prosecution, or if proneouted or pleading guilty let off with a suspended sentence on the
ground that they are not principals, the Government is deliberately
abandoning the most effective means which 11 has at its disposal to
identify and locate the important violators. The Dost results against
major violators are naturally obtained in those Judicial districts
where those facts are understood by the prosecuting officers, and conversely the poorest results are achieved in districts where the prosecuting officers are averse to handling cases against so-called minor
defendants.
The results of major investigations in the Chicago district have
not been aided by any effort on the part of the District Attorney to
put pressure upon minor defendants in the manner here suggested. The
record shown that a much larger number of violators are released with
out trial in the Northern Judicial District of Illinois than in any
other netropolitan area in the United States. The record shows also,
however, that dospite this handicap there have been many instances
in the Chicago district where in connection with large still soisures
those financing and directing the illicit operations, and those supply
ing the rear material for purposes of illicit manufacture, have been
involved by the investigations of the Alcohol Tax Unit, and reported
to the United States Attorney for prosecution. A fest of those cases
will be described below.
Case No. 3611-M. William J. Norkman. at al.-This case originated
with the seisure of a clandestino alcohol distillery on February 19,
1935, in a warehouse building operated by the Continental Warehouse
Company, Chicago. The distillery had a daily producing capacity a
-23-
162
approximately 4,000 gallons and was one of the largest illieit plants
ever seined in the entire country. Subsequent investigation developed
that the most notorious liquor ring in the Chicago area was behind its
operations. The corn ayrup which was utilised as the basis of the mash was
purchased in tank-ear lots through an elaborate coverhouse arrangement.
The finished alcohol not only found its way into the Chicago market, but
was shipped in druns to distributing groups in other midwestern cities.
As the remilt of an extensive open investigation, a case report was
submitted to the United States Attorney in Chicago on May 16, 1935,
naring 35 individuals and 7 corporations an defendants, and including
along with the persons who were responsible for the manufacturing and
distributing operations, those who had furnished the boilers, tanks,
and other equipment used in the construction of the distillery, and
those who supplied the raw materials from which the illicit product was
manufactured. The most important defendant was one William J. Torkman,
the managing director of the warehouse company, and long a well-known
figure in the illicit alcohol racket in the City of Chicago.
Case No. 3044-M Frenk Salons, at al.-This onse had its inception
on March 31, 1935, with the seisure of a large illicit alcohol distillery
consisting of one 1.500-gullen still, and one 1,000-gallon still. One
arrest was made at the time of seisure. As the result of subsequent
investigation, a case report was submitted to the United States Attorney
on August 5, 1935, recommending the prosecution of nine defendants, in-
cluding four important principals, as follows: David Storn, Frank
Salam, Fred Blumenthal, and San Rieff. Defondant Storm maintained an
office in Wankagan, Ill., from which he was in telephone communication
with the premises on which the distillary was located and from which he
supervised the hauling of raw materials to the plant and the disposition
of the finished product. Defendant Salam rented the promises on which
the distillery was located and supervised its construction. Defendants
Blumenthal and Rieff furnished the ray mtorials from which the illicit
product was manufactured. The remaining five defendants were employees.
Case No. 3803-M Anthony Mcali, at al.-This and involves a
large combination headed w the four Miceli brothers, with handquarters
at Calumet City, Ill., a suburb of Chicago. As the result of an unioncover investigation bagun in April, 1935, four large distilleries belonging to this combination were seised in the northern part of Indians,
engaged in the manufacture of alcohol, chiefly for sale in the City of
Chicago. Rapionage anarch warrants were secured from the United States
Commissioner in Chiengo, based upon the telephone conversations inter-
copted, and calling for documentary instrumentalities of the crime.
Overt note in pursuance of the conspiracy were found to have been com-
mitted both in the Northern District of Indiana and in the Northern
District of Illinois. At the conclusion of the investigation, a
defendants were reported to the United States Attorney in the Northern
163
- 24 -
District of Indiana under date of December 6, 1935, for prosecution.
The more important defendants were the Miceli brothers, who from
their headquarters at Calumet City carried on a wholesale liquor
business on an extensive scale, manufacturing and selling untaxpaid
spirits in large quantition, purchasing and using automobiles and
trucks for hauling the alcohol, and generally directing and super-
vising the illicit operations.
Case No. 3849-M. Joseph Vani. at al.-This case involves the
Vani combine, a notorious group of alcohol distillers in the Chiengo
area. Two distillories were aeized in connection with this case,
one on November 22, 1934, and another on June 28, 1935, and those two
operations were connected by subsequent open investigation. Fourteen
defendants word reported to the Uni ted States Attorney at Chicago on
February 26, 1936, including Joseph Vani, Janes Vani, Tory Corno, and
Palmer A. Melone, as principals. These persons were the owners of
the distilleries, supervisod their construction and operation, paid
the employees working in the plants, brought rair materials to the
stills, and disposed of the finished alcohol. All four of these do-
fondants had criminal records. Three other important defendants were
involved in this case as lioutenante of the principals, who assisted
in renting the distillery premises, in purchasing equipment and sup-
plies, and in otherwise facilitating the conspiracy. The remaining
seven defendants were still operators, truck drivers, and other minor
employees.
Case No. 4517-. Peter Domino. et Al.-This case involved the seizure
of two large alcohol distilleries operated on different premises,
one on December 27. 1935, and the other on May 5. 1936, the two
seimures being connected by subsequent investigation. A report was
submitted to the United States Attorney at Chicago in this and on
November 2, 1936, recommending the prosecution of eight defendants,
including the following principals Peter Domino, Frank Theodore,
Theodora Ingrassia, Frank Ingressia, and Anthony Domino. These
five individuals were all financially interested in the distilleries,
were responsible for renting the premises on which they were located,
assess the distillaries to be set up and operated, hired and paid the
distillery employees, and disposed of the alcohol manufactured. All
these individuals have oriminal records, having been convicted and sent
to the penitentiary on a conspiracy charge in 1931. The remaining
three defendants in this case were persons employed as still operators
and truck drivers.
164
-25Case No. 3950-M. Braverpen. Mainer, at 1.--This case involves a
conspiracy to violate the internal-revenue laws on the part of a large
alcohol manufacturing and distributing syndicate, commonly referred to
as the Bravernan-Wainer combine, and known to be the second largest
group which has operated in Chicago and vicinity since repeal. The
introductory phases of the case were handled through the medium of
telephone supervision. More than 1,600 telephone calls relating to
the illicit business of the organisation were intercepted during the
underoover investigation. 4,000-gallon alcohol plant was soised in
the course of the impostigation, and other overt acts were established.
Corn sugar was utilised as the basis of the mah for the distilling
operations in this plant, which was purchased through the usual cover-
house system. Over 637,000 pounds of corn sugar were purchased from
the Corn Products Sales Company from about July 1, 1935, to August 15,
1935, by this syndicate. After the open investigation was instituted,
195 witnesses wore interviewed, and 52 statements reduced to writing.
Five special investigators were engaged over a period of months in
developing this case, beginning in August of 1935. Evidence was musmitted to the United States Attorney under date of May 18, 1936, against
01 individuals and corporations including the following important do-
fondantes Harry Bravernan, Allen M. Vainer, Mayer Sachs, Bon Feig.
Sam Wainer, Arnold Braverron, and Charlos Vine. These were the princi-
pale and their chief lieutenants. Harry Braversan and Allen M. Mainer
were the financial backers, directors of all operations, and the on
players of the mibordinates.
In addition to those persons, thirteen individuals were reported
to the District Attorney in this case for having furnished materials
to the andicate or having connived with the syndicate to the and that
the materials might be received and properly covered. Thirteen other
persons were named in the case report as comprising the group which
actually operated the distillery, owned or lessed the promises housing
the operation, purchased vehicles for the syndicate. and supplied needed
equipment. A member of other defendants were included, as truck drivers,
conveys of the truake used in transportation, and minor employees.
Case No. 4150-M Goorze Saladino. at 1.-This case involved the
operation of a large alcohol distillery on two different promises, be
ginning in March, 1935, up to the date of its soisure on October 39,
1935, by a well-known Italian combination. Under date of March 28,
1937, a case report was submitted to the United States Attorney in the
Northern District of Illinois naming 17 defendants, including the
following principales George Saladine, San Savage, Charles Panno, and
Joe Messina. These four defendants financed and owned the distillery
and directed the entire illicit enterprise. The defendants Savage,
Panno, and Messina had long criminal redords, including many violations
of the liquor laws. The other defendants were largely still operators,
truck drivers. and accupants of the premises on which the distillery
was located. While those latter individuals are regarded as ninor dofondants, it should be said that rectically all of them have long records
as liquor violators.
- 26 -
165
It should not be understood that the foregoing represents all
the crass which have been made in the Chicago district in recent
months which have involved important violators. As will appear in
a later connection, 38 conspiracy cases were referred to the
District Attorney at Chicago for prosecution during the 24-months
period from January 1, 1935, to December 31, 1936. Among these
cases will be found a considerable number, in addition to those
above described, which contain evidence against the larger figures
in the illicit alcohol traffic in the Chicago area. A total of
three hundred and fifty-three defendants were named in these cases,
and an examination of the situation justifies the conclusion that
the Alcohol Tax Unit at Chicago, while of course not uniformly suocesaful in the investigations which it has made with a view to
reaching the major illieit operators, has during the last two years
reported to the District Attorney evidence which involves the most
important of the individuals and groups engaged in the illieit
liquor racket in the Chicago district. Attention is invited partic.
ularly in this connection to the Torkman, Braverman-Wainer, and
Miceli cases, implicating what undoubtedly are the three most
noterious alcohol syndicates which have operated in the Chicago
area since the repeal of Prohibition.
Allered Delay in Completing Investigation
Mr. Igoe makes the complaint that "investigations are long de-
layed." He says that, in many cases, in submitting reports to his
the Alcohol Tax Unit requests that the cases be not presented to the
Grand Jury because an investigation is under way, and he implies that
in frequent instances cases are lost by reason of the disappearance of
the necessary witnesses due to the long lapse of time. He supports
this charge by citing one ease only. that of Mary Sella. with respect
to this case, he says that this woman operated a still from which
alcohol was supplied to one Harlan Crouch, who on May 14, 1936, as-
saulted and killed an investigator of the Alcohol Tax Unit in the
State of Indiana. He says that the Sella woman was apprehended by
the Alcohol Tax Unit in the Chicago District almost a year before
this killing occurred, and he implies that despite pressure from his
office, the investigation of the Sella case has not yet been concluded
by the Alcohol Tax Unit.
COMMENT
with respect to this complaint, the Department has under an examination of the cases reported to the United States Attorney at Chicago by
the Alcohol Tax Unit, and the record discloses the following: of a
total of 402 unjacketed (substantive) cases submitted to the United
States Attorney in the 14-months period from January 1936 to February
1937, inclusive, 365 were filed within 30 days from the discovery of
the violation, and of this number the great majority were submitted
106
-27within a period of from two to ten days: 21 cases were submitted
within 60 days from the date of the violation; 5 were submitted
within 90 days from the discovery of the violation; and in only
11 cases did a period longer than 90 days elapae after the viola
tion was discovered before submission of the final ange report.
In the 24-months period from January 1, 1935, to December 31,
1936, the Alcohol Fax Unit at Chicago reported 38 Included (con-
spirucy) anses to the United States Attorney. It will be remembered
that this is the class of cases in which the Department by special
investigative effort undertakes to involve the #higher ups," or
syndicated operators. in violations of the revenue laws. As is well
known, conspiracy cases require a great deal of patience and time
for their successful completion. They necessitate the use of a wide
variety of investigative methods, and they are frequently based upon
the supervision of telephones and the observation of suspects over
extended periods. It is manifest that investigations of this oharacter can not be completed with anything like the same dispatch that
applies to the substantive cases above referred to. Many such cases
require months for their completion, and it not infrequently happens
that after prolonged investigation onses of this kind have to be
abandoned without securing legal evidence of the complicity of the
individuals undor suspicion. The following record should be considered in the light of the foragoing comment: of the 38 conspirecy
cases presented to the United States Attorney in the 24-months period
mentioned, 5 were submitted within 30 days from the date of the violation; 4 wore submitted within 60 days: 9 were submitted within 90
days; 4 were submitted within 120 days: 1 was minmitted within 150
days: 7 were submitted within 180 days; and 8 vore submitted within
210 days. Eleven such cases are now under investigation in the
Chicago District.
Considering all the cases referred to the United States Attorney
at Chicago by the Alcohol Tax Unit, it appears that approximately 84
have been completed and submitted with a view to prosecution within
30 days of the violation, 65 within 60 days, and 35 within 90 days:
and that in only 7% of the and has the investigation been prolonged
beyond 90 days. This record afforts little justification for Mr.
Igoe's charge that investigations are long delayed.
The facts in the Sella onse, which is the only case cited by
Mr. Igoe to substantiate his complaint, are as follows: This woman
was reported to the then District Attorney at Chicago in October, 1934,
for a substantive violation which was discovered July 17, 1934; she
was later reported to the District Attorney, now Mr. Igos, for a substantive violation which occurred on June 19. 1935: and she was TO-
ported for a third substantive violation in May, 1936. The violation
167
- 38 -
in each case was the operation of an illicit distillery. The plant
involved in the second case was very largo, having a enpacity of
500 gallons, and when the report of this violation was submitted,
the District Attorney was requested to delay proceedings with
respect to this violation pending further investigation by the
Alcohol Tax Unit, with a view to the implication of other defendants
if possible. This second case remained dormant until June, 1936,
at which time the attempt to make a conspiracy case involving other
defendants was abandoned, and the District Attorney was requested to
proceed on the substantive charge against the Solla woman. An
indictment was obtained in this case on December 18, 1936, and the
+
was tried and convicted on April 16, 1937, receiving a jail
sentence of six months and a fine of $500. It does not appear,
therefore, that the delay in this case occasioned by the unsuccessful
efforts of the Alcohol Tax Unit to involve other defendants, had any
adverse effect upon its ultimate prosecution.
Before leaving this point, attention should be called to the
fact that Mr. Igoe's charge that the investigations undertaken by the
Alcohol Tax Unit are unduly protracted is ttterly inconsistent with
his other charge, above referred to, that the Unit does not sufficiently concentrate upon the problem of bringing important violators
before him. It in of course obvious that if syndicated violators,
material non, and those who have financial investments in illicit
operations, are to be prosocuted for the important part which they
play in the illicit liquor traffic, this can be done only through
the expedient of involving them as principal defendants in conspiracy
cases-cases which in the very nature of things oan successfully be
made only by long and todious investigative effort on the part of the
revenue officers.
Allered illeral marchas and seizuras.
In the text of his various letters, Mr. Igoo makes no direct
reference to this subject, but in the letters referred to by him from
the foromen of the February and March, 1937. Grand Juries, a statement
is randa to the effect that many alcohol-tax cases have to be no-billed
by the Grand Jury for the reason that they are based upon the entry by
Alcohol Tax Unit agents into homes and premises of private individuals
without the aid of proper search warrants.
COMMENT
Although Mr. Igoo repeated this charge verbally in his conversation with Messrs. Cliphant and Holvering he has at no time submitted
any specific instances in which cases presented to him by the Alcohol
Tax Unit have failed of prosecution by reason of illegal entry or
illegal search. The Department has before it, however, the record of
the Grand Jury gitting at Chicago during the month of February, concont
with respect to which will, it is believed, suffice to show the substantial facts regarding this particular complaint.
168
-29Seventeen alcohol-tax cases word taken by Assistant United States
Attorney Glasser before the February Grand Jury. of this number, 10
were indicted and 7 were no-billed, and the evidence is clear that 6
of these latter 7 cases were no-billed by the Grand Jury on raprosentations by Mr. Glasser the t they were based upon illegal search
or illegal entry by agents of the Alcohol Tax Unit and that prosecution could therefore not be sustained. The Department has made a
careful examination of these six cases, and much facts in each case
as are believed pertinent to the issue here under consideration will
be briefly stated.
Case No. IN-2019-On September 29. 1936, officers of the Chicago
Police Department naised a 250-gallon St. Louis-type still, together
with 7,000 gallons of mach and about 400 gallons of alcohol, in a
one-story from residence on South Tabash Avenue. After this seizure,
the case was turned over to the Alcohol Tax Unit for prosocution under
the intornal-revenue laws. The Government had not in any way cooper-
ated in the seimure. It is a well-established rule that the prohibitions
of the Fourth Amendmont relating to search and seisure apply only to
Federal officers, and that evidence obtained by State officers working
independently of Fedoral officers can be admitted without question in
Federal Court. There were no grounds for no-billing this case by
reason of a supposed illegal search and seisure.
Case No. IN-1923-This case was made during the investigation of
the mirdar of an investigator of the Alcohol Tax Unit in the State of
Indiana in May, 1936, by one Harlan Crouch, which has been previously
referred to. The investigation in that case disclosed that shortly
after the marder, Crouch returned to Chicago in company with one James
Jacobe and was arrested by the Chicago police for the possession of
45 gallons of bootleg alcohol. The investigation disclosed that the
alcohol had been sold to Crouch and Jacobs by one Horman David. This
likewise was an adopted case. Regardless of the circumstances sur-
rounding this seizure, it was made by State and not Federal officers
and the evidence would unquestionably have been admitted in Federal
Court had the case been allowed to go to trial.
Case No. IN-3049-On December 1, 1936, investigators of the Alcohol
Tax Unit who had been informed that the defendant was manufacturing
liquor. nade an investigation near his premises. While in the alley
they detected an unmistalable oder of nash, which was traced to the
promises where the seisure was rade. After detecting this odor, the
investigators proceeded to the house and knocked on the door. The
defendant's wife answered the door, and, being informed by the officers
of their identity and purpose, she was nonconsittal, stating that her
husband was not at home, and inviting the investigators inside the house
169
-30to consit his return. When inside the house, the investigators because
certain that a still was in operation in the basement. When the
woman's husband arrived, he was placed under arrest and a search was
made of the basement, where a 300-gallon still, together with a
quantity of mash, was seised. It is believed that the search in
this and was illegal and could not have been used as a basis for
prosecution.
Case No. IN-2039-On November 18, 1936, investigators who had
been informed that a still was in operation in a garage on the north
side of Chicago, want to the promises for the purpose of making an
investigation. then approaching the manage, they detected an was
mistalable odor of alcohol. The investigators rapped on the garage
door. stated that they were Federal officers, and saled that the
door be opened. The defendant in this case opened the door and was
immodiately placed under arrest. The garage was than searched and a
200-gallon still, together with a quantity of mah and alcohol, was
seised. The facts in this case indicate a leaful search as an incidont to an arrest for a crims committed in the arresting officer's
presence. It is believed that 1 th proper attention on the part of
the United States Attorney this case would have been sustained had
it been permitted to & to trial.
Case No. IN-3050-On December 3, 1936, investigators made an in-
vestigation of a reported violation on the defendant's premises. On
approaching the premises from the alley, the investigators noticed a
very pronounced odor of fermenting mash, which appeared to onsnate from
A two-stall garage located on the rear of the lot. After determining
certainly that the oder was in fact coming from the garage, they
entered the garage and found an underground vat filled with mach, with
pipes leading to the house. Two of the officers went to the house and
rapped on the door. The defendant opened the door and was rasked by
the officers who was in control of the garage. The defendant stated
that he was. He was then asked where the still was located, and he
stated that it was in the basement. The defendant was planed under
arrest, and lad the officers to the still, which was found to be a
300-gallon plant of the St. Louis type. No seizure was made until
after the arrest. It will be noted that in this case the officers
414 not enter the premises until after they had first adcertained that
a falony was being committed there. It is believed that the search
in this case was good, it having been made as an incident to a lawful
arrest for a erine committed in the arresting officer's presence.
Gass No. IN-1848-On April 10, 1936, investigators of the Alcohol
Tax Unit went to a garage known as the "North Shore Garage," in
Chicago to investigate a complaint that untaxpaid liquor was being
manufactured there. They entered the garage and found a boy in
charge. After revealing their identity, they asked the boy to show
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31 -
then around the garage. As they proceeded toward the rear, they
detected an unmistakable odor of fermenting mash and heard the
noise of a steam boiler. They proceeded to the second floor, where
they found a man sitting alongside & steam boiler, receiving tank,
and still. The still, which was a 300-gallon copper plant of the
St. Louis type, was seised, together with all the paraphernalia,
mash, and alcohol. This is A close case. It appears that this
search might be called "exploratory" and perhaps could not have
been sustained. On the other hand, it is to be noted that the
seisure occurred in a public garage and there were therefore grounds
for a contention by the Government that the search did not fall in
the category of "exploratory" searches and was good. However this
may be, it is felt that the question whether the search was legal or
illegal in this particular case should unquestionably have been left
to be raised by defense counsel and passed upon by the Court.
The Department's judgment therefore is that of the six cases nobilled by the February Grand Jury on representations by Assistant
United States Attorney Glasser that they were based upon illegal
search and seisure, there was only one in which the circumstances
warranted a decision by the Government not to undertake prosecution.
In at least four of the remaining five cases the available evidence
is considered to have been entirely legal and would have afforded an
adequate basis for prosecution had the cases been properly presented
by competent counsel. In this connection, it will be recognised by
anyone having a familiarity with police work that it is inevitable
that entries, searches, seizures, and arrests made in good faith by
enforcement officers will in SOMO instances be judicially determined
as illegal on questions raised by defense counsel, and no pretense
is under that there have not been instances of this kind in the Chicago
district as in all other districts. But the Department knows of no
other instance in which Government counsel have themselves deliberately
undertaken to raise such questions before a Federal Grand Jury as an
obstacle to indictment.
There is considerable evidence which points to the fact that
Mr. Glasser's conduct of the Alcohol-Tax cases taken before the
February and March Grand Juries was not in good faith. It is a
matter of common knowledge that grand juries must and do rely upon
the prosecuting officers for instructions regarding the law in any
case presented to them. Moreover. it is known that the action of
the February and March Grand Juries at Chicago in no-billing certain
cases was taken upon the affirmative recommendation of Mr. Glasser
and upon his positive statements, usually contrary to fact, that these
cases were based upon illegal search and seisure. It is known also that
the letter to Mr. Igoo signed by the foreman of the February Grand
Jury, condemning the Alcohol Tax Unit and extelling Mr. Glasser, originated with Mr. Glasser himself, and there is no reason to suppose
that the letter signed by the foreman of the March Grand Jury had any
different origin. It will be pertinent to consider these circumstances in the light of the following statutory provision:
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Title 28. acc. 486. U.S.C.-It shall be the duty of
every district attorney to whom any collector of customs,
or of internal revenue, shall report, according to law,
any case in which any fine, penalty, or forfeiture has
been incurred in the district of such attorney for the
violation of any law of the United States relating to the
revenue, to cause the proper proceedings to be commenced
and prosecuted without delay, for the fines, ponalties,
and forfeitures in such case provided, unleas. won inmirry and examination. he shall decide that such proceedinga cannot probably be sustained. or that the ends of
public justice do not require that such proceedings should
be instituted; in which case he shall report the facts in
customs cases to the Secretary of the Treasury, and in
internal revenue chase to the Commissioner of Internal
Reverse for their direction. (R.S. sec. 838; Feb. 27, 1677,
c. 69, sec. 1, 19 Stat. 241.)
The law defining the duties of district attorneys thus imposes
upon these officers the duty of proceeding in 09908 referred to
them by the Bureau of Internal Revenue with a view to prosecution,
only in the event that shall decide that the prograding can probably be sustained on the evidance submitted to them. In view of
this prevision of law, it would be fair to inquire why it was that
Mr. Classor, if he was in good faith convinced that the six cases
above referred to were based upon illegal search or seisure, took
these 00000 before the Grand Jury at all. No certainly was under
no duty to do this. On the contrary. compliance with the statute
would have required him to communicate his mingivings with regard
to these cases, not to the Grand Jury, but to the Commissioner e
Internal Revenue, or, as is the practice in such matters, to the
Commissioner's representative at Chicago. the District Supervisor
of the Alcohol Tax Unit.
It must be presuned that Mr. Igoo and his assistant, Mr. Glasser,
are familiar with the law which defines the duties of the offices
which they hold. In the face of this law and contrary to its obvious
intent if not its express provisions, Mr. Glasser presented a number
of cases to the Grand Jury in which, as he represented to the grand
Jurors, the evidence was not sufficient to sustain prosecution.
Following the no-billing of these cases, Mr. Glasser prepared a
letter assailing the Alcohol Tax Unit for supposed delinquencies in
their preparation and praising himself, and he induced the signature
of this letter by the foreman of the Grand Jury. Mr. Igos promptly
gave this letter to the newspapers, where it was published along with
fantastic statements attributed to Mr. Glasser to the general effect
Now district supervisor, Alcohol Tax Unit, Bureau of Internal
Revenue in case of violations of liquor taxing laws. (Act of March
3, 1927, 44 Stat. 1382. and regulations issued thereunder.)
Underscoring supplied.
172
-33that more bootleg liquor is being sold in Chicago at the present time
than in the hayday of the Prohibition period. There are present here
all the elements of a deliberate plot to discrodit the endeavors of
the Buroau of Internal Revenue at Chicago to enforce the revenue laws;
there is nothing of a bona fide character that is worthy of serious
notice by the administrative officers of this Department.
Collection of occupational tax from allered illigit vendors.
Mr. Igoe complains of the fast that, as he says, the Alcohol Tax
Unit collects the retail liquor dealer's occupational tax from spealsensies and similar tullicansed places which traffic in withspaid spirits.
He concludes his critician with this statements *This would seen to
be a violation in itself by reason of the fast that it in effect 11conses the illicit operator."
CONTENT
Mr. Igos's oriticism of the practice of the Bureau of Internal
Revenue in collecting occupational tames from persons selling untam-
paid distilled spirits without a license is not essy to comprehend,
since it in no wise impinges upon or conflicts with his Jurisdiction
and duties as United States Attorney, but falls within the poouliar
administrative province of the Consissioner of Internal Revenue. If
his doment is not to be regarded as being wholly gratuitous and
intrusive, it is necessary to conclude that, as is perhaps suggested
by the statement above quoted, Mr. Igoo is of the opinion that this
practice not only is unwarranted in law, but constitutes such a vialation of law as to require him to give the matter his attention in
his official capacity as Government prosecutor.
To begin with, it may be said that the practice to which Mr. Igoo
refers is not poculiar to the Chicago district, but under long-standing departmental regulations is the uniform procedure in all the in
ternal-reverse districts into which the country is divided. It is
obvious. therefore, that the Alcohol Tax Unit at Chicago must be
exentrated from any blane which any attach to the practice complained
of. with reference to Mr. Igoe's opinion that the practice is illeml. it may be said that the Federal statutes imposing special or
occupational tames upon certain classes of persons have been in of-
fact for more than sixty years. Among other things they provide that
all persons who sell distilled spirits or offer such spirits for sale,
are subject to the occupational tax as retail or wholesale liquor
dealors as the case may be, and in this respect they make no distinotion between licensed and unlicensed persons, nor between persons who
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34 -
sell taxpaid spirits and those who sell untaxpaid spirits. The administrative construction has followed the law, as will be evident
from the fact that the uniform practice of the Bureau of Internal
Revenue has always been to undertake to collect the occupational tax
from all liquor dealers operating in "dry" States: from unlicensed as
well as licensed persons selling liquor in "wet" States: and from persons selling untaxpaid liquor as well as those selling taxpaid spirits
only. whether the State of sale is "est" or "dry". In instances where
collection can not be made otherwise, the rule has been to assert the
occupational-tax liability of any person apprehended in the sale of
spirits in violation of the Federal laws, by the assessment of the
tax, with ad valores penalties, for the period covered by his known
illegal operations, and this is regardless of whether the spirits
sold have or have not been taxpaid under the Federal laws.
It would appear that Mr. Igoe has fallen into the error common
among uninformed people of characterising as a license the tax stamp
which is furnished to any person paying the occupational tax in con-
nection with his current business. In this connection, the provisions
of Section 3243, R.S., are quoted below:
"The payment of any tax imposed by the internalrevenue laws for carrying on any trade or business
shall not be held to exempt any person from any penalty
or punishment provided by the laws of any State for
carrying on the same within such State, or in any mannor to authorize the commencement or continuance of
such trade or business contrary to the laws of such
State or in places prohibited by municipal law; nor
shall the payment of any such tax be held to prohibit
any State from placing a duty or tax on the same trade
or business, for State or other purposes.
The occupational-tax stamp issued to dealers in liquor by the
Bureau of Internal Revenue carries the substance of these provisions
prominently on its face and, in addition, the following words This
is tax receipt-not & license. It appears to be well gettled that
Congress say tax even that which it forbids. It is believed that a
consideration of the applicable statutes and decisions should dispose of Mr. Igoe's opinion that the issuance of occupational-tax
stamps has the effect of licensing illicit operations.
Mr. Igoe is substantially correct in his understanding "that the
reason for the Alcohol Tax Unit's insisting upon the purchase of a
tax stamp from (by) individuals selling untaxpaid distilled spirits,
is so that the investigators can make a search of the premises after
174
-35the stamp has bean issued in accordance with law." In Chicago, as
in other large cities, there are many houses of prestitution, specific
antios, and dives where spirits are sold by the package or dispensed
on the premises in violation of State and local law. Not only do
these places carry on the sale of spirits without State or minicipal
license, but, as suggested by Mr. I ge, their liquor stocks not w
commonly consist wholly or partly of untaxpaid or Sootleg spirits.
The difficulty of reaching violators of this class by the usual onforcesant methods is very great, by reason of the fast that their
illigit operations are usually carried on in apartment houses and
other residential buildings not roadily accessible to revenue officars. It is often possible. however, to induce the proprietor of
place of this kind to pay the Federal occupational tax, which involves, among other things, acknowledgest of tax liability on the
proprietor's part; ant in any case share this is done. the arrangoa
mont obviously claim the way for a mibsoquent periodical inspection
of the pronises by revenue officers under Section 3177 of the Revised
Statutes. This practice, which AS Mr. Igoo suggests is commonly fellowed in the Chicago district, has resulted in considerable progress
toward the elimination of the sale of untampaid spirite at Chicago
through disorderly houses and other similar places which are illegal
under State and local law - an objective which is obviously desirable
from the standpoint of protecting the Federal revenues. The method
described is legal in every respect, and is the most effective method
which the Department can command to restrain the sale of bootleg spirits
through illicit and clandestine retail outlets. No valid reason
appears why it should be objected to by any United States Attorney.
Criticians of Mr. Arthur P. Maddan
Special Arent in Change. Intellicence Unit. Chicaco.
Mr. Igoo makes two specific complaints against Mr. Maddon, the
first having to do with an Investigation which he requested Mr. Madden
to malta of the exposed improper withdrawal of a large amount of liquor
from a certain bonded warehouse in Chicago, and the second with an investigation which he likewise requested Mr. Madden to moise of the suxposed misconduct of two inspectors of the Alcohol Tax Unit in endeavoring to collect an amount of money from a certain taxpayer. The two
cases are well known to the Department.
Morned Brothers. General Bonded Harahouse No. 3. Origna
Mr. Igos says that from the beginning of his term of office, a
story had been in circulation which reached him sometimes over the
telephone and sometimes through newspaper non, to the effect that a
large amount of liquor had been improperly withdraw from a certain
175
-30bondad marahouse. He anys that he requested Mr. Maddon to investigate
this matter; that as a result of this request Mr. Madden Advised Mr.
Sahware, the Department's "publicity man" at Chicago, that he (Igoe)
had Mr. Yellowley under investigation; that he (Igos) thought it
strange that Madden should in this way notify one of Yellowley's
agents of the fact that Yellowley was being investigated; that Mr.
Maddan has failed to comply with his (Igoe's) request for a report
of his investigation; and that he (Igos) fears that if a orine has
been committed in connection with the withdrawal of the liquor in
question, prosecution might be barred by the running of the statute
of limitations.
The bonded warehouse in question, although not named in Mr. Igoe's
letter, was General Bonded Warehouse No. 3, the propristor of which
was Wornard Bros., Inc. On December 4, 1936, Assistant United States
Attorney Glassor brought to Mr. Madden's attention certain claimed
irrogularities in connection with this warehouse. Mr. Maddan assigned Special Agent D. L. Olsen to investigate this matter and on
December 7. Mr. Olson called on Mr. Glasser, who advised him that he
(Gleaser) had come into the possession of certain information to the
effect that in the month of January, 1935, 5,000 cases and 150 barrols
of whislay had been removed from this warehouse to the warehouse of
Walcem and MaLaughlin. Mr. Glasser stated that his information was to
the effect that this whistory had been stored in the Mornal Bros.warehouse for a great many years, and that storage charges amounting to
$10,500 had accrued on it, which were paid to Morand Bros. at the time
of renoval. Mr. Glassor further stated that it was his impression that
the Government might have been defrouded of a large amount of money
through the unauthorized renoval of this whisley. He stated that the
source of his information was one Dan Vanarelli, than an employee of
the Standard 011 Company in New York City, and formerly a storekcaper
grager in the of Internal Reverns. He stated further that
Vacarelli in turn had received his information from one Koonie. an
employee of Morand Bros. Mr. Classer indicated that in his opinion
a thorough investigation should be nade by the Intelligence Unit to
determine whether the Government had not been defreuded in connec-
tion with this transaction.
Following his interview with Mr. Glassor. Special Agent Olsen discovered that the matter referred to by Mr. Glasser had already been
made the subject of an investigation by Mr. Madden's office. Vacarelli
had been interviewed at New York City by Special Agent C. L. Converse
of the Intelligence Unit on October 33, 1936. In the course of this
interview, Vacarolli stated that he had been employed as storekeeper
gauger in the Bureau of Internal Revenue under Mr. Yellowley until
176
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some time in 1934, and that in this capacity his last assignment
was in the Mornal Bros. warehouse; that William Koonic, whom he
described as owner of this warehouse, had told him that Mr.
Yellowley had informed him (Zoenig) by letter that his warehouse
would have to be closed and the whiskey stored therein disposed
of: that Mr. Koonig had advised Mr. Yellowley that there was
storage due on the whiskey amounting to $10,000; that after hearing
this story from Mr. Koonig he (Vacarelli) looked up the regulations
and found a section that provided that when whiskay had been in
bonded storage for ten years, the Government could seize it and sell
it in order to collect its tax, that he (Vncarelli) had called this
regulation to the attention of certain officers in Mr. Yellowlay's
office and had been told to mind his own business; that in connootion with the transfer of the whiskey from the Morand Bros. ware-
house to the Makem and McLaughlin warehouse Mr. Koenig stated to
him (Vacarelli) that Saleem and MaLaughlin were getting a half a
million dollars worth of whising for $10,000, and that in his
(Koenig's) opinion the Government should have soised the liquor and
sold it as it had all been in storage for more than ten years; that
in his (Vacorelli's) opinion someone got a lot of money to allow
this transfer to be mate; that in his (Vanarelli's) opinion, Mr.
Koenig should be interviewed in connection with this transaction;
that Assistant United States Attorney Warron Ganndy had sent him
a telogram during the provious weak: asking him when he would be
available to appear before the Federal Grand Jury at Chicago that
reporters of the Chicago American had spoken to him about this
matter the last time he was in Chicago: and that Alexander Janie
and forner United States Attorney George E. a Johnson know about
the matter and wore considering having it-presented to the Grand
Jury.
Special Agent Converse stated in his report of this interview
that Vacarelli had previously related this same story to him in the
early part of 1935, and that he (Converse) had at that time inter
viewed Keenig as suggested by Vacarelli. In the course of his interview with Koonig. the latter stated that in his opinion everything was regular in every way regarding the transfer of the liquor
from the Mornad warehouse to the warehouse of Walcom and MeLaughlin.
It is believed that the foregoing substantially comprisos the
information which had reached Mr. Igos regarding the supposed was
authorised renoval of spirits from the Morand Bros. warehouse at
the time when Mr. Maddan's office was requested to investigate this
matter. The actual facts regarding the transaction will now be
stated.
177.
- 38 -
The Morand Bros. warehouse, known as General Bonded Warehouse
No. 3, is located at 833-827 Norton Street, Chicago, III. This is
in a district frequented by gangators and hoodlums, and repeated
attempts to rob the warehouse were made during the years when it
was used for the storage of spirits, one of which, some time betwoon February 25 and March 5. 1927, was successful. Although only
this one robbery actually occurred, the Mornal warehouse, by reason
of its undesirable location, had to be closely guarded by revenue
officers at all times, and was a constant source of worry and annoyanoa to the officers of the Zhreau of Internal Reverse who were ro-
sponsible for its supervision. On October 8, 1934, after informal
discussion of the matter with Departmental and Bureau officers at
Washington, Mr. Yellowley, District Supervisor of the Alcohol Tax
Unit at Chicago, mahmitted the following recommendation to the
Commissioner of Internal Revenue:
"I an writing you regarding General Bonded Warehouse
No. 3, operated by Moranit Bros., 823-827 Norton Street,
Chicago, Illinois.
"I have been recommending for the past siz years
that the spirits in this warehouse be moved to a doncentration warehouse. The burnau on several occasions
ordered the spirits concentrated but each time the proprictor of the warehouse and the renoval positioned in
definitely.
*There are now only 33,348.3 tax gallons in this
warehouse. There is very little activity. Storekeeper-
gangers are needed very badly at plants where there is a
great doal of activity. It is for this reason and the
fnat that this warshouse is located in an undesirable
part of the city that I an again recommending that those
spirite be removed to a concentration arrehouse. The
assigned there could then be given
nore productive duties. I sincerely hope that you can
again issue the concentration order and that this work
can be accomplished at an early date.
"I shall amnit your reply with interest.
"Very truly yours,
(Signed) us. c. TELLOWLEY
"Asting District Supervisor."
178
- 39 -
On October 31, 1934, as the result of Mr. Yollowlay's redonmandation, the Commissioner of Internal Revenue directed the renoval
of the spirits from the Morand warehouse. The following are pertinont extracts from the Commissioner's order:
"NV virtue of the authority vested by law in the
Secretary of the Treasury and by him conforred and in
posed upon the Commissioner of Internal Revenue, you
are instructed to direct the Morand Bros., Incorporated,
to effect a renoval of all distilled apfrite stored in
its General Bonded Warehouse No. 3, 823-827 Norton Street,
Chicago,Illinois, to aomo concentration warehouse or warehouses, designated an much, pursuant to the Act of Febru-
ary 17, 1922, as reenacted in the Treasury Appropriation
Act for each successive finant year up to the present
time. Preferably such warshouse or marahouses should
be located in Chicago so as to effect the most reasonable
transportation costs. Further instruct the proprietor of
General Bonded Warehouse No. 3 that this renoval must be
accomplished within thirty days from the date of this
order unless an extension of time is granted by the Department.
"Upon removal of the spirits pursuant to this order.
payment of accrued charges against such spirits and transportation costs to the concentration warehouse my be
nade (1) by the owner of the spirits (2) by the proprietor
of the warehouse from which the spirits are removed or (3)
by the proprietor of the warehouse to which the spirits
are removed. In the event the said charges and transportation costs are not assumed by the proprietors of either of
the warehouses, the Department will look to the owner of
the spirits for settlement of such costs.
"In the event of failure or refusal of Mornad Bros.,
Incorporated, to recove the apirite within the time scribed in this order, or within any extension of time
which my be granted, you are directed to report such
failure or refusal to the Department with such reconmandation as you my door appropriate.
179
- 40
The statutory authority for the transfer of spirits in this
case is found in Section 3372, R. S., reading as follows:
"Whenever in the opinion of the Commissioner of
Internal Revenue any distillery or other varehouse is
unsafe OF unfit for uso, or the marchandise therein
is for any reason liable to loss or great wastage, he
my discontinue much warehouse, and require the norchandise theroin to be transferred to much other varehouse as he my designate and within such time as he
may prescribe. Such transfer shall be made under
the supervision of the collector, OF of such other
officer S may be designated by the Commissioner,
and the expense thereof shall be paid by the owner
of the merchandise. Whonaver the owner of such nor-
chandise fails to make such transfer within the time
prescribed. or to pay the just and proper expense of
much transfor, as amoortained and determined by the
Commissioner. such marchandise may be seized and sold
by the collector in the are manner as goods are sold
upon distraint for taxes, and the proceeds of such sale
shall be as lied to the payment of the taxes due thoreon
and the cost and expanses of such sale and renoval, and
the balance paid over to the owner of such merchandise.
Moranit Bros., Inc., encountered certain difficulties in complying
with the order of the Commissioner for the renoval of the spirits, and
on December 29, 1934, Mr. Yellowley wired the Commissioner as follows:
"Morand Bros. failed take stops renoval spirits
to another warehouse accordance your order October
thirty-first. Suggest you designate Walcom McLaughlin
or Lawrence marahouse, or both, as receiving concen-
tration warehouse for these spirits. Shall than
nagotiate with proprietor designated receiving ware-
house with view having him assume storage charges
and cost removal and file necessary papers for renoval."
And he wired the Commissioner again on January 2,1935, as follows:
"Please designate by wire warehouse to remove
spirits Morand warehouse. See my telegram December twenty-ninth.
180
- 41 -
On January 3, 1935, the Commissioner sent the following telegram
to Mr. Yellowloy:
"Ratels December twenty-nine and January two inro
order October thirty-one for removal spirits from Mornad
Brothers warehouse to another marahouse, Burem is
agreeable to designation of either Walcome and MeLaughlin
or Lawrence varehouse, or both, as receiving concentre-
tion varehouse and you are authorised to negotiate with
proprietor of such marahouses with view to having then
assume storage charges and cost of removal. If such
arrangements nade specific order for concentration will
be issued."
Acting under the authority to be found in the correspondance
here referred to, Mr. Yellowley caused the transfer of the spirits
in question from the Morand warehouse to General Bonded Warehouse
No. 3, operated by Walcen and MaLaughlin, at 239 East Illinois Street,
Chicago, the transfer being completed February s. 1935. The transfer
was under the direct supervision of inspectors H. T. McGrath, O. L.
Studenberg, and E. J. Kusico.
AT will appear from the foragoing. the supposed unauthorised
transfer of spirits in this instance was in fast a transfer which
had been expressly authorized and directed by the Commissioner of
Internal Revenue. It was in accordance with the law and the regulations of the Department, regulted in no loss to the Government
but on the contrary diminished the risk of such loss, was supervised
by officers of Internal Revenue, and was regular in every respect.
In view of the insiminations by Mr. Igoe's informant, perhaps it
should be specially added that in connection with the transfer of
taxable merchantise from one bonded warehouse to another, the Gov-
emment preserves all its security and lions for the ultimate pays
ment of taxes.
In view of those facts it is somewhat difficult to understand
the basis of Mr. Igoe's oriticism, but his complaint apparently
grows out of the fact that in the course of his investigation, Mr.
Madden, or agents working under his supervision, made certain con-
tacts with Mr. Tellowloy's office, the intended inference evidently
being that those contacts were designed to defent the objects of the
investigation. The record clearly shows that the investigation was
in fast conducted in a manner well calculated to bring to light all
the facts with reference to the matter under inquiry.
181
- 42 -
Allered attempted extortion by Alachol Tax Unit egents.
Mr. Igeo writes that on one occasion two agents of the Alcohol
Tax Unit attempted to collect money from a defendant in a case which
has been referred to his office for prosecution. He questioned the
sanner of the attampted collection and accordingly brought the mat
ter to Mr. Madden's attention with a view to having an appropriate
investigation made. He anys further that, much to his astonishment,
he later learned that Mr. Madden had taloon the matter up with the
local office of the Alcohol Tax Unit, which had advised him (Haddon)
that the action of the two agents was regular. He concludes by
saying that this was "a rather strange in which to conduct an
investigation.
CONDOTED
The defendant whom Mr. Igoo has in mind, although he does not
identify him in his letter, is one Thoodore Ries, who with one
Margaret Horan was the proprietor of a disorderly house at 828
North Laland Avenue, Chicago, when these provises were visited by
revenue officers last September. Ries and Horan were vendors of
untrepaid alcohol at various locations in Chicago, including 282
North Leland Avenue, 4651 Hasel Avenue, and 855 Lawrence Avenue.
A criminal case was made out against these persons groving out of
sales of untaxpaid spirits at the Leland Avenue address in September,
1936, and out of similar sales ando at the Lawrence Avenue address
in November, 1938, and this was referred to Mr. Igoe's office for
disposition. On March 5. 1935, Mr. Igos addressed the following
letter to Mr. Maddan:
"In rol Theodore Ries and Margaret Horan
"I have been informed by the above named people,
that when they were arrested on November 34, 1936,
certain suggestions were made to than by men of the
Alcohol Tax Unit, namely Paul Tamillo and C. Davis,
with reference to a settlement which they sight ranice
in lieu of taxes.
*They further informed 200 that they received talephone calls from one of the men of the Alcohol Tax Unit
every day for three consecutive days, requesting than to
bring $200 down to him, and that If they did not he would
done w and get them.
*It is my suggestion, in view of the above, that an
investigation be ands to determine the facts in this case.
"Respectfully,
(Signad) M. L. IGOS
*U. 3. Attorney.
182
- 43 -
On March 9. at Mr. Madden's direction, Special Agent Sommers,
of Mr. Madden's staff, called on Assistant United States Attorney
Glasser with reference to this matter and was furnished by Mr.
Glassor with a copy of the following affidavits
*SIGNATURE OF THEODORE RINS
"I reside at 927 LaFayotte St. I an the same
Thoodore Rios who was arrested on November 24, 1936,
with Margaret Horan for a violation at 955 Lawrence
Avenue. where the agents seised one gallon of alcohol.
When we arrived at the New Post Office Building at
the office of the Alcohol Tax Unit, Pnail Tamillo and
C. Davis were sitting alone with us, and Tanillo told
us that our taxes would be in the neighborhood of $500.
and that NO would be expected to pay that. When I told
him I had no such amount of money, he asked no how much
I had. When I informed him that I had $300 worth of
bonus bonds left, he maggested that I cash the bonus
bonds as soon as possible, and deliver the $200 to him.
No also told me that if I hurried and sont in the bonds
immediately I should receive the money within a fow
days. After this conversation we were talcen over to
the United States Court House and arraigned bafore Coz-
missioner Walker. Our dase was continued before Commissionor Walker and hearing was set for December 8, 1936.
On the Monday, Tuesday, and Wednesday following our
appearance before Commissioner Walker on November 24th,
Mr. Tamille called at my home every day for three days,
and told me that If I did not bring the $300.00 down to
him ha would come up and get no. After Mr. Tanillo's
call of the Wednesday following our appearance before
Judge Walker, we did not 300 him again until he testified in the Commissioner's Court room on December 8,
1936.
(Signed) "Theodore Rios
"I. Margaret Horan, having read the above statement,
concur in it and say that it is the truth.
(Signed) Margaret Horan
*Subscribed and sworn to before me this 12th day of
January, 1937.
(Signed) Daniel D. Glassor
"Notary Public."
183/
-44It was apparently the belief of Mr. Igoe and his assistant,
Mr. Glasser, that the denands nade of the defendants Rios and
Noran by Alcohol Tax Agents Tamillo and Drives as described in
the above affidavit, were extortionate and frombulant in aharnotor. Under these circumstances, Special Agent Sommers in Ane
course visited the offices of the Alcohol Tax Unit for the purpose of inspecting the files relating to the case. Inspection
of the files disclosed that the investigations made by the Alcohol Tax Unit had brought to light the fast that these defendants
had incurred a liability for occupational taxes and ad valoron
ponalties amounting to $442.93, as the result of their liquor sales
at the addresses above given during the period from December 1,
1933, to June 30, 1937; that the proper forms had been filled up
by these persons in November, 1936, acknowledging their tax lis-
bility in this ment that the defendant Rios advised Agents Tamillo
and Davis at the time, however, that he did not have this amount
of money, but thought he could realise at lonet $200 by eashing
his bonus policy, and would pay at lonet that amount; that Agents
Tamillo and Davis thereafter sought on a member of occasions to
secure the tender of this smaller must and that the file of the
case contains an official report of Agents Tamille and Davis
which includes the following statement:
"Inspector Tarillo phoned Mr. Ries, the wholesaler,
on November 37, and he promised to be in December 1, to
pay $200 on his liability of $447.92 as wholesaler.
"On December 1, Inspectors Tamillo and Davis waited,
but Ries did not show up."
Special Agent Somers likewise interviewed Mr. L. J. Baker, Senior
Inspector, Alcohol Tax Unit, and the superior officer of agents Tamillo
and Davis, who advised that he (Baloor) had been in close touch 1 th the
handling of the Ries-Norma case and was familiar with the afforts made
by the agents to collect the tax. Since it was thus developed that the
donands made upon Ries as described in the above affidavit dated
January 12, 1937, had been made a matter of official record in the files
of the case and were known to and approved by the supervisory officials
of the Alcohol Tax Unit at the time when the transaction accurred in
November, 1936, there were clearly no grounds for the supposition that
they were extortionate and fraudulent in character. and Mr. Madden's
investigation was closed when these facts were brought to light.
184
- 45 -
Thile it thus ap ears that there is not the elightest ground for
Mr. Igoe's criticism of the methods purmed by Mr. Maddon in handling
this investigation, there is one further aspect of the matter which
should be commented upon. Mr. Igoe says in reference to the RissMoran incident: "It is my understanding that once a case 1s referred
to the Department of Justice, the disposition of that case remine
exclusively with this department." He apparently means to any that
once the Ries-Noran matter had been referred to his office for
prosecution, his office, AS a matter of law, then became exclusively
responsible for it, and any attempt made thereafter by revenue officers to collect money from the defendants was an improper intrusion
upon his jurisdiction. The Department disagrees with Mr. Igna's
understanding of the law on this point. The reference to a United
States Attorney, with a view to criminal prosecution, of & willful
and frandulent violation of the internal-reverse learn relating to
distilled spirits, has not heretofore been construed as relieving
the Commissioner of Internal Revomue of his responsibility for the
collection of the internal-revenue taxes found to be due from the
person or persons involved in the violation, even though the liability
for such trues arises out of the identical circuistances which give
riso to the criminal liability; and it has long been the wilform
practice in all districts for the Consissioner, by his officers and
agente, to assess the occupational taxes and ad valoron penalties
prescribed by law, together with commodity terms when applicable,
against all persons found engaged in the illegal manufacture or sale
of distilled spirits, and to pursua the repedies prescribed in the
statutos for the recevery of such taxes, independently of any orininal
proceedings which my be instituted by the United States attorney.
The Department is not mure but that Mr. Igoo's misapproh nsion
of the law is at the bottom of his complaint in this case, since, if
the law had been as he supposed, he might have had grounds for the
bolief that the action of revenue officers Tanillo and Davis amounted
to an unwarrantal interference with his functions. Under the actual
circumstances of the case, however, it is clear, first, that the
Alcohol Tax Unit at Chicago was regularly performing a routine duty
in its efforts to effect the collection of taxes due from Rice and
Koran; and, accond, that the note of agente Tamillo and Davis were
their proper official note in their capacity as inspectors and
dounty collectors of internal revenue.
185
46 -
Criticisms of Mr. H. Bilay Cambell
Office of the General Counsel
In a securate letter, dated March 29, 1937. Mr. Igoo sales canplaints against Mr. H. Riley Gampbell, an attorney of the General
Counsel's office, Bureau of Internal Revomu, who was formerly as-
signed to Mr. Igna's office as Special Assistant United States it
torney, for the purpose of assisting in incono-tax fraud cases. Mr.
Igoo says that Campbell "is insisting that he must supervise and con-
trol all civil matters which are new panding in this (Igoe's) office,
and which are now handled in confunction with this office by Carl R.
Peridins of the office of the Revomue Counsel." Me says further that
for more than a year past he (Igoe) has been forced to spend more
than half his time in an effort to protect himself from embarrassing
situations which he is antiafied were brought into existence through
the joint activities of Yellowlay, Maddon, and Campbell. He says
further that because of Campbell's willful and persistent refunal to
cooperate with him, he advised Campbell (this was some months ago,
probably December, 1936, as the result of the events in the so-called
Malone case) that he (Igea) could no longer work with him.
It is somewhat difficult to commont upon sweeping observations
of this character. At Mr. Igoo's instance, the General Counsel of
the Burean of Internal Revenue relieved Gampball from duty in Mr.
Igoo's office in January, 1937, and so far as can be assertained
Campbell has since and no contact with that office. The alleged
joint activities of Yellowlay, Maddan, and Campbell are considered
to be entirely imaginary. Gampbell has had no occasion to contact
Yellowlay officially, and he says that even now he has only the
slightest asquaintance with him. Since he was talem out of Igoe's
office in January. Dampbll has been working with the revenue and
special agents on certain important income-text frout onces which are
now in the investigative stage. It is believed that Mr. Igoo's state-
ment that Gampbell willfully and persistantly refused to cooperate
with him during the time Campbell was assigned to his office, onn be
dismissed with the a that it was not until after certain diffsdulties arosa between Mr. Igeo and Campbell in December, 1936, in
connection with the Malone case, that Mr. Igoo raised any question
regarding the character of Campbell's services.
186
- 47Action of Mr. E. C. Yellowley in Connection With
Service Laboratorian at al.
By letter dated April 5. 1937, Mr. Igoe forwarded to Mr. Keenan
a copy of a communication dated January 9. 1930, directed by Alexander
Janic, than Special Agent in Charge in the Bureau of Prohibition, to
George X. a Johnson, then United States Attorney in Chicago, relative
to an investigation in 1929 and 1930 of the activities of certain
specially denatural alcohol permittees and cover-houses in Chicago and
other notropolitan cities during the period from 1922 to 1930. Mr.
Igeo suggests that this matter should now be inquired into by the
Treasury Department. The inference apparently intended is that Mr.
Yollowley, as Prohibition Administrator in the Bureau of Prohibition,
and later as District Supervisor in the Burona of Industrial Alcohol,
was guilty of some ralfessance or nonfessance in connection with the
issuance of permits and the supervision of permitteen.
COMMERCE
According to the Department's records, the case referred to remulted in the indictment of more than one hundred corporations and in
dividuals, mostly permittees and cover-houses in Chicago, Now York,
Cleveland, Detroit, and Saltimore, on a charge of conspiracy to violate
the National Prohibition Act. Some idea of the thoroughness and the
extent of the investigation made at the time will be gained from the
fact that the case report now in the Department's files consists of
more than 3,000 typewritten pages, exclusive of exhibits.
It is believed that no purpose would be served by reopening this
case. The matter can be disposed of by stating that at the time the
case was investigated in 1929 and 1930, the facts in connection therewith were fully known to the Director of Prohibition and later to the
Commissioner of Industrial Alcohol; and that those officials found
nothing in connection with the investigation that might be regarded
as reflecting in the slightest degree on the administration of his
office by Mr. Yellowley. In fact, the record shows that many of the
permittees who were finally indicted had previously had their permits
revoked as the result of investigations made by inspectors working
under Mr. Yellowlay's direction.
187
- 48 -
Conclusion
IS is our conclusion that the charges and complaints made
by District Attorney Igne reflecting upon certain Treasury offscials headquartered at Chicago. as contained in his letters of
March 26, March 29, and April 5, 1935, addressed to Honorable
Joseph 3. Keenan, Assistant to the Attorney General, are without
any foundation, and require no administrative action by this
Department.
(Signed)
GUY T. HELVERING
Commissioner of Internal Revenue.
(Signed)
HNG- (sff
(fh
WM. H. McREYNOLDS
Administrative Assistant
to the Secretary.
188
April 27, 1937.
MEMORANDUM FOR THE SECRETARY:
In re: Collector of Internal Revenue C. E. Moore,
Assistant Collector of Customs C. W. Pollock,
Secret Service Operative in Charge W. G. Harper.
An investigation of the alleged participation of Treasury officials
at Cleveland, Ohio, in a liquor sales agency, developed that the above
named persons became associated in the Ohio Sales Syndicate during April
1934, each acquiring a twenty percent interest in the profits without
any investment therefor. This syndicate was created as the result of
negotiations commenced by Secret Service Operative in Charge Bert C.
Brown, Detroit, Michigan, since removed from the service, who was instrumental in organizing Famous Brands Ohio, Inc., of Detroit, Michigan,
during August 1933, the sales agency for the American Distilling Company
in Michigan. The Ohio Sales Syndicate was created to act as a sales
agency for this company in Ohio. From April to December, 1934, inclusive, Messrs. Moore, Pollock and Harper each received an income of
$8,293.14, Collector Moore being paid $1,503.98 in addition for sales
promotion services.
On January 1, 1935, the syndicate was incorporated as the Famous
Brands Ohio, Inc., and stock issued according to the interest of each
syndicate member. Messrs. Pollock and Harper received 18 shares each,
18 shares were issued to Collector Moore's wife and a nominal price of
$5.00 per share was paid. After the agency was incorporated additional
dividends totaling $1,620.00 were paid to each up to the time the investigation was commenced, July 2, 1935.
A hearing was held at the office of the Secretary of the Treasury,
July 24, 1935, to afford Messrs. Moore, Pollock and Harper an oppor-
tunity to explain their connection with this agency. As a result the
Secretary directed that Messrs. Moore, Pollock and Harper should either
dispose of their interests in the agency and forfeit to the United States
Treasury all profits realized by them from that business, or sever their
connection with the Treasury Department.
Collector Moore was noncommittal in his replies but finally, December 16, 1935, he wrote to the Secretary stating that he proposed "to
return to the company such profits as I realized from this transaction
when and as I am able to do so". Prior to the date of Collector Moore's
-2-
189
letter, Senator Bulkley had, on December 6, 1935, written to Secretary
Morgenthau indicating that the return of such profits would be made to
the Famous Brands Ohio, Inc., and that the company would then pay them
over to public charity. Mr. Pollock wrote a letter to the Commissioner of
Customs, December 26, 1935, stating "I agree to contribute to charity, as
I am able, the profits I have received, under the same arrangement made by
Collector Moore". Mr. Harper wrote a letter to the Chief, Secret Service,
under date of January 2, 1936, stating: "I will undertake to return the
profits I have made -".
There were no further developments until September 24, 1936 when a
letter was written to the Famous Brands Ohio, Inc., to obtain information
as to whether profits had been relinquished by Messrs. Moore, Pollock and
Harper but no reply was received. It subsequently developed that this
company liquidated shortly thereafter, certificate of dissolution having
been filed December 21, 1936.
A further investigation was then made during January 1937 to deter-
mine whether Messrs. Moore, Pollock and Harper had complied with the
Secretary's instructions. This inquiry developed that subsequent to the
hearing on charges at the Secretary's office, July 24, 1935, Messrs.
Pollock and Harper, and Collector Moore's wife, each received $3,060
additional in dividends on the Famous Brands Ohio, Inc., stock.
The stock of Collector Moore's wife was held by her until January
10, 1936 when her father, who resides with Collector and Mrs. Moore,
acquired the stock and thereafter endorsed over to her checks for dividends issued to him in the total amount of $2,070 which were deposited
in her bank account.
Mr. Pollock's stock was transferred to his wife December 20, 1935,
and on April 21, 1936 this stock was acquired by a next door neighbor,
Mr. Charles Michel, Jr., who states he paid Mrs. Pollock $720 for it.
A dividend check in the amount of $720 was issued to Mr. Michel but his
check for $720 to Mrs. Pollock, purporting to be the cost of the stock,
was not charged to his bank account until the dividend check was
received and deposited, thus in effect resulting in no cost to Mr.
Michel.
Mr. Harper's stock was acquired by his wife January 10, 1936 and
on April 17, 1936 it was transferred to Marc J. Wolpaw, a former
Assistant United States Attorney, Cleveland, Ohio. Mr. Harper states
he sold his stock for $5.00 per share, or $90.
It will be observed that not only did Messrs. Moore, Pollock and
Harper fail to relinquish to Famous Brands Ohio, Inc., profits realized
by them from this venture, but on the contrary received substantial additional income from the liquor agency after official notice that their
association was considered reprehensible and instructions given to them
that they should forfeit the profits already received.
190
-3Mr. Gardner Abbott, President of Famous Brands Ohio, Inc., now in
liquidation, stated on January 29, 1937, that no repayments of profits
were made by Messrs. Moore, Pollock and Harper. On the same date
Messrs. Pollock and Harper admitted that they had not returned any
profits to the liquor agency to date and both indicated that they did
not contemplate making any immediate payments. It was also indicated
that Messrs. Pollock and Harper have been guided by Collector Moore's
action in this matter. Collector Moore was not interviewed as he was ill
at the time of the recent investigation.
When the evidence of the association of Messrs. Moore, Pollock and
Harper was first brought to the Secretary's attention, it was and still
is considered to be a grievous offense and removal from the service was
deemed to be the proper disposition. It was only after a further consideration of the case that it was decided to be lenient and permit them
to remain in the service by relinquishing all interest in the liquor
business and divesting themselves of all profits received. This they
agreed to do, but the evidence established as a result of the recent
investigation definitely shows that neither of them made any honest
effort to comply with the Secretary's instructions, but on the other
hand continued to flaunt the Secretary.
maleynolds