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DIARY
Book 72
June 7 - June 14, 1937
-BBook
Page
Belgium
See Stabilization
C
China
For resume of conversations between HMJr and Chinese
delegation, see Book LXXVIII, page 190
American Embassy, London, reports Chinese negotiations
Cuba
for loan in London are virtually settled - 6/8/37
LXXII
268
Dispatch from American Embassy, Cuba, concerning
appointment of Cuban Financial Commission which is
to visit United States - 6/7/37
23
-FFinancing, Government
June 15, 1937 - Actual announcement: Approximately
$800 million Treasury notes in two series (each
approximately $400 million): (1) designated Series D-1939,
at 1-3/8% interest, maturing in two years and three
months on September 15, 1939; (2) Series A-1942, at
13% interest, maturing in four years and nine months
on March 15, 1942, notes not subject to call for redemption
prior to maturity - 6/7/37
a) Announcement of closing of subscription books 6/8/37
b) Final subscription and allotment figures - 6/15/37:
163,168
169
Book LXXIII, page 116
Burgess resume of market - 6/7/37, 9:15 A.M
10:15 A.M
11:30 A.M
3:10 P.M
HMJr tells 9:30 group he wants to make announcement on
2
27
65
91
subscription results tonight - not wait three or four
days as he has in the past - 6/7/37
HMJr thanks Hogate (Wall Street Journal) for heading,
"Brisk demand expected for Treasury notes from institutions";
says most other papers headed articles, "Highest rate
charged by Treasury in three years" - 6/7/37
HMJr discusses results with Eccles - 6/7/37
Harrison congratulates HMJr on results of financing - 6/8/37.
Walter Winchell congratulates HMJr on outcome - 6/9/37
12
31,63
117
190
404
- F - (Continued)
Book Page
Foreign Capital
Conference with regard to reserve requirements on
foreign deposits in United States banks; present:
HMJr, Taylor, Lochhead, White, Murphy, Seltzer, and
Harris - 6/7/37
HMJr-Knoke conversations concerning effect of increasing
reserves against foreign deposits only 100% -
LXXII
128
6/7/37 and 6/8/37
1,187
Second conference; present: HMJr, Magill, Oliphant, Taylor,
White, Lochhead, Upham, Viner, and McReynolds - 6/14/37..
335
France
For threatened fall of Blum government, see Stabilization
G-
Gilbert, S. Parker
See Morgan, J. Pierpont
Gold
See Stabilization
-HHousing
Conference; present: HMJr, West, Gray, Foley, Krug, and
McReynolds - 6/7/37
69
a) Illustration showing operation of revised plan
(proposed) of financing Federal housing program
b) Memorandum on "New York City rents"
HMJr tells West, "Housing is yours" - 6/7/37
85
88
99,115
HMJr tells Wagner, "From now on, West is going to carry
the ball" - 6/7/37
103
-IInternal Revenue, Bureau of
See also Tax Evasion
Conference with regard to status of oldest cases in Bureau;
present: HMJr, Helvering, Russell, Sherwood, Irey, and
Tarleau - 6/7/37
a) Ford case discussed
Second conference; present: HMJr, Magill, Oliphant,
McReynolds, Helvering, Shafroth, and Ryan - 6/8/37
Agreement with regard to "settlement of cases pending in
Board of Tax Appeals" signed by Helvering and Shafroth
and approved by Magill - 6/10/37
53
195
265
-JBook Page
Japan
American Embassy, Tokio, reports on new Cabinet 6/7/37
LXXII
5
-M-
Morgan, J. Pierpont
Explanation of shipboard interview granted before
seeing FDR's message on income tax evasion, together
with letters of explanation made by S. Parker Gilbert 6/8/37
235
-N- - -
Narcotics
Thompson reports on visit to Hamburg - 6/11/37
See Stabilisation
Netherlands
302
-RRoosevelt, Eleanor R.
See Tax Evasion
-S- Stabilisation
Conference concerning message for Sir John Simon to be
delivered verbally by Mallet; present: HMJr, Taylor,
Lochhead, White, Mallet - 6/7/37
a) When Tripartite Agreement was set up, purpose was
to handle foreign exchange and not to handle gold;
large amount of gold expected to come out of
hoarding but the world problem which it has now
become was not anticipated; just as United States
35
was ready to discuss question of stabilization
when world was ready, so now it is prepared to
discuss question of gold
b) United States, however, does not consider that
solution lies in dropping price of gold
(For reply, see Book LXXIV, page 11, 6/23/37)
Sir John Simon's speech in House of Commons stating that
he will follow policy laid down by predecessor and
answering certain questions - 6/8/37
Message as transmitted to Chancellor of Exchequer (through
Sir Ronald Lindsay) in answer to recent message addressed
to Secretary of Treasury (5/31/37)
228
376
- S - (Continued)
Book
Page
Stabilisation (Continued)
Belgiums
Coohran reports on visit - 6/8/37
France:
LXXII
170
See Cochran resume 6/13/37-July, 1937, Book LXXVI
Cochran comments on growing flight from the franc 6/9/37
a) Knoke and Bolton discuss reaction in London -
6/10/37 and 6/11/37
b) Knoke-de Jong (De Nederlandsche Bank) discuss 6/11/37
c) Knoke-Cariguel discuss - 6/11/37
FDR and HMJr discuss French situation - 6/14/37
a) Discount rate has been raised from 4% to 6%
(For conversation with Bullitt, see page 357)
American Embassy, Paris, reports probability that
243,277,281
301,313,391
269,285
280
284
331
French equalization fund will be drained of its
last franc almost immediately and that Blum government
will probably fall - 6/12/37
Netherlands:
Cochran reports on visit - 6/7/37
Switzerland:
368
42
HMJr informs Butterworth he is displeased with manner in
which-Swiss have been conducting their exchange
operations in United States and asks him to so inform
the British - 6/12/37
Cochran cable concerning message he is to deliver to
Bachmann - 6/12/37
a) Cochran talks to HMJr from Basel - 6/14/37
1) HMJr and Knoke discuss Cochran conversation 6/14/37
Hull tells Butterworth of Bachmann conversation with
Cochran - 6/14/37
a) Swiss decided some days ago on program of not
increasing holdings of gold of Swiss National
Bank; they will sell in the London market any
further gold acquired by the Bank from hoardings;
they will dispose of remainder of gold in their
Stabilisation Fund (approximately $25 million)
in United States
1) United States has made no comment on this
Switserland
plan pending receipt of confirmation of
this information
See Stabilization
310
315
317
326
395
-TBook
Page
Tax Appeals, Board of
See Internal Revenue, Bureau of
Tax Evasion
Allen-Pearson ("Washington Merry-Go-Round") article
giving Treasury credit for drive - 6/7/37
LXXII
22
Explanation of J. Pierpont Morgan shipboard interview
granted before seeing FDR's message on income tax
evasion, together with letters of explanation made
by S. Parker Gilbert - 6/8/37
HMJr tells Magill FDR wants Magill, Oliphant, and Tommy
Corcoran at White House in advance of conference with
Harrison and Doughton, to go over procedure - 6/14/37..
HMJr asks Helvering concerning ruling on exemption of
money paid Mrs. FDR for radio talks, said money to be
paid directly to Society of Friends - 6/14/37
----
Winchell, Walter
See Financing, Government
235
335
398
1
June 7, 1937
8:54 a.m.
Knoke:
All right, sir.
H.M.Jr:
And then you see we could get rid of some of our
K:
Yes.
H.M.Jr:
You know.
K:
Yes, I understand, yes.
H.M.Jr:
See?
K:
gold certificates.
Yes, I had thought of it before. I shall think
it over for the next 24 hours. That's the time
you gave me, right?
H.M.Jr:
That's right, but I don't want you to discuss it
with anybody.
K:
No, I won't.
H.M.Jr:
With anybody at all.
K:
No. And the question is whether it is good or
bad to - to - to -
H.M.Jr:
Increase reserves against foreign deposits only
100%, what effect would it have?
K:
Yes.
H.M.Jr:
See?
K:
Yes.
H.M.Jr:
What would become of the money; what would the banks
K:
Yes. All right, sir.
H.M.Jr:
Thank you.
do; how would they react? Just your own impression.
Fin2
June 7, 1937
9:13 a.m.
H.M.Jr:
Hello?
Operator:
Dr. Burgess. Go ahead.
H.M.Jr:
Hello?
Dr.
Burgess:
Hello, Henry.
H.M.Jr:
Well, how does she look?
B:
It looks all right.
H.M.Jr:
Eh?
B:
Looks all right.
H.M.Jr:
Got any dissenters?
B:
No, not one yet.
H.M.Jr:
Not one yet.
B:
The notes of '39, '40 and '41 are about a thirtysecond off, 1 or 2/32nds off.
H.M.Jr:
Well, that's all right.
B:
Yes; very favorable. The bonds are up 1/32nd.
H.M.Jr:
Yes.
B:
H.M.Jr:
B:
About. Now the dealers all say that they - their
reception is very good. The people like it.
Ah-ha.
Some of the banks are going the limit. One
insurance company that I heard from is going in
for it, and so on.
H.M.Jr:
Who was that?
B:
They didn't say.
H.M.Jr:
What?
B:
I didn't ask them which one.
H.M.Jr:
Yes.
3
2
B:
I was just getting a quick - quick reaction.
H.M.Jr:
Yes.
B:
But I think it's safe to say it's all right.
H.M.Jr:
When do - when do you have a deadline in New
York for making cash subscriptions?
Well, we take them after 3:00. We take them up
until 4:00 usually. And then - and then, of
course, by mail.
B:
H.M.Jr:
I see. But you usually take them up until 4:00.
B:
Yes; yes.
H.M.Jr:
B:
Well, I'll - I'll be calling you a little later.
All right, sir.
H.M.Jr:
Another hour you'll know more.
B:
I think you can dismiss all worry from your mind.
Ireceived.
think it is perfectly clear that it is well
H.M.Jr:
The only thing which gave us a boost was the
Wall Street Journal. They had nice headlines.
B:
Yes, the Times and the Tribune emphasized the
wrong thing.
H.M.Jr:
Well, the Wall Street Journal says, "Brisk demand
expected for Treasury notes by institutions."
That's a help.
B:
H.M.Jr:
B:
H.M.Jr:
And the rest of them - the high interest rate fellows. Well, at least we'll get some customers
if they think the interest rates will be high.
Yes, sir. We will.
Both the Times and the Tribune are so God Damn
stupid, I mean. They're always thinking of propaganda and never thinking of anything else.
4
3
B:
Yes. Well, that's because the Washington correspondents, you know -
H.M.Jr:
Yes.
B:
- who are down there for a political reason.
H.M.Jr:
Yes.
B:
That's the trouble.
H.M.Jr:
Okay.
B:
All right.
H.M.Jr:
Thank you.
Return to Room 285
which COMMUNICATION TO
wi 5
THE SECRETARY OF STATE
WASHINGTON
DEPARTMENT OF STATE
2499
WASHINGTON
In reply refer to
FE - 894.00/744.
June 7. 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. 148) of June 4, 1937, from the American Ambassador at Tokyo in regard to the new Japanese Cabinet.
Enclosure:
Paraphrase.
Sadd
DEPARTMENT OF STATE
O
DIVISION
BUREAU
( Far Eastern
(
ENCLOSURE
TO
LETTER DRAFTED
ADDRESSED TO
Secretary of the Treasury.
(CONF IDENTIAL)
6
PARAPHRASE
A telegram (No. 148) of June 4, 1937, from the American Ambassador at Tokyo reads substantially as follows:
At an early hour on June 4 Prince Konoe needed only
Kaya's formal acceptance of the post of Minister of Finance
to complete the organization of the new Cabinet. After
Kaya has become acquainted with the character of the economic
policies which the new Cabinet will pursue it is anticipated
he will accept the Finance portfolio and that on June 4 the
formal investiture of the Cabinet will be held.
Konoe's appointment as Prime Minister has pleased the
Japanese people, the most frequently heard comment being
that a trend toward a more normal condition is signified by
the selection of the person whom public opinion favored
above all others. Konoe stated, however, soon after having
been commanded to form a Cabinet, that although he would try
to have two members of the political parties in the new Cabinet (he has done this) their personal merits would be the
basis for their inclusion rather than the fact that they
represented the parties. The enthusiasm voiced by the parties at the news of Konoe's appointment has cooled noticeably since this statement was made. Although the parties
seem now to possess a destructive power, most observers are
of the opinion in view of the inability of the parties to
present a constructive and intelligent program that the
present great popularity of the Prime Minister would justify
him
2-
7
him in taking care not to become too closely associated
with the parties.
The enthusiatic response of the press to Konoe's selection has been affected adversely by the announcement of the
composition of the Cabinet.
Individual and press comment is to the effect that the
retention in office of the present Navy and War Ministers
shows that the Cabinet favors increased armament and the doc-
trine of "increasing power of industrial production" desired
by the army and navy. Apprehension is felt in business circles
on account of the selection of Baba as Home Minister as his
views on finance are considered to be both unorthodox and un-
sound. It is said that if Kaya is appointed Minister of
Finance he will continue the policies of his predecessor.
However, it appears doubtful whether Kaya has force and pres-
tige enough to counteract the attempts which will probably be
made by the Ministers of War and Navy and the Home Minister to
bring about a stricter control by the state over industry and
to carry out policies which would result in uncontrollable
financial inflation.
certain elements of uncertainty have been done away with
by the fall of the Hayashi Cabinet and undoubtedly the forma-
tion of the new Cabinet will have the effect of stabilizing
conditions, both politically and economically. I shall defer
endeavoring further to interpret the meaning of the change in
government until the new Cabinet's policies have been made
known
8
-3known and have been discussed in the newspapers. I
expect that next week I shall be afforded an opportunity
to pay a visit to the Minister for Foreign Affairs
(Hirota).
894.00/784
5⑉
9
June 7, 1937
9:23 a.m.
H.M.Jr:
Hello?
Operator:
Mr. Helvering. Go ahead.
H.M.Jr:
Hello?
Guy
Helvering:
Hello?
H.M.Jr:
Good morning, Guy.
H:
Good morning.
H.M.Jr:
Guy, are you free at 11:00?
H.M.Jr:
Let's see - yes.
All right. I'd like to have you, Russell, Sherwood,
H:
Yes.
H:
H.M.Jr:
and Irey.
I'll tell you what about. I want to find out how
many more people there are like that gentleman
in Detroit - either individuals or corporations
who haven't paid their taxes in '29 or earlier.
See?
H:
Yes.
H.M.Jr:
I want to know how we can find that out. That's
what I'd like to talk about. I want to give you
notice, see?
H:
Yes. You wanted Russel, Irey, Sherwood and who?
H.M.Jr:
Helvering.
H:
Those three I'll all bring.
H.M.Jr:
Russell, Sherwood and Irey.
H:
Yes.
H.M.Jr:
Anybody you want to bring along?
H:
No, those fellows know their stuff.
10
2
H.M.Jr:
Yes. The fact - I mean how many more people
H:
Yes.
H.M.Jr:
Eh?
H:
All that farm business.
H.M.Jr:
What's that?
H:
All the farm business.
H.M.Jr:
No, general - on the general taxes.
H:
Ah-ha.
H.M.Jr:
like that man in Detroit - I mean are there go back to '29 and earlier. I mean who owe
the Government vast sums of money, either
individually or corporations. See?
Generally - how many - how many accounts, as I
would call them - have we got open?
H:
Oh -
H.M.Jr:
Not just farms - anything.
H:
Yes. Well, I'll see you at 11:00.
H.M.Jr:
I mean I want to know how many people are there
whose taxes are disputed somewhat. Going - I
don't know how far back - who haven't paid us
any tax. Now here Ford hasn't paid any tax in 8
years.
H:
H.M.Jr:
H:
H.M.Jr:
H:
Oh, yes. But there's only that one question
that is open in his case as I understand it.
Yes, but I think that he hasn't paid any tax.
Oh, yes, he paid 2 million in these last returns.
Yes, but he got that deduction on it.
Oh, yes, that deduction is in there.
H.M.Jr:
Yes, I mean the deduction.
H:
Yes. Well, all right, we'll see -
11
3
H.M.Jr:
But what I want to know - how many important
cases are there in dispute and how far back do
they go?
H:
H.M.Jr:
Yes.
You remember I went into that a couple of years ago.
H:
Yes.
H.M.Jr:
Yes. All right. See?
H:
Yes.
H.M.Jr:
How many important cases of corporations or
individuals in dispute and how old are the oldest
ones?
H:
Yes. All right.
H.M.Jr:
Thank you very much. Hello?
H:
Yes.
H.M.Jr:
If there's any answer to those telegrams about
the farm blanks, bring those along.
H:
H.M.Jr:
Yes; all right.
I suppose it is a little early but if anybody
has answered, why bring them along.
H:
Well, we may be getting them today.
H.M.Jr:
Well, if there are any in, bring them along.
H:
All right.
12
June 7, 1937
9:30 A.M.
GROUP MEETING
Present:
Mr. Bell
Mr. Gaston
Mr. Oliphant
Miss Roche
Mr. Taylor
Mr. Gibbons
Mr. Lochhead
Mr. Upham
Mr. McReynolds
H.M.Jr:
What arrangements have you (Bell) made about getting
information?
Bell:
Three o'clock and five.
H.M.Jr:
Well, I want to talk to Herbert about a press confer-
Gaston:
Why, I should think
H.M.Jr:
I'm not going to do what I did before, I'm not going
to say, "I think it's oversubscribed. The only time
to get any publicity is tonight. Only hit it once;
I'm going to give a figure tonight, estimate of how
ence. When do you (Gaston) want a press conference?
much it's oversubscribed.
Bell:
You are?
H.M.Jr:
Yes, I am. I've seen it before and then later on
we announce it, three or four days later, and it's
no good. And we can get out an earlier one, if you
want it - "The books are closed." But I'd rather do
it just once.
Well, I think that we ought to get our figures that
Bell:
are reported at five o'clock and compare those with
previous figures and then show how much the subscriptions have been on previous figures as a final
result of what you g ive tonight to the press, with
the possibility of those figures increasing on the
basis of past information.
H.M.Jr:
When will you be ready for me?
Bell:
The time, little after five.
13
-2-
H.M.Jr:
Here's what I mean. If I say tonight that I think
it's oversubscribed two or three times, see, that's
the headlines, that's what the European papers carry.
Gaston:
The whole thing I want is the psychological effect,
to give this whole thing a boost, if it works. Now
let the boys sweat. I believe the only paper that
gave me a good story is the Wall Street Journal, and
the rest are lousy. The Wall Street Journal not only
gave me a good story, but they have the courage to
say the thing will be a success.
Yes. The Times and Tribune stories were both sad.
H.M.Jr:
And let the boys just sweat.
Five-thirty?
Bell:
I think we'11 be ready; yes, 5:30.
Will that give you time?
Yes, sir.
All right, then nothing about closing books or
anything until 5:30.
H.M.Jr:
Bell:
H.M.Jr:
Bell:
That's right.
H.M.Jr:
What?
Bell:
You may want to send a notice to the banks after the
three o'clock report to expect an announcement later
H.M.Jr:
this evening. That's to hold them on the job, that's
all.
When's the first? Let's just have our time schedule
now.
Bell:
We get a report at two o'clock and another one, final,
H.M.Jr:
Bell:
Well, after you get the two o'clock, why don't you
walk in here with Kilby?
Yes, sir.
H.M.Jr:
How's that?
at five.
14
-3-
Bell:
All right.
H.M.Jr:
Shall I say "Mr. Bell at 2:30," give you - not to
Bell:
2:30 will be all right.
H.M.Jr:
What?
Bell:
2:30 will be all right.
H.M.Jr:
And then you (Gaston) can tell the boys no press
conference at three.
Gaston:
And you say definitely now at 5:30?
H.M.Jr:
Well, that'11 be all right.
Gaston:
Yes, we better tell them now, b e cause if we announced
hurry you?
H.M.Jr:
it later, they'd think we were holding off on account
of not having satisfactory figures.
You can tell them it's on account of the figures
Gaston:
I'll just tell them we want to wait until we get
H.M.Jr:
from the Coast - 5:30 press conference.
accurate figures.
I asked Burgess and he said he'd take subscriptions
up to four o'clock, which is three o'clock our time,
so I think maybe we could - would you want to announce
maybe at three o'clock our time - have we ever announced
that the books are closed, or just what do you do?
Bell:
Wait until after the banks are closed. If you say
they're closed and indicate the large oversubscription,
then what they do is rush out and mail them.
H.M.Jr:
All right. That's all right. But 5:30 - that's
Bell:
Yes.
H.M.Jr:
But the whole purpose of this thing - the whole thing
I've worked on for two weeks is to get the psychological
effect, and if I can say it's X times oversubscribed,
they'11 carry that tomorrow, but they won't carry that
6:30 New York.
15
-4-
Thursday or Friday. Am r r ight, Herbert?
Gaston:
Yes.
H.M.Jr:
What?
Gaston:
Yes, that's right. They'11 carry a good story a better story than they would if you just closed
H.M.Jr:
the books today, and they won't be much interested
on Thursday in the amounts of oversubscription.
Now, the other time we did that - once we said seven
or eight times and every paper in the world carried
it. But if we wait until Thursday, by that time
something else has happened.
Lochhead:
You have to announce at least so many times over-
H.M.Jr:
Well, we'll be conservative.
Lochhead:
Well, you know at least from your reports, but it
subscribed and
may jump a good deal more than that by the time you
get your mail.
H.M.Jr:
Well, the mail percentage runs about so much, doesn't
it, Dan?
Bell:
Yes, sir. We have to have those figures, I think, to
Well, it gives you time to estimate.
H.M.Jr:
See any objection, Wayne?
H.M.Jr:
No, all in favor of it.
You're all in favor of it.
Bell:
One time when you announced it we had some difficulty;
Taylor:
You can say "approximately."
H.M.Jr:
The difficulty was you fellows squeezed me down so;
Taylor:
Bell:
I've forgotten just what the difficulty was.
later on the thing rose.
I think the difficulty was that the boys rushed out
16
-5-
and put in mail subscriptions after the announcement
of so many times oversubscribed. They could figure
out their percentage as to how much they were going
to get, so then they went out and put in additional
subscriptions.
H.M.Jr:
Dan, if they make a few extra ones I'm not going to
weep; I want a good showing. I mean the whole purpose - you've got a market; they haven't had a
financing in two or three months, and we want a zip
on this thing. If we get a good zip, it tones the
whole thing for the rest of the summer, barring
strikes - more strikes. That's the
Bell:
All right, I'll have it.
H.M.Jr:
I'll say for this thing I went on record ten days
ago, contrary to Haas' division, that the worst we'd
have, barring excessive strikes, would be a minimum
summer slump, and it might be less than a minimum,
and that is contrary to everything that Haas' crowd
has written - that I can not do certain things on
account of business falling off, and I told them that,
barring excessive strikes, the worst we could expect
is a normal summer slump, and we might not have that;
and that was ten days ago. Since then the picture
has gotten steadily better, - even in textiles.
I let you (Roche) off easy because I was so tired;
there wasn't even anything left of me to say "Peep"
when your doctor called in J. Edgar Hoover to find
your lost doctor. There wasn't even a "peep" left,
I was so exhausted. You found him, anyway?
Gaston:
I don't know.
Roche:
His son.
H.M.Jr:
Well, I was very curious to find out whether J.
Edgar Hoover followed the procedure, said, "I can't
do anything unless it comes through the Secretary,"
or not - or whether he turned on the sirens and went
to it.
Roche:
I haven't heard how many sirens he turned on.
H.M.Jr:
I'm r a ther curious, because the arrangement is that
he should not turn on anything unless the request came
17
-6from me.
Gaston:
I'll find out, yes.
H.M.Jr:
But most anything could have happened.
All right, what else?
Roche:
I won't comment on that.
H.M.Jr:
Well, I don't blame you. Except that it was Acting
Roche:
I couldn't think of Mr. Hoover in that capacity.
Shades of all the things that I went through last
H.M.Jr:
Roche:
H.M.Jr:
Surgeon General.
year.
I didn't know they called you at all.
Well, I'll ask you to stay afterwards.
Herman?
Oliphant:
Nothing. I want to see you a minute afterwards.
H.M.Jr:
Herbert?
Gaston:
No, I haven't anything. I suppose you didn't happen
to listen to Cameron of the Ford Motor Company last
night?
H.M.Jr:
No.
Gaston:
I didn't either, but I'm told that he said - that he
spoke about the drive on tax evasion and said that
it was for the purpose of covering up official in-
competency. That would look as if Mr. Cameron was
throwing a "Frank Hogan."
H.M.Jr:
Did he say that?
Gibbons:
You sound English this morning - "Did he say that?"
H.M.Jr:
Well, I'm sort of wondering this morning; I don't
know whether every tax evader is against Mr. Roosevelt
because he's in tax trouble or because everybody'
who's in tax trouble is against Mr. Roosevelt.
18
-7-
But the two things seem to be synonomous, and
I think we're being awful dumb.
Oliphant:
Huh?
H.M.Jr:
I think we've been awful dumb about it. Take this
Crum Elbow boy, for example; there's no one been
dirtier against Mr. and Mrs. Roosevelt than he has.
Did you notice the
Drew Pearson this morning - they've got a list of
incorporated yachts. This fellow's constantly against
Mr. Roosevelt. And the two things that happened - where
Oliphant:
H.M.Jr:
is it?
Gaston:
Second column there.
H.M.Jr:
They've got Alfred Sloan, Coffin, Oelrichs. Oh yes "A specially interesting incorporated yacht is the
'Vahdah,' owned by the Crum Elbow, N. Y., Holding
Corporation. Howland Spencer, husband of the president
of the corporation, is a bitter New Deal foe, and for
years has been feuding with the President over the use
of the name 'Crum Elbow. Nobody's been more bitter.
And the other thing which I couldn't help but laugh
about is that they give us more credit for the Astor
suit
Roche:
Wasn't that lovely?
H.M.Jr:
And when the Attorney General had a telegram on his
desk from Bill Stanley congratulating himself and the
Attorney General and the President, I think he was going
to show it to the President, but the President was so
full of the Treasury, what he was doing on taxes, that
the Attorney General didn't get a chance to say anything. And Drew and Bob come along and give us full
credit. I just wonder how they got that. I haven't
the slightest idea, have you, Herman?
Oliphant: No.
H.M.Jr:
Good.
Bell:
Westbrook had a nice article this morning.
19
-8-
H.M.Jr:
Yes.
Gaston:
Pegler.
H.M.Jr:
Anything else?
Gaston:
Westbrook Pegler - he doesn't read the newspapers very
attentively. He called me up the other day and said
that Lehman had before him an act which would tax which would make all state employees in New York pay
Federal income taxes, and I told him that, no, that
wasn't the act, that it was just an act making certain
state employees pay a state tax. He said, "No, it's
another. I read it in the Herald-Tribune."
H.M.Jr:
Gaston:
Roche:
H.M.Jr:
But what you say about Ford is very interesting. You
know, he always said that this whole question of
incorporation tax - Ford said this himself - was just
the international bankers that conceived the idea,
and he, Ford, was against it.
He said that men like Ford were divinely called to
have this property, and so on, and be leaders of
men - just like old man Baer, "Divine Right" Baer.
One of the rottenest speeches he's given.
Well, I'll say right now - I don't know if the President did, but I've said right along that Internal
Revenue is my blind spot. But it isn't any longer.
I just didn't have the people. Should have had an
Assistant Secretary long time ago in charge; I've got
one now.
Wayne?
Taylor:
Nothing. I'll see you right after.
H.M.Jr:
Huh?
Taylor:
I'll see you just a minute. I've got a couple of things.
Gibbons:
The only thing I have is, some of the Collectors of
Customs terms expire on June 30, and old man McKellar
doesn't know whether he wants to send in the name of
the present incumbent in Tennessee - and the one out in
20
-9-
Nebraska; but they can hold over; we don't have to
appoint them immediately.
H.M.Jr:
Oh.
Gibbons:
Just a detail. Some Senator may come in and ask
you
H.M.Jr:
We'll send him in to you.
Gibbons:
Just so you'd know.
H.M.Jr:
Archie?
Lochhead:
Bank of England reports much smaller market on the
Upham:
Nothing.
Bell:
I have nothing.
McR:
Nothing.
H.M.Jr:
What about that negro down there in Coast Guard?
MCR:
I haven't got the report yet.
Gibbons:
Oh, he was running a boarding house, selling liquor
other side - activity quieted.
McR:
on the place, and generally. And the negro Congressman from Illinois came in to see Waesche on
Saturday and is very well satisfied. Waesche's putting
a white man temporarily in charge, hoping to develop
a negro, one of the present
Can't they take a negro from the present force?
I haven't got the detailed report.
Gibbons:
They don't know at the moment whether there is anybody;
H.M.Jr:
One Coast - do you (Roche) know about it?
Roche:
No.
H.M.Jr:
One Coast Guard station, Pea Island
Gibbons:
Just a life-saving station.
H.M.Jr:
they're just sending this white man there temporarily.
21
-10-
H.M.Jr:
For I don't know how long it's always been manned and they've had negro officers maybe for 50 or 75
years. Now they're removing the head of it, putting
a white man in.
Roche:
The lovely colored girl that, thanks to Mr. McReynolds
H.M.Jr:
Take Mac by the ear.
Roche:
I've taken him, and he's putting it back in my lap,
H.M.Jr:
Roche:
H.M.Jr:
we find did get back where she was supposed to go,
is being dropped four days before her permanent six
months period is up.
and I'm going to find some
(Talks on White House phone)
I've found a division in Comptroller's office that
wants her, Mr. McReynolds.
(On White House phone) He (Bell) can talk to you.
He's right here. Just a minute, Harry.
(Bell talks on White House phone)
H.M.Jr:
Harry Woodring.
Well, that's all I got.
22
Phone,
District
PUBLIC SERVICE
1937
nst the soul
of Petworth
Peter
II,
out
Washington Daily
Merry-Go-Round
By DREW
Habana
COMM TO
THE SECRETARY OF STATE
WASHINGTONLO c.
23
5-27-37
DEPARTMENT OF STATE
WASHINGTON
reply refer to
June 7, 1937
837.51/2028
My dear Mr. Secretary:
I take pleasure in sending you herewith, for your
information, a copy of a despatch, No. 8989, dated
May 27, 1937, from the American Embassy at Habana,
reporting the appointment of the Cuban Financial Com-
mission which is soon to prodeed to this country.
Sincerely yours,
For the VE Secretary of State:
Under Secretary.
fifth
Enclosure:
From Embassy, Habana,
May 27, 1937.
The Honorable
areas 13 M all
Henry Morgenthau, Jr.
Secretary of the Treasury.
CONFIRMATION
Department of State
RA
BUREAU
DIVISION
ENCLOSURE
TO
Letter drafted
ADDRESSED TO
The Hon. Henry Mor genthau Jr.
1-1088
U.S. GOVERNMENT PRINTING OFFICE
-
24
8
25
of
No. 8989
Habana, May 27, 1937
AIR MATE Benefits of State Saferned Me
subjects (Bearee
signed appoint(ing financial
Electon to Washington
around the and of month. The press, intefla
reporting she allowense - stinted thes
the
seeks # to the United Status
8
agor the Study of esonomic reforms, as well as for
* supervision of the of silTer and silver certificates. a ette of this
pross Streatment, in is sam country
kay in Cuba this the adopa of NEW la
daties is of considerable * clipping from this morning XL -
The Honorable
Respectfully yours,
The Secretary of State,
T. Pregman Matthew
Washington, D. Georgé d'Affairos a.s.
Saclegures
Sim
Glipping Trus a
MINIDO of May or
with reference to previous reports concerning
mission shortly to proceed to Wash-
ington, I have the honor to report that President
Larodo Bru yesterday signed the pertinent deeree
designating the following members of the Commissions
Dr. Miguel A. Fires, of the Legal Section of the
Treasury Department; Dr. Juan Manuel Nenonal, of
the Secretaryship of the Presidency; Sr. Eduardo
Darretty, of the Treasury Department; and Sr. Juan
Reque, as technical delegate.
The
N
25
-2-
The Secretary of State informed me yesterday
that the Commission will proceed to Washington
around the end of this month. The press, briefly
reporting the aforesaid appointment, stated that
the Commission would proceed to the United States
#for the study of economic reforms, as well as for
the expervision of the remaining shipments of sil-
ver and silver certificates." In spite of this
unconsentional press treatment, it is now generally
known in Guba that the scope of the Commission's
duties is of considerable importance. A pertinent
elipping from this morning's EL MUNDO is enclosed.
Respectfully yours,
4 true copy of
the signed orig-
M. Freeman Matthews
Charge d'Affaires a.i.
Enclosure:
Clipping from EL
HUNDO of May 27
KFX/dee
File No. 851
Enclosure to Despatch No. 8989
of May 27, 1937, from the Embassy at Habana
26
From the Habana newspaper EL MUNDO
dated May 27, 1937
ESTUDIARA EN E. U. UNA COMISION
DE FUNCIONARIOS
LAS REFORMAS ECONOMICAS
SERAN SUPERVISADAS
LAS REMESAS DE PLATA
ACUNADA EN LOS E. U.
Firmados por el Presidente De
cretos relativos a Trabajo,
Hacienda y Educacion.
El President, de la República firmó
ayer noche varix decrets a pro-
puesta del Secretario de Haclends
a
doctor Giménez Lanier, referentes
asuntos de orden interior de su Departamento, y a algunas transferenclas de crédito
Se designo por uno de estos decre-
tos presidenciales, una comisión de
funcionarios que se trasladará a los
Estados Unidos de America para el
asi estudio remesas pendientes como de de para las de plata la recepción. reformas fiscalización y certificados económicas Forman de aún las la
referida comisión el doctor Miguel A.
Pérez. letrado Jefe de la Sección de
Consultoria: doctor Juan Manuel Me-
nocal. de la Secretaria de la Prestdenela: senor Eduardo Durruthy, Se-
cretario particular del Ministro de
las Finanzas , senor Juan Roque, que
asesorará a la Comisión con el caracter de delegado técnico.
27
<2n
June 7, 1937
10:16 a.m.
H.M.Jr:
Hello?
Operator:
Dr. Burgess. Go ahead.
H.M.Jr:
Hello, Burgess.
Burgess:
Hello, Henry.
H.M.Jr:
Yes.
Well, there's nothing much new. The - the reports continue to be favorable.
B:
H.M.Jr:
Yes.
B:
The prices don't show much. The notes and inter-
mediate
bonds are off just a little bit as they
would be.
H.M.Jr:
I don't hear awfully well.
B:
The notes and the intermediate bonds -
H.M.Jr:
Yes.
Are off just a little, but the market is exceedingly quiet. There are no great offerings for any
of those. The banks are going to take the offerings.
The insurance companies, I don't know how many of
them will take it. Not very many, I guess.
B:
The Equitable and the Mutual are reported as interested. of the corporations, Ford and Chrysler seem
to be interested.
H.M.Jr:
Who?
B:
Ford and Chrysler.
H.M.Jr:
No. A Ford man went on the air last night and said
the reason weintroduced this tax thing is because
I was incompetent.
B:
Is that so.
H.M.Jr:
Didn't mention me by name, but -
B:
Well, he thought he might want to buy some of your
bonds.
28
2
H.M.Jr:
Yes, that's interesting.
B:
Yes. But there's nothing really new. You can't
tell
much
- much
though,
I am
sure. further. Everything is all right
H.M.Jr:
Well, I've given Dannie Bell a time schedule. He's
coming in at 2:30 to see me.
B:
H.M.Jr:
Yes.
And I postponed my press conference until 5:30 to-
night which is 6:30.
B:
Yes.
H.M.Jr:
We usually have it at 3:00.
B:
Yes.
H.M.Jr:
B:
H.M.Jr:
B:
H.M.Jr:
But I thought by that time we'd have something
and I'm going to I think so, yes.
And I'm going to shoot the works and give them a
figure.
Yes.
Because the whole purpose of this thing is to get a
good reaction, and I simply say "It's oversubscribed
and I'll tell you in 4 or 5 days how much," then
when they do know it, they never run anything.
B:
Well,
did it?of course, last time that didn't work very well,
H.M.Jr:
What?
B:
Telling them a figure.
H.M.Jr:
Why not?
B:
Well, they - the figure was smaller than they expected and it -
H.M.Jr:
Well, I can't help it. The truth is the best.
B:
Well, no, the point was that the figures you had at
that time were incomplete.
29
3
H.M.Jr:
Well -
B:
And they gave a misleading impression.
H.M.Jr:
Yes, but I'd rather tell them tonight and tell
them - I told the boys to figure it out the best
they can.
B:
Yes; yes.
H.M.Jr:
I think- that to hold this thing up four or five
days -
B:
Yes.
H.M.Jr:
- just makes too much uncertainty.
B:
Well, I think that depends on how good a figure
you can get.
H.M.Jr:
Well, they'11 - they'11 have a pretty good figure
by 5:30.
B:
H.M.Jr:
B:
H.M.Jr:
Yes. of course, it won't be a complete figure
because it won't include the stuff that is coming
in the mail.
That's true, but they're going to figure what percentage we usually get in the mail.
I see. Yes; yes.
I - I - I may be disappointed, but I'm going to do
the best I can.
B:
I see.
H.M.Jr:
I'm not - I haven't told them why we're having it
B:
H.M.Jr:
at 5:30.
Yes. Well, you can But if I have it at 3:00, we won't know anything.
B:
No; that's right. That's right.
H.M.Jr:
See?
B:
Yes.
30
4
H.M.Jr:
And by 5:30 we will.
B:
That's all right. You can at least tell them
whether you can close the books, and you'll know
that any way.
H.M.Jr:
That's right.
B:
Yes.
H.M.Jr:
Thank you. I'll call you again in about an hour.
B:
Very good.
H.M.Jr:
Thank you.
31
June 7, 1937
10:24 a.m.
H.M.Jr:
Hello?
Operator:
Mr. Hogate.
H.M.Jr:
Kenneth C.
Hello?
Hogate:
Mr. Secretary. How are you?
H.M.Jr:
How are you?
H:
Fine. Thank you - a little warm but otherwise
H.M.Jr:
H:
all right.
That's fine. I just wanted to congratulate the
Wall Street Journal as being the only paper that
has come to my desk so far that has a little
in how they wrote up our
bond issue, note issue today.
You mean in reference to gold?
H:
No, just the headlines.
Just the headlines.
H.M.Jr:
Which says, "Brisk demand expected for Treasury
H:
Yes?
H.M.Jr:
See?
H:
Yes.
H.M.Jr:
H.M.Jr:
H:
H.M.Jr:
H:
H.M.Jr:
notes from institutions."
Everyother paper wrote the story, "Highest rates
charged by the Treasury in three years."
Oh, you're referring to the bonds. Well, I'm awfully glad you thought so and Well, you're the only paper that took that line.
Everybody else stressed the interest rate. See?
Well, I - I'm glad you liked it. I - I thought
it was the proper line to take, and I have no
doubt that our headline will prove to be true.
I think so, and I think tonight you can do a
little crowing.
32
2
H:
H.M.Jr:
H:
(Laughs)
You can take the Times and Tribune headline and
put it along side of yours.
Well, you're awful nice - you're awful nice to have
mentioned it, Mr. Secretary.
H.M.Jr:
H:
Well, when you got one paper in the country that's
willing to say that - what you said, and everybody
else taking the other line, I just wanted to tell
you - to call you.
Well, I - I - I thought those other headlines this
morning looked H.M.Jr:
H:
H.M.Jr:
H:
H.M.Jr:
So silly.
- looked a little unduly critical in what they held.
I mean there is - a minor fluctuation in interest
rate is - is all part of a day's work as far as I
see it.
Well, they oughtn't to have editorial writers
writing financial headlines.
(Laughs) That's about what it looks like, isn't it?
That's right.
H:
How are you standing in grace?
H.M.Jr:
Okay. Still got my sense of humor.
H:
Well, I'll bet you have.
Have you been up to the farm much lately?
H:M.Jr:
H:
H.M.Jr:
H:
H.M.Jr:
Well, I was up yesterday for 24 hours.
Glorious weather, wasn't it?
It looked good to me.
Yes. It looks like we're going to have good crops.
Plenty of rain.
We haven't got the corn in yet.
33
3
H:
No, we haven't either - not all of it. We've
gotten part of it in. That's one thing - the
rain has interfered with that, but, my goodness,
how the hay is growing.
H.M.Jr:
Well, can't you get some of these fellows up there
to worry about the corn crop instead of the price
of gold?
H:
H.M.Jr:
(Laughs) Well, I'm afraid - I worry more about it
than I do about the price of gold.
Well, so have I.
H:
(Laughs)
H.M.Jr:
(Laughs)
H:
I think this conversation wouldbe a good one to re-
peat, don't you?
H.M.Jr:
Oh, it's all right with me.
H:
(Laughs)
H.M.Jr:
You can repeat it.
H:
I - I'll tell you what I'm going to do. I'm going
to try - are - are - will you be available on the
telephone?
H.M.Jr:
Will I?
H:
Yes.
H.M.Jr:
When?
H:
Right - in 10 or 15 minutes. I'm going to try and
write a little something and I'll call you back and
read it to you.
H.M.Jr:
Okay.
H:
I think we can have some fun with it.
H.M.Jr:
H:
All right.
All right. Fine.
34
4
H.M.Jr:
Thank you.
H:
Thank you so much.
H.M.Jr:
Goodbye.
H:
Goodbye.
n
35
MESSAGE TO SIR JOHN SIMON VIA MALLET
Present:
June 7, 1937
10:40 A.M.
Mr. Taylor
Mr. Lochhead
Mr. White
Mr. Mallet
H.M.Jr:
What I wanted to say was this. In the first place,
as you know, I've got this very fine letter from
the Prime Minister and I sent an answer.
Mallet:
Yes, I know.
H.M.Jr:
And then, what you people - it didn't clear through
you, it cleared from London - Sir John Simon submitted
to me the two questions which he is going to be asked
in Parliament today - I think they're all right - on
this question of the tripartite agreement and gold,
and I answered that. That went back through Butterworth, see?
Mallet:
Right.
H.M.Jr:
Now, the message - I have a message that I'd like you
to take - I suppose this message would go to Sir John
Simon - and that is this. When we consummated the
tripartite agreement, I think all of us appreciated
the fact that as a result we expected a great deal
of gold would come out of hoarding, but I don't think
that any of us expected that it would become the world
problem which it has.
Mallet:
H.M.Jr:
The tripartite agreement is set up to handle foreign
exchange. It was not set up to handle gold. Our
position is that, just as I announced several years
ago that the United States was ready to discuss the
question of stabilization whenever the world was
ready, we now are ready to discuss the question of
gold whenever the rest of the world is ready.
But I want to say that in approaching this problem
at this time we do not feel that the solution lies
through dropping the price of gold.
Through dropping the price of gold.
Through dropping the price of gold.
36
-2-
Mallet:
You do not feel
H.M.Jr:
Yes. Supposing, Naster, you read that very slowly.
(Reporter reads Secretary's statement back)
By gold I mean both existing gold and - no, leave it
H.M.Jr:
just like that.
Now Mr. Mallet may have some questions. If it isn't
Mallet:
H.M.Jr:
Mallet:
H.M.Jr:
fully clear to you
The point is this. I wasn't going to go direct to
London. I was actually going to be in France about
a week first. Is it urgent to get this message
through to Sir John? Are you in a hurry about it?
What I had hoped was that you could just drop in
and tell Sir John you had a verbal message. I'd
rather not have it telegraphed. I'd very much
rather - I could send it through the State Department and all that, but
I'll do what you ask me to do.
What I would be - I can't ask you - what would be
pleasing, I think, in view of the situation, would be
if you could get off your steamer at London and just -
if you could arrange beforehand to have an appointment,
and then go to France - you see what I mean?
Mallet:
H.M.Jr:
Yes, yes.
I think - really think that in view of this cable
message from Sir John to me - he did me the courtesy
to submit the two questions.
Mallet:
Right.
H.M.Jr:
.and I've been waiting for somebody to go that I
could trust.
Mallet:
That's right. Well, I could certainly have an
appointment with him.
H.M.Jr:
Mallet:
And I think that - after all, you go there for one
day, you see him, and then you can go on.
oh yes.
37
-3H.M.Jr:
When do you go, Wednesday?
Mallet:
Wednesday, yes, sir.
H.M.Jr:
What's that, the Queen Mary?
Mallet:
Yes.
H.M.Jr:
I think I would - you could cable him that you have
a verbal message. I'd rather not put it down on paper;
there would be too many people that would see it. I
mean - in this case, for instance, of course tell the
Ambassador, but outside of that nobody.
Mallet:
Tell Trentham?
H.M.Jr:
Yes, that's all right, but I'd like to limit it to
those three. Then I think if you would cable Sir
John that you're coming and could you have an appointment on your arrival
Mallet:
Yes
H.M.Jr:
I mean you could get to him, couldn't you?
Oh yes. I could send a message.
I'd much rather have you give it to him verbally.
Mallet:
H.M.Jr:
Mallet:
I don't trust cables very much on a thing like this,
where there is - the whole world is trying
Trying to find out.
H.M.Jr:
Yes. But is it entirely clear?
Mallet:
What is the next stage?
H.M.Jr:
Well....
Mallet:
Have you any definite suggestions to make at this
H.M.Jr:
No. Just that Bacchus is willing - Bacchus is willing.
Yes, yes. In other words, the initiative.
Well, I've taken the initiative.
Mallet:
H.M.Jr:
time?
38
-4Mallet:
You've taken the initiative, and the next should
H.M.Jr:
I
Mallet:
Yes, yes.
H.M.Jr:
And you're entirely familiar with the tripartite,
come from the other side.
think so. I mean I've gone this far. Now,
see?
Mallet:
Yes.
H.M.Jr:
May I make a suggestion which is entirely - how shall
I put it - well, I think it is to the ultimate interests
of both governments, see, but I can appreciate their
saying that it's none of my business - but I think to
have this man here - what's his name?
Mallet:
Trentham?
H.M.Jr:
Trentham, who's not been back...
Mallet:
No.
H.M.Jr:
..who knows nothing about this thing - and not to
have given him what I call the kind of freshening up,
so that he knows what Sir John has in mind.
Mallet:
Yes
H.M.Jr:
....
Mallet:
Yes
H.M.Jr:
I think he's under a tremendous disadvantage.
Mallet:
Yes
H.M.Jr:
What do you call it, a freshening-up course - here
that's what we call it; the aviators - ever so often
puts Mr. Trentham under a tremendous disadvantage.
we send them to these advanced schools for a fresheningup course.
Taylor:
Taking a cure.
H.M.Jr:
What?
Taylor:
Taking a cure.
39
-5-
H.M.Jr:
No, regular intervals - I think twice a year they
send Government aviators to an advanced course in
aviation so as to freshen up, just so as to make
sure that they know all the latest "wrinkles" in
aviation. I think that's a good way to put it.
And I take it that when they do have something,
they'11 be as frank as I have been.
Mallet:
H.M.Jr:
Mallet:
H.M.Jr:
I think I'd like them to be anyhow.
Not too evasive. I mean I've been very frank.
You certainly have; it's been very much appreciated.
and if they're interested, that they'11 be as direct
as I have been this time.
Mallet:
Yes, I'll - I like that very well.
H.M.Jr:
That's all I've got.
How long a holiday you taking?
Mallet:
I get back home the 23d of August. I suppose you'll
H.M.Jr:
well, I'm going to try to bend my luck a little bit.
Mallet:
Bring on the bend a bit prematurely.
If necessary.
Well, I'm very grateful, very much appreciate the
H.M.Jr:
Mallet:
H.M.Jr:
be away about then.
confidence.
Well, I have perfect confidence in you. And this
is something - I'd like you to say personally you've
seen me, and of course give him my very best wishes,
and I hope that we can work many of these problems
Mallet:
out together; because they are difficult; there's no
use saying that they're not.
Yes. But things have gone well this last year between
H.M.Jr:
Oh yes, very well.
us.
40
-6-
Mallet:
They feel that very much.
H.M.Jr:
And I hope Sir John and I can continue doing them
as well.
(Mallet leaves)
White:
You've taken the bit in your teeth. The proposal
was a little more open than I thought Now it's
up to us to be ready and be prepared.
Lochhead:
We can't keep dodging this problem.
White:
It's on now. The die is cast.
Taylor:
Swell.
H.M.Jr:
I want - I've thought and thought and thought about
Lochhead:
As long as you have given that statement
H.M.Jr:
The only place - I read Taylor's memorandum and
Taylor:
H.M.Jr:
this thing. Now, sooner or later - I've always taken
the initiative here. There's nothing in this that
should worry them. Quite the contrary.
I want to say this particularly - where I differ from
him on this is that I want to work this out first in
the Treasury, so that I decide.
That's - I haven't the slightest disagreement with
you. I haven't the slightest disagreement.
Now, the thing that I have to decide - I've got to
take two or three days to have this poured into my
brain, which it hasn't yet, and after that thing is
poured into my brain, then I can begin to talk. And
what I feel is that this thing has - we've got to let
this thing jell, and after I - I don't think this
thing is so difficult.
White:
oh yes, this is very good, because this will probably
be passed right on to South Africa and India. They'11
feel
H.M.Jr:
What?
White:
They'11 be very glad to.
41
-7-
H.M.Jr:
I'm not going to even ask the President. I know
this is what he wants and - any more than I did
when I decided that they had to sell us gold. Now
the next move is up to these bozos. And I - I
mean when you start qualifying gold, then I - they
know what I mean, huh?
White:
Well, in the meantime we've got to go ahead and be
prepared for any contingency.
Taylor:
No, that suggestion was the least important.
H.M.Jr:
Which?
Taylor:
The one you mentioned, where you disagreed with me.
I simply meant to emphasize that at one time or another
it does affect others.
42
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris
DATE: June 7, 1937, 11 a.m.
NO.: 741
FROM COCHRAN. BY MAIL FROM BRUSSELS TO PARIS.
I visited President Trip and Director Beaufort in the
Netherlands Bank at Amsterdam on Friday morning. I was
received at noon by Prime Minister Colijn and Minister of
Finance Oudt in The Hague; I saw Minister Emmet in the
afternoon. At The Hague I dined with President Trip.
I had lunch on Saturday at Amsterdam with private banker
Termenlen of Hope and Company.
I was asked by Colijn what we were going to do with
twelve billion dollars of gold plus, that which it appears
the United States may continue to receive from abroad.
In reply I made reference to official American utterances
on the gold question and gave him some personal impressions.
I said that I was visiting our European "olub" friends,
besieging expressions of their opinion on the gold question.
The Prime Minister's reply was that I could say he was
"not disturbed", but at the same time he would be "uneasy
if the present rate of gold production continues". It is
the Prime Minister's view that steps should be taken internationally for the regulation of gold production as were
taken for sugar, tin, and other products. The fact that
recently 22 nations reached an agreement on sugar at London
was mentioned by Colijn. It would be simpler to reach
an
43
-2an agreement regarding gold, he believed, since there are
80 few important producers, such as the British Dominions,
the United States and Soviet Russia. He was of the opinion
that it would be possible to get the latter into an agreement, and he emphasized the embarrassing position into
which the Soviets could be placed, for instance, through
the other countries refusing to take their gold if a gold
agreement were not accepted and adhered to by the Soviets.
Complimentary terms were used by Colijn in referring
to the monetary arrangements of last autumn and he said
that the rates had been kept very steady by the technical
cooperation between the United States and the Netherlands.
In view of the Prime Minister's own efforts in the Oslo
agreement toward reduction of trade barriers, he was keenly
and most sympathetically interested in Secretary Hull's
endeavor to procure a trade agreement with the British.
In Colijn's opinion, such a step would be greatly advantageous to the world. He is happy to see that Canada
and perhaps some of the other Dominions are championing
the argument of the United States.
Not very much was said by Minister of Finance Oudt,
except to endorse the Prime Minister's sentiments.
END SECTIONS ONE AND TWO.
BULLITT.
EA:LWW
44
PARAPHRASE OF SECTIONS THREE AND FOUR OF NO. 741 OF
JUNE 7, 1937, from the American Embassy, Paris.
The Prime Minister and Minister Oudt both warmly reoip-
rocated the greetings of Secretary Hull, and urged our
continuing cooperation and contact.
In strict confidence I told Trip of my visit to
Switzerland. The Swiss are selling gold to him, too,
he said. Trip told me of his own negotiations with the
New York Federal Reserve toward selling gold to the
latter, and then, provided the British approve, using
the dollar proceeds to gold (sic) in London. This procedure was regarded by Trip as being quite different
from the Swiss sales to build up dollar balances in lieu
of gold. He thought his own operations would be of general benefit if he could thereby help to reduce the
gold discount on the market in London.
According to Trip, as well as Colijn, the Netherlands
will "go along" with the two big powers, Great Britain
and the United States. However, I was reminded by Trip
that because of his large gold purchases he was having to
take quite a bit of criticism from within the Netherlands.
Should there be a reduction in the world price of gold,
the people of his country would certainly say that he
should have followed the sagacious lead of the Swiss
Central Bank which was wise enough to get out of both
pounds
45
-2pounds and dollars before the depreciation in these curren-
cies, and was also foresigated in its attitude on the gold
question.
The opinion was expressed by Trip that the gold scare
has become 80 serious and there is so little sign that
it will abate, that in order to calm the situation and
safeguard the future something must be done through con-
certed international action. Lowering the price of gold
is not favored by Trip. If the United States itself should
take such a step, he said, it would have tremendous
repercussions on our internal prices, our domestic indus-
tries, and our export trade. He said much difficult negotiation would be involved in a general reduction in the
price which leading monetary powers paid - some of which
powers are on gold and some off and some of which might
seek competitive advantages if a chance for *realignment
vis-a-vis gold were offered. A price reduction would work
real hardships on those countries which have already spent
their present devaluation profits. Trip, as you know,
is a staunch opponent of the policy of tinkering with a
currency in an effort to adjust the economy of a nation;
he says he wants gold respected as a monetary base, and
not shop valued in as a commodity. Trip does not believe
that the Russians would be influenced to curtail production
because of a reduction in the gold price, since the cost
of
46
3-
of production is really an element of not much consequence
to the government.
The proposal definitely favored by Trip is "to try
to reach international cooperation in order directly to
control the output of gold" as he expressed in his annual
report to the Netherlands Bank of the first of June. I
made the suggestion that it would require a great deal
of time for such negotiations to be consummated and to
cut down the gold output as a consequence even if the
countries concerned were found willing to undertake discussing a proposal of this kind; in what was to be done
in the meantime was a vital question. Dehoarding does
not worry Trip so much as over-production, since it had
been generally anticipated that eventually dehoarding would
take place, most likely with an approach of general stabil-
ization. Fear of the price of gold (the cause of the
present hasty dehoarding) was not envisaged as the reason
which would prove the incentive, but no lasting harm should
follow this dehoarding provided the monetary authorities
of the world work individually and collectively toward
restoration of calm and toward maintenance of the gold
price.
When I talked with Trip on Friday the latest remarks
of President Roosevelt had not been reported at The Hague.
Trip made the observation that the statements of American
officials to date had not sufficed to relieve for much time
or
47
-4or to any appreciable degree the market doubts as to the
price of gold. Last week's increased sales of gold bars
at London constituted a plain proof of this view. My
contact was especially critical of the equalization fund
of Great Britain because it had not intervened more
actively and prevented the growing disparity between
the American gold price and that at London. It is his
belief that a definite lowering of the price of gold is
favored by officials of the Bank of England; as for the
British Treasury, he does not know what their view is.
However, Trip insists that recent policies of the British
(omission) have not convinced anyone that the British
are actually "playing the game" with the United States
on the gold question.
BULLITT.
END SECTIONS THREE, FOUR AND FIVE.
EA:LWW
1383
48
PARAPHRASE OF SECTIONS SIX TO NINE, INCLUSIVE
OF NO. 741 of JUNE 7, 1937, FROM PARIS
I was asked by Trip whether I had recently seen
Sir Frederick Phillips. My answer was that I had not.
I added that I was not aware that any Anglo-American con-
versations other than the frequent telephone talks between
Bolton and Knoke were going on at the present time. The
real problem, Trip insists, is between Great Britain and
the United States. Should these two powers (omission)
that they are in unison on the gold problem, then harmonious programs could more easily and more consistently
be followed by the smaller nations. The United States,
be believes, should now press the British to reveal what
their intentions are on this matter.
In Trip's judgment the assurances which British leaders
have given to Parliament on monetary policy have been even
less precise and effective than the statements made by
American officials. He is not 80 optomistic as to believe
that the United States could influence the British to definite monetary stabilisation by pressing its views at the
same time that the Dominions are urging Great Britain
toward a return to gold; but he is convinced it would be
most helpful to have a joint statement from the two powers
or simultaneous statements embodying coordinated policies
upon their readiness to take all offered gold at such rates
as have obtained since the signing of the Tripartite Agree
ment. Should the two main parties desire it, he would be
entirely
49
-2entirely in favor of the other four "club" countries
reaffirming their pledges. However, Trip is desirous
of seeing any new statements from the two or six countries
indicate that after these months of experience, assurances of stability beyond 24 hours could be given by
the monetary authorities. The six countries should be
able now to progress a step beyond heretofore "over
night" programs, even though these countries, especially
in view of the unsound financial future of France, are
perhaps not yet able to pledge return at fixed parities
to an international gold standard. Such a policy is in
line with the belief shared by Trip and some of my other
central banking contacts that real stability in currencies will come gradually by growth and not through one
big act at a conference of all the countries.
The technical facilities afforded the Netherlands
under the "club" arrangement Trip finds are more useful
than he originally anticipated. The Dutch will continue
to work the club rules and spirit. However, Trip urges
the United States to make the union more real and vital
through letting the world see that when a problem comes
up to which they (omission) as the gold question has
quickly grown to be, the parties will consult and take
action after discussion of the problem. Now that production has been geared up to such a pace Trip will not
admit that the problem will work itself out.
Three
50
-3 Three reasons were given by Trip for his view that
the time is propitious for us to talk to the British:
(1) the gold-producing Dominions are themselves concerned
over achieving a stable market; (2) British business
circles are generally dissatisfied with the policies of
the British equalization fund; (3) the Fondon financial
press's attack in this regard. As to the last-mentioned,
the financial news in particular has been criticising
Norman, Phillips and Siepmann by name and both in the
degree to which the Government is being pressed for report
in full as to its monetary policies, (omission) (omission)
by planning to pose on Tuesday a number of pertinent
questions in Parliament.
Thus Trip believes it is desirable to have eventual
regulation of gold production. In order to alleviate the
present market crisis, he urges immediate cooperation
between the United States and Great Britain, and proposed
possibly the support of the other four countries. Trip
said he would be pleased if at the same time these countries announced that they were ready to look into the
question of possible control of the amount of gold to be
produced.
During dinner with Trip, Mannheimer telephoned to
him to let him know that the French had requested him to
get in touch with their Ministry of Finance regarding the
possibility
Copy for SECRETARY
51
REWRITE of page 3 of Sections six to nine, inclusive,
of No. 741 of June 7, 1937, from the American Embassy,
Paris.
Four reasons were given by Trip for his view that
the time is propitious for us to talk to the British:
(1) the gold-producing Dominions are themselves concerned
over achieving a stable market; (2) British business
circles are generally dissatisfied with the policies of
the British equalization fund; (3) the London financial
press's attack in this regard, and on this point the
financial news in particular has been criticising Norman,
Phillips and Siepmann by name; (4) the degree to which
the Government is being pressed for report in full as to
its monetary policies, member Boothby planning to pose
on Tuesday a number of pertinent questions in Parliament.
Thus Trip believes it is desirable to have ementual
regulation of gold production. In order to alleviate the
present market crisis, he urges immediate cooperation
between the United States and Great Britain, and proposed
possibly the support of the other four countries. Trip
said he would be pleased if at the same time these countries announced that they were ready to look into the
question of possible control of the amount of gold to be
produced.
During dinner with Trip, Mannheimer telephoned to
him to let him know that the French had requested him to
get in touch with their Ministry of Finance regarding the
possibility
52
-5wealth on their part. He thinks, furthermore, that China
will not be able to continue without a metallic currency,
and that in the future important amounts of gold will be
taken by that country.
There is encouraging improvement ia the Dutch economic
situation, and the banking situation is sound. The political situation is better with conservatives strengthened
to such an extent that a Government more to the Right than
heretofore may possibly be formed by Colijn.
On Sunday afternoon I arrived in Brussels, where on
Monday I am to see Belgian officials.
END OF MESSAGE.
BULLITT.
EA: saw
43413038
3 MUL
53
MEETING ON INTERNAL REVENUE MATTERS
Present:
June 7, 1937
11:00 A.M.
Mr. Helvering
Mr. Russell
Mr. Sherwood
Mr. Irey
Mr. Tarleau
H.M.Jr:
What I want to find out from you people is this.
We went over this once before, Mr. Helvering and I;
we talked about the very oldest cases which were on
our dockets - and couldn't we clean those up?
Helvering: Now, let me say to you, Mr. Secretary, that some of
the oldest cases, what we refer to as the oldest cases,
are cases either before the Board or courts. Now,
we have a tabulation made weekly as to the cases
as far as the Unit is concerned, that is, the Bureau
proper.
H.M.Jr:
What does it look like?
Helvering:
You better explain that to him, Mr. Sherwood.
Sherwood:
Mr. Secretary, if you will follow the first column
to the year, those are cases of original conception,
that is, cases that haven't been closed. The others,
we open the cases; and you often find in this particular
group cases involving evasions which are just now being
discovered. These are the cases. Now, our first case
is the International Paper Company; you know about it.
We have the names of the others and they are under constant survey.
H.M.Jr:
Well, take International Paper. Have they offered to
Helvering:
I gave them a final figure on Saturday - $1,433,000.
They haven't accepted it yet.
H.M.Jr:
Now, that's '17; that's the 1917.
That's one of the oldest cases.
'17, '18, '19, '20 - that's the only case open of
original conception of those four years.
Helvering:
Sherwood:
settle?
H.M.Jr:
How long do they have to accept?
Helvering:
This week to accept.
54
-2-
H.M.Jr:
Helvering:
Sherwood:
And if they don't?
Then it will go to the Board.
That case was not with us for a number of years,
but was up in the General Counsel's office.
H.M.Jr:
Which General Counsel? Here?
Sherwood:
Down in the Bureau.
Russell:
I imagine three or four years, wasn't it?
Sherwood:
Yes
H.M.Jr:
Sherwood:
Well, that case takes care of '17, '18, 19, 120.
Yes, none left of the original.
H.M.Jr:
Now we've got two cases in 1922.
Sherwood:
I haven't been able to identify those, but I can
say they are under active consideration.
H.M.Jr:
Well, find out what they are, will you, and let Mr.
Tarleau know what the two cases are in '22. What
are the two cases in '23?
Now I'm going back to 1917; there are 89 which have
been reopened.
Sherwood:
Well, that's claims for refunds.
Claims for refunds - perhaps now identification of
H.M.Jr:
But if it's original it means we've opened it?
Sherwood:
Original means we haven't yet closed the case.
H.M.Jr:
1917 - 89 cases pending?
Sherwood:
Those are claims cases usually, where the taxpayer
comes in on a new basis and claims a refund; but
Helvering:
evasion.
not cases we have reopened.
Russell:
Some of them might be fraud cases.
55
-3Sherwood:
H.M.Jr:
Russell:
They might be fraud cases, Charley, but that's not
a reopened case, because it's just now discovered.
Well, you've got two cases in '22, two in 123,
seven in 124, 14 in 125
Mr. Secretary, a lot of those cases are evaluation
cases and involve such huge problems; if you sent
them before the Board of Tax Appeals, you'd be
lost - another one of these Huntington cases.
Sherwood:
One of the cases, the Northern States Power Company,
H.M.Jr:
Which?
Tarleau:
Northern States Power.
H.M.Jr:
Sherwood:
Look, I want these cases identified. We'll take
from '17 through to '27 - there's ten years; let's
take that.
That won't be difficult.
H.M.Jr:
Will you (Tarleau) follow that up?
Tarleau:
Uh-huh.
H.M.Jr:
Because that whole thing doesn't include a hundred
1924, involves examination to determine the value of
property in order to determine depreciation rates.
cases. That would give us, that bracket - that doesn't
oh hell, there's less than 60 or 70 cases there. I
imagine some of them are repeats.
Now, take for instance - let's go back to this fellow
Ford. You hear what he said about us on the radio last
night?
Helvering:
H.M.Jr:
No, I didn't.
Well, I didn't hear it, but he said what we're trying to
do here through this thing is to cover up incompetency.
SO that's what we're up...
Now take Mr. Ford. I was told that in '29 General
Counsel's office said that his farm - he could deduct
his farm.
56
-4-
Russell: That's right, they ruled on it.
Sherwood:
H.M.Jr:
That's
right;deductible.
in the earlier years they said farm
losses were
That's years ago. Why the hell don't we get another
ruling? If Mr. Ford is right, O.K., but if he's
wrong let's collect. But after eight years I should
think we'd know either he's right or wrong. My God,
it oughtn't to take eight years; either the man is
entitled to deduct for his farm or he isn't.
Russell:
H.M.Jr:
Russell:
H.M.Jr:
We've sent back to the General Counsel for another
ruling.
When?
Sent it up today.
But why do you wait eight years? Why do you wait
eight years to ask for another ruling?
Russell:
H.M.Jr:
Sherwood:
H.M.Jr:
Sherwood:
After
General
Counsel rules on a case, it's very
unusual
to
Why don't
you
settle with Mr. Ford and say, "Mr.
Ford,
you're
right"?
There are other circumstances there which
If Mr. Ford is right, it's very unfair to him.
That was not what was holding up the closing of the
case, Mr. Secretary - the farm losses. It is still
possible to adjust those farm losses because the
case was held open pending the determination of cer-
tain litigation, and that involved matters relating
to foreign countries and they've just recently
H.M.Jr:
Foreign country?
Sherwood:
Yes, some of their holdings in foreign countries.
No, this is Mr. Ford personally.
This is Mr. Ford's personal case.
H.M.Jr:
Sherwood:
57
-5-
Helvering: Mr. Secretary, the General Counsel - which isn't
our present set-up at all - they cited here, I
should judge, ten different cases decided by the
courts in which they have ruled that these farm
losses were deductible - cases they thought similar
to Mr. Ford's case.
H.M.Jr:
I'm not saying whether he's right or wrong. I'm
just putting myself in his place and say, if he's
right, settle it, and if he's wrong, let's collect.
Sherwood:
But why wait eight years?
We haven't waited for that.
H.M.Jr:
You' ve waited eight years to get something else?
Sherwood:
Not on the farm losses; we're not questioning that
any more.
H.M.Jr:
You think his farm losses are legal?
Sherwood:
The General Counsel has told us they were.
H.M.Jr:
Which General Counsel?
Sherwood:
For the Bureau of Internal Revenue.
H.M.Jr:
Of eight years ago?
Sherwood:
Yes, sir, and cited cases, decisions by the Board
H.M.Jr:
Now listen, I know what his farm is - and he deducts
that from his personal income tax?
Russell:
That's right.
H.M.Jr:
Sounds nuts to me.
Russell:
The Board of Tax Appeals ruled the Whitney S tables
were deductible. We've lost more cases before the
Board than we've ever won.
Tarleau:
You haven't requested another ruling on the farm
loss point?
of Tax Appeals.
58
-6-
Russell:
On the farm loss, so far as the Unit is concerned,
losses,for
except
for adjustments in the losses themselves
depreciation.
at the moment we are prepared to concede these farm
Sherwood:
That's right. We agree that if that farm operates
at a loss, the provable loss is deductible, and we
have taken that position because of that ruling
made
by Sheering,
eight years
ago. who happened to be General Counsel
H.M.Jr:
But
you
a minute ago you asked for another
ruling
onjust
thissaid
farm.
Tarleau:
Not on the farm.
H.M.Jr:
What?
Helvering:
H.M.Jr:
Russell:
There's other questions open. The reason the case
is open - it wasn't held open on account of the farm.
I'd like the General Counsel's office to rule on that
again. I'd like this present General Counsel's office
to rule again, because if a man can do that
In my own mind, the Board of Tax Appeals has allowed
more flagrant cases than Mr. Ford's for deductible
losses - racing stables and stuff like that, people
that we know are in for the sport; and the Board of
Tax Appeals has allowed it.
H.M.Jr:
Well, maybe General Counsel will sustain it. It
isn't only this one; I'm going to throw a lot at them.
I'm
to throw these racing stables at them, see
whatgoing
they say.
Helvering: In the Whitney racing stable - wasn't that decided
within the last two or three years?
Russell:
Whitney
racing
stable,
a few of them
here
that IMarshall Field - I just got
Helvering:
"e're not contending they're right. We contend that's
the thing we're confronted with.
I don't care whether it's Mr. Ford or somebody else;
I'd like to have a ruling on these farms and racing
H.M.Jr:
59
-7-
stables, and whether we should take one of them and
try it out as a test case.
Sherwood:
H.M.Jr:
I think the best case we can submit to the General
Counsel for another ruling
A farm and a racing stable, see? Will you? I mean
I don't care - take a farm and a racing S table and
get some other hobbies. What other hobbies do they
use?
Irey:
Polo ponies and chicken farms.
Russell:
Dog kennels.
H.M.Jr:
Take different kinds of hobbies that people have
large losses on, take a good example of each, and
submit it to the General Counsel and ask for a
prompt ruling. I say I don't care who it is, but
just let's do it, because out of that, if they feel
that we can claim - but if not, then in this pending
legislation it should be so written that we can.
Tarleau:
Yes, we may have to clear up the situation by
legislation; it may be we're hamstrung as the laws
are written now.
Russell:
I've always looked at a farm loss, or a loss on a
racing stable, as a question of fact, not a question
of law - just a question of fact, as to whether he's
operating it for business or pleasure.
Well, I went through this thing seven years ago, and
I took a revenue agent all over my farm and had him
there for a day; when we got through, he saw the place
was a place of business, that it wasn't a hobby, that
H.M.Jr:
it was my business. He was convinced. Sometimes we
made money, sometimes we lost money.
Helvering: I have, but not very often.
Once in a while I make a little money - hell - but
H.M.Jr:
you can look up my returns if you want to.
Look, let's
That's what I say - I mean I'd like
submit this to Mr. Oliphant's office, General
Counsel's office, see - this thing here - and then get
me that $120,000 chicken farm and a racing stable, Mr.
60
-8-
Raskob's racing stable, and somebody else, see?
It doesn't stand to reason that a man can lose
six hundred thousand dollars a year and deduct it
from his personal income tax. It just doesn't make
sense. It just doesn't make sense. Huh? To me.
Does it to you?
Helvering: Well, of course, in this case the degree to which the
loss extends, of course, would be proportionate to
the income.
H.M.Jr:
I'd like those submitted to the General Counsel and
tell them I'd like to have a prompt ruling.
Have you had any answers from the telegrams, or is
it too early?
Helvering: We'll make up a tabulation; I think we'll have that
for you in the morning.
H.M.Jr:
Fine.
Russell:
We have about 15 in so far.
H.M.Jr:
Have you taken a look at them?
Russell:
Yes, sir.
What do they look like?
H.M.Jr:
Russell:
Surprising how few they're reporting in the telegrams.
Very surprising.
Helvering:
Russell:
Of course, you've only heard.
Tarleau:
I haven't heard from the big districts yet.
The districts with the fewer examinations will be the
first ones to report, naturally.
H.M.Jr:
Have you heard from New York?
Russell:
No, sir.
H.M.Jr:
Chicago?
Russell:
No, sir.
61
-9-
H.M.Jr:
San Francisco?
Russell:
No - well, I can't say whether I've heard from San
Francisco or not. They're coming in every 10 or 15
minutes.
Helvering:
We'll give you a tabulation.
H.M.Jr:
Tomorrow morning.
Russell:
Only sent that wire out Friday night, Mr. Secretary Friday at two o'clock - and Saturday was a half day,
and then Sunday; and some of those districts have
20,000 returns to go through.
Sherwood:
And we've searched about half of the returns upstairs;
we'll complete that search today.
H.M.Jr:
You want to drop over at ten, or is that too early,
tomorrow morning?
Helvering:
That would be
H.M.Jr:
Be too early? I'm going to leave, you see.
Helvering:
When?
H.M.Jr:
Some time tomorrow morning. Going to see Bob graduate.
Helvering: Well, then
H.M.Jr:
Give me a call around 9:30.
Helvering:
All right. On this tabulation of these returns -
Russell:
I think we'll get a good many of those in.
I think most of them will be in.
Helvering:
Now, this Ford case - there's other questions been
holding that open, and could we just ask for a ruling
on the farm loss? Is that what you want on this?
H.M.Jr:
No, I'd try to get the whole thing cleared up.
What I'm getting at, Bill, is if we get a ruling
on this farm loss, are we in a position to go ahead
and settle these other things?
Helvering:
62
-10Sherwood:
H.M.Jr:
You are in a position to settle if we get a ruling
on the farm loss, but we may need additional waivers
to carry this over for the following year.
All right, thank you.
63
June 7, 1937
11:20 a.m.
H.M.Jr:
Hello?
Operator:
Mr. Hogate.
H.M.Jr:
Thank you.
Operator:
Go ahead.
H.M.Jr:
Hello?
Kenneth
C. Hogate:
Mr. Secretary?
H.M.Jr:
Yes.
H:
I've got three little paragraphs here that I think
are quite amusing, and I'd like to read them to
you and have your approval if you can give it.
H.M.Jr:
H:
Okay.
"On the telephone with a New York friend this
morning, Secretary Morgenthau revealed that he
was able to spend 24 hours this weekend at his
Dutchess County Farm. Because of wet weather,
the Secretary complained that he hadn't been
able to get his corn planted. His friend, who
is also a farmer, confirmed that this had also
been his experience. 'I am worrying a whole
lot more about this than I am about the gold
question," said Secretary Morgenthau, 'and I
think you ought to be, too.'
Well, now listen "
H.M.Jr:
H:
(Laughs)
H.M.Jr:
I don't - you see - I think one of the reasons
why I stand half way well with the newspaper
boys is I - I have never done that.
H:
Yes.
H.M.Jr:
I have never given special interviews.
H:
Well, that's all right. I won't press you at all.
I thought it was a very amusing story.
H.M.Jr:
I think it's very amusing, but - I called you up
to thank you. But, I've never done that, Hogate.
64
2
H:
H.M.Jr:
that's all right. I'm not pressing you to do
itWell,
at all.
And I - I - I - it's awfully nice of you to want
to do it, but if you don't mind, I'd like to beg
off.
H:
That's perfectly all right. You're - you're -
H.M.Jr:
Yes.
H:
And it would do some good in the Street I think,
you're the judge of it, and I thought it was an
amusing thing, but if you -
but I - I realize entirely the force of your objection.
H.M.Jr:
Well, thank you very much.
H:
All right, sir.
H.M.Jr:
Goodbye.
H:
Goodbye.
< 65
June 7, 1937
11:28 a.m.
H.M.Jr:
Hello?
Operator:
Burgess. Go ahead.
H.M.Jr:
Burgess:
Hello, Burgess.
Hello.
H.M.Jr:
How does it look?
B:
Well, it looks all right.
H.M.Jr:
It does.
B:
I've gotten reactions from a good many places.
H.M.Jr:
Good.
B:
I've heard at least one more insurance company,
Dr.
The banks will - a lot of banks will subscribe
the limit on both issues.
Travelers, is going in for it.
H.M.Jr:
Ah-ha.
B:
That's one I talked to ahead of time, you know.
H.M.Jr:
Pardon me?
B:
The Travelers Insurance will go in for it. I
talked to them ahead of time. You remember last
week.
H.M.Jr:
B:
Yes, I do.
Garner of
Now the Guaranty says they are getting less subscriptions from - from corporations and other
customers than usual. They think it has been
largely taken by banks.
H.M.Jr:
Ah-ha.
B:
He says that the banks he talked to are going in
H.M.Jr:
Ah-ha.
B:
Now we're getting a lot of calls from - from
for both issues for the limit.
security houses and other people around here -
66
2
H.M.Jr:
Yes.
B:
- all of whom want to go in for the limit.
H.M.Jr:
They do.
B:
They're the ones that we keep the roof on for,
you know.
H.M.Jr:
B:
I see.
Now, for example - there is Lehman Corporation -
Lehman Brothers.
H.M.Jr:
Yes.
B:
They want to subscribe for 10 million. We cut
them down to 5 in December.
H.M.Jr:
Yes.
B:
I told them that if they could tell me that their
net worth was more than 10 million, they could
subscribe for 10. And they called me back and
H.M.Jr:
B:
said it was, so they're subscribing for 10.
Ah-ha. of which issue?
Well, I didn't ask them that.
H.M.Jr:
Ah-ha.
B:
Now the R. D. Reynolds Manufacturing Co. - that's
the tobacco people -
H.M.Jr:
Yes.
B:
They want to subscribe for about 10 million.
H.M.Jr:
Yes.
B:
50-50 of each issue.
H.M.Jr:
Ah-ha.
B:
And they showed us their figures and that's all right.
H.M.Jr:
Good.
67
3
B:
H.M.Jr:
B:
H.M.Jr:
B:
And we're getting a number of -
Well, isn't that rather unusual?
No, I wouldn't say so. No, I think the long one
will go almost as well as the short.
Ience?
was going to ask you - are they showing any preferWell, some preference. Some of the banks - the
Guaranty, for example - I think will subscribe
more for the short than for the long.
H.M.Jr:
B:
H.M.Jr:
B:
H.M.Jr:
B:
H.M.Jr:
B:
H.M.Jr:
B:
H.M.Jr:
Yes.
But
I think
there's more of a ride, of course, in
the long
ones.
of course. We knew that.
I think that will largely offset Well, we knew that.
Yes. Well, that's what we relied on.
How
much premium does the short one look like
today?
How much what?
What
are they figuring the premium is in the
short one?
Well,
it's only - it's down only about 2/32nds,
you know.
What does that make it, 10 or 12/32nds?
B:
Oh, well I would say about 10 on the short and
about - oh, I don't know - 20, something like that
on the long.
H.M.Jr:
Ah-ha.
But you can't figure them. It's just anybody's
guess on it - how it will work out. It won't be
quite that much.
68
4
H.M.Jr:
B:
But it's going along as usual?
As usual - yep. Going very nicely.
H.M.Jr:
Righto.
B:
I'm perfectly confident about it now.
H.M.Jr:
You are.
B:
Yep.
H.M.Jr:
B:
H.M.Jr:
B:
H.M.Jr:
Good. Well, I - I'll wait a little longer. I
mean I'm confident but -
(Laughs) You won't throw your hat up in the air
just yet.
No.
No. Well, I wouldn't do that yet.
All right.
B:
(Laughs) All right.
H.M.Jr:
Thank you.
69
MEETING RE HOUSING
Present:
June 7, 1937
11:30 A.M.
Mr. West
Mr. Gray
Mr. Foley
Mr. Krug
Mr. McReynolds
H.M.Jr:
Gray:
Well, in the first place, before you tell me how
you're going to build the houses cheaper, what's
the answer to Mr. Wagner's statement that seven
dollars just won't help at all?
Well, here's a report from Langdon Post, New York
Housing Authority, to the Mayor:
"There are in New York City more than 468,000
families paying rentals between $5 and $10 per room
per month, in addition to accomodations."
H.M.Jr:
How much?
Gray:
From five to ten dollars per room per month.
"Only those who pay a monthly rent of over $14 per
room can be taken care of by new private construction.
Our primary concern should be to house the people who
can pay $8 per room per month or less. There is a
critical shortage in dwellings of all types, and it
has now reached the point where practically no
dwellings which can be considered safe and habitable
are available under $8 per room per month."
H.M.Jr:
How much?
Gray:
Eight
dollars. That's the bottom that can be obtained
in New York today.
This was gotten up very hurriedly this morning reports of New York Housing Authority - examination
of the New York housing situation.
H.M.Jr:
O.K.
Gray:
On the Williamsburg project, those people before
were paying, including the figured cost of heat and
hot water - those people were paying $6.60 per room
70
-2-
per month on the site of Williamsburg.
H.M.Jr:
Say that again please.
Gray:
Evaluating the cost of heat and hot water, which we
are furnishing in the rents, see, at $7 per room
H.M.Jr:
Yes.
Gray:
... those people in the Williamsburg slum were paying
$6.60 per room per month. But we cleared the slum
out and we're charging them $7.
H.M.Jr:
Now let me get this. They were paying $6.60. Are
Gray:
At $6.60 they would have gotten heat and water -
H.M.Jr:
they getting any more for their money now?
evaluated cost. But of course, they get, as you
see, the opened-out air, sunlight, all that sort
of thing.
Oh yes. Now, what rabbits you got to pull out of
your hat?
Gray:
Got a good one.
H.M.Jr:
Who's going to shoot it?
Gray:
Mr. Foley.
West:
Bragging about it all the way over.
Now, what did you want me to read first, gentlemen?
The long or the short?
The one in your left hand first. The only thing
that is new - if you'd rather have me talk for a
minute first
H.M.Jr:
Foley:
H.M.Jr:
Foley:
I'll take it any way.
Just supposing I talk just a minute. Then we'll read
it.
As I understand, Senator Wagner's objection to
your proposal that a lump sum 60 percent grant be
given to these housing authorities, is that it will
71
-3-
not achieve rents low enough to make it feasible
for the Federal Government to go forward with the
low-rent housing program. His financial subsidy
formula actually provides a 108 percent capital
subsidy, and is objectionable from your standpoint
for two reasons: One, because of the indirect
financing features involved - the guarantee by the
United States of obligations of the housing authority
which are issued in the first instance to raise a
billion dollars; and second, because it commits
Congress to appropriate money over a period of 60
years, which you think is unsound.
I have tried here to bring about an adjustment of
the two points of view by eliminating entirely from
the Wagner proposal your two objections and retaining
the features of the Wagner proposal that we can
recognize as good. Now, the difference between the -
the principal difference between the plan that you
proposed to Senator Wagner last week and the plan
that we are proposing here is that you get eventually
H.M.Jr:
a subsidy of somewhere around 85 percent, which is
half-way between his 108 percent and the 60 percent.
You got it up to 85 now?
Foley:
Yes.
McR:
Federal subsidy.
Foley:
Federal
subsidy of 85 percent, and that is cheap
in this way.
West:
This is the white rabbit.
Foley:
We assume a project of a million dollars.
McR:
You've got a million dollar formula of your own now.
Yes, a million dollar formula of our own.
Foley:
The United States would make a loan to the New York
City Housing Authority of a million dollars at 21
percent interest, the loan to be amortized serially
over a period of 60 years. That means that over that
period the New York City Housing Authority would pay
to the United States a million dollars in principal
and $947,810 in interest.
72
-4-
H.M.Jr:
How much?
Foley:
At 2 percent, $947,810. So that at the end of
the 60-year period, the United States would have
$1,947,810. The United States could enter into a
rent subsidy contract with the New York City Housing
Authority whereby it would pay $27,500, which is
2 percent of the capital cost of the project, over
a period of 60 years, which is $1,650,000, from that
revolving fund where the $1,947,810 is accumulated.
So that at the end of the 60-year period the outgo
from the revolving fund would be $1,650,000 and the
income in the revolving fund would be $1,947,810, or
a surplus there in the revolving fund at the end of
the period of $297,810.
Foley:
And washing it all up, it means what - 85 percent?
And washing it all up means 85 percent subsidy instead
of 108 percent, no indirect financing, and no pledge
of Congress to any appropriation.
H.M.Jr:
And that would bring your room from seven
Foley:
That would bring your room rents from $7 to $5.70
H.M.Jr:
Now listen, gents, this is my position. The President
asked for a financial formula. I gave it to him, see?
On this basis the - you'll end up with a hundred
percent thing. I got a lot of work to do, and I did
what he asked me to do, gave him a formula. My chief
objection to a financial - as finance officer is when I see him today I'm going to beg him to release
me from this thing, see, and let him put anybody on it
he wants to, because I've got a lot of other things
which I'm responsible for, which I can't do if I'm
going to fool around with this housing. And I'm not if you don't mind, I don't want to present this to
him. We'll keep it and mark it "X - here lies the
body." But - and I'd just like to talk to you a
minute, Charley. He asked me to give him a financial
formula. Now, out of friendship, I never dared show
H.M.Jr:
in Harlem.
this (President's own formula) to Senator Wagner -
73
-5-
friendship for the President, see? I never showed
this to him. I just simply say, "Well, here's your
formula, Mr. President; I'll take that." And so
what? "I'11 take this." See? Now, I've given him
one which I think any reasonable person, from the
financial standpoint, would say, "All right" to.
West:
Uh-huh.
H.M.Jr:
And he on this thing - I mean he said, "Well, if
anybody
can't build a house on that basis, he's
crazy.
West:
Uh-huh.
H.M.Jr:
But I'm not going to get into any argument with these
housers. I mean Nathan Straus was in here - "$12
per room wouldn't be a good investment?" I said,
"Sure it would be a good investment. But what do
you think we can expect, building and contributing
toward its maintenance?" He said, "A dollar to a
dollar and a half per room." I had great difficulty
getting him to admit that. In other words, if they
could contribute a dollar, dollar and a half, that
anything between that and what it cost to pay the
interest and the amortization he wants the Government
to give. That's another way of approaching it, isn't
it,dollar
huh? and
Some
people don't think they can contribute
a
a half.
Gray:
H.M.Jr:
Well, what you're going to get out of these local contributions from local people is the moot point today.
What I mean - you take a building, tax-exempt. Federal
Government lends the money. After you've paid for the
maintenance charge, he says it costs about $4 to run
it; he says there will be a dollar and a half left
after you maintain your building.
Gray:
H.M.Jr:
Krug:
I couldn't - I'd have to have the figures on a
specific project - very elaborate computation.
That's the highest. Do I make myself clear? That's
a high figure, though, isn't it?
That is not far off, probably.
74
-6-
H.M.Jr:
Well, let's say he's right - a dollar to a dollar
and a half after maintenance, whatever the cost
Foley:
H.M.Jr:
per room for the interest and the amortization he wants the Government to make up the difference,
which is another way of approaching it.
That's right.
But I'm not going to fight this battle, because I
don't think it is my job and I've got too many
things which the President gives me. We've got this
tax thing which is thrown in our lap unexpectedly,
which is a terrific - we're going up against the
smartest people in America. We've got millions of
dollars at stake. We're trying to get ready for that.
I've got a lot of other things, just straight Treasury
matters, and I think I've done what he asked me.
West:
H.M.Jr:
Oh yes.
My suggestion is that we turn this thing over to
you fellows, let you battle with Wagner, let you
fight it out. I mean that's going to be my suggestion. Just as soon as they get into this whole
question of brick and mortar and land and taxes and
rents, and all that stuff, I'm sunk.
West:
H.M.Jr:
West:
H.M.Jr:
Well, your proper service has been performed when
you submit a Treasury formula - financial formula.
Which I did.
Which you have done.
I gave it to him Thursday and he liked it. And then
Friday he had Bob Wagner for lunch.
West:
H.M.Jr:
West:
H.M.Jr:
How did Bob react to this Friday at lunch?
The President said he said it wouldn't work.
Your plan wouldn't work?
Well.. (On phone) Senator Wagner please.
Simply said $7 a room is ridiculous; it doesn't serve
any purpose. Well, I think he's all wrong; I think
it
75
-7-
he's all wet. If I want to get in an argument,
I can get into a lot of arguments. All right - well,
the administration made the statement "Give everybody
who wants a job in America a job." Did we do it?
What? We did not.
West:
Never did do it.
H.M.Jr:
Well, I mean if we're going to house one-third my feeling is we're approaching this thing. You've
got a mechanism here now; why scrap this mechanism?
West:
You can't do the thing overnight.
H.M.Jr:
And we've made a lot of statements.
West:
But you're approaching it, and if you approach the
solution of the problem with a formula that is
sound, which will accomplish the objective, then
the volume isn't important; it can't be done overnight. You've started on the right course. Isn't
that right?
H.M.Jr:
I'm a much better friend of housing than some of
these fellows, because, look, as a result of
Resettlement - will they ever build another one of
these communities?
West:
They've got the thing discredited because of the
weakness of the financial formula.
H.M.Jr:
Of course they have.
West:
Now, if you have a sound financial formula
H.M.Jr:
Harry Byrd - the attack that he's going to put on
these Virginia things - it will be most likely another
decade before they can ever do another thing. On
this basis they can go ahead.
Hello (On phone; conversation with Keyserling, Senator
Wagner's secretary, follows)
76
June 7, 1937
11:56 a.m.
H.M.Jr:
Hello?
Operator:
H.M.Jr:
Senator Wagner is in a committee meeting. Mr. Keyserling is on the phone.
Let me talk to him.
Operator:
Go ahead.
H.M.Jr:
Hello, Mr. Keyserling.
Keyserling:
Good morning.
H.M.Jr:
Morgenthau.
K:
Yes.
H.M.Jr:
As I understand it when the Senator left here -
K:
My understanding of it was that he was to get in
touch with you just as soon as he studied the
was I to hear from him?
proposal.
H.M.Jr:
That's right.
K:
Now he's been in New York and he just got back
today.
H.M.Jr:
I see.
K:
At about - well, he just got back a little while
ago.
H.M.Jr:
K:
Yes. Well, I'm here.
Well, I'll - I'll tell him as soon as he comes back
to the office. He's gone over to a committee
meeting.
H.M.Jr:
And I'm leaving here tomorrow about noon to go up
to see my son graduate from school.
K:
I see. All right; I'll tell him then, Mr. Secretary.
H.M.Jr:
Thank you.
K:
Thank you very much.
77
-8-
H.M.Jr:
He's to get in touch with me.
No, I'm a much better friend than some of these
people are, because this thing here - all the
people, real estate and all the rest of those
people that We're moving in the right
direction and I'm satisfied to get this thing
rolling. And after a while they can find enough
money. But to do the other thing - what will
happen, it will just be another Resettlement.
West:
Surely.
H.M.Jr:
I mean that's what I think.
Gray:
H.M.Jr:
$5.70 is an awful low rent in New York City, including
heat and hot water.
Why don't they put a little - why charge this all on
housing? You see, that's why - why not do something
about the wage scale and make it possible for these
fellows to earn a little more money and pay a decent
rent? I mean there's more crooked thinking and
intellectual dishonesty on this thing than almost
anything that I have ever been on. And it's taken
McReynolds and me all this time to take off the cobweb
and pull it aside and get to the bottom of it. God,
you can't charge housing on the Treasury when the Act
is that the poor devils don't earn more than a thousand dollars a year.
West:
Well, they're ignoring the realities in the situation is what they're doing. The greatest service, the good
service, that you can render to a sound housing program is to furnish them with a formula - financial
formula
H.M.Jr:
West:
H.M.Jr:
which will stand up.
Which will stand up and which will approach the
problem from the correct point of view.
Well, what I'm going to do - I'm going to tell him,
"Boss, this is the best I can do. I don't say
somebody else can't do better. But when it comes to
sitting down and arguing with Keyserling and those
boys, I think you ought to take the PWA housing group
78
-9-
and put them up against it." I'm going to tell
him that you know all about this thing.
West:
H.M.Jr:
West:
H.M.Jr:
I think we ought to be ready to undertake the job.
We're explaining this and justifying it; I think
we can. I think these gentlemen here know their
job and know it well and can substantiate the
propositions that they have made. Now, they've
had three years of experience with the thing.
They've made a lot of mistakes, they must admit.
They admit it and are trying to correct those by
adopting now the kind of program that will realize
the objectives of sound housing.
Well, the President said, "Now, we don't want to
start another Greenbelt and all that sort of stuff.
We want to get that down to the five dollars per
room."
Gray:
Our figures show over there a cost of around nine
or ten thousand dollars per room, including the
relief labor, and rents - last time I was out there
they had no rent schedule.
H.M.Jr:
That's what I'm going to tell him. What happens I
don't know, but I got my Dutch up on this. And if
you (Foley) don't mind, I'm not going to show him
your
Foley:
Well, Mr. Secretary, I want to make my position
clear. I'm only trying to help, and I - here's
something - if your proposal was entirely unsatisfactory to Senator Wagner and you still wanted to
keep the thing alive and you wanted to try to adjust
the differences, this is another approach. That's
all I'm trying to do. I don't want to influence
McR:
We're giving another 25 percent. We gave away
an additional 25 percent; now you're giving them
another 25 here and
H.M.Jr:
You're going to end up with a hundred percent. The
thing I want to get the President to say, which he
hasn't said yet, is, "No annual contributions." That's
what you call them, don't you?
Foley:
That's right.
79
-10-
H.M.Jr:
See?
West:
We've gone into the thing; we can substantiate the
proposition that we worked out with you the other
day.
H.M.Jr:
You (West) have learned something about it too.
West:
Surely.
H.M.Jr:
You haven't put so much time on it.
West:
On the other bill all I did was to manufacture the
legislation after the decisions had been made with
reference to the provisions. My job has not been to
go into it as an expert and determine what should be
the substance of housing.
H.M.Jr:
Charley - I can talk in front of your own people now,
this
PublicWorks
Worksbill?
bill isn't through yet, is it?
Is there
a Public
West:
It's up in the House today.
H.M.Jr:
Has it gone to the Senate?
West:
No, it hasn't gone to the Senate.
H.M.Jr:
Now, supposing - I don't suppose it would work; Wagner
wants a bill with his name on it. What I was thinking could they "phenagle" some of this into that bill
before it's passed?
West:
This can go through the House; no reason why it
couldn't be amended.
H.M.Jr:
West:
H.M.Jr:
West:
But it wouldn't be a Wagner-Steagall housing bill.
No, it would just be a bill in extension of the PWA
with a Senate amendment on housing which Wagner could
put in.
Well, if Wagner doesn't like it but he is convinced
that we're sincere about it, maybe he'd rather let it
go through this way than put his name on it.
That is possible. That would be the quickest way,
from the parliamentary viewpoint, of doing it.
80
-11H.M.Jr:
West:
H.M.Jr:
West:
Foley:
West:
Foley:
H.M.Jr:
I'd say, "I'm going to give you the $7, Bob. We
can't do this thing overnight, and we're slipping
it through on that basis." Get just this thing in
here, what we're talking about - right to sell and
the bonds, everything that's in this first memorandum, put it in a PWA bill, and if Bob doesn't want
his
that?name on it, do it that way. Had you thought of
No, I hadn't just thought specifically of that way,
but Henry, that's a good way of doing it.
If he's going to be pig-headed about it, put it
through that way. You can't get through the other
one.
Don't you (Foley) think that would be a practicable
way ofthe
doing
it, thatof
is,that.
on the PWA extension? You
know
substance
Well, Charley, I feel this way about it. That PWA
extension bill has got to go through before the 30th
of June in order to save those appropriations.
Well, that's true.
In order to meet our payrolls. Now, I wouldn't want
to tie anything onto that independent bill that would
be controversial and hold it up.
Well, you people think it over.
Foley:
We could make it an independent bill.
H.M.Jr:
Then it would be a Wagner-Steagall bill. You can't
slap - that would be a slap in the face.
Gray:
If you stop that extension bill, you stop all our
housing under construction now.
H.M.Jr:
I grant you that's very important. You don't care to
West:
inject something of such a controversial nature.
Henry, that has to be through, see, by
H.M.Jr:
That's what I say, think it over.
81
-12Foley:
West:
Probably want to hold hearings on it, you see, and
I'm afraid it would hold up the bill.
Well, they would want to do it that way. It wouldn't
be necessary, however. It would be germane, because
of the fact that housing is now in PWA.
H.M.Jr:
Charley,
think it over. I'll give you a ring after
I've had lunch over there.
82
REVISED PROPOSAL FOR FEDERAL HOUSING PROGRAM
1. Administrative Agency. The Housing Division of PWA should be
made a permanent housing administration, all of the powers of the Admini-
stration to be vested in the Secretary of the Interior. The Housing Administration should be established as a separate administration, so as to
facilitate its transfer at a later date pursuant to any plan which may be enacted for the reorganization of the executive departments of the government.
2. Loans and Grants - Local Contributions. Annual contributions
of not to exceed 1/2 of 1% above the going Federal rate of interest should be
authorized, instead of the contributions which would now be permitted by the
Wagner-Steagall Bill in the amount of 1% above the going Federal rate of
interest. The purpose of such annual contributions would be to aid the local
housing authority to meet its annual payments on account of the original and
operating cost of its housing projects, so that rents may be charged which
are within the rent-paying ability of the low-income group intended to be
served by this program. However, this system of annual contributions should
be authorized in such a manner as to conform to the fiscal policies of the
Government. Therefore, the amount of new grant contracts which the Administration could make in any one year should be limited to $5,000,000 instead of
$10,000,000 (which is the amount now permitted by the Wagner-Steagall Bill),
the unutilized balance of the authorization to be cumulative. No new grant
contracts should be permitted after June 30, 1940. These grants should not
be payable from future appropriations but should be met out of a revolving
fund consisting of the bonds of local authorities purchased by the Administration and of collections on such bonds.
The bill should also require that the Administration adopt .regulations, with the approval of the President, fixing the maximum contributions
available under different circumstances, giving consideration to cost, looation, size, rent-paying ability of prospective tenants or other factors bear-
ing upon the amounts and periods of assistance needed to maintain low rentals.
These regulations would make it possible for the President to assure that the
amount of subsidy granted for any particular type of project would not exceed
the amount needed to permit the operation of the project for the benefit of
the low-income group. Pursuant to such regulations, the maximum contribution
could be limited to the larger Northern cities where construction and operating
costs are so high that such a subsidy is needed in order to make possible rents
within the financial reach of those who now live in the slums.
As a condition to such Federal aid, the bill would require that
the proposed project be given full exemption (or its equivalent in the form
of free services, donations or other aid) from state and local taxation,
83
-2although not from special assessments and customary service fees. Such tax
exemption or its equivalent would constitute a substantial contribution by
the locality toward assuring the low-rent character of the project, for full
taxation
of room
a housing
project
in a municipality would amount to a monthly
charge per
of from
$3 to $5.
Loans would be made to local public housing agencies, which would
have the full responsibility for acquiring the land, constructing and operating the projects. Such loans would be amortized over a period of not to
exceed sixty years and at an interest rate of not less than the going Federal
rate of interest. No loans to limited dividend companies would be authorized.
3. Control of Rentals. The Administration should have some way of
assuring that public housing agencies which have received Federal assistance
will operate their projects for the benefit of the low-income group. While
the state housing laws contain provisions requiring public housing agencies
to operate their projects in this manner, it may be advisable to obtain
additional assurances that the low-rent character of such projects is maintained. A system of annual contributions would provide an effective means
of control, for such contributions would be continued only so long as the
project is operated for the benefit of the low-income group. The bill would
contain express provisions for reducing or terminating the annual contributions
for any project in the event that the rents of the project are increased so
that the dwellings are withdrawn from the financial reach of families of low
income
or in the event that families are accepted who are not within the lowincome group.
4. Federal Projects. The Federal Government would not be authorized
to construct directly any additional housing projects. With respect to the
projects now owned by the Government, the Administration would be authorized
to sell them to public housing agencies at their fair value for housing pur-
poses and to accept the bonds of public housing agencies in payment of the
purchase price. Such projects would then be eligible for annual contributions
on the same basis as other projects. The Administration would also be authorized to lease such projects to public housing agencies or to operate the
projects directly. In the leasing or operation of such projects, the Admini-
stration would be required to charge rentals which would be at least sufficient
to pay the operating expenses of the project plus such additional amounts as
the Administration shall determine are consistent with maintaining the lowrent character of the housing project.
5. Financial Provisions. The Administration should not be authorized
to issue its own bonds. Instead of the $1,000,000,000 of guaranteed bonds which
the
Wagner-Steagall
Bill now authorizes, the bill should authorize an appropriation
of $
for the fiscal year ending June 30, 1938;
for the fiscal year ending June 30, 1939; and $
for the fiscal year ending June 30, 1940; all of such sums to continue to be
available to the Administration until expended. By providing for appropriations
over a three-year period, it would be possible for the Federal Administration
$
84
and the local authorities to plan and prepare for a definite program.
The Administration would be authorized to sell any securities aoquired by it and the Secretary of the Treasury would be authorized to purchase
such securities. Any monies received by the Administration from the sale of
securities or collections of principal or interest thereon or from the sale,
leasing or operation of projects, would continue to be available to the Administration in a revolving fund, until expended. The Administration should
be required to create and maintain adequate reserve accounts in the revolving
fund
soaccrue.
as to assure that it will be able to meet its annual contributions
as
same
The Secretary of the Treasury would be authorized to resell any securities which it purchases from the Administration or to hold such securities
and raise additional funds equivalent to the par value of the securities so
held.
The bonds of local housing authorities should be made exempt, both
as to principal and interest, from all Federal taxation, except estate, inheri-
tance and gift taxes. Such a provision would remove any doubt regarding the
exemption
these bonds from Federal taxation and would therefore substantially aid theirofmarketability.
ILLUSTRATION SHOWING OPERATION OF REVISED PLAN
OF FINANCING FEDERAL HOUSING PROGRAM
The proposed revised plan of financing the Federal housing program
differs from that provided by the Wagner-Steagall Bill in the following
respects: (1) the annual contributions would be made in an amount of
not to exceed 1/2 of 1% above the going Federal rate of interest, instead
of annual contributions in the amount of 1% above the going Federal rate
of interest; (2) the amount of the grant contracts which the Administration could make in any one year would be limited to $5,000,000 instead
of the $10,000,000; (3) no now grant contracts would be permitted after
June 30, 1940; and (4) the annual contributions would not be payable
from Federal appropriations, but would be met out of a revolving fund
consisting of the bonds of local authorities purchased by the Administration and of collections on such bonds.
Example of how this revised plan of financing would operates
Assuming a project cost of $1,000,000, the Administration would make
a loan to the local authority of $1,000,000 at not less than the going
Federal rate of interest. In addition, the Administration would enter
into a contract with the local authority in which it would agree to make
annual contributions for a period of not more than 60 years. However,
Congress would not be committed to make future appropriations to meet
these contributions, as the Administration would be required to pay these
contributions out of its revolving fund consisting of the bonds which it
purchases from local authorities and the collections thereon. Thus, in
this particular case, the Administration would hold in its revolving fund
$1,000,000 of bonds of the local authority, with serial maturities running
over a 60 year period. It could use part of the money which it collects
as principal and interest on these bonds in order to meet the annual contributions which it agreed to make for the projects.
The maximum annual contributions which the Administration could agree
to pay to the local authority would be 1/2 of 1% above the going Federal rate
of interest, which would now amount to 2 3/4 of the project cost or $27,500
per year. The total of such annual contributions over a 60 year period
would be $1,650,000. Meanwhile, the Administration will collect on its
$1,000,000 loan, the sum of $1,947,810, so that it would have a net balance
of $297,810 remaining after paying the annual contributions from the receipts on its loan. This transaction may be summarized, as follows:
Total collections for principal and for
interest at 2a% during 60 year amortization period, based on equal annual pay-
ments for principal and interest:
Total annual contributions at maximum
rate of 2 3/4% for maximum period of 60
years:
Net receipts of Government on loan
after paying annual contributions
therefrom:
$1,947,810
1,650,000
$ 297,810
The foregoing illustration is based on the payment of the maximum subsidy
for the maximm period. Where a lesser subsidy is paid (which would be
true in many cases), the net receipts to the Government would be greater
than the amount indicated above.
86
Local Contributions: In order to be eligible for Federal contributions, the local authority must make a contribution of full tax exemption
or its equivalent in the form of annual free services, donations or other
aid. The value of such local contributions may be seen from the following figures showing what full taxation would mean on housing projects
located in four different cities:
Cost of
Project
Name of City
and Project
Amount of
Full
Amount of Tax per
Annual Tax Room per
Month
Chicago, Ill.
$3,031,000 $75,093
Amount of Annual
Tax in Terms of
a Percentage of
Project Cost.
$3.60
2.5%
5.42
3.1%
Trumbull Park Homes
Cambridge, Mass.
New Towne Court
2,478,000
76,198
Laurel Homes
7,104,000
19,773
2.97
1.68%
Birmingham, Ala.
2,534,450
54,774
3.78
2.16%
.
Cincinnati, Ohio
Smithfield Court
Thus it is apparent that the local community will be making a substantial
annual contribution toward the operation of housing projects on a lowrent basis.
Effect of Proposed Additional Subsidy on Rentals and Tenancy. This
revised plan of financing would permit a larger subsidy than the 60% grant
contemplated under the former proposed plan of financing. The result of
the increased Federal subsidy in terms of reduced rentals and lower income
group reached may be seen from the three following examples:
Hypothetical Family Income for Different Sizes
on 60% Grant Based on of Families Based on Expenditures of 1/5 of
2 Annual Family Income for Rent, including Heat and Hot
Rentals Based Rentals
Contribu- Water
Based on
60% Grant
60 Years
Heat and
3
1350 or 1560
1560 or 1740
1560 or 1740
N
4
#
$7.10
1.22
$5.70
.
Hot Water 1.22
5
.
.
#
7
$4.44
Stanley S.Heat and
2 person families $1245
1245 or
1570 or
1570 or
If
3
.
5
N
#
6
#
#
$5.63
.
$6.70
4
R
Holmes Village Hot Water 1.19 1.19
.
7
1250 or 1395
1250 or 1395
1395
1740
1740
.
6
lantic City, Dwelling $5.51
Contribution
for 60 Years
990 or$1085
2 person families $1230 or$1350 $1085
or 1250
.
River Houses
$4.48
If
Plem
Dwelling $5.88
.
York,
With Rents
Based on 2%
With Rents
tion for
1395
$1045
$1570
1890
1890
$1045 or $1320
1590
1320 or
1590
1320 or
1890
1590
1890
1590
87
-3-
dianapolis, Dwelling $4.92 $4.11
Ind. Rockfield Heat and
#
3
If
6 If
7#
If
$6.19 $5.38
4N
5"
#
Hot Water 1.27 1.27
.
Garden Apts.
2 person families $1190
$1035
1190 or $1480
1660
1480 or
1660
1480 or
1035 or $1285
1440
1285 or
1440
1285 or
1660
1660
1440
1440
These examples have been picked for the purpose of showing the effect of
the proposed larger Federal subsidy on the rentals and tenancy of projects
located in large Northern cities where construction and operating costs are
highest. It is evident that the proposed additional subsidy would make it
possible to fix substantially lower rentals and consequently to reach a
lower income group.
HOUSING-B5-RFV
88
June 7, 1937.
MEMORANDUM:
TO:
The Director of Housing
FROM:
Acting Chief of Branch 5 - Management
SUBJECT:
New York City Rents
I am listing below highlights of all available information in the
Division on the need for housing, giving the source of the information
and the rents quoted for families who need to be replaced from substandard housing accommodations:
Source:
I
1.
Memo from Chief of Tenant Relations, N.Y.C. Housing
Authority to Langdon Post, September 25, 1936.
Since the tenants for the Ten Eyck Houses will be drawn from
the slum areas of the city as a whole, the need for such
2.
accommodations at a rental between $6.00 and $8.00 per room
per month is obvious.
The need for new housing in Harlem in the $6.00 to $8.00
bracket is more pressing than ever before.
II
Report of January 25, 1937, to Mayor LaGuardia by
the N.Y.C. Housing Authority.
Source:
1.
2.
3.
4.
"Only those who could pay a monthly rent of over $14.00 per
room were taken care of by (new) private construction."
an intermittent flow
of older dwellings (cast-off) obsolescent but still usable."
"Those who paid about $10.00 had.
"The primary concern should be to reach the people who can
pay only $8.00 per room per month or less
"The testimony adduced after hearings and the data examined
by the Authority disclosed that a critical shortage appears
to be rapidly developing in low rent dwellings of all types,
and that it has now reached the point where practically no
dwellings which can be considered safe and habitable are
available under $8.00 per room per month."
III Source:
Application of the N.Y.C. Housing Authority for the
Queensbridge project.
1. "There are in N.Y.C. more than 468,000 families paying rentals
of between $5.00 and $10.00 per room per month. A large majority
of these families live in ancient, obsolete, sub-standard
structures located in slum areas and it is impossible for them
to obtain shelter within this price range that can, in any sense,
be called decent. It is a well known and established fact
that even with such maximum help as has been given priate
enterprise in the form of tax exemption, decent housing below
$10.00 per room in N.Y.C. cannot be provided at this time or in
the future."
89
-2-
IV
Source:
1.
Real Estate Analyst.
A comparison of the average advertised rents for the first
five months of 1936 and 1937 for all housing in New York City
(includes both sub-standard and standard) shows an average
increase of 13.3 per cent.
Heated Apt. Units
Single Family Dwel.
$17.59
$11.61
P.R.P.M.
P.R.P.M.
1936
1937
19.05 - 8.3 % increase 13.73 - 18.3 % increase
Average increase 13.3 %
V
Source:
Memo to the Administrator justifying the Harlem rents,
dated March 19, 1937.
1.
2.
A study of approximately 5,000 applicants indicates that with
rents at $7.00,50 per cent of all applicants would be eligible
on the basis of income.
The N.Y.C. Housing Authority in a letter dated March 12, 1937,
has recommended rents of $8.55 (consisting of $7.10 dwelling
rental including heat and hot water and $1.45 utility charge)
VI Source:
90
June 7, 1937
11:56 a.m.
H.M.Jr:
Hello?
Operator:
H.M.Jr:
Senator Wagner is in 8 committee meeting. Mr. Keyserling is on the phone.
Let me talk to him.
Operator:
Go ahead.
H.M.Jr:
Hello, Mr. Keyserling.
Keyserling:
Good morning.
H.M.Jr:
Morgenthau.
K:
Yes.
H.M.Jr:
As I understand it when the Senator left here -
K:
was I to hear from him?
My understanding of it was that he was to get in
touch with you just as soon as he studied the
proposal.
H.M.Jr:
That's right.
K:
Now he's been in New York and he just got back
today.
H.M.Jr:
I see.
K:
At about - well, he just got back a little while
ago.
H.M.Jr:
K:
Yes. Well, I'm here.
Well, I'll - I'll tell him as soon as he comes back
to the office. He's gone over to a committee
meeting.
H.M.Jr:
And I'm leaving here tomorrow about noon to go up
to see my son graduate from school.
K:
I see. All right; I'll tell him then, Mr. Secretary.
H.M.Jr:
Thank you.
K:
Thank you very much.
June 7, 1937
3:10 p.m.
H.M.Jr:
Hello?
Operator:
Dr. Burgess. Go ahead.
H.M.Jr:
Hello?
Dr.
Burgess:
Hello, sir.
H.M.Jr:
Well, I'm accepting congratulations.
B:
H.M.Jr:
B:
Well, sir, I - I send you mine most fervently.
Thanks. It looks swell.
It looks perfectly grand.
H.M.Jr:
Yes.
B:
Have you got figures for the country yet?
H.M.Jr:
Kilby's here. At 2:00, the short note, 812;
B:
the long, 932.
Well, that means we were about 50 - we were about
50%, weren't we?
H.M.Jr:
60 to 70.
B:
Well, we are a little faster, of course, on getting
them in.
B:
Any - any of the big banks didn't come in?
No; no. Haven't gotten very big ones from the
Guaranty yet, but I don't know whether they will
bring one in yet or not.
H.M.Jr:
How late are you staying there?
B:
Well, I'm - I'm taking a train to Washington you
H.M.Jr:
know.
H.M.Jr:
No, I didn't know that.
B:
We have open market committee tomorrow there.
H.M.Jr:
Yes.
B:
And I'm leaving here in about an hour.
91
92
2
H.M.Jr:
Oh.
B:
That's five o'clock our time - four o'clock yours,
unlese there's some good reason you want me for.
H.M.Jr:
No. When - when - who can I talk to after you've
left?
B:
Madison.
H.M.Jr:
Well, you're going to keep him there, aren't you?
B:
Oh, yes, they'll be here until late tonight.
H.M.Jr:
B:
Yes, because I'm going to have a press conference
at 5:30, which 18 6:30.
Oh, yes. Well, we'll - they'11 - they'11 be here
right through.
H.M.Jr:
B:
Wait a minute. I got a policeman standing next to
me. He wants to talk to you.
(Laughs)
Dan
Bell:
Hello, Doc.
B:
Oh, hello Dan.
Bell:
B:
Do you think it is necessary to send out any instructions this time on policing?
Well, we're doing it, Dan.
Well, I assume they'11 all do it without any instructions following the May 6 letter.
It isn't as bad as it has been at times.
Bell:
Yes.
B:
We're inclined not to do it, unless it look too
B:
Bell:
bad, and assuming that the banks would follow previous
instructions.
B:
Why don't you send out a telegram to that effect
on policing - please follow instructions as last
December. Just something like that, so that it
93
3
will remind them that the job is to be done.
Bell:
B:
Bell:
B:
Bell:
B:
Well -
I'm afraid some of these fellows if they see any
possible excuse will - will let some of these
subscriptions in that should be examined, you know.
Yes; yes. You are doing it, eh?
We went to keep up the thing consistently, but
I think you could do it very briefly that way
without going into detail.
Yes. Just refer to last December's wire and the
letter of May 6.
I know some of these fellows are very fearful of
going ahead and doing anything beyond their instructions.
Bell:
B:
Bell:
B:
I see.
They're - they're a little timid about it.
Ah-ha. All right. Well, I'll see you tomorrow.
All right. I have some later figures here if the
Secretary wants them.
Bell:
B:
All right. What are they?
About 800 million on the short and a billion on
the long.
Bell:
You don't know what your previous figures were?
B:
Well, when - when did we give you the figures last?
Bell:
2:00.
B:
oh, well, yes - this 1s twice those.
Bell:
Double, eh?
B:
Just about double. Yes; just about double.
94
4
Bell:
All right.
B:
There's some more coming in. Socony-Vacuum for 50
Bell:
Oh, is that right?
B:
Yes.
Bell:
Good.
B:
And a number of others.
Bell:
Ah-ha. All right, Doc. Thank you.
B:
Right.
million.
(in
June 7, 1937
3:10 p.m.
H.M.Jr:
Hello?
Operator:
Dr. Burgess. Go ahead.
H.M.Jr:
Hello?
Dr.
Burgess:
Hello, sir.
H.M.Jr:
Well, I'm accepting congratulations.
B:
H.M.Jr:
B:
H.M.Jr:
B:
H.M.Jr:
B:
Well, sir, I - I send you mine most fervently.
Thanks. It looks swell.
It looks perfectly grand.
Yes.
Have you got figures for the country yet?
Kilby's
the long,here.
932. At 2:00, the short note, 812;
Well, that means we were about 50 - we were about
50%, weren't we?
H.M.Jr:
60 to 70.
B:
Well,
we are a little faster, of course, on getting
them in.
H.M.Jr:
B:
H.M.Jr:
B:
Any - any of the big banks didn't come in?
No; no. Haven't gotten very big ones from the
Guaranty yet, but I don't know whether they will
bring one in yet or not.
How late are you staying there?
Well, I'm - I'm taking a train to Washington you
know.
H.M.Jr:
No, I didn't know that.
B:
We have open market committee tomorrow there.
H.M.Jr:
B:
Yes.
And I'm leaving here in about an hour.
95
96
2
H.M.Jr:
B:
Oh.
That's five O'clock our time - four o'clock yours,
unless there's some good reason you want me for.
H.M.Jr:
B:
H.M.Jr:
B:
H.M.Jr:
B:
H.M.Jr:
B:
Dan
Bell:
B:
Bell:
B:
Bell:
B:
Bell:
No.
left?When - when - who can I talk to after you've
Madison.
Well, you're going to keep him there, aren't you?
Oh, yes, they'11 be here until late tonight.
Yes,
because
going to have a press conference
at 5:30,
whichI'm
is 6:30.
Oh,
well, we'll - they'11 - they'11 be here
right yes.
through.
Wait a minute. I got a policeman standing next to
me. He wants to talk to you.
(Laughs)
Hello, Doc.
Oh, hello Dan.
Do you think it is necessary to send out any instructions this time on policing?
Well, we're doing it, Dan.
Well, I assume they'11 all do it without any instructions following the May 6 letter.
It isn't as bad as it has been at times.
Yes.
We're inclined not to do it, unless it looked too
bad, and assuming that the banks would follow previous
instructions.
B:
Why don't you send out a telegram to that effect
on policing - please follow instructions as last
December. Just something like that, so that it
97
3
will remind them that the job is to be done.
Bell)
B:
Bell:
B:
Well -
I'm afraid some of these fellows if they see any
possible excuse will - will let some of these
subscriptions in that should be examined, you know.
Yes; yes.
You are doing it, eh?
We want to keep up the thing consistently, but
I think you
could
it very briefly that way
without
going
intodo
detail.
Bell:
B:
Yes. Just refer to last December's wire and the
letter of May 6.
I know some of these fellows are very fearful of
going
tions. ahead and doing anything beyond their instruc-
Bell:
B:
Bell:
B:
Bell:
B:
I see.
They're - they're a little timid about it.
Ah-ha. All right. Well, I'll see you tomorrow.
All
right. I have some later figures here if the
Secretary wants them.
All right. What are they?
About 800 million on the short and a billion on
the long.
Bell:
B:
You don't know what your previous figures were?
Well, when - when did we give you the figures last?
Bell:
2:00.
B:
Oh, well, yes - this is twice those.
Bell:
B:
Double, eh?
Just about double. Yes; just about double.
98
4
Bell:
All right.
B:
million.
Bell:
Oh, is that right?
B:
Yes.
Bell:
Good.
B:
And a number of others.
Bell:
Ah-ha.
B:
Right.
There's some more coming in. Socony-Vacuum for 50
All right, Doc. Thank you.
99
June 7, 1937
3:20 p.m.
H.M.Jr:
Hello?
Operator:
Charles
Mr. West. Go ahead.
West:
Hello?
H.M.Jr:
Charlie?
W:
Yes, Henry.
H.M.Jr:
W:
Housing is yours, my dear.
Yes, sir. I just figured that's what you'd
maneuver around and finally do.
H.M.Jr:
It's yours.
W:
What did he say?
H.M.Jr:
Well, I told him that - what was what - that the
President is now negotiating with the Hill, and
that you were so much better negotiator than I that I was just a child in knee breeches compared with you.
W:
How modest you are.
H.M.Jr:
And that you were the man for it - your training,
W:
(Laughs)
H.M.Jr:
etc. - and the President said, "It's a natural -
Now you can tell him what he wants; you're good.
All I can tell you is that when he got arguing
that $7.00 wasn't enough, I slapped that memorandum
on him that he had written in April, and he said,
"Fine; what's the matter with that?" He says,
"10 million a year on that basis will -
W:
Yes.
H.M.Jr:
"And we'll write it into the bill -
W:
Yes.
H.M.Jr:
"That they won't have to pay any more for room than
Wagner wants.
W:
Ah-ha.
100
2
H.M.Jr:
"And we start with the group who pay the lowest.
If anybody has been paying $4.00, he gets the first
choice.
W:
H.M.Jr:
Ah-ha.
"10 million a year for living."
W:
Ah-ha.
H.M.Jr:
See?
W:
All right, sir. Now you want me to take that
H.M.Jr:
W:
H.M.Jr:
W:
H.M.Jr:
crowd of mine and go to bat on this thing.
That's the idea, and we'll give you any assistance
which we have.
Your fellow over there - Mac - knows this thing
in and out Yes.
- and with your permission, why we'll use him.
Fine. And I hope - I got a call now for Wagner
calling me, and I'm going to tell him that from
now on, he should see Professor West.
W:
No, I got that label erased, Henry.
H.M.Jr:
Oh, have you?
W:
I'll have another by the time I get through with
Wagner, won't I?
H.M.Jr:
W:
H.M.Jr:
W:
H.M.Jr:
W:
Yes. And if he can watch the peas jump from one
shell to another, he's good.
Yes, I'll think he's pretty good.
(Laughs)
Well, I'll get my crowd in and I'll tell them that,
and then we'll be prepared to meet with him.
I dropped a hint about finding emphasis on this thing,
and the President didn't say yes and he didn't say no.
Ah-ha.
101
3
H.M.Jr:
But he wants the rooms at the price that Wagner
wants them and he doesn't want it to cost more than
10 million a year.
W:
H.M.Jr:
W:
H.M.Jr:
W:
So that's the feeling on it.
So there you are, my dear.
Yes, brother. You - you are a magnificent
negotiator.
(Laughs)
You
done, - this is your supreme effort,
isn't -it,you've
Henry?
H.M.Jr:
It is in housing.
W:
(Laughs) Well, listen, we've made a good deal of
progress in our deliberations since that day we met
at your house a week ago.
H.M.Jr:
W:
Yes. Oh, yes.
And I'll get my crowd together and we'll be prepared
to meet Wagner as soon as he wants to meet us.
H.M.Jr:
Okay.
W:
And
get down
to formula.
a working basis and see if we can't
sell him
on this
H.M.Jr:
Fine.
W:
Henry, will you be there for a little bit?
H.M.Jr:
W:
Oh, yes.
I'll call you back on the murals just as soon as I
have a session with Bofleau.
H.M.Jr:
Fine.
W:
He's supposed to have some work by this time -
H.M.Jr:
I - I'll be here until 5:30.
W:
Well, I'11 call you before then.
102
H.M.Jr:
Okay.
W:
Goodbye.
103
June 7, 1937
3:25 p.m.
H.M.Jr:
Hello?
Operator:
Senator Wagner.
H.M.Jr:
Thank you.
Operator:
Go ahead.
H.M.Jr:
Hello?
Sen.
Wagner:
Hello?
H.M.Jr:
Henry talking.
W:
How is the hardest boiled man in the world?
H.M.Jr:
(Laughs) Well, that's a compliment.
W:
Well, I - I -
H.M.Jr:
Will you put it in writing?
W:
What?
H.M.Jr:
Will you put it in writing?
W:
No, I won't give you that much credit.
(Laughter on both ends)
H.M.Jr:
Well, how is -
W:
Well, I'll tell you - how - how is the softest
H.M.Jr:
fellow in the world, eh?
How is the fellow with the biggest heart in the world?
W:
That's right; well, that's all right.
H.M.Jr:
How is that fellow?
W:
That's all right, Henry.
H.M.Jr:
How is that?
W: c
Fine
1Q4
2
You know I - I - I won the President back again.
I don't know whether he told you or not.
H.M.Jr:
I know and I know what you've lost in the shuffle.
W:
What?
H.M.Jr:
You've lost me.
W:
He's lost you?
H.M.Jr:
You have.
W:
H.M.Jr:
W:
H.M.Jr:
I've lost you.
Yes, sir.
Well, what are you going to do now?
Look
fromball.
now on, Mr. Charles West is going to
carry-the
W:
What do you mean?
H.M.Jr:
Exactly that I'm out.
W:
Well, why are you out? You're not offended?
Oh, no, no, no.
H.M.Jr:
W:
You mean you're tickled to death to get out - that's
what you mean.
H.M.Jr:
W:
H.M.Jr:
W:
No, I just mean that I worked like hell for two
months to get a financial formula, and it didn't Well,
we couldn't build anything under your formula,
see?
So I asked the President to release me and to put
Mr. West in my place and he's done that.
Well listen, Henry, to get down to $5.00 a room -
we
couldn't have done it under your plan. It couldn't
be done.
H.M.Jr:
Well, you wait now until you see the President's formula, which I have had in my pocket in his handwriting
since April 1 or April 6.
105
3
W:
Well, for Heaven's sakes, he isn't going to hand
me that, is he?
H.M.Jr:
W:
That's what he's going to hand you.
Well, then I'll be - I'll - I'll be in another why, he told me the other day that it was all
right - the annual contributions were all right.
H.M.Jr:
Well, I'll tell you, Bob. I just figured that I'd
better stick to the Treasury where I've had a fair
success, and stick to my business. And I asked him
to release me.
W:
H.M.Jr:
W:
Well, I'll tell you what I think I better do.
I think I better run for Mayor of New York and
get out of all this trouble.
(Laughs) You're in a good humor today.
Eh? I'm always in good humor.
H.M.Jr:
Yes.
W:
Except when one of these bills go wrong.
H.M.Jr:
Well, I -
W:
What do you think of it? Do you think I ought to
run for Mayor of New York?
H.M.Jr:
Well, -
W:
I mean honestly.
H.M.Jr:
Honestly? As - as a friend -
W:
Yes.
H.M.Jr:
- thinking of Robert Wagner?
W:
Yes.
H.M.Jr:
No.
W:
H.M.Jr:
W:
Well, that's what I decided.
Okay. Am I your friend?
Yes. Well, you know our friend up there -
106
4
H.M.Jr:
Who?
W:
Your chief and mine?
H.M.Jr:
Yes.
W:
He put it to me strong. Gee, I looked at him. I
said, "What's the matter, young fellow?"
H.M.Jr:
W:
Yes.
And apparently he had promised the leaders in New
York that he would try to get me to do it.
H.M.Jr:
W:
Yes.
And when he got all through - it was the first time
I think that I have ever said no to him.
H.M.Jr:
Yes.
W:
I just said no.
H.M.Jr:
Ah-ha.
W:
Well, he looked back a minute and then he said,
"Well, you know I told them I was willing to bet
three to one that you wouldn't."
H.M.Jr:
H:M.Jr:
W:
H.M.Jr:
W:
H.M.Jr:
And then, of course, he told me he really thought
if I was of any use any where it would be down
here.
Ah-ha.
So - well - why should a man borrow that headache,
and these fellows are only after me because - because they feel they are in trouble. Otherwise,
they wouldn't be a thousand miles.
Yes.
Don't you know?
Yes. Well, you asked me straight and I gave you a
straight answer.
W:
Yes. Well, every friend I have tells me the same
thing. And I'm not going to do it. I'm not so big
as all that, don't you know? They're not kidding
107
5
me
but I think I'd fit into a situation there, don't
you know?
H.M.Jr:
I know.
W:
That's what they're -
H.M.Jr:
W:
H.M.Jr:
W:
H.M.Jr:
W:
H.M.Jr:
W:
Well, you're doing a magnifident job down here.
In spite of the housing bill (laughs).
You're doing a magnificent job down here and we
haven't got many like you.
(Laughs) Thanks very much, Henry. They ought to what they ought to do is make the - oh, you vote
in - where do you vote, in New York City?
No, I vote in Dutchess County.
Oh, well, then you're safe.
Yes.
(Laughs) Well, of course, it would be a joke if they
came after you. Well, it just shows you what they'11
do when they're in trouble. Otherwise, they don't
come near you at all.
H.M.Jr:
W:
H.M.Jr:
I don't want that trouble to come after me.
(Laughs) Well, I -
Well, I'm still impressive on housing on what I call
a sound financial plan.
W:
H.M.Jr:
Yes, and I am on what I call one, too.
You may be after a week or so glad to come back to my
proposal.
W:
H.M.Jr:
W:
H.M.Jr:
W:
I see. Well, when am I to see Charlie West?
Charlie is at your disposal. He's at his office now.
Oh, where is he - over in the Interior?
Do you want me to have him call you?
No, I'11 call him, Henry.
108
6
H.M.Jr:
W:
H.M.Jr:
W:
All right.
He's in the Interior, isn't he?
Yes; he's Under Secretary.
Yes. All right, Henry. We'll probably come back to
you.
H.M.Jr:
I never showed you that memorandum of the Presidents?
W:
No, you didn't.
H.M.Jr:
No.
W:
No, you didn't.
H.M.Jr:
W:
H.M.Jr:
W:
H.M.Jr:
W:
No, I didn't. And I tried to work out something that
would give you housing, but I - I honestly done the
best thing for the Secretary of the Treasury.
Yours
would give us houses but it wouldn't give us
houses at $5.00 a room.
That's right. You're right on that.
We couldn't do it.
Well,
friend.I'm here and I think I've demonstrated I'm your
Oh, you bet. Gosh, you've been a patient man -
with all these other things you've got to do.
H.M.Jr:
W:
H.M.Jr:
W:
And you call on me any time I can be of help.
Thank you very much.
Thank you, Bob.
Good-bye.
109
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
June 7, 1937
Secretary Morgenthau
TO
FROM
Prepared by Mr. Daggit
Subject: Business and Price Situation,
Week Ending June 4, 1937
Summary
While certain developments during the week show the bus1-
ness outlook in a slightly more optimistic light, they are not
sifficient to change our expectation or a somewhat greater
than seasonal recession during the summer. A setback in the
current level OI activity (seasonally adjusted) will, in fact,
be shown when this week's figures are published.
The following developments favor a more optimistic outlook:
(1) Heavy rains in the drought areas where most needed, which
have revived prospects for the wheat crop and improved
the outlook for cotton and other farm crops.
(2) An improved tone in the securities markets, due in part
to a feeling that recent heavy selling of gold abroad
may, at least temporarily, have spent itself.
(3) A recovery in building contract awards during the week
ended May 22, especially in heavy building, which partially offsets the unfavorable figures for the first
half of May.
Other developments, on the other hand, are less favorable:
(1) A continuation of the steel strike, which has materially
reduced the rate of operations in the steel industry,
and is likely to affect activity in other lines.
(2) A decline in automobile production, after seasonal adjustments.
(3) A further decline in commodity prices, which has carried
both spot and futures indexes to new lows for the year.
110
-2Business Situation
The New York Times index for the week ended May 29 slightly
extended its previous gain (See Chart 1), standing at 109.9 as
compared with 109.3 (revised) for the previous week. For the
current week, however, a sharp drop is expected when all figures become available, owing to declines in steel activity and
automobile production.
Heavy rains in the drought areas have improved the agricultural outlook. They have revived winter wheat prospects to
about the May 1 Government estimate and increased prospects for
the spring wheat crop. Private estimates as of June 1, averaging 649 million bushels for winter wheat, reflect a material
improvement over expectations current a few weeks ago. Barring
unfavorable developments, the total wheat crop is expected to
be about 878 million bushels, an increase of 40 percent over
last year.
The cotton crop outlook has been improved by general rains
in the Western drought areas and by favorable growing weather.
Current crop expectations range between 14 million and 15 mil-
lion bales, as compared with 12.4 millions produced last year.
Although the increased volume of crop production is a
definitely favorable influence, it should not, in our opinion,
be over-emphasized as a business factor. It will increase carloadings, provide additional profits for railroads, and reduce
unemployment in farming states, but the indexes of industrial
production will be affected only indirectly, and probably more
during the first half of 1938 than during the latter half of
1937. The decline in prices for the new crops will offset to
a considerable extent their influence in improving farm incomes. These conclusions are shared by Mr. Bean of the
Department of Agriculture.
An improved sentiment in the securities markets has
strengthened the stock market outlook. A broadening interest
in bonds since the Social Security decision, extending to
corporate issues, has tended to support stock prices and limit
their reaction to unfavorable war and strike developments.
The President's assurance on Friday that no change in
the gold price was contemplated, following recent heavy gold
sales in the London market, brought an immediate improvement
in the stock market (Chart 2), and was a stabilizing influence
in the commodity markets. Uncertainty over the maintenance of
the gold price had been an important depressing factor in
world markets.
111
3-
The steel strike appears the most unfavorable factor in
the immediate business outlook. For the week ended May 31,
which did not reflect the full influence of the strike, the
Dow-Jones estimate of steel activity was reduced to 83 percent
of capacity. (See Chart 1). The current rate is close to 77
percent. The strike reduces directly an important component
of the weekly business index, and is also likely to have an
unfavorable effect on car-loadings and electric power production.
If long continued, it will reduce a number of series in the FRB
monthly index of industrial production.
An apparent lack of concern among steel consumers over
the strike situation seems to indicate that the present reduced
rate is sufficient for the time being to satisfy current demand.
New orders of the United States Steel Corporation for the week
ended May 27 dropped to 199,000 tons, a new low for the year,
as compared with an average level of 247,000 tons during the
previous four weeks. Later figures, which will reflect strike
influences, should provide a clearer indication of current
demand.
Price Situation
Commodity prices declined to new lows for the year, as
uncertainty over the gold situation reduced the demand for
many commodities and caused a general easing of prices. In
addition, the beneficial rains over the drought areas brought
heavy selling into the grain markets which resulted in wide
breaks from last week's price levels. These combined influences reduced both the BLS index of spot prices and the DowJones futures index to below the lows established last week.
Although the stock market outlook appears to have turned
more favorable, we see as yet no definite evidence that the
decline in commodity prices has run its course. Our reasoning, as discussed last week, leads us to expect a sagging
price trend until an increase in industrial demand provides
the basis for another rise.
June 7, 1937
Chart 1
PER
STEEL INGOT PRODUCTION
112
CENT
Per Cent of Capacity (Dow Jones)
100
37
80
36
60
40
JAN.
APR.
JULY
OCT.
BUSINESS ACTIVITY - N.Y. TIMES
Seasonally Adjusted
PER
CENT
Est. Normal=100
110
37
36
100
90
80
JAN
of the Secretary of the Treasury
- of I and
APR.
JULY
OCT.
C-142
June 7, 1937
Chart 2
STOCK PRICES AND FOREIGN TRADING
113
IN DOMESTIC STOCKS
Daily Movement, Dow-Jones Industrials
and Foreign Net Purchases and Sales
DOLLARS
DOLLARS
196
196
192
192
Prices
H
188
188
184
184
180
It
180
176
176
172
172
168
168
DOLLARS
MILLIONS
DOLLARS
WILLIONS
Net Purchases
4
4
0
0
4
4
Net Sales
will will
28
21
8
14
7
31
5
24
17
10
16
9
23
30
2
JUNE
MAY
APRIL
3
MARCH
8
24
26
19
12
1937
Total Weekly Foreign Trading, Weeks Ending Wednesday
DOLLARS
MILLIONS
DOLLARS
MILLIONS
40
40
Net Purchases
20
20
0
0
Net Sales
20
20
40
31
3
1937
Division of - - -
14
APRIL
MARCH
Office of the Secretary of the Treasury
7
24
21
28
5
17
10
MAY
26
2
24
19
12
9
40
16
23
30
JUNE
P 149 A
114 in
June 7, 1937
4:03 p.m.
H.M.Jr:
Edwin
Kilby, how does it look?
Kilby:
The 3:00 figures show 1150 and 1350.
H.M.Jr:
Ah-ha. Well, get your wires off now to close the
K:
All right, sir. Shall I bring them up to you to
H.M.Jr:
Okay.
K:
Yes, sir.
books.
check now?
115
June 7, 1937
4:10 p.m.
H.M.Jr:
Hello?
Operator:
Mr. West. Go ahead.
H.M.Jr:
Charles
Hello?
West:
Henry?
H.M.Jr:
Yes.
W:
Boileau is clearing that matter on the murals
right now.
H.M.Jr:
W:
Yes.
We'll have word from the Secretary within a half
hour, I think.
H.M.Jr:
Wonderful.
W:
So
I'll 5:00
call or
you
before you leave. You're leaving
about
5:30?
H.M.Jr:
I'm leaving at - I've got a press conference at
5:30 and right after that I'11 leave.
Well, I'll call you before then. We'll have word
W:
one way or the other.
H.M.Jr:
W:
H.M.Jr:
W:
H.M.Jr:
W:
H.M.Jr:
Thank you.
And then we'll know where we stand.
Did you hear from Wagner?
Wagner is going to call - I've got a call in for him.
I'll be talking with him shortly. Now, Henry, the
top limit that you'll stand is 10 million?
That isn't my limit.
That's the President's.
That's the President's.
W:
Now that means annual appropriation?
H.M.Jr:
That's what he said.
116
2
W:
H.M.Jr:
W:
H.M.Jr:
W:
H.M.Jr:
W:
H.M.Jr:
W:
H.M.Jr:
W:
Yes.
But I think if you're going to handle it, you
ought to talk to the President and get it first
hand.
That's
my advice, if I may take the liberty
of giving
you advice.
Well,
that's
- that's
thought
I'd see
him. my thought on it, too. I
I think itfrom
would
directly
him.be more satisfactory if you get it
Yes, I thought if you agreed to that, I'll see him
the first thing in the morning.
I'd much prefer it.
And have him tell me that.
Much prefer it. Okay.
Okay, Henry.
Thank you.
You bet.
117
Fin
June 7, 1937
4:23 p.m.
H.M.Jr:
Hello?
Operator:
Chairman Ecoles. Go ahead.
H.M.Jr:
Hello, Marriner.
Eccles:
Hello?
H.M.Jr:
Well, I guess you've heard about the issue.
Marriner
E:
Yes, I talked to Burgess about - well, I guess it
was an hour ago.
H.M.Jr:
Oh.
E:
He didn't have the figures for the country, but I
got the picture from New York. It looked very good.
H.M.Jr:
Great success.
E:
And the 400 - 400 million seemed to go all right.
It outsold the shorter one, didn't it?
H.M.Jr:
Yes, it still is.
E:
of course, that - I don't think that is conclusive
on account of the premium. But there would - there
ought to be 8 good secondary market with the huge
oversubsoriptions. I mean I - I - I think it is
a fine success and it is going to be helpful.
H.M.Jr:
I think so. I'm sitting here until 5:30 because
I'm waiting to hear from the country and I want to
give the figures out so that rather than wait the way
they usually do until Friday and when they don't give
a hoot any more.
E:
Well, they - you're going to announce the closing
tonight.
H.M.Jr:
Oh, yes. And - and - and how much we've taken in, too dollars. I mean just how much the subscriptions are.
E:
Yes; yes - the total subscriptions.
H.M.Jr:
I've never done that. I usually wait until Friday,
but I - I want to getthe full effect of this.
118
2
E:
H.M.Jr:
E:
Well, if you - with - with the huge oversubscriptions
and closing it at the end of the first day, the
psychology certainly ought to be favorable.
I think so.
And of course the action of - of the bond market
was very good today, too.
H.M.Jr:
Good. Everything's good.
E:
So that we can be happy again for a few days.
H.M.Jr:
Oh, yes.
E:
Must be a relief to you.
H.M.Jr:
E:
Oh, tremendous. Because it was - the thing turned
so fast there in the last week. It was hard to keep
up with all the boys, you know.
Well, of course, I haven't had any apprehension
about it failing because I know -
H.M.Jr:
No, but we couldn't let it fail.
E:
Yes, I know, but at the same time you want it to be a
success, and not just a - just a questionable success.
Yes, but if it was a failure, I have nobody to blame
but myself. And, as I say, this isn't like a lot
of other departments you know - Interior or any of
those other things. You can make a mistake and they
don't get charged with it for six months or a year.
H.M.Jr:
E:
H.M.Jr:
E:
Yes,
doesn't
- it doesn't - you're not sitting out
on theitend
of a limb.
No, I mean you just have to make a mistake once.
The - I - I'm going to meet - that is, the Board is
going to meet in the morning with these bank presidents, and in the afternoon they're going to have an
open market meeting. I haven't said anything to -
except to the Board here - about trying to establish
a bill market throughout the country by announcing a
buying rate, see? You remember I mentioned that to
you a week or so ago?
H.M.Jr:
Yes.
119
3
E:
And I talked to Wayne about it a little.
H.M.Jr:
Yes.
E:
And I talked to the Board at two meetings and discussed the thing very, very thoroughly with the
Board and the staff here for quite a little while.
And our people here think that it's - that it's a
fine idea and that it - it will make - instead of
making New York the money market to the extent that
it has been, it makes the Reserves throughout the
country much more effective.
H.M.Jr:
Yes.
E:
And it broadens the market automatically.
H.M.Jr:
E:
Yes. Well, now, you don't want to talk about any
bills with your crowd tomorrow, do you?
Well, no, I didn't. I thought we would talk about
a - getting a renewal of our authority for the
executive committee, you see.
H.M.Jr:
E:
Yes, but I mean - you don't want to talk with us
on this thing until next week, do you?
You mean on this thing I am discussing - this program?
H.M.Jr:
No, about whether we'll go into a 90-day or something.
E:
H.M.Jr:
Oh. Well, we're ready to talk with you any time
you want to talk.
Well, I've asked some of our boys to come to the
house tonight, and we're going to see if we can have
a meeting of the mind, and if we have, I may put
something on a piece of paper and give it to you so
you can keep it in your pocket in case you want to
use it.
E:
Ah-ha.
H.M.Jr:
See?
E:
Well, now, while - while the - the full committee of course, you wouldn't want to meet likely with the
120
4
full committee.
H.M.Jr:
E:
H.M.Jr:
I'd a little bit rather let it go until next week.
Well,
that
would suit you better, it would suit
us
justifas
well.
Because, after all, next week is only the 15th, and
we wouldn't - we might want to do something next
Wednesday.
what I mean? That is a week from Wednesday. You see
E:
Yes.
A week from Wednesday - well, let's see.
I'll tell you what. Let's see how I get along with
these fellows on this thing, and they'11 be here
tomorrow - all day tomorrow, and then we're going
to
have a meeting of the full committee tomorrow
afternoon.
E:M.Jr:
E:
H.M.Jr:
E:
Yes. Well, that's the trouble. That's the reason
I am calling you. I'm going to leave at noon to-
morrow to go up to see my son graduate.
Oh, I see.
But Wayne will be here. And I'd just as leave let
this thing - kind of get the reaction of this thing,
and then take it up the very first thing next week.
I think that's soon enough. We can have the execu-
tive committee come down next week. Monday - say
Tuesday of next week. That's soon enough because you
don't make the announcement before Wednesday, do you?
H.M.Jr:
E:
Rather have Tuesday than Wednesday?
Well, no. When do you announce? You see you send
out your - you send out your -
H.M.Jr:
on - on Thursday.
E:
Thursday.
H.M.Jr:
Yes.
E:
Thursday and Monday - well, Wednesday would be all
right. Would Wednesday be -
121
5
H.M.Jr:
We could meet on Wednesday. The only fellow that
ever kicks is Sinclair and he don't kick very hard.
E:
Well, he - he has his board meetings Wednesday,
butdidn't
he misses
them last
occasionally.
He likely won't he
miss them
H.M.Jr:
Yes, he did last week.
E:
Well, then you - you'd suggest that we meet a
week from Wednesday then.
H.M.Jr:
That's the 16th.
E:
Yes.
H.M.Jr:
Do you want to start a little earlier this time,
or you - you'd like to meet before you come over
here. Shall we say 10:30 Wednesday?
E:
H.M.Jr:
E:
Well, I - I thought this - that it saves sometimes a little time for you if we meet before All right.
- because it gives these fellows a chance to - to
sort of talk the thing out. But we never - we never
come to any action. It's more - it's more just an
informal meeting of asking questions and having
Paragon Goldenweiser over, you see? So that when
we gofor
over
there, they're a little bit better prepared
a discussion.
H.M.Jr:
E:
Well, let's say 11:00 on Wednesday.
11:00 on the 15th.
H.M.Jr:
16th.
E:
H.M.Jr:
16th; that's right.
And then we'll - we'll settle the bills - try to
settle the bill thing then.
E:
Fine.
H.M.Jr:
And if we come to any conclusion before that, we'll
give it to you so you can digest it.
122
6
E:
H.M.Jr:
E:
H.M.Jr:
E:
H.M.Jr:
E:
Well, all right. Even if you don't come to a
conclusion, if you've got some Or if we got some ideas.
If you have got some ideas, let us have them.
I'll - I'll get them to you through Taylor.
All right; fine.
Right?
That's fine. Good-bye.
123 Vin
June 7, 1937
4:59 p.m.
H.M.Jr:
Hello?
Madison:
Hello, Mr. Secretary.
H.M.Jr:
Hello, Madison.
M:
H.M.Jr:
M:
H.M.Jr:
M:
H.M.Jr:
M:
H.M.Jr:
Yes, sir.
Now your figures are all in, aren't they?
Yes, sir.
And I got - see if it checks - New York on the
2t-year is a billion and 30 million?
That's right.
And on the long is a billion 83?
That's right. Those are our final figures.
Now - if you - have you looked up to see how much
comes in - in - in the mail and one thing and
another? I mean we're - what we're trying -
looking back, we figured about 40% more comes in.
M:
Yes.
H.M.Jr:
What?
M:
H.M.Jr:
M:
We - we think that there will be somewhere between
25 and 40% more. That's by past performances.
What's that?
We have an idea that between 25 and 40% more might
be expected in the mail in the morning.
H.M.Jr:
I see. 25 to 40.
M:
Judging by past performances.
What did you say?
H.M.Jr:
M:
H.M.Jr:
M:
Judging by past performances 25 to 40.
Yes.
124
2
H.M.Jr:
I see.
And did any of the banks not come in?
M:
As far as I see, all of our large banks are in.
H.M.Jr:
Good.
M:
Iare
- I not
went
in. over the list and I can't find any that
H.M.Jr:
Good.
M:
Pretty good.
H.M.Jr:
Yes.
M:
Very good. I congratulate you.
H.M.Jr:
M:
Well, it looks pretty good, doesn't it?
Well, thank you very much. Thank you.
Anything I can do for you?
H.M.Jr:
No, I don't think so.
M:
All right.
H.M.Jr:
If
you don't mind - you'll be around another half
hour?
M:
Beg your pardon?
H.M.Jr:
Be there for another half an hour?
M:
H.M.Jr:
M:
I'd be glad to stay if you'd like to have me.
Yes, to see if something - stay until 6:30.
All right then.
H.M.Jr:
Thank you.
M:
I'll be glad to.
125
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, London, England
DATE:
June 7, 1937, 6 p.m.
NO.: 354
FOR TREASURY FROM BUTTERWORTH.
I conveyed your message together with your answer
regarding the parliamentary questions to the Treasury
who expressed appreciation.
I left at the same time, in strict confidence, the
estimate mentioned in the last paragraph of my 350 of
June 4, 8 p.m. The British Treasury saye that the best
guess it can give as to the amount of hoarded gold still
in London is not more than b 95,000,000, and not less
than b 75,000,000.
The progress towards stability in the London market
begun on Saturday has continued today to such an extent
that not a few persons in the city prediot that the worst
is well passed. The discount returned to 2 1/2 pence and
there were only 352 bars at fixing which was rapidly concluded with official purchases made merely to facilitate
its speedy conclusion.
BINGHAM.
EA:LWW
Copy for SECURITARY
126
EMB
GRAY
Paris
Dated June 7, 1937
Rec'd 6:10 p. m.
Secretary of State,
Washington.
744, June 7, 4 p. m.
FOR TREASURY
The franc was under pressure today in a depressed and
nervous market awaiting indications of Government's finan-
cial plans that night be available after Cabinet meeting
scheduled for this afternoon (referred to below). WE are
told here Exchange fund yielded very large amounts of ster-
ling between 110.70 and 110.74. The dollar is firm at
22.45.
The security market was unsettled and rentes lost
from 55 to 75 centimes. The recent national defense loan
was quoted at a new low of 91}.
Brief references to the financial and Economic situation
were made in Sunday SPEEChES by leaders of the Government
on the occasion of the anniversary of the Popular Front
administration. In short summary of accomplishments of
the latter, Blum recognized that the resumption of Economic
activity had not COME up to Expectations but rejoiced that
so far the Government had avoided the financial and monetary
crisis which had so often been predicted. War Minister
Daladier
127
ENB
2 No. 744, June 7, 4 p. m. from Paris
Daladier who was less ontimistic stressed that a new dis-
tribution of wealth would not result in creating wealth,
and warned that unless French production increased the
social reform accomplished would inevitably be endangered.
Minister of State Four said that the Chamber would soon
be asked to approve legislation relating to pensions of
aged workers which would cost 5,000,000,000 francs annually.
As this outlay could not be met from the oriental budget
he would, he said, propose as a solution the nationalization
of insurance and the KEY industries.
The problem of creating new resources for the Treasury
is to be discussed by & member of the Cabinet late this
afternoon. According to the press the Government will
present proposals which will involve an increase in a large
number of indirect taxes and that postage, tobacco, gas
and Electricity, railway transport, and petroleum will be.
effected. According to certain financial publications the
Government is anxious to create C. favorable climate for the
issue of short term Treasury bills and that in this respect
the Government contemplates "open market." operations.
03V13338
BULLITT
RGC:SHS
TER
128
RE RESERVE REQUIREMENTS ON FOREIGN
DEPOSITS IN U.S. BANKS
Present:
June 7, 1937
8:30 P.M.
Mr. Taylor
Mr. Lochhead
Mr. White
Mr. Seltzer
Mr. Murphy
Mr. Harris
H.M.Jr:
We've got another new complication which Danny will
tell us in the morning. Danny doesn't know whether
he's got enough money to run him to the 15th on
account of your (Lochhead) heavy gold shipments.
Lochhead:
He's used up nearly all the silver. It stands at
about 46 million. He deposited about 16 million 1
was up to 64, now to 46.
Seltzer:
Was up to 90.
H.M.Jr:
Can he use that?
Lochhead:
Sure, he can do that - deposit with the Federal.
H.M.Jr:
How much have you got coming?
Lochhead:
In silver or gold?
H.M.Jr:
Gold.
Lochhead:
Well, what scared Danny - he got hit hard because the
Queen Mary arrived, had 20 million on board, of which
15 came to us, and then the British and Swiss used
their ten million each, which meant 35 million. He
got these two extra lots of ten. Now, I don't know
of anything more, though.
H.M.Jr:
Lochhead:
Well, what's - why can't he use up that silver?
Well, I imagine - I looked at it when it dropped 16
million on that statement; I figured that's what he
had done. I don't see any reason why he can't. I
know they don't like it, but he can deposit silver
certificates with the Federal Reserve to pay for the
gold.
129
-2-
H.M.Jr:
Who doesn't like it?
Lochhead:
I know when we talked about forcing those in before,
they said they didn't like to put it in any faster
than they can get the currency out.
It has the same effect on excess reserves that
Seltzer:
spending the gold would have.
H.M.Jr:
He's got 46 there.
Lochhead:
Yes.
H.M.Jr:
I don't think that will take care of him.
Lochhead:
He may have used some of that today.
H.M.Jr:
Well, he said he'd be in the first thing in the
morning.
Now, did you (Seltzer) bring your yellow pad and
piece of paper?
Seltzer:
Yes, there it is.
H.M.Jr:
Very good. Now, what have you got?
Seltzer:
Do you want to read it?
H.M.Jr:
No, now listen, I don't want to read.
Seltzer:
Fine. Well, shall I start off?
H.M.Jr:
If you please.
Seltzer:
You've got
H.M.Jr:
I also called you"Professor" jokingly today. I said
to Charley West, "All right, Professor West, now go
ahead" - just sort of a trick I have. He said, "For
Heaven's sakes, it's taken me three years to live that
down." Do you know he taught in a high school?
Seltzer:
Yes.
Well, this problem, as it sizes itself up to me, is
something like this. It will work provided you don't
discourage foreigners from continuing bank balances.
If you make the reserve requirements so high on foreign
130
-3-
balances that the banks charge service charges for
H.M.Jr:
Seltzer:
these balances, the foreigners are going to shift
into Treasury bills and short-term securities. So
there are two tentative proposals that would seem to
meet that: one, to raise reserve requirements only
up to, say, 75 percent on foreign balances; and
second, eliminate the F.D.I.C. assessment on foreign
balances. That saves them 1/12 of one percent.
Can't do that; that would be an entering wedge to
remove the law.
H.M.Jr:
In that case you'd have to cut your reserve requirements down further; that is, you've got to allow the
banks enough money to invest from these foreign deposits
to pay the cost of running the foreign accounts; otherwise, they'11 put in service
Isn't that just what we want?
Seltzer:
No.
H.M.Jr:
Why not?
Seltzer:
Because if these foreigners withdraw their deposits
but keep the funds here by buying Treasury bills
instead, you can't use any of your gold. You'll
have the same excess reserves problem that you'd
have otherwise.
White:
That's why we mentioned about a month ago the neces-
Murphy:
75; I would say 90 percent.
There is another consideration along that line, and
White:
Seltzer:
sity for a transfer tax to prevent them going into
bills. However, I don't think that's serious, because
I don't think they'11 go into bills for a long time.
And you can stop short - you (Seltzer) say less than
that is that you have to keep them short of bills that
would be attractive to them. If we issued 30-day bills I mean 90-day bills, it would be a direct invitation
for them to go into them, because it would be just what
they need. Our whole supply of bills has to be relatively unattractive - namely, nine months' bills.
There's a good deal of it that wouldn't be attracted,
so that I don't think that's anything serious.
Still, look, Harry. Here you have these foreign
131
-4-
balances. Suppose they have a one-quarter of one
percent service charge on their balances. They can
White:
Lochhead:
buy a Treasury bill and avoid it completely.
But I don't think they will put that service charge
on unless you put it up to the maximum; no reason to
put it up to the maximum until such time as we are
out of this problem.
The banks will probably put a minimum service charge,
but it will not - it would be a minimum service charge
and it would not be a percentage charge on their total
account.
White:
Might be for checking or something.
Lochhead:
They would charge them according to the cost of carrying the account. In other words, it wouldn't cost the
New York bank any more to carry a ten million dollar
account, as far as service goes, than it does to carry
a five hundreddollar account.
Seltzer:
Well, the F.D.I.C. assessment is an awful big item.
If you have a 75 percent reserve requirement - the
F.D.I.C. assessment costs one-third of one percent a
year on the amount you have available for investment,
and that's about all you can get out of a short-term
investment. At one time our Treasury bill rate went
down to where it just covered the F.D.I.C. assessment
and the deposits represented - the time that all 50
million were taken by one buyer, that was almost exactly
the amount that would cover the F.D.I.C. assessment on
50 million of deposits. A service charge on a 100
percent reserve would at least have to cover that
1/12 of one percent for F.D.I.C. and something extra
for bookkeeping costs.
White:
That is doubtful. "hen you get up to b eyond 75 percent,
there is an advantage in these banks having these
service charges, but they won't jack up on a service
charge right away. They will when you begin - get up
to 80 percent; they begin to cover that service
charge, and as you approach a hundred they will raise
it. But I think you'll be able to put on a substantial
increase in the requirement without driving the funds
out into short-term bills.
Seltzer:
I don't doubt you can carry 50 or 60 percent.
132
-5Murphy:
Do you think that would hold true, Harry, if you are
putting out 90-days which would be just what they
want, if there were 90-day bills that the accounts
could go into?
White:
But didn't you tell us that there were so few that
pretty soon on those short-term bills they'd have to
go into one-year notes?
Murphy:
Well, there are no new 90-day bills yet at all,
while a third of our bills are 9-months; but if we
were putting out new ones. that would merit the conversion
of a very substantial amount, I think they
would be converted.
H.M.Jr:
Well, from what I understand - the little talking
I've done - the foreigners would not be interested
in 9-months bills.
Seltzer:
They would, though, in 90-day bills.
H.M.Jr:
Oh yes.
Seltzer:
So we'd have to shy away from those.
H.M.Jr:
That would be very attractive to them, but the
Seltzer:
Yes.
White:
Well, except that as 9-months bills approach
maturity, why, they
Seltzer:
Well, you can't figure it that way, though
No, they'd be into 90-day bills with both feet.
Of course, I imagine you start in getting some evasion
H.M.Jr:
Lochhead:
9-months would not.
on these after a while, because what they would do
would be to deposit the money in a subsidiary corporation, who in turn would deposit the money in a bank.
That will start and develop; because I just know one
case, Petcheck and Company, a Czechoslovakian bank.
They have incorporated here in New York under Delaware
laws another company which they use for investment
purposes, to make their investments, through Dulles one of the ones that organized that. Now, they could
take and instead of putting their money into a bank
they could lend that money to that corporation - no
133
-6-
interest, as far as that goes; then that corporation
would in turn deposit the money with the New York
Bank and it would be a domestic deposit. You're
bound to find evasions like that creeping up - I don't
say with all, because of course that's an exceptional
case.
Murphy:
I was going to say that, in so far as they deposit
it, using the term deposit, with their agency here,
the agency would be acting in the form of private bank
and be subject to the same law.
Seltzer:
That might take another form. Of course, you could
go a good long ways with this thing without running
into the difficulty of conversion of deposits into
investments.
H.M.Jr:
How much upset would any of you people get if we
just simply said, "Well now, we can't think too far
in advance; we'll just go ahead and start selling
90-day bills, and then we'll worry about December a
little later on"?
Seltzer:
Why, I thought if there's a good chance of this program being adopted in any substantial way, the thing
for you to do is to continue your present program,
put out a December concentration this next quarter.
H.M.Jr:
When?
Seltzer:
Any time during the quarter, June 15 to September 15;
doesn't make any difference whether you issue them the
first six weeks or the last six weeks; that will depend
on your cash needs.
H.M.Jr:
Well now, let's just see, if we started selling - what
Seltzer:
O.K.
H.M.Jr:
And then we sold
Seltzer:
It would be as of June 30.
H.M.Jr:
Yes, how many weeks?
Seltzer:
You could sell, say, six or seven issues.
did we say, June 29?
134
-7H.M.Jr:
Seltzer:
H.M.Jr:
Supposing I wanted to go right through for 90 days.
For 90 days? I thought you wanted to set up now a
December concentration.
No, I've got another idea. Supposing we start I think there's five weeks in July, if I'm not mistaken, and five weeks in August. Let's see, 90 days
is how many weeks?
Murphy:
Thirteen.
H.M.Jr:
Thirteen. That would get it right into some time in
September, see? Well, that would give us, wouldn't
it, 650 million dollars, so to speak, of new money -
come right in somewhere into September. Right. Then oh, we'll just say for September 16, see, we'd have
650 million 90-days.
Seltzer:
And you'd have 350 of your regular concentration.
H.M.Jr:
No, we haven't sold those yet.
Seltzer:
The September ones are out.
H.M.Jr:
I made it September 16, so they're out - paid off or September 17 or 18 if you want. Then there's the
9-months bill, how much?
Murphy:
A billion 950; that's the constant figure on those.
Seltzer:
Nineteen hundred and fifty.
Murphy:
Nineteen hundred and fifty millions.
H.M.Jr:
That's two billion six.
Seltzer:
Without any concentrations.
H.M.Jr:
Without any concentrations. Now we find ourselves
in the position we're selling - somewhere along in
there, the 17th or 18th, we're selling each week 50
million of 90-days and 50 million of 9-months; we've
got no concentrations. Now, supposing - I'm just
saying supposing - we'll call it Plan A - we stop the
9-months for six weeks and put the concentration into
December. For six weeks, see, sell December 15 bills
in place of 9-months. Now, that would keep this amount
135
-8-
Seltzer:
constant here, wouldn't it?
That would give you your money until September, in
the third quarter; then you'd lose it at the end
of - in December.
H.M.Jr:
Of course, we could always begin selling, if we wanted
Seltzer:
Yes, you could do that.
Taylor:
That would leave you for that ending December 15
period with nothing but 90-days and concentrations.
H.M.Jr:
Well, we'd still have a 9-months out, less six weeks.
Seltzer:
Six weeks of them.
Taylor:
Yes, but that would be - you'd sell them for six weeks
so that you would have your concentration, and then you
drop out your nine-months during that period, then pick
them up again if you wanted to.
Well, the net of that is to substitute these 90-day
bills for concentrations.
Seltzer:
H.M.Jr:
to - or if we wanted to keep on, sell 150 million a
week; that would increase this to two billion nine.
Not bother with the concentrations at all; just let
the Fed take care of that. That's their job. I've
talked to other people; they say they've had this
before, and they never had any concentrations; it
was up to the Fed to take care of that. That is their
job. I say, "Why should we worry about that?"
Taylor:
But much bigger quarterly payments.
H.M.Jr:
Oh yes. But I don't like these concentrations, if
that's what you call it. I don't like them. I mean
it doesn't serve any particular commercial need, and
you begin and you stop and you go in again.
Seltzer:
Without them, though, you get around the 15th of an
income tax payment month a great wad of cash going
into the Fed and it doesn't get out again
H.M.Jr:
Yes, but that's the Fed's job. Why the hell should I
136
-9-
be worrying about that? Why the hell should I be
worrying about that? I worry too much about their
job and they worry too little about mine. I'm
just arguing with you in a friendly manner.
Harris:
That's what the System was founded for?
H.M.Jr:
What?
Harris:
That's what the System was founded for, to control
credit.
H.M.Jr:
And we're doing their job for them; we're doing it
every day. Think about it. Why should we worry about
concentrations? Let them worry.
Taylor:
H.M.Jr:
Well, it all depends upon whether it all fits. I
mean if you can have your concentrations which suit
you all right and also take care of those pinches,
if you want to call them that, then it might go.
But it isn't as though the corporations would buy
them because they've got dividend dates; they don't
pay their dividends on those dates. I mean it isn't
even as though we were selling them into July 1 or
January 1, on the big dividend dates. People don't
pay their dividends on our tax date.
Taylor:
No, they pay taxes, though.
Murphy:
If the banks expect to be short, then that's a
H.M.Jr:
Let the Fed sweat about that. They're always
talking about running the money markets. Why not
legitimate demand for them.
let them do it once? If I started in right away
selling 90-day bills, got out 650 million of them,
then I wouldn't need anything in September; I'd be
all right, b e cause I'd have my 650 million dollars.
I'd have 400 million more than Danny counted on,
because he was counting on my selling 250 into
December.
Seltzer:
Provided the gold thing is cleared up.
H.M.Jr:
I know.
Now I'm going to give you another one. Instead of
137
-10-
the concentrations, supposing you need a little
more gold. The few people I've talked to - they
say, "Well, no trouble at all to increase those
90-day bills to a hundred million a week."
Seltzer:
True.
H.M.Jr:
Because they say, "You've got something
"
-
I don't know who it was - "the business of the
world - business around the world is done on a 90-
day basis. Anything you buy or sell, import or
export, the 90-day bill is the instrument they use."
and they consider that around the world you'd have
no - if you want to sell a hundred million 2 week,
you can.
Seltzer:
Certainly.
Harris:
The commercial paper market and the bankers' accep-
tance market practically amount to nothing now, and
that's where they were using the funds, and the call
loan market is not particularly active.
Murphy:
You can sell them readily enough, and there is a
fine demand for them. But if the small demand for
funds is posited on this gold program, it seems to
Seltzer:
me that the issuance of 90-day bills itself would
make it much more complex and much more difficult
to put it in the program.
It would be harmful to you.
H.M.Jr:
Why?
Seltzer:
If you want to use your gold - and if the foreign
balances go into Treasury bills, you can't use your
gold to that extent. If you were to offer a 90-day
H.M.Jr:
Seltzer:
White:
bill
I can stop sterilizing if I want to.
Well then, of course, you increase your excess reserves.
Then there is no problem. You can start about
That wouldn't worry us. Fed can take care of that
if they want to.
138
-11Murphy:
Well, if you want to change that program, but that's
a - there's a change within the limits that we're
working. A large portion of the 90-day bills which
you sell automatically create a need for more paper
of that kind. It's like drinking salt water; the
more you drink, the thirstier you get.
H.M.Jr:
But I don't like this concentration business. If
we're going to do 90-days, when would you start?
Before September, after September? I mean to sell
into December. Do you want to - would you start
September 1 to sell them?
Seltzer:
I'd rather see you with 6-months bills - a little
more flexible; then you can go to three months bills
whenever you think right.
H.M.Jr:
White:
I'd rather go to 3-months right away. Let me just
argue - supposing some of these foreigners begin to
buy our 90-day bills. What's the matter with that?
Well, the trouble is that what they buy the banks
will have to sell, because the cash that the banks
need in order to supply them with the funds would have
to come out of their assets; they've drawn their
balances.
H.M.Jr:
What would they sell?
White:
Well,
assets.I suppose they'd sell their - the most liquid
Murphy:
I suppose they'd sell such bills as they'd have.
They haven't got a great deal to sell.
White:
H.M.Jr:
It wouldn't be a mass movement; it wouldn't be a quick
thing. Look how long it's taken Switzerland to make
up her mind to buy a few bills.
White:
I think you can very easily feel your way in this
thing, because nobody's advocating sudden jumps.
We're all advocating gradual movements, so that you
can feel the market and know when to
H.M.Jr:
Well, Burgess is very, very, very strongly opposed to
139
-12-
our increasing our outstanding bills. He thinks it's
a tremendous mistake and it's a device which should
be saved for emergencies. And he'd like to see the
Harris:
90-day, but this idea of building it up to three or
four billion dollars he thinks is terrible.
Well, nobody's talking about four billion dollars.
Well, by law aren't you limited to three billion?
H.M.Jr:
Oh no, oh no.
Harris:
Iitwas
is? under the impression - does anybody know what
Taylor:
Murphy:
White:
I think the legal limit is on bills, certificates,
and notes combined, in any proportions.
It's much higher than that. We have ten on notes
alone outstanding. I'd say it's 20 probably.
Taylor:
20 to 25.
Murphy:
Maybe 25.
Lochhead:
There was some estimate made of the amount of bills
that you could have outstanding, wasn't there, Wayne?
There was some figuring done on that, about how much
the market
Taylor:
Well, partly from the standpoint of what the market
would take, what was conservative from the standpoint
of the Treasury in view of the increased receipts;
again, from the standpoint of the relationship to its
entire debt structure in the hands of the public, what
would be a conservative figure; and from various standpoints, why, we got anything up to, say, three and a
half billion, which would compare with, say, a two
billion volume at another period when your receipts
were much lower.
Lochhead:
But how much margin would you figure you should keep
Taylor:
Well, in other words, your margin which you figured
for an emergency?
in terms of, say, three billion dollars worth of bills
140
-13-
in the market wouldn't be necessarily any greater
than your margin for safety which you would have when
Lochhead:
you had two billion bills in the market on account of
your greater receipts.
Yes, but even if - you said you figure for three
billions - if the market could take the three billion,
you wouldn't want to have three billion out; you'd
want to keep a reserve of half a billion dollars to
use in emergency.
White:
When you're speaking of emergencies, you've got two
billion dollars which is available - if I understand
the same thing you mean by an emergency. You don't
have to skate so thin; you can always absorb bills
with your Stabilization Fund, as part of the definite,
prescribed
Lochhead:
No, I didn't
White:
Well, you're speaking of emergencies. I say
If you have an emergency, you've got your sterilized
Lochhead:
White:
Murphy:
Seltzer:
gold before the other. No, I'm just thinking of
keeping your regular program going, with the amount
of bills you'd figure you'd have outstanding without
having to have recourse to the gold in the Stabilization
or the sterilized funds.
Oh, that's different.
If we had three billion two of bills outstanding, that
isn't the emergency top, would you say, Mr. Taylor?
We could put it up another billion if we had to, it
seems to me, without being out of line with any number
of reasonable criteria.
The funny thing about this raising reserve requirements
on foreign balances - if the thing worked, the only way
you'd be able to spend your gold would be to retire out
of cash your September note maturity, 817 million -
just retire it out of cash.
H.M.Jr:
Why? I don't follow you.
Seltzer:
Because our deficit expenditures will aggregate less
than 200 millions, by Danny Bell's figures, from
141
-14-
July 1 to December 31.
H.M.Jr:
Yes.
Seltzer:
And the only way you can get your money out, of course,
H.M.Jr:
is to spend it.
That's right.
Seltzer:
And you'd retire your September note issue, that being
Murphy:
It would just about come out even. The New York
banks would need 800 million dollars worth of
reserves, and retiring the September issue on cash
H.M.Jr:
Murphy:
H.M.Jr:
the big thing that you can use it for.
would just give it to them.
800 million.
800 million, that is, the 75 percent reserves; so
it would just break even.
That's why I'd like to spend a hundred million dollars
worth of gold this week. I'd just kind of like to get
another hundred million out. I can't help it if Danny
hasn't got the money, Wayne (laughing).
Lochhead:
Well, if you're thinking of raising the requirements
H.M.Jr:
Danny - I mean what - I can't help it.
Taylor:
I understand.
H.M.Jr:
I mean poor Dan's all worried tonight. Did you hear
what he said about Archie? Terrible.
Lochhead:
Oh yes. If you were going to raise your reserve
requirements on foreign deposits, say, up to 75
percent, the only good that does is to unsterilize
H.M.Jr:
White:
to
that amount of gold. Well, 1f that is true about
75, it's true about 26 right today.
Unsterilize it.
That will help.
. 142
-15Lochhead:
So you wouldn't have to jump at all. You would
simply say that you were going to release the amount
that is already held in reserve, and that would
loosen up
Seltzer:
Except they went from a point in time; they didn't
go back to the year 1.
Murphy:
You have to have some benchmark to start with.
If you have retired about 50 million dollars worth
of national bank notes since the original sterilization announcement, it would be very easy to simply
reimburse the general fund for that retirement, which
would put about 50 million dollars in your effective
working balance by what would have the color of a
routine
transaction - in fact, would be one
ifperfectly
it were so
declared.
White:
Danny doesn't want to let me put that in. We'11 have
to fight that out with Dan. He and I disagree. He
claims it was a washout and we claim it wasn't a
washout, and that was one of the qualifications that
we had in the memorandum.
Seltzer:
H.M.Jr:
It isn't a washout. It's a washout in part against
silver that we put out, that's all. But you have a
net balance of around 25 million; it's not a washout.
Well, I carried a figure and you say - I carried a
figure of 134 million free gold, and you (Seltzer)
say it's 190; but I carry 134.
White:
Danny Bell said 134 two weeks ago.
H.M.Jr:
White:
He said 134 the last time we talked to him.
Sixty is allocated.
Murphy:
There's no law
Seltzer:
That's your regulation.
H.M.Jr:
But for some reason - all we need is a hundred million.
White:
Well, I thought at the time you decided you could take
143
-16-
it out of the working balance without introducing
any alteration in the understanding that exists.
H.M.Jr:
Out of the working balance?
White:
Yes.
H.M.Jr:
That's what I'm talking about.
White:
H.M.Jr:
White:
I thought there was no question of that.
That's
what I'm talking about, in case he needs it
tomorrow.
Because that never was included in the original
understanding - just a gratuitous gift.
H.M.Jr:
I'd simply say we figured too close and we needed
another hundred million, which is the reason. Just
stick another
close
- which hundred
is true. million in. We just figured too
White:
H.M.Jr:
White:
Who
could
have figured on a billion dollars of gold
in
three
months!
No, I'm perfectly serious.
I thought we were in favor of doing this two weeks
ago.
H.M.Jr:
Murphy:
We never put it up to Federal Reserve.
You don't have to.
H.M.Jr:
Why?
Murphy:
Because that wasn't included in the press release or
any announcement that's been made. It's old gold that
existed on the date of the announcement; never been
any commitment on it.
H.M.Jr:
It's one of the "Old Gold" puzzles.
Taylor:
That isn't going to help you; the minute the certificates start climbing up - whether it's five million
dollars or whether it's 437 million, why you get a
headline the minute they move, and it isn't worth
moving them for 25 million, or a hundred.
144
-17-
H.M.Jr:
Well, we cross that the first thing in the morning.
Dan says he'll have the figures the first thing
tomorrow morning.
Taylor:
H.M.Jr:
Assuming he's got 46 million dollars in silver
We'11 use that first.
Taylor:
...and assuming you go on to your 90-day bill issue
practically immediately
H.M.Jr:
Well, he'd want to start it Wednesday. He's talking
about starting it Wednesday - a week from this Wednesday
announcing it this Thursday.
Well, won't that do your trick without concentration?
"hy doesn't that do the trick for you?
Well, you wouldn't want to start concentrations now,
but he didn't know - when's the 15th; it's Tuesday,
Taylor:
H.M.Jr:
isn't it?
Murphy:
Yes.
H.M.Jr:
Well, this other money doesn't come in until Wednesday.
They don't pay until Wednesday. I can't sell any more
until next Monday. And by next Wednesday the money
Lochhead:
Aren't tax receipts starting to come in now?
Taylor:
Yes, they're coming in. Got about 8 million, 9
million bucks so far this month.
Lochhead:
Have to speak in bigger figures than that in the
H.M.Jr:
next few days.
You know where the phone is on the next floor, Archie.
Go up and ask Dan whether he spent all his silver
certificates. Ask him if he knows, Archie - if he
knows tonight yet any more about that - whether that
46 - whether it's down to 50 million, whether that would
do it, what's the matter with these silver certificates.
See? Please.
(Lochhead goes out to phone)
H.M.Jr:
Well, just let's leave that aside, because that's
just a crisis, that's all. We can leave that to one
145
-18-
side. Would anybody here be upset if we started
the 22d or 29th to sell 50 a week of 90-day bills
without deciding what we're going to do at the end
of the picture?
Seltzer:
Well, I personally prefer the 6-months to the 90-days,
figuring it gives you a freer hand. If you need money
you raise more that way. If you don't need money, you
can always go to the 3-months. And 6-months bills
would be less attractive to foreigners than 3-months
bills.
H.M.Jr:
Yes, but the thing - the argument that I've gotten from
these large bankers in New York is that the 90-day
bill would give them what they need in case of more
shifts in excess reserves, and they need it very, very
badly; and they won't have to be selling their bonds
and they leave their portfolio alone, see; and the
one instrument that they need worse than anything
else right now is a 90-day bill. I mean that's what
they've told me, see? And the six-months won't do the
trick.
Seltzer:
And how about Eccles' plan as to buying
H.M.Jr:
He talked to me tonight about how did I feel about
his going ahead. I said, "Well, it can't do any
harm."
Murphy:
It does away with the 90-day - with the need for 90-days.
Taylor:
I don't think it does.
H.M.Jr:
I wish a couple of you fellows would talk to commercial
bankers the way I have on this 90-days.
White:
Seltzer:
No question, I think, they always have liked it.
They'd like nothing else but.
Taylor:
Well, how does it help the Treasury?
Seltzer:
That doesn't help the Treasury.
Murphy:
I'd say it hurts the Treasury, in two respects.
First, if we should go ahead with this raising of the
requirements on foreign balances, it is very likely
146
-19-
that a substantial proportion, perhaps half, of the
money that we borrow on the 90-days, is money which
otherwise would not have been forced into that market.
Secondly, there is the school of thought that we should
save our potential bill expansion for emergencies.
Of course, the 90-day bills are the emergency bills,
and we're putting them out now - would be. The only
way the Treasury can gain is by a saving in rate, and
it seems
to me that
the demand is really for a 90-day
bill
at a 9-month
rate.
Taylor:
why would the 90-day bills be the emergency bills?
I think they'd be just the opposite. Your emergency
bills would be the longest bill you could sell.
Seltzer:
Probably sell certificates for an emergency anyhow.
Taylor:
If it's a real emergency, you don't want to have to
move around that fast. It's dead wrong to think of
90-day bills as emergency bills.
H.M.Jr:
I can't see the six months as - I mean the 90-day bill
fills a definite commercial need.
That's your stock in trade.
And the reason I'm interested is it will mean that
Taylor:
H.M.Jr:
these fellows won't be selling their portfolios if
they get frightened; they won't be dumping fifty,
a hundred million, two hundred million dollars worth
of bonds, because they can let their bills run off.
They can't do it now, see; they're absolutely frozen,
and when the crop thing begins to move they say they're
so tight that the only thing they can do is sell their
bonds, and that's what keeps them constantly on edge.
Six-months won't do that.
Murphy:
If Eccles proposal was working, they could always sell
H.M.Jr:
I talked - they don't give a damn whether Eccles does
their 90-day bills to the Federal.
it or not; it's just window dressing; it doesn't make
a damn bit of difference. They'11 take the 90-days;
they'11 take fifty, a hundred, they'11 take 150 million
a week. And Eccles suggests this; I don't want to
always disagree with him; he wants to do it, he thinks
he's helping. What's the harm?
Taylor:
And it's good anyhow.
147
-20-
H.M.Jr:
And if we want to sometimes use the 6-months
Taylor:
White:
6-months or 9-months, that backs you up on that.
The very fact that they like the 90-days indicates
that that is what they would be more apt to go into.
However, from the other point of view, I think it is
true that the 90-day bill sells more by virtue of the
fact that it does fit commercial needs and induces
a large demand for those bills, which presumably
should lower the borrowing cost. So if it weren't
for the sterilization program, I should be in favor
of the 3-months bills. Therefore, the thing to
measure is the extent to which you would be borrowing
on a 90-day bill that you would not have to borrow if
you had 60-day bills - not have to borrow at all.
I think you put it
H.M.Jr:
You don't mean 60-days.
White:
Ithere
meant
6-months.
is some
shift. I think you put it too high, but
Murphy:
I wouldn't feel that the objections to the 90-day
bill were strong if it wasn't for this proposal.
I think it is less strong than what he says. I don't
think it is important. If you get up to 50, 60 - when
you get beyond 75 percent, or when you go from 60 to
75, I think it is important not to have - to have as
White:
few 3-months bills as possible.
H.M.Jr:
Have you got to the point that you're ready to recommend that we increase the reserves against the
White:
foreigners?
At once.
H.M.Jr:
What?
White:
At once.
H.M.Jr:
You have?
White:
I'd go from - the first jump I'd make would be from
26 - give them some time - to 50 percent.
Murphy:
At that point I think your 90-day bills get dangerous at 50 percent.
148
-21-
Seltzer:
Well, I don't think - feel your way. If you would
go to 50 percent, that would give you at once 25 percent
on - what is it, a billion and three?
Billion six.
White:
But I mean in the member banks, in the New York banks.
Seltzer:
A billion three for the member banks.
White:
The others would have to pay 25 - they'd have to pay
White:
the full 50, because they haven't had to do this at
all before. But it would give you immediately half
a billion dollars.
Seltzer:
White:
Only about 30 million.
Not if you went to 50 percent.
(Lochhead returns)
Lochhead:
Dan says that, first of all, he's got calls in this
wekk for 70 million dollars; we'll have 70 million
dollars to spend on gold in the next ten days. And
then, on the silver, he said we could in an emergency
force that into the Federal book. He was surprised
to know it was down as low as 46. He hadn't noticed
that drop of 16 million. But it could be done that
way. So really you've got 70 plus 46; you've got about
120 million dollars you can use in the next ten days,
and I don't see anything more than 50. I think we'll
make it with 50 million, because the market was very
small today.
H.M.Jr:
Well, if the Federal doesn't like those silver notes,
White:
It seems to me their objection to silver certificates
is of the fifth order of importance. I wouldn't give
it a wink.
I don't worry at all, because the law says that you
can use the silver certificates.
Lochhead:
we better give them gold.
H.M.Jr:
Supposing we use all 46 million of the silver.
Taylor:
O.K., why not?
149
-22-
H.M.Jr:
Then what? "ill that see Danny through?
Lochhead:
With the 70 million he has on calls, yes.
H.M.Jr:
What?
Lochhead:
As far as I can see, it's going to carry him through.
I can't figure on a hundred million coming in in the
H.M.Jr:
next ten days unless we get another
Or would you rather use the silver?
Lochhead:
"ell, if he doesn't want to pull out the balances
That would be the way to call his balances.
Taylor:
He's already got his calls out, so those move down
anyhow - over into the Federal anyhow, don't they?
H.M.Jr:
Is it too late to use the silver certificates?
Lochhead:
He can put those in any day. He can put those in on
a moment's notice. The only thing to do is to telephone
H.M.Jr:
and those silver certificates go in.
I think to be consistent - I think we ought to discuss
this with the Federal Reserve first before we use any
of Taylor's gold. What? Don't you think so?
Taylor:
Yes, sir.
H.M.Jr:
Well, I think that that's the answer, to tell them to
use that up first.
Lochhead:
Well, when you say use that up, do you mean use that
before you use the gold or use it up before he uses
the balances he's called? He's called for 70 million
dollars in the next ten days.
Taylor:
Fifty-fifty.
H.M.Jr:
Well, how can he do it? Is it too late to put the
silver in?
Lochhead:
No. He's got the calls out. I think he's got a call
out for his funds out of the commercial banks, and
that means he transfers his balances from commercial
150
-23-
banks to the Federal. But in addition to that,
he
can put his silver certificates in, and that
increases
H.M.Jr:
And spend that?
Lochhead:
And
spend
that.all.
That gives him a little bit bigger
balance,
that's
Taylor:
Not running very heavy balances now.
Lochhead:
No.
H.M.Jr:
I think he was up to 140 today, wasn't he?
The other thing about it, he doesn't know how many
people are going to pay for these bonds with cash.
Now, there's going to be quite a few, because I was
surprised today to see the number of insurance com-
panies - Ford came in, too, and Chrysler. I mean that's
new kind of customers for us. And in big wads. Mr.
Ford may say Sunday night through Mr. Cameron that the
Treasury mismanages, but he still likes their notes
if he can get enough of them.
Lochhead:
Probably
likesbankers.
the Treasury better than he does the
international
H.M.Jr:
Maybe he thinks they're synonomous. He said that
our tax bill was conceived by international bankers.
Well, Harry, in this memorandum of Gardner does he
say anything about increasing reserve requirements
for foreigners?
White:
No.
on it.But I think that Currie wrote the memorandum
Taylor:
He doesn't close that possibility.
"hite:
No,
but I don't think he mentions it. But Currie
wrote a memorandum on it.
H.M.Jr:
What do you think would happen if we did that?
White:
Why, I think if there would be any difference of
opinion, it would be again on the question of making
151
-24-
it automatic. That is, they would want you to work
it both in case, in other words, there was a purchase
of securities from the deposits or in case more gold
came in - or at least I mean less gold went out the other way.
H.M.Jr:
Don't go so fast. Start all over.
White:
What?
H.M.Jr:
Say it all over again.
I think that the way the difference of opinion, if
any, would exist - and they would like the idea except
that they would wish it automatic, automatic in the
sense that it would work both ways; that if the bal-
White:
ances on foreign account were drawn down, so that the
excess reserves were increased, you would resterilize
that.
H.M.Jr:
White:
H.M.Jr:
I see. In other words, they'd have a call on me.
But I question that you would still maintain your
present program, in a sense. Now, that's where the
difference of opinion, if any, would be. I think
they'd probably approve it.
That is, that's something you think we ought to do
pretty soon.
White:
I think so.
H.M.Jr:
Well now, supposing we went half way. What effect
would this have? Would that drive this foreign money
into the bill market?
White:
Well, if we went half way there's beginning to be room
for difference of opinion. I think you'd have to go and
get the opinion of men closer to the source than I am.
My opinion would be that if you went to 50 percent, you
wouldn't drive any in to any significant extent. You
could get that - it would be a half billion dollars that
you could get right away.
H.M.Jr:
What's your reason for doing it?
White:
The reason for
H.M.Jr:
raising the reserve requirements.
152
-25White,
Oh, there are five reasons.
H.M.Jr:
Well, give me one.
White:
One reason is it would reduce your financing problem.
(B) The expense of maintaining the inactive account
is, I think, from any point of view inexcusable. The
burden ought to belong on the banks who benefit from
those deposits, or on the foreigners who for some reason
or other prefer dollars to any other accounts, and the
funds ought to be taxed there. The Treasury certainly
oughtn't to borrow that in view of the fact that the
criticism which is being directed against the Treasury
policy is hung on that peg, plus the fact that the
criticism of that point is creating a broader interest
in the whole gold problem, it is raising the gold
problem. A good deal of the talk of digging up gold
from one hole and burying it in another centers around
the fact that we have to borrow in order to sterilize
that gold; it would reduce that somewhat. It wouldn't
eliminate
it, but I think it would reduce it very
substantially.
And then, in so far as there would be a service charge
and in so far as that service charge wouldn't drive
them into bills, you'd have a slight, a very slight,
deterrent; it might be that certain funds wouldn't come
here, and there might be - I wouldn't weight that
H.M.Jr:
very heavily because I don't think it is very important.
Well, the banks wouldn't like it.
Lochhead:
Oh no, the banks wouldn't.
H.M.Jr:
They wouldn't like it because it would discourage
foreign funds from depositing with them.
White:
Oh, there's another important point that I'd like
to mention; there might be some difference of
opinion. But I think it is a splendid opportunity
to extend Federal control over private banks and
non-member banks, and here is one vehicle upon which
you could do it very definitely. Congress would be
glad, I think, to give you that power, whereas you'd
have considerable difficulty getting any other form
of extension, and it is a very important opening
153
-26-
H.M.Jr:
White:
wedge in a direction which I think we definitely
ought to go, and will go as time goes on.
You mean have this over state banks as well as....
Over state and private banks. Now, there's a disagreement. Wayne has a different idea on that.
Wayne would prefer to have only member banks
Taylor:
White:
.eligible to receive foreign deposits.
...to receive foreign deposits.
H.M.Jr:
That wouldn't be any good, because our good friend
Mr. - the Chairman of the Banking in the House
Murphy:
Steagall.
H.M.Jr:
... - he'd never stand for that.
I think he would on the foreign bank thing. That
doesn't affect the foreign deposits thing.
Taylor:
H.M."r:
Foreign deposits only go to member banks?
Taylor:
Yes.
H.M.Jr:
Put he wouldn't stand that we have the right to control the excess reserves of non-member banks who
control foreign accounts.
Taylor:
Therefore, you are forced into what I am talking
H.M.Jr:
That foreigners could only deposit with members.
Taylor:
That's right.
That isn't what you...
No, I have the other point of view.
It all depends on who's going to fight it; but believe
me, I wouldn't want to undertake any more fights on it.
Well, they'11 fight it just the same; the banks are
not going to like to lose those deposits.
H.M.Jr:
White:
H.M.J.:
White:
about.
154
-27H.M.Jr:
But that isn't Mr. Steagall's - Mr. Steagall would
fight till Doomsday before having the Federal
Government doing anything over state banks.
White:
Only
with respect
have anything
over to foreign deposits. They wouldn't
H.M.Jr:
Well, I don't know; the thing that makes me hesitate
about all this thing, it would mean legislation and
opening
up the whole thing on the Hill, see - the
whole question.
White:
Put the time is ripe; we've got every good argument in
favor of it, because what you're hammering away at is
foreign funds, foreign gold coming here and putting
American people to an expense.
H.M.Jr:
Eccles would have to go up and sell this, wouldn't he?
White:
He's in favor of it - was.
H.M.Jr:
What?
White:
He's in favor of it.
Seltzer:
He'd have a relatively easy time - "See here, you
do this thing and the Treasury won't have to borrow
money and pay interest and sterilize this gold; it
is sterilized atomatically by these reserves."
A.M.Jr:
Lochhead:
"Eccles comes to the rescue of the Treasury."
It would encourage people on the Hill, like Thomas -
you're going to have more and more
H.M.Jr:
What was his bill today?
Lochhead:
It is that instead of using this sterilized gold,
that you take away the bondst that the Federal Reserve
has.
H.M.Jr:
Lochhead:
Well, I'm for that.
That's going to build up; it's been a little slow in
coming.
Taylor:
This not only looks like the most possible, but it
seems to have sufficient merit from various angles
155
-28-
Seltzer:
so that even your crowd that is all for unit banking, which is concentrated around in places which
aren't a bit interested in foreign deposits
It's only 26 banks that have - I mean 26 virtually 26 banks have got virtually all the foreign
I got rough figures from
of a billion, 660.
H.M.Jr:
Let's hear Archie.
Lochhead:
Total deposits in the second district - foreign
deposits - were one billion, 666 million.
H.M.Jr:
Say it again.
Lochhead:
One billion, 666 million.
H.M.Jr:
Where is this?
Lochhead:
White:
Deposits in all the banks in the second district.
Which are 95 percent of the total.
H.M.Jr:
You (White) act as though you found out about this.
White:
Lochhead:
I asked Archie for it at 8:20; that's why we got it.
But you act as though you discovered this.
White:
No, I saw it first because Archie telephoned it to
me.
Lochhead:
There's 26 banks in New York holding one billion,
524 million of that amount.
H.M.Jr:
Yes.
Lochhead:
That's 26 banks holding one billion, 524 million of
that one billion, 666 million. That would be over
about 94 percent, I suppose.
H.M.Jr:
Lochhead:
Well, I told you we'd get 95 percent.
Now then, you've got in there 285 million of these
foreign deposits held with non-member banks, and if
you put any rule through which would just apply to
-
156
-29-
H.M.Jr:
members, of course, all the money would shift there.
You'd have to protect that.
Lochhead:
You'd
have to protect that; there's no doubt about
that.
H.M.Jr:
And I think the easiest way to do it is Taylor's
way; otherwise, I think you're going to take on a
fight, a terrific lobby on that.
Taylor:
Your
big private
call them
that. non-member banks, if you want to
Lochhead:
You've got people, of course, like Morgan and some
of the others - Kuhn-Loeb, J. Henry Schroeder.
Taylor:
There's no reason in Christ's world if they're
Lochhead:
And the others you're going to have are these fellows
accepting foreign deposits why they shouldn't be
part of your banking system.
such as Canadian Bank of Commerce, Bank of Montreal,
French-American Banking Corporation, Bank of Nova
Scotia.
Lochhead:
When you say 26, is that included in that?
Those banks are included.
H.M.Jr:
Now, if you subtract those, how many you got left
Lochhead:
The non-member banks?
H.M.Jr:
Non-member banks.
Lochhead:
Have just about 13.
H.M.Jr:
That's more like it; that's more like it.
Lochhead:
13 banks in New York.
Taylor:
But those are members.
H.M.Jr:
that handle foreign accounts?
Lochhead: 13 members.
157
-30-
H.M.Jr:
When you concentrate your deposits, roughly how
much of the deposits are in those 13 banks?
Lochhead:
In those 13 banks
Taylor:
Which 13?
Lochhead:
The 13 member banks at the present time have about
H.M.Jr:
Lochhead:
You can control that. And you didn't get Chicago?
No, we didn't get Chicago. We'd have to go direct
to Chicago, and Boston, San Francisco. But it
wouldn't mean anything to any great extent.
H.M.Jr:
Well, if you made it so that it would only have to
one billion, 200-odd million.
be member banks, your whole foreign deposits would
be in, say, 15 banks.
White:
Then all you'd have to do would be to fight the 15
non-members.
H.M.Jr
Well, that would be easy.
Taylor:
That's duck soup for you.
H.M.Jr:
How many total non-member banks are there? Ten
White:
Well, that's another matter. Of course, it might have
thousand, aren't there? About ten thousand. Well,
I'd rather fight this than the ten thousand. Harry,
the feeling on that is something
the advantage of shoving some more into the banking
system.
Lochhead:
You take Morgan, for example.
Has about 60-odd million.
Taylor:
And that is a major portion of Morgan's business.
White:
He may join the System.
Taylor:
Taylor:
Well, why the hell shouldn't he join the System if
he wants to be in the commercial banking business?
158
-31-
H.M.Jr:
Very interesting, isn't it? Very interesting.
Did you know that the Discount Corporation of New
York was a bank and could take war loan deposits?
This only came out the other day. I didn't know
that. That's where they have it all over these Government
bond dealers. I didn't know that they buy this
stuff on
Harris:
They don't require the leading Government bond houses
to put up any deposit on these subscriptions - like
Solomon, First Boston.
H.M.Jr:
But
they haven't got any war loan account to buy on
credit.
Harris:
No.
H.M.Jr:
Carry those things for a year if they want.
Well, I guess, Harry, the thing I've got to do is to
make up my mind about this question of reserves
against foreign accounts. But you don't feel that
if we went
offset
it? at that gently the 90-day bill thing would
White:
No, not till we got in the range between - there may
begin to be difference of opinion between the range
of 50 and 65 percent.
H.M.Jr:
Taylor;
Well, what about their going into commercial paper?
There isn't any.
H.M.Jr:
Supposing there is and money becomes available.
White:
Well, they prefer bills to commercial paper. They'd
go into commercial paper second.
H.M.Jr:
White:
How far along is the Federal Reserve on the question
of raising these reserves on foreign deposits?
I don't know. I know they had a memorandum on it
sometime ago.
H.M.Jr:
What happened to it?
159
-32White:
I don't know. I didn't see what the memorandum
was, but
Taylor:
Harris:
Lochhead:
we were sterilizing, so it wasn't anything that
had to be answered.
I think it would help the corporate bond market
if the Treasury in the near future could raise
most of their funds in the short-term money market,
because corporate financing should pick up. I
noticed one comment in Moody's today that they
thought it was a fine gesture on the part of the
Treasury, if you want to call it such, that they
raised their money in the short-term market, and
let the long-term market settle down to give
corporations an opportunity to look forward to some
financing, which they have been laying off so long.
Yes, but do you think that makes a difference of
9-months to 90-days?
Harris:
No, I mean if you were planning in September or
December
H.M.Jr:
That's why we wanted the notes.
Harris:
If you were going in September or December to go
back into the bond market
We've got over two
H.M.Jr:
Taylor:
billion dollars worth of refinancing to do before
this year is out.
That's why I wanted the notes, and look at the tone
it's given the bond market.
Mr. Moody is right, but there was some self-interest
in that too.
Murphy:
Suppose we do go into this raising reserves and it
takes six months, and we get out our 90-day bills;
once they are out, it's going to be awful hard to
get them back in; it's like taking candy a way from
a baby, they want them so badly. The minute you
start reeling them in again, it will be a really
major operation, if they should even partially
raise the reserves, wouldn't you say, Harry?
White:
I would prefer to see us start conservatively, and
keep the 3-months bills with 6-months as a start.
160
-33-
Taylor:
You place this fellow in the - I mean the banker -
in this position. The only thing that will drive
his accounts into the bill market is if he puts on
the service charge, isn't it? Well, if he puts the
service charge on, he cuts himself out of what he
wants, an attractive rate, which is the bills, isn't
it?
Murphy:
Well, of course, taking a banker individually, he
can't do - he can't be influenced by the effect of
his individual action on the market, because if he
doesn't, somebody else will. In considering the
transaction, just the merits of the individual
transaction, he will put a service charge on the
accounts if they become absolutely a loss; and if
we raise the requirements, say, above 50, they
probably will do that. I don't know just what the
breaking point is; you'd have to get commercial
bankers to tell you that.
Taylor:
There are these foreign investors. If he is as
smart as I think he is, he's going to figure that
he's going to drive them into the bill market, which
will raise the price on his bills, so that then he's....
Seltzer:
Of course, he isn't going to have as much money to
invest in bills if they draw his funds out.
Taylor:
Well, it's - it is a factor.
White:
He loses from two angles. He loses from the fact
that he gets less money to invest, and then his bill
rate is high - gets less on bills.
Taylor:
Seltzer:
If he puts the service charge on, he's competing
against himself in the bill market, which is the
market that he wants to be in.
You've got this definite cost of 1/12 of one percent.
portion of the deposits, as you get up into these
AS that becomes concentrated in a smaller and smaller
astronomical reserve requirements, then it becomes a
question right there of one-third of one percent on
the effective balance, if the requirements are 75.
White:
There is another factor that hasn't been mentioned.
If it should be found that the incoming gold is
becoming more of a serious problem and you want to
161
-34-
check it, then this would be the first step; it
would have to be accompanied later by some form of
transfer tax, possibly. But it isn't just right
now - but I mean if the problem would become more
Murphy:
White:
Murphy:
serious, it would be easier to impose that transfer
tax later, after this thing is running smoothly.
You'd know just about how much to put on. You could
gather from the experience of this thing a good deal
of information as to the knowledge of whether you
need any transfer tax or how high it is, so that when
you do raise your reserve requirements, you'd be in
a position to handle it
Well, a very small transfer tax, of course, would
offset the whole thing.
Yes, well, that's why I say - but it's the administration of the transfer tax.
It is something new to place a transfer tax on
original purchases. Supposing that the people bought
them at the time of issue and held them to maturity.
We don't enforce any other transfer taxes on the first
sale.
White:
Those are the problems. Not adopting it now. There
are several other administrative problems.
H.M.Jr:
You know, you and I have talked this now for about three
White:
Might.
H.M.Jr:
It might.
White:
And it might not. But it might.
I've really felt better this last week about it.
Lochhead:
H.M.Jr:
months - that this thing might work itself out, you know.
I tell you what I'm going to do. If it's quiet
tomorrow - the gold market - I'm going to go up to
Bob's graduation; I don't think I'll be back till
Sunday night. I mean I've had enough now for a
while; I'm completely tired out mentally. I need a
couple days on the farm; it would do me a lot of good,
and I'd come back with a lot of new ideas.
162
-35Tay lor:
Well, particularly to take on this thing.
H.M.Jr:
Well, I may take White up with me, ask him to
come up Friday and spend Friday and Saturday on
the farm, and I'll work a couple afternoons;
may have him come up there and I'll spend a couple
afternoons going to school.
Lochhead:
The Secretary generally gets his ideas when he comes
down on the midnight train. I can always tell when
you come down on the train.
H.M.Jr:
I don't sleep so hot.
Lochhead:
He doesn't sleep all night and he comes in bright
White:
Well, in any case we can get all the data and all
the stuff ready.
I think bringing you two (White and Seltzer) together
on this is very important, because there seems to
H.M.Jr:
and early.
be
White:
We're not so very far apart.
H.M.Jr:
And I told Mr. Eccles that I wouldn't take up this
White:
Then you're not going to raise this problem tomorrow.
H.M.Jr:
No, not after tonight's conversation, no. But I
White:
Of course, they'd have to cooperate very closely with
any such arrangement, because there would be a period
over which they'd have to absorb the bills while this
is going on.
H.M.Jr:
Well gentlemen, I think we'll call it quits. As I
question of new financing until a week from Wednesday.
told him I was going to take it up Wednesday a week,
and if we came to - had any ideas in the meantime,
why, Mr. Taylor would communicate them. But I don't
think we've got anything tonight to communicate.
He's got his hands full tomorrow.
understand, if the silver's gone, we spend Taylor's gold.
God, I never saw a man hang on to gold in my life like
that
Taylor:
H.M.Jr:
Don't call that my gold.
Your "goldilocks," huh?
163
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Monday. June 7. 1937.
6/5/37
Press Service
No. 10-45
Secretary of the Treasury Morgenthau is today offering for
subscription, at par and accrued interest, through the Federal
Reserve banks, $800,000,000, or thereabouts, Treasury notes in
two series, each for $400,000,000, or thereabouts. Both series
will be dated and boar interest from June 15, 1937. One series,
designated Series D-1939, will bear interest at the rate of 1-3/8
percent, and will mature in two years and three months on September 15,
1939. The other series, designated Series A-1942, will bear interest
at the rate of 1-3/4 percent, and will mature in four years and nine
months on March 15, 1942. The notes will not be subject to call for
redemption prior to maturity.
The Treasury notes will be accorded the same exemptions from
taxation as are accorded other issues of Treasury notes now outstanding.
These provisions are specifically set forth in the official circular
issued today. The notes will be issued only in bearer form with
coupons attached, in the denominations of $100, $500, $1,000, $5,000,
$10,000 and $100,000.
Subscriptions will be received at the Federal Reserve banks
and branches, and at the Treasury Department, Washington. Banking
institutions genorally may submit subscriptions for account of
customers, but only the Federal Reserve banks and the Treasury Depart-
nent are authorized to act as official agencies. Subscriptions from
164
-2banks and trust companies for their own account will be received without
deposit but will be restricted in each case and for each series to an amount
not exceeding one-half of the combined capital and surplus of the subscribing
bank or trust company. Subscriptions from all others must be accompanied by
10 percent of the amount of notes applied for.
The right is reserved to close the books as to any or all subscriptions
or classes of subscriptions at any time without notice. All subscriptions
will be received subject to allotment and subject to the reservations set
forth in the official circular. Payment for any notes allotted must be made
or completed on or bofore June 15, 1937, or on later allotment.
Special Treasury bills aggregating $300,000,000 mature immediately
after June 15, and about $157,000,000 interest on the public debt becomes
payable on that date.
The text of the official circular follows:
165
UNITED STATES OF AMERICA
TREASURY NOTES
1-3/8 percent
Series D-1939
Due September 15, 1939
1-3/4 percent
Series A-1942
Due March 15, 1942
Both series dated and bearing interest from June 15, 1937
1937
TREASURY DEPARTMENT,
Department Circular No. 575
Office of the Secretary.
Washington, June 7, 1937.
Public Debt Service
I. OFFERING OF NOTES
1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, approved September 24, 1917, as amended, invites subscriptions,
at par and accrued interest, from the people of the United States for notes of the
United States in two series, designated 1-3/8 percent Treasury Notes of
Series D-1939 and 1-3/4 percent Treasury Notes of Series A-1942, respectively.
The amount of the offering of each series of notes is $400,000,000, or thereabouts.
II. DESCRIPTION OF NOTES
1. The notes of Series D-1939 will be dated June 15, 1937, and will bear
interest from that date at the rate of 1-3/8 percent per annun, payable on a semiannual basis on September 15, 1937, and thereafter on March 15 and September 15 in
each year. They will mature September 15, 1939, and will not be subject to call
for redemption prior to naturity.
2. The notes of Series A-1942 will be dated June 15, 1937, and will bear
interest from that date at the rate of 1-3/4 percent per annum, payable on a semiannual basis on September 15, 1937, and thereafter on March 15 and September 15 in
each year. They will mature. March 15, 1942, and will not be subject to call for
redemption prior to maturity.
-2 -
166
3. The notes shall bo exempt, both as to principal and interest, from all taxation (except estate or inheritance taxes, or gift taxes) now or hereafter imposed
by the United Statos, any State, or any of the possessions of the United States, or
by any local taxing authority.
4. The notes will be accepted at par during such time and under such rules
and regulations as shall be prescribod or approved by the Socrotary of the Treasury
in payment of income and profits taxes payable at the maturity of the notes.
5. The notes will be acceptable to secure deposits of public moneys, but will
not boar the circulation privilego.
6. Bearer notes with interest coupons attached will be issued in donominations of $100, $500, $1,000, $5,000. $10,000 and $100,000. The notes will not be
issued in registered form.
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve banks and branchos
and at the Treasury Department, Washington. Banking institutions generally may
submit subscriptions for account of customers, but only the Fodoral Reservo banks
and the Treasury Department are authorized to act as cfficial agencies. Others
than banking institutions will not be permitted tc enter subscriptions except for
their own account. Subscriptions from banks and trust companies for their own
account will be received withcut deposit but will be restricted in each case and
for each series to an amount not exceeding one-half of the ccmbined capital and
surplus of the subscribing bank or trust company. Subscriptions from all others
must be accompanied by payment of 10 percent cf the amount of nctes applied for.
The Secretary of the Treasury reserves the right to close the bocks as to any or
all subscriptions or classes of subscriptions at`any time without notice.
2. The Secretary cf the Treasury reserves the right to reject any subscrip-
ticn, in whele or in part, tc allot less than the amount cf notes applied for, to
make allotments in full upon applications fcr smaller amounts and tc make reduced
167
-
allotments upon, or to reject, applications for larger amounts, or to adopt any or
all of said methods or such other methods of allotment and classification of allotments as shall be deemed by him to be in the public interest; and his action in any
or all of these respects shall be final. Allotment notices will be sent out
promptly upon allotment, and the basis of the allotment will be publicly announced.
IV. PAYMENT
1. Payment at par and accrued interest, if any, for notes allotted hereunder
must be made or completed on or before June 15, 1937, or on later allotment. In
every case where payment is not so completed, the payment with application up to
10 percent of the amount of notes applied for shall, upon declaration made by the
Secretary of the Treasury in his discretion, be forfeited to the United States.
Any qualified depositary will be permitted to make payment by credit for notes
allotted to it for itself and its customers up to any amount for which it shall be
qualified in excess of existing deposits, when so notified by the Federal Reserve
bank of its district.
V. GENERAL PROVISIONS
1. As fiscal agents of the United States, Federal Reserve banks are
authorized and requested to receive subscriptions, to make allotments on the basis
and up to the amounts indicated by the Secretary of the Treasury to the Federal
Reserve banks of the respective districts, to issue allotment notices, to receive
payment for notes allotted, to make delivery of notes on full-paid subscriptions
allotted, and they may issue interim receipts pending delivery of the definitive
notes.
2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplomental or amendatory rules and regulations governing the offering,
which will be communicated promptly to the Federal Reserve banks.
HENRY MORGENTHAU, JR.;
Secretary of the Treasury.
m Klotz
UNITED STATES OF AMERICA
TREASURY NOTES
13/8 percent
Series D-1939
13/4 percent
Series A-1942
Due September 15, 1939
Due March 15, 1942
BOTH SERIES DATED AND BEARING INTEREST FROM JUNE 15, 1937
1937
TREASURY DEPARTMENT,
Department Circular No. 575
OFFICE OF THE SECRETARY,
Public Debt Service
Washington, June 7, 1937.
I. OFFERING OF NOTES
1. The Secretary of the Treasury, pursuant to the authority of the Second Liberty Bond Act,
approved September 24, 1917, as amended, invites subscriptions, at par and accrued interest, from
the people of the United States for notes of the United States in two series, designated 1 percent
Treasury Notes of Series D-1939 and 184 percent Treasury Notes of Series A-1942 respectively.
The amount of the offering of each series of notes is $400,000,000, or thereabouts.
II. DESCRIPTION OF NOTES
1. The notes of Series D-1939 will be dated June 15, 1937, and will bear interest from that
date at the rate of 1% percent per annum, payable on a semiannual basis on September 15, 1937,
and thereafter on March 15 and September 15 in each year. They will mature September 15, 1939,
and will not be subject to call for redemption prior to maturity.
2. The notes of Series A-1942 will be dated June 15, 1937, and will bear interest from that
date at the rate of 13/4 percent per annum, payable on a semiannual basis on September 15, 1937,
and thereafter on March 15 and September 15 in each year. They will mature March 15, 1942, and
will not be subject to call for redemption prior to maturity.
3. The notes shall be exempt, both as to principal and interest, from all taxation (except estate
or inheritance taxes, or gift taxes) now or hereafter imposed by the United States, any State, or
any of the possessions of the United States, or by any local taxing authority.
4. The notes will be accepted at par during such time and under such rules and regulations as
shall be prescribed or approved by the Secretary of the Treasury in payment of income and profits
taxes payable at the maturity of the notes.
5. The notes will be acceptable to secure deposits of public moneys, but will not bear the circulation privilege.
6. Bearer notes with interest coupons attached will be issued in denominations of $100, $500,
$1,000, $5,000, $10,000 and $100,000. The notes will not be issued in registered form.
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve banks and branches and at the Treasury Department, Washington. Banking institutions generally may submit subscriptions for account
of customers, but only the Federal Reserve banks and the Treasury Department are authorized to
act as official agencies. Others than banking institutions will not be permitted to enter subscriptions except for their own account. Subscriptions from banks and trust companies for their own
account will be received without deposit but will be restricted in each case and for each series to an
amount not exceeding one-half of the combined capital and surplus of the subscribing bank or trust
company. Subscriptions from all others must be accompanied by payment of 10 percent of the
amount of notes applied for. The Secretary of the Treasury reserves the right to close the books
as to any or all subscriptions or classes of subscriptions at any time without notice.
168
sar
ADIREMA go 2 TTAT8 CETTINU
2. The Secretary of the Treasury reserves the right to reject any subscription, in whole or in
part, to allot less than the amount of notes applied for, to make allotments in full upon applications
for smaller amounts and to make reduced allotments upon, or to reject, applications for larger
amounts, or to adopt any or all of said methods or such other methods of allotment and classification of allotments as shall be deemed by him to be in the public interest; and his action in any or all
of these respects shall be final. Allotment notices will be sent out promptly upon allotment, and
the basis of the allotment will be publicly announced.
IV. PAYMENT
1. Payment at par and accrued interest, if any, for notes allotted hereunder must be made or
completed on or before June 15, 1937, or on later allotment. In every case where payment is not
so completed, the payment with application up to 10 percent of the amount of notes applied for shall,
upon declaration made by the Secretary of the Treasury in his discretion, be forfeited to the United
States. Any qualified depositary will be permitted to make payment by credit for notes allotted
to it for itself and its customers up to any amount for which it shall be qualified in excess of existing deposits, when so notified by the Federal Reserve bank of its district.
19/198
V. GENERAL PROVISIONS
1. As fiscal agents of the United States, Federal Reserve banks are authorized and requested
to receive subscriptions, to make allotments on the basis and up to the amounts indicated by the
Secretary of the Treasury to the Federal Reserve banks of the respective districts, to issue allotment
notices, to receive payment for notes allotted, to make delivery of notes on full-paid subscriptions
allotted, and they may issue interim receipts pending delivery of the definitive notes.
2. The Secretary of the Treasury may at any time, or from time to time, prescribe supplemental
rules and
regulations governing the offering, which will be communicated
promptlyortoamendatory
the Federal Reserve
banks.
dons
HENRY MORGENTHAU, Jr.,
Secretary of the Treasury.
bits Ingioning
(asxa)
(Filed with the Division of the Federal Register, June 7, 1937)
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169
TREASURY DEPARTMENT
Washington
Press Service
FOR RELEASE, MORNING NEWSPAPERS,
6-7-37.
No. 10-47
.
Tuesday, June 8, 1937.
Secretary of the Treasury Morgenthau announced last night that
the subscription books for the current offering of 1-3/8 percent
Treasury Notes of Series D-1939 and of 1-3/4 percent Treasury notes
of Series A-1942 closed at the close of business Monday, June 7, 1937.
Subscriptions placed in the mail before 12 o'clock midnight,
Monday, June 7, will be considered as having been entered before the
close of the subscription books.
Announcement of the amount of subscriptions and the basis of
allotment will probably be made cn Friday, June 11.
00000
170
Copy for SECRETARY
PARAPHRASE OF SECTIONS ONE AND TWO.
FROM: American Embassy, Paris, France
DATE:
June 8, 1937, 9 a.m.
No.: 746
FROM COCHRAN.
Last night I returned from Brussels, where on Monday
morning I visited Governor Franck at the National Bank of
Belgium. In the evening I talked with Deman at the Min-
istry of Finance. During the day Belgian officials were
entertaining the Kung delegation.
Belgium had not acutely felt the gold problem, Franck
said. In Belgium he said much of the gold hoarding
had terminated when the belga returned to gold, nearly(?)
new parity, so that there is no big domestic dumping of
gold at the present time. Some gold from the market is
coming to his bank, but it is on the other hand yielding
some gold too.
The Belgian Bank Governor expressed appreciation of
the facilities which the American Treasury extended to
him through the Federal Reserve Bank of New York of sell-
ing gold in Brussels against dollars since, when the
export point from Brussels to New York was reached, ar-
bitragurs failed to intervene to ship gold. Development
of an important discount on gold in Belgium had been
prevented thereby. Market speculators were kept out by
such intervention as his bank had made. His operations
in gold against dollars, he said, had been but five hundred
thousand
171
-2thousand dollars on Saturday, whereas on Friday they had
been four million six hundred thousand.
The immediate need, Franck thinks, is for the British
and American stabilization funds to cooperate to such an
extent that the London gold market remains clear, and
that the present excessive discount on gold be reduced to
a small margin. Dehoarding does not worry him enough to
urge a statement on the gold price by all six parties.
He is in definite favor of the six countries undertaking
the study of control of gold production. Franck thinks that
the situation would be much helped if these powers could
announce the beginning of such studies, and that "main-
taining the price of gold steady" was the purpose of them.
The remarks made by Franck follow so closely the terms of
a personal letter which he wrote to Eccles on May 11 that
I quote this letter in full lest you personally may not
have seen a copy thereof:
END SECTIONS ONE AND TWO.
BULLITT.
EA:LWW
172
SPECIAL GRAY
JR
Paris
Dated June 8, 1937
Rec'd 10:47 a.m.
Secretary of State,
Washington.
746. June 8, 9 a.m. (SECTION THREE).
"The gold problem is growing and we feel that
cooperation between the central banks of the tripartite
agreement might well "become necessary.
I enclose copy of an address of mine on the matter.
An amount of not less than 4000 million gold francs or
approximately 1,300 million dollars represents the addition
of (begin underlining) new (end of underlining) mined gold
to the stock of the world in 1936 and about 1,100 million
dollars the addition to your monetary stock alone. In
effect the process was more complicated as gold came from
India and the East, other gold came from dehoarding, other
from monetary fluctuations. But in the long run the final
result is striking: an addition equal to about the total
new gold production was absorbed by your Treasury. In
more or less smaller proportions the same story may be
told for London, Brussels, Amsterdam, Switzerland. Can
this process continue long? This increased production
has begun in 1931 and has gained strength every year since.
It is predicted even in 1940 the increase will be such as
to double the (END SECTION THREE)
BULLITT
KLP:CSB
173
SPECIAL GRAY
ddm
PARIS
Dated June 8, 1937
Rec'd 11:41 a.m.
Secretary of State
Washington
746, June 8, 9 a.m. (SECTION FOUR)
annual production of 1930. Where will it stop? Naturally
some reaction will develop by the rise of costs of produce
tion but the gap to be bridged over is very large and it
may take a very long time before some relief comes in that
way.
Now it is clear that there is no monetary use for such
an over production and that we are already buying gold that
we do: not want to have.
We are thus confronted with a most grave problem.
A similar problem arose some 35 years ago with raw
diamonds.
Diamonds were then flooding the market. At first it
was believed that things would adjust themselves.
But it was soon discovered that if allowed to continue
the fall in price would destroy the market.
A syndicate was formed and succeeded in keeping the
sale of raw diamonds under control. The mines restricted
production and fared well by it; they considered under
the influence of the syndicate that after all their reserves
of diamonds were not inexhaustible and that it was wiser
for
174
-2- No. 746 from Paris June 8, 1937
for them to have their stock last longer and be sold at a
good price than to rush it on ruined market within a limited number of years.
BULLITT
KLP
WWC
03413038
TEST 8 MUL
THENTRANSO
175
SPECIAL GRAY
MG
Paris
Dated June 8, 1937.
Rec'd 12:05 p.m.
Secretary of State,
Washington.
746, June 8, 9 a.m. (Section Five).
The London raw diamonds syndicate is still functioning and has entirely saved the situation.
Cannot the same managed production be introduced as
far as gold is concerned?
Gold as a basis of the monetary system is a public
interest,
The central banks and equalization funds are representing a very large proportion of the buying capacity
of the gold market. As there is no free minting of
gold the effect of the excessive gold production is less
rapid; but the arbitrage operations will nevertheless
force the gold or substantial part of it into the central
bank or equalization fund. How long are they going to
absorb it? Can they continue indefinitely to buy? And
if they stop, the market will be left without sufficient
demand and fall very heavily.
Restriction of supply will then follow but after
what
176
MG
Page 2,
#746 from Paris (Section Five)
what cost and with what consequences?To the contrary
should our six central banks and/or equalization funds
not allow the matter to drift - and decide no longer to
buy gold except from such mines as would accept plan of
combined and restricted production: the mines would
BULLITT
CSB
177
FS
SPECIAL GRAY
Paris
Dated June 8,1937
Rec'd 11:56 a.m.
Secretary of State,
Washington.
746, June 8, 9 a.m. (SECTION SIX)
have to restrict their production or lose the chance of
selling. The assay firms which WE Employ are not numer-
ous and they can be instructed to limit the assaying to
the mines which accept the plan of managed production.
Only the gold bearing the mark which WE would Establish
would be accepted by us.
No doubt the other central banks would support us.
The real difficulty is Russia. But the Russian
Government should be approached through the Russian State
Bank. They have after all the same interest not to spoil
the value of their alluvial gold which will not last
forever. And if they are in need of ready money, central
banks may advance it on their gold up to a reasonable
amount.
The advantage of a limitation of gold production
would strike at the root of our difficulties.
It would:
(1) Avoid the boom in prices which is certainly
bound
178
FS
2-No. 746, June 8 from Paris (Section Six)
bound to COME if nothing is done.
(2) Maintain the price of gold and thereby the
value of the assets of the Exchange stabilization funds
and/or central banks.
(3) Stop or at least moderate the influx of
gold (END SECTION SIX)
RR:KLP
BULLITT
179
RB
SPECIAL GRAY
Paris
Dated June 8, 1937
Rec'd 2:20 p. m.
Secretary of State
Washington.
746, June 8, 9 a. m. (SECTION SEVEN)
It could be moderated or given up at any time. Could
the same results be secured by reducing the price we pay
for the gold?
One. It seems probable that Russia would not on
that account limit her production. Cost price consideration scarcely weights with her. Other producers would
make less profit but many would still make enough to con-
tinue production on the present scale. So the real evil,
1.0., the excessive production would scarcely be touched.
Two. Would not lowering the gold price finally
lower prices all round thus greatly disturbing the move
all over the world?
Three. In any case lowering the gold price means
undoing the monetary measures which were taken by devalua-
tion of the pound, the dollar, and finally all other
currencies.
Dishoarding on a large scale might very well follow
and
180
RB
-2-#746, June 8, 9 a. m. from Paris
SECTION SEVEN
and strike at the root of the return to confidence which
has so laboriously been built up.
For all those reasons it seems that an effort to
limit production might well be carefully studied. There
are certainly practical difficulties to overcome
BULLITT
CSB
181
PARTIAL
PARAPHRASE OF SECTION EIGHT OF TELEGRAM NO. 746
of June 8, 1937, from the American Embassy, Paris.
but they do not appear insuperable and or existing
stock largely hoarded (omission) view.
We have an open mind in the matter but we strongly
(omission) that we ought not to allow things to simply drift
on.
Should you think that the matter is worth-while to be
investigated further I would thank you for telling me and
also suggest that you on your side have the problem considered in this light and keep me informed.
We naturally for the time being avoid giving any pub-
licity to this research work".
In his conversation with me Minister of Finance Deman
indorsed the views which Franck had expressed to me and
had incorporated in his letter to Eccles. Deman is of the
opinion that international agreement toward control of production is the one satisfactory method of solving the prob1 em so as to preserve gold as a real currency basis.
He does not favor revaluing gold now that we are recovering from certain of the economic difficulties which led to
devaluation in the first place. Achievement of as great
stability in currencies as possible is his desire.
Belgian commodity and security markets he said were
sharply affected by the gossip of a prospective change in
the American gold price. He said that all of this uncertainty complicates his problem of converting certain of
Belgium's outstanding foreign obligations, most particularly the Mendelssohn loan, in florins which loan has a gold
182
2
clause guarantee.
END SECTION EIGHT.
BULLITT.
EA:LWW
183
SEOTION NINE
Deman believes it is wrong that doubt as to the
policy which several important goldholding and purchasing countries may contemplate following with regard to
the price of gold should have repercussions of a worldwide nature. In order to overcome this, Deman welcomes
cooperation between the six party group and exchange of
views for the proposal of controlling gold production.
In his mind there was a little question as to whether
the six countries alone could achieve an agreement which
would effectively control the production of gold, par-
ticular in Russia, but he felt that the obstacles to
success could be surmounted.
The following passage from Tripp's annual report
to the Netherlands Bank which Deman had not seen until I
TER
THIMTRAS30
showed him my proof copy of an English translation quite
took his interest. (End Section Nine)
EA: JJW
184
EDA
SPECIAL GRAY
PARIS
Dated June 8, 1937
Received 5:31 p.m.
Secretary of State
Washington
746, June 8, 9 a.m. SECTION TEN.
"The output of gold is no doubt a factor which in the
long run strongly affects the world's economic and finan-
cial well-being. History may be cited in support of this
contention. Under present circumstances the yearly
output of gold is chiefly determined - apart from the
effects of the exhaustion of old or the discovery of new
mines - by the general price level. A steep fall in
commodity prices will be followed by an increase in gold
production whilst a decline in gold production is only
to be found after a very strong rise of commodity prices.
It follows that the remedial action will only set in after
the evil has manifested itself in the shape of violent
and harmful price fluctuations. If planning is called for
anywhere it is with regard to the production of gold.
In the interest of the producers themselves as well as in
that of the world as a whole, it is highly desirable
that the annual output of gold be so regulated as to
insure a harmonious and healthy growth of trade and
general
185
EDA - 2 - #746, June 8, 9 a.m. Section ten from Paris
general production throughout the world.
It should not be inferred, however, that gold
exerts an unfavorable influence on world economic and
financial conditions and that it should therefore cease
to be the basis of the international monetary system.
BULLITT
SMS:EDA
186
PARTIAL PARAPHRASE OF SECTION ELEVEN OF NO. 746
of June 8, 1937, from the American Embassy, Paris.
Apart from the undeniable fact that conditions prevailing at present are mainly due to currency tinkering
in various countries it must be remembered that the experience of the recent past has once more proved that gold
is an indispensable instrument for making international
payments. Especially in times like the present when
nationalism is rampant and the isolation of several countrie S
is particularly pronounced such an instrument is more than
ever urgently needed. It is as such an instrument that
gold renders its most excellent services."
The Minister of Finance said he would tell Van Zeeland
of my visit to Brussels. On Tuesday a lunch for the Chinese
Delegation is being given by the National Bank of Belgium.
I was told by Deman that he is not aware that any new funds
from Belgium are being sought by Kung) Deman said that
enough had already been lost by Belgium on investments in
China. Maurice Frere was visiting in London and I did not
get to see him.
Kindest regards were sent to Secretary Morgenthau by
both Deman and Franck.
I reported my Brussels visit to Secretary (omission)
of our Embassy.
END MESSAGE.
BULLITT.
EA:LWW
187
June 8, 1937
9:05 a.m.
H.M.Jr:
Knoke?
Knoke:
Good morning, Mr. Secretary.
H.M.Jr:
How are you?
Fine, thank you. You asked me yesterday to think
over 24 hours the problem -
K:
H.M.Jr:
Just - just hold on a minute. Wait a minute.
(Pause)
H.M.Jr:
Go ahead, Knoke.
I want to say first I have discussed it with nobody.
That includes Archie Lochhead. I have only given him
certain figures, but I have spoken to nobody.
K:
H.M.Jr:
Good.
K:
Therefore, this is my personal opinion.
H.M.Jr:
Yes.
K:
I have two points. The first is I am doubtful as to
the effectiveness for the following reasons: Under
the present setup - by that I mean the 49 banking
laws and the amount you can probably catch is, as I
figure it out, a maximum of about $650,000,000.
H.M.Jr:
K:
Yes.
For reasons which are - which are familiar. This
$650,000,000, in all probability, would be further reduced by transfers from members to non-members.
H.M.Jr:
K:
Yes.
And here I think is a point. Among the non-members,
I have a notion that those who would benefit most are
the foreign agencies. People like Royal, Bank of
Montreal, Canadian H.M.Jr:
K:
Well, we had that on - and foreigners wouldn't, in my opinion, hesitate
to increase their balances with those banks.
188
2
H.M.Jr:
Well, we talked about that last night, and we
came to the conclusion that if we did this, we'd
have the law read that foreign deposits could be
placed only with member banks.
Well, ah - I'm not familiar with the legal - if
K:
that can be done that would meet - that would meet
my -
H.M.Jr:
Well, we had that in mind and that the deposits from
foreigners - and we thought that would get down to
about 13 or 15 banks, and we'd have about 95% of
it in not over 15 banks.
K:
Well, that - that - if that can be done -
H.M.Jr:
Yes.
H.M.Jr:
That - that point of mine would be met.
Well, we - we wouldn't do it unless we could do it.
K:
Yes, I see.
H.M.Jr:
Only member banks -
K:
Yes.
H.M.Jr:
Could - could take foreign deposits.
K:
Yes.
H.M.Jr:
Only member banks.
K:
Yes, I see.
K:
H.M.Jr:
So - I mean we wouldn't put it through unless we
could get it that way.
K:
I understand.
H.M.Jr:
Now that's objection one.
K:
The second is the difficulty of - of fairadministration for the following reasons.
H.M.Jr:
The what?
K:
The difficulty of fairadministration. By that I mean ah - foreign banks for the purpose of sound financing
189
3
of foreign purchases of our commodities H.M.Jr:
Yes.
K:
Will have to maintain a certain minimum balance with -
in this country.
H.M.Jr:
Yes.
K:
Now even in 1934, when - at the end of 1933, when
balances reached their lowest -
H.M.Jr:
Yes.
K:
- they never dropped below 400 million dollars.
H.M.Jr:
I see.
K:
So it seems to me that $400,000,000 will have to be -
H.M.Jr:
Exempt?
K:
H.M.Jr:
K:
- would have to be exempt. The difficulty there is
a fair method of - of exempting.
I see. Well, that's another point.
Well, those are my two points. Generally speaking,
again giving my personal opinion -
H.M.Jr:
K:
H.M.Jr:
K:
Yes.
I like both methods at present in use; that is, the ah - sterilization of silver and the increase of - of reserve requirements. I prefer the former.
Ah-ha.
But I'm aware of the possibility of increasing political
pressure there, such as Thomas' bill of yesterday.
H.M.Jr:
Yes.
K:
But I still - in spite of that, I prefer the former.
H.M.Jr:
All right, Knoke. Thank you.
K:
All right, sir.
H.M.Jr:
Good-bye.
130.00
June 8, 1937
9:29 a.m.
Operator:
Governor Harrison.
H.M.Jr:
Hello, George?
George
Harrison:
Congratulations, Henry.
H.M.Jr:
Thank you. I'm accepting them.
H:
H.M.Jr:
H:
H.M.Jr:
H:
H.M.Jr:
H:
Well, I think it was a grand job.
I think it was pretty good myself.
It has gone off beautifully.
Yes.
And I'm delighted to see that the - they're so well
levelled out, the subscriptions.
Yes, it - it worked better than I thought it would.
Yes, it was better than I thought it would.
H.M.Jr:
Yes.
H:
And now we can't just let them drop around too much
H.M.Jr:
No, no.
H:
afterwards.
And I don't think they will because with that oversubscription, there'll be a lot of people who won't
get what they want, so that even though some want to
sell -
H.M.Jr:
That's right.
H:
There would be a buying demand.
H.M.Jr:
Yes.
H:
No, I don't think you will have any trouble with them
at all the way it looks now.
H.M.Jr:
No.
H:
All right. Well, I just wanted you to know I was
thinking of you and -
191
2
H.M.Jr:
Well, thanks for the help.
H:
Very glad.
H.M.Jr:
I appreciate your assistance.
H:
H.M.Jr:
Well, I didn't do anything.
Oh, yes, it's helpful to have you here and, as I say,
in this business of mine, I've got to only be wrong
once.
H:
Yes. Well, we'll be around all day today I guess
on our open market.
H.M.Jr:
I'm going up at noon to Deerfield to see my boy
graduate.
H:
Oh, are you today?
H.M.Jr:
Yes.
H:
Oh, first rate.
H.M.Jr:
Yes.
H:
Well, I don't think there's anything that we need to
do about open market now. I think it is really going
to handle itself all right. But - well, I'll probably
see you some time next week then.
H.M.Jr:
Okay.
H:
Fine. Good-bye.
192
June 8, 1937
9:34 a.m.
H.M.Jr:
Hello?
Operator:
Chairman Eccles. Go ahead.
H.M.Jr:
Hello?
Eccles:
Hello?
Marriner
H.M.Jr:
E:
Itotake
now that
with your orowd here you'll want
skipitlunch
today.
Well, it's whatever you like. I don't have any lunch
arrangement
with
them.
I'll - I'11 be through and I
could come over
if you
want.
H.M.Jr:
Well -
E:
Whatever you say.
H.M.Jr:
I didn't know with all your crowd on.
E:
Yes.
H.M.Jr:
Eh?
E:
H.M.Jr:
E:
H.M.Jr:
E:
H.M.Jr:
E:
Well, I have a letter I'll send over to you to I thought I would leave town about noon today.
Oh, I see. Well, then - that's all right then.
What?
I say that's fine.
I think I'll leave town about noon.
Yes. I sent a letter that I got from the Governor
of the Bank of Belgium, -
H.M.Jr:
Yes,
E:
- over to Wayne.
H.M.Jr:
Yes.
E:
And he suggested that I - I thought he was going to
show it to you and have you read it, but apparently
he
didn't.
193
2
H.M.Jr:
Yes, he did.
E:
Oh, did he?
H.M.Jr:
Yes.
E:
Well, is it okay then?
H.M.Jr:
E:
Okay to what - to answer it?
For me to send it?
H.M.Jr:
He didn't show me your answer - no.
E:
Well, I sent the answer over to him -
H.M.Jr:
I'll ask him about it.
E:
- and he made a suggestion or two, and I have it on
my desk.
H.M.Jr:
Well, I'm perfectly - if - if you and Wayne get to-
E:
Well, it was all right with him.
H.M.Jr:
Well, then go ahead.
E:
He cleared it.
H.M.Jr:
E:
H.M.Jr:
gether, it's okay by me.
All right.
Well, then I'll send it.
All right.
E:
Will you beback - you'll be back the end of the week -
H.M.Jr:
If everything goes well, I'll get back Sunday night.
E:
Ah-ha. Where is your son graduating?
H.M.Jr:
Deerfield.
E:
Deerfield.
H.M.Jr:
Yes.
the first of the week.
194
3
E:
Yes. Well, that's fine. I hope you have a pleasant
trip.
H.M.Jr:
Thank you.
E:
All right.
H.M.Jr:
Good-bye.