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C O P Y BOiiftD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM March 8 , 1950. Miss Helen C. Rams d e l l , Administrative Assistant, Senator Charles w. Tobey, United States Senate, Washington, D. C. Dear Miss Ramsdell: I am enclosing the copy of the l e t t e r which I sent t o Congressman Shafer and a copy of t h a t portion of the Congressional Record mentioned t h e r e i n , about which I just t a l k e d to you on the telephone. I hope you w i l l have an e a r l y opportunity t o read these enclosures ©nd c a l l them t o the a t t e n t i o n of Senator Tobey f o r the purpose of having him put the l e t t e r i n t h e Congressional Record. 1 w i l l telephone e i t h e r t o morrow afternoon or the f i r s t of next week a f t e r you have had an opportunity t o t a l k t o the Senator about the matter. Assuring you of my appreciation f o r your assistance, Sincerely, (Signed) M. S. Eccles. M. S* Eccles. Enclosures Frob Appendix, Congressional Hacord, March 16, 19^0 "Extension of Henarks of Hon. Paul W. Shafer of Michigan i n the House of Representatives, Wednesday, March 8, 1?50. "tea. SHAFER* Mr, Speaker, since ay speech i n this House on February 21 i n which I called attention to the un-Araerican and immoral packing of the Federal Reserve Foard I have been deluged with l e t t e r s , telephone c a l l s , personal v i s i t s , and telegrams fron bankers, businessmen, lawyers, and other citisens from a l l parts of the United States, suggesting that I further explore the subject. I have received many l e t t e r s on the subject; a t r u l y araasing number i n view of the very limited publicity given to my remarks. They reveal a state of mind—a fear of the powers and autocratic conduct of the Federal Reserve Board—on the part of bankers, bank customers, and business people generally that i s quite d i f f e r e n t from any situation I have ever before noted i n this Republic; and I think I am well advised to go into the matter more thoroughly and carefully. " I was very such surprised that no coranunication was sent to me by Mr* Thomas B. licCabe, Chairman of the Board, but I did note a rather impassioned one by the farmer chairman, k r . Marriner Eccles. This indicated a weird situation of the Board wherein a former Chairman was aysteriously bounced from his job by President Truman, i n a situation which has never been explained. Was i t that the I h i t e House was aware of this packing procedure, i«hile Mr. Socles was Governor, and i n i t s soft-peddling way removed him fran/j&§ition of one-man r u l e , surrounded by his stooges and now s t i l l another stooge i s yet i n the person of the Chairman of the Board? I assume the communication I s intended as a defense of his successful campaign to set up the Board as an obedient and submissive group who would do biddinc without question or public remark. But, as a matter of f a c t , Mr. Eccles 1 l e t t e r openly confirms the most important criticism I have made; to w i t , that the l e t t e r and s p i r i t of the law has been violated i n the selection of the Governors by f a i l u r e to regard that provision intended to insure equitable geographical repreeentation on the Board. Mr. Socles does not deny that Governor Evans, a native-born, l i f e l o n g citiaen of Iowa, a man who even to this day considers himself and refers to himself as an Iowan because of his large farming and business Interests i n that State, was, nevertheless, appointed from the grand Old Dominion State of Virginia, although he was only a temporary r e s i dent of that State because of his importation here to the Agricultural Department by Henry Agard Wallaoe, as WaHaoe*a personal aid and protege, as a coxtv-hog plower-under. "Mr. Eccles does not deny that ths l a t e Governor Clayton, a native-born, l i f e long d t l s a n of Utah, Kccles* personal protege and clerk for more than 20 years, always, l i k e Eccles and several members of his s t a f f , a loyal Utah c i t i a e n , was appointed from, of a l l places, the Commonwealth of Massachusetts and Boston* fchat an unkind and underhanded blow t o the ghosts of ths sturdy New Englandsrs whose high principles of honesty and f a i r play have played such an important part I n building the moral f i b e r of t h i s Nation. I n ay previous t a l k on t h i s subject X explained wliy the l u t e tir. Clayton was said to hare moved to Boston shortly before his appointment to the Board* "Mr. Ecclee did not deny that Governor Ssymcsak m a reappointed at h i s , Mr. Secies» insistence, i n 19\& for a f u l l term of Hi years, i n spite of ths f a c t that he tied been serving continuously and without interruption as a member of the Board for more than l l i years5 and that by his reappointment he iwuld (and there seems no reason f o r his throwing up the 'cushy' Job)—if he serves out his term—he w i l l have been a member of the Board continuously and without interruption for more than 29 years. This, i n the face of positive provision written into the law by t h i s Congress that no raeaber of the Board would be e l i g i b l e for reappointment i f he lied served a continuous term of lli years. 1 am not interested i n the devious evasions indulged i n by Mr. Eccles, his s t a f f of lawyers, and others, i n accomplishing this continuance i n office of one of Mr. Socles' most l o y a l henohaaen. What I am interested i n i s calling attention of this Congress to the brazen disregard of the l e t t e r and s p i r i t of i t s l a v s , by these bureaucrats who, apparently and by t h e i r higb-handed, etar-chaciber methods, regard themselves as untouchable and above the law and t h i s Congress. »fcr. Eccles does not deny that i n his own personal case as a member of the Foard, the s p i r i t of the law has been violated so that he, by having himself juggled and shifted from one term to another, w i l l be permitted to serve a f a r greater number of years than the liyyear nexlmnn which this Congress thought i t was f i x i n g when the Federal Reserve Act of 1935 was enacted. I f Mr. Eccles serves out his present term he w i l l have served as a member of the Board continuously and without interruption more than 2h years. "Stripped of a l l nonessential t a l k and consideration, the cold f a c t i s that the great northeastern, southeastern, Southern, and southwestern sections of ths United States are represented on the seven-nan Federal Reserve Board by only one signle bona f i d e resident of any of those vast areas, and that man i s Thomas Bayard McCabe, a New Deal, F a i r Deal, Republioo Democrato, hailing from Chester, Pa. * r . McCabe i s a pleasant, wellwaeaning and agreeable sales gentlemen, with a l i m i t e d knowledge and experience i n Federal Reserve matters. Ths administrat i v e a b i l i t y as a public o f f i c i a l of t h i s d e l i g h t f u l and successful sales manager of a t o i l e t paper concern was thoroughly and painfully brought t o l i g h t during ths h months of hearings by the Senate committee which was considering his appointment 2 years ago. His a b i l i t y as a private business executive i s best i l l u s t r a t e d by the f a c t that his paper conpany has progressed more i n ths few short years he haa been away from i t than i t did during the entire period of his long career as i t s active president* "There i s nominally one other representative of the Eastern States on the Foard, a r e t i r e d businesoaan named Draper, whose 10-year term on the Board expired on February 1 of t h i s year, and he i s serving i n the embarrassing capacity of a •hang-over" awaiting the appointment of his successor. Governor Draper's service has been marked by routine and unquestioning obedience to Ur. Eccles, and I doubt that the minutes of the Board w i l l reveal more than two instances during ths e n t i r e 10 years t h a t he voted contrary t o Kr. Socles 1 wishes* 3•At present there are only f i v e raeabers of this severwaan Board serving proper ter^a, Messrs. McCabe, Sccles, Sayacsak, Svans, and Vardaaan—with Mr. draper occupying a sixth place because of f a i l u r e of ths President to na*ae his successor* Governor Svane i s absent from the Board most of the tirje, and has been for ths past year or sore, so four act ice members are conducting the Board1 s business i n Washington, with Ur* Draper standing by 'on sufferance*, as i t eere. This i s not a healthy situation, especially in view of the casual attitude of Mr. UcCabe as an administrator and leader. I t is a situation ouch to the l i k i n g , I presume, of Ur. Eccles and his land-picked s t a f f , because i t gives them continued and practically undisputed away i n Board setters. "And my prediction i s that unless this Congress puts sozaa pressure i n the proper place the two vacancies on the loard w i l l not be f i l l e d , tat the situation w i l l be allowed to dreg on i n d e f i n i t e l y . • I note i n the Sccles' l e t t e r no hint of the custoaary declaration that he was speaking as an individual and not f o r the Board. Of course, I thought—and so did ths public, I believe—that Mr. Eccles had been repudiated and removed as heed of the Board whan Mr. McCabe was appointed Jhairasn i n 1 & 0 . But a f t e r looking into the setter and asking nany questions of people who should know, I don't seem to find soy evidence that Mr. UcCabe 1ms done anch else than t o physically occupy ths Chairman's office i n ths Federal Reserve Building, and causing iSr. Eccles ths slight inconvenience of aoving a few doors down the h a l l on the seas f l o o r . "As to Governor Verdraan, he i s one of the closest personal friends of President Truman i n Washington o f f i c i a l l i f e and there ia less said about i t than of any other aan. 1 found out froa long-tine employees of the federal Reserve Board, who are very uncomfortable about the one-earn rule there, that Iir. Vardaraan i s r e garded as the great dissenter i n aany of the board's policies and I assume that his dissents r e f l e c t a very uncomfortable feeling of the men i n the Jfhite House who sees a bureaucrat remaining as the r e e l Chairman of the Board even a f t e r he has been displaced. "Certainly there has been no change in policy, or i n basic thinking, or i n arbitraxy and bureaucratic conduct by the majority of the Boerd and S t a f f . I t i s true that the statements of ths Board and i t s ooneunioations with the various committees of the Congress have become sore verbose and longer and alaost wholly inoouous and 'straddling' i n t h e i r content. Put the old s t a f f i s s t i l l on the job, e f f i c i e n t , i n t a c t , and impregnable. Mr. UcCabe has been allowed to bring i n one econosaist, en excellent man, so I aa told, by the naae of R i e f l e r , to t r y and teach MoCabe the ABC's of national economics, f i s c a l finance, and otherwise guide h i * . This sua has done a good Job, i t i s said, but i s apparently getting discouraged ewer hie pupil, and i t i s rumored that i s considering becoming a meaber of the President's Economic Council—that new-thoughtist body headed by Mr. Leon Keyeerling. " I am further informed that ttr. UcCabe also brought alone with him an able young assistant sbo up u n t i l a few months ago acted as his personal secretary. But l a t e l a s t year he toe beoamc discouraged, i t i s said, over the impregnabili t y of the £oeles selected s t a f f , and resigned his position with ths Foard aid want back heme to Chester, Pa., and the paper coqpesy. -I"A8 things now stand, Jir. McCabe i s the nominal head of the Board, but he has not made one single aajor change i n personnel or policy during his 2 years of administration, Since he has, presumably, the backing of the administration, he could nates almost any change he desired; so, 1 am bound to conclude, i n view of his acquiescence and f a i l u r e to a c t , that he, l i k e some of his colleagues, i s satisfied to be And function i n a l l things as an Ecclee s a t e l l i t e , or a t l e a s t , as a messenger boy f o r Ecclee' hand-picked board, and f o r Ecclee 1 more thoroughly hand-picked s t a f f * " I t should be borne i n mind that t h i s Board i s , t h e o r e t i c a l l y , a direct agent of this Congress* I t operates without any supervision whatsoever as to p o l i c i e s , personnel, or expenditures, except those broad provisions of congressional enactments d i r e c t l y applicable to the Board* I t i s not subject to the Fureau of the Budget. I t i s not subject to the Comptroller General* I t derives i t s money from assessments on Federal Reserve banks made by the Board i t s e l f , and without r e course on the part of the banks* I t spends i t s moneys thus derived without supervision or l i m i t a t i o n or examination from any other Federal agency* I t can employ as many people as i t desires, and whoever i t desires, without reference to any other person or Federal agency* And i t can spend as much money as i t wants f o r whatever l e g a l purpose i t wants, with l i t t l e or no r e s t r i c t i o n , and with no accountability except to the Congress i t s e l f * "The only report of i t s a c t i v i t i e s and expenditures required by the Congress is the Foard's long and laborious and boring annual report* This report covers the high l i g h t s of p o l i c y , a c t i v i t i e s , and expenditures, but i s limited as to det a i l , and i s i n no sense a detailed financial report* There i s also a policy record kept and f i l e d with the Congress, I believe, but that relates solely to the o f f i c i a l voting record of U.e Board members, and has nothing to do with other a c t i v i t i e s or expenditures* " I am not prepared to say at t h i s moment that I am opposed to so ouch authori t y being given the Board) nor m I prepared to say that tv e Board has unduly abused i t s powers or made expenditures which were not j u s t i f i e d * But one point I do want to make, and i t i s the one which i s uppermost I n ay mind a t the moment s And that i s , that a Board such aa t h i s , with so much poser for good or e v i l , for econooy or extravagance, should be w e l l above suspicion as to q u a l i t y , q u a l i f i c a t i o n s , manner of selection, and l e g a l qualifications of i t s membership* Ths selection of men to serve on such a Board should carefully follow the intent as w e l l as the l e t t e r of the law* There should be no s h i f t y skullduggery, or questionable procedure, s f l m i H s u c h as fake residency claims, technical avoidance of ths l a v ' s l e t t e r as t o length of service, or other t e c h n i c a l i t i e s * Above a l l , man of independent judgment, men of banking or business experience i n t h e i r own r i g h t , and men above question as to t h e i r impersonal and objective approach to those questions properly cooing before the Boiurd should be selected* Any appearance of packing or of one-man control or dandnationj or over-balancing i n favor of one p o l i t i c a l party or one school of thought—all of these weaknesses should be avoided* JCL "Arid. I submit that they have not only not been avoided i n the case of the present Boardj but I charge that many of the f a u l t s mentioned are present i n the incumbent Board* And I think this Congress should look into the situation carefully and see j u s t ifr at t h i s hand-picked Board and s t a f f are doing with the tremendous and potentially dangerous authority i t possssses, and just what i s being done with the vast sums of money which the Board has at i t s cossaand* And, too, 1 think the Congress should inquire into the question of Board membership to see i f fraud was perpetrated i n the appointment of Governors Evans and Clayton and i n the reappointment of Governors Eccles and Ssymcsak* And the Congress might also inquire to see iðer or not i t i s ths intention of the administrat i o n to l e t the two present vacancies stand and allow the continuance of the present out-of-balance Eccles-dorainated Board; or v & l l the administration carry out the intent of the law and appoint two qualified uon to f i l l these vacancies who shall give the Xoard something i n the nature of the l e g a l l y intended balance geographically, economically, p o l i t i c a l l y , and otherwise?11 7