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May 2 6 ,

Dear Marriner:
As you requested in your letter of May
22, and pursuant to our subsequent conversations,
I am transmitting to you copies of the transcripts
of the morning and afternoon meetings on Friday,
May lU, in the Treasury Building with you and the
Presidents of the Federal Reserve Banks at which
were present also some members of my staff.
I agree with you that the minutes are
of such interest to you and to the Federal Reserve System that you should have these copies*
Sincerely yours,
(Signed) E. Morgenthau, Jr.
Secretary of the Treasury

Honorable Marriner S. Eccles
Chainnan, Board of Governors
of the Federal Reserve System
Washington, D. C.

CARPENTER ON MAY 3 1 , 19U3t a t 1 0 : 3 0 A.M.



May 28,

this Is to acknowledge your letter
of Hay 26 In which, pursuant to my letter of
May 22 and our subsequent conversations, you
transmit ted to me a copy of the transcript of
the meeting of the presidents of the Federal
Beserre Banks and ay a elf with you and aoiae
members of your staff on Friday morning. May
1U# aad also the transcript of that portion
of the afternoon meeting on that day up to
the time when you and the members of your
staff left the conference room, the remainder
of the transcript, recording what was said
during the rest of the afternoon seating after
your return to the conference room, Is eacpunged.
This is In accordance with our understanding that this portion of the record would
be deatrayed, and I appreciate your furnishing
me with the copy of the transcript as thus
Sincerely yours,

Honorable Henry Morgenthau, Jr.,
Secretary of the Treasuryt
Washington, D* C#


26, 19U3

Chairman Ecclest

Attached is a memorandum on the meetings with the
Secretary of the Treasury held on May llj.. A very brief statement is incorporated at the end of the memo ran dun covering the
Saturday morning meeting in the staff dinning rooirw
This memorandum includes the notes of Mr* Sienkiewicz
and Mr* Williams as well as my own.


OH Ittl lUt 19*43

The Secretary of the Treasury c a l l e d a meeting of the Presidents of
t h e Federal Reserve Banks, who acted as Chairmen of the War Finance Coirmdttees
e s t a b l i s h e d for the Second War Loan Drive i n A p r i l , and the Chairman of t h e
Board of Governors of t h e Federal Reserve System t o d i s c u s s a continuing War
Finance Organization t o b e e s t a b l i s h e d for the duration of the war*
The meeting was c a l l e d a t 10:00 A. M* Those attending the conference
Mr* Morgenthau, Secretary
Mr* Bell, Under Secretary
Mr« Gas ton, Asst* to Sec*
Mr* Bobbins, National
Director of Sales
Mr* Gamble
Mr, Gaas
Mr* Lindow
Mr* Tickton
Mr* Smith
One other

Federal Reserve Banks:
Tffir* Paddock, Pres*
Mr* Sproul, Bres*
Mr. Williams, Bres*
Mr* Fleming, Pres*
Mr* Leach, Pres*
Mr* McLarin, Pres*
Mr* Young, Pres*
Mr* Peyton, Pres*
Mr* Leedy, Pres*
Mr* Gilbert, Pres*
Mr* Eay, Fres*
Mr. Eitt, First V. P*
Mr* Head, Chairman
St* Louis War
Finance Committee
Mr. Sienkiewicz, Sec*
Conf. of Pres*

Board of Governors:
Mr* Eccles, Chairman
Mr. Kennedy, Member
Board*s Staff

In opening the meeting the Secretary of the Treasury commended the
Presidents on their efforts in the April drive*

Ee spoke well of the results

of the campaign, adding with a smile that this success was due to the fine
response of the American people. Ee stated, however, that he was not entirely
satisfied with these results and hoped that next time more noninflatibnary money

~ 2 —

might be raised fran individuals•

He then called en Mr« Lindow to discuss the

Treasuryfs studies of sources of funds and its expectations prior to the campaign
and Mr* Tickton to give a summary of the amount and distribution of sales of
Government securities during the Second War Loan Drive*
Following these presentations, which lasted about an hour, Mr* Baas,
Mr* Lindow and Mr* ^ickton left the rooHW
The Secretary then opened the discussion osa the type of future organization for war financing*

He stated that he and his staff have given a great deal

of thought to the working out of a plan of a war finance organisation and in doing
this they have had the benefit of the experience of large national business concerns*

They have worked out a plan based on sound business principles and believe

that this plan should work*

He asked for an open discussion of the merits or

demerits of the plan and stated that he wanted the group to take off their coats
and go to work on it*

There probably would be differences of opinion, said the

Secretary, but he felt that a satisfactory solution could be worked out by the
group on the basis of his plan*

He asked that any differences that might arise

during the discussion be kept within the group and trusted that nothing would
get into the press, as has been the case with some other Government departments*
The Secretary then read the outline of the proposed plan, copy of which is
attached and marked wAn*

In presenting this plan as a basis for the discussion,

there was no suggestion that the group was to take it or leave it*
The Secretary stated that he felt very strongly on only one phase of
the plan; namely, he wanted a manager in each State who would report through the
district chairmen and he wanted to appoint these managers*

It was his desire

to preserve State identities in the organization in order that he might call on

State organisations to assist during drives* As examples, he mentioned women*s
organisations, labor organisations, and even the Governors of the States*


Secretary emphasized that he had made up his mind and felt deeply about it* He
believed that the problem of divided States could be worked out satisfactorily*
There was some discussion of the plan presented by the Secretary*
Mr* Peyton stated that the district chairman must have the right to
hire and fire or he cannot get the results out of the organisation*

Mr* Fleming

believed that a single organisation with personnel responsible to the chairman
was necessary to achieve good results*

Mr. Williams stated that any dual organi-

zation tends to divide responsibility, creates differences, aid interferes with
the efforts of the campaign*

He read a letter (copy attached) showing that

there was friction in the last drive between the War Savings Staff and the
Victory Fund Committee and this was in part due to the War Savings Staff getting
their instructions frcm and owing their allegiance to Washington. Mr* Gamble
pointed out that during the last drive the two organisations were merged at
district levels but

operated separately in Washington*

top was the real cause of the difficulty*

This division at the

He informed that the two units are now

merged at the Washington headquarters and that the names of the two organisations
will disappear in the future*
The principal points of discussion included the problems of appointment
of personnel, whether compensation to paid employees should be made by the Federal
Reserve Banks or the Treasury, and State as against district organisation*
The Chairman said that he had discussed the organisation with the
Secretary earlier in the morning and on previous occasions and that as he saw it
there are three alternatives*

First, the organisation as it was set up for the

April drive could be made permanent.

The War Savings Staff and Victory Fund

Committees, however, should be completely merged, up and down the line, and
their separate identities should be dissolved.

He would prefer this alternative•

Second, an organisation could be set up entirely on State lines with i|S chairmen
reporting directly to the Treasury*

He thought this set-up mi$it function very

The Federal Reserve Banks would lend support and assist the organisation

in every way*

The System is vitally interested in war financing and will co-

operate in every way whether the Presidents are in charge of district organizations
or not*

Third, the plan proposed by the Secretary where there is not a clear

distinction between a Federal Reserve district organization and a purely State
Mr* Robbins made a statement to the effect that he had given considerable
thought to the problem of organization, perhaps more than anyone else, and that
he had worked out a plan which he had submitted to the Secretary*

He had to make

a number of concessions to meet the Secretary's views, but he thought the plan
the Secretary proposed would function smoothly*

He paralleled the Secretary's

plan to the General Food organization, which he described in some detail*
The Chairman suggested that perhaps the thing to do would be for the
Federal Reserve men to get together and talk the thing out and then meet with
the Secretary*

The Secretary said that his full day was at the disposal of the

Federal Reserve, and that he was very anxious to ^get the matter settled during
the day*

It was agreed to meet with the Secretary again at 3:00 P* H* in the


The morning meeting adjourned at about 11 :lj.5 A* M*

Meeting of the Federal Reserve representatives to discuss Secretary* s plan*
The Federal Reserve representatives returned to the Board Building and
met in the staff dining room to consider the problem further*

Oily those who

attended the morning session with the Secretary were present*
During the discussion full recognition was given to the size of the
financial problem, quality of performance, and how to improve district organizations to do an effective job*

The discussion was entirely objective*

In the

course of the meeting each President expressed his willingness and desire to
assist the Secretary of the Treasury to finance the war in a sound way*


Presidents exchanged their experiences in the Second War Loan Drive, pointing
out many shortcomings that must be overcome if succeeding campaigns are to be a
complete success*

The proposed plan submitted by the Secretary was acceptable

in every respect with the exception of appointment of personnel, method of compensation and a clarification of the split-state problem*

The consensus was that

as a practical matter it would be highly desirable that the selection of perscxinel
should be made by the chairmen after consultation with the Secretary and that
after such consultation and approval by the Secretary appointments should be made
by the chairmen.

It seemed logical that initiation should come from the field

and that the Secretary should have veto power in the process of selection and
appointment rather than vice versa*
It was felt that if the employees were to be appointed directly by the
Secretary, district chairmen might not and probably would not have complete
administrative control over these employees, as the employees might feel directly
responsible to the Secretary, irrespective of the assurance to the contrary*


psychological effect would be undesirable, as it might hamper the proper functioning of the organization*

— 6 ~
Similarly, the opinion was that it would be better to pay the employees
at the Reserve Banks on a reimbursable basis, although this procedure was not
considered to be important in the same sense that the control over the district
administrative procedure was*
The Presidents were unanimous in the view that the sixteen split States
should be divided on a Federal Reserve district basis with a manager in charge
of each part of the State,
and would be workable*

^his plan would preserve State and district lines

It was pointed out that each President knows the banks

and all types of organizations within his district but not those in the other
parts of the States not under his jurisdiction*

The banks clear in their own

districts and this fact might make for confusion in the sale, issue, and payment
of securities if the States were divided on some basis other than district lines•
The agreement was unanimous that any workable plan at the outset should clarify
jurisdictional questions rather than leaving them open for subsequent adjustments
and agreements*
Mr* Sienkiewicz and Mr. Kennedy were then directed to prepare a draft
of a statement outlining a plan of a workable organization, as envisioned by the
Federal Reserve representatives*

This plan was to embody the Secretary's proposal

with such suggestions as would make it applicable and effective at the district
levels. Upon the basis of the Secretaryfs comments at the morning session, the
Presidents understood that it was his intention to welcome changes and suggestions
when he stated that the Presidents were to take off their coats and go to work.
With minor changes, the draft was approved by the Presidents. A copy, marked
n n



is attached to these notes.

The meeting adjourned at about 1:30 P. !•

- 7—
Afternoon meeting with the Secretary of the Treasury«
The conference opened about 3*15 P* M*

The Federal Reserve representatives

who had attended the morning session again met with the Secretary of the Treasury
and the members of his staff who were present at the latter part of the morning
At the outset the Secretary stated that he had a memorandum from Mr*
Robbins which he wanted to read and proceeded to do so*

This memorandum made

references to a conversation Mr* Robbins had had previously with the Secretary
and stated that he is tendering his resignation as National Director of Sales*
The Secretary said that he regretted Mr# Robbins1 action and asked him if he
wanted to say anything to the group*
In response, Mr* Robbins told the group that he had thoroughly enjoyed
the work during the Second War Loan Drive and expressed appreciation for the cooperation given him*

He regretted very much that-it was. necessary for him to

leave and stated that he wanted this fact to be known to the Federal Reserve
representatives in order that decisions may be made and judgment reached with
the knowledge that he will not be in the picture • He then reaffirmed the statemeaat that he made in the morning in support of the Secretary1 s organization plan*
Chairman Eccles said that Mr* Robbins1 resignation was a shock and a
surprise to him.

He then informed the Secretary that the Federal Reserve group

had considered his proposed organization plan and had some suggestions to offer,
in accordance with the Secretary1s desire and that a brief statement (nB* attached)
outlining the organisation, as the group saw it, had been prepared*

He gave

copies of this statement to the Secretary and his staff*
After reading it, the Secretary suggested that it would expedite consideration of the natter if he and his staff should retire to his office for a

— 8 —

few minutes to go over the statement.

Thereupon, the Secretary and his staff

left the room*
In about fifteen minutes the Secretary and his staff returned*


signs of ill-humor, the Secretary opened his remarks with a deliberate statement
that what he was about to say would not be liked but he was going to say it and
to say it ttto your faces* • He then proceeded to make the following statement
which is summarized from recollection and from notes made during and following
the meeting.
With apparent significance in his voice, the Secretary related an
incident which he said happened about three months after he was made Secretary,
and which made a deep and lasting impression osn him*

He was invited to the home

of George Harrison, then President of the Federal Reserve Bank of New York, and
there as a guest in Harrison* s home, Harrison and Oren T>* Young stood over him
and said: ^You will do what we want you to do or we w ill not support your Government bond market*. The Secretary then said: "I felt like saying to these
gentlemen, Go to hell.* That incident made an impression en me which I have
never forgotten.11

Later in his remarks the Secretary referred to the incident

as the Federal Reserve System pointing a gun at his head to make him do what the
System wanted him to do.
He stressed the fact that as long as he was Secretary of the Treasury
he was not going to turn the Government financing over to the Federal Reserve
System; that there have been deep undercurrents of which he has been aware for
seme time seeking this end; that the organization proposed by the Presidents was
an attempt to take control from him; and that he would not wait for the President
to ask for his resignation if he should accept this proposal. He said that he

— 9—
had seen this thing coming a week ago and had talked to the President about it*
He said that all through the drive the work of the Presidents was to get control
from the Treasury and take credit for the job and was not out of patriotism; that
the Presidents curried favor of banks and financial institutions for their own
advantages; that he had been shamefully and humiliatingly treated twice on his
recent trip*

The Secretary then continued in an irritated tone of voice?

"You donft think I know anything; some of you have said it behind my
back, others have written it to me, and I think more of those who have written
it to me than those who have talked behind my back*

You think I am incompetent

to handle my job and that I should turn it over to you. You think I have not
learned anything in the years of experience I have had as Secretary*

I worked

with Governor Roosevelt for a period of time; I organized the Farm Credit System

did a difficult job in that field; and yet you don't think I know anything*n

I can do this job*

If you want to accept my plan with enthusiasm -

but on my own terms - I would like to have you, but I am not going to bargain
with you*

I donft have to*

You need me, but I don't need you*

Ifm not going to

turn this job over to you and have nothing to do but sit back and do what you say*
Before that I would resign*

I donft have to be Secretary of the Treasury*

I have

a farm which is all paid for and I can go up and sit en the back porch and enjoy

I am not seeking the favor of any bank or other financial institution,

and when I leave the Treasury I am not going to work for a bank as seme of you are*
I am at peace with the world*
ments have had*

There have been no disputes such as other depart-

I am on good terms with bankers, the various State organizations,

with the Congress, and have willing and patriotic volunteer workers who are anxious
to help out*

I am not going to put the President in the position that he has been

placed in by one of the departments where he has only two weeks to settle a dispute

— 10 ~

under an ultimatum by John Lewis • I told General Marshall that he could go
ahead without any worry about the financial end; that he would not have to make
any decision on purely financial grounds*
or without you#

I can do this job with you on my terms

I am not going to turn it over to you when I have the responsi-

bility to the President fear it*

Thatf s the way I feel about it* You can take

it or leave it*11
A long dead silence deepened the tension•

Chairman Eccles broke it by

saying that the Secretary1 s reaction to the organization plan came as a shock to
him; that he could not understand what prompted such remarks; that there was no
attempt on the part of the Federal Reserve System to take over any of the responsibilities of the Treasury; that at the invitation of the Secretary the Presidents
had taken the plan with the understanding that they were to discuss it and were
free to suggest any changes which would strengthen the organization; that all of
the discussion by the Federal Reserve was with a view of being helpful without
any comment, thought, or design of taking control from the Secretary*

He said

the Federal Reserve could not take control even if it wanted since the responsibilities of the Secretary are fixed by law as are the responsibilities of the
Federal Reserve System*

The Federal Reserve System is interested in the distri-

bution of Government securities from the standpoint of its open market and
central banking responsibility, but that there never had been any desire or
intention to wrest control from the Treasury*
The Chairman went on to say that there was very little difference
between the plan proposed by the Secretary and that outlined in the Federal
Reserve statement; that the Secretary1s statement was rewritten to clarify,
according to the understanding of the Presidents, some of the points that were
fuzzy in the statement of his plan*

The Federal Reserve outline of the plan

~ 11 —

stated specifically that "National policy and program of the organisation are to
be determined by the National Director of Sales, together with such policy
committee as the Secretary of the Treasury may designate; that such policy and
program are to be carried out on a regional, decentralized basis, with the understanding that fundamental national policies will not be changed at district

The Chairman then asked the Secretary what there was in the statement

to which he had taken such violent exception*
The Secretary replied that he particularly resented paragraphs I4. and 5
of the outline. These paragraphs read as follows:

l±* Appointment of Sales Managers and other executive personnel,
whom the Secretary wishes to retain the power of approval, are to be
initiated by the Chairmen of the district organizations, subject to the
prior consultation with and approval by the Secretary of the Treasury•

5» All paid employees of the War Finance Organization are to be
paid by the Federal Reserve Banks as Fiscal Agents on a reimbursable basis•*
Several of the Presidents stated that they wero at a loss to understand
the Secretary's attack on them and that they had sincerely cooperated with him in
every way; that they did not spare themselves or their staffs to put over the
Second War Loan Drive; that the Secretaryfs astounding charges were unfounded and
unjust; that their sole interest had been in setting up a workable organization
that would accomplish what the Secretary and everyone wants it to; and that since
he has expressed such complete lack of confidence in them they could not understand why he had asked them to head up district organizations*
Mr. Sproul stated that he had spent many years in the System and that he
wanted to clear the record on the Secretary1s charge that the Presidents were
currying favor of the banks and financial institutions in order to better their
personal positions*

He said that he was not looking for personal favors from any

institutions and that no decision he had made or would make as President of the


12 —

Federal Reserve Bank of New York would be influenced at all by personal considerations*

He thought the Secretary1 s charge was unfair and without foundation*
The Secretary remarked that some of the Reserve Bank Presidents had

taken lucrative positions with financial institutions*
To which Chairman Eccles replied that very few had; that the great
majority of the Presidents and officers were making a career of the Federal
Reserve System and that many of them had turned down positions of higher pay in
order to servetiiepublic*
The Secretary referred to the private ownership of the Federal Reserve

With pointed threat he stated that Congressman Fatman, Senator Thomas,

and others would like to take the Federal Reserve System over*
Chairman Eccles again replied that stock ownership is merely a condition
of membership and stock dividends are fixed by law, and that the Board of
Governors, a governmental body, has certain statutory powers over the Reserve
Banks, such as salary approval and removal of officers and even directors for
Mr* Head, Chairman of the War Finance Committee of the St* Louis District
and who is not connected with the Federal Reserve System, made a statement in
which he said, among other things, that he had listened to all the discussions
at the meeting of the Federal Reserve representatives and that nothing had
happened to warrant the Secretary1 s reaction to the proposal; that all of the
discussion was directed to the end of formulating an organization that would do
the best possible job*

He made a plea for harmony between the Treasury and the

Federal Reserve System and said that it would be unfortunate indeed if the Federal
Reserve System should drop out of the organization because they are qualified
to do and have done such a good job. He added that this job would have been

- 13 —

extremely difficult to do without the whole-hearted support of the banks and the
Reserve officers. He also stated that he was appointed by the Secretary, was
directly responsible to the Secretary and would accept whatever type of organization or assignment the Secretary may give him.

Thereupon the Secretary

thanked him for his confidence.
As the discussion proceeded, the tone of the Secretary's comments
became more restrained and even appeared to be conciliatory.
The Secretary said that perhaps he was seeing the ^ogey man* under the
bed, but that reports had come to him and that he had received such harsh treatment on his trip West that he wanted to appoint his own men and have them receive

Treasuryft not ^Federal Reserveff checks. He felt very deeply about it. This

expression of feeling wvery deeply about itn was repeated by the Secretary many
times, as he was making various points. But the reference of the comment was
not always clear; that is, whether the Secretary felt deeply about his plan of
organization, his offense, or about those who are already on the Treasury payroll.
At one time he stated that with respect to people on the Treasury payroll, his
hands were rather tied because many of them were sponsored by different Senators.
Frequently, he had little choice in the matter.
Referring back to his plan of the War Finance Organization, he visualized
how it would work*

He would go to New York taking with him some of his staff,

and they would sit down with Mr. Sproul and go over the names together. If the
person the Secretary proposed was not acceptable to Mr. Sproul, he would choose
a second. If the second was not acceptable, he would choose a third. After the
men were appointed they would be turned over to Mr. Sproul, and if they did not
work out satisfactorily, Mr. Sproul could discharge them.

He would then go to

Chicago and effect an organization there in a similar manner. He would not go
to the other districts, but would send some of his staff with authority to effect

the remaining district organizations•
In answer to a comment by Chairman Eccles that he saw no substantial
difference between the two proposals, the Secretary said that "he would go one
betteri after the Presidents and I have agreed on the men, the Rresidents can
make the appointmentsw*

Chairman Eccles thought that it was very important for

the Presidents as Chairmen to tell the personnel of their appointments and that
was really the principal thing the Federal Reserve wanted from the beginning*
Ee said that if the Secretary made the appointment the person might feel responsibility to the Secretary and not be willing to cooperate with the Presidents
There would be less friction from an operation standpoint if the personnel were
told of their appointments by the district head*
The Secretary asked the Presidents to consider his proposal again*
As the Secretary was to be out of town for the weekend, it was decided
that the Presidents would not have to stay over in Washington but that Chairman
Eccles would see the Secretary on Monday*

The meeting adjourned at about 5*30 P* M.

- 15 —
Meeting of Federal Reserve representatives in the staff dining room at the
Board Building, Saturday morning, Ifety 1$, 19U3*
The Federal Reserve representatives, who had met with the Secretary
on Friday, met in the staff dining room of the Board1 s building oaa Saturday

(Mr* Head, Chairman of the St* Louis district organization was not

The Presidents reviewed the afternoon session with the Secretary*


one expressed complete bewilderment at the attitude the Secretary had taken toward
the Presidents and the Reserve System*

They felt that it was unfair and unfounded;

that it was most disheartening, particularly after the amount of hard work put
into the Second War Loan Drive by each President and his staff to make the
campaign a success*

The consensus was that no matter what assurance of smooth-

working and noninterference might accompany the Presidents' acceptance of the
Secretary1s proposal the Federal Reserve representatives were on notice that they
are not to be trusted for this job; and that the Secretary was determined to
set up an organization with an appropriate mechanism of control from Washington*
The Presidents felt that they had offered their services and asked
for authority to carry out the program efficiently under the direction of the
Secretary of the Treasury*

They were willing to assume this responsibility and

asked only to be judged by the results. But the Secretary refused their services,
except on his own terms, and explicitly stated that he has no confidence in the
Reserve System*
In the face of this situation created by the Secretary, it was difficult
to find a satisfactory approach to the Secretary's request for a further consideration of his plan*

His backtracking toward the end of the afternoon session

indicated that the cause of his explosive attitude could not have been the

— 16 ~

slight difference in the two proposals* Nevertheless, the Federal Reserve
representatives again reviewed the two plans and appointed a committee consisting
of Mr* Williams, Mr* Leach and Mr* Leedy to revise the statement of the plan to
cover the specific objections of the Secretary*

This committee withdrew for the

assigned purpose*
The committee changed point 5 of the original report to read nall paid
employees of the War Finance Organization are to be paid by the Treasury**


point 8, the last sentence reading ^The Victory Fund Committees and War Savings
Staff that have been operating will disappear11 was omitted*

This sentence seemed

objectionable to the Secretary, even though Mr. Gamble stated the same thought
at the morning conference using the word ndisappear*•

Point I4. was changed to

read: ttSelection of sales managers and other executive personnel is to be made
by the Secretary of the Treasury, after consultation with and approval by the
Chairmen of the district organizations*

Appointment of the personnel so selected

shall be made by the district chairmen.*
The Presidents approved these changes and asked Chairman Eccles to
discuss the matter further with the Secretary on Monday*
plan, marked "C11, is attached*

A copy of the revised