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CONFIRMATION OF THOMAS B. McCABE

HEARINGS
BEFORE THE

COMMITTEE ON BANKING AND CURRENCY
UNITED STATES SENATE
EIGHTIETH CONGEESS
SECOND SESSION
ON
CONFIRMATION OF NOMINATION OF ^THOMAS
BAYARD McCABE, OF PENNSYLVANIA, TO BE
A MEMBER OF BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM

MARCH 3, 10, 11, 24, AND 30, 1948

Printed for the use of the Committee on Banking and Currency

73055




UNITED STATES
GOVERNMENT P R I N T I N G O F F I C E
W A S H I N G T O N : 1948

COMMITTEE ON BANKING AND CURBENCY
C H A R L E S W. T
C. DOUGLASS BUCK, Delaware
HOMER E. CAPEHART, Indiana
R A L P H E . F L A N D E R S , Vermont
HARRY P . CAIN, W a s h i n g t o n
J O H N W. B R I C K E R , Ohio
J O S E P H R. MCCARTHY, Wisconsin
II




', New H a m p s h i r e , Chairman
R O B E R T F . WAGNER, New York
B U R N E T R. MAYBANK, South Carolina
G L E N H. TAYLOR, Idaho
J . W. F U L B R I G H T , Arkansas
A. W I L L I S ROBERTSON, Virginia
J O H N J. SPARKMAN, Alabama
B O W L E S , Clerk

CONTENTS
Statement of—
Page
Clayton, William L.. former U n d e r Secretary of S t a t e for Economic
Affairs, Washington, D. C
60
McCabe, T h o m a s B „ Philadelphia, P a
49,149,192
McKenna, William F., former counsel for Field Commissioner for
China, Foreign Liquidations Commission, E a s t Greenwich, R. I
ill
Moody, H u b e r t R., investigator, United States Senate Committee on
Expenditures, Subcommittee on Surplus P r o p e r t y , W a s h i n g t o n ,
D. C
19
Patterson, Robert P., former Secretary of W a r
68
Bundle, W a l t e r G., former manager. United Press, Shanghai, China
89
Schleiter, W a l t e r B., vice president, Muller Phipps Asia, Ltd., New
York, N. Y
75
Smith. Bruce M., president, M a r k L. Moody Federal, Inc., Shanghai,
China
82
Snyder. John W., Secretary of t h e T r e a s u r y
180
Exhibits, letters, statements, etc., submitted for the record by—
Balderstoh, C. C , dean, W h a r t o n School of F i n a n c e a n d Commerce,
University of Pennsylvania, letter to Senator Tobey
i
151
Cooke, Coleman P., telegram to Senator Tobey
138
Crabbs, George D., Cincinatti, Ohio, l e t t e r to Senator Bricker
18
Delano, Preston, Comptroller of t h e C u r r e n c y :
Letter to S. C. Beise, Bank of America N a t i o n a l T r u s t and Savings Association
184
Letter to F . N. Belgrano, J r . , F i r s t National B a n k of P o r t l a n d ,
Ores
185
Dougherty, Col. Joseph S., Inspector General's D e p a r t m e n t , s u m m a r y
of investigation
36
Eccles, M a r r i n e r S., Chairman, B o a r d of Governors, F e d e r a l R e s e r v e
System:
Letter in response to Senator Tobey's letter of March 24, 1948
178
Letter in response to Senator Tobey's letter of March 29, 1948,
enclosing list of correspondence
179
L e t t e r to Preston Delano, Comptroller of t h e Currency, November 7, 19471
184
Letter to A. P. Giannini, T r a n s a m e r i c a Corp., December 19,1942—
186
Letter to Secretary Snyder. April 15, 1947
187
Letter to Attorney General Clark, F e b r u a r y 2(5, 1947
188
Geier, Fred V., Cincinnati, Ohio, letter to Senator Bricker
17
Greenman, Frederick F., letter to Senator Tobey
2
Lazarus. Fred, Jr., Cincinnati, Ohio, l e t t e r to Senator Bricker
IS
JJcCabe^Thomas B . :
Biographical sketch
1
Statement
49
Administrative Order No. 9
146
McCandless. R. B., Deputy Comptroller of t h e Currency, letter in
in response to Senator Tobey's l e t t e r of March 24, 1948
178
McKenna, William F., former counsel for Field Commissioner for
China, Foreign Liquidations Commission:
Exhibit A. Radiogram, consul general in S h a n g h a i to Secretary
Byrnes
112
Exhibit C. Objections to policy of F L C
132
Kvhibit H. Letter to General Johnson
136




HI

IV

CONTENTS

Exhibits, letters, statements, etc.—Continued
McKenna, William F—Continued
Pas*
Exhibit I. Telegram from Lieutenant Colonel Cook and letter from
Colonel Dougherty regarding Lieutenant Colonel Cook and
Major Cook
138
Exhibit J. Letter from W. L. Worden, the Texas Co. (China),
Ltd., to FLC
137
Exhibit K. Letter from FLO to the Texas Co. (China), Ltd
137
Morrill, Chester, secretary, Federal Reserve Board, letter to TransSmeric*a"Cbrp., February 14, 1942
186
Patterson, Robert P., New York, N. Y., letter to Senator Bricker
18
Rundle, Walter G., former manager, United Press, Shanghai, China,
invoice of material on Okinawa
91
Sinclajr^Jotm S., executive vice president, New York Life Insurance
•--n5ff??(ewTork, N. Y., leter to committee
149
Tobey, Charles W., United States Senator from New Hampshire :
Chart and statement, prepared by Virginia Bankers Corp., on
Huntington-Milton holdings
facing 158
Statement
3
Extract from joint memorandum
85
Extract from official reports of War Investigating Committee
126
Exhibit A. Regulation 15, Surplus Property Act
19
Exhibit B. Excerpt from North China Daily News, August 29,
1946, Alleged Sale of B-25's to Commercial Line
25
Exhibit C. Editorial, Shanghai Evening Post and Mercury, Surplus Sales Need a Housecleaning
28
Exhibit D. Report, American Chamber of Commerce, Shanghai,
Trade Practices of Chinese Government
30
Exhibit E. Telegram from General Johnson to Mr. McCabe
37
Exhibit F. Transcript of telephone conversation between General
Connolly and Colonel Hunter
38
Letter from Secretary Snyder, May 23, 1947
182
Letter to Preston Delano, Comptroller of the Currency, March
24, 1948
177
Letter to Marringx.g. Eccles, Chairman, Federal Reserve Board,
March 24,"T948
177
Letter to Marriner S. Eccles, March 23, 1947
179




CONFIRMATION OF THOMAS B. McCABE
WEDNESDAY, MARCH 3, 1948
UNITED STATES SENATE,
COMMITTEE ON B A N K I N G AND CURRENCY,

Washington, D. G.
The committee met, pursuant to call, at 10: 30 a. m., in room 301 Senate Office Building, Senator Charles W. Tobey, chairman, presiding.
Present: Senators Tobey (chairman), Buck, Flanders, Cain,
Bricker, McCarthy, Maybank, Taylor, Fulbright, Robertson, and
Sparkman.
Also present: Senator Myers.
The CHAIRMAN. The committee will come to order.
Gentlemen of the committee, we have met here this morning to consider the nomination of Mr. Thomas B. McCabe as a member of the
Board of Governors of the Federal Reserve System. We will insert
in the record at this point a biographical sketch of Mr. McCabe.
(The sketch is as follows:)
Birth and background : Born in Whaleyville, Md., J u l y 11,1893. Son of William
Robbihs McCabe and Beulah Whaley McCabe. F a t h e r : banker, speaker of Delaware's House of Representatives, a n d banking and insurance commissioner of
S t a t e of Delaware.
On m a t e r n a l side seven generations resided in Maryland. On p a t e r n a l side
several generations settled and resided in Delaware.
During boyhood resided in West Norfolk, Va., and Selbyville, Del.
E d u c a t i o n : Wilmington Conference Academy., Dover, Del., 1907-10. S w a r t h more College, Swarthmore, Pa., A. B. in economics 1915; h o n o r a r y LL. D. 1947.
M a r i t a l : Married J e a n n e t t e E v e r e t t L a w s of S w a r t h m o r e , Pa., 1924. T h r e e
sons, Thomas Jr., Richard Whaley, and J a m e s Laws. Home, 607 N o r t h Chester
Road, Swarthmore, P a .
Business C a r e e r : W i t h Scott P a p e r Co., Chester, P a . since 1916, salesman,
1916-17; assistant sales m a n a g e r 1919-20; sales m a n a g e r 1920-21; director since
1921; secretary and sales m a n a g e r 1922-27; vice president 1927; president since
1927.
Company's p l a n t s a r e located in Chester, Pa., Glens Falls, N. Y., F o r t E d w a r d ,
N. T., Marinette, Wis., Coos Bay, Oreg., Anacortes, Wash., Brunswick, Ga., (half
i n t e r e s t ) , Hoboken, N. J., and Sandusky, Ohio.
F e d e r a l R e s e r v e : Class C director, F e d e r a l Reserve B a n k of Philadelphia since
1937, deputy chairman 1938, a n d c h a i r m a n of t h e board and F e d e r a l Reserve
agent since 1939. F o r m e r chairman of t h e chairmen's conference of t h e F e d e r a l
Reserve System. C h a i r m a n of special committee for 2 years to study executive
officers' positions and salaries in t h e 12 F e d e r a l Reserve banks.
Government s e r v i c e : Member of Business Advisory Council for t h e D e p a r t m e n t
of Commerce since 1940, chairman 1944-45.
1940: Executive assistant to E. It. Stettinius, Jr., Advisory Commission to Council for National Defense.
1941: Deputy Director, Division of Priorities, Office of Production Management.
1941-42: Deputy Lend Lease Administrator.
1945: Army-Navy Liquidation Commissioner.
1945-46: Special a s s i s t a n t to t h e Secretary of S t a t e a n d Foreign Liquidation
Commissioner.
1



2

CONFIRMATION OF THOMAS B. McCABE

1946: Awarded Medal for Merit.
Military service: First World War, served as private, advancing to captain,
United States Army 1917-19.
Other public service: Committee for Economic Development, trustee and member Research and Policy Committee. International Chamber of Commerce, United
States Associates Council member, and delegate to first Postwar Congress at
Montreux, Switzerland, 1947. Community Chest campaign, Chester, Pa., chairman, 1947. SwarthmOre College, board of managers, Swarthmore Presbyterian
Church, formerly member of board of trustees.

The CHAIRMAN. The position is one of great importance, especially
in view of the fact that President Truman has signified his intention
to name Mr. McCabe as Chairman of the Board of Governors of the
Federal Reserve System.
I have received many fine recommendations, from many sources, of
Mr. McCabe, urging that I support this nomination.
On the other hand, several persons, including three United States
Senators, have brought to my attention matters that, if proven, would
tend to reflect on Mr. McCabe's record as a public servant.
I consider it my duty as chairman of this committee to present these
matters to this committee, and to give Mr. McCabe ample opportunity
to explain them when the presentation is through, in order that we may
vote advisedly on his confirmation. I , for one, shall be glad to move
his confirmation if his public record bears the test.
With this brief introduction, I will ask the clerk, Mr. Bowles, to
read the statement that I have prepared, and I would say for the benefit of the committee, I have a letter which is very unusual, from a
gentleman in New York, in tribute, and I would like to put that in the
record in all fairness.
After the hearing this morning, hearings will be resumed this afternoon, with evidence from other witnesses, oral evidence, at 2:30 this
afternoon. I will ask permission from the Senate that the committee
may sit while the Senate is in session.
Now, Mr. Clerk, will you read?
Senator SPARKMAN. I wonder if we may know from whom the letter
Is.
The CHAIRMAN. I will be glad to read it. I t is from a lawyer in
New York. I may say that I p u t this letter in to lean over backward
in giving all the evidence t h a t I can in favor of a man. His name is
Greenman, of the firm of Greenman, Shea, Lane & Sandomire, 46 Cedar
Street, New York. [Reading:]
DEAB SENATOB TOBEY. I do not have the pleasure of knowing you personally,

but if you will speak to Senator Saltonstall or Congressmen Judd, Coudert, or
Javits, I am sure they would be willing to tell you that you may rely on my
veracity as well as my judgment.
This letter is written so that you have have first hand information about Mr.
Thomas B. McCabe, of Philadelphia, from one who like yourself claims to be a
liberal Republican. My claim to that designation rests on my devotion to
Theodore Roosevelt, my record when, in 1936, I was the Republican candidate for
Congress in the Seventeenth Congressional District New York (formerly represented by Bruce Barton and later by Joe Baldwin and now by Fred Coudert), my
service to Wendell Willkie in 1940 as one of the leading assistants to the eastern
campaign manager, and my record as the Republican leader of the Seventh
Assembly District in New York in 1942.
I came to know Mr. McCabe in April 1945, when he was appointed Army-Navy
liquidation Commissioner. Judge Patterson, then Under Secretary of War, prevailed upon me (I was then a lieutenant colonel in the Judge Advocate General's
Department stationed in Washington) to accept an assignment as general counsel
to Mr. McCabe. The only thing I knew about him was that he came from Phil


ft

CONFIRMATION OF THOMAS B. McCABB

3

adelphia, was the head of Scott Paper Co., and chairman of the board of the
Philadelphia Reserve Bank. Early in my career as a lawyer, I had had some
experience with Philadelphia lawyers and bankers in which I took some positions
adverse to them (ultimately sustained at least in part by the Supreme Court)
which had left with me the thought that perhaps my ideas and those of Philadelphians did not jibe. So I wrote to Mr. William A. Schnader (a good friend of mine
in Philadelphia and Republican candidate for Governor in 1934) and asked him
what sort of person Mr. McCabe was, and he replied promptly that I would find
him a liberal, and a businessman with a heart. He predicted I would enjoy
working under him and would become devoted to him.
I served under him for nearly 8 months, first while he was Army-Navy Liquidation Commissioner and subsequently as F'oreign Liquidation Commissioner. I
was closely in touch with him on almost every day when both of us were in
Washington. He had a strong sense of responsibility and he had an enlightened
view of how our surpluses abroad could be utilized to promote international good
will and alleviate suffering and distress abroad. But he never lost sight of the
fact that he was disposing of public property and that advantage must accrue to
the United States from any disposition. He was a practical idealist who could
make both ends meet and who certainly was careful in the use of Government
funds. During all the time I was with him, I did not inquire as to his politics,
nor he as to mine. I was an Army officer and my service ended as a colonel on
February 21, 1946, when I went on terminal leave. I did not know what his
politics were until the newspapers announced his nomination to the Federal
Reserve Board. I have had no relations with him since my return to civilian
life and have seen him but once since then.
There seems to be a great deal of confusion today as to what a genuine liberal
is. To me, a genuine liberal is one who, within the American free enterprise
system, advocates justice for all and particularly measures for the improvement
of the economic, social, and political welfare of the common man.
I might say that the Republican P a r t y could not do any better in
its platform in Philadelphia than to put t h a t as the No. 1 principle
as to where the Republicans stand in the present election. [Reading:]
To conform with that definition, it has always seemed to me necessary that one
advocate the maintenance of fiscal policies which will at the same time keep the
country solvent and enable it to live within its means. Judged by this standard,
Mr. McCabe is a liberal whether he is a member of the Union League Club or not.
I sincerely hope you will find him worthy of confirmation, which I strongly
urge. I should be pleased to appear as a witness before your committee, or to
come to Washington at my own expense to discuss the matter with you.
Hoping to have the pleasure of seeing you, I am
Sincerely yours,
FREDERICK F. GREENMAN.

Senator BRICKER. I might say t h a t I agree with his idea about keeping the country solvent.
The CHAIRMAN. D O you agree about the common man ?
Senator BRICKER. Yes, absolutely, because I am in t h a t class.
Mr_ Chairman, just one thing besides the lightness of t h i s ; I have
several letters in my office, and if you want them p u t in the file, I will.
Also I have one from Secretary Patterson, one from F r e d Lazarus, at
home, and two or three others than I would like to make p a r t of the
file.
The CHAIRMAN. That will be done, and the other Senators will have
the same privilege.
I now ask the clerk to read.
Mr. BOWLES (reading) :
On December 28, 1944, the Secretary of War and the Secretary of the Navy, in
a joint letter, created the Office of Army-Navy Liquidation Commissioner to
exorcise the powers of surplus property abroad and the settlement of claims.
Mr. Thomas B. McCabe assumed office as Army-Navy Liquidation Commissioner
on April 15, 1945. Since that time and at least until March 22, 1946, the date of
the Report on the Investigation of the National Defense Program (Rept. No. 110,



4

CONFIRMATION OF T H O M A S B. McCABE

79th Cong., 2d sess., pt. 6) by the Special Committee Investigating t h e National
Defense P r o g r a m , p u r s u a n t to Senate Resolution 71, Seventy-seventh Congress;
Senate Resolution 6, Seventy-eighth Congress and Senate Resolution 55, Seventyn i n t h Congress, Mr. McCabe a n d his organization had contiuued to be responsible
for t h e disposal of surplus property abroad.
However, on September 27, 1945, by Executive Order No. 9630, the State Departm e n t w a s designated t h e disposal agency abroad. Certain functions over disposal of unconsumed lend-lease property, which h a d theretofore been claimed
by t h e Foreign Economics Administration, and the disposal of the United States
s u r p l u s property, which h a d previously been vested in t h e Army-Navy Liquidation Commission, were consolidated in the S t a t e Department.
T h i s change w a s a t t e n d e d with some confusion, principally in administration and in bookkeeping, in t h e shift from one executive d e p a r t m e n t to another.
However, t h e personnel charged with t h e disposal of surpluses remained t h e same,
since Mr. McCabe a n d his organization were t a k e n into t h e State D e p a r t m e n t
a n d continued t h e same functions a s before, together w i t h added duties which
h a d theretofore been vested in the Foreign Economic Administration. (Cf. p. 15,
E e p . No. 110, 79th Cong., 2d session.) Mr. McCabe resigned on September 20,
1946.
T h e r e can be no doubt t h a t Mr. T h o m a s B. McCabe w a s the official who was
m a i n l y responsible for t h e sale of surplus property abroad which I shall now
discuss.
Of the $315,823,000,000 w o r t h of w a r production, it w a s estimated t h a t approximately $100,000,000,000 w o r t h w a s shipped abroad for the use of our troops and
$46,517,289,000 w o r t h of goods and services were furnished to t h e Allies under
lend lease. (Cf. p. 2, Rept. No. 110, 79th Cong., 2d sess., pt. 5.)
As of December-31, 1945, it w a s estimated t h a t out of 1 4 % billion dollars worth
of supplies abroad, $11,000,000,000 w o r t h w a s civilian type property. (Cf. p. 7,
Rept. No. 110, 79th Cong., 2d sess., pt. 5.) T h e u l t i m a t e estimated (March 22,
1946) g r a n d total of overseas surpluses w a s $12,831,030,187. (Cf. p. 5, Rept. No.
110; 79th Cong., 2d sess., pt. 5.)
Mr. T h o m a s B. McCabe w a s charged with the u l t i m a t e responsibility of disposing of this $12,000,000,000 worth of overseas surpluses on t e r m s favorable to
t h e United S t a t e s as possible. Let us look a t t h e record and see whether he
m e a s u r e d up to the responsibility which he assumed upon accepting office under
law.
Let u s first t a k e a look a t t h e sale of surpluses to the United Kingdom and
t h e lendlease settlement w i t h t h e United Kingdom.
On December 6, 1945, an agreement w a s concluded with t h e Government of
t h e United Kingdom to sell to i t :
1. All surplus property of the United States forces located in t h e United Kingdom, with certain minor exceptions.
2. All unconsumed items which had been furnished to the United Kingdom on
lend lease, and
3. T h e amount of lend lease in the pipe line as of VJ-day.
F o r the first two categories of items, namely, surplus property and unconsumed lend-lease m a t e r i a l s , t h e United States Government w a s to receive a total
of $532,000,000, for t h e t h i r d category, $118,000,000.
T h e total sum to be received w a s $650,000,000, which w a s a firm figure, subject
only to minor a d j u s t m e n t s as to pipe line lend-lease. This .sum of $650,000,000 was
not to be paid in cash, b u t w a s to be paid on the same terms as provided for the
repayment of the then proposed loan of $3,750,000,000 which w a s negotiated
concurrently with t h e sale and settlement above outlined. These t e r m s provide
for t h e p a y m e n t of interest of 2 percent, commencing in 1951, and principal paym e n t s over a 50-year period commencing with 1951, with t h e proviso t h a t under
certain conditions the interest for any year will be waived a n d t h e unpaid interest
will not accumulate.
I t w a s also agreed t h a t no cash or other tangible consideration would be
p a i d for lend-lease m a t e r i a l s furnished by us to t h e United Kingdom consumed
d u r i n g t h e war, costing approximately 2 0 % billion dollars, nor for reciprocal
aid furnished by the United Kingdom to u s a m o u n t i n g to 4 % billion dollars.
T h e net balance in our favor of lend-lease over reciprocal aid w a s $16,000,000,000.
F o r t h e cancellation of t h i s balance, t h e United Kingdom agreed, a s we did,
to join with other n a t i o n s in a conference to discuss w a y s and means of elimin a t i n g or minimizing i n t e r n a t i o n a l t r a d e b a r r i e r s and controls. T h e British,
in general t e r m s , agreed to support t h e position t a k e n by S t a t e Department




CONFIRMATION OF THOMAS B. McCABE

5

experts in the draft of proposals for expansion of world trade and employment.
The sale of our surpluses, the sale of unconsumed lend-lease items; the payment for pipe line lend-lease and reciprocal aid and the net amount of claims;
and the cancellation of the consumed lend-lease credit balances in our favor
are lumped together as the "settlement of the war account."
Unlike the loan, no congressional approval was required for the settlement
of the war account, which was negotiated by the State Department under the
authority of the Lend-Lease Act and the Surplus Property Act of 1944 (p. 23,
Rept. No. 110, 79th Cong., 2d sess., pt. 5).
On the face of it, does it appear that Mr. McCabe was a very able salesman?
Let us listen to the Special Committee Investigating the National Defense
Program.

The CHAIRMAN. From here on the testimony is taken directly from
the files of the War Investigating Committee which was first headed
by Mr. Truman and Mr. Mead and is now headed by Senator Ferguson,
and it is verbatim from the testimony and many of these items have
never seen the light of day. Proceed.
Mr. BOWLES (reading) :
This committee states in its report:
"The bulk sales to the United Kingdom in December 1945 was a far poorer
bargain for the United States than the bulk sale to France after the last war
in July 1919.
"The benefits received from the United Kingdom for the cancellation of the
consumed lend-lease balance in our favor are nebulous and require the United
Kingdom to do no more than it ought to be willing to do anyway." (P. 2, Rept.
No. 110, 79th Cong., 2d sess., pt. 5.)
Let us study some of the causes which led to this result.
Was there a tendency in some of our "big hearted" surplus salesmen to
treat our surplus property abroad as mere rubbish, as having little real value?
In a hearing before the Special Committee Investigating the National Defense
Program, on February 22, 1946, Mr. McCabe, speaking of a surplus property
inventory in the United Kingdom, stated:
"It will be apparent from a review of this inventory that a very substantial
portion of the items included are of little or no civilian utility and must be
appraised at a fraction of original cost." (P. 16709, pt. 33, Hearings Before a
Special Committee Investigating the National Defense Program—U. S. Senate—
Pursuant to S. Res. 55, 79th Cong.)
Could a salesman of surplus property, who had such a low estimate of the
goods he was hired to sell, obtain anything near a fair return for the product?
What was the truth of the matter? Were the goods comparatively of little
value? The Special Committee Investigating the National Defense Program
found the following facts to be true:
"There is a tendency to look upon Army and Navy supplies as having a present
market value much lower than their cost, since they were originally designed
for Army and Navy use, rather than for the civilian market. However, it should
be remembered that in this country we devoted the best of our materials and
the best of our productive ability to the creation of these supplies, and that
they were purchased in high quantities at manufacturer's cost. In this latter
connection, the committee has been advised by the War Department that the
cost figures furnished the committee are based not upon early wartime costs,
but upon the most recent prices at which such articles have been procured by
the War Department and after our manufacturers had gained experience and
had absorbed some of the initial costs incident to starting up production.
"Nor should we be led into the thought that these civilian type articles are
not in urgent demand in foreign areas, where cilivian production has either
been disrupted by actual combat operations or has been diverted to the production of military items as much or more than has been the case in our country.
The committee, therefore, disagrees with those who seek to treat our surpluses
abroad as having little real value" (p. 6, Rept. No. 110, 79th Cong., 2d sess.,
pt. 5).
I have already pointed out that a large portion of our overseas surplus property consisted of critically short civilian type surpluses abroad. Export quotas
could have taken account of this, more of these critical items could have been




6

CONFIRMATION OF THOMAS B. McCABE

kept in this country and such a policy would have assisted in stabilizing our
economy.
Early in October 1945, the International Adjustments Committee of the Office
of War Mobilization and Reconversion, composed of representatives of the War
Production Board, War and Navy Departments, Foreign Liquidation Commissioner and other interested agencies, met for the purpose of formulating a uniform policy relative to the control of critically short civilian type surpluses
abroad. As a result of the action of this committee, J. D. Small, Chief of Staff
of the War Production Board, issued a directive to the Foreign Liquidation
Commissioner, instructing him to notify the War Production Board or its successor of any sales abroad of the following materials: Automotive maintenance
equipment, coal, construction machinery, Diesel and gasoline engines (60 to 200
horsepower), lumber, plumbing fixtures, rotenone, rubber footwear, shoes, galvanized sheet steel, textile products (and items and eloth), tires and tubes, and
trucks.
The purpose of this directive was to enable the Civilian Production Administration to take into account the surplus salts of these items abroad in establishing and revising United States export quotas on these materials.
Note that Mr. McCabe and his organization, in the words of the committee
report, were responsible for the disposal of surplus property abroad (p. 15,
Kept. No. 110, 79th Cong., 2d sess., pt. 5). Did Mr. McCabe as a faithful
public servant comply with that directive? Here are the findings of the Special
Committee Investigating the National Defense Program upon this matter:
"However, from the date of the issuance of this directive through E'ebruary
1946, the Foreign Liquidation Commissioner took no steps to follow the instructions set forth in the directive. As a result, some of the above-listed
materials were sold abroad by the Foreign Liquidation Commissioner. In
only one instance, involving the sale of tires and tubes to the French Government, was tile Civilian Production Administration notified, so that some adjustments could be made in export quotas" (p. 8, Kept. No. 110, 79th Cong.,
2d sess., p. 5).
Do not forget that Thomas B. McCabe was then Foreign Liquidation Commissioner. These are findings of a special committee of Congress that has
accomplished its mission of findings the facts, and has done it well.
Was another cause that led to the "giving away," in practice, of our surplus property abroad, the pricing policy which was established by the Foreign
Liquidation Commissioner? Would not one have expected that Mr. McCabe
would have attempted to obtain a price which was fair to the American people,
by obtaining the maximum return out of the sale of their goods which was
consistent with other objectives set by the Surplus Property Act of 1944. Wa&
that done? Let us look at the record.
The Foreign Liquidation Commissioner employed an appraisal company to
work out a formula which established prices for various categories of surpluses based upon their condition. For example, class 45, according to the
Standard Commodity Classification Index, which is motor vehicles, would be
priced as follows: If new and good, 90 percent of cost; if new and fair, 65 percent of cost; if new and poor, 35 percent of cost; if used but good, 75 percent
of cost; if used but fair, 50 percent of cost; if used but poor, 25 percent of cost.
On Juiy 3, 1945, the policy was established by Mr. James S. Knowland, then
field commissioner in Europe, as to all sales within his jurisdiction, that the
price computed by the foregoing formula would be the "ceiling price." This
meant that no offers to purchase at prices above this amount would be accepted.
That is a strange policy, indeed, and certainly not one which was destined to
obtain the maximum' return out of the sale of surpluses abroad.
Did Mr. McCabe rescind this order of his subordinate? Indeed not. He
approved the field commissioner's order and defended it before the Special
Committee Investigating the National Defense Program.
Let us look at the record. Here is what the special committee thought of
Mr. McCabe's ceiling-price philosophy:
"The policy is said to be based upon the desire of our Government not to
gouge foreign governments or foreign nationals by taking advantage of the
extremely short supply of items which we are selling. As a basis for this
philosophy, it was stated in the subcommittee's hearing in Paris on January 30,
1946, that British trade in the future would suffer from the fact that the
British surpluses in Iran had been sold by the British for several times what
they had cost the British Government.




CONFIRMATION OF THOMAS B. McCABE

7

"The committee disagrees with this 'ceiling' pricing philosophy. First, the
committee believes that the disposal agency was set up to merchandise and not
to do a lot of other things. Second, once sold, our control over the goods is
lost and there is nothing to prevent those who purchase our goods from reselling at market prices, thus realizing a handsome profit on turning over our
surpluses. This is true whether purchasers be foreign governments or whether
they be private individuals. Third, the establishment of controls to prevent
inflation are peculiarly the responsibility of local foreign governments and it
is an interference with their self-determination for us to decide that they need
an Office of Price Administration.
"Certainly, any local regulations governing ceiling prices on goods should be
observed in our sales abroad. In the absence of such regulations, however, the
committee believes it is beyond the authority of our sales agents abroad to
establish artificially low ceiling prices, since it encourages speculators to traffic
and profit in goods which, after all, belong to the American people. Realizing
that the criterion of 'fair price' established by the Surplus Property Act of 1944
vests a wide latitude of discretion in sales agents, the committee, nevertheless,
believes that it should be the principal objective of our agents selling our surpluses
abroad to obtain a price which is fair to the American people, by obtaining
the maximum return out of the sale of their goods which is consistent with
other objectives set by the act.
"The matter of fair value may well come into play where there is a strong
competing demand for extremely scarce items, in which case it might be necessary
to allocate on an equitable basis as between competing bidders.
"The committee is not impressed with Mr. McCabe's explanation for this pricing
policy, that the pricing policy is academic for the most part, since it is only rarely
that our ceiling price is bid first, because if it is advertised that we will not
accept more than a fixed amount, any bidders aware of the fact are not likoly
to offer more, and second, if the ceiling prices are always above the market price,
there is no point in having a ceiling price.
"The committee is of the opinion that the Foreign Liquidation Commissioner',
in establishing this pricing policy, has gone far afield from his principal function
and has sought to advance some nebulous theory of international good will and
generosity at the expense of the American people, which is far beyond the duties
of his office as contemplated by the Surplus Property Act and the regulations
issued thereunder" (pp. 20 and 21, Rept. No. 110, 79th Cong. 2d sess., pt. 5;
Special Committee Investigating the National Defense Program).
That is not yet the whole of the story pertaining to the sale of our surpluses to
the United Kingdom.
One would think that Mr. McCabe would have assured himself that his
subordinates would take a serious inventory of our surpluses abroad and make
at least a fair appraisal of them. Should not Mr. McCabe have checked upon
the type of inventory taken by the persons who constituted the sources of his
information? Let us turn to the record to see what he did in this respect.
This is the simple recital of the fact as found in the Report of the Special
Committee Investigating the National Defense Program, from which I quote:
"Mr. Robert Leland, a special assistant to the Foreign Liquidation Commission,
made a visit to England in early November and spent 10 days or so, both in
England in Paris, which is the central headquarters of the Foreign Liquidation
Commissioner in the European theater. Mr. James M. Brittain, who had been
the Foreign Liquidation Commission's representative in London from June 8.
1945, until November 28,1945, returned to Washington in the middle of November
and participated in the negotiations for the bulk transfer, as did Mr. Leland.
"Mr. Brittain testified that he made no study while in England of the market
in England for the products which had been and were to be declared surplus;
that he was familiar with the fact that the United Kingdom had price ceilings
on its products, similar to our Office of Price Administration system, but that he
made no examination of ceiling prices set by this system, nor any examination
of market prices in the United Kingdom. Mr. McCabe testified that neither he
nor anyone on his staff in Washing! on had consulted the catalogs or data available
in Washington, either in the Bureau of Domestic and Foreign Commerce or elsewhere, bearing upon the ceiling price at manufacturers' level of the market
value of the inventory of surpluses which he was in the process of selling. Mr.
McCabe and Mr. Brittain testified on this point as follows, at the committee's
hearing on Monday, February 25, 1946:
"Mr. MEADER. What study did you or your office here, or your agent in the
United Kingdom, make of the market conditions in the United Kingdom'.'



8

CONFIRMATION OF THOMAS B. McCABE

"Mr. MCCABE, Well, we couldn't market there.
"Mr. MEADEB. NO. What study did you make of what items were bringing that
you had to sell—for instance, electric wire? Did you know what electric wire
was bringing in the British market?
"Mr. BRITTAIN. I would be responsible for that, but it never occurred to me to
do that, for the simple reason that you had to sell through the British Government, and it would not be useful to try to tell them what they needed or what
they didn't need because they were very clear on that, as to what was a critical
item for them.
"Mr. MEADEB. In other words, the answer is that no study was made of what
things were bringing on the British market.
"Mr. BBITTAIN. YOU could know from being there that they were very short
of practically everything, and there was a great demand. They had told me
repeatedly that were they in funds, they would be delighted to buy it all, but they
couldn't afford it.
"Mr. MEADI;B. And no study was made in Washington of the Britsh market
conditions on these items, that you had to sell?
"Mr. MCCABE. Why, it didn't seem practical to do it. If we had made the
study, I didn't see any useful purpose in it.
"Mr. MEADER. Well, you asked, as item No. 2 in your cable of November 26,
'Weight the factor of British market conditions,' Mr. McCabe.
"Mr. MCCABE. As I say, as far as our making a general study, we didn't; I put
that in there, yes, as a factor.
"Mr. MEADEB. Among other items, 'What the British might realize or are realizing for similar goods to their nationals,' but now you and Mr. Brittain say that
wasn't of any importance. You asked General Strong to have that in mind,
though.
"Mr. MCCABE. AS a factor, I didn't put it in as a most important item, I will
put it that way."
On November 26, 1945, at 8 p. m., London time, Mr. McCabe, Foreign Liquidation Commissioner, in a teletype conference, requested Gen. F. S. Strong, who
had been commanding general of the United Kingdom Base Section since August
6, 1945, to give his opinion as to the minimum asking price for United States
surpluses in Great Britain. On Wednesday, November 28, 1945, at noon, a day
and a half later, General Strong gave his reply. The knowledge General Strong
had about factors bearing upon the value of our surpluses is disclosed in the
following testimony at the committee's hearing on Monday, February 25, 1946:
"Mr. MEADEK. Yes. I will read a passage from the TWX of November 26:
" 'From: McCabe.
" 'To: Strong, Brittain, and Fox.
" 'After you read British memo of November 5, and British report referred to
earlier, if they show it to you, please cable me immediately your combined views
and comments and your recommendations as to fair price we should seek in our
negotiation with British for all factors: weight (1) what British might realize or
are realizing for similar goods to their nationals ; (2) cost of guarding property;
(3) what we might realize if property sold elsewhere; (4) deterioration, pilferage, and so forth, which tends to decrease total value of property. There is wide
divergence of opinion here between British offer and our value ideas and if bulk
sale is desirable, there must be compromise. Therefore, send your recommendations of lowest compromise price for all United States surplus property,AAF,
ASF, Navy, scrap, and fixed installations. Need tabulation by 11 a. m. our time
Tuesday. Send immediately if clear by highest priority cable, liecommendations
requested should reach us by Wednesday p. m., at latest.'
"That is the cable on which you based your judgment?
"General STRONG. That is right.
"Mr. MEADEB. What did you know, General Strong, about what was being realized out of sales in Great Britain of property similar to that which you had on
inventory?
"General STRONG. I really didn't know anything at all. I think in the course
of the TWX, you will notice there that 1 indicated that it was practically an
impossible thing to do, but we had to give them something.
"Mr. MEADEB. The second item, the cost of guarding property, did you know
how much that was?
"General STRONG. I could guess at that a little bit from our pay rolls, and
so forth.
"Mr. MEADEB. What was that?



CONFIRMATION OF T H O M A S B. McCABE

9

"General STRONG. I think our figure, of course, for t h e A S F , w a s about half a
million a month, something of t h a t sort.
"Mr. MEADER. Do you know about w h a t w e might realize if t h e property w a s
sold somewhere else?
"General STRONG. I didn't.
"Mr. MKADER. And then w h a t did you know about t h e a m o u n t of d e t e r i o r a t i o n
and pilferage'.'
"General STRONG. I could only guess a t t h a t .
"Mr. MEADER. T h a t w a s your guess a t w h a t t h a t was?
"General SIRONU. I guessed a figure of 5 percent a month for everything, t h a t
is, obsolescence, t h e fact t h a t it is a w a s t i n g asset, and when we get back into
production all O U T t h e world, these things wouldn't be much good, t h e longer
you kept them, t h e less value they probably had. I j u s t struck a flat figure, as I
recall it, of 5 percent a month on it.
"Mr. MEADER. For deterioration and pilferage?
"General STRONG. For every kind of thing, obsolescence or w h a t e v e r you w a n t
to call it, losing j o u r market, a n d t h e whole business.
' The committee ( t h e Special Oommitee of the Senate Investigating t h e National
Defense 1'rogram) is of t h e opinion t h a t no adequate a p p r a i s a l of t h e property w a s
made b} anyone upon which to base a fair judgment a s to the price we should
r e c e n e for it. Ac-cording to the testimony previously quoted, no study of m a r k e t
conditions was made.
"The committee is of the opinion t h a t altogether too little effort and a t t e n t i o n
was devoted to developing the fact* concerning t h e n a t u r e and condition of our
surpluses and their m a r k e t value in t h e United Kingdom. These facts a r e t h e
pertinent and controlling facts in establishing price in any commercial t r a n s a c tion. T h a t they were deemed to be u n i m p o r t a n t by t h e Foreign Liquidation
Commissioner in conducting his negotiations with the B r i t i s h is an indication of
the casual fashion in which these public a s s e t s were handled" (pp. 20, 27, a n d
2b, S. Kepi. No 110. 79th Cong., 2d sess., p. 5 ; Special Committee i n v e s t i g a t i n g
the National Defease P r o g r a m ) .
Did Mr. Me< 'abe quote figures recklessly before the special committee of t h e
Senate? The following excerpt from the committee report raises t h a t q u e s t i o n :
"Mr. McCabe testified to t h e committee t h a t he w a s informed t h a t t h e cost of
guarding United States surpluses in Great B r i t a i n r a n $2,000,000 a month.
"It has been impossible for t h e Army to segregate t h e cost of g u a r d i n g a n d
storing surpluses from its operating expenses for other activities, and t h e best
it h a s been able to do is to furnish rough estimates, which a r e not a t all reliable.
Therefore, it is impossible for anyone to say how much would have been expended in t h e handling of our surpluses if a longer period of disposal w a s necess a r y " (pp. 21 and 22, S. Kept. No. 110, 79th Cong., 1st sess., pt. 5 ; Special Committee Investigating the National Defense P r o g r a m ) .
W a s t h e final cause of our obtaining but a fraction of t h e cost of our surpluses
in the United Kingdom Mr. McCabe's policy of m a k i n g bulk t r a n s f e r s of o u r
foreign surpluses to the governments of t h e countries w h e r e they w e r e located?
Did Mr. McCabe surrender easily to t h e cartel movement? I t would seem t h a t
t h e United States would stand to m a k e much more from sales to individuals t h a n
from a bulk sale to a foreign government.
For instance. Mr. McCabe, on December 21, 1945, and on F e b r u a r y 22, 1946,
in his testimony before the Special Committee Investigating t h e National Defense
Program, spoke in glowing terms of a "very splendid recovery" m a d e in surplus
sales in I r a n , where surplus property of this Government a t original cost of
$186,000,000 had been sold to I r a n for a total of $31,000,000, of which less t h a n
$3,000,000 was in credit, less t h a n $6,000,000 in local currency, and the balance
in United States dollars, acording to preliminary estimates.
Recovery shown on marketable fixed installations amount to 7.5 percent of
original cost. Included in declarations were s u b s t a n t i a l values assigned to a
highway, which is not regarded as m a r k e t a b l e . On t h e movable goods costing
$33,000,000 originally, $28,000,000 w a s recovered.
Mr. McCabe w a s brought to an a b r u p t halt, however, by t h e chief counsel,
Mr. Meader, who asked him t h e following q u e s t i o n :
You were not restricted in I r a n from selling to individuals, as yoti w e r e in
t h e United Kingdom, were you?
Mr. McCabe had to a n s w e r :
No ; not the same restrictions t h a t we h a d in the United Kingdom.
On t h a t same day, Mr. McCabe w a s reminded by Mr. Meader of a sale m a d e
by t h e Army in New Guinea of about $20,000,000 w o r t h of supplies t h a t we h a d



10

CONFIRMATION OF THOMAS B. McCABE

there and which were sold for practically 100 percent of their original cost
to the United States (pp. 16791 and 16792, pt. 33, hearings, Senate Special Committee Investigating the National Defense Program, pursuant to S. Kes. 55 79th
Cong.)
Even in the United Kingdom, before the bulk-sale agreement, a few private
sales were made to individuals, and the United States realized a far greater
percentage of the cost of the goods than under the bulk-sale agreement. The
Office of Foreign Liquidation sold to United Kingdom nationals goods with a
declared value of $1,140 for a realization of .$750, and to other than UK nationals
goods with a declared value of $1,081,484 for a realization of $400,566. (See p.
17570 of the Senate Special Committee hearings cited above.)
Those returns on our surplus in the United Kingdom were realized despite the
l
fact, as Mr. McCabe testified, "that the first surpluses that, we had << Glared
had very little civilian appeal." (See p. 16793 of Senate Special Committee
Hearings cited above.)
Mr. McCabe tried to justify the bulk saie of surplus to the United Kingdom
on the ground that everybody of importance he talked to favored a transfer to
the British in one lot and that the British were forced to a buik-sale deal because
of their lack of foreign exchange. (See p. 10709 of Senate Special Committee
Hearings cited above.) There is nothing in the record that would indicate
that Mr. McCabe tried, or attempted, to cause (he State Department, to use its
good influence to have the United Kingdom change its policy in that regard
and allow sales to private individuals.
The Senate Special Committee Investigating the National Defense Program
referred to the bulk sale to the United Kingdom as "a far poorer bargain for the
United States than the bulk sale to France after ihe last war in July 1919."
The special committee criticized Mr. McCabe's work as follows:
"The committee observes a trend toward the bulk transfer of our foreign
surpluses to the governments of the countries where they are located. Considering the expense and difficulty of transporting our surpluses out of the countries
where they are located and the prohibition against selling them to private
individuals in such countries, foreign governments are in position to acquire our
surpluses at a fraction of their cost. These sales are likely to be on credit.
"With all the time which has been available to have studied and worked out
these problems, and with all the bargaining power which the committee conceives was ours at the cessation of hostilities, the committee is disappointed
that we stand to realize so little on the value of our surplus property abroad"
(pp. 2 and 3, Rept. No. 110, 79th Cong., 2d sess. pt. 5, Special Committee Investigating the National Defense Program).
This special committee of the Senate concluded:
"The committee believes that the restrictions, limitations, and conditions imposed upon us by foreign governments in the disposal of our surplus property
abroad have thrown an additional burden of war cost upon the American people.
The amount of this additional burden can be measured by the reduced return
which we will receive because of our inability to sell our war surpluses abroad in
an advantageous market. Not only have we been saddled with a huge public
debt, fraught with economic repercussions, but our national resources have been
depleted at a rapid rate. If these resources are not replenished, we will be
weaker economically than we were before the war. Other governments were
able to impose these restrictions on surplus sal^s because our representatives
were not able to overcome the strong positions taken by the representatives of
other governments. * * *
"The committee's study of the quality of performance of agents who represented the United States in connection with bulk sale to the United Kingdom
and other negotiations abroad has convinced the committee that a better job of
representing the United States is feasible if only the expert ability existing in
various branches of our executive department is fully marshaled and organized
in order to develop the facts upon which a sound and fair position can be asserted
for the United States and placed in effect" (pp. 38 and 39 of the Senate special
committee report cited above).
In other words, the special committee found Mr. McCabe and his organization
specifically responsible for the disposal of surplus property abroad. (See p. 15
of special committee report cited above.) I have quoted verbatim from the
special committee report, which again and again finds fault with the policies
and actions of Mr. McCabe as the man in charge of the sales of our surpluses
abroad.



CONFIRMATION OF THOMAS B. McCABE

11

What is the request that is made of us at that time? Are we asked, simply,
to confirm the nomination of a man to be a member of the Board of Governors
of the Federal Reserve System, or are asked to reverse the finding of the Special
Senate Committee Investigating the National Defense Program? These men
studied Mr. MeCabo's public record and apparently found him wanting in many
respects as a public servant.
Who were these fellow Senators? Here is a list:
James M. Mead, chairman.
Tom Connally.
Hugh B. Mitchell.
Joseph H. Ball.
Hurley M. Kilgore.
Frank Parks Briggs.
Homer Ferguson.
James M. Tunnoll.
Owen Brewster.
William F. Knowland.
Did Mr. McCabe favor bulk sales as a fixed policy? Let us turn to India. Did
he have a chance to obtain a fair return for our surpluses in that theater? An
agreement had already been negotiated under which the United States would
have realized that fair return. The Department of State had already ratified
that agreement. Before the agreement was implemented, and while the Commibsioner who had negotiated this favorable agreement was absent, did Mr.
McCabe send his deputy to India to undercut the agreement by making a bulk
sale on credit to the Government of India, with terms, inventory, and condition
of goods to be determined later, all at a loss to the United States of millions and
millions of dollars?
Mr. Walter B. Schleiter, central field commissioner, India-Burma theater for
the Office of Foreign Liquidation Commission, negotiated, between the months
of August and December of 1945, an agreement between the Foreign Liquidation
Commission and the Government of India whereby the Foreign Liquidation Com^
mission would be permitted to sell to private individuals and companies in
India.
Previously the Government of India had officially gone on record to the effect
that all disposals in that country would be handled by the Indian Disposals
Branch. Schleiter negotiated this agreement on October 2, 1945, and ratification
by the Executive Council for the Government of India was accomplished on the
10th of October 1945.
Seventeen da.\s later, on the 27th of October 1945, the United States Department of State ratified the agreement.
On the 31st day of October 1945 the Government of India received a cable from
Lord Halifax in Washington completely ignoring the existence of the Schleiter
agreement and proposing negotiations contemplating a bulk-sale agreement.
The result of this cable was to nullify Sehleiter's agreement. In Mr. Schleiter's
words, in a hearing before the Special Committee Investigating the National
Defense Program:
"After Lord Halifax's message, the Government of India obviously was sitting
on the agreement and'not allowing us to implement it" (p. 17, Disposal of Foreign Surplus: Special Committee Investigating the National Defense Program,
U. S. Senate, Wednesday, November 13, 1946, Washington, D. C ) .
Twenty-three days later, on the 23d of November, the Government of India
called Schleiter into conference, revealed the existence of the Halifax cable,
and suggested that Field Commissioner Schleiter turn over to them everything
they wanted on memorandum receipts. This Schleiter refused to do but continued to sell to the general public some $4,821,000 in surplus goods, up untij
December 8, 1945.
On the 10th of December 1945, Schleiter left India for a Christmas vacation
in the United States and to report to Mr. McCabe upon his sales in India. One
week later General Connolly, then Deputy Commissioner to Thomas McCabe,
arrived in India, unknown to Mr. Schleiter, and on Christmas Eve negotiated
a bulk deal for all surplus in India. This action killed the Schleiter deal.
Schleiter claims that Connolly's action cost the United States $300,000,000.
When Schleiter got back to Washington, neither McCabe, his superior, nor
his assistants wanted to see him or to read his report. Schleiter heard of
Connolly's bulk deal for the first time through the newspapers. Schleiter resigned in protest.
A further explanation of these strange doings was obtained by the Senate
Subcommittee on Surplus Property on September 23, 1947. On that day Brig.
Gen. W. O. Reeder, former field commissioner, India-Burma theater, Foreign
Liquidations Commission, explained to the committee that he was sent home
on the 10th of December 1945 by General Terry, the theater commander, to go to




12

CONFIRMATION OF T H O M A S B. McCABE

Washington and get Mr. Schleiter fired. General Reeder went to Mr. McCabe,
a n d Mr. McCabe talked to him and asked him a number of questions. When
General Reeder next saw Mr. McCabe, the bulk sale to I n d i a had come out
(pp. 8 and 9, t r a n s c r i p t of hearings, Subcommittee on Surplus P r o p e r t y of Committee on E x p e n d i t u r e s in t h e Executive D e p a r t m e n t s , Tuesday, September 23,
1947: Vol. 1, Negotiation by Walter IS. Schleiter of Surplus Disposal Agreement
W i t h the Government of I n d i a ) .
On September 23, 1947, Ma.j. Gen. Donald H. Connolly, the Foreign Liquidation
Commissioner, a d m i t t e d t h a t be h a d made the negotiations for the bulk sale.
H e s t a t e d t h a t "Mr. McCabe wired him in I r a n to go over to India." (See
p. 25, t r a n s c r i p t of Subcommittee on Surplus Property, cited above.)
Senator Ferguson, c h a i r m a n of t h e subcommittee, properly scolded these individuals appearing as witnesses t h a t day. On page 24 of t h a t transcript he
states:
"You see here you were interfering with w h a t we know as free enterprise.
H e [SchleiterJ w a n t e d to sell to individuals and to firms, and he had a deal
made for t h a t . Then you kick it over a n d s a y : 'You have to sell it to the Indian
Government.' T h a t is 'statism.' T h a t is w h a t it a m o u n t s to."
T h e acquisition cost of t h e property in India t h a t was sold amounted to $(>50,000,000. W h a t we got in r e t u r n for it was the cancellation of $40,000,000 debt
we owed the I n d i a n Government (their e s t i m a t e ) , the end of lend-lease, and
reciprocal t r a d e to t h e closing of t h e theater. T h e I n d i a n s were to sell the
surplus goods up to $50,000,000 and keep t h e proceeds, and then split r>0-f>0 for
w h a t e v e r sales they make over and above t h a t amount. (See pp. 11-14, same
t r a n s c r i p t cited above.) T h e looseness of ihe whole deal is obvious when we
consider t h a t we have not even retained the right to look at the books kept by
t h e Indian Government upon surplus-property sales. We originally had an
agreement which General Reeder had provided for, whereby we did have general
supervision a n d a u t h o r i t y to look a t their books.
At the h e a r i n g on September 23, 1917, Chairman Ferguson asked General
Connolly, then t h e Foreign Liquidation Coiumisisoner, the following question:
"Senator FERGUSON. But did you ever look at their books?
"General CONNOLLY. N O , sir. Because when the over-all sale was made—
t h e i r feelings were h u r t t h a t we donb j ed their word, and that provision t h a t
General Reeder had in was wiped out here." (See p. 17, transcript oi hearings
of September 23, 1947, cited above.)
T h a t w a s t h e deal which had its inception when Mr. McCabe personally
engineered the undercutting of Schleiter's agreement.
An effort w a s m a d e by officials of the Foreign Liquidation Commission to
excuse this u n d e r c u t t i n g of t h e Schleiter agreement on the grounds that Schleiter
was taking too much time to sell to private individuals, b u t Schleiter successfully
refuted t h a t s t a t e m e n t by proof t h a t the State D e p a r t m e n t and others had delayed
his safes. Schleiter w a s never given an opportunity to prove t h a t he could
make sales rapidly under his negotiated agreement. (See p. 20, Disposal of
Foreign S u r p l u s : Special Committee Investigating the National Defense Prog r a m , U. S. Senate, Wednesday, Nov. 13, 1946.)
A brief excerpt from these same hearings will show us w h a t foreigners think
of such doings.
"Mr. SciiLFrTEK. I would like to add one more thing to this record as far as I
am concerned. I mentioned the name of Sir Archibald Rowlands, whom I liked
and admired very much, and I went over to England this summer on my own
business, and I had a note from Archie Rowlands stating; he had shaken the dust
of India from his feet a n d now w a s the permanent head of the Ministry of
Supplv in E n g l a n d told to look him up when I got there. So I r a n in to see him
one afternoon, and I s a i d : "Archie, there a r e a couple of things I would like to
ask you about the surplus disposal question.' H e said. 'Walter, t h a t is all
finished.
L^t's not t a l k about that.' I said, 'Let's talk about surplus.' H e
laughed and sat back and said, 'What do you w a n t to know?' And 1 said,
'Archie, w h a t did you think when you beard T wasn't coming back?' H e said,
'Well. I will pay you a great compliment. We were very relieved.'
"Then I asked him some other questions and he said, "Let's put it this way.'
I said, 'The deal I made with you w a s fair, otherwise you never would have
approved it (speaking of the Schleiter a g r e e m e n t ) . ' H e said, 'Yes, it w a s very
fair for you and it w a s fair for us, b u t we thought we could make a better one
if we used other methods.' "
Senator Ferguson, a t t h a t point, in the hearings, aptly r e m a r k e d : " I think
t h a t expre=°es it." (See pp. 33 and 34 of t r a n s c r i p t on Disposal of Foreign
Surplus cited above—Wednesday, November 13, 1940.)



CONFIRMATION OF T H O M A S B. McCABE

13

Then Mr. Schleiter c o n t i n u e d :
"There is one other thing about Rowlands t h a t I would like to p u t in, if I may,
t h a t is amusing and I think also h a s some bearing on it. One night I w a s a t his
club in London for drinks, and he introduced me to a retired British general
named Jones with whom he was obviously on very friendly terms, and t h e
general w a s kidding him about this and turned to me and said, 'How well do
vou know this fellowV And I said, 'I know him very well indeed. H e stole
$300,000,000 from me,' and Rowlands then said, 'Well, Walter, 1 didn't steal it
from you personally. I t w a s for the Ryots, the p e a s a n t s of India, and t h e
United States could well efford i t . ' " (See pp. 84 and 35 of t r a n s c r i p t on Disposal of Foreign Surplus cited above—Wednesday, Nov. 12, 1!)4G.)
At t h a t point in the hearings, the c h a i r m a n aptly r e m a r k e d " I think t h a t
tells the story."
Yes, t h a t tells t h e story of the bulk sales of surplus to India. Mr. Schleiter
had made a fair deal for the American people as well as for other p a r t i e s involved. Did Mr. McCabe have to show greater "generosity" a t t h e American
taxpayer's expense'? T h e British admitted the Schleiter deal w a s fair, but they
thought they could make a better one for themselves if they used other methods.
According to Mr. Schleiter, t h e net loss to the United States w a s $300,000,000 in
one deal alone.
L"t us now turn to I r a n . We have already mentioned t h a t a better r e t u r n w a s
obtained from this theater, where we were not restricted from selling to individuals, as we were in t h e United Kingdom (see p. 12 above). W h e n Mr. McCabe
wired Maj. Gen. Donald H. Connolly to go over to India to undercut t h e Schleiter
agreement in December of 1945 (see p. 24 above), w a s Mr. McCabe choosing a
man who had a kindred "generous s t r e a k " w i t h the American t a x p a y e r s ' money?
Again, let us turn to the record.
On September 23, 1947, General Connolly, then Foreign Liquidation Commissioner, appeared before t h e Subcommittee on Surplus Property of the Committee
on Expenditures in the Executive Department, Senator Homer Ferguson, chairman of the subcommittee, presiding.
General Connoll.\ explained that, a t the time of the refund on the m a t e r i a l sale
in the I r a n a r e a which we a r e now discussing, he w a s under Mr. McCabe. (See
p. 2, Transcript of H e a r i n g s ; Subcommittee on Surplus P r o p e r t y of Committee
on Expenditures in the Executive Department, U. S. Senate—Tuesday, September 23, 1947—Refund on material sale in I r a n a r e a . )
Then followed this amazing tale. A contract known as W - A M L (P6C-1) 211
was executed on December 5, 1945, for t h e payment, in w h a t was known as a
bulk sale, of $7,000,000, of which $2,500,000 w a s in currency of the United States,
and $4,500,000 in l r a n i a l s rials.
T h e contract r a n from the Government of the United States to a m a n known
as Mehdi Namazee, an I r a n i a n merchant, who allegedly acted for or fronted for
a large group of n a t i v e s ; and in connection with him in t h a t t r a n s a c t i o n w a s one
Meyer Abdullah, who allegedly w a s t h e executive officer of t h e syndicate.
Abdullah, more or less, according to rumor, acted as spokesman for t h i s organization, and was very much involved in t h e execution of the contract, a n d
also involved in t h e offering or asking for r e t u r n of money through claims for
alleged shortages, and spoilage of the property which they bought.
A colonel in the Army, Col. John D. Stetson, Jr., w a s acting as field commissioner for t h e Office of Foreign Liquidation Commission and he negotiated w i t h
the natives in connection with t h e sale of certain property located a t a United
States Army depot a t K h o r r a m Shahr. Considerable negotiation went on for
several weeks, because t h e natives or t h e p u r c h a s e r s of this property claimed
t h a t there were shortages, pilferages, a n d losses, all of which, it appears, took
place after they entered into the contract. The sale w a s made on a w r i t t e n contract in which t h e r e w a s a specific clause providing t h a t t h e property would be
bought as is, where is, and no refunds under any circumstances would be made.
It later appeared t h a t a refund w a s made, in t h e amount of $1,565,524.85, on o r
about the 15th of December 1946, through the direction of the field commissioner,
John B. Stetson, Jr., with the concurrence of Gen. Donald H. Connolly, t h e n
Deputy Foreign Liquidation Commissioner. The refund w a s m a d e about 2
months after Mr. McCabe's resignation, but the negotiation for t h e refund h a d
been conducted by Mr. McCabe's agents prior to his resignation.
T h e field commissioner, John B. Stetson, Jr., e s t i m a t e d t h a t t h e value of t h e
goods sold w a s $10,700,000. (See p. 29, Hearings on Refund on Material Sale in
I r a n Area, cited above.) Nevertheless, t h e contract price w a s $7,000,000. Obviously, the contract price w a s made low in view of the fact t h a t t h e Army w a s
73055—48

2




14

CONFIRMATION OF THOMAS B. McCABE

about to retire from the area and because of the following fact: The contract
stated that there would be attached thereto catalog B, and supplemental lists
which would tell what property was sold. One of the obvious factors in fixing
this low consideration was the fact ,that the Iranian syndicate was buying a
list of material which might be inaccurate and the further fact that the field
commissioner was not in a position to warrant (he accuracy of the list. That
appeared, for instance, in the following colloquy on page 44 of the hearing's
«ited above:
"Senator FEEGUSON. They were buying what was on the grounds.
"Mr. KENDAIX (general counsel, Foreign Liquidation Commission, State Department, Washington, D. C ) . They were buying a list of material which might be
inaccurate. And we were not in a position to warrant its accuracy, because we
knew it would not be accurate. Accordingly, the following clause was made a
part of the contract:
" 'The seller agrees to and does hereby sell to the buyer "as is" and without
any warranty except as to title, and subject to the conditions hereinafter set
forth, and the buyer agrees to and hereby does purehabe from the seller that
certain property listed in catalog B and supplemental list attached hereto, and
made a part of chis agreement. It is agreed by both the buyer and seller that the
quantities set forth in the attached catalog B and supplemental list may be
inaccurate and therefore the buyer expressly agrees to the seller not to make any
warranty as to quantity.' " (See p. 44 of hearings cited above.)
That clause could not be more clear. In spite of it, here is what took place.
The Iranians were given possession of the goods for a whole month before they
claimed there were shortages. (See p. 29 of hearings cited above.) The sequel
appears from the following exchange at page 30 of the hearings cited above:
"Senator FERGUSON. How much did you reduce this contractV
"Mr. STETSON. We reduced it a million and a half, on the basis of the shortages, the list of shortages which they (the Iranian syndicate) gave to us.
"Senator FEEGUSON. Well, did you take their word?
Mr. STETSON. Yes,

sir."

Now, this Mr. Stetson was not as naive as his answer would imply. On page
35 of the hearings cited above, in answer to a question put to him by Senator
Ferguson, as to why they could not have hired local people to guard the
property, he stated that the Iranians could not be trusted to do that. In fact,
upon the very subject of this deal, Mr. Stetson had written a memorandum on
June 13, 1946, which read, in part, as follows:
"The situation is made extremely difficult, due to our inability to prove
delivery, lacking the necessary Army records to that effect. I have, however,
been disturbed by rumors to the effect that the syndicate was using a strategy
of claiming shortages to offset losses due to falling markets. It seems to me
that we are entirely at the mercy of the syndicate, being unable to prove that
the goods they claim were short had actually been delivered." (See pp. 30 and
31 of hearings cited above.)
Mr. Stetson was, in that part of the memorandum, overlooking the very important fact that the Iranians had taken possession of the goods "as is, where
is" under a contract that expressly denied the existence of any warranty as to
quantity. The low consideration received for the goods already reflected that
situation.
At page 43 of the hearings, Senator Ferguson asked the question:
"How do you know the Persian Government didn't remove them (the goods
claimed to be missing) ?"
Mr. Kendall, Chief Counsel for the Foreign Liquidation Commission, replied:
"We don't know that, sir."
Was that a clear violation of the law? The original contract was binding
upon the Government of the United States and upon the Iranian syndicate.
Did Mr. Stetson, with the concurrence of Gen. Donald H. Connolly, both of whom
were acting under Mr. McCabe, give away to the Iranian syndicate 1% million
dollars of the American people's hard earned money?
It is true that Mr. Stetson and General Connolly tried to defend their action
before the Senate Subcommittee on Surplus Property, but their excuses appeared
quite lame to me. Their main excuse was the claim that Mr. Stetson had
agreed orally, before the signing of the contract, that the clause in the contract
with reference to a denial of warranty as to quantity would not be binding.
You do not have to be a lawyer to know that this is no defense to a written
contract, and that you cannot vary the terms of a written instrument through




CONFIRMATION OF THOMAS B. McCABB

15

proof of a contrary contemporaneous agreement upon the terms thereof. Both
Mr. Kendall, general counsel, Foreign Liquidation Commission, and General
Connolly, tried to justify Mr. Stetson's action upon the ground that Mr. Stetson's
authority to make the refund was involved in the general "authority to sell, lease,
exchange," in the Surplus Property Act.
When asked by committee counsel whether there was anything in the regulations which authorized a field officer to make a refund, Mr. Charles H. Kendall,
general counsel for the Foreign Liquidation Commission, answered:
"No, the authorization to make a refund is in the power to dispose of the
surplus property, you see." (See p. 66 of the hearings cited above.)
Of course, nothing in the Surplus Property Act gives power to a field commissioner nor anyone else to rescind a binding contract and give away money
rightfully paid to the Government of the United States.
As Senator Ferguson aptly remarked: "If this procedure is correct, this
Government is at the mercy of any particular individual, absolutely." (See
p. 46 of the hearings cited above.)
Senator Ferguson summarized the whole deal succinctly in this colloquy:
"This boils down to the fact that the United States Government" (and I
interpolate that Mr. McCabe was the "Government" in this case) "sent one
man over there and allowed him to deal in millions and millions of dollars' worth
of goods as he saw fit. Is that not a fact?
Mr. STETSON. That is pretty nearly the picture." (See p. 41 of hearings
cited above.)
Finally, let us turn to China to see how Mr. McCabe performed his duty in
that theater.
I first quote from an article by Mr. Herbert M. Bratter which appeared on
pagps 4!) and 56 in Nation's Business in December 1947. The article is entitled
"China's Job Begins at Home." I read :
"* * * o n the surplus property deal, China got the boodle, the American
taxpayer the bill.
"The first batch of ships we disposed of to China—valued for disposal purposes at $3,000,000—was handed over without our even getting an official receipt.
"Later, 18 tankers were turned over, the first four being delivered before the
contract was signed. Then, while the Chinese held the four tankers as a pawn,
our cffiVials tried to get them to sign a contract for all 18, and finally succeeded
only after writing down their value by almost $200,000 each. That's only part
of the story.
"Before the sale of these tankers to China, The Texas Co. (China) Ltd. had
bid $350,000 each for two of them. After we sold the 18 tankers to China, the
Chinese offered some of them to The Texas Co. at $400,000 each.
"The tanker deal enabled the Chinese Government to prohibit by law oldestablished United States oil firms from continuing in the up-river oil distribution business in China. United States ships had to be registered under the Chinese
flag if they were to continue in this trade.
"Here is another case: In keeping with congressional policy, we had sold
some surplus drum steel in Shanghai to two United States firms, the Texas Co.
and the Standard Oil Co., for $95,000. Half of the money had already been
paid.
"Then the Chinese decided they wanted the steel. So they got the contract
canceled and bought the steel for themselves for $57,000. Nor is that all. Later
we reduced the price to the Chinese to only $19,000. The Chinese then sold
the steel on the open market at a fat profit.
"Through the press, the American public lias heard something about the disposal of Army surplus in Okinawa, one result of which was that Red Cross blood
plasma—estimated to have been donated by 2C0.000 Americans to help win the
war—ended up, in part at least, in China's drug trade. Among other surplus
medical supplies so sold, narcotics found their way into illicit use in China.
"What the American public does not know is that this operation involved
1he Reliance Corp., financed by T. V. Soong's Fu Chung Corp.
"Prominent in the medical supplies deal was J. H. Powell Khoong who, according to Brig. Gen. Bernard A. Johnson of the Office of Foreign Liquidation
Commissioner, was an agent of T. V. Soong. American officials witnessed in
a Shanghai warehouse the intermeshing private interests and official interests.
In this warehouse were stacked medical supplies and plasma bought by Khoong's
company, and also surplus candy bought by the Chinese Government. Three




16

CONFIRMATION OF T H O M A S B. McCABE

persons w e r e allocating t h e distribution of these goods, an American Army
officer, Khoong, and T. L. Soong. * * *"
T h e a r t i c l e which I have j u s t r e a d r a i s e s serious doubts as to whether our
sales of surpluses in China w e r e handled in t h e interest of t h e United States.
T h e same holds t r u e when we consider the circumstances surrounding our bulk
sale to China of our surpluses located t h e r e and on 17 islands or bases. The
cost price of these surpluses was estimated a t $824,000,000. (See Report to
Congress by D e p a r t m e n t of State in J a n u a r y 1948, p. 11.) W h a t did we get
in exchange for tho^e goods'"? The Chinese extinguished all except .¥30,000,000
of the Yuan debt. Yho Yuan debt w a s a supposed obligation on the p a r t of the
United S t a t e s to pay a debt which ranged in t h e neighborhood of $150,000,000.
They e x t i n g u i s h e d §120,000,000 of t h a t debt. We still owed the Chinese $30,000,000 which w e e a r m a r k e d under t h e bulk sale contract for shipping and
services in connection with t r a n s p o r t i n g this surplus from t h e various islands
and bases in China. (See pages 22969 and 22970 of p a r t 39, Investigation of
the National Defense Program, Special Senate Commi 'ee Investigating the National Defense Program, U. S. Senate, 80th Cong , S. Res. 4(5.) In addition we
received other consideration estimated a t $50,000,000. We t h u s received an
estimated t o t a l consideration of $170,000,000, or 20 percent of rhe cost price
of t h e goods.
To this day, it has never been clear just how we came to owe China S150,000.000.
Appearing before the Special Senate Committee Investigating 1he National Defense P r o g r a m on September 27. 1940. Maj. Gen. Donald H. Connolly, then
Foreign Liquidation Commissioner, tried to explain the Yuan indebtedness as
"money d u r i n g t h e w a r , local currency, furnished the Army for their expense-;
over there—for t h e pay of troops, for t h e purchase of supplies, services, nnd
everything else." (See p. 22970 of the Investigation of the National Defense
Program, pt. 39, cited above.)
Mr. Lane, Deputy Foreign Liquidation Commissioner, before the same Senate
Special Committee, explained how Mr. McCabe took t h e .Yuan indebtedness a t
face value, as follows:
"We h a d only to kjiow from t h e T r e a s u r y how much did the United States, in
t h e T r e a s u r y ' s judgment, owe China, and t h a t figure we received from the Treasury. * * * The decision t h a t this w a s an obligation of t h e United States to
China w a s m a d e y e a r s ago by the W a r D e p a r t m e n t and by President Roosevelt
as p a r t of t h e conduct of the war. T h a t w a s a decision over t h e dam. We had
no j u d g m e n t to exercise w h e t h e r we owed China.'' (See p. 22971 of Investigation
of the National Defense Program, p. 39, cited above.)
McCabe went personally to China to negotiate this bulk sale deal.. It will
be testified here t h a t Navy Capt. F e r r i s N. Luboshez, chief counsel for the Cent r a l Field Commissioner for Manila, whose office had nominal jurisdiction over
China, m a d e an emphatic recommendation t h a t Brigadier General Johnson, whom
McCabe h a d sent a s Commissioner to China, be b a r r e d from participation in the
China bulk sale negotiations. McCabe's reaction to this w a s to leave Luboshez
cooling his heels in his hotel room while Johnson took p a r t in the negotiations with
Chinese P r e m i e r T. V. Soong.
T h i s was done in spite of the fact t h a t one of the most serious charges against
General Johnson w a s to t h e effect t h a t Johnson had been actively negotiating
with Soong, over a period of months, for a job with t h e Chinese Government as a
sales m a n a g e r for resale of United States surplus all over the world as soon
a s the bulk deal w a s made. T h e charge w a s to the further effect t h a t Johnson's
s a l a r y w a s to be $35,000 (United States dollars) a year plus house, car, servants,
and a commission bonus on sales.
Mr. McCabe did not believe those charges, in spite of the fact t h a t he had been
repeatedly w a r n e d of w h a t w a s happening in his China office by two successive
a t t o r n e y s and a compliance officer for FLO, China, and in spite of'the fact t h a t his
own compliance officer h a d provided him w i t h evidence (through his executive,
Colonel S t a r r a n d his counsel, Charles Kendall) of gross irregularities and mism a n a g e m e n t by his Commissioner for China, Brig. Gen. B. A. Johnson.
I t will be testified here t h a t Mr. McCabe's agents made known to General
Johnson t h e details of evidence held against Johnson, and t h a t the effect of this
u n w a r r a n t e d procedure w a s virtually to sabotage the investigation before it was
started.
I t will be testified t h a t t h e Inspector General, Colonel Dougherty, complained
bitterly of this disclosure to Johnson, but in spite of it, was able to develop 17




17

CONFIRMATION OF THOMAS B. McCABB

charges against Johnson a n d t h e recommendation t h a t t h e general be held for
court m a r t i a l , a recommendation t h a t w a s endorsed by t h e t h e a t e r commander.
However, to this day the court m a r t i a l h a s not taken place.
It w a s in this unwholesome atmosphere t h a t the China bulk deal took place.
T h e bulk deal agreement with China bears the signatures of T h o m a s B. McCabe, Foreign Liquidation Commissioner, and of T. V. Soong, president of t h e
Executive Yuan, for the Government of t h e Republic of China.
A conspicuous loophole in t h e agreement appears u n d e r article 5, w a r r a n t i e s .
" T h a t the United States w a r r a n t s title to the p r o p e r t y sold a n d t h a t in lieu
of any other w a r r a n t y or u n d e r t a k i n g a s to t h e kind, size, weight, q u a n t i t y ,
quality, character, value, description, condition, or fitness for use of t h e proerty sold, it is understood t h a t if a m a t e r i a l disparity is found to exist between
the property sold to China hereunder a n d consideration given therefor by China,
hereunder, the two Governments will consult together to fix a n a p p r o p r i a t e
adjustment in the price paid."
Testimony will be given here which would indicate t h a t gross irregularities
existed in the Chinese theater. F o r instance, the first witness whom I shall
call will produce evidence to the effect t h a t General Johnson, Mr. McCabe's Con*
missioner in China, sold 11 operable B-25's w i t h very low flying h o u r s to a
p r i v a t e Chinese firm owned by T. L. Soong, brother of P r e m i e r Soong. Testimony
will be adduced t h a t when t h e newspapers broke t h e story on this deal, Mr.
McCabe, with no a u t h o r i t y whatever for such action, ordered destruction of these
bombers by cutting t h e tails off. Evidence will be presented to the effect t h a t
Mr. McCabe admitted t h a t his objective w a s to forestall h a d publicity a t home.
I t will be testified t h a t in t h e process of carrying out Mr. McCabe's order, another Army B-25 (which cost $243,000 n e w ) a n d which h a d not been declared
surplus, w a s destroyed by Mr. McCabe's agents.
All of these charges deserve t h e grave consideration of t h i s committee before
action is taken upon t h e nomination of Mr. McCabe to t h e high office of m e m b e r of
the Board of Governors of the F e d e r a l Keserve System.

The CHAIRMAN. We will reconvene at 2 : 3 0 this afternoon.
(Thereupon at 1 1 : 50 a. m., a recess was taken until 2 : 30 p. m., the
same day.)
A F T E R N O O N SESSION

(Pursuant to the taking of the noon recess, the committee resumed
at 2 : 30 p. m.)
The CHAIRMAN. The committee will come to order, please.
Senator BRIOKER. May I, before you proceed, just place in the record
along with the letter that you did this morning, one from Mr. F r e d
Y. Geier, president, Cincinnati Milling Machine Co., Mr. F r e d Lazarus,
one of our outstanding businessmen, as is Mr. Geier also, in Ohio, one
from Mr. George Crabbs, and one from Secretary Patterson,
The CHAIRMAN. Does it say anything about liberal Republicans?
They may be included in the record.
Senator BKICKER. Nothing at all; nothing at all.
THE

C I N C I N N A T I M I L L I N G M A C H I N E Co.,

Cincinnati

9, Ohio, February

£6, 19^8.

S e n a t o r J O H N W. BRICKER,

Senate Office Building, Washington,
D. O
DEAR J O H N : While I w a s in the West I read t h e wonderful news t h a t Tom
McCabe h a d been nominated a s C h a i r m a n and Director of t h e F e d e r a l Reserve
Board.
H a v i n g gotten to know him a n d having worked with h i m in recent years, I
could not help but feel how f o r t u n a t e it will be for the country a n d the economy
to have him serve in this important post. I hope t h a t you can help to m a k e
sure t h a t his nomination is promptly confirmed.
Tom is one of those r a r e men in who people instinctively h a v e t r u s t a n d
confidence. His experience in t h e F e d e r a l Reserve System, a s a businessman
and in Washington, his calmness a n d levelheadedness, a n d t h e gift he h a s of




18

CONFIRMATION OF T H O M A S B . McCABE

working with o t h e r s m a k e s him a f o r t u n a t e choice for t h e broad responsibilities
involved.
W i t h all good wishes,
Sincerely yours,
FEED.

•

FEDERATED DEPARTMENT STOKES, I N C . ,

Cincinnati

2, Ohio, February

11, 19JJ8.

S e n a t o r J O H N W. BBICKER,

Senate Office Building, Washington,
D. C.
DEAB J O H N : I u n d e r s t a n d t h a t you a r e a member of t h e committee t h a t will
p a s s on T h o m a s B . McCabe's appointment a s C h a i r m a n of t h e F e d e r a l Reserve
bank.
I have known Tom for several years. H e h a s been a n active member of t h e
Committee on Economic Development, a n d also a member of t h e Advisory Comm i t t e e to t h e Secretary of t h e D e p a r t m e n t of Commerce. I n my judgment h e
is a very able citizen. I t r u s t t h a t you can see your way clear to participate in
t h e confirmation of h i s appointment.
W i t h a l l good wishes, I a m
Sincerely,
F E E D LAZARUS,

Jr.

T H E P H I L I P CAKET MANUFACTURING Co.,

Cincinnati

2, Ohio, February

20, 1948.

S e n a t o r J O H N W. BRICKER,

Senate Office Building, Washington,
D. C.
M Y DEAR SENATOR: J u s t a word in connection w i t h t h e confirmation of M r .
T h o m a s B. McCabe a s Governor of t h e F e d e r a l Reserve Board.
I have been associated with Mr. McCabe a s a t r u s t e e of t h e Committee for
Economic Development a n d t h i n k very highly of h i s character a n d ability, a n d
sincerely t r u s t you will give h i s confirmation your careful consideration.
W i t h all good wishes, believe me,
Sincerely yours,
GEORGE D . CRABBS.
PATTERSON, B E L K N A P & W E B B ,
(CUKTIS & B E L K N A P ) ,

New York 5, N. Y., January

30,1948.

H o n . J O H N W. BRICKER,

United States Senate, Washington, D. C.
DEAR J O H N : I a m told t h a t t h e nomination of Thomas McCabe is to come
before t h e Senate B a n k i n g and Currency Committee n e s t week.
I know Mr. McCabe very well and h a v e t h e utmost confidence in his character,
ability, a n d qualifications.
In t h e early p a r t of 1945 I p e r s u a d e d him to take charge of disposal of ArmyNavy surplus overseas. H e did t h e work with m a r k e d success a n d a t a heavy
personal sacrifice. H e is a splendid citizen.
W i t h w a r m regards, I a m
Sincerely yours,
ROBERT P . PATTERSON.

The CHAIRMAN. T h e first witness is Mr. Hubert R. Moody.
Hold up your right hand. You do solemnly swear the testimony
you are about to give will be the truth, the whole truth, and nothing
but the truth, so help you God ?
Mr. MOODT. I do.
The CHAIRMAN. This

is Mr. Moody, who is presently employed as
investigator for the United States Senate Subcommittee on Surplus
Property, Homer Ferguson, chairman, and Senator Ferguson very
kindly made him available to me with all records, and so forth. He
has a statement to read and as he reads, I wish to conduct a direct



CONFIRMATION

OF T H O M A S B . McCABE

19

examination on certain points he makes. I would respectfully ask
the committee if they would let him conclude his statement and my
direct examination, and then the witness will be the committee's.
You may proceed.
TESTIMONY OF HUBERT R. MOODY, INVESTIGATOR, UNITED STATES
SENATE COMMITTEE ON EXPENDITURES, SUBCOMMITTEE ON
SURPLUS PROPERTY, WASHINGTON, D. C.
Mr. MOODY. My name is Hubert R. Moody. I am an investigator for
the United States Senate Committee on Expenditures, Subcommittee
on Surplus Propexiy. Before being employed by the committee, I
was a field compliance officer for the Foreign Liquidation Commissioner ( F L C ) , Department of State and its predecessor agency, t h e
Army-Navy Liquidation Commissioner, which was attached to the
office of the Under Secretary of War. I came to the office of the ArmyNavy Liquidation Commissioner in September 1945, from the office
of the Secretary of War. There I had been an investigator for the
Civilian Personnel Division during the. war.
As a field compliance officer for the Office of Foreign Liquidation
Commissioner it was my duly to investigate violations of the Surplus
Property regulations, F L C directives and certain personnel matters
in overseas held offices. I conducted surveys in the F L C central field
office for the European Theater at Paris, the field office at Rome, the
central field office for the Middle East at Cairo, the central field office
for India-Burma at New Delhi, the central field office for the Philippines and western Pacific at Manila and the field office for China and
eastern Asia at Shanghai. Although my field investigations were
made in the year 1946, I was the first compliance officer from t h e
home office of F L C in Washington to survey the field offices at Cairo,
New Delhi, Manila, and Shanghai.
The CHAIRMAN. Would not regulation 15 under the Surplus P r o p erty Act specifically provide that a compliance organization be established to investigate violations of the Surplus Property Act?
Mr. MOODY. I t does, sir, so provide.
The CHAIRMAN. I will ask to be inserted in the record regulation 15,
Surplus Property Act issued under the Surplus Propertj^ Act, marked
as "Exhibit A."
(Exhibit A is as follows:)
( S P A Reg. 15)
PART 8315—COMPLIANCE
Sec.
8315.1
Definitions.
8315.2
Scope.
8315.3 Responsibility of Government agencies.
8315.4 Agency compliance organizations.
8315.5 F u n c t i o n s of agency compliance organizations.
8315.6 E x t e n t of investigations : referral t o other Government agencies.
8315 7 Records.
8315.8 Regulations to be reported t o t h e Administrator.
A u t h o r i t y : 8315.1 t o 8315.8. inclusive, issued under t h e Surplus P r o p e r t y Act of 1941,
58 Stat. 765, 50 U. S. C. App. Sup. 1G11, a n d under P u b . L a w 181, 79th Cong., 1st sess.
8315.1 Definitions.
T e r m s defined in t h e S u r p l u s P r o p e r t y Act of 1944 sliall
in t h i s p a r t h a v e t h e m e a n i n g given to t h e m in the act.
8315.2 Scope.
T h i s p a r t applies to all disposal agencies a u t h o r i z e d by o r
p u r s u a n t to t h e Surplus P r o p e r t y Act of 1944 to dispose of s u r p l u s p r o p e r t y . T h i s




20

CONFIRMATION OF THOMAS B. McCABE

part shall also apply to the War and Navy Departments and to all owning agencies which are designated by the Administration as disposal agencies. This part
is directed to the operations of such disposal and owning agencies in disposing of
surplus property under the act in the continental United States, its territories and
possessions, and in foreign areas. Nothing in this part shall be deemed to affect
the jurisdiction of the military services over their own personnel or any arrangement between such services and the Department of Justice concerning the
handling and prosecution of criminal matters.
8315.3 Responsibility of Government agencies. Subject to the supervision and
direction of the Surplus Property Administrator, each agency shall be charged
with the responsibility of insuring that its disposal activities are in full compliance with the provisions of the act and with all regulatons, orders, drections, and
policy statements of the Administrator.
83i5.4 Agency compliance organizations. To assist in carrj ing out its responsibilities relating to compliance, each agency shall establish, if not already established, and maintain a compliance organization adequate to carry out its functions
hereunder.
8315.5 Functions of agency compliance organisations. Subject to the provisions of 8315.6 hereof requiring referral of criminal matters to the Department
of Justice, the compliance organization of each agency shall perform such investigatory functions as are necessary to insure compliance with the provisions of the
Act and with the regulations, orders, directions, and policy statements of the
Administrator including:
(a) Periodic surveys of field unit disposal operations, to prevent or correct
irregularities in the disposition of surplus property ;
(b) Such special investigations as the agency or the Administrator may consider necessary to insure the observance of prescribed disposal procedures.
(c) Investigations upon the receipt of complaints or information from any
source indicating irregular or improper disposal or surplus property.
8315.6 Extent of investigation: referral to other Government agencies. All
information indicating violations by any person of Federal criminal statutes, or
violations of section 26 (b) and section 27 of the Act, including but not limited to
fraud against the Government, mail fraud, bribery, attempted bribery, or criminal
collusion, shall be referred immediately to the Department of Justice for further
investigation and disposition. Each agency shall make available to the Department of Justice, or to such other governmental investigating agency to which the#
matter may be referred by the Department of Justice, all pertinent information
and evidence concerning the indicated violations; shall desist from further investigation of the criminal aspects of such matters except upon the request of the
Department of Justice; and shall cooperate fully with the agency assuming final
jurisdiction in establishing proof of criminal violations. After making the necessary referral to the Department of Justice, inquiries conducted by agency compliance organizations shall be limited to obtaining information for administrative
purposes. Cases involving unfair trade practices shall be referred promptly by
the agency to the Federal Trade Commission. Where irregularities reported or
discovered involve wrong-doing on the part of individuals holding positions in
Government agencies other than the agency initiating the investigations, the case
shall be reported immediately to the Administrator for an examination in the
premises.
8315.7 Records. Each agency shall prepare and maintain such records as
will show full compliance with, 1he provisions of this part and with the
applicable provisions of the act. A written report shall be made of all compliance investigations conducted by each agency compliance organization. Each
agency shall maintain centralized files of all such reports at its respective
departmental offices. Until otherwise directed by the Administrator, there
shall be transmitted promptly to the Administrator one copy of any such
report which contains information indicating criminality on the part of any
person or indicating non-compliance with the act or with the regulations,
orders, directives, and policy statements of the Adr"iuistr,-'tor. In transmitting such reports to the Administrator the agency !-hall set forth the action
taken or contemplated by the agency to correct the improper conditions established by the investigation. Where any matter is referred to the Department
of Justice or to the Federal Trade Commission, a copy of the letter of referral
shall be transmitted to the Administrator.
8315.8 Regulations to be reported to the Administrator.
Each agency shall
file with the Administrator copies of all regulations, orders, and instructions of




CONFIRMATION OF T H O M A S B. McCABE

21

general applicability which i t m a y issue in f u r t h e r a n c e of t h e provisions, o r
any of them, of t h i s p a r t .
This p a r t shall become effective November 1G, 1945.
W. STUART SYMINGTON,

Administrator.

NOVEMBER 16. 1945.

The CHAIRMAN. Did not Mr. McCabe assume office as Army-Navy
Commissioner on April 15, 1945 ?
Mr. MOODY. I believe that is correct.
The •CHAIRMAN. When were investigators first sent overseas to
perform compliance surveys?
Mr. MOODY. T h e first investigators, Captain Burk and Captain
Smith were sent overseas, I believe, in March of 1946.
The CHAIRMAN. That was about 11 months after Mr. McCabe took
office?
Mr. MOODY. That is right.
The CHAIRMAN. Does that mean that investigators were not
appointed until that time?
Mr. MOODY. NO, sir,. These investigators had been on the pay roll
for several months.
The CHAIRMAN. Proceed.
Mr. MOODY. There were_-indications of serious irregularities at
Manila. However, before my investigation could get well under
way there, I was ordered t o proceed to Shanghai with L t . A r t h u r
Duffy, USNR, Fiscal Examiner for F L C Washington. The orders
to proceed to Shanghai resulted from letters and a radiogram from
Mr. W. F . McKenna, the newly appointed legal counsel to the field
commissioner for China and eastern Asia, no relation to the counsel
of this committee, incidentally.
The CHAIRMAN. Do you know whether Mr. W . F . McKenna, the
legal counsel to the field commissioner of China and eastern Asia
brought to Mr. McCabe's attention any irregularities in that iheater?
Mr. MOODY. Yes, there were two letters to the Commissioner. One
of them was sent during June of 1946, which disclosed a number
of irregularities, not too well established, not too well proven, and
30 days later a second letter was sent by Mr. McKenna, which had
strong evidence of irregularities in the China field office.
There was not a reply to either of these letters, and it was not until
Mr. McKenna sent a cable through the offices of Mr. Monnett Davis,
the consul general at Shanghai, before an investigation was ordered,
before the letters were transmitted to me, and I was ordered to proceed to Shanghai.
The CHAIRMAN. Did Mr. McKenna state in that letter that he was
asking for time so that F L C could clean its own house?
Mr. MOODY. I n the second letter, yes. Consul General Davis had
offered to step in and take direct action. However, Mr. McKenna
asked for a little time so that F L C would have a chance to clean its
own house first.
Before leaving Manila I was briefed by Navv Captain Ferris Luboshez, the general counsel for the F L C central field office, who had just
returned from Shanghai where he had been talking with Mr. McKenna,
the legal counsel for FLC, China. Captain Luboshez was particularly
careful not to prejudice my investigation. H e did, however, relate
that there was: 1. Strong evidence that the field commissioner for




22

CONFIRMATION OF THOMAS B. McCABE

China and eastern Asia, Brig. Gen. Bernhard A. Johnson, while in
charge of sales of American surplus property in the F a r East was, at
the same time, negotiating for jobs for himself and certain members
of his staff with the Chinese Government to resell the same property
for the account of the Chinese Government. The report of investigation by the Army Inspector General's Office was later to say of this
negotiation:
Deliberate planning by him (General Johnson) for his employment with the
Chinese Government subsequent to his relief from FLC duty, which coulcl have
the natural tendency of causing him to make decisions in favor of the Chinese
Government at the expense of the United States.

The CHAIRMAN. D O you know whether Mr. McCabe was advised of
General Johnson's negotiation before Mr. McCabe went to China %
Mr. MOODY. I n my brief conversation with Mr. McCabe, he informed
me that he had known about that sometime before. I believe it was
about the last of June, at least near the 1st of June. Mr. McKenna's
letter had so informed him.
The CHAIRMAN. Did Mr. McCabe advise you that he had known of
a n offer to General Johnson, and that General Johnson had himself
advised him of such an offer ?
Mr. MOODT. H e stated t h a t ; he also stated that he had advised him
not to accept it.
The CHAIRMAN. Was that simply an offer to Johnson, or was that a
negotiation ?
Mr. MOODT. Further evidence, as disclosed later, established pretty
clearly that General Johnson was definitely negotiating for a job.
The CHAIRMAN. A job in China.
Mr. MOODY. A job with the Chinese Government.
The CHAIRMAN. While he was also negotiating the sale of goods to
them.
Mr. MOODY. A t the very same time.
The CHAIRMAN. There were two Johnsons in one person; one Johnson who was acting for the nominee, as the commissioner, and the
other the Johnson who had ambition to get a job in China.
Mr. MOODY. Evidently, sir. As a matter of fact, Lt. Albert Diehl,
one of the officers who worked for the Shanghai office, was offered,
through General Johnson, a proposition with the Chinese, and at the
time he discussed this, he showed Lieutenant Diehl what he was asking
for in the way of a salary and compensation; as an example, he had
scribbled on a piece of paper $35,000 a year, plus house, automobile,
and chauffeur, and other considerations.
There was some discussion and some evidence to prove that some
other members of F L C who were to accompany General Johnson, were
even to get a commission on sales of American surplus sold all over
the world.
The CHAIRMAN. I see. Would you call those men patriots ?
Mr. MOODY. Well, it would hardly seem so.
The CHAIRMAN. Proceed, please.
Mr. MOODY. 2. That the fh-st attorney assigned to General Johnson
by the Washington office of FLC, Maj. Lawrence E. Mnllally, had been
dismissed on Johnson's request because he had objected to a sale of
medical supplies since proved to have included blood plasma donated
to our armed services by Americans during the war which, along with



CONFIRMATION OF THOMAS B. McCABE

23

•quantities of medical narcotics, found their way into the Chinese black
market, and because Attorney Mull ally had objected to General Johnson's policy of turning over great quantities of the most valuable
property without contracts or price agreements.
The CHAIRMAN. By whom was Major Mullally dismissed?
Mr. MOODY. At the request of General Johnson by Mr. McCabe's
Washington office.
The CHAIRMAN. Did Major Mullally explain to Mr. McCabe that
blood plasma was included among the medical supplies?
Mr. MOODY. According to Major Mullally, he could not get an audience when he came back to Washington. H e tried in vain to get appointments with Mr. McCabe, with Deputy Chester Lane, with his
attorney. Mr. Ben O. Smith, all without avail. Nobody seemed to be
interested.
The CHAIRMAN. Was not that incident almost'an exact parallel of
the treat ineiit accorded Mr. Walter B. Schleiter, the field commissioner
for India, upon his return from India ?
Mr. MOODY. Very similar; yes, sir.
The CHAIRMAN. Was Mr. McCabe's Washington office notified by
the Red Cross of the report of sale of blood plasma by F L C Shanghai
before Mr. McCabe left for China?
Mr. MOODT. Yes. Mr. McCabe's office was notified on the 7th of
August 1946, of the existence of this blood plasma, in a letter from, the
Red Cross, which urged immediate action to check and find out the
status of this and find out whether it was true.
The compliance officers, including the chief of compliance, were
not notified of that. As a field compliance officer, I had no notice of
that. However, later, in September, Mr. McKenna and myself ran
into this blood plasma in a warehouse in Shanghai and wired the
Washington office of the existence of that, and urged action to be
taken.
There was no reply from that cable either.
The CHAIRMAN. Did not the press get hold of this story of the sale
of this blood plasma?
Mr. MOODY. Yes; but that was not for several months. T o be exact,
I believe it was about the 15th of November 1946 that the press broke
the story all over the world as a result of an advertisment that the
Chinese themselves had put into Chinese papers.
The CHAIRMAN. That was 4 months after Mr. McCabe's office had
been notified of the illegal sale by Eed Cross officials.
Mr. MOODT. Yes.
The CHAIRMAN. H O W

much has been included in the sale to the
Chinese black market?
Mr. MOODY. There was 160 measurement tons.
The CHAIRMAN. D O you have any estimate of the approximate number of Americans who donated this blood ?
Mr. MOODY. I do not. The United Press estimated t h a t it was the
donation of more than 200,000 Americans, but I would have no way
to verify that.
The CHAIRMAN. Did Mr. McCabe know that General Johnson had
sold this blood plasma before Mr. McCabe had made his decision t h a t
General Johnson should continue to conduct negotiations with the
Chinese on the bulk sale?



24

CONFIRMATION OF THOMAS B. McCABE

Mr. MOODY. T h a t I cannot say, but his office certainly was notified
by letter from
The CHAIRMAN. The Red Cross letter ?
Mr. MOODY. Yes, t h e Red Cross.

The CHAIRMAN. So he was put on notice through the Red Cross.
Mr. MOODY. Yes.
The CHAIRMAN. Proceed.
Mr. MOODY. 3. That General Johnson's policy of turning over property to the Chinese without contracts, price agreements, and in some
instances without even receipts was continuing at that time over the
objections of Mr. McKenna, the second attorney assigned to General
Johnson by the F L C Washington office.
4. T h a t 151 airplanes, including military aircraft, were sold in
direct violation of instructions from Washington as "salvage" and
that subsequently a number of them had been flown off the field. Of
this transaction the Inspector General's report found, quote:
Making a sale of 151 aircraft under W-FLC (CH) Contract 45S at $500,000
which was far below the established world-wide price of $2,730,000 without having obtained prior Washington approval.

And—
Permitting 11 bombers (B-25's) to be included in the sale of 151 aircraft under
W-FLC (CH) Contract 458 contrary to the existing policy of the United States
Department of State which resulted in unfavorable world-wide publicity toward
the United States Government by the press.

The CHAIRMAN. Was there not a flyable Army B-25 nonsurplus
bomber destroyed in the process of carrying out an illegal order of
Mr. McCabe?
Mr. MOODY. Yes, sir. Serial No. J-44-31140. The B-25 was destroyed in the process of carrying out Mr. McCabe's orders.
The CHAIRMAN. That was not a surplus aircraft.
Mr. MOODY. I t was not.

The

I t was flyable.

CHAIRMAN. D O we have a picture here of
Mr. MOODY. Yes.
The CHAIRMAN. I would like to display to

that ?

the commitee at this
time t h a t picture.
A bomber, B-25, serial J-44-31140, was not a surplus aircraft. I t
was flyable. Nevertheless it was destroyed in the process of carrying
out a direct but illegal order of Mr. Thomas B. McCabe; is that correct ?
Mr. MOODY. That is correct.
The CHAIRMAN. Press reports in Shanghai papers on August 28,
1946, revealed the inclusion of 11 B-25 bombers all readily flyable
and with low flying hours, which had been included among 151 aircraft sold to a private Chinese air line.
Such sale was prohibited by law, was it not?
Mr. MOODY. T h a t is right.
The CHAIRMAN. According to the Inspector General's report, Mr.
McCabe ordered the destruction of these bombers to offset the bad
publicity although as a State Department official he had no right to
order the destruction of Army property.
Charles Kendall, legal counsel for Mr. McCabe was present when
Mr. McCabe gave this order, and in fact urged Lieutenant Colonel
Bell to proceed with the destruction as quickly as possible. Colonel
Bell, then commandeered a junior officer and some enlisted men who



CONFIRMATION OF T H O M A S B. McCABE

25

were ordered to mutilate the control surfaces on the 11 B-25's, and cut
the tails off with acetylene torches, is t h a t correct ?
Mr. MOODY. That is correct.
The CHAIRMAN. Did you ever hear the story of Little Bo-Peep who
lost her sheep and finally they came home leaving their tails behind
them. Was that the inspiration of this thing ?
Mr. MOODY. I t may have been. I cannot say.
The CHAIRMAN. What is the value of this bomber I
Mr. MOODY. I understand, according to the air inspector, that the
cost of this bomber was $243,000.
The CHAIRMAN. Mr. McCabe's order to destroy these bombers was
carried out in the afternoon of August 28, 1946, is that correct?
Mr. MOODY. I believe that is right, sir.
The CHAIRMAN. Will the clerk kindly read an excerpt from the
North China Daily News, dated August 28, 1946, pertaining to the
sale of B-25's, and have it inserted in the record as an exhibit?
Mr. BOWLES. This is entitled "Alleged Sale of B-25's to Commercial Line."
(Exhibit B is as follows:)
[The North-China Daily News, Wednesday, August 28, 1946]
ALLEGED SALE OF B - 2 5 ' S TO COMMERCIAL L I N E

Ten American B-25 (Mitchell) bombers in operable condition w e r e t u r n e d
over to the Central Air T r a n s p o r t Corp., by the Shanghai office of FLO in a p p a r e n t
direct violation of F e d e r a l regulations prohibiting sale as surplus of combat
equipment except on specific authorization of t h e S t a t e D e p a r t m e n t a n d t h e
Joint Chiefs of Staff, it w a s learned by the United P r e s s yesterday.
Deliveries of the bombers, made several months ago, came to light when
CATC revealed it had applied to t h e Chinese Ministry of Communications for
authority to t u r n t h e bombers over to t h e Chinese Air Force, "which h a s
machine guns and bombracks to fit them for combat," in a formal presentation
ceremony.
On inquiring where a commercial aviation concern obtained Mitchell bombers,
the United Press w a s told by CATC's operations d e p a r t m e n t t h a t they w e r e
purchased from the Shanghai office of FLC in a lot of approximately 150 planes.
CATC operations manager, Capt. Moon Chin, in an interview with a Chinese
newspaperman boasted t h a t some of t h e B-25's received from F L C h a d less
than 700 flying hours logged against them and went on to explain t h a t such
planes a r e not considered old until they h a v e flown 3,000 h o u r s . H e described
some of t h e planes as B25-D's—manufactured late in t h e w a r .
NEED ONLY G U N S AND R A C K S

His office explained t h a t the Chinese Air Force h a s plenty of machine guns
and bombracks (the only combat equipment missing from t h e planes) to outfit
them as w a r planes.
Disclosure of t h e apparently illegal sale of the bombers came in the midst of
Communist protests to the United States Government a g a i n s t a purported "huge
secret deal" which the Communists said is being worked out for t h e sale of
surplus United States w a r m a t e r i a l to the Nanking Government and directly
on the heels of t h e disclosure t h a t alleged irregularities in the conduct of t h e
Shanghai FLC office a r e under investigation.
The Communist New China News Agency yesterday claimed negotiations for
a bulk sale of surplus United S t a t e s w a r m a t e r i a l w a s u n d e r discussion in
"secret" conferences between Executive Yuan P r e s i d e n t T. V. Soong and Assista n t Secretary of W a r H o w a r d C. Peterson. Communist spokesman W a n g
Ping-nan said in Nanking t h a t a w r i t t e n , formal protest h a s been drafted for
presentation to Presidential Envoy Gen. George C. M a r s h a l l w i t h the request
he t r a n s m i t it to Washington. H e charged t h e alleged intended sale would
"encourage reactionaries and prolong the Chinese civil w a r . "




26

CONFIRMATION OF THOMAS B. McCABE
PETEESON NOT T A L K I N G

Efforts of American correspondents in Shanghai to reach Peterson for a
statement on the Communist charges and protest were unavailing.
However, responsible quarters were emphatic that the known case of transfer
of war planes to CATC was without sanction of the State Department or Joint
Chiefs of Staff. While unable to speak for Peterson they were most skeptical
of the Communist claims that some United States .$500,000,000 (M) of surplus
war material would lie sold China, as claimed by the Communists.
FLC, it was pointed out, has been negotiating for a ''bulk sale" of remaining
surplus iu the Pacific area, but this, it was said, would be done under usual
FLC rulings prohibiting sale of usable war material.
Meanwhile, published statements by Capt. Moon Chin and direct communication with the CATC operations office confirmed United Press reports that millions
of dollars worth of serviceable aircraft had been sold CATC for an unusual small
sum. CATC officials said 150 planes—including the 10 B-25's, 90 C^6's, two
C-87's (Liberator bombers converted for cargo use) and 40-odd C-47's—were
obtained on a contract which United Press learned totaled approximately United
States $500,000.
A BARGAIN PRICE

The average cost thus would be something over United States $3,000, only a
little more than is charged in Shanghai for a commercial-type jeep.
Foreign Liquidation Commissioner Thomas B. McCabe said there is a "worldwide, standard price," for serviceable aircraft of such character, of approximately United States $20,000 each.
On the question of the serviceability of the planes purchased, the China Press
of July 11 quoted Captain Chin as saying, soon after the deal was completed:
"Some of the engines have as low as 20 flying hours. We learned that such
engines may turn over 600 hours before being changed."
The newspaper added that China's (sic) "waxing enthusiastic over his outfit
purchases, pulled out a sheet of paper and pointed out that his company i*, really
getting some fine planes."
WASHINGTON SILENT

WASHINGTON, August 25.—AFP.—The State Department has refused to make
any comment on the irregularities discovered in the sales of surplus United
States Army stocks in China.
However, it is learned that an inquiry will be opened shortly.
It is understood that the main irregularity lies in the unauthorized sales of
arms to Chinese Nationalists, notably that of 10 bombers in perfect condition.
The CHAIRMAN. Proceed.
Mr. MOODY. 5. T h a t a contract to sell sheet steel to American oil
companies for $95,000 cash was canceled imilaterally by Commissioner
Johnson after half the price had been paid in United States dollars, in
order that the Commissioner could resell to the Chinese with whom he
was negotiating for his proposed job. I n the resale to the Chinese
General Johnson reduced the price to $57,000 credit; terms of payment
not agreed to. A few days later this price was further reduced to less
t h a n $20,000 also on credit. The Chinese were admittedly buying for
purpose of resale,. I t was reported that the Chinese offered part of
this sheet steel back to the American companies who had originally
contracted for it, but at a huge mark-up.
The CHAIRMAN. Did you ever discover any evidence of the sheet
steel being offered to American companies at huge mark-ups! .
Mr. MOODY. We did, sir. One of the officials of the Texas Co. stated
to Mr. McKenna and myself that the Chinese had offered part of the
sheet steel back to the Standard Oil Co. at a very high mark-up.
The CHAIRMAN. Go ahead.
Mr. MOODY. 6. T h a t General Johnson had directed the United States
Army to cease collecting cash for sales to a corporation controlled by
Chinese officials of critical airplane spare parts, but to continue making



CONFIRMATION OF THOMAS B. McCABE

27

the deliveries. When the Army declaration forms showing most of
this surplus property to be in new and good condition were sent t o
the F L C offices for pricing purposes, the forms were stamped "Salvage" by F L C and the price on over $200,000 worth of property was in
this manner reduced to about $7,000.
The CHAIRMAN. This is the man Johnson doing this at that time
who on evidence was seeking a job from the Chinese Government
at this large salary with other increments and was representing the
United States Government. H e sold these planes for practically
nothing and kept reducing the price, did not try to collect any cash,
and let them have the goods, all while he was negotiating for a
job in China to sell these?
Mr. MOODY. I t was one of the men; he was a lieutenant colonel,
Bell, answering to General Johnson, who was actually responsible
for stamping these forms "Salvage," but evidence points to the fact
that General Johnson was aware of the transaction.
The CHAIRMAN. All right. Go ahead.
Mr. MOODY. Even this price was reduced to less than a thousand
by the assignment of claims of the United States against another
air line, which that other air line was ready and willing to pay to
the United States. The report of investigation of the Army Inspector General's Office was later to refer to this stamping by the
F L C as having, quote:
a view toward falsifying the Foreign Liquidation Commission sales records.

The CHAIRMAN. Was this irregularity pertaining to the deal with
the Hong Kong Government ever brought to the attention of Mr.
McCabe?
Mr. MOODY. The Hong Kong Government transaction had to do
with the next item that I am about to take up, Senator.
The CHAIRMAN. All right. Thank you. Proceed.
Mr. MOODY. 7. That shipping charges of over $10,000 had been incurred by the United States Government when the Chinese refused
to accept cargo which General Johnson had ordered shipped from
Guam to Shanghai, as usual without contract. To pay this shipping
bill, over $10,000 of money received from sales of surplus, which
money was the exclusive property of the United States Treasury,
was paid out in cash by Commissioner Johnson. A n attempt t o
cover this payment was made later by reducing the price when the
goods were finally sold.
The CHAIRMAN. I repeat the question. Was this irregularity pertaining to the deal with the Hong Kong Government ever brought
to the attention of Mr. McCabe?
Mr. MOODY. Yes, sir. I called it to Mr. McCabe's attention personally in my brief conversation with him the last of August, and
I pointed out that this was one example to prove that Gejneral J o h n son's word could not be depended upon.
I particularly pointed out that the wire which was sent to Mr.
McCabe by General Johnson stating that the debt had been incurred
by mistake was in itself a misrepresentation of the facts. I pointed
out to Mr. McCabe that General Johi\s,ori bad attempted to recover
this $10,000 by writing down the contract, and that he had again
been warned that that was not possible, nor was it legal.
As I understand that transaction has not been settled yet.



28

CONFIRMATION OF T H O M A S B. McCABE

The CHAIRMAN. Did the Inspector General later affirm that General
Johnson misrepresented the facts in this case?
Mr. MOODY. H e did so affirm.

The CHAIRMAN. Proceed.
Mr. MOODT. No. 8. That Mr. McKenna, the newly appointed F L C
legal counsel at Shanghai, had informed the Washington office of
F L C of these and other irregularities by a radiogram sent, through the
United States consul general at Shanghai, and was insisting on an
immediate investigation.
9. That contributing to the urgency of the situation was the fact,
recently discovered by the F L C legal counsel at Shanghai, that the
Criminal Investigation Division of the United States Army in China
had been receiving reports of these irregularities since the preceding
April, some of which had been furnished by American newspaper
correspondents, with an increasing probability of unfavorable publicity, and
10. That the consul general at Shanghai had been receiving repeated complaints from the American business community in Shanghai and from representatives of American business interests.
The CHAIRMAN. Who was the American consul general at Shanghai at that time ?
Mr. MOODT. That was Mr. Monnett Davis.
The CHAIRMAN. I have here an editorial which appeared in the,
Shanghai Evening Post and Mercury on August 27, 1946. I t is
entitled, "Surplus Sales Need a Housecleaning."
I t will be inserted in the record at this point as exhibit C, but
I want to read one paragraph which reads as follows:
T h e best object lesson t h u s far recorded w a s in t h e case of t h e "China Dodges,"
originally intended for the B u r m a Road. Thousands of these vehicles were sold
by the American Government to t h e Chinese Government and charged against
t h e cost of building American airfields for Chinese defense, which w a s regarded
a s a 100-percent American exrjfense. T h e trucks were acquired primarily for
resale, but a s they a r e not fitted to this p a r t of t h e country, customers were
few. Therefore, as t h e American Government had placed no conditions whatever
on its sale, t h e Chinese Government clamped down an embargo on the commercial import of other t r u c k s in order to p u t American and other dealers out of
business and leave the Chinese truck selling organization a monopoly of t h e
field.

(Exhibit C is as follows:)
THE

S H A N G H A I EVENING P O S T AND MEKCUKY

Published weekday afternoon by the Post-Mercury Co., Federated, Inc., United
S t a t e s of America, a t 17 Chung Cheng R o a d (Avenue E d w a r d V I I ) , Shanghai.
Cornelius V. S t a r r , c h a i r m a n of the b o a r d ; R a n d a l l Gould, e d i t o r ; Woo
K y a t a n g , executive e d i t o r ; J o h n Ahlers, business manager.
No responsibility is assumed for the preservation or r e t u r n of unsolicited
manuscripts, which a r e presumed to be offered gratuitously unless t h e author
s t a t e s otherwise. Subscriptions monthly delivered within Shaighai, CN $4,000.
Telephone, 84080. Cable address : "Mercupost."
[Shanghai, August 27, 1946, Vol. 65, No. 199]
STTEPUTS SALES NEED A HOTASEOXEANING

Investigation h a s been ordered concerning allegations of serious irregularities
in the h a n d l i n g of United S t a t e s Foreign Liquidation Commission contracts
in Shanghai.
We strongly endorse this action. F o r months t h e r e h a s been all too much
of rumor a n d disastisfaction in this connection. Let the facts be brought out



CONFIRMATION OF T H O M A S B . McCABE

29

into t h e open. If these facts justify disciplinary or punitive action, let t h e r e
be no pulling of punches on w h a t is clearly an issue of t h e utmost gravity.
But we propose something more.
We say t h a t this investigation will be incomplete and unfair if it does not t a k e
in a second, broader aspect of the loreign liquidation question.
T h a t aspect h a s to do with t h e fundamental policies u n d e r which American
surplus is supposed to be sold. I t is quite a p a r t from the question of i r r e g u l a r i t y
in the sense of dishonesty, for personal gain. I t h a s to do w i t h the rules of t h e
game, and we advocate inquiry u n d e r this head, because we feel t h a t t h e rules
of surplus sale in China have been bad—designed to effect disposition of surplus
goods on a completely short-sighted basis, penny-wise a n d pound-foolish.
To say t h a t Foreign Liquidation Commission policy w a s to sell a t any price
would be an exaggeration, but not much of an exaggeration. W h a t e v e r care h a s
been taken, so far as we could see, w a s merely to insure t h a t a few easy dollars
were gained by such sale—at whatever cost to American t r a d e and t r a d e r s .
Up to the present time the efforts of individuals and committees from such
representative groups as the Shanghai American Chamber of Commerce a n d t h e
National Foreign T r a d e Council have received little if any attention. T h e r e
seemed a prevalent conviction t h a t such representations w e r e necessarily devoted
to selfish r a t h e r t h a n the n a t i o n a l interest. It appears t h a t a t last there is some
disposition to give a more open-minded h e a r i n g ; and, in our opinion, t h i s a t t i tude is overdue.
If there have been personal irregularities in Shanghai, involving dishonesty for
official gain, this detached and superior attitude higher up may well deserve some
solid portion of the discredit.
The w a r n i n g signals of a mistaken over-all American policy h a v e been plain.
Even the most superficial investigation would readily disclose t h a t Chinese
officialdom, which has received a top purchasing priority over several other categories (in which American businessmen ranked t o w a r d t h e b o t t o m ) , h a s been
very little concerned over w h a t Washington has complacently presumed must be
its first consideration—the acquiring of relief a n d rehabilitation goods to enable
China to recover from w a r wounds.
W h a t Chinese officialdom h a s clearly wanted w a s something, anything, t h a t
could be sold. Simply t h a t and virtually nothing more. Let the most cursory
inquirer look, as an example, a t UNItRA-furnished road-building equipment rusting on open lots around Shanghai instead of being put into use on the frightfully
devastated China highways. At the same time, there h a v e been eager p u r c h a s e s
of every sort of goods, ranging from luxury items to necessary replacements
needed by American public utilities a n d other big firms,' so t h a t these could be
sold a t a proiit.
T h e best object lesson t h u s far recorded w a s in t h e case of t h e "China Dodges,"
originally intended for the B u r m a Road. Thousands of these vehicles were
sold by the American Government to the Chinese Government and charged against
the cost of building American airfields for Chinese defense, which w a s r e g a r d e d
as a lbO-percent American expense. The trucks were acquired p r i m a r i l y for
resale. But as they a r e not fitted to this p a r t of the country, customers w e r e
few; therefore, as t h e American Government had placed no conditions w h a t e v e r
on its sale the Chinese Government clamped down an embargo on the commercial
import of other trucks in order to put American and other dealers out of business
and leave the Chinese truck-selling organization a monopoly of the field.
Does this not suggest t h a t for the preservation of American exports, and existing American commercial representation in China, it should i n s t a n t l y become
the policy of the United States Government to sell no more surplus equipment
to China without safeguarding clauses to prevent t h e extension of such practice?
Yet nothing of the sort h a s been d o n e ; and, in fact, responsible q u a r t e r s have
advanced the a r g u m e n t t h a t it would be an infringement of Chinese sovereignty
to ask such a thing.
Yet Uncle Sam is the seller. No one can force him to sell. And if he sells
it is his privilege to make such conditions as he feels called on to make. W h o
would suggest t h a t he could not set the selling price? Is it not t h e height of
silliness to think only in lerms of sales price and to ignore t h e perhaps far g r e a t e r
price we may be paying?
If American t r a d e with China in future is to be choked, t h a t is a price. If
representatives of American goods in China a r e to be s t a r v e d out, t h a t is a
price. If China is to be encouraged along the practices of t o t a l i t a r i a n states,
t h a t is a price. If by encouraging t h e greed of Chinese officialdom we in effect
73055—48

3




30

CONFIRMATION OP THOMAS B. McCABE

connive at corruption of American officials, that is a price. All those things add
up to a stupendous total against which it is childish to set a pitiful small heap
of dollars gained by quick sale.
We have no desire to prejudge the Foreign Liquidation Commission people
in China; and they naturally deserve, and will get, a square deal. It is to be
hoped that everyone approached will tell the whole story without being disposed
to hold back for fear of consequences.
It is time for a thorough, drastic overhaul of this whole surplus-property
disposal problem in its every aspect. Just which parts of it smell worst is a
matter for the investigators to find out. That it smells—bad— is beyond doubt.

The CHAIRMAN. There will also be inserted a report of the American Chamber of Commerce in Shanghai, dated May 31, 1946. I t
is a report of the committee on trade practices of the Chinese Government.
The first paragraph reads:
Your committee recommends that the American Chamber of Commerce bring
to the attention of General Marshall and Consul General Davis, by personal
interview, the concern of American businessmen resident in China with respect
to the trend toward the creation of Chinese state monoplies in the field of
private enterprise.

And t h e n :
Your committee invites attention to an outstanding example of this detriment to private enterprise, viz, the transactions relating to surplus-property
disposal. The problem presented by these transactions, because of the volume
of material involved, and its availability, calls for particular consideration
of the method by which such property is distributed. The disposal of surpluses if not properly supervised can result in the impairment of the reputation of the manufacturers of those products which comprise these surpluses:
it can disrupt the economy of the country in which they are received in
quantity; and, in the final analysis, can stifle the efforts of reputable companies
established in China. A specific example of these effects is the recent arrangement by the Chinese Government to secure large supplies of trucks, the sale
of which is forced in China by the prohibition of the importation of trucks by
private companies. The fact that the original embargo, as embodied in customs
order No. 51, has been •somewhat modified, should not be construed as a rejection of the principle involved, since the small number of trucks which may be
imported in the future is limited to those for which United States funds are
available in the United States.

(Exhibit D is as follows:)
AMERICAN CHAMBER OF COMMERCE
REPORT OF COMMITTEE ON TRADE PRACTICES OF CHINESE GOVERNMENT

Your committee recommends that the American Chamber of Commerce bring
to the attention of General Marshall and Consul-General Davis, by personal
interview, the concern of American businessmen resident in China with respect
to the trend toward the creation of Chinese state monopolies in the field of
private enterprise. This trend is contrary to the stated aims of the Chinese
Government, which, as recorded in the resolution of the Supreme National
Defense Council on December 28, 1944, indicated that state monopolies would
be limited to:
(a) Postal service and telecommunications.
(6) Arsenals.
(c) Mints.
(d) Principal railways.
(e) Large-scale hydraulic power developments.
That this limitation is not being adhered to is evidenced by the action of the
following governmental and quasi-governmental agencies operating in the United
States or in China:
1. The Chinese Supply Commission.
2. The National Resources Commission.
3. The Central Trust of China.




CONFIRMATION OF THOMAS B. McCABE

31

4. Universal Trading Corp.
5. National Industrial Association.
6. China National Kelief and Rehabilitation Administration (CNRRA)
(insofar as certain developments relating to rehabilitation are concerned).
7. Miscellaneous entities not yet identified.
These organizations have operated in conjunction with the following agencies
in the United States Government to bypass established American compaies in
China:
1. United Nations Relief and Rehabilitation Administration (UNRRA).
2. Foreign Liquidation Commission (FLC).
3. Export-Import Bank of Washington.
4. Unidentified entities in Washington.
In combination with one or more of the above agencies, the Chinese Government
can, and does, exert controls over private enterprise by utilizing its prerogatives
as a sovereign power to acquire or purchase raw materials and finished products
advantageously and then to protect its position by imposing restrictions, such
as embargoes, on trade.
Your committee invites attention to an outstanding example of this detriment
to private enterprise, viz, the transactions relating to surplus-property disposal.
The problem presented by these transactions, because of the volume of the material involved and its availability, calls for particular consideration of the
method by which such property is distributed. The disposal of surpluses, if not
properly supervised, can result in the impairment of the reputations of the manufacturers of those products which comprise these surpluses; it can disrupt the
economy of the country in which they are received in quantity; and, in the final
analysis, can stifle the efforts of reputable companies established in China. A
specific example of this is the recent arrangement by the Chinese Government to
secure large supplies of trucks, the sale of which is forced in China by the prohibition of the importation of tr"c'-s by private companies. The fact that the
original embargo, as embodied in customs order No. 51. has been somewhat
modified should not be construed as a rejection of the principle involved, since the
small number of trucks which may be imported in the future is limited to those
for which United States funds are available in the United States.
To avoid the ill effects of the controls summarized above, your committee
recommends that representations be made to our Government to consider the
following:
(1) That sales by the United States Government to the Chinese Government
of surplus supplies be limited to materials required for the use of the Chinese
Government only. In cases where (he quantities purchased involve an excess,
such excess to made available to private buyers, it being a prerequisite of the
sale to the Chinese Government that provision be made for the disposal of such
excesses through recognized dealer organizations.
(2) That Chinese Government buying agencies in the United States, both governmental and semigovernmental, be limited in their activities to purchases for
the direct use of the Chinese Government.
(3) That the Export-Import Bank include in its activity provision for the
financing of private enterprise in China and not limit its loans to the Chinese
Government only. In this connection it should be noted that, according to the
program of the Export-Import Bank, "foreign applicants other than governments
or their agencies may apply directly to the bank, but the support of their governments will ordinarily be required before a credit can be negotiated."
Under the present restrictions on private enterprise in China, this requirement
of the Export-Import Bank effectively confines loans to the Chinese Government
only.
(4) That the FLC consider the desirability of supplying material to recognized
private agencies already established in China, fixing a maximum resale selling
margin, in order to pioteet the legitimate agent or manufacturer's representative against unfair competition imposed by speculation resulting from scarcity.
It should be recognized that the reliability of the firms charged with the resale
of surplus properties should be an important consideration and that the guiding
principle involved in the price structure should be to obtain a fair price for
the materials, based on replacement cost less fixed rates for depreciation, and
not necessarily to favor the highest bid. Such action on the part of FLC will
accomplish the following:




32

CONFIRMATION OP THOMAS B. McCABE

(a) It will assure the ultimate purchaser a fair price for the commodities
purchased, thus minimizing black-market operations.
(6) It will uphold the prestige of United States manufactured products in
that they will be properly distributed and serviced by agencies responsible to
their, principals.
(c) It will enable established American companies to survive in China during
this period when only limited shipments are available from the United States.
This whole issue revolved around the question as to whether or not Chinese
economy is to follow a Soviet or an American pattern. Your committee does
not believe that the United States Government proposed to cooperate in the
creation of a Chinese Amtorg, the pattern of which is now distinctly discernible,
and it is already clear that, if the present trend continues, such an outcome
is inevitable. In its present stage of development and for any foreseeable
future period, this development must of necessity operate contrary to the interest of private enterprise.
It is obvious to those who have been associated with the existing Chinese
Government agencies that none of them are equipped to undertake the responsibilities involved in the purchase, distribution, installation, and servicing of
the products which they propose to handle. With untrained, inexperienced,
frequently shifted personnel they cannot possibly cope with the multiplicity of
technical details involved in seiving the needs of either their own Government
or private industry as effectively or as efficiently as these requirements can
be met by well-established concerns in China. The activities of these governmental agencies to date are more in the nature of "buy and sell" ventures
rather than being part of a properly organized effort to industrialize China.
Operating in this manner, with an overhead that may be obscured or submerged
by governmental whitewashing, dealing with United States Government agencies
unfamiliar with the industrial customs and trade practices of China, and being
subject to no responsibility for the application, distribution, and servicing of
American products, they can eventually destroy the established reputation of
those products.
In the interests of the Chinese users of United States products, the reputation
of which is the foremost responsibility of the American concerns established here
in China, your committee feels that representations should be made to General
Marshall, Consul General Davis, and other responsible United States Government officials, looking to their cooperation in discouraging this monopolistic
trend on the part of the Chinese Government, which, if not checked, will seriously
impair the future of American business in China.
Shanghai, May 31, 1946.
The CHAIRMAN. I S this Mr. Monnett Davis the one who has just
been appointed Ambassador to Panama?
Mr. MOODY. Yes, sir.

T h e CHAIRMAN. Do you know whether such complaints were made
to Consul General Davis?
Mr. MOODT. I know from Mr. Davis himself that repeated complaints
were made by the American business community, and t h a t it was on
this basis that he was willing to take direct action.
I further understand t h a t he was present at a rather stormy meeting
of the American Chamber of Commerce, which was attended by several
prominent members of the American business community, who protested to Mr. McCabe, who was more or less the guest of honor at that
meeting, t h a t United States business interests had been seriously and
in many cases permanently damaged by the maladministration of surplus property in China.
These businessmen made an emphatic plea that safeguards be provided in the bulk sale which would put an end to discrimination
against American business.
According to the several businessmen who attended this meeting,
and to whom I talked later, Mr. McCabe's answers were a bit vague
and noncommital. H i s p a r t i n g remark was reported to have been,




CONFIRMATION OF THOMAS B. McCABE

33

"Well, gentlemen, there are obviously many things that you do not
understand about surplus property disposal."
The CHAIRMAN. The safeguards so urgently requested were not provided in the bulk sale, which contained a single ineffectual clause to
the effect that American business would be treated on a nondiscriminatory basis.
Mr. MOODY. T h a t was certainly the opinion of the American businessmen whom we talked to later, who thought the abuses were continuing in spite of the bulk sales.
The CHAIRMAN. And it was several days later, on the 29th of
August, to be exact, when the bulk-sale contract was signed by Mr.
McCabe and T. V. Soong.
Mi'. MOODY. I t was several days after this chamber of commerce
meeting, yes.
The CHAIRMAN. Proceed.
Mr. MOODY. I arrived in Shanghai on August 11,1946. Three days'
intensive investigation and study of accumulated evidence, with the
full cooperation of the Army Criminal Investigation Division under
the leadership of Capt. George Plotkin, resulted in my request to
Consul Genera] Monnett Davis for assistance from a qualified investigative agency of the United States Government.
Negotiations were commenced for further Army assistance in investigating what appeared to be criminal offenses. F L C directives
required that in such instances the Department of Justice be iaformed.
Since the head of the Foreign Liquidation Commission, Mr. Thomas
B. McCabe, was due in Shanghai later that week, I planned to relate
the full facts to him in order that he could transmit them to the Department of Justice. On the F L C organization chart, the control
office where I was located as field compliance officer, reported directly
to Mr. McCabe.
The consul general, Mr. Monnett Davis, requested that he be permitted to advise Mr. McCabe first of the seriousness of the situation.
On Mr. McCabe's arrival, I was unable to obtain an appointment with.
him, but a consultation was arranged between Col. E d Starr who was
Mr. McCabe's executive officer, myself, Navy Captain Luboshez, Mr.
McKenna, the legal counsel at Shanghai, and Mr. Ward and Lieutenant
Duffy, both of the F L C Fiscal Office.
The full facts then in our possession were related to Colonel Starr.
Captain Luboshez attested to his examination of the evidence at hand
and, as a result, Of his strong opinion that General Johnson should take
no further part in the negotiations with.the Chinese. Colonel S t a r r
stated his disagreement with Captain Luboshez's position.
I concluded my recitation of the facts with a request that the F B I
be called into the case pursuant to Surplus Property Regulation 15
since, in my opinion, there was no doubt that there was strong evidence
pointing to criminal transgressions, and because the F L C roster included military, naval, and civilian personnel, and F L C itself was a
civilian agency of the Government.
General Johnson himself was on terminal leave at the time but was
occupying the job of Commissioner as a civilian. Navy Captain
Luboshez and Mr. McKenna, the only lawyers present, stated that,
in their respective opinions, F L C was legally bound to report the
matter to the Department of Justice immediately.



34

CONFIRMATION OF THOMAS B. McCABE

The CHAIRMAN. Did not regulation 15. issued under the Surplus
Property Act of 1944, and which has already been inserted in the
record, provide that such cases should be reported to the Department
of Justice ?
Mr. MOODY. I t did,

sir.

The CHAIRMAN. And section 8315.6 of that regulation provides as
follows:
8315.6. Extent of Investigation.
Referral to other government agencies.—
All information indicating violations by any person of federal criminal statutes
or violations of Section 26 (b) and Section 27 of the Act, including, but not
limited to, fraud against the government, mail fraud, bribery, attempted bribery,
or criminal collusion, shall be referred immediately to the Department of Justice
for further investigation and disposition. Each agency shall make available
to the Department of Justice, or to such other governmental investigating
agency to which the matter may be referred by the Department of Justice all
pertinent information and evidence concerning the indicated violations; shall
desist from further investigation of the criminal aspects of such matters except
upon the request of the Department of Justice; and shall cooperate fully with
the agency assuming final jurisdiction in establishing proof of criminal violations. After making the necessary referral to the Department of Justice, inquiries conducted by agency compliance organizations shall be limited to
obtaining information for administrative purposes. Cases involving unfair
trade practices shall be referred promptly by the agency to the Federal Trade
Commission. Where irregularities reported or discovered involve wrong doing
on the part of individuals holding positions in government agencies other than
agency initiating the investigations, the case shall be reported immediately to
the Administrator for an examination in the premises.

You understood that.
Mr. MOODY. That is right, and that is the basis on which I asked
Consul General Monnett Davis for assistance.
The CHAIRMAN. Proceed.
Mr. MOODY. Colonel Starr replied that lie would not call in the
F B I because the F B I were, and I quote, "a bunch of publicity hounds."
H e said he would ask General Johnson to request an investigation
by the local office of the Army Inspector General and that if General
Johnson refused, he would insist.
Gen. Donald H . Connolly has since testified before the Senate Subcommittee on Surplus Property that Mr. McCabe himself requested
the United States Army Inspector General's Department to conduct
the investigation.
A considerable animosity on the part of the higher officials of the
F L C toward those who had reported the unpleasant facts of the
Shanghai office quickly became evident. Lt. Col Coleman Cook had
borne the brunt of the resistance to the mismanagement in the office
between the time of the departure of the first legal counsel, Maj.
Lawrence Mull ally and the arrival of Mr. McKenna. Colonel Cook
was repeatedly refused permission to speak directly with Mr. McCabe,
and both he and his wife were subjected to personal abuse.
Navy Captain Luboshez and Mr. McKenna, the attorneys appointed
by Washington for the central field office at Manila and the China office,
respectively, understood that they were removed from the bulk sales
negotiations with the Chinese Government because of their criticism
of the conduct of the Shanghai office, and of the field commissioner's
private negotiations for employment with the Chinese.
Although Mr. McCabe announced publicly that two investigations
were under way; one by the Inspector General and one by FLC, that
by F L C presumably under my direction, obstacles were placed in the



CONFIRMATION OF T H O M A S B. McCABE

35

way and I was not permitted to report to Mr. McCabe, or even to talk
with him, except for a 10-minute conversation on Saturday, August 31,
the day before Mr. McCabe was to leave China.
The CHAIRMAN. Do you remember generally what you told Mr.
McCabe in that 10-minute conversation on Saturday, August 31, the
day before Mr. McCabe was to leave China ?
Mr. MOODY. I n general, I related that to Mr. McCabe, that I had
seen sufficient evidence to indicate that General Johnson himself was
deeply involved in the irregularities in the Shanghai office, and I had
found General Johnson quite willing to misrepresent the facts to clear
himself.
I cited General Johnson's taking of the unappropriated funds to pay
an unauthorized shipping charge in spite of instructions to the contrary from the Washington office, and also of Johnson's outright misrepresentation of this in his cable, which was quoted to Mr. McCabe
to illustrate my point.
I further pointed out that evidence indicated General Johnson was
continuing to negotiate with the Chinese for a job in spite of the fact
that he, Mr. McCabe, had advised him against such action.
I believe that letter from Mr. McCabe was June 30, 1946.
Mr. McCabe replied that lie had planned, he planned to relieve General Johnson in the near future, stated that was in accordance with
General Johnson's earlier request that he be relieved from the duty
upon consummation of the bulk sale.
Mr. McCabe more or less defended Johnson's record on the basis of
his percentage of recovery as compared to other areas, but asserted that
Johnson's weakness lay primarily in his poor public relations.
I n my reply to Commissioner McCabe, I pointed out that such
matters as turning over vast quantities of property to the Chinese
without contract, acting as an agent of the Chinese Government to
resell surplus ships to American firms, and cancellations of contracts
already executed and partially paid for by American firms, and later
turning this property over to the Chinese at nearly 80 percent discount
on credit, could hardly be just considered bad public relations, but
outright violation of the law, and regulations as laid down by Congress.
Mr. McCabe, as I recall, did not attempt to reply to this. Our conversation ended rather abruptly.
Although Mr. McCabe could not find time to talk to me, I say that
until I demanded an interview, he did find time, however, to call in
Mr. McKenna, the legal counsel for F L C in China, and ask him why he
had not in his capacity as legal adviser to General Johnson forestalled
the irregularities now under investigation.
Mr. McKenna replied that he had exhausted every resource in this
direction before asking for help from the Washington headquarters.
But his efforts, like those of his predecessor, had been in vain.
The CHAIRMAN. Proceed.
Mr. MOODY. Colonel Dougherty, who was in charge of the investigation by the Inspector General, complained that every bit of evidence
had been revealed in detail to General Johnson, thereby severely prejudicing the investigation. Later Col. Ed. Starr admitted that he had
advised General Johnson of the specific evidence held against him.
Mr. McCabe's answer to Navy Captain Luboshez's recommendation
that General Johnson be barred from taking further p a r t in the official
negotiations with the Chinese, in view of his admitted personal nego


36

CONFIRMATION OF T H O M A S B. McCABE

tuitions, was to project General Johnson into a prominent part in the
discussions, but to eliminate Captain Luboshez for making the suggestion.
The CHAIBMAX. Was Captain Luboshez acquainted with the problem
involved in the bulk sale to China ?
Mr. MOODY. H e was very definitely involved in that. He had taken
part in the earlier negotiations with T. V. Soong and other high
Chinese officials, and it appeared at that time that his absence from
those negotiations was rather conspicuous.
The CHAIRMAN. All right. Proceed.
Mr. MOODY. Mr. McKenna flatly refused to continue as legal counsel
to F L C in Chi na, so I* LC sent Mr. -AJlsn Coker to serve as legal counsel
for their Shanghai office. Within 10 days after his arrival, Mr. Coker
refused to serve further.
The CHAIHMAN. Do you know why Mr. Coker refused to serve
further ?
Mr. MOODY. H e came up very much sold on the China office.
Within 10 days he quit and refused to serve further. I know that
he prepared a wire, whether he sent it or not, stating in effect that no
legal council could work for F L C Shanghai.
The CHAIRMAX. Proceed.
Mr. MOODY. There is no point in my going further into the detailed results of the investigation. They are in the files of the Senate
Surplus Property Subcommittee.
Col. Joseph S. Dougherty, a man of unusually long experience in
the Inspector General's Department and equally pronounced tourage, persisted in his investigation.
The following is the summary, prepared by Colonel Dougherty,
of his findings:
1. (a) Conclusions by th« invosiiaating officer against Col. (former 1'rig.
Gen.) B e r n h a r d A. Johnson, 01G6223:
(1) T h e unauthorized approval of a refund to CATC on W - F L C (CH) Cont r a c t 136 amounting to $.",8,000.
(2) Making a sale of 151 aircraft u n d e r W - F L C (CH) Contract 458 a t
$500,000 which w a s f a r below the established world-wide price of $2,730,000
without having obtained p n o r Washington Approval.
(3) P e r m i t t i n g eleven medium bombers (B-25's) to be included in the sale
of 151 a i r c r a f t u n d e r W - F L C (CII) Contract 458, contrary to the existing
policy of t h e U. S. D e p a r t m e n t of S t a t e which resulted in unfavorable worldwide publicity t o w a r d t h e TJ. S. Government by t h e press.
(4) Accepting the opinion of Lt. Col. J o h n E. Bell of t h e Sales Division, an
unqualified aircraft inspector, as to t h e condition of t h e 151 aircraft sold u n d e r
W - F L C (CH) Contract 458 who declared said aircraft unflyable and suitable
only for eannibalization which opinion w a s not in agreement with their condition as declared by the Army Air Forces.
(5) H a v i n g approved W - F L C ( C H ) Contract 771 covering t h e sale to Cent r a l Air T r a n s p o r t Corp. of surplus property costing the TJ. S. Government
$212,905.5)6 of which $107,090.73 w a s declared as salvage by Lt. Col. John E.
Bell of t h e Sales Division w i t h a view t o w a r d falsifying t h e Foreign Liquidation Commission Sales Records.
(6) Causing a shipment to be m a d e of canned foodstuffs from Guam to
S h a n g h a i prior to securing a w r i t t e n contract of sale which resulted in an exp e n d i t u r e by t h e V. S. Government of $10,752.87 in connection with W - F L C
( C H ) C o n t r a c t 337.
(7) Falsely reporting to t h e W a s h i n g t o n Foreign Liquidation Commission
Office by radio on 14 May 1946 in a request for funds to cover t h e incurred
indebtedness mentioned above, t h a t t h e said local t r a n s p o r t a t i o n and temporary
storage charges were incurred as a result of "inadvertent off-loading a t Shanghai, cargo consigned to H o n g Kong," in t h a t the shipment was not originally
consigned to Hong Kong.



CONFIRMATION OF T H O M A S B. McCABE

37

The CHAIRMAN. There will be inserted in the record as exhibit E
a copy of the telegram from General Johnson to Mr. McCabe upon
this subject.
(Exhibit E is as follows:)
DEPARTMENT

OF STATE

[Incoming telegram]
5366.

Yokohama via W a r . Undated.
Reo'd 8: 4$ a. m., May 15.

Secstate.
Priority. Unnumbered, undated.
F o r McCabe, F L C :
CFB 01] 62. Local t r a n s p o r t a t i o n and t e m p o r a r y storage charges of $11,622.16
U. S. dollars incurred by this office as result of inadvertent offloading a t Shanghai cargo consigned to H o n g Kong. Contract was with H o n g K o n g Government payment of which w a s made to London a n d Washington leaving no unpaid balance to offset charges against. Requested t h a t such a m o u n t be m a d e
available this office either by p e r m i t t i n g our paying invoice from local sales receipts or draft on U. S. B a n k with b r a n c h Shanghai.
JOHNSON.

The

CHAIRMAN.

Proceed.

Mr. MOODY (reading) :
(8) Establishing an unauthorized "Contingency F u n d " by m e a n s of withholding cash receipts from sale of surplus stock r a t h e r t h a n t u r n i n g t h e m promptly
into the Army Finance Office on regular collection vouchers.
(9) The payment of t h e aforementioned charges (par. l a ( a ) ) ~ f r o m t h e proceeds of local sales receipts specifically unauthorized for such payment, which
resulted in an actual cash loss to the U. S. Government of $10,752.87.
(10) The covering up of t h e said unauthorized payment by r e w r i t i n g W-FLO
(CH) Contract 337, inserting t h a t t h e said expenditures were to be paid by
the purchaser a n d reducing the original selling price of t h e items by a n equal
amount.
(11) F a i l u r e to insure t h a t an actual inventory w a s m a d e of items received
in Shanghai on t h e " S . S. Hook Hitch," and failure to cause an a c t u a l inventory
of t h e same items to be m a d e as they were purchased on the 'E-Wing' a n d
"Wing Sang" for t h e Hongkong P u r c h a s i n g Commission, which resulted in t h e
U. S. Government having to accept t h e count of t h e purchaser after the a r r i v a l
of the foodstuffs in Hongkong, showing a considerable shortage of items, a n d
therefore an additional loss to the U. S. on W-FLO (CH) Contract 337.
The poor a d m i n i s t r a t i v e procedures in his office, which, in r e g a r d to W-FLO
(CH) Contracts 369 and 512 resulted in e m b a r r a s s m e n t to the U. S. Government
by reflecting t h a t its policies favored foreign governments over American business interests.
(13) His local priority policy which in t h e above instance caused a cash loss
of $95,000 to the U. S. Government and prevented the highest bidder, an American
firm, from making t h e purchase.
(14) F a i l u r e to have sold two T - l t a n k e r s to the T e x a s Company ( C h i n a )
Ltd., for $700,000 cash when renegotiating his original agreement with t h e China
Board of Supplies thereby making a credit sale of t h e said t a n k e r s a t $420,000.
(15) His policy in charging the Shanghai Office of t h e United Nations Relief
and Rehabilitation Association, largely financed by t h e U. S. Government, higher
selling prices than on FLC sales to the Chinese Government.
(16) His policy in offering U. S. Government surpluses to the Chinese Government a t prices considerably less t h a n stated to other purchasers.
(17) Causing delivery to be m a d e of a concrete b a r g e to t h e China B o a r d of
Supplies prior to a written agreement, which error resulted in a credit loss to
t h e U. S. Government of $10,000 on W-FLC ( C H ) Contract 221.
(18) Authorizing delivery of surplus property to CNRRA prior to a w r i t t e n
agreement with t h e u l t i m a t e purchaser, UNRRA, u n d e r W-FLC ( C H ) C o n t r a c t
1198 which after considerable delay and difficulty w a s corrected without loss to
t h e U. S. Government.
(19) Deliberate planning by him for his employment with t h e Chinese Gove r n m e n t subsequent to his relief from FLO duty, which would have t h e n a t u r a l



38

CONFIRMATION OF THOMAS B. McCABE

tendency of causing him to make decisions in favor of the Chinese Grovernment
at the expense of the TJ. S.
(Excerpt taken from Confidential ltr CSOIG 333.9 Foreign Liquidation Comm
12/2/47.)
A n i l l u s t r a t i o n of t h e a t t i t u d e of F L C t o p s i d e officials t o w a r d t h e
w h o l e i n v e s t i g a t i o n is t h e following c o m m e n t b y M a j . G e n . D o n a l d
C o n n o l l y i n a t e l e p h o n e c o n v e r s a t i o n between himself a n d Col.
R o s s H u n t e r of t h e I n s p e c t o r G e n e r a l ' s staff on M a y 2, 1947, recorded
w i t h G e n e r a l C o n n o l l y ' s consent, r e g a r d i n g a request from t h e Office
of t h e F o r e i g n L i q u i d a t i o n Commissioner f o r i n f o r m a t i o n as t o t h e
s t a t u s of t h e I n s p e c t o r G e n e r a l ' s r e p o r t of i n v e s t i g a t i o n of F L C
C h i n a a n d w h e n i t could b e e x p e c t e d :
Colonel HUNTER. The last paragraph of your letter is this: "The Office of
Foreign Liquidation Commissioner, Department of State, desires to take appropriate action based on the findings of the Inspector General. It would be appreciated if a copy of the Inspector General's report in this matter could be forwarded to this division as promptly as practicable for use of the Foreign Liquidation Commissioner."
General CONNOLLY. Oh, Christ, no.
T h e C H A I R M A N . T h e r e will be i n s e r t e d as E x h i b i t F a t r a n s c r i p t
of t h i s c o n v e r s a t i o n between G e n e r a l l C o n n o l t y a n d Colonel H u n t e r
o n M a y 2,194T.
( E x h i b i t F is as f o l l o w s : )
TRANSCRIPTION OF TELEPHONE CONVERSATION BETWEEN GENERAL CONNOLLY, FOREIGN LIQUIDATION COMMISSIONER, AND COLONEL HUNTER, IGD, MAY 2, 1947

Colonel HUNTER. Well, I'll record it if you want me to, General.
General CONNOLLY. Uh?

Colonel HUNTER. Well, I'll record it if you want me to, General, since you're
doing it. We received two communications, both of them are from Jack D. Neal,
Chief, Division of Foreign Activity Correlation, of the State Department.
General CONNOLLY. Division Foreign?
Colonel HUNTER. Activity Correlation.
General CONNOLLY. Correlation; yes?
Colonel HUNTER. Of tlie State Department to the Liaison Officer of the War
Department with the State Department. One of these is the request for the
report of investigation in the Far East matter, of which you are aware, and the
other is a request for the report of the investigation in that Belgium matter.
You know that matter?
General CONNOLLY. Uh—I think that's the one of the—really, it's the sale to
the British.
Colonel HUNTER. That's the one.
General CONNOLLY. Yes.

Colonel HUNTER. Well, now
General CONNOLLY. Gay lord and somebody.
Colonel HUNTER. Yes, that's the one.
General CONNOLLY. Gaylord and Edwards.
Colonel HUNTER. Yes, that's the one. Gaylord Edwards, I think. Well, as
you know, General, we are quite anxious to cooperate and give you anything we
can.
General CONNOLLY. Sure.
Colonel HUNTER. And my idea was that perhaps you didn't know about these
and Mr. Moody—you know who he is?
General CONNOLLY. Yes.

Colonel HUNTER. He has been over here several times inquiring about that
investigation from the Far East.
General CONNOLLY. Well, it's none of Mr. Moody's business, I don't think he
is with us any more. (I had gone to the IG office in Pentagon at the request of
my superior, Travis Fletcher, Chief Compliance Officer, FLC.)
Colonel HUNTER. Well, he's with something in the State Department.
General CONNOLLY'S SECRETARY. He's with us still, General Connolly.




CONFIRMATION OF T H O M A S B. McCABE

39

General CONNOLLY. H e is.

Colonel HUNTER. I S h e still w i t h you?
General CONNOLLY. I—I

SECRETARY. I think only for a very short period.
General CONNOLLY. Well, don't give h i m anything.
Colonel HUNTEK. Well, he's been asking for these a n d came over h e r e a couple
of weeks ago and I told him t h e only w a y you can g e t any r e p o r t s or official W a r
Department documents is for t h e Secretary of t h e S t a t e to m a k e a request to t h e
Secretary of W a r and t h e m a t t e r will then be given a p p r o p r i a t e consideration.
General CONNOLLY. Yes.

Colonel HUNTER. And a couple of weeks after I told h i m t h a t , in come these t w o
communications a n d I just didn't think you knew a n y t h i n g about it.
General CONNOLLY. I didn't—and I don't like it.
Colonel HUNTER. Now, I can tell you for your own information—we'll t a k e No.
1, the P a r E a s t one. I know Mr. Moody's relationship w i t h t h a t a n d it w a s my
idea you weren't p a r t i c u l a r l y anxious for him to see t h a t .
General CONNOLLY. We were not.
Colonel HUNTER. And I didn't know whether you were asking this or someone
was asking it for him. A s 1 say, t h a t ' s your business a n d n o t mine.
General CONNOLLY. Well
Colonel HUNTER. But 1 thought I would just call it to your attention.
General CONNOLLY. Yes, j u s t skip him. T h a n k you very much.
Colonel HUNTER. Well, a s to t h a t , I'll tell you t h e story on it. W e were advised
by cable t h a t they had completed t h e investigation, t h e report would be submitted the last few days of April and we should get it shortly thereafter. Do you
wish a n answer on t h a t ?
General CONNOLLY. An answer to w h a t — t o the S t a t e D e p a r t m e n t ?
Colonel HUNTER. Yes.

General CONNAIXY. YOU let me look t h a t u p a n d find out how it s t a r t e d .
Colonel HCTNTEK. All right, now t h a t ' s one. Now t h e other one is on t h i s
Belgium m a t t e r we were talking about. W e do have t h a t report. I t ' s a copy
t h a t w a s sent over at t h e request of somebody in the W a r D e p a r t m e n t a n d i t
wound up here. We have one copy of it—it w a s a p p a r e n t l y investigated for t h e
FIX'.
General CONNOLLY. Well, I got by cable the other day t h e gist of t h a t over
there so that it will come to our people, a n d T think t h e only thing t h a t we w a n t e d
to look at—I think the Inspector General found t h a t these m a t t e r s were u n d e r
the Army depots, these people let t h e equipment go.
Colonel HUNTER. T h a t ' s right.
General CONNOLLY. Although, w e h a d n ' t told them t h a t t h e other people h a d
paid a n d h a d n ' t paid. W e h a d to go out a n d gold-dig them in t h e entire m a t t e r ,
and collected $1,200,000 or something like thai.
Colonel HUNTER. T h a t ' s right.
General CONNOLLY. But I think t h a t report says one of our men w a s derelict
too. T h a t w a s t h e only thing t h a i we were interested in seeing.
Colonel HUNTER. Yes.
General CONNOLLY. Now

Colonel HUNTK.R. Would you like me to send this report through channels t o
you, or would you r a t h e r look t h e m a t t e r up first.
General CONNOLLY. Let me look t h a t up first, too.
Colonel H U N H R . Give me a call and we'll be glad to do a n y t h i n g you w a n t
done.
General CONNOLLY. Well, t h a n k you very much. And now t h a t one on t h e F a r
East. We t u r n e d t h a t o-\er to you a t Shanghai.
Colonel HUNTER. T h a t ' s right.
General CONNOLLY. And we were very grateful for t h e fact t h a t you took i t ,
because we did not w a n t to investigate ourselves, because w e w a n t e d a n outside
agency over which we h a d no control—so it wouldn't look like any w h i t e w a s h —
we didn't think there w a s much to it. but w e wanted to have it done outside. T h e
thing t h a t came up about t h a t recently w a s t h a t BIr. P a t t e r s o n called me up a n d
he said that a Senator from Tenessee w a s asking about this colonel—what's t h e
gentleman's n a m e out there?—there w a s one m a n t h a t they were holding?
'Colonel HUNTER. I forget his name, but I know t h a t whole circumstance.
General CONNOI/IY. Atid he said
Colonel HUNTER. Fact I w a s up with t h e chief on that. I know t h a t whole
story.




40

CONFIRMATION OF THOMAS B. McCABE

General CONNOLLY. All Patterson's part was either release the ofl-cer or prefer
charges against him; that you've had enough time to make up your mind.
Colonel HUNTEB. That's right. Now that's where we got the information that
the investigation had been completed, in response to a cable that we sent immediately following Mr. Patterson's conversation. Let me read you the last
part of the letter we got from the State Department. By the way, it's dated
April 22, 1947, and in the upper left-hand corner, in reply refer to F C : D.
General CONNOLLY. FC what?

Colonel HUNTEB. FC with a colon and D—that's F for Frank, C for Charlie,
the colon, and D for dog.
General CONNOLLY. Tes.

Colonel HUNTER. The last paragraph of your letter is this: "The Office of
Foreign Liquidation Commissioner, Department of State, desires to take appropriate administrative action based on the findings of the Inspector General. It
would be appreciated if a copy of the Inspector General's report in this matter
could be forwarded to this division as promptly as practicable for use of the
Foreign Liquidation Commissioner."
General CONNOLLY. Oh, Christ, no.

Colonel HUNTEE. However, you'll call me up.
General CONNOLLY. Yes; we'll call you and let me look that up.
Colonel HUNTER. Righto.

General CONNOLLY. All right, thank you very much for calling, Hunter.
Colonel HUNTEB. Don't mention it.
General CONNOLLY. O. K.

Goodby.

The CHAIRMAN. Proceed.
Mr. MOODY. Upon his return from China, Mr. McCabe resigned
as the Foreign Liquidation Commissioner. I have no reason to believe that his resignation had anything to do with the developments,
but am convinced that it was long planned. General Johnson was
replaced as field commissioner for China and eastern Asia on
October 15, 1946. H i s successor, assigned by Mr. McCabe, was removed for cause 3 months later.
The CHAIRMAN. What is the name of this successor to General
Johnson who was removed for cause 3 months later?
Mr. MOODY. That was Mr. Donald Davis.
The CHAIRMAN. H e was appointed by Mr. McCabe as F L C commissioner for China ?
Mr. MOODY. Yes.
The CHAIRMAN. W h a t

kind of work h a d he done before his ap-

pointment ?
Mr. MOODY. H e was an TJNKKA representative at Manila.

The CHAIRMAN. W h a t kind of a record did Mr. Donald B . Davis
make as an employee of UNRRA ?
Mr. MOODY. I understand that Mr. Davis' record later, after he had
been appointed Foreign Liquidation Commissioner, showed u p some
definite irregularities.
The CHAIRMAN. Did Mr. McCabe appoint Mr. Donald B . Davis as
F L C commissioner for China in spite of his record with UNRRA?
Mr. MOODY. I do not believe, Senator, that Mr. McCabe had any
knowledge of Mr. Donald Davis' record, but I do not believe that it
had been investigated.
The CHAIRMAN. When Mr. Davis was removed for cause 3 months
after his appointment, was the reason for his removal stated to be
the shortage in his U N R R A accounts? Was that the reason given?
Mr. MOODY. I believe not. I believe the reason for his removal was

stated as misrepresentation on the Form 57, application for employment.




CONFIRMATION OP THOMAS B. McCABE

41

The CHAIRMAN. Falsification of his experience record ?
Mr. MOODT. Falsification of his previous experience.
The CHAIRMAN. Proceed, please.
Mr. MOODY. I understand that a special committee of the Department of State on inspecting the operation of F L C in the F a r East
recommended that Navy Captain Luboshez be placed in charge as
field commissioner to salvage as much as possible for the interests
of the United States Government and that this appointment was made.
The CHAIRMAN. That concludes the statement of Mr. Moody, and
my examination of him. H e is turned over now to the committee
for any questions they wish to ask.
Senator CAIN. I would like to ask several questions, because of my
total lack of familiarity with the background of this subject.
How many individuals, if any, have gone to the penitentiary as the
result of criminal misconduct?
Mr. MOODY. I do not believe that any person has in the history of
F L C been convicted of any irregularity. I do not believe that with
the exception of Colonel Bell and General Johnson that any of them
have even been indicted.
Senator CAIN. The charges, however, which you have related before this committee, you turned over to the responsible authorities in
the course of your official duties?
Mr. MOODY. That is right, sir.
Senator CAIN. Every instance of what you consider to be criminal
misconduct was passed by you to responsible superiors?
Mr. MOODY. That is right, to the inspector general, who was in
charge of the investigation.
Senator CAIN. Would you mind satisfying my curiosity by describing the nature of the personal abuse which covered a particular lieutenant colonel and his wife ?
Mr. MOODY. Yes, sir. Colonel Cook was the original person who
began to take exception to the many irregular practices in the Shanghai office. Colonel Cook was quickly made the butt of the whole
investigation by General Johnson; all sorts of threats were made
against him. These are available in the records of the Inspector
General.
The other persons in the Shanghai office were advised that very
serious charges were pending against the Cooks, and were even advised not to speak with them. Many of the Cooks' privileges were
withdrawn from them, and their efficiency ratings, which had been
excellent, were marked down to the lowest rating possible without
having to reclassify them.
Senator CAIN. And Colonel Cook was on the staff of General Johnson ?
Mr. MOODY. H e was on the staff of General Johnson.
Another incident, I asked that Colonel Cook and Mr. McKenna
be assigned either to the higher echelon which would be Manila or
to the Washington office, and in Mr. McKenna's case, he was assigned
to China from Washington. This was refused, and these persons
were required all during the investigation to report directly to General Johnson everj' day, which made a very unpleasant situation, to say
the least.
Senator CAIN. Just several other brief questions, please.



42

CONFIRMATION OF T H O M A S B. McCABE

You mentioned in your testimony that evidence pointed to General Johnson knowing that the planes you had been discussing had
been marked "Salvage." What did you mean by evidence pointing?
W h a t was that evidence ? Was it conclusive, or what ?
Mr. MOODT. Probably in examining the evidence of the Inspector
General's files, it probably could not be proven conclusively that General Johnson knew that these airplanes, spare parts, it was, Senator,
were stamped "Salvage," but there is certainly strong evidence to
prove that he was well aware of what was going on.
I n the first place, he only had a handful of officers to report to him.
H e is to be given credit for that. H e did not build an empire. He
had a very small group.
Senator C A I N . The plasma problem, the next question, that aroused
my interest, particularly. You mentioned that someone had wired to
Mr. McCabe, as I understood, concerning the existence of this plasma
in warehouses somewhere; no response to that wire.
Mr. MOODY. I personally sent that wire.
Senator CAIN. YOU personally did (
Mr. MOODY. Yes.
Senator CAIN. What

follow-up steps did you take? Did you just
send one wire advising the Commissioner, and then drop it, despite
the fact that you did not get an answer, or did you do something
else ?
Mr. MOODY. Our future wires asked for reply (o previous wires,
and before many days the Shanghai Red Cross Bureau got in touch
with the office, because it had become known to them at that time that
the Chinese were selling it, and they demanded and were very vigorous
in their pursuit of the blood plasma supplies, which resulted finally
in their return.
Senator CAIN. You mentioned the two letters had been directed
from Manila to Mr. McCabe, which letters had never been answered.
I wonder if you would knoAv whether or not Mr. McCabe ever saw
those letters personally.
Mr. MOODY. I cannot be sure of that. I do not recall whether I
mentioned that to or discussed it with Mr. McCabe, but they certainly
were of a very serious nature. As a matter of fact. Mr. McCabe's
counsel, Mr. Benno Schmidt, had specifically instructed Mr. McKenna
to report back to him within 30 days because there was evidence of
irregularities as brought out bj Mr. Mullally.
Senator BRICKEE. Who was originally responsible for the appointment of General Johnson ?
Mr. MOODY. I believe that General Johnson was appointed by Mr.
McCabe. I cannot be sure of that.
Senator BKICKER. YOU stated nobody had been indicted except General Johnson and Colonel Bell.
Mr. MOODY. There have been no indictments as such, Senator. The
recommendation of the Inspector General was for the court martial
of all three persons, I mean specifically.
Senator BRICKER. Who were those?
Mr. MOODY. General Johnson, Lieutenant Colonel Bell, and Lieutenant Colonel Hern. The case was remanded to the United States for
three reasons, the first being that there were not a sufficient number of



CONFIRMATION OP THOMAS B. McCABE

43

officers to try these men in China of rank and grade; second was that
the political situation there might be very much upset by such a court
martial in China at that time, and third, the fact t h a t most of the -witnesses were here in the United States.
Following that the case was referred to the Sixth Army at San
Francisco, and the Sixth Army found insufficient evidence to court
martial General Johnson and Lieutenant Colonel Bell.
After the Surplus Property Subcommittee began to be particularly
active in this case, the Sixth Army, I understand, have reconsidered
and have decided to court martial Colonel Bell, and, I believe, allow
General Johnson to resign for the good of the service.
Senator BKICKER. Who was in command of the Sixth Army at that
time ?
Mr. MOODT. I believe that is Gen. Mark Clark.
Senator BRICKEK. Where is General Johnson now ?
Mr. MOODY. I understand that General Johnson was allowed to go
back to Tokyo; he had gotten back into the Army after he was released
from the Army and from F L C . He was taken back into the Army as
a colonel in charge of transportation at Tokyo.
Senator BKICKEI:. The contract then with the Chinese Government
that he was attempting to get was not consummated.
Mr. MOODY. I t was not consummated; yes, sir.
Senator BRICKEK. Where is Colonel Bell at the present time ?
Mr. MOODY. I undersl and he is in San Francisco awaiting action on
his court martial.
Senator BRICKEK. And General Johnson is now in command of
transportation in Tokyo ?
Mr. MOODY. H e was the last time we had any information on it,
Senator.
Senator BRICKEK. Who is the other colonel, now ?
Mr. MOODY. A Lieutenant Colonel Hern, who is now a civilian. The
Sixth Army found that since Colonel Hern had been released from
Army jurisdiction that he was no longer subject to Army discipline on
that case. I am not sure whether that has been turned over to the Department of Justice, but I understand it lias.
Senator BRICKEK. D O you know the basis upon which the Army
decided that they would not proceed with the court martial of General Johnson and would proceed with the court martial of Colonel
Bell?
Mr. MOODY. The statements that we get through the Army liaison
office were to the effect that the Sixth Army felt there was insufficient
evidence to hold a court martial.
Senator BRICKER. They had all of the evidence you have brought
10 US ?

Mr. MOODY. That is right, and in spite of the fact that the commanding general of the theater involved had agreed with the Inspector General's findings and had recommended t h a t these men stand
court martial.
The CHAIRMAN. The fact remains that this man Johnson, we will
call him Johnson and leave out the military titles, who had connived
in a dual effort, like the Greek god Janus, facing both ways, to get
himself a job and dispose of the property—and for some reason he



44

CONFIRMATION OF T H O M A S B. McCABE

has not been court-martialed—has not even had his wrist slapped. He
is now in Tokyo representing the United States Army. Is that the
picture ?
Mr. MOODT. That is right.
Senator C A I N . General Johnson was a career soldier, I take it.
Mr. MOODY. N o ; he was formerly a captain in the Civilian Conservation Corps. H e worked up from that to the position of general. He
was made a general by the present Commissioner, Maj. Gen. Donald
Connolly, in the Persian Gulf. I t may be that General Connolly was
responsible for securing his appointment as F L C Commissioner in
China.
Senator C A I N . YOU had an excerpt from a conversation which included a brief reply by the gentleman in question, General Connolly.
Is there some more of that conversation, because I did not get very
much from wThat you said in that one phrase.
Mr. MOODY. There is. You will find one rather significant thing
as to the attitude of the organization toward the whole matter.
Senator CAIN. Is the whole conversation available in the record?
Senator BKICKEK. Is it in the record ?
Senator TAYLOR. Yes; Mr. Moody, from your experience investigating these things all over the world, practically, do you think that there
was a great deal of these irregul arities going on in nearly every theater ?
Mr. MOODY. There was evidence in almost every theater, Senator,
of such irregularities.
Senator TAYLOR. I t would seem that it would be very possible for
these Army officers and others in disposing of surplus property in reducing prices, and these other reprehensible practices of enriching
themselves. Do you think that that happened (
Mr. MOODY. There certainly was the possibility of it, and in the overseas theater, Senator, you have great difficulty in checking, because
naturally you cannot put the people on the stand, foreign nationals
on the stand, as you can Americans, and about the only control you
have over a particular American civilian is to lay them off.
Our courts in most cases no longer have jurisdiction, so it is far
more possible in my opinion for irregularities to go by unpunished
than it would be in this country where they are constantly under
surveillance.
Senator TAYLOR. There is no way then we can get at these people
and bring them back to justice?
Mr. MOODY. There definitely is in the case of military personnel.
As to what the status of General Johnson, who was both serving as
United States Army officer, and as an officer on terminal leave, which
I understand is still a man in the Army until he is released from that.
There definitely is a recourse through your courts martial.
However, findings in other cases have denied that officers on terminal
leave or officers reenlisted in the Army are subject to that.
The CHAIRMAN. I n that twilight zone, it is not possible to have a
court martial ?
Mr. MOODY. I cannot say.

• The CHAIRMAN. Let me ask you something: I t seemed to me as you
testified in some of these situations where goods were sold at a price,
and then that price was marked down, and no cash was collected by
specific instructions, and the sale was made on credit, and the mark


CONFIRMATION OF T H O M A S B. McCABE

45

down finally was to four or five thousand dollars from 40 to 50 thousand, that if a-man was so minded there was a great opportunity by
collusion with some of the natives over there for one hand to wash the
other, and an entente cordials with the two, and each benefit; that
could be done.
Mr. MOODY. I n our experience and in our opinion from the experience we have had overseas, there is very substantial opportunity
for persons so inclined to turn public interests into their own private
interests, and unfortunately rather inadequate controls over them.
Senator CAIN. The witness mentioned at one stage that he had begun as I understood a thorough examination in Manila.
Mr. MOODY. That is right.
Senator CAIN - . You had only been there about 30 days when you were
ordered off to Shanghai. Was that examination ever completed in the
Manila area by people either under your supervision or by other investigative officers, to your knowledge'4
Mr. MOODY. That is a good question, Senator. We did return from
Shanghai about 2 months after we proceeded there. I had only been
in Manila a matter of a week or so when my orders came to proceed to
Shanghai. I did return a month or so later and conducted further investigation there, and I understand there was at least one inspector
general's investigation launched subsequently.
I do not believe anything particularly was developed, although the
Philippine picture was a rather sordid one.
Senator C A I N . You mean exactly what? Do you mean to say in
that instance you say it was a rather sordid picture in Manila, but
you did not develop anything conclusive.
Mr. MOODY. Yes, sir; I did that purposely. I can quote one instance.
The American officer in charge of the sales was at the same time operating his own company with some foreign nationals, Filipino nationals,
where ho was in direct position to benefit from the sale of surplus
property.
Senator CAIN. What was done about it ?
Mr. MOODY. I understand nothing was done about it.
Senator C A I N . That was not in your jurisdiction?
Mr. MOODY. I t was not, because I was removed from the Asiatic
theater and brought home.
The CHAIRMAN. There is more than one Mej'ers in the United States
Army, is there not ?
Mr. MOODY. I cannot say as to that.
Senator BRICKER. D O you know who recommended General Johnson
toMr.McCabe?
Mr. MOODY. I do not, sir. I have understood that General Connolly,
who raised General Johnson to the rank of brigadier, was the person
who recommended him as the field commissioner.
Senator BRICKER. General Connolly; is he a Regular Army man?
Mr. MOODY. Yes; I am sure he is.
Senator BRICKER. A West Pointer?
Mr. MOODY. I believe he is.

Senator BRICKER. D O you know what General Johnson's experience
was before he went into the CCC ?
Mr. MOODY. Yes; he was engaged in some sort of an investment
business in Minneapolis, before he went into the CCC.
73055—48

4




46

CONFIRMATION OF T H O M A S B. McCABE

Senator BRICKER. Are the B-25's used today in the Army?
Mr. MOODY. Yes; I understand that the B-25, the medium bomber,
is the most desirable of bombers for the Chinese type of mission.
Senator BRICKER. I mean in our Army.
Mr. MOODY. I n our Army I believe that some of them are. I see
some of them here, but I could not say definitely.
Senator C A I N . I n all of your experience, did you ever find a unit
of this surplus-property division that was run from your point of
view correctly, books balanced, and everything was in perfect order
and shape ?
Mr. MOODY. That, perhaps, Senator, would be a very large'order
to answer. There were some "divisions that were in comparatively
very good shape. One division that I did not inspect, I understand,
was in particularly good shape and that was Australia. I think it was
General Butler who had charge of that.
Senator FLANDERS. I would like to get clear the nature of some of
these transactions in relation to aircraft on page 2, Mr. Moody.
At the foot of the page, making a sale of 151 aircraft at $500,000,
far below established world-wide price of $7,230,000, and so forth.
W h a t were those aircraft, and for what purpose were they sold?
Were they sold for commercial use or were they aircraft which were
useful for commercial use ?
Mr. MOODY. Yes, sir; the aircraft included in this sale were C-46's,
which although they are not licensable in this country, are very desirable in China, and very much used there. C—47's, which is our
standard DC-3 of the American airlines, and some of these, Senator,
were undoubtedly included for their value as salvage, as spare parts.
Senator FLANDEES. Were they actually put into service, commercial
service, so far as you know, when they were sold?
Mr. MOODY. Yes, sir; we have actual records of that. We know that
a number of them were flown off the field and subsequently put into
service by Central Air Transport Corp.
Senator FLANDERS. At this point, perhaps I could find it by referring
later, but at this point in your testimony you do not state whether
these had been certified,as being livable aircraft or whether they had
been surplus flyable aircraft, or whether they had been certified for
cannibalization, or what they had been certified for.
Mr. MOODY. When they are declared surplus, the Army makes no
determination of that. I n some cases they may declare aircraft to be
suitable for scrap, but most of these aircraft required only slight,
a great number of them, only slight modification in order to make them
flyable as proof of which is the fact that they flew them off the field,
a number of them were flown off the field.
Senator FLANDERS. Was there any State Department policy with
regard to the sale of flyable aircraft to China at this time?
Mr. MOODY. The oniy State Department policy which would bar
any sales, Senator, was in the sale of combat aircraft. There was a
secret agreement which has nothing to do with this, which you have
read about recently in the paper, but the Foreign Liquidation Commissioner was specifically enjoined from selling any combat material
without specific atuhorization from the Joint Chiefs of Staff and the
State Department.
Senator FLANDERS. Would these C-46's and C-47's be considered
as combat aircraft?



CONFIRMATION OF THOMAS B. McCABE

47

Mr. MOODY. N O , sir; neither one; both transport craft.
Senator FLANDERS. S O that the sale, the only thing that is being
criticized in this sale is the price obtained for them.
Mr. MOODY. The price obtained and the inclusion of the combat
aircraft.
Senator FLANDERS. There was inclusion of what, yes, that is the
next page, the 11 bombers.
Mr. MOODY. The 11 B-25's, yes, sir.

Senator FLANDERS. And they were included, and that was against
the State Department policy at the time.
Mr. MOODY. Definitely, sir.
Senator FLANDERS. I t ma}' be that later on in this summary of
Colonel Dougherty that he is referring to the same thing. Yes, item
2 is the same thing, and item 3. You just stated it was permitting the
11 medium bombers to be included in the sale.
Item No. 5 does not state what that surplus property is. I s that
parts, or what ?
Mr. MOODY. Yes, that was airplane spare parts, and 1 might call
your attention, Senator, to the fact that nothing was more scarce or
more desirable than airplane spare parts. I n other words, it would
be no surplus product. There would be less excuse for stamping them
"Salvage," because every air line badly needed surplus parts.
Senator FLANDERS. I n other words, what you are saying is that this
stuff could have been returned to the States and used here.
Mr. MOODY. I t could have been used either in the States or used
to render fiyable the aircraft that were available overseas, or there
are large amounts of aircraft in Manila, for example.
Senator FLANDERS. Are you referring now to Government or to
privately operated aircraft in Manila? I am trying to find oi5t
Mr. MOODY. To both.
Senator FLANDERS. Who is the user of this.
Mr. MOODY. The Army at the time I left China was still using a
number of C-4fi's in the Asiatic theater. I t was the standard transport plane of the air lines. They used that and the C-47, which as I
said before is the DC-3.
One of the air lines that had specific need for these parts was the
Pan American affiliate, CNAC, China National Aviation Co.
Senator FLANDERS. Where does the case of the mutilated tails come
in?
Mr. MOODY. The contract 458, which included the B-25's, under
paragraph 3, Senator. They were included reputedly as salvage,
although they were in—.—
Senator FLANDERS. This is the 11 medium bombers?
Mr. MOODY. That is the 11 bombers.
Senator FLANDERS. That got their tails cut off?
Mr. MOODY. That is right.
Senator FLANDERS. All right.
The CHAIRMAN. I hold here a copy of the Washington News of
February 28, headed "United States Supplying China with 1,071 Airplanes ; Secret Military Pact Revealed," which is what you referred
to, and put out by Acting Secretary Symington, and it says already
936 planes have been delivered from United States surplus war stock
presumably to be used against the Communist forces in north China.



48

CONFIRMATION OF T H O M A S B . McCABE

I merely interpolate t h a t with that secret contract, to protect the
national interest, at the same time that is happening, we are cutting
the tails off planes that could be used right on the spot there.
Senator C A I N . Mr. Witness, to your knowledge was it the policy of
the China theater for the military services to destroy large numbers
of aircraft, as was actually the case in Europe, namely, they would
blow their motors out, or blow the noses out, rather than bring them
back here or to sell them to anyone else %
Mr. MOODY. I did not hear of many instances of that sort, Senator,
and I could not verify that. I know of two or three cases where it
was reported. I t was not a general policy.
Senator CAIN. YOU did not see junk yards yourself as a good many
of us have seen them in Europe.
Mr. MOODY. That is true.
The CHAIRMAN. Any other questions?
If not, the situation is this, gentlemen. We have sat here until 4
o'clock. We have put in the evidence in the case that I have on hand
on Mr. McCabe's appointment.
As I told Mr. McCabe, in a sense of fairness which is characteristic
of the committee, he will be given ample opportunity to make such
reply and defense as he deems best, and all of the time he wishes to
prepare that, that you wish to present to the committee. Can you
give me some idea about when you will be ready to do that ? I t would
help out in making the committee arrangements.
Mr. MCCABE. I will do it just as quickly as I possibly can. I would
like to get this cleared up just as quickly as I can.
The CHAIRMAN. Would you be willing, when you have your statement j~eady, which I assume will be a prepared statement, to supply
the committee with it 36 hours ahead ? T h a t is under the reorganization rule now pending in the Congress here, so the committee may
have it to process it.
If you will do that, just send down the statement in advance to
the committee, kindly, here.
Do you think you will be ready to do it this week, or would you
rather wait until next week, Wednesday?
Mr. MCCABE. I think by the t.;d of the week I will have it, sir.
The CHAIRMAN. By Friday?
Mr. MCCABE. I wni try to do it by Friday.

The CHAIRMAN. If you find that you can or cannot, let us know.
Let Us have it in our hands 21 hours ahead—your prepared statement.
Mr. MCCABE. I doubt if I could notify you tomorrow that I would
have it ready, because there are a good many points here.
The CHAIRMAN. Why not make it next Wednesday, then? Is that
agreeable—a week from today?
Mr. MCCABE. Yes. If it can be done sooner, I will do it.
The CHAIRMAN. YOU will let us know.
Mr. MCCABE. Yes.
The CHAIRMAN. The

session now stands adjourned subject to call.
(Thereupon at 4 p . m. the committee recessed, to reconvene subject
to call of the Chair.)




CONFIKMATION OF THOMAS B. McCABE
TUESDAY, MAECH 10, 1948
UNITED STATES SENATE,
COMMITTEE ON B A N K I N G AND CURRENCY,

Washington, D. C.
The committee met, pursuant to call, at 11:25 a. m., in room 301,
Senate Office Building, Senator Charles W. Tobey (chairman)
presiding.
Present: Senators Tobey (chairman), Buck, Capehart, Flanders,
Cain, Bricker, Maybank, Fulbright, Robertson, and Sparkman.
Also present: Raimond Bowles, clerk.
The CHAIRMAN. This session of the committee is in order.
This is a continuation of the hearings on the nomination of Thomas
B. McCabe to be a member of the Board of Governors of the Federal
Reserve System for a new term.
<
Mr. McCabe, you have prepared statement, and you may proceed,
if you will.
STATEMENT OF THOMAS B. McCAEE, PHILADELPHIA, PA.
Mr. MCCABE. W i t h the chairman's permission, I would like to ask
the clerk if he will read this statement.
The CHAIRMAN.

Yes.

Mr. BOWLES (reading) :
Mr. Chairman and members of the committee, I want to express my appreciation of tlie committee's courtesy in giving me an opportunity to reply to the
detailed and critical testimony given before the committee at the opening day
of the hearings on my nomination* as a member of the Board of Governors of
the Federal Reserve System. It was certainly a great surprise to me that
the evidence presented "to the committee should have dealt exclusively with
just one of the several activities in which I have done my best over many years
to render public service. As you know, I have been entirely separated from the
task in question since September 1!)46; and for this reason, as well as because
of the unavailability of some of the people mentioned in the testimony, I am
at a slight disadvantage in replying to the minutiae of many of the accusations
which have been presented.
I may confess that it has also come to me as a surprise—and a distinct
shock—to hear testimony exclusively devoted to picking holes in such a tremendous and difficult operation as our surplus disposal overseas, without any
comment on or expression of the magnitude and extent of the job done. I feel
strongly that all public activities such as those of the Office of the Foreign
Liquidation Commissioner should be subject to the closest scrutiny, and that
criticism should be expected and even welcomed; but each criticism should be
considered in its proper relation of the whole undertaking.
In this connection I am concerned especially about my former associates—•
people of ability and distinction in their own communities, who gave themselves unsparingly and at great personal sacrifice for a difficult and often disheartening Government task. In fairness to them, I must ask the committee to




49

50

CONFIRMATION OF THOMAS B. McCABE

consider in some detail just what the tasks and accomplishments of the Officeof the Foreign Liquidation Commissioner have been.
You must remember that when our organization was first set up early in
1945, the war was still going on all over the world and we had to plan a program
for what has been popularly called a global fire sale. Never before in our
history had we been faced with a surplus problem of such gigantic proportions.
To assist in the formulation of plans, I was able to enlist the part-time services
of a few of the country's well-known men in the fields of industry and finance,,
both domestic and international. I brought together a consultative group of
industrialists who met with me from time to time to check our plans and offer
suggestions. I also had regular meetings with high officials of State, Treasury,
OWMB, Army, Navy, and the Surplus Property Board. In this manner we were
able to secure the aid of many of the most experienced and best minds in the
country.
In the beginning, we knew t h a t when the war ended we were going to have
tremendous quantities of surplus to dispose of, in every quarter of the globe; -but
we could not tell w h a t those quantities would be, where the supplies would be,
what they would consist of, or how they could be sold. We could only be fairly
sure t h a t the property we would have to handle would be everything that a
modern Army and Navy needed for conducting a war of such gigantic proportions,
and that we would be required to handle approximately 4,000,000 items—enough t o
fill more than 50 Sears-Roebuck catalogs.
Unfortunately, the property could not be listed or displayed as attractively as
in a Sears-Roebuck catalog, because we were dealing primarily with battle-worn
and obsolete material, scattered all over the islands of the Pacific and in battle
areas elsewhere.
It has been mentioned t h a t our experience in dealing with the surplus problem
in France after World War I might have been a better procedure for us to follow,
but in t h a t instance tiiere was only one country to consider, whereas here we
had the problem of dealing all over the world.
To you gentlemen, now considering our accomplishments long after the event,
it must be extremely difficult to visualize clearly just w h a t we were faced with
when the dam did break. % The war ended suddenly in Europe. While I was over
there in the summer of 1945 the' war ended equally suddenly in the Pacific. I
rushed back to Washington and we moved into action with what seems to me
now to have been amazing speed. We had made our plans for organization during
the last few months of hostilities, and within just a few weeks of their cessation
we had in each major area where American troops were located a well-equipped
team of officials.
Generally, at the head of each field office we had a civilian, carefully selected for
his broad-gage experience as a business executive, particularly in merchandising.
The civil-service salaries of these men were only a fraction of their earnings at
home.
Our field commissioners were flanked and supported by the best experts we
could find for them in the various important fields, sdch as accounting, engineering,
law, economic analysis, and Army and Navy procurement and property methods.
To a large extent, our field staffs were drawn from the armed services. This was
natural, since only there could we find the necessary detailed knowledge of Army
and Navy procurement a'nd supply.
But these Army and Navy experts were supplemented by the best commercial
and legal talent we could find in civilian life—and let me tell you it was a job to
find that talent, when the fighting was over and the problem was only one of
liquidation. The lure of postwar foreign service in war-torn countries was not
very great.
However, we did find talent, and we got together as fine an organization as I
can imagine for a task of almost incredible difficulty. And if my own statement
may seem naturally biased, perhaps you will let me quote from a letter written
to me by Mr. Patterson, the Secretary of War, on September 13, 1946, on the occasion of my resignation from my post. He s a i d :
"DEAB TOM : On the eve of your departure 1 want to say again what I have
already told you many times: T h a t I shall never forget the great work that you
have done in directing the disposal of Army equipment overseas.
"You came here a year and a half ago on my urgent plea. You had to blaze
your own trail. You succeeded in recruiting a group of unusually qualified men,
and this a t a time when everyone was leaving the Government. I still do not
know how you did it. Those men did invaluable work, both here and overseas, but
you were still the one who carried the heavy load.



51

CONFIRMATION OF T H O M A S B. McCABE

"Now t h a t we a r e over t h e hump, I w a n t to express my wholehearted appreciation for the tremendous assistance you have given the W a r D e p a r t m e n t . You
have taken a great burden from us a n d have done your p a r t in m a k i n g o u r
operations a success.
" W i t h best regards, always, I am,
"Sincerely yours,
"ROBERT P. PATTERSON, Secretary

of

War."

The Navy also expressed appreciation, as indicated by a n o t h e r letter w r i t t e n
to me a few days l a t e r by Mr. F o r r e s t a l , t h e Secretary of t h e N a v y :
SEPTEMBER 17,

1946.

DEAR TOM : I know t h a t the Secretary of W a r h a s already w r i t t e n to you on
the occasion of your resignation as Foreign Liquidation Commissioner, a n d I
wish to join with him in expressing the sincere appreciation of the W a r and
Navy D e p a r t m e n t s for your accomplishments as Foreign
Liquidation
Commissioner.
While your work w a s performed within the D e p a r t m e n t of State, it w a s of
great importance to t h e Army and Navy because the efficient disposal of t h e
vast quantities of surplus property all over t h e world h a s relieved us of countless
burdens.
The Nation is indebted to you for your services, and on behalf of t h e Navy
Department I wish to thank you for the completion of difficult negotiations on
its behalf.
Sincerely yours,
J A M E S FORRESTAL.

A n d ' I should like also to quote t h r e e p a r a g r a p h s from t h e letter of t r a n s mittal by which the Secretary of State, Mr. Byrnes, t r a n s m i t t e d to t h e Congress
the quarterly report of foreign surplus disposal for the q u a r t e r ending October
31, 1946, just following my resignation as Commissioner:
" ( a ) By September 30, 1940, surplus property with original cost to t h e United
States of approximately $5,870,000,000 h a d been sold for about $1,400,000,000. Of
the total realization, approximately $375,000,000 represented sales for cash dollars, or their equivalent, including the cancellation of United States dollar obligations to foreign governments. Sales m a d e for authorized foreign currencies o r
commitments to pay such currencies accounted for $125,000,000, a n d property
valued a t $33,000,000 w a s exchanged for real estate for use by t h e United S t a t e s
Government. F u n d s totaling $30,000,000 have been specifically e a r m a r k e d for
cultural exchanges under provisions of the Fulbright Act, and the $300,000,000
transfer authorization provided by t h e Philippine Rehabilitation Act h a s been
fully utilized. T h e remainder of t h e sales h a s been for dollar credits.
"The figures on sales a r e exclusive of direct transfers to UNRRA m a d e u n d e r
Section 202 of the UNERA P a r t i c i p a t i o n Appropriation Act. All property disposed of represents about 85 percent of the total made available to the Foreign
Liquidation Commissioner for disposal.
" ( 6 ) T h e r e t u r n which has been obtained for overseas surplus, while it necessarily represents only a fraction of the original procurement cost of t h e property
sold, h a s already far exceeded the total realization hoped for a t t h e beginning
of the overseas disposal program. In addition, it lias been possible to effect
this realization on t e r m s which will result in a substantially greater direct and
immediate benefit to t h e American t a x p a y e r t h a n we h a d believed possible."
Now let me refer specifically to one or two of the criticisms of our performance
made in the opening day's testimony. T h e implication given w a s t h a t I, or my
organization, or both, made no serious a t t e m p t to secure for t h e American t a x payer the best possible return for t h e surplus goods which had cost so m a n y
billions of dollars. I am sure t h a t anyone studying our efforts w i t h sympathetic
understanding of the difficulties we had to face will find this implication
unfounded.
Of course we w e r e trying to get the best possible r e t u r n of the American
taxpayer. This was one of the important objectives of the Surplus P r o p e r t y Act
stated in its preamble, although, it is t r u e t h a t t h e preamble to the Surplus
Property Act states 19 other objectives as well. We tried to reconcile these objectives a s best w e could, all in the direction of doing t h e most good lor the American
taxpayer. The most good, we thought a t the outset, could be done by selling all
over the world, wherever possible, for American dollars a t prices which fairly
reflected t h e actual current fair value of the property we were selling in t e r m s of
the usefulness of t h a t property in a p o s t w a r civilian economy.



52

CONFIRMATION OF THOMAS B. McCABE

Undoubtedly our fair value price often came nowhere near the original pro- ,
curement cost of the property. I need hardly quote figures to establish the
obvious proposition that of our 10 or 12 billion dollars worth of foreign surplus,
a tremendous proportion consisted of purely military items, which would have
been of no civilian utility at all except as scrap. Of the nonmilitary property,
much again had relatively no civilian utility. A huge Army truck, built for
Army transport purposes, was totally uneconomical for use by small farmers
in France or Great Britain. And even of that portion of our surpluses which
were intrinsically useful for civilian purposes, a large amount was naturally
worn or damaged, and of reduced value for that reason. Of the thousands of
motor vehicles which we had for sale, we found that a very high percentage
were inoperable.
Nevertheless, for months we concentrated on the effort to secure dollars, at a
fair price, for everything we had to sell. As was mentioned in the opening
day's testimony, we retained an outstanding American firm of industrial engineers to help us devise a formula for establishing the fair value price of the
major categories of surplus being made available to us in Europe depending
upon the age, condition, and so forth, and the particular item.
This formula was applied in Europe not only to establish a fair value, but
also to establish the catalog of offering price of the goods. This policy was
designed to facilitate offering and expedite the receipt of bids, and was no more
designed to limit our recovery than the same policy applied by Sears-Roebuck
or Montgomery Ward is designed to reduce their profits.
I do not say this policy was the only way to sell, but it was thought'to be
the best policy for use in Europe by James S. Knowlson, president of the
Stewart-Warner Co. in Chicago, and my Central Field Commissioner for Europe,
an outstanding and highly respected American businessman. I necessarily
gave to all our fleld commissioners broad discretion to work out their own
disposal problems in the light of the special circumstances in their own territories. Without delegation of this type of authority, successful administration of so wide-flung an enterprise would have been impossible.
However, it should be noted that this policy was not applied in other areas,
and even in Europe the policy was applied to catalog offerings and not to all
sales. The principal reasons for utilizing fixed price were summarised in the
April 1946 report to Congress, and I have alwajs felt that the criticism advanced
by the Mead committee report and repeated here last week were based on a
misunderstanding of the policy which originated when one of our officers explained the policy incorrectly at a hearing in Europe early in 194(>.
Surpluses did not move rapidly under the policy of selling for dollars. During these months we had relatively little made available to us which could have
attracted a dollar-paying public in any large volume. An army does not
naturally turn over first for disposition as surplus its newest and most useful
civilian-type equipment. It is not surprising that most of what we got from
the Army for disposal in the early months of the program was material for
which there was little demand.
But our dollar-disposal program ran into an even more serious obstacle.
It is easy enough to say that we were the sellers, and could charge what we
liked. The truth is that, as sellers, we were less in the driver's seat than one
might think. Surely every member of the committee can recall the tremendous
wave of demand that arose in late 1945 and early 1946 to b! ing the boys home
again as rapidly as possible. It was natural as a demand; but it was certainly
not conducive to holding our surpluses for the best buyer. As a practical matter, the moment a military or naval mission was completed in a particular
area, no power could have kept the personnel on duty merely for the purpose of
guarding surplus property, or of reconditioning it in the hop? of better sales
market, or of moving it to somewhere else where there might be a buyer. And
our potential customers knew this, and knew that they could afford to wait.
Finally, there was the overriding fncl (hat, in the areas hi which we had most
surplus for disposal, there just wore not dollars available to buy them from us.
Anyone who concerns himself at all with postwar economic affairs knows this is
a truism that the lack of dollars in the hands of the major foreign countries
in the world, or of their nationals, is one of the inescapable facts to be reckoned
with in readjusting the world economy.
Whether we like it or not, we had to come to the conclusion that there was no
substantial dollar market except in a few South American countries and very
scattered parts of the world. And the real problem was to get the buyers to
the point of sale because of lack of traveling and hotel facilities in Europe and
the Pacific.



CONFIRMATION OF T H O M A S B. McCABE

53

The suggestion was m a d e in t h e Mead committee r e p o r t a n d repeated in t h e
chairman's opening statement t h a t we should have insisted on t h e r i g h t to sell to
British individuals. As w a s explained to t h e Congress in the April 1946 report,
the British position w a s based on a lack of dollar exchange which w a s well
recognized by our Government. Certainly this committee w i t h its u n d e r s t a n d i n g
of international monetary a n d foreign exchange problems will realize t h a t
sales to British nationals for dollars obviously presented the same problems a s
sales to their government.
E v e n t s since then have shown conclusively t h a t t h e
British position as r e g a r d s dollar exchange w a s and still is precarious.
W h a t kind of market, then, could we find'.' ' t h e suggestion h a s often been
made t h a t in view of the desperate need of so many foreign countries to rehabilitate their civilian economies with j u s t such civilian t j p e goods as we h a d
for sale, we might have sold for r a w m a t e r i a l s of kinds urgently needed in this
country. Of course, we did not neglect this possibility, but we soon found it
amounted to j u s t about the same thing, since the countries we dealt w i t h knew
perfectly well t h a t their critical r a w m a t e r i a l s represented a source of dollars,
and they therefore looked upon b a r t e r of this type in t h e same light a s p u r c h a s e
for dollars.
At least within limitations, a n o t h e r potential m a r k e t w a s t h e foreign currency m a i k c t — t h a t is, in any given country*we could sell for the currency of
t h a t country. Of course, if t h e currency were freely convertible to dollars,
the problem from the point of view of the purchaser w a s the same as a p u r c h a s e
for dollars, and subject to the same limitations and the e x t e n t to which w e
could accept foreign currencies for defined uses w a s limited.
Foreign currencies were useful to our Government for diplomatic expenses,
procurement abroad, the acquisition of Embassy btii!d : ngs, special fellowships,
and the like, but the number of expenses of (his kind for which we might need
foreign currencies was sharply limited.
After a considerable struggle, extending over many weeks, we finally secured
authority from the T r e a s u r y D e p a r t m e n t to accept limited a m o u n t s of foreign
currencies for our s u r p l u s e s : but the inherent limitations of this avenue of
disposal are too clear to require distussion.
At this point, 1 should bk« to mention with appreciation 'the activities of
Senator Fulbrighf, in sponsoring the a m e n d m e n t to the Surplus P r o p e r t y Act
which is generally identified with his name. T h i s a m e n d m e n t w a s designed to
enlarge Hie amounts of foreign currencies w h o h we could t a k e for surplus, by
authorizing the u-'t> of snob currency to finance the interchange of educational
opportunities between Americans and t h e peoples of t h e other countries of t h e
world.
,
H<TO again, the total volume of surplus which c< nld be sold through this
avenue wiis limited, but T f'i'ly n r r e e with FHmator F'Vbrjght t h a t t h e sales
made possible bv I'd1: bill will c m i f e advantages to the United States out of all
proportion to the value of the <mm)us property involved.
T h e result of all 1 have said is t h a t before long we were driven to t h e conclusion t h a t the onlv wav in which we could dispose of the vast bulk of our
surpluses— good, bad, and indifferent—was bv bnlk sales to t h e countries in
which t h e snroluses WCJ'C located, generally on a long-term dollar cr°dit basis.
Such dell"r credits were in evprv instance extended on the basis of axithorization« received from the National Advisory Oouneil. I h a v e mentioned t h e
bu'"<Ten of care and baud'ing. and t h e nolicy a g n i n s t keeping our soldiers and
sailors on duty mereH" for custodial purposes, when their 'Military missions h a d
been accomplished. Even more important from our point of view were t h e
e'er-all political considerations involved. 4s Foreign Liquidation Commissioner
I could bo. and was. told tb;>t high political considerations reouired t h a t t h e
Army evacuate a givpn country within a stated period of (lavs or weeks, and
t h a t T must a r r a n p o for complete di c no«al of all sn'TVnsos within t h a t period.
Moreover, T could be, and was. fold t h a t t h e r e would be no time within which
t h e Avmv or t h e Navy coidd p r e p a r e any adequate inventory of the p r o p e r t y
to be sold.
Obviously, in such emergency rasps, and t h e r e were m a n y of them, al 1 t h a t
could be done w a s to negotiate a bulk sale to the Government in whose forritorv
t h e oro^evtv If v, a t the b°sf price "nd on flip best t « r T wo couM gpf. To s t a r t
our negotiations, WP would have an estimate from thp Army or Navy as to t h e
value, nf nt least t h e procurement cost, of t h e property they intended to leave
behind, with very little opportunity on our p a r t to verify t h e estimate, w h e t h e r
as to proepronient post or PS to kind or nualitv.
Considering th« difficulties encountered bv a seder, when so b't+le w a s known
about exactly w h a t he h a d to sell and when the buyer knew t h e seller m u s t



54

CONFIRMATION OP THOMAS B. McCABE

sell immediately, I think that even those of our bulk sales which were made
on an emergency basis were by and large made on terms remarkably favorable to
the United States.
I do not mean to be talking too much of the difficulties which we faced. It is
our accomplishments that I think are the important thing. However, there Is
one more phase of our difficulties which I have not mentioned, and should. From
our inception, new duties were constantly handed on to us. We started as a
disposal agency just for Army and Navy nonmaritime surplus abroad. Ship
disposals were left to the Maritime Commission. Before long I concluded that
our work necessarily involved such important diplomatic features that it could
only be handled effectively within the State Department; and as a result I made
every effort to have the job transferred from the Army and Navy Departments
to the State Department.
This was finally done, but at the time of the transfer, to my surprise and somewhat against my will, the lend-lease functions of the Foreign Economic Administration were also placed under the jurisdiction of the Foreign Liquidation Commissoner in the State Department. Shortly, the Maritime Commission concluded
that it was not equipped to handle certain maritime disposal overseas, and
with great reluctance I accepted the responsibility for such disposals.
Still later there arose the problem of reparations from Germany, and again
the problem was assigned to us. At every point, just when we thought we were
beginning to get under way, some new job would be given to us and a new set
of problems thereby created.
It is against this background that the committee should consider the foreign
surplus-disposal problem if it is to appreciate properly the value of the testimony which was given on the opening day of the hearing. I do not want to try
to answer in detail every specific charge or unfavorable inference which has
already been put into the record. Viewed against the true background of what
we were doing, many of them become a very small part of a large picture. Others
lose their critical quality when they are looked at in the light of surrounding
circumstances.
Let ns take, for instance, the bulk sale to Great Britain. That has been treated
in the record so' far as a completely distinct surplus-property disposal operation, in which the Foreign Liquidation Commissioner had no idea what he was
selling, made no effort to determine its value to the buyer, and in effect casually
or recklessly gave away vast quantities of American property "as mere rubbish,
as having little real value."
What has been neglected in this discussion is the fact that our bulk sale to
Great Britain was merely one aspect of the much larger negotiations for settlement of all our mutual wartime obligations, including lend-lease surplus property
and war claims and damages. These were inextricably woven together with the
terms of the proposed postwar loan to Great Britain. These negotiations were
conducted by a special committee headed by Mr. Vinson, Secretary of the Treasury, and included as its members, apart from myself, Mr. Clayton. Assistant
Secretary of State for Economic Affairs; Mr. Wallace, Secretary of Commerce",
Mr. Eccles, Chairman of the Federal Reserve Board; and Mr. Martin, Chairman
of the Export-Import Bank.
«
This committee approached the negotiations, which looked among other things
to the sale of all our surplus property to the United Kingdom, from the point of
view of determining the largest possible amount which could be asked from
Great Britain, with safety to her economic stability as well as that of the rest
of the world.
The final figure of $650,000,000 agreed upon for all of our mutual wartime
obligations, including surplus property, was substantially higher than the figure
originally advanced by the United Kingdom representatives as their top limit.
And it was only after this figure of .$650,000,000 had been agreed upon that any
determination was made of the amount which should be allocated as the purchase
price of the surplus property involved.
When the determination was made, and it was a unilateral determination,
made only on the American side, it was made not just by me as Foreign
Liquidation Commissioner but unanimously by the special committee I have
mentioned.
Now let us take India. The charge there seems to he, not that the deal we
finally made was not a fair one but that the Foreign Liquidation Commissioner
arbitrarily abrogated a much more favorable arrangement already made by a
previous field commissioner.
In answering this assertion I should like to quote a paragraph from a letter
which I addressed on February 11,1946, to Senator Mead in answer to a similar



CONFIRMATION OF THOMAS B. McCABE

55

charge wiiich had been called to his attention as chairman of the Special Committee Investigating the National Defense Program. Answering the assertion
that by abrogating the original agreement in favor of a bulk sale I bad caused
a loss of several hundred million dollars to American taxpayers, I pointed out
that the assertion rested on the sheerest speculation, since there was no way of
estimating what would have been sold under the Schleiter agreement and at that
time the final return under the proposed bulk sale had not been yet settled.
In my letter, I said :
''Under the original agreement where there was no assurance that anyone
would buj anything, and it was more than probable that after the best items
had been siphoned off by priority purchasers we would he faced with a longdrawn-out and necessarily desultory campaign of merchandising the less desirable
types of property.
''Moreover, although 'cash' in the sense of Indian rupees was to be paid,
questions as to the method, time, and rate of conversion of these rupees into
United States currency or into property or rights valuable to the United States
were left unsettled.
•'The original agreement was still an improvement on the earlier situation
when the Indian Government had been insisting that we effect our disposal
through the medium of the established Indian disposal mechanism, but a categorical assertion that it assured to the United States any given return for its
surplus property, or that the return under it would have been more favorable
than would be the case under an agreement where the amount of return has not
yet been decided on. is nothing short of ridiculous."
Whatever might have been the return under the Schleiter agreement, if it
could have been carried out, is unimportant, tor it could not have been carried
out. Within a very few months it became neeoi-snry to evacuate our troops
from India in extreme^ short order. I was explicitly informed by the Secretary
of War that because of threatened widespread civil strife the timetable for
evacuation had been set and must be carried out.
It was obvious that the dangers of our involvement tar outweighed in financial
and other respects any possible disadvantage from a decreased realization for
our surpluses. In such circumstances a bulk sale to the Government of India
was absolutely essential if we were to hope to realize anything more from them.
The so-called.Schleiter agreement, had it been in effect, with its long-drawn-out
and speculative program of individual sales, would have fallen to the ground in
the face of considerations of higher policy.
So with Iran, another bulk sale mentioned last Wednesday. There we were
faced with an even shorter and more emphatic timetable. Again, we were told
by the Secretary of War that the urgent need for evacuation of our forces within
approximately a month far transcended any question of the precise return which
we might get for our surplus property; and that while we should get as much
as we could, we must realize that time was of the essence. In these circumstances,
it is surprising to me that we got as much as we did.
Obviously, our final return was diminished by the refund given by Colonel
Stetson. While Colonel Stetson's action in this respect was taken well after
my resignation, nothing which I then knew, or which has since been called to
my attention, seems to me to justify the criticism which has been leveled at the
refund. Colonel Stetson was the man on the spot. He was the only man in a
position to know the facts and the basic understanding which had been reached
between him and the Iranians at the time of the bulk sale. If I had been Foreign
Liquidation Commissioner at the time the refund was proposed, I have no doubt
whatsoever that I should have been guided by his judgment and should have
supported whatever action he had decided, after full consideration of all the circumstances, should be taken.
Now, let us come to the Chinese bulk sale. For many months, in the face of
contracting naval bases throughout the Pacific, we had been working against
time to dispose of our Pacific surplus to individual purchasers, or in individual
lots to such purchasers as UNRRA or the Chinese Government. Our record
through this period, both in volume of disposals and in rate of realization, was
good. The fantastic conditions of deterioration in the Pacific, however, coupled
with the decreased size of our naval garrisons, were rapidly making bulk sales
unavoidable.
Add to this that General Marshall, then the President's special representative
in China, had expressed the most urgent desire that his mission in China be
aided by turning over as rapidly as possible to the Chinese Government the
largest possible amount of surplus in the Pacific having any conceivable civilian
value. General Marshall talked to me of this in most earnest terms on the



56

CONFIRMATION" OF THOMAS B. McCABE

two visits I had with him in China, as well as on a visit which he made to
Washington; and he lost no occasion to make the same point repeatedly in
correspondence and cables.
As a result, the President on August 2, 1946, issued a directive to me to proceed to China at the bead of a mission to conduct on-the-spot negotiations for a
sale of our uncommitted Pacific surpluses to the Chinese Government. In his
directive he referred expressly to his conviction that General Marshall's mission
in China was of tremendous importance to our national welfare and that considerations affecting the success of General Marshall's mission should be paramount in any decision whether and how to sell our Pacific surpluses.
Our China bulk sale was made in response to this directive. The sale was
made in large part in consideration of the cancellation of a direct debt from
the United States to China incurred and acknowledged by the United States
Government as a part of its conduct of the war at its most acute phase. The
Treasury advised with us regarding the amount of the debt, while the Army
and Navy fixed for us, as nearly as they could determine, the value of the surpluses available for turn-over to the Chinese. The deal was, I firmly believe,
a wise one from all points of view and as favorable to the United States as it
was to China.
I take it that the testimony concerning alleged irregularities in the Shanghai
office of FLO has been made a part of this committee's record on the theory that
it reflects upon my administrative judgment. I shall, therefore, address myself
to that consideration first.
Brig. Gen. B. A. Johnson had served with Maj. Gen. Donald II. Connolly in
the Persian Gulf (heater during the war, and his chief thought that Johnson
had done a good job. When I joined the Office of the Army-Navy Liquidation
Commissioner, General Johnson was already associated with \\ as Assistant
Commissioner in Italy, and his services there were good. Aft'T his duty in
Italy, General Johnson requested release and assignment by the Army to a
troop command being a<tivated for service in the Pacific. After VJ-day I requested his reassignment to FLO, upon the recommendation of the men with
whom he had earlier worked, and he was assigned as fold commissioner for
China, where he served throughout the period under discussion.
The field commissioner for China reported directly to Ihe central field commissioner for the Pacific area at Manila, who, in turn, reported to me at Washington. During Johnson's service at Shanghai I was able to secure successively,
for the important post of central field commissioner at Manila, Wendell Endicott,
whose excellent reputation as a businessman is well known ; John K. Howard,
a prominent attorney of Boston; and Edward Vogelback, a public utilities executive of Chicago.
Each of these m"n was of proved capacity and integrity, and I am proud
that I was able to get them to serve. They kept me advised as to the progress
of the disposal program in tlis't part of the world, and their reports indicated
that progress in the China theater was satisfactory.
There came to the attention of my general counsel in April or May of 1946
a difference of opinion between General Johnson and the lawyer originally
assigned to his office. Captain Mull ally, it appearing that in Capiain Mullally's
opinion the field commissioner was unwilling to make full use of legal counsel
and slow to accept legal advice. Mr. Schmidt, my general counsel, promptly
sent a new lawyer to Shanghai, with instructions to report back concerning the
basis of this criticism. This new lawyer was Mr. William F. McKenna, and he
did report back by letter in late .Tune, to the effect that one subordinate official
accused another subordinate official of improper conduct but that ihe facts were
not yet sufficiently established to justify any other action than the assignment
of a-field-audit team to Shanghai for a review of accounting and administrative
procedures.
Such a team was assigned to the task. Meanwhile I had received about the 1st
of June from General Johnson a letter stating that an official of the Chinese
Government had asked Johnson if he would accept employment by the Chinese
Government to assist in marketing the bulk surplus property to be purchased by
that Government from FLO. Johnson stated in his letter that he had discussed
the matter with the central field commissioner, Mr. Howard, who was opposed
to it, and that he had discussed the matter with General Marshall, who expressed
agreement with the need of the Chinese for such help as Johnson would be able to
give but said he was not sure of the legal aspects of such employment.




CONFIRMATION OF THOMAS B. McCABE

57

I replied promptly to this letter, advising General Johnson that I thought such
employment would not be proper; and at the same time General Connolly asked
General Farthing, who was then about to leave for the Far East, on a mission
for us, to determine whether this offer of a position had progressed to the point of
negotiation or had otherwise compromised the field commissioner or rendered him
less useful as a representative of the United States. The response to this was a
letter from Johnson dated July 12, 1940, which read as follows:
•"I had a long talk with General Farthing in Manila about 10 days ago, and
after I explained my position and what I had done, he asked that I write >ou.
"I never really seriously entertained the offer from Dr. Soong for a number of.
reasons. Some weeks ago, I told the Chinese that under no circumstances would
I go to work for the Chinese Government. There are a number of good reasons
for this, all of them obvious. I told General Farthing that I had turned the deal
down and that 1 was going to stay with FLC until some time late this fall, when
1 was reasonably certain that the over-all deal was properly organized and that
the Chinese had an organization that could handle the surplus property.
"I hope to be relieved in the late fall, as I have promised Sis to be home for
Christmas and then a vacation. If FLC wants me in any capacity after April 1,
1947, and I can help out, I should be glad to do so, but I must get a 3 or 4 months'
rest before then. If I don't soon get some rest, I will be worthless for any job."
Mr. McKenna had indicated in his letter to my general counsel that he would
continue to gather facts and make further reports. It was on July 24, 1946, that
he sent a cable setting forth certain transactions which appeared to him to be
irregular and requesting an investigation. On July 30 an outgoing cable from
Washington advised that Mr. Hubert Moody, last week's witness before this
committee, was en route with instructions to make a complete investigation.
I myself left for China via Manila on August 7, arriving in Shanghai the 15th.
Mr. Moody and the audit team were already on the scene and at work ; the investigation had progressed sufficiently to disclose the possibility of misconduct, but it
was reported to me that it was too early lor conclusions on that score. Accusations
were many and varied, and the charges and countercharges involved at least a
half dozen persons in the office.
I found General Johnson completely tired out, physically and mentally. Regardless of the truth of the charges being made, it was apparent to me that
Johnson could not effectively carry on for long, and I determined to replace him
and to have a thorough and impartial investigation made of every aspect of the
conduct of his office.
Much has been made of the fact that I asked the Army to make this investigation rather than the FBI. The fact is that the FBI does not have personnel or funds to conduct investigations around the world, and we had been
so advised by the Department of Justice. The matter was double checked in
this particular case with Mr. Tamm, Assistant Director of the FBI, and he
advised us that this investigation could not be conducted by the FBI. The
Army command in China was independent of me, and it had a trained investigation staff on the scene.
For these reasons I thought, and I still think, that the request to the commanding general was the most appropriate possible action. This view was
concurred in by the appropriate members of my staff, including Mr. Moody.
I am informed that the investigation by the Inspector General in China was
made with extraordinary thoroughness and that his report was reviewed by
both the War Department in Washington and by the commanding general of
the Sixth Army in San Francisco, General Mark Clark, and that, upon full consideration, it appeared that there was insufficient evidence to warrant further
proceedings against General Johnson. Nevertheless, the report of the Inspector General was furnished the Department of Justice for its consideration.
The point was also made in last week's testimony that I acted arbitrarily
and unwisely in not excluding General Johnson from our negotiations with the
Chinese in Shanghai. Here again, the matter was discussed with members
of my staff, and I decided that in the circumstances it would be a mistake to
exclude General Johnson, as his specific knowledge of certain matters was
required.
However, General Johnson was only one of many advisers, for I was assisted
in the negotiations with the Chinese Government by Mr. Howard Petersen,
Assistant Secretary of War; Colonel Heiss, his aide; Admiral Cotter; Mr.
Adler, representative of the Treasury Department; Captain Smith of the Mari-




58

CONFIRMATION" OF THOMAS B. McCABE

time Commission; Admiral Wellings; Mr. Kendall and Colonel Starr of my
office; and Mr. Vogelback, then central field commissioner for the Pacific.
General Marshall and Consul General Davis were kept apprised of the developments in the negotiations and were consulted from time to time. I might
add t h a t in retrospect there is no question but that General Johnson was very
useful in. the negotiations.
General Johnson's replacement arrived in Shanghai shortly after my dep a r t u r e from China on September 1. Thus the total elapsed time from our
first word as to possible irregularities in the Shanghai office to the replacement of the field commissioner was barely 2 months.
I am not going to undertake to discuss all the criticisms of operations that
were made before the committee last week. For example, if I recall correctly,
it was testified t h a t General Johnson gave a certain lieutenant colonel and his
wife who were in our Shanghai office lower efficiency ratings than they deserved. If General Johnson gave these persons or any of his subordinates
lower efficiency ratings than they deserved, I am genuinely sorry. However,
jurisdiction over efficiency ratings for Army personnel is exclusively in the War
Department, and lay entirely outside my control.
I do want to discuss in some detail the transaction involving thp sale of
aircraft to the Central Air Transport Corp. of China in June 1946, because of
the special emphasis given that matter a t last week's hearing. The aspect of
this transaction which has received the greatest attention in the press relates
to the action taken to render unflyable the 11 B-25 bombers included in that
sale. Although this has been made to appear as wanton destruction of Government property, this interpretation is wholly unwarranted and based upon a
complete misunderstanding which I should like to correct.
To begin with, as the members of the committee doubtless know, the B-25
type aircraft a r e tactical aircraft and as such come under the definition of
combat materiel. As was pointed out in the report to the Congress in Apr-il
1946, from which I quote:
"It is the policy of this Government not to sell combat materiel in a nondemilitarized form. Theater commanders are operating under standing instructions not to declare as surplus to the Foreign Liquidation Commissioner for
disposal any combat materiel until it has been demilitarized and rendered useless
for war purposes. Specific exceptions authorizing departure from this standing
procedure are required in every case before either declaration or disposal."
The operating directives which were in effect at the time of this transaction
required the Army to demilitarize tactical aircraft before declaring it surplus
to us, and our field commissioners were instructed that in the absence of special
instructions to the contrary they should not accept tactical aircraft for disposal
until it had been demilitarized.
Therefore, under the policies and directives in force at the time of this transaction, the Army should have demilitarized the B-25's in question before declaring
them surplus to FLC. This procedure was followed all over the world and
thousands of combat aircraft were demilitarized, rendered unflyable, and disposed
of either as salvage or for nonmilitary purposes.
The point has been made that some of these planes had been flown but a few
hundred hours. In this connection I would like to emphasize that my office has
never had any control over the decision of what property is declared surplus to the
needs of the Army or Navy. The armed services have full control over this
decision, and combat aircraft, excess to the needs of the services, was required
to be demilitarized before being declared surplus, regardless of the age or
condition of the aircraft.
In this case the Army had removed the guns from the aircraft and had
apparently assumed that that was adequate demilitarization. However, when
the suggestion was made in the Chinese press that these aircraft might he used
as combat aircraft by the Chinese Army, immediate action was taken to demilitarize them completely by rendering them unflyable. I do not recall, if I ever
knew, who gave the demilitarization order. I have no recollection of giving it
myself; but the order was proper both under the policy and instructions in force
by our Government and under the terms of the contract of sale, which provided
t h a t the aircraft were being sold only as parts and not as flyable aircraft.
Therefore, the only thing unusual about the demilitarization of these combat
planes is the fact that it was completed after the planes had been disposed of as
surplus demilitarized aircraft rather than before their declaration, as should
have been the case.




CONFIRMATION OF T H O M A S B. McCABE

59

This transaction h a s also been criticized because of t h e price received. As
stated in the testimony last week, t h e sale included C-40's. C-47's, and C-87's,
is well a s the B-25's. and t h e t o t a l price received w a s $500,000, a s compared
,vith approximately $2,700,000 which would have been received on the basis
>f the established world-wide prices if all the planes had been flyable and if it
iad been possible to sell them as flyable aircraft.
However, t h a t w a s not the case. Rome of the planes later proved flyable, but
hey were disposed of in bulk as nonflyable aircraft for the recovery of t h e p a r t s .
This bulk disposal was determined by the field commission to be necessary (1)
because there was no Army personnel available to guard, m a i n t a i n , or move t h e
l i r c r a l t ; (2) a t t e m p t s to sell t h e a i r c r a t t at higher prices to other buyers h a d
•een made without r e s u l t ; and (3) the Army was overdue in its commitment
l
o return t h e Kiangwan Airfield where the planes were located.
Therefore. General Johnson, after discussing the m a t t e r with t h e central field
•oiiimissioner for the Pacific a r e a and obtaining his concurrence, m a d e a bulk
disposal for the best price which he could get, and provided in the contract of
disposal t h a t the planes were being sold for their p a r t s and not as flyable aircraft.
I have no question t h a t this judgment was well founded, for Mr. Vogelback,
the central field commissioner, had been in charge of our Aircraft Division in
Washington, and thus was familiar with aircraft values ail over t h e world.
Then there is t h e m a t t e r of blood plasma, said to have been sold in China on
the black market. This originated in a q u a n t i t y of m a t e r i a l s stored in t h e open
jn Okinawa .and damaged by typhoon. Owing to its damaged condition it w a s
declared surplus by the Navy under a general heading of "miscellaneous medical
supplies," and w a s marked and valued and sold as such.
In such m a t t e r s we had throughout t h e world to rely on the information given
to us on t h e declaration, for at no time did we or could we a t t e m p t to set up
a separate force to check t h e work of the supply officers of the a r m e d services.
The fact t h a t these "miscellaneous medical supplies*' contained p l a s m a w a s not
discovered until some time after the sale. When it w a s discovered, prompt
and effective action was taken by our Shanghai office, w i t h t h e cooperation of t h e
Navy, and as a result 88 percent was recovered and returned to t h e Red Cross.
When Johnson authorized the offloading of a Government-owned cargo from
a ship a t Shanghai and paid for t h a t offloading from Government funds not
appropriated for t h e purpose, he did so in what he thought to be in t h e interests
of the Government to avoid t h e accrual of a daily charge of over $2,000 for t h e
charter of t h e vessel, and I h a v e heard no suggestion t h a t he intended or a t t e m p t e d
lo enrich himself by such action. H e subsequently sold the cargo for some
$300,000, and it remains for t h e General Accounting Office to d e t e r m i n e w h e t h e r
the costs of offloading a r e properly payable from the proceeds of t h a t sale.
I do not think t h a t I am justified in t a k i n g any more of t h e committee's time
in discussing these issues, if tbey remain issues. T h e r e have doubtless been
mistakes, and h u m a n frailties. In t h e n a t u r e of such a job this would have
been inescapable. Certainly criticisms, both justified and unjustified, were to be
expected. I subscribe to t h e statement of H o w a r d Bruce in his special report
in surplus property on April 9, 1916, when he said, " T h e r e is no panacea for
the disposal problem—the act cannot be administered wihovtt w a v e s of
•riticism * * *."
Nevertheless, I desire to emphasize to t h e committee my conviction t h a t a task
of enormous complexity and difficulty has been carried on effectively. Foreign
surplus disposal h a s been well handled, and I am confident t h a t any impartial
examination of the record will support my assertion.

The CHAIRMAN. D O you wish to put on some witnesses. Mr. McCabe ?
Mr. MCCABE. If the chairman will permit, sir, I would like'to call on
Mr. William Clayton, former Under Secretary of State, to whom I
reported as Foreign Liquidation Commissioner.
When I was transferred from the Army and Navy as Army and
Navy Liquidation Commissioner to the State Department, I reported
direct to Mr. Clayton. I know of no one other than Judge Patterson
who is in a position to judge the nature of our work better than Mr.
Clayton.
The CHAIRMAN. Mr. Clayton?




60

CONFIRMATION OF THOMAS B. McCABE

STATEMENT OF WILLIAM L. CLAYTON, FORMER UNDER SECRE,
TARY OF STATE FOR ECONOMIC AFFAIRS, WASHINGTON, D. C.

Mr. CLAYTON. Mr. Chairman and gentlemen, I have no prepared
statement, but I would like to make a short verbal statement.
By way of background, I would say that I was appointed Adminis-.
trator of the Surplus War Property Administration in February 1944.
This administration was set up by Executive order of President Roosevelt. I served in that capacity until the latter part of November or the
first part of December 1944.
At that time, or about that time the Congress passed an act, to set
up a statute to-deal with the disposal of surplus propery. Believing
I would be unable to do a good job under that act, I resigned my job
as Administrator of the Surplus War Property Administration and
informed the President I would not be a candidate for selection or
nomination on the Board which the Congress set up.
Shortly thereafter, I was appointed Assistant Secretary of State
for .Economic Affairs, and later Under Secretary of State for Economic
Affairs. ,
•
Mr. McCabe was selected, if I remember correctly, in the early part
of 1945, as the liquidation commissioner of the Army-Navy Munitions Board Liquidation Administration, which they set up at that
time in consultation with n>e, and Mr. McCabe's selection as liquidation commissioner was in consultation with me.
Subsequently, after the end of the war it developed that practically
all disposal abroad had to take place in bulk sales for numerous reasons
that I can give you, and that these negotiations had to be conducted
with foreign governments. We found the State Department, of
course, naturally taking a very active part in those negotiations, and
for that reason and other reasons, it was decided after numerous conferences and decided with great reluctance on the part of the Secretary
of State and myself that the OFLC, Office of Foreign Liquidation
Commissioner, would be transferred to the State Department.
We did so on the understanding, of course, that Mr. McCabe would
continue as liquidation commissioner. Secretary Byrnes said that he
took this action with the greatest reluctance, because he knew it was
an extremely difficult job, and that in the end there was going to be agreat deal of criticism, regardless of the kind of job that was done.,
He said that he would do it in the understanding that Mr. McCaba
would come to the State Department and continue in the position as
liquidation commissioner, which Mr. McCabe reluctantly consented
to do until, I think, the end of the year.
As a matter of fact, he stayed until well into the following year,
after most of the property which had been declared surplus by the
Army and the Navy had been disposed of.
As Mr. McCabe has told you, he operated in that capacity undei
me and reported to me. Looking back upon the work that he did and
the results that were obtained, I have no hesitation in saying that
in my opinion Mr. McCabe did a complete job. He acted with great
intelligence and industry and patience and did a very patriotic and
selfless job.
I do not pretend to have at my fingertips any of the details of
these transactions, but no important transaction was made without
referring to me. I mean no important transaction was finally closed



CONFIRMATION" OF T H O M A S B. McCABE

61

until Mr. McCabe came to me with the details of the matter, and we
were almost in daily consultation about these matters.
I remember particularly, Mr. Chairman, the disposal of the surplus
property in the United Kingdom to the United Kingdom Government. That, as you will recall, wTas part of a larger negotiation between the United States and the United Kingdom that took practically
3 months to negotiate. I t started on the 11th of September 1945, and
ended on the 6th of December of that year. I t involved what we call
the Anglo-United States financial agreement, which covered a loan
to the United Kingdom and the settlement of all of our financial and
economic problems growing out of the war.
I t was a very big negotiation. I t was conducted on the part of the
British by Ambassador Halifax and Lord Keynes and a distinguished
group of economists and public servants from England, and on our
part, as Mr. McCabe has told you, by Secretary Vinson, and Mr.
Marriner Eccles, the Chairman of the Export-Import Bank, and
myself.
We settled there for the consideration of $650,000,000 for surplus war property in the U. K., for the lend-lease inventory in the
U. K., and for all other problems with the U. K. arising out of the war.
We had great difficulty in coming to a final agreement with the
U. K. on that amount. Lord Keynes told me several times that the
negotiations were going to break down on this one thing, that they
would not pay any sum, but we stuck to it, and we finally got their
agreement for $650,000,000.
The CHAIRMAN. H O W was that paid; in dollars ?
Mr. CLAYTON. I t is a long-term obligation of the United Kingdom
in dollars, with interest at 2 percent.
The CHAIRMAN. How long?
Mr. CLAYTON. I think it runs for 30 years.
Mr. Chairman, I think that is all that I want to state at this time
unless some of you gentlemen have some questions you want to ask me.
I will just mention this: Some of these biggest trades were with
the U. K., France, Italy, and China. They are the biggest lump
sales of surplus abroad. Although at the time we did not realize
it and we traded the hardest we knew how and we got e^ery last
dollar we could get for this country for this surplus, under all the circumstances, we do see in retrospect that if possibly we could have
gotten 50 or 100 million dollars more for the whole business from
these particular countries that I have named, since that time we
have aided all of these countries very materially with loans and
grants and other financial aid of one kind or another.
We have before the Congress now another bill, E R P , for Europe,
and another bill for aid to China. So if we had been able for the
moment out of their slender resources and reserves of dollars to have
gotten a few million dollars more, we would have had to give it
back to them since in one way or another, because they iust have
had to have that much more financial aid from this country than
they have gotten.
Senator BTJCK. Mr. Clayton, suppose there was surplus in a country such as India, who would buy war surplus from India ?
Mr. CLAYTON. Senator Buck, we soon found out from the hard
way of experience that the only way to dispose of these huge sur73055—48

5




62

CONFIRMATION OF T H O M A S B. McCABE

pluses abroad was to sell them in bulk to the governments of the
country where they were located.
Senator B U C K . The Government did not want them in all
probability.
Mr. CLAYTON. Many of them they did not want, did not care
anything about them. They were not suited to their needs. We just
had to make the best trades we knew how. Mr. M'cCabe and I are
businessmen, and I want to assure you that we traded just as hard
as we knew how, because we were trying to discharge our duties to
the Government and the public, and do the best we could, although
I do have to tell you, as referred to in Mr. McCabe's statement, that
there are so many other objectives stated in the Surplus Property
Act than that of getting the last dollar that the Administrator could
for the surplus property, that sometimes it seemed to me that in
view of all the preferences and the allocations and the objectives
stated otherwise, and the money objectives, that the money objectives
in the minds of the Congress had receded away down the line, that
there were other things which were much more important.
That is one reason, Mr. Chairman, I resigned in the first place,
because I didn't believe that I could administer the act and really do
a good job, not only on account of the Board which was set up by the
Congress in the first place.
Later, that was changed, and a single administrator was selected.
The law was changed, as you will recall. Not only on that account,
but on account of so many objectives and priorities and preferences
that were set up, it seemed to me it would be almost impossible to
administer.
The CHAIRMAN. Was there a state of mind in a degree on the part
of yourself and those administering this administration, knowing the
European situation, that we had to take care of those people anyway
by gifts and grants, that this was only aiding and abetting that process
by giving them this stuff at practically a sacrifice price, and charging
it as part of the income they are receiving as part of our program
of gifts?
Mr. CLAYTON. Mr. Chairman, I can assure you that was not the
case. If it were done today, we might thoughtlessly have that in the
back of our minds, but at that time, we didn't realize, nobody realized,
t h a t the situation in Europe was as desperate as it has since turned
out to be. These countries, many of them, did have dollars, did have
reserves left over from the war.
We traded just as hard with them as we could. I assure you we
did.
Senator MAYBANK. Mr. Chairman, I would like to ask Mr. Clayton
a question.
You said you traded as hard as you could and conditions are worse
over there now than anyone dreamed they would be. Is it not a fact
that now, during the last year, we have shipped more than a million
bales of cotton to J a p a n to be manufactured into cotton cloth in
Japan, and even with able administration by General MacArthur,
most of that cloth is right in J a p a n today, and we cannot sell it ?
Mr. CLAYTON. I don't know that I can say that most of it is, but
I know that the amount that is stacking up there is a big quantity.
Senator MAYBANK. And cannot be sold for dollars anywhere?



CONFIRMATION OF T H O M A S B. McCABE

63

Mr. CLACTON. They are having great difficulty selling it for dollars.
Senator MAYBANK. So the condition of even some of these properties that could be held, so far as dollar exchange with the United
Kingdom or France or anybody else, is that you could not get it today;
could you ?
Mr. CLAYTON. I do not think you could. The dollars do not exist
unless we furnish them.
Senator CAPEHART. Mr. Clayton, I wonder if you see much difference between the Surplus Property Board giving away millions of
dollars worth of materials to these foreign governments, and the Congress of the United States giving away millions of actual dollars?
Mr. CLAYTON. Yes, Senator Capehart.
Senator CAPEHART. What is the difference, and which is to be criticized the most severely, if either is to be criticized?
Mr. CLAYTON. I see a good deal of difference. I always took the
position when I was Surplus Property Administrator that in my job
under the Executive orders—I operated under an Executive order, not
a law or a statute—that tub ought to stand on its own bottom.
What anybody else did was all right, but my job was to sell that
stuff for the very last dollar I could get, and try to get the money
out of it.
I operated on that basis. I believe Mr. McCabe and I operated on
that busis also after the change.
Senator CAPEHART. I n any event, whatever you did receive for it,
if and when you receive it, it will come from loans that we made to
those foreign countries.
Mr. CLAYTON. Almost entirely; yes, it will.
Senator CAPEHART. The final end result is that it is all given away.
I am not saying whether it should or should not be, and I am not
criticizing.
Mr. CLAYTON. A great deal of i t ; that is true. B u t we did not
recognize that at that time.
Senator CAPEHART. I am not saying that you did, but I am simply
trying to say that we have the Congress giving away dollars and you,
trying to run the Surplus Property Board, in turn were trying to sell
and in many instances were giving away.
At least, as far as the original valuation was concerned, it was 10
or 15 cents on the dollar.
My point is that both the Congress and the administration are in
the same category.
Mr. CLAYTON. I say yes, in retrospect, we see now, if we possibly
could have gotten any more, it would just have come into one pocket
and gone out the other in loans.
Senator CAPEHART. If you had gotten an extra million, they would
have borrowed an extra million from the Congress to pay for the
million that you sold it for.
Mr. CLAYTON. They would have had to have that much more help.
Senator BOBERTSON. Mr. McCabe had read to us a 24-page statement
in which he explains or answered, whichever you wish to call it, the
criticism that was made of his administration of the disposal of surplus
war property.
You heard that statement read ?
Mr. CLAYTON.

Yes.




64

CONFIRMATION OF T H O M A S B . McCABE

Senator ROBERTSON. Are you thoroughly familiar with all of the
items included in the charges against Mr. McCabe and with all the
explanation that he gave in that 24-page statement ?
Mr. CLAYTON. I have read the statement, myself; I heard it read
here again today. I was not familiar with all of the things at the
time, for example, cutting the tails off the B-25 bombers.
I just recall now that something arose in connection with it, but I
am not thoroughly familiar with that.
I know that planes were supposed to be sold in demilitarized condition.
T h e CHAIRMAN. They were.
Mr.

CLAYTON.

Yes.

The CHAIRMAN. They cut their tails off.
Mr. CLAYTON. I don't say you have to cut their tails off, but they
were supposed to be sold in demilitarized condition.
The CHAIRMAN. I t is a pretty serious thing to cut a tail off, you
know.
Mr. CLAYTON. These particular planes, Senator Tobey, were sold
for scrap or spare parts.
The CHAIRMAN. They had flown 200 hours only.
Mr. CLAYTON. You know, Senator Tobey, in setting up the Surplus W a r Property Administration after I was appointed, one of
the first things we gave attention to was airplanes. I got the best
man I knew to head that department of my administration. The
thing that we all agreed on, after thorough checking, with the Army
and Navy, was that we were going to have so many airplanes that
we would never be able to get anything for the military airplanes,
that the conversion costs to transport planes would be so great that
we could not sell them for that purpose, and we didn't want to sell
them for military use, for the simple reason that the Army and
Navy had so many transport planes that would need very little
conversion.
We had more of those than we needed; therefore, the bombers and
the fighters were just so much scrap, that is, those that the Army and
Navy didn't want to keep.
The CHAIRMAN. At that time we were giving planes to the Soviet
and other countries around the world; were we not?
Mr. CLAYTON. I don't recall that. That would not be in my department. I just don't know about that.
The CHAIRMAN. I might point out to you, sir, that the facts in
this investigation are with regard to Mr. McCabe's fitness to be
Governor of the Federal Reserve Board. The chairman of this
committee was waited upon by some Senators of the United States,
three in number, who felt that Mr. McCabe's nomination should be
gone into very thoroughly.
H e went into it very thoroughly, he found millions of dollars were
given away for a song. I t will stand close inspection and examination as to the man's fitness for the job.
All this evidence was in the hearings held by the Committee on
War Investigation, and their findings were made after hearing all
the evidence. So this is not some fly-by-night ephemeral thing or
figment of the imagination of any one Senator to persecute any one
man.




CONFIRMATION OF T H O M A S B. McCABE

65

I t is a matter of Senate hearings, sworn testimony, after making
these statements. I want you to know the genesis of i t ; that is all.
Mr. CLAYTON. Senator Tobey, I would not for a moment indicate
that it is a frivolous matter. I certainly do not think that. I have
just come here to state my experience.
The CHAIRMAN. If I were in Mr. McCabe's position, I do not know
anyone I would look upon with more satisfaction than Will Clayton.
Senator ROBERTSON. I would like to ask a question.
The CHAIRMAN. I thought you did, sir; pardon me.
Senator ROBERTSON. To the best of your knowledge and belief, having heard the statement made this morning by Mr. McCabe, do you
think that the explanations that he has given us of the manner in
which he handled the disposal of surplus war property are correct ?
Mr. CLAYTON. Yes, I do; and I am thoroughly familiar with most
of the substance of the statements.
There are a few little details that I would not be able to testify on
of my own knowledge.
Senator ROBERTSON. One apparently serious phase of the charge was
that one of his key men, a General Johnson, had agreed to take employment at a big salary with the Chinese Government and made improper concessions to the Chinese Government on that account. A
letter was quoted here from General Johnson in which he said that he
did get the offer, but that he turned it down.
I t is a fact, is it not, that he never accepted that employment ?
Mr. CLAYTON. I can't speak from my own knowledge, Senator Robertson. I am not familiar with that.
The CHAIRMAN. I might say that General Johnson has been called
back to this country by the W a r Department in the last few days.
Senator ROBERTSON. They investigated General Johnson over there
in the Orient. They also investigated him again on the Pacific coast
and made two reports that they did not have enough evidence to convict him of criminal action or misconduct.
We are not trying General Johnson.
This statement says that within a week, 6 days, to be correct, after
Mr. McCabe got notice that General Johnson might be doing some
finagling over there, a cablegram was sent to Shanghai to have the
matter thoroughly investigated, that within 3 weeks after Mr. McCabe
got notice that maybe something was going wrong in Shanghai, he
was in Shanghai.
In less than 2 months, although the investigation had not been completed, Mr. Johnson was out of the picture. During the interim period
of less than 2 months when Mr. Johnson was still in the picture, ho
was only one of numerous others who were advising Mr. McCabe in
his dealings with the Chinese Government.
Mr. CLAYTON. I would just like to say, on the question of personnel,
that one of the things that impressed me particularly about Mr.
McCabe's administration of his job and handling of it, was his ability
to surround himself with very able men. I n a job that was thankless,
a liquidation job. I was greatly impressed with that.
H e did surround himself with a group of very able businessmen and
lawyers, one or two lawyers and several businessmen.
Senator ROBERTSON. H e refers to the employment of Mr. William
Knowlson of Chicago.



66

CONFIRMATION OF T H O M A S B. McCABE

Mr. CLAYTON-. J i m Knowlson.

Senator ROBERTSON. Who has a summer home only 45 miles from
where I live.
Mr. CLAYTON. Yes.
The CHAIRMAN. That
Senator ROBERTSON. I

will not hurt his testimony any.
want to say Mr. Knowlson is an outstanding
businessman and he is a man that Mr. McCabe had every reason to rely
on, because I have known Mr. Knowlson myself for a number of years.
The CHAIRMAN. I might say for the benefit of the Senator that I
wish he would withhold his judgment until he hears the testimony
of other witnesses produced in rebuttal.
Senator FULBRIGHT. I n your association with Mr. McCabe, Mr. Clayton, did you form any views about his knowledge of the Federal Re' serve Banking System ?
Mr. CLAYTON. Well
Senator FULBRIGHT. That is the job he has been nominated for.
Mr. CLAYTON. Senator Fulbright, Mr. McCabe has been chairman
of the Federal Reserve bank for a long time in Philadelphia. H e is a
successful businessman, and I have felt that he would be certainly
competent to hold the job as chairman of the Federal Reserve Board.
Senator FULBRIGHT. YOU have no knowledge of any particular fitness
of his for that function of one kind or another ?
Mr. CLAYTON. No, sir; but I have worked pretty intently with Mr.
McCabe since 1940. We both came here about the same time, when
France fell in the summer of 1940.
I have worked pretty intently with him throughout the war, so I
have had an opportunity, I think, to form a good judgment of his
ability and his character and the man as a whole.
I have the greatest respect for him as a man, as a businessman, and as
an able, patriotic citizen.
Senator ROBERTSON. I S he a member of the Advisory Committee of
the Department of Commerce ?
Mr. CLAYTON. Business Advisory Committee of the Department of
Commerce.
Senator ROBERTSON. H e is what?
Mr. CLAYTON. He is a past chairman. He was chairman of the
Business Advisory Council.
Senator ROBERTSON. Who picks the members of that Advisory
Council ?
Mr. CLAYTON. They have a small membership group of the council
who picks them.
Senator ROBERTSON. Is it composed of what are supposed to be the
outstanding businessmen of the country ?
Mr.

CLAYTON. Yes;

it

is.

The CHAIRMAN. Were you one of the men, Mr. Clayton, who recommended the gentleman for the position he has been nominated to?
Mr. CLAYTON. Yes, Senator Tobey; I was asked about it.
The CHAIRMAN. Who asked you about it ?
Mr. CLAYTON. Must I answer that question?
The CHAIRMAN. 1 would like to have you answer it. There is
nothing secret about it, is there?
Mr. CLAYTON. I do not know that there is. The Secretary of the
Treasury asked me.
The CHAIRMAN. Mr. Snyder?



CONFIRMATION OF THOMAS B. McCABE

67

Mr. CLAYTON. Yes.
The CHAIRMAN. D O

you think Mr. Snyder was one of the major
geniuses who suggested the gentleman to the President ?
Mr. CLAYTON. I do not know.
The CHAIRMAN. Mr. Snyder asked you about it.
Mr. CLAYTON. He knew I had been very closely associated with
him.
The CHAIRMAN. Did he say to you he was going to suggest him to
the President ?
Mr. CLAYTON. N O ; he just asked me about Mr. McCabe, among
several others.
The CHAIRMAN. Thank you very much.
Senator Sparkman, did you have a question ?
Senator SPARKMAN. Mr. Chairman, I wanted to ask somewhat along
the line that Senator Fulbright started.
I do not believe he got through with what he was going to ask.
Senator FTJLBRIGIIT. I think he practically finished with my point.
You are quite willing to recommend him as a man of fine character
and integrity, but you really don't know whether he has had much
experience in the banking system ?
Mr. CLAYTON. NO. I only know that he has served as chairman
of the Federal Reserve Bank of Philadelphia.
Senator FULBRIGHT. That is not engaging in the active management
of the bank ?
Mr. CLAYTON. I think that is right.
Senator FULBRIGHT. He is primarily a fine businessman, as I understand your testimony.
Mr.

CLAYTON.

Yes.

Senator FULBRIGHT. That is all.
Senator SPARKMAN. Mr. Clayton, you have been in business a great
many years yourself?
Mr. CLAYTON. Yes.
Senator SPARKMAN.

During the 8 years that you have been associated with Mr. McCabe, you have seen him engaged in business transactions, business negotiations?
Mr. CLAYTON. Yes.
Senator SPARKMAN. YOU

have been impressed with his general
knowledge of business matters and his ability and his character and
his integrity ?
Mr. CLAYTON. I have, sir.
Senator SPARKMAN. And based upon that, you have no hesitancy
in recommending his confirmation?
Mr. CLAYTON. Yes; that is right.
Senator SPARKMAN. All right.
The CHAIRMAN. NOW, Mr. McCabe, kindly, there is a decision to
be made. I see Mr. Patterson sitting over there. I know he is a busy
man and an important man. The Senate is in session. We are not
legally sitting in session until we get permission to sit in session
after 12 o'clock.
To be perfectly frank, as one fellow to another, would it handicap
you—I know you want to go back to New York—if we put you on as
the first witness at 2:30? You have to eat somewhere. Would it
handicap you materially if you did not come on until 2:30 ?



68

CONFIRMATION OP T H O M A S B. McCABE

Mr. PATTERSON. I have an unbreakable appointment for 3:30 here
in the Senate. But I will be through before that.
The CHAIRMAN. If it meets with your approval and with Mr. McCabe's, this committee will now stand in recess until 2:30 o'clock.
I s that all right, Mr. McCabe?
Mr. MCCABE.

Yes.

(Whereupon the committee recessed at 12:40 p . m. until 2 : 30 p. m.
of the same day.)
AFTER RECESS

(The committee reconvened at 2 : 30 p. m., upon the expiration of
the recess.)
The CHAIRMAN. The committee will come to order.
Mr. Patterson, please. We would be glad to hear from you, sir, in
your own way and your own time.
STATEMENT OF HON. ROBERT P. PATTERSON, FORMER SECRETARY
OF WAR
Mr. PATTERSON. I would like to place on the record my opinion as
to the high character, integrity, and ability of Mr. McCabe—Thomas
McCabe—and particularly my opinion as to the remarkable record he
made as head of the Foreign Liquidation Commission.
I spoke to Mr. McCabe about taking that post in February 1945. I
had known him in 1941 and 1942, when he was deputy to Mr. Stettinius
in the Lend-Lease Administration. I was then Under Secretary of
War, the post I had also in February 1945. I became Secretary of War
in September 1945 and continued as Secretary of W a r until July 1947.
When I had known Mr. McCabe in 1941 and 1942, when he was with
the Lend-Lease Administration, I formed a very high opinion of ,his
capacity and business ability because he reorganized that office and
worked very effectively with the W a r Department in speeding up procedures for getting lend-lease materials actually under way. I knew
that he was Chairman of the Federal Reserve Bank in Philadelphia
and was a successful businessman also in Philadelphia.
When I urged him to take that post in February 1945, I told him
that it was a very difficult post indeed. The war was not yet over,
even in Europe. He said he would take it. He committed himself
for 1 year, but he stayed until September 1946, about a year and a
half—6 months beyond his commitment.
I said a moment ago that we had foreseen that it would be a post of
great difficulty and complexity. If you will bear with me I will point
out in a moment the factors that made that such a difficult post.
We had in the Army and in the Navy overseas equipment running
into the billions that became surplus as hostilities ceased, first to
Europe and then to the Pacific. H e had to build his organization from
scratch. He came at a time when most civilians in the war agencies
were leaving. The war was seen to be drawing to its close and the
trend was all out of AYashington. I felt particularly indebted to
Mr. McCabe for coming in at the time when the current was running
the other way.
The CHAIRMAN. A S an anticlimax.
Mr. PATTERSON. I thought it was a remarkable display of public
spirit and patriotism.



CONFIRMATION OF T H O M A S B. McCABE

69

H e had the same difficulty in recruiting his staff, the current all
running out of Washington, with men leaving to attend to their own
private affairs. But he did recruit his staff and I thought did a very
remarkable job at getting the men of such ability and efficiency as he
got. I think the name of James S. Knowlson was mentioned this
morning.
I know Mr. Knowlson very well. H e went over to Paris to be the
field commissioner for Mr. McCabe over there. He had a great many
men of that type that he was able, by strong personal effort, to recruit. H e spent months at the job of building up his organization
and recruiting. He impressed me with his executive ability, and his
organizing ability.
Then we had, in the fall of 1945, some difficulties due to the fact—
I guess it was the summer of 1945—difficulties due to the fact that the
Foreign Economic Administration which then had charge of the
lend-lease program was more or less in competition with Mr. McCabe
and the Army-Navy Liquidation Commission. H e had surplus goods
over in Europe—Army and Navy surplus, used goods—and at that
time the Office of Lend-Lease and the Foreign Economic Administration had competing programs. Foreign countries were over here
trying to get stuff on lend-lease for postwar purposes, on what they
called cash. I t was not cash; it was credit. They were supposed to
pay, but they had a lot of credit there.
I discussed that very often with Mr. McCabe. I t seemed to me that
the two organizations had to be put together to stop this business of
representatives of foreign countries ringing different doorbells around
Washington and trying to make different trades with them, more or
less in competition with one another.
The upshot of that was that the Army-Navy Liquidation Commission was transferred over to the State Department—wisely, I think—•
and the Office of Lend-Lease Administration was taken from F E A
and put there, too. I think at that time the Foreign Economic Administration began to liquidate and close its doors.
Mr. McCabe was then transferred over to the State Department in
charge of what we called the Office of Foreign Liquidation Commission. A third factor that made it very difficult, after the Japanese
surrender, was the great pressure put on his Office for rapid settlements so as to get the soldiers home, particularly in the Pacific. The
carrying of property there resulted in rapid deterioration, especially
in the tropical lands of the Pacific.
I t was also the heavy overhead in maintenance and care of the
property, troop pay, troop maintenance, and the severe pressure that
the War Department was under here to demobilize and get the soldiers
home. Those factors I brought to the attention of Mr. McCabe, and
pressed him all the time for rapid liquidation to dispose of the property as promptly as possible.
Take the case of Iran. We were bound by treaty there to get out of
I r a n at a certain fixed date. I think it was March or April, or something like that, of 1946. We even had to send General Connolly over
there as a special man to get us out. We had to furnish ships to take
up any remnants that might be there. We had a deadline we had
to get out of there.
India was another case. I pressed the Office of Foreign Liquidation as hard as I could to close out in India—close up shop so that all



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CONFIRMATION OF T H O M A S B. McCABE

military personnel could get out of India. We not only had the pressure of getting the soldiers home from there; we were advised by
military intelligence at the time that civil strife would break out in
India and that both factions would try to get control of the supplies
that we still had there, and our troops would get embroiled in the civil
strife in India between the two rival factions there.
Mr. McCabe cooperated thoroughly and effectively. He kept the
post until September 1946 which, as I say, was months over his engagement.
Roughly, using round numbers, he took declarations of surplus of
A r m y and Navy, of a cost figure—original cost figure—of around
7y2 billion dollars. During his time in office he disposed of about
$6,000,000,000 of that, or about four-fifths of it. And he realized
on that, my recollection is, around a billion and a half dollars—somewhere between 20 and 25 percent of original cost. I thought that a remarkably good record under all of the conditions.
When he left I gave him as warm commendations as I possibly
could, being very deeply impressed with the excellence of the job
done, and with the ability, the foresight, and the executive capacity
that he had displayed in handling that task. I thought it as good
a job as had been done by any of the agencies in war and postwar
days—the job that he had turned in as head of the Office of Foreign
Liquidation Commission.
Senator BUCK. May I ask a question ?
The CHAIRMAN. Certainly.
Senator B U C K . Mr. Patterson, did you appoint Mr. McCabe Foreign Liquidation Commissioner?
Mr. PATTERSON. I either appointed him or I induced Mr. James
F . Byrnes to appoint him. I take the responsibility for inducing him
to take the post.
Senator B U C K . YOU must have discussed the matter with him.
Mr. PATTERSON. Yes; I did discuss it with him.
Senator B U C K . Did you have any trouble
Mr. PATTERSON. I t was at my instance and due to my urgent pleas
that he took the post.
Senator B U C K . Was he reluctant to take it ?
Mr. PATTERSON. I think he was, a little. But when I explained the
importance of it, and the urgency of it, as a matter of public importance, he said readily enough he would take it. I think he was reluctant t o ; yes. But he took it.
I thought it was a very patriotic service and I still think so.
Senator B U C K . I cannot think of a more distasteful job.
Mr. PATTERSON. I think he had no illusions at all as to the difficulties of the post. I had none. Although they turned out, the difficulties turned out, to be greater than I had foreseen, that was due
largely to this rush to demobilize, the impact of which he felt in his
post.
Senator BRICKER. Mr. Chairman, I have one question.
You heard the discussions this morning, Mr. Secretary, about the
surplus aircraft that were dismantled for war purposes, and "part
of them had the tails cut off," I think was the expression used. That
was done at the orders of the A r m y ?




CONFIRMATION OP T H O M A S B. McCABE

71

Mr. PATTERSON. I believe so. I think that the policy was to demilitarize the planes so that they could be used only for scrap—the
planes overseas.
Senator BRICKER. Were those planes, the particular ones, B-25's?
Mr. PATTERSON. I believe so.

Senator BRICKER. Were they at that time usable or useful for
military purposes?
Mr. PATTERSON. I t would be for military purposes. They were
medium bombers. They would not be for commercial purposes.
Senator BRICKER. Are they being used now by the United States
Army, do you know ?
Mr. PATTERSON. I think they are, in small numbers.
Senator BRICKER. Would they have been valuable to our services
here in this country?
Mr. PATTERSON. N O . W e had plenty here.
Senator BRICKER. There are plenty of them now?
Mr. PATTERSON. Yes.
Senator BRICKER. They were really
Mr. PATTERSON. They were indeed.

surplus in the true sense?
And so declared by the W a r

Department.
Of course, Mr. McCabe's job was simply to take what the Army or
Navy declared surplus.
Senator BRICKER. And he had nothing at all to do with the demilitarization of them or cutting off the tails?
Mr. PATTERSON. No, sir. H e did not. H e had nothing to do with
the decision as to whether they should be surplus or not. As we declared things surplus, dropped them into his lap
Senator BRICKER. Then it was his job to dispose of them?
Mr. PATTERSON. Yes, sir.

Right.

The CHAIRMAN. Suppose Mr. McCabe had realized that the round
figure of 500 planes that the Army had acted negligently and foolishly in declaring about 500 planes surplus that were not surplus
and were able to be used, would it have been within his province
to write to you as Secretary of W a r or to your subordinates and say,
"This is a peculiar ruling, Mr. Secretary of W a r ; these planes can
be used. What is the use of calling them surplus? They can be
sold; they can be used." Would that have been within his purview
to do that?
Mr. PATTERSON. No, sir. I do not think so.
The CHAIRMAN. Why not ?

Mr. PATTERSON. I t was up to him to take the Army's word for it.
The CHAIRMAN. "Theirs not to reason w h y ; theirs but to do or
die." The Army said so, "Thus saith the Lord." Could not a man
in his position question the Army?
Mr. PATTERSON. H e could, I suppose.
The CHAIRMAN. Would his head come off, or what would be the
trouble?
Mr. PATTERSON. That was not in his province.
The CHAIRMAN. A S an American citizen would it not have been
his job to catch a gross mistake?
Mr. PATTERSON. I do not think a gross mistake was made.
The CHAIRMAN. Here were planes usable, sold to Chinese enterprises according to sworn testimony.



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CONFIRMATION OF THOMAS B. McCABE

Mr. PATTERSON. Sold as junk.
The CHAIRMAN. They were usable and after they had been used
then they cut the tails off after that. Why did they cut the tails off ?
Mr. PATTERSON. I suppose to comply with the Army rule that they
should not be usable as flying planes.
The CHAIRMAN. A n d we were supplying China with planes, to
combat the Communist menace at that time ?
Mr. PATTERSON. Not then, I think.
The CHAIRMAN. H O W close a time to that ? H a d that not been the
policy of this Government for 2 years past ?
Mr. PATTERSON. I do not think so. Let us see; General Marshall
went out there as special representative in December 1945, I believe.
And he was still there all of 1946. I do not think we were furnishing them any military equipment at that time. I do not think so,
Senator.
The CHAIRMAN. I may be wrong.
I n a statement of a gentleman before us, on confirmation or rejection of Mr. McCabe, he said:
In this case the Army had removed the guns from the aircraft and had apparently assumed that that was adequate demilitarization. However, when the
suggestion was made in the Chinese press that these aircraft might be used
as combat aircraft by the Chinese Army, immediate action was taken to demilitarize them completely by rendering them unflyable.

I suppose that was by cutting the tails off. Was that your understanding ?
Mr. PATTERSON. I suppose so. I knew nothing of that instance.
The CHAIRMAN. Did you know General Johnson ?
Mr. PATTERSON. I do not think I ever heard of him before. There
were many Generals Johnson in the Army.
The CHAIRMAN. There was a play once, "Too Many Johnsons."
T h a t may be the case here. B u t let me say that I do not expect you
in your capacity to know all the generals, because their names are
legion, of course.
But he stands out in this particular situation by the testimony
given by reputable agents of Mr. McCabe's own department, and so
naturally I raised the question.
Mr. PATTERSON. I do not think I know him.
Senator C A I N . May I ask a question?

The CHAIRMAN. Yes, Mr. Cain.
Senator CAIN. Judge Patterson, is the very high opinion you hold
of the job that was done by Mr. McCabe, based largely on your personal respect for Mr. McCabe, or partly for that reason, and partly
because you were pretty thoroughly familiar with the substance and
details of the job which Mr. McCabe was undertaking?
Mr. PATTERSON. Both factors, Senator Cain. I had a very high
opinion of him when he took the post at my request. And I had
contacts with him, I suppose, several times a week, all the time that
he was in office.
And that enhanced my opinion, and I was certain we had made no
mistake in selecting him for that post and inducing him to take it.
Senator CAIN. YOU had a continuing opportunity to watch his work.
Mr. PATTERSON. I would say several times a week. I would exclude




CONFIRMATION OF THOMAS B. McCABE

73

the times he was overseas, making trips. H e went a number of times
overseas, in connection with the discharge of his duties.
Senator C A I N . But these continuing meetings with you and Mr.
McCabe gave you a singularly good opportunity to watch the development of the disposition job?
Mr. PATTERSON. I thought he did a remarkable job, as I said, starting from scratch. I do not know of a better job in Washington.
Senator CAIN. T h a n k you, sir.

Senator MATBANK. Mr. Secretary, I would like to ask you this
question. Was it not in 1945 or 1946 that you made the trip around
the world, as I remember, including Japan, and was it at that time
that you saw such great pressure to move the boys back home, so to
speak ?
Mr. PATTERSON. Yes.
Senator MATBANK. And
Mr. PATTERSON. Yes. I

to abandon those islands %
went to all island overseas areas in December 1945 and January 1946 and there was enormous pressure at
that time to get the soldiers home.
Senator MATBANK. A n d to abandon all these installations.
Mr. PATTERSON. Yes. Abandon them all. The pressure back here
was to do that. We could not do that. I t made it all the more
important to dispose of that property in order to expedite and return
the people.
I saw mountains of equipment in Japan, Okinawa, Shanghai, and
the Philippines, and lesser quantities but still plenty, in India, I r a n ,
Egypt, Italy, all areas.
I was heartily in favor of the policy finally pursued by Mr. McCabe,
of bulk sales. We could not possibly have disposed of it in any other
fashion.
The CHAIRMAN. Mr. Patterson, I want to read to you from your
Army Inspector General's report written, I assume, while you were
Secretary of War on the investigation of the condition of the B-25's
made before their destruction by Maj. Eaymond C. Pierce and F i r s t
Lt. Raymond H . Grant. I quote the verbiage:
The actual destruction was accomplished by the request of Lt. Col. John
E. Bell who requested Maj. Howard Detrick AC 0-914872 to mutilate the B-25's
with acetylene torches. Major Detrick asked his supply and transportation
officer, First Lt. Warren E. DeLoch, AC, 711151 who, with three men cut the tails
off those B-25's pointed out by Bell who stated that Mr. Thomas B. McCabe gave
direct instructions to Brig. Gen. B. A. Johnson (retired) in the presence of his
executive officer, Col. Edward Starr, Jr., O-900561 and his legal adviser Charles
H. Kendall that these B-25's be mutilated so that he might counteract the
unfavorable newspaper publicity by issuing a press release. Lieutenant Colonel
Bell said he was then ordered by Mr. Charles H. Kendall, Mr. McCabe's aide, to
carry out Mr. McCabe's wishes.

That is from the Inspector General's report of this instance.
Mr. PATTERSON. I do not know anything about the report, or about
the instance, either.
Mr. McCabe was directing operations of a very far-flung character.
I was myself in the W a r Department at that time. I would hate to
be charged, myself, with every single bit of ill-advised action taken
by Army officers all over the world, without my knowledge.
The CHAIRMAN. I would too. But here are two officers of the Army
who state that Mr. McCabe gave the direct orders to do this to avoid



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CONFIRMATION OF T H O M A S B. McCABB

unfavorable publicity. That is their testimony, in your Inspector
General's report.
Mr. PATTERSON. I would not believe a word of it.
The CHAIRMAN. Then you are indicting your own Inspector General.
Mr. PATTERSON. I do not care about that. I would not believe a
word of it, that he did it to avoid ill-advised publicity, or bad publicity, or whatever it was.
The CHAIRMAN. I only say what is in the Inspector General's
report.
Mr. PATTERSON. That is only quoting some witness or other, I suppose. You could say anything like that.
Senator BRICKER. D O you have any knowledge, Judge Patterson,
about a law enacted in France about the time that you were disposing
of this property, that any property left on French soil and not disposed
of within a year, or a fixed date, should become the property of the
French Government.
Mr. PATTERSON. N O . If I have known it, I have forgotten about it.
Senator BRICKER. Did you hear of any similar laws or attempt of
that kind ?
Mr. PATTERSON. I r a n was a case. That was an instance where we
had a dead line. We just had to get out, had to remove all troops. We
did not want to leave any property lying around there without any
personnel to watch it. So we just had to get everything out of there.
Senator BRICKER. I have not checked that at all. But one of the
disposal officers in France told me of such an enactment.
Mr. PATTERSON. I would not be surprised. We were under pressures like that in all places. My interest being to get military personnel overseas consolidated, into our forces of occupation, Germany,
J a p a n , Korea, I was doing everything I could to close out the minor
theaters.
One of the jobs I had when I visited all the Army areas at that time
was to turn the heat on the local commanders to get their Army personnel out, out of India, out of Egypt, out of Iran, all over. So that
the men could either be discharged out of the Army or else, if they were
low-score men, sent to the more active theaters. That made difficulties
for Mr. McCabe, no question about that.
Senator BRICKER. I was told that this also held up any possibility
of sale to individuals of the property that was left in France. If they
knew where it was they inspected it, and nobody would offer a bid on
it because they knew ultimately it would be sold in bulk to the French
Government, or ultimately they would take it over.
Mr. PATTERSON. That was substantially the situation, unquestionably, and was a major factor in inducing us to launch the policy of
bulk sales to the government involved.
The CHAIRMAN. Any other questions of the former Secretary and
judge?
Mr. PATTERSON. Also former judge.
The CHAIRMAN. Once a judge, always a judge.
Thank you for coming, Judge.
Mr. PATTERSON. Thank you.
The CHAIRMAN. I S Mr. Walter B. Schleiter here?
Your name is Mr. Walter B. Schleiter 2




CONFIRMATION OF T H O M A S B. McCABE

75

TESTIMONY OF WALTER B. SCHLEITER, VICE PRESIDENT OF
MULLER PHIPPS ASIA, LTD., NEW YORK, N. Y.
Mr. SCHLEITEE. Yes, sir.
The CHAIRMAN. Do you solemnly

swear that the testimony that you
are about to give in the matter pending before this committee shall be
the truth, the whole truth, and nothing but the truth, so help you God ?
Mr. SCHLEITER. I do.
The CHAIRMAN. And your present address ?
Mr. SCHLEITER. My address is 116 East Sixty-eighth

Street, NewYork City.
The CHAIRMAN. What is your present business ?
Mr. SCHLEITER. I am vice president of Muller Phipps Asia, Ltd.,
exporters, of New York.
The CHAIRMAN. Mr. Schleiter, will you tell us something of
Senator BRICKER. I did not get the last answer.
Mr. SCHLEITER. I am vice president of Muller Phipps Asia, Ltd., a
New York export firm, in New York City.
The CHAIRMAN. Mr. Schleiter, will you kindly tell us something
about your work in India, your background there'(
Mr. SCHLEITER. I lived there 16 or 17 years as managing director
of our Indian subsidiary company. We were sales agents for various
American and a number of British manufacturers in that territory.
The CHAIRMAN. You said that you were quite familiar with the situation there as to the demand and supply of goods, among Indian
businessmen I
Mr. SCHLEITER. Yes,
The CHAIRMAN. Mr.

sir.

Schleiter, is it not a fact that under your agreement you actually did sell $5,000,000 worth before December 10, 1945,
and is not that an indication that the Indians would buy I
Mr. SCHLEITER. That is a fact, and I think it was a strong indication
that they would buy.
The CHAIRMAN. Mr. McCabe, who is being considered by this committee, stated that it is more than probable that after the best items
had been siphoned off we would be faced by a long drawn out campaign of merchandising the less desirable types of property. W h a t
do you say as to that ?
Mr. SCHLEITER. I think that is entirely probable. I t was my thought
that we would sell as rapidly as possible the more desirable types and
realize as much cash as possible under our agreement, and if necessary, we could abandon the "cats and dogs" and let them go later on.
The CHAIRMAN. Were you aware of the natural desire of the A r m y
to deactivate the India-Burma theater as promptly as possible at the
time it was entered into ?
Mr. SCHLEITER. Very much so. I heard General Hill, who was the
head of the Transportation Section of the Army in India, tell that
story on a number of occasions. To the best of my recollection there
were 250,000 men in India on VJ-day and the maximum rate of evacuation was 30- to 35,000 per month. So that it did not seem to me possible
that by the most rapid means they could get the men out of there until
May or June of 1946.
The CHAIRMAN. Was it your plan of operations, and your business
intelligence and acumen that the thing to do would be to sell the more
desirable goods and then the balance in bulk sale ?



76

CONFIRMATION OF THOMAS B. McCABE

Mr. SCHLEITER. We considered that. We wanted, however, to have
a true bulk sale if it was possible to do so; that is, with an exact inventory, a definite price for the different items, and agree upon a sales
contract.
I would like to say at this moment, if I may, that I came here under
your express instructions from St. Louis, breaking a business trip to
come here, and I came with some reluctance because I worked with
Mr. McCabe, I was very grateful to him for the opportunity he gave
me. I think we always got on quite well, with the exception of certain details of this India deal.
I have great respect for him and when at his invitation I listened to
a broadcast at the time of his resignation I congratulated him after
I heard this summary, on what I thought was an over-all job very well
done.
The CHAIRMAN. I S it your opinion that a much higher rate of return
would thus have been obtained over your agreement, Mr. Schleiter?
Mr. SCHLEITER. That is my opinion. An opinion can always be
argued in the light of afterthought. But I still think so, after seeing
the rate at which goods were being sold during the brief period that
that agreement of ours was in existence.
The CHAIRMAN. NOW, as Central Field Commissioner for the IndiaBurma theater, were you consulted about the change of policy in cancellation of your agreement in favor of the bulk sale to India?
Mr. SCHLEITER. 1 did not know about it until I came back here in
December 1945.
The CHAIRMAN. S O you had arranged for the bulk sale on advantageous terms in comparison to what happened later, in bulk to India,
and then you came back here and found that had been canceled ? Is
that right ?
Mr. SCHLEITER. I had arranged an agreement whereby sales would
be made to individuals, and then I found that it was turned into a
bulk-sale agreement.
The CHAIRMAN. So your work went for naught. I s that right?
Mr. SCHLEITER. I suppose so.

The

CHAIRMAN.

Mr. McCabe stated:

That although cash in the sense of India rupees, questions as to the time, method,
and rate of conversion of these rupees into United States currency, or to the
property were left unsettled.

Is that right ?
Mr. SCHLEITER. These were left unsettled because that was completely out of my jurisdiction or province. The Government of India,
as such, at that time had no dollars; they were all controlled in Britain.
So necessarily any deal that we made was for local currency and the
determination of that local currency would have to be the function
of the United States Treasury.
The CHAIRMAN. What bearing has this on the matter of our percentage of return for the goods?
Mr. SCHLEITER. I do not know that I quite understand the question,
Senator.
The CHAIRMAN. YOU just said that we took these Indian rupees and
left that matter as to property unsettled. Of course, rupees were an
uncertain factor, were they not, as to what we would eventually obtain
from that sale under the form you put through. What is your judgment?



CONFIRMATION OF THOMAS B. McCABE

77

Mr. Sen LETTER. My theory was that it was better to have cash of
some kind rather than no cash at all, and a nebulous agreement, which
the bulk agreement was.
The CHAIRMAN. Mr. McCabe stated on page 14 of his testimony:
A categorical assertion that it assured to the "United States any given return
for its surplus property or that the return under it would have been more favorable
than would be the case under an agreement where the amount has not yet been
decided on.

Does that make sense to you ?
Mr. SCHLEITER. I asked General Keeder who, at the time I was in
India, was the head of G-4, what supplies the United States Army
had in India, and he said he had no idea of the dollar value, but
they had 1,000,000 tons. T h e accepted opinion of the Army was
that that amount of supplies was worth approximately $650 a ton.
I certainly felt that a reasonable estimate would be two or three hundred million dollars, a reasonable estimate of the amount of return
that we could get for those goods if they were sold in an orderly
manner to individual purchasers.
The CHAIRMAN. That is the figure, $300,000,000 that you accuse
Sir Archibald Kowlands of stealing from you, facetiously %
Mr. SCHLEITER. That was more or less humorous.
The CHAIRMAN. But it is a grim joke, accusing a man of stealing
$300,000,000 from you.
Mr. SCHLEITER. That is what I had thought he had done. And he
more or less admitted it, Senator.
The CHAIRMAN. Did he^
Mr. SCHLEITER. H e did.
The CHAIRMAN. Did he pay for the lunch ?
Mr. SCHLEITER. H e paid for the drink.
The CHAIRMAN. On page 14 of Mr. McCabe's

statement, he said:

Within a very few months it became necessary to evaculate our troops from
Indian in very short order.

Mr. McCabe then explained that the timetable for evacuation had
to be followed. Was the evacuation timetable taken into consideration by you in entering into the agreement %
Mr. SCHLEITER. Yes, sir; I think I have already answered that
question.
The CHAIRMAN. Pardon me.
You do not feel that it was impossible, in 6 months, that you could
have sold $200,000,000 worth of«cream, do you?
Mr. SCHLEITER. I felt reasonably certain that we could, based on
my personal experience in India, and the hundreds and hundreds of
letters and personal inquiries with which I had been deluged during
the short period I was in Delhi and for the year 1945.
The CHAIRMAN. Any questions of Mr. Schleiter ?

Senator MAYBANK. I would like to ask him a question.
The CHAIRMAN. Senator Maybank.
Senator MAYBANK. You made a statement that you had sold approximately $5,000,000 worth of goods.
Mr. SCHLEITER. That is right.
Senator MATBANK. That was not in dollars, was it ?
Mr. SCHLEITER. N O , sir. That was rupee equivalent of dollars.
Senator MAYBANK. You made the statement that any agreement you
made could not be an agreement so far as dollars were concerned be73055—48——6



78

CONFIRMATION OF T H O M A S B. McCABE

cause the British, as we know, controlled the rupee, therefore you had
no agreement as far as dollars were concerned.
Mr. SCHLEITER. That is right.
The CHAIRMAN. A n y other questions, gentlemen ?
Senator C A I N . I should like to ask a question.
During the course of Senator Tobey's questioning he used the phrase
"so all your work went for naught." Your response was " I suppose
so." Would you explain precisely what you meant by that?
Mr. SCHLEITER. Yes. A good deal of my work which Mr. McCabe
has always given me credit for, in various communications of his that
I have seen, was the negotiation with the Government of India of
an agreement which permitted us to handle our surpluses. So that was
of some value, I think you will agree, and that therefore I could not
.say that the work had gone completely at naught.
Senator C A I N . YOU had done a considerable amount of work to Mr.
McCabe's satisfaction, and then you came back to this country to find
that a policy decision had changed the course of your work. What
was your reaction in working for those on a higher level when you
determined that they had seen fit to change the policy without discussing it with you ?
Mr. SCHLEITER. Well, my main reaction was that it was a mistake
that would reflect no credit on the Foreign Liquidation Commission.
I did not care personally because I had my own business to go back to,
and my agreement with Mr. McCabe was that I would go back in the
maximum period of 6 months from the time I joined the Liquidation
Commission.
Senator CAIN. H a d there been other instances during the course of
your work where your superior had laid down policy decisions covering your endeavors without first discussing it with you ?
Mr. SCHLEITER. Not that I am aware of.
Senator BRICKER. YOU are a civilian employee ?
Mr. SCHLEITER. That is right.
Senator BRICKER. Under Mr. McCabe?
Mr. SCHLEITER. T h a t is right.
Senator BRICKER. YOU are not connected with the Army, as such,
in any way ?
Mr. SCHLEITER. I was an employee of the Army, I believe. I had
an A G O card, a green card, but I was a civilian employee.
Senator BRICKER. T h a t was for convenience in your conduct of
sales ?
Mr. SCHLEITER. S O T understand.

Senator BRICKER. W h a t export products are you engaged in handling now ?
Mr. SCHLEITER. We have quite a wide range. Products like the
Quaker Oats Co., H . J . Heinz Co., Gillette Co., General Foods, and a
number of very large lists of products of top-flight American manufacturers.
Senator BRICKER. That had been your business likewise before you
became connected with the W a r Assets disposal program.
Mr. SCHLEITER. That is right. I was on leave of absence to do
this job.
Senator C A I N . Have you an opinion, Mr. Schleiter, as to how long
it would have taken you t o dispose of some two or three hundred, or
a million tons of surplus property through individual sales ?



CONFIRMATION OF T H O M A S B. McCABB

79

Mr. SCHLEITER. All I can say about that is that I strongly felt that
we could sell, minimum, $200,000,000, long before the remainder of
the goods became an embarrassment to the evacuation program of the
Army. So that it would have been all right to abandon the rest, which
would not have been of a great deal of value anyway.
The CHAIRMAN. Mr. Maybank?
Senator MAYBANK. T O get back to $200,000,000, this is the point
that I want to get clear on. You still say that that $200,000,000 that
we are talking of, if you had sold it, it would have been sold in
rupees ?
Mr. SCHLEITER. Yes, sir.
Senator MAYBANK. And

the British Government set the price on
them?
Mr. SCHLEITER. No; we set the price on that.
Senator MAYBANK. I am talking about the value of the rupee in
exchange for the dollar.
Mr. SCHLEITER. I do not know whether the British Government
set that price.
Senator MAYBANK. The Treasury Department. So whatever the
money would have been in dollars would have been whatever was
decided by the Treasury and the British Government ?
Mr. SCHLEITER. Yes, sir.
Senator MAYBANK. Long

before the war the rupee was not worth
very much, was it ?
Mr. SCHLEITER, The rupee was fixed to the pound sterling ever
since I remember, and my memory goes back 20 years.
Senator MAYBANK. But it fluctuated quite extensively prior to
that.
Mr. SCHLEITER. Only as the pound sterling fluctuated.
Senator MAYBANK. Of course, it did. That is what prevented the
barter agreement with Germany prior to the war.
Mr. SCHLEITER. I am not aware of anything about barter arrangements with Germany.
Senator MAYBANK. YOU know that they did a lot of bartering. You
would not say they did not barter, would you ? Marks against rupees,
and so forth, and so on.
Mr. SCHLEITER. I do not believe the Germans tried with India very
considerably except on an item that I know a good deal about, and
that was razor blades.
Senator MAYBANK. What about cotton and jute?
Mr. SCHLEITER. That is not my business.
Senator MAYBANK. That was there. Whatever dollars you got for
this, or whatever' dollars you were going to get for it were not actual
dollars, whether they be from private firms or bulk sales themselves.
But the money had to be determined later on on an exchange basis
from dollars through the Treasury Department, pounds sterling, and
the British Government.
Mr. SCHLEITER. Yes, sir.
The CHAIRMAN. The fact

remains however, that what we were going
to get was $200,000,000 value in rupees?
Mr. SCHLEITER. That is right. A t the going rate of rupees.
Senator MAYBANK. Did you say the going rate ?
Mr. SCHLEITER. Going rate of rupees.



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CONFIRMATION OF T H O M A S B . McCABE

Senator MAYBANK. Did the Treasury and the British Government
agree to that ?
Mr. SCHLEITER. The Treasury did. The Treasury agreed to this
agreement before it could be ratified.
Senator MAYBANK. They did not agree to it.
Mr. SCHLEITER. I beg your pardon ?
Senator MAYBANK. The Treasury did not agree to the present rate
if they did not agree to go along with your agreement.
Mr. SCHLEITER. All I know is that the Treasury was well aware, was
made aware by Mr. McCabe's office here in Washington, of the details
of the agreement which included acceptance of rupees and the question of dollars to be determined later on.
Senator MAYBANK. But they did agree to that ?
Mr. SCHLEITER. Yes.
Senator MAYBANK. The Treasury
Mr. SCHLEITER. That is what I am
The CHAIRMAN. Then we having

did.
informed.
made the arrangement that you
made as to the sale of goods, yo'u came back here after that and you
found this had been canceled and it had been sold in different form?
Mr. SCHLEITER.

Yes.

The CHAIRMAN. Mr. Robertson ?

Senator ROBERTSON. I S it true that the Army did move its troops
out ,of India as soon after the war was over as possible ?
Mr. SCHLEITER. We made every possible effort to move them as
rapidly as we could.
Senator ROBERTSON. Suppose you had stayed in India, and you
were in charge, and the Army moved all its personnel out, how would
you handle it then ?
Mr. SCHLEITER. I tried to make plain that I do not think the entire
million tons could have been sold on that proposed basis for a very
long period. I think that the cream could have been sold rapidly
so that when it became a problem to guard the remainder of the surplus, a deal could have been entered into with the Government
of India for a very low price for what was left, or for outright
abandonment.
Senator ROBERTSON. Then it is a question of judgment plus a large
element of speculation.
Mr. SCHLEITER. I suppose it is a question of judgment.
Senator ROBERTSON. You could not handle a million tons over there
without any Army personnel, could you ?
Mr. SCHLEITER. N O , sir.
Senator ROBERTSON. Certainly

not. And if you were there, and
you got orders that we are taking the personnel out, you would have
to move fast, would you not?
Mr. SCHLEITER. Yes.
Senator ROBERTSON. That is
The CHAIRMAN. The point,

all.
Mr. Robertson, before you came in, is
t h i s : The witness testified that he could have sold $200,000,00 worth
of the cream of this stuff that belongs to the American taxpayers,
forthrightly, readily, pronto, and then left a lot of junk which could
then be cleaned up in what is called a rummage sale.
Is t h a t the size of it ?
Mr. SCHLEITER. Yes,
Senator ROBERTSON.



sir.

I was here when he started.

CONFIRMATION OF T H O M A S B. McCABE

81

The CHAIRMAN. YOU recall that testimony, do' you not ?
Senator ROBERTSON. H e said he sold $300,000,000 and if he could
have handled it the way he wanted to, he could have got it up
The CHAIRMAN. I S there any question in your mind that the witness
wants to get over to this committee that if he had carried through
the plan he had made, and had been allowed to, and had not been
knocked on the head after he got back- here, that he would have sold
$200,000,000 worth of cream very readily in a short time, long before
evacuation, and that when evacuation came there would have been a lot
of junk on hand that he could have sold in lump formation in a rummage sale ?
Senator ROBERTSON. NO, sir.

The CHAIRMAN. That is his testimony. H e just said that was his
testimony.
Senator ROBERTSON. H e said that was at that time his best guess on
the subject, but he could not establish it, and he did not know how
long he was going to be there; he did not know how many rupees they
h a d ; he did not know for how much they could change the rupees into
dollars, and at the time he left there it was his judgment that it might
have worked out; and that is all he did say.
The CHAIRMAN. That is what he was sent over for in the first place,
after 16 years of living in India and knowing business conditions.
Senator ROBERTSON. I will say it is my best judgment.
The CHAIRMAN. And knowing the program in detail.
Senator ROBERTSON. We might inquire of Mr. McCabe's viewpoint
about whether he plans any major reversal of policies of the Federal
Reserve Board, but we are wasting time on issues of the rupees and
what happened in India.
The CHAIRMAN. Of course, whether we are wasting time or not is a
matter of opinion. Mr. McCabe is before us. Three United States
Senators said, "Go into it fully. I t is worth going into. You will be
amazed at what you find." That is just what we propose to do.
Wo have witnesses, businessmen in charge of these operations, before
us for examination. I t is not very long. I t is not endurance. I think
the testimony is germane. The chairman so rules.
Any questions ?
Senator C A I N . How many months after you started to dispose of this
surplus property did the American troops remain in India ?
Mr. SCHLEITER. I left, in December 1945, and I do not know how long
they remained after that.
Senator CAIN. Perhaps Mr. McCabe has an answer.
Mr. MCCABE. My recollection is it was May.
Senator CAIN. What?
Mr. MCCABE. May 1946.
Senator C A I N . H O W many

months would that have been from the
beginning of the program until the troops were withdrawn?
Mr. SCHLEITER. Approximately 8.

Senator CAIN. Eight months?
Mr. SCHLEITER. Yes, sir.
Senator C A I N . YOU were

of the opinion that in 8 months, through
individual sales, you could have sold $200,000,000 worth of merchandise ?
Mr. SCHLEITER. Yes.
Senator MAYBANK. F o r rupees ?



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CONFIRMATION OF T H O M A S B . McCABE

Senator CAIN. I understand that.
But you yourself were not in active charge in that operation for
8 months because the policy was changed somewhere after it had
just gotten started.
Mr. SCHLEITEH. That is right.
The CHAIRMAN. A n y other questions?
(No response.)
The CHAIRMAN. Thank you for your kindness.
Mr. SCHLEITER. Thank you.
The CHAIRMAN. Mr. Bruce Smith?
Mr. Smith, will you kindly tell the stenographer your name and
present occupation ?
TESTIMONY OF BRUCE M. SMITH, PRESIDENT OF MAEK L. MOODY
FEDERAL, INC., SHANGHAI, CHINA
Mr. S M I T H . My name is Bruce M. Smith. I am president of Mark
L. Moody Federal, Inc., Shanghai, China. I have been president of
the American Chamber of Commerce for the last 2 years. I am not
now. I was until the end of 1947.
The CHAIRMAN. T h a t is in Shanghai ?
Mr. SMITH. Shanghai, China.
The CHAIRMAN. A r e you acquainted, Mr. Smith, with efforts of
Americans in China to purchase surplus from F L C ?
Mr. SMITH. Yes; to a certain extent I am.
The CHAIRMAN. I n the course of your being in China at the time I
am speaking of now, what were you told of the priority list for F L C
sales in China ?
Mr. S M I T H . I might state that I arrived back in China in February
1946 and at that time the American business community were very
much disturbed by the fact that they were not able to purchase war
surplus materials from W a r Surplus. General Johnson, I think, was
in charge at that time, and the American business community—this is
just before I arrived—had submitted a list of their firm names, and
what they were interested in, in order to try to arrange a fairly large
bulk purchase, because the W a r Surplus said they were not interested
in small retail deals.
I understand that some of the offers were contemplated by the American business community and ran up to about a million dollars on
several items.
I might add that in my own case, I am in the automotive business,
and I needed a lot of equipment because we had been stripped by the
Japanese. I was told that the priorities were first Chinese Government, and then semiofficial Chinese groups, and other groups, and that
the American business people were at the bottom of the list, and that
if I waited for clearance of all the other groups I might be able to buy
something after 6 or 12 months. I could not wait, so I had to order
directly from the United States.
The CHAIRMAN. Some of those goods were on the basis of a milliondollar purchase ?
Mr. S M I T H . I understand certain medical supplies were on the basis
of a million-dollar purchase.
The CHAIRMAN. During the period before September 1, 1946, were
sales made from individual lots to Chinese or others by F L C ?



CONFIRMATION OF T H O M A S B. McCABE

83

Mr. S M I T H . I believe that the Chinese were fairly successful in getting individual lots.
The CHAIRMAN. And were they made to Americans, some of those
sales ?
•
Mr. S M I T H . Americans, a few, but under great difficulty. W e were
somewhat discouraged because of the priority list. As a matter of fact,
I gave up, myself, after I was told what the priority list was.
The CHAIRMAN. D O I understand—and perhaps I am wrong in my
assumption, and you correct me if I am wrong, kindly—the way the
thing worked out was this: I t was sold to the Chinese Government and
then by them sold to the American businessmen ?
Mr. S M I T H . That was the case in a certain number of cases. T h a t
is correct.
The CHAIRMAN. Did you approve of that policy ?
Mr. S M I T H . N O . I think the Americans should have had the first
whack at it.
The CHAIRMAN. One would naturally think so, would you not ?
Mr. S M I T H . That is correct.
The CHAIRMAN. Were United States business interests given an
equal opportunity to purchase these things sold in these lots?
Mr. S M I T H . That is the opinion of the American business community, that they were not given an equal opportunity, that they were not
furnished with lists. The Chinese seemed to have lists of what was
available before we ever heard about them.
The CHAIRMAN. And you as president of the chamber of commerce
in Shanghai would probably know the pulse of the American businessman in China.
Mr. S M I T H . That is right. The worst headache was early in 1946,
before I got there. But I heard plenty of it after I got there.
The CHAIRMAN. Would you be good enough to discuss the bulk sale
in September 1946 and its effect on the United States business interests
there ?
Mr. S M I T H . That bulk-sale proposition, I think, was everybody's
headache, including Mr. McCabe's. We were not in a position as a
group there to take over the whole bulk-sale proposition. There was
too much junk. At the same time we felt that we should have an opportunity to buy what we could use, and resell, or use for our own use.
The CHAIRMAN. Pick and choose.
Mr. S M I T H . Pick and choose; and then the rest would go as bulk.
I believe the surplus, Mr. McCabe's committee felt that they had to
sell the whole thing at once. The proposition was that we would be
somewhat protected by a clause in the agreement that the Chinese
would give us fair treatment as sales to Americans versus Chinese
The CHAIRMAN. For a consideration?
Mr. S M I T H . I do not think we had a chance on that. There was no
way of enforcing it. We who have lived throughout a long time do
not have much confidence in that type of agreement.
The CHAIRMAN. S O the net result is that the Chinese bought these
surplus goods with their business acumen, and turned around and sold
to America citizens who paid for these as p a r t of the taxpayers of the
country at advanced price. I s that correct ?
Mr. S M I T H . That is correct, except that they sold to the Chinese
also.
The CHAIRMAN. But they sold to Americans, too.



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CONFIRMATION OF THOMAS B. McCABE

Mr. S M I T H . Yes.
The CHAIRMAN.

And speaking of the American businessman in
China who wanted to buy these goods, he was barred by the bulk sale,
but the Chinese bought them and turned around and sold them to them
at advanced prices.
Mr_ S M I T H . That is right. We could not buy much out of the
total. But the cream of the surplus, bottled beer and sweet chocolate,
the Chinese got early in the game and did very well on it.
The CHAIRMAN (quoting) :
That for ways that are dark,
And for tricks that are vain.

Mr. S M I T H . That is correct.
The CHAIRMAN. Where could the United States Government get
sound advice for redistribution of aid to China %
Mr. S M I T H . I think they could have gotten it from the one source
they did not try to get it from, and that was right on the spot, from
the American authorities, either the consul general or the American
commercial attache. You have a man out there who has been in China
for 20 years, Mr. Blanhalder. H e really knows his stuff. But he is
very seldom—his recommendations are very seldom followed.
The CHAIRMAN. Was he consulted in this case ?
Mr. S M I T H . I do not know, sir.
The CHAIRMAN. To what extent was this advice that they could have
obtained sought by Mr. McCabe ?
Mr. S M I T H . I think Mr. McCabe came a little late into the picture.
A good part of the damage was done before we knew that Mr. McCabe
was in charge of surplus.
The CHAIRMAN. W h a t were the market conditions in Shanghai in
1946, particularly for surplus goods?
Mr. S M I T H . If you have ever heard of a gold rush boom, that was
it. I t was an intense speculation, with very high prices. You could
sell anything.
The CHAIRMAN. W h a t do the two councils represent in the F a r East
America Council of Commerce and Industry, Inc., and the National
Foreign Trade Council, Inc. ?
Mr. S M I T H . The National Foreign Trade Council is a group of
people interested in foreign businesses. I t is a very old-established
organization in this country and we consider it about the best, I mean
for trying to get facts and putting them before the State Department
and other groups here. The F a r East America Trade Council was
more or less of a social group, to start with, and we have not felt that
it had its feet on the ground to the extent that the National Foreign
Trade Council did, although in the last (5 months, I believe the F a r
East Council has become far more useful to American business people.
The CHAIRMAN. Would you say that these councils representing influential American firms in China, found fault with the one clause in
the bulk-sale agreement that could be interpreted as an attempt to
protect our American interests in China ?
Mr. S M I T H . Would you repeat that, please?
The CHAIRMAN. Would you say that these councils which you just
enumerated, representing influential American firms in China, found
fault with the one clause in the bulk-sale agreement with China?
Mr. S M I T H . I think the National Foreign Trade Council would have
done so. I am not sure about the other.



CONFIRMATION OF THOMAS B. McCABE

85

The CHAIRMAN. A t this point I wish to insert in the record an extract
from page 57 of the Joint Memorandum of the F a r East America Council of Commerce and Industry, Inc., and the National Foreign T r a d e
Council, Inc., which were submitted to the Department of State, J u n e
17,1947.
SURPLUS SALES SITUATION
UNITED STATES GOVERNMENT POLICY

The United States Government, in an attempt to safeguard American interests
operating in China, incorporated in the surplus sales agreement the following
paragraph:
"ARTICLE 4. Distribution.—That China shall utilize to the greatest extent possible established commercial distribution channels for the resale of property sold
hereby and that United States distributors established in China shall have an
equal opportunity to bid for and to obtain such property. That China shall
recognize normal distribution practice including the marketing wherever practicable of name brand products through the established agencies for such products."
Apparently the hope was that the foregoing provision would at least provide an
entering wedge for American business firms, and that what evolved after that
would be largely a matter of the nature and extent of their interest and the
measure of their insistence with regard thereto. However, the extent to which
the Agreement has been implemented and projected in the interests of American
business has been to all intents and purposes practically negligible.
The two councils feel that the surplus-sales program represented an additional opportunity for close cooperation and collaboration as between Government and business in relation to American interest, an opportunity which has
now been lost in the wake of the insistence of the Chinese Government agencies
in establishing such regulatory measures and controls as to make it impossible
for American firms to enter the field profitably on their own behalf. The only
occasion for citing it in this memorandum is in relation to the expressed hope
of the two councils that future developments in China having a bearing on
American trade interest will be worked out in closer collaboration between
Government and business and that business will not be confronted with a fait
accompli with no alternative other than to suffer the consequences no matter
how adverse they may be in relation to private-enterprise interest.
Those are all the questions I have.
Senator B U C K . Do I understand that the testimony t h a t you are
giving is that the things that happened were not to your liking, that
they happened before Mr. McCabe reached China?
Mr. S M I T H . A S far as I understand, most of it was before Mr.
McCabe came to China. When he was there we did object to this final
agreement for the final disposal, where we did not feel we were getting any protection t h a t was worth anything, on equal treatment of
Americans to buy what was still available.
Senator BUCK. You did not think Americans had priority?
Mr. S M I T H . N O . We did not think so because you go out there,
new, and the Chinese can easily convince you t h a t a certain t h i n g will
be done. B u t if you have been there a long time you are very skeptical that they will actually do it, that they have the power to do it.
Senator B U C K . Did j'ou have the power to buy any good amount
of this surplus ?
Mr. S M I T H . Personally, I only had a desire to buy a small amount.
But I do know of American firms there that were interested in fairly
large amounts.
Senator BRICKER. Mr. Chairman?
The CHAIRMAN. Senator Bricker.
Senator BRICKER. W h a t explanation do you have of the fact that
the Americans in charge of the disposal of this surplus property would
favor Chinese over American firms doing business in China?



86

CONFIRMATION OF T H O M A S B. McCABE

Mr. S M I T H . The Chinese were able to take over, to make an agreement to take over the whole lot. Now, we knew there were lots of
junk on the islands and all around which nobody could hope to use,
although recently it has turned out that the Bethlehem Steel Co. were
very much interested in some of the scrap.
Senator BRICKER. You know of no other reason why they would
favor them ?
Mr. S M I T H . N O . Except that if you negotiate any agreement with
the Chinese, they are expert negotiators; they are very smart people,
and they sometimes will lead you to think that a certain thing will be
done from a political or high-level angle and they cannot enforce it
themselves.
Senator BRICKER. D O you know of any such holding out in this
case?
Mr. S M I T H . N O . I do not particularly, except in the case of all these
former F E A lend-lease trucks, 15,000 were bought by the United States
Government to turn over to China for lend-lease and at the time the
war ended only 3,000 had been delivered, about 6,000 in India and 6,000
in the United States unshipped.
The agreement, the consul general, Mr. Davis, was very keen that
we cooperate with the Chinese on disposal as an automotive group, all
companies, all manufacturers get together and market the stuff in an
orderly way. We approached the Chinese as a group, the automotive
group of Americans, mainly Americans, some Chinese, approached
the Chinese Government on these trucks and they said that if we would
guarantee to sell 5,000 of these big ones, in 6 months, that they would
let us have them at cost, but we could only add 5 percent on to the cost
price for profit and expenses.
Well, in the automotive business your overhead is a minimum of 10
percent. We figured we would have to have 10 percent to do it. So
the deal was all off. Later we renegotiated with them on spare parts,
about $80,000,000 worth of spare parts. We wanted to see that the
people who bought the trucks got spare parts at a fair price. We
offered to do it on a 10 percent basis. The Chinese turned it down
again.
I t is very difficult to make an orderly operating arrangement with
the Chinese Government.
The CHAIRMAN. W h y is it difficult to say no to a Chinaman any
more then it is to anybody else ?
Mr. S M I T H . Perhaps they are more persuasive. You can say no,
but they make you think they are going to do it.
The CHAIRMAN. D O they use men or women ?
Mr. S M I T H . They use men. Madame Chiang Kai-shek is the only
woman I have ever known of who negotiated anything in this country.
Senator BRICKER. You left the inference here a moment ago that
the American agents who were disposing of surplus property were
favoring the Chinese firms, rather than the American firms.
Mr. S M I T H . That is our impression.
Senator BRICKER. I S there any other factor outside of the sale by
bulk, and by portions, that entered into that favorable attitude, or
consideration of the Chinese ?
Mr. S M I T H . I do not know. We were very disturbed by that. That
was done before the bulk sale proposition came up.



CONFIRMATION OF THOMAS B. McCABE

87

Senator BRICKEK. You left the impression here that they did favor
the Chinese as over the Americans. How do you explain that ?
Mr. S M I T H . I do not, except by the fact that the people, the Americans in charge of it, were doing it. That is the impression of the
whole American business community. I might say that was before
Mr. McCabe appeared on the scene. I think before he was even in
surplus.
Senator BRICKEK- YOU have no explanation that you have given us
to my satisfaction, at least, except that the Chinese were better bargainers and better buyers than the Americans were.
Mr. S M I T H . If I had any other ideas, sir, I have no way of proving
it, so
Senator BRICKEK. Have you any other ideas? You do not have
to prove it. I just want to know for my own thinking. If you have
any other ideas of what entered into this consideration, and final
determination to favor the Chinese over the Americans.
I would like to know what it is, even if it is rumor, gossip or anything
else.
Mr. S M I T H . T h a t is a tough question.
Senator BRICKER. NO. I t is a simple question. You know what
they talked about. You were over there. If there was talk about
something else, what was it ?
Mr. S M I T H . I would not name any names. I will not say any more
about it. But the impression was that perhaps certain people in the
American Government who were handling it were perhaps receiving
something on the side.
Senator BRICKER. I n other words, they were bribed into a contract ?
Mr. S M I T H . That is the impression in Shanghai.
Senator BRICKER. Was that merely talk and gossip or
Mr. S M I T H . I do not know. I have nothing to prove it.
Senator BRICKER. YOU do not know of any names bandied around in
connection with it ?
Mr. S M I T H . No. I cannot say anything more than that.
Senator BRICKER. That was all before the bulk sales determination
was made, I think here at the Washington office ?
Mr. S M I T H . That is right.
The CHAIRMAN. Did you know General Johnson ?
Mr. S M I T H . Yes, sir.
The CHAIRMAN. Did you know
Mr. S M I T H . NO ; not well.
The CHAIRMAN. Did you know

him pretty well ?

him at the time he was negotiating
with the Chinese Government for a job, working for them ?
Mr. S M I T H . I heard that rumor sometime afterward.
The CHAIRMAN. Did you know the terms of that job?
Mr. S M I T H . Well, only by rumor.
The CHAIRMAN. Somebody told you so ?
Mr. S M I T H . That is right.
The CHAIRMAN. Any other questions ?
Senator FITLBRIGHT. What was the nature and character of the goods
you were interested in, besides trucks ?
Mr. S M I T H . We were interested in spare parts and machinery, and
equipment for service stations and assembly plants.
Senator FULBRIGHT. What were the other desirable items of this
property ?



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CONFIRMATION OF T H O M A S B. McCABE

Mr. S M I T H . There were medical supplies, large amounts; there was
beer, chocolate.
Senator FTTLBRIGHT. What ?
Mr. SMITH. Medical supplies.
Senator FULBHIGHT. Beer % Large quantities of beer ?
Mr. S M I T H . I believe very large quantities of beer. The Army had
it stored in various places.
Senator FTTLBRIGHT. Do the Chinese like beer ?
Mr. S M I T H . They certainly do.
Senator FTTLBRIGHT. Chocolate ?
Mr. S M I T H . And Coca-Cola.
Senator FTTLBRIGHT. Did we ship Coca-Cola from here?
Mr. S M I T H . I do not know. I think the Army had their own bottling plants out there. I do not think it was given away. I t was sold.
The CHAIRMAN. Did they sell the Coca-Cola back to American
citizens ?
Mr. S M I T H . N O . I do not know anything about buying any CocaCola back. There was lots of sweet chocolate around.
Senator FTTLBRIGHT. What?
Mr. S M I T H . Sweet chocolates.
Senator KOBERTSON. I would like to ask a question off the record, in
view of the question asked by the Senator.
(Thereupon, there was a discussion off the record.)
The CHAIRMAN. Mr. Cain ?
Senator C A I N . Mr. Smith, were you the president of the chamber
of commerce at the time the rumors were going around that some
Americans were being paid off for this preferential treatment of the
Chinese ?
Mr. S M I T H . I came in about 2 months after. I was made president
about May 1946.
Senator C A I N . H O W many business firms, and heads of firms, were
represented in the business community to which you have referred?
Mr. S M I T H . We have membership in the chamber of commerce there
of about 140 firms which comprise practically all of the important
firms.
Senator C A I N . D O you know of any single step that that business
community took to prove or disprove these allegations and rumors
that bribes were perhaps being paid to Americans ?
Mr. S M I T H . No. T h a t is a thing that the chamber of commerce
stayed out of.
Senator CAIN. Yet you had a tremendous interest, as a business
community, in endeavoring to get preferential rights for yourselves.
Mr. S M I T H . As a group we go through the American consulate general on our problems, the commercial attache, and sometimes directly
to the Chinese, and in any legitimate way that we can.
Senator C A I N . T O your knowledge did you make any representations to the American consul that you had reason to believe that the
Americans were being bribed to keep you from getting what you
thought was right ?
Mr. S M I T H . No. I believe we made representations that we did
not feel that we were getting a fair deal.
Senator CAIN. And you let it go at that ?
Mr. S M I T H . I let it go at that.



CONFIRMATION OF THOMAS B. McCABP

89

The CHAIRMAN. Thank you for your kindness in coming. We appreciate it very much.
Mr. S M I T H . Thank you.
The CHAIRMAN. Mr. Walter G. Eundle?
Will you kindly hold up your right hand ?
Do you solemnly swear that the testimony that you are about to
give in the matter pending before this committee shall be the truth,
the whole truth, and nothing but the truth, so help you God?
Mr. BUNDLE. I do.

TESTIMONY OF WALTER G. RUNDLE, FORMER MANAGER OF THE
UNITED PRESS IN SHANGHAI, CHINA
The CHAIRMAN. Mr. Walter G. Bundle, formerly manager of the
United Press in Shanghai.
Mr. Bundle, what caused you as a newspaperman to be particularly
interested in F L C , Shanghai?
Mr. BUNDLE. Well, it was a cumulative interest. As Mr. Smith just
outlined, there was a continual complaint at the American business
community there that they were not getting a square deal; they were
not able to make purchases; that the Chinese were being favored. I
heard quite a bit of that and was interested because it was a news
factor.
My interest in the F L C , however, was considerably stimulated when,
in June, I think it was, 1946, I read a minor story about some complaints about the handling of F L C surplus jeeps in sales to veterans.
I was quite surprised that Gen. B. A. Johnson was then the field commissioner, and he reacted so strongly to that that by the time it was
in print he called me by phone and made personal threats against me.
The CHAIRMAN. For telling the truth ?
Mr. BUNDLE. He did not challenge the truth of it. H e primarily
wanted to know where I got the information and told me that I had
better get on his bandwagon or he would pillory me. I do not know
what he meant by that. I t struck me as quite surprising that so small
a story would make quite such a stir.
Having heard some other rumors around, including one that he had
been in some difficulty in the Persian Gulf Command before he came
to China, I went to the C I D and asked them if they had any knowledge
of what was wrong over there; what was going on; what was underlying this. They told me that they had heard complaints, and some
rumors, and we exchanged information on what we knew about it.
I asked them if they were planning an inquiry and they said they were
not at that time; that they would be interested in knowing anything
that I turned up that was out of order. And they would keep me informed if they found anything that they thought I might be interested
in following up. Over a period of some time there was an exchange
of information on that basis.
Also, about that time, there was a story in the Time magazine claiming there were irregularities in the handling of medical supplies from
Okinawa. There was quite a bit of interest in all of Shanghai at the
time. That I followed up somewhat.
I think it was about early August that I was told that an F L C field
examiner was coming out to look into this thing and I was asked if I
would be willing to talk to him when he came. I said I would.



90

CONFIRMATION OP T H O M A S B. McCABE

Mr. Moody subsequently showed up, I think on August 11, 1946,
and I was called down to the C I D offices that day. I was asked to
tell him what information I had gathered. By that time quite a bit of
it congealed.
I gave him both what I considered to be pretty well-established facts,
quite a bit that I had heard that I had not had time to check on, and
I told him further the names of various people that I thought might
be of interest to him, in following up his investigation.
The CHAIRMAN. YOU heard Mr. Smith's testimony ?
Mr. RUNDLE. I n part.
The CHAIRMAN. Would you confirm that China, through its business
ability—rather uncanny business ability—did buy these American
supplies and then sell them back to American citizens at a profit ?
Mr. RUNDLE. Yes. I knew of two or three established cases of that
fairly early in the game. The people who were victims of that did
not seem to think that it was particularly the bargaining arrangement;
they felt it went deeper than that. Specifically, Texaco had made bids
and deposited half payment on certain sheet metal that they wanted.
That contract that they had drawn was canceled, and I believe it was
later sold at about 20 percent of the price Texaco agreed to.
The CHAIRMAN. Sold to China ?
Mr. RUNDLE. Sold to Chinese interests.
The CHAIRMAN. At 20 percent of the price which Texaco agreed to
pay for it ?
Mr. RUNDLE. Yes. And on which they had made one-half payment.
The CHAIRMAN. Then if the contract had been entered into, and
they had made a partial payment, how was it annulled ?
Mr. RUNDLE. That, sir, I do not know. I am not expert on that.
The CHAIRMAN. Did it strike you as strange ?
Mr. RUNDLE. I t seemed to strike the Texaco people as strange and
it certainly did me. I think I should have felt very much as they
did—that it was a rather raw deal.
The CHAIRMAN. I think you are putting it pretty mildly.
Will you tell us some of the information you turned over to Mr.
Moody, former F L C compliance officer, for his use in the investigation ?
Mr. RUNDLE. I told him about the complaints of the business communities, specifically the one I just mentioned, from Texaco. I cannot recall all that I gave him. I had heard about some sales of planes
at a very low price. As a matter of fact, the Chinese had boasted
about a deal they put over on the sale of approximately 150 planes
and it was in the newspaper sometime before.
That appeared on the surface to be unusual, and their chortling over
it made it of interest. I suggested he might want to follow up on
that.
Also the bulk sale of medicines from Okinawa. And I remember
specifically that I told him to go to one Mr. E. Roman, who was the
manager of the Commercial Express Warehouse. The reason I suggested that he do that, a prominent Army official, other than an F L C
official, had told me sometime earlier that Mr. Roman had reported
that B. A. Johnson and Powell Khoong, a Chinese purchaser of F L C
supplies, had been through his warehouse looking at the supplies
that came in from Okinawa and he had commented to this Army officer that General Johnson seemed to have quite a proprietary interest




CONFIRMATION OF THOMAS B. McCABE

91

for the material for one who had just concluded the sale. I suggested
that Mr. Moody follow up on that.
Those were among the things that I told him about.
The QIIATRMAN. Any further significance to this warehouse, the
name of which you gave Mr. Moody ?
Mr. BUNDLE." Yes. The warehouse people were quite interested
later on—considerably later. I t proved to be one of several warehouses in which American Red Cross blood plasma was stored, which
was being sold in the mails as a male rejuvenator.
The CHAIRMAN. Blood plasma?
Mr. RUNDLE. Yes. sir. That is, the essence of it.
The CHAIRMAN. We live and learn, gentlemen.
Mr. RTTNDLE. I t proved that that warehouse was one of several in
which large quantities were stored.
The CHAIRMAN. I n previous testimony it was stated that the sale
of blood plasma and narcotics was an oversight. Do you know anything about that ?
Mr. RUNDLE. I have quite a little information on that, because
I checked that to a considerable extent. T h a t was an obvious—a
medical—claim that was made. I t had been made repeatedly ever
since the Okinawa medical supply sales first came into prominence.
I n the course of the stories that were run, and the check-ups that I
made, a refugee drug salesman in Shanghai came to my office and he
said he had read these stories with considerable interest because he
was a drug salesman and he had known about this. He brought me
a very tattered, typewritten sheet, which he said had been given to
him by Powell Khoong, in May of 1946. I have that, by the way, if
the committee is interested. The sheet he identified to me—and I have
no reason to believe that he would distort it—as an invoice of the material that was on Okinawa, and not yet moved from Okinawa, which
was sent to Powell Khoong, and from which they made up a list to be
given to drug salesmen for advance sale of these supplies before they
were brought to Shanghai.
The CHAIRMAN. I will ask you to insert that in the record.
(The information is as follows:)
1-005
1-010
1-015
1-020
1-025
1-030
1-035
1-040
1-045
1-050
1-055
1-060
1-065
1-070
1-075
1-080
1-085
1-090
1-095
1-100
1-110
1-115

Acacia
.
Acetone
Acetophenetidin
Acid, Acetic, Glacial
Acid. Acetylsalicylic
Acid, Benzoic
Acid, Boric (pwd.)
Acid, Citric
Acid, hydrochloric
Acid, Molybdic
Acid, Nitric
Acid, Oxalic. C. P
Acid, Phosphoric
Acid, Salicylic
Acid, Sulfanilic
Acid, Sulfosalicylic
Acid, Sulfuric
Acid, Tannic
Acid, T a r t a r i c (powd.)
Acid, Trichloracylic
Alcohol
Alcohol ( d e b y d r a )




1 lb. bot.
1 lb. bot.
1 oz. bot.
1 lb. bot.
1 oz. ctn.
4 oz. ctn.
1 lb. ctn.
1 lb. ctn.
%lb. bot.
50 s;m. bot.
*4 lb. bot.
100 gm. bot.
100 s m . bot.
% lb. bot.
5 gm. bot.
1 lb. bot.
% lb. bot.
% lb. bot.
y 4 lb. loot.
1 oz. bot.
V2 gal. tin.
y 2 pt. bot.

92
1-120
1-130
1-135
1-140
1-145
1-150
1-155
1-160
1-165
1-170
1-175
1-180
1-185
1-186
1-190
1-195
1-200
1-205
1-210
1-215
1-225
1-235
1-240
1-245
1-250
1-255
1-260
1-270
1-2^0
1-285
1-290
1-295
1-300
1-305
1-310
1-315
1-325
1-330
1-335
1-345
1-350
1-355
1-369
1-370
1-365
1-375
1-380
1-385
1-395
1^100
1-405
1-410
1-415
1-420
1-425
1^30
1^35
1-440
1-445
1-450
1-460
1-470
1-475
1^85
1-500
1-505

CONFIRMATION OF THOMAS B. McCABE
Alum
Ammonium Chloride
Ammonium Sulfate
Amyl Nitrite 5 Minim
Antimony and pot: Tart
Atropine Sulfate
Balsom Peruvian
Barium Dioxide, c. p
Bismuth Subsalicylate
Bismuth Subcarbonate
Bismuth Subnitrate
Caffeine, Citrated
Calamine, Prepared
Calamine, Prepared
Calcium Gluconate
Calcium Hydroxide
Camphor
Capsules, No. 00
Capsules, No. 0
Capsules, No. 1
Carbon Tetrachloride
Chalk, Precipitated
Chloral hydrate
Chloroform (anesthes)
Chloroform USP
Cocaine Hydrochlor
Codeine
Codeine Sulfate
Creosote Carbonate
Cupric Sulfate
Dextro-se Anhydrous
.
Dextrose 50-percent sol
Water for injection
Bphedrine, Inhalent
Ephedrine Sulfate
Ephedrine Sulfate
Ether (anesthes.)
Ethyl Chloride
Ethylmorthine HCL
Eugenol
Ferric Ammonium Alum
Ferric Chloride
FL. EXT. Cascara Sagrada
FL. EXT. of IPecac
FL. Ext. Glycyrrhiza
Glycerin
Glycerin
Homatropine
Ichthammol
Iodine
Jelly, Lubricating
Jelly of Tannic Acid
Jelly of Tannic Acid %-oz. tube
Liniment, Camphor and Soap
Lmiment (powd.)
Magnesium Carbonate
Magnesium Oxide Heavy
Magnesium Sulfate
Menthol
Mercuric Oxide, Yellow
Mercurous Chloride, Mild
Mercury, Ammoniated
Methenamine
Methyl Salicilate
Neoarsphenamine
Neoarsphenamine




t

1 lb. ctn.
1 lb. bot.
1 oz. bot.
12 in bot.
1 oz. bot.
15 gr. vial
Vi lb. bot.
1 oz. bot.
2 oz. bot.
1 lb. ctn.
% lb. bot.
1 oz. ctn.
1 lb. ctn.
1 lb. ctn.
amp.
vial.
V4 lb. bot.
box.
box.
box.
Vs. lb. bot.
Vi oz. bot.
1 oz. bot.
Vs. lb. bot.
1 lb. bot.
Vs oz. bot.
Vs oz. bot.
1 oz. bot.
1 oz. bot.
2 oz. bot.
1 lb. bot.
55 cc. amp.
10 cc. amp.
4 oz. bot.
% oz. bot.
amp.
Vi lb. bot.
100 gm. tube.
Vs oz. bot.
1 oz. bot.
50 gm. bot.
50 gm. bot.
1 pt. bot.
4 oz. bot.
1 pt. bot.
2% lb. tin.
10 lb. tin.
5 gm. vial.
1 oz. bot.
1 oz. bot.
4 oz. tube.
4 oz. bot.
2 in pkg.
1 pt. bot.
1 qt. tin.
2 oz. bot.
1 lb. ctn.
2% lb. pkg.
1 oz. bot.
1 oz. bot.
500 gm. bot.
2 oz. bot.
1 lb. bot.
5 lb. bot.
0.6 gm. amp.
0.9 gm. amp.

CONFIRMATION OF T H O M A S B. McCABE
1-510 Oil, Castor
1-515 Oil, Cod Liver
1-520 Oil, Cottonseed
1-525 Oil, Peppermint
1-530 Oil, Theobroma
1-540 Ointment, Boric Acid
1-545 Oint. Mercurial, Strong
1-550 Oint., Mer. CI., Mild, Compound
1-555 Oint. Sulfur
1-560 O i n t , Yel., Mer. Oxide
1-565 Ointment, Zinc Oxide
1-570 Opium, Powdered
1-575 Petrolatum, Liquid
1-580 P e t r o l a t u m , Liquid
1-585 P e t r o l a t u m , W h i t e
1-590 Phenol
1-595 Phenolsulfonphthalein
1-600 Phenol Salicylate
1-605 Physostic, Salicylate
1-610 Potassium Acetate
1-615 Potassium and Sod. T a r t
1-620 Potassium B i t a r t r a t e
1-630 Potassium Chromate
1-635 Potassium Dichromafe
1-640 Pot. Dichromate, Tech
1-645 Potassium Iodine
1-650 Potassium N i t r a t e
1-655 Potassium Oxylate
1-660 Potassium P e r m a n g a n a t e
1-665 Potassium Sulfocyanate
1-670 Procine Hydrochloride
1-675 Procaine Hydrochlor
1-680 Procaine Hydrochlor
1-685 Procaine Hydrochlor
1-690 Quinine Hydrochloride
1-695 Quinine Sulfate
1-700 Resorcinol
1-705 Silver N i t r a t e
1-710 Silver Nitrate, tough
1-715 Silver Protein, mild
1-720 Silver Protein, strong
1-725 Soap, h a r d , castile
1-730 Soap, soft
.
1-735 Soda Lime, coarse
1-745 Sodium Bicarbonate
1-750 Sodium B o r a t e
1-755 Sodium Bromide
1-760 Sodium Carbonate
1-765 Sodium Chloride, c. p
1-770 Sodium Citrate
1-775 Sodium Citrate, 2 % percent sol
1-780 Sodium Hydroxide
1-785 Sodium Iodide
1-790 Sodium N i t r a t e
1-795 Sodium Nitroprusside
1-800 Sodium Perborate
1-805 Sodium Phosphate
1-810 Sod. Phosphate, Monobasic
1-815 Sodium Pyrophosphate
1-820 Sodium Salicylate
1-825 Sodium Sulfate, a n h y d r
1-830 Sodium Tetraiodophenolphth
1-835 Sodium Thiosulfate
1-840 Sodium Thiosulfate, 1 gm. a m p
1-845 Sod. Tungstate, reagent
1-850 Sol. Cresol, Saponated
73055—48
7



"

1 qt. Tin.
1 pt. bot.
1 qt. t i n
1 oz. bot.
2 oz. bot. A.
2 oz. t u b e .
% lb. j a r .
tube.
1 lb. j a r .
1 dr. tube.
1 lb. j a r .
2 oz. bot.
1 qt. tin.
1 gal. tin.
1 lb. can.
1 lb. bot.
amp.
y 2 lb. bot.
1 gm. tube.
y4 lb. bot.
1 lb. bot.
% lb. bot.
1 oz. bot.
1 oz. bot.
1 lb. bot.
y2 lb. bot.
10 gm. bot.
1 oz. bot.
% lb. b»t.
50 gm. bot.
5 gm. bot.
10Omg.amp>
150 mg. a m p .
250 mg. amp*
1 oz. bot.
1 oz. bot.
1 oz. bot.
1 oz. bot.
1 oz. bot.
1 oz. bot.
1 oz. bot.
1 lb. pkg.
2 lb. j a r .
5 lb. bot.
1 lb. ctn.
1 lb. ctn.
14 lb. bot.
1 lb. bot.
y4 lb. bot.
14 lb. bot.
vial.
14 lb. bot.
14 lb. bot.
1 oz. bot.
10 gm. bot.
% lb. bot.
1 lb. bot.
14 lb. bot.
1 oz. bot.
14 lb. bot.
1 oz. bot.
4 gm. bot.
14 lb. bot.
5 in pfcg.
1 oz. bot.
1 qt. t i n -

94

CONFIRMATION OF T H O M A S B. McCABE

1-851 Solyion Disinfectant
1-855 Sol. Epinephrine, H C L
1-860 Sol. Epinep. H C L 1:1000
1-865 Solution F o r m a l d e h y d e
1-870 Sol. Posterior P i t u i t a r y
1-875 Sol. P o t a s s i u m a r s e n i t e
1-880 Spirit of Ammonia Arom
1-885 Spirit of Ammonia tube
1-890 Spirit of E t h y l N i t r a t e
1-895 Spirit of Orange, COMP
1-900 Starch, Soluble
1-905 Strychnine Sulfate
1-910 Sulfur, Precipitated
1-915 Atropine Sulfate
1-920 Cocaine Hydrochloride
1-930 E m e t i n e Hydrochloride
1-935 E p i n e p h r i n e B i t a r t a r a t e
1-940 Glyceryl T r i n i t r a t e
1-945 Morphine Sul. 0.008 gm
1-950 Morphine Sul. 0.032 gm
1-955 Morphine & Atrop. Sul
1-960 Scopolamine Hydrobrom
1-965 Strychnine Sulfate
1-970 Acetophenetidin
1-975 Acid, Acetylsalicylic
1-980 Acid, Acetylsalicylic
1-985 Alkaline a n d A r o m a t i c
1-990 Calcium L a c y t a t e
1-1010 Digitalis Leaves
1-1015 E x t r a c t Cascara Sag
1-1020 F e r r o u s Sulfate
1-1025 Ipecac a n d Opium
1-1030 Mercurous Chloride
1-1035 Mercury Bichloride
1-1040 Opium a n d Glycyrrhiza
1-1045 P h e n o b a r b i t a l .0324
1-1055 P r o c a i n e Hydrochlor
1-1058 Quinine H C L 0.324 gm
1-1059 Quinine H C L 0.194 gm
1-1060 Quinine Sul. 0.194 gm
1-1061 Quinine Sul. 0.324 gm
1-1063 Quinine H C L 0.324 gm
1-1065 Quinine Sul. 0.194 gm
1-1066 Quinine Sul. 0.324 gm
1-1070 Soda Mine 0.324 gm
1-1075 Soda Mint 0.324 gm
1-1080 Sodium Chloride .85 gm
1-1085 Sodium Chloride .648 gm
1-1090 Sodium Salicylate
1-1095 Sodium Salicylate
1-1100 Throid 0.032 gm
1-1105 Throid 0.064 gm
1-1115 Talc, purified
1-1120 T a r , Coal, crude
1-1125 Terpin H y d r a t e
1-1130 Thymol
1-1135 Thymol lodode
1-1140 Tincture of Aconite
1-1145 T i n c t u r e of Belladonna
1-1150 Tine, of Benzoin
1-1160 Tine, of F e r r i c Chloride
1-1165 Tine, of Fer. Citrochloride
1-1170 Tine. Gentain Compound
1-1175 Tine. Hyo-cyamus
1-1180 Tine, of Iodine
1-1185 Tine. Iodide, Milk, vial




1 pt. bot.
1 oz. bot.
1 cc. amp.
1 lb. bot.
1 cc. amp.
y t lb. bot.
14 lb. bot.
4 in pkg.
% lb. bot.
2 oz. bot.
1 oz. bot.
1 gm. bot.
1 lb. bot.
20 in tube.
20 in tube.
20 in tube.
20 in tube.
20 in tube.
__ 20 in tube
20 in tube.
20 in tube.
20 in tube.
20 in ttibe.
100 in bot.
__ 100 in bot.
1000 in bot.
100 in bot.
100 in bot.
100 in bot.
100 in bot
100 in b o t
100 in bot.
10O in bot.
300 in b o t
3,000 in bot
_-_ 100 in bot.
100 in bot
100 in bot
100 in bot.
100 in bot
100 in bot
1,000 in bot
1,000 in bot
1,000 in bot
100 in bot
1,000 in bot.
100 in bot.
5,000 in bot.
100 in b o t
1,000 in bot
100 in bot.
100 in bot.
1 lb. ctn.
1 oz. bot.
1 oz. bot.
1 oz. bot.
1 oz. bot.
4 oz. bot.
4 oz. bot.
4 oz. bot.
4 oz. bot.
1 pt. bot.
1 pt. bot.
4 oz. bot.
2 oz. bot.
3 in pkg.

CONFIRMATION OF THOMAS B. McCABE
1-1190
1-1195
1-1200
1-1205
1-1210
1-1215
1-1220
1-1222
1-1225
1-1235
1-1240
1-1245
1-1250
1-1255
S1-010
Sl-015
S1-020
Sl-040
Sl-000
S1-065
Sl-070
Sl-080
S1-100
Sl-120
Sl-130
S1-133
Sl-135
S1-1945
S1-2290
PI-2295
SI-2300
Sl-2320
Sl-2345
S1-23G5
Sl-2366
Sl-2370
Sl-2385
Sl-2400
Sl-2420
Sl-2440
Sl-2460
Sl-2465
Sl-2466
S1-247Q
Sl-2480
Sl-2490
Sl-2560
Sl-2598
Sl-2601
Sl-2602
Sl-2612
Sl-2614
Sl-2618
Sl-2619
Sl-2645
Sl-2650
Sl-2660
Sl-2745
Sl-2746
Sl-2760
Sl-2780
Sl-2620
Sl-2840
Sl-2880
Sl-2900

Tine. Myrrli
Tine. Opium
Tine. Opium, Camphor
Tragacanch, powdered
Tryphrsamide
Urease
Vanillin
W a t e r for Injection, U S P
Wax. White
Wool F a t
Xylol
Zinc Acetate
Zinc Oxide
Zinc Sulfate
Acid, Acetic, 5 percent w / v Sol
Acid, Nicotinic, 100 mgm
Acid, Phosphotungstic
Aluminum Hydroxide
Ammonia I n h a l a n t
Ammonia Water, reagent
A t a b r i n e Dihydrochlor
Azochloramid, buff, sal
Axochloramid in triacet
B a r i u m Chloride
Benedict's Sol. Qual
Benzedrine Inhaler
Benzyl Beuzolate_
Serum Albumin H u m a n
Brand}
Caffeine, 0.5 gm
Calcium Oxide 100 gm_
Casein, 5 gm
Chrysarobin
Coramine, 25 percent sol
Cream, protective b u r n
Detergent Emulsion
Dichloramine, T in T r i
Digitalis Injection
Dilatin, .0972 gm. cap
Dimethyl-amino-Azo-Benzene
Emetine H C L 0.0648 gm
Enzy. Hydro. Casein, P o r k P a n
Enzy. Hydro. Casein, Pork P a n
Ephedrine T a r t r a t e , .082 gm
Epinephrine, .002 gm., oil
Ergon vine Maleate Inject
Gluid E x t r a c t of Ergot
F a u d i n ( p a r e n t e r a l use)
Fluorescein Soluble
Gas Carbon Dioxide, 250 gal
Gas Nitrouse Oxide, 250 gal
Gas Oxygen, Pure, 80 gal
Gas Oxygen, P u r e , 1650 gal
Gold Sodiumthiosulfat, 25 mgm
Hexylresorcinol, .2 gm
Hydrogen Peroxide, 8 percent cws
Iodobismitolbenocaine
Jelly T a n n i c Acid, 1 qu. etn
Jelly T a n n i c Acit
L a r d Benzoinated
Laedacetate
Liver E x t r a c t dry NNR
Liver E x t r a c t P a r e n
Mapharsen NNR
Mapharsen NNR




,

,

4 oz. bot.
4 oz. bot.
1 pt. bot.
1 lb. bot.
3 gm. a m p .
1 oz. bot.
10 gm. bot.
50 cc. vial.
1 lb. pkg.
1 lb. tin.
100 cc. bot.
1 oz. bot.
1 lb. ctn.
2 oz. bot.
one.
10 cc. a m p .
25 gm. bot.
6 oz. bot.
10 amp. in bot.
1 pt. bot.
0.2 gm. amp.
1 oz. bot.
1 qt. bot.
50 gm. bot.
500 cc. bot.
one.
1 lb. bot.
25 gm. pkg.
2 oz. bot.
2 cc. a m p .
100 gm. bot.
5 gm. bot.
1 oz. bot.
1.5 cc. a m p .
2 oz. tube.
1 pt. bot.
1 pt. bot.
1 cc. a m p .
100 in bot.
bot.
1 cc. a m p .
can.
case.
syr.
1 cc. a m p .
amp.
4 oz. bot.
5 cc. a m p .
10 gm. bot.
one.
one.
one.
one.
amp.
5 in bot.
pt. bot,
2 cc. a m p .
pkg.
% gal. pkg.
1 lb. tin.
% lb. b o t
vial.
10 cc. vial.
0.6 gm. a m p .
0.06 gm. a m p .

96
Sl-2920
Sl-2960
Sl-2980
S1-30OO
Sl-3020
Sl-3040
Sl-3100
Sl-3220
Sl-3225
Sl-3240
Sl-3245
Sl-3205
Sl-3250
Sl-3255
Sl-3260
Sl-3280
Sl-3300
Sl-3310
Sl-3320
Sl-3330
Sl-3335
Sl-3355
Sl-3361
Sl-3362
Sl-3363
Sl-3364
Sl-3365
Sl-3372
Sl-3375
Sl-3378
Sl-3381
Sl-3420
Sl-3425
Sl-3430
Sl-3440
Sl-3450
Sl-3480
Sl-3500
Sl-3520
Sl-3530
Sl-3531
Sl-3540
Sl-3560
Sl-3565
Sl-3600
Sl-3640
Sl-3660
Sl-3665
Sl-3670
Sl-3720
Sl-3740
Sl-3770
Sl-3780
Sl-3783
Sl-3785
Sl-3790
Sl-3791
Sl-8795
Sl-8797
Sl-3803
Sl-3805
81-3807
Sl-3808
Sl-3810
Sl-3811
Sl-3812

CONFIRMATION OF THOMAS B. McCABE
Mecurlc Chloride
Mercury Oxycyanide
Mersalyl Theophyllin 10 percent
Merthiolate cream 1:1000
Merthiolate Sol. 1:1000
Merthiolate Tine. 1:1000
Metacresylaceta Cresatin
Maphthylamine Hydrochlor
Naphuride
Neo Prontosil. 2.5 percent sol
Neotibosan
Morphbtartrate, .032 gm sol
Neostigmin Methsulf, 1: 4000
Neostigmin Methsule, 1: 2000
NeoSynephrin HCL, 1 percent sol
Neo-Synephrin HCL, 1 percent
Neo-Synephrin HCL, Jel
Nikethamide, 25 percent sol
Nupercaine
Oil of Cade
Oil, Olive
Ointment, Anesthetic
Ointment, Bal
Ointment, Boric Acid
Ointment, Boric Acid
Ointment, Boric Acid
Ointment, Butyn 2 percent
Ointment, Merthiolate, OPht
Ointment, Protective
Ointment, Sulfadiazine
Ointment, Sulfathiazole, 0PH
Paraffin Wax Compound
Paraldehyde
Pentnucleotide, NNR
Pentobarbit. IV2 gr. cap
Pentothal Sodium
Phenyl Mercuric Nitrate
Phenyl Hydrazin HCL
Phloroglucin
Plasma normal human, dried
Plasma human dried
Potassium Bicarbonate
Potassium Ferrocyanide
Powder Bleaching hype
Propadrine HCL % gr. cap
Prostigmin Methyl 1:4000
Prostigmin Methyl 1:2000
Protective Cream Burns
Quinine Dihydrochloride
S'odium Acetate
Sodium Amytal, 3 gr. cap
Aod Formal Sulfoxylate
Sodium Morrhuate, 5 percent sol
Sodium Sulfadiazine
Sodium Anesthetic
Sal. Dextrose 5 percent in Saline
Sol. Dextrose 5 percent Dist. Water
Sol. Normal Saline (6-1-Quart jar)
Solution of coal tar
Spermaceti
Sulfadiazine (powered)
Sulfadiazine 2-2 gm. tablets
Sulfadiazine 24-1 gm. tablets
Sulfanilamide (powered)
Sulfanilamide (powdered)
Sulfanilamide (powdered)




-—

% lb. bot.
1 oz. bot.
1 cc. amp.
tube.
1 pt. bot.
1 pt. bot.
oz. bot.
5 gin. bot.
1 gm. amp.
5 cc. amp.
amp.
pkg.
amp.
amp.
4 oz. bot.
5 cc. vial.
tube.
1.5 cc. amp.
5 gm. bot.
1 lb. bot.
1 pt. bot.
1 oz. tube.
V2 oz. tube.
4 oz. tube.
2% oz. pkg.
1 lb. pkg.
dram tube.
tube.
3 oz. tube.
4 oz. jr.
tube.
% lb. pkg.
% lb. bot.
10 cc. vial.
500 in bot.
0.5 gm. amp.
4 oz. bot.
10 gm. bot.
10 gm. bot.
pkg.
500 cc. pkg.
V2 lb. bot.
25 gm. bot.
ctn.
bot.
cc. amp.
cc. amp.
4y2 oz. can.
5 gm. amp.
25 gm. bot.
bot.
10 gm. amp.
" cc. amp.
>
5 gm. amp.
1 oz. bot.
case.
liter.
6 case.
pt. bot.
lb. pkg.
lb. bot.
pkg.
pkg.
Vi lb. bot.
1 lb. bot.
5 gm. pkg.

CONFIRMATION OF THOMAS B. McCABE
Sl-3813
Sl-3815
Sl-3820
Sl-3840
Sl-3880
Sl-3968
Sl-3970
Sl-3975
Sl-3980
Sl-3990
Sl-3991
Sl-4000
Sl^OlO
Sl-^011
Sl-4020
Sl-4021
Sl-4030
Sl-4050
Sl-4060
Sl-4080
Sl-4100
Sl-4210
Sl-4150
Sl-4170
Sl-4180
Sl-4260
Sl-4261
Sl-4280
Sl-4285
Sl-4300
Sl-4310
Sl-4311
S1^312
Sl-4315
Sl-4316
Sl-4335
Sl-4336
Sl^t337
Sl-4338
Sl-4350
Sl-4351
Sl-4360
Sl-4380
Sl-4381
Sl-4390
Sl-4420
Sl-4440
Sl-4448
Sl-4450
Sl-4460
Sl-^480
Sl-4500
Sl-4560
Sl-4580
Sl-4600
Sl-4623
Sl-4630
Sl-4633
Sl-4680
Sl-4790

Sulfanilamide (powdered)
Sulfathiazole (powdered)
Sulpharphenamine
Apomorphine 0.003 gm
Pantopiurn Hcl .0216 gm
Acid Ascorbic 50 mgm
Acid Nicotinic 50 mgm
Aminophyllin 0.079 gm
Ammonium Mandelat 486 gm
Amphetamin Sulfate 5 mgm
Benzedrine Sulfate
Amytala 0.0972 gm
APC tablets
APC tablets
A t a b r i n e 0.1 gm
A t a b r i n e 0.1 gm
Azochloramide 0.5508 gm
Calcium Mandelate .486 gm
Carbarsone 0.25 gm
Chinifon 0.259 gm
Colchicine 0.00054 gm
Dehydrochloride Acid
Gentian Violet 0.0324 gm
Menhol-vl Bromid. 0.2 gm
Mercurour Chlorid .006 gm
Plasmochim .02 gm
Plasmochim 0.02 gm
Potassium Chloride
Potassium P e r m a n g a n a t e
Santonin 0.032 gm
Silver Protein 0.299 gm
Silver Protein 0.150 gm
Sodium A l u r a t e 0.115 gm
Sodium Bicarb. 0.648 gm
Sodium Bicarb. 0.648 gm
Sulfadiazine 0.5 gm__.
Sulfadiazine 0.5 gm
Sulfaguanidine 0.5 gm
Sulfaguanidine 0.5 gm
Sulfanilimide 0.324 gm
Sulfanilimide 0.423 gm
Sulfapyradine 0.5 gm
Sulfathiazole 0.5 gm
Sulfathiazole 0.5 gm
Theobromide 0.194 gm
Thiamin Chloride 5 gm
Thyroid 0.0162 gm
Vioform 0.25 gm
Tetrachlorethylene
Theophylline Ethylene D I
Theophylline Sodium Acet
Thiamin Chlor. 25 mg. cc
T i n c t u r e Nux Vomica
Tribromethanol Solution
Thio Bixmol 0.2 gm. a m p
Vioform
Vitamin A & D in oil__j
Vitamines, Multiple
Wine Champagne
Zephiran Chlorida Sol. (con.)

,

97

5 gm. pkg.
% lb. bot.
0.6 gm. amp.
20 in tube.
20 in bot.
100 in bot.
100 in bot.
1,000 in bot.
200 in bot.
100 in bot.
tab. vial.
40 bot.
100 bot.
1,000 bot.
100 in bot.
1,000 bot.
100 bot.
200 bot.
25 in bot.
50 in bot.
100 in bot.
.243 gm. bot.
100 in bot.
24 bot.
500 bot.
25 bot.
100 bot.
100 bot.
bot.
100 bot.
100 bot.
100 bot.
100 bot.
100 bot.
1,000 in bot.
500 bot.
100 bot.
1,000 bot.
100 bot.
1,000 bot.
100 bot.
1,000 bot.
500 bot.
100 bot.
1,000 bot.
50 bot.
100 bot.
100 bot.
1 cc. cap.
'_ oz. bot.
oz. bot.
5 cc. vial.
% pt. pot.
1 oz. bot.
12 in bot.
% lb. bot.
50 cc. bot.
100 bot.
% gal. bot.
bot.

Mr. RUNDLE. The material is interesting because it lists, on one of
its pages', "human dried plasma" and "human normal plasma." I t
also lists 15 items of various kinds of narcotics.
After receiving this list I ' w e n t to the United States Navy headquarters in Shanghai and ask them if they had a medical supply cata


98

CONFIRMATION OF THOMAS B. McCABE

logue. They did. The numbers that run down the left-hand side
of this sheet, that this refugee salesman gave me, turned out to be the
identical numbers for the same items in the Naval Supply Catalogue as
of the same day.
The CHAIRMAN. That is confirmatory.
Mr. RUNDLE. I t was quite apparent, unless this junkman wTas distorting facts, and he had no reason to, that it was well known what
these supplies contained, not only before the plasma and other things
came to light, but before the material was ever moved off Okinawa,
and as Mr. Smith said, the Chinese were getting advance information
that tne Americans could not get.
I n that connection, if your committee is interested, UNRRA personnel said that they had been offered the same medical supplies from
Okinawa, on the basis of "take it or leave it" in 24 hours, and they had
inquired what it included, and they said it was "a mystery stock pile,
all we know is that it contains distilled water."
The CHAIRMAN. But the Chinese knew what it contained, according
to the list.
Mr. RUNDLE. T h a t is right.
The CHAIRMAN. But we did not know ?
Mr. RUNDLE. Apparently not.
The CHAIRMAN. I t has been testified here that this blood plasma,
which was testified to by Mr. Moody, and told about here, was recovered
and 80 percent of it got back to the Red Cross. The question in my
mind is, if that is true—and I have no reason to believe it is not,
whether that happened after the sword of Damocles was held over somebody's head, and the fear that something punitive might come down,
and therefore they gave it back as quickly as they could, and the Red
Cross got 80 percent of it.
Do you know anything about the efforts to get back the blood plasma ?
Mr. RUNDLE. Yes. I n following up the story I made quite a bit
of inquiry into that. I went to Mr. Moody, whose first name I do
not have, who at that time was head or director of the Red Cross in
Shanghai. I showed him copies of this Chinese language advertisement, offering human plasma for sale, which had been run in Chineselanguage papers, and asked him if he was aware of it. He said that
he was, and had been for some months, and that he had made protests
to the F L C , and requested that they get the plasma back.
I asked him what luck he had in that and he said that there had been
no apparent effort that he could see, that he had talked to the company
that had the stuff for sale, and that the only visible result was that the
ad, which reads in English, as you see it here, "Human normal plasma,"
had been changed from the Chinese language papers to "red and white
corpuscles."
The CHAIRMAN. Red and white corpuscles being the characteristic
of component parts of blood in varying degrees, depending on how
much anemia you have.
Mr. RUNDLE. I t took off the sting of the human plasma being advertised in the papers. H e was considerably displeased that nothing more
had happened at that time.
I then went to Mr. Monnett Davis, wTho was then in charge of FLC.
H e told me that they had made some efforts, and they were continuing
them, but the Chinese were quite reluctant to return the plasma.



CONFIRMATION OF T H O M A S B. McCABE

99

You mentioned that you thought the sword of Damocles was hanging over them and they gave it back. That is not the case. They
sold it back to the United States.
The CHAIRMAN. At the same price they bought it ?
Mr. RUNDLE. No; the impression was that it was at a considerably
higher price. I tried very hard to find out at what price we bought
that back. The F L C was not very obliging and refused to give us any
information. So far as I know there never was any information made
available.
The CHAIRMAN. YOU never found out at what price it was bought
back?
Mr. RUNDLE. No, sir.
The CHAIRMAN. The net

result is that human blood, given by people
for war work, was over there in large quantities, the .Chinese found
it out, got hold of this blood plasma which is human blood, bought it,
and then later on sold it back to Americans at an advance price. I s
that right ?
Mr. RUNDLE. That is right.
The CHAIRMAN. I n other words, that is traffic in human blood, is it
not?
Mr. RUNDLE. I t would appear so to me.
The CHAIRMAN. H O W successful were the efforts to secure the return
of this plasma ?
Mr. RUNDLE. I also followed up on that, as late as May of 1947,
shortly before I left China. That would have been a good 6 or 8
months after it was supposed to have been returned. I had Chinese
friends of mine inquire in the drug trade whether or not human
plasma could be obtained. They found that it could be. I said I
wanted to know whether it could be obtained in large enough quantities to make it worth while to ship it out into the country. They
assured me—the drug companies that had it—that it was available
in large enough quantities to make it worth while.
The price, however, had jumped from $25 a unit, at which it was
advertised at the time this first came out, to $35, there being the
impression ci'eated, of course, of a much shorter market since most
of it had gone back to the Americans.
The CHAIRMAN. SO we had, to use an American phrase, a "bull"
market in blood?
Mr. RUNDLE. That Would describe i t ; yes.
The CHAIRMAN. How successful were the efforts to secure the
return of this plasma ?
Mr. RUNDLE. I have just described that.
The CHAIRMAN. Did you know about any narcotics or surgical
dressings used in this sale ?
»
Mr. RUNDLE. The narcotics are listed in that sheet that was placed
in evidence. I also went into that because it was pretty obvious if
they had sold a large quantity of bulk medical supplies anyone should
have been able to figure out that there must have been bulk narcotics
there.
I never saw any such lists in the war that were not inclusive of
narcotics. I went to several people in F L C and asked if that was the
case. They said they had not made a check but believed it was true.
Later it was announced that it was true, but that the material had



100

CONFIRMATION OF THOMAS B. McCABE

been so. widely dispersed there was no effort going to be made to
recover it.
The CHAIRMAN. Did you talk to Mr. McCabe about F L C Shanghai
irregularities ?
Mr. BUNDLE. Yes; I had quite a long conversation with Mr. McCabe.
The CHAIRMAN. W h a t was the nature of the conversation, please?
Mr. BUNDLE. "Well, probably, to put it in proper perspective, I
should give you a little of the background.
The CHAIRMAN. Take your own way.
Mr. BUNDLE. A S I told you, I had gone to first see CID, and later
to Mr. Moody with the information I had. I n late August, a great
many of the things that I had been working on had pretty well jelled
as fact, at least to my satisfaction. At the same time I found out
t h a t other correspondents were by then on the story, and were starting
to dig into it.
So on August 2 4 , 1 believe it was, T called Mr. Moody and told him
t h a t I felt that I could no longer hold the story, that I was going to
use it, that I was satisfied of the information that I had, and I wanted
to tell him that I was going to use it. H e said that he would like to
have me go to Consul General Monnett Davis with him and tell him
what I had, and what I was going to do, because he felt that the American interest was concerned.
I agreed with that and went with Mr. Moody and Mr. McKenna,
who was the compliance officer for F L C , and Col. Coleman Cook,
who was an F L C officer, and went to see Mr. Davis. I told him what
information I had turned up and why I felt that the story had to
be broken. H e said he had been aware of the situation, that there
was apparent irregularity and that he had discussed it with Mr.
McCabe and he would like for me to tell Mr. McCabe the information
t h a t I had.
I told him that I had tried a time or two through the F L C office to
reach Mr. McCabe without success, but if Mr. McCabe wanted to
see me I would be very happy to see him.
At about 10 o'clock Sunday night, the 25th, I think that would be,
I got a telephone call requesting that I come to Consul General Davis'
residence. I arrived there to find Consul General Davis. * f r. McCabe,
and probably a half dozen others in the room and T went in sincere
good faith to present the information that I had, to see if it was of
interest, and should have been of interest to Mr. McCabe and to others
of F L C , and I found a rather cold reception. They asked me in
general terms what I had and I was given the little boy treatment,
"You should not become excited about this thing."
After it became mqre detailed and I went into morp detail, and
finally read the story that I had prepared for release, I was told by
Mr. McCabe that in all probability these things represented honest
errors of judgment; t h a t it was a very large, widespread operation
which certainly I recognized; that I should not get excited.
The CHAIRMAN. That is one of the reasons you were interested,
as to whether it was a large operation.
Mr. BUNDLE. Yes, sir, it was one that made it a news-worthy story,
So the impression was very strong, not only from Mr. McCabe, but
from others who were present, that I should not use this material,
primarily because they seriously doubted it.



CONFIRMATION OP THOMAS B. McCABE

101

I told them that I had about 20 years of newspaper experience;
that I had checked this material very thoroughly; and t h a t I felt
quite confident of my facts.
I then went into considerable detail on this error of judgment
angle, pointing out that one of the colonels in the F L C had a large
house in Shanghai which was a considerably expensive item, a mistress
that obviously was an expensive item also, and I later learned he
also had automobiles, a speedboat, and an airplane, all in his own
name, and suggested that that appeared to me, at least, to imply
more than errors of judgment; that there must be something greater
than that involved.
The CHAIRMAN. And also required a larger salary than a colonel
would receive, would it not?
Mr. RtWDLE. I presume that would be true, yes.
Again I was told that I probably did not know my facts. By this
time it was 1 a. m., and I think I rather lost my temper. I had been
needled for about 3 hours. I recall having told Mr. McCabe that if
he thought I was exaggerating, if he considered that I was lying, if
he thought I did not know my facts, any way he wanted to put it, if
he would make another statement, write it, give it to me, I would
carry it parallel with the story that was going to be run the following
day, at which point he told me that I misunderstood the situation, that
if there were irregularities, of course, they would be checked upon.
I told him that I hoped that was true, and wished that I could
believe it was true, and departed. That was the last contact I had
with Mr. McCabe directly.
The CHAIRMAN. I understand that you originated press dispatches
regarding the sale of B-25's. Would you tell what you know about
this sale'^
Mr. RUNDLE. Yes. T h a t followed very closely on the other one. I
had known about the sale of B-25's to the Chinese for quite some time
and had a good many people that were well informed in Shanghai. I
had discussed that matter also with Consul General Davis, who had
pointed out that it was quite embarrassing; that they knew of its
existence; and that an attempt was being made by the F L C at that
time to find a way to get those planes back without further embarrassment ; that they should not have been sold.
He requested that, pending their efforts to get those planes back,
I do nothing about the story.
I t was also pointed out that General Marshall was at that time in
Nanking negotiating with the Communists and the Nationalists, attempting to find a political solution, and that indications that we
were delivering operational planes to one side of a civil war could be
very embarrassing, to all of which I agreed.
Mr. Davis also said that he was going to discuss that with Mr.
McCabe. I do not recall the exact sequence of dates, but it was a day
or so later that the Chinese-language newspaper carried the story,
saying that the Chinese Air Transport Corps, CHC, which has possession of the planes, was going to have the formal presentation of
those planes to the Chinese Air Force and had invited Chinese newspapermen to be present for that.
I took the translation that was given me by my interpreter and I
went to Davis with it and said: " I think it is quite obvious that this



102

CONFIRMATION OF THOMAS B. McCABE

story is coming out into the open, and therefore, since I have spent
some time in gathering the facts, I am going to use it." He agreed
that was perfectly justified and again" said lie was going to inform
Mr. McCabe of the circumstances.
I did use the story, and the following morning the planes were
destroyed.
The CHAIRMAN. How?
Mr. RUNDLE. They were cut apart by acetylene torches, I understand. I was not permitted on the field personally to see. I tried
to go out that morning but was kept off. Later we were permitted
to go out and take pictures.
The CHAIRMAN - . And there was one large new bomber that was cut
up by mistake.
Mr, RUNDLE. Yes. There was a sheep that got in with the goats,
apparently.
The CHAIRMAN. Did Mr. McCabe have any knowledge of the sale
of these B-25's before the news broke ?
Mr. RUNDLE. I cannot say personally that he did; no. Although
it was one of the very ticklish issues that everyone connected with F L C
was aware of. People in the consulate were aware of it. The C I D
was aware of it. And Monnett Davis had told me that he had discussed it. I do not know beyond that.
The CHAIRMAN. H e told you that he had discussed it with Mr.
McCabe?
Mr. RUNDLE. That he would, on two occasions.
The CHAIRMAN. D O you know of any reason for such generous terms
in those surplus sales ?
Mr. RUNDLE. That touches upon the same matter that Mr. Smith
discussed. I do not have any personal knowledge of why. Well, it
was a matter of common knowledge in Shanghai, I think you can say,
that Gen. B. A. Johnson was negotiating for himself, and for members of his staff, for very lucrative jobs with the Chinese purchasers,
to whom he was currently selling the F L C property. That was no
secret, because members of the staff had discussed it quite openly.
The CHAIRMAN. They talked about his negotiations 1
Mr. RUNDLE. A t the American Club in Shanghai.
The CHAIRMAN. H e was looking ahead ?
Mr. RUNDLE. Yes. That was the impression.
The CHAIRMAN. Did you ever hear the terms under which he sought
this job—his remuneration?
Mr. RUNDLE. I heard various terms talked of. I do not know o |
any of them specifically; $35,000 a year, a house, maintenance, and so
on. I t sounded quite good. Whether that is true or not I do not
know, on the exact figures.
The CHAIRMAN. You wTere in China at the time of the bulk sale,
were you not ?
Mr. RUNDLE. That is right; yes, sir.
The CHAIRMAN. Would you consider the bulk sale extended to the
Chinese the same kind of generous terms given by General Johnson,
or would you consider the bulk sale a pretty solid deal ?
Mr. RUNDLE. T h a t is a question that remains in my mind, and I
think remains in the minds of all Americans who were out in China
during the war, and particularly newspapermen. We all tried to
find out what that bulk sale actually meant.



CONFIRMATION OF THOMAS B. McCABB

103

I think, as I recollect the terms, we got approximately $200,000,000
for around $800,000,000 worth of goods. However, about $150,000,000
of that $200,000,000 was in writing off the charges of the Chinese
Government against the United States.
The CHAIRMAN. That is the war claims ?
Mr. BUNDLE. Yes.
The CHAIRMAN. Did

you ever hear that those war claims were intangible ?
Mr. BUNDLE. Very much so. They were on a "no rate" account.
The CHAIRMAN. Tinder a figment of the imagination, possibly, on
the credit side of the ledger?
Mr. BUNDLE. If I may try to draw a parallel, it impressed me a
good deal like sitting in a poker game where you put cash into the
kitty and are given chips in return but are not told what the chips are
worth until the end of the game and find out whether you win or lose.
I t did not look sound.
The CHAIRMAN. I do not know poker.
Mr. BUNDLE. Well, in any event, I was out in west China during
a large part of the war, and I was at air installations where threehole Chic Sale arrangements built out of mud and bamboo were costing the United States Government around $15,000.
The CHAIRMAN. Apiece?
Mr. BUNDLE. Apiece.

The CHAIRMAN. Let us get this straight. A Chic Sales three-hole
outfit—we all know what that is—and it is presumed there was one
for children a little smaller, that those were built out of mud and
something, and they cost the Government $15,000 apiece.
Mr. BUNDLE. That is what the Army officials told me.
The CHAIRMAN. Did the Chinese sell those back to Americans at a n
inflated price?
Mr. BUNDLE. Presumably, that is one of the things that no one has
been able to find out; that and other material went into this bulk-sale
settlement, and we must have agreed to pay at some price, outhouse
or not.
If they had made the price $30,000 instead of $15,000, it would have
looked much better on it.
The CHAIRMAN. Would you call those intangible assets ?
Senator CAFEIIART. Where were these Chic Sales located?
The CHAIRMAN. I n China.
Senator CAPEHART. China is a big place.
Mr. BUNDLE. You want to know from me where it is ?
Senator CAPEHART. Yes.
Mr. BUNDLE. This particular one I am speaking of and of which
I had specific information, because it was new construction of which
the base was quite proud, was at Yunnanyi, in southwest China. I n
the same place we learned a very low grade of tile roofing was made
out of a very soft mud—you could crumble it in your hands—and was
selling at $1.50 per tile.
Senator CAPEHART. Did the Chinese Government build these Chic
Sale houses originally?
Mr. BUNDLE. I don't know what the arrangement was. Chinese
labor built them. I presume the Chinese provided the material, which
was mud out of the paddy fields nearby.
Senator CAPEHART. Did the $15,000 include land?



104

CONFIRMATION OF THOMAS B. McCABE

Mr. BUNDLE. We had no title to any land.
The CHAIRMAN. I t would not take more than 3 or 4 feet, would it r
a three-hole apparatus ?
Mr. RTJNDLE. Not more than that.
The CHAIRMAN. Sixteen square feet of land. A mud hut with holes
in it, $15,000. Talk about inflation.
Mr. RTJNDLE. I didn't explore them very well.
However, having used a few of them, I can assure you they were not
worth the price.
Also, at Guaylin, included in such items, I was told that secondhand bicycles which the Army wanted were sold us by the Chinese
at the book value on the exchange of around $1,370 each.
The CHAIRMAN. Are there any Chinese inscriptions on the inside
of this Chic Sale house ?
Mr. RTJNDLE. I t was a new construction.
The CHAIRMAN. I would suggest one, if they had not: ''What suckers
the Americans are."
Senator CAPEHART. Did they have Sears Roebuck catalogs?
Mr. RTJNDLE. N O .
The CHAIRMAN. Did they have any Scott tissue there ?
Mr. RTJNDLE. No.
The CHAIRMAN. YOU have made a very interesting witness;

and although the newspapermen are geniuses in their understanding^ and
perception and are go-getters, I would like to compliment the United
Press on your perspicacity, sir. Are you still with them ?
Mr. RTJNDLE. I am at present on leave of absence taking a year of
graduate work.
The CHAIRMAN. YOU are a fellow at Harvard, which is a high honor
for a newspaperman and conclusive of your ability, I should say.
Any questions, gentlemen?
Senator BRICKER. Were all these operations you have been talking
about conducted under the Army in China?
Mr. RTJNDLE. Which operations, sir?
Senator BRICKER. The buildings you have been describing.
Mr. RTJNDLE. Yes. They and a good many others. There was a considerable disagreement between General Stilwell, for instance, and the
Chinese Government over an operation known as the WASC, War
Area Service Command, which provided billeting and food for American forces in China. The Chinese put in a bill for the food at some
figure that General Stilwell considered quite outlandish. I t was $2 or
$3 per man, American dollar equivalent, per day. I t was very miserable food, I assure you.
General Stilwell protested on that and stalled until the Chinese Government said: "We will not set a rate. We will just include this in the
over-all settlement," which I presume, again, was included in the
bulk settlement.
To a newspaperman it was very interesting having seen all that—
that no one could ever find out what all this finally was settled for.
I n other words, what did the American taxpayer pay for Chic Sales
or a meal of water -buffalo meat and boiled potatoes?
Senator BRICKER. Was it that difficulty that later led to General
Stillwell's dismissal ?




CONFIRMATION OF THOMAS B. McCABE

105

Mr. RUNDLE. That was one of the contributing factors. H e had a
great many disagreements with the Chinese Government on a great
many issues. Yes, sir.
Senator BRICKER. H e stood out against the sort of manipulations
that you are talking about ?
Mr. RUNDLE. H e did. I t was always my impression that General
Stilwell was a very good American, who had American interests primarily at heart, both in the war effort and in the protection of the
American taxpayers' interest, insofar as it could be protected in a
situation, of that kind.
Senator BRICKER. F o r that he was dismissed ?
Mr. RUNDLE. F o r insisting too strongly; yes.

Senator BRICKER. A t the insistence of the Chinese high officials on
account of his persistence in trying to maintain some reasonable costs.
Mr. RUNDLE. Reasonable costs and getting a reasonable result for
the money expended.
*
Senator BRICKER. The only way that that enters into this bulk-sales
negotiation would be that it would inflate the value, or the book value,
of the things that were sold; is that right ?
Mr. RUNDLE. Yes. I t certainly would if those items were p u t in a t
that.
By the way, I understand, also, that the Chengtu air bases, which
were one of the largest installations we built, or that the Chinese built
for us, were not included in that. Perhaps Mr. McCabe can tell you,
but the impression was that they were not, and we would never be able
to find out whether they were or were not included.
Senator BRICKER. If they were, the only effect would be to increase
•the $800,000,000, or whatever the book value, whatever the cost,
amounted to.
Mr. RUNDLE. Yes.
Senator BRICKER. You mentioned

a moment ago that blood plasma
was sold back. Did you hear the testimony this morning of Mr. McCabe in regard to the blood plasma ?
Mr. RUNDLE. N o ; I did not.
Senator BRICKER. Do you know

yourself, or is it fully based upon
rumor, that it was sold back at a higher price than the Chinese got?
Mr. RUNDLE. Chinese who were very well in the know told me that
they got a much better value on what they got than the original
blood plasma, and it was not done on a dollar basis, but Navy, I
believe, turned over to them certain other supplies in exchange for
the plasma.
Senator BRICKER. The question of the reasonable value of the supplies that were exchanged ?
Mr. RUNDLE. That is right. The relative value.
Senator BRICKER. D O you know how much of the blood plasma they
did get back as soon as they had found out it had been sold ?
Mr. RUNDLE. N O . I heard someone mention earlier 88 percent,
which quite possibly might be true. I t is pretty obvious with over
200,000 units for sale in a place like China where your patronage for
a male rejuvenating nostrum is rather low, was a little too much.
The CHAIRMAN. D O they not need it over there?




106

CONFIRMATION OF THOMAS B. McCABE

Mr. RUNDLE. There are not very many that can afford it at $25 a
throw.
Senator BEICKEE. One further question. All the details you have
now enumerated were a result of Army effort. Mr. McCabe had the
responsibility of disposing of these things. When the General Johnson incident was called to his attention, did he or his organization move
on it promptly to get General Johnson out of that responsible position
and replace him or not ?
Mr. BUNDLE. General Johnson remained in there for some time, I
have forgotten the date. However, he did request, I understand,
under advice, that an Inspector General's inquiry be made into the
situation.
Senator BEICKEE. General Johnson was removed?
Mr. RUNDLE. H e was eventually removed; yes.
Senator BEICKEE. YOU do not know how long after that ?
Mr*. RUNDLE. I don't recall exactly. I t ran into a period of a month
-or more, maybe 2 months.
Senator BEICKEE. TWO months was the testimony that I remember
from this morning.
Mr. RTJNDLE. I do not have all my notes with me since I left a lot of
them in storage.
Senator BEICKEE. D O you feel that Mr. McCabe is responsible for
any of the errors that you have detailed ?
Mr. RUNDLE. I know very little about Mr. McCabe's responsibilities
prior to this ariival in Shanghai. I had never met him. As a matter
of fact, prior to the night I saw him I never had met him. I have
heard a very great deal of quite complimentary comment on his activities. I did feel from my own standpoint that there was very little
effort made to follow up on the information that was given.
A t least, it was not obvious to me. I was not one who should be
taken into confidence on all those matters, I know.
Senator BEICKEE. Of course, you got an unfavorable impression
that night when you were called over.
Mr. RTJNDLE. Considerably so, because every effort was made to brush
the idea off.
Senator BEICKEE. Your feeling now is that Mr. McCabe did not follow up fast enough on the information that he had in regard to cleaning up the situation, particularly in regard to General Johnson.
Mr. RUNDLE. I would not say it was a matter of fast enough. So
far as I know, nothing has ever come of that.
Senator BEICKEE. H e was dismissed.
Mr. RUNDLE. H e was dismissed and rehired. He was out as a general and was back in as a civilian, was out altogether, I understand.
This is out of my particular knowledge, but I think he was retaken into
the Army while still under investigation, as a colonel, and as far as I
know, is still in Tokyo as a colonel.
Senator BEICKEE. That was the testimony here last week, that he is
now in command of transportation in Tokyo with a commission as
colonel in the Army.
The chairman said this morning he had been recalled to this country
most recently. During all that time, did he have any further connection with Mr. McCabe's organization that you know of ?
Mr. RUNDLE. I t was my understanding that despite the fact that
he appeared to be in some difficulty, he participated in the bulk sale



CONFIRMATION OF THOMAS B. McCABE

107

negotiations and did continue to operate the office for quite a time
after that.
I know a little bit about the efforts that were made to investigate
that situation. I think the fact that he was there, that he was in
charge of the office, and that he had command over people who were
expected to bring in testimony, probably hampered that investigation.
I t would seem natural to me that it would.
Senator BRICKER. YOU heard Mr. Smith's testimony in regard to
why the Chinese were favored over American business concerns?
Mr. RUNDLE. Yes.
Senator BRICKER. I S

it your feeling, also, that there was some rivalry
in connection with that ?
Mr. RUNDLE. That is something that is extremely hard to establish.
I don't believe that anywhere, most particularly in China, you can very
well establish that rivalry. That is something that is handled pretty
discreetly. I don't know of any of my own knowledge. I do know
of the fact that people who were supposedly representing the United
States in the sale and at the same time were negotiating with the people
to whom they were selling for jobs to handle that again on resale after
they got out of the Army probably were not too cautious of American
interests there.
Senator BKICKEK. Did you read the testimony of Mr. M'cCabe in
regard to General Johnson and his notifying the American Army
authorities of the offer of the job in China ?
Mr. BUNDLE. Yes. I did see that.
Senator BKICKEK. D O you know whether or not that is factual ?
Mr. RUNDLE. I don't have any way of knowing.
Senator BKICKEK. If it were factual, would that explain the subsequent events that took place ?
Mr. RUNDLE. I t might in part.
Senator BRICKEK. His dismissal, I mean.
Mr. RUNDLE. I t might in part. I don't have any knowledge of
that.
Senator BRICKER. YOU know nothing about the court martial that
was ordered of General Johnson %
Mr. RUNDLE. NO. A great deal of time has elapsed since all this
came about. Most of this transpired in August of 1946. I left Shanghai in May of 1947. U p to that time nothing had come of it, and I
haven't been in very close contact with it since.
Senator BRICKER. I S there anything in any of these misdeeds t h a t
you have called to our attention that are directly attributable to Mr.
McCabe, in your judgment?
Mr. RUNDLE. NO, I would not say that they wTere directly attributable to him. I have no feeling one way or the other about Mr. McCabe
or his qualifications. I was called down here as Mr. Smith was called.
Senator BRICKER. We appreciate that.
Mr. RUNDLE. And asked to give what information I had.
Senator BRICKER. We are considering Mr. McCabe's nomination,
however, and we want to know if any of this reflects upon him in any
way, shape, or form, in your testimony.
Mr. RUNDLE. The only thing that I could see is that if there was
not—and that is something that your committee could establish,. I
could not—if there was not proper follow-up on the information and
proper effort made to clear up the situation and to bring to account, "the



108

CONFIRMATION OF THOMAS B. McCABE

people who were responsible, that would be the only thing that I could
see. I don't know how far in advance of his arrival in Shanghai Mr.
McCabe was aware of any of this. I am not qualified to comment on it.
Senator BRICKER. You really do not know how soon he acted on it
after he had the information ?
Mr. BUNDLE. No, I do not.
Senator BRICKER. I think that is all, Mr. Chairman.
The CHAIRMAN. This'is the sequence, Senator Bricker,

of the events.
Mr. McCabe was notified by cable from Mr. McKenna, his Chinese
counsel, in the middle of July 1946, of Johnson's irregularities. Mr.
McCabe resigned as commissioner on September 20, 1946. 2 months
later. General Johnson was allowed to resign on October 14,1946, and
I point out that General Johnson wras allowed to resign after Mr. McCabe had resigned from his office.
May I ask you a question I Here is the question I ask: Was the Red
Cross Commissioner, Mr. Moody, notified about this blood plasma?
Mr. RUNDLE. By whom %
The CHAIRMAN. By anybody. Did he know this transaction took
place ?
H a d he been consulted about it before the sale ?
Mr. BUNDLE. Before the sale ? No. His first intimation of it came,
as mine did, from this advertisement which was carried in the Chinese
papers and was called to his attention. When he checked up on it and
found it was American Red Cross blood plasma he said that he went to
the F L C and made his complaints at that time.
The CHAIRMAN. A S a matter of fact, that would be a violation of
the Surplus Property Act, would it not, to dispose of blood plasma
which had been processed by the American Red Cross without first
consulting with the American Red Cross ?
Mr. RUNDLE. I believe that is true, although I am not familiar with
that act. I do know the Red Cross felt that it was a very definite
violation of their understanding on what would be done with the blood
plasma not used in combat areas.
The CHAIRMAN. Any questions, gentlemen ?
Senator CAPEHART. To whom was the blood plasma sold? Was
it sold to the Chinese Government or to private interests ?
Mr. RUNDLE. I t was sold to a private company, Powell Choong Co.
After this matter came to light and there was quite a bit of furor
raised about it, it was transferred by means that are not quite clear
to Lindah Exporting Co., which was supposed to have been a subsidiary of the other one.
Senator CAPEHART. Among other things they purchased this blood
plasma ?
Mr. RUNDLE. T h a t is right.
Senator CAPEHART. D O you have any idea of the dollar value ?
Mr. RUNDLE. The dollar value of the total supplies ?
Senator CAPEHART. That this particular firm purchased, in which
they received the blood plasma ?
Mr. RUNDLE. NO ; I don't have that information.
Senator CAPEHART. I t was a private concern?
Mr. BUNDLE. I t was a private concern.
*-Ssm$mCAPEHART.
I t was not the Chinese Government?
*£ffr~ iSttraswae. As a matter of fact, somewhere in the clippings that
JUb**«e—-maybe I could find it if I have time—there was a letter from



CONFIRMATION OF THOMAS B. McCABE

109

General Johnson which he wrote to the Shanghai Evening Post and
Mercury, a local English-American-owned newspaper there, in protest of the story that had been carried by Time magazine applying
to this. His letter said, in part, of these drugs:
They are not being held for the black-market operation, the purchaser having
agreed with the Foreign Liquidation Commission on the manner in wliich they
will be distributed in the China market, and the average mark-up at which they
will be sold.

I missed part of it.
[Reading:]

The letter , was dated June

17, 1946.

The supplies were shipped from Okinawa to the customer, a reputable Shanghai business firm, and the supplies are now in process of going through customs.

Which, incidentally, should have revealed the narcotics and blood
plasma.
.
Senator CAPEHART. That is p a r t of the Chinese Government?
Mr. RTJNDLE. To anyone who was interested enough to inquire.
Senator CAPEHART. The customs ?
Mr. RTJNDLE. They were going through Chinese customs.
Senator CAPEHART. The Chinese should have known.
Mr. RTJNDLE (reading) :
They are not being held for black market operations—

which was what Time magazine had indicated—
the purchasers having agreed with the Foreign Liquidations Commission on the
manner in which they will be distributed in the Chinese market and the average
mark-up at which they will be sold.

The price was $25 per unit, American dollars. I t was estimated it
was somewhere around 50 cents per unit that they were purchased.
The CHAIRMAN. Referring to my question, I now read from the
Red Cross statute covering the case:
No surplus property which was processed, produced, or donated by the American Red Cross for any Government agency shall be disposed of except after
notice to and consultation with the American Red Cross. All, or any portion of
such property may be donated by the American Red Cross upon its request solely
for charity purposes.
That is the statute. That is what prompted my inquiry to you, sir.
Senator CAPEHART. I t is not quite clear to me where the blood
plasma came from. How did it get out from under the control of
the Red Cross?
Mr. RTJNDLE. I believe, and I am not clear on this myself, that the
Red Cross turned that over to hospital units. There had been a large
hospital unit at Okinawa, a portable one, that had been put ashore.
There had been a typhoon and some damage, although people who
saw it said there was very minor damage to this particular part. I t
was the complete equipment for a hospital, and the medical supplies.
Also, on another list were surgical instruments, X-ray equipment, all
sorts of stuff. I t was a complete hospital unit, to which the Red Cross
had contributed a certain amount of blood plasma. The whole thing
was dumped in a bulk-sale arrangement.
Senator CAPEHAST. Did General Johnson consummate the sale to
this Shanghai firm ?
Mr. RTTNDLE. Yes, sir; that is right.
The CHAIRMAN. Any other questions of the witness ?
73055—48

8




110

CONFIRMATION" OF THOMAS B. McCABE

Senator FTJLBEIGHT. Was this General Johnson who had such a fine
house and automobile ?
Mr. BUNDLE. N O , sir. That is a colonel.
Senator FULBRIGHT. I n the Army ?
Mr. BUNDLE. An Army colonel.
Senator FTJLBRIGHT. What was his name ?
Mr. BUNDLE. His name was Bell.
Senator FULBKIGHT. What happened to him ?
Mr. BUNDLE. I believe that nothing has happened to him. I understand that the Inspector General's report recommended court martial,
but I think that has not been followed through.
Senator BEICKEE. He is still being held for court martial and maybe
the court-martial proceedings are under way.
The CHAIRMAN. J u s t for human interest, was this business interest
a Chinese woman or an American woman?"
Mr. BUNDLE. I did not see her. I understand she was a White Eussian.
The CHAIRMAN. A cold proposition, I think.
Senator CAPEHART. I am wondering what difference it would make.
Senator FULBKIGHT. I t is not a matter of rumor. Yon know those
physical facts.
Mr. BUNDLE. The basic facts are all quite true. They were well
established.
Senator FULBRIGHT. Were there any other instances of that sort of
thing with these officers that you know of ?
Mr. BUNDLE. That is the most flagrant one with which I am familiar.
Senator FULBRIGHT. Did General Johnson also give evidence of
considerable prosperity ?
Mr. BUNDLE. Not to my knowledge.
The CHAIEMAN. Any other questions ?
Thank you very much, sir. Good wishes to you.
Mr. BUNDLE. Thank you.
The CHAIEMAN. The meeting stands adjourned until 10:30 o'clock
tomorrow morning.
(Thereupon, at 4 : 30 p. m., the committee recessed, to reconvene at
10: 30 a. m., Thursday, March 11,1948.)




CONFIRMATION OF THOMAS B. McCABE
THURSDAY, MARCH 11, 1948
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.
The committee met, pursuant to recess, at 10:45 o'clock a. m., in
room 301, Senate Office building, Senator Charles Tobey, chairman,
presiding.
Present: Senators Tobey (chairman), Buck, Cain, Bricker, Robertson, and Sparkman.
The CHAIRMAN. The committee will come to order.
Mr. William F . McKeima?
Sit down, sir.
Mr. M C K E N N A . Thank you.
TESTIMONY OF WILLIAM F. McKENNA, FORMER COUNSEL FOR
FIELD COMMISSIONER FOR CHINA, FOREIGN LIQUIDATIONS
COMMISSION, EAST GREENWICH, R. I.
The CHAIRMAN. Hold up your right hand. Do you solemnly
promise that the testimony you are about to give will be the truth,
the whole truth and nothing but the truth, so help you God?
Mr. M C K E N N A . I do.
The CHAIRMAN. I might

say to the committee that the witness appearing before us this morning is very loath to appear and it is only
upon urgings and the suggestion that a subpena will be forthcoming
that he is present with us this morning.
Mr. M C K E N N A . What was your connection with F L C ?
Mr. M C K E N N A . I was the counsel to the Field Commission in China,
Senator.
The CHAIRMAN. Who was the Field Commissioner ?
Mr. M C K E N N A . General Bernhard Johnson.
The CHAIRMAN. Did you have any reason to believe before leaving
for Shanghai that there were any irregularities in the conduct of that
office?
Mr. M C K E N N A . The only word I had or the only suggestion of that,
was from my predecessor.
The CHAIRMAN. What was his name?
Mr. M C K E N N A . Major Mullally. I believe it is Lawrence Mullally.
The CHAIRMAN. H e was counsel prior to your incumbency ?
Mr. M C K E N N A . H e was and he returned before I left.
The CHAIRMAN. Did you ever meet him while he was here before
you went out; did you talk with him?
Ill



112

CONFIRMATION OF THOMAS B. McCABE

Mr. M C K E N N A . I never met h i m until I met him here in Washingt o n . H e left W a s h i n g t o n .
T h e C H A I R M A N . S O y o u h a d a chance t o t a l k w i t h h i m .
Mr.

MCKENNA. I

did.

T h e CHAIRMAN. H e told you about conditions there ?
M r . M C K E N N A . H e t o l d m e of suspicions of his, suspicions t h a t
w o r r i e d h i m c o n s i d e r a b l y , b u t w h i c h a t t h e t i m e I discounted because
1 t h o u g h t t h e r e w i s p e r s o n a l friction t h e r e .
T h e C H A I R M A N . I see. L a t e r on, a f t e r you h a d h a d t h e incumbency
of t h e office yourself, d i d y o u find t h a t h i s s t a t e m e n t s a n d a p p r e h e n sions were t r u e ?
M r . M C K E N N A . I w i s h I h a d p a i d a l i t t l e m o r e a t t e n t i o n to w h a t
h e h a d said a n d n e v e r g o n e to C h i n a .
T h e C H A I R M A N . I h a v e h e r e a r a d i o t e l e g r a m d a t e d J u l y 24, 1946,
w h i c h will be i n s e r t e d in t h e r e c o r d a t t h i s p o i n t , f r o m the consulate
g e n e r a l in S h a n g h a i t o S e c r e t a r y B y r n e s in W a s h i n g t o n .
D i d you originate t h a t telegram ?
M r . M C K E N N A . I did,

sir.

( T h e t e l e g r a m r e f e r r e d t o w a s m a r k e d " E x h i b i t A " a n d follows:)
From: Consulate General, Shanghai (via War).
To: Secretary of State, Washington.
Dated: July 24, 1946.
Number: 1332.
Urgent.
The counsel to Field Commissioner, FLC, Shanghai, namely William F. McKenna, has presented his credentials as Compliance Officer this post, along
with copy of operating directive from the Washington FLC commissioner,
authorizing him to have direct communication with the Chief of the Compliance
Branch, Control Division, OFLC, Washington, regarding any matters which
relate to the duties he is to perform; and he requests that the message given
below be transmitted to the Compliance Branch Chief:
Here is Message from Mr. McKenna as China Legal Counsel and Compliance
Officer:
Please see Teopdir 24 and my letters to General Counsel, OFLC, dated June
20th and June 27th. The following is strongly indicated as a result of investigation : One hundred and fifty-one (151) airplanes, spare parts, and miscellaneous
items which cost the United States in excess of $29,000,000 were included in sales
contract WFLC (CH) 458 to Central Air Transport Corporation. Six hundred
and forty thousand dollars ($640,000) is sale price thereof. Following is list
of aircraft: 2 C-87's; 13 C-47A's; 30 C^t7B's; 11 C-46F's; 3 C-47's; 36
C-46D's; 45 G-46A's; 11 B-25's. It is the opinion of responsible people that
two-thirds of the aircraft are readily capable of flying and this makes highly
doubtful the representation that they are in salvage condition.
Eeference sales contract SFLC (CH) 771 to same CATC: Above $250,000 is
material cost; conditions new and downward delivered upon signature of one
Tang for CATC upon air force shipping tickets which stated that FLC regulations.
established agreement to pay prices. To this office shipping tickets were forwarded where SPB 3's show that 156 through 303, with the exception of 174.
were typed from the same shipping tickets. All SPB3's were in this office marked
salvage, except for $11,000 declared cost. To an unknown extent, possible destruction of originals and signed copies of air force shipping tickets is indicated.
Orders have been issued to fiscal division directing that division to draw up and
sign new shipping tickets for sale for seven thousand plus dollars ($7,000+) of
the whole lot; I have intervened to stop proceedings.
Reference sales contracts WFLC (CH) 369, the Texas Company agreed to buy
sheet metal for Standard and for themselves at a price of $95,000 cash, of which
there has been paid, URAD WCL 48864, at least one-half. At price of $58\0O0,
it was resold to the Chinese Government on the 13th of June on credit, Texas
Company not consenting. Then the price was revised by this office to less than
$20,000; still credit Government of China for CT resale.




CONFIRMATION OF THOMAS B. McCABE

113

With regard to sales contract WFLC (CH) 337, please refer to my letter of
June 20th; in order to stop covering of the mentioned cash outlay by refund, I
intervened on the 21st.
Daily consistent objections delivery of property without fixed prices, without
signed contracts, or even without receipts, and to the ignoring of priorities, have
been without effect. Urgent recommendation is renewed for dispatch of field
survey team and it is also requested that you take over investigation as U. S.
authorities, Shanghai.
(Here ends message from Mr. McKenna.)
DAVIS.

The CHAIRMAN. Why did you send it to the consul general rather
than to the Field Commissioner of the F L C ?
Mr. M C K E N N A . Shortly or about a month, I believe, before t h a t telegram or radiogram was sent, I had been appointed Compliance Officer
for the Shanghai Office in addition to my other duties as counsel. I t
was a very difficult juncture of positions. I do not think it should
have been, but it nevertheless was, and by reason of t h a t position I had
express regulatory authority to communicate directly with the Washington office.
Because of the nature of the contents of t h a t radiogram which I
think tells the story, I thought it necessary to go directly to the Consul
General rather than through the normal channels.
The CHAIRMAN. I will ask you to read the radiogram, yourself,
sir.
Mr. MCKENNA (reading) :
From the Consul General, Shanghai.
The CHAIRMAN. Lift your voice a little higher for the benefit of the
press, kindly.
Mr. M C K E N N A (reading) :
From the Consulate General, Shanghai, via War, to the Secretary of State
in Washington, dated July 24, 1946. Urgent. The Counsel to Field Commissioner of FLC, Shanghai, namely, William F. McKenna, has presented his credentials as Compliance Officer, this post, along with copy ( f operating directive
from Washington FLC Commissioner authorizing him to have direct communication with the Chief of the Compliance Branch, Control Division, OFLC,
Washington, regarding any matters which relate to the duties he is to perform;
and he requests that the message given below be transmitted to the Compliance
Branch Chief.
Here is the message from Mr. McKenna as China Legal Counsel and Compliance Officer:
Please see Teopdir 24 and my letters to General Counsel, OFLC, dated June
20th and June 27th. The following is strongly indicated as result of investigation : One hundred and fifty-one airplanes, spare parts, and miscellaneous
items which cost the United States in excess of $29,000,000 were included in
sales contract WFLC (CH) 458 to Central Air Transport Corporation.
The CHAIRMAN. That was a Chinese corporation?
Mr. M C K E N N A . That is a Chinese corporation and in a rather
anomalous status. I t is impossible to pin down whether it is a
government corporation or a private corporation. The answer depends on the way you approach the people who run it.
The CHAIRMAN. I see.
Mr. M C K E N N A (continuing reading) :

Six hundred forty thousand dollars is sale price thereof. Following is list
of aircraft: 2 C-87's; 13 C-47A's ; 30 C-47B's; 11 C-46F's; 3 C-47's; 36 C-46D's;
45 C^7A's; I I B-25's. It is the opinion of responsible people that two-thirds
of the aircraft are readily capable of flying and this makes highly doubtful the
representation that they are in salvage condition.



114

CONFIRMATION OF THOMAS B. McCABE

Eeference sales contract SFLC (CH) 771 to same CATC: Above $250,000 is
materia] cost; conditions new and downward delivered upon signature of one
Tang for CATC upon air force shipping tickets which stated that FLC regulations established agreement to pay prices. To this office shipping tickets were
forwarded where SPb~3's show that 156 through 303, with the exception of
174, were typed from the same shipping tickets. All SPB-3's were in this
office marked salvage, except for $11,000 declared cost. To an unknown extent,
possible destruction of originals and signed copies of air force shipping tickets
is indicated. Orders have been issued to fiscal division directing that division
to draw up and sign new shipping tickets for sale for seven thousand plus
dollars of the whole lot

The CHAIRMAN. I t is $7,000 for the whole lot and it cost how
many million?
Mr. M C K E N N A . $200,000.

The CHAIRMAN. I t is
Mr. M C K E N N A . Yes.
The CHAIRMAN. And
Mr. M C K E N N A . That

$200,000 ?

sold for $7,000.
price by a devise later was reduced to less
than a thousand dollars.
The CHAIRMAN. I S that cash ?
Mr. M C K E N N A . Cash, sir.
The CHAIRMAN. One thousand dollars cash they got out of it?
Mr. M C K E N N A . Yes. sir. [Reading:]
I have intervened to stop proceedings.

That, however, I did not succeed in doing.
Beference sales contracts WFLC (CH) 369, the Texas Company agreed to
buy sheet metal for Standard and for themselves at a price of $95,000 cash,
of which there has been paid, URAD, WCL 4 8 8 6 4 —

The
Mr.

CHAIRMAN.
MCKENNA.

That is a dispatch number?
Yes, sir. [Reading:]

At least one-half. At price of $58,000, it was resold to the Chinese Government on the 13th of June on credit, Texas Company not consenting.

The CHAIRMAN. The Texas Co. paid $90,000 for it, paid half the
sum down, then it was sold instead to the Chinese Government for
$58,000?
Mr. M C K E N N A . On credit.
The CHAIRMAN. On credit?
Mr. M C K E N N A . T h a t is right.
Then the price was revised by this office to less than $20,000 still credit Government of China for CT resale.

The CHAIRMAN. SO we have in effect according to this data, if it is
correct, and I assume it is, $90,000 sale put through by the Texas Co.
with the F L C , on which they paid half down or $45,000, and suddenly
somebody stopped the sale and said sell it instead to the Chinese Government for $20,000. Is that right ?
Mr. M C K E N N A . Yes. They reduced the price first to $58,000 and
then reduced it later to $20,000.
The CHAIRMAN. That was on credit?
Mr. M C K E N N A . I t was on credit, sir. No terms specified.
The CHAIRMAN. S O we throw away a perfectly good cash receivable
thing for $90,000 and substitute in place thereof for value received
$20,000 on credit. Is that right ?
Mr. M C K E N N A . That is right, sir.



CONFIRMATION OF THOMAS B. McCABE

115

The CHAIRMAN. And the American people get the little end of the
horn. Is that right ? Go ahead.
Senator BUCK. Who was in charge of the operation ?
Mr. M C K E N N A . General Johnson, sir.
Senator BUCK. Where is General Johnson now ?
Mr. M C K E N N A . That I do not know, sir.
Senator BUCK. I think it would be well to have him here at uittott
hearings.
Mr. M C K E N N A . I have not heard from the General.
The CHAIRMAN. I t would not surprise me at all if we did not have
him here at the h earings before we got through.
Senator BUCK. I think he is the first man wTe ought to have.
Mr. M C K E N N A (reading) :
AVith regard to sales contract WFLC (CH) 337, please refer to my letter of
June 20th; in order to stop covering of the mentioned cash outlay by refund, I
intervened on the 21st.

That was a payment out of cash receipts, unappropriated funds for
transshipment charges.
Daily consistent objections to delivery of property without fixed prices, without signed contracts, or even without receipts, and to the ignoring of priorities,
have been without effect. Urgent recommendation is renewed for dispatch of
field survey team, and it is also requested that you take over investigation as
U. S. authorities, Shanghai.

The CHAIRMAN. What happened on the receipt of that ? W h a t answer came back from that ?
Mr. M C K E N N A . Mr. Moody was sent out with an assistant, I believe Mr. Duffy, of the fiscal office. I think Mr. Moody arrived in
Shanghai on a Sunday, about the 9th of August in 1946, and took
over the investigation.
The CHAIRMAN. We have had the benefit of his testimony.
Senator ROBERTSON. Is that the cablegram that was sent on t h e
24th of July l
Mr. M C K E N N A . I t is, sir.
Senator ROBERTSON. And you got a
Mr. M C K E N N A . Mr. Moody arrived

response to it on the 30th ?
on the 9th, sir. I don't know

the intermediate——
Senator ROBERTSON. On July 30 you got a response that Moody
was coming ?
Mr. M C K E N N A . That may be correct, sir. I do not remember.
Senator ROBERTSON. Moody got there as quick as he could.
Mr. M C K E N N A . Moody came very quickly.
Senator ROBERTSON. And Mr. McCabe got there on the 15th of
August ?
Mr. M C K E N N A . That is correct, sir.
Senator ROBERTSON. Just 3 weeks later.
Mr. M C K E N N A . I t was very quickly. You see, I had written two
letters before in June.
Senator ROBERTSON. And Mr. McCabe gave full authority to Moody
and all the others to investigate what McCabe was doing.
Mr. M C K E N N A . That is correct, sir.
Senator ROBERTSON. And within 2 months Johnson was out ?
Mr. M C K E N N A . Johnson was removed, I think, on the 15th of
October.



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CONFIRMATION OF THOMAS B. McCABE

The

CHAIRMAN. The 26th of
Mr. M C K E N N A . I t was ?
The CHAIRMAN. One month

October.

after Mr. McCabe resigned, Mr. Johnson resigned.
Mr. M C K E N N A . I was forced to resign in August because of my
objection to the conduct of the office and I was then assigned to the
Inspector General's office in Shanghai.
Senator ROBERTSON. During the period between July 24, 1946, and
the time that Johnson was put out, or at least between the time that
Mr. Moody got there and then Mr. McCabe got there, and the time
that Johnson was put out, did Johnson put through any more of these
deals which you felt were improper and should be criticized?
Mr. M C K E N N A . I had great difficulties in that period, probably
the worst of the entire time in Shanghai.
Senator EOBERTSON. Can you put your finger on any specific deal
that happened after Mr. McCabe got there that would connect him
officially with what was done ?
( Mr. M C K E N N A . I don't think Mr .McCabe was connected with any
of this, sir. There were deals after Mr. McCabe arrived.
Senator EOBERTSON. T h a t is what I felt and probably spoke out of
turn in mentioning yesterday.
Mr. M C K E N N A . Certainly there is no question about Mr. McCabe.
Senator ROBERTSON. Mr. McCabe is the man we are trying, not
General Johnson. There is no doubt from what you and the other
witnesses say, his case needs looking into.
Senator CAIN. The witness said he was forced to resign a particular
job.
Mr. M C K E N N A . That testimony should be qualified, I think, sir.
Senator CAIN. Will you speak broadly to that subject? Precisely
what did you mean ?
Mr. M C K E N N A . Before I sent this telegram, back in June, I was
already considerably worried about what was going on in that office.
I n fact, it was almost an intolerable situation to live in the city of
Shanghai with Americans and work for F L C . So I sent a telegram,
or rather a letter, to the general counsel in Washington, Mr. McCabe's general counsel, on the 20th of J u n e and another one on the
27th of June. I t wTas according to a request from the general counsel
before I left Washington, because of the rumors then and the reports
of Mr. Mullally as to what was going on.
I believe, the Washington office was considerably worried about General Johnson, at least that was my impression, even before I left.
That was the 8th of May, 1946.
Senator CAIN. H a d you requested a transfer ?
Mr. M C K E N N A . I t came up this way: I informed the Washington
F L C authorities when they arrived in Shanghai that I could not
under any conditions continue to work in that office as counsel.
Senator C A I N . How then do you reconcile your statement that you
were forced to resign with your own wish that you did not want to
stay there ?
Mr. M C K E N N A . That is why I say it should be qualified. I t was
put this way, that I could not work in that office Under that personnel,
T h a t was a recognized fact, because I had communicated with the
Washington office.



CONFIRMATION OF THOMAS B. McCABE

117

Senator CAIN. YOU initiated your own removal.
Mr. M C K E N N A . Theoretically I did. Actually, the idea of my removal was brought up by others before I mentioned it, before I p u t
it in writing. But I would go along with the fact t h a t there was
no possibility of my continuing in that post after I had sent these
communications to Washington about General Johnson and the decision was made to leave General Johnson in the post.
Senator C A I N . You would not want this committee left with the
impression that by means which you have not yet defined you were
literally and physically forced to resign?
Mr. M C K E N N A . There was no physical force, and the literal force
is just what I have said.
The CHAIRMAN. D O I understand, sir—if I am wrong you will
kindly correct me—that in your position there, having a sense of
righteous indignation, or something similar or akin to that, over
what was going on and what you were up against, it was not tenable
for you in your self-respect to stay on the job?
Mr. M C K E N N A . I could not remain on the job under those circumstances, Senator.
Sentor SPAEKMAN. Mr. McKenna, I want to ask you t h i s : You
said you could not remain there after having sent the messages protesting against General Johnson, and it was decided to keep General
Johnson in the office.
As a matter of fact, there was not any decision, was there, to keep
General Johnson in the office?
Mr. M C K E N N A . There was a decision, sir, to keep him during the
negotiations of the bulk sale, which would be the conclusion of one
phase of the operations in China.
Senator SPAEKMAN. The decision was really against removing him
until the investigation had been made? Was that not it ?
Mr. M C K E N N A . There was no immediate decision, sir.
The negotiations of the bulk sale were just started. The question
then was whether or not in view of all this General Johnson would
participate or lead the discussions. I will delete the word "lead," just
"participate."
Senator SPAEKMAN. Who made that decision?
Mr. M C K E N N A . That was made, of course, by higher authorities.
I would not know.
Senator SPAEKMAN. You would not normally expect a man to be
removed from a job simply on the filing of a charge against him, would
you. until there had been an investigation ?
Mr. M C K E N N A . There had been an investigation, of course.
Senator SPAEKMAN. I thought you initiated it.
Mr. M C K E N N A . Before I even came to Shanghai, sir, the criminal
investigation division of the United States Army had been compiling
evidence. After I was there, there was a sort of loose working arrangement with the S. S. U. outfit in Shanghai which made photographs
for us and at that time passed out information. So there was really
no formal investigation, but all this evidence in photographic detail
was there.
Senator SPAEKMAN. H a d the information that had been compiled
by the Army investigation group been made available to you?
Mr. M C K E N N A . It"had, sir.



118

CONFIRMATION OF THOMAS B. McCABE

Senator SPARKMAN. Before you left Washington?
Mr. M C K E N N A . No. I do not know that the Washington office knew
anything about this.
Senator SPARKMAN. S O far as you know, the Washington office
knew nothing about the Army's investigation ?
Mr. M C K E N N A . So far as I know, that is correct.
Senator SPARKMAN. And so far as you know, the only word that
came to the Washington office was your radiogram ?
Mr. M C K E N N A . Except, sir, that Moody arrived there on the 9th.
H e was from Washington.
Senator SPARKMAN. I am saying, though, that he came really in
response to your radiogram?
Mr. M C K E N N A . T h a t is correct.
Senator SPAKKMAN. S O as quickly as you sent the radiogram, the
Washington office went into action, did it not ?
Mr. M C K E N N A . I assume it was from the radiogram.
Senator SPARKMAN. They sent Mr. Moody out there. He arrived
promptly, and a few days afterward Mr. McCabe himself saw fit to
come out, did he not ?
Mr. M C K E N N A . I assume it was as a result of the radiogram.
Senator SPARKMAN. The investigation moved right on, then, did it
not, until General Johnson was removed from the job ?
Mr. M C K E N N A . That is right. I don't know how much detail you
want me to go into there, Senator.
Senator SPARKMAN. I want to be certain of the general outline.
Mr. M C K E N N A . I think it was the 15th of August. Of that date, too,
there is some question.
The day Mr. McCabe arrived, we tried to get a conference with
him, Mr. Moody, and the other representatives of the Washington
office, and the others who were familiar with what was going on. Mr.
McCabe was busy, I believe, and we talked with his executive officer,
Colonel Starr. That is when the decision was made as to how the
investigation would be conducted.
The CHAIRMAN. Just for the minds of the members, I will point out
the sequence of events was that Mr. McCabe was notified by cable by
Mr. McKenna, his counsel, in the middle of July 1946 of Johnson's
irregularities. Mr. McCabe resigned his commission on September
20, 1946, 2 months later. General Johnson was allowed to resign on
October 14, 1946. I point out that General Johnson was allowed to
resign after Mr. McCabe has resigned from his office.
Yesterday, sir, you may not have been here. I assume you were not?
Mr. M C K E N N A . I was not.
The CHAIRMAN. I read to

Secretary Patterson the Inspector General's report of the W a r Department on these irregularities and the
issue of destruction of the planes and all, which he confirmed, and Mr.
McCabe had been advised of it. I would like to ask you now about
Mr. Mullally. What did Mr. Mullally find out about the rotten situation in China that you know ?
Mr. M C K E N N A . His objections as related to me by him, I do not
know about any relation he may have made to anybody else, but to me
he objected principally to the sale of the drugs to K. H. Powell Khoong.
I t could be, but I don't believe that Mullally knew that blood plasma,
narcotics, and surgical dressings were included in that sale.




CONFIRMATION OF T H O M A S B. McCABE

119

He was removed, according to his relation to me, because of his
objection to t h a t sale.
The CHAIRMAN. YOU were not here yesterday. I will read you the
Inspector General of the Army's report, which I read to Mr. Patterson :
The actual destruction w a s accomplished by the request of L i e u t e n a n t Colonel
John K. Bell, who requested Major H o w a r d Detrick AC 0-934872 to m u t i l a t e t h e
B-25's with acetylene torches. Major Detrick asked his Supply and T r a n s p o r t a tion Officer, F i r s t Lieutenant W a r r e n E. DeLoeh AC 711151, who, with t h r e e men
cut the tails off those B-25's pointed out by Mr. Bell who s t a t e d t h a t Mr. T h o m a s
B. McCabe gave direct instructions to Brigadier General ( r e t i r e d ) B. A. J o h n s o n
in the presence of bis Executive Officer, Colonel E d w a r d S t a r r , Jr., O-OOOotU a n d
his legal adviser, Charles H. Kendall, t h a t these B-25's be m u t i l a t e d so t h a t he
might counteract the unfavorable newspaper publicity by issiring a press release.
Lieutenant Colonel Bell said he was then ordered by Mr. Charles H. Kendall, Mr.
McCitbe's aide, to carry out Mr. McCabe's wishes.

This is from the Inspector General's report of the Army investigation. Has any United States authority in Shanghai previously discussed the conduct of the F L C Shanghai office with you?
Mi'. M C K E S N A . I believe on the 29th of June, again that may be
one day off one way or the other, and it should be checked. I had word
relayed 1 hrough Colonel Cook of the F L C office that the consul general
in Shanghai wanted to see me immediately at his apartment in the
Cafe Hotel in Shanghai.
I had never met the consul general. I did go then immediately to
see him. He told me then of the serious concern that he had because
of the general talk in Shanghai about F L C . Everyone of us in the
F L C office had been faced with that. I don't know whether he told
me then of the specific complaints which he had received from American businessmen.
Later, I saw these and there were the accusations in there of dishonest activities in these confidential communications to the consul
general from representatives of American businessmen.
At that time, I still felt that most of this, in fact practically all of it,
might be entirely rumor. I talked for a long while with Mr. Davis,
asking him not to send in his own investigators at that time, which
seemed to be his plan. The reason for that was of course that F L C
had its own compliance outfit and as an F L C employee, I did want
its own compliance outfit to handle it if possible.
There would be somewhat less of a stigma on the organization if
it were handled that way.
Mr. Davis agreed on conditions. The conditions were that I keep
him informed of any information that I got and that I keep my own
eyes open. H e was considering seriously at t h a t time conducting his
OAvn investigation.
The CHAIRMAN. Mr. Davis was the consul general ?
Mr. M C K E N N A . H e was, sir.
The CHAIRMAN. Why did you

ask the consul general not to send in
his own investigators?
Mr. M C K E N N A . For that reason, Senator, that F L C did have its
own compliance officer and as an F L C employee I would have preferred to have had the investigation conducted by F L C .
The CHAIRMAN. What are the two matters you then considered had
more than rumor behind them? You told me there were two matters.
Mr. M C K E N N A . When I talked to Mr. Davis, I did state to him that,
with two exceptions, I did not think there was at that time any definite



120

CONFIRMATION OF THOMAS B. McCABE

proof of any very grievous calculated misconduct. Those two exceptions were, first, the payment of more than $10,000 out of cash receipts, unappropriated money, for transshipment charges for a certain cargo. The cargo, so far as I was able to learn, was shipped from
one of the islands of the Pacific without a written contract. That was
an unfortunate general practice in the office which I never was completely able to eradicate.
When they arrived at Shanghai the prospective purchaser, assuming
there was one, refused to take it. So the goods were put into warehouses, and warehousing charges were, of course, charged against F L C .
The F L C then paid those warehousing 'charges, some $10,000 or
$11,000, out of cash receipts, which of course was unauthorized.
Senator ROBERTSON. I S that the cargo that was then sold for
$200,000?
Mr. M C K E N N A . T h a t could be the figures, sir. I don't remember.
The CHAIRMAN. Was either or both of these violations of the law?
Mr. M C K E N N A . The other one I was getting to, Senator, was the
employment by General Johnson. This first payment of $10,000, in
my opinion, speaking as a lawyer, is a direct violation of the statute.
B u t it was my opinion as expressed to Mr. Davis at the time that that
probably was just a blunder. I t seemed like a very childish blunder.
' Senator ROBERTSON. Before you leave that, I will say it has been
brought out here somewhere in this testimony that that matter is
now under investigation by the General Accounting Office.
Mr. M C K E N N A . I don't know that, sir.
Senator ROBERTSON. If it was illegal, it is going to be charged back
to somebody in the Army. Whoever the accounting officer is who
signed up for that, he will probably have it charged back to him unless
he can prove t h a t he saved the Government money, and get relief,
or unless Congress relieves him by exercising what he thought at
that time was the best judgment.
You could not let the cargo go back out in the Pacific somewhere,
could you ?
Mr. M C K E N N A . All I know about that is what I learned in Shanghai.
I don't know the after-developments. However, the second factor
was General Johnson's employment. Col. Robert B. White, of the
Shanghai office, had come to me very early after I had arrived in
Shanghai to state that General Johnson was negotiating for employment for General Johnson and for Colonel White with the Chinese,
and Colonel White had several questions. I think he even wanted
to know something about the drafting of a contract. I gathered
from Colonel White's questions that he was a little afraid of it and
wanted to know whether it was definitely wrong. I never did tell
Colonel White it was wrong because in his case I did not believe it
was. Colonel White never had anything to do with the making of
sales to the Chinese or to anybody else. H e was there as a technical
adviser to the Chinese, so I could not consider there was anything
wrong in his going on the Chinese pay roll.
That is probably where he belonged. However, the fact that General Johnson, who handled the sales, who fixed the prices, and determined what goods would be sold, was himself negotiating for a job
with the Chinese, with his customers, was something that I reported
right away to Washington. That was on the 20th of June in 1946.
The C H A P M A N . You reported that General Johnson was negotiat


CONFIRMATION OF THOMAS B. McCABE

121

ing to get a job with China ? We hear the job described with rather
munificent returns to him. You reported it to Washington in June?
Mr. M C K E N N A . Just as I reported it to Colonel White in a personal
letter in a double envelope to the general counsel in Washington.
The CHAIRMAN. Did you know that Mr. Moody when he was here,
testified that he requested that you, Mr. McKenna, be—
assigned to the Washington FLO office from whence he came or to Manila field
office,' the next higher echelon, where lie would not be in the dual position of being
the attorney for and the investigator of the same man, General Johnson.

Did you know that?
Mr. M C K E N N A . That suggestion was made, or recommendation was
made, both by Mr. Moody and Captain Luboshez, the general counsel
lor the Pacific. My position was anomalous. I t was impossible tor
me to perform my services.
The CHAIRMAN. Did you know that that request of Mr. Moody was
refused by Mr. McCabe's executive, E d Starr ?
Mr. M C K E N N A . Yes, Colonel Starr did refuse that request.
The CHAIRMAN. Did Mr. McCabe send investigators in response to
your letters ?
Mr. M C K E N N A . That I can hardly answer, Senator. I sent two
letters, one on the 20th of June which should have arrived before the
1st of July, and another on the 27th of June. The first word I had
from Washington—this is my best recollection—was about" the end of
July, when word came of Mr. Moody's coming to Shanghai.
The CHAIRMAN. So a month went by from the time the letter was
received here before you got word he was coming out.
Mr. M C K E N N A . That is correct.
The CHAIRMAN. I n the meanwhile, Johnson was carrjdng on his
nefarious work.
Mr. M C K E N N A . He was continuing his duties, sir.
The CHAIRMAN. I put it a little differently.
What action did Mr. McCabe take as a result of those letters?
Mr. M C K E N N A . I have no knowledge. I do know that this irked
me considerably at the time. I had p u t those letters in double envelopes addressed to the general counsel, with the full expectation that
they would be burned after he read them. Instead, they were mimeographed, circled around the Washington F L C office, and I was taken
to task by Colonel S t a n when he arrived in Shanghai for having
written them. He said he had considerable doubts about me, apparently of my sanity, because I had written such letters.
The CHAIRMAN. Why did he object to your bringing rotten conditions to the attention of the authorities in Washington?
Mr. M C K E N N A . That was apparently his objection.
The CHAIRMAN. YOU were nonplussed to know why he should object,
were you not ?
Mr. M C K E N N A . That is true, sir, although there was no question
there was considerable animosity to me, which I had discounted. I
did not take it personally, but there was considerable animosity because I had reported those facts.
The CHAIRMAN. Those letters were mentioned to you by Colonel
Starr?
Mr. M C K E N N A . And by numerous other persons. Apparently
everybody in P L C in Washington had seen them.



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CONFIRMATION OF T H O M A S B. McCABE

The CHAIRMAN. HOWT did General Johnson learn of them ?
Mr. M C K H N N A . On the day after Mr. McCabe's arrival, Mr. Moody.
Captain Luboshez, and several others and myself, had a conference
with Colonel Starr at which wTe reported the evidence that we had
accumulated and it was then that Navy Captain Luboshez recommended Johnson's removal from the Chinese negotiations.
The CHAIRMAN. What date was that ?
Mr. M C K E N N A . I would guess the 15th or 16th.
The CHAIRMAN. Of what month and year?
Mr. M C K E N N A . Of August in 1946.
The CHAIRMAN. Was Mr. McCabe present when General Johnson
was informed of the details of this evidence against him?
Mr. M C K E N N A . Apparently Colonel Starr—I should not say Colonel
Starr—yes, Colonel Starr admitted to it. T h a t is right. Colonel
Starr did admit that he relayed the full details of all this evidence
immediately to General Johnson and I heard that from other responsible persons present. Whether Mr. McCabe was present, of course, I
cannot say. Mr. McCabe was in Shanghai, but I was not there at the
time that the evidence was relayed. I do know that the inspector
general was very, very much upset about it and did complain bitterly
that his investigation was made extremely difficult because the details
of the evidence had been given to General Johnson before they were
given to him.
The CHAIRMAN. YOU do not blame him, do you ?
Getting back to the radiogram you sent July 24, 1946, what caused
you to send it ? Can you amplify your statement on that ?
Mr. M C K E N N A . As I said, Senator, I was hoping all along that
everything reported was nothing more than rumor. I t was a hope
which I could hold up to this one point in July. I n the middle of July
it was reported to me by Colonel Cook that certain S P B - 3 forms, the
forms on which Army declares surplus, had been received in the FLC
office with the conditions as written by the Army stricken or just
stamped over "salvage"; that with relation to some of these there were
attached shipping tickets bearing a definite promise to pay on the part
of the purchaser, which was CATC, the Central Air Transport Corporation ; that with respect to the balance of them, in fact all of those
that had been stamped salvage, the great mass of them, about $180,000
worth, the shipping tickets did not accompany the S P B - 3 forms. Apparently it had been learned there were originally shipping tickets
bearing on the face of them a definite promise to pay for the goods.
I immediately talked with the civilian employees at the airfield, and
they confirmed Colonel Cook's suspicions. I then talked with General
Johnson, told him what I had learned, and of my terrific concern over
them, because I could not see any honest explanation for those facts.
I talked with General Johnson very earnestly for about an hour
on the morning of the 24th of July, trying to persuade him to take
certain action to get to the bottom of what looked like a very inequitable
deal.
General Johnson took certain action that morning with respect to
those shipping tickets that led me to send the radiogram.
(The documents referred to were marked "Exhibits B , D. E. F , and
G," inclusively, and will be found in the files of the committee.')
Senator BUCK. What action did he take ?



CONFIRMATION OF THOMAS B. McCABE

123

Mr. M C K E N N A . I recommended to General Johnson that he direct
his efforts to getting the missing shipping tickets and questioning
them. At that time I had a conference at 10 o'clock with General
Choong, the Chief of the Chinese Board of Supply and told General
Johnson before I was leaving that I had that conference.
Eight after I had left there was a meeting in the F L C office between
Colonel Cook, and Col. John E. Bel], and possibly one or two others,
with General Johnson.
Not a complete transcript, but a relation of what happened there was
dictated by both Mr. Mietus and Colonel Cook immediately afterwards
to the Army Criminal Investigating Division. I don't know whether
you have a copy of that here, which would be better than my testimony,
but a reading of that and a study of General Johnson's questions there
led me to the obvious conclusion that he was trying to whitewash it
and find an out rather than trying to locate the missing shipping tickets
or to explain the stamping in the F L C office* Of course, the F L C
office—excuse me.
Senator ROBERTSON. YOU finish the statement on that.
Mr. M C K E N N A . I was just going to say the F L C office had no power
to rate the conditions of goods. That was done by the Army.
Senator ROBERTSON. When was your cable sent to Washington stating that you learned that General Johnson was negotiating with the
Chinese for private employment?
Mr. M C K E N N A . That was in an airmail letter of J u n e 20, sir.
Senator ROBERTSON. Mr. McCabe testified before us as follows:
Meanwhile I had received ab'out the 1st of June from General Johnson a
letter stating that an official of the Chinese Government had asked Johnson if
he would accept employment by the Chinese Government to assist in marketing
the bulk surplus property to be purchased by that Government from FLC. Johnson
stated in his letter that he had discussed the matter with the Central' Field
Commissioner, Mr. Howard

You knew him ?
Mr. M C K E N N A . I did know him. Not very well. He left just as I
arrived.
Senator ROBERTSON. Continuing his testimony:
who was opposed to it, and that he had discussed the matter with General Marshall,
who expressed agreement with the need of the Chinese for such help as Johnson
would be able to give, but said he was not sure of the legal aspects of such
employment.
I replied promptly to this letter advising General Johnson that I thought such
employment would not be proper, and at the same time General Connolly asked
General Farthing, who was then about to leave for the Far East on a mission for
us, to determine whether this offer of a position had progressed to the point of
negotiation or had otherwise compromised the Field Commissioner or rendered
him less useful as a representative of the United States. The response to this
was a letter from Johnson dated July 12, 1946, which read as follows:
"I had a long talk with General Farthing on this matter * * *."

He said further:
"I never really seriously entertained the offer from Dr. Soong for a number
of reasons."

Then he gave the reasons.
I n response to a question bv the Chairman vou said that Mr. Moodv
wished to relieve you from an anomalous situation and have you
assigned directly to an outfit that was going to investigate Mr.
Johnson.



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CONFIRMATION OF THOMAS B. McCABE

Mr. M C K E N N A . T h a t is right, sir.
Senator ROBERTSON. A n d that Mr. McCabe's aide turned down that
request.
Mr. M C K E N N A .

Yes,

sir.

Senator ROBERTSON. That leaves an inference and I do not think it
ought to be left as an inference. I think you should either directly
make the charge or deny the charge that the failure or refusal to
assign you to the Moody investigating outfit was inconsistent with
the desire on the part of Mr. McCabe to develop all the pertinent
facts concerning the operations of General Johnson.
I think you either ought to charge that or else deny it and not leave
it as an inference that we wanted to investigate all the facts. You
say, " I knew about the facts. Moody asked for me to be assigned and
I was turned down." T h a t is not a fair way to leave it.
The CHAIRMAN. H e said he was turned down by Colonel Starr, who
was Mr. McCabe's executive assistant; that is what he said. .
Senator ROBERTSON. Then why was he turned down i Was it inconsistent with the desire of Mr. McCabe to get all the facts ? Were they
trying to cover up ? Were they trying to protect General Johnson I
Or was there some other good and sufficient reason as to why they did
not want to make this particular assignment ?
Mr. M C K E N N A . Of course, I would have to read Mr. McCabe's mind
to answer that question.
Senator ROBERTSON. YOU can read your own mind. You cannot
read mine. Tell me what is in your mind about it.
Mr. M C K E N N A . My impression, Senator, is that it was not expected
that either Mr. Moody nor anybody else in that investigation would
go too deeply.
Senator ROBERTSON. What is your ground for that ? Is that a surmise or is that based on substantial facts that you can prove here?
Mr. M C K E N N A . We were consistently told—I had better go to the
beginning of that, Senator. When the investigation started it was
our understanding that there would be a joint investigation. Captain
Lubochez, who was the senior legal counsel in the Pacific, and I,
who was the only other lawyer present in conference with Colonel
Starr, recommended that this evidence we had had to be turned over
as a matter of law to the Department of Justice.immediately. We
were overruled on that.
If I remember Colonel Starr's words, it was "the F B I or a bunch
of publicity hounds" or something like that. *
Senator ROBERTSON. YOU were presented to us as a most reluctant
witness. You did not want to come here. You did not want to
testify.
The CHAIRMAN. T h a t is correct.
Senator ROBERTSON. NOW you are telling us that the reason they did
not turn it over to the Department of Justice was they were a bunch
of publicity hounds.
The CHAIRMAN. No, no. I beg your pardon. Just a minute here.
T h a t is putting words into witness' mouth. The witness referred to
testimony already given here. This man said the other dav. the testimony of Mr. Moody, that the answer was "We won't have them, the
F B I are a bunch of publicity hounds." H e is merely repeating
someone's sworn testmony here.



CONFIRMATION OF THOMAS B. McCABB

125

Mr. M C K E N N A . I would much rather not answer anv of those Questions, Senator.
Senator ROBERTSON. But you have gotten into this thing now and we
have to get to the bottom of it.
Mr. M C K E N N A . My definite impression is t h a t we were not supposed to go into this too deeply.
Senator ROBERTSON. Are you quoting with approval or disapproval
the Moody charge that the reason the F B I was hot in there was
because they were publicity hounds, or do you know as a lawyer
that the F B I does not operate all over the world, that it operates in
this country and that is the reason the Justice Department said it
could not make the investigation ?
Mr. M C K E N N A . I do not know any of those facts.
Senator ROBERTSON. YOU are a lawyer, are you not ?

The CHAIRMAN. Before you answer that question, this matter has
been brought up here and I want to read for the benefit of the Senator
from Virginia the statement, sworn testimony of Mr. Moody:
Colonel Starr replied that he would not call in the FBI because the FBI
were, and I quote, "a bunch of publicity hounds." He said he would ask
General Johnson to request an investigation by the local office of the Army Inspector General, and that if General Johnson refused, he would insist. Gen.
Donald II. Connolly has since testified before The Senate Subcommittee on
Surplus Property that Mr. McCabe himself requested the United States Army
Inspector General's Department to conduct the investigation.

They conducted an investigation and I read the report in here this
morning, and also yesterday.
Senator ROBERTSON. The point I want to know is why this witness
comes and tells us that in his own mind he does not know what is in
the minds of others.
The CHAIRMAN. I will tell you why he does. You asked him to tell
whai is in his mind, that is why. You first asked him to tell what
is in his mind and then you criticize him for telling it.
Senator I1OI>I]RTM>N". That is right; because he does not show a good
foundation for what is in his mind. That is what I am going to try
to bring out.
You say to us that you do not think that Mr. McCabe wanted to
go into this too deeply. Is that not what you said a while ago?
Mr. M C K E N N A . I do not know what Mr. McCabe said back in F L C
in Washington.
Senator ROBERTSON. Mr. McCabe is the man being charged with misconduct that would disqualify him from being confirmed as chairman
of the Federal Reserve Board. H e is the man who is on trial, so to
speak.
Did Mr. McCabe do anything to interfere with the operations of
Mr. Moody over there ?
Mr. M C K E N N A . Mr. McCabe personally? N o ; F L C , yes.
Senator ROBERTSON. Mr. McCafte did not have anything to do with
interfering with Mr. Moody? Mr. McCabe is the man we are concerned with. Did Mr. McCabe have anything to do with turning this
investigation over to the Army?
Mr. M C K E N N A . All I know on that, sir, is a memorandum signed
by Colonel Starr that it was done by Mr. McCabe. Colonel Starr himself told at that time that was what was going to happen right after
we presented the evidence to him.
73055—48

9




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CONFIRMATION OF T H O M A S B. McCABE

Senator ROBERTSON. Mr. McCabe has testified to' us that it could not ;
be handled by the Department of Justice because of the fact F B I men
could not be sent all over the world. Therefore the Army was the only
one to handle the job and it was turned over to the Army.
Do you mean to charge the Army with making a superficial and
improper investigation of this matter, or did they go in as deep as they
found any facts to take them down?
Mr. M C K E N N A : I would certainly not charge the Army or Colonel
Dougherty, who conducted the investigation, with anything but thoroughness.
Senator ROBERTSON. All right. Then you do not wish to create the
impression in the minds of this committee that you would want to sit
here and charge Mr. McCabe with not wanting fully to investigate the
alleged misconduct of General Johnson?
Mr. M C K E N N A . I don't want to charge anything against Mr. McCabe,
Senator. You put a questionSenator ROBERTSON. YOU and I understand each other, then.
Mr. M C K E N N A . We in Shanghai understood I was not to go too
deeply into this investigation and that was my understanding on it.
Senator ROBERTSON. But you do not connect Mr. McCabe with that?
Mr. M C K E N N A . I do not. I do connect it with F L C in Washington.
Senator ROBERTSON. I do not care who else is connected with it. I
would like to see General Johnson fully investigated, but I wanted to
make clear whom you were shooting at.
The CHAIRMAN. We are shooting at Mr. McCabe. He is the man
up before us. Mr. McCabe, in my opinion, is directly responsible for
all these things because on the testimony of Senator Ferguson and the
W a r Investigating Committee, McCabe was head of the F L C .
Starr was his head man. Starr is the man you dealt with. I t is
inconceivable that McCabe would not know what was going on. The
W a r Department, in an official communique, charged that Mr. McCabe
was told of these things. Mr. McCabe was the F L C . Starr was the
first understudy.
I read you now, if I may, please, the testimony which is what you
think about that memorandum issued after that conference.
Senator ROBERTSON. If you will permit me, you are on the jury.
The CHAIRMAN. Yes; I am on the jury and I am prosecuting the
case, too, to the best of my understanding and intelligence. I do not
ask a witness to tell what is in his mind and then criticize him for
doing it.
Senator ROBERTSON. I was analyzing his mental processes.
The CHAIRMAN. The facts speak for themselves if you scratch the
surface, I might tell j'ou all.
Let me go on. Here is the confirmation I want from you. This
memorandum is with reference to the background decision request for
investigation:
t
After t h e a r r i v a l of a mission from United S t a t e s on Thursday, August 15,
Colonel S t a r r received a telephone call from Mr. W a r d , compliance officer from
Washington, OFLC, requesting a meeting a t 0930 on F r i d a y , August 10. The
meeting w a s held and a t t e n d e d by Mr. Moody, Mr. W a r d , Mi'. McKenna, Captain
Luboshez, and L i e u t e n a n t Duffy.. At t h i s meeting the group stated t h a t there were
articles shortly to be released by newspaper correspondents criticizing the operations of OFLC, a n d inferred t h a t such articles might include criminal allegations.
T h e chief facts were pointed out hastily to Mr. McCabe and Mr. Vogelback.
Mr. McCabe directed Colonel S t a r r to assume responsibility for talking t h e prob


CONFIRMATION OF THOMAS B. McCABE

'

127

lem over with General Johnson and determining suitable steps. Both Mr. McCabe and Mr. Vogelback did not believe these rumors, but felt that in accordance
with the policy of OFLC any such allegations must be investigated and clarified
completely.
The mission left for Peiping at noon on Friday, August 16, and a group including General Johnson, Mr. Vogelback, Mr. Dudley and Colonel Starr returned
to Shanghai Sunday afternoon, August 18. On arrival in Shanghai, Messrs. Vogelback, Dudley, and Colonel Starr talked to General Johnson, who took the position
that he would demand an investigation by the Inspector General's section of the
China Service Command, in order to clarify the position of his office. I t was
decided that General Johnson and Colonel Starr would meet at 8: 30 on Monday
morning, August 19, to take the necessary steps.
Is that correct ?
Mr. M C K E N N A . A good p a r t of t h a t I know.
The CHAIRMAN. I t is taken from the official reports of the W a r I n vestigating Committee, original copies. This is a certified copy.
This investigation was made by the Inspector General which I
quoted to you a few minutes ago, which was read yesterday, which
directly brings these parties in, even Mr. McCabe, with full knowledge
of these matters.
Mr. M C K E N N A . I wasn't here yesterday, sir.
The CHAIRMAN. Did I not read it to you a few minutes ago ? Get
me that Inspector General's report.
That memorandum is signed by S t a r r himself, Mr. McCabe's executive. Where is t h a t thing I read from S t a r r himself I
I am reading what I read yesterday to former Secretary of W a r
Patterson:
The CHAIRMAN. Mr. Patterson, I want to read to you from your Army Inspector General's report written, I assume, while you were Secretary of War on the
investigation of the condition of the B-25's made before their destruction by
Maj. Raymond C. Pierce and First Lt. Raymond H. Grant. I quote the verbiage:
"The actual destruction was accomplised by the reqviest of Lieutenant Colonel
John E. Bell, who requested Major Howard Detrick AC 0914872 to mutilate
the B-25's with acetylene torches. Major Detrick asked his supply and Transportation Officer, First Lieutenant Warren E. DeLoch, AC 711151 who, with three
men cut the tails off those B-25's pointed out by Bell who stated that Mr. Thomas
B. McCabe gave direct instructions to Brigadier General (retired) B. A. Johnson
in the presence of his Executive Officer, Colonel Edward Starr, Jr., 0900561, and
his legal adviser, Charles H. Kendall, that these B-25's he mutilated so that he
might counteract the unfavorable newspaper publicity by issuing a press release.
Lieutenant Colonel Bell said he was then ordered by Mr. Charles H. Kendall, Mr.
McCabe's aide, to carry out Mr. McCabe's wishes."
T h a t was made a fait accompli. T h a t is the Inspector General's
report of the Army. H a d you ever heard t h a t before?
Mr. M C K E N N A . Those are the circumstances as I understand them,
sir.
The CHAIRMAN. Going on, what explanation was given by the F L C
Shanghai for this alteration in exhibit B of these contracts?
Mr. M C K E N N A . These are the declaration forms of which I talked
sometime ago. The conditions reported by the Army in these four
instances here were typed over, stricken out, and the word "salvage"
stamped on. I think in all four instances, yes, in all four instances,
the original condition is clear and can be seen under the strike-out.
The stamp "salvage" is p u t in in at least three cases, I believe, on
every one of these forms. T h a t was the matter which I took up with
General Johnson on the 24th of J u l y and about which I was quite in-




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CONFIRMATION OF THOMAS B. McCABE

sistent and talked with him for quite a period trying to get an explanation.
No explanation was given at that time, or later, until the Inspector
General put witnesses of the F L C Shanghai office under oath and the
explanation that was then given as Colonel Dougherty told me, was
that this stamping of "salvage" and converting the condition of the
commodities sold from new, good, and fair, to "salvage," was to show
a better return on sales on the FLC's records.
When goods are carried as salvage, they are carried at no cost to
the United States, so any return from their sale is that much return
on nothing, wThich shows a better F L C record. That, however, I got
from Colonel Dougherty, the Inspector General, and not from any
explanation t h a t was given to me personally.
The CHAIRMAN. What do you know about the sale of medical supplies to K. H . Powell Khoong ?
Mr. M C K E N N A . That was the contract which Mullalley told me
about before I left for Shanghai and which caused me considerable
concern before I left Washington. Mullalley had been removed because of his objection to that contract.
The CHAIRMAN. Let us get this clear before we go any further.
This is the contract that had to do with blood plasma ?
Mr. M C K E N N A . That is correct.
The CHAIRMAN. I n a hospital unit in Okinawa, which included
narcotics and blood plasma. I t was testified yesterday it was a
complete hospital unit. Is that the contract that covered that sale?
Mr. M C K E N N A . That is correct, as we discovered later.
The CHAIRMAN. Those were sold to K. H . Powell Khoong; is that
correct ?
Mr. M C K E N N A . T O K. H . Powell Khoong. We did not know there
was blood plasma on that until Walter Rundle, who was chief of the
United Press Bureau in Shanghai, when he was called in by Mr. Moody
after his arrival to tell us what he knew, told us that it might pay us
to go into a certain warehouse in Shanghai. Moody and I went there
and saw this fellow to whom Rundle referred us, a man by the name
of Roman. I think he was a Swiss. Roman let us go through the
warehouse receipts and the records of the warehouse, showing what
goods had been distributed out of the F L C stocks in the warehouse.
I t was there that we saw there was blood plasma, not the narcotics,
but I think also surgical dressings which had been included in this
contract to K. H . Powell Khoong.
The CHAIRMAN. Did he mention to him, this man Roman, who gave
the instructions for distribution ?
Mr. M C K E N N A . Roman, when we questioned him, had a rather
strange attitude about it. He was a little aloof. I still remember
-the way he approached it, the way he answered our questions, with a
little bit of contempt in his tone of voice. He told us that three
persons had come to the warehouse to give instructions for the disposition of those goods which had been sold to K. II. Powell Khoong.
H e described one of those persons as a nationally known—he named
him as a nationally known—Chinese. The second person was K. H.
Powell Khoong, and the third person was a United States Army
officer.
The CHAIRMAN. W h a t was the name of the officer ?
Mr. M C K E N N A . H e did not give us the name.



CONFIRMATION OF THOMAS B. McCABE

129

The CHAIRMAN. W h a t was the name of the Chinese ?
Mr. M C K E N N A . T. L. Soong, the brother of the former Premier.
The CHAIRMAN. There were three people ?
Mr. M C K E N N A . Three persons, according to this fellow Roman.
The CHAIRMAN. Soong was one. Who was the next one?
Mr. M C K E N N A . K. H. Powell Khoong and an unnamed United
States Army officer. The only clue we have to the identity of that
other person comes from Mr. Walter Rundle. I don't know whether
he testified
The CHAIRMAN. H e testified yesterday.
Mr. M C K E N N A . I know he testified, but I don't know whether he
testified on this point. He informed us of a colonel in the Army
who had told us it was General Johnson. But I have no personal
knowledge of that.
The CHAIRMAN. Did he say that anybody else participated in this
distribution besides these three i
Mr. M C K E N N A . N O . According to him, Soong gave the primary
orders for all the goods in the warehouse bought from FLC. Whether
they were bought on the Chinese Government or whether they were
the personal account of K. H . Powell Khoong, the directions were
given by Mr. T. L. Soong.
The CHAIRMAN. Do you know any further details of the sale, the
advertising (hat was used, anything further that would be of interest
to this committee as to the distribution of this amazing transaction
in blood ?
Mr. M C K E N N A . I don't read Chinese, Senator, so I have to rely
on translations of the advertisements of the blood plasma in the
Shanghai Chinese newspapers. They were rather lurid functions that
were attributed to American blood plasma, according to the translation I had.
The CHAIRMAN. D O you know whether Mr. Khoong, the purchaser
of the blood plasma, had any part in General Johnson's negotiations?
Mr. M C K E N N A . All I know of that, Senator, was what General
Johnson told me after I had refused to servo any longer in the office.
The CHAIRMAN. What did he tell you ?
Mr. M C K E N N A . General Johnson told me that the negotiations with
the Chinese for employment had begun when he was approached by a
Col. Ralph Ohnstead, I believe, back in February of 1946.
Col. Ralph Ohnstead seemed to be very well known in Shanghai but
I don't know'the gentleman personally. He said the next approach to
him with respect to his employment by the Chinese was made by Mr.
K. H. Powell Khoong, whom he described as Mr. T. V. Soong's
Shanghai representative.
That, I understood from General Johnson, was about in March of
1946.
The CHAIRMAN. What was the total value of this blood-plasma sale?
I do not mean the value. I mean, what was the amount that we got
from if ?
Mr. M C K E N N A . I believe we got $1,500,000 for the entire lot of drugs
that were sold.
The CHAIRMAN. I n dollars?
Mr. M C K E N N A . I n United States dollars. The value of the blood
plasma was extremely low. I have just been repeating from memory,
Senator, which can be away off. I t was my recollection that each of



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CONFIRMATION OF THOMAS B. McCABE

these parcels that sold for $25 had cost something like 13 or 14 cents.
The CHAIRMAN. 13 or 14 cents ?
Mr. M C K E N N A . That is my recollection which can be faulty.
The CHAIRMAN. And they, did not sell them as blood plasma to restore life, but to restore vitality ?
Mr. M C K E N N A . T h a t is the translation that was given to me.
The CHAIRMAN. Then it was substantially contemporaneous with
the sale of American blood plasma to Khoong, the F L C Field Commission, General Johnson, discussed the employment with Khoong.
Mr. M C K E N N A . According to General Johnson; that is correct.
The CHAIRMAN. According to him. That ought to be expert
testimony.
W h a t else do we know about Johnson's employment efforts while he
was Mr. McCabe's Commissioner in China and eastern Asia ?
Mr. M C K E N N A . The only three sources I have are, first, the general
report in Shanghai. Everybody knew that Johnson was negotiating
for jobs with customers of FLC. If you told anybody in Shanghai
you worked for F L C you were in for a bad evening.
However, Colonel White did come to me soon after I arrived there
with his story of these negotiations for himself, which were being
conducted, he said, by General Johnson.
Colonel White is completely, in my opinion, free of any suggestion
of wrongdoing in this, and I believe the reason he took it up with me
was to find out whether there wTas anything really wrong.
As I said, in his case I could not say there was, because he had no
p a r t in any sale to the Chinese.
The CHAIRMAN. What did he tell you ?
Mr. M C K E N N A . From time to time he told me of these negotiations
by Johnson for him, and Johnson's report on how much of his return
would be salary, and how much would be commission.
H e talked of something like $35,000 a year for General Johnson,
with house, car and chauffeur, transfer position, and so forth, with
something like $15,000 for himself.
I believe those wTere tentative figures that were part of the discussion.
The CHAIRMAN. Yon said a minnte ago that when anyone in China
learned that you were with the F L C outfit you were in for a bad
'evening. W h a t was the inference of that remark? That the FLC
was not held in high repute ?
Mr. M C K E N N A . I t was a local condition as a result of repeated
rumors about the local F L C Shanghai office. The other source of
information about General Johnson came from Lt. Alfred Diehl. I
don't know whether it was testified by Mr. Moody or not. H e was
present when Mr. Diehl told us about it.
The CHAIRMAN. What did he tell you ?
Mr. M C K E N N A . H e told us that back, I think, in March or April—•
I think it was early April of 1946—that General Johnson had called
Diehl to Johnson's hotel room and asked Diehl then if he was interested in going to work for the Chinese with him—that is, with General
Johnson.
According to Diehl, General Johnson had a scribbled piece of paper
in front of him listing the demands that he was making on the Chinese
and telling Diehl that he could do pretty well for himself, too, if he
wanted to go along.
The CHAIRMAN. Did you tell Mr. McCabe what you knew?



CONFIRMATION OF T H O M A S B. McCABE

131

Mr. M C K E N N A . I had a long—not a long talk, but a half-hour talk
with Mr. McCabe. I don't remember the date of it. I would gather
about a week or so after he arrived in Shanghai.
I told him everything that I had in my knowledge at that time, and,
of course, was trying to have something done about these things.
The CHAIRMAN. H O W did Mr. McCabe respond to your rep.ort ?
Mr. M C K E N N A . I think Mr. McCabe gave me credit for good faith,
at least, and the remarks that came back to me later from others was
that he said afterward since I felt so strongly about these things tliere
was nothing I could do but resign—that my resignation was proper
under the circumstances.
The CHAIRMAN. Using Senator Robertson's tactics, I am asking
what is in your mind there, if it is a fair question ?
You mean because you brought these things to his attention and
showed a zeal to uncover these irregularities, you were told by Mr.
McCabe that you should resign, and nothing else would do; is that it?
Mr. M C K E N N A . NO. I put it this way: Because of my feeling so
strongly about these things that were going on in Shanghai, I could no
longer continue as General Johnson's subordinate.
Under those conditions resigning was the only proper thing for
me to do.
The CHAIRMAN. Did you propound the question in rebuttal "Why
don't you get Johnson to resign V
Mr. M C K E N N A . I was not interested, sir. I was more interested in
getting out of Shanghai.
The CHAIRMAN. They suggested you resign because you could not
get along with Johnson; is that it ?
Mr. M C K E N N A . That is correct, sir.
The CHAIRMAN. SO all the testimony here is that Johnson is what
we call a bad egg. They thought that you shouldn't resign so you
would not mix with them, but Johnson was kept on the job until
October 20,1946.
Mr. M C K E N N A . I think that is correct.
The CHAIRMAN. What was the pricing policy of F L C Shanghai on
sales to the Chinese ?
Mr. M C K E N N A . My introduction to the pricing policies of F L C
Shanghai came right after my arrival -vhen there was a conference
with U N R R A officials, and there was an agreement reached to sell
selected items, as selected by U N R R A , at 70 percent of the original
cost. I objected to this, probably not so strongly, but I did feel since
these were selected items rather than a general offer of over-all contract, and in fact, no contract in writing—I objected to that point,
too—it should be at a fair value figure.
However, I had to retract that position very shortly afterward when
I discovered that sales to the Chinese were at 65 percent of cost or 5
percent less than to UNRRA.
Again, I objected very strongly when that price of 65 percent to
the Chinese was reduced to 22 percent of cost, all the time U N R R A
apparently paying 70 percent and the Chinese getting first choice at
22 percent.
What the Chinese passed up at 22 percent, U N R R A would be able
to buy at 70 percent, and after that American business interests at anything from 100 to 125 percent.



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CONFIRMATION OF THOMAS B. McCABE

The CHAIRMAN. The American business interests were at the bottom of the pyramid. They got the left-overs at a jacked-up price,
while China even superseded TJNRRA in its humanitarian claims,
and got it at a lesser price than TJNRRA. at 65 and then marked down
to 22 percent; is that correct ?
Mr. M C K E N N A . That is correct, sir.
The CHAIRMAN. But American businessmen paid 125 percent value?
Mr. M C K E N N A . That, of course, was part of the terrifficly high bad
feeling against F L C Shanghai prevalent among the American community in Shanghai.
. The CHAIRMAN. Did you object to that policy ?
Mr. M C K E N N A . I objected consistently, and repeatedly, almost daily,
but I struck one fellow there I could never budge, a fellow by the
name of Tsang, a Chinese who worked mornings in the F L C Shanghai
office, and afternoons in the Chinese Board of Supply for General
Khoong.
The CHAIRMAN. What did he do nights %
Mr. M C K E N N A . I n the mornings, at least, Mr. Tsang seemed to be
the No. 2 man in our Shanghai office.
The CHAIRMAN. Tsang did ?
Mr. M C K E N N A . That is right. Any time I talked about getting
some of these contracts in writing or these objections of mine to
prices, I was referred to Mr. Tsang—not so much in pricing but particularly on reducing the contracts—to Mr. Tsang. I never did get
any place until he left to go to Okinawa, when I did get some of it
in writing.
The CHAIRMAN. I do not see Exhibit C here, sir. Do you have a
copy of your objections?
Mr. M C K E N N A . The copy of the objections I was told to produce,
I think.
The CHAIRMAN. Will you read that copy into the record ?
Mr. M C K E N N A . This was just one of the reductions to writing of
my many, many oral objections. I t is a photograph which the SSU
took for me.
Exhibit C is as follows:
July 5, 1946.
From: The Compliance Officer.
To : The Executive Officer.
Subject: Report on Perusal of Office Files.
1. A perusal of office files since my designation as compliance officer has given
rise to the following subjects of comment:
(a) Delivery of goods without signed contract.
(1) To the Chinese Government.
There is no signed contract with the Chinese Government on any of the property that has been delivered to it. In some instances, there is no receipt in the
files for goods actually delivered. In no instance is the full contractual agreement set out in writing.
(2) To TJNRRA.
Same comment as the Chinese Government.
(3) To E. Kadoorie & Sons and the Hongkong Government.
The purchaser has not signed certain of the contracts which appear to have
been fully executed by us.
(6) Sale of goods to the Chinese at 22 percent of the depreciated cost.
(1) In the absence of an overall agreement fully executed by both, individual
sales to the Chinese government must be at a fair, although there may be provision for an adjustment in an overall contract. Pending such agreement, a




CONFIRMATION OF THOMAS B. McCABE

133

temporary contract for interim sales is unobjectionable, but its terms should be
in writing and complete.
(2) Existing contract prices cannot be adjusted downward merely in anticipation of the signing of the overall agreement. As a matter of law we cannot
assume that such a contract will be executed until it is executed.
2. Because of the manifold difficulties of intepretation and enforcement of
contracts between sovereign states, and because of the doubt as to the governing law of any contracts executed by this office that do not specify that the law of
a particular jurisdiction will prevail, it is particularly important that contractual terms be written and precise before irrevocable action is taken in any
instance by FLC. Letters, such as those which I have previously drawn and
submitted to you for proposed forwarding to China and UNRRA, would have
the effect of specifying the terms of sale of property to those organizations.
3. It is strongly recommended that—
(a) Contracts with the Chinese Government and UNRRA be signed or such
letters be forwarded at once.
(6) That in the future no goods be delivered on credit without a full understanding in writing as to the terms of sale and credit, and without some form of
receipt or proof of the delivery of the goods, regardless of the identity of the
purchaser.
(o) Efforts be made to complete the files on past cases.
(Signed)

WILLIAM F. MCKENNA.

(The foregoing letter was marked as "exhibit C " )
The CHAIRMAN. We certainly congratulate you on your eyesight,
sir, to read all that on that small piece of paper.
You are 20-20, all right.
Do you know about some drum steel that was sold to the Chinese at
22 percent of cost that Americans were willing to buy at more than
100 percent of cost?
Mr. M C K E N N A. The case of that drum steel was presented very,
very strongly to Mr. Moody, and to me when we talked to the Texas
Oil Co. in Shanghai.
I believe it was also reported to other United States authorities with
the statement that there seemed to be no honest explanation of it. The
cost of this drum steel was originally $88,000 to the United States in
United States dollars. A contract of purchase was signed by the
Texas Co., China, Ltd., early in June or late in May of 1946, for a
price of $95,000, or $7,000 more than the original cost to the United
States. Half of this purchase price was paid in dollars of the United
States before the contract was unilaterally canceled by F L C Shanghai
and the goods sold to the Chinese Government over the objections of
the Texas Co. for $57,000 or $58,000 on credit.
Before word of that got to Washington, the other half of the $95,000
was paid into the United States Treasury. Then F L C reduced the
price to the Chinese from $59,000 on credit to less than $20,000 on
credit, no terms specified, and I understood from Mr. Worden of the
Texas Co. in Shanghai that efforts were made by the Chinese to sell
that property to the oil companies at a terrific mark-up by the Chinese.
Senator B U C K . That is a serious charge, I think, that has been
brought before the committee.
I would like to ask the witness how Mr. McCabe is involved in t h a t in
any way.
Mr. M C K E N N A . I would not be able to say. I certainly don't believe
that Mr. McCabe would be involved in that except for the approval of
the contract after it was executed with the Chinese.
Senator BUCK. Who would you think was directly responsible

for it?



134

CONFIRMATION OF THOMAS B. McCABB

Mr. M C K E N N A . I t was done by the Shanghai F L C , although, of
course
Senator BUCK. I n charge of General Johnson.
Mr. M C K E N N A . Of course, General Johnson, I suppose, had to get
clearance from Washington. I can't speak on that. I don't know.
Senator Bucit. Mr. Chairman, would it not be proper that this testimony, a good deal of it, and the exhibits you have, be sent to Senator
Ferguson's committee?
The CHAIRMAN. They came from Senator Ferguson's committee,
Senator.
Senator B U C K . That is what I thought.
The CHAIRMAN. They were sent here to to be used in this evidence
here at his request.
Senator B U C K . H O W far has that committee proceeded with its
investigation of General Johnson ?
The CHAIRMAN. I do not know.
Senator B U C K . Is that not where it should be ?
The CHAIRMAN. He requested that our records be available to him.
Senator B U C K . Is that not where this case should be heard ?
The CHAIRMAN. I do not think so. As far as Johnson goes ?
Senator BUCK. Yes.

The CHAIRMAN. But as far as Johnson, Executive Officer for F L C
in Shanghai, was under Mr. McCabe, and Johnson's ii'regularities
were brought to his attention, that is germane here.
Senator B U C K . From the testimony we have had we know that has
happened, and you probably will bring out more testimony to show
that this man is still guilty.
But how does that now affect Mr. McCabe i
The CHAIRMAN. Only in connection with the fact that Mr. McCabe's
administration of F L C in Shanghai was under him through his first
assistant, Mr. Starr, and Mr. Johnson.
Senator BUCK. I understand. I am thoroughly convinced there is
something wrong. I assume there is something wrong with the administration of Mr. Johnson.
I do not think any further testimony is going to prove to me, unless
somebody has different testimony, that Mr. McCabe was involved in
it in any way other than that he was Johnson's superior.
Mr. M C K E N N A . I have to say that I certainly don't believe that Mr.
McCabe got any financial remuneration out of this.
Senator B U C K . I t seems to me we are wasting our time going over
these details which more properly belong to an investigating committee such as Senator Ferguson's, if you are trying to convict somebody in this organization.
I offer that as my comment.
The CHAIRMAN. I am glad to have your comment. I thought a little
while ago, Douglass, that you suggested that we have General Johnson
come before us.
Senator B U C K . I did, Mr. Chairman, but I did not know this had
all been before the committee downstairs. I do not know why the.v
did not proceed with it further.
I t seems to me that they have much more than we have now.
The CHAIRMAN. I might say I am advised that a lot of this evidence
they did not have. I t is new and will be new to them.




CONFIRMATION OF THOMAS B. McCABE ,

135

Senator BUCK. D O you not think we ought to press them to examine
this case of Johnson?
The CHAIRMAN. I think they will go into this whole administration, because they are behind the eight ball on a lot of this stuff.
Senator BUCK. I n your mind and my mind this man Johnson is
guilty of something.
The CHAIRMAN. Yes; guilty as everything.
Senator BUCK. There is nothing we can disclose here t h a t will prove
he is more guilty.
The CHAIRMAN. There are some facets of the case which will be
brought out which will be very germane,T think, before we get through.
This particular testimony that he is giving, if you gentlemen have
heard enough; all right. I had a few more questions to ask him
about the Hong Kong transaction.
We will go on 15 minutes longer.
Senator B U C K . I do not want to terminate his testimony, but I am
just speaking of the whole case in general.
The CHAIRMAN. I see your point. I am not opposed to it at all.
I think there is food for a great deal of thought as to whether the
War Investigating Committee ought to go into this, and I think it
will go into this, and it wTill help it to have the advantage of what is
heard here.
They give us many of these documents from their files. I t was the
suggestion of Senator Ferguson and Senator Knowland and Senator
Brewster that this committee ought to go into this man's appointment
very thoroughly in the light of the revelations which came to them
about his office in Shanghai for which he is responsible.
They originated this situation.
Senator BUCK. They have not proved anything themselves down
there that anybody has been guilty.
The CHAIRMAN. I will give you Senator Ferguson's statement
to m e :
This man has given away for a sons millions of dollars of the American taxpayers' money. When you go into it you will be amazed what you find.

Senator BUCK. I ask, Mr. Chairman, has this man Johnson been
before that committee ?
The CHAIRMAN. I do not know.
Senator B U C K . Why has he not been before it?
The CHAIRMAN. I cannot answer. I cannot speak for that committee, sir.
Senator B U C K . We are wasting our time on something that ought
to be downstairs.
The CHAIRMAN. I have been told General Johnson has been called
back summarily from Tokyo by the W a r Department. Whether for
a court martial or not, I do not know. We have about 15 minutes for
a few questions and, writh the committee's permission, I will clean
up this witness—I will not clean the witness up, but I will finish with
the witness.
I will place in the record at this point a copy of your letter of
resignation, dated August 22, 1946.




136

, CONFIRMATION OF T H O M A S B. MrCABE

(The letter referred to was marked ''"Exhibit H , " and is as follows:)
EXHIBIT

H

945
AUGUST 22,

1946.

B r i g . Gen. B . A. J O H N S O N ,

Field

Commissioner
for China,
Office of the Foreign Liquidation
Commission,
Shanghai,
China.
DEAR GENEKAL JOHNSON : I am a t present counsel to t h e Field Commissioner
for China, Office of the Foreign Liquidation Commission, with additional duties
a s compliance officer.
I submit herewith my resignation from these offices and from all other offices
a n d functions in the Office of the Field Commissioner for China. A sincere effort
h a s been m a d e to reconcile the reasons for this action w i t h the recommendation
of t h e Executive Officer of the Foreign Liquidation Commission t h a t I not submit
my resignation from t h e Office of the Field Commissioner for China a t this time.
However, for t h e reasons previously discussed with him, with you, and with the
General Counsel to t h e Central Field Commissioner for t h e Pacific and China,
I find it necessary to c a r r y through my original intentions.
I t is recognized t h a t t h e Foreign Liquidation Commission may determine my
continued presence in Shanghai within its organization to be necessary tempor a r i l y u n d e r t h e present conditions. This can be accomplished by my transfer,
pending separation from t h e Office of t h e Foreign Liquidation Commission, to
either t h e Washington or Manila Offices w i t h assignment to Shanghai.
Respectfully,
WILLIAM F. MCKENNA.

The CHAIRMAN. May I ask you kindly, Who was your successor?
Mr. M C K E N N A . Mr. Allen Coker came over from Manila after
I was cleaned out of the Shanghai office.
The CHAIRMAN. H O W long did he remain?
Mr. M C K E N N A . About 10 days, I believe.
The CHAIRMAN. What caused him to leave?
Mr. M C K E N N A . Another one of these deals came up. There were
some small planes down in Hong Kong. Then it developed that offers
had been received by F L C , Shanghai, of some $6,000 and $4,000 for
these three or five very small planes, training planes, suitable for civilian purposes, I believe. F L C , Shanghai, wrote to the bidders that the
planes were not available and then sent a man, Mobley, I believe was
his name, with a letter of introduction to the British authorities in
Hongkong, asking that they declare these planes surplus and make
them available for sale.
They were then sold to Mr. Mobley for $1,250 and my understanding—this is from Mr. Coker and others—is that Mr. Mobley then
tried to sell them to the persons who had offered F L C $6,000 and
$4,000, respectively, in the first instance.
After seeing General Johnson's reaction to this situation, Mr. Coker
refused to stay in Shanghai.
The CHAIRMAN. S O Coker was the third lawyer who was not satisfied with conditions in F L C and got out; is that right ?
Mr. M C K E N N A . That is correct, sir.
The CHAIRMAN. General Johnson was left in Shanghai as field
commissioner even after Coker found it necessary to leave?
Mr. M C K E N N A . Mr. Coker was there during the time of Mr. McCabe's visit. I think all of this happened during the time of Mr.
McCabe's visit or a little after, about the end of August or the 1st of
September in 1946.



CONFIRMATION OP T H O M A S B. McCABE

137

I think General Johnson was there until October 28 or about that
date.
The CJIAIKMAX. There was some talk here in the committee that
personnel responsible for reporting what went on in F L C were abused.
I show you a letter from the inspector general of the China theater
regarding Colonel and Mrs. Cook. Are you familiar with that letter?
Mr. M O K E N N A . I do remember a letter from Colonel Dougherty to
Major Cook regarding their efficiency ratings, and Colonel Dougherty's
request, i believe, to the War Department, that it be disregarded because of the circumstances in Shanghai.
The CHAIRMAN.- There are some letters about the T - l tankers.
These leave the implication, al least, that F L C insisted on not selling
directly to the Americans for cash, but selling on credit to the Chinese
and arranging (he sale between the Chinese and the Americans in order
that Chinese could make a substantial cash profit.
Were you present at any of the negotiations regarding these tankers ?
Mr. M O K E N N A . That happened about the end of July. I think the
contract with the Chinese for those tankers was finally signed about
the 5th of August 1946.
The Texas Co. and possibly other oil companies were quite furious
over the details of those transactions. They had offered, I believe,
$350,000 for each of some of these tankers.
The 111AIRMAN. I have a letter from the Texas Co. signed by W. L.
Worden, assL-iant general manager:
S H A N G H A I , July 19, 1946.
T h e FOREIGN LIQUIDATION C O M M I S S I O N ,

Wayside Building, C. T. R. S., Shanghai.
(Attention, Commander Killough.)
DEAR SIR : This is t o confirm our conversation of .Vuly 18th regarding T I t a n k e r s ,
which m a y be available from t h e Chinese Government.
We a r e interested in purchasing two of these t a n k e r s providing t h e y meet o u r
survey requirements. W e a r e willing t o offer US $350,000 each for them, if they
a r e acceptable to us.
Yours very truly,
T H E T E X A S COMPANY
W. L. WORDEN,

( C H I N A ) LTD.,

Assistant

General

Manager.

(The above letter was marked "Exhibit J.")
The CHAIRMAN. The United States Navy acknowledged its letter
as follows:
N I N E - F O U R - F I V E , 22 J U L Y

1946.

T H E TEXAS COMPANY ( C H I N A ) LTD.,

12 The Bund, Shanghai,
China.
(Attention, Mr. Worden.)
DEAR SIKS : W e wish to acknowledge receipt of your letter of 19 J u l y 1946, in
which you express a desire to purchase two of t h e T I - M - A I t a n k e r s for t h e price
of US $350,000 each.
Your offer has been conveyed to t h e B o a r d of Supplies, Chinese Government,
who will advise u s a s soon as they have reached a decision.
F o r t h e Field Commissioner :
J. E. K I L L O U G H , Lt. Commander,

Director.

V. S. N. R.,

Maritime

Division.

(The foregoing letter was marked as "Exhibit K.")
The CHAIRMAN. Those are the two letters. You are familiar with
them?
Mr. M G K E N N A . I think the second letter, sir, was from F L C .
The CHAIRMAN. That is right.



138

CONFIRMATION OF T H O M A S B. McCABE

Mr. M C K E N N A . The difficulty with that, as Texas Co. raised it with
us, is that these letters antedated the sale to the Chinese. So F L C
refused to sell the tankers directly to the Texas Co., but insisted on
selling them on credit to the Chinese, and in turn the Texas Co. would
have to buy them from the Chinese, paying cash for them at a considerable mark-up.
Senator B U C K . Have you ever testified before this committee downstairs ?
Mr. M C K E N K A . I have never testified.
The CHAIRMAN. I have here a telegram that came in from Coleman
P . Cook, former lieutenant colonel. Is that the man you referred to ?
Mr. M C K E N N A . That is, Colonel Cook and Major Cook were husband and wife.
The CHAIKMAN. The telegram reads:
1948

MABCH

4.

S e n a t o r TOBBT,

Senate Office Building, Washington,
D. C:
Noted March 3 A P story, Denver Post, your accusation McCabe ordered destruction Army B-2u's. McCabe per article stated " T h a t is all new to me." F o r proof
your accusations see August 29, 1946, edition China Press, Shanghai, China.
I h a v e pictures of planes and all details to support your accusation. P e r t i n e n t
q u e r y : W h a t w a s McCabe doing in Peiping while all t h i s w a s going on?
COLEMAN P.

Former

Lt. Col. AVS

COOKE,

with FLC Shanghai,

China.

W e have this letter from Dougherty:
S H A N G H A I D E T A C H M E N T , STATION COMPLEMENT,
N A N K I N G HEADQUARTERS' COMMAND,
O F F I C E OF T H E INSPECTOR GENERAL,

30 October 19',6, APO 917.
To Whom It May
Concern:
Major M a r y M a r g a r e t Cook, WAC, L-600024, who is being relieved from duty
w i t h t h e Foreign Liquidation Commission, Shanghai Office, within a day or two
for n o r m a l r e t u r n to t h e United States, h a s been of considerable help to me in
conducting a n investigation into certain alleged irregularities in t h e F L C
S h a n g h a i Office,
Major Cook h a s brought to my a t t e n t i o n t h e fact t h a t h e r efficiency ratings
covering m a n n e r of performance of duty were reduced from a r a t i n g of 5.2 on
15 April 1946 to 3.6 on 30 J u n e 1946 and 3.4 on 15 August 1946 and t h a t she
received no r a t i n g for t h e period 16 August to 1 November 1946.
Major Cook and her husband, Lt. Col. Coleman P. Cook, had reported to
my office a n d l a t e r to t h e office of t h e United States Consul in Shanghai w h a t
t h e y believed to be i r r e g u l a r practices on t h e p a r t of certain key position officers
in t h e Shanghai Office of F L C . Their actions became known to Brig. Gen. B. A.
Johnson, Field Commissioner, Shanghai Office, and to other persons alleged to be
involved in i r r e g u l a r practices.
As a result, s t r a i n e d relations h a v e existed between t h e Cooks and certain
other persons in t h e F L C Office, and in my opinion these disagreements a r e
definitely reflected in t h e efficiency r a t i n g s given both Major Cook and her
husband.
T h e r a t i n g officer m u s t have been influenced in these instances by letting personal feelings enter into his estimate of t h e value of Major Cook and her husband.
I 'feel t h a t regardless of justification for t h e lowered ratings, they should be
entirely discounted in a r r i v i n g a t t h e general services of Major Cook and her
husband.
In my opinion these two officers reported alleged irregularities honestly and
w i t h intention to c a r r y out w h a t they believed to be were their assigned jobs.
I do not believe t h e r e w a s any malicious intent on their p a r t t o discredit anyone in
an unfair manner.




J. S. DOUGHERTY,

Colonel, I. G. D.,
Inspector
General.

CONFIRMATION OF THOMAS B. McCABE

139

(The foregoing letter was marked "Exhibit I.")
The CHAIRMAN. I t seems to be evidence that because people told the
truth about some things they get into disfavor with some people.
I want to thank you for your ldndness in coming.
There are two more questions, and I will be through.
Mr. McKenna, every stress has been laid on the point there was
strong demand to return military personnel to the States, but F L C
was not a military organization.
Could not civilians have been hired at reasonable wages to guard
surplus property after military personnel had departed?
Mr. M C K E N N A . I will have to limit iny answer to that, Senator, to
what I know of the Pacific area.
I don't know of anything about F L C over the rest of the world.
In the Pacific area very little of the surplus property was actually in
China at the time I was there. What there was, was guarded by
civilians at that time. The rest of the surplus that was brought to
China—that is, the bulk of the surplus that was sold to China—was
brought from the islands of the Pacific or is in the process of being
brought now. So far as I know, it is still being guarded by American
troops.
I cannot give you the answer to that, but American troops are
still there.
The CHAIRMAN. Thank you.
That is all.
Senator SPARKMAN. Mr. McKenna, I do not care to prolong this,
but here are some questions I want to ask you :
Going back to this matter that Senator Robertson took up with you
that somebody—was it Colonel Starr? I s that S-t-a-r-r?
Mr. M C K E N N A . That is my recollection; Colonel E d Starr.
Senator SPARKMAN. H e stated that the F B I was just publicity seeking. Is he the one?
Mr. M C K E N N A . There was a group that was present. I t was the
first conference we had with Colonel Starr after his arrival.
Senator SPARKMAN. A s a matter of fact, Mr. McCabe did not make
that statement; did he ?
Mr. M C K E N N A . No; I did not talk with Mr. McCabe then. I t was
much later than that.
Senator SPARKMAN. Based upon that statement, you seem to draw
the inference that a real investigation was not desired.
Mr. M C K E N N A . The inference was not drawn from that, Senator.
Senator SPARKMAN. YOU used that as part of your argument to
justify the inference.
Mr. M C K E N N A . There are a lot of nebulous things, and some of
them real. F o r example, when the investigation started, we were
told that there would be two investigations. We would carry on one
part, and the Inspector General insisted he would limit his to Army
personnel which, of course, did not include General Johnson, as he
was then a civilian. Later, Colonel Dougherty told us that he had received instructions that we were not to continue investigating except to
help him, and Colonel Dougherty was pretty much wrought up because •
he did not think the scope of his authority went far enough for the
whole investigation, but later he did change his mind.




140

CONFIRMATION OF THOMAS B. McCABE

Senator SPAEKMAN. Of course, I am just trying to stick to the F B I .
You gave that as one of the reasons for justifying your inference that
you were not expected to go deeply into it.
When you stated that, you did not know, did you, that Mr. McCabe
had already taken up with the Department of Justice the matter of
having an investigation made and the Department of Justice told
him they could not ?
Mr. M C K E N N A . I knew nothing about it, sir.
Senator SPAEKMAN. But if Mr. McCabe told you he did that, you
would believe he did ?
Mr. M C K E N N A . I most certainly would, sir.
I d6 not question Mr. McCabe's honesty.
Senator SPAEKMAN. YOU did not know Mr. McCabe told that to
this committee yesterday ?
Mr. M C K E X N A . I did not. I would say, Senator, that the reason
Navy Captain Luboshez and I were insistent upon that point and were
rather surprised at the answer, is this:
The surplus property regulations specifically stated that the Attorney General and the Department of Justice would be informed of any
criminal violations, and F L C would take no further part in the investigation except under the direction of iho Department of Justice.
As lawyer^, you recognize that the wording of that regulation had
to be complied with, and the Department of Justice should be immediately informed regardless of what unwritten agreements there
wTere.
Navy Captain Luboshez and I were insistent on that.
Senator SPAEKMAN. If you had know n that Mr. McCabe had already
made an effort to have the F B I investigate it. then you would not have
had that feeling, regardless of what Colonel Starr said.
Mr. M C K E N N A . May I ask, is it a correct statement that Mr. McCabe
had asked the Department of Justice for this particular investigation?
Senator SPAEKMAN. Yes.
Mr. M C K E N N A . Then that, of course, would be a complete answer.
Senator SPAEKMAN. That is my recollection of his statement.
Mr. M C K E N N A . That would be a complete answer, then.
Senator SPAEKMAN. With reference to the demilitarized planes, was
there anything in the law or in the regulations or the policy controlling
the disposition of these planes to the effect that they should be demilitarized?
Were you aware of any such ?
Mr. M C K E N N A . My understanding was that these combat planes
should never be declared to F L C except with prior approval of the
State Department, the Navy Department and War Department, and a
general consensus.
Senator SPAEKMAN. And that really controlled it, did it not?
If they were declared surplus to the F L C , with the understanding
that they would be sold for parts or salvage or scrap, or whatever it
may be, then F L C was bound by that, was it not ?
Mr. M C K E N N A . I would be afraid of that, Senator, because in China
while such an agreement would not be enforced, there would be no way
of enforcing such a condition.
Senator SPAEKMAN. Unless it was made unflyable.
Mr. M C K E N N A . That is the only way.



CONFIRMATION OF THOMAS B. McCABE

141

Senator SPAEKMAN. If the policy had been set up by the State Department or by the W a r Department or by the proper officials, and
when the planes were turned over to F L C , they were told to dispose
of them in such a way that they would be unflyable, then certainly,
something should be done to make them unflyable; should there not be'{
Mr. M C K E N N A . Again, I am talking about what Colonel Dougherty
told me.
I t was my understanding from Colonel Dougherty while the investigation was in process. It may have been changed. His report to me
was that testimony of United Slates Army officials at Shanghai was
that F L C had insisted that these planes be declared surplus in fiyable
condition.
Senator SPARKMAN. But Mr. MeCabe testified before us that .the
other was true, that they were to be disposed of as unflyable planes.
If he said that, you would certainly believe him.
Mr. M('KI',NXA, AVhafever Mr. MeCabe said before, I will accept.
Senator SPAKKMAN". With reference to the sale of the medical supplies, did you see anything in any of the papers that showed that there
was blood plasma in the supplies or did you learn that—1 believe you
testified you learned that from a U P report; did you not?
Mr. M C K E S N A . I learned of that because of a tip from the U P representative in China. Mr. Moody and I visi led this particular warehouse
on the tip.
However, T understand that anybody who had any knowledge of
medical supplies would know that these field units which were sold
^\oukl include all these items.
That again is hearsay.
Senator SPARKMAN. Of course, do you understand that the Navy—
I believe most of these were Navy supplies i
Mr. M C K E N N A . All of (hern were; yes.
Senator SPAKKMAN. When they simply turned everything over in
bulk to F L C , they said nothing about any blood plasma being in
there ?
Do you feel that there was an obligation on the part of Mr. MeCabe
or someone answerable to him to break it down, item by item?
Mr. M C K E N N A . There certainly was no obligation on Mr. MeCabe
in Washington with respect to the particular transaction.
However, there was joint responsibility in that case by Navy and
FLC. I don't see how it can be escaped, because I have seen documents
Senator SPARKMAN. I want to have you understand I am not condoning it. Yes; I certainly think somebody should have known it.
Mr. M C K E N N A . This is my answer; that I have seen communications
that stated FLC-Shanghai turned over a list of these commodities to
the purchaser in order to permit him to make a sensible bid.
That was before the sale was made.
Senator SPAEKMAN. Now, with reference to the hearsay statement
that came back to you that Mr. MeCabe had said you should resign;
who told you that?
Mr. M C K E N N A . I would rather not answer definitely.
Senator SPAEKMAN. I do net care about knowing.
Mr. MCKTINNA. He told me that to ease my own feeling, to show that
Mr. MeCabe was not very angry with me, that he thought I was acting
in good faith.
73055 —48

10




142

CONFIRMATION OF T H O M A S B. McCABE

Senator SPARKMAN. Mr. McCabe did not tell you to resign; did he %
Mr. M C K E N N A . He did not.
Senator SPARKMAN. I n fact, nobody told you to resign; is that right %
Mr. M C K E N N A . This was discussed very thoroughly with Colonel
Starr, and Colonel Starr very much discouraged me from resigning.
Senator SPARKMAN. A S a matter of fact, this report did not come
to you until you had already decided to resign; did it?
Mr. M C K E N N A . After I said I would definitely resign.
Senator SPARKMAN. Then they said probably you should, because
of the feeling. I n fact, according to your own testimony, you had
been thrown into an impossible situation.
Mr. M C K E N N A . That is what I told Colonel Starr—that I could
not remain under existing conditions.
I told General Johnson and Colonel Starr that together, at the same
time.
Senator SPARKMAN. Mr. McKenna, I want to ask you this question.
because I do think it is very important that we keep separate in our
own minds the responsibilities and the actions of General Johnson and
of Mr. McCabe. I certainly join with the chairman and the other
Senators who have expressed themselves in saying that I feel by all
means the conduct of General Johnson in this work should receive the
most careful scrutiny. I t should be investigated to the very bottom.
I want to ask you, in your contact with Mr. McCabe, and your work
under him, if at any time you saw anything in his conduct or in his
handling of his office that you feel would reflect on his character, his
integrity, his ability, or his fitness to fill the office of Chairman of the
Federal Reserve Board ?
Mr. M C K E N N A . I can't answer that.
I would say Mr. McCabe is certainly an honorable man, and certainly a patriotic citizen, and would have no part in a transaction in
blood plasma.
Senator SPARKMAN. I am talking about the scope of this work. Are
we to take your testimony this morning as being in opposition?
Mr. M C K E N N A . I don't want to be in opposition to Mr. McCabe at all.
Senator SPAR'KMAN. YOU think there was a rotten mess over in China
that had to be cleaned up.
Mr. M C K E N N A . He had no connection at all with China, regardless
of what I say.
Senator SPARKMAN: YOU thought it ought to be cleaned up.
Mr. M C K E N N A . I did all I could to clean it up.
Senator SPARKMAN. I believe you did. I think you did a good job.
Mr. M C K E N N A . That is the only personnel of FLC I had any acquaintance with at all. Mr. McCabe was in Washington when this
was being done in Shanghai.
Senator SPARKMAN. I want to find out if you believe that we, sitting
here in judgment on Mr. McCabe's appointment, ought to take these
things which you have related and hold them against him in connection
with his confirmation.
Mr. M C K E N N A . I don't want to pass on any question beyond the
relation of the facts. I suppose I am ju^t relating facts here, and I
have certainly not tried to appraise Mr. McCabe as to his fitness for
the job.
Senator SPARKMAN. That is not your purpose in testifying.



CONFIRMATION OF THOMAS B. McCABE

143

Mr. M C K E N N A . I t c e r t a i n l y is n o t .

I assume t h a t will be done by t h e c o m m i t t e e a n d t h e S e n a t e . I a m
not fit t o do it. I have j u s t t h i s one p i c t u r e to give of F L C S h a n g h a i .
T h a t w a s done while M r . M c C a b e was i n AVashington. I w a s i n
Shanghai.
S e n a t o r S I ' A R K M A N . T h a n k you, M r . M c K e n n a .
T h e C H A I R M A N . M r . M c K e n n a , I r e a d f r o m t h e t e s t i m o n y of M r .
Moody for y o u r i n f o r m a t i o n :
Colonel Dougherty, who was in charge of the investigation by the Inspector
General, complained that every bit of evidence had Keen revealed in detail to
General Johnson of the specific eviiience held against him. Mr. McCabe's answer
to Navy Captain Luboshez' recommendation that General Johnson be barred
from taking further part in the official negotiations with the Chinese, in view of
his admitted personal negotiations, was to project General Johnson into a prominent jnrt in the discussions, but to eliminate Captain Luboshez for making the
suggestion.
M r . M c C a b e in h i s t e s t i m o n y y e s t e r d a y said, a n d I q u o t e :
Regardless of the truth of the charges being made, it was apparent to me
that Johnson could not effectively carry on for long, and I had determined to
replace him and to have a thorough and impartial investigation made of every
aspect of his office.
I p o i n t out t h a t it w a s over 2 % m o n t h s a f t e r t h a t t h a t J o h n s o n
g o t out, a n d h e g o t out a m o n t h a f t e r M r . M c C a b e himself g o t o u t ,
so M r . M c C a b e d i d not dismiss J o h n s o n s u m m a r i l y , b u t h e c o n t i n u e d
in t h e j o b after M r . M c C a b e g o t t h r o u g h a m o n t h after.
I p r o p o u n d t h i s question :
D i d M r . M c C a b e or a n y o n e in t h e F L C — t h i n k carefully, please, as
a l a w y e r — h a v e t h e a u t h o r i t y u n d e r t h e l a w t o o r d e r the m u t i l a t i o n

of theB-25's?
M r . M C K E N N A . I w o u l d n o t k n o w w h e r e t h e y w o u l d find t h a t a u t h o r i t y . T h e s e p l a n e s h a d been sold to a Chinese a i r line, a n d t h e y
were on a Chinese field in C h i n a .
T h e r e w a s a clause in t h e c o n t r a c t t h a t t h e y w e r e sold for p a r t s only.
T h e r e was a reservation of condition, a r e s e r v a t i o n of some i n t e r e s t
in t h e planes in t h e n a t u r e of a c o n d i t i o n a l sale, b u t based only o n t h e
p a y m e n t of t h e p u r c h a s e price, w h i c h was p a i d .
I believe it was p a i d even before t h e d e s t r u c t i o n .
The CHAIRMAN. Did F L C have the right to change the condition
r a t i n g placed u p o n s u r p l u s goods b y the A r m y ?
Mr.

M C K E N N A . I t did

not,

sir.

T h e C H A I R M A N . I t d i d n o t h a v e t h e r i g h t t o do i t ?
Mr.

MCKENNA.

NO.

T h e C H A I R M \ N . So w h e n those t h i n g s w e r e c h a n g e d , t h e y h a d n o
r i g h t to do i(.
M r . M C K E N N A . Yes. T h a t h a p p e n e d in n u m e r o u s cases which
came t o l i g h t a f t e r w a r d , not only in t h i s , b u t o t h e r s .
T h e condition of t h e planes w a s c h a n g e d .
T h e C H A I R M A N . W i t h o u t t h e r i g h t to d o it.
M r . M C K E N N A . F r o m good t o f a i r o r t o s c r a p .
T h e C H A I R M A N . Sir, on b e h a l f of t h e c o m m i t t e e
S e n a t o r B U C K . A r e you a b o u t t o conclude?
T h e C H A I R M A N . Y e s ; subject to y o u r question.




144

CONFIRMATION OF T H O M A S B. McCABE

Senator BUCK. A S our chairman, would it meet with your approval
to have a committee meeting tomorrow with as many members as
possible, to decide whether to continue these hearings or whether
to terminate them ?
The CHAIRMAN. I say for the benefit of the committee, this hearing
will be adjourned this morning until next week.
Senator F u l b r i r h t is ill. Ho is developing certain matters himself
that he wishes to t xamine Mr. McCabe upon. H e asked that the hearings go over until he came back. I readily agreed.
I personally wish to develop matters entirely separate from the
F L C in connection with Mr. McCabe that will take some more time.
They are very germane to the appointment and the value and wisdom
of it.
Therefore, as a friend and as a colleague- •
Senator B U C K . There are only 4 of us here of a committee of 13.
I think it is possible that some members June already made up their
minds whether they want to vote for or ngainsi the nomination.
If we do not have more than we have now. I doubt that the testimony that will be given here will be read by them. We seldom have
time to go through these records of the hearing.
If they are not going to come personally, they are not going to
benefit by anything that you are disclosing.
The CHAIRMAN. What you are saying now is an indictment of the
committee procedure of the United Statv Se,.. f e, and the indictment
is a real one.
I feel it just as strongly as you do.
Senator B U C K . I am only trying to be practical. I do not think
that four of us can decide this case with further testimony. I think
the majority of the committee might determine whether they want
to continue or terminate them.
Senator SPAEKMAN. May I ask a question of the chairman?
Do you not believe that we ought to have some more hearings, at
least of some evidence relating to Mr. McCabe as a banker and as to
his fitness for the position for which he has been named?
We have had none on that.
Senator B U C K . I think that would be much more in keeping with
what we are endeavoring to do; to find out if he is well qualified
for this job.
Senator SPARKMAN. I think before we close the hearing, we ought
to go into that phase of it.
Senator B U C K . This is concerning someone who was subordinate
in this war work.
The CHAIRMAN. I follow you very closely and very sympathetically,
and you and I probably differ on this point. I consider that the
head of any department is responsible for the acts of his agent.
We hold that in business; we hold that in law. It is an established
fact.
Speaking only for myself, I hold that all these things show misconduct and irrelevancy and some things that are manifestly breaches
of the law that came in the administration of the F L C Shanghai, of
which Mr. McCabe was the head, and at which he was present during
p a r t of the time, and he did not, either through negligence or malice
aforethought, remove Johnson summarily in the face of evidence



CONFIRMATION OF T H O M A S B. McCABE

145

brought to his attention, in view of the Inspector General's report,
linking Mr. McCabe up definitely with knowledge of these things, the
blood plasma picture and the planes.
I think they all come back to the F L C office of which he is the head.
I think they are contributory evidence in the picture.
Taking up what Senator Sparkman said, I am 100 percent behind
you. We definitely propose to go into that matter very, very thoroughly.
I might say to you, sir, an investigation is going on now to be presented to the committee on that subject and collateral matters, too.
It cannot be done in a day or night. Senator Fulbright telephoned
this morning and said he regretted he was taken ill, and could not be
here this week. I assured him we would go on next week subject to
the call of Ihe Chair.
At that time I hope to have my matters completed, and I think Senator Fulbright Mill have his, and you gentlemen will have your opportunity to examine the gentleman on these matters.
Senator BUCK. May 1 add, asking you to determine if in the committee's view whether the hearings should be terminated, I meant the
hearings of this character which related to this work.
The CHATRMAN. I misunderstood you. Forgive me.
Senator B U C K . The testimony is before us that there was a lot of
wrongdoing in this Shanghai office.
The CHAIRMAN. Let me reassure you this witness here marks the
culmination, unless something unforeseen comes up, of testimony with
reference to Shanghai and these overseas matters.
The rest of the matters will be matters within this country as to Mr.
McCabe's fitness, background, business, and so forth.
Senator B U C K . I am happy to know that.
The CHAIRMAN. With that understanding, the Chair will announce,
it being now 12: 26, that we will stand in recess subject to the call of
the Chair until the first opportunity next week.
Mr. MCCABE. Mr. Chairman, may I just say one word?
The

CHAIRMAN.

Yes.

Mr. MCCABE. If I may, sir, in regard to General Johnson's being
displaced in Shanghai, I would just like to say this for the record:
I insisted strongly with Mr. Vogelback, his superior, the Central
Field Commissioner in Manila, to whom Mr. Johnson reported, that
action be taken immediately to replace Mr. Johnson. I asked him in
the early part of my stay in China if he would recommend to me a
man who was fitted to take General Johnson's place before I left.
He did a great deal. He communicated with various sources to t r y
to determine on an available man, and he recommended to me the appointment of Mr. Donald B. Davis.
I did not know Mr. Davis, but he said he had become acquainted
with him in Manila as a result of his work on U N R R A . Mr. Davis
was his choice. I told him to communicate with Mr. Davis immediately and ascertain his availability.
I met Mr. Davis at the plane in Manila before I left the United
States. Mr. Vogelback made arrangements with Mr. Davis to go to
Shanghai as quickly as he could get there.
The CHAIRMAN. Mr. Davis did ?
Mr. MCCABE. Mr. Vogelback made arrangements with Mr. Davis.
Mr. Davis, as I understand, was there in a matter of 2 weeks.



146

CONFIRMATION OF THOMAS B. McCABE

Then on September 18, at the insistence of Mr. Vogelback, this
notice was issued in the Shanghai office:
SHPTEMBEB 18, 1946.
Administrative Order No. 9.
Subject: Appointment of Deputy Commissioner.
1. Reference is made to letter issued to Mr. Donald B. Davis, subject: appointment and delegation of authority, dated September 18, 1946.
2. The appointment of Mr. Donald B. Davis as Deputy Field Commissioner for
China and Eastern Asia is hereby announced.
3. Henceforth, all matters of policy and operation will be referred to Mr. Davis
for decision; full authority has been delegated to him for the administrative
organization of the office, and for the assignment, reassignment, and replacement
of personnel.

The CHAIRMAN. What is the date of that, sir ?
Mr. MCCABE. This is the 18th of September 1946. That was about
the time Mr. Davis reported.
As I understood from Mr. Vogelback, he did this because Mr. Davis
had no knowledge of the operation. He wanted him to get a full
knowledge of the operation and then subsequently in October he appointed him full field commissioner. So in reality, Mr. Davis was
given this authority on the 18th of September. I just wanted to correct the record on that, because that has not been brought out in any
testimony.
The CHAIRMAN. But Johnson stayed on until the 26th of October,
and then resigned ?
Mr. MCCABE. My recollection is that it was sooner than that.
The CHAIRMAN. That is the sworn testimony here from two sources.
Mr. MCCABE. I can look up that exact date, sir.
The CHAIRMAN. YOU resigned a month before that.
Mr. MCCABE. I want to emphasize, Mr. Chairman, and you will have
to take my word for it, that I insisted with all the force at my command that that change be brought about.
As in all organizations, you depend on your central field commissioner, which I did in this instance, to carry this out. I think he carried it out and his policy was
The CHAIRMAN. T h a t is Vogelback ?
Mr. MCCABE. Mr. Vogelback.
The CHAIRMAN. You had great confidence in him ?
Mr. MCCABE. I had great confidence in Mr. Vogelback. He is a very
outstanding citizen. He is the president of a utility or two out in
Chicago. I n the war he was either in the OPM or the W a r Production
Board, in the Aviation Division. H e was very highly recommended
to me by Mr. Meigs, vice president of the Hearst Publications.
I brought him to Washington and put him in charge of onr Aviation
Division. His record there was outstanding in our Aviation Division.
Then, in the Pacific—I want you to get this point very clearly—I had
extreme difficulty in finding able men as time went on to succeed these
men who were going out. The ablest men that we had—for instance,
Mr. Wendell Endicott—went out to the Pacific in the Central Field
Commission for a limited time. H e would not go for any prolonged
period, but he would be there for a limited time. When his time was
up I was able to secure Mr. J . K. Howard, of Boston, a very eminent
citizen there, to succeed Mr. Endicott.
Mr. Johnson then reported to Mr. Howard. Then Mr. Howard's
health broke down on him, and I had him succeeded by Mr. Vogelback.
So that Mr. Johnson then reported to Mr. Vogelback.



CONFIRMATION OF T H O M A S B. McCABE

147

The point I want to make is that with this situation we had at
Shanghai—I want to picture that situation. Shanghai was a place of
conflicting rumors, full of strife and tension. There was a war going
on in China between the Nationalists and the Communists.
The CHAIRMAN. There always is.
Mr. MCCABE. This was reflected in the situation that existed in
Shanghai. When I arrived there. I heard rumors of every character
and description from all sides. The Communists were after the Nationalists. The Nationalists were after the Communists. You could
hear rumor about almost anything. I arrived there, as I recollect, on
Thursday, and on Monday this was put in the hands of the Inspector
Genera] of the Army. I say to you, gentlemen, that—within 4 days—
that was fast action.
I want this committee to recognize that point.
All we had, though, gentlemen, at that time, were the rumors—that
is, the accusation of Mr. McKenna's letter—but they could not all be
substantiated.
The CHAIRMAN. YOU have just expressed great confidence in Mr.
Vogelback. You said that Mr. Vogelback brought you Mr. Davis to
supersede General Johnson.
Mr. MCCABE. That is right.
The CIIAIKMAN. Yon no doubt know—if you do not. I am informing you—that Mr. Davis, who Mr. Vogelback, in whom you had great
confidence, brought to you, was crooked and w7as fired out of TJNRBA
for being short in his accounts. Yet you put him in charge to succeed Johnson, another crooked fellow.
Mr. MCCABE. Now, sir. I would just like to say this, as to Mr.
Davis' being crooked. I had not heard that. I had heard that in
the inspection made, which was made very carefully by the State
Department of each man's record, they finally got around to Mr. Davis'
record and found that in his original application he had falsified his
employment. I had never heard of any falsification.
The CHAIRMAN. Shortage in his accounts ?
Mr. MCCABE. I say I had not heard of that.
The CHAIRMAN. I am speaking of facts in the case.
Mr. MCCABK. Mr. Chairman, I would like just to say that in the
selection of hundreds of men that we had to select, and it being very
difficult to get anyone to serve, what we tried to do in these areas was
to get the best man that we could find that was available that would
take the job.
The CHAIRMAN. "Would it not seem elementary that before you p u t
in a man to succeed a crook, Johnson, Mr. Vogelback, in whom you
had great confidence, would have checked and double-checked the man
taking his place to be sure he was above reproach.
Mr. MCCABE. I doubt seriously if he could have found anything
then in the man's record. You see, we were in Shanghai and were
checking the man's record, considering him, a man who was in Manila
at the time. We wanted to act fast—or I did. I insisted on fast
action.
The CHAIRMAN. When you hire a house servant or an employee or
an office clerk, you generally ask the previous employers what they
say about him. If you had asked U N K R A they would have told you
about Davis.



148

CONFIRMATION OF T H O M A S B. McCABE

Mr. MCCABE. I would assume, sir, if we had asked U N R R A we
probably would have gotten a good recommendation on him.
The CHAIRMAN. I do not believe they could, under the circumstances.
Senator SPARKMAN. He was with U N R R A at the time ? You took
him actively out of the service ?
Mr. MCCABE. Senator Sparkman, I cannot answer that directly,
but he was actively engaged in U N R E A then, or has been engaged
with U N E R A . I just wanted to call that to your attention.
The CHAIRMAN. Thank you. I want to say further, Mr. McCabe,
of course this committee will give you every opportunity to meet any
suggestions or criticisms made to the fullest extent of your desire
before the hearings are closed.
You understand that, of course.
Mr. MCCABE. The only thing, sir, is when these accusations are
made and there is a lapse of a day or a week, I just wanted to show
the committee that I am at a distinct disadvantage.
The CHAIRMAN. I do not know how we are going to change that
procedure. All we can do is put in the case of criticism of you; and
all you can do is make your rebuttal and knock them in the head, if
you can. That is the story with all these procedures. You cannot
put both sides in the same day. I t is not the Senate custom. We are
merely going according to the traditions of the Senate. If it be a
disadvantage, I am sorry. You will be given every opportunity. I
shall insist on that in full.
We will call the hearings together at the earliest possible moment,
and you will all be notified.
We now stand in recess.
(Thereupon, at 12:40 p. m. the committee adjourned, subject to
the call of the Chair.)




CONFIRMATION OF THOMAS B. McCABE
WEDNESDAY, MARCH 24, 1948
UNITED STATES SENATE,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.
The committee met, pursuant to call, at 10: 30 a. m., in room 301,
Senate Office Building, Senator Charles Tobey, chairman, presiding.
Present: Senators Tobey (chairman), Buck, Capehart, Cain,
Bricker, Maybank, Fulbright, Robertson of Virginia, and Sparkman.
The CHAIRMAN. The committee will come to order.
Gentlemen, a sufficient number are present, and we shall begin.
Good morning, Mr. McCabe. Will you sit down, sir ?
STATEMENT OF THOMAS BAYARD McCABE, PHILADELPHIA, PA.—
Resumed
Mr. MCCABE. Thank you.
The CHAIRMAN. Mr. McCabe, first, did you have any statement that
you wish to make at this time?
Mr. MCCABE. NO, sir.
The CHAIRMAN. I present

for the record two letters, one addressed
to me, and one addressed to the committee. One of the letters is from
the dean of the University of Pennsylvania, Wharton School of
Finance and Commerce; and the other is from John S. Sinclair, executive vice president of the JSTew York Life Insurance Co.
Both of the letters speak in very high terms of Mr. McCabe, and
I offer them for the record.
(The letters referred to are as follows:)
N E W YORK L I F E INSURANCE CO.,

New York 10, N. Y., March 16, 19i8.
The

B A N K I N G AND CURRENCY COMMITTEE,

United States Senate, Washington, V. G.
DEAR S I R S : I w r i t e in connection w i t h the hearings now being conducted by
your committee on t h e confirmation of President T r u m a n ' s appointment of Mr.
Thomas B. McCabe as a member of the Federal Reserve Board.
As of J a n u a r y 1, 1934, I w a s elected Deputy Governor of t h e F e d e r a l Reserve
Bank of Philadelphia after practicing l a w in Philadelphia for t h e 12 preceding
years. I n t h e early spring of 1936 I w a s elected president of t h e P h i l a d e l p h i a
Reserve Bank and served as such until J u n e 30, 1941. I resigned a t t h a t time to
accept election as a vice president of t h e New York life I n s u r a n c e Co. I n 1942
I became executive vice president of t h a t company and now hold t h a t office.
I have know Mr. McCabe in a business and social w a y for more t h a n 12 years
and consider myself as one of his close friends. Our acquaintanceship s t a r t e d
during my service with t h e Philadelphia Reserve B a n k u n d e r t h e following
circumstances:
I n 1936 t h e Reserve bank w a s considering a loan to a paper company and
needed to have a comprehensive s t u d y m a d e of t h e paper business. Mr. McCabe's
name w a s suggested to me a s a competent person t o m a k e t h a t study. After



149

150

CONFIRMATION OF THOMAS B. McCABE

reviewing the matter with him he undertook the study which was of much
help to the Reserve bank in considering applications for paper company loans
In the Third Federal Reserve District.
I also found upon inquiry of our vice president in charge of the Philadelphia
Federal Reserve Bank's examination work that Mr. McCabe had had a competent
and broad background in banking and financial matters, in particular as a director of the Delware County National Bank of Chester, Pa. He had taken the
lead in the recapitalization of that bank and the strengthening of its officer personnel. As a result of his financial assistance, advice, and guidance that bank
greatly strengthened its position and for some years has been one of the outstanding financial institutions in the important industrial area of Chester.
In conversations with Mr. McCabe I learned that as a young man he had
assisted his father who was commissioner of banking of the State of Delaware.
He had become conversant with banking operations and problems. He also
had majored in banking, finance, and economics while a student at Swarthmore
College. In leading that Scott Paper Co. into its preeminent position in the paper
industry he became quite conversant with financial requirements of American
business and the operations of small as well as large banks. I found in him a
very real interest in central banking operations.
As my knowledge of Mr. McCabe and his background increased I brought
his name to the attention of the members of the Federal Reserve Board with the
suggestion that he would make an outstanding contribution to the Philadelphia
Federal Reserve Bank and to the Federal Reserve System as a class C director
of that bank. On my own initiative, the idea originating with me alone, I introduced him to the members of the Federal Reserve Board in the spring of 1937.
I believe it was In the latter part of 1937 that he was appointed a class C director
of the Philadelphia Reserve Bank and was eventually appointed by the Federal
Reserve Board as chairman of the board of directors of the Philadelphia Reserve
Bank.
From 1937 to 1941 Mr. McCabe, as a class C director and as chairman of our
board, was of incalculable help to me in conducting the management and operations of the Philadelphia Reserve Bank and in my broader responsibilities in the
Federal Reserve System. He was much interested in the personnel and day-today operations of the bank and also in the broader problems of central banking
matters. He guided and assisted me in making the meetings of our directors
constructive and of more help to the bank and our officers. He spent a good deal
of time in service on the various committees of the bank and familiarized himself
thoroughly with its operations and policies.
Mr. McCabe played an active part in the conferences of the chairmen of the
12 Federal Reserve banks and encouraged a thorough and complete study of the
personnel and salary classifications and standards for employees and officers of
the several Federal Reserve banks. In this connection he served on a committee
with Owen D. Young, and General Wood, respectively chairmen of the New York
and Chicago Reserve Banks. In other words, Mr. McCabe was a constructive
and active influence not only in connection with his responsibility as chairman of
the Philadelphia Reserve Bank but also in the broader problems of the Federal
Reserve System.
After my resignation in 1941 he continued to assist Dr. Alfred H. Williams,
my successor president of the Philadelphia Reserve Bank, and I am sure that
Dr. Williams will confirm or has confirmed the constructive contributions continuously made by Mr. McCabe to the Philadelphia bank.
As you know, during the defense and war periods he gave valuable public service
and completely of his time to the lend-lease operations and to the foreign war
surplus disposal agency.
Mr. McCabe is a man of great force and energy.' His integrity is unquestionable.
He is an independent and liberal thinker and an able administrator and executive.
He knows thoroughly the operations of American business and our economy
generally and in my judgment has a well-tested and competent background in
central banking theory and practice as well as in the field of commercial banking
operations.
If there is any further information I can give you in this connection please do
not hesitate to call upon me at any time.
Cordially yours,




JOHN S. SINCLAIR,

Executive Vice President.

CONFIRMATION OF T H O M A S B . McCABE

151

UNIVERSITY OF P E N N S Y L V A N I A ,
W H A R T O N SCHOOL OF F I N A N C E AND COMMERCE,
O F F I C E OF T H E D E A N ,

Philadelphia,
Hon.

March 22, 19/t8.

CHARLES W. TOBEY,

Chairman,

Senate Committee

on Banking and, Currency,
United States Senate, Washington.
D. C.
M Y DEAR SENATOR TOBEY : T h e hearings t h a t your committee is now conducting
into t h e qualifications of Mr. T h o m a s B. McCabe for membership on the Board
of Governors of the F e d e r a l Reserve System lead me to offer some observations
as to his qualifications as b a n k e r and a d m i n i s t r a t o r . These a r e based upon my
association with Mr. McCabe week after week for a half-dozen years as a class C,
or public, director of the F e d e r a l Reserve B a n k of Philadelphia.
To conserve your time, I endorse him w i t h o u t reservation, not only because of
his interest in the credit a n d fiscal problems of our Nation, but because of t h e
sense of public responsibility which I have seen h i m display so often. Mr. McCabe's basic method of operation is to enlist t h e active participation of all
interested parties in the definition and solution of problems. In other words,
he by n a t u r e adopts the h u m a n approach to every problem, a n d h i s faculty for
developing teamwork enables him to m a r s h a l advice from both technicians and
businessmen.
P e r h a p s the best way to indicate his method is to cite a few specific i l l u s t r a t i o n s
of t h e results of his leadership. One of his o u t s t a n d i n g contributions has been
t h e spirit of cooperation a n d loyalty t h a t he h a s helped to inspire in t h e staff of
the bank. Convinced t h a t the quality of any institution is determined by t h e
people in it, he has worked constantly a n d effectively to strengthen t h e personnel
of the bank and system. H e initiated and carried through a system-wide analysis
of official compensation in 1940 and of executive development in 1941. I n addition, he played an important p a r t in developing a system-wide p r o g r a m of job
analysis and s a l a r y administration.
H e also fostered and participated actively in a p r o g r a m to weld t h e w o r k of
the Philadelphia Reserve Bank and t h e commercial banks of the district. This
program is based on t h e belief t h a t t h e democratic method of solving problems is
to develop informed discussion. T h e bankers of t h e district a r e brought together
in small groups by the F e d e r a l Reserve b a n k s to discuss c u r r e n t a n d prospective
problems of m u t u a l interest. L a s t year some 40 such conferences w e r e held. I n
this connection, I might mention, incidentally, t h a t Mr. McCabe h a d much to do
with the discussion and approval of the B r e t t o n Woods agreements by t h e bankers
of Philadelphia.
Research is another field in which Mr. McCabe h a s taken active leadership. H i s
interest in this field arises from his firm belief t h a t judgment should be based on
t h e most accurate information and analysis it is possible to secure. By demons t r a t i n g the importance of research, he h a s in t u r n inspired t h e research staff to
put forth its best effort.
In short, it is my belief t h a t Mr. McCabe's long familiarity w i t h t h e problems
facing the system, together with his r e m a r k a b l e talent for leadership, makes him
an ideal choice for a Governor of the F e d e r a l Reserve System.
Sincerely yours,
C. C. BALDERSTON,

Dean.

The CHAIRMAN. Mr. McCabe. coming now to the phase of the hearings which deals more definitely and particularly with the banking
business and the position for which you have been named, I have a
series of questions to ask you, which I hope will bring out information
for the committee's benefit.
I shall ask the indulgence of the members in order that I may be
allowed to finish these questions, which will not take too long, without
interruption. Then each member of the committee, beginning with
Senator Buck, will have the opportunity to submit any questions he
wishes to the witness. We will first hear from my friends on the right.
Then, after these gentlemen are finished, we will come over to my
friends on the left.
Mi-. McCabe, what experience have you had in banking?



152

CONFIRMATION »OF THOMAS B. McCABE

Mr. MCCABE. Senator T©bey' my most recent experience has been as
Chairman of the Federal Reserve Bank of Philadelphia—Chairman
of the Board. I went onjthatj Board in 1937, as a class C director.
Class C directors, as you Know, are appointed by the Board of Governors in Washington.
I n 1938 I was appointed Vice Chairman of that Board, and I have
been Chairman since 1939.
Prior to going on the Board, Governor Norris tried to get me to go
on the advisory committee of the Board, to assist in the problems in
connection with loans to commercial companies under 13 (b) of the
Federal Reserve Act. I didn't have the lime then to serve on that
committee, but I did advise with them on a few very special cases.
And then I was in contact with the bank, prior to going on the
Board in connection with some of the interesting problems of the bank
of which I was a director, in Chester, Pa., prior to going on the
Federal Reserve Board.
The CHAIRMAN. Have you ever been connected with a commercial
bank as such ?
Mr. MCCABE. Not as an officer. I have been a director of a commercial bank.
The CHAIRMAN. How much of your time each month was given over
to the duties of honorary chairman of the Federal Reserve Board of
Philadelphia?
Mr. MCCABE. That varies, Senator. When I was not in Government
service, I devoted considerable time to the Board—not so much actually
physically being at the Board as much as the frequent conferences
that I had with the president and other officers. The president was in
almost constant telephone communication with me.
The CHAIRMAN. H a s your business experience been almost entirely
in the paper business ?
Mr. MCCABE. Yes, sir.
The CHAIRMAN. Coming

down to the position to which you have
been nominated, I ask you if you will be good enough to tell m e :
Supposing you were President of the United States and were seeking
a man to be Chairman of the Federal Reserve Board. What qualifications do you think that man should have?
Mr. MCCABE. Well, first, I should say, he should have a broad knowledge of banking, although it would not be necessary for him to be a professional banker. He should have broad knowledge of commerce,
industry, and finance. And he should have, of course, proven leadership qualities.
The CHAIRMAN. W h a t do you consider to be the functions of a
central bank?
Mr. MCCABE. Well, the primary function of the central bank is to
control the supply, availability, and cost of money and credit. I look
upon the Federal Reserve System as an auxiliary of commerce, industry, and agriculture; and as I see it, its primary function is that of
the maximum service in the field of credit to the industry of America.
The CHAIRMAN. That is a good answer.
Mr. MCCABE. To my mind, sir, when we consider industry in the
United States, it is clear that the two great factors in industry are
production and distribution. This, of course, being the greatest industrial Nation in the world, I feel that the banking system should be at



CONFIRMATION OF THOMAS B. McCABE

153

the service of industry. I certainly don't look upon the banking
system as the tail that wags the dog,-but'rather as the auxiliary to
commerce, industry, and agriculture.
The CHAIRMAN. NOW, the Reserve .Board, of necessity, is frequently
confronted, is it not, with problems requiring decisions as between
conflicting interests ?
Mr. MCCABE. Of course, that is true, sir, of every phase of life.
The CHAIRMAN. Well, I am speaking now particularly of the Federal
Reserve Board. Naturally, with questions of policy, there are going to
be conflicting interests; are there not?
Mr. MCCABE. Yes, sir.
The CHAIRMAN. And you

have to make a decision on those things.
How do you think such differences can be reconciled ? W h a t would
be the controlling factor in making a decision in these things?
Mr. MCCABE. Well, first it is necessary to ascertain all the facts.
Then you have to realize that, sitting in that position, your primary
consideration must be the 140,000,000 people of the United States and
their interests.
The CHAIRMAN. And, not wishing to put words in your mouth,
would you put it another way: That the public interest is paramount ?
Mr. MCCABE. Yes, sir.
The CHAIRMAN. D O you

think the Board should be independent in
its actions ?
I can be more specific, if you like.
Mr. MCCABE. I think that is a very fair question, sir.
I think that the Board should exercise a high degree of independence ; but at the same time, sir, I think it should coordinate its efforts
wherever possible with government and with industry and with
finance.
The CHAIRMAN. NOW, just assume, for instance, that you were confirmed, and were beginning your work. I n the case of a disagreement
with the Treasury, for instance, Uo you think the Board should yield
to the Treasury's viewpoint ?
Mr. MCCABE. Well, I would want to be sure of my statutory authority.
'"The CHAIRMAN. You know the statute governing the Federal Reserve Board, I do not doubt; and you know the powers of the Board.
Mr. MCCABE. Yes, sir. I think my record will show, sir, all during
my life, that I have at least attempted to be as reasonably independent
as possible; but that I have always attained results from considering
the larger interests and what I must do to cooperate. I don't know,
sir, that I have answered your question.
The CHAIRMAN. I suppose what you mean is that you would show
a high degree of "sweet reasonableness"; is that it ?
Mr. MCCABE. I would say this, and you can check this thoroughly,
sir: That in the various positions I have held in Government, I think
I have a record, sir, for working with the various departments of government rather harmoniously, and yet never giving up what I felt was
the primary interest of the job.
The CHAIRMAN. That is good, of course.
Mr. MCCABE. You can check that, sir, with the Army, the Navy,
the State Department.
The CHAIRMAN. I am not questioning that at all, sir; not the least
bit.



154

CONFIRMATION joF THOMAS B. McCABE

W h a t is the first you knew about your being considered for this
. j
position ?
Mr. MOCABE. The first intimation that I had of that was a complete
surprise to me, because I had had no intimation that I was being given
consideration prior to that time. I t was a telephone communication
which I received, on the 18th of January, from the Secretary of the
Treasury, Mr. Snyder. H e called me at my home, and told me that
the President had consulted with him relative to my capabilities and
availability for a position in the Federal Eeserve; and stated that I
might expect a phone call from the President in a day or two.
About 2 days later, the President made an appointment to see me,
and then told me of the vacancy on the Board—the Federal Eeserve
Board.
The CHAIRMAN. Was there a vacancy at that time?
Mr. MCCABE. Yes, sir.
The CHAIRMAN. H a d the

decapitation of Mr. Eccles been made a
fait accompli, or was it in futuro ?
Mr. MCCABE. Mr. Ransom had died, sir. He was a member of the
Board. And that left a vacancy on the Board of Governors.
The CHAIRMAN. But I mean, was it then proposed to drop Mr. Eccles,
or was that something in the future ?
Mr. MCCABE. A S far as the President's conversations with Mr.
Eccles
The CHAIRMAN. No, I did not ask that question.
Do you know whether Mr. Eccles had been dropped by the President when he talked with you, or was that something that came after
that?
Mr. MCCABE. I can't recollect whether the President had a conversation
The CHAIRMAN. That is all right. Thank you.
Now, with what other officials in Government had you talked about
your appointment besides Mr. Snyder ?
Mr. MCCABE. I can't recall but one other man that I talked to, and
that was Mr. Clayton.
The CHAIRMAN. Now, what bankers in New York did you talk with
about it ?
Mr. MCCABE. None.
The CHAIRMAN. NO bankers ?
Mr. MCCABE. N O bankers, sir.

The CHAIRMAN. W h a t bankers called you ? No bankers called you
up about this ?
Mr. MCCABE. N O , sir.
The CHAIRMAN. Did you

confer with the Secretary of the Treasury

on more than one occasion ?
Mr. MCCABE. Yes, sir.
The CHAIRMAN. After

you saw the President, you went back and

saw him ?
Mr. MCCABE. Yes, sir.
The CHAIRMAN. Did you

ever talk with Mr. Giannini of the Pacific
coast ?
Mr. MCCABE. I can't recall ever seeing Mr. Giannini but once in my
life, sir, and that was socially. I doubt if we had more than 2 minutes' conversation.
The CHAIRMAN. When was that ?



CONFIRMATION OF THOMAS B. McCABE

155

j

Mr. MCCABE. About a year ago.
The CHAIRMAN. Did you talk with any representative of Mr. Giannini's holding company, or his banks, in'connection with this thing?
Mr. MCCABE. Not that I know of, sir.
The CHAIRMAN. I like to see you smile when you say that..
What is your opinion of the adequacy of existing legal limits on
reserve requirements of member banks of the Federal Reserve System?
Mr. MCCABE. Well, as of the end of last year, when we were reaching
a high point on the inflationary spiral, and the indications then were
that we were going higher on the inflationary spiral, I felt that the
Federal Reserve would have to ask for an increase in the maximum
reserve requirements.
The CHAIRMAN. And what is your opinion of the advisability of
requiring a secondary reserve from National and State banks, consisting of cash or short-term Federal obligations at the option of the particular bank ? Such a proposal, as you know, is contained in S. 2126,
now pending before this committee.
Mr. MCCABE. Yes,

sir.

Well, I think the plan has a great deal to commend itself for consideration, but 1 felt from the beginning that the Congress would
never authorize it.
Or, may I put it this way: I felt that it would be necessary to
conduct a broad educational program with the Congress and the
public, to get the Congress and the public to accept it. I t being somewhat unorthodox, the only question I had was as to whether, from a
practical standpoint, it could be sold within any reasonable time to
the Congress and the public.
The CHAIRMAN. We had hearings, you know, on that bill, and you
know the result of them.
Mr.

MCCABE. Yes,

sir.

The CHAIRMAN. D O you feel the present legal limits for reserves
of Federal Reserve banks should be increased ?
Mr. MCCABE. I was going to continue, sir, when I said that at the
end of last year, when we were on the upward spiral of inflation, I felt
that it would be necessary to ask the Congress for additional authorizalion. Then, of course, in February, we had the break in the commodity market, the lowering of prices, and then we felt the effects all
around the country of the tightening of credit.
I have received a number of letters from various parts of the United
States since my nomination came to the Congress, from various business people and others, complaining about the tightness, of credit.
Therefore, I would say that as of February the necessity for increasing reserve requirements was not as great as it was in, say, November and December.
Now, of course, in the last few days a number of things have taken
place. The President has indicated to the Congress that a rearmament program is imminent.
The CHAIRMAN. The Republicans have passed the tax bill.
Mr. MCCABE. I t looks as if the Congress will be asked to appropriate substantial amounts for the armament program, and then, I
think, in the light of that and the events of the last few days, this whole
subject will have to be thoroughly studied. And if the Congress sees
fit to confirm my nomination, and I get in office, I would expect to make



156

CONFIRMATION OF THOMAS B. McCABE

a very intensive study of this problem and be prepared to come back
to this committee, sir, and make a recommendation.
The CHAIRMAN. How do you propose, or would you propose, to
stabilize the influence on the monetary system of the importation
of gold? .
Mr. MCCABE. I would think that possibly the imports of gold might
decrease some when the European aid program becomes effective. I
know no other way to handle the gold problem than the way it is being
bandied at the present time.
The CHAIRMAN. And how is that ?
Mr. MCCABE. Well, sir, we import the gold. The Treasury .buys it.
The funds that the Treasury pays for that are deposited in the
banks. I t has the tendency, of course, to increase the loanable funds,
and increase the excess reserves of the banks.
The CHAIRMAN. And the sterilization features come in there.
Mr. MCCABE. That is a difficult one, sir; a very difficult one.
The CHAIRMAN. I quite agree.
Now, would you tell us what your theories are about open-market
operations?
Mr. MCCABE. When you say "theories." sir, in connection with open
market operations, I assume that you are referring to the Federal
Reserve support program of Government bonds.
The CHAIRMAN. That is right.
Mr. MCCABE. I would like to say that I am thoroughly in accord
with the current program of the Federal Reserve in supporting the
Government bond program.
The CHAIRMAN. I take it that events indicate what is in my own
mind; that you feel the bonds should be maintained at par for an
indefinite period.
Mr. MCCABE. Well, the support program, as you know, follows
a pattern on the Government bonds, and my own feeling is that that
pattern, certainly as far as 1 can ascertain today, is a right one.
The CHAIRMAN. You approve of the procedure the Federal Reserve
followed in December, when it dropped the price down to make it
more uniform ?
Mr. MCCABE. I thought that was a very constructive move.
The CHAIRMAN. YOU know there was opposition among the banks,
but we do not put people on special notice when we act in the public
interest.
Mr. MCCABE. I thought that was very constructive.
The CHAIRMAN. Then it comes down to this question: I think we
are in accord with the theory that we should maintain a uniform
pattern, and that we should maintain these at par for an indefinite
period; the alternative being, if we reduced the price of the bonds,
the evil that would ensue at once in the ruining of so many of our
savings institutions that are loaded to the muzzle with Government
bonds. How do you feel about that situation ?
Mr. MCCABE. Well, in the general support program, I feel this:
There are three paramount considerations.
First, there is the refunding, or refinancing, problem of the
Treasury.
The second is that I feel we have an ethical responsibility to the
people who have purchased Government bonds. Our present Federal
debt is a very large one. I n fact, it is one and one-half times all the



CONFIRMATION OF T H O M A S B. McCABE

157

rest of the debt of the United States put together; the total, that is, of
private and corporate debt of all kinds.
And the third consideration, I think, is that it is very helpful to
commerce and industry and agriculture to know that there is a reasonable range in interest rates, and they can reasonably count on that
in refinancing of businesses, business enterprises generally.
The CHAIRMAN. YOU woidd share my apprehension, would you, to
be perfectly frank, as to the danger of price decline below par, and
the consequent effect upon savings institutions in the country?
Mr. MCCABE. Well, when you talk about the absolute support price.
1 think, sir, that that has to be reviewed from time to time to ascertain
what that level should be.
My own feeling is that T am in full support of the action that has
been taken to date in supporting the program.
The CHAIRMAN. And as you look ahead, you have nothing in the
back of your mind that would lend you at this time to a mental commitment, or reservation, that it would happen in the future, as far
as you can see: that reduction below par?
Mr. M C C \ B E . In the ''foreseeable future"—I think those are the
words.
The CHAIRMAN. YOU mention something that touches a responsive
chord in me, when you talk about an ethical responsibility to people.
You are familiar with the thesis of Professor Schlichter. of Harvard.
who says it is bad faith to sell the little people hundreds of millions
of E bonds and then let them be confronted with the fact that the
E bond will not buy anvthing like what it bought when they put the
money in; and he thinks some arrangement should be made to Take
care of that differential.
You know that the theory is in the minds of some good men in the
•country.
Mr. MCCABE. I have heard Professor Schlichter express that very
forcibly.
The CHAIRMAN. What is your feeling regarding the encouragement of all banks to limit loans to those which will increase production ? That is in line with what we said a while ago.
Mr. MCCABE. I think the word "production"' is too broad a term. I
think that when you say "increase production,"' there must be an
analysis made of production. I speak from the standpoint of the
paper industry, now: and there is far more reason for loans to increase
the output of woodpulp than there is to increase equipment for processing of paper. Because with a limited supply of woodpulp, if you
increase too much the new equipment for the processing of paper, you
are putting undue pressure on the supplier of wood pulp, and that has
the tendency to drive the price up.
The CITATRM \ N . We hear this axiom so often—that the best antidote
to inflation is production. T think the Senator from Indiana has said
that many times.
Mi'. M C C \ B E . Generally speaking, you see, I agree that pne of the
creates! answers to the infiafianarv problem is increased production.
But I am just saying that I think that in the extension of credit, you
must irive consideration to certain types of production—and extraordinary consideration.
The CHAIRMAN. The two facets to the question are the emphasis on
production as against carrying inventories.
73055—48

11




158

CONFIRMATION OF THOMAS B. McCABE

Mr. MCCABE. I presume you mean, sir, by that question: The carrying of abnormal inventories.
The CHAIRMAN. Yes. And that all depends, as you and I both
agree, on what a man calls "abnormal."
Mr. MCCABE. Then you have also the factor of the character of the
merchandise that goes into that inventory.
The CHAIRMAN. I t is a mairy-sided thing.
Mr. MCCABE. Yes; it is a many-sided thing.
The CHAIRMAN. What measures, if any, would you recommend be
espoused by the Federal Reserve System at the present time as an
antidote to inflationary tendencies in our economy ?
Mr. MCCABE. Well, we have spoken of the increase of Eeserve requirements.
Of course, I am fundamentally a great believer in cooperative effort,
and I feel that the 12 Federal Reserve banks and the 24 branches have
a great opportunity to work with commerce, industry, and the financial
segments of the economy in each area to get a cooperative plan on
credit control; and can do a great deal to bring about the proper use
of credit by an educational process.
I speak of that feelingly, because in the Philadelphia Federal Reserve B'ink we have conducted a very intensive program through our
bank relations department. I think we held some 44 or 4.") meetings—
group meetings—last year, with bankers throughout the district.
And the program of those meetings was devoted to problems of central
banking, credit control, better bank management, and all the other
factors that we feel are necessary to bring to the attention of the banks.
The results of those meetings have been rather extraordinary. You
see, you are getting out into the grass roots, and you are getting right
down fundamentally to the first principles of banking.
I think we ought to carry that program forward more vigorously,
because 1 think through that cooperative effort with the banks, we have
an opportunity to point out to them the dangers of loose credit policy,
poor management, and all of the other factors.
Then we have done a very interesting thing there. We have started
a program of personnel training in banks. Because we are called upon
all the time by banks of various sizes for personnel; and we are always
complimented when the bank comes to us and takes one of our officers
or one of the employees of the banks.
So we have started a training program, a program of training young
men through the banks, so that we can supply personnel in these spots
where they are required.
The CHAIRMAN. We are coming to a phase now, as to a few questions
on the bank holding legislation, and bank holding evils, or virtues,
depending upon the point of view. And as a preliminary thereto,
there has been placed in the hands of the members a very inclusive
chart here, prepared by the Virginia Bankers Association, as published
in the American Banker of February 27 of this year, and used in
hearings before the Legislature of the State of Virginia.
(The chart referred to will be found opposite this page.)
The CHAIRMAN. I will ask the clerk to read this.
Mr. Bowies'?
Mr. BOWLES (Raimond Bowles, committee clerk) (reading) :
All statements in this memorandum are based on a chart prepared by Virginia
Bankers Association, published in the American Banker February 27, 1948, and
used in hearings before the Legislature of the State of Virginia.



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ELLERY C. HUNTINGTON
DAVID M.MILTON

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64 99-/.

ASSETS\

•2,555,387 U*
DEC.il, 1946.
/

I

AVE.,

ASSETS — * 3 4 , 0 0 5 , 5 4 3

NOtWOOO
,
I MOAAti PLAN 6ANK I
NMWO0D, MA If

3 6 40?4

• OWEH. MAtt

NEWYOKK.,

57Q5*

NEW YORK, N.y

(REINSURANCE;

Director
.
A. McQUADE.K/hss.
V. Pres.

&ANKIN& CO

ADMITTED ASSETS Of APPKOX * 4 2 , 9 6 8 . I 6 S .

GtJ7+

AS os Dec SI, 194-G
OH BOAI^D

OF

I BANK « 7711/1T CO
SITTStoAW, PA

DIRECTORS)

61 15 It

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99 12+

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HERBERT C L O U G H J N C

6405*

NORTH S T A R
REINSURANCE CORR
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I COMMi/A/rry BANK I
WARREN, MICH

90 JOHN ST, N Y . N Y
(H.EINSUHANCE)

66 32*

AOMITT& ASSETS V,Wft*'10,050 451 Hi ".*

\

N. Y.

ft* 6LUS ISLAND

D A V I D M . M I L T O N , President

AS OF DEC. 31, 1946

\

•ELLERY C . H U N T I N G T O N ."SZAr *DAVID M . M I L T O N , SSfcaSSSZT
*J.P
*K.R ANDERSON.V.Pta.tSecfy. •W.F.BEST, Kfims. sCbmptnller *R.S.ELLIOT, Jr., KAts.
ARTHUR J. MORRIS, diiirnun cfBml.
JOSEPH C. ROVENSKY, "iffiSSS
CHARLES
WILLIAM M.BERTLES.Cr/aotar J.A.BANCROFT, V.Pres. THOMAS D . C A R S O N ,
WILLIAM HAAS, V.PKS. *t.R CAPAOU, Assishnl Treasurer
* omcEK otOIKECW* of EOUiTr CORP. or AMERICAN GEAIERAL

CHRISTIANSON. a%3ol
*E.A.McQUADE, V.Pres.
L. W I L L I A M S , / * * V.PKS.
V. Pres.
CORPORATION.

,'

ORFOLK ^"(Authorized)

IU

TiNousmn. CITYSAma

I f BANKING CO 1
1 Wf-rtTC* , MA.. _

\

\

4 2 0 LEXINGTON AVE , MEW YCXK.NY
(INVESTMENT, FINANCIAL, ACCOUNTING
AND ADMINISTIiATIVE SERVICE
TO EQUITY COUP A F F I L I A T E S )

645Q*

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INDUSTRIAL INSURANCE
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HAMILTON FIRE INSURANCE Co.
NEW YORK, N Y

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CHMONO* 1 (Authorized)

BLUE IUMIO.

If"**** "Q66£

\
PLANNIN& and SERVICE
CORP.

MORRIS PLAN CORPORATION of AMERICA
4 2 0 LEXINGTON AVE.
N E W YORK., N Y
WITH ASSETS of $11,735,419 HOLDS MAJORITY STOCK CONTROL of SUBSIDIARY 8ANKS WITH A S T rf'2»,5JO,8l2 AS OF DEC. 31.1946.
S ES
M AN A&EAAENT
v P*.C .
±

SeCUNHNRE INSURANCE CO.

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DAVENPORT, IOWA

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0RFOLK*3 (Authorized)
NORFOLK
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STATE WIDE INSURANCE A G E N C Y
tkhmond,Vd.
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L . J COMMONWEALTH DISCOUNT CORPrfVA.
Richmond, l b .
I O O <jo

f

I

(HUNTINGTON and AAILTON

(FOREIGN REINSURANCE
TREATIES)

6 1 . 2 8 , 4 ( 6 1 3 5 * AS OF JUNE 30,1947) REPRESENTED 6Y
H0LDIN6S of APPROXIMATELY 954,768 SHARES 0 O # P A R )
OUT OF 1,557,964.5 SHARES OUTSTANDING.

I

M

(OFFICE
eaoi/'ir)
JEKSEYCITY, N.J.

Meshr, NX

/

/

7

/

BROJW(UIC.
(Enoineeting')
NEWYOt'lCHY.

/

/

LEXINGTON

•y°i ELLERY C. HUNTIN6T0N, ChairmsnofBoaid

TODD a

(OIL INTERESTS)

PATENTS ON WOOD
FINISHING DEVICE'S
MISHAWAKA, /NO

/

420

MONTGOMERY
OIL CORP.

y

/

nit*

FILED BY EQUITY C O R R
FILED BY AMERICAN GENERAL C O R R
FILED BY MORRIS PLAN CORP of AMERICA.
FILED BY MORRIS PLAN CORP of AMERICA.
FILED BY FIRST YORK. CORR.-MOODY'S
MANUAL o f INVESTAAENTS.0947)

90 JOHN ST,

AMERICAN GENERAL CORPORATION

/

SEATTLE, WASH

/

N0.6II-I87-2
N0.8II-I89-2
NO. 1-3272-2
NO. 2-7013-4
N0.8II-I8S-2

9 0 JOHN ST N Y, N Y

7

CO

HAVMtHU, MAtS

me aAaet/Btwcl

75.22% ( 7 5 . 1 5 * AS OF MARCH 3 1 , 1 9 4 7 )

(REAL ESTATE')

MFG'R')

H4vr*MHl MOAAO^
I PLAN BANKING

<V ST LOUIS, AtO I

A V E . , NEW Y O R X . N . Y .

THE LANCASTER
CORP.

P f< ESIDE NT
ASSETS '17,738.215

NORTHWEST BAKER
ICE MACHINE CO, Inc.

25Q6* I

GENERAL REINSURANCE COPORATION

Of BOARD

DAVID M . M I L T O N

ito+X

UNITED STATES SECURITIES and EXCHANGE COMMISSION
REGISTRATION STATEMENTS AND ANNUAL REPORTS :

rW±>'19,992,212 as of Sect 30,1947. Capitalization165.0324 sfiares'l?° far Preferred Stock 4191,289 shares 10* farCotnmon Stock.

ELLERY C. HUNTINGTON
CHAIAMAH

LEXINGTON

ELLERY C HUNTINGTON, Ckainm of Bond
D A V I D M . M I L T O N , President z
MORTON H. FRY, Dindor G. HILMER LUNDBECK Jr. Dindor WEBSTER B.TODD , Direct
m.VL^J.PKi.tQmpMler U. ANDERSON, V. Pres. iSedy. R.S. ELLIOT, Jr.. f A » . E W R
D AD
ALBERT E. KARN. V.Pres. J. P. CHRISTIANSON, Trtas. 6 E O R 6 E C. JOHNSTON,

FIRST TORK CORPORATION
(nememmn MK'A)
OMAHA, NEB

I MOMlt PLAN SANK I

I

7TX
2 9 . 5 8 * AS Of AIM.31.19*7. 2 1 . 7 9 % OF VOTING POWER ( I . O H 2 7 3 SHARES , >
EQUITY CORP., lOf PAR, COMMON STOCK HELD IN \
i f NAME O F ROYNAS 6. C O . , NASSAU, BAHAMAS.) >

EQUITY CORPORATION
BAKER ICE MACHINE
CO., INC.

SOURCES :

420 LEXINGTON AVE., NEW YORK, N. Y mo #1 EXCHANGE PLACE, JERSEY C/TY,HJ

L PERCENTAGE FIGURES INDICATE PERCENT of VOTING POWER HELD DIRECTLY OR THROUGH
SUBSIDIARIES BY EQUITY CORPORATION AS OF DEC.31,1946 or SUBSEQUENT D A T E .

73055 O - 48 (Face p. 151)

CONFIRMATION OF THOMAS B. McCABE

159

Ellery C. H u n t i n g t o n and David M. Milton own 33,000 (23.909 p e r c e n t ) of
138,436.1 outstanding shares of common stock of Oceanic T r a d i n g Co., Inc. T h e
p a r value is 10 cents per share. Holds voting control of subsidiaries w i t h a s s e t s
over $359,000,000.
Oceanic T r a d i n g Co., Inc., is a P a n a m a corporation w i t h offices a t Nassau,
B a h a m a s , British West Indies. T h e transfer agent for Oceanic is F i n a n c i e r a
Tecnica de Mexico, S. H., Mexico, in which Oceanic owns indirectly a small interest.
Oceanic, as of March 31, 1947, owned 29.58 percent (held in t h e n a m e of
Roynas & Co., Nassau, B a h a m a s ) of t h e common stock of E q u i t y Corp., 420'
Lexington Avenue, New York, N. Y. Huntington is c h a i r m a n of t h e board.
Milton is president.
Equity Corp., as of March 31, 1947, owned 75.15 percent of t h e American General Corp., 420 Lexington Avenue, New York, N. Y. H u n t i n g t o n is c h a i r m a n of
the board. Milton is president.
American General Corp., as of J u n e 30, 1947, owned 61.35 percent of the stock
of Morris Plan Corp. of America, 420 Lexington Avenue, New York. H u n t i n g t o n
is president and Milton is c h a i r m a n of t h e executive committee.
Morris P l a n Corp. of America owns stock, in varying amounts, in more t h a n
40 banks, one of which, a t least, h a s branches, in 20 States a n d the District of
Columbia.
Taken together, holdings of American General Corp. and Morris P l a n Corp.
of America include, in addition to stocks in banks, stock in insurance—industry,
fire, and casualty—companies, insurance agencies, a loan company, a p u r c h a s e
corporation, industrial liquidation companies, discount companies, an installment
credit service company, a survey company, a commercial corporation, a safe deposit company, refrigerator m a n u f a c t u r i n g companies, a corporation to hold
p a t e n t s on wood finishing devices, an abrasive manufacturing company, an electric heater company, a real estate company, a company with oil interests, a n
office •equipment company, office machines and controls companies, r e i n s u r a n c e
companies, and Stokely-Van Camp.
The States in which one or more of the various banks or companies a r e located
include:
California
Kansas
Ohio
Connecticut
Kentucky
Pennsylvania
District of Columbia
Massachusetts
Tennessee
Florida
Michigan
Texas
Georgia
Missouri
Virginia
Illinois
Nebraska
Washington
Indiana
New York
W e s t Virginia
Iowa
North Carolina

Senator ROBERTSON. May I ask who signed that statement, or who
presented it on behalf of the Virginia Bankers Association?
The CHAIRMAN. I do not know. It was just given me, and it was
asked that it be released to accompany these charts here.
All I would suggest is that after listening to the transcript of the
summation, I would call this chart "wheels within wheels."
Now, coming to bank-holding companies, are you of the opinion t h a t
banks should participate either directly or indirectly in nonbanking
businesses ?
Mr. MCCABE. As a general proposition, I would say "No."
The CHAIRMAN. What degree of competition among banks do you
believe is desirable?
Mr. MCCABE. Well, I think generally, sir, that, having been raised
in business, I am in favor of competition.
The CHAIRMAN. Of competition ?
Mr. MCCABE. Yes.
The CHAIRMAN. We

all know, those of us who know anything about
banking, how large New York banks put out the long hand and reach




160

CONFIRMATION OF T H O M A S B. Mi CABE

into New Hampshire and tell the banks what they shall and shall
not do.
Now, in your opinion, does the present banking system of the Nation contain any monopolistic trends ?
Mr. MCCABE. Well, I assume, sir, that the committee must have
thought that, in favorably passing on the bank holding bill.
The CHAIRMAN. We reported it out. I t is on the calendar now, as
you know.
Mr. MCCABE. Yes.
The CHAIRMAN. What is
Mr. MCCABE. I have just

your opinion ?
a genera] idea of that bill; and the provisions, as I have read them or had them explained, I think in the main
are good. I have not had the benefit, of course, of the testimony that
was given before this committee pro and con. There might be some
particular provision that I might have a different point of view on,
sir, but in the main, it seemed like good legislation to me.
The CHAIRMAN. P u t it this way: Would you agree with me and
with other members of the committee, some, at least, that because of
the great growth, the outstanding and unusual and a-mazing growth,
of one large holding company in this country, and the enormous
spread of its tentacles, that the time has come, in the public interest,
which you are devoted to as we are here, to hold up before the country
"a stop. look, and listen sign" ?
Mr. MCCABE. T O tell you the truth, Mr. Chairman, I don't know
enough about the situation that you are referring to, to answer the
question.
The CHAIRMAN. Are you not pretty familiar with the Giannini
outfit, and their business, the scope of their operations?
Mr. MCCABE. Familiar only in that I have heard comments in the
press and have read the articles in financial magazines and generally
talked to people.
The CHAIRMAN. Have you not talked to the Federal Reserve officials
and the Treasury officials about the bank-holding companies?
Mr. MCCABE. I have heard the Federal Reserve officials explain the
Bank Holding Act; and, as I say, as I have said before, I am favorably
disposed to the Bank Holding Act.
The CHAIRMAN. And have you talked with any other Government
officials about the bank-holding situation ?
The CHAIRMAN. I n your opinion, should any such controls be made
applicable on a Nation-wide basis, or could there safely be eliminated
from such controls banking systems within a single State?
Mr. MCCABE. I think, sir, my general answer to the effect that I am
in favor of this legislation would indicate my general point of view on
that.
The CHAIRMAN. I t would be general, and not confined to a single
State?
Mr. MCCABE. I would want to make a little more analysis of the
single State sir, before I answer that.
The CHAIRMAN. Can you see some danger attendant upon the fact
of such elimination of controls within a single State ?
Mr. MCCABE. I prefer, sir, not to answer that specifically, until I
know more about the subject. You see, we have not been confronted
with that problem, to date, in the third Federal Reserve district.
xVnd quite frankly I have not made any intensive study.



CONFIRMATION OF T H O M A S B. McCABE

161

The C H U R M A N . Have not the directors of the Philadelphia bank,
of which you have been chairman, ever discussed around the table
informally, the comity of such a situation?
Mr. MCCABE. Yes,

sir.

The CIIAIKMAX. And what is the consensus of opinion of the board
headed by you (
Mr. MCCABE. I have expressed my own opinion.
The CIIAIKMAX. But what is the consensus of the board?
Mr. MCCABE. I think we have never polled the board. I have heard
just the informal discussions. My feeling would be, from what I
have heard expressed, that they would be favorable.
The CIIAIKMAX. Favorable to bank-holding companies?
Mr. MCCABE. Oh, no.
The CIIAIKM \x. All right.

Do you agree that the necessary results could not be achieved merely
by regulating member banks of the Federal Keserve System?
Mr. MCCABE. Well, that again goes back to the bank holding bill.
The CHAIRMAN". That is another form of the question.
Here is a pertinent question that we are very interested in: Do you
believe that bank-holding companies should be on a different basis of
examination and regulation than their subsidiary banks?
Mr. MCCABE. YOU have provided for that in the Bank Holding Act,
as I recall, sir.
The CHAIRMAX. I wanted to get } our opinion on it.
Mr. MCCABE. My opinion generally is
•
The CHAIRMAN. That on that point we concur I Is that right ?
Mr. MCCABE. I certainly concur in the proposed bill, sir.
The CHAIRMAN. But 1 am asking a specific question. I t is not a
difficult question, is it? You have a perfect right to your opinion. I
would not put any words in your mouth. The question is whether or
not bank-holding companies should be on a different basis of examination and regulation than their subsidiary banks.
Mr. MCCABE. Xo, sir; I don't think so.
The CHAIRMAX. The whole is greater than any part, is it not ?
Mr. MCCABE. Yes.
The CHAIRMAN. Under

discussion are measures which would deny
an offending bank-holding company (1) the right to vote shares of
stock of its subsidiaries, (2) the right to receive dividends from its
subsidiaries, (3) the right to pay salaries to offending officials, (i)
criminal penalties for willful violation.
.Nfow, what sanctions in your opinion should be included in any such
legislation to regulate bank-holding companies and their subsidiaries?
Mr. MCCABE. Well, you have come back again, I think, to the bill.
I think you have covered most of those things in the bill.
The CHAIRMAX. YOU have not read the act, have you?
Mr. MCCABE. I have not read it. I have heard Mr. Eccles give an
outline of it, at the chairmen's conference.
The CHAIRMAX. Was it enthusiastically received?
Mr. MCCABE. I heard no adverse comment.
The CHAII.MAN. Did you hear any applause? Any aniens?
Mr. MCCABE. I think, generally speaking, they were in favor of it.
The CHAIRMAX. The banks are a little conservative in expressing applause, are they not i Or approval?



162

CONFIRMATION OF THOMAS B. McCABE

Now, sir, do you support the continuing war bond program ?
Mr. MCCABE. I think I have answered that, sir.
The CHAIRMAN. I did not know you had. If you have, I thank you.
Have you always used your efforts to foster that program ?
Mr. MCCABE. When you say "the war bond program," do you mean
the E bond program ?
The CHAIRMAN. Yes; the continuing bond program, sir.
Mr. MCCABE. Well, I have been chairman of the industrial committee on that.
The CHAIRMAN. Have you ever refused to join in campaigns to
expand the pay-roll savings program and thereby increase the purchase of bonds ?
Mr. MCCABE. T h e committee that I have been chairman of was
primarily interested in that.
The CHAIRMAN. You did not refuse to join any campaigns to expand the pay-roll savings programs?
Mr. MCCABE. NO, sir. I say, I have been chairman of the industrial
committee to promote that.
The CHAIRMAN. As President of the Federal Keserve Board of
Philadelphia, did you refuse to hold meetings with management and
representatives of organized labor to foster sales of war bonds and
pay-roll savings systems?
Mr. MCCABE. No sir.
The CHAIRMAN. Senator Buck?
Senator B U C K . Mr. McCabe you

have come through the third degree with flag flying.
The CHAIRMAN. That is only the second.
Senator B U C K . And I have only a few simple questions to ask you.
The position to which you have been nominated is a full-time position?
Mr. MCCABE. I was nominated for the vacancy created by the death
of Mr. Kansom, and I think that has 8 years to go sir.
Senator B U C K . I mean, you are required to devote your full time to
the office ?
Mr. MCCABE. Oh, yes, sir.
Senator B U C K . A n d what salary

does it pay ?

Mr. MCCABE. Fifteen thousand.

Senator B U C K .
P a p e r Co. ?

YOU

are at the present time president of the Scott

Mr. MCCABE. Yes, sir.

Senator BUCK. H O W large a company is that?
Mr. MCCABE. Our volume of sales last year was in the neighborhood of $60,000,000.
Senator B U C K . Well, I will not ask you to disclose the salary that
you have received, but it must be a very substantial salary, far in
excess of what you will get.
Mr. MCCABE. I t is no secret, sir. The S E C reports it. I t is $36,000
a year.
Senator B U C K . Then it is at some sacrifice that you would take this
position.
Mr. McCabe, do you feel that inflation is a serious domestic problem in this country ?




CONFIRMATION OF THOMAS B. McCABE

163

Mr. MCCABE. Yes, sir. You may have heard me state that I felt
that at the end of last year it was a more serious problem than it was
in February; and that now with the proposals that are before the
Congress, the prbolem is going to be more serious than it is currently.
The CHAIRMAN. There has been a little recrudescence of the inflationary tendency.
Senator BUCK. In your opinion, does the Federal Reserve Board
have powers under the present law'to curb inflation ?
Mr. MCCABE. I think the Federal Reserve, in connection with the
Treasury, have done a remarkable job, say, in the last few months in
tightening credit controls.
As far as additional powers are concerned, as I stated before, sir,
I felt strongly a few months ago that it would be necessary to ask
the Congress for additional powers to increase the maximum reserve
requirements.
The situation now will have to be reviewed in the light of all the
proposals that are before the Congress. And I think it should be
given most serious consideration, sir, as to the program for the future.
Senator BUCK. Mr. McCabe, assuming that additional powers for
the Board, as proposed by Chairman Eccles and Mr. Truman, are
not granted by Congress, and if you held the position of Chairman of
the Federal Reserve Board, what would you propose to do in this
matter with the Board's present powers?
Mr. MCCABE. Well, I think there would have to be an intensive
effort made in order to coordinate the efforts of the Federal Reserve
with, first, I would say, the program of the Committee on the Economic Report of the Congress. Because in the control of inflation,
the Federal Reserve is only one factor. There are so many other
factors in the control of inflation. And I think that should be
thoroughly discussed with the committee of the Congress.
Then I think we would have to take our coats off in the field to establish a program of cooperative effort with the banks, insurance companies, and with industry, in order to bring about the end result in
that manner, if extra powers are not given by the Congress.
Senator BUCK. That is all. Thank you, Mr. Chairman.
The CHAIRMAN. Senator Capehart?
Senator CAPEHART. I do not think I have any questions.
The CHAIRMAN. Senator Cain?
Senator CAIN. Mr. McCabe, are you aware that the Advisory Council of the Federal Reserve Board has, by unanimous action, as I
understand it, recommended the passage by the Congress of the bank
holding bill which has recently been referred to ?
Mr. MCCABE. I understand so; yes.
Senator CAIN. YOU have no prejudice against the principles involved in that proposed legislation, have you ?
Mr. MCCABE. No. I come with a completely open mind.
Senator CAIN. Your mind is completely open on the subject?
Mr. MCCABE. Yes.
Senator CAIN. I did

not see the article, but I have been told that
Mr. Drew Pearson columnized some time in the past to say that you
were being nominated for this post in the Federal Reserve because
of your willingness to assure those who were to nominate you that
you would do all in your power to defeat that legislation, and prevent
it from ever becoming law.



164

CONFIRMATION OF T H O M A S B. McCABE

Mr. MCCABE. I think what I have said, sir. this morning would refute that statement.
Senator CAIN. From your point of view, that is a complete and
absolute refutation of any such allegation made by Mr. Drew Pearson.
or anyone else ?
Mr". MCCABE. Absolutely.
Senator CAIN. May I ask, sir, if, outside of the Federal ReserveSystem, you have ever had conversations concerning the so-called bank
holding bill, with other top executive governmental officials?
Mr. MCCABE. I can't recall that I ever did, sir.
Senator C A I N . T O your knowledge, you have never discussed that
particular bank holding subject with the President of the United
States, or with the Secretary of the Treasury, Mr. Snyder?
Mr.

MCCABE. N O ,

sir.

Senator CAIN. And you have discussed it with no other person, to
your knowledge?
Mr.

MCCABE. N O .

sir.

Senator CAIN. Thank you. sir.
The CHAIRMAN. Senator Maybank?
Senator MAYBANK. No questions.
The CHAIRMAN. Senator Fulbright?
Senator FULBRIGHT. Mr. McCabe, I am interested primarily, in your
ideas as to the proper function or place of the Federal Reserve System
in our economy.
I saw in the Washington Post an article by Mr. Livingston, who is
a financial writer for the Washington Post, commenting on one aspect
of the problem.
The implication of this statement is that there is a difference between
your view and that of the present Chairman of the Board, or Acting
Chairman of the Board, as to the function of the Federal Reserve
System in our banking economy.
As I understand it, on the one hand it is regarded as a central banking system. That is the viewpoint of the present chairman. And it
was the implication of -the article that your view is that it should be
decentralized and there should be more autonomy in the different
Reserve banks.
I would like for you to give in your own words, what you think
about the function of the Federal Reserve System and what you think
about the relationship between the Federal Reserve Board and the
regional banks.
Mr. MCCABE. Well, I would like to make one point clear, there. Senator Fulbright. During my term of service in the Federal Reserve,
there has been a very happy relationship, personal relationship and
business relationship between the present members of the Board of
Governors here in Washington and myself. And that is particularly
true of Mr. Eccles. We have been very close friends ever since I have
been a part of the Federal Reserve System. I n fact, as the Class C
Director, I was appointed by the Board of Governors here in Washington.
And repeatedly, I have gone to members of the Board and to Mr.
Eccles, Avhen I have considered taking one of the Government jobs, and
consulted with the Board about taking the position, and whether they
wanted me to resign as Chairman when I did take such position.



CONFIRMATION OF THOMAS B. McCABE

165

So 1 w a n t to make t h a t p o i n t v e r y clear.
Xow, as to m y own views r e g a r d i n g t h e system, m y o w n view is
t h a t I s h a r e a g r e a t deal of t h e p h i l o s o p h y of S e n a t o r Glass, w h e n
the F e d e r a l Reserve A c t w a s u n d e r c o n s i d e r a t i o n : t h a t it s h o u l d be
p r i m a r i l y a regional system. I a m old-fashioned e n o u g h to believe
t h a t t h e regional b a n k s s h o u l d p l a y a v e r y i m p o r t a n t p a r t in t h e
m a k i n g of the policy of t h e s y s t e m ; t h a t you h a v e in t h e r e g i o n a l
b a n k s , a m o n g tlie d i r e c t o r s of t h e r e g i o n a l b a n k s , some r e m a r k a b l e
men.
T h e r e p r e s e n t a t i v e s from i n d u s t r y , c o m m e r c e , a g r i c u l t u r e , a n d
t h e professions t h a t w e r e on those b o a r d s are o u t s t a n d i n g m e n in
every c o m m u n i t y . I feel t h a t as m u c h as possible you s h o u l d utilize
t h a t experience, t h e b r a i n s of those m e n , t h e i r c o n t a c t s w i t h t h e i r
communities, on questions of m a j o r policy.
I t h i n k t h a t those questions w h e r e v e r possihle s h o u l d be given
to those b o a r d s , a n d t h e i r advice a n d c o n s u l t a t i o n s o u g h t o n those
p r o b l e m s , so t h a t w h e n a decision is r e a c h e d in t h e S y s t e m , it is
m o r e or less a System decision, in w h i c h y o u h a v e t a k e n g r e a t p a i n s
to educate these b o a r d s , a n d b r i n g to t h e i r a t t e n t i o n these p r o b l e m s .
Y o u h a v e , of course, c e r t a i n o p e r a t i n g p r o b l e m s i n a F e d e r a l R e serve b a n k . T h e B o a r d devotes its a t t e n t i o n t o t h o s e p r o b l e m s .
I would like t o see t h e b o a r d s h a v e a chance t o p a r t i c i p a t e t o a
great extent in a n u m b e r of t h e p r o b l e m s t h a t we h a v e been discussi n g here t h i s m o r n i n g . A n d I t h i n k it is p e r f e c t l y possible to do
that.
S e n a t o r F U L B R I G I I T . Y O U feel t h a t t h e local r e g i o n a l reserve b o a r d
should h a v e a h i g h d e g r e e of a u t o n o m y t o r u n t h e i r o w n affairs?
M r . M C C A B E . I t h i n k t h a t t h e o p e r a t i o n of t h e w h o l e system s h o u l d
b e just as you w o u l d o p e r a t e a successful business c o r p o r a t i o n t h a t
does business n a t i o n a l l y , t h a t y o u should h a v e a d e g r e e of, a h i g h
degree of, d e c e n t r a l i z a t i o n w i t h j u s t e n o u g h c o o r d i n a t i o n a n d c o n t r o l
in W a s h i n g t o n to m a k e sure t h a t one b a n k w a s n o t d o i n g s o m e t h i n g
d i a m e t r i c a l l y opposed from a n o t h e r , b u t t h a t you s h o u l d give r e a sonably as m u c h freedom of action as possible, t o t h e local b a n k s .
S e n a t o r F U L B R I G I I T . T h o s e b a n k s you say should be c o n d u c t e d o n
a businesslike basis as a n y p r i v a t e b a n k s h o u l d be.
M r . M C C A B E . T h a t is r i g h t , sir.
S e n a t o r F U L B R I G I I T . Y O U t h i n k so.
Mr.

MCCABE.

Yes.

S e n a t o r FULBRIGFLT. T h i s a r t i c l e raised t h a t p o i n t , I m i g h t r e a d
one p a r a g r a p h to i l l u s t r a t e t h e difference in views. I t h i n k it is imp o r t a n t t h a t we u n d e r s t a n d one a n o t h e r a b o u t w h a t is the objective of this c e n t r a l b a n k i n g system.
Mr.

M C C A B E . Yes,

sir.

S e n a t o r F U L B R I G I I T . I t i l l u s t r a t e s , I t h i n k , w h a t h e h a s in m i n d .
Mr. Livingston says:
Mr. Jlc-Cabe has had a brush with the Board of Governors on this point as
chairman of tlie board of the Federal Reserve Bank of Philadelphia. He wanted
to raise the salary of Alfred II. Williams, president, from $25,000 to $35,000, but
was turned down. In its attempt to standardize budgets and operations of the
12 Reserve banks, the Board has set top salaries for the presidents of .$50,000 for
New York, $35,000 for Chicago, and $25,000 for the 10 other banks.
T h a t follows t h e first p o i n t I m e n t i o n e d , i n d i c a t i n g t h a t y o u r view is
t h a t these b a n k s o u g h t to r u n t h e i r own affairs, a n d t h e B o a r d o u g h t
not to control t h e m , is t h a t c o r r e c t ?



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CONFIRMATION OF T H O M A S B. McCABE

Mr. MCCABE. That is not entirely correct, sir. Having operated a
business where we have subsidiary plants, I have had some experience
in that, and my feeling is that you should give to a subsidiary, in
this instance to the 12 banks, as much authority as you can reasonably
give those banks so that those directors will feel that they are playing
an important part in the operation of that institution, and then, of
course, you must always realize that in order to coordinate those activities you must have a reasonable degree of control at headquarters.
Senator FTTLBRIGHT. Was this incident true? Did you recommend
$35,000?
Mr. MCCABE. I would like to say this, Senator Fulbright, that on
the question of salaries and promotions in the Federal Reserve, when I
was chairman of the chairmen's conference, shortly after I became
chairman, I was appointed on a committee of three comprising Owen
D. Young, General Wood, and myself, to make an intensive study of
Federal Reserve officers' salaries and their promotions.
We spent two summers at that. We employed Dr. Balderston, the
dean of the Wharton School, Dr. Karl Bopp, of the University of Missouri, and one other man to make that study.
As a result of that, we came up with what we have later called the
Balderston report, and that was submitted to the Board of Governors.
so that I speak with considerable experience on this question of salaries.
I have discussed salaries with the Board, and at times there has
been some difference of opinion on salaries. That specifically, the
figure there, does not sound to me exactly right, but that may be.
Senator FULBRIGHT. Mr. Williams succeeded Mr. Sinclair.
Mr. MCCABE. That is right, sir.
Senator FULBRIGHT. What salary did he get when he came on the
Board?
Mr. MCCABE. Mr. Williams ?
Senator FULBRIGHT. Yes.

Mr. MCCABE. I cannot remember that exacth 7 , sir. I think it was
in the neighborhood of $20,000.
Senator FULBRIGHT. H e now gets $25,000?
Mr. MCCABE. H e gets $25,000.
Senator FULBRIGHT. When was he appointed?
Mr. MCCABE. I think it was in 1941.
Senator FULBRIGHT. W h a t did he do before he was appointed ?
Mr. MCCABE. H e was dean of the Wharton School of the University
of Pennsylvania.
Senator FULBRIGHT. W h a t did he make as dean of the Wharton
School?
Mr. MCCABE. I have no idea.
Senator FULBRIGHT. I t is very doubtful if he made anything like
$20,000. Approximately, would you guess about eight ?
Mr. MCCABE. I have no idea, sir.
Senator FULBRIGHT. I am not sure that I entirely understand your
views, that these banks should be run on a businesslike basis with a
high degree of autonomy.
Here is the question as far as we are concerned. These are really
governmental institutions, are they not? Do you see any great difference between the bank in Philadelphia, and the R F C in its relationship to the Government?



CONFIRMATION OF THOMAS B. McCABE

167

Mr. MCCABE. Well, I would say that there is some degree of difference there. I might say they are semipublic institutions where you
use the public institutions.
Senator FULBRIGHT. Does not the residual interest in these banks
belong to the Government?
Mr. MCCABE. Yes, sir.
Senator FULBRIGHT. If

they are liquidated, all of their funds come
to the Government, just like the R F C .
Mr. MCCABE. Yes.
Senator FULBRIGHT.

The ownership of the bank stock in these institutions is not in any sense the same as you own in a private bank, is it?
Mr. MCCABE. But if I may just interject this, sir, on the question
of salaries, I hope you will not misunderstand, that I feel that the
review of salaries should be continued in Washington. I have no difference of opinion on that.
Senator FULBRIGHT. The implication of this article is otherwise.
Mr. MCCABE. I would say the article was wrong in that. I still feel
that the review of salaries should be continued in Washington, and you
come back again to Dr. Williams, in whom I have, of course, a very
vital interest. I do know that over the course of the last number of
years, he has had opportunities to leave the bank for positions where
the salary would probably be in the neighborhood of $45,000 to $50,000,
because he is a very outstanding individual.
You have always the question in the Federal Reserve of the retention of these outstanding men, because being located, as is a regional
bank, in cities, say, like Philadelphia, New York, Cleveland, Chicago,
our outstanding men are very much in the limelight and are sought
after, and you have that constant problem of retention of those men.
Of course, on the other hand, as 1 made the statement before, I have
felt disposed to encourage the men when they left the bank to go, say,
particularly with other banking institutions.
Senator FULBRIGHT. You think these Federal Reserve banks should
try to compete with the private banks in their salaries ?
Mr. MCCABE. I do not think they can, sir.
Senator FULBRIGHT. D O you think the function of the president of
the Federal Reserve bank is similar to that of a president of a commercial bank?
Mr. MCCABE. The function is somewhat different. The president
of a commercial bank must, of course, have an experience and a knowledge of the technique of banking, particularly. He has the problem
of making commercial loans.
Senator FULBRIGHT. H e has to make a profit, too.
Mr. MCCABE. He has to make a profit.
Senator FULBRIGHT. Under circumstances very different from Reserve banks.
Mr. MCCABE. Yes.
Senator FULBRIGHT.

You pay this man $25,000, and the head of the
Reconstruction Finance Corporation gets $12,500, and yet he has a
greater responsibility than the president of a single Reserve bank.
Mr. MCCABE. Yes, sir.
Senator FULBRIGHT. This

concerns the philosophy of what his function is. Is he a Government official or is he a banker in the sense that
the president of the Chase National Bank is, and that is what I am




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CONFIRMATION OF T H O M A S B. M< CABE

trying to understand, and the reason I want to is in the future in
case you are nominated, which I expect you very likely will be, we
want, or I want, to understand what you views are about it. I think it
is extremely important, because under the law creating the Federal
Reserve System we gave to the Board of the Federal Reserve, rather
than retaining here in Congress as we have done in the case of these
other governmental corporations, the power to supervise and control
the policies of the regional Reserve banks.
Mr. MCCABE. That is right.
Senator FULBRIGIIT. If you feel that it is a business operation, that
is one thing, and very different from being a Government operation.
Mr. MCCABE. NO, Senator Fulbright; I doubt if we have any difference of opinion on that point. My only feeling is this, that when
you have a conspicuously outstanding man, and in this case I feel that
Dr. Williams is, because he plays a most important part in that
community, I am not confining it
Senator FULBRIGIIT. You are on the Federal Reserve Board at $1."),000. Do you not consider that it is as important to get good men
on the Board as it is to get good presidents of the Reserve banks?
Mr. MCCABE. My feeling on that, sir, not speaking for my own
angle, is that even in that case the salary is too low. I have a very
strong conviction that the salaries of top Government officials, and
of the Congress, are entirely too low.
Senator FULBRIGHT. That is a question we can take up and might
have a very interesting conversation on, but it is aside, it is not the
point I am trying to make, and that is, if you are Chairman of this
Board, I doubt myself that you should be too cooperative with all
of these constituents, so to speak, in the event you have to run this
show, and I think the Federal Reserve Board has got to run it, and
if you do not, if you have a feeling that each one is autonomous, I
think it will end up in chaos.
Mr. MCCABE. N O ; I would like, for instance. Senator Fulbright,
to submit you the Balderston report of the study that we made at that
time. That did not say that the banks were absolutely autonomous,
and I do not believe that—I repeat—I do not believe that. 1 say that
you can utilize the latent forces in that bank, the potentialities that
are there, to an extraordinary degree, and my own feeling is that why
not use them.
Now, when you come to the question of salaries, and I duobt if we
had time enough to discuss it, that there is any difference of view on
that. My feeling is that there should be in Washington coordination
and reasonable control of all of these problem^, operating problems,
but not to the degree of where you handle every specific thing.
Senator FULBRIGHT. They have the power to pass upon all salaries
of every Federal Reserve bank.
Mr. MCCABE. That is right.
Senator FULBRIGHT. A S well as the policies. I t is the policies that
are more important than the salaries.
Mr. MCCABE. Yes.
Senator FULBRIGIIT.

That was used as an illustration only of your
attitude as to the place of the Federal Reserve Board. T consider it
the most important financial instrumentality of the Federal Government, in many respects greater than the Treasury, in its real influence on our financial structure. The power that the Federal Reserve



CONFIRMATION OF THOMAS B. McCABE

169

b a n k s have to issue currency is one of t h e h i g h e s t p o w e r s of G o v e r n m e n t , a n d the idea t h a t these b a n k s o p e r a t e as a c o m m e r c i a l b a n k , t o
m a k e money, seems to m e inconsistent w i t h t h a t . T h e y c a n n o t h e l p
but m a k e money when t h e y h a v e p o w e r t o issue c u r r e n c y to b u y G o v e r n m e n t bonds. T h e i r whole profit comes f r o m i n t e r e s t on G o v e r n m e n t bonds. I n o t h e r w o r d s , t a x money, is i t n o t ?
M r . MCCAISE. W h e n y o u t a l k about s a l a r i e s t h e r e , I h o p e n o t h i n g
T h a v e said t h a t w o u l d give you t h e idea t h a t I feel t h a t t h e p r e s i dent of the F e d e r a l Reserve b a n k should get t h e s a l a r y of a p r e s i d e n t
of a commercial b a n k . I a m j u s t t a l k i n g about t h e degree.
S e n a t o r F U L K U I O H T . I am n o t i n t e r e s t e d r e a l l y i n w h a t he gets i n
dollars. I t is w h o controls t h i s whole o r g a n i z a t i o n is t h e r e a l p o i n t .
T h a t was b r o u g h t u p as b e i n g in t h i s article a n d r a i s e d t h e q u e s t i o n
in my m i n d w h e t h e r or not you h a d t h e view t h a t t h i s F e d e r a l R e serve B o a r d , w h i c h is t h e one t h a t we deal w i t h , t h a t is, t h i s committee, should a c t u a l l y control t h e policies of t h e w h o l e system.
M r . MCCAISE. T h a t IS r i g h t .
S e n a t o r FULBKHJJIT. W e get our i n f o r m a t i o n f r o m t h e B o a r d . Iff
t h a t B o a r d gives u p its a u t h o r i t y u n d e r t h e law or does n o t exercise
it. this committee a n d t h e C o n g r e s s is t o a g r e a t extent cut off f r o m i t s
control of a G o v e r n m e n t i n s t i t u t i o n w h i c h it is o u r d u t y t o control, i n
my opinion.
M r . MOCABI:. I f you are i n t e r e s t e d in t h a t subject
S e n a t o r FvLnitKiirr. A n d I t h i n k we o u g h t to, a n d I w o u l d d i s like to see the B o a r d give u p t h a t p o w e r by s i m p l y n o n a c t i o n or l e t t i n g i t lapse. I t h i n k t h e y o u g h t to c o n t i n u e to d o it, a n d if t h e y d o i t
w r o n g l y , of course, it is o u r job t o criticize t h e m . B u t I often t h i n k
of t h e r e l a t i o n s h i p we h a v e w i t h F D I C , for e x a m p l e , or t h e R F C , ,
or a n y of these o t h e r g o v e r n m e n t a l financial i n s t i t u t i o n s . T h a t g e n era] question, I t h i n k , is t h e basic one.
M r . MCCAUK. I f y o u are interested, I will give y o u a s t a t e m e n t t h a t
I m a d e on t h i s g e n e r a l subject.
S e n a t o r F r L B i u o i r r . Yes, it is a g e n e r a l one. I t is difficult t o b e
specific in t h i s k i n d of a h e a r i n g , b u t I t h i n k t h a t is h i g h l y i m p o r t a n t in the g e n e r a l conduct of t h i s o r g a n i z a t i o n t h a t y o u u n d e r s t o o d
at least w h a t m y a t t i t u d e as a m e m b e r of t h e c o m m i t t e e is, t h a t it is
t h i s committee as a r e p r e s e n a t i v e of Congress w h i c h is t h e one t h a t
is m u c h more i m p o r t a n t to you t h a n each i n d i v i d u a l b a n k in t h e
m a k i n g of policy.
M r . MCCABJ:. I u n d e r s t a n d t h a t , sir, a n d w h a t I a m t r y i n g t o say is
t h a t the B o a r d of G o v e r n o r s h e r e in W a s h i n g t o n h a v e a s t a t u t o r y
responsibility. I do not t h i n k t h e y can give u p t h a t s t a t u t o r y
responsibility.
O n the other h a n d , I feel a l w a y s t h a t you can s h a r e t h e p r o b l e m s
of c e n t r a l b a n k i n g w i t h the i n d i v i d u a l b a n k s a n d t h u s b r i n g or give
the b a n k s an o p p o r t u n i t y t o feel t h a t t h e y are i m p o r t a n t in t h e system.
T h a t is a feeling of m i n e t h a t is r a t h e r s t r o n g .
I n t h a t connection, a t the last m e e t i n g of t h e c h a i r m a n ' s conference,
I expressed some t h o u g h t s on t h a t t h a t I w o u l d be v e r y g l a d to h a v e
t h e S e n a t o r read.
S e n a t o r FULISRIOTIT. I w o u l d be g l a d to h a v e t h a t . I f you h a v e
an extra copy, 1 would like to h a v e it to r e a d before t h e n e x t meeting..
M r . M C C A B E . Y O U can t a k e t h i s a l o n g .




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CONFIRMATION OF THOMAS B. McCABE

Senator FTJLBEIGHT. Do you feel as Chairman of the Board, that the
Federal Reserve System is on a par with the Treasury, or subsidiary
to it, in our governmental structure. I did not quite get what you
thought about that. This bears on the same idea.
Mr. MCCABE. I say that the Federal Reserve has certain statutory
responsibilities, and as Chairman of the Board of Governors of the
Federal Reserve System, I would feel that I must carry out those
statutory responsibilities, that I must exercise a strong degree of
independence, but at the same time, sir, I feel it is important to have a
cooperative spirit with people in Government, in order to accomplish
the end that we -have in view.
Senator FTJLBEIGHT. Of course, in my experience around here, if
you are too cooperative, you are run over roughshod whether in the
legislature or the executive branch.
Mr. MCCABE. T h a t is right. I t is the same degree which you as a
Senator have to exercise, and I feel that you have to look at my record
to see whether I have exercised the appropriate degree of independence.
Senator FTJLBEIGHT. I have often thought I have been too cooperative for the good of myself and the countrj'. I did not understand
quite clearly, if you do not mind a little repetition, about your views
on the difference between the special reserve and an increase in the
regular reserves on control of credit.
I did not quite understand what you said. Did you express a
preference as to the special reserve ?
Mr. MCCABE. I think on the special reserve that as a plan it has a lot
to commend it. My feeling has been that from almost the beginning
that it was a plan that would be difficult to, as we say in business
language, sell, first to the Congress, and to the public.
Senator FTJLBEIGHT. The bankers are the ones who really opposed it,
are they not ?
Mr. MCCABE. Well, my feeling is that it did not receive a very
favorable response here, did it ?
Senator FTJLBEIGHT. The reason being largely that practically all of
the bankers, such as the commercial bankers, came in and vigorously
opposed it.
The CHAIRMAN. And the advisory board, Senator.
Senator FTJLBEIGHT. They were representative of the commercial
bankers.
Mr. MCCABE. My feeling on things of that character is that when
you have something new, you must realize that you have to go through
a period of time to educate people to the advantages and the disadvantages of a particular plan. Facing the critical situation that we
are facing, if it is necessary to increase the reserve requirements, I
would prefer personally to advocate a program that I thought had a
reasonable chance of getting through the Congress. I t is only a
question of being practical about it, as to whether you would take a
longer period of time to educate the Congress to one point of view,
or take a shorter period on a more realistic plan.
Senator FTJLBRIGHT. You are dealing with people who have a very
natural interest in their own business. I n the President's report, he
recommended the study of that suggestion, and the opposition came
from the bankers. I n any kind of controls, whether it be in banking or



CONFIRMATION OF THOMAS B. McCABE

171

in business, you are familiar enough with OPA, for example, to know
that people do not like it, and any kind of control of a governmental
nature, is not popular with the people affected.
I do not think that in dealing with inflation and inflationary conditions, we can take too long to educate people. If it is sound and necessary to prevent inflation, I think you ought to proceed to try to do it,
whether or not it has been accepted by the one affected, because voluntarily they just will not accept it.
Mr. MCCABE. Yes. Of course, on all questions of that character,
you have to always realize the practical side of it and my feeling is
that if you take a plan like that, that you want to start in the grass
roots with your educational program.
The CHAIRMAN. Will you excuse me in order that I may interpolate
one question there?
The only trouble with that, as I see it, is that in a way the house
is on fire. Inflation was rising at that time. We had a man in the
job you are nominated for named Eccles, who, conceding in the words
of Hutchinson that "If we would guide in the light of reason, we must
let our minds be bold," made a bold pronouncement of a plan which
in his own honest judgment he thought would stop the situation, which
met with opprobrium. That is the kind of a man I would like to see
in these positions, a man with guts enough and foresight and courage
enough to take a position, because he in his acumen and judgment
thinks it is right. H e cannot go out in the grass roots and hold conventions and say, "What do you think about this?" and listen with both
sides of his head. He is in the job to make decisions and to hold
before the people ideas and principles, and say that "We must do this.
That is the way I see it."
Mr. MCCABE. I would not differ with you, sir, because I have greaf
admiration for Mr. Eccles. I would say this, however, that to take
evtraordinary pains I think does produce results. I was thinking of
the Bretton Woods agreement.
The CHAIRMAN. If you bring that up, you and I both will come in
for some bad times, because we both supported it.
Mr. MCCABE. I was proud of the fact that in our Philadelphia district that the leading banks there came out boldly for Bretton Woods.
I t was the only major city in the United States where the bankers did
come out boldly for Bretton Woods, and I think it was due to the
fact that sufficient time was taken to convince the bankers.
Senator- FULKRIGIIT. I do not want to drag this out too long. I
think to sum up that particular aspect, it is a question of the determined leadership of the Board. I feel that is where there should be
leadership, it has to be in the Federal Reserve Board, and not in the
various reserve banks.
That is in the various regional banks.
Do you have any views about the extension of credit controls on
consumer credit ? I do not believe you were asked about that. That
was another recommendation of the President in his economic report
of January.
Mr. MCCABE. My philosophy. Senator, is that in peacetime, as a rule,
I naturally resist controls unless they are absolutely necessary. I n
the case of consumer credit controls, my own personal view was in
favor of reestablishing that in view of the critical inflationary situation which prevailed a few months ago.



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CONFIRMATION* OF T H O M A S B. McCABE

I would like to make this clear, however, that when you establish
one control here, or another control here, that you have to consider
the whole economy, and the controls over all of the economy; that is,
I think it is wrong to put in a control here, and then let all the rest
of the economy go, leaving other credit to be extended promiscuously,
because fundamentally I am a great believer, in normal times, in installment selling. I think it has enabled the. masses of our people to
acquire merchandise that they would never have acquired any other
way.
Senator FTJEBRIGHT. Do you consider these normal times i
Mr. MCCABE. Of course not, sir.
Senator FTJLBRIGIIT. YOU do not ?

Mr. MCCABE. I say of course not.
Senator FULBRIGIIT. What do you think about inflation at the moment? Do you feel that the peak has been passed in January or are
we threatened still with inflation ?
Mr. MCCABE. I tried to express that, sir, by saying that 1 thought
we were in in a dangerous spiral of inflation.
Senator FULBRIGIIT. Still in it?
Mr. MCCABE. The latter part of last year. I was hopeful in February, with the drop in commodity prices and the general drop in
prices, and the catching up of supply with demand in a great many
items. I think what has happened the last few days, however, will
make it necessary for us to reconsider all of the programs to combat
inflation, because I think we have got it facing us.
Senator FULBRIGIIT. Did I understand you to say that you felt that
the Federal Keserve Board now has sufficient powers to control it,
assuming that you think something should be done?
Mr. MCCABE. I said in the light of present conditions that we should
make a very intensive study of the problem, and that I would like to
come back before this committee, after having studied all of the factors, and make a recommendation, that is, provided it is concurred
in by the Board of Governors, on what I felt we would need from the
Congress in the way of legislation.
Senator FULBRIGIIT. You mean by way of additional powers?
Mr. MCCABE. Additional powers; yes.
Senator FULBRIGIIT. I take it vou are doubtful that they have sufficient power now. I am not asking what you shall recommend, but I
mean that they need some power.
Mr. MCCABE. I was doubtful of the power in December. In February I rather felt that perhaps we could get by without additional
power, but in the light of the events of the last few days, I think we
have to review the subject.
Senator FULBRIGHT. The fact is that the necessity for supporting"
Government bond prices, which everyone seems to agree on, has almost
nullified the principal power to control credit.
Mr. MCCABE. It has been a very strong factor.
Senator FULBRIOIIT. That was the main tool, and it is practically
nullified by these conditions.
Mr. MCCABE. To my mind that must be done.
Senator FULBRIGIIT. The discount rate no longer can be applied,
can it, effectively, to restrict credit ?




CONFIRMATION OF T H O M A S B. McCABE

173

Mr. MCCABE. It has a strong psychological effect, though, sir. The
combination of efforts taken in the last few weeks, first by the Treasury
in increasing the interest rates on bills and certificates, second by
increasing the rediscount rate only slightly in the Federal Reserve,
tlie increasing of the Reserve requirements in the two central Reserve
city banks, Chicago and New York, that, plus the cooperative efforts
of the supervisors of banking, Comptroller of the Currency, the Federal Reserve, the State supervisors of banking, the cooperative efforts
of all of those, plus the educational program of the bankers themselves, all of it in combination, I think, is bringing about a very desirable result.
Senator FULBIUGIIT. I hope that it is effective, but it certainly is a
rather dangerous situation when you think the banks can purchase
and may have to purchase a couple of hundred billions of dollars in
bonds, if they begin unloading them, there is not much that the Federal
Reserve Board can do but take them. That is my only point, the
support program is what keeps them from going down.
Mr. MCCABE. The amount of bonds that the Federal Reserve would
have to take is not as large as a lot of people think. The total of Government bonds outstanding, what we term the long maturity, and you
can say over 5 years, is about $50,000,000,000 outside of the bonds now
held by the Treasury, and the Federal Reserve. T h a t is a smaller
amount than is generally considered by the public. What percentage
of those you will have to take is, of course, anybody's guess.
Senator FruuuuHT. What do you think about the 75 percent margin
on security purchases, the maintenance of that?
Mr. MCCABE. OU that question, that is a typical question that I
would like to see referred to, say, a committee composed of representatives of the banks. I have a completely open mind on that question.
I have no preconceived notion on it whatsoever. I would like to see,
say, a committee of three members: a chairman, perhaps, of one bank,
the president of a bank, and one of the other officers or directors of a
bank, make an intensive study of that problem, so that you could bring
into play the point of view of commerce, industry, agriculture, as well
as the banks, on that problem.
Senator FUIJUUGTIT. YOU have no view about it, whether it has been
a good or bad thing?
Mr. MCCABE. I think that in wartime it was a necessary thing to do.
Senator FrBBiuoirr. It was 100 percent during the war, but since the
war it has been 75.
Mr. MCCABE. Reduced to 75, and my own impression is that reduction made very little material difference.
Senator FULBRIGIIT. Do you think the maintenance of that at 75
percent has influenced the course of the stock market?
Mr. MCCABE. I say I do not Ihink it has had any real material difference, the reduction from 100 to 75.
Senator FTTLBRIGIIT. I do not mean the reduction. I mean maintaining it at 75. What do you think might have been the result if there
had been only a 10-percent marginal requirement?
Mr. MCCABE. I think there woidd have been a great difference. But
I think the difference between 100 and 75 made no material difference.
Senator FULBRIGHT. YOU are not prepared to say whether yon are
willing or want to retain the 75-percent margin or not ?
73055—48

12




174

CONFIRMATION OF THOMAS B. McCABE

Mr. MCCABE. N o ; that is a subject, quite frankly, sir, as to which
I have a completely open mind and no preconceived notions.
Senator FULBRIGHT. Mr. Chairman, I do not know what your program is. I wanted to ask him a few more questions about the Bank
Holding Act.
The CHAIRMAN. G O ahead.
Senator FULBRIGHT. I am very interested in that because of the
influence that the Keserve Board will have on the passage of that legislation. Of course, you know, what this committee thinks about it.
I hope that before the next hearing that you will really study that
act, because I think it is the most important one before us.
The CHAIRMAN. I will present you with a copy of the act, and the
report.
Senator FULBRIGHT. I wrould like your considered opinion about it.
Mr. MCCABE. I have, sir, in my notes an outline of the act, the principal features of the act, and, as I said to the chairman, generally I
am favorable to the act.
Senator FULBRIGHT. Are you familiar with the facts about the
Transamerica Corporation and its place on the west coast ?
Mr. MCCABE. Only in a general way, sir.
Senator FULBRIGHT. Those facts are available. They are in the
hearings before the committee.
Mr. MCCABE. I would be glad to check them.
Senator FULBRIGHT. I have various reasons for being interested
in it. We had an experience in my State once with a holding company that is comparable, at least in that area, to what is now in existence on the west coast.
Mr. MCCABE. Yes, sir.
Senator FULBRIGHT. And

I think that you will be in a position
either to promote or hinder its passage, and to administer it, and I
think it is important. I would like to know in detail, and as definitely as possible, your views about that legislation and how it should
be applied to the situations that have been mentioned, that is particularly to the Transamerica Corporation, and the Morris Plan
organization.
The CHAIRMAN. We have now provided the appointee with the copy
of the bill and the committee report and copy of the hearings, and if
it is not burdening you too much, before the meeting next Tuesday,
would you familiarize yourself with these so you could be more definite and concrete on the subject matter for next Tuesday?
Mr. MCCABE. On the Holding Company Act?
The

CHAIRMAN.

Yes.

Senator FULBRIGHT. I think you probably know that there is pending now application for branching of many banks. The matter is in
suspense, further growth, especially of the Transamerica organization, is involved.
Mr. MCCABE. Yes, sir.
Senator FULBRIGHT. And

involved in that is not only the aspects
of the holding company which relate to the intermingling of nonbanking industries of all kinds with banking, but in addition the
very important element of monopoly in the banking system within
that area.
Mr. MCCABE. I understand.



CONFIRMATION OF THOMAS B. McCABE

175

Senator FULBRIGHT. Those are the two very important aspects I
have in mind. I think they hold within them considerable danger,
even to my State, because the repercussions of difficulties in an area
like that certainty go all over the United States.
I am concerned in Arkansas with what happens out there, but I
do not like to press you for answers about it when you have not h a d
an opportunity to study it. And I understand that the Treasury has
not yet commented on it.
The chairman says the Treasury will be represented to discuss this
matter.
The CHAIRMAN. Secretary Snyder will be here next Tuesday
morning.
Senator FULBRIGHT. On that same subject?
The

CHAIRMAN.

Yes.

Senator FULBRIGHT. With that in mind, I will not pursue the subject
further at this time.
The CHAIRMAN. We will give you full opportunity whenever you
want it.
Senator FULBRIGHT. I think it is the most important issue immediately before us, that and the inflationary problem.
We regard
the Chairman of the Reserve Board as our principal adviser on most
of these questions. That is why I feel that this is the most important
position that comes before us for consideration.
Mr. MCCABE. Yes,

sir.

Senator FULBRIGHT. I will suspend, then, Mr. Chairman, until the
next time.
Senator B U C K . D O I understand, Mr. McCabe, that you say that
the reserves in the Chicago and New York banks had been extended to
the limit?
Mr. MCCABE. No, I said they have been increased. I did not say
the amount; from 20 to 22 percent.
Senator BUCK. Twenty-five is the limit ?
Mr. MCCABE. Twenty-six.
Senator BUCK. Thank you.

The CHAIRMAN. Are there any other questions this morning ?
If not, we thank you, Mr. McCabe.
The hearing stands adjourned until 10 o'clock next Tuesday
morning.
(Thereupon at 12:15 o'clock an adjournment was taken until Tuesday, March 30, 1948, at 10 a. m.)







CONFIRMATION OF THOMAS B. McCABE
TUESDAY, MARCH 30, 1948
UNITED STATES SENATE,
COMMITTEE OX BAXKING AND CURRENCY,

Washington, D. C.
The committee met, pursuant To adjournment, at 10:130 a. m., in
room 301, Senate Otlice Building, Senator Charles Tobey, chairman,
presiding.
Present: Senators Tobev (chairman). Puck, Cain, Maybank, Fulbright, and Robertson of Virginia.
Present also: The Honorable John W. Snyder, Secretary of the
Treasury.
The CHAIRMAN. The meeting will come to order.
There will be inserted at this point in the record an exchange of
letters between the Comptroller of the Currency, the Federal Reserve
Board, and the chairman of the committee:
M A R C H 24,
Hon.

1948.

PRESTON DELANO.

Comptroller

of the

Currency.
Washington 25, I). C.
DEAR MR. DELANO : In view of certain testimony before the committee on
the nomination of Mr. Thomas 1!. McCabe and in view of previous r e p o r t s in
t h e daily press and in banking publications, I would appreciate It if you would
furnish to me as promptly as possible copies of any correspondence in y o u r
office or other relevant m a t e r i a l in your files indicating an interest on t h e p a r t
of T r a n s a m e r i c a ('orp. or of Bank of America N. T. & S. A. in applications pending before your office for permits for branches or in pending legislation or in
other governmental actions affecting the interests of T r a n s a m e r i c a or of Bank
of America.
Sincerely yours,
CHARLES W.

TOBEY.

Chairman.
M A R C H 24,
Hon.

1048.

MARRINBR S. ECCT.FS.

Chairman, Federal Reserve
System.
Washington 25, D. C.
DEAR MR. ECCLES : In view of certain testimony before the committee on
t h e nomination of Mr. Thomas I>. McCabe and in view of previous r e p o r t s in
t h e daily press and in bunking publications, I would appreciate it if you would
furnish to me as promptly as possible copies of any correspondence in your
office or other relevant material in your files indicating an interest on the p a r t
of T r a n s a m e r i c a Corp. or of Bank of America X. T. & S. A. in applications pending before your otlice for permits for branches or in pending legislation or in
olher governmental actions affecting the interests of T r a n s a m e r i c a or of Bank
of America.
Sincerely yours.




CHARLES W.

TOBEY,

Chairman.
177

178

CONFIRMATION OF THOMAS B. McCABE
TREASURY DEPARTMENT,
COMPTROLLER OF THE CURRENCY,

Washington
Hon.

25, March 24, 1948.

CHABC.ES W. TOBEY, *

Chairman, Committee

on Banking and Currency,
United States Senate, Washington, D. C.
M Y DEAR SENATOR : I n the absence of the Comptroller, we wish to respond to
your letter of March 24 by stating:
(1) We have no correspondence In our flies from the Transamerlca Corp.
Indicating an interest on the p a r t of t h a t corporation or of Bank of America
N. T. & S. A. in applications pending before this office for permits for branches,
or in pending legislation, or in other governmental actions affecting the interests
of either t h a t corporation or the bank.
(2) We have no correspondence from Bank of America Indicating an interest
on the p a r t of either the corporation or the bank in pending legislation or in
other governmental actions affecting the interests of that corporation or the
bank, except a s stated below.
(3) There are pending in this office a number of applications for branches
submitted by the Bank of America from time to time and which are awaiting
disposition. In view of the long-established policy of this office not to disclose
information concerning applications for branches until after they have been
acted upon, we are not enclosing copies of the applications or correspondence
relating thereto.
Very truly yours,
E. B. MCCANDLESS,

Deputy

Comptroller.

BOAHD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,

Washington
Hon.

25, D. C, March 29, 1948.

CHARLES W. TOBEY,

Chairman, Committee

on Banking and Currency,
United States Senate, Washington, D. G.
M Y DEAR MB. CHAIRMAN : The Board has directed me to acknowledge your
letter of March 24, 1948, in which you request t h a t the Board furnish copies of
any correspondence and other relevant material in its files indicating an interest
on the p a r t of Transamerica Corp. or of Bank of America N. T. & S. A. in applications pending before the Board for permits for branches or in pending legislation or in other governmental action affecting the interests of Transamerica or
of Bank of America.
In reply you are advised that the Board, of course, has a considerable volume
of material in its files relating to Transamerica Corp. or Its affiliated institutions. However, there is not now pending before the Board any application
for the establishment of branches by any of the Transamerica affiliated banking institutions. Nor has the Board had any correspondence with Transamerica
or any of its affiliated institutions respecting the current bank holding company
bill or any other legislation now pending before the Congress. The most recent
-correspondence.from the Board's files which touches upon any other governmental action which would affect the interests of Transamerica or Bank of
America relates to a recent order of the Board instructing its legal division to
conduct an investigation for the purpose of advising the Board whether there
appears to be reasonable cause for the Board to institute proceedings under
section 11 of the Clayton Act. This correspondence is enclosed herewith and
is comprised of copies of letters, as follows :
Letter dated November 7, 1947, from M. S. Eccles to Tom C. Clark, Attorney
General.
Letter dated November 7,1947, from M. S. Eccles to Preston Delano, Comptroller
of the Currency.
Letter dated November 7, 1947, from M. S. Eccles to Maple Harl, Chairmari,
Federal Deposit Insurance Corporation.
Letter dated November 28, 1947, from Preston Delano, Comptroller of the
Currency, to M. S. Eccles, with enclosures as follows : Copy of letter dated November 28, 1947, from Preston Delano to S. C. Beise, executive vice president, Bank of
•America N. T. & S. A. and copy of letter dated November 28, 1947, from Preston
Delano to V. N. Belgrano, Jr., president, First National Bank of Portland,
Portland, Oreg.




CONFIRMATION OF THOMAS B. McCABE

179

For your information and that of the members of your committee, the investigation referred to in the correspondence listed above is now being actively conducted
by the Board's staff.
Sincerely yours,
M. S. ECCIJEB,

Chairman pro

tempore.

UNITED STATES SENATE,

March 29, 1948.
Hon.

M. S. ECCLES,

Board of Governors, Federal Reserve

System,
Washington 25, D. C.
DEAR MB. ECOLES.: I have received your letter of March 29, 1948, enclosing certain material from the files of the Board, which were sent to me in response to
my letter of March 24.
I note that you have construed my letter of March 24 as requesting information
only concerning matters of current concern with regard to Transamercia Corp.
or any of its affiliated institutions. However, what I wish to obtain to bring
before the committee is any other relevant material from the files of the Board
from J a n u a r y 1, 1942, to date, bearing upon questions or problems between the
Board of Governors or any other agency of the Government, and Transamerica
Corp. or- any of its affiliated institutions—this to include every bit of data that
is in your files concerning these various elements or groups.
The committee, a s you know, is a t the present time considering matters of farreaching importance" to the country in connection with the confirmation of Mr.
Thomas McCabe as Chairman of the Federal Reserve Board. This evidence is
germane to some phases of the inquiry and I request its transmission to the
committee a t the earliest possible moment.
Time is of the essence.
Sincerely yours,
CHARLES W. TOBBY.
BOAED op GOVERNORS OF THE FEDEKAI, RESERVE SYSTEM,

Washington,
Hon.

March 29, 1948.

CHARLES W. TOBEY,

Chairman, Committee on Banking and Currency,
.
United States Senate, Washington, D. C.
DEAR MB. CHAIRMAN : In response to your letter of this afternoon, and having
particularly in mind your statement that time is of the essence in this matter, the
Board sends you herewith copies of correspondence, as set forfh in the enclosed
list, which have been taken from the files of the Board and which bear upon the
more important questions or problems that have arisen since J a n u a r y 1, 1042,
between the Board of Governors or any other1 agency of the Government and
Transamerica Corp. or any of its affiliated institutions.
Sincerely yours,
M. S. ECCLES,

Chairman pro

tempore.

L I S T OF COBBESPONDENCE

Group No. 1.—This group relates to an application of one of the Transarnericacontrolled State member banks for permission to establish certain branches in
1942, and is comprised of copies of correspondence as follows:
Letter dated January 15, 1942, from First Trust and.Savings Bank of Pasadena,
Pasadena, Calif., to Federal Reserve Bank of San Francisco.
Letter dated February 14, 1942, from Board of Governors to Transamerica Corp.
Letter dated March 17,1942, from Transamerica Corp. to Board of Governors. >
Letter dated July 13, 1942, from Federal Reserve Bank of San Francisco to First
Trust and Savings Bank of Pasadena, Pasadena, Calif.
Letter dated August 8,1942, from Transamerica Corp. to Board of Governors.
Letter dated August 17,1942, from A. P. Giannini to M. S. Eccles.
Letter dated November 13, 1942, from M. S. Eccles to A. P . Giannini.
Letter dated November 25,1942, from A. P. Giannini to M. S. Eccles.
Letter dated December 19,1942^ from M. S. Eccles to A. P . Giannini. •




180

CONFIRMATION" OF T H O M A S B. McCABE

Group No. 2.—This group relates to t h e Board's interest in a certain investigation of T r a n s a m e r i c a Corp. which w a s conducted by the Antitrust Division of the
D e p a r t m e n t of Justice in 1945, and is comprised of copies of correspondence as
follows:
Letter dated October 31,1915, from Tom C. Clark, Attorney General, to M. S. Eccles.
Letter dated F e b r u a r y 26, 1947, from M. S. Eccles to Tom C. Clark, Attorney
General.
L e t t e r dated March 4, 1947, from Tom C. Clark, Attorney General, to M. S. Eccles.
L e t t e r dated April 15, 1947, from M. S. Eccles to John W. Snyder, Secretary of the
Treasury.
Letter dated April 15, 1947. from M. S. Eccles to A. L. M. Wiggins, Under Secretary
of t h e T r e a s u r y .

The CIIAIRM \ x . Mr. Snyder., please.

I want to express my appreciation, Mr. Secretary, for your kindness
in consenting to come this morning. I have prepared a series of questions to ask you which bear upon this subject of Mr. McCabe's appointment and, collaterally, upon matters which his appointment will affect
and be affected by.
Without more ado, I will begin the questions.
Do you personally know either or both of the Gianninis?
STATEMENT OF HON. JOHN W. SNYDER, SECRETARY OF THE
TREASURY

Secretary SNYDER. Yes, sir. I have known them for years.
The CHAIRMAN. Are you acquainted with Sam Husbands?
Secretary SNYDER. I was associated with Mr. Husbands in the R F C ;
The CHAIRMAN. He is at present an official of Transamerica, is he
not ?
Secretary SNYDER. The last time I heard of him; yes.
The CHAIRMAN. What was his capacity; what was the position he
held there?
Secretary SNYDER. Frankly, I do not know. I think lie is president,
Mr. Chairman, but T could not tell you.
The CHAIRMAN. Of Transamerica ?
Secretary SNYDER. That is correct. At least, I think he is. I do not
know.
The CHAIRMAN. He was formerly an official of R F C ?
Secretary SNYDEK. Yes, sir. But T never talked with Mr. Husbands
in his present capacity, so I do not know what his title is.
The CHAIRMAN. He left the R F C to accept the position with the
Gianninis and Transamerica. Is that correct?
Secretary SNYDER. I could not say. I do not know what lie did after
he left the R F C .
The CHAIRMAN. I n the press last week I saw a story, whether rumor
or truth, but I propound this question to you; it bears upon you. It
said that you personally had been offered a position with the Transamerica, or the Gianninis. Is that correct?
Secretary SNYDER. I have no intention of dignifying rumors, Mr.
Chairman.
The CHAIRMAN. Let me a^k you definitely, then: Have you been
offered a position by them ?
Secretary SNYDER. I have no intention of discussing what I have
been offered or have not been offered. I am working for the Govern


CONFIRMATION OF T H O M A S B. McCABE

181

ment, I ha\e no intention of leaving, and I am not going to d i s c u s any
prospective likelihood of an}' connection I might have.
The CHAIRMAN. That is your privilege, sir. But the fact remains
(hat the hank holding bill which is now before the Senate, reported by
this committee, which was introduced by me at the request of the Federal Iteserve Board, is an outstanding and vital piece of legislation.
The bank holding company bill is aimed directly at the Gianninis.
The fact remains also that the Gianninis are very anxious to have Mr.
Eccles removed as Chairman. The fact remains that they made representations to people high in the administration to get him removed.
The fact remains he was removed and that his successor was appointed.
And by collateral evidence before we get through we expect to link
this up.
If it is true that the Gianninis came to you. Mr. Snyder, and offered
you a position wii h them, it would have some bearing upon my thought
at least in the situation before us today.
Secretary SNYDF.B. It would have no bearing on my action, I quite
assure you, whoever offered me a job, Mr. Chairman, as to my decisions
while 1 am Secretary of the Treasury. I call to your mind, sir, that
when I came to this Government I resigned every business connection
that I had, so that I would not be influenced in the public mind nor
in my own as to any decision I made. I am still in that position.
The CHAIRMAN. When did you personally last see one or both of
the Gianninis?
Secretary SNYDER. I do not remember. I t has been some time.
The CHAIRMAN. Did you meet with one or both of the Gianninis or
representatives in Florida recently i
Secretary SNYDER. One of them was down there.
The CHAIRMAN. During the current year?
Secretary SNY'DER. One of them was down there; yes.
The CHAIRMAN. Did you meet with him in a hotel room?
Secretary SNYDER. NO. sir; I did not.

The CHAIRMAN. Which one was there? Senior or Junior?
Secretary SNYDER. 1 do not know where they were.
The CHAIRMAN. The Gianninis you -contacted, and that contacted
vou in the meeting in Florida during the calendar year, who were
they?
Secretary SNYDER. I had no meeting with any Gianninis in Florida.
The CHAIRMVN. You did not meet with one or both of them in a
hotel ?
Secretary SNYDER. I did not.

The CHAIRMAN. All right. I will take your word at par.
Secretary SNYDER. T hope you will.
The CHAIRMAN. They were your luncheon guests last fall, were
they not, here in Washington ?
Secretary SNYDER. Yes, sir; one of them; the younger.
The CHAIRMAN. After that you took them to the White House to
see the President, did you not?
Secretary SNYDER. I did not.

The CHAIRMAN". YOU did not arrange an appointment for them at
the White House?
Secretary SNYDER. I do not recall arranging any appointment. I
do not know whether they even went over there or not.



182

CONFIRMATION OF THOMAS B. McCABE

The CHAIRMAN. W h a t did they come to see you about at that time?
Secretary SNYDER. J u s t a visit.
The CHAIRMAN. To take up the bank holding legislation?
Secretary SNYDER. They did not discuss the bank holding legislation at all.
The CHAIRMAN. Was it in connection with their application for
branches ?
Secretary SNYDER. I think that was discussed; yes. Thej^ have had
a number of applications pending for quite a long time.
The CHAIRMAN. What is your attitude toward the bank holding
company bill ?
Secretary SNYDER. I think I wrote you a letter on that sometime
last fall.
The CHAIRMAN. YOU did, and I will read the letter. I t was not last
fall; it was May 23,1947, to be exact.
Secretary SNYDER. Well, last spring.
The CHAIRMAN. When I had written to you asking you as Secretary
of the Treasury, to give me the benefit of your views on the bank
holding bill. Your reply was as follows [reading] :
DEAR SENATOR TOBEY: I am truly sorry that the Department is not in a posi-

tion to furnish your committee with a definitive statement of our views on the
bank holding company bill at this time.
As you know, my time in recent weeks has been preempted by a number of
very important matters, particularly the tax bill, which has been the subject
of fairly extended hearings within the Senate and House, and the general tax
study commenced only this week before the Ways and Means Committee. In
addition matters involving international finance have required considerable
attention. Under the circumstances, I would much prefer not to take any
position on such an important matter without a more adequate basis for having
one than I now have.

T h a t is May of last year [reading] :
A substantial amount of study has been given to the matter in the Department,
and I have been furnished with the views of a number of those in the Department to whom I would look for advice in such matters. However, I have not
had an opportunity personally to go into the matter thoroughly. As you know,
the Comptroller of the Currency, Mr. Delano, who has had the bank holding
company legislation under study, lias been ill and away from the office for some
time. That has contributed in no small measure to my unwillingness to go on
record one way or the other now, as I definitely would like to discuss this matter
thoroughly with him before taking a position.
I should say that in taking this stand I do not intend to indicate or to imply
opposition to the bill either in principle or in detail.
JOHN W. SNYDER,

Secretary of the Treasury.

Mr. Snyder, that was last May. Mr. Delano was ill then. H e had a
good recovery in June of that year. I t is now almost April. Have
you done as you said vou wanted to do, and discussed the matter with
him?
Secretary SNYDER. I discussed it at various times.
The CHAIRMAN. But you did not let me know what your views were
in response to this letter.
Secretary SNYDER. YOU reported the bill out.
The CHAIRMAN. T h e bill is coming on the floor. We would like
to have John Snyder's leverage to put the bill through.
Secretary SNYDER. Y O U have not called on me since that time.
The bill was reported out.



CONFIRMATION OF THOMAS B. McCABB

183

The CHAIRMAN. But reporting the bill out was only one incident
in the matter.
Secretary SNYDER. I presumed if you wanted anything further
from me you would call on me. You usually do, Senator.
The CHAIRMAN. I am calling on you now.
Secretary SNYDER. I would be glad to prepare something for you.
The CHAIRMAN. NOW let us get back to the examination.
Secretary SNYDER. I have no objection to the holding company bill,
as you well know.
The CHAIRMAN. What is your attitude toward it now, in the light
of the passage of time ?
Secretary SNYDER. I have not reviewed it recently. I would be
glad to go into it. You had not told me what you were going to discuss
when you asked me to appear here today.
The CHAIRMAN. This question has been under study for several
3Tears, has it not?
Secretary SNYDER. 1 understand it has.
The CHAIRMAN. But you have never taken a position on it, pro
or con ?
Secretary SNYDER. Not beyond the letter that I wrote.
The CHAIRMAN. That does not take any position except to say you
are not against it.
Secretary SNYDER. T h a t is right.
The CHAIRMAN, "He who is not for Me is against Me."
Secretary SNYDER. Not necessarily.
The CHAIRMAN. You are aware, are you not, that the bill which
was favorably reported by this committee has the support of practically the entire banking fraternity except the Gianninis?
Secretary SNYDER. N O ; I did not know that.
The CHAIRMAN. I n your letter to me nearly a year ago you said
that you were unwilling to go on record one way or the other at that
time and that you wanted to discuss the matter thoroughly with the
Comptroller of the Currency. Have you ever discussed it with him ?
Secretary SNYDER. I have answered that one. I have; several
times.
The CHAIRMAN. I thank you.
At the time the Gianninis were here last fall, was the Comptroller's
office giving consideration to granting them permits for a large number of banks which had been acquired by Transamerica ?
Secretary SNYDER. I presume they were, because when I first went
in there they had many applications and they are still there. So I
presume they did.
The CHAIRMAN. Did you ever express your attitude toward this
proposed expansion?
Secretary SNYDER. I do not think I ever did.
The CHAIRMAN. D O you know what the attitude of the Federal
Keserve Board was in this matter ?
Secretary SNYDER. N O ; I do not think I have ever discussed this
with them.
The CHAIRMAN. At this point I should like to put' into the record
a copy of a letter of November 7, 1947, from Chairman Eceles to the
Comptroller of the Currency, advising him that the Board on October
31, had unanimously adopted a resolution directing its counsel to




184

CONFIRMATION OF T H O M A S B. McCABE

undertake an investigation to ascertain whether action should be taken
under the Clayton Act against Transamerica. I will insert that in
the record.
(The letter is as follows:)
Now.M])ER 7, 1947.
P e r s o n a l a n d confidential
Hon. PRESTON* DELANO,

Comptroller

of the

Currency,
Washington, D. C.
DEAB PRESTON : At a recent meeting t h e Board received and considered a report from its Legal Division discussing Transamerica Corp. and its group of
controlled banks. In t h a t report counsel for t h e Board ad\ ised that, in his
opinion, t h e present combined statistical d a t a respecting these hanks raises
serious questions a s t o t h e Board's responsibilities u n d e r section 11 of t h e
Clayton Act. T h a t section, as you know, places upon the Board p r i m a r y responsibility for effectuating certain aspects of t h e F e d e i a l antimonopoly policy.
I t w a s counsel's recommendation that t h e Board investigate t h e entire Transamerica situation in t h e light of these s t a t u t o r y p r o ' i s i o n s to determine what
action, if any, t h e Board should take thereunder.
This is to advise you t h a t a t its meeting of October 31 last the Board unanimously adopted a resolution directing t h a t an investigation be u n d e r t a k e n under
the direction of its Legal Division to a s c e r t a i n whether there is j u s t cause for
t h e B o a r d to i n s t i t u t e t h e s t a t u t o i y proceeding contemplated by section 11 of
t h e Clayton Act looking to t h e entry of an order requiring T r a n s a m e r i c a Corp.
to divest itself of t h e stocks of any or all of t h e banks which it now owns, with
the exception of t h a t of Bank of America National T r u s t & Savings Association.
Sincerely yours,
M. S. K'cr.is. Chairman.

The CHAIRMAN. You were advised by this action of the Board at
that time, were you not?
Secretary SNYDER. That is right.
The CHAIRMAN. 1 now place in the recond at this point letters of
November 28, 1947, from the Comptroller of the Currency, one addressed to the executive vice president of the Bank of America, in San
Francisco, and the other to the president of the First National Bank of
Portland.
t \
Did you know of the existence of those letters i
Secretary SNYDER. Which were those?
The CHAIRMAN. A letter to the president of the First N ational Bank
of Portland, Oreg., and a letter to the executive vice president of the
Bank of America, in San Francisco.
Secretary SNYDER. What was the name of them ?
The CHAIRMAN. I will have the clerk read the letter.
Mr. BOWLES (reading) :
NoMC\t!!m 2S, 1947.
Mr. S. C. B E I S E ,

Hrecutive
Bank

Vice
President,
of America National Trust & Havings
Association,
San Francsico, Calif.
DEAB MR. B E I S E : Please refer to the request of the Bank (if America National
T r u s t & Savings Association t o branch into i t s system t h e following Transainericacontrolled b a n k s and their existing branches :
F i r s t T r u s t & Savings Bank of Pasadena (three brunches)
F i r s t National Bank of Crows Landing
He-ad office of t h e Bank of Newman
Crows Landing branch of t h e Bank of Newman
P a t t e r s o n branch of t h e B a n k of Newman
Gustine branch of t h e Bank of Newman
H e a d office of t h e B a n k of Pinole in Crockett
Pinole b r a n c h of t h e B a n k of Pinole



185

CONFIRMATION OF T H O M A S B. McCABE

Hodeo branch of the Bank of Pinole
Hank of Tehaehapi
Central Bank of Calaveras, San Andreas
F a r m e r s and Merchants B a n k of W a t t s
First National Bank in Corcoran
First National Bank in S a n t a Ana
First Natnonal aBnk of Turlock
First National Bank of Bellflower
First National Bank of Fairfield
First National Bank of Garden Grove
First National Bank of Los Altos
First National B a n k of S a n J a c i n t o
First National Bank of Weed
First National T r u s t & Savings Bank of Santa B a r b a r a
Temple City National Bank of Temple City
You will recall that when 5011 were last h e r e in Washington thi« m a t t e r w a s
discussed a t .some length.
The Comptroller of the Currency is advised by t h e Board of Governors of t h e
Federal Reserve System t h a t the Board now h a s under consideration t h e question
of instituting proceedings under the Clayton Act against T r a n s a m e r i c a Corp.
I'nder these circumstances, it will be ueces'-ary for this office to defer its decision
on the abo\e-listed applications.
Very truly yours,
PBKSTOX DEJ.ANO.

(The second letter is as follows :)
NOVEMBER 28,
Mr.

F . N. BKU.KANO,

1947.

Jr.,

President, tin' Fust Xiitional Haul: of Portland, Oreg.
DEAR MR. I'FI.I.KANO : Please refer to the request of the F i r s t National Bank of
Portland, Portland, Oreg., to branch into it* system t h e following T r a n s a m e r i c a ii-ontrolled banks.
First National Bank of Prineville
First National Bank of Cottage G r o \ e
First National Bank of Forest Grove
Coolidge & McClaine, Silverton
Scio State Bank, Scio
Clatsop County Bank, Seaside
Bank of Sweet Home
Moreland-Sellwood Bank, P o r t l a n d
First National Bank of Eugene
Benton County State Bank. Corvallis
You will recall that when you were last here in Washington this marter w a s
discussed at some length.
The Comptroller of the Currency is advised by the Board of G o \ e r n o r s of
the Federal Reserve System that the Board now has under consideration the
question of instating proceedings under the Clayton Act against Trans-America
Cor]). Under these circumstances, it will lie necessary for this ollice to defer
its decision on the above-listed applications.
Very truly yours,
PRESTON D E I AMO.

Comptroller

of the

Ciirraicti.

The CiruitMAN. Mr. Clerk, I want to offer for the record a letter
addressed to the Traiisatuerica Corp.. in San Francisco, which is of
hostoric value, dated February 3 4, 1!)42. and signed by the secretary
of the Board, in which it appears that the Board and the Comptroller
of the Currency, and the Federal Deposit Insurance Corporation were
all apprehensive about the extending of the Giannini's outfit in California, and calling attention to it.
That should be read slowly.
Senator ROBKRTSON. Before that letter is* read, who wrote the letter
that has just been read i I did not get that.
The CHAIRMAN. It i*- signed by Preston Delano. Comptroller of the
Currency.



186

CONFIRMATION OF T H O M A S B. McCABE

Mr. BOWLES. This letter is addressed to the Transamerica Corp., San
Francisco, Calif.
Senator FULBRIGHT. What is the date?
Mr. BOWLES. The date is February 14,1942, over the heading of the
Board of Governors, Federal Reserve System, Washington, D. C.:
GENTLEMEN : T h e Board lias recently received through t h e F e d e r a l Reserve
B a n k of S a n Francisco a copy of a letter from a member bank, control of which
w a s recently a c q i r r o d by your corporation, s t a t i n s t h a t t h e member bank h a s
u n d e r consideration t h e establishment of several branch banks and t h a t t h e letter
is w r i t t e n for t h e purpose of securing t h e necessary approval from t h e Federal
Reserve Board. T h e member bank's letter set forth certain facts with respect
to proposed branches a t two locations a n d stated t h a t t h e letter would be supplemented by such formal applications a s F e d e r a l Reserve regulations may require.
T h e B o a r d gave careful consideration to t h e information submitted and to other
p e r t i n e n t information in its files a n d reached the conclusion t h a t it should not
approve t h e establishment of t h e proposed branches on t h e basis of t h e information now before it. The F e d e r a l Reserve Bank of San Francisco w a s requested to
advise t h e member bank accordingly. .
Should your corporation have any plans for t h e further expansion of its interests in banks, either directly or indirectly, through t h e mechanism of extending
loans to others for t h e purpose of acquiring bank stock, or in any other manner,
you a r e requested to advise t h e Board through t h e F e d e r a l Reserve Bank of San
Francisco before any such plans a r e consummated.
T h e Board's position in this m a t t e r is in accord with the policy, upon which
t h e r e is u n a n i m o u s agreement by the Board, the Comptroller of t h e Currency, and
t h e F e d e r a l Deposit I n s u r a n c e Corporation, t h a t t h e Federal Bank supervisory
agencies should, under existing circumstances, decline permission for the acquisition directly or indirectly of a n j additional banking offices or any substantial
interest therein by T r a n s a m e r i c a Corp.. Bank of America X. T. & S. A., or any
other unit of t h e T r a n s a m e r i c a group.
Please see t h a t all persons in the T r a n s a m e r i c a group who may be concerned
with this policy a r e advised accordingly.
Very truly yours,
CHESTER MORRILL,

Secretary.

The CHAIRMAN. There is a letter from these three agencies very
definitely taking a stand against the further expansion of the Giannini
Transamerica banking interests in the West.
Secretary SNTDER. J u s t a minute, Mr. Chairman. I am at a complete loss where this is all leading. That is a letter written some 7 or 8
years ago.
The CHAIRMAN. That is correct. And it is particularly important
for the record, and that is an incident only in these hearings, as establishing the fact that these three great Government agencies all took
a positive stand which later was apparently set aside and nullified.
We are trying to find out the reasons for i t ; that is all, sir. We are
just beginning.
This is another letter. You would be interested in this, too.
Mr. BOWLES (reading) :
DECEMBER 19,

1942.

Mr. A. P . G I A N N I N I ,

Chairman of the Board, Transamerica
Corp., San Francisco, Calif.
DEAR A. P . : I have yours of November 25 in whicli you acknowledge receipt of
my letter of November 13 respecting t h e position of t h e B o a r d in t h e m a t t e r of
expansion of banking institutions in t h e T r a n s a m e r i c a group.
I could n o t possibly agree with you t h a t t h e Board, t h e F e d e r a l Deposit Insurance Corporation, a n d t h e Comptroiler of the Currency have entered tipon a
course of a r b i t r a r y a n d discriminatory action w h e r e T r a n s a m e r i c a is concerned
nor could I possibly agree t h a t a n y policy h a s been declared a n d put into effect
w i t h o u t a n y opportunity for t h e interested p a r t i e s to be heard. I believe that




CONFIRMATION OF THOMAS B. McCABE

187

you a r e fully informed as to the B o a r d ' s position and of all the facts upon which
it is based, and I am convinced t h a t continued discussion would only involve
us in lengthy arguments as to the correctness of your impressions r e g a r d i n g t h e
soundness of the Board's position, a n d t h e sincerity of its motives. However,
any time you or any of your senior associates a r e in Washinton, I shall be glad
to a r r a n g e further conferences on this m a t t e r .
With kind personal regards, I am,
Sincerely yours,
MAKRINEK S. ECCI.ES,

Chairman.

Secretary SNYDER. Are those original letters?
The CHAIRMAN. These are carbon copies from the Federal Reserve
Banking files, and also the Comptroller's office. I called for all pertinent data on bank-holding legislation from these different agencies.
They were sent down to me this morning. I did not make any
exceptions.
Now, I would like to ask you one more question.
Secretary SNYDER. These are unidentified copies ?
The CHAIRMAN. They were identified by the Federal Reserve Board
secretary, who brought them down personally from the files this
morning.
Secretary SNYDER. That is what 1 want.
The CHAIRMAN. I am willing to take them at par.
Secretary SNYDER. I just wanted to know where they came from.
That is all right.
The CHAIRMAN. These letters refer to more than 30 branches which
the Gianninis were seeking to obtain. I n effect, the Comptroller advised them that his office would defer decision on the Gianninis' applications for branches in view of the proposed action under the Clayton Act.
You will note that both letters state that this matter was discussed
at length when the Giannini officials were in Washington. Do you
recall when that was and did you participate in the discussion (
Secretary SNYDER. What was the date of that memorandum, please?
The CHAIRMAN. November 7, 1947.
Secretary SNYDER. NO. I wotdd have to look that up.
So far as I personally am concerned, I have carried on no discussion
with the Gianninis about their branches. That has all been handled
by the Comptroller of the Currency.
*
The CHAIRMAN. I offer for the record a letter from Chairman Eccles
to the Secretary of the Treasury which is before us, together with a
letter of February 26, 1947, from Chairman Eccles to the Attorney
General.
The letter from Mr. Eccles to Mr. Snyder is dated April 15, 1947.
Will you read that letter, please.
Mr. BOWLES (reading) :
A P R I L 13,
Hon.

J O H N W.

Secretary

1947.

SNYDEK,

of the Treasury,

Washington,

]). C.

DEAR J O H N : F o r almost 2 years the Hoard has been closely following an investigation by the Department of Justice into the T r a n s a m e r i c a situation. T h e Antit r u s t Division h a s m a d e use of certain of the Board's riles in connection w i t h this
investigation, and I have had one or two talks with Tom Clark about the m a t t e r .
At one of those t a l k s and in a letter which h e sent m e in October 1945, h e pointed
out that, while the statistical picture respecting T r a n s a m e r i c a might justify a
proceeding u n d e r the a n t i t r u s t laws, nevertheless he felt there w a s not sufficient
evidence available to demonstrate an abuse of power by T r a n s a m e r i c a either in
a t t a i n i n g its dominant position or in perpetuating it. Hence, he felt a t t h a t time
t h a t ultimate success in a legal proceeding again T r a n s a m e r i c a was very doubtful.



1§3

CONFIRMATION OF T H O M A S B. McCABE

On F e b r u a r y 26 last I w r o t e Tom asking w h e t h e r his D e p a r t m e n t had considered t h e recent decision of the Supreme Court in the American Tobacco ease in relation to the Traiisamerica matter, in p a r t i c u l a r inquiring whether the effect of
t h a t decision m i g h t not eliminate the need fov t h e type of proof to which h e had
referred in our earlier discussions. I talked with him again about a week ago
and he told me t h a t he had asked you to consider the entire m a t t e r and to give
him t h e benefit of your views.
While I know how extremely busy you are, I nevertheless hope t h a t you will be
able to give this subject yftur early consideration. T h e Hoard is very anxious
to obtain a decision from .Justice on this subject just as soon as possible so that
it may determine its own future course of action in dealing with this vexing problem. I do not know whether Tom sent you a copy of my letter of F e b r u a r y 26. A
copy is enclosed herewith. If there is any other information touching this matter
which we can supply you, please let me know.
Sincerely yours,
MAKRINKR S. KcctEs, Chairman.

Secretary SNYDER. I do not think I ever saw that letter, Mr. Chairman. Some time around that period, probably, 1 talked with Mr.
Chirk. He came to my office and said he had been talking to Chairman
Eccles about this matter.
I asked Mr. Clark if the Department of Justice had any ground on
which to bring any action, and if they did, I thought they ought to proceed. He advised me that they did not, and did not think they could
make a case.
The CHAIRMAN. That was before the American Tobacco decision,
was it not ?
Secretary SNYDER. It has been some time ago. I don't know that I
have the dates.
The CHAIRMAN. He speaks in that letter, you may recall, of the
American Tobacco decision which he thought put a new light on the
case.
Secretary SNYDER. I don't remember when T talked with Clark,
whether it was after that decision or not; but he did say to me that
he felt that the Department of Justice had no grounds on which to
take action, and they couldn't make a. case, and that if any procedure
was to be taken that it should be taken under the Clayton Act by the
Federal Reserve bank.
The CHAIRMAN. YOU never received that letter, you say.
Secretary SNYDER. This one you just read, I do not recall ever receiving.
The CHAIRMAN. Of course, not having received it. you could not
reply to it.
Xow. let us come down to the Gianninis again. Would you agree
that there was every reason why the Gianninis would want to get
Mr. Eccles out as Chairman of the Federal Reserve Board?
Secretary SNYDER. I will let the Gianninis testify to that. I would
r o t want to make any statement because I don't know. I have heard
too many people talking about the banking situation to trv to pick
out any one of them to say what they have had to say, Mr. Chairman.
./The letter of February 2(5, 1947, is as follows :)
FKiiiu-ARY 26, 1047.

Confidential.
Hon.

T O M O. CLARK,

Attorney General, Washington, D. C.
DEAR MB. ATTORNEY GENERAL: It h a s been well over a year since the luncheon
meetings in your office of representatives of the T r e a s u r y Department, Federal
Deposit I n s u r a n c e Corporation, the Board of Governor's, and your Antitrust



CONFIRMATION OF THOMAS B. McCABE

189

Divisoii respecting f ransainerica Corp. Since t h a t time various proposals for
legislation to tighten existing controls over bank-holding companies generally
have been considered and discussed by t h e Board and on April 30. 1046, a bill
dealing with this subject was introduced by then C h a i r m a n Spence of the House
Bunking and Cm'reuty Committee. Hovevev, t h e pvessnye of w a r a n d reconversion m a t t e r s prevented consideration of this legislation by t h e Seventy-ninth
Congress. If is expected t h a t a similar bill will be introduced in t h e present
Congress and we hope that it will receive early and favorable consideration.
Meanwhile, however, the problem of how to deal effectively with t h e T r a n s america situation lias continued to trouble and concern t h e Board. Legislation
alone will not solve the problem, unless it be of the " d e a t h sentence" v a r i e t y ;
and the Board is eomineed t h a t t h e passage of such a bill is neither desirable
nor possible. T h e most t h a t may be expected of legislation is to curb the f u t u r e
expansion of a bank-holding company which, like T r a n s a m e r i c a , h a s followed
a consistent policy of monopolistic growth.
hi j o u r letter to me of October 31, 194."i, you reviewed t h e factual situation
respecting T r a n s a m e r i c a as disclosed by the investigation oC your A n t i t r u s t
D h i s i o n . Your letter points out that at t h a t time T r a n s a m e r i c a "controls 35
banks in t h e States of California, Nevada. Arizona, Oregon, and Washington, t h e
largest of which is the B a n k of America : that many of these 35 banks have
numerous b r a n c h e s ; t h a t these banks control approximately 40 percent of t h e
banking offices and approximately 36 percent of t h e commercial banking deposits
in the five-State a r e a ; t h a t t h e Transamerica-controlled b a n k s control approximately SO percent of deposits in t h e State of Nevada and 61 percent of t h e
eommerical banking offices; in California, 42 percent of t h e deposits and 49
percent of t h e commercial banking offices; in Oregon, 39 percent of t h e deposits
and 13 percent of t h e commercial banking offices; and in Washington, 5 percent
of t h e deposits and 4 percent of the commercial banking offices. In many counties
within this five-State a r e a t h e percentage control of deposits and commercial
banking offices is much greater. In California, for example, t h e r e a r e 13 counties
in which the T r a n s a m e r i c a Corp. controls 100 percent of t h e commercial banking
facilities. T h i s expansion program has been effected over a period of approximately 20 years. In many instances t h e holding company financed the acquisitions by borrowing funds from its banking subsidiaries, using t h e assets of t h e
purchased bank a s security for t h e loan."
Since your letter w a s written, T r a n s a m e r i c a h a s f u r t h e r increased its dominating position in the five-State a r e a mentioned above by t h e acquisition of o t h e r
banks and by t h e growth of those a l r e a d j ' owned by it. In addition, its p o r t folio of nonbanking interests h a s increased.
Both in your letter and in our contemporary meetings you expressed t h e
opinion t h a t , while the statistical d a t a referred to above might be sufficient t o
justify the D e p a r t m e n t in commencing some kind of a n t i t r u s t proceeding against
T r a n s a m e r i c a and its affiliated organizations, nevertheless t h e lack of proof
of any sustained policy of abuse of power, either in a t t a i n i n g its d o m i n a n t
position or in perpetuating it, made the outcome of such a suit decidedly dubious.
Counsel for the Board have recently called to t h e B o a r d ' s attention t h e decision
of t h e Supreme Court in American Tobacco Company v. United States, decided
on J u n e 10, 1946. The effect of t h a t decision seems to eliminate the need in
certain cases for the kind or extent of proof which h a d previously been though
necessary in a n t i t r u s t proceedings. I am wondering, therefore, if your Department has considered whether the decision in the tobacco case might not lessen to
a considerable extent the doubt which heretofore it h a s e n t e r t a i n e d a s to t h e
ultimate success of an a n t i t r u s t proceeding against T r a n s a m e r i c a .
I would appreciate receiving your present opinion in the m a t t e r , for t h e Board
is again considering the T r a n s a m e r i c a situation in the light of t h e B o a r d ' s
over-all responsibility in the banking field generally and in p a r t i c u l a r its responsibility under section 7 of the Clayton Act.
Sincerely your.",
MAERINEB S. ECCMSS.

Chairman.

The CHAIRMAN. Did you consult, Mr. Secretary, with Mr. Eccles,
in regard to Mr. McCabe's appointment?
Secretary SNYDER. I had no reason to, sir. I think we had better
get my part straight because of what you said.
The CHAIRMAN. We are going to get it straight.
Secretary SNYDKIU T will get it straight for you pretty quickly.
73055—48

1»




1.90

CONFIRMATION OF T H O M A S B. MrCABE

The CHAIRMAN. GO ahead, ad libitum. Take your own t ime.
Secretary SNYDER. I have only one statement to make and that is
that the President asked me one day, if I thought Mr. McCabe would
make a good member of the Federal Reserve Board, and I told him
I thought he would; and that is the story.
The CHAIRMAN. YOU talked to Mr. McCabe thereafter about taking
the job, did you not?
Secretary SNYDER. I called Mr. McCabe and said, "The President
has you in mind for a job. I thought I would just let you know about
it. H e said something to me about it." That is as far as we have
ever discu.-sed it.
The CHAIRMAN. And you talked to Will Clavton about it. did you
not?
Secretary SNYDEK. The reason I called Will Clayton is perfectly
obvious. Mr. McCabe had been associated with Mr. Clayton in the
State Department under the surplus projjerty settlement, and I was
just naturally checking up, after I had given an opinion about his
ability. I checked with Mr. Clayton.
The CHAIRMAN. And you said at a press conference, did you not, following Mr. Clayton's testimony, t h a t at the time you consulted Mr.
Clayton you did not know that Mr. McCabe was to replace Mr. Eccles ?
Secretary SNYDER. I did not know it until it was announced.
The CHAIRMAN. I n view of the fact that you said you were on such
good terms with Mr. Eccles, how does it happen that you did not talk
with him about Mr. McCabe, who was being named to his board?
Would it not have been a natural thing to do ?
Secretary SNYDER. Not necessarily. That was the President's business, not mine.
The CHAIRMAN. YOU knew Mr. McCabe had served for some 9 or 10
years as the chairman of the Federal Reserve Bank of Philadelphia,
did you not ?
Secretary SNYDER. Yes, sir.

The CHAIRMAN. I n other words, he was the Board's own appointee at
Philadelphia and on friendly terms with Mr. Eccles. You realized
that, did you not?
Secretary SNYDER. I certainly d i d ; yes, sir.
The CHAIRMAN. Mr. Buck?
Senator BUCK. I have no questions.
The CHAIRMAN. Mr. Cain ?
Senator CAIN. I have none, sir.
The CHAIRMAN. Mr. Fulbright ?

Senator FULBRIGHT. I do not know, Mr. Chairman, whether to pursue this with the Secretary or not. I intended to ask, primarily, about
Mr. McCabe's views about the holding-company bill. I might say that
I would be very interested, when the Secretary has an opportunity, to
have his views about this bill.
Secretary SNYDER. I have stated very plainly, Mr. Senator, and I
will be glad to do so again. I am in favor of a proper holding company act. I always have been. There has never been any mystery or
question about that.
Senator FULBRIGHT. YOU have never taken a position in opposition?
Secretary SNYDER. Never have, and do not intend to. I said a
"proper" holding company act.




CONFIRMATION OF THOMAS B. McCABE

191

Senator FUIJUUGHT. D O you have any reservation about whether this
•act is proper ?
Secretary SNYDER. I do not want to just testify without having it
before me, not having looked at it in over a year's time. That was my
only precaution there, that I want to make, that I am not testifying in
connection with any particular bill at this time.
Senator FULBRIGHT. While Giannini is one of the largest, we had
presented to us the other day the Morris Plan organization, by a representative of the Independent Bankers Association. I t is a very
curious corporate set-up, headed up apparently by a corporation in
the Bahamas, I think. I hope the Treasury might give some thought
to that particular operation.
Secretary SNYDER. I am not acquainted with that.
Senator FuuMiiciHT. I was not, either. But it is a strange combination of all sorts of things, in addition to banks, ice-making machinery,
and I think cosmetics and nearly everything we make in this country,
all grouped under this corporation, in which we find the Morris Plan
banks.
Having had, as I think the Secretary well knows, a rather disastrous experience in Arkansas, about 1928, with chain banking, it has
a great interest for me.
I do not believe I have anything further, Mr. Chairman.
The CHAIRMAN. Mr. Robertson?
Senator ROBERTSON. I have nothing.
The CHAIRMAN. Mr. Maybank?
Senator MAYBANK. I have nothing.
The CHAIRMAN. Mr. Snyder, again adverting to your letter of May
23 to me, in which you took no position about the holding-company bill,
when I was seeking light from you as Secretary of the Treasury; if
I may say so, that is a masterful letter from the standpoint of saying
nothing about the subject matter. But you just said that you were
in favor of a proper holding-company bill. You did not even give
me the benefit of that suggestion in this letter.
Secretary SNYDER. At that time I had not had the privilege of talking to Mr. Delano about it—and I so stated in the letter. He had been
ill for some time. You recall, I had only been in the Treasury a
relatively short time, at the time of that letter—8 or 9 months.
The CHAIRMAN. Mr. Snyder, I want to thank you for your appearance here this morning. That is all.
Secretary SNYDER. Thank you, sir. Thank you, gentlemen.
The CHAIRMAN. Mr. McCabe?
Mr. McCabe, the committee turned over to you a circulating library
in the form of a copy of the hearings before the committee, a copy
of the bill, and the committee's report. I do not know whether you
have had time to peruse that or not, but I assume you have.
On that hypothesis I would like to reexamine you as to your views
as to the holding-company bill now on the Senate calendar, asking the
same questions as when you were here last week, at which time you
did not have the solution, or the answer.
No. 1: You have looked these things over, I take it.




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CONFIRMATION OF T H O M A S B. McCABE

STATEMENT OF THOMAS BAYARD MeCABE, PHILADELPHIA, PA.—
Resumed
Mr. MCCAPJE. I might be able. Senator Tobey. to save your time
and the committee's if I gave you this brief report as a result of my
home work. I think that if I make this statement
The CHAIRMAN. I t will obviate my asking you any questions?
Mr. MCCABE. No. I hope you will ask me questions; but I think it
will bring my views to your attention quicker.
The CHAIRMAN. By all means, go ahead.
Mr. MOCABE. I n compliance with the request of this committee, I
have made a quick analysis of the proposed Bank Holding Company
Act, S. 829, and have read the June 19, 1947 report of this committee
to the Senate as well as the published report of the hearings held on
May 26, June 2, and June 11,1947.
I have also conferred, at considerable length, with the members of
the legal staff of the Federal Reserve Board who assisted in the preparation of the bill. They expressed astonishment at my very optimistic
hope of mastering the essential features of the bill in such a short
time.
As one of them expressed it, ''We have been working on this legislation for more than 5 years, and it will be difficult to give you what
you want in such a short time."
I have persisted, however, and in addition to conferring with them
I also talked with Mr. Harold Amberg, the legal counsel of the First
National Bank of Chicago and a former associate of mine in Government service. Mr. Amberg, as you know, collaborated in drafting the
recommendations of the Reserve City bankers on this legislation.
Since I am not a lawyer and much of the reading material is expressed in legal language, I found my home work over the Easter
holidays a little difficult, but certainly worth while from the standpoint of the possible future administration of the act.
As a result of the study, there is no question in my mind concerning
the desirability of the broad principles of regulating and controlling
bank-holding companies, especially those whose expansion programs
are inconsistent with principles of adequate and sound banking.
In arriving at this conclusion I have been particularly impressed
by the extensive study which the Board and its staff have given to this
general subject over the past several years. There appear to have
been innumerable discussions of the matter at the Board itself, as well
as between representatives of the Board and those of other governmental agencies, including the Justice Department, the Comptroller
of the Currency, and the F D I C . The Federal Advisory Council also
has studied the bill, and I understand that certain amendments were
suggested by the Board and approved by your committee as a result of
the Council's recommendations on the subject. Outside the Government, the need for bank-holding-company legislation seems to have
been urged upon the Board and the Congress by the Association of
Reserve City Bankers, the 2 independent bankers associations, some
10 or 12 State bankers associations, the National Association of Supervisors of State Banks, and by a considerable number of independent
bankers throughout the country. I understand that various of these
organizations have contributed suggestions affecting the draftsman


CONFIRMATION OF THOMAS B. McCABE

193

ship of the bill, some of which are already included in the bill, while
others form the basis of certain amendments which the Board is even,
now proposing to the Congress.
I find that even the bank-holding companies themselves have taken
part in discussions with representatives of the Board relating to the
terms of this proposed legislation. Finally, your own committee has
voted unanimously to report the bill favorably to the Senate.
I n the light of this extensive background of expert study and support for the bill, I am without hesitation in renewing my previous endorsement of the principles of the bill, and to state my conclusion that
there appears to be a definite need for early congressional action in this
field. I agree that the Congress and the bank authorities should diligently strive to establish such rules and regulations as will preserve
the maintenance of competition among all banks.
Certainly the ownership by bank holding companies of unrelated
businesses is not conducive to a sound banking policy, nor is i t fair
competitively for the umpire of the game—the Government—to follow certain traditional policies in regard to the expansion activities
of independent banks and another policy with regard to bank holding
companies.
The legal regulations concerning supervision, examination, loan
policy, and maintenance of adequate reserves should be written only
with the view of establishing equitable competition between all classes
of banks and not for punitive reasons. I think that S. 829 establishes
the principles which I have already mentioned.
I think it only fair, however, to point out that I have not been able
to become an expert on the precise provisions of the bill in a short
period of time. As I pointed out last week, this subject is not one
which has been of particular moment at the Federal Reserve Bank of
Philadelphia and even my intense course of briefing over the past
week has not brought me sufficient familiarity with the minutiae of
the problem to enable me competently to choose between different
methods for achieving the same objective. I do hope, however, t h a t
if in the course of debate on this measure it should appear that changes
are required, they will not affect the fundamental objectives.
I wish to repeat, Mr. Chairman, that I am in favor of this proposed
legislation in principle. And if Congress should see fit to pass S. 829
in substantially the form recommended by your committee, I can assure
you that, if confirmed, I will join with the other Governors of the
Board in administering it with fairness and with diligence.
I sincerely hope that the final act will embody the broad principles
to which this committee has subscribed.
Thank you, sir.
The CHAIRMAN. Thank you.
Now, specifically, a few questions.
I n your opinion, does the present banking system of the Nation contain any monopolistic trends?
Mr. MCCABE. Well, sir, I would certainly say that at least the administration should take cognizance of the rapid growth of some of
the organizations.
The CHAIRMAN. Stop, look, and listen.
Senator ROBERTSON. Mr. Chairman?

The
73055

CHAIRMAN.

Mr. Robertson.

48—14




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CONFIRMATION OF THOMAS B. McCABE

Senator ROBERTSON. I n your opinion, has that not been due to loopholes in the present law, rather than the failure of the Congress to
legislate on the subject?
Mr. MCCABE. The present law is full of loopholes, sir. All you have
to do is read the law to indicate that it is full of loopholes.
The CHAIRMAN. I n your opinion, should any such controls be made
applicable on a Nation-wide basis, or could there safely be eliminated
from such controls banking systems within a single State?
Mr. MCCABE. YOU asked me that question before, sir.
The CHAIRMAN. These are the same questions I asked you last week.
Mr. MCCABE. Yes; at the last hearing.
When I went back to the Federal Reserve Board and discussed this
act with the specialists there, they brought out the fact that Senator
Buck had introduced an amendment which would exclude the, operation of this act from holding companies that operate within a State
boundary.
I have not had the opportunity, sir, to hear Senator Buck's reasons
for that legislation, and I would like to reserve judgment on that, sir,
until I could hear his reasons for that legislation.
The CHAIRMAN. I have not discussed it with my friend on the
right at all. I did not know until recently that he introduced such
an amendment. But speaking now entirely impersonally and as a
man charged with the duty as a member of this committee to put on
the statute books constructive legislation in the interest of the people,
I would point out that, as I see it—and I may be wrong—the danger
in that sort of an amendment, which would result in a law eliminating
the power to control a bank-holding company confined to one State,
would be that Mr. Giannini—and he is the gigantic individual in this
thing, to put it mildly—would simply subdivide his empire, which
now covers everything from electric trains to baby nipples. What
he would do, as I would if I were he, is subdivide his empire and incorporate it in groups in each State Boundary, and he would have
seven or eight State organizations, but would probably devise a
method within the letter of the law to place these organizations all
under the domination of one A. P . Giannini Corp., and the beneficial
effects of the law would thus be nullified.
That is what I am afraid of. That is why I put the question in
here.
Now, can you, sir, sitting there now, see that possibility ?
Mr. MCCABE. I would certainly think that if this amendment was
passed, he would have to divorce from Transamerica certain of the
operations in these other States. As to how that would be done,
sir
The CHAIRMAN. I am speaking of a way to get around that. All
of us who are interested in special projects, whether Mr. Giannini or
Mr. Charles Tobey, or Mr. Thomas McCabe, which are pretty close
to our hearts, would incidentally try to devise means of circumventing the law, and try not to give up powers under these limitations,
and they would play the game in my judgment just exactly as under
A. P . Giannini's hat.
Do you believe that bank holding companies should be under a
different basis of examination and regulation than the subsidiary
banks ?



CONFIRMATION OF THOMAS B. McCABE
Mr. MCCABE. N O , sir.
The CHAIRMAN. We agree on that,
Mr. MCCABE. Yes.
The CHAIRMAN. Under discussion

195

personally; yes.

are measures which would deny
an offending bank holding corporation, one, the right to vote shares
of stock of either subsidiaries; two, the right to receive dividends from
its subsidiaries; three, the right to pay salaries to offending officials;
four, criminal penalties for willful violation.
What sanctions, in your opinion should be included in any such legislation to regulate bank holding companies and their subsidiaries?
Mr. MCCARE. I think, sir, you have covered that in the act here.
I think you have covered all the points that you raised there very,
very well in the act.
The CHAIRMAN. That is a compliment, but I was particularly interested in what Mr. McCabe said.
Mr. MCCABE. I have before me the various provisions of the act.
The CHAIRMAN. You think that covered that ?
Mr. MCCABE. I think you have covered that.
The CHAIRMAN. I t would be your desire to have them covered there ?
Mr. MCCABE. I think in the main the provisions of the act, in the
short study that I have made, are very tight.
The CHAIRMAN. One last question, sir. This is the last question
I am going to ask you as far as I am concerned, and you may well say,
as did one of Shakespeare's characters, "for which relief, much
thanks":
. Do you believe that you agree that these results could not be
achieved merely by regulating member banks of the Federal Reserve
System ?
Mr. MCCABE. I think, to really cover the subject, it has to be allinclusive, as far as the banks are concerned.
The CHAIRMAN. I want to thank you, sir.
Mr. Buck?
Senator B U C K . I have nothing.
The CHAIRMAN. Mr. Cain ?
Senator CAIN. No questions.

The CHAIRMAN. Mr. Fulbright?
Senator FULBRIGHT. I want to develop your statement a little further, Mr. McCabe. I thought your statement a good one. I agree'
with it.
Have you ever had occasion to study the system of banking that grew
up in England ?
Mr. MCCABE. I have a general idea of that system.
Senator FULBRIGHT. Would you state briefly how it is ? Before the
nationalization program—I am not interested in that. I t is true it
grew up in five big banks that covered the country ?
Mr. MCCABE. Yes.
Senator FULBRTGHT. D O you feel that is
Mr. MCCABE. Not saying what is healthy

a healthy system?
for England, I do not think

it is healthy for the United States.
Senator FULBRIGHT. That is the point. I s not the tendency of the
growth of the Gianninis' Transamerica toward that ?
Mr. MCCABE. I think the statement I have made here, Senator,
answers your question.




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CONFIRMATION OF THOMAS B. McCABE

Senator FULBRIGHT. I n a way it does.
Mr. MCCABE. I think the development of the American banking
system has been an extremely interesting one, because, as you study the
American banking system you will see that our banks developed on
a very independent basis. Prior to the Federal Reserve Act we had
some 25,000 independent banks in the United States.
I think that banking system, as it developed, was peculiarly American, and performed a great service. Then I think it reached a point
where our economy, the needs of industry, the needs of agriculture,
required reserves that were more mobile; that were concentrated.
We needed a more elastic currency. Then we developed the Federal Reserve Act, which I think is one of the most monumental pieces
of legislation ever put on the statute books.
I think over the period of time, since the creation of the Federal
Reserve, that very desirable changes have been made in the act, and
the growth of the banking system, I think, in the main, has been
excellent.
I think, as has been pointed out here, the development of certain
phases of that have been just a little out of tune with the American
development, I mean with our sound American development.
Senator FULBRIGHT. I do not understand what are the advantages
to the public of an organization like Transamerica. What is their
argument; what is their justification ?
Mr. MCCABE. I have never talked to Transamerica or any of its
people about their reasons for their development.
Senator FULBRIGHT. Can you, from your own knowledge, see any
good reason for that kind of development?
Mr. MCCABE. You want me to take their side for a moment ?
Senator FULBRIGHT. I was trying to explore it. I cannot see what
the justification is for that kind of an organization, in banking. I can
see m making Ford automobiles there is a great justification for the
assembly line, but I do not see it in banking; do you ?
Mr. MCCABE. YOU are asking me to make a surmise.
Senator FULBRIGHT. Yes.

Mr. MCCABE. I would assume that they had in mind, just as the
grocery chains had in mind, the covering of a broad territory. They
cover now about five States.
I presume that they have developed certain efficiencies in these multiple operations, and that they had demands for large loans which
perhaps they could not handle m just one bank, but perhaps they split
those loans up and handled them in many banks.
I would presume again, sir, that their thought was that operating
in the manner in which they have operated, there were efficiencies,
there was a chance to make larger earnings, and that perhaps there
was a development of personnel—that through a system of many banks
they could develop a career system, perhaps, for their people.
Then, of course, they engaged not only in banking, but in all these
collateral activities.
I suppose there was an opportunity to utilize the bank services on
the one side while they were developing this on the other.
You have asked me to surmise, and I can't recall that I have ever
talked to any official of the Transamerica Corp. or the Bank of America
about this particular development.



CONFIRMATION OF THOMAS B. McCABE

197

I have heard people on the west coast—I have traveled out there
in years past—that have talked about the enormous loans and investments which they have made in various enterprises, and of course,
there is a divided feeling out on the west coast.
There is a feeling on the part of a great many people that they have
been a great influence in the development of that area, and then
there is a feeling on the p a r t of some of their competitors that they
have taken an unfair advantage, so that you get a divided opinion.
When I was sales manager of my company in my early days and as
president of the company, I used to travel out to the coast, I would
hear these divided opinions. Of course, they have scores of strong
supporters among the individual people who feel that they have contributed something.
Senator FULBRIGHT. I t is true you also have that in any monoply or
any big business.
Mr. MCCABE. T h a t is true.
I hope I have answered your question.
Senator FULBRIGHT. You did, very well.
I have a statement here from the First National Bank of Willows,
Green County, Calif., t h a t I
Mr. MCCABE. I saw that.
Senator FULBRIGHT. I think some of those questions are very pertinent to this inquiry. I am not familiar with the particular bank.
The Independent Bankers' Association, I think, feel very much as t h e
Bank of Willows does about this whole business.
While you have given what I suppose is the reasoning of the directors
and owners of the Bank of America and Transamerica, I do not follow
it. There is a distinction, in my own mind, between chain grocery
stores and banks.
The fundamental influence of a bank upon a community is much
greater. And when you have only one bank in some of these large communities, it gives an undue power to that organization over the whole
business life of the community, as distinguished from a grocery store.
Mr. MCCABE. Did this committee ever have Mr. Giannini in to
testify?
The CHAIRMAN. No, sir.
Senator FULBRIGHT. Not to my knowledge.
Senator MAYBANK. Mr. Chairman, I might say

t h i s : That Mr. Giannini's representative was one of the men who opposed, when I was on
the committee, everything for the smaller banks, by not eliminating
exchanges. Mr. Eccles also opposed the smaller b a n t s .
I n 1942, if I remember correctly, Mr. Eccles came down here and
testified against Mr. Tate. That, in turn, hurt the smaller banks.
Senator FULBRIGHT. I noticed this, Mr. McCabe—that there is the
general policy already accepted by the Comptroller, I believe, that in
a town, say, of above 10,000 they like to keep two banks; t h a t is, two
banks of different ownership.
But this particular growth nullifies that policy when they do it by
acquisition of the existing banks and branches of those existing banks,
does it not?
Mr. MCCABE. I n town after town you have seen the so-called commercial bank, and then the bank with trust powers. Quite frequently
you see that in towns. Then you see towns that have three or four




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CONFIRMATION OF THOMAS B. McCABE

banks. There will be one or two commercial banks and one or two
trust companies. I t is quite natural in the average community to have
banks that offer different types of service.
Senator FULBRIGHT. And under different ownerships.
Mr. MCCABE. Yes.
Senator FULBRIGHT.
Mr. MCCABE. Yes.
Senator FULBRIGHT.

That is, as you say, the real American way.

But, as I understand it, in California practically 50 percent of all the deposits are held by the Bank of America ;
and in town after town there is only one bank in the sense of ownership. There may be many offices, but only one bank. Is that correct?
Would you say that is not a typical or American condition ?
Mr. MCCABE. I would say this, Senator Fulbright—that those who
studied merchandising intensively recognize that the west coast has
pioneed in a number of merchandising activities. You take the development of the supermarket, for example. That is where it developed to a great extent, on the west coast.
There is something in the atmosphere out there that those people
do things on a different scale, and on a very large scale. I think it is
something like the spirit of the place. I think that would partially
account for it.
Senator FULBRIGHT. NOW, they have spread into five States, and it
is becoming so large it is a national problem, it seems to me, and it carries with it a great responsibility.
When such an organization makes a mistake, it involves a great deal
more than a mistake in an ordinary bank. I t actually is going along
the line of socialism, it seems to me. You create a condition which, if
something goes wrong, the Government has to step in. I t is a step in
that direction, not only in this business Fut in many other businesses.
And I do not like it.
Mr. MCCABE. Did that come home to you in Arkansas ?
Senator FULBRIGHT. I was coming to that—this question of permitting holding companies wholly within a State. The one which we
suffered so greatly from was confined to the State. But it paralyzed
the whole business of that State.
Mr. MCCABE. And you never forget an experience like that.
Senator FULBRIGHT. Practically every bank of any importance had
to close or be bailed out, and it took many years to get over it, even in
the capital city. One or two of them were in good condition, but the
sympathetic influence of the others created the same havoc there.
Because of that experience, I cannot see why it should be permissible
even on a State-wide basis. Of course, it is better than having it on a
national basis. I t is not quite so dangerous. But this one, and several
others, particularly the Morris Plan Bank organization, spread over
many States. Did you examine the Morris Plan corporate set-up ?
Mr. MCCABE. I went through that. I suppose I read that part of
the text three times.
Senator FULBRIGHT. I S that not an odd way to set up a bank holding
corporation ?
Mr. MCCABE. I t seemed odd to me. There must have been some
basic reason in the minds of those men for developing it the way they
did. I n spite of the odd set-up, there are certain things about their
pioneering, though, in the fields of activity, that are very appealing;




CONFIRMATION OF THOMAS B. McCABE

199

I mean the way they developed the small-loan business and installment selling.
I thought, in the text, there were certain pioneering activities of
that organization that were very interesting.
Senator FTJLBRIGHT. They could do that without being associated
with all of those individual enterprises of all kinds, could they not?
That makes no contribution.
Mr. MCCABE. I t seems that that was overdone, sir.
Senator FULBEIGHT. That is the way it seems to me.
Mr. MCCABE. Yes.
Senator FULBRIGHT.

The main point I wish to get at is your view
about this whole matter, which I am very interested in.
I take it from your testimony that you are convinced of the merit
of this legislation. .
Mr. MCCABE. Not the slightest doubt about it.
Senator FULBRIGHT. Either as to influence on monopoly or the divorcement of banks from industry.
Mr. MCCABE. Not the slightest doubt about it.
Senator FULBRIGHT. I think that is the most important legislation
to come out of this committee recently. We have now these questions
brought up about the pending applications for branches of Transamerica. I assume from what you say that you think that is to be held
in abeyance until the Congress acts on the Holding Corporation Act.
Mr. MCCABE. I would think Congress
Senator FULBRIGHT. I n a year of this kind I am not sure that we
will get any action at all until November.
Mr. Chairman, I do not know that I have anything further.
I may say that I am glad you gave your consent to review this
legislation.
I do not believe that I have any further questions, Mr. Chairman.
The CHAIRMAN. Mr. Robertson ?

Senator ROBERTSON. Mr. McCabe, I understand from your testimony that, regardless of whether or not wide coverage by means of
chain banks and subsidiary enterprises results in greater efficiency or
merely greater profit, if the set-up is monopoly, you are against it ?
Mr. MCCABE. I say here in my statement that I think that the Government, as an umpire, should do everything possible to preserve
competition.
Senator ROBINSON. I n other words, on general principles you are
opposed to a monopoly in any field, whether industry or labor ?
Mr. MCCABE. Yes.
Senator ROBERTSON.
Senator FULBRIGHT.

That is all.
Mr. Chairman, following that up, we have been
opposed to monopoly for over 50 years. But we have done virtually
nothing about it.
Now, everybody says he is opposed to monopoly. But when it comes
to doing anything about it—there have been introduced in the Senate, I know, amendments to the Clayton Act relating to the acquisition
of assets—but nothing was ever done about it.
I think it is a fraud on the people, pretending we have an antitrust law when we do not really have it. Because the growth of
mergers tending toward monopolies in the last 2 years has been
greater than in any 2 years in our history.




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CONFIRMATION OF THOMAS B. McCABE

_ The Federal Trade Commission not long ago analyzed that situation and published the fact that around 1,800 major mergers through
the acquisition of assets, which is permissible, have occurred since the
war.
So the important thing is not just general. Can we get, and will
you support, some specific legislation, and do something about it?
That is what I am after.
Mr. MCCABB. I have answered that.
Senator FULBEIGHT. You have; and I rely on that answer—that
you really want to do something about it. Because I do not consider
that we have done anything, practically, and the growth of monopoly
has not been very seriously interfered with.
I think the greatest tendency toward socialism today is to build
up huge organizations which, once they abuse their power, presents
an opportunity for the Government to take them over.
The converse of that is that we always say we are for little business,
and we are always going to do something for little business, but to
my knowledge we have never done anything except to create a committee to consider the subject. I believe that is true. I do not know
of anything specific.
Mr. MCCABE. I am very sympathetic to little business, because
when I started with my company it had annual sales of a little over
$1,000,000 a year. I t was not strong financially.
I had 32 years' experience in helping to develop a very, very small
business into what I would call one of moderate size, with sales of
about $60,000,000. We had to buck every kind of competition imaginable, and it was a thrilling experience.
I have seen large businesses, I have dealt with large businesses, I
have dealt with small businesses. I think I have had an opportunity
to view the industry of this country very broadly.
Senator FULBEIGHT. When I say "small business,'' what I really
mean is the opportunity for small business to prosper and to grow to
be larger business. I do not want to freeze them into small business.
But it is that opportunity to do what you have done that we would like
to preserve.
I think we are fast making - it almost impossible for anybody to do
what you did with your business.
Mr. MCCABE. I will tell you, Senator, it is a great experience to do
that.
Senator FULBEIGHT. Do you not think it is more difficult under
present taxing laws and other laws for a man to do what you did ?
Mr. MCCABE. Every time the Government passes legislation—this
is the sad p a r t of it—in the passage of a great deal of legislation, and
in the regulations, such as we had in the war period, the small business
is at a distinct disadvantage.
I n the first place, the interpretation of these regulations and these
laws require excellent legal minds. The preparation of these reports
requires the services of excellent auditors. And the small-business
man is at a distinct disadvantage; because, in the first place, he doesn't
have contact with the right people. I t is expensive to get that advice.
And, as a result, he goes through a state of confusion to grope with
the rules and regulations.




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201

The big organization is well set up. I t has an excellent legal department, it has a comptroller's department that is well set up, and it has
generally a line staff in its general counsel's office. I t employs competent auditors; it has specialists in all directions to advise it.
So that when the Government decides to regulate something, or an
industry, the larger corporation is in a far better position to meet the
conditions than the little fellow.
That is, sometimes we pass laws, or we decide to regulate industry,
in the hope that we are going to help the small fellow, and sometimes
Ave don't help him.
Senator FULBRIGHT. I t is sometimes felt that those who administer
these laws are not interested in helping those, too.
Are j ou going to be sympathetic with the little ones ?
Mr. MCCABE. What would you think, with my background? I
mean, business background, and even in a very modest way, my banking background ?
My father was a little country banker. I lived across the street from
the bank. So I saw the problems of the little banker. I have a familiarity with that. He was also banking commissioner of the State. So
I had a chance to observe the manner in which the banks were examined
and the analysis made. .
I have seen the countrymen come in and apply for loans and the
agreements taking place with the local merchants on loans.
So that my background from the first has been training in connection with a small bank and training in connection with a small business.
Senator FULBRIGHT. You have not forgotten that ?
Mr. MCCABE. I haven't forgotten.
I would like to say in that connection—I don't think I need go any
further.
The CHAIRMAN. I n your statement on page 3 you say as follows:
Certainly the ownership by bank holding companies of unrelated businesses is
not conducive to a sound banking policy—

Here is the heart of it—
nor is it fair competitively for the umpire of the game, the Government—
and you just paid tribute to the Government as an umpire—
to follow certain traditional policies in regard to the expansion activities of independent banks and another policy with regard to bank holding companies.
Will you lighten that up a little bit ? That is a little foggy to me.
Mr. MCCABE. W h a t I mean in regard to independent banks is t h a t
the Government has a policy of examination, control, and regulation.
The CHAIRMAN. YOU were referring to examination ?
Mr. MCCABE. I am referring to all these things, the policy that the
Comptroller of the Currency has, the Federal Reserve, and the F D I C ,
with the independent banks.
Now, the point I make here is that if a holding company operates
these subsidiaries, it should be subjected to the same controls that the
independent banks are. That is the point I make.
The CHAIRMAN. Thank you.
One concluding question: Do you not feel that we should have a
strong central bank, in the Federal Eeserve Board, to which you
have been nominated, with wide discretionary powers, rather than a




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CONFIRMATION OF THOMAS B. McCABE

system of 12 regional central banks whose policies could at times run
off in different directions ?
Mr. MCCABE. That is a very interesting question, Senator.
The CHAIRMAN. I know it is.
Mr. MCCABE. I think that what we have is excellent. That is, we
have here in Washington a Board of seven Governors who are devoting
most of their time to problems of central banking. You have 12
regional banks that are close to the grass roots, that are studying
the problems of finance and commerce, the problems of industry,
agriculture, in their area.
I feel that it is very helpful to the Board of Governors here in
Washington to have the advice, counsel, and opinion of the directors
of these 12 regional banks, as well as the 24 branches, because they are
close, as I say, to the people, and close to industry.
I think the more that the Board of Governors can receive the
opinions and the counsel of these 12 banks and their branches, the
better. I n doing that, and this question came up the other day—asked
by Senator Fulbright—I don't think for one moment that the Board of
Governors should ever relinquish any of their authority or their responsibilities, but I do think it is very helpful for them to obtain the
opinions of the regional banks and branches, because you have some
extraordinary men on the boards of directors and on the advisory committees of these banks.
I think, for instance, when a question like the bank-holding-company bill comes up, that while it is under discussion it is an excellent
thing to pass that out to the banks and the branches and have them
study the thing themselves, and then receive their opinions so they
can be incorporated in the act.
I think that then when you produce the bill, Senator, you have those
men feeling that they are a part of it. When they feel that they are a
p a r t of it, they wield tremendous influence in their communities, and
can be very influential.
I think the thing that I would like to avoid is to take a stand here
in Washington, and then go out and seek the support of these banks
and their branches. If they have not been in on the prior discussion,
sometimes that support is hard to obtain.
The CHAIRMAN. I S not provision made for that contingency in the
fact that you have the Federal Advisory Council who meet periodically
in Washington. You have the liaison set-up under the modus operandi
that gives you that facility.
Mr. MCCABE. Don't misunderstand—that I am critical.
The CHAIRMAN. N O .

Mr. MCCABE. My feeling is that having been a director of a regional
bank, and the chairman of its board, and having been connected with
that bank for some 10 or 11 years, I think I have a feeling for the part
t h a t those directors can play, and it is my intention to utilize the power
that I know is there, the latent power that is there, and'I would like to
use that to the nth degree.
I think it would come in, for instance, on this bank-holding-company
bill. I think that if you took the time and patience to go before those
boards and explain the purposes of this legislation
The CHAIRMAN. W h a t boards are you referring to ?
Mr. MCCABE. I am referring to the regional boards.



CONFIRMATION OF THOMAS B. McCABB

203

The CHAIRMAN. That has been done, has it not, in conferences
around the table here ?
Mr. MCCABE. Yes.
The CHAIRMAN. Then does that not
Mr. MCCABE. I am just saying that

cover your argument?
I am like a sales manager that
has come into the home office after he has been in the field. T h a t is
always a healthy thing because the sales manager has an understanding of the territory that I think is of value to the home office.
That is all I am talking about.
The CHAIRMAN. I n the back of your mind, projecting your mind,
you sitting up there in Mr. Eccles' place on the Federal Reserve Board,
is it conceivable that this would be a description of your policy on this
very vital policy: that you adopt Theodore Roosevelt's policy of
"tread softly and carry a big stick" ?
Mr. MCCABE. I think you have to look at my record, sir, as to what
attitude I would take. I say this: That when you start in business,
you are way down here. Over a period of time you help develop that
business to where it is conspicuously one of the leaders in the industry.
To do that you have to exercise a degree of independence, a degree of
leadership, and you have to demonstrate ability to work with people.
The CHAIRMAN. And once in a while, in a great crisis, you have to
say "Thus saith the Lord"; do you not? The oracle is speaking now?
'Mr. MCCABE. Yes.
The CHAIRMAN. NOW,

coming down to the Federal Reserve Board
action in reducing Government bonds to the support price of par, last
December, when they put the bid price down to par. You know and
I know that leading bankers took umbrage at that and are very bitter
at the Federal Reserve Board at Washington because overnight they
dropped the support price without putting an ad in the paper and
telling them they were going to do it, and let somebody else hold the
bag. I n my judgment they did a very wise, constructive act to equalize
between long-term and short-term bonds, and it is a sound policy.
But the bankers in the hinterland were bitter about it, as you know.
What I am getting at is that there comes a time when in a great
national crisis somebody has to speak as one having authority, and
that someone must be, under our banking laws, it seems to me, the
central bank sitting in Washington, headed by Mr. McCabe or his
predecessor, Mr. Eccles, who sees the situation and has to have the
courage to make a pronunciamento. Do you agree with that?
Mr. MCCABE. Senator Tobey, I expressed myself at the last hearing
forcibly on that.
The CHAIRMAN. I know you did.
Mr. MCCABE. I am in full accord with the action taken at that time.
But as far as speaking out, I would just like to bring this to the attention of the chairman—that when the E R P , for instance, was first
suggested
The CHAIRMAN. W h a t is that?
Mr. MCCABE. European recovery program.
The CHAIRMAN. Oh,

yes.

Mr. MCCABE. I went before the Pennsylvania Newspaper Publishers Association, which consists of publishers throughout the State,
and took a very, very strong stand. I n the State of Pennsylvania, as
conservative as it is, to have taken the stand as strongly as I did, I




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CONFIRMATION OP T H O M A S B. McCABE

think, required a little courage and independence. I don't know
whether I have the address here. Yes; here is a copy. This is the
address, America is a European Power.
I think I had to show a degree of independence to do that.
On Bretton Woods, I went before our group in Philadelphia and,
as I said the other day, we were the only city in the United States
where the leading bankers came out boldly for Bretton Woods, when
it wasn't popular to do that.
Now, the other thing I wrould like to say to you: You recall, sir,
that when the British loan was before the Congress, and my recollection is that that was when I first met you, Senator Tobey.
The CHAIRMAN. That was a good day.
Mr. MCCABE. I went to Philadelphia with Chief Justice Vinson,
who was then Secretary of the Treasury, before the Academy of Political Science, and spoke from the platform with him, and advocated
that with all the vigor at my command.
That wasn't too popular a subject at that particular time.
I point these things out only to indicate that although I might be
mild-mannered, that when the time comes I do know how to act.
The CHAIRMAN. The reserve strength will be there. Reserve personnel, and the Federal Reserve Board. Now, sir, one concluding comment and I think you will agree, the Scripture said, "In a multitude of
counsel there is wisdom." And that is the thought you have, and I
have also, in banking matters; and your multitude of counsel out in
the hinterland, the advisory board and the 12 regional banks, and they
all have a community of interest in this matter.
You will recognize, I think, with me, that in a time of great national-and international crisis, when we are living by the day ; hoping
and praying for the best, that it is very probable that a crisis may
arise in monetary matters in this country, when we listen to our banker
friends from the west to the east coast, all of whom are splendid men.
We talked with them, but after all is said and done, finally there
comes a time, may well come a time, in the unforeseen future, when
somebody has to take a definite position and lead off in these things.
Do you agree with that ?
Mr. MCCABE. Yes.
The CHAIRMAN. When

that time comes, it is your testimony about
this that Mr. McCabe would rise to the occasion and show the decision and the guts and the courage necessary to make a great decision
in time of crisis; is that right ?
Mr. MCCABE. Yes.
The CHAIRMAN. On his own, with
Mr. MCCABE. I don't think there
The CHAIRMAN. Because there is

his Board; is that correct ?
is the slightest question on that.
something more important than
Tjanks and bankers. There are 130,000,000 people of the public interested, and their interest is supreme; isn't it?
Mr. MCCABE. There is no question in my mind, sir. I think my life
has indicated t h a t ; I think in my actions in the things I have done.
The CHAIRMAN. T h a t is all I have to say, sir.
The committee has been very tolerant with the chairman. I have
completed my job, sir, and I want to say this in conclusion, epilogue,
if you please, t h a t you came before us as a nominee from the President,




CONFIRMATION OF THOMAS B. McCABE

205

to what I think one of the most important jobs any man can be named
for in this country, especially in this great crisis, because in your
hands, if you are confirmed, will be the reserve policy, the monetary
policy of the country, in a time of crisis.
I thought it was my duty, based on the fact that three fellow Senators had pointed out their disapproval of what you were doing overseas, and there were no personal thoughts, to investigate. The committee has done so.
I further thought that we should go into the matter of the holdingcompany bill which is involved; and also to go into the matter of
your viewpoint on Federal Reserve matters and the relations between
the various banks and your bank.
So, I have no apologies to make to you or to our fellow members of
the committee for what I think is a very thorough investigation of the
whole matter. Whether the people like it or not I cannot help it, let
the chips fall where they may. I have no feeling for you but the kindest
feeling. I hoped when we got through these hearings that I could
vote for you. That is the reason that I wanted the green light to my
mind, speaking solely of Charles Tobey's position.
Any comments from the committee ?
Senator BUCK. Mr. Chairman, when do we start hearings of General Johnson ?
The CHAIRMAN. General Johnson is still hors de combat out in
Japan. He has not arrived in this country yet. I would like to get
my hands on him.
The meeting stands adjourned. Subsequently and shortly the committee will be called in session to vote on the nominee, when the committee is in full attendance.
Thank you for coming.
(Whereupon, at 12 noon, the committee was adjourned.)
X





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