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1516

A meeting of the Board of Governors of the Federal Reserve
System was held in Washington on Thursday, October 5, 1944, at 10:00

PRESENT: Mr.
Mr.
Mr.
Mr.
Mr.

Ransom, Vice Chairman
Szymczak
McKee
Draper
Evans

Mr. Morrill, Secretary
Mr. Bethea, Assistant Secretary
Mr. Clayton, Assistant to the Chairman
Mr. Wyatt, General Counsel
Mr. Thomas, Assistant Director of the
Division of Research and Statistics
Mr. Johnson, Administrative Assistant,
Division of Personnel Administration
Mr. Evans reported that Mr. Creighton, Chairman of the Federal
Reserve Bank of Boston, called him on the telephone a few days ago to
say that the Bank had under consideration the appointment of Mr.
Richard Mervin Bissell, Jr., as a Vice President of the Bank to head
up the research work.

He said that Mr. Creighton had requested that

he be advised informally whether the Board would be willing to approve
the appointment of Mr. Bissell to this position with compensation at
the rate of t10,000 per annum in order that the Board of Directors of
the Bank might take appropriate action with regard to the matter at
its meeting on Monday, October 9, and thereafter submit a formal recommendation to the Board for approval.

He said that Mr. Flanders, Presi-

dent of the Bank, was also enthusiastic about obtaining the services
of Mr. Bissell and that, in view of the joint recommendation of both




1517
—2-Mr. Creighton and Mr. Flanders, he (Mr. Evans)
was disposed to favor
it.

He said that he understood that the matter of selecting a qualified

person for appointment to the position of Vice President in Charge of
Research had been under consideration for some time and that Mr. Golden—
weiser and other members of the Board's Research staff were acquainted
with Mr. Bissell and were familia
r with his qualifications.
In response to a query by Mr. McKee as to whether Mr. Bissell's
training and experience justified a salary of t10,000 per annum, Mr.
Thomas stated that Mr. Bissell stood high in the profession, had a good
mind and the ability to write well; that he had graduated from Yale
University with a B.A. degree in 1932, had received his Ph.D. in 1939;
and had been
employed in 1941 or 1942 as Chief of the Division of
Economic Analysis, Bureau of Foreign and Domestic Commerce, Department
of Commerce.
Mr. Johnson stated that the records of the Division of Personnel
Administration showed that Mr. Bissell had been offered a position in
the Board's Divisio
n of Research and Statistics in the summer of 1940
but that he had declined the offer.

He went on to say that aside from

this rather meager information he had no other data regarding him, the
correspondence, he said, having been conducted by the Division of Re—
search and Statistics and the salary of the position not having been
mentioned in the record.
Mr. McKee said that the Boston Bank should be requested to




1518
10/5/44
submit complete information as a basis for action by the Board and
for the completion of its records.
Mr. Ransom said that he would be disposed to vote in favor of
approving the appointment of Mr. Bissell on the basis of the recommendations of Messrs. Creighton and Flanders but that he thought there was
considerable merit in Mr. McKee's suggestion that the record be complete, and therefore, he suggested that Mr. Morrill contact Mr. Creighton
by telephone and
ask that he submit the necessary data.

In this con-

nection, however, Mr. Ransom said that he thought that, while the burden
of recommending Mr. Bissell properly should rest with the Federal Reserve Bank of Boston, the record should also include the recommendation
of the Board's Division of Research and Statistics.
At this point Mr. Goldenweiser entered the meeting and Mr.
Evans asked him to express his views regarding Mr. Bissell.

Mr.

Goldenweiser stated that he had a favorable but not a very definite
impression with regard to him, that he had recently looked over a
chapter in Seymour Harris' book which Mr. Bissell had prepared on
postwar economic problems and that in his judgment it was a very competent piece of work which showed considerable ability on the part of
the author.

He said that he understood that Mr. Bissell is at present

connected with the Maritime Commission and although he was not certain
in what capacity he thought that he was an assistant to Admiral Land.
He added that he did not feel prepared to makc a recommendation, but




1519
10/5/44

-4--

that Mr. Hansen could probably throw further light on the question
of Yr. Bissell's fitness for appointment to the position in question,
and he suggested that Mr. Hansen be asked to join the meeting in order
that the Board might have the benefit of his views.
Mr. Hansen was, therefore, invited to join the meeting and
Mr. Ransom asked him to tell the Board what he knew about Mr. Bissell.

Mr. Hansen then made substantially the following statement:
. Mr. Bissell was a member of the faculty of Yale
University from 1935 until about two years ago when he was
Invited to join the faculty of the Massachusetts Institute
of Technology. He never became active in the latter post
because he came to Washington to engage in war work with
the Department of Commerce and subsequently with the
Maritime Commission. I have known Er. Bissell since the
sl.immer of 1937 and have a very favorable impression of
nis capabilities. He is about 34 years of age, thoroughly
competent, more conservative than I, writes well, thinks
Clearly, and while to my knowledge he has had no experience
as a director of research, I have no doubt that he would
measure up to the requirements of such a position. While
at the Department of Commerce, Mr. Bissell, together with
Mr. Upgren, who is now a Vice President of the Federal
Reserve Bank of Minneapolis, organized a section in economic
analysis, working closely with the business advisory committee of the Department. He gets along well with business
men; he is progressive and forward-looking and is the best
qualified of the individuals who have been considered for
the position of Vice President in Charge of Research at
the Boston Bank. I do not know what salary the Reserve
Bank proposed to offer Mr. Bissell, but I do know that the
Directors were willing to go as high as -7.5,000. In my
Opinion it would be appropriate to offer him a salary of
Pl0,000 or Pl2,000. I recall that Mr. Paddock, prior to
his retirement as President of the Bank, had talked to Mr.
Bissell on the basis of 8,000, but I felt, and the Board




1520
-5of Directors also felt, that 8,000 would not be adequate
compensation. In my opinion, none of the Federal Reserve
Banks has as good an economist as Mr. Bissell heading up
its research department. MIT is building up a very good
economics department, and it is understandable that in
looking around for good men Mr. Bissell was invited to
Join the faculty. He left Yale in 1940 or 1941, where
he probably was receiving a comparatively small salary.
To my knowledge the University of Minnesota offered him
a position at a higher salary, and while I do not know
what his compensation would be at MIT, associate professors at Harvard receive from 6,000 to l',7,500 per annum.
Of course this compensation is for nine months' work and
there are opportunities to write and engage in outside
activities. It would take some inducement to get Mr.
Bissell to leave university work permanently and I would
be enthusiastic about his appointment at Boston at $10,000
per annum. He has a good personality, talks well and effectively, and is a native New Englander.
Mr. Goldenweiser said that he could assure the Board that Mr.
Hansen's appraisal of Mr. Bissell was wholly unbiased because the articles written by Mr. Bissell zhich he had recently read indicated that
he disagreed with
some of Mr. Hansen's views.

He also said that, in

the light of the additional information supplied by Mr. Hansen, he was
prepared to recommend the appointment.
At the conclusion of some further
discussion, during which Mr. Draper also
stated that he favored the appointment,
it was agreed that Mr. Morrill would contact Mr. Creighton and obtain such additional information regarding Mr. Bissell
as would be necessary to complete the
records of the Board and serve as a basis
for formal action with respect to the appointment.
Mr. Thomas stated that while the Board was discussing research




1521
-6personnel, he would like to report

SOMB

developments in connection

with the research staff at the Federal Reserve Bank of Cleveland. He
said that President Gidney had discussed the situation with him and
it was proposed that Mr. MacKenzie, now Vice President in Charge of
Research, be transferred to the operating side of the Bank and that
consideration be given to obtaining the services of Mr. Donald S.
Thompson, Chief, Division of Research and Statistics, Federal Deposit
Insurance Corporation.

He said that Mr. Thompson knows the work

thoroughly, and Mr. Gidney thinks highly of him and feels that he
would be an excellent addition to the staff of the Cleveland Bank.
Mr. Goldenweiser pointed out that Mr. Thompson had worked
in the Board's Division of Research and Statistics for a long time
Prior to going with the Federal Deposit Insurance Corporation and
also had been connected with the Federal Reserve Bank of San Francisco.

He said that he had thought of Mr. Thompson as a good statis-

tician rather than as an economist, that he has built up a good statistical service at the Federal Deposit Insurance Corporation, and
that he is far better than any research man the Cleveland Bank ever
had.
Mr. Thomas said that Mr. Thompson had been wanting to leave
the Federal Deposit Insurance Corporation, and, therefore, Mr. Gidney
had not been pressing him for an answer but had decided to let the




1522
10/5/44

-7-

matter rest until he had heard from Mr. Thompson.

On the other

hand, Mr. Thomas said that Mr. Gidney mould like to know whether
Mr. Thompson would be acceptable
to the Board, particularly in the
light of his participation in the Regulation
Q controversy, for ap—
pointment to an official position at the Cleveland Bank.
Mr. Ransom indicated that he would
be favorable to the employment of Mr.
Thompson by the Federal Reserve Bank of
Cleveland and the other members of the
Board appeared to be favorably disposed
although no vote was taken on the matter.
Mr. Hansen withdrew from the meeting at this point.
Consideration was then given to a memorandum dated September 28,
1944, addressed
to the Board by Mr. Goldenweiser reporting on the progress of the System project on postwar economic problems and policies,
a copy of
which had previously been furnished to each member of the
Board.
Mr. Morrill referred to the fact that at the recent meeting of
the Presidents' Conference with the
Board Mr. Williams, President of
the Federal Reserve
Bank of Philadelphia and Chairman of the Presidents'
Conference Committee on Research and Statistics, had suggested that
a separate day be set aside after the next meeting of the Federal Open
Market Committee, which has been tentatively scheduled for December
11, 1944, for the purpose of discussing the various papers which have
been prepared by the Research staff.




He said that a question had been

1523
—8raised as to when the various papers mould be comple
ted and that it
appeared to be the consensus that the authors should be required to
have them completed sufficiently in advanc
e to enable the Board members
and Presidents to
read them before the date set for their discussion.
However, he said the Board would recall that some of the papers were
to have been
completed last month but that the time had now passed, and
In the meantime
Mr. Goldenweiser had submitted in his memorandum of
September 28 a progress report indicating the present status of the
different papers, from which it appeared that only certain ones mould
be available
for discussion in December.

The question now arises, he

said, whether the time schedul outlined by Mr. Goldenweiser will
e
be
satisfactory to the Board and the Presidents' Conference and what pro—
gram should be arrang
ed for their discussion.
Mr. Ransom said that he thought the Presidents' Conference de—
sired to have a deadline set for the completion of
the papers which
were to be discussed
in December and he assumed that Mr. Goldenweiser
had that in
mind.

He also said that it might be well to ask the Presi—

dents to be prepared to devote a week to these discus
sions.

Mr. Ransom

said that he recogn
ized that such a program would require a great deal
of -work on the
part of the members of the Board by way of advance prepa—
ration but he thought that, in the light of previous discussions, it
would be desirable to devote more than one day to this purpos
e.




1524
10/5/44

-9Mr. Draper doubted that it mould be fruitful to hold long meet-

ings for the purpose of discussing the papers, and he asked Mr. Goldenweiser how he felt about the matter. Mr. Goldenweiser expressed the
view that the Board and the Presidents should not devote any time
to
the discussion of the
papers as such; that the discussion should be
confined to the views and recommendations of the authors; and that,
in any event, a
great deal of preparatory work would be called for on
the part of the Board
and the Presidents.
In response to a question by Mr. Morrill as to what procedure
Mr. Goldenweiser would suggest in lieu of that proposed by Mr. Williams,
he said that he
would send the papers to the Presidents and ask them
to submit their
views in writing, even though they were tentative. Mr.
Goldenweiser thought that by this process considerable progress could

be made.
In connection with a further comment by Mr. Morrill that the
Board members and the Presidents might change their views in the light
of the contemplat
ed discussions, Mr. Goldenweiser indicated agreement
but said that each
person should reach Some conclusion or opinion of

his own from reading the papers. Mr. Ransom added that a careful reading of the papers mould have value in that each person mould of necessity

have to give considerable thought to the questions involved and, therefore, should come to the meeting with conclusions of their own which




1525
10/5/44

-10-

would prepare them for a worthwhile discussion.
In response to a question by Mr. Draper as to how it would be
Possible to reach conclusions in the absence of a discussion, Mr. McKee
suggested that it mould be possible to obtain some consensus or agreement, with minor changes in some cases, if those participating in the
meeting had studied the material thoroughly in advance. He said that
a great deal could
be accomplished if those in attendance at the meeting were prepared, although he thought that, inasmuch as the Board had
the final responsibility, decisions should not be made at meetings attended by the Presidents.

He emphasized the necessity, however, for

every member of the Board as well as the Presidents to read the papers
in advance of the
meeting.
Mr. Thomas said that it was unlikely that the papers would contain any recommendations requiring immediate action but that the papers
would bring out background information and suggest certain courses of
action under different sets of circumstances.

He said that definiteness

might be called for with regard to legislation but that the December
meeting would be of a preliminary character, which would disclose points
that had been missed by the authors or that would require review and
reconsideration. He said that, after the authors had reviewed their
Papers in the light of suggestions and comments made by the members
of the Board and the Presidents, they could come forward with definite




1526

-11recommendations which could be considered at a later date.
Mr. Goldenweiser reviewed the table attached to his memorandum
of September 28 indicating
the status of the various drafts and pointed
out that the papers entitled "Commercial Banking After the Mar" and
"Postwar Role of Central Banking", which were being prepared by the
Committee on Banking and Credit Policy, would be finished in time for
consideration at the December meeting.

He said that Mr. Thomas was

Participating in the work on these papers and that a December deadline
had been set which it
was thought could be met.

Mr. Goldenweiser also

said that the paper on "Selective Credit Controls" being prepared by
Messrs. Parry and C. 0. Hardy was very nearly completed.

He thought

that the December meeting mould be concerned more with banking problems and that other papers which would not be available until spring
would probably not have been considered at that time in any event.

He

went on to say that at some appropriate time the Board would have to
decide whether or not the papers should be printed and to whom they
Should be distributed. In this connection, Mr. Szymczak suggested
that the Board might wish to send copies of the papers to the members
of the Federal Advisory Council and also to the Chairmen of the Federal Reserve Banks.
There was some further discussion of the matter but no definite
conclusions were reached.




The discussion terminated with a comment by

11527
10/5/44

-12-

Mr. Ransom that the next meeting of the Presidents' Conference could
be of great value if
the Board members would properly prepare themselves in advance, and that he hoped Chairman Eccles would also impress upon the Presidents the necessity for careful advance preparation.
At this point Mr. Johnson withdrew from the meeting, and Mr.
Parry, Director of the Division of Security Loans, entered.
Mr. McKee then inquired of Mr. Parry whether there had been
any new developments with regard to the proposal considered by the
Board last June that the maximum loan values of securities prescribed
in the Board's
Regulations T and U be reduced from 60 to 50 per cent.
Mr. Parry stated that the only development had been the receipt from
the Securities and Exchange Commission of a letter under date of August

4, 1944, pursuant to a telephone conversation between Mr. Draper and
Mr. Purcell, Chairman of the Commission, stating in effect that the
Commission would have no objection to the proposal although it believed
that more drastic action should be taken and that, in the event the
proposal then under consideration were adopted, the situation should
be reviewed before
the end of the current year.

He said that the let-

ter had been acknowledged with a statement that it was being brought
to the attention
of the members of the Board and that the Commission
could be sure that its views would be taken into account as the Board




1528
10/5/44

—13—

continued its consideration of the matter and before it arrived at a
decision.
Mr. Parry went on to say that recently the stock market had
been relatively inactive, with the volume of sales averaging less than
one million shares a day, that the movement in stock prices had been
sidewise, and that there had been no significant further increase in
debit balances from that reported to the Board at the end of June.
At this point Messrs. Szymczak and Clayton left the meeting.
Mr. McKee said that he thought action to equalize margin re—
quirements on the long side (now 40 per cent) with those on the short
side (now 50 per cent) should be taken when there was no substantial
market activity and that there was a question in his mind, if the
Board wanted to take action, whether the Board was not missing an
opportunity to act when the fewest people would be hurt.

However,

he pointed out that, in order to avoid misinterpretation, it would
Probably be undesirable to take action until after the national elec—
tion, but that the Board could make a record which would justify action
When the proper time came.

He said that the Board should consider

Whether it ought to increase margin requirements on the long side from
40 to 50 per cent or to 60 per cent and then let them stand for

Some

time; that action should be taken on the basis of bringing about equal—
ization in margin requirements on both long purchases and short sales
or on the basis that a person buying stock on margin ought to have a




1529
10/5/44

—14—

larger equity than the 40 per cent now required; and, finally, that
action should be taken in the light of all factors such, for example,
as the possibility that there may be an excited market following the
election and after the termination of the war in Europe.

He concluded

by saying that he
would suggest that the staff review the problem to
determine whether action could be justified and that the Board be pre—
pared to act after the election at a time when there is no activity
of consequence in the market.
Mr. Draper pointed out that the staff had already prepared a
statement on the question of bringing about equal margin requirements
on both the up and
dawn sides.

He said that he was not prepared to

say at the moment whether he would be willing to couple going to 50
or 60 per cent on
long purchases with the understanding the Board
would take no further action for some time to come.

He thought that

the Board should be in a position to take action at any time in the
future if developments seemed to warrant it.
Mr. McKee said he was conscious of the fact that a large volume
of savings is in
the hands of the public and that the stock market
could move rapidly on short notice. But he thought that the Board's
statutory authority in this field will be continued in the Board only
so long as it does a constructive job. In other words, he said, the
Board could use the power too frequently and that in his opinion the
sooner the Board frankly states to the public that it has not that




1530

10/5/44

—15—

desire but is using the power to equalize margin requirements and to
protect holders of stock on margin from losing their equity over night,
the better it will be. Mr. McKee also commented that the Board should
encourage a healthy capital market and that it ought to establish a
pattern so that buyers of equity securities will know the rules.

He

thought that if a purchaser of stock on margin invested 60 cents of
his ovn money in each
dollar of stock he would be more likely to hold
on to it. It would
then be an investment, he said, and not a specu—
lative purchase.

Mr. McKee concluded by saying that if the Board's

basis for action were sound he would favor increasing requirements
from 40 to 50 per cent although he would prefer to go to 60 per cent.
Mr. Draper thought that neither a 50 per cent nor a 60 per cent
margin would insure stock ownership, nor put the purchaser in a posi—
tion to avoid losing his equity in the event of a drastic downward
trend in stock prices. In urging consideration of possible drastic
action in time of an inflationary credit situation, Mr. Draper pointed
out that there was
a difference, for example, between a speculative
situation in land and a speculative situation in securities.

He said

that in the case of land speculation, the buyer is protected, to some
extent, by the terms of the mortgage and he knows in advance exactly
the amount he must
pay and the due date of his obligation which may
be a period
of years from the date of purchase.

On the other hand,

an owner of securities bought on margin, has no such definite advance




1531

-16notice. If the market turns against him and heavy selling in the
stock market develops rapidly, he may be faced almost over night with
the alternative of either having
to put up an extra margin or being
sold out altogether. Mr. Draper stressed this fact as an argument for
more careful and perhaps
more drastic action in the case of securities
bought on margin than for real estate bought on long term and amortized
on a schedule
fixed in advance at the time of purchase.
Mr. Parry said that in his opinion the most important requirement insisted upon
by the Board at the time the Securities Exchange
Act was under
consideration by Congress was that the Board be given
power both to raise and to lower margin requirements.

He went on to

say that it was
the conclusion of Mr. Dreibelbis and himself that the
Board has the power to raise requirements even when the volume of stock
market credit is going down, that the preamble and legislative history
of the Act show that Congress was concerned with preventing wide swings
in stock prices and that this is borne out by the fact that the statutory formula
was tied to stock prices.

He said that he had never recom-

mended an increase in margin requirements except when stock-market
credit had been increasing, but that that was not legally necessary.
He also said
that mention had been made during the Congressional discussion of the disadvantage to the borrower who buys stock market securities on too thin a margin, but pointed out that while action by
the Securities and Exchange Commission must, in the statutory language,




1532
10/5/44

-17-

be "for the protection of the investor", the language in the Securities
Exchange Act delegating authority to the Board to fix the margin requirements does not contain that expression at all.
Mr. Goldenweiser pointed out that the provisions of Section
7(b) of the Securities Exchange Act governing the Board's power to
raise margin requirements differs from that governing the Board's
power to lower them and reads "to prevent the excessive use of credit
to finance
transactions in securities".
Mr. Thomas referred to the capital market aspects of the use
of the Board's
controls and pointed out that it is necessary to view
the power which the
Board has from the standpoint of the general economic
situation of which the capital market is but a part.

He pointed out

that the Board under certain circumstances may want either to stimulate
or restrain the
capital market, and added that stock-market credit
is in one sense consumer credit because of the use made of the proceeds of sale arising from credit-financed purchases of stocks.

These

are reasons, he said, why the policy governing the use of this power
has to be flexible.
Mr. McKee indicated that he was in general agreement with Mr.
Thomas and said that he would not want to have the Board's power too
rigid but he thought that a fear
capital market.




psychology was detrimental to the

1533

10/5/44

—18—
There was considerable further discussion of the subject, but

no action was taken.
At this point Messrs. Wyatt, Parry, Goldenweiser, and Thomas
withdrew from the meeting.
The action stated with respect to the matter hereinafter re—
ferred to was then taken by the Board:
The minutes of the meeting of the Board of Governors of the
Federal Reserve System held on October
4, 1944, were approved unani—
mously.




Thereupon the meeting adjourned.

)1),401..44/,(2
ecretary.