The Ambassador in Germany ( Sackett ) to the Acting Secretary of State
[Received 9:25 p.m.52]
123. Reference is made to your telegram No. 120, July 11, 6 p.m. Shortly after 4 a.m. on Sunday decoding of this message was completed. I tried to telephone you at once for two reasons:
- To let you know that in my opinion the proposed appeal to patriotic motives is bound to fail since it would be addressed principally to a class of international financiers notorious for their lack of patriotism (you of course recognize that the entire financial structure of Germany is controlled by this group.)
- To secure if possible, solely for my own background, information as to whether it is still possible that some last minute help might be forthcoming from our own Federal Reserve system.
I believe it desirable to take up these two points with the Department before urging the German Government to consider the suggestions contained in your telegram mentioned above. I was unable to reach you by telephone, however, because of the poor connections. Therefore at 6:30 a.m. I presented the suggestions to the German Government. Von Bülow53 has just been here and he told me that they were discussed by the German Cabinet in the early hours of this morning and that the purpose of them was fully comprehended.
The Cabinet evidenced the following reactions to these suggestions:
- Concerning the idea of a patriotic appeal for the depositing of foreign currencies in the Reichsbank, the bad aspects of such a proposal would greatly outweigh its good features because the Reichsbank has definite figures which indicate that there is very little foreign currency now in the hands of the public. An appeal of this character would be effective only with the class of people who would hurry to deposit very small sums of foreign currency. It would be difficult to institute the mechanics of the system. And finally, a general panic would be very likely to develop, a panic which the Cabinet is afraid could not be controlled.
- Concerning the credit restriction, I am informed that rigid credit restrictions have been in effect for about 10 days. When they were first inaugurated Montagu Norman, Governor of the Bank of England, intervened and advised that such restrictions would be contrary to the spirit of the Hoover moratorium proposal.54 Luther felt that Norman’s position was not strong and although certain concessions were made by the Reichsbank toward Norman’s viewpoints, genuine credit restriction has continued.
Extended Cabinet sessions were held late into last night and continued again this morning. Highest officials of all the large Berlin banks were present at these meetings much of the time. There are now in session separate meetings of the Cabinet and of the bankers. Later on I shall be advised of the Cabinet’s action in the present meeting. I am sending now, in order that I may avoid keeping the clerical staff all night once again, the various proposals which are under consideration in the Cabinet, none of which is final. The hope of the German Government is, according to information from Von Bülow, that any action taken will aid in creating an impression [Page 253] abroad comparable to the one contemplated by the suggestions of your telegram No. 120. These proposals are:
- It is probable that the Stock Exchange will be closed for the next day or two.
- Efforts are being made to bring to Berlin the meeting of the Bank for International Settlements which is scheduled for tomorrow. Luther cannot leave the Reichsbank to go to Basel, and a special train has already been arranged to bring the members to Berlin. However, the B. I. S. has not accepted this proposal and the French are expected to object.
- An emergency law may be passed covering the handling of foreign currency and restricting its sale to a few places. In each application the closest examination would be made into the proposed use of the foreign currency. This would have the object of preventing foreign currency from being acquired except for the most urgent demands of international finance.
- In the latter connection strict methods are being studied to prevent the sale in Germany of foreign currency which comes in across the frontiers, and in addition some way of halting the export by private persons of German currency for the purpose of purchasing foreign currency abroad.
- A proclamation may be issued by the German Government giving details of the present crucial situation and urging the public to aid to the utmost and to remain calm.
- The bank holiday proposal which had been suggested in some quarters will probably be abandoned as too dangerous a plan in the present circumstances.
Von Bülow stated to me further that the Dresdner and Darmstädter Banks will close tomorrow morning for lack of sufficient capital to carry on. The ultimate plan is to carry out liquidation of these banks by the German system which is similar to our method of receivership. The bankers and the Cabinet feel that these banks will pay 100 percent on liquidation. Their plan is that small sums of money shall be slowly issued to the very great number of small depositors so as to keep them going, and that priority in the use of bank assets will be given to the payment of foreign obligations. A scheme is now being sought through which the remaining large banking houses of Berlin which are thoroughly sound so far can be kept from the effects of the closing of these two banks.
Von Bülow also said that not more than one-seventh of the withdrawals of the last week can be traced to capital entitled to protection from Germany. The Reichsbank has secured very comprehensive figures on this subject for its own information and for the use of the [Page 254] Cabinet as a basis for considering regulations that would prevent such movement.
Von Bülow informed me most confidentially that the present Government cannot, nor will it, declare a general moratorium. If such a step becomes unavoidable Chancellor Bruening and several of the members of the Cabinet believe that a newly constituted Government of the extreme Bight could take the action in such a way that the situation would be quieter and less bloodshed would result.
It is my opinion that if the Bruening Government declared a general moratorium its fall would be sure to follow.
Tonight the atmosphere of Berlin seems charged with excitement.
I am appreciative of the spirit which inspires your telegram to which I refer above. I have always insisted that it was highly imperative that Germany give far greater evidence of attempting to help herself. It is not my view that the measures set forth above as explained to me by Von Bülow, and so far as I understand them at this point, are adequate to meet the situation.