Memorandum by the Secretary of State 71

First I telegraphed Sackett to talk with me at 9:30 and meanwhile to get a résumé of the financial situation in Berlin. At 9:30 we talked. Ambassador Sackett told me there had been two days of bank holidays and that one bank had failed and everybody was anxiously awaiting what would happen tomorrow morning when the banks opened again. Since my telegram he had talked with the Under Secretary of the Treasury and a prominent banker from the Deutsch Bank. The banker was a little more optimistic than the Under Secretary. The Government were issuing an emergency decree for a partial moratorium and I asked him what it meant. He said it would put restrictions on the payment in full of checks, money would only be allowed to be drawn out for certain purposes and he mentioned among other things debts from abroad would not be paid. This was the important fact. The city was quiet. Brokers felt that the public will understand. The Under Secretary was more pessimistic and thought the public would get out of hand. The Government [Page 261] was very short of cash. The Reichsbank has not enough to rediscount the eligible paper in the hands of the other banks. The decree guarantees the deposits of the closed bank. In substance Sackett thought there was no real improvement. Germany is still expecting to get bank credits.

I then brought up the question of the public loan which Henderson had spoken about and asked Sackett if he knew anything about that. He told me that he had talked with the President about it night before last and that the proposition had apparently come from Norman of the Bank of England. Mr. Hoover, he said, does not want a public loan and thinks the Executive has no power without Congress to raise a loan in that way without an Act of Congress. Sackett thought that the French were withdrawing gold from England in order to put pressure on Norman not to advance any more credits to Germany from the Bank of England and that Norman’s new suggestion came from that reason. I told him I did not think so, that the evidence did not point that way to me.

I then called up the White House and told the President that I had arrived in Paris and had run face to face into this loan proposition and I wanted full facts on it. I told him of my talk with Henderson and that the French and Henderson were considering a joint loan of the United States, France and England guaranteed by those countries. The President at once said he knew about such a proposition and that we had no authority without an Act of Congress to make it and that he would not call a special session and that even if he did Congress would not authorize it. He said we were faced with a deficit of $1, 600,000,000 and very grave unemployment next Winter and it was preposterous to suppose Congress would authorize the loan of any more money under these circumstances.

I then asked him if there was any chance of private loans from American banks. He told me he also had that under consideration and that no loan either private or public or any bank advances could be floated in America according to the advices he received from the Federal Reserve Bank unless it was given priority over reparations payments. On the other hand, he had been assured that the private bankers would join if such priority were given. During our conversation we were broken off and when I got him again he told me that in the interval he had talked with George Harrison and confirmed this, that George Harrison had said that the New York group of banks would consider favorably a participation in a loan provided those conditions were fulfilled, first, that it should have priority over reparations payments, conditions [conditional?] and unconditional, and, second, that the Bank of England and the Bank of France would also participate.

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Hoover was skeptical about Norman’s position. I had told him in my first talk that Henderson had told me that Norman was over-loaned and was trying to withdraw. Hoover said that Harrison had just informed him that in his opinion Norman was not over-extended, but he was trying to put this up to someone else. Hoover said that Norman’s proposition was that the whole situation was political and had suggested the proposition of a conference which would take up the whole question of the Treaty of Versailles and debts at the same time all together, and of course this was impossible. I said that I understood, of course, this was impossible and not only impossible for us but the mere suggestion of a reconsideration of the Treaty of Versailles would make the French fly up in the air.

He then told me that the British Cabinet were in conference today and had suggested a conference of statesmen and inquired whether I would come. I told him that I had seen his telegram on that subject and thought I knew his position and that it corresponded with my own. Hoover said it all depended on whether the subject matter of the conference related purely to the emergency and nothing else and was not authorized to go into these other questions. I said I fully understood.

In my second talk with him after his talk with Harrison, I asked him about the details of the banking situation in New York. He said that Luther had asked Harrison to place $100,000,000 among the New York banks to cover further trade acceptances. Harrison had refused this and said no relief could be expected from the New York banks unless it was made in accordance with a well-matured and well-protected plan such as we had discussed, namely, giving to the lenders priority over reparations payments.

But Harrison had said that today there was a meeting of New York bankers who held $400,000,000 of German trade acceptances and that the meeting had agreed that they would continue to hold the situation at that point, that is, that they would continue to hold that amount $400,000,000 of trade acceptances and as fast as the old acceptances matured they would take new ones up to that amount. They would do this, however, only on condition that the French and British banks which held similar trade acceptances would do likewise. The percentage which our banks held was much larger than the other banks held and it was only fair that the others should hold their own.

I asked him about the amounts of short-term credits which had been held in Germany at the beginning of this trouble. He told me that his figures were that the United States had held $800,000,000, the French $200,000,000 and the British $200,000,000 and that according to Harrison we had diminished ours only to a very small degree and that these withdrawals were only by isolated banks and not by the group [Page 263] which Harrison was in touch with. He thought ours had decreased less than the other countries. Mr. Hoover then told me that the flight from the mark had really been going on for eight or nine months among German citizens, but that the German banks had not obeyed their orders to make the transfers until recently, when they found the situation was going bad and then they became panic-stricken for fear they would be held responsible for their violation of orders.

Finally he said that in his opinion Luther was a distinct loss and that the situation would be greatly improved if Schacht72 who had done well in the previous emergency73 were put in charge in Luther’s place. He said that this was the view of the American and British bankers. I expressed my surprise and said I had just today seen articles in the London papers indicating a lack of confidence in Schacht on account of his political ambitions. Hoover said that was nevertheless the best of his information.

After I finished my talk with the President I called up Sackett again and told him of my talk with Hoover. Sackett told me that the Reichsbank had just raised their discount rate from 7 to 10 per cent and had raised the Lombard [rate] from 9 to 15 per cent. They had put restrictions on the payments of foreign debts which would thus postpone foreign credits. Sackett said that in his opinion Germany had done all she could in the way of internal restrictions. I asked him whether there was any chance of her making a generous gesture and he said he did not think so. I told him that we could get no further money except by giving priority over reparations and that in my opinion the chance of that was very slight. Therefore in my opinion it was up to Germany to help us out.

  1. Of telephone conversations with Ambassador Sackett in Berlin and with President Hoover in Washington, on the evening of July 15, 1931.
  2. Hjalmar Horace Greeley Schacht, German Delegate on the Experts’ (Young Plan) Committee, 1929, and former President of the Reichsbank.
  3. The great German inflation of 1923.