Memorandum by the Secretary of State of Conversations With M. Flandin and With Mr. Jay, of Morgan & Company, at the Residence of the American Ambassador in France, July 17, 1931

Later in the evening I had two or three very important talks. I got hold of Flandin and took him apart and he asked me first about the financial situation and about raising money in New York. I told him I thought it was going to be very difficult to raise money, but I hoped that after we got to London and got to sitting around the table if the preliminary conferences here between the Germans and the French had gone well we might develop something out of it. I told him I had seen many situations before in which the views of the bankers had changed. I then told him of my interview with the German Ambassador and what I had told him about the French attitude. I told Flandin how important I thought it was. I asked him whether he was going to London and he said he was. I told him I felt that with a conciliatory spirit on the part of the French as well as the Germans under the guidance of Ramsay MacDonald, who was a very conciliatory element, there would be a great opportunity to make progress. He made a very favorable impression on me by his attitude and he apparently felt the same way.

I then brought up with him the suggestion of the two-year naval holiday as a way of shelving the pocket battleship question and he jumped at it and said he would take it up with his people. He did not [Page 279] know much about naval affairs. He only knew France was preserving her advantage. I pointed out that the naval holiday preserved the position of France in respect to other Powers and he said if that was so he saw no difficulty in doing it and thought it was a good plan.

Then Edge told me that Jay of Morgan & Company had some things he wanted to talk to me about and got us apart in a corner. Jay pulled out a cable which he received from Tom Lamont and Russell Leffingwell92 which maintained a very hard doubt of the possibility of raising any money in New York for Germany at the present time and putting the whole question up to Germany’s being able to take care of herself. It was a closely reasoned argument of why no money could be floated and ended up with a request, as I recall it, that Jay convey their view to Moret of the Bank of France, and he told me that he had talked with Moret about it and was going to talk to Flandin. Then I blew up. I pointed out the folly of such a matter being invoked into the situation at this time. I told him that I happened to know that the Bank of France was holding back on the efforts of the French Government to solve the situation and this would add fuel to the enemies to [and end?] the only chance of conciliation. Just at that moment a waiter came in and said I was wanted on the telephone to talk to Washington. I went to the telephone and the President was on the other end and this was his message, that everything depended upon the London Conference, that all the safety of the banks in New York who had advanced money to Germany was dependent on the conference going to London and the President had read in some English despatches anxious statements for fear that the French would try to side-track the London Conference, lie wanted me to know it. I reassured him on the subject of the situation so far as our negotiations with the French were concerned. I said I was much encouraged to think that we are going all right, but I told him “if you want to help in the cause you are speaking of you will not do it by calling me up, but by calling up Tom Lamont …”, and I told him of the cable I had just seen. I said that was the one thing which would prevent the French from going to London and he told Moret. The President jumped at my remarks and said he agreed perfectly and would get after Morgan at once and I then went back to Jay, who was still waiting for me in the other room and I told him of what the President had said and I said to him, “You have hit the London Conference right plumb in the eye and I want you to know it.” He said, “Well, I will get on the telephone at once with Lamont.” I said, “You needn’t do it; the President has done that already, but you had better get after Moret at once.” He said he would see him in the morning. I pointed out to him in unregulated language the folly of the bankers getting [Page 280] into a situation depending on psychology when the representatives of their Government were trying to control the psychology of a situation like this and that they could not take refuge in narrow banking axioms because banking depended on general psychology.…

  1. Members of the firm of J. P. Morgan & Co.