800.51/788

The Economic Adviser (Feis) to the Secretary of State

Mr. Secretary: As soon as various issues of foreign securities held by American investors entered into default, the Department of State was faced with the question of how most effectively to render assistance to the investors without constant political interposition or intervention disturbing to the general foreign relations of this country; in the case of defaults by foreign public authorities, the individual investor has no recourse at law. Further, it was speedily observed that all sorts of committees and associations without especial standing and frequently without representing all interests involved, and sometimes with mixed purposes came into existence and threatened to confuse and make difficult the whole question of the proper handling of these foreign default situations.

It was decided, after many talks between this Department, the Treasury Department and the Commerce Department, that the matter could only be satisfactorily handled if there came into existence a body similar to the British Council of Foreign Bondholders. This body, it was conceived, would be a broadly representative national body. Further, according to the conception, it would be one that was definitely not under the control of the bankers or any other group in the community (though on its sub-committees handling special situations, banking interests undoubtedly would have to be represented). It would have to command the full confidence of all holders of foreign securities. It should be independently financed during the first few years of its existence so that it would not have to call for deposits of bonds or any other payments from the bondholders that it served. Lastly, when created it should have an independent existence (perhaps incorporated under law), and conduct its own negotiations with foreign authorities. The Department of State would not be committed to any action in regard to any situation. In fact, it was hoped that the existence of the council would perhaps lessen the necessity under which the Department of State might have to take cognizance of default situations.

[Page 935]

It was found after study of the question, that the groups and interests that would have to cooperate in forming such a council were badly divided and sometimes in conflict. It was seen that unless some branch of the Government gave the whole movement impetus and encouragement, it would never progress and that more and more partial or insufficiently influential bodies would come into existence.

The rough model before everyone’s eyes was the British Council of Foreign Bondholders, which has been in existence for 65 years, and which commands and combines the services of many eminent and capable English leaders.

In accordance with these ideas, the Departments of State and Treasury asked five people in whom it had trust to come to Washington on April 15, 1932. These individuals were: Mr. Charles P. Howland, Mr. Pierre Jay, Professor Edwin W. Kemmerer, Mr. Thomas Nelson Perkins, and Mr. George Rublee. This small group was asked to study the question of what form of organization was most suitable, and how it could be brought into existence. At the end of the meeting the attached communiqué was issued to the press.1

After several months, the group reported back on the results of their study, and made recommendations as to the nature of the organization required and prepared the statutes and by-laws of such an organization. The Department reviewed the matter with them and agreed with the work done. It then asked them as a public service to undertake the task of seeing all individuals and interests that ought to take a part in the affair and then to bring the Council into existence.

This group, distinctly as a public service, has undertaken this task. About three months ago they reported progress. A meeting was held in the Treasury with the Chairman of the Banking and Industry Committees that had been set up by the Federal Reserve Board, and this group of individuals promised to help our organizing group to make the right connections in their communities.

The two chief tasks left before the council could be organized have been those of personnel and of finance. It was essential that the governing body of the council be a widely trusted group of men from outside the banking world and somewhat geographically representative. As for finance, the sums necessary to carry the new organization through three or five years were required.

Mr. George Rublee, who was one of the committee, and Mr. Allan Dulles, who has been assisting the committee, reported to me yesterday that they believed they could see the end of the road. The personnel of their general board was being settled and for chairman of [Page 936] the board (who would also be permanent director), an offer had been made to Mr. Norman Davis and he had accepted.

As for finance, some foundation had promised to meet part of the burden and it was hoped that certain institutions, such as the Stock Exchange, would meet the rest.

Mr. Rublee and Mr. Dulles are coming to the Department today to report the make-up of the committee and to try to assure themselves that these plans and personalities are entirely agreeable to the Government. They seek this assurance for two reasons; first, because the organizing committee was asked to undertake the task by the Government, and second, because it is hoped that there will be established between the council and the Department friendly relationships.

I intend to tell them that the Government does not feel that it has any veto power over either plans or personalities, and that the new council must consider itself as a private organization. However, informally, it may be said that the plans and personalities seem to us excellent and that we trust that the council will come into actual existence very shortly.

Because of the importance of the amounts involved (the council may well have to handle default situations amounting up to several billions of dollars), and because of the fact that in many situations this Government will desire to work intimately with the council, it may be that this matter should be called to the attention of the President.

H[erbert] F[eis]
  1. Department of State, Press Releases, April 16, 1932, p. 362.