THE CABINET Off Bottom

Off Bottom

When the Press trooped in to see what manner of man this was that President Roosevelt had called from the Presidency of American Car & Foundry to run the Treasury at a moment of greatest national emergency, they found small William Hartman Woodin, his eyes as blue as his shirt and collar, his cupid mouth pursed in an easy little smile, sitting informally on the edge of his desk, swinging his legs. Piped a pert newshawk: "Mr. Secretary, you're in a pretty hot spot, aren't you?" The brand-new Secretary reached down to his big black leather chair, rubbed his hand slowly over its seat and softly replied: "No, it isn't hot. really."

A man of less serene disposition than "Willie" Woodin might well have been agitated beyond dissembling by the heat and pressure of that first terrific week at the Treasury. Every bank in the land-- 18,000 of them-- had been shut tight by Presidential proclamation (TIME, March 13). For practical purposes the U. S. was off the gold standard. The nation's industries were at a standstill. The public pulse was beating a panicky tattoo. The Federal Government was so bowed with accumulated deficits as to threaten national credit. Ahead lay only economic uncertainty. If ever a Secretary of the Treasury started from scratch, it was Mr. Woodin last week.

"On the Bottom." The exciting newness of his office and the absolute certainty that somehow this colossal crisis would have to work out were undoubtedly two of the factors that kept Mr. Woodin so bright and cheery. There was a sound of real relief in his voice when he said to the Press: "We're on the bottom now. We are not going any lower. The people have lots of courage and if they'll only do what our great leader in the White House says, we'll get out of these troubles very soon."

And one week later Secretary Woodin's confidence had spread far & wide. Throughout the U. S. 279 banks had reopened for business on the certification of the Treasury. New money had begun to circulate. Industry started hopefully up again. The U. S. gold supply, returned in masses by hoarders, rose by leaps & bounds. It looked as if the "bottom" was really being left behind.

Night & Day. It was one thing for the President to close all the banks in the land with one pen-flourish; it was quite another thing for his Secretary of the Treasury to get them open again. The machinery for such an operation was enormous and Mr. Woodin had scant knowledge of it. Day after day he strove to master new details at his cluttered desk while harassed bankers gathered in his outer office from every quarter of the country to clamor for Treasury concessions, instructions. Night after night he worked until 2 o'clock at the White House whence he would go directly home to the Carlton Hotel for a few hours sleep. Not once during the seven-day ordeal did he drop his good-natured smile. Not once did his grey toupee slip askew in the excitement. Not once did he lose control over the deep-hidden temper which once sent him raging into the sanctum of the late Elbert Gary to pound indignant defiance upon the great steelmaster's desk.

Aides. But smiles and patience do not open 18,000 banks. For that job Secretary Woodin had able and experienced assistants. President Roosevelt had asked Undersecretary of the Treasury Arthur Atwood Ballantine and Assistant Secretary James Henderson Douglas Jr., Hoover appointees, to stick at their posts through the crisis, perhaps longer. Mr. Ballantine, a chunky Harvard lawyer from Oyster Bay, L. I., backstopped Secretary Woodin, pointing up matters of policy for him to yes-or-no. Like a chief of staff Chicago's Jim Douglas, an erect and handsome young Princetonian (class of 1920), was on the Treasury end of telegraph wires lo the twelve Federal Reserve banks, to the 48 state banking departments, to the clearing houses of the nation. He whipped out orders faster than an army of subordinates could execute them.

Another important assistant was Francis Globy Await, acting Comptroller of the Currency, also a Republican holdover, who looks a little like Ogden Livingston Mills and smokes a 6-in. cigar at about the same angle. Mr. Await, so rushed that his uncut black hair hung over the tops of his ears, kept saying: "We're snowed under, we're snowed under." On him since last September has fallen the brunt of liquidating more than 1,000 closed national banks.

Press Support. The Press furnished Secretary Woodin with a valuable second line of support. Newshawks were captivated by his informality, his thinking-out-loud. To bank depositors everywhere he was depicted as a warm, sympathetic human being slaving nobly in their interest. For the arch-Republican New York Sun George Van Slyke reported: "Under Mellon and Mills the Treasury has been a cold storage plant. . . . The new secretary has been at ease, quite natural and simple, utterly free of official pomp and pose and has made a tremendous hit with everybody." Well aware of how the country was taking him, Secretary Woodin was moved to exclaim: "I'm stunned in admiration at the co-operation of the people. . . . We see light. This thing is not going to pieces."

Scrip Out. One of Secretary Woodin's first major decisions was to abandon the idea of scrip as a medium of exchange. Prime objection was that such a substitute currency would not circulate everywhere at par. Declared the Secretary: "Where would we be if we had I. O. U.'s, scrip and certificates floating all around the country?" Despite this ruling, scrip continued in use in small communities that long ago ran short of cash. At Nashville about $1,000,000 worth was put in circulation. The Louisville Courier-Journal paid its employes in scrip, redeemable at advertisers' stores. A $5,000 scrip issue, backed by a joint note of leading citizens, was gobbled up in an hour at Mattituck, L. I. But Mr. Woodin's decision reduced to waste paper the millions of dollars of scrip the New York Clearing House had had printed by American Bank Note Co. at a cost of some $100,000.

Untouchable Gold. Gold remained untouchable. Regulation after regulation prohibited its withdrawal in any form. At Secretary Woodin's order the Federal Reserve banks began to compile a list of persons and banks who made large gold withdrawals before March 6 and failed to return it by March 17. The Press played the story as if those who did not return their hoardings before the arbitrary deadline would in some way be pilloried or penalized by the Government. The result was that hoarders rushed to the Reserve banks to exchange their gold for paper money. Fortnight ago gold flowed out at the rate of more than $40,000,000 per day. Last week it was flowing back at about the same rate. Some stubborn hoarders, wise to the law, knew they had obtained their gold legally before March 6 and that the U. S. had no Constitutional power to punish them retroactively. Irenee du Pont & wife turned in at Wilmington a 20-year collection of gold pieces paid him for attending board meetings of E. I. du Pont de Nemours & Co.

Finished Bill. The nation's banks had been closed by proclamation but it took new legislation by the Congress, sitting in special session, to open them. To help prepare this measure Secretary Woodin spent long night hours at the White House with Congressional leaders. Chief author of the bill was Virginia's tireless little Carter Glass. Next day Secretary Woodin busied himself about the Capitol helping to whip it into shape almost up until the hour it was handed to the House.

"Is the bill finished, Mr. Secretary?'' asked newsmen as they met him coming out of Senator Glass's office.

"Yes," was Mr. Woodin's weary reply. "The bill's finished. My name is Bill and I'm finished, too."* Before the next midnight the banking bill, speedily passed by House & Senate, was back at the White House for signature. Secretary Woodin looked on smilingly as the President made it law.

Dictatorship. No dictator could have asked for broader powers than were granted by this bill. President Roosevelt's original proclamation was based on the wartime Trading-With-the-Enemy Act. Grave doubt existed as to the legality of his orders because U. S. courts have implied that that Act, while not specifically repealed, expired in 1921 with the passage of the Knox peace resolution. Even loyal Senator Glass exclaimed in the Senate debate: "Some of us are disposed to think these proclamations have been invalid and unconstitutional."

The new bill not only confirmed and approved all President Roosevelt had done but also re-enacted for peacetime those parts of the Trading-With-the-Enemy Act that had to do with gold, currency and foreign exchange. The Secretary of the Treasury was empowered to call in all private gold coin and gold certificates. Violators of any executive order could be fined $10,000, jailed for ten years.

"Conservators." Provided also was a halfway operating point for national banks between solvency and receivership. "Conservators" were to be appointed who could let out deposits on a limited basis, receive and segregate new deposits, help arrange reorganizations. Practically, "Conservators" would be national bank receivers who would run weak institutions instead of shutting them.

National banks that had pawned all they had were authorized to raise more assets by issuing 6% preferred stock. This stock was to be acceptable for R. F. C. loans. Depositors in semi-solvent banks might be paid their "frozen" deposits in such stock, which carried no assessment liability.

More Money. The bill also created a new non-gold currency to be called Federal Reserve Bank Notes.* Behind it were to be U. S. Government obligations at par, discounted commercial paper at 90% of its estimated value. Some $2,000,000,000 worth of this new currency was expected to be issued to replace cash & coin now hoarded, but the total was not limited. The Federal Reserve banks were to advance it to member banks on the thinnest sort of security ("cats & dogs," Senator Glass called it). Individuals were also permitted to borrow direct from the Federal Reserve on Government securities.

To manufacture the new money the Bureau of Engraving & Printing went into 24-hour operation, its blue lights gleaming through the night across the Tidal Basin. Its 4,500 employes turned out crisp new bales of cash. Trucks, airplanes and trains rushed it cross-countrv to the twelve Federal Reserve banks from which it was distributed like a financial blood transfusion to member banks.

State v. National. In the Senate two objections were raised to this emergency measure: 1) only in New York City were banks sufficiently liquid to be benefited by its provisions; 2) state banks not members of the Federal Reserve system and totaling some 11,000 would be put out of business altogether by the relief advantages given their competitors.

Openings. Of itself, the new law opened no banks. President Roosevelt had to extend his closing order until the Treasury was ready to act.

Which banks to open was Secretary Woodin's next problem. He called for three classifications: 1) banks 100% sound which could open and stay open; 2) banks less than 100% sound which with tinkering or a conservator could be partly opened; 3) banks so weak as to be kept shut until liquidated.

By working night & day the Treasury examiners completed their assay of the solvency (or lack of it) of Reserve member banks, thus paving the way for Secretary Woodin to issue opening licenses. Banks were staggered for opening on the first three days of the week: Monday, 100% sound banks in Federal Reserve cities;* Tuesday, banks in the 250 urban centres with clearing houses; Wednesday, rural banks.

In New York City 52 out of 61 Federal Reserve member banks swung wide their doors. The biggest that did not was the Harriman National, with $30,000,000 deposits, for which a "conservator'' was promptly appointed./- Nine state banks were also kept shut. As depositors trooped in with funds that had been unbankable all week, bankers cheerily announced that the rate of return was far faster than the rate of outgo had been.

In the eleven other Federal Reserve cities 203 member and state banks reopened. In Philadelphia 21 institutions opened, six stayed shut. Kansas City had 24 open, three shut. In Chicago, Minneapolis, Boston, Dallas, San Francisco and Atlanta every member bank was allowed to reopen.

As the banks re-opened the dollar reentered foreign exchange. In Paris it shot above par with the franc. In London it gained 2-c- on the pound during the week's holiday. To check any possible raid on the dollar, the ever useful Trading with the Enemy Act was invoked once again to set Banker Fred I. Kent, Bankers Trust Co. director, back in his Wartime job as the Federal Reserve Board's director of foreign exchange. To him each day's sales of foreign monies must be reported; his is the power to forbid purely speculative trading.

Guarantee. The success or failure of this week's bank openings depended almost entirely upon Secretary Woodin's administration of the new law. Senator Glass had succeeded in beating down the idea of a deposit guarantee bill but the effect of the Treasury's license system was. in the popular mind, tantamount to a guarantee. If reopened banks failed to stay open after the Treasury had certified their solvency and supplied them with cash, nothing, it was thought, could save the entire U. S. banking structure from crashing into permanent ruin. Skeptics pointed out this fact: bank after bank had failed despite repeated examinations by Federal and state authorities and yet the same examiners, the same figures and the same system were again being used to convince the public that its banks were now sound.

Inflation. Issuance of billions in new paper money unsecured by gold promptly raised the old spectre of currency inflation. But, now. after a solid week without banks, even the country's conservatives seemed to have lost most of their fears. In his inaugural address President Roosevelt had stressed "adequate but sound currency." Mr. Woodin was a Big Business man loyal to the monetary past. The Federal Reserve Bank Notes going into circulation were, it was reiterated at the Treasury, only a temporary medium of exchange which were to be taxed into retirement as the country got back to normal. At the White House, reference was repeatedly made to "manageable currency". Suggestions that the U. S. was embarking on a wild era of printing press money were sternly repudiated.

But even the Roosevelt-Woodin brand of currency inflation was counted on to start prices up. Part of such a rise would be due to the diluted value of the dollar but even more to the public believing that the bottom had been hit. that things were going to cost more & more as conditions improved.* As the shift of money into things increased, a buyer's market would change into a seller's market which is generally the first big step toward real inflation. Three factors were present to keep such an upturn from getting out of hand: 1) the determination of the Roosevelt administration to manipulate currency & credit so as to brake the upturn, keep it from booming; 2) twelve million persons who must be given jobs before labor costs can legitimately rise; 3) weakness in the railroad and mortgage fields which must be drastically reorganized to lay the foundation for any broad upswing.

Refinancing Ahead. Secretary Woodin's first test as a public financier rather than as a bank savior came during his second week in office. On March 15 fell due $694,000,000 worth of short-term Treasury obligations, some of them put out under the unsuccessful Hoover anti-hoarding campaign of last year. Normally the Treasury would have paid gold on demand on this debt but the President's embargo order prevented. To refund these securities Secretary Woodin offered $800,000,000 in new Treasury certificates. Those for five months paid 4%, those for nine 4 1/4%-- the highest rate the Government has had to pay for such money since 1929. That gold is not to be long impounded was indicated by Secretary Woodin's announcement that principal & interest on the new issue "will be payable in U. S. gold coin of the present standard of value."

The new banking law was counted heavily upon to widen the market for Government securities because they were all made acceptable to back the new currency issue. Thus commercial banks could buy short-term obligations on credit from the Federal Reserve and individuals could likewise secure them from their commercial banks. The high interest rate was a shining bait for hoarded funds.

Secretary Woodin needs the best possible money market to help the Treasury over the next few months. In immediate prospect is a $500,000,000 bond issue with which President Roosevelt is to start his unemployment relief program. In addition to current short-term refinancing the Treasury is confronted with a long-term War debt of $8,201,000,000, all of which becomes callable before Oct. 15. These obligations, now paying about 4 1/4%. will have to be refunded by Secretary Woodin if he wants to cut the interest rate before maturity-- a job almost precisely the same as the one that faced Andrew William Mellon when he entered office in 1921. Upon Secretary Woodin's operations will depend not only the future credit of the U. S. but also the question of whether this generation or the next foots the Government's bill for the Depression.

* Mr. Woodin's intimates call him Willie, of late he had been trying to induce them to switch to Bill.

* Not to be confused with the 40%-gold-backed Federal Reserve Notes of which $4,215,006,000 were in circulation last week.

* Boston, New York, Philadelphia, Cleveland, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, San Francisco, Richmond, Atlanta.

/- Joseph Wright Harriman, until last summer president of the bank, was arrested this week charged with "making or causing to be made" false entries in the Bank's books in order to deceive national bank examiners. The Bank had no connection whatever with the Brown Bros. Harriman & Co. sons of the late famed Railroader Edward Henry Harriman.

* A rising market helps companies with large inventories. Statisticians last week calculated International Silver's inventories at $46.86 per share; Wesson Oil and Snowdrift's at $30.43: Goodyear Tire's at $25.20; Cudahy Packing's at $20.21; California Packing's at $20.21; American Sugar's at $18.27; International Harvester's at $17.98; U. S. Industrial Alcohol's at $14.29; Sears, Roebuck's at $10.26; J. C. Penny's at $11.06.

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