tages to the others, of having us not interested in the acceptances as we are to act in a sort of fiduciary capacity in handling the acceptances and checking out the proceeds for the French merchants. Different members of the Guaranty organizations who had not participated in these earlier discussions, and finally Morgans, assumed that we should take our share of the balance unsubscribed, but Mr. Kent was always our champion in this matter, explaining the original understanding and the advantages of having us not so participate; and so we have always been relieved from any necessity of refusing to subscribe or explaining why we did not. For your purposes in Paris, should the question be raised, I think Mr. Kent's arguments are excellent, viz: that we are to act in a way for ail parties in receiving and presenting the drafts and in checking out the moneys for the French merchants upon presentation of export documents and in keeping track of the export proof, etc., and therefore should not be interested in the acceptances directly.

Of course in this case, as in the Schneider case, the funds will be paid out for exports only, and upon proof of export, in order to make the drafts eligible for Federal Reserve banks. The Schneider moneys have been handled so smoothly and with no difficulties to Schneider, as we have always been able to meet their requirements in every way; so we hope in this case there will be as little friction. In explaining this particular phase of the matter to the French merchants, you may state positively that the requirements of Schneider for payments for any of their purchases have always been met by us; and if inquiry should be made of them personally, they must respond that there has been no difficulty whatever in the construction or execution of the provisions of the Schneider contracts under which the moneys are paid out only by us and upon approval of shipping documents.

Jeoffroy. We are awaiting with intense interest your advices of progress, anticipating that with your acquaintance, skill, and energy you must accomplish something in this endeavor as in others on which you have set your mind. The Car Trust will, I hope, also move rapidly.

Will Bonbright returns today from his duck hunting; nothing came up during his absence which should have kept him here, and he needed the change and recreation. He is due at the office this morning, and you will again see his hand in the cables and correspondence.

With confidence and appreciation, and heartiest best wishes,

DEAR FISCHER: I am sure you will be interested in a conversation which Mr. Lockett had with Mr. Lamont; the latter stated that he has had a number of cables from their Paris offices asking why Morgan did not do the business which they find Bonbright doing; that the same business had been offered to Morgan some time since and they might have had it if they would have taken it. Mr. Lamont said that he had sent a number of cables in reply, to the general effect that the members of this House were friends of Morgans and they were glad to see us doing business of this character, that Morgans could not do all the business offered, and that they were glad to not only leave this business to us but also to assist us.

The Morgans have in many ways shown friendship and given their support not only in these credits and particularly the last one, but in domestic matters. In several different undertakings they have been of most material assistance.

I am sure that you will appreciate their cooperation and friendship on this side, and the value it is to us in doing any business that you may secure.

OBW/T

Faithfully,

7. Chancellor has always discouraged our suggestion that we arrange for commercial drawings on a large scale here, feeling being that this would not suit British commercial interests. It seems to us at the present critical juncture that this is a step which must be seriously and immediately considered on the other side. As commercial interests, we had in mind would be Vickers, Armstrong, and others acting in close harmony with Government. We should consider that authorities could arrange that they should finance their purchases of material here by drawing on group we would hope to form to accept their bills with renewals for total period of say one year's time. Even assuming that these people already have necessary funds abroad, against which to draw, Government could guarantee them against loss in exchange during period bills and give them as inducement whatever profit might result from possible higher exchange rates at end of 12 months. We believe this business could be arranged quickly if we were authorized to proceed. Federal Reserve bank has indicated that such British commercial acceptances would be encouraged here by Board and this is a point too important to be ignored.

EXHIBIT No. 3640

MORGAN.

4AK2

J. P. MORGAN & Co.,
EXPORT DEPT.,
New York, Nov. 24, 1916.

(From Morgan, London)

[Extract from cable #26659]

Seven. Authorities do not like the idea very much; nevertheless, in order to ease the load at the moment, believe they would be quite willing and could arrange with firms such as Vickers, Ltd., Armstrong, Cammel, Harland & Wolff, Ltd., Browns. As I understand it, the state of the case is as follows: These firms take from British Government raw materials purchased in the United States, particularly steel which is purchased for them by us as representing the Ministry of Munitions of War. When the finished product is made, the firms receive payment and in turn pay for the raw material. If the British Government were willing to accept payment in bills on New York City drawn under such credits as you have indicated and would get the firms mentioned to take out such credits, seems to me these would be pure commercial bills and as such be eligible for the Federal Reserve bank. If this is the operation as you understand it and you think it could be worked out on your side, cable again and we will see about it. We should want to know also what sort of amount you think of. The idea of the authorities is that it would not be very large, because they could not justify beyond amount of goods bought for those firms. J. P. Morgan.

MORGAN.

7. The creation of commercial bills eligible for Federal Reserve bank is what we had in mind. If shells and forgings, steel, powder, explosives, fuses, etc., are now being delivered to private firms to be manufactured into completed shells or assembled as the case may be, would it be feasible for arrangements to be made whereby such private firms would take delivers More of various articles which

would be invoiced against them, although delivered under contracts heretofore closed with Government, idea being that no change in present centralization of buying should be made, but that after contracts were closed by us delivery would be made to individual contractors? If this were feasible might also extend to copper being delivered to private firms. Our thought was that such English firms might draw their bills payable in dollars for period of 3 months with arrangements made for renewals, we to form group here to accept and use proceeds in payment for material as required. It seems doubtful whether if such bills were drawn by firms and given to British Government they would come within scope of Federal Reserve bank paper, but wish to consider this point more carefully before making definite suggestions.

This whole question is of course a very important one for Government to consider and as stated we do not mean to suggest any change in existing methods for concentrated buying. Would it be necessary to limit bills drawn to extent amount of goods bought for each firm. It would seem to us for example Armstrong could assume liability for indeterminate amount or material contracted for by Government, Armstrong paying for it here by proceeds of bills drawn on and accepted by banking group here, Armstrong in turn selling to Governments such materials as were not needed for its own requirements and receiving payment from Governments either in form of sterling bills or sterling cash.

Associates not available today being Saturday; will confer on this point Monday and cable again.

MORGAN.

AMA

EXHIBIT No. 3642

16A 0/23.a

J. P. MORGAN & Co.,
EXPORT DEPARTMENT,
New York, Nov. 27, 1916.

(Copy of telegram received 7:30 p. m. from Morgan, London)

26715. 31674. Shown by J. P. Morgan to Treasury and Governor. We are greatly disappointed by attitude of Federal Reserve Board, and we are inclined to think it is due to some political action possibly by party agitating in favor of peace.

As regards no. 7 we hope you will further explain after your meeting with group today.

Norman and I have carefully considered your remarks in 31674, and at first sight we do not see how a bill drawn by say Armstrong on a New York bank for purchases could be considered a commercial bill suitable for Federal Reserve bank. I could understand it if the bill were drawn by the firm supplying the material upon a New York bank which was accepting for account of Armstrong, etc.

Naturally we do not want to put difficulties in the way but wish to fully explain to Treasury. E. C. Grenfell.

MORGAN.

EXHIBIT No. 3643

16A0-66XXX-66-3

J. P. MORGAN & Co.,
EXPORT DEPARTMENT,
New York, Nov. 27, 1916.

(Copy of telegram received 11:45 a. m. from Morgan, London)

26693. For H. P. Davison. Governor [Bk. of Eng.] call attention to one drawback short time [Brit. Tr.] bills which wants to be considered, which is the danger that large institutions having balances here on which they are receiving satisfactory rates of interest owing to high bank rate will withdraw funds from here for the purpose of investing them in United States in similar securities. Suggests me wef caution you on the undesirability making rate so high as to offer distinct advantage this form of transaction. J. P. Morgan.

NOTE.-Pencilled notations enclosed in brackets.

MORGAN.

EXHIBIT No. 3644

16A O'/230A

J. P. MORGAN & Co.,
EXFORT DEPARTMENT,
New York, Nov. 27, 1916.

(Copy of telegram despatched 11:00 p. m. to Morgan, London)

31726. 26715. Procedure suggested 31674 designed to comply with our understanding of scope of early ruling made by Federal Reserve Board.

Discussion today developed the belief that with present banking position and decreasing reserves, it would be difficult to form group to accept bills with renewals over a period of a year or more, but that we might do something on bills drawn for 90 days with provision for one renewal of like term, this however was before announcement of Federal Rseerve Board statement, which was available too late to permit further conference.

Replying to your 26693, we had appreciated that aspect of situation, but did rot see how possibility could be completely obviated unless some action along Les 31562 might be taken, thus minimizing the danger of retransfer. AMA

MORGAN.

EXHIBIT No. 3645
[Copy]

French merchants, under French industrial credit of November 11, 1916, in account with Bonbright & Co., New York

EXHIBIT No. 3646

American agents under French industrial credit of November 11, 1916, in account with Bonbright & Co., New York

1917

11, 078. 38

4%% of $50,000,000 paid by French merchants to cover remain-
ing 9 months' bank discount....

2,062,500.00

25, 450. 25

Dec. 31

1, 532. 31

Interest allowed by Bankers Tr. Co. on American agents' a/c from July 1 to Dec. 31.

$5, 061.75

473.91

2,006. 22

Interest allowed by Guaranty Tr. Co. on American agents' a/c from July 1 to Dec. 31.

4,822. 11

570.35

9, 883.86

Bank discount and acceptance fee on 2nd renewal drafts.

Bill rendered Guaranty Tr. Co.-cost of supervision at Paris office.

do.-W. P. Bonbright & Co.-difference in rate of exchange

Bill rendered Bonbright & Co.-expenses Apr. 15, 1917, to Nov. 30, 1917.

16 Bank discount and acceptance fee on 4th renewal drafts. Apr. 9 Balance.

812, 500. OC

812, 500.00