THE STOCKPILE SCANDAL

...But foreign ore producers were the chief beneficiaries...

...In 1956 production began to catch up with the industrial shortage and the market price fell...

...He did not change his mind when Symington noted that average return in the mining industry ranged from 5.7 to 11 per cent before taxes in the years 1957-61...

...Holderer maintained continual extra-curricular contracts with company executives during the contract negotiations...

...Some other means had to be found...

...In determining long-term target figures, Hagerty's press release explained the new concept would discount the possibility of acquiring foreign-source minerals in wartime except for those readily accessible in neighboring countries...

...GAO found that while other Defense Production Act contracts limited risk in varying degrees, the Hanna contracts essentially eliminated all risk...

...As this concept is steadily modified, surpluses pile higher and higher...

...against costs, profits were 135 per cent...

...Even the Russians seized on the occasion to pump their surpluses into Western markets...

...Symington in particular was galled by memories of Humphrey's righteous budget-slashing when he headed the Treasury...

...By March, 1954, Wormser was able to submit a proposed new minerals policy for the scrutiny of Interior Secretary Douglas McKay...

...On October 3, 1951, for example, Holderer called Seattle from Washington to report: "I have succeeded in quietly stirring up a very considerable amount of heat on the chrome job...

...Relief from stockpile obligations thus enabled thirteen producers to collect unanticipated revenues of $20 million...

...They provided fascinating footnotes to the stockpile story...

...The copper producers were delighted, for the inflated market price was much higher than the price provided in the stockpile contracts...

...They disclosed, according to GAO accountants, that in a seven-year period Hanna netted $10,206,337 after taxes on an investment of roughly $3.6 million...

...The discrepancies in testimony about the Hanna nickel contract may wind up in court...

...The big lead and zinc smelting companies were generally making more money in the early 1950s than they had made in the World War II years of 1942-46...

...The career civil servants of the General Accounting Office and the General Services Administration complained vehemently that Flemming's copper diversion program was shortchanging the taxpayers...

...Reawakened World War Il memories of sunken ships carrying chromite from far-off South Africa reinforced the planners' determination to buy and buy and buy...

...It permitted additional purchases of 450,000 tons of lead and 310,000 tons of zinc...

...In no case, Flemming suggested and the President agreed, should the target for any strategic material be set at less than one year's "normal" domestic consumption...

...Foreign mining companies sold more ore to the American smelting companies and the smelters moved the resulting production into the stockpile at good prices...

...The investigating Senators, he said, were confused or mixed up...

...The unbusinesslike management of the stockpiles—all the more remarkable in an Administration dominated by businessmen—is revealed most clearly by its policies governing purchases of copper...

...The additional safety factor took care of lead and zinc nicely...

...The official, George B. Hol-derer, was chief of the ferroalloy division of Defense Materials Production Administration, a branch of GSA...

...The nearest railhead is forty miles distant...

...The war stockpiles are truly gigantic...

...Then he uncorked a prepared tongue-lashing of Humphrey, and asked the American people to judge who had stabbed whom in the back...

...The Democrats ("you boys," Humphrey called them on one occasion) sizzled in anger as Humphrey sidestepped details and challenged even his own Hanna Company's tax returns...

...This order authorized Flemming's mobilization planners to include a general "safety factor" in fixing maximum stockpile objectives...

...Subsidies of this kind were not regarded as government meddling in business...

...Symington already has prepared draft legislation that would authorize the President to sell surpluses anytime and at prices he designates...

...His calculations indicated that Hanna earned twenty-five or thirty per cent a year on investment...

...Stockpiling began in 1946 when there were still fresh memories of wartime destruction of ships ferrying critically-needed raw materials from overseas...

...As early as November 12, 1953, the Symington subcommittee revealed, Wormser was writing confidentially to friends that additional metal might be bought for the stockpile "but the stockpile was already full, and therefore, objectives would have to be raised...

...Early this year the National Stockpile and Naval Reserves Subcommittee of the Senate Armed Services Committee began an investigation, under the chairmanship of Senator Stuart Symington, Missouri Democrat, looking for explanations of the scandalous state of the stockpile program...

...Eight-year, before-tax profits amounted to $7,853,000...

...Instead, government purchasing agents allocated the additional stockpile quotas among five major refiners...

...I can be more useful here...

...Wintry winds are blowing some of it away...

...Government accountants said this was an annual 221 per cent return on investment...

...When the Hanna Company bought the smelter it promptly insured its new asset for $16 million...

...Thereupon the producers resumed stockpile deliveries...

...Holderer acknowledged to Symington's subcommittee that neither he nor anyone else in the government gave "any consideration whatever" to whether the chromite for which the taxpayers were about to pay premium prices could ever be used...

...Therefore, Engle argued, the Humphrey family's share of profits on the government contract was $1,428,888, and its share of "windfalls" from the smelter was $2,660,434...

...Senator Clair Engle of California calculated that Humphrey and his family owned fourteen per cent of Hanna's stock...

...Sherman Adams has preserved Humphrey's reply for posterity...

...President Truman's subordinates committed their full share, to which a mountain of low-grade, surplus chrome ore piled high near Nye, Montana, is eloquent testimony...

...The government never called for competitive bidding, always paid the going market price, and as the price advanced the refiners' receipts advanced also...

...In the meantime, partly because of strikes at mines and refineries, the market price of copper advanced steadily from thirty to forty-six cents per pound...

...The subcommittee's findings in the lead and zinc purchase programs are especially revealing...

...This 900,000 tons of chromite cost taxpayers $31.6 million...

...Yet Flemming's stepped-up stockpile purchases were not tailored to help the miners who were, after all, the chief components of the lead-zinc "mobilization base" which the Administration ostensibly was trying to strengthen...

...In the meantime, the Justice Department may move to tidy up the conflict-of-interest cases brought to light by the investigators, and a dormant Congressional study of the relevant statutes may be revived...

...The Republicans suspect, and they are probably right, that Symington's inquiry is the prelude to a drastic revision of the laws governing the stockpiles...

...The government needed nickel and Hanna had some...

...All the mining company's earnings were subject to the twenty-three per cent depletion allowance...

...Fifteen days later Presidential Press Secretary James C. Hagerty disclosed that additional quantities of thirty-five to forty minerals could be bought for stockpiling under a new policy decision approved by the President...

...Under existing law, most disposal sales must be approved specifically by Congress in advance and there is a six-months waiting period...

...He was determined to make Humphrey reconcile Hanna's profits with his constant harping against government spending...

...For want of a better estimate of how long the next war would last, the planners simply assumed it would last five years, the length of World War II...

...American Chrome fortunately preserved recorded tapes of his telephone conversations...

...Testimony before Symington's subcommittee indicated that Secretary of Commerce Sinclair Weeks and Secretary of the Treasury George M. Humphrey, the Administration's most successful businessman, developed the procedures under which the government divested itself of contract rights, although Flemming assumed full responsibility...

...On October 20 Holderer dutifully telephoned again...

...Control of this vast quantity of goods would give the White House important new tools in dealing with foreign governments that depend heavily on sales of raw materials at stable prices...

...It was the small miners from Missouri to New Mexico, not the refiners, who were in bad shape...

...He blandly dismissed the sworn testimony of GAO accountants as bunk or baloney...

...Eisenhower's administrators regarded inducements to business as perfectly proper...

...Often materials were stockpiled for reasons totally unrelated to national defense, such as propping up an ailing industry...

...It would also give the President an additional instrument with which to intervene in domestic situations affecting the public interest...

...after deducting taxes, depreciation on equipment, and royalties for mining rights, American Chrome netted $4,226,177...

...Assistant Secretary Wormser did not tell Secretary McKay that the stockpile law did not authorize price-support purchasing...

...As of March 31, taxpayers' investment in combined lead-zinc surpluses totaled a cool half billion dollars...

...Hanna's records eventually were pried open by Symington's subpoenas...

...The underlying assumption behind stockpiling nevertheless remains basically what it was in 1946—vast armadas of ships carrying scores of American divisions to fight on foreign soil...

...In effect, Symington's proposal would transfer control of the stockpiles, or at least the $3.4 billion worth of surpluses, from Congress to the White House...

...Among these materials are lead and zinc, two of the most heavily overbought stockpile items...

...The stockpiles contain deteriorating fluor spar, moldering natural rubber (the government owns $213 million worth more than it needs even by its own generous estimates), and natural quartz crystals that are rapidly being pushed into obsolescence by man-made substitutes containing fewer flaws...

...Two events can be predicted with more certainty: ¶ More skeletons will be dragged from our bulging storehouse of war materials...

...I have decided not to come out next week...

...Hanna devised an intricate corporate structure to execute the nickel contract...

...To which Eisenhower replied, "Maybe that's the trouble with businessmen, George...

...And government experts estimate that even if the Montana chromite were given away it could not be refined at a cost which would match the combined expense of mining a like quantity of high-grade ore in Africa, shipping it across the Atlantic to New York, and loading it on railroad cars to Ohio's smelters...

...when prices were artificially high, coupled with profiteering, mismanagement, and politics, have cost the taxpayers a paper loss of at least one billion dollars, and a real loss of probably more...

...No," Humphrey told the President...

...But when developing events handed the taxpayers an opportunity to recoup part of their investment, government stockpile managers resolutely refused to grasp it...

...Well, they got a mountain of chromite 300 feet high...

...In 1958 the objectives were reassessed and geared to a three-year war...

...Diligent digging by Symington's investigators uncovered some exceedingly curious actions by a ranking government official in the negotiations leading to the chrome contract...

...So, on January 16, 1953, four days before Humphrey took office as Secretary of the Treasury, a contract was signed...

...Yet more than a year after the truce at Panmunjom they reversed their field, and to the satisfaction of copper producers, hiked the target to 1.6 million tons...

...Bloopers and shenanigans were not confined to the Eisenhower Administration...

...All told, the Administrations of Presidents Harry S. Truman and Dwight D. Eisenhower spent $304 million buying materials which do not now have, or never had, stockpile objectives...

...In September, 1952, while war raged in Korea, the mobilization planners decided it was safe to reduce the stockpile target for copper from 2.1 to 1.1 million tons...

...In 1956, Flemming managed to boost stockpile objectives for zinc another 140,000 tons by shifting the "normal" year from 1953 to 1955...

...And when it had dug the quantity required by the contract, the company shut down its mine...

...For it has now been revealed that scare-buying of strategic materials JERRY LANDAUER is a Washington correspondent who has covered every major development in the stockpile inquiry for a number of newspapers...

...Humphrey was among them...

...Moreover, the contract permitted the company to purchase a government-built smelter for "residual" salvage value of $1.7...

...He asserted that this level of profits "on a wasting asset" was by no means unreasonable...

...The nation needed chromite, he testified, and he was not prepared to let bureaucratic bungling delay signature of the contract...

...Under the impact of stockpile buying the price of lead advanced from 11 to 13.5 cents and zinc moved from 14.1 to 16 cents from June, 1954, to April, 1957...

...The paper loss estimate represents the difference between the acquisition cost ($8.7 billion) of ninety-eight stockpiled materials and the total sum that could be recovered by selling everything at current market prices...

...through which all profits of the contract were assigned to a mining subsidiary...

...million...

...One firm estimated last year that it would cost $65 million more to upgrade the $31.6 million worth of ore into a form that industry might buy...

...In 1956, Democratic politicians hoped to seize on them for election purposes...

...Stockpiling did expand domestic lead-zinc production somewhat...

...A number of these "strategic materials" were never assigned stockpile objectives...

...They contended that Flemming could have relieved the copper shortage just as effectively by accepting contract deliveries and reselling to industry, or by designating the stockpile suppliers as sales agents...

...At the time, American Chrome Company had under lease the only known chrome deposit of any consequence in the Western Hemisphere...

...The stockpiles, for better or for worse, will remain well stocked for decades to come...

...There is no smelter closer than Oregon to the west or Ohio to the east...

...But there are ample—in some cases almost fantastic— supplies of goose feathers, castor oil, long-staple cotton, insecticides, cordage fiber, iodine, opium for medicinal purposes, shellac, sperm oil, raw silk, vegetable tannin extracts, coconut oil, and hog bristles...

...The trouble was that domestic mines, supplemented by production from Canada and Mexico, which could hardly be regarded as inaccessible, could meet ninety per cent of U. S. needs...

...Humphrey also dismissed the nickel contract as only the "tag end" of a financial empire that controlled assets of $450 million...

...To a reporter he accused the Democrats of stabbing him in the back because they feared to attack Eisenhower directly...

...None of this perturbed Humphrey...

...For eight years American Chrome dug ore for the stockpile...

...President Eisenhower once asked the strongman of his first Cabinet, Treasury Secretary George M. Humphrey, whether American businessmen would be willing to make some sacrifices for free trade and world peace...

...This policy worked fine for most minerals but it proved insufficiently flexible to justify buying more lead and zinc...

...Ugly rumors about the Hanna contracts have circulated in Washington for years...

...The government auditors found further that the contracts virtually guaranteed Han-na's capital investment and provided a market for nickel at prices which practically precluded operating losses...

...They began slowly, following World War II, and mushroomed during and following the Korean war in the early 1950's...

...Inventories bulge with 1,106,000 tons of surplus lead (355 per cent more than we need...

...Stockpile objectives for lead were similarly manipulated upward...

...The American businessman believes in getting as much as he can while the getting is good...

...and the seven-year gross return on invested capital was 457 per cent Humphrey disputed these figures...

...Even greater amounts were spent on materials for which there was a genuine need, but of which the quantities purchased were far in excess of any reasonable potential demand...

...The Stockpile Scandal by JERRY LANDAUER THE skeletons that have emerged from among our mountainous stockpiles of war materials in the months since President John F. Kennedy lifted the shroud of secrecy screening them from public scrutiny are likely to rattle around Washington for some time, haunting government officials and businessmen with insistent reminders of mistakes and misdeeds...

...The getting certainly was good during and following the Korean war, particularly for businessmen who happened to own strategic raw materials that might be needed if the nation became involved in full-scale war...

...Auditors in the General Accounting Office calculated that the company invested somewhere between $19,000 and $238,000 in 1951 to execute the contract...

...They are stored—at a cost of $11 million a year—at 213 depots, plant and mine sites, ports of entry, and leased warehouses scattered across the land...

...Measured against sales of nickel ore to the government, the profits were fifty-seven per cent...

...To suggest that his personal wealth swelled by millions under a contract so simple that it could be explained on the back of an envelope was ludicrous, Humphrey insisted...

...Stockpile target objectives— the difference between estimated needs and readily accessible supplies—were based on the five-year conventional-war assumption all through the heyday of massive retaliation...

...Under either arrangement, the taxpayers, not the producers, would have benefited...

...At today's prices the Treasury figures to lose more than $250 million on lead and zinc purchases alone...

...The company's deposits in Montana were known to contain only 38.5 per cent chrome, yet the government agreed to pay $34.67 a ton, or $7 more than the world market price for standard 44 per cent ore...

...The latter happened to be a record-breaking year for zinc, and has never since been exceeded...

...Some of the new, exotic metals vital to the modern technology of warfare—such as indium, germanium, cesium, and irbidium—are somehow missing...

...I have nothing definite to report for the week," he said this time, "except that I am putting all the pressure on your job that I can...

...Jess Larson, Truman's last GSA administrator, insisted privately that the contract was not unfavorable to the government But in April, 1961, Congress' watchdog agency, the General Accounting Office, condemned the contract in a sharply critical report...

...Zinc inventories are overstocked by 1,580,000 tons, nearly twice the annual U. S. production and a whopping 787 per cent more than required for currently estimated mobilization purposes...

...Wormser wrote: "The new stockpile policy, if endorsed by the Cabinet and the President, can be used to give speedy, but temporary, relief to our hard-pressed lead and zinc mining industries...

...To boost the output of critical materials, they offered fast tax write-offs, low-interest loans, and guaranteed stockpile purchases at profitable prices...

...In July, 1954, the Office of Defense Mobilization, under the direction of Arthur S. Flemming, prepared another policy directive for President Eisenhower's signature...

...Stockpile marketing experts only hope to salvage something in return...

...He acknowledged having approved the key contract clauses in advance but said he was unfamiliar with the operating details...

...On the contrary, Holderer labored zealously to overcome doubts and "obstructionism" by his superiors...

...His M. A. Hanna Company (named after Marcus Alonzo Hanna, the Republican wheelhorse who promoted William McKinley to the Presidency) had the business acumen to take an option on the continent's only known nickel deposit, Nickel Mountain, near Riddle, Oregon...

...Hanna's depletion tax savings came to $5.6 million...

...GAO could not assess Hanna's profits because one of the contracts somehow failed to contain a standard clause permitting government auditors to examine the company's books...

...When Communist troops invaded South Korea, the war stockpiles were regarded as dangerously deficient in chrome...

...Documents left behind by Felix E. Wormser, Assistant Secretary of the Interior for minerals in the Eisenhower Administration and in private life a lead industry executive, shed light on what transpired...

...Because industries dependent on copper were threatened with shutdowns, the Department of Commerce asked Flemming to divert stockpile-destined copper to intlustry...

...My boys" in the company would straighten out the little matter of $1 million in alleged overcharges by the Hanna Company...

...Millions of tons of stockpiled ores, particularly manganese and chrome, are piled high at the mouths of mines, hundreds of miles from smelters and refineries...

...Among the more curious aspects of the stockpiles is the kind of materials they do and do not contain...

...Five days later he was on the telephone again...

...Symington waited a day...

...Their value now exceeds the gross national product of nearly every newly-independent nation...

...What did the taxpayers get...

...Late in 1954 the objective was increased again, this time to 3.5 million tons...

...Some Democrats seized on the profit figures to paint Humphrey as a business buccaneer who profited handsomely at government expense while American boys were dying in Korea...

...Uncertainty about whether the low-grade Montana ore could be refined to usable form did not deter those supposedly responsible in government who busily promoted the company's interests...