The morning call., 1894-11-17
coUDERT ON THE SUBSIDY BONDS

Mr.. Frederick Coudert, one of the Gov
eminent receivers of the Union Pacific.
has inspected that railroad and thus gives
his views of the latest proposition of the
directors for the reiunding of the subsidy
bonds:
The scheme OF the directors. as reflected in
their report, Is to substitute a 3-per-cent ban-
ket mortgage for the present g. per. cens mort.
gage soon TO become due-in other words, to
pay the Government debt by a mortgage for
S7O,6Oo.oOo dated July I, 1895. subiecting the
entire sys EN- of railroads 10 a single mortgage
under which will issue 3-per-cent 10O-year
bonds TO ouch an amount that the aceruing in
terest will not exceed the minimum earning
poweri then apply the moneys and securities
In the sinking fund TO the part payment or ex-
tension of bonds which have priority of lien
over the lien of the Government.
q Translated into Ineligible English the
plan is TO extend the subsidy bonds for
hundred years, reducing the rate of inter-
est they bear so that tie annually matur-
ing coupons will not amount to more than
"the minimum earning power of the road"
One defect In this scheme is that it as
sumes that the present directors of the
railroad are able to define what its mini
mum earning power" VIII be in five, ten.
bnCE " VI MY ECG1's 1udE tuGY cannot
dc. No. man can tell what carriers NAV
be required 20 work for In the future or
what volume Of traffic they may have TO
provide for. Estimates Of future railroad
traffic have rarely been verified by the
event. When the act of 1864 was passed
1udicious railroad experts testified that in
their opinion the profits of the transeonti-
mental railroads would enable them to an
ticip2te the subsidy bonds long before
their maturity. No doubt they would
have done so under proper MANAGEMENT.
but as it happened any money which the
companies earned over and above the in
terest on the irst-mortgage bonds the
directors divided among their stockholders
or pOcketed themselves or diverted to fur
Their railroad construction, leaving the
United States TO provide for the coupons
on the bonds which they had indorsed 1t
Is quite likely that present estimates of
the future earnings of the Uuion Pacific
would be subject to similar margin of
error. to use no harsher term.
The railroad system of the United States
appears to be entering upon new phase
of existence. 1t has labored for wears
under the drawback Of having to earn, or
to Try TO earn, dividends on water, and no
plan has ever been devised by which the
water could be squeezed out. 1t now
seems that the subsidy bonds are going to
furnish the solution of the problem. After
Mr. Reilly and Mr.. Coudert and Mr.. Hunt
ington have said their last word, Congress
Will conclude that it is not fair to impose
on transcOntinental traffic between San
francisco and Omaha a burthen which
would crush Industry and trade; and when
this proposition is generally conceded the
foreclosure of the Government mortgage
follows as matter of course. Mr.. Coudert
says himself that in the opinion of the
Government directors of the Union Pacific
''no plan of reorganization can be carried
into effect without complete foreclosures of
the property of the company to be re-.
organized, including in such foreclosures
all OF its property held In collateral trusts"
Such a foreclosure would place the
property of the aided railroad companies
In the hands of its real owners-lhe people
OF the United Statss-and would squeeze
all The water out. A Government railroad
from San Francisco to Omaha, having no
dividends to earn on watered stock and
no interest 10 earn on overissues of bonds.
could carry persons and property at a
really minimum rate Thus by a simple
pr cess the questions OF cost of Transport
tatlon which have embarrassed railroad
commissions and engendered antaeonisms
between railroads and the peo ole would be
settled; and the railroad system might
perform, what 1t has not thus far per-
formed, its true duty to the country
through which it runs. while at the same
lime affording Government mail and
military route across the continent, such