The record-union., 1894-11-03
THE RAILROAD INDEBTEDNESS
AND BUSINESS SENSE.
THE


AND BUSINESS SENSE.
When the heat OF political contention
is over. and demagogic appeals and party
claptrap cease to influence the judgments
of men, the question of the railroad in
debtedness will have to be considered as
q business proposition. When the time
for action upon the now popular cry for
foreclosure of the Government mortgage
arrives, no procedure will be had except
it moves upon the plane of good business
sense.
The question will then be, sis it wise
to assume the senior mortgage that the
Government may avail of the security
for its claim ?" In other words, is it the
part of ordinary wisdom to pay out
money, in amount twice the present
value of5the roads, in order to enjoy the
luxuryof foreclosure of the junior mort
gage?
When the debt natures the Central Pa
clhc Railroad will stand indebted to the
Government some SS5, ,O0O, 900, less the sum
In the sinking fund to the credit of the
road, and less it's dues for services rem
dered to the Government. AS security
for its claim the Government holds a
mortgage upon theproperty subject to the
earlier mortgage of creditors whose claim
will absorb the present value of the prop
erty. For about one-haIf the sum of the
entire Indebtedness the road can be du-
plIcated under the changed conditions
since the original construction was ac-
comp1ished.
Very naturally and properly the Gov
ernment does not wish to throw away its
claim and abandon its security. How
then shall it proceed to save them ?
Clearly, as would any level-headed busi-
ness Intelligence, by conserving the abiI-
ity of the debtor to pay; by such action
as will enable the debtor to enhance the
value OF the security. But this would be
defeated by foreclosure of the Govern
nnent mortgage, as such action must re-
suit in one of two things, either absorp-
ton of the security by the preferred
creditor, namely, the first mortgage, or
the taking out of the treasury of money
to lift the earlier claim. And this in
wolves. as has been said, outgo in the
premises, actual cost and loss to the Gov
ernment to an extent double what the
railroads can be duplicated for.
The Pacific railroads will presently be
Indicted to the Federal Government in
sum twice the present value of the roads
If the Government assumes the first
mortgage Indebtedness in order to fore
close its lien, or if it forecloses subject to
the first mortgage. In other words, to
permit the first mortgages to foreclose
and take the properties means to defeat
the Government claim and the payment
OF the debt due the Government.
Let us assume that the Government
takes up the earlier lien, forecloses its
own mortgage and takes the roads. 1t
willlthen be in a position to sell or lease
the properties. The Southern Pacific
Company will also be in a position, be-
cause of the relation of the Central Pa
citic to the railway system of the coast to
bid more for lease, or on purchase. than
any other person or organization. Of
course sale of the properties for cash
down never can be had. Terms of paw
mentwould have to be fixed upon, there
lore, and of necessity could not exceed
the earning capacity OF the road, less fair
profit to the capital that might thus in
vest in the lease or the purchase. The
fixing of terms of payment would there
fore amount to an extension of time
within which the Government would ex-
peet repayment of its money advanced to
aid the construction of the roads.
But suppose the Government having
possession of the roads shall conclude to
neither sell nor lease. Then it must
operate the lines. This is precisely what
the present clamor demands: but the de-
mand comes from California almost alone.
The underlying motive of this demand
cannot be concealed; indeed, it Is no
longer attempted to conceal tit is now
openly proclaimed that the purpose is to
have the Government operate the roads
for the peculiar and especial benefit of
the people of this State.
Now in sober, business earnest and in
all sincerity, what does this mean? Sim
ply this, that the Government shall aban
don all expectation of recovering its
money. and proceed to operate the roads
et the bare cost Of maintenance and