The Washington herald., 1910-11-27

influence upon the future earnings of oue
railroads. and upon these earnings viii
depend the value of their securities.
II appear for the life Insurance inter-
ests. which represent an aggregate hold
ing OF railroad securities far beyond what
Is ordinarily believed For whom are
these securities held2 The assets OF life
insurance companies represent aceumula-
lions 10 provide a reserve required by law
against each policy, and also a surplus
fund held for future contingencies. TIA
all companies, the reserve fund is dis
tinctly maintained for the protection OF
each Individual policy The surplus fund
belongs in part or whole to the policy
holders according 10 the character o.
the organization. In mutual companies.
it is entirely theirs. Let me cite spe-
eifie case.
Invested in Securities.
In the company with which / am con-
nected the total admitted assets are
So, COO coo. OF these assets 50, 100000 is in
vested In mortgage bonds. ssle0OOO in
railroad bonds and in railroad stocks
$4,000. ThiFty-seven and one-half per
cent OF the company's total assets is in
vested in railroad securities About
4l,000 policy holders are the real bene-
fleiaries and practical holders of these
securities. 1t is not an intangible, vague
corporation which owEs these bonds for
the benefit of a few wealthy stockhold-
ers The bonds are held sacredly in
trust for 6,0o0 citizens scattered over
the United States. These are the facts
concerning only one of the companies,
and small one az that.
1T is said that, If by reason of your
action, the earning power of railroads
should fall below the requirements for
dividends and fixed charges under exist
ing or future conditions, the only suf-
ferers would be the stockholders, who
would receive a reduced dividend. This
Is not a fun statement of the ease. The
value OF any prior lien is affected by the
margin of safety over the lien Take a
mortgage loan on real estate. II is COM
mon practice TO loan. say, S60000 on a
valuation of SlO0,000. sup
pose some law were 10 he enacted or
some new condition created which should
reduce the value of real estate so that
this property, originally worth 100000.
should be only worth $4,000 I'm tie first
case, the margin on the loan is Si0,Oo0
May Pay His Interest.
Under the new conditions that mar
sin would only be $9O.o00 The value OF
the investment is impaired, and yet the
owner may continue TO pay his interest
II Is not necessary to wipe out ali of the
margin before the value OF the security
is affected. Why is 1t that SO many of
our States have laws requiring that a
railroad company must pay dividends on
It's stock for given number of wears be-
fore its bonds shall be a legal investment
for savings banks, unless u is because il
Is generally believed that by such rec
ord OF dividend earning power the value
OF the underlying security is enhanced.
In investments for life insurance COM
panies. the trustees of these funds seek
safety. satisfactory interest return. and
stable values. II is also of extreme inn
portanee to secure long term Investments
II possible. II is trlte axiom that cred
il is based largely on sentiment II there
Is. for any reason created In the mind
Of the financial world the slightest sus-
picion that our railroads cannot earn "a
fair living, then credit will be al once
impaired. for buyers Of these securities
will not be found.
Il am not here to plead for the hold
eTs OF junior securities, although they
have their rights, bat / do wish 10 Inn
press upon your minds the fact that II
distrust were created the bonds, the un-
DERIVING securities. viii be injured in
their value Who will suffer? As nearly
as ] can learn, OF the entire bond issue
of the steam railroads Of this country
to $s,1lS0OO,oO 600. the life insur-
ance companies DOING business in the
State Of New York hold LIS, 009000. or
Of the entire railroad bond is
sues of the country. There are about 90.
900 600 policy holders in these life insur
ance companies. and they are all collect
lively and individually interested in the
integrity OF this investment, Any move.
which even sentimentally affects unfavoT
ably the railroads of the land, will strike
a blow at these securities which will af-
feet this vast army of thrifty citizens.
II is not necessary 10 reduce railroads 10
a condition of bankruptcy before the
value of the underlying securities Is af-
fected For these policy holders I there
fore appear They are not able TO plead
for themselves.
II know that in your deliberations you
are giving 10 this momentOus question
The most careful thought and investiga-
liOn but il seems 10 me OF vital impOr-
lance that in arriving at a sound con-
clusion one should not overlook the fact
that false step at this time viii affect
seriously a vast number OF our citizens,
who, unable individually TO make their
own investments in securities of rail-
roads, are yet indirectly but ultimately
interested In their prosperity and we'll
being, and further that your action viii
be considered as a precedent TO guide the
of our several States in their
of similar problems.
Purchased for Protection.
THE shipper, the jobber, the salesman,
and the consumer all have rights OF par
amount Importance. but the policy holders
and savings bank investors must also be
considered. for their interests are already
vested In securities which have been pur-
chased for their protection and profit
which were wise and conservative invest
ments on the part of their trustees at
the time they were made.
THE individual investor has his rights
as Well. but he is able to appear for
himself Under our general economic sys-
tenn, the small saver who may become
the future capitalist is a partner in these
Anything which affects UNI
favorably the prosperity and extension OF
our railroads viii ultimately be felt by
him. and his welfare is OF vital impor-
lance 10 the upbuilding Of our nation.