The Washington herald. [volume] (Washington, D.C.) 1906-1939, 1914-01-27
RECKLESS POLICY
SWAhPED FRISCO
Frenzied Finance Is Blamed
by |. c. c. IN Its Report
to Senate.
SIX CAUSES ARE GIVEN
Railroad Swallowed Up by Interests
Acquires New Lines at Big Profits
to Syndicates.
SIX CAUSES ARE GIVEN

Frenzied finance wrecked the st. Louis
and San Francisco Railroad system. ac-
cording to the report Of the Interstate
Commerce Commission filed with the
| Senate today.
Commissioner Clark. who wrote the re-
port, charges that IS. 100000 in profits was
divided among the syndicate subscribers
and says the operating expenses OF the
| system were held down. showing the
revenues from stock sales were not used
to improve the service.
Six causes for the bankruptcy of the
| system are named. They are:
Neutrality-suspicious. capitalization.
| Standardization of new lines Tin
some instances at enormous profits to
| syndicate subscribcrs).
Third-The financing Of various Texas
railroads, including the New Orleans.
Texas, and New Mexico.
Fourth-An excessive charge paid for
stock Of the Chicago and Eastern Illinois
Railroad. in order that the Frisco might
get into Chicago.
Fifth-The sale OF its securities At IN
reasonably low prices.
Sixth-Payment Of dividends on pre-
ferred stock. regardless of Its weakened
condition. poor investment, expensive
rentals, and general bad management.
Evasion of the law in Missouri. requir-
ing all capital stocks Of railroads to be
sold at par, is intimated.
Interest L. Disproportionate.
The report says: TT will be observed
that the interest bearing of liabilities OF
the railroad exceeded the capital stock
liability by S75 per cent and were wholly
disproportionate when compared with
the capitalization OF other carriers, in
GLIDING those in the territory west OF
the Mississippi River.
The excessive issue of interest," bearing
securities, instead of capital stock, may
be due to the requirement of the State
of Missouri that capital stocks OF rail-
roads may not be sold at less than par.
while no such restriction is placed upon
the sale of bonds. The disposition OF
bonds is usually a transaction with
banks or bankers to whom profits &C.
crue." ~ ~
The immediate cause of the bankruptcy
of the railroad, the report continues, was
inability to pay the principal Of two-year
per cent notes amounting to G,5oo.OO.
These notes were secured by S3.s9o,Ooo in
common and preferred stock OF other
railroads. Those who advanced the
money demanded an additional security, |
showing their disbelief in the STOCK tney
held, the report says.
That the operating income OF the 81. |
Louis and San Francisco and its operat- |
ing expenses played absolutely no part
in the financial fiasco. is shown by the
commission. The operating income for
1918 was sn,67S,iS7 as against $2,3s2, lSs In
1884, "a |
The commission continues: The alb
sorption of the increased income is ac- |
counted for by charges of S.1D.6l0 cover |
ing the cost of the lease Of the Kansas |
city, Fort Scott, and Memphis Railway, |
the Kansas City, Memphis, and BirminS-
ham Railroad, and the Kansas City,
Memphis Railway and Bridge Company,
BY the increase in the funded debt. from
81. ss4. 900, in 1897, to slo,6si.oco in 1913"
While the railroad was thus skidding
toward insolvency, there were rich pick
ings for the syndicates engaged in build
ing new roads, and selling them to the
system" the commission points out. The
name of B. +. Yoakum. A. 7. Perkins.
and others are listed by the commission
as chief beneficiaries from the syndicat-
ing of roads.
During all this time the Frisco line was
spending no money in approving or even
keeping up its equipment. says the COM
mission. Attention is called to the fact
that the operating expenses for 1910
amounting to $4,000 were greater than
the expenses for 1913, which aggregated
81, 995, 900.
Lived on Borrowed Capital.
These facts bring the following COM
ment from the commission:
within the widest possible range Of
charges to the public no trans
portation company constructed and living
upon borrowed capital can long survive
a situation in which II sells securities at
s. cents on the dollar and pays interest
on the par value thereof. At per cent
the $So6s5, 900 of net discounts and COM
missions carried by the railroad repre-
sents an annual expenditure of s., rs, 900 /
for interest upon money which it never
received. The commissions. varying from
/ to 2I-2 per cent, paid to the bankers
aggregated more than 100000
The nine railroads syndicated at a
profit of 100000 were the Oklahoma
City and Western, st. Louis, San Fran
cisco, and New Orleans, st. Louis and
Gulf, ST. Louis and Oklahoma City, st.
Louis, Oklahoma and Southern, Arkansas
Valley and Western, New Iberia and
Northern. st. Louis, Brownsville and
Mexico; Colorado, Southern, New Orleans