The Washington times., 1916-08-29
FRENzIED FINANCE
The Dissipation Of the Revenue
Gains Of the Railroads.
HAS COST MORE THAN LABOR


Ing or selling securities through the
banking institutions which control the
railroads. enormous bonuses to stock
holders have been granted. During the
period 1sOo-l9l0 alone. eighteen represen-
tative railroads traversing all sections
Of the country gave away in bonuses
to their stockholders the huge sum
Of $780, 1882. More than 1850 200 was
also distributed In this way during the
same period by eight representative
Western railroads. Large underwriting
and banking commissions have also been
paid which have been without justifca-
ton. BY way OF Illustration. the recent
investigation Of the st. Louis and San
Francisco railroad by the Interstate
Commerce Commission showed that dis
counts and commissions were paid TO
banks and syndicates which aggregated
the enormous total OF SO. 1880 during
the period 1sss-1eI3 These are typical
instances BY the sale OF securities at
railroad companies have been deprived
OF cash resources which they should
have had and at the same time they
have issued fictitious capitalization
which became n drain on operating
revenues.
One banking house received fee OF
100000 for reorganizing the Chicago
Great Western In 1909. and in addition
made a profit OF ss.OoO.oco for the syn
dictate which II represented. In the re-
organization OF the Northern Pacific
railroad In 1896. the same banking firm
received a commission OF one-fourth OF
per cent upon the par value OF all
the securities deposited under the re-
organization plan, the only reservation
being a stipulation that the total fee
to this firm should not be more than
81. 900. 900.
Syndicates Of bankers and fnanciers
made enormous profits In connection
with the stock manipulation and trans
actions of the Chicago and Alton and
the Union Pacific railroads. The total
amount Of the funds or resources III
verified from the treasury OF the chi
cago and Alton railroad during the
period 1Sss-l9Os. amounted to more than
81 900. The same syndicate made
more than $2i 100000 In the sale OF the
stock Of the Southern and Northern Pa
cinc and the Chicago sand Alton rail-
roads to the Union Pacific railway. over
the finances OF which they had control
A banking firm which represented the
syndicate received profits on these trans
actions also. which were estimated to be
more than 100000. Large syndicate
profits were also received In connection
with the sale to the Rock Island rail-
road OF some Of Its subsidiaries.
As the result OF this reorganization
the Atchison stock issues were inflated.
without adding anything to the value
OF the property or to It's earning CA
pacity. TO the amount OF sl6s. o93 0s5.
More than SIP 900, 900 has already been
paid In dividends upon these fictitious
securities. which constitute a liability
against the property. but do not repre-
sent any contribution ever made In any
way to It's earning capacity. The an
nual dividends now paid upon these
stock issues amount to s9.1s7.456
The New York Central and Hudson
River Railroad was formed by CONSOLE
dalton, dated December 10, 1852 The
total par value of the stock OF the two
companies entering into the consolida-
ton was $i4.sl5.S00. This amount was
arbitrarily increased, without adding
one cent to the value OF the property,
by an increase In the capital stocks
Of the consolidating companies OF 3A.-
42s, $50. or, in other words, a stock divi-
dend OF practically 100 per cent was de-
clared. Prior to this consolidation the
capitalization OF the two constituent
companies had been increased. at con-
servative estimate. S2.5o0. 900. without
any tangible increase In the properties.
As consequence. at the time OF the
consolidation In 1869. S56.s2S. $50 Of the
constituent companies did not represent
any value paid In. The cash dividends
upon this watered stock for As years,
1s7O-1s14. inclusive. aggregates $3.50 per
cent. This Is equivalent to an average
of s38S7.3l9 per year. or a total of
$751;. 429, S57 in dividends for the IS years
actually paid out by the company on
stock which was issued prior to or at
the time of the consolidation. and
which did not represent any addition to
the physical property Of the company.
BY the terms Of the consolidation of
of railroad company securities were
given for 81. 0Oo. 900 OF railway securities;
or. In other words. more than $1,000. 900
of water" was injected into the capt.
talization of the new company.
In the consolidation OF the Missouri
Pacific properties In 1909. 100000 In
fictitious securities which represented
the capitalization Of the previous finan-
cial mismanagement OF this railroad
were carried forward into the capital
ization of the new company.
A further illustration of stock manip-
ulation and improper financial prac-
tices is furnished by the financial his
tory of the st. Louis and San Francisco
Railroad Company since ito reorganiza-
ton in 1895. On the basis OF a most
conservative calculation at loast $1)0,-
100000 in unwarranted capital liabili-
ties has been created by this railroad
In the payment of discounts and COM
missions to banking interests and In the
acquisition OF subsidiaries and other
properties. Out OF a total outstanding
stock of Sex, 100000, $46,O0OOOO Is esti-
mated to be fictitious and to have al
ready abuorbed In dividend require
ments $6, 100000 from the productive ef-
ficiency OF capital and labor engaged
in the operation of this railroad. AS a
result OF a recent exhaustive investi-
CATION by the Interstate Commerce