Evening star., 1921-07-17

When survey OF the general TdA-
road situation of the United States
IS made. under present conditions,
the results obtained are something
like a checker-board effect-bright
and dark areas being interspersed;
favorable and unfavorable factors
exist side by side-and there will be
for a long time abundant need to
watch our step: but, judged from
n recent address delivered by Elisha
Lee, vice president of the eastern
region of the Pennsylvania railroad
system, there are ample reasons ior
a thoughtful man to take hopeful
view of the situation as whole
SPEAKING before the members go
-uests of the Philadelphia BOND CluoB
AR. Lee. VINO took as MS supIsct,
Are Railroad Bonds Good; Are Ihey
Dependable Investments" asked his
auditors to bear in mind that he was
speaking from the viewpoint OF q
layman in the specialized sciences or
finance and investment.
Outstnnding Securities Estimated.
Estimating roughly, excluding in
tercompany holdings. he said the
railroads of the United States. have
outstanding in the hands of the pub
lie $4,000. 100000 of capital securi-
ties. land of these about nine and
bonds and six and one-half billions
capital stock. OF owners equity he
said.
He stated that there has been in
vested in the railroad properties, as
shown by the book accounts of the
various companies. total of about
$4,000, 900. 900. or some S4OOO.OOO,O0O
more than the combined net capital
ization and over double the face value
of the bonds taken.
CO." said Mr.. Lee. indicate that the
railroads have been pledged or bonded
| for an Indebtedness equal to not over
| half of their primary worth. That is,
it cost 100000, 100000 to bring them
| TO their present state of development
and they are mortgaged for less than
$40, 600. .000, 600"
Makes Comparative Statement.
Declaring that the relationship be-
tween the amount of funded debt and
the book cost of the railroads cores
pond very closely to what in ordinary
real estate circles would be regarded
as the earmarkS of a high-grade first
mortgage. he said that those having
made such Investments were generally
| regarded as having utilized their saw
l ings in a commendable manner, bene-
I ticial to mankind in general.
Under such circumstances the legal
and moral obligation of the borrower
| TO repay is held to be of the highest
| order. and any action. governmental
or otherwise. calculated to impair his
ability to fulfill that duty would be
justly and universally resented and
condemned" said Mr.. Lee.
''Is the man who has lent his saw
ings to help build a railroad less de-
serving of fair treatment than one
who has helped finance an apartment
house. shoe factory. silk mill or ship
I, yard?" he inquired.
Judged by the ordinary standards
| of business obligation, railroad bonds
as a whole ought to be at least as
good as first mortgages upon the best
real estate in any city. and to the
extent to which hostile legislation or
regulation, in the past. has detracted
from such status. their holders have
proper cause to consider themselves
the victims of unjust political dis
Crimination.'
Mr.. Lee supplemented his conclu-
sions by saying that it must be pre-
supposed that the property invest
ment accounts of the railroads are
collectively free from imitation. that
the physical valuation now under
way will sustain the records of the
original cost and that the capitaliza- =
tion of the railroads as "a whole is
not diluted by water,
Property Investments Considered.
"As to the property investment
accounts" he continued. these have
been kept since 1907 under the di-
rect supervision of the Interstate
Commerce Commission, and upon a
uniform system for all railroads. In
determining value for rate-making
last summer. as required Dy the
terms of the transportation act. the
commission accepted practically the
maximum sum claimed by the rail-
roads as appearing on their books
a striking vindication. indeed. of the
reliability of these figures.
The pending physical valuation OF
the railroads. in the belief of those
officers who have been for some years
detailed to that work, will show a
present worth for the railroads as a
whole substantially I'm excess not
only of their capitalization. but of
accounts. ! am happy to state that
the latest information reaching us
of the progress of the valuation
work in every respect confirms this
expectation
lie deprecated the three glibly re-
THE public be damned" and What
the traffic will bear and said that
they had done the railroads an in
calculable injustice and harm.
capitalization Not "Watered."
railroad capitalization as a whole
Is not watered," said MIR. Lee; cit is
decidedly the reverse. I have al
property investments exceed total
net outstanding securities by about
81, 900. 900, 900; that the conservative
Interstate Commerce Commission
adopted for ratcmaking purposes
substantially the railroads own fig
rres of investment. ana that. in the
opinion of qualified experts. the re-
suits of the physical valuation will
amply sustain these figures.
There have. rtgrettably been a
f..I t1,-,,,. Il
ties have been issued to represent
not physical property. but prospec-
tive of anticipated earning power
After giving several instances
where. he said misleading state state
relative ~ to the "watered stock" of
corporations. included among which
vas one, he said. that was presented
at the hearings before the United
states Railroad Labor Board by one
bor, purporting to show S500,000. 900
of railroad securities to be over
capitalized. but making no mention
that bankers commissions for mar
Ieting new issues were included un-
der the head of .watered stock" Mr..
,ee summed up the situation by say
ing: II think we are justified In
three general conclusions regarding
the funded debt of railroads.:
"1-Outstanding railroad bonds as a
whole represent tne real investment
of real money.
"e-They are secured by property
worth more than double their face
value,
"3-The property so pledged may be
counted upon to retain its practical
value and unity indefinitely.
Factors Basis Of Claim.
These factors create a situation in
which owners of railroad bonds may
insflY claim not only the highest con-