Eagle River review. [volume] (Eagle River, Wis.) 1890-1927, 1923-11-01
Railroads Should Write
Off Their Bad Assets
REMOVAL OF EscH-cUMMINs ACT
is FIRST STEP TOWARD LOW
Err RAILROAD RATES
By WILLIAM B. SHEARER


What is the real financial condition
of the railroads, with unfunded debt
included?
On the face of. their capitalization
as whole they are grossly over-cap
italized.
This process has been going on for
statistics show that the breaking
point has been reached. If SO, it is
certainly not the funeral of the public
The public, 1913 per cent of our popu
lation, the producers and consumers
has now and has had during the
past three years it's own funeral, due
to the grossly excessive freight and
other rates under the Esch-Cummins
Act.
AS further evidence that practical
ly all of the railroads have exhausted,
credit and ability to issue new bonds,
they are now purchasing equipment
on the installment plan, by the issu-
ance of car trust certificates.
Such car trust certificates grew out
of the necessity of weak railroads
to secure funds by other methods
than those ordinarily used in floating
fixed obligations.
Under the handicap of large debt
embarrassed railroads could not Sc
cure funds for the purchase of equip
ment through the use of general NOR
tgages. No investor was willing to
purchase a weak railroads bonds or
notes, whose tangible security depre-
ciated in fifteen years or less and was
junior to all existing funded debt out
standing at the time of issue. This
condition necessitated the creation of
an equipment obligation which could
be separated from the other funded
Indebtedness of the railroad.
The plan under which the car trust
certificates, commonly known as the
Philadelphia plan, are issued, has be-
come quite we'll standardized. The
railroad enters into a contract for
equipment with the manufacturer and
makes an initial payment On the
stipulated equipment without receiv-
ing other evidence than receipt for
such payment.
When the equipment is ready for
delivery, formal agreement is
drawn between the manufacturer an5
an individual, an association, corpora
ton, or a trust company Then one
of the latter leases the equipment to
railroad.
The lease is then assigned by the
individual, association, corporation,
or trust company, through trustee,
and interest bearing certificates of
beneficial interest in the association
are issued and sold to the public. The
proceeds are used to pay the manu-
facturer. The title to the equipment
remains with the trustee for the bene
fit of the shareholders until all obi
cations of the issue have been paid.
This method can be compared with
a newly-wed couple buying furniture
on the installment plan. There is this
difference, however. The newly-wed
couple, as rule, has youth earning
capacity and its: future as assets,
aereas the railroad or railroads buy
ing equipment on the installment
plan have impaired credit and bad
past of gross over-capitalization and
exploitation.
Railroads are Artists
At Withholding Facts
1t is difficult, without much effort
to get the facts before the public,
the 1913 per cent of our population,
the producers and consumers, who
are being mulcted by the excessive
rates under the Esch-Cummins Act,
The railroad stock owners, seven
tenths of one per cent of our popu-
lation, control directly or indirectly a
large part of the press and other pub
LEGATIONS, which are prohibited from