Evening star., 1931-06-21
BY WILLIAM HARD.


ership Of railroads looms out of the
problems presented by the application
Of the railroads 10 the Interstate Com
merce Commission for a horizontal in
crease Of is per cent In their freight
rates. That conclusion now seems ire
| sistible after inquiries into the circum-
I stances which forced the railroads into
making the application.
Those circumstances could not be con-
trolled by the railroads. They had
primarily to do with the legal eligibility
OF railroad bonds for purchase as in
| vestments by such Institutions as saw
ings banks and life insurance COM
panieS.
Local laws, generally speaking, re-
quire that a railroad shall be earning,
say, one and one-half times its annual
interest on It's bonds before those bonds
| can legally be bought by savings banks
and life insurance companies for their
investment portfolios. This is for the
protection of the depositors in savings
banks and of the policyholders of Life
insurance companies.
There are some 12,000,000 depoSitors
in our savings banks Of the mutual type,
and there are some 65,000.000 policy
holders in our insurance companies op-
Grated for the benefit of the policy
holders and their benefciaries. These
depositors and policyholders together,
through their savings banks and insur-
ance companies. own As per cent of the
indebtedness obligations of our rail-
roads. They are the great final con-
sumers and poSSessors of railroad bonds.
II savings banks and life insurance
companies cease to buy railroad bonds,
the private financing Of our railroads
will become a virtual impoSsibility. In
the first four months Of this year the
executives Of the railroads found them
selves in numerous instances gradually
approaching the time when such a ces-
sation of bond purchases by the saw
ings banks and life insurance companies
would most unpleasantly confront them.
A few weeks ago a most eminent
railroad president was attending a
meeting of the officers OF one OF our
largest life insurance companies. He
was himself a participant in the direc-
ton of that company. The leading
manager of 1t said to him:
What about the bonds OF your rail-
road in our present possession? We
can't continue to hold them, under the
We shall have to get rid Of them, and
We shall not be able. legally, to buy
any more Of them. What are you do
ing to better your earnings? II you
can't better your earnings, your bonds
will presently be outside the law for us"
That incident compressed into itself
the whole of the really basic difnculty
that now perplexes our railroad execu-
tiveS and that now raises the question
whether private financing can or can
not continue to be adequate for our
railroad needs.
The railroad president who figured
in the incident told the life insurance
company manager who had interrogated
him that his railroad had now laid OF
q lot of men, had largely suspended new
improvements, had largely curtailed ex-
penditureS upon maintenance and had,
in fact, so greatly diminished its care
of its track and Of its equipment that
presently 1t would not be able to run
its best passenger trains at their pres
ent speeds. The life insurance COM
pany manager asked him:
what about reducing the wages Of
the men still in your employ?"
That suggestion the railroad presi-
dent earnestly rejected. He rejected 1t
for three reasons:
1. It was contrary to the general
American notion and to the special
Hoover administration policy which
holds that our,next period Of prosperity
should be built upon maintained present
3. Under Federal law the negotiations
for wage reductions, even If successful,
would consume possibly two years and
would accordingly afford no immediate
relief.
8. 1t was wholly unfair to the rail-
road labor organizations which many my
the Plumb plan" and other projects
of governmental or semi-governmental
ownership of railroads and had ever
Rince been earnestly committed to striv-
ing to make private ownership OF rail-
roads success for both investors and
employees.
The situation then took the following
A. The arrival at increased railroad
earnings through wage reductions was
at least for the moYnent-diScarded.
B, Milton w. Harrison, trustee OF the
New York Bowery Savings Bank and
president of the Railway Security
Owners Association of America, ad-
dressed a gathering Of the Brotherhood
of Railway Trainmen and discoursed
to them on the link between the inveSts
menus Oh savings bdAAAS dAAN1 4A4S AAouA-
ance companies in railroad bonds, on
the one hand, and, on the other hand,
the perpetuation of private ownership
of railroads In the United States.
G. The railroad trade unions joined
themselves to the railroad executives
In the request to the public Federal
authorities for is per cent increase
In freight rates.
\
The spectacle thereupon presented is
that Of our railroad industry, employers
and employees together. striving to In
crease railroad earnings in order that
private large-scale financing of railroad
properties through savings banks and
life insurance company purchases of
railroad bonds may continue to be
legally feasible.
That railroad earnings, from the
point Of view Of savings banks and Of