Smyrna times., 1931-09-09
INVESTOR CONFIDENCE AND
RAILROAD SECURITY BASIS
THOUGHTS ON PLEA TO RAISE
FREIGHT RATES Is PER CENT

This Plan to Restore Revenues to
Come Before Interstate Com
merce Commission Soon
In deciding whether or not the
public interest requires that the
railroads be granted a Is per cent
blanket increase in freight rates as
a means of restoring their revenues
it is imperative that the Interstate
Commerce Commission give full
consideration to the rights and in
terests of investors Although the
fact is commonly overlooked, there
are very few people in the United
States who are not directly or in
directly investors in railroad secur-
tiles. The assets of life insurance
companies as trustees for 51,000,-
900 policy holders and their bene-
ficiaries, and of mutual savinbS
banks as trustees for 13, 900, 900 de-
positors, the largely invested in
railroad bonds. Trust funds for
dependents, endowment funds of
universities and charitable organi-
cations; even commercial bank de-
posits, are largely protected by
railroad securities. What basis
exists for such investor confidence
in the railroads? 1t may be found
in the provisions of the Transpor-
tation Act of 1920 which investors
construed as an indication that
their savings would be secure. In
discussing this question in his test
imony before the Commission.
Fairman r. Dick, of Roosevelt &
Son, Chairman of the Security
H Holders Committee on the Rail
road Emergency, said in part: Il
think I can explain this feature if
| can get before the Commission
the real shock to the confidence of
investors in railroad securities. 1
am not lawyer and I cannot ar
que the law, but I do know what
investors thought of the Transpor-
tation Act. They interpreted the
Act as an instruction to the Inter
state Commerce Commission to so
adjust rates that the carriers
would earn as nearly as may be a
fair return upon the value of their
transportation property. and they
felt that the instruction would be
"a rriaI al,t II0vry - ,,-+~,,,4;a,.
has been carried out is a matter of
record. The railroads in no wear
since the passage of the Transpor-
tation Act have earned the stipu-
lated fair return, though until the
present emergency earnings have
been sufficient to maintain credit.
II the present trend continues,
however, the end of the year will
find that 76 per cent of the rail
road bonds, now eligible for saw
ings bank and trust fund invest
ment under the laws of MANY
States, will lose that status. AS
most conservative investors follow
q standard similar to that pre-
scribed by the legal investment
laws, the result would probably be
a drastic curtailing Of the railroad
market with loss of investor con
fidence. It should be remembered
that in their present action the
railroads are not seeking revenue
TO enable them to earn the fair re-
turn to which they thought they
We're entitled under the Transpor-
tation Act, they ask only sufficient
revenue to permit them to protect
their credit and maintain the con-
fidence of investors. The wealth
Of nation is dependent not alone
upon the richness of the resources
with which nature has endowed it.
Real wealth is created by the saw
er, the individual with the industry
and ability to produce beyond his
current needs and to invest the
proceeds of his surplus labor in a
fuller utilization of natures gifts.
There can be no great inducement
to save, however, where there is not
general stability of investment.
Rightly or wrongly, Congress is in
a large measure responsible for the
pre-eminence of railroad securities
in the investment market, and
there could be no greater catastro-
phe to our national prosperity and
happiness than loss of investor con-
fidence in so basic an industry as
the railroads.