The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1931-01-09
Danger! Railroad Crossing

The United States supreme court just has made
an important decision which bears OF the proposed
eastern railroad mergers 1t ruled that the inter-
state commerce commission had no right to say
whether the reorganization fees in the Chicago, Mil
waukee g. ST. Paul railway case were too high.
Those fees are $3,50O,OOO, Of which two New York
banks will get about 81 100000 much of the balance
going to other Wall Street lawyers and banks.
BY the time the railroad was ready for bankruptcy
in 1926 its board of directors had become bankers
makeshift Bankers in effect named themselves
organization managers and selected the committees
to represent the investing public, which, in ignorance
of the company's condition, had purchased a large
part of It's stocks and bonds unloaded by insiders.
But tho reorganizers knew they did not have the
uncontrolled determination of their own fees. The
interstate commerce commission had cut down such
fees in previous years. When the rehabilitation plans
came before the commission, the lawyers said their
fees and the bankers profits were not the concern Of
the government.
The commission in letting the reorganization get
by imposed the condition that fees should be ex-
amned by it, in other reorganizatonS. This meant
that the bankers who had granted themselves $780,
900 might not get it all But the lawyer banker
scheme was successful. The commission was without
power according to the 5-3 decision Of the United
States supreme court
This is another instance Of the way in which rail-
road interests escape government supervision. 1t is
especially pertinent to the pending consultations, be-
cause at least one of the banking interests which
proted in the ST. Paul reorganization is one of the
principal banking firms in the proposed eastern
mergers.
The supreme court decision on bankers reorgan-
isaton fees suggests cogen lessons for the pub
lie congress- and the commission. The lesson for the
commission is that the only safety for the public in
merger proceedings is thorough investigation by the
commission careful elaboration, and assured regula
ton of proposed consultations both in their con-
summation and in their subsequent operation.
In case of doubt, the commission should preserve
the public interest by withholding action until con-
eress gets chance to clear up that doubt by legis
lation.
Justice Stone in the dissenting opinion, in which
Justices Holmes and Brandeis concurred pointed out
that our railroad realgnments have been too often
the result of wasteful and extravagant methods of
reorganization" and, as Justice Stone said:
THE preservation of the transportation system and
the stability of its credit essential to its preserva-
carriers to meet their obligations but upon the ability
Of all to attract the investment of funds in their
securities.
If such investments impaired by receivershipS
Of the carriers followed by reorganization at ex-
cessive cost and If railroad shareholders compelled by
necessities of their situation, must contribute to
Mobilization of their properties excessive amounts
upon which the reorganized carrier may not earn an
adequate return railroad credit, in broad sense Is
affected the permanency and stability of the trans
rortation system as whole is impaired, and the
Mlhlie interest suffers -