Evening star., 1934-05-27
Pennsy Plan for Uniting
Eastern Lines Indicates
Need for Action.
STATUS OF INVESTORS
APT TO Be UNCERTAIN
Holders Of Junior Bonds and
Stocks Expected to Take Losses
if Changes Are Made.
BY CHARLES F. SPEARE.
Special Dispatch to The Star.

NEW YORK, May 26.-It is appar-
ent from the frequency with which
Co-ordinator Joseph B. Eastman re-
turns to the subject of possible Gov
ernment operation of the railroads
that he believes such a solution of
their problems must eventually be
adopted.
He does not come out positively
for Federal control, still regarding 1t
as something that may be forestalled
II credit conditions improve with q
larger volume of competitive traf-
nc and II the railroad managers adopt
more cooperative spirit and show
greater initiative in meeting the new
problems facing them.
But one reads in his statements a
doubt that the individualistic temper
Of railroad men can be changed so
long as the old generation Is in the
saddle.
Perhaps there is some hope in the
proposal recently made by an official
OF the Pennsylvania system that a
union Of all of the lines in the East
be effected. He, too, recognizes that
drastic action must be taken to over
come the trend toward Government
ownership. What he suggests is no
more than has been advocated from
time to time and always shelved be-
cause the Pennsylvania demanded the
largest piece Of the railroad pie. It
is jealous of its present balance of
power in the trunk-line territory,
where it today has the largest mile
age. the greatest density Of traffic and
paying freight.
Coordination on scale that would
have saved much to all four Eastern
systems has been sought after for
the last 10 years. As it each time
approached consummation it was the
Pennsylvania objections or refusal to
concede q point that ditched it. Now
that the threat of Federal control Is
becoming more definite, and the
philosophy of the Roosevelt admins
tration Is toward paternalism in
government and close supervision of
industry and utilities, 1t may be that
a different attitude will be found
advisable and concessions granted
more generously.
Rail Investors Problem.
A point made by Co-ordinator East
man in his talk to the savings bank
officials was that the holder of rail-
road securities need have no fear Of
Federal control for his investment
will not be jeopardized by the pass
ing of ownership from private hands
to that Of the Government. This
statement Is subject to some modifl-
cation.
Probably the owner of the better
grade Of railroad mortgage bonds
would fare well, for he would be
given Treasury obligation on which
the principal and interest were guar
anteed as are those of the several
farm and home mortgage agencies of
the Treasury. The position of the
holder of junior mortgages, deben-
lures and common and preferred
stocks would be quite a different
matter.
Take, for instance, railroad bonds
that are now rated BBB or BIB, and
tilocC Va AOWCI otdIuS. 4uC dOllll1.
itration and the co-ordinator have
been complaining for the last year
that one of the weaknesses Of the
railroad case Is the high proportion
Of such bonds in the railroad capi-
tai structure. They regard them as
subject to scaling to q degree that
would reduce annual fixed charges to
a figure which might be carried in
periods Of low trafic. Obviously the
Government would not treat such
bonds with much favor If it reached
the decision to assume control Of the
roads.
For years there has been an ele-
ment in Congress that regarded all
railroad stock as water" In spite of
the abundant evidence that the pres
ent actual values of railroad prop
erty clearly prove this argument to
be without foundation. It Is to be
feared that, under Government con-
troll, the railroad stockholder would
be offered an extremely poor trade
except in the few instances where
it had been determined that the aver
age annual earnings on his stock
would justify the Treasury in taking
q generous attitude and giving terms
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