Evening star., 1934-08-26
Federal Action to Protect
Holders of Remaining
Equities Urged.
ENORMOUS DESTRUCTION
OF VALUES PICTURED
Prime Issues, Which Were Pur-
chased at $270 25 and 80 Years
Ago, Now Worth About $40.
BY CHARLES F. SPEARE.

BY CHARLES F. SPEARE.
Special Dispatch to The Star.
NEW YORK, August 25.-Tht
average price this week of Chicago &
Northwestern, Chicago, Milwaukee
st. Paul & Pacific, and Great North.
ern preferred stocks was slightly ovel
! $40 a share.
Twenty-Five and thirty years ago
bankers and trustees purchased these
, securities for their special clients, o:
those whose capital required careful
nourishment. They paid as high ar
average for the three issues as $270 Q
share, which would have returned the
/ holder only 2 p per cent, or less than
Government long-term paper today
Then they folded their hands an6
| thanked the Lord their affairs were ir
such excellent shape and their heirs
made independent of relief agencies
When James J. Hill died, he left q
testament to the worth Of Great
Northern stock This, he thought
compared favorably with United
States Government bonds. A man OF
great vision in pioneer days, he could
not see how the entire economic anc
social system was to be changed by
| the war.
| Federal Policies Cited.
The point of this comparison be.
| tween old and new values Is that the
Government, through the Interstate
| Commerce Commission and its water
ways projects and in its attitude or
| railroad rates, railroad construction
railroad capitalization and railroad
| consolidation, has been an active
party to the collapse in investments
once looked upon as acceptable for
widows and orphans" The Panams
Canal opened just after the last grea
era of railroad building in the north.
west when Mr.. Hill was encouraging
| immigration into that territory anc
helping the farmers to make two
bushels of wheat grow where one grew
| before"
The northern transcontinental lines
have never recovered from canal CON-
petition. The Puget Sound project Of
the milwaukee," road was an eco.
nomic error and no credit to ths
Rockefeller capital that supported it
When the road was crushed by the
| burden Of its new debt AMI later lie.
capitalized, the l. C. c. timidly
| granted a reorganization plan that
was bound to bring recurring trouble.
in the lean times that are an newt
able phase in an agricultural Iegior
| subject to eras of adversely.
hA rs,annicsinr1 rafnSAd tf
permit consolidation of the Great
Northern and Northern Pacific on the
| theory it would have injured the
| traffic status of the milwaukee,
where 1t was weakest as well as least
needed as q transportation machine
west of the Mississippi River. Such 9
| combination would have strengthened
| two roads that have preserved 9
proper ratio Of bonds to stock anc
never have been given to exploitation
In some measure the case of the
800" Line, the Chicago Great West
ern and the Minneapolis & St. Louis
is affected by conditions similar tC
those cited. They are now the VIC
tins of the drought, which comes
when they have little reserve to Offset
its effects.
Situation in Southwest.
Now let us look at the railroad situ-
alton in another distressed section Oi
the United StateS-the Southwest
where the Missouri Pacific, the St
Louis-San Francisco and the Chicago
Rock Island & Pacific defaulted or
their bonds year or two prior to the
existing farm disaster. The Missouri
Pacific was permitted by the Inter
state Commerce Commission to tx
itself in with Van Sweringen ebliga-
tions that obviously would strangle it
as finally they did. In 1928 it granted
the Frisco permission to exchange
$75 ,000,0 income bonds for fixed in
terest securities. This procedure sc
weighed it down with debt that il
collapsed early in the depression. II
was more generous to the Rock Island
| in its relations with the Frisco than
it need have been. The position ol
the Missouri Pacific and the Frisco
now looks hopeless. They cannot de-
fend their present plan Of reorgani-
zation. II the Rock Island spent
what it should in rehabilitating Its
| equipment it. would not pay interest
on its bonds for some years to come
The responsibility of the Govern.
ment, through its agent. the Inter
state Commerce Commission, in fore
ing these and other railroads into
the jam they now face cannot be
evaded. The situation has brought
| great loss to individual and inStitu.
tional investors. Just how it ha.
| served the shipping public as whole
would be difficult to determine. II
| demands from the Government, how
| ever, a policy of liberal assistance and
guidance in the future that will pre-
serve the remaining equities in prop
| critics whose assets at one time repre-
Sented about One-SiXth the total ot
those OF all American roads.
It is this writer's belief that the
| value of the majority of railroad stocks
has been pretty much washed out
This is apparent in their current
low average price. There is not much
| in sight to improve this average. 1t is
difficult to see how imitation would
benefit either the stocks of transpor-
tation or power and light companies
while it might have very stimulating
| effect on many industrial shares. The
latter are not hedged In by regula-
tions denying corporations the right
| to meet new expenses with new sell
ing prices. The carriers, on the other
hand, under imitation would suffer
| from higher labor and materials costs
Their tratfic prospects for the next
six months are not satisfactory.
The status Of all common and pre-
| ferred stocks of corporations whose
profits are regulated by Federal OF
State commissions is undergoing q
| permanent change. This fact should