The Western news. [volume] (Libby, Mont.) 1933-current, 1935-02-07
SEEN and HEARD
around the
National Capital
BY CARTER FIELD.

roads, to be Eade possible by bills just
introduced with the approval of the
administration In both house and SEN
ate, Is combination of scaling down
the capital structure and government
guarantee OF bond interest. Originally.
as told In these dispatches last year,
the plan was to have the government
guarantee the interest and principal in
return for Il concession by the bond
holders both as to amount of the prln-
cipal and rate OF interest.
The new plan is variation OF this.
not actually In the fundamental ques-
tion involved, hut In the method Of mp
proach. As In the first place, 1t Is In
tended to be applied only to railroads
for which there Is really some economic
hope. 1t is admitted that there are
quite few which are simply beyond
saving, economically.
All the proposed legislation does Is
to give the RFC the right to purchase
railroad honds~ regardless of their ma
turlty date, at the market price There
upon the REC regards the amount paid
for the bonds as a debt OF the rnil-
road to the RFC and charges the rail-
road the regular RFC rate. This rate
is now per cent.
This would not probably enable the
RIG to get anywhere with the STU
alton. were 1t not for another law al
ready on the books, the new bankrupt
cy law. Under Section II of the bank
ruptcy act any federal court may direct
a scaling down OF all classes Of secllr-
ity of any railroad If two-thirds Of the
holders Of each class Of bonds and pre-
ferred stocks approve.
Were 1t not for the bankruptcy act A
small group OF bondhnlders, by refus-
ing to sell at what had been market
prices, might either prevent anything
from being done or force the govern
ment or the railroad company to buy
them Off.
Thus 8 per cent railroad bond
might be selling for 20, but the plan
could not be applied because 3 per cent
OF the holders insisted on heing paid
par. Many a railroad merger In the
past has been blocked by such attempt
ed holdups. and many another has been
overcapitalzed because the promoters
paid too much to minorities.
Hits Shareholders
The new proposal stri&es hard at
these wnuid-be sharpshooters. Il would
work something like this: The New
York Cripple Greek. to take an imagi-
nary name. is fairly sound railroad,
except that 1t Is overcapitalized. II
cannot possibly pay the coupons on Its
general mortgage per cent bombs, or
It's 3 per cent first mortgage bonds So
that for the time being the bondholders
are getting nothing
As a result. the first mortgage IS sell
down to 40. and the general mortgage
bonds sell down to 20 II the railroad
company could buy In all those bonds
at those prices. with money borrowed
at per cent. II could then emerge
from receivership. and earn enough to
pay the per cent. Assuming a total
OF S1UnUO, tbOO on each bond Issue the
interest on the general mortgage bonds
would be S7,NOOOOO year. and ON the
firsts S5O0N.O00 year total Of sl2.-
000,OOO year. Whereas, the Interest
at 4 per cent on the market value Of
the bonds would be only 900 q
year.
to agree on this plan. II two-thirds OF
them will consent, the RFC will buy
their bonds. They will get something
instead OF nothing In the way Of inter
est. and from one-fifth to two-fifths Of
their principal at maturity instead nl
probably nothing. Not only that, bu
II they act promptly. they will get prac
tically government bonds, so that ac
tually they need not worry In the flu
tmre about whether their railroad
makes money or not For another sec
ton Of the bill authorizes the RFC K
exchange lts own bonds, which In ef
feet are government bonds, for the Sc
curities So taken.
All Of which Is apt to Induce thu
bnndholders to approve. and as onl,
two-thirds need approve to have a cour
order the plan In effect the path II
reorganization on sound basis has a
least been smnothed.
Cummings on Spot
Attorney General Homer 8. Cum
mlngs has jumped from No. ~ to No
In the list of most criticized cabine
members since he argued before tn,
Supreme court the constItutionality O
what the government had done abou
the gold clauses
He Is not only being criticized b,
lawyers outside the administration bu
by New Deal insiders The criticism
as usually Is the case. comes from tw,
extremes-those who think hesfid no
make the case strong enough, and thos
who think he made 1t too strong.
Instancing the latter viewpoint,
very prominent diplomat at a recen
dinner party, was asked what N
thought would be the effect II the Su
preme court should rule against TIL
government.
.a1y ~