Montana labor news., 1935-04-04
The PUBLIC PAYS

In the face of the renewed Onslaught
which is low being made against the
Wheeler Rayburn Bill by the holding
companies throughout the United
States it is only fair to stop and ex-
anime the device OF the holding COM
pany in the new light thrown by the
Federal Trades Commission report.
The principal function of the holding
company is to get something for moth
ing. The means used; the pouring Of
false and inflated values into a cor
poration and then extra citing through
dividends huge and unjustified profits.
AS the Federal Trades Commission
states in its report:
"The use of words such as fraud, de-
ceit, Misrepresentation, dishonesty,
breach Of trust and contract are the
only suitable terms to apply if one
seeks to form an ethical judgment Of
many practices which have taken sums
beyond calculation from the rate-pay-
ing and investing public"
The use Of what could be called
nothing more than sleight-of-han
tricks in their bookkeeping and audit
ing procedure was found to be the gen
eral practice as revealed in the seven
years investigation of the electric and
gas companies. An average writeup of
assets Of each of the holding COM
panies, sub-holding and operating COM
panies amounting to 100000 was
found. AS the rates the state power
commissions will authorize are based
upon the earnings of the power COM
pany this means that the rates of every
company investigated are based upon
inflated capitalization rather than
upon a fair return for actual capital in
vested. The immense profit resulting
from this method does not go to the in
weston. He buys water when he buys
utility stock and when the pay-off
comes he gets the water which is
squeezed out, Examination of the
Electric Bond and Share Company's
$500,0O0,000 surplus account exposed
the fact that $382,0O0,000 of it was due
to unrealized initiation of investments
during a reorganization in 1929. Late
in 1881 the company squeezed water
out in the extent of S44l 100000
write-down of 88 per cent.
When a corporation is formed to
hold the capital stock of operating
companies, little of either physical or
social value is added to the system
built up. Yet large issues of highly
speculative capital stock in the new
company are sold to the public, while
those in control issues to themselves,
at small cost, other stock which, fire.
quently controls all the voting rights in
the company. In such a condition the
theory Of common ownership and
sharing Of risk has become a farce for
the investor has neither a voice in the
management nor a share in the profits
but has only paid for the building up
of a structure with nothing tangible it
in spit Of promising appearances and
alluring advertisements,
The Federal Trades Commission cites
the United Corporation of the Nor
gan-Bonbright group as the o%utstand-
ing illustration of a super holding com
pany organization. With only one
important break the United Corpora
ton maintains practical control over a
network of public service utilities ex-
tending from the Great Lakes and the
St. Lawrence River to the Gulf Of
Mexico. Through various devices
which free from all risk the corpora
ton exercises commanding influence
over the management Of the United
Gas Improvement Co., The Public
Service Corporation of New Jersey,
The Niagara Hudson Power Corpora
ton, the Columbia Gas & Electric
Co., The Commonwealth & Southern
Corporation and their subsidiaries.
The United Corporation also admitted
practical control of the Consolidated
Gas Company of New York although
the holding company owned only 80
per cent of the total voting power at
the time. The insults had a similar
strangle hold on the operating COM
panies before the pyramid collapsed.
An investment of one dollar in the
common stock of the Corporation Sc
curities Company of Chicago, one of
the peak structures, was able to ex-
ercise control over about $1,000 in
vested in some of the operating COM
panies at the base.
As a result Of this control the vari-
Gus devices for milking the operating
companies at the base of the structure
can be utilized to the fullest extent.
Says the Public Service Commission,
"The tributes and profits thus exacted
have in some instances ranged from so
to over 800 per cent of the cost Of
such services"
An example: During 1880 w. S.
Barstone & Co. Of the Associated Gas
& Electric Group collected servicing
fees amounting to 100000 while the
total expenses we're only $250,000, ex-
actly one eighth Of the fee charged.
Such exhorbitant charges are quoted
as expenses and are so figured in de-
termining a fair rate for gas and cleo
trio service.
Stock market manipulation with the
pushing of stocks up from $1,000 per
share to $4,000 per share are also the
rule and not the exception.
The proposals of the Commission to
remedy the evils are Legislative acts
making it unlawful to violate all the
precepts OF honesty and justice as they
have done in the past. These provis-
lCo.4.u.nJ - De-. Al