Evening star., 1935-12-30
SOCIALISM SEEN
IN R. F. c. LOAN
Cutting Interest on Great
Northern May Lead to
U. S. Control.
BY DAVID LAWRENCE.

Uncle Sans drift into the avenues
of socialism through governmental
control of finance and credit has thus
far been so gradual as to be a matter
of dispute whether mere emergency
or permanent policy has prompted the
policy.
But now the New Deal has come
out into the open with a plan to
compete with investment bankers and
enter the credit market as a direct
competitor of those whose business
1t has been TO gauge the market prices
of new security offerings.
While the Reconstruction Finance
Corp. is the instrument through which
the policy has been projected, the
probabilities are that no program of
such major importance could have
been embarked on without the ex-
plicit approval of President Roosevelt.
Difference Noted.
To the layman who doesn't follow
the intricacies of investment finance
the fact that the r. F. C. recently
offered to buy at per cent interest
rate a bond issue Of 500, ,000,000 of
the Great Northern Railroad robably
spelled relief" or some such measure
Of distress financing as has been the
custom with R. F. C. loans. But no
such circumstances exist. The Great
Northern Is solvent railroad and
has good credit.
The facts are that the great North
ern has, six months from now, $780,
100000 of bonds coming due. They
have been paying Z per cent interest,
and it would be a saving to borrow a
similar sum by issuing new bonds at
lower rate. This was arranged with
private bankers, who thought per
cent would be the right rate. They
base their judgment on experience
with investors and markets. and they
recalled that another railroad issue
which the R. F. C. influenced private
bankers to float at per cent is now
selling at 80 instead of par.
r. F. C. Enters Picture.
The R. F. c., after the loan had
been virtually arranged, stepped into
the picture on its own initiative, and
offered a per cent rate and said it
would not charge any commission.
Certainly no private bankers could
compete with that. Analysed as to its
meaning, it will be found that the
offer benefits the stockholders of the
Great Northern somewhat more than
did the plan of the bankers.
Now, no new money is being raised
for increased purchasing power and
there's no rate question to the public
involved. Also, it's the first time the
r. F. C. has undertaken to provide
financing for company that could get
it from its own security holders or the
public at a reasonable rate of 5 per
cent.
This situation introduces conSidera-
Bile mystery. Why does the r. F. c.
want to enter the investment banking
business?
With all its billions, the r. F. c.
can do financing in industrial fields
generally and gamble on the rise in
bonds as recovery progresses. 1t
seems incredible that Government
money would be used to buy stocks
and bonds In private enterprises on a
wide scale The implications of the
step Just proposed are far-reaching.
Thus, the bonds which the r. F. c.
has offered to purchase, when con-
verted. will carry with them from
80 to 35 per cent of the voting power
Of the Great Northern Railroad on
the amount of stock then to be issued.
This would mean definite control
of the Great Northern by the Fed
eral Government because the rest of
the stock is scattered and it is Gus
tomary for large single block Of 80
per cent to be dominant in electing
officers and directors.
It will we'll be questioned whether
the r. F. c. has the legal or consti-
tutional power to buy securities in
private companies that can get credit
In the normal way.