Evening star., 1939-05-02

the desire Of labor to maintain an
adequate volume of employment
with wages at an appropriate leve.
and the desire of arrangements to
reduce costs If burdened by unsound
capital structures cannot be recon-
ciled without friction.
It takes no financial wizard to
realize that the rails, the coal, the
cars and tools which the railroads
would be able to buy, if given sound
financial structures, may well make
the difference between prosperity
and depression for the several i'm
portant industries whose chief GUS
toners are railroads.
Here is problem that calls for
the best craftsmanship at our COM
mand. The lessons of the past
have been bitter-but they have
been real. Our entire railroad his
tory has been one of recurring cycles
OF insolvency, reorganization, fur
ther insolvency and further reor.
ganization. The process has been
one Of fees for bankers and lawyers
and then failures. The result has
been temporary makeshifts doomed
to collapse-makeshifts foisted on
the investors and the public at
terrific expense and objectionable
extravaganza. Worst of all, these
reorganizations in spite of their
cost have completely failed in what
should have been their primary
purpose-sound financial structures
for the railroads.
The unhappy truth is that these
reorganiZations which failed so
miserably, were not infrequently en-
gineered and perpetuated on the
public by scandalous methods. The
receivership scandals in this coun-
try are now matters of common
knowledge.
With one-third of our railroad
mileage now in bankruptcy, and
much more of it on the verge of
bankruptcy, it would be reckless in
difference to tolerate in the future
a repetition of unsound and tenn
porary makeshifts and of reorgani-
zation scandals that have all too
frequently characterized our past
history.
Problem Demands Realism.
What we are trying to accomplish
In this bill is to reorganize the In
solvent roads on the basis of what
can reasonably be expected for
them In the way of future earnings.
The problem calls for realism aud
realistic methods. All impartial stu
dents OF the problem realize that
financial structure which is out O.
gear with the earning power of the
property is doomed to failure.
For the purpose Of creating a
sound financial structure, it makes
no difference what was at one time
invested in the road-what it orig
1nally cost--what it would cost to
reproouce-or what any one claims
Its abstract value to be. The con-
trolling question is: What can the
property earn to support its capital
structure?
1t would be tantamount to fraud
to create worthless securities in re-
organizations, securities that can
not be reasonably expected to be
supported by earnings. That would
be simply creating tokens for stock
market speculation.
Our bill seeks to measure the
earnings that can reasonably be
expected in the future by the ex-
perience Of the past over a period of
years. Any one who claims that the
future average earnings will be
greater than the history of a past
period of years, should be required
to prove his contention with evi-
dence.
Railroads cannot be reorganized
on mere hopes.
Wishful thinking is no substi-
tute for earnings.
Reorganizations cannot succeed if
they are based on claimed values
that have long since disappeared
In realistic sense, and on busi-
ness that has long since been lost
to the railroads never to return.
A reorganization based on a sound
judgment of earning power destroys
no values-creates no losses. It
merely realistically recognizes the
facts, including the unpleasant but
nevertheless inescapable fact that
values based on original cost or even
reproduction cost just don't exist
without earning power to support
them.
One of the most discouraging facts
Of the present time is the hysterical
fear that is blocking progress. Fear