Evening star., 1940-01-08

DTeCSuellG WllCll "'A~ N""AS
they ignored the fact that within the
last month and half they had ap-
proved issues of securities in two
different cases where companies had
a much narrower equity or cushion
of common stock than did the Con-
sumers' Power Company.
If the standard set in the ConSum-
ers' Power Company case is now to be
the yardstick, many companies COM
ing up for approval of their security
issues will be unable to finance their
needs and construction programs will
have to be cut. Already it is reported
that the Consumers Power Company,
which was to have spent $1,000, 900,
has had to cut its budget by $7,000,-
OOO Labor and raw material pro-
ducers will feel in the long run the
effects of such curtailment OF the
heavy goods industries.
The worst feature of the decision
by the majority of the S. E. ca
margin of only one vote separating
the two sides-is that a govern
mental agency undertakes to say
that common stock rather than
bonds shall be issued to finance a
utility when the same New Deal Ad-
ministration has hitherto refused to
recognize that investors in common
stock should be protected.
Thus in the famous controversy
over what the Tennessee Valley Au-
thority should pay when it began
confiscating private utilities in its
area, the New Deal offered nothing
at all at first for the common stock.
After two years of hectic negotia-
ton, the T. V. A. finally agreed to
pay about s6,50000O for common
stock which had cost the investors
about $l7,000,000.
Today, therefore, governmental
agency is telling investors that a
company which is willing to pay
about per cent annually in interest
and to give a mortgage on the prop
erty itself to investors cannot do
this but must sell common stock and
the investors must take their chances
OF loss in the future and of being
wiped out altogether by existing
bondholders in the event that there
is a default due to business de-
preston.
The S. E. C. insists incidentally, in
arriving at it's calculations, that pre-
ferred stock must be regarded here
after as debt instead of equity
money, declining to recognize the
essential difference between credi-
tor who has lien on property
through bonds and a Stockholder
who gets a preference through pre-
ferred stock as to dividends but not
as to the division of the assets when
ever there is a dissolution or liqui-
dation.
The idea that a certain proportion
Of the common stock ought to be
sold in utility financing is sound in
theory. There has lately been good
market among common stocks OF
certain high-grade operating COM
panies but market prices f1uctuate in
accordance as the New Deal policy
of confiscation by Government COM
petition seems to be nearer or further
away 1t is significant that because
of these fears no new issues Of COM
mon stocks in any major company
have been f1oated during the last
seven years.
The problem really is a simple
one-the S. E. C. has the power
through the Public Utility Holding
Company act to inquire into any or
all transactions of holding compa.
nies and to refuse approval Of any
issue of securities which the S. E. c..
may deem not necessary" or not
appropriate" No legislative stand
ards have been provided by Congress
as to what these two words mean but
q governmental board of five-in
which the present division of three
to two shows that only one commits
sioner has the deciding voice-has
the final say and there can be no
effective appeal to any courts. In
deed, there would be no use in an
appeal anyway due to the New Deal
dominance of the Supreme Court.
The commissioners constituting
the majority of the S. E. c. will un-
doubtedly deny vehemently that
they were guided by ch-hunting"
or political motives in selecting Wen
dell Willkie for the target of their
decision, which violates their own
precedents. But condemning critics
will insist on such an Interpretation
because even in the spread" Of two
points sought by the banking under
writer's two of the New Deal COM
missioners ignored the fact that the
S. E. c. has been approving the two
point spread" for other investment
banking houses right along.
If there had been more consistency
In the rulings, criticism of the COM
mission would not have had the
slightest foundation. But to apply
one rule to a banking house and
utility company that the admins
tration doesn't happen to like and
another rule to another banking
house or utility is to invite contro-
versy and possibly a congressional
investigation to determine whether
broad discretionary powers should be