CHAPTER XVII

THE RAILROADS

The Senate having under consideration the joint resolution (S. R. 73) authorizing the Secretary of the Treasury to foreclose the Government lien on the Union Pacific Railroad and the Kansas Pacific Railway

M

R. PETTIGREW said:

MR. PRESIDENT: 1 I now ask that Senate joint resolution No. 73 may be laid before the Senate and read at length.

The Secretary read the joint resolution (S. R. 73) authorizing the Secretary of the Treasury to foreclose the Government lien on the Union Pacific Railroad and the Kansas Pacific Railway, as follows:

Resolved, etc., That the Secretary of the Treasury be, and he is hereby, directed to foreclose the Government lien upon the Union Pacific Railroad and the Kansas Pacific Railway, and pay the prior lien upon said roads, and take possession of the same for the Government of the United States. The Secretary of the Treasury shall also pay the floating debt of said railroad companies, and take up the bonds and stock pledged as security therefor, and take possession of all branch lines that have been constructed in whole or in part out of the earnings of the Union Pacific Railroad. Said Secretary is also directed to take possession in the name of the Government of all the lands granted to said railroad and not conveyed to innocent third parties for a valuable consideration.

For the purpose of carrying out the provisions of this resolution the Secretary of the Treasury is hereby authorized to issue, sell, and dispose of, at not less than par in coin, coupon or registered bonds of the United States, to an amount sufficient for the object stated in this resolution, bearing not to exceed 3 per cent interest per annum, payable semiannually, and redeemable at the pleasure of the United States, in coin, after five years from their date, and payable in ten years after their 1. Speech in the Senate February 13, 1896.

date. And the Secretary of the Treasury shall use the proceeds thereof to carry out the the provisions of this resolution.

MR. PETTIGREW: Mr. President, I wish to call the especial attention of the Committee on Pacific Railroads to this resolution, for I think it outlines a method by which to solve this much discussed question in a businesslike manner, and in the only way it can be solved with credit to the Government. We have only the interests of the whole people to consider. There are no equities in this case in favor of the present stockholders of these roads, and I will show that the reorganization committee of the stockholders of the roads are entitled to no consideration whatever, as they represent the heartless and unscrupulous scamps that have been robbing the Government and the public for a generation, casting reproach upon our Government and our people that must make every honest citizen blush with shame.

The stockholders and owners of the first-mortgage bonds on the Union and Kansas Pacific Railroad have appointed a committee to reorganize the road and to settle with the Government for its second mortgage upon the property. This reorganization committee proposes to issue one hundred million of fifty-year 4 per cent bonds on about 1,900 miles of road; that is, the road from Omaha to Ogden, which is the main line of the Union Pacific, and about 400 miles of road from Kansas City west, which is the Kansas Pacific Railroad. They also propose to issue seventy-five millions of preferred stock upon this 1,900 miles of road, and assess the present common stock of these companies, which amounts to $60,000,000, at 15 per cent, and thus raise $9,000,000. The preferred stock represents nothing. All of it but $20,000,000 goes to the manipulators of this proposed swindle. If this plan is carried out, then we will still as a Government be in partnership for fifty years with the same men who have been our partners for the past thirty years. As our partners in the past they have swindled us, stolen our property, bribed, debauched, and disgraced our servants, plundered the people along the line of road by extortionate rates, while at the same time by a system of rebates and discrimination they have enriched a favored

few, and where these favored few were private persons they were men who it was supposed had influence in the community where they resided and could influence public opinion; but usually their favors were bestowed upon corporations engaged in trade whose stockholders were the officers and directors of these railroads.

We are now asked to continue this partnership, to continue to have relations with these same men, and upon what basis? Upon a basis of fraud; upon a plan by which this Government is to be a party to the issue of stock for which no consideration is paid, and upon which the public will be called upon to pay interest. There are 1,900 miles of road, one hundred millions of bonds, seventy-five millions of preferred stock, and sixty millions of common stock; in all, two hundred and thirty-five millions of bonds and stock, or $123,600 per mile.

This 1,900 miles of railroad can be reproduced for $23,600 per mile, and yet the Government of the United States is asked to go into partnership with a party of dishonest men and bond and stock the road for $123,600 per mile, and the public whom this road serves is to be called upon to pay interest on this vast sum. That any set of men could come to Congress with any such proposition as this and expect it to be ratified by the representatives of a free people is an impeachment of the integrity of the people of the United States. But these men have so learned the habit of making corrupt propositions to each other by which the public shall be plundered and robbed in the reorganization of overstocked companies of every sort that they do not hesitate to make the proposition now in open daylight to the American people, and it seems to me it is a matter for severe comment and censure that a committee of either body of the Congress of the United States can be found who will entertain it for one moment.

But they go further than this, and tell us how they will distribute this vast amount of stocks and bonds. They propose that the Government shall take $34,000,000 of the bonds, which is just equal to the principal of the Government's claim against the roads, and shall take $20,000,000 of the preferred stock in full payment for all the defaulting interest; that the

first-mortgage bonds, which amount to $34,000,000, shall be taken up and a like number of these new bonds issued in their place; and for every $1,000 of bonds issued to the present holders of the first-mortgage bonds of these roads $500 of preferred stock shall be issued as a bonus, the remainder of the stock and the remainder of the bonds to be the property undoubtedly of the conspirators in this stupendous transaction.'

Let us see who are the men who compose this reorganization committee of the Union and the Kansas Pacific railroads. This reorganization committee is composed of five members, Louis Fitzgerald, T. J. Coolidge, and Oliver Ames being three out of the five members of the reorganization committee (who represent the old management of the road, the Goulds of New York and the Ameses of Boston), the other two being Marvin Hughitt and Chauncey M. Depew. While every one of the receivers who are now managing and operating the road is in the interest of this gang of highwaymen who have plundered the public with this instrumentality in the past, three of the receivers, namely, S. H. H. Clark, who was formerly manager and for years president of the road, has been and is the representative of the Gould interest; Mr. Mink, of Boston, was comptroller of the company, and has been for years its vicepresident, and is also an executor of the will of the late Fred L. Ames, and is, of course, the direct and immediate representative of the Boston crowd of highwaymen who, through the use of this highway, the Union and the Kansas Pacific railroads, have robbed the public and the Government for the past thirty years. The third receiver, who has always acted with this interest, is E. Ellery Anderson, who has also been for several years a Government director, and was placed there for the purpose of protecting the Government's interests, but has never undertaken to protect the Government's interests, but has always acted in the interest of the old and dishonest management. The other two receivers of the road, Coudert and Doane, seem to have a leaning in the same direction, for they have been Government directors, and have never remonstrated against the frauds which have disgraced the management of these roads and of which they must have had knowledge.

Mr. Anderson, one of these receivers and one of the Government directors of the road, stated to the Senate committee that the net earnings of this system of roads were, in 1894, $4,000,000, and in 1895 $5,000,000, yet they refused to pay the interest on the first-mortgage bonds and caused the default, evidently for the purpose of allowing the representatives of the first-mortgage bonds to foreclose their mortgage and take possession of the whole property. If receivers would manage private property in this manner almost any court in the land would insist upon their immediate removal; yet these men, with impudence and impunity, seem to have set out deliberately to assist the reorganization committee or the people they represent to carry out a conspiracy to swindle the Government out of its whole claim.

If this reorganization plan is carried through with the assistance of the Government the road will have to earn 4 per cent on $100,000,000 of bonds and 5 per cent, at least, on $75,000,000 of preferred stock, and the people along the line of the road will be charged a rate sufficient to accomplish this result, even if no dividend whatever is paid upon the $60,000,000 of common stock. This interest charged, then, will amount to $7,750,000 a year, which would be an unjustifiable burden upon the people who are served by the road. The only reasonable and proper thing for the Government of the United States to do is to take possession of the road, issue its own bonds bearing 3 per cent interest as provided by the resolution which I have offered, pay the first-mortgage bonds of $34,000,000, refund to the Government of the United States the $53,000,000 now due the Government from these companies, take up and pay the floating debt of these roads of $12,000,000, and thus get possession of the bonds and the stocks which are held as collateral security for this floating debt, and thus acquire title of $98,000,000 par value of the branch lines' bonds and stock, the market value of which is at least $42,000,000 at the present time, thus taking possession of all the branch lines of these roads, amounting to 4,000 miles of track, and operate the whole as one great system.