Resilient Scheme

Last week RFChairman Jesse Holman Jones blew a choice railroad reorganization plan out of his office with one impatient blast only to find it again on his desk, with modifications, a few days later. This resilient scheme belonged to President Roosevelt's fifth cousin once removed, Philip James Roosevelt, a Manhattan banker who fortnight ago shocked a Senatorial subcommittee by declaring that his kinsman's government was thievish. As chairman of a bondholders' committee for Minneapolis & St. Louis R. R., Banker Roosevelt was trying to get his own reorganization plan approved rather than see the road devoured piecemeal by eight other lines, as RFChairman Jones had suggested.

With Mr. Jones's approval the eight railroads* last summer jointly applied to the Interstate Commerce Commission for permission to buy M. & St. L. ("The Peoria Gateway"), which has been in receivership for the past 13 years (TIME, Sept. 23). Purchase price was to be $7,200,000, lent by RFC. Last month while I. C. C. hearings were still being held on the plan, Minneapolis citizens got excited, began raising a war chest to fight the M. & St. L.'s dismemberment, asked Congress to go to bat for the integrity of the road. The Senate voted a subcommittee investigation under Minnesota's Farmer-Laborite Hendrik Shipstead.

Called to testify at the committee hearings, Banker Roosevelt declared that dismemberment of M. & St. L. would be in the public interest only "if it is in the public interest for the Government to abet the robbery of its citizens." He added that he would not put it past the Government to do just that. A Senator asked if he really meant what he said.

"Figure it out for yourself," sighed Banker Roosevelt. "That's the whole basis of this relief business. You take the money away from New York and give it to some backwoods state." RFChairman Jones thereupon challenged anyone to think up a better reorganization scheme. Banker Roosevelt promptly took him up, proposing to 1) split the road into an owning and an operating company connected by a one-year lease; 2) borrow $5,000,000 from RFC; 3) borrow $1,000,000 from Boston's rich, crotchety Frederick Henry Prince. In return for its money RFC would get first mortgage bonds and Mr. Prince would get a first lien on income for his interest. Furthermore, Mr. Prince would get a bonus of $1,000,000 in 4 1/2% income bonds of the railroad company and the entire capital stock of the operating company.

Jesse Jones rejected this plan last week in what even for that forthright Texan was blunt language. Banker Roosevelt's plan, he said, would make the road "a pawn, subject to abuses and manipulations that should not be tolerated."

"We do not question the motives of Mr. Prince or those who may be associated with him in lending the $1,000,000 to the operating company," said he, "but 99 years is a long time, and our memories need not run very far back to illustrate my point." Mr. Prince, he observed, would be getting a "rather heavy toll," and his first lien on M. & St. L. income would make RFC's first mortgage, in effect, a second mortgage. Lastly, the whole idea was "a delusion in that it holds out false hopes to everyone interested in the road."

Same day, while Mr. Prince dispatched a fiery reply to Mr. Jones, Senator Shipstead took a hand in the matter. He suggested to Mr. Roosevelt that it might be just as easy to get $6,000,000 from RFC as $5,000,000, that "such a plan would have the advantage of keeping control of the railroad in the hands of its owners." Amiable Mr. Roosevelt promptly complied, redrafted his reorganization plan to exclude Mr. Prince, submitted it again to Jesse Jones.

--Milwaukee; Burlington; Chicago & North Western; Rock Island; Great Northern; Illinois Central; Soo Line. Chicago Great Western has since dropped out.

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