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faith of the bankers. We would not have that in the case of a public issue.

Senator SAULSBURY. What is your opinion of having banks or combinations of banks in place of the present fiscal agents of the road!

Mr. Lovett. We do not have any fiscal agents, but we deal only with one banking house. If they do not offer us enough, we do not sell. We wait until conditions change and argue it out with them. But the banks would not bid at public sale, for the very reason that bankers do not buy bonds to keep; they buy them to sell; and why should they want to buy an issue of bonds after the market has been exhausted by public offers?

Senator SAULSBURY. I will say that I have had the view advocated to me by some very responsible bankers that they would like to have an opportunity to take more, where they have not, now. I think that is the desire of the bankers who are not fiscal agents in the railroad bond and security business.

Mr. Lovett. Did you ask them whether they would be able to prescribe

Senator SAULSBURY. They said that they were in favor of this; they were strong people that did not care to be known because of their connection with other gentlemen.

Mr. Lovetr. I do not know what could be the purpose of such a banking house. I do not mean to question its methods. Not enjoying a business of that kind, perhaps there would be no objection to having the business of somebody else destroyed, and, perhaps, it would not hurt that particular house by having

Senator SAULSBURY. They wanted to go into the business.

Mr. Lovetr. I hope that was the object, rather than to destroy somebody else's business; but my own opinion is that there are very few, if any, reputable banking houses who would participate in a public offering of securities unless they bid for all or none, or merely for some customer.

The CHAIRMAN. One reason is that they have to have these securities while they are making their sale?

Mr. LOVETT. Exactly. After the market is exhausted there is no chance for them to sell at that same price.

The CHAIRMAN. How many large firms of that kind are there in the United States, large banking houses, that have both domestic and foreign connections, that deal in these bonds upon a large scale? Not very many, are there?

Mr. LOVETT. I could not answer that, Senator.
The CHAIRMAN. There are not very many, are there?

Mr. LOVETT. They vary in size and influence and financial connections. A banking house depends as much upon its connections, probably, as upon its own resources, and a great deal on its reputation.

The CHAIRMAN. And their customers like them to see to it that the title is all right and that all the legal requirements are all right. They rely more upon their assurance than they do upon the assurance of the railroad itself?

Mr. LOVETT. Yes, sir.
The CHAIRMAN. Or the approval of the commissions?

Mr. LOVETT. I have not a particle of doubt that there are many, very many, investors who would pay three or four points more to a banker than they would pay direct for bonds or other securities of

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even the strongest railroad corporation. They want the judgment of the bankers and the bank's counsel. They want the judgment of the bank's counsel as to the validity and the regularity of the issue and the banker's judgment as to the value of securities.

The CHAIRMAN. And they regard these bankers' opinions upon that point as a further assurance, do they?

Mr. LOVETT. Yes, sir; undoubtedly. I am not making any argument, and do not propose to make any, for bankers on boards or for material and supply men. As far as material and supply men are

. concerned, I do not think anybody cares whether they are off or on, except for their individuality.

I have never been able to see myself that the supply man derives any benefit from being on the board, but if Congress thinks it is wise-and it probably is in view of public feeling about the matterto exclude material and supply men, I think it ought to be done.

As to bankers, so far as our company is concerned or any other strong company, they do not object to having bankers put off the boards, because while they would miss their counsel and would prefer to have them, they are not so dependent on their presence on the boards, because the credit of the companies is well established. But the weaker companies, companies whose credit is not fully established, particularly the smaller companies, they very much need the presence of bankers on their boards because of the credit it gives them.

All over the world there are investors who look very largely to the presence of bankers on the board of the company.

Mr. Thom. There is a provision that before any contract with a member of the board with respect to the disposal of securities should become effective, that that contract should be submitted to the Interstate Commerce Commission disclosing the interest of the banker and have its approval as being just and fair. Would not that protect the situation ?

Mr. Lovett. Under my view, Mr. Thom, the difficulty is that there would be such time intervening between the date of the contract and action by the commission that you would have to pay a big price to the banker in order to cover the risk in the meanwhile.

Mr. Thom. But I mean it would protect the public interest, if there is any danger in such a situation as has been suggested.

Mr. LOVETT. Yes. In my view the public interest is not involved. That is not the public view or the popular view, however. But I do not think the bankers could get any better terms by being on the board. It is a matter of trade. Bankers do not vote on questions in which they are directly interested, and whether bankers are on the board or not, you have to go to them and come to an agreement, and I do not think it makes a particle of difference in the price of securities whether bankers are on railroad boards or not. But, as I say, I know that is not the public view of the question.

I submit that provision—that is to say, paragraph 3, page 13– ought to be made to conform to the language in the Hadley report if you are going to include it at all.

I agree with Mr. Harris that it would be very much better if you would strike out all these provisions specifying what the application to the commission should state, because that will be wholly unnecessary, and leave that to be prescribed by the commission itself. Our

fear is that by keeping them in the act, making them the law, they become jurisdictional, and that an application which does not contain this might not be sufficient.

The last lines of subdivision C—that is to say, this paragraph beginning at line 14, page 15, “ If any such securities are to be pledged, the terms and conditions of pledge”—that language is in the Hadley bill, but nevertheless I must criticize it. A little company has to borrow money on very short notice very frequently.

The CHAIRMAN. What clause is that?

Mr. LOVETT. That is line 17, page 15. It has to borrow money on short notice. I take it that in the ordinary course of events a railroad company that wanted to issue securities would go to the commission and get authority to issue the bonds and put those bonds in its treasury. If it did not need the money at once, or if conditions were not favorable at that time, it might hold them there for a change in the market conditions; but in the meantime it might want to use them as collateral with banks, on the street, to borrow money in the street. Well, the rates of money change from day to day, and the railroad might go into the hands of a receiver while it is waiting to get permission to make a short loan--while it is waiting for approval of the terms of a short loan, or it might have to pay a very high rate of interest to cover the possible increase

Senator POMERENE. Or it might get a better rate by waiting.

Mr. Lovett. Or it might get a better rate, if it escaped the receivership in the meantime. But in every case they ought to be required to report to the commission the terms of their loans, and what they pay for money all the time. There is not the slightest objection to that, to their making a full report. And I should say that, in respect to that provision, the form of the report ought to be left to the commission as to what should be required. The commission may want to know from whom they borrow the money and how much they pay for it, and what collateral is given, and they might want to publish in some tabulated form the information collected.

So I think they ought to be required to make reports of all these matters at such times and in such detail and in such form as the commission might prescribe. And when that is done I think the public will be protected, because no railroad man and no banker is going to do anything now, if he knows it is going to be published, unless he thinks it is proper.

If the commission should decide to retain these provisions respecting the form of the application to the commission, then line 13, page 14, requiring the purposes, in detail, to which the proceeds

“ of the issue are to be devoted," should be changed so as to say, “ the purposes in such detail as the commission may prescribe, to which the proceeds of the issue shall be devoted."

That covers, Mr. Chairman, the points I intended to present to the committee. I was about to forget to say that we all feel that whatever bill may be enacted there should be a provision postponing the effective date of the bill for some period, not less than six months, because there are always a great many transactions in course of negotiation of settlement, and many railroad companies have made expenditures and incurred obligations on the faith of being able to carry out such transactions.

And another very important consideration in that connection is that the volume of work that would immediately devolve upon the commission would be so great that it would be impossible for them to deal with the subject properly. They would have to prescribe rules, they would have to establish bureaus in their departments to deal with this, and then always remember that the commissioners have had nothing to do with this complex subject of railroad finance, and they ought not to be crowded with too much work at the very beginning and bring about a condition in which many or some of the most solvent railroads of the United States might go into the hands of receivers or go into bankruptcy, because they would not be able to meet obligations as they matured.

So we all feel that it is very important that you should fix some time. It should be 12 months instead of 6 months, but we feel that in any case it ought to be not less than 6 months.

The CHAIRMAN. Judge Lovett, could you and your associates prepare provisions covering the questions of stock and bond securities, one providing for approval by the commission and framed in such a way as to cover the full ground, possibly to the exclusion of the State regulated issues, and the other simply embodying the idea of the Hadley report? I think if you could do that it would be very helpful to us. Or you could take this bill and make specific suggestions in the way of amendment and alteration in the text.

Mr. LOVETT. While it would not be the case with this committee, Senator, I am afraid that such a proposition might be considered too much with a view to its source rather than as to its merits by some people. I will confer, however, with the railroad lawyers present and see what we can do.

Senator BRANDEGEE. If it would not be putting you in too embarrassing a position, I would suggest you take the bill you have suggested amendments to and indicate the bill as it would be left with the amendments suggested. It will save the stenographer from having to incorporate them all and picking them out of the record.

Mr. LOVETT. I will see what we can do.

Senator BRANDEGEE. I would like to see how it will look when you get through with it.

Mr. Lovett. I hope that will not be your only interest.

Mr. Thom. Mr. Ripley will next address you. STATEMENT OF EDWARD P. RIPLEY, PRESIDENT OF THE ATCHI.

SON, TOPEKA & SANTA FE RAILROAD CO. Mr. RIPLEY. Mr. Chairman and gentlemen, I appear on very short notice, having read the bill for the first time to-day, but I have had the pleasure of listening to the very exhaustive canvass of it by the gentlemen who have preceded me. They are accustomed to public speaking, while I am not, as instead of being engaged in the financial or legal branch of the railroading business, I am engaged in opelating. I am in the unfortunate condition of being a director in and president of something like 36 or 37 corporations, of which perhaps 18 or 19 are railroad corporations; so that I am something of an interlocker myself.

Every one of those corporations, or nearly every one of those corporations, is one in which our parent company owns all the stock.

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In other words, it owns the controlling interest. Nearly all those roads were built long before the enactment of the Sherman law, and some of them, by strict construction, might be construed as competing with each other. They were nearly all built by ourselves, so ihat to that extent we built in competition with ourselves.

Senator POMERENE. Let the record show what railroad you ar connected with. Is your connection with the Santa Fe system?

Mr. RIPLEY. Yes. I do not know anything that we have built since the enactment of the Sherman law that would to any appre ciable extent be a violation of that law. But the bill as it stands would preclude my holding office in those companies. If this bill should become a law it would oblige us to take on those boards of directors and as officers for those corporations such men as we could get for the purpose, probably involving us in a good deal of expense and a considerable loss of efficiency. I do not see that any good possibly could be served by it or in the interests of the public, or that any good could come of it.

The question of capitalization is also involved here, and it is pro posed to refer about all that is left of the duties of boards of directors of these various companies to the Interstate Commerce Commisșion, a body that is probably the most powerful in the world, but is still hungry for more power. It would seem that the boards of directors appointed by the stockholders would have more vital interest in the proper financing of these properties than any appointed or semipolitical body.

I am not intending to cast any reflections upon the Interstate Commerce Commission. It is a body of high-toned men. But it is charged with enormous duties, with duties that are almost beyond the power of any body of men to attend to properly, the result being that its duties are very largely committed to subordinates to-day. I do not know exactly how far the Interstate Commerce Commission is behind in its work, but I know that cases which we consider very important are heard before examiners, who may be excellent as individuals, but who are without experience and who are not of the class of men that we think should be given as much authority as they seem to have.

It is stated that these examiners report their findings to the commission, but it seems to us that it is impossible for the commission to give the requisite attention to the vast number of duties which have been piled upon them. This bill proposes to add to their duties, it would add to their present duties very extensive powers which are proposed to be conferred by this bill, and it seems to us that that would still further complicate our situation and make it still more improbable that our affairs of this financial nature would receive the attention that we think they ought to receive and that their importance deserves.

The financial aspect of the situation is a very serious one, and, as Judge Lovett says, it is probably very much more serious to the smaller roads and the roads with inferior credit than it is to roads like his road or perhaps like ours.

There are daily, or were upto within a year or two, incorporations of small railroads, railroads that were obliged to place their bonds before they do any work whatever. It is impossible for a man to

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