- If the story of Penn Central railroad is any indication,
government involvement in power production will prove to be a true albatross
to the taxpayer.
-
- Penn Central was the largest railroad in the country
with a weekly payroll over $20 million in the late 1960s. In 1970, Penn
became the largest bankruptcy. This bankruptcy was caused by Penn management's
disasterous decisions on expansion and diversification. A congressional
investigation, headed by Congressman Wright Patman in 1972, revealed Penn
Centrals decision making board was comprised of the bankers who had financed
Penn. These banks, led by the Rockefeller Chase Bank, also held huge blocks
of stock in Penn Central and were ultimately responsible for the railroads
failure. The synergy of these banker-managers created questionable decisions.
Even with the railroad struggling under a huge debt load, the banker-managers
loaned themselves millions of dollars to pay dividends on Penn stock. This
was the tri-fecta! The high dividends lent an aura of value to Penn stock,
thereby increasing its market value, and the bankers recieved interest
on the loans for the dividends paid on the millions of shares the banks
held.
-
- Towards the end, on May 21st 1970, Penns CFO, David Bevans,
quietly shared with Penns bankers Penn's financial condition was so weak
they would be forced to seek a federal loan guarntee, without which Penn
Central would have to shut down. The following day, Chase bank sold 134,300
shares of its Penn holdings, before May 28th when the public was informed,
Chase sold another 128,000 shares. David Rockefeller, chairman of Chase
bank, virorously denied Chase had acted on inside information.
-
- The eventual cash crisis came to a head on a weekend.
Arthur Burns, then chairman of the Federal Reserve was notified. He spread
the word to the heads of the regional Fed banks so Penn could receive a
cash infusion monday, instead of filing bankruptcy, this was known as the
Feds finest hour! Finest hour or not, the banks, wanted no part unless
the US taxpayer co-signed the note. Pressure from the unions, Penn management,
Penns bankers and even the US Navy citing 'defense' concerns elicited the
Emergency Rail services Act of 1970 from the US Congress, thereby federally
insuring $125 million in loans to Penn Central. Not be a party pooper,
Congress ordered a 13 1/2 cent retroactive pay increase to the railroad
union workers.
-
- Eventually of course, Penn Central became 'nationalised',
turning into Amtrak in 1971 and Conrail in 1973. On Amtraks 30th birthday,
the railroad is at the same juncture ........
-
- Amtrak is turning 30 this year, but the passenger rail
service has little reason to pop open the bubbly. The carrier was supposed
to be making a profit by now, yet it continues to spill red ink at an alarming
rate. The latest problems: embarrassing failures on its new high-speed
Acela line, as well as rampant, system-wide delays. Indeed, things started
to look desperate in June when Amtrak mortgaged one of its most prized
assets, New York's Penn Station, to raise $300 million to cover operating
costs. Now, even one of rail's biggest supporters, Transportation Secretary
Norman Y. Mineta, is losing faith: ``There's no question Amtrak is facing
some very, very serious financial problems,'' he says.
|
