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Mr. FLETCHER. There will be opposition to the bill on behalf of the carriers. The bill, if it is passed in its present form, would mean it would be impossible for the carriers to preserve their present properties and interests without a most extraordinary thing happening, all of which we hope to present to the subcommittee.

Senator TOBEY. The fact that 25 years have elapsed without any serious effort having been made to make illegal such practices as are covered within the scope of this proposed legislation, seems to me to constitute an indictment of congressional indifference. One cannot refrain from commenting that had such legislation been enacted 20 years ago a tremendous saving would have accrued to railroad stockholders in the interim. Is that a fair statement, Commissioner Mahaffie, in your judgment?

Mr. MAHAFFIE. I think there is no doubt that there would have been very much less waste in many instances. I think the New Haven, with which you are probably familiar, Senator Tobey, so far as our investigations go, is an outstanding example of what has happened by reason of these outside ventures. It is not, however, an isolated instance by any means.

Those are the comments on the bill that I have to make, Senator Truman. I do not know that there is anything further to offer at this time unless you have some questions.

Senator TRUMAN. Any further questions, Senator Tobey?
Senator TOBEY. I believe not.

Senator TRUMAN. The subcommittee will now take a recess until tomorrow morning at 10:30 o'clock. The Senate met this morning at 11 o'clock and we will have to go over and be prepared to vote.

(Thereupon, at 11:35 a. m., Monday, June 26, 1939, the subcommittee recessed until 10:30 o'clock the following morning.)


TUESDAY, JUNE 27, 1939


Washington, D. C. The subcommittee met, at 10:30 a. m., pursuant to adjournment on yesterday, in room 457, Senate Office Building, Senator Harry S. Truman presiding.

Present: Senator Truman (chairman of the subcommittee).
Senator TRUMAN. The subcommittee will resume.

Mr. FLETCHER. Mr. Chairman, might I make a brief explanatory statement before Mr. Taylor begins his testimony?

Senator TRUMAN (chairman of the subcommittee). Yes.



Mr. FLETCHER. My name is R. V. Fletcher. I am general counsel of the Association of American Railroads.

Mr. Chairman, unfortunately I am compelled to leave town this morning at 11 o'clock to keep a long-standing engagement in another part of the country. However, there will be representatives of the Association of American Railroads here to look after the interests of the carriers at this hearing.

I wanted to say, before I withdrew, a word or two on the question of procedure. After S. 1310 was introduced some time ago, and realizing the importance of the matters involved, as counsel for the association I organized a special committee of railroad counsel to consider the questions involved in this bill and in one or two other bills that have some relation to the same subject.

This special committee has been very diligently at work endeavoring to reach some sort of conclusion as to what statement could be made reflecting the composite views of the railroad industry. Now, it must be remembered that there are probably 140 carriers that are members. of the Association of American Railroads. Not all of these carriers but a great many of them have situations which would be affected by this bill. For the most part of those situations grew up rather accidentally and incidentally. That is to say, the railroads found themselves in possession of land, as an illustration, which had been acquired for transportation purposes but seemed to be no longer necessary for those purposes, and they were developing some lines which were indicated on yesterday by Commissioner Eastman in his testimony.


There are now in the country certain oil developments which have sprung up on lands owned by railroads in one part of the country, and perhaps in another part of the country hotels have been built on lands owned by railroads; and it would take a very long time indeed to go into detail as to the various forms of noncarrier activities in which the railroads have been driven by the necessity for protecting their interests.

Now, in order to reach an intelligent conclusion upon all these questions so far as the railroads are concerned it was necessary to cavass each individual situation. For instance, the question arose at once: How would this bill affect each of the carriers under the pecular circumstances that existed in the case of the carriers? The question arose as to how certain amendments might be offered which would affect one railroad in one way and another railroad in another way. Some railroads owned such properties directly while other railroads owned them through the medium of subsidiary corporations. The whole question is an exceedingly complicated one.

Now I think no one knows better than the chairman of this subcommittee how many important railroad legislative matters have been before the Congress during this session and which have engaged the attention of those of us who devote our time to matters of that sort. At the present time I think I may say the House Committee on Interstate and Foreign Commerce is about to report a general railroad bill somewhat along the lines proposed by S. 2009, and that will take a great deal of our time and attention.

Now this committee to which I refer at one time had the impression, which I am not sure was entirely justified, that the hearings on this bill would not be concluded at this session of Congress. That impression may have grown out of some misunderstanding. I am not charg

I ing anybody with having made representations on the subject upon which we could authoritatively depend.

But all this leads me to make the suggestion to the subcommittee, and I am not asking for a ruling at this time, Mr. Chairman, but I only wanted the opportunity to express my wishes in the matter before I was compelled to leave the hearing room; it leads me to make the request, which I hope the subcommittee will take under advisement, that the railroads be not required to go forward with their testimony at this session of the Congress.

I sincerely believe that if time were given for the necessary study, by the time Congress reconvenes in January this special committee would be in a position to have canvassed the situations quite thoroughly, and have ascertained just what situations exist on each particular railroad, and would then be in position to come in before you and make some suggestions which would be really helpful, far more so than if we are required on short notice to express ourselves within the next 2 weeks. And when I say "on short notice" I do not want to be understood as meaning there is any suggestion of bad faith at all, but I mean only in view of the importance of the matters which have pressed upon us for attention in the railroad field we have only within the last few days come to a realization of the fact that we might be called upon to express our views at this time.

May I therefore respectfully submit the suggestion for the consideration of the members of the subcommittee, that when you conclude this phase of the hearings this week, you will not require the

carriers to go forward with their testimony until they have had opportunity to examine the question a little more carefully than they have now?

Senator TRUMAN (chairman of the subcommittee). We will take the matter under advisement.

Mr. FLETCHER. Do any of my colleagues wish to supplement that statement? [A pause, without response.] I thank you, Mr. Chair

Senator TRUMAN (chairman of the subcommittee). You may now proceed with your statement, Mr. Taylor.




Mr. Taylor. Mr. Chairman, my name is Telford Taylor. I am associate counsel to the subcommittee of the Senate Committee on Interstate Commerce engaged in an investigation of railroad finance and related matters under Senate Resolution 71.

I have been with the staff of that subcommittee since October of 1935, and in charge of the committee's New York office, 45 Broadway, New York City.

I am appearing on this bill at the request of the chairman because in the course of my connection with the subcommittee just mentioned I have had occasion to deal with some matters covered by this bill, and likewise because Commissioner Mahaffie and members of the Interstate Commerce Commission's staff consulted with me to some extent in the preparation of this bill.

Before taking up the bill itself I want to say a few words about what I understand to be the genesis of the bill. It deals of course with matters on which the subcommittee investigating railroad finance spent some time. It deals with the acquisition of stocks by railroads. It deals with the activities of noncarrier subsidiaries. It deals with the purchase of securities by noncarrier subsidiaries, and various other matters covered in greater or less detail in the course of the hearings by the subcommittee to which I have just referred.

On the other hand, I think it ought to be understood that the bill does not by any means originate, so far as its ideas are concerned, with the Senate subcommittee. I think it fair to say that the basic ideas of the bill are far older than that; in fact, as Commissioner Eastman and Commissioner Mahaffie brought out here on yesterday, the basic ideas of this bill go back 30 or more years, as long ago as the Harriman investigation by the Interstate Commerce Commission, back in 1906, and I think the report itself was made in 1907. The Commission, in that report, had something to say about the practice of investing large amounts of carrier funds in railway securities. I would like, if I may, to quote very briefly from the report of the Commission in the Harriman inquiry

Senator TRUMAN (chairman of the subcommittee). You may proceed to do so.


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