Thursday, June 21, 2012

"Where Did You Get It, Gentlemen?" by Charles Edward Russell,

January, 1908, Everybody's magazine, Vol.18, No. 1, "Where Did You Get It, Gentlemen?" by Charles Edward Russell, Author of "Soldiers of the Common Good," page 118,

EDITOR'S NOTE.—If it interests you to know one more of the reasons why sane investors and honestly conducted banks are afraid to trust theirmoney to Wall Street, read Mr. Russell's article. You will learn how the public came to pay for private palaces when it thought it was buying steelrails, modern equipment, and new road-beds. This is the story of how millions were looted from the Metropolitan Street Railway. It is anextraordinary revelation of financial depravity. It will make you think. It may make you understand why certain interests employ clever pressagents to distract attention from themselves by blaming the President.


ONE thing that Thomas F. Ryan must quickly have learned about the golden city of his dreams has impressed itself upon all other men that have tried to master the money mart.

In the golden city is boundless wealth, but the vast mass of it is not to be touched, handled, come by, nor spun upon the table of the Wall Street game.

At that game the playing is done with counters. All are counters—credits, stocks, bonds, notes, accounts, buildings, railroads. Of tangible gold to redeem the counters there is very little. True, the banks are enjoined by law to the keeping of certain reserves in cash, and, true, so long as these reserves endure one may at the banks get cash for his counters; but the law has requirements (stern though sometimes violated) about borrowing upon counters, the operation is not easy, and the proportion of cash to counters is infinitesimal. Yet sometimes for the greatest and most profitable plays at the table great quantities of ready cash are absolutely necessary.

Amid the desert sands of counters, counters, always counters, flows one stream of actual cash, pouring steadily into New York. Day upon day, weekby week, month after month, it comes in a solid, incessant stream, to fall into fewer than a dozen coffers. To the great insurance companies, that is where it all goes, millions upon millions of cash, not counters, paid daily by the policy-holders all about the world. The three great insurance companies have total assets of approximately a billion dollars, and this is the only free, large, and unrestricted source of ready money in the country.

Hence the madness of the struggle to gain control of these golden streams, for which men have risked the penitentiary and their souls. Year after year, as the business of the insurance companies grew and the golden stream rolled, the utility of the assets increased until hardly any new industrial enterprise could be floated without recourse to the policy-holder's money. Naturally, the money kings got possession of the stream and turned it whither they would.

The control of the policy-holder's money was in each case vested in the finance committee of the insurance company. In each case, also, the finance committee of the insurance company was composed of the money king and his friends. Hence the policyholder's money could be used at any time to further, finance, or float the private schemes and ventures of the money king to the money king's profit and the policy-holder's peril.

This was one use of the golden stream. Incidentally, there grew up another game with these millions, played at aside table and with great gains to the players. It consisted of what is known as "side syndicates." The substance of the "side syndicate" is a kind of sneaking dishonesty not the more reputable because it happened to be developed since the framing of the criminal code. The men that controlled the insurance companies were also interested secretly in certain firms or companies whose business was to deal in securities. As these men directed absolutely the operations of the finance committees, their practise was to have their firms buy securities at a low rate and immediately sell them at a very high rate through the finance committees to the insurance companies. In this easy manner it was possible to make two or three millions in a morning without the least effort or risk.

This is the game, as to a certain degree it was revealed by the insurance investigation of 1905, which we have all happily forgotten. It went on foryears, it is going on now, it will always go on until we come to our senses in regard to the conduct of our insurance business.

The Standard Oil Company's able financiers had long been interested in the insurance business as thus carried on in New York. So had been Mr. Morgan. Mr. Ryan closely followed Mr. Morgan's course and frequently came in to share the proceeds of the Morgan operations. Mr. Rogers controlled the Mutual, Mr. Morgan controlled the New York Life, and other colossal interests manipulated the Equitable, all to the same purpose of catching the golden stream and sending it where it would do the most good—for the personal fortunes of the manipulators.


No man had more schemes that needed financing than Mr. Ryan; his vast and complicated enterprises in traction, tobacco, railroads, mines, and the Congo insistently demanded capital. There were the insurance assets as the great available source of ready capital, and Mr. Morgan and Mr. Rogers were in chief control of the supplies. But the three big insurance companies were not the only insurance companies in New York; there were others, not so conspicuous, but with some share in the golden stream. In January, 1905, Wall Street was deeply interested to learn that in the preceding November Mr. Ryan had quietly secured control of the Washington Life-Insurance Company and was then engaged in reorganizing it on a plan of his own. It was in a way a small concern, with a capital stock of only $125,00x3, which Mr. Ryan (quite consistently) increased to $500,000; but it had assets of $17,000,000 and there was presently reason to believe that these were not without their uses.

Mr. Ryan brought over Mr. John Tatlock to be president of his reorganized company. Mr. Tatlock had been for many years an actuary of the Mutual Life, and secured leave of absence to take his new position— a fact that shows the ramifications of the ties that firmly bind together the interests of the dominating forces in our affairs. Mr. Ryan's influence in the Mutual was secured through the Morton Trust Company, which he owns, and which is and long has been one of the side operators for the great insurance company.


Mr. Tatlock was a witness before the Armstrong investigating committee in December, 1905, and, examined by Mr. Hughes, he gave some extremely interesting testimony. It appears that when Mr. Ryan took control of the company in November, 1904, it had $453,000 of its assets invested in securities and $6,300,000 in real estate. From January 1, 1005, to the time when the witness was testifying, $4,000,000 of the assets had been invested in securities, and the real-estate investments had been reduced by $2,000,000, some of the loans on real estate being called —presumably to effect the investments in securities. Mr. Tatlock said that among the securities the company had bought were:

American Tobacco bonds.
Seaboard Air Line bonds.
Atlantic Coast Line bonds.
Second Avenue Railroad bonds.
Westchester Lighting Company bonds.
Brooklyn City Railroad bonds.
American Tobacco stock.

All these are enterprises of the Whitney-Ryan syndicate and its allies.

These securities were purchased through the firm of Ryan & Kelly, of which Mr. Ryan's son was the senior member.

Mr. Hughes also brought out the fact that the auditing committee of the insurance company had taken alarm at some of these purchases of the finance committee and had said that the State Superintendent of Insurance would not approve of them. It advised that no more securities of the kind be purchased, and thereupon some of the securities had been sold—also through Ryan & Kelly.

The finance committee of the company, which directed the handling of the assets, was composed of Mr. Ryan, Mr. Tatlock, and Mr. Levi P. Morton.

Mr. Tatlock also admitted that, since the reorganization of the company, it had become a depositor at the National Bank of Commerce of New York and at the Girard Trust Company of Philadelphia, which are Ryan concerns, and that its account with Mr. Ryan's Morton Trust Company had been doubled. Which will sufficiently indicate the channels that the assets were taking.


Further, Mr. Tatlock admitted that, since the company's reorganization, it had participated in six of these "side syndicate" deals, although the company had never before been engaged in such enterprises. It appeared further that these syndicates were in the kind of industrial securities that the auditing committee had condemned. When Mr. Hughes called Mr. Tatlock's attention to this singular fact, Mr. Tatlock merely said:

"I had my instructions."

So the situation seems to be reasonably clear so far as the Washington Life is concerned.

But in the mean time Mr. Ryan had startled the entire world by another move of far greater magnitude. On June 15, 1905, it was announced that the months of scandal and bickering in the great Equitable Company had come to an end because Mr. Ryan had bought of Mr. James Hazen Hyde the controlling interest (502 shares) in the Equitable stock that Mr. Hyde had inherited from his father. It had been supposed that the elder Hyde had so tied up this stock that its sale was impossible. Repeatedly the younger Hyde had refused on any terms to part with it. Only a few days before he ha(' rejected an offer for it, from Mr. E. H. Harriman, of $5,000,000. And now he had sold it to Mr. Ryan for $2,500,000. So ran the report; Mr. Hyde would not deny it. The Street was amazed. What had induced Mr. Hyde to change his mind in this extraordinary fashion? There were a thousand surmises. Mr. Ryan was supposed to have hypnotized the young man or to have obtained over him some sinister control, but the silent Ryan heard all and gave no sign.

Only one thing seemed perfectly certain: the Equitable and its vast assets, its steady stream of gold, its huge power upon business, the drag of its millions and their bewildering possibilities of profit-making lay in Mr. Ryan's hands. In the other companies the policy-holders may some day weary of furnishing money for the Wall Street game and may kick over the table at which the Standard Oil gang and Mr. Morgan now sit at ease. In the Equitable (since it is a stock-company) there can never be a revolt. Mr. Ryan controls it, he has it in his vest-pocket, he can do with it as he may please, the "side syndicates" may produce untold millions, the assets may be used in any dirty, disreputable way —the policy-holders cannot revolt.

When he was a witness before the Armstrong Committee Mr. Ryan was asked what were the motives that induced him to buy the Equitable. Mr. Hughes put the question.

Mr. Ryan replied that his motives were purely philanthropic.

"I thought," he said, "I was doing a great public service and preventing what I feared would be the most tremendous panic this country has ever seen if the Equitable Life Assurance Society had gone into the hands of a receiver."

The Equitable Life-Assurance Society was then carrying $6,500,000 of Mr.' Ryan's Metropolitan Street-Railway stock. At the recollection of this fact Wall Street laughed.


And yet, when Mr. Ryan said that he had bought Mr. Hyde's interest in the Equitable, he must have used the word in a sense not recognized bylexicographers, because, according to expert authority, he had not bought it at all. How easily we are all fooled! The mystery of Mr. Hyde's sale for $2,500,000 of stock worth $7,500,000 was really no mystery. Mr. Ryan knew well enough the potentialities of the Equitable assets; Mr. Hyde probably perceived that there would be bickering so long as he remained ostensibly in control. Hence Mr. Ryan easily induced him to lease the stock, and that is the arrangement now in force. Mr. Hyde remains the owner.

But for the purposes of the game a lease of the stock is as good as a purchase, and it is pleasing to know that with Mr. Ryan in control of the Equitable, the Standard Oil gang of the Mutual, and Mr. Morgan of the New York Life, the good old game does prosper and go merrily, and no mistake. Every day you can hear in Wall Street the clink of the policy-holder's dollars as they roll over the table, making profits for the deserving "System"and for others in authority over us, just as if the names of Armstrong and Hughes had never been heard in this world. Wonderful are the achievements of a legislative investigation! The net results of our virtuous indignation about the insurance scandals are a few men worried to death, two or three in exile, two obscure persons sentenced to prison, and the game exactly as before.

Great thing, this spasmodic indignation of ours.

Mr. Ryan chose for president of his share in the game Secretary of the Navy Paul Morton, who once, for rebating, narrowly (and most unjustly) escaped the penitentiary. There is no reason to suppose that Mr. Morton and Mr. Elihu Root ever compare notes as to their respective careers, but such a comparison, now that both are working for Mr. Ryan, might prove mighty interesting.


On October 8, 1907, a quiet little man was sitting in the witness chair before the New York Public Service Commission, telling in a quiet little way some of the historic secrets of the Ryan-Whitney-Root syndicate.

He admitted an instance of his own knowledge in which the syndicate had possessed itself of more than half a million dollars of the Metropolitan's money. How? Well, there was a so-called company with a so-called franchise to operate a so-called railroad between Wall Street Ferry and Cortlandt Street Ferry. Mr. Anthony N. Brady, the quiet little witness, owned this precious device. He said it cost him $200,000. Under the coercion of the syndicate, he sold it to the Metropolitan Securities Company, acting for the Metropolitan Street-Railway Company of New York, then the name of the street -railroads amalgamated by the syndicate. He received a check for $965,607.19. Of this he retained $250,000. Then by agreement he gave of the remainder $111,652.27 to Thomas Fortune Ryan, $111,652.78 to William C. Whitney, $111,652.78 to P. A. B. Widener, $111,652.78 to Thomas F. Dolan, $111,652.78 to W. L. Elkins.

So here was a plain revelation of where some of the gentlemen had gotten IT.

Every person that heard this cool recital, nearly every person that the next day read of it, was astounded. The whole country seemed to receive a kind of electric shock. Yet the really amazing thing was that there should have been any amazement. Any one that cared to know, any public prosecutor, for instance, or any state officer or newspaper editor, could have found out long ago, and with the greatest ease, not only the whole story of the Wall and Cortlandt streets railroad deal, but other matters compared with which the Wall and Cortlandt streets railroad deal was mere child's play in the way of loot.

As the evisceration of the Metropolitan Company was the crowning triumph of the syndicate's achievements and typical of all, and as it, moreover, presents the best possible illustration of exactly what these achievements mean for the public, I purpose here to relate it at length and without comment as the most instructive chapter in the history of modern finance.

On October 8, 1907, Judge Lacombe, in the United States Circuit Court, acting on a petition of certain stockholders, appointed a receiver for the New York City Railway Company, which meant the Interurban StreetRailway Company, which meant the Metropolitan Street-Railway Company, which meant the vast system of surface railroads amalgamated, unified, and controlled by the Ryan-Whitney syndicate.


Ordinarily the appointment of a receiver for a property has only one meaning. It means that the property is depleted, impaired, unable to earn its interest charges, and on the verge of bankruptcy. But this great traction system of New York, this wonderful money-earner, this inexhaustible hopper into which so many thousands of people daily pour their nickels, this concern once regarded as the Gibraltar of traction companies, whose stock was once quoted at 255, how did it fall into a depleted and bankrupt condition? Its business has not declined but increased; its expenses have not multiplied but relatively diminished. It transports passengers for a five-cent fare each, and the average cost of transporting each passenger is two cents or less. What has become of the other three cents?

This is the question on which the whole subject revolves. Here is the answer to it:

When the syndicate first came into the New York field with the purchase of the old Broadway line, about twenty separate companies possessed the street-railroad business of the city. Eight main trunk lines ran north and south, or lengthwise of Manhattan Island; twelve or thirteen smaller lines crossed the city east and west. These, one after another, and year after year, the syndicate absorbed. Its impelling reason was then announced to be a desire to unify and improve the system. There is ground now to believe that the real motive was very different. Every absorption was accompaniedby a new issue of securities in the manipulation and disposal of which lay enormous profits. Sometimes the acquisition was by lease, and in such cases the stockholders of the added line were induced to favor the lease because of the great dividends to be guaranteed on their stock, seven, eight, even ten per cent. Sometimes the absorption was by purchase (so called), the operation being merely the application of Mr. Yerkes's original formula, or, as it has since been called, the endless chain. That is to say, having possession of one road, the syndicate issued more securities upon it and with these securities purchased another road, with which it repeated the simple operation.


But here some things are to be noted particularly. First, in certain instances the syndicate did not merely buy the road in the name of the Metropolitan and directly from the company that owned the property. The syndicate, acting for itself, purchased the road at a low price and then sold it at a very high price from itself as the syndicate to the Metropolitan Company, thus securing very great profits for itself but loading the Metropolitan with a further weight of securities. Thus, the syndicate bought the old Thirty-fourth Street Railroad—about onehalf mile in length, value about $100,000— issued upon it $2,000,000 of stocks and bonds, and compelled the Metropolitan to purchase the securities at par. In the same way it secured the Twenty-eighth and Twenty-ninth Street lines—value about $250,000—issued upon them $3,000,000 of securities, and then compelled the Metropolitan to purchase these securities also at par. On these two transactions the syndicate cleared, without investment and without effort, $4,650,000 and increased the capitalization $5,000,000. Second, it is to be noted that all the roads acquired, whether by lease or by this system of purchase through the syndicate, were already heavily overcapitalized, and their acquisition was made the occasion for still further stock issues, so that what was bad anyway was made much worse, and the whole Metropolitan system began to be loaded with securities far beyond the support of its earning power. In some instances, the roads thus added at so great an expense were not profitable enterprises. Thus the Fulton Street road, which cost the Metropolitan $2,000,000, loses $25,000 a year, the Twentyeighth and Twenty-ninth Street lines have never paid their operating expenses, and others are of a like nature.


The question that at once arises is why anyone should desire to injure one's own property.

The answer lies in the fact that in all of these operations the real profit has been not in the operating of the property but in the manipulating of the securities. Dividends were always a trifling thing compared with these profits. In the case of the Metropolitan and the syndicate there was also another still more stupendous source of gain, now to be explained.

In a foregoing paper I mentioned the fact that from one operation in the securities of one subsidiary line, the Houston, West Street & Pavonia Ferry, the syndicate cleared $6,000,000. This was the manner of that transaction:

The Houston, West Street & Pavonia Ferry Company (so called) operated some cross-town and important East-Side lines. On October 1, 1890, it issued $6,000,000 of second-mortgage bonds. On June 17, 1893, the same company applied to the State Railroad Commissioners for permission to issue $6,000,000 of additional stock, for which the $6,000,000 of bonds issued in 1890 were to be exchanged. In the application the statement was made under oath that the bonds "had been issued and disposed of for sums of money necessary for completing, furnishing, or operating the railroads of your petitioner." Please note:

1. 'None of the company's railroads had been "completed" or "furnished" in that time, and the paying of operating expenses from the proceeds would have been illegal and would also have shown in the company's annual report, which reveals no such matter. There were no extensive repairs nor alterations upon any of the company's lines.

2. As a matter of fact, the $6,000,000 of bonds had not been used for any such purpose as was alleged, but had been exchanged for Metropolitan stock, an illegal transaction.

3. The bonds were issued October 1, 1890. The law required that they should be recorded in the company's annual report. The company's annual reports for 1890,1891, 1892, 1893, do not mention them. These reports must be sworn to as correct. They were not correct because the item of $6,000,ooo of bonds was omitted. Hence the officers that swore to the reports were guilty of perjury and, in a state where the laws are enforced, would have been sent to jail.

But here was $6,000,000 of stock issued to take up the bonds. Where were the bonds? Exchanged for Metropolitan stock. So that the $6,000,000 of stock was merely a cover for $6,000,000 of bonds that had disappeared. "Who got the money?" asked a Wall Street journal, commenting dazedly upon this wondrous performance. It might well ask. Not the stockholders at large, certainly, not the public, nor the road. To the doors of the syndicate it was traced. Beyond that golden portal it vanished.

Who got the money?


But the cream of all these operations of thrift grew out of the work of "changing the motive power" of the roads from horse to electric. This change, involving enormous expenses for the laying of new track, the building of electric conduits between the rails, the building and equipping of new power-houses, the furnishing of cars with electric apparatus, the Metropolitan had decided to carry into effect.

Among the important north and south roads acquired by the syndicate was the Second Avenue, with tracks from Fulton Ferry to Harlem River, and some branches.* In 1898 this company issued $7,000,000 of bonds, whereof $1,960,000 were declared to be needed to meet certain obligations, and the remainder, $5,040,000, to pay for "changing the motive power" of the entire road.

Up to the present hour the motive power has been changed on one-half of the road. The rest continues to be operated with horses.

"Changing The Motive Power"

According to the company's reports, the amount of money expended in changing the motive power and installing electrical equipment (on twelve and three-quarters miles in a total of twenty-seven and three-quarters) was $1,933,171.47. All of this work was done and all of this money was expended in 1898. Since that date nothing has been done to change the motive power on any of the company's lines.

Yet in its report for 1900 the company declares that it expended in that year for changing the motive power $4,329,390.02, whereas no such sum was expended and no work of changing the motive power was done.

Of the bonds issued for these improvements $4,450,000 worth was sold. Of the money thus obtained $1,933,171.47 was expended for the purpose designated when the bonds were issued. The difference between the real expenditure and the pretended expenditure was $2,396,218.55. This sum has disappeared.

Who got the money?

The report for 1902 of the Thirty-fourth Street Railroad (part of the Metropolitan system) shows an expenditure of $245,435.63 for laying new rails in Thirty-fourth Street between Lexington Avenue and Broadway.

The reports of the same company for 190,3 and 1904 show an expenditure of $51,347.64 for the same purpose, making a total expenditure on this account of $296,783.27.

The exact length of track thus relaid was .48 of a mile. The rails used weighed 113 pounds to the yard and cost $36 a ton. To lay .48 of a mile with such rails would cost $6,138 for the rails. Hence the company's reports would have us believe that the remainder of the item, $290,645.27, was spent for labor.

* For these illustrations I am indebted to the painstaking investigation of the Metropolitan made by Mr. William N. Amory and subsequently verified. I commend to those interested a careful study of Mr. Amory's pamphlet, "The Truth about Metropolitan," which deals, with all these matters far more extensively than I can in this space.

But the labor required consisted of tearing up the old rails and laying the new, and the true cost of this work was not $290,645.27, but less than $15,000.

How is this known? Very simply and surely.

In its report for 1902 the Central Cross-town Railroad gave the cost of taking up four tracks in Fourteenth Street and relaying them with heavier rails as $10,881.29 for the labor. The distance in Fourteenth Street from University Place to Seventh Avenue is twenty-three feet shorter than the distance in Thirty-fourth Street from Broadway to Lexington Avenue. The rails used in Fourteenth Street weighed no pounds to the yard; those used in Thirty-fourth Street weighed 113 pounds to the yard. Hence it is clear that the cost of the labor in these two instances was about the same. There was charged on the books of the Thirty-fourth Street company an expenditure of $290,645.27 for labor; there was actually expended for labor perhaps $12,000. A balance of $278,000 seems to have disappeared.

Who got the money?


In 1902 the syndicate determined to "change the motive power" on the Thirtyfourth Street line. On March nth the chief engineer made a sworn statement in which he declared the cost of this change on this line to be $150,000, including power-house, equipment, and all other expenditures involved.

On June 30, 1902, three months and nineteen days later, the Thirty-fourth Street Railroad reported the expenditures made up to that date for changing the motive power to have been $831,224.04.

The next year it changed more motive power at a cost of $7,789.25 and the next year still more at a cost of $228,970.91, making a grand total of $1,067,984.20 for changes in the motive power that the chief engineer swore could be effected for $150,000. Suppose his figures to have been too small by half, there would still remain more than $700,000 that disappeared under this item.

Who got the money?

On the Twenty-third Street cross-town line (North River to East River) the motive power has been changed four times in four years, if we are to believe the books and the reports. Thus there appear the following items:

1899—For changing motive power.. $1,100,932.52 
1900—For changing motive power.. 362,424.38 
1901—For changing motive power.. 373,401/14 
1902—For changing motive power- 225,470.74

Total $2,062,229.28

Distance, less than two miles; grade, level; work, easy.

This surpasses all the records of railroad construction in this or any other country. According to the reports, the work proceeded at the rate of half a mile a year and required four years to complete. The cost of the work was at the rate of $1,000,000 a mile, which is about the cost of boring a mountain tunnel


The average cost of surface railroad construction and equipment in this country is about $22,000 a mile. In Twenty-third Street the work seems to have cost $1,000,000 a mile. When the Second Avenue line was rebuilt and the motive power was changed, the cost was at the rate of $330,000 a mile of double track, including power-houses and equipment. At that rate the actual cost of changing the motive power in Twenty-third Street was about $600,000. There was charged for it $2,062,229.28. Over $1,400,000 seems to have disappeared under this item.

Who got the money?

Sometimes the sum that disappeared was small and sometimes it was large, but large or small it seemed to vanish and to leave no trace.

On August 10,1898, the Metropolitan Company applied for permission to increase its capital stock by $15,000,000. The sworn statement of President Vreeland, accompanying the application, declared that the money was to be used for these purposes:

To redeem $6,000,000 of debenture bonds : $6.000,000

To pay for power-house construction and cars 4,000,000

To be held in the treasury and used when needed to complete the change of motive power on the various railroads owned and operated by the company 5,000,000

Total $15,000,000

The chief engineer accompanied the application with an affidavit giving details of the proposed expenditures, from which it appeared that the Ninety-sixth Street powerhouse would cost when completed $2,975.580, the Fiftieth Street power-house $600,000, and the new cars $800,000, or a total of $4,375,580

On the basis of the chief engineer's figures, there would be left from the proceeds of the stock sale $4,624,420 and on the basis of Mr. Vreeland's figures, $5,000,000, to complete the change of motive power on the railroads owned and operated by the company.

But on June 28, 1900, the company applied for permission to issue still more stock, $7,000,000, and in this application President Vreeland said that $3,000,000 of the sum would be required to change the motive power on the company's own lines as distinguished from its leased lines. The chief engineer again put in his figures and showed that the cost of changing the motive power on these owned lines would be $2,867,808. Adding to these the expenditures the chief engineer detailed with the application of 1898, it appears that the total cost of changing the motive power on owned lines and on leased lines was $7,243,386. Yet the company's report for 1002 declared that there had been expended for changing the motive power on owned and leased lines $13,310,977.87. The sum of $6,067,641.87 seems to have disappeared behind this item.

Who got the money?


Again, in the last six months of 1901 the Metropolitan Company borrowed $7,240,263.33 for new construction, and according to its report it expended for new construction $6,900,494.26.

But there was no new construction in those six months, except what was involved in the changing of the motive power on a small part of the leased lines. The change of motive power on the company's own lines was provided for by the issues of additional stock already related.

Yet the report of the company asserts that in the year 1901 there was expended for new construction $8,543,736.39, a sum large enough, according to the figures of the chief engineer, to pay for changing the motive power on fifty-seven miles of railroad. As a matter of fact, for the year the company's actual expenditures upon new construction were $2,105,195.10. The sum of $6,438,541.29 seems to have disappeared behind this item.

Who got the money?


The cases I have cited are mere types; they have been repeated many times and subjected to some variations to suit different conditions, but the fundamental principle has remained the same. Always there has been an increase of the load of capitalization under which the enterprise lagged and staggered, and always a part of the securities thus issued or a part of the money they represented mysteriously disappeared. The farmer's boy in the old story observed that the miller's hogs were very fat. You may notice similarly that the syndicate gentlemen have grown very rich.

Even in this brief outline of a long and very intricate story I ought to mention two matters that stand out conspicuously in the long succession of questionable transactions.

Probably no other corporation in this or any other country has ever operated under so many different names. To follow the concern through its list of designations from the old Broadway & Seventh Avenue, the names of different subsidiary companies that were made to do duty for the whole, the Metropolitan Street-Railway Company, Metropolitan Traction Company, Metropolitan Securities Company, Interurban Street-Railway Company, New York City Railway Company, the Interborough-Metropolitan Company, and the rest, would be an unprofitable task, but I desire to note one use that has been made of this fugitive and evanescent nomenclature.

The Metropolitan Street-Railway Company was organized under the laws of the State of New York. The Metropolitan Traction Company was organized under the laws of the State of New Jersey. These companies were coexistent, had the same amount of capital stock, the same ostensible purposes, the same management; but the Metropolitan Traction Company, being a New Jersey corporation, was not obliged to make public report of its transactions. When, therefore, the syndicate bought a branch line for $100,000 and sold it for $i ,000,000, it always sold it to the Metropolitan Traction Company of New Jersey (where the record of the affair was lost) and the Metropolitan Traction Company of New Jersey sold it to the Metropolitan Street-Railway Company of New York, and back of this transaction no investigation could go because it was a transaction between corporations of different states.

The Metropolitan Traction Company of New Jersey seems also to have had another function in concealing the disappearance of moneys mysteriously missing from the Metropolitan Street-Railway Company of New York. Thus when in 1898 the Metropolitan Street-Railway Company issued $15,000,000 of additional stock, $6,000,000 thereof, it will be remembered, was to redeem outstanding debenture certificates. These debenture certificates were issued in October, 1897, to pay for property purchased from the Metropolitan Traction Company.


In September, 1896, the Metropolitan Street-Railway Company had issued and delivered to the Metropolitan Traction Company $13,500,000 of stock in payment of other properties and securities purchased from that company. That is all the information made public in regard to these transactions. What were the properties and securities thus acquired? Nobody knows. The items go down in the books, the totals appear in the reports, there is no explanation of the entries, and the properties and securities are left to public surmise. All we know is that the Metropolitan Traction Company, owned by the syndicate, had no legitimate function in the operating of the street-railroad system of New York, that it was used as a clearing-house for the secret deals of the syndicate, and that here in these two items a total of $19,500,000 of the stockholders' money was paid to it on a bald entry.

The other matter I should tell relates to the Third Avenue Company, which for many years had remained independent and outside of the syndicate's control. In the early part of 1900 the syndicate saw that the time had come when it might possess this long-coveted property. The Third Avenue owned or controlled a very great trackage and had been one of the most staid and powerful corporations of the city. It had been weakened bychanging its motive power from horse to cable and then from cable to electricity, in which operations it had been subjected to some very strange and most costly contracts.

Mr. Henry Hart, who had been for years the captain of the enterprise, was growing old and feeble, and the new management seemed to fare but ill. Observant persons saw that the ship was steering a singularly erratic and perilous course. In these conditions the price of the stock sagged of its own weight. In two or three years it had fallen from 232 to 120, and at that point the syndicate thought it might safely begin to operate. A terrific bear raid was started against the stock, an assault most cleverly planned and carefully executed, the newspapers being adroitly tricked into helping. It drove the price from 120 down to 45, at which figure the syndicate quietly loaded up until it had secured control. By a device quite familiar in such operations, the syndicate gentlemen had bought while they pretended to sell, and thus had kept the price down to the level whither they had forced it. Whereupon they effected the lease to the Metropolitan of the Third Avenue and all its allied lines, and the passing into their hands of practically the entire street-railroad system of Manhattan and the Bronx.

To pay the floating debt of the Third Avenue Company and to provide for change of motive power on some of its allied lines there were now issued $35,000,000 of Third Avenue bonds—naturally; consolidation and reorganization have always been the occasion of more water on the flooded lands. The floating indebtedness of the company was $22,000,000. This left $13,000,000 for the change of motive power. So far the motive power has been changed on one and onequarter miles of the allied lines, at an actual cost of possibly $400,000. But the $12,600,ooo seems to have disappeared.

Who got the money?


Meanwhile the Third Avenue Railroad Company has issued nearly $2,000,000 of additional bonds, its present floating debt is about $7,000,000, and a property once exceptionally solid and profitable has become a piece of financial wreckage. A separate receivership and the practical obliteration of the stock are threatened, all because the inside has been stolen from the enterprise.

Who got the money?

Two years later the whole outfit, Metropolitan, Third Avenue, and everything else, was leased to a new company called the Interurban Street-Railway Company. In all these operations the lease is a great matter.

It covers up a deal of rottenness and it once more strikes the rock whence flow the unfailing streams of water wherewith fainting finance is revived. It was so in this case. The Metropolitan then owed $11,000,000, a condition no longer to be concealed; hence the handy lease, more water, more tribute from the public. According to the statement of President Vreeland, this indebtedness had been incurred in the purchase of Third Avenue stock, and one of the reasons given for the new lease was that funds might be provided for the payment of this indebtedness.

The facts were that the purchase of Third Avenue stock had cost $6,400,000, not $n,000,000, and that even this $6,400,000 had long before been paid. For in 1901 the Metropolitan had issued $7,000,000 of new stock for this purpose, and the stock (thanks to an impressionable public) had been sold at a premium, so that it had realized $10,500,ooo instead of $7,000,000, and the $6,400,000 had been paid off, leaving a handsome balance.

How then could there be an indebtedness of $11,000,000 "incurred in the purchase of Third Avenue stock"?


The company's quarterly balance-sheets, filed with the State Railroad Commissioners, sufficiently established the startling discrepancy. Kuhn, Loeb & Co. were then holding about $6,000,000 of the Metropolitan Securities Company stock. The attention of Mr. Jacob Schiff, a member of the firm, was called to the difference between the statement of President Vreeland and the facts as disclosed by the balance-sheets. Mr. Schiff went at once to Mr. Ryan and made a peremptory demand that his firm be instantly relieved of the $6,000,000 of Metropolitan Securities stock. Mr. Ryan lost no time in complying with the demand. Why, one person can guess as well as another. But he certainly complied, and on the spot.

Four years ago Mr. James W. Osborne publicly offered to prove in any court of law that there had been stolen from the Metropolitan by the men on the inside not less than $30,000,000. No opportunity was ever given to him to make good his assertion. His challenge was never accepted. But it may be interesting now to recall his offer and to observe at the same time this table of the sums that have disappeared in the various Metropolitan transactions:

Houston Street bonds $6,000,000.00
"New Construction" Report of 1901 6,438,541.29
"Leased Line Betterments" Report of 1902 11,014,730.70
"Track and Roadway Construction" Report of 1902 3,500,000.00
Change of Motive Power, General Report of 1902 6,000,000.00
Thirty-fourth Street change motive power 700,000.00
Central Park, North & East River change motive power 1,500,000.00
Twenty-third Street change motive power 1,400,000.00
Second Avenue change motive power 2,396,218.55
Third Avenue bonds 12,600,000. 00

Total $51,549,49°. 54

So this is the reason why the Metropolitan with its enormous revenues, its almost unequaled business, its increased receipts and diminished expenses, has gone into the hands of receivers. It is the reason why when the receivers took possession they found the entire property in a decayed and dilapidated condition. It is the reason why there were not enough closed cars to equip the road for cold weather. It is the reason why the company operated fewer cars in 1906 than it operated in 1905 and into them crowded, jammed, and mashed a greater number of people. It explains why two-thirds of the passengers are obliged to hang to straps. It explains what becomes of three cents out of every five cents paid for fare.

The enterprise has been monstrously overloaded with capitalization until it has sunk; a great part of its securities have disappeared; upon the whole mass the public is paying the huge interest charges; for the sake of the fortunes drawn from these manipulations the public must endure the pains of an inadequate and uncomfortable service.

If it is necessary that these gentlemen should have IT, should we not fare better if we gave them their huge fortunes direct from the national treasury and hired them to keep their hands off us and our affairs?

-See Mr. Amory's pamphlet, pages 33 and 24.

'Where Did You Get It, Gentlemen 1" will be concluded in the February number.

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