subsidiary lines. Mainly to meet its share of these loans, the New Haven, which before its great expansion could sell at par 3 1/2 per cent. bonds convertible into stock at $150 a share, was so eager to issue at par $67,500,000 of its 6 per cent. 20-year bonds convertible into stock as to agree to pay J. P. Morgan & Co. a 2 1/2 per cent. underwriting commission. True, money was “tight” then. But is it not very bad financiering to be so unprepared for the “tight” money market which had been long expected? Indeed, the New Haven’s management, particularly, ought to have avoided such an error; for it committed a similar one in the “tight” money market of 1907–1908, when it had to sell at par $39,000,000 of its 6 per cent. 40-year
These huge short-time borrowings of the System were not due to unexpected emergencies or to their monetary conditions. They were of gradual growth. On June 30, 1910, the two companies owed in short-term notes only $10,180,364; by June 30, 1911, the amount had grown to $30,759,959; by June 30, 1912, to $45,395,000; and in 1913 to over $70,000,000. Of course the rate of interest on the loans increased also very largely. And these loans were incurred unnecessarily. They represent, in the main, not improvements on the New Haven or on the Boston & Maine Railroads, but money borrowed either to pay for stocks in other companies which these companies could not afford to buy, or to pay dividends which had not been earned.
In five years out of the last six the New Haven Railroad has, on its own showing, paid dividends in excess of the year’s earnings; and the annual deficits disclosed would have been much larger if proper charges for depreciation of equipment and of steamships had been made. In each of the last three years, during which the New Haven had absolute control of the Boston & Maine, the latter paid out in dividends so much in excess of earnings that before April, 1913, the surplus accumulated in earlier years had been converted into a deficit.