case these interest charges are excessive]y high as compared with the present capitalized value of the property on which they rest, computing the capitalization on the basis of the present cost of replacing this property and the present interest charge which this cost of replacement would bear. In the latter case the original capitalization of the corresponding items of property will have undergone a practical (effective) recapitalization at a lower figure to correspond with the higher rate of interest prevalent during the interval in question ; and in the subsequent period of low interest, the fixed charge on this recapitalization is excessively high as compared with the current effective capitalization of the property. The liabilities are excessive, in respect of their interest charges, as compared with the present eaming-capacity of the property represented by them.'
' More Id detail, what happens in connection with intereat-bearing BBcurities carried over an interval of high InteTeat rates and biuiness activity may be fonnuUted aa foUowB : Wben current interest rates advance, Becuritiea bearing a fixed rate (of dividends or interest) decline on the market. Tbat is to say, the effective capitalized Talue of tbe claim to tbese filed rates of income, as shown by the market quotations, shrinks. At tbe fiame time, since tbe period during which this readjustment occnis is a period of acceleration in business, the eamlng-capaclty (actual or putative) of tbe property on which these securities rest has increased over what it was at the time the securities were floated. Hence this property (industrial equipment) is also recapitalized, in tbe market quotations, at a higher viJue than it had when tbe securities were floated. The effective recapitalization carried out bj the market quotations acts, for the present pnrpose, to tbe same eSeot npon the value of both of the items conmdered, this effect being to leave a margin of the ptopertj previoualy covered by the securities