It would appear that one of the purposes of Chapter 11 is to allow a firm to stick it to the employees by eliminating their pensions (a 401k is not a pension plan) and cutting their pay.
Chapter 11 appears to have been created to enrich lawyers and stick It to all business partners and employees (pensions, pay rates, work rules, etc. etc.) of the organization filing Chapter 11. The only winners are the lawyers.
Would add debt holders and stock holders. This poster even lost wages which are first priority. But oh those lawyers got everything they asked for.
The primary purpose of Chapter 11 is to allow a failed business to restructure itself so that it has a reasonable probability of succeeding. If the probability is low, Chapter 7 comes into play, and the assets of the bankrupt are liquidated.
If the employees were enrolled in a qualified legacy pension plan, that was covered by the Pension Benefit Guaranty Corporation, their vested pension rights are transferred to the PBGC. The key term is vested! If the employee was participating in a 401k, 401m, or a cash balance plan, he would get the market value of the plan at the point of separation. In the long run, if the 401 or cash balance plans are managed properly, the outcome can be much better for everyone.
The primary objective of a business organization is to preserve the entity. If this objective is not met, everything goes in the toilet. Frequently, to emerge from Chapter 11 with a reasonable probability of success, the organization needs to shed employees. It is unfortunate, especially for those losing their jobs, but it is a fact of business survival. The theory is that shedding some employees is better than shedding all of them.
Contrary to what many Americans appear to believe, a business does not exist to provide employment. It’s purposes are to achieve a variety of goals for its key stakeholders, i.e. shareholders, customers, employees, creditors, regulators, etc. At the end of the day the primary purpose of a business is to sell goods and/or services at prices that will cover their costs and provide a reasonable return to the owners.
Were any passenger TRAINS making a profit? Possibly a few in the NEC. Maybe the C&NW’s suburban trains in Chicago. Were any passenger SERVICES making a profit? No. Have they ever? In North America, rarely, I would say, if at all. Long hauls, full trains and those first class (i.e., Pullman) seats made trains like the Broadway, the Century, the Hiawathas and the Zephyrs nice money spinners for their companies. But the nearly empty local doodlebugs and puddlejumpers ate all that up and, eventually, more. 'Twas ever thus but by 1971 there were too few left of the former to support the latter.
Mac,
Do you have evidence to show, as you suggest, that Schlimm’s statement is “99 per cent untrue?” Did only 1 per cent of all railroads receive land grants?
I don’t have numbers at my finger tips but some eastern railroads got land grants from both state and country governments. Federal land grants were only part of the land grants given to railroads; States and Territories as well as Counties and even Municipalities all provided land grants.
Your comment on Federal backed bonds for the Union Pacific is interesting. Congress intended that the UP would pay 6 per cent per year in equal semi annual payments. However, the law was poorly drawn up. When he was President of the UP Jjay Gould filed a lawsuit claiming that no interest was due from the UP until the bonds matured and he won the suit. And when the interest was paid it was simple interest, not compounded to reflect that fact that none had been paid over the years. The UP went bankrupt in, I think, 1893 and around 1900 the Federal Government sold the railroad for $45 million. Whether or not that was enough to recoup all of the interest owed I don’t know.
I think you are absolutely correct to point out that had the UP and CP not been built when their were they would have been built over the same route later but with different funding. Had that happened most likely there would have been much less government involvement.
Finally, I think a argument can be made for railroad land grants. Much of the land had no value before the railroad came. It was the railroad that gave the land its value. And even with the grants the government retained much of the land which now had value because of the railroad. So the government was better off because of the land grants.
John
Sure, some passenger trains made money. I’m equally sure, from my reading, that the overall passenger operations of ALL roads lost at least a modest amount, even in the heyday of passenger rail. Passenger carriage is, over time, a losing proposition. Financial guys like Jim Cramer who are getting all excited about airline stocks at this time are slow learners. The airlines are a historical loser … they have passengers, but little freight to pay the bills.
I don’t like the airlines, and can’t wait for them to get their final comeuppance when business travel is made obsolete – as it really already has been made obsolete, only waiting for business practices to catch up – by modern electronic communications.
“Profitable” is probably the wrong measure. Cost/benefit is probably more relevant. Sometimes the costs are paid by others and the benefits accrue outside as well. Even this way, it depends a great deal where you draw the “control volume”.
The problem is that the train is just a link in a chain and it 's difficult to apportion an useful measure of the value each link when all are needed to get to the goal. An analogy: There is a treaure chest with $1M of gold at the bottom of the ocean. You have a chain with 1000 links to reach it. Each link costs $100. What is the cost/benefit for the whole system? What is the value of each link? What if one link breaks? What if you are one link short?
John,
You are misunderstanding the 99% comment. His claim was that had the land grants not been made the land grant railroads would never have been built. That was the claim I was disputing. A wise middle school teacher one taught me that “always” and “never” statements were almost always false. While the context was True/False tests, I have found that to be a good decision rule in life also.
I made no claim about the percentage or exact amount of rail mileage built with the aid of land grants. It sounds like you know enough history to know that getting an accurate figure would be a major research project.
You can find a good discussion of the UP bankruptcy of 1893-1897 in the first chapter of Maury Klein’s 'Union Pacific the rebirth 1894-1969".
Mac
And what constitutes a reasonable return to the owners?
Answering your question would be grist for semester long courses at the nation’s best business schools.
In a nutshell it depends on the expectations and risk tolerances of the investors. Investors in utility companies, as an example, probably are happy with a return of 8 to 11 per cent, but those in a high risk activity, such as oil and gas exploration, probably have considerably higher expectations because they are willing to tolerate a much higher risk levels.
Investors in the nation’s freight railroads, including the Canadian National and CPR, are getting a return in the neighborhood of 11 to 13 per cent. These returns appear to be more than sufficient to attract investor and creditor capital.
The optimum determinate of reasonable is the market. I shudder at the thought that the returns would be dictated by a government authority. Been there, done that. Prior to deregulation of the utilities in Texas, the returns were determine to a large extent by a rate order issued by the Public Utility Commission. It was a largely ugly political exercise.
Oltmannd,
Your summation of the status of Amtrak’s long distance trains on Frailey’s blog is very good. Why don’t you bring it over to an appropriate forum. My impression is that more people read the forums than Frailey’s blog.
Personal observation - Blogs are written by individuals that are way too full of themselves! ie. I write a blog, therefore I am a self appointed expert.
A decade or so ago Railway Age had a short blurb where the author stated that because of the high costs of passenger service there was no way that a railroad could recoup the costs and make a profit on passenger service.
The interesting thing was that the snippet was in Railway Age’s “100 Years Ago” column and the original article from which the quote had been taken was from a early 1900 issue. So this topic isn’t a new one.
Umm Mac,
Hate to blow your arrogant whistle but your wrong by 99%. Between 1876 - 1900 practically every railroad received land grants because the bank refused or would not invest in the railroad and the interest rates were quite low.
Oh and over 303 million acres of land grants was handed out during that time frame…
YOU are NOT welcome to YOUR facts… go read a book would ya.
My facts are from the library of congress… YOURS? oh wait… you have to reference… just opinion. …must be a Republican.
This post was edited by it’s author. Have a nice day. [:)]
Jack,
My point with Schlimm was to dispute his claim that absent the land grants, the land grant lines would never have been built.
“Practically every railroad” in your post means every railroad company, which has very little relationship to miles built. This claim too is false.
The land grant age really started with canals in the 1830’s and shifted to railroads in the 1850’s with the Illinois Central. The land grant covered the main line from near Galena to Cairo, plus the branch to Chicago, some 500-600 miles. By 1910 the IC was roughly 10,000 miles of line. Much of that line was purchased with new stock and bond issues in the period you claim banks would not invest in railroads, which tends to disprove that claim. To the best of my knowledge none of the lines that IC swept up in this period had land grants attached. So the fact is that while the IC was a land grant railroad, only 5-6% of it was built with the aid of land grants.
New grants virtually stopped after the Credit Mobilier “scandal” broke in 1872. Certainly additional mileage was built based on previously chartered land grants. The period begining in 1881 and ending in 1893 saw the highest annual average of mileage constructed. That would have been impossible if the railroads did not have access to the financial markets.
I made no claim about land grant acerage. You may be right, you may not. Frankly I am skeptical of most claims on this issue since most authors have some axe to grind and not all are careful researchers.
I neither know nor care what your politics are, but your knowledge of financial history and ability to read and comprehend leaves a lot to be desired.
Mac McCulloch
Land grants, including the bonds and lands sold, were a useful and wise action which were of great importance in the building of most of the western transcontinentals. One can say they would have been built anyway without the assistance, but there is no evidence of that beyond the NP and parts of others. Perhaps, perhaps much later, perhaps some not.
OK Mac. It seemed to me that 99 per cent comes close to an “always” statement.
I don’t know what would have happened had land grants to railroads never been given. The fact of the matter is that they were given. I do understand that President Lincoln and the Congress saw the land grants as a way of getting some railroads built without imposing a tax burden on citizens. It didn’t really work out that way but that was their intent and I think the intent was valid. And I don’t believe in presentism–judging historical events by today’s standards.
I have read Maury Klein’s biographies of Jay Gould and E. H. Harriman and found them fascinating. Especially Gould who I think is a better man than is generally realized. Especially in his contest with Corneilus Vanderbilt.
Have a good summer.
John
Who the heck is “Jack”? I scrolled back to the top of the page and couldn’t find him. Why not use the regular ‘handles’ of forum participants to make your arguments easier to follow?
Furthermore, posts should be addressed, and made comprehensible, to readers in general. If you want to talk to someone in particular, send him an e-mail.