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made a preliminary report, it looked as if 500 cars at the outside would move via the Milwaukee instead of the 5,000 estimate which we had previously secured. So, instead of exerting ourselves to get 5,000 cars to that district we worked in about 600 cars and took the surplus over the 600 and moved them into the Northwestern states, particularly Montana.

ANG

OBSERVE CAR SERVICE RULES

NOTHER of the important aids to the cause of efficient transportation rendered by these regional advisory boards is in getting shippers to load and unload cars promptly, load them heavier, and to observe car service rules, which, among other things, provide for the provide for the loading of cars in the direction of the owning road so that equipment will get back as speedily as possible to the road which owns it, where it can perform the service for which it was originally bought. At the office of the car service division in Washington a record is kept of the location of every car in the country and if the cars are not moving, either loaded or empty, in the direction and in proper numbers to meet the coming demand for them, orders go out with the authority of the Interstate Commerce Commission back of them to the roads which have the cars on their lines to send them at once to the points where they are needed. Particular watch is kept of the movement of Western cars westward, for those are the cars that are specially designed and are needed for the shipment of grain. In 1923, prior to and during the crop movement, about 800 of these cars a day were moved westward through the Chicago gateway on mandatory orders from the car service division. In 1924, more empty Western cars moved back through Chicago every day without any orders from the car service division, due simply to better observance of car service. rules by both railroads and shippers. This means that eastern shippers, who in 1923 might have been deprived of cars that they could use because of these mandatory orders, were not in 1924 running any danger of losses from this cause.

In 1923, the American railroads handled the greatest volume of transportation

in their history, and it was handled practically without any complaint, without any car shortage, without any transportation difficulty, and on top of that at the close of that period of heavy traffic there was still maintained a proper distribution of cars among different sections of the country. Indeed a remarkable achievement, especially impressive when one remembers that most authorities on American railway matters had for years predicted a complete breakdown of our transportation system when such a load was placed upon it.

Mr. H. G. Taylor, President of the National Association of Railway and Utility Commissioners, has said, "Following eight or ten consecutive years when congestion and shortage produced a paralysis of transportation, the record of 1923 is little short of marvelous." And Herbert Hoover, Secretary of Commerce, commended our transportation movement during the year 1923 as the "outstanding industrial accomplishment of the year.' Last year, the railroads, with about 4 per cent. less traffic, repeated this accomplishment, thus indicating their ability to continue to do so.

A BILLION DOLLAR PROGRAM

HE executives of all the railroads

THE

of the country met in New York in April, 1923, and, impelled by their fears of what would happen to the roads if they again fell down on their job, announced a program of a billion dollars of expenditures for new facilities and set for their operating departments the standard of the moving of cars at the rate of thirty miles a day. To the man who travels two or three hundred miles a day in his automobile that seems slow, but when he realizes that it includes the time that cars are standing at terminals, at way-stations, and on sidings waiting to be loaded and unloaded, and covers all cars on the roads, whether in use or not, he gets a different view of it. In 1922 the average car movement was twenty-four miles per day. In 1923 the mark of thirty miles. was reached and that was equivalent to adding about 650,000 cars to the country's

railway equipment. At that New York meeting Mr. Conn's plan of organizing shippers' regional advisory boards was also approved. It was the coöperation thus secured from shippers, the much greater efficiency of railroad labor as compared with recent previous years, and the desperate determination of railway executives to win the battle against government ownership that brought about this improvement in operations which Secretary Hoover called the outstanding industrial accomplishment of the year. Mr. Mark W. Potter, before his retirement from the Interstate Commerce Commission, said in his office in Washington: "American railways, during the past two years, have been operated more efficiently than any transportation system in this or any other country has ever before been operated under any conditions."

Mr.

Potter believes that our railways can be operated still more efficiently, and refers specifically to the handling of freight at terminals

This brings us to another view of this coöperative movement between shippers and the railroads; to the view which, from the railroad's standpoint, adds the strongest ray of sunlight to the entire railroad picture. At the Billings, Montana, meeting, to which reference has been made, Mr. Curtis F. Mosher, Assistant Federal Reserve Agent at Minneapolis, and chairman of the executive committee of the Northwest Regional Advisory Board, said this to the assembled shippers: I am satisfied that we could afford to abandon any thought of railroad rate reduction if we were certain we could get 100 per cent. of railroad service. I would

as one of the problems yet unsolved. He also has a vision of the time when the railroads will set up reserves in good times to be spent on their properties when times are slack, in place of the present practice of spending money in good times and curtailing expenditures when revenues fall off. Under such a plan the roads' money would go farther, as they would not be competing for labor when there are other demands for it, and their expenditures in slack times would have an effective stabilizing influence on business generally.

He acknowledges that this means the railroads will have to be allowed to earn the money to set up these reserves.

rather see the freight rates stand until the railroads can reduce them of their own volition, as I believe they will do eventually, if they will give us, on the other hand, the same kind of railroad service that they gave us last fall [1923]. I base this on this statement of fact: Two years ago we had an entirely different situation and to my own personal knowledge the losses that were caused to shippers of grain and especially to shippers of livestock from out here in our northwestern country exceeded any possible sum that could have been obtained if we had been able to mass all of the various

proposed rate reductions together. When a

man has cars ordered for two weeks for a stock shipment and does not get them and he has to hold his shipment on feed, what does it mean? It means that all of the profit is gone out of that operation and a loss has occurred and it cannot be recovered. Now that is what we have been up against in this territory and it was the result of a lack of correlation between the shipper and railroad and a lack of understanding in regard to facts about these traffic movements and car supply required in order to handle our principal products. If we can help the railroads to improve the efficiency of their service we are going to do

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ourselves a great deal more good from a dollars and cents standpoint than can ever result if we only sit around and wait for prosperity to come by the rate-cut route.

LEGISLATION AND EDUCATION

A SIMILAR line of thought came from

Mr. P. A. Lee, Secretary of the Farmers-Grain Dealers Asociation of Grand Forks:

I was very much interested yesterday in hearing Mr. Coleman mention a certain meeting we had in St. Paul in December, 1922. I want to tell you, gentlemen, that if ever any one went to a meeting seeing red I did.. We had a condition in North Dakota in the fall of 1922 that I think was almost enough to make any one see red, and I think it was enough to make a Red of almost any man with blood in his veins; and you can also take it from me, gentlemen, that the fellows that were at that meeting heard from Pete Lee, in fact, he knew that he was so wild that he took one of his directors with him to kind of keep him down in case he went too far; and that meeting, I believe, has done more for this entire Northwest than anything else, because it

brought about an organization of the Northwest Regional Advisory Board.

That was the meeting that started things going. I do not know whether I may be permitted to make this statement or not. It' may be that it is taken out of my small brain, but I believe that this board, this Regional Advisory Board, has a double function to perform. It is not only to bring the shipper and the carriers together where they can iron out their differences and their problems; but aside from this I believe that, in view of the continuous legislation affecting the carriers over the country, that the board has a mission to perform in letting the public know some of the difficulties that the transportation companies are up against themselves.

By placing the shipper in the saddle, the railroads seem to have found not only the way of settling their operating problems, which are also the shippers' problems, but also the way to settle their political and financial problems. They have found a kinder and more reasonable rider than they expected, for it is characteristic of good horsemen to see to it that their mounts are well cared for.

B

ECAUSE of the high interest return they give, the good record they have enjoyed, and the effective advertising done by houses selling them, real estate mortgage bonds have become a popular form of investment. In fact, they have become so popular with some of our new investors whose experience as bond buyers does not antedate the war that there is danger that some of these people may make investment blunders in the buying of them that may result in losses they can ill afford to face.

For example, a minister in the Middle West recently wrote this magazine that he had all his money, several thousand dollars, invested in first mortgage real estate bonds paying from 6 to 8 per cent., that he had about $1,000 to invest each year and was thinking of putting all of it in additional 8 per cent. real estate mortgage bonds.

Under the title, "Should I Put All My Money in Real Estate Bonds?" on these pages for November, 1923, it was said:

This magazine has repeatedly cautioned its readers against houses of little experience that have rushed into this field since it became so popular. So far most of these houses have been able to keep on, but their time of test is still ahead. The investor should not deal with them, and should not, at this time particularly, put all his money in real estate mortgage bonds.

This latter point needs emphasis. As yet the time of test has not arrived. Until it does, and passes, no one can tell with certainty what bonds and what houses are going to come through without defaults and without failures. The longer it is delayed the more confident are the less experienced houses likely to become, the more secure will buyers of the bonds feel, and the greater may be the defaults.

and failures and losses to investors. For that reason it seems well to call attention to some words of caution as to this form of investment that have been uttered within the last few months by two men of long experience in the real estate mortgage field.

Mr. Clarence H. Kelsey, Chairman of the Title Guarantee & Trust Company, New York, in an article in The Journal of Commerce wrote:

There has been a remarkable drift during the past two or three years toward real estate mortgage investments. It has now reached large and, in some respects, dangerous proportions. . . In the zeal to get mortgage investments to sell and to offer a high rate of interest so as to stimulate sales, some of the dealers are going up very high in the amount of the mortgage loan as compared with the value and have to do so to get the rate of interest demanded.

The investment banking houses seem inclined to go into the business also, but it would seem as if some of those who do so do not realize the difference between a mortgage to secure bonds covering an extensive transportation or public utility corporation, where even if the bonds are issued for the full cost of the property there is a possiblity of growth in the traffic or patronage which will still make them a good investment, and a large mortgage on a business or residence building, where limit of income is the rents that can be realized, where no expansion in capacity or service can be expected, and where the sole reliance for payment of principal and interest is the success of the undertaking within the narrow limits of its opportunities, and where payment of principal and interest will depend upon the good judgment with which the building was planned and placed.

Mr. Frank J. Parsons, Vice-President of the United States Mortgage and Trust Company of New York, speaking before the savings bank division of the American Bankers Association at its annual meeting

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in Chicago, in September, criticized the loans of what he termed modern Napoleons of mortgage finance" on the ground that they are confined largely to enterprises conceived by people of a speculative turn of mind, whose individual investment in the enterprise is slight; that they largely disregard the old bases "for appraisal and insist that the test of value shall be a capitalization of rents at what may be a high-water level; that construction funds secured from the sale of bonds prior to the completion of the buildings are not impounded with a trustee; and that independent corporate trustees are not provided for the bond issues.

"The foregoing criticisms," he said, "are made after giving due credit to the very real contributions which have been made of recent years to the art of wise mortgage lending. Among these might be mentioned the provision in large loans for the monthly deposit of rents to cover charges, consistent amortization, the concentration upon new structures and strategic locations, and greater attention paid to the details of arrangement and construction." His conclusion for the investor was in these words:

"A safe and satisfactory experience for an investor in mortgage loans is perhaps more dependent than any other single factor upon the integrity, knowledge, and long experience of the issuing company." And in response to a question regarding the "rental basis" for arriving at valuations, Mr. Parsons said: "The serious error that I see in so many of these bond issues that are being offered to-day is that the houses offering them not only have not had long experience, but the last ten years has been a period of uninterrupted-almost uninterrupted-rent increases and building cost increases. So, if we were ever at the peak of a high cost situation we are to-day. And to take the rents that obtain to-day and capitalize them at a reasonable figure and say 'that is value,' I think is simply making for trouble."

For the investor, however, the income test is about the only one he can apply to these bonds after making sure the issuing house is of long experience and good standing. Very seldom can he check up on appraisals. He can, however, with a lead pencil, quickly arrive at the amount of earnings necessary to cover the annual interest and principal payments on the bonds. If he adds to this the estimated operating expenses for the property and then (in the case of an apartment house) divides by the number of rooms or apartments, which information he should find in the circular, and then divides again by twelve, he will arrive at a monthly income figure from which he may be able to form an opinion as to the conservatism of the loan after taking into account the character and location of the building and the rapidity with which the loan is being amortized, or paid off. He will at least have arrived at the approximate minimum to which monthly rentals can be reduced and still cover charges. If this seems to him higher than the property is likely to yield in bad times, not good, then he should not buy the bonds unless he is willing to take the risk involved.

If the rate of amortization of the loan is less than 5 per cent. a year, the investor should consider the bonds of earlier maturities safer than the later ones, unless it is apparent that the loan is a particularly conservative one. In no case should he place all his money in high interest rate real estate bonds. This violates the first principle of diversification. He should diversify his loans geographically, and it might be well to do so as to issuing houses because the future of these bonds is to a certain extent tied up with the future of the houses. He should, however, never buy from any but houses of long experience and high reputation in this field, and when he invests in construction loans he should know just what additional risks he runs during the construction period.