BANKRUPT AMERICAN STATES AND RAILWAYS.

Nelson Evening Mail, Volume X, Issue 78, 1 April 1875, Page 2

BANKRUPT AMERICAN STATES AND RAILWAYS.

(From the Pall Mall Budget.) Few foreign securities are more in favor with English investors thsn those of the United States. The country is at once bo new and so vast, and there is so much to be done at the same time in the way of opening up its still unsettled territories, of completing its communications, and so forth, that it is nearly impossible to find capital enough at Home' for all these purposes. To enable them, then, to execute the necessary works, Americans (or a long time. to come will apply to London for funds. But only the exercise of n great caution and sound judgment can avert serious loss to the speculators in pueh'v/orks. On this point two articles which have recently appeared in the New York Financial and Commercial Chronicle are very instructive. The one: gives a; list ot the railways "in . default for interest on their funded debt" — -that is, in plain English, of tho bankrupt railways' in the United States i • — with the amount of their liabilities, and the proportion these liabilities bear to the aggregate liabilities of all the American railways. The second supplies the same information for tho individual States of the Union. We summarise the broad facts of these two articles. To begin with the States. The ; aggregate debts of the several States /a,mobnt to £76,594,103. It is hardly { necessary to remind the reader that i

these debts are due by the States in their individual capacity, and are distinct from the Federal debt on the one baud, and on the other from the debta of the counties, towns, and other local governments. Of the aggregate sum above given, no interest is at present paid upon £32,946,400— that is to say, upon over 43 per cent of the whole. Id other words, out of every £100 lent to American States, the lenders are at present kept out of the interest as well as the principal of £43. Even thia statement, however, does not represent the full facts of the case. Indiana, for example, is not hereineluded among the "defaulting" States. But in 1846 Indiana compelled her creditors to accept Wabash and Erie Canal stock for State bonds of the value !of about £1,500,000. The canal has proved worthless, and in fact, therefore, though not in profession,- Indiana has repudiated that amount of debt. And there may be other instances of the tike kind Another matter to be borne in mind is that, in addition to the loans raised by the Confederate Government during the Civil War, the individual Slates which formed the Confederacy incurred debts for the purpose of raising and equipping the regiments they sent into the field, and for other objects in furtherance of secession. On the subjugation of the South the victorious North compelled the repudiation of the debts thus entered Into for what had been decided on the battle-field to be treasonable purposes. The amount of these debta we do not know, but it is clear that they ought to be taken into account :n any statement of the liabilities incurred by the States on which interest is not now paid. However, Northern writers refuse to do bo on the ground that the Constitution forbidß their recognition. But leaving out these loans, we find that, including Indiana, tho State debts upon which interest is now in default amount in rouud numbers to aboat £35,500,000, or to not very far short of half the debts incurred. The magnitude of tins sum proves the need for caution in investing in these State securities. And another Circumstance which confirms the lesson given" by the above figures is that there are no legal means of compelling a dishonest State to observe its contracts: the eleventh amendment to the Constitution expressly enacts that tho jurisdiction of the United States shall not "extend to any suit in law or equity commenced or prosecuted against one of the United States by citizens of another State, or by citizens or subjects of any foreign State." Still another circumstance enjoining caution is that of the total amount due by the States not more than 26 per ceut, or but little over onefourth, is owed to foreigners; but that of the portiou on which interest is not paid about 33 per cent, or almost onethird, is owed to foreigners. That is to sny, in proportion, foreigners hold a much larger proportion of the bad debts than residents in the United States. With respect to the defaulting States (For continuation see fourth page.)

they number 12 in all, or as nearly as possible, one out of every three ia the Union. But it must be added that none of them are to be found among the eastern or middle States Of the twelve as many as ten are Southerners, the remaining two being Western. These States may be classed under three heads: the dishonest, the carpetbag, and the insolvent. The dishonest States are those which, without excuse, have repudiated their debts. Of those Mississippi provides the earliest example; her repudiation dates from 1842, two. and thirty-years ago. Indiana followed (in 1856, and Minnesota in 1858, Missouri likewise may be placed in this class, as, having contracted to pay in gold, she now refuses to do so, though she possesses ample resources. In some of the "carpet-bag" States the adventurers who got possession of the Government have added debt upon debt until the taxpayers are really unable to meet the demands upon them. In others, again, repudiation has been reBorted to by the whites on recovering power rather out of partisan hostility to their predecessors than from inability to fulfil the obligations they had contracted iv the name of the Government. Lastly, as an instance of a State that is simply insolvent, we may mention Virginia, which, having been made the great theatre of the war, and having suffered most terribly in consequence, is now unable to fulfil her engagements. Doubtless she needs only time and consideration in order to enable her to deal justly towards her creditors. . Coming now to the bankrupt railways, we find that in the early part of laat month they were in number 108. Eleven others had been in the same case in January, but have now either been sold or have come to some sort of settlement with their creditors. The total number of American railways which at some time during the first nine months of the present year were bankrupt amounted to 119. It further appears that only thirty-fonr of the companies, owing no more than 30 per cent, of the debts, or not quite onethird, have become insolvent since the panic of September, 1873. It will thus be seen that it was not to merely accidental causes or temporary pressure in the money market that the great majority of the bankruptcies was due. Of the eleven companies which have disappeared from the list since January only one has resumed payment in full. Five have been sold out, two new companies have, taken the place of another, and four have made a composition with their creditors. Of the 108 companies still bankrupt last month, fore-closure proceedings have been commenced against twenty-five, and the rest hoped to arrange amicably. The aggregate debts of all the American railways is estimated by the Financial Chronicle to amount to somewhat less than £390,000,000. Of this amount interest was not paid last month on £99,561,532, or a little over one-fourth. So that out of every £4 leot to American railways one is at present bearing no interest. Of the aggregate railway debts about £75,000,000, or a little less than onefifth, is due to foreigners, but on the portion on which, no interest is now paid "about £30,000,000, or a little over 30 per cent., is due to foreigners. That is to say, under 20 per cent, of the whole debt, but over 30 per cent, of the bad debt, is due to foreigners. In other, words, European investors have lent American railway companies about £75,000,000, and of this amount they are reeceiving so interest on about £30,000,000, or exactly 40 per cent., or £2 out of every £5 invested, Upon which the remark of the Financial Chronicle is that " this shows that the foreigners have been unfortunate in their selection, and accounts for the excitement and demoralization, particularly on the Continent of Europe, on the subject of all American railroad securities."