RFC on Trial

In the marbled, high-walled hearing room of the Senate Banking and Currency Committee, the life-&-death trial of the nation's biggest lending agency dragged on into its fifth week. The question whether the powerful RFC should be continued beyond its legal deadline of June 30 has revolved chiefly around the way RFC had handled its biggest railroad deal, an $80 million loan to the Baltimore & Ohio Railroad. The issue--and a first-rate ruckus--was raised by gaunt, balding Cassius Marcellus Clay, an ex-official of both RFC and the B. & O. The loan, said he, was part of a "gigantic steal," a "frame-up," and "a fraud."

Clay quit his $20,000-a-year job as general solicitor of the B. & O. soon after it went into bankruptcy in 1945 for failing to meet the terms of the loan. He charged that the bankruptcy was a "conspiracy" promoted by onetime RFC Boss Jesse Jones to keep RFC control of the road, put more RFC men in top B. & O. jobs.

Last week, Cass Clay got some potent support from Railroader Robert R. Young, who popped up as a "surprise" witness.

"In my opinion," said Gadfly Young (who has no financial interest in the B. & O.), "the handling of this situation by the B. & O. management and the RFC was either dishonest or incompetent."

Collateral Issue. At the time the B. & O. declared itself bankrupt, said Young, it had $246 million in cash, bonds, and "quotable collateral" which it could have used to pay its RFC loans. The B. & O. has argued that it needed its cash for working capital. Young said this was nonsense. His own rich Chesapeake & Ohio Railway Co., which did its biggest business ever in World War II, did it with a working capital of only a few million dollars.

Did Young think, asked a committee member, that RFC had gone astray in any other instance? Cantankerous Bob Young could not have asked for a better lead.

"I think RFC has been grossly mismanaged," he cried. "They have been in bed with Wall Street." Like a "Shylock" demanding its "pound of flesh," RFC in cooperation with Wall Street had played "power politics" with the Erie Railroad, the Missouri Pacific, the Chicago & North Western, "and half a dozen other bankrupt railroads." By appointing former RFC employees as trustees of the bankrupt roads, RFC had in effect created an evil "voting trust." As a result, Young declared, "those railroads have been grossly, almost criminally mismanaged."

Was it really as bad as all that? The committee, well aware of Young's rabid animosity towards what he calls "goddamned bankers," was impressed but far from convinced. Unless other RFC dealings, which it began to investigate this week, prove to be much worse, the committee will probably recommend that RFC be allowed to live, though with drastically reduced powers.

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