TELECOM Digest OnLine - Sorted: Penn Central

Penn Central
3 Jan 2006 10:02:00 -0800

Seth Breidbart wrote:

>> The Penn Central Railway, just to name one example, ran so well "by
>> itself", that it drove itself into bankruptcy, and liquidation. The
>> vast sums that they lost on passenger rail service were a direct
>> contributing factor.

> Actually, it didn't do so badly until it was looted by corrupt
> management.

A close look at the record does not support that. A key book is "The
Wreck of the Penn Central". The authors, two newspaper reporters,
took a muckraking approach and clearly felt the bankruptcy was totally
management's fault. However, they at least included details of other
circumstances that were actually the real reasons for bankruptcy.
(The authors chose to emphasize different issues).

Note that:

-- The key PC personnel didn't get rich. The head guy, Saunders, lost a
lot of money and prestige.

-- The bankruptcy was aggresively investigated and no criminal
wrongdoing was found.

-- As a result of the bankruptcy laws were changed to eliminate the
problems the PC had. Passenger service, both local and long distance,
was transferred to govt agencies. (PC lost a tremendous amount of
money on psgr service). Abandonments of unprofitable segments and
better rate making was deregulated by the Staggers Act.

-- Keep in mind there is a big difference between bad decisions and
criminal decisions by management. Bad decisions is not "looting".

-- Unlike modern corporations where assets are mostly paper and the guts
are hidden, the physical plant of the Penn Central was wide open for
everyone to see, and it was obvious it was lousy. Everybody was stuck
on the legends of the Pennsylvania Railroad and New York Central and
ignored the reality that both railroads were in terrible physical
condition and were losing money at the time of the merger. It amazes
me how Wall Street ignores--good and bad--the actual condition of a
company. (A friend told me a utility was undervalued by Wall Street
and to buy it. He was right, the stock doubled soon after I bought it.

Too bad I only bought a little so even though I doubled my money my
actual gain wasn't that much.)

As an aside, the Pennsyslvania Railroad had a sophisticated telephone
system, with its own toll test switchboards. I believe railroads were
one of the types that were allowed to own their own telephone gear and
maintain it themselves and still connect to the Bell System. After
Amtrak and Conrail came in the system was replaced with modern stuff.
Tiny modern brown 2554 Touch Tone wall sets replaced big old style
phones and Teletype 40 series CRTs replaced the old green impact
printers. Amtrak used Control Data computers and CRT screens.

[TELECOM Digest Editor's Note: Baltimore & Ohio and Santa Fe Railroads
each had their own telephone network as well. PAT]

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