I think everyone is aware that Amtrak (the National Railroad Passenger Corporation) is a government owned corporation. Its also common knowledge that it constantly operates with a loss. Between 1990 and 2009 it lost $23 billion. In 2010 it lost over $1.2 billion and overall its lost around $50 billion. According to TheBlaze.com Amtrak is:
- Government owned and controlled
- Union-operated, employing more than 20,000 workers
- Has a CEO appointed by the president of the United States
- Its annual budget is allocated allocated by Congress.
However, I don’t think many remember where Amtrak came from and how it came to be owned by the government.
AMTRAK started as the Penn Central railroad. It was the nation’s largest with 96,000 employees by the time it started to run into trouble in the late 1960’s. When it went bankrupt in 1970, it owed money to most of the big banks in the country. As a condition for loaning the railroad money, officers of those banks had been appointed to the board of directors and the banks controlled the railroad’s management. The banks also held large amounts of Penn Central stock.
According to a probe in 1972 by Congressman Wright Patman, Chairman of the House Banking and Currency Committee, the decisions that led to the railroad going bankrupt were made by the banks. Expansion projects were approved and paid for with loans that ended in disaster. Loans were made to pay dividends to stock holders to give a false sense that the railroad was doing well (of course the banks received large parts of those dividends due to the stock they owned.) When it became apparent that the whole thing was falling apart, the banks unloaded their stock at high prices before the public became aware that the bottom was falling out. For instance, Chase Manhattan’s trust department sold over 250,000 shares before the public became aware that the railroad might go bankrupt.
In a letter accompanying the report, Patman noted:
It was as though everyone was a part of a close knit club in which Penn Central and its officers could obtain, with very few questions asked, loans for almost everything they desired both for the company and for their own personal interests, where the bankers sitting on the Board asked practically no questions as to what was going on, simply allowing management to destroy the company, to invest in questionable activities, and to engage in illegal activities. These banks in return obtained most of the company’s lucrative banking business. The attitude of everyone seemed to be, while the game was going on, that all these dealings were of benefit to every member of the club, and the railroad and the public be damned.
When the wheels came off (so to speak) the banks went to the government for a bailout. The federal government not only backed loans to keep the company afloat, they ordered a 13 1/2 per cent pay raise for all union employees (got to get those votes). Even with the loans the company still floundered and in 1971 it was nationalized as Amtrak and has operated at huge losses ever since.
Source: The Creature from Jekyll Island by G. Edward Griffin
Amer Media; 5 edition (November 30, 2010)
Image credit: Amtrak-Steckennetz