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- . K. 131

BOARD DF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Office C o r r e s p o n d e n c e
To

Chairman Eccles

natP
Subject:

APru is, 1938.

Railroad Equipment Buying

From

Attached is a short memorandum on the proposal that the R* F* C.,
for a limited period, purchase equipment trust certificates, together
with a tentative draft of a letter from ths President to the E. Tf. C.
Ho new legislation is required. I have permission to pass along,
confidentially, the information that the R. F* C. has just concluded
arrangements for the purchase of $14 million worth of equipment trust
certificates of the Southern Railroad, covering 5,000 freight cars and
some Diesel electric engines* The certificates cover 100 percent of
the cost, mature in 15 years, and carry a 4 percent rate, payment of
which is to start in two years. I am told that a 2 percent rate for
a limited period would bring out a lot of buying*
I inserted the bit about streamlined trains because of the information that the Illinois Central and the Southern Pacific would each like
to purchase six such trains at from #500,000 to #700,000 apiece if
sufficiently favorable financing terras could be arranged* The relatively
short maturity of ten years I suggested for certificates covering
streamline trains is because of the very intensive use to which such
trains are put.
There is a political angle to be considered. The President may
want to hold off for the time being in order to bring all the pressure
he can for the passage of his program*
On the utilities proposal, a memorandum is being prepared for me
by the head of the public utilities division of the S. E # C*
I take it you want to present the various ways of implementing the
program at one time*