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Jack Ranger

Tapping the Wall Street Wire

Jesse Jones and the B.&O.

(28 April 1947)

From Labor Action, Vol. 11 No. 17, 28 April 1947, p. 2.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

The most valuable hypothesis ever made concerning the nature of the state was that formulated by Marx and expanded by Lenin: That the state functions as the executive committee of the ruling class. The truth of this theory is supported by literally thousands of concrete examples taken from the past and contemporary performances of all governments. The theory helps to explain not only the liberal phase of Roosevelt’s regime, but his later militant actions on behalf of American Big Business.

Another and lesser theory, one which is much more easily grasped by most people, is that expounded by Charles Beard in such works as The Economic Interpretation of the American Constitution, wherein he traces the property interests of the men who drafted the American Constitution, to show that members of the ruling classes organize and use governments to further their own private interests, as against not only the masses but against rival property-owners.

People in all countries accept this concept, though it is not one taught in the history books. Just recently we have seen how Will Clayton has used his position in the U.S. State Department to further the interests of his cotton brokerage firm, largest in the world.

In the past few days another scandal has revealed how Jesse Jones, the Texas banker and Roosevelt’s Secretary of Commerce, used his position as head of the Reconstruction Finance Corporation to force a fraudulent bankruptcy upon the Baltimore & Ohio Railroad in order to gain control of that billion-dollar empire. As usual, the scandal broke because of a falling out of insiders. The informant is Cassius Clay, a man who should know whereof he speaks, because he was a counsel for RFC before he became general solicitor for the B.&O. Clay told the Senate banking and currency committee in Washington recently that Jesse Jones had induced the B.&O. to accept an $80 million loan from RFC, placed his own men in charge of the railroad, then threw it into bankruptcy.

Among the “Jones boys” placed in executive control of the B.&O. were former RFC chairman C.B. Henderson; John D. Goodloe, incoming chairman; Stewart McDonald, former Jones deputy, and now chairman of the B.&O.; and Clay. With the RFC being owed $80 millions by the B&O, not due until 1965, Jones met with his partners in control of the B.&O., just before the presidential elections in 1944, and together they decided to throw the railroad into bankruptcy. According to the Senate committee counsel, “by means of this signed commitment the Jones group was able to lock up against loss the financial control of the great B.&O. railroad system. This objective was achieved, the record shows, by extending under the plan the RFC debt to 1965, and all other major B.&O. debts due prior to that time to a date beyond 1965. These extensions make it impossible for any rival financial or political group owning or controlling these debts bo gain control of B.&O. by presenting them at any time from 1944 to 1965 when the company might be short of necessary funds.”

There’s the rub. Many other “rival financial or political groups” are drooling at Jones’ success and would like, themselves, to get a cut of the B.&O.

Clay testified he resigned as B.&O. solictor because he opposed the fraudulent bankruptcy. “It was dishonest from any angle you look at it,” he said.

The reason Jones moved swiftly in 1944 to nail down the B.&O., explained the Senate committee lawyer, was because the Jones group began to worry about the possibility of losing its control of the B.&O. as a result of the 1944 presidential election. He said the group feared that if Dewey were elected, he would put Republicans in charge of RFC, or that if Roosevelt were re-elected he might remove Jones from office (as he subsequently did).

What the counsel didn’t say was that Jones couldn’t have put over his crooked deal without the connivance of the U.S. Supreme Court, which denied a bondholders’ appeal for a review of the case, or of the Interstate Commerce Commission, which approved the phony bankruptcy.

During the Senate committee hearings it was brought out that the Jones gang deliberately diverted in 1943 and 1944 some $31 millions of B&O net profits from repayment of the RFC loans, to the purchase of various B.&O. bonds; that the secretary of the B.&O. had doctored the minutes of the B.&O. executive committee meetings so as to eliminate therefrom certain references to the impending “bankruptcy” game; that Russell Snodgrass, former assistant general counsel of RFC who became vice-president of the B.&O. had furnished the ICC with an inaccurate estimate of the cash and government bonds owned by the B.&O., making a small error of about $50 million.

The Jones’ insiders, in addition, made tens of millions of dollars by purchasing B.&O. stock. The silliness of throwing the B.&O. into bankruptcy may be understood when it is recalled that from 1939 to 1945 the railroad made more than $110 millions in profits, after all taxes.

Jones took care of many members of his political machine in the course of his “job” on the B.&O. For instance, one young lawyer, named Baukhages, testified he received only $2,000 a year with the RFC, but that Jones put him in as general solicitor of the B.&O. legal department where he now receives $18,500 a year.

The RFC has functioned for years as a pipeline from the U.S. Treasury to politically-favored businessmen of the nation. “We just tried to be helpful to the business of the country. We were helpful to the B.&O.,” testified pious Charles Henderson, retiring RFC chairman.

Clay, the guy who finally squealed, is a brother-in- law of Adolph Berle, one of Roosevelt’s fair-haired braintrusters. It was brought out that Berle once put in a plug for his in-law with the chairman of the B.&O. executive committee, suggesting that Clay be made general counsel of the railroad. When Clay was turned down for that juicy post, he decided to blab.

Even with all this evidence of Big Business shenanigans, it appears that the Jones gang is going to try to bluster its way through. On April 14 the B.&O. executive committee met and president Roy White of the railroad wrote Senator Tobey that the railroad was going through with its plans. Senator Tobey had written to suggest that it would be “the course of wisdom and an indication of the usual respect for the Senate banking and currency committee” for the RFC to take steps to defer carrying out the arrangements provided for in the B.&O. plan until the committee had decided on validity of the RFC participation.

Fifty years ago such a financial scandal, touching some of the highest politicians and bankers in the country, would have rocked the United States. Even as recently as 1923, in the Teapot Dome investigation, the public displayed an interest in the ways Big Business was using the government to enrich itself. Today we are shockproof. Apparently we all take it for granted that the politicians and the Wealthy whom they serve use the government to further their own private interests. After all, what’s a billion-dollar railroad, compared with the waste and corruption of the recent war?

Jones? A fine God-fearing man. Friend and appointee of President Roosevelt’s. Rich, upstanding citizen who served his country well in the recent war. A capitalist among capitalists. True patriot and epitome of our great democracy.

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