Page:Vincent F. Seyfried - The Long Island Rail Road A Comprehensive History - Vol. 1 (1961).pdf/85

 70 of the original road. Rightly speaking, the history of the South Side RR proper closes at this point, but we must advance four years ahead of our story to follow the road to its full extinction as a separate legal entity.

In October 1877 there were rumors of financial trouble, and within a month the Poppenhusens went into bankruptcy. The causes of the disaster were primarily overextension of railroad facilities and inexperienced management. Of the three railroads merged the Long Island RR alone paid its way, but the Central and Southern systems both failed to earn even their operating expenses. Poppenhusen tried to improve the Southern road by bettering the physical plant constantly, and obtained the funds through notes given to Drexel, Morgan & Co. (after 1895 J. P. Morgan & Co.) These bankers extended Poppenhusen credits of $1,200,000 in all, for which 35,000 shares of stock and $912,000 bonds were pledged as security.

The rental charges for the Southern and Central systems were more than the Long Island RR could pay, for the simple reason that the latter two roads failed to earn these sums. In addition there were judgments to be paid, representing claims originating before the merger. Herman Poppenhusen and his father Conrad were wealthy men but their credit had been stretched to its limit. When the interest on the various bonds fell due in the fall of 1877, the Poppenhusens defaulted and the complicated structure, so laboriously built up, collapsed. On November 3, 1877 the united railroad system went into receivership and the court appointed Colonel Sharp of the Railroad Department of Drexel, Morgan & Co. as receiver. Sharp terminated the leases of the Southern and Central systems, and these roads, deprived of the artificial financial support of the Long Island RR, promptly went into bankruptcy.

The operation of the unified railroad system under the receiver continued for 1878 and 1879; then in June 1879 the holders of the South Side's second mortgage bonds foreclosed and it was bid in by the bondholders; again in July 1879 the first mortgage bonds were foreclosed and knocked down to an agent of Drexel, Morgan & Co. By these sales all claims against the road were shut out and the receiver was free to do as he pleased.

How can we account for the collapse of the South Side RR