Powder River Basin: Part Two (Union Pacific)

 

South to Shawnee Junction

In Part One, we discussed in depth the history and geography of the Powder River Basin, plus the layout of track and mines and the operations there of BNSF in the year 2021.  Part One is the best article to obtain a general overview of this most unique and remote region and provides necessary background for Part Two.  [https://www.waltersrail.com/2023/01/powder-river-basin-part-one-bnsf.html.]  

In Part Two, we take a more idiosyncratic look at the 2021 operations of Union Pacific in the age of the War on Hydrocarbons.

Union Pacific coal loads approach the Hadley Road overpass.

We start with a rant.  Conventional wisdom holds that over the eons, natural selection has produced living beings most suited for survival -- i.e., survival of the fittest.  Thus over time the only deer to survive are the same color as the woods and grasslands they inhabit, because other colors are easier to see and kill.  Mice that migrated to the sand hills of Nebraska all died except for those of light brown, the same color as the sand.   Peppered moths in London were both light and dark-colored. During the industrial revolution, buildings became darkened with soot. Birds could easily see the light-colored moths against the dark background, and soon only dark-colored moths were left. 

The theory of natural selection does not explain why deer, mice and moths were multi-colored to begin with.  It only attempts to explain why one particular color gained prominence.  Natural selection, in other words, is a downward process.  You start with a wide variety and the pool is slowly winnowed down to the few with the greatest chance of survival.

Darwin theorized that this downward process, what he termed "descent with modification," if perpetuated over eons, would cause the same animal to become differentiated in contrasting environments.  For example, fish in cold water would adapt differently than fish in warm water.  Eventually, if enough time passed, the changes would become so significant that new species would emerge. 

Because the changes to produce a new species (the difference between an elk and a moose, for example) could not be explained by simple adaptation to the environment, the theory of natural selection was augmented by a theory of genetic mutation.  In addition to the winnowing down of an existing animals, genetic mutations would over time cause the animal to change in ways more or less suitable to the environment.  The more suitable mutations would survive; the less suitable would not.  Eventually, the mutated survivors would emerge as different species.  Thus, once again, genetic mutation is part of "descent with modification."

But neither natural selection nor genetic mutation could explain certain behaviors -- such as male insects that are eaten by the female after mating.  This led to a refinement of the theory of natural selection to a theory of the "selfish gene."  In other words, living creatures adopt behavior that most ensures the survival of their genes, not themselves.

"Despite the principle of 'survival of the fittest' the ultimate criterion which determines whether [a gene] G will spread is not whether the behavior is to the benefit of the behaver, but whether it is to the benefit of the gene."  W. D. Hamilton, The Evolution of Altruistic Behavior (1963), pp. 354–355.

This theory does not mean that genes themselves are "selfish," rather that the term can be used metaphorically to describe the process.  See Richard Dawkins, The Selfish Gene (1976, Fourth Edition 2016).

Neither natural selection nor genetic mutation nor selfish genes, however, explain why at one time there were both light and dark moths.  To obtain a variety of types initially, there must be some sort of upward branching process.  Darwin's theory, as modified, points downward.  This is a nut that no one has yet cracked.  

Creationists claim the above discussion demonstrates that God initially created the wide variety of living organisms that natural selection and genetic mutation have been winnowing down through the centuries.  This suggestion, however, also does not crack the nut.  To say that God created living things is simply an injunction to stop trying to figure out what happened.  

People once said that God created tornadoes.  Meteorologists have now discovered the mechanism of tornado creation.  The same is true for volcanoes, mountains, lightning and thousands of other natural phenomena.  One could say that God still creates tornadoes; we have just learned how He does it.  That's okay with me, but it leads to the obvious conclusion that if God created initial living creatures, he did it through natural processes that can be discovered.  But no one as yet has figured out that puzzle.

Your author is not an evolutionary biologist but instead a humble lawyer.  His own experience, however, stands in stark contrast to the above theories.  Every day I see people engaged in self-defeating behavior that will not allow either themselves or their genes or even their species to survive.

Pushers on a southbound load.  The Powder River Basin is also produces large quantities of oil.

 

Southbound on triple track main.  Three tracks were needed during the height of the boom -- not so much in 2021.

 

Examples?  Examples are as numerous as blades of grass.  All are taken from my own personal experience.

1.  Without checking to see what lies below the surface of the water, a teenager dives into a pond, hits a rock, breaks his neck and dies.

2.  Never having ridden a horse before, a man climbs on a mare, shouts "Let's go!," is immediately thrown off, hits his head on a rock and dies.

3.  A woman with constant headaches refuses to see a physician.  The tumor in her brain grows so big that she losses consciousness and dies.

4.  An alcoholic crashes his car, killing himself and his family.

5.  Knowing the risks of AIDS, a young man repeatedly engages in gay sex and dies.

Your author himself has participated in the same mindless behavior.  Several years ago, while cutting the hedge with an electric trimmer, I raised the blades directly overhead with my right hand.  With my left I reached high to pull some branches clear of the whirring blades, which were about six inches from my fingers.  The trimmer slipped in my right hand.  The blades dropped and almost completely sliced off the index and middle fingers of my left hand.  Bones were shattered; tendons sliced.  The only thing keeping the digits intact was a little bit of skin.

My first thought was:  "Gee, I hope no one saw me!"

More triple track.

My son drove me to the emergency room, where the on-call physician told me I was the seventh (seventh!) person he had treated that day for wounds from garden tools.  He allowed that my injury was the worst.  I was sent to a major hospital in Oklahoma City where an orthopedic surgeon put my hand back together -- sort of.  (Those two fingers of my left hand still don't hit the keyboard properly.)  Before I was anesthetized, he asked how in the world I had cut my fingers with an electric trimmer.  I told him, and he replied, "Well, that's impressive!"

At one time or another, we all have engaged in self-pity, procrastination, physical neglect, physical deformation.  Chronic depression is perhaps the worst form of self-defeating behavior, one that has plagued your author.  The list also includes alcoholism, drug addiction, schizophrenia and other assorted mental illnesses.  It seems to me that humanity and its genes survive not because of fitness but rather in lieu of it. 

Sometimes, mostly humorously, people claim that the above examples involve people "purifying the gene pool" so that their craziness won't be passed to future generations.  But this misses the point.  Natural selection in theory has been at work a very long time.  In theory, it has produced people with one heart, two eyes, two ears, five fingers and big brains.  In theory it has produced people with dark skins near the equator and light skins near the poles.  Thus, craziness should have been weeded out by now, or at least weeded down, just as light colored moths were weeded out of industrial London.

But that has not happened.  People are every bit as crazy today, people are every bit as depressed and self-defeating, people are every bit as foolish as they were in the past.  

Pushers under a bright Wyoming sky.

 

Empties approaching Shawnee Junction.

Fracking sand at Shawnee Junction.  BNSF's Orin line is in the foreground.

In 1958 Mao Zedong decreed the eradication of  sparrows because they ate seeds that could provide human nourishment.  Within a few years the birds were almost completely wiped out.  Although sparrows do eat seeds, their primary diet is insects.  China was quickly overrun by a locust plague that eviscerated entire crops, producing a famine that killed over 20 million people.  

It is very likely that the War on Hydrocarbons is cut from the same cloth as the War on Sparrows.  In both cases, lawmakers charge into battle without thought of the strength of the opponent (unintended consequences).  And the results have been and can be devastating.

Some of the results have already appeared; for example, rolling electrical blackouts in California, where the war is most intense.  The Golden State has mandated that by 2035, all new cars sold in the state must be powered by electricity, which will require those new vehicles to contain about three times as much copper as current internal combustion cars and trucks.  Plus, the electric power grid will need to expand enormously to handle the manufacture of electric-vehicle batteries, wind turbines, solar panels and storage batteries, to say nothing of the exponential increase in power for charging stations.  That increase in electric infrastructure will more than double the need for copper.  Today (April 2022) the United States produces about four percent of the world's copper.  Forty percent is produced by Peru and Chile, neither of which is known for political stability.

Seventy percent of cobalt, critical for electric-vehicle batteries, comes from the Democratic Republic of the Congo.  And about sixty percent of the world's lithium (also critical for battery production) is produced in China, and almost fifty percent of the world's copper is smelted there.  The United States was once home to almost 20 smelters.  Now there are two.

I am not smart enough to anticipate all the unintended consequences of the effort to eliminate hydrocarbons.  No one is.  That is the point.  We proceed into darkness today with the same foolish certainty as our long dead ancestors -- and with the same consequences. 

We are constantly appalled at the hypocrisy of politicians who make a great show of their religiosity and of honoring the constitution and laws while, behind the scenes, subverting everything they claim to hold dear -- behavior that has not changed in five thousand years.  Hear the prophet Isaiah:

What to me is the multitude of your sacrifices? says the Lord; I have had enough of burnt offerings of rams and the fat of fed beasts;  I do not delight in the blood of bulls, or of lambs, or of he-goats.  When you come to appear before me, who requires of you this trampling of my courts?  Bring no more vain offerings; incense is an abomination to me. . . . Wash yourselves; make yourselves clean; remove the evil of your doing from before my eyes.

Then Isaiah provides the simple formula that all should follow: 

Cease to do evil, learn to do good; seek justice, abolish oppression; defend the orphan, plead for the widow.

Natural selection has not conquered hypocrisy and foolishness, has not even slowed them down.  The first man smiled while robbing his neighbor.  So will the last.  The first man blundered blindly into the night.  So will the last.

When we are born, we cry that we are come to this great stage of fools. -- King Lear

 And all our yesterdays have lighted fools the way to dusty death. -- MacBeth

We are all fools, except for the tiny remnant of any age that knows what it is doing and creates systems that the rest of us operate until they break down and we don't know how to fix them.  That is when civilizations collapse, to be built again, to collapse again.  And on and on like a rotating fan.  It seems to me, at least in my darker moments, that humanity survives not due to a remarkable law of nature that selects the fittest but rather because of a grand cosmic scheme that permits the survival of the lame, the halt and the blind.

Shawnee Junction.

Empties approaching the junction, with signal from BNSF's Orin line.

More empties at sundown.

Let us tie this rant into railroading -- in the person of Henry Villard, who gained control of the Northern Pacific in the late 19th century, a company on the brink of failure that Villard, with great fanfare, pushed over the edge and into the canyon.

Villard was born Ferdinand Heinrich Gustav Hillgard in Bavaria, Germany, to a family of lawyers and judges. In 1853 he immigrated to the United States and changed his name to Henry Villard.  Settling in southern Illinois he learned English and worked as a journalist, serving as a correspondent for New York papers during the U.S. Civil War.

Villard published his own memoirs, which he wrote in the third person, as though he were detailing the life of a friend whom he greatly admired.  The memoirs are available on-line and provide what might charitably be called a one-sided account of a man who both made and lost more money than most of us can even imagine. See https://en.wikisource.org/wiki/Memoirs_of_Henry_Villard?wprov=srpw1_1.

Northbound empties near Bill, Wyoming, a crew change point for the UP.  Before the coal line, there was nothing in Bill.  There's still not much today.

Lonesome pusher in lonesome country.

Villard found most of his money in Germany, the land of his birth.  He was a man with a dream that he sold to others -- a promoter, if you will, and a good one.  His wife was Fanny Garrison, daughter of the abolitionist William Lloyd Garrison, which gave him instant connections to New England, where he became secretary of the Social Science Association in Boston.  He became friends with William Endicott, a Boston banker, investor and the unseen hand behind Villard's adventures.

Villard was knowledgable of financing, having sold American railroad bonds in Germany after his marriage.  He knew nothing about the actual running of a railroad, but in the 19th century, railroads in America were speculative ventures like electric vehicle manufacturers in the 21st.  The idea was to convince investors to purchase railroad bonds (thus loaning money to the railroad) to construct and operate an enterprise that they thought would make lots of money to pay the interest on the bonds, plus the principal when it came due.  The best promoters could convince almost anyone of profitability -- but railroad profitability was not where money was made.  Money was made in railroad construction, because men such as Villard owned both the railroad and the company that built the railroad.  Construction companies charged exorbitant fees to the railroads, paid by purchasers of the railroad's bonds, a goodly portion of which were pocketed by the promoter.  In other words, men such as Villard could make huge sums of money from the construction of a railroad whether or not the railroad itself ever earned a dime.  And if the railroad did not earn enough to pay the interest on its bonds, plus principal, the debt could always be "rolled over" with new financing.  At least that was the theory.

Beginning in the 1870's, borrowing mostly from Germany, Villard assembled an empire in the Pacific Northwest, establishing the Oregon Improvement Company to construct a railroad line on the northern bank of the Columbia River from Vancouver, Washington, through the Wallula Gap to the uncompleted Northern Pacific at Pasco, Washington.

Frederick Billings, president of the Northern Pacific, refused to sell to Villard and also planned to build on the north bank of the Columbia and also across the Cascade Mountains to Tacoma.   

Realizing that Billings' plans endangered his venture, Villard began quietly buying shares of the Northern Pacific.  He was unable to obtain enough to gain control of that company, so he invented what was later termed the ”Blind Pool,” asking his financiers to invest in a venture that he would not name.  

Here is how he described it in his memoirs:

[H]e issued a confidential circular to about fifty persons, informing them that they were desired to subscribe towards a fund of $8,000,000, to which he himself would contribute a large part, in order to enable him to lay the foundation of a certain enterprise the exact nature of which he would disclose on or before May 15, 1881.  

Another.

Competitors.

Shawnee Junction.

Because he had so far been successful, at least some were willing to play along.  In fact, because he did not reveal his plan, some investors actually grew excited, thinking that Villard was about to make a killing.  Never one for modesty, Villard said in his memoirs:  "The effect of the circular was astonishing."

At the same time, he hid his intentions from the Northern Pacific, an unsuspecting doe about to be eaten by a mountain lion.  Before the railroad realized what was happening, Villard owned a controlling interest and named himself president.

His success in out-maneuvering the Northern Pacific brought Villard a reputation he did not necessarily covet.  He wrote:

This unique financial feat, without precedent or parallel, gained for Mr. Villard much of the kind of reputation which he least coveted.  Wall Street dubbed it the "blind pool," and the newspaper exaggerations and fictions indulged in throughout the country regarding it gave him a most distasteful notoriety. 

He left the day-to-day operations of the Northern Pacific to subordinates and often went months without answering their questions.  "My multifarious business occupations do not permit me to follow up my correspondence regularly," he wrote to one.

Villard created the Oregon and Transcontinental (O&T) to construct branch lines off the Northern Pacific main.  Each branch was organized by Villard as a separate business entity (primarily owned by Villard) and sold six percent bonds to investors to pay the O&T twice the cost of construction.  The inflated costs not used for construction went into the pockets of the owners of the O&T (primarily Villard), which then sold its own five percent bonds to investors and used that money to purchase each branch.  Since Villard owned both the O&T and each branch, he also pocketed the difference between the five and six percent. 

This scheme required people and institutions willing to invest in railroad construction; i.e., people and institutions willing to purchase Villard's bonds.  In the late 19th century, such money flowed as freely as dollars invested today in electric vehicle manufacturers.  The promotors of both railroads and electric vehicles became and become rich whether or not their products ever turned or turn a profit.  What made and makes them rich was and is their ability to convince others to loan them money; i.e., purchase their bonds.

Climbing the grade at Myles Hill.  Shawnee Junction is about three miles ahead.

 

Competitors.

If the business entity did not make money, however, then bond obligations could not be paid.  Bond holders would then scream, which sometimes mattered and sometimes did not.  It did not matter if the bond holders were not powerful.  Then the business simply filed for bankruptcy.  On the other hand, it did matter if the bond holders were powerful business interests, which was the case with Villard.  Ever the optimist, he assumed that making money in the Pacific Northwest would be as easy as finding water in the ocean.  And, as a last resort, he could always borrow more money to pay the bond holders.  Thus, paying obligations was not his concern.

Just as Villard had devoured the unsuspecting Northern Pacific, however, he himself was about to be ambushed by the Union Pacific, which began extending into the Pacific Northwest along the southern bank of the Columbia.  When the Northern Pacific did not make the profits he had envisioned, Villard -- against the advice of his advisors -- borrowed money to pay dividends to the company's stock holders and interest to the bond holders, the equivalent of burning the house to keep warm.  Finally realizing for the first time that  there was not enough traffic to support his own railroad, much less one on each side of the Columbia, Villard proposed to form a pool (with the Vanderbilt interests and the Chicago, Burlington and Quincy) to acquire a majority of Union Pacific stock and kill that line's expansion.  This scheme went nowhere.  

Amazingly, Villard pressed ahead with plans to reach Vancouver along the Columbia, plus cross the Cascades to the Puget Sound at Tacoma, continuing to borrow more and more money.  What is more astounding than Villard's borrowing is the continued willingness of his creditors to throw good money after bad.

If the Northern Pacific had been an ocean liner, its bow would already have been below water.  The cost of construction through the mountains of Montana had far exceeded estimates, creating enormous financial pressure on the company.

The report of the chief engineer on the cost of the new part of the main line reached Mr. Villard soon after his return to New York late in June.  It contained the startling admission that the actual requirements for the completion of the main line would exceed the estimates by more than fourteen millions of dollars.

Concerning this unforeseen impediment, Villard's memoirs make a startling admission:

While made anxious by the construction deficit and the premonitions of the approach of a period of decline, Mr. Villard kept up his courage, and tried to infuse it into the minds of the doubters beginning to appear among his followers. 

Empties grinding upgrade at Highland Loop Road.

Pushers on a coal load at Highland Loop Road.

Villard kept up his courage and pressed ahead.  In September 1883, at the junction of Little Blackfoot Creek and Independence Creek, sixty miles west of Helena, Montana, he held an enormous celebration on completion of his transcontinental line, bringing over 300 guests from Europe and the United States at a cost of about $300,000.  Ulysses S. Grant attended, as did the famous German sociologist Max Weber.  Endicott wrote Villard after the event:  "I cannot quite make up my mind whether it is you or Barnum . . . that has 'the greatest show on earth.'"  

This celebration allowed Villard to make a connection he would soon leverage in a futile attempt to avoid self-immolation.  In addition to Weber, Villard invited to the celebration several representatives of Duetsche Bank.

The wisdom of inviting the foreign guests to the opening of the road was now demonstrated, the German bankers being so much impressed with the vast regions tributary to the road that they promptly undertook to market the greater part of the new bonds in Germany.

Even after the additional new bond sales, however, the Nothern Pacific's ship was still sinking, and Villard was forced to return east to face creditors.  An investment syndicate headed by Drexel-Morgan provided new loans to save the railroad, with the requirement that Villard "get the hell out of Dodge."

So he did, describing the event as follows:

His fate was certainly tragic. Within a few years, he had risen from entire obscurity to the enviable position of one of the leaders of the material progress of our age. But a few months before [the celebration in Montana], he had reached the pinnacle of contemporaneous fame, and received on his transcontinental journey such homage as few men have ever received in this country.

Southbound loads approaching Bill.

Esau Road.

He moved to Berlin.  Although he was no longer president of the Northern Pacific, he had made himself wealthy in its failure.  He wrote a public letter to the company's stockholders, blaming it (the failure) on civil engineers who had chosen a poor and terribly expensive route for construction through the mountains.  He could not conceive any errors on his part.  What the rest of the world could not conceive was that he would re-emerge, Phoenix-like, within the Northern Pacific.

You see, Villard was not finished in the railroad business.  In Germany, he sold American railroad bonds for Deutsche Bank, leveraging the connections he had made during his grand Montana celebration.  Then in 1886, still leveraging those connections, he returned to New York, representing Deutsche Bank in the purchase of securities from Drexel-Morgan.

While Villard's masterful talent at self-promotion must be acknowledged, the apparent endless supply of people and institutions willing to do business with him, like an Irish folk tune that repeats itself without termination, is eerily reminiscent of the like-minded souls in the 20th century who poured millions into the Ponzi scheme of Bernard Madoff.

Villard was the eternal optimist, always basing business decisions on the assumption of huge and steadily increasing profits.  He never prepared for a slow-down in business, much less complete economic disaster, even though such hurdles plagued him throughout his life, and his lack of economic sensibility was leading him directly into the whirlwind. 

Same.

Highland Loop Road

Fracking sand at Antelope Road.

Highland Loop Road

But first his optimism was more than handsomely rewarded.  He had set himself up in business again in New York when he was contacted by the Oregon and Transcontinental, which he had originally established himself, which he had resigned from when he left the Northern Pacific, and which in the intervening years since Villard's departure had, as part of a long-running dispute, gained a controlling interest in Northern Pacific stock.  

The O&T itself was in significant financial distress and needed five million dollars -- fast.  If Villard could raise the money, he was told, the company would turn over management to him, plus give him enough proxies to select whomever he wanted to sit on the board of the Northern Pacific.

In the 1880's, about 17 percent of the 667 million marks that Germans invested annually went to the United States.  Villard was a direct conduit to that flow, and he did not disappoint.  The money was wired to him within 36 hours.

His memoirs claim that, after his previous fall from grace, he had no desire to involve himself with either the O&T or the Northern Pacific.  However, directors of the NP asked him to bring aid to a company that was still teetering on a steep financial cliff.  No doubt his German contacts, more precisely the flow of German money, weighed heavily in that decision, which must have been difficult indeed for a board that had previously fired the man that they were now asking to be their savior.  Villard accepted and "had the satisfaction of voting at the annual meeting of the company nearly one-half of the share capital, (365,799 out of 754,193), although he did not himself own a single share of it."  

The Northern Pacific placed Villard on its Finance Committee.  In the fall of 1888 he declined a nomination to the company's presidency, but in 1889 he became chairman of the board and pushed for the issuance of third mortgage bonds to retire the company's outstanding debts; i.e., borrowing from creditor C to pay off creditors A and B.  This is close to a Ponzi scheme, and although not illegal, almost always leads to disaster when credit tightens and interest rates rise.  In such a situation, if it becomes necessary to borrow from creditor D to pay off C, the value of the borrower's assets will have fallen and not support a large enough loan to pay off the face or par value of the C bonds.  

Same train.

Amazingly, Villard was disappointed when the Board refused to agree to the issuance of many millions of dollars of third mortgage bonds, instead authorizing only 4.5 million.  He wrote in his memoirs:

Against his advice, the board voted to issue, for this purpose and the current requirements, twelve millions of bonds under a third general mortgage. He considered this issue altogether too small, and advocated the creation of a large consolidated mortgage for present and future wants, but was outvoted.

Because of their low priority, such bonds would have value only if the company made enough money to fund its interest payments.  In a bankruptcy, bond holders would get nothing.  Yet the general belief was that, should the Northern Pacific need more financing, it would have no trouble selling even more bonds to meet interest payments.

Accordingly, Deutsche Bank had to close its sale in Germany almost immediately after opening, with offers to purchase swamping the 4.5 million dollars issue.  This insatiable demand for third mortgage bonds led to Villard's getting his way.  The Board voted to issue $160 million bonds lasting one hundred years -- to construct new lines, plus retire higher interest first and second mortgage bonds and older O&T bonds now held by Villard. 

Pushers at dusk.

 

Loaded coal struggles south.

UP coal loads meet BNSF empties.

The threads in this elaborate financial sweater began to unravel almost immediately.  Officials miscalculated the amount of O&T bonds to be retired.  Then in a financial downturn of 1891, Drexel and Morgan demanded renegotiation of its agreement (at a much higher cost) to market the new bonds, and the Northern Pacific agreed.  Under Villard's guidance, the railroad then leased the Wisconsin Central to gain access to Chicago, where it built a new passenger terminal --all with more borrowed funds.

Net earnings per mile almost immediately dropped, as the Chicago and Northwestern, in retaliation for the Wisconsin Central lease, diverted its Pacific Northwest traffic from the Northern Pacific to the Union Pacific.  By 1892, the Northern Pacific was losing almost one million dollars per year on the diverted traffic.  Villard turned to Deutsche Bank, which loaned the Northern Pacific even more money to meet the interest payments on its bonds.

Then came the panic of 1893, the worst depression in American history until 1930.  Northern Pacific traffic continued to drop; revenues ran $30,000 per day behind the previous year's, caused not only by the financial crisis but also by the construction of James Hill's Great Northern, which traversed country even more remote than the Northern Pacific.  To capture long-haul traffic to Puget Sound, the Great Northern slashed rates.  To keep from losing all its business, the Northern Pacific followed.  Soon it could not meet its interest payments.  Next, Germans turned off the money spigot.  Receivership followed.

That was Villard's Waterloo.  Though still personally wealthy, his tenure as a railroad tycoon was terminated for the second and last time.  He resigned from the Northern Pacific in 1893, leaving a trail of company debts as long as the lines from Chicago to Seattle.  

At no time did he believe that imprudent borrowing and profligate construction had led to the Northern Pacific's collapse.  His memoirs express the belief that he was guiltless:

 It seemed a hard fate indeed that he should have to pass twice through the same ordeal and receive such severe punishment for once more loyally uniting his personal fortunes with the same ill-starred company.  

A Union Pacific loaded coal train is leaving the North Antelope Mine, while BNSF loads and empties wait on the spur to the Antelope Mine.

Most of the bonds upon which the Northern Pacific defaulted were either held or sold by Deutsche Bank, which sent its president Dr. Georg Siemens to New York in an effort to control the disaster.  He prepared a report that laid responsibility squarely upon Villard, who responded in his memoirs:

The first thing Mr. Villard had to do was to demand a formal revocation of and an apology for an offensive circular issued by the Bank in hot haste to the bondholders, full of glaring misstatements, unjust criticism of the railroad management, and an evident attempt to make a scapegoat of himself.

To your author's knowledge, the report was never revoked, nor an apology ever given.

Villard blamed the severe economic downturn for panicking German investors, who had ceased to continue the steady supply of money needed to continue rolling over the Northern Pacific's debt.  If the money supply had continued unabated, he believed, the Northern Pacific would have suffered no loss.  That was true, of course, but to believe that investors would continue indefinitely to fund a money-losing venture was, as they say, whistling past the graveyard.  

E.L. Godkin, founder of the Nation and an iconoclast par excellence, wrote the following in a letter to James Bryce, a British academic, politician and friend:

. . . Our old friend Villard, sailed for Egypt a week . . . ago, I may say, in disgrace.  He has been kicked out of every enterprize [sic] he was connected with here, and is universally denounced as a visionary, if not worse, who had made money at the expense of other people.  Unfortunately he has given color to these things by very expensive living all this summer.  I am told the Germans are now as furious with him as the Americans which accounts for his going to Egypt, and, I am told, "round the world."  The unfortunate truth is that of six companies of which he was the forefront, every one has either gone to smash or depreciated enormously in value, and the losers naturally ask how it is that he has so much money?  [See https://archive.org/details/gildedageletters0000godk/page/452/mode/2up.]

Villard did in fact take a multi-month trip with his family through southern Europe and the Middle East, winding up in Egypt where they stayed two months.  During that time, the Northern Pacific's receiver filed a civil action against Villard for defalcating corporate funds.  Villard hired counsel.  The receivership moved forward sludge-like, but the lawsuit did not proceed.  Villard was not vindicated.  Instead, the receiver simply made the decision not to pursue him.

Your author has been a litigation attorney forty-four years.  Matters such as the civil action against Villard are not filed by receivers without cause, and they do not simply "go away."  A matter not taken to trial has been settled by payment of a sum sufficient to satisfy the receiver.  Details of the settlement remain confidential.

A southbound load prepares to cross under Forest Service 942 Road.

Villard was one in a long line of "entrepreneurs" who have gotten rich with others' money.  He did it by creating a construction company that sold bonds to capitalize itself (i.e., purchase construction equipment and offices, pay shareholders, etc.), then overcharged the railroad to lay track.  Since Villard controlled both the construction company and the railroad, no one complained about the overcharges.

Villard would use a portion of the railroad's payment to retire the construction company's costs and fulfill the interest on its bonds.  Because of the significant overcharges, there was still lots of money left over.  This went into Villard's pocket (he was the construction company's major shareholder), along with money from the construction company's initial bond offering, some of which also went to shareholders.  A double jackpot. 

To pay the construction company, the railroad (which Villard controlled) also sold bonds.  When it did not make enough money to pay the interest on those bonds, he caused the railroad to borrow more money to pay off its original debt.  He did this (borrowing from Peter to pay Paul) over and over.  All the while, the money he made from owning the construction company and overcharging on construction was secure in his own private accounts, unreachable by creditors of the railroad.  All this was perfectly legal, and it continued until the German lenders finally said, "Enough!"

It is not amazing that Villard and his ilk have operated throughout human history.  What is amazing is that others have continued to loan them money in the hopes of getting rich themselves.  Creditors keep the wheel of greed spinning just as surely as unscrupulous borrowers.

There is an old saying that goes something like this:  "When you owe the bank a little, the bank has you.  When you owe the bank a lot, you've got the bank."  This simply means that lenders will continue to lend to floundering enterprises in the hope that business will improve.  Otherwise, if the lender stops lending, he runs the risk of losing everything.  Of course, if the lender continues lending and business does not improve, he loses even more of everything.

This is the dynamic that promoters such as Villard have exploited since money was first lent.  Greed exacerbated by foolishness (of both borrowers and lenders) is perhaps the most self-defeating conduct of all, and it has not been eradicated through the centuries.  It repeats generation upon generation -- a constant, it seems, of nature.

What will stop it?  Can some form of government do the trick?  Apparently not, since all known forms of government have suffered the same fate.  All one can do is recognize human nature and attempt to circumscribe it as much as possible, while at the same time impinging human freedom as little as possible.  Some systems do this better than others, but none has solved the Sisyphusian problem.

Have you ever wondered where the expression "railroaded" came from, as in, "He was railroaded," meaning that someone was cheated?  Now you know.

[For a great discussion of Villard and of 19th century railroad financing in general, see Railroaded:  The Transcontinentals and the Making of Modern America, Richard White, W.W. Norton and Company (2011), especially pp. 216-223, 382-383 and 391-397.]

Across the treeless land, UP empties approach the Antelope Mine, the walls of which are visible in the upper left of the image.

So at last we arrive at the Union Pacific and its part in this grand comedy (or tragedy, take your pick).  The saga begins with the Chicago and Northwestern, a railroad that owned trackage skirting the southern edge of the Powder River Basin.  From Fremont, Nebraska, where C&NW exchanged traffic with the Union Pacific, to the coal fields, the Northwestern ran one train per week over 500 miles of mostly unballasted 90 pound rail, including over 400 bridges that could not support loaded coal trains -- the "Cowboy Line."  This track could not be refurbished.  To reach the mines, the C&NW would be required to construct a new railroad at an estimated cost of one million dollars per mile, a sum that made the company's Board dizzy, to say nothing of potential lenders.

However, the demand for clean coal -- the sort found in the Power River Basin -- skyrocketed after Congress pass the Clean Air Act, so in early 1973, the Northwestern sent a civil engineer to scout the terrain north of Douglas, Wyoming, for the possible construction of tracks leading to the Basin.  His report indicated that the geography was suitable for railroad construction, and that the potential business opportunity was unimaginably huge.  Revenues from the mines could be larger than current total Northwestern income.

In May 1973, the railroad's lawyers filed an application with the Interstate Commerce Commission for permission to construct a new railroad in Wyoming, running from the Cowboy Line north to the coal fields.  Six months earlier, Burlington Northern had filed a similar application to construct a connection north from its own line at Orin.  The ICC suggested that the companies file a joint application, since it made little sense to construct two competing lines side-by-side.  They did so, and the application was granted in July 1976.

The dream of the Chicago and Northwestern is realized in the fading sunlight.

Burlington Northern built the line with its own funds, gave the C&NW about two years to pay its half of the costs or lose operating rights, and then began hauling coal.  In the meantime, the Northwestern was searching for funds to re-construct the Cowboy Line and coming up dry.  Despite the prospect of vastly increased revenues, the cost of completely rebuilding over 500 miles of worn-out track (close to a half a billion in 1976 dollars) scared off even the most optimistic investors.

So the railroad developed an alternative -- instead of rebuilding all the way to Fremont, it would go east to the Wyoming-Nebraska border, then build a new line south to connect with the Union Pacific, saving hundreds of miles and millions of dollars.  The topography for the proposed new line was manageable, the territory was semi-arid and virtually uninhabited, not usable for anything but the grazing of a few livestock.  Land acquisition costs would be minimal.

Northwestern's president Larry Provo contacted his counterpart at Union Pacific, John Kenefick, to gauge the larger railroad's interest.  The UP was certainly interested, but before any action could be taken, Provo died of lung cancer.  His successor, James Wolfe, was more cautious, uncertain if he should commit a financially struggling railroad to such an enormous undertaking.

Like a tiger circling a wounded buffalo, the Union Pacific was hungry for a meal of Powder River coal.  It offered to rebuild the C&NW track, construct the new connecting line and pay the Northwestern's share of the costs of the joint line previously constructed by BN.  In return, UP would pay the C&NW approximately $200 per loaded coal train for trackage rights for 20 years -- the equivalent of the tiger's saying, "If you don't run away, I'll eat you quickly."  The offer was "take it or leave it."  Given the enormity of potential profits and the triviality of the Union Pacific's "offer," the smaller road had no trouble politely declining.

The Union Pacific then informed the ICC that it was prepared to provide competitive service in the Power River Basin, should the C&NW be unable to pay its portion of the joint line costs, which caused the Burlington Northern to (1) complain with loud lamentations that the Union Pacific had no right to enter the Basin, and (2) extend the Northwestern's payment deadline two years until 1979. 

Another sundown run.

 

A quintessential Powder River Basin view.

UP had already rebuilt 115 miles of a branch line north of its transcontinental route at O'Fallons, Nebraska, to interchange some coal trains with Burlington Northern at Northport, Nebraska.  The potential coal bonanza was so enormous, so tempting, so otherworldly, that the country's first transcontinental railroad then decided that, since it could not bully the C&NW, it might as well do business with it.  The companies began negotiations in earnest and eventually agreed that the UP would upgrade the remaining 49 miles of its branch to Joyce, Nebraska, and provide $60 million in short-term financing to the Northwestern.  In return, the Northwestern (with the mighty Union Pacific as its partner) would seek permanent financing to construct a new 56 mile line from Joyce north to the Cowboy Line, rebuild that decrepit track 45 miles west to  Shawnee, Wyoming,  construct another new six-miles off the Cowboy Line to join the BN's new coal line at Shawnee Junction, and pay to BN the C&NW's share of the construction costs of that new line.

The deal hinged on the Northwestern's ability to obtain long term financing.  By this time in American history, railroads were not, to put it mildly, a hot growth industry.  Private parties (and certainly not Germans) were uninterested in purchasing C&NW bonds.  But the prospect of all that coal revenue united with the Union Pacific was sorely tempting to institutional financiers, who love to lend money to companies like the UP that don't really need it.  The Northwestern quickly obtained an almost $500 million credit line from a combination of banks.

The thought of competition from the Union Pacific caused the Burlington Northern to complain to the ICC that it had constructed the new coal line with its own money and, out of the goodness of its heart, given the Northwestern a chance to use the line by paying half the costs.  The Northwestern had agreed to exit the stage if it could not come up with the money by 1979.  According to BN, the Union Pacific was never part of the bargain. 

The ICC's response was, "Ha! Ha!"  The Commission had never approved a 1979 deadline for the C&NW's entry into the Basin, and it certainly would not approve one now.  The C&NW had what amounted to a perpetual right to use the joint track, provided it paid its fair share.

Pushers into the dark.

This coal train has just departed the North Antelope Mine.

The two railroads then attempted to reach agreement on the amount --and got nowhere.  The Northwestern felt that it was rolling a boulder uphill, while the Burlington Northern believed it was being attacked by gnats.  Eventually, the ICC established by fiat a payment of $76 million -- half the estimated original cost (the ICC did the estimate, since the parties could not agree even on that point), plus 14 percent interest, minus depreciation.  If that 14 percent seems outrageous, one must remember that all this occurred during the late 1970's and early 80's, a period of runaway inflation, when it was as cheap to purchase a home on an American Express Card as it was to borrow money from a bank (the interest rates being roughly the same, well above ten percent).

The Northwestern then constructed a state-of-the-art railroad, the equivalent of a new interstate highway, with long stretches of straight and flat running through deep cuts and steep fills.  There was only one grade, Myles Hill, seven miles of westbound one percent, starting about 10 miles east of Shawnee Junction.  The entire project took an incredibly short 14 months, the equivalent of Roger Bannister's four-minute-mile.

On August 16, 1984, cannons fired and marching bands played at the Nebraska-Wyoming border to celebrate the first train on the new line.  At the start, the line was dispatched by train orders.  The  Northwestern-Union Pacific partnership ran one train every other day from the Antelope Mine to Newark, Arkansas.  From Kansas City south, the coal loads were carried by Missouri Pacific.  

Traffic picked up rapidly.  During the line's first full year of operation in 1985, the Northwestern and Union Pacific hauled 19 million tons -- almost five trains per day.  CTC was installed in 1986.  By 1995, 23 trains per day left the basin, and average train size had grown to almost 12,000 tons. In 2000, the line averaged about 30 loads per day; average train size was nearly 15,700 tons. In 2006, an average of 36.2 trains per day were loaded, with an equal number of unloaded trains entering the mines -- over 70 trains per day total. 

Antelope Road.

Same.

UP meets BNSF at the North Antelope Mine.

The Northwestern's original plan had been to provide service as far as Coal Creek Junction, which meant that the railroad would be unable to reach mines all the way to and beyond Donkey Creek, the connection with the BN line that ran southeast to Crawford Hill.  Given the avalanche of coal money, however, the C&NW sought permission from the ICC to provide that additional service.  Once again, the BN objected with mournful lamentations, pointing out that the Northwestern had signed an agreement in 1975, promising not to access the northernmost mines.

"Ha! Ha!" the ICC said again.  The Northwestern's prior agreement was anti-competitive and unenforceable.  Having grown tired of litigation and the attendant enormous legal fees, the BN then offered to extend half-ownership of its line north for $27 million, and the Northwestern (equally as worn out) quickly agreed.

Coal loads leaving the North Antelope Mine.

Beginning the climb up Logan Hill.

Today (April 2023), neither Burlington Northern nor the Chicago and Northwestern provide service in the Powder River Basin.  Instead, BNSF and Union Pacific deliver the coal that heats homes in the winter and cools them in the summer, and supplies power to run word processors that keep old men like your author occupied.

But the same government that encouraged the production of low sulphur coal in the 1970's now wants to shutter the mines and the railroad lines that serve them.  Our current politicians have decided that carbon dioxide is their enemy, even though plants require carbon dioxide to survive, even though animals require the oxygen generated by plants to survive.  Remove carbon dioxide from the atmosphere, and everything dies.

The War on Hydrocarbons is "top down."  Someone decides that something should be done, then a "solution" is designed, then the decision-makers, who never suffer the consequences of their edicts, spread the word down the chain of command and force the solution on the populace.  The problem with top down thinking is that errors contained therein (and there are always errors) are magnified step-by-step as the process slowly works downstream to the operational level.  This problem applies as much to business as to government.  In either environment, top down procedures beget unimagined consequences, which beget new top down "solutions," which beget more problems, then more solutions, and on and on -- the real "circle of life."

"Bottom up" thinking, on the other hand, does not start as a grand system to be imposed on the masses.  Instead it begins with an individual or individuals who react to a problem with what seems like a good solution.  Others may see the solution and adopt.  Problems with the solution may arise, but then are worked out before other adoptions.  The process repeats over and over as the solution bubbles slowly upwards.  The beauty of bottom up thinking is that mistakes are weeded out by the process itself.  In another context, this is called the scientific method -- slow and painstaking, as errors are slowly accounted for, and never completed because new issues keep arising, a constant refining of previous knowledge.

Examples include the development of mathematics, the distillation of alcohol, the refinement of knee surgery, the growing of corn and the improvements in diesel-electric locomotives.  All have taken many years, and all are still on-going processes.

Governments and business don't operate this way because they face significant pressure to do something, anything, now.  A politician who suggests that inflation be solved by trial and error over many years will not be re-elected.  An executive who suggests that a decline in revenues be resolved by patience will likewise be shown the door.  Government and business must act fast, which in the long run makes no progress.  Look at the War on Poverty, the War on Drugs, the War on Terrorism.  And now the War on Hydrocarbons.  

Thus, coal production in the Basin steadily declines.  As of 2021, the last time your author visited, the railroads’ Powder River coal volumes had declined 36% since 2017 and were down 54% since their 2008 peak.  About 12-15 UP trains per day were running in the daylight.

 “I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.”  Albert Einstein

Einstein's prophecy may be coming true ahead of schedule.

To see my other posts, go to waltersrail.com.

To see my photographs on Flickr, go to https://www.flickr.com/photos/jpwalters/.