Annual Address by the President. 
11 
in no sense guarantees them, appears in Article 4584m, which provides : 
“That nothing in this law, and no act done or performed under or in 
connection with it, shall be held or construed to bind or make the State 
of Texas liable to pay or guarantee, in any manner whatsoever, any obli- 
gation, debt, or claim executed or assumed under or by virtue of its pro- 
visions/’ 
STOCK AND BOND “WATERING.” 
The greatest evil connected with the unlawful manipulation of rail- 
road securities, and the one which the Stock and Bond law was designed 
to circumvent, is the ingenuous device called “watering;” that is, the 
voluntary increase of the indebtedness of a railroad by its directors with- 
out compensation to the property. Additional securities are issued and 
loaded on the road, for which it receives no benefit and, further, must 
be taxed for their support. This is done for several reasons; one, in 
order to pay fictitious dividends ; another, to reduce dividends on stocks 
outstanding; another, to throw the stock into certain hands for the pur- 
poses of manipulation; and another, in order that the indebtedness of 
the road may keep pace with the earnings and maintain the dividends at 
what might be considered a reasonable figure — this when the net earn- 
ings are constantly increasing. Still another reason for stock and bond 
“watering” was experienced in Texas immediately prior to the enactment 
and date of going into effect of the Stock and Bond law, which was that 
since the Commission must maintain rates sufficient to pay interest and 
dividends on all indebtedness, by increasing this indebtedness the rail- 
road companies would be provided with additional weapons for opposing 
any reduction of rates, and therefore several million dollars worth of 
“water” was injected into the already muchly “irrigated” stocks and 
bonds of the State; also the creditors of several railroads that were at 
that time in the hands of receivers hastened to compromise with the 
companies, discharged the receivers and reinstated the former indebted- 
ness, which had been copiously “watered” and which was more than 
would have been granted to them had the properties been sold and 
reorganized. They were content to absorb what the properties were mak- 
ing, hoping for better days, when all, including the defaulted interest, 
would be paid. 
Speaking of the general practice of stock and bond “watering,” Gov- 
ernor Larrabee says: “Nearly all railroads in time become the footballs 
of shrewd manipulators. They are bonded before they are constructed, 
and often for far more than they are worth. Stocks at best only repre- 
sented nominal values and were given as premiums to the bondholders 
or promoters of the road. * * * It is a notorious fact that the 
stock of a large number of railroad companies represents little or no 
