Subsidies Scrutinized

When after the War the Federal Government set out to put a U. S. merchant fleet back on the seven seas by means of mail subsidies and cheap construction loans, no one thought the job could be done for nothing. How very much the 14-year effort cost the Treasury --and how and why--a special Senate investigating committee headed by Alabama's lean, earnest Hugo Black began last week to discover.

First company to be hauled up on the Senate's dissecting table was Export Steamship, a flashy young hustler born in 1919. Most travelers know that American Export Lines operates a fair-to-middling passenger service out of New York through the Mediterranean to the Levant (Palestine, Syria, Egypt), that its best boats all have names beginning with ''Ex" (Excalibur, Exochorda, Exeter, Excambion), the first of which Mrs. Herbert Hoover christened. Senator Black's investigation disclosed the following about Export Steamship's past and present:

Its president and sole owner is Henry Herbermann, 55, a hard, dark chunk of a man who began life as a tough waterfront youngster in Pennsylvania R. R.'s Jersey City yards, rose to be chief clerk, went into the trucking business, moved a whole German U-boat into Manhattan's Central Park for Liberty Loan speeches, bought up the shipless Export company in 1920 for $65,000. His friends now include Egyptian royalty, from whose stables he has acquired fine Arabian horseflesh (see cut). An older, even more valuable friend, with whom for years he has played poker, is Thomas Ventry O'Connor, longtime chairman of the now defunct U. S. Shipping Board, with whom he did all of his government business. Last week Shipman Herbermann appeared before the Senate committee with a physician who kept taking his pulse at intervals.

Campbell Bascom Slemp had hardly left the White House as Calvin Coolidge's secretary when Mr. Herbermann snapped up his professional services to help Export Steamship buy some freighters from the Shipping Board. The Government was asking $8.50 per ton. Export Steamship offered $5. Fixer Slemp got 18 of them for his client for $7.50 per ton--a total of $1,071,431. He sent the company a bill for $50,000. Mr. Herbermann settled for $15,000.

A condition of the sale was that the Shipping Board put the 18 vessels in first-class condition. Its repair bill was $1,825,718 with the result that the Government took a cash loss of $754,287 on the sale. Mr. Herbermann gave $3,500 worth of cattle to the father-in-law of the Shipping Board's repair officer, put up another $15,000 to save the same father-in-law's California ranch from foreclosure.

Before the ship sale was completed, a $510 tailor bill for three suits and an overcoat for Chairman O'Connor found its way into the Export Steamship offices, was mysteriously paid with cash. President Herbermann swore he had not paid it.

Mrs. Mina Irvine, secretary to Chairman O'Connor, and Mr. Herbermann, looking for "some easy money" speculated jointly in Florida land. When Department of Justice agents arrived to search her files, this elderly Government employe destroyed all records of her transactions.

In 1929 under the Jones-White Act Mr. Herbermann set out to borrow $7,122,750 from the Shipping Board to build his four "Ex" passenger liners. He got the cash at less than 1% interest. When his Government loans began to gall, he went to Washington to get them extended, spent $11,360 in 30 days on "entertainment." The Shipping Board's comptroller recommended disapproval of the extension because Export Steamship owed $3,952,000, had assets of only $1,172,199. Robert Patterson Lamont, then Secretary of Commerce, wrote the Shipping Board that he saw no objection in the 3-to-1 balance sheet.

In 1928 Mr. Herbermann procured for his line a ten-year ocean mail contract at $1,044,000 per year. When his new ships began to operate Walter Brown, then Postmaster General, increased this subsidy to $2,185,000 per year. But Export Steamship was not overburdened with postal cargo. From August 1928 to June 1929 its ships carried precisely three pounds of mail, a cost to the Government of $234,980 per Ib. In 1929 it carried one pound of mail for $115,335. For fiscal 1931 it carried eight pounds of mail for $125,820 per Ib. Its defense was that ocean mail contracts are only a legal pretext for an outright subsidy, that its ships always had cargo space reserved for mail but that the Post Office Department assigned them no more than enough to keep their contract valid.

Senator Black estimated that Export Steamship Corp., the first of 50 shipping companies on the committee's list for scrutiny, had received Federal subsidies and benefits worth $26,663,151 since 1928. Yet Export officials testified that their company was now "in worse condition" than in 1930, that it still owed the U. S. some $8,000,000 of which $1,200,000 was already past due.

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