  The Reconstruction Finance Corporation and Public Works Administration loaned
50 U.S. railroads over $1.1 billion between 1932 and 1939. The government goal
was to decrease the likelihood of bond defaults and increase employment.
Bailouts had little effect on employment, instead they increased the average
wage of their employees. Bailouts reduced leverage, but did not significantly
impact bond default. Overall, bailing out railroads had little effect on their
stock prices, but resulted in an increase in their bond prices and reduced the
likelihood of ratings downgrades. We find some evidence that manufacturing
firms located close to railroads benefited from bailout spillovers.
