Penn Central Transportation

Penn Central's 1970 bankruptcy was the largest in U.S. history at the time and sent shockwaves through financial markets—commercial paper that had seemed safe suddenly defaulted, forcing the Federal Reserve to intervene and backstop the commercial paper market. The railroad's failure demonstrated how corporate complexity can mask problems until sudden collapse. The mechanism failure was merger integration failure. Penn Central was created in 1968 from the merger of Pennsylvania Railroad and New York Central—bitter rivals forced together by declining industry economics. The merger was supposed to create synergies; instead, it created chaos. Incompatible systems, conflicting cultures, and deferred maintenance accumulated until the combined entity was less viable than either predecessor. The company also demonstrated how regulated industries can defer problems indefinitely until they become unsurvivable. Railroads couldn't abandon unprofitable routes without regulatory approval; they couldn't raise rates to cover costs; they couldn't reduce workforce without union consent. Each constraint individually was manageable; collectively they prevented adaptation. Penn Central's failure ultimately led to the creation of Conrail (government-backed restructuring of Northeastern railroads) and eventual deregulation that allowed surviving railroads to become profitable.