The crisis for Taggart Transcontinental worsens when the railroad's San Sebastian Line proves to be worthless and is nationalized by the Mexican government. The line, which cost millions of dollars, was supposed to provide freight service for the San Sebastian Mines, a new venture by Francisco d'Anconia, the wealthiest copper industrialist in the world. Francisco was Dagny's childhood friend and her former lover, but she now regards him as a worthless playboy. In this latest venture, d'Anconia has steered investors completely wrong, causing huge financial losses and a general sense of unrest.
James Taggart, in an attempt to recover the railroad's losses on the San Sebastian Line, uses his political friendships to influence the vote of the National Alliance of Railroads. The Alliance passes what's known as the "Anti-dog-eat-dog rule," prohibiting "cutthroat" competition. The rule puts the superb Phoenix-Durango Railroad, Taggart Transcontinental's competitor for the Colorado freight traffic, out of business. With the Phoenix-Durango line gone, Dagny must rebuild the Rio Norte Line quickly.
Dagny asks Francisco, who is in New York, what his purpose was in building the worthless Mexican mines. He tells her that it was to damage d'Anconia Copper and Taggart Transcontinental, as well as to cause secondary destructive consequences. Dagny is dumbfounded, unable to reconcile such a destructive purpose from the brilliant, productive industrialist Francisco was just ten years earlier. Not long after this conversation, Francisco appears at a celebration for Hank Rearden's wedding anniversary. Rearden's wife Lillian, his mother, and his brother are nonproductive freeloaders who believe that the strong are morally obliged to support the weak. Rearden no longer loves and cannot respect them, but he pities their weakness and carries them on his back. Francisco meets Rearden for the first time and warns him that the freeloaders have a weapon that they are using against him. Rearden questions why Francisco has come to the party, but Francisco says that he merely wished to become acquainted with Rearden. He won't explain his presence any further.
