22 February 2011

FDR on State Unions

From here, reprinted in its entirety:

My dear Mr. Steward:

As I am unable to accept your kind invitation to be present on the occasion of the Twentieth Jubilee Convention of the National Federation of Federal Employees, I am taking this method of sending greetings and a message.

Reading your letter of July 14, 1937, I was especially interested in the timeliness of your remark that the manner in which the activities of your organization have been carried on during the past two decades "has been in complete consonance with the best traditions of public employee relationships." Organizations of Government employees have a logical place in Government affairs.

The desire of Government employees for fair and adequate pay, reasonable hours of work, safe and suitable working conditions, development of opportunities for advancement, facilities for fair and impartial consideration and review of grievances, and other objectives of a proper employee relations policy, is basically no different from that of employees in private industry. Organization on their part to present their views on such matters is both natural and logical, but meticulous attention should be paid to the special relationships and obligations of public servants to the public itself and to the Government.

All Government employees should realize that the process of collective bargaining, as usually understood, cannot be transplanted into the public service. It has its distinct and insurmountable limitations when applied to public personnel management. The very nature and purposes of Government make it impossible for administrative officials to represent fully or to bind the employer in mutual discussions with Government employee organizations. The employer is the whole people, who speak by means of laws enacted by their representatives in Congress. Accordingly, administrative officials and employees alike are governed and guided, and in many instances restricted, by laws which establish policies, procedures, or rules in personnel matters.

Particularly, I want to emphasize my conviction that militant tactics have no place in the functions of any organization of Government employees. Upon employees in the Federal service rests the obligation to serve the whole people, whose interests and welfare require orderliness and continuity in the conduct of Government activities. This obligation is paramount. Since their own services have to do with the functioning of the Government, a strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable. It is, therefore, with a feeling of gratification that I have noted in the constitution of the National Federation of Federal Employees the provision that "under no circumstances shall this Federation engage in or support strikes against the United States Government."

I congratulate the National Federation of Federal Employees the twentieth anniversary of its founding and trust that the convention will, in every way, be successful.

Very sincerely yours,

Mr. Luther C. Steward,
President, National Federation of Federal Employees,
10 Independence Avenue, S.W., Washington, D.C.

APP Note: Although this letter appears to be signed, "Very sincerely yours, Mr. Luther C. Steward, President, National Federation of Federal Employees, 10 Independence Avenue, S.W., Washington, D.C.," the letter is from Roosevelt to Steward. The placement of the addressee's name and address at the bottom of the document was an editorial decision in the original "Public Papers and Addresses of Franklin D. Roosevelt." The American Presidency Project's policy is to reproduce documents in their original form.

21 February 2011

Wisconsin logic

I saw this on NPR's website and loved this paragraph:

Jacob Cedillotootalian, a 27-year-old University of Wisconsin-Madison graduate student and teaching assistant, said Sunday was the third night that he slept in the Capitol as part of a union representing teaching assistants and he didn't see an end coming anytime soon. He said he was worried about paying more for his health insurance and tuition, but what kept him protesting was the possibility of losing the union.

Why should Mr. Cedillotootalian have to pay more for HIS insurance or HIS tuition. It is much better, after all, to have other people pay for it.

15 February 2011

Government and Home Ownership

I am reading Meltdown by Thomas Woods, an economist of the Austrian school. It is his take on the housing crisis. I am sympathetic to his line of argument.

By chance, I happened upon this piece by David Coates (professor of something called Anglo-American studies at Wake Forest) at the Huffington Post.

Mr. Coates uses the recently published ("long awaited") Treasury Department report on reforming America's housing finance market to lambaste both republicans for having the chutzpah to disagree with the reports main finding (that more rigorous regulations and enforcement are needed in the market) and also the Obama administration for doing nothing to, well, further interfere in the market.

Mr. Coates gives short shrift to the notion that agencies such as Fannie Mae and Freddie Mac and government policies had much to do with causing the "crisis." Apparently the report does so as well, I haven't had a chance to read it yet. Perhaps these intervention exacerbated the situation, but the government certainly didn't cause anything.

Let's go over a few points:

  • The Federal Reserve...as pointed out in this editorial in the Wall Street Journal, written as President W was leaving office, the Federal Reserve kept interest rates too low for too long. The created distortions in the market place, signaling to investors that money should be spent on long-range capital investments. Interest rates, when allowed to operate according to market rules, will be lower as more people save money. This increases the market for loanable funds. People are saving for future consumption. Lower interest rates tell industry that since people are saving for future consumption, they should borrow cheaper money to invest in longer-range investments to be able to provide more goods and services in the future.
  • Fannie Mae and Freddie Mac...forget, for a moment, collateralized debt obligations, credit-default swaps and "carving up mortgages" you may have heard about. The federal government set up ostensibly private institutions whose sole purpose was to purchase mortgage "debt" from banks in order to free up more money to lend. The age-old accounting equation states that assets must equal liabilities plus owner equity. So mortgages are not debt or liabilities to banks. They are assets. But so is cash. So the banks "trade" one asset for another with these GSEs, "freeing up" more money to lend. A simple supply and demand curve will show that the best way to drive the price of something up is to increase the amount of buyers out there. Buying the mortgages from banks with the explicit goal (mandate) of getting them to lend more money to more people to buy houses pushes up, artificially, the price of houses.
Now things are a bit more complicated than this and I'm certainly not saying that banks have no responsibility in the matter. But as one wag put it, blaming the crisis on greed is like blaming gravity for a plane crash. Too many people were given too much money to buy too many houses. Short- and long-term investment strategies were jumbled up with mixed messages from the deus ex machina of the federal government, spiced up with a dash of moral hazard, because everyone except elected officials and the talking heads at CNBC seemed to know that if (when) the poop hit the oscillator, the government was going to come in and pay the bad actors off.

So it boils down to this: where did the money come from? Bank of America can't print money. Washington Mutual had no control over where interest rates were set. No bank can force another bank to hold a note to free up more cash.

Sorry, Mr. Coates. Federal government policies were responsible for the genesis of the crisis. And as someone who works in the mortgage/real estate business, I can assure you or anyone else there is no problem from lack of regulation. The problem is that there are far too many. Too many, in fact, to make any kind of responsible enforcement completely impractical. Never mind the sticky issues of no regulators going into any of the big banks in certain congressional or senate bishoprics and ruffling any potential donors' feathers (calling Mr. Dodd, Mr. Chris Dodd!).

Stick to "Anglo-American studies," because you don't know jack about markets.

07 February 2011

Mergers and Acquisitions

I see that AOL has just bought the Huffington Post.

First, I didn't even know AOL still existed. But when I saw the terms of the deal ($300 million in cash, $15 million in stock) I got a little curious.

I wanted to see how investors were greeting the information and...not well. AOL closed on Friday at $21.94/share and opened today (after the announcement) at $21.64 (1.3% drop) and it looks like it is going to close with about a 3% drop for the day. Not terrible, mind you, but also not exactly an endorsement, either.

AOL has lost 23% of its subscribers from 2009 to 2010 and really doesn't have the cash on hand to be sending $300 million out in an acquisition, especially in acquiring an entity that doesn't really earn anything (AOL had $800 million cash and equivalent at the end of 2010 (unaudited), but ad revenues were down 29% from 2009 to 2010 and their net loss for 2010 was $782.5 million (again, unaudited, see here)).

I'll grant that a lot of the red ink may be a result of the cleansing of the books from the Time/Warner debacle, but facts are facts. Your company is hemorrhaging money and customers, neither your company or the company your acquiring actually produces anything of substance and you're one-half of one of the worst mergers in the history of finance, does this seem like a good idea?

Listen, I like reading idiot celebrities writing about dead dyspeptically tendentious historians just as much as the next guy and, of course, Sean Penn, but is there any money in it?

This has nothing to do with politics, mind you. I may think most of the content at the Huffington Post is rubbish, but a sound investment is a sound investment. I'm reminded of Rupert Murdoch saying that if he were to buy the New York Times, he wouldn't change the political leanings of the editorial board at all, unless it meant that he would make more money. But zero substance, from either player, no cash in one hand and rapidly evaporating cash in the other seems, to me anyway, to add up to a bad idea.

03 February 2011

Keynesian Predictions

Great lecture by Thomas Woods. I had read somewhere before about Samuelson's predictions on Soviet GDP surpassing America's based on highly complicated formulae. Economics is not calculus or physics. It is a social science.