Devin Leonard, a reporter for Bloomberg Business Week wrote a great article diagnosing the issues facing the U.S. Postal Service, entitled  “The U.S. Postal Service Nears Collapse.” He delivers a number of great insights, among them:

• The near-term insolvency of the Postal Service was created by a Congressional action in the 2006 Postal Reform legislation which required the Postal Service to prefund all its retiree benefit obligations over the first 10 years after the legislation passed.  Why?  Since the Postal Service is off-budget, and it was getting its overpayments into the federal pension system returned to it, the artificially fast prepayment was a budget-balancing gimmick.  The Congress should have made the Postal Service prefund the retiree benefit obligations the way any private sector company would do so: over the expected 30-40 year life of the obligations.
• The longer-term problems of the Postal Service are driven by rapid and deep declines in mail volumes.  The Postal Service needs to reduce its cost structure much faster.  There are many good ideas that have been proposed for years, but that have not been adopted, such as the relocation of retail postal functions into convenience stores and supermarkets.  However, the Congress and the White House have to step aside and let the Postal Service take some of these steps.
• The Postal Service wants to reduce mail deliveries from 6 to 5 days.  I am not convinced that this step can be taken without damaging the growth potential of certain categories of mail.  What the Postal Service needs to consider is whether it needs to do 6-day-a-week to every address.  Sweden has variable frequency delivery, with 5 days in urban areas, three days in remote mainland rural areas, and two days to remote islands.  The Postal Services needs to begin delineating differences between profitable urban delivery routes and unprofitable rural delivery routes.
• On the flip side, the Congress and the Postal Service need to consider whether pricing for mail originating or being delivered to remote areas should be priced the same as mail traveling a few city blocks.  Uniform pricing has always been seen as a core feature of a communication system on which Americans have depended for political discourse, educational content management, charitable purposes, and other important social causes.  The broad penetration of the Internet makes many of the needs for uniform pricing less compelling.  However, to the degree that we continue uniform pricing, it can be for certain categories of mail, with others starting to move toward distance and cost based pricing.

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In the March 5-11 issue of The Economist, there was an article entitled “The Perils of Property.” The author made the point that buying a home is the biggest single financial bet most Americans will ever make.  As all too many Americans learned in the recent financial meltdown, buying a home can be a very risky bet.

Our government not only subsidizes home ownership through the home mortgage interest deduction, but it has created a variety of tools to enable lenders to make home mortgage loans to more people.  Lawmakers have always believed that broad-based home ownership is an inherent societal benefit, because they believe it creates a greater stake in the well being of the community.  Independent of whether owning a home is a good investment, American lawmakers want as many Americans as possible to own, rather than rent, their residences.

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A lot has been written about Ken Lewis, the Bank of America CEO, since he announced his decision to retire the week of September 28. Many of the commentaries on him were highly critical, including one included in the Sunday, October 3, New York Times business section by Joe Nocera entitled “Incompetent? No, Just Not a Leader.” Nocera contrasted Lewis, whom I succeeded as Chairman of the National Urban League Board of Trustees in 2002, and who was an exceptionally capable chairman, with his precedessor at the Bank of America, Hugh McColl, whom he described as “born to be a leader.”  I disagree fundamentally with the “born leader” theory.

Every leader does some things very well, and other things less well.  Whether he or she succeeds depends on two factors:

• How well do the capabilities required for a leadership position match the leader’s capabilities?
• How well did the leader either adapt or complement his or her capabilities in areas in which he or she was deficient?

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In the Sunday, November 23, 2008, New York Times, in the Connecticut and The Region section,  I was struck by the inadvertent juxtaposition of two articles.  The first, in the Town Green column by Larry Bloom, was entitled “On the Local Level, A Bid to Pool Resources.”  The second, alongside it, was an article by Jan Ellen Spiegel, entitled “Charities Struggling with Their Own Needs.”

In Bloom’s column, the major point made is that Connecticut is the “national champion of governmental redundancy.”  We have 169 towns, with 169 separate governmental systems.  In Spiegel’s article, she talks about the fact that charities are “just starting to sort out how to deal with the as-yet uncalculated effects from potential cuts to state funds in the wake of Connecticut’s projected two-year $6 billion deficit, and the impact of the stock market’s vicissitudes on donors, corporate giving, and investment portfolios of foundations.” (more…)

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In the Sunday, November 2, 2008, New York Times business section was a great column by Robert J. Schiller, a professor of economics and finance at Yale, and a person who understands how the world works better than just about anyone teaching, researching, or writing today.  In a piece in the “Economic View” section, entitled “Challenging the Crowd in Whispers, Not Shouts,” Dr. Schiller attempts to answer a question on many peoples’ minds:  how could Alan Greenspan and other experts have so completely failed to predict and head off the worldwide financial meltdown that has taken place the last 18 months?

Schiller, who wrote a book entitled Irrational Exuberance , warning very specifically about the risk of a meltdown in the housing and financial markets, notes that there were experts who saw what was happening, but they were in a minority, and were treated as if they were less credible and of lower quality than the experts who held the prevailing view.  He explained that, Dr. Irving Janis, a Yale psychologist, in a book entitled Groupthink, talked about the often unconscious insecurity experts feel when they are not receiving acclaim from their most renowned peers and the unconscious self-censorship that follows from it.   As Schiller cogently states:  “They self-censor personal doubts about the emerging group consensus if they cannot express these doubts in a formal way that conforms with apparent assumptions held by the group.”  He goes on to describe how he experienced some ridicule and criticism from those who disagreed with him, and how difficult it would be for many people to buck conventional wisdom. (more…)

Some of my readers have asked me to comment on the financial crisis.  Much has been written about it, and beyond the political rhetoric, there are some very intelligent analyses of what happened and why.  To me, the three obvious root causes were:

• The disconnected and fragmented sub-prime mortgage creation and investment system, combined with the incentives of all players in the supply chain of these mortgages to grow rapidly and to take on excessive risk;
• The unintended consequences of an excessive dependence on “mark-to-market” accounting, which caused financial assets to be written down in value to an artificial “market price,” even if the holder had no intention of selling them, and even if the market for that asset really did not exist.  This artificially low asset valuation would not have mattered, except that lending agreements and other financial arrangements depended on maintaining a minimum level of asset values.  The deterioration of asset values due to these artificially low valuations created a death spiral for companies, because the agreements usually required them to shore up declining asset values with additional credit that simply was not available.
• The mind-boggling complexity of these financial instruments and transactions, which made it extremely difficult for anyone to understand when participants were truly in trouble, until it was too late.   This is also why the rating agencies, on which investors depend to evaluate the riskiness of these instruments and transactions, failed so miserably. (more…)