Between Freddie and Fannie's latest woes and the United States Postal Service teetering on collapse, it's been a bad week or so for quasi-governmental agencies.
Late last week the United States Postal Service (USPS) announced that it was facing a shortfall of approximately $5.5 billion in terms of its obligations in the month of September, and that without Congressional action it might have to cease operations entirely during the winter of 2011. In a week that was also marked by hurricanes, earthquakes and gigantic wildfires, how could one miss the irony that while neither snow nor rain nor heat nor gloom of night can stay these couriers from the swift completion of their appointed rounds, a lack of cash certainly can?
[Article: Medication for Middle-Class Mortgage Mania]
Before 1970, the post office was an agency of the United States government, like any other, providing an important and truly national service, while losing a whole bunch of money doing so. It was bleeding then, and hemorrhaging today, because the USPS—though now "quasi-governmental"—is still required to fulfill the established policy of the United States to ensure frequent and efficient mail service at a very low cost to the consumer. In theory, the post office is supposed to be revenue neutral, i.e., neither losing nor making money. It provides service and pays for itself through the sale of stamps and other like products and services.
Ah well. Man plans, God laughs.
Given the dramatic decline in the utilization of conventional postal services—thanks to email, UPS and FedEx, not to mention the new world of social networking—there really is no way for the USPS to break even without radically reinventing itself and ending certain services like Saturday delivery, closing many post offices and raising the price of a first-class stamp to a dollar or so.
In the face of freewheeling competition, huge labor costs and truly astounding pension liabilities any non-quasi-governmental organization (i.e., a real business) would do whatever it had to do to survive. Unfortunately, the USPS can't curtail services without Congressional approval (universal peace might be easier to achieve these days), and it can't make use of bankruptcy provisions, because it is "quasi-governmental." So one way or another the USPS must rely on yet another "bailout," probably in the form of a large injection of cash from Washington.
It sounds so 2008, doesn't it?
What happened to Freddie and Fannie last week further illustrates that (among many other things) quasi-governmental organizations just don't work. On Friday, the federal government, in the form of The Federal Housing Finance Agency, sued 17 large banks claiming that the defendants sold $200 billion worth of fraudulently overpriced mortgages to Fannie Mae and Freddie Mac. Paradoxically, many of the defendants who are suffering the wrath of these suits were also beneficiaries of the largesse of the bank bailouts just a few years ago. Apparently, the left hand of the government hasn't seen its right hand for some time.