Fannie Mae wants YOU to own a house!

Fannie Mae (the Federal National Mortgage Association) is a large, quazi-government corporation whose purpose is to make sure there is adequate funding for consumer mortgages. It usually does this by buying mortgages from lenders, freeing the lenders to go out and lend money to someone else (“making a liquid market in mortgage backed securities”). In the process, they are able to use economic means to stifle predatory and discriminatory lending practices. Fannie Mae also happens to make a lot of money doing this ($5.25B). Enough money that they can pay some $20M to the three-letter types and still send out an annual dividend of $1.56 to holders of their 978 million shares. That’s over $1.5 billion in dividends per year. The dividend alone is more than 4300 times the maximum conventional mortgage. FNMA is big. Some would argue it is too big to be allowed to fail.

But that is not today’s topic; instead I would like to direct your attention to their advertising. You wouldn’t think there’d be a lot of advertising, since after all they deal primarily with banks and mortgage companies. They actually have a surprising amount of advertising. Some of it is occasionally found on business and news oriented media. Some of it is in the form of sponsorship of organizations such as NPR. All of it is designed to make you feel all warm and fuzzy about home ownership.

All these are quotes from their website: “The American Dream of home ownership.” “Because having a safe place to call home strengthens families, communities, and our nation as a whole. ” “Revitalizing neighborhoods and creating affordable housing opportunities for over 20 years.” “A home of our own is a dream come true and symbolizes who we are.” “Homeownership has the power to green-line both neighborhoods and nest eggs.” A past ad even suggests that homeownership is directly linked to better schools.

Implied is the idea that owning real estate will magically make life happy. A house should be the foundation of your finances! You are nobody unless you own a house! Do they really think you are stupid enough to think nobody owns houses in crime-ridden, run-down communities? Are they saying that apartment dwellers are somehow not holding their own in American society? That renters by default do not live in safe places or strong neighborhoods? That anybody with stable finances should surely own, not rent, their residence?

As someone with experience in property management, I find these implications insulting, as should you. There are people who own houses in bad neighborhoods, and people whose houses are a drain on the finances, people for whom this particular American Dream is a nightmare. There are people who rent houses and apartments in good neighborhoods, and people who rent for a variety of reasons, few of which are monetary.

FNMA does some good things. They do not need to tug on Joe Average’s heartstrings to make the mortgage market liquid. Should there turn out to be a “housing bubble,” such sentimental claptrap must be accorded a fair share of the blame. They should lose these ads now.

That must have been an effective seminar

Workplace violence is a depressingly common occurrence. Most of it is small stuff, but occasionally something so large happens that it makes national news. Such a thing happened this week. An employee at an aircraft plant stormed out of an ethics and sensitivity seminar, shouted “Y’all can handle this!” and returned minutes later with both a rifle and a shotgun. He killed 5 people and injured 9 others before taking his own life. Nobody yet knows why.

This was apparently not the first time Mr. Williams had such counseling. He was said to be a hothead who had problems with black people. The union steward for the plant says there have been many “concerns” expressed by his coworkers over the years. Afterwards, none of his coworkers were surprised who the shooter had been. One victim’s husband had heard her concerns that he would hurt someone several times over the years. He described Williams as “obviously sick.”

Security expert Gavin de Becker, in his landmark book The Gift of Fear, tells us that normal, sane people do not lash out in violence unless pushed to the point that violence seems the only logical choice. Williams was by all accounts not a normal, sane person. De Becker furthermore posits that the vast majority of workplace violence can be prevented by adequate employee screening. In short, if you pay attention during the hiring process — check references, note reactions to questions — you can weed out the people most likely to become violent in your workplace. If this is not a laudable goal, then I don’t know what is.

Williams’s bosses put up with behavior that caused his coworkers to worry for a decade and a half. This surely impacted the workplace, possibly drove away really good people who went on to jobs where they did not have to deal with this nut. And this was before he killed, wounded, and gave post-traumatic stress syndrome to his coworkers. I am willing to bet he wasn’t very productive either.

If you are in charge of hiring, you cannot afford not to pay attention.

The Long and Winding Road

It seems like not a day goes by without a headline to the effect of “Bad Thing Happens in Iraq.” Soldiers killed or injured. Suicide bomber. Weapons cache found in graveyard, leaving occupying forces to either desecrate graves, or expect an attack. A mosque is blown up. Infrastructure at risk. Police cadets killed. Journalist killed. Political unrest. And Saddam himself has joined Osama Bin Laden as an Arabic Elvis, despite a large bounty on his head, and despite the fact that everyone was sure he was dead a month ago. According to the Washington Post, American Lt. General Ricardo Sanchez reports an average of 13 attacks on American and/or British forces each day for the last 6 weeks. In the face of this opposition which is not supposed to exist, the President of the United States says “Bring them on!” With this daring taunt, he places American military forces in harm’s way — men and women with families who miss them as they serve their country. Furthermore, he endangers the innocent Iraqis they were supposed to be helping.

This is to say nothing of the ongoing problems of destroyed infrastructure. Ordinary citizens have serious problems getting clean, safe food and water. Roads and electrical service are spotty. Inasmuch as “liberating” forces have taken out the Iraqi government, it is not unlike waking up and discovering that anything with “Federal” in the title was damaged or destroyed. In many cases, even local government is tenuous. Make no mistake, the Hussein regime was not a bunch of nice friendly guys dedicated to the betterment of its subjects. However, there is no evidence that liberating forces have improved the situation in the short run.

Even so, don’t say “the Q word” — quagmire — in front of Donald Rumsfeld. Like the former Iraqi Information Minister proclaiming that all is well and there are no approaching armies and a curse on whomever dares to say otherwise, Rumsfeld insists this is nothing to be alarmed about. Everything is coming along, things are getting better every day, give us some more time, and we’ll pack up and leave as soon as we can. This might be more convincing if we hadn’t heard the same thing about Afghanistan. The new administration, while philosophically a huge improvement over the Taliban regime, has yet to bring law, order, and government services much beyond metropolitan Kabul.

However questionable the reason American and British forces are involved in the first place, the current problems cannot be solved by packing up our tanks and going home. That tactic will breed a generation or two of anti-western militants who grew up in harsh conditions and crushing poverty. However, somebody needs to have a Plan with more depth than awarding some construction contracts and installing a governor. Not only does there need to be a Plan, it needs to be culturally sensitive to avoid faux-pas such as imposing western banking when Islamic law strictly speaking forbids both paying and receiving interest — why not give away ham and beer in the humanitarian aid packages, sheesh! Beyond this, the Plan has to have buy-in from the people we are supposedly there to help. Failure to cooperate with people there, who aren’t necessarily fond of us, will result in failure of the Plan. And failure of the Plan will mean having to go back and crush a dozen Osamas and Saddams in a decade or two.

Dow Theory Only Slightly Oversimplified

One of the most notable figures in American economic and business news is the DJIA, or Dow Jones Industrial Average. Every newscast in the nation broadcasts this number, if only as a filler screen before a commercial break. Despite this, many Americans do not know what this simple number means.

The Dow is an average of just 30 stocks deemed to be important by the nice folks at Dow Jones, price weighted (stocks with a greater share price — adjusted for past splits — move the index more than those with a lower share price). These are 30 of the largest companies in the United States, 30 of the most influential companies, 30 of the biggest non-government employers. You have very likely heard of these companies or their subsidiaries, and you have almost certainly come in contact with a product or service from one of these companies in the last 24 hours.

As of this writing, here are the components (and their stock ticker symbols):

3M (MMM)
Alcoa (AA)
Altria (Phillip Morris, MO)
American Express (AXP)
AT&T (T)
Boeing (BA)
Caterpillar (CAT)
Citigroup (C)
Coca-Cola (KO)
Dupont (DD)
Eastman Kodak (EK)
Exxon Mobil (XOM)
General Electric (GE)
General Motors (GM)
Hewlett-Packard (HPQ)
Home Depot (HD)
Honeywell (HON)
Intel (INTC)
International Paper (IP)
JP Morgan Chase (JPM)
Johnson and Johnson (JNJ)
McDonalds (MCD)
Merck (MRK)
Microsoft (MSFT)
Procter and Gamble (PG)
SBC Communications (SBC)
United Technologies (UTX)
Wal-Mart (WMT)
Walt Disney (DIS)

Now then, lets look at what happens if the economy is good. I’ll add the ticker symbols of the companies you positively impact. For one thing, you have money in the bank or brokerage account (AXP, C, JPM). So you go and buy things (WMT). Maybe you get Happy Meals for all the kids (MCD, KO). You don’t worry about what you buy at the grocery (KO, MO). Prescription costs don’t bother you either (MRK, JNJ). Go ahead and get a new computer, just like they’re getting at work (MSFT, INTC, IBM, HPQ). Why not a new car (AA, MMM, HON, GM, XOM)? Build a new house with a state of the art kitchen (HD, UTX, GE, CAT)? Go on that Disneyworld vacation, but take plenty of pictures (DIS, EK, BA, UTX, HON, GE). Be sure to keep up with the family (SBC, T, IP). Speaking of work, not only do you have a job, but you’re pretty busy there (MMM, IP, and just about every other component, depending on your profession).

In short, when you have money, it gets funneled through your bank then you spend it. This benefits Dow component companies. They make more money. Their share prices go up, driving the DJIA up. But wait, there’s more. All that stuff the theoretical good-economy you bought had to get to you somehow. So real market geeks look for “confirmation in the Transports.” The nice folks at Dow Jones have two more indices, the Dow Jones Utilities Index and the Dow Jones Transportation Index (strictly speaking, all 3 can be put together to form the Dow Jones Composite Index). So then if the DJIA companies are doing well, they must be shipping products, and therefore the Transports must be doing well.

A missive from the Department of Making Researchers Look Busy

Some researchers have done a study which finds anyone can be a boss! What a lovely thought. This kind of thinking is what gets us Pointy Haired Bosses. Seriously, I bet you can think of a dozen people who shouldn’t be be able to delegate anything more critical than making sure the plants are watered. Yet according to university level research, these people can be a boss.

Of course what they mean to say is that anyone can be bossy and make arbitrary decisions — some might even make surprisingly good decisions. Furthermore, this “research” found that “unwilling subordinates” tended to try and be the boss in any event. Theoretically I suppose this means it is better to put the naturally bossy in charge ofsomething, anything, even if it’s those pesky plants, as long as it gets them out of the important stuff. This does however, support the writings of people like Tom Peters, whose employee empowerment theories include the idea that if you allow all employees some latitude in their decision making, they will rise to the occasion, make mostly decent decisions, and make your customers happier by not having to refer to a manager or a rule-book.

Even the researchers admit “We didn’t actually measure the quality of the performance.” Perhaps they are saving that for the next grant proposal.

Now, where did I put that Second Half Recovery?

Do you remember at the beginning of the year, all the analysts and econofolk were talking about how things would get better in the second half of 2003? They were using words like “significant challenges” and “tech replacement cycle” and “effects of tax cuts.” I remember this. I also remember that various members of this tribe have been predicting a recovery 2 quarters out since late 2000.

Thisyear’s big reason was based in the IRS depreciation schedule. A lot of companies bought computer equipment back in 1999 to avoid Y2K issues. You remember Y2K, don’t you? All the computers were supposed to freak out, thinking it was 1900 instead of 2000, causing nuclear disaster and tampon shortages? It didn’t happen. Then the dot-com bubble burst, flooding the used computer market (among other effects). Computers have gotten faster in the last 3 years, and there have been new versions of both Windows and Mac OS, but cash strapped companies have not been upgrading as much equipment as the Hewlett-Packards of the world would like. The IRS lets companies “depreciate,” or spread out the expense of computers. That means there is now a tax incentive to upgrade. Of course it is ludicrous to think the entire economy will magically heal just because a few companies buy some computers.

So then, if the recovery is about to start any minute now, why are the car dealers offering ludicrous incentives? Why is Mercedes offering 2.9% financing? Why are “if you have to ask you can’t afford it” names like Maserati and Rolex taking out print ads? Why does every apartment complex you pass have signs reading “Move In Special” and some ludicrously low number? You can’t blame that entirely on low mortgage rates, because there are lots of reasons to live in an apartment and “can’t afford a house” is the least of them. Why are the retailers with the best performance still the discounters like Target? Why are state and local governments — often dependent on sales taxes for revenue — having budget crises? California and Nevada both have entered the fiscal year without budget, in violation of their respective Constitutions, because of the untenable choice of cutting to the bone or raising taxes (negating federal tax cuts).

Don’t tell me this is a “jobless” recovery. If things are improving, there is more demand for products. The only way to sell more products is to produce them. That means hiring more people or buying equipment that makes your workers more productive. The tech sector which would provide that productivity equipment is still saying “within 2 quarters” and the government is still saying it’s a “jobless” recovery. It sounds more like a lack of recovery to me.


I’d like to take a minute of your time for a definition. It’s a word you’ve heard before, and you know what it means (to you, anyway), but this way you will know what I mean when I use it.

Investing: Spending money with the reasonable expectation of getting more money back.

So then, bonds are an investment because you get paid interest, and the value of the bond may also go up.

Stocks are usually an investment, assuming you do enough research to decide there is a reasonable expectation of profit, either through dividends or capital gains. You don’t buy a stock expecting it to lose money, do you?

Life insurance is not an investment. You have to die to collect!

The Lottery is not an investment. It is not reasonable to expect to hit the big jackpot.

Real estate might or might not be an investment. It depends on your situation and point of view. I’m sure I’ll have the occasion to discuss that another day.

That business venture your relative goes on about might or might not be an investment. I haven’t seen his prospectus, and I sure don’t know him like you do.

By way of follow-up regarding last week’s FOMC rate cut, subscribers to RealMoney can check out an excellent commentary by Aaron Task. In a much more multifaceted and eloquent way, he sums up why he feels the rate cut was unnecessary, if not outright dangerous to the long term health of the economy.

I can vouch for him

Recently, articles like this have reminded me about the issues surrounding school vouchers. In summary, now that certain legal issues surrounding vouchers have resolved, there are a handful of programs and very little in the way of measurable results thus far. As much as I respect the underlying concepts, I am not a supporter of vouchers. I say this as someone who would likely benefit from a voucher program.

I think the widely used Cato Institute figures showing that a voucher of $3000 would cover tuition at most private schools, and that the average tuition at such schools is $3116 are flawed. First, these figures include church-run schools. A church which sponsors schools normally subsidizes education at such facilities. Thus, they are effectively providing education below cost. Second, it is not known whether the Cato Institute figures include schools of less than 20 students. Such schools tend to fall into 2 categories: one room schools with one or two teachers (perhaps run out of the instructor’s home), and organizations intended to provide support services and legal status to home-schooled students. Finally, there is no indication of whether all the schools included in this average were fully accredited. Failing to take this distinction into account is like comparing an average person’s driving to that of a professional truck driver. I would be much more interested in seeing average tuition figures which exclude these three classes of school.

This, and my own personal research, lead me to believe that any voucher program will actually fall far short of paying for a quality, secular private school. Please note that I have specified a quality, secular school both for reasons above, and to completely sidestep issues of philosophy, religious education and the First Amendment. Furthermore, such a voucher does nothing to defray added incidental costs such as transportation, uniforms, and activity fees. In short, saying that vouchers are for the benefit of the lower and middle class, who cannot otherwise afford private schools, is ludicrous.

However, there is an even more important issue concerning vouchers. Government — particularly at the Federal level — has a tendency to grant funds only when specific conditions are met. For example, the Federal government got states to pass laws mandating seat-belt use, a 21 year old drinking age, and minimum blood alcohol of .08% for drunk driving by threatening to take away highway funds. Libraries can have money for internet connections from the Feds, but only if they install content filters. Schools can have Federal funds for sex education, but only if they teach an “abstinence only” program. As the old saying goes, “He who pays the piper picks the tune.” Allowing government to fund private schools is one step closer to allowing them to mandate what and how students are taught. Since the vast majority of parents who have chosen private schools did so because they disagreed with the philosophy or methods of what they consider “failed” public schools, this is unacceptable.

LUGging around a crisis

I have spent the last little bit of time reading HOWTO Encourage Women in Linux. This proceeds from the thesis “Why are there so few women in Linux” to the obvious subsequent question, “What can be done about it.” Unfortunately, the author fails to ask “Is there really a lower percentage of women in Linux than other areas of computing?”

In the introduction three overheard questions are posed:

My girlfriend hates Windows, how can I encourage her to use Linux?” This is rather like asking “My girlfriend is unhappy with her car. How can I encourage her to get a Mustang just like mine?” A more enlightened person might wish to know why she hates her current operating system, why she is still using it, and what alternatives she has considered.

“Almost no women attend my local LUG [Linux Users Group]. How can I fix this?” How does this compare to the gender breakdown of other local inherently geek-laden events? Or is it possible that your local LUG meeting is at a time or place undesirable to female geeks? Like the same evening across town from the Marion Zimmer Bradley Fan Club Meeting? Identify the problem and its cause before seeking solutions. That’s called “Science.”

“Why aren’t there more women in open source?” Why aren’t there more women in programming in general?

Luckily for us, the author addresses my rebuttal question in chapter 2. The valid points are unfortunately interspersed with red herrings and spurious arguments. It boils down to a collection of sexism both real and imagined, seasoned lightly with both real and perceived differences between men and women.

Chapter 3 is our handy Do And Don’t List. To be brief, Don’t be a sexist or a jerk. Be a decent human being. Indeed, these are fine tips for any workplace. Please, don’t save them for the Linux Users Group meeting.

I am only a feminist inasmuch as I think being a woman should not automatically close doors to me or insure that I earn less. Oh, and I think it would be great if there were less violence in the world in general, particularly against women. Sexism is real, but in the end I feel this article sees a lot more sexism in the world than really exists. Of course no mere man is allowed to say so; it takes a woman. I furthermore think that most of the examples of sexism used in this document could be neutralized with a slightly thicker skin and a witty retort.

The Supremes

This morning, the Supreme Court of the United States (SCOTUS) came out with a bevy of opinions. This stuff is important, and I strongly encourage you to care.

For one thing, they decided that it is none of the Government’s business what two consenting adults do in their bedroom. Specifically, they struck a Texas law prohibiting “deviant sex.” Although this has been portrayed as a “gay sex ban,” it banned a number of activities enjoyed by otherwise law-abiding heterosexuals.

They also ruled that California could not arbitrarily and retroactively extend the statute of limitations, not even on Really Bad Stuff. Specifically this case involved prosecuting a child molester for actions of 50 years ago. Make no mistake, what he did is bad! No question about it! But if the government can decide that the statute of limitations does not matter on this crime, they can decide it doesn’t matter on almost any crime. Unless your youth was completely free of indiscretion, that idea should scare you.

Furthermore, they ruled that defendants have a right to competent legal counsel, particularly in death penalty cases. At issue is the case of a man who, had the jury known what an awful childhood he had, might have ruled that life in prison was adequate punishment. Since his lawyers never bothered to present the information, the jury never heard it, and sentenced him to death. Now, he gets a new sentencing hearing, not a new trial.

Important stuff. Check it out.