Friday, July 30, 2010

This Week in Bank Failures

Banks’ earnings reports might not be showing any particular trend, but more deals are getting done in the banking business, and that’s a trend that could eventually reduce the pace of bank failures.

The FDIC continues to have successes in its auctions of portfolios of distressed mortgages. The investment money involved will help the FDIC’s cash position in the short run. Banks are also finding easier access to the same pool of capital. Today, Capitol Bancorp Limited improved its capital position by completing the sale of Community Bank of Lincoln to a group of investors. This is a deal worth a few million dollars, which is new investment money flowing into the banking sector.

With banks’ earnings all over the map this quarter, we can expect a flurry of bank closings over the next few weeks. The first bank to fail at closing time tonight was NorthWest Bank and Trust, with two locations in Acworth and Marietta, Georgia. The bank had been operating just since 2004 on the edge of the Atlanta metro area — hardly a favorable scenario for a new bank. State Bank is taking over the deposits, of about $159 million, and purchasing the assets. State Bank has acquired one fifth of the failed Georgia banks in the current cycle.

Two small banks failed in the Florida panhandle. Coastal Community Bank, with $363 million in deposits, and Bayside Savings Bank with $52 million. Arkansas-based Centennial Bank is taking over the deposits and purchasing the assets.

Two midsized banks failed on the West Coast: LibertyBank, with $718 million in deposits and 15 locations in Oregon, and The Cowlitz Bank, with $514 million in deposits and 9 locations in Washington and Oregon, all along Interstate 5, some operating under the name Bay Bank.

Heritage Bank is assuming the deposits and purchasing 62 percent of the assets of The Cowlitz Bank. It is paying a 1 percent premium for the deposits. Similarly, Home Federal Bank is purchasing 55 percent of the assets of LibertyBank, and assuming that failed bank’s deposits with a 1 percent premium.

Both banks had lent too heavily in residential construction and real estate development, and had sought for the past two years to reduce their exposure in that niche.

Thursday, July 29, 2010

The Deflation Dream

I had a dream about deflation last night. In the dream, a 2-acre fire burned for a few days in the Denver area, and as a precaution, authorities closed several major through streets, creating traffic backups that also clogged the expressways. With traffic not flowing, retail stores were all but abandoned. In a desperate move to boost sales, they cut prices across the board, creating what the radio commentary called "a 25 to 30 percent off sale on virtually the entire city of Denver."

Setting aside the dream logic involved in this story, if there is going to be deflation, it's going to happen like this, with a series of large price cuts triggered by calamities. It's not likely to be the result of retail and wholesale price cuts of 1 percent every few months as a response to steadily decaying demand, which seems to be the scenario that a small contingent of economists is worrying about.

U.S. commercial culture doesn't support small price cuts of less than 10 percent. Sellers are better off holding prices steady until they can announce a price cut large enough to get people's attention. I expect that this effect alone will be enough to hold off any deflationary tendencies that might develop.

Wednesday, July 28, 2010

Public Sector Layoffs Loom

I had thought we might be over the hump by now when it comes to public sector layoffs, but perhaps that was overly optimistic. After all, California has just ordered furloughs in the latest episode of its budget standoff, and the budget there appears to be more than a month away. At the same time, CNNMoney reported today on a survey of local governments that suggests that cutbacks there will continue to add up.

Local governments are looking to eliminate 8.6% of their total full-time equivalent positions by 2012, according to a new survey released Tuesday by the National League of Cities, the National Association of Counties and United States Conference of Mayors.

The CNNMoney story holds out hope for federal help to keep local services going, but that isn’t exactly a realistic prospect, with Republicans angling to block all economic recovery spending as they hold out for a new tax cut for the billionaire-investor class. Realistically, Congress won’t be coming to the rescue, so the cutbacks that city and county governments are planning are virtually a done deal — and more cuts will surely follow. Many of the cuts can be accomplished through attrition, but significant layoffs are inevitable over the next two years.

Can businesses hire enough people to make up the difference? Probably, but with big business planning more layoffs and closings, that’s not a sure thing. The employment growth of the last few months hasn’t exactly been robust, and it could easily be reversed with the layoffs coming this fall.

Tuesday, July 27, 2010

The Aging TV Audience and Escapism

“You can’t text on a television.”

Suzanne Garland recently made that observation about the disconnect between television and the rhythms of modern life to explain why the television audience keeps getting older, with television increasing its grip on older viewers even as younger viewers slip away.

Whatever the reason, the U.S. TV audience is aging at a surprising pace. According to one measure, the age of the average television viewer has increased by nearly 11 years in the last 10 years.

I’m not even sure that’s possible. That would mean that television is not gaining any net new viewers under the age of 50 — indeed, that it is losing viewers under 50 faster than viewers over 50 are dying.

But even if that measure is slightly exaggerated, television is increasingly the province of the retirement-age set.

This helps to explain the increasingly escapist programming on television. Older viewers are more likely to watch television as a way to make the world go away, and this escapist sentiment is creeping into the unlikeliest program categories. Reality TV, obviously, is losing its grip on reality, but so is news, as it is increasingly driven by drama to the neglect of facts.

The new escapism even extends to the personal transformation series Breakthrough With Tony Robbins, which starts tonight. Based on Tony Robbins’ track record, I am certain that the psychology and transformation strategies in the series are real. But the trailer for the series says that transformation is an adventure of exotic locations, extreme outdoor sports, and emotional confrontations, rather than the kitchens, auto repairs, and budget spreadsheets that could more easily be the focal points of personal transformation.

Television’s escapist tendencies are amplified by the current economic times. But any cultural trend toward escapism is self-limiting, as people eventually want to escape from the escapism. And perhaps that counter-trend is just around the corner.

Monday, July 26, 2010

2,000 Pages?

The Dodd-Frank Wall Street Reform and Consumer Protection Act passed Congress on a partisan vote last week — somewhat surprising, considering how cautious and non-controversial the bill’s reforms are. Probably the best excuse I’ve heard for voting against Wall Street reform bill is that it was “two thousand pages of new restrictions on American businesses.” But this is an explanation that doesn’t stand up to scrutiny.

I spent part of the weekend reading H.R. 4173, the final version that passed both houses of Congress, was signed into law, and went into effect last week. It’s long, but it’s not 2,000 pages. The actual bill that more than a third of the House and Senate voted against was 848 pages, and these are not big, dense pages, but pages that could be printed in a pocket-sized paperback book.

Furthermore, very few of these pages are about “new restrictions on American business.” Most of them set forth details of the operation of government agencies such as the FDIC, Fed, and SEC. There are, to be sure, section after section of detailed rules for businesses to follow, but most of these have to do with what the bill is supposed to be about: credit default swaps and derivatives. Only about 250 of the largest corporations in the country, plus a similar number of foreign corporations, will be significantly affected. And yes, there is also a long section about blood diamonds tacked on to the end. It’s the kind of thing that makes you ask, “What is this doing here?” and it would appear to be intended as a restriction on business, though it has more to do with government-sponsored organized crime groups in the Democratic Republic of the Congo than with any legitimate U.S.-based business.

Tucked away among the 848 pages of the new law are provisions that place new restrictions on the government. The bailouts of AIG, Citigroup, and who knows how many other Wall Street companies that, over the course of 2008, turned a few routine business failures into a crisis for the entire economy, cannot be repeated. The next time Citigroup finds itself scraping for cash and too insolvent to attract the interest of private investors, it will be faced with this provision:

No taxpayer funds shall be used to prevent the liquidation of any financial company under this title.

The final bill doesn’t contain the kind of provisions that will prevent or slow down the next Wall Street meltdown — only a few of those were considered, and conservatives had enough clout to block them — but at least the next time Wall Street starts to go to pieces, it will just be Wall Street, and it won’t be turned into a crisis for the economy at large.

Friday, July 23, 2010

This Week in Bank Failures

Once deposit insurance limits were raised to $250,000 per depositor on an emergency basis, it was going to be hard to walk them back to the prior limits of $100,000. The reduced insurance would have led jittery depositors to shift their deposits around, likely leading to dozens of additional bank failures, and possibly sparking runs on some banks. That is not a scenario bank regulators have to plan for now, as the new Wall Street reform law makes the new higher deposit insurance limits permanent.

The number of bank failures passed 100 for the year tonight, keeping a pace similar to last year. The financial condition of the failed banks is getting worse as the cycle goes on, with an increasing number having minimal or negative net worth by the time they fail. Bank failures occurred across the country tonight, with no more than one bank failure in any state.

A tropical storm moving off to the west didn’t stop Florida officials from closing Sterling Bank and its 6 locations along the southeast Florida coast. The bank had $372 million in deposits as of March. Iberiabank is taking over the deposits and purchasing the assets.

In Georgia, it was Crescent Bank and Trust Company, with 11 locations spread across the northern end of the state and reaching into the northern suburbs of Atlanta. The failed bank had nearly $1 billion in deposits. It had reported losses of more than $75 million since 2008. Mississippi-based Renasant Bank paid a 1 percent premium for the deposits and is also purchasing the assets.

Regulators in Oregon closed Home Valley Bank, which had five offices in Grants Pass and Cave Junction in the southwestern corner of the state. The bank had $230 million in deposits. Nearby competitor South Valley Bank & Trust is paying a 1 percent premium for the deposits and is also purchasing the assets.

Home Valley Bank, like so many other banks, took losses on loans after real estate development projects failed and real estate values fell. It had been operating since 1980.

Four smaller banks, with deposits totaling $450 million, failed tonight:

  • SouthwestUSA Bank, with one location in Las Vegas, Nevada. California-based Plaza Bank is taking over the deposits and purchasing 64 percent of the assets.
  • Williamsburg First National Bank, with five offices in eastern South Carolina. Columbia, South Carolina-based First Citizens Bank and Trust Company is paying a 0.5 percent premium for the deposits and is also purchasing the assets.
  • Community Security Bank, with one office in New Prague, Minnesota, on the edge of the Minneapolis-St. Paul metro area. Roundbank is paying a 0.89 percent premium for the deposits and is purchasing the assets.
  • Thunder Bank, a rural bank with offices in Sylvan Grove and Hunter, Kansas. It had been in business since the 1800s. The Bennington State Bank is taking over the deposits and purchasing the assets.

With tonight’s failures, there have now been 103 bank failures so far this year.

Wednesday, July 21, 2010

Unemployment Benefits on the Comeback Trail

To be honest, I had written off extended unemployment benefits. Senate Republicans, it seemed, had the votes to block any new unemployment compensation measure, and some Republicans were starting to talk about doing away with unemployment compensation entirely.

Washington insiders, though, say that unemployment compensation may have a second chance in the coming week. Part of the reason is the chilling effect seen in consumer spending last month when extended unemployment compensation lapsed.

People talk about unemployment compensation as if it only affects the decisions of people who are jobless, but it affects far more people. The prospect of losing unemployment compensation entirely, or having it cut off after just 26 weeks, means that everyone has to plan on the possibility of a complete loss of household employment income in the near future. Millions of workers know their employers are considering new layoffs — but most layoffs occur at companies that haven’t given any hint of such a move, so every worker has to consider the possibility of losing a job without warning. Unemployment compensation can soften this risk — but if the Senate is talking about repealing unemployment compensation, that means that everyone has to hold on to more money to guard against future loss of income. It’s a consideration that affects everyone who has a job.

The stock market rallied yesterday, advancing 2 percent when the reports of movement on unemployment compensation came through. This highlights the fact that unemployment compensation does not merely affect workers, but also businesses that have workers and members of their households as customers.

If the Senate can barely muster enough support to hold a vote on unemployment compensation, it is not really that reassuring. Workers will still have to be financially cautious because of the possibility that the vote might not take place next time. But it is still more reassuring than last week’s talk around the Senate, when some of the more conservative-minded senators were talking about the merits of ending unemployment compensation and forcing unemployed workers to fend for themselves.

Monday, July 19, 2010

Combination Tools

With most areas of life and work getting more complicated, there is a need for innovations that can reduce the number of tools needed to produce a particular result. The bread machine is perhaps the best historical example for this. A single device that delivers all the actions for mixing, rising, and baking a small loaf of bread, which previously required separate tools for each stage, it put bread-making within the reach of millions of people who might otherwise never have attempted it.

It is easy to imagine similar combinations that could come along in the next five years. In music, for example, we are just about ready for a compact recording studio that can be built into a microphone. This might sound like a joke until you realize that the multitrack studio has already been shrunk to about the size of an audio cassette. People complain about having to use a combination printer/copier/scanner/fax, but these devices will make more sense as they get smaller.

You see how important these combination tools are when you look at the influence wielded by companies that introduce the most effective of them. Even something as simple as a tourism directory that includes a real road map can make what came before seem obsolete.

Sunday, July 18, 2010

The Other Half of Consumption Spending

As the news media have reminded us often, the continuing high unemployment and plans for further layoffs are having a dampening effect on consumer spending, and that is true enough — but what about the other side of consumer spending?

Only about half of U.S. consumption spending comes from households that are directly affected by the job market — from people who work for a living. The other half, approximately, comes from fabulously wealthy households, with annual income around $1 million per year, or more. This side of consumption spending was hit harder by the meltdown in the financial system — witness the drastic decline in the jewelry business — and now shows little sign of a comeback as the immediate sense of crisis is fading.

Some observers have looked at the decline in spending by multi-millionaires and have concluded that the super-rich are suffering along with the rest of us. There are anecdotes from psychologists that bear this out in some cases, but this view doesn’t hold up as a generality. The compromises in lifestyle for a household that cuts its consumption spending from $1,000,000 per year to $100,000 per year, a 90 percent decline, aren’t as obvious or visible as the cutbacks in a household that has to cut its spending from $40,000 per year to $20,000, a 50 percent reduction.

The truth is, the super-rich never needed to spend that much in the first place, and once they get out of that habit, there is no guarantee that they will go back to it. And this is a point of weakness for the U.S. economy, or any economy where the vast majority of income goes to a relatively small class of people. People who are super-rich have less incentive to spend than the rest of do, and they’re can’t easily be persuaded to go out and buy things that they don’t really want. This results in bigger ups and downs in the economy than we might have seen 30 years ago when the super-rich were a relatively small part of the economy.

Saturday, July 17, 2010

State Budgets, On Time and Late

It will be a sign that the U.S. economy is almost back on an even keel if state governments are able to pass budgets almost on time. Based on that, the Pennsylvania budget, which was mostly worked out before the June 30 deadline, is a hopeful sign. Significant details remain to be worked out, chiefly the size and timing of a new tax on natural gas extraction, but the budget bill itself is passed and signed.

Pennsylvania may be a special case, though, as its budget impasse a year ago turned into a worldwide embarrassment that politicians were especially eager not to repeat this year. In California, by contrast, the embarrassment continues, with the governor ordering state employees’ pay cut to the federal minimum wage, but the controller unable to comply because of a payroll system that dates from the 1970s. Budget talks in California, where the budget was also due June 30, are described as “preliminary.”

Local budgets depend to a significant degree on the details of the state budgets, and in most of the country, more local service cuts can be expected. An example of this, reported in Wall Street Journal: asphalt pavement, too expense to patch, is being ground up and turned to gravel on rural roads (via Calculated Risk).

In Michigan, at least 38 of the 83 counties have converted some asphalt roads to gravel in recent years. Last year, South Dakota turned at least 100 miles of asphalt road surfaces to gravel. Counties in Alabama and Pennsylvania have begun downgrading asphalt roads to cheaper chip-and-seal road, also known as “poor man’s pavement.” Some counties in Ohio are simply letting roads erode to gravel.

Friday, July 16, 2010

This Week in Bank Failures

Finally, there was a giant bank making a legitimate quarterly profit, not based entirely on stock trading gains. There was a respectable banking profit at JPMorgan and a possible banking profit at Citibank. New rules passed by Congress yesterday as part of the line-drawing exercise known as financial reform will probably prevent a repeat of the phantom profits of last year, so the giant banks will have to cut their costs in order to keep up with their smaller, more efficient competitors.

The financial report was the most bleak at Bank of America, which said it had been making about $1 billion per quarter in the “gotcha” fees on credit and debit accounts that are not longer legal with credit and debit card reform.

AIG has settled a fraud case brought by three Ohio pension funds. The three pension funds alleged accounting fraud and stock manipulation by AIG around 2005, well before the problems of what was then the largest insurance company in the world became publicly known. AIG will pay a total of nearly $1 billion to settle the claims. It is not clear where AIG will come up with the money, or if the settlement payments can ever be made in full.

The rate of foreclosures seems to have leveled off, but not because conditions are improving in the housing market. Instead, more homeowners are avoiding foreclosure because banks are approving more short sales, in which a house is sold for less than the outstanding balance of the loan. Banks agree to short sales because the administrative costs are small compared to those of a foreclosure. In addition, houses sometimes sell for higher prices in a short sale, if it means the house can be shown for sale while it is still occupied. The number of short sales will remain high for many years as millions of homeowners are forced to move to another town to obtain employment.

The first bank closing reported tonight was Woodlands Bank, which was based in Bluffton, South Carolina. It had eight locations and operated in five southeastern states. It had $355 million in deposits. Its losses appeared to be mainly related to failed real estate development projects. The deposits are being taken over by Bank of the Ozarks, which is also purchasing the assets.

Another South Carolina bank, First National Bank of the South, and two Florida banks, Metro Bank of Dade County and Turnberry Bank were also closed early tonight, and their deposits and assets transferred to NAFH National Bank, a bank formed for the purpose of acquiring failed banks. NAFH National Bank’s charter is still tentative, but FDIC rules permit acquiring banks to go ahead with failed bank acquisitions even if they are too new to have definite charter approval, as long as there aren’t other issues. The three failed banks had a combined $1.2 billion in deposits.

First National Bank of the South had 13 locations, mostly in the highlands of northwestern South Carolina. Its holding company was delisted by Nasdaq yesterday, with a market capitalization barely over $1 million, down from a 2006 peak around $100 million, and a share price that had been mostly below $1 for the past year. Tha bank reported a loss around $25 million last year, and was continuing to lose money. It was 3 months late on repaying a $10 million loan it used to purchase another bank in 2007, with no realistic hope of coming up with that money. It had been in business since 2000.

The two Florida banks both received prompt corrective action orders in May. Metro Bank of Dade County operated at 6 locations in Dade and Broward counties in southeastern Florida. Turnberry Bank had its 4 locations in Dade County.

Elsewhere in Florida, Olde Cypress Community Bank failed tonight. The bank had an office in Clewiston, in east central Florida, and may have had other locations. It had $162 million in deposits. The deposits and assets are being transferred to CenterState Bank of Florida.

There was a small bank failure in Michigan tonight. Mainstreet Savings Bank had offices in Hastings and Lake Odessa in western Michigan. It had $64 million in deposits. Commercial Bank paid a small premium for the deposits and is also purchasing the assets.

Wednesday, July 14, 2010

Two Loans at One Time?

Did you hear the one about the bank that turned down a man for a home mortgage just because he was still making payments on a car loan?

Whether that story is true or not, it shows that attitudes about debt have changed. Five years ago, it was easy to find people who would assume that every household would ordinarily have monthly mortgage and car payments to make at all times. Now people are anxiously reconsidering this formula. The story about the man who couldn’t buy a car and a house at the same time has been repeated so often because people are anxious about whether they too may fall into an exception to the two-loan pattern. If you are in a single-income household or have some other not-so-special consideration in your financial picture, will you have to pay off the car loan before you can buy a house? And then, will you have to pay off the house before you can buy another car?

This kind of anxiety is making consumers hesitate. One measure of this is the rate of home mortgage applications, which fell last week to the lowest level in years, despite low mortgage interest rates. (On the other hand, it is worth noting that the number of new mortgages has not yet dipped below pre-bubble levels, which means that the housing correction hasn’t really started yet.)

Retail sales fell in June, defying my hopes for a summertime bounce similar to what we saw last year. The more telling report this week, though, is the news that petroleum inventories rose last week, yet another indication that, far from going on a road trip, people were staying home during the Independence Day holiday weekend. That in itself is an unprecedented change in U.S. consumer habits and attitudes. Petroleum inventories fell this week as people went back to work.

Imagine a shell-shocked man with a few pieces of paper in his hand, staring blankly across a desk and saying, “You mean, now I have repay all these loans?” That’s the new face of deleveraging, as consumer and some businesses realize they are stuck right where they are until they pay debts off — or at least, pay them down enough to restructure them.

Tuesday, July 13, 2010

Smoking Rule Repeals Lead to Blanket Ban in Bavaria

A series of partial repeals on smoking bans in Germany since 2007 have not turned out to be the victory for tobacco that they appeared to be. The expanded cigarette smoke so irritated people in the large southern state of Bavaria that 61 percent of voters voted to approve a blanket ban on smoking in commercial buildings. Three out of four non-smokers must have voted for the ban, along with at least one out of six smokers. Across Germany, support for a smoking ban has expanded so much that at least two political parties are looking to duplicate the pending Bavaria rules in all the other states of Germany to create uniform smoking rules across the country.

Germany until recently had some of the highest smoking rates in the world, the result of a very active tobacco lobby, yet tobacco is too small an industry to fight the health care wars. In Germany, tobacco-related illnesses may add about 25 percent to national health care costs, and that is not a popular position to be in at a time when voters are looking for budget-cutting measures. Combine people’s irritation at the foul air with budget pressures, and it will not be so easy to find people to cast a vote for tobacco.

Monday, July 12, 2010

The Off-Season

Things have always slowed down for the summer in the Philadelphia area — but not like this. For the past three weeks, it has been looking like the off-season around here.

I know about the off-season because I’ve been to beach towns in months like March and November. I know what it looks like when a major street has, in the middle of the day, one car per block, and when a parking lot with 200 parking spaces has 4 cars in it.

But that’s not supposed to happen in the city, or the suburbs. The Philadelphia area traditionally doesn’t have an off-season. But it has been looking almost like it lately.

On Independence Day weekend, I mused that people were just staying home and saving their money. Looking at concert attendance, in a summer when promoters have scheduled about a third fewer shows, reinforces that thought. Attendance started out the summer reasonably strong, but shows scheduled for the rest of this month have not sold the way you would expect.

If it is true that people are staying home and saving their money — perhaps the thought is, “We might as well enjoy this house while we still have it” — it is likely to slow down the whole economy. And at a time when most of the business and financial world, along with at least 40 of the 50 state governments, are banking on a quick economic recovery, that prospect is bound to lead some to take a second look at the budget.

Sunday, July 11, 2010

BP Starts Liquidation Early

If this morning’s media reports are accurate, BP is likely to sell its Prudhoe Bay assets to Apache (Reuters). This would be a good start on the liquidation process for BP. BP executives don’t have to commit to a full-scale liquidation — if they just sell off enough assets to stay above water financially, it amounts to the same thing in the end.

The Reuters story also repeats rumors that at least two major oil companies are looking at the possibility of buying BP (or its U.S. operations) more or less intact, given BP’s sinking stock price. That’s unlikely to happen, however. Any acquiring company at this point would also be acquiring BP‘s ill will and its boycott, and that would stick even if it ends up spinning off most of the BP assets. The story would be similar to the way that Verizon has never quite recovered from its acquisition of the post-bankruptcy remnants of MCI, but worse because of BP’s untold liabilities. A major U.S. oil company that purchased BP this year could very well be buying its way into bankruptcy.

But if they start buying BP’s refineries, or individual gasoline stations, that’s a different story. With that strategy, they do not have to position themselves as BP’s successor, and they can avoid most of BP’s problems. That’s the process that the Prudhoe Bay deal is pointing toward.

Saturday, July 10, 2010

A Wright Brothers Moment

It was a Wright Brothers moment this week when an engineering team flew a solar-powered plane for 26 hours. At Solar plane lands after completing 24-hour flight. The significance of this is that it proves that an airplane can store enough power to fly through the night. The solar plane isn’t powerful enough to carry passengers or cargo — that will require further leaps in design — but it’s worthwhile to remember that the early Wright Brothers planes couldn’t carry anything more than a pilot either.

Friday, July 9, 2010

This Week in Bank Failures

I had the opportunity to explain the idea of a bank failure to a 5-year-old this week. It was something like this: “Imagine that you’re playing Monopoly, and you’re in the middle of the game, and all of a sudden, all the money just vanishes.

“You can’t keep playing without money, so what the banker has to do at that point is find some other money, and figure out how much money each player had, and give them that much money. Then you can go on with the game.”

“But what makes the money disappear?” came the obvious follow-up question.

“I don’t know,” I said mysteriously. “Some people think it’s magic.”

It was Baltimore’s turn for bank failures at closing time tonight. Ideal Federal Savings Bank, “the oldest Black owned financial depository in the State of Maryland” according to its web site, had been operating for 90 years at the same location in Baltimore, but was closed tonight by the OTS. It had $6 million in deposits. The FDIC did not find a buyer for the failed bank, perhaps because of the small size of the office. Instead, it has arranged to make the deposits available temporarily at an M&T Bank branch one mile away. For any deposits that are not claimed in person by July 24, the FDIC will send checks to the depositors.

Baltimore’s Bay National Bank also failed tonight. It had $276 million in deposits at two locations along the beltway. The assets are being sold to an investment group that has chartered a newly formed thrift using the name Bay Bank. The new Bay Bank is taking over the deposits from the failed bank.

Most of Bay National Bank’s problems probably stemmed from real estate development projects in the Inner Harbor area, though the bank itself was located in the suburbs.

In New York, Port Chester-based USA Bank was closed. The bank had one location and $190 million in deposits. The deposits are being transferred to Pennsylvania-based New Century Bank, which is also purchasing the assets.

Stock in USA Bank had only declined, losing 97 percent of its value in barely 3 years. After reviewing its financial condition last year, the bank had been looking to be bought out.

New Century Bank operates under the name Customers 1st Bank, having taken on that name at the end of April. It is not connected with the New Century Bank that failed in Chicago that same weekend, and the timing of the name change appears to have been merely a coincidence.

In Oklahoma, Home National Bank was closed. It had seven locations in northern Oklahoma, four in southern Kansas, and four in Arizona, and $561 million in deposits. The deposits and half of the assets are being acquired by local competitor RCB Bank.

Home National Bank took millions of dollars of losses on foreclosures in Arizona after real estate developers ran out of money.

Thursday, July 8, 2010

BP Brand Shrinking Already As Station Owners Switch

Some gasoline stations are stuck with multi-year BP contracts. But those that can, are switching to other brands. From the Free Press:

BP gas station owners switching brands as customers boycott

What’s important to note is the financial effect of the boycott, despite its limited scale. The loss of one customer every 15 minutes was enough to get one station to change brands, while others with larger revenue losses may be forced to raise prices just to hold on until their BP contracts expire. Some BP stations may elect to shut down, either temporarily or permanently, as there is little to be gained by operating at a loss. The declining volume at retail will be forcing adjustments at BP’s regional distributors, potentially forcing the BP brand out of some towns.

All this is happening despite an organized boycott that only 3 to 5 percent of Americans are participating in. Most of the decline in BP gasoline sales is not from the boycott, but from a subconscious aversion to BP. People associate the BP name with bad news, so they try not to see it, and one way to not see BP is to not see the BP signs along the highway. This reaction will only expand as the oil spill’s effects expand to Cuba and the U.S. east coast over the coming two years or longer. BP is making a mistake by addressing the boycott (with the misleading talking point that any boycott will mostly hurt independent local businesses) but failing to address the subconscious side of its tarnished image. One thing BP station owners can do, if their contracts will permit it, is change their signs so that the BP logo and colors are not so prominent.

Of course, part of the decline in revenue is not limited to BP, but reflects a new aversion to petroleum in general that Americans are feeling in response to the oil spill, and this is affecting all brands of gasoline. This so far has led to small changes, probably less than 1 percent when you look at gasoline sales, but it too is likely to expand over time.

BP is in denial about how badly its image has been hurt, and the U.K. news media hasn’t recognized the extent of the damage either. This is why, while U.S. financial analysts are starting to ask whether a BP liquidation can be arranged that will leave some money for stockholders, British financial analysts are still asking how quickly things at BP can get back to normal.

Wednesday, July 7, 2010

As Software Development Gets Easier, Chaos Ensues

It’s no secret that the iTunes Store’s app store is chaos, but just how chaotic it is was seen over the weekend when a developer was banned from the store after dominating one of its dozens of category charts based largely, or perhaps entirely, on fraudulent purchases.

Macworld reported on Monday that the developer’s apps had been removed from the store. Subsequent stories indicate that the developer has been permanently banned from the store. Apple, owner of iTunes Store, has taken steps to boost security and is continuing an investigation of the suspicious purchase transactions.

Apple’s development tools for iPhone apps have turned the previous model of software development on its head. There more apps than anyone could keep track of. Less than a decade ago, software lived and died on magazine reviews. There are so many apps now that it did not immediately appear strange that many of the top-selling apps had never been reviewed, even by a customer.

Software development will only get easier as time goes on, and this will require new approaches to software. The key distinction once was about “trusted sources” of software, and that meant something when the ordinary user used fewer than 100 applications. When that number started to go up above 200, it was no longer possible to keep track of the sources of all that software. It’s so easy to get one software developer confused with another that “trusted source” is itself subject to security gaps.

This, of course, is part of the reason for the iPhone app concept. IPhone apps have only limited access to the computer they run on, and this is an intentional strategy to keep the machine from breaking. Another example of this can be seen in the Java Virtual Machine, which takes a much softer approach in limiting an application’s access to the file system and hardware of the computer it runs on. The computing world will need to expand on this concept to build various kinds of security boxes that can contain applications.

Tuesday, July 6, 2010

After Hurricane, Oil Spreading Out

A hurricane was only briefly in the Gulf of Mexico, and it didn’t go near the oil spill site, but it spread oil far and wide anyway.

High seas, first from the hurricane and then from a tropical wave that passed by, ruined BP’s initial attempt at oil skimming. Waves and currents pushed oil into Lake Pontchartrain and all along the Louisiana coastline and dragged a few tar balls as far as Texas.

The big question is how much oil was washed over the booms into the marshlands in the Mississippi delta. I haven’t seen any specific reports on that.

Monday, July 5, 2010

No Skinny States

There are no skinny states.

The annual state-by-state look at obesity, based on CDC data, shows that obesity is getting worse. Obesity is increasing rapidly, with about 2 million more obese adults than last year in the United States, by one estimate. The geographical distribution of obesity has not changed much from last year, so I won’t belabor that point. Suffice it to say that the states that lean heavily Republican are the heaviest, with obesity rates about 3 percent higher in Republican states than in Democratic states.

Worse than the obesity rates themselves are the anecdotal reports that suggest that people are becoming less sensitive to obesity. Many people, it seems, say their weight is about average, when in fact they weigh more than 90 percent of the people around them. Meanwhile, people at the high end of the normal range tend not to realize that they are just a hamburger away from being considered overweight.

There is always good news to be found on this subject, people who went from obese to normal, and people who discovered new ways to manage their weight. The obesity problem will not be with us forever. But we have not turned the corner yet.

Sunday, July 4, 2010

The “Where Did Everybody Go?” Weekend

As I’ve been out and about during the extended holiday weekend, I’ve seen unusually light traffic, not just on the roads, but in the stores, restaurants, and parks. I believe some people have left town for the weekend, but from everything I can tell, the crowd at the beach is also smaller than you would expect for a peak summer weekend. The question, “Where did everybody go?” has come up at more than one place that I’ve visited.

It seems to me that many people are just staying home. They haven’t gone anywhere, but by staying home and not going out shopping for a few days, it gives the impression that they’ve disappeared.

If that is indeed the story, it is another example of the way that large economic effects result from small personal decisions. If someone says, “I’m just going to relax for the whole extended weekend,” it is not a major or consequential decision at the personal level. But if most of the people in the area are taking that approach, then it represents a big short-term decline in the level of commercial activity.

Saturday, July 3, 2010

Northwest Passage or Arctic Ocean for Trans-Arctic Shipping

When all is said and done, the Northwest Passage may not be as important as we thought.

The Northwest Passage is the sea route from Baffin Bay to Alaska. In unusually warm summers, enough of the ice melts that ships can get through. It hasn’t been so easy in the last two summers, though, and this summer looks to follow the same pattern.

It is not that the ice is not melting. The problem is that ice is melting on the open ocean too, and fragments of ice from the Arctic Ocean are jamming up the straits that make up the Northwest Passage. With ice fragmenting so easily, the straits may not melt until the open ocean melts.

Yet at the rate things are going, that could happen this year. There was near-average ice extent in the Arctic region in March and April, which is a lot by post-2007 standards, but the widespread ice extent hid a rapidly declining volume of ice. According to estimates, the ice might have been the thinnest ever. Measured by extent, the ice melt in May was the fastest ever recorded, and the rapid melt has continued, creating a June ice map that looks like July. The ice extent for June is the lowest ever recorded. Barring a change in the weather, half of the remaining ice will melt in July and August, opening up usable shipping lanes across the open ocean for the month of September.

Even then, the Northwest Passage may or may not open. With so much ice melting and breaking up, loose ice could easily jam up any given strait. The open ocean may give ships more options for dodging whatever stray ice might still be floating around.

Friday, July 2, 2010

This Week in Bank Failures

A financial reform bill has passed the U.S. House of Representatives, representing a tentative response to the financial meltdown of 2007 and the Wall Street crisis of 2008. The bill includes provisions that require disclosure of the money at stake in some derivatives contracts, but not others. There are some changes in accounting rules, but not enough to prevent a bank from using derivatives to hide its financial condition. The measure is expected to pass the Senate toward the end of the month.

With their foot-dragging strategy, Republicans have backed themselves into a corner. Republicans in the Senate now have to choose between publicly standing up for Wall Street barely three months before an election, or grudgingly allowing for a timid reform measure that they have been stonewalling for more than a year. Any further delay would move the issue into the election season, which would raise the political stakes significantly.

A failed credit union was resolved this week. First Delta Federal Credit Union, in conservatorship since October, was merged into Shreveport Federal Credit Union. Though based in Louisiana, Shreveport Federal Credit Union already had a substantial presence in the Mississippi counties where First Delta Federal Credit Union operated.

With the holiday weekend, no new bank failures are expected tonight. Banks are preparing new financial statements for the quarter that ended June 30, and for some banks, those will tell whether the bank is financially strong enough to continue to operate through the new quarter.

Thursday, July 1, 2010

Stimulus Burnout, Summer, and Escapism

People are now seeing why I was so skeptical about the stimulus aspect of the economic stimulus measures of the last two years.

It’s not that the stimulus didn’t work. It’s that all the stimulus we can pay for is not nearly enough to get the economy on an even keel again.

The amount of stimulus that would have required would have been the equivalent of at least 2 years of GDP. We’ve spent or committed more than 1 year of GDP for stabilizing the economy, but most of that was lost, sunk into a failing financial system that, two years later, shows no sign of ever righting itself. There was almost no stimulus effect from that spending.

The stimulus itself, the tax cuts, tax credits, and incentive payments, amounted to less than half a year of GDP, because that was all we could spend after blowing the budget year after year on foreign military adventures. Now the stimulus effects are fading, and the economy is groaning in response.

The home buyer tax credit expired, and we saw the largest one-month decline in home sales ever. Meanwhile, real estate values continue to fall, foreclosures continue to rise, and construction has to fall from here, because it is still far above any rational, sustainable level.

As for the broader economy that the stimulus was supposed to help, employers continue to fire half a million workers per week. By one estimate, around 3 million workers will have exhausted their unemployment benefits by the end of this month — and that will lead to more foreclosures next year.

But it’s more than just stimulus burnout. In the last 1 1/2 weeks, economists have been writing about “consumer fatigue.” I have noticed myself a tendency in that direction. Since last week, I have been hearing stories of people wanting to escape from the financial pressure of their lives. They are doing it, in part, by staying home, not going to restaurants, movies, festivals, or anywhere else they might spend money. This morning I helped someone cancel an online subscription (which, perversely, had to be done over the telephone). This spending cut was not made under duress — it just seemed safer to keep the money in the bank. People are becoming more passive about their monetary lives. And why wouldn’t they? If the paycheck goes directly into the bank, and the banks end up keeping most of it to pay the mortgage, why pretend you’re making money you can spend?

This pattern, though, is not just escapist — it is depression thinking. If everyone holds on to their money, then we won’t have an economy anymore. I’ve been saying that a classic economic depression probably couldn’t happen now. People have so many more resources, such as problem-solving web sites, that they couldn’t get alienated enough from the economy for a depression to happen. But if the current stories about people withdrawing from the economy becomes a trend, then a depression could happen.

I don’t want to turn 10 days of anecdotes into a trend, but there is something going on with people conserving their money and energy, and it’s hitting just at the same time as massive government layoffs and the end of most of the economic stimulus money. And at the same time, it’s hard to find any sign of the usual summertime increase in activity, never mind a repeat of last year’s summer bounce that made people say the recession was over.

The focus on stimulus has kept people from addressing the economy’s problems. Now the stimulus is wearing off, and the economy’s problems still need to be solved.

I see reason to hope we won’t waste any more money on economic stimulus. Politically, stimulus spending that doesn’t fix the economy’s problems is a losing game. But the economy cannot really recover as long as the foreign wars and the energy-related trade deficit continue. The wars will end eventually, one way or another, but the energy deficit will keep going until we take steps to cut the cost of energy. If we have money to spend, this would be a good time to spend it on solving the energy problem. I still believe the right place for the federal government to start is by improving the energy profiles of its own buildings. Oh, and by the way, any spending on energy improvements will stimulate the economy at least as effectively as all the stimulus spending did.