Friday, June 28, 2013

This Week in Bank Failures

Five news stories this week — each a different angle on the larger story of corruption in banking.

  1. U.S. Bank and a partner will refund $6 million in fees it failed to disclose to borrowers in an auto loan program.
  2. China is starting to crack down on improper bank loans. Regulators say they have identified $23 billion so far in improper loans, including loans made without real collateral or with no specific purpose, and many where the funds were simply embezzled. It has ordered restitution and has prosecuted 700 people, mostly bank employees and customers, in connection with improper loans.
  3. A senior Vatican official has been arrested in Italy, accused of being involved in a scheme to smuggle cash into the country illegally by airplane — €20 million of it. Investigators discovered the incident during a larger investigation into money laundering at Vatican Bank.
  4. A retired California employee of a Swiss bank kept millions of dollars in secret Swiss accounts to avoid U.S. income taxes. He has pleaded guilty and paid a $1.5 million fine and faces a possible prison sentence.
  5. A former bank executive (of a failed bank) defrauded investors in New York City of at least $375,000 since 2005 with a story about opening the city’s first Sharia-compliant bank. There were no plans to open a bank, and the executive kept the money for his own use, according to an indictment filed today.

Wednesday, June 26, 2013

When Loss of Privacy Leads to Loss of Power

One worry about the ongoing erosion if privacy is that it will lead to further consolidation of power, as the rich and powerful gain new ways to spy on everyone. But this sword cuts both ways, and the political and business leaders who orchestrate our collective loss of privacy sometimes seem to be the last to realize that their decisions and actions will be subject to a new kind of scrutiny. The obvious case in point is Berlusconi, who is piling up convictions from a series of careless infractions and is seeing his political standing in Italy fade as he fights to stay out of jail. The convictions are for crimes Berlusconi might reasonably have expected to hush up a decade earlier, but tax records, private parties, and off-the-record phone calls to government officials are no longer so obscure as they used to be and are easily made part of the judicial record. It is something of a cliché to observe that aging politicians often fail to keep up with the changing times, so it seems fair to guess that many more political and business leaders will run afoul of the law and then express surprise at having to face justice.

Monday, June 24, 2013

Information Week Goes Digital-Only

Another print magazine has been relegated to the recycle bin — this time, Information Week, which for decades has covered the turbulent world of corporate information technology. The print magazine had been getting thinner and thinner, reduced this year to one feature story and two columns per issue, so it is no big surprise to see it go away. While magazines in general are affected by rising energy costs and declining reader attention, Information Week was also hit with the declining influence of the corporate IT segment it covers and its own awkward positioning within its niche. The magazine will carry on with its online presence and live events, and this transition may not be as difficult as it has been for other magazines. Already a year ago, most of Information Week’s editorial content and advertising were online-only. The biggest challenge ahead will be to maintain the magazine’s identity now that the weekly print issue that previously anchored that identity is gone.

Early Start on Q3 Hiring

It’s normal to see a burst of hiring and recruiting activity as many departments get new or expanded budgets for the third quarter of the year. I’ve seen this in the first half of July in each of the last three years in spite of a sluggish job market. This year it is starting earlier. From what I am seeing and hearing, the Q3 recruiting started in the middle of last week, two weeks early. Recruiters and hiring officials are trying to get ahead of the competition by getting an early start on their Q3 hiring — or they just want to get off to a quick start with their new hires. Either way, it is a sign of a tightening job market. The job market has been “frozen” for the last seven years, with extraordinarily soft wages and low worker mobility, but if the job market continues to improve, we could see a return to normal wage growth and turnover in two or three more years.

Friday, June 21, 2013

This Week in Bank Failures

European leaders say they have an agreement on a framework for future bank stabilization actions. There are a host of problems with the plan, but it is still an important step forward.

Here are seven reasons why the new plan may not be enough to address the next banking crisis:

  1. The amount of money available under the plan, though large by any ordinary standard enough, may not be enough to rescue even one giant bank.
  2. The new system does not go into effect until 2014, and a lot could happen between now and then.
  3. Bank executives may become more willing to take risks if they imagine the rescue fund as a backstop for their bank.
  4. The plan requires all large depositors to participate in any bank recapitalization, a provision that may accelerate the deposit flight that is already taking place.
  5. There are more details to be worked out, and fundamental disagreements on matters of policy remain between countries that want a clear stated policy and those that want more flexibility in dealing with a crisis.
  6. The plan for bank liquidation is even less clear than the plan for recapitalization, and that discrepancy is likely to make bank executives believe that bank liquidation is not seriously being considered for banks that fail.
  7. Some economists believe the European economy (along with that of China) is fundamentally not large enough to rescue the giant banks that are already in trouble.

The plan is still an important step forward, because it sets in place a mechanism for the EU to stabilize banks without destabilizing the countries where the banks are located.

EU policy on bank liquidations may come soon enough, if the recent change in tone in London is any indication. New legislative proposals would create criminal penalties for bank executives whose high-risk behavior runs afoul of their fiduciary duties, and would keep bank bonuses in escrow for 10 years, to be forfeited if the bank becomes insolvent during that time. Needless to say, these are proposals that wouldn’t have been taken seriously two years ago.

Germany’s Commerzbank, losing money at the rate of €1 million per day, will lay off 5,200 workers as it looks for a way to become profitable again.

Deloitte erased key information from its report on Standard Chartered’s international transactions in order to hide the bank’s money-laundering activities from regulators, and now has agreed to pay a $10 million fine to settle that case.

The NCUA placed PEF Federal Credit Union, of Highland Heights, Ohio, into conservatorship today. The credit union, which has 3,000 members, will stay open while new managers try to turn it around financially.

Thursday, June 20, 2013

Major Publishers vs. Book Cover Design

Which is more important for the success of a new book — the prestige of being released by a major publisher, or a book cover that accurately reflects the title, content, and spirit of the book?

I am not sure which is the right answer, but is not just a rhetorical question. It is something authors have to decide — because for all the things that publishers do well, they are clueless when it comes to book covers. 

I know about this from my own experience. My first book was the defining work in an emerging computer field, but it appeared in stores in the plain-white, random-shape, scrawled cover you see above. I was never entirely proud to say, “Yes, that’s my name on the cover.” The cover design offered no hint of the book’s subject, style, or approach. And it is hardly the worst example you could find.

We have all had occasion to cringe or laugh out loud at major-publisher book covers. Images often clash with the book or the author — a nostalgic design for an author known for cutting-edge ideas, or a painting of ducks selected for the cover of a book about mammals. Covers are designed quickly, with so little review that author names are sometimes misspelled, and words omitted from titles.

I make a big point of this because this year, there is a new trend of self-publishing among celebrity authors, and some of them have cited worries over book cover design as one of the reasons not to sign with a major publisher. Celebrity authors especially have reason to worry that their book covers will embarrass them. They may have invested years of careful effort in their public images, and it would hurt to have that undercut by a book cover thrown together in an afternoon by a designer who may not have been told who the author is or what the book is about. That could be reason enough for a celebrity not to seek out a book deal.

There have been a few big self-published celebrity books this year, and as they succeed, more will follow. There are indications that this is a trend that the major publishers have started to worry about. Will the major publishers lose control of the celebrity book segment? That would be a seismic shift in the book business — celebrity books are at the heart of the major-publisher business model — yet the stage is set for that to happen next.

Wednesday, June 19, 2013

Keeping Nature in the Public Domain

The U.S. Supreme Court ruling that prevents patents on naturally occurring DNA sequences is important because it keeps nature in the public domain. The ruling extends far beyond macromolecules to say that merely being the first person to notice, measure, or record something does not make you the inventor of it. As important as it is to pay attention to the world and the way it works, patent laws were intended to give people an incentive to create something new. Current patent law still often allows people to file patents before they have done the work of inventing something, and when it does that, it takes much of that incentive away.

Tuesday, June 18, 2013

The “Happy Birthday” Questions

Most people are surprised to learn that the song “Happy Birthday” is still under copyright. Part of this is the time distortion that traditions go through. Many of the culturally accepted actions that it seems like everyone has been doing forever, actually took on their current form less than a lifetime ago, and the birthday party that traditionally includes a birthday cake with candles and “Happy Birthday” is an example of that.

But “Happy Birthday” really is an old song. The melody was widely known in the 19th century. The words at first were “good morning” rather than “happy birthday,” though the “happy birthday” lyrics might date from the 19th century also. If that’s the case, no one should be collecting royalties on it — a copyright doesn’t last forever, after all. And even if “happy birthday” does date from the beginning of the 20th century, there is a legitimate legal question as to whether that two-word change is enough of a change to make the song a new work, entitled to a new period of copyright. These are questions that, after all these years, a court will finally be taking a look at.

Monday, June 17, 2013

Nuclear Shutdown Trend Reaches U.S.

The trend of shutting down aging nuclear power plants is not limited to countries like Japan and Germany. It is coming to the United States too. Many of the nuclear reactors in use around the world have become too mechanically awkward with age to continue to operate reliably. Beyond a certain point, it is too dangerous and expensive to upgrade their designs in place. They will have to start shutting down one by one.

Even if there were no problems of aging and mechanical breakdown, the world’s nuclear fuel shortage will become acute within 15 years. If more nuclear power plants shut down now, the coming nuclear fuel crisis might be postponed by as much as a year.

Friday, June 14, 2013

This Week in Bank Failures

Now that so many U.S. banks are Canadian-owned, what would happen if one of those banks failed? Deposit insurers in the two countries worked out many of the details in a document signed this week.

More than 20 banks and more than 100 bankers attempted to manipulate a key base rate in Singapore, known as Sibor, according to a regulatory report released today. The report suggests criminal prosecutions and billions of dollars in fines. It also suggests that Sibor be discontinued.

Thursday, June 13, 2013

Noise and Privacy

Privacy arises out of noise. You can find this in the most literal physical sense if you are holding a conversation in a busy restaurant. The people at the next table might overhear a few words, but no one else will hear anything because of the noise of other conversations. It is the same effect if you try to find yourself in a photograph of a crowd, perhaps at the beach or at a baseball game. Unless you are doing something highly distinctive, that cuts through the random patterns of the scene, you may be in the picture but hard to see. It is the same thing whenever you are part of a larger scene. To a surprising extent, when you want to just be part of the scene, you can hide in the noise. It is the “safety in numbers” that people talk about. If you try to cut through the noise and be noticed, you find that it is not as easy as it might seem.

Wednesday, June 12, 2013

The New Privacy

I really thought everyone already knew about the Patriot Act. A series of documents released over the last two weeks only confirmed what was already known from the legislation itself — the U.S. government is collecting comprehensive transactional information about citizens’ activities in every communications medium from web searches to library books, and collating it to find out who has interests and activities in common. This is something that started, quite illegally, years before the legislation that enabled it, which is why parts of the laws are retroactive.

Or that’s the way I saw it. But to many others, the thought of a massively powerful organization tracking their keystrokes comes as a revelation. I hope that the eventual conclusion of this public conversation is that the kind of private lives people enjoyed in the 1970s and 1980s went away more than a decade ago. With current technology, that kind of privacy would be impossible, even if the U.S. government were abiding by its constitution. The old privacy has been replaced by a new kind of privacy, the privacy that comes not from not being observed, but from being relatively harmless, from not wanting to rock the boat or to overtly threaten the entrenched interests of the rich and powerful.

That is not to say that the rich and powerful have us all under their thumbs now. They can watch us but they will never understand us — not until it is too late, that is. They have nightmares about change coming at them from out of the blue, and that is what they watch for, yet unexpected change keeps coming, and there is no end to it.

Tuesday, June 11, 2013

Safari Revisions Focus on Browser Energy

Among Apple’s many announcements yesterday was a mention of an improved Safari web browser with new energy-saving features. This change is obviously important for the battery life of a portable device, but if you look at it in the aggregate, it may amount to a blip in our total electric power consumption.

Think of this change at the individual level. How much of your total electricity consumption goes to web browsing? It is probably not one percent, but it is probably not too much less than that either. So some new web browser engineering could end up cutting total electricity use by a noticeable amount. If it is 100 megawatts across the United States, that is more than $100 million a year. It is worth looking at the financial effect this way when you ask whether the engineering work was worthwhile.

One of the surprising details of browser energy use is how much energy web browsers use while no one is looking. After you step away from your computer, a web page may still be cycling advertisements in and out at a significant energy cost. The new Safari doesn’t stop this ineffective parade of ads, but it is said to gain much of its energy savings just by giving browser ads a lower priority on an otherwise inactive computer.

Monday, June 10, 2013

The Importance of Incremental Change

There is a reason we make most changes in small increments, especially at first. When we attempt larger changes, even on the level of 5 percent at a time, it is hard to imagine what will happen.

The U.S. austerity budget is an example. This 5 percent change, scheduled years in advance, nevertheless has not gone the way most people envisioned. Budget analysts are somehow surprised at how much is being paid in unemployment compensation to furloughed workers, canceling out part of the budget savings. The indirect effects are also larger than politicians predicted, especially when you look at private sector job cuts. We knew that would happen but many are surprised at how large the impact is.

It is the same with almost anything you want to change. With incremental change, you can manage the process of change and make adjustments as you go along. With large-scale change, you instead have to spend an extended period of time mopping up where things went wrong.

Friday, June 7, 2013

This Week in Bank Failures

Peregrine Financial founder Russell Wasendorf Sr. used customer funds as collateral for loans he took out from U.S. Bank, according to a lawsuit filed by Commodities Futures Trading Commission against the bank. If this were true, it would mean the bank took accounts belonging to one customer and used them for the benefit of another customer, and that would be every bit as serious as it sounds. However, we don’t yet know what documents are in the evidence against the bank, and a case like this can easily take a decade to be resolved in the courts.

The permanent austerity in Europe and the United States, undertaken to fund the bank bailouts of the past six years, is a disaster for younger workers. Look at workers under 25, and whole countries start to disappear. Spain and Greece are in the worst condition, with unemployment rates over 50 percent for workers under 25, but among the major countries in Europe, only Germany and the United Kingdom can claim a rate below 25 percent. The United States is faring better than Europe in this regard, but even here, the rate is a disastrous 16 percent. It will be hard to bridge the cultural gap that is developing between the generation that held jobs almost at will, roughly the older half of workers in these countries, and the younger workers among whom only the more fortunate can hold any job at all. Now the financial gap between generations will be growing larger as the U.S. Congress has voted to double student loan interest rates next month. Already banks are reluctant to make house and car loans to workers who hold unpaid student loans, and with workers paying twice as much in interest charges on student loans, their access to any other credit, beyond credit cards, may be delayed by years. Student loans are currently the only form of consumer credit that is growing rapidly in the United States.

Another Capital Bancorp Ltd. bank was shut down last night after the bank holding company’s legal challenge was denied. This time it was the FDIC liquidating 1st Commerce Bank, with a single location in North Las Vegas. One wonders if any more of Capital Bancorp Ltd.’s banking subsidiaries are not legitimately solvent, but hanging on only by procedural maneuvers. As for 1st Commerce Bank, its $20 million in deposits were transferred to California-based Plaza Bank in a deal that the FDIC estimates will cost it nearly half that amount.

Nevada had more than its share of bank failures with the rapid decline of real estate values around the periphery of Las Vegas, but it has fared better lately, with no banks failures for two years before this week.

Tonight the O.C.C. closed Mountain National Bank, which had 12 branches in Tennessee and $373 million in deposits. First Tennessee Bank is assuming the deposits and purchasing the assets. The failed bank had struggled for years with its commercial real estate portfolio. It had been operating under a series of regulatory orders since 2009.

Thursday, June 6, 2013

The Problem With Working for Free

You should insist on getting paid for every word you write — that’s the advice of blogger Barney Hoskyns. “Stop working for free,” he says, and this applies not just to writers, but to “all freelance content providers (musicians, writers, actors, photographers, designers etc).” He doesn’t mention this, but this is an issue that virtually every business, not just a creative freelancer, will eventually face.

There actually is something to the idea of refusing to work for free, but there is a problem with the advice coming from a blogger. Somehow, Hoskyns got to the end of a 500-word post without any irony, without any hint of awareness of the contradiction in his message.

We all need to get paid somehow. Yet bloggers, with rare exceptions, earn less than a starvation wage for their efforts. Hoskyns may be the exception, but he does not say anything in his post to set himself apart from the mass of bloggers, so his example does not match his message.

No creative worker can get started except by practicing, and practicing by its nature is unpaid. You do not become an in-demand photographer by refusing to pick up your camera. Nor does it make any sense to call yourself a pianist unless you love to play the piano — indeed, you must love it so much that you will cheerfully play your instrument for many years before anyone will think of paying you to do so.

The problem with working for free is that it can continue indefinitely. You can fool yourself into thinking you are doing better or more valuable work than you actually are, and keep going as you are instead of improving your approach. The problem with staying quietly at home until a paying job arrives in your inbox is that the world may not know you exist. That too can continue indefinitely. Worse, if you are a creative person refusing to create anything, you are letting your skills and your soul waste away.

Do what you love. Try to arrange a good deal for yourself. But don’t refuse to get out of bed, and out on the street if that’s what it takes, on the theory that you should get paid first.

Now, here is where “Stop working for free” makes sense. Maybe Hosykns was imagining something like this. Suppose you have some paying customers. They pay you enough to keep going, but it is only enough work to keep you busy for maybe an average of four hours a week — so you spend most of your time chasing the customers you think you should have, and more often than not, doing free work for them. That business model, in all likelihood, is nonsense. You are probably still trying to track down the stories you heard when you first got into the work you are doing. Stories, though, are secondhand information at best, and they point to the past. Stories are better than no information at all, but they aren’t necessarily very reliable as a guide to action. To expand on the work you are doing, what you need is the truth — and the flow of money, even if it seems small, points to where the truth of your situation is.

Wednesday, June 5, 2013

Reduced Participation in Loyalty Programs

Here is good news: a CNBC story says U.S. shoppers are decreasing their participation in retail rewards programs. These programs feature money-saving offers for shoppers who shop at the same retail chain more than once a month. But the programs require a substantial time commitment, and the resulting time pressure makes the loyalty program not worth it, except perhaps if it is at one of a shopper’s two or three favorite stores. If people are taking steps to free up time, such as dropping out of loyalty programs, that will lead to lower stress, better decisions, and more productive action in their daily lives.

Tuesday, June 4, 2013

Financial Stress and Revolution

A revolution rarely occurs except after an authoritarian government has been under financial stress for some time, a situation John Kenneth Galbraith called a “rotten door.” Turkey looks ready to follow the same pattern. Remember the incident that sparked the current uprising — a government-sponsored project to pave over the last open space in a city. Governments in normal times do not sell off obviously valuable public assets like the only park or the only turnpike. This can happen only when the budget is a disaster and they are near their wit’s end. The same financial pressures imply that continuity and the needs of the broader public are being neglected, while the truth is being stretched thin. It’s a recipe for rapid political change.

Monday, June 3, 2013

With Reduced Mobility, More Stuck Fear

Fear is situational. A person who has a fear experiences the fear in some situations but not others. In part, fear attaches to places. Fear tends to get stuck in the places where frightening episodes occurred. One way fear is released — not the primary way, but nevertheless important — is when people leave places and go to new places. This happens especially when people change residences and jobs.

But these changes are happening less often than usual now with the reduced career mobility of the past 8 years and the reduced residential mobility of the past 6 years. The conditions of the larger economy is leaving more people than usual stranded where they are now.

This makes fear a greater presence in the world now — perhaps more likely to occur, but certainly more likely to persist in an individual’s life. When people get stuck because of the state of the economy, their fears may also get stuck. One part of the larger economic puzzle in front of us is a need to reduce the influence of fear on people’s lives.

Sunday, June 2, 2013

This Week in Bank Failures

Failures tonight:

  • Banks of Wisconsin, operating as Bank of Kenosha, Kenosha, Wisconsin, 2 locations, $128 million in deposits. North Shore Bank is assuming the deposits and purchasing about 3/4 of the assets.
  • First Kingdom Community Credit Union, Selma, Alabama. It had been in conservatorship for the last two weeks. Member accounts have been transferred to Riverdale Credit Union.
  • NCP Community Development Federal Credit Union, Norfolk, Virginia. Member accounts have been transferred to Chartway Federal Credit Union.