Friday, May 31, 2013

Privacy Bends for the Sake of Health Care Costs

As the federal budget takes on more financial responsibility for people’s state of health, you expect policies to change accordingly, and here is a good example. New regulations on employer wellness programs give employers more leeway to penalize employees who don’t participate in a wellness program or who don’t meet goals. It is the penalty for not participating that will shock people the most, especially when you look at what these wellness programs are. The standards for relevance are set lower than ever. A “wellness program” does not have to actually improve anyone’s health; it just has to sound like it might. Some real-life employer wellness programs consist of little more than “self-assessment,” which may just mean that employees are obliged to answer a questionnaire about their health history, habits, and lifestyle. The answers may be indirectly collected by the employer and its insurance company. And now, “non-participants” may be obliged to pay as much as 50 percent more as their share of health coverage costs.

In past years, this might have been seen as a worrisome erosion of worker privacy, but this year, the federal government is willing to take that chance in the hope that some of the wellness programs will work and health care costs will be lower. That’s what it means to be on the hook.

Thursday, May 30, 2013

Horse Meat Scandals Drag On

Horse meat keeps turning up in other forms of meat, and there is little to indicate that the practice of mixing and mislabeling meat has slowed down. A week ago, two food factory managers in the Netherlands were arrested. Workers there say that factory’s meat was routinely about one-fourth horse, and U.K. investigators think they have identified the English source of many of the horses delivered to the factory. In France, the bankrupt Spanghero meat-packing factory is expected to shut down, some believe as soon as tomorrow, its reputation and finances ruined by its tons of recalled horse meat. In the United Arab Emirates, there are calls for testing of imported meat, with worries that it contains undisclosed horse. Separately, there are scandals about pork being similarly mixed and mislabeled.

Wednesday, May 29, 2013

The Money Laundering Problem in Digital Currency and Derivatives

There was confusion yesterday as half the financial world briefly and mistakenly thought the U.S. government had shut down Bitcoin. The target was not Bitcoin, but the Costa Rica-based LR, comparable in scale but not nearly so well known. The indictment says substantially all of the transactions in LR were for money-laundering purposes, and the issuer, Liberty Reserve, was operating in secret in Costa Rica after authorities there started to ask questions about its money-laundering controls.

Money laundering is a potential problem in any currency but especially in digital currency, where secret identities and low transaction costs make it easy to divide a single payment of millions of dollars into thousands of transactions among what looks like thousands of unrelated parties, thus disappearing into the background noise of small transactions and becoming almost impossible to trace. Money laundering happens in physical cash too, I must add, but there, its scale is limited by the physical work of moving cash from place to place and party to party. There is no such physical work in digital currency, so it is more open to abuse.

The largest money laundering operations probably are not done in money of any kind, but in derivatives, which can be made to act like money and which, compared to digital currencies, are flexible, highly secretive, and effectively unregulated. It is just another reason why secret derivatives contracts shouldn’t be allowed, and why it is so important to have new laws that require all derivatives contracts to be published.

Tuesday, May 28, 2013

Turning the Tables on Networking Data

Large corporations routinely use social networking data to find out how people are connected to each other. They hope to use this information to sell you more products. This technology cuts both ways, however, and a mobile app called Buycott makes it easier than ever to find out how products and corporations are related to each other. It is a consumer glimpse into corporate networking, if you want to look at it that way. The networking information involved is large but not amazingly massive, and Buycott puts it to use as the back end of a bar code scanner. From the Buycott product web site:

When you use Buycott to scan a product, it will look up the product, determine what brand it belongs to, and figure out what company owns that brand (and who owns that company, ad infinitum).

Imagine that — you can find out where a product comes from! Buycott suggests that you use this information to support manufacturers that have taken favorable positions on political issues that you care about, while avoiding ones that have taken adverse positions. For example, if you like the Internet, you might pass over a product from a conglomerate that spends money trying to promote legislation that would shut down the Internet, and instead buy one from a company that has taken the opposite position on that issue. But it seems to me that is only the beginning. If you find out where a product comes from, it may help you understand the product itself better. Beyond that, you may be able to deconstruct the marketing message, now that its source is no longer anonymous, and that can help you see how commercial interests are trying to manipulate you.

These are much like the kinds of things that the corporations you will be looking at are already doing with social networking data. These same corporations might not embrace networking analysis quite so eagerly when they found out it is being used against them.

Friday, May 24, 2013

This Week in Bank Failures

One of the popular views in the philosophy of law, simplified to the point where it begins to sound crass, says that law is what powerful men agree on. There are many obvious problems with this formulation, and there are at least as many that are not so obvious. Among them is this question: if law is what powerful men agree on, then what happens after the men are not so powerful? Do they go to jail at that point?

Consider the case of Bank of the Commonwealth, one of the more spectacular bank failures in the history of banking in Virginia. While the bank was still operating, two of its top executives agreed, along with others, that the steps they were taking to make the bank appear more solvent than it was were the right thing to do. After the bank failed, though, indictments followed — indictments that would have been highly implausible, if not unthinkable, while the bank was still operating. Now the two executives have been convicted, along with two others, of a list of charges related to fraud and conspiracy.

Regulators and prosecutors hope this case sends a message to the banking industry, but I don’t see how it could. When you are the executives of one of the biggest banks in town, it is all too easy to believe that your task force meetings and strategic initiatives are the law. It is only after a bank goes under that people start to notice how many of the decisions ran counter to the actual laws on the books. But if the law has a deterrent effect only on former executives, and if current executives are effectively immune from prosecution, then what is the law really? This is, of course, a question for philosophers to discuss.

Arctic Ice Station Evacuates

Russia is hoping to stage an orderly evacuation of its floating North Pole-40 research station. An evacuation was ordered three months early after the ice the station is built on broke in two pieces. The research team had difficulty even finding a site for the station last October after a record-setting ice melt, as ice that looked solid when viewed from a distance proved to be less than stable when the ship arrived and ice researchers viewed it close up. In April 2012 the station had to be moved to an adjacent ice floe after ice started to break, but this time, that was considered too risky. Probably an ice-breaker will be sent to move the station to Severnaya Zemlya, a large island in the far north of Russia.

It is another measure of the decline of Arctic sea ice that you can no longer safely build on it. So far this season, ice measures are tracking close to those of last year. This is not encouraging news, as last year broke essentially all records for Arctic ice melt.

Thursday, May 23, 2013

Busy Atlantic Hurricane Season Predicted

The official U.S. Atlantic hurricane season forecast comes from the Climate Prediction Center at NOAA, and it predicts an especially active hurricane season in 2013. Based on the forecast, it is highly likely that weather will disrupt offshore and coastal oil production for at least one week again this year, disrupting supplies to a degree that is hard to predict in advance.

About half of people in the United States live within reach of a hurricane, and now, at the official beginning of hurricane season, is as good a time as any to consider the basic steps for preparedness. These steps may include such things as water, food, flashlights, batteries, maps, and mobile apps.

Tuesday, May 21, 2013

The Tax Haven Discussion

That the current conversation about tax havens is happening at all is remarkable. It has somehow become the topic of the moment in both Washington and London, and there is a sense that something might actually be done.

On the other hand, the fact that Apple is testifying before Congress about tax havens suggests that nothing will happen very quickly. Apple does not make a strong case for tax havens, as it has actual manufacturing and other substantial operations in the countries where its cash, it says, is stuck. One of the many U.S. corporations nominally headquartered in the Cayman Islands or a similar tax-friendly travel destination would be able to say more. Still, Apple’s situation serves to illustrate the problem, and it is hard to find anyone who understands Apple’s accounts and does not find them frustrating.

This level of discussion is remarkable when you recall that just last year we had a U.S. presidential candidate whose record of “business leadership” consisted mainly of employing tax havens. This was a subject that advocacy groups mentioned but not one that serious news commentators or elected officials wanted to touch — then. But that shows you how far political culture has shifted in less than a year.

It is the disparity between policies of different countries that give multinational corporations their special leverage that no other entities in the current world enjoy. If we have reached the point where those disparities can actually be reduced, multinational corporations might not enjoy their preeminent status in the world for too much longer.

Monday, May 20, 2013

Another Decline in Driving?

U.S. driving distance peaked in 2007, then dipped, essentially for the first time ever. Since 2010 driving has not changed much, but the March numbers showed a 1.5 percent decline from the year before, possibly signaling a new downward trend.

A year ago was the month of “summer in March,” and this year’s March was close to average, so some of the decline can be attributed to the weather. A 1.5 percent change, though, cannot be completely explained away by a weather pattern that affected a third of the country for half of the month. People are finding new ways to avoid driving: consolidating shopping trips, coordinating trips with friends, postponing some errands. Perhaps people are becoming more sensitive about the cost of driving. Some reports say cost is a bigger deterrent to Americans under 35 years old, though driving seems to be down across all age groups.

Most driving is driving to and from work, but driving is the only form of commuting that is not growing these days. More people are walking or bicycling than ever, and rail and bus, where available, are expanding too. There are some indications too that more people are working at home, though that data is mixed and contradictory.

Probably navigation has improved too, allowing drivers to take shorter and more direct routes. People use mobile devices including phones for automated navigation, and in spite of the flaws of mapping services, they still tend to be more accurate than hearsay. Better navigation couldn’t be a big factor — there aren’t that many trips that can be shortened by 10 percent — but it is one part of the bigger picture.

Less driving means less money spent on importing hydrocarbons for motor fuel, but it also has negative implications for retail and radio. People who stay home won’t make impulse purchases in the store, and it is not so easy to get people to listen to the radio at home. In the long run, cars used less last longer, further reducing the demand for new cars.

Friday, May 17, 2013

This Week in Bank Failures

Gotcha banking has turned out to be less lucrative than banks had planned on, as courts order one bank after another to refund fraudulent fees they imposed over the last decade. Some of the biggest schemes involved unexpected overdraft fees on deposit accounts. Billions of dollars were collected in hard-to-explain overdraft fees that are not standing up in court. Courts have mostly ruled that fees assessed only as a result of phantom transactions or other creative accounting by the banks, or where banks did not operate the way they told their customers they did, have to be returned.

The two banks closed last weekend were owned by the bankrupt and rapidly shrinking holding company Capitol Bancorp. A third closure was delayed four days, reportedly by a late legal challenge. On Tuesday, state regulators closed Central Arizona Bank, in Scottsdale, Arizona. North Dakota-based Western State Bank took over the deposits and purchased the assets. Combined, these last three failed banks had $110 million in deposits.

In bankruptcy Capitol Bancorp has been reduced to a stock market value under $2 million. In less than five years it has shrunk from 60 subsidiary banks to just 8. Its remaining banks stay open only because the FDIC has waived the cross guarantee provisions that normally apply to a bank holding company. It is safe to say the FDIC has done this because if the holding company had to make good on the cost of any of its bank failures, all of its banks would have to be liquidated, a scenario that would be costly and is potentially avoidable. All of Capitol Bancorp’s banking subsidiaries operated under the same top-heavy business model, though, so the prospect of more failures under that umbrella seems more likely than not.

Yesterday the NCUA placed First Kingdom Community Federal Credit Union, with 76 members in Dallas County, Alabama, into conservatorship. This means the NCUA is taking over management of the credit union with an eye toward returning it to solvency and sound operation.

Thursday, May 16, 2013

White Meat or Dark Meat?

I like to notice cultural references that fade from importance. Often the change is not obvious for years. This is the case with the old question “White meat or dark meat?” which was an important part of the conversation in the 1980s. For those born since then, the question refers to preferences in turkey and chicken. I realize it doesn’t necessarily sound like a food question, but that is actually what it was about. There was a theory, which came to prominence about 1982, that eating meat with a lower fat content would help a person avoid heart disease and possibly a couple of other common diseases and syndromes. People who subscribed to this theory would self-righteously select the white meat from turkey and chicken. On occasion they would lecture their family members on how they ought to be eating healthier.

It is hard to say when this idea and question faded from importance. It happened so slowly you couldn’t possibly pin it to a specific year. Regardless, the cultural view has shifted, and the consensus now is that there is really not much difference between white meat and dark meat. They are not even all that different in fat content, as it turns out. And the science behind low-fat meat was a mistake, stemming from a misinterpretation of data in a 1970s research article. The actual answer for better health was not eating less high-fat meat, but eating less meat in general. There are still culinary reasons to prefer white meat or dark meat, but somehow the question has shed most of the significance it held a generation ago.

Wednesday, May 15, 2013

Water Level Rises in Great Lakes

April precipitation raised the Mississippi River from worryingly low levels to worryingly high levels, but what about the Great Lakes? Lake Michigan and Huron, in particular, was at risk of setting an all-time low, before the heavy rains last month. The Great Lakes were nearer the edge of the heavy April rains, though, and it takes more water to fill a lake than a river.

It was an extra two inches of rain in April, though, and that was enough to bring Michigan-Huron up to last year’s levels. Water levels are still low enough to cause problems, but it would take a summer drought to take the lake down to record low levels and possibly bring a stop to large-scale shipping.

Tuesday, May 14, 2013

Opposing Trends in Phone Prices

CNN has a story suggesting a sharp price increase for cellular telephones as wireless carriers do away with subsidies. Without subsidies, prices foe a high-end cell phone could go up by $300 or $400.

It is hard to predict how quickly that will happen, though. I have a hard time imagining that phone subsidies could completely go away over the next 24 months. In the meantime, advances in manufacturing will push prices lower, while new high-end designs with more features and components could cause higher prices.

So which effect will predominate? What I expect is that consumers will gravitate toward the $99 phone regardless of the level of subsidy. If subsidies go away relatively quickly, over a two-year period, that could be the equivalent of the iPhone 3. But if subsidies go away more slowly, it could be the equivalent of the iPhone 5. The important thing to note is that it is not easy to see the difference between the iPhone 3 and the iPhone 5. The newer model does some things twice as fast, and it has a longer battery life, and these are differences that are obvious to the experienced iPhone user, but they may not be so obvious to the new user in the store making the purchase decision.

What could happen, then, is not so much that phone prices change as subsidies fade, but that phone designs change instead. Prices could hold almost steady, or go up and down as the opposing trends get out of sync.

Monday, May 13, 2013

Unions in Bangladesh

Political change in Bangladesh: the government is moving to legalize trade unions and raise the minimum wage. Currently trade unions are effectively illegal, and the minimum wage for workers in factories is $39 a month, set in 2010. These changes are a result of the discussion surrounding the factory building collapse that killed more than 1,000 last month.

Hastily conducted inspections of garment factories found critical safety violations at about 800 of them, and those factories are threatened with closure if they can’t correct the problems quickly.

Friday, May 10, 2013

This Week in Bank Failures

In this week’s conversation it became more clear that the social contract surrounding student loans has broken down. When you consider the number of people who personally know someone who was burned by a student loan — this now describes more voters than not — it is easy to imagine that the rules could be rewritten in some fundamental way within the next three years. One idea that has been suggested is an income limit and time limit for student loans. This would limit student loan payments to something like 20 percent of a former student’s income over a 30-year period. This might not sound like much of a restriction, but it would be enough of a change to turn the current system upside down. It would strongly discourage lenders from making loans that exceed 5 times a student’s likely annual income. At the same time, it would offer some hope of relief to those students who under the current rules will be stuck with their student loans for the rest of their lives. Another, perhaps more drastic reform would limit finance charges on student loans to one of the Fed’s interest rates — currently less than 1 percent. This would drive banks and all profit-oriented lenders out of the student loan business, and turn it back over to the nonprofit funds that dominated student loans 30 years ago.

Georgia state banking regulators tonight closed Sunrise Bank, based in Valdosta, with $58 million in assets. Synovus Bank is assuming the deposits and purchasing a small fraction of the assets. It plans to keep all of the three branches open.

In North Carolina, state banking regulators closed Pisgah Community Bank. Maryland-based Capital Bank is assuming the deposits and purchasing 90 percent of the assets.

Thursday, May 9, 2013

Seasonal Shopping Reminder

In places where winter is giving way to summer, it’s a good time of year for the kind of shopping that doesn’t include the big box stores or the other institutional trappings that go along with the usual commercial idea of shopping. You might save money too by going to sales that follow the tradition of the fair or the market square. It’s the season for:

  • Yard sales.
  • Farmer’s markets.
  • Outdoor flea markets.
  • Festivals.

It is also the right time of year to buy LED lighting. The waste heat of incandescent and fluorescent lights isn’t really an issue during the heating season, but it is a costly problem when you are trying to stay cool. If you use air conditioning and are replacing incandescent bulbs, then you can quite possibly pay for the purchase price of LED light bulbs for the most-used rooms in the house with the money you save on electricity between May and September.

Tuesday, May 7, 2013

Adobe Kicks the Core Creative Market to the Curb

Adobe says it will no longer sell its software to customers — and that new business model is nearly as crazy as it sounds. If you want to use future versions of Photoshop, InDesign, or any of their other design applications, you will pay for a subscription to their cloud service. Quite obviously, most customers won’t be willing, or able, to pay. Adobe introduced its current subscription model a year ago, and the company frankly admits the accompanying price increase has met with resistance from customers.

What Adobe won’t say quite so directly is that it is going high-end — abandoning its core group of customers, the core creative market, in order to squeeze more money out of the busy, successful designers who are among its customers. This might work in the short run but it is a losing strategy in the long run. Historically, no one has maintained a strong presence in professional tools without serving the middle of the market. For example, the most respected names in construction tools are the ones you can buy at Sears and Home Depot. The top names in guitars, Gibson, Fender, and Ovation, may make most of their money on guitars that sells for $2,000 and up, but they aren’t shy about offering guitars for around $1,000. Those are prices the average professional guitarist can afford, so those are the guitars you actually hear and see on records and in concerts, and that is what makes a guitar’s reputation.

There is a more fundamental reason the middle of the market is so important. People don’t learn the skills of graphic design, or guitar for that matter, on high-end equipment that even the average professional can’t afford. They tend to learn using the tools that the largest number of professionals are using. Then, once they have learned to work at a professional level, it is not that easy to get them to abandon their tools and learn new ones. If Adobe will not supply the middle of the market, then whoever fills that vacuum will come to dominate the entire market — that’s the lesson of history.

In Adobe’s case, its time may be running out anyway. It did not add many new features to its creative applications during the Creative Suite era, focusing instead on reshuffling its user interface with each incremental release. The result is that open source projects now are not that far away from matching the capabilities of Adobe’s cornerstone applications. Still, it would seem Adobe could hang on a little longer if it weren’t forcing most of its customers to cast about for alternatives, just at a time when the alternatives are starting to look attractive.

Monday, May 6, 2013

Worst Factory Disaster Ever

The Rana Plaza collapse in Savan, Bangladesh, on April 24 now counts as possibly the worst accident ever at a factory building, if you measure according to the loss of life in the building itself. The last time I checked, the death toll was 627 and there was still more rubble to dig through. It is clear now that safety rules were ignored on multiple occasions leading up to the disaster, but that doesn’t begin to explain it. In any city you can find someone trying to get around safety rules. It causes problems but usually not disasters. It was perhaps the narrow approach to decision-making in the building that made a bad situation worse. The small group of men who made the decision to continue to operate in an obviously damaged building apparently felt free to ignore not only rules but also reality. How that kind of thinking can happen is the question we ought to be looking for an answer to.

Friday, May 3, 2013

This Week in Bank Failures

People watching the global economy are paying more attention to central bank policies. This week the ECB followed Japan’s example in aggressive monetary stimulus as it cut its reference interest rate to an all-time low of 0.5 percent. Yesterday, Canada picked a new central banker, and to the surprise of most observers, they chose an economist with strong experience in export financing. Some saw the selection as an attempt by politicians to select a low-key figure who wouldn’t draw the kind of attention that central bankers are currently getting around the world. Unlike many other countries, Canada doesn’t need extraordinary interventions to keep its banks standing, so it also doesn’t need a highwire act from its central bank. Perhaps it is also that the politicians don’t want to share the spotlight, but it makes a certain kind of sense that policy should come primarily from the elected officials themselves, rather than the people they appoint.

The NCUA liquidated one credit union tonight. Lynrocten Federal Credit Union had about 1,000 members, particularly employees of paper packaging manufacturer RockTenn. The NCUA says it will contact the credit union’s members next week with information about their insured deposits.

Wednesday, May 1, 2013

Droughts and Floods

It took a flooding event to rescue the Mississippi River from the abnormally low water levels of the past year. Actually, one flood was not enough. The initial heavy rain fell over a relatively narrow band near the river, and will have drained away in a month. But there have been more areas of flooding since, ensuring that the Mississippi River will have at least enough water to get through the summer.

This pattern of drought interrupted by floods is familiar in most deserts around the world. It is covering more areas now as patterns of precipitation change, and pavement and deforestation reduce the land’s ability to hold water between storms.