Wednesday, May 24, 2017

Fyre Festival and Missing Management

If you were to pick a management case study from this month’s news, it would be the Fyre Festival. The management maxim, “Keep your eyes on the prize,” applies to the planned music festival in the Bahamas that collapsed hours before it was supposed to have started. With any kind of festival, the measure of success is whether the people who attend have an experience they can enjoy. Set against that standard, a festival has to fail spectacularly to be remembered as a humanitarian crisis.

Those who arrived early, though, described essentially that. It was a chaotic scene of neglect. Attendees were, for the most part, left to fend for themselves. There was no food beyond what people had carried in with them. The tents they had paid to stay in did not exist. There was so little there, it was hard to be sure they had arrived in the right place, even though they had. The night before the music schedule was supposed to have started, there were hungry people trying to sleep in the rain or walking back to the airport in the dark. Bad as it was, the scene could have been much worse except that some of the promised transportation links also were not working, so that thousands of music fans trying to reach the festival were stranded in Florida.

Though there was reason to worry, within two days we got the report that everyone got out safely. But “no one died” is hardly a recommendation, and the festival is ruined as a brand and almost surely in financial terms as well. It is hard to think of a state of business failure more resounding than the current state of Fyre Festival:

  • It is barred from holding any future event anywhere in the country.
  • Managers have fled the country and gone into hiding. The business cannot be reached by phone, email, mail, or any other means.
  • Suppliers and employees are owed millions of dollars.
  • It faces an estimated $100 million in liabilities, with six U.S. lawsuits filed already.
  • The Department of Labor is investigating not just the business itself, but its contacts in the government.
  • In the U.S., where the festival was most heavily promoted, the FBI is conducting a wire fraud investigation.

Fyre Festival did some things right, particularly in its late notes to performers and participants on the way to the event, apologizing and advising them to stand by. But a few days later, it inexplicably made its situation worse by saying the event would be rescheduled. By that time it was already clear from a distance that a relaunch would be impossible to do.

Bringing thousands of people to a place without food is a risky thing to do, but a festival without food is more than dangerous, it is a contradiction. If it is true that the festival was selling tickets without making any provision for food, the FBI will have a case for fraud. But it could also be that there were plans for food and accommodations and that it was several of the festival’s suppliers, not the festival itself, who took the money and ran. This speculation doesn’t shed much light on the situation as it unfolded, though more facts will come out and it is possible a coherent narrative will come together eventually. What seems clear, though, is that there was simply not enough management paying attention to the essential components of the customer experience. In any customer-facing business operation, if customers arrive and report that no one is in charge, it is a sign of a fundamental failure.

Missing management is a failing that nearly half of all businesses on this scale are guilty of. I can easily think of several examples of businesses that I saw fail locally in this way. They never became a humanitarian crisis because they never faced a launch on the same scale as a music festival, but the slower time scale makes their failures all the more inexplicable. How hard is it to go stand where the customer stands and look around? In an era when venture capitalists can spin up a business idea and try it out on a large scale without ever being prompted to stop and think it through, I am afraid this kind of management failure will become more common, not less. The old Roman phrase “buyer beware” might have to be revised to say “customer beware,” as we are obliged to be responsible for our own personal safety when trying to do business with businesses like these.

Monday, May 8, 2017

Trouble in MOOCland

The MOOC experiment is not going well.

I know I wrote glowing reports about the potential of large-scale online courses a few years ago, but there were problems with the format all along, and far from being solved, the problems are getting worse.

It’s understandable if I was enthused about a medium that looked like it could deliver specialized education to the whole world on any level from high school to graduate school for less than the price of a book. It turns out that online courses are more expensive to deliver than books, and not just slightly more expensive, but many times more expensive. The promise originally was that the MOOC format would be, to borrow a phrase from another industry, too cheap to meter. But the full-featured MOOCs today have costs so high you can compare the tuition to the traditional approach of a classroom education. At the two biggest names in the MOOC medium, Coursera and Udemy, a student pays almost as much as they might pay for a college course, but without the college credit. What is there for an economist to get excited about? Take away the cost savings and online courses are a novelty scarcely more exciting than, well, nuclear power.

The minimal cost savings of MOOCs could be forgiven if they got the job done, but they don’t. The failure rate of online courses is a continuing embarrassment. Routinely more than 90 percent of students who enroll in any given online course fail or drop out. In many cases failing and dropping out amount to the same thing, especially when required assignments are all but impossible to complete. A mechanically graded test may be graded at random because of a software error so that it is only by luck that a student scores over 20 percent. I have seen test questions that contained words and concepts that hadn’t been mentioned in the course itself, so that I was left sifting through Wikipedia to find the most likely answer. In a programming course I took one of the programming assignments due in one week took more than a week to run — I was fortunate to be able to divide it between two computers, but what happened to the students who had only one? With most MOOCs having a failure rate above 90 percent, and with no instructor actively present while the MOOC is going on, such problems can easily go undetected.

But it not just that MOOCs are in a weak competitive position. The predominant emotion surrounding the MOOC medium is disappointment. I remember how disappointed I was when I signed up for an online course in which the content had no earthly connection to the course description that the catalog had provided. If I was disappointed while not actually paying any fees, imagine how disappointed today’s MOOC customers are to find out after they have paid fees ranging from $79 to $999 that the online course they have enrolled in will not teach them about the subject they were promised. Yet this must happen every day; course titles are routinely misleading, catalog descriptions are now only a few words long, and providers no longer make it possible for students to preview course content or even see a meaningful outline before enrolling.

Some of the disappointment is the result of the small amount of content delivered in today’s MOOCs. A “course” nominally runs for four weeks and may be the equivalent of one chapter in a textbook or three weeks in a college course. At Coursera the first “specializations” covered a substantial amount of ground, bigger than a minor field of study in college but smaller than a graduate program. But that, it turned out, was too expensive to deliver. A “specialization” has been drastically scaled back so that it involves a time commitment of roughly 140 hours. That and the amount of content presented make a “specialization” the equivalent of a single undergraduate course — or arguably a little less. I worry, though, that students may be misled by the five-course format of a “specialization.” You could easily imagine that you are paying for the equivalent of a semester of college. Just imagine how you will feel afterward when you add up how much you have paid and how little you have learned. Meanwhile, the specialization certificate I earned a few years ago with 10 courses and 500 hours of study is no longer so impressive. People who know what a Coursera specialization means now can’t easily imagine what one used to be.

Online course platforms are so expensive to operate that the instructors and content providers are not meaningfully paid if they are paid at all. Some Udemy courses, I am told, have no pedagogy at all, but are little more than books repackaged to make them look like courses. You literally could just buy the book and read it and spend a lot less time and money.

The fundamental challenge in an online course is to find a way to distinguish between those who are actually learning the material and those who are just going through the motions. This is a problem for which no one seems to have good answers. The problem with mechanically graded tests is that the students who do best at them are the ones who have stolen the answers in one way or another. It is a little too easy for a criminal to do when the test is posted online. Recognizing this problem, Coursera has gone all in with anonymous peer assessment. Other students in the course, people who know no more than you about the subject, will grade your work. When you are the student being graded, this is an excruciating experience. You have surely had a chance to see the quality of anonymous Internet commentary on YouTube and Twitter. Imagine that these same people — they are anonymous strangers chosen at random from the Internet, so as far as you are concerned, they might as well be the same people — will decide whether the essay you spent three hours writing is a success or a failure. Did I mention that some of them are 12-year old boys with an axe to grind? As uncomfortable as you might feel having your college professor go over your essay, having it graded by John from the Internet is much, much worse. Yet Coursera requires anonymous peer assessment as part of every course it offers. It is a powerful deterrent to students who know what anonymous peer assessment implies and a heartbreaker to those who do not know what they are getting into. It is a fundamental flaw in Coursera’s business model and is a problem that the company has yet to take a serious look at. But at least Coursera is trying to assess students. I am less familiar with Udemy’s practices but I am led to believe they have next to nothing that would reassure a student that they are in fact learning the material they are studying. Not knowing how well you are learning might seem like a problem, but I will gladly take that after having faced the experience of being graded by anonymous strangers.

Most of these problems can be solved eventually, but there does not seem to be a solution to the cost problem. If Coursera, Udemy, and their competitors look like they are ripping off their customers, it is certainly not that the companies are making a healthy profit. Perhaps the platform for presenting online courses is, like the nuclear reactor before it, simply far more expensive than anyone ever imagined. Whatever the explanation, the enthusiasm for MOOCs depended on their scalability and low cost. Now that we know that both advantages existed only in our imaginations, it may be time to acknowledge that the more traditional learning media are in fact more cost-effective.

I must mention the enormous cost advantage enjoyed by those who can learn from web sites and books. After learning a few days ago that it was no longer possible to enroll in single course on Coursera, I decided to compare the cost of the “specialization” to the cost of learning the same material from books. As it happened, this was a very new and specialized subject area, so there are only 18 books on the subject that bookstores are able to tell me about. I could plausibly buy and read all 18 books, and then I would possess a fair approximation of the sum of the world’s knowledge on the subject — a claim no online course could possibly make. I would pay a few dollars less for the 18 books than I would pay for the “specialization.” Besides the purchase price, it would take time to read the books and digest the ideas they presented. Maybe it would 180 hours, but that is only 40 hours longer than I estimate the “specialization” would require, and that’s for a much broader and deeper study of the same subject. Or if that was too much, perhaps I could buy the one textbook that the “specialization’s” curriculum seemed to be borrowed from and read it. My cost savings with this approach: 87 percent. Time saved: 92 percent. The catch: I have to find a way to test myself. Another catch: statistically, books have a high “failure” rate. Less than 10 percent of people who buy a nonfiction book read the whole book. In the book business, we shudder at that statistic and wonder how we can do better. The mystery, though, is why the MOOC format, with all its bells and whistles, does no better than the book format in this regard.

Saturday, May 6, 2017

Bank Failure: Guaranty Bank/BestBank

Last night the O.C.C. closed Milwaukee-based Guaranty Bank. The bank closing ranks as one of the largest single-day branch-closing events ever.

Guaranty Bank had 107 branches embedded in Kroger, Walmart, Pic n Save, Piggly Wiggly, and other supermarkets in five states. The supermarket branches closed at the close of business yesterday and are permanently closed. Half of the supermarket branches were in Wisconsin and nearby areas of Illinois and Minnesota. The others were in Georgia and Michigan and operated under the BestBank name. The ATMs at the closed branches have also been shut down.

Guaranty Bank also operated ten stand-alone branches in Wisconsin and one each in Illinois and Minnesota. First-Citizens Bank & Trust Company is acquiring these 12 separate branches along with the failed bank’s $1 billion in deposits and 90 percent of its assets.

If you were thinking that a network of 107 mini-branches sounds like a large number of locations to operate for a bank with $1 billion in deposits, you would be correct. Narrow operating margins, partly the result of high operating costs, were a major factor in the failure of Guaranty Bank.

Guaranty Bank had been in business for nearly a century after surviving the misfortune of opening shortly before the Great Crash of 1929. It had pursued a growth strategy in recent years, maintaining branches in many locations and seeking out high-visibility advertising opportunities in the hope of building the large customer base that never quite arrived.

All Guaranty Bank accounts have been moved to First-Citizens, but the former Guaranty Bank customers will not be able to bank at other First-Citizens branches for several months. Though customers still have their accounts, with 107 branches closed, most account holders no longer have the support of a branch within driving distance. It is a situation that the FDIC tries to avoid in a bank closing, but there probably wasn’t a viable option to keep a scattered network of 107 mini-branches open. Customers can write checks, but many customers will want to move their accounts to a local bank and will have to go through the time-consuming task of closing old accounts through the mail. Customers will be able to call the bank’s call center for assistance (800-235-4636). A few of the supermarkets involved may be scrambling this morning to arrange to get enough coins and $1 and $5 bills to get through a normal weekend of cash sales.

Saturday, April 29, 2017

Bank Failure: First NBC Bank

In the first large bank failure in years, state regulators in Louisiana closed New Orleans-based First NBC Bank, which also had five branches in Florida. The bank had $5 billion in assets at the end of 2016 but in January sold $1 billion of its assets including nine branches in Louisiana to Whitney Bank, which is based across the state line in Gulfport, Mississippi. Now Whitney Bank is taking over the branches and “transactional” deposits of the failed bank. The deposits Whitney Bank is assuming are essentially the checking and savings accounts based in the bank’s branches, but these are estimated to be $1.6 billion, less than half of the bank’s deposits.

The FDIC will send checks on Monday for certificates of deposit, retirement accounts, and other investment-style deposits, covering an estimated $2 billion in deposits belonging to a large number of investors. I imagine this will be the largest check-writing effort to date at FDIC; it is, at least, unusual for the FDIC to have to write $2 billion in checks to bank depositors after a bank failure. This is also one of the most costly bank failures in U.S. history, with the FDIC estimating the cost to the Deposit Insurance Fund to be nearly $1 billion. That figure must be taken as a rough estimate, as the values of many of the bank’s assets are not known with precision.

The bank was obviously troubled in recent years, during which its record was a series of missed deadlines and regulatory actions. The failed bank had appointed a new CEO in February. Subsequently, the president resigned and the bank reported accounting lapses going back at least two years. The bank’s write-down of previously overstated assets was apparently large enough to prompt regulators to close the bank.

First NBC Bank was founded in 2006, in the aftermath of Hurricane Katrina, and expanded rapidly. The timing would have been bad anywhere in the United States as real estate values dropped, but was especially unlucky in coastal Louisiana as it faced further tropical weather disasters. If the bank’s founder was betting on New Orleans bouncing back after the hurricane damage, that also was a bad guess. Ten years later, only the neighborhoods not affected by flooding have returned to their previous levels of population and economic activity.

Bank regulators are lenient with banks in areas affected by natural disasters but must be more strict with banks that draw most of their deposits from investors. A disaster can hurt the prospects of any business, but history shows that a well-managed business can often recover in time. Investor deposits are worrisome to regulators for two reasons. Banks usually pay higher interest rates on these types of accounts, leaving the bank with a thin profit margin. At the same time, investors can move their money out faster than other depositors. Such a turn of events can deplete what appeared to be a well-capitalized bank in a matter of weeks.

There is a theory in 20th-century management thinking that holds that the easiest time to grow a business is when competitors are cutting back. First NBC Bank is the latest in a series of hundreds of banks, retailers, and other businesses that tried to expand into tough times and ended up shutting down instead, suggesting that the management truism may not be so.

Wednesday, April 26, 2017

Banks Sneak Out of London

The same banks that said “don’t panic” about Britain’s withdrawal from the EU a year ago are now preparing to make adjustments in their location strategy. Deutsche Bank today was said to be preparing to move around 4,000 jobs from London — or possibly almost half of its staff there. The timing is not known, but it seems a good guess that the peak of the banking exodus from London will be reached in 2019. Other banks are planning similar moves. It is not a situation that calls for moving an entire office from London to another city, though there may be some of that, especially as banks move operations to Ireland. It is more that London has lost its magnetic power to centralize international banking operations. Places as far-flung as Cyprus and Singapore are picking up some of the work that previously might have been squeezed into a London tower. Thousands of jobs, of course, will not move anywhere, but will just disappear.

There is no chance that London could retain its past financial glory, just as New York after the evacuations of 2001 has never regained its weight as a center of finance. New York maintains its reputation as a money center largely by associating itself more closely with Jersey City, across the river, than it had to previously. Similarly, London will in all probability remain a deal-making center, but that will not make it a power center the way it is now. Dealmakers will have to depend on — and answer to — providers in other cities who will conduct the transactions signed in London.

Saturday, April 22, 2017

Easter Enough

Last weekend was Easter weekend, and friends in retail tell me that customers acted far more stressed than on a normal holiday weekend. Part of it, I am sure, is that we have gotten used to three-day holiday weekends, so that the two-day weekend many of us had for Easter seemed too short. Part of it, too, must have been the tax deadline, which fell on Easter week for the first time in years. The Internal Revenue Service says that taxpayers were filing later than ever this year, and that is easy for me to believe, as I was later than ever with my own tax filings. With more people working toward deadlines, the stress of the last weekend before tax deadline must have been greater than usual.

Still the fact remains that people were stressed out about Easter. That isn’t in keeping with the meaning of the holiday, which is about the victory of light over darkness or of life over death. Based on that, it should be a happy time. At the same time, the cultural traditions of Easter are not hard to live up to. Despite the profound meaning of the holiday, there is not much to it in practice. It is a holiday observed with brief morning ceremonies, meals featuring boiled eggs, and spring colors. Even these simple details may be seen as optional, as I can attest after seeing how sparsely attended an Easter sunrise service tends to be. Granting that we are no longer a nation of chefs and that eggs annually see their highest prices with the boosted demand on the week before Easter, people still cannot be stressing out about boiled eggs. If Easter weekend is hard to do, it is the result of putting more on the holiday than is really there.

There are two cultural struggles that may weigh on Easter. There is the commercial push since 1950 to turn Easter into a commercial holiday featuring packaged candy, decorative baskets, and baked ham. Separately there is a continuing effort to turn Easter into a family holiday on a level with Thanksgiving and Mother’s Day. The foil-wrapped chocolate eggs are here to stay, I think. The family holiday angle will never get much traction, but it may be a source of angst for those who feel they are supposed to be doing more than they are.

The bigger factor, though, I think, is a sort of holiday inflation in which people try to make this year’s holiday a little bigger than last year. Mathematically, that means holidays like Easter tend to expand exponentially until something breaks. Obviously, that’s not a good strategy for everyone’s peace of mind. There is never enough time to do exponentially more. I think we need to learn to chill out and enjoy holidays again. If Easter is this much of a problem, how will people ever cope with the 4th of July or Valentine’s Day?

The answer is to approach a holiday with a sense of being good enough. If you start out feeling that you are good enough as you are and that the holiday is good enough the way you have seen it in the past, then simply meeting that tradition is good enough. Then there is no need to add extra bells and whistles to make up for whatever the imagined shortcoming of the situation is. Imagine, for example, an Easter on which merely getting a couple of decorated boiled eggs, or the egg-shaped candy substitutes, means you have arrived at the right place. If it is the traditional thing for the holiday, then it is Easter enough.

Monday, April 10, 2017

Executive Forfeitures at Wells Fargo

The Wells Fargo scandal has turned into one of the largest “claw back” cases ever, as the bank will recover another $73 million in bonuses and salary paid to executives held responsible for misconduct in the ghost account scandal during the years when the compensation was paid. The scale of the forfeiture is not excessive. The executives will still be wealthier than most of us can dream of. Their scheme resulted in the bank exaggerating its operating success for many years. It is too soon to say whether the bank will ultimately survive the scandal, in which employees were directed to open fake accounts on behalf of millions of customers.

Wednesday, March 29, 2017

Westinghouse Electric in Bankruptcy

Westinghouse Electric, the subsidiary of Toshiba, is in bankruptcy this morning after board approval of the move yesterday. Background from Greenpeace: http://act.gp/2nhxzOv

It is important to note that this is a reflection of the fundamentals of the nuclear power industry rather than any mismanagement or miscalculation on the company’s part. The costs of nuclear-generated electricity have always been higher than competing sources and nuclear projects were able to go forward only with large government subsidies, funding that came in a wide range of forms to obscure its magnitude in total. Prices and shortages of uranium are serious issues, but the nuclear sector’s decline is more directly a result of public budget pressures eroding the nuclear subsidies.

As of today, nuclear power is a legacy technology. No one will rescue Westinghouse Electric in bankruptcy. It is, by some measures, half of the global nuclear sector. It has not been profitable across its history and the bankruptcy filing estimates a $9 billion dollar loss for the year. Few pockets are deep enough to take on a project on that scale, even if it were not in a declining technology. Competitors will not be eager to bid on more than a few of the facilities. Many of the construction projects will be suspended for years, then abandoned. Nuclear reactors will have to keep operating until the current fuel is exhausted, but some will surely be retired when that point is reached because of the high operating costs.

Monday, March 13, 2017

Snow Deniers

I have been seeing an unusual degree of denial about the snowstorm that reached Downingtown a few minutes ago. One coworker looking at the snow forecast map said, “We’re on the line between 6 to 12 inches and 12 to 24 inches, so we’ll get about 6 inches.” That is not only mathematically wrong, but isn’t the right way to plan for a potential disaster. The local forecast for this storm hasn’t changed much in the last five days, so the arrival of snow shouldn’t take anyone by surprise. Nor should it be too surprising that the blizzard warning already in effect for points east has been stretched west to cover Downingtown along with much of eastern Pennsylvania. There is a blizzard warning because, along with the heavy snow, there will be wind gusts creating occasional whiteout conditions.

In a way I guess I understand the skepticism. It is the middle of March, after all. When I got home late this afternoon, it looked like an early spring day, not like a setup for a blizzard three hours later. But part of the skepticism comes from the political conversation in which science, evidence, and caution are all treated dismissively. The budget proposal drastically cuts spending on infectious diseases, economic statistics, and weather forecasting alike, as if flu, unemployment, and snow were problems we could just wish away. Positive thinking has its place, but the snow deniers who turn a blind eye to a blizzard are putting themselves and others needlessly at risk.

In a severe winter storm two years ago a church near here saw a huge hole in its domed roof. The flat area at the top of the roof had too great a tendency to accumulate snow in a heavy snowstorm, and the dome was not strong enough to support the weight of that much snow. That church raised the money to rebuild its entire roof, and it is not a dome this time, but a structured roof with sufficient slope to shed the bulk of the snow that will be falling tonight and tomorrow. Having seen the damage that a disaster can bring, you take the risks more seriously. I hope today’s episode of weather denial is a passing whim, with some of the same people saying tomorrow, “What do you know? The forecasters said there would be snow, and we have snow!”

Saturday, March 11, 2017

Bankruptcy Plans Cast Shadow Over Nuclear Power

The potential bankruptcy of Westinghouse Electric Company LLC is the most dramatic sign yet of the financial troubles of the global nuclear sector. Westinghouse Electric Co., in recent years a subsidiary of troubled Japanese manufacturing giant Toshiba, is involved in one way or another in close to half of the world’s nuclear power stations. According to Reuters, the company has retained bankruptcy lawyers and is seriously looking at the option of bankruptcy among other options.

Nuclear power has historically relied on complicated business arrangements based on government subsidies and private investment, and with few exceptions, both sides have taken losses on every nuclear power station. Adding to the financial pressure, uranium is in short supply as the world’s mines and military surplus are depleted. With the high cost of fuel, some reactors in recent years have opted to close as their fuel is exhausted. The lower cost of solar-generated electricity makes it highly unlikely that new nuclear plants will be launched beyond a subset of those already on the drawing board.

If Westinghouse Electric Co. goes into bankruptcy, though, that casts a shadow of the whole sector. It could turn nuclear power into a legacy technology almost overnight. One scenario to consider is that military operations take over nuclear power stations country by country to keep them operating safely, and ultimately to decommission them safely.

Thursday, March 9, 2017

Radio Shack Closes 200 Stores in Bankruptcy

Radio Shack is in bankruptcy again. It will close 200 stores, convert a larger number to Sprint stores, then try to weave together a plan for the roughly 1,000 stores that remain. Stories at Reuters: https://www.reuters.com/article/us-radioshack-bankruptcy-idUSKBN16G06J Bloomberg: https://www.bloomberg.com/news/articles/2017-03-09/radioshack-successor-enters-bankruptcy-as-retail-woes-persist-j01psvmv

Friday, March 3, 2017

Bank Failure: Proficio Bank

The FDIC tonight shut down Utah’s Proficio Bank. This bank’s troubles stretch back at least 10 years, and after a particularly disastrous examination of the bank in 2010 the FDIC ordered the bank to raise capital and stop keeping phantom assets on its books.

Monday, February 13, 2017

Apparel Retreat Continues

It has been a bad season for U.S. retail, and the fallout has continued into February. West Seal and Eastern Mountain Sports can be added to the official list of retail chain bankruptcy liquidations. Smaller chains are also part of the trend. Luke’s Locker, which at its peak had at least 10 fitness clothing stores in Texas, plans to emerge from bankruptcy with just three stores. Marbles, a Chicago-based game retailer, will close all of its 37 stores in bankruptcy.

There are worries in general about private equity owned apparel chains because of their debt load. In that category, Gymboree may be in the worst shape. The company is hoping for a $1 billion debt restructuring, and as part of that plan, its CEO is preparing to step down. Discount footwear chain Payless has a smaller debt load but also has smaller margins and may close 20 percent of its 4,500 stores if it can reach a deal on its debt. In the private equity apparel category, J. Crew, Rue 21, True Religion, and Claire’s are mentioned as retailers whose debt load is probably too high to pay off over time. The largest debt crisis in retail could be Toys “R” Us and Babies “R” Us. These chains have already extended most debt payments due this year and next, but have only months remaining to restructure the rest. A lackluster fourth quarter and a security breach at loyalty program Rewards “R” Us during that period won’t help.

Retailers that are doing well in financial terms may still be closing stores. The latest large store-closing announcement came from BCBG, with plans to close 120 stores, mostly in malls. As clothing becomes more durable, it’s expected that consumers will continue to scale back their clothing purchases.

Sunday, February 12, 2017

A Strange Winter in the Arctic

The Arctic Ocean has been a strange place this winter, with the trend of record low ice continuing from 2016. Arctic ice extent has never been below 14 million km2 in February or March in the satellite record as analyzed by NSIDC aside from the first few days of February 2006 and 2016, but extent in the first 11 days of February 2017 has inched up to 13.9 only to fall back again. Other measures — area, thickness, and volume — also show record lows for this time of year. The broad area of thick ice north of Canada hasn’t materialized this winter, and instead, 90 percent of the thick ice is poised to flow out into the Atlantic over the next several months. Satellite and airplane photographs show ice that is softer and more broken up than you would expect in any season outside of August and September. A Russian convoy crossed the Arctic Ocean around the end of December with with supplies, the first wintertime cargo trip across the Arctic ice in the post-Soviet era. No one is saying the trip was easy, but with thin and fragile ice it wasn’t accompanied by the sense of peril that followed icebreakers around in prior decades. The broken ice is flowing freely through Nares Strait, the narrow strait at the northwest corner of Greenland, which normally would clog up from November through April. Open water has been spotted not just on the north coast of Alaska but even on the north coast of Greenland. There have been episodes of warm air crossing the Arctic Ocean to feed unseasonable warmth into eastern Canada and western Russia. Last week North Pole temperatures crept up to the freezing mark and possibly over, the result of a warm atmospheric river that originated in the Caribbean Sea. At points the normal winter cold has escaped from not only the Arctic Ocean but also Siberia, so that the Northern Hemisphere’s cold spots were found in places as unlikely as southwest Asia and the U.S. Rocky Mountains.

Mild winter conditions in the Arctic Ocean in the last few years have not mattered to the sea ice because normal winter weather always returned eventually, giving ice inside the Arctic Circle enough cold air to regenerate. The rule of thumb was that if fall weather gave way to winter before the last week of January, you would be assured of thick ice by April. This year for the first time that rule has been broken. Winter cold is already three months late, there is no sign of a cold snap on the way, and Siberia, which has come to the Arctic’s rescue in winters past, is not currently cold enough to cool off an ocean. We are now assured that the melting season will start with ice that is thinner than normal.

We don’t know exactly what this means for the coming summer in the Arctic Ocean because we’ve never seen this situation before. If we start the melting season with 10 percent less ice than ever before, does that mean the whole Arctic Ocean could melt out before the summer is over? It sounds unlikely, but we can only guess.

Friday, January 27, 2017

Apparel Bankruptcies

The Limited closed abruptly three weeks ago and filed for bankruptcy liquidation last week. The plan is for the brand and web site to be sold at auction to new owners who will operate a web store, but there are reasons to be skeptical of that plan. The Limited would be a hard brand to relaunch at this point.

Wet Seal, bought in bankruptcy two years ago by private investors, is now preparing to close all stores and go into liquidation. About 171 locations, most in malls, will close by March 21, but many are likely to close in the next few days.

American Apparel, in bankruptcy for a second time, has let half of its staff go and will close for good in February.

Eastern Mountain Sports is said to still be seeking funding to purchase spring inventory. At this point, the clock is ticking, and it may have to close in February or March.

Bank Failure: Seaway Bank & Trust

Illinois state bank regulators closed Seaway Bank & Trust, a Chicago-based bank with 10 branches. It was known as Chicago’s largest black-owned bank. In 2011 it had bought out the failed Milwaukee-based Legacy Bank. A year-long community-based campaign to raise capital fell short, and tonight the FDIC sold most of the bank’s assets to Texas State Bank. The bank had $300 million in deposits, making it one of the largest banks to fail in the last couple of years.

Sunday, January 22, 2017

Women’s March as a Threshold Moment

A threshold moment, a change just large enough that everything after is seen in a different light than everything before, can seem almost ordinary at the time. Often these turning points aren’t recognized and identified until the end of the year when people looking back can pick out the moment where everything changed. Sometimes, though, the moment is so dramatic that you recognize right there that something big has happened. The Women’s March yesterday was such an occasion. I was not free to follow the events as they occurred, preoccupied as I was with friends’ problems with computers, cars, and clutter along with my own concerns, so the events of the day struck me almost all at once in the middle of the evening. I have little sense of the order in which they occurred but I don’t believe I will forget the order in which they came to me in the form of secondhand stories and headlines. Even if I had not known the substance of the event, I could not avoid being blown away by the scale. Thousands of people I have met personally were there. There were too many news stories to count — I must have seen hundreds of headlines without going to look for them.

I saw the aerial photos. So many people showed up in Washington that a physical march was impossible. The crowd completely filled the intended marching route and an alternate route and spilled out onto the side streets. I could not help but compare these photos to those of the event of the day before. On Friday for the Trump inaugural address, photos showed more bare carpet than people in attendance. The audience Friday was so sparse that it could not possibly have included all of the members of Congress who had promised to be there. Surely they or their staffers were watching the events on television in their offices but the importance of the event did not justify the risk and inconvenience of stepping outside. The threats contained and implied in Trump’s speech did not deter the Women’s March, however, and if the Trump event was ten times smaller than a major free concert on the Mall, the Women’s March was ten times larger. And that was just in Washington. Friends on Twitter offered similar photos from St. Louis, Chicago, Seattle. The event extended to Mexico City, Berlin, Sydney, Cape Town, Antarctica. This one event was surely bigger than everything the Trump White House will do spanning his time in office.

But it was not the number of people that made the Women’s March a threshold moment. No matter how many people you can draw together, if the messages and sentiments are conflicting and impractical, it is all for nothing. I saw and heard a few minutes of the event. There were speeches by Gloria Steinem, Alicia Keys, Scarlett Johansson, and many more who I did not happen to see. The message more than held together, it galvanized. Everything they said was following in the tradition of Martin Luther King and his timeless call for human dignity. The signs people were carrying echoed the same sentiments. It was a bold stand to take less than a week after officials of the incoming administration made it clear that calls for human dignity and decency will be met with contempt and retaliation.

Madonna seemed to get the most headlines for the profanity in her address, but perhaps the attention was fitting, since she may have summed up the feeling of the day as well as anyone. Elizabeth Warren, though politically correct as always, was clearly pissed off at the Washington and Wall Street insiders who pushed her to the sidelines in 2016. And why wouldn’t she be? If the corrupt Democratic Party establishment had allowed Warren to run, she would be president today. We would be talking about steps to solve the country’s problems, not how to best survive the kind of aggressive dismantling that, historically, great countries rarely recover from. This was not the attack-dog Warren we endured in 2016, but the old Warren we remember from 2015 and before, practical and principled. The Women’s March was the day we learned that Warren is free to speak again.

For me, the moment I knew things had changed was when Michael Moore ripped up the “Trump Takes Power” newspaper headline. Moore’s message was simple and direct, that the majority of Americans working together could minimize and shorten the damage and violence of the Trump era. It was not such a profound message but it was enough to reframe the situation. Yes, there are reasons to fear the injury, death, and economic loss that will result from the policies Trump has already announced, not to mention other policies to follow, and the situation is all the more troubling for women who have been targets of Republican repression for a lifetime. But we are not here merely to survive one of the most brutal periods in the history of our country. There is a lot we can do despite, or perhaps even because of, the active animosity of our government toward us. In the end, no matter what anyone does, the corporate system and big-money politics will collapse of their own weight, but there is reason to hope that we can make that upcoming transition go more smoothly and happen sooner. In the end, there is nothing Trump and his cronies can do to save the system he represents. That would be the case even if they were competent leaders. Knowing that they are a pack of liars, hypocrites, and buffoons, and recognizing that Trump himself is a feeble old man who does little more than watch television all day, perhaps “Trump Takes Power” really is a headline to laugh at.

This view changes the situation from one of hoping to survive an unfair challenge to the prospect of overcoming the challenge and being part of the triumph to follow. The expectation of just surviving is a low-energy state and it was easy to see the lethargy affecting the country on Friday, a very dark day not just in terms of the weather. This morning I see people with more energy, thinking of things to do and going and doing them. Perhaps only 25 million people were directly involved in the Women’s March yesterday, but the changes it represents will by now have reached twice as many. These numbers and this clarity of purpose are not a bad place to start from when a country urgently needs a change.

Wednesday, January 18, 2017

Warmest Year on Record, 3 Years in a Row

After record warm surface temperatures in 2014 and 2015, these records were beaten in 2016. The record warm year will come as no surprise to anyone watching the weather reports over the course of 2016. Jeff Masters and Bob Henson at Weather Underground put the temperature records in the context of the weather in 2016: Confirmed: 2016 the Warmest Year in History of Global Recordkeeping.

The warming climate is seen most emphatically in the Arctic Ocean. Sea ice measures there set new record lows for most of the days in 2016, and that is a trend that continues to the present. Largely by coincidence, sea ice levels around Antarctica too are at record lows, generating an all-time low in global sea ice. The state of sea ice, from an Arctic perspective, was summarized by Neven last week: Global sea ice records broken (again). One effect of a warming climate is a new trend of major winter storms in the Arctic Ocean. Currently one such storm is breaking up the edge of the ice on the Atlantic side. At the same time, winds are pushing ice out into the Greenland Sea and the Bering Sea at opposite corners of the Arctic Ocean. In the past, we haven’t had to worry about winter disturbances creating a lasting effect on sea ice in the Arctic Ocean because as long as the weather settles into normal winter cold by around January 19, there is enough winter remaining to build a respectable ice pack. This winter could be the one that breaks that pattern. Ice measures, already at record lows, have stalled since January 7 and the weather forecast shows no indication of a quick return to normal winter weather. With persistent warm conditions, 2017 could be the first year in which the Arctic Ocean reaches the beginning of spring with ice weakened by a short winter.

Friday, January 13, 2017

This Week in Bank Failures

The Singapore manager of the former Falcon Private Bank branch was sentenced to 28 weeks in jail for crimes uncovered during the 1MDB investigation. The bank decided not to report suspicious transactions that were used to funnel criminal proceeds between banks. The branch was closed in October after regulators discovered the scale of money laundering there. More banker trials will follow in the 1MDB case, in Singapore and elsewhere.

The ghost account scandal that came to light last year has reduced Wells Fargo’s earnings, revenue, and customer base shrinking, and the bank is far from putting the scandal behind it. The bank is not doing itself by delaying its internal investigation, retaining the directors and executives who oversaw the theft of customers’ money and identifies, and having executives talk about the bank’s efforts to distance itself from its past crimes as if nothing had happened.

One last bank failure to report: New Jersey state regulators closed Harvest Community Bank, which had $124 million in deposits, down 40 percent in the last five years, at four branches in Salem County, in the Delaware River lowlands of the southwestern corner of the state. North Carolina-based First-Citizens Bank & Trust Company, which has acquired more than its share of failed banks in recent years, is taking over the deposits and purchasing the assets.


Thank you for reading. It was a wave of real estate speculation and poorly conceived derivatives between 2003 and 2008 that destabilized the global financial system for the six or seven years that followed, causing a wave of bank failures and giving rise to This Week in Bank Failures. The systemic risk from that episode is over, and all but a few of the banks that will fail from the excesses of that period have failed by now. We have entered a new era in which excessive reliance on finance, faltering national governments, low interest rates, poorly secured technology, and a corporate sector moving ever closer to the edge represent the key systemic risks to the global banking sector. Few in banking are aware of the risks ahead, and fewer still are preparing. However, just the scale of the financial sector in its current form is reason for pessimism. It has doubled since 2003 in a vexing example of not learning from history. Scale alone makes a spectacular future collapse all but inevitable even if the shape of events will not be seen far in advance.

At the same time, the stunning advance of fascism in global and U.S. politics makes it more likely that risk factors will be kept hidden until it is too late for anyone to do anything to save the major institutions involved. In a practical sense, it could already be too late, and we would have no way of knowing.

Though it has been a privilege to chronicle bank risks, misdeeds, and failures these last nine years, the read-and-react dynamic that This Week in Bank Failures was based on no longer serves. The premise seems almost quaint when set against the known risks ahead, not to mention the unknown ones. While I admire those who will carry on the work of identifying and reducing the risks to be found in the political, financial, and corporate spheres, all three have grown in scale beyond any meaningful participation by the ordinary person. For a period of at least several years ahead, most of us will need to narrow our efforts to work on things that are more knowable. This is a shift that is already well underway and easy to see if you want to look for it, and I will have more to say about it in the near future.

Based on that change in the world’s focus, I want to close by repeating the most important advice that This Week in Bank Failures has had to offer over the years. Don’t put all your money, if you have very much of it, in one bank. Know your country’s deposit insurance limits and work within them. Always have some food and some cash on hand. Don’t rely on only one provider to process your transactions. Don’t try to optimize your financial arrangements, now that that strategy has shown itself to be so easily exploited. Don’t lean more heavily than you have to on a financial system that might vanish one night while you are sleeping. Do anything you can to maintain your ability to work. When you see the early signs of a collapse, don’t just assume that powerful men will fix it and nothing will happen to you, but don’t panic either; instead, during a crisis, take simple actions to make your arrangements more sturdy. Good luck!

Saturday, January 7, 2017

The Limited Closing Immediately

Apparel has been a tough business for a couple of years, tougher still for stores in malls, and now The Limited is closing up shop. The retailer says on its web site that all its stores are closed. Separately it has said that stores are closing no later than tomorrow, January 8. Reports from some locations say that stores there have closed already. The clearance sale will be held online, though even at liquidation prices only diehard fans are likely to buy clothing online after seeing the phrase “all sales final.” At its peak, The Limited had 750 stores across the United States, though only 250 remained as of the start of the year. At The Washington Post:

The retailer says its web store will remain, but of course, it would say that. There is nothing on the web site now but the final clearance sale, and customers will have to wait and see what kind of relaunch, if any, follows in the spring season.

After two years of gloomy news, I am almost surprised at how few stores in this segment have actually closed. I expect more retreat, but especially from the more pricey young and formerly-young specialty apparel chains.

Friday, January 6, 2017

This Week in Bank Failures

A U.S. private equity firm may be the purchaser of Portugal’s Novo Banco, created by the central bank to carry on the operations of the failed Banco Espírito Santo. Key details still need to be worked out.

The former Banco Espírito Santo subsidiary in Miami, then known as Espírito Santo Bank but since rebranded as Brickell Bank, faces an uncertain future because of the financial crisis in Venezuela. A banking family in Venezuela had applied to buy the bank, but that offer expired on December 31. The deal had valued the bank at $10 million. Bank officers say it is possible the sale could still go through, but they will also be looking for another potential buyer.

Deutsche Bank settled a tax case with the United States. The bank is paying $95 million in income taxes, much of it originally due in 2000.

How loose is bank regulation in China? Mengxin Village Economic Information Professional Co-Operative operated and advertised a fake bank and took money from hundreds of would-be depositors for more than a year before being caught. Two executives have now been convicted of taking $60 million from customers.

The U.S. Christmas shopping season was down slightly from the year before, shocking a sector that was banking on a 3 percent increase. Profit margins were also down with deep discounting especially in the last 6 days before Christmas. As a result, thousands of mall stores could close in 2017. Early announcements have come from Macy’s, Sears, and Kmart, closing a combined 218 stores. Similar announcements are expected from other retailers in the coming weeks. A mall that loses an anchor store and a couple of other well-known stores might lose so much traffic that the whole mall closes. Banks will likely have to write down billions of dollars in real estate loans to affected malls. One analyst has projected $1.88 billion in losses to lenders from the Macy’s closings alone.

Thursday, January 5, 2017

More Retail

Besides Macy’s, disappointing retail results have come in from Sears, Kmart, Kohl’s, American Eagle Outfitters, and Victoria’s Secret. Across the sector, electronics and apparel spending seemed particularly weak. So far among major retailers, only Amazon is reporting its biggest Christmas ever.

Wednesday, January 4, 2017

Macy’s Warning Shot

Word from Macy’s that holiday-season sales results had disappointed is a greater concern than if this news had come from any other retailer. Macy’s was the one major retail chain that had reason to brag about its Thanksgiving-weekend results. If a strong peak weekend for Macy’s translated into a weak season total leading to 10,000 job cuts and a page of store closings, it stands to reason that there are other retailers that fared worse by the time the season was over. 

Sunday, January 1, 2017

Crisis, Karma, and Your New Year’s Resolution

The people around me are starting 2017 more worried about the world than they have been in my lifetime. The global situation looks perilous enough to make people yearn nostalgically for the relative safety and stability of the Cold War. We want to be in a position, if possible, to avoid or mitigate the worst disasters the world will be throwing our way during what looks to be the year of the greatest change since 2012. There are important issues at stake that we couldn’t possibly ignore. And yet . . .

The sense of gravity about the larger problems we face collectively doesn’t help us make the changes we need to make. When it comes to new year’s resolutions and other contrivances for focusing on action leading to change, a self-centered point of view is more constructive. When you look at the national or global picture, you see hundreds of problems that you are not in a position to efficiently correct. By contrast, when you look at yourself, the clothes you wear, the food you eat, the building you live in, the people you talk to, the work you do, then you find pieces of the same problems — but importantly, you find the pieces that are subject to your own influence. If you do your part where you are and trust that others will do their part where they are, that is the only way these large problems can be solved.

I always suggest choosing just one new year’s resolution, and I always suggest that it should relate to a goal that you can understand at the personal level. I also advise that a new year’s resolution should not be something you attempted and failed at in a previous year. These points seem especially important to emphasize this year. It is a new year — don’t trot out an old resolution that may not properly respect the new situation you face this year. At the same time, don’t take on a direction that is likely to put you in a weaker position individually at the end of the year because you are taking on challenges larger than yourself. That kind of goal is hard to motivate yourself toward, and for good reason. The feeling of a challenge bigger than yourself or the notion that you must suffer for a cause is a sign that you are overlooking your most important actions, the ones that will strengthen you in a way that puts you in a better position to respond to the unexpected. That’s a distinction that might not matter much in a quiet year, but my sense of 2017 is that of momentous and unpredictable changes. You don’t maximize your own fortune or your impact by running away from every crisis that comes along. You do better by being prepared to engage with the world, and this happens as the result of the mundane things that people often promise themselves in new year’s resolutions: get in shape, practice a skill such as writing, get rid of clutter and obstacles, improve habits, get out of debt, correct a pattern of bad decisions. You can freely choose any such resolution for yourself and be assured that it will prepare you to make a difference in a larger problem in the world that bothers you. You make a bigger difference by focusing on yourself than by taking on a global problem directly.

The way this works has to do with the nature of karma. Life gives you hints of the problems ahead of you, the things you need to work on to make the biggest difference you can make, or what we call your karma. Just by paying attention to the events of your life, you can discover your karma. The biggest challenges in this are being emotionally ready to discover a personal failing, and paying attention. Everyone’s karma is different, so you are distracted from your own karma when you work to help others with the problems they say are important. That includes joining a movement or a cause or taking on a point of view dictated by popular culture. If the cause doesn’t ring true for you, then pursuing it is a distraction from something that would ring true for you. At the same time, that means you are doing something that won’t be very productive for you. You make yourself more powerful by following your own karma, and that means setting aside the popular consensus of the way things are, long enough to see what you yourself are seeing. The tradition of a new year’s resolution is one of the easiest ways to do this, but to make it work, you have to set aside the problems of the world and let yourself see the problems that have popped up specifically in your own life.

In 2017, that may mean setting aside the sense of global crisis to see where your personal opportunities lie. I obviously can’t tell you where your karma lies or what your new year’s resolution should be, but let me offer an example. I have personally met political climate activists who smoke cigarettes. A “selfish” resolution to stop smoking might serve them better than a “global” goal having to do with carbon policy. Besides the personal benefits of not smoking, there are also poitical and climate benefits. A cigarette, when burned, generates both carbon dioxide and carbon monoxide that decays into carbon dioxide. The purchase of cigarettes helps to fuel the related political crisis — tobacco companies and growers are very much a part of the problem. The health consequences of cigarette smoke have similar climate and political effects. The hypocrisy of smoking cigarettes makes a political climate advocate’s message that much less effective. In the end, the self-centered goal makes a bigger difference than the global one. Whatever your individual and global goals are, if you examine them closely, you will find that an individual goal helps you achieve a global goal more so than the reverse. The world might seem to be in flames, but even so, you make a bigger difference in the end if you focus on the flames you see where you are.

Go ahead, make a new year’s resolution that is all about you. Make just one resolution. Don’t copy someone else’s resolution or your own resolution from a prior year. Write the resolution down. Then make it happen. In a year of big change, you can change too.