The Shamanic Economist

Beef Compared to Shrimp

2012-02-02T21:50:00.000-05:00

As the price of beef creeps up, it is seen less as an everyday food and more as a luxury or specialty food. I saw another sign of this in a restaurant buffet today. Compared to two years ago, the restaurant has reduced its use of beef by half. It is in fewer recipes and is sliced thinner when it is used. At this restaurant, the same thing is happening, though to a lesser extent, with fish.

The transition is easiest to see by comparing these food ingredients to shrimp. The role of shrimp in the buffet has not changed, but now, beef is used at least as sparingly as shrimp. Fish, which used to be as common as shrimp, is now only a single item on the buffet.

Watching a Century Take Shape

2012-02-01T07:00:00.007-05:00

The 21st century will not be remembered for bigger and better internal combustion engines, nuclear power plants, or universities, not any more than the 20th century is noted for its advances in coal-burning trains, plantations, and razor blades. Those are things that seemed especially important at the beginning of the century but were not so impressive a few decades later. The defining qualities of this century are slow to take shape and perhaps not so easy to recognize at this point. Perhaps, for example, the Internet and electrical storage are two of them, but the technology changes so unpredictably it seems too early to say. The reason to try to get an early fix on which innovations matter and which ones don’t is so we can stop investing in things that won’t matter or aren’t what they seem to be. But the last eleven years have already given us reason enough to doubt our ability to predict.

Gingrich Forgets to Show Up

2012-01-31T08:34:00.000-05:00

Presidential candidate Newt Gingrich is getting killed in the polls. Public opinion polls show him losing one third of his support in the last few days.

What happened? My take on it is that the turning point was the job Gingrich forgot about. He started slipping about the same time word got out that Gingrich had completely forgotten about a job that paid him just over $250,000 a year.

I think it’s fair to say that the average voter can’t relate to this situation. Heck, most workers, if we have a minimum-wage job, will take it seriously enough that we will show up for work on time day after day. Gingrich had a job that paid 15 times that much, and he not only did not take the job seriously, he completely forgot he had it.

Maybe someone appointed Gingrich to a job of substantial responsibilities, and he completely blew it off, but they kept paying him in the hope that he would start working eventually. And that is one of the more favorable interpretations.

It could just as easily be that the job was not really a job at all, but merely a purchase of influence, a transaction with the same purpose and effect as a bribe. Either way, such a situation reflects poorly on a person’s work ethic, no minor consideration when the same person is asking to be put in what is said to be the most important job in the world.

It also clashes with two of Gingrich’s political positions. He has spoken harshly of unemployed workers, teenagers especially, blaming them for their own lack of work. And he has railed against the corruption of Wall Street. In both cases, given the recent news, the natural reaction is, “He is even worse than they are!”

There are only a handful of states more favorable to Gingrich’s cultural outlook than Florida. Today’s primary election in Florida will inevitably be compared to South Carolina. There, Gingrich took 40 percent of the vote, enough to win the state. But that was before people were talking about the job Gingrich forgot he had. Polls are predicting Gingrich’s results in Florida will be around 30 percent. If that comes to pass, it will show that voters took notice.

Bank Transfer Day Was Big

2012-01-30T07:00:00.052-05:00

Banks and analysts have had time to add up the effects of Bank Transfer Day, and it is clear now that the movement was about as big as it seemed at the time. Roughly 1 million consumers and businesses moved checking or savings accounts from large commercial banks to credit unions and local community banks during a period of 7 to 8 weeks. A similar large number, though much harder to estimate, closed credit card accounts. Credit cards are harder to estimate and the impact harder to assess because not everyone who closes an active credit card account is able to pay it off immediately, and most of the credit card accounts that were canceled were cards that the holders weren’t using anyway.

A banking industry association might dismiss this as “an exceedingly tiny fragment” of the industry, but it is large almost any way you look at it. More than 1 out of 200 U.S. banking customers took part in some way. That makes Bank Transfer Day larger than all but a few banks. Large banks regularly spend billions of dollars in advertising and marketing trying to move market segments smaller than this.

More importantly, the movement put bank executives on notice. Bank of America acknowledged it had taken a hit when it reported its earnings, but whether they acknowledge it or not, all the large banks lost more than the usual number of customers. As a result, banks are starting to ask, “What will our customers think?” It’s a question that, for years, they hadn’t had to entertain.

Incremental Advances in Musical Equipment

2012-01-29T09:05:00.000-05:00

The new musical equipment at the two major trade shows this month may not have shown any breakthroughs, but the incremental improvements are ones that matter. We’ve seen guitar-shaped performance keyboards before, but this one has a USB interface, so that it can plug directly into a computer. Digital pianos and accordions aren’t new, but the new ones are lighter and less expensive than ever before. Auto-tune isn’t new, but built into a guitar — that’s new. As for drum synthesizers, the latest one isn’t based on samples, and won’t end up sounding like too much of the same tones after a while.

The new thing in guitar stomp boxes was one that is non-dedicated. Plug it in to an online store and you can program it to become any kind of stomp-box effect. These examples from the world of musical equipment show that it doesn’t take an unexpected innovation to change the way people work. Obvious combinations of well-known technology can have that effect too.

This Week in Bank Failures

2012-01-27T22:00:00.000-05:00

The U.S. Senate is looking into international money laundering activities that may have occurred at HSBC. The investigation of the bank grew out of its investigation of the illegal drug trade between the United States and Mexico. According to a Reuters report, an investigative report from a Senate panel is expected in the spring.

There are conflicting reports on attempts to negotiate a foreclosure fraud settlement. It appears, though, that the giant banks will ultimately refuse to settle because states are legally unable to provide the scope of legal immunity that the banks are seeking.

The Justice Department today launched a new investigation of mortgage-backed securities with subpoenas to 11 financial institutions, with more to follow in the coming days.

The first billion-dollar bank failure of 2012: Tennessee Commerce Bank, of Franklin, Tennessee. The bank’s holding company last week retracted its 2010 financial statements (and by implication, all its recent reports) and warned about the risk of bankruptcy after discovering problems in its financial records. The problems were discovered in a “forensic review” of its small-ticket specialized equipment portfolio and resulted in $46 million in charges, equal to 4 percent of the bank’s assets.

The bank’s problems may have been more serious than this, though. Tennessee Commerce Bank, along with at least three other banks, was caught up in the Thanksgiving weekend bankruptcy of Citizens Corp., parent company of Financial Data Technology Corp., a transaction processor. Citizens Corp. and a web of affiliated companies had been stung by a series of bungled acquisitions. To finance the acquisition of one troubled bank, Oakland Deposit Bank, the companies had used two banks they owned as collateral, and those banks became assets of Tennessee Commerce Bank (and now, of the FDIC). Another company in the group was a fund for purchasing distressed assets from banks, and it is said to be in severe financial distress itself as a result of its purchases. Citizens Corp. alone owed Tennessee Commerce Bank $17 million, and it is believed that the affiliated companies many also owe the bank substantial sums. That would mean the bank had more than 2 percent of its assets tied up in one financial train wreck, a situation a bank can expect to survive only if little else goes wrong at the same time. And now, with the bank in liquidation, the entire financial empire surrounding Financial Data Technology Corp. could simply crumble. At the least, the FDIC will see if it can take ownership of Financial Data Technology Corp. and its affiliated companies to cover the parent company’s unpaid debts, which now are due to the FDIC.

Tennessee Commerce Bank will reopen on Monday as a branch of Republic Bank & Trust Company, which is taking over the deposits and purchasing 18 percent of the assets. The acquisition gives the Kentucky-based bank its first footprint in the neighboring state of Tennessee. With so many of the failed bank’s assets in legal and accounting limbo, the FDIC is retaining most of the assets for now.

There was a second bank failure in Tennessee, a state that until this point had sidestepped the current wave of bank failures. Knoxville-based BankEast closed. It had 10 branches and $269 million in deposits. It had been operating under a prompt corrective action order since last month. The chairman of BankEast was previously the state’s top bank regulator. U.S. Bank is taking over the deposits and purchasing the assets. In a statement, U.S. Bank says it will keep all of the branches open.

In Florida, First Guaranty Bank and Trust Company of Jacksonville failed tonight. It had 8 locations and $350 million in deposits. CenterState Bank of Florida is taking over the deposits and purchasing the assets. The acquisition represents a geographical expansion for CenterState. CenterState had already agreed to purchase 7 of the failed bank’s branches, but that deal never closed, and could have been blocked by regulators because of the quality of the assets involved. Borrowers had stopped making payments on nearly a third of the bank’s loans.

A smaller bank failed tonight in Minnesota. State regulators closed Patriot Bank Minnesota, in the extended area north of St. Paul that has seen more than its share of bank failures. It had 3 locations and $108 million in deposits. First Resource Bank is taking over the deposits and purchasing the assets.

Buying Small Screens Instead of Desktop Computers

2012-01-26T23:49:00.000-05:00

The latest reports from computer makers leave little doubt that people by the millions are buying tablet computers and smart phones instead of desktop computers.

It is not that a tablet or phone can take the place of a desktop computer, but for those who have a desktop computer, purchasing a smart phone or tablet makes it easy to postpone the replacement of the desktop computer for several years. To the consumer, this doesn’t seem like a big change. After all, with a desktop computer replacement you can barely see the difference between the old computer and the new one, and computer users don’t necessarily stop to ask how long they have had their computer. But to the computer industry, a five-year delay in purchasing a computer is as good as a lost sale.

Obama’s New View of Law

2012-01-25T12:12:00.000-05:00

In launching a new investigation of financial crimes, U.S. President Barack Obama is not just taking on a new view of economic policy. He is also changing his view of law.

Previously, Obama has governed with the unstated premise that law is whatever powerful men agree on. This view of law is based on the idea of forming a common ground for avoiding or resolving large-scale conflict and war. It sees law as a kind of civilized overlay for arrangements and institutions that are already there. We see this view of law in Obama’s foreign policy pronouncements especially. When he advises two sides in an armed conflict to agree to some kind of extra-legal action, often involving suspending the constitution, it reflects the thought that only the consent of the armies, that is, the powerful and well-funded, is needed to create new law. The opinions of the majority of people, the ordinary workers not represented in the fighting, barely need to be considered. This view of law can also be seen in Obama’s past inaction on business crimes. In this view, if there is no raging war or other heightened conflict, then there is no need to bring the forces of law to bear at all.

But there is another view of law, in which law is not merely an overlay on society, but part of the foundation of society. In this view, law is part of the security of ordinary people in ordinary times doing ordinary things. If you go to work, purchase a product, sign a contract, or put your money in a bank, you are able to do so in part because the law is there to support such activities. This also means that law is an essential part of a functioning economy. If the force of law is weak, if laws are written in vague terms or are ignored in practice, it leaves people feeling insecure, lacking confidence that it will benefit them to engage in economic activity. People’s economic confidence, then, can be strengthened by enforcing commercial laws that have been left to languish.

When Obama hinted that financial crimes committed by large businesses would no longer be off-limits for law enforcement, he was talking about the kind of law that restores people’s confidence. He was trying to say, “You can get in the game now, because now there is reason to hope that the law will protect you from criminals.”

It was this same revised philosophy that led Obama two weeks ago to oppose Internet censorship bills that would have allowed the government and private companies to take newspapers, blogs, and most other web sites of importance off the Internet without a hearing. The bills in question were vague and badly written, the kind of laws that give lawyers plenty of work but leave workers and businesses in a state of perpetual doubt and uncertainty. That, Obama said, was reason enough to oppose them.

When you are trying to restore people’s confidence, integrity is key. Integrity and law are not words Obama would have put together quite so easily in years past, when he saw law fundamentally as a compromise — a typically unhappy compromise in which integrity was often the first principle to be sacrificed.

Obama’s recent moves, though, suggest that he has come around to the view that integrity is not a luxury, not merely an unreachable ideal, but is fundamental to making law function. To the extent that he can put that view into practice in Washington, it could go a long way toward restoring people’s confidence. It is hard to go to work knowing that everything you have built can be swept away at any moment on the whims of people more powerful than yourself. The integrity of law helps to assure ordinary workers that that isn’t so likely to happen.

Google+ Opens Its Doors

2012-01-25T07:04:00.003-05:00

There is good news from Google+. The social networking service is now explicitly permitting people who use pen names and stage names to join. Ringo, you will no longer have to sneak in under the ropes if you want to get in. Google+ had sometimes tolerated accounts of performers and writers using their professional names, but many such accounts had been abruptly canceled, and people who had those accounts were often fearful of participating in Google+ because of the reports that this could increase the risk of losing their accounts.

Acknowledging that it has been shutting people out in the past, Google+ now says anyone is free to sign up using their well-known public name — probably not today, but by next week at the latest. It will no longer automatically boot out users whose names seem suspicious. Instead, it will put the accounts on hold and ask the users to demonstrate that their names are known to the public, by pointing to something like a web site or a news story. Or, if that name that Google thinks is fishy is actually your official name, you can just show it an official document. Even better, people who change their names can now change the name they display on Google+.

This may help fill in some of the gaps in Google+, which compared to other social networks has a notable absence of thought leaders of all kinds. It will take more than just opening the doors to change the scene, but at least it is now possible for Google+ to be in on public events and trends, instead of just observing from the outside.

Germany’s Karma

2012-01-24T09:01:00.001-05:00

It is one of the basic rules of karma: you need to do your own work, and seek solutions to your own problems. The problems of others may be easier to spot and may seem easier to fix, but trouble arises quickly if you focus on others’ problems as a way to avoid discovering your own.

If you ever start to think it might be a good idea to get wrapped up in the problems of the people around you, you can look at how well that has worked out for Germany. Granted, Germany is seen as one of the more prosperous countries of the last four years. But it has spent much of that time focused on the economic mistakes of the United States, the United Kingdom, Iceland, Greece, Portugal, France, and Italy, while neglecting its own basic problem of how much its own prosperity depends on the actions of nearby countries. The result of this pattern of action is not pretty to see. None of these other countries’ economies have really been righted by Germany’s plans, and in now, Germany’s own economy appears to have slipped into a recession.

With the recession, Germany’s political conversation has started to become more self-conscious, even embarrassed, and that will shortly lead it to address some of its more pressing challenges. But its current difficulties might have been avoided if it had not waited for things to get this uncomfortable before it started to look in the mirror.

If Hiring Is Hard, the Business Model Is Broken

2012-01-23T07:48:00.000-05:00

An article going around lately illustrates how ill-prepared employers are when it comes time to hire. This article, supposedly offering advice to job-seekers, lays into applicants for not writing a custom resume for every job they apply for, for not being entertaining enough during the job interview, and in general, for not catering to the very skeptical would-be employer’s every whim. The writer, a business owner, freely admits he expects to interview 100 candidates for every one he hires, yet complains about job applicants wasting his time. If the hostility this particular employer holds for job-seekers is this obvious in an article written for publication, imagine how palpable it must be if you are unlucky enough to actually meet him.

And statistics tell us his is not an isolated case. An astonishing proportion of employers are saying they are having difficulty hiring skilled workers. It cannot possibly be the job-seekers who are at fault — not now, when the job market is at near-depression levels, and there are more unemployed high-skill workers than in any country in the entire history of work. No, at some point, you have to say that it is the business model that is deficient.

A business that finds hiring difficult in 2011 will be totally screwed when the job market returns to some semblance of balance and job-seekers have multiple jobs to choose from. Imagine having to persuade potential workers to take the time to talk to you about your open position. Well, most businesses are demonstrating that they aren’t able to imagine such a thing. Most of them will have to scale back their plans when they can no longer hire at will, but not all of them will know how to do that. Many will end up hiring so few people, or so many of the wrong people, that their businesses collapse.

The answer, of course, is to fix the business model now. It is a very lazy business manager who imagines workers appearing by magic to fill every gap in the business’s work. A legitimate business model has to have a realistic view of what workers are actually available and the degree of effort it may take to find them and recruit them. If a business plan fails to address these issues, what that means is that the business doesn’t really have a plan.

How to Buy an Election, According to the Supreme Court and Stephen Colbert

2012-01-21T17:42:00.024-05:00

To fully understand how farcical it is that corporations have political rights that go beyond those of ordinary citizens, you have to see the Super PAC Americans for a Better Tomorrow, Tomorrow, also known as The Definitely Not Coordinating With Stephen Colbert Super PAC, or Colbert Super PAC for short. It looks like a joke web site, and it is funny to see. Behind the jokes, though, it is a real Super PAC, operating within the law and doing essentially the same things that other Super PACs are doing. If there is a difference, it is that Colbert Super PAC is more open and honest about what it is doing.

It is not even quite a joke when you look beneath the surface. The Colbert Super PAC, like any Super PAC, is collecting real money from effectively anonymous business corporations who hope its point of view will help push specific elections in specific directions.

This Week in Bank Failures

2012-01-20T22:09:00.000-05:00

As publicly traded banks report earnings for the last quarter of 2012, banks in general have returned to a low level of profitability, but it is a different story for very large banks. Their higher cost structure have them roughly breaking even in the latest quarter.

The first bank failures of 2012 were announced tonight. The First State Bank, of Stockbridge, Georgia, was the largest tonight, with just over $500 million in deposits. The deposits and assets are being transferred to Hamilton State Bank. With the failure, every bank in Henry County, on the fringes of the Atlanta metro area, has failed. The First State Bank was the largest bank in the county and lasted longer than the others, but it had more than half of its assets in real estate development at the peak of the bubble and took more losses than it could absorb.

These small banks, with a total of less than $100 million in deposits, failed tonight:

American Eagle Savings Bank, Boothwyn, Pennsylvania, a suburb of Philadelphia.
Central Florida State Bank, 4 locations, Belleview, Florida.

5 Signs of Change

2012-01-19T20:36:00.000-05:00

1. Kodak, one of the best-known brands of the last century, is in bankruptcy. Fuji, with a more stable manufacturing process, is eating its lunch in its core film business, while its moves into digital photography have been too timid to make a difference. How bad are things at Kodak? Yesterday it sued half a dozen competitors claiming a patent on sending photographs by email. If that’s a sign of the way things are going, Kodak may not emerge from bankruptcy as planned. The next on my list of 20th-century brands to falter: McDonald’s.

2. You think I’m kidding about McDonald’s, right? I’m not. Look at the vociferous reaction to the revelation that Paula Deen, the high-fat celebrity chef, has secretly been suffering from diabetes for three years, and is now endorsing a controversial and expensive diabetes medication. When I looked at the comments on Twitter, there was no sympathy for a woman who was suffering from one of the dread diseases of our time, and that is because of the way she was so transparently trying to use her condition to make millions of dollars from the suffering of others. Joan Rivers quipped, “Paula Deen has admitted that she’s taking a drug for diabetes. It's a once-daily injectable stick of butter.” Bette Midler suggested, “She should run for office!!” Even Time asked the obvious question, “Did Paula Deen’s Own Cooking Give Her Diabetes?”. It’s quite an abrupt turnaround from the eat-get-sick-take-drugs pattern that Americans have accepted as the norm for a lifetime. If the thought of eating the worst food you can find until you come down with the predictable degenerative diseases, then continuing to eat and promote the same food that made you sick suddenly makes America recoil, then maybe Americans’ attitudes about food in general are at a turning point.

3. The scale and energy of yesterday’s Internet blackout caught the political supporters of Internet censorship bills by surprise. As Michael Moore put it, “I’ve never seen a demonstration have an impact this quickly.” Some of the Senate’s Internet servers were offline last night because of the volume of messages opposing the bills. In response, in less than two days, nearly half of the bills’ supporters in Congress have switched sides. The opposition to Internet censorship was, in its own way, as big as the opposition to the Wall Street Bailout, but while Congress held their noses and voted for the Bailout anyway, the Internet blackout appears to have actually changed Congress’s direction.

4. Apple released what appears to be the world’s first fully functional ebook authoring program, and it’s free. Since Apple first introduced the iPad, the ebook industry has had two years to fix the obvious flaws in the technology that kept readers and publishers from adopting the ebook format, and instead, it has barely taken a step forward in that time. With today’s announcements, Apple’s new software becomes the de facto standard in ebooks, and with a working standard, I believe the technology will finally take off.

5. In the first large wave of settlements in the phone-hacking scandal, News International paid probably more than £1 million to settle 37 cases, and virtually admitted that senior management must have known about specific phone break-ins. Significantly, lawyers at the hearing said that some cases would not be possible to settle, and would have to go to trial. The inquiry surrounding any such trial could easily be the undoing of the entire news organization.

Pipeline Still in Limbo

2012-01-19T07:00:00.002-05:00

The country isn’t called the United States of Texas, after all. It shouldn’t surprise anyone that the Keystone XL Pipeline project is officially dead. Congress killed it off unofficially in December, with an amendment attached to a budget measure that stripped the State Department of any possible legal pretext for granting approval. The White House and State Department could have saved the announcement for next month, but saw nothing to be gained in postponing the inevitable.

The rejection yesterday isn’t the final word on the project, as the company is free to reapply with only token adjustments in the route. The fundamental problem with the pipeline, though, is not the route, but the fact that it benefits only the Texas refineries while imposing an enormous burden on everyone else along the way. To be a winning proposition, the pipeline would have to be redesigned so that it is something more than a subsidy for Texas in disguise.

What the Blackout Means

2012-01-18T00:01:00.008-05:00

Thousands of web sites are blacked out today. Most of the sites that are blacked out are ones where you might find discussions of what is going on in the world. These are the sites at greatest risk of being taken offline under SOPA, Internet censorship legislation currently being considered by the U.S. Congress. If that legislation passes, important web sites will disappear not just for one day, but for months or years at a time, and without any advance warning.

After Store Closings, Books Holding Their Own

2012-01-17T11:11:00.000-05:00

Now that half of the United States’ bookstores have closed, you might hope to see an increase in customer traffic at the stores that remain open. There was some sign of this, looking back at Christmas-season sales. After the competing Borders chain liquidated earlier in the year, Barnes & Noble posted year-over-year same-store sales gains (though it is worth noting that the gains came from selling products other than books and magazines). The gains were slight but it was the first time that has happened at all since the bubble year of 2006. It was more of a mixed report from independent booksellers, with most holding their own, a handful reporting record sales volume, and others barely hanging on. Still, that is better than the uniformly gloomy reports of the previous four years. I believe it is a sign that the number of bookstores is no longer so far above a sustainable level.

Spontaneous Production

2012-01-16T19:18:00.000-05:00

It is one of the peculiar qualities of the American psyche that we tend to want to believe big things have happened without much work going into them. One version of this thought can be seen in fantasy football, which allows fans of American football to imagine that trading players between teams is the key to success in the sport. This idea turns up in quite a different form in the often-heard suggestion that the Occupy demonstrators are people who are unwilling to work, as if spending weeks in the street was a walk in the park.

The glitter of retail encourages a similar attitude toward manufactured products, which are displayed on store shelves as if they appeared there by the economic equivalent of spontaneous generation, a fantasy phenomenon that I suppose could be called spontaneous production. People’s isolation from the work of making things leads final products of all kinds to be judged with a disheartening disregard.

This is not really a character flaw, but the inevitable result of more than a century of increasing aggressive marketing. Living in America means facing a non-stop marketing barrage that, impressively, has succeeding in getting the average person to buy three or four times as much stuff as they actually want. The resistance to commercial culture comes out in many forms, including a basic skepticism about the value of every kind of production, along with, ironically, a tendency to believe that knockoffs are the same as the real thing.

This kind of skepticism does not serve people well when they try to produce something of their own. Teenagers form a band and learn to play three Coldplay songs, then are frustrated when it isn’t enough to get them on television. Or, a computer manufacturer, seeing the popularity of personal music players, produces a crudely serviceable device in that category and can’t understand why it struggles to get its product into the stores. When there is real work to be done, it doesn’t pay to imagine that it can all happen after only a token effort.

Mild Winter, a Lucky Break for the Economy

2012-01-15T09:28:00.000-05:00

It is cold this morning in southern Pennsylvania. It is only the third cold snap of the winter with temperatures dipping below average, so it seems as if winter is just getting started. Yet it is the middle of January and winter could be winding down one month from now.

It is a similar story across North America and Europe. In a normal season, temperatures would be below average about half of the time and above average about half of the time, but we have seen temperatures mostly above average. Part of the reason for the mild winter weather is the Arctic Oscillation, a wind pattern that this winter is keeping the coldest air locked up over the Arctic Ocean.

With the mild winter, my heating costs have been one third less than in an average winter. This effect may help to explain the recent consumer confidence numbers. People lately are feeling more confident about economic matters than they were all last year. People on average overspent slightly on Black Friday, but were saved by an unusually small heating bill a month later. For some households in greater financial stress, saving $1,000 on heating may allow them to catch up on mortgage payments. That is the kind of saving grace that can persuade people there is a chance that everything is going to work out fine.

And this is not just a matter of perception. The surplus in local government budgets, after a winter of little or no snow removal, may forestall some of the layoffs that seemed inevitable just one month ago. Personally, as I spend less time on snow removal and travel delays, I can spend more time on research and development, and it is a similar story with others taking a chance to get a head start on this year’s work. If more people pay their mortgages on time this winter, it leads to fewer evictions next year. These are real and substantial economic effects.

The economic effects of the mild weather will help to restrain oil prices. World oil prices have been hovering near $100, and U.S. gasoline prices well below $4, only because of the light demand for energy for heating. The reduction in imports gives the national economy some breathing room. Economic expansions are built on this kind of event. Of course, bad news next month could easily reverse this month’s gains. But if more lucky breaks follow, economic progress is inevitable.

The Android-Compatible Strategy

2012-01-14T09:15:00.005-05:00

A story that almost got lost this week at the Consumer Electronics Show is that Microsoft, along with a third party, is working on making the Windows Phone platform Android-compatible. There is hardly anyone developing anything for the Microsoft platform, so Microsoft is trying to get a leg up by adding in the thousands of applications people are developing for Google’s competing platform.

It makes sense as a strategy for Microsoft. Its phones are a niche product, underpowered and the most expensive in the industry, so its best hope in getting software support is to borrow it from another platform. But it shows you how quickly the world can change, especially when you are talking about technology. There was a time when Microsoft could boast of having the most applications, and others in the industry were doing their best to be Microsoft-compatible. But that was a long time ago, and now the company is gamely trying to catch up with a world that has gone on ahead.

This Week in Bank Failures

2012-01-13T21:58:00.000-05:00

One of the warnings we heard early on about the real estate bubble and bust (combined with other economic trends) was that the United States risked turning into a renter nation, in which ordinary citizens own only a small fraction of the country’s real estate and other assets. That is now coming to pass, with investment funds and billionaire-investors (most of them foreign) buying up foreclosed single-family homes by the thousands to rent out to American households. The Fed is supporting this trend, as are the FDIC, Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) — but to be fair, they have few other options as they seek to unload their own foreclosed real estate holdings.

Fannie Mae is seeking a replacement for its interim CEO, who will step down shortly.

ING, having already shed its U.S. operations, is looking at further restructuring and says it will not pay a dividend until its government assistance is repaid.

Met Life is phasing out its mortgage business. It announced on Tuesday that it had stopped accepting new mortgage applications. Met Life says it will continue with its reverse mortgage business, but that is a troubled category in which no one seems to have a viable business model, so it too will surely shut down before long. Met Life had spent three months trying to find a buyer for its mortgage business. It did, at the end of last year, reach an agreement to sell off its bank. By shrinking its operations it hopes to avoid the scrutiny of the Fed and other banking regulators.

State banking regulators in New York are investigating whether banks have overcharged mortgage customers for insurance.

Confiscating the Dividends of Crime

2012-01-13T08:34:00.000-05:00

In legal terms, the dividends paid by criminal enterprises are the proceeds of crime and can be confiscated by the courts. Yet strangely, this never happens. Governments take a hands-off approach to the people with the money.

Until now. The United Kingdom’s Serious Fraud Office recorded a court-approved settlement yesterday recovering dividends paid to the parent company of a company whose deals were already the subject of criminal convictions. Importantly, the laws under which it did this are in place in most other countries.

There were the predictable howls of protest from the financial community. In the future, they point out, innocent investors could lose substantial sums of money they earned from criminals. The forcefulness of this response is not a bad thing. Shareholders and rating agencies, to date, have rarely stopped to ask whether corporations are conducting business legally. Billionaires and pension funds freely invest in criminal and legitimate enterprises alike. Now that could change.

If shareholders begin to pay some attention to questions of legality, it will limit criminals’ ability to use the corporate shell for money laundering. Dividends from criminal enterprises may be a fully legal form of money laundering, but people who participate in this kind of scheme should at least face the risk that they may not be able to keep their ill-gotten gains.

Losing Track of Customers Because of Email Changes

2012-01-12T11:10:00.000-05:00

Every year I see 10 or 20 of my friends change their email addresses. Some go through this process almost every year. It is one way to stay ahead of spam. Spammers send messages to your old address, but you’re no longer there.

For years I resisted this idea. But after having the same address for 12 years, 98 percent of my inbox was spam. In the middle of December, I bowed to the inevitable, set up a new address, and set about notifying everyone who sends me mail about my new address.

This is much harder than it should me, and I have a new appreciation for what my friends have been going through all this time. Particularly in the music business, it does not seem to have occurred to anyone that people would ever change their email addresses. Sorry, Shakira, sorry, U2, sorry, Pete and Roger, it’s not you, it’s me. I had to cancel my email subscription because I couldn’t stand to see your messages go into the spam pile.

But at least Shakira, U2, and the Who let me subscribe again with my new email address. When I went to look, Electric Light Orchestra and Evanescence had closed their email lists. I could unsubscribe but I could not sign up again.

If that was bad, though, the situation was worse with the big-name companies that spend the most on email marketing. There are some, to be sure, that will let you change your email address almost instantly. Most, though, promise to stop sending to the old email address within 10 business days — and it turns out that “within 10 business days” really means “whenever we damn well please.” At American Express, Guitar Center, and other businesses I would like to follow, I was forced to unsubscribe to everything, at least temporarily, because after a month, I was still getting promotions sent to the old email address. Of course, no serious email marketer wants a customer to unsubscribe temporarily — they may forget to resubscribe. Yet that is what the foot-dragging on email address changes leads to. And remember, it is the most highly motivated and connected customers that businesses are shrugging off this way. The average customer won’t think of putting forward their email address change until the next time they place an order.

At other businesses, including SAS, a company whose products I write about constantly, it was clear that they automatically thought of a new email address as a new prospect. I was no longer a customer, the way they tally things up, because I had not yet placed an order using my new email address. When I eventually purchase something, the business will record a new customer, but they will also record a lost customer when I never again reorder with my previous email address. When they measure customer turnover, or churn, the rates they report could be double what they really are.

We all know in our personal lives, if we communicate by email, we have to keep track of people’s email addresses. Email address changes are a fact of modern life and will probably become more frequent as the email system loses ground to the spammers. Given the low costs of email, along with the reputational risks when email is done badly, it is surprising that businesses in general do so poorly at keeping track of their customer email addresses.

Electronics Lull Hits Video Games Too

2012-01-11T07:00:00.012-05:00

With consumer electronics down broadly last year, some categories just holding their own, some down by half, and tablets the only category that was up impressively, how did the video game segment fare?

According to yesterday’s headlines, the video game business was flat at best in the United States and United Kingdom. The more fortunate retailers are reporting same-store sales the same as the previous year, and most are down about 5 percent. Ominously, though, video game hardware sales were down about 15 percent from the year before. Hardware doesn’t make up a big part of the profit in video games, but if there are no hardware sales then software sales cannot follow.

U.K. retailer Game Group fared worse than most and is the subject of particular concern after its holiday-season sales, down 15 percent year over year, were not good enough for it to live up to the terms of its financial arrangements. The company’s stock value fell to about £13 million, down almost 99 percent from its 2009 peak, reflecting stock traders’ opinions about the probability of bankruptcy.

Part of what is going on is that people are playing games on phones and tablets. These games tend to be simpler and less expensive than games for dedicated game consoles, and people play them for shorter periods of time, just a few minutes at a time instead of an hour or two.

The industry has some compelling software releases on the way for the new year, but the number of new video game titles continues to decline, and game publishers are selling into a shrinking market.

With Electronics Fading, What Happens to China?

2012-01-10T14:15:00.000-05:00

If indeed there is a worldwide move away from the 30-year fascination with electronics, it is China that will bear the brunt of it, as that country is more deeply involved in manufacturing than any other. Today, people are asking whether it will be a soft landing or hard landing for China. It is hard to imagine a deep recession in China, but the country does have some difficult adjustments to make.

A Move Away From Electronics?

2012-01-09T16:50:00.000-05:00

Could people be getting tired of electronics?

It seems hard to imagine, but consider the signs from recent days.

Best Buy sold products at such low margins on Black Friday that it may have lost money that day.
Christmas-season sales of camcorders were down by almost half from the year before. Sales of televisions also declined, and the consumer electronics category as a whole is thought to have declined by a greater amount than just the usual year-over-year decline in prices.
Barnes & Noble is considering a spinoff of its e-book business.
The biggest story from the Consumer Electronics Show, where you would be hoping to hear about new gadgets, is that a real live kangaroo has been seen. There is a public discussion about whether the expo can continue in its current form beyond this year.
Viewers continue to flee television. The percent of people who watch at least one complete program on television in an average week fell below 50 percent in 2011, according to an Accenture survey.

It is the kangaroo story that especially gets my attention. A real kangaroo! It’s breathing! How did it get here? What will it do? These are questions you can’t so easily ask about the world of electronic gadgets, which with the recession-era slowdown in research and development has perhaps become a bit too static and predictable to hold people’s attention.

“Don’t Text Me, Ever”

2012-01-08T10:03:00.000-05:00

When Reuters looked at text messaging, in the story “Texting profits at risk as users look elsewhere,” it found that phone companies are driving users away by raising fees.

It is a pattern often seen in declining technology. Cable television, for example, still raises its fees every year in spite of the trickle of users leaving for more advanced, less expensive video services. It doesn’t make business sense for business to squeeze their customers in a high-markup business segment, yet this is a pattern we have seen again and again, and there is no sign so far of text messaging doing anything different.

It is bad enough that phone companies don’t offer a way to block text messaging. Now they are eliminating the less expensive text messaging plans designed for people who don’t receive text messages regularly. They are trying to push customers toward the unlimited-use plans, but many customers cannot afford that subscription fee, typically $20 per month. And so, when phone companies take an all-or-nothing, my-way-or-the-highway approach to text messaging, they are pushing customers faster into the “don’t text me, ever” camp.

It may already be too late, though, for phone companies to turn text messaging into something that fits their customers’ needs. We are likely to see big changes this year as the purchase price of an unsubsidized smart phone falls below $100. When people notice it costs less to have a smart phone than to send and receive text messages, text messages will lose their cool factor. As 2012 starts, text messaging can still pass for high technology, but by the time the year is over, people will be apologizing for their lack of up-to-date technology skills when they have to send text messages.

Discouraged Workers and the Return of Flow

2012-01-07T23:51:00.000-05:00

The further thinning of the labor force in this week’s jobs data is not a sign of an energetic economy, but it is good news in another sense. With fewer people looking for work, it makes it easier for those who must look for work to find a job. No one could claim it is easy for workers to find work in a period of 8 percent unemployment, but it is perhaps a little easier than it was last year.

The economy rewards initiative when people looking for work have a chance of finding it. That is part of the flow of a functioning economy, and for the individual, the flow of the economy is more important than its total size.

This Week in Bank Failures

2012-01-06T22:53:00.000-05:00

Three weeks have gone by since the last U.S. bank failure. Perhaps there is a new rule that a bank can’t fail while its Christmas tree is up. Or perhaps the pace of bank failures is actually slowing. An increasing number of banks are emerging from cease and desist orders relating to financial distress. The numbers are still small, and the various lists of problem banks in the United States still count near one thousand. But these perhaps are hopeful trends.

The NCUA today took over management at People for People Community Development Credit Union, in the economically troubled North Philadelphia neighborhood of Philadelphia. The credit union, which has 1,500 members, will continue to operate.

Money Is a Potent Distractor

2012-01-05T09:39:00.000-05:00

I am going to flip a coin, and if it comes up heads, I will give you the coin. Does that sound like a good deal?

Perhaps it is if I can do it in an entertaining way, but viewed strictly in financial terms, probably not. That’s because the time it takes you to watch me flip the coin may be worth more than the coin itself.

If you have the opportunity to work in a U.S. minimum-wage job, you get paid 1 cent approximately every 6 seconds. If I pick a penny to flip, and it takes me more than 3 seconds to flip it, with a 1 in 2 chance that you get the coin in the end, the expected rate of return on your time from my coin-flip offer is less than you get at work.

Despite this, almost everyone gets caught up in deals that are no better than the coin-flip offer. It is not that people lack financial sense or are not aware of the value of time. The reason it happens is that money is a potent distractor. It is not hard to contrive a situation in which the appearance of money is used to take people’s attention away from what they are doing.

When I was very young, my relatives took me into a Texas bar. There was a coin, a nickel I think, on the floor near the entrance. When I pointed it out, they invited me to take a closer look at it. As I did, I discovered that the coin was nailed to the floor. It was put there, they explained, as a sort of test for people who were new to the place. Anyone who tried to pick up the coin was a person who had never been there before.

That is how easy it is to distract people with money. You can easily think of less benign examples.

Imagine if your employer paid you in real time, with a machine that dispensed pennies at your workstation. You wouldn’t be able to get much work done, having to stop every few seconds to collect your pay. We think of money as an incentive to focus on work, yet as this thought experiment shows, money also serves to distract from work. Money is, in general, one of the most potent ways to distract people.

Gasoline Prices and Auto Sales

2012-01-04T20:48:00.000-05:00

Some news stories have suggested that the strong sales of new automobiles in December shows that consumers are getting comfortable with the low gasoline prices of the last three years. If this is indeed the thinking of car buyers, a 20 percent increase in the price of gasoline over the next four or five months could be enough of a jolt to send sales numbers back down to their previous levels. The general availability of all-electric cars later this year will not do much initially to boost sales. Battery prices need to fall a bit farther before electric cars can break out of their niche, and that breakthrough is not likely to occur this year.

There are various scenarios by which oil gasoline prices would rise by 20 percent or more. One that I have mentioned several times is the possibility of a strong recovery in the U.S. job market. If more people are driving to work in the United States, that has a big impact on global oil consumption. Unfortunately, this is not the only way oil prices could rise. If Iran follows through on its plan to blockade the Persian Gulf, even if it is not entirely successful, that alone could send oil prices up by 20 to 30 percent.

Oil Prices Recover

2012-01-03T22:45:00.000-05:00

An oil executive warned today that oil and gasoline prices could not plausibly go much lower than they are now. It is a thought that echoes the analysis of economists who wonder how oil has managed to stay so low for so long. It is not just the ongoing train wreck in Iran that could raise oil prices. Any expansion in U.S. employment or spending will also stretch the limits of the oil supply.

And this is the season when oil prices tend to start going up. A combination of factors could easily raise world oil prices to near-record levels by June.

Beyond the Cliches of Personal Change

2012-01-02T07:00:00.001-05:00

My book Fear of Nothing has had its best week of sales yet as readers take on the new year’s resolution of “no clutter.” It is an objective that has extra significance this year. People are hoping to cut their ties to the past decade of economic doldrums, and nothing says pessimism and economic decline more emphatically than clutter. It is a hopeful sign for the larger economy that people are undertaking personal change. The current economic problems might be global in scope, but the solutions start on an individual level.

This also means that personal change ultimately has to look beyond the pre-packaged “change” of the same old commercial products. This year more than last, we can expect to see change of a more spontaneous nature, as people respond to external changes with ideas too new to have been vetted by the two-year book publishing process or the decades of development that have created the familiar cliches of change. It is those cliches we tend to reach for first after we realize that things could be better. This year I believe we will find that we can reach beyond them.

A Fluid Year

2012-01-01T14:19:00.000-05:00

People have been talking about 2012 for a long time, and much of the talk has focused on the expectation of an unusual fluidity this year. It is the end of an era in a Mayan calendar and a transition point in U.S. demographics. Some of the most persistent predictions for 2012 talk about shocking changes hitting coastal cities on every continent.

In historical terms, the world has been remarkably fluid and changeable for the past 21 years or so. One thing we have learned during this period is that people and institutions that put too much stock in planning eventually get left behind. We cannot avoid planning, but in times like these, we must also remember to plan to read and react. If the 2012 prophecies are true, or even if they are not, that consideration may be more true than ever this year.

New Year’s Resolution

2011-12-31T18:48:00.000-05:00

It is the time of year when many people make new year’s resolutions, and I have one myself. In 2012 I want to do better at staying above the fray, looking toward long-term solutions rather than arguing each day’s hottest controversies.

Contrary to what you might see in many of my posts in 2011, not to mention much of the writings of other economists, it is not an economist’s job to offer opinions on whatever political feud or business debacle people are discussing that day. Even technical insight is of little value unless it helps people make better decisions. I said last year that economists should be more like sports commentators, creating a narrative for the flow of events and for what might happen next. That would at least help people understand what decisions are there to be made. It is no accident that sportscasters sit ten meters above the playing field. They could hardly tell you how the game was going if they were down on the field in the middle of the action. It is a perspective I will try to remember in the new year as I comment on life, the world, and matters of economics.

This Week in Bank Failures

2011-12-30T17:00:00.000-05:00

To back up their various court cases against Bank of New York Mellon, government entities reportedly have inside information from the bank, including a detailed description of the methodology the bank used to generate phantom currency transactions. The bank is accused of distorting currency transactions in order to charge state pension funds billions of dollars in extra fees.

Verizon Wireless seemed to be taking a page from Bank of America’s book. It was at the end of the third quarter that Bank of America announced new transaction fees that helped to inspire Bank Transfer Day. Exactly three months later, Verizon Wireless announced a new bill-paying transaction fee. The move sparked a similar kind of uproar, along with an FCC investigation, and the backlash led to a quick reversal from Verizon. Verizon’s move came at the same time that lawmakers in the United Kingdom are working on new rules to curb the same kind of transaction fee abuses.

A More Focused Christmas

2011-12-29T07:00:00.007-05:00

I wrote last week about my plan to give pies instead of factory-made presents for Christmas. I was not the only one cutting back on the excesses of Christmas this year. It seemed that people broadly were trying to make Christmas a more focused holiday this year.

There were at least 40 percent fewer Christmas lights in my local area. The mild fall weather and higher electric rates must be a factor, but are not enough by themselves to explain such a large decline.
Retail Christmas shopping traffic started late, only six days before Thanksgiving from what I could see, then fell off more than ever in the two or three weeks after Thansgiving weekend, picking up again just in the last five days before Christmas.
During the Christmas shopping season, many stores had no Christmas decorations at all on display. Others had cut back to decorations less than half the size of last year.
On Christmas Eve, the pope warned specifically about the commercialization of Christmas.
After Christmas, there was heavy retail traffic on December 26, but not much in the days since.
After Christmas, Sears and Kmart wasted no time in announcing a new round of store closings.
Stores wasted no time moving out Christmas-specific merchandise. I personally bought some Christmas items that had been marked down by about half on December 24 and again on December 27. In other stores that I visited in the days after Christmas, stores that in years past would have spent weeks clearing out excess Christmas items, there was no sign of any Christmas items remaining.
In a survey, about two thirds of U.S. workers were not taking any days off this week other than the holidays scheduled by their employers. I did not take any days off myself.

I saw no sign on Christmas Eve and Christmas that people were taking the holiday itself any less seriously. But people seemed determined not to let Christmas spill over across the entire month of December. The result was a more focused and arguably a more meaningful holiday.

Adjusting the Television Picture

2011-12-28T07:00:00.059-05:00

The large-screen television wave had obviously passed its peak at the beginning of November, when I predicted falling prices, especially after Christmas. The television business, though, was waiting to see how the Christmas shopping season would work out. Now that it is winding down, they are on the verge of panicking. According to a new New York Times story, Sony is exasperated at its continuing losses on televisions. After two years of tinkering, it is planning more drastic steps. For its part, Google doesn’t seem to know how to rescue its foray into the television business, which was largely forgotten by the time the Christmas season rolled around.

Best Buy drew large crowds on Black Friday with low prices on televisions, but with the low prices, probably lost money on many of the units. It was a process that was repeated on Boxing Day, and further price cuts are inevitable next month as manufacturers are forced to cut their prices just to get products into already overstocked stores. With near-zero margins on televisions, Best Buy is reporting earnings one third lower than the year before.

Sears and Kmart were counting on strong Christmas-season television sales, along with other electronics. That did not materialize, and the company will be closing about 120 stores, it announced yesterday.

Televisions were expected to be a large after-Christmas item, but aside from Boxing Day itself, foot traffic at after-Christmas sales has been poor, as shoppers seem eager to put the Christmas shopping season behind them. With shoppers not paying attention, price reductions may not be enough to move the overhang of television inventory.

And there is a separate concern hanging over the television business. A few observers are predicting a move by Apple into self-contained television units in 2012. If, as rumored, Apple can take a 37-inch Sharp display and make it more cool than a large-screen television by making it easier to use, that could add further pressure to an already overextended category.

It could end up being good news, though. If Apple can convince consumers that the old-fashioned, 100-button, channel-surfing remote control is just too complicated, it could drive a new wave of shoppers into stores looking for something simpler.

2011 Was the Biggest Disaster Ever

2011-12-27T07:00:00.039-05:00

It’s no secret that 2011 was the story of one disaster after another. There were floods and typhoons in Queensland, a historic earthquake in New Zealand, a series of nuclear meltdowns in Japan, and it went on from there.

Add it all up around the world and it was the most costly year of disasters ever recorded by the insurance industry. That is only one way of measuring disasters, but by any broad measure, 2011 was a year of an extraordinary number of disasters.

I personally experienced, only a few days apart, an earthquake and a hurricane. I was far enough from the center of each, but they were nevertheless very worrisome events.

That was in August, and by then, people had become so accustomed to a steady stream of disaster headlines that many were dismissive of the worst hurricane and earthquake to strike my local area in decades.

The coming year may have been tipped as a year of major, sweeping changes, but there is reason to hope that we may have better luck in 2012 when it comes to disasters.

A Near-Record Year in Arctic Sea Ice

2011-12-25T06:01:00.019-05:00

Over the past year, Arctic sea ice has alternated between record and near-record low levels. In early September, the extent of sea ice either hit an all-time low or came close, depending on the model you used to slice the data up. Between June and September, cargo ships crossed the Arctic Ocean as if they had been doing it all along. The year ends with ice extent near the lowest it has ever been at this time of year. It is harder to guess at the thickness of sea ice, but the ice this year probably has also been the thinnest ever.

And all this happened with nothing more than the usual fluctuations in the weather. No one can predict when the Arctic sea ice could melt away completely because it would take only one spring of extreme weather conditions to make that happen.

Give and Get Pie

2011-12-24T21:31:00.000-05:00

Spoiler alert: This post describes Christmas presents that have not yet been delivered.

As I write this, Christmas Eve has turned to Christmas in much of the world. The pope took the occasion as an opportunity to decry the commercialization of Christmas, urging people to see through the bright lights and tinsel.

This is, of course, not a new thought. The satirical Christmas rock band I play in, Bah and the Humbugs, makes fun of the commercialization of Christmas every single year. But what, specifically, can one person do to make Christmas less of a competitive commercial experience?

Last year, I wrote the song “Give and Get Pie” to urge people to consider giving more personal, handmade gifts, such as pie, at Christmas. Right away, people commented that it sounded like the title of a Paul McCartney song (as if I hadn’t been aware of that), and attempted to sing the song to the tune of “Live and Let Die.” The mashup was something of a train wreck, but at least they were putting their own thought and attention into it. I remember those moments more vividly than any factory-made product anyone gave me last year.

When I wrote the song, I had meant pie as just an example, but when I thought about it, it seemed an especially good example of a handmade Christmas gift. Pie is part of the Christmas tradition already, and pie is a consumable, perishable product, so it can’t add to people’s clutter from year to year. This year, I decided I would try to live up to the idea of “Give and Get Pie” by giving pies for Christmas.

As I write this, the pies are in the oven. I have never baked so many pies at once. I do realize it won’t quite work out if everyone I give a pie to also gives me a pie. I couldn’t possibly eat that much pie myself! If it comes to that, maybe we could arrange to make smaller pies. But if some of the pie ends up going to waste, that risk is no different from that of any other Christmas gift. With pie, at least, the financial consequences are slight. The cost of materials is about $3 per pie. Even if you were to go for something extravagant, it could not exceed $10. This is not much compared to gifts I have given in the past. Even the time commitment is not extravagant. If I end up spending 1 hour per pie, that is less time than I have sometimes spent agonizing my way along the store shelves trying to find a suitable gift to buy.

After people started trying to sing “Give and Get Pie” to the tune of “Live and Let Die,” I had to help them out by writing proper parody lyrics that would actually go with that tune. For those Paul McCartney fans who want to try to sing along, it starts out something like this:

When you were young and you wrote out a Christmas list
You used to say give and get gifts
But if this endless Christmas commercialization
Makes you give in and cry
Say give and get pie.

The pies are almost done, so I have to go. Merry Christmas!

This Week in Bank Failures

2011-12-23T21:42:00.000-05:00

The United Kingdom is taking steps to eliminate surprise card payment surcharges tacked on by sellers. These can sometimes amount to more than $100 for a credit card payment.

Bank of America fell below $5 for half of a trading session this week. The low price put it in the “danger zone” in which many traders are prohibited from buying the stock on margin. That makes a stock harder to buy and can lead to further erosion in its price. The stock recovered the next day, in part because of reports of a legal settlement, which saw the bank’s mortgage lending unit pay less than $1 billion to settle charges of systemic discriminatory lending practices.

Kidnappers With a Conscience

2011-12-23T07:48:00.003-05:00

It is so much harder to be a kidnapper after you let slip that you have a conscience and don’t really want to hurt your victims. All of a sudden, you have to start negotiating everything. That is the predicament the House Republican caucus will find itself in when the next session of Congress begins in a few weeks.

All year long the House Republicans have been holding the national economy hostage, threatening to blow up the train if they didn’t get their way. In July, having put the U.S. government into bankruptcy, they issued a series of demands, and when those were met, responded by issuing more demands. It was more of a tantrum than a negotiating tactic.

It was the same thing this week, but the outcome was different this time. There was something obviously off about the performance when the House Republicans stabbed their Senate colleagues in the back, then held a gun to Santa’s head and exclaimed, “What’s in it for us?” The tantrum was real, but the threats were hollow. In the end, left alone in the house with the biggest bomb they could have had on their Christmas wish list, the House Republicans failed to light the fuse.

It is the same Congress that comes back in a couple of weeks, and it will be inevitably be the same pattern of brinksmanship, but it won’t be quite the same after this. It can’t be, now that the whole world knows that the House won’t really blow up the U.S. economy.

Crystal Effects at Absolute Zero

2011-12-22T09:12:00.000-05:00

Crystals have loomed large in extreme physics this year.

Crystals have been implicated in the “faster than light” performance of CERN neutrinos. As the tiny particles passed through mountains on their way from Switzerland to Italy, they went “faster” than they would have in empty space, possibly the result of the crystals they passed through.

Separately, crystal effects are being used to cool atoms to absolute zero. A crystalline lattice created by lasers is used to bump out the warmest atoms, leaving just the coolest ones behind. This technique cools the atoms to about one billionth of a kelvin, or about as close to absolute zero as has ever been observed.

The resulting arrangement of atoms has not been formally designated as a crystal, but it probably is a crystal, based on the way physicists are describing it. Crystals are important because of the way they distort spacetime, producing coherent arrangements of energy. The coherent light of a laser beam is the best known example of this, but as more specific examples are discovered and studied, physicists may come to a more general understanding of the effect.

Avoiding the Sour Notes

2011-12-21T14:25:00.000-05:00

Imagine if the band got together for the Christmas and just sat around. Afraid of possibly playing the wrong song or the wrong note, the musicians put off their music-making until it was too late to play anything.

That is what this year’s economic policymaking has been like. The United States urgently needs to add renewable energy capacity, end tax subsidies for unproductive activities like residential construction, find out what kind of financial threat is posed by derivatives, reduce the burden of health care costs on workers and employers, and rebuild its transportation infrastructure. These issues have been looming for at least 7 years, and are needed before the economy can be restored to a semblance of health, yet not all of the basic, first-day steps have been taken yet. Instead, Washington is paralyzed in endless arguments over unrelated or even counterproductive measures. Congress, for example, voted yesterday to phase out unemployment compensation, a move that will probably just be undone next month.

And, according to Nouriel Roubini, the situation is no better in Europe and China. Leaders there too are politically paralyzed and are responding to economic imbalances by kicking the can down the road. This may not work in 2012, he warns: “If the world’s biggest economies continue to play the same game and try to kick the cans further down the road for another year, the cans will become bigger and heavier and eventually hit a brick wall.”

It was the same situation in the lead-in to the Great Depression. The stresses and imbalances were obvious. Political leaders, afraid of hitting a sour note, stood by and did nothing. And citizens and pundits essentially sat back and waited for the king to fix everything — an attitude that you might have thought had gone out of style in the 1700s.

Given the current political pressures, governments cannot be expected to solve the problems the world economy faces. It will require individual action. The countries that wait for their political leaders to fix things will be the ones that have a hard landing in 2012, then fall behind as the new global economy begins to take shape.

Time for Something New at T-Mobile

2011-12-20T10:14:00.000-05:00

AT&T’s bid to buy and shut down competitor T-Mobile didn’t get far, and AT&T has officially killed the deal. Now T-Mobile is forced to reinvent itself. It lost nearly a million subscribers while the AT&T buyout was pending, because people don’t like making a two-year commitment to an operation that is preparing to close. This is a financial blow, but by cutting some of the ties to the past, it puts the company in the best position of any wireless carrier to transform itself into the wireless company of the future, based on the assets it has.

As the most obvious example, since T-Mobile doesn’t own lots of spectrum rights, it could be the first phone company to finally make good use of wifi. Whatever T-Mobile’s answer is, though, now is the time.

Payroll Taxes and the After-Christmas Sales

2011-12-19T10:17:00.000-05:00

A temporary payroll tax cut looks likely to die in the House of Representatives today, with the House Republican caucus drawing a line in the sand. With it, extended unemployment benefits will also expire. As these measures expire December 31, both the temporary payroll tax cut and unemployment compensation eligibility end. The unemployment compensation will surely be taken up again when the next session of Congress convenes in January, though probably in a reduced form.

For the payroll tax cut, though, there probably isn’t any politically feasible way forward. The Senate, which passed the extension by a vote of 89–10 only to be blindsided by the House, is unlikely to try the same thing again. The expiration of the tax cut will have the economic effect of a 2 percent pay cut for workers, which may translate into about a 5 percent decline at retail, along with a drastic decline in saving. The expiration of unemployment benefits, even if they are revived after a few weeks, will also have a chilling effect on household spending.

This is an immediate worry for retailers, which found themselves overextended for the holiday season even before a dismal last weekend before Christmas. With consumers facing a take-home pay cut and the loss of unemployment benefits, after-Christmas sales may be sparsely attended, leaving retailers with merchandise they can’t sell.

The Physics of Polar Warming and Extreme Weather

2011-12-18T08:25:00.016-05:00

For those who won’t believe the link between polar warming and mid-latitude weather until they see the physics, Jeff Masters has a quick summary of it in the post “Our extreme weather: Arctic changes to blame?”

To see the connection, you have to look at the way temperature and pressure give rise to wind speed and direction. The less consistently cold Arctic decreases the speed of the jet stream, and this is making a jumble out of the upper-level winds. The jet stream is the high-speed, high-energy upper-level wind pattern that keeps the other upper-level winds in line. When it has less energy, upper-level winds can blow in all directions.

In particular, more upper-level loops are forming. An upper-level loop keeps the same air mass over the same area for a period of time. This can create persistent weather patterns that give rise to extreme storms, floods, droughts, and high winds.

Robocall Bill Dies in the House

2011-12-17T13:31:00.109-05:00

A controversial bill that would have largely lifted the restrictions on robocalls to cellular phones has failed.

When first introduced, the bill was billed as a noncontroversial “technical correction” that should pass quickly and without much discussion. Its author, Lee Terry, said it wasn’t fair to businesses that they couldn’t robocall their customers who didn’t have, or refused to disclose, land-line phone numbers. The bill would have lifted those restrictions, allowing utility companies, banks, bill collectors, retailers, and others to place robocalls with virtually no restrictions. It was supported by large banks, utility companies, and phone companies.

But it was hard to find anyone else to support it. Internet commenters didn’t have any sympathy for the bill or its author. Consumer groups worried about the billions of unwanted calls that would have resulted. A letter from 48 state attorney generals warned Congress of the possible consequences. After 10,000 constituents called to oppose the bill, and 200,000 people signed petitions against it, Terry was finally forced to withdraw it.

That the bill advanced as far as it did, though, is a sign of what is wrong with the economy. Powerful commercial interests advance imagined solutions for their own problems without giving any thought to the consequences, including the hassles they are creating for others. Those hassles, then, are what ruin the economy.

Robocalls have already ruined the wireline telephone business. Unchecked, they could bring down the entire telephone network, as people stopped answering their phones. It is only people who aren’t imagining the whole picture who could imagine that this would be a form of progress.

This Week in Bank Failures

2011-12-16T23:39:00.000-05:00

A minor run on the largest bank in Latvia last weekend led to Monday worries about a possible worldwide run on the banking system. This set up a stock market rout on Monday, which hit European and Wall Street banks especially hard. The worldwide bank run never materialized, and in retrospect, the withdrawals in Latvia were nothing to worry about. People were not taking out all their money, just an average of $200 each, enough to get by for a few weeks in the event that the bank were to close its doors. That is something everyone who can should do anyway in these troubled times.

A U.S. government shutdown is still a possibility, as Congressional leaders were still looking for a path to a budget agreement as of this writing. Whenever there is a shutdown, bank regulators and deposit insurance continue to function.

There were two small bank closings tonight, each with less than $150 million in deposits.

Western National Bank, 3 branches, Phoenix, Arizona. An out-of-state bank is taking over the deposits and assets.
Premier Community Bank of the Emerald Coast, 2 branches, Crestview and Fort Walton Beach, Florida, in the Florida panhandle. A local bank is taking over the deposits and assets.

This is likely the end of bank failures for 2011. There were 92 bank failures for the year, half the pace of the previous two years. The lists of problem banks are not shrinking by much, however, nor is the economy improving enough to predict that the number of bank failures will decrease again next year.

Hard Disk Drive Shortage at Retail

2011-12-15T08:13:00.000-05:00

The weather-related hard disk drive shortage is real, if not particularly severe so far. It is still no problem to purchase a new hard disk drive for a desktop computer, but there is enough of a shortage that retailers have had to restrict quantities to protect their inventory from hoarders.

Some computer hardware makers have blamed poor recent sales on the hard drive shortage, but that is likely just a convenient excuse. Businesses have slowed desktop computer purchases as they anticipate a shift to notebooks and tablets. Unless something happens to change their minds, this trend will turn into a permanent decline in the use of desktop computers.

Retail Statistics Confirm Sluggish Season

2011-12-13T09:58:00.000-05:00

U.S. November retail statistics released this morning confirm what retailers had already been saying: it was a big Black Friday, but not big enough to make up for the late start in Christmas shopping. With few early sales, shopping did not really get underway until a week before Thanksgiving.

With public opinion surveys showing shoppers tapped out after spending more than they planned on Black Friday, selling may not pick up again until the after-Christmas sales. Christmas and New Year’s Day fall on weekends this year, and many people will be on vacation for the whole week in between, finally allowing them some time for shopping.

The strong Black Friday was perhaps not such a bonanza for retailers. Best Buy, widely cited as one of the Black Friday success stories, reported a decline in profits this morning. Its profit margin is smaller than last year as it cuts prices to meet competitors. With its Black Friday price cuts, it may have just broken even on that day. Other retailers are worrying about margins, especially in clothing and electronics, and especially if it turns out that much of their merchandise is still on the shelves for the after-Christmas sales.

More Seasonal Shopping Returns

2011-12-12T07:00:00.001-05:00

Over the weekend I saw plenty of activity at local retail early, but it tailed off drastically as late Saturday afternoon arrived, with not much to talk about on Sunday. Some of this may be the payday effect, with people returning to stores with their Friday paychecks to make late Christmas purchases.

Surveys have indicated that consumers spent more than they planned on Black Friday and may be tapped out. Retailers who are thinking of deep after-Christmas discounts may instead want to extend their after-Christmas sales well into January to let shoppers collect another paycheck. When shoppers are tapped out, they can’t buy no matter how deep the discounts go. Some of the stock, too, might be better saved for next November, as so much of this year’s seasonal stock was held over from last year.

Two weeks later, there is some caution about the Black Friday results. Apple and Amazon did extraordinarily well, from what we can tell, but with them excluded, Black Friday was not really that good.

Locally, clothing discounter Syms is going out of business. It has done surprisingly well in its liquidation, mostly clearing out the store at discounts of 30 to 50 percent. Those are not deep discounts at a store where older merchandise is automatically discounted. This liquidation success reminds me of the success of the Borders liquidation. It suggests that consumers are willing to buy at lower prices. Prices do not have to be shockingly low to get consumers to buy. This is a deflationary signal, though I do not give it much credence; there are still plenty of indications of resistance to price changes.

Euro Loser

2011-12-11T11:05:00.001-05:00

News reports are depicting the United Kingdom as the “loser” in recent negotiations in Europe, and now “isolated” as it alone opts out of the proposed European fiscal union, in which the other European Community nations agreed to cede a portion of their fiscal sovereignty to the European Union.

In reality, it is the countries that opted in that are the losers, while the United Kingdom’s increased flexibility puts it in a new leadership role in Europe. Some economists believe the new European fiscal union, assuming it succeeds in passing, will usher in a lost decade in Europe, an extended period with little or no growth in per capita GDP. The United Kingdom, though, will easily avoid this, and could plausibly form the largest national economy in Europe by the time we get to 2022.

Some good could come from the coordinated fiscal actions in Europe. Bizarre business taxes like Denmark’s coconut oil tax could be repealed, along with narrow tax exemptions that allow businesses to enjoy a tax haven in a particular country. Businesses that move operations between countries to avoid taxes are not the cause of the EU’s financial problems, though, and at this point, the fiscal union is a dangerous and problematic distraction that can only prevent Europe from addressing its real issues.

There is some indication that the fiscal union will not entirely succeed. Poland’s participation in the bailout fund, for example, appears to be larger than that country’s constitution will permit. Meanwhile, today, polls indicate that a plurality of Britons not only agree with their country’s rejection of the fiscal union, but want to take the opportunity to pull out of the European Union entirely.

Scenes of Political Convergence

2011-12-10T09:32:00.052-05:00

As I write this, Russia’s western cities are seeing the biggest political rallies since the fall of the Soviet Union. The rallies, in the aftermath of a stolen election, have drawn 100 times as many participants as political observers had predicted.

The election in question is a parliamentary election, but the political discussion has echoes of past presidential votes voided by political elites in Iran and the United States. Signs and chants speak of corrupt old men, decaying institutions, and stolen votes.

It is a measure of the success of globalization that the same political problems and actions can pop up in all corners of the world simultaneously. Recent scenes in St. Petersburg are indistinguishable from those in Oakland. This makes Russian government claims that the United States is behind the unrest on the streets of Russia ring especially hollow. If that were the case, then who is behind the identical protests on the streets of the United States and thirty other countries? The fact that Russian leaders are parroting the complaints of the regime in Iran make their comments all the more comical.

The common suggestion that political corruption is the cause of the popular protests is equally implausible. The United States government has sought to draw some distance between itself and corrupt business interests in the last six years, while the government in Russia has drawn ever closer to its corrupt and criminal commercial supporters, yet in both places, along with many others, the protests are happening now.

This Week in Bank Failures

2011-12-09T21:21:00.000-05:00

The same European countries that were instrumental in turning Greece’s accounting problems into an international financial crisis are now promising coordinated fiscal action, with the details of a treaty to be worked out in the coming weeks. The European Central Bank lowered interest rates this week in an effort to reduce banks’ and governments’ borrowing costs.

A live letter-bomb was sent to a Deutsche Bank executive, but was intercepted by mail workers and disarmed by police. The return address indicated the package was sent from the European Central Bank. Police say a political group, in a letter written in Italian, claimed responsibility for the device and possibly two others.

What Is Etsy Doing Palling Around With PayPal, Anyway?

2011-12-08T07:00:00.004-05:00

Much of the recent online discussion surrounding PayPal has focused not on Regretsy, PayPal’s latest in a long string of innocent victims, but on Etsy. Etsy may have helped inspire the name of Regretsy, but the main reason people made this connection is that Etsy shares the same business flaw of being effectively dependent on PayPal to clear financial transactions.

In business terms, this is an inexcusable lapse on Etsy’s part. From what I have read in the latest discussions, Etsy’s rules virtually require its buyers and sellers to make payments via PayPal, a payment processor owned by Etsy’s largest competitor, eBay. This puts eBay in a position of conflict of interest: it can, through its security decisions, effective bar buyers and sellers from Etsy, its competitor. It is an arrangement that puts Etsy and its customers in a particularly vulnerable position.

But it is not just a matter of a flawed and fragile business model. It is also an incongruity, a lapse of community integrity for Etsy. Etsy is a site where sellers can sell only items they have made themselves. This is part of the reason for Etsy’s success in a marketplace dominated until recently by eBay. Although eBay’s marketplace policies officially permit sellers to sell articles they have made themselves, eBay’s security policies make it clear that it frowns upon such activity. A person who sells handmade items on eBay does so at risk of being banned from the site. Hence, it makes much more sense to sell these items on Etsy.

Etsy, in this role, offers a way for shoppers to bypass the whole distribution network. They can buy articles directly from the people who make them. Cool. But then, the payments for these articles have to go through a huge corporation that is in bed with Wall Street, and this huge corporation takes a substantial cut, generally more than 2 percent, of every transaction. Not cool. Etsy is largely negating its cool factor by palling around with PayPal.

This is particularly awkward at the time of the Occupy movement, the Move Your Money campaign, and the buy-local meme. Millions of people are actively looking for ways to bypass the corporate control of commerce. They want to buy and sell things more directly, without the involvement of huge corporations acting as gatekeepers along the way. Etsy could be providing this. But it isn’t. Weird.

Etsy has not publicly commented, but with so many of its sellers worrying openly about PayPal, Etsy must realize that it has to do something.

Management Inattention and Two Security Fiascos

2011-12-07T10:39:00.000-05:00

Wow! How can big companies with reputations to protect fumble so badly?

That’s the reaction to two unbelievable stories of the past two days.

PayPal froze the account of a well-known business, Regretsy, just because it was collecting donations for a Christmas-season toy drive. There was not the slightest indication that the business was doing anything wrong or anything different from what PayPal publicly recommends. News outlets accused PayPal of ruining Christmas for hundreds of children.
CBS-owned CNet Download.com, one of the best-known software download sites, has been bundling malware with its downloads for at least two days. The new CNet installers trigger alarms in security software, and computer security experts say the extra software they install could damage users’ computers. Dozens of news headlines combine “CNet” and “malware,” words that previously no one would think of putting together.

In both cases, the big question is, where are the managers? CBS cannot afford the malware association any more than Sony could with its music CD spyware (the Sony spyware saga, recall, led to the closing of most U.S. record stores), and PayPal could lose billions in revenue because of the chilling effect of so publicly freezing innocent customers’ money. So why are low-level workers being permitted to put the company’s future at risk, while the real business people at the company learn of the problem only through the news media?

It is the same thing that happened to AIG. That insurance company’s executives did not even know that technicians routinely traded the company’s net worth thousands of times over in securities of the most dubious kind. By the time senior managers understood what this actually implied, it was too late to save the company.

With these two stories, PayPal and CNet, popping up simultaneously, it makes me wonder if this is a trend. Have big businesses in general given up on oversight of their own operations and employees? If they have, of course, then there is more trouble on the way.

Poll Confirms Holiday Shopping Over the Hump

2011-12-06T07:30:00.001-05:00

A Reuters poll conducted by America’s Research Group confirms that Thanksgiving weekend was the midpoint of Americans’ holiday shopping plans. In the survey, 32 finished most of their holiday shopping by the end of November, and another 6 percent during the first weekend in December.

Shoppers spent more than they planned to on Black Friday, and have little money left to spend in the stores in December.

The survey suggests that in spite of the late start of holiday shopping this year, with not much happening until one week before Thanksgiving, shoppers still see the beginning of December as the time to start wrapping up their holiday shopping. It is an earlier schedule than we saw just a decade ago, and in my opinion, this shift is driven by the time pressure that many people experience during the holiday season.

New TV Show: The Young Turks

2011-12-05T15:26:00.000-05:00

For those who watch television, The Young Turks is debuting tonight. Based on the Internet history of the people involved, it will be the rare TV news show that has some relevance in the discussion of the state and flow of the U.S. economy.

Mail Slowdown Forces USPS Slowdown

2011-12-05T07:00:00.053-05:00

The U.S. Postal Service (USPS) is about to propose a slowdown in mail processing. This would mainly affect first class mail. Instead of being delivered within 3 days, usually in 1, first class mail will be delivered within 5 days under the new plan, and usually in 2 or 3.

The way I see it, this is a prudent step toward reducing the frequency of mail delivery. With the USPS months away from running out of money, and its biggest customer, the United States government, also having to cut back, mail delivery will surely soon be cut back to 3 days a week instead of the current 5 or 6. In the long run, 20 or 30 years out, I believe it will have to be 1 day a week.

The volume of mail has dropped 20 percent from its peak and will inexorably drop to less than one fourth of current levels. Raising postage rates across the board would accelerate the decline in mail volume, as it has done already. The USPS will have to cut costs, and quickly, and that mainly means cutting back on the level of service.

Hard Disk Drives Returning

2011-12-04T10:18:00.013-05:00

The flooding in Thailand might have been worse than forecast, but the hard disk drive factories are bouncing back faster than anyone expected. Some factories have already resumed production, and near-normal production levels are expected around April.

Demand for desktop computers continue to be soft, so widespread shortages of hard disk drives are not so likely. However, the potential for shortages did put something of a damper on price promotions for desktop computers during the Christmas season.

The S.T.E.M. Scam

2011-12-03T07:00:00.072-05:00

In the past two weeks there has been a big push for “S.T.E.M.” — training in science, technology, engineering, and mathematics. The United States, it is said, is falling behind the rest of the world in these technical areas. Supposedly, large number of jobs in these fields are going unfilled. Handpicked commissions are calling the situation a crisis.

Don’t fall for it. If it is true that the United States is falling behind, it is not because of lack of training, but because of lack of interest from business. Plenty of people, millions actually, have all the training you can get in an area of science, technology, engineering, or mathematics, but aren’t working in their field because the jobs aren’t there. How many jobs are there really? Go to any major job site and search for “mathematician” as a job title. Good luck finding anything at all, anywhere in the United States. Nor do botanists have it much better. I found 1 job for a mathematician and 2 for botanists when I searched at Monster.com. Were you thinking of becoming an astrophysicist, seismologist, or oceanographer? Where would you work? When I searched, I could not find a single job opening with those words in the job title. A search for “Geologist” turned up 70 openings, but still, that is 70 jobs for the thousands of unemployed and underemployed geologists in the country to fight over.

A search for “scientist,” “technology,” or “engineer” is more fruitful, but these words are mostly found in combination with other words and long lists of required skills and experience. It is not enough to be an “engineer” or even an “electrical engineer” if you want a job. If you are an electrical engineer with experience in automotive safety, there may be a job for you, but that is not a skill combination you can qualify for based on education alone. It is the same story with most S.T.E.M. jobs. They require rare combinations of very specialized skills. When you look at the jobs available within any specialty, the numbers are small. And when technical workers apply for jobs outside of their area of specialty, they have the same chance that a dishwasher or taxi driver would have applying for those openings.

As a society, we shouldn’t be trying to push people who have an apprehensive feeling about technical work into technical fields. As an individual, you will do better, financially and otherwise, working in a field that appeals to you. If you really, really want to be a scientist, you will find a way to make it work. But if you go into a technical field just because of the promise of large numbers of jobs, you are likely to be disappointed. And for businesses, the skilled workers with advanced degrees are there for the taking, whenever they decide they are really interested in hiring.

This Week in Bank Failures

2011-12-02T22:07:00.000-05:00

The discussion surrounding the financial condition of the failed hedge fund/brokerage MF Global shows that many people don’t recognize the prominent role that off-balance sheet accounting plays in banking. These creative accounting techniques hide bad assets and worryingly large liabilities outside the company, often in shell companies nominally owned by independent investors. Recent commentary suggests that some observers and journalists had imagined that this was merely an accounting fraud employed by the likes of Enron and Worldcom. In fact, though, off-balance sheet accounting is a recognized and pervasive part of the banking industry. Among other things, the U.S. credit card business would not exist without off-balance sheet accounting.

MF Global’s accounting maneuvers appear to be legal, at least in their details released so far, and not so different from accounting practices at its competitors. MF Global hid, or at least deemphasized, the extent of its exposure to sovereign debt. Other banks, brokerages, and funds, you may safely assume, use the same approach to hide other categories of weak assets, and the public may never notice until the company goes under.

Too big to jail: The term “bankster” used by political activists to describe shady and self-serving bank executives is often an exaggeration, but not in Spain. The government there has decided to pardon a convicted criminal, Alfredo Saenz, so that he can continue to serve as CEO of Banco Santander, that country’s largest bank. Santander’s holding company is also the parent company of Boston-based Sovereign Bank, one of the United States’ banking giants. The presence of a felon in the executive suites of a bank is not as significant as the specific crime Saenz was convicted of. In the 1990s, Saenz and two other bank executives fabricated accusations to send four customers to jail (though all were released when the truth was discovered) in an attempt to squeeze an extra €4 million out of them. Banking regulators in Spain could still take action to bar Saenz from the banking industry based on his criminal record, but that would have been automatic if Saenz had been sent to jail.

On Wednesday, the NCUA liquidated BCT Federal Credit Union, of Binghamton, New York. It had 3,900 members. Member accounts were transferred to Visions Federal Credit Union.

Another credit union was liquidated tonight. It was O.U.R. Federal Credit Union of Eugene, Oregon, with 1,379 members. Member accounts were transferred to Northwest Community Credit Union.

Deja Vu: General Motors Kills the “Electric” Car

2011-12-02T07:00:00.001-05:00

The advertising line for the Chevrolet Volt, “Somebody has to be first,” takes on a whole new meaning with the recent revelation that the car’s battery pack has a strong tendency to smoke or catch fire. No one has been hurt, but it is just a matter of time. General Motors is worried enough to recall the car before it has had time to think about a fix. Supposedly it is removing the Volt from the road temporarily, but it also has not made any promises about how soon the car could be redesigned and rebuilt.

At the time that General Motors released the Volt, it appeared as if it was rushing to release a second-round prototype design that hadn’t been meant for production. Two recent revelations about the battery pack reinforce that perception. First, as mentioned, the finding that the battery pack is fairly consistent about generating excess heat, smoke, and fire when damaged. This suggests that General Motors had not had time to test for this before or at any point in the first year of the car’s release. Competitors have been testing their cars in this manner for more than a decade, so it’s hard to escape the conclusion that the Volt was released very early in the product development cycle. Second, that there was no published procedure for discharging the battery pack after it is damaged. That is the kind of maintenance procedure that would be normally be written and tested for a year or two before a car’s release. For it not to still not exist a year after release is hard for automobile industry observers to understand. It creates the impression that the product design work is not very far along at this point.

General Motors had little choice but to trot out the Volt a year ago to support its stock offering. But it did not have to ship it by the thousands while the design engineers were still working. Now, a noticeable fraction of the funds from the stock option must be used to repair the cars that were shipped prematurely, along with the damage done to the Chevrolet brand and General Motors’ reputation. With a flurry of actual electric cars coming to market in the coming year, boasting the kind of thorough product testing that the Volt obviously did not have, General Motors looks a lot like the new kid on the block, trying to catch up with an industry that has a several-year head start on it. Which, of course, it is.

It does not help that General Motors insists on calling its hybrid vehicle an “electric.” General Motors famously killed its actual electric car in the 1990s. Now it has killed its ersatz “electric” car. It’s like it just can’t help itself.

Upsell Kills Bally Total Fitness

2011-12-01T09:42:00.000-05:00

In the end, Bally Total Fitness did not survive the upsell strategy it put in place five years ago.

Bally planned to boost revenue by getting more members to hire personal trainers. To this end, it reminded its members of the availability of personal trainers about 20 times on each visit to the facility. Members who did not have personal trainers were put off by this approach, and membership numbers and attendance both plummeted. Bally went bankrupt twice. It closed and sold many of its locations, especially in the center of the country.

Now Bally is selling most of its remaining locations, covering its best facilities, most of its geographical areas, and more than half of its members, to LA Fitness, in a deal that closed late yesterday and takes effect at the start of business today. Bally will retain just 100 locations, along with its exercise equipment products and other product lines. The deal appears to be structured so that LA Fitness is buying just under half of Bally’s assets.

LA Fitness is purchasing the assets of 147 Bally locations but will be selling or closing some of them this month.

The majority of the acquired clubs will remain open, but some will be closing before the end of the year.

LA Fitness plans to hire the employees from the locations it is acquiring, including the locations it will be closing. It will be moving equipment from the clubs that close to its other locations.

Bally will continue in a sense, but faces an uncertain future after its transition from a national brand to a local one. More important in a business sense, its serial bankruptcies ensure that its previous owners and creditors will not profit from its continued operation.

It is a cautionary tale for executives who would imagine that upsell is a risk-free way to grow a business. Sometimes upsell is an appropriate strategy, but the risks are greater than with most marketing strategies. If your marketing approach alienates prospective customers, that is a problem, but if it alienates your existing customers, you could lose your whole business.

The New Novelist

2011-11-30T20:55:00.000-05:00

It is the end of November, and I have just written the end of my first full-length novel. I wrote it this month as part of National Novel Writing Month (NaNoWriMo). I like this kind of gimmick that gets people to focus on a particular area of action, and I took on the NaNoWriMo goal of writing 50,000 words of new fiction during the 30 days of November. Having completed that goal, in the form of a novel, I feel like I am now an official novelist.

Writing a novel has prompted me to see people in a new light. Characters are key in a novel, more so than in any other form of fiction. In a novel it is important to have characters who are colorful and conspicuously different from each other. That is important in real life in a similar way. After guiding my characters through a long, involved story, I have a heightened appreciation for everything that makes people different from each other. Even people’s bad qualities are good in this sense. In economic terms we know that we will get more done if we all take on different points of view. Real life and the story lines of novels are very similar in this sense.

A Business Phasing Out Email

2011-11-30T15:50:00.000-05:00

It’s no secret that email is messy. You can never say with certainty that a message, once sent, will be delivered, and when you receive a message, you cannot really tell where or when it originated or who wrote it. The vast majority of email messages, more than 99 percent, are junk messages, mechanically generated by organized crime groups. Most are filtered out at servers along the way, and legitimate messages are filtered out along with them. Both junk and legitimate email can carry destructive computer programs such as viruses, and can hide links to malicious web programs. It is no surprise that people are looking for ways to move away from email.

And in France, Atos has decided that time has come. Susanna Kim writes about this company’s efforts at ABC News: “Tech Firm Implements Employee ‘Zero Email’ Policy.” In a study, Atos found that its 74,000 employees receive an average of 200 email messages per day. It is a pattern that is too unproductive to carry on, they say, so they are cutting back on email with an eye toward phasing it out.

With 200 email messages per day, the workplace becomes the written equivalent of a shouting match. It is hard for the important information to rise above the noise. There are no easy answers for a worker who receives this many messages. If they were to spend one minute reading each message and five minutes responding to one message out of ten, there would be no time in the workday for anything else. Yet not every message can be read in one minute. Aside from the time spent on receiving messages, email is also an awkward format for searching and archiving, both of which are essential for business messages.

I personally receive an average of 1,000 email messages per day. For the most part, I keep up with this flow, but how do I do it? Let’s just say it is a skill I couldn’t teach and it does not feel like the right answer.

Executives at Atos have already stopped sending email, and employees in total have cut back by 20 percent. The company says it can cut back email back to “zero” within two years. It may not happen that quickly, but the flow of messages can easily be reduced by 95 percent in that time. That much can be accomplished by finding more appropriate forums for broadcast messages, notifications, reminders, collaborative discussions, and similar forms of messages that fit only awkwardly in the email format.

Downward Spiral in Iran?

2011-11-30T10:41:00.000-05:00

It is never a good sign when a country starts attacking embassies, and political observers in Iran say the attack by “student demonstrators” who looted the British embassy in Tehran has all the signs of a state-sponsored attack.

That embassy is now, of course, closed, and the organized crime groups currently running Iran are further isolating themselves from the world.

There are some echoes of events in Syria, so is Iran starting to follow that regime’s downward spiral? There are a few reasons to think that is possible. Notably, first, Iran and Syria previously had a long history of collaboration in support of crime groups in Lebanon and Gaza. To the extent that regimes in Iran and Syria have supported each other, a decline in one place would imply a decline in the other. Second, it seems possible that the corruption in all four countries is driven by oil money, and that is a formula that has proved less potent in other places around the world over the last five years.

Iran’s government has been very publicly feuding with itself since before the last bungled election, and the process of overturning that election cemented the country’s status as a failed state. Now the establishment figures who had agreed to pose as opposition candidates in that election have been locked up. That is a potent symbol of a regime that is giving in to paranoia and running out of friends. That was the dysfunctional psychological state that brought down the regime in Libya and if it progresses in Iran, could ultimately bring down that regime too.

Decline of Content in Pharmaceuticals

2011-11-28T11:08:00.000-05:00

Fortune has a story pointing to the same problem in big pharma that has already stung the major record labels and the newspaper business: the decline of content. Dan Primack writes “No new drugs? Blame Wall Street.” The big companies are cutting research and abandoning more products before release because the bean counters believe they can make a quicker profit by investing in things like marketing and lawsuits. The inevitable result is that big pharma will fade away the same way as the record and newspaper businesses. With few real musicians and writers, the giants of these industries are shadows of what they used to be. With fewer new drugs invented and tested, big pharma will become, in essence, a giant sales force selling empty pills — and that, obviously, won’t fly.

The decline of a few large companies would not be such a big deal if new companies were coming along to pick up the trajectory of the pharmaceutical industry, developing the next generation of drugs, but that is a problem too, with the big money pulling back. Primack writes:

Early-stage startups are having a much tougher go of it, with 17% fewer raising venture capital during the first three quarters of 2011 than during the same period in 2010. Moreover, a number of veteran VC firms are formally ending their pursuit of pharma startups.

The decline of big pharma will be blamed on other things five years from now, such as consumers’ growing skepticism of commercial medicine, but you are seeing the real cause here. It is the reluctance of executives and investors to pay the expenses that are required to keep the industry going. Big pharma will continue to put out new drugs, just as the major record labels continue to put out new records, but most of them will be products of limited consequence, ones that you may never hear about.

Successes and Failures on Black Friday

2011-11-27T21:21:00.000-05:00

The three big success stories at retail this weekend are Best Buy, Walmart, and Apple. The busiest parking lots I saw were at Walmart, which had the appeal of low prices and a wide range of products. Apple’s advantage is not just having products people want, but also a relatively frictionless buying experience. If you wanted to, you could go into the Apple Store and drop $5,000 in less than ten minutes, while being absolutely confident that you had gotten the right things. Products people want and a relatively frictionless buying experience could also be said this year of Best Buy, which did not have the problem of maddeningly thin inventories that had plagued it the last two Christmas seasons. The thin inventories may return at Best Buy before Christmas rolls around, I am told, but for Black Friday, it was properly stocked, and at prices that competed with the likes of Walmart and Sears. The midnight opening on Black Friday also seems to have been a big success at Best Buy, more so than at other retail chains.

These three success stories should not overshadow the many stores that found only modest success on Black Friday weekend. This was not just individual stores, but whole shopping centers where the throngs of shoppers never arrived and the parking lot was never more than one third full. Suburban retail parking lots in the United States are built for Black Friday, so if they are not at least half full at some point during that day, something has gone wrong.

Black Friday and “Momentum”

2011-11-26T15:57:00.000-05:00

By most accounts it was a strong Black Friday at U.S. retail. After a late start in holiday shopping, consumers had more things to buy when they went out on Black Friday. But retailers looking for “momentum” in the Christmas season are up against consumers who increasingly see Christmas shopping as a one-and-done occasion.

It was hard to imagine retail momentum when I saw local commercial areas this morning. After yesterday’s rush, today started off slower than a normal fall Saturday. Traffic picked up in the early afternoon but appeared to have peaked before 2 p.m.

Black Friday Overnight Adventure

2011-11-25T09:44:00.000-05:00

The most interesting note in the early Black Friday retail reports is the suggestion that the overnight store openings seem to have had some appeal to under-30 shoppers. The after-midnight shopping expedition provided a sense of adventure, an excuse to escape the holiday evening at a reasonable hour, and a chance to buy an television or small appliance that was actually needed. Most younger shoppers avoid Black Friday entirely because of the crowds and inconvenience, but the overnight store openings allowed them to get in on the action and still avoid the crowds.

A Mindfulness Attention Exercise for a Holiday Weekend

2011-11-24T11:41:00.000-05:00

Part of the Thanksgiving tradition in the United States is the idea of spending a few moments consciously controlling what you pay attention. Instead of automatically griping about the details of life and the state of the world, you are asked by newspaper columnists and others to “count your blessings” — to focus one by one on things that are favorable or are going well. It is possible to turn that momentary exercise into a practice of mindful attention.

What occupies your attention all day long? It has barely occurred to most people to notice what they pay attention to, a necessary first step before you can start to consciously decide what to pay attention to.

I won’t repeat all the research that has been done on this question, which can easily be found elsewhere. It is enough to say that most people’s patterns of attention are highly repetitive. Repetitive thoughts are a sign of emotional insecurity, and so you may conclude that almost everyone is highly insecure about something in their lives, and whatever that topic is in your life, it is likely to occupy a disproportionate share of your attention.

It is hard to overstate the potential benefits of taking more control over what you give your attention to.

You can substantially change your personality just by changing what you pay attention to.
Rendering a strategy successfully depends mostly on paying attention to the right details. And yes, this includes that strategy for making a million dollars. If you don’t pay attention to the right things, you won’t get the million dollars.
You will automatically become more popular if you are more consistent in paying attention to the people immediately around you.

And that is just the tip of the iceberg.

How do you get started? Here is one approach especially suited to a family holiday. Start by quietly making a list of things you have thought about more than once in the past hour. Try to include the things that are so obvious that you hesitate to write them down. The things that are so plainly evident to you may go unnoticed by others.

Then, separately, ask the people around to point out things they think you might have overlooked. You might just ask, “What’s interesting here that you think I might not have noticed?” Some of the things people point out will be things that you hadn’t noticed until they were pointed out to you. This works especially well with people who know your tendencies and blind spots, but it can work to an extent with random strangers also.

By comparing the two results, you can see that you notice some things and overlook others. The things you focus on obsessively are not necessarily more important than the things you fail to notice at all. This observation is a starting point for intentionally changing the things you focus in.

Germany’s Knife-Edge Euro Strategy

2011-11-23T09:14:00.000-05:00

The failure of a German bond auction today highlights the risks of Germany’s euro strategy. Germany’s efforts to separate itself from the weakness found in the “peripheral” euro countries runs directly into the challenges posed by a common currency. A country cannot entirely separate itself from the economies of other countries that use the same currency. For example, if Italy falls into an inflationary spiral because of its problems, the inflation will occur in Germany too.

German, along with France and a couple of other countries, would do well to remember that the main reason the euro exists is to save them the costs of currency conversion in trading and travel among the countries of Europe. These benefits occur roughly in proportion to the wealth of individuals and states. Of all countries, then, Germany gets the greatest benefit from the euro zone and will pay the greatest price if the euro fails.

Germany’s approach of trying to gain advantage by short-changing the euro zone cannot end well. If it works so well that the euro falls into the inflationary spiral I mentioned, the cost to Germany will be far greater than any advantage it may have gained over its neighbors.

Christmas Shoppers Come Out

2011-11-22T15:31:00.001-05:00

It has been a startlingly slow Christmas shopping season so far from what I am seeing locally in southeastern Pennsylvania. With half-hearted retail displays and retailers also holding back on discounts, no one could fault shoppers for holding out. It was not until the lunch hour at Thursday, November 17, one week before Thanksgiving, that I saw the first inkling of holiday shopping traffic. All Sunday afternoon, there was conspicuous retail traffic, though this may have been boosted by the fact that the local NFL team was playing a night game. But the heavy traffic on the streets did not arrive until this afternoon.

I am not sure this means a mob of shoppers will come out on Black Friday, either. I have seen a noticeably lower level of conversation surrounding the leaked and officially released Black Friday offerings. Instead, the main Black Friday headline thus far is about the petition to shorten Black Friday. Workers and shoppers are asking stores not to open until around 5 a.m. to give people a chance to enjoy Thanksgiving. If there is an especially busy day on Black Friday, the traditional peak of the shopping season, it still would not make up for the sales lost over the last three weeks. The slow start does not have retailers scaling back expectations by much yet, though they worry about low prices and thin profit margins.

Shoppers may have bought presents already without creating extra traffic. Many gifts were purchased during the summer, particularly at the Borders liquidation. Many Christmas-season items are picked up during other store visits to save time. Some of this year’s top wish list items, notably the iPad, don’t require a store visit. So it may be that shoppers are shopping, but trying to do it without the extra driving that generates the heavy traffic of Christmas season.

The Political Price of Inaction in Spain and the United States

2011-11-21T09:09:00.000-05:00

Voters in Spain gave the Popular Party a ruling majority in yesterday’s elections. The Popular Party might be a deeply corrupt pro-business conservative party whose policies did much to create the economic problems Spain now faces, but voters are in no mood to accept failure, and the Socialist Party, in seven years, has not been able to do much to revive the country’s tepid economy.

It is just the latest in a series of anti-incumbency votes that have been sweeping across Europe, replacing some governments more than once in the last three years. It is not really much of a victory for the Popular Party in Spain, whose pro-business theories and tendency toward corruption are not likely to do much to reduce unemployment or make voters feel better about the state of the economy. The way things are going in Europe, they could be out again as soon as next year if the problems in Spain get worse. A sharp slide in stock markets today suggests that the ownership class that supposedly would benefit from the Popular Party’s programs does not have high hopes.

All this bodes poorly for Republicans and Democrats in the United States, whose two-party special budget committee, facing a Wednesday deadline, is expected to announce failure today. The committee was designed to deadlock, as any recommendation it made would next face a vote from a House that is adamantly opposed to any cuts in the largest categories of spending. But that doesn’t mean voters, or investors for that matter, will understand the lack of action.

Big Money vs. Infrastructure

2011-11-20T06:37:00.112-05:00

On Thursday I saw CNBC flipping back and forth between reporting on an Occupy Wall Street march and snippets of their new feature series on the decay of infrastructure, focusing especially on bridges. Yet CNBC’s reporters were somehow unable to draw the connection between those two stories. When you consider CNBC’s financial interests, this can probably be considered an intentional omission. But in case the connection between Occupy Wall Street and crumbling bridges is not obvious to all, I will connect the dots here.

Infrastructure is a fancy word for public products that enable workers to get work done. A bridge, for example, allows a road to connect one point to another. On that road, products can be delivered and people can go to work. (There are other uses for bridges and roads, of course, but when we look into it, we find that when people are out on the roads, it is mostly for the purposes of work or commerce.) The political opposition to bridges and other initiatives to support work is summed in the phrase “big government.”

You can see that “big government” really means infrastructure when you look at the views of the political opponents of “big government.” Some of them oppose military interventions in foreign countries; others call for the United States to be more aggressive in intervening in matters halfway around the world. Some want to create a new national police force to interfere in one way or another in people’s sex lives; others believe the government should not take a position on people’s sex lives. Some of the “anti-big government” crowd want to spend billions in public money to fund institutions that are essentially religious in nature, or to add religious indoctrination to public schools; others want to keep government and religion separate. Some of them, holding office, are busy about diverting public funds for personal profit; others are busy investigating the corrupt practices of the officials I just mentioned. The one point they all agree on is about not spending money on anything that would help workers get anything done. That is precisely the “big government” that gets them so mad. If they can eliminate funding for transportation, the Internet, the electric supply, or health-related initiatives (workers who are healthy do more work), they consider that an accomplishment.

Meanwhile, Occupy Wall Street is out on the street calling for a government that works for the people. They use the phrase “the 99%” to make it clear that by the people, they mean the workers, rather than the “1%,” the billionaire-investors and other very wealthy people who make up the ownership class. If the government supports “the 99%” rather than “the 1%,” it will be helping people who want to do things rather than those who merely want to control everything.

You see the same dichotomy in the current tax conversations. Most of the presidential candidates who are talking about taxes at all want to raise taxes on workers while lower taxes on owners. The more extreme proposals would abolish the capital gains and estate taxes. The two taxes that the ownership class cannot entirely avoid under the current system would be abolished. The ownership class would, for all intents and purposes, no longer pay taxes at all. Personal income taxes, payroll taxes, and sometimes consumption taxes — the taxes that particularly hit workers — would be increased to make up the difference. Occupy Wall Street seem to be the only ones out there saying that workers should not have to pay more than their share of taxes.

Bridges are crumbling because the big-money interests don’t want them. These are the same big-money interests, the “1%,” that Occupy Wall Street is warning us about. And it is not just bridges that are crumbling. The whole economy is crumbling because the big-money interests oppose anything that supports workers and work, and as a result, less and less actual productive work is getting done. It is also crumbling because of a tax system that encourages people to get away from working, the one area of the economy that is most heavily taxed, as quickly as possible.

In the fantasy world of Wall Street as shown on CNBC, there is no connection between crumbling bridges and the Occupy protests. But when you look at what is actually going on in the world outside, it is hard to avoid making the connection.

Consistent Neutrinos and More Bad Science Reporting

2011-11-19T08:36:00.000-05:00

A refined version of the neutrino experiment produced the same results and eliminated hypotheses involving mistaken identity of the neutrinos. Neutrinos again traveled faster than would be expected under the conventional scientific view of space, time, particles, rocks, geometry, and geography.

The new neutrino observations are an important development because neutrinos can’t be reliably identified. There are several types of neutrinos, but a group of neutrinos can’t carry an identifying signal because neutrinos change their identity frequently through a mechanism that is not well understood. Experimenters compensated by generating much smaller bursts of neutrinos so that there was less room for statistical doubt about which neutrinos were which.

As before, there were embarrassing headlines about “faster than light” travel. This is the logical error known as “assuming the conclusion,” which involves using an intended conclusion as the starting point for an argument. Light, of course, was not included in the neutrino experiment, and scientifically it cannot be said that light and neutrinos travel at different speeds until there is an experiment that generates and measures light and neutrinos together. No one is even proposing such an experiment. The fallacy of assuming the conclusion could be seen in various other forms in the reporting on the neutrino experiment. It goes to show how mind-bending this particular experimental result is.

If reputable physicists are saying that it is better not to speculate about the results, it is not that they are stonewalling. There have not been many measurements of the speed of neutrinos going long distances through solid materials, and a better picture of what is happening will be possible after such measurements are made in more places and under a greater variety of circumstances.

This Week in Bank Failures

2011-11-18T22:09:00.000-05:00

With the success of Move Your Money and Bank Transfer Day, will the large banks start closing branches? In fact, bank branches close every week, and most of the large banks have quietly closed branches a few at a time over the last three years. It’s a trend that most industry observers expected to pick up in 2012 even before retail customers started to flee.

In my local area, Citizens Bank announced 7 branch closings today. There were earlier reports of 15 branch closings, but the smaller announcement probably just means the other 8 closings will be announced at a later date. Citizens was already 12 branches less than at its pre-crisis peak. It will have 173 after the new round of closings, and that is probably still more than it can afford.

One reason banks hesitate to close branches is that they lose customers every time they do so. Many bank customers almost automatically close their accounts when the branch they use closes. Large banks will become more eager to close branches as the number of active customers declines.

Tonight, state regulators closed Central Progressive Bank, which had 17 locations in lower Louisiana generally along Interstate 12 north of Lake Pontchartrain. It had $350 million in deposits. First NBC Bank, based across the lake in New Orleans, is taking over the deposits and purchasing 90 percent of the failed bank’s assets. First NBC Bank effectively doubles its footprint with the deal.

The failed bank’s holding company had tried everything to sell the bank, even filing for bankruptcy a month ago in the hope that that might help close the deal. The bank suffered from improper activities of its former management, along with the effects of the real estate slump and, given its location, more than its share of hurricane disruptions. Some observers said it was the only New Orleans area bank in serious financial trouble.

State regulators in Iowa closed Polk County Bank. The FDIC has transferred the $82 million in deposits and the assets to Grinnell State Bank. State regulators blamed the failure on real estate loans.

With tonight’s two bank closings, there have been 90 so far this year. That is a pace that would result in about 96 bank failures for the year, or roughly half the pace of the previous two years.

Occupy Wall Street vs. the Roman Empire

2011-11-17T07:00:00.007-05:00

If you look at some of the century-old architecture that surrounds the Occupy Wall Street movement in New York, with the heavy weight of concrete and stone, tall columns, and broad staircases, you can get the impression of a protest against the Roman Empire. There is some truth in this. The greed, corruption, and abuse of power targeted by the protestors are patterns of conduct that are direct descendants of the centers of power in ancient Rome.

It is surprising in a way that this particular protest movement is so needed in the United States. This is a country, after all, that was founded substantially by Protestants, who two centuries before had shrugged off the Roman Empire’s outsized lingering influence on people’s lives. Protestants objected to such details as religious fees that had no rational justification and forcing people to speak in Latin, the archaic language of Rome, when they had no familiarity with the language. The United States was founded with an emphasis on individual freedom that would have been unthinkable under the Roman Empire. But the Protestant Reformation was focused on personal lives and religious institutions, and the Roman influence and corruption carried forward in government, commerce, and education, and most especially when it came to money, law, and anything else that formed the common ground for commerce. The many things the Protestants could not accomplish fall to the protestors of today.

It is no trouble at all to pick out Roman influences on money, law, and commerce in the United States. The United States has always stamped Latin affirmations on coins and currency to try to lend legitimacy to its money. United States law, like law in most places, is loaded with Latin phrases and Roman legal principles.

The root problem with this side of the legacy of Rome is that the Roman Empire was out to cheat the whole world with its control of the common currency and a habit of exploitation of legal ambiguity. The successors to this tradition are found on Wall Street. The U.S. dollar is the currency of reference for international transactions almost everywhere in the world. Meanwhile, Wall Street banks have become more than notorious for a pattern of surprising their customers and trading partners with unexpected interpretations of contract language. Every day, lawyers of Wall Street banks are in court explaining to a judge how a contract allows them to assess a fee that the contract never mentions or why they are exempt from living up to their side of a deal because the words in the contract do not mean what they seem to mean. It is as if the Roman Empire never left us.

The corporate news media has whined for two months about the supposed lack of specificity in Occupy Wall Street’s positions. There can be no doubt, however, that the protestors are railing against greed. I believe they are speaking specifically against the kind of greed that leads powerful institutions to cheat people left and right, and a system that allows this kind of greed to operate unchecked. They are protesting, in short, against the modus operandi of the Roman Empire.

This particular influence of the Roman Empire has been with us for 30 lifetimes. It is hard to imagine a world without it. Yet other vestiges of the Roman Empire have fallen away over the past centuries, and looking back, we find it hard to believe people used to act in such an antiquated way. This one will fall away too.

Plastic Going to Waste in Ireland

2011-11-16T07:00:00.001-05:00

The Edie story “Ireland poor on plastics recycling despite manufacturing demand” highlights a vexing and ironic problem. Ireland needs recyclable plastic as a raw material and imports it by the shipload from other countries. At the same time, it discards three fourths of its own waste plastic, with most of it going into landfills.

This is a multi-billion-dollar problem in Ireland alone, and on the face of it, it is a mostly solvable problem. Plastic is everywhere you turn and costs $1 per kilogram or more, but getting the waste plastic to the right factories just an old-fashioned logistics challenge. The persistence of big problems like this goes to show that the economy is far from optimized. There is still plenty of room for improvement at a basic level, before you have to resort to anything fancy or risky.

Google Is Tracking My Location in Real Time

2011-11-15T07:00:00.002-05:00

A week ago today, when I attempted to sign in to Blogger to write my post in this blog, Google asked for permission to do something no one else had ever suggested to do. Google wanted to track my location in real time and pass that information along to unspecified third parties (i.e., anyone in the world). I would have assumed those third parties would be advertisers — like the local retail locations that want to advertise to people specifically when they are already in the neighborhood — but that wasn’t the language Google was presenting me with. They were essentially asking if it was okay with me if they could tell the whole world where I was from moment to moment. I don’t have a way to recover the exact text of Google’s request, which is a problem in itself, but that is the gist of it.

Until I agreed, I could not sign in. I could not access any Google services at all: not YouTube, not Google Plus, not Google Checkout. I faced a difficult choice: I could let Google, in effect, stalk me, or I could say goodbye to all of these services permanently.

Obviously, since you are reading this, I clicked the button to give Google the permission it was seeking. But since then, I have been having misgivings about it. It does not seem like an entirely fair trade. It is not that I don’t value Google’s services. But personal security is valuable too. It is perhaps more valuable than all information services combined, and there is no such thing as personal security if potentially the whole world can know where you are and where you are going at random times. And if this is a minor concern for me, something that is still bugging me a week later, there are others for whom it is a very big deal: corporate executives, minor celebrities, and Occupy Wall Street protesters, to name a few.

I haven’t seen any indication that Google is abusing its personal location tracking abilities, but on the other hand, that is not the kind of information a big, powerful corporation would tend to broadcast. And even if Google itself doesn’t use personal data indiscriminately, what of the marketing partners that it is sharing people’s location data with? We can hardly form an opinion about them, not knowing the first thing about who they are, or who they might be in the future.

I dug into Google’s privacy policies in the hope that they might shed some light on the subject. Although they run to hundreds of pages, they are strangely silent about Google’s uses of personal location tracking. However, they do contain this cautionary note:

Certain of our products and services allow you to interact and share your information with others. Please consider carefully before disclosing any personal information or data that might be accessible to others.

In that spirit, I am considering what I might do to share less of my location data with Google. I am not suggesting that I could stop using Google entirely. But it seems only prudent to look at alternatives and find the easiest ways to cut back. If I am connected to Google services only intermittently, and never all day long, then Google or its partners can’t produce a coherent narrative of my comings and goings.

When I started to look for alternatives on Saturday, I found that Google’s users have more choices than ever. Years ago when I signed up for Google Mail, it was the only email service of its kind. Now there are hundreds. Similarly, Blogger has gone from being one of the more powerful blog engines to merely being one of the more convenient. Google itself has an engineering initiative, Data Liberation, to help users extract their data from Google products so that it can be taken elsewhere.

As an easy first step, I deleted everything from Google Docs and Google Mail. That took 10 minutes. I removed Google Mail from my mobile phone, replacing it with another email account. Ten more minutes. I am trying to develop the habit of accessing all my Google stuff, including web searches, at once, especially at night or early in the morning. That alone may reduce my Google footprint by nearly a third. If the Google tracking problem continues to bug me, I may do more.

Jefferson County: Another Greece

2011-11-14T07:00:00.003-05:00

At first glance, the bankruptcy of Jefferson County, Alabama, the county that includes Birmingham, looks like a repeat of Harrisburg, Pennsylvania. In Harrisburg, it was the failure of an incinerator overhaul that left the city insolvent. It was an isolated case, since so few municipalities have incinerator overhauls that run into problems. In a seeming parallel, it was a sewer project that caused the financial problems in Jefferson County.

But look closer, and it is not the same at all. Jefferson County’s problems were not so much with the sewer system itself, which is working essentially as planned, but with a badly mismanaged bond issue.

The bungled bond deal was one that Wall Street had its hands in. And Wall Street has its hands in a lot of things. Essentially, Jefferson County is not another Harrisburg, but another Greece. An order of magnitude smaller, but the same essential dynamic.

Jefferson County is obviously not the only place where financiers and officeholders had private profit on their minds. The outcome there lends credence to the thought that there may be a flood of local government bankruptcies in the next three years as the U.S. economy goes through a new series of stresses.

Fall Arctic Ice Falling Too

2011-11-13T06:30:00.017-05:00

The NSIDC Arctic sea ice extent graph has been tracking with the 2007 graph all year. Occasionally it has popped lower to set a new record low. That appears to be happening again now, with ice growth flattening since Thursday to track slightly below the record from 2006. Fall had been the one season in which Arctic ice extent was only modestly lower than the historical record, but now fall too is opening up a conspicuous gap from its pre-2000 record.

More Steps to Reduce Corporate Control

2011-11-12T10:38:00.076-05:00

Bank Transfer Day saw people moving their bank accounts to their own towns. It was meant as a blow to the big corporations the seek to manage people’s lives from far away.

A week later, people may be wonder what else they can do. At AlterNet, Anna Lekas Miller suggests “3 More Ways to Move Your Money Away from Corporations”:

Buy local.
Buy union made.
Buy green.

Bank Transfer Day is just one of the first big successes of what will become a sweeping movement: a movement of individual actions to reduce the centralized control of the global economy. It is a reaction to a growing problem: as more economic decisions are made by fewer people paying less attention to the circumstances of people’s economic lives, errors and dysfunction are growing and breaking points are occurring more frequently.

This dynamic explains why a group of bankers could imagine it made sense to charge customers who can’t necessarily afford it, $5 a month for a non-service in order to fund bonuses for bank executives — the specific outrage that fueled Bank Transfer Day. It didn’t occur to the executives that $5 a month was enough money to matter to anyone. That kind of error is inevitable when decisions are entrusted to a committee of millionaires, sitting around a table with no view of the street, or any group equally removed from the real world. Equally clueless business decisions are made every day by corporate executives and committees that are so out of touch with the way the world works that they don’t understand the harm they are doing.

We can’t individually stop the dynamic of central control of the economy, but we can reduce our personal involvement. It is hard to know what specifically to do because almost everything a corporation does happens behind closed doors. Just to find out what products a corporation makes is a challenge. But we can start with what we do know, and add more as we go along.

For now, I will add three more suggestions of my own, suggestions that aren’t specifically about money:

Cook your own food.
Stay healthy.
Spend less time watching commercial television.

None of these are meant as rules to follow all the time. But each time you can solve a problem outside of the corporate scheme, it reduces corporations’ grip on the world and their influence on your personal life.

This Week in Bank Failures

2011-11-11T09:05:00.000-05:00

European leaders have begun talking quietly about breaking up the euro. The big winner in that scenario would be the larger banks — those that survived the initial turmoil, that is. Banks would gain about $2 billion per day in fees for currency exchanges that don’t have to be done in the euro zone. Wall Street would stand to gain an additional $1 billion per day in currency trading by manipulating exchange rates.

Those keeping score on Bank Transfer Day, a week ago tomorrow, say it was a big event, with a quarter of a million U.S. customers setting up checking accounts at new banks and credit unions. The amount of money moved on Saturday was only a few billion dollars, but partly that is because many participants were more focused on opening the new accounts than on closing their old accounts. Consumers wanting to minimize the frictional costs of moving their banking will continue to write checks on the old checking account until its balance dwindles, while doing all other banking at the new bank.

One small bank failed in Georgia. Community Bank of Rockmart‘s single location will carry on as a branch of Century Bank of Georgia, which is assuming the deposits and purchasing two thirds of the assets. The failed bank’s emphasis on commercial real estate was its undoing, according to regulators. It also suffered from inauspicious timing. It launched in May 2005 and opened its permanent location in March 2006, just at the time when the Georgia economy and real estate market were coming apart.

The bank closing occurred last night, not on the usual Friday night, because of the holiday today.

Keystone XL Pipeline: Unofficially Canceled

2011-11-10T14:38:00.001-05:00

Officially, the announcements about the Keystone XL Pipeline project are noncommittal. The State Department’s Inspector General is looking into the serious irregularities in the overview of the project, which include public hearings run by lobbying firms instead of government officials. According to reports, the White House has decided to look into an alternate route for the pipeline that would have a reduced threat of environment damage, and that is expected to be announced to the public this afternoon.

Changing the pipeline route won’t change much, though. There are problems with the route, but the fundamental problems with the pipeline are economic. The oil fields in and near Alberta will deliver only a modest amount of oil, and at a higher cost of extraction than the world’s currently active oil fields. With those limitations, the Alberta-to-Texas route doesn’t much any sense, unless you’re the owner of a refinery in Texas. The project stands a better chance of financial success if the oil doesn’t have to be carried the length of the continent for refining. The oil could easily be refined and used entirely in western Canada and the adjacent border states of the United States.

The premise of the project, of a massive public effort on behalf of an ill-conceived project that will only benefit a few people in Texas, helped to inspire a large-scale protest action last weekend, in which protesters circled the White House while carrying a large balloon in the size and shape of the proposed pipeline. The Texas oil refineries’ hope of getting the project quietly approved have obviously failed. Realistically, the announcement of a delay can be understood as a way to quietly cancel the whole project after the 2012 U.S. elections.

Confidence and Ability Are Overrated

2011-11-09T21:51:00.000-05:00

Two current stories show that two of the most important personal attributes according to folk wisdom and management theories — a record of achievement and an air of confidence — don’t guarantee meaningful results. In Italy, the billionaire-investor running the country is prepared to throw up his hands in defeat and step down from his post. At Adobe, 750 layoffs are on the way as the company abandons plans to be the go-to source for cross-platform user interface development. Adobe had huge successes with software in the past but, despite a massive effort, couldn’t deliver a competent development environment. Berlusconi’s history proves he knows how to handle money, but he couldn’t find a solution to his country’s financial woes.

Credit Card Strategies for an Imagined Expansion

2011-11-08T11:54:00.000-05:00

Consumers this month have been cutting up their credit cards for Bank Transfer Day. At the same time, several of the largest credit card banks are in the middle of the biggest marketing push to sign up new customers for credit cards. When you hear this, it almost sounds as if credit cards are a good deal for banks and a bad deal for consumers.

But wait a minute. Just last year the banking industry was screaming about how much money they would be losing on credit cards after the new rules went into effect.

These banks involved in this reversal of strategy either were wrong last year when they imagined that credit cards would become a money-losing business, or are wrong now to spend around a billion dollars to sign up 2 or 3 million new cardholders.

The worrisome thing about the new credit card rush is that the economic forecasts it is based on might be mistaken. The banks are particularly eager to sign up new cardholders now because they imagine the economy and job market will have to improve soon. The most eager adopters of this fall’s credit cards will be using them on the same theory. It is the same error, of course, that created the home mortgage mess six years ago. Maybe the economy will be booming again next year. But if it is not, the consumers and banks who make a move into credit cards now may just be creating the next credit mess.

Why Large-Screen TV Prices Are Falling

2011-11-07T14:23:00.000-05:00

The 3-D fad is over. In the television business, the main focus has returned to large-screen televisions this Christmas season. But most American households that had a use for a large-screen had already purchased one by 2010.

When manufacturers are trying to keep selling into an already saturated market, that is reason enough to expect big price cuts. And there is another, more fundamental reason for lower prices of televisions this year. Engineering and design improvements have improved the manufacturability of the video displays. Flat-screen televisions now cost less to make than they ever did.

But even prices as much as 40 percent less than two years ago may not spur enough demand to sell all the televisions that manufacturers can make. Consumers who purchased a television within the last three years will subconsciously avoid the television promotions in stores, not eager to discover that the unit they paid $4,000 for is now worth less than $2,000. With banks in the news again, many households will think twice about making a frivolous purchase on a scale that resembles a monthly mortgage payment, perhaps opting to delay until the mortgage is paid off.

This, then, could be the last year in which large-screen televisions dominate Christmas-season store layouts. Everyone who was holding out will have a chance to buy a large-screen television in the after-Christmas, pre-Super Bowl sales of January. After that, manufacturers will have to cut back on production, and retailers on floor space, to a scale that fits a replacement-cycle product.

Starting a New Chapter, Today

2011-11-06T11:45:00.001-05:00

This month I am participating in National Novel Writing Month, better known as NaNoWriMo. I will attempt to write a 50,000 word first draft of a novel during the month of November. Every year, tens of thousands of novels are written this way. I have never written a full-length novel before, but I have written plenty of nonfiction books and short fiction, not to mention this daily blog, so there is little doubt that I will now be able to write a full-length novel. The only suspense is the question of how well I can do it in one calendar month.

One of the advantages of writing a novel this quickly is that the story can’t get boring. Thus far, I have written five chapters in five days, and to finish the novel during the month, I will have to continue writing nearly one chapter per day.

In the traditional novel form, and in the novel I am writing, each chapter is a new threshold. That is, the lives of the characters change just enough during the course of a chapter that the events of that chapter could not occur in the same way in the previous chapter or the next chapter instead. This convention gives rise to a familiar life metaphor.

There are actually two familiar metaphors or cliches that come from the experience of a novel. You “turn over a new leaf” or “turn the page” when you change a single habit or let go of something from the past. This level of change in life is like going from the right-hand page in a book to the left-hand page that follows on the other side of the same sheet of paper (called a “leaf” when it is bound into a book).

A bigger change, when you change your way of living so much that the previous pattern of daily action is no longer possible, is “starting a new chapter in life.” You might move to a new town, get divorced, start college, quit smoking, or change careers. People think of these big changes occurring only every couple of years. We all know people who have gone twenty years or longer without this level of change in their lives. On the other hand, there are also times when change is forced upon us, and we start a new chapter in life whether we are ready or not.

This especially tends to happen to characters in novels. In the novel I am writing, the main character has gone through five chapters in less than a month. As the writer, I have had to experience these new chapters on a daily basis in my imagination in order to write the narrative that forms the novel. It is not necessarily easy. I spent Friday getting comfortable with the idea of working on a road maintenance crew on a remote highway, only to wake up Saturday and have to follow a rumor that spreads through a town overnight. The pace of NaNoWriMo does not allow me to stand still long enough to get completely comfortable with the circumstances of any one chapter. I must move on as surely as the sun rises if am to reach my destination by the end of the month.

But I can do that. It is not so easy, but it is not so hard either. And if I can do it in my imagination, as a would-be novel writer, I must also be capable of doing it in my actual life. The imaginary mind is the same mind as the real-life mind. If I can imagine something in enough detail that I can write it out coherently in 2,000 words, then I can imagine something else in enough detail that I can live it all day long.

Furthermore, if this is a possibility for me, then it must also be a possibility for people in general. We are all capable of advancing from one stage in life to the next without the need for a long pause of years or decades in between. We can experience a threshold change between one day and the next.

If we have this capability, why do we employ it so infrequently? Well, why did I wait until November and NaNoWriMo to write my first full-length novel? Often, we are just waiting for life to tell us it’s time.

But more than that, it is a matter of doing the work. It is one thing to say, “Yes, I really want my life to change. Yes, I really, really want to change.” It is another thing to apply a disciplined imagination to your objectives, to spend hours working out the details of the next step forward in your life, giving it enough attention that it forms a picture consistent in itself and consistent with where you are arriving from.

Who has the time to do all that? I am only doing it today, for my novel, because the NaNoWriMo schedule says I have to finish during the month of November. But if you decided that you could take the time, it seems to me, you could start a new chapter in your life today.

And then, if you could spare the time again, you could start another new chapter tomorrow.

Bank Transfer Day

2011-11-05T21:07:00.001-04:00

Bank Transfer Day, today, was apparently not the anticlimax that most observers had expected. Probably 2 or 3 million consumers and a significant number of small businesses had already moved their accounts, including about $30 billion in deposits, from Wall Street banks to local community banks and credit unions before Friday, so how many could be left to make the move on the actual day?

There nevertheless was a lot happening today. At least three of the top 19 banks shut down large parts of their online banking systems for the weekend. The banks were pleading “scheduled maintenance,” and I am sure they did take advantage of the shutdown to do maintenance, but when a routine four-hour maintenance window gets expanded to more than 40 hours, you can be sure that more than maintenance is going on.

Banks are restricting their online access to try to force leaving customers to go to branch offices, where they hope to talk them out of closing their accounts. There is little the large banks can say to their departing customers, though. For the average banking customer, any bank will do — the most expensive banks don’t really offer any advantages over the least expensive ones. Consumer advocates promoting bank transfer day anticipated this kind of friction from the banks, and had this simple advice: wait a few days if that makes it easier. The objective of the day is not to suffer or be inconvenienced, but just to move your money.

The media seemed to focus mostly on the Occupy protesters, particularly major marches in Los Angeles and Portland, Oregon. There were coordinated “marches” to bank branches in dozens of cities, leading to at least five arrests. Police in Dallas use force and pepper spray to clear protesters and others from a sidewalk in front of a bank branch, but that was apparently the only mass violence.

There was some spillover into the United Kingdom and Canada. Wall Street banks obviously don’t own half the bank branches in those countries, but still, some banks are more local than others, and some people were moving their accounts or out on the street protesting.

Protests might make the news, but the most important actions were done by the smallest groups of two or three people going to the bank together for moral and logistical support. Early estimates suggested that between 50,000 and 100,000 people would move their checking accounts today, but reports on social media suggest a number larger than that, along with a surprising number of credit card cancellations, perhaps as many as a million. The credit cards are mostly symbolic — Americans hold far more credit cards than they actually use — but even symbolic actions can help people form new habits of action.

The giant banks may not financially miss the deposits they are losing today, but they are showing that they are worried about losing customers. They take for granted the chance to advertise potentially expensive services to their customers, and that is a window of opportunity that is shrinking today.

This Week in Bank Failures

2011-11-04T22:10:00.000-04:00

Among the other developments this week in the financial situation in Greece, we learned that Greece is now a de facto European colony. Politicians in Germany and a newspaper in London called for the cancellation of a referendum in Greece and the removal of the prime minister, and tonight, indications are that Greece will be complying.

But it is not as if Europe has won a victory over Greece. If EU leaders took a hard line from the beginning in their dealings with Greece to try to strengthen their central control of Europe, the strategy has backfired. A series of increasingly clumsy interventions has turned an awkward situation into a disaster, and the European Union and IMF are to blame for most of the damage: a depression gripping Greece while half of Europe’s giant banks face insolvency. That’s a fate that this week claimed MF Global, a Wall Street hedge fund (confusingly, and perhaps improperly, organized as a brokerage) after it took losses on European bonds that declined in value as a result of European mishandling of the situation in Greece. Some of the banks in Europe could be in equally dire condition for the same reason. Now having a history as agents of disaster, the EU is left with a very small platform from which to manage the European economy. For the next 20 years at least, the EU will be hearing from member states and bank executives, “We can’t go along with that — look what happened to Greece.”

There was talk this week of expelling Greece from the euro zone. That is something that, legally speaking, can’t be done, but if Greece is now a colony with only shreds of democracy and sovereignty remaining, the law will not be an obstacle. Extricating Greece from the euro, if that has to be done, will precipitate the biggest banking crisis in the history of the euro, if not the history of Europe.

AIG slipped farther from profitability in the latest quarter with big losses in its insurance businesses on top of its usual losses from unwinding and restructuring. AIG opted to retain a 33 percent share of AIA, the east Asian life insurance unit it spun off a year ago, and that’s a decision it may be regretting now. The AIA shares have declined 20 percent from their summer peak, and AIG must now raise $7 billion to repay a note it used to retain the AIA shares. In its airplane leasing business, AIG is forced to recognize losses as it retires more of its airplanes, which have a book value that is far higher than their commercial value. All this noise obscured dismal results in AIG’s core U.S. insurance operations. There, losses were not awful, but revenue growth is unlikely and the prospects for profitability are not particularly strong. AIG remains mostly owned by the U.S. Treasury, which stands to record a huge loss as the company fades.

Bank Transfer Day is tomorrow, but most supporters have already moved accounts from Wall Street banks to credit unions and local community banks. The campaign is a big deal for credit unions. The Credit Union National Association (CUNA) is telling us that credit unions gained 650,000 new customers in October — a year’s worth of new customers in one month. Similar numbers are possible again this month. Bank Transfer Day is a social-media movement specifically promoting credit unions over Wall Street banks, but a larger number of consumers are moving their banking to local community banks. All this consumer action is motivated mainly by the fear of new fees from the larger banks, and it is being supported by both industry groups and political groups.

Almost half the accounts Wall Street has lost so far were at Bank of America. Its CEO on September 29 announced a crackdown on its debit card customers, who he characterized as freeloaders mooching off of the banking network without paying their share of the costs. A follow-up “p.r. offensive” in October failed to convince anyone that consumers are being unfair to Bank of America. In surveys, only a small fraction of the bank’s customers said they would pay the new fees. About two thirds said they would move their accounts or turn in their debit cards. Bank of America was emphatic this week when it announced it had had a change of heart about debit cards, but not all of its customers are convinced, and the outflow of deposits from Bank of America shows every sign of continuing.

Reclaim the Dream is also asking supporters to take the additional step of closing credit card accounts at Wall Street banks. Credit cards haven’t had nearly the level of public discussion this year that they had last year, but indications are that hundreds of thousands of supporters are closing credit card accounts this week at Wall Street banks, mostly at Bank of America and JPMorgan Chase.

Tonight at closing time state banking regulators closed two small banks, each with less than $200 million in deposits.

The more interesting and complicated case is SunFirst Bank, with three branches in Utah. Cache Valley Bank is acquiring 91 percent of the deposits and 88 percent of the assets. The FDIC is retaining 9 percent of the deposits, in accounts that are frozen by litigation. The bank was either mixed up in or a victim of two criminal cases that federal authorities are pursuing. One group was operating online gambling sites. Gambling sites are illegal in the United States anyway, and to make matters worse, some sites may also have been stealing money from their customers. A vice chairman at the bank had already been indicted for his alleged involvement in disguising illegal credit card transactions for gambling sites. The indicted vice chairman is also said to be associated with the defendant in the other case, involving a fraudulent payment-processing operation that the Federal Trade Commission says fabricated credit card transactions in order to steal money from cardholders and their banks. The frozen accounts are probably related to these two cases.

The problems at SunFirst prompted the FDIC in January to issue a warning about the risks to banks that process money-laundering transactions, something that can occur whenever banks fail to determine the identities of their customers. Around the same time, the FDIC issued an order barring SunFirst from processing most kinds of third-party payments. The FDIC’s warning to other banks carries more weight tonight now that SunFirst has failed.

The smaller bank closing tonight is Mid City Bank, with five branches in Nebraska. Purdum State Bank is acquiring the deposits and assets. There is a twist here too. Tomorrow when the acquired branches reopen, Purdum State Bank is changing its name to Premier Bank.

The Drug Candidates

2011-11-03T23:09:00.001-04:00

Maybe it was a publicity stunt. After all, 100,000 people have viewed a speech presidential candidate Rick Perry gave last week. They are watching to try to determine whether he was stoned or not, but they are watching. Another 2 million have watched highlights of the speech, which give essentially the same impression as the full speech. Search YouTube for “Rick Perry drunk” and you can find all this easily. The debate over whether Perry was under the influence of alcohol and/or a controlled substance rages on, a week later, and it’s probably one of those questions that will never be definitively answered.

What you can say for sure when watching Perry’s speech, though, is that he was having trouble keeping a straight face. That he wasn’t feeling the kind of respect for the audience that normally goes with political speeches. That his speech was slurred, with words running together, key consonants missing, and misplaced emphasis in almost every sentence. That the audience, consisting largely of his own supporters, was embarrassed and uncomfortable for most of the 25 minutes. Perry may or may not have been on drugs during the speech, but he was presenting himself as a man who was.

Drug use of another kind turned up in what is officially considered a campaign advertisement for Herman Cain, but what is in practice a tobacco advertisement. It consists of little more than a campaign staffer puffing on a cigarette. Search YouTube for “Herman Cain smoking” to see this one. Tobacco companies are not allowed to present television commercials that show people smoking, but they are permitted to funnel unlimited sums of money to candidates who do so. It is the kind of loophole that a man who is not serious about running for president might employ.

A public opinion survey found that the Cain advertisement made most voters uncomfortable, including voters of his own party. Viewers saw the commercial as an endorsement of cigarette smoking and didn’t feel that promoting tobacco use was a proper part of political discussion.

In both cases, candidates are associating themselves with the idea of drug use, and voters are uncomfortable and resisting that message. People don’t believe drugs are the answer. But there are political candidates who are willing to give drugs a try, at least as a political strategy.

Return of the Credit Card?

2011-11-02T17:55:00.000-04:00

Major banks are trying to use the recent controversies surrounding debit cards to their advantage, with a major push to sign up new credit card customers. The theory, apparently, is that consumers who get frustrated with debit cards may use credit cards instead, and it not an entirely unreasonable thought. From what I have heard, highly qualified prospects have received a year‘s worth of credit card offers in the past seven weeks, and other prospects have also received an unusual volume of card offers in the mail.

There is little evidence, however, of a big move by consumers to credit cards. To the contrary, many people are making a point of canceling credit card accounts issued by the major credit card banks in connection with the Bank Transfer Day, Move Your Money, Reclaim the Dream, and Occupy campaigns. Separately, I have seen some indication of people who now see paying in cash as a political statement. “Pay in cash and stick it to the man,” is the way one friend explained this concept to me. Ironically, paying in cash is being used to make the same statement that others are trying to make by boycotting government-issued cash and paying in alternate currencies, usually involving silver coins. Either way, part of the idea is that this keeps more of the money in the local economy, and on the surface, this seems likely enough.

Banking Giants Show Lack of Pricing Power

2011-11-01T17:31:00.000-04:00

It seemed like the largest banks had a sure-fire way to raise a few hundred billion dollars. Monthly fees on debit cards would be their new cash cow. Consumers, after all, need their debit cards, and they couldn’t easily leave a bank to avoid the new fees if the other banks were charging something similar. It would be the same kind of windfall as the 3 percent transaction fee the giant banks added to foreign-country credit card transactions nine years ago.

Yet this new transition didn’t go smoothly at all. While other banks were “experimenting” with the new fees, Bank of America went charging ahead with the announcement of a $5 monthly fee. Most of its customers made plans to switch banks. Some switched from cards to cash. Push came to shove last week, when Bank of America went on a self-styled public relations offensive to justify its high fees while several other banks quietly withdrew their debit card fees. Today Bank of America realized it was out in front all alone, walking itself to the slaughter. It announced a change of heart.

It may be too late to repair Bank of America’s image or its stock price, which fell when the new fee was announced and fell again when it was canceled. Bank of America may already have lost more than a million customers, and there will be more when customers get around to it. CNN has already run its program to show viewers how easy it is to change banks. Consumer activists are going ahead with this week’s Bank Transfer Day which encourages consumers and small businesses to move accounts to local credit unions. Credit unions have gotten a fortune in free publicity from the controversy, and there, the main point that has finally sunk in with consumers is that credit unions are simpler than banks.

Banking customers who are worried about new fees will just go ahead and switch regardless of the fate of this one fee. The fact is that the largest banks have the largest expenses and have no other choice but to raise fees somehow. Customers who stay with these banks will be facing a new fee every year. They can either stay put and deal with the next fee when it comes along or switch now to a bank that isn’t so expensive to operate or so difficult to do business with. Consumers have learned that they do have choices when it comes to banking. Knowledge like that can’t be undone.

For the banking industry, this episode is a rude awakening, or at least it should be. The noisy consumer resistance proves that banks have lost the pricing power that they enjoyed up until last year. The banking giants can no longer simply budget how much consumers will pay, nor can they sit in the back rooms and divide the consumer market up among themselves. They now have to compete. They can charge only what the market will bear. If their costs are too high, they have the option of shutting down. The U.S. banking industry as a whole hit its 2007 peak overextended by about 30 percent. If cutbacks have been slow to come, it is because customers have been content to stay put. But now, that appears to be changing.

MF Global Fails

2011-10-31T12:40:00.000-04:00

Investors knew all was not well at MF Global. Its stock price tumbled last week, giving it a market capitalization of $200 million, not much when compared to $40 billion in assets. Headlines on Friday said customers were starting to walk. The company was in much worse shape than it appeared, and the first concrete evidence of trouble came this morning when the New York Fed and New York Stock Exchange suspended the company. Since then we have learned that buyout talks over the weekend did not progress far and after continuing late into the night, were called off at 5 a.m. so that the company could prepare its bankruptcy filing.

Though classified as a broker-dealer, MF Global was operating more in the manner of a hedge fund toward the end, with a startling $6.3 billion in exposure to European sovereign debt. Wall Street will try to shrug off its bankruptcy as the equivalent of a hedge fund liquidation. But it will be expensive for JPMorgan and Deutsche Bank, each of which are owed $1 billion, according to the bankruptcy filing.

The MF Global bankruptcy won’t completely undo Wall Street’s stock trading gains this month, but it is another reminder of how fragile the big-money financial web can be.

Look Mom, No Cards!

2011-10-30T10:44:00.000-04:00

At the beginning of September I decided I wanted to try not to use my credit cards for point-of-purchase payments. I don’t have a debit card, so this meant paying mostly with cash. I had a handful of credit card purchases in September, but this month, there were hardly any. I went shopping less than ten times this month and paid in cash. I used my credit cards mainly at the gasoline pump. I also used them to buy postage, both online and at the post office.

I made only one online purchase this month, and I paid for it with a PayPal balance that came from a customer who made an online purchase from me. I am not a big fan of PayPal in its current form but I have to admit it is a very efficient system when used this way.

The latest quarterly reports from the credit card companies show a marked softness in transaction volume. Part of the reason is that people are making fewer shopping trips to save fuel. But part of it must also be that some shoppers are paying in cash more often. With banks planning substantial increases in fees for using debit and credit cards and transaction fees for checks, cash is showing a new advantage in transactional efficiency.

Leaving the Heat Off

2011-10-29T14:32:00.116-04:00

Again this fall, I have kept the central heating in my house off, heating only the rooms I am actually using and only for as long as necessary. The weather has helped. Locally it has not been particularly warm or cold, and with wetter weather than usual there hasn’t been the usual October freeze.

I am not the only one taking this approach. A partial approach to home heating is still unconventional enough that people who do it don’t brag about it. But I have been relatively forthright in explaining to people that I spend the colder weather mostly in one room in my house, the office, leaving the rest of the house essentially unheated, and more people this year have been responding by telling me how they are doing variations of the same thing.

For some, the kitchen is the room they prefer, and that, of course, is the old way of doing it. It makes perfect sense if you have a supply of firewood (easy to come by in this neighborhood) and a wood-burning stove in the kitchen. A century ago, the average house did not have central heat, and huddling in the kitchen or around the fireplace was a necessity in colder weather.

For me as a writer and computer programmer, it is easiest to huddle at my desk. I can easily close the office door and focus on writing — something I would want to do soon enough anyway.

Measures of oil consumption in particular bear out the suspicion that people are leaving the heat off. This decline in energy consumption is one of the reasons the U.S. trade deficit has backed off from its previous record levels.