Britain Grows Tea

It is hard to picture Britain without tea. It is, after all, the only country where “tea” is the name of a meal. Yet all that tea is imported. For generations, it came from colonies that were prized mainly for their ability to supply tea, such as India. Britain itself was too cold to grow tea, until now.

A tea farm in the far south of England is growing Britain’s first domestic tea. Reuters reported on this trend in a Thursday story, “Climate change brings tea and apricots to Britain.” Britain’s first tea farm got off to a slow start in 1999 but has seen its harvest grow to an expected 10 tons or more this season. That is bigger than it sounds. If a teabag is 2 grams, that’s 5 million cups of British-grown tea this year.

The tea farm in England is not just a reflection of climate change. It also shows the effects of the increasing costs of transportation. Tea is not very heavy, but even tea is costly enough to transport that it is worth the effort to try to source it closer to home.

Cars Move Forward in News Hole

Yesterday, while the news media was so obsessive in covering the lack of action on the U.S. government debt ceiling that even news junkies were starting to zone out, the White House took advantage of the news hole to release new efficiency standards for automobiles. This is an action that is far more consequential than anything than happened yesterday in Washington on budgetary and financial matters, because it sets a 14-year goal to double the average fuel efficiency of cars. The White House estimates this will save consumers $1.7 trillion during that period, and of course, the savings are higher going forward as more older cars are replaced by electric cars. This estimate is based on assumptions about how far people drive, how rapidly they replace their cars, and the price of oil, but never mind that: you end up saving more in total if you skip some trips and wait a few extra years before you replace your old car. Of course, the higher oil prices go, the more fuel efficiency matters. The point is that the country can save a fortune in energy imports just by moving forward on automobile technology, and it’s a progression that’s absolutely necessary to return the U.S. economy to an even keel. One hopes that it won’t really have to take 14 years to get there, but if so, it is better to start now.

A quick look at the amount of money at stake, remembering that nearly half of U.S. imports are energy, shows that this is a bigger deal than the fiscal strategy negotiations going on in Congress. It puts that conversation in a different light: the federal budget is such a difficult problem only because most of the solutions have been taken off the table. Of course, fuel efficiency is not just about money. The carbon dioxide emissions that are involved are a matter of concern in their own right, all the more so this year with the North Pole at risk of melting out.

Positioning this announcement in the news hole, even if that happened by accident, worked well politically. The right-wing political strategists were too preoccupied with their dream of a balanced budget amendment to offer even a feeble push back on the subject of cars. By the time they get around to it, it will be too late. With the policy already in place, they will be trying to take away people’s fuel-efficient cars. With gasoline prices likely to exceed $10/gallon by 2025, drivers won’t give up the promise of fuel efficiency so easily.

This Week in Bank Failures

With some kind of Monday-morning financial train wreck in Washington now looking more likely than not, how would a default or a partial government shutdown affect the pace of bank failures? Much depends on the Fed’s reaction, but I doubt you would actually see more than one or two banks fail after losing liquidity because of problems with Treasury payments.

No, the greater risk to banks comes via changes in consumer behavior when people’s incomes are interrupted. It is important to remember that it is not just federal employees who are at risk, but also employees of state governments, hospitals, and construction contractors, along with retirees, unemployed workers, and others, and the extended families of everyone who is directly affected. The shock to consumer incomes would result in missed loan payments from the consumers themselves, but also from businesses that depend on consumer spending. That, over any extended period of time, could result in a new round of bank failures, and there is little the Fed can do about that. And it is important to note that this is not merely a risk of a government default, but also of the more severe austerity budgets that have been proposed in Congress as alternatives.

As long as there is a sign of a default, banks and money funds will no longer be able to freely purchase Treasury bonds. Some people at Treasury have said that bond auctions will have to be suspended, or at least drastically reduced in size, if the debt ceiling continues to loom, because there won’t be many bidders for the bonds as long as they are considered potentially illiquid.

Regardless of next week’s drama, bank failures rolled on tonight. A $2 billion bank failed in Indiana. The OCC closed Indiana’s Integra Bank, which had 52 branches in 4 states, $1.9 billion in deposits, and $2.2 billion in assets.

Old National Bank, also of Indiana, is paying a 1 percent premium for the deposits and is also purchasing the assets. The $19 million dollar premium (with the exact amount depending on the actual deposit balances today) is, to the best of my recollection, the largest the FDIC has received in the current sequence of bank failures.

A series of acquisitions five years ago, particularly in the Chicago and Cincinnati areas, left Integra Bank off balance and unable to recover from the economic turmoil that was already underway at that point.

The bank was founded in 1850 and named Canal Bank amid hopes that a new canal would lead to a boom in the Evansville economy. But the canal failed in less than 20 years, and the bank changed its name again and again over the years. It took on the Integra name in 1999 along with the goal of becoming one of the largest banks in the country. Instead, by the end of last year, it had a negative net worth and no realistic prospect of digging itself out of its financial hole.

Small banks failed tonight in Virginia and South Carolina. In Virginia, state regulators closed Virginia Business Bank, which had one office, in Richmond, and less than $100 million in deposits. The failed bank will become a branch of Xenith Bank.

In South Carolina, the OCC closed BankMeridian. It had three offices, in Columbia, Hilton Head, and Spartanburg, and $215 million in deposits. It opened in 2006 as the largest new bank in the state’s history, and grew rapidly over the next two years, a disastrous scenario that likely sealed the bank’s fate regardless of what else it did right. Problems in the real estate market that were already evident in 2006 never did turn around, and by betting big as the economy continued to sour, the bank never gave itself a chance to find out what it could do. Although it was making bad loans from day one, it took until the end of 2009 for the bank’s management to realize the trouble the bank was in. The deposits are being taken over by regional bank SCBT, which is also purchasing the assets.

We are nearing the peak of the quarterly bank failure cycle, as regulators react to the financial statements for the quarter that ended four weeks ago. The pace of bank failures is likely to continue for the next five weeks before slowing down for the end of the quarter.

China Implicated in Korea Break-Ins

A CBC story says a series of major Internet break-ins Tuesday in South Korea originated in China. While China is the most common host for Internet crime in general, the shape of this attack would seem to tie it to previous attacks on Google, which were almost certainly state-sponsored. If the snooping on consumers in Korea was also the work of the Chinese central government, it is surprising in how public the operation was and the degree if paranoia and desperation that would have to have been present in the strategic thinking behind it.

Post Offices Closing

A plan to close about 3,000 post offices in the United States reflects emerging efficiencies in retail in general. It is not just that the number of mail pieces is declining, with most personal messages now online. More of the business of mail is being done online too, and when customers do visit the post office, improvements in technology are making the counter transactions go faster.

Post offices are not going away, but some of them have become too small to function effectively as standalone operations. It is the same way that record stores shrank until most of them closed. The USPS suggests that the village post office of the near future will be inside another business, such as a grocery store or drugstore. At the same location you may find a video rental kiosk and a selection of greeting cards — two other business categories that became too small to stand on their own.